United Dominions Corporation Ltd v Brian Pty Ltd
(1985) 157 CLR 160 ALR 741
(Judgment by: Mason J, Brennan J, Deane J)
Between: United Dominions Corporation Ltd
And: Brian Pty Ltd
Judges:
Gibbs CJ
Mason J
Brennan J
Deane JDawson J
Judgment date: 1 August 1985
Judgment by:
Mason J
Brennan J
Deane J
This is an appeal from a decision of the Court of Appeal of the Supreme Court of New South Wales (Hutley, Samuels and Mahoney JJ.A.) upholding an appeal by the respondent Brian Pty. Limited ("Brian") from a judgment of Waddell J. dismissing an action brought by Brian in the Equity Division of the Supreme Court. In the action, Brian sought to recover from the present appellant ("UDC") its "share" of the surplus of a "joint venture" in which Brian, UDC and others had been participants. The other companies and persons named as respondents to the appeal are seen as interested parties because they were either participants in the joint venture or claim some interest in its proceeds as the result of assignment. The somewhat complicated facts are set out at length in the judgment of Waddell J. at first instance and in the judgments of Hutley J.A. and Samuels J.A. in the Court of Appeal. It suffices, for the purposes of the present appeal, to state them in summary form.
2. During 1973, the respondent Security Projects Limited ("SPL") was engaged in promoting two distinct but related "joint ventures" involving the development of land which it was purchasing in the Brisbane suburb of Redcliffe. One proposed joint venture, which was intended ultimately to lead to the transfer of part of the land to a company in which the participants would be shareholders, involved the development of that part of the land (not then defined) as an hotel. The other involved the development of the residue of the land as a shopping centre. By September 1973, the participants in each of the proposed ventures had been settled. Brian was to have a 20% share in the hotel venture and a 5% share in the shopping centre venture. SPL was to be the main participant in each proposed joint venture. UDC was also to be a participant in both. Draft joint venture agreements had been circulated among the proposed participants but not finalized and it was not until July 1974 that a formal agreement in respect of the shopping centre venture was executed. It was anticipated that approximately 90% of the finance for each project would be provided by borrowings from UDC with the remainder being contributed by the proposed participants according to their respective shares. The prospective parties to the hotel project had, by September 1973, all made payments to SPL as the project manager: Brian had contributed $43,503.00 (of which $6,503.00 was later refunded as an overpayment) in August 1973. The prospective participants in the shopping centre project, other than Brian which had not been accepted as a participant until August 1973, had also made financial contributions: Brian's first payment was made in November 1973 when it made a payment of $25,585.00. On 24 October 1973, SPL mortgaged the Redcliffe land as security for borrowings from UDC for the proposed joint ventures. Two further mortgages, each of a subsequently acquired adjoining parcel, were executed by SPL in UDC's favour in November 1973 and September 1974 respectively.
3. In August 1974, the hotel project was abandoned. Thereafter, the whole of the land was devoted to the shopping centre project. The "shares" of the various "partners" were "rationalized" with the result that the shares in the ongoing shopping centre project were: SPL 58.4%, UDC 10%, Brian 9.2% and others 22.4%. In due course, the shopping centre was built and the complex was sold at a substantial profit. Brian has, however, received neither repayment of the money it contributed to the project (more than $88,000) nor payment of its "share" of the profit. UDC claims to be entitled to retain the whole of the proceeds of sale by reason of what has been described as a "collateralisation clause" which, unknown to Brian, was contained in each of the three mortgages executed by SPL in favour of UDC to secure borrowings for the joint venture. According to their terms, the effect of the "collateralisation clauses" was that the whole of the relevant land was mortgaged to secure, in addition to borrowings made under the mortgages for the purposes of the joint venture, "all amounts from time to time advanced by (UDC) to (SPL) on any account whatsoever or otherwise owing by (SPL) to (UDC) and whether advanced to (SPL) solely or jointly with any other person". UDC claims that, under the clauses, it is entitled to retain the surplus proceeds of the sale of the shopping centre complex and to apply them in reduction of amounts owing to it by reason of borrowings made by SPL and others in relation to two other projects with which Brian had no connection whatsoever.
4. The ground upon which UDC failed in the Court of Appeal appears not to have been placed in the forefront of the case made against it at the trial and, no doubt for that reason, was not the subject of detailed discussion by Waddell J. in his judgment at first instance. Simply stated, that ground is that the three mortgages upon which UDC seeks to rely were, to the extent that they would authorize UDC to retain Brian's share of the surplus of the "joint venture", given by SPL and accepted by UDC in breach of the fiduciary duty which each owed to Brian. The conclusion to which we have come is that UDC's appeal to this Court must fail on that same ground. That being so, it is unnecessary that we consider or determine any of the other questions, including questions of equitable fraud and equitable estoppel, which were raised in the course of argument in this Court.
5. The term "joint venture" is not a technical one with a settled common law meaning. As a matter of ordinary language, it connotes an association of persons for the purposes of a particular trading, commercial, mining or other financial undertaking or endeavour with a view to mutual profit, with each participant usually (but not necessarily) contributing money, property or skill. Such a joint venture (or, under Scots' law, "adventure") will often be a partnership. The term is, however, apposite to refer to a joint undertaking or activity carried out through a medium other than a partnership: such as a company, a trust, an agency or joint ownership. The borderline between what can properly be described as a "joint venture" and what should more properly be seen as no more than a simple contractual relationship may on occasion be blurred.
Thus, where one party contributes only money or other property, it may sometimes be difficult to determine whether a relationship is a joint venture in which both parties are entitled to a share of profits or a simple contract of loan or a lease under which the interest or rent payable to the party providing the money or property is determined by reference to the profits made by the other. One would need a more confined and precise notion of what constitutes a "joint venture" than that which the term bears as a matter of ordinary language before it could be said by way of general proposition that the relationship between joint venturers is necessarily a fiduciary one (but cf. per Cardozo C.J., Meinhard v. Salmon (1928) 164 NE 545, at p 546). The most that can be said is that whether or not the relationship between joint venturers is fiduciary will depend upon the form which the particular joint venture takes and upon the content of the obligations which the parties to it have undertaken. If the joint venture takes the form of a partnership, the fact that it is confined to one joint undertaking as distinct from being a continuing rela# tionship will not prevent the relationship between the joint venturers from being a fiduciary one. In such a case, the joint venturers will be under fiduciary duties to one another, including fiduciary duties in relation to property the subject of the joint venture, which are the ordinary incidents of the partnership relationship, though those fiduciary duties will be moulded to the character of the particular relationship (see, generally, Birtchnell v. Equity Trustees, Executors and Agency Co. Ltd. (1929) 42 CLR 384 , at pp 407-409).
6. In the present case, it is apparent that the relationship between the participants in the shopping centre venture was a fiduciary one at least from the time when the formal agreement was executed. Under the agreement, the participants were joint venturers in a commercial enterprise with a view to profit. Profits were to be shared. The joint venture property was held upon trust. The participants indemnified the managing participant (SPL) against losses. The policy of the joint enterprise was ultimately a matter for joint decision. Apart from the absence of any reference in the agreement to "partnership" or "partners", the relationship between the participants under the agreement exhibited all the indicia of, and plainly was, a partnership (cf. Canny Gabriel Castle Jackson Advertising Pty. Ltd. v. Volume Sales (Finance) Pty. Ltd. (1974) 131 CLR 321 , at pp 326-327). It is true that UDC came to the joint venture in the role of prospective financier and, in so far as borrowings from it by the SPL group on behalf of the partnership were concerned, occupied the role of lender as well as that of partner. In so far as the property which was the subject of the joint venture was concerned however, the fact that UDC was a lender to SPL on behalf of the partnership did not absolve it from the ordinary fiduciary obligations of a partner.
7. It was submitted on behalf of UDC that no fiduciary relationship existed and no fiduciary duties arose between the prospective participants in the joint venture until the joint venture agreement was actually executed in July 1974. To the extent that that submission involves a general legal proposition that the relationship between prospective partners or joint venturers cannot be a fiduciary one until a formal agreement is executed, it is clearly wrong. A fiduciary relationship can arise and fiduciary duties can exist between parties who have not reached, and who may never reach, agreement upon the consensual terms which are to govern the arrangement between them. In particular, a fiduciary relationship with attendant fiduciary obligations may, and ordinarily will, exist between prospective partners who have embarked upon the conduct of the partnership business or venture before the precise terms of any partnership agreement have been settled. Indeed, in such circumstances, the mutual confidence and trust which underlie most consensual fiduciary relationships are likely to be more readily apparent than in the case where mutual rights and obligations have been expressly defined in some formal agreement. Likewise, the relationship between prospective partners or participants in a proposed partnership to carry out a single joint undertaking or endeavour will ordinarily be fiduciary if the prospective partners have reached an informal arrangement to assume such a relationship and have proceeded to take steps involved in its establishment or implementation.
8. In the present case, the relationship between UDC, Brian and SPL had plainly assumed a fiduciary character prior to 24 October 1973 when SPL gave the first of the mortgages to UDC. By that time, the arrangements between the prospective joint venturers had passed far beyond the stage of mere negotiation. Each had, by then, agreed to be, and been accepted as, a participant in each of the proposed joint ventures, if both or either of them went ahead. Each had made or agreed to make financial contributions towards the costs of the project or projects in which it or he had agreed to participate. SPL was acting as agent for the proposed joint venturers in relation to the establishment of each of the joint ventures and as trustee of those funds with which it had already been entrusted. In so far as Brian was concerned, it was a fundamental element of the substratum of the fiduciary relationship that then existed that the subject land, which was being purchased with joint venture funds for joint venture purposes, would be held available to be devoted to any ensuing joint venture or joint ventures and that Brian, as an accepted joint venturer who had already made financial contribution towards the proposed hotel joint venture, was and would remain able to participate in the net profits in accordance with its share in the relevant joint venture. To transpose the words of Dixon J. in Birtchnell (at pp.407-408), the participants in each of the then proposed joint ventures were "associated for ... a common end" and the relationship between them was "based ... upon a mutual confidence" that they would "engage in (the) particular ... activity or transaction for the joint advantage only". It matters not, for present purposes, whether that relationship is seen as that which may exist between prospective partners or joint venturers before the terms of any partnership or joint venture agreement have been settled or whether it is seen as a limited preliminary partnership or joint venture to investigate and explore the possibilities of an ultimate joint venture or ventures. On either approach, it was a fiduciary one.
9. That being so, the proposed participants in each joint venture were under fiduciary obligations to one another in relation to the proposed project at the time when the first of the mortgages was given and accepted. In particular, each participant was under a fiduciary duty to refrain from pursuing, obtaining or retaining for itself or himself any collateral advantage in relation to the proposed project without the knowledge and informed assent of the other participants. "The subject matter over which the fiduciary obligations" extended must be "determined by the character of the venture or undertaking for which" the relationship between the prospective joint venturers existed (per Dixon J., Birtchnell, at p.408 in a partnership context but equally applicable here). It included the land which was the subject of the proposed joint ventures and whose purchase had been funded by moneys contributed by the prospective participants or borrowed by SPL for the purposes of the proposed ventures. By that mortgage, SPL and UDC combined to apply the property the subject of the proposed joint venture to their own collateral purposes in a manner which involved the obtaining of a collateral advantage for themselves and which was, both potentially and in the event, destructive of the whole interest of the other joint venturers including Brian. In combining to apply the property to their own collateral purposes and in giving and obtaining those collateral advantages without the knowledge or consent of Brian, SPL and UDC each acted in breach of its fiduciary duty to Brian.
10. In these circumstances, UDC is precluded from relying upon the benefit of the bill of mortgage of 24 October 1973 to secure, against the profits to which Brian would otherwise be entitled, extraneous debts owing by SPL and its associates in some other venture. A similar position applies in relation to the "collateralisation clause" in each of the two subsequent mortgages. It is unnecessary for Brian to assert a constructive trust of the benefit of those mortgages or of their proceeds. All that Brian need assert against UDC is its entitlement to its share of the surplus proceeds of sale under the joint venture agreement, to which both UDC and it were parties. UDC cannot resist that claim of Brian by relying upon the "collateralisation clause" which it obtained and retained in breach of the fiduciary duty which SPL and it owed to Brian for the reason that, to the extent of those clauses, the three mortgages were and are unenforceable by UDC against Brian (cf. Thorne v. Thorne (1893) 3 Ch. 196, at pp 203-204).
11. The appeal should be dismissed.