Motorola dealer causes loss of goodwill in business

Breach of employment contract turns into an expensive lesson for employee

When you hire someone to do a job it is natural to expect the employee to do their job and to be loyal to their employer and not help a direct competitor. Failure to do this proved to be an expensive error on the part of the employee.

The Facts of Dinte v. Hales & Anor [2009] QSC 63 (25 March 2009)

Dinte, the plaintiff in this action, hired Hales and Campbell to provide services to his business trading as Skycomm.  Hales held the position of “Service Manager” which included responsibilities for selling and servicing mobile communications equipment as a “premier dealer” for Motorola.
In the course of, and after his engagement with Skycomm, the Defendants entered into a partnership trading under the name of Dapcomm. Dapcomm operated in common areas of business as Skycomm; the two business were competing.

Recovery of damages more than loss of sales

The plaintiff sued for damages. The Judge found that Hales was in breach of his obligations to Dinte and dishonestly diverted custom to the Dapcomm partnership through opportunities that were made available to him by virtue of his employment with Dinte.

This case is interesting because not only did the Court, having found liability, make an award of damages in the sum of $67,533.19 for loss of the diverted business but the Court also considered, as a consequence of the business diverted away from the Plaintiff’s business, that he should be compensated for loss of value of the business.  The loss of value of the business was calculated by using the amount of diverted business in the last financial year ($38,000) and taking the multiplier of 3.8 x EBIT which equated to $144,400.

Comment from Mark Streeter – Sydney fraud lawyer

There are some important lessons to be learned from this case. This is an important decision in assessing and quantifying damages for recovery of Fraud in businesses.  Employees may divert business opportunities to themselves or other parties or merely destroy business opportunities. This may result in damages in excess of just the lost revenue for that financial year.

In this case the business was sold within a year after the Defendants had diverted the business but before the case went to hearing.  Accordingly the “loss” of goodwill was realised by the lower sale price obtained as a consequence of the reduced earnings because of the diverted business.

This case is consistent with the principles set down in Robinson v Harman (1848) where Baron Parker said:
Where a party sustains loss by breach of a contract, he is, as far as money can do it to be placed in the same position, with respect to damages, as if the contract had been performed.

In this case the plaintiff had lost the business but had also lost value in his business by way of goodwill (calculated as a multiple of EBIT) and suffered a reduced price in the sale of the business as a consequence.

Written by Mark Streeter

The Director of Streeterlaw, Mark has been practicing Law since 1994. He has attained his Masters of Law in 1999 and in 2006 was awarded his Specialist Accreditation in Commercial Litigation. Mark is a member of ARITA, a graduate of the AICD and a member of AICM. A member of STEP, Mark enjoys working in the area of Wills and Estates. In 2020 Mark is the Chair of STEP NSW.

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