FEDERAL COURT OF AUSTRALIA

Zibara v Ultra Management (Sports) Pty Ltd [2021] FCAFC 4

ORDERS

THE COURT ORDERS THAT:

1.    The Appellants’ appeal is dismissed.

2.    The Appellants will pay the Respondent’s costs of and incidental to the appeal, to be assessed if not agreed.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

MCKERRACHER AND ANDERSON JJ:

INTRODUCTION

1    The First Appellant (Mr Zibara) and the Second Appellant (Mr Angeli) are each directors of, and hold 50% of the issued shares in, the Third Appellant (Genesis). The Appellants were named as Respondents in proceedings commenced in this Court by the Respondent (UMS) which claimed relief by way of various causes of action. The sole director of UMS was Mr Ayoub.

2    By way of summary, the Appellants contend that, for various reasons, it was not open for the trial judge to find that Genesis was liable to account to UMS, under the “second limb” of Barnes v Addy (1874) LR 9 Ch App 244 (Barnes v Addy), in relation to breaches of fiduciary duties that Mr Zibara and Mr Angeli owed to UMS. The Appellants also contend that, when the primary judge ordered the Appellants to pay the costs of the hearing days at trial on an indemnity basis, the primary judge’s discretion as to costs miscarried.

3    For the reasons which follow, we reject both of the Appellant’s contentions. It was open to the trial judge to order Genesis to account to UMS under the “second limb” of Barnes v Addy. The primary judge’s Orders concerning costs were also within the permissible bounds of the primary judge’s discretion as to costs.

4    As a consequence, the Appellants’ appeal will be dismissed, with costs.

THE DECISIONS AND ORDERS OF THE PRIMARY JUDGE

Ultra Management (Sports) Pty Ltd v Zibara [2020] FCA 31

5    On 24 January 2020, the primary judge published Ultra Management (Sports) Pty Ltd v Zibara [2020] FCA 31 (First Reasons). The primary judge noted that the essential question in this proceeding was whether Mr Zibara and Mr Angeli, who were once employees of UMS, engaged in conduct which constituted (1) a breach of the duties of good faith and fidelity they owed to UMS; and (2) a breach of the duty they owed to UMS to avoid a conflict of interest and duty.

6    The primary judge conducted a detailed assessment of the relevant conduct of the Appellants. The primary judge’s findings are addressed later in these reasons.

7    The primary judge ultimately ordered the Appellants to account to UMS. The primary judge foreshadowed directions on the question of costs. His Honour directed that UMS submit to the primary judge a proposed form of Order consistent with the primary judge’s reasons: First Reasons, [208].

8    On 14 February 2020, the primary judge made the following Orders (among others):

1.    Consequent upon the decision of this Court delivered on 24 January 2020, the following questions of account be referred to the Registrar of the Federal Court, at Brisbane for inquiry and report, namely:

(a)    the benefit or gain obtained or received by each of [Mr Zibara, Mr Angeli and Genesis], or to be obtained or received, arising, during the term, out of each of the contracts between [Genesis] and [certain players];

(b)    the benefit or gain to be obtained or to be received by each of [Mr Zibara, Mr Angeli and Genesis] arising out of the real chance of renewal of each of the contracts set out in paragraph 1(a) hereof, as determined in paragraphs 205 and 206 of the [First Reasons];

(c)    the amount owed, by each of the accounting parties, to [UMS] …

Ultra Management (Sports) Pty Ltd (No 2) v Zibara [2020] FCA 402

9    On 25 March 2020, the primary judge published Ultra Management (Sports) Pty Ltd (No 2) v Zibara [2020] FCA 402 (Second Reasons). In that judgment, the primary judge dealt with the disposition of the costs of the principal proceeding. The costs consequences arising as a result of the Second Reasons are addressed later in these reasons.

First notice of appeal

10    On 8 April 2020, the appellants filed an application for leave to appeal and for an extension of time. Those grounds of appeal were subsequently amended. The amended grounds are set out below.

Judgment consent orders

11    On 21 August 2020, the primary judge made the following consent orders:

BY CONSENT, THE COURT ORDERS THAT:

1.     … [J]udgment be entered for the Applicant [UMS] against [Mr Zibara, Mr Angeli and Genesis], jointly and severally for the sum of $100,000 (Judgment Sum).

2.     Execution of the judgment be stayed pending the determination of [Mr Zibara, Mr Angeli and Genesis]’s Applications for Leave to Appeal and Extension of Time filed on 8 April 2020 or further Order of the Full Court, upon terms that [Mr Zibara, Mr Angeli and Genesis] pay into the trust account of their solicitors[,] McGirr Lawyers, the following amounts as security for payment of the Judgment Sum:

(a)     A sum of $20,000 by 4pm on 20 August 2020; and

(b)     A further sum of $30,000 by 4pm on 17 September 2020; and

(c)     A further sum of $50,000 by 4pm on 3 October 2020.

3.     The Judgment Sum be thereafter held in the trust account of [those] solicitors and not disbursed except pursuant to further Order of the Court or in accordance with the written consent of the parties and the solicitors for [Mr Zibara, Mr Angeli and Genesis] shall immediately notify, in writing, the solicitors for the Applicant:

(a)     When each payment is made in accordance with this Order; and

(b)     Whether any payment has not been made in accordance with this Order.

4.     If [Mr Zibara, Mr Angeli and Genesis] fail to make any of the payments in the amount and by the time required by this Order, the stay referred to in paragraph 2 of this Order be lifted and [UMS] be entitled to execute forthwith for the totality of the Judgment Sum less that amount, if any, paid by [Mr Zibara, Mr Angeli and Genesis] in accordance with this Order.

5.     The parties shall bear their own costs of the proceedings for an account incurred after 25 March 2020 until the date of Order.

6.     Interest shall not run upon the Judgment Sum until the determination by the Full Court of [Mr Zibara, Mr Angeli and Genesis]’s Applications referred to in paragraph 2 hereof.

THE COURT NOTES THAT:

7.     [Mr Zibara, Mr Angeli and Genesis]’s consent to these Orders shall not operate so as to prevent [Mr Zibara, Mr Angeli and Genesis] from challenging in the Full Court their liability to [UMS] pursuant to the Draft Notice of Appeal relied on in the Application to the Full Court referred to in paragraph 2 above.

Further orders

12    On 6 July 2020, Derrington J ordered the Applicants to file an amended proposed notice of appeal, and for the parties to file affidavit material and submissions.

13    On 7 August 2020, Derrington J made the following orders:

1.     Pursuant to s 25(2)(e) of the Federal Court of Australia Act 1976 (Cth) the Application filed on 8 April 2020 for leave to appeal and for extension of time within which to appeal from the Orders of Greenwood J made on 24 January 2020 and on 25 March 2020 in proceedings QUD 940 / 2018 be heard and determined by a Full Court.

2.     The Appeal Papers be prepared and the parties present their arguments at the hearing both upon the Application for leave and for extension of time and also upon the substance of the grounds of appeal advanced.

3.     The matter be referred to the Acting Principal Judicial Registrar and the National Operations Registrar for the setting of the matter down for hearing and for the making of directions for the hearing of the applications and of the appeal.

4.    Each parties’ costs be their costs in the cause.

14    On 23 September 2020, Registrar Van Le made orders concerning the preparation of the papers for this appeal.

AMENDED GROUNDS OF APPEAL

15    The Appellants, by their Amended Notice of Appeal, advanced the following grounds of appeal:

As to the Orders made on 24 January 2020

1.    The primary judge erred in making Order 1 directing the entry of judgment for the Respondent in circumstances where:

a.    There was no allegation or finding of dishonesty against [Genesis];

b.    Any liability of [Genesis] to account to the Respondent depended upon [Genesis] being liable either:

i.     For procuring the breaches of fiduciary duty found by the Court on the part of [Mr Zibara and Mr Angeli]; or

ii.     For knowingly participating in a fraudulent or dishonest design on the part of [Mr Zibara and Mr Angeli].

c.    There was no basis for a finding that [Genesis] had assisted or procured the breaches of fiduciary duty of [Mr Zibara or Mr Angeli] which all took place before the [Genesis] came into existence.

There was no allegation in the statement of claim that [Mr Zibara and Mr Angeli] had acted with a fraudulent or dishonest design and it was accordingly not open to the primary judge to so conclude.

2.    There was no proof that the [Mr Zibara or Mr Angeli] personally had made any gain or profit in consequence of their established breaches of fiduciary duty. They had not personally entered into management contracts with the four identified players after leaving the employment of [UMS] in December 2017.

    The Third Appellant did not exist until after the employment of the First and Second Appellants by the Respondent had ended.

3.    There was no pleading or finding that the Third Appellant had procured any breach of fiduciary duty established on the part of the First and Second Appellants.

4.    The primary judge erred in holding at paragraph [203] of the [First Reasons] that [Mr Zibara and Mr Angeli] “either by Genesis directly, or indirectly as individuals, through their shareholding in Genesis had derived a benefit or gain by reason of (Genesis’s) entitlement to remuneration under each of the four contracts described at [192] of these reasons brought into existence as a result of the breaches of fiduciary duty.”

5.    The primary judge erred in concluding that [UMS] had established that [Mr Zibara and Mr Angeli] were accountable to [UMS] for any gain or benefit consequent upon the established breaches of fiduciary duty owed to [UMS].

As to the Orders made on 14 February 2020

6.    The primary judge ought not have made Order 2, in the circumstances identified in Ground 1 above, directing [UMS] to submit a form of order for an account in favour of [UMS].

7.    The primary judge erred in making Orders 1, 2 and 3 directing the Registrar to carry out an inquiry and to report upon the matters referred to in those orders in circumstances where [UMS] had not shown any entitlement to such an inquiry.

As to the Orders made on 25 March 2020

8.    The primary judge erred in holding at paragraph [7] of the [Second Reasons] that “the election to seek that remedy (account) was the expression of the applicant’s remedial entitlement to equitable compensation for the breaches of fiduciary duty by the respondents.”

9.    The primary judge’s exercise of discretion to make Orders 1, 2 and 3 regarding the disposition of the costs of the proceedings miscarried in circumstances where:

a.    His Honour did not await the conclusion of the inquiry and report of the Registrar to determine the quantum of any money judgment to which [UMS] might become entitled in the proceedings.

b.    His Honour disregarded the fact that the quantification of [UMS]’s entitlement might be no more than $5,625 in assessing the appropriate order for costs.

c.    His Honour failed to give any weight to the likely quantification of [UMS]’s entitlement to a pecuniary remedy in assessing the appropriate order for costs.

d.    His Honour disregarded the significance of [UMS] having either failed to obtain or having abandoned all other claims for relief apart from the order for an account which His Honour granted.

e.    His Honour overlooked the fact that [UMS] had until the last day of the trial maintained a damages claim for “at least $750,000” against the Appellants.

f.    His Honour erred in holding at paragraph [50] of the [Second Reasons] that “the seriousness of the conduct of Mr Zibara and Mr Angeli is not measured by whether the benefit they obtained by reason of the breaches turns out to be $10 or $100 or $1,000 or $5,625 or something more than that.”

10.    His Honour ought not to have made an order for indemnity costs in favour of [UMS] having regard to the circumstances set forth in Ground 7 above.

11.    His Honour erred in concluding that there were “special circumstances” justifying an order for indemnity costs in favour of [UMS] applying S.43 (2) of the Federal Court of Australia Act 1976.

(Underlined, strikethrough and italicised text in the original.)

16    It is convenient to first consider the grounds of appeal which relate to the orders appealed from in the First Reasons. These reasons will then consider the grounds of appeal which relate to the orders appealed from in the Second Reasons.

GROUNDS OF APPEAL – FIRST REASONS

17    Grounds 1, 2, 4, 5, 6 and 7 in the amended notice of appeal are the grounds which concerned the orders appealed from in the First Reasons.

Appellants’ submissions

18    The Appellants submit that the grounds of appeal in respect of the First Reasons may be encapsulated and grouped as follows. First, the Appellants challenge the primary judge’s conclusion that Genesis had a liability to account to UMS on the pleadings and upon the facts as found by the primary judge: grounds 1, 4, 6, 7 and 8. Second, the Appellants challenge the primary judge’s conclusion that UMS established that Mr Zibara and Mr Angeli had personally made any gain or profit as a consequence of their established breaches of fiduciary duty and hence the primary judge’s finding that UMS was entitled to any money judgment against them by way of an account: grounds 2, 4, 6, 7 and 8. Third, the Appellants submit that there was no basis for a finding that Genesis had procured the relevant breaches of fiduciary duty by Mr Zibara or Mr Angeli which took place before Genesis came into existence: ground 1(c).

19    The Appellants submit that UMS, by its originating process, made various claims for declarations, a compensation order and injunctive relief under the Corporations Act 2001 (Cth). The compensation order claim was for a sum “exceeding the sum of $750,000”, or, in the alternative, the Appellants claimed (1) equitable damages for breach of confidence; (2) alternatively, in relation to breach of fiduciary duty, an account of profits and/or necessary accounts and enquiries.

20    The Appellants submit that UMS on its pleaded case did not make a claim for damages at law, a claim for equitable compensation, or a claim for a constructive trust. The Appellants submit that the pleaded case is defective as contractual damages claims are interwoven with claims for breach of confidence and breach of fiduciary duty. The Appellants submit that there were possible equitable causes of action which did not depend exclusively on the existence of contractual claims.

21    The Appellants submit that the loss and damage that was pleaded was “by reason of” the pleaded “breaches of duty” in [25] of UMS’s Statement of Claim. That plea was in the following terms:

By reason of the facts and matters pleaded herein, [Genesis]:

(a)    had (through each of [Mr] Zibara and [Mr] Angeli) actual knowledge of the facts and circumstances giving rise to the Zibara breaches of duty and the Angeli breaches of duty [the “Zibara breaches of duty” and the “Angeli breaches of duty” were terms defined earlier in UMS’s Statement of Claim];

(b)    accordingly was and is knowingly concerned in the Zibara breaches of duty and the Angeli breaches of duty;

(c)    further or alternatively, is liable to account to UMS for any profit derived by reason of such involvement in the Zibara breaches of duty and the Angeli breaches of duty.

22    The Appellants by their submissions accept that Mr Zibara and Mr Angeli were employees that were subject to duties of fidelity and good faith. The Appellants accept that those obligations were created not by the existence of express or implied contractual terms or promises, but arise because they were imposed by equity (independently of contract) and by reason of the employment relationships that existed between them and UMS in the particular circumstances of this case.

23    The Appellants submit that the pleading against Mr Zibara and Mr Angeli did not allege that they, or either of them, had engaged in a “dishonest or fraudulent design”. This, the Appellants submit, was a necessary element to be pleaded and established if UMS was to succeed in its case against Genesis under the “second limb” of Barnes v Addy. The Appellants submit that UMS did not allege that Genesis had knowledge of any dishonest and fraudulent design of Mr Zibara and/or Mr Angeli. The Appellants submit that it is not sufficient for UMS to plead as they did that Genesis was “knowingly concerned in the Zibara breaches of duty and the Angeli breaches of duty”: Statement of Claim, [25].

24    The Appellants submit that, as a consequence of the defective pleading, it was not open to the primary judge to find that Genesis was liable to UMS under the second limb of Barnes v Addy. The gravamen of the Appellants’ submissions was that UMS’s pleading did not allow recovery against Genesis under the second limb of Barnes v Addy. That was because, the Appellants submit, any claim under the second limb of Barnes v Addy required an allegation and a finding that Mr Zibara and Mr Angeli were engaged in a dishonest and fraudulent design and that Genesis was knowingly concerned with it. The Appellants submit that no such allegation was made in the Statement of Claim and therefore no such finding was open to be made by the primary judge.

25    The Appellants submit that the findings of the primary judge were limited to breaches of fiduciary duties by Mr Zibara and Mr Angeli during the terms of their respective periods of employment with UMS, which ended in December 2017. The Appellants submit that Mr Zibara and Mr Angeli’s fiduciary duties to UMS ceased to restrain them from undertaking commercial plans after the termination of their employment in December 2017.

26    The Appellants submit that there was no post-termination restraint on the commercial activity that could be undertaken by Mr Zibara and Mr Angeli. The Appellants submit that, at trial, the contractual claims, together with the claims of breach of confidence, had been abandoned. As a consequence, the Appellants submit that, absent allegations of a dishonest and fraudulent design in the Statement of Claim, no case based on such a design was ever available to be put by UMS against Genesis at trial and no such findings were open to the primary judge.

27    The Appellants submit that at trial they elected to call no evidence on the basis of the case pleaded in the Statement of Claim. The Statement of Claim was, in the Appellants’ submission, deficient and they are not liable to account to UMS for any profit derived by reason of any breach of fiduciary duty.

28    The Appellants submit that Genesis did not exist until February 2018, well after the termination of Mr Zibara and Mr Angeli’s employment with UMS in December 2017, and well after they ceased to owe any fiduciary duties to UMS. The Appellants submit that the established breaches of duty, as found by the trial judge, had ended before Genesis was incorporated in February 2018 and, as a result, no liability for Mr Zibara and Mr Angeli’s breaches of duty can be found to exist against Genesis.

29    The Appellants submit that, in any event, there was no gain by or benefit to Mr Zibara or Mr Angeli and, as a consequence, there is nothing which could be subject to an account or inquiry.

UMS’s submissions

30    UMS submits that the manner in which the Appellants ran the trial before the primary judge, and the written submissions filed by the Appellants at the conclusion of the trial, establish that the submission now being made – as to the alleged “necessity” to plead and for the primary judge to find a “dishonest and fraudulent scheme” – was not raised at any time by the Appellants during, or at the conclusion of, the trial.

31    UMS submits that the Appellants at the trial made a critical concession, which was recorded by the primary judge at [2] of the First Reasons, as follows:

A preliminary question in issue was whether the scope or content of the role, tasks and duties to be performed by each employee gave rise to fiduciary duties or obligations owed to the applicant by each employee. The character of the relationship and the scope or content of the role, tasks and duties to be performed is ultimately a factual question leading to a conclusion of law. Although only aspects of the content of the role, tasks and duties of each former employee respondent were admitted in the pleading, ultimately the position adopted by [Mr Zibara, Mr Angeli and Genesis] in final submissions was that if the conduct said to constitute a breach of the fiduciary obligations owed to [UMS] by the [Mr Zibara and Mr Angeli] is made good, “it has to be conceded that there was a breach of fiduciary duty” …

(Emphasis added; transcript reference omitted.)

32    The primary judge then at [3] of the First Reasons observed: “[t]hus, there is no issue in the proceeding that [Mr Zibara and Mr Angeli] owed fiduciary obligations to [UMS] in the relevant period.”

33    UMS, on the basis of the concession recorded above, submits that it is now not open to the Appellants to argue on this appeal that there was a “necessity” to plead in the Statement of Claim, and for the primary judge to find, a “dishonest and fraudulent design” to satisfy the requirements of the second limb of Barnes v Addy. In any event, UMS submits that there is no principle that a pleading must include, or that there must be an explicit finding of, a “dishonest and fraudulent design” in order to establish ancillary liability under the second limb of Barnes v Addy.

34    UMS in essence submits that, on the facts found by the primary judge, the conduct of the Appellants was demonstrated to be conduct which was in breach of fiduciary duty, was conduct which fell below “ordinary standards of honest behaviour”, was conduct that answers the description of a dishonest and fraudulent design, and “amounted to a transgression of ordinary standards of honest behaviour”.

35    UMS submits that the Statement of Claim at [19] and [25], together with the concession in the First Reasons at [2], make clear that what had been alleged and what the primary judge found was Genesis had, through Mr Zibara and Mr Angeli, actual knowledge of the facts and circumstances giving rise to Mr Zibara’s and Mr Angeli’s respective breaches of duty. UMS submits that Genesis was knowingly concerned in Mr Zibara’s and Mr Angeli’s breaches of duty such that Genesis was liable to account to UMS for any profit derived by reason of its involvement in those breaches of duty.

36    UMS submits that the unchallenged findings made by the primary judge concerning Mr Zibara and Mr Angeli’s conduct established a breach of fiduciary duty which amounted to a “dishonest and fraudulent design”. UMS submits that was because the seriousness of the fiduciary breaches of Mr Zibara and Mr Angeli answers the description of “dishonest or fraudulent”: citing Hasler v Singtel Optus Pty Ltd; Curtis v Singtel Optus Pty Ltd; Singtel Optus Pty Ltd v Almad Pty Ltd [2014] NSWCA 266; 87 NSWLR 609 (Hasler) per Leeming JA at [105]-[110].

37    UMS submits that Genesis was the alter ego of the wrongdoing fiduciaries, Mr Zibara and Mr Angeli, who incorporated the company to secure profits of or to inflict the losses by their breach of fiduciary duty. UMS submits Genesis is fully liable for the profits made from and the losses inflicted by the errant fiduciaries. That is so, UMS submits, as Genesis had full knowledge of all of the facts as it is the “alter ego” of the fiduciaries with a “transmitted fiduciary obligation” or that it “jointly participated in” the breach: citing Grimaldi v Chameleon Mining NL (No 2) [2012] FCAFC 6; 200 FCR 29 at [243] (Grimaldi).

38    UMS submits that, contrary to the submissions of the Appellants, it is not necessary for UMS to establish that Mr Zibara and Mr Angeli made a “gain or profit” or to show actual receipt by the fiduciaries of a sum paid to Genesis by the contracted players. Rather, UMS submits it is simply necessary to establish that they set up and entirely own and control Genesis which competes with UMS and which has signed players which would have, but for their fiduciary breaches of duty, remained with UMS.

39    UMS submits that the benefit thereby obtained by the Appellants arises because of the causal connection between those breaches of fiduciary duty and the player contracts entered into by Genesis: citing Ancient Order of Foresters in Victoria Friendly Society v Lifeplan Australia Friendly Society [2018] HCA 43; 265 CLR 1 (Foresters) per Kiefel CJ, Keane and Edelman JJ at [7]-[10] and per Gageler J at [83]-[85].

40    UMS submits that, insofar as the Appellants contend that the fiduciary duties which they owed “ceased” upon their resignation from UMS in December 2017, that contention is untenable in light of particular findings made by the primary judge. UMS submits that the primary judge found that the strategy put in place by Mr Zibara and Mr Angeli, prior to the termination of their employment in December 2017, meant that UMS would not be able to obtain the benefit of the term remaining in the original contracts with the relevant players and protect UMS’s business relationship with those players: citing Foresters per Kiefel CJ, Keane and Edelman JJ at [19].

CONSIDERATION OF GROUNDS OF APPEAL – FIRST REASONS

41    The Appellants’ grounds 1, 4, 6, 7 and 8 challenge the primary judge’s conclusion that Genesis had a liability to account to UMS on the pleading and upon the facts as found by the primary judge. It is therefore necessary to address the primary judge’s findings in some detail. Relevant to these grounds of appeal, the primary judge made the following findings in the First Reasons.

Relevant findings of the primary judge

UMS’s business

42    UMS is a sports management company incorporated on 6 February 1996 and its sole director is Mr Sam Ayoub. The core business of UMS consists of managing players in the Australian National Rugby League (NRL) and the competition known as the English Super League. UMS manages players in those leagues and players aspiring to play at the highest professional level in the sport: First Reasons, [15].

43    The activities undertaken by UMS involve, first, entering into management contracts with players under which UMS assumes obligations for a defined period to manage the interests of the players. The second aspect involves negotiating with clubs to seek to secure player contracts for the player with a particular club. As a sports management agent, UMS undertakes contract negotiations for the player with clubs and seeks to procure sponsorship arrangements and media opportunities for the player: First Reasons, [18] and [19].

44    The NRL has an “Accreditation Scheme” which is governed by “scheme rules”. UMS operates under those rules and, as an accredited agent, acts according to those rules: First Reasons, [20]. The Accreditation Scheme approves standard form contracts to be used between a player and a player agent where the player agent is a company and where the player agent is an individual: First Reasons, [21].

45    Mr Zibara commenced full-time employment with UMS on 1 November 2010 and his employment ceased on 15 December 2017. Mr Zibara’s role was to assist UMS with its business generally and, in particular, with player recruitment and management. Mr Zibara’s role involved scouting for, and securing the management by UMS of, new talented players for the NRL; supervising new and existing players on behalf of UMS; maintaining and fostering players; attending to the day to day liaison with UMS’s contracted players; and seeking to solve problems confronted by UMS’s contracted players: First Reasons, [22] and [23].

46    Mr Angeli was employed by UMS from about 27 February 2017 to 15 December 2017. Mr Angeli was employed to assist UMS as an office administrator and, in particular, to assist with player recruitment management including assisting Mr Zibara in the services he provided. Mr Angeli’s role included assisting in supervising new and existing players on behalf of UMS; assisting in maintaining and fostering players; and assisting in attending to day to day liaison with contracted players: First Reasons, [25].

47    As at 20 June 2017, UMS had entered into a number of management contracts with players: First Reasons, [27]. UMS had contracts to manage players which, in the ordinary course, would have expired at various times into the future between 2018 and 2022: First Reasons, [29].

48    The remuneration arrangements under the various contracts that existed between UMS and players operated on two relevant bases. First, UMS would be entitled to receive a sum equal to a certain percentage of all moneys payable to a player pursuant to an “NRL Playing Contract, Playing Agreement or Non-Playing Agreement”. Second, UMS would receive a certain percentage of any “Non-Playing agreement or Sponsorships, Endorsements, Speaking Engagements … but excluding in the case of any NRL Playing Contract or Playing Agreement” seven identified categories of benefits or assistance received by the player: First Reasons, [30].

The revised form of player contracts

49    At [38] of the First Reasons, the primary judge recorded that, on 20 June 2017, Mr Massey, the Operations Manager for the NRL Accreditation System, sent an email to all NRL Accredited Agents, including Mr Ayoub. In that email, Mr Massey said:

Dear Agents

Please be advised that last night the Accreditation Committee resolved in accordance with Rule 3 of the Accredited Player and Agent Rules to amend the current rules and in addition to that provide each Agent with a revised contract between a Player and Agent (Form 3) and a revised contract between a Player and a Company (Form 4) for use.

In accordance with Rule 3 you are advised that these amendments to the Accredited Player and Agent Rules and Management Agreements (forms 3 and 4) will come into effect in 28 days from today’s date that being the 19th July 2017.

Further to this the Committee resolved that the use of the current agreement between [a] Player and a Company will cease immediately and any Company Management Agreements executed after this date and lodged with the Secretary for registration will not be accepted for entry on to the Register of Player and Agent Contracts.

Any Agent wishing to enter into a Management Agreement with a Player from this date until the 19th July 2017 will do so using the current Standard Player and Agent Contract as attached.

I have attached a copy of the amended documents as referred above and I have highlighted the amendments in yellow.

Following the expiry of the required 28 days’ notice I will disseminate to all Agents unmarked copies of the referred documents for use from that date forward.

I have also attached a copy of the unchanged standard Player and Agent Contract for use between this date and 19th July 2017.

Regards

Paul Massey

(First Reasons, [38]; amendments and emphasis added by the primary judge.)

50    At [40] of the First Reasons, the primary judge observed that at the centre of this case is the change to the termination arrangements in cl 6 of the new contract to be used as between a player and a company, such as UMS. In the new contract, cl 6 has 10 sub-paragraphs (a) to (j). Relevantly for present purposes, cl 6(e) is in these terms:

(e)     In the event that the Nominated Agent ceases to perform duties on behalf of or within the Company, the Player may terminate this agreement on the giving of seven (7) days’ written notice to the Company in which case this agreement will come to an end at the expiration of the period of notice.

(First Reasons, [40].)

51    The new contractual arrangements contemplated that the player was to deal with a “Nominated Agent” within the company, much in the same way that a player was dealing with a “Principal” of the company under the earlier form of contract: First Reasons, [41].

52    At [42] of the First Reasons, the primary judge observed that the “significance of the new cl 6(e) is self-explanatory”. The primary judge stated that it “creates a circumstance in which, should the “Nominated Agent” under the contract cease to perform duties either on behalf of or within the company, the [p]layer is entitled to terminate the Agreement on the giving of seven days’ written notice to the company in which case the Agreement comes to an end at the expiration of the period of notice”: First Reasons, [42].

53    The Operations Manager for the NRL Accreditation System, Mr Massey, gave evidence about the new cl 6(e). The primary judge noted that, although it had become “mandatory” that, after 19 July 2017, any new contracts were to be on the basis of the new Forms 3 and 4, this notion of a “mandatory” use of those forms “did not require that “existing contracts which did not contain clause 6(e) should be terminated and new contracts entered into with the new clause 6(e) after that date” …”: First Reasons, [43] (internal quotations in the original). Mr Massey gave evidence that the new clause 6(e) provided the players with “the ability to terminate the agreement that they were currently on should the nominated agent leave the employ of the company”, “[but] [only] for the relevant contracts after that time ... which contained clause 6(e)”: First Reasons, [43].

54    UMS’s sole director, Mr Ayoub, gave evidence about Mr Massey’s email of 20 June 2017 (ie the email which is extracted above): First Reasons, [44]. Mr Ayoub said that he “certainly did” recall receiving Mr Massey’s email: First Reasons, [45]. Mr Ayoub regarded the proposal to introduce the new clause 6(e) as a “significant change” to previous contracts and “created a situation of substantial risk” to player agent businesses (such as UMS) of losing players should an employed accredited player agent leave the employ of the company: ibid. The risk was that a former employee who had a relationship with the player might leave the employ of the company and the player might follow that former employee to a competitor by exercising rights, under cl 6(e), to terminate the management contract with the company: ibid.

55    At [46] of the First Reasons, the primary judge stated:

On 20 June 2017 at 6.25 pm Mr Ayoub sent an email to Mr Zibara and Mr Angeli in relation to Mr Massey’s email [which is extracted above]. Mr Ayoub sought to convene a meeting with Mr Zibara and Mr Angeli the next day about Mr Massey’s email. Mr Ayoub had such a meeting the next day. Mr Ayoub was asked about that meeting and gave evidence that Mr Massey’s email was “significant in the scheme of things [as], it had a direct bearing on my business” … Mr Ayoub says that he told Mr Zibara and Mr Angeli that UMS had received the email from Mr Massey and he asked them if they had read it. Mr Ayoub recalls Mr Zibara saying that he had read Mr Massey’s email. Mr Ayoub says that Mr Angeli sat with Mr Zibara during the meeting. Mr Ayoub says that he “made them [Mr Zibara and Mr Angeli] aware of the fact that – that basically, they don’t need to sign any contracts, the existing contracts run their course, and that was the extent of it” … Mr Ayoub gave evidence that from his perspective there was “nil benefit at all” to his business in having the existing contracts with players terminated and new contracts entered into containing the new clause 6(e) “because it basically gave people a free pass potentially to terminate with a new contract [and] nothing needed to happen with our existing contracts” … and “[t]hey [the existing contracts] were in place, they were in place for the term, and basically it was of value and benefit to the business” … Mr Ayoub was asked whether Mr Zibara or Mr Angeli raised any question about the execution of new contracts in place of the existing contracts and Mr Ayoub gave evidence that Mr Zibara and Mr Angeli agreed with what Mr Ayoub had said … I accept Mr Ayoub’s evidence on these matters.

(Transcript references omitted.)

56    At [47] of the First Reasons, the primary judge observed that Mr Massey gave evidence about his interaction with Mr Ayoub and Mr Zibara in relation to the new agreements and particularly clause 6(e). Mr Massey said that he received a telephone call from Mr Ayoub and Mr Zibara and he was asked a question “in regards to how clause 6(e) would affect the contract” with a player: First Reasons, [47]. Mr Massey answered the question by saying that if the player chose to use the right contained in clause 6(e) “that’s what it was intended for”: ibid. Mr Massey said that Mr Ayoub and Mr Zibara called him, they were on a loud speaker at their end of the call, and Mr Massey said that they were “seeking clarification or confirmation of the wording [of clause 6(e)] and the interpretation”: ibid. Mr Massey was asked when the call occurred and he said that he could not exactly say without referring to his notes “but it was in the weeks or months shortly after that material going out [ie presumably referring to Mr Massey’s email of 20 June 2017]”: ibid. Mr Massey produced a diary note of the conversation which shows that it occurred on 5 October 2017, and which stated:

051017     Call from agent [Mr Zibara] who was on loud speaker with S A [Sam Ayoub], he inquired as to the position with the new management agreements if he was to sign his players to them. He has read the document and believes that if he has a player on a new company agreement then if he leaves [UMS] the Player has the right to terminate. He referred to clause 6 (e).

(First Reasons, [47].)

57    At [48] of the First Reasons, the primary recorded that it was common ground that the reference to “He” in the above diary note is Mr Massey’s reference to Mr Zibara. The primary judge “accept[ed] Mr Massey’s evidence generally”: First Reasons, [48].

58    On certain dates, 16 of the original UMS contracts were replaced by the new contracts between UMS and the relevant players: First Reasons, [51]. Each of those contracts were in the form of the new “Form 4” as sent by Mr Massey to the agents in his email of 20 June 2017 and thus each contract contained the new termination provision in clause 6(e): First Reasons, [52]. Each contract recites Mr Zibara as the “Nominated Agent” and each contract is signed on behalf of UMS by Mr Zibara and witnessed by Mr Angeli: First Reasons, [52].

Mr Zibara and Mr Angeli resign from UMS

59    On 20 November 2017, Mr Ayoub and Mr Zibara had a discussion about Mr Zibara’s future with UMS: First Reasons, [54]. Mr Ayoub described the conversation he had with Mr Zibara in his oral evidence: ibid. Mr Zibara “went for a walk” to discuss possible future arrangements between UMS and Mr Zibara: ibid. At [54] of the First Reasons, the primary judge set out the following email sent to Mr Ayoub by Mr Zibara on 21 November 2017:

Hi Sam

I know we had a face to face discussion yesterday regarding my Resignation from [UMS], effective December 15th, 2017. I just thought it would be sensible to send you an email, so that we both have a copy on the record.

Obviously you are aware that I will be taking up another opportunity in the first week of January next year, and that it was a decision I didn’t take lightly.

Thank you very much for the opportunities for professional and personal development that you have provided me during the last seven years. I have enjoyed working for the company and truly appreciate the support and guidance that you provided me during my tenure.

I will of course assist with the transition in any way I can, and will continue to perform my duties to the best of my ability throughout my final 4 weeks.

If possible, it would be great if you could write me a Reference Letter, to assist with any personal future employment.

Sam, I wish you, your family and UMS all the very best moving forward.

60    On 22 November 2017, Mr Ayoub responded by email and advised Mr Zibara that his resignation had been accepted: First Reasons, [55]. Referring to Mr Zibara’s reference in the earlier email to “taking up another opportunity in the first week of January next year”, Mr Ayoub observed that “[a]s conveyed to me you have accepted a role with your best mate in an online protein powder business”: ibid. Mr Ayoub wished Mr Zibara “the absolute best with all your future endeavours”: ibid. Mr Ayoub concluded his email by wishing Mr Zibara “the utmost of luck in your future alternate industry endeavours” and “the absolute best”: ibid. In Mr Ayoub’s email of 22 November 2017, Mr Ayoub drew Mr Zibara’s attention to a non-competition period contained within particular arrangements made between UMS and Mr Zibara which was said to operate up to 15 December 2020: ibid. That caused Mr Zibara to observe in his email of 22 November 2017, in response to Mr Ayoub’s email of 22 November 2017, as follows:

I am aware of my ethical obligations to you and the company and will of course provide you with my mobile phone, desktop computer & windows surface, car etc. I can also assure you that I would never disclose any company “secrets” or IP to any third party, remove files, delete emails etc (nor have I ever) now, or in the future.

As difficult as it has been, I have spoken with you openly and honestly over the past few weeks. You know the job offers that I was subject to within our industry and my response to those companies. I was then happy to disclose to you my immediate intentions once I cease my tenure at UMS.

On Monday, I also advised you of my desire to retain my Player Agent Accreditation, whereby you kindly offered to pay my annual Accreditation Fee, to which I respectfully declined. You also said to me that, “it’s probably not a good idea to advise clients that you will still be an active agent”, which I can understand and have agreed to oblige, out of respect to you. I will not be, nor have I the intention of contracting any clients contracted to UMS, post December 2015. So I am unsure as to why you have suggested that I verbally [commit] to no longer being active in the Rugby League Management space?

(First Reasons, [55].)

61    Mr Angeli’s employment with UMS also came to an end on 15 December 2017: First Reasons, [58].

62    Genesis was incorporated on 14 February 2018: First Reasons, [59]. Genesis’s directors are Mr Zibara and Mr Angeli: ibid. The company has two ordinary paid up shares, one of which is held beneficially by Mr Angeli and the other is held beneficially by Mr Zibara: ibid.

63    Mr Ayoub gave evidence at trial that Genesis, since its incorporation, has been and remains in direct competition with UMS. It provides player management services on the terms and conditions of the contracts published by the Accreditation Committee of the NRL: First Reasons, [59].

Mr Zibara and Mr Angeli’s conduct as found by the primary judge and which is unchallenged on this appeal

64    On 13 March 2018, Mr Massey had a telephone conversation with Mr Zibara: First Reasons, [67]. Mr Massey made the call to Mr Zibara to discuss with him an “email received from [S]am [Ayoub] in regards to him [ie Mr Zibara] inducing players to go with him”: ibid. A diary note of Mr Massey (in evidence before the primary judge) notes that Mr Zibara “refutes it”: ibid. That diary note also records that Mr Massey discussed Mr Zibara “entering into new [UMS] agreements for players who still had a long time to run on old agreements and why he put them on new ones with the 6(e) clause”: ibid. Mr Massey’s diary note notes the following comment and response from Mr Zibara: “He made a brief comment “what was I meant to do leave with nothing” …”: ibid.

65    As noted above, the primary judge accepted Mr Massey’s evidence: First Reasons, [69]. The primary judge observed the following at [69] of the First Reasons:

The remark made by Mr Zibara is a frank admission of the considerations which influenced him to bring into existence the contracts that discharged the earlier UMS contracts and replaced them with the new UMS contracts with the particular players so that should he leave UMS he would not be in a position of leaving “with nothing”. He would, in fact, have put himself in a position where he would be able to leave UMS “with something”, that is, the crystallised opportunity for any one of those players under the new UMS contracts containing the new clause 6(e) to bring their contract with UMS (and in substance with Mr Ayoub) to an end on seven days’ notice and then go to wherever Mr Zibara (and presumably, Mr Angeli) might be.

66    As it turned out, that would be the company Mr Zibara and Mr Angeli brought into existence on 14 February 2018, Genesis: First Reasons, [70].

67    The primary judge observed that the answer given by Mr Zibara to Mr Massey on 13 March 2018 was an answer to a particularly relevant inquiry, which Mr Zibara ultimately was not required to answer in the witness box: First Reasons, [71]. Mr Massey’s question was: “why did you enter into new agreements [for UMS] with players who still had a long time to run on the old agreements and why did you put them into new contracts with clause 6(e)”: ibid. Mr Zibara’s answer was: “what was I meant to do leave with nothing”: ibid; emphasis in the original.

68    The primary judge observed that Mr Zibara was saying that he did not mean to leave UMS “with nothing”: First Reasons, [72]. The primary judge found that, since that response was in relation to the very question of why new contracts were put in place with clause 6(e), Mr Zibara was saying that he did not mean to leave UMS “with nothing” when new contracts could be put in place with clause 6(e) which would result in the possibility of Mr Zibara leaving UMS “with something”, namely, the opportunity to enable a player to terminate his contract with UMS and go wherever Mr Zibara might be performing the role of a player agent : ibid.

69    It was in those circumstances that the primary judge stated at [73] and [74]:

The remuneration payable to a Player Agent, whether an individual or a management company, by way of the particular percentage amounts adopted in the remuneration clause contained in the form of contract issued by the Accreditation Committee is the commercial lifeblood of the agent and this is particularly true of a player who is exhibiting potential to be successful in all fields of potential remuneration whether pursuant to a Playing Contract or arising out of sponsorships, endorsements, speaking engagements or other such non-player revenue. One can understand, as a matter of rational self-interest, why Mr Zibara did not want to find himself in a position where he might leave UMS “with nothing” but he nevertheless owed a duty to UMS to serve its interests and to not undermine its existing relationship with contracted players pursuant to which UMS would derive, or potentially derive, revenue in accordance with the remuneration clause in the earlier contracts terminated and replaced by Mr Zibara and Mr Angeli with the new contracts.

The adoption by the Accreditation Committee of the new form of contract containing the new clause 6(e) gave rise to a “break clause” …, which would be available only to players who were parties to such a contract. The introduction of the new form of contract to apply from 19 July 2017 meant that any new contract brought into existence after that date would contain the new break clause with the result that a player could give seven days’ notice to UMS of termination of the contract should Mr Zibara leave the employ of UMS. The new break clause would give the player an opportunity to leave UMS so as to follow Mr Zibara to wherever he might be in providing player management services, should he leave UMS. A contract containing clause 6(e) would certainly be of benefit to Mr Zibara should he leave UMS and should he be proposing to provide management services to players. Absent a new contract containing clause 6(e) the players contracted to UMS as at 20 June 2017 would not otherwise have been able to terminate those contracts at least so far as the event contemplated by clause 6(e) of the new contract is concerned. The termination of existing contracts on foot with a period to run and their substitution with the new form of contract was not required as an element of the introduction by the Accreditation Committee of the new form of contract. On the expiration of the term, any new contract would need to be on the terms of the new form of contract.

70    The primary judge also observed at [167]-[168]:

Mr Ayoub’s evidence, fairly understood, is that at the moment of introduction of clause 6(e), operative for new contracts from 19 July 2017, the need to put in place new contracts did not arise because the majority of the contracts were signed with time to run and that as to future contracts when the time arose to enter into such a contract with a player, there would be a future risk to the business as a player could end the contract and follow the nominated agent to wherever he or she might go. Mr Ayoub gave evidence that “[s]o I did specifically instruct them [Mr Zibara and Mr Angeli] not to res-sign [sic] them [players] to new contracts especially when most of them were signed to three and five year contracts only recently” … Mr Ayoub was pressed with the suggestion that that evidence was not true. He denied that suggestion.

I accept the evidence of Mr Ayoub on these matters and generally.

(Transcript references omitted.)

Summary of the primary judge’s unchallenged findings

71    It was in this context that the primary judge made several findings of fact, which are not challenged in this appeal.

72    The primary judge found that Mr Zibara was a trusted employee of UMS. The scope and content of his duties and responsibilities were as described by Mr Ayoub. At some point between publication of the new form of contract containing the new clause 6(e) on 20 June 2017, and 21 November 2017, Mr Zibara decided to leave UMS. It is not possible to say precisely when he formed an intention to leave UMS: First Reasons, [171]. However, the primary judge found that the following matters were clear.

73    First, within a day of Mr Massey publishing the proposed new form of contract containing the new clause 6(e) (to be used by an agent or a management company when contracting for the provision of management services to a player and to be adopted from 19 July 2017), Mr Zibara had read Mr Massey’s email and the changes to the contract: First Reasons, [172]. Mr Zibara attended a meeting with Mr Ayoub at which the events, described at [46] of the First Reasons (and extracted above), occurred: ibid. Mr Angeli was present at that meeting: ibid.

74    Second, the primary judge was satisfied that, either at that meeting or within a reasonably short period of time from that meeting, Mr Zibara knew that:

(1)    A player who became a party to one of the new management contracts with clause 6(e) would be entitled to terminate the contract on seven days’ notice should the nominated agent under that contract leave the employ of the management company: First Reasons, [173].

(2)    The existing contracts between UMS and a player did not contain such a clause conferring such a right on the player: ibid.

(3)    Although the new form of management contract conferred, on a player, a portability benefit on seven days’ notice (enabling a player to bring such a contract to an end in accordance with clause 6(e)), the utility of the clause for the nominated agent (as distinct from the “nominated agent’s” corporate employer) was such that a player could end the contract and follow the nominated agent to the place from which the agent would be then providing management services either by himself, as an employee of another company or through his own business structures or arrangements: ibid.

(4)    In order for a UMS-contracted player to be able to enjoy the benefit of such a right, and potentially exercise such a right, that player could only do so if the player entered into a new contract with UMS in accordance with the new published form of contract: ibid.

(5)    Mr Ayoub had made a decision to let the existing UMS contracts run their course and Mr Ayoub’s position was that there was no need to re-sign any of the players under the new contractual arrangements: ibid.

(6)    Upon the expiration of the term of each existing management contract between UMS and a player, a new management contract would have to be in accordance with the new form of contract containing the new clause 6(e). However, absent awaiting the expiration of each current UMS contract and then securing a renewal agreement containing clause 6(e), the new “break clause” could only be engaged if a new contract was put in place to replace the current UMS contracts: ibid.

75    Third, on several dates, Mr Zibara caused new contracts – which accorded with the new form of contract containing the clause 6(e) “break clause” – to be entered into with 16 players who were then already in a contractual relationship with UMS, in circumstances where the term of the existing contract had significant time to run: First Reasons, [174].

76    Fourth, the primary judge referred to (1) the evidence of Mr Ayoub described at [46] of the First Reasons (and extracted above); (2) Mr Ayoub’s oral evidence described earlier (concerning the direction he gave to Mr Zibara and Mr Angeli to the effect that it was unnecessary to re-sign players); and (3) Mr Ayoub’s evidence generally: First Reasons, [175]. In light of that evidence, the primary judge observed at [175] of the First Reasons that his Honour was:

… satisfied that Mr Zibara did not seek the consent or authority of Mr Ayoub to discharge the existing contracts and enter into the [relevant] replacement contracts … Mr Zibara did not disclose to Mr Ayoub that he was taking steps, or that, after the event he had taken steps, to replace UMS’s current contracts with new contracts which conferred the seven day portability benefit upon a player and correspondingly conferred a benefit upon Mr Zibara of enabling him to engage with a player who had exercised a right under the new contract to terminate that contract with UMS in the event that Mr Zibara elected to leave his employment with UMS. More specifically, I accept that Mr Zibara did not seek the consent of Mr Ayoub to replace the existing UMS contracts with [certain players], with new UMS contracts incorporating clause 6(e). I accept that Mr Zibara did not disclose to Mr Ayoub that he was taking steps, or that after the event he had taken steps, to replace those current contracts with the new UMS contracts.

77    Fifth, Mr Zibara did not seek the consent or approval of Mr Ayoub to release another player (Mosese Pope) on 27 October 2017 or to release certain other players set out in an email to Mr Massey on 7 December 2017: First Reasons, [176].

78    The primary judge dealt with the circumstances of particular player contracts:

(1)    At [177] of the First Reasons, the primary judge recorded:

Although it is not possible to look into the mind of Mr Zibara and determine when he decided to leave UMS, the following events suggest that the possibility of his leaving UMS had become, in his mind, a “significant possibility” fairly early on following upon the catalytic announcement of the form of the new contract on 20 June 2017 to be entered into concerning management contracts on and after 19 July 2017. Mr Shane Evans recounts a telephone conversation some time before 14 August 2017 (or at least before 19 August 2017, the date of [a Mr] Caleb [Evans]’s new UMS contract) with Mr Zibara when he was told that Mr Zibara was “not going to be with [UMS] anymore” and a new UMS contract would be sent to him for Caleb [Evans] to sign (that is, a contract which would contain the new clause 6(e)). Shane Evans remembers clearly being told that under the new contract “Caleb could leave [UMS] if he wanted to”. This made Shane Evans “feel a bit uneasy” because Caleb had signed with UMS. The new contract would enable Caleb to get out of his contract with UMS … Obviously enough, UMS and Mr Ayoub had an interest in changes to the arrangements between UMS and Shane and Caleb Evans but Mr Zibara disclosed none of this to Mr Ayoub.

(2)    The new UMS contract with a Michael Cheer was put in place as early as 31 July 2017: First Reasons, [178].

(3)    The new UMS contract with a Lance Bagon was entered into on 6 September 2017: First Reasons, [179]. However, the email from Mr Zibara attaching the new UMS contract replacing the earlier UMS agreement of 19 June 2017 was dated 17 July 2017: ibid. Initially, the new contract was to end essentially on the same date as the earlier UMS contract: ibid. The end date of the earlier contract was 16 June 2022 and the end date recited in the email of 17 July 2017 was 21 June 2022: ibid. The new UMS contract recites an end date of 5 September 2022: ibid. No explanation of the need for a new contract is set out in the relevant email: ibid.

(4)    The new UMS contract with a Hudson Young is dated 11 September 2017: First Reasons, [180]. The email attaching the new contract is dated 6 September 2017 and the explanation in the email of the need for a new contract was said to be that, since Hudson Young was now over 18, it was “preferable” that a new management agreement be signed: ibid. None of this was disclosed to Mr Ayoub: ibid.

(5)    The new contract with a Jayden Tanner was signed on 28 September 2017: First Reasons, [181]. It was signed on the same day that Jayden Tanner signed a playing contract with the NRL club known as the Cronulla Sharks: ibid. Jayden Tanner said that he did not know that the new contract contained the break clause: ibid. Mr Angeli told Jayden Tanner, in an email in early December 2017, that Mr Zibara had resigned from UMS “and so we’re leaving”: ibid. He also said that Mr Zibara “was still going to manage” and “that’s why we … signed you so you could get out early” and, that being so, Mr Angeli and Mr Zibara would “let you know what to do”: ibid.

(6)    On 5 October 2017, Mr Zibara had the conversation described at [47] of the First Reasons (and referred to above) with Mr Massey: First Reasons, [182]. Thereafter, new UMS contracts were signed with existing UMS contracted players on 5, 6, 18, 23, 27 and 28 October 2017: ibid. Three contracts were signed in November 2017: ibid.

(7)    A Phoenix Crossland’s new contract made provision for a significant extension of the term by a further two years and eight months: First Reasons, [183]. The primary judge accepted that to have simply extended the earlier contract would have been a position which was inconsistent with the spirit and policy of the NRL’s new approach to players contracting with an agent: ibid. However, UMS and Mr Ayoub had a significant interest in the existing contractual arrangement with Phoenix Crossland: ibid. The primary judge stated that Mr Zibara ought to have disclosed to Mr Ayoub that what was contemplated was an extension of the contract which involved bringing the existing contract to an end and entering into a new UMS contract: ibid. Mr Ayoub, upon proper disclosure of that matter, might have elected not to extend Phoenix Crossland’s contract but rather rely upon the existing contract and let it run its course: ibid.

(8)    As to a Illy Tohi and Ben Tohi, Illy Tohi recalls a conversation with Mr Zibara in November 2017 to the effect that he was looking at setting up his own company and “taking Ben [Tohi] with him”: First Reasons, [184].

79    The primary judge then stated at [186]-[187] of the First Reasons:

Having regard to all of these matters, I am willing to draw an inference that from about July 2017 Mr Zibara had in mind the possibility that he might leave UMS; that the possibility of such an event arose because of the opportunity available to him to readily retain his relationship with a player should he leave UMS if such a player could call on clause 6(e) in a contract with UMS; and that the possibility that he might leave UMS (provided players with whom he had a relationship were able to do so in reliance on a contract containing clause 6(e)) was a real or significant possibility.

I am satisfied that from July 2017 Mr Zibara found himself in a position where his personal interest in putting players in a position where they could quickly leave UMS and follow him should he leave UMS, by causing new UMS contracts to be entered into containing clause 6(e), came into conflict with his duty of loyalty to UMS. I am satisfied that Mr Zibara preferred his personal interest in respect of … 16 [particular] players … to that of the duty of loyalty he owed to UMS. Those contracts include the new UMS contracts with Volkan Er, Phoenix Crossland and Lance Bagon which were subsequently terminated in reliance upon clause 6(e) by the players leading to contracts being entered into between those players and Genesis. As to Illy Tohi and Ben Tohi, Mr Zibara sought to bring into existence a new UMS contract with them. In doing so, he was preferring his self-interest to that of his duty of loyalty to UMS. In the case of [Mr] Pope, the expression of preferring his personal interest to that of his duty of loyalty to UMS is to be found in causing Pope to be released from his UMS contract on 27 October 2017. He also preferred his personal interest to that of his duty of loyalty to UMS in causing Ben Tohi to be released from his UMS contract on 7 December 2017. When all of these events occurred as I have just described, both Mr Zibara and Mr Angeli were persons who owed a duty of loyalty to UMS which is described as a duty of absolute and disinterested loyalty to UMS imposed by proscriptive obligations in which equity regards the conduct in question as unconscionable thus attracting equitable remedies. I am satisfied that when Mr Zibara engaged in the conduct, he did so with full knowledge that in bringing the new contracts into existence, he was undermining the existing contractual arrangement between the players and UMS.

80    At [188]-[189] of the First Reasons, the primary judge stated:

In [Foresters], Gageler J described the equitable principles, in this way:

[67]    The fiduciary duty that an employee has to an employer within the scope of the relationship of employment, no less than the fiduciary duty that any other person in a fiduciary position has to any other person to whom the fiduciary duty is owed within the scope of the venture or undertaking in respect of which the person in the fiduciary position has undertaken or assumed a responsibility to act in the exclusive interests of that other person, is a duty of “absolute and disinterested loyalty”. That duty of loyalty is imposed in equity by means of two overlapping “proscriptive obligations”. Each proscriptive obligation, or “theme,” is “descriptive of circumstances in which equity will regard conduct of a particular kind as unconscionable and consequently attracting equitable remedies”.

[68]    “The first” often referred to as the “conflict rule”, “is that which appropriates for the benefit of the person to whom the fiduciary duty is owed any benefit or gain obtained or received by the fiduciary in circumstances where there existed a conflict of personal interest and fiduciary duty or a significant possibility of such conflict: the objective is to preclude the fiduciary from being swayed by considerations of personal interest”. The unconscionability which attracts equitable remedies in circumstances where the conflict rule alone is invoked lies not so much in receipt by the fiduciary of the benefit or gain (over which the fiduciary need not have control) as in retention by the fiduciary of the benefit or gain which in conscience ought to be disgorged to the principal.

[69]    “The second”, often referred to as the “profit rule”, “is that which requires the fiduciary to account for any benefit or gain obtained or received by reason of or by use of [the] fiduciary position or of opportunity or knowledge resulting from it: the objective is to preclude the fiduciary from actually misusing [the fiduciary’s] position for [the fiduciary’s] personal advantage.” The unconscionability which attracts equitable remedies in such circumstances lies in pursuit by the fiduciary of self-interest, or, more precisely, in pursuit of an interest other than the exclusive interest of the principal.

[70]    Consistently with the objective of imposing each obligation, in neither case does the benefit or gain to the fiduciary need to be at the expense of the principal, though it may be. And in neither case does the fiduciary need to act dishonestly or fraudulently, or otherwise than in good faith, though again the fiduciary may do so. Where a fiduciary does act dishonestly and fraudulently, however, the dishonest and fraudulent character of the breach of fiduciary duty is not without consequence for the intensity of the equitable remedies available against the defaulting fiduciary. More important for present purposes is that the dishonest and fraudulent character of the conduct of the fiduciary gives rise to the potential for similar remedies to be available in equity against another person who might knowingly participate in the fiduciary’s breach.

[71]    Knowing participation by a non-fiduciary in a dishonest and fraudulent breach of fiduciary duty is conduct which is regarded in equity as itself unconscionable and as attracting equitable remedies against the knowing participant of the same kind as those available against the errant fiduciary. Knowing participation in a dishonest and fraudulent breach of fiduciary duty includes knowingly assisting the fiduciary in the execution of a “dishonest and fraudulent design” on the part of the fiduciary to engage in the conduct that is in breach of fiduciary duty. The requisite element of dishonesty and fraud on the part of the fiduciary is met where the conduct which constitutes the breach transgresses ordinary standards of honest behaviour. Correspondingly, the requisite element of knowledge on the part of the participant is met where the participant has knowledge of circumstances which would indicate the fact of the dishonesty on the part of the fiduciary to an honest and reasonable person.

[citations omitted]

These principles discussed by Gageler J in Foresters address matters of general principle about the nature of the duty of an employee within the scope of the relationship of employment which are directly applicable to the circumstances of Mr Zibara’s employment and that of Mr Angeli. Gageler J also discusses the duty implications relevant to the circumstances before the Court in Foresters where the contention was that Foresters, in taking up a proposal put to it by two employees, Mr Woff and Mr Corby, of the claimants (the claimants being Lifeplan Australia Friendly Society Ltd (“Lifeplan”) and its wholly owned subsidiary, Funeral Plan Management Pty Ltd (“FPM”), knowingly took advantage of Messrs Woff and Corby’s dishonest and fraudulent design which involved breaches of fiduciary duty, in order to enhance its business by appropriating the business connections of Lifeplan and FPM. The further question addressed by Gageler J was the question of the basis upon which knowing participation by a non-fiduciary in a dishonest and fraudulent breach of fiduciary duty gives rise to unconscionability and the equitable remedies attracted by such conduct. In this case both Mr Zibara and Mr Angeli owed fiduciary obligations to UMS. The vehicle they created for the purpose of deriving the gain or benefit arising out of the breaches of fiduciary duty was wholly owned by them. In equity, Genesis is regarded as Mr Zibara and Mr Angeli.

(Emphasis added.)

81    As to Mr Angeli, the primary judge stated at [191] of the First Reasons that:

(1)    “Mr Angeli was also an employee of UMS who owed duties of absolute and disinterested loyalty to UMS”;

(2)    “Mr Angeli assisted Mr Zibara in putting in place the new UMS contracts and in giving effect to the release of Mosese Pope and Ben Tohi”; and

(3)    “Mr Angeli knew on or about 21 June 2017 … that Mr Ayoub had taken the position that the contracts with his players were to run their course and that there was no need to re-sign the existing players”.

82    The primary judge continued at [191] of the First Reasons:

… Mr Angeli was the author of the emails to Ben Tohi in which he investigated whether Ben Tohi would be willing to enter into a new management contract enabling him to leave UMS should he and Mr Zibara leave UMS. He told Ben Tohi that there was nothing wrong with Tohi signing a new UMS contract enabling Tohi to leave UMS should the clause 6(e) events occur. There was certainly no suggestion that there would need to be a discussion with Mr Ayoub about that matter. Mr Angeli was also responsible for the exchanges with Benjamin Mallia in which he explained that Mallia would be able to leave UMS because “we put you on the new MA”. Mr Angeli is also a person who told Mallia in a Facebook message on 19 January 2018 that if [Mr] Ayoub or anyone else asks if Mallia has spoken with Angeli, Mallia ought to say “nah”. In Facebook exchanges with Jayden Tanner, Mr Angeli encouraged him to tell any inquirer untruths … I am satisfied that Mr Angeli knew and appreciated that as each new UMS contract was put in place, as he assisted Mr Zibara in doing so, he was assisting Mr Zibara to undermine the existing contractual arrangements between UMS and the relevant players and that in doing so he was being disloyal to UMS and Mr Ayoub. In doing so, he was assisting Mr Zibara in the breaches of Mr Zibara’s fiduciary duty and he did so with knowledge that Mr Ayoub did not want to re-sign any of the players whose contracts had time to run. I am satisfied that when Mr Angeli did these things he was transgressing ordinary standards of honest behaviour in his dealings with Mr Ayoub and UMS. I am also satisfied that Mr Angeli behaved in like terms concerning the release of Pope and Tohi from their UMS contracts.

(Emphasis added.)

83    The primary judge continued at [192]:

I am satisfied that but for the breach of fiduciary duty by Mr Zibara, the players who terminated their new UMS contracts in reliance on clause 6(e) would not have had the benefit of such a contract and would not have been able to bring the existing UMS contract to an end. I am also satisfied that but for the breach of fiduciary duty by Mr Zibara, neither Mosese Pope nor Ben Tohi would have been released from their existing UMS contract by UMS. I am satisfied that but for the breach of fiduciary duty by Mr Zibara, the contracts between Genesis and Crossland, Bagon, Er and Pope of 21 October 2018, 28 November 2018, 30 November 2018 and 20 December 2018, respectively, conferring a benefit or gain upon Genesis, would not have been entered into. I am satisfied that Mr Angeli was knowingly concerned in these breaches by Mr Zibara. Genesis, as mentioned earlier, is a company wholly owned by Mr Zibara and Mr Angeli which for present purposes is the vehicle by which they have chosen to derive a benefit or gain arising out of entering into the new UMS contracts with players who were then able to be freed up from their existing contracts with UMS through the vehicle of clause 6(e) of the new contract, or otherwise released from UMS contracts.

(Emphasis added.)

84    As to Genesis, the primary judge recorded at [203] of the First Reasons that:

Genesis is in the market for the provision of management services. It thus engages in commercial rivalry for the provision of those services to players. It depends upon the derivation of revenue in the form of the commissions already described. I am satisfied that [UMS] has demonstrated that [Mr Zibara, Mr Angeli and Genesis] either by Genesis directly, or indirectly as individuals through their shareholding in Genesis, have derived a benefit or a gain by reason of the company’s entitlement to remuneration under each of the four contracts described at [192] of these reasons brought into existence as a result of the breaches of fiduciary duty. The benefit or gain derived in this way will be available to Genesis and the individual respondents for the life of each of those contracts.

Consideration

85    It is against these unchallenged findings made by the primary judge that the conduct of Mr Zibara and Mr Angeli is to be assessed to determine whether the primary judge was correct in finding that Genesis had a liability to account to UMS on the pleadings and upon the facts as found by the primary judge.

86    The Appellants’ grounds 1, 4, 6, 7 and 8 bring sharply into focus the ongoing controversy as to what can amount to a “dishonest and fraudulent design” for the purposes of the second limb of Barnes v Addy: see eg Hon William Gummow AC, ‘Knowing Assistance’ (2013) 87 Australian Law Journal 311; Hon T F Bathurst and Sienna Merope, ‘It tolls for thee: Accessorial liability after Bell v Westpac’ (2013) 87 Australian Law Journal 831; Patricia Cahill SC, ‘The Unsettled Second Limb of Barnes v Addy’ (2016) 42 Australian Bar Review 1.

87    As indicated above, the Appellants contend that UMS’s Statement of Claim failed to plead an essential element of a plea which properly engages the second limb of Barnes v Addy because the Appellants did not plead in terms that the fiduciaries, Mr Zibara and Mr Angeli, had engaged in a “dishonest and fraudulent design”. The Appellants contend that UMS did not allege that Genesis had knowledge of any dishonest and fraudulent design but only that Genesis was “knowingly concerned in the Zibara breaches of duty and the Angeli breaches of duty”: Statement of Claim, [25].

88    We reject the Appellants’ contentions on grounds 1, 4, 6, 7 and 8 for the reasons that follow.

89    Before setting out those reasons, however, it should be noted that there was no issue in the proceeding that Mr Zibara and Mr Angeli owed fiduciary duties to UMS. The Appellants conceded before the primary judge that, if the conduct said to constitute a breach of the fiduciary obligations owed to UMS by Mr Zibara and Mr Angeli was made good, then “it has to be conceded that there was a breach of fiduciary duty”: First Reasons, [2] and [3].

90    With that concession noted, we turn to set out the legal principles which govern this appeal, noting one other matter. It was not asserted at trial, as it is now on appeal, that the relevant dishonesty in the fiduciary breach was not contended for by UMS. For reasons considered below, such an assertion could not realistically have been advanced.

Barnes v Addy

91    In Barnes v Addy, Lord Selborne stated:

Now in this case we have to deal with certain persons who are trustees, and with certain other persons who are not trustees. That is a distinction to be borne in mind throughout the case. Those who create a trust clothe the trustee with a legal power and control over the trust property, imposing on him a corresponding responsibility. That responsibility may no doubt be extended in equity to others who are not properly trustees, if they are found either making themselves trustees de son tort, or actually participating in any fraudulent conduct of the trustee to the injury of the cestui que trust. But, on the other hand, strangers are not to be made constructive trustees merely because they act as the agents of trustees in transactions within their legal powers, transactions, perhaps of which a Court of Equity may disapprove, unless those agents receive and become chargeable with some part of the trust property, or unless they assist with knowledge in a dishonest and fraudulent design on the part of the trustees …

(Emphasis added.)

92    The form of liability referred to in the first part of the last sentence (“unless those agents receive and become chargeable with some part of the trust property”) is often called the “first limb” of Barnes v Addy. The form of liability referred to in the second part of the last sentence (“unless they assist with knowledge in a dishonest and fraudulent design on the part of the [fiduciaries]”) is often called the “second limb”. Shorthand labels are often used to the effect that the first limb involves “knowing receipt” and the second limb involves “knowing assistance”.

93    In relation to Lord Selborne LC’s judgment, Sir W M James LJ stated: “I am entirely of the same opinion” and “I most cordially concur in the general principle with which the Lord Chancellor began his judgment”. Sir G Mellish LJ stated (without more): “I entirely concur”.

Consul Development Pty Ltd v DPC Estates Pty Ltd

94    In Consul Development Pty Ltd v DPC Estates Pty Ltd [1975] HCA 8; 132 CLR 373 (Consul), Gibbs J stated at 396-398:

… [When] Lord Selborne [in Barnes v Addy] speaks of dishonesty and fraud it is clear that the principle extends to the case “where a person received trust property and dealt with it in a manner inconsistent with trusts of which he was cognizant” … All these authorities, however, are dealing with trustees and trust property in the strict sense and the question is whether the principle applies to impose liability on strangers who knowingly participate in a breach of fiduciary duty committed by a person who is not a trustee or is at most a constructive trustee. In Selangor United Rubber Estates Ltd. v. Cradock [No.3], Ungoed-Thomas J. held that directors of a company should be regarded as holding on trust any moneys of the company under their control and that agents of the directors who received moneys of the company in circumstances that showed that they assisted “with knowledge in a dishonest and fraudulent design” on the part of the directors were liable as constructive trustees. He held that what is “dishonest and fraudulent” for this purpose has to be judged according to “the plain principles of a court of equity” …

I respectfully agree with what was said in Selangor United Rubber Estates Ltd. v. Cradock [No.3] as to the meaning of “dishonest and fraudulent” for the purposes of the rule. This expression is to be understood by reference to equitable principles and, as I have already indicated, in my judgment it includes a breach of trust or of fiduciary duty.

(Emphasis added; citations omitted.)

Farah Constructions Pty Ltd v Say-Dee Pty Ltd

95    The High Court, in Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; 230 CLR 89 (Farah), considered what was required to establish liability under the “second limb” of Barnes v Addy. Relevantly, Gleeson CJ, Gummow, Callinan, Heydon and Crennan JJ stated (citations omitted):

160    As conventionally understood in Australia, the second limb makes a defendant liable if that defendant assists a trustee or fiduciary with knowledge of a dishonest and fraudulent design on the part of the trustee or fiduciary.

…

163    … [W]hilst the different formulations of principle may lead to the same result in particular circumstances, there is a distinction between rendering liable a defendant participating with knowledge in a dishonest and fraudulent design, and rendering liable a defendant who dishonestly procures or assists in a breach of trust or fiduciary obligation where the trustee or fiduciary need not have engaged in a dishonest or fraudulent design.

…

170    Had the Court of Appeal turned its mind to whether Mrs Elias and her daughters were liable as knowing participants in a dishonest and fraudulent design – an allegation the seriousness of which means that it ought to have been pleaded and particularised, and the assessment required by Briginshaw v Briginshaw kept in mind – it ought to have rejected the allegation. That rejection would follow from consideration of what was said in [Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373 (Consul)] respecting the second limb of Barnes v Addy, both in relation to “knowledge” and to “dishonest and fraudulent design”.

171    What is required by the requirement of “knowledge” expressed in the second limb?

172    In the passage in which Lord Selborne formulated the second limb in terms of assisting with knowledge in a dishonest and fraudulent design on the part of the trustees, he contrasted those “actually participating in any fraudulent conduct of the trustee” and those “dealing honestly as agents”.

173    As a matter of ordinary understanding, and as reflected in the criminal law in Australia, a person may have acted dishonestly, judged by the standards of ordinary, decent people, without appreciating that the act in question was dishonest by those standards. Further, as early as 1801, Sir William Grant MR stigmatised those who “shut their eyes” against the receipt of unwelcome information.

174    Against this background, it has been customary to analyse the requirement of knowledge in the second limb of Barnes v Addy by reference to the five categories agreed between counsel in Baden v Société Générale pour Favoriser le Dévelopment du Commerce et de l’Industrie en France SA [[1993] 1 WLR 509; [1992] 4 All ER 161 (Baden), noting that this case was decided in 1983]:

“(i) actual knowledge; (ii) wilfully shutting one’s eyes to the obvious; (iii) wilfully and recklessly failing to make such inquiries as an honest and reasonable man would make; (iv) knowledge of circumstances which would indicate the facts to an honest and reasonable man; (v) knowledge of circumstances which would put an honest and reasonable man on inquiry.”

In Bank of Credit and Commerce International (Overseas) Ltd v Akindele (BCCI), Nourse LJ observed that the first three categories have generally been taken to involve “actual knowledge”, as understood both at common law and in equity, and the last two as instances of “constructive knowledge” as developed in equity, particularly in disputes respecting old system conveyancing. After noting that in [Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378 (Royal Brunei)] the Privy Council had discounted the utility of the Baden categorisation, Nourse LJ in BCCI went on to express his own view that the categorisation was often helpful in identifying the different states of knowledge for the purposes of a knowing assistance case.

175    Although Baden post-dated the decision in Consul, the five categories found in Baden assist in an analysis of that for which Consul provides authoritative guidance on the question of knowledge for the second limb of Barnes v Addy.

176    Thus, support in Consul can be found for categories (i), (ii) and (iii). Further, Consul also indicates that category (iv) suffices. However, in Consul, Stephen J held that knowledge of circumstances which would put an honest and reasonable man on inquiry, later identified as the fifth category in Baden, would not suffice. Gibbs J left open the possibility that constructive notice of this description would suffice. Barwick CJ agreed with Stephen J.

177    The result is that Consul supports the proposition that circumstances falling within any of the first four categories of Baden are sufficient to answer the requirement of knowledge in the second limb of Barnes v Addy, but does not travel fully into the field of constructive notice by accepting the fifth category. In this way, there is accommodated, through acceptance of the fourth category, the proposition that the morally obtuse cannot escape by failure to recognise an impropriety that would have been apparent to an ordinary person applying the standards of such persons.

178    These conclusions in Consul as to what is involved in “knowledge” for the second limb represent the law in Australia. They should be followed by Australian courts, unless and until departed from by decision of this Court.

179    What then of the phrase “dishonest and fraudulent design”? Since the widening of the second limb of Barnes v Addy beyond breaches of express trust, attempts commonly are made in corporate insolvencies to render liable on this footing directors, advisers and bankers of the insolvent company. This makes a proper understanding of the second limb important, lest its application prove unjust. As Lord Selborne LC said in Barnes v Addy: “There would be no better mode of undermining the sound doctrines of equity than to make unreasonable and inequitable applications of them”. The relevant passages in Consul establish for Australia that “dishonest and fraudulent designs” can include not only breaches of trust but also breaches of fiduciary duty; but any breach of trust or breach of fiduciary duty relied on must be dishonest and fraudulent.

180    The reformulation proposed by the respondent [in Farah], with its abandonment of the “dishonest and fraudulent design” integer and its stiffening of the notice requirements in a way adverse to plaintiffs, should not be adopted. No sufficient difficulty in the current rules has been demonstrated to justify the taking of any such step. In any event, Mrs Elias and her daughters would not be liable even under the reformulated test. They did not participate “in a significant way” in Farah’s breach and they had no “actual knowledge of the essential facts which constituted the breach”.

(Emphasis added.)

96    It is apparent from the above passages in Farah that the High Court confined liability under the second limb of Barnes v Addy to cases where the breach of fiduciary duty amounts to a “dishonest and fraudulent design” (“[t]he relevant passages in Consul establish for Australia that “dishonest and fraudulent designs” can include not only breaches of trust but also breaches of fiduciary duty; but any breach of trust or breach of fiduciary duty relied on must be dishonest and fraudulent”: Farah, [179]). The High Court makes plain that, if certain parties in Farah were to be “liable as knowing participants in a dishonest and fraudulent design”, such “an allegation … ought to have been pleaded and particularised, and the assessment required by Briginshaw v Briginshaw kept in mind”: Farah, [170].

“Dishonest and fraudulent design”

97    At present, there is a divergence of opinion in the authorities as to the conduct that answers the description of “dishonest and fraudulent design”: see Westpac Banking Corporation v Bell Group Ltd (In liq) (No. 3) [2012] WASCA 157; 44 WAR 1 (Bell) at [2112] per Drummond AJA; Harstedt Pty Ltd v Tomanek [2018] VSCA 84; 55 VR 158 at [81] per Santamaria, McLeish and Niall JJA; Chickabo Pty Ltd v Zphere Pty Ltd [2019] VSC 73; 57 VR 406 at [189] per Sifris J.

98    In Hasler, Leeming JA analysed the concept of “dishonest and fraudulent design” in the context of the “second limb” of Barnes v Addy. Barrett and Gleeson JJA agreed with Leeming JA, although Barrett JA stated that, while Leeming JA’s analysis of Bell (to which we will come) was “compelling”, in order to dispose of the issues in Hasler, it was unnecessary to state a concluded position concerning aspects of the reasoning in Bell which related to dishonest and fraudulent designs: Hasler, [4].

99    In Hasler, Leeming JA considered the pleadings and conduct of the trial in that proceeding at [40] to [45]. It is apparent from Leeming JA’s reasons that, in Hasler, the phrase “dishonest and fraudulent design” was not used in the allegations made in that proceeding. However, at [46]-[49], Leeming JA stated:

46    When considered together, the allegations as particularised answer the description of “dishonest and fraudulent”. That is patently true of [the allegation relating to] selling Optus’ equipment and stock without remitting the proceeds of sale to it … It is true of [certain other allegations], which more elaborately involve Mr Curtis causing, for the benefit of Sumo, Optus to pay for warehousing and storage at prices determined by him. To anticipate what is elaborated in dealing below with the second issue, it amounted to a transgression of ordinary standards of honest behaviour.

47    The pleading and the second of the “real issues in dispute” [referred to in the judgment at first instance in Hasler] can only sensibly be read as invoking the second limb of Barnes v Addy. The statement in Optus’ written opening, directed to its claim against Mr Curtis, that conscious impropriety was not required, does not displace this reading. In 2013, when the trial took place, it must be taken to have been known to all parties that such a claim could only succeed if a “dishonest and fraudulent design” on the part of Mr Curtis could be established …

49    The course taken by the trial was consistent with a claim based on a dishonest and fraudulent design …

(Emphasis added.)

100    Leeming JA then stated at [53]-[55]:

53    … [The trial judge] held that[,] by reason of the evidence which had been adduced without objection, Optus was permitted to advance a case of second limb Barnes v Addy liability.

54    Mr Hasler has failed to persuade me that there was any error in taking that course. His Honour was especially well placed to assess whether this caused any unfairness to the defendants (of whom he was critical for failing to address the “real issues” which had been agreed by them at the outset of the trial). No differently from his Honour, it is not necessary to express a view as to the adequacy of the pleadings and particulars to comply with the obligations to allege and particularise dishonesty and fraud.

55    The unobjected passages of cross-examination [at trial], coupled with the allegations as particularised and agreed “real issues” which on any fair reading confirmed a claim based on Barnes v Addy knowing assistance, left it open to the primary judge to make findings of dishonesty and fraud. Mr Curtis was squarely confronted with allegations of conscious breach of duty in order to derive a substantial financial gain …

101    Leeming JA considered whether Farah had changed the meaning of “dishonest and fraudulent design” for the purposes of the second limb of Barnes v Addy. His Honour observed:

97    … Bell held that it was “established” by Farah that a breach of fiduciary duty which is incapable of being excused is sufficient to answer the description of “dishonest and fraudulent”, and that the common law of Australia does not require the conduct of the fiduciary to be morally reprehensible.

…

104    Mr Hasler submitted that what was held in Bell was “a brand new way of analysing fraudulent and dishonest conduct”. I agree. Optus did not contend to the contrary, although it submitted that this Court ought to follow Bell.

105     I see nothing in Farah to suggest that the High Court was substantially expanding the class of breaches of fiduciary duty which could attract second limb Barnes v Addy liability. True it is that there had been a relaxation of the meaning of “dishonest and fraudulent design” by the Privy Council in Royal Brunei, but the High Court was at pains in Farah to preclude Australian courts below itself from taking that step.

106    A third party who procures or induces any breach of fiduciary duty will be liable, but that where the third party merely participates in the breach and does not receive trust property, it is necessary for the breach to amount to a “dishonest and fraudulent design” before equity intervenes to regard the third party as accountable as if a constructive trustee. That distinction is centrally relevant to a relaxation of the test for ancillary liability of a third party. It follows from a reading of both sentences of Lord Selborne's reasons in Barnes v Addy reproduced above. It is something which I would expect to have been considered by the High Court had it changed the law. Drummond AJA's reasons do not address this.

107    Instead, the reasoning in Farah which was central to Drummond AJA's conclusion [in Bell] at [2123] was at [183] and [184]. It is best to reproduce it in its entirety (but omitting footnotes):

“In its final form, the submission put by Say-Dee was that a defendant who had not received a direct financial benefit “but has participated in a significant way in a significant breach of duty/trust with actual knowledge of the essential facts which constituted the breach should be liable to the beneficiary of the duty/trust for the consequence of the breach”. This submission should be rejected.

Breaches of trust and breaches of fiduciary duty vary greatly in their seriousness. Some breaches are well intentioned, some are trivial. In Maguire v Makaronis, this Court observed:

“The stringency apparent in some of the nineteenth century breach of trust cases displayed what Lord Lindley Mr Called ‘a very hard state of the law, and one which shocked one's sense of humanity and of fairness’. The result was what his Lordship called the deliberate relaxation of the law by s 3 of the Judicial Trustees Act 1896 (UK). This conferred a power of curial relief in respect of breach of trust where the trustee had acted ‘honestly and reasonably’ and ‘ought fairly to be excused’. There is no such general power of dispensation in respect of loss caused by breach of duty owed by other fiduciaries.”

However, some breaches of fiduciary duty by company officers, employees, auditors, experts, receivers, and receivers and managers and liquidators may be excused on similar grounds.”

108    That reasoning is, on its face, written as an answer to the submission that significant participation in a significant breach of fiduciary duty would suffice to engage second limb Barnes v Addy liability. Contrary to what Drummond AJA said, I do not find any aspect of it to be unclear. More particularly, I do not see how it amounts to an expansion of the meaning of “dishonest and fraudulent design” to include all “significant” breaches of duty. Even if (which I doubt) the passage may be read to equate Say-Dee's submission based on “significant breaches” to breaches incapable of relief under statute, nowhere is it said that such a breach is sufficient to engage this head of liability, and I respectfully am unable to see how that proposition is to be implied …

109    As much is confirmed by what had been said in Farah at [170] about the need to plead and particularise fraud and establish it in accordance with Briginshaw. The language there used is consistent only with every breach which is sufficient to answer the description of conduct which is “dishonest and fraudulent” being subject to familiar strictures as to pleading and proof. That is inconsistent with the proposition that there may be breaches of duty falling short of dishonest conduct which may still engage the second limb of Barnes v Addy.

110    Although Drummond AJA was conscious of this passage, and addressed it in the parenthesized final sentence in [2125], it is in my respectful view an insufficient answer to say that the High Court was focussing on the accessories, not the trustee or fiduciary. It is plain (in Australia) that it is the quality of the fiduciary’s breach which must answer the description of “dishonest or fraudulent” … and that even if the fiduciary not be joined as a party, it ought still to be pleaded and particularised and established in accordance with Briginshaw.

…

121    The foregoing brings to mind Buckley LJ’s statement in Belmont Finance Corporation Ltd v Williams Furniture Ltd [1979] Ch 250 at 267:

“[Lord Selborne's] formulation has stood for more than 100 years. To depart from it now would, I think, introduce an undesirable degree of uncertainty to the law, because if dishonesty is not to be the criterion, what degree of unethical conduct is to be sufficient?”

122    There was good reason for Lord Selborne to insist that when the third party fell short of procuring the breach of trust, but did participate in it, the third party was liable only if the breach were “dishonest” as well as “fraudulent”. Famously, there was great confusion as to the meaning of “fraud” at common law and in equity, which became acute following its apparent reconciliation in Derry v Peek (1889) 14 App Cas 337, at least until the position in equity was clarified by Nocton v Lord Ashburton [1914] AC 932. Professor Hanbury said that common law and equity practitioners “quarrelled over the possession of the word ‘fraud’ like two dogs over a bone, off which neither side was sufficiently strong to tear all the meat”: Modern Equity: The Principles of Equity, 8th ed, Stevens, London, 1962, p 643. The dispute and resultant confusion was very much alive when Barnes v Addy was determined. It may readily be seen, by reference to Slim v Croucher (1860) 1 De G F & J 518; 45 ER 462 and Ramshire v Bolton (1869) 8 LR Eq 294, in the illuminating account of Nocton v Lord Ashburton by Justice Edelman in C Mitchell and P Mitchell (eds), Landmark Cases in Equity (Hart Publishing, Oxford, 2012), 473 at 477-481.

123    The short point is that Lord Selborne's formulation avoids the potential for dispute as to the meaning of “fraud” in equity, by requiring that there must also be dishonesty on the part of the fiduciary.

124    Dishonesty amounts to a transgression of ordinary standards of honest behaviour. It is not necessary to say anything else by way of elaboration, save to confirm that it is not necessary to demonstrate that the person thought about what those standards were. (I have paraphrased Lord Hoffmann's account in Barlow Clowes International Ltd (in liq) v Eurotrust International Ltd [2006] 1 All ER 333 at [16].)

125    No differently from most legal tests, there will be borderline cases (consider the facts in Twinsectra Ltd v Yardley [2002] 2 AC 164). However, as Gleeson CJ once wrote, the existence of twilight does not invalidate the distinction between night and day: A M Gleeson, “Judicial Legitimacy” (2000) 20 Aust Bar Rev 4 at 11, and it remains sensible to distinguish the land from the sea, although once again the boundary is blurred: Gibbs v Mercantile Mutual Insurance (Australia) Ltd [2003] HCA 39; 214 CLR 604 at [90]. But there is no conceptual difficulty in this species of liability in equity, where a third party participates in but falls short of procuring or inducing a breach of fiduciary duty, being confined to only those breaches which are dishonest.

(Emphasis added.)

102    Applying those statements to the facts of Hasler, Leeming JA observed (among other things):

126    Optus’ fallback submission was that “[o]n any view Mr Curtis’ breach was serious enough to attract accessorial liability and thereby satisfy [this] limb” of the test. I agree.

127    Mr Curtis was throughout the period paid a salary by Optus and employed as a senior manager pursuant to a contract which required him to “serve [Optus] faithfully and diligently” and “not [to] act in conflict with [Optus’] best interests”. He brought about a position where the company Sumo, of which he was a shadow director, was supplying warehouse services to Optus, not pursuant to any competitive tender, but at prices which (on behalf of Sumo) he set, and which (on behalf of Optus) he approved, with the result that Sumo derived many millions of dollars of revenue. That of itself is sufficient to answer the description of a dishonest and fraudulent design. There is a plain transgression of ordinary standards of honest behaviour. No honest employee would do such a thing without having first obtained the consent of his or her employer …

103    There have been a number of recent decisions which have either expressly or impliedly followed the statements concerning the phrase “dishonest and fraudulent design” set out above in Hasler: see eg Babcock and Brown DIF III Global Co-Investment Fund, LP v Babcock and Brown International Pty Limited (No 2) [2017] VSC 556 at [45]-[46]; Argyle Building Services Pty Ltd v Mark Franek & Ors [2020] VSCA 196 at [58]; In the matter of Punters Show Pty Limited [2019] NSWSC 1777; 141 ACSR 695 at [69]; In the matter of Australian Worldwide Pty Ltd [2019] NSWSC 1475 at [87]; AHRKalimpa Pty Ltd v Schmidt (No 3) [2019] VSC 197 at [29]; In the matter of Elsmore Resources Ltd [2016] NSWSC 856; 114 ACSR 297 at [122]; Simmons v New South Wales Trustee and Guardian [2014] NSWCA 405 at [114]-[115] (per Gleeson JA; Beazley P and Barrett JA agreeing); Cornerstone Property and Development Pty Ltd v Suellen Properties Pty Ltd [2014] QSC 265; [2015] 1 Qd R 75 at [92].

104    In Rogers v MHM Metals Ltd [2015] FCAFC 67, Middleton, Gilmour and Gleeson JJ stated the relevant test as follows at [72]:

In [Farah] at [179], the High Court referred to [Consul] as “establish[ing] for Australia that ‘dishonest and fraudulent designs’ can include not only breaches of trust but also breaches of fiduciary duty”, provided that any such breach relied on is dishonest and fraudulent. The issue was therefore whether Rogers Southern had given knowing assistance to Mr Rogers’ dishonest and fraudulent breaches of duty, [where] the dishonesty of the conducted [is to be] assessed, not by Mr Rogers’ intention, but by the standards of ordinary, decent people: cf Farah at [173]; [Consul] at 398 (Gibbs J).

(Emphasis added.)

105    In Foresters, the joint judgment of Kiefel CJ, Keane and Edelman JJ stated at [2] that, in that case, there had been a “dishonest and fraudulent design, which involved breaches of fiduciary duty”. Justice Gageler stated at [70]-[71]:

… Where a fiduciary does act dishonestly and fraudulently, however, the dishonest and fraudulent character of the breach of fiduciary duty is not without consequence for the intensity of the equitable remedies available against the defaulting fiduciary. More important for present purposes is that the dishonest and fraudulent character of the conduct of the fiduciary gives rise to the potential for similar remedies to be available in equity against another person who might knowingly participate in the fiduciary's breach.

Knowing participation by a non-fiduciary in a dishonest and fraudulent breach of fiduciary duty is conduct which is regarded in equity as itself unconscionable and as attracting equitable remedies against the knowing participant of the same kind as those available against the errant fiduciary [citing Consul at 397-398 and Farah at [179]]. Knowing participation in a dishonest and fraudulent breach of fiduciary duty includes knowingly assisting the fiduciary in the execution of a “dishonest and fraudulent design” on the part of the fiduciary to engage in the conduct that is in breach of fiduciary duty [citing Farah at [160]]. The requisite element of dishonesty and fraud on the part of the fiduciary is met where the conduct which constitutes the breach transgresses ordinary standards of honest behaviour [citing Hasler at [124]]. Correspondingly, the requisite element of knowledge on the part of the participant is met where the participant has knowledge of circumstances which would indicate the fact of the dishonesty on the part of the fiduciary to an honest and reasonable person [citing Farah at [174]-[177]].

(Emphasis added.)

106    We respectfully agree and adopt the meaning of “dishonest and fraudulent design” as formulated by Leeming JA in the above quoted passages from Hasler and as endorsed by Gageler J in Foresters.

107    It is “plain (in Australia) that it is the quality of the fiduciary’s breach which must answer the description of “dishonest or fraudulent” …”: Hasler, [110]. This Court must assess the quality of the conduct of the fiduciary and determine whether that conduct answers the description of a dishonest and fraudulent design, being conduct that amounts to a “transgression of ordinary standards of honest behaviour”: Hasler, [124]; Foresters, [72].

Application to the facts of this case

108    UMS’s Statement of Claim did not expressly plead that Mr Zibara’s and Mr Angeli’s breaches of fiduciary duty were “dishonest or fraudulent”. That is, it did not use the words “dishonest and fraudulent design”.

109    The question therefore arises as to whether it matters that UMS’s Statement of Claim does not expressly use the words “dishonest and fraudulent design” in light of two matters. The first is the relevant concession made by the Appellants, namely that, if the conduct said to constitute a breach of the fiduciary obligations owed to UMS by Mr Zibara and Mr Angelia is made good, “it has to be conceded that there was a breach of fiduciary duty” (the Concession): First Reasons, [2]. The second matter is the findings made in respect of the conduct of Mr Zibara and Mr Angeli and the manner in which the trial was conducted before the primary judge.

110    To recall, the Appellants contend in this appeal that it matters that UMS did not expressly use the words “dishonest and fraudulent design” in UMS’s Statement of Claim, and that is why they should succeed on the appeal. UMS contends to the contrary and points to the Concession and the findings made by the primary judge in respect of the conduct of Mr Zibara and Mr Angeli and the manner in which the trial was conducted.

111    To satisfy the requirements of the second limb of Barnes v Addy, the breach of fiduciary duty itself must be “dishonest and fraudulent”: Farah, [179]. Such a formulation excludes from the second limb of Barnes v Addy conduct which does not have the requisite degree of “seriousness” and is not “significant”: Farah, [170] and [180]. The High Court recognised that “[b]reaches of trust and breaches of fiduciary duty vary greatly in their seriousness” and “[s]ome breaches are well intentioned, some are trivial”: Farah, [184]. In addition, the “relevant passages in Consul establish for Australia that “dishonest and fraudulent designs” can include not only breaches of trust but also breaches of fiduciary duty”, but “any breach of trust or breach of fiduciary duty relied on must be dishonest and fraudulent”: Farah, [179].

112    In the present case, the primary judge’s findings (set out in some detail above) make clear that the conduct of Mr Zibara and Mr Angeli transgressed the ordinary standards of honest behaviour of an employee. The primary judge stated that when Mr Angeli engaged in the relevant conduct “he was transgressing ordinary standards of honest behaviour in his dealings with Mr Ayoub and UMS”: First Reasons, [191]. At [187] of the First Reasons, the primary judge stated:

… [w]hen all of these events occurred …, both Mr Zibara and Mr Angeli were persons who owed a duty of loyalty to UMS which is described as a duty of absolute and disinterested loyalty to UMS imposed by proscriptive obligations in which equity regards the conduct in question as unconscionable thus attracting equitable remedies. I am satisfied that when Mr Zibara engaged in the conduct, he did so with full knowledge that in bringing the new contracts into existence, he was undermining the existing contractual arrangement between the players and UMS.

(Emphasis added.)

113    It is tolerably clear from the unchallenged findings of the primary judge that Mr Zibara and Mr Angeli embarked upon a scheme to have existing players – who were contracted to UMS with, in many cases, years to run on their management contracts – terminate the management contract and enter into the new form of management contract which included cl 6(e) (referred to as the “break clause”). That scheme entailed players terminating the relationship with UMS upon Mr Zibara leaving the employ of UMS, and then having the player enter into a management agreement with Mr Zibara and Mr Angeli’s company, Genesis. Moreover, neither Mr Zibara nor Mr Angeli disclosed to Mr Ayoub, the director of UMS, that they were taking steps to replace UMS’s current player contracts with new contracts which included cl 6(e).

114    Such conduct, as found by the primary judge (see eg [187]-[191] of the First Reasons), was conduct which no honest employee would undertake. In light of the duties owed to UMS by Mr Zibara and Mr Angeli, the conduct of both Mr Zibara and Mr Angeli was conduct which, objectively, transgressed ordinary standards of honest behaviour. In short, no honest employee would have knowingly terminated existing management contracts which had years to run and then re-signed players on a new form of contract which included the cl 6(e) break clause, without first having obtained the consent of Mr Ayoub, the director of UMS. This occurred in circumstances where the primary judge found that it was in contemplation that Mr Zibara and Mr Angeli might leave UMS and a purpose of putting in place the new form of contract was to enable Mr Zibara “to readily retain his relationship with a player should [the player] leave UMS if such a player could call on clause 6(e) in a contract with UMS”: First Reasons, [186-[187].

115    The conduct of Mr Zibara and Mr Angeli, as found by the primary judge, was sufficient to answer the description of “a dishonest and fraudulent design”. It follows, in our opinion, that the case as pleaded and the facts as found by the primary judge amount to conduct which falls within the second limb of Barnes v Addy.

Was UMS’s pleading defective?

116    We reject the Appellants’ submission that UMS’s pleading at [25] was defective. UMS’s Statement of Claim alleged that Genesis had actual knowledge of the facts and circumstances giving rise to Mr Zibara’s breaches of fiduciary duty and Mr Angeli’s breaches of fiduciary duty. That is precisely what was done in [25] of UMS’s Statement of Claim. There was no express requirement that the pleading use the words a “dishonest and fraudulent design”.

117    However, it was of course necessary, if UMS was to succeed on its claim against Genesis under the second limb of Barnes v Addy, to prove that the conduct by Mr Zibara and Mr Angeli in breach of fiduciary duty was conduct which was dishonest in that it transgressed ordinary standards of honest behaviour. That is sufficient for the conduct to amount to a “dishonest and fraudulent design” for the purposes of the second limb of Barnes & Addy. As stated above, the primary judge’s unchallenged findings demonstrated clearly that Mr Zibara and Mr Angeli transgressed the ordinary standards of honest behaviour, and that Genesis had actual knowledge of the conduct.

118    As a matter of pleading practice, r 16.02(1)(a) of the Federal Court Rules 2011 (Cth) provides:

(1)    A pleading must:

(a)    be divided into consecutively numbered paragraphs, each, as far as practicable, dealing with a separate matter; and

(b)    be as brief as the nature of the case permits; and

(c)    identify the issues that the party wants the Court to resolve; and

(d)    state the material facts on which a party relies that are necessary to give the opposing party fair notice of the case to be made against that party at trial, but not the evidence by which the material facts are to be proved; and

(e)    state the provisions of any statute relied on; and

(f)    state the specific relief sought or claimed.

119    Rule 16.42 provides that “[a] party who pleads fraud, misrepresentation, unconscionable conduct, breach of trust, wilful default or undue influence must state in the pleading particulars of the facts on which the party relies”.

120    Pleadings and particulars have a number of functions. They “furnish a statement of the case sufficiently clear to allow the other party a fair opportunity to meet it …; they define the issues for decision in the litigation and thereby enable the relevance and admissibility of evidence to be determined at the trial …; and they give a defendant an understanding of a plaintiff's claim in aid of the defendant's right to make a payment into court”: Dare v Pulham (1982) 148 CLR 658, 664 per Murphy, Wilson, Brennan, Deane and Dawson JJ (citations omitted).

121    In Banque Commerciale SA, En Liquidation v Akhil Holdings Ltd (1990) 169 CLR 279 at 286-287, Mason CJ and Gaudron J stated that:

The function of pleadings is to state with sufficient clarity the case that must be met … In this way, pleadings serve to ensure the basic requirement of procedural fairness that a party should have the opportunity of meeting the case against him or her and, incidentally, to define the issues for decision. The rule that, in general, relief is confined to that available on the pleadings secures a party’s right to this basic requirement of procedural fairness. Accordingly, the circumstances in which a case may be decided on a basis different from that disclosed by the pleadings are limited to those in which the parties have deliberately chosen some different basis for the determination of their respective rights and liabilities.

(Citations omitted.)

122    In Prysmian Cavi E Sistemi S.R.L. v Australian Competition and Consumer Commission [2018] FCAFC 30 (Prysmian), Middleton, Perram and Griffiths JJ stated at [69]-[70]:

Relevant guidance on the principles applicable to due process in this regard was provided by the Full Court in Betfair Pty Ltd v Racing New South Wales (2010) 189 FCR 356 at [50]-[52] (this aspect of the matter was not taken on appeal to the High Court). The Full Court outlined the relevant principles in the following paragraphs, which we adopt for the present case:

[50]    Pleadings provide a structure for a proceeding for the purpose of the attainment of justice. The pleadings identify the material facts upon which the parties rely and the issues the parties seek to have determined. Because the pleadings require the parties to identify all material facts and issues, the pleadings provide the benchmark for discovery before trial and the admissibility of evidence at trial. Parties are required to plead the material facts upon which the party relies and the issues which that party seeks to have resolved for the further purpose of giving the opposing party fair notice of the case to be met at trial thereby minimising any risk of injustice by taking the opposing party by surprise. Pleadings incidentally are the record of the proceeding for the purpose of any subsequent arguments relating to res judicata or issue estoppel or any like issue.

[51]    At trial a party is entitled to have the opposing party confined to that party’s pleadings because the first party is entitled to come to trial to meet only the issues raised on the pleadings. However, if the first party does not seek to so confine the opposing party but allows the other party to raise other material facts and issues for the determination of the Court, then in our opinion the Court is permitted and possibly obliged to decide the proceeding on the further material facts and issues raised and addressed at trial: Banque Commerciale at 296-297; Gould and Birbeck and Bacon v Mount Oxide Mines Ltd (in Liquidation) (1916) 22 CLR 490 at 517. If it were otherwise, the party who has failed to plead all of the material facts or issues upon which the party's case relies, but has brought those material facts or issues to the attention of his or her opponent at trial, would be denied natural justice if at the end of the trial the Court decided the proceeding on the pleadings without notice to that party. The first party in those circumstances would have been denied the opportunity to apply to amend those pleadings so as to formalise what was in fact addressed at the trial.

[52]    Pleadings are a means to an end and not an end in themselves (Banque Commerciale per Dawson J at 292-3). As early as 1916 Isaacs and Rich JJ said, in Gould and Birbeck and Bacon v Mount Oxide Mines Ltd (in Liquidation) (1916) 22 CLR 490 (at 517):

Undoubtedly, as a general rule of fair play, and one resting on the fundamental principle that no man ought to be put to loss without having a proper opportunity of meeting the case against him, pleadings should state with sufficient clearness the case of the party whose averments they are. That is their function. Their function is discharged when the case is presented with reasonable clearness. Any want of clearness can be cured by amendment or particulars. But pleadings are only a means to an end, and if the parties in fighting their legal battles choose to restrict them, or to enlarge them, or to disregard them and meet each other on issues fairly fought out, it is impossible for either of them to hark back to the pleadings and treat them as governing the area of contest.

In addition, it is to be recalled that in deciding whether a point was taken at trial, ‘no narrow or technical view should be taken’ (see Water Board v Moustakas (1988) 180 CLR 491 at 497 per Mason CJ, Wilson, Brennan and Dawson JJ).

123    Having regard to those principles, the following allegations in UMS’s Statement of Claim should be noted.

124    Paragraph 20 of UMS’s Statement of Claim provided:

From about July 2017, [Mr] Zibara and [Mr] Angeli (or each of them) (during their employ with UMS):

(a)    approached players with existing contracts with UMS;

(b)    sought to have those players enter into a fresh contract with UMS inserting [the new clause 6(e) described above] …;

(c)    … encouraged, solicited or persuaded player clients of UMS to terminate their business with UMS, without the knowledge of UMS, to resign with [Mr] Zibara after he commenced his own player management business; … [particulars to this plea omitted]

(d)    …

(e)    … terminated player management contracts of players managed by UMS, without direction of UMS to do so [particulars to this plea omitted].

125    Paragraph 21 of UMS’s Statement of Claim provided:

The conduct and steps of [Mr] Zibara and [Mr] Angeli (or each of them) referred to in [paragraph 20 of UMS’s Statement of Claim] were undertaken:

(a)    without the knowledge or consent of UMS;

(b)    in circumstances where UMS … had directed each of them: (i) that there was no need for any existing player to enter into a new contract containing [the relevant new] clause 6(e); and (ii) that they were not to request or require any players to do so;

(c)    in circumstances where UMS … had not authorised or directed that any UMS players managed by it be released from the Player Management Agreement made by UMS with such player;

(d)    not for an legitimate purpose of UMS; and

(e)    for their own purpose alternatively for the purpose of [Genesis].

126    Paragraph 22 of UMS’s Statement of Claim provided:

In the premises, each of [Mr] Zibara and [Mr] Angeli:

(a)    from in or about July 2017; and

(b)    since resigning their position with UMS in December 2017;

did:

(c)    take steps to enable player clients of UMS to terminate their business with UMS in order to follow [Mr] Zibara as an accredited player agent on resignation of his position with UMS;

(d)    encourage, solicit or persuade player clients of UMS to terminate their business with UMS and thereafter contract with [Genesis] on the same or similar terms; or

(e)    …

[Particulars omitted.]

127    Paragraph 23 of UMS’s Statement of Claim alleged that the conduct of Mr Zibara and Mr Angeli set out in UMS’s Statement of Claim constituted breaches of (among other duties) fiduciary duties owed to UMS by Mr Zibara and Mr Angeli.

128    Paragraph 24 of UMS’s Statement of Claim provided:

Since the cessation of the employment of [Mr] Zibara and [Mr] Angeli with UMS, players managed by UMS, and with whom [Mr] Zibara and/or [Mr] Angeli caused for a fresh player management agreement [that contained the relevant new clause 6(e)] to be entered into, have terminated their player management agreement made by that player and UMS, or purported to do so, and resigned or then intended to resign with [Genesis] and [Mr Zibara] as the NRL accredited player manager. [Particulars omitted.]

129    Paragraph 25 of UMS’s Statement of Claim provided:

By reason of the facts and matters pleaded …, [Genesis]:

(a)    had (through each of [Mr] Zibara and [Mr] Angeli) actual knowledge of the facts and circumstances giving rise to [Mr Zibara’s] breaches of duty and [Mr Angeli’s] breaches of duty;

(b)    accordingly was and is knowingly concerned in [Mr Zibara’s] breaches of duty and [Mr Angeli’s] breaches of duty.

130    Mr Zibara, Mr Angeli and Genesis’s Amended Defence responded to [25] of UMS’s Statement of Claim as follows:

In answer to paragraph 25 of [UMS’s] statement of claim, [Mr Zibara, Mr Angeli and Genesis] say:

a.    The alleged duties on the part of [Mr Zibara and Mr Angeli] did not arise;

b.    The alleged duties were not breached by [Mr Zibara or Mr Angeli]; and

c.     [Genesis] was not knowingly concerned in breaches of duty by [Mr Zibara or Mr Angeli] as alleged or at all.

131    Given this response in Genesis’s defence, it can be seen that whether or not Genesis was “knowingly concerned” in any breach of duty by Mr Zibara and Mr Angeli was squarely raised by the parties’ pleadings.

132    UMS’s Statement of Claim further alleged that, by “reason of [Mr Zibara’s] breaches of duty, [Mr Angeli’s] breaches of duty and [Genesis’s] involvement in the breaches of duty, UMS has suffered and will continue to suffer loss and damage”. UMS’s Statement of Claim sought the relief set out in UMS’s Originating Application: UMS’s Statement of Claim, [28]. UMS’s Originating Application sought (among other things) the following relief:

4.    In the alternative, at the election of the Applicant:

(a)    equitable damages for breach of confidence, alternatively, for breach of fiduciary duty; or

(b)    an account of profits;

5.    Further, for the purposes referred to in paragraphs 4(b) …:

(a)    an order for all necessary accounts and inquiries [to] be conducted;

(b)    an order that [Mr Zibara, Mr Angeli and Genesis] (and each of them) pay to [UMS] any sum of money found to be due to [UMS] upon the taking of such accounts and the making of such inquiries.

133    In these circumstances, another issue raised by the pleadings was whether Genesis was liable to account to UMS by reason of the allegations of breaches of fiduciary duties by Mr Zibara and Mr Angeli set out in UMS’s Statement of Claim.

134    In addition, the final written submissions of UMS at trial included the following submissions:

64.    [Genesis] is a company wholly owned and controlled by [Mr Zibara and Mr Angeli].

65.     As such, it was the vehicle used by [Mr Zibara and Mr Angeli] to perfect for their benefit only, the scheme they had initiated whilst employed by UMS.

…

208.    Before closing its case, UMS informed the Court that it was making an election for an account of profits. [Submissions were then set out concerning the temporal period of any account.]

…

… Conclusion

218.     This is a case which is essentially determined by facts not in issue.

219.     However, those facts are given context by the plethora of evidence which justifies findings to the effect that:

(a)    [Mr Zibara and Mr Angeli] conducted a well organised scheme to secure for themselves, and to the detriment of their employer, an advantage with respect to a number of players which were bound by long term contracts with UMS;

(b)    [Mr Zibara and Mr Angeli] deliberately determined not to alert, or otherwise inform, their employer as to their scheme and the players which the scheme had entangled;

(c)    there is no question that what [Mr Zibara and Mr Angeli] did was in any sense authorised, either expressly or impliedly;

(d)    the consequence in terms of equitable compensation ought be determined in the context that it is more probable than not that the subject players would have remained with [UMS] beyond the expiry of their initial contract term.

220.    [Genesis] was the vehicle created and controlled by [Mr Zibara and Mr Angeli] in order to give effect to that scheme.

135    Mr Zibara, Mr Angeli and Genesis’s final submissions included the following:

1.    In these proceedings, [UMS] has claimed relief against the personal Respondents (“Mr Zibara” and “Mr Angeli”) and their company ([Genesis]) upon a number of causes of action.

2.    Those causes of action are:

a.    Breach of contract by both Mr Zibara and Mr Angeli;

b.    Breach of fiduciary duty by both Mr Zibara and Mr Angeli;

c.    Breach of confidence by both Mr Zibara and Mr Angeli;

d.    Breach of confidence by [Genesis]; and

e.    Breach of statutory duty by both Mr Zibara and Mr Angeli under the Corporations Act 2001.

3.    The relief in the end pressed is:

a.    A claim for an injunction against all three Respondents based upon their alleged continued use of the Applicant’s so called “confidential information”;

b.    A claim for an injunction against Mr Zibara based upon a document said to operate as a deed signed by him in 2014;

c.    A claim for an account; and

d.    A claim for costs.

4.    There has been an election for an account and a claim for damages originally made by the Applicant has been abandoned.

…

105.    The claim for breach of fiduciary duty fails, it is submitted, on the facts. The case depends upon showing that Mr Zibara and Mr Angeli took actions in connection with the replacement of existing player manager contracts for the purpose of future gain.

106.    As already submitted, the justification for Mr Zibara signing the particular players to new management contracts with UMS in the period between July and October 2017 has been revealed by the evidence itself in the examples to which [UMS] has directed its evidence. There is no smoking gun.

107.    Having elected against a claim for damages and in favour of an account, it was incumbent upon [UMS] to show that one or other of [Mr Zibara, Mr Angeli and Genesis] profited at the expense of [UMS] by the eventual signing of one or more of [four certain players] who were formerly managed by UMS and who were signed by [Genesis] after the 2018 playing season ten months or more after Mr Zibara and Mr Angeli left UMS.

108.    A claimant is not entitled to an inquiry by way of an account in equity if at least some significant example of profit [sic]. An order for an account ought not be made by the Court upon the evidence in this case.

136    In oral closing submissions at trial, Counsel for UMS summarised the conduct of Mr Zibara and Mr Angeli in the following terms:

There is a constant theme in all of this, and the constant theme is that [Mr Zibara and Mr Angeli] were planning, at a time well before 20 November, to set up a situation where there was either a very real prospect or a certainty of them departing from UMS and setting up their own business. In either case, that is whether it was merely a prospect or an absolute certainty, what they were doing from the period after June 2017 was putting in place a structure whereby certain players obviously selected by them and in many senses encouraged or procured by them would enter into contracts which contained [the new] clause 6(e), 6(e) inuring only to the benefit of those people who left their current employer.

Now, that that is so is particularly cogent and probative evidence of a breach of duty. Now, whether both parties be fiduciaries or whether the obligations under statute apply at the end of the day is of no difference in this case, because the conduct that I’m talking about and which the evidence clearly establishes sets out conduct which is in breach of either the statute or the fiduciary obligations.

…

Now, lastly, the task of the court if it finds breach of fiduciary duty is setting out the parameters of the account. I’ve set out in the outline two things that need to be taken into consideration – or, perhaps, in fairness, three. One is the existing contract that these people had with UMS, because in [one particular player’s] case, that’s either three or five years. The second is the current contract that he has with [Genesis], which runs, I think, till 2021. And then there is the prospect in either instance of there being further contractual relations thereafter. And to that extent, you will recall an objection to a passage in Mr Ayoub’s affidavit about whether or not 80 per cent of people stayed with him in the long term. That was objected to. I withstood the objection on the basis I’ve said to your Honour it would be relevant to the accounting process, and it is.

137    Counsel for Mr Zibara, Mr Angeli and Genesis made (among others) the following oral closing submissions at trial:

MR IRELAND: Could I start at the other end, then, something that, so far as I can see – we need to sort out the proper approach to remedy here. Assuming just for the moment that it is an established breach of fiduciary duty/Corporations Act obligation. Assume that. Your Honour, the – there is a dichotomy, whether you’re under Corporations Act or in equity generally between compensation or loss and an account, because an account is an account of profits, so that all the talk about equitable compensation is now irrelevant in terms of the election which is being made. And that’s reinforced by having a look at the originating process, if there were ever any doubt about it – the originating application I should say, and you will see that [paragraph] 4 says that, after looking for declarations and relief under the Corporations Act of $750,000 including profits, [paragraph] 4 says, “In the alternative”, which I take to be in the alternative to – if your Honour – I’m sorry, does your Honour have - - -

HIS HONOUR: I have it. Yes, I have it.

MR IRELAND: Yes. Which I take to be in the alternative at least to 1, 2 and 3 and perhaps 2 only. At the election of the applicant, equitable damages for breach of confidence, alternatively for breach of fiduciary duty or an account of profits. So that divides correctly legally those two possible remedies, and we have an election for an account of profits. In order to gain that remedy as – I’ve given your Honour the reference in the written material – the applicants have to prove in their case some profits. Paragraph 110, I’ve quoted from the current edition of Meagher, Gummow and Lehane, again authored by Mr Heydon and of course Leeming J, so that one doesn’t get – on that approach one really doesn’t get any remedy at all. What seems to be proposed in these submissions is the case ought to be divided into two halves: one, examining liability for breach of fiduciary duty essentially, and the other looking at the question of profits or not. There has never been – and every often, as your Honour well knows – there is a division of quantum and liability. That order has never made in this case and it was incumbent on the applicants at the trial, at least to get their foot in the door for an inquiry, by showing relevant profits.

…

MR IRELAND: … So I’ve gone backwards, looked at the remedy first. I think it’s more or less conceded that an injunction shouldn’t be granted either for breach of confidence or for breach of fiduciary duty. So we’re talking about a money – a potential money claim for an account. And, in my respectful submission, the point has been reiterated that we didn’t plead and didn’t – and obviously didn’t lead evidence of informed consent as an order to breach of fiduciary duty. I accept that. I accept that that is so. And that’s because our defence is not informed consent which relieves an otherwise breach of the fiduciary obligation or the concomitant Corporations Act analysis. But rather that the facts don’t show a breach of duty, and I’ve gone through the evidence in the written outline to demonstrate that unless your Honour would reach a conclusion that sometime before November, when we know they’re leaving, that they were driven with a motivation, at least – it’s – put at its highest by the applicants, they say there’s a well-oiled conspiracy, more or less. We say the evidence falls far short of that.

…

MR IRELAND: … I’ve got to engage with and meet the case, and the case I’m engaging with is the one that has got any legs, with respect, and that is that the evidence must be examined to make an assessment as to whether the reasons that I’ve sought to show you in the evidence as to why these [contractual] changes were made sit with – sit comfortably with the assertion of a well-oiled plan conceived in, say, August. That’s really the whole issue in this case … Because if there was such a well-oiled plan of the type suggested by the applicant, then it has to be conceded there was breach of fiduciary duty … There’s [also] no proof of any earnings gained that has been offered, and I’m saying that this is a de minimis case, and the remedy should not be awarded on the orthodox approach.

(Emphasis added.)

138    Counsel for UMS made the following oral submissions (among others) in reply:

HIS HONOUR: Okay. All right. Thank you. Can I ask you, are you seeking an injunction or just an account?

MR PERRY: Just an account.

HIS HONOUR: Yes.

MR PERRY: Too late for an injunction, your Honour.

…

HIS HONOUR: Just on that. So what do you say you actually have to prove to ground the remedy for the account? Is it you say - - -

MR PERRY: The prospect - - -

HIS HONOUR: - - - do you that it’s enough that there’s a duty pleaded, which is made good, a breach pleaded which is made good.

MR PERRY: Yes. And then a – the prospect of causative loss as a result of the breach.

HIS HONOUR: And what’s the threshold for the burden of causative loss? How far do you have to go towards that?

MR PERRY: Not very far, it would appear from the authorities, when one is talking about a party that owes accounting obligations.

HIS HONOUR: What’s the emblematic authority that tells me what the threshold is that you have to reach?

MR PERRY: There is no authority cited by the authors, as I recall, when I was reading it last night. But can I put it this way: your Honour’s observation that what we have here are contracts entered into with players by the respondent – and I use that term globally, because [Mr Zibara and Mr Angeli] own the company, in respect of which – I’m sorry – in respect of which [Genesis] is entitled to glean a benefit by reason of the appointment as a player agent. That’s enough. That is, if one cannot show the prospect of any causative loss – that is causative by reason of the breach – then the submission may have some merit.

But where you have undeniably a commercial relationship entered into which can only inure to the benefit of [Genesis], then that’s sufficient. The ascertainment of quantum is a different question …

139    The following observations should be made concerning UMS’s Statement of Claim and the proceedings at trial.

140    First, the extracts from UMS’s Statement of Claim set out above show that UMS alleged that Mr Zibara and Mr Angeli owed fiduciary duties to UMS. UMS alleged that Mr Zibara and Mr Angeli breached those duties. The allegations made against Mr Zibara and Mr Angeli in UMS’s Statement of Claim set out material facts which, objectively, answered the description of conduct that transgressed “ordinary standards of honest behaviour”: Hasler, [124]; Foresters, [72]. The dishonest character of the alleged conduct set out in UMS’s Statement of Claim is particularly apparent in, for example, the pleas in [21(b)], [21(e)], [22(c)], [22(d)] of UMS’s Statement of Claim. It was also alleged that Genesis had “actual knowledge of the facts and circumstances” giving rise to Mr Zibara and Mr Angeli’s alleged breaches of duty: UMS’s Statement of Claim, [25].

141    In these circumstances, the manner in which UMS pleaded its case against Genesis in [25] of UMS’s Statement of Claim was adequate to fulfil the function of a pleading. UMS’s pleading provided a basis for a finding that Genesis was liable to account to UMS under the “second limb” of Barnes v Addy. Like the position in Hasler, “[w]hen considered together, the [relevant] allegations as particularised answer the description of “dishonest and fraudulent” …”: Hasler, [46]. It would be an overly narrow and technical position, unsupported by authority, to find otherwise.

142    In addition, if a party “does not seek to so confine the opposing party but allows the other party to raise other material facts and issues for the determination of the Court, then … the Court is permitted and possibly obliged to decide the proceeding on the further material facts and issues raised and addressed at trial”: see Prysmian (Middleton, Perram and Griffiths JJ), [69]-[70] citing Betfair Pty Ltd v Racing New South Wales [2010] FCAFC 133; 189 FCR 356 at [50]-[52]. In this respect, the following matters are apparent from the written and oral closing submissions at trial.

143    First, UMS informed the Court that, on the basis of the various allegations in UMS’s Statement of Claim (extracted above), it had elected for an account of profits.

144    Second, UMS submitted that Mr Zibara and Mr Angeli had conducted a “a well organised scheme to secure for themselves, and to the detriment of their employer, an advantage with respect to a number of players which were bound by long term contracts with UMS”. UMS submitted that Genesis was “the vehicle created and controlled by [Mr Zibara and Mr Angeli] in order to give effect to that scheme”.

145    Third, confronted with UMS’s Statement of Claim and those submissions, Mr Zibara, Mr Angeli and Genesis’s submissions attacked UMS’s case on two bases. First, it was submitted that there was no breach of fiduciary duty by Mr Zibara and Mr Angeli. Second, Mr Zibara, Mr Angeli and Genesis contended that, if there was a breach of fiduciary duty by Mr Zibara and Mr Angeli, UMS had not shown that Mr Zibara, Mr Angeli or Genesis had profited from any such breach. It was no part of Mr Zibara, Mr Angeli or Genesis’s defence at trial that, if there was a breach of fiduciary duty by Mr Zibara or Mr Angeli, Genesis being ordered to account to UMS was not an available remedy, or that Genesis could not otherwise be liable for its involvement in a breach of fiduciary duty by Mr Zibara and Mr Angeli. Indeed, the oral closing submissions of Mr Zibara, Mr Angeli and Genesis’s Counsel expressly stated that the case put against the fiduciaries was that they were engaged in a “well-oiled conspiracy” or “well-oiled plan”. Counsel for Mr Zibara, Mr Angeli and Genesis stated the following in closing submissions:

I’ve got to engage with and meet the case, and the case I’m engaging with is the one that has got any legs, with respect, and that is that the evidence must be examined to make an assessment as to whether the reasons that I’ve sought to show you in the evidence as to why these [contractual] changes were made sit with – sit comfortably with the assertion of a well-oiled plan conceived in, say, August. That’s really the whole issue in this case … Because if there was such a well-oiled plan of the type suggested by [UMS], then it has to be conceded there was [a] breach of fiduciary duty.

(Emphasis added.)

146    In these circumstances, the “course taken by the trial was consistent with a claim based on a dishonest and fraudulent design”: Hasler, [49]. It is tolerably clear that Mr Zibara, Mr Angeli and Genesis understood the case that was being put against them (namely, that they were involved in a “well-oiled plan”) and that, on the basis of that case, UMS was seeking an account of profits from Genesis, which was grounded on the allegation that Genesis had “actual knowledge of the facts and circumstances giving rise to [Mr Zibara’s] breaches of duty and [Mr Angeli’s] breaches of duty”: UMS’s Statement of Claim, [25]. Confronted with that case, Genesis merely sought to contend that no profits had been generated which could be the subject of an account.

147    It should not now be accepted that the pleadings, or the case run at trial, did not provide a basis for a finding that Genesis could be liable to account to UMS. In this respect, it should also be observed that the primary judge was “especially well placed to assess” (Hasler, [54]) whether there had been any unfairness to Genesis in the way that UMS advanced its case at trial. That case was plainly to the effect that Genesis was liable to account to UMS by reason of Mr Zibara and Mr Angeli’s breaches of fiduciary duties.

The liability of Genesis – an alternative basis

148    If it be doubted that Genesis can be liable to account to UMS on the basis of the second limb of Barnes v Addy, it should be noted that there is also a distinction between, on the one hand, “the case of a company which is the alter ego of the fiduciary” and, on the other hand, “… “true” third parties”: Hasler, [74]. Where the relevant third parties are companies under the control of the wrongdoing fiduciary, it will be a straightforward task to impute the fiduciary’s knowledge of his or her misconduct to the company, and so satisfy the knowledge requirements for Barnes v Addy liability: Jamie Glister, ‘Diverting Fiduciary Gains to Companies’ (2017) 40(1) UNSW Law Journal 4.

149    In Grimaldi, Finn, Stone and Perram JJ stated at [243]:

… where the third party is the corporate creature, vehicle, or alter ego of wrongdoing fiduciaries who use it to secure the profits of, or to inflict the losses by, their breach of fiduciary duty[,] … [i]n these cases the corporate vehicle is fully liable for the profits made from, and the losses inflicted by, the fiduciary’s wrong. The liability itself is explained commonly on the basis that “company had full knowledge of all of the facts” …; it is the alter ego of the fiduciary with a “transmitted fiduciary obligation” … or that it “jointly participated” in the breach … Liability does not turn on the need to show “dishonesty” [on the part of the third party company], although it often provides the reason for the interposition of the company. Proof of a breach of fiduciary duty will suffice … And … it is “rather artificial” to use Barnes v Addy to explain this liability.

(Citations omitted.)

150    Their Honours also stated at [556]:

… where the advantage of a fiduciary’s/trustee’s wrongdoing accrues to a third party (whether as a knowing recipient or an assistant) and the third party is the alter ego/“nominee” (usually corporate) of the fiduciary, its liabilities will be joint and several with the fiduciary’s …

(Citations omitted.)

151    The statement at [243] of Grimaldi has been cited with approval on numerous occasions: see eg Mudgee Dolomite & Lime Pty Ltd v Robert Francis Murdoch; In the matter of Mudgee Dolomite & Lime Pty Ltd [2020] NSWSC 1510 at [162] (Black J); Brecher v Barrack Investments Pty Limited (No 2) [2020] FCA 911 at [595] (Thawley J); Aucare Dairy (Aust) Pty Ltd v Huang (No 3) [2019] FCA 412 at [90] (Davies J); Harstedt Pty Ltd v Tomanek [2018] VSCA 84 at [69] (Santamaria, McLeish and Niall JJA); Prestige Lifting Services Pty Ltd v Williams [2015] FCA 1063 at [245] (per Beach J).

152    This position is consistent with statements in Farah. In that case, Farah Constructions Pty Ltd was the first appellant and controlled by Mr Farah Elias, who was the second appellant. Lesmint Pty Ltd (Lesmint) was the third appellant and a company controlled by Mr Elias. The High Court stated at [128] that “Lesmint is liable as the alter ego of Mr Elias: his mind is its mind”.

153    Having regard to those authorities, the primary judge stated that Mr Zibara and Mr Angeli were the only directors and shareholders of Genesis. The primary judge found at [189] of the First Reasons that Genesis was the vehicle Mr Zibara and Mr Angeli “created for the purpose of deriving the gain or benefit arising out of the breaches of fiduciary duty” and “was wholly owned by” Mr Zibara and Mr Angeli. Given these findings, it can be comfortably stated that the knowledge of Mr Zibara and Mr Angeli can be imputed to Genesis.

154    At [196] to [203] of the First Reasons, the primary judge observed that Genesis was the party to the relevant new contracts which arose by reason of Mr Zibara and Mr Angeli’s breaches of duty. The primary judge stated at [203] of the First Reasons that his Honour was:

… satisfied that [UMS] has demonstrated that [the Appellants] either by Genesis directly, or indirectly as individuals through their shareholding in Genesis, have derived a benefit or a gain by reason of the company’s entitlement to remuneration under each of the four contracts described at [192] of these reasons brought into existence as a result of the breaches of fiduciary duty. The benefit or gain derived in this way will be available to Genesis and [Mr Zibara and Mr Angeli] for the life of each of those contracts.

155    In these circumstances – whether on the basis that Genesis had full knowledge of the relevant facts, that Genesis was the alter ego of the fiduciary with a “transmitted fiduciary obligation” or on the basis that it “jointly participated” in the relevant breaches – Genesis is “fully liable for the profits made from, and the losses inflicted by”, Mr Zibara and Mr Angeli’s breaches of fiduciary duties: Grimaldi, [243].

156    In this respect, Genesis’s submission that Genesis was incorporated after Mr Zibara and Mr Angeli had left UMS’s employ “ignores the obvious reality” that Genesis’s “participation was not merely that of a passive recipient of the benefits of the success of” Mr Zibara and Mr Angeli’s strategy: Foresters, [10] (per Kiefel CJ, Keane and Edelman JJ). Genesis “provided the commercial vehicle which would acquire and exploit the business connections to be appropriated from” UMS: ibid. Certain profits of Genesis that are attributable to contracts introduced to Genesis by Mr Zibara and Mr Angeli (and which would be accessible to Mr Zibara and Mr Angeli as Genesis’s sole directors and shareholders) “would not have been made but for” Mr Zibara and Mr Angeli’s “dishonest wrongdoing”: ibid, [9]. Genesis’s actions were “inseparable from the consequences” of Mr Zibara and Mr Angeli’s “general scheme of breach of fiduciary duty”: ibid, [5].

157    It is also “important that one not be distracted by the consideration” that once Mr Zibara and Mr Angeli “had terminated their employment … they would be at liberty to solicit the business connections of [UMS] for their own benefit and, should they so choose, for the benefit of” Genesis: ibid, [19]. This is because, in light of the primary judge’s findings (set out above), it can be seen that the success of Mr Zibara and Mr Angeli’s “strategy was assured by the arrangements that were being put in place before their employment with [UMS] came to an end”: ibid.

Disposition of the First Reasons Grounds of Appeal

158    For the reasons given, grounds 1, 4, 6, 7 and 8 must be rejected.

GROUNDS OF APPEAL – SECOND REASONS

Appellants’ submissions

159    The Appellants by grounds 9, 10 and 11 challenge the costs orders made by the primary judge on 25 March 2020, which were:

1.    Subject to Orders 2 and 3 of these orders, [Mr Zibara, Mr Angeli and Genesis] pay the costs of [UMS] of and incidental to the proceeding.

2.    The costs, the subject of Order 1, as to the days of the hearing of the trial of the action are to be paid by [Mr Zibara, Mr Angeli and Genesis] on an indemnity basis.

3.    The costs, the subject of Order 1, are to exclude the costs of and incidental to the claim by [UMS] against Mr Zibara of a breach or breaches of a Deed signed by Mr Zibara as pleaded by [UMS] in its statement of claim in the proceeding.

…

160    The Appellants submit that, in the event that the appeal is allowed, the Appellants should have their costs of the appeal and of the trial. In the event that the appeal is not successful, the Appellants submit any consideration of the appropriate order as to costs required the primary judge to evaluate the measure of success that UMS has achieved in the litigation. The Appellants submit that the primary judge should have deferred his ruling on costs until the quantum of the account was known. The primary judge declined to do so: Second Reasons, [41] and [49].

161    The Appellants accepted that the primary judge did take into account the affidavits filed after the First Reasons in connection with the incomplete inquiry as to an account by the Judicial Registrar, which suggested that Genesis had received no more than $5,625. The Appellants submit that the primary judge erred by observing that the “seriousness of the conduct of Mr Zibara and Mr Angeli is not measured by whether the benefit they obtained by reason of the breaches turns out to be $10 or $100 or $1,000 or $5,625 or something more than that”, but is rather “measured by the character of the conduct itself”: Second Reasons, [50].

162    The Appellants submit that the primary judge’s observation at [50] shows that the quantum of recovery was entirely irrelevant to the primary judge’s consideration and betrays a clear miscarriage of the exercise of discretion concerning costs. The Appellants submit that this Court on appeal should re-exercise that discretion. The Appellants submit that an indemnity costs order was not appropriate.

163    The Appellants submit that this Court in re-exercising the costs discretion, should pay due attention to:

(1)    the abandonment of the claim for damages or compensation for $750,000;

(2)    the abandonment of claims for relief under the Corporations Act 2001 (Cth);

(3)    the abandonment of the contractual claims and breach of confidence claims; and

(4)    the existence now of a figure of $100,000, being the amount of the consent judgment entered against the Appellants (subject to the right to appeal) as the measure of the quantum of recovery by UMS.

164    As to the $100,000 consent judgment (subject to the Appellants’ right to appeal), it will be recalled that, on 21 August 2020, the primary judge made the following relevant consent orders:

BY CONSENT, THE COURT ORDERS THAT:

1.     … [J]udgment be entered for [UMS] against [Mr Zibara, Mr Angeli and Genesis], jointly and severally for the sum of $100,000 (Judgment Sum).

2.     Execution of the judgment be stayed pending the determination of [Mr Zibara, Mr Angeli and Genesis]’s Applications for Leave to Appeal and Extension of Time filed on 8 April 2020 or further Order of the Full Court …

3.    …

4.    …

5.    …

6.    Interest shall not run upon the Judgment Sum until the determination by the Full Court of [Mr Zibara, Mr Angeli and Genesis]’s Applications referred to in paragraph 2 hereof.

THE COURT NOTES THAT:

7.    [Mr Zibara, Mr Angeli and Genesis]’s consent to these Orders shall not operate so as to prevent [Mr Zibara, Mr Angeli and Genesis] from challenging in the Full Court their liability to [UMS] pursuant to the Draft Notice of Appeal relied on in the Application to the Full Court referred to in paragraph 2 above.

165    The Appellants further submit that a substantial discount should be made by allowing only a portion of the costs at first instance in favour of UMS, which should be expressed as a percentage of the costs incurred. The Appellants submit that 50% of those costs would be appropriate in the circumstances.

UMS’s submissions

166    UMS submits that the exercise of the discretion by the primary judge was in the circumstances of the case appropriate given three matters. First, the Appellants’ defence constituted non-admissions or bare denials. Second, UMS submits no alternate or positive case was run by the Appellants at trial. Third, UMS submits that the Appellants must be taken to have been aware of their wrongful conduct yet determined to put UMS to proof of its case at trial, which UMS submits was inconsistent with the overarching purpose and the obligations of parties to litigation under ss 37M and 37N of the Federal Court of Australia Act 1976 (Cth).

167    UMS submits that an indemnity costs order, in circumstances where UMS should not have been put to the expense of having to proceed with the trial to judgment, was an appropriate exercise of the discretion as to costs. UMS submits that an indemnity costs order was not a form of punishment but rather compensation for being put to an expense which was unnecessary.

Principles

168    This Court “has jurisdiction to award costs in all proceedings before the Court (including proceedings dismissed for want of jurisdiction) other than proceedings in respect of which [the Federal Court of Australia Act 1976] or any other Act provides that costs must not be awarded”: Federal Court of Australia Act 1976 (FCA Act), s 43(1). “Except as provided by any other Act, the award of costs is in the discretion of the Court …”: FCA Act, s 43(2).

169    Rule 40.02 of the Federal Court Rules 2011 (Cth) provides:

A party or a person who is entitled to costs may apply to the Court for an order that costs:

(a)    awarded in their favour be paid other than as between party and party; or

(b)    be awarded in a lump sum, instead of, or in addition to, any taxed costs; or

(c)    be determined otherwise than by taxation.

Note 1:     The Court may order that costs be paid on an indemnity basis.

Note 2:     The Court may order that the costs be determined by reference to a cost assessment scheme operating under the law of a State or Territory.

170    The phrase “costs on an indemnity basis” is defined in the rules as meaning:

costs as a complete indemnity against the costs incurred by the party in the proceeding, provided that they do not include any amount shown by the party liable to pay them to have been incurred unreasonably in the interests of the party incurring them.

171    The High Court stated the following in Northern Territory v Sangare [2019] HCA 25; 265 CLR 164 at [24]-[25] (Kiefel CJ, Bell, Gageler, Keane and Nettle JJ):

It is well established that the power to award costs is a discretionary power, but that it is a power that must be exercised judicially, by reference only to considerations relevant to its exercise and upon facts connected with or leading up to the litigation …

A guiding principle by reference to which the discretion is to be exercised – indeed, “one of the most, if not the most, important” principle – is that the successful party is generally entitled to his or her costs by way of indemnity against the expense of litigation that should not, in justice, have been visited upon that party. The application of that principle may be modified or displaced where there is conduct on the part of the successful party in relation to the conduct of the litigation that would justify a different outcome. For example, a successful defendant may be refused its costs on the ground that its conduct induced the plaintiff to believe that he or she had a good cause of action.

(Citations omitted.)

172    The High Court stated the following in Bell Lawyers Pty Ltd v Pentelow [2019] HCA 29; 372 ALR 555 at [33] (Kiefel CJ, Bell, Keane and Gordon JJ):

… costs are a creature of statute. It has never been thought that any of the ubiquitous statutory provisions empowering courts to order costs are available to compensate a litigant for his or her time and trouble in participating in litigation. That is because costs are awarded by way of indemnity; they are not awarded as compensation for lost earnings, much less as a reward for a litigant’s success. The courts have long regarded the statutory power to make an order for costs as confined by the concern to provide the successful party with a measure of indemnity against the expense of professional legal costs actually incurred in the litigation.

(Citations omitted.)

173    If “one thing is clear in the realm of costs, it is that, in criminal as well as civil proceedings, costs are not awarded by way of punishment of the unsuccessful party”: Latoudis v Casey (1990) 170 CLR 534 (Latoudis) at 643 (per Mason CJ). “They are compensatory in the sense that they are awarded to indemnify the successful party against the expense to which he or she has been put by reason of the legal proceedings”: ibid; see also at 563 per Toohey J and at 567 per McHugh J. Thus, “in civil proceedings an order may, and usually will, be made even though the unsuccessful party has nearly succeeded or has acted reasonably in commencing the proceedings”: Latoudis at 567 per McHugh J.

174    In Kazar (Liquidator) v Kargarian; In the Matter of Frontier Architects Pty Ltd (In Liq) [2011] FCAFC 136; 197 FCR 113, Greenwood and Rares JJ stated the following at [7]-[11]:

The operation of the pre-judicature system with respect to costs infuses the approach to the flexibility of the discretion in the post Judicature Act environment and particularly in the modern treatment of costs applications operating under rules which are the genetic descendents of the Judicature Act provisions (such as s 43 of the Federal Court Act). In reflecting upon the practice of the High Court of Chancery (as described in Daniell’s Practice of the High Court of Chancery, 5th Ed (1871), Vol 2, p 1239) and the discretionary nature of the award of costs in that court, Gleeson CJ, Gummow, Hayne and Crennan JJ observe at [34] in [Foots v Southern Cross Mine Management Pty Ltd (2007) 234 CLR 52] that the discretion historically was not inflexibly constrained by the rule of awarding the costs of the suit to the successful party but that the court would, in exercising the discretion to award costs, take into consideration the circumstances of the particular case before it or the situation or conduct of the parties.

The practice guiding the exercise of the discretion [as to costs] was that the Court of Chancery did not regard the awarding of costs as a penalty or punishment but merely a necessary consequence of a party having created litigation in which the party had failed … [W]ithout subsuming the discretion within inflexible rules, the discretion would be exercised according to broad settled principle as described. Having observed these matters about the practice of the Chancery Court, their Honours concluded those remarks by observing at [34] that “[t]he similarity with the modern treatment of costs applications will be readily apparent”.

The exercise of the discretion takes account of all of the contextual circumstances of the litigation and the conduct of the parties. One aspect of the award of costs is a recognition that a party has been put to expense which, taking account of the merits as ultimately found on the trial of the action, might otherwise have been avoided. That consideration does not infuse the award of costs with any sense of penalty or punishment but simply recognises the compensatory nature of an award of costs, in context and according to principle. That is why an award of costs, although involving the exercise of a discretion, generally favours the successful party …

175    These principles are generally reflected in this Court’s Costs Practice Note. It provides the following:

The purpose of a costs order is to compensate a successful party rather than punish an unsuccessful party. However, the Court will consider the appropriateness of the making of a special costs order in circumstances which may warrant it, including where parties have failed to comply with their pre-litigation “genuine steps” obligations, where the “overarching purpose” duty has not been met, where parties engage in an abuse of process, raise unmeritorious arguments before the Court or otherwise conduct themselves inappropriately in the litigation.

(Citation omitted.)

176    In Clifton (Liquidator) v Kerry J Investment Pty Ltd trading as Clenergy (No 2) [2020] FCAFC 112, Besanko, Markovic and Banks-Smith JJ addressed briefly the relevant principles in relation to an award of indemnity costs at [30]-[31]:

In Colgate-Palmolive Co v Cussons Pty Ltd [1993] FCA 801; (1993) 46 FCR 225, Sheppard J said (at 233–234):

4.    In consequence of the settled practice which exists, the Court ought not usually make an order for the payment of costs on some basis other than the party and party basis. The circumstances of the case must be such as to warrant the Court in departing from the usual course. … Most judges dealing with the problem have resolved the particular case before them by dealing with the circumstances of that case and finding in it the presence or absence of factors which would be capable, if they existed, of warranting a departure from the usual rule. But as French J said (at p 8) in Tetijo, “The categories in which the discretion may be exercised are not closed”. Davies J expressed (at p 6) similar views in Ragata (supra).

5.    Notwithstanding the fact that that is so, it is useful to note some of the circumstances which have been thought to warrant the exercise of the discretion. I instance the making of allegations of fraud knowing them to be false and the making of irrelevant allegations of fraud (both referred to by Woodward J in Fountain and also by Gummow J in Thors v Weekes (1989) 92 ALR 131 at 152; evidence of particular misconduct that causes loss of time to the Court and to other parties (French J in Tetijo); the fact that the proceedings were commenced or continued for some ulterior motive (Davies J in Ragata) or in wilful disregard of known facts or clearly established law (Woodward J in Fountain and French J in J-Corp (supra)); the making of allegations which ought never to have been made or the undue prolongation of a case by groundless contentions (Davies J in Ragata); an imprudent refusal of an offer to compromise (eg Messiter v Hutchinson (1987) 10 NSWLR 525; Maitland Hospital v Fisher (No 2) (1992) 27 NSWLR 721 at 724 (Court of Appeal); Crisp v Keng (unreported, Court of Appeal, NSW, Kirby P, Priestley JA, Cripps JA, No 40744/1992, 27 September 1993) and an award of costs on an indemnity basis against a contemnor (eg Megarry V-C in EMI Records (supra)). Other categories of cases are to be found in the reports. Yet others to arise in the future will have different features about them which may justify an order for costs on the indemnity basis. The question must always be whether the particular facts and circumstances of the case in question warrant the making of an order for payment of costs other than on a party and party basis.

… We also refer to the discussion by Kenny J in Morad v El-Ashey (No 2) [2017] FCA 1612 at [6]–[10] and the detailed discussion of the relevant principles in Dal Pont at 16.46 and following. The point which we wish to emphasise is that to justify a special costs order, there must be conduct deserving of criticism and resulting in greater expense to the innocent party …

(Emphasis added.)

177    Their Honours referred to the discussion by Kenny J in Morad v El-Ashey (No 2) [2017] FCA 1612 at [6]–[10]. Kenny J stated at [9]-[11]:

The principles relevant to an award of indemnity costs are well-established. In broad terms costs will be payable on a party and party basis, unless the circumstances of the case justify a departure from the normal course: see Colgate-Palmolive Company v Cussons Pty Limited (1993) 46 FCR 225 (Colgate-Palmolive) at 233 (Sheppard J). The question is always whether the facts and circumstances of a particular case justify the making of an order for the payment of costs other than on a party and party basis.

Plainly enough, the categories in which indemnity costs may be ordered are not closed. Reference to some of the circumstances in which costs on an indemnity basis have been ordered is illustrative, however, of the occasions that have been thought capable of attracting such an award of costs. It has been held, for example, that indemnity costs may be awarded where “the applicant, properly advised, should have known that he had no chance of success” (Fountain Selected Meats (Sales) Pty Ltd v International Produce Merchants Pty Ltd (1988) 81 ALR 397 (Fountain Selected Meats) at 401; where an application is wholly untenable and misconceived (Henke v Carter [2002] FCA 492 at [22] (Goldberg J)); and where there is “evidence of particular misconduct on the part of a party that causes loss of time to the Court and to other parties” (Tetijo Holdings Pty Ltd v Keeprite Australia Pty Ltd [1991] FCA 225 at [22] (French J)).

The purpose of indemnity costs was explained in Hamod v State of New South Wales [2002] FCAFC 97; 188 ALR 659 (Hamod) at [20] by Gray J (with whom Carr and Goldberg JJ agreed) as follows:

Indemnity costs are not designed to punish a party for persisting with a case that turns out to fail. They are not awarded as a means of deterring litigants from putting forward arguments that might be attended by uncertainty. Rather, they serve the purpose of compensating a party fully for costs incurred, as a normal costs order could not be expected to do, when the court takes the view that it was unreasonable for the party against whom the order is made to have subjected the innocent party to the expenditure of costs.

(Emphasis added.)

178    The principles enunciated in Colgate-Palmolive Co v Cussons Pty Ltd [1993] FCA 801; (1993) 46 FCR 225 were cited with approval in Dowling v Fairfax Media Publications Pty Ltd (No 2) [2010] FCAFC 28 at [42] (Graham J) and [140] (Logan and Flick JJ).

Application to this case

179    The primary judge stated at [15]-[18] of the Second Reasons:

15    In this case, there can be no doubt, in the light of the findings, that UMS was needlessly put to the cost of vindicating its contentions and demonstrating that Mr Zibara and Mr Angeli had engaged in the contravening conduct. They elected to have their day in Court. They gave no evidence in the proceeding. They put on a pleading that in material respects took the position of saying “does not admit”. In other respects, they pleaded denials. They elected not to put on an affirmative case. They could have taken each allegation of contravening conduct pleaded against them and put on an affirmative factual contention in answer. They put the appellant to proof on each and every conduct allegation made against them. They offered no evidence in contradiction to the claims or the evidence put on by [UMS].

16    The tactical position adopted by Mr Zibara and Mr Angeli was twofold. First, they contended that there were no conduct breaches as alleged against them and that, on the evidence put on by [UMS], none were established, notwithstanding that at trial they gave no evidence in contradiction or answer to the evidence put on by [UMS]. Second, they contended that once the NRL gave notice of the introduction of the rule change (as discussed in the principal proceeding), every new contract entered into after the start date of the “break clause”, was required to contain the new clause. Whilst that was true, the introduction of the new break clause did not require, and nor was it the NRL’s position, that all existing contracts were required to be brought to an end prematurely and replaced with new contracts incorporating the new break clause. The discharge of existing contracts and their replacement with a new contract incorporating the break clause usefully provided Mr Zibara and Mr Angeli with an opportunity to enable players to leave their relationship with UMS (expressed in terms of the former contracts) and join with Mr Zibara and Mr Angeli in their new venture in the provision of services to rugby league players, however that venture might express itself in time.

17    It is difficult to see how Mr Zibara and Mr Angeli could resist the claims of UMS and the evidence put on by [UMS], without giving evidence in contradiction in the principal proceeding. It is also clear that the contention of [Mr Zibara, Mr Angeli and Genesis], as to the break clause, was misconceived if it was thought to provide an answer to the conduct allegations of breaches of the fiduciary duties owed by them to UMS.

18    Not surprisingly, UMS seeks an order that Mr Zibara and Mr Angeli pay its costs of and incidental to the principal proceeding. UMS has been vindicated in its claims and it was compelled to prosecute the principal proceeding to trial and judgment in order to do so. It ought not to have been put to the expense of proving its case. However, UMS contends that there are “special circumstances” which warrant an exercise of the discretion under s 43(2) of the Federal Court of Australia Act 1976 (Cth) … to depart from an order that Mr Zibara and Mr Angeli pay the costs on a party and party basis. UMS says that because Mr Zibara and Mr Angeli maintained an “utterly untenable” defence to the fiduciary duty claims and because they conducted the trial by seeking to amend their defence during the course of the hearing and then abandoned the proposed amended defence, electing not to call any evidence at all (and other matters relating to the conduct of the hearing), UMS ought to have its costs of the hearing against [Mr Zibara, Mr Angeli and Genesis] on an indemnity basis.

(Emphasis in the original.)

180    His Honour observed (at [26]) that:

In this case, in the conduct of their defence to the claims made against them of breaches of fiduciary duty owed to UMS, Mr Zibara and Mr Angeli well knew and understood, throughout the entire proceedings, the precise content of their conduct …

181    His Honour continued at [50]:

An order for costs ought to now be made as [UMS] has been vindicated in its proceedings and has achieved an order for primary relief that Mr Zibara and Mr Angeli account to UMS for the benefit they have received, through Genesis or otherwise (which can only be determined upon a proper taking of the account), arising out of the breaches of the fiduciary duties they owed to UMS. Ultimately, there will be a quantification of the benefit but it is clear that it amounts to at least $5,625. The order UMS obtained is an important protective beneficial order arising out of the unmeritorious and unconscionable conduct of Mr Zibara and Mr Angeli as found. The quantification of the remedy will, it seems, result in no less than $5,625. This may be a small sum but it is a benefit they have obtained. The seriousness of the conduct of Mr Zibara and Mr Angeli is not measured by whether the benefit they obtained by reason of the breaches turns out to be $10 or $100 or $1,000 or $5,625 or something more than that. The seriousness of the conduct is measured by the character of the conduct itself. The exercise of the discretion as to costs has very particular regard to the character of that conduct and the steps the applicant was forced to take to vindicate its claim. UMS has been put to very considerable expense in establishing a right to the relief it obtained in circumstances where the claims were resisted throughout. There is no good reason why UMS ought to be held out of an order for costs of the principal proceeding. Moreover, having regard to [certain matters set out at [11]-[17], [19], [26] and [40] of the Second Reasons], and having regard to the principles governing the exercise of the discretion under s 43(2) [of the Federal Court of Australia Act 1976 (Cth)], I am satisfied that UMS ought to have an order for indemnity costs of the days of the hearing.

182    It will be apparent that a basis for the primary judge ordering indemnity costs for the hearing days of the trial was the matters set out at [11]-[17], [19], [26] and [40] of the Second Reasons. By way of example, at [40] of the Second Reasons, the primary judge stated:

The applicant refers to a range of circumstances which are said to justify the making of an order for indemnity costs in relation to the hearing. In summary, the applicant says that the respondents proposed particular amendments during the course of the trial and then abandoned that position. It says that a “genuine steps” statement was filed on 27 December 2018 referring to correspondence in May 2018. In a letter dated 21 May 2018, the applicant set out the basis for the claims of breaches of fiduciary duty, well before the litigation was commenced. The respondents took the position that they would vigorously defend any proceeding. A statement of claim was filed on 27 December 2018. The respondents filed their last amended defence on 5 September 2019 containing many non admissions of matters central to any defence of the claims of breach of fiduciary duty. The applicant says that affidavits which were filed by the respondents established relationships which gave rise to the relevant fiduciary duties but also deposed to steps which were the subject of non admissions in the pleadings. The applicant says that para 20 of the defence is revealing because it asserts a construction of the NRL’s directive (the break clause directive) which is incorrect, as a matter of construction, and inconsistent with the affidavits of the respondents (which were not ultimately relied upon or read). The applicant says that the affidavits demonstrate that the respondents were engaged in the conduct of revising player contracts to insert the break clause thereby benefiting and advancing their own interests to the detriment of the applicant. The applicant also says that the proposed amended defence, advanced on the third day of the trial, sought to change the previous defence in ways which altered the character of the construction of the break clause; made admissions concerning the player, Crossland, to the effect that the contract was changed in October 2017 by Mr Zibara; and raised other contentions about the intention of Mr Zibara and Mr Angeli. Those amendments were later abandoned. The applicant says that Mr Ayoub was subjected to rigorous cross examination about matters which were not the subject of evidence by either respondent and were not matters relevant to any issue in controversy on the pleadings.

(Emphasis added.)

183    Having reviewed the Second Reasons, particularly the matters set out at [11]-[17], [19], [26] and [40] of the Second Reasons, we are not persuaded that the primary judge’s discretion as to costs miscarried by ordering that the Appellants pay, on an indemnity basis, UMS’s costs of the days of the hearing of the trial of the action. Particularly in light of [40] of the Second Reasons, and in circumstances where the trial judge was uniquely positioned to observe the conduct of the Appellants at the hearing of the trial, it was not outside the bounds of the primary judge’s discretion as to costs to order that the Appellants pay, on an indemnity basis, UMS’s costs for the days of the hearing of the trial.

Disposition of the Second Reasons Grounds of Appeal

184    For the reasons given, grounds 9, 10 and 11 must be rejected.

DISPOSITION OF THE APPEAL

185    For the reasons set out above, the appeal will be dismissed, with costs.

Associate:

Dated:    2 February 2021

REASONS FOR JUDGMENT

DERRINGTON J:

INTRODUCTION

186    I have had the advantage of reading a draft of the reasons for judgment of McKerracher and Anderson JJ and am grateful for their Honours’ elucidation of the facts and issues. On that basis, I need only refer to some of the more salient features of the background circumstances and of the primary judge’s reasons.

187    As the following reasons disclose, the essence of the appeal by the third appellant, Genesis Talent Management Pty Ltd (Genesis), is that judgment was given against it despite the absence of any relevant claim having been pleaded or of any relevant cause being raised at the trial. It is entitled to succeed on that basis and judgment against it ought to be set aside.

188    The appeal by the first appellant, Mr Zibara, and the second appellant, Mr Angeli, fails and the judgment against them should stand. However, the costs order which was made against the appellants jointly cannot remain given Genesis’ success on appeal.

BACKGROUND

The facts

189    The factual background to this matter is set out in full in the reasons of the primary judge: see Ultra Management (Sports) Pty Ltd v Zibara [2020] FCA 31 (referred to in this judgment as PJ1) and in the reasons of McKerracher and Anderson JJ. By way of summary, the relevant findings of fact made by his Honour are as follows.

190    Mr Zibara and Mr Angeli are both directors and shareholders of Genesis. The respondent to the appeal, Ultra Management (Sports) Pty Ltd (UMS), is a sports management company that manages players in the Australian National Rugby League (the NRL) and the English Super League. Its sole director is Mr Ayoub.

191    UMS is a significant sports agency which acts as the manager and agent of numerous players associated with the NRL. After entering into management contracts with players, it negotiates with clubs to secure player contracts, and seeks to procure sponsorship arrangements and media opportunities for them. It is UMS’s usual practice for these management contracts to be executed by an “accredited player agent” within UMS, provided Mr Ayoub has given his express authorisation.

192    The NRL accreditation scheme is governed by a set of Accreditation Rules, the purported object of which is to protect the welfare and interest of players who participate in the NRL competition. Relevantly, these rules provide for the creation and publication by an accreditation committee of “approved Forms” for use under the scheme, including a standard form of management contract. Under the terms of that standard form contract, UMS is entitled to receive a sum equal to a certain percentage of all monies payable to a player under an NRL playing contract, and a certain percentage of sponsorships, endorsements, speaking engagements, etc. Relevantly, cl 6 of that contract provides for the circumstances of termination which, prior to 20 June 2017, only permitted it where a party was in material breach or where an event listed in that clause occurred.

193    Mr Zibara was employed by UMS from 1 November 2010, and sometime thereafter gained accreditation as a player agent. His role was to assist UMS with its “business generally and, in particular, with player recruitment and management”, with a focus on junior players. Mr Ayoub took an active part in training Mr Zibara in his role, and Mr Zibara was to report to him on all matters concerning the recruitment and management of players. The primary judge accepted that at all times during the course of Mr Zibara’s employment his activities concerning player recruitment, management and contract negotiation occurred under Mr Ayoub’s direction and control, unless done without his knowledge (see [33] and [35] of PJ1).

194    Mr Angeli was employed by UMS from 27 February 2017 as an office administrator. He assisted Mr Zibara with player recruitment and management.

195    On 20 June 2017, the accreditation committee sent an email to all NRL accredited agents informing them that it had resolved to amend the standard contract, with effect from 19 July 2017. From that date, it was mandatory that any new contracts be in the new form, however there was no obligation for existing contracts to be amended or terminated. Relevantly, cl 6 of the new standard contract contained the following term:

(e)    In the event that the Nominated Agent ceases to perform duties on behalf of or within the Company, the Player may terminate this agreement on the giving of seven (7) days’ written notice to the Company in which case this agreement will come to an end at the expiration of the period of notice.

196    Mr Ayoub regarded the inclusion of the new cl 6(e) (referred to as a “break clause”) as a “significant change” which created a “substantial risk” to UMS’s business, as it could lose contracted players should an accredited player agent leave its employ.

197    Upon receiving the email from the accreditation committee, Mr Ayoub convened a meeting with Mr Zibara and Mr Angeli to discuss the changes. During that meeting, held on 21 June 2017, Mr Ayoub told Mr Zibara and Mr Angeli that they should allow the existing contracts they had with players to run their course, as it was of no benefit to UMS to terminate existing contracts and execute new agreements.

198    Contrary to Mr Ayoub’s instructions and the interests of UMS, Mr Zibara took steps between July and December 2017 to cause 16 players under management by UMS to enter into new agreements in the terms of the new standard form contract. The primary judge was satisfied that he did not seek the consent or authority of Mr Ayoub to discharge the existing contracts and enter into new contracts, nor did he disclose his actions to Mr Ayoub (see [175] of PJ1). Mr Zibara also released over 30 players on 27 October 2017 and 7 December 2017, without approval or authorisation from Mr Ayoub and he was assisted in both instances by Mr Angeli.

199    From the evidence before the Court, the primary judge was willing to draw an inference that from about July 2017, Mr Zibara had in mind the possibility that he might leave UMS because of the opportunity available to him to readily retain his relationship with players due to the “break clause” added in the new standard form terms (see [186] of PJ1).

200    Mr Zibara and Mr Angeli left the employ of UMS on 15 December 2017.

201    On 14 February 2018, Genesis was incorporated. The directors and sole shareholders are Mr Zibara and Mr Angeli. Genesis provides player management services and operates in direct competition with UMS.

202    Of the 16 players that re-signed on the terms of the new standard contract, three broke their contracts with UMS and subsequently signed with Genesis for the 2019 playing season. Others broke their agreement and re-negotiated with UMS. One of the released players also signed with Genesis for the 2019 season.

The findings of the primary judge

203    By way of summary, the primary judge concluded that Mr Zibara and Mr Angeli engaged in conduct constituting a breach of their duties of good faith and fidelity and a breach of their duty to avoid a conflict of interest that they owed to UMS.

Findings with respect to Mr Zibara’s liability

204    The primary judge found that by causing certain players to re-sign with UMS on the new standard terms, and by releasing certain players from their contracts with UMS, Mr Zibara was seeking to advance his personal interest, which conflicted with his duty of loyalty to UMS. As the primary judge observed at [187] of PJ1:

I am satisfied that from July 2017 Mr Zibara found himself in a position where his personal interest in putting players in a position where they could quickly leave UMS and follow him should he leave UMS, by causing new UMS contracts to be entered into containing clause 6(e), came into conflict with his duty of loyalty to UMS. I am satisfied that Mr Zibara preferred his personal interest in respect of the 16 players described at [174] of these reasons to that of the duty of loyalty he owed to UMS. ... When all of these events occurred as I have just described, both Mr Zibara and Mr Angeli were persons who owed a duty of loyalty to UMS which is described as a duty of absolute and disinterested loyalty to UMS imposed by proscriptive obligations in which equity regards the conduct in question as unconscionable thus attracting equitable remedies. I am satisfied that when Mr Zibara engaged in the conduct, he did so with full knowledge that in bringing the new contracts into existence, he was undermining the existing contractual arrangement between the players and UMS.

205    His Honour was satisfied that, but for the breach of fiduciary duty by Mr Zibara, the players who terminated their contracts with UMS in reliance on cl 6(e) would not have had the benefit of that clause and would not have been able to bring their contract with UMS to an end (at [192] of PJ1). His Honour was also satisfied that certain players would not have been released from their existing contracts.

Findings with respect to Mr Angeli’s liability

206    The primary judge found that Mr Angeli knowingly assisted Mr Zibara to undermine the existing contractual arrangements between UMS and its players, and that in doing so he was being disloyal to UMS (at [191] of PJ1). His Honour further found that in assisting Mr Zibara to breach his fiduciary duty, he was transgressing ordinary standards of honest behaviour in his dealings with Mr Ayoub and UMS. It is somewhat unclear whether the primary judge determined that Mr Angeli breached the fiduciary duties which he owed to Genesis or was liable for his assistance in the breaches by Mr Zibara. No issue was taken on this point on appeal but it seemed to be assumed that his liability arose from the former.

207    The findings that Mr Zibara and Mr Angeli breached the fiduciary duties which they owed to UMS are not challenged on appeal. It is also accepted that the conflict of interest which sustained those breaches was that the re-signing of players using the new standard contract would pave the way for those players to terminate their agreements with UMS in the future if Mr Zibara and Mr Angeli ceased their employment there.

Findings with respect to Genesis’ liability

208    The primary judge found that Genesis was the vehicle Mr Zibara and Mr Angeli created for the purpose of deriving the gain or benefit arising out of their breaches of fiduciary duty, and was thus to be regarded – in equity – as Mr Zibara and Mr Angeli (at [189] of PJ1).

209    His Honour was satisfied that, but for the breach of fiduciary duty by Mr Zibara and Mr Angeli, Genesis would not have been conferred the benefit or gain from the contracts between it and the four players who signed new management contracts with it. His Honour found at [203] of PJ1:

I am satisfied that the applicant has demonstrated that the respondents either by Genesis directly, or indirectly as individuals through their shareholding in Genesis, have derived a benefit or a gain by reason of the company’s entitlement to remuneration under each of the four contracts described at [192] of these reasons brought into existence as a result of the breaches of fiduciary duty. The benefit or gain derived in this way will be available to Genesis and the individual respondents for the life of each of those contracts.

210    His Honour concluded (at [207] of PJ1) that UMS was entitled to a remedy of an account, which should not only include any benefit or gain derived during the period of the management contracts between Genesis and each player according to their terms, but also any benefit or gain arising out of a renewal of a management contract with those players.

211    UMS made an election to seek an account from Mr Zibara, Mr Angeli and Genesis and thereby forwent its right to recover damages from them (see [9] of PJ1). It is unclear why this more complicated and time consuming path was adopted, when the equitable damages for which Mr Zibara and Mr Angeli would have been liable would roughly equate to the amount derived from an account.

212    In any event, his Honour entered judgment in favour of UMS against Mr Zibara, Mr Angeli and Genesis. UMS was ordered to submit to the Court a form of order for an account consistent with the reasons for judgment. The question of costs was reserved. Those orders were made on 24 January 2020.

213    On 14 February 2020, after hearing further submissions from the parties, the primary judge referred the question of the benefit or gain received by Mr Zibara, Mr Angeli and Genesis to a Registrar of the Federal Court for inquiry and report.

On the issue of costs

214    On 25 March 2020, the primary judge determined the issue of costs: Ultra Management (Sports) Pty Ltd v Zibara (No 2) [2020] FCA 402 (referred to in these reasons as PJ2).

215    His Honour found (at [15] of PJ2) that UMS was “needlessly” put to the cost of vindicating its contentions that Mr Zibara and Mr Angeli had breached their fiduciary duties to UMS. His Honour referred to the fact that the respondents elected to have their day in Court, elected not to put on an affirmative case, gave no evidence in the proceeding, and put the appellant to proof on each and every conduct allegation made against them. He also referred (at [19] of PJ2) to the fact that the defendants proposed particular amendments to their pleaded case during the course of the trial and then abandoned that position, citing his observations at [14] of PJ1:

The amended defence filed by the respondents simply pleaded in response to some of the significant contentions made against the respondents, limited factual assertions but otherwise the respondents “do not admit the allegations therein”... The factual case sought to be made by the respondents at trial, however, engaged an affirmative case. The applicant objected that the affirmative case was not pleaded and contended that it ought to have been pleaded… As events transpired, the respondents sought leave to file and rely upon a further amended defence. They conceded that documents relevant to the amendments would need to be produced. The applicant took the position that it would not oppose leave if the documents could be produced immediately (especially because, obviously enough, the proceeding was in the course of trial). The trial was stood down on Friday 4 October 2019 for a number of hours to enable the question of the production of the relevant documents to be investigated. Production of the documents proved to be difficult and discussion took place about the possibility of producing the documents on either Saturday 5 October or Sunday 6 October 2019. However, producing the documents on either day would have put the applicant in a difficult position of trying to seek responses from any relevant person (such as a player or a player’s family members) over a week-end and or the public holiday on Monday 7 October 2019. The trial resumed on Tuesday 8 October 2019. At the outset, the respondents did not press their application for leave to further amend the defence…

216    His Honour further observed that in the conduct of their defence to the claims made against them, Mr Zibara and Mr Angeli “well knew and understood, throughout the entire proceedings, the precise content of their conduct” (at [26] of PJ2).

217    His Honour did not accept the defendants’ submissions that the Court should defer its determination on the issue of costs until the quantum of account had been ascertained.

218    Ultimately, the primary judge concluded that an order for costs ought to made as UMS had been vindicated in its proceedings, stating at [50] of PJ2:

The seriousness of the conduct of Mr Zibara and Mr Angeli is not measured by whether the benefit they obtained by reason of the breaches turns out to be $10 or $100 or $1,000 or $5,625 or something more than that. The seriousness of the conduct is measured by the character of the conduct itself. The exercise of the discretion as to costs has very particular regard to the character of that conduct and the steps the applicant was forced to take to vindicate its claim. UMS has been put to very considerable expense in establishing a right to the relief it obtained in circumstances where the claims were resisted throughout. There is no good reason why UMS ought to be held out of an order for costs of the principal proceeding.

219    Moreover, his Honour determined that UMS ought to have an order for indemnity costs of the days of the hearing, having regard to the following matters:

    The finding that Mr Zibara and Mr Angeli breached their duties of loyalty to UMS, and thereby acted unconscionably;

    The fact that it was difficult to see how Mr Zibara and Mr Angeli could resist the claims of UMS without giving evidence in contradiction and that their case in respect of the operation of the break clause was misconceived;

    The defendants’ conduct at trial whereby they proposed particular amendments to their defence during the course of the trial and then abandoned that course;

    The fact that the defendants knew and understood, throughout the entire proceedings, the precise content of their conduct;

    The defendants were made aware by UMS of the basis for the claims of breaches of fiduciary duty well before the litigation was commenced and took the position that they would vigorously defend any proceeding; and

    The defendants’ defence contained many non-admissions of matters central to any defence of the claims of breach of fiduciary duty, and was inconsistent with the affidavits filed by them.

The present application for leave to appeal

220    On 8 April 2020, the defendants – Mr Zibara, Mr Angeli and UMS – filed an application for leave to appeal against the interlocutory orders of 24 January 2020, 14 February 2020 and the costs orders made on 25 March 2020, and for an extension of time to do so.

221    On 7 August 2020, after hearing submissions from the parties, it was ordered that the application should be heard and determined by a Full Court.

222    Following this, the parties resolved the issue of the quantification of judgment. On 21 August 2020, the primary judge ordered, by consent, that judgment be entered for UMS against the defendants jointly and severally for the sum of $100,000. The execution of the judgment was stayed pending the determination of the defendants’ application for leave to appeal and extension of time by the Full Court. However, the defendants were ordered to pay the amount into the trust account of their solicitors as security for payment of the judgment sum.

223    In light of the above, the Court and the parties were prepared to treat this as the appeal from the final orders of the primary judge made on 21 August 2020 and there is no need to consider the question of leave or indeed the extension of time, if that were required. If any extension was required it should be granted, given the circumstances in which judgment was delivered.

GROUNDS OF APPEAL

224    The appellants submitted that the grounds of appeal, as set out in their draft amended notice of appeal, fell into three broad challenges:

(1)    First, a challenge to the primary judge’s conclusion that Genesis was liable to account to UMS on the pleadings and upon the facts as found by his Honour;

(2)    Second, a challenge to his Honour’s conclusion that UMS established that Mr Zibara or Mr Angeli had personally made any gain or profit as a consequence of their established breaches of fiduciary duty and hence his Honour’s finding that UMS was entitled to any money judgment against them by way of an account; and

(3)    Third, a challenge to the costs order made by his Honour against them as a miscarriage of the exercise of that discretion.

CONSIDERATION

Challenge 1: Liability of Genesis

225    In holding Genesis liable to account to UMS, the primary judge held at [189] of PJ1:

In this case both Mr Zibara and Mr Angeli owed fiduciary obligations to UMS. The vehicle they created for the purpose of deriving the gain or benefit arising out of the breaches of fiduciary duty was wholly owned by them. In equity, Genesis is regarded as Mr Zibara and Mr Angeli.

The parties’ submissions

226    Mr Ireland QC for the appellants accepted and did not challenge the finding of the primary judge that Mr Zibara and Mr Angeli had breached their fiduciary duties to UMS, however contended that this finding did not reveal the character of that breach of duty. On the appellants’ case, liability could only be attributed to Genesis if those breaches were committed as part of a dishonest or fraudulent design by the fiduciaries (in other words, on the basis of what is referred to as the second limb in Barnes v Addy (1874) LR 9 Ch App 244 (Barnes v Addy), 251 – 252).

227    The appellants submitted that it had not been shown that Genesis either procured or induced the breaches of fiduciary duty committed by Mr Zibara and Mr Angeli, or that it knowingly participated in a fraudulent or dishonest design. On their case, it was not open to the primary judge to make either finding because Genesis did not exist at the time the breaches took place and there was no allegation of dishonesty in UMS’s statement of claim.

228    Mr Ireland QC acknowledged that Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296 (Grimaldi) suggested to the contrary, in circumstances where it could be shown that a corporate entity was the “alter ego” of the errant fiduciary. However, he submitted that Grimaldi was neither raised in submissions at trial, nor was it mentioned in the judgment of the primary judge and contended that the relevant discussion therein was prefaced by the Full Court as a “digression”, as the circumstances in that case concerned dishonesty.

229    He further submitted that while the respondent’s statement of claim alleged that Genesis was “knowingly concerned” in the breaches, that was insufficient to attribute liability or accountability to Genesis on the basis of the second limb in Barnes v Addy. On the authority of Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89 (Farah), he submitted that fraud or dishonesty was required to be specifically pleaded. The crux of his argument was that it was not open on the pleadings for the primary judge to find that Mr Zibara or Mr Angeli acted dishonestly or fraudulently, and it was therefore not open to find Genesis liable for participation in those breaches.

230    On the appellants’ submissions, the case as run at trial was one for non-fraudulent breach of fiduciary duty, and it was not now open for the claim to be re-constructed and explained on another basis. Mr Ireland QC alleged that in defending the case at trial, the appellants were entitled to expect that any allegation of fraud or dishonesty would be specifically pleaded, as such a pleading would inform the forensic decisions made in the conduct of the trial, such as the evidence called. He also referred to the higher standard of proof invoked in cases where fraud is alleged, citing Briginshaw v Briginshaw (1938) 60 CLR 336 and s 140 of the Evidence Act 1995 (Cth).

231    Mr Ireland QC also contended that the alleged “product” of the admitted breaches of fiduciary duty – that being the benefit which accrued to Genesis from ex-UMS players signing with it – was temporally removed from Mr Zibara and Mr Angeli’s breaches committed during their employment, and depended entirely on the actions of the ex-UMS players, which were outside of Mr Zibara and Mr Angeli’s control. He clarified that this submission did not go to causation, but rather the liability of Genesis to account.

232    UMS acknowledged that the terminology “dishonest and fraudulent” was not pleaded, nor was there a specific allegation that the “ordinary standards of honest behaviour were transgressed”. However, Mr Perry QC for UMS submitted that dishonesty was a “non-issue” in respect of Mr Zibara and Mr Angeli as a result of the concession at trial that if the conduct alleged was found to have occurred, it constituted a breach or breaches of fiduciary duty. In respect of Genesis, it was argued that the relevant paragraph in Grimaldi was a complete answer: Genesis was the alter ego of Mr Zibara and Mr Angeli and there was no requirement for anything more to be alleged than knowing participation in their conduct which constituted a breach of fiduciary duty.

233    For these reasons, Mr Perry QC submitted that it was not necessary for fraud or dishonesty to be expressly pleaded by UMS. This argument appeared to have a number of elements. First, it was contended that under the principles concerning breach of fiduciary duty, and specifically on the basis of the observations made by Gibbs J in Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373 (Consul Development), “fraud” in the equitable sense includes a breach of fiduciary duty, which was pleaded and conceded by the appellants. Second, it was alleged that there is no “immutable principle” that it will in every case be necessary to plead dishonesty. Mr Perry QC sought to distinguish Farah in this respect, alleging that that case was “light years away” from the present one because it involved a real question as to whether the third parties were in any way aware of, or participating in, or had knowledge of the full circumstances of the breach of fiduciary duty. This was contrasted with the present case where Genesis was specifically created by Mr Zibara and Mr Angeli to take advantage of their breach of fiduciary duty. It was said that Farah did not apply where the third party is the alter ego, and was merely reflective of the evidentiary burden that exists for a party alleging knowing participation to establish knowledge of the actual circumstances constituting the breach.

234    Reliance was also placed on Hasler v Singtel (2014) 87 NSWLR 609 (Hasler v Singtel) where it was said a pleading of less detail than that under consideration in this case was sufficient to attract an equitable remedy, and Ancient Order of Foresters in Victoria Friendly Society Ltd v Lifeplan Australia Friendly Society Ltd (2018) 265 CLR 1 (Ancient Order of Foresters v Lifeplan), which was said to caution against narrowly constraining the operation of equity to intervene in the circumstances of the particular case to grant a remedy.

On what basis can a non-fiduciary be held liable to account for participating in a breach of fiduciary duty?

235    The orthodox description of the accessorial liability of persons who participate in another’s breach of fiduciary duty is that known as the second limb of Barnes v Addy. A third party who participates with knowledge in a fraudulent and dishonest design on the part of a fiduciary is primarily liable for the breach to the person to whom the duty is owed. In that case, Lord Selborne LC sought to distinguish the case where a party assists another who is acting in breach of their fiduciary duties but is unaware of any dishonest and fraudulent design on the fiduciary’s part. In such cases, no liability arises and, were it otherwise, liability would attach to a wide range of persons such as lawyers, bankers and other agents, consequent upon them providing services to clients. In Barnes v Addy, the solicitors who had assisted the errant trustees were exonerated because they had no knowledge of the fraudulent and dishonest design which was being perpetrated.

236    Now, it is well known that in Royal Brunei Airlines Sdn Bhd v Philip Tan Kok Ming [1995] 2 AC 378 (Royal Brunei Airlines v Ming), the Privy Council sought to reorganise the principles of accessorial liability by jettisoning the third party’s knowledge of the dishonest character of the fiduciary’s conduct as the touchstone of liability, and substituting it with the third party’s own dishonesty. As a result, the third party’s dishonesty would alone render them liable for the fiduciary’s conduct in which they had assisted, regardless of whether that conduct was, of itself, fraudulent, innocent or negligent. That, however, is not the path followed in Australia. In Farah, the majority (Gleeson CJ, Gummow, Callinan, Heydon and Crennan JJ) reaffirmed the conventional primary position in relation to knowing assistance as being the second limb in Barnes v Addy in the following terms at 159 [160]:

As conventionally understood in Australia, the second limb makes a defendant liable if that defendant assists a trustee or fiduciary with knowledge of a dishonest and fraudulent design on the part of the trustee or fiduciary.

237    However, their Honours made a number of additional observations, including that the principle was not expressed by Lord Selborne in Barnes v Addy to be an exhaustive statement of the circumstances in which a third party may be accountable for a fiduciary’s breach. Reference was made to authorities which predated that decision and which recognised liability for those who had knowingly induced or immediately procured a breach of duty by a trustee, even where the trustee had acted with no improper purpose. The majority noted that those cases were not concerned with the third party assisting the trustee in any dishonest and fraudulent design, but formed a different category of case where the dishonest third party provides the motivating force for the occurrence of the breach. However, it is not possible to derive from the comments made in relation to that category a suggestion that the scope of the second limb of Barnes v Addy was to be expanded to attach liability to third parties who were only aware that a breach of duty had occurred. To the contrary, there is a clear indication in the plurality’s decision in Farah of an intention to maintain a distinction between the several strands of accessorial liability for breach of a fiduciary duty. Their Honours said at 160 [163]:

Thirdly, whilst the different formulations of principle may lead to the same result in particular circumstances, there is a distinction between rendering liable a defendant participating with knowledge in a dishonest and fraudulent design, and rendering liable a defendant who dishonestly procures or assists in a breach of trust or fiduciary obligation where the trustee or fiduciary need not have engaged in a dishonest or fraudulent design. The decision in Royal Brunei has been referred to in this Court several times but not in terms foreclosing further consideration of the subject in this Court, in particular, further consideration of the apparent necessity to displace the acceptance in Consul Development Pty Ltd v DPC Estates Pty Ltd of the formulation of the second limb of Barnes v Addy were Royal Brunei to be adopted in this country. Until such an occasion arises in this Court, Australian courts should continue to observe the distinction mentioned above and, in particular, apply the formulation in the second limb of Barnes v Addy.

(Footnotes omitted).

238    It was not suggested before this Court that the instruction provided in the last sentence has been overtaken by any subsequent pronouncement of the High Court.

239    The respondents sought to derive assistance from the decision in Ancient Order of Foresters v Lifeplan. In that case, there was no debate as to the liability of the third party, Foresters. It had clearly participated in a dishonest and fraudulent design on the part of the employees of Lifeplan to acquire the latter’s business and the only question was the extent to which Foresters would be required to account for the benefits which it had gained. No issue arose in that case as to whether liability pursuant to the second limb of Barnes v Addy had been validly raised.

240    In his reasons, Gageler J, who agreed with the plurality, considered the relevance of the dishonest and fraudulent character of the design which attaches liability to third parties who participate in it with a fiduciary. His Honour (at 31 – 32 [71] – [72]) observed that participation in or assistance with such conduct is, itself, unconscionable and the requisite standard is met “where the conduct which constitutes the breach transgresses ordinary standards of honest behaviour”. Further, the relevant element of knowledge is satisfied when the participant has knowledge of circumstances which would indicate the fact of dishonesty on the part of the fiduciary to an honest and reasonable person, being to the level of the fourth category of knowledge referred to in Baden v Société Générale pour Favoriser le Développment du Commerce et de l’Industrie en France SA [1993] 1 WLR 509, 575 – 576, 578. His Honour further observed that other participatory conduct by non-fiduciaries in others’ breaches can attract equitable remedies, although the scope of any such liability was not in question in the matter before the Court. Later in his reasons, he observed that it is the “dishonest and fraudulent breach of fiduciary duty which gives the character of unconscionability to the knowing participation and which exposes the knowing participant to equitable remedies” (at 33 [76]).

241    There is nothing in the decision in Ancient Order of Foresters v Lifeplan which is suggestive that the requirements of the second limb in Barnes v Addy have been loosened. Indeed, that decision reinforces the requirement of knowledge of the dishonest and fraudulent design and its consequence of making available the equitable remedies against the non-fiduciary third party.

The absence of a properly pleaded case

242    The difficulty which arises here is the absence of any proper pleading raising the alleged liability of Genesis on the basis that it was knowingly involved in a dishonest and fraudulent design on the part of Mr Zibara or Mr Angeli or both. The main defect in the statement of claim is that it attempted to advanced several causes of action in a “rolled up” manner. The primary case alleged was one of a contravention of ss 182 and 183 of the Corporations Act 2001 (Cth) (Corporations Act) by Mr Zibara and Mr Angeli. Additional claims were made for breach of the equitable duty of confidence and for breach of fiduciary duty. Unfortunately, the pleading made no attempt to isolate the allegations relating to the several disparate causes of action. In relation to these claims it was alleged in paragraph [25]:

By reason of the facts and matters pleaded herein, GTM [Genesis]:

(a)    had (through each of Zibara and Angeli) actual knowledge of the facts and circumstances giving rise to the Zibara breaches of duty and the Angeli breaches of duty;

(b)    accordingly was and is knowingly concerned in the Zibara breaches of duty and the Angeli breaches of duty;

(c)     further or alternatively, is liable to account to UMS for any profit derived by reason of such involvement in the Zibara breaches of duty and the Angeli breaches of duty.

243    It can be immediately seen that, as a pleading of accessorial liability arising under the Corporations Act, the allegations are wanting. It is well established that in order to impose such liability on a third party it is necessary to plead and prove the intentional participation in the wrongful conduct with actual knowledge: Australian Competition and Consumer Commission v Online Dealz Pty Ltd [2016] FCA 732 [163] – [164]; Yorke v Lucas (1985) 158 CLR 661. The allegation involves culpability of a serious kind and, as a matter of fairness, is one which ought to be made explicit rather than left to inference.

244    Similarly, an allegation that a person has knowingly participated in a dishonest and fraudulent design is one of grievous import, and one which should not be made lightly. As was said by the majority in Farah at 162 [170]:

Had the Court of Appeal turned its mind to whether Mrs Elias and her daughters were liable as knowing participants in a dishonest and fraudulent design – an allegation the seriousness of which means that it ought to have been pleaded and particularised, and the assessment required by Briginshaw v Briginshaw kept in mind – it ought to have rejected the allegation. That rejection would follow from consideration of what was said in Consul respecting the second limb of Barnes v Addy, both in relation to “knowledge” and to “dishonest and fraudulent design”.

(Footnotes omitted).

245    In Re Galtari Pty Ltd (in liq) [2018] NSWSC 917 at [78] – [79], Gleeson JA equated the requirement to plead fraud or dishonesty clearly, specifically and with particulars, to the obligation to plead a case of knowing participation in a dishonest and fraudulent design. A similar statement was made by the New South Wales Court of Appeal in Hart Security Australia Pty Ltd v Boucousis (2016) 339 ALR 659 at [70] (Meagher JA, Bathurst CJ and Beazley P concurring).

246    Here, there was no express pleading in the statement of claim that the design in which Mr Zibara and Mr Angeli were involved was “dishonest and fraudulent” or that, if it were, Genesis knew that it was. In this sense, the pleading falls short of the established requirements. Mr Perry QC sought to salvage it by reference to the decision of Hasler v Singtel, in which the cause of action was regarded as having been sufficiently raised, despite the absence of clear expression in the pleading. In that case, the allegations made were equally vague, although the interlocutory skirmishing around them suggested the parties were aware that the plaintiff was alleging equitable fraud against the defendants. It was also apparent that some weight was given to the fact that the proceedings had begun after the decision of the Privy Council in Royal Brunei Airlines v Ming and prior to the decision in Farah. Leeming JA also observed that the trial was conducted upon the basis that the question of the honesty of the fiduciaries was in issue and the trial judge had held that Optus was entitled to advance a case based on the second limb of Barnes v Addy. At [55] his Honour said:

The unobjected passages of cross-examination (of which the foregoing is merely illustrative), coupled with the allegations as particularised and agreed “real issues” which on any fair reading confirmed a claim based on Barnes v Addy knowing assistance, left it open to the primary judge to make findings of dishonesty and fraud. Mr Curtis was squarely confronted with allegations of conscious breach of duty in order to derive a substantial financial gain. I would reject this ground of appeal.

247    It is, with respect, a path fraught with error to attempt to equate the outcome of one case, such as Hasler v Singtel, with the present, in relation to what is essentially an idiosyncratic issue of whether a particular cause of action is raised in a particular pleading. In any event, the Court of Appeal’s conclusion in that case resulted from a consideration of the pre-trial activities of the parties, the pleadings, and the manner in which the trial was conducted. It provides no assistance in the present matter.

248    As McKerracher and Anderson JJ conclude, the learned primary judge determined that the conduct of Mr Zibara and Mr Angeli transgressed the ordinary standards of honest behaviour of an employee. On the evidence adduced, that conclusion was probably unassailable. However, the issue is not whether, after the hearing has been concluded, the facts support that conclusion. It is whether, for the purposes of the trial and, usually, before it begins, the pleadings sufficiently raised the issue of whether the conduct of Mr Zibara and Mr Angeli was dishonest and fraudulent and that Genesis was aware of it. The defendants conceded that the impugned conduct of Mr Zibara and Mr Angeli amounted to a breach of their fiduciary duties, but made no concession that it was part of a dishonest and fraudulent design. If that latter issue was not raised on the pleadings or at trial, they were not required to confront it. Had it been, they may well have been prepared to rely upon their affidavits filed in the action, given evidence and undergone cross examination in order to counter it. As it is, they did none of those things.

249    In terms of the requirements referred to above, there is no clear and particularised allegation of dishonesty or fraud in the statement of claim. In paragraph 19, it is pleaded that Mr Zibara and Mr Angeli had actual or, alternatively, constructive knowledge that it was important to UMS that the players who were on the old contracts were not changed to new ones, and it is then alleged in paragraph 20 that, subsequently, players were approached to enter into new contracts. The pleading of constructive knowledge was not sufficient for the purposes of any allegation of fraud or dishonesty unless it was further particularised. Moreover, the absence of any allegation that those subsequent acts by Mr Zibara and Mr Angeli were done intentionally or recklessly, rather than negligently, and in breach of their obligations, is important.

250    In paragraph 25, which is referenced above, there is no allegation that Genesis acted with knowledge of any “dishonest or fraudulent design” although, had the actions of its directors been identified as such, there would have been little doubt that the company would have been fixed with their knowledge. The use of the expression “knowingly concerned” is not sufficient to raise a serious allegation of the kind required. That is a term used in s 76 of the Competition and Consumer Act 2010 (Cth) (and its progenitor the Trade Practices Act) and, more relevantly s 79 of the Corporations Act. Here, it was used for the purposes of UMS’s attempt to impose accessorial liability on Genesis for the alleged breaches of ss 182 and 183 of the Corporations Act, but it does not carry with it any implied allegation of dishonesty. Rather than invoking the second limb in Barnes v Addy, the reference to “knowingly concerned” is apt to direct attention to accessorial liability in respect of the alleged breaches of statutory obligations. That said, it bears repeating, that the allegations in paragraph 25 of the statement of claim are insufficient to raise a case of that nature.

251    UMS made the somewhat bold submission that at no time during the course of the interlocutory steps in the action or during the trial did the appellants raise the necessity for UMS to specifically plead that the conduct of Mr Zibara and Mr Angeli was “dishonest and fraudulent”. No authority was cited from which it might be discerned that a defendant is required to remind the plaintiff of the need to plead additional and crucial facts in relation to one of several causes of action. This is not a case where only one cause of action was pursued by UMS which was deficient, such that the defendants may have been obliged to raise an objection to the claim at an early stage. Here, UMS adopted a scatter-gun approach to its pleading and advanced an array of causes of action arising under statute, contract and in equity, all of which were pleaded in a “rolled up” fashion. There was no obligation on the respondents to disentangle the several claims, ascertain the nature of each, and determine whether UMS had adequately pleaded them all.

252    It is not said that, in this case, the parties conducted the trial beyond the scope of the pleadings so as to permit UMS to advance a case which was agitated although not pleaded: Gould v The Mount Oxide Mines Ltd (in liq) (1916) 22 CLR 490, 517 – 518; Banque Commerciale SA, en Liquidation v Akhil Holdings Ltd (1990) 169 CLR 279, 286 – 287; Holdway v Arcuri Lawyers [2009] 2 Qd R 18. No notice of contention was filed seeking to uphold the primary judge’s reasons on this basis. Further, no application was made on the appeal to amend the statement of claim, albeit, such an application may have had little chance of success.

253    In the result, the learned primary judge ought not to have given judgment against Genesis on the ground that it knowingly assisted in the dishonest and fraudulent design pursued Mr Zibara and Mr Angeli in breach of their fiduciary obligations to UMS if that is what, in fact, occurred. That was not a claim it was required to meet.

UMS’s claim that no allegation of fraud or dishonesty was required

254    UMS also submitted that it was not necessary in order to render Genesis liable as a third party for the breach of fiduciary duty committed by Mr Zibara and Mr Angeli, to allege that the breach was or was part of a dishonest and fraudulent design. It was submitted that once a breach of fiduciary duty was established, and here it was conceded, the participation by Genesis in it with knowledge of the breach was sufficient to render it liable. With respect, that submission cannot be accepted. It is essential to attach liability to a third party, who has not procured or induced a breach of the fiduciary duty, that the breach in question is of a particular quality. That is, it is part of a dishonest and fraudulent design of which the third party has knowledge. This was reiterated in Farah and the point was comprehensively assayed by Leeming JA in Hasler v Singtel. In that analysis, his Honour identified the error in the reasoning in Westpac Banking Corporation v Bell Group Ltd (in liq) (No 3) (2012) 44 WAR 1, which had concluded at [2112] that a breach of fiduciary duty could cause liability to attach to third parties where the breach could be characterised as dishonest or fraudulent according to equitable principles, and there was no need to show the conduct to be “morally reprehensible”. Leeming JA accepted (at 632 [106]) that in order to attach liability to a third party for the breach of fiduciary duty, outside of those cases of procuring or inducing the breach, it was necessary for the breach to amount to a dishonest and fraudulent design. His Honour also acknowledged (at 635 – 636 [122] – [125]) that the concept of “dishonest and fraudulent” design was conceptually different to that of equitable fraud and it requires a transgression of ordinary standards of honest behaviour. His Honour’s conclusions were subsequently endorsed in the reasons of Gageler J in Ancient Order of Foresters v Lifeplan at 31 [71], where his Honour said:

Knowing participation by a non-fiduciary in a dishonest and fraudulent breach of fiduciary duty is conduct which is regarded in equity as itself unconscionable and as attracting equitable remedies against the knowing participant of the same kind as those available against the errant fiduciary. Knowing participation in a dishonest and fraudulent breach of fiduciary duty includes knowingly assisting the fiduciary in the execution of a “dishonest and fraudulent design” on the part of the fiduciary to engage in the conduct that is in breach of fiduciary duty. The requisite element of dishonesty and fraud on the part of the fiduciary is met where the conduct which constitutes the breach transgresses ordinary standards of honest behaviour. Correspondingly, the requisite element of knowledge on the part of the participant is met where the participant has knowledge of circumstances which would indicate the fact of the dishonesty on the part of the fiduciary to an honest and reasonable person.

(Footnotes omitted)

255    UMS sought to rely upon a comment by Gibbs J in Consul Development at 397 to the effect that:

a person who knowingly participates in a breach of fiduciary duty is liable to account to the person to whom the duty was owed for any benefit he has received as a result of such participation.

256    It was submitted this established that third party liability for knowing assistance might attach in relation to any breach of fiduciary duty and it was not necessary to establish a dishonest and fraudulent design. This should be rejected as it was by the High Court in Farah (at 164 – 165 [179] – [184]) where it was confirmed that, in order to impose liability for knowing assistance the “breach of fiduciary duty relied on must be fraudulent and dishonest” (at 164 [179]).

257    It follows that Genesis cannot be held liable on the basis that it participated in a breach of fiduciary duty committed by Mr Zibara and Mr Angeli which was not alleged to be part of a dishonest and fraudulent design. The primary judge erred in finding to the contrary and the appeal against the judgment entered against Genesis on this ground should be allowed.

Alter ego of the parties

258    In its written submissions and, to a lesser extent, in its oral submissions, UMS sought to sustain the judgment of the primary judge by reliance on the obiter of the Full Court in Grimaldi, where, their Honours described four “manifestations” of participation in a breach of fiduciary duty by a non-fiduciary that would be sufficient to attract equitable remedies. Of relevance to the current case is the first of those manifestations, described at 357 [243] in the following terms, albeit undoubtedly as obiter:

The first, is where the third party is the corporate creature, vehicle, or alter ego of wrongdoing fiduciaries who use it to secure the profits of, or to inflict the losses by, their breach of fiduciary duty: see eg Cook v Deeks [1916] 1 AC 554 at 565 (Cook); Queensland Mines Ltd v Hudson [1975-1976] ACLC 28-658 at 27,709 … Timber Engineering Company Pty Ltd v Anderson [1980] 2 NSWLR 488 at [11] (Timber Engineering); Green & Clara Pty Ltd v Bestobell Industries Pty Ltd (No 2) [1984] WAR 32 (Green v Bestobell); Gencor ACP Ltd v Dalby [2000] 2 BCLC 734 at [26]; CMS Dolphin Ltd v Simonet [2001] 2 BCLC 704 at [97]-[105] (CMS Dolphin). In these cases the corporate vehicle is fully liable for the profits made from, and the losses inflicted by, the fiduciary’s wrong.

259    It seems apparent from the primary judge’s language at [189] of PJ1, that this was one basis on which his Honour was satisfied that Genesis was liable to account to UMS: not as a “true” third party participant (to use the language of Leeming JA in Hasler v Singtel at 626 [74]), but as the “alter ego” of Mr Zibara and Mr Angeli. In this respect, his Honour found at [189] that Genesis had been “created for the purpose of deriving the gain or benefit arising from the breaches of fiduciary duty”, although, it might be observed, there was no allegation to that effect in the pleading.

Is there a there a separate ground of recovery based on the existence of a corporate alter ego?

260    Many vague references appear in the authorities which might support the existence of a right against a corporate entity based solely on it being the “alter ego” of a defaulting fiduciary. Such references are usually in the nature of expressions of obiter and are not fully articulated. However, as yet, no generally accepted principle has established itself as a method by which courts may ignore the separate legal existence of corporate entities. In Cornerstone Property & Development Pty Ltd v Suellen Properties Pty Ltd [2015] 1 Qd R 75 at 96 [101] to [102], Jackson J expressed reservations as to whether there is any principled basis on which an alleged corporate alter ego can be found liable for a breach of fiduciary duty of another party. As observed by His Honour:

[101] In my view, this is a difficult area of principle. The inherent problem of a broad basis of liability, as a defaulting fiduciary’s alter ego, is that the company and the individual are treated as if they are the same legal personality, in opposition to the rule of separate corporate legal personality accepted in Saloman v A Saloman & Co Ltd. It is necessary for there to be a basis in authority and principle for a rule that permits that to be done. The difficulty may be illustrated by reference to another similar case, Trustor AB v Smallbone and others (No 2). The director of the plaintiff transferred its money to a company he controlled, in breach of fiduciary duty. There was no legal basis or entitlement to make the transfer, which was fraudulently made. The question raised was whether the director was personally liable to account for the receipt by the company the director controlled. The Court reasoned that “the court is entitled to ‘pierce the corporate veil’ and recognise the receipt of the company as that of the individual”. The company was characterised as “a device or façade in that it was used as the vehicle for the receipt of the money of [the plaintiff]”. Reference was made to, but liability was not based on, knowing receipt or knowing assistance cases.

[102] The result in Trustor AB, that the director was liable to account personally for the money of the plaintiff dishonestly paid away in breach of fiduciary duty, was unexceptional. However, it is difficult to understand why it was considered necessary to identify the receipt by the company as a receipt by the defaulting director, in order to make the defaulting director liable to account. He was personally liable to restore the money dishonestly misapplied or stolen by his breach of fiduciary duty. The recipient company that the director controlled received the plaintiff’s money as a volunteer and would be liable upon a constructive trust to account for it as having received money dishonestly misapplied or stolen by a defaulting fiduciary. Respectfully, in my view, there must be some doubt about the need for the characterisations of “device” or “façade” or “vehicle for the receipt” as a free standing or independent principle of liability, requiring the director to account in the circumstances of that case.

(Footnotes omitted).

261    His Honour’s comments highlight the need for a principled approach to the imposition of liability on a company as the alter ego of a defaulting fiduciary. Whilst a broad brush application of that notion in a difficult case where a litigant has failed to properly plead a cause of action against a corporate entity may satisfy equally broad brush concepts of individual justice in the subject case, it offers little in the way of certainty and nothing in the nature of fairness to defendants who are entitled to understand the case which they are to meet. In the absence of any established principle, it is unclear when or how such liability might imposed. In cases involving participation in a breach of fiduciary duty by a corporate “alter ego”, different justifications are often given for a finding of liability on this basis. In Grimaldi, it was observed that liability is commonly explained on the basis that the corporate alter ego either:

(a)    had full knowledge of all the facts: see Cook v Deeks [1916] 1 AC 554 (Cook v Deeks), 565; see also Aucare Dairy (Aust) Pty Ltd v Huang (No 3) (2019) 135 ACSR 450, 475 [93]; or

(b)    possessed a “transmitted fiduciary obligation”: Timber Engineering Co Pty Ltd v Anderson [1980] 2 NSWLR 488 (Timber Engineering), 495 [11]; or

(c)    jointly participated in the breach of fiduciary duty: CMS Dolphin Ltd v Simonet [2001] 2 BCLC 704 (CMS Dolphin) [104].

262    One difficulty with the passage from Grimaldi at 357 [243] cited above is that few, if any, of the myriad authorities relied on directly support the existence of any clear principle that corporate entities can be held liable for the breaches of related errant fiduciaries. Certainly, no case attempts to articulate the circumstances in which the alter ego principle is applicable. In the instances where it is purportedly invoked, it appears that the phrase “alter ego” or “creature company” has in fact been used as a short-hand way of indicating that the relevant company was imputed with the knowledge of the errant fiduciary and was thereby a knowing recipient or knowing participant in the Barnes v Addy sense: see Green & Clara Pty Ltd v Bestobell Industries Pty Ltd (No 2) [1984] WAR 32 at 35 (“the evidence demonstrates that Clara was the alter ego of Green in the sense that what he knew it knew”); Gencor ACP Ltd v Dalby [2000] 2 BCLC 734 at 744 [26] (“Burnstead is simply a creature company used for receiving profits for which equity holds Mr Dalby to be accountable to ACP. Its knowledge was in all respects the same as his knowledge.”); CMS Dolphin at 736 [103] (“…the directors are equally liable with the corporate vehicle formed by them to take unlawful advantage of the business opportunities. The reason is that they have jointly participated in the breach of trust.”).

263    The other cases cited by the Full Court in Grimaldi do not refer to the concept of the corporate “alter ego”, and in fact appear to have been decided on the basis of the “knowing receipt” limb of Barnes v Addy: see Cook v Deeks at 565; Queensland Mines Ltd v Hudson [1975-1976] ACLC 28-658 at 28,709; Timber Engineering at 495 (“there can be no question but that the wives and the respective companies participated with knowledge in the dishonest and fraululent [(sic.)] design put into effect by Anderson and Toy”).

264    The concept of a corporate “alter ego” is a slippery one, at best. As remarked by Applegarth J in Sucrogen Australia Pty Ltd v Westpac Banking Corporation [2012] 2 Qd R 175 at [72], “[t]he description “alter ego” is given in many different contexts”. Its emergence in private law is suggested to have been the result of its use in interpreting statutes and contracts to allow a company to be attributed with a “guilty mind”: see P Watts, “The Company’s Alter Ego – a Parvenu and Imposter in Private Law” (2000) New Zealand Law Review 137.

265    Nevertheless, in Farah at 140 [110] and 148 [128], the High Court appeared to accept that a corporate “alter ego” can be liable for a breach of fiduciary duty. It is not necessary to set out the facts in full; suffice to say, that case involved a fiduciary, who, through a company controlled by him, entered into a contract to buy land in breach of his fiduciary duty. The High Court observed that as the individual was liable for the breach, the company was also liable as his alter ego on the basis that “his mind [was] its mind” (at 148 [128]), citing Hamilton v Whitehead (1988) 166 CLR 121, 127. The Court’s reliance on that case suggests that in instances where a corporation is the “alter ego” of an errant fiduciary, liability is not truly attributed to the company on the basis of its participation, but rather on the basis that the fiduciary, in breaching its fiduciary duty, was acting as the embodiment of the company, and the company is therefore directly liable. However the Court in Farah was explicit in asserting that each case will depend on its own facts, and that no universal regime of absolute liability applies where a third party is employed by the fiduciary as a “device”.

266    Assuming the existence of some principle which makes corporate entities liable as the alter ego of others, a question arises in relation to alleged breaches of fiduciary duties as to whether and to what extent, some dishonesty is required before liability will attach. In Grimaldi, it was opined at 357 [243]:

Liability does not turn on the need to show “dishonesty”, although it often provides the reason for the interposition of the company. Proof of a breach of fiduciary duty will suffice: Green v Bestobell at 40.

267    This statement is not without difficulty. In Australian Careers Institute Pty Ltd v Australian Institute of Fitness Pty Ltd (2016) 340 ALR 580, Sackville AJA (with whom Bathurst CJ and Meagher JA agreed) at 615 [178] observed:

In most, if not all of these cases [cited by the Full Court in Grimaldi at [243]], the fiduciary’s conduct was regarded as fraudulent, as “wrongdoing close to fraud”, or could well have been characterised as fraudulent. However, I am prepared to accept for present purposes, that the principle stated in Grimaldi applies to the corporate “alter ego” of a fiduciary, even where the fiduciary’s breach of duty does not involve dishonesty or fraud.”

(Footnotes omitted).

268    In the absence of any substantial submissions as to the correctness or otherwise of the principle imposing liability on a corporate “alter ego” and of its content, there is no need to consider that matter further.

No pleaded case

269    Again, however, the difficulty which arises here is, as the appellants submit, no case was pleaded that in entering into the contracts with ex-UMS players, Genesis was acting as the “alter ego” of Mr Zibara and Mr Angeli. There is nothing to suggest its liability arose from the fact that it was owned and controlled by those persons or that, by the manner in which it conducted its business, it sought to advance their interests as opposed it its own. There was no pleading of any other facts necessary to support whatever are the elusive matters on which the “alter ego” liability is founded.

270    Neither was this issue advanced by UMS at trial. As it was put by Mr Ireland QC for the appellants, “Grimaldi … was neither mentioned in submissions, nor in the judgment”.

271    These are significant matters. If it is valid to say of a corporate entity that it is the “alter ego” of an individual or individuals, it necessarily means more than it is wholly owned and controlled by them. In this case, Genesis was not incorporated until sometime after the impugned conduct of Mr Zibara and Mr Angeli. It was also a company controlled by those persons and so it could not be said to be the alter ego of just one of them. Whilst it is apparent that they were acting in concert at the time they arranged for players to enter into new contracts with UMS, it is not clear what their later intentions were in respect of the new company or how it would operate. There is no allegation that Genesis acted for them or to promote their interests and not in its own interests. Such matters could have been explored had the allegation that it was their alter ego been appropriately pleaded.

272    At best, paragraph 25 of the pleading (set out above) makes the compendious allegation that Genesis had “actual knowledge of the facts and circumstances giving rise to the Zibara breaches of duty and the Angeli breaches of duty” and that it was accordingly “knowingly concerned” in those breaches of duty. These allegations were intended to impose third party liability on Genesis for, inter alia, breach of duties owed under the Corporations Act by reason of the operation of s 79 of that Act. If UMS intended to impose liability on Genesis on the basis that it was acting as the alter ego of Mr Zibara and Mr Angeli or, as his Honour found, it had been “created for the purpose of deriving the gain or benefit arising from the breaches of fiduciary duty”, those matters ought to have been pleaded. Again, whilst the primary judge’s finding on this issue can be supported by the evidence adduced at trial, it does not follow that it ought to have been made. There was no allegation that Genesis was or acted as the alter ego of Mr Zibara and Mr Angeli, and it was not called upon to answer that issue at any time during the trial.

273    As no case was brought against Genesis based on it being the alter ego of Mr Zibara and Mr Angeli, to the extent to which the judgment is founded upon that, it ought to be set aside.

Does the position change because Genesis was incorporated after Mr Zibara and Mr Angeli left the employ of UMS?

274    The appellants further submitted that Genesis could not be found to have participated in the breaches of fiduciary duty committed by Mr Zibara and Mr Angeli, as the company was not incorporated until after Mr Zibara and Mr Angeli ceased to owe fiduciary duties to UMS, and after their established breaches of fiduciary duty had, on the applicants’ submission, ended. Given the above conclusions it is not necessary to consider this point in any detail. It is, however, incorrect to say that a third party cannot be liable for a fiduciary’s breach of duty if they are not involved in each and every aspect of the breach. As the above discussion reveals, liability is imposed where the third party participates in a fiduciary’s dishonest and fraudulent design which involves a breach of duty. As the third party is not a fiduciary it is not often that they could participate in the actual breach. If they counselled or procured it they would be liable in any event but on a different basis. However, the third party can participate in the dishonest and fraudulent design by knowingly assisting the fiduciary to benefit from their earlier breaches. Had such a case been alleged that may have been the situation in this case.

275    There is no merit in the suggestion that Genesis could not have been liable on the basis of the second limb of Barnes v Addy merely because it did not exist at the time of the breach of duty.

Challenge 2: Liability of Mr Zibara and Mr Angeli

276    The appellants appear to accept the finding of the primary judge that Mr Zibara and Mr Angeli breached their fiduciary duty to UMS in two respects: first, in renewing the management contracts of 16 contracted UMS managed players (see [174] of PJ1), and second in releasing over 30 players without approval (see [176] of PJ1). However, they challenge the primary judge’s finding that Mr Zibara and Mr Angeli received a benefit or gain as a result of those breaches.

The parties’ submissions

277    The appellants submitted that Mr Zibara and Mr Angeli were not accountable to UMS because the established breaches of duty created no more than a “potential for future benefit or advantage” once they left their employment with UMS, at which point their actions were not constrained or prohibited by any enduring fiduciary obligations to UMS. As expressed in their written submissions:

[T]he essence of the breach of fiduciary found by the primary judge was simply to open up two possibilities (a) that in the event that Mr Zibara should leave UMS a player then on a new form of contract with UMS might later decide to invoke the break clause 6e, leave UMS before the end of the contractual term, and engage Mr Zibara or (b) alternatively that a released UMS player might in the future sign with Mr Zibara or Mr Angeli or an associate of theirs.

278    They contended that, in order for Mr Zibara and Mr Angeli to be liable to account to UMS, it had to be shown at trial that they personally had made money or were entitled to receive money and that such entitlements arose directly from their actions. In this respect, they made two broad submissions. First, that Mr Zibara and Mr Angeli could not exercise or compel the exercise of the break clause, nor could they compel players to sign new player management agreements with Genesis. These matters, they contended, were at the will of the players; and second that Mr Zibara and Mr Angeli, themselves, were not entitled to receive anything under any of the management contracts signed with Genesis. Genesis gained all such entitlements or advantages, and there was nothing to prove that Mr Zibara and Mr Angeli’s shareholding in Genesis had any value or any greater value because of the existence of the four player management contracts which were entered into with ex-UMS players.

279    They alternatively submitted that any benefit Mr Zibara and Mr Angeli received as a result of Genesis signing agreements with ex-UMS players was divorced from their actions taken to secure this outcome while in the employ of UMS because of one or more of the following reasons:

(1)    The benefit accrued to them only after they left the employ of UMS; and

(2)    The benefit accrued to them, not as a direct result of their own actions, but as a result of the exercise of free-will by the ex-UMS players.

Consideration

What is the nature of the benefit or gain obtained by Mr Zibara and Mr Angeli?

280    In the present case, the primary judge characterised the “benefit or gain” that Mr Zibara received in the following terms at [203] of PJ1:

[T]he respondents either by Genesis directly, or indirectly as individuals through their shareholding in Genesis, have derived a benefit or a gain by reason of the company’s entitlement to remuneration under each of the four contracts described at [192] of these reasons brought into existence as a result of the breaches of fiduciary duty.

281    His Honour further expanded the ambit of the gain or benefit derived by reason of Mr Zibara’s breaches of fiduciary duty at [207] of PJ1, stating:

[T]he remedy of an account should not only take into account any benefit or gain derived during the period of the management contracts as between Genesis and each player according to their term but also any benefit or gain arising out of a renewal of a management contract with those players. … [T]he enduring benefit or gain is the benefit of sustaining the relationship consolidated by reason of the breaches of fiduciary duty and the gain is the continuing right to receive remuneration or fees based upon the percentaged calculations contained in subsequent agreements which have come to pass because of the benefit.

(Emphasis in original).

282    Although commonly referred to as an “account of profits”, there is no reason why a benefit or gain to be made the subject of an account must answer the description of a “profit” in conventional accounting terms: Ancient Order of Foresters v Lifeplan, 32 – 33 [75]. There is also no reason for a Court to confine the notion of benefit or gain to “money” or “an entitlement to money”, as seemingly contended for by the appellants. It would be inconsistent with the underlying prophylactic nature of fiduciary obligations, to exclude from the obligation to account benefits gained by the defaulting fiduciary which were not in the nature of funds received: see Ancient Order of Foresters v Lifeplan (at 12 [9]). The obligation of the fiduciary is to account for the full value of any benefit received (at 13 [13]).

283    Further, contrary to the appellants’ submissions, the benefit or gain does not need to crystallise immediately upon the breach of fiduciary duty: it can be expectant or contingent: Ancient Order of Foresters v Lifeplan, 33 [75]; Grimaldi, 346 [180]. The Court in the latter case gave two such examples, namely where a trustee uses a trust’s shareholding in a company to vote himself onto the company’s board from which position he will be likely to derive directors’ fees (citing Re Macadam; Dallow v Codd [1946] Ch 73, 81) and where a dealing with an agent proceeds on the assumption that a success fee is to be paid if a transaction is effected (citing McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579).

284    Contrary to the appellants’ submissions, the question which arises is, in fact, merely one of causation. Mr Zibara and Mr Angeli breached their duties not to allow their personal interests to come into conflict with those of UMS and not to profit from their position. Having done so, they are liable to account for any benefit they obtain as a result. Appropriately, the causative connection between a breach of trust or fiduciary duty and a benefit or gain for the purposes of an account of profits is wide. As was said by the plurality in Ancient Order of Foresters v Lifeplan at 12 [9]:

The equitable disgorgement principle with which we are concerned is a “prophylactic rather than a restitutionary principle”. It is sufficient to show that the profit would not have been made but for dishonest wrongdoing.

(Footnotes omitted).

285    Similar comments were made by Gageler J at 37 [88] where his Honour said:

A causal connection between a fiduciary’s breach of fiduciary obligation and a benefit or gain sufficient for the fiduciary or knowing participant to be liable to the equitable remedy of account will exist if the benefit or gain to the fiduciary or knowing participant would not have been obtained “but for” the breach, in the same way as a causal connection sufficient for the fiduciary to be liable to the equitable remedy of compensation will exist if a loss to the person to whom the fiduciary obligation is owed would not have been sustained but for the breach. Because the concern of equity is to vindicate the equitable obligation that has been breached, the “but for” connection will be sufficient even though other contributing causes might be in play. That the fiduciary’s breach of fiduciary obligation is dishonest and fraudulent is also good reason for treating a sufficient causal connection as existing if the dishonest and fraudulent breach can be concluded to have played a material part in contributing to the benefit or gain of the fiduciary or knowing participant even in circumstances where it cannot be concluded that the benefit or gain would not have been obtained but for the breach.

(Footnotes omitted).

286    The application of the “but for” test has a long causative influence and will often result in the benefit or some part of it accruing to the errant fiduciary sometime after the breach has occurred. There is no limitation on the quantum of the account merely because the benefit may have been derived subsequent to the termination of the fiduciary relationship. Therefore, it is not to the point that Mr Zibara’s breaches created, on the appellants’ submissions, no more than a “potential” for the future benefit or advantage which actually arose. That is sufficient in equity to attract a remedy including an obligation to account for any benefit subsequently obtained. In response to this submission, it can be observed that in Ancient Order of Foresters v Lifeplan, the vast amount of the benefit for which Foresters was obliged to account accrued to it well after the errant fiduciaries had ceased their employment with Lifeplan. The appellants’ submission on this issue is entirely inconsistent with the result in that case.

287    In the assessment of the quantum of the benefit, the Court must consider the overall effect of the wrongful conduct and the scope of the account cannot be artificially cut down: Ancient Order of Foresters v Lifeplan, 11 [4], 15 [16]. But that is not to say that it ought to be artificially extended either and the question is to be determined by reference to the benefit obtained by the person liable to account.

Does it matter whether the benefit was received by Mr Zibara and Mr Angeli or Genesis?

288    The obligation to account is directed to the errant fiduciary in respect of the benefits which they have received consequent upon their breach. The obligation does not extend to accounting for the benefit received by other parties although, if the benefit received by those entities was commensurate with a loss suffered by the person to whom the duty was owed, an amount equal to the benefit gained can be recovered from the fiduciary by way of damages. Here, UMS abandoned any relief of that nature.

289    It is correct to say that in this case, the benefit gained by Mr Zibara and Mr Angeli was not the amount of revenue or profit received by Genesis consequent upon the signing of new players who had previously been contracted to UMS. On the other hand, Genesis derived revenue from those contracts, being a percentage of the income received by the players, although the profit derived would no doubt be consequential upon the exertions of Mr Zibara and Mr Angeli as directors and employees of it, and the expenditure of costs by the company. It may well be that, in assessing the actual gain made by Genesis, some allowance should be made for the time, effort and expenditure utilised in generating it: Warman International Ltd v Dwyer (1995) 182 CLR 544, 558; Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41, 110. Ultimately, the benefit received by it includes the profit it has derived and will derive from the player contracts and possibly the increase in the value of its business consequent upon signing them. That would include the benefits to be derived from the possibility of re-signing the players who had contracted with them as a result of the breaches of fiduciary duty. However, as has been indicated, there was no case advanced against Genesis which would render it liable to account for any profits.

290    The benefit secured by Mr Zibara and Mr Angeli is of a different nature, although clearly derivative upon the gains made by Genesis. Their gain or benefit is to be measured by the increase in the value of the shares which they held in Genesis. That value would necessarily take into account the benefits flowing to Genesis in the manner identified above. It would also take into account the value of any likely dividends which might be distributed. It is undoubted that an appropriately qualified expert could ascertain the value.

291    Some difficulty arises in the unusual and unique circumstances of this case, where the account process was commenced but ceased when the parties agreed that the benefit received by the three appellants was in an amount of $100,000. The subsequent consent order, which is set out in the reasons of Anderson and McKerracher JJ, shows that, although the order preserves the appellants’ ability to challenge their respective liability to pay the agreed amount, there is no proviso which might suggest that the amount of the benefit is open to challenge.

292    The point which the appellants now seek to raise, which appears at paragraphs 57 and 58 of their written submissions, is that as there was no evidence before the trial judge that the events in question had resulted in any increase in the value of Mr Zibara’s and Mr Angeli’s shares in Genesis, there was no basis on which an account ought to have been ordered. This was not elucidated in their oral submissions, but it is not sustainable in any event. At [203] of PJ1, the primary judge concluded that Mr Zibara and Mr Angeli “either by Genesis directly, or indirectly as individuals through their shareholding in Genesis, have derived a benefit or a gain by reason of the company’s entitlement to remuneration” as a result of entering into player contracts with a number of players who left UMS and signed with Genesis. His Honour had earlier carefully examined the player contracts and identified the benefits which flowed to Genesis from their provisions. It is axiomatic that Genesis, which had only been incorporated in 2018, would have increased in value as a result of signing players previously contracted to UMS. The increase in the company’s revenue stream alone would be likely to have had that effect. There was more than sufficient evidence before the trial judge to conclude that Mr Zibara and Mr Angeli benefited indirectly through their shareholding in Genesis and the whole purpose of the account was to ascertain the extent of it. Further, it cannot be said that his Honour’s orders of 14 February 2020, for an inquiry into the extent of the benefit derived, were confined to the mere receipt of income from the contracts. They were apt to cover an assessment of the benefit received by Mr Zibara and Mr Angeli from the increase in the value of their shareholding in Genesis.

293    As mentioned, the parties have agreed upon the value of the benefit gained as being $100,000. On that basis, no error has been demonstrated in his Honour’s orders giving judgment against Mr Zibara and Mr Angeli for that amount.

Challenge 3: Costs

294    The appellants challenged the primary judge’s order that they pay UMS’s costs on an indemnity basis. Mr Ireland QC submitted the primary judge made a House v The King error (see House v The King (1936) 55 CLR 499) in ordering indemnity costs in circumstances where his Honour did not know the outcome of the case. He submitted that indemnity costs were ordered on the basis that the appellants acted unjustifiably in defending the case in the manner they did, and on the basis of the character of their actions. Given it was not open, on the appellants’ case, to the primary judge to find that the appellants acted dishonestly, this was not a basis on which indemnity costs could be ordered. In reply, Mr Ireland QC also pointed to the fact that the original amount claimed by the respondent was $750,000 and it was therefore not unreasonable to put the appellant to proof, particularly in circumstances where the appellants were only ordered to account for $100,000. He also pointed out that other relief sought by the respondent against the appellants, including an injunction to restrain Genesis trading, was not pressed or was successfully defended.

295    Mr Perry QC submitted that the primary judge rightly found that UMS was unnecessarily put to the cost of running a trial in circumstances where it was found that the appellants acted in full knowledge of the impropriety of their actions. It was therefore not material, on the respondent’s submission, for the primary judge to know the outcome of the case, as indemnity costs were ordered on the basis of the nature of the conduct engaged in by the appellants, which was proven by the respondent at trial.

296    Given the above conclusions in relation to the claim against Genesis, the foundation for awarding indemnity costs against all of the appellants falls away and the question of costs must be addressed on the assumption that UMS ought to have failed against Genesis at trial. On the appeal the parties did not specifically address the question of what order should be made in relation to the costs of the trial if one of the grounds of appeal was upheld in favour of one of them. Nevertheless, given the outcome of the appeal, the appellants’ opposition to UMS’s claim has been partly vindicated. That is also relevant to the question of costs as between UMS and Mr Zibara and Mr Angeli, given the defences were generally run together. In these circumstances, the appropriate order is that the costs of the trial should follow the event, although the same exception should be made as to the costs of and incidental to the claim by UMS against Mr Zibara for a breach or breaches of a Deed signed by Mr Zibara as pleaded by UMS in its statement of claim in the proceeding.

297    I add that had the appellants not succeeded on Challenge 1, I would have agreed with the reasons of McKerracher and Anderson JJ in relation to Challenge 3 of the appeal.

298    As the appellants were only partially successful before this Court, the appropriate order is that there should be no order for the costs of the appeal.

Orders

299    For the reasons which I have given above, I would make the following orders:

(1)    The appeal be allowed.

(2)    That order 1 of the primary judge’s orders of 24 January 2020 be set aside as against the third defendant and in lieu thereof it be ordered that the action against the third defendant be dismissed.

(3)    The primary judge’s orders of 21 August 2020 be set aside as against the third defendant.

(4)    That orders 1, 2 and 3 of the primary judge’s orders of 25 March 2020 be set aside and in lieu thereof it be ordered that:

(a)    the plaintiff pay the third defendant’s costs of the action.

(b)    the first and second defendant pay the plaintiff’s costs of the action save those costs of and incidental to the claim by the applicant against Mr Zibara of a breach or breaches of a Deed signed by Mr Zibara as pleaded by the applicant in its statement of claim in the proceedings.

(5)    There be no order for the costs of the appeal.

Associate:

Dated:    2 February 2021