Halliday and Nicholas v Corsiatto [1999] NSWSC 689 (9 July 1999)

Last Updated: 13 September 1999

NEW SOUTH WALES SUPREME COURT

CITATION: Halliday & Nicholas v Corsiatto [1999] NSWSC 689

CURRENT JURISDICTION: Equity

FILE NUMBER(S): 4114 of 1996

HEARING DATE{S): 13, 14, 17, 18, 19 May 1999

JUDGMENT DATE: 09/07/1999

PARTIES:

Halliday & Nicholas Insurance Brokers Pty. Limited (ACN 002 169 833) trading as Halliday & Nicholas Insurance Brokers (Plaintiff)

Stephen Corsiatto (First Defendant)

Diana Rodwell (Second Defendant)

D.H.B. & Associates Pty. Limited (ACN 003 714 109) (Third Defendant)

JUDGMENT OF: Windeyer J

LOWER COURT JURISDICTION: Not Applicable

LOWER COURT FILE NUMBER(S): Not Applicable

LOWER COURT JUDICIAL OFFICER: Not Applicable

COUNSEL:

Mr. B. Connell with him Miss F. Clark (Plaintiff)

Mr. K. Smark (First Defendant)

Mr. P. Stitz (Second Defendant)

Mr. P.W. Neil SC (Third Defendant)

SOLICITORS:

Shaw McDonald (Plaintiff)

Stephen Corsiatto - Instructing in Person (First Defendant)

Peter Chamberlain & Co (Second Defendant)

Neil Leys & Co (Third Defendant)

CATCHWORDS:

EQUITY - Fiduciary obligations - employer and employee relationship - breach of contract of employment - improper use of confidential material - account of profits - limit to liability

ACTS CITED:

DECISION:

JUDGMENT:

- 8 -

IN THE SUPREME COURT

OF NEW SOUTH WALES

EQUITY DIVISION

WINDEYER J

FRIDAY 9 JULY 1999

4114/96 HALLIDAY & NICHOLAS INSURANCE BROKERS PTY. LTD T/AS HALLIDAY & NICHOLAS INSURANCE BROKERS AND 2 ORS v STEPHEN CORSIATTO AND 2 ORS

JUDGMENT

General Outline

1 Mr. Corsiatto the first defendant (Corsiatto) was employed by one of the plaintiff companies from 1981 until 1996. The claim of the plaintiffs against him is that, prior to leaving the employment and in breach of his contract of employment or his fiduciary duties to the plaintiff companies, he made use of confidential material to create a client list which he thereafter used to the detriment of the plaintiff and for his own benefit. It is claimed that Diana Rodwell the second defendant, with whom Corsiatto lived in a de facto relationship, knowingly profited from these breaches as did DHB & Associates Pty. Limited (DHB) the third defendant, Corsiatto having become a sub-broker of DHB after his employment with the plaintiff ceased.

Facts

2 Halliday & Nicholas Insurance Brokers Pty. Limited (H & N) is a licensed insurance broker. H & N Nominees Pty. Limited (Nominees) the second plaintiff was from 1981 until 1996 an administration company of H & N providing services to it, including the services of Corsiatto. After 1 July 1996, Halnic Nominees Pty. Limited (Halnic) provided the same services to H & N. Corsiatto was a director of H & N from 1981 until July 1995; an employee of Nominees from 1981 until 1 July 1996; of Halnic from 1 July 1996 until 8 October 1996. No point is taken on these matters. It is accepted that any loss sustained by reason of the activities of the defendants or any profits for which the defendants must account should result in an award in favour of H & N and that nothing turns on the fact of employment by an administration company. Thus I will refer to the plaintiff in the singular and generally as H & N.

3 Rodwell was employed by either Nominees or Halnic from 1988 until 3 August 1996 when she was dismissed. It is clear that there was a cooling off in the employment relationship between Corsiatto and Halliday before this which was hastened when Rodwell left and that thereafter Corsiatto decided that he would leave. I find that he discussed the possibility of leaving at an earlier date with Mr. Beveridge of DHB at an AMP function, but I find there to be no significance in that. One of the plaintiff's claims that Corsiatto made out a list of the more important clients of H & N allocated to him some time earlier in 1996 and took that list with him when he left or used it to constitute a new list, was not made out to my satisfaction.

4 Corsiatto was employed as what is called an account executive. He was by 1996 responsible for the insurance needs of about 450 clients of H & N. He was the most senior employee of the plaintiff. He was a sole signatory on the office bank account and a joint signatory on the premiums account, which is really a trust account. He was clearly well regarded, although Mr. Halliday thought his performance was deteriorating.

5 Prior to his employment terminating, Corsiatto visited certain H & N clients with whom he dealt, telling them of his concern about the way Rodwell had been treated and telling some of them that he intended leaving. It is perfectly clear that in part this was in preparation for a move. No doubt these actions were a breach of his contract of employment, but no actual damage is shown to have flowed from this and no benefit to him to have flowed from it. In fact the evidence is to the contrary.

6 Some time in September 1996 Corsiatto informed Mr. Beveridge of DHB that he was leaving and inquired about the possibility of joining DHB in some capacity. No final arrangements were made, but certainly Mr. Beveridge knew of his intentions and asked him to get in touch with him when he had made up his mind. Corsiatto had made a firm decision to leave H & N at least by the last week in September 1996, as he had by then purchased a new mobile telephone and a new car, both of which were available to him as part of his contract of employment with H & N.

7 On 30 September 1996 Mr. Timothy Rodwell, the son of the second defendant, assisted Corsiatto in producing a list of clients of H & N, the responsibility of Corsiatto. At least one purpose of this was to enable a circular letter to be produced and sent to those clients after cessation of employment, advising them of his resignation. The letter did not in terms seek to obtain the further business of those clients, and indeed said they could expect to be contacted by H & N. However, it did give an address and phone number of Corsiatto.

8 According to Corsiatto the lists were made up from the combination of business cards which he had from clients and an address book he kept, a road directory, the telephone book and his memory. He later explained some groupings of a list which accorded with groupings on the H & N client list, by his remembering the position of the files in the H & N filing system and his own good memory. I do not accept the explanation of Corsiatto. Even after a long period of employment and familiarity with clients and their files, the identical wording of many of the listings makes it impossible to find other than Corsiatto made his list in substantial part by use of material from the H & N files available to him during his period of employment. I did not find him an impressive witness. I did not think his explanation acceptable or indeed possible. I do not consider it would have been possible for the computer lists compiled by Mr. Rodwell from lists provided to him by Corsiatto to have come out in the form which they did with names set out of companies and individuals as they were, some with "Mr.", some without, some with initials, some with full names, some with post office box addresses, corresponding precisely with those in the H & N records, by doing this as Corsiatto said that it was done. I find that he was preparing to leave and while doing so made use of the information from files of H & N, confidential to that company in completing his lists. I do not find that he either took or retained a copy of the H & N client list.

9 On 8 October 1996 Corsiatto gave notice and left. He proceeded to DHB. It was agreed that he would be allowed to work from there from that date although no sub-broker agreement was entered into until November. However, it seems to have been agreed that commissions received from clients introduced to DHB would be shared as to 80% to him and 20% to DHB.

10 The letter which Corsiatto sent to nearly all of the clients of H & N for whom he was responsible up to leaving was sent on 9 October 1996, having been hand dated prior to it being sent. It was seen by Mr. Beveridge, who knew it was intended to send it out.

11 After that Corsiatto contacted most if not all of those persons and succeeded in obtaining new appointments from many of them, under which DHB was nominated as new agent, enabling DHB through Corsiatto to obtain access to the insurance information of those clients from their insurers. As a result of these appointments substantial commissions flowed to DHB and through DHB to Corsiatto. The amount earned by DHB for the year ended 30 June 1997 was in the order of $21,000 and for the year ended 30 June 1998 in the order of $80,000, Corsiatto getting 80 percent of those amounts. As a lot of insurances become due on 30 June and commission presumably is payable shortly thereafter, that could account in part for the relatively small amount for the period after October 1996 until June 1997.

12 After October 1996, Mrs. Rodwell carried out some improvements to her home. Some of these were paid for by her charging certain items to the American Express credit account of Corsiatto, which she was authorised to do, which liability was later discharged by Corsiatto at least partly with funds flowing from his share of the commissions.

Pleaded Claims

13 The claim against Corsiatto is that as a senior employee of the plaintiff he was under a fiduciary duty to it to maintain the confidentiality of its confidential material available to him during the course of his employment, and not to use it for purposes other than those of the employer, and that in breach of this duty he used confidential information of the plaintiff for his own benefit or for the benefit of DHB.

14 The statement of claim sets out particulars of information claimed to be confidential but in the long run the claim of the plaintiff went only to the following information:-

(a) The names and addresses of clients of the plaintiff.

(b) The names and telephone numbers of contacts including material recorded in a certain telephone address book.

(c) Business cards which Corsiatto collected while in the plaintiff's employment.

(d) A list prepared by Corsiatto during his employment, which he was said to have taken with him. So far as this latter matter is concerned, I have already found that the claim was not made out.

15 It is claimed that Corsiatto wrongfully used this confidential information, to create a list of clients for his own purposes, to enable him to approach clients to seek their business or direct their business to himself.

16 It is further claimed that he used this material for the purpose of enabling him to send the letter which he sent to H & N clients on 9 October 1996 and that thereafter and continuing to the present time he has continued to use this confidential information to attract business of the former H & N clients to himself. It is claimed that in so doing he has disclosed to DHB confidential information of H & N as to the clients insurance arrangements.

17 The claim pursued against Mrs. Rodwell is that she received the benefit of moneys, namely commissions paid to Corsiatto as a result of the business of former H & N clients, knowing that these commissions were the result of Corsiatto having breached his fiduciary duty to the plaintiff. The pleaded claim was wider but this was the only claim pressed.

18 As against DHB it is claimed that it knowingly received commissions obtained as a result of breach of fiduciary duty by Corsiatto; that it was a knowing participant with Corsiatto in his breach of fiduciary duty to H & N; and profited thereby; that Corsiatto was its agent in obtaining the moneys through breach of contract or breach of fiduciary duty and that it induced Corsiatto to breach his contract of employment with the plaintiff.

Claim against Corsiatto

19 I consider Corsiatto was in a fiduciary relationship with the plaintiff. While no longer a director and having suffered some reduction in privileges he was a senior employee responsible for about 20% of the business of the plaintiff and in a position of trust. Having come to that conclusion it is necessary to deal with the allegations of use of confidential material. So far as the telephone address book is concerned, which is in evidence, I do not consider it falls within the description of confidential information. For the most part it contained private information of Corsiatto, albeit that it did contain some information of some H & N clients. So far as the business cards are concerned they would perhaps technically be property of the plaintiff, but could not be regarded as confidential material. Neither of these things really matters because I have found that the lists compiled by Corsiatto were compiled at least in part from the records of H & N and that this was done during his employment by the plaintiff for the purpose of assisting him after he left H & N and in breach of his fiduciary duty to H & N. This was more than proper preparation for a new career, yet all this did was to save Corsiatto time as I think it quite clear that over a period of time with the expenditure of some amount of effort he would have been able to compile his own list from memory, road maps, telephone books and the like, and of course many of the clients might have sought out Corsiatto themselves. Thus contrary to the argument of the plaintiff it is quite impossible to think that all benefits received by Corsiatto as a result of commissions earned by DHB from former H & N clients to the present time and into the future should be accounted to H & N as resulting from his improper conduct. One can understand the attitude of Mr. Halliday, who has built up his business partly by purchasing client lists of other brokers. It was obvious from his evidence he felt that Corsiatto was under some obligation not to take any clients with him, even though Mr. Halliday appears to have received the benefit of business which a sub-broker of his has brought to him. But whether or not that is Mr. Halliday's view of proper conduct it is not the law. The law is that Corsiatto is obliged to account to H & N for profits obtained as a result of breach of fiduciary duty, or to pay equitable compensation to compensate the plaintiff for loss as a result of that breach or to pay damages for breach of contract. There must be some causal connection see O'Halloran v R.T. Thomas & Family Pty. Ltd (1998) 45 NSWLR 262 at 272/3.

20 In a case such as this where there is no particular trade secret wrongly used there has to be some limit to the liability as it is impossible to say that at some stage the benefits flowing to Corsiatto would not have flowed in any event, see Warman International Limited v Dwyer [1995] HCA 18; (1995) 182 CLR 544. The evidence shows that clients are inclined to move with the person who looks after their affairs. Had this been a "springboard" type claim for an injunction then I am of the view the court would have been likely to have granted an injunction restraining Corsiatto from dealing with any H & N clients for a period of at the most six months. It is appropriate to apply this reasoning by analogy to a case such as this: see US Surgical Corporation v Hospital Products International Pty. Ltd (1982) 2 NSWLR 766 at 815. Thus in my view the proper order to be made in this case is that Corsiatto account to the plaintiff for all profits earned from commissions paid to DHB by insurers in respect of former H & N clients earned in respect of insurances taken out or renewed up to 9 April 1997. H & N, if it so elected, would be entitled to equitable compensation for its loss arising through beach of the fiduciary obligation or to damages for breach of contract. However, it is difficulty to see how any such claim could achieve a better result for the plaintiff than an account of profits.

Claim against Mrs. Rodwell

21 In my view this claim fails. It has not been established that Mrs. Rodwell knew of any breach of fiduciary duty owing by Corsiatto to the plaintiff, nor that she knowingly received moneys impressed with a trust. In fact in the absence of the court order it is not at all clear "trust moneys" were received. There can be no doubt that Mrs. Rodwell was aware that Corsiatto was receiving his percentage of commissions as a result of premiums paid on insurances effected by former H & N clients. The evidence does not establish that Mrs. Rodwell knowingly benefited from moneys which she knew were obtained as a result of some breach of fiduciary duty by Corsiatto. The claim against her fails.

Claim against DHB

22 The first claim to be dealt with is that some time after July 1996 DHB entered into an arrangement with Corsiatto whereby Corsiatto would use confidential information to divert clients from H & N to DHB, and in addition that DHB induced Corsiatto to breach his contract of employment with the plaintiff by using the confidential information to the detriment of the plaintiff. There is no evidence to support these claims of conspiratorial conduct or of inducement of breach of contract. Corsiatto had not determined where he would work until shortly before he left H & N. Neither is there evidence which establishes that Corsiatto was the agent of DHB when he acted in breach of his contract of employment or in breach of his fiduciary duty to H & N. It is undoubtedly the position that DHB knew that Corsiatto would approach clients of H & N, but it has not been established that DHB knew of any improper means used by Corsiatto to enable him to make contact with H & N clients or that he had engaged in some improper conduct in constructing his list of contacts. In fact what was established was that when protests and complaints were made to DHB about the conduct of Corsiatto he was queried about this and maintained that he had done nothing wrong and had not taken or kept any confidential material. It is, as I have said, perfectly obvious that the directors of DHB were well aware benefits were flowing to them through the insurances of former H & N clients. What has not been shown is that they were aware of any improper conduct by Corsiatto which enabled them to obtain those benefits. Therefore it could not be said that in some way Corsiatto was the agent of DHB in constructing his list as he did nor that they knowingly received moneys impressed with a trust, nor that they had constructive notice of it, nor that they were knowing participants in a breach of fiduciary duty. In other words their conduct was not dishonest: Royal Brunei Airlines v Tan [1995] AC 378 The claim fails against DHB.

Conclusion

23 The result of my decision is that the plaintiff will become entitled to a very small amount against Corsiatto. It is a regrettable fact that this case has been before the Registrar for directions and/or motions on 15 occasions. The costs are out of all proportion to the small benefit gained. It was apparently envisaged that there would be an order made for an account of profits up to the present time for all income received from previous H & N clients and an order for compensation to cover future loss of the business of those clients. That result could never have been obtained. The judgment in Warman at pages 556 to 562 makes that clear.

Orders

24 I will hear submissions on the final orders. The claim against the second and third defendants should be dismissed. It should not be necessary to have a formal account of profits between the parties and it should be possible to agree on a figure subject to the right to elect for compensation. The plaintiff must pay the costs of the second and third defendants. Subject to any further argument the first defendant should pay the costs of the plaintiff to date but not including costs of the accountants report Exhibit G.

LAST UPDATED: 10/09/1999