GM & AM Pearce & Co Pty Ltd v Australian Tallow Producers Pty Ltd and Ors

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMERCIAL AND EQUITY DIVISION

No. 2111 of 2000

GM. & AM. PEARCE & CO. PTY LTD and
AUSTRALIAN BYPRODUCTS PTY LTD

Plaintiffs

And
AUSTRALIAN TALLOW PRODUCERS PTY LTD, BARRY PALMER, OCEANIA PRODUCTS INC and MARY PALMER

Defendants

AUSTRALIAN TALLOW PRODUCERS PTY LTD
And
GM. & AM. PEARCE & CO. PTY LTD
And
OCEANIA PRODUCTS LTD

Plaintiff by Counterclaim

First Defendant by Counterclaim

Second Defendant by Counterclaim

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JUDGE:	Mandie J
WHERE HELD:	Melbourne
DATES OF HEARING:	2-3, 6-9, 13-17, 20 May 2002
DATE OF JUDGMENT:	19 November 2002
CASE MAY BE CITED AS:	GM. & AM. Pearce & Co Pty Ltd v Australian Tallow Producers Pty Ltd
MEDIUM NEUTRAL CITATION:	[2002] VSC 487

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Fiduciary duty – Proposed joint venture – Claim for equitable compensation for breach of fiduciary duty

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APPEARANCES:

Counsel

Solicitors

For the Plaintiffs

Mr J. Dixon

Pointon Partners

For the first and second Defendants

For the fourth Defendant

Mr P. Collinson with Ms D. Siemensma

Mr E. Szabo

Secombs

John Morrow

HIS HONOUR:

In this proceeding, the first plaintiff, GM & AM Pearce & Company Pty Ltd (“Pearce Co”), raises two principal matters in respect of which it seeks relief against one or more of the defendants, namely, the first defendant, Australian Tallow Producers Pty Ltd (“ATP”), the second defendant, Barry Palmer, and the fourth defendant, Mary Palmer. The first matter relates to certain orders for the supply of meat products (“the Platte River contracts”). The primary relief claimed is equitable compensation for the loss of the opportunity to earn profits therefrom as a result of an alleged breach of fiduciary duty owed to Pearce Co by its proposed joint venturers, Barry Palmer and Mary Palmer, whereby ATP received the sole benefit of those contracts. The second plaintiff, Australian Byproducts Pty Ltd (“ABP”), which was the proposed corporate vehicle for the joint venture, joins in that claim. The second matter relates to forward exchange cover (“the forex contract”) which Pearce Co obtained from the ANZ Banking Group Ltd (“the ANZ Bank”) in respect of which Pearce Co seeks from Barry Palmer and Mary Palmer an indemnity for losses suffered thereunder. In addition to those two matters, there is a counterclaim by ATP against Pearce Co in relation to an earlier partnership.

Factual background

Graham Pearce and his wife Anita Pearce carry on a meat exporting business through the medium of their company, Pearce Co, which was incorporated in 1993. Graham Pearce is a director of Pearce Co and Anita Pearce is the only other director and the secretary. At all relevant times Pearce Co held a meat export licence.

Graham Pearce (also known as “Waxy” or “Wax”) has been involved in the meat industry in one capacity or another since about 1969. Commencing in 1978 he was employed by a meat exporter, Steigers Ltd. In 1980, Steigers Ltd was involved in inquiries by the Royal Commission into the Australian Meat Industry. Graham Pearce was eventually charged with certain offences relating to meat substitution, namely conspiracy to defraud persons unknown. In 1990, Graham Pearce pleaded guilty to the charges and was sentenced to two years imprisonment. He served 6 months of his sentence, and was released in November 1990. I mention these matters because, although Graham Pearce openly referred to them in his evidence, the defendants relied on these and other details of his history, and the way he testified about them, as going to his credit. In the end it has been unnecessary to take these matters into account. I have formed my views of the witnesses and their evidence, to the extent that this case turns on factual issues, based upon seeing and hearing the witnesses testify and in the light of the contemporaneous documents.

In late 1993 or early 1994, Pearce Co commenced selling through a broker, for export to the USA, minced bone for pet food. The broker sold the product to Montford Inc, a US corporation trading or doing business as “Platte River By-Products” (“Platte River”). Platte River was a large manufacturer of pet food products. In late 1995 or early 1996, the broker ceased business for personal reasons, ending what was said to be a profitable business for Pearce Co. Despite subsequent efforts by Graham Pearce to obtain direct purchase orders for minced bone from Platte River, he was unable to do so.

The Palmer family are in the meat processing and tallow producing business. Barry Palmer and Mary Palmer were married in 1957 but separated in 1993 (and were divorced in 2001). Barry Palmer and Mary Palmer and their six children operate the business through a corporate and trust structure. Barry Palmer and Mary Palmer are directors and co-secretaries of ATP, which is but one of the Palmer operating companies, and is the trustee of a unit trust, the ultimate beneficiaries of which include the six Palmer children. A number of family members work or have worked in the business. Mary Palmer was employed by ATP as an office manager and administrator. One of the Palmer sons, Craig Palmer, was involved in a leading managerial role with ATP (and became a director in March 2000). A daughter, Elizabeth (Lisa), was employed as ATP’s financial controller. Since February 1996 and until recently, Barry Palmer had been resident in Perth and was involved in setting up a Palmer business not connected with the present proceeding.

The Pearces and the Palmers had known of each other for some years through associations in the meat industry. They became involved in a specific business venture in about January 1998. Graham Pearce spoke to Craig Palmer and another of the Palmer sons, Ashley Palmer, concerning a possible venture to export mechanically de-boned meat (MDM) to the USA (“the MDM partnership”). Graham Pearce had an American contact, Jim Workman, who said that he could find buyers for MDM in the USA. It is common ground that, after a number of meetings and discussions, the MDM partnership was formed between ATP, Pearce Co and Workman’s company (Oceania Products Ltd). ATP leased a machine called a “Beehive machine” to manufacture the MDM. The partners agreed that no profits would be distributed until after the lease was paid out. The machine was delivered in April 1998 and was used for the purposes of the partnership business. By August or September 1999, it was clear that the MDM partnership was not particularly profitable and, no doubt for that reason and possibly for other reasons not now material, the MDM partnership was beginning to break down. On or about 16 December 1999 Barry Palmer at the request of Graham Pearce sent a fax to Jim Workman informing him of the termination of the MDM partnership. On the counterclaim by ATP, there are some issues to be resolved by the Court in relation to the MDM partnership and it is agreed that there must then an order for the taking of accounts by a Master.

In October 1999, Graham Pearce decided to propose to Barry Palmer a business venture involving the export of minced or crushed bone directly to Platte River, and not involving the use of any intermediaries, such as brokers.

On 20 October 1999, Graham Pearce telephoned Platte River and was transferred by one Vincenthaler to the new purchasing officer, Sola Torres (“Torres”). Because he believed that Platte River was not willing to deal with “Graham Pearce”, he told Torres that he was “Barry Palmer” of ATP. Graham Pearce told Torres that ATP (or his “two boys”) were selling bones to Platte River through two brokers. He told Torres that “his” boys wanted him to spend money on the plant, and that he intended to save money by bypassing the brokers. Torres said that Platte River was more interested in purchasing offal than bones, and Graham Pearce replied that he could supply offal.

At some stage, either shortly before or shortly after Graham Pearce’s telephone call to Platte River, Graham Pearce telephoned Barry Palmer and described his idea for a profitable business making direct sales to Platte River. The degree of detail discussed is in dispute but Barry Palmer certainly indicated that he was interested in the proposal. Barry Palmer informed Craig Palmer of this discussion with Graham Pearce.

On 21 October 1999, Graham Pearce caused a fax to be sent to Platte River. The fax purported to be from ATP and appeared to bear the pre-printed logo, name, address and telephone and fax numbers of ATP. The format of the fax was manufactured by Anita Pearce (the precise method used is described in the evidence, but is immaterial, however it would seem probable in the circumstances that none of the Palmers had given authority for this to be done). The fax purported to be signed by Barry Palmer on behalf of ATP. It referred to a conversation between “Palmer” and Torres concerning the future supply of frozen hearts and livers (either bovine or ovine). The fax informed Platte River that “we” (ATP) had available for prompt shipment over the next 12 months or longer approximately 25 containers of each product and could also supply frozen, crushed, unstained ovine (scil. sheep meat and bones).

Graham Pearce testified that, before his telephone call to Torres and subsequent fax, he had told Barry Palmer that he intended to approach Platte River pretending to be Barry Palmer and attempt to obtain orders, and that Barry Palmer had consented to this course. On the other hand, Barry Palmer denied any prior knowledge of such conduct but he admitted in substance that he had later been informed by Pearce and had acquiesced in Pearce's pretence and in Pearce Co’s continuing use of his name, and that of ATP, in dealing with Platte River.

In late October or early November 1999, Barry Palmer had detailed face-to-face discussions with Graham Pearce concerning a proposed joint venture involving sales direct to Platte River. At about that time, Graham Pearce also informed Craig Palmer and Ashley Palmer of the relevant circumstances in which he was negotiating with Platte River for offal contracts in the hope of also obtaining bone contracts.

On 3 November 1999, Graham Pearce and Torres agreed upon terms as to the supply of approximately 25 containers each of hearts and livers. Graham Pearce told Craig Palmer and Ashley Palmer that he expected an order for offal to be faxed to ATP shortly and he asked them to send the fax on to him. Platte River faxed to ATP a purchase order dated 3 November 1999 for a specified quantity of frozen lamb livers to be delivered by arrangement from January to December 2000. Platte River also faxed to ATP a purchase order dated 4 November 1999 for a quantity of frozen lamb hearts. ATP sent both faxes on to Pearce Co. Barry Palmer was in Melbourne in late October and early November 2000. Graham Pearce showed the orders to Barry Palmer and they agreed that Graham Pearce should try to get an order for crushed bones.

Telephone negotiations continued between Graham Pearce and Torres concerning crushed bones. Then, on 9 November 1999, Graham Pearce caused a fax to be sent from “ATP” to Platte River. The fax was in the same format as the fax of 3 November 1999. The fax referred to a conversation that morning and offered 100 x 20’ “reefer” (ie refrigerated) containers of crushed ovine (sheep bones) in year 2000 for delivery to Platte River in Grand Island, Nebraska at the CIF price of US$0.25 per pound.

After further telephone discussions between Graham Pearce and Torres, Platte River faxed a purchase order dated 10 November 1999 to ATP for a large quantity of frozen mutton bone for delivery at 8 loads per month from January to December 2000. ATP faxed a copy of the order to Pearce Co and Graham Pearce in turn faxed a copy of the order to Perth to Barry Palmer (who shortly thereafter told Graham Pearce that he was “tickled pink” at the receipt of this order).

In mid-to-late November 1999, Graham Pearce started looking into freight rates for the products to be shipped under the Platte River contracts. On 28 November 1999, Graham Pearce flew to Perth and stayed with Barry Palmer. One purpose of this visit was to find suppliers of crushed bone in Western Australia for the Platte River contracts because ATP could not itself supply sufficient product to satisfy those contracts. While he was staying with Barry Palmer in Perth, Graham Pearce was contacted by Torres and they agreed upon the terms of a second large order for bones by Platte River. Graham Pearce informed Barry Palmer, who expressed great delight. At this time (if not earlier) Graham Pearce and Barry Palmer discussed the setting up of a joint venture in relation to the Platte River contracts. Barry Palmer suggested in substance to Graham Pearce, who agreed, that the venture be shared equally, one-third each, between himself, Graham Pearce (on behalf of Pearce Co) and Mary Palmer. They discussed setting up a company as the joint venture’s vehicle to conduct the new business. In due course such a company was in fact incorporated – the second plaintiff, ABP. At about that time Barry Palmer also said to Graham Pearce that, as ATP was intending to move to new premises, perhaps the new venture could lease and use ATP’s premises at Chifley Drive, Preston. Graham Pearce said that this was a good idea. On 3 December 1999 Graham Pearce returned to Melbourne from Perth.

On 7 December 1999, Platte River faxed to ATP the second order for bones mentioned above, by a purchase order dated 7 December 1999. The order was for the same quantity again of frozen mutton bones at the same price and on the same terms as the first order. ATP faxed a copy of the order on to Pearce Co.

The four purchase orders comprising the Platte River contracts thus were:

Date Product Quantity (lbs) Rate (US$) Price (US$)

03/11/99 Lamb livers 1,050,000 0.33 346,500

04/11/99 Lamb hearts 1,050,000 0.36 378,000

10/11/99 Mutton bone 4,200,000 0.24 1,008,000

07/12/99 Mutton bone 4,200,000 0.24
TOTAL 1,008,000
2,740,500

Graham Pearce testified that shortly after receiving each of these orders, he also informed Mary Palmer about each of them. Mary Palmer denied that she was informed until later. However it is clear from her own evidence that Mary Palmer was well aware of the Platte River contracts, their value and potential profitability, at the latest by mid-December 1999 and she was also made aware at about the same time of Graham Pearce’s “pretence” in obtaining those contracts. Barry Palmer and Mary Palmer each gave evidence that Mary Palmer was initially worried about participating in the joint venture for a number of reasons including her concerns as to the adequacy of available sources of supply (including supply from ATP) to fill the contracts and her lack of confidence in both Graham Pearce and Barry Palmer. However, I am satisfied that Barry Palmer persuaded her to the extent that, by mid-December 1999, she had agreed in principle to take up a one-third interest in the joint venture but only subject to a number of her conditions first being satisfied. There was dispute at trial as to what her conditions were but in the end it is unnecessary to resolve this dispute.

In mid-December 1999, Graham Pearce found out that ATP (through Craig Palmer) was still selling bones to the USA through brokers. There was a deal of evidence on this topic also but it is not, in my view, of any relevance.

A memorandum relating, inter alia, to the proposed joint venture was created around 14 December 1999 for the purpose of discussion at a meeting of the Palmer family. Barry Palmer came to Melbourne for the meeting. The memorandum was prepared by Lisa Palmer in part based upon instructions received from her father Barry Palmer. The memorandum contains a calculation of the estimated return on exporting minced (or crushed) bones to the USA pursuant to the Platte River contracts (120 containers at US$0.24 per pound). The memorandum notes that “Dad” is proposing to form a new joint venture with “the shareholding being equal thirds between Mum, Dad and Waxy” (ie Mary Palmer, Barry Palmer and Graham Pearce). A number of issues are raised in the memorandum including whether ATP should supply the minced bone to the joint venture for the Platte River contracts, and if so, whether ATP should charge the joint venture for the minced bone at the same price that it could obtain from outsiders. The memorandum states “ATP is the one who has gone direct to the US companies and obtained the contracts” (a reference to the Platte River contracts).

At this stage, Mary Palmer had still not agreed (other than in principle) to be part of the joint venture and wished to impose a number of conditions in relation to Graham Pearce's entry and participation in any joint venture. Indeed she unsuccessfully endeavoured to persuade Barry Palmer that there was no need for Graham Pearce to be involved at all because “ATP can get the contracts and do it on its own without Graham Pearce”. In substance Barry Palmer persuaded Mary Palmer that they needed Graham Pearce because of his experience in the export market and with shipping, finance and the like. At the family meeting on about 15 December 1999, Mary Palmer agreed to participate in the proposed joint venture but only if a number of terms and conditions (which were ultimately never agreed) were satisfied. However prior to 22 December 1999 Mary Palmer gave instructions on behalf of Barry Palmer, Graham Pearce and herself to the Palmers' solicitors (Hall & Wilcox) and the Palmers' accountants (Clark Bentleys MRI) relating to the incorporation of ABP as a corporate vehicle for the joint venture. ABP was incorporated on 22 December 1999 with Graham Pearce as the sole director and the holder of all of the 15 issued ordinary shares, it being intended at that stage by the proposed joint venturers that Graham Pearce hold two-thirds of his shares on trust for “the Palmers”. There was probably no consensus as to the identification of “the Palmers” in this context. Mary Palmer's instructions to Hall & Wilcox envisaged herself and Craig Palmer as holding the beneficial interest in 10 of the ABP shares in Graham Pearce’s name under a discretionary trust for the Palmer family. Graham Pearce and Barry Palmer probably intended that two-thirds of the ABP shares should be held by Graham Pearce on trust for Barry Palmer and Mary Palmer.

On or about 22 December 1999, Graham Pearce informed Barry Palmer that ABP had been incorporated and that he would arrange for the purchase orders (ie Platte River contracts) to be changed into the name of ABP.

On 23 December 1999 Anita Pearce faxed Platte River, for the attention of Torres, again purportedly on behalf of ATP and purporting to be Barry Palmer. The fax informed Platte River that "we" (ATP) were in the process of establishing “a new division of our current company to be known as Australian Byproducts (same address etc.)”. The fax asked Torres to amend the four Platte River purchase orders to this name.

On 24 December 1999, Graham Pearce opened a bank account in the name of ABP with the ANZ Bank, Essendon North branch, and he informed Barry Palmer that this had been done.

On 10 January 2000, Hall & Wilcox advised Craig Palmer and Mary Palmer that ABP had been incorporated as instructed and provided a number of corporate documents for signing by Graham Pearce.

On or about 18 January 2000, Mary Palmer gave Graham Pearce a number of documents prepared by Hall & Wilcox in relation to ABP. Graham Pearce took these documents to Andrew Cox, the solicitor for Pearce Co and Mr and Mrs Pearce. On 19 January 2000, Andrew Cox wrote to Hall & Wilcox. Mr Cox appears to have believed that Mary Palmer's husband's name was Craig, rather than Barry. Subject to that, Mr Cox stated his instructions to be that there was to be a corporate joint venture with Pearce Co having a one-third interest and Mr and Mrs Palmer having a two-thirds interest as trustees of a proposed trust (for the Palmer interests). Mr Cox proposed certain additional and changed documentation to protect his client's interests as, in substance, a minority shareholder.

On or about 31 January 2000, Graham Pearce and Barry Palmer had a telephone conversation on the topic of forward foreign exchange cover for the Platte River contracts. I find that they agreed that Graham Pearce should try to arrange a forex contract. In essence Barry Palmer left it to Graham Pearce to arrange a forex contract for the proposed joint venture as he might consider appropriate.

On 1 February 2000, Graham Pearce applied to the ANZ Bank for a forex contract in the name of ABP. On that day, Barry, Mary and Craig Palmer and Graham Pearce had a meeting at the ATP premises. Ashley Palmer and Anita Pearce were also present at least for part of the meeting. It was agreed in principle at the meeting that Barry Palmer, Mary Palmer and Graham Pearce (on behalf of Pearce Co) would each take one-third of the joint venture business. It was not disputed that the purpose of the meeting was to discuss the new venture and that a number of relevant topics were discussed. Where the witnesses differed considerably was as to what topics were discussed and what was said but, in the end, it does not matter. After the meeting, Barry Palmer and Mary Palmer each went to the ANZ Bank in Essendon North and supplied a signature so as to be an authorised signatory for ABP.

Also on 1 February, Anita Pearce sent a fax as “Barry Palmer”, on ATP letterhead, to Platte River which again asked Torres to amend the purchase orders:

“Could you also please forward copies of your amended purchase orders as listed above with the name changed to our new company name of “Australian Byproducts” and which we spoke of some time ago, just so that we have these on record here in Australia.”

Platte River did as requested on the following day, addressing four amended orders to “Australian By Products”, 49 Chifley Drive, Preston. Two of the orders were backdated to 27 December 1999 and the other two orders were dated 1 February 2000.

On 2 February, the ANZ Bank informed Graham Pearce that it would not provide a forex contract to ABP but would do so for Pearce Co, its existing client. On 3 February 2000, the ANZ Bank and Pearce Co entered a forex contract for US$1M. Under that contract the ANZ Bank agreed to buy and Pearce Co agreed to sell, on or before 30 June 2000, US$1M. for A$1,564,954 (a rate of US$0.639 per A$) . Pearce Co was thereby seeking to protect itself against any increase in the value of the Australian dollar vis-a-vis the US dollar, beyond US$0.639. Graham Pearce showed Barry Palmer a copy of the forex contract which was in the name of “GM & AM Pearce” (although it seems clear that Pearce Co was the contracting party). Graham Pearce told Barry Palmer that he had had to put up his house as security. According to Graham Pearce, he also informed Mary Palmer of what had transpired with the Bank. Further, Anita Pearce alleged that Pearce Co faxed a copy of the correspondence with ANZ Bank to Mary Palmer in the following terms:

“Please find following copies of e-mails sent to us regarding cover on the USD – cover can be used for either GM & AM Pearce & Co P/L or Australian Byproducts. Wax is on his way over and can discuss with you if you need.”

However Mary Palmer denied in evidence that she saw this fax. I accept that evidence. She also denied that Graham Pearce had informed her of the forex transaction. I am not satisfied that Mary Palmer agreed to the obtaining of any forex contract or was other than vaguely aware of what Graham Pearce had in mind to do or did.

By about early February 2000, the first shipment under the Platte River contracts (2 containers) had been organised by the Pearces and had left Fremantle. During February and the beginning of March, ABP further corresponded with Platte River on matters concerning the contracts. During February and early March 2000, Pearce Co (not ABP) took the proceeds of the first four shipments made under the Platte River contracts for reasons which are again immaterial. I am satisfied that both Barry Palmer and Mary Palmer were aware that shipments under the Platte River contracts had commenced. The forex contract was utilised by Pearce Co in relation to the first two of these shipments, but not the other two.

On 3 March 2000, Barry Palmer, Mary Palmer and Lisa Palmer had a meeting in Perth for the purpose of discussing a number of business issues, in particular, the MDM partnership and the proposed joint venture in relation to the Platte River contracts. Lisa Palmer said that she prepared a two page paper for the meeting based primarily on instructions obtained from Barry Palmer. Barry Palmer in substance agreed with that evidence. However, the contents of the paper strongly suggest, and I am satisfied (although it does not ultimately matter) that it was in fact a record of what occurred at that meeting and must have been prepared after the meeting. The paper was then faxed to Craig Palmer for his information. The paper records the participants’ perception of a number of transactions and issues and their agreed stance for future negotiations with Graham Pearce. For present purposes it is sufficient to note that the paper recognises the existence of a proposed new joint venture with equal shares to be held either by or at the direction of Graham Pearce, Barry Palmer and Mary Palmer. Some of the matters mentioned in the paper provide support for an inference that Barry Palmer was in a number of respects saying one thing to Graham Pearce and something else when discussing the same topics with members of the Palmer family. I think that this inference is also open to be drawn upon consideration of the evidence as a whole. Again, however, although much was sought to be made of such matters in the course of examination of the witnesses, a conclusion one way or the other does not in my view affect the issues to be decided.

Meanwhile, the parties negotiated with respect to a shareholder’s agreement in relation to ABP. On 8 March 2000, Graham Pearce spoke to Barry Palmer by telephone. I am satisfied that the conversation went in substance along the lines deposed to by Graham Pearce:

“During this conversation I said that I was very worried because we were three months behind with shipments for orders, there didn’t seem to be any likelihood Craig would vacate the premises and he wouldn’t supply me with any product, we were supposed to be doing 20 containers a month. I reminded Barry that I’d entered into the foreign exchange contract in good faith but my solicitor said not to sign the documents his solicitor had prepared because they were too one sided. I said that I was the big loser with my head on the block and my house on the line and the deal was going nowhere. I said that we should have a meeting to sort it out. Barry said that we should just sign the documents and get things rolling. I said no we should have a meeting at his solicitors office on Friday with Mary to sort it all out. Barry said he’d make himself available by phone.”

On 9 March 2000, Hall & Wilcox faxed the following proposal to Andrew Cox:

“Given that the above [Australian By-Products Pty Ltd] is to be a trading company, Barry Palmer and Mary Palmer propose the following:
Mary and Graham to be the directors.
Six shares each to Barry’s entity, Mary’s entity and Graham’s entity.
Mary and Graham to be joint signatories on all cheques.
Craig will have no formal involvement in the structure.
If the company ever has any real value, the parties can then calmly consider whether a shareholders deed is necessary. For now, the deed is to be put on hold. You will remember that it came about because of the original proposal that Graham hold all shares (some on trust for the Palmers) and be the sole director.
Mary will be attending any meeting tomorrow. It is not my recommendation that we meet as I will not be recommending changes to the current draft. I am recommending the above including that the draft [shareholders deed] be put aside and that our clients get on with their proposed/continuing business relationship.
I have sent a copy of this letter to Barry to read to Graham.”

Andrew Cox replied on the same day:

“The proposals set out are rejected. In my letter of 19 January and subsequent correspondence I have set out the matters my client would require were he to be a minority shareholder in the proposed company. The proposals in your transmission do not address those matters.
Even if you clients had never proposed that my client hold all shares in the Company I would have required a shareholders agreement covering the matters set out in the correspondence.
This company was never going to be a simple alter ego of your clients. It is a genuine joint venture originally intended to comprise one third shares between the Palmer family, my client and an American interest [Jim Workman]. When the American interest was dropped my client agreed to the Palmer family taking a two third position although he would have been entitled to require a 50/50 split.
If our clients cannot agree about the basis on which they are to be in business together then they will not be in business together. There will be no continuing business relationship. The parties will be free to compete with each other. The company will simply be stillborne [sic] and any assets which the various parties have proposed be placed into the company will revert to the persons entitled to same by resulting trust.
My client has recently spoken to Barry Palmer and understands that a meeting has been fixed for 11:30 am at your office. I would be pleased if you could confirm same. My client would be pleased if Mary Palmer were to attend such meeting.” (emphasis added)

On the same day, Andrew Cox also sent a discussion document to the parties. Among other things, it set out the Pearces’ position on the joint venture negotiations up to that point:

“In the November discussions Graham Pearce agreed that his interest would remain one-third with further one-third interests being held on behalf of Barry and Mary. The structure that the discussions contemplated was:
Formation of a new company with three equal shareholdings;
Graham to be managing director;
The Palmers owned land and plant in Preston. The new company would lease such land and plant for $1.000 per week with an option to purchase for $450,000;
Graham would bring the benefit of contracts to sell bone and meat byproduct for AUD $870 per tonne CIF. The price at which the existing business is currently selling such byproduct is AUD $330 per tonne FOB;
It was hoped that the business could commence in January.”

On 10 March 2000, Graham Pearce, Anita Pearce and Mary Palmer went to a meeting at the offices of Hall & Wilcox. Barry Palmer was in Perth, and participated in the meeting by phone link-up. The parties could not come to an agreement for a number of reasons which are irrelevant to the issues in this proceeding. As a result, the business relationship between Graham Pearce and Barry Palmer broke down completely.

On Saturday 11 March 2000, Barry Palmer telephoned Graham Pearce. Graham Pearce said to him that the deal was off, and, in effect, that each of them would go his own way. Neither of them mentioned what was to happen to the existing Platte River contracts. Immediately after this telephone conversation, Barry Palmer decided to get the Platte River contracts for ATP in order to secure the profits therefrom. He spoke to his co-director, Mary Palmer, and informed her of his intention. I find that she agreed with his proposed course of action.

On or about Tuesday 14 March 2000, Barry Palmer telephoned Torres and introduced himself. He told her that Graham Pearce had been ringing on his behalf and putting his name on a lot of correspondence. Barry Palmer told Torres that the venture with Pearce would not be proceeding and that “we would not be proceeding with the contracts through ABP”. Torres said that this was of no interest to her and that she would be reverting to the original contract with “Australian Tallow Producers” and that she would hold ATP responsible for the contract. She said that Platte River needed products and had allocated this tonnage to ATP, and expected the contract to be performed. Torres said she would rewrite the contract in the name of ATP with the same numbers as the original purchase orders. Barry Palmer told her that they were coming over for the pet food conference in Chicago and that they would come and see her and her boss.

The next day, Barry Palmer sent a fax to Torres stating:

“Confirming our telephone conversation yesterday, the proposed joint venture between the Palmer Family and G&A Pearce called Australian By-Products will not be proceeding. We will be reverting to the original contract issued to Australian Tallow Producers Pty Ltd.
We will commence shipment immediately. All future monies paid are to be deposited into [the bank account of ATP].”

Soon thereafter, Platte River faxed amended orders both to ATP and to Pearce Co in which the vendor’s name was amended from ABP to ATP. The contracts were stamped “Name Change Only”.

Anita Pearce sought to retain the Platte River contracts for ABP. She said in a fax to Torres dated 16 March, inter alia:

“…We had originally hoped to join forces with Australian Tallow Producers however these negotiations have recently fallen through due to lack of supply and unreliability on their part, and the fact that we could not agree with them on certain policy issues – it would appear they are trying to service too many markets with too many products – it has always been our policy to show some loyalty to our buyers wherever they may be.
It was my husband – acting on his own & Mr Palmer’s behalf when the contracts were originally discussed and drawn up with you, that you spoke to, with this amalgamation in mind, however it would appear at this moment that some “claim jumping” is now being attempted. Our companies are licensed/registered meat exporters and producers and this allows us to both purchase, produce and ship export products including all offals as well as inedible pet foods – Australian Tallow is a local rendering facility.
My husband Graham would be more than happy to come over and personally discuss these issues with you at any time in the very near future, if this presents any problems for you…I apologise for any confusion this causes, if possible could you please change the contracts back to Australian By Products…”

On 18 March 2000, Torres replied by fax to Anita Pearce (ABP):

“We are troubled to hear of your problems with Mr. Palmer. The fulfilment of the contracts is of great concern. However, the original purchase orders were issued to Australian Tallow Producers. Our first contact was with Barry Palmer, and as you have stated, your husband Graham was working on Mr. Palmer’s behalf when the purchase order was first issued.
I am not implying that we would not purchase product from your company, if the opportunity should arise. I am merely stating that the original orders were placed with Barry.
Please advise if this is not to your understanding, or if you have documentation to the contrary please provide us with a copy.”

On 28 March 2000, Platte River faxed to Pearce Co two completely new orders for 20 containers of minced bone and 10 containers of hearts, stating:

“Following are two contracts for the mutton bone and the lamb hearts. At this time I am not able to confirm quantity on the livers. However as soon as possible I will supply you with the contract.
We hope to do larger productions with you come this following year. As you well know we still have to honor our other contracts. If this should change in any way, we will contact you.
It will be our pleasure to do business with you.”

Subsequently, Pearce Co also received from Platte River a further new order for 10 containers of livers. The total value of the new orders received from Platte River by Pearce Co was apparently about US$1.14M.

ATP proceeded to perform the Platte River contracts and Pearce proceeded to fill its new orders. In April 2000, Craig Palmer and Barry Palmer went to the US to attend a pet food conference and saw Torres as promised.

On 19 May 2000, a proceeding was commenced by ATP against Pearce Co in the County Court claiming an alleged debt arising out of the MDM partnership. I will refer to that matter again later.

By letter dated 5 July 2000, the plaintiffs’ solicitor wrote to the solicitors for Barry Palmer and ATP stating inter alia that it had been intended by all parties to the proposed joint venture that any liability under the forex contract would be met by ABP out of the proceeds of the Platte River contracts, and that, as at 30 June 2000 (ie, the expiry date of the forex contract), Pearce Co had incurred a liability under the forex contract of A$112,063. The letter further stated that the negotiations for the proposed joint venture had broken down, but that the apportionment of the benefit of the joint venture had been agreed throughout the negotiations to be two-thirds for the Palmer interests and one-third for Pearce Co. The letter said that the plaintiffs had been advised that there had been a breach of fiduciary duty by Barry Palmer and ATP in obtaining the benefit of the Platte River contracts for ATP and that Barry Palmer and ATP were liable to account to ABP for any consequent profits. The letter claimed that the proceeds of the sales arising from the Platte River contracts were held by ATP on trust to be applied to the performance of the contracts, including the exchange rate losses of Pearce Co (ie, the loss on the forex contract) and then to be divided between ATP as to two-thirds and Pearce Co as to one-third. Failing agreement, the letter asked whether the addressees had instructions to accept service of proceedings. On 26 July 2000, the solicitors for ATP and Barry Palmer replied and simply denied all liability and said that they had instructions to accept service of proceedings.

ATP continued to supply Platte River until November 2000, when Torres contacted Lisa Palmer and asked her to stop sending any more product. The total value shipped was about US$2.5M. In late December 2000, Torres informed Barry Palmer that Platte River had gone out of business. ATP thus did not fully perform the Platte River contracts but it did not seek to recover any consequential damages from Platte River. The new orders received by Pearce Co were not completed either – product to the value of about US$426,000 was shipped by Pearce Co to Platte River. The gross profit earned by Pearce Co from these orders was A$99,156.12.

Graham Pearce extended the forex contract a number of times, during the course of which he applied to it some of Pearce Co’s US dollar receipts from Platte River’s new orders.

On 27 November 2000, Pearce Co and ABP commenced the present proceeding.

On 6 February 2002, Pearce Co paid out the outstanding balance of the forex contract at a cost to it of $416,588.41.

The amended statement of claim and some findings in the light of the evidence

The plaintiffs’ claims are contained in their Further Amended Statement of Claim filed 7 August 2001 (the Amended Statement of Claim). Paragraphs 5 – 12 inclusive of the Amended Statement of Claim can be disregarded because reliance upon those paragraphs was subsequently withdrawn. Paragraph 13 of the Amended Statement of Claim alleges that during late 1999 and early 2000, Graham Pearce on behalf of Pearce Co and Barry Palmer (on his own behalf and on behalf of Mary Palmer) and Mary Palmer had discussions and negotiations with a view to incorporating a joint venture which would carry on business of selling certain products into the American market. This joint venture is referred to in the Amended Statement of Claim as “the proposed joint venture”. Particulars to Paragraph 13 refer to oral discussions and negotiations, the substance of which was that interests associated with the Palmer family would have a two-thirds entitlement to the profits of the joint venture and Pearce Co a one-third entitlement, that a new company would be incorporated to operate the joint venture, that Graham Pearce would be the managing director of the proposed joint venture vehicle, that the site and plant at 49 Chifley Drive Preston would be leased by ATP to the proposed joint venture at a rental of $1000 per week and that ATP would grant the proposed joint vehicle an option to purchase the said site and plant for $450,000. The particulars also rely upon written discussions and negotiations, as contained in the correspondence and documents exchanged between Hall & Wilcox and Andrew Cox between January and March 2000.

In relation to paragraph 13 of the Amended Statement of Claim, I am satisfied that Graham Pearce on behalf of Pearce Co and Barry Palmer on his own behalf and Mary Palmer on her own behalf did have discussions and negotiations with a view to incorporating a joint venture for the sale of products to Platte River. I am further satisfied that the said three individuals reached a consensus in their negotiations that Barry Palmer and Mary Palmer (or interests associated with them) would have a two-thirds interest, directly or indirectly, in the joint venture and Pearce Co would have a one-third interest in the joint venture, and that they also agreed that a new company would be incorporated to operate the proposed joint venture. I am not satisfied that agreement was reached that Graham Pearce would be the managing director of the proposed joint venture vehicle, but it seems to me that this aspect is immaterial to the plaintiffs’ claim. Nor am I satisfied that the three individuals reached a consensus that the site and plant at 49 Chifley Drive, Preston would be leased by ATP to the proposed joint venture vehicle, although it is clear that this topic was the subject of discussion. I am satisfied that there was never any consensus as to the granting of an option to purchase the said site and plant. Again, I do not think that the alleged elements of the proposed joint venture involving the leasing or sale of the site and plant at 49 Chifley Drive, Preston, are necessarily material to the plaintiffs’ claims.

Paragraph 14 of the Amended Statement of Claim alleges that ABP was incorporated as the proposed joint venture vehicle. It was not disputed that ABP was the intended joint venture vehicle and that it was incorporated for that purpose.

Paragraph 14A of the Amended Statement of Claim alleged that by reason of the matters set out in paragraph 13 and the particulars thereunder, and in paragraph 14, the proposed joint venturers comprised:

(a)Pearce Co;
(b)Barry Palmer and Mary Palmer, either on their own behalfs or on behalf of interests associated with the Palmer family not then ascertained.
(c)The proposed joint venture vehicle (ABP); and
(d)ATP for the purpose of granting or procuring the grant of a lease and option to purchase the site and plant at 49 Chifley Drive, Preston.

Paragraph 14A of the Amended Statement of Claim is somewhat illogical because, in the first place, it does not follow from the paragraphs relied upon that ABP was a proposed joint venturer but rather simply the vehicle for the proposed joint venture and, in the second place, it is not pleaded that Barry Palmer and/or Mary Palmer held themselves out as acting, or were in fact acting, on behalf of ATP in the negotiations relating to the proposed joint venture. In any event, I am satisfied that ATP was not a proposed joint venturer and never agreed to grant a lease or option to purchase as alleged. I am satisfied that the proposed joint venturers comprised Pearce Co and Barry Palmer and Mary Palmer.

Paragraph 15 of the Amended Statement of Claim alleges that, in anticipation of the proposed joint venture, and with the knowledge and consent of Barry Palmer, in December 1999 and January 2000, Graham Pearce procured the Platte River contracts. Paragraph 16 of the Amended Statement of Claim alleges that it was intended (in substance) by the proposed joint venturers that ABP would perform the Platte River contracts. The facts do not necessarily support the allegation that the Platte River contracts were obtained “in anticipation of” the proposed joint venture, and the timing of Barry Palmer’s “knowledge and consent” was somewhat in dispute, but it is clear that the proposed joint venturers reached a point where they all intended that the Platte River contracts were to be the subject of the proposed joint venture and to be performed by ABP (although purportedly obtained by ATP in the first place) on behalf of the proposed joint venture.

Paragraph 17 of the Amended Statement of Claim alleges that the benefit of the Platte River contracts was property of, or an asset of, the proposed joint venture.

Paragraph 18 of the Amended Statement of Claim alleges that, in anticipation of the proposed joint venture, and with the knowledge and consent of Barry Palmer and Mary Palmer, in late January and early February 2000, Graham Pearce procured the forex contract “on behalf of the joint venture” in the names of Pearce Co and ABP for the purpose of protecting the joint venture against adverse movement in the exchange rate between the United States dollar and the Australian dollar. I am satisfied that the forex contract was obtained for the purpose of protecting the joint venture against adverse movement in the exchange rate, as alleged. As will be seen, I find it unnecessary to decide whether or not Graham Pearce initially had it in mind to utilise the forex contract for other purposes as well. I find that Barry Palmer (but not Mary Palmer) was aware of and agreed to the obtaining of the forex contract.

Paragraph 19 of the Amended Statement of Claim alleges that it was intended by the proposed joint venturers that the forex contract would be an asset or liability of the proposed joint venture.

Paragraph 20 of the Amended Statement of Claim alleges that, in the circumstances, the benefit of the Platte River contracts was held by ABP for the proposed joint venture, the proposed joint venturers owed fiduciary duties to one another not to use the Platte River contracts for their own benefit, and that Barry Palmer, Mary Palmer and ATP are liable to indemnify Pearce Co in respect of its liability under the forex contract.

Paragraph 21 of the Amended Statement of Claim alleges that the contemplation of the proposed joint venturers was that the rights and obligations of the parties to the proposed joint venture would be formalised in a written agreement comprising a Shareholders’ Agreement for ABP and that ABP would contract with third parties on behalf of the joint venture. I am not satisfied that any consensus was reached that there should be a written agreement of any kind, in particular a Shareholders’ Agreement “formalising” the rights and obligations of the parties to the proposed joint venture. I am satisfied on the evidence that the parties failed both to reach a concluded agreement and to reach any consensus as to the form which such an agreement would take.

Paragraph 22 of the Amended Statement of Claim alleges that the discussions and negotiations between Graham Pearce, Barry Palmer and Mary Palmer broke down before the formalities of the joint venture were concluded. The particulars to paragraph 22 purport to set out the topics upon which the discussions and negotiations broke down. In my view, the only relevant matter in this respect is that the discussions and negotiations in fact broke down, and the items of disagreement need not be identified. The allegation in paragraph 22 of the Amended Statement of Claim is incorrect if it is intended to convey that it was merely the “formalities” of the joint venture which were not concluded. I am satisfied that it was the substance of the terms and conditions of the proposed joint venture which were never agreed. If however, paragraph 22 is intended to convey that there was a broad consensus as to a joint venture which did not culminate in a concluded agreement, then that is clearly correct. Although the plaintiffs vacillated during the course of the evidence, it seems to me that, in the end, they did not seek to put their case any higher than that.

Paragraph 22A of the Amended Statement of Claim alleges that in the circumstances “the benefit of the Platte River contracts was held by ABP on resulting trust for Pearce Co being the proposed joint venturer that had procured the Platte River contracts for the benefit of, and in anticipation of, the joint venture”. I will deal with this contention in the course of the consideration of the parties’ submissions. However, I would say immediately that it is hard to see why, in principle, if ABP was a party to the Platte River contracts, that it held those contracts for the benefit of one only of the proposed joint venturers. If this paragraph of the pleading was intended to convey that it was Pearce Co alone which expended time and effort in obtaining the Platte River contracts, then that fact needs to be qualified by reference to the use of the names of Barry Palmer and ATP which appeared to be essential to the obtaining of the contracts.

Paragraph 23 of the Amended Statement of Claim alleges that on or about 16 March 2000, without the consent or authority of ABP, Graham Pearce or Pearce Co, and in breach of fiduciary duty, Barry Palmer procured the novation of the Platte River contracts from ABP to ATP. Paragraph 24 of the Amended Statement of Claim alleges (correctly) that Barry Palmer and ATP have refused to acknowledge that they hold the Platte River contracts for ABP. I am satisfied that Barry Palmer successfully requested Platte River to change the name of the supplier appearing on the Platte River purchase orders from ABP to ATP. What consequences flow from that is perhaps the key issue in this proceeding.

Paragraph 28A of the Amended Statement of Claim alleges, further or alternatively, that ATP and Mary Palmer have directly or indirectly received the benefit of the Platte River contracts with knowledge of the breach of fiduciary duty by Barry Palmer set out in paragraph 23, or have knowingly assisted in the breach of fiduciary duty and are liable to account to the plaintiffs for such benefit and paragraph 29 alleges that the plaintiffs, by reasons of the matters aforesaid, have suffered loss and damage.

Paragraph 25 of the Amended Statement of Claim moves on to deal with an alternative claim of the plaintiffs relating to the forex contract. That paragraph alleges that Barry Palmer, Mary Palmer and ATP assured Graham Pearce (or led him to believe or assume) that liability to the ANZ Bank in relation to the forex contract would be a liability of the proposed joint venture. I am satisfied that Barry Palmer and Graham Pearce in substance agreed that the proposed joint venture should procure the forex contract but I am not satisfied that Mary Palmer or ATP had any relevant involvement.

Paragraph 26 of the Amended Statement of Claim alleges that in reliance on such assurance and conduct, Pearce Co entered into the forex contract, and thereby acted to its detriment. Paragraph 27 of the Amended Statement of Claim alleges that it would be unconscionable for Barry Palmer, Mary Palmer and ATP to resile from their assurances and conduct relied on by Graham Pearce and Pearce Co, and that they are estopped from doing so, and that they are estopped from contending that the forex contract is not a liability of the proposed joint venture. Paragraph 28 of the Amended Statement of Claim alleges (correctly) that Barry Palmer, Mary Palmer and ATP have refused to apply the proceeds of the Platte River contracts towards the liability under the forex contract.

On the basis of the foregoing allegations, the plaintiffs principally sought the following remedies in the prayer for relief in their Amended Statement of Claim:

· A declaration that the benefit of the Platte River contracts is held for ABP on a constructive trust;

· An indemnity against the liability of Pearce Co under the forex contract;

· An order that Barry Palmer, Mary Palmer and ATP are liable to account for and to pay to the plaintiffs all profits made by them from the Platte River contracts;

· Damages including damages or equitable compensation for breach of fiduciary duty.

Plaintiffs’ particulars of loss and damage

The final particularised version of the plaintiffs’ monetary claims is contained in the plaintiffs’ Second Further Amended Particulars of Loss and Damage under paragraph 29 of the Statement of Claim which are dated 7 May 2002. In these particulars, the plaintiffs claim a loss of the gross profit which would have been made under the Platte River contracts. This loss is said to have been caused as follows:

“If [Barry Palmer] had not wrongfully procured the novation of the Platte River contracts to ATP then ABP would have supplied the remaining containers to be shipped under such contracts and made a gross profit…which gross profit would be held beneficially for Pearce Co.”.

The above formulation contains at least two questionable assumptions. First, I note that it is assumed that if, Barry Palmer had not requested the change of name from ABP to ATP, Platte River would have accepted the balance of performance of the contract from ABP without questioning or contesting the identity of the party with whom it contracted. Second, it is asserted that if ABP had in fact supplied the remaining containers, that it would have held the gross profit exclusively for Pearce Co and not for the proposed joint venturers (ie, one-third for Pearce Co and two-thirds for the Palmer interests).

The particulars calculate the loss of gross profit as being A$1,125,202.40 on the basis that the cost of minced bones would have been 25c per kilo, or A$750,212.73 if the cost of minced bones would have been 35c per kilo. The particulars go on to give a credit of A$99,156.12 representing the gross profit earned by Pearce Co from the new contracts obtained from Platte River (which the plaintiffs conceded it would not otherwise have procured). As a result, the net claim by the plaintiffs is $1,026,046.28, alternatively $651,056.61.

In addition, by Particulars of Loss and Damage relating to the forex contract, dated 9 May 2002, Pearce Co claimed the sum of $418,548.41, comprising the amount required to pay out the forex contract on 6 February 2002 ($416,588.41) plus the loan cost of $1,960 together with interest on the payout amount from 6 February 2002 until judgment.

Plaintiffs’ submissions on their principal claim

The primary claim of the plaintiffs was that they were each owed a fiduciary duty by the defendants Barry Palmer, Mary Palmer and ATP arising out of the negotiations for the proposed joint venture and the commencement of the commercial operations which had occurred (ie, the shipments to Platte River). The plaintiffs submitted that a fiduciary relationship arose between prospective partners who had embarked upon the conduct of the partnership business or venture before the precise terms of any partnership agreement or joint venture agreement had been arrived at. It was submitted that the relationship between prospective participants in a proposed joint venture would ordinarily be fiduciary if the prospective participants had reached an informal arrangement to assume such a relationship and had proceeded to take steps towards or involved in its establishment or implementation. In this case, the plaintiffs submitted that Graham Pearce (on behalf of Pearce Co) and Barry Palmer and Mary Palmer had arrived at such an informal arrangement with respect to the exploitation of the Platte River contracts by March 2000. The conduct upon which the plaintiffs relied in this regard was the obtaining of the Platte River contracts by Graham Pearce, the incorporation of ABP, the “transfer” of the contracts from ATP to ABP, the opening of the ABP bank account, the commencement of the shipments to Platte River and the entry into the forex contract by Pearce Co – all of the foregoing having occurred to the knowledge of each of the participants.

The plaintiffs argued that the critical features of a fiduciary relationship were present in that each party was vulnerable to abuse by the other of his or her position (see Hospital Products Ltd v United States Surgical Corporation[1]). In particular, the plaintiffs were vulnerable to abuse of their position by the other participants in that the Platte River contracts had originally been obtained in the name of ATP, the initial shipments to Platte River were organised at the expense of Pearce Co and the forex contract was taken out in the name of Pearce Co to protect the position of ABP under the Platte River contracts with security in relation to the forex contract over the assets of Pearce Co and its directors. It was submitted that in all the circumstances there was a clear breach of the alleged fiduciary duty by Barry Palmer, using his positions as proposed joint venturer and as director of ATP, to enable ATP to obtain the benefit of the Platte River contracts (cf Boardman v Phipps[2]). The plaintiffs contended that after the failure of the proposed joint venture, the commercial aspects of which had already commenced, each proposed joint venture party was entitled to insist that the “assets” of the proposed joint venture be applied in its winding up and that none of the participants was entitled to claim for himself the benefit of those assets. The plaintiffs relied on Chan v Zacharia[3] (although that was a case of an actual partnership, which had been dissolved but not wound up). The plaintiffs also referred to Consul Development Pty Ltd v D.P.C. Estates Pty Ltd[4], United Dominions Corporation Limited v Brian Pty Ltd[5] and to Ravinder Rahini Pty Ltd v Krizaic[6].
[1](1984) 156 CLR 41, 96-7 per Mason J.
[2][1967] 2 AC 46.
[3](1984) 154 CLR 17, 192-3.
[4](1975) 132 CLR 373, 394.
[5](1985) 157 CLR 1.
[6](1991) 130 FCR 300.

The plaintiffs next submitted that the benefits obtained under the Platte River contracts by ATP had to be accounted for to ABP by those in breach of the fiduciary duty and the amount so accounted for should be applied to any liabilities of the proposed joint venture and any resulting balance should be held on resulting or constructive trust for the party who “introduced such benefit”, the alleged introducing party being Graham Pearce (on behalf of Pearce Co). The plaintiffs referred to what was said by Deane J in Muschinski v Dodds[7], in particular at 620 where Deane J said:

“…the principle operates in a case where the substratum of a joint relationship or endeavour is removed without attributable blame and where the benefit of money or other property contributed by one party on the basis and for the purposes of the relationship or endeavour would otherwise be enjoyed by the other party in circumstances in which it was not specifically intended or specially provided that that other party should so enjoy it. The content of the principle is that, in such a case, equity will not permit that other party to assert or retain the benefit of the relevant property to the extent that it would be unconscionable for him so to do…”

[7](1986) 160 CLR 583, 618-620.

As I have said, the plaintiffs submitted that Graham Pearce (on behalf of Pearce Co) was the sole introducing party in relation to the Platte River contracts and thus was entitled to the full benefit thereof. I note at once that this submission ignores the use of the names of Barry Palmer and ATP in obtaining the contracts, and further does not take into account, in assessing what it would be unconscionable for ATP to retain, the activities undertaken and risks assumed by ATP in performing the Platte River contracts. In addition, the submission if successful would result in Pearce Co obtaining an additional two-thirds of the profit, to which it would not have been entitled had the joint venture proceeded and Pearce Co been involved in organising the remaining shipments.

The plaintiffs further submitted that an additional circumstance to be taken into account in assessing the unconscionability of the other participants retaining the benefit of the Platte River contracts was the existence of the liability assumed by Pearce Co under the forex contract which Pearce Co ought to have been able to extinguish by recourse to the profits derived from the Platte River contracts.

The plaintiffs in substance submitted that Mary Palmer knowingly assisted in the breach of fiduciary duty by Barry Palmer and the appropriation by ATP of the profits of the Platte River contracts. The plaintiffs further submitted that ATP was also accountable in circumstances where it knowingly assisted in the breach or took the benefit with either actual or constructive knowledge of the breach of duty (relying upon Barnes v Addy[8]; Ravinder Rohini Pty Ltd v Krizaic[9]; Koorootang Nominees Pty Ltd v ANZ Banking Group Limited[10]; Consul Developments Pty Ltd v D.P.C. Estates Pty Ltd[11]).
[8](1874) LR Ch App 344
[9](1991) 130 FCR 300.
[10][1998] 3 VR 16.
[11](1975) 132 CLR 373, 394.

The plaintiffs claimed and submitted that they were entitled to equitable compensation for the breach of fiduciary duty, the measure of such compensation being that sum which would place them as nearly as possible in the position they would have been in had there been no breach of duty. The plaintiffs said that they had elected not to seek an accounting from those in default of the benefit received. In other words, the plaintiffs did not seek to show or to have ascertained the net profit derived by ATP from the Platte River contracts and then to claim either the whole or part of that net profit. What the plaintiffs sought instead was compensation measured by the whole of the gross profit which they said would have been earned by ABP if it had been permitted to complete the performance of the Platte River contracts.

The plaintiffs claimed the gross profit which would have been made by ABP (after utilisation of the forex contract). The plaintiffs also advanced a number of separate arguments relating to the liability of Pearce Co under the forex contract. In final submissions relating to quantum, the plaintiffs elaborated and to some extent modified the basis of their claim for equitable compensation for breach of fiduciary duty. The plaintiffs contended that, but for the interference of Barry Palmer, ABP would have continued to supply Platte River pursuant to the Platte River contracts. The measure of compensation was the value of the opportunity thereby lost by ABP discounted in relation to appropriate contingencies. The plaintiffs conceded, notwithstanding their original position, that the appropriate price to be taken into account for the cost of minced bones was 35c per kilo. The plaintiffs appeared to concede that the calculation should also take into account overheads in order to reach a net profit amount, but they contended that, because Pearce Co’s relevant overheads were fixed and did not fluctuate with the volume of sales, these overheads did not need to be deducted from the gross profit which would have been earned by Pearce Co using ABP as the vehicle for completion of the Platte River contracts.

Next the plaintiffs conceded that it was necessary to make an adjustment for the fact that Platte River had ceased accepting shipments prior to completion of the Platte River contracts and proposed a calculation to deal with this factor. Finally the plaintiffs accepted that they should bring into account the gross profit earned by Pearce Co from its new contracts obtained from Platte River, namely, the sum of $99,156.12.

The final calculation put forward by the plaintiffs to support their primary claim, which was now reduced to $309,586.47, was the following:

First 85 bones @ 728.18  $61,895.30
First 5 livers @ 1,067.22  $ 5,336.10
Remaining 65 bones       @ $3,037.46  $197,439.90
Remaining 15 livers       @ $4,203.20  $63,048.00
Remaining 21 hearts @ $3,858.49  $81,028.29
Sub-total:  $408,742.59
LESS profit earned on new contracts:  $ 99,156.12
TOTAL:  $309,586.47
Defendants’ submissions

I do not propose to deal separately with the defendants’ submissions – I will mention them so far as necessary in the course of stating my reasons, but it is convenient to record here that the defendants submitted that even if the plaintiffs had any valid claim and the calculation immediately above were otherwise correct (all of which they denied), it would not be appropriate that the plaintiffs receive compensation for more than one-third of the profit lost to ABP because, inter alia, Pearce Co was never, on any view, going to receive more than one-third of the profit expected to be made by the joint venture. The defendants said that even at best the plaintiffs would be entitled to one-third of the sum of $408,742.59, ie, about $136,000, less the said adjustment of $99,156.12 – which would leave the plaintiffs with an entitlement of about $37,000 but that this was subject to further adjustment.

The plaintiffs’ claim for breach of fiduciary duty

The plaintiffs’ claim in relation to the Platte River contracts was primarily advanced on the basis of an alleged breach of fiduciary duty. The defendants denied the existence of any fiduciary duty, but it is fair to say that their submissions put questions of quantum to the forefront rather than questions of liability.

The case of United Dominions Corporation Limited v Brian Pty Ltd[12] involved a dispute between joint venturers in certain land developments. Mason, Brennan and Deane JJ (at 10-13) said:
[12](1985) 157 CLR 1.

“The term “joint venture” is not a technical one with a settled common law meaning. As a matter of ordinary language, it connotes an association of persons for the purposes of a particular trading, commercial, mining or other financial undertaking or endeavour with a view to mutual profit, with each participant usually (but not necessarily) contributing money, property or skill. Such a joint venture (or, under Scots’ law, “adventure”) will often be a partnership. The term is, however, apposite to refer to a joint undertaking or activity carried out through a medium other than a partnership: such as a company, a trust, an agency or joint ownership…One would need a more confined and precise notion of what constitutes a “joint venture” than that which the term bears as a matter of ordinary language before it could be said by way of general proposition that the relationship between joint venturers is necessarily a fiduciary one. The most that can be said is that whether or not the relationship between joint venturers is fiduciary will depend upon the form which the particular joint venture takes and upon the content of the obligations which the parties to it have undertaken. If the joint venture takes the form of a partnership, the fact that it is confined to one joint undertaking as distinct from being a continuing relationship will not prevent the relationship between the joint venturers from being a fiduciary one. In such a case, the joint venturers will be under fiduciary duties to one another, including fiduciary duties in relation to property the subject of the joint venture, which are the ordinary incidents of the partnership relationship, though those fiduciary duties will be moulded to the character of the particular relationship.
In the present case, it is apparent that the relationship between the participants in the shopping centre venture was a fiduciary one at least from the time when the formal agreement was executed…
It was submitted on behalf of U.D.C. that no fiduciary relationship existed and no fiduciary duties arose between the prospective participants in the joint venture until the joint venture agreement was actually executed in July 1974. To the extent that that submission involves a general legal proposition that the relationship between prospective partners or joint venturers cannot be a fiduciary one until a formal agreement is executed, it is clearly wrong. A fiduciary relationship can arise and fiduciary duties can exist between parties who have not reached, and who may never reach, agreement upon the consensual terms which are to govern the arrangement between them. In particular, a fiduciary relationship with attendant fiduciary obligations may, and ordinarily will, exist between prospective partners who have embarked upon the conduct of the partnership business or venture before the precise terms of any partnership agreement have been settled. Indeed, in such circumstances, the mutual confidence and trust which underlie most consensual fiduciary relationships are likely to be more readily apparent than in the case where mutual rights and obligations have been expressly defined in some formal agreement. Likewise, the relationship between prospective partners or participants in a proposed partnership to carry out a single joint undertaking or endeavour will ordinarily be fiduciary if the prospective partners have reached an informal arrangement to assume such a relationship and have proceeded to take steps involved in its establishment or implementation.
In the present case, the relationship between U.D.C., Brian and S.P.L. had plainly assumed a fiduciary character prior to 24 October 1973 when S.P.L. gave the first of the mortgages to U.D.C. By that time, the arrangements between the prospective joint venturers had passed far beyond the stage of mere negotiation…To transpose the words of Dixon J. in Birtchnell (1929) 42 C.L.R., at pp. 407-408, the participants in each of the then proposed joint ventures were “associated for ... a common end” and the relationship between them was “based ... upon a mutual confidence” that they would “engage in [the] particular ... activity or transaction for the joint advantage only”. It matters not, for present purposes, whether that relationship is seen as that which may exist between prospective partners or joint venturers before the terms of any partnership or joint venture agreement have been settled or whether it is seen as a limited preliminary partnership or joint venture to investigate and explore the possibilities of an ultimate joint venture or ventures. On either approach, it was a fiduciary one.
That being so, the proposed participants in each joint venture were under fiduciary obligations to one another in relation to the proposed project at the time when the first of the mortgages was given and accepted. In particular, each participant was under a fiduciary duty to refrain from pursuing, obtaining or retaining for itself or himself any collateral advantage in relation to the proposed project without the knowledge and informed assent of the other participants. “The subject-matter over which the fiduciary obligations” extended must be “determined by the character of the venture or undertaking for which” the relationship between the prospective joint venturers existed: per Dixon J., Birtchnell (1929) 42 C.L.R., at p. 408 in a partnership context but equally applicable here.”
[some citations omitted]

In the same case, Gibbs CJ said (at 6), after referring to a number of authorities, that it was unnecessary to decide whether persons negotiating for a partnership always stood in a fiduciary relationship, but he had no doubt that they might sometimes do so.

Further, Dawson J said (at 16):

“The only other thing which I wish to add is that in my view it is quite clear that a fiduciary relationship may arise during negotiations for a partnership or, for that matter, a joint venture, before any partnership or joint venture agreement has been finally concluded if the parties have acted upon the proposed agreement as they had in this case. Whilst a concluded agreement may establish a relationship of confidence, it is nevertheless the relationship itself which gives rise to fiduciary obligations. That relationship may arise from the circumstances leading to the final agreement as much as from the fact of final agreement itself. This is the view expressed in Lindley on Partnership, 15th ed. (1984), p. 480, and it seems to me that as a matter of principle it must be correct.”

In Fraser Edmiston Pty Ltd v AGT (Qld) Pty Ltd[13] Williams J held that, where there was an agreement in principle for a proposed new business to be conducted by a partnership but no concluded partnership agreement, a fiduciary relationship might exist between the parties involved in partnership negotiations and in conduct embarked upon with a view to forming a partnership. It was held on the facts that a relationship of mutual confidence and trust existed and that it was breached. The Court referred to the various High Court authorities mentioned above.
[13][1988] 2 Qd R 1.

United Dominions Corporation v Brian[14] was also applied by the Full Federal Court in Ravinder Rahini Pty Ltd v Krizaic.[15] The plaintiffs relied upon these cases (correctly, I think) for the proposition that a fiduciary relationship could arise between parties who have an informal arrangement to enter into a partnership or joint venture and who then proceed to take steps involved in its establishment such that each party to the relationship must account to the other for any breach of fiduciary duty constituted by appropriating personally, without the other party’s assent, any advantage which had accrued to him or her by reason of that relationship, even if such advantage enured after the collapse of the proposed partnership or joint venture. I note that in the latter case, there were two proposed partners or joint venturers and that Davies J (at 303) said that one party was obliged to account to the other for one-half of the profit which he had realised as a result of the proposed joint venture (see too, per Wilcox J at 312). (In relation to questions of the existence and breach of fiduciary duties, see too: Biala Pty Ltd v Mallina Holdings Ltd[16] and News Ltd v Australian Rugby Football League Ltd[17]).
[14](1985) 157 CLR 1.
[15](1991) 130 FCR 300.
[16](1994) 13 WAR 11, and on appeal, see Dempster v Mallina Holdings Ltd (1994) 13 WAR 124.
[17](1996) 139 ALR 193, 310 – 314 and 324 – 325.

The defendants contested the submission that Barry Palmer and Mary Palmer were subject to a fiduciary duty not to obtain for ATP the benefit of the Platte River contracts. They submitted that the following circumstances were relevant to the existence, or content and scope, of any fiduciary duty:

(a) The Platte River purchase orders came into being as an asset of ATP (not Pearce Co) and remained an asset of ATP thereafter. It is true that the Platte River contracts were purportedly made between Platte River and ATP, but there was no evidence that ATP ever adopted those contracts prior to the breakdown of negotiations. Further, the contracts were changed into the name of ABP, the intended joint venture vehicle. In any event, whatever the correct analysis might be of the contractual situation from time to time as between Platte River as purchaser and the entity which should be identified as the vendor, as between the proposed joint venturers it was intended that ABP and not ATP perform those contracts.
(b) Graham Pearce arranged the Platte River purchase orders in the name of ATP prior to the existence of fiduciary relations between Graham Pearce, Mary Palmer and Barry Palmer. That may be correct, but if a fiduciary relationship subsequently arose, it might well be a breach of fiduciary duty for a proposed joint venturer to procure for ATP the full benefit of the contracts.
(c) ATP only asserted…ownership of the Platte River purchase orders when it became clear that the negotiations for the ABP venture had concluded. That is also true, but it cannot be determinative of whether a fiduciary relationship had previously come into existence.
(d) Prior to the termination of the negotiations for the ABP venture, the parties defined the scope of their further obligations to each other by agreeing that they would be free to compete with each other and that assets proposed to be placed into ABP would revert to the persons entitled to those assets. There is, in my opinion, no evidence that such an agreement was made. There were unilateral statements to that effect made either by or on behalf of the plaintiffs, but I do not think that such broad statements had the effect of eliminating or modifying the alleged fiduciary duty, if one existed.
(e) The Platte River purchase orders were liabilities as well as assets, which imposed a risk of legal action by Platte River against ATP if ATP did not supply product pursuant to the purchase orders in the period after 10 March 2000. There is some strength in the reliance placed on this circumstance. The evidence showed that once Platte River became aware that negotiations had broken down it indicated that it intended to treat ATP as the relevant contracting party because it regarded ABP as simply a branch or division of ATP (as it had been originally so informed). It appeared to ATP that Platte River was looking to it for performance of the contract. No doubt it was therefore prudent of ATP from its point of view to avoid the risk of non-performance or poor performance by ABP (or Pearce Co) and to assume the obligation to fulfil the contracts. If Barry Palmer and Mary Palmer owed a fiduciary duty to Pearce Co not to procure for ATP the full benefit of the Platte River contracts, they also owed a duty to ATP as its directors to protect ATP from the risk of liability to Platte River, a risk which had arisen in the first place by virtue of Graham Pearce pretending to Platte River that he was Barry Palmer. It is perhaps arguable (although it was not argued) that in those circumstances there must be a limited scope to any fiduciary duty, owed by Barry Palmer and Mary Palmer to Pearce Co, namely, that they were not to procure the benefit of the Platte River contracts for ATP without providing fair, reasonable and adequate compensation to Pearce Co. In support of such an argument, it might have been mentioned that the existence of a fiduciary relationship does not determine the content of the duties owed and that the nature and extent of those duties depend on the relevant circumstances and the context in which relief is sought.[18]

[18]See News Ltd v Australian Rugby Football Ltd (1996) 139 ALR 193 at 312 and cases there cited.

In my opinion, a fiduciary relationship was created and continued between the proposed joint venture participants, notwithstanding the subsequent breakdown of negotiations and failure to reach a concluded agreement, having regard to their agreement in principle that there should be a joint venture between them, in stipulated shares, for the performance of the Platte River contracts and having regard to the steps taken in pursuance of their commercial objectives, including the incorporation of ABP as the joint venture vehicle, the opening of its bank account, the obtaining of the forex contract and the commencement of shipments pursuant to the Platte River contracts. Pearce Co had incurred or was exposed to costs and risks in relation to the proposed joint venture, in particular, the risk of loss under the forex contract, and was entitled to rely upon its proposed partners not to remove the source for the payment of those costs and the source of protection in relation to those risks. There arose in those circumstances a degree of mutual trust and confidence sufficient to give rise to a fiduciary relationship. After the breakdown of their relationship, the proposed joint venturers were free to compete against each other, but that did not mean, and does not mean, that any one of them was entitled to procure or divert the benefit of the existing contracts to the exclusion of the others. It would have been equally a breach of fiduciary duty if Pearce Co had procured for itself the full benefit of the Platte River contracts and excluded Barry Palmer and Mary Palmer from any part of that benefit. It is not necessary to decide the hypothetical question whether the position would have been different if Graham Pearce had obtained the Platte River contracts in his own name without using the name of Barry Palmer and ATP, but in my opinion, it is clear that the use of those names was important, if not essential, to obtaining the contracts. It is also obvious that the participation of the two Palmers and the consequent availability of ATP as a source of supply were matters regarded by Graham Pearce as necessary for the successful completion of the Platte River contracts.

I am satisfied that Barry Palmer and Mary Palmer acted in breach of a fiduciary duty owed to Pearce Co by permitting ATP to take the benefit of the Platte River contracts. Counsel for Barry Palmer and ATP did not seek to rely upon any additional defences on behalf of ATP and was content that ATP be liable on the same basis (if any) as Barry Palmer. However, whether it is appropriate that any form or amount of monetary relief be granted in relation to the breach of fiduciary duty requires an examination of the precise facts.

Resulting or constructive trust

As I have mentioned, the plaintiffs in their submissions put various arguments based upon a resulting or a constructive trust. However, the plaintiffs did not claim any proprietary remedy.[19] They did not claim an equitable interest in any property (nor did such property exist) and they did not seek to trace any monies alleged to have been derived from any trust property. In those circumstances it seems to me that the arguments based upon the existence of a resulting or a constructive trust were misconceived. In addition, the only relevant remedy sought by the plaintiffs was equitable compensation for breach of fiduciary duty and it is hard to see how the obtaining of that remedy was in any way advanced by trust arguments.
[19]Cf Fraser Edmiston Pty Ltd v AGT (Qld) Pty Ltd [1988] 2 Qd R 1, 10-12.

Liability under the forex contract

Before turning to equitable compensation generally, it is convenient to deal with Pearce Co’s claim for an indemnity against the total liability which it incurred to the ANZ Bank under the forex contract. It seems to me that the claim might also be treated as part of the claim for equitable compensation to which Pearce Co should be entitled as a result of the diversion of the Platte River contracts. However the difficulty faced for any cause of action advanced by the plaintiffs in this respect is that when the forex contract expired on 30 June 2000, Pearce Co elected not to pay out the potential liability which could then have been crystallised (on the evidence: A$94,053). Instead, Pearce Co decided to extend or “roll-over” the forex contract and then to use it for its own future commercial purposes (as it did). That conduct, it seems to me, deprived Pearce Co of the right to indemnity or any kind of compensation from any defendant for the ultimate liability incurred to the ANZ Bank, because Pearce Co intended to take the benefit of any “favourable” movements in the exchange rate and therefore had elected to bear the risk of any liability should the forex contract be unprofitable. The amount of the liability ultimately incurred by Pearce Co under the forex contract resulted from Pearce Co’s decision to extend the contract and, in my opinion, no part of that amount can in the circumstances be identified as a liability or loss for which any of the defendants might otherwise be held responsible. I would also mention here that, by the plaintiffs’ solicitor’s letter of 5 July 2000, the plaintiffs had sought no more than payment of a liability under the forex contract of A$112,063 said to have been incurred as at 30 June 2000. In so far as relevant, the plaintiffs gave no notice of any intention to let the forex contract run beyond 30 June 2000. In fact, as I have said, no liability at all was incurred on that date, and the contract was rolled over for Pearce Co’s own purposes.

Equitable compensation

As stated above, the plaintiffs claimed equitable compensation for the breach of fiduciary duty and not an account of, or inquiry as to, the profits made by ATP. It may be that the plaintiffs elected not to seek an inquiry as to the profits made by ATP for the reason that ATP had provided substantial evidence that the net profit derived by it from the Platte River contracts was not substantial. However, whatever the reason may have been, the plaintiffs expressly declined to seek that remedy. The plaintiffs said that the measure of equitable compensation was the value of Pearce Co’s lost opportunity to earn a profit. The defendants did not argue that this approach was incorrect in principle, but they contended that the opportunity lost by Pearce Co was the opportunity to receive one-third (and not the whole) of the net profit which ABP would have made from the Platte River contracts. In my opinion, the defendants’ contention is correct for reasons which I have already indicated. Pearce Co was not going to be entitled to the whole of the profit. It did not lose an opportunity to earn more than one-third of the net profit which would have been earned by ABP. Indeed, by the plaintiffs’ solicitor’s letter of 5 July 2000, the plaintiffs had claimed one-third of the profits or proceeds of the Platte River contracts.

I take as a starting point for the calculation of the profit which ABP would have made from the Platte River contracts the final figures put forward by the plaintiffs[20] which I set out again here (the numbers are the estimated numbers of containers which the plaintiffs said would have been shipped):
[20]See para [87].

First 85 bones @ 728.18  $ 61,895.30
First 5 livers @ 1,067.22  $   5,336.10
Remaining 65 bones       @ $3,037.46  $197,439.90
Remaining 15 livers       @ $4,203.20  $ 63,048.00
Remaining 21 hearts @ $3,858.49  $ 81,028.29
Sub-total:  $408,742.59
LESS profit earned on new contracts:  $ 99,156.12
TOTAL:  $309,586.47

The estimated numbers of containers contained in the above calculation were arrived at by the plaintiffs by reducing the total number of containers required by the Platte River contracts proportionately to the reduced period of supply which had become available as a result of Platte River’s decision to accept no further supplies. The plaintiffs’ calculation reduced the number of containers of bones by 4/12 (from a total of 225 to a total of 150) and the number of containers of livers and hearts by 11/12 (from totals of 21 and 22 respectively to totals of 20 and 21 respectively). The defendants submitted (and I agree) that this was not a rational calculation because the total number of containers shipped to Platte River by ATP was substantially less. However, the defendants’ submission did not take into account the containers shipped by Pearce Co to Platte River pursuant to its new contracts. The defendants also pointed out (and here I agree) that the plaintiffs’ calculation failed to give credit for two-thirds of the net profit made on the shipments to Platte River which occurred before the breakdown of negotiations and the proceeds of which had been retained by Pearce Co.

It seems to me that the appropriate calculation should take into account the total product supplied to Platte River both by ATP and by Pearce Co after the breakdown of negotiations, on the basis that all of that product would have been supplied by ABP if it had been permitted to complete the contracts. The total number of containers thus involved are: 159 containers of bones (ATP: 129 + Pearce Co: 30) and 4½ containers of livers (ATP: 3 + Pearce Co: 1½) and 7½ containers of hearts (ATP: 1 + Pearce Co: 6½). The consequent calculation then is:

First 85 bones @ $728.18  $ 61,895.30
Remaining 44 bones @ $3,037.46             $133,648.24
4½ livers @ $1,067.22  $   4,802.49
7½ hearts @ $3,858.49  $ 28,938.68
Sub-total  $229,284.71
One-third share   =  $ 76,428.24
Less amount received by Pearce Co
from new contracts  $99,156.12
Less 2/3 of the profit retained
by Pearce Co from the initial
shipments (as calculated from
the figures supplied by the
plaintiffs)  $5,837.73
Total deduction  $104,993.85
-$ 25,565.61

It can be seen that the result of the above calculation is a substantial negative amount. Furthermore, the calculation ignores a number of other criticisms advanced by the defendants which would have the effect of increasing the negative amount. For example, the defendants said that the plaintiffs’ claim had not taken account of any increased overhead costs and that such costs would necessarily have flowed from an administration of the total number of deliveries by ABP (ie, Pearce Co). This submission is probably correct.

In my opinion, the plaintiffs have failed to establish that Pearce Co is entitled to any amount of equitable compensation for loss of opportunity.

The counterclaim by ATP

The parties agreed that there should be a declaration that the partners in the MDM partnership were Pearce Co, ATP and Oceania Products Ltd in equal one-third shares and that the MDM partnership was dissolved on 12 December 1999. They also agreed that there should be a taking of accounts of the partnership by a Master.

Two issues were left for the Court to decide. The first related to whether ATP was to supply product to the MDM partnership at an agreed price or prices, or at cost. This matter had been a bone of contention between Graham Pearce and the partners and may have contributed to the breakdown of negotiations for the proposed joint venture.

In or about October 1999, Lisa Palmer had written to Pearce Co claiming certain moneys, alleging that ATP was entitled to invoice Pearce Co in relation to the MDM partnership being for product supplied by ATP to the partnership at an agreed fixed price. On 8 March 2000, Lisa Palmer had again contacted Pearce Co with respect to such alleged outstanding moneys. Anita Pearce replied saying that no such price agreement had in fact existed. On 4 April 2000, Lisa Palmer again wrote to Pearce Co claiming an outstanding debt. A proceeding was commenced in the County Court on 19 May 2000 for the amount of the debt. This proceeding was transferred to the Supreme Court but was discontinued at the commencement of this trial because it was in effect superseded by the counter-claim.

The evidence called by ATP failed to establish that any agreement had been made between the partners or with Pearce Co for ATP to supply product to the MDM partnership at any agreed or fixed price or prices. I am satisfied, having heard in particular the evidence of Graham Pearce and of Ashley Palmer, that ATP is entitled to be allowed or paid for products supplied to the MDM partnership at cost. This must be determined on the taking of accounts – it is for ATP to prove its costs. A further declaration and direction will be made accordingly.

The second issue to be decided by the Court related to the Beehive machine. At first this was said to be a question of ownership. However, subsequently the parties agreed that it was convenient to treat and leave the Beehive machine as the property of ATP and in substance, in the final accounting, to offset the value of the machine against contributions made by ATP towards purchase, installation and commissioning. I note that most of the costs relating to the Beehive machine were paid by ATP. Prima facie, Pearce Co would be obliged to contribute one-third of these costs to the extent that partnership funds were not utilised or available, but this position needs to be adjusted taking into account the value of one-third of the machine relinquished by Pearce Co in favour of ATP. I note that ATP has compromised all issues as between it and Oceania Products Ltd, but that Pearce Co was not a party to that settlement. That fact may or may not also become relevant in the taking of accounts.

Orders

For the foregoing reasons, it is proposed to make the following orders:

1. On the plaintiffs’ claim, judgment for the first, second and fourth defendant;
2. On the counter-claim –
(a)declare that the partners in the MDM partnership were GM. & AM. Pearce & Co Pty Ltd, Australian Tallow Producers Pty Ltd and Oceania Products Ltd and that the partnership was dissolved on 12 December 1999;
(b)declare that Australian Tallow Producers Pty Ltd is entitled to be allowed or paid for products supplied by it to the partnership at cost;
(c)order that there be a taking of accounts of the partnership before a Master in the light of the foregoing declarations and the reasons for judgment;
(d)liberty to apply;
(e) costs of the counter-claim reserved.

I will hear submissions as to the precise orders to be made and as to costs of the claim.

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Date	Product	Quantity (lbs)	Rate (US$)	Price (US$)
03/11/99	Lamb livers	1,050,000	0.33	346,500
04/11/99	Lamb hearts	1,050,000	0.36	378,000
10/11/99	Mutton bone	4,200,000	0.24	1,008,000
07/12/99	Mutton bone	4,200,000	0.24 TOTAL	1,008,000 2,740,500

[2002] VSC 487

19 November 2002