Hospital Products Ltd v United States Surgical Corporation

156 CLR 41
55 ALR 417

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(Judgment by: Gibbs CJ) Court:

Judges:
Gibbs CJMason J
Wilson J
Deane J
Dawson J

Judgment date: 25 October 1984

Canberra

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Judgment by:
Gibbs CJ

This is an appeal from a decision of the Court of Appeal of New South Wales, which allowed an appeal from a judgment of McLelland J given in proceedings brought by United States Surgical Corporation (USSC), one of the present respondents, against the present appellant, Hospital Products Ltd (HPL) and the other respondents, Surgeons Choice Inc (SCI), Hospital Products International Pty Ltd (whose name has been changed to Ballabil Holdings Pty Ltd), Alan Richard Blackman and IRD Engineering Services Pty Ltd (IRD). All of the respondents have cross-appealed.

After hearing voluminous evidence, McLelland J made findings of fact which have not been challenged, although the Court of Appeal has supplemented them with some further findings. For present purposes it is unnecessary to state the facts in the full detail in which they are recounted in the judgments below. The material facts were as follows. USSC, a corporation incorporated in the United States, carried on the business of manufacturing in the United States, and marketing in the United States and elsewhere, implements for use in surgery, in particular surgical stapling instruments, disposable loading units for use with such instruments and disposable skin staplers. These implements were all made to USSC's own design, which was apparently novel. They were marketed under the name "Auto Suture".

The marketing of USSC's products in countries other than the United States was carried out through distributors -- independent contractors who purchased the products from USSC and resold them to customers. Early in November 1978 Mr Blackman arranged a meeting with the President of USSC, Mr Leon Hirsch, and the Vice-President in charge of marketing, Ms Turi Josefsen, at which he proposed to them that he should be appointed sole distributor of the company's products in Australia in place of Downs Surgical (Australia) Pty Ltd (Downs) which had been the Australian distributor since December 1976. Mr Blackman was at the time on good terms with Mr Hirsch and Ms Josefsen, and was known to them as an efficient salesman. He had in 1973 been appointed a dealer for USSC in the New York area, and in 1976 a corporation (The Hospital Products Corporation) which he owned and controlled had been appointed to replace him as dealer. It was part of his proposal that this dealership should be phased out. Mr Hirsch and Ms Josefsen indicated that they were favourably disposed to the proposal. After some later discussions and correspondence, USSC on 27 December 1978 wrote to Downs, terminating its appointment as from 31 March 1979, and to Mr Blackman, advising him that he would be USSC's exclusive Australian distributor from 1 April 1979. It will be necessary to refer again to these discussions and correspondence for the purpose of determining more precisely the terms of the agreement between USSC and Mr Blackman, but that task may for the moment be postponed.

In January 1979 Mr Blackman arrived in Australia, and in February of that year he acquired a shelf company whose name he changed to Hospital Products of Australia Pty Ltd. In the same month, by a novation, that company was substituted for Mr Blackman as the distributor under the agreement with USSC. In November 1979 the name of Hospital Products of Australia Pty Ltd was changed to Hospital Products International Pty Ltd and it will be convenient to refer to that company as "HPI", in respect of the period before November 1979 as well as afterwards. HPI purchased the stock of USSC's products held by Downs and on 1 April 1979 commenced to market USSC's products in Australia. It was successful in bringing about a substantial increase in the use of those products. From about May 1979 HPI began purchasing further stocks direct from USSC and until about October 1979 it satisfied the orders which it received from customers from those stocks.

During all this time Mr Blackman was putting into effect a dishonest plan which he had formulated before he had put his proposal to USSC in November 1978, and for which he had made careful preparations before he had been appointed USSC's Australian distributor. The object of the plan was that ultimately HPI would itself manufacture products which very closely resembled those made by USSC and would pass them off as products made under licence from, or by arrangement with, USSC, and in that way would appropriate for Mr Blackman's own benefit the market in Australia that would otherwise have been available to USSC. The plan was to be put into effect in a number of stages. In the first stage, Mr Blackman intended to market products which contained some components of his own manufacture together with demonstration cartridges obtained from USSC. It was the practice for USSC, in order to assist in the marketing of its products, to supply its distributors and dealers, at comparatively low cost, with disposable loading units and disposable skin staplers for demonstration purposes. The demonstration units were identical with those for clinical use, except that they were not sterilized or packed in sterile containers and that they contained only a single anvil and (in certain cases) a single retaining pin or pusher-knife assembly for use with a number of separate cartridges. In clinical use each component, once used, had to be discarded, and a new anvil and (where applicable, retaining pin or pusher-knife assembly) was needed for each cartridge. In the first stage Mr Blackman's intention was to manufacture anvils, retaining pins and pusher-knife assemblies, to add them to the demonstration cartridges and to sterilize and repack the resulting units and sell them in satisfaction of the orders which HPI obtained for USSC products. In the second stage, it was intended to manufacture all of the components of the disposable units, and to assemble, sterilize, pack, label and sell them in competition with or substitution for USSC's products.

From about 1977 Mr Blackman had been accumulating large stocks of demonstration products which he was able to obtain in the course of the New York dealership. As early as August 1978 he commenced to make inquiries from his solicitors in Australia about the possibility that he might compete with USSC, and might register the trade mark "Autosuture", and from experts with regard to the possible manufacture of the components and the sterilization of disposable loading units. In November 1978 Mr Blackman's solicitors lodged an application for registration of the trade mark "Autosuture" in respect of, inter alia , "instruments and apparatus for use in surgery". During the period from December 1978 to February 1979 he arranged for the demonstration products which he had accumulated to be shipped by the Hospital Products Corporation to HPI via Hong Kong. The products were invoiced by the Hospital Products Corporation at a price of US$19,190, and were ultimately received by HPI at invoiced prices of about $500,000. At the beginning of March 1979 Mr Blackman engaged an engineering consultant who set about arranging for the manufature of various components and the assembling, packaging and sterilizing of the disposable loading units. Much of the engineering work in both stages of the plan was performed under contract for HPI by IRD, a company which on 30 June 1980 came under the control of Mr Blackman. A painstaking process of reverse engineering was carried out; ie USSC's components were disassembled, measured and analysed, and tools, moulds and dies were prepared to enable components to be made which were as far as possible identical with those made by USSC. In July 1979 Mr Blackman, who had known at least from August 1978 that USSC had no patent rights in Australia, applied for an Australian patent for a "surgical skin and fascia stapler and disposable staple cartridge for use therewith" and lodged a provisional specification which was largely copied from the specifications of certain United States patents of USSC; his purpose was to enable him to use the words "patent pending" on HPI's labels and thus discourage other potential manufacturers in Australia. By about August 1979, anvils, retaining pins and pusher-knife assemblies were being manufactured for, and supplied to, HPI. In about October 1979 HPI began to defer fulfilment of orders being received for Auto Suture products, its intention being to fill those orders with the products assembled by HPI; it then ceased placing its own orders with USSC. On 25 December 1979 HPI wrote to USSC, saying that from that day on HPI would no longer be the authorized agent of USSC; the reasons given for bringing the distributorship to an end were spurious. On 10 January 1980 USSC accepted HPI's decision to terminate the distributorship. From 25 December 1979 HPI began supplying products, which it had itself assembled and repacked, in fulfilment of orders then outstanding and subsequently received for Auto Suture products. The products which it supplied had labels which included the words "For use with Auto Suture instrument", "Packaged and distribututed by HPI" and "Patent pending", but which bore no reference to USSC. On 28 December 1979, and again on 18 February 1980, HPI issued to its customers a circular stating that it was phasing out all goods manufactured in the United States and substituting a product manufactured in Australia. The learned trial judge made the following finding:--

I am satisfied that as from 25 December 1979 HPI began to supply customers in Australia with HPI-labelled products the HPI-made proportion of the contents of which was increasing with the passage of time, in order that the existing Australian market for USSC-made products might change into an equivalent market for HPI-made products, and that this was done in a manner which was intended to, and did in fact, mislead existing customers for USSC-made products into believing that the HPI-labelled products were being manufactured in Australia by arrangement with, or under licence from, the manufacturer of United States-made Auto Suture products, namely USSC.

By June 1980 HPI commenced to supply some disposable instruments completely manufactured by itself, but it experienced some manufacturing difficulties, and found it necessary to obtain supplies of quite large quantities of USSC products in order to enable it to satisfy its orders. These products were accquired by subterfuge, so that USSC was not aware of the true identity of the purchaser, and were either repackaged under a label which showed that they were packed and distributed by HPI, or were used to supply components for the product which HPI assembled.

HPI continued to market its products in Australia, until November 1980, when it commenced to market them in the United States and to withdraw from the Australian market. The marketing in the United States was done through SCI, which was incorporated in the United States in October 1980 as a wholly-owned subsidiary of HPI.

It is apparent that it was essential to the success of Mr Blackman's scheme that HPI should be appointed exclusive distributor of USSC products in Australia and that USSC should not know that HPI was using the distributorship for the purpose of obtaining a market for itself. The Court of Appeal concluded (although McLelland J made no finding on the matter) that HPI would not have been able to raise the finance necessary to enable it to develop its manufacturing capacity had it not been for financial assistance provided by USSC itself, and for the fact that the Bank of New Zealand extended credit to it only because it was USSC's distributor. It is unnecessary to consider whether that conclusion is justified by the evidence, because quite apart from the difficulty of obtaining finance, it is most unlikely that HPI could have developed its manufacturing capacity and entered the market as it did if it had not been able to persuade its customers to believe that it was in some way acting for, or with the concurrenc of, USSC. Because it was the exclusive distributor of USSC's products, HPI was able to sell its own goods as soon as they were ready for sale, without having to secure for itself orders in competition with USSC. It is reasonable to conclude on the balance of probabilities that HPI would not have been able to develop its manufacturing and marketing business if it had not been USSC's exclusive distributor.

In February 1980 USSC received information which caused it to suspect that Mr Blackman was "up to no good". It commenced investigations, and by April or May 1980 it was aware that HPI was manufacturing or attempting to manufature copies of its products. In August 1980 USSC re-entered the Australian market.

In July 1980 USSC commenced proceedings against HPI and Mr Blackman in New York alleging, inter alia , conspiracy. Further proceedings, including proceedings for infringement of patent, have since been commenced by USSC in Connecticut and Texas. In August 1980 USSC commenced proceedings in the Federal Court of Australia against HPI and Mr Blackman and others who are not parties to the present proceedings seeking relief for contraventions of the Trade Practices Act 1974 (Cth), as amended, and for passing off, infringement of copyright, breach of confidence, unfair competition and other alleged wrongs. The defendants brought a challenge in this court to the jurisdiction of the Federal Court, and it was held that the Federal Court lacked jurisdiction to entertain the whole of those proceedings (see 55 ALJR 120).

By an agreement made on 1 April 1981, HPI and IRD agreed to sell all their assets (including the shares in SCI) to a listed public company, Aquila Investment Corporation Ltd (Aquila), for a consideration which included an issue of shares representing 60 per cent of the capital in that company. Aquila agreed to change its name to Hospital Products Ltd (HPL) and to indemnify HPI and IRD in respect of existing litigation, and HPI and IRD agreed to hold any amount awarded to them for the benefit of Aquila. Completion was conditional upon the approval of Aquila's shareholders, which was given at a meeting held on 11 May 1981. Completion took place on or about 30 June 1981; thereby HPL acquired all the assets of HPI and IRD, and Mr Blackman, through HPI, acquired a controlling interest in HPL.

The present proceedings were commenced on 6 May 1981. By its amended statement of claim, USSC claimed a variety of relief, including declarations that the defendants held certain assets on constructive trusts in favour of USSC, an account of profits made by the defendants as a result of breaches of contract or fiduciary duty, or, in the alternative, damages for such breaches, damages for conspiracy and extensive ancillary relief. A claim was originally made for damages for fraudulent misrepresentation, but that was abandoned. No claim was made for passing off or infringement of patent. McLelland J declared that HPI had committed breaches of contract, that Mr Blackman had knowingly participated in the breaches by HPI of its equitable obligations and that USSC was entitled, at its election, either (1) as against HPI and Mr Blackman, to an account of profits, secured in the case of HPI by an equitable lien over certain of its assets; or (2) as against HPI and Mr Blackman, to equitable compensation for breach of HPI's equitable obligations; or (3) as against HPI, to damages for breach of contract. USSC elected for the first of these remedies and it was ordered accordingly. The proceedings were dismissed as against the other defendants, HPL, IRD and SCI. An appeal by USSC to the Court of Appeal was allowed, and in lieu of the orders made by McLelland J it was declared that all assets owned by HPL on 1 July 1981 and at any time thereafter, except such as were its assets prior to its acquisition of the assets, goodwill and undertaking of HPI and IRD on or about 29 and 30 June 1981 pursuant to the agreement made on 1 April 1981, are held in trust for USSC. Orders were made against HPI, Mr Blackman and HPL for costs.

The Terms of the Contract

To determine the rights of USSC it is necessary first to consider what were the terms of the contract between that corporation and Mr Blackman, which became the terms of the contract between USSC and HPI, when the novation took effect. It is therefore necessary to consider in further detail the circumstances in which the contract beween USSC and Mr Blackman was made. It was found by the learned trial judge that when, at the meeting early in November 1978, Mr Blackman put to Mr Hirsch and Ms Josefsen his proposal that ASSC appoint him its exclusive Australian distributor, he made statements to the following effect in support of that proposal:--

(a)

that there was a great potential market for USSC surgical stapling products in Australia which was not being tapped by the existing distributor;

(b)

that with his long experience of, and accumulated knowhow in, marketing such products, and his long association with USSC, he could do an outstanding job for USSC and perform better than anyone else in building up sales of USSC products;

(c)

that this would be a great opportunity both for himself and for USSC;

(d)

that he would set up a marketing organization with sales representatives trained in the use and demonstration of USSC products in a manner similar to that used in USSC's training program in the United States;

(e)

that after he had got the Auto Suture business built up, 'really rolling', he might take on other non-competing product lines and build up a broad-based surgical distributorship, but not so as to interfere with his giving proper attention to USSC's products;

(f)

that because establishment of the new business would take some time and would be expensive he would need some financial help in the form of credit and would like to rent instruments from USSC with the option of purchasing them in the future.

The learned trial judge further found that at this discussion Mr Blackman laid considerable emphasis on the benefit to be derived by USSC from his appointment as its Australian distributor. Mr Hirsch and Ms Josefsen indicated that they were favourably disposed to the proposal. Mr Hirsch said, "Alan we will work it out" and Mr Blackman replied, "You won't regret it". It was arranged that Mr Blackman should later discuss further details of the matter with Ms Josefsen.

A further discussion took place, probably in late November 1978, but the details are not important for present purposes. However, Ms Josefsen then said that she thought that a written distributorship agreement was necessary; Mr Blackman disagreed but said that he would read anything that she sent him.

By arrangement with Ms Josefsen, Mr Blackman discussed with Mr Grimes, another officer of USSC, the details of the termination of the New York dealership. On 27 November 1978 he wrote to Ms Josefsen a letter in which he set out a "chronology of events", which suggested 1 December 1978 as the date on which Downs' distributorship should be terminated on 90 days' notice, and 30 September 1979 as the date on which the dealership would be officially ended. Again, much of the detail in the letter does not matter, but it should be mentioned that Mr Blackman stated that he would purchase from Downs their "inventory", ie their stocks, and that the letter went on to state:--

(e)

I will be using my inventory of $100,000-$125,000 wholesale value, to provide an inventory level in Australia.

(f)

All additional products ordered from USSC will be paid in 30 days.

(g)

USSC will make instruments available to me on a rental basis.

A transition in this manner will benefit USSC by having improved coverage in the Australian market, as well as an orderly change here.

Ms Josefsen replied by letter of 18 December 1978, agreeing in principle to these proposals. She said in the letter that she had asked Mr Fisher (USSC's in-house counsel) to write a distributorship agreement which would be ready when she returned from vacation on 2 January, and said: "At that time I will contact you so that we can review it, 'sign and seal'."

USSC again wrote to Mr Blackman on 27 December 1978. The letter, omitting formal parts, was as follows:--

We take pleasure in confirming the continuance of our relationship. You will become our Australian distributor while phasing out your dealership in accordance with the following procedures:--

1.

We have this day given notice of termination to our present Australian distributor, Downs Surgical (Australia) Pty Ltd, effective March 31, 1979. A copy of the notice has been furnished to you. Upon that termination becoming effective and commencing April 1, 1979 you will be our exclusive Australian distributor. Although you have indicated that no formal agreement is necessary, we believe it is desirable and will forward to you a suggested agreement covering the distributorship.

2.

During the period through March 31, 1979 you will undertake to purchase the Downs' inventory at prices mutually agreeable to you and them and in any event use your dealership inventory which you estimate will be approximately $100,000-$125,000, wholesale value, to provide an inventory level in Australia. Additional products purchased by you from us will be paid on a 30 day net basis. In the meantime arrangements should be made to examine your inventory books and records as per your dealership agreement at the earliest convenient date.

3.

You expect to rent from us between 20-30 sets of instruments which within 120 days you will convert to purchase from us.

4.

You will hire and train your nurse unless she is agreeable to training by us at your expense.

5.

Your dealership will continue without change through June 30, 1979. Effective July 1, 1979 your dealership shall be deemed terminated in all respects and your PAR [Primary Area of Responsibility] will be taken over by us for servicing.

6.

By July 1, 1979 all accounts owed to us will be paid in full by you. This includes outstanding A/R [Accounts Receivable], inventory, demonstrations, interest, financing charges and other obligations.

If the above is your understanding of our discussions please sign and return the enclosed copy of this letter. We look forward with great pleasure to our new relationship and wish you every success in your new undertaking.

On 28 December, Mr Fisher telephoned Mr Blackman and asked him to come to his office in New York to discuss the letter. Mr Blackman went to Mr Fisher's office on the following day, read over the letter and confirmed that he was satisfied with its contents and then signed it as follows:--

Accepted and agreed

The Hospital Products Corporation

Alan R. Blackman

President

Mr Fisher said that he might forward to Mr Blackman a formal contract. Mr Blackman replied that he did not think that one was necessary, but said that he would read whatever Mr Fisher sent. Ms. Josefsen and Mr Hirsch decided that they would take no further steps in relation to a formal agreement, having regard to Mr Blackman's disinclination to enter into one, and USSC took no further action to send any contract document to Mr Blackman.

It was held both at first instance and in the Court of Appeal that the proper law of the contract between USSC and HPI was that of either New York or Connecticut, that there was no material difference between the laws of those two States, and that, so far as concerns the principles governing the implication of terms in a contract, there was no material difference between the laws of those States and the law of New South Wales. These conclusions are not challenged. There is, however, a statutory provision, s 2-306(2) of the Uniform Commercial Code, which is in force in both New York and Connecticut, and which provides:--

A lawful agreement by either the seller or the buyer for exclusive dealing in the kind of goods concerned imposes unless otherwise agreed an obligation by the seller to use best efforts to supply the goods and by the buyer to use best efforts to promote their sale.

Neither McLelland J nor the Court of Appeal thought this provision to be of importance, because they considered that the matter was covered by the express terms of the contract.

McLelland J held, and the Court of Appeal agreed, that the letter of 27 December 1979 did not embody all of the terms of the contract, and that the statements made during the course of the meeting between Mr Blackman and Mr Hirsch and Ms Josefsen early in November 1978 were of a promissory nature and should be regarded as express terms of Mr Blackman's offer, and therefore of the contract which resulted from the acceptance of that offer, and that, as the result of the novation, HPI became bound by the same terms, which were to the following effect:--

(1)

That the distributor would establish a marketing organization for USSC surgical stapling products in Australia having one or more sales representatives specifically trained in the use and demonstration of those products.

(2)

That the distributor would devote its best efforts to distributing USSC surgical stapling products, and building up the market for those products, in Australia, to the common benefit of USSC and itself.

(3)

That the distributor would not deal (scil in Australia) in any products competitive with USSC surgical stapling products.

(4)

That the distributor would not deal (scil in Australia) in any other products in such a manner as would diminish its efforts in distributing USSC surgical stapling products and building up the market for those products, in Australia.

It was held that by necessary implication these obligations were to endure for the duration of the distributorship. It was further held that a term should be implied in the contract that "the distributor would not during the distributorship do anything inimical to the market in Australia for USSC surgical stapling products".

There can be no doubt that the parties reached a concluded agreement when the letter of 27 December 1978 was signed by Mr Blackman, or that they intended themselves to be bound to performance of that agreement, notwithstanding that they left open the possibility that the terms might be restated in an ampler form (cf Masters v Cameron (1954) 91 CLR 353 at 360). The question, however, is whether the statements made by Mr Blackman to Mr Hirsch and Ms Josefsen, in the course of the negotiations in November 1978, became terms of the contract which is, in part at least, embodied in that letter. The letter purports to state the effect of the previous discussion between the parties, and the fact that Mr Blackman was asked to, and did, endorse it "Accepted and agreed" provides an indication that the letter itself was intended to state all the terms of the agreement then made between the parties, although it was envisaged that further terms might be added if the agreement were put into more formal shape. In these circumstances, the rule that oral evidence is not allowed to be given to add to a written contract might have made it difficult to treat the statements made in the course of negotiations as part of the agreement, were it not for the fact that it was admitted on the pleadings that the distributorship agreement reached by the parties in November and December 1978 was partly in writing, partly oral and partly implied: see para 13 of the amended statement of claim and para 8 of the various amended defences. There was, however, no admission that all the representations made by Mr Blackman in November 1978 became part of the distributorship agreement.

A representation made in the course of negotiations which result in a binding agreement may be a warranty -- ie it may have binding contractual force -- in one of two ways: it may become a term of the agreement itself, or it may be a separate collateral contract, the consideration for which is the promise to enter into the main agreement. In either case the question whether the representation creates a binding contractual obligation depends on the intention of the parties. In J J Savage & Sons Pty Ltd v Blakney (1970) 119 CLR 435 at 442 and Ross v Allis-Chalmers Australia Pty Ltd (1980) 32 ALR 561 at 567 and 568; ; 55 ALJR 8 at 10 and 11, it was said that a statement will constitute a collateral warranty only if it was "promissory and not merely representational", and it is equally true that a statement which is "merely representational" -- ie which is not intended to be a binding promise -- will not form part of the main contract. If the parties did not intend that there should be contractual liability in respect of the accuracy of the representation, it will not create contractual obligations. In the present case Mr Blackman, who made his statements fraudulently, had of course no intention that they should amount to contractual undertakings, but he could not rely on his secret thoughts to escape liability, if his representations were reasonably considered by the persons to whom they were made as intended to be contractual promises, and if those persons intended to accept them as such. The intention of the parties is to be ascertained Objectively; it "can only be deduced from the totality of the evidence": Heilbut, Symons & Co v Buckleton [1913] AC 30 at 51 In other words, as Lord Denning said in Oscar Chess Ltd v Williams [1957] 1 WLR 370 at 375: "The question whether a warranty was intended depends on the conduct of the parties, on their words and behaviour, rather than on their thoughts. If an intelligent bystander would reasonably infer that a warranty was intended, that will suffice." The intelligent bystander must, however, be in the situation of the parties, for "what must be ascertained is what is to be taken as the intention which reasonable persons would have had if placed in the situation of the parties": Reardon Smith Line v Hansen-Tangen [1976] 1 WLR 989 at 996.

In the present case I am unable to agree with the conclusion reached by the learned judges in the Supreme Court that the statements made by Mr Blackman in November 1978 were intended by the parties to be warranties. The fact that Mr Blackman intended Mr Hirsch and Ms Josefsen to act on the representations by entering into an agreement, and that they did so, does not mean that the parties intended the representations to be terms of the agreement. The representations were not made at the time when the parties concluded an agreement, but about a month before that time. They were followed up by further discussions and correspondence in which no reference was made to them. The explanation suggested for the fact that the representations were not incorporated into the letter of 27 December 1978 was that the letter dealt largely with the procedures for determining the dealership and commencing the distributorship, but the absence from the letter of any mention of the suggested terms is nevertheless an indication, although not a conclusive one, that the parties did not intend them to be warranties. With one exception, the representations were not promissory in form, but were statements of fact or of belief or of self-commendation. The possible exception was the statement (immaterial for present purposes) that Mr Blackman would set up a marketing organization with sales representatives trained in the use and demonstration of USSC's products in a manner similar to that used in USSC's training program in the United States. The critical terms found by McLelland J to be warranties were, as was stated in the judgment of the Court of Appeal, "a distillation of the words which Blackman actually employed". Although it might well have been thought that Mr Blackman was making a proposal that would be for the benefit of both parties, he made no promise to act for the common benefit. The suggested term that he would not deal in competitive products is sought to be implied from the statement that after he had got the Auto Suture business "really rolling" he might take on non-competitive product lines -- a statement which falls far short of a promise not to deal in competitive products. The form of the representations is not decisive, but is nevertheless relevant in determining the intention, actual or imputed, of the parties. Although the suggested terms now appear to have great significance, it is by no means clear that they were so regarded at the time. When agreements had been made by USSC with other distributors, such as Downs, it was not a term of those agreements that the distributor should act for the common benefit of the parties and should not deal in products competitive with those of USSC. The Australian market seems to have been regarded as of so little significance to USSC that that company did not at the time of the agreement bother to protect itself by applying for patents or seeking to register a trade mark, and in the same way it did not require Mr Blackman to enter into a formal agreement containing express warranties of the kind now sought to be based on the representations made in the conversation of November 1978. The proper conclusion to be drawn from the evidence, in my opinion, is that neither Mr Blackman nor Mr Hirsch and Ms Josefsen intended the statements made in November to be anything more than mere representations.

Implied Terms

It then becomes necessary to consider whether any terms should be implied in the agreement. It is clear that, as a matter of law, there is implied a term imposing on the parties the obligations described in s 2-306(2) of the Uniform Commercial Code. The obligation thus imposed on HPI was to "use best efforts" to promote the sale of the goods concerned, ie the relevant products of USSC.

In the Supreme Court, little attention seems to have been paid to the question whether the implication of this term, as a matter of law, might render it unnecessary to make any further implication as a matter of fact. McLelland J thought that in order to effectuate the purpose of the agreement as mutually contemplated by the parties, and to enable USSC to have the benefit thereof which was mutually contemplated, it was necessary to imply a term that HPI would not, during the distributorship, do anything inimical to the market in Australia for USSC's surgical stapling products. The members of the Court of Appeal, who agreed with this conclusion, considered that the express warranties which they held had been given, that Mr Blackman would use his best efforts to build up the Australian market for USSC's products for the common benefit of the parties and would not deal in any products competitive with those of USSC, removed the agreement from the common run of contracts between supplier or manufacturer and distributor, and that in the circumstances it was necessary to imply a provision that Mr Blackman would do nothing to damage or destroy USSC's market in Australia.

The implied obligation to use best efforts to promote the sale of the goods necessarily imported the obligation not to take any deliberate steps to damage the market for those goods in Australia. The meaning of terms of this kind has been considered in a number of cases, but it is trite to say that the meaning of particular words in a contract must be determined in the light of the context provided by the contract as a whole and the circumstances in which it was made, and that decisions on the effect of the same words in different context must be viewed with caution. On the one hand, an express promise by an agent to use his best endeavours to obtain orders for another and to influence business on his behalf "necessarily includes an obligation not to hinder or prevent the fulfilment of its purpose": Shepherd v Felt and Textiles of Australia Ltd (1931) 45 CLR 359 at 378. On the other hand, an obligation to use "best endeavours" does not require the person who undertakes the obligation to go beyond the bounds of reason; he is required to do all he reasonably can in the circumstances to achieve the contractual object, but no more: Sheffield District Railway Co v Great Central Railway Co (1911) 27 TLR 451 at 452; Terrell v Mabie Todd & Co Ltd (1952) 69 RPC 234 at 237. In Transfield Pty Ltd v Arlo International Ltd (1980) 144 CLR 83 ; 30 ALR 201 , the licensee of a patented process for the manufacture and erection of a steel pole for the purpose of electricity transmission lines (the Arlo pole) covenanted "to use its best endeavours in and towards the ... selling" of the pole. The actual decision in the case was that this provision of the contract did not prohibit the licensee from using any pole other than the Arlo pole. Stephen J said (CLR) at p 94; (ALR) at p 210: "An obligation to use best endeavours to sell Arlo poles implies a prohibition upon the offering for sale and selling of competitive poles, at least to the extent that to do so will prejudice the sale of Arlo poles."

Mason J took a somewhat narrower view of the effect of the words of the relevant clause of the contract. He said (CLR) at p 101; (ALR) at 216; that the licensee's obligation was "to use all its efforts and skills towards [ inter alia ] the selling of the Arlo pole to the extent that it was reasonable so to do in the circumstances and to energetically promote and develop a market for it", and that he could see "no adequate basis for importing into this positive obligation a negative implication that the appellant will not use or for that matter sell a pole which competes with the Arlo pole, whether that pole be manufactured by the appellant or another". He added, at 102/216, that the licensee might do all that was within its power to comply with the clause yet find that it had no practical alternative but to use or sell a competing pole and that the clause did not prohibit or prevent such use or sale. Wilson J said (CLR) at p 107; (ALR) at 220-1, that the licensee was obliged to do "all that could reasonably be expected of it having regard to the circumstances of its business operations". An undertaking to use best endeavours or best efforts to promote the sale of one product does not necessarily impose an obligation not to sell a competing product (see Van Valkenburgh, Nooger & Neville Inc v Hayden Publishing Co (1972) 330 NYS (2d) 329 at 333, and cases there cited) although it may do so in some circumstances, as was held to be the case in Randall v Peerless Motor Car Co (1912) 99 NE 221. However, a person who had given such an undertaking could not successfully assert that he had fulfilled it if he prepared a product of his own and promoted the sale of that product with the deliberate intention of appropriating for himself the market which he had in effect promised to do all he reasonably could to secure for the person to whom he had given the undertaking. Clearly it was a breach of the implied obligation for HPI to prepare and sell, as it did, its own products instead of those of USSC.

There is, in my opinion, no room in the present case for the implication in the agreement of any further term such as that implied by McLelland J and the Court of Appeal. The principles governing the implication of terms in contracts have recently been stated by the Judicial Committee in BP Refinery Pty Ltd v Hastings Shire Council (1977) 16 ALR 363 ; 52 ALJR 20, at 26-7, and by this court in Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 26 ALR 567 ; 144 CLR 596 at 605-6 and Codelfa Constructions Pty Ltd v State Rail Authority of NSW (1982) 41 ALR 367 ; 149 CLR 337 at 345-7 and 403-4. It was said by the majority of the Judicial Committee in the first of those cases, and accepted in this court in the others, that for a term to be implied the following conditions (which may overlap) must be satisfied:--

(1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that 'it goes without saying'; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract.

In the present case the agreement was efficacious without the implication of any further term. In other words, it does not here become necessary to imply any further term, "with the object of giving to the transaction such efficacy as both parties must have intended that at all events it should have" (to use the familiar words of The Moorcock (1889) 14 PD 64 at 68) or to make the agreement work or to avoid an unworkable situation, to adopt the words of the dissenting judgment in BP Refinery Pty Ltd v Hastings Shire Council (16 ALR) at p 384 ; (532 ALJR) at p 30. The commercial objective that USSC sought to achieve by means of the agreement was that as many of its products should be sold in Australia as was reasonably possible and that, as a result, the market for those products should be expanded in Australia. This objective would be secured if HPI did all that it reasonably could to sell as many of USSC's products as possible in Australia. In other words, the obligation imported by the Uniform Commercial Code was enough to give to the agreement the business efficacy that USSC intended it to have. The circumstances that Mr Blackman had been fraudulent and (if it was the case) that USSC had placed special trust in him did not justify the implication of any further term of this kind. Moreover a term that HPI would not do anything inimical to USSC's market in the goods in question, or in other words that HPI would do nothing to damage or destroy USSC's market in Australia, if it went beyond the term implied by the Uniform Commercial Code, was not a term which the parties must presumably have intended to be a part of the agreement -- a term so obvious that there was no need to express it. On the contrary, if the parties had been asked on 27 December 1978 whether such a term was part of the agreement, instead of replying "of course; that is so clear that we did not bother to say it", they might well have answered that such a term would go too far, since it might require the distributor to refrain from action that was perfectly reasonable, although it might in some way damage USSC's market in Australia. For example, a decision by HPI to increase the price of the products, or to reduce the extent to which they were advertised, might have an adverse effect on the market, although it might be reasonable or even necessary from HPI's point of view. I conclude that the agreement contained no implied term imposing any duty on HPI except that resulting from the operation of s 2-306(2) of the Uniform Commercial Code. The conclusions which I have reached on this aspect of the matter differ in their practical consequences from those reached in the Supreme Court in two main respects. First, although HPI was bound to use its best efforts to promote the sale of USSC's products, and thus to build up the market for them, and it was necessarily contemplated that this would enure to the advantage of both parties, HPI had no contractual obligation to act for the common benefit of USSC and itself; it was entitled to put its own interests first, or to disregard its own interests entirely, provided that it did not fail to do all that it reasonably could to promote the sale of USSC's products. Secondly, the term which the Supreme Court held to be implied, against doing anything inimical to the market in Australia for USSC's products, would make it a breach for HPI to do anything whose effect was to damage or destroy USSC's market, whereas, in my opinion, action by HPI having a damaging effect would amount to a breach only if it amounted to a failure to do all that could reasonably be done to sell USSC's products.

Fiduciary Relationship

It is clear that HPI committed serious breaches of its obligation to use its best efforts to promote the sale of USSC's products, and that USSC is entitled to recover from HPI damages for these breaches. However, USSC contends that it was also owed by HPI a fiduciary obligation, the breach of which entitled USSC not merely to compensation but to "restitution of property unconscientiously withheld" ( Vyse v Foster (1872) LR 8 Ch App 309 at 333), and to the equitable remedies of equitable lien and constructive trust. A person who occupies a fiduciary position may not use that position to gain a profit or advantage for himself, nor may he obtain a benefit by entering into a transaction in conflict with his fiduciary duty, without the informed consent of the person to whom he owes the duty. This principle -- some would prefer to say "these principles" -- has been described as "inflexible" ( Birtchnell v Equity Trustees, Executors and Agency Co Ltd (1929) 42 CLR 384 at 408) and "fundamental" ( Phipps v Boardman [1967] 2 AC 46 at 123) and its nature and application have been discussed in a number of comparatively recent cases: by this court in Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 5 ALR 231 ; 132 CLR 373 and Chan v Zacharia (1984) 53 ALR 417 ; 58 ALJR 353; by the Judicial Committee in NZ Netherlands Society " Oranje " Inc v Kuys [1973] 1 WLR 1126 ; [1973] 2 All ER 1222 and Queensland Mines Ltd v Hudson (1978) 18 ALR 1 ; 52 ALJR 399; by the Court of Appeal of New Zealand in Coleman v Myers [1977] 2 NZLR 225; and by the Supreme Court of Canada in Canadian Aero Service Ltd v O'Malley (1973) 40 DLR (3d) 371. Clearly if HPI was under a fiduciary obligation to USSC it failed to fulfil it. The question, however, is whether any fiduciary relationship did exist between the parties.

The authorities contain much guidance as to the duties of one who is in a fiduciary relationship with another, but provide no comprehensive statement of the criteria by reference to which the fiduciary relationship may be established. The archetype of a fiduciary is of course the trustee, but it is recognized by the decisions of the courts that there are other classes of persons who normally stand in a fiduciary relationship to one another -- eg, partners, principal and agent, director and company, master and servant, solicitor and client, tenant-for-life and remainderman. There is no reason to suppose that there categories are closed. However, the difficulty is to suggest a test by which it may be determined whether a relationship, not within one of the accepted categories, is a fiduciary one.

In the present case McLelland J said that there were two matters of importance in deciding when the court will recognize the existence of the relevant fiduciary duty. First, if one person is obliged, or undertakes, to act in relation to a particular matter in the interests of another and is entrusted with the power to affect those interests in a legal or practical sense, the situation is, in his opinion, analogous to a trust. Secondly, he said that the reason for the principle lies in the special vulnerability of those whose interests are entrusted to the power of another to the abuse of that power. The learned members of the Court of Appeal considered that the first of these statements needed a qualification which McLelland J had intended to suggest, namely that the undertaking to act in the interests of another meant that the fiduciary undertook not to act in his own interests; they said that the principle is that "a fiduciary relationship exists where the facts of the case in hand establish that in a particular matter a person has undertaken to act in the interests of another and not in his own". They added that it is not inconsistent with this principle that a fiduciary may retain that character although he is entitled to have regard to his own interest in particular matters. Their conclusion was that in matters concerning the development of USSC's market in Australia for its surgical stapling products, and its protection from competition, HPI undertook to act in USSC's interest and not in its own.

I doubt if it is fruitful to attempt to make a general statement of the circumstances in which a fiduciary relationship will be found to exist. Fiduciary relations are of different types, carrying different obligations (see Re Coomber ; Coomber v Coomber [1911] 1 Ch 723 at 728-9; Jenyns v Public Curator (Qld ) (1953) 90 CLR 113 at 132-3 and Phipps v Boardman , supra, at 126-7) and a test which might seem appropriate to determine whether a fiduciary relationship existed for one purpose might be quite inappropriate for another purpose. For example, the relation of physician and patient, and priest and penitent, may be described as fiduciary when the question is whether there is a presumption of undue influence, but may be less likely to be relevant when an alleged conflict between duty and interest is in question. Moreover, different fiduciary relationships may entail different consequences, as is shown by the discussion of the respective positions of a trustee and a partner in relation to the renewal of a lease; see Re Biss ; Biss v Biss [1903] 2 Ch 40 at 56-7 and 61-2, Griffith v Owen [1907] 1 Ch 195 at 203-4, and Chan v Zacharia , supra.

In the decided cases, various circumstances have been relied on as indicating the presence of a fiduciary relationship. One such circumstance is the existence of a relation of confidence, which may be abused: Tate v Williamson (1866) 2 Ch App 55 at 61; Coleman v Myers [1977] 2 NZLR 225 at 325. However, an actual relation of confidence -- the fact that one person subjectively trusted another -- is neither necessary for nor conclusive of the existence of a fiduciary relationship; on the one hand a trustee will stand in a fiduciary relationship to a beneficiary, notwithstanding that the latter at no time reposed confidence in him, and on the other hand an ordinary transaction for sale and purchase does not give rise to a fiduciary relationship simply because the purchaser trusted the vendor and the latter defrauded him.

Another circumstance which it is sometimes suggested indicates the existence of a fiduciary relationship is inequality of bargaining power, but it is clear that such inequality alone is not enough to create a fiduciary relationship in every case and for all purposes. In any case, Mr Blackman was not in a position of dominance or advantage over USSC at the time the contract was made. Indeed, if there was any inequality in the situation of the parties, it might well be thought that USSC was in the stronger position.

On the other hand, the fact that the arrangement between the parties was of a purely commercial kind and that they had dealt at arm's length and on an equal footing has consistently been regarded by this court as important, if not decisive, in indicating that no fiduciary duty arose: see Jones v Bouffier (1911) 12 CLR 579 at 599-600, 605; Dowsett v Reid (1912) 15 CLR 695 at 705; Para Wirra Gold & Bismuth Mining Syndicate (NL) v Mather (1934) 51 CLR 582 at 592; Keith Henry & Co Pty Ltd v Stuart Walker & Co Pty Ltd (1958) 100 CLR 342 at 351. A similar view was taken in Canada in Jirna Ltd v Mister Donut of Canada Ltd (1971) 22 DLR (3d) 639 ; affirmed (1973) 40 DLR (3d) 303.

In Reading v R [1949] 2 KB 232, a case in which a soldier had obtained bribes by abuse of his position, Asquith LJ said, at p 236: "A consideration of the authorities suggests that for the present purpose a 'fiduciary relation' exists (a) whenever the plaintiff entrusts to the defendant property, including intangible property as, for instance, confidential information, and relies on the defendant to deal with such property for the benfefit of the plaintiff or for purposes authorized by him, and not otherwise ... and (b) whenever the plaintiff entrusts to the defendant a job to be performed, for instance, the negotiation of a contract on his behalf or for his benefit, and relies on the defendant to procure for the plaintiff the best terms available ..." That decision was approved in the House of Lords ([1951] AC 507) although Lord Porter said (at p 516) that the words "fiduciary relationship" in that setting were used in "a wide and loose sense". The first branch of Lord Asquith's statement has no application to the present case. It was submitted on behalf of USSC that that company had entrusted to HPI its actual and prospective business connection and goodwill in Australia and had relied on HPI to protect and increase that goodwill for the benefit of USSC. I do not need to discuss the question whether product goodwill can be regarded as property capable of assignment by itself, for I find it impossible to accept that HPI became a fiduciary in respect of USSC's goodwill. The contract did not oblige HPI to protect USSC's goodwill nor were representations made that it would be protected. HPI's relevant obigation was to use its best efforts to promote the sale of USSC's goods. However, apart from the agreement, in cl 2 of the letter of 27 December 1978, to purchase Downs' inventory and use the dealership inventory of approximately $100,000 to $125,000 wholesale value, HPI was not obliged to purchase from USSC any particular quantity or value of products for distribution. Failure to make further purchases would only be a breach if it amounted to a failure to do all that could reasonably be expected to promote the sale of the products, and HPI's business circumstances and financial situation could be considered in deciding what was reasonable. There was no express provision as to the duration of the agreement; it was therefore terminable either at will or on reasonable notice. Although what HPI did would be likely to affect the market for USSC's goods in Australia, it is apparent that HPI had not given an undertaking to develop or protect the market since its obligation to buy the products for distribution was qualified by what was reasonable having regard to its own circumstances, and it was free to terminate the agreement at any time. Nor was USSC powerless in this situation; it also was free to terminate the agreement and make other arrangements for the distribution of its goods. The argument that a fiduciary relation was created with regard to the goodwill of the products in my opinion quite deserts the reality of the situation.

The second branch of Lord Asquith's statement, if regarded as enunciating a general rule divorced from its context, seems to me, with all respect, to be far too wide; the fact that there is a duty to be performed -- a job to do -- cannot in every case create a fiduciary obligation. I agree with the statement of Megarry V-C in Tito v Waddell (No 2 ) [1977] Ch 106 at 229-30, that the imposition of a statutory duty to perform certain functions cannot be said as a general rule to impose fiduciary obligations, and the same is true of contractual duties arising under ordinary commercial contracts.

Finally, I would refer to the opinion expressed by Dr Finn in his comprehensive work on Fiduciary Obligations (1977), at p 201, that, for the purposes of the conflict rule, a fiduciary is "simply, someone who undertakes to act for or on behalf of another in some particular matter or matters". Even if it were meant that every agent is a fiduciary, the statement would be open to doubt: see McKenzie v McDonald [1927] VLR 134 at 144; Phipps v Boardman [1967] 2 AC 46 at 127, and cases cited in 17 MLR at pp 31-2. And if the statement is to be understood more widely it cannot be accepted without some qualification. Indeed Dr Finn appeared himself to qualify it when he went on to say, at p 201: "The finding of such an undertaking is simply a question of fact in each case. So if, for example, all that can be shown is that two people have dealt with each other only as principals neither will be the other's fiduciary."

The test suggested by the Court of Appeal in the present case seems to me not inappropriate in the circumstanceas, although it must be remembered that any test can only be stated in the most general terms and that all the facts and circumstances must be carefully examined to see whether a fiduciary relationship exists (cf Phipps v Boardman , supra, at pp 123, 127). However, if the Court of Appeal's test is applied, it is not satisfied, for in my opinion HPI did not undertake, whether by representation or contractual provision, to act solely in the interests of USSC and not in its own interests.

An examination of all the circumstances confirms, in my opinion, that the relationship between the parties was not a fiduciary one. It is true that USSC relied on HPI to promote the sale of its products and left it to HPI to determine how it should go about doing so, and that HPI had it in its power to affect USSC's interests beneficially or adversely. However, there are two features of the case, in particular, which together constitute an insuperable obstacle to the acceptance of USSC's contention that a fiduciary relationship existed between itself and HPI. In the first place, as I have said, the arrangement was a commercial one entered into by parties at arm's length and on an equal footing. It was open to USSC to include in its contract whatever terms it thought necessary to protect its position, for USSC acted in response to Mr Blackman's request and was under no pressure either to make him a distributor in place of Downs or to accept an agreement on his terms; indeed USSC intself prepared the letter of agreement which its in-house counsel asked Mr Blackman to sign. An ordinary commercial contract made in those circumstances, even as a result of fraud, is unlikely to give rise to fiduciary obligations. Secondly, it was of course clear that the whole purpose of the transaction from Mr Blackman's point of view, as USSC knew, was that he, and later HPI, should make a profit. Further, as I have already explained, in the performance of the contract a conflict between the interests of HPI and USSC was likely to arise, and any such conflict was not necessarily to be resolved in favour of USSC. How, in those circumstances, is it possible to say that HPI was under an obligation not to profit from its position, and not to place itself in a situation in which its duty and its interest might conflict? It is true, as Lord Wilberforce said in New Zealand Netherlands Society " Oranje " Incorporated v Kuys [1973] 1 WLR 1126 at 1130, that a person "may be in a fidicuary position quoad a part of his activities and not quoad other parts: each transaction, or group of transactions must be looked at". His Lordship referred to Birtchnell v Equity Trustees, Executors and Agency Co Ltd where Dixon J said (42 CLR) at p 408: "The subject matter over which the fiduciary obligations extend is determined by the character of the venture or undertaking for which the partnership exists, and this is to be ascertained, not merely from the express agreement of the parties ... but also from the course of dealing actually pursued by the firm."

Lord Wilberforce said that although these remarks were made in the context of a partnership the principle must be of general application, and it is clear that in the case of every fiduciary relationship it is critical to determine what is the subject of the fiduciary obligation. However, in the present case, there was, in my opinion, no part of the transaction to which a fiduciary obligation might sensibly be limited. HPI was entitled to make a profit from the entire conduct of the distributorship, and possible and actual conflicts between its interest and its duty might arise at any stage in the conduct of that business. It would commit a breach of its contractual obligations only if it acted unreasonably and thereby failed to use its best endeavours to promote the sale of the products. An obligation to act reasonably falls far short of that imposed by the rules of equity on a fiduciary, who can defeat a claim to account for profits acquired by reason of his fiduciary position and by reason of the opportunity resulting from it only on the ground that the profits were made with the knowledge and assent of the person to whom the fiduciary obligation was owed (see Phipps v Boardman , supra, at p 105); the equitable rules are exceedingly strict, as the decisions in Regal (Hastings) Ltd v Gulliver [1942] 1 All ER 378 ; noted [1967] 2 AC 134) and Phipps v Boardman plainly illustrate. What is attempted in this case is to visit a fraudulent course of conduct and a gross breach of contract with equitable sanctions. It is not necessary to do so in order to vindicate commercial morality, for the ordinary remedies for damages for fraud and breach of contract were available to USSC although it did not choose to pursue the former, but in any case the equitable doctrines sought to be invoked have no application to the present circumstances.

For these reasons I conclude that HPI did not stand in a fiduciary relation to USSC and that the only relief to which USSC was entitled in the circumstances of the case was an award of damages for breach of contract.

I have not failed to consider the decisions of the United States courts upon which counsel for USSC relied in support of the view that a manufacturer's distributing agent stands in a fiduciary relationship to the manufacturer. Of those cases that which is most in point is Flexitized, Inc v National Flexitized Corporation (1964) 335 F (2d) 774. In that case the plaintiffs, which manufactured flexible collar stays under the name "Flexitized", appointed the defendants to be their exclusive distributors under an agreement by which the defendants promised to use their best efforts to sell the plaintiffs' product and also promised not to sell a competing product during the life of the contract. The defendants, in breach of their agreement, sold competing collar stays and the plaintiffs recovered damages for that breach. That aspect of the case does not concern us. After the plaintiffs had terminated the agreement, the defendants continued to use the name "Flexitized" while marketing collar stays not made or sold by the plaintiffs. It was held that, although the plaintiffs had no valid trade mark, they were entitled to an account of the defendants' profits by reason of their unfair competition. The court said, at p 782: "Also, the defendants' conduct in continuing to use, without plaintiffs' permission, the name 'Flexitized' after its contract breach was expressly found to have been the result of a deliberate attempt to exploit purchaser familiarity with the name, and, as is clear from our prior discussion of the breach of contract claim in this case, such conduct by defendants was also directly connected with a breach on their part of a fiduciary relationship which had arisen upon their becoming exclusive sales agents for plaintiffs. Under these circumstances we think that defendants were properly chargeable with having misappropriated a valuable property right or commercial benefit under circumstances meriting a finding of unfair competition according to the law of New York ..."

In another case of passing off by a former distributor, Distillerie Fili Ramazzotti, SPA v Banfi Products Corporation (1966) 276 NYS (2d) 413 it was said, at p 422, that "the goods being sold by defendant are the same goods which it sold during the time when it stood in what amounts to a fiduciary relationship to plaintiff, both as distributor and licensee". In Sapery v Atlantic Plastics, Inc (1958) 258 F (2d) 793, where it was held that a manufacturer was entitled to terminate an agreement with its sales representative when he had set up a competing business, the view also seems to have been taken that the parties stood in a fiduciary relationship (see at p 796). It was not necessary to decide in any of these cases whether the relation between the parties was a fiduciary one in the sense that the distributor or representative owed a duty not to make a profit from his relationship and not to allow his interest to conflict with his duty. In none of the cases was there any discussion of the question why or how the alleged fiduciary relationship arose. In another case to which we were referred, Arnott v American Oil Co (1979) 609 F (2d) 873, it was held that a fiduciary relationship existed between an oil company and a dealer who had leased a service station from that company and that, in consequence, the oil company was in breach of its "fiduciary" duty of good faith and fair dealing by terminating the dealer's lease without good cause. Again the court was considering whether there existed what it called a "fiduciary relationship" but which was quite different in kind from that suggested to exist in the present case. In truth those decisions provide no assistance in deciding the questions that now arise. The fact that they are relied on illustrates "the danger of trusting to verbal formulae" of which Fletcher Moulton LJ spoke in Re Coomber ; Coomber v Coomber [1911] 1 Ch 723 at 728. If the distributors were properly described as "fiduciaries" for the purposes of the American cases to which I have referred, it does not follow that they were fiduciaries who owed duties of the kind sought to be enforced against HPI. The judgments in those cases throw no light on the questions that now fall for decision.

The conclusion which I have reached, that there was no breach of fiduciary duty, makes it unnecessary to consider other questions so fully debated at the Bar. It means that USSC's claim to have it declared that the assets of HPI, IRD and SCI, and certain of the assets of HPL, are held subject to a constructive trust for USSC fails at the outset. A case might have been made out against Mr Blackman for inducing a breach of contract, but the proceedings in the Supreme Court do not appear to have been conducted on that basis. McLelland J held that Mr Blackman had knowingly participated in the breaches by HPI of its equitable obligations, but made no finding that he had induced a breach of HPI's contractual obligations. The matter was not pursued on appeal to this court.

I accordingly hold that the only relief to which USSC is entitled is to recover from HPI damages for breach of contract.

Damages

Clearly, it was a breach by HPI of its contractual obligations to defer fulfilment of orders for USSC's products in anticipation of filling those orders with products which it prepared or manufactured and to fill orders for the products of USSC with its own competing products. The question remains whether it was a breach of the contract for HPI secretly to develop a capacity to manufacture copies of USSC's products or components thereof with a view to appropriating for itself at the expense of USSC the whole or a part of the Australian market for USSC's products. In my opinion that did amount to a breach of HPI's duty to use its best endeavours to promote the sale of USSC's products. It was quite incompatible with that obligation to make preparations to sell its own products as those of USSC to persons who would otherwise have bought the products of USSC: cf Blyth Chemicals Ltd v Bushnell (1933) 49 CLR 66 , especially at p 82. It will of course be a question of fact whether any damage flowed from that breach additional to that which flowed from the other breaches mentioned.

Conclusion

In my opinion the appeal of the appellant and the cross-appeals of the second, third, fourth and fifth respondents should be allowed and the cross-appeal of the first respondent should be dismissed. Judgment should be entered for the first respondent against the third respondent for damages and the matter should be remitted to the Supreme Court to assess the damages. Judgment should be entered for the appellant and the second, fourth and fifth respondents.