Employee’s contractual and fiduciary duties — group of companies

Cases

Employee’s contractual and fiduciary duties — group of companies

There may be cases where a person employed by one company in a group of companies owes fiduciary obligations to another company within that group. The evidence needs to be assessed in each case.

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There may be cases where a person employed by one company in a group of companies owes fiduciary obligations to another company within that group. The evidence needs to be assessed in each case.
 
For example, if a person is employed by company A to render services to company B, and is for all effective purposes, but not in law, an employee of company B, it may be legitimate to find that the employee of company A owes fiduciary duties to company B.
 
This question arose in a case before Justice McDougall in the Equity Division of the NSW Supreme Court. The court considered the facts here and concluded that the employee did not owe such duties to a related company in this case.
 
Background
 
The first plaintiff (Manildra) was part of the Manildra group of companies. The Group’s business included the milling of wheat flour for both human consumption and industrial use. One of its mills is at Manildra. That mill was managed by the first defendant (Mr Campbell) for about 12 years until 24 April 2009.
 
The second and third defendants (collectively, Young) operate a flour mill at Young (the Young mill). That mill too produced wheat flour for human consumption and industrial use.
 
Mr Campbell had been negotiating for some time, both before and after the termination of his employment with Manildra, to buy the Young mill. Contracts for the sale of the Young mill and its business have been exchanged, with the two Young companies as vendors and the fourth defendant (Aust Asia) as purchaser. Mr Campbell would have a substantial shareholding — of the order of 40% — in Aust Asia after completion of the contracts for sale. Aust Asia was a company incorporated for the purpose of buying the Young mill. At present, its sole director is Mr David Julian Turner. Mr Turner was, and for about three years had been, Mr Campbell’s accountant.
 
Manildra said in substance that Mr Campbell has breached fiduciary and contractual obligations owed by him to Manildra, and had contravened s182(1) and s183(1) of the Corporations Act 2001. Further, Manildra says, Young and Aust Asia have induced or procured Mr Campbell’s alleged breaches of fiduciary and contractual duties, and his contraventions of the Corporation Act.
 
Implied contractual obligation
 
The Court found that the fiduciary duties Mr Campbell owed to Manildra arose out of his employment. The implied contractual obligation of fidelity was necessarily referable to that contract of employment. His Honour concluded that no more that a minor breach of contract may have occurred:
‘There is nothing in the evidence to suggest that his fiduciary obligations should extend beyond Manildra to the second plaintiff, or to other members of the Manildra Group (noting, of course, that the only members of the Group that were parties to the proceedings were the two plaintiffs).
 
I conclude that, in negotiating for and securing, ultimately on behalf of Aust Asia, the acquisition of the Young mill, Mr Campbell did not divert or usurp any existing or maturing or prospective business opportunity of Manildra. I conclude further that knowledge of the opportunity to acquire (or possibility of acquiring) the Young mill did not come to Mr Campbell through his position as general manager of the Manildra mill, or in the performance of any of the duties or responsibilities attaching to that position. Nor did his duties or responsibilities require him to look out for, or to be aware of, such opportunities.
 
I conclude that, whilst Mr Campbell was an employee of Manildra and as part of his activity in preparing to compete with Manildra once he ceased to be an employee, he solicited each of the employees in question to leave Manildra and join him in that new business venture. In my view, that conduct was inconsistent with his contractual obligation of fidelity. However, it goes nowhere substantial in terms of remedy.
 
At most (there being no suggestion that Manildra has suffered any substantial damage compensable at law) there is an entitlement to some nominal amount of damages for breach of contract …’
 
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