Combulk Pty Ltd v TNT Management Pty Ltd
[1992] FCA 514
•22 JULY 1992
Re: COMBULK PTY LIMITED
And: TNT MANAGEMENT PTY. LIMITED
No. G494 of 1990
FED No. 514
Agency - Trade Practices
(1992) 37 FCR 45
COURT
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Einfeld J.(1)
CATCHWORDS
Agency - whether agent acting within the scope of his actual or ostensible authority - conflict of interest - misleading representations - actual authority - ostensible authority - knowledge of third party that authority exceeded
Trade Practices - whether conduct of agent was conduct of principal
Trade Practices Act (1974) sections 51A, 52, 53, 84
Richard Brady Franks Ltd v Price (1937) 58 CLR 112
Mills v Mills (1938) 60 CLR 150
Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41
Trade Practices Commission v Queensland Aggregates Pty Ltd and Another (No 3) (1982) 61 FLR 52
Cooper v Horwood (1888) 14 VLR 547
Royal-Globe Life Assurance Company Limited v Kovacevic (1979) 22 SASR 78
Biggar v Rock Life Assurance Company (1902) 1 KB 516
Briess v Woolley (1954) AC 333
New York Life Insurance Co v Fletcher (1886) 117 US 519
Halsbury's Laws of England (4th ed) vol 1(2)
American Jurisprudence (2nd ed 1986) vol 3
Bowstead on Agency, F. Reynolds (15th ed 1985)
Scope of an Agent's Power of Representation, D. Bester (1972) 89 SALJ 49
HEARING
SYDNEY
#DATE 22:7:1992
Counsel and solicitor
for the Applicant: A.S. Martin instructed by
Townsend Partners Solicitors
Counsel and solicitor
for the Respondent: W.H. Nicholas QC and
M.A. Pembroke instructed by Ebsworth and Ebsworth Solicitors
ORDER
1. Application dismissed. 2. Applicant to pay the costs of the respondent.
Note: Settlement and entry of orders are dealt with in accordance with Order 36 of the Federal Court Rules.
JUDGE1
The applicant (Combulk) claims damages for misleading and deceptive conduct and for misrepresentations, in contravention of sections 52 and 53(f) of the Trade Practices Act (the Act). The company was incorporated in Victoria on 31 August 1987, apparently for the specific transaction involved here. Its managing director and principal shareholder is Dr Bowman Irani, an ear, nose and throat surgeon. The respondent (TNT) is part of the TNT group of companies, an international transport conglomerate. The alleged misrepresentations were made in a letter dated 28 August 1987 (the letter) from Mr Walter Gardin, Manager, Resources and Development, of Roadfast, a division of TNT in the Latrobe Valley, Victoria.
A solicitor, Mr Mohsin (Moss) Chakera, introduced Irani to Gardin in March 1987. Chakera was a friend or associate of both and was Irani's solicitor and the other shareholder and director of Combulk. The purpose of the meeting between Irani and Gardin was to form Ly-Tek Pty Limited which was to be an investment vehicle for the importation of Russian technology in transport and related areas. Combulk apparently resulted from the process thus begun.
With a view to introducing Irani to a possible focus for one such investment, in or around April 1987, Gardin lent Irani a report commissioned by the Coal Corporation of Victoria concerning briquette export, distribution and storage, which considered, inter alia, what was known as the Rocon system (the system). The system is a containerised dry-bulk loading device which enables the loading of bulk materials directly into docked vessels. The system is attached to a crane and the unit is then lowered over a loaded open top container. The unit grabs the container which is then lifted from dockside and positioned over the hold of the vessel. The unit rotates the container through 180 degrees from the horizontal position, tips out its contents, and then rotates the container back to its original position. The container is then returned to dockside. The report stated a number of advantages of the system which is manufactured in Australia by Australian Rocon International Pty Ltd under licence to Rocon International Limited.
In the last week of July 1987, Gardin asked Irani to meet Mr Don Scruggs, Managing Director of Rocon International. There had been some discussion about the system between Gardin and Scruggs and on 1 August, there was a meeting between Irani, Gardin and Scruggs. Irani's evidence was that, in the absence of Scruggs, Gardin gave him a general description of the system and also said:
Rocon has had the system at the Port of Geelong for 18 months, but the Port of Geelong Authority won't buy it as they have no capital expenditure budget. I have an option to buy the system, but unless I give Don Scruggs $100,000 today, the deal is off. I can't come up with the money. If you give Don $10,000 today, I think we can secure an option and we will both make a lot of money. TNT is very interested in the Rocon and will give us a lot of business. They are presently arranging a trial shipment for the Coal Corporation of Victoria.
When Scruggs returned to the meeting, Irani claims that Scruggs said that he wanted an option fee of $100,000. Irani is said to have replied: "I won't agree with that but I would like to stretch the time for the option fee to ten weeks to give Walter time to arrange equity partnership or the purchase of the system by TNT from me." Irani claims that Scruggs agreed to this proposal and Gardin said that if a trial shipment of coal is successful, TNT was likely to purchase the system from Irani. The trial shipment was arranged by TNT with the Coal Corporation of Victoria.
Irani executed an Option Agreement at the 1 August meeting. It was typed by Scruggs in the presence of Gardin and Irani (T.110). One of the conditions of Rocon selling the unit to Combulk was:
1.1 The rendering to ROCON of a cash payment price of $485,000.00..., with payment of $10,000.00, upon execution of this agreement which secures for COMBULK a 15 day option, renewable up to five times, at the discretion of COMBULK for an additional option fee payable by COMBULK to ROCON for each such renewal, with each such renewal being by written notification to ROCON...on or before the date due...
Irani paid the first option fee at that meeting.
On 4 August, Irani met Chakera. Chakera said in evidence that he expressed concern that Irani had executed the agreement without having "something in substance, some confirmation from Gardin that there is going to be the business he's saying there is going to be". On 16 August, Irani forwarded to Rocon a further $10,000 to extend the option for another 15 days. In late August, Irani claims that he said to Gardin:
I have paid out $20,000 on your assurances that TNT will require the usage of the System frequently. Moss Chakera has advised me to seek assurances from TNT of its usage of the Rocon before I can fund this deal any further. I need this assurance and the trial shipment to proceed effectively before I exercise the option to purchase the Rocon.
He claims that Gardin replied:
I will ask TNT to send you a letter setting out what it considers will be its requirements.
On 28 August, Gardin handed Irani the letter. It was as follows:
ROADFAST HEAD OFFICE 16-24 COSGROVE ROAD, ENFIELD... A DIVISION OF TNT MANAGEMENT PTY. LIMITED
... 28th of August 1987 Dr. B. IRANI,
Managing Director
COMBULK Pty. Ltd.,
4-12 Blackwood St.,
North Melbourne
Dear Dr. Irani,
Re Contract loading of bulk goods with your "ROCON" It is with pleasure that we confirm that all our bulk loadings into ships will be done with your loading device. Our approximate needs are as follows:
Product 1988-1990 1995 Rate Briquettes 150,000 tonne 300,000 tonne $3/tonne Char 70,000 tonne 120,000 tonne $3/tonne Grain (Loose/Bags) 200,000 tonne 300,000 tonne $3/tonne Kaolin 30,000 tonne 40,000 tonne $3.50/tonne Scrap steel 30,000 tonne 50,000 tonne $3.50/tonne Feldspar 40,000 tonne 70,000 tonne $3.00/tonne Malt 20,000 tonne 40,000 tonne $3.50/tonne Silicon Sand 20,000 tonne 40,000 tonne $3.50/tonne Other Bulk
commodities 20,000 tonne 50,000 tonne $3.50/tonne The rate will be fixed for 6 months after which the normal C.P.I. increases as related to Port Bulk operations will be paid. You will be given a minimum of 14 days notice for each landing. We like (sic) to advise that starting from the 12th of September 1987, loading will commence with grain and Briquettes. Please confirm your acceptance of the above tonnage and rates. Yours faithfully
(sgd)
Walter Gardin
Manager
Resources and Development
LaTrobe Valley
On or about 31 August, Irani paid Rocon a third $10,000 for a further 15 day option. On 14 September, Combulk leased 250 open top marine containers for 90 days. On 15 September, Irani made a fourth payment of $10,000 under the Option Agreement. TNT's trial shipment for the Coal Corporation of Victoria appears to have proceeded successfully on 23 September 1987 and the Coal Corporation paid TNT. In turn TNT paid Combulk three dollars per tonne of briquettes loaded with the system and $4.03 per tonne for supplying containers for the shipment.
On or about 30 September, Combulk paid the fifth option instalment. On 15 October, Combulk exercised the option to purchase the system and paid $386,500. The parties had meanwhile agreed to reduce the purchase price by 10 per cent so that the total amount paid by Combulk appears to have been $436,500 instead of the $485,000 referred to in the Option Agreement. Irani claims that the third, fourth and fifth option payments, the hiring of the containers and the payment of the purchase price were made in reliance upon the representations contained in the letter that TNT would make specific and substantial use of the system.
Between February and June 1988, Irani claims that he asked Gardin on numerous occasions whether TNT had any shipments to load next month, and Gardin would always reply: "Yes. We are looking at a number of possible shipments."
Combulk argues that the letter contained the following representations:
1. TNT or other companies in the TNT Group carried on the business of
bulk loading of goods into ships.
2. All of the bulk loadings into ships effected by TNT or any other
company in the TNT Group would be carried out utilising the Rocon System supplied by Combulk.
3. The "approximate" loading needs of TNT or any other company in the
TNT Group within the period from 1988 to 1995, together with the rates of remuneration offered to Combulk, would be as set out in the letter.
Combulk says that TNT's failure to discover any documents recording the carrying on of the business of bulk loading goods into ships by it or any other company in the TNT Group leads to an inference that the first representation was false. In my opinion, there is no need to decide whether the letter contained this representation.
With respect to the second and third representations, being representations as to future conduct, the onus is upon the respondent to prove that it had reasonable grounds for making them: s 51A of the Act. In fact, TNT led no evidence that it had any bulk loading needs requiring the use of the system or that it had approached any customers or taken orders relating to any bulk loading requiring the use of the system. Combulk thus submitted that the second and third representations were not shown to be based on reasonable grounds.
That is undoubtedly true. I accept that the second and third representations were made and were misleading and false. However, the real issue raised in the case is whether TNT made the representations.
The crux of TNT's submissions was that the assurances contained in the letter were in truth Gardin's, not TNT's, assurances and were understood by Irani as such. Irani said in evidence that Gardin had told him that "one of the conditions of his management employment with TNT was that he shouldn't be having any other interests in other company etcetera" (sic). Irani's understanding in this respect must have referred to conflicting interests because, as will be seen, Gardin did in fact have some rights to take on extra consultancies.
Nonetheless, Gardin asked Chakera to hold his interest in Combulk in trust for him. This was arranged, Irani fully appreciating that the object of the exercise was to conceal the identity of Gardin as a shareholder in Combulk. Presumably this was how Chakera became a director of the company. Despite some suggestion to the contrary, Chakera for his part must have known that he was participating in a most questionable operation. His duty was to advise Irani dispassionately about it, not become involved in it himself.
Irani agreed in evidence that it had occurred to him at the time he received the letter that Gardin might have a conflict of interest. When asked if he had sought anyone's advice, he said, "unfortunately no". He also said that "it's very comforting for me, being an investor into Combulk (sic), that I have a man here who is a TNT executive who will make sure that a product will come through Combulk and I was happy to give him a certain percentage of Combulk's profit when it comes on my side of the exercise". He was asked: "Why were you prepared to go along with the proposition which would be concealing something like that from TNT?" He replied: "From my point of view I was looking at making money".
Irani said that Gardin had told him that he would have to liaise with the TNT people to get a letter from them. He was asked: "Well, quite plainly, this wasn't a letter of that kind, was it?" He replied: "From my point of view, I'm since (sic) satisfied that was the letter that he gave me to show me what he TNT (sic) can do for me." This answer appeared to me at the time to be manifestly evasive. It is certainly unclear. Nevertheless, Combulk contended that Gardin's conduct lay within his actual authority.
TNT said that Irani would have understood the letter as being from Gardin in his personal capacity and as Irani's partner, and not as a representative of TNT. TNT suggested that Gardin's designation as a TNT employee must have been meaningless to Irani, because Irani did not know of Gardin's position in TNT before the letter nor what he did in the Latrobe Valley. On the other hand, Irani stated in evidence that before receiving the letter, he knew that Gardin was an executive in TNT, although he did not know his precise designation.
In my view, the conclusion sought by TNT cannot be reached as readily as it suggests. Section 84 of the Act states that any conduct engaged in on behalf of a body corporate by a servant or agent of the body corporate within the scope of the person's actual or apparent authority shall be deemed to have been engaged in also by the body corporate. The central issue is therefore whether Gardin acted within the scope of his authority as an executive of TNT. The resolution of this issue will determine whether TNT was responsible for Gardin's representations.
On its face the letter purports to be a TNT letter. It was written on TNT's letterhead, it was signed by Gardin as an executive of TNT, and its subject matter appears to lay within the class of matters with which Gardin was employed to deal. Its contents were only of use to Irani if they were authorised by TNT. On the other hand, the most likely reason that Irani would have understood that it was not from TNT, despite the explicit representations in the letter to this effect, is because he well realised that Gardin was not acting within his authority as an executive of TNT. However, the question of what Irani actually understood is only relevant to the issue of his reliance upon the representation in issue. The test of whether the conduct fell within the scope of Gardin's authority is an objective one.
An employee may have no authority to act on behalf of his employer in relation to third parties. However, if the employee does have such authority, the employee is an agent of the employer. The scope of the agent's authority may be explicit. However, it may also be implied from the conduct of the parties or from the nature of employment: Halsbury's Laws of England (4th ed) vol 1(2) para 44.
Gardin's position at TNT is indicated in an inter-office memorandum dated 2 July 1987. The memorandum states:
Mr Gardin has worked for the TNT Group, through the Roadfast division, primarily in the research and development of major projects associated with Victoria's La Trobe Valley. He has contributed significantly to our operations in this area to date and is currently engaged in negotiating a number of associated projects of considerable potential benefit to the Company.
Recently he has been given the opportunity to do some consulting work in his own right. He is most concerned to continue to develop projects on our behalf and believes that his new activities will offer further opportunities for work for TNT.
The final result is that we have agreed that he should continue to be employed by TNT Roadfast and also engage in consulting work in his own right...
Combulk argued that this memorandum demonstrates Gardin's authority to make the representations in the letter, because it establishes that TNT employed him to carry on negotiations concerning "projects of a considerable potential benefit" to TNT. The Rocon project was one such undertaking.
Trade Practices Commission v Queensland Aggregates Pty Ltd and Another (No 3) (1982) 61 FLR 52 is thus in point. The Commission prosecuted Queensland Aggregates for breaches of the exclusive dealing provisions of the Act in connection with its operation of a quarry and its contracts with truck drivers (cartage contractors) to carry its quarry products. The statement of claim alleged that Queensland Aggregates offered to supply cartage contracts to certain persons on condition that they acquire Ford Louisville trucks from Denmac Ford Pty Ltd. It was alleged that the offers were made by Brian White (the second respondent) in his capacity as a servant or agent of Queensland Aggregates and on its behalf. The case was conducted on the basis that White received $300 from Denmac Ford for each cartage contractor who purchased his truck from that company. Queensland Aggregates argued that White did not act on its behalf. Stating the question at 62 thus:
To determine whether Brian White had authority to enter into the cartage contracts on behalf of his employer containing the impugned condition, it is necessary to determine whether he had authority to make, not those particular contracts, but contracts of the kind he entered into: see Lysaght Bros and Co Ltd v Falk (1905) 2 CLR 421 at p 428 per Griffith C.J.
Justice Morling said at 63:
It was argued by (the respondents' counsel)...that the inclusion of the impugned condition in the cartage contracts took those contracts out of the class of contracts that White might otherwise have had authority to negotiate. I see the force of this argument but I do not think it is valid. The argument would have had much greater force if it had been part of the condition that cartage contractors should pay money, or give some consideration, to White. But that was not the case. A requirement by Queensland Aggregates that its cartage contractors should own vehicles of a particular make and model and purchase them from a nominated supplier was not necessarily disconnected with the company's business. Such a requirement, included as a condition in cartage contracts, did not take the making of those contracts outside the class of acts within White's authority. There may well have been advantages to the company in having all vehicles carrying its products supplied by the one supplier. For example, a supplier of a number of vehicles may have been able to provide better repair and spare parts facilities than could have been provided by a supplier of an individual truck. Thus the impugned condition might have inured for the benefit of the company since it would clearly be to the company's advantage that trucks carrying its products be efficiently serviced.
His Honour went on at 64-5:
In Koorgang Investments Pty Ltd v Richardson and Wrench Ltd
(1981) 2 NSWLR 1 Lord Wilberforce said:...Since (Lloyd v Grace) it has never been held, or contended, that for liability to exist, the act must be done for the benefit of the master...
In the Koorgang case, the Privy Council was dealing with a claim based in tort and his Lordship's statement is therefore not of direct application to a case such as the present. Nevertheless, it does seem to me to point to the result that just as an act is not necessarily taken outside the scope of a person's employment because he performs it for reasons of self interest, so an act is not necessarily taken outside the scope of a person's authority because he performs it partly for his own benefit. It is clear that if an agent acts in his own interest and in fraud of his principal, that will not relieve the principal of liability if in fact the agent's act was within the scope of his authority: see Briess v Woolley (1954) AC 333 at 348 particularly per Lord Reid.
Justice Morling held that White acted within his actual authority.
The quoted passage at 63 indicates that the result might have been different if White's actions could not have benefited his employer. Perhaps the significance of the fact that White did not demand commissions from prospective truck drivers is that if he had done so, truck drivers may have been deterred from accepting work from the company, and could have harmed the company. Instead, there was no evidence of any adverse effect which White's conduct might have had upon his company. Perhaps the appropriate test is that an agent's actions partly for his own benefit will not take conduct outside the scope of authority if the conduct is beneficial rather than detrimental to the employer.
However expressed, the issue must be determined objectively. People may convince themselves that their self interest is consistent with the company's interest. It is the difficulty in making objective assessments of the principal's interests where there is a conflict of interests which partly explains why such conflicts should be avoided, as a matter of fiduciary obligation. I return to fiduciary obligations later. The issue should also be determined without the benefit of hindsight.
The doctrine of actual authority is well expressed by South African advocate D. Bester in "Scope of an Agent's Power of Representation" (1972) 89 SALJ 49 at 54:
The term "actual authority" properly describes a situation in which a particular act of an agent falls within the ambit of the principal's manifestations of assent to him.
The author goes on at 55:
Logically, having regard to the nature of the concept of actual authority, there is no difference between a limitation as to the purpose for which an agent is to carry out the task entrusted to him and a limitation, say, as to the manner in which he is to perform the task. Accordingly, an agent's actual authority is, unless the principal's manifestations of consent point to a contrary intention, confined to acts done for the benefit of the principal. If an agent does an act which is within the class of acts set out in the actual authority it is nevertheless not within the actual authority unless done for the principal's benefit.
It would indeed be odd if a principal's authority to an agent to act for the benefit of the principal could also authorise the agent to do the opposite.
Justice Morling approved cases such as Briess v Woolley which state that even if the agent's conduct is of no benefit and indeed harms the principal, it may still be within the scope of authority. See also Royal-Globe Life Assurance Company Limited v Kovacevic (1979) 22 SASR 78. However, these cases involved innocent third parties and should be seen as relating to ostensible authority. There are good reasons for making the principal responsible for unauthorised acts of an agent where the third party does not have notice that the agent is acting outside the scope of the actual authority given. In such cases, the agent has apparent or ostensible authority in that it appears to the third party that actual authority is possessed.
Of course, placing the burden upon third parties to determine whether agents do have actual authority when they appear to have actual authority would be unjust in that the principal is in the best position to control agents, and should bear the costs, as well as gain the benefits, of acting through agents.
These principles do not apply where the third party has notice that the agent is acting outside the scope of his actual authority. Courts dealing with negligent or fraudulent third parties have not attributed responsibility to principals. In Biggar v Rock Life Assurance Company (1902) 1 KB 516, a policy of insurance against accidental injury was effected with an insurance company through its local agent. The proposal form was completed by the agent, and included answers which were false in material respects. The false answers were inserted without the knowledge or authority of the insured, who signed the form without reading it. At 525, Wright J accepted the position of the United States Supreme Court as representing good sense and good law. He quoted a passage from New York Life Insurance Co v Fletcher (1886) 117 US 519 at 532-3 in which the Court (speaking of another case) said:
The application was signed without being read. It was held that the company was not bound by the policy; that the power of the agent would not be extended to an act done by him in fraud of the company and for the benefit of the insured, especially where it was in the power of the assured by reasonable diligence to defeat the fraudulent intent; that the signing of the application without reading it or hearing it read was inexcusable negligence; and that a party is bound to know what he signs.
The US Supreme Court also held that to hold the principal responsible for the fraudulent acts of his agent would assist in the consummation of the fraud and be a monstrous injustice.
The US position appears to be that a principal is liable for the contracts of his agent even though the agent acts in his own interests and adversely to his principal, where the party with whom the agent contracts has no knowledge of the agent's dereliction and is not cognisant of any fact charging him with knowledge thereof: American Jurisprudence (2nd ed 1986) vol 3 para 274.
The Australian cases contain a dictum of Dixon J in Richard Brady Franks Ltd v Price (1937) 58 CLR 112 at 142:
Under the general law of agency it is a breach of duty for an agent to exercise his authority for the purpose of conferring a benefit on himself or upon some other person to the detriment of his principal. But at the same time, if his act is otherwise within the scope of his authority it binds the principal in favour of third parties who deal with him bona fide and without notice of his fraud...
In Cooper v Horwood (1888) 14 VLR 547, the agent, knowing the true value of his principal's land, induced his principal to sell it at an undervalue. The purchaser, who was a friend of the agent, had knowledge of the falsity. The Court refused to order specific performance or award damages against the principal.
Authorities supporting the proposition that "the fact that an agent is acting in furtherance of his own interests may negative actual authority and put the third party on notice as regards apparent authority" are cited in F. Reynolds, Bowstead on Agency (15th ed 1985) at pp 279-80. See also paragraph 134 of Halsbury's Laws of England (4th Ed) vol 1(2).
It is relevant to note the approach of equity to conflicts of interest. An agent has fiduciary obligations to his principal. Justice Mason said in Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 103 that a fiduciary:
...is under an obligation not to promote his personal interest by making or pursuing a gain in circumstances in which there is a conflict or a real or substantial possibility of a conflict between his personal interests and those of the persons whom he is bound to protect: Aberdeen Railway Co v Blaikie Brothers (1854) 1 Macq 461 at p 471. By linking the obligation not to make a profit or take a benefit to a situation of conflict or possible conflict of interest the proposition, in accordance with the authorities...excludes the relevance of any inquiry into the actual motives of the fiduciary...
Instead, the extent of the interest should be considered, as should whether the inducement was too feeble to be a determining motive.
Justice Dawson agreed that the actual motives of the agent are irrelevant. His Honour said at 146 that the whole purpose served by the recognition of a fiduciary relationship would be thwarted if:
...the court would be required to examine individual transactions in order to determine whether the interests of the person to whom the fiduciary duty was owed had been sacrificed in some impermissible manner as, for example, where the person owing the duty had not acted reasonably in the circumstances. That may well be a task which "no court is equal to" and certainly is a task which has never been undertaken: see Ex parte James (1803) 8 Ves Jun 337 at p 345...
There can be no quarrel with the view of Justices Mason and Dawson that actual motives must be irrelevant. If a harmed party had the evidentiary burden to prove that a personal interest had a determining influence upon the agent's conduct, the protection the courts offer to innocent third parties and to principals harmed by their agents would be significantly undermined. The issue must be looked at objectively. Although there may be situations in which commercial reality dictates a different approach: see, for example, Mills v Mills (1938) 60 CLR 150, the question will normally be whether the personal interest is sufficiently significant for the court to find a breach of fiduciary duty.
Gardin was clearly acting in breach of his fiduciary obligations. He acquired a beneficial interest in Combulk for the purposes of "making lots of money". Combulk possessed the rights to a system which TNT may or may not wish to use and Gardin made commitments to Combulk concerning TNT's intended future use of the system. Whether and to what extent TNT would benefit from using the system was not his concern. His attitude was merely that if TNT did use the system, Combulk and therefore Gardin himself would benefit financially.
In Queensland Aggregates, it was held that it is not sufficient that the agent's conduct is partly for the agent's benefit: it must not be detrimental to the company. Even though a breach of fiduciary duty is found, the agent can still be acting within his actual authority. Common law and equity thus impose different standards of conduct and may give rise to difficult results: agents can be authorised to conduct themselves in a manner which equity regards as inconsistent with the principal's interests. Justice Mason said in Hospital Products at 97:
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.
Thus equity deems it necessary to create a body of duties and remedies to ensure that fiduciaries act in the interests of their principals. Whether the fiduciary duties concerning conflict of interest are included does not need to be decided here.
Gardin's lack of authority is supported by Queensland Aggregates. Even if it was in TNT's interest to induce Irani to buy the system, it could not have been in its interests to make the unequivocal and substantial long term commitments contained in the letter. Amongst other things there are a number of matters which the letter does not make clear, such as whether the figures in the column "1988-90" related to each year, or to the period as a whole. Irani said in evidence that he understood that the figures related to each year. This would mean that Combulk would earn $1.8m in 1988 alone from an investment of $436,500. This would be a rate of profit in the first year of operations in excess of 400 per cent. Even if the figures related to the period as a whole, they still portray a very large rate of profit.
Another ambiguity is what was being represented for the years 1990 to 1995. Irani said in evidence that he did not know, yet it seems to be critical to the success of the project that this commitment be clear. He does not seem to have questioned how TNT could commit itself so substantially so far ahead in respect of seasonal goods presumably bound, at least partly, for overseas markets. Whatever these vital parts of the letter mean in fact, to Irani it was all a "matter of money". It is not conceivable that he believed TNT to be so slovenly in its contracting practices.
It seems obvious that the inducement offered was well in excess of what was or would have been required to commit Irani to the system; it certainly constituted substantial exposure for TNT which was thus unnecessary. Furthermore, there is no evidence that TNT would require, or could use the extent of, the system in the future to which the letter committed it, or that Gardin had reasonable grounds for believing that it did. Gardin's actions were detrimental to the interests of TNT.
They were on the other hand manifestly beneficial to Gardin's personal interests. Combulk did not suggest that Gardin was not acting partly for his own benefit. But the matter goes further. His stake in Combulk could not lead to a possible benefit unless he induced Irani to buy the system. He could not achieve this end without appearing to commit TNT to its use. Gardin had at some stage become a bankrupt, hence he may have needed money and could undertake commercial adventures, through representations, to that end without risking any personal liability or any financial detriment to himself. It is possible that he genuinely believed he could persuade TNT to use the system, and may perhaps have been overly optimistic about the chances in this regard. But this cannot absolve him from the fact that the letter was not authorised by TNT and lay outside his actual authority.
The next question is whether his conduct was outside the scope of his apparent authority. As I assessed his evidence, Irani probably did not know the lack of a specifically authorised basis for the representations even though the unclear way in which they were drafted should have at least put him on notice that further information was required. However, he admitted that he knew that Gardin had a conflict of interest; Irani was after all instrumental in its creation. Furthermore, the extent of the commitments contained in the letter should have alerted him to the need to ask himself whether Gardin's conduct was in the interests of TNT, rather than in Gardin's own interests. Irani knew that Gardin was most anxious that Combulk obtain the system in the context of Gardin's own interest in Combulk. Furthermore, the fact that Gardin had told him that he would have to liaise with the TNT people to get a letter from them, put Irani on notice that an authorised act of TNT would more than likely involve a letter from someone else in TNT, not just from Gardin quoting no one else but himself.
In my opinion, Gardin's conduct cannot be attributed to TNT on either basis. It is therefore not necessary to determine whether Irani actually relied upon the representations in the letter. However, I should not pass the case without observing that the conduct of Gardin, Irani and Chakera was at the very least questionable, ethically and legally. How the professional bodies to which Irani and Chakera no doubt belong should consider their conduct is for those bodies to determine. I direct the Registrar to forward a copy of this judgment to those bodies to permit that consideration to occur.
The application must be dismissed. The applicant is to pay the respondent's costs.
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