In the matter of Beverage Freight Services Pty Ltd

[2022] NSWSC 874

Supreme Court

New South Wales

Medium Neutral Citation:

In the matter of Beverage Freight Services Pty Ltd [2022] NSWSC 874

Hearing dates:

4, 5, 6, 7, 11, 12 and 13 May, 2 June 2021

Date of orders:

1 July 2022

Decision date:

01 July 2022

Jurisdiction:

Equity - Corporations List

Before:

Williams J

Decision:

See paragraph [410]

Catchwords:

CONTRACT – oral agreement – identity of the parties to oral agreement – persons alleged to have breached contract were not parties to the contract

PARTNERSHIPS – whether shareholders in company and/or persons standing behind shareholders were in partnership – where company established as structure through which each shareholder would continue to operate its own freight services business to a particular client who wished to deal with one entity rather than several entities – where company not intended to make profit – no partnership

EQUITY – fiduciary duties – whether directors of company owed fiduciary duties to one of the company’s shareholders and/or one of the principals standing behind that shareholder – no fiduciary duties owed

Legislation Cited:

Corporations Act 2001 (Cth), ss 180-184 and 191

Partnership Act 1892 (NSW), ss 1, 2, 32

Cases Cited:

Air Tahitii Nui Pty Ltd v McKenzie (2009) 77 NSWLR 299; [2009] NSWCA 429

Barnes v Addy (1874) LR 9 Ch App 244

Brunninghausen v Glavanics (1999) 46 NSWLR 538; [1999] NSWCA 199

Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337; [1982] HCA 24

Commercial Union Assurance Co of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389

Cordon Investments Pty Ltd v Lesdor Properties Pty Ltd [2012] NSWCA 184; (2013) 29 BCL 329

Crawley v Short [2009] NSWCA 410; (2009) 262 ALR 654

Doppstadt Australia Pty Ltd v Lovick & Son Developments Pty Ltd [2014] NSWCA 158

Eaton v Rare Nominees Pty Ltd [2019] 2 Qd R 222; (2019) 373 ALR 386; [2019] QCA 190 at [62]

ET-China.com International Holdings Ltd v Cheung (2021) 388 ALR 128; [2021] NSWCA 24

Fox v Percy (2003) 214 CLR 118; [2003] HCA 22

Gulf Pacific Pty Ltd v Londish [1992] FCA 502

Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41; [1984] HCA 64

In the matter of David Ireland Productions Pty Ltd [2014] NSWSC 1411

John Alexander’s Clubs Pty Ltd v White City Tennis Club Ltd (2010) 241 CLR 1; [2010] HCA 19

John Holland Pty Ltd v Kellogg Brown & Root Pty Ltd [2015] NSWSC 451

Jones v Dunkel (1959) 101 CLR 298; [1959] HCA 8

Lawfund Australia Pty Ltd v Lawfund Leasing Pty Ltd [2008] NSWSC 144

Moubarak by his tutor Coorey v Holt (2019) 100 NSWLR 218; [2019] NSWCA 102

Nassar v Innovative Precasters Group Pty Ltd [2009] NSWSC 342

Re BBY Limited (Receivers and Managers Appointed) (in liq) and BBY Holdings Pty Ltd (Receivers and Managers Appointed) (in liq) (No 2) [2022] NSWSC 30

Streetscape Projects (Australia) v City of Sydney (2013) 85 NSWLR 196

United Dominions Corporation Limited v Brian Pty Ltd (1985) 157 CLR 1

Warner Capital Pty Ltd v Shazbot Pty Ltd [2020] NSWCA 121

Watson v Foxman (1995) 49 NSWLR 315

Texts Cited:

The Honourable Justice Gageler in “Expansion of the Fiduciary Paradigm into Commercial Relationships: The Australian Experience” in P Devonshire and R Havelock (eds), The Impact of Equity and Restitution in Commerce (Hart Publishing, Oxford, 2018)

Category:

Principal judgment

Parties:

J and E Vella Pty Ltd (ACN 077 719 049) (First Plaintiff)
Joseph Gregory John Vella (Second Plaintiff)
Brian Charles Hobson (First Defendant)
Hynadam Pty Ltd (ACN 002 478 828) (Second Defendant)
Brett Soper (Third Defendant)
Mechita Pty Ltd (ACN 063 519 915) (Fourth Defendant)
Beverage Freight Services Pty Ltd (ACN 097 919 769) (Fifth Defendant)
Beverage Distribution Australia Pty Ltd (ACN 160 140 287) (Sixth Defendant)
Hynadam Nominees Pty Ltd (ACN 160 135 900) (Seventh Defendant)
McIntyre Holdings NSW Pty Ltd (ACN 160 137 271) (Eighth Defendant)

Representation:

Counsel:
Mr G Sirtes SC with Mr D Birch (Plaintiffs)
Mr M Ashhurst SC with Ms M Castle (Defendants)
Solicitors:
Yates Beaggi Lawyers (Plaintiffs)
McEvoy Legal (Defendants)

File Number(s):

2015/157614

Publication restriction:

N/A

Judgment

Introduction

1. The fifth defendant in these proceedings, Beverage Freight Services Pty Ltd (BFS), was incorporated in August 2001. From the time of its incorporation until August 2012, BFS provided freight services to Cadbury Schweppes Pty Ltd and Schweppes Australia Pty Ltd (together, Schweppes).

2. The founding shareholders of BFS included the first plaintiff, J & E Vella Pty Limited (JEV), the second defendant, Hynadam Pty Ltd (Hynadam) and the fourth defendant, Mechita Pty Ltd (Mechita).

3. At the time BFS was incorporated, each of its founding shareholders operated its own freight services business. It is common ground that the founding shareholders and/or directors entered into an agreement when BFS was incorporated about the manner in which Schweppes work contracted to BFS would be allocated between BFS shareholders, invoiced and paid (the 2001 agreement). There is a dispute about the parties to and terms of the 2001 agreement and whether the 2001 agreement established a partnership between the shareholders of BFS and/or the persons standing behind those shareholders.

4. The proceedings arise out of certain events that culminated in a meeting concerning BFS on 28 August 2012, the incorporation of the sixth defendant, Beverage Distribution Australia Pty Ltd (BDA) immediately after that meeting and the subsequent performance by BDA of Schweppes delivery work that had previously been performed by JEV, Hyndam and Mechita through BFS.

5. There is a dispute about what was resolved or agreed at the meeting on 28 August 2012. The plaintiffs claim that the subsequent events constituted a breach of the 2001 agreement and/or a breach of fiduciary duties allegedly owed by Mr Brian Hobson (the first defendant) and Mr Brett Soper (the third defendant) to the plaintiffs.

6. For the reasons that follow, the plaintiffs’ claims fail.

Summary of evidence and findings of fact

Dramatis personae

7. As will emerge from the detailed summary of the evidence and findings of fact below, the following persons and entities have played a role in the events giving rise to these proceedings.

8. The first plaintiff, JEV, was a founding shareholder of BFS and remained a shareholder at all relevant times.

9. The second plaintiff, Mr Joseph Vella, was a director of JEV at all relevant times. He and his wife, Mrs Elizabeth Vella, each owned 50 per cent of the shares in JEV at all relevant times. Elizabeth Vella is not a party to these proceedings.

10. Mr Michael Vella is the son of Joseph and Elizabeth Vella. At times relevant to these proceedings, he worked for JEV as a driver and also participated in the management of the business.

11. Michael Vella became a director of BFS when that company was incorporated in August 2001 and remained a director at all times relevant to these proceedings. It is common ground that, in the events giving rise to these proceedings, he acted as an agent for JEV. Michael Vella is not a party to these proceedings.

12. The second defendant, Hynadam, was also a founding shareholder of BFS and remained a shareholder at all relevant times. The first defendant, Brian Hobson, was the sole director and a shareholder of Hynadam and a director of BFS at all times relevant to these proceedings.

13. The fourth defendant, Mechita, was also a founding shareholder of BFS and remained a shareholder at all relevant times. Mechita was owned by the third defendant, Brett Soper, together with his wife Mrs Deborah Soper and his business partner Mr Ralph Sobara. Brett Soper was the manager of Mechita at the time of the relevant events in 2001 and was a director of that company from June 2003 until 17 June 2019. He was also a director of BFS at all relevant times.

14. BFS was incorporated on 22 August 2001 with six equal shareholders: JEV, Hynadam, Mechita, Alderton Transport Pty Ltd (Alderton Transport), Evermay Pty Ltd (Evermay) and Sterling Freightlines Pty Ltd (Sterling).

15. Mr Glen Alderton was a director and shareholder of Alderton Transport. Mr Stephen Phillips was a director and shareholder of Evermay. Glen Alderton and Stephen Phillips were appointed as directors of BFS, together with Michael Vella, Brian Hobson and Brett Soper, when BFS was incorporated. Glen Alderton ceased to be a director of BFS on 23 October 2003 and Alderton Transport ceased to be a shareholder of BFS at about the same time. Stephen Phillips ceased to be a director of BFS on 23 September 2010. Although Evermay had no involvement in performing the freight services provided by BFS to Schweppes after that time, it remained a shareholder of BFS. Evermay was deregistered on 10 August 2014.

16. Glenn Alderton, Alderton Transport, Stephen Phillips and Evermay are not parties to these proceedings.

17. Sterling was owned jointly by Brian Hobson, Glen Alderton and Stephen Phillips. Sterling ceased to be a shareholder in BFS at some time prior to 2012. Sterling is not a party to these proceedings.

18. Mr Peter Versluis and Mr Robert Fielding of Risk Connect Australia were engaged in about July 2012 to facilitate discussions between Michael Vella, Brian Hobson and Brett Soper with a view to resolving disputes arising from the business and operations of BFS. Mr Versluis and Mr Fielding produced a discussion paper in advance of a meeting that they facilitated on 28 August 2012 between Joseph Vella, Michael Vella, Brian Hobson and Brett Soper. As the meeting was held at the Ingleburn RSL club, the parties refer to it as the Ingleburn meeting. I shall adopt the same term in these reasons.

19. The sixth defendant, BDA, was incorporated on 30 August 2012 with Hynadam Nominees Pty Ltd (Hynadam Nominees), Mechita Nominees Pty Ltd (Mechita Nominees) and Coastal Beverage Logistics Pty Ltd (Coastal Logistics) as equal shareholders.

20. Hynadam Nominees is the seventh defendant in these proceedings. It was incorporated on 30 August 2012. Brian Hobson was (and remains) the sole shareholder of Hynadam Nominees, and he and his son, Mr Brett Hobson, were (and remain) the directors of that company.

21. Mechita Nominees is the eighth defendant in these proceedings. It was also incorporated on 30 August 2012. Brett Soper was its sole director and one of its shareholders. He ceased to be a director and shareholder on 31 May 2019. Mechita Nominees subsequently changed its name to Accolade Advisory No 1 Pty Ltd in September 2019 and then to McIntyre Holdings NSW Pty Ltd in December 2020, but I will refer to the company as Mechita Nominees in these reasons.

22. Coastal Logistics is not a party to these proceedings. The company is owned either directly or indirectly by Mr Erron Jameson.

23. The directors of BDA at the time of its incorporation were Brett Soper, Brett Hobson and Erron Jameson. Neither Brett Hobson nor Erron Jameson are parties to these proceedings. In June 2019, Brett Soper ceased to be a director and Brian Hobson was appointed as a director of BDA.

24. At all relevant times, Mr Robert Aikin was the Transport Manager for Schweppes with whom Brian Hobson and Brett Soper corresponded in relation to freight services provided by BFS to Schweppes in the period from August 2001 until September 2012.

25. Because several parties and witnesses share the same surname, and some witnesses have different surnames but share the same first name, I will refer to all persons by their first name and surname in order to avoid confusion.

Introductory observations about the testimony of witnesses

26. Each of the witnesses in these proceedings gave evidence about events and conversations that occurred in 2012 or earlier. As the plaintiffs submitted, it is therefore necessary to be mindful of the following well-known observations of McLelland CJ in Eq in Watson v Foxman (1995) 49 NSWLR 315 at 319 in assessing the evidence of each witness:

“… human memory of what was said in a conversation is fallible for a variety of reasons, and ordinarily the degree of fallibility increases with the passage of time, particularly where disputes or litigation intervene, and the processes of memory are overlaid, often subconsciously, by perceptions or self-interest as well as conscious consideration of what should have been said or could have been said. All too often what is actually remembered is little more than an impression from which plausible details are then, again often subconsciously, constructed. All this is a matter of ordinary human experience.”

27. The factors referred to by his Honour require primary emphasis on the objective surrounding facts that are either undisputed or established by contemporaneous documents, and the inherent probabilities and improbabilities: Fox v Percy (2003) 214 CLR 118; [2003] HCA 22 at [28]-[31] (Gleeson CJ, Gummow and Kirby JJ); Moubarak by his tutor Coorey v Holt (2019) 100 NSWLR 218; [2019] NSWCA 102 at [77] (Bell P, Leeming JA and Emmett AJA agreeing). Indeed, in any commercial litigation, contemporaneous documents “generally furnish the most reliable source of evidence as to what occurred or, at the very least, provide a generally reliable reference point from which to assess the reliability of witness testimony”. Although the accuracy and reliability of witness testimony must be treated with caution given the fallibility of human memory, witness testimony may still be of value and importance, including by providing evidence of the context in which relevant documents and events must be understood: ET-China.com International Holdings Ltd v Cheung (2021) 388 ALR 128; [2021] NSWCA 24 at [25]-[29] (Bell P, Bathurst CJ agreeing).

28. The following observations of Hammerschlag J (as the Chief Judge in Equity then was) in John Holland Pty Ltd v Kellogg Brown & Root Pty Ltd [2015] NSWSC 451 at [94]-[96]^[1] are apposite in this case:

“Where a party seeks to rely upon spoken words as a foundation for a cause of action, including a cause of action based on a contract, the conversation must be proved to the reasonable satisfaction of the court which means that the court must feel an actual persuasion of its occurrence or its existence. Moreover, in the case of contract, the court must be persuaded that any consensus reached was capable of forming a binding contract and was intended by the parties to be legally binding. In the absence of some reliable contemporaneous record or other satisfactory corroboration, a party may face serious difficulties of proof. Such reasonable satisfaction is not a state of mind that is obtained or established independently of the nature and consequences of the fact or facts to be proved. The seriousness of an allegation made, inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding are considerations which must affect the answer to the question of whether the issue has been proved to the reasonable satisfaction of the court. Reasonable satisfaction should not be produced by inexact proofs, indefinite testimony, or indirect inferences …

The sensation of feeling an actual persuasion, after a contest, that an event has happened or that something exists is one which is well known and recognised by experienced trial judges for what it is.

[The plaintiff] has the onus of establishing the agreement for which it contends. This entails proving to the reasonable satisfaction of the court that the words said to give rise to the agreement were actually said, and that the alleged consensus was capable of forming a binding agreement and was intended by the parties to be legally binding.”

1. Citations omitted.

29. The parties’ numerous challenges to the credibility of each witness are addressed throughout the summary of evidence and findings of fact below.

The 2001 agreement establishing BFS

30. Prior to 2001, JEV, Hynadam, Mechita, Evermay and Alderton Transport each operated a freight services business in the beverage freight transport industry. Some of them had a long history of providing freight services to Schweppes. JEV had commenced providing services to Schweppes more recently following Schweppes’ acquisition of the rights to distribute Pepsi products that JEV had been transporting for several years.

31. In about 2000, Brian Hobson and Michael Vella each became aware that Schweppes wished to have all of its freight services provided by one company rather than contracting with several freight companies. Brett Soper and his business partner Ralph Sobara became aware of this through Brian Hobson. As the plaintiffs submitted, this was a matter of administrative convenience for Schweppes.

32. In January 2001, Brian Hobson, Brett Soper, Ralph Sobara, Joseph Vella, Michael Vella, Stephen Phillips and Glen Alderton met at Ralph Sobara’s home in Greystanes (the Greystanes meeting).

33. Brian Hobson and Brett Soper gave evidence of the discussion at the Greystanes meeting in different terms, but there is no material difference between their respective accounts. Joseph Vella agreed with Brett Soper’s account of the meeting. Michael Vella gave evidence of a series of statements that he says were made during the course of the Greystanes meeting, the substance of which does not differ from the evidence of Brian Hobson and Brett Soper in any material respect. In cross-examination, Michael Vella agreed with Brett Soper’s account of the meeting. Brett Soper’s evidence is that:

“At the beginning of the Greystanes Meeting, Brian said words to the following effect:

‘As you all know, Schweppes is buying Pepsi. I have been talking with Schweppes about making a new company that provides all of the freight transport services. Would you all like to be a part of it? If we can sort it out together we can make a good business and make some money. This is the only way forward now. If you want to go it by yourself there will not be any work with Schweppes or Pepsi.’

I said words to the effect of:

‘You know I want to be a part of this. I think making one company that provides all of the freight is a good idea.’

Everyone else present at the Greystanes Meeting also said words to the effect of:

‘Yes this is a good idea.’

Brian then said words to the following effect:

‘We will need to set up a company that the work will be allocated to and that can invoice Schweppes. Our companies can then be paid from that company. Everyone’s companies can have an equal share in the company. The directors of each of the companies can be directors of the new company.

We will equal out the work from Schweppes. Everyone will have equal work as long as they show up. If we need to get subcontractors in to fill in any gaps we can do that.

We also need to make sure we meet any requirements of Schweppes. If they want us to do something we have to do it.’

Everyone at the Greystanes Meeting, including myself, said words to the effect that we agreed.”

34. Joseph Vella then informed those present at the meeting that he wanted Michael Vella to be JEV’s nominated director of the new company. This was followed by a discussion about trailers which is the subject of some dispute that need not be resolved. According to Brett Soper’s account with which Joseph Vella and Michael Vella agreed, the discussion then continued:

“… Brian also said words to the effect of:

‘… I have been talking with Ralph and the boss at Schweppes and I think we need a manager, someone who is on the ground with Schweppes. I could be the manager if everyone is happy with that, since Schweppes want me to be their contact person. We will also need someone to do the finance side of things. Steve would you like to do this? Is everyone happy for me to be the operations manager?’

Stephen said words to the effect of:

‘OK, I can do that, and I am happy for you to be manager.’

The rest of the members of the group responded with words to the effect of:

‘We agree with doing it that way.’

During the course of the Greystanes Meeting, Brian also said words to the following effect:

‘I have been thinking of a name for the company and I think we should call it Beverage Freight Services.’

The rest of the group said words to the effect of:

‘Ok.’”

35. The statements that Michael Vella deposed were made at the Greystanes meeting include a statement to the effect that “we will each employ our own drivers for our trucks and make sure that the trucks comply with any contract requirements set out by Cadbury Schweppes as well as any government requirements”. The defendants do not dispute that this was discussed and agreed at the meeting.

36. In cross-examination, Michael Vella gave some further evidence about the roles of Brian Hobson and Stephen Phillips discussed at the Greystanes meeting. According to his evidence, it was agreed at that meeting that the new company would employ Brian Hobson and Stephen Phillips as the operations manager and financial manager respectively, that the new company would pay their salaries and that they would be answerable to the new company’s board of directors.

37. Michael Vella gave evidence that it was agreed at the Greystanes meeting that the directors of the new company would make all the major decisions of the company.

38. Michael Vella also gave evidence that nobody at the Greystanes meeting said anything about the shareholders in the new company guaranteeing the new company’s debts, and nobody asked any questions about the financial capacity of any of the companies that were intending to become the equal shareholders in the new company

39. In cross-examination, Michael Vella gave evidence that it was his understanding following the Greystanes meeting that the sole purpose of the new company was to create a single entity to receive instructions from Schweppes for the delivery of its products, to provide those delivery services to Schweppes and to invoice and receive payment from Schweppes for those services. The new company was essentially to provide an administrative service to Schweppes to facilitate the existing companies making the Schweppes deliveries. It was agreed at the Greystanes meeting that those existing companies, who would become shareholders in the new company, would continue to own and maintain their own trucks, would be responsible for those trucks and their drivers and would continue to operate as independent entities. Each of the shareholders would independently invoice the new company for any delivery work that the shareholder performed in delivering Schweppes products. The new company would consolidate those invoices and would pay the shareholders for the delivery services they had performed, after retaining a percentage of the amount received from Schweppes to cover the new company’s administration costs. The new company was never intended to make a profit.

40. Although there was a discussion at the Greystanes meeting about equal allocations of Schweppes work to each shareholder in the new company, there is no evidence that anybody said that the income of the new company would be distributed to shareholders equally. As stated above, each shareholder was to invoice the new company for the deliveries it performed and the new company was to pay that invoice to the shareholder. Michael Vella gave evidence in cross-examination that the Schweppes deliveries were to locations throughout New South Wales and the amount paid by Schweppes for each delivery varied depending on the distance to be travelled and the time required to complete the job. Michael Vella understood that there would be equality of income between shareholders, but only in the sense that he expected that the average monthly amounts paid by BFS to each shareholder in respect of that shareholder’s invoices for freight services were likely to be approximately equal to the average monthly amounts paid to the other shareholders in any given period of several months. There is no evidence that this was discussed, and Michael Vella did not expect that shareholders would make payments to one another to equalise the amounts that BFS paid to them.

41. BFS was incorporated on 22 August 2001 and Brian Hobson, Brett Soper, Michael Vella, Stephen Phillips and Glenn Alderton were appointed as its directors. Equal shareholdings in BFS were issued to JEV, Hynadam, Mechita, Evermay, Alderton Transport and Sterling. Each of those founding shareholders signed the constitution of BFS. The constitution modified to some extent the replaceable rules which then applied under the Corporations Act 2001 (Cth). The replaceable rules (a copy of which was attached to the constitution) relevantly provided that the business of the company was to be managed by or under the direction of the directors and that resolutions of directors must be passed by a majority of votes cast by directors entitled to vote on the resolution. The constitution did not modify that replaceable rule.

42. It is common ground that some agreement was made at the Greystanes meeting. There is little dispute about the terms of that agreement. However, the identity of the parties to the agreement is in dispute.

43. The plaintiffs plead that the agreement was made between:

1. JEV, Hynadam, Mechita and Evermay; and/or

2. Joseph Vella, Brian Hobson, Brett Soper and Stephen Phillips.

44. The defendants plead that the agreement was made between JEV, Hynadam, Mechita and Evermay only.

45. Notwithstanding the involvement of Glenn Alderton and Alderton Transport in the Greystanes meeting, the plaintiffs and the defendants ignored them as potential parties to the agreement made at that meeting.

46. The identity of the parties to the agreement must be determined objectively from the surrounding circumstances: Air Tahitii Nui Pty Ltd v McKenzie (2009) 77 NSWLR 299; [2009] NSWCA 429 at [28] (Allsop P and Handley AJA, Hodgson JA agreeing) and the authorities there cited.

47. On the basis of the evidence referred to at [30]-[40], I find that the agreement made at the Greystanes meeting was an agreement between JEV, Hynadam, Mechita, Evermay and Alderton Transport. Those companies were providing freight services directly to Schweppes at the time of the Greystanes meeting. They owned the trucks and employed the drivers that would be used to provide those services to Schweppes through the new company under discussion at the Greystanes meeting. The proposal that was discussed and agreed was for JEV, Hynadam, Mechita, Evermay and Alderton Transport to continue to own and maintain those trucks and employ drivers and to provide the same services to the new company, which would in turn invoice Schweppes. The new company would receive payment from Schweppes and the existing companies would in turn receive payment from the new company. The new company was not intended to make a profit. Self-evidently, the profit that each shareholder would make from the Schweppes delivery work invoiced to the new company would depend on that shareholder’s costs of doing the work, including wages paid to its drivers and the costs of maintaining its fleet of trucks.

48. The role of Joseph Vella, Brian Hobson, Brett Soper, Stephen Phillips and Glen Alderton in the agreed arrangements was to be directors of the new company. Their agreed entitlement to be directors of the new company flowed from their existing positions as directors of JEV, Hynadam, Mechita, Evermay and Alderton Transport. In Joseph Vella’s case, his request for Michael Vella to be a director of the new company in his place was not opposed.

49. The agreement did not touch on the functions of the directors of the new company or how they would discharge their responsibilities. That subject matter was covered by the constitution and the Corporations Act. It was agreed between the putative shareholders of the new company that it would retain Brian Hobson and Stephen Phillips in managerial roles, and that they would report to the directors of the new company. Evidence referred to later in these reasons indicates that the directors did cause BFS to retain Brian Hobson and Stephen Phillips (who was later replaced by Brett Soper) in managerial roles after BFS was incorporated. Although those retainers gave effect to part of the agreement made at the Greystanes meeting, they were separate agreements between BFS (after it was incorporated) with each of Brian Hobson, Stephen Phillips and Brett Soper.

50. For those reasons, Joseph Vella, Brian Hobson, Brett Soper, Stephen Phillips and Glen Alderton were not parties to the agreement made at the Greystanes meeting. JEV, Hynadam, Mechita, Evermay and Alderton Transport were parties to that agreement. The position of Sterling is unclear. There is some evidence to suggest that its inclusion as a shareholder of BFS was decided upon after the Greystanes meeting. There is no evidence that its inclusion as a shareholder was controversial at the time, and no party directed submissions to the question of whether Sterling was a party to the agreement made at the Greystanes meeting. I do not find it necessary to resolve that question.

51. As indicated earlier in these reasons, it is convenient to refer to the agreement made between JEV, Hynadam, Mechita, Evermay and Alderton Transport at the Greystanes meeting as the 2001 agreement.

52. It is common ground that the 2001 agreement included terms to the following effect:

1. JEV, Hynadam, Mechita, Evermay and Alderton Transport would incorporate a new company, to be called Beverage Freight Services, for the purpose of providing freight services to Schweppes;

2. JEV, Hynadam, Mechita, Evermay and Alderton Transport would continue as independent entities, operating their own businesses with their own assets;

3. Schweppes delivery jobs directed to the new company would be allocated by a representative of the new company to its shareholders on the basis that each shareholder would receive an approximately equal share of the Schweppes work provided that representatives of that shareholder turned up for work;

4. as shareholders in the new company, JEV, Hynadam, Mechita, Evermay and Alderton Transport would continue to own and maintain their own trucks and be fully responsible for the trucks and drivers to be used for their Schweppes deliveries, including ensuring that their trucks complied with relevant legislative and regulatory requirements and any contractual requirements of Schweppes;

5. each of the shareholders in the new company would independently invoice the new company for any delivery work that the shareholder performed in delivering Schweppes products;

6. the new company would consolidate all of those invoices and issue a single invoice to Schweppes, and the new company would pay each shareholder for the Schweppes deliveries that the shareholder had performed as invoiced to the new company;

7. the new company would charge an administration fee on each invoice to cover its administrative costs;

8. Brian Hobson would be retained as the operations manager and Stephen Phillips would be retained as the financial manager of the new company, they would report to the board of directors of the new company and their salaries would be paid by the new company; and

9. Brian Hobson would be the new company’s contact person for Schweppes.

53. There is a dispute about whether the 2001 agreement included an implied term that the shareholders of the new company would share responsibility equally between themselves for any outstanding debts of the new company. The plaintiffs acknowledged that no such term was expressly agreed, but submitted that “it remains open for the Court to find that the agreed basis of the venture was that the individual directors / shareholders would agree to meet any outstanding debts of BFS equally” having regard to the following matters:

1. Michael Vella’s understanding following the Greystanes meeting was that liabilities of the new company would be shared equally by the shareholders;

2. this (the plaintiffs submitted) was the only basis on which Brian Hobson and Brett Soper could reasonably have expected Michael Vella in 2012 to provide a guarantee for the obligations of BFS under its lease of premises at Arndell Park; and

3. none of the directors of BFS appear to have dissented from the proposition recorded in the discussion paper prepared by Mr Fielding in August 2012 that the directors were to “share operational, staff and management responsibility, as well as current and future financial obligations and guarantees equally”, and this attitude of the directors in 2012 is consistent with the implication of the term for which the plaintiffs contend in the 2001 agreement.

54. As I understand that submission, the plaintiffs contend that a term should be implied into the 2001 agreement as a matter of fact that the shareholders of the new company would share liability equally between themselves for any outstanding debts of the new company.

55. I reject that submission. It suffices to say that it was neither necessary to give business efficacy to the 2001 agreement nor so obvious that it went without saying that the directors or shareholders of the new company should be liable for any outstanding debts of the company, contrary to ordinary principles of company law: Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 346-347; [1982] HCA 24. Any contrary subjective understanding that Michael Vella may have had at the conclusion of the Greystanes meeting, which was not based on anything said at that meeting, does not make the suggested implied term necessary or obvious. The suggested term contradicts the corporate structure agreed at the Greystanes meeting. Matters that arose in 2012 concerning directors guaranteeing specific obligations or liabilities of BFS in respect of which the relevant creditors required guarantees provide no support for the implication of the much wider suggested term in the 2001 agreement made more than a decade earlier.

56. For those reasons, I find that the 2001 agreement included no express or implied term that the directors or shareholders of the new company would share liability equally between themselves for any outstanding debts of the new company.

57. For completeness, I note that the plaintiffs made no submissions in support of their pleaded contention that the 2001 agreement included an express or implied term that each party to the agreement owed the other parties a duty of good faith, mutual trust and confidence and was obliged to devote themselves to the welfare of the business of BFS. There is no evidence that the 2001 agreement included such an express term. The plaintiffs pleaded that a term to that effect was implied “from the nature of the business arrangement to jointly and equally supply freight services to Cadbury Schweppes through the one corporate entity for their joint benefit, from the provisions of the Partnership Act 1892 (NSW), particularly Part 2 Division 3 thereof and custom”. ^[2]

    2. 2FASOC, particulars to paragraph 19, incorporating the particulars to paragraph 13.

58. Without the benefit of submissions addressing this aspect of the plaintiffs’ case, I understand the substance of the plaintiffs’ contention to be that the pleaded term is implied from the nature of the relationship between the parties which the plaintiffs say was a partnership. The suggested implied term, which would require each shareholder to subordinate their individual interests to the interests of BFS, goes far beyond the obligation of good faith that has sometimes been implied in commercial contracts: Cordon Investments Pty Ltd v Lesdor Properties Pty Ltd [2012] NSWCA 184; (2013) 29 BCL 329 at [144]-[145] (Bathurst CJ, Macfarlan and Meagher JJA agreeing). I have determined that there was no partnership or fiduciary relationship for the reasons explained at [373]–[407] below. I therefore reject the plaintiffs’ contention that the 2001 agreement included an implied term that each party owed the others a duty of good faith, mutual trust and confidence and was obliged to devote themselves to the welfare of the business BFS.

59. The plaintiffs’ submissions also failed to address their pleaded contentions that the 2001 agreement included express or implied terms to the effect that each of the “partners” was entitled to participate in the management of the business and that all major policy decisions were to be made jointly and consensually by the directors of the new company. There is no evidence that any such terms were expressly agreed. In circumstances where it was agreed at the Greystanes meeting for each shareholder in the new company to appoint one director to the new company, the suggested implied terms were not necessary to give business efficacy to the agreement and were not obvious. It is customary for directors of a company to make decisions by resolution passed by a majority of votes, as provided for in the replaceable rules that the shareholders agreed would govern BFS when they later signed its constitution in August 2001. If and to the extent that the plaintiffs’ pleaded contentions concerning those express or implied terms were pressed, I reject them for those reasons.

60. The following two further terms pleaded by the plaintiffs appear to have been abandoned by not being mentioned in closing submissions:

“All work would be allocated between the Corporate Partners on a rotating or otherwise equal basis to ensure the net income earned (after payment of expenses) incurred by the Corporate Partners in carrying out the work for BFS would be approximately equal.”

“The net profit earned would be divided equally between the Corporate Partners as the BFS shareholders.”

61. If and to the extent that those pleaded terms were pressed, I find that the 2001 agreement did not include express or implied terms to that effect. There is no evidence that the agreement included any such express terms. It is neither necessary nor obvious to imply the terms in circumstances where there is evidence that BFS was not intended to make a profit and the net income or profit earned by each shareholder in carrying out Schweppes deliveries invoiced to BFS would depend on what expenses were incurred by that individual shareholder in conducting its own business. The expenses incurred by each shareholder were unknown to and beyond the control of each other shareholder.

62. In short, the terms pleaded by the plaintiffs and rejected at [53]-[61] bear no resemblance to the arrangements actually made between JEV, Hynadam, Mechita, Evermay and Alderton Transport at the Greystanes meeting to establish a single corporate interface for Schweppes to deal with for its freight requirements that each of those separate companies wished to continue servicing as part of their separate, ongoing businesses. References in these reasons to the business of BFS are references to the administrative and other activities undertaken by BFS in order to act as that single corporate interface and facilitate its shareholders continuing to perform Schweppes delivery work.

Management and operation of the business of BFS: 2001-2012

63. On 10 September 2001, Brian Hobson and Ralph Sobara wrote to Schweppes on BFS letterhead setting out the rates and terms on which BFS offered to provide bulk delivery and stock transfer haulage services to Schweppes. The letter stated:

“At your request all the bulk owner-drivers, who have until now been individually contracted to Schweppes Cottees at Alexandria and PCBA at Huntingwood, have formed a new Company. This company Beverage Freight Services P/L has been formed specifically to meet the stock transfer and bulk delivery services Schweppes Cottee’s requires in Sydney. This proposal is offered by the new company.”

64. After setting out the proposed rates and terms, the letter concluded:

“Beverage Freight Services is offering to carry out all bulk deliveries and stock transfers. Obviously if all stock transfers were offered to Beverage Freight Services the following advantages would be available to Schweppes Cottees:

1. A single management team to manage all bulk truck movements.

2. A single invoice covering all bulk delivery costs.

3. Opportunity to maximise vehicle utilisation and find cost efficiencies

that can be passed on to Schweppes Cottees in a reduced rate.

If Schweppes Cottee’s management decide not to engage Beverage Freight Services to carry out the stock transfer work the services of the individual bulk owner-drivers for delivery work will be available to Schweppes Cottee’s and appropriate rates and conditions can be negotiated.”

65. It is common ground that BFS supplied freight services to Schweppes under various fixed term contracts from about September 2001 until August 2012.

66. Schweppes issued work orders to BFS, and BFS then allocated the work to its shareholders or, on some occasions, subcontracted the work to a third party. The allocation of work was determined by Ralph Sobara, Brian Hobson or employees of BFS. Those matters are not the subject of any dispute. I do not find it necessary to resolve the dispute about who was performing the allocation work on a day to day basis at specific times during the period from 2001 to 2012.

67. The parties adduced evidence directed to the question of whether Schweppes work was in fact allocated equally to the BFS shareholders. That evidence was directed to the plaintiffs’ pleaded claim that Brian Hobson and Brett Soper had breached fiduciary duties allegedly owed to JEV and Joseph Vella by failing to allocate Schweppes delivery jobs, or the “higher net income deriving jobs”, equally between JEV, Hynadam and Mechita. The plaintiffs abandoned that claim during the hearing and it is therefore not necessary to make any findings about whether Schweppes work was in fact allocated equally between the BFS shareholders according to any of the various concepts of equality deployed by the plaintiffs at various times before abandoning that claim. As will become apparent later in these reasons, the ongoing dispute about work allocation was the subject of discussions prior to and at the Ingleburn meeting and the existence of the dispute and the occurrence of those discussions informs my assessment of the evidence about what was said and done at the Ingleburn meeting.

68. A BFS shareholder to whom work had been allocated sent its own truck and driver to Schweppes’ head office to collect the relevant stock and transport it to the locations required by Schweppes. That shareholder then invoiced BFS for the work completed. BFS invoiced Schweppes for the amounts invoiced by the shareholders plus a 10 per cent margin to cover BFS’s administration costs. Upon receiving payment from Schweppes, BFS paid each shareholder’s invoice issued to BFS in respect of the relevant work. None of those matters are in dispute.

69. It is common ground that Brian Hobson was responsible for negotiating contract terms and liaising with Schweppes on behalf of BFS, project management, day to day running of BFS, allocating or overseeing the allocation of Schweppes work to the BFS shareholders, legislative compliance, and liaising with truck drivers. The plaintiffs describe this role as operations manager and I will adopt that term in these reasons.

70. Although it had been agreed at the Greystanes meeting that Stephen Phillips would be retained as the financial controller for BFS, it is common ground that Brett Soper performed that role from about December 2001 and that his duties included preparing and issuing invoices to Schweppes and verification and payment of invoices issued to BFS.

71. Brian Hobson and Brett Soper operated out of the BFS office located within Schweppes’ head office, which was initially located at Alexandria and later moved to Prospect.

72. JEV, Hynadam, Mechita and the other BFS shareholders from time to time were not wholly devoted to the Schweppes delivery work through BFS. Each of them continued to operate their own businesses, which included providing freight services to other customers. In the case of JEV, this included freight services provided under the name NSW Freightlines. Michael Vella described the Schweppes delivery work as seasonal, with lower volumes of work in the winter months. He gave evidence that JEV purchased the NSW Freightlines business in order to have another source of work for its trucks. According to Elizabeth Vella’s evidence, JEV acquired the NSW Freightlines business (including six truck trailers, a utility vehicle (a “ute”) and two cars, warehouse racking, forklifts and the NSW Freightlines trading name and client list) in about March 2007. Joseph Vella gave evidence that Mr Bill Kinnane was employed by JEV as General Manager and was responsible for sourcing freight work for JEV through its NSW Freightlines business. Michael Vella gave evidence that, by August 2012, the NSW Freightlines business was more profitable to JEV than its Schweppes delivery work undertaken through BFS.

73. The evidence tendered in these proceedings included financial statements for BFS for the 2002 to 2013 financial years. Those documents show that BFS earned income of several million dollars each year, all of which was derived from “sales” and almost all of which was expended each year on “transportation costs”. BFS also incurred some expenses for “contract payments” and “management fees” and other miscellaneous matters such as accountancy fees and insurance. BFS’s income and costs are significantly lower in the 2013 financial year than in earlier years, reflecting the cessation of its business after the Ingleburn meeting, as referred to later in these reasons. BFS either earned a modest profit or made a modest loss in each year, which was carried over into the following year. There were no distributions of the modest profits to shareholders. As referred to at [39] above, BFS was never intended to make a profit. No partnership accounts were prepared for BFS.

Disputes between BFS shareholders as at August 2012

BFS shareholders as at August 2012

74. By August 2012, Sterling and Alderton Transport were no longer shareholders of BFS and Glenn Alderton was no longer a director. Evermay had ceased doing Schweppes delivery work through BFS in about 2010 as a result of certain health problems suffered by Stephen Phillips. ASIC records show that Stephen Phillips ceased to be a director of BFS on 23 October 2010. However, Evermay remained a shareholder of BFS as at August 2012. There is no evidence that any steps had been taken by the active shareholders to request Evermay to transfer or relinquish its shares in BFS, or that any such request had been resisted by Evermay.

75. Thus, of the original BFS shareholders, only JEV, Hynadam and Mechita were undertaking Schweppes delivery work through BFS by August 2012.

76. Two companies with similar names to BFS had been established in the period since the incorporation of BFS.

77. Beverage Logistics Pty Ltd (BLPL) was incorporated on 21 October 2004 with Brian Hobson, Ralph Sobara and Brett Soper as its shareholders and directors. Brett Soper was unsure why BLPL was incorporated but thought that it might have been intended to undertake bulk freight delivery work. Brian Hobson could not recall the reason why BLPL was incorporated, but said that the company had never traded. The plaintiffs do not suggest that BLPL traded. By 2012, the company was no longer in existence, having been deregistered on 12 March 2010.

78. Beverage Logistics Services Pty Ltd (BLS) was incorporated on 7 February 2011 with Brian Hobson, Brett Soper and Michael Vella as its equal shareholders and directors. There is no evidence and no allegation is made by the plaintiffs that BLS ever entered into any freight contract or operated any business.

79. Brian Hobson gave evidence in cross-examination that BLS was “possibly” incorporated in February 2011 because “we thought that we were going to have trouble originally with Mr Phillips retiring out of that business”. Brett Soper could not recall why BLS was incorporated but accepted in cross-examination that one the reasons may have been to create an entity that included only the active participants in BFS’s business as shareholders. When it was put to Brian Hobson in cross-examination that, in August 2012, “[t]here was still the issue that his [Stephen Phillips’] shares were on the books, so to speak”, he answered: “Nobody ever raised that issue to me, ever”. I understand Brian Hobson to have been referring to August 2012 when he gave that answer.

80. In his affidavit sworn on 3 February 2021, Michael Vella deposed that he had a conversation with Brian Hobson in about August 2012 in which Brian Hobson said to him words to the effect that:

“I have got legal advice and we have to get Stephen Phillips out of the company altogether. We have to stop paying him dividends if he is not contributing. We should close BFS and start a new company.”

81. In cross-examination, Michael Vella gave inconsistent evidence about the issues that were discussed with Robert Fielding in August 2012. He initially gave evidence that those issues were limited to the matters referred to in Robert Fielding’s discussion paper as operations, allocation, income distributions, lost earnings, warehousing and guarantees, ^[3] making no reference to Stephen Phillips or Evermay. When it was put to him that he had no recollection of any discussion of Stephen Phillips, Michael Vella abruptly changed his evidence and described Stephen Phillips as “the major reason” for the Ingleburn meeting and the preparatory discussions between Robert Fielding and each of JEV, Hynadam and Mechita in August 2012. I accept the defendants’ submission that this demonstrates Michael Vella’s willingness to change his evidence to suit his understanding of the plaintiffs’ claims and case theory. I reject the plaintiffs’ submission that the inconsistency in Michael Vella’s evidence is explained by his answer in cross-examination that “we” believed that the issue of Evermay’s shareholding in BFS had already been addressed by incorporating a new company. Michael Vella’s evidence that Stephen Phillips was “the major reason” for the August 2012 discussions and the Ingleburn meeting demonstrates that he well knew that the incorporation of a new company did not change anything unless and until the business of BFS was transferred to that new company.

    3. See [139] below.

82. In attempting to explain the nature of the alleged problem concerning Stephen Phillips, Michael Vella said in cross-examination that he “went along with” what Brian Hobson told him and that:

“I’m told the reason was that the Beverage Freight Service was still paying our directors fees. And although Steven [sic] wasn’t contributing to the company, he was still entitled to be paid directors fees. And that’s what made it necessary to invent the new company so those contributing to the company could continue and on with the work.”

83. In his affidavit sworn on 4 December 2015, Michael Vella referred to Stephen Phillips leaving BFS in about September 2010. He deposed that two of Evermay’s trucks and drivers were subcontracted to JEV for a period of time thereafter and JEV used those trucks and drivers for JEV to provide Schweppes delivery services through BFS. In relation to Evermay’s continued shareholding in BFS, he deposed that:

“There was no redistribution of the shares of BFS upon the departure of Phillips so he is still a shareholder of BFS. I do not know why this was not done despite the departure of Phillips other than that we were all friends and had worked together in the industry for many years, so we just continued on as we were.”

84. Michael Vella’s evidence referred to at [80]-[82] above is inconsistent with his affidavit evidence six years earlier referred to immediately above in which he described Evermay’s continued shareholding in BFS as unproblematic and something that the other shareholders were content to leave unchanged. It is also inconsistent with his evidence referred to at [97] and [160] below that the Ingleburn meeting was arranged after he accepted Brian Hobson’s suggestion that they engage an independent person to facilitate a discussion between them about their dispute concerning the Arndell Park lease as an alternative to Michael Vella proceeding to take what he described as “the legal route”.

85. As referred to in more detail later in these reasons, the discussion papers created by Robert Fielding prior to the Ingleburn meeting contain no reference to Evermay’s continued shareholding in BFS as a problem or issue that JEV, Hynadam or Mechita wished to resolve. Robert Fielding gave evidence that he could not recall Evermay’s shareholding in BFS having been raised with him as an issue to be addressed and, if it had been raised in any of his discussions with JEV, Hynadam or Mechita, he would have included it in the discussion paper. I accept this aspect of Robert Fielding’s evidence, which was not challenged in cross-examination. The discussion paper, which is set out at [139] below, referred at item 1.11 to the “difficulties encountered by the parties pertaining to Beverage Freight Services Pty Limited” and it is inherently plausible that any issue relating to Evermay would have been included there if it had been raised.

86. The later iterations of Michael Vella’s evidence referred to at [80]-[82] above are internally inconsistent and also inherently implausible when considered in light of the following objective facts:

1. there is no evidence of Evermay seeking an allocation of Schweppes deliveries or asserting any rights as a shareholder of BFS after Stephen Phillips ceased to be a director of BFS on 23 October 2010. Indeed, Michael Vella’s own evidence referred to at [83] above is to the contrary effect;

2. there is no evidence that Evermay (or any other shareholder of BFS) was ever paid dividends ^[4] and it is therefore implausible that Brian Hobson had any conversation with Michael Vella in August 2012 in terms to the effect claimed by Michael Vella at [80] above;

3. there is no evidence that Stephen Phillips was paid or was entitled to any “directors fees” at any time after he ceased to be a director of BFS on 23 October 2010 merely because Evermay continued to be a shareholder in BFS, and it is therefore implausible that Brian Hobson told Michael Vella that it was necessary to remove Evermay as a shareholder because BFS was paying directors’ fees to Stephen Phillips, as Michael Vella claimed in cross-examination (inconsistently with his affidavit evidence concerning dividends referred to immediately above); and

4. at the same time as Evermay’s shareholding in BFS was having no impact on the operations of BFS or its other shareholders, there were other disputes between Michael Vella, Joseph Vella and JEV on the one hand and Brian Hobson, Hynadam, Brett Soper and Mechita on the other hand that had given rise to a high degree of acrimony between them and this was affecting the conduct of BFS’ business. These are the disputes identified in item 1.11 of the discussion paper and referred to in detail at [91]-[159] below.

   4. See [73] above.

87. I accept Brian Hobson’s evidence that nobody was raising Evermay’s shareholding in BFS as an issue in August 2012 because it is inherently plausible for the same reasons that Michael Vella’s evidence is inherently implausible. As explained later in these reasons, I reject the plaintiffs’ submissions that Brian Hobson was not a credible or reliable witness.

88. It follows that I reject the plaintiffs’ submission that, if Brian Hobson and Brett Soper had perceived Evermay’s residual presence as a shareholder of BFS as problematic in February 2011, “there is every reason to conclude that they continued to hold that view in August 2012”. The evidence provides no support for that conclusion for the reasons already canvassed above. Whatever difficulties might have been anticipated at the time when BLS was incorporated in February 2011, there is no evidence of any difficulties having subsequently materialised.

89. For completeness, I note that the plaintiffs did not take the opportunity to put to Brian Hobson or Brett Soper in cross-examination that they held the view in August 2012 that Evermay’s shareholding in BFS was a problem that needed to be addressed. I accept that the plaintiffs were not obliged to do so because there was an agreement between senior counsel for the parties not to take Browne v Dunn points. However, implausible theories that are not put to witnesses are not imbued with weight or credibility that they do not otherwise have merely because there was no obligation to put them to the relevant witnesses.

90. For all of those reasons, I reject Michael Vella’s evidence referred to at [80]-[82] above and I reject the plaintiffs’ submission that Brian Hobson and Brett Soper viewed Evermay’s “residual presence” as a BFS shareholder as a problem for BFS as at August 2012.

91. The problems that did exist in August 2012 were disputes between JEV, Joseph Vella and Michael Vella on the one hand and Brian Hobson, Hynadam, Brett Soper and Mechita on the other hand about:

1. whether Schweppes delivery work was being allocated equally between JEV, Hynadam and Mechita;

2. a lease of premises at Arndell Park that BFS had entered into in June 2012; and

3. whether JEV had taken adequate steps to stop its trucks speeding on Schweppes delivery runs, and the manner in which Brian Hobson and Brett Soper had responded to Schweppes on behalf of BFS about Schweppes’ requirements for trucks to be fitted with speed limiters and for the operation of those speed limiters to be certified.

Disputes about work allocation

92. Joseph and Michael Vella had been raising concerns for some time prior to August 2012 about whether Schweppes delivery work was being allocated equally between the BFS shareholders.

93. During the final hearing of these proceedings, the plaintiffs abandoned their claim that Brian Hobson and Brett Soper breached fiduciary duties allegedly owed to the plaintiffs by not allocating work equally. In those circumstances, it is not necessary to make findings of fact about work allocation prior to August 2012. It suffices to note that the plaintiffs’ allegations were strenuously maintained in the discussions leading up to and during the Ingleburn meeting, as referred to in detail at [130]-[223] and [272] below. As referred to at [151] below, Michael Vella and Joseph Vella believed that Brian Hobson and Brett Soper were greedy and dishonest in the manner they allocated Schweppes delivery work between BFS shareholders. The plaintiffs continued to maintain those allegations in these proceedings, claiming that Brian Hobson and Brett Soper had breached fiduciary duties allegedly owed to JEV and/or Joseph Vella in allocating work, until they abandoned those claims during the final hearing.

Disputes about the Arndell Park lease

94. It is common ground that BFS began transporting Schweppes bottled water products labelled “H2O to Go” from Albury to Sydney in about March 2012. In June 2012, Brian Hobson and Brett Soper caused BFS to enter into a lease of warehouse premises at Arndell Park in anticipation of that particular line of work expanding. Brian Hobson and Brett Soper guaranteed the obligations of BFS under the lease, and signed the lease as directors of BFS and in their personal capacity as guarantors.

95. There was a dispute between Michael Vella on the one hand, and Brian Hobson and Brett Soper on the other hand, about whether BFS should enter into the lease and whether Michael Vella should provide a guarantee together with the other two directors of BFS. The plaintiffs contend that this dispute arose before Brian Hobson and Brett Soper executed the lease on behalf of BFS and as guarantors. The defendants initially contended that the dispute arose only after the lease had already been executed, but ultimately accepted that the dispute may have been known to Brian Hobson and Brett Soper when they executed the lease.

96. It is not necessary to make findings about the order of events. What is relevant for present purposes is that, in August 2012, Michael Vella was very upset because he considered that Brian Hobson and Brett Soper had caused BFS to enter into the Arndell Park lease without his agreement. This was another issue that Michael Vella attributed to greed and dishonesty on the part of Brian Hobson and Brett Soper, as referred to at [154] below.

94. Michael Vella gave evidence that he had a conversation with Brian Hobson and Brett Soper in about August 2012 in which he complained that they had caused BFS to enter into the lease without his agreement and in circumstances where he did not want BFS to have its own warehouse because JEV already had a warehouse. He told Brian Hobson and Brett Soper words to the effect that “this is not good, this is not right, our friendship’s ending right now. Now it’s going to become legal …”. Brian Hobson suggested that they arrange for an independent person to facilitate a discussion “to help sort it out” rather than taking “the legal route”. Michael Vella deposed that he agreed with Brian Hobson’s suggestion. This led to the meetings with Robert Fielding referred to below at [131] followed by the Ingleburn meeting facilitated by Peter Versluis and Robert Fielding on 28 August 2012.

95. As referred to in more detail below, the Arndell Park lease, and the question of whether Michael Vella would guarantee the obligations of BFS under the lease, were some of the key topics of discussion at the Ingleburn meeting and in the preparatory meetings leading up to it. It is common ground that, once the Arndell Park lease was signed, it was Brian Hobson and Brett Soper (and not the landlord) who were advocating for Michael Vella to provide a guarantee in addition to the guarantees already given by them.

96. The plaintiffs submitted that, “in light of how matters subsequently unfolded”, the Court should find that Brian Hobson and Brett Soper caused BFS to enter into the Arndell Park lease “as the first step in a potential plan to exclude the Vellas from the Schweppes business – in this case, by taking advantage of the potentially lucrative ‘H2O to Go’ stream of work”.

97. I reject that submission and decline to make any such finding. I assume that the plaintiffs’ reference to “how matters subsequently unfolded” is a reference to the incorporation of BDA following the Ingleburn meeting and BDA (rather than BFS) performing Schweppes delivery work thereafter. In light of my findings below about what occurred at and following the Ingleburn meeting, the evidence does not support the inference for which the plaintiffs contend. Moreover, If Brian Hobson and Brett Soper saw the Arndell Park lease as the first step in a potential plan to exclude JEV from the Schweppes business, it is inherently improbable that they would have caused BFS to be the lessee in circumstances where no steps had been taken towards removing JEV as a shareholder and Michael Vella as a director of BFS, and there is no evidence of any such steps being contemplated or discussed at the time that BFS entered into the Arndell Park lease. It is equally improbable that Brian Hobson and Brett Soper would have been pressing Michael Vella to become an additional guarantor under the lease in August 2012. Again, I note that the plaintiffs did not take the opportunity to put to Brian Hobson or Brett Soper in cross-examination that their purpose in causing BFS to enter into the lease was to move towards excluding JEV and the Vella family from the Schweppes delivery work.

98. I also note that there is a stark inconsistency between:

1. the plaintiffs’ contention that Brian Hobson and Brett Soper were planning to exclude JEV and the Vella family from Schweppes delivery work in June 2012 (see [99] above and [123] and [147] below); and

2. the plaintiffs’ contention that Michael Vella, Brian Hobson and Brett Soper had agreed prior to the Ingleburn meeting that the Schweppes delivery work should be moved from BFS to a different corporate entity in which the three of them were the directors and equal shareholders (thereby excluding Evermay), irrespective of whether or how the disputes about work allocation, the Arndell Park lease and speed limiters were resolved (see [80]-[90] above and [124], [133] and [143] below).

102. The plaintiffs’ submissions did not identify any evidence capable of reconciling those inconsistent contentions.

Disputes about dealings with Schweppes concerning speed limiting of trucks

103. On 2 August 2012, Mr Aikin sent an email to Brian Hobson, Brett Hobson and Brett Soper attaching a document entitled “Beverage Logistics Services –Chain of Responsibility Infringement” (the COR Notice). The document stated:

“I refer to my email of 23^rd August, 2011 in which I requested all transport service providers to verify

1.    All vehicles required to have the speed limiter devices fitted actually have the devices fitted

2.    The speed limiter devices are set to a maximum of 100 kilometres per hour

3.    The speed limiter devices are inspected during regular maintenance to ensure they have not been tampered with

During analysis of Beverage Logistics Services (BLS) KPI data for the period of April to June 2012, it was noted that particular vehicle’s [sic] of BLS are consistently exceeding the 100 kilometres per hour speed limited for heavy vehicles.

There were 584 instances of BLS vehicles exceeding 105 kilometres per hour which is the tolerance level Schweppes Australia has allowed for overrun instances on a downhill decline.

I have attached a spreadsheet which details the incidents

Conclusion

It is my belief that the vehicles detailed in the attached report:

•   Either do not have speed limiters fitted or,

•   If speed limiters have been fitted, they have been tampered with to allow the 100kilometre an hour speed limit to be exceeded

•   The drivers of these vehicles routinely exceeded the speed limit of 100klms per hour

Immediate Action

Vehicles with registration numbers:

○ AE60BE

○ BB00SB

○ BB01SB

○ BE22JM

○ BK03EK

○ JNE001

○ JNE013

○ JNE019

○ MEC400

○ MEC500

○ MEC600

○ MEC800

○ MEC900

1.   Are immediately suspended from performing work for Schweppes Australia

2.   These vehicle’s speed limiters are to be immediately serviced and reset to 100 kilometres per hour

3.   Certification is provided by a recognised and accredited mechanical repair facility to acknowledge that the speed limiters have been reset and adjusted.

4.   A company memo is circulated to all drivers informing all of the requirement to adhere to legislative speed limits and fatigue management legislation, and that any driver tampering with speed limiter devices will be terminated immediately

5.   BLS are to provide documentary evidence of all the above processes having been completed prior to any of the listed vehicles being allowed to recommence working for Schweppes”

104. It was common ground between the parties that the vehicles listed in the COR Notice with registrations commencing with AE, BB, BE and BK were owned by Hynadam, those with registrations commencing with JNE were owned by JEV and those with registrations commencing with MEC were owned by Mechita.

105. The spreadsheet attached to Robert Aikin’s email bears an “MT Data” logo and is entitled “Trip Report by Vehicle”. According to Michael Vella’s evidence, MT Data was a compliance system that BFS used to track the speed and trip times for JEV, Hynadam and Mechita trucks on Schweppes deliveries. In respect of each trip recorded, the spreadsheet identified the vehicle registration, the start location and time for the trip, the finishing location and time for the trip, the kilometres travelled, any excessive idle time periods, the start and finish time of any breaks during the trip, the maximum speed of the vehicle and any speeding alerts.

106. Contrary to the plaintiffs’ submission, the spreadsheet did indicate a significantly worse speeding history for JEV trucks than for Hynadam or Mechita trucks. My review of the spreadsheet identified two instances in which Hynadam trucks were recorded as speeding above 110km per hour, 54 instances for Mechita trucks and 71 instances for JEV trucks. As the defendants’ submissions identified, the spreadsheet recorded that speeding alerts had been issued for almost half of the JEV truck speeding incidents exceeding 110km per hour. The spreadsheet recorded no speeding alerts in respect of the speeding incidents for Hynadam or Mechita trucks.

107. After receiving Robert Aikin’s email, Brian Hobson had a conversation with him about how the data should be interpreted, including whether some trucks were merely having an occasional speed spike when travelling downhill. The outcome of that conversation was that none of the vehicles listed in the email were immediately suspended from doing Schweppes deliveries provided that BFS could confirm that they were speed limited.

108. Brian Hobson gave evidence that he had been speaking with Michael Vella about speed issues including asking him to slow the JEV trucks down and to get them speed limited for some time prior to August 2012. Michael Vella denies that Brian Hobson spoke to him about these issues prior to August 2012.

109. On 16 August 2012, Brian Hobson (using Brett Soper’s email account) sent an email to Mr Aikin stating:

“I have requested a report for the status of speed limiters in the vehicles which operate for BFS at Schweppes Prospect from the companies involved.”

110. The email then set out:

1. a list of the Hynadam vehicles that had been identified in the COR Notice, stating the date of the last service at which the speed limiter had been checked and the upcoming date in August 2012 on which the vehicle was booked to have its speed limiter checked by Detroit;

2. a list of the Mechita vehicles that had been identified in the COR Notice, stating the date of the last service at which the speed limiter had been checked and the upcoming date in August 2012 on which the vehicle was booked to have its speed limiter checked by Detroit;

3. a list of the JEV vehicles that had been identified in the COR Notice, with no information for those vehicles under the headings “Speed limiter checked at last service drive test” and “Booked into Detroit for limiter to be checked”.

111. Brian Hobson gave evidence in cross-examination that Detroit was the engine manufacturer. Whilst Hynadam and Mechita had been checking the speed limiter function when the trucks were serviced and could provide certification by a mechanic that the speed limiters complied with Schweppes’ requirements, they had not previously arranged for Detroit to certify the speed limiters as an independent third party. Brian Hobson considered that the nature of the certification that Schweppes was looking for in August 2012 was “a bit of a grey area”. Hynadam and Mechita therefore arranged for arranged for Detroit certification.

112. Brian Hobson’s email conveys that speed limiters had already been fitted in the Hynadam and Mechita vehicles and that those speed limiters had been checked and were due to be further checked by the engine manufacturer. There was no evidence to the contrary in these proceedings. Brian Hobson’s email provided no such comfort in relation to the JEV vehicles.

113. On 17 August 2012, Robert Aikin sent an email to Brett Soper (addressed to him and to Brian Hobson) stating:

“Effective immediately, until the JNE vehicles are booked in for speed limiter checks and certified as set at 100kmh, these vehicles are not to be used for Schweppes work.”

114. On 21 August 2021, Brett Soper sent an email to Brian Hobson, Brett Soper, Michael Vella and Elizabeth Vella stating that he had advised Schweppes on the status of speed limiters in the vehicles operating for BFS and setting out the list that he had emailed to Mr Aikin on 16 August 2012 referred to at [109]-[111] above. Mr Soper’s email continued:

“I have now received correspondence from Schweppes advising effective immediately, that the following vehicles are not to be used in Schweppes work until each vehicle has been booked in for speed limiter checks and certified that those limiters are set to 100 KPH.

The subject vehicles are JNE013, JNE019, JNE001, JNE011, JNE010.

Brian I note that your vehicles are booked in for speed limiter checks this week; as are the vehicles provided by my company.

Michael please arrange for J & E Vella Pty Limited to let me know when they will be booking in the above vehicles for speed limiter checks. Please also can you ask them to let me know whether they have other trucks which comply 100% with the Schweppes requirement which I may access to ensure we fulfil the Contract.

In the meantime it will be necessary for Beverage Freight Services to source compliant vehicles from other sub-contractors to ensure that Beverage complies with the Schweppes agreement. This will be required until certification has been received for each of the JNE trucks referred to above.”

115. In response, Michael Vella immediately sent three emails to Brett Soper in quick succession.

116. Michael Vella’s first email attached certificates relating to speed limiters in the vehicles JNE011 and JNE001 on 20 and 21 August 2012.

117. Michael Vella’s second email to Brett Soper stated: [5]

“You f*** know that Brian has organised to get all of mine through the system as well you c***. I currently have 3 compliant and its only been 2 days.”

5. Omitting offensive words, which were included in the email as sent.

118. Michael Vella gave evidence that language he used in that email reflected the anger he felt at the time.

119. Michael Vella’s third email sent to Brett Soper at 2.59pm on 21 August 2012 attached an email that had been sent to Brett Hobson by Mr Luke Glover of NSW Freightlines at 6.55am that morning. Luke Glover’s email stated:

“As discussed the new guy (Tim) is taking JNE010 to Detroit this morning for fitting then he will be back to you to commence work as directed.”

120. On 22 August 2012, Michael Vella forwarded to Brett Hobson a copy of a “Road Speed Governing Certificate” issued by MTU Detroit Diesel Australia dated 21 August 2012 in relation to JNE010.

121. Michael Vella sent further emails to Brett Hobson on 22 and 23 August 2012 attaching certificates relating to tests conducted on speed limiters in the vehicles JNE019 and JNE013.

122. It is plain from Luke Glover’s email referred to above and Michael Vella’s evidence in his affidavit sworn on 23 February 2017 that Brian Hobson liaised with Michael Vella during the period from 21 to 23 August 2012 to coordinate which JEV trucks were temporarily unavailable for Schweppes work while they were being tested at various times on those dates, so that BFS could manage the work with the other available trucks. That is to say, Brian Hobson acted contrary to Robert Aikin’s email dated 17 August 2012 and contrary to Brett Soper’s email dated 21 August 2012 by permitting JEV trucks to continue performing BFS deliveries for Schweppes. As the plaintiffs’ submissions acknowledged, Brian Hobson gave evidence to similar effect.

123. The plaintiffs submitted that the speed issue raised by Schweppes on 2 August 2012 was not a genuine issue or alternatively was not regarded by Brian Hobson or Robert Aikin as needing to be urgently addressed because Brian Hobson had not previously made any arrangements to have the Hynadam and Mechita trucks “appropriately certified”. On the basis of their submission that the speed limiter issue “was not one which provoked any actual activity on the part of either Mr Hobson or Schweppes until shortly before the mediation on 28 August”, the plaintiffs further submitted:

“The Court should find that the issue of speed limiters was a pretext generated to justify removing J&E Vella and the Vellas from the BFS business. … the issue was a false one which was created as a pretext to poison Schweppes’ view of J&E Vella and to provide a justification for Mr Aikin to provide to his superiors as to why Schweppes’ freight business was being moved to a new company.

The plaintiffs rely on Mr Hobson and Mr Soper’s communications with Schweppes as being conduct in breach of the various duties which they owed to J&E Vella and being conduct carried out in furtherance or in contemplation of the diversion of business to a new corporate entity which excluded J&E Vella and the Vellas…”

124. The plaintiffs’ submissions made much of the fact that the COR Notice referred to “Beverage Logistics Services” rather than “Beverage Freight Services” and that Brian Hobson did not raise any question about this with Robert Aikin at the time. It was submitted that “the only plausible explanation is that prior to August 2012, Mr Hobson (and possibly also Mr Soper) had discussed with Mr Aikin their intention to divert the business of BFS to a new corporate vehicle, and had given Mr Aikin the name Beverage Logistic Services.” The plaintiffs rely on the discussion paper produced by Robert Fielding at the same time, which referred to BLPL (wrongly) as a company in which Michael Vella had a stake, as supporting this conclusion.

125. I reject all of the plaintiffs’ submissions referred to at [123]-[124] above for three reasons.

126. First, it is inherently improbable that Schweppes had no genuine concern about vehicles significantly exceeding their speed limit on Schweppes delivery runs. On the contrary, it is plain from the terms of Robert Aikin’s 2 August 2012 email that Schweppes had taken some action about this approximately one year earlier and was taking follow up action with BFS in August 2012. Schweppes’ persistence indicates that it was genuinely concerned about speed limit compliance. Whilst additional action was taken by Brian Hobson and Brett Soper in relation to the Hynadam and Mechita trucks in August 2012, the evidence does not establish that they had taken no action previously. Brian Hobson’s evidence referred to at [111] above identifies the action that had been taken previously. He was not successfully challenged about this in cross-examination.

127. Second, the “plausible explanation” advanced by the plaintiffs for the COR Notice referring to BLS rather than BFS is fundamentally inconsistent with the plaintiffs’ submission that Brian Hobson and Brett Soper intended to divert the business of BFS to a new corporate entity which excluded JEV and the Vellas. If Brian Hobson and Brett Soper had held that intention when dealing with Schweppes in relation to the speed limiter issues in August 2012 (which was not put to Brian Hobson in cross-examination and which Brett Soper denied), it is inherently improbable that they would have mentioned BLS to Robert Aikin as the potential new corporate entity. As referred to at [78] above, Michael Vella was a director and shareholder of BLS together with Brian Hobson and Brett Soper. The inconsistency within the plaintiffs’ submissions referred to at [123]-[124] above compounds the inconsistency referred to at [101] above. Moreover, if Brian Hobson and Brett Soper intended to divert the business of BFS to a new entity that excluded JEV, it is improbable that they would have invested the time and effort that they did in an attempt to resolve the ongoing disputes with JEV and the Vella family with the assistance of an external facilitator in August 2012. It is also improbable that Brian Hobson and Brett Soper would have facilitated JEV trucks continuing to do Schweppes delivery work after 17 August 2021 if they had held the intention alleged by the plaintiffs. As the defendants submitted, the plaintiffs’ submissions ignore that important fact.

128. As the plaintiffs submitted, the evidence indicates that neither Brian Hobson nor Brett Soper forwarded the JEV speed limiter certificates on to Schweppes during the two or three business days between 23 August 2012 and the Ingleburn meeting on 28 August 2012. At that time, BFS was continuing to allocate Schweppes work to JEV trucks as referred to above and the BFS shareholders were preparing for the forthcoming “mediation” (to use the plaintiffs’ term) at the Ingleburn meeting. In those circumstances, I do not consider a delay of a few days in passing on the JEV certificates to Schweppes supports an inference on the balance of probabilities that they intended to exclude JEV and the Vellas from the Schweppes work. It became unnecessary for BFS to provide the JEV certificates to Schweppes after the Ingleburn meeting for the reasons explained at [266] and following below.

Plaintiffs’ claims for relief

368. The plaintiffs claim:

1. a declaration that the conduct of Brian Hobson and Brett Soper in expropriating the Schweppes contract from BFS for the benefit of BDA and its members, contrary to the knowledge, understanding and agreement of Joseph Vella or Michael Vella, was in breach of the fiduciary duties owed by Brian Hobson and Brett Soper to JEV and Joseph Vella;

2. a declaration that Brian Hobson, Hynadam, Hynadam Nominees, Brett Soper, Mechita, Mechita Nominees and BDA hold on constructive trust for the plaintiffs any benefit that they have received by reason of the alleged breach of fiduciary duties by Brian Hobson and Brett Soper;

3. an order that Brian Hobson, Hynadam, Hynadam Nominees, Brett Soper, Mechita, Mechita Nominees and BDA account to the plaintiffs as at the date of judgment for all income or benefit that they have derived from or received by reason of the alleged breach of fiduciary duties by Brian Hobson and Brett Soper, and an order for payment to the plaintiffs of all sums found to be due from any of those defendants to the plaintiffs on the taking of such an account;

4. further or alternatively, damages for breach of contract;

5. further or alternatively, equitable compensation for breach of fiduciary duty and breach of trust.

369. All of the plaintiffs’ claims for relief are made for their own benefit and not on behalf of BFS.

Consideration and determination

370. As will be apparent from the summary above, the plaintiffs’ pleaded claims that were pressed at the hearing are confined to claims for alleged breaches by Brian Hobson and Brett Soper of the 2001 agreement and/or fiduciary duties and “Management Duties” said to have been owed by Brian Hobson and Brett Soper to their other “partners” or to the BFS shareholders, and claims against Hynadam, Mechita, BDA, Hynadam Nominees and Mechita Nominees for inducing or being “knowingly concerned in” those alleged breaches. In determining those claims, I have considered all of the parties’ extensive submissions, irrespective of whether they are specifically referred to below.

No breach of the 2001 agreement by Brian Hobson and Brett Soper

371. For the reasons explained at [43]-[50] above, I have determined that JEV, Hynadam, Mechita, Evermay and Alderton Transport were parties to the 2001 agreement. Joseph Vella, Brian Hobson, Brett Soper, Stephen Phillips and Glenn Alderton were not parties. The plaintiffs’ claims against Brian Hobson and Brett Soper for breach of contract fail for that reason. The claims that BDA, Mechita Nominees and Hynadam Nominees induced breaches of contract by Brian Hobson and Brett Soper suffer the same fate.

372. For completeness, I note that the plaintiffs’ submissions made no more than passing references to their claim for damages for breach of contract ^[102] and failed to identify any term of the 2001 agreement said to have been breached by Brian Hobson or Brett Soper. The claim in contract would have failed for that reason even if I had found that Brian Hobson and Brett Soper were parties to the 2001 agreement.

     102. Plaintiffs’ closing submissions 13/5/21, paragraphs 304 and 310.

No partnership

373. From pleadings through to the last round of closing submissions, the plaintiffs’ case was marred by obfuscation about who were the parties to the partnership alleged to have been created by the 2001 agreement. ^[103] Nevertheless, it was clear from the Second Further Amended Statement of Claim that the partners in the alleged partnership were the same as the parties to the 2001 agreement.

     103. Plaintiffs’ opening submissions 28/4/21, paragraphs 4(a) and 10; plaintiffs’ oral opening submissions at T5.22; plaintiffs’ closing submissions 13/5/21, paragraphs 3, 4(a), 274-301; plaintiffs’ closing submissions 28/5/21; plaintiffs’ oral closing submissions at T422-431.

374. It follows from my finding referred to above in relation to the parties to the 2001 agreement that JEV, Hynadam, Mechita, Evermay and Alderton Transport were the only potential members of the alleged partnership created by the 2001 agreement.

375. The 2001 agreement did not give rise any partnership between JEV, Hynadam, Mechita, Evermay and Alderton Transport. That is because, as the plaintiffs acknowledged in closing submissions, they did not enter into a relationship of carrying on a business in common with a view to profit: Partnership Act, s 1. There was no intention for BFS to make a profit: see [39] and [73] above.

376. The sole basis on which the plaintiffs submitted that the relationship created by the 2001 agreement was a partnership was that some profits were in fact made by BFS from providing storage facilities to Schweppes and those profits were divided among the participants. That submission relied solely on the evidence of Brian Hobson that BFS leased various premises for storage and Schweppes paid a fee to BFS to store stock on those premises. Brian Hobson gave evidence that those fees were “normally used by BFS to pay various costs of the business, including payment of the rent for storage premises and for accounting fees. Any money remaining after costs of the business were paid was divided among the Companies equally.”

377. There was no evidence as to whether the storage fees were set by BFS with a view to BFS making a profit, or with a view to generating revenue that would merely go towards covering its costs with surplus amounts resulting from time to time when only revenue unexpectedly exceeded costs. Nor was there any evidence of the amounts or frequency of any the payments to the BFS shareholders. The financial statements for BFS did not record any payment of dividends to the shareholders: see [73] above. I do not regard Brian Hobson’s evidence concerning these payments as supporting a finding that there was a partnership between the BFS shareholders: Partnership Act, s 2(3). In any event, Brian Hobson and Brett Soper were not partners in any such partnership and they are the only defendants alleged to have breached fiduciary duties said to have been owed as partners to their alleged co-partners JEV and Joseph Vella.

378. For those reasons, the plaintiffs fail in their claims for relief based on alleged breaches of fiduciary duties said to have been owed to them by Brian Hobson and Brett Soper in their capacity as partners in a partnership within the meaning of the Partnership Act.

No fiduciary duties owed to the plaintiffs

379. The plaintiffs’ submissions focussed heavily on whether the relevant relationship was a joint venture, a “quasi-partnership” or one of trust and confidence.

380. This is misconceived for two reasons.

381. First, the plaintiffs continued to obfuscate about who were the parties to the relevant relationship alleged to be fiduciary in character. In circumstances where Brian Hobson and Brett Soper are the only parties alleged to have breached any fiduciary duty, the relevant questions are whether those two men owed any fiduciary duty to the plaintiffs, what was the content and scope of any such duty, and whether conduct of which the plaintiffs complain breached the duty. The first two questions fall to be determined at the time of the impugned conduct, namely during the period from 29 August 2012 in which BDA was incorporated and commenced performing Schweppes delivery work (including through the subcontract that BDA entered into with Toll in 2015). ^[104]

     104. See [361] above.

382. Second, the question whether Brian Hobson and Brett Soper owed any fiduciary duty to the plaintiffs at the relevant time does not turn on whether their relationship could be described as a joint venture, a “quasi-partnership” or as one of trust and confidence: United Dominions Corporation Limited v Brian Pty Ltd (1985) 157 CLR 1 at 10-11 (Mason, Brennan and Deane JJ, Gibbs CJ and Dawson JJ agreeing). In any event, the joint venture pleaded by the plaintiffs was a joint venture created by the 2001 agreement, to which Brian Hobson and Brett Soper were not parties. ^[105]

     105. See [346] above.

383. As emphasised by Mason J in Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41; [1984] HCA 64 (Hospital Products) and by the High Court in John Alexander’s Clubs Pty Ltd v White City Tennis Club Ltd (2010) 241 CLR 1; [2010] HCA 19 (White City) the “critical feature” of a fiduciary relationship is that: ^[106]

“… the fiduciary undertakes or agrees to act for on behalf of or in the interests of another person in the exercise of a power or discretion which will affect the interests of that other person in a legal or practical sense. The relationship between the parties is therefore one which gives the fiduciary a special opportunity to exercise the power or discretion to the detriment of that other person who is accordingly vulnerable to abuse by the fiduciary of his position. The expressions ‘for’, ‘on behalf of’ and ‘in the interests of’ signify that the fiduciary acts in a ‘representative’ character in the exercise of his responsibility …

It is partly because the fiduciary’s exercise of the power or discretion can adversely affect the interests of the person to whom the duty is owed and because the latter is at the mercy of the former that the fiduciary comes under a duty to exercise his power or discretion in the interests of the person to whom it is owed.”

106. Hospital Products at 96-97; see also White City at [87].

384. Referring to extra-judicial writing of Justice Lehane, the High Court confirmed in White City that references in this context to an undertaking or agreement to act “for and on behalf of” or “in the interests of” another person: ^[107]

“… must be understood in a reasonably strict sense, lest the criterion they formulate become circular... No doubt undertaking to act in this way is inherent in the position of trustee administering a trust, director participating in the control and management of a company, partner acting in the conduct of the partnership business and employee acting in the course of the business of the employer, for example. Further, such an undertaking may be found in the facts of a particular case.”

107. White City at [88].

385. Their Honours continued: ^[108]

“[89]    But, as Justice Lehane asked:

‘[W]hen is a contractual stipulation inserted for the benefit of one party (even if offered by the other party) an undertaking to act for or on behalf of that party and therefore to act, in relation to the contract, solely in the interests of that party? When does an offer to enter into a contract proposed by one party as a deal which will benefit the other (as well as himself) become such an undertaking by the former to the latter?’

[90]   That leads to Justice Lehane’s second point. This is that the reason why commercial transactions falling outside the accepted traditional categories of fiduciary relationship often do not give rise to fiduciary duties is not that they are ‘commercial’ in nature, but that they do not meet the criteria for characterisation as fiduciary in nature.”

108. White City at [89]-[90]; see also Hospital Products at 100.

386. Descriptions of classes of fiduciary relationships, or even specific fiduciary relationships, as involving trust and confidence, dependence or vulnerability, must not be permitted to divert attention from the critical question whether the alleged fiduciary has agreed or undertaken to act for, on behalf of or in the interests of another person (in the reasonably strict sense referred to in White City) in the exercise of a power or discretion that will affect the interests of that other person in a legal or practical sense. Trust, confidence, dependence, vulnerability and influence are important only to the extent that they evidence a relationship suggesting that agreement or undertaking by the alleged fiduciary and a corresponding entitlement for the other party to the relationship to expect that the alleged fiduciary will act in that other party’s interests. ^[109]

     109. Eaton v Rare Nominees Pty Ltd [2019] 2 Qd R 222; (2019) 373 ALR 386; [2019] QCA 190 at [62] (Philippides JA, McMurdo JA and Davis J agreeing), referring to extra-judicial writing of Justice Gageler (in turn referencing the work of Professor Finn) in “Expansion of the Fiduciary Paradigm into Commercial Relationships: The Australian Experience” in P Devonshire and R Havelock (eds), The Impact of Equity and Restitution in Commerce (Hart Publishing, Oxford, 2018), 173–174.

387. As the defendants submitted, mere vulnerability to breach of contract does not necessarily attract the intervention of equity. A fiduciary relationship may be found to co-exist with a contractual relationship, but the fiduciary relationship in such cases must conform to the express and implied terms of the contract. A fiduciary relationship “cannot be superimposed upon the contract in such a way as to alter the operation which the contract was intended to have according to its true construction”. ^[110] The application of these principles differs according to the circumstances of each case, including whether the contract is a detailed written contract or an oral contract with few details. However, the principles are the same.

     110. Hospital Products at 108; White City at [91]-[92]; see also Streetscape Projects (Australia) v City of Sydney (2013) 85 NSWLR 196 at [124] to [128] (Barrett JA, with whom Meagher and Ward JJA agreed).

388. The plaintiffs acknowledged that the critical feature of a fiduciary relationship is an undertaking or agreement by the alleged fiduciary to act for, on behalf of or in the interests of another person in the exercise of a power or discretion which will affect the interests of that other person in a legal or practical sense. ^[111] The plaintiffs’ submissions nevertheless focussed on trust, confidence and vulnerability and failed to address whether Brian Hobson and Brett Soper had agreed or undertaken to act for and on behalf of JEV and/or Joseph Vella in the discharge of their respective roles with BFS. The plaintiffs submitted that: ^[112]

“In this case … all freight carrier work from Schweppes was allocated to BFS, but individual jobs were then internally allocated to an individual shareholder (e.g. J&E Vella, Hynadam or Mechita) which performed the work and then issued an invoice to BFS. BFS then issued an invoice to Schweppes.

The plaintiffs contend that Brian Hobson was the ‘operations manager’ of BFS, while the defendants contend that he was the ‘managing director’. The defendants admit that his duties included the day to day running of BFS, sharing the allocation of Schweppes work between the BFS shareholders (at least form 2009) and liaising with Schweppes (BFS’s only client of any significance).

It is also common ground that Mr Soper was the ‘financial controller’ of BFS and that Mr Soper’s duties included preparing and issuing invoices to Schweppes on behalf of BFS, verifying and paying the invoices issued to BFS (e.g. the invoices issued by J&E Vella and other shareholders), and paying BFS profits as dividends to the shareholders.

…

In a real commercial sense, the relationship of the parties was necessarily one of confidence and trust. The parties supplied freight services to Schweppes through one corporate entity for their joint benefit.

However, J&E Vella entrusted Mr Hobson (and therefore Hynadam) with day to day control over the BFS business, with the sole contact with Schweppes and with the allocation of Schweppes work between the BFS shareholders. J&E Vella was vulnerable in the relevant sense to Mr Hobson (and therefore to Hynadam) and Mr Soper (and therefore to Mechita), each of whom had the opportunity to exercise their powers and discretions to the detriment to [sic] J&E Vella in a practical as well as a directly financial sense…”

111. Plaintiffs closing submissions 13/5/21, paragraph 286.

112. Plaintiffs’ closing submissions 13/5/21, paragraphs 288-292.

389. Putting the outcome of the Ingleburn meeting to one side for the moment, I reject the plaintiffs’ contention that Brian Hobson and Brett Soper owed fiduciary duties to JEV and/or Joseph Vella by reason of their roles and responsibilities within BFS as described in the plaintiffs’ submissions above.

390. The responsibilities of Brian Hobson and Brett Soper to which the plaintiffs refer involve matters in which they undertook to act for, on behalf of and in the interests of BFS and not for Joseph Vella, JEV or any other shareholder of BFS. As the defendants submitted, Brian Hobson and Brett Soper were directors and employees of BFS. ^[113] BFS was a corporate vehicle formed by its shareholders in accordance with the 2001 agreement with the objective of each of them continuing to operate their existing businesses delivering freight for Schweppes through one corporate interface (BFS) as a matter of administrative convenience to Schweppes. BFS and its shareholders were subject to its constitution and the 2001 agreement. JEV and each other shareholder had a contractual right under the 2001 agreement to have Schweppes work allocated to it by BFS (through the employee that BFS charged with that responsibility from time to time) on the basis that each shareholder would receive an approximately equal share of that work, provided that the shareholder’s representatives turned up to perform the work. JEV and each other shareholder had equal representation on the board of directors. ^[114] Brian Hobson (as operations manager) and Brett Soper (as financial controller) reported to that board of directors.

     113. See [49] above in relation to their employment.

     114. See [59] above.

391. Contrary to the plaintiffs’ submissions, BFS had an obvious interest in performing its contractual obligations to Schweppes. Any breach of those obligations might have resulted in BFS being liable to Schweppes in damages. BFS needed its shareholders to perform the freight services that BFS contracted to provide to Schweppes. The 2001 agreement governed the basis on which the shareholders had agreed to perform those services. BFS therefore had an interest in ensuring that its shareholders were allocated and performed that work in accordance with their 2001 agreement.

392. As directors of BFS who were also employed to perform the functions identified in the plaintiffs’ submissions, Brian Hobson and Brett Soper did not agree or undertake to perform those functions for, on behalf of and in the interests of JEV. Nor did they agree or undertake to perform those functions for, on behalf of and in the interests of Hynadam, Mechita or any other shareholder of BFS. They agreed and undertook to perform their functions for, on behalf of and in the interests of BFS and were accountable to its board of directors.

393. As the defendants submitted, JEV was not vulnerable to Brian Hobson and Brett Soper in any relevant sense relating their performance of the functions referred to in the plaintiffs’ submissions. To the extent that Brian Hobson and Brett Soper failed to perform their functions in accordance with applicable legal standards and BFS failed to take action requiring them to do so, JEV had a remedy in the form of a derivative action including for injunctive relief under s 1324 of the Corporations Act in respect of any contravention by Brian Hobson and Brett Soper of their statutory duties as directors of BFS.

394. As the defendants submitted, the plaintiffs must demonstrate that the fiduciary duties that they seek to superimpose on the corporate and contractual relationships do not alter the intended operation of the contract in the context of the corporate structure. The plaintiffs made no attempt to address that question. They submitted, implicitly if not explicitly, that it was not necessary for them to do so because the 2001 agreement was an oral agreement made in 2001. I reject that submission. There was evidence about the terms of the 2001 agreement and many of those terms were common ground as referred to at [52] above.

395. I also reject the plaintiffs’ submission that the fact that the 2001 agreement was not reduced to writing “tends towards the conclusion that the relationship was a fiduciary one”. The presence of a comprehensive written commercial contract is a factor that tends against characterising the relationship as including fiduciary duties. Contrary to the plaintiffs’ submission, it does not follow that an oral contract made many years prior to the proceedings “tends in favour of the recognition of a fiduciary relationship”.

389. As the defendants acknowledged, there are some situations in which a director of a company owes fiduciary duties to a shareholder of the company: Brunninghausen v Glavanics (1999) 46 NSWLR 538; [1999] NSWCA 199 (Brunninghausen) at [100] (Handley JA, Priestley and Stein JJA agreeing). The applicable principles were explained in Warner Capital Pty Ltd v Shazbot Pty Ltd [2020] NSWCA 121 (Warner Capital) at [94]-[99] (Gleeson JA, Macfarlan and Meagher JJA agreeing):

“[94]   Although the legal principles are not in dispute, it is necessary first to say something about breach of fiduciary duty of the type found in Brunninghausen v Glavanics , particularly given that the High Court has spoken firmly against the imposition of prescriptive fiduciary obligations: Breen v Williams (1996) 186 CLR 71; [1996] HCA 57 at 113; Pilmer v Duke Group Ltd (in liq) (2001) 207 CLR 165; [2001] HCA 31 at 197-198, Friend v Brooker (2009) 239 CLR 129; [2009] HCA 21 at [74], and Howard v FCT (2014) 253 CLR 83; [2014] HCA 21 at [31], [32].

[95]   Brunninghausen v Glavanics involved a claim for breach of fiduciary duty owed to the plaintiff-shareholder by the defendant who was effectively the sole director and the majority shareholder in connection with the sale of the plaintiff’s shares to the defendant. The defendant had purchased the plaintiff’s shares at a price well below the price that a third party was willing to pay, without telling the plaintiff about the existence of that offer. The primary judge found that the defendant owed the plaintiff a fiduciary duty, which had been breached in the sale of his shares to the defendant and awarded equitable compensation. The defendant appealed.

[96]    Handley JA (Priestley JA and Stein JA agreeing) identified at [97]–[98] the particular circumstances of the case that gave rise to the fiduciary obligation owed by the director to a shareholder: (a) the plaintiff was effectively a disenfranchised, minority shareholder, locked into the company and any attempt to insist on his rights as a director would have led to his removal; (b) the plaintiff therefore was almost totally powerless; he had no legal rights as a shareholder to inspect the company’s books of account or financial records; (c) while he was entitled to copies of the annual accounts, realistically he chose not to exercise that entitlement, and importantly, that alone would not provide any real guide to the value of his shares; (d) he had no effective right to be informed of the negotiations for the sale of the company’s business by the defendant; (e) the defendant, as the sole effective director, occupied a position of advantage in relation to the plaintiff in terms of disclosing, if he saw fit, information about the pending negotiations for the sale of the business but could not be compelled to do so.

[97]    Adopting the language of Mason J in Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 (Hospital Products) at 96-97; [1984] HCA 64 , Handley JA said at [99], that this gave the defendant the capacity to affect the interests of the plaintiff ‘in a practical sense’ and in the context of negotiations with him ‘a special opportunity’ to exercise that capacity to the detriment of the plaintiff who was ‘at the mercy’ of the defendant and ‘vulnerable to abuse’ by the defendant of ‘his position’.

[98]     After observing at [105] that unlike the sale to an outsider in which both shareholders participated and which involved no conflict of interest, the sale of the plaintiff’s shares to the defendant required a reconciliation of their competing interests in the transaction, Handley JA recognised at [106], consistently with Breen v Williams , that the fiduciary duty of disclosure should be expressed proscriptively in terms of the no conflict and no profit rules:

[106]   A fiduciary duty owed by directors to the shareholders where there are negotiations for a takeover or an acquisition of the company’s undertaking would require the directors to loyally promote the joint interests of all shareholders. A conflict could only arise if they sought to prefer their personal interests to the joint interest. That is the very conduct which would be proscribed by the duty.

[99]     While noting that it is true generally that a director’s fiduciary duties are owed to the company, Handley JA rejected as an absolute statement the defendant’s proposition, relying on Percival v Wright[1902] 2 Ch 421 , that a director’s fiduciary duties are owed only to the company. He said that the particular nature of the transaction may give rise to a fiduciary duty owed by directors to the shareholders: at [107].”

397. For the reasons already explained above, the circumstances of the present case are far removed from those in Brunninghausen. JEV was not powerless or almost powerless. JEV had, and was entitled under the 2001 agreement to continue to have, a director on the board of BFS. That director was entitled to information, including reports from Brian Hobson and Brett Soper as to the performance of their functions. JEV was not at the mercy of Brian Hobson and Brett Soper performing their functions in a manner inconsistent with JEV’s rights under the 2001 agreement, including in relation to allocation of work. For the reasons already explained, that would be inconsistent with the interests of BFS in complying with its contractual obligations to Schweppes, and JEV had a remedy in the form of a derivative action if Brian Hobson and Brett Soper breached duties owed to BFS.

398. The plaintiffs placed particular reliance on the judgment of Young JA (with whom Allsop P and Macfarlan JA agreed) in Crawley v Short [2009] NSWCA 410. Referring to his earlier judgment in Glandon Pty Ltd v Strata Consolidated Pty Ltd (No. 3) (unreported, Supreme Court of New South Wales, 4 June 1990), Young JA articulated six principles, including (at [108]):

“Merely because a person is a director of a company will not necessarily mean that he or she will owe fiduciary obligations to the members of the company as such.

…

If the Court considers that the corporate entity is sufficiently closely held to be akin to a partnership it may consider that it is appropriate to hold that the directors have the same obligations to their co-members as a partner would have had.”

399. At [112], Young JA said:

“… Handley JA in Brunninghausen said that there were good legal and commercial reasons for not permitting a shareholder to sue where the shareholder sues for breach of an alleged fiduciary duty which is the same duty as the director owes to the company. That proposition is commonly accepted. The question in Brunninghausen and here is how far that proposition operates to deny a fiduciary duty when a director is buying or selling shares from or to another shareholder.”

400. At [118]-[122], Young JA expressed the view that “[t]here will be a variety of situations in which a shareholder or director/shareholder holds a special position where he or she may owe duties to another shareholder.” Young JA identified the “critical question” as being whether, “in all the circumstances, there was a special opportunity for [the director] to act to the detriment of the other shareholders so that he owed a duty to them”. Without being exhaustive, his Honour described the situations in which a director may owe duties to a shareholder as including:

“…where: one shareholder undertakes to act on behalf of another shareholder; where one shareholder is in a position to have special knowledge and knows that another shareholder is relying on her to use that knowledge for the advantage of another shareholder as well as herself; and where the company is in reality a partnership in corporate guise, nowadays termed a quasi partnership.”

401. For the reasons explained at [390]-[393] and [397] above, Brian Hobson and Brett Soper undertook to act for, on behalf of, and in the interests of BFS, not JEV or any other shareholder of BFS. They did not derive special knowledge from the discharge of their responsibilities that they were entitled to withhold from BFS and its directors, including the director appointed to the board by JEV.

402. For the reasons explained at [373]-[378] above, BFS was not in reality a partnership in a corporate guise. The plaintiffs’ submissions are not assisted by their reliance on cases such as Lawfund Australia Pty Ltd v Lawfund Leasing Pty Ltd [2008] NSWSC 144 in which it was held that the relationship between shareholders and/or directors in a company was, in substance, a partnership.

403. Nor are the plaintiffs’ submissions assisted by their reliance on various other cases that turn on their own facts which are very different from the facts of the present case. Those cases include Nassar v Innovative Precasters Group Pty Ltd [2009] NSWSC 342, in which the shareholders in the relevant companies looked to those companies alone for their financial rewards and the shareholders had not subscribed to any contract amongst themselves. In the present case, the shareholders of BFS entered into the 2001 agreement that, in conjunction with the corporate structure, governed their establishment and operation of BFS as a single corporate interface to deal with Schweppes in relation to the work that they had each previously performed and intended to continue performing as part of their separate freight businesses. The cases relied on by the plaintiffs also include Gulf Pacific Pty Ltd v Londish [1992] FCA 502. That was a case in which a director of one unincorporated joint venture partner was held to be liable to the other joint venture partner under the second limb of Barnes v Addy (1874) LR 9 Ch App 244 for knowingly assisting in a breach by the director’s company of its fiduciary obligations to its joint venture partner. No such claim was pleaded in the present case.

404. As the defendants submitted, the term “quasi-partnership” has been criticised as a term that can mislead. It is most commonly used in oppression cases and in winding up cases to refer to a company that has been founded on the basis of a relationship of mutual trust and confidence and a breakdown in that relationship is relied on in support of an application for winding up on the just and equitable ground under s 461(1)(k) of the Corporations Act. ^[115] As I have already said, the description of a relationship as a “quasi-partnership” in cases concerning alleged breaches of fiduciary duty does not circumvent the application of the principles referred to at [383]-[387] above in determining whether a fiduciary duty is owed and, if so, the content and scope of that duty. The Court of Appeal did not suggest otherwise in Crawley v Short, which was an oppression suit arising out of the acquisition by Mr Crawley’s interests of the shares held by Mr Short’s interests in two companies.

     115. See, for example, In the matter of David Ireland Productions Pty Ltd [2014] NSWSC 1411 at [5] and the authorities there referred to.

405. The plaintiffs’ submissions characterise the relationship between JEV on the one hand and Brian Hobson and Brett Soper on the other hand as “a fiduciary one”, but do not articulate the content and scope of the fiduciary duties said to have been owed and breached by Brian Hobson and Brett Soper. As the defendants submitted, the matters relied on by the plaintiffs in characterising the relationship as “a fiduciary one” relate to allocation of work, invoicing and liaising with Schweppes. The plaintiffs’ submissions do not articulate how those matters are said to give rise to a specific fiduciary duty that would be breached by the alleged conduct referred to at [361] above.

406. For all of those reasons, the plaintiffs have failed to establish that Brian Hobson and Brett Soper owed fiduciary duties to JEV and/or Joseph Vella during the period from the incorporation of BFS until the Ingleburn meeting. Even if I had reached the opposite conclusion, it follows from my findings concerning the Ingleburn meeting at [266] above that any such fiduciary duty would not have continued beyond the Ingleburn meeting and/or would not have been breached by the conduct of Brian Hobson and Brett Soper after the Ingleburn meeting in causing BDA to be incorporated and to provide freight services to Schweppes, including indirectly as a subcontractor to Toll from 2015.

407. It follows from those conclusions that the plaintiffs have also failed to establish that Hyndam, Mechita, BDA, Hynadam Nominees and Mechita Nominees were “knowingly concerned in” alleged breaches of fiduciary duty by Brian Hobson and Brett Soper. ^[116]

     116. See [362]-[363] and [365] above.

Plaintiffs’ claims for relief

408. For all of the foregoing reasons, each of the plaintiffs’ claims for relief set out at [368] above fails.

409. This is not a case that lends itself to stating the remedies I would have awarded to one or both of the plaintiffs if I had found in their favour in respect of their claims for breach of fiduciary duty. At the conclusion of the final hearing, the plaintiffs had not made an election between their alternative claims for an account of profits and equitable compensation. The plaintiffs submitted, with the concurrence of the defendants, that they should have an opportunity to consider and make that election following any finding in their favour and to then adduce further evidence and submissions. There would be no occasion prior to that election to address the myriad of issues of principal and quantum raised in the parties’ closing submissions concerning the two alternative claims.

Conclusion and orders

410. The proceedings are to be dismissed for all of the reasons above. The parties’ closing submissions indicated that they wish to be heard in relation to costs.

411. The orders and directions of the Court are:

1. Order that the proceedings are dismissed.

2. Reserve for further consideration the question of the costs of the proceedings, to the extent that they are not the subject of costs orders previously made.

3. Direct the parties to send to the Associate to Williams J by 15 July 2022:

1. any agreed short minutes of order in relation to the costs of the proceedings; or

2. written submissions of no more than 5 pages in support of the costs orders for which each party contends.

4. Direct each party to send to the Associate to Williams J by 22 July 2022 any written submissions of no more than 5 pages in response to any submissions of the other party referred to in order 3(b) above.

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Endnotes

Decision last updated: 03 July 2022