New South Wales Supreme Court CITATION : Allstate Explorations NL & Ors v Beaconsfield Gold & Ors [1999] NSWSC 39 CURRENT JURISDICTION : Equity FILE NUMBER(S) : 3089/98 HEARING DATE(S) : 1 February 1999 JUDGMENT DATE : 10 February 1999 PARTIES : Allstate Explorations NL & Ors Beaconsfield Gold & Ors JUDGMENT OF : Master Macready at 1 COUNSEL : Plaintiffs: Mr S. Street S.C. with Ms R. Pepper Defendants: Mr J. Styring SOLICITORS : Plaintiffs: Blake Dawson Waldron, Sydney Defendants: Phillips Fox, Melbourne CATCHWORDS : Practice. Whether sufficient facts for a cause of action pleaded. Claim for the existence of a fiduciary relationship. Held sufficient.; Equity. Fiduciary relationship. Whether lack of consent an element or a matter of defence. Held a matter of defence. Birtchnell v Equity Trustees Executors & Agency Co Ltd (1929) 42 CLR 384 at 398 applied. DECISION : See paragraphs 33 - 36 16 IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION MASTER MACREADY Wednesday 10 February 1999 3089 of 1998 ALLSTATE EXPLORATIONS NL & ORS v BEACONSFIELD GOLD NL JUDGMENT 1 MASTER MACREADY: This is a hearing of a Notice of Motion filed by the defendants on 19 November 1998 seeking that the time fixed by an order made by the Court on 12 October 1998 for the defendants to file and serve a further amended Cross Claim on or before 26 October 1988 be extended. On 12 October 1998 Master McLaughlin dealt with an application which was then before him to strike out paragraphs 29, 30 and 31 of an amended Cross Claim which was filed on 12 October 1998. He gave reasons for his decision to strike out those paragraphs and gave leave to file a further amended Cross Claim as I have indicated. 2 The defendants prepared their Cross Claim and had it ready for filing by 28 October. However a difference arose between the defendants and the plaintiffs on the form of the Cross Claim and, accordingly, it was not filed. No point is taken by the plaintiffs in respect of the late filing of the Cross Claim as there is no prejudice and, accordingly, the argument before me has been whether it is appropriate that the latest amended Cross Claim should be filed having regard to the terms of the paragraphs that have been inserted to replace paragraphs 29, 30 and 31 in the previous Cross Claim that had been struck out by Master McLaughlin on 12 October 1998. 3 The dispute between the parties concerns a Joint Venture Mining Agreement made on 19 October 1992. At the time of entering into the joint venture Allstate Prospecting Pty Limited was a 100 percent owned subsidiary of the plaintiff and had interest in the joint venture. In due course there were various changes in the interests in the joint venture and at the present time the first plaintiff controls a 51.51 percent interest in the joint venture through two subsidiaries, Allstate Prospecting Pty Limited and CAN 070 164 653 Pty Limited. The remaining 48.49 percent interest in the joint venture is held by the defendants. 4 The Joint Venture Agreement provides for a Management Committee which has defined functions and there is provision for appointment of a Manager of the joint venture. On 1 May 1994 the first plaintiff commenced acting as a Manager of the joint venture and has acted in that capacity since that date. Although the Joint Venture Agreement requires that the Manager shall execute a deed agreeing to be bound by the Joint Venture Agreement upon appointment, this has not occurred. 5 On 29 June 1998 the defendants gave to the first plaintiff a notice requiring it to rectify certain failures which it alleged had occurred. The matters in contention concern charging of management fees by the first plaintiff and charging a mark up for the use of certain of its employees. 6 On 9 July 1998 the first plaintiff commenced proceedings and on 29 July 1998, pursuant to consent orders, filed a Statement of Claim in which it seeks, inter alia, a declaration that the notice of 29 June 1998 is not a valid notice issued pursuant to the Joint Venture Agreement. 7 The debate before me has concerned the form of the proposed new amended Cross Claim which is Exhibit "A" on the hearing of the motion before me. In broad terms the Cross Claim alleges that the first plaintiff owed fiduciary duties to the defendants in carrying out its activities as Manager under the Joint Venture Agreement. Breaches of these duties are alleged in respect of the charging to the joint venture of costs of services of some of the first plaintiff's employees at a rate greater than that provided for in the Joint Venture Agreement and also the payment of management fees to the first plaintiff. The Cross Claim seeks restitution damages or, alternatively, equitable compensation and other remedies. 8 On the last occasion before Master McLaughlin the debate centred on a number of areas. These included whether the then existing paragraph 29 of the Cross Claim asserted sufficient facts to give rise to a fiduciary relationship and whether it was necessary to plead that the Manager's actions took place without the knowledge of or the informed consent of either the defendants or the Management Committee created under the Joint Venture Agreement. The Master held that paragraph 29 was deficient for reasons to which he referred and he also held that the cause of action had as an essential element an absence of knowledge or informed consent on the part of the defendants or of the Management Committee. Given that there has been a change in the terms of the pleading it is not necessary to consider in any detail the earlier pleading that was before Master McLaughlin. 9 I turn to the first question which is whether or not the present pleading contains a pleading of sufficient material facts to give rise to a fiduciary relationship between the parties. The two paragraphs which plead facts which are said to give rise to the fiduciary relationship are paragraphs 29 and 30 and these are in the following terms:- "29. By clauses 9.3 and 9.4 of the BMJVA the Manager on behalf of the Joint Venturers, was bound to carry out Joint Venture Activities in accordance with the principles set out in the Management Agreement. 30. By clause 2.01 of the Management Agreement (as defined in paragraph 13 of the Plaintiff's Statement of Claim) the Manager was bound to manage, supervise and conduct Joint Venture Activities on behalf of the Joint Venturers in a good and workmanlike and cost effective manner." 10 It is apparent from this pleading that no extraneous facts are relied upon to give rise to the existence of fiduciary duties. The case is plainly put upon the provisions of the Joint Venture Agreement and the duties on parties arising under the terms of that agreement. There is nothing unusual in this for, as was observed in United Dominions Corporation Ltd v Bryant Pty Limited (1984-1985) 157 CLR 1 at 11:- "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." 11 The pleading clearly in articulating the matters giving rise to the fiduciary duties derives support from a number of standard formulations of circumstances in which fiduciary duties might arise. For example, in Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 96 Mason J as he then was observed:- "The accepted fiduciary relationships are sometimes referred to as relationships of trust and confidence or confidential relations (cf. Phipps v. Boardman (1967) 2 AC 46 , at p 127), viz., trustee and beneficiary, agent and principal, solicitor and client, employee and employer, director and company, and partners. The critical feature of these relationships is that the fiduciary undertakes or agrees to act for or on behalf of or in the interests of another person in the exercise of a power or discretion which will affect the interests of that other person in a legal or practical sense. The relationship between the parties is therefore one which gives the fiduciary a special opportunity to exercise the power or discretion to the detriment of that other person who is accordingly vulnerable to abuse by the fiduciary of his position. The expressions "for", "on behalf of" and "in the interests of" signify that the fiduciary acts in a "representative" character in the exercise of his responsibility, to adopt an expression used by the Court of Appeal." 12 In a similar way the Court of Appeal formulated the circumstances in which a fiduciary relationship may arise Reading v The King 1949) 2 KB 232 in the following terms at 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 benefit of the plaintiff or for the purposes authorised by him, and not otherwise (for instance, Shallcross v Oldham (1962) 2 J & H 609, 616 and Attorney-General v Goddard 98 L.J. (K.B.) 743 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 (for instance, Lister v Stubbs a(1905) 1 K>B. 11 and Powell Thomas v Even Jones (1890) 45 Ch. D 1." 13 This formulation has been referred to with approval by the High Court in Breen v Williams 1995-1996 186 CLR 71 at 107. 14 If one has regard to the pleadings it would appear that the matters pleaded may be sufficient to give rise to the fiduciary duties having regard to these statements of principle. The plaintiff however submits that there are no material facts identifying the existence of a discretion or power which the Manager could exercise nor the pleading of material facts involving the actual exercise of any relevant discretion or power. To make good this submission the plaintiffs refer to the terms of the Joint Venture Agreement in somewhat greater detail than are pleaded in the amended Cross Claim. They submit that in effect when one considers the whole of the terms of the joint venture there is no room for the finding of the existence of fiduciary duties and that the complaint is merely one of breach of contract. Such a case has not been pleaded perhaps because the first plaintiff as Manager has not executed the Joint Venture Agreement or agreed in writing to be bound by it. Whether or not the cross claimant would wish to so plead is not a matter concerning this present application which focuses upon the sufficiency of the pleadings to establish fiduciary duties. 15 In furtherance of their submissions the defendants point to a number of clauses including of course the full terms of the clauses which are pleaded in the amended Cross Claim. Clauses 9.3 and 9.4 which are referred to in paragraph 29 are in the following terms:- "9.3 All Joint Venture Activities must be carried out by the Manager, subject to the control and direction of the Committee and in accordance with the principles set out in section 2 of the Management Agreement. In applying the principles of the Management Agreement to the management of the Joint Venture, references to "the Company" must be taken to be references to the "the Committee" and in the event of any inconsistency between the principles contained in the Management Agreement and the substantive provisions of this Agreement, this Agreement will prevail. 9.4 All Joint Venture Activities carried out by the Manager must be carried out in the name of the Joint Venture and on behalf of all the Joint Venturers in proportion to their respective Percentage Interests." 16 A notable omission from the pleading is the absence of reference to the words "subject to the control and direction of the Committee". 17 In a similar manner when one has regard to paragraph 30 one finds a reference to part only of what appears in 2.01 of the Management Agreement which is annexed to the Joint Venture Agreement and has operation according to the terms of that agreement. The part quoted in paragraph 30 picks up an obligation which is set out at paragraph 2.01(c). Paragraph 2.01(a) also provides that the Manager shall conduct the affairs of the project and the undertaking of operations in accordance with approved programmes and budgets. 18 Both the Joint Venture Agreement in paragraph 10.1 and the Management Agreement in paragraph 2.02 have provisions for approval of budgets by the Committee (which equates to "the Company" in the Management Agreement. In both documents there are obligations upon the Manager to carry out joint venture activities in accordance with such approved programmes and budgets. The case that the first plaintiff as Manager desires to present to the Court can be taken to include the fact that the fees whether they be management fees or the mark up on employees' fees were included in approved programmes and budgets. 19 It is useful at this stage to note some more things about the structure of the Joint Venture Agreement in order to understand how the parties are at issue on the charges that have been made. The Management Agreement is Annexure C to the Joint Venture Agreement. Its force seems to be taken, at least in part, from clause 9.3 of the Joint Venture Agreement which I have quoted above. It requires the joint venture activities to be carried out in accordance with the principles set out in section 2 of the Management Agreement. 20 By virtue of the provisions of the clause 11.3 of the Joint Venture Agreement, the definitions in clause 1.1 of costs, joint venture activities and accounting procedure the relevant costs which may be recouped are those which are set out in Annexure A which is the accounting procedure annexed to the Joint Venture Agreement. Clause 3.1 of that accounting procedure provides that the Manager may acquire goods or services from a party at prices or rates not greater than the prices or rates at which such goods or services are otherwise available to the Manager. 21 In contrast in the Management Agreement by virtue of the definition of programme and budget, the definition of project expenses and the schedule to the Management Agreement one finds a provision (17) in that schedule which allows the charging of certain of the Manager's employees at a rate 2.4 times their salary. In respect of management fees the Joint Venture Agreement is silent (apart from 2.1(r)) whereas the Management Agreement in paragraph 2.05 provides for the charging of such fees. There is thus arguably a conflict between the definitions of costs in the Management Agreement and the similar provisions in the Joint Venture Agreement. 22 As I observed the first plaintiff, as Manager, relies upon the provisions in the Joint Venture Agreement and the Management Agreement which oblige them to act in accordance with approved budgets. Such budgets it alleges contain the appropriate charges which are properly within them. Differences between the parties in their construction of the agreement is highlighted by the provisions of clause 9.3 which provides that provision of the Joint Venture takes priority in the event of an inconsistency between that agreement and the Management Agreement. 23 It is worth noting the principles in the context of which the present question has to be decided. The main proposition is that any proposed amendment must not be obviously futile such that it would be liable to be struck out if it had appeared in the original pleading. This formulation then leads one to Part 15 rule 26 which allows a pleading to be struck out where it discloses no reasonable cause of action. The considerations under this rule are different from those which apply under Part 13 rule 5 which grants a somewhat wider discretionary power rather than focusing on deficiencies in the pleading. Accordingly, one has to see whether as a matter of pleading what is alleged does disclose reasonable cause of action. 24 It is tempting when considering the extent of the obligations on the Manager to act in accordance with approved budgets and programmes to see how little room there is for the imposition of fiduciary duties arising simply from an obligation to manage, supervise and conduct the activities in a good and workmanlike and cost effective manner. If the budgets contain the relevant costs and are approved where is the "special opportunity" to exercise a power or discretion to the detriment of a joint venturer? A little thought suggests that the matter might factually be more complex. For instance, under clause 10.3 of the Joint Venture Agreement it is the Manager who must bring in to the Committee programmes and budgets for the Committee's approval. The circumstance in which that is done, the form of the budgets and the identification of expenditures may be in a way which leaves room for members of the Committee not to appreciate the precise extent of the charges being approved. This complication raises the second named question which has been debated concerning the pleading and that is the question of whether or not it is necessary for the cross claimant to allege a lack of knowledge not only by the parties but by the members of the Committee. 25 Master McLaughlin came to the conclusion that it was necessary to allege a lack of knowledge of one or other of these. However, I am informed that he did not have the benefit of reference to a number of authorities to which I was referred. In Birtchnell v Equity Trustees Executors & Agency Co Ltd (1929) 42 CLR 384 at 398 Isaacs J discussed the onus of satisfying the Court in respect of consent which is, of course, an answer to a claim for breach of fiduciary duty. Strictly the matter was not a matter for decision given His Honour's conclusion on the facts but at 398 he said the following:- "But assuming the respondents' point were sound, that the appellants had not affirmatively proved the non-existence of their consent, the question arises: on whom does the onus rest of satisfying the Court with respect to consent. The case Kuhlirz v Lambert Bros Ltd (1913) 108 L.T. 565 cited by Mr Gorman, is distinct that it rests on the partner receiving the benefit. That case (reported also in Commercial Cases (1913) 18 Com Cas 217 followed Rothschild v Brookman ((1931) 2 Dow & Cl 188. The principle was stated by Turner LJ in Clegg v Edmondson (1857) 8 DeG. M & G at p 806:- 'The onus of this case rests, as I think, upon the defendants, the managing partners. Having stood in a confidential relation, both as partners and as managers, the consequences which, according to the ordinary rules of this Court, flow from that relation must attach upon them, unless they can by some means exonerate themselves from those consequences.' It is not at all like a case in which the adverse litigants are, so to speak, strangers, and unconnected by any relation which begins by creating an obligation. If A sues B for fraudulent concealment producing damage, the concealment is an essential element in the cause of action. But in a case like the present, equity has always held that the fiduciary relation itself imposes on the party bound to fidelity the obligation of justifying any private advantage he obtains in the course of his trust, or by reason of an interest conflicting or possibly conflicting with his duty. This is invariable. Massey v Davies (1794) 2 Ves Jun 317 is a notable instance. Lowther v Lowther ((1806) 13 Ves 95 at p 103 is in accord. Dunne v English ((1874) 18 Eq 524 is another instance. (See also Fullwood v Hurley (1928) 1 K.B. 498.)" 26 This passage and the authority of Clegg v Edmondson (1857) 8 De G.M.& G. at p 806 referred to in it is relied upon by Glover in his discussion in Fiduciary Relationships paragraph 5.127 dealing with consent as a defence to fiduciary claims. He clearly adopts the proposition that consent is a defence the onus of proof of which lies upon the fiduciary. These comments are picked up in Breen v Williams by Gummow J at page 135. 27 In support of the proposition that there would be an onus on the person alleging the breach of fiduciary duty to establish the lack of consent, reference was made to the standard forms of pleading for the recovery of secret commission. However, in my view such matters do not assist in this case as that is a particular form of claim somewhat akin to the element of fraudulent concealment referred to in Birtchnell's case. In my view consent in the circumstances of this case is properly a matter of defence and does not have to be alleged by the cross claimant as an essential element in the cause of action which is proposed. 28 Having concluded this I return to the earlier question of whether there are sufficient facts pleaded. Each joint venturer and the manager have a representative on the Management Committee which approves budgets. Clearly the question of consent will be raised as a defence. On that issue it would seem likely that the cross claimant may wish to avoid the result that would flow by suggesting that the way in which the programmes and budgets were presented to the Committee did not allow an appreciation of the relevant facts contained in them. One could then imagine that such a fact would also be relied upon to support the existence of the fiduciary duty said to flow from the contractual obligations. At present the cross claimants do not put it forward as one of their pleaded facts. 29 It seems to me that as informed consent is to be raised in the Defence that there will be no lack of surprise by the time the trial in respect of the material which would be available on that issue. The only matter of concern is whether questions of onus in respect of the way in which budgets were presented may become relevant. 30 It is important that I do not in a consideration of this matter trespass into a final determination of whether or not a fiduciary duty might arise. At the present moment the cross claimant takes the view that it is prepared to rely upon the allegations that it has pleaded. A Court might find that this would support fiduciary duties although I would not rate it as a high chance. However, in my view it is certainly sufficient to establish a cause of action. The comments which I have made may lead the cross claimants to perhaps reconsider their position particularly having regard to what might possibly be the ultimate factual dispute and the part that might play in a finding that there was a fiduciary duty. In these circumstances I would be minded to allow a short period for further amendments in this regard but I would not strike out the paragraphs in the Statement of Claim. 31 There were a number of other matters that were raised by the plaintiffs to which I should refer. 32 The first of these was that there was no proper identification of the alleged benefit that was obtained. I think that in respect of the mark up on salaries the benefit is adequately defined for pleading purposes in paragraph 32. It may be that further particulars particularly of the rate that is appropriate will have to be given prior to trial. The other benefits, namely, the management fees, are clearly identified in paragraph 36. There was also criticism of paragraph 34 in that the individual allegations of breach were not referable to particular benefits. I do not think that that is necessary. Each of them can be taken to have led, at least for the pleading purpose, to the relevant benefit obtained. 33 The orders that I make are as follows:- 34 1. I extend the time in which the defendants may file a further amended Defence and Cross Claim to 14 days after the date of this judgment. 35 2. I give leave to the defendants to include in such amended Cross Claim matters generally in accordance with this judgment. 36 3. I will hear argument on the question of costs. Last Modified: DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.