H&H Consulting Engineers Pty Limited (H&H) is an
engineering company who employed Mr Meyers (the first defendant)
from September 2006 to April 2008 as a business development
engineer. The first defendant was previously involved with the
Rochem Group of Companies headed by a German-based company which
had subsidiaries worldwide. The first defendant advised H&H of
his involvement with Rochem prior to the commencement of his
employment. He sought to continue this business relationship, and
was permitted to do so.
In early 2006, prior to commencing with H&H, the first
defendant set up a business related to Rochem in Australia that
provided renewed water solutions, known as Renewed Water Solutions
Pty Limited (RWS). The first plaintiff and his wife were the sole
shareholders and directors. H&H was not notified of this.
Later in December 2006, H&H decided to reject a proposal
from the first defendant to establish a consortium involving
H&H, RWS, and two other parties. This consortium proposal was
rejected on the grounds that an existing subsidiary within H&H,
Innaco Pty Ltd (Innaco), provided a similar service.
The first defendant then introduced H&H to Econova
Operations Pty Limited (Econova), a company which delivered
construction project management services. Again, H&H advised
the first defendant that Innaco was well placed to deliver the
services offered by Econova, and declined to enter into a business
relationship on those grounds.
However, the first defendant ignored H&H's direction
to establish Innaco as a water engineering department, and later
facilitated an agreement between H&H and Econova which resulted
in Econova being the lead contractor of a project, without the
informed consent of H&H. The first defendant then left H&H
to take up employment with Econova.
The NSW Supreme Court (the court) was satisfied that the first
defendant received explicit instructions to develop Innaco as a
business. The first defendant maintained he had no duty to promote
Innaco for a variety of reasons, including that he had a role
specific to H&H that did not involve him working with Innaco.
The first defendant also submitted that Innaco was effectively run
as an entirely separate company (despite having common
However, the court found that by building up Econova (and, in
turn RWS) at the expense of H&H, the first defendant breached
his fiduciary duty by not to promoting personal interests of
persons other than H&H by making or pursuing a gain in conflict
with the interests of those other persons and the interests of
H&H and Innaco.
The court awarded an account of profits of $127,500 against the
first defendant's company, RWS, or equitable compensation
of $262,312 awarded jointly against the first defendant and
This case clearly demonstrates that carefully worded employment
contracts are vital in addressing employee fiduciary duties within
groups of companies.
H&H succeeded in this case because the employment contract
expressly stated that the first defendant's dealings with
Rochem were to be carried out in a manner that would not
For the purposes of assessing the first defendant's
conduct, the court viewed H&H and Innaco as one company. This
is a lesson for companies to be proactive in constructing their
employment contracts by ensuring that fiduciary obligations extend
to all subsidiaries.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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