TRANSCRIPT OF PROCEEDINGS

(Copyright in this transcript is vested in the Crown. Copies thereof must not be made or sold without the written authority of the Director, State Reporting Bureau.)

SUPREME COURT OF QUEENSLAND OS No 3420 of 1989

CIVIL JURISDICTION

SHEPHERDSON J

PATRICK THOMAS TUITE and MARIE JANECE First TUITE Plaintiffs

and

WENMAR STOCKFEEDS PTY LTD Second Plaintiff

and

RUSSELL PETER EXELBY First Defendant

and

WENDY CHEREE EXELBY Second Defendant

and

CRADEX PTY LTD Third Defendant

BRISBANE

..DATE 30/11/92

JUDGMENT

HIS HONOUR: I give judgment for the first plaintiffs against the first and second defendants for $1,649,261 together with interest of $141,508.75. I give judgment for the first plaintiffs against the third defendant for $1,649,261 together with interest of $141,508.75.

I give judgment for the second plaintiff against the first and second defendants for $1,649,261 together with interest of $141,508.75.

I give judgment for the second plaintiff against the third defendant for $1,649,261 together with interest of $141,508.75.

I publish my reasons.

The orders I make on costs are these:

(1) I order the first, second and third defendants to pay the first and second plaintiffs' costs of and incidental to the action up to and including 29 May 1992, including reserved costs, to be taxed. I decline to order these costs on a solicitor and client basis because the plaintiffs did not detail, as they did in the report of Mr Pastellas, how their damages were claimed until after the trial had commenced.

(2) I order the first and second plaintiffs to pay the first, second and third defendants' costs of and incidental to the action occasioned by the adjournment of the trial on 29 May 1992 such costs to be taxed and the amount thereof to be set off against costs ordered to be paid to the plaintiffs.

(3) I further order that the costs of today be paid by the first, second and third defendants to the first and second plaintiffs.

(4) I adjourn the matter for further mention to a date to be fixed.

----- IN THE SUPREME COURT OF QUEENSLAND O.S. No. 3420 of 1989

Brisbane

Before The Hon. Mr Justice Shepherdson

[Re: Tuite & Ors v. Exelby & Ors]

BETWEEN:

PATRICK THOMAS TUITE and MARIE JANECE First TUITE Plaintiffs

AND:

WENMAR STOCKFEEDS PTY. LTD. Second Plaintiff

AND:

RUSSELL PETER EXELBY First Defendant

AND:

WENDY CHEREE EXELBY Second Defendant

AND:

CRADEX PTY. LTD. Third Defendant

REASONS FOR JUDGMENT - SHEPHERDSON J.

Judgment delivered on the thirtieth day of November 1992.

CATCHWORDS:

Contract - restraint on trade - breaches - damages.

Company - directors - breaches of duties at common law and statute - breaches of fiduciary duty to company - Aubanel & Alabaster Ltd. v. Aubanel (1946) 66 R.P.C. 343 applied.

Company - whether a facade or sham for directors alleged to have breached restraint on trade covenant. Damages - on loss in value of shares due to breach of restraint of trade covenant - capital gains tax - whether defendants liable to pay.

Counsel: Mr Morton for the plaintiffs Mr Hack for the defendants Solicitors: MacGillivray & Co. for the plaintiffs Kevin F.J. Woods for the defendants Hearing Date/s: 18 May - 29 May 1992 (inclusive) 31 August 1992 IN THE SUPREME COURT OF QUEENSLAND No. 3420 of 1989

BETWEEN:

PATRICK THOMAS TUITE and MARIE JANECE First TUITE Plaintiffs

AND:

WENMAR STOCKFEEDS PTY. LTD. Second Plaintiff

AND:

RUSSELL PETER EXELBY First Defendant

AND:

WENDY CHEREE EXELBY Second Defendant

AND:

CRADEX PTY. LTD. Third Defendant

JUDGMENT - SHEPHERDSON J.

Delivered the thirtieth day of November 1992.

The trial of this action began on 18th May 1992. At that time, based on estimates given at the time of setting down for trial, the trial was expected to last eight days.

On the tenth day of the trial viz. 29th May 1992 I gave the plaintiffs leave to amend further their statement of claim after all the evidence was in. Reasons for that leave appear at p. 747-749 of the transcript. The matter was adjourned to 31st August 1992 on which date the defendants presented further evidence. The parties produced detailed and helpful written submissions.

The second plaintiff (“Wenmar” was incorporated on 14th November 1985. It began trading as a stockfeed miller in the financial year ended 30th June 1986 (see Ex. 53). Its place of central management was Wondai. At commencement of business wenmar had four shareholders, the first plaintiffs and the first and second defendants. Each held one ordinary $1 share fully paid. Later, and by 30th June 1988 further shares were issued. By that date Russell Exelby held as well one “A” class share, Patrick Tuite held one “B” class share, Wendy Exelby held one “C” class share and Marie Tuite held one “D” class share. The first plaintiffs and the first and second defendants were also the directors of Wenmar. Wenmar's business, although centred on its mill at wondai, was in the South Burnett region.

The business was in effect a corporate partnership and although Marie Janece Tuite and Wendy Cheree Exelby were directors and apparently equal shareholders I find that Patrick Thomas Tuite and Russell Peter Exelby played the main operational roles in Wenmar; that Wendy Exelby initially looked after Wenmar's books and that Marie Tuite took no active part in Wenmar.

Before Wenmar began business operations Patrick Tuite and Russell Exelby had been grain growers in the Tingoora area of the South Burnett region.

Initially each of these men had a satisfactory business relationship both putting in approximately the same working hours and effort each week.

Towards the end of 1987 relations between Patrick Tuite and Russell Exelby, began to turn sour, the main area of dispute being, I find, over the number of hours each was devoting to Wenmar's business. At this time, Russell Exelby was expanding his commercial interests into growing trees named dubiosa. Tuite was putting more hours into Wenmar than Exelby. At about the end of 1987 the working staff of Wenmar (apart from Messrs Tuite and Exelby), were a man who was the mill operator and truck driver, a labourer and a female employee working on a casual basis looking after the books.

Tuite put up with what he saw was Russell Exelby's failure to do his share of the company work and in late 1988 Russell Exelby told Tuite that he wanted to part company with Wenmar.

I find that thereafter the first plaintiffs and the first and second defendants sought to bring to a satisfactory conclusion the partnership within the corporate frame. I find also that in late 1988 Wenmar was a proven profitable success and the Tuites and the Exelbys were searching for a solution without ruining Wenmar. The search proved fruitless at that stage and Russell Exelby asked a man named Neil Michel from Duesburys, accountants to mediate what appeared to be an impasse between the Tuites and the Exelbys. I find that in late January or early February 1989, Neil Michel attended a meeting in the RSL meeting room at Wondai at which Mr and Mrs Tuite and Russell Exelby were present. At that meeting Michel presented a six page typed document headed “Without Prejudice” and described as “PROPOSAL BY RUSSELL AND WENDY EXELBY RE: WENMAR STOCKFKEDS PTY LTD”. This document went into evidence without objection and is Ex. 4.

It is unnecessary to go to this document in any detail save to note:—

(a) it stated “It has been recognised by the directors that a re-organisation is now necessary so as to allow the individual parties to achieve their personal goals”. (b) it recognised that the Tuites wished to stay in the Wenmar business and the “Exelby family wish to extract themselves from the company and the business at the earliest opportunity without unduly affecting the viability of the company's business or any detrimental effect to the Tuite family”.

(c) Three alternative (sic) solutions were suggested one of which was “Sale of Exelby shares to the Tuites”.

I shall later say something of events thereafter and until Ex. 1 came into existence.

Ex. 1 is a photocopy of an agreement which is undated made between the first and second defendants (therein called “the vendors”) and the first plaintiffs (therein called “the purchasers”). Ex. 1 was tendered by consent. It was in effect an option to the purchasers to buy the vendors' shares in Wenmar for $150,000. The option was couched in terms of an offer by the vendors to sell on specified terms such offer remaining open for acceptance by the purchasers until 5 p.m. on 11th May 1989. Ex. 1 provided that on acceptance of the offer the parties would enter into a formal contract of sale to include certain specified terms some of which were:—

(a) that the vendors would resign from all positions held with Wenmar;

(b) that settlement be effected within thirty days of the exercise of the option;

(c) that the vendors be subject to a specified restraint of trade for two years from the date of settlement. That restraint clause reads:—

“F. The Vendors shall not engage or be employed in any stockfood production business in the South Burnett area for a period of two years from the date of settlement. It is acknowledged that this covenant does not affect the Vendors right to trade in whole grains or the lot feeding of cattle during the said period of 2 years.” The first plaintiffs exercised the option to purchase by signing the original of Ex. 1 on 11th May 1989 in the office of Mr Kevin F.J. Woods, Solicitor of Kingaroy, who at that time acted for the first and second defendants and had acted for Wenmar. I should add that the first and second plaintiffs take no point about Mr Woods acting for the defendants in this action.

Following exercise of the option the first plaintiffs as purchasers and the first and second defendants as vendors signed the agreement contemplated in Ex. 1. A photocopy of that agreement is Ex. 2.

Ex. 2 provided (inter alia):—

(a) that on 19th June 1989 the vendors would resign from all positions held with Wenmar and on settlement would deliver to the purchasers original share certificates together with completed transfers in relation to the shares sold (clause 5).

(b) “11. (a) The Vendors shall not exercise carry on or be in any manner whatsoever either directly or indirectly concerned or interested either by themselves or person, company or corporation in the trade or business of stock food production within an area defined by a line drawn on a map from Hervey Bay and thence to Gympie and thence to Moore and thence to Dalby and thence to Eidsvold and thence to Hervey Bay, hereinafter called ‘the defined area’ during a period of two years from the date hereof or permit their personal name to be used in carrying on or in connection with any such business or supply or solicit any of the existing customers of the Company. The Vendors acknowledge the Company has existing customers or contacts throughout the said defined area and specifically acknowledge that valuable consideration has passed from the Purchasers to the Vendors in respect of this Covenant. (b) The Purchasers acknowledge the within Covenant does not affect the Vendors right within the said period of two years to carry on the following businesses within the defined area:—

(i) To trade in whole grains

(ii) To mix and supply stockfeed for lot feeding of cattle upon the Vendor's own property.”

Before me, the first and second defendants concede the reasonableness of this restraint on trade - Ex. 3 is a map showing the boundaries of the area of the restraint marked on it.

I pause to say that it is part of the first and second plaintiffs' case that the third defendant has carried on the business of (amongst others) stockfeed production within the area described in clause 11 of Ex. 2 and that the first and second defendants have been engaged in or concerned with the business purportedly conducted by the third defendant.

In the events which happened, I find that on 19th June 1989 the first and second defendants each resigned as a director of Wenmar, such resignation being effective “as at the 19th June 1989” (see Ex. 5).

On the same day the first defendant transferred to Patrick Thomas Tuite his two shares in Wenmar and the second defendant transferred to Marie Janece Tuite her shares in Wenmar.

The third defendant was incorporated on 17th April 1989. Its directors and shareholders are Peter Roden Exelby and Doris Lillian Exelby who are the parents of the first defendant Russell Peter Exelby. Mr and Mrs Exelby senior acquired the third defendant as a shelf company from their solicitor Mr Kevin F.J. Woods. I find that from 3rd May 1989 Mr and Mrs Exelby senior have been the only directors and shareholders of the third company. The third defendant (“Cradex”) was incorporated three days after a meeting between a finance consultant named Kevin James O'Brien, Russell Exelby and Peter Exelby. I shall later mention this meeting.

At that time Peter and Doris Exelby resided in Wondai. They applied on behalf of Cradex to the National Australia Bank at Wondai for finance. After some difficulty - I shall later refer to certain events - finance was approved to enable Cradex to start a feed mill. On or about 22nd May 1989 a John Dalton who had until shortly before then been employed by Wenmar applied on behalf of Cradex to the Council of the Shire of Wondai for that Council's consent for Cradex to use land described as portion 110V in the County of Fitzroy Parish of Charlestown for the purpose of a stockfeed mill. This land is in Transmitter Road, Tingoora. Dalton signed an application describing himself as “Manager”. On 20th July 1989 the Council gave its consent and by letter dated 25th July 1989 (Ex. 18) advised Cradex of that consent.

Towards the end of June 1989 construction work namely erection of a shed was undertaken at Portion 110V. Machinery was ordered. A silo arrived on 3rd August 1989 and a 46 foot auger arrived at the site on 7th August 1989.

Dalton commenced what he described as full time employment with Cradex on 23rd or 24th July 1989. Cradex began operating as a stockfeed mill in early September 1989 and continues to operate in that capacity.

The site of the Cradex mill in Transmitter Road is quite close to the site of Russell and Wendy Exelby's farm property at Portion 113V in the Parish of Charlestown. Russell and Wendy Exelby have at all material times resided on this farm. On 20th April 1989 Russell and Wendy Exelby applied to the Council of the Shire of Wondai for consent to use Portion 113V “for feedlotting 1000 head of cattle”. The use of the land at time of application was described as “cattle grazing”. On 15th May 1989 the Shire Clerk of the Council advised R. and W. Exelby that it proposed to grant the application subject to certain conditions one of which limited to two hundred the number of cattle kept at the feedlot. There were objections to this application (Ex. 20) but no appeals were lodged.

The facts which I have so far stated will give sufficient background to enable me to now set out the claims made by each plaintiff. I shall later make further findings to complete the picture.

The claims are:—

1. By the first plaintiffs against the first and second defendants R.P. and W.C. Exelby for damages for breaches of the restraint agreements made on or about 27th April 1989 (see Ex. 1) and 19th June 1989 (see Ex. 2).

The breaches alleged have been particularised by the plaintiffs and are alleged against the first and second defendants personally in a number of respects and further and in the alternative against the first and second defendants by themselves or by the third defendant in different respects namely supplying persons firms and corporations who were customers of Wenmar as at 19th June 1989.

2. By the first plaintiffs against the third defendant for damages for wrongful procuration of a breach of contract by the first and second defendants.

3. By Wenmar, the second plaintiff against each of the first and second defendants for breaches of duties as a director of Wenmar, the duties being those said to arise pursuant to s. 229 of the Companies (Queensland) Code 1981 and by reason of common law and damages for breach of fiduciary duty. 4. By Wenmar against Cradex claiming damages for breach of fiduciary duty.

It is the case of all plaintiffs that Cradex is really a sham and that Cradex was really set up by Russell Exelby with Wendy Exelby's knowledge, support and approval to compete with Wenmar within the period and area of restraint and to take Wenmar's customers and that in reality Cradex is and always has been the business of Russell and Wendy Exelby (irrespective of the involvement of Mr and Mrs Exelby senior). If this case is made out then it is argued that Russell and Wendy Exelby were interested in the business of Cradex within the two years of the restraint and thus in breach of the restraint agreement.

I now set out the further findings which I make in respect of the evidence led in this case.

1. By the end of 1988 and early 1989 the first and second defendants knew they did not wish to be further involved with Wenmar. Ex. 4 and the three matters from it earlier noted by me clearly demonstrate this; however it was not until Easter 1989 that the first and second defendants decided that they would leave Wenmar by selling their shares to the first plaintiffs.

2. As the first defendant said, by late March early April 1989 he had been speaking to customers of Wenmar with a view to testing the water about the possibility of these customers coming to deal with the first defendant if he set up a new mill.

3. As the first defendant also said, if this proposed new mill were to commence operations his hopes (in late March early April 1989) were that some of the customers of Wenmar would switch allegiance to it. He based these hopes on the content of his conversations with Wenmar customers. 4. After the meeting in the Wondai RSL meeting room to which Ex. 4 related (which meeting I have earlier mentioned) there were proposals to resolve the impasse relating to Wenmar - at least one from the first and second defendants offering to sell their shares to the first plaintiffs for $450,000 which was rejected. On 22nd March 1989 the first plaintiffs made an offer to the first and second defendants the effect of which was that Wenmar be sold as a whole, that the first plaintiffs would be paid $50,000 tax free plus a new utility motor vehicle from the proceeds of sale and that the balance be divided between the first plaintiffs and the first and second defendants.

5. The first and second defendants received the offer of 22nd March 1989 while en route to Kooralbyn Valley for the Easter holiday break. This offer enraged the first defendant. He discussed the matter with the second defendant and they resolved during Easter 1989 to sell their shareholdings in Wenmar to the first plaintiffs for $150,000.

6. I find that at this time i.e. during Easter 1989 the first defendant was very angry with Patrick Tuite.

7. During Easter 1989 the first defendant made up his mind that he would set up his own stockfeed mill and in the ensuing weeks he approached customers of Wenmar asking them if he set up his own mill whether those customers would support him. I shall later mention these approaches.

8. On return from Kooralbyn Valley after Easter 1989 the first defendant went to the office of his solicitor Mr Kevin Woods in early April 1989. Mr Woods was busy but did see the first defendant for a short time and advised the first defendant that he, Woods, was not sure exactly where the first defendant stood in the situation and told the first defendant to see him in a week or a fortnight. Exactly when the first defendant returned to see Mr Woods is unclear but probably it was more than one week after the first defendant first saw Mr Woods in early April.

9. At about this time Carrolls, solicitors of Kingaroy acted for the first plaintiffs. Documents were drafted, altered and exchanged between the respective solicitors and ultimately the option agreement Ex. 1 was signed by the first and second defendants on 27th April 1989.

10. From some uncertain time before 27th April 1989 - certainly by 14th April 1989 the first defendant and, I infer, the second defendant knew that because of the first plaintiffs' requirement as to restraint of trade, neither the first or second defendants could be involved in any feed mill operating within the area and period of the proposed restraint. The terms of the restraint stated in Ex. 1 were I infer inserted in an early, if not the first draft of the option agreement probably prepared by Carrolls and sent to Mr Woods. This first draft was prepared after the first and second defendants had agreed to give the first plaintiffs an option to buy their shareholding in Wenmar for $150,000, the option being needed to give the first plaintiffs time to arrange finance to complete the purchase.

11. In 1989 Kevin James O'Brien was a partner in Anderson O'Brien and Associates, finance and insurance consultants of Toowoomba.

12. Not long before 14th April 1989 Russell Exelby telephone Mr O'Brien's firm and arranged for Mr O'Brien to meet him and his father Peter Roden Exelby at Russell's farm at Tingoora. The meeting occurred on 14th April 1989 at that place. The purpose of the meeting was to have Mr O'Brien's firm submit two applications for finance. The first application was on behalf of Peter Roden Exelby and Doris Lillian Exelby to lease certain items of plant and equipment to establish a feed mill.

The second application was on behalf of Peter Russell Exelby and Wendy Cheree Exelby to lease various items of plant “to build a 1000 head feed lot” on their property.

13. After the meeting which lasted some 2-3 hours during all of which all three persons were present Mr O'Brien prepared one lease application which covered both the applications. A photocopy of the application is Ex. 22.

14. At this meeting:—

(a) Mr O'Brien was given a piece of paper with projected trading figures for the feed mill proposed by Peter and Doris Exelby - these figures were in Russell's handwriting.

(b) Russell Exelby showed Mr O'Brien copies of one or two tax returns for Wenmar which copy or copies included the profit and loss statements.

(c) The name of the feed mill proposed for Peter and Doris Exelby was then unknown but Mr O'Brien was told by either Peter or Russell that this mill would be put on a block of land in Peter's name so that it was not linked to Russell.

(d) Russell and Peter Exelby were at pains to tell Mr O'Brien that Russell could have no part in the operation of the feed mill by Peter and Doris Exelby.

(e) Peter and Doris Exelby had no prior experience with operating a feed mill as they proposed to do. Peter Exelby was then 61 years old and Doris was almost 63 years old. Ex. 22 described their occupation as “semi-retired farmers” and described Russell and Wendy's occupations as “Farmers Graziers and Company Directors”.

(f) It became clear to Mr O'Brien that Russell knew how to put together the proposal by his father and mother for finance for the feed mill and was telling his father what plant and equipment would be needed for the feed mill proposed to be run by Peter and Doris; that Peter needed help in his proposed new venture and that Russell was there to give him advice having been involved in the successful operation of the Wenmar feed mill.

(g) Mr O'Brien was told that “Wenmar had gone from nothing in three years to turning over some fairly high amount.” This information, I add, could only have come from Russell Exelby and the Wenmar produced statements he showed Mr O'Brien.

(h) Mr O'Brien was told that the feed mill proposed by Peter and Doris was not to grow as big as Wenmar and that its product would in quite large part be used by Russell and Wendy Exelby in their 1000 head feed lot proposed to be put on their nearby farm, that feed lot to be used for feeding cattle of South Burnett Meats.

(i) Mr O'Brien was told of the falling out between Russell Exelby and Patrick Tuite.

15. Ex. 22, I find, accurately reflects what Mr O'Brien was told at the meeting with Russell and Peter Exelby. I thought O'Brien honest and reliable. The original of Ex. 22 was prepared shortly after the meeting.

16. Ex. 22 contains inter alia the following matters:—

(a) the following list of plant and equipment for the Exelby Seniors' feed mill. “Feed Mill:

1 Grain Silo $12 000 1 Protein Silo $ 2500 1 Grain Auger $ 4 500 1 Grain Auger $ 3 500 1 Roller Mill $ 6 000 1 Hammer Mill $ 7 000 Cracked Grain Holding Bins $ 1 000 Miner $ 7 000 PTO Miner $ 7 000 Scales $ 5 000 Mixed Fed Bins $18 000 Sundry Smaller items (office furniture etc) $ 5 000 $78 500

(b) “BACKGROUND

The two lease applications should be read in conjunction, as it involves a family project, broken down into 2 parts for reasons outlined later.

Applicants are father and son. Peter Exelby was farming at Wondai from 1948 until selling the properties to his son in 1985, and has led a semi retired life since that date.

Russ Exelby had a property nearby until he purchased the present farm from his parents.

Approximately 3 years ago, they also established a Feed Mill with a partner, under the company name of Wenmar Stock Feeds Pty Ltd. That business has been highly successful, mainly through the efforts of Russ Exelby and not his partner. ...”

(c) “REASON FOR ACQUISITION

There are two main reasons for going into this project. a) Patrick Tuite, the partner in Wenmar Stockfeeds is not doing his share of the work and when approached to sell his share to Exelby, placed an unrealistic value on its worth and other unacceptable conditions. b) Russ Exelby has been offered a permanent contract with the South Burnett Meatworks to hold and feed 1000 head of stock year round. The feed is supplied by the meatworks and would be purchased form the proposed Feed Mill being built in his fathers name.

For legal reasons under various Acts in the Company Code, Russ Exelby must stay at arm's length from the feed mill, although he will be there to assist his father in its operation. The day to day work will be done by the present manager of Wenmar, who will resign from there to join the Exelby's.”

(d) a budget for the proposed mill for Years 1 and 2.

(e) “FUTURE PROSPECTS

The proposed mill will be limited in production to around 250 tons per week as at that point the machinery and plant are at full capacity. The Wenmar operation produces 360 tons, but that is expected to drop to 200 or less on establishment of this mill.

The South Burnett Meatworks contract will account for 1/2 of the output, so that to be viable in the first year of operation, Exelby does not have to find much more of the market, and is confident of doing that through his rapour (sic) with users as a director of Wenmar.

The Wenmar operation will most likely be sold, and Russ Exelby expects to claim a net share of $100,000 once this happens. It is also likely that once the proposed venture is up and running, that Tuite will drop his price to a more reasonable figure to achieve that sale.” (The underlining is mine.)

(f) the cash flow of Wenmar, in some detail for the year 1987 and 1988 was set out and said to be “a guide to the profitability and viability of the feed mill”.

(g) Under the heading “SECURITY” the following appears:—

“The proposal has been discussed with both Mr Exelby's solicitor and accountant ....

Both men are fully aware of the Tuite/Exelby fallout and have advised that this set up is a legal way of steping (sic) around the Company Act and avoiding any legal action from Tuite.

The subject of Russ Exelby, both as landlord of the property, a proven performer in the industry and a man of independent income offering a guarantee to support his father's application was discussed. It is felt by the solicitor that this could in the eyes of a court link the Feed Mill operation to Russ Exelby and cannot be offered.

Alternative security in the form of a Memorandum of Mortgage over both the lease on the land being used by the Feed Mill (and owned by Russ Exelby) and over the 2BM/- held by Peter over his son's property would be available. These would effectively be a ‘guarantee’ as they cover assets owned by Peter Exelby, who in turn has a call upon his son.”

(h) “Both men are astute farmers and businessmen, as illustrated by the returns of Wenmar in particular where Russ Exelby built up a multi million dollar business from scratch over some 3 or 4 years, virtually without the assistance from Pat Tuite who contributed nil as far as expertise, security and capital were concerned, and in fact probably mis- used funds from the company for his own purposes.” Mr O'Brien recommended his application which he sent to Esanda.

17. As I have indicated, Ex. 22 contains statements which could only have come from Russell Exelby. The projected trading figures for the proposed feed mill came from Russell Exelby. The statement underlined in 16(e) above was not originally challenged in Russell Exelby's evidence in chief. This statement came to Mr O'Brien from Russell Exelby.

18. Ex. 57 is a document (unsigned) coming from Mr Wood's office and said to be Russell Exelby's comments on Ex. 22. If the contents of Ex. 57 accurately record what Russell Exelby told his solicitor after having seen Ex. 22 as he said for the first time during discovery in this action, it contains no denial of:—

(a) the proposition on the fourth page referred to in 16(c) above that Russell Exelby “will be there to assist his father in its [the mill's] operation”.

(b) the proposition in 16(g) above “that this set up is a legal way of stepping around the Company Act and avoiding any legal action from Tuite”.

(c) The concluding statement in 16(c) above concerning the present manager of Wenmar leaving to join the Exelby's.

19. Russell Exelby made his comments in Ex. 57 after he had been sued by the first plaintiffs. The writ was served in September 1989. The statements to Mr O'Brien were made before Ex. 1 came into being and indeed before the first plaintiffs had made an offer to buy the first and second defendants' shares for $120,000 on terms appearing in Ex. 56.

20. The concluding statement in 16(c) above which I find was made on 14th April 1989 was made I find by Russell Exelby rather than Peter Exelby. Peter Exelby told me that he offered John Dalton who is the person referred to in that concluding part of the statement in 16(c) the job of manager with Cradex on 25th April 1989. Russell Exelby and John Dalton were, I find, firm friends in March-April 1989.

21. I construe the evidence of Mr O'Brien in conjunction with Ex. 22 as proving that at the meeting on 14th April 1989 Russell and Peter Exelby were telling him that Russell Exelby could not by law be involved in the proposed feed mill and that that was the reason why the structure of which they told Mr O'Brien, was being set up namely - to hide Russell Exelby's involvement. I prefer the evidence of Mr O'Brien to that of Messrs Russell and Peter Exelby as to what was said and done at the meeting on 14th April 1989.

22. Russell Exelby quite candidly conceded that, while still a director of Wenmar, he had visited certain customers of Wenmar. He admitted in cross- examination that when he was “running around speaking to Wenmar's customers” he knew that he was trying to take them away from Wenmar potentially if he set up his mill. He also admitted he knew that if that happened it would harm Wenmar's business. The statement in para. 16(e) above asto Wenmar's expected drop in production to 200 or less tons could only have come from Russell Exelby. A number of these customers gave sworn evidence at the trial.

23. Kevin Bruce Perkins is a grazier from “Kjal” Cushnie Wondai. He has been a customer of Wenmar from its commencement to trial in May 1992. He knew before mid 1989 that Patrick Tuite and Russell Exelby were the persons running Wenmar. Perkins in his oral evidence had heard of what was called a split up between these two men. In his oral evidence he recalled a conversation he had with Russell Exelby - he called him Skippy Exelby - in which Russell Exelby told Perkins that there would be another feed mill starting up at Tingoora. I declared Perkins a hostile witness - my reasons appear in the transcript - and permitted Mr Morton, who had called him in the plaintiffs' case to cross-examine Perkins on a statement he had signed on 10th February 1992 after satisfying himself that the contents of that statement were correct. I would add that Perkins had this statement in his possession for some eighteen months to two years. It was then unsigned - it had been prepared on the basis of information Perkins had earlier given the plaintiffs' solicitors. In February 1992, when Perkins did sign the document, he checked to satisfy himself that the contents were correct and in fact caused a paragraph of the statement to be deleted.

I thought Perkins very reluctant to admit in the witness box any matter which he thought might harm Russell Exelby. His statement is Ex. 21. Paragraph 5 and two parts of para. 6 of the statement were excluded as inadmissible. Those two parts are the references to “Cradex”.

Ex. 21 was admitted under s. 17 of the Evidence Act. By s. 101 of that Act a prior inconsistent or contradictory statement by Perkins shall be admissible as evidence of any of the facts stated therein of which direct oral evidence by him would be admissible (R. v. Lawrie (1986) 2 Qd. R. 502). The effect of s. 101 on Ex. 21 is that, I find:—

(a) that some time prior to June, 1989 Russell Exelby came to see Perkins at home to tell him he was splitting from Wenmar Stockfeeds and going out on his own. Russell Exelby asked Perkins whether or not he could feed Perkins cattle for him - that is whether or not he could supply cattle feed for Perkins. (b) that on a further occasion after Russell Exelby had left Wenmar, Russell Exelby told Perkins that he had taken Tuite's best customers who were his football mates and that those customers were the backbone of Wenmar Stockfeeds.

(c) In around June 1989 Perkins saw Russell Exelby at a cattle sale, that Russell Exelby was very excited and very angry with Pat Tuite and said “I've had Pat - I don't care whether or not Cradex trades at a loss.”.

As to the finding in respect of sub-para, (c) above Perkins insisted in cross-examination that Russell Exelby did say that he would break Pat and he didn't care whether or not Cradex traded at a loss

24. John Henry Gleich was another customer of Wenmar who gave oral evidence at the trial. Gleich ran cattle and pigs on his Murgon property - some cattle were lot fed. Gleich knew Russell Exelby because he had bought land from him in 1986, and dealt with him at Wenmar, but he got to know him better through football - rugby league football - in which both had an interest through their sons who played this game. Gleich had sworn an affidavit on 3rd October 1989 In these proceedings. I allowed it as an exhibit (Ex. 23). My reasons appear on p. 184.

In that affidavit Gleich said that at about 9.15 p.m. on 30th May 1989 Russell Exelby telephoned Gleich at his home and paras. 4 and 5 read:—

“4. RUSSELL EXELBY told me that he was going into the feed mill business himself, separate to WENMAR STOCKFEEDS PTY. LTD., and that the purpose of his call was to offer me a six month feed price contract with better feed at a better price than that offered by WENMAR STOCKFEEDS PTY. LTD. 5. RUSSELL EXELBY gave no specific details of the proposed offer and I did not agree to accept any feed from him.”

Gleich I find at all times up to trial has dealt with Wenmar.

In cross-examination Gleich appeared somewhat uncertain about the date 30th May 1989 - as he said “it's a fair while to remember back”. Gleich told me the circumstances in which he came to swear the affidavit before the J.P. Mr Braysher.

I thought Mr Gleich in the witness box was endeavouring to assist Mr Russell Exelby in his evidence before me in that I gained the clear impression that he was trying not to say anything which he thought might harm Russell Exelby.

At the end of his cross-examination Mr Gleich was telling me he had no memory of the exact date of the phone call and he was endeavouring to fix the date by reference to his memory of days in May 1989 when he said two deliveries of concrete were made at his property. Gleich said the affidavit (Ex. 23) was based on what he had told Mr Tuite when the latter called or telephoned him on an occasion when concrete was delivered.

I thought Mr Gleich a rather nervous witness who found himself in and perhaps overawed by unfamiliar surroundings. As I have said he seemed to me to be wishing not to hurt Mr Russell Exelby. His sons and Russell Exelby's sons provide their common interest in rugby league. I find that it is more likely than not that the telephone conversation deposed to in Ex. 23 occurred on 30th May 1989 and that the facts in para. 4 of Gleich's affidavit are true. I find that Gleich read through Ex. 23 before he signed it and corrected para. 6 as appears in it. I infer from this that at the time he signed Ex. 23 he was satisfied as to the truth of its contents.

25. Noel John Kirk was a grazier/feedlotter in 1989. His property was at Gayndah. Prior thereto he knew both Patrick Tuite and Russell Exelby and Wenmar supplied grain to him. I find on Kirk's evidence that in August or September 1989 he spoke to Russell Exelby at a Murgon cattle sale. On this occasion I am satisfied that Russell Exelby said “How are you going with the grain” - “What sort of price are you paying”. Kirk answered these questions and Exelby said to him “I think you might be able to do better. Why don't you give John Dalton a ring?”

I find that when Russell Exelby asked his questions of Kirk, he must have known that the price he referred to was the price paid to Wenmar. I also find that some days after their conversation Kirk did telephone Dalton and, after Kirk had emptied his feed bin, began to buy grain from Cradex because it was cheaper than Wenmars. I am satisfied that Russell Exelby did not mention the name Cradex to Kirk but that Kirk knew, at the time of his conversation with Russell Exelby, that Dalton was with Cradex. I find that Russell Exelby in his conversation with Kirk intended to have Kirk buy grain from Cradex. I am confirmed in this view by Russell Exelby's evidence in chief in which he said that he told Kirk that if he was going to feed cattle at Russell Exelby's feed lot he would have to get in touch with John Dalton about prices and that this conversation occurred when Cradex was in operation.

26. Rex Alan Shelton a farmer of Merlwood which is about twelve kilometres north of Murgon, gave oral evidence. He also knew Patrick Tuite, Russell Exelby and Wenmar and had bought feed from Wenmar for some years before 1989. He knew Russell Exelby was associated with Wenmar.

Shelton spoke of two occasions when Russell Exelby called at his property. On the first of these, a Sunday, he was accompanied by John Dalton. I find that on this occasion Russell Exelby told Shelton he and Pat Tuite were not getting along, they were going to separate and that he Russell Exelby was going to build a mill of his own; that Russell Exelby asked Shelton if he would be interested in doing business with him and Shelton said he probably would. Shelton at first fixed this conversation as “probably early in the autumn” . . . “in the winter”. He was not sure when it was but I find that it was probably in March or April 1989 - Shelton was prepared to accept as much in cross-examination. I find that Shelton knew Russell Exelby quite well having most of his dealings with Wenmar through him.

I find also that probably some months after the first occasion, Russell Exelby and John Dalton again called at Shelton's property. On this occasion, I find that Russell Exelby again asked Shelton if he was still interested in doing business with him and that that question, as both parties knew, referred to the mill Russell Exelby had earlier said he was setting up. I am satisfied that on both occasions Shelton knew Dalton was from Wenmar and that he was the person he mainly spoke to when he ordered from Wenmar via telephone.

Russell Exelby did not deny the second conversation of which Shelton gave evidence.

I find that after these two occasions John Dalton and Peter Exelby called on Shelton. This was when Shelton first met Peter Exelby and on this occasions Peter Exelby and Dalton asked Shelton for his business. Shelton at this stage knew Dalton was with Cradex and that Peter Exelby and Dalton were representing Cradex.

I also find that Shelton did not ever buy exclusively from Wenmar, that he used other feed mills and that after Cradex began operating he bought feed from Cradex for a short time. I am satisfied Shelton bought from Cradex partly because Russell Exelby had asked him to in the earlier conversation and partly through interest in seeing the new mill's product.

In June 1990 Shelton ceased to buy feed from stock feed mills, having by then established his own mill. I am satisfied that Russell Exelby told Shelton, prior to the latter's dealing with Cradex, that he, Russell, played no part in Cradex.

I find that the conversation on the second occasion of which Shelton spoke, is inconsistent with Russell Exelby's evidence that after April he had nothing to do with Cradex's business.

27. William Gregory Bell lived at Cushnie. Bell knew both Patrick Tuite and Russell Exelby, the latter longer than the former. Bell's partnership was a customer of Wenmar from the time Wenmar began to trade.

I find that probably on a day in May 1989 Russell Exelby and John Dalton called at Bell's property and that Russell Exelby told Bell that soon he would no longer be any part of Wenmar, that his father Peter Exelby was going to build a new feed mill and that he, Russell, was introducing John Dalton as manager of the proposed new feed mill. Bell knew, at this time, that Dalton was the main mixer of grains at Wenmar. I am satisfied that on this visit Russell Exelby told Bell that he (Russell) could “have no part in this new feed mill due to some legal bindings”. At some uncertain time later Peter Exelby and John Dalton called on Bell - I find it was probably after Dalton had left Wenmar's employ. I am satisfied Peter Exelby and Dalton canvassed Bell for his partnership's business and that Bell agreed to “give them a go when they got going”.

I find that when Cradex began trading, Bell's partnership did begin trading with Cradex. I accept Bell's evidence that Dalton, as mixer of the grain was important to Bell and that Bell's partnership had been reasonably happy with Dalton as grain mixer. The reason why Bell's partnership changed to Cradex was because Dalton was manager and in charge of mixing grain. I find that Russell Exelby knew, when he spoke to Bell on the occasion of his visit with Dalton that Bell would regard Dalton when introduced as manager of the new mill as an important cog in the success of the new mill.

28. David Alexander Hiron lives at Cloyna just north of Murgon. In 1989 he ran a piggery and cattle feedlots on his property; he then knew both Patrick Tuite and Russell Exelby and had begun buying feed from Wenmar several years earlier. He knew Russell Exelby was associated with Wenmar. On 21st February 1989 at Murgon Meatworks Russell Exelby told Hiron that he was thinking about starting another feed mill. About one or two months later he asked Hiron if he started a mill could he use Hiron's feed lot yards to put other people's cattle in? Hiron at that time had his own feed lot cattle and also “custom fed” other persons' cattle in his yards.

29. William James McUtchen, a pig farmer from Murgon, has traded with Wenmar since it began business. Mr McUtchen knew Russell Exelby when the latter came to his piggery around Easter 1989 and told him that he was thinking of going into the business of feed milling on his own and would like to take McUtchen on as a customer if he did such a thing.

30. Russell Exelby in evidence said that probably in January 1989 he thought of putting up a new mill and if he could get appropriate consent, siting it on his property. He said that just before Easter he decided to sell his and Wendy's share to the Tuites for $150,000 and probably then made up his mind that he didn't want to set up his own mill. Nevertheless he said that over the next two or so weeks he approached several selected customers of Wenmar and asked them if he did set up his own mill would they support him? He thought that he had visited eight or nine prospective customers all of whom were Wenmar customers. I have no doubt that visits by Russell Exelby to these Wenmar customers did occur but I do not accept his evidence that his canvassing of these customers ceased well before the option agreement was signed on 27th April 1989. Nor do I accept his evidence that it was just before Easter that he decided to sell the shareholding for $150,000. I am satisfied this price was agreed on by the first plaintiffs and the first and second defendants later than Easter. Furthermore this is quite inconsistent with what Russell told O'Brien on 14th April 1989 (see Ex. 22 and sub-para. 16(e) ante in which there is a reference to Wenmar operation mostly likely being sold).

I mention now that I preferred Gleich's evidence to that of Russell Exelby as to the date of his approach to Gleich. I prefer the evidence of Shelton and Bell to that of Russell Exelby where there is disagreement between each of them and Russell Exelby.

31. Peter Roden Exelby resided at Urangan in May 1992. He described himself as retired and a company director. At that time he and his wife Doris Lillian Exelby were the directors and shareholders of Cradex.

In early 1989 Peter Exelby had in effect retired from farming for a number of years. He had farmed in the Tingoora area from 1949 until 1979 when he arranged for Russell to manage the farm. In 1982 Peter and Doris Exelby sold the farm to Russell and Wendy Exelby for $200,000 on terms. In 1979 Peter and Doris Exelby received rural reconstruction moneys which enabled them to build a house in Wondai where they then went to live. I am satisfied that Peter Exelby and Doris Exelby also sold machinery to Russell and Wendy for $40,000.

I am satisfied that some time in 1988 Peter became aware of Russell's unhappiness in Wenmar and that probably in early 1989 Russell told his father than he, Russell, would like to start his own feed mill.

I do not accept Peter Exelby's evidence that in 1988 when he knew Russell was unhappy with Wenmar that he had contemplated (without communicating the fact to any person) that he might become involved in a stock feed business.

Both Peter and Doris Exelby were then in their 60's and neither had had any prior experience in the stock feed business.

32. Russell Exelby admitted in cross-examination that after he had spoken to Wenmar customers in late March early April 1989 with a view to testing the water about the possibility of their coming to deal with him if he set up a new mill he had formed the view that his proposed new mill would be a successful one. He also said that he hoped that if the new mill were to begin operations some Wenmar customers would switch allegiance to it. He conceded he thought that would happen because of his discussions with those customers. 33. I am satisfied that by that time Russell Exelby wanted to set up a new mill; that he was determined to prove he was very capable of feed milling and that he thought he could run it so successfully that he could put Mr Tuite out of business. I formed the view that Russell Exelby hates Patrick Tuite and that this hatred showed itself in his thought of putting Tuite out of business - a thought later expressed in the extract from Perkins' statement and Perkins' evidence appearing in para. 23 above.

34. Once Russell Exelby received legal advice from Mr Woods that neither he nor Wendy could be involved in the operation of the proposed new mill - and I find he received that advice before the meeting with O'Brien on 14th April 1989, I am satisfied that Russell spoke to his father about this barrier to his plans.

35. Russell claimed in cross-examination that he first told his father of his idea about setting up a feed mill after the middle of April but I reject that evidence. The meeting with O'Brien occurred on 14th April 1989 and it is quite plain that probably several days before that date Peter Exelby knew that Russell could not be involved in setting up his planned feed mill.

36. Russell Exelby agreed in cross-examination that his father knew from about the end of March 1989, shortly after Easter that Russell intended to go into a new mill. He also agreed that around the end of March 1989 he had fixed in his mind the prospect of John Dalton coming to work for him if he decided to set up the new mill. I find that at about the end of March 1989 Russell Exelby had in mind only one proposed mill. I do not accept Russell Exelby's evidence that his father told him, probably in early April 1992 “I'm thinking about setting up a mill too”. I reject Russell's evidence that after his father told him of his interest in a new mill that Russell was in effect advised that he couldn't set up or be involved in a stock feed mill.

37. I find that it is more likely than not that in early April 1989, after Russell was advised that neither he nor Wendy could be involved in a stock feed mill that Russell and his father discussed the matter and both agreed that if Russell could not put the mill up then Peter Exelby would purport do so. There was I find only ever to be one stock feed mill (apart from Wenmar).

38. I find that Peter Exelby's decision to set up a stock feed mill was not made independently and of his own volition. I thought that Peter Exelby and Russell Exelby really intended to mislead me on this point.

39. I am satisfied that Russell Exelby, once he had decided to sell his and Wendy's shareholdings to the Tuites, knew that any sale price was linked to Wenmar's profitability and that any purchaser, whether it be Mr and Mrs Tuite or some one else would have objected to Russell acting in such a way as to take customers from Wenmar.

40. I find that probably early in April 1989 Russell Exelby did tell his father of his then approaches to the customers of Wenmar and results of those approaches which approaches are mentioned earlier in these reasons.

41. I find that Peter Exelby's apparent decision to set up a mill was

(a) subject to his being able to raise the necessary finance

(b) dependent on his being able to obtain the services of John Dalton to run his proposed mill. 42. I find that when Peter Exelby decided to be involved in setting up a new mill he regarded John Dalton as essential to the success of the new mill because he was the grain mixer. I find too that Peter Exelby at least hoped that he could persuade Bill Collier, Wenmar's then truck driver, to come to his new mill. I find that Peter Exelby held these views about Dalton and Collier because of what Russell had told him of these men.

43. On 25th April 1989 Peter Exelby asked Collier and Dalton if they would come to work for him if he could raise finance to start a new feed mill and he stressed to Dalton that if the mill got off the ground he would be in sole charge of the mill operation. I find that both Collier and Dalton agreed.

44. The conference with O'Brien, about which I have already made findings, occurred on 14th April 1989.

45. The application for finance made to Esanda Finance by O'Brien failed.

46. Ex. 37 is a bundle of documents from the National Australia Bank Wondai to which bank Cradex applied for finance in early May 1989. Guarantees were offered to the Bank by Peter and Doris Exelby and by William Bryan Oliver and Roma Marion Oliver who are the parents of Wendy Exelby. The Olivers' guarantee was limited to $70,000. Cradex had of course not traded at that stage. A budget report of Cradex dated 5th May 1989 is part of Ex. 37. It shows projected income for each month of the financial year ended 30th June 1990. It shows also projected operating expenditure in some detail. I am satisfied the details in this budget report could only have come from Russell Exelby who, as noted already, had the Wenmar financial statements at the meeting with O'Brien on 14th April 1989. Peter and Doris Exelby had no experience sufficient to give them these projected figures. Nor did the Olivers have that experience. Russell, I am satisfied provided those figures.

Estimates of construction costs for the mill including equipment also appear in Ex. 37. Costs of these various items need not have come from Russell Exelby. The total (as typed) was $168,622. The total ultimately sought to be borrowed was $170,000.

A line of credit application made to the National Australia Bank Wondai dated 17th May 1989 was not approved by the regional manager of the bank at Nambour.

John William Lalor the Wondai manager of the National Australia Bank gave oral evidence. He said he first heard of Cradex when Peter and Doris Exelby came to him in about June 1989 for finance to set up the business. They were long standing customers of the bank.

When the line of credit application dated 17th May 1989 was returned to the Wondai branch of National Australia Bank from the Bank's Nambour branch, it was accompanied by an internal memo dated 22nd May 1989 from the regional manager at Nambour to the manager at Wondai (Ex. 46). This memo was signed by Noel Lawrence Power the then assistant regional manager at Nambour. It contains the following passage:—

“We are informed by Russell Exelby that the funds being received from his share in previous venture will not be fully utilized to establish a feed lot, that is already established. He states he would be in a position to protect his parents and his parents-in-law. Please submit an up to date statement of position to clarify his worth. We are further informed he will have no part in the running of the plant, that will be done by the former Manager of Wenmar Stock-Feeds. In considering approval of this request we would require in addition to the foregoing Solicitors advices in writing to confirm proposed establishment of the stock feed processing plant is capable of being successfully defended from legal challenge by former partner of Russell Exelby, In-laws to be counselled by the same Solicitors in respect of their responsibility under the proposed Guarantee. Branch may make available a copy of the Banks form of Guarantee for that purpose.”

I am satisfied that although Mr Power did not receive a phone call from Russell Exelby, Russell Exelby did telephone the Nambour regional manager's office and tell a bank officer the information attributed to him in the above passage. I note that in cross-examining Mr Power, Mr Hack, in order to try to refresh Mr Power's memory, suggested “subsequent to your receipt of that application Mr Russell Exelby rang you and conveyed to you what is in the last few lines of Ex. 46 that is that he would have no part in the running of the plant but he said to you no more than that because he anticipated having funds left and he would not see his parents short it if became problematic.”

This suggestion reinforces my opinion that Russell Exelby rang the regional manager's office because he was assisting the Cradex finance application; he was endeavouring to ensure the bank approved the application by telling the bank that if necessary he would make other funds available. I do not accept Russell Exelby's evidence that he rang the regional office of the bank to squash any rumour that he was to be involved in the new mill.

At this stage, there was no notice from the Tuites of proposed action. Russell Exelby was confronted at trial with evidence of his having telephoned the bank in respect of an application by what was on his case, an entity entirely removed from him. He had to explain his telephoning the bank and his reason was weak and incredible. I would add that Russell Exelby's telephoning the bank at Nambour was, I find in the same boat as his accompanying his parents-in-law and his father to the National Australia Bank at Wondai on the occasion of Mr and Mrs Oliver signing their guarantees. He insisted he did so only to introduce them. This was an occasion when Mr Peter Exelby who, on his case was the power behind Cradex, was able to have introduced the Olivers to Mr Lalor. Mr Peter Exelby spoke of his long standing friendship with the Olivers. I formed the view that in May and June Russell Exelby was involving himself in the Cradex finance application to ensure that it was approved.

In the event the first application was declined and a further application dated 15th June 1989 (part of Ex. 37) succeeded.

This application was on its face by Cradex Pty. Ltd. and signed and recommended by Lalor. It says “They have canvassed a number of pig farmers and feed lotters in the South Burnett and have been assured of their support”. I find this statement can only be explained on the basis that Lalor was referring to the canvassing by Russell Exelby. Peter Exelby's evidence as to his canvassing was that it occurred on one day only with John Dalton. He was unable to specify the day. I think it more likely than not that his canvassing occurred after 15th June 1989. The application dated 15th June 1989 in reference to the “Realism of Cash Flow Budget” said “Realistic when compared to the number of potential clients they have already obtained”. This statement can only be based on Russell Exelby's canvassing of Wenmar customers to which I have already referred. Russell Exelby was still a director of Wenmar at 15th June 1989. The application of 15.6.1989 (at p. 3) contains further comments by Lalor in commenting on “Prospects of applicants industry”. These comments refer to “Income has been established from the various clients they have visited . . .”. Again, this can only be based on Russell's canvassing of Wenmar's customers.

Mr Peter Exelby knew that Russell had canvassed Wenmar customers and it is I find more probable than not that Lalor's reference to canvassing is to the canvassing by Russell.

47. The Cradex mill was erected on the land site proposed. The distance between the entry to the mill and the entry to Russell Exelby's farm is about 600 metres.

As I have already mentioned the application to the local authority by Cradex was signed by Dalton (see Ex. 17). I thought this strange. Mr Peter Exelby was the main director of Cradex. He told me he and his wife authorised Dalton to sign the application and that he had given Dalton sole control of the business and wanted him to become involved.

Peter Exelby denied suggestions by Mr Morton Counsel for the plaintiffs, that Dalton signed the application to keep the name Exelby out of the public record. I do not accept the truth of this denial. Peter Exelby told me and I accept that Dalton, as the feed mixer was in effect vital to the success of his venture. I fail to see why Dalton, who appeared to me to have had limited education, should have been required to sign the application instead of Peter Exelby. I infer that Dalton signed the document because Peter and Russell Exelby wanted the name Exelby kept away from the public record. I would add that Dalton's evidence is that he started employment with Cradex on 23rd July 1989 and this was long after he signed the application for Town Planning consent.

49. Cradex mill became operational on 7th or 9th September 1989. Prior thereto the mill was built. I am satisfied that between September 1989 and February 1990 Russell Exelby was present at the Cradex mill loading or unloading grains sometimes with an auger, probably twice a week. In making this finding I accept the evidence of Malcolm Ernest Wickson who then lived and still lives on a property which has access to Transmitter Road, Tingoora. He had known Russell Exelby for some years. Wickson lives about a kilometre from the mill and during this period he drove past the mill into the C.E.S. and Social Security office at Kingaroy twice a week.

50. Russell and Wendy Exelby bought two tonnes of lot feed from Cradex on 11th September 1989. Russell and Wendy Exelby first sold grain to Cradex on 31st October 1989. Ex. 49 consists of carbon copies of four invoices from R.P. and W.C. Exelby to Cradex Stockfeeds for sales of grain and straw on four occasions - 31st October 1989 to 2nd March 1990 (both dates inclusive).

Ex. 48 is a statement from Cradex to R. Exelby for three invoices 11th September 1989, 17th September 1989, 21st September 1989 in respect of three sales by Cradex to him. The feed sold and referred to in these invoices was delivered by Cradex vehicle to Russell Exelby's property. Russell Exelby said he did not remember loading or helping load feed sold by Cradex to him. The contents of this paragraph 50 have led me to conclude that the work which Wickson saw Russell Exelby doing at the mill was done for Cradex.

51. I accept Wickson's evidence that it was Russell Exelby and his yellow utility with an auger at the Cradex mill on occasions between September 1989 and February 1990. Wickson is a motor mechanic and knew the difference between a Ford utility (Russell Exelby's vehicle) and a yellow Sherwell Navarra utility - the latter being the type of vehicle not belonging to Russell Exelby which it was suggested Wickson had seen. Further, the Navarra was on the Cradex site on one occasion only, the 7th August 1989 having been driven there by its owner Leslie Brian Kennedy from Toowoomba. It had towed a 46 foot grain auger. Wickson deposed to having seen the yellow Ford utility on subsequent dates.

52. Peter Roden Exelby and Doris Lillian Exelby have lived at Urangan since December 1990. In my view, Peter Exelby and Russell Exelby regarded Dalton as an essential ingredient in the success of the new mill. It is clear from evidence of some of the customers of Wenmar who gave evidence that the man who mixes the feed at the feed mill can in effect make or break the mill. Dalton obviously was well regarded by Wenmar's customers in early 1989. As already stated Peter Exelby on 25th April 1989 offered Dalton employment in the new mill. Peter Exelby gave Dalton carte blanche once the mill began operating - a surprising move because Dalton seems to have had little clerical or managerial experience and to have had a limited education.

In fact Dalton, in the first month of Cradex trading, made an unsecured loan of $20,000 to a pig farmer named Close in order to persuade Close to leave Wenmar and come to Cradex. Peter Exelby knew nothing of this until after the event.

Peter Exelby admitted that Cradex really did not have the funds in hand to lend Close $20,000 cash but Dalton's action was accepted by Peter Exelby as he had, I find, given Dalton unlimited authority.

53. Peter Exelby was I find quite inexperienced in the operation of a stock feed mill. I do not think he ever really attempted to learn that operation. He admitted that he gave Dalton unlimited authority. He did not really understand financial statements for Cradex sent to him by Duesburys accountants, of Brisbane. He knew that in the year ended 30th June 1990 Cradex wrote off bad debts of about $55,000 but did not make any inquiry from Neil Michel the accountant from Duesburys or from Dalton about the bad debts written off. I thought his attitude very surprising and this aspect of his behaviour has led me to ask why did Peter Exelby not take a more active role in the management of the company? His opportunities to take a more active role have declined since he went to live at Urangan in December 1990. Since that time he says he has always kept in touch with Dalton on the phone and that he makes frequent trips to Wondai. I have the distinct impression that the trips to Wondai are largely related to visiting Russell and Wendy Exelby and their children. There is a possibility, and I put it no higher than that, that the visits may be related to Cradex.

54. John Dalton is quite a young man. I was not told his age but he seemed to me to be slightly younger than Russell Exelby with whom I find he has at all material times been on very friendly terms.

55. Dalton candidly admitted in his evidence that he was “only here to represent Cradex” and that he “certainly” saw himself as part of the Cradex team. Further, he agreed that Peter Exelby is really an absentee director who comes into the district every now and again, that he, Dalton, has all the say in running the mill and that situation had, in late May 1992, obtained for “a bit over a year”. I find that “that situation” had obtained for very much longer than a year before late May 1992.

56. Dalton was I find responsible for Cradex buying barley from Russell and Wendy Exelby in October 1990 at a price $20 per tonne above the market. The evidence of Mr Darren Clark Bizzell, the then marketing officer of the Barley Marketing Board combined with the contracts Ex. 24A and 24B, 25A, 25B and 26 have confirmed this. The benefit to R. and W. Exelby of the two contracts totalling 120 tonnes was some $2400. I do not accept Dalton's reasons for this purchase which he obviously knew was well above market price.

In my view given the friendship between Russell Exelby and Dalton the only inference reasonably open to this transaction is that, as I so find, that Cradex was, as Mr Morton put it, “creaming off” money to Russell and Wendy Exelby. I find that Peter Exelby gave Dalton “carte blanche” in the management of Cradex once Cradex began operating and that he knew at all times that Dalton would consult with Russell Exelby in respect of the Cradex operations. Dalton did not impress me as a person capable of managing Cradex without assistance, which assistance I find was provided by Russell Exelby.

57. I return to the evidence of the Wondai bank manager, Mr Lalor. In the line of credit application he prepared (part of Ex. 37) in the part of that application calling for his comment as “Successors to continue business management” he typed “Family concern”. In my view, given that Lalor knew, as I find he did, that Peter and Doris Exelby were going into a stock feed plant with which they had had absolutely no previous experience, this comment was consistent only with Lalor understanding that other members of the Exelby family were involved. Such an understanding could, I find, have only been based on information coming from Russell Exelby and that Lalor understood Russell and Wendy Exelby were the other members involved.

58. When Peter and Doris Exelby applied to National Australia Bank at Wondai for finance to establish the mill, Peter and Doris Exelby paid Cradex Pty. Ltd. a cheque for $10,000. The cheque dated 21st June 1989 is Ex. 31. It was signed by Peter Exelby. On the same day Russell Exelby signed a cheque drawn on the account of R.P. and W.C. Exelby with the National Australia Bank Wondai in favour of P.R. and D.L. Exelby for $10,000. This cheque which is Ex. 33, was paid into the account of P.R. and D.L. Exelby with the same bank and debited to the account of R.P. and W.C. Exelby at a time when that account was overdrawn. Ex. 33 was paid and credited to the account of P.R. and D.L. Exelby before Ex. 31 was debited to the account of P.R. and D.L. Exelby and paid to the credit of the account of Cradex Pty. Ltd. Russell Exelby's evidence is that he paid this cheque as a farm payment i.e. in reduction of balance purchase money still owed. I thought his evidence on this topic unsatisfactory and unconvincing. I have come to the conclusion that his dominant motive for paying the $10,000 to his parents on 21st June 1991 was to provide them with funds to pay into the Cradex account with a view to ensuring that the bank granted the finance sought by Cradex.

59. After Cradex began operations Peter and Doris Exelby took debits of directors fees of $1060 per month until August 1990 and thereafter at $1000 or $1200 per month.

Under the Bill of Mortgage G844397 (Ex. 50) from Russell and Wendy Exelby to Peter and Doris Exelby securing $190,000 balance purchase moneys no interest payments have been made by Russell and Wendy since 1st August 1988 and only two capital payments each of $3000 have been made since 21st June 1989. Ex. 62 discloses the record of interest and capital payments. The capital payments were made on 8th January 1991 and 1st August 1991.

Given what I find to have been Peter and Doris Exelby's lack of involvement in Cradex and their abdication to Dalton of their management obligations as directors of the company, notwithstanding that they were the only shareholders, I find the directors fees paid to be very surprising indeed. I have concluded that the matters referred to in this paragraph looked at along with the rest of the evidence, point irresistibly to an arrangement between Peter and Doris Exelby and Russell and Wendy Exelby that, the shares in Cradex held by Peter and Doris Exelby were and are to be treated as if Russell and Wendy were at all times the beneficial owners of those shares and that Russell and Wendy's obligation to pay capital and interest under the Bill of Mortgage was to be satisfied by Peter and Doris drawing the above directors fees. In effect, profits from the shares of which I find Russell and Wendy were in reality the beneficial owners were paid to Peter and Doris under the name of directors' fees but in reality in satisfaction of Russell and Wendy's obligations to pay Peter and Doris interest and capital on their mortgage.

60. I find that Peter and Doris Exelby would not have entered into this stock feed mill venture without an assurance from Russell and Wendy, particularly the former that Russell would at all times be on hand to advise and if necessary assist in the day to day running of the mill during the two year restraint period and, once the action was threatened and begun in 1989, until after this trial has ended. Russell, who was well experienced in running the successful Wenmar mill lived very close to the Cradex mill; he was virtually on hand and on call to Dalton if the latter needed advice or assistance which advice and assistance I am satisfied Russell did give from the time Cradex began operating. I find, despite denials by Russell to this effect, that in fact he had the managerial skills - Dalton did not, Peter Exelby did not. Russell, as both Dalton and Peter Exelby knew, had earlier canvassed a number of Wenmar customers and satisfied himself that if the new mill started it had good prospects of success. In fact, Lalor said as much in supporting the line of Credit Application in Ex. 37.

I turn now to the plaintiffs' claims. They are:—

1. By the first plaintiffs against the first and second defendants for damages for breach of contract and interest.

2. By the first plaintiffs against the third defendant for damages for wrongful procuration of a breach of contract by the first and second defendants and interest.

3. By the second plaintiff against the first and second defendants -

(a) for damages for breach of duty as directors of the second plaintiff, the duty being based on common law and statute;

(b) for damages for breach of fiduciary duty;

(c) for interest.

4. By the second plaintiff against the third defendant for damages for breach of fiduciary duty.

I shall deal with these claims seriatim.

1. BY THE FIRST PLAINTIFFS AGAINST FIRST AND SECOND DEFENDANTS

There is no issue that Cradex is in the business of stock feed production carried on within the area and time period of the restraint referred to in Ex. 2. There is no issue as to reasonableness of the restraint whether as to area or time. The first plaintiffs allege that the first and second defendants have been engaged in or concerned or interested in the business conducted by the third defendant. A number of particulars are pleaded.

In Batts Combe Quarry Ltd. v. Ford (1943) 1 Ch. 51 the Court of Appeal dealt with a restraint of trade covenant. Lord Greene M.R. with whose reasons the other two members agreed said:—

“The word ‘concerned’ is of quite general import. Clearly it cannot be limited to ‘concerned’ in the sense of financial interest or of being an employee of the business.”

There the father in conducting negotiations on behalf of his sons was “concerned in” the business.

Exhibit 2 prohibited the first and second defendants being “directly or indirectly concerned or interested in” the relevant business. “Concerned in” means “having something to do with” a similar business. (George Hill & Co. v. Hill (1886) 55 L.T. 769 at 771.

William Corv & Son Ltd. v. Harrison (1906) A.C. 274 decided that although the words “concerned or interested in” are very wide nevertheless, when referring to the carrying on of a business, the mere fact of being a creditor is not being “concerned or interested in” the business.

Smith v. Hancock (1894) 2 Q. 377 - another restraint of trade case- is authority for the proposition that “interested in” connotes a pecuniary or proprietary interest. Thus, if I concluded that Russell and Wendy Exelby or either of them had a pecuniary or proprietary interest in Cradex they or at least one is in breach of the restraint and the first and second plaintiffs are entitled to relief.

The first and second plaintiffs contend that on the evidence Cradex Pty. Ltd. was and is a sham and that in reality it was and is the business of the first and second defendants (whether with or without the involvement of Peter and Doris Exelby). Therefore, the first plaintiffs say the first and second defendants were and are interested in Cradex and are in breach of the restraint covenant.

Reliance is placed on Smith v. Hancock (supra) at p.385. Gilford Motor Co. v. Horne (1933) 1 Ch. 935 at 955-6 (Lord Hanworth M.R.) at 965 (Lawrence L.J.) and at 969 (Romer L.J.).

I have set out my findings and comments on the evidence in this case in some detail because, although on the face of Cradex Pty. Ltd. and its directors, Cradex at first appears an entity quite independent of Russell and Wendy Exelby, nevertheless, when all the evidence before me is looked at, as a circumstantial evidence case is considered, I have reached the irresistible conclusion that Cradex Pty. Ltd., from the time Peter Exelby bought it as a shelf company has operated as a facade for Russell Exelby and Wendy Exelby. Both Russell and Wendy knew they could not lawfully be involved in this company bought to operate the new mill. Throughout my earlier findings, Russell Exelby's involvement appears continually and at times when, if he was not in any way involved, one would not have expected him to appear. I have considered all the evidence as in a circumstantial evidence case, see Chamberlain v. The Queen (No.2) (1983-84) 153 C.L.R. 521 at 535 where Gibbs C.J. and Mason J. said:—

“At the end of the trial the jury must consider all the evidence, and in doing so they may find that one piece of evidence resolves their doubts as to another. For example, the jury, considering the evidence of one witness by itself, may doubt whether it is truthful, but other evidence may provide corroboration, and when the jury considers the evidence as a whole they may decide that the witness should be believed. Again, the quality of evidence of identification may be poor, but other evidence may support its correctness; in such a case the jury should not be told to look at the evidence of each witness ‘separately in, so to speak, a hermetically sealed compartment’; they should consider the accumulation of the evidence: cf. Weeder v. The Queen (1980) 71 Cr.App.R. 228, at p.231.

Similarly, in a case depending on circumstantial evidence, the jury should not reject one circumstance because, considered alone, no inference of guilt can be drawn from it. It is well established that the jury must consider ‘the weight which is to be given to the united force of all the circumstances put together’: per Lord Cairns, in Belhaven and Stenton Peerage (1875) 1 App.Cas. 278, at p.279, cited in Reg. v. Van Beelen (1973) 4 S.A.S.R. 353, at p.373.”

These comments, although appearing in a criminal case are, I believe equally relevant to a judge sitting as a tribunal of fact in a civil case. The explanation of Chamberlain in Shepherd v. The Queen (1990) 65 A.L.J.R. 132 does not cast doubt on the above passage. The onus of proof in the civil case is less burdensome than in a criminal case.

One of the telling pieces of evidence pointing in the direction of Cradex being really under Russell's control was his statement to Perkins about “breaking Pat” and not caring whether Cradex trades at a loss) see para. 23 ante).

Other telling pieces of evidence I have mentioned in paras. 58, 59 and 60. This is not to say that these are the only pieces of evidence I have relied on. My conclusion as to Cradex being a facade behind which stood Russell and Wendy as the real owners is based on my consideration of all the evidence.

Thus, on the basis of Cradex being a facade for Russell and Wendy as real owners I find that both Russell and Wendy Exelby have breached the restraint covenant and are liable in damages to the first plaintiffs. They were concerned and interested in Cradex Pty. Ltd.'s business from the moment it began to trade until 19th June 1991 and their carrying on Cradex' business was in clear breach of the restraint on trade covenant. Further and alternatively I find that Russell breached the restraint covenant in that he was concerned in the sense that he had something to do with Cradex when he:—

(a) (i) canvassed custom for the new mill by interviewing Shelton, Bell, Hiron and McUtchen in company with Dalton and introducing Dalton to Bell as manager of the new mill.

(ii) canvassed custom for Cradex from Noel John Kirk (see para. 25 ante).

(iii) canvassed custom for the new mill from Perkins and Gleich see paras. 23 and 24 ante.

(b) persuaded Dalton to leave Wenmar's employ and work for Cradex;

(c) assisted O'Brien's application for finance on behalf of Cradex by providing information re Wenmar's trading figures and providing lists of material and equipment required to commence and to operate a stock feed mill;

(d) assisted Cradex' Application for Finance by the telephone call referred to in para. 46 (ante) (Ex. 46) and by telling Peter Exelby of his canvassing of customers which canvassing Lalor inserted in his recommendation of the Line of Credit Application (part of Ex. 37);

(e) assisted in loading and unloading grain at Cradex Mill from September 1989 to February 1990;

(f) advised Peter Exelby as to the appropriate machinery and equipment for use in the stock feed mill;

(g) assisted Cradex finance application with National Australia Bank Wondai by attending at the bank and introducing the Olivers as guarantors, the Olivers being well known by Peter Exelby who was then present and who could well have introduced the Olivers to Lalor;

(h) introduced Dalton to Bell at Cushnie on or about 20th May 1989 as manager of the new mill.

(i) between October 1990 and December 1990 entering into agreements to sell barley to Cradex at a price $20 per tonne over market price (see para. 56 ante);

(j) on 21st June 1989 providing Peter and Doris Exelby with $10,000 with the dominant purpose of enabling them to pay that sum to the credit of Cradex with the National Australia Bank knowing at the time that Cradex was seeking finance from that bank.

I find also that Wendy Exelby approved of Russell's foregoing conduct. Wendy Exelby has been a high school teacher since 1987. I find that she and Russell generally discussed decisions to be made in relation to Wenmar. In early 1989 she and Russell discussed his then intention of being involved in a new feed mill. I am satisfied that whatever decision Russell made in respect of a new feed mill and financing of it she left to Russell and was prepared to abide by and be part of that decision and its consequences.

As a witness I thought Mrs Exelby did her best to disclaim any knowledge of Cradex, the building of the Cradex mill and what Russell's intentions were in respect of the new feed mail. She admitted knowing of the restraint of trade in Ex. 2 and seeing the new Cradex Mill being built. I thought her evasive and unreliable. I have concluded that whatever arrangements Russell made in relation to the new feed mill were acquiesced in by her and done with her approval. I also find that it is most unlikely that Mr and Mrs Oliver would risk a guarantee liability up to $70,000 in a venture in a field in which the apparent owners Peter and Doris Exelby had had no prior experience unless the guarantee was in reality given because their daughter was involved in that venture. I have concluded that the second defendant is liable for Russell Exelby's breaches of the restraint of trade covenant which I have earlier set out, she having approved of Russell's conduct which constituted those breaches.

I find further and alternatively that the first and second defendants by Cradex Pty. Ltd. breached the restraint on trade covenant by supplying during the period of the restraint persons and firms who were customers of Wenmar as at 19th June 1989. I refer now to Ex. 7 which I find is a list of persons and businesses who traded with Wenmar at 19th June 1989. The persons on this list were not trading with Wenmar by the end of September 1989 and all on that list traded with Cradex. Save for one load of feed to G. and C. Bell, Wenmar did not again trade with any person named in Ex. 7.

The finding in the foregoing paragraph results from my earlier finding that Cradex Pty. Ltd. was at all times a facade for the first and second defendants and my construing the restraint on trade clause in Ex. 2 to read:—

“The vendors shall not ... either by themselves ... or [by a] corporation in the trade or business of stock food production within [the area] during a period of two years from the date hereof ... supply ... any of the existing customers of [Wenmar]”

In my view this construction is plainly open and reflects the intention of the parties. This sort of clause should be construed without a narrow or pedantic approach (Upper Hunter County District Council v. Australian Chilling & Freezing Co. Ltd. (1968) 118 C.L.R. 429 at 437. (See also Allan v. Carbone (1975) 132 C.L.R. 528; B.P. Refinery (Westernoort) Pty. Ltd. v. Shire of Hastings (1977) 82 A.L.J.R. 20 at 27 and Australian Broadcasting Commission v. Australasian Performing Right Assoc. Ltd. (1973) 129 C.L.R. 99 at 109-110).

I find the restraint of trade covenant was intended to prevent the first and second defendants from supplying stock feed or grain customers of Wenmar during the period of the restraint. Supplies to those customers via Cradex Pty. Ltd. as a facade were breaches of the covenant.

As to damages for breach of contract I find:—

(a) Before September 1989 all of the persons listed in Ex. 7 were customers of Wenmar who traded with Wenmar. They were all customers of some standing. Save for two exceptions none had threatened to take his business elsewhere.

(b) By the end of September 1989 all these customers had begun to trade with Cradex.

(c) Russell Exelby's approaches to Wenmar customers were a factor in having them transfer their allegiances to Cradex. A number of Wenmar customers went to Cradex to give the new mill in the district “a go”.

(d) Russell Exelby knew this would happen.

(e) If it were not for Russell Exelby's actions, Cradex would not have been formed and would not have competed with Wenmar within the area and period of the restraint.

(f) It is no answer for the defendants to say Cradex was cheaper than Wenmar - it should not have been trading in competition with Wenmar during the restraint period.

As to the quantum of damages I heard expert evidence from two accountants - James Peter Pastellas for the plaintiff and Rodger William Flynn for the defendants. Each furnished a report. Pastellas' is Ex. 15 and Flynn's Ex. 65 and 66. Pastellas relied on analyses by Mr Tuite from Wenmar's records of dealings with the customers in Ex. 7. These analyses are in Ex. 8. They were later corrected by Mr Tuite in his evidence. Pastellas attempted an averaging approach in determining the loss to Wenmar and the first plaintiffs as its shareholders resulting from the loss of Wenmar's customers to Cradex.

His methodology is explained in his report and in his oral evidence. I find that it was reasonable for him to conclude that if Cradex had not started operating the customers in Ex. 7 or the vast bulk of them would have traded with Wenmar to much the same extent as they traded with Cradex.

He determined a gross profit percentage by looking at all available information and all the gross profits achieved. He ignored some results as not reliable. I thought his calculation of lost maintainable profit in Appendix 9 to Ex. 15 reasonably accurate. This calculation shows an estimated loss of $161,788 per annum (nett after tax) commencing on the day those sales were lost i.e. about 10 September 1989.

As I understood Mr Flynn he did not challenge the capitalisation of profits method of Pastellas. What he did challenge was the true figure for lost maintainable profits and the capitalisation rate.

Mr Morton has submitted that I should ignore Mr Flynn's methodology disclosed in Ex. 66 because of the following alleged defects in it:—

(a) Ex. 66 is an attempt to assess at 30th June 1991 the difference in the value of Wenmar's business at that date as compared with 30th June 1989 instead of attempting to assess what loss was suffered by the plaintiffs as a result of the defendants' breaches of their obligations.

(b) it wrongly ignores the effect of any customer who did not continue with Cradex up to 30th June 1991 because:— (i) it ignores any question of lost profits to the first and second plaintiffs which may have been derived from those customers whilst trading with them in the intervening period.

(ii) it assumes, quite unjustifiably, that if Cradex had not existed the customers would have left Wenmar in any event.

(c) Rather than attempting to assess what costs were actually saved by Wenmar as a result of not making the lost sales, Flynn applied an across the board overheads charge which may or may not represent what was Wenmar's actual loss e.g. bags and packing. This attitude, Mr Morton submits lacks reality.

(d) Flynn fails to address at all the question of loss to the first and second plaintiffs because of loss of trading with customers. Mr Morton submits that Flynn was unable to address this matter because, as said earlier, he ignored the effect of any customer who left Cradex before 30th June 1991.

In my view these submissions are correct. I prefer the approach of Pastellas to that of Flynn.

I should here add that Flynn is an employee of Duesburys. Cradex was a client of Duesburys. He does not therefore present as entirely independent as a court expects an expert witness to be. Further, Lloyd Haywood, a manager in the audit division of Duesburys prepared certain schedules for Flynn under Flynn's instructions. These schedules were mechanical analytical work but Lloyd Haywood is Wendy Exelby's brother in law and sat in Court behind Mr Hack while Flynn gave evidence. This aspect of Haywood's involvement, albeit in the type of work described by Flynn and used by Flynn in his report, combined with Haywood's presence in Court detracted from the appearance of independence usually associated with expert witnesses. I have not rejected Flynn's evidence for this reason but it was a matter which caused my concern. I mention it to emphasise the need for independence in expert witnesses.

The second area of difference between Pastellas and Flynn was selection of the capitalisation rate. This is I find essentially a matter of judgment as to the return a purchaser would expect to receive on his investment and such return is essentially linked to the risk.

The evidence before me shows that Wenmar and Cradex were two quite successful businesses both making a reasonable profit. I find that a purchaser of the Wenmar business would not perceive a great risk associated with the purchase.

Flynn viewed the business as “extremely risky” (he later reduced this to “risky”) and chose a rate of 34 per cent. I find this rate unacceptably high. Flynn had difficulty justifying this choice. Pastellas chose a rate of twenty per cent. Of the two I prefer Pastellas' choice because it seems to me to accord better with the actualities of Wenmar's trading.

Thus I accept that the loss per annum commencing from about 10 September 1989 is $161,788 (nett after tax). The two year restraint began on 19 June 1989. Therefore loss at this rate for one year and nine months is $283,129. Mr Morton has submitted that I should allow another six months because he submits, had the relevant period been properly observed, the probabilities are that Cradex would not have begun to trade until about December 1991 and until it did begin to trade, Wenmar would have continued with its customers free from competition from Cradex operations.

In my view six months is too long. The evidence shows that Cradex mill was built and began operating with 3-4 months. I propose to add $40,000 to the above figure of $283,129 to take account of this gap. The total is $323,129 which I round out to $323,130. The first plaintiffs are each entitled to one half of this sum viz. $161,565. This figure does not take into account income tax payable by them.

The first plaintiffs also claim to be entitled to damages for the reduction in the capital value of the shares in the Wenmar business calculated by Pastellas at $808,940. I accept Pastellas' opinion that the sales lost by Wenmar to Cradex have resulted in the reduction in the capital value of the issued shares of $808,940. In the assessment of damages in contract the plaintiff is to be put in the same situation as if the contract had been performed (Wenham v. Ella (1972) 127 C.L.R. 454 at 460, 471). Had that been so in respect of the restraint of trade covenant, the first plaintiffs would not have suffered the reduction in the value of their shares as claimed.

Applying the rule in Hadley v. Baxendale (1854) 9 Ex. 341 at 354 [ 156 E.R. 145 at 151] it can be said that such loss fell within the ambit of that rule and was foreseeable by the first and second defendants. I find that such-a loss was not only foreseeable but was envisaged contemplated and hoped for by the first and second defendants.

However, Mr Hack submitted that no damages on this aspect should be assessed. He argued that the first plaintiffs have suffered a capital loss at an earlier time than would otherwise have occurred and the acceleration of that loss is not capable of being compensation for the first plaintiffs.

The breaches by the first and second defendants of the restraint on trade were continuous up to 19th June 1991. Damages are to be assessed at the date of the breach and in my view that means up to and including 19th June 1991. It is beside the point to say that the loss in value of the shares has been accelerated. If the contract had been performed Cradex would not have existed and been trading in competition with Wenmar at 19th June 1991. Thus, with lack of that competition there is no evidence to suggest that the capital value of the shares would not have been greater by some $808,940. In my view, on accepted principle the first plaintiffs are entitled to damages for the reduction in the capital value of the shares in the Wenmar business.

In the result I find those damages to be $808,940.

The matter of income tax on loss of profits and capital loss must be considered.

On this aspect it is the opinion of Mr Pastellas that an award of $808,940 “as compensation for a reduction in the value of the assets . . . would more than likely involve an assessable capital gain by virtue of s. 160M (7)” of The Income Tax Assessment Act 1936. Section 160M (7) is one of the sections in “Part IIIA - Capital Gains and Capital Losses” and it applies to assets coming into existence after 19th September 1985. Wenmar was incorporated after 19th September 1985.

Mr Morton has referred to Hepples v. Commissioner of Taxation (1991) 65 A.L.J.R. 650 in which the High Court considered s. 160M (7).

Section 160M is a complex section.

Sub-sections 160M (1) and (2) read:—

“160M (1) [Change in ownership of asset] Subject to this Part, where a change has occurred in the ownership of an asset, the change shall be deemed, for the purposes of this Part, to have effected a disposal of the asset by the person who owned it immediately before the change and an acquisition of the asset by the person who owned it immediately after the change.

160M (2) [Methods of change] A reference in sub-section (1) to a change in the ownership of an asset is a reference to a change that has occurred in any way, including any of the following ways -

(a) by the execution of an instrument;

(b) by the entering into of a transaction; (c) by the transmission of the asset by operation of law;

(d) by the delivery of the asset;

(e) by the doing of any other act or thing;

(f) by the occurrence of any event.”

Sub-section 160M (2) is of wide import.

Sub-section 160M (7) provides:—

“160m (7) [Consideration in relation to act, transaction or event] Without limiting the generality of sub-section (2) but subject to the other provisions of this Part, where -

(a) an act or transaction has taken place in relation to an asset or an event affecting an asset has occurred; and

(b) a person has received, or is entitled to receive an amount of money or other consideration by reason of the act, transaction, or event (whether or not any asset was or will be acquired by the person paying the money or giving the other consideration) including, but not limited to, an amount of money or other consideration -

(i) in the case of an asset being a right in return for forfeiture or surrender of the right or for refraining from exercising the right; or

(ii) for use or exploitation of the asset, the act, transaction or event constitutes a disposal by the person who received, or is entitled to receive, the money or other consideration of an asset created by the disposal and, for the purposes of the application of this Part in relation to that disposal-

(c) the money or other considerations constitutes the consideration in respect of the disposal; and

(d) the person shall be deemed not to have paid or given any consideration, or incurred any costs or expenditure, referred to in paragraph 160ZH(1)(a), (b), (c) or (d), (2)(a), (b), (c) or (d) or (3)(a), (b), (c) or (d) in respect of the asset.”

As I understand Mr Pastellas' argument, the asset referred to in s. 160M(7)(a) is the shares in Wenmar, that an event affecting that asset has occurred viz. damage or loss being suffered by Wenmar in respect of the breaches by the first and second defendants and Wenmar has become entitled to receive $808,940 by reason of that event.

On first impression it does seem that the asset referred to in s. 160M (7) (a) is the shares in Wenmar all of which are owned by the first plaintiffs. However the asset there referred to might equally be the benefit of the restraint of trade covenant enjoyed by the first plaintiffs and assignable as a proprietary right (Commissioner of Inland Revenue v. Angus (1889) 23 Q.B.D. 579 at 596; Townsend v. Jarman (1900) 2 Ch. 698 at 702-4 and Jacoby v. Whitmore (1883) 49 L.T. 335 at 338. Further consideration, particularly after referring to s. 160M (1) in which there has to be a change in the ownership of the asset, confirms the correctness of the view that the asset in s. 160M (7) is the shares in Wenmar.

I have found breaches by the first and second defendants of that restraint of trade covenant. These breaches by the first and second defendants of the restraint on trade covenant are events affecting the shares in Wenmar. The first plaintiffs are entitled to receive $808,940 by reason of the breaches having affected the shares. So far, it may be said the requirements s. 160M (7) are satisfied. That sub-section in referring to the amount of money or other consideration goes on “including, but not limited to an amount of money or other consideration -

(i) in the case of an asset being a right - in return for forfeiture or surrender of the rights or for refraining from exercising that right, or

(ii) for the use or exploitation of the asset” I pause to say that the provisions of (i) and (ii) are not exclusive in light of the preamble thereto - “including but not limited to”.

It may therefore be said that up to that stage s. 160M (7) still applies. If it does, then the events affecting the shares in Wenmar viz. the breaches of the restraint of trade covenant constitute a disposal by the first plaintiffs who are entitled to receive the $808,940. The methods of change in ownership detailed in s. 160M (2) are very wide, particularly so in para. (f) thereof.

As I understand s. 160M (7) if what I have set out is correct, the $808,940 being the amount of entitlement for the deemed disposal is taxable under Part III A.

I cannot be certain that the Commissioner for Taxation will assess to tax under Part III A entitlement to receipt of $808,940. I am concerned with whether such a future event is more likely than not to occur. In my view, given the way in which I have analysed above s. 160M (7) and applied my findings to it, I find it more likely that not that the Commissioner will assess to tax under Part III A the first plaintiffs' entitlement to receipt of $808,940.

I find that Mr Pastellas' opinion is correct.

It seems to me therefore that given that the first plaintiffs are entitled to have the restraint on trade covenant properly performed it was in my view reasonably foreseeable by the first and second defendants that their breaches of the restraint on trade covenant would expose the first plaintiffs to tax under Part III A on an award of damages for any loss in value of the plaintiffs' shares in Wenmar caused by such breaches.

The $808,940 should be increased to $1,326,131 in accordance with Mr Pastellas' calculations. I have been concerned as to how best to deal with the possibility that tax under Part III A is not ultimately assessed and payable on the $808,940. I have concluded that I should seek and obtain from the first plaintiffs their undertaking to be given in open Court that, in the event that such tax is not assessed at all or that such tax is assessed at less than $517,191, they will refund to the first and second defendants the whole of the $517,191 or the amount by which $517,191 exceeds the tax assessed as the case may be. I propose to deal with this matter when handing down these reasons for judgment.

On the aspect of income tax payable on the damages of $323,130 when such damages are received, I leave that for assessment by the Commissioner of Taxation and payment by the first plaintiffs. McLaurin v. Federal Commissioner of Taxation (1961) 104 C.L.R. 381 does not apply to this case and these damages of $323,130 when received are obviously identified as assessable income in the hands of the first plaintiffs. See Raja's Commercial College v. Gian Singh & Co. Ltd. (1977) A.C. 312 at 319 where the Privy Council approved the following statement of Diplock L.J. (as he then was) in London & Thames Haven Oil Wharves Ltd. v. Attwooll (1967) Ch. 722 at p. 815:—

“Where, pursuant to a legal right, a trader receives from another person compensation for the trader's failure to receive a sum of money which, if it had been received, would have been credited to the amount of profits (if any) arising in any year from the trade carried on by him at the time when the compensation is so received, the compensation is to be treated for income tax purposes in the same way as that sum of money would have been treated if it had been received, instead of the compensation. The rule is applicable whatever the source of the legal right of the trader to recover the compensation. It may arise from a primary obligation under a contract, such as a contract of insurance, from a secondary obligation arising out of non-performance of a contract, such as a right to damages, either liquidated, as under the demurrage clause in a charterparty, or unliquidated, from an obligation to pay damages for tort, as in the present case, from a statutory obligation, or in any other way in which legal obligations arise.” 2. CLAIM BY FIRST PLAINTIFFS AGAINST THE THIRD DEFENDANT FOR DAMAGES FOR WRONGFUL PROCURATION OF A BREACH OF CONTRACT BY THE FIRST AND SECOND DEFENDANTS

I find that Cradex knew of the relevant restraints on the first and second defendants and that it so knew through the first and second defendants who, as I have found, were Cradex real controlling minds. Cradex also knew of the restraints through Peter Exelby's knowledge acquired from Russell Exelby. It was I find always contemplated by Russell and Peter Exelby that the new mill would be operated by a Corporation.

Cradex by its directors and by Dalton have operated its business as a facade for the first and second defendants and thus procured the first and second defendants to breach the restraints continuously up to and including 19th June 1991. Those breaches by the first and second defendants are in most cases directly attributable to Cradex' acts. Without the corporate entity to shield their carrying on the stock feed mill the first and second defendants could not have breached the restraints as substantially as they did. Damage has been caused to the first plaintiffs by Cradex' conduct. I find this claim made out and the damages suffered by the first plaintiffs are the same as those already assessed.

3. CLAIMS BY THE SECOND PLAINTIFF AGAINST THE FIRST AND SECOND DEFENDANTS FOR:—

(a) damages for breach of director's duties;

(b) damages for breach of fiduciary duty.

(a) BREACH OF DIRECTOR'S DUTIES

The claim on this head has two bases - the obligations of Russell and Wendy Exelby as Directors at common law and under the statute - s. 229 of the Companies Queensland Code 1981. (1) Under the Common Law

The duties of directors are set out in the following well-known statement by Romer J. in Re City Equitable Fire Insurance Co. (1925) Ch. 407 at 427-9:—

“In order, therefore, to ascertain the duties that a person appointed to the board of an established company undertakes to perform, it is necessary to consider not only the nature of the company's business, but also the manner in which the work of the company is in fact distributed between the directors and the other officials of the company, provided always that this distribution is a reasonable one in the circumstances, and is not inconsistent with any express provisions of the articles of association. In discharging the duties of his position thus ascertained a director must, of course, act honestly; but he must also exercise some degree of both skill and diligence. To the question of what is the particular degree of skill and diligence required of him, the authorities do not, I think, give any very clear answer. It has been laid down that so long as a director acts honestly he cannot be made responsible in damages unless guilty of gross or culpable negligence in a business sense. But as pointed out by Neville J. in In re Brazilian Rubber Plantations and Estates, Ld. (1911) 1 Ch. 425, 437, one cannot say whether a man has been guilty of negligence, gross or otherwise, unless one can determine what is the extent of the duty which he is alleged to have neglected. For myself, I confess to feeling some difficulty in understanding the difference between negligence and gross negligence, except in so far as the expressions are used for the purpose of drawing a distinction between the duty that is owed in one case and the duty that is owed in another.

......

There are, in addition, one or two other general propositions that seem to be warranted by the reported cases: (1.) A director need not exhibit in the performance of his duties a greater degree of skill than may reasonably be expected from a person of his knowledge and experience. A director of a life insurance company for instance, does not guarantee that he has the skill of an actuary or of a physician. In the words of Lindley M.R.: ‘If directors act within their powers, if they act with such care as is reasonably to be expected from them, having regard to their knowledge and experience, and if they act honestly for the benefit of the company the represent, they discharge both their equitable as well as their legal duty to the company’: see Lagunas Nitrate Co. v. Lagunas Syndicate (1899) 2 Ch. 392, 435. It is perhaps only another way of stating the same proposition to say that directors are not liable for mere errors of judgment. (2.) A director is not bound to give continuous attention to the affairs of his company. His duties are of an intermittent nature to be performed at periodical board meetings, and at meetings of any committee of the board upon which he happens to be placed. He is not, however, bound to attend all such meetings, though he ought to attend whenever, in the circumstances, he is reasonably able to do so. (3.) In respect of all duties that, having regard to the exigencies of business, and the articles of association, may properly be left to some other official, a director is, in the absence of grounds for suspicion, justified in trusting that official to perform such duties honestly.”

I am satisfied that under their duties as directors at common law, Russell and Wendy Exelby up to and including 19 June 1989 owed to the second plaintiff obligations or duties:—

(i) to act in its interests;

(ii) to act honestly and in good faith towards it;

(iii) not to directly or indirectly divulge to any person any information confidential to the second plaintiffs' business;

(iv) not to act in such a fashion as to damage or depreciate the value of the second plaintiffs' business;

(v) not to make improper use of information acquired by virtue of their position as directors so as to cause directly or indirectly detriment to the second plaintiff. These duties or obligations were owed by Russell and Wendy Exelby severally.

(2) Under s. 229 of the Companies (Qld) Code

The duties set out here appear in s. 229(1) and (3) which relevantly read:—

“229. (1) An officer of a corporation shall at all times act honestly in the exercise of his powers and the discharge of the duties of his office.

. . .

(3) An officer or employee of a corporation, or a former officer or employee of a corporation, shall not make improper use of information acquired by virtue of his position as such an officer or employee to gain, directly or indirectly, an advantage for himself or for any other person or to cause detriment to the corporation....”

“Officer”, in relation to Wenmar, means a director and it is accepted that both Russell and Wendy Exelby were at all material times up to and including 19th June 1989 directors of the second plaintiff.

The effect of s. 229 is to add to the common law duties of Russell and Wendy Exelby as directors, the duties set out in s. 229.

Effectively then I find that the duties and obligations owed by Russell and Wendy Exelby to Wenmar are the same as those I have set out under the common law.

I mention s. 229(7) which is relevant to the matter of damages. It reads:—

“229. (7) Where a person contravenes or fails to comply with a provision of this section in relation to a corporation, the corporation may, whether or not the person has been convicted of an offence under this section in relation to that contravention or failure to comply, recover from the person as a debt due to the corporation by action in any court of competent jurisdiction--

(a) if that person or any other person made a profit as a result of the contravention or failure-- an amount equal to that profit; and

(b) if the corporation has suffered loss or damage as a result of the contravention of failure-- an amount equal to that loss or damage.”

I find that Russell Exelby breached his duties to Wenmar both at common law and statute in the following respects:—

1. While still a director he canvassed the following customers of Wenmar with a view to having them take their business elsewhere:—

(a) 30th May 1989 - John Gleich (see para. 24 ante)

(b) March/April and about May 1989 - Rex Shelton - twice (see para. 26 ante)

(c) May 1989 - W.G. Bell (see para. 27 ante)

(d) March/April 1989 - D. Hiron (see para. 28 ante)

(e) late March early April 1989 - W.J. McUtchen (see para. 29 ante)

I respectfully adopt the following words of Danckwerts J. in Aubanel and Alabaster Ltd. v. Aubanel (1946) 66 R.P.C. 343 at p. 346-7:—

“It seems to me that the dangers of a director using confidential information (acquired as director) to assist him in the competing business and the difficulties of avoiding such use of any confidential information, are considerable, but I must accept the proposition that such competition is permissible. But solicitation of the company's customers is another matter. The function of a director is to supervise the carrying on of the company's business for the benefit of the company and its shareholders and to advance these interests. How can it be compatible with this function that the director should depreciate the value and progress of the company's business by asking the company's customers to cease to deal with the company and to deal with him in his competing business instead? It seems to me that this cannot be proper behaviour by a director.”

The above extract was adopted (as part of a longer quotation from Aubanel) by the Court of Appeal in New South Wales in Mordecai v. Mordecai (1980) 12 N.S.W.L.R. 58 at p. 64.

2. On 14th April 1989 he consciously and deliberately divulged to Peter Exelby and to Kevin James O'Brien information confidential to Wenmar's business namely Wenmar's trading figures at a time when he knew that Peter Exelby with his Russell Exelby's help was to apply to Esanda for finance to set up a stock feed mill to compete with Wenmar.

3. In May and June 1989 (before 19th June 1989) told Peter Exelby who he well knew intended to set up a stock feed mill to compete with Wenmar that he had canvassed customers of Wenmar such information being given in order to encourage and support Peter Exelby's participation in the new mill venture and told Mr Exelby that such customers would patronise the new mill. Confirmation of this is found in the line of credit application dated 15th June 1989 which is part of Ex. 37.

4. Procured John Dalton to leave the employ of Wenmar and work for Cradex as its manager, well knowing that Dalton was well regarded by customers of Wenmar as a mixer of grain and feed and well knowing that customers considered the ability of the feed mixer important when deciding from whom to buy stock feed.

5. On or before 14th June 1989 assisting and advising Peter Exelby as to the selection of appropriate machinery for the proposed new mill. 6. On or before 19th June 1989 causing Cradex Pty. Ltd. to be established as a competitor to Wenmar by encouraging and persuading his parents to acquire the shares in Cradex Pty. Ltd. and become directors of that company and thereafter to take steps necessary to obtain finance to enable the mill to be built and operate.

7. On or before 19th June 1989 arranging with Peter and Doris Exelby to pay to them $10,000 well knowing that while that money would appear to be a repayment under a mortgage from him and Wendy Exelby to Peter and Doris Exelby, his dominant purpose was that Peter and Doris Exelby would immediately pay Cradex Pty. Ltd. $10,000 with a view to assisting Cradex obtain from the National Australia Bank at Wondai finance to build the new mill.

8. In approximately March and April 1989 persuaded John Dalton an employee of Wenmar to breach his obligations to Wenmar by assisting him Russell Exelby to canvass customers of Wenmar with a view to having them cease trade with Wenmar and trade with another feed mill to be operated by Russell Exelby.

9. Encouraged and procured John Dalton to leave the employ of Wenmar for the purpose of employment with Cradex when the first defendant well knew that such action would harm the business of Wenmar and advance the business of Cradex.

I further find that the second defendant as director breached her duties to Wenmar both at common law and by statute in that she permitted her name and the financial records of Wenmar to be used by Russell Exelby on 14th April 1989 to assist the finance application to be made by O'Brien to Esanda.

I find that Wendy Exelby left to the first defendant matters concerning and affecting her obligations as director of Wenmar. She well knew, while she and her husband were still directors of Wenmar, of her husband's intention to set up a feed mill.

Generally speaking I am satisfied that both the first and second defendants did, while still directors of Wenmar, assist in the setting up of the competing business and use or permit to be used information confidential to Wenmar for this purpose. Both first and second defendants while directors of Wenmar have exhibited marked lack of good faith towards Wenmar from March 1989 to 19th June 1989.

Mr Hack submitted that if I found both Russell and Wendy Exelby or either of them in breach of their duties as directors I should give them relief from liability for the breach or breaches and act under s. 535(c) of the Companies (Qld) Code.

I can only act under that section if it appears to me that the defaulting director has acted honestly. This is the first requirement of s. 535(1). In my view it is quite impossible to say that either Russell or Wendy acted honestly. Russell was the principal actor and if one looks at degrees of culpability he was much more culpable than his wife. She, as a director, really acquiesced in what Russell did. Because of my findings that in effect Cradex was a facade for Russell and Wendy Exelby, it is quite impossible to find that these two persons acted honestly. Both these persons obtained benefits from the events which happened. I mention by way of example only the matters referred to earlier relating to the absence of payments under their mortgage to Peter and Doris Exelby. I decline to make any order under s. 535 of the Companies (Qld) Code.

In my view the damages for the breaches of the first and second defendants' duties as directors are the same as those for breach of contract limited to the loss of profits viz. $323,130. The second plaintiff has no claim under this head for loss in value of the shares owned by the first plaintiffs.

(b) CLAIM FOR DAMAGES FOR BREACH OF FIDUCIARY DUTY This is based on the fiduciary relationship which each of the first and second defendants bore to Wenmar while directors. Mr Hack concedes, correctly, that Mr Russell Exelby as director answered the description of a fiduciary. I find also that Mrs Wendy Exelby as director of Wenmar also answered that description.

I should add that I do not accept Mr Hack's submission that from late March 1989 Mr and Mrs Russell Exelby were nominal directors only and that from that time the concept of their duties as directors ought to be narrowed significantly. On the contrary, once they had given the option to the first plaintiffs to buy their shares, with a restraint on trade involved, they were beholden to ensure that thereafter they did not breach their obligations as directors to Wenmar.

Mr Hack has urged that Russell Exelby did not breach his fiduciary duty in that the information given by Russell to his father being the names of customers canvassed who had said they would trade with the new mill were not “confidential” in nature and that the imparting of that information could not be described as participating in a dishonest and fraudulent design.

It is true that there is evidence to show that at cattle sales, pig sales and like events persons who are customers of the various feed mills do discuss with each other the product of the mill or mills with whom they are then dealing. Thus, Mr Hack says, each person knows the identities of other persons who are the customers of such and such a mill. Therefore he said, that information cannot be confidential. While that may well be true in one sense, the fact remains that each mill had, as Wenmar had, a number of persons who had been its customers for several years and Russell Exelby, as a director of Wenmar, knew the names of Wenmar's customers. It was not a case of his having to inquire elsewhere on the open market as it were to find out who were Wenmar's customers. Here, as I have found, Russell Exelby did impart to Peter Exelby the names of the canvassed customers as part of what I find to be a plan to persuade and encourage his father to appear to be the person setting up Cradex and trading in opposition to Wenmar, despite the known restraint of trade covenant and to trade relying in part on the canvassed customers leaving Wenmar and transferring their custom to Cradex. I mention again the credit application of 15.6.1989 in Ex. 37 which gives some indication of the results of Russell Exelby's canvassing of Wenmar customers.

In the result I am well satisfied that Russell Exelby did breach his fiduciary duty to Wenmar. In my view the damages or compensation for that breach should be the same as those already assessed but not on this occasion limited to the loss of profits viz. $323,130. This head of claim enlivens this Court's inherent jurisdiction in equity. Russell Exelby by his breaches of fiduciary duty to Wenmar has caused the loss in value of Wenmar's shares as at 19th June 1991. Russell and Wendy were at all material times and still are the controlling minds of Cradex. Cradex is their alter ego. In the Court's equitable jurisdiction it would I believe be wrong to limit the damages under this head of claim to loss of profits. I assess damages at $1,649,261.00.

4. CLAIM BY WENMAR AGAINST CRADEX PTY. LTD. FOR DAMAGES FOR BREACH OF FIDUCIARY DUTY

In my view, having found that Cradex was a facade for Russell and Wendy Exelby any breach by Russell Exelby as a fiduciary for Wenmar passes on to Cradex. Cradex, as it were assumes Russell Exelby's fiduciary obligation, he being as I have found the major controlling mind of Cradex (see John V. Dodwell and Co. [1918] A.C. 563 at 569 where the phrase “transmitted fiduciary obligation” is used). I should add here that Russell Exelby being in fact the more important of the controlling minds of Cradex - Wendy having had a lesser role - and Cradex being really a facade for Russell and Wendy, there is no sound reason why Cradex should not be made liable to pay the second plaintiff's damages caused by Russell's breaches of fiduciary duty to it. The second plaintiff suffered diminution in the value of its shares as a result of such breaches. Cradex in its corporate entity has received the financial benefit flowing from those breaches and fairness dictates that it should be asked to disgorge from those benefits - it cannot be allowed to profit from the breaches of fiduciary duties by Russell Exelby its major controlling mind. Cradex is, in my view not to be treated as an entity separate from Russell and Wendy Exelby and without actual knowledge that its actions amounted to competition with Wenmar within the area and period of the restraint of trade. Cradex must in my view be treated as having the knowledge of Russell Exelby as its controlling mind (see Consul Development Pty. Ltd. v. D.P.C. Estates Pty. Ltd. (1974-5) 132 C.L.R. 373 at p. 396 and 408) and as a fiduciary in relation to Wenmar.

If I am wrong on this aspect I am satisfied that when Peter Exelby on behalf of Cradex received from Russell Exelby knowledge that Russell had canvassed Wenmar customers and of their potential defection to Cradex, Peter Exelby must, I find have received that information well knowing that Russell was imparting it to him in clear breach of Russell Exelby's fiduciary and common law duties to Wenmar. I say this because Peter Exelby knew Russell was a director of Wenmar and I infer from Peter Exelby's evidence before me that he knew Russell could not to be involved at that time in another feed mill at or near Wondai. I find also that at the meeting with O'Brien on 14th April 1989 Peter Exelby must have known that Russell was wrongly imparting to O'Brien Wenmar's trading figures and that those figures were being given to O'Brien to help advance what was then proposed and eventually became a mill competing with Wenmar. Peter Exelby on the alternate basis I am now discussing assumed the transmitted fiduciary obligation of Russell towards Wenmar and he assumed it for the benefit of Cradex. Further, it is clear from Peter Exelby's own evidence that whilst John Dalton was still employed by Wenmar he, Peter Exelby, procured a breach by Dalton of his obligations to Wenmar by having Dalton assist in the commencement of Cradex operations.

Dalton as an employee of Wenmar owed Wenmar a duty not to inflict harm on Wenmar's business and not to further the interest of a possible competitor - Timber Engineering Co. Pty. Ltd. v. Anderson (1980) 2 N.S.W.L.R. 488; “Fiduciary Obligations” para. 612 by P.D. Finn from whose scholarly work I have derived much assistance.

I find that Peter Exelby knowingly procured Dalton to breach those duties and to do so in order to have Cradex begin business. This finding however does not result in a fiduciary relationship transmitted to Peter Exelby.

Thus on this alternative basis, if the facade view is held to be wrong, I find on all the evidence that Cradex through Peter Exelby as its director knowingly participated in breaches of fiduciary duty owed to Wenmar by Russell Exelby and thereby assumed Russell's fiduciary obligation towards Wenmar. He breached these transmitted obligations while acting as a director of Cradex. These breaches were, I find a direct cause of Cradex being able to set up business to the detriment of Wenmar.

It is well settled that a person who knowing of the breach, participates in or takes the benefit of a breach of fiduciary duty is liable to account for the profits received (Barnes v. Addy (1874) 9 Ch. App. 244 at 251; Consul Development Pty. Ltd. v. D.P.C. Estates Pty. Ltd. (1975) 132 C.L.R. 373.

Although Wenmar here does not seek an account of profits this Court can order an inquiry as to damages (as was done in Timber Engineering Co. Pty. Ltd. v. Anderson (supra) or it can in its inherent equitable jurisdiction grant damages in lieu of an amount of profits. It seems to me that in respect of this claim Wenmar has made out its case against Cradex. I find that on this basis Wenmar is entitled to an award of damages of $323,130.00 against Cradex for lost profits and $1,326,131.00 for loss in value of its shares. I have included this latter amount for the same reasons as I did so when assessing damages on the second plaintiffs claim against the first and second defendants for breach of fiduciary duty. I would add that although the second plaintiff did not own the shares which I have found were diminished in value to the extent already stated, this diminution in value should, if it became necessary, be capable of compensation from Cradex assets. It may be that the first and second defendants will, by reason of arranging their personal affairs, escape liability for the judgment ordered against them. In that event, I consider Cradex assets should be available to meet any shortfall, Cradex being as I have found beneficially owned by the first and second defendants.

INTEREST

The first and second plaintiffs have claimed interest under s. 72 of the Common Law Practice Acts 1867.

The plaintiffs are entitled to interest and that interest will be awarded because they have been deprived of the use of their money and not because they have foregone investment opportunities (MBP (S.A.) Pty. Ltd. v. Gogic (1991) 65 A.L.J.R. 203 at 206).

There are no proper reasons for withholding interest (Hadzigeorgiou v. O'Sullivan [1983] 1 Qd.R. 55 at 57). The plaintiffs are entitled to interest on the damage for the loss of profits viz. $323,130 from 19.6.1991 to date. In Serisier Investments Pty. Ltd. v. English (1989) 1 Qd.R. 678 the Full Court of the Supreme Court of Queensland accepted twelve per cent as a median figure representing a perception of commercial rates. Since that case Gogic (supra) has been decided. Although it concerned interest on pre-trial pain and suffering, which is not the case here, nevertheless in Gogic the High Court has emphasised that interest is awarded because a plaintiff has been deprived of his or her money and not because he or she has foregone investment opportunities.

At the end of the day, while one may well feel justified in following Serisier and adopting twelve per cent as the appropriate interest rate, nevertheless I feel that commercial interest rates are sufficiently notorious for me to be able to take judicial notice of the fact that they have declined within the past eighteen months. I have decided that interest to date should not be less than that which a judgment debt bears under s. 73 of the Common Law Practice Act. The rate prescribed under that section is presently ten per cent.

I therefore propose to award interest at ten per cent per annum on $323,130.00 from 19th June 1991 for fifteen months. That interest is $40,391.25.

As to the damages assessed at $808,940.00 I propose to award interest at the same rate for fifteen months the same period of time. That interest is $101,117.50. I have chosen fifteen months to reflect some delay due to the adjournment of the trial after the plaintiffs were given leave to amend their statement of claim.

In summary then I order as follows:—

1. I give judgment for the first plaintiffs against the first and second defendants for $1,649,261.00 together with interest of $141,508.75.

2. I give judgment for the first plaintiffs against the third defendant for $1,649,261.00 together with interest of $141,508.75. 3. I give judgment for the second plaintiff against the first and second defendants for $1,649,261.00 together with interest of $141,508.75.

4. I give judgment for the second plaintiff against the third defendant for $1,649,261.00 together with interest of $141,508.75.

I shall hear from the parties on costs.

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