Cox v Kimber and Scott Pty Ltd Trading as Three D6 (Civil Dispute)

[2017] ACAT 42

ACT CIVIL & ADMINISTRATIVE TRIBUNAL

COX v KIMBER & SCOTT PTY LTD TRADING AS THREE D6 (Civil Dispute) [2017] ACAT 42

XD 61/2017

Catchwords:              CIVIL DISPUTE – debt application – what was the agreement between the parties – whether the agreement was a joint venture – whether additional terms can be implied into the agreement – whether there was a breach of trust

Cases cited:Andrews v Australia and New Zealand Banking Group Limited [2012] HCA 30

Andrews v Kocalidis [2010] VCC 982

Beach Petroleum NL v Kennedy (1999) 48 NSWLR 46
BP Refinery (Westernport) Pty Ltd v Shire of Hastings [1977] UKPC 13

Fazio Richards Pty Ltd v Ibis Way Pty Ltd [2016] FCA 308
Gold Peg International Pty Ltd v Kovan Engineering (Aust) Pty Ltd [2005] FCA 1521
Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234
Royal Botanic Gardens and Domain Trust v South Sydney Council [2002] HCA 5
Thompson v White & Ors [2006] NSWCA 350
United Dominions Corporation Limited v Brian Pty Ltd (1985) 157 CLR 1

List of

Texts/Papers cited:   J W Carter, E Peden and G J Tolhurst, Contract Law in Australia (Butterworths, 5^th Ed)

Butterworths, Halsburys Laws of Australia

ThomsonReuters, Laws of Australia

Tribunal:                   Senior Member H Robinson

Date of Orders:  1 June 2017

Date of Reasons for Decision:         1 June 2017

AUSTRALIAN CAPITAL TERRITORY  )

CIVIL & ADMINISTRATIVE TRIBUNAL       )          XD 61/2017

BETWEEN:

KEVIN COX

Applicant

AND:

KIMBER & SCOTT PTY LTD TRADING AS THREE D6

Respondent

TRIBUNAL:   Senior Member H Robinson

DATE:1 June 2017

ORDER

The Tribunal orders that:

1.The respondent pay the applicant the sum of:

(a)$3884.31; and

(b)$9 search fee; and

(c)$145.00 application fee.

2.The respondent’s counterclaim is dismissed.

………………………………..

Senior Member H Robinson

REASONS FOR DECISION

1.This case is illustrative of how important it is for the parties to commercial relationships to give proper consideration to the terms of their agreement, and particularly to what will happen if the relationship breaks down. While the Tribunal can imply into an agreement certain terms that are necessary for the effective and reasonable operation of the agreement, it is not the Tribunal’s role to rewrite agreements to reflect what the parties would or should have agreed, had they entered into a formal written agreement.

Summary

2.The respondent, Kimber & Scott Pty Ltd, operates a gaming business called ‘Three D6’. Three D6 sells a range of board games, role-playing games, collectible card games and gaming systems. It also provides an area where customers can meet, order refreshments and participate in tournaments and related events.

3.The applicant, Mr Kevin Cox, entered into a business arrangement with the respondent, pursuant to which he sold cards for the game Magic the Gathering from the respondent’s premises (Magic business).

4.Mr Cox and the respondent’s sole director, Mr Bradley Scott, knew each prior to entering into a commercial relationship. As is often the case in such circumstances, negotiations were more informal than may otherwise have been the case.

5.No formal written agreement was entered into, and there was no agreement at all about what would happen if the business relationship fell apart – which it eventually did.

6.Mr Cox’s claim is straightforward. He seeks recovery of the sum of $3884.31, which he says is the settlement money due to him from the sale of Magic cards in the period leading to the termination of the business relationship (settlement sum).

7.The respondent does not deny that the settlement sum is owed. However, it has counterclaimed for compensation for losses it says it incurred as a consequence of Mr Cox’s actions during the course of the business arrangement. In particular, it seeks:

(a)compensation for Mr Cox’s use of excess counter and display space ($2200);

(b)compensation for Mr Cox’s use of storage space ($1100);

(c)administrative fees for Mr Cox’s use of customer account facilities ($4400);

(d)reimbursement for wages paid by Three D6 to employees working for the Magic business ($3442.50);

(e)a 50% percent share profits of the Magic business from its commencement ($11,751); and

(f)50% of the assets acquired by Magic business, includes a laptop computer and storage display assets ($1250.00) (the respondent’s claims)

8.The respondent’s counterclaim is primarily based on the contention that the Magic business was a ‘joint venture’ and that certain terms should be implied into the agreement as a consequence.

The hearing

9.The hearing was conducted on 9 May 2017. Mr Cox represented himself. The respondent was represented by its sole director, Mr Bradley Scott (Mr Scott), and by an advocate, Mr Robert Scott. Both Mr Cox and Mr Scott gave evidence and were cross examined.

Background facts and findings

10.The parties agreed on the majority of the facts relevant to this matter. My findings of fact, both contentious and not, are set out below.

11.Three D6 commenced operations, albeit under a different name, in around 2009.[1] For some years, Three D6 sold cards for the Magic game. Magic players collect a ‘deck’ of cards that they use to play a competitive game. Three D6 sold new cards in randomised packs and individual cards second hand (singles). The singles varied in value from nothing, to a nominal amount, through to very considerable sums for a rare card.

[1] The respondent has operated gaming business since 2009, albeit under different names – due to the lack of evidence as to when the various businesses changed names, I will refer to all incarnations of the respondent’s gaming business as Three D6. There is no relevant difference for the purposes of this decision

12.Sometime around 2014 Mr Scott formed the view that it was uneconomic for Three D6 to continue to sell Magic cards. Although Magic remained a popular game, the time needed to conduct sales of cards was disproportionate to the profit.

13.Mr Cox was, at that time, a regular customer of Three D6. He participated in Magic games on the premises and, as such, knew Mr Scott. Mr Cox approached Mr Scott with a deal – he would take over and run the Magic card trading business. Mr Cox would operate the business from the Three D6 premises, in exchange for a commercial return to the respondent. Mr Scott was receptive to the idea and the parties entered into negotiations.

14.There was little evidence before the Tribunal as to the dates or the length of the negotiation process, but it does not appear to have been lengthy.

15.The only written evidence of the agreement reached between the parties consists of two emails, both written by Mr Cox in December 2014 (the December emails). The first, sent by Mr Cox on 2 December 2014, was a page-length summary of what Mr Cox understood to be the key points of the negotiations to that date. Mr Scott did not respond to this email in writing, but the parties talked further on Friday 5 December 2014. Later that day, Mr Cox sent another email to the respondent outlining some additional matters. Mr Scott did not respond to this email either. Mr Cox commenced trading Magic cards from the Three D6 premises (the Magic business) shortly thereafter.

16.Many of the clauses in the December emails may, at best, be described as aspirational rather than contractual. Still, both parties agreed at hearing that they accurately reflect the conversations between the parties as at December 2014.

17.Of particular relevance to these proceedings, the following terms were set out in the December emails:

(a)Mr Cox would “be the owner of the cards and have 100% of the risk associated with buying and selling them.”

(b)Three D6 would take a commission from each card sold of 15%, and would also deduct GST.

(c)Mr Cox would have “some cabinet space in which to show singles” on the front counter, and some storage space in a back room.

(d)Three D6 would handle all the selling of cards to customers, and Mr Cox would handle all the buying of cards from customers.

(e)Mr Cox would supply his own stocktaking and accounting system and the business would be conducted separately to that of Three D6.

(f)Mr Cox would “write up the agreement” so that the parties could “iron out” the details.

18.Notwithstanding the agreement that Mr Cox would prepare a written agreement, it was common ground that he never did so, and that no formal, written contract was ever entered into.

19.The Magic business went well at first, but then arrangements got increasingly complicated.

20.First, Mr Cox commenced employment with the respondent, in the Three D6 business, in May 2015. Initially, Mr Cox was employed as a casual retail assistant at Three D6, but in August 2015 he was appointed as the permanent part-time store manager. In this role Mr Cox had day-to-day management of the operations of Three D6, while also continuing to operate the Magic business.

21.An employee operating his own business from his employer’s premises is a somewhat unusual arrangement, but the parties agreed that it made sense in circumstances where Mr Cox was onsite so much in any case. The parties were cognisant of the potential for a conflict of interest and expressly agreed that Mr Cox’s duties as an employee of Three D6 were to take precedence over the Magic business. Unfortunately, they omitted to establish any express rules, guidance or agreements about how to actually give effect to this. The lack of clarity led to several problems.

22.There arose an issue about how much counterspace Mr Cox could use to display the Magic cards. Mr Scott alleged that Mr Cox used his position as manager to effectively ‘misappropriate’ counterspace and storage space for the Magic business. Mr Scott says, and I accept, that the parties had originally agreed that only a small portion of the bench-top would be used to display Magic cards. Unfortunately, that ‘small portion’ was never clearly defined. As time went by, and after Mr Cox became the manager of Three D6, the Magic cards (and the binders that contained them) started to occupy more space on the counter. The counter was, according to Mr Scott, the prime display area in the store, and if Magic cards were displayed there, other goods could not be, so the use of the space to display cards caused loss to Three D6.

23.There also arose an issue about storage space. Mr Scott asserted that Mr Cox also began to use increasingly more storage space out the back of the store to maintain binders of cards. Mr Scott contended that, as storage space was limited, and this represented a significant appropriation of Three D6’s assets.

24.While Mr Scott mentioned his concerns to Mr Cox, he never gave any express directions to remove the cards. He conceded, under questioning by the Tribunal, that he did not want to have difficult discussions with Mr Cox.

25.Mr Cox did not deny the factual assertions that he had used significant counterpace to display Magic cards and that he used storage areas to store cards. His evidence was that he did not realise that the respondent was concerned about this. He was fulfilling his role as manager of the store and maximising the profit for both Three D6 and the Magic business. He said that, had Mr Scott had directly raised concerns, he would have modified his conduct, but nothing was ever said to him.

26.There were some differences it the detail of the parties evidence about these events, but the substance is consistent. Having regard to the evidence, I accept that Mr Scott raised concerns about the display and storage of the magic cards, but I also find that he did so in an oblique way and offered no direction. At no stage did Mr Scott:

(a)directly ask Mr Cox to remove Magic cards from the countertop;

(b)define how much space on the countertop the cards could occupy;

(c)directly ask Mr Cox to remove cards from storage in the rear of the premises; or

(d)directly suggest an alternative commission or costs arrangement to that initially agreed.

27.The ramifications of this are considered below.

28.The second complicating factor was circumstances surrounding the engagement of two casual staff members to assist Mr Cox.

29.The details of the employment arrangements were not in evidence before the Tribunal, but I am satisfied that there was an agreement between the parties that:

(a)the respondent would engage two casual employees ‘on its books’ – hence paying their workers compensation insurance and superannuation and managing their entitlements through the respondent’s payroll system; but

(b)notwithstanding that they were the respondent’s employees, they would work exclusively for Mr Cox in the Magic business, and Mr Cox was responsible for rostering and managing them;

(c)the employees would fill in timesheets, which were provided to the respondent and reviewed by Mr Scott; and

(d)the respondent would pay the employees an hourly rate based on the timesheets, and that amount was to be reimbursed to the respondent from the profits of Magic business (employee arrangements).

30.It is also apparent from email correspondence between the parties that, for whatever reason, the respondent did not initially seek reimbursement for the administration costs of managing the employees.

31.Throughout the proceedings, Mr Scott asserted that these engagements were ‘unauthorised’, or at least that the arrangements were abused by Mr Cox. I do not accept this argument. Mr Scott conceded at the hearing that he was aware that the employees had been engaged, and that he reviewed timesheets and rosters, and at least tacitly agreed to the above arrangements by doing nothing to prevent or change them. I do accept, however, that the cost of the engagement of the casual employees may have exceeded the monies recovered from the Magic business.

32.Mr Cox resigned his employment with Three D6 on 4 August 2016. I understand there to be some continuing dispute between the parties about alleged late or underpayments of wages by the respondent, but that it not a matter that is before this Tribunal.

33.Mr Scott terminated the business relationship shortly thereafter, on 14 August 2016. The catalyst for the dissolution of the Magic business was phone calls by Mr Cox to other gaming businesses in the Australian Capital Territory, during which Mr Cox enquired as to whether those businesses would be interested in selling Magic cards. Those businesses declined Mr Cox’s offer, and advised Mr Scott of the telephone calls. Mr Scott terminated the business arrangement immediately. Mr Cox did not dispute that Mr Scott had the right to terminate the business relationship in such circumstances.

34.On 15 August 2016 Mr Cox called Mr Scott seeking payment of the remaining unpaid settlement monies for sales of cards that immediately preceded the termination of the business relationship. Shortly thereafter Mr Cox sent a letter of demand to Mr Scott requesting payment of the settlement monies.

35.The respondent declined to pay the settlement monies. While not seriously contesting that the settlement monies represent the sum owed to the respondent, the respondent says it is entitled to offset that debt against the amounts owed to it by Mr Cox for breaches of the contractual and fiduciary duties between them.

The applicant’s application

36.As noted above, the respondent did not seriously contest the applicant’s application.

37.Mr Cox’s case was supported by financial statements from an online accounting system. Mr Cox implemented this system to manage the Magic business independently of the Three D6 system. The evidence indicated that there were some difficulties with reconciling the two systems, due largely to problems with accounting non-cash purchases (in the form of ‘award cards’), but I do not understand there to be any real contest by the respondent as to the accuracy figures. In any case, Mr Cox carefully took the Tribunal through his calculations and they were not seriously disputed.

38.Accordingly, in relation to the application, I find for Mr Cox, and order that the respondent pay the applicant the sum of $3884.31.

39.That, however, does not conclude these proceedings. The next question is whether this debt can be ‘set off’ against any debt or compensation that Mr Cox owes to the respondent pursuant to the counterclaim.

The respondent’s counterclaim

40.The respondent’s counterclaim may be summarised as follows:

(a)the Magic business was a ‘joint venture’;

(b)because the Magic business a joint venture certain terms must be implied into the agreement between the parties; and

(c)Mr Cox’s breach of those terms and/or of his fiduciary duties as a party to a joint venture caused loss and damage to the respondent.

Was the Magic business a joint venture?

41.Although widely used in a commercial context, the term ‘joint venture’ has no settled meaning at common law.[2] It is generally understood to denote an association of persons (natural and/or corporate) formed for the purpose of undertaking a specific venture that requires a pooling of technical, managerial and financial resources.[3] A joint venture is not itself a legal entity[4], but rather a contractual relationship between parties who have a common commercial purpose.[5]

[2] See: United Dominions Corporation Limited v Brian Pty Ltd (1985) 157 CLR 1 per Mason Brennan and Dean JJ; Thompson v White & Ors [2006] NSWCA 350 per Ipp and McColl JA at [94]. Note that the term is used in some statutes, for which it may be defined for the purposes of that statute, but not for purposes more broadly

[3] Laws of Australia at [4.8.1890]

[4] Although it is not uncommon to create a company through which the joint venture may be organised

[5] Thompson v White & Ors [2006] NSWCA 350 per Ipp and McColl JA at [95]; Laws of Australia at [4.8.1910]

42.Hence, in considering what rights and entitlements the participants in a joint venture each have, the first step is to look to terms of the contractual agreement between them.[6]

[6] Halburys laws of Australia at [305-1037]

43.So, what were the terms of this agreement?

44.The express terms of an agreement can be found in a formal contract or, especially where there is no formal contract, through representations or statements made in the course of negotiations or representations.  The circumstances where pre-contractual statements may be considered terms of a contract include where[7]:

(a)the terms are evidenced in writing;

(b)it was the intention of the writer to summarise the relationship, as agreed, pending a formal arrangement; and

(c)the terms are set out contemporaneously with the commencement of the arrangement.

[7] See Carter, Peden and Tolhurst ,Contract Law in Australia (Butterworths, 5^th Ed) at [10-02] - [10-16]

45.The December emails meet these tests. I am satisfied that they are written evidence of the agreed terms of the Magic business, as understood by Mr Cox and Mr Scott, as director of the respondent, at a time shortly before the business commenced operation. I am further satisfied that the parties commenced operations on the basis of these terms – albeit with an understanding that other terms would be agreed in time.

46.That is not to suggest that the December emails are the entire agreement – others terms may be implied as discussed below – but they are a starting point.

47.Do the terms of the December emails indicate the existence of a ‘joint venture’?

48.Mr Cox’s position was that they do not. The Magic business, he contended, was an independent enterprise that was owned and operated entirely by him. His evidence was that he did all the actual work; he obtained a dealer’s licence; he attended the Three D6 premises to undertake all necessary work; he purchased the singles directly from customers; he facilitated the sales of those cards; he kept his own accounting and record systems; and the Magic business generally operated independently of Three D6 – at least to the extent that was possible, given the co-location of the businesses, the common customer base, and his duties as an employee of the respondent. The role of the respondent, Mr Cox contended, was limited to some start up assistance, and providing the premises in which the business operated, for which it received a percentage of the profits.

49.I accept Mr Cox’s evidence as to his role and duties. However, I do not accept that the respondent’s role was quite so limited. The parties had clearly agreed to a cooperative endeavour, and without the respondent’s initial and continuing contribution, the business would not have been possible.

50.The respondent made its premises available to Mr Cox, but it also allowed him to utilise counter space and storage space and provided access to customers.  It engaged staff on behalf of the Magic business, to work in the Magic business, apparently at some cost to itself. The Magic business was reliant upon access to, and the goodwill of, existing customers of Three D6. The Magic business had no branding independent of Three D6. The start-up resources consisted of Mr Cox’s own substantial collection of cards, but also some of the respondent’s. Mr Scott continued to review rosters and oversight activities. The parties had a common interest in maximising the profit of the Magic business.

51.In these circumstances, I accept the respondent’s argument that the Magic business was, broadly, a joint venture between the applicant and the respondent.

52.This is, however, only the first limb in the respondent’s counterclaim. The next step is to consider what the terms of the joint venture agreement were.

Implication of terms by operation of law

53.The respondent contended that the terms in the December emails were merely the ‘operational’ terms of the joint venture agreement, and that a series of additional terms should be implied into the agreement by operation of law. 

54.Terms may be implied into a contract by operation of law a number of ways, including by legislation, as a matter of public policy, or because of common law legal principles that govern the legal relationship in issue. The respondent appears to rely on the latter basis, arguing in its submissions that:

The conduct of the applicant and the respondent in the business arrangement demonstrates the characteristics of a joint venture. Under such an arrangement each party retains their own identity and retains the ownership of the respective assets they contributed to the venture. Profits and any increase in the value of the joint-venture assets are to be shared equally...

55.The difficulty with this argument is that, as set out above, a joint venture is not a legal entity, and the mere existence of a ‘joint venture’ style arrangement does not necessarily lead to the implication of a particular set of terms of the kind suggested by the respondent. The respondent cited no case law, statute or other legal principle as the basis the incorporation of these terms. 

56.Taking the propositions in the submission one by one, it is correct that: “each party [to a joint venture] retains their own identity and retains the ownership of the respective assets”. This is one of the advantages of a joint venture arrangement over, for example, a partnership – the parties can retain their assets and identities.

57.However, it does not follow that: “profits and any increase in the value of the joint-venture assets are to be shared equally.” While this may be true of some joint ventures, it is not true of all of them. There is no legal principle that provides that the parties to a joint venture must share the profits or the proceeds of an increase in assets equally. Indeed, the opposite is the case. That the parties to a joint venture are able to agree how the benefits of the enterprise are to be shared between them is one of the advantages the model has over other legal structures.[8]

[8] Laws of Australia (Chapter 5 Business Organisations) at [305-1037]

58.Consequently, I dismiss the respondent’s claim that, by virtue of its engagement in some kind of ‘joint venture’ with Mr Cox, it is entitled it to recover 50% of the profits or the joint venture and/or 50% of the increase in value of the assets of the joint venture. No such terms can be implied by operation of law.

Terms implied by fact

59.The respondent’s next argument is, effectively, that the Tribunal should imply into the joint venture agreement, as a matter of fact, additional terms in favour of the respondent, including:

(a)a retrospective entitlement to an equal share of any revenue or increase in the value of assets;

(b)a retrospective right to charge for the excess use of counter space, storage space, interest and administrative fees for the use of customer account facilities; and

(c)retrospective recovery of administrative and overhead costs in relation to the engagement of the casual employees.

60.Such terms, the respondent says, were implicitly agreed between the parties, and would have been included in any written agreement, had Mr Cox actually completed a draft and provided it to Mr Scott. He further contends that the terms are necessary for the business efficacy of the joint venture.

61.The circumstances under which a term may be implied into a contract as matter of fact were set out by the Privy Council in the case of BP Refinery (Westernport) Pty Ltd v Shire of Hastings[9]:

(1) it must be reasonable and equitable; (2) it must be necessary to business efficacy to the contract so that no term will be implied if the contract is effective without it; (3) it must be so obvious that ‘it goes without saying’; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract.’

[9] [1977] UKPC 13

62.The test is a strict one, although there is some authority that indicates a more flexible approach may apply in more informal situations. For example, in Gold Peg International Pty Ltd v Kovan Engineering (Aust) Pty Ltd[10] Crennan J suggested that:

Where, as in the present case, there is no formal contract concluded between the parties a more flexible approach to the question of implying terms is warranted than that laid down in BP Refinery at 283.... In this kind of case all that is necessary is to show that the term to be implied is necessary for the reasonable or effective operation of the contract in all the circumstances.

[10] [2005] FCA 1521

63.Neither party addressed the Tribunal on the test that should apply in this case. On balance, given the lack of a formal contract between the parties, this is one case where the more informal approach may be appropriate. Therefore, the question for the Tribunal is: are the terms suggested by the respondent necessary for the reasonable or effective operation of the contract in all the circumstances?

64.The key words are ‘necessary for the reasonable and effective operation of the contract’. The Tribunal’s role is to consider whether an implied term is necessary to ensure the effective operation of the agreement.  The role of the Tribunal is not to rewrite the contract into something that the Tribunal’s thinks is more reasonable or fair generally; it is certainly not to retrospectively assess what the parties should or would have agreed to, had they negotiated the agreement with the benefit of hindsight.

65.Is it necessary for the reasonable or effective operation of the joint venture that the respondent be entitled to a retrospective half-share of the profit of the business? The answer must be ‘no’. The venture was operating efficiency and effectively without such a clause.

66.Additionally, such a clause would be contrary to the express terms of the agreement, as set out in the December emails. A court or tribunal will rarely imply a factual term that is clearly inconsistent with the express terms of the agreement.

67.Granted, terms of an agreement may change over time, whether by express agreement or by implication, but there is nothing in the evidence that indicates that the parties agreed to any change to the business arrangements or conduct of the parties that would entitle the respondent to a greater share of the profit. The evidence indicates  that a change to the profit sharing arrangements was never expressly discussed, let alone agreed.

68.The same observation may be made in relation to the contention that the parties equally share any increase in the value of the joint venture assets. There is no evidence of any intention by the parties to agree to such a term and there is no basis to conclude that the inclusion of the term is necessary to give business efficacy to the contract.  But, even assuming that such a clause may be implied, there is a practical problem in this case – and that is that it is unclear what the ‘assets’ of this joint venture actually are. No audit of respective contributions appears to have been done at the start-up stage, and no detailed records were before the Tribunal. The respondent expressly disavowed any entitlement to the Magic cards, but pointed to the laptop and ‘storage/display assets’ as being joint property.  There is little evidence to support this contention, and even less evidence as to their value in any case. The only asset that may be identified as that of the ‘joint venture’ is the goodwill, but the respondent has made no claim in relation to this.

69.That said, where an argument could be made for the implication of a term is in relation to the dissolution or breach of the joint venture agreement. The consequences of a default by a party to a joint venture agreement should be a term in any formal agreement, but there is nothing in the December emails, or the other documentation, that indicates that the parties to this one gave any thought to this issue at all.

70.Courts have implied terms into agreements to deal with the dissolution of a joint venture assets where those terms are necessary for the reasonable and effective operation of the agreement.[11] However, two observations may be made about the application in this case. First, the respondent’s submissions do not clearly address this point. Second, and just importantly, the terms suggested by the Respondent do not meet the ‘reasonable and effective operation’ test in any case.

[11] For example: Andrews v Kocalidis [2010] VCC 982

71.A reasonable, effective and necessary term is one which would operate so as to protect a party from genuine loss as a consequence of the premature termination of the joint venture. This could probably include some reasonable expectation loss. However, the terms sought by the respondent go well beyond this. The respondent seeks to impose upon Mr Cox an obligation to pay amounts that were never sought while the agreement was on foot, and which bear little relationship to the loss suffered by the respondent as a consequence of the termination, and which effectively amount to punishment for breaching the contract. The terms sought by the respondent are in the form of penalty clauses[12] - and are unenforceable in any case.[13]

[12] See Ringrow Pty Ltd v BP Australia Pty Ltd (2005) 224 CLR 656

[13] See: Andrews v Australia and New Zealand Banking Group Limited [2012] HCA 30

72.I therefore decline to imply the terms sought by the respondent into the joint venture agreement.

Recovery of employee costs

73.It is not in contest that the respondent was entitled to recover from the Magic business the salaries of the employees. What is in issue is whether the respondent should also be able to recover administrative costs.

74.Again, it does not appear that the parties ever reached an express agreement about the recovery of administrative costs. That the respondent was not in fact routinely recovering those costs is evident from, amongst other things, an email from Mr Scott to Mr Cox of 17 August 2016, in which he sets out the hourly rate paid to the casuals and states:

This is based on the actual cost of paying them, it does not include any admin or processing fees as discussed, however if timesheets are late again and Mel has to do a second processing run then you will be billed for her time.

75.In the circumstances, I am satisfied that there was no agreement between the parties as to the routine recovery of the administrative costs of employing the casual employees. No such term can be implied through conduct. While this may have resulted in a benefit to Mr Cox and the Magic business, it is not the role of the Tribunal to retrospectively rewrite contracts to make them ‘fairer’, or to imply terms that a party would have bargained for, had they given the matter more thought. In any case, as the respondent was a participant in the Magic business joint venture, and it is not unreasonable that it would agree to absorb some of the costs.

76.I note, in passing, that there was some suggestion that the respondent may have undercharged the Magic business for employee expenses. I do not have sufficient evidence to consider this claim. The respondent produced no evidence of rosters, tasks, roles, or any other documentation that would allow me to make any findings as to the hours the employees worked on which business, the amounts paid to them by the respondent, and the costs incurred by the respondent. Such records can, and should, have been available to the respondent, and should have been produced to substantiate any claim – the onus being on it, as the counterclaimant, to substantiate its claims. It did not meet this onus. The claim must be dismissed.

Mr Cox’s failure to finalise an agreement

77.Mr Cox agreed to draft a formal contract for consideration by the respondent and he did not do so. In a strict sense, his actions are a breach of the contract. However, it is not a basis to conclude that any loss has flowed to the respondent. In any case, the respondent did not pursue the contract, did not set out the additional terms it sought in any communications with Mr Cox, and did not raise any real concerns about the manner in which the relationship progressed. Accordingly it completely failed to mitigate any loss it did suffer as a consequence of Mr Cox’s breach.

Breach of trust and fiduciary duties

78.Although not expressly stated in the respondent’s counterclaim, it became apparent during the hearing that what the respondent really sought was damages for an alleged breach of trust by Mr Cox. The relevant allegations were that:

(a)Mr Cox used his position as store manger to promote the interests of the Magic business at the expense of the respondent; and

(b)Mr Cox attempted to grow and expand the Magic business without the involvement of the respondent.

79.A fiduciary duty is a duty to act with ‘undivided loyalty’.[14] A fiduciary duty may be implied into some kinds of relationship, including in certain cases, between parties to a joint venture in a commercial context.[15] In other contexts, parties to a joint venture agreement may also be subject to an implied duty to act in good faith[16], which broadly requires that they not act in a way that destroys the right of the other party or to receive the benefits of the contract.

[14] see Beach Petroleum NL v Kennedy (1999) 48 NSWLR 46–7

[15] Eg. United Dominions Corporation Ltd v Brian Pty Ltd & Ors (1985) 60 ALR 741; Fazio Richards Pty Ltd v Ibis Way Pty Ltd [2016] FCA 308

[16] See Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234; Burger King Corp v Hungry Jack’s Pty Ltd [2001] NSWCA 187

80.Implication of such terms into a joint venture agreement is not automatic, however, and the existence and any duty will depend on the facts and circumstances of the case.[17]

[17] Royal Botanic Gardens and Domain Trust v South Sydney Council [2002] HCA 5; (2002) 186 ALR 289

81.No argument as to breach of good faith or fiduciary duty was clearly articulated by the respondent, and there is no evidence before me upon which I would have any reasonable basis to imply such an obligation. Moreover, even assuming that Mr Cox did owe the respondent a duty of fidelity or good faith, and even assuming that he breached it (both assumptions are, I emphasise, are theoretical), it is not evident that the remedies sought by the respondent would necessarily flow from those breaches. Where there is a breach of trust, the purpose of damages is restitution, or compensation for loss[18], not the kind of profit or penalties sought by the respondent. Accordingly, I do not need to consider this issue further.

Conclusion in relation to the counterclaim

[18] Laws of Australia [15.9.10]

82.Being satisfied that the respondent has not made out its case in either fact or law, I dismiss the counterclaim in its entirety.

Orders

83.The Tribunal orders that:

1.The respondent pay the applicant the sum of:

(a)     $3884.31; and

(b)     $9 search fee; and

(c)     $145.00 application fee.

2.The respondent’s counterclaim is dismissed.

………………………………..

Senior Member H Robinson

HEARING DETAILS

FILE NUMBER:	XD 61/2017
PARTIES, APPLICANT:	Kevin Cox
PARTIES, RESPONDENT:	Kimber & Scott trading as Three D6
COUNSEL APPEARING, APPLICANT	N/A
COUNSEL APPEARING, RESPONDENT	N/A
SOLICITORS FOR APPLICANT	N/A
SOLICITORS FOR RESPONDENT	N/A
TRIBUNAL MEMBERS:	Senior Member H Robinson
DATES OF HEARING:	9 May 2017