Supreme Court New South Wales

• Medium Neutral Citation: Andrews Advertising Pty Ltd v David Andrews [2014] NSWSC 318
• Hearing dates: 3 - 6 February 2014
• Decision date: 25 March 2014
• Jurisdiction: Equity Division
• Before: Darke J

Decision

Second and fifth defendants are liable to account for benefits obtained as a result of breaches of fiduciary duty by second defendant. Second defendant is liable to pay damages for breach of contract, and to reimburse certain expenses.

• Catchwords: EQUITY - fiduciary duties - senior employee of advertising agency - diversion of business - obtaining of personal benefit; EQUITY - breach of fiduciary duties - accessorial liability - "second limb" of Barnes v Addy - knowing assistance - whether assistant had requisite knowledge; REMEDIES - account of profits - benefits received by defaulting fiduciary and by knowing assistant; CONTRACT - contracts of employment - restraint of trade clause - restraint preventing involvement in other advertising agency business - breach of restraint - whether restraint enforceable - s4 Restraints of Trade Act (NSW); CORPORATIONS - s183 Corporations Act - employee - improper use of information - wrongful use of information not established
• Legislation Cited: Corporations Act 2001 (Cth), s183; Restraints of Trade Act 1976 (NSW), s4
• Cases Cited: Barnes v Addy (1874) LR 9 Ch App 244; Cactus Imaging Pty Ltd v Peters (2006) 71 NSWLR 9; [2006] NSWSC 717; Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64; [1991] HCA 54; Concut Pty Ltd v Worrell [2000] HCA 64; Del Casale v Artedomus (Aust) Pty Ltd [2007] NSWCA 172; Farah Constructions Pty Limited v Say-Dee Pty Ltd (2007) 230 CLR 89; [2007] HCA 22; Hanna v OAMPS Insurance Brokers Ltd [2010] NSWCA 267; Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41; [1984] HCA 64; Jones v Dunkel (1959) 101 CLR 298; [1959] HCA 8; Koops Martin Financial Services Pty Ltd v Reeves [2006] NSWSC 449; Lindner v Murdock's Garage (1950) 83 CLR 628; [1950] HCA 48; Manildra Laboratories Pty Ltd v Campbell [2009] NSWSC 987; Metcash Ltd v Jardim (No. 3) [2010] NSWSC 1096; Michael Wilson and Partners Ltd v Nicholls (2011) 244 CLR 427; [2011] HCA 48; Miles v Genesys Wealth Advisers Ltd [2009] NSWCA 25; Orton v Melman [1981] 1 NSWLR 583; Sellars v Adelaide Petroleum NL (1994) 179 CLR 332; [1994] HCA 4; Stenhouse Australia Ltd v Phillips [1974] AC 391; Tullett Prebon (Australia) Pty Ltd v Purcell [2008] NSWSC 852; Warman International Ltd v Dwyer (1995) 182 CLR 544; [1995] HCA 18; Woolworths Ltd v Olson [2004] NSWCA 372
• Texts Cited: The Hon William Gummow AC, "Knowing assistance" (2013) 87 ALJ 311
• Category: Principal judgment
• Parties: Andrews Advertising Pty Limited (Plaintiff); David Andrews (First Defendant); Dean Andrews (Second Defendant); Andrews Media & Creative Pty Limited (Third Defendant); Smart Retail Pty Ltd (Fourth Defendant); Danielle Louise Andrews (Fifth Defendant); Smart Market Pty Ltd (Sixth Defendant)
• Representation: Counsel: I M Jackman SC and V Brigden (Plaintiff); Solicitors: Gadens Lawyers (Plaintiff); Second and fifth defendants (in person); Fourth defendant represented by fifth defendant (with leave of the Court)
• File Number(s): 2011/332627
• Publication restriction: Nil

Judgment

Introduction

1 Prior to August 2010, the plaintiff, Andrews Advertising Pty Limited ("the Company") conducted a business of providing media and advertising services. Its two main clients were Lowes - Manhattan Pty Limited and Sleep City Holdings Limited (later known as Furniture and Bedding Concepts Limited).

2 Until mid-2006, the Company was owned and controlled by B M Bridson Pty Limited, Mr David Andrews and Mrs Gillian Andrews. David Andrews was employed by the Company, as was his son, Dean Andrews. The business was effectively run as a family enterprise.

3 In about August 2006, there was a change in the ownership of the Company. A majority of the shares that had hitherto been owned by B M Bridson Pty Limited, David Andrews and Gillian Andrews was purchased by Adcorp Australia Pty Limited ("Adcorp"). The amount paid by Adcorp for the shares was approximately $4.4 million.

4 As part of the transaction, David Andrews and Dean Andrews were required to enter into contracts of employment (styled Executive Services Agreements) with the Company. These contracts included numerous restraints, including against involvement with other advertising businesses, and solicitation of the Company's customers.

5 In July 2010, both David Andrews and Dean Andrews ceased their employment with the Company. At about the same time, the Company lost both Lowes - Manhattan and Sleep City as clients. It ceased to trade in August 2010.

6 In October 2011, the Company commenced proceedings in which relief was sought in respect of alleged breaches by David Andrews and Dean Andrews of their employment contracts and various duties, including fiduciary duties, owed to the Company. Relief was also sought against Dean Andrews' wife Danielle Andrews, and three companies which were allegedly involved in the conduct of David Andrews or Dean Andrews so as to give rise to accessorial liability.

7 The proceedings between the Company, David Andrews and Smart Market Pty Limited have been settled. One of the other defendants, Andrews Media and Creative Pty Limited ("AMC"), has since gone into liquidation. The Company has not sought leave to proceed against it. At all material times, Mrs Andrews was the sole director of, and sole shareholder in, AMC.

8 The Company now proceeds only against Dean Andrews (hereafter referred to as Mr Andrews), Danielle Andrews (hereafter referred to as Mrs Andrews), and Smart Retail Pty Limited ("Smart Retail"), another company with which Mrs Andrews had an association. In about October 2010, Mrs Andrews became the general manager of the business conducted by Smart Retail. In May 2011 she became the sole director of, and shareholder in, Smart Retail.

9 The cases which are brought by the Company may be summarised as follows.

10 In respect of the period from about September 2009 until the cessation of Mr Andrews' employment on 19 July 2010, it is alleged that he breached contractual, statutory (sections 182 and 183 of the Corporations Act 2001 (Cth)) and fiduciary duties which he owed to the Company as an employee, by diverting advertising work for Sleep City (and entities associated with it) away from the Company to AMC, and providing advertising services to Sleep City (and entities associated with it) through AMC. It is contended that the services thus provided by AMC generated income, which was used to benefit Mr and Mrs Andrews, and profits of about $266,000. The Company seeks the remedy of an account of profits from Mr Andrews. Similar relief is sought in respect of Mrs Andrews, on the basis that she was knowingly concerned in her husband's allegedly dishonest conduct. The Company seeks that relief in preference to an award of damages (or compensation pursuant to s1317H of the Corporations Act) in respect of the alleged breaches of contract and statutory duty.

11 In respect of the period from 19 July 2010 to 19 January 2011, it is alleged that Mr Andrews, by continuing to provide services to Sleep City through AMC, and later Smart Retail, breached the restraints contained in clause 11.1 of his contract of employment. Those restraints precluded involvement in the business of an advertising agency. The Company alleges that during that period Mr Andrews also contravened s183 of the Corporations Act. Damages and statutory compensation are sought from him. Statutory compensation is also sought from Mrs Andrews and Smart Retail, who are alleged to have been knowingly concerned in Mr Andrews' contraventions of the Corporations Act.

12 In addition, the Company seeks repayment of about $30,000 from Mr Andrews in respect of a number of items of allegedly personal expenditure which were charged to a credit card facility made available to him by the Company for reasonable business expenses.

13 The allegations of wrongdoing are completely denied by Mr and Mrs Andrews. In short, they contend that Mr Andrews had no involvement whatsoever in the provision by AMC and Smart Retail of advertising services to Sleep City (or entities associated with it), and that no arrangements were made for Mr Andrews to receive any benefit from the provision of such services.

14 It is also alleged that the post-contractual restraints contained in Mr Andrews' contract of employment are contrary to public policy and hence unenforceable, and further, that no personal expenses charged to the credit card are repayable in circumstances where Mr David Andrews was the person primarily liable in relation to the credit card. Issue is also taken with the calculation of the profits made by AMC in the period up to July 2010, and the contention that the Company suffered a loss in respect of the period from 19 July 2010 to 19 January 2011. In this regard, it was contended that Sleep City had already decided to cease using the Company.

15 Mr Andrews also brings a cross-claim, by which he alleges, first, that upon the termination of his employment, he became entitled to be paid 3 months remuneration in lieu of notice, and secondly, that he was entitled to be paid a $50,000 bonus because the Company reached a particular profit level in the financial year ending 30 June 2010.

16 In response to the cross-claim, the Company says that it did not terminate Mr Andrews' employment, but rather he resigned. It is contended that in any event, due to Mr Andrews' conduct, the Company would have been entitled to dismiss Mr Andrews without notice. The Company also disputes that it made a profit sufficient to trigger Mr Andrews' entitlement to be paid the $50,000 bonus.

17 Mr and Mrs Andrews and Smart Retail were initially represented by Duncan Cotterill, solicitors, and later by Farrar Lawyers. Defences were filed for them, and a number of affidavits were served. By the time of the hearing, they no longer had legal representation. Leave was granted to Mrs Andrews (without objection from the Company) to appear for Smart Retail. Mr and Mrs Andrews conducted their own defences. In large measure, Mr Andrews left the conduct of his defence to his wife. For a portion of the hearing a relative of Mrs Andrews, who is a legal practitioner in South Australia, sat at the Bar table to assist Mr and Mrs Andrews.

18 The Company, for whom Mr Jackman SC appeared with Ms Brigden, read affidavits sworn by Mr Craig McMenamin, Ms Mary Hennessy and Mr Mathew Mellor. Each was cross-examined. For the defendants, an affidavit sworn by Mr Andrews was read, as were two affidavits sworn by Mr Peter James. Mr Andrews was cross-examined but Mr James was not. The defendants wanted to read an affidavit sworn by Mr Shayne Klein but could not make him available. An application for his evidence to be taken by audio-visual link was refused. Mrs Andrews elected not to read her own affidavit.

The witnesses

19 I formed a generally favourable impression of Mr McMenamin as a witness. He gave his evidence in a careful and straightforward manner and appeared to be trying to provide accurate answers. He readily made concessions where appropriate (for example, on the issue of Mr Andrews' authority to negotiate an amendment to an agreement between the Company and Sleep City). I regard his evidence as generally reliable.

20 I reached the same conclusion about Ms Hennessy. Ms Hennessy was an impressive witness who demonstrated a good recollection of events.

21 Mr Mellor was in the witness box for only a short time. He appeared to be trying to accurately answer the questions put to him. As was the case with Mr McMenamin, he readily made concessions on the issue of Mr Andrews' authority. I regard his evidence as generally reliable also.

22 Mr Andrews was cross-examined extensively about his activities in relation to Sleep City. As one would expect, he demonstrated a good understanding of the Company's business, and the advertising industry more generally. However, aspects of his evidence were less than satisfactory. Some of these aspects will be referred to later in these reasons. It is sufficient to note here that his steadfast denials of any significant involvement in the activities in AMC (which he claimed was entirely run by his wife save for a couple of occasions when he helped her by forwarding invoices for payment) did not ring true in the light of numerous documents which suggested a much greater involvement on his part. His evidence to the effect that in July 2010 he had no intention of leaving his employment with the Company did not ring true either. Further, the exculpatory explanation he gave in cross-examination for the re-direction of some of Sleep City's work away from the Company to AMC was entirely unconvincing in circumstances where the explanation appeared neither in his Defence nor his lengthy affidavit, and was not corroborated by any witness or documentary evidence. Overall, Mr Andrews' evidence needs to be treated with considerable caution, particularly where it is uncorroborated. Where there is direct conflict between Mr Andrews' evidence and that of the witnesses who gave evidence for the Company, I prefer their evidence which I consider to be much more reliable.

Mr Andrews' position within the Company

23 Mr Andrews commenced his employment with the Company in April 1990. At that time, he was employed as a courier. Mr Andrews subsequently held a number of positions within the Company, and by 2005 had become a General Manager/Senior Account Director. Since 1998, Mr Andrews was the Senior Account Director for Sleep City Holdings Limited and associated entities (for simplicity, hereafter referred to as Sleep City).

24 In carrying out those roles, Mr Andrews obtained extensive experience in advertising, including in graphic design, creative development, strategy, media and account management. Between 1998 and July 2010, Sleep City was Mr Andrews' major client at the Company. By 2009, Mr Andrews was involved in both creative and production work as well as media placement work for that client. There is no doubt that throughout that twelve year period, Mr Andrews acquired a very considerable knowledge of the marketing needs and desires of Sleep City, and developed a familiarity with their marketing and advertising budgets, their desired style of advertising, the effectiveness of its advertising, and the prices which Sleep City was prepared to pay for advertising.

25 It is also clear that over that period, Mr Andrews developed strong personal relationships with relevant personnel at Sleep City. Those relationships were developed, not only through business meetings and functions, but also through social occasions such as birthday and anniversary celebrations. On many occasions, Mr Andrews attended such social functions in the company of Mrs Andrews.

26 As noted earlier, Mr Andrews (and his father) were required to enter into Executive Services Agreements with the Company as part of the transaction in which Adcorp acquired a majority of the shares in the Company. Mr Andrews' Agreement is dated 31 July 2006. It governed his employment from 1 September 2006.

27 Clause 3 of the Agreement made provision, both prescriptively and proscriptively, in respect of Mr Andrews' duties. Those duties included an obligation to use all reasonable efforts to promote the interests of the Company (clause 3.1(c)), an obligation to give the Company the full benefit of his knowledge, ingenuity, experience and technical skill (clause 3.1(d)); and obligations not to act in conflict with the Company's best interests; not to be involved in any business, during normal business hours other than for the Company, or outside those hours that may have an adverse impact on the Company, without the prior approval of the Company; not to compete with the Company; and not to accept any financial or other benefit except from the Company or a related body corporate of the Company (see clauses 3.2(a), (b), (c) and (d)).

28 The title of Mr Andrews' position was not specified in the Agreement but was stated to be one which had direct reporting responsibility to the Chief Executive Officer of the Company. That seems to be a reference to Mr David Andrews. Clause 3.3 provided that Mr Andrews could not bind the Company in contract other than in the usual course of business for the business conducted by the Company and having regard to Mr Andrews' position with the Company.

29 Clause 11 provided for various restraints upon Mr Andrews' conduct. The restraints were expressed to operate during the Restraint Period and in the Restraint Area. The Restraint Period is defined to mean during the period of employment plus six months after the employment ceases, or if that period is adjudicated to be unreasonable, three months after the employment ceases. The Restraint Area is defined to mean Australia, or if that area is not enforceable, then Victoria and New South Wales, or if that area is not enforceable, then Sydney and Melbourne and surrounding metropolitan areas to a distance of 50km from the GPO in each case. The restraints also employ the expression "Restrained Business" which is defined to mean the business of an advertising agency.

30 Amongst the restraints imposed upon Mr Andrews were obligations contained in clauses 11.1(a) and (b) not to:

(a) promote, participate in, operate or engage in (whether on his own account or in partnership or by joint venture) the Restrained Business; or

(b) be concerned or interested (directly or indirectly, or through any interposed body corporate, ... or as an independent contractor, consultant, or in any other capacity) in the Restrained Business.

31 Clause 11.4 provided an acknowledgement on the part of Mr Andrews that the obligations imposed by clause 11 were reasonable having regard to the interests of each party to the Agreement.

32 Clause 9 of the Agreement made provision with respect to termination. By clause 9.1 (which is subject to clause 9.3), Mr Andrews' employment could be terminated at any time by the Company giving him three months' written notice or by paying Mr Andrews his remuneration for three months in lieu of notice. Clause 9.3 provided that the Company could terminate Mr Andrews' employment without notice if, inter alia, Mr Andrews was in breach of any material provision of the Agreement which is incapable of remedy.

33 The Agreement provided for a base remuneration of $200,000 per annum. In 2008, this was increased to $250,000 per annum. In addition, the Agreement provided that Mr Andrews would be entitled to be paid a bonus in certain circumstances. In essence, the eligibility for such a bonus depended upon the Company achieving a profit before tax greater than a particular target in each financial year. The target was sometimes referred to as the agreed annual profit budget. For the financial year ended 30 June 2010, the agreed annual profit budget was approximately $996,000. A bonus of $50,000 was payable in the event that such target was reached.

34 By clause 5 of the Agreement, the Company was obliged to provide Mr Andrews with a Company business card to use for the payment of Mr Andrews' reasonable business expenses.

Services provided to Sleep City from 2006 to July 2010

35 Following the entry into the Agreement, the duties which Mr Andrews undertook for the Company continued much as they were prior to the Agreement. Mr Andrews' duties included the production of advertising material for clients, media negotiations and placements, and general management of the advertising business. It appears that Mr Andrews continued to report directly to his father although, following the acquisition of the Company by Adcorp, the Chief Executive Officer of Adcorp, Mr Peter James, became a director of the Company, and in respect of certain matters Mr Andrews and his father would deal directly with Mr James.

36 In respect of the Company's day-to-day business, decision making was essentially left to Mr Andrews and his father. The line of demarcation between those management decisions and those which required the input of Mr James is not entirely clear, but it would appear that at least matters involving significant expenditure and important contracts with clients would involve Mr James.

37 In about mid-2008, Mr Andrews was informed by the then managing director of Sleep City that Sleep City was going to terminate its relationship with the Company. At that time, there was no agreement in place which bound Sleep City to acquire services from the Company. It appears that the decision to terminate the relationship was grounded in difficult economic circumstances, and the acquisition of Sleep City by a Chinese manufacturing company. Following the decision, efforts were made, particularly by Mr Andrews, to regain the business.

38 In November 2008, arrangements were made for a meeting with the new managing director at Sleep City, namely, Mr Quinn Zhang ("Quinn"). On 24 November 2008, Mr Andrews sent an email to Mr James and Mr McMenamin (who was then a director of the Company and the Chief Financial Officer of Adcorp) which concerned the matters to be discussed at the meeting with Quinn. The email contained the following:

"Further to our conversation in regards to our meeting with the MD of Sleep City / Everyday Living I have listed the points that will need to be discussed at the meeting tomorrow.

Quinn rang me today and confirmed that he will be there for our proposal. ... I can talk to you in more detail about that meeting before midday meeting tomorrow.

The deal would be:

An Exclusive / Full Service Deal with Andrews Advertising for two years. Sleep City/ Everyday Living will receive the following:

1. Credit of one million dollars will be given immediately. An increase to two million dollars (or an agreed amount depending on required amount needed) once their CFO has spoken to our insurance underwriters. (This has been approved verbally with our insurance company but will be depend (sic) on their conversation with Sleep City.) We will let them trade within the insured levels maintaining our credit/payment terms are met.

2. We have offices in Melbourne with a staff of over forty and will appoint a suitable Melbourne account director if needed or can be Sydney/ Melbourne based.

3. Agency Seniors will travel to Melbourne when required for Advertising/ Marketing/ meetings.

4. Once 2.5 million has been reached, we will produce 2 brand TVC's to a value of $100,000 in total.

5. You can have all:

Images - Existing & All New (Copy-write will be assigned to your company)

Creative - Logo's 3D files and Television Branding - We have a lot more of your material than you realise that we can help you with from day one.

...

Benefits that will need to be pushed will be: ...

Expertise in Media - Dean has twenty years experience with very close friends in all major TV networks and Radio - Very competitive rates.

I'll be over at your office at 11am so we can have a pre-strategy meeting before Quinn gets there."

39 It is clear that seeking to recapture the Sleep City business was regarded as a matter of great significance for the Company. Whilst Mr Andrews may have been primarily involved in the discussions with Quinn, it seems that he liaised with Mr James (and also Ms Nettie Burke of Adcorp) about the matter. Moreover, the meeting the subject of the 24 November 2008 email, at which the Company's proposal was made to Quinn, took place at Adcorp's office in Ultimo. There was also a meeting with Quinn at Adcorp's Melbourne office during which a presentation was made by Ms Mary Hennessy of Adcorp concerning the services which the Melbourne office would be able to offer to Sleep City.

40 In the course of the discussions with Sleep City, Quinn informed Mr Andrews that Sleep City had engaged another advertising agency in Melbourne (called Bruise) but that this change had not resulted in any upsurge in retail sales.

41 The discussions with Quinn were fruitful. By December 2008, the Company and Sleep City were in the process of negotiating a Heads of Agreement. From the Company's point of view, Mr Andrews and McMenamin were involved in that process. On 12 December 2008, Mr McMenamin sent an email to Mr Andrews concerning the draft Heads of Agreement. In that email, Mr McMenamin made the point that the provision whereby Sleep City's credit limit would be extended from $1.25 million to $1.5 million needed to be "crystal clear".

42 On 30 December 2008, in the course of the negotiations over the terms of the Heads of Agreement, Mr Kouvardas of Sleep City sent an email to Mr Andrews which set out a number of points he believed needed to be altered. These points were:

"the contract is for twelve months.

anytime after the initial twelve months the contract may be terminated by either party provided thirty days notice of their intention to terminate.

the rights to property and material shall pass to Sleep City at the end of the twelve month contract.

the three percent rebate refers to total media spend not commission.

Sleep City is permitted to do inhouse and some local advertising without using Andrews Advertising.

Sleep City may choose to maintain the website inhouse.

the Credit facility of $1.25 is for the group and not the company (brand specific).

Andrews to provide an hourly charge sheet for their services as a part of this agreement.

travel to Melbourne by Andrews staff is at their cost."

43 On 7 January 2009, Mr Andrews forwarded this email to Mrs Andrews at an email address which was used by both of them. There is no reason to think that Mrs Andrews did not read the email. Indeed, in making closing submissions, Mrs Andrews referred to the email in a way which suggested that she was aware of it, at least by the time AMC commenced providing services to Sleep City. The significance of that is that the email indicates that Sleep City was seeking the insertion of a provision to allow it to do "inhouse and some local advertising" without engaging the Company.

44 Mr Andrews made various changes to the draft Heads of Agreement in response to Mr Kouvardas' email. This included a provision to permit Sleep City "to do some local advertising without using Andrews Advertising". There was some further discussion with Sleep City concerning the terms of the proposed Heads of Agreement. It appears that Sleep City wanted to be able to do some inhouse advertising. This prompted a further alteration to the draft so that Sleep City would be permitted "to do some inhouse advertising without using Andrews Advertising".

45 The Heads of Agreement was signed at Adcorp's Ultimo office on 8 January 2009. Under its terms, Sleep City Holdings Limited (including all of its retail furniture businesses in Australia and all its subsidiaries and affiliates) agreed to retain the Company as its advertising agency. The scope of the engagement was set forth in clause 1 which is in the following terms:

(a) "this document shall relate to services that, unless otherwise stated below, you have agreed will be totally and exclusively outsourced to Andrews Advertising and its associated companies;

i the design and production of all television commercials;

ii the design and supply of all print design - press, flyers, catalogues, magazines ads and point of sale (POS);

iii the design and supply of all new media (including websites) and strategy (Sleep City & Everyday Living may choose to maintain the website inhouse);

iv the supply of all electronic media (including free to air television, pay TV and radio), and all print media (press, flyers, catalogues, magazines and POS);

v catalogue and flyer distribution.

(b) Andrews Advertising will, if Sleep City requires it, supply a Melbourne based account manager to assist with Sleep City communications.

(c) Andrews Senior Management will travel to Melbourne at Andrews' expense when required by Sleep City for Advertising/ Marketing meetings.

(d) Sleep City is permitted to do some inhouse advertising without using Andrews Advertising."

46 Clause 2 of the Heads of Agreement concerned remuneration, and clause 3 contained various incentives for Sleep City to increase its advertising expenditure. Clause 4 provided that the Company would extend Sleep City credit of $1.25 million, with the amount to be extended to $1.5 million once approval had been obtained from the Company's insurance underwriters. Clause 5 contained an indemnity in favour of the Company in respect of claims for misleading advertising. Clause 6 provided that the term of the Agreement was to commence on 1 February 2009 and continue until 1 February 2011 unless 30 days written notice is received on 4 January 2010, in which case the contract would come to an end on 1 February 2010. Clause 7 provided for the assignment by the Company to Sleep City of all property and materials produced for Sleep City (subject to any rights of third parties).

47 The work carried out by Sleep City pursuant to the Heads of Agreement was partly undertaken by the Company in Sydney and partly by Adcorp in Melbourne. Up until about May 2009, all production work, and it seems media placement, was carried out by the Company in Sydney, whilst Adcorp's Melbourne office was responsible for overall account management. From about May 2009, Adcorp's Melbourne office assumed responsibility for the production work, but media placement tasks remained with the Company in Sydney. Mr Andrews was the person primarily responsible for media placement. Mr Andrews also maintained his contact and relationships with the senior management of Sleep City (including Quinn) throughout. In fact, Mr Andrews appears to have remained primarily responsible for managing the relationship with Sleep City.

48 Mr Andrews gave evidence that in about May or June 2009, Quinn told him that Sleep City was not happy with how things were working out with the Melbourne office. He says that Quinn told him that Sleep City would be terminating the relationship with the Company in January 2010 in accordance with the Heads of Agreement. This led to some negotiations between Mr Andrews and Quinn which culminated in the making of a variation to clause 6 of the Heads of Agreement on 18 June 2009. The variation effectively removed the ability of Sleep City to bring the agreement to an end after twelve months, but shortened the term of the agreement so that it now concluded on 30 June 2010 rather than 1 February 2011.

49 The variation was negotiated by Mr Andrews and Quinn and was evidenced by handwritten changes to the original Heads of Agreement. According to Mr Andrews, Quinn told him in the course of those negotiations that if the Company "did the right thing" over the period to June 2010, then Sleep City would extend the relationship.

50 The Company initially contended that Mr Andrews did not have the authority to make the variation. However, this contention was abandoned during the trial. Evidence was given by Mr James to the effect that he was aware of, and gave his approval to, Mr Andrews' actions. It is somewhat curious, therefore, that Mr Andrews appears not to have made the existence of the variation, or its effect, widely known amongst the other executives (such as Ms Hennessy) who had responsibilities in relation to the Sleep City account, particularly in the period leading up to 30 June 2010.

51 In any event, the relationship between the Company and Sleep City continued to be governed by the terms of the Heads of Agreement as varied. In particular, subject to Sleep City being permitted to do some inhouse advertising without using the Company, Sleep City's advertising requirements, as described in clause 1(a) of the Heads of Agreement, was to be totally and exclusively outsourced to the Company (and its associated companies).

52 Nevertheless, the evidence establishes that by no later than 1 September 2009, portions of Sleep City's advertising requirements were being met by AMC, the company of which Mrs Andrews was the sole director and shareholder.

53 On 30 September 2009, AMC sent a tax invoice to Uinta Beds Pty Limited t/a Sleep City in the amount of $53,350. The invoice concerned advertisements aired on Foxtel in respect of a product described as "Everyday Living". The invoice provided for payment to be made to a Commonwealth Bank account in the name of AMC. The copy of the invoice, which bears a signature (likely to be that of Mr Klein of Sleep City) provided contact details, which included the home phone number of Mr and Mrs Andrews, a post office box located near their home, Mr Andrews' mobile phone number, and an email address (dandeano@XXXXX) which was used by both Mr and Mrs Andrews. Another copy of the invoice, unsigned, contains Mrs Andrews' mobile phone number rather than her husband's.

54 A second invoice was issued by AMC on the same date and in the same amount for advertisements aired on Foxtel in respect of a product described as "Sleep City". Again, a signed copy of the invoice contained contact details which included Mr Andrews' mobile phone number.

55 There is also evidence of tax invoices issued by Multi Channel Network to Andrews Creative (which is clearly a reference to AMC) on 30 September 2009 in respect of orders described as Everyday Living or Sleep City. The total amount of the Multi Channel Network tax invoices was $78,095.16. Multi Channel Network books advertising space on television channels. The tax invoices dated 30 September 2009 each include the following:

"Originally billed to Andrew's Advertising, now redirected to Andrew's Creative."

56 AMC's invoices had not been paid by 21 October 2009. On that day, Mr Andrews sent an email to Mr Kouvardas of Sleep City attaching the invoices for "September Foxtel for Sleep & EDL". The email continued:

"The direct payment details for this company are at the bottom of the invoices.

I need to get these paid by the end of this week. If there are any queries, please call me on my mobile."

57 This email was sent from Mr Andrews' email address at Andrews Advertising. A further email, in similar terms, was sent by Mr Andrews to Mr Kouvardas on 17 November 2009.

58 AMC continued to issue invoices to Sleep City in respect of its advertising throughout the period of Mr Andrews' employment with the Company. Mr Andrews maintained that he did not do any of the work for AMC during that period. He stated that his only involvement was the occasional forwarding of invoices for AMC when it was difficult or inconvenient for his wife to do so. He stated that the work which AMC was performing for Sleep City, which was essentially media placement, was entirely carried out by Mrs Andrews.

59 Mr Andrews further stated, in the course of his cross-examination, that he was aware that in about September 2009 there was a change in the arrangements for Sleep City's media placement requirements to the effect that some of that work would henceforth be done by AMC. Mr Andrews explained that he had been instructed by his father "not to trade outside our insurance level" so that bookings were not to be accepted "when they were exceeding those insurance levels". Mr Andrews stated that the relevant trade credit insurance level in relation to Sleep City was $700,000. Mr Andrews further stated that he had informed the Company's accounts controller, Mr Lundberg, that that was happening and that some work was therefore being done by his wife. The plaintiff submitted that Mr Andrews' evidence on this topic, which did not appear in Mr Andrews' affidavit, should be rejected. I will return to this issue later in these reasons.

60 AMC continued to do media placement work for Sleep City. In the period from 30 September 2009 to 31 July 2010, AMC issued invoices to Sleep City or its associated entities for a total sum of $795,983 (including GST). Over the same period, AMC received invoices from Multi Channel Network for a total sum of $502,561.62 (including GST). On that basis, AMC earned a profit in respect of such work in the amount of $293,421.38 (including GST) or $266,737.62 (excluding GST).

61 Mr Andrews claimed that his wife was responsible for the performance of all of that work. He further stated that Mrs Andrews had experience, prior to September 2009, of media placement work, but he was not able to give any details of any of her clients or whether she gained that experience as an employee or in the conduct of a business of her own. I am unable to accept Mr Andrews' evidence about his wife's prior experience of media placement work. I do, however, accept that Mrs Andrews had some involvement with the work carried out by AMC for Sleep City. There is evidence, for example, of Mrs Andrews making enquiries with Sleep City concerning the payment of invoices. That occurred on 12 February 2010. In February and March 2010, she was also involved in efforts to reconcile the amounts in the Multi Channel Network invoices sent to AMC, and in June 2010 she was involved in the making of a payment to Multi Channel Network. The evidence does not reveal the extent to which Mrs Andrews may have been involved in the actual media placement work.

62 In any event, the clear likelihood is that the actual obtaining by AMC of the Sleep City work was effected by Mr Andrews. I find that he was the person who made arrangements with Sleep City for part of their work (which would otherwise be done by the Company in accordance with the Heads of Agreement) to be undertaken by AMC, and made arrangements with Multi Channel Network for their invoices to be "redirected" to AMC.

63 Moreover, the evidence demonstrates to my satisfaction that Mr Andrews continued thereafter to be involved in the carrying out by AMC of the media placement work. This is shown, for example, by the emails sent by Mr Andrews to Mr Kouvardas on 21 October 2009 and 17 November 2009 which are referred to above, as well as two emails sent by Mr Andrews on 5 July 2010 and 6 July 2010 to Mr Kouvardas and Mr Klein of Sleep City respectively, in which Mr Andrews was seeking payment of "the May Foxtel invoices" and was again putting himself forward as the appropriate person to contact in relation to those invoices. I infer that he did so because he was, at the very least, familiar with the work that was the subject of the invoices, and was thus able to discuss any issues arising from them.

Events leading to loss of Sleep City account and cessation of Mr Andrews' employment

64 Mr James ceased to be a director of the Company in December 2009. His place on the board was taken by Mr Mathew Mellor. In January 2010, Mr Mellor, who had previously been the General Manager for Victoria at Adcorp, moved to Sydney to take up the position as Adcorp's Chief Operating Officer for Australia and New Zealand.

65 In February 2010, there were discussions between Mr Andrews and Mr Mellor concerning the role Mr Andrews might play in plans for Adcorp to expand in the retail market. Mr Andrews sought a written offer "outlining my new role & remuneration structure before the 1st April 2010". As it turned out, no offer was made until mid-May 2010.

66 It appears from the minutes of a directors meeting of Adcorp that on 29 March 2010, Mr Mellor and Mr McMenamin met with Mr David Andrews, who indicated an intention to resign. It is clear that there was a concern that the Company's other main client, Lowes - Manhattan, would not continue as a client without Mr David Andrews' involvement. It further appears that Mr David Andrews had stated that Lowes - Manhattan was irritated at not being "welcomed/included in the Adcorp family". The minutes further reveal a concern that the departure of Mr David Andrews may cause some fall-out with Mr Andrews, and that there was a need to document all meetings with Mr Andrews and Mr David Andrews, given possible future litigation. The litigation in contemplation concerned the employee restraints which the Company was looking to uphold. One of the directors suggested that it may be prudent to write off any "Andrews goodwill as at 30 June".

67 It seems to be the case that, henceforth, Mr Andrews' conduct was closely watched. In April 2010, Ms Hennessy reported a concern to Mr Mellor about a request Mr Andrews had made in relation to certain photographic images. In May 2010, Ms Hennessy expressed further concern to Mr Mellor about Mr Andrews. The basis for Ms Hennessy's concern was the reduction of a previously budgeted amount for expenditure on Sleep City's May and June campaign. The amount was reduced from about $1.5 million to about $1.1 million. Mr Andrews told Ms Hennessy the reduction had been directed by Quinn, but had not forwarded details of the reductions to Ms Hennessy despite requests to do so. Ms Hennessy became concerned that, amongst other things, Mr Andrews may be seeking to disengage Adcorp from the Sleep City account.

68 In the midst of these events, an offer was made to Mr Andrews to enhance his employment contract as from 1 July 2010. The proposed amendments included removal of the salary reduction scheme (which had been implemented in about February 2009 in the wake of financial difficulties) and an addition to the bonus incentive scheme to provide for a bonus in respect of new business gained for Adcorp.

69 On 12 May 2010, a meeting was held to discuss the Company's budget for the 2010/ 2011 year. The meeting was attended by Mr Mellor, Mr McMenamin and Mr Andrews. It appears from a note of the meeting that sales of $10.1 million were budgeted in respect of Sleep City for that year. It also appears that Mr Mellor asked whether there was "any risk to Sleep City" and Mr Andrews replied that he was confident that Sleep City would grow with Asian expansion and that $10 million was a realistic budgeted sales figure. It seems that Mr Andrews made no mention of the impending expiry of the Heads of Agreement, or of any difficulties in the relationship with Sleep City. In response to a query as to whether the Company "cash-flow their [Sleep City's] media payments", Mr Andrews confirmed that this was infrequent and "only outstanding for a few weeks". Mention was also made of the $700,000 limit in respect of Sleep City under the Company's trade credit insurance. Mr Andrews, who reviewed the budget meeting minutes, did not seek to contradict or clarify any of the matters just referred to.

70 On 24 May 2010, Mr Mellor asked Mr Andrews where he was up to in relation to the signing of the letter containing the revised employment conditions. Mr Mellor subsequently made further requests for the signing of the letter, including on 24 June 2010. Mr Andrews gave evidence to the effect that he did not want to sign the letter without first obtaining legal advice. There was no evidence, however, that any such advice was ever sought or obtained.

71 The term of the Heads of Agreement between the Company and Sleep City (as varied in June 2009) came to an end on 30 June 2010.

72 On 1 July 2010, Mr David Andrews resigned as an employee of the Company.

73 According to Mr Andrews, he was informed by Quinn on 13 July 2010 that Sleep City would not be "moving forward with Andrews and Adcorp", and further, that Sleep City had "had enough with Adcorp". Mr Andrews also gave evidence that, at that time, it was still his intention to remain with the Company.

74 However, no later than 5 July 2010, negotiations were taking place between AMC and Sleep City for entry into a Heads of Agreement in substantially identical terms to that of the recently expired Heads of Agreement between Sleep City and the Company. On 5 July 2010, an unsigned email was sent from the email address shared by Mr and Mrs Andrews (dandeano@XXXXX) to Quinn and Mr Klein at Sleep City. A draft Heads of Agreement was attached to the email. The draft is obviously an adaptation of the recently expired agreement, with various changes made where seen to be appropriate. Perhaps due to oversight, the name of the director who would sign on behalf of AMC was stated to be Mr Andrews. The term of the draft agreement was expressed to be from 1 September 2010 until 1 September 2012, unless terminated by written notice as of 1 September 2011.

75 The email itself is in the following terms:

"The revision is made on the first page (point D) which in layman's terms gives you the right to print your own catalogues if you have a cheaper option but gives me a go at matching the price beforehand."

76 Mr Andrews did not accept that he was the author of the email. I think it is likely that he was the author. Although the printed version of the email links Mrs Andrews rather than Mr Andrews to the shared email address, this does not prove that she, rather than her husband, was the author. The printed versions of other emails sent at about that time from that shared email address (for example on 6 July 2010 at 5:15pm and 14 July 2010 at 6:41pm) also link Mrs Andrews rather than Mr Andrews with the email address, yet they are plainly emails authored by Mr Andrews. In my view, it is likely that Mr Andrews, with his extensive knowledge of all aspects of Sleep City's advertising requirements, was involved in the negotiations with Sleep City, and was the author of the 5 July 2010 email.

77 Meanwhile, Mr Mellor was continuing to press Mr Andrews to sign the letter containing the varied employment terms. On 11 July 2010, Mr Mellor sent an email to Mr Andrews, which stated that Mr Andrews had made a commitment to him to return the signed letter by 9 July 2010. Mr Andrews, in his email in response, did not dispute that such a commitment had been given, and went on to state that he had been discussing the matter with his accountant on 9 July 2010 but then had to go home to help his wife who was suffering from a bad back. The email went on to express some misgivings about the proposed arrangements, although this seems to be related to an arrangement between Mr Andrews and his father for the transfer of some shares in the Company, rather than with the proposed changes to the employment conditions themselves. On 12 July 2010, Mr Mellor again called upon Mr Andrews to provide the signed letter.

78 Later on 12 July 2010, Ms Hennessy ascertained that Mr Andrews had made a direct request of Channel 9 in Sydney for "all the commercials and rushes from the shoots" undertaken by Channel 9 concerning Sleep City. Ms Hennessy considered that this was a further example of strange conduct on Mr Andrews' part, and she reported it to Mr Mellor. That matter, as well as others, was the subject of a detailed email from Ms Hennessy to Mr Mellor sent on 13 July 2010.

79 On 14 July 2010, an email was sent by Sleep City to Ms Hennessy and Mr Andrews in the following terms:

"We write to inform Adcorp/Andrews Advertising that we will be bringing our advertising inhouse as of 1st September 2010, therefore our relationship will cease.

Thank you for your contribution in advance. Please ensure all company intellectual property is up to date for us and accessible as per contract."

80 A meeting was held later that afternoon in Mr Andrews' office. The meeting was attended by Messrs Mellor, McMenamin and Andrews as well as Ms Amanda Collins, who was the Human Resources Director at Adcorp.

81 Mr Mellor made extensive notes of the meeting. These notes were typed up later in the day. He was not challenged about the accuracy of the notes and I consider them to be an accurate reflection of what was discussed. Further, the respective versions of what was said at the meeting as contained in the affidavits of Messrs Mellor, McMenamin and Andrews, are reasonably consistent. At the meeting, Mr Andrews said that the previous evening Quinn told him that Sleep City had made the decision to move everything inhouse. He said that Quinn expressed some dissatisfaction with the service being provided (including the unavailability of Ms Hennessy in recent times) and that Sleep City could do things more cheaply inhouse. It further appears that Mr Andrews said that he was "in shock" over the decision of which, he said, he had no warning. Mr Andrews, when asked how Sleep City was going to manage the business inhouse, stated that they had recruited a General Manager of Merchandising and Marketing and had already put on a new Marketing Co-ordinator. He said that he did not know the names of either of those persons. Ms Collins asked Mr Andrews whether Sleep City had offered him any role internally, and Mr Andrews said they had not, adding that, "personally it's a pretty big blow". During the course of the meeting, Mr Andrews also said that there was a Heads of Agreement that finished up in February 2010 but that he had managed to extend it to 30 June 2010. Further, when asked why he didn't press Sleep City to sign a new contract, Mr Andrews said that "he just wouldn't sign anything". It seems to have been decided in the end that Mr Andrews would call Quinn to see if there was any way the Company could remain involved with Sleep City.

82 After the meeting, Mr Mellor reviewed the Heads of Agreement and concluded that, as no notice of termination had been received, Sleep City would be in breach if they terminated from 1 September 2010. Mr Mellor was clearly unaware of the variation to the Heads of Agreement which had been negotiated by Mr Andrews in June 2009.

83 Mr Andrews gave evidence that following the meeting, he had a further conversation with Quinn during which he told Quinn that the Company was keen to fix the problem, to which Quinn was said to have replied:

"Dean, we are covering the same old ground. Dean it's over."

84 Later on 14 July 2010, Messrs Mellor and McMenamin and Ms Collins had a further meeting with Mr Andrews. Mr Andrews told them that Quinn's decision was final. It further seems, based upon Mr Mellor's notes of this meeting, that Mr Andrews said that he thought the chance of getting the account back was "30:70". Mr Mellor said that he would contact Quinn to try to arrange a meeting. Mr Andrews was to provide Quinn's contact details to Mr Mellor.

85 In the evening of 14 July 2010, Mr Andrews sent an email to Quinn and Mr Klein (using the email address dandeano@XXXXX) in the following terms:

"Thanks for your kind thoughts & support today, it has really helped.

Please be assured I will remain at Adcorp & make sure that all of your collateral will be made available and all of the accounts are in order before I leave.

Also, if you & your staff could please use this email address from now on to ensure confidentially is maintained."

86 Mr Andrews stated, during his cross-examination, that he did not at that time have any intention of resigning. He says that he was only concerned that he might be dismissed due to the loss of the Sleep City account. I do not accept that evidence. I conclude that by that time, Mr Andrews had the intention to leave his employment with the Company and entirely pursue his own interests in relation to Sleep City, including through his involvement with AMC which was then in the midst of negotiating its own Heads of Agreement with Sleep City.

87 Also in the evening of 14 July 2010, Mr Mellor sent an email to Mr Andrews asking him to provide Quinn's contact details as had been promised by Mr Andrews. Later that night, Mr Andrews responded to Mr Mellor in an email which stated that Quinn had contacted Mr Andrews and told him that he did not want to speak to Mr Mellor or anyone else from Adcorp and that "he can do the job himself cheaper". Mr Andrews' email also stated that Quinn was very adamant and was about to leave for China for a number of weeks and that "seems pretty final to me".

88 Messrs Mellor and McMenamin had a further meeting with Mr Andrews on 19 July 2010. It seems clear that considerable dissatisfaction was expressed by Mr Mellor to Mr Andrews at this meeting in relation to the loss of the Sleep City account. Mr Mellor also asked questions about when the term of the Heads of Agreement was due to expire. He said that he was surprised about what Mr Andrews had said about an extension to 30 June 2010, because the Heads of Agreement stated that it was to continue until February 2011. Mr Andrews, in response, said that there was an amended agreement. Both Mr Mellor and Mr McMenamin stated that they had not seen any amended agreement.

89 Mr Mellor said words to the effect that Mr Andrews had failed in his duties by failing to properly maintain the relationship with the client, allowing the situation to deteriorate, and failing to keep others fully appraised of the situation. Mr Mellor also expressed dissatisfaction about Mr Andrews' failure to sign the letter dealing with his revised employment terms. Mr Andrews was asked to respond to what was being put to him.

90 There is an issue as to whether Mr Andrews offered to resign. Mr Mellor and Mr McMenamin both gave evidence that Mr Andrews said that he believed that he should resign, and that at a further meeting held later in the day, Mr Mellor told him that his resignation had been accepted. Mr Andrews disputes that version of events. He says that he never offered to resign. However, a letter written by a lawyer on his behalf on 23 July 2010 stated that during the meeting Mr Andrews asked:

"Do you want me to go?"

91 When confronted with that in cross-examination, Mr Andrews initially stated that he could not recall stating those exact words, but then said that he recalled saying such words and that it was "more of a surprise statement" in circumstances where the meeting was aggressive and he thought that he was being ambushed and about to be fired. He agreed that Mr Mellor said to him that he accepted his resignation, but he maintained that he did not offer his resignation.

92 I accept the substance of the evidence given by Messrs Mellor and McMenamin that Mr Andrews said words to the effect that he should resign. Such words are consistent with the decision, which had already been made by Mr Andrews, to leave the Company, albeit that the words are likely to have been prompted by the pressure of being faced with uncomfortable questions and evident dissatisfaction at the loss of such an important client. I conclude that Messrs Mellor and McMenamin were entitled to conclude that Mr Andrews was offering to relinquish his employment. There is no doubt that Mr Mellor informed Mr Andrews, at a reconvened meeting held later on 19 July 2010, that the Company accepted his resignation.

93 Mr Andrews then went home to collect his laptop computer. He returned the computer to the Company later that day, together with a copy of the amended Heads of Agreement.

94 For its part, the Company sent a letter dated 19 July 2010 to Mr Andrews' home which included an account of the events of the day. The letter stated that "the Company accepts your resignation, effective immediately, forfeiting the amount of notice." The letter further reminded Mr Andrews of his post-employment obligations to the Company as set out in clauses 8, 10 and 11 of his employment contract.

95 Mr Mellor continued to make efforts to secure a meeting with Mr Klein of Sleep City. A meeting was arranged for 23 July 2010, however, on 22 July 2010, Mr Klein sent a document to the Company outlining the reasons for the termination of the account. The document contained the following:

"Firstly, it is disappointing to hear of the resignation of Dean Andrews and appreciate the scope of service combined with Mary provided.

We have recently appointed a new National Marketing Manager and are in the final stages of placing a GM for Marketing and Merchandise that will give us the extra resources required to move the advertising internally into our business.

This is a cost initiative that we have discussed for the past few months and particularly since January where we have seen rising and unjust charges from your services. Some of the costs are outrageous and I can hear you asking for examples, yet you know what your charges are, so a review will highlight them for you.

For this we don't get adequate service and find that our time spent has been pretty much changing creative going back over feedback and getting frustrated of the detail missing and changes not made accordingly to media or print. These issues clearly escalated when Mary was promoted and moved away from more tightly being involved in our account.

...

We see no need to continue with our meeting on Friday and would like to conclude that it was disappointing to be chased down by a personal assistant rather than picking up the phone by Mathew to engage Senior Management in our Company, that action speaks volumes for us as a client ..."

96 Some further attempts to secure a meeting were made, without success. Mr Klein, in an email sent later on 22 July 2010 to Ms Hennessy, stated that he did not think anything they discussed would give him anything "to change Quinn's mind".

Services provided to Sleep City in the six months following the cessation of Mr Andrews' employment

97 The relationship between the Company and Sleep City did not come to an end until 1 September 2010. Until that date, there was, at least, some work in progress to complete.

98 On 29 July 2010, Sleep City confirmed the appointment of Smart Market Pty Limited to provide media billing services from 1 September 2010. Smart Market Pty Limited was a company associated with Mr Nick Allan, its managing director.

99 On 1 August 2010, Sleep City entered into a Heads of Agreement with AMC in respect of a two year term from 1 September 2010 to 1 September 2012. As was the case with the Heads of Agreement with the Company, the services the subject of the agreement were to be exclusively provided by AMC (incorrectly referred to as Andrews Advertising in clause 1(a)), subject to Sleep City being permitted to do some inhouse advertising without using AMC. Unlike the draft agreement referred to earlier, Mrs Andrews, rather than Mr Andrews, was described as the director of AMC for the purposes of execution of the agreement.

100 On 4 August 2010, Sleep City offered Mr Andrews the position of Director of Advertising, to commence on 1 September 2010. The evidence discloses that by about the second week of August 2010, Mr Andrews was actively involved in providing advertising services to Sleep City. For example, on 9 August 2010, he was chasing up a printout of some Sleep City posters, and it appears that he attended a meeting on 10 August 2010 with Sleep City's National Marketing Manager, Ms Janet Paton. The capacity in which Mr Andrews was providing such services is not clear. That is, it is not clear whether he was acting in a purely personal capacity, or whether he was acting on behalf of AMC (or even some other entity). There is no reason to think, however, that his role with AMC was not continuing. For example, he was involved in discussions with Mr Kouvardas of Sleep City in August 2010 concerning invoices issued by AMC in respect of Sleep City advertising on Foxtel.

101 By 18 August 2010, AMC was working on advertising campaigns for Sleep City for the period October 2010 to February 2011. Again, whilst the extent of his involvement is not entirely clear, there is no doubt that Mr Andrews remained involved in the work being performed by AMC. This is shown, for example, by communication between Mr Andrews and Mr Klein of Sleep City in late August 2010 concerning the "relaunching" of the Sleep City brand, and communication at about the same time with Ms Paton of Sleep City concerning a catalogue product list. Mr Andrews was clearly involved in the preparation of the catalogue.

102 The position is further complicated in relation to the period from 1 September 2010 to late December 2010, during which Mr Andrews was apparently employed by Sleep City as Director of Advertising. During that period, Mr Andrews continued to use the email address dandeano@XXXXX for some aspects of his work. Moreover, some of the work he was evidently performing was ultimately billed to Sleep City by Smart Retail, a subsidiary of Smart Market Pty Limited. Mr Andrews' work, in relation to the booking of some advertising in mid-September 2010 in the Hobart Mercury seems to fall within that category. So too does his work in October 2010 in booking advertising in newspapers in Warnambool and Bendigo. His work in September 2010 in relation to Jax Quickfit Tyres might also fall into that category. There was some evidence that by 19 October 2010, an email address had been established at Smart Retail in the name of Dean Andrews.

103 Mrs Andrews became the General Manager of the business conducted by Smart Retail in early October 2010. The evidence does not disclose that she had any involvement with that company prior to that time.

104 In the six month period following the termination of his employment (including the period in which he was Director of Advertising at Sleep City), Mr Andrews commonly used a personal email address for the work he performed. Initially, this was the dandeano@XXXXX address. From about 22 November 2010, Mr Andrews also used the address deanjamesandrews@XXXXX.

105 Mr Andrews resigned his position with Sleep City on 23 December 2010, with effect from 30 December 2010. Following that resignation, Mr Andrews continued to provide services to Sleep City. Mr Andrews claimed that this was merely helping Sleep City with work which was in progress as at the end of 2010. That may be true to some extent, although it is likely that at least some of the work was being performed for the benefit of AMC or Smart Retail rather than gratuitously by Mr Andrews as an ex-employee of Sleep City.

106 The six month period of the restraints contained in Mr Andrews' employment contract came to an end on 19 January 2011. Some evidence was adduced concerning Mr Andrews' activities after that date. Plainly, such activities could not amount to any breach by him of his contract. Nonetheless, some aspects of that evidence should be noted.

107 It is clear that by late January 2011, Sleep City had made a request to AMC to place the advertising account out to tender from 1 July 2011 notwithstanding that the Heads of Agreement provided for a term of two years ending on 1 September 2012. On 31 January 2011, Mrs Andrews, as a director of AMC, signed a letter addressed to Sleep City and marked to the attention of its Chief Executive Officer, Mr Whitford. In response to that letter, Mr Whitford sent an email to AMC (to email address andrewsmedia@XXXXX) with an attached letter which included the following:

"Dear Dean,

Thank you for your letter dated 31 January in response to my request that we by mutual agreement terminate the current contract that exists between us.

The purpose for seeking your agreement to this, as I have discussed in detail with you, is that 'the current position is not sustainable.' We cannot invest $9 mill plus annually in advertising and have unaided brand recall of 3% or less.

We also need to see a dramatic improvement in the way the current account is serviced from your end.

...

Dean, I would still like to have your agreement to mutually bring the contract to an end effective end of June and work constructively with you on whatever part of the business you want to tender for.

Given the dire financial position of our company, it is really important that we improve our marketing and advertising urgently, so time is critical.

If you would let me know your view within the next 24 hours that would be good."

108 AMC responded with a letter dated 3 February 2011, which was also signed by Mrs Andrews as a director.

109 On 9 February 2011, Mr Whitford sent a further email to AMC attaching a letter which contained the following:

"Dear Dean,

Thank you for taking the time to meet with me yesterday.

This letter confirms that we have mutually agreed that the contract known as Heads of Agreement between Andrews Media and Creative Pty Limited and Sleep City Holdings Limited ('Sleep City') will be terminated effective from the 30th June 2011.

It is further agreed between us that we will tender our advertising business around the period March/April with the view to having a new contract in place effective from 1st July 2011.

We have also agreed that you (or your company or associates) will be invited to participate in this tender process. It will be your choice as to what parts of the business you wish to tender for. I have also agreed to make myself available to yourself and your associates to assist with your understanding of our future advertising requirements.

Dean, I would like to thank you for your understanding and agreement to this direction and look forward to working through the process with you."

110 Despite the terms of Mr Whitford's letters which were plainly directed to Mr Andrews, and which clearly indicated that Mr Whitford had met and discussed the issues in detail with him, Mr Andrews flatly denied that he had any such discussion with Mr Whitford or that he had had any involvement in AMC's letters which had been signed by his wife. I reject that evidence of Mr Andrews. There is no reason why Mr Whitford would have written in the terms he did if he had not had discussions on the question of contract renegotiation with Mr Andrews. I can only conclude that Mr Andrews gave that evidence because he considered it necessary to do so in support of his case that at no stage did he have any significant involvement with the affairs of AMC.

111 In a similar vein, the evidence given by Mr Andrews concerning his chasing up of Smart Retail invoices in February 2011 was unimpressive. In particular, his refusal to accept that his email dated 10 February 2011 to Mr Naccarella of Sleep City was sent as a representative of Smart Retail defied belief. Similarly, Mr Andrews could not accept that an email he sent on 16 February 2011 to Ms Paton of Sleep City was written on behalf of Smart Retail, when the content of the email clearly suggested it was.

Liability of Mr and Mrs Andrews in respect of breaches of fiduciary duty

112 The relationship of employer and employee is an accepted category of fiduciary relationship (see Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 96-7; [1984] HCA 64; Concut Pty Ltd v Worrell [2000] HCA 64 at [17]). Accordingly, an employee owes duties:

• not to act in his or her own personal interests where there is a real conflict between the pursuit of those interests and performance of duties owed to the employer;
• not to undertake engagements which involve duties which are in conflict with duties owed to the employer; and
• not to misuse the position of employment to pursue a personal gain.

113 These duties of a fiduciary nature are sometimes referred to, in the employment context, as being part of what is described as a duty of fidelity to the employer. In that context, such duties commonly conform to express or implied obligations imposed upon the employee by the contract of employment, albeit that the fiduciary and contractual duties have different conceptual origins (see Concut (supra) at [26]). That is the position in this case, where Mr Andrews' fiduciary duties conform to the duties which are set forth in clause 3 of his Executive Services Agreement. The express terms of that agreement do not operate to exclude or significantly modify the scope of Mr Andrews' fiduciary duties. Moreover, having regard to his position as Senior Account Director for the Sleep City account, in which he had principal responsibility within the Company for the relationship with that important client, Mr Andrews' fiduciary duties were clearly of central importance. Having regard to his long and close relationship with Sleep City, Mr Andrews was in a position where the Company was required to repose trust and confidence in him that, in his dealings with Sleep City, he would always act with loyalty towards the Company.

114 There is no doubt that Mr Andrews was aware of a change in about September 2009, whereby some of Sleep City's media placement requirements were thereafter met by AMC rather than the Company, even though the Heads of Agreement provided for such work to be exclusively performed by the Company. Mr Andrews agreed that he did nothing to stop that change from occurring. He explained that the change was brought about following an instruction given by Mr David Andrews to the effect that bookings should not be taken for Sleep City if it was trading outside a credit limit of $700,000 (which was the Company's trade credit insurance limit applicable to Sleep City).

115 As noted earlier, I found this explanation entirely unconvincing. As pointed out by Mr Jackman, the explanation was not mentioned in Mr Andrews' affidavit. Further, there is no hint of it in Mr Andrews' Defence (in particular, in answer to paragraphs 63, 65 and 73 of the Statement of Claim). No corroborative evidence was called from Mr David Andrews despite the fact that, in his affidavit, Mr Andrews deposed that he intended to call his father as a witness in the event that he was unable to have him swear an affidavit. There was also no corroborative evidence called from Mr Lundberg who, according to Mr Andrews, had been told about the change in arrangements.

116 Furthermore, there was no documentary evidence of any instruction being given, as claimed by Mr Andrews, or of the implementation of any such instruction. Had such an instruction been given, some documentary evidence of it would be expected, given the importance of such a change to the Company's business. The importance of such a change would also have required at least the input of Mr James, but there is no suggestion that he was aware of any change. His affidavits are silent as to that matter.

117 It is true that (at least by 2010) there was a $700,000 trade credit insurance limit in place in relation to Sleep City. However, there is no evidence that steps had been taken to ensure that Sleep City did not trade outside a credit limit of $700,000. Indeed, an email dated 23 March 2010 to Mr McMenamin from Mr Lundberg stated that "following some hard work" a payment plan for Sleep City had been put in place so that by the following week, the Company would be "within the insured level of $700K". The email makes clear that at that time, Sleep City owed more than $1.4 million (for invoices issued up to February 2010) and that it promised to make payments totalling $700,000 within the following two weeks. Clearly, Sleep City had in fact been trading outside a credit limit of $700,000.

118 It should also be noted that there is no suggestion in Mr Lundberg's monthly profit and loss summaries and reports of any decision to decline Sleep City work. His September 2009 report (dated 14 October 2009) noted that revenue was "almost the same as forecasted" even though "a decrease in the TV Campaign spend for Sleep City resulted in lower turnover than originally envisaged."

119 In these circumstances, I am unable to accept the explanation put forward by Mr Andrews. I am not satisfied that any such instruction was given, and in the absence of any other explanation or justification, I conclude not only that the diversion of the work away from the Company to AMC was effected by Mr Andrews, but also that he did so without the authority or consent of the Company.

120 As noted earlier, I am also satisfied that Mr Andrews continued thereafter to be involved in the carrying out of the media placement work of AMC. The various emails he wrote, in which he put himself forward as the appropriate person to contact in relation to AMC's invoices, are indicative of a significant level of involvement in, and understanding of, the work performed by AMC.

121 I cannot be satisfied on the evidence that Mrs Andrews had such a significant involvement in the carrying out of the work. Indeed, for a number of reasons, I infer that she did not have more than a minor role. First, I do not accept Mr Andrews' evidence that, prior to September 2009, his wife had experience of media placement work. Secondly, I find that in both July 2010 and January/February 2011, Mr Andrews was involved in negotiations between AMC and Sleep City to an extent which suggested that he had a central role within AMC. Thirdly, such evidence as there was of Mrs Andrews' involvement is consistent with her having a largely administrative role only. The failure of Mrs Andrews to give evidence allows me to draw the above inference more confidently, and to proceed on the basis that her testimony would not have suggested that she had any more than a minor role in AMC's work for Sleep City (see Jones v Dunkel [1959] HCA 8; (1959) 101 CLR 298 at 308).

122 I conclude that Mr Andrews, in effecting the diversion of the work away from the Company to AMC, and in his involvement thereafter (until his employment, and hence the fiduciary relationship, ceased in July 2010) in the carrying out of that work by AMC, was in breach of his fiduciary duties to the Company.

123 Mr Andrews was aware that AMC was a company in respect of which his wife was the sole director and shareholder. He knew, from September 2009, that the profits earned by AMC would be applied towards the family in the same way his income from the Company was. He accepted that there was thus a benefit to himself.

124 In effecting the diversion of the work to AMC, Mr Andrews made use of his position with the Company to pursue such personal benefits. There was clearly a conflict between his personal interests and his duties to the Company. He allowed his personal interests to prevail. His subsequent involvement in the carrying out of the work by AMC was similarly a pursuit of personal interest at the expense of the performance of his duties to the Company.

125 As for Mrs Andrews, the Company contends that she has a liability to it as an accessory to Mr Andrews' breach of fiduciary duty. Specifically, reliance is placed upon the so-called "second limb" of the rule stated by Lord Selborne in Barnes v Addy (1874) LR 9 Ch App 244 at 251 - 2. It is put that Mrs Andrews participated with knowledge in a dishonest and fraudulent design on the part of Mr Andrews (see Farah Constructions Pty Limited v Say-Dee Pty Ltd (2007) 230 CLR 89; [2007] HCA 22 at [159] - [163]).

126 Mr Andrews' conduct in diverting a portion of the Sleep City work to AMC, and being significantly involved in the carrying out of such work by AMC, without the knowledge or consent of the Company, may be readily described as a dishonest and fraudulent design on his part. Mr Andrews must have appreciated that the diversion of the work to AMC without the knowledge or consent of the Company was wrong. He must be taken to have been aware that an employee in his position was not at liberty to so act. Mr Andrews cannot be regarded as having acted honestly or reasonably. His breach of fiduciary duty is not one of those which can be thought of as other than dishonest and fraudulent. Had the Company been aware of this breach it would have been entitled to terminate Mr Andrews' employment without notice pursuant to clause 9.3(b) of the Executive Services Agreement.

127 It also seems to me that Mrs Andrews, as the sole director and shareholder of AMC, must be taken to have participated in that conduct by making AMC available as the vehicle which accepted and carried out the diverted work, and by her involvement (even if relatively minor) in the carrying out of that work.

128 A more difficult question is whether Mrs Andrews' participation occurred with the requisite knowledge of her husband's wrongdoing. It is not sufficient that Mrs Andrews had knowledge of circumstances which would put an honest and reasonable person on inquiry. It is necessary for the Company to establish, at least, that Mrs Andrews had knowledge of circumstances which would indicate the facts (that is, the existence of a dishonest and fraudulent design) to an honest and reasonable person (see Farah Constructions (supra) at [176] - [178]).

129 There is little direct evidence which bears upon the question of Mrs Andrews' knowledge of her husband's breach of duty. However, in circumstances where Mr and Mrs Andrews were apparently on good terms (Mr Andrews accepted, in cross-examination, that that was the case) and Mrs Andrews had considerable social contact with personnel from Sleep City, it is very likely that she was aware that Sleep City was an important client of the Company and, from her husband's point of view, his main client. I would also infer that, at least in general terms, Mr Andrews would have informed his wife about important events involving Sleep City, including the making of the Heads of Agreement in January 2009. In that regard, Mrs Andrews would have known, from Mr Kouvardas' email which was forwarded to her during the course of the negotiations for the Heads of Agreement, that the Company and Sleep City were negotiating an agreement which provided that, subject to some minor exceptions, Sleep City's advertising requirements were to be exclusively sourced from the Company. In these circumstances, Mrs Andrews would have been aware that the undertaking by AMC of substantial media placement work for Sleep City was, on its face, contrary to the agreement between the Company and Sleep City. Furthermore, even if Mrs Andrews was not aware of the detailed terms of her husband's contract of employment, she would have appreciated that her husband, as a senior employee of the Company with responsibility for the Sleep City account, was obliged to loyally serve the Company and, in particular, that the provision of advertising services to Sleep City "on the side" (via a company associated with his own family) would be a serious breach of his employment contract. No evidence was given by Mr Andrews to the effect that an explanation, which might point to a contrary conclusion, was given to Mrs Andrews.

130 For the above reasons, I have reached the conclusion that Mrs Andrews at least had knowledge of circumstances which would have indicated to an honest and reasonable person that Mr Andrews was engaged in a serious breach of his duties of loyalty to the Company which amounted to a dishonest and fraudulent design on his part. To a considerable extent, that conclusion rests upon inferences, which I consider to be open on the evidence. Again, the failure of Mrs Andrews to give evidence allows me to draw these inferences more confidently than would otherwise be the case, and proceed on the basis that her testimony would not have assisted her to overcome them (see Jones v Dunkel (supra) at 308).

131 It follows that Mrs Andrews is liable, in accordance with the "second limb" of the rule stated in Barnes v Addy, as one who has assisted with knowledge in a dishonest and fraudulent design on the part of a defaulting fiduciary (see Farah Constructions (supra) at [160]).

132 No proprietary relief is sought against Mr or Mrs Andrews. Rather, the personal equitable remedy of an account of profits is sought. That remedy is sought in preference to the alternative remedy of equitable compensation.

133 In Warman International Ltd v Dwyer (1995) 182 CLR 544; [1995] HCA 18, the High Court stated at 557 - 559:

"A fiduciary must account for a profit or benefit if it was obtained either (1) when there was a conflict or possible conflict between his fiduciary duty and his personal interest, or (2) by reason of his fiduciary position or by reason of his taking advantage of opportunity or knowledge derived from his fiduciary position. The stringent rule that the fiduciary cannot profit from his trust seems to have two purposes: (1) that the fiduciary must account for what has been acquired at the expense of the trust, and (2) to ensure that fiduciaries generally conduct themselves at a level higher than that trodden by the crowd. The objectives which the rule seeks to achieve are to preclude the fiduciary from being swayed by considerations of personal interest and from accordingly misusing the fiduciary position for personal advantage.

...

The assessment of the profit will often be difficult in practice; accordingly it has been said that "[w]hat will be required on the inquiry ... will not be mathematical exactness but only a reasonable approximation". What is necessary however is to determine as accurately as possible the true measure of the profit or benefit obtained by the fiduciary in breach of his duty. ...

It is necessary to keep steadily in mind the cardinal principle of equity that the remedy must be fashioned to fit the nature of the case and the particular facts."

134 As far as Mrs Andrews is concerned, whilst her liability may be described as "accessorial" in relation to her husband's breach of fiduciary duty, such liability is imposed directly upon her. The notion that her liability is an "accessorial" one does no more than recognise that the assistant's liability depends upon establishing, among other things, that there has been a breach of fiduciary duty by another. It follows that the relief that is awarded against a defaulting fiduciary and a knowing assistant will not necessarily coincide in either nature or quantum (see Michael Wilson and Partners Ltd v Nicholls (2011) 244 CLR 427; [2011] HCA 48 at [106]).

135 In the light of these authorities I raised, in the course of argument, the question whether it may be necessary to distinguish the positions of Mr and Mrs Andrews in relation to the benefits obtained by each. Whilst I consider that it is necessary to keep in mind the separate positions of the defaulting fiduciary and the knowing assistant, I have concluded that in this case it is appropriate to regard Mr and Mrs Andrews as having equally shared the benefit of the profit which AMC derived from the work it did for Sleep City during the period when Mr Andrews was employed by the Company.

136 As far as the evidence disclosed, AMC issued invoices to Sleep City in the period September 2009 to July 2010 for a total sum of $795,983 (including GST), and Multi Channel Network issued invoices to AMC in respect of that work for a total sum of $502,561.22 (including GST). The Company submitted (based on a summary which was annexed to its closing submissions) that AMC thereby made a profit of $293,421.38 (including GST) or $266,737.62 (excluding GST). The summary also referred to a Multi Network Channel account issued to AMC on 30 June 2010 in the amount of $34,038.18 (including GST) in respect of which no invoices were in evidence. That amount was not included in the above calculations. However, that account seems to clearly relate to work performed for Sleep City up to 30 June 2010 so I think it should be included in AMC's costs. If so, the profit is reduced to $259,383.20 (including GST) or, on my calculations, $235,802.91 (excluding GST).

137 Mr and Mrs Andrews submitted that some other payments incurred by AMC in the period from November 2010 to April 2011 should also be taken into account in the calculation of AMC's profit. Those payments are set out on the second page of an attachment to their final written submissions. However, there was no evidence which linked those payments to the work which was performed in the period up to July 2010.

138 AMC's account with the Commonwealth Bank reveals that in the period from September 2009 to July 2010 about $2,964.10 was spent on the "office phone". As that is likely to be a cost incurred in relation to the relevant work done for Sleep City, it should be taken into account, thereby reducing the profit to $256,419.10 (including GST) or $233,108.27 (excluding GST).

139 The profit so earned by AMC was in substance made available to Mr and Mrs Andrews to use for the family's purposes. As Mr Andrews said in cross-examination, he knew that the money "would have gone into our family finances" and that the income (even if he treated it as his wife's income) went towards the family the same way his own income did. Mr Andrews accepted that the money going towards the family was a benefit to him and that "the family was making money" out of AMC.

140 This evidence is further borne out by an analysis of the statements for the account held by AMC at the Commonwealth Bank. Those statements suggest that the income received from the relevant Sleep City work was by and large used for apparently private or domestic purposes.

141 Mr Andrews also accepted that money which went into the joint account owned by himself and his wife was a benefit to him, as were the specific amounts which were either transferred to his credit card account or directly to other creditors (The Scots College and RMYC Port Hacking). The total of the amounts which went either into the joint account or to creditors was $88,602.40.

142 I accept the submission made by Mr Jackman to the effect that Mr and Mrs Andrews should be placed on the same footing vis-à-vis the profit made by AMC. That is, that such profit was a benefit to both of them personally. Whilst AMC was the vehicle chosen to perform the work, it was agreed between Mr and Mrs Andrews (either expressly or tacitly) that the financial benefits which accrued would be directed towards the purposes of their family, and thus to their mutual benefit. In my view, this is not a case where it would be appropriate to regard the defaulting fiduciary as having obtained benefits which are different from those obtained by the knowing assistant (compare Warman International Limited v Dwyer (supra) at 569, referred to by The Hon William Gummow AC in "Knowing assistance" (2013) 87 ALJ 311 at 315). In substance, Mr and Mrs Andrews obtained the same benefit, namely, the application of AMC's profits towards their family endeavour. Accordingly, I conclude that both Mr and Mrs Andrews should account to the Company for the benefits so obtained in a sum assessed as $233,108.27. The Company accepted that the GST exclusive amount was appropriate, rather than the GST inclusive amount.

Liability of Mr Andrews in respect of breaches of contract and contraventions of the Corporations Act

143 The findings that I have made above (see at [122] to [124]) lead to the further conclusions that Mr Andrews, in effecting the diversion of work away from the Company to AMC and then participating in the carrying out of such work during the period of his employment, was in breach of his Executive Services Agreement, in particular clauses 3.1(c) - (d) and 3.2(a) - (d). He was also in contravention of section 182 (and possibly s183) of the Corporations Act.

144 The Company did not abandon the claims in respect of such breaches and contraventions. However, the Company submitted that, applying the Company's profit margin (which was said to be 13.4%), the damages flowing from such conduct would be considerably less than the amount of the profit for which an account was sought.

145 In these circumstances, it is not necessary to say anything further about these claims, save to note that I would have had no difficulty in concluding that had such breaches and contraventions not occurred, all of that diverted work would likely have been performed by the Company. There is no reason to think that it lacked either the willingness or the ability to perform such work.

146 I turn now to the claims for damages which are based on the alleged loss to the Company of work for Sleep City in the period after the cessation of Mr Andrews' employment. In brief, the Company contends that had Mr Andrews not breached the restraints contained in clause 11.1 of his employment contract, and improperly made use of information acquired by him due to his employment with the Company (in contravention of s183 of the Corporations Act), the work performed for Sleep City by AMC and Smart Retail in the six month period from 19 July 2010 to 19 January 2011 would have been performed instead by the Company.

147 The evidence showed that in the period 30 September 2010 to 31 January 2011, invoices were issued by Sleep City to Smart Retail for a total sum of $3,065,202.16 (excluding GST), and in the period 17 September 2010 to 28 February 2011, invoices were issued by Sleep City to AMC for a total sum of $508,233.39 (excluding GST). The total value of work was thus $3,573,435.55.

148 The Company claims that had it done that work, it would, applying a profit margin of 13.4%, have made a profit of in excess of $478,000.

149 In circumstances where the Heads of Agreement between the Company and Sleep City was due to expire on 30 June 2010, it seems to me that the loss claimed is in the nature of a loss of commercial opportunity, to be assessed in accordance with the principles discussed in Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64; [1991] HCA 54 and Sellars v Adelaide Petroleum NL (1994) 179 CLR 332; [1994] HCA 4. Mr Jackman accepted that that was probably the correct analysis, and submitted that there was a very high probability (in the order of 80%) that the Company would have retained Sleep City as a client throughout the period if Mr Andrews had not engaged in wrongful conduct.

150 The restraints contained in clause 11.1 of Mr Andrews' Executive Services Agreement were referred to earlier in these reasons (see at [30]). Enforced to their full extent, the restraints would prevent Mr Andrews from having any involvement within Australia with the business of an advertising agency until six months after the cessation of his employment.

151 As the employment contract is governed by the law of NSW (see clause 14.6), the provisions of the Restraints of Trade Act 1976 (NSW) are applicable. By section 4(1) of that Act, a restraint of trade is valid to the extent that it is not against public policy, whether it is in severable terms or not.

152 The proper approach to the application of the section is to first determine whether the alleged breach (independently of public policy considerations) does or will infringe the terms of the restraint properly construed, and if so, then to determine whether the restraint, so far as it applies to that breach, is contrary to public policy. If the restraint, so far as it applies to that breach, is not contrary to public policy then (subject to any order made under s4(3) of the Act), the restraint is to that extent valid (see Orton v Melman [1981] 1 NSWLR 583 at 587).

153 The Company alleges that after the cessation of his employment, Mr Andrews continued to provide advertising services to Sleep City through his involvement with AMC and later through Smart Retail. I have already found that by about the second week of August 2010, Mr Andrews was actively involved in providing advertising services to Sleep City and at least to some extent that was through AMC. It is likely, bearing in mind Mr Andrews' role in the negotiations between AMC and Sleep City in January and February 2011, that after he ceased to be employed by the Company he continued that involvement with AMC (which had commenced no later than September 2009) until the end of the Restraint Period.

154 Further, at various times (for example in August and September 2010) Mr Andrews was performing advertising work for Sleep City which was billed to Smart Retail. He was also chasing payment of Smart Retail invoices in February 2011. I infer that he had at least some involvement in that company's business from about August 2010 until the end of the Restraint Period.

155 This conduct would in my view infringe the terms of the restraint found in clause 11.1 of Mr Andrews' employment contract. Until the end of the Restraint Period, Mr Andrews was, within the Restraint Area, participating in, and concerned in, the advertising businesses of AMC and/ or Smart Retail, which were providing services to Sleep City.

156 The question then arises as to whether the restraint, insofar as it applies to those breaches, is contrary to public policy.

157 The defendants' submissions did not accommodate the approach required by the Restraints of Trade Act. They made the general submission that the restraint found in clause 11.1 was unenforceable and void because it effectively imposed a complete prohibition against Mr Andrews using his professional skills in advertising to earn a livelihood in Australia for six months. The defendants submitted, in the alternative, that if the restraint was upheld, it should only be for a three-month period and in respect of the Sydney and Melbourne metropolitan areas.

158 It was submitted for the Company that in circumstances where Mr Andrews had been employed by the Company for many years, and had built up a very strong personal relationship with Sleep City, a six month restraint was the minimum period required in order for Mr Andrews' connection with Sleep City to be severed and for a new employee to establish a connection, and also for any confidential information possessed by Mr Andrews to begin to go stale. It was further submitted that in circumstances where Sleep City conducted business in both Melbourne and Sydney, a restraint extending to at least those areas was reasonable.

159 In Stenhouse Australia Ltd v Phillips [1974] AC 391, the Privy Council stated at 400:

"The accepted proposition that an employer is not entitled to protection from mere competition by a former employee means that the employee is entitled to use to the full any personal skill or experience even if this has been acquired in the service of his employer: it is this freedom to use to the full a man's improving ability and talents which lies at the root of the policy of the law regarding this type of restraint. Leaving aside the case of misuse of trade secrets or confidential information ... the employer's claim for protection must be based upon the identification of some advantage or asset inherent in the business which can properly be regarded as, in a general sense, his property, and which it would be unjust to allow the employee to appropriate for his own purposes, even though he, the employee may have contributed to its creation. For while it may be true that an employee is entitled - and is to be encouraged - to build up his own qualities of skill and experience, it is equally his duty to develop and improve his employer's business for the benefit of his employer. These two obligations interlock during his employment: after its termination they diverge and mark the boundary between what the employee may take with him and what he may legitimately be asked to leave behind to his employers."

160 That passage was cited with approval by Hodgson JA in Miles v Genesys Wealth Advisers Ltd [2009] NSWCA 25 at [37], and also by Allsop P in Hanna v OAMPS Insurance Brokers Ltd [2010] NSWCA 267 at [43]. In Hanna (supra), Allsop P further stated (at [45]) that regard should also be had to what the Privy Council said in the following passage in Stenhouse (supra) at 402:

"The question is not how long the employee could be expected to enjoy, by virtue of his employment, a competitive edge over others seeking the clients' business. It is, rather, what is a reasonable time during which the employer is entitled to protection against solicitation of clients with whom the employee had contact and influence during employment and who were not bound to the employer by contract or by stability of association. This question ... their Lordships do not consider can advantageously form the subject of direct evidence. It is for the judge, after informing himself as fully as he can of the facts and circumstances relating to the employers' business, the nature of the employer's interest to be protected, and the likely effect on this of solicitation, to decide whether the contractual period is reasonable or not. An opinion as to the reasonableness of elements of it, particularly of the time during which it is to run, can seldom be precise, and can only be formed on a broad and commonsense view."

161 Reference should also be made to the following statement made by Allsop P in Hanna (supra) at [43]:

"There is no legally required test in these circumstances. The use of one test or another depends on the facts and the evaluation of the approach that is reasonable. The judge is required to evaluate the evidence about connection and adopt an appropriate approach to assessing what is required to protect reasonably the connection of the former employer."

162 It is well established that although it is not open to an employer to seek protection against competition per se, an employer may have a legitimate interest in protecting the connections it has with existing customers (see, for example, Lindner v Murdock's Garage (1950) 83 CLR 628 at 633 - 4, 645, 647, 650 and 654); [1950] HCA 48. As stated by Brereton J in Cactus Imaging Pty Ltd v Peters (2006) 71 NSWLR 9; [2006] NSWSC 717 at [25]:

"... While the employer is not entitled to be protected against mere competition by a former employee, the employer is entitled to be protected against unfair competition based on the use by the employee after termination of employment of the customer connection which the employee has built up during the employment - which, because the employee has in effect represented the employer from the customer's perspective during the employment, might at least temporarily appear attached to the employee, but in truth belongs to the employer: Koops Martin Financial Services Pty Ltd v Reeves [2006] NSWSC 449 at [30]."

163 Further, it may be reasonable for the employer to not merely restrain a former employee from soliciting clients, but also restrain a former employee from being involved in a rival business where such involvement would present a danger to the employer's customer connections (see Woolworths Ltd v Olson [2004] NSWCA 372 at [67] per Mason P; Metcash Ltd v Jardim (No. 3) [2010] NSWSC 1096 at [50] per Ball J).

164 A restraint of trade will not be considered to be contrary to public policy if it is reasonable as between the parties, and not unreasonable in the public interest (see Tullett Prebon (Australia) Pty Ltd v Purcell [2008] NSWSC 852 at [47] per Brereton J).

165 The evidence establishes that when the Executive Services Agreement was entered into between the Company and Mr Andrews in July 2006, Sleep City was an important client of longstanding. Along with Lowes-Manhattan, it could properly be described as one of the main clients of the business. From about 1998, when he was appointed as the Senior Account Director in respect of Sleep City, Mr Andrews' employment with the Company had required him to develop and maintain the relationship between the Company and Sleep City. Mr Andrews accordingly built up a strong relationship with Sleep City, which Mr Andrews described as "personal". He plainly knew a great deal about Sleep City and, in particular, its advertising requirements. In 2006, there was no formal written agreement between the Company and Sleep City. Instead, the provision of services was, as described by Mr Andrews, based on a "handshake deal". The Company provided services to Sleep City which included the production of advertising material as well as media negotiations and placements. The Company, through Mr Andrews, satisfied almost all of Sleep City's advertising needs.

166 The evidence concerning the work performed for Sleep City after July 2006 establishes that for at least some of Sleep City's advertising campaigns, the required work may need to be conducted over a period of several months. For example, there was evidence from Mr Andrews that work done in February 2011 might be in respect of work in progress from November or December 2010. He gave other evidence to the effect that bookings may commence in about September for projects which are still being worked on the following February. That evidence is consistent with documentary evidence which indicates that in August 2010, work was being done in preparation for advertising campaigns (television, radio and catalogue) to be conducted from October 2010 to February 2011 and, further, that confirmation of starting dates for campaigns in respect of the period March to June 2011 was also being sought.

167 In my view, given the importance of Sleep City as a client, the central role played by Mr Andrews as an employee of the Company in maintaining the relationship with Sleep City, the ability of Sleep City to take its custom elsewhere, and the nature of the services which were provided to Sleep City, it was reasonable in July 2006 for the Company to seek to protect its connection with Sleep City by restraining Mr Andrews, for a period of six months after the cessation of his employment, from promoting, participating in, engaging in, or being concerned or interested in, another advertising agency.

168 A restraint of that character and duration would, so it seems to me, provide protection for the Company's connection with Sleep City which is reasonable in all the circumstances. It would enable the Company, through a new employee, a fair opportunity without interference from Mr Andrews to carry out whatever work was in progress, and to seek the continued custom of Sleep City.

169 It is, of course, true that the effect of the restraint would be to keep Mr Andrews out of his chosen occupation for a period, but nothing less than that would adequately protect the Company's legitimate interest in protecting its connection with a major client. For these reasons, I have concluded that the restraints contained in clause 11.1 of the Executive Services Agreement are reasonable as between the parties, and not unreasonable in the public interest more generally. By reason of the operation of s4(1) of the Restraints of Trade Act, those restraints, insofar as they apply to the breaches I have found, are valid.

170 I have not overlooked the suggestion made by Mr Andrews that when the agreement was entered into, he was not given time to seek independent advice. I do not accept that that was the case. Mr Andrews' evidence suggests that he was favourably disposed to the transaction of which his Executive Services Agreement was to form part, and there is no evidence of a request to obtain advice, let alone any refusal by the Company to give him time to obtain any advice. For what it is worth, the Executive Services Agreement itself contains a warranty by Mr Andrews to the effect that he had a reasonable opportunity to obtain legal advice (see clause 13).

171 There was no suggestion that the restraints were invalid due to uncertainty, or any other ground apart from public policy. Accordingly, the restraints in clause 11.1 may be enforced against Mr Andrews.

172 It is next necessary to determine what loss has been suffered by the Company as a result of Mr Andrews' breaches of clauses 11.1. In my view, had Mr Andrews simply resigned in July 2010 and obeyed the restraints which bound him, it is more likely than not that the Company would have retained Sleep City as a client until Mr Andrews was again free to be involved in an advertising agency.

173 Sleep City was plainly enamoured of Mr Andrews, and if he was unavailable for a time, there would be no reason for Sleep City to leave its existing agency pending Mr Andrews' return to the industry. Even in the situation which in fact unfolded in July 2010, Sleep City was prepared to at least allow the Company to continue to provide some services until 1 September 2010, despite the complaints which were set out by Mr Klein on 22 July 2010.

174 Mr Jackman submitted that Mr Klein's letter was disingenuous and thus cannot be relied upon as any reliable statement of Sleep City's reasons for terminating the relationship. He points, in particular, to the statements about bringing the advertising "internally into our business", which were contrary to Sleep City's later actions in entering into a Heads of Agreement with AMC, and making use of Smart Retail. That submission has some force and, in the light of Ms Hennessy's unchallenged evidence that she had not received any complaints from Mr Klein, I would not conclude that any complaints which Sleep City held were of such magnitude that they would have caused it to go to a new agency in the period July 2010 to January 2011. In the absence of Mr Andrews, it is more likely that they would have stayed with the Company rather than go to another agency in the interim.

175 The Company has therefore lost a valuable commercial opportunity as a result of Mr Andrews' breaches. However, I do not think that this loss of commercial opportunity should be assessed as having a value based upon an 80% chance of the Company obtaining the work which was in fact undertaken by Smart Retail and AMC for Sleep City within the six months restraint period. Sleep City had shown in 2008 that it was quite capable of taking its business elsewhere (even with Mr Andrews in his position at the Company). The prospect of that happening again in July 2010, if Mr Andrews was no longer available, seems to me to be a significant one. I accept that the amounts invoiced by Smart Retail and AMC from September 2010 to January 2011 ($3,573,435.55) is a reasonable reflection of the value of the work which might have remained with the Company. However, taking the above matters into account, I would assess the chance of the Company obtaining all of that work to be about 65%. Applying a profit margin of 13.4% would give a value of about $311,246.

176 I think there is some "downside risk" that the Company would not have achieved a profit margin of 13.4%. That figure is an estimate based on nine months of actual figures and three months of projected figures for the 2009 - 2010 financial year. Taking that further matter into account, I would slightly reduce the value the opportunity which was lost due to Mr Andrews' breaches of clause 11.1. Ultimately, I assess the value of the lost opportunity at $300,000. Mr Andrews is liable to the Company in this amount as damages for breach of contract.

177 It was suggested in submissions that Mrs Andrews, who it seems was aware of the restraints contained in her husband's employment contract, had wrongfully interfered in the contractual relations between Mr Andrews and the Company. However, there was no such claim pleaded against Mrs Andrews and I will not therefore consider it further.

178 I turn now to consider the alleged contraventions of s 183 of the Corporations Act. Section 183(1) provides:

"A person who obtains information because they are, or have been, a director or other officer or employee of a corporation must not improperly use the information to:

(a) gain an advantage for themselves or someone else; or

(b) cause detriment to the corporation.

179 The provision is a civil penalty provision within the meaning of section 1317E(1) of the Corporations Act. By section 1317H(1) of the Corporations Act, the Court may order a person to compensate a corporation for damage suffered by the corporation if the person has contravened a civil penalty provision in relation to the corporation, and the damage resulted from the contravention.

180 For there to be a contravention of s183(1), there must be an improper use of information of the type which falls within the subsection; that is, information obtained by a person only because they are or have been a director, officer or employee of a corporation. There will be an improper use of such information where its use would be a breach of an equitable obligation of confidence, or breach of a contractual obligation (see Del Casale v Artedomus (Aust) Pty Ltd [2007] NSWCA 172 at [59] - [60] per Hodgson JA; Manildra Laboratories Pty Ltd v Campbell [2009] NSWSC 987 at [131] - [133] per McDougall J).

181 In the present case, aside from any equitable obligation which would preclude the use of any confidential information, the provisions of clause 8 of Mr Andrews' Executive Services Agreement prohibit disclosure of Confidential Information (as defined).

182 However, the Company has not demonstrated, in my view, that Mr Andrews, in the course of carrying out work for Sleep City in the period from July 2010 to January 2011, used any specific item of information (or even any particular class of information) in breach of either an equitable obligation of confidence or clause 8 of the Executive Services Agreement. It was not put to Mr Andrews in cross-examination that in carrying out such work, he made wrongful use of any confidential information. Neither was it established that any wrongful use of information caused such work to be lost to the Company. There was a suggestion that the knowledge of the terms of the Heads of Agreement between the Company and Sleep City was wrongfully used in the negotiations which took place in July 2010 between AMC and Sleep City for their own Heads of Agreement. However, that information was already known to Sleep City. It could not have been disclosed to Sleep City, and it is difficult to see how that information was itself used improperly. I am not satisfied that any such use was causative of Sleep City work being performed by AMC and Smart Retail instead of the Company.

183 In these circumstances, it is not possible to conclude that Mr Andrews contravened s183(1) of the Corporations Act or that any such contravention caused the Company to lose Sleep City work to AMC or Smart Retail. It follows that neither Mrs Andrews nor Smart Retail have any liability as persons involved in the contravention of s183(1) alleged against Mr Andrews.

Claim for reimbursement of personal expenses

184 The only remaining claim of the Company is the claim for reimbursement of personal expenses said to have been incurred by Mr Andrews on the credit card which was made available to him by the Company. This claim is for a total of $30,423.56, which amount was charged to the credit card in the period February 2009 to June 2010. Mr Andrews, in his Defence, admitted that he charged personal expenses totalling $24,141.57 during that period. A further $461.99 was admitted in cross-examination to be a personal expense (for the benefit of Mr David Andrews). Mr Andrews would not concede that any of the other claimed items were in the nature of personal expenses. In respect of some of them he said they were, or were likely to have been, items purchased as props for commercials or gifts to clients or charity.

185 Despite my reservations concerning the reliability of Mr Andrews' evidence, I am not persuaded to reject his evidence on these matters, particularly as he was willing to make concessions as to the bulk of the amount claimed. I therefore conclude that a total of $24,603.56 was charged to the credit card by Mr Andrews for personal expenses.

186 I accept that, as envisaged by clause 5 of the Executive Services Agreement, the credit card was provided for the purpose of meeting reasonable business expenses. I do not think there is any substance to Mr Andrews' submission that he is not liable to repay because his father was the person primarily liable on the credit card account. Mr David Andrews may have been the primary card holder (and Mr Andrews was himself issued with a card in his own name), but the liability on the credit card account was in fact met by the Company. Accordingly, where items of a personal nature were charged to the credit card, there was an obligation to repay the Company the amount so charged. There was evidence that the Company kept records of personal expenditure charged to the credit card. I infer that this was done for the purpose of obtaining reimbursement.

187 I therefore conclude that Mr Andrews is liable to pay the sum of $24,603.56 to the Company in relation to the credit card he used.

Mr Andrews' cross-claim

188 The cross-claim contains two claims for damages. The first concerns clauses 9(1)(b) and 9(1)(c) of the Executive Services Agreement which gave the Company the right to terminate Mr Andrews' employment by giving three months' written notice or payment of three months' remuneration in lieu of notice. Mr Andrews alleges that on 19 July 2010, his employment contract was terminated by the Company in breach of those provisions. He claims damages of $62,500, being an amount equivalent to three months' remuneration.

189 I have found that Mr Andrews' employment came to an end on 19 July 2010 when Mr Andrews, faced with suggestions that he had failed in his duties to the Company, offered to resign and the Company accepted that offer. The employment came to an end on the same day, after Mr Andrews returned his laptop computer (and provided a copy of the amended Heads of Agreement). There was no discussion of any notice period or the payment of any sum in lieu of notice. The conduct of the parties is consistent with an agreement that the employment come to an end forthwith, without notice or payment in lieu. In my view, there was no breach by the Company of clause 9.1 of the Executive Services Agreement.

190 Mr Andrews further alleges that the Company has wrongfully failed to pay him a bonus of $50,000 in respect of the 2009-2010 financial year. That bonus was payable in the event that an agreed annual profit budget of about $996,000 was achieved in that financial year.

191 The profit and loss statement for the financial year disclosed a net profit for the Company of $642,845. Mr Andrews nevertheless submitted that the true profit exceeded the profit of $996,000. He referred to the minutes of a meeting of the board of Adcorp held on 30 April 2010. Those minutes indicated that the budgeted profit figure was then considered likely to be achieved. Mr Andrews also pointed to a profit and loss summary prepared in May 2010 which showed a year to date profit figure of $921,078 based upon sales of $14,321,288. That sales figure may be compared to the total sales figure for the financial year which turned out to be $15,574,730. Mr Andrews submitted that the profit on those additional sales must have pushed the profit figure for the year above $996,000.

192 However, that analysis fails to accommodate the fact that the summary prepared in May 2010 includes costs of $1,493,963, whereas the profit and loss statement for the financial year includes total expenditure of $1,757,936. The profit and loss statement also shows total income at only a slightly higher figure than the revenue figure contained in the May 2010 summary. These figures were not raised in cross-examination with Mr McMenamin, the chief financial officer of Adcorp. It was not suggested to him that the profit and loss statement was incorrect, or that the true profit exceeded $996,000. I can therefore see no reason not to accept that the profit for the financial year ended 30 June 2010 was $642,845. For these reasons, the second aspect of Mr Andrews' cross-claim also fails.

193 It was suggested by Mr Andrews in his written submissions that he was also entitled to damages from the Company in relation to a failure to facilitate a transfer to him of some shares in the Company from David Andrews. That case was not pleaded so I will not consider it further.

Summary

194 Mr and Mrs Andrews are each liable to account to the Company in the amount of $233,108.27 for the benefits they obtained as a result of breaches of fiduciary duty committed by Mr Andrews when he was an employee. Mr Andrews is also liable to pay damages of $300,000 to the Company, for breaches of clause 11.1 of his Employment contract committed when he was no longer an employee. Finally, Mr Andrews is liable to pay $24,603.56 to the Company by way of reimbursement for the personal expenses he charged to the credit card which was issued to him. Mr Andrews' cross-claim must be dismissed.

195 I direct the parties to bring in Short Minutes which reflect these reasons. The Short Minutes should deal with interest and costs. If there is no agreement on those matters, the matter will need to be re-listed for further argument.

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Decision last updated: 25 March 2014