Kelly v CA & L Bell Commodities Corporation Pty Limited

[1990] HCATrans 43

;~

~

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Sydney No Sl65 of 1989

B e t w e e n -

HENRY FITZMAURICE KERRY KELLY

Applicant

and

C.A. & L. BELL COMMODITIES

CORPORATION PTY LIMITED,

SONALTI PTY LIMITED,

COLIN MORTON BELL,

ANDREW GEORGE BELL,

LEWIS MORTON BELL,

CARSTAIRS SECURITIES PTY LTD,

ALAN GEORGE AMOR,

MELNESS PTY LIMITED,

A.G. AMOR NOMINEES PTY LTD,

JOYCE McCONNELL,
VAMOTI PTY LTD,

ALEXANDER ROBERT MACKAY MACKINTOSH,

P.P.P. NOMINEES PTY LTD,

WHEATLANDS PASTORAL CO PTY LTD,

SCORPIO NOMINEES PTY LTD,

LOWAVE PTY LTD and

DENILIKOON NOMINEES PTY LTD

Respondents

Kelly

Application for special leave to

appeal

MASON CJ DAWSON J TOOHEY J

TRANSCRIPT OF PROCEEDINGS

AT MELBOURNE ON FRIDAY, 9 MARCH 1990, AT 11.54 AM

Copyright in the High Court of Australia

MlT8/l/PLC 1 9/3/90

MR B.W. RAYMENT, QC:  May it please Your Honours, I appear with

my learned friend, MS M. SLOSS, for the applicant.

(instructed by Ferrier & Associates)

MR J.J. SPIGELMAN, ~C:  If the Court pleases, I appear with

my learne friend, MR J.B. WHITTLE, for the first

to sixth and tenth to thirteenth respondents.

(instructed by Blake Dawson Waldron)

MASON CJ: Is there any appearance for the other respondents?

MR RAYMENT:  No, I think there is no outstanding interest,

if Your Honours please. There is no other

appearance in the application, if Your Honours please.
The other companies were companies associated with
Mr Kelly or Mr Amor, the partners of the Keralan

Pastoral Company.

MASON CJ:	Were these other respondents represented in the
proceedings at first instance?
MR RAYMENT:	They were actually, except as to Mr Amor, all

represented in the same way as Mr Kelly at first

instance, that is to say, by me.

MASON CJ:	Mr Spigelman disputes that, I gather.
MR RAYMENT:	I am sorry, they all submitted I am told.

MASON CJ:  They submitted, I see. Very well.

MR RAYMENT:  Your Honours, the relationship between Kelly and

Amor on the one hand and the Bell Management

Companies on the other is at the heart of the proceedings. There is a summary of the documentary

part of the relationship or, at least, a typical

example of it starting at page 9 of the application

book. There was, first of all, a licence agreement,

the licensors being Kelly, Amor and their companies;

the licensees being, in the case of this example,

a company called Carstairs which was controlled by

the Bells as to its directorship. It was a licence

of a series of pastoral properties all near Deniliquin
and water rights.	The licensors granted the

licensees a licence to grow summer and winter crops

on the five properties named together with a licence

and authority to utilize the relevant water rights

for a period of years.

The licence fee, as appears from line 10 on

page 10:

was to be 50% of the net proceeds of sale

of the crops -

so that the crops were to be owned by the licensee,

sold by the licensee and the profits distributed
equally except during the continuation of the licence

period.

MlT8/2/PLC	2
Kelly
MASON CJ:	What was the duration of the licence period?

MR RAYMENT:  It was really from year to year. The further

period of the licence agreement in each case was

to take account of the possibility that there might

be losses.	Now, losses were not to be shared
equally in any formal sense.	They were to give

rise to a right to continuation of the licence

agreement so that they might recoup unrecouped

expenditure from subsequent years of cropping.

So, in that sense, there was a penalty suffered

by the licensors if there were losses but there

was no direct payment of the losses. The use of

their land substituted for a contribution.

In the next place there was a management

agreement. The licensees appointed the licensors

as their managers with a right of termination of

them in certain events and paid them for that

service an amount which Your Honours will see on
page 11 at line 20 for the first year and the
amounts payable for subsequent years were to be

negotiated and agreed. And as Your Honours will

see on page 12:

The property in the crops was to remain

with the Joint Venturers, and they were

to be sold in the name of Carstairs -

one of the Bell management companies -

which was to receive the proceeds of

sale, and to become registered for

payment purposes with the Australian
Wheat Board and the Australian Barley

Board. Property in the stubble -

after the cropping operation was complete would

pass back to the managers who could then use it

to graze their sheep and the like.

Your Honours will see there was next referred to

on page 13 what was described as a joint venture

agreement, that is between the Bells, in effect, and

their investors and does not arise for present

purposes.

The fourth document constituting this

arrangement was an Equipment Purchase

Agreement -

under which an irrigator would be bought by

hire purchase with funds provided by the Bells and

their investors and it was to be utilized in the

cropping operation. The purpose of the arrangements,

so far as the Bells were concerned, in part, was to

enable them to become primary producers and have

certain income tax benefits.

MlTS/3/PLC	3
Kelly

Your Honours, perhaps the only other matter

that it is necessary to know of a general nature is that during the per rmance of the management agreement the Bells had their own supervisor who came to the property from time to time and inspected

it. They received, for the purposes of the

administration of the arrangements, reports from
the Kelly and Amor partnership as to the progress

of the operations.

Your Honours, it was put at first instance

and in the Court of Appeal that those arrangements

were closely analogous to arrangements in the nature

of a partnership. The parties described

themselves as joint venturers. It was put below
that this was that kind of joint venture which did

give rise to fiduciary obligations.

The way in which that proposition was dealt

with in the Court of Appeal may be seen from the

judgment of Mr Justice Mahoney which was agreed in.

In short, Their Honours said in the Court of Appeal,

first, although it was submitted that this was

closely analogous to a partnership, it was not

submitted that it was a partnership. So, we put

that matter to one side. Next, they said, this

was a business relationship which had not been

contested before Their Honours. It plainly was a

business relationship. Therefore, Their Honours

said, it is not a fiduciary relationship.

The circumstance that it was a business

relationship seems to have formed either the sole

or the main basis upon which Their Honours concluded

that those kind of arrangements did not give rise
to any fiduciary obligations at all. For that kind

of reasoning, they seemed to have appealed to what

this Court said in HOSPITAL PRODUCTS and we submit

no such reasoning appears there at all.

Your Honours, if there was a fiduciary

relationship stemming from that joint venture either

because it was a partnership or because it was

closely similar to a partnership, in our submission,
the content of the fiduciary obligation

included an obligation the same as that which

arises from the partnership, namely, the obligation
of perfect fairness and good faith. With that
obligation resting on them, what the Bells did

when they learned that their partner was in financial

difficulty, that the Westpac Bank was undersecured

with respect to its mortgages and wished to dispose

of the mortgages, was to set out to acquire the

properties for themselves at first by trying to buy

the properties from the bank and later by trying to

and succeeding in buying the mortgages with a view
to foreclosure so that they might go on the title as

owners. In order to carry out that objective they

MlT8/4/PLC	4
Kelly

surreptitiously encouraged Mr Amor, Kelly's partner,

to believe that he would be employed as manager of

the operation if they gained control of it. They

received from him, without Kelly's knowledge and

without Elders' knowledge, information as to the

amount of Elders offer to the bank for the mortgages.

Ultimately, they made an offer to the bank of an

amount which they specified as having a minimum value

to the bank being higher than the amount of Elders'

offer which secured the mortgages for them.

Throughout the negotiations with the bank they

intended to foreclose and to obtain the properties

for themselves as the Court of Appeal found at

page 104.

MASON CJ:	You are not quite right, are you, in saying that the
Court of Appeal took the view it was a business
relationship and therefore it could not be a fiduciary
relationship?

MR RAYMENT:  No, I think that is right, Your Honour. What they

say is it is primarily - - -

MASON CJ:	If you look at page 118 it is acknowledged by
Mr Justice Mahoney that a business relationship
may give rise to a fiduciary relationship.
MR RAYMENT:	It is but His Honour's conclusion that this did not seems to rest on no more than the proposition
that this was essentially a business and not a
fiduciary relationship, if one looks, for example,
at lines 6 and 7.  He accepts that some such
relationships may nevertheless give rise to fiduciary obligations but says no more about the matter.

MASON CJ: Yes, but he seems to take the view on page 118

that the relationship was business in character

and that under it the parties were permitted by

contract to pursue their own interests in some

respects.

MR RAYMENT: Yes. Well, that would be so. Undoubtedly, for

example, if they came to consider whether they would

terminate the management agreement because of some

breach they could consult their own interests and

were not obliged not to. But, Your Honours, the

essential features of the relationship nevertheless

were, we submit, closely similar to those arising

between partners.

MASON CJ:	But the problem from the point of view of the grant of special leave is this, is it not, Mr Rayment,
that as the relationship is not one that falls
within a traditional fiduciary relationship, one
has to examine very closely the particular arrangements
that the parties have made with a view to determining
whether a fiduciary relationship has arisen and, if
so, what is the content of that relationship and
MlT8/5/PLC	5
Kelly

what obligations does it generate? Now, that

really calls for an examination of the particular

and complex facts of this case and as such,

prima facie, does not seem to give rise

to any matter of general principle or, indeed, to

suggest that the outcome will result in any

elucidation of general principle.

MR RAYMENT:  Your Honours, it always has to be done on a

case-by-case basis. If one looks at it as a

spectrum - - -

MASON CJ:	But that does not mean that this Court is going to
take up every case.

MR RAYMENT:  No, I follow that. If one looks at it as a spectrum

though, Your Honours, UDC V BRIAN being at one end

where the Court said here was an alleged joint

venture which was simply a partnership; HOSPITAL

PRODUCTS being further along the line where

some members of the Court took the view that there

were limited fiduciary obligations superimposed

on what otherwise is a purely contractual

relationship. This case, we submit, and one can

see from those documents which I just read a summary

of, falls much closer to the UDC V BRIAN-end of

the spectrum. One could imagine then, right at the

other end of the spectrum, a purely contractual

relationship with no relationships akin to those

which have been held to give rise to fiduciary

obligations. If one is to proceed on a case-by-case

basis, we submit, to take a case which appears to

exhibit at least close analogies with a relationship

known to give rise to fiduciary obligation, namely

p.-artnership is·, we submit, an appropriate vehicle

for this Court to lay down principles which will be

of guidance to courts in the most difficulty inquiry

of ascertaining whether, outside traditional categories,

a particular relationship does or does not give rise

to fiduciary obligations.

DAWSON J:	What principles would it lay down that are different
from the principles that have already been laid down?
MR RAYMENT:	Your Honours, where you have something closely

similar to the relationship of trustee and

beneficiary or solicitor and client or advisor

and client, we submit, unless there be some reason

stemming from whatever the differences are between

instant facts and one of the traditional categories,

we submit, this Court would lay down that the

fiduciary obligation will arise.

DAWSON J:	You can draw that much quite easily from the existing
cases, can you not?
MR RAYMENT:	Your Honours would certainly need to examine what

differences there were between the facts here. In

MlT8/6/PLC	6
Kelly

so far as the relationship itself is concerned, they

are largely documentary, very little evidence touches

the matter. One perhaps only needs to know two

things: one, that there was an inspection of the property by Mrs McConnell on behalf of the Bells, a regular inspection, with information coming to

her about the detail of the operation in that way

and two, that the parties regarded themselves and

spoke of each other as joint venturers.

DAWSON J:	You see, now you are starting to do what the
Chief Justice referred to, that is to get down to
questions of the peculiar facts of this case.
MR RAYMENT:	Yes. Well, I necessarily am doing that, Your Honours.

We submit it is, on the face of it, similar enough

to a partnership to make it useful to the profession

that this case be reviewed here. The Court of Appeal

have approached the task with which this Court

would be confronted if special leave were granted

and dealt with it as Your Honours see on page 118.

They say:

my conclusion is that the relationship

was essentially a business and not a

fiduciary one.

Bu½we submit, it is not a relevant point if it is

a business relationship at all. All partnerships

are business relationships.

MASON CJ: It is a relevant point, is it not? It may not be

a crucial or decisive point but to say that a

relationship is essentially business in character

tends immediately to give it a flavour that is

inappropriate to the existence of the fiduciary

relationship.

MR RAYMENT:  Except in the context of a partnership.

MASON CJ: Yes, but there you have an arrangement that is

commercial in character where the parties have

agreed to work in co-operation and the point that

is being made here is that it is a 1:usiness

relationship in which the parties are not necessarily

agreeing primarily to work in co-operation but are

reserving to themselves the pursuit of their own

interests on a non-co-operative basis in some

respects.

MR RAYMENT:	What, of course, you find is this, Your Honour: you find one party owning the properties, letting
the other use them, the first party managing them for the benefit of both on the basis that the profits derived from the management operation will be divided
equally. That is very much, we submit, akin to what
partners do. It is common enterprise for mutual profit.
MlT8/7/PLC	7
Kelly

To say it is business could equally be said of a simple partnership agreement in the same or similar

terms. It would still be a relationship relevantly

of cormnon enterprise.

MASON CJ:	And you do face another difficulty too, Mr Rayment.
Assuming that you could establish a limited fiduciary
relationship, it would not necessarily extend to an
obligation not to acquire the mortgage by way of
assignment from Westpac.

MR RAYMENT:  No. What it would extend to, we submit, is an

obligation similar to that which arises in a
partnership, that is to say, the obligation of

perfect fairness and good faith, and if that is

right, what happened here, the deliberate setting out

to buy the properties for oneself when one knows
that one's joint venturer is in financial difficulties,

and by reason of being in the joint venture one

ascertains that information, and one then sets out

to suborn his partner with a view to gaining

information and in consequence of offering him a

job as manager obtains from him information about

before the Swiss Franc loans that these partners

one's competitor for the mortgages. Your Honours,

the Elders' intention was to buy the mortgages from

had taken out were taken into account and to pass

the benefit of the discount on to Kelly and Amor.

That was evidence in the case, that it was intended to consolidate Elders' indebtedness under a second

mortgage with whatever they paid the Westpac for

these mortgages. So that the exposure of Kelly and

Amor would be the equivalent of their core debt to

the Westpac Bank and the amount which they had

otherwise borrowed from Elders. That gave them the

chance of trading out over some years and retaining

these properties. Learning that Elders were in the

market for these mortgages and that they were

available for sale as joint venturers, the other side stepped in and outbid Elders without getting

consent or informing Kelly. It is certainly does arise to consider whether

there was a relevant breach of fiduciary obligation
here but we submit that the case is sufficiently
arguable to warrant the grant of leave.

Your Honours, there is involved in the rejection of the claim, if one finds that there is a fiduciary

obligation, a notion that if one's partner becomes

insolvent, it is open to his other partner to do

whatever he wishes to protect his position even if

he robs that partner of his prospects of commercial survival and we submit that so far from there being

some exception to fiduciary obligations if one's

partner becomes insolvent, that is when they matter most.

MlT8/8/PLC

Kelly

Here, Your Honours, the Bells' new matter

which the public did not know, the other side of

the trial, had sought to have a finding that what

information came to the Bells was in the public

domain, and Your Honours would see from page 78,

line 6, that His Honour finds that it was only by

virtue of the joint venture and in consequence of

the joint venture that the information came to

them. He makes no finding that the information

was in the public domain.

Your Honours, the case was put in fiduciary

duty, in confidential information and on the

principles referred to in BARNES V ADDY in relation.

to the information wrongly derived from Kelly's

partner, Amor.

The case in confidential information was related

to the first way of putting the case, the disclosures

of Amor and Westpac to the Bells which enabled them

to know that the mortgages were for sale and to

acquire those mortgages were disclosures

which came to them in the context of their role as

joint venturers with Keralan and not otherwise

and for the purposes of that joint venture. To

use the analogy of partnership if, by virtue of his

role as the partner of a person who goes into

financial difficulties, a man finds out information

which presents him with an opportunity to derive
some profit at the expense of his partner, he is

not, we submit, free to use it for his own benefit

even if the making of that profit is outside the

scope of the partnership. The rule in ACE V .....

we submit, does not extend to enable confidential

information about the financial affairs of another

partner to be turned against him.

MASON CJ:	What was the precise information disclosed by the
plaintiffs that was said to be confidential and
could not be used for the relevant purpose?
MR RAYMENT:	It is as set out in the draft notice of appeal here and that, by the way, I think, copies the
notice of appeal that was before the Court of
Appeal. It is on page 140. The fact - - -

MASON CJ: In paragraph 2?

MR RAYMENT:  Yes, Your Honour. The fact that they had borrowed

in Swiss Francs, that the loan had blown out so

that Westpac was undersecured was not known otherwise

than to Keralan and their privies; the fact:

that Elders were prepared to -

and had offered -

to purchase the Westpac debt and security

for $2,750,000.

MlT8/9/PLC	9
Kelly

2(c), Your Honours, was a matter of contest at

the trial and was not found in our favour by

His Honour but (d) was not in contest, in other

words, that Westpac was a willing vendor of its

mortgages at a substantial discount.

That was information which the public did not

know which, by virtue of their role as joint

venturers, they found out. They told their bankers

when they went for loans to buy these properties

that this presented them with an opportunity to

pick up good rural properties cheaply and that

was why they sought the loans.

There was a case made that they were in some way

protecting their investment, and the way in which

'	they would be protecting their investment on this
view would be to buy the properties, turn them to
account in whatever way they chose - and the evidence
was that might have meant putting them to sheep,
for example - and deriving profits from whatever
use they could make of them, thereby cancelling
whatever losses they had incurred in the cropping enterprises. That is not protecting your investment,
that is simply buying a new asset in order to turn
it to account.

Now, Your Honours, the case was also put on the

basis of the BARNES V ADDY rule. The Bells held out

to Mr Amor the carrot of employment in the future

as manager of the properties. They received from

him information coming to Amor from Kelly and from

Elders about the progress of Elders' negotiations

with Westpac and the amount of offers made by

Elders to Westpac. All of that, including the discussions with Mr Amor about the likelihood of

his employment was unknown to Mr Kelly and unknown

to Elders. It was information given to them at a
time when, as Amor knew, Elders were negotiating

to buy the Westpac debt at a discount, the benefit

of which was to be passed on to Kelly and Amor.

Your Honours, the reasons of the Court of Appeal

are rather skimpy, if I may say so respectfully,

about this aspect of the case.	Your Honours will
see them at pages 123-124.	What they shortly say
at line 25:

It was said that he provided the Bell interests

with information concerning the affairs

of the partnership, that he should not have

done so and that this was used against the

interests of the partnership and in particular

of Mr Kelly.

They assume that the information is still confidential

information.

MlTS/10/PLC	10
Kelly

But nothing has been urged which, in

my opinion, put Mr Amor in breach of those

obligations.

Says Mr Justice Mahoney.

There is, I think, nothing of substance

which he has been shown to have revealed

which he should not have revealed.

That is a finding, apparently, that there is nothing

improper about disclosures like that by Amor in the

circumstances of the case.

The trial judge did not find against us on

the BARNES V ADDY point on that ground. Rather, he

found that the chain of causation was broken between

the information given by Amor and the decision or

the successful acquisition by the Bells of the

mortgages. That is page 90, lines 11 to 22.

That finding was attacked in the Court of Appeal.

After all, they found out what their competitor

was offering, They bought the mortgage, stipulating

a minimum sum greater than their competitor's finding.
offer but because of Their Honours' finding that
there was no impropriety in what Mr Amor told the

T8 Your Honours, we submit there is more than a

suggestion. The Court of Appeal comes very close to asserting the existence of a dichotomy between business relationships on the one hand and fiduciary

relationships on the other. That would be

a very dangerous rule to apply in considering
whether arrangements similar to partnership

give rise to fiduciary obligations. It would

automatically, one would have thought, lead to a

negative answer because partnerships themselves

are business relationships and we submit, in

particular, to the extent to which they have appealed

to the HOSPITAL PRODUCTS case for the existence of

any such dichotomy it is not to be found there.

We submit, the case presents an opportunity for

guidance to be given by this Court as to when

fiduciary obligations will arise in circumstances

similar to partnership.

We submit the BARNES V ADDY questions and

confidentiality questions, not being themselves

such as would merit the grant of leave, are

nevertheless sufficiently related to the question

of breach of duty for the Court not to separate

them if the case is otherwise thought to be

appropriate for the grant of special leave.	May
it please the Court.

MlT9/l/PLC	11
Kelly
MASON CJ:	We do not need to trouble you, Mr Spigelman.

MR SPIGELMAN: If the Court pleases.

MASON CJ:	The outcome of this case turns on its own particular
facts including the complex contractual arrangements made by the parties. In the opinion of the Court, the determination of the proposed appeal would not
result in any elaboration of general principle.
The case is therefore not appropriate to the grant
of special leave.  The application is therefore
refus~d.

You apply for costs, Mr Spigelman.

MR SPIGELMAN:	Yes, we do, Your Honour.
MASON CJ:	You do not resist that, Mr Rayment?
MR RAYMENT:	No, Your Honour.
MASON CJ:	The application is refused with costs.

AT 12.27 PM THE MATTER WAS ADJOURNED SINE DIE

MlT9/2/PLC	12	9/3/90
Kelly