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Warman International V. Dwyer Notes

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WARMAN INTERNATIONAL V. DWYER FACTS The first respondent, Mr. Dwyer ("Dwyer"), was the general manager of the Queensland branch of the first appellant ("Warman"). Warman's principal business was the manufacture and distribution of slurry pumps, although before 1988 it had been involved in a number of other activities, including an agency for the distribution of gearboxes manufactured in Italy by the Bonfiglioli group together with some related products. In August 1986 Mr. Carboni, Bonfiglioli's overseas sales manager, visited Australia and said to both Warman's Sydney management and management of the Queensland branch that Bonfiglioli wished to enter into a joint arrangement, preferably with Warman, for the local assembly of its products in Australia. The trial judge found that the Sydney management (who were Dwyer's superiors) made it very clear that Warman would not be interested in participating in such a venture. It seems that that response provoked Dwyer, together with Mr. Jarvis, the former Queensland sales manager for Bonfiglioli products, to sign a letter dated 28 August 1986 addressed to Mr. Bonfiglioli. During the next year Bonfiglioli explored the possibility of Australian operations with other companies, including Lucas Fluid Power, Gibson Battle & Co. and Muir Engineering. Towards the end of 1987 the proposal of a joint operation with Dwyer was raised again by Bonfiglioli. At around the same time, Mr. Lockhart, Warman's Australian sales manager and Dwyer's immediate supervisor, visited Queensland and asked Dwyer whether he would be interested in leaving Warman and purchasing the agencies division for himself. Dwyer declined. Instead, he maintained his own secret negotiations with Bonfiglioli and, to that end, arranged for the two corporate respondents, Bonfiglioli Transmission (Aust.) Pty. Ltd. ("B.T.A.") and Engineering Transmission Agencies Pty. Ltd. ("E.T.A."), to be incorporated. On 24 February 1988, Dwyer wrote to Mr. Bonfiglioli, setting out detailed suggestions concerning share ownership and control of the proposed business, including bringing in as shareholders existing Warman staff in Queensland. In June 1988 Warman's management received written notice dated 26 May from Bonfiglioli terminating the agency agreement. Under the terms of the agreement, either party was entitled to bring the agency to an end on three months' notice. Despite their efforts, representatives of Warman were unable to persuade Bonfiglioli to reverse its decision. At this point, Dwyer revealed that he had accepted a proposal to enter a joint venture with Bonfiglioli. On 20 June he gave notice of resignation and he stopped working for Warman on 30 June. It would seem to be common ground that the

agency agreement between Warman and Bonfiglioli came to an end on 26 August. In August 1988, shares of B.T.A. were issued to Dwyer and his wife (jointly) and to Fin-Bonfiglioli Sp.A., a member of the Bonfiglioli group, with the result that B.T.A.'s share-holding was equally divided between Mr. and Mrs. Dwyer and Bonfiglioli. E.T.A. remained wholly owned by Mr. and Mrs. Dwyer (separately) and distributed some Bonfiglioli products and the range of complementary non-Bonfiglioli products in conjunction with the joint venture. Warman had abandoned the non-Bonfiglioli products because their turnover depended substantially on their complementary status to Bonfiglioli products. On 12 September, FinBonfiglioli Sp.A. and B.T.A. executed a joint venture agreement with Dwyer and Mrs. Dwyer, which provided for the assembly and distribution of Bonfiglioli gearboxes in Australia for a twenty year term. The range of Bonfiglioli stock was substantially increased and the local assembly venture was set up. B.T.A. took over the agency business in Australia which included the assembly and the distribution of gearboxes. The businesses have been successful, with net profits (before tax) of some $1.6 million over the four years preceding the trial. Warman commenced proceedings against Dwyer and the corporate respondents on 25 October 1988, seeking relief including an account of profits. HOLDING A fiduciary must account for a profit or benefit if it was obtained either (1) when there was a conflict or possible conflict between his fiduciary duty and his personal interest, or (2) by reason of his fiduciary position or by reason of his taking advantage of opportunity or knowledge derived from his fiduciary position. The stringent rule that the fiduciary cannot profit from his trust is said to have two purposes: (1) that the fiduciary must account for what has been acquired at the expense of the trust, and (2) to ensure that fiduciaries generally conduct themselves "at a level higher than that trodden by the crowd". The objectives which the rule seeks to achieve are to preclude the fiduciary from being swayed by considerations of personal interest and from accordingly misusing the fiduciary position for personal advantage. Thus, it is no defence that the plaintiff was unwilling, unlikely or unable to make the profits for which an account is taken or that the fiduciary acted honestly and reasonably. Profits from Business v. Specific Asset But a distinction should be drawn between cases in which a specific asset is acquired and cases in which a business is

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