SUPREME COURT OF VICTORIA
COURT OF APPEAL
S APCI 2017 0047
| ADVENTURE GOLF SYSTEMS AUSTRALIA PTY LTD (ACN 077 643 175) | Applicant |
| V | |
| BELGRAVIA HEALTH & LEISURE GROUP PTY LTD (ACN 005 087 463) | Respondent |
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| JUDGES: | SANTAMARIA, KAYE and ASHLEY JJA |
| WHERE HELD: | MELBOURNE |
| DATE OF HEARING: | 13 October 2017 |
| DATE OF JUDGMENT: | 8 November 2017 |
| MEDIUM NEUTRAL CITATION: | [2017] VSCA 326 |
| JUDGMENT APPEALED FROM: | [2017] VCC 185 (Judge Anderson) |
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EQUITY – Fiduciary obligations – Commercial relationship governed by contract – Factors relevant to existence of fiduciary relationship – Whether fiduciary relationship existed – Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 discussed – John Alexander’s Clubs Pty Ltd v White City Tennis Club Ltd (2010) 241 CLR 1 applied.
CONTRACT – Construction and interpretation – Agreement governing construction and operation of adventure golf course – Where separate management agreement between landowner and manager – Where agreement duration depended upon occupation of site ‘in accordance with’ management agreement – Whether agreement duration extended to renewal or ‘holding over’ of management agreement – Issue not raised at trial.
CONTRACT – Construction and interpretation – Recital as aid to construction – Where recital inconsistent with operative provision in contract – Franklins Pty Ltd v Metcash Trading Ltd (2009) 76 NSWLR 603 applied.
APPEALS – Issue not raised at trial – Where conduct at trial reveals departure from pleaded claim – Where issue as to construction and interpretation of contract – Whether applicant permitted to raise issue on application for leave to appeal – Vlahos Pty Ltd v Vlahos [2017] VSCA 166 applied.
WORDS AND PHRASES – ‘fiduciary relationship’ – ‘fiduciary obligations’ – ‘vulnerability’ – ‘joint venture’ – ‘in accordance with’ – ‘renewal’ – ‘holding over’.
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| APPEARANCES: | Counsel | Solicitors |
| For the Applicant | Mr S W Stuckey | Kinross-Smith & Co Lawyers |
| For the Respondent | Mr P S Noonan | HWL Ebsworth Lawyers |
SANTAMARIA JA:
Introduction
In 1997, the applicant (‘AGS’) and the respondent (‘Belgravia’) discussed the prospect of AGS constructing a 37-hole adventure golf course at the Spring Park Public Golf Course in Dingley, Victoria. Belgravia had been managing the site where the Spring Park Public Golf Course was located pursuant to a management agreement with Parks Victoria.
In 2000, as construction of the adventure golf course neared completion, AGS and Belgravia executed an agreement governing the construction and operation of the adventure golf course and the sharing of revenue after the deduction of expenses. This agreement was to continue to have effect for and so long as Belgravia occupied the site ‘in accordance with’ the management agreement between Belgravia and Parks Victoria. Over time, the term of the management agreement was extended twice: once by variation and again by the grant of an option term by Parks Victoria.
On 17 November 2015, the management agreement expired. So too did the agreement between AGS and Belgravia. However, Belgravia continues to occupy the site under a short-term arrangement which it negotiated with Parks Victoria. It has not entered into any new agreement with AGS. It has also retained all the revenue generated by the adventure golf business since the expiry of its agreement with AGS.
In the event, AGS issued proceedings against Belgravia. It alleged, relevantly, that the parties owed each other fiduciary obligations and that Belgravia breached those obligations by negotiating for its own benefit an arrangement with Parks Victoria to the exclusion of AGS. A judge in the County Court dismissed AGS’s claim and entered judgment in favour of Belgravia.
At issue in this application for leave to appeal is whether AGS and Belgravia owed each other fiduciary obligations in the conduct of the adventure golf business under their agreement. In my opinion, for the reasons that follow, they did not.
Factual background
In 1993, Mr Rodney Webb, Mr Lawrence Ulph and Mr Colin Brown established AGS to design, construct and operate an adventure golf course on the Bellarine Peninsula.
Between 1996 and 1997, the chief executive officer of Belgravia, which was then called Sports Australia Pty Ltd (‘Sports Australia’), approached AGS to construct an adventure golf course in Chirnside Park, where Sports Australia operated a driving range.
In 1997, AGS and Sports Australia entered into a formal agreement in relation to the site at Chirnside Park whereby AGS would construct the adventure golf course and Sports Australia would operate it and pay to AGS 60 per cent of the gross revenue of the course. AGS constructed the course at its own cost. The course was completed in February 1998.
At some stage, the respondent changed its name to Belgravia Health & Leisure Group Pty Ltd. Belgravia’s primary business activity is the management of various sporting facilities. One of those facilities is the Spring Park Public Golf Course (‘the Spring Park course’), which is located in Dingley. Belgravia had been managing the Spring Park course pursuant to a management agreement with Parks Victoria dated 9 October 1997 but commencing on 18 November 1995 (‘the management agreement’). The management agreement initially had a 10-year term, ending on 17 November 2005. The relevant terms of the management agreement, and its operation, are set out below.[1]
[1]See [49]–[50] below.
In late 1997, AGS and Belgravia commenced discussions with a view to constructing an adventure golf course on the site where Belgravia operated the Spring Park course.
In 1998, AGS commenced construction of a 37-hole adventure golf course at Spring Park (‘the Dingley facility’). By the time that AGS had commenced construction, the parties had not executed any formal written agreement and did not do so until construction of the Dingley facility was about 80 per cent complete.
On 8 July 1999, Belgravia and Parks Victoria entered into an agreement varying the management agreement (‘the variation agreement’). The variation agreement extended the term of the management agreement, for a term of five years, to 17 November 2010. It also provided Belgravia with an option to request that the management agreement be extended for a further term of five years starting on 17 November 2010 on the same terms as the management agreement including the terms of the variation agreement ‘but with no option to extend the term’ (‘the option term’). The variation agreement also imposed conditions which required Belgravia to construct the Dingley facility and a new clubhouse within the building located on the Dingley facility.
In early 2000, AGS and Belgravia executed an agreement governing the construction and operation of the Dingley facility and the sharing of revenue after the deduction of certain expenses arising under the varied management agreement (‘the Dingley agreement’). The Dingley agreement required AGS to design, construct and landscape a 37-hole adventure golf course in accordance with the plans and specifications attached to the Dingley agreement. As well as providing for the sharing of revenue generated by the Dingley facility, the Dingley agreement imposed a number of obligations on each party in relation to that facility. The relevant terms of the Dingley agreement are set out below.[2]
[2]See [52]–[64] below.
In early 2000, AGS completed the construction of the Dingley facility. It will be recalled that the Dingley facility is located on the property where Belgravia operated the Spring Park course. I will refer to the property comprising both the Spring Park course and the Dingley facility as ‘the Dingley site’.
From 2000 until November 2015, Belgravia operated the Dingley facility. AGS performed upgrade works from time to time. During the course of those 15 years, the parties met to discuss the operation of the business, promotional activities, upgrades to the facilities, maintenance levels and other business-related matters. The parties shared in the revenue generated from the business substantially in accordance with the Dingley agreement.
Between 2005 and 2007, AGS and Belgravia exchanged correspondence disputing the deductions that were to be made from gross revenue before distribution and in respect of the level of maintenance achieved by Belgravia at the Dingley site. In three of those letters in 2007, the chief executive officer of Belgravia referred to the parties as ‘partners in the business’ or ‘working in partnership’.
In 2009, Belgravia sought the option term from Parks Victoria pursuant to the variation agreement. Parks Victoria resolved to grant the option term, informing Belgravia that it could only offer one five-year term starting from 18 November 2010, after which Parks Victoria could only accept an expression of interest for the Dingley site. AGS also elected to continue the Dingley agreement.
In 2011, Belgravia offered to sell to AGS: (a) the operations at Chirnside Park comprising the adventure golf course and the driving range; and (b) the operations at the Dingley site. AGS agreed to purchase the former, but not the Dingley site. The Dingley Agreement continued.
In 2014 and 2015, representatives of AGS and Belgravia discussed the future of the variation agreement, which was due to expire at the end of the option term on 17 November 2015. The trial judge found:
[I]n late 2014 and early 2015, AGS and Belgravia worked together towards the goal of persuading Parks Victoria that Belgravia (and through it, AGS) should continue to occupy the Dingley site until the expression of interest process was concluded, and so that they might position themselves to have a good chance of succeeding when the future operation of the Dingley site was put out to a competitive tender process.[3]
[3]Reasons [27].
On 31 March 2015, Belgravia wrote to Parks Victoria about Belgravia’s planning for 2016. The letter indicated that Belgravia wanted to gain ‘an understanding of the terms of the next contract period so as to prepare an attractive offer to Parks Victoria’ for the Dingley facility. It continued:
We believe the existing facilities require substantial capital improvements and for us to plan for these improvements we would like to receive an indication of the tenure options for the next contract period. We would also like to know when the next EOI process is likely to commence.
On 22 April 2015, Mr Ulph of AGS emailed the new chief executive officer of Belgravia, Nick Cox, and Michael Graham of Belgravia. He said:
With November fast approaching, our strategy for the lease at [the Dingley site] needs to be progressed. Having spoken to Michael, I understand that Parks Victoria is not very responsive to an early submission. We also understand from speaking to Stuart and our inspections, the facility is in great need of attention.
I would like to organize a meeting to discuss our latest options and how we should move forward to ensure that we have a sound strategy for dealing with the November deadline.
The discussion needs to address:
· Assessment of the facility to ensure it meets the handover criteria of the lease;
· Post re-lease upgrade and maintenance plans;
· Revenue projections;
· Shareholder returns.
Please advise if you agree that a meeting is appropriate and suggest a venue and time. We can attend a meeting either on site at Spring Park or at Belgravia Head Office.
On 7 May 2015, directors of AGS met Mr Cox and Mr Graham at the offices of Belgravia to discuss ‘how to approach Parks Victoria to extend the lease’ of the Dingley site. It was agreed that Mr Graham would prepare a proposal to that effect.
On 8 May 2015, AGS sent to Belgravia a document containing suggested improvements to the Dingley facility under the cover of the following email:
Given the current state of the facility [AGS] proposes to conduct a full audit of the condition of each adventure golf hole including its playability. With our current knowledge of the courses (Creek and Chasm) we believe there are significant opportunities to refurbish/upgrade the facility, and a list of possible improvements is as follows …
The trial judge also found that, in May 2015, AGS and Belgravia discussed making a submission to Parks Victoria with a view to securing an extended arrangement for the parties at the Dingley site. However, in the period leading up to November 2015, Belgravia refused to respond to phone calls and emails from AGS.[4]
[4]Ibid [12].
On 14 August 2015, Damian Gorman of Belgravia emailed Tim Shepherd of Parks Victoria expressing Belgravia’s intention to meet with Parks Victoria ‘to discuss the management arrangements for the facility post the expiration of the lease’. Relevantly, the email reads as follows:
The current lease to operate and manage this facility expires on the 17 November 2015 and no further options for extensions are available.
The Belgravia Group accepts this position.
I have been advised via Mr Arthur Garras from Parks Victoria and confirmed by Peter Watkinson, that Parks Victoria intends to go through an EOI process prior to appointing a new operator.
The EOI process could take up to 12 months to complete.
[Belgravia] accepts this approach and intends at this stage to participate in the EOI process.
However in the interim period until an operator is selected and the parties agree a new lease, [Belgravia] is keen to come to a suitable arrangement with Parks Victoria to continue to manage the Golf Course and the Adventure Golf Course until the new management arrangements are in place.
The preferred option for the Belgravia Group P/L is to have the current lease terminate on the 17 November 2015 and enter into a new separate management arrangement for 12 months or what other period agreed to by the parties to continue to operate the facility on behalf of Parks Victoria.
On 25 August 2015, Mr Ulph emailed Mr Graham stating:
I assume that there has been no news from Parks Victoria and therefore we have to just roll along on the current agreement until they call for new expressions of interest for a new lease/contract.
Is this the way you see it?
Assuming that Parks will get their act together early in the new year, as per our previous conversations, we should sort out how we would want to approach a new lease and how the relationship between Belgravia and Adventure Golf systems would look.
Will you be ready to meet in the next few weeks to kick off this process?
As the end of the option term (17 November 2015) approached, Parks Victoria had not yet undertaken the expression of interest process for the Dingley site.
On 8 October 2015, Parks Victoria wrote to Belgravia indicating that it would consider a ‘short term arrangement’ with Belgravia in relation to the Dingley site. On the same day, representatives of Belgravia and Parks Victoria met and negotiated a continued occupation of the Dingley site in the short term while Parks Victoria prepared an expression of interest process.
On 11 October 2015, in an internal email, Gary Cole of Belgravia emailed Michael Herchenbach of Belgravia stating:
Nick and I met with Parks Victoria on Friday to discuss our contract at Spring Park. The meeting went well and they will write a letter to us shortly confirming that our current Management Agreement will terminate on 17th November 2015. This is good news as it will mean we will be able to write to AGSA and confirm the termination of the agreement that exists between us. I’m not sure if you will draft this up or our lawyers but wanted to let you know that this is something we will need to do in the next week.
Parks Victoria are very happy to negotiate a new agreement with us to manage the Spring Park Golf Course and the Dingley Village Adventure Golf effective from 18th November.
On 14 October 2015, Parks Victoria wrote to Belgravia confirming that the term of the management agreement will expire on 17 November 2015 and asking about the intentions of Belgravia ‘regarding a potential new short-term arrangement over the golf course, prior to a competitive allocation process being undertaken by Parks Victoria’.
On 20 October 2015, Belgravia sent to AGS a copy of Parks Victoria’s letter of 14 October 2015 under the cover of a letter that said:
Re: Agreement between our companies regarding the Dingley Village Adventure Golf facility.
Please find enclosed a letter we have just received from Parks Victoria confirming that the Management Agreement between Parks Victoria and [Belgravia] in relation to the above facility expires on 17 November, 2015. Consequently, in accordance with clause 6 of the above agreement our agreement ceases to operate on that date.
The letter indicates a competitive allocation process is now being undertaken by Parks Victoria and the future in relation to the facility appears uncertain. Nevertheless, I want to thank you for our association over recent years.
On 26 October 2015, AGS by its solicitors wrote to Belgravia alleging the existence of a ‘joint venture relationship’ between AGS and Belgravia that gave rise to fiduciary obligations. The letter reads as follows:
Our client considers that it is in a joint venture relationship with [Belgravia] under the agreement of 9 October 1997 Belgravia has with Parks Victoria; the variation to that agreement of 8 July 1999 and our client’s agreement with Belgravia in 2000. The legal consequence of that conclusion is that the relationship between Belgravia and our client is a fiduciary one requiring that Belgravia, in operating under the agreements it has with Parks Victoria, not do anything which jeopardises our client in a situation where Belgravia might otherwise have been able to act to its own advantage. In other words, if Belgravia has an opportunity to exercise a power to the detriment of our client but also an opportunity not to do so, it ought to pursue the latter course and respect the equitable obligations imposed in a fiduciary relationship.
Our client understands that Parks Victoria has been considering a tender process for the ongoing management of the Spring Park Golf Course but in the meantime Belgravia will continue as it has under its agreements with Parks Victoria. Our client considers that until the new tender or competitive allocation process has been undertaken by Parks Victoria, by virtue of the fiduciary relationship described above and under clause 6 of our client’s 2000 agreement with Belgravia, Belgravia must continue the profit share arrangement currently in place.
Please confirm that the profit share arrangement between Belgravia and our client will continue until Belgravia no longer occupies the site under the ‘Management Agreement’ as defined in the 2000 agreement our client has with Belgravia until Parks Victoria has completed its tender/competitive allocation process for the Spring Park Golf Course. Please note, in that context, our client's view that entry into a short-term arrangement rather than an explicitly overholding [sic] arrangement under the Management Agreement to facilitate an argument that the Management Agreement and our client's 2000 agreement with Belgravia no longer governs the situation, will be an exercise of power by Belgravia as a fiduciary in breach of its obligations to our client.
On 29 October 2015, Belgravia wrote to the solicitors for AGS. It denied the existence of any fiduciary relationship between it and AGS and said that the management agreement and the Dingley agreement were to expire on 17 November 2015. The relevant parts of this letter read as follows:
1.The terms and conditions of the relationship between your client and our company are set down in the [Dingley agreement]. Under the [Dingley agreement] your client agreed to design, construct and landscape the [Dingley facility] (cl. 1), ‘attend to facility upgrades and major maintenance’ (cl. 2(a)) and undertake various other obligations under clause 2. Under the circumstances it is noteworthy that your client failed to fulfil several of those obligations over a substantial period.
2.Your client was to perform its obligations at a site which our company had occupied and operated in accordance with a management agreement between our company and Parks Victoria dated 9/10/97. In 1999 a variation of the 1997 agreement was signed under which our company agreed to, amongst other things, construct building improvements and an adventure golf course. Consequently, our company’s relationship with Parks Victoria was well established by the time the [Dingley agreement] was signed. Your client was retained in order to assist our company to fulfil its obligations to the State under the 1999 variation agreement.
3.The compensation payable to your client under the [Dingley agreement] was in accordance with cl. 3 of the agreement set down on Schedule D. Clearly this was structured to allow the cost of the obligations to your client to be paid over the term of the [Dingley agreement] out of the cash flow of the business operated at the site.
4.The term of the relationship is set down in the [Dingley agreement] as follows:
(a)Recital C – ‘This Agreement expires as the expiration of the Term or if exercised the expiration of the Option and any further renewal of the Management Agreement.’
(b)Cl. 6 – ‘This Agreement shall continue to have effect for and so long as SA occupies the Site in accordance with the Management Agreement …’
The initial term expired 17/11/10 (as varied by the 1999 agreement) and the option period expires 17 /11/15. There is no provision for any further options or an overholding [sic] as may have been the case with a lease.
5.On 14/10/15 Parks Victoria sent a letter to Mr. Nick Cox confirming the management agreement with our company expires on 17 /11/15. This is a decision made exclusively by the State over which our company has absolutely no control. However, it has been the stated for some years by the State that it is obliged to terminate the management agreement at expiry and undertake an EOI.
As soon as we were officially notified by the State of its decision we notified your client initially by telephone and then by Mr Cox's letter dated 20/10/15.
In the telephone call to your client it was indicated that our company wanted to discuss with your client the possibility of any future business activity that may be undertaken in relation to the site under any new arrangement the terms of which would be devised at the exclusive control of the State and revealed in the EOI. Consequently, it is obvious that our company has acted in a transparent manner and not in breach of any purported fiduciary relationship. Our company considers no such relationship exists here and, as stated above, relations are governed by the [Dingley agreement] and not in equity.
The State’s letter makes it clear that a ‘competitive allocation process’ is to be undertaken and so our company must compete with the market should it decide it wishes to obtain a new management contract for the facility. Consequently, our company is in the same position as any other tenderer seeking to manage the facility.
In the meantime the State desires to enter into a ‘new short-term arrangement’ over the facility to allow continuity of business activity there. The details of this have not been determined by the State. Our company does not know how long this arrangement would last, nor how any remuneration would be calculated. As a result our company is unable to make an informed decision as to whether it even intends to have this interim relationship. It is certainly unable to indicate to your client it desires to continue a profit share arrangement based on a percentage of net green fees as our company may not even be entitled to retain such green fees.
6.As stated above, the management agreement with Parks Victoria expires on 17/11/15. The [Dingley agreement] will under its own terms also expire at that time as will the relationship between your client and our company. From that time it is not possible for any fiduciary obligations to exist.
…
We also wish to convey to your client how disappointed we are that your client has chosen this aggressive course of action. Not only have we indicated in the telephone conversation referred to above that we wanted to explore the possibility of another relationship at the site (depending on what the State intends to do) but also Mr. Cox was wanting to approach your client about the possibility of undertaking some development at other Belgravia sites.
On 11 November 2015, Belgravia wrote to Parks Victoria expressing Belgravia’s willingness ‘to manage the course and facilities on a short-term month-to-month arrangement until you have concluded your process and determined a longer-term management solution’. It set out the following ‘agreed principles’ in respect of the short-term arrangement:
(a)[Belgravia] will pay Parks Victoria a sum of $10,000 per month as a management fee
(b)[Belgravia] will comply with the regulatory and reporting requirements of the current contract.
On 23 December 2015, Meredith Kidd of Parks Victoria made a file note of a telephone call to Mr Cox. It included the following statement: ‘Will send to solicitor to get options to consider – 12 monthish [sic] tenure for interim’.
The term of the management agreement expired on 17 November 2015.
On 24 December 2015, AGS by its solicitors responded to Belgravia’s letter of 29 October 2015. It denied any failure on the part of AGS to comply with its obligations under the Dingley agreement. The letter also said:
[O]ur client considers that [Belgravia’s] obligations continue during the holding over period which prevails at the moment, in particular to continue to account to our client for the due proportion of the revenue [Belgravia] continues to receive from the site.
We are instructed our client remains willing, ready and able to continue to perform its obligations under the written agreement between our client and [Belgravia] for the duration of the holding over period whilst Parks Victoria determines the longer term management arrangements for the site.
On 5 January 2016, Belgravia wrote to the solicitors for AGS. Relevantly, the letter said:
I confirm that the management agreement with Parks Victoria expired on 17 /11/15. Consequently, the [Dingley agreement] also expired at that time. From that date there are no longer any legal relations between your client and [Belgravia]. This is the unambiguous intended result of the agreements in this matter. The contracts do not allow in any way for a holding over arrangement of any sort. In any event they cannot be resurrected.
[Belgravia] is now, at the request of Parks Victoria, assisting on behalf of Parks Victoria in managing the site on a month by month basis the duration of which is uncertain but expected to be short. Also the nature and extent of remuneration has not yet been at all determined. Parks Victoria will be seeking tenders from the public for the management of the facility at a time to be solely determined by it. We have no control over this process whatsoever.
In view of the above there is no basis upon which your client can expect any further payments to be made to it under the defunct [Dingley agreement]. We consider that matter at an end.
On 4 March 2016, AGS commenced a proceeding against Belgravia in the County Court. The pleadings, in so far as they are relevant to the issues in the application for leave to appeal, are set out below.[5]
[5]See [65]–[72] below.
On 13 April 2016, Parks Victoria wrote to Belgravia and enclosed a draft Deed of Extension and Variation of Management Agreement between the Minister for Environment, Climate Change and Water, Belgravia and Belgravia Group Pty Ltd as guarantor.
Clause 2 of the draft Deed of Extension and Variation of Management Agreement, entitled ‘Extension and variation of the Management Agreement’, provided:
The parties agree to vary the Management Agreement on and from the Variation Date in accordance with the Variations.
‘Management Agreement’ was defined as follows:
Management Agreement means the management agreement between the parties in respect of the Land constituted by the following documents, copies of which are attached to this Deed as Annexure A:
–agreement dated 9 October 1997 between Melbourne Parks and Waterways, [Belgravia] and the Guarantor;
–variation of management agreement dated 8 July 1999 between Parks Victoria (on behalf of Melbourne Parks and Waterways), [Belgravia] and the Guarantor; and
–undated extension and variation of management agreement between the Minister, [Belgravia] and the Guarantor which took effect from 18 November 2010 to 17 November 2015.
‘Land’ was defined as ‘the land described in the Management Agreement and known as Spring Park Golf Course, Springvale Road, Dingley.’ The ‘Variation Date’ was expressed to be 18 November 2016. The term ‘Variations’ referred to ‘the variations to the Management Agreement set out in Annexure A of this Deed.’ The relevant variations in Annexure A were as follows:
2.Clause 1.1 is amended by replacing the words 'fifteen (15) years' with ‘twenty two (22) years’, with the effect that the term of the Management Agreement is extended for a further 2 years from 18 November 2015 until 17 November 2017.
3.Clause 17 of the Management Agreement is deleted and replaced with the following:
’17 Fees
In consideration of [Belgravia] complying with its obligations under the Management Agreement, the Minister agrees that [Belgravia] may retain all revenue associated or attributable to the services provided by [Belgravia] under the Management Agreement, except for the amount of $10,000 plus GST per month, that must be paid to the Minister on or before the 17th of each month during the term of the Management Agreement.’
4. Clause 36 is deleted and replaced with the following:
’36At the end of the Management Agreement ownership of the said complex, Building Improvements, and the Adventure Golf Course will revert and pass to the Minister and [Belgravia] must immediately vacate the Land, including the said complex, Building Improvements and the Adventure Golf Course and leave the Land, the said complex, Building Improvements and the Adventure Golf Course in a good state of repair and in a neat and tidy condition, fair wear and tear excepted.’
The ‘Background’ section of the Deed of Extension and Variation of Management Agreement relevantly included:
D.The parties have agreed to vary the Management Agreement on and from the Variation Date and subject to the terms set out in this Deed.
…
F.This Deed is supplemental to the Management Agreement.
On 3 May 2016, Mr Herchenbach of Belgravia emailed Ms Kidd of Parks Victoria attaching an amended version of the draft Deed of Extension and Variation of Management Agreement which excised all references to the original management agreement and any extension to the term thereof. The amended document was entitled ‘Management Agreement’.
On 18 May 2016, Ms Kidd emailed Mr Herchenbach, relevantly stating:
The changes in land management since the original Management Agreement was issued means that unfortunately it is problematic for us to enter into a new Management Agreement as you’ve proposed. There is no head of power for us to grant an entirely new Management Agreement, a new lease would be the only mechanism however a new short term lease would unlikely satisfy the special circumstances criteria outlined in the Crown Land Leasing Policy for the short period proposed, so it is not really an option for us either.
Some of your suggested amendments may be acceptable to be incorporated into the Deed of Extension and Variation if it assists your dealings with your other party.
On 19 May 2016, Ms Kidd and Mr Herchenbach discussed the proposed arrangement by telephone. Mr Herchenbach asked Parks Victoria to consider continuing the monthly arrangement as it was. Parks Victoria indicated that it would have to consider the proposal and revert to Belgravia.
On 22 June 2016, Ms Kidd emailed Mr Herchenbach confirming that Parks Victoria ‘can move on under the existing arrangement’.
Since November 2015, Belgravia has retained all of the revenue of the Dingley facility. It continues to occupy the Dingley site.
Terms of the management agreement
It is convenient to refer briefly to the operation of the management agreement and its key provisions. The management agreement is dated 9 October 1997 and is expressed to have continued for a period of 10 years from 18 November 1995 (cl 1.1). The parties to the management agreement are Belgravia, Parks Victoria and Belgravia Group Pty Ltd as guarantor of Belgravia’s obligations under the management agreement.[6] The management agreement concerns the Spring Park course, which is owned by Parks Victoria.
[6]At the time of execution, Belgravia was known as Sports Australia, and Parks Victoria was the trading name of Melbourne Parks and Waterways.
Under the management agreement, Parks Victoria appointed Belgravia as its manager for the purpose of overseeing the Spring Park course and assisting and advising Parks Victoria in relation to that course. In particular, Belgravia agreed to provide all the necessary equipment, plant facilities, staff and consultants, and to pay all recurrent fees and charges, in order to enable members of the public to use the Spring Park course as a public golf course (cl 1.2). Belgravia also undertook to ensure, among other things, that it would provide adequate and proper oversight over the operation of the Spring Park course and ensure that all necessary staff are employed and equipment provided to enable that course to be properly run as a public golf course (cl 2). The fees to be charged to members of the public, which Belgravia was responsible for collecting (cl 6(a)), were to be approved by Parks Victoria (cl 4). In consideration of Belgravia acting as manager, Belgravia itself agreed to pay Parks Victoria various fees (cl 17). Parks Victoria also agreed to Belgravia fitting out and operating a pro-shop on that course and the provision of other facilities subject to Parks Victoria’s consent and the obtaining of the necessary statutory permits (recital C and appendix 2).
Terms of the variation agreement
On 8 July 1999, Belgravia, Parks Victoria and Belgravia Group Pty Ltd as guarantor entered into the variation agreement, which was expressed to be supplemental to the management agreement (recital D). As mentioned above, the effect of the variation agreement was to:
(a) extend the term of the management agreement, for a term of five years, to 17 November 2010;
(b) provide Belgravia with an option to request that the management agreement be extended for the length of the option term, but with no option to extend the option term; and
(c) impose conditions which required Belgravia to construct the Dingley facility and a new clubhouse within the building located on the Dingley facility.
Terms of the Dingley agreement
AGS and Belgravia executed the Dingley agreement in early 2000.[7] The recitals to the Dingley agreement read as follows:
[7]At the time of execution, Belgravia was known as Sports Australia.
A.[Belgravia] occupies and operates a site known as ‘Spring Park Golf Course’ (‘the Site’) at Lot 52, Centre Dandenong Road, Dingley pursuant to a Management Agreement dated 9 October 1997 (‘the Management Agreement’) from Parks Victoria (‘Parks Victoria’) or any superseding agreement.
B.The Management Agreement is for a term of ten years commencing upon the 18th day of November 1995 varied by agreement of 8 July 1999 (‘the Variation Agreement’) to be for a term of fifteen years (‘the Term’) and contains an option for one further term of five years (‘the Option’) such option only able to be exercised by Parks Victoria.
C.This Agreement expires at the expiration of the Term or if exercised the expiration of the term of the Option and any further renewal of the Management Agreement.
D.[AGS] has agreed to design and construct a 37 hole adventure golf activity to be known as Dingley Village Adventure Golf on part of the Site upon the terms set out in this Agreement (‘the DVAG Facility’).
E.[Belgravia] shall manage and operate the [Dingley facility] upon the terms set out in this Agreement.
F.Revenue arising out of the operation of the [Dingley facility] shall be shared between the parties in the manner set out in this Agreement.
G.Each of the parties shall contribute to the management, maintenance, operation and development of the [Dingley facility] in the manner set out in this Agreement.
Clause 1 provided, among other things, that AGS shall, at its own cost, design, construct and landscape a 37-hole adventure golf facility in accordance with planning application plans and specifications attached to the Dingley agreement.
Critically, cl 6 specified the duration of the Dingley agreement. It reads as follows:
This Agreement shall continue to have effect for and so long as [Belgravia] occupies the Site in accordance with the Management Agreement. In the event that [Belgravia] chooses to take up the Option then [AGS] may elect to continue this Agreement for the term of the Option. In the event that [Belgravia] assigns its rights under the Management Agreement during the term it may do so only subject to the assignee of the Management Agreement also accepting an assignment of this Agreement.
One of the features of the Dingley agreement was that it obliged Belgravia to pay AGS a proportion of the revenue generated by the Dingley facility. Clause 3, which is summarised below,[8] set out a number of obligations on the part of Belgravia under the Dingley agreement. Clause 3(c), in particular, provided that Belgravia shall collect and remit to AGS an agreed proportion of round fees paid by patrons of the Dingley facility in accordance with the terms of the payment schedule set out at schedule D of the Dingley agreement. Relevantly, cl 1 of schedule D provided that Belgravia shall pay AGS a share of green fees calculated as 45 per cent of net green fees, which were calculated ‘as aggregate adventure golf green fees’ with certain deductions for rent and water charges. The other clauses of schedule D made provision for the period within which Belgravia was to pay green fees to AGS and the adjustment of the share of aggregate green fees payable to AGS.[9]
[8]See [64] below.
[9]In particular, cl 4 of schedule D provided: ‘Subject to the agreement of the parties, the share of aggregate green fees payable by [Belgravia] to [AGS] pursuant to item 1 of this Schedule D shall be adjusted to maintain the immediate previous (for the last completed financial year) proportional profit of [Belgravia] as a proportion of total Site revenue in the event of any material increase in operating costs of the Site consequent upon increases in adventure golf costs resulting from events beyond the control of [Belgravia] where the rate of growth of those costs exceeds the rate of increase in the Consumer Price Index – All Groups Melbourne for the immediately past four completed quarters.’
Clause 16 provided that property in the Dingley facility would remain with AGS and that, at the expiration of the Dingley agreement, AGS shall remove the Dingley facility (subject to landscaping and reinstatement). That clause also provided:
Property in the [Dingley facility] shall vest in Parks Victoria in the event that:
(a)the [Dingley facility] is not removed from the Site in accordance with the terms of this clause on or before 31 January 2011;
(b)the Management Agreement is terminated on account of default of [Belgravia] as defined in the Management Agreement;
(c)upon the expiry of the Management Agreement if the Management Agreement is extended pursuant to the exercise of the Option.
Clause 7 described the consequences of early termination by Parks Victoria for breach of the Dingley agreement by Belgravia. Relevantly, it provided that, in the event that Belgravia were required to vacate the Dingley site consequent upon a breach of the management agreement by Belgravia, AGS shall either: (a) be paid compensation by Belgravia, which is to be calculated as the difference between its expenditure and the depreciation claimed by AGS over a 12-year life, multiplied by the unexpired portion of the initial term of the Management Agreement (i.e. to 17 November 2010) calculated in years; or (b) accept an assignment of the management agreement.
Clause 11 provided that Belgravia would attend to all minor maintenance, by personnel with relevant practical experience, of the Dingley facility. Such maintenance included garden maintenance, turf sanding, sweeping, minor repairs, general cleaning and replacing worn grass where necessary. Belgravia was also required to maintain the Dingley facility to a standard acceptable to AGS and at least equivalent to the standard of maintenance and presentation of the adventure golf course on the Bellarine Peninsula. The clause also provided that review of this process ‘should be included’ at monthly operating meetings.
Clause 12 provided that AGS would undertake major maintenance and facility upgrades at its cost and under its supervision. To those ends, AGS would also conduct a facility inspection once every three months. Major maintenance included all work and repairs of a structural or development nature. Development included remodelling, and AGS was required to remodel on average not less than one hole per year commencing no later than the third year of the Dingley agreement.
Clauses 13 and 14 provided that each of AGS and Belgravia, respectively, was permitted to assign or transfer its rights and obligations under the Dingley agreement to a person approved by the other party, such approval not to be unreasonably withheld. In the event that AGS exercised that right, Belgravia would have had a right of first refusal.
Clause 21 provided that the relationship between the parties was not one of ‘partnership, employment or agency’ and that nothing in the Dingley agreement ‘shall be construed to give either party the right to enter into any commitment or incur liabilities on behalf of the other’.
Clause 22 provided that the Dingley agreement superseded all prior agreements, arrangements and undertakings for ‘the DVAG site’[10] between the parties and constituted the entire agreement between the parties.
[10]This term is not defined anywhere in the Dingley agreement; presumably, it is a reference to ‘the DVAG Facility’, which is defined in recital D (see [52] above), and to which I refer, for the sake of consistency, as ‘the Dingley site’.
Clause 2 set out several obligations of AGS under the Dingley agreement. Relevantly, AGS was obliged to:
(d) attend to facility upgrades and major maintenance (cl 2(a));
(e) advise Belgravia upon minor maintenance (cl 2(b));
(f) contribute 45 per cent towards the cost of carpark entry, expansion and upgrades (cl 2(c));
(g) attend to modifications to the clubhouse located on the Dingley facility, where required (cl 2(d));
(h) attend monthly management meetings in respect of the Dingley facility (cl 2(e));
(i) provide such reasonable assistance as Belgravia required in developing annual business plans for the Dingley facility (cl 2(f));
(j) provide such reasonable assistance as Belgravia required in developing the budget for the Dingley facility and, in consultation with Belgravia, fix the green fees for the Dingley facility, such fees to reflect market conditions for the Dingley facility (cl 2(g));
(k) provide such reasonable assistance as Belgravia required in developing the marketing plan for the Dingley facility (cl 2(h));
(l) participate in joint promotions of itself and the Dingley facility (cl 2(i));
(m) pay certain promotional costs (cl 2(j)); and
(n) pay 50 per cent of the legal and statutory charges associated with the management agreement and 50 per cent of the costs of preparation of the Dingley agreement (cl 2(k)).
By cls 3 and 4, Belgravia was obliged to:
(o) make the Dingley site available for the purposes of construction of the Dingley facility (cl 3(a));
(p) at its cost, manage, promote, operate and market the Dingley facility in a professional manner (cl 3(b));
(q) collect and remit to AGS an agreed proportion of the round fees paid by patrons of the Dingley facility in accordance with the payment schedule in the Dingley agreement, which is elaborated above in relevant part (cl 3(c));[11]
[11]See [55] above.
(r) attend to maintenance, upgrade and redevelopment of the Site so as not to detract from the Dingley facility (cl 3(d));
(s) manage, operate and market the Dingley site so as not to detract from the Dingley facility (cl 3(e));
(t) apply not less than four per cent of the annual aggregate round fees paid by patrons of the Dingley facility for the purposes of promoting adventure golf, unless the parties agreed that such amounts would be better applied in further development of the Dingley facility (cl 3(f));
(u) contribute $106,000.00 towards the cost of the clubhouse component of the building (cl 3(g));
(v) at its cost, fit to the clubhouse a security system, shop hardware, store shelving, etc. (cl 3(h)) and, with AGS’s co-ordination, arrange for the connection of various utilities (cl 3(i));
(w) at its cost, with AGS co-ordination, arrange for the erection of temporary fencing during the construction phase of the Dingley facility and permanent fencing at the completion of construction (cl 3(j)) and contribute 55 per cent towards the cost of carpark entry, expansion and upgrades (cl 3(k));
(x) develop an annual marketing plan and supply it to AGS (cl 4(a));
(y) prepare an annual budget and supply it to AGS (cl 4(b));
(z) convene and report to regular management meetings with AGS (cl 4(c));
(aa) undertake ongoing operational reviews and staff training (cl 4(d));
(bb) prepare and supply to AGS monthly operating reports (cl 4(e));
(cc) attend to payroll administration, accounts payable, banking of receipts and reconciliations (cl 4(f));
(dd) attend to ongoing systems development (cl 4(g));
(ee) undertake such administrative and secretarial functions as required for the efficient operation of the Dingley facility (cl 4(h)); and
(ff) provide such additional reports as AGS reasonably requires from the data collected by Belgravia in the operation of the business (cl 4(i)).
The proceedings below
By writ and statement of claim dated 4 March 2016, AGS commenced the present proceeding against Belgravia.
The statement of claim pleaded the existence of the management agreement, the variation agreement (and its effect on the management agreement) and the Dingley agreement. Paragraph 6 pleaded certain terms of the Dingley agreement, including that the Dingley agreement ‘will continue to have effect for and so long as [Belgravia] occupies the site in accordance with’ the management agreement, including (at the option of AGS) during the option term. Paragraph 7 alleged that AGS and Belgravia owed each other fiduciary obligations. It reads as follows:
Under the [Dingley agreement] the Plaintiff and the Defendant owed each other fiduciary obligations whereby they:
(a)could not act solely with regard to their own interests in respect of the control and operation of the facility;
(b)could not allow a situation to arise whereby their interests were in conflict with their duties under the [Dingley agreement];
(c)could not derive any benefit that, under the [Dingley agreement], was to be obtained if at all for their joint benefit;
(d)could not pursue, obtain or retain for themselves any collateral advantage in relation to the facility of the [Dingley agreement] without the knowledge and informed assent of the other.
The statement of claim also alleged that:
(gg) in or about 2010, Belgravia exercised the option under the management agreement, as varied, to extend the term of the management agreement for a further five years and that AGS elected to continue the Dingley agreement (paragraph 9);
(hh) the management agreement expired on or about 18 November 2015 (paragraph 10);
(ii) in or about 2015, Parks Victoria agreed to allow Belgravia to remain in occupation and control of the Dingley facility and to collect the revenues of that facility, until such time as Parks Victoria entered into a new agreement with an operator to manage and operate the facility on Parks Victoria’s behalf (defined as ‘the holding over’) (paragraph 11);
(jj) Belgravia was able to negotiate the holding over by virtue of its status as the operator and manager in possession of the Dingley facility and obtained that benefit in its capacity as a fiduciary under the Dingley agreement (paragraph 12); and
(kk) Belgravia ‘has, since 18 November 2015, remained in occupation of [the Dingley site] and in accordance with the terms of the Management Agreement and has continued to collect and receive the revenues of the facility’ (paragraph 13).
Paragraph 14 of the statement of claim alleged that, in breach of the Dingley agreement, Belgravia has ‘denied that the [Dingley agreement] remains in operation in respect of [Belgravia’s] occupation after 18 November 2015 and denies that [AGS] remains entitled to receive any share of the revenue received by [Belgravia] in respect of the period after that date’. It also alleged that Belgravia has not paid any revenue to AGS since 18 November 2015.
Paragraph 15 of the statement of claim alleged that, in breach of its fiduciary duties owed to AGS, Belgravia ‘has taken the opportunity to remain in occupation pending Parks Victoria’s negotiation of a new Management Agreement solely for its own benefit and to the exclusion of’ AGS.
On 20 May 2016, Belgravia requested further particulars in relation to the allegation that AGS and Belgravia owed each other fiduciary obligations under the Dingley agreement. On the same day, AGS provided the following particulars:
The obligations arise by operation of the principals [sic] of equity in light of the obligations assumed by the parties under the agreement and the vulnerabilities that they were exposed to by their reliance upon the other party … [T]he Agreement is structured to provide that each party brings separate skills and performs separate services relating to the conduct of the Spring Park Golf facility in return for which they agreed to share the revenue received by your client.
On 20 October 2016, Belgravia filed an amended defence and counterclaim. Relevantly, it denied the existence of fiduciary obligations between it and AGS. It alleged that each of the parties’ rights and obligations under the Dingley agreement came to an end upon the expiry of the management agreement on or about 18 November 2015. It referred to its letter to Parks Victoria dated 11 November 2015[12] and alleged that, since the expiry of the management agreement, Belgravia has ceased to occupy the Dingley site ‘in accordance with the Management Agreement’ and has been occupying the Dingley site and managing the golf course and facilities ‘in accordance with the terms of its letter to Parks Victoria dated 11 November 2015’. Belgravia also denied AGS’s alleged entitlement to revenue received by Belgravia after 18 November 2015.
[12]See [34] above.
By its counterclaim, Belgravia alleged that AGS had breached the Dingley agreement by not remodelling ‘an average of not less than one hole per year commencing in the third year’ of the Dingley agreement.[13] It also alleged the payment of money to AGS by mistake in so far as Belgravia had failed to make certain deductions for rent and water charges from those payments. The issues that arose on the counterclaim are not relevant to the application for leave to appeal.
[13]This obligation was contained in cl 12 of the Dingley agreement. See [59] above.
Reasons of the trial judge
In his reasons, the trial judge identified a number of issues that arose for determination. For present purposes, it will be necessary only to identify those issues which concern the application for leave to appeal, namely:
(a)whether the Dingley Agreement came to an end upon the expiry of the Variation Agreement on 17 November 2015;
(b)whether Belgravia owed AGS fiduciary obligations in 2015 which required it to only enter into an arrangement with Parks Victoria for the continuation of Belgravia’s occupation of the Dingley site which allowed the Dingley Agreement to continue for the period of Belgravia’s continued occupation;
(c)whether Belgravia breached its fiduciary duties, and if so, what relief (if any) should be granted …[14]
[14]Reasons [17].
Purported termination of the Dingley agreement
The trial judge first addressed the question whether the Dingley agreement came to an end upon the expiry of the variation agreement. He set out cl 6 and recitals A, B and C of the Dingley agreement.[15] He said that recital C seemed to contemplate that the duration of the Dingley agreement would ‘expire’ on the happening of one of ‘the expiration of the term’ of the variation agreement (17 November 2010), ‘the expiration of the term of the option’ (17 November 2015) or ‘any further renewal of the Management Agreement’.[16] The trial judge noted that the last option seemed to be foreshadowed by recital A, which provided that Belgravia would occupy the Dingley site pursuant to ‘the Management Agreement’ or ‘any superseding agreement’.[17] He added:
The expression ‘any superseding agreement’ may include, not only the Variation Agreement which had been executed by Sports Australia and Parks Victoria on 8 July 1999, but also ‘any further renewal of the Management Agreement’. This alternative was not, however, expressly referred to in clause 6 or any of the other operative clauses in the Dingley Agreement.[18]
[15]Ibid [18]–[22].
[16]Ibid [23].
[17]Ibid [24]. Later in his reasons, the trial judge said that, ‘although recitals A and C of the Dingley Agreement appeared to foreshadow the possibility of a “superseding agreement” or a “further renewal” of the Management Agreement, this was not reflected in clause 6, or any other provision of the Dingley Agreement’: at [78(d)].
[18]Ibid [25].
Next, the trial judge outlined, in chronological order, the relevant events and correspondence exchanged between AGS, Belgravia and Parks Victoria, including the letters between Belgravia and Parks Victoria that enclosed the draft Deed of Extension and Variation of Management Agreement.[19]
[19]Ibid [26]–[52].
Finally, the trial judge said that, in his final submissions, counsel for AGS did not seriously contest that the management agreement had expired on 17 November 2015,[20] despite AGS’s pleading that Belgravia ‘has, since 18 November 2015, remained in occupation of [the Dingley site] and in accordance with the terms of the Management Agreement’.[21] The trial judge held that the use of the phrase ‘holding over’ by Belgravia in its discussions with Parks Victoria both before and after 17 November, and by AGS in its statement of claim, assumed the expiry of the contractual relationship despite Belgravia remaining in occupation.[22]
[20]Ibid [54].
[21]See [67(e)] above.
[22]Reasons [54].
Whether the parties owed each other fiduciary obligations
At trial, counsel for AGS contended that, in late 2015, when Belgravia had been negotiating with Parks Victoria about the future of their relationship concerning the Dingley site, Belgravia’s fiduciary obligations to AGS required Belgravia only to pursue its continued occupation of the Dingley site in circumstances where AGS would continue to enjoy the benefits of the Dingley agreement.[23] Accordingly, so AGS submitted, Belgravia was ‘precluded from seeking to take for themselves the benefit of any further contract with Parks Victoria, that could be fairly described as a renewal, without acknowledging [AGS’s] entitlement to a share of the revenue’.[24] AGS identified two bases upon which Belgravia had owed fiduciary obligations to it: (a) the nature of the ‘joint venture’ arrangement between AGS and Belgravia; and (b) as a consequence of the Dingley agreement, in that the parties had anticipated in that agreement that the arrangement between AGS and Belgravia might continue if Belgravia continued to occupy the Dingley site beyond November 2015 pursuant to an agreement with Parks Victoria.[25]
[23]Ibid [61].
[24]Ibid [62].
[25]Ibid [63].
The trial judge rejected the contention that the parties owed each other fiduciary obligations generally and, in particular, that Belgravia owed fiduciary obligations to AGS at the time of its negotiations with Parks Victoria about the future of their relationship concerning the Dingley site.[26] In doing so, he distinguished the arrangement between AGS and Belgravia from that in United Dominions Corporation Ltd v Brian Pty Ltd,[27] upon which AGS had relied in contending that fiduciary obligations arose from the nature of a joint venture arrangement between the parties.[28] Having considered in detail a number of provisions of the Dingley agreement and the parties’ respective financial obligations under that agreement, the trial judge said:
I have previously examined the provisions of the Dingley Agreement in relation to its term, and the relationship of that term to the term of the Management Agreement, and by inference, the Variation Agreement. The term of the Management Agreement was extended by the Variation Agreement from 10 to 15 years, with the option of a further 5 years. The option is exercised if Belgravia ‘chooses to take up the option’. AGS may then ‘elect to continue the [Dingley] agreement for the term of the option’.
Accordingly, the Dingley Agreement would terminate on 17 November 2010 (the 15 year term of the Variation Agreement) unless both Belgravia and AGS decide to ‘continue’ the agreement; Belgravia by choosing to take up the option to extend the Management Agreement, and AGS by electing to continue the Dingley Agreement. There is no suggestion that either party, in separately exercising these rights, need take account of the interests or wishes of the other.[29]
The trial judge gave the following reasons for his conclusion:
a.the Dingley Agreement was executed in 2000. It was to have an operation at least until 17 November 2010. In fact, as a result of the exercise of the option in the Variation Agreement by Belgravia, AGS was able to extend the Dingley Agreement for a further five years;
b.beyond 17 November 2010, AGS would not have been able to claim compensation, if Belgravia’s actions had constituted a breach of the Management Agreement, requiring it (and AGS) to vacate the Dingley site;
c.the terms of the Dingley Agreement provided some certainty to the parties’ financial arrangements. There was a lengthy period for AGS to recover the cost of designing and constructing the Dingley facility. It gave the parties an end date. They apparently allowed the Dingley facility to run down as the expiry date of November 2015 approached;
d.although recitals A and C of the Dingley Agreement appeared to foreshadow the possibility of a ‘superseding agreement’ or a ‘further renewal’ of the Management Agreement, this was not reflected in clause 6, or any other provision of the Dingley Agreement;
e.from Belgravia’s perspective, the expiry of the Dingley Agreement meant that it no longer had the burden of paying 45% of the net green fees to AGS;
f.the Dingley Agreement required the parties to co-operate for their joint financial benefit. The obligations of each party were specified in some detail which suggests that, in the absence of such provisions, there were not to be fiduciary responsibilities by one party to the other;
g.the Dingley Agreement expressly stated in clause 21 that, ‘The relationship between the parties is not that of partnership, employment or agency’ (the relationships which ordinarily involve fiduciary obligations);
h.the Dingley Agreement in fact has few of the ‘critical features’ or ‘indicia’ of a partnership or other arrangements by which fiduciary relationships are created. Clause 21 provided that, ‘Nothing in this Agreement shall be constructed to give either party any right to enter into any commitments or incur liabilities on behalf of the other’;
i.the Dingley Agreement provided in recital F that, ‘Revenue arising out of the operation of the [Dingley] facility shall be shared between the parties’. However this was to be done ‘in the manner set out in this Agreement’;
j.otherwise, the ‘features’ of the relationship, the High Court identified in United Dominions as exhibiting ‘all the indicia of a partnership’ are largely absent in the Dingley Agreement. If present, the obligations are defined by the parties in specific provisions;
k.Belgravia and AGS were ‘joint venturers in a commercial enterprise with a view to profit’; revenue was to be shared although not expenses (save for some rental and water charges), and there was no profit sharing;
l.there was no property held on trust. The Dingley site was occupied by Belgravia pursuant to the Management Agreement and the Variation Agreement. Property in the Dingley facility was ‘retained’ by AGS subject to certain specified qualifications;
m.no party was ‘indemnified against loss’. There were mutual obligations and an allocation of risk as in most commercial agreements, but nothing more;
n.the ‘policy of the joint venture’ was not a ‘matter for joint decision’. The parties had specific obligations in respect of each other; to regularly meet, to advise, to provide information and documents, to assist and to participate in joint activities.[30]
[30]Ibid [78].
The trial judge added that the relationship between AGS and Belgravia ‘was one which did not, in any relevant sense, create fiduciary obligations.’[31] He said that, by November 2015, the Dingley agreement ‘had run its course’, with the result that each of AGS and Belgravia was entitled to pursue its own personal interests without obligation to the interests of the other.[32] In the event, the trial judge dismissed AGS’s claim and entered judgment in favour of Belgravia. He also dismissed Belgravia’s counterclaim on the basis that certain payments were not made by a mistaken failure on the part of Belgravia to make appropriate deductions for rent and water charges under the Dingley agreement.[33]
[31]Ibid [79].
[32]Ibid.
[33]Belgravia has made no application in respect of the dismissal of its counterclaim.
Proposed grounds of appeal
AGS has proposed the following two grounds of appeal:
(a)His Honour erred in construing the agreement between the parties as not extending to any renewal or holding over of the management agreement between the Respondent and Parks Victoria after 17 November 2015.
(b)His Honour erred in construing the relationship between the parties as one that did not impose any obligations of a fiduciary nature on them in the conduct of the Adventure Golf Course business under their agreement.
Contentions of AGS
Purported termination of the Dingley agreement
In its written submissions in support of the first proposed ground of appeal, AGS identified recitals A and C and cl 6 of the Dingley agreement as three relevant references to the duration of the parties’ relationship under that agreement. AGS contended that the trial judge’s interpretation of the Dingley agreement, in so far as he concluded that it did not extend to any renewal or holding over of the management agreement after 17 November 2015, ‘required the agreement to contradict itself’. AGS argued that, properly construed, the Dingley agreement contemplated that the management agreement — while it was on foot — might be further renewed at the end of its term and that the parties intended for the Dingley agreement to continue under any such renewal. AGS also said that Belgravia could have had an extension of the term of the varied management agreement if it had entered into the Deed of Extension and Variation of Management Agreement enclosed in Parks Victoria’s letter to Belgravia dated 13 April 2016.[34] However, by the email exchange culminating in Parks Victoria’s email to Belgravia on 22 June 2016, Belgravia ‘has opted for an ad hoc extension of the “existing arrangement”’, which, said AGS, is either expressly or implicitly on the same terms and conditions of the expired management agreement. AGS contended that the trial judge should have concluded that this arrangement fell within the term ‘further renewal’ in recital C of the management agreement.
[34]See [40]–[43] above.
In his oral submissions, counsel for AGS drew attention to the first sentence of cl 6 of the Dingley agreement, which provided that the Dingley agreement ‘shall continue to have effect for and so long as [Belgravia] occupies the [Dingley site] in accordance with the Management Agreement’. Counsel contended that the words ‘in accordance with’ were equivalent to ‘in conformity with’ or ‘on terms in agreement with’, which is wider than the concept of ‘pursuant to’, and should be construed as including: (a) any arrangement whereby Belgravia continues to occupy the Dingley site ‘on terms which are substantially those of the management agreement’;[35] and (b) any renewal of the management agreement.[36] In support of this construction, counsel pointed to the reference to a ‘further renewal’ of the management agreement in recital C.
[35]This was a construction advanced by counsel for AGS at the hearing of the application for leave to appeal.
[36]In its written submissions, AGS said that the Dingley agreement could have otherwise simply stipulated that it continues to have effect ‘for the term of the management agreement’.
Whether the parties owed each other fiduciary obligations
In its written submissions in support of the second proposed ground of appeal, AGS contended that Belgravia owed to AGS fiduciary obligations which precluded Belgravia, during the currency of the Dingley agreement, from negotiating any arrangements with Parks Victoria for Belgravia’s continued occupation of the Dingley site and thereby pursuing its own personal interests. AGS said that the relationship between it and Belgravia was of a ‘horizontal’ nature,[37] where the parties undertook to act exclusively for their mutual benefit. AGS drew attention to several elements of the Dingley agreement, and the relationship between AGS and Belgravia thereunder, which, it said, evinced the necessary mutual trust and confidence to give rise to fiduciary obligations between the parties.
[37]See News Ltd v Australian Rugby Football League Ltd (1996) 64 FCR 410, 539–40 (Lockhart, von Doussa and Sackville JJ).
First, AGS said that it had entrusted Belgravia with its property for Belgravia to use to generate fees for the mutual benefit of both parties. It pointed to cls 1 and 16 of the Dingley agreement in support of this proposition.[38] It contended that it had reposed trust and confidence in Belgravia ‘because it is vulnerable to the uses to which [Belgravia] might put the property and the risks it might expose it to, both physically and under the terms of the management agreement’. Further, AGS argued that Belgravia had agreed to allow AGS a measure of the benefit derived by Belgravia from the exercise of its contractual rights under the management agreement. AGS said that it was vulnerable to Belgravia’s exercise of those rights because it had no contractual entitlement under the management agreement. Accordingly, it said, its interests could be jeopardised by agreements between Belgravia and Parks Victoria to vary or replace the terms of the management agreement in a way which was disadvantageous to AGS.
[38]See [53], [56] above.
Secondly, AGS referred to certain obligations imposed upon it and Belgravia by cls 2 and 4 of the Dingley agreement, respectively.[39] AGS contended that these obligations reflect the fact that: (a) AGS had ongoing obligations in relation to the infrastructure and in relation to providing its expertise to Belgravia to assist Belgravia to perform its obligations; and (b) Belgravia was conducting the business of the Dingley facility and had assumed responsibility for collecting and distributing money for the mutual benefit of both parties. AGS argued that the Dingley agreement provided for each party to assume separate but complementary obligations in relation to the operation of the Dingley facility and its maintenance. The Dingley agreement assumed a high degree of co-operation between the parties in the effective operation of the business, just as it assumed a distribution of the gross proceeds of that business after the deduction of certain expenses. AGS said that the parties did in fact so operate the business and co-operate with one another during the initial 10-year term.
[39]See [63]–[64] above.
AGS contended that, in the present case, the fiduciary obligations owed between it and Belgravia existed at least for the duration of the Dingley agreement. AGS argued that a conflict existed between Belgravia’s fiduciary duty and its personal interest in so far as Belgravia might have obtained an extension of the existing term of the management agreement, in which case there was no doubt that the Dingley agreement would remain on foot and be binding, or, alternatively, it might have sought a completely new agreement which was sufficiently different to fall outside the scope of the Dingley agreement. AGS said that, in the event, Belgravia breached its fiduciary duty by ‘actively seeking to avoid an extension of the term’ of the Dingley agreement. Evocative of its contentions in support of the first proposed ground of appeal, AGS submitted that the new arrangement between Parks Victoria and Belgravia is within the terms of the Dingley agreement ‘as the terms are carried forward from the management agreement’, but the consequence of Belgravia’s breach of duty is the same regardless of the contractual question. AGS argued that the detailed description of each party’s responsibilities under the Dingley agreement does not preclude a fiduciary obligation arising; it said that the nature of the business, the flow-on effects for each participant in it from the other’s behaviour and the extent to which those factors dictated the degree of mutual trust and expectation of the honest and diligent pursuit of the business venture by both parties speaks as much to a relationship of mutual trust and confidence as the terms of the Dingley agreement. Finally, AGS said that the fact that the Dingley agreement specified that the relationship was not that of partnership, agency or employment does not preclude the existence of fiduciary obligations; nor, it said, does the absence of power to bind the other party to a contract.
In his oral submissions, counsel for AGS said that the determination of the existence of a fiduciary relationship called for an examination of the relationship between AGS and Belgravia, how that relationship operated and the parties’ legitimate expectations with respect to that relationship. Echoing the Full Federal Court in News Ltd v Australian Rugby Football League Ltd,[40] counsel said that the actual circumstances of the relationship were such that one party was entitled to expect that the other would act in its interests in and for the purposes of the relationship.[41] Counsel said that, in the present case, AGS and Belgravia came together to operate a business jointly and contribute separate financial outlays with a view to carrying on a business and generating revenue to be divided among themselves in the manner set out in the Dingley agreement.[42] Underpinning this entire arrangement, said counsel, was the management agreement, to which AGS was a stranger. Counsel argued that this factor contributed to AGS’s vulnerability to Belgravia in their relationship under the Dingley agreement. Finally, counsel pointed to three of the letters sent in 2007 from Belgravia to AGS in which the chief executive officer of Belgravia referred to the parties as ‘partners in the business’ or ‘working in partnership’ in the business. He said that these descriptions showed that, during the currency of the Dingley agreement, Belgravia held out the relationship between it and AGS to be one of trust and confidence and that the operation of the Dingley facility was for the mutual benefit of both parties.[43]
[40](1996) 64 FCR 410.
[41]Ibid 541.
[42]Counsel conceded, however, that the arrangement was not a partnership because there was no sharing of profits and the parties could not bind one another with respect to agreements with third parties.
[43]Counsel for AGS referred to Mathieson v Booth [2000] VSC 385, in which Warren J drew support from ‘a constant usage’ by one party ‘of the expressions “partner” and “partnership” at various times in various documents’ to conclude that the real nature of the relationship in question was ‘that of a business partnership giving rise to mutual obligations’: at [106].
Contentions of Belgravia
Purported termination of the Dingley agreement
Belgravia resisted the first proposed ground of appeal primarily on the basis that the issue of the duration of the Dingley agreement was not raised as a discrete issue during the course of the trial.[44] Belgravia pointed to the absence of the construction issue from an agreed list of issues for determination, the closing submissions of AGS and the fact that the trial judge did not conclude whether the relationship between AGS and Belgravia subsisted in accordance with cl 6. When pressed about this matter in oral argument, counsel for AGS conceded that its submissions in respect of the duration of the Dingley agreement arose as part of its claim that a fiduciary relationship existed between AGS and Belgravia; at no stage before or during trial did the construction issue arise as a discrete claim. Belgravia also contended that AGS neither pleaded nor raised any proposed ground of appeal on the question whether a ‘renewal’ or ‘holding over’ in fact occurred; the trial judge was not asked to determine whether, nor did he find that, there was a ‘holding over’ consistent with the construction of cl 6 advanced by AGS.
[44]It will be recalled that, in its statement of claim, AGS pleaded that the Dingley agreement ‘will continue to have effect for and so long as [Belgravia] occupies the site in accordance with’ the management agreement, including (at the option of AGS) during the option term.
Belgravia contended that, in any event, cl 6 of the Dingley agreement aligned the duration of the Dingley agreement with that of the management agreement and that of the variation agreement, which expired at the end of the option term on 17 November 2015. Accordingly, said Belgravia, the Dingley Agreement expired on the same date. Belgravia also argued that AGS’s construction of the Dingley agreement by reference to recitals A and C is contrary to the parties’ express designation of cl 6 as the operative provision of the Dingley agreement and contrary to principles of contractual construction. Further, Belgravia referred to what it considered to be the commercial context of the Dingley agreement: during and following the construction of the Dingley facility, AGS’s costs were front-loaded whereas Belgravia’s costs were ongoing and, thus, a shorter period of revenue sharing would benefit Belgravia, while a longer period would favour AGS. Belgravia said that, consistently with these circumstances and the uncertainty regarding the precise form of any subsequent arrangement, the parties by cl 6 expressly preserved their right to ‘choose’ or ‘elect’ in 2010 whether to proceed with the option term. It would be highly inconsistent in this context, said Belgravia, for the parties to bind themselves in 2000 (without ever actually saying so in the operative provisions) to an unknown and uncertain ‘subsequent arrangement’ of indefinite duration that would not be known until 2015. According to Belgravia, such a construction of cl 6 coheres with the terms of the Dingley agreement that provide AGS with assurance as to the performance of the Dingley Agreement until the end of the initial term of the management agreement in 2010, but not thereafter.[45]
[45]In support of this contention, Belgravia pointed to cls 7 and 16 of the Dingley agreement. See [56]–[57] above.
Whether the parties owed each other fiduciary obligations
In its written submissions in support of the second proposed ground of appeal, Belgravia relied upon the trial judge’s reasoning in concluding that AGS and Belgravia did not owe each other fiduciary obligations during the currency of the Dingley agreement. In particular, Belgravia identified the following matters which, it said, supported that conclusion:
(ll) clause 21 of the Dingley agreement expressly stipulated that the relationship between the parties was not that of partnership, employment or agency, and that clause did not give either party the right to enter into commitments or to incur liabilities on behalf of the other;
(mm) clause 3 defined the parties’ obligations and did not include any obligation to act in the interests of the other party generally, or in any particular instance;
(nn) schedule D provided a formula for determining each party’s return under the Dingley agreement by splitting revenue (not profit), and there was no sharing of net costs, profits or losses: the Dingley agreement permitted one party to make a profit while the other made a loss;
(oo) clause 6 permitted each party to ‘choose’ or ‘elect’ whether to continue after the initial term, and there was no suggestion that either party, in separately exercising these rights, needed to take account of the interests or wishes of the other;[46]
(pp) consistently with cl 21, AGS and Belgravia had no common property, no sharing of profits or losses and no joint liability under the Dingley Agreement or otherwise; and
(qq) the management agreement was not confined to the Dingley facility, but instead related to the Dingley site managed by Belgravia, meaning that consideration of the management agreement would necessarily require consideration of issues regarding the broader Dingley site, in addition to the Dingley facility and the interests of AGS.
[46]Reasons [76].
The first proposed ground of appeal
In Vlahos Pty Ltd v Vlahos,[47] Kyrou JA (with whom Tate and McLeish JJA agreed) recently summarised the following principles on the raising of a new argument on appeal:
There is a fundamental principle that a point not taken at first instance cannot be taken on appeal if evidence could have been given at the first instance trial which by any possibility could have prevented the point from succeeding.[48] Exceptional circumstances will be required in order for a party to introduce an issue for the first time on appeal. Even where the new point sought to be raised is a point not capable of being affected by further evidence, such as an argument as to the construction of a statute or document, the court may not permit it to be relied upon.[49]
In light of this conclusion, the question then becomes whether this Court should permit AGS to rely upon the arguments in support of its first proposed ground of appeal. In my opinion, it should not.
The construction of cl 6 advanced by AGS would necessitate a forensic analysis of the terms upon which Belgravia remains in occupation of the Dingley site. In other words, in order to determine whether Belgravia’s occupation of the Dingley site by means of its arrangement with Parks Victoria is ‘in accordance with’ the management agreement, it would be necessary to inquire into the nature and precise terms of that arrangement. During oral argument before this Court, counsel for both parties said that the terms of Belgravia’s continued occupation of the Dingley site was not in issue at trial and, for that reason, no such inquiries were made. Both parties agreed that the letter from Belgravia to Parks Victoria dated 11 November 2015 best summed up the present arrangement between those parties. However, there is no reason to think that the letter of 11 November 2015 comprised the totality of that arrangement; representatives of Belgravia and Parks Victoria could have been called to give evidence about discussions concerning the arrangement, and it was not disputed that there were additional documents which may have shed more light on that arrangement but which were not before this Court.
Finally, for completeness, it is convenient to revisit the trial judge’s disposition of the relevant issues in his reasons. It will be recalled that the trial judge identified a number of issues that arose for determination at trial. The first three issues, being the only issues that are relevant for present purposes, were as follows:
(a)whether the Dingley Agreement came to an end upon the expiry of the Variation Agreement on 17 November 2015;
(b)whether Belgravia owed AGS fiduciary obligations in 2015 which required it to only enter into an arrangement with Parks Victoria for the continuation of Belgravia’s occupation of the Dingley site which allowed the Dingley Agreement to continue for the period of Belgravia’s continued occupation;
(c)whether Belgravia breached its fiduciary duties, and if so, what relief (if any) should be granted …[58]
[58]Reasons [17].
In his reasons, the trial judge addressed, among other matters, the question whether the Dingley agreement came to an end upon the expiry of the management agreement (as varied by the variation agreement). Accepting that the management agreement had expired on 17 November 2015, the trial judge held that the use of the phrase ‘holding over’ by Belgravia in its discussions with Parks Victoria both before and after 17 November, and by AGS in its statement of claim, assumed the expiry of the contractual relationship despite Belgravia remaining in occupation.[59] He also said that, although recitals A and C of the Dingley agreement appeared to foreshadow the possibility of a ‘superseding agreement’ or a ‘further renewal’ of the management agreement, this was not reflected in cl 6 or any other provision of the Dingley agreement.[60] An examination of the trial judge’s reasons reveals that these observations formed part of a chain of reasoning that culminated in the determination of the question whether Belgravia owed fiduciary obligations to AGS.[61] The trial judge did not deal with any separate contention relating to the construction of the words ‘in accordance with’ in cl 6 or, for that matter, any contention which necessitated a forensic analysis of the terms upon which Belgravia remains in occupation of the Dingley site. Such an analysis is not one upon which the trial judge had to embark, and understandably so, given the way in which AGS ran its case. In the event, the trial judge decided the case on a basis which embraced the real controversy between the parties. It is not for this Court to undertake the forensic analysis that would be necessary to address the argument now raised by AGS in support of its first proposed ground of appeal.
[59]Ibid [54].
[60]Ibid [78(d)].
[61]Also relevant, but not determinative, is the fact that the trial judge’s observations about the discrepancy between the recitals and cl 6 (at Reasons [78(d)]) fell under the heading ‘Conclusions on the issue of fiduciary obligations’.
For these reasons, AGS should not be permitted to rely upon its argument concerning the construction of cl 6 of the Dingley agreement in the application for leave to appeal. If this conclusion is incorrect, it would be necessary to consider whether, as AGS contended, the Dingley agreement extended to any renewal or ‘holding over’ of the management agreement. In my opinion, it did not.
First, I would reject the broad construction advanced by AGS of the words ‘in accordance with’ in cl 6. Whilst the arrangement by which Belgravia occupies the Dingley site need not have been strictly pursuant to the ‘Management Agreement’ (as defined in recitals A and B of the Dingley agreement), the words ‘in accordance with’ require there to be, at least, a similarity in terms between any such arrangement and the management agreement. It will be recalled that the letter of 11 November 2015 expressed Belgravia’s willingness ‘to manage the course and facilities on a short-term month-to-month arrangement’ pending the conclusion of the competitive allocation process to be conducted by Parks Victoria and the determination of ‘a longer-term management solution’. That letter also provided that, pursuant to their arrangement, Belgravia would pay Parks Victoria a sum of $10,000 per month as a management fee and that it would ‘comply with the regulatory and reporting requirements of the current contract’.[62] Even assuming that the letter of 11 November 2015 was exhaustive of the terms of the arrangement between Belgravia and Parks Victoria, the terms of that arrangement bear little resemblance to the terms of the management agreement, which sets out the rights and obligations of each party in a way that can only be described as comprehensive.
[62]See [34] above.
Secondly, the construction of cl 6 advanced by AGS is not supported on a plain reading of the text. Clause 6 provided that it ‘shall continue to have effect for and so long as [Belgravia] occupies the Site in accordance with the Management Agreement’. The term ‘Management Agreement’ was defined in recital A as ‘a Management Agreement dated 9 October 1997’, being the specific agreement into which Belgravia and Parks Victoria had entered. Moreover, recital B commenced by stating that ‘[t]he Management Agreement is for a term of ten years commencing upon the 18th day of November 1995’. Clause 6 also provided that, ‘[i]n the event that [Belgravia] chooses to take up the Option then [AGS] may elect to continue this Agreement for the term of the Option’. The word ‘Option’ was defined in recital B as ‘an option for one further term of five years’ contained in the ‘Variation Agreement’, which was defined in that same recital as an ‘agreement of July 1999’ that varied the ‘Management Agreement’. The definition of each of ‘Management Agreement’ and ‘Option’ contains express reference to the duration of the agreement and the duration of the option term, respectively. Importing these definitions into cl 6, it is clear that, in order for the Dingley agreement to continue to have effect, any occupation of the Dingley site must be ‘in accordance with the Management Agreement’, which is for a term of 10 years, and, in the event that Belgravia ‘chooses to take up the Option’, which is only available under the management agreement (as varied by the variation agreement), and which would amount to one further term of five years, then AGS may elect to continue the Dingley agreement ‘for the term of the Option’.[63] It follows that the longest possible duration of the Dingley agreement was until the end of the option term, being 17 November 2015. There could be no further extension of the Dingley agreement past the option term.
[63]Emphases added.
Thirdly, I would reject the contention of AGS that the words ‘in accordance with’ encompass ‘any further renewal’ of the Dingley agreement. It is to be observed that the only reference in the Dingley agreement to ‘any further renewal’ of the management agreement appears in recital C of the Dingley agreement.[64] Whilst recitals can be used as an aid to construction of an operative provision in an agreement, they are not themselves operative terms.[65] Where, as is the case with cl 6, the operative words are clear and unambiguous, a recital cannot cut down the operative words — no matter how clear and unambiguous the words of that recital might be.[66] In the present case, there is no reason to read the term ‘any further renewal’ into cl 6. It therefore becomes unnecessary to consider whether the extant arrangement between Belgravia and Parks Victoria amounts to a ‘further renewal’ of the management agreement.
[64]Recital C provides: ‘This Agreement expires as the expiration of the Term or if exercised the expiration of the Option and any further renewal of the Management Agreement.’
[65]Franklins Pty Ltd v Metcash Trading Ltd (2009) 76 NSWLR 603, 695 [380] (Campbell JA).
[66]Ibid, citing O’Loughlin v Mount (1998) 71 SASR 206, 217–9; Chacmol Holdings Pty Ltd v Handberg (2005) 215 ALR 748, 757–9, 772 [38]–[50], [105]; Harpur v Levy (2007) 16 VR 587, 601 [63]; Ellis v Dariush-Far (2007) 242 ALR 635, 638 [18]; Bebarfald & Co Ltd v Macintosh (1911) 12 CLR 139, 161–3 (Isaacs J). See also Mercanti v Mercanti (2016) 50 WAR 495, 523–4 [117].
Fourthly, cl 6 of the Dingley agreement makes no reference to any ‘holding over’ of the management agreement. The term ‘holding over’ is one that appears to have been used in correspondence between the parties and subsequently adopted by AGS in paragraph 11 of its statement of claim to describe the arrangement between Belgravia and Parks Victoria.[67] Quite apart from its obscurity, the term could not be implied; the Dingley agreement was perfectly effective without it.
[67]Paragraph 11 of AGS’s statement of claim alleges: ‘In or about 2015 Parks Victoria agreed to allow [Belgravia] to remain in occupation and control of the [Dingley facility], and to collect the revenues thereof, until such time as Parks Victoria entered into a new agreement with an operator to manage and operate the facility on Parks Victoria’s behalf (“the holding over”).’ In its defence, Belgravia pleaded, among other things, that it has ceased to occupy the Dingley site ‘in accordance with the Management Agreement’ and has been occupying the Dingley site and managing the golf course and facilities ‘in accordance with the terms of its letter to Parks Victoria dated 11 November 2015’, which terms are set out at [34] above.
Finally, cl 6 makes it clear that, upon the expiry of the original term of the management agreement, neither of the parties was obliged to continue to be bound by the Dingley agreement. In the first place, cl 6 gave Belgravia a discretion to take up the Option, after which AGS may elect to continue to be bound by the Dingley agreement until the end of the option term. Had Belgravia chosen not to take up the Option and thereafter continued to occupy the Dingley site, AGS would not have been in a position to elect to continue the agreement. This matter reinforces the conclusion that neither of the parties to the Dingley agreement could have objectively intended for its duration to be extended past the option term.
The first proposed ground of appeal must fail.
Did AGS and Belgravia owe each other fiduciary obligations in the conduct of the business under the Dingley agreement?
The second proposed ground of appeal contends that the relationship between the parties imposed obligations of a fiduciary nature on them in the conduct of the adventure golf course business under the Dingley agreement. The pleaded basis for the existence of fiduciary obligations between AGS and Belgravia was the nature of their relationship under the Dingley agreement.
The essence of a fiduciary relationship is that one party to the relationship is obliged to act in the interests of another party (or, in the case of a partnership or joint venture, their joint interest) to the exclusion of the former’s self-interest. As a result, the fiduciary is prevented from entering into any engagement in which the fiduciary has, or could have, a personal interest conflicting with that of his or her principal; nor is the fiduciary allowed to retain any benefit or gain obtained or received by reason of or by use of its fiduciary position or through some opportunity or knowledge resulting from it.[68]
[68]Chan v Zacharia (1984) 154 CLR 178, 198–9 (Deane J); Howard v Commissioner of Taxation (2014) 253 CLR 83, 99–100 [33] (French CJ and Keane J). See also Boardman v Phipps [1967] 2 AC 46, 123–4 (Lord Upjohn dissenting).
There is no single test for determining whether a fiduciary relationship exists in any given case. Courts will readily infer that certain relationships give rise to fiduciary duties, such as the relationship between trustee and beneficiary,[69] director and company,[70] agent and principal,[71] solicitor and client,[72] employee and employer,[73] and partners inter se.[74] The categories of relationships giving rise to fiduciary duties are not closed.[75] The features that are common to the established relationships which give rise to fiduciary duties will inform the question whether such duties arise outside those relationships. Thus, ‘we have to distil the essence or the characteristics of the relationships from the illustrations which the judicial decisions provide’.[76]
[69]See, eg, Keech v Sandford (1726) Sel Cas t King 61; 25 ER 223.
[70]See, eg, Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134.
[71]See, eg, McKenzie v McDonald [1927] VLR 134.
[72]See, eg, Tyrell v Bank of London (1862) 10 HLC 26; 11 ER 934.
[73]See, eg, Canadian Aero Services Ltd v O’Malley (1983) 40 DLR 371, 391. However, as Nettle J observed in Victoria University of Technology v Wilson (2004) 60 IPR 392, ‘[t]he scope of an employee’s fiduciary duties to the employer depends as much as anything upon the nature and terms of the employment’: at 438 [145].
[74]See, eg, Chan v Zacharia (1984) 154 CLR 178.
[75]Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41, 68 (Gibbs CJ) 96 (Mason J); United Dominions Corp Ltd v Brian Pty Ltd (1985) 157 CLR 1.
[76]Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41, 96 (Mason J).
A frequent starting point in describing the nature of a fiduciary relationship has been the judgment of Mason J in Hospital Products Ltd v United States Surgical Corporation,[77] which, although dissenting in the result, is considered to be an important and correct statement of principle.[78] Mason J said:
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.[79]
[77](1984) 156 CLR 41 (‘Hospital Products’).
[78]J D Heydon, M J Leeming and P G Turner, Meagher, Gummow and Lehane’s Equity: Doctrines and Remedies (LexisNexis Butterworths, 5th ed, 2015) 141–2 [5-005].
[79]Hospital Products (1984) 156 CLR 41, 96–7. See also Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296, 345 [177] (Finn, Stone and Perram JJ).
Mason J added that 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 or her responsibilities.[80] He concluded:
It is partly because the fiduciary’s exercise of the power or discretion can adversely affect the interests of the person to whom the duty is owed and because the latter is at the mercy of the former that the fiduciary comes under a duty to exercise his power or discretion in the interests of the person to whom it is owed.[81]
[80]Ibid 97.
[81]Ibid.
In Breen v Williams,[82] Gaudron and McHugh JJ identified several circumstances that point towards, but do not determine, the existence of a fiduciary relationship:
These circumstances, which are not exhaustive and may overlap, have included: the existence of a relation of confidence; inequality of bargaining power; an undertaking by one party to perform a task or fulfil a duty in the interests of another party; the scope for one party to unilaterally exercise a discretion or power which may affect the rights or interests of another; and a dependency or vulnerability on the part of one party that causes that party to rely on another.[83]
[82](1996) 186 CLR 71.
[83]Ibid 107.
The existence of one or more of the above indicia is not determinative of the existence of a fiduciary relationship; ‘the fundamental question is for what purpose, and for the promotion of whose interests, are powers held?’[84] That being said, a fundamental and inflexible feature of a fiduciary relationship is the existence of an obligation of loyalty: ‘[t]he principal is entitled to the single-minded loyalty of his fiduciary’.[85]
[84]C-Shirt Pty Ltd v Barnett Marketing and Management Pty Ltd (1996) 37 IPR 315, 335 (Lehane J). See also News Ltd v Australian Rugby Football League Ltd (1996) 64 FCR 410, 541.
[85]Bristol & West Building Society v Mothew [1998] Ch 1, 18 (Millett LJ). See Boardman v Phipps [1967] 2 AC 46, 123; Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296, 345 [178].
More often than not, commercial transactions which were negotiated at arm’s length between self-interested and sophisticated parties on an equal footing do not give rise to fiduciary duties.[86] Similarly, equity will not lightly impose fiduciary duties on parties to a well-defined contractual relationship in which the parties have prescribed in detail their rights and obligations.[87] The reluctance of equity to intervene in these situations is understandable: the relationship between the parties is far removed from those relationships which tend towards the existence of fiduciary duties and exhibit such features as an undertaking to act for or on behalf of another, a representative character, loyalty, dependency, ascendancy, vulnerability, reliance and so on. The principle was conveyed succinctly in John Alexander’s Clubs Pty Ltd v White City Tennis Club Ltd:[88]
[T]he reason why commercial transactions falling outside the accepted traditional categories of fiduciary relationship often do not give rise to fiduciary duties is not that they are ‘commercial’ in nature, but that they do not meet the criteria for characterisation as fiduciary in nature.[89]
[86]Streetscape Projects (Australia) Pty Ltd v City of Sydney (2013) 295 ALR 760, 782 [121] (Barrett JA, with whom Meagher and Ward JJA agreed). See also Fubilan Catering Services Ltd v Compass Group (Australia) Pty Ltd [2007] FCA 1205 [588], [594] (French J), affirmed in Fubilan Catering Services Ltd v Compass Group (Australia) Pty Ltd [2008] FCAFC 53 [114]; Paul Dainty Corporation Pty Ltd v National Tennis Centre Trust (1990) 22 FCR 495, 515. See generally Howard v Commissioner of Taxation (2014) 253 CLR 83, 100–1 [35] (French CJ and Keane J).
[87]Fubilan Catering Services Ltd v Compass Group (Australia) Pty Ltd [2007] FCA 1205 [594]. See generally P A Keane, ‘The 2009 W A Lee Lecture in Equity: The conscience of equity’ (2010) 84 Australian Law Journal 92, 98. As Justice Keane recounts: ‘Chancery never set out to provide general regulation of dealings in the market place, being more concerned with real property. Chancery did not set out to correct the clear eyed and hard hearted perception of the common law that loss suffered in trade or commerce ‘is often no more than one of the ordinary consequences of participation in a market economy’ (quoting Perre v Apand Pty Ltd (1999) 198 CLR 180, 299).
[88](2010) 241 CLR 1.
[89]Ibid 35 [90] (French CJ, Gummow, Hayne, Heydon and Kiefel JJ), citing J R F Lehane, ‘Fiduciaries in a Commercial Context’ in P D Finn (ed), Essays in Equity (Law Book, 1985) 95, 104. To the same effect is the treatment of the distributorship agreement by Deane J in Hospital Products (at 122–3): ‘The express term of the contract in the present case requiring the distributor to use its “best efforts” to build up the market for, and distribute, the products in Australia “to the common benefit” of both manufacturer and distributor did not, of itself, impose a general fiduciary duty on the distributor to seek no profit or benefit for itself or to disregard its own interests where they conflicted with the manufacturer’s. In the context of the term precluding the distributor from dealing in any competing product, the reference to “the common benefit” was no more than a reflection of the commercial fact that, while the distributorship subsisted, it was in the interests of both manufacturer and distributor that, consistently with ordinary economic restraints on pricing, the market for the manufacturer's product in the relevant area be maximized’.
However, that is not to say that a commercial relationship can never be fiduciary in character. It is important to recognise that fiduciary relationships are rarely fiduciary for all purposes; most fiduciary relationships, and particularly those which arise against the backdrop of a commercial relationship, are fiduciary only in part.[90] As Professor Finn notes: ‘The fiduciary aspect of a commercial relationship may well only be a small — indeed a quite small — and discrete part of a larger arrangement that exists for the several, the individual, benefit of the participants.’[91] The determination of the scope of a fiduciary relationship is logically distinct from the determination of its existence. The scope defines the reach of the fiduciary relationship; it is the subject matter over which the fiduciary obligations extend.[92] Put simply, ‘a person may be a fiduciary in some activities but not in others’.[93]
[90]New Zealand Netherlands Society ‘Oranje’ Inc v Kuys [1973] 2 NZLR 163, 166 (Lord Wilberforce). See also Paul Finn, ‘Fiduciary reflections’ (2014) 88 Australian Law Journal 127, 135.
[91]Paul Finn, ‘Fiduciary reflections’ (2014) 88 Australian Law Journal 127, 135.
[92]Birtchnell v Equity Trustees Executors & Agency Co Ltd (1929) 42 CLR 384, 408–9 (Dixon J); Breen v Williams (1996) 186 CLR 71, 82 (Brennan CJ). See also Noranda Australia Ltd v Lachlan Resources NL (1988) 14 NSWLR 1, 15–6 (Bryson J).
[93]Hospital Products (1984) 156 CLR 41, 98 (Mason J).
In cases where the commercial relationship is governed by a contract, ‘the ordinary rules of construction of contracts apply’ in determining the existence of a fiduciary relationship and the scope of any fiduciary obligations.[94] In Hospital Products, Mason J said:
In these situations it is the contractual foundation which is all important because it is the contract that regulates the basic rights and liabilities of the parties. The fiduciary relationship, if it is to exist at all, must accommodate itself to the terms of the contract so that it is consistent with, and conforms to, them. The fiduciary relationship cannot be superimposed upon the contract in such a way as to alter the operation which the contract was intended to have according to its true construction.[95]
[94]Australian Securities and Investments Commission v Citigroup Global Markets Australia Pty Ltd (No 4) (2007) 160 FCR 35, 77 [281] (Jacobson J).
[95]Hospital Products (1984) 156 CLR 41, 97. See also John Alexander’s Clubs Pty Ltd v White City Tennis Club Ltd (2010) 241 CLR 1, 36–7 [91]–[93].
In the present case, AGS contended that it was vulnerable to the uses to which Belgravia might put the property on the Dingley facility and the risks to which it might expose that property ‘both physically and under the terms of the management agreement’. I would reject this contention.
The first point to bear in mind is that vulnerability, of itself, cannot be determinative of the existence of fiduciary obligations.[96] Ordinary contractual relationships fall to be governed by an array of doctrines within the sphere of contract, tort and equity. These doctrines serve to ensure that neither party to a contract takes the pursuit of its own interests beyond acceptable bounds or unduly prejudices the interests of the other.[97]
[97]See P D Finn, ‘The Fiduciary Principle’ in T G Youdan (ed), Equity, Fiduciaries and Trusts (Carswell, 1989).
Any vulnerability of AGS, in so far as it concerned Belgravia’s use of the property on the Dingley facility, was plainly a result of its being a party to the Dingley agreement. It will be recalled that, by the operation of cl 16, property in the Dingley facility would remain with AGS during the life of the Dingley agreement (and that property would vest in Parks Victoria upon the occurrence of one of the events in cl 16(a)–(c)). However, cl 3 of the Dingley agreement prescribed a number of obligations on the part of Belgravia in respect of the Dingley facility and (by necessary implication) the property in the Dingley facility. AGS’s only vulnerability in respect of the property ‘was that which any contracting party has to breach by another’.[98] If AGS had established that Belgravia had breached the Dingley agreement with respect to the uses to which Belgravia might put the property on the Dingley facility and the risks to which it might expose that property, AGS would have had recourse to contractual remedies.[99] Moreover, by the provision for property in the Dingley facility to vest in Parks Victoria in certain circumstances, AGS had effectively agreed to renounce (vis-à-vis Belgravia) its proprietary rights in the Dingley facility at some future (albeit certain) time. Thus, the Dingley agreement did not contemplate that Belgravia should come under any obligation, contractual or otherwise, with respect to that property following the occurrence of one of the events in cl 16(a)–(c). It seems now that, by the operation of cl 16(c), property in the Dingley facility has vested in Parks Victoria, AGS not having removed that property and the management agreement having expired at the end of the option term.
[99]Ibid. Cf Streetscape Projects (Australia) Pty Ltd v City of Sydney (2013) 295 ALR 760, 779, 782 [107], [120].
The second form of vulnerability for which AGS contended concerned Belgravia’s rights under the management agreement. AGS argued that, by entering into the Dingley agreement, Belgravia had agreed to allow AGS a measure of the benefit derived by Belgravia from the exercise of its contractual rights under the management agreement. Having no contractual entitlement under the management agreement, AGS said that it was vulnerable to Belgravia’s exercise of its rights under the management agreement. AGS accepted that it would have been entitled to compensation or an assignment of the management agreement in the event that Parks Victoria required Belgravia to vacate the Dingley Site consequent upon a breach of the management agreement by Belgravia (cl 7). However, AGS contended that the Dingley agreement made no provision for AGS in circumstances where Belgravia and Parks Victoria agreed to a new agreement which was sufficiently different to fall outside the scope of the Dingley agreement. Accordingly, it said, its interests could be jeopardised by agreements between Belgravia and Parks Victoria to vary or replace the terms of the management agreement to AGS’s disadvantage.
It is true that Belgravia, by the exercise of its rights under the management agreement, had the power to affect the rights of AGS under the Dingley agreement: it was open for Belgravia and Parks Victoria to agree to a new agreement such as to bring an end to the Dingley agreement. However, it is necessary to bear in mind that AGS had entered into the Dingley agreement knowing this to be so. Further, to say that Belgravia was required to subordinate its own interests to the promotion of those of AGS misses the point that Belgravia was perfectly entitled to pursue its own commercial interests under the management agreement, just as it was, in my opinion, under the Dingley agreement. There may be an argument for the existence in the Dingley agreement of an implied duty of good faith or cooperation requiring Belgravia to do all things necessary to enable AGS to have the benefit of the Dingley agreement.[100] However, this issue did not arise at trial, and it is unnecessary to decide whether such a duty should be implied in the present case. I would add only that, even if such a duty could be implied, its existence would fall well short of elevating the relationship between the parties to one of a fiduciary nature or, for that matter, finding that Belgravia owed any fiduciary obligations to AGS in the sense for which AGS contended.[101]
[100]Streetscape Projects (Australia) Pty Ltd v City of Sydney (2013) 295 ALR 760, 782 [121]. See generally Secured Income Real Estate (Aust) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596; Commonwealth Bank of Australia v Barker (2014) 253 CLR 169.
[101]See, eg, Esso Australia Resources Pty Ltd v Southern Pacific Petroleum NL [2005] VSCA 228 [29]–[30] (Buchanan JA, with whom Warren CJ and Osborn AJA agreed).
There are a number of other features, some of which were identified by the trial judge, that weigh against the conclusion that AGS and Belgravia owed each other fiduciary obligations. The critical starting point is the Dingley agreement itself. The Dingley agreement is elaborate. It spells out a number of rights and obligations on the part of each of AGS and Belgravia that related to the management, maintenance, operation and development of the Dingley facility.[102] Viewed as a whole, these features of the Dingley agreement are difficult to reconcile with an obligation that one party act for or on behalf of or in the interests of the other, except in the broad sense that each party was obliged to perform its obligations under the Dingley agreement in accordance with its terms. Schedule D set out the manner in which the parties would share the revenue generated by the operation of the Dingley facility. There was no sharing of net costs, profits or losses. Thus, as Belgravia observed, the Dingley agreement allowed for one party to make a profit while the other made a loss. Indeed, the evidence at trial was that the revenue payable to AGS between 2012 and 2016 far exceeded the net profit earned by Belgravia in that period.[103] And, as set out above, cl 6 permitted Belgravia to ‘choose’, and AGS to ‘elect’, whether to continue the Dingley agreement beyond the initial term. Neither the terms of the Dingley agreement nor the way in which the parties conducted the adventure golf business thereunder suggests that one party was obliged to subordinate its own interests and to afford paramountcy to those of the other.
[102]See [55], [58]–[59], [63]–[64] above.
[103]Reasons [57].
There is also no evidence of any inequality of commercial experience between AGS and Belgravia. While the relationship may be described as collaborative and in the nature of a joint venture, these features are insufficient to take it outside the realms of an ordinary contractual relationship in which each party was entitled to expect the other to perform its end of the bargain. In this context, it can hardly be said that there existed an obligation of loyalty.
It is also true that the commercial dealings between the parties extend back to 1997 and that, by the time that AGS had commenced construction of the Dingley facility, the parties had not executed any formal written agreement and did not do so until the construction of the Dingley facility was about 80 per cent complete. At best, there was an expectation on the part of AGS, informed by the parties’ previous commercial dealings, that the parties would — assuming that they had not already done so orally — enter into some arrangement with respect to the operation of the Dingley facility once it is constructed. But, ‘the mere fact that one party puts faith and trust in the other is not of itself sufficient to bring equity to centre stage’;[104] and even high expectations do not necessarily attract equitable relief.[105]
[105]Re Goldcorp Exchange Ltd [1995] 1 AC 74, 98 (Lord Mustill).
In my opinion, objectively viewed, the relationship between AGS and Belgravia was not one in which AGS could reasonably have expected Belgravia to act in AGS’s interests for the purposes of the relationship.
For completeness, I would add that cl 21, which provides that the relationship between the parties was not one of ‘partnership, employment or agency’, and that nothing in the Dingley agreement ‘shall be construed to give either party the right to enter into any commitment or incur liabilities on behalf of the other’, is by no means conclusive of the issue. Such a clause must first give way to an analysis of the Dingley agreement in its entirety and the conduct of the parties viewed as a whole. However, its presence does two things. First, it tends in favour of the conclusion that no fiduciary relationship exists in the present case. Secondly, it works against any argument that the relationship between AGS and Belgravia was one of partnership, employment or agency — all established categories of relationships giving rise to fiduciary duties. I am also not persuaded that the references to the parties in the letters sent by the chief executive officer of Belgravia in 2007 as ‘partners in the business’ or ‘working in partnership’ bespeak the existence of fiduciary obligations between the parties. Such references, which, in their context, are colloquial and carry no legal connotations, are plainly insufficient to deem the relationship between the parties to be something which it is not.
In my opinion, AGS has failed to establish the existence of a fiduciary relationship. It cannot succeed in a claim founded on a breach of any such duty.
Conclusion
In the result, I would refuse the application for leave to appeal in respect of the first ground. I would grant the application for leave to appeal in respect of the second ground, but I would dismiss the appeal.
KAYE JA:
For the reasons given by Santamaria JA, I agree.
ASHLEY JA:
I agree in the orders proposed by Santamaria JA for the reasons which his Honour gives.
- - -
- AGLC
- Adventure Golf Systems Australia Pty Ltd (ACN 077 643 175) v Belgravia Health & Leisure Group Pty Ltd (ACN 005 087 463) [2017] VSCA 326
- Case
- [2017] VSCA 326
- Decision Date
CaseChat Overview and Summary
The court considered the existence of a fiduciary relationship between the parties by examining the factors relevant to such a relationship, drawing on precedents like Hospital Products Ltd v United States Surgical Corporation and John Alexander’s Clubs Pty Ltd v White City Tennis Club Ltd. The court found that the nature of the commercial relationship was governed by the contract, and the evidence did not support the existence of a fiduciary relationship as defined in the cited cases. Regarding the contract's interpretation, the court examined the management agreement and the recitals, applying the principle from Franklins Pty Ltd v Metcash Trading Ltd that a recital can be inconsistent with an operative provision and thus not be relied upon. The court also considered whether the appellant could raise issues not previously argued at trial, applying principles from Vlahos Pty Ltd v Vlahos.
The court concluded that the appellant was not permitted to raise the issue of the contract's renewal on appeal as it was not raised at trial, and the trial conduct showed a departure from the pleaded claim. The court did not find merit in the argument that the contract's duration extended to the renewal or 'holding over' of the management agreement. The appeal was dismissed with the court affirming the trial decision.
The final orders of the court were that the appeal was dismissed, and the decision of the trial court was upheld. The court did not permit the appellant to argue the new issue of contract renewal, which was not raised at trial, and found no merit in the argument concerning the contract's duration and the existence of a fiduciary relationship.
Orders
Orders of the court
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Background
Background to the litigation
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Evidence
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Ratio Decidendi
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