City of Sydney v Streetscape Projects (Australia) Pty Limited and Anor

[2014] HCATrans 30

[2014] HCATrans 030

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S157 of 2013

B e t w e e n -

CITY OF SYDNEY

Applicant

and

STREETSCAPE PROJECTS (AUSTRALIA) PTY LIMITED

First Respondent

MOSES EDWARD OBEID

Second Respondent

Application for special leave to appeal

BELL J
GAGELER J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 14 FEBRUARY 2014, AT 11.43 AM

Copyright in the High Court of Australia

MR A.J. SULLIVAN, QC:   May it please the Court, I appear with my learned friend, MR C.N. BOVA, for the applicant.  (instructed by Holding Redlich Lawyers)

MR G.K.J. RICH, SC:   May it please the Court, I appear with my learned friend, MS L.A. THOMAS, for the second respondent.  (instructed by Deutsch Partners)

BELL J:   Yes, Mr Sullivan.

MR SULLIVAN:   Thank you, your Honour.  Your Honours, in our respectful submission, the Court of Appeal in determining that there was no fiduciary duty owed in the present case commenced with a wrong starting point and finished with a wrong starting point.  That starting point is found in the judgment of the Court of Appeal in paragraphs 100 and 107 and may be summarised by – if one looks at application book page 293 in paragraph 100, in talking about in a situation where there is a comprehensive contract, commercial contract between parties of equal bargaining terms, their Honours say:

The contractual terms are paramount.  A fiduciary duty cannot detract from or contradict them.  The two types of obligation – contractual and fiduciary – will, in general, co‑exist only if and to the extent that the sanctions available for breach of contract (including any implied terms) are insufficient to deal with some possibility of unconscionable conduct to which one party is exposed.

A similar sentiment is expressed, a similar view of the test expressed at page 295 in paragraph 107:

The adequacy of remedies for breach of contract is therefore, in general, the determinant of whether there is scope for equity to play a supplementing role by way of the imposition of a fiduciary duty upon a contracting party; and the mere fact that one party puts faith and trust in the other is not of itself sufficient to bring equity to centre stage in that way.

GAGELER J:   Mr Sullivan, where is the best definition of the precise fiduciary duty for which you contend?

MR SULLIVAN:   The best definition of the precise fiduciary duty for which we contend is at page 279, your Honour.  It is in paragraph 57, the quote from the primary judge set out in the judgment of Justice Barrett.

GAGELER J:   So it is a duty to act for and on behalf of the interests of the City.

MR SULLIVAN:   In respect of the information which was entrusted by the City, as found by his Honour the primary judge, to Streetscape.

GAGELER J:   That needs at least to be qualified by the express terms of the contract.

MR SULLIVAN:   It does, your Honour.  One cannot deny that, to the extent to which the contract contradicts the fiduciary duty and/or sets out obligations or rights or imposes restrictions, the contract, of course, will limit and confine the ambit and scope of the fiduciary duty.  But the two do co‑exist or can co‑exist and, as is apparent first of all from statements in this Court in cases such as John Alexander’s Clubs, and of course in the seminal judgments of the High Court in Hospital Products.

Your Honours, the problem, if we might say so, is that having started with the wrong starting point and the court finished with the wrong starting point and that caused them to let error, in our respectful submission, in two ways.  First, it meant that the court did not embark upon what this Court has termed the necessary process of characterisation of the relationship by looking at the merits of the whole relationship including, but not confined to the contract.  That process of characterisation is fundamental to determining in an overall transaction whether there is scope for the imposition of a fiduciary duty.

BELL J:   It seemed to me that at application book 300 and 301, beginning with paragraph 124, one sees the court looking at matters in addition to the sufficiency of redress under the contract.  The court notes this was not a “case of unequal bargaining power”, and then goes on to observe:

Nothing was left to depend on unspoken assurances of good conduct or solicitude.

The only vulnerability which the court identified by reference to John Alexander’s statement of the principle was the vulnerability to breach which exists with any contract.

MR SULLIVAN:   Yes.  Your Honour, with great respect, is correct, that is what the court is saying, but in our respectful submission that is erroneous and may I take your Honours to John Alexander to make good the point?  We have given your Honours a reference to John Alexander and, indeed, a copy is handed up.  A passage, a part of John Alexander which is not referred to in the judgment of the Court of Appeal is what we respectfully submit is the important passage which appears at pages 36 to 37 of the print in 241 CLR 1 at paragraph 93. Having referred at the bottom of page 36 to the concept of entrustment with:

the protection, promotion and custodianship of its product goodwill –

this Court then explained how, in Sir Anthony Mason’s judgment, that caused vulnerability and contrasted it here.  It said at the top of page 37:

Mason J’s characterisation cannot be transposed to the relationship between the Club and JACS.  USSC was a remote principal lacking the capacity to observe what was happening half the world away.

Likewise here, the City was a remote principal lacking the capacity to observe what was happening with respect to the use of its property, its confidential information, in the parts of the world where Streetscape was purporting to deal with it, namely in United Arab Emirates and Singapore.

GAGELER J:   You are not using the word “principal” in any technical sense, though ‑ ‑ ‑

MR SULLIVAN:   No, your Honour.  But, then their Honours, to distinguish the situation, said, “Mr Blackman”, who was the principal of Hospital Products, and I am using it in a technical sense there, your Honour:

and his company were the only persons in contact with the Australian market.

Likewise here, the only person in contact with the people overseas were Streetscape, and they were therefore in a position to take every opportunity to enrich themselves at the expense – that was the situation, in our respectful submission, here as well because because of the entrustment of the information Streetscape was in a position by its dealings as found to enrich itself by the use of this information for profit in other parts of the world without our knowledge.

GAGELER J:   So long as it acted within the terms of the licence the whole point of this contract was to allow itself to use the property to enrich itself.

MR SULLIVAN:   Of course, your Honour.  It was to enrich itself, but in accordance with the contract, but for that purpose it was entrusted with property, in respect of which a vulnerability arose, and the vulnerability was this exposure to dealings with which the City could not control, and the vulnerability there being used, in our respectful submission, in the explanation of vulnerability in John Alexander is an answer to the – it could be equally said, well, any party who enters into a contract will have that vulnerability, but the High Court, in our respectful submission, is making it plain that where there is an entrustment of property there is a special vulnerability of the kind which it identifies and that special vulnerability existed here.

GAGELER J:   Mr Sullivan, just to understand precisely your point, the vulnerability of which you speak was a vulnerability which arose only where there was a breach of the terms of the licence.

MR SULLIVAN:   Well, your Honour, no, for this reason.  There is nothing in the contract to prohibit Streetscape from dealing overseas.  Its only authorised use was for limited territories.  There was nothing prohibiting it from it.  Indeed, clause 15.5 of the licence agreement, if your Honours were to go to that, which is found in the application book ‑ ‑ ‑

BELL J:   At 407.

MR SULLIVAN:   Thank you, your Honour - specifically envisages distribution of poles in areas other than authorised and provides for a contractual remedy in that regard.  May I say two things about that:  first, it does not seek to impose that as an exclusive remedy because your Honours will see that the opening words of clause 15.5 are expressly stated to be:

Without limiting any other right conferred under this Licence, or at law ‑

That similar protection of other rights is expressly conferred in clause 23.2 which is found at page 410 of the application book, namely that:

The rights of a party conferred by this Agreement are cumulative and are not exclusive of any rights provided by law.

So the parties obviously had envisaged, in our respectful submission, a use of the information outside the authorised areas, but there was a regime put in place.  The remedies were not to be just merely contractual.  They were, if the circumstances permitted, also to be those provided for by the law which, in this respect, in our respectful submission, encapsulates the law of equity or fiduciary duty as well. 

The error in the approach of the Court of Appeal, in our respectful submission, is to equate the adequacy of contractual remedies with the imposition of a fiduciary duty.  The point is tellingly made, in our respectful submission, in a very recent article, or an article to be published indeed this month, I think, in this month’s issue of the Australian Law Journal by Professor Paul Finn, and we have given your Honours a copy of that.  But, his Honour, after quoting the relevant part at paragraphs 100 and 107 of the Court of Appeal judgment makes this point, in our respectful submission, correctly ‑ ‑ ‑

GAGELER J:   Mr Sullivan, can you give us a page reference?

MR SULLIVAN:   I am sorry, I thought I had.  It is page 45 of the article, your Honour.  At the top of the page after the end of the quote he says – after quoting from paragraphs 100 and 107, Professor Finn says this:

There are the seeds of real heterodoxy in this.  The finding of a fiduciary relationship, it seems, is to be contingent on the insufficiency – the inadequacy – of the remedies for breach of contract.  Implicit in this is the proposition, not merely that equitable remedies in contractual matters will not be granted as a matter of discretion where common law remedies are adequate and appropriate (an unobjectionable proposition), but that equitable obligations and equitable wrongs are themselves to be defined by reference to the inadequacy of remedies for breach of contract ‑

What he says, with great respect, correctly, is:

(a quite surprising proposition).

His Honour then refers to the quotation from Justice Gummow in Scott v Davis but points out that the supplementation there of equity of common law, is “referrable to established equitable principles”, and the point that is made in a number of cases, indeed in Duke v Pilmer in this Court and in Concut v Worrell, is that equitable principles and contractual principles have different conceptual origins. 

It is one thing to identify the equity – the correct approach, in our respectful submission, is this, in any legal battle, in any legal matter you identify the equity, in other words, what is the common law or the equitable right, then in respect of relief, if both exist, you determine whether, as a matter of discretion, what relief should be granted.

A factor in taking into account what relief should be granted, as opposed to whether the equitable duty exists, is the adequacy of the remedies, but the adequacy of the remedies is not a criterion, in our respectful submission, for the imposition of the equitable duty.  That is, in our respectful submission, the error of approach which has been made by the Court of Appeal, and which led it to fail to consider the true test, and the true test, again, in our respectful submission, is that which Professor Finn postulates at page 46 of his article about halfway down the page where his Honour says in respect of the judgment of the Court of Appeal – I am sorry, where Professor Finn says:

What the court in this appeal did not do, I respectfully suggest, is address the question:  ‘Was Streetscape a fiduciary in consequence of the limited, the circumscribed, use it could properly make of the intellectual property etc it obtained from Sydney which were subjects of the Licence Agreement?’

What was overlooked or, with respect, deliberately ignored by the Court of Appeal - I say “deliberately” because it appears from paragraphs 128 and following - was the context in which this licence agreement was entered into.  It was entered into, in our respectful submission, in circumstances where there had been a voluntary undertaking of custodianship or acceptance of an entrustment of property.  That is summarised in the trial judge’s findings of the facts giving rise to a fiduciary duty which appear at pages 168 to 169 of the application book in paragraphs 437 and 438.

The relevant subparagraphs are subparagraph (2) on page 168, of paragraph 437, and then in paragraphs (6) to (10) on page 169 where, from the very material which was put forward by Streetscape in order to encourage the continued existence it promised to be the custodian of the pole, it promised to market the pole on behalf of the City of Sydney and, indeed, it took on itself, as your Honours will see in the last paragraph, the role of “protector of the intellectual property”.  They are the express matters it said it was doing and ‑ ‑ ‑

BELL J:   This was before entering into the licence agreement.

MR SULLIVAN:   Yes.  But what the Court of Appeal said, look, ignore that, this was a fresh start, the licence agreement was a fresh start, we say, with respect, that is wrong, that one has to look at the circumstances and the High Court in Hospital Products said that, all judges said that.  You look at the circumstances in which the contract was entered into as well as the contract itself.  The circumstances here are where the party who has entered into the contract has undertaken the voluntary assumption, in our respectful submission, of being a custodian or protector of the property.

That was the central feature of Watson v Dolmark.  Entrusting of property was recognised not only by all judges in Hospital Products, but distinguished there because they said the property did not exist because Sir Anthony Mason said that the relevant property was in the product goodwill or reputation, but no one else in the High Court accepted that formulation, but each of the Judges of the High Court accepted that if there had been entrustment of confidential information, for instance, there may well have been a fiduciary duty.  It was a central feature of Watson v Dolmark.

GAGELER J:   So does any licensee of intellectual property because a fiduciary in your submission?

MR SULLIVAN:   No.  The answer to your Honour’s questions is no, it depends on the facts of the case.  When there are facts which would indicate an assumption or a voluntary undertaking to be an entrustment, the answer is yes.  Here, factors distinguishing this from any licensee are the findings which we have taken your Honour to at 168 to 169 of the application book which distinguishes this from just a mere licensee situation.

BELL J:   I am sorry, this was the undertakings given in the tender process before the parties entered into the licence agreement?

MR SULLIVAN:   Yes, your Honour.  In entering into the – your Honour, one needs to go to paragraph (6) because the undertaking – there were four stages, if you like.  There was a tender, an interim licence agreement, another tender and the licence agreement itself and these undertakings were given as set out in paragraphs (8) to (10).  At each of the relevant stages in respect of tender 9912 referred to in paragraph number (6) on page 168, that is dealt with in paragraph (9).  In respect of tender 015, the interim licence – I am sorry, I withdraw that.  Tender 9912 is dealt with in paragraphs (7) and (8), interim licence is dealt with in paragraph (9), and the tender 0115 was dealt in paragraphs (10) and (11) of what is set out by the trial judge, who then accepts all those factual findings as your Honours will see at application book 173, paragraph 449.

It is those matters, because this Court has made it quite clear in John Alexander at paragraph 90, and in Hospital Products in the judgments of all Judges, that one has to look at not only the contract but the circumstance in which it was entered into for the process of characterisation and that, in our respectful submission, was what led the court into error. 

If it had done so, in our respectful submission, it would have paid cognisance to two critical features:  first, the voluntary assumption of responsibility; and, secondly, the clear entrustment of property within the meaning accepted by the High Court as set out by Lord Justice Asquith in Reading v The King which was also the central – and that is accepted, for instance, by Sir Harry Gibbs at page 70 of Hospital Products, with whom Justice Wilson agreed.  That is accepted and it was the seminal reason for the decision of the New Zealand Court of Appeal in Watson v Dolmark.

So, your Honours, for those reasons, in our respectful submission, there is a clear error here.  It is an error which is apt to mislead other courts by looking at the wrong starting point with a fiduciary duty if it goes without correction and this is an appropriate vehicle, in our respectful submission, for the determination of the matter by the Court because, first

of all, the underlying facts are not in dispute; secondly, there is no dispute as to whether there has been a breach or not; and, thirdly, there is no dispute as to the proper equitable compensation.

GAGELER J:   No dispute as to a breach of what?

MR SULLIVAN:   The fiduciary duty, if it exists.  There was no – the appeal below conceded that if the fiduciary duty was as found then it was breached and that Mr Obeid, the second respondent, was knowingly concerned in a breach within the second limb of Barnes v Addy.

GAGELER J:   That is what I just wanted that definition of the fiduciary duty, the fiduciary duty being to act for and on behalf of the interests of the City in respect of the information.

MR SULLIVAN:   Yes, your Honour.

GAGELER J:   You would have to add “save insofar as the contract allowed action that was not for and on behalf of the interests of the City”.

MR SULLIVAN:   Of course, your Honour, and of course that would be a qualification which would be appropriate.

GAGELER J:   So the duty is breached by breach of the contract in the circumstances of this case?

MR SULLIVAN:   Yes, your Honour.

GAGELER J:   Thank you.

MR SULLIVAN:   May it please the Court.

BELL J:   Yes, we do not need to hear from you, Mr Rich. 

In our opinion, there is no reason to doubt the correctness of the conclusion of the court below, special leave to appeal is refused with costs.

AT 12.06 PM THE MATTER WAS CONCLUDED