King v Adams

[2016] NSWSC 1798

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:	Brendan Wilfred King v Robert Lawrence Adams and 14 Others [2016] NSWSC 1798
Hearing dates:	18, 19, 20 October, plaintiff’s written submissions 28 October, defendants’ written submissions 2 November, plaintiff’s submissions in reply 6 November, 7 November 2016 (Final, oral submissions)
Decision date:	14 December 2016
Jurisdiction:	Equity - Expedition List
Before:	Sackar J
Decision:	See paragraph [335] and [336]
Catchwords:	EQUITY – existence of a fiduciary duty – nature of fiduciary obligations – trusts – mingling of funds held on trust – definition of a joint venture – joint ventures and fiduciary relationships – remedial constructive trust – common intention constructive trust CONTRACT – intention to contract – oral contracts – implied terms – objective determination of a contract and its terms – existence of a contract – estoppel by convention
Legislation Cited:	Partnership Act 1892 (Cth)
Cases Cited:	Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd (in liq) (2000) 202 CLR 588 Australian Broadcasting Corporation v XIVth Commonwealth Games Limited (1988) 18 NSWLR 540 Australian Woollen Mills Pty Ltd v The Commonwealth (1953–1954) 92 CLR 424 Baumgartner v Baumgartner (1987) 164 CLR 137 Birtchnell v Equity Trustees, Executors and Agency Co Ltd (1929) 42 CLR 384 Blythe v Northwood (2005) 63 NSWLR 531 BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266 Brady v Stapleton (1952) 88 CLR 322 Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153 Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd (2001) 117 FCR 424 Breen v Williams (1996) 186 CLR 71 Byrne v Australian Airlines Ltd (1995) 185 CLR 410 Canny Gabriel Castle Jackson Advertising Ltd v Volume Sales (Finance) Pty Ltd (1974) 131 CLR 321 Chan v Zacharia (1984) 154 CLR 178 Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 Colyer Fehr Tallow Pty Ltd v KNZ Australia Pty Ltd [2011] NSWSC 457 Commonwealth Bank of Australia v Barker (2014) 253 CLR 169 Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Limited (1986) 160 CLR 226 Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373 Cook v Addison (1869) LR 7 Eq 466 County Securities Pty Ltd v Challenger Group Holdings Pty Ltd [2008] NSWCA 193 Dabbs v Seaman (1925) 36 CLR 538 Day v Mead [1987] 2 NZLR 443 Equuscorp Pty Ltd v Glengallan Investments Pty Ltd (2004) 218 CLR 471 Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95 Everson v Rich (1988) 53 DLR (4d) Farnell v Cox (1898) 19 LR (NSW) Eq 142) Federal Commissioner of Taxation v Everett (1980) 143 CLR 440 Foskett v McKeown [2001] 1 AC 102 Frith v Cartland (1865) 2 Hem & M 417 Furs Ltd v Tomkies (1936) 54 CLR 583 Gardiner v Grigg (1938) 38 SR (NSW) 524 Gibson Motorsport Merchandise Pty Ltd v Forbes (2006) 149 FCR 569 Gibson Motorsport Merchandise Pty Ltd v Forbes [2005] FCA 749 Greater Pacific Investments Pty Ltd (in liq) v Australian National Industries Ltd (1996) 39 NSWLR 143 Green v Green (1989) 17 NSWLR 343 Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296 Hawkins v Clayton (1988) 164 CLR 539 Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 Howard v Commissioner of Taxation (2014) 253 CLR 83 Integrated Computer Services Pty Ltd v Digital Corp (Aust) Pty Ltd (1985) BPR 11,110 International Air Transport Association v Ansett Australia Holdings Ltd (2008) 82 ALJR 419 John Alexander's Clubs Pty Limited v White City Tennis Club Limited (2010) 241 CLR 1 Kelly v CA & L Bell Commodities Corporation Pty Ltd (1989) 18 NSWLR 248 King v Benecke [2013] NSWSC 568 LAC Minerals Ltd v International Corona Resources Ltd (1989) 61 DLR (4th) 14 Lupton v White (1808) 15 Ves 432 Maggs v Marsh [2006] EWCA Civ 1058 Masterton Homes Pty Ltd v Palm Assets Pty Ltd (2009) 261 ALR 382 Meinhard v Salmon 249 NY 458 (1928) Mount Bruce Mining Pty Limited v Wright Prospecting Pty Limited (S99/2015; S102/2015) (2015) 256 CLR 104 Muschinski v Dodds (1985) 160 CLR 583 New Zealand Netherlands Society “Oranje” Inc v Kuys [1973] 1 WLR 1126 News Ltd v Australian Rugby Football League Ltd (1996) 64 FCR 410 Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 Parker v Clark [1960] 1 WLR 286 Parsons and Parsons v McBain (2001) 109 FCR 120 Pavlovic v Universal Music Australia Pty Limited (2015) 90 NSWLR 605 Pettkus v Becker (1980) 117 DLR (3d) Phipps v Boardman (1967) 2 AC 46 Pilmer v Duke Group Ltd (in liq) (2001) 207 CLR 165 Rathwell v Rathwell (1978) 83 DLR (3d) 289 Raulfs v Fishy Bite Pty Ltd; Fishy Bite Pty Ltd v Raulfs [2012] NSWCA 135 Re Hallett’s Estate (1880) 13 Ch D 696 Re Sports Alive Pty Ltd (in liquidation) [2013] VSC 69 Re Tilleys Will Trusts [1967] Ch 1179 Ryledar Pty Ltd v Euphoric Pty Ltd (2007) 69 NSWLR 603 Sagacious Procurement Pty Ltd v Symbion Health Ltd [2008] NSWCA 149 Say-Dee Pty Ltd v Farah Constructions Pty Ltd [2005] NSWCA 309 Scott v Scott (1963) 109 CLR 649 Simic v New South Wales Land and Housing Corporation [2016] HCA 47 Sinclair Investments (UK) Ltd v Versailles Trade Finance Ltd (in administrative receivership) and others [2012] Ch 453 Sorochan v Sorochan (1986) 29 DLR (4th) Stowe and Devereaux Holdings Pty Ltd v Stowe (1995) 15 WAR 363 Taylor & Ors v Johnson (1982–1983) 151 CLR 422 Merritt v Merritt [1970] 1 WLR 1211 Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 Toyota Motor Corporation Australia Ltd v Ken Morgan Motors Pty Ltd [1994] 2 VR 106 United Dominions Corp Ltd v Brian Pty Ltd (1985) 157 CLR 1 Van Rassel v Kroon (1953) 87 CLR 298 Waterman v Gerling Australia Insurance Co Pty Ltd (2005) 65 NSWLR 30 Wyllie v Tarrison Pty Ltd [2007] NSWCA 184
Texts Cited:	F Jordan, Chapters on Equity in New South Wales (6th ed, 1945, Thomas Henry Tennant) J D Heydon and M J Leeming, Jacob’s Law of Trusts in Australia (7th ed, 2006, Lexis Nexis Butterworths) P Finn, “Fiduciary reflections” (2014) 88 ALJ 127
Category:	Principal judgment
Parties:	Brendan Wilfred King (plaintiff) Robert Lawrence Adams (first defendant) New South Wales Lotteries Corporation Pty Ltd (second defendant) Matthew John Adams (third defendant) Bradley Robert Adams (fourth defendant) Silvestre Gavina Mico (fifth defendant) Peter Andres (sixth defendant) Davendra Singh (seventh defendant) Robert Eric Beever (eighth defendant) Sean Cheak (ninth defendant) Peter Salendra Prasad (tenth defendant) Robert Griffiths (eleventh defendant) Hassan Hashim (twelfth defendant) Phongsavath Sengchangsavang (thirteenth defendant) Quem Singue Lai (fourteenth defendant) Viengxay Thattamanivong (fifteenth defendant)
Representation:	Counsel: L Gyles SC, C Johnstone, C McMeniman (plaintiff) M Lee SC, W A D Edwards (first to fifteenth defendants) Unrepresented (second defendant)   Solicitors: Shine Lawyers (plaintiff) Harris Freidman Lawyers (first to fifteenth defendants) Russells, Notice of appearance filed 20 June 2016 (second defendant)
File Number(s):	2016/152625
Publication restriction:	N/A

Judgment

Nature of the proceedings

1. The current proceedings arise as a result of a dispute over the composition of a syndicate (‘Winning Syndicate’) of factory workers employed by Prysmian Group Pty Ltd (‘Prysmian’), which won $40,445,165.25 (‘prize money’) in Powerball draw number 1042 conducted by NSW Lotteries on 5 May 2016 (‘5 May draw’).

2. The Plaintiff seeks declaratory relief that he:

• Was a member of the Winning Syndicate and is beneficially entitled to a proportionate share of the prize money paid to the First Defendant, in an amount that is equal to that of each other member of the Winning Syndicate;

• In the alternative, is beneficially entitled to a prorated share in the prize money paid to the First Defendant;

• In the further alternative, if not held to be a member of the Winning Syndicate:

○   He was entitled to have been informed prior to the draw of the formation of the Winning Syndicate and given an opportunity to have been a part of the Winning Syndicate;

○   If he was not informed prior to the draw, he ought to be permitted to participate in the Winning Syndicate after the draw by making the necessary payment to the First Defendant; and

○   That he is beneficially entitled to a proportionate share of the prize money.

3. The Plaintiff also seeks a declaration that the Plaintiff’s proportionate share of the prize money held on trust by the First Defendant for the Plaintiff and that the First Defendant is in breach of trust for failing to agree to recognise this beneficial interest and to pay, or agree to pay, the Plaintiff this proportionate share of the prize money.

4. The Plaintiff seeks further declaratory relief that the Winning Syndicate, or alternatively, any other syndicate that the Plaintiff was a member of for which tickets were purchased by the First Defendant was:

• A joint venture between the First Defendant and other members of those syndicates, including the Plaintiff, and/or;

• A partnership as defined in section 1 of the Partnership Act 1892 (NSW). Whilst it may not have been explicitly abandoned the Plaintiff, as I apprehended it, the Plaintiff did not attempt to put a serious analysis as to why the arrangement he purports to exist is a partnership under the Partnership Act or the general law. At best, it was otherwise half-heartedly dealt with in the context of a joint venture, which I otherwise deal with below.

5. The Plaintiff also seeks a declaration that the First Defendant is estopped from excluding the Plaintiff from the Winning Syndicate or from denying the Plaintiff’s entitlement to receive his proportionate share of the prize money.

6. The Plaintiff also sought declarations that the First Defendant breached sections 18 and 20 of Schedule 2 of the Competition and Consumer 2010 (Cth). This was not pressed (T 278) and therefore I do not propose to grant such relief.

Glossary

7. I have adopted the following terminology in this case for ease of reference.

• Pre 2016 Core Syndicate: the lottery syndicate run by Mr Robert Adams (the First Defendant) prior to January 2016, comprising around 20 members (Robert Adams affidavit of 15 June 2016 at [8], [15], [25]-[27]).

• 2016 Core Syndicate: the lottery syndicate run by Mr Robert Adams commencing March 2016 and consisting of 12 members (Adams affidavit of 15 June 2016 at [42], [79]).

• One off syndicates: the other lottery syndicates run by Mr Robert Adams, apart from the Pre 2016 and 2016 Core Syndicates.

• Winning Syndicate: the syndicate which won the 5 May 2016 Powerball prize of $40,445,165.25.

Background facts

8. Except for the Third Defendant who is the First Defendant’s son and employed by Artline Kitchens, all of the relevant parties in these proceedings were at the relevant time employees of Prysmian working at a factory (‘Factory Three’) in Liverpool, New South Wales.

9. The First Defendant during the period of 2006 to 2016 organised lottery syndicates for his Prysmian workmates and other individuals. The members of these syndicates varied over time. The First Defendant took total administrative control of these syndicates and sometimes, certainly prior to early 2016, subsidised entry payments of syndicate members, who would repay him at a later date.

10. Prior to January 2016, the First Defendant ran the Pre 2016 Core Syndicate comprising around 20 members (Robert Adams affidavit of 15 June 2016 at [8], [15], [25]-[27]).

11. From time to time, the parties accepted that the First Defendant organised one-off lottery syndicates at his discretion (D [70]-[77]; P in reply [55]). These were in addition to the regular syndicates he organised and varied in terms of the nature of the draw, the number of participants and the money required to enter. The recording and organisation of these syndicates seems to be ad-hoc and somewhat haphazard. Sometimes the First Defendant would record these syndicates on a cardboard ‘drum card’ while at other times he would not record them at all.

12. On the evidence it was clear that these one-off syndicates did not always include the members of the core syndicate of the time, with participation totally left to the First Defendant’s discretion. Many of the witnesses also explained that these one-off syndicates were organised to pursue ‘big draws’. What constituted a “big draw” was never conclusively defined by any of the parties, and was a matter left entirely to the discretion of the First Defendant.

13. In late 2015, the First Defendant decided to cease the Pre 2016 Core Syndicate. The last draw in which the Pre 2016 Core Syndicate participated was on 2 January 2016, funded by the balance of funds which the First Defendant retained on behalf of the Pre 2016 Core Syndicate (Adams affidavit of 15 June 2016 at [31]).

14. In January 2016, the First Defendant told the Plaintiff that the Pre 2016 Core Syndicate was “finished” (Adams affidavit of 15 June 2016 at [79]; King affidavit of 17 May 2016 at [26]).

15. In March 2016, the First Defendant established the 2016 Core Syndicate comprising 12 members on the basis that all requested monies were to be paid by each participant upfront and that the syndicate would participate in “big draws” (Adams affidavit of 15 June 2016 at [42], [79]).

16. Around 14 or 15 March, the First Defendant bought 10 tickets in Saturday Lotto draw 3617 on behalf of the 2016 Core Syndicate to be drawn on 19 March 2016 (Adams affidavit of 15 June 2016 at [45]). After purchasing these tickets, at a time before 19 March, the First Defendant provided the Plaintiff with a copy of the tickets, in advance of the draw (King affidavit of 3 August 2016 at [5]).

17. On 27 April 2016, the First Defendant put up a notice on the Factory Three notice board confirming the closure of the Pre 2016 Core Syndicate (Adams affidavit of 15 June 2016 at [32]; Court Book 191).

18. On 27 April 2016 at 11:57am, the First Defendant bought tickets in the $25 million Powerball draw 1041 on behalf of the 2016 Core Syndicate which was to be drawn on 28 April 2016 (CB 120). After purchasing these tickets, at a time before the draw, the First Defendant provided the Plaintiff with a copy of these tickets (King affidavit of 3 August 2016 at [5]).

19. On 29 April 2016 at 12:58pm, the First Defendant purchased a ticket in the $40 million Powerball draw 1042 on behalf of the 2016 Core Syndicate, to be drawn on 5 May 2016 (Adams affidavit of 15 June 2016 at [55]; CB 121). The First Defendant used funds of the 2016 Core Syndicate to purchase $186 worth of tickets in the 5 May draw (Adams affidavit of 15 June 2016 at [51]).

20. On 29 April 2016, the First Defendant decided to form a further syndicate to enter the same 5 May draw (Adams affidavit of 15 June 2016 at [55]-[56]). On the same day, at 12:59pm the Plaintiff left work and at 1:29pm, the First Defendant arrived at work (Prysmian Time Records).

21. On 1 May 2016, the First Defendant purchased a ticket in the Saturday Lotto Mothers’ Day draw 3631 on behalf of the 2016 Core Syndicate to be drawn on 7 May 2016 (King affidavit of 3 August 2016 at [5]; CB 122).

22. On 4 May 2016 at 11:48am, the First Defendant used funds he had collected from the Winning Syndicate (apart from Xay and Mico, who paid later) to buy $595.20 worth of tickets in the 5 May draw to be drawn on 5 May 2016 (Adams affidavit of 15 June 2016 at [59]).

23. Although I will attend to the more precise factual circumstances below, it turned out that the tickets purchased by the First Defendant on behalf of the 2016 Core Syndicate won $13.65, while the tickets the First Defendant purchased on behalf of the Winning Syndicate won the jackpot prize of $40,445,165.25. After this draw, there was significant controversy surrounding the composition of the Winning Syndicate, particularly whether the plaintiff was a member of it. Again, I will explain and examine the precise circumstances surrounding the 5 May draw when analysing each of the witnesses’ evidence below.

24. The controversy I refer to came to a head in May, when the plaintiff commenced proceedings in this Court against the First Defendant by way of Summons dated 18 May 2016.

25. As duty judge on 18 May 2016, I ordered the Second Defendant, NSW Lotteries, to pay $2,696,364 (one fifteenth of the prize money) into a bank account in the name of the First Defendant by 12:00pm on 19 May 2016, on the basis that he undertook not to deal with those funds pending the outcome of this litigation.

26. I made further orders on 12 August 2016 which granted leave to the Plaintiff to join thirteen members of the Winning Syndicate as defendants in these proceedings.

Relevant general legal principles

27. A number of legal principles are invoked in this case. I propose to address each before analysing the facts.

The existence of a fiduciary relationship

28. Australian courts have recognised that the categories of relationships giving rise to fiduciary obligations are not closed: Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at [28] (per Gibbs CJ), [67] (per Mason J); United Dominions Corp Ltd v Brian Pty Ltd (1985) 157 CLR 1.

29. A fiduciary duty is not lightly to be implied into relationships, namely because of the onerous obligations it burdens the relevant parties with. As Cardozo CJ famously explained in Meinhard v Salmon 249 NY 458 (1928) at 546:

“A trustee [or fiduciary] is held to something stricter than the morals of the market place. Not honesty alone, but the punctilio of an honor the most sensitive, is then the standard of behavior. As to this there has developed a tradition that is unbending and inveterate. Uncompromising rigidity has been the attitude of courts of equity when petitioned to undermine the rule of undivided loyalty by the “disintegrating erosion” of particular exceptions. Only thus has the level of conduct for fiduciaries been kept at a level higher than that trodden by the crowd.”

30. Professor Finn also recently stated in “Fiduciary reflections” (2014) 88 ALJ 127 at 132 that fiduciary relationships exist where:

“[T]here is an actual (or presumed) trust and confidence reposed, and an actual (or presumed) power or influence acquired. It is the abuse of that power or influence and of the knowledge and opportunity these provide, that are to be guarded against.”

31. He went on to expand at 139:

“It is obviously not enough that one is in an ascendant position over another: such is the invariable prerequisite for the unconscionability principle. It is obviously not enough that one has the practical capacity to influence the other: representations are made, information is supplied (or not supplied) as of course with the object of, and in fact, influencing a host of contractual dealings. It is obviously not enough that the other party is in a position of vulnerability: such is the almost inevitable state in greater or lesser degree of most parties in contractual relationships. It is obviously not enough that some degree of trust and confidence are there: these are commonly placed in the skill, integrity, fairness and honesty of the other party in contractual dealings. It is obviously not enough that there is a dependence by one party upon the other. Indeed elements of all of the above may be present in a dealing – and consumer transactions can illustrate this – without a relationship being in any way fiduciary. Something more is needed.

What must be shown is that the actual circumstances of a relationship are such that one party is entitled to expect that the other will act in his or her interests in and for the purposes of the relationship. Ascendancy, influence, vulnerability, trust, confidence or dependence doubtless will be of importance in making this out, but they will be important only to the extent that they evidence a relationship suggesting that entitlement. The critical matter in the end is the role – the function – that the alleged fiduciary has, or should be taken to have, in the relationship. It must so implicate that party in the other’s affairs or so align that party with the protection or advancement of that other’s interest that foundation exists for the “fiduciary expectation”. Such a role may generate an actual expectation that the other’s interests are being served. This is commonly so with lawyers and investment advisers. But equally, the expectation may be a judicially prescribed one because the law itself ordains it to be that other’s entitlement. This may be so either because that party should, given the actual circumstances of the relationship, be accorded that entitlement irrespective of whether he or she has adverted to the matter, or because the purpose of the relationship itself is perceived to be such that to allow disloyalty in it would be to jeopardise its perceived social utility.”

32. The essence of these relationships is ‘trust and confidence’, and that the other person is ‘vulnerable’ to the powers of the fiduciary: Phipps v Boardman (1967) 2 AC 46 at 127; Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at [68]; Breen v Williams (1996) 186 CLR 71 at [14]; John Alexander's Clubs Pty Limited v White City Tennis Club Limited (2010) 241 CLR 1 at [93]; Furs Ltd v Tomkies (1936) 54 CLR 583 at 590; Day v Mead [1987] 2 NZLR 443 at 458.

33. However, the fact that one party to a relationship subjectively ‘trusted’ another is neither necessary for, nor conclusive of, the existence of a fiduciary relationship: Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 69; Gibson Motorsport v Forbes (2006) 149 FCR 569 at [11]. Similarly, ‘vulnerability’ is not itself sufficient to give rise to a fiduciary relationship: Pilmer v Duke Group Ltd (in liq) (2001) 207 CLR 165 at [136]; LAC Minerals Ltd v International Corona Resources Ltd (1989) 61 DLR (4th) 14 at 39. Both ‘trust’ and ‘vulnerability’ are of course related concepts. ‘Trust’ may give rise to ‘vulnerability’ while ‘vulnerability’ may lead a person to ‘trust’ in another.

34. Lockhart, von Doussa and Sackville JJ added to this in News Ltd v Australian Rugby Football League Ltd (1996) 64 FCR 410 at 541 by stating:

“…the actual circumstances of a [fiduciary] relationship are such that one party is entitled to expect that the other will act in his interests in and for the purposes of the relationship. Ascendancy, influence, vulnerability, trust, confidence or dependence doubtless will be of importance in making this out, but they will be important only to the extent that they evidence a relationship suggesting that entitlement.”

35. A relationship between parties can of course give rise to fiduciary obligations even if there is no contract between them. As Mason, Brennan and Deane JJ explained in United Dominions Corp Ltd v Brian Pty Ltd (1985) 157 CLR 1 at 12:

“A fiduciary relationship can arise and fiduciary duties can exist between parties who have not reached, and who may never reach, agreement upon the consensual terms which are to govern the arrangement between them. In particular, a fiduciary relationship with attendant fiduciary obligations may, and ordinarily will, exist between prospective partners who have embarked upon the conduct of the partnership business or venture before the precise terms of any partnership agreement have been settled. Indeed, in such circumstances, the mutual confidence and trust which underlie most consensual fiduciary relationships are likely to be more readily apparent than in the case where mutual rights and obligations have been expressly defined in some formal agreement. Likewise, the relationship between prospective partners or participants in a proposed partnership to carry out a single joint undertaking or endeavour will ordinarily be fiduciary if the prospective partners have reached an informal arrangement to assume such a relationship and have proceeded to take steps involved in its establishment or implementation.”

36. The Honourable Sir Frederick Jordan expressed the following views in Chapters on Equity in New South Wales (6th ed, 1945, Thomas Henry Tennant) at 114-115:

“The relation must be an existing Relation.

The [fiduciary] duty has no application to a person who has not yet assumed the fiduciary office. Thus, it does not apply to a person who is entitled to become a trustee, but has not yet assumed the position; nor to a trustee who has disclaimed without acting. Nor does it apply to a person who has ceased to occupy the fiduciary position, unless the confidence continues. In this case, however, not only must the fiduciary relation be at an end, but in any subsequent dealing full disclosure must be made of all knowledge acquired while the relation existed.

The Matter must be substantially connected with the Relation.

Where a fiduciary relation exists, the fiduciary duty extends only to matters which are substantially connected with the relation. Thus, if a trustee of city property for a cestui que trust sells the latter a horse, he owes him no fiduciary duty in the matter of the sale.” (citations omitted)

37. Ultimately, the critical feature of a fiduciary relationship is that the fiduciary undertakes or agrees to act for, on behalf of, or in the interests of another when exercising a power or discretion which will affect the interests of that other person in a legal or practical sense: Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 68-69 (per Gibbs CJ), 96 (per Mason J); John Alexander's Clubs Pty Limited v White City Tennis Club Limited (2010) 241 CLR 1 at [87] (per French CJ, Gummow, Hayne, Heydon and Kiefel JJ).

The scope of fiduciary obligations

38. If it is shown to exist, the scope of a fiduciary relationship will be ascertained according to the particular facts of the case.

39. The character and purpose of the relationship between the relevant parties lies at the core of the court’s determination of the duties arising from this relationship. This is established through an analysis of the express agreement or understanding of the parties (written or otherwise), the course of dealings between them and the relevant circumstances surrounding their relationship: Birtchnell v Equity Trustees, Executors and Agency Co Ltd (1929) 42 CLR 384 at 408; New Zealand Netherlands Society “Oranje” Inc v Kuys [1973] 1 WLR 1126 at 1129; Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373 at 378; Kelly v CA & L Bell Commodities Corporation Pty Ltd (1989) 18 NSWLR 248 at 256; News Ltd v Australian Rugby Football League Ltd (1996) 64 FCR 410 at 539.

40. It must also be noted that fiduciary obligations operate within a specific scope. A person may be a fiduciary in relation to some activities but not others: Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 98; Birtchnell v Equity Trustees, Executors and Agency Co Ltd (1929) 42 CLR 384 at 408; Jireh International Pty Ltd t/as Gloria Jean's Coffee v Western Exports Services Inc [2011] NSWCA 137 at [105]; New Zealand Netherlands Society 'Oranje' Inc v Kuys [1973] 1 WLR 1126 at 1130; Phipps v Boardman (1967) 2 AC 46 at 127; Gibson Motorsport Merchandise Pty Ltd v Forbes (2006) 149 FCR 569 at [8]. This may be the case where a contract governs part of the relationship between the relevant parties.

41. In Van Rassel v Kroon (1953) 87 CLR 298, Dixon CJ specifically examined the nature of fiduciary obligations in the context of a lottery arrangement. His Honour explained at 302-303:

“When one man agrees with another that he will obtain a lottery ticket for the latter or for the latter and himself jointly the identification of the lottery ticket he acquires in pursuance of the arrangement is likely to present difficulties. The person in whose name the lottery ticket issues obtains the legal title to what is a chose in action. If he is the applicant he obtains custody of the ticket and is in a position to exercise whatever rights the ticket confers and deal with it as he chooses. If the application is or must be taken to be for the benefit of another or others or of himself and another or others he has the legal title unless the ticket issues in the names of the person or persons beneficially entitled. Otherwise they have nothing but an equitable interest in the ticket and its proceeds if it wins a prize. In other words he becomes a fiduciary agent or trustee. It is not a trust or a fiduciary agency involving many duties or burdens. It is of the simplest kind and the fiduciary obligations flowing from it are few and for the most part negative, that is to say he must do nothing to impair the rights of the persons for whom he holds the ticket. But one of the duties of a person acquiring any piece of property, whether chose in action or corporeal thing, for the benefit of others as a fiduciary is to distinguish the piece of property he so acquires from other similar things which he may obtain for himself or in which he may be interested. This duty has a particular application to the acquisition of a lottery ticket. For a lottery ticket is a chose in action possessing characteristics making the discharge of the duty specially important. When the ticket is applied for it is one of a series, very large in number, no one of which is distinguishable from the others except by the numerals they bear. Every one of them has the same value, a small uniform value. But when the lottery is drawn the value of some of the tickets will become very great indeed while most of the tickets will become valueless. The fiduciary is at perfect liberty before the drawing to acquire for himself beneficially any number of tickets in the same lottery as that in which he holds a ticket on behalf of others or of himself and others. It is evident that before the drawing the identity of the ticket which is held for others or for himself and others ought, if he fulfils his duty, to be ascertained so that it is clearly distinguished from those he holds for himself. If there is any confusion, the burden must be upon him of showing which is his property. It could not be otherwise where the duty rests upon him as a fiduciary not to confuse his own beneficial property with that which is subject to his fiduciary obligations and where at the same time his are the hands in which are placed the means of identifying the property (emphasis added).”

42. Dixon CJ’s comments about the ‘negative’ nature of a fiduciary’s obligations reflect the contemporary Australian law. The starting point for determining the scope of any fiduciary obligations is that they are proscriptive or negative in nature, particularly embodying the ‘no profit’ and ‘no conflict’ rules: Breen v Williams (1996) 186 CLR 71 at 113; Pilmer v Duke Group Ltd (in liq) (2001) 207 CLR 165 at [74]; Chan v Zacharia (1984) 154 CLR 178 at 198-199; Blythe v Northwood (2005) 63 NSWLR 531.

43. McHugh, Gummow, Hayne and Callinan JJ observed in Pilmer v Duke Group Ltd (in liq) (2001) 207 CLR 165 at 198:

“In this country, fiduciary obligations arise because a person has come under an obligation to act in another's interests. As a result, equity imposes on the fiduciary proscriptive obligations – not to obtain any unauthorised benefit from the relationship and not to be in a position of conflict. If these obligations are breached, the fiduciary must account for any profits and make good any losses arising from the breach. But the law of this country does not otherwise impose positive legal duties on the fiduciary to act in the interests of a person to whom the duty is owed.”

44. Deane J, in Chan v Zacharia (1984) 154 CLR 178, further examined the ‘negative’ nature of fiduciary obligations, explaining at 198-199:

“”The variations between more precise formulations of the principle governing the liability to account are largely the result of the fact that what is conveniently regarded as the one 'fundamental rule' embodies two themes. The first is that which appropriates for the benefit of the person to whom the fiduciary duty is owed any benefit or gain obtained or received by the fiduciary in circumstances where there existed a conflict of personal interest and fiduciary duty or a significant possibility of such conflict: the objective is to preclude the fiduciary from being swayed by considerations of personal interest. The second is that which requires the fiduciary to account for any benefit or gain obtained or received by reason of or by use of his fiduciary position or of opportunity or knowledge resulting from it: the objective is to preclude the fiduciary from actually misusing his position for his personal advantage. … Stated comprehensively in terms of the liability to account, the principle of equity is that a person who is under a fiduciary obligation must account to the person to whom the obligation is owed for any benefit or gain (i) which has been obtained or received in circumstances where a conflict or significant possibility of conflict existed between his fiduciary duty and his personal interest in the pursuit or possible receipt of such a benefit or gain or (ii) which was obtained or received by use or by reason of his fiduciary position or of opportunity or knowledge resulting from it. Any such benefit or gain is held by the fiduciary as constructive trustee … That constructive trust arises from the fact that a personal benefit or gain has been so obtained or received and it is immaterial that there was no absence of good faith or damage to the person to whom the fiduciary obligation was owed. In some, perhaps most, cases, the constructive trust will be consequent upon an actual breach of fiduciary duty: eg, an active pursuit of personal interest in disregard of fiduciary duty or a misuse of fiduciary power for personal gain. … The principle governing the liability to account for a benefit or gain as a constructive trustee is applicable to fiduciaries generally including partners and former partners in relation to their dealings with partnership property and the benefits and opportunities associated therewith or arising therefrom.” (also see Birtchnell v Equity Trustees, Executors and Agency Co Ltd (1929) 42 CLR 384; Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373; Say-Dee Pty Ltd v Farah Constructions Pty Ltd [2005] NSWCA 309; Blythe v Northwood (2005) 63 NSWLR 531.

The legal definition of a ‘joint venture’

45. In the present case, the plaintiff alleges, as his secondary case, that the relationship between the parties in participating in lottery draws was a joint venture, which gave rise to fiduciary obligations. It is therefore necessary to consider how such a joint venture arises in law and whether it is appropriate for fiduciary duties to arise from this relationship.

46. A joint venture arrangement is generally an arrangement between parties for a common business purpose. In such a case, each party operates as an individual, is not an agent of the other joint venturers and each joint venturer bears responsibility on their own for their individual expenses and losses: Canny Gabriel Castle Jackson Advertising Ltd v Volume Sales (Finance) Pty Ltd (1974) 131 CLR 321.

47. As Mason, Brennan and Deane JJ explained in United Dominions Corp Ltd v Brian Pty Ltd (1985) 157 CLR 1 at 10-11:

“The term "joint venture" is not a technical one with a settled common law meaning. As a matter of ordinary language, it connotes an association of persons for the purposes of a particular trading, commercial, mining or other financial undertaking or endeavour with a view to mutual profit, with each participant usually (but not necessarily) contributing money, property or skill. Such a joint venture (or, under Scots' law, "adventure") will often be a partnership. The term is, however, apposite to refer to a joint undertaking or activity carried out through a medium other than a partnership: such as a company, a trust, an agency or joint ownership. The borderline between what can properly be described as a "joint venture" and what should more properly be seen as no more than a simple contractual relationship may on occasion be blurred. Thus, where one party contributes only money or other property, it may sometimes be difficult to determine whether a relationship is a joint venture in which both parties are entitled to a share of profits or a simple contract of loan or a lease under which the interest or rent payable to the party providing the money or property is determined by reference to the profits made by the other.”

48. Apart from the obvious distinction between a partnership having to satisfy the legal definition of ‘partnership’ in sections 1 and 2 of the Partnership Act 1892 (Cth) (also see Canny Gabriel Castle Jackson Advertising Pty Ltd v Volume Sales (Finance) Pty Ltd (1974) 131 CLR 321 at [7]; Federal Commissioner of Taxation v Everett (1980) 143 CLR 440 at [7]-[8]), Dawson J also explored the distinction between a partnership and joint venture by stating in United Dominions Corp Ltd v Brian Pty Ltd (1985) 157 CLR 1 at 15-16:

“Although in this country a partnership is defined in the Partnership Acts as the relation which subsists or exists between persons carrying on a business in common with a view of profit, the requirement that a business should be carried on provides no clear means of distinguishing a joint venture from a partnership. There may be a partnership for a single adventure or undertaking, for the Acts provide that, subject to any agreement between the partners, a partnership, if entered into for a single adventure or undertaking, is dissolved by the termination of that adventure or undertaking. See, e.g., Partnership Act 1892 (N.S.W.), s.32(b).

A single adventure under our law may or may not, depending upon its scope, amount to the carrying on of a business: Smith v. Anderson (1880) 15 ChD 247, at pp 277-278; In re Griffin; Ex parte Board of Trade (1890) 60 L.J. QB 235, at p 237; Ballantyne v. Raphael (1889) 15 VLR 538. Whilst the phrase "carrying on a business" contains an element of continuity or repetition in contrast with an isolated transaction which is not to be repeated, the decision of this Court in Canny Gabriel Castle Jackson Advertising Pty. Ltd. v. Volume Sales (Finance) Pty. Ltd. (1974) 131 CLR 321 suggests that the emphasis which will be placed upon continuity may not be heavy. Certainly each of the enterprises which were to be undertaken and the enterprise which was finally undertaken in this case, was to have an operation which was sufficiently extended to amount to the carrying on of a business and, since the association was with a view to profit, the conclusion is warranted that the parties were either in partnership or were negotiating partnership at the relevant time.

Perhaps in this country, the important distinction between a partnership and a joint venture is, for practical purposes, the distinction between an association of persons who engage in a common undertaking for profit and an association of those who do so in order to generate a product to be shared among the participants. Enterprises of the latter kind are common enough in the exploration for and exploitation of mineral resources and the feature which is most likely to distinguish them from partnerships is the sharing of product rather than profit. It is, however, unnecessary to pursue that matter here.”

49. Crennan J (as her Honour then was) articulated the position of the Australian law in relation to joint ventures in Gibson Motorsport Merchandise Pty Ltd v Forbes [2005] FCA 749 at [77]-[81]:

“[77] Whilst the term ‘joint venture’ has no settled common law meaning in Australian law, and there is no separate body of law dealing with the special features of joint ventures, like the well‑developed jurisprudence in respect of partnership, some legal incidents of joint ventures were dealt with in United Dominions at 12-13 (per Mason, Brennan and Deane JJ) and at 14-16 (per Dawson J).

[78] Distinctions which can be made between a joint venture and a partnership are not always simple or without controversy. The term ‘joint venture’ has conventionally and commonly been used to refer to an association for the purposes of a single undertaking rather than for the continuous ‘carrying on (of a) business’ characterising a partnership (s 5, Partnership Act 1958 (Vic)), yet, numerous single undertakings, to which the term joint venture may reasonably be applied, do not always in truth lie outside the uniform Partnership Acts or partnership principles and the collocation has certainly been used in a general sense to describe undertakings which do not have legal attributes differing from partnerships: see: J D Merralls QC., ‘Mining and Petroleum Joint Ventures in Australia: Some Basic Legal Concepts’ (1988) 62 ALJ 907; see also, extra‑judicially, Hon. Justice McPherson, ‘Joint Ventures’ in Equity and Commercial Relationships, ed. Finn, 19 at 30-32, and Hon. Mr Justice J A Dowsett ‘Operator of a Joint Venture – Principal or Agent’ (1987) AMPLA Yearbook 269, and see generally W D Duncan (ed) Joint Venture Law in Australia (1995) Ch 2. Federation Press in Association with the Centre for Commercial and Property Law, Queensland University of Technology, 1994.

[79] While joint venture agreements are generally governed by the principles applicable to contract and property, equity, through the mechanism of a constructive trust, may be called in aid in circumstances of incomplete agreement: Muschinski v Dodds (1985) 160 CLR 583 (‘Muschinski’) at 618, or called in aid because of a breach of a fiduciary duty: Ravinder Rohini Pty Ltd v Krizaic (1991) 30 FCR 300 (‘Ravinder v Krizaic’). Agreed contractual duties of joint venturers are not necessarily or routinely subject to any implied duty to act in good faith: Noranda Australia Ltd v Lachlan Resources N.L. (1988) 14 NSWLR 1; Australian Oil and Gas Corporation Ltd v Bridge Oil Limited (1995) 14 AMPLA Bull 60 at 70, Kelly v C.A. & L. Bell Commodities Corporation Pty Limited (1989) 18 NSWLR 248 at 258. See also the observations of Ormiston J. in Vroon BV v Foster’s Brewing Group Ltd [1994] 2 VR 32 at 96-97 (‘Vroon’).

[80] Recognisable and common characteristics of joint ventures include:

1. Participants hold proprietary interests in the assets of the joint undertaking, often, but not necessarily, as tenants-in-common: see the abovementioned article of Mr Merralls QC.

2. Participants exercise joint control of the undertaking.

3. Participants contribute to the joint undertaking, not necessarily equally; such contributions may be disparate: Canny Gabriel Jackson Advertising Pty Ltd v Volume Sales (Finance) Pty Ltd (1974) 131 CLR 321 at 327; Television Broadcasters Limited v Ashton’s Nominees Pty Ltd (No.1) (1979) 22 SASR 552.

4. Participants in the joint undertaking enjoy rights and assume obligations, which are often several, and calculated by reference to ownership of shares and/or contributions made.

5. Participants have a joint (or community of) interest in the performance of the undertaking’s purpose: Cummings v Lewis (1993) 41 FCR 559 at 314/315 (per Cooper J);

6. Participants associate in the undertaking for mutual commercial gain which can be mutual profits.

[81] These recognisable and common characteristics can be found in various permutations and constellations such that it is not appropriate to attempt to isolate which characteristics would be both necessary and sufficient for the constitution of a joint venture agreement. It is always a question of fact whether any particular undertaking constitutes a joint undertaking for mutual commercial gain. (also see EDWF Holdings 1 Pty Ltd v EDWF Holdings 2 Pty Ltd (2010) 41 WAR 23 at [10]; Perry v Anthony [2016] NSWCA 56 at [56]).” (emphasis added)

Joint ventures and fiduciary obligations

50. The existence of a joint venture itself is not enough to give rise to fiduciary obligations. Ultimately this is because, as with all fiduciary relationships, the existence and scope of any fiduciary obligations arising from the alleged joint venture must be determined, as I have already said, by the character and purpose of the parties’ joint venture relationship: Birtchnell v Equity Trustees Executors and Agencies Co Ltd (1929) 42 CLR 384 at 408; Say-Dee Pty Ltd v Farah Constructions Pty Ltd [2005] NSWCA 309 at [156]; Kelly v CA & L Bell Commodities Corporation Pty Ltd (1989) 18 NSWLR 248 at 256; News Ltd v Australian Rugby Football League Ltd (1996) 64 FCR 410 at 539. Therefore, not all joint venture relationships will automatically give rise to fiduciary obligations.

51. As the High Court (per French CJ, Gummow, Hayne, Heydon and Kiefel JJ) stated in John Alexander's Clubs Pty Limited v White City Tennis Club Limited (2010) 241 CLR 1 at [44]:

“Describing…arrangements as a 'joint venture' does not however have any particular legal consequences. The rights and obligations of the parties remain to be determined by examination of the detail of what they have agreed and done.”

(also see Gibson Motorsport v Forbes (2006) 149 FCR 569 at [2]; United Dominions Corp Ltd v Brian Pty Ltd (1985) 157 CLR 1 at 10-11)

52. Examining the relationship between joint ventures and fiduciary duties, and when fiduciary duties may be said to arise in the context of a joint venture, Finn J explained in Gibson Motorsport v Forbes (2006) 149 FCR 569 at [16]:

“If the term “fiduciary relationship” be substituted for “joint venture”, this observation reflects commonplace experience in this country. The short point to be made is that cooperative action, the pooling or sharing of resources (human and otherwise), or multiple, interlocking or interdependent contracts are characteristic of many types of business arrangements which only in a colloquial sense could be described as a “joint venture”. Such arrangements may highlight the importance in a given instance of such implied duties as the duty to cooperate (cf, Butt v M’Donald (1896) 7 QLJ 68). Rarely, though, will there be anything fiduciary about the arrangements themselves as they will not envisage a form or forms of cooperation which is or are potentially fiduciary in character (eg, the sharing of control or of profits and losses; the creation of a commonly owned vehicle to effectuate what is agreed; the assumption of similar rights and obligations etc).”

53. Mason, Brennan and Deane JJ also stated in United Dominions Corp Ltd v Brian Pty Ltd (1985) 157 CLR 1 at 10-11:

“One would need a more confined and precise notion of what constitutes a "joint venture" than that which the term bears as a matter of ordinary language before it could be said by way of general proposition that the relationship between joint venturers is necessarily a fiduciary one: but cf. per Cardozo CJ in Meinhard v. Salmon. The most that can be said is that whether or not the relationship between joint venturers is fiduciary will depend upon the form which the particular joint venture takes and upon the content of the obligations which the parties to it have undertaken. If the joint venture takes the form of a partnership, the fact that it is confined to one joint undertaking as distinct from being a continuing relationship will not prevent the relationship between the joint venturers from being a fiduciary one. In such a case, the joint venturers will be under fiduciary duties to one another, including fiduciary duties in relation to property the subject of the joint venture, which are the ordinary incidents of the partnership relationship, though those fiduciary duties will be moulded to the character of the particular relationship.”

54. Similarly, Dawson J said in United Dominions Corp Ltd v Brian Pty Ltd (1985) 157 CLR 1 at 16:

“Although the relationship between participants in a joint venture which is not a partnership will be governed by the particular contract rather than extrinsic principles of law, the relationship may nevertheless be a fiduciary one if the necessary confidence is reposed by the participants in one another. Of course, in a partnership the parties are agents for each other and this may constitute a separate reason for the fiduciary character of a partnership. There may be no such agency between participants in a joint venture but, as Dixon J. pointed out in Birtchnell v. Equity Trustees, Executors and Agency Co. Ltd. (1929) 42 CLR 384, at pp 407-408, even in a partnership it is really the mutual confidence between partners which imposes fiduciary duties upon them and the same confidence may, in appropriate circumstances, be found to exist between participants in a joint venture.”

Contractual relationships and fiduciary duties

55. It is difficult for a court to hold that a fiduciary relationship exists where “a term to like effect as the suggested fiduciary obligation cannot be implied”: John Alexander's Clubs Pty Limited v White City Tennis Club Limited (2010) 241 CLR 1 at [92] (per French CJ, Gummow, Hayne, Heydon and Kiefel JJ).

56. In Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at [70], Mason J (as his Honour then was), explained the relationship between contractual and fiduciary obligations:

“That contractual and fiduciary relationships may co-exist between the same parties has never been doubted. Indeed, the existence of a basic contractual relationship has in many situations provided a foundation for the erection of a fiduciary relationship. In these situations it is the contractual foundation which is all important because it is the contract that regulates the basic rights and liabilities of the parties. The fiduciary relationship, if it is to exist at all, must accommodate itself to the terms of the contract so that it is consistent with, and conforms to, them. The 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.”

(affirmed in John Alexander's Clubs Pty Limited v White City Tennis Club Limited (2010) 241 CLR 1 at [91])

57. Approving the dissent of Mason J in Hospital Products, the High Court observed (per French CJ, Gummow, Hayne, Heydon and Kiefel JJ) in John Alexander's Clubs Pty Limited v White City Tennis Club Limited (2010) 241 CLR 1 at [90] 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.” (citations omitted)

Intention to contract

58. If a contract is found to exist, the parties must objectively intend to create legally binding relations. As the High Court explained in the seminal case of Australian Woollen Mills Pty Ltd v The Commonwealth (1953–1954) 92 CLR 424 at 457:

“It is of the essence of contract, regarded as a class of obligations, that there is a voluntary assumption of a legally enforceable duty.''

59. The court is not concerned with the parties’ subjective intention to contract. It is only concerned with their objective intention, to be ascertained from the totality of the evidence in the case: Australian Woollen Mills Pty Ltd v The Commonwealth (1953–1954) 92 CLR 424 at 457; Taylor & Ors v Johnson (1982–1983) 151 CLR 422 at 429; Merritt v Merritt [1970] 1 WLR 1211 at 1213; Parker v Clark [1960] 1 WLR 286 at 293; Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at [20]; Wyllie v Tarrison Pty Ltd [2007] NSWCA 184 at [62]; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at [40], [72]; Equuscorp Pty Ltd v Glengallan Investments Pty Ltd (2004) 218 CLR 471 at [34] (per Gleeson CJ, McHugh, Kirby, Hayne and Callinan JJ); Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95 at [25] (per Gaudron, McHugh, Hayne and Callinan JJ).

60. Most recently approved by the Gageler, Nettle and Gordon JJ in Simic v New South Wales Land and Housing Corporation [2016] HCA 47 at [18] and [78], French CJ, Nettle and Gordon JJ explained in Mount Bruce Mining Pty Limited v Wright Prospecting Pty Limited (S99/2015; S102/2015) (2015) 256 CLR 104 at [46]-[52]:

“[46] The rights and liabilities of parties under a provision of a contract are determined objectively, by reference to its text, context (the entire text of the contract as well as any contract, document or statutory provision referred to in the text of the contract) and purpose.

[47] In determining the meaning of the terms of a commercial contract, it is necessary to ask what a reasonable businessperson would have understood those terms to mean. That enquiry will require consideration of the language used by the parties in the contract, the circumstances addressed by the contract and the commercial purpose or objects to be secured by the contract.

[48] Ordinarily, this process of construction is possible by reference to the contract alone. Indeed, if an expression in a contract is unambiguous or susceptible of only one meaning, evidence of surrounding circumstances (events, circumstances and things external to the contract) cannot be adduced to contradict its plain meaning.

[49] However, sometimes, recourse to events, circumstances and things external to the contract is necessary. It may be necessary in identifying the commercial purpose or objects of the contract where that task is facilitated by an understanding "of the genesis of the transaction, the background, the context [and] the market in which the parties are operating”. It may be necessary in determining the proper construction where there is a constructional choice. The question whether events, circumstances and things external to the contract may be resorted to, in order to identify the existence of a constructional choice, does not arise in these appeals.

[50] Each of the events, circumstances and things external to the contract to which recourse may be had is objective. What may be referred to are events, circumstances and things external to the contract which are known to the parties or which assist in identifying the purpose or object of the transaction, which may include its history, background and context and the market in which the parties were operating. What is inadmissible is evidence of the parties' statements and actions reflecting their actual intentions and expectations.

[51] Other principles are relevant in the construction of commercial contracts. Unless a contrary intention is indicated in the contract, a court is entitled to approach the task of giving a commercial contract an interpretation on the assumption "that the parties ... intended to produce a commercial result". Put another way, a commercial contract should be construed so as to avoid it "making commercial nonsense or working commercial inconvenience”.

[52] These observations are not intended to state any departure from the law as set out in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales and Electricity Generation Corporation v Woodside Energy Ltd. We agree with the observations of Kiefel and Keane JJ with respect to Western Export Services Inc v Jireh International Pty Ltd.” (citations omitted)

(See the judgments of Bell and Gageler JJ at [119]-[121] and Kiefel and Keane JJ at [107]-[113] which are of similar effect).

61. Gaudron, McHugh, Hayne and Callinan JJ elaborated on the appropriate test for determining intention to contract in Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95 at 105-106:

“It is of the essence of contract, regarded as a class of obligations, that there is a voluntary assumption of a legally enforceable duty.” (Australian Woollen Mills Pty Ltd v The Commonwealth (1954) 92 CLR 424 at 457 per Dixon CJ, Williams, Webb, Fullagar and Kitto JJ) To be a legally enforceable duty there must, of course, be identifiable parties to the arrangement, the terms of the arrangement must be certain, and, unless recorded as a deed, there must generally be real consideration for the agreement. Yet “[t]he circumstances may show that [the parties] did not intend, or cannot be regarded as having intended, to subject their agreement to the adjudication of the courts” (South Australia v The Commonwealth (1962) 108 CLR 130 at 154 per Windeyer J).

Because the inquiry about this last aspect may take account of the subject matter of the agreement, the status of the parties to it, their relationship to one another, and other surrounding circumstances (South Australia v The Commonwealth (1962) 108 CLR 130 at 154; Placer Development Ltd v The Commonwealth (1969) 121 CLR 353 at 367 per Windeyer J), not only is there obvious difficulty in formulating rules intended to prescribe the kinds of cases in which an intention to create contractual relations should, or should not, be found to exist, it would be wrong to do so. Because the search for the “intention to create contractual relations” requires an objective assessment of the state of affairs between the parties (Masters v Cameron (1954) 91 CLR 353 at 362 per Dixon CJ, McTiernan and Kitto JJ; ABC v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 at 548-549 per Gleeson CJ) (as distinct from the identification of any uncommunicated subjective reservation or intention that either may harbour) the circumstances which might properly be taken into account in deciding whether there was the relevant intention are so varied as to preclude the formation of any prescriptive rules. Although the word "intention" is used in this context, it is used in the same sense as it is used in other contractual contexts. It describes what it is that would objectively be conveyed by what was said or done, having regard to the circumstances in which those statements and actions happened (Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337 at 348-353 per Mason J; Royal Botanic Gardens and Domain Trust v South Sydney City Council (2002) 76 ALJR 436; 186 ALR 289). It is not a search for the uncommunicated subjective motives or intentions of the parties.”

62. Further, the commercial context and parties’ previous dealings are relevant to determining whether a binding agreement has come into existence between the parties: Pavlovic v Universal Music Australia Pty Limited (2015) 90 NSWLR 605 at [15] (per Bathurst CJ), [72], [84] (per Beazley P), [162] (per Meagher JA); Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 at 548; Toyota Motor Corporation Australia Ltd v Ken Morgan Motors Pty Ltd [1994] 2 VR 106 at 138. It also appropriate to consider the object of the transaction between the parties: Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at [22] (per Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ); Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at [40]; International Air Transport Association v Ansett Australia Holdings Ltd (2008) 82 ALJR 419 at [8] (per Gleeson CJ).

63. Regard can also be given to the conduct of the parties after they make any arrangement, to give meaning to the communications between them and to determine whether they objectively intended to be contractually bound: Sagacious Procurement Pty Ltd v Symbion Health Ltd [2008] NSWCA 149 at 69; Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95 at 105-106; Australian Broadcasting Corporation v XIVth Commonwealth Games Limited (1988) 18 NSWLR 540 at 548-549.

64. As Bathurst CJ explained in Pavlovic v Universal Music Australia Pty Limited (2015) 90 NSWLR 605 at [15]:

“It is well established that the question of whether the parties intended to bind themselves to a contract is to be determined objectively, having regard to the intention disclosed by the language the parties have employed: Masters v Cameron [1954] HCA 72; 91 CLR 353 at 362. In cases such as the present, which do not depend on the construction of a single document, what is involved is the objective determination of the question from the communications between the parties in their context and the parties’ dealings over the time leading up to the making of the alleged contract. This involves consideration of the subject matter of the communications: Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 at 550. As was said by Mahoney JA and McHugh JA in Air Great Lakes Pty Ltd v KS Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309, that includes consideration of what the parties said or wrote (at 334, 337).”

The existence of an oral contract

65. Ascertaining the existence and terms of an oral contract is a question of fact: Masterton Homes Pty Ltd v Palm Assets Pty Ltd (2009) 261 ALR 382 at [90] (per Campbell JA, Allsop P and Basten JA agreeing); Gardiner v Grigg (1938) 38 SR (NSW) 524 at 532 (per Jordan CJ, Nicholas J agreeing); Maggs v Marsh [2006] EWCA Civ 1058 at [26] (per Smith LJ, Moses and Hallett LJJ agreeing).

66. Consideration of surrounding circumstances and post contractual conduct is permissible when the existence or terms of an oral contract are in issue: County Securities Pty Ltd v Challenger Group Holdings Pty Ltd [2008] NSWCA 193 at [20] (per Spigelman CJ, Beazley and McColl JJA); Colyer Fehr Tallow Pty Ltd v KNZ Australia Pty Ltd [2011] NSWSC 457 at [47]; King v Benecke [2013] NSWSC 568 at [186].

65. Spigelman CJ explained in County Securities Pty Ltd v Challenger Group Holdings Pty Ltd [2008] NSWCA 193 at [7]:

“The subject matter and the concomitant terms of the [oral] contract must be inferred from a combination of surrounding circumstances including conversations, documents and conduct none of which provide a definitive form of words. The issue is not one of interpretation, because there are no words to interpret. The issue is one of fact: what did the parties agree?”

68. In Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153, Heydon JA (as his Honour then was) observed:

“…a contract may be inferred from the acts and conduct of parties as well as or in the absence of their words … The question in this class of case is whether the conduct of the parties, viewed in the light of the surrounding circumstances, shows a tacit understanding or agreement … The conduct of the parties, however, must be capable of proving all the essential elements of an express contract … Care must also be taken not to infer anterior promises from conduct which represents no more than an adjustment of their relationship in the light of changing circumstances … Moreover, in an ongoing relationship, it is not always easy to point to the precise moment when the legal criteria of a contract have been fulfilled. Agreements concerning terms and conditions which might be too uncertain or too illusory to enforce at a particular time in the relationship may by reason of the parties’ subsequent conduct become sufficiently specific to give rise to legal rights and duties. In a dynamic commercial relationship new terms will be added or will supersede older terms. It is necessary therefore to look at the whole relationship and not only at what was said and done when the relationship was first formed.”

69. In Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd (2001) 117 FCR 424, Allsop J (as he then was) similarly explained:

“[Contracts] can also arise when business people speak and act and order their affairs in a way without necessarily stopping for the formalities of dotting i's and crossing t's or where they think they have done so … Sometimes this failure occurs because, having discussed the commercial essentials and having put in place necessary structural matters, the parties go about their commercial business on the clear basis of some manifested mutual assent, without ensuring the exhaustive completeness of documentation. In such circumstances, even in the absence of clear offer and acceptance, and even without being able (as one can here) to identify precisely when a contract arose, if it can be stated with confidence that by a certain point the parties mutually assented to a sufficiently clear regime which must, in the circumstances, have been intended to be binding, the court will recognise the existence of a contract. Sometimes this is said to be a process of inference or implication. For my part, I would see it as the inferring of a real intention expressed through, or to be found in, a body of conduct, including, sometimes, communications, even if it be the case that the parties did not consciously advert to, or discuss, some aspect of the relationship and say: ‘and we hereby agree to be bound/ in this or that respect. The essential question in such cases is whether the parties' conduct, including what was said and not said and including the evident commercial aims and expectations of the parties, reveals an understanding or agreement or, as sometimes expressed, a manifestation of mutual assent, which bespeaks an intention to be legally bound to the essential elements of a contract.” (citations omitted)

Implying terms of an oral contract

70. Where a term is sought to be implied into a contract, it is necessary to turn to the requirements set out in the well-known passage from BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266 at 283, where Lord Simon of Glaisdale delivered the majority judgment and observed:

“…for a term to be implied, the following conditions (which may overlap) must be satisfied: (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that "it goes without saying"; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract.”

(see also Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 at [9] and Commonwealth Bank of Australia v Barker (2014) 253 CLR 169 at [21]-[29])

71. Where there is no written contract between the parties, the above test is not to be strictly or rigidly applied: Byrne v Australian Airlines Ltd (1995) 185 CLR 410 at 422; Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 121; Colyer Fehr Tallow Pty Ltd v KNZ Australia Pty Ltd [2011] NSWSC 457 at [51].

72. The key question that arises where a contract is “not reduced to complete written form” is whether “the implication of the particular term is necessary for the reasonable or effective operation of the contract in the circumstances of the case”: Byrne v Australian Airlines Ltd (1995) 185 CLR 410 at 422 (per Brennan CJ and Dawson and Toohey JJ); Associated Alloys Pty Ltd v ACN 001 452 106 Pty Ltd (in liq) (2000) 202 CLR 588 at [46] (per Gaudron, McHugh, Gummow and Hayne JJ); Hawkins v Clayton (1988) 164 CLR 539 at 573 (per Deane J).

Estoppel by convention

73. An estoppel by convention arises where the relevant parties make an assumption about the conventional basis of their relationship: Dabbs v Seaman (1925) 36 CLR 538 at 549; Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Limited (1986) 160 CLR 226 at 244-5. This usually arises where parties act on the basis of agreed or assumed facts and are ‘estopped’ from denying those agreed or assumed facts because such a denial will cause detriment to one of them: Waterman v Gerling Australia Insurance Co Pty Ltd (2005) 65 NSWLR 300 at 322-323; Ryledar Pty Ltd v Euphoric Pty Ltd (2007) 69 NSWLR 603 at [200]; Thompson v Palmer (1933) 49 CLR 507 at 547.

74. In Ryledar Pty Ltd & Anor v Euphoric Pty Ltd (2007) 69 NSWLR 603 at [194]-[209], Tobias JA reviewed the authorities and explained:

“[194]…estoppel by convention is a form of estoppel founded upon an assumed state of affairs by the parties whether as to a matter of fact or a matter of legal effect which both will be estopped from denying: Con-Stan Industries of Australia Pty Ltd v Norrich Winterthur Insurance (Australia) Ltd (1986) 160 CLR 226 at 244-245. That assumed state of affairs takes as a given the terms of the contract as known to and understood by the parties but from which the parties have departed for the purpose of their furtherance of their relationship under the contract.

[195] As Dixon J therefore observed in Grundt v Great Boulder Pty Gold Mines Ltd (1937) 59 CLR 641 at 676, belief in the correctness of the facts or state of affairs assumed is not always necessary. Parties may adopt as the conventional basis of a transaction between them an assumption which they know to be contrary to the actual state of affairs.

[196] In his recent book Estoppel by Conduct and Election, Handley described estoppel by convention in the following terms (at par 8-001):

“When parties make a statement of fact or of mixed fact and law the conventional basis of their transaction … both are estopped from questioning its truth for the purpose of that transaction. Estoppels by convention can be created ad hoc, expressly, by a course of dealing, or by other acts and declarations. In such a case ‘there must be some mutually manifest conduct by the parties’ with the intention of effecting their legal relationship.”

[197] In Amalgamated Investment & Property Co Ltd v Texas Commercial International Bank Ltd (in liq) [1982] QB 84, Lord Denning MR observed (at 121):

“To use the phrase of Latham CJ and Dixon J in [ Grundt ] … the parties by their course of dealing adopted a ‘conventional basis’ for the governance of the relations between them … They are bound by the ‘conventional basis’ in which they conducted their affairs. The reason is because it would be altogether unjust to allow either party to insist on the strict interpretation of the original terms of the contract – when it would be inequitable to do so having regard to dealings which have taken place between the parties.”

His Lordship also observed that:

“[t]here is no need to enquire whether their particular interpretation is correct or not – or whether they were mistaken or not – or whether they had in mind the original terms or not. Suffice it that they have, by their course of dealing, put their own interpretation on their contract, and cannot be allowed to go back on it.”

[198] The principles were restated by Lord Steyn in delivering the principal speech in The Indian Grace (No. 2) [1998] AC 878 at 913 where his Lordship said:

“… an estoppel by convention may arise where parties to a transaction act on an assumed state of facts or law, the assumption being either shared … or made by one and acquiesced in by the other. The effect of an estoppel by convention is to preclude a party from denying the assumed facts or law if it would be unjust to allow him to go back on the assumption.”

[199] Recently the principles were restated by Brereton J in Moratic Pty Ltd v Gordon [2007] NSWSC 5, where his Honour observed (at [30]) that the doctrine of conventional estoppel precluded either party to a contract from denying an assumption which has formed the conventional basis of the relationship between them. Accordingly, it is necessary to determine whether the parties have in fact adopted such an assumption as the conventional basis of their relationship.

[200] His Honour then stated the matters necessary to establish conventional estoppel (at [32]) as being that:

(a) the plaintiff has adopted an assumption as to the terms of its legal relationship with the defendant;

(b) the defendant has adopted the same assumption;

(c) both parties have conducted their relationship on the basis of that mutual assumption;

(d) each party knew or intended that the other act on that basis; and

(e) departure from the assumption will occasion detriment to the plaintiff.

[201] In noting the differences between promissory estoppel and conventional estoppel his Honour then observed with respect to the latter (at [33]) that it:

“is focussed on the consensual basis of the parties’ relationship: it operates when both parties have adopted the same assumption as the basis of their relationship, often without appreciating that any departure from the strict legal position is involved so as to hold both parties to their common understanding.”

[202] Before dealing with the factual material, two other legal aspects of conventional estoppel need to be noted. The first is whether the parol evidence rule operates to exclude evidence of an alleged estoppel by convention arising from pre-contract negotiations. This is relevant in the present case given that Ryledar relies upon the correspondence between the parties containing their negotiations which led up to the 1999 Variation. The second concerns whether it is necessary for Ryledar to establish reliance and detriment before it can establish the relevant estoppel. This question has been answered by this Court in the affirmative in MK & JA Roche Pty Ltd v Metro Edgely Pty Ltd [2005] NSWCA 39 where Hodgson JA, with whom Beazley and Ipp JJA agreed, held (at [72]) that reliance and detriment were essential for the existence of conventional estoppel.

[203] Hodgson JA referred to the statement of Dixon J in Grundt (at 674), that the relevant principle was that “the law should not permit an unjust departure by a party from an assumption of fact which he has caused another party to adopt or accept for the purpose of their legal relations”. That principle, he continued, involved actions such that the party relying on the estoppel would suffer a detriment if the other party were afterwards allowed to set up rights inconsistent with that assumption. After citing the Commonwealth v Verwayen (1990) 170 CLR 394 at 444, his Honour concluded that conventional estoppel required that the party relying thereon must have “placed himself in a position of significant disadvantage if departure from the assumption be permitted”.

[204] So far as the parol evidence rule is concerned, in Johnson Matthey Ltd v A C Rochester Overseas Corporation (1990) 23 NSWLR 190, McLelland J, after referring to the remarks of Mason J in Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 at 352 as to the unrewarding and time consuming exercise in investigating pre-contract negotiations and the similar remarks of Kirby P in State Rail Authority of NSW v Heath Outdoor Pty Ltd (1986) 7 NSWLR 170 at 177, stated his conclusion in the following terms (at [195]-[196]):

“In my view, reasons of principle and policy combine to exclude evidence of alleged estoppels by convention or any other agreements or understandings arising in the course of pre-contract negotiations which culminate in a written contract, except in proceedings for the rectification of the written contract, when the established requirement, as a condition of obtaining relief, of clear and convincing proof of a common intention of the parties not reflected in the written document provide the necessary degree of security of the written contract. I would therefore exclude on general principles the evidence of pre-contract negotiations for the purpose of proving an alleged estoppel by convention.”

[205] In Australian Co-operative Foods Ltd v Norco Co-operative Ltd (1999) 46 NSWLR 267 at 279 [52], Bryson J, as his Honour then was, followed and applied the views of McLelland in Johnson Matthey as being well founded on the principle of giving effect:

“to the formal, final and considered expression of the parties’ contractual intention; the fact that they chose writing to express that intention shows the relative weight they attributed to earlier arrangements and understandings.”

[206] Bryson J in so holding declined to follow the decision to the contrary of Rolfe J in Whittet v State Bank of New South Wales (1991) 24 NSWLR 146 where his Honour declined to follow Johnson Matthey and held that matters arising out of pre-contractual negotiations, which could be proved to the extent necessary to justify rectification, namely, by clear and convincing proof, may be relied upon to found an estoppel by convention. In so doing, his Honour referred to the decision of this Court in State Rail Authority noting that McHugh JA expressly found that regard could be had to pre-contractual negotiations and that neither Kirby P nor Glass JA suggested that this was incorrect. Rolfe J acknowledged the significance to be accorded to written contracts but considered that the relevant protection for maintaining the integrity of a written instrument was the requirement of clear and convincing proof.

[207] In Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd (2001) 117 FCR 424, Allsop J, with whom Drummond and Mansfield JJ agreed, at 543-544 [444]-[446] reviewed the Australian authorities which both permitted reliance upon pre-contractual negotiations to set up an estoppel by convention notwithstanding that those negotiations culminated in a written contract as well as those authorities to the opposite effect.

[208] Relevantly, his Honour observed (at 543-544 [446]):

“Though not specifically directed to equitable estoppel arising out of pre-contractual communications, McPherson JA in MacDonald v Shinko Australia Pty Ltd [1999] 2 Qd R 152 at 154-156 in dealing with the equitable remedy of rectification arising from pre-contractual communications saw little merit in the argument that the parol evidence rule or an entire agreement clause impeded that remedy in the face of material calling it in aid to remedy a mistake. If that be correct, as I think that it plainly is, it is difficult to see why another remedy of equity based on unconscionability and equally arising out of pre-contractual communications should be defeated by a common law rule about the construction of documents.”

Ultimately, however, his Honour found it unnecessary to decide this question (at 544 [447]).

[209] In Walterman v Gerling Australia Insurance Co Pty Ltd (2005) 65 NSWLR 300, Brereton J at 321-323 referred to the line of authority which held that parol evidence of pre-contractual negotiations which culminated in a written contract might not be relied upon to set up an alleged estoppel by convention. However, in that case it was argued that where there was a written contract, parol evidence of post-contractual as well as pre-contractual matters should not be permitted to set up such an estoppel. His Honour rejected that submission with respect to post contractual matters. This was because the policy considerations which informed the decision of McLelland J in Johnson Matthey did not have the same force when it came to post-contractual conduct because (at 323)

“in the latter context what is set up is not an argument that the

terms of the parties’ arrangements when made are to be found in the oral negotiations and not the written agreement, but rather that since the contract was made, the parties have acted on an assumed state of affairs which is inconsistent with the contractual position and has arisen as a result of conduct after the contract was made.”

(emphasis not in original)

Mixing of funds held on trust

75. When Mr Adams received and held funds on behalf of the participants in each draw, he clearly held those funds on trust. The fiduciary obligations arising if Mr Adams mingled or mixed these trust funds with non-trust funds were explained in Cook v Addison (1869) LR 7 Eq 466 at 470:

“It is a well-established doctrine in this court, that if a trustee or agent mixes and confuses the property which he holds in a fiduciary character with his own property, so as that they cannot be separated with perfect accuracy, he is liable for the whole.” (emphasis added)

76. This was applied by Ungoed-Thomas J in Re Tilleys Will Trusts [1967] Ch 1179 at 1183 who said:

“The words in that passage so as that they cannot be separated with perfect accuracy are an essential part of the Vice-Chancellors proposition, and indeed of the principle of Lupton v White 15 Ves Jun 432. If a trustee mixes trust assets with his own, the onus is on the trustee to distinguish the separate assets, and to the extent that he fails to do so they belong to the trust.”

77. Similarly, in Foskett v McKeown [2001] 1 AC 102, Millet LJ approved the comments of Page Wood VC in Frith v Cartland (1865) 2 Hem & M 417 at 420, explaining:

“…if a man mixes trust funds with his own, the whole will be treated as the trust property, except so far as he may be able to distinguish what is his own.”

78. Most recently, Lord Neuberger of Abbotsbury MR further approved the above line of authority and further stated in Sinclair Investments (UK) Ltd v Versailles Trade Finance Ltd (in administrative receivership) and others [2012] Ch 453 at [138]:

“Where he has mixed the funds held on trust with his own funds, the onus should be on the fiduciary to establish that part, and what part, of the mixed fund is his property”.

(see also In re Tilley's Will Trusts [1967] Ch 1179 at 1182-1189; Re Sports Alive Pty Ltd (in liquidation) [2013] VSC 69 at [125]-[128]; Lupton v White (1808) 15 Ves 432; Re Hallett’s Estate (1880) 13 Ch D 696; Farnell v Cox (1898) 19 LR (NSW) Eq 142)

79. Australian courts have accepted these principles: Brady v Stapleton (1952) 88 CLR 322 at 336-339; Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 109-110.

80. In the context of lottery tickets, Dixon CJ explained in Van Rassel v Kroon (1953) 87 CLR 298 at 303:

“If there is any confusion, the burden must be upon him of showing which is his property. It could not be otherwise where the duty rests upon him as a fiduciary not to confuse his own beneficial property with that which is subject to his fiduciary obligations and where at the same time his are the hands in which are placed the means of identifying the property.”

The pooling case

331. Finally, the plaintiff raised a ‘pooling’ case, alleging that Mr Adams mixed funds he held on behalf of the 2016 Core Syndicate with funds he had obtained from members of the Winning Syndicate to purchase the Winning Syndicate’s tickets in the 5 May 2016 draw (P [112]-[124]). Therefore, the plaintiff submitted that Mr Adams had to discharge the onus of proving that he did not use the 2016 Core Syndicate’s funds to buy the tickets on behalf of the Winning Syndicate and if he did not satisfy this onus, Mr King was beneficially entitled to a rateable share of the prize money (P [120]; ASOC [40(iii)]).

332. In response, the defendants submitted that this case could not succeed because Mr Adams, supported by the other witnesses’ evidence, discharged the relevant onus of distinguishing between the funds he held on trust for the 2016 Core Syndicate and the funds he used to purchase the Winning Syndicate’s tickets in the 5 May draw were solely derived from members of the Winning Syndicate (T 294; D [115]-[117]).

333. In reply, after analysing the witnesses’ evidence (P in reply [23]-[45]), the plaintiff stated that the evidence showed Mr Adams had “not collected $600” by the time of buying the winning tickets, “but rather probably about $450” (P in reply [20]). Further, the plaintiff submitted that Mr Adams failed to prove to the court where he obtained the $600 to buy the tickets and that the probabilities therefore suggested that because he believed that all 2016 Core Syndicate members were in the Winning Syndicate, he used the money he was holding for them (P in reply [54]).

334. In further reply, the defendants submitted that Mr Adams had $600 at the time of purchasing the winning tickets and the “good reason" for this was that because he only bought $600 worth of tickets, which was the money he had at the time because two members had not yet paid (T 290-291). The defendants also pointed to Mr Adams’ statement in cross examination at page 124 of the transcript that he “had 600” (T 291) and that the contemporaneous records show he never mixed funds (T 291-292). Further, the defendants submitted that it did not follow that Mr Adams used the 2016 Core Syndicate funds even if he did not have $600 at the time he purchased the winning tickets (T 290-292).

Consideration

335. For the reasons which follow, it is my view that Mr Adams was under no fiduciary obligation as alleged by the plaintiff and was therefore not in breach of any such duty. Likewise, I do not regard him as contractually bound as alleged by the plaintiff nor was he in breach of any implied contractual term. Further, in my view, the estoppel case is not tenable. I am also of the view that the pooling case must fail. Consequently, the plaintiff fails in these proceedings.

The primary case

336. In my view, given my earlier findings, especially at [253], there is no basis to conclude that Mr Adams harboured a subjective intention to include Mr King in the Winning Syndicate.

337. I am satisfied that Mr Adams simply did not turn his mind to Mr King when he decided to form the Winning Syndicate and purchase a ticket on its behalf. I accept Mr Adams’ explanation that he did not cross paths with Mr King at work during the relevant period. No assertion was made to suggest Mr Adams’ omission of Mr King was the result of any motive to do so. The Winning Syndicate was an afterthought. Mr Adams did not regard it as an activity for or on behalf of the 2016 Core Syndicate and hence Mr King did not genuinely enter his head. I am satisfied he did not have a subjective intention to buy the ticket on behalf of the 2016 Core Syndicate or Mr King, but only the members of the Winning Syndicate he had approached before the draw.

Fiduciary or not (the secondary case)

338. At the risk of undue repetition, it is accepted that the categories of relationships giving rise to fiduciary obligations are not ‘closed’, however they are not infinitely extensible: Howard v Commissioner of Taxation (2014) 253 CLR 83 at [34].

339. Fiduciary relationships may take a wide variety of forms and may give rise to a wide variety of obligations. There are relationships or circumstances whose very nature obliges a person to act with the duties required of a fiduciary. However, this is not such a case. It is not an established category of fiduciary relationship.

340. In my view, fiduciary obligations can only be imposed outside the established categories if they are warranted in all the circumstances. The existence and scope of any such fiduciary relationship will be determined by those circumstances.

341. Crucially, fiduciary obligations cannot be said to arise until the ‘fiduciary office’ is assumed in some way, perhaps by words or conduct. A pre-existing contract is not necessary. But, if the parties embark upon conduct towards each other in mutual trust and confidence a fiduciary obligation may be said to arise. That is, if they assume a relationship and proceed to take steps involved in its establishment and implementation.

342. However, the simple fact that one party in a relationship subjectively trusted another is neither necessary nor conclusive of the existence of a fiduciary relationship. Further, a fiduciary relationship, however created, is rarely fiduciary for all purposes. It will cease when the relevant person no longer occupies the position to which the fiduciary duty applies.

343. Most obviously perhaps, a fiduciary relationship arises if a person entrusts another with property and relies on that person to deal with that property for the benefit of another or for purposes authorised by them and not otherwise. A fiduciary duty may also clearly arise when one person undertakes to act on another’s behalf for a specific purpose, in subordination of their own interests.

344. In this case, it seems to me Mr Adams only assumed the fiduciary “office" at the moment he approached a participant and received money for the purposes of buying a ticket or alternatively, by approaching a participant, undertaking to buy a ticket on their behalf and then doing so, even without receiving money from them. Mr Adams was careful not to assume this “office” prior to making contact because he had a clear intention to no longer subsidise any draw entry payments after late 2015. It is likely that his reluctance to assume this “office” also arose from his respect for the personal circumstances of each of the workers and the likelihood that many may not always have wanted to part with money to gamble in any given draw. Of course, his fiduciary and/or contractual obligations would continue if he held any winnings, and he obviously had a discretion to reinvest and/or distribute the winnings.

345. While it was recognised by the defendants that Mr Adams presently holds $1,617.41 on behalf of the 2016 Core Syndicate members (D [62]), Mr Adams’ obligations regarding the holding of such monies on behalf of the 2016 Core Syndicate was not addressed by the parties with any precision. It is clear to me that when Mr Adams held monies after a draw (from either winnings or excess payments) on behalf of the 2016 Core Syndicate, he had a fiduciary discretion, not an obligation, to do one of two things with these funds: to distribute them to the 2016 Core Syndicate members or to reinvest them in future draws. Mr Adams could not do anything else with these funds, except with the informed direction of a beneficiary.

346. The plaintiff puts his case by asserting the existence of a “joint venture”, which comprised the 2016 Core Syndicate members (including Mr King). The submission is to the effect that Mr Adams was required to act honestly and in the best interests of these members, so that any such ticket bought by Mr Adams became an asset of the joint venture, regardless of whose funds were actually used to buy those tickets and whether or not there had been any contact between Mr Adams and the member. At its logical extension, it would simply mean that every ticket purchased by Mr Adams after the 2016 Core Syndicate was formed would belong to the 2016 Core Syndicate in Equity. I respectfully consider such a proposition to be absurd.

347. Mr King had no difficulty with the suggestion that Mr Adams might purchase tickets on behalf of differing groups of people. The existence of fiduciary duties in respect of one draw could not involve Mr Adams breaching that duty by buying tickets for himself, for himself and family members or for himself and persons outside the factory, in the same or another draw. This is entirely consistent with Dixon CJ’s analysis in Van Rassel v Kroon (1953) 87 CLR 298 at 302-303.

348. As I have already observed, Mr Adams simply agreed to buy lottery tickets with funds contributed by members of the 2016 Core Syndicate. There is no basis for considering that that undertaking imposed a negative obligation or restriction upon what Mr Adams might do with other money, whether this be his own money or money contributed by other potential participants.

349. It is the case that Mr Adams necessarily assumed fiduciary obligations when he received money from the 2016 Core Syndicate and bought tickets in “big draws” on its behalf. However, in my view, he discharged this obligation by purchasing a ticket on behalf of the 2016 Core Syndicate in the 5 May draw. He would further discharge his fiduciary obligations to the 2016 Core Syndicate by accounting to its members for the $13.65 winnings. However, in my view this is where his fiduciary duties relevantly ended.

350. In my view, it could not be said that this fiduciary obligation prevented him from buying any other tickets in any other draws. Likewise, it could not be said that this fiduciary obligation obliged Mr Adams to include the 2016 Core Syndicate members in every single lottery draw he participated in. It would be inconsistent with the current law to impose any wider fiduciary obligations upon Mr Adams.

351. Further, in my view, it would be untenable to suggest that there would be a subsequent conflict in respect of subsequent purchases by Mr Adams of other tickets for himself and/or others. Mr Adams did not derive any opportunity or knowledge which he used to his own profit that was contrary to the interests of Mr King or any of the other 2016 Core Syndicate members. He therefore did not breach, for example, the ‘no profit’ and ‘no conflict’ rules.

352. In addition, it seems to me that there is no evidence of any discussion having ever taken place in which Mr Adams promised to provide an opportunity to Mr King to participate in each and every draw Mr Adams entered, nor did Mr King proceed on that assumption. Further, there was no evidence suggesting that any of the other 2016 Core Syndicate members made such an assumption. On the evidence, nothing Mr Adams said or did could be reasonably construed as his undertaking to act for Mr King, or any of the other 2016 Core Syndicate members, on all occasions and in respect of every draw. Quite to the contrary, as I have observed, Mr King himself indicated he had no difficulty with the proposition that Mr Adams might purchase tickets on behalf of differing groups of people. Once again, these facts lead to the conclusion that Mr Adams did nothing to assume the fiduciary “office” or give rise to a fiduciary obligation to include Mr King in the Winning Syndicate.

353. In my opinion, Mr King could do no more than reasonably believe that he would share in draws in which he was either invited to join, had received a copy of the relevant tickets or had made a financial contribution. There is no evidence to suggest that Mr King ever participated in or received proceeds from a draw in which he did not receive a copy of the relevant tickets beforehand. I consider it entirely artificial to contemplate a person having rights to participate in a draw when they had not agreed to participate in it and/or paid to participate in it, and certainly not where a ticket had not been explicitly bought on their behalf.

354. I do not believe that Mr Adams owed Mr King any fiduciary obligations unless and until he either: made contact with him in relation to entering the Winning Syndicate (which he did not do), was given money by him to enter the Winning Syndicate (which he did not receive) or continued to hold winnings from previous draws on behalf of the Winning Syndicate and used those funds, in part or in whole, to purchase the Winning Syndicate’s tickets in the 5 May 2016 draw (which he did not do).

355. There is simply no evidence to suggest that Mr Adams assumed the fiduciary office in relation to any of the factory workers, in any given draw, without making contact with them or receiving or holding their funds to be used for that purpose and there is similarly no evidence to suggest that Mr Adams presumed that any particular individuals would be automatically included in any given draw which he chose to enter.

356. Moreover, in the relevant sense, there is no vulnerability on the part of Mr King or any of the other syndicate members until they parted with money they ‘entrusted’ to Mr Adams or unless Mr Adams had invited them to participate in any given draw. Each syndicate member had an absolute choice as to whether they would pay Mr Adams money to enter any given draw. ‘Vulnerability’ could be only said to arise after they had given this money to Mr Adams, after which they were then at his mercy in terms of what he was to do the money they ‘entrusted’ to him. Thereafter he had to deal with their money or winnings appropriately.

Common intention constructive trust

357. The defendants complain that the plaintiff has sought to advance in submissions, but not pleaded, a common intention constructive trust or alternatively a constructive trust of the Muschinski v Dodds and/or Baumgartner v Baumgartner variety. The defendants submit that the plaintiff should not be permitted to run those cases.

358. The defendants submitted that the notion of “common intention is inappropriate here because when one looks at its history it was resorted to as a device to resolve property relations between disaffected properties where unequal contributions had been made to purchase prices in which a presumption of advancement might otherwise lie”: J D Heydon and M J Leeming, Jacob’s Law of Trusts in Australia (7th ed, 2006, Lexis Nexis Butterworths) at [1214]. Further, the defendants submitted that the device was resorted to for the purposes of enabling the discernment of a resulting trust or an interest by way of a proprietary estoppel and that neither concept arose in this case. The defendants also pointed to the Muschinski v Dodds and/or Baumgartner v Baumgartner constructive trust as equally inapposite in the current case.

359. In my view, this case fails even if leave had appropriately been granted for an amendment explicitly to plead such a claim. It fails because I am satisfied there was simply no evidence of any common intention in the relevant sense. The only ‘common intention’ I am prepared to find, if one could call it that, was an understanding that from time to time Mr Adams may or may not invite Mr King to join in syndicates, whether a syndicate of 12 or perhaps otherwise.

360. Further, there is no basis in the evidence, and in fact no clearly articulated circumstance by the plaintiff as to how Mr Adams acted unconscionably so as to warrant the imposition of a Muschinski v Dodds and/or Baumgartner v Baumgartner constructive trust. It is clear to me that the evidence suggests, and in accordance with my findings above, that Mr Adams did not act unconscionably in excluding Mr Adams from the Winning Syndicate.

361. For these reasons, the constructive trust case likewise fails.

The contract case

362. As with his other cases, Mr King bears the onus in relation to the contract case. He asserts, for example, that the contract was developed over the time, whatever that may mean.

363. It seems to me that a fundamental obstacle in relation to this case is that I do not accept there is any evidence to support the proposition that a contract of that sort ever existed.

364. When viewed objectively, it simply does not seem to me that the parties ever intended to create legal relations as pleaded. I acknowledge that ad hoc contracts were arguably created from time to time when a syndicate entered into a particular draw, being limited to that specific purpose. However, I am satisfied there is simply no evidentiary basis for suggesting that there was some overarching agreement of the sort asserted. It seems to me that a clear understanding on the part of all concerned was that Mr Adams would exercise a discretion as to if, when and to what extent he would invite people to join or participate in syndicates. While the putative participants may have had some general understanding, there was certainly no precision about who would or would not be included.

365. Indeed, none of the parties to the contract appeared to know of its existence. In my mind, the only plausible construction of the evidence is that from time to time Mr Adams made direct contact with people in order to obtain their willingness to or not to participate in a draw. The understanding extended to any winnings that might have eventuated but it is limited to that. In my view, until this occurred, there was no relationship between them, legal or otherwise.

366. The conversation which Mr King asserts he had with Mr Adams on or about 11 January in my mind is no more than an exchange of a most informal kind, where neither party intended to create any legally binding arrangements that covered each and every draw Mr Adams chose to enter.

367. Most importantly, although at a very high level it can be said that at least from 11 January, Mr Adams indicated to Mr King that he would be forming a new syndicate which was for the purposes of big draws. However, in my view, it is fanciful to suggest on the state of the evidence that anything was said which would oblige Mr Adams not to enter any draws other than those on behalf of the 2016 Core Syndicate.

368. The stakes were higher, and so was the contribution of $50 required of each participant. For these workmates, $50 was a significant amount and I am satisfied, although they had a desire to participate when they could, they did not objectively regard themselves as bound to contribute the $50 if their household could not afford the $50 when Mr Adams came calling. Likewise, it is clear to me that Mr Adams never subjectively believed that he had the right to sue any participant who failed to give him any of the money required to enter any given draw.

369. As I say, while there might have been some general understanding of who might or might not be in the draw it is not as if Mr Adams distributed a list or formalised the arrangement beyond simply saying that he was changing the old regime to a new regime. It seems to me that on the evidence there is simply no support for a contract of the kind asserted by Mr King.

370. Mr King’s evidence is that there were two conversations of moment on 11 January and 27 April 2016. I have already referred to the conversation of 11 January that goes no further than simply suggesting that Mr Adams announced the creation of the new syndicate and that Mr King would have to put in $50. Mr Adams version of that conversation Mr King accepts may well have occurred. Mr Adams said that during this conversation he said “the Lotto has finished… I might get up another one, but it will be less people. I will want $50 up front, that way we will always be ahead. We will only be going in the big draws. Do you want to be in it?” (Affidavit of Adams 15 June 2015 [79]). Mr King accepted Mr Adams may well have said exactly that (T 16-17).

371. Mr King accepted that he understood that Mr Adams wanted money up front because he did not want to chase people as he had done in the past. Mr King, unsurprisingly also accepted that Mr Adams had complete discretion over what “big draws” he would enter on behalf of the 2016 Core Syndicate (T 60/36-40, T 61/5-14).

372. In my view, the conversation on 27 April, viewed objectively, was nothing more than an informal exchange about a particular draw. I cannot see how it could, even on Mr King’s version of events, give rise to any form of contractual obligation or a variation to any allegedly existing contract (See King affidavit 17 May 2016 [46]).

362. I am of the view that there is simply no factual basis to support a contractual promise on either occasion, taken separately or together, that Mr Adams would only ever run a lottery draw which Mr King was part of. That would be enough to dispose of the contract claim. However, as I have already indicated, it is also submitted that terms should be implied into the contract to oblige Mr Adams to include Mr King in the Winning Syndicate.

363. Again, I do not see any basis for an implication or implications of the kind suggested. I do not see why it would be necessary to give business efficacy to the purported contract in the sense understood in the authorities. There is no suggestion that custom or usage would support such an implication. Indeed, there is no evidence in any event. Although clearly not determinative, but of passing interest, a number of witnesses said they did not think they had to be in every draw (Affidavit of Griffiths 4 August 2016 [4]; Affidavit of Andres 4 August 2016 [4]; Affidavit of Hashim 4 August 2016 [4]; Affidavit of Singh 4 August 2016 [3]; Affidavit of Cheak 4 August 2016 [10]). Mr Hashim even explained that on one occasion he refused Mr Adams’ invitation to enter a ‘big draw’ (Hashim affidavit of 4 August 2016 [3]).

364. Further, as the defendants rightly point out, even assuming that a contract of the sort pleaded existed which included Mr King in a “big draw” (including the Mother’s Day Draw), that contract was fulfilled because Mr Adams bought a ticket on behalf of the 2016 Core Syndicate in all the “big draws”: the $25 million Powerball draw held on 28 April 2016, the 5 May draw and the Mother’s Day Saturday Lotto Draw held on 7 May 2016. Having done so, it seems to me Mr Adams had total discretion to buy as many more tickets as he wished in any of those draws, on his own or in combination with any other person. I do not see any contractual obligation which could restrain him otherwise. Mr King could not reasonably have expected that any other tickets Mr Adams purchased would have included Mr King.

365. For these reasons, in my view, the contract case fails.

The estoppel by convention case

377. It seems to me that the estoppel case has no foundation in fact. There is simply no evidence to support the proposition that Mr King, let alone anyone else, proceeded upon any assumption or belief that Mr Adams would invite Mr King to participate in each and every ticket he purchased, whether for himself or for himself and others. Indeed, everyone including Mr King recognised that this was simply not going to be the case. The so called convention therefore has no foundation in fact and likewise must fail.

The pooling case

378. The pooling case could only succeed if there were not two distinct syndicates or if Mr Adams used mixed funds to purchase the tickets on behalf of the Winning Syndicate in the 5 May draw.

379. As to the latter, in my view there is simply no evidence to prove that funds were mixed. I am satisfied that there were two distinct syndicates which entered the 5 May draw (the 2016 Core Syndicate and the Winning Syndicate) and the funds received by Mr Adams from each syndicate were kept in two distinguishable pools of money. Mr King did not contribute to the relevant Winning Syndicate pool and therefore could not have a claim over the proceeds of the Winning Syndicate.

380. As to the former, I do not consider there is any evidence to support the proposition that Mr Adams mixed the funds of the 2016 Core Syndicate with that of the Winning Syndicate. As per my findings above, there is no basis to find that Mr Adams used funds other than the $600 he obtained from the Winning Syndicate members (bar Mr Thattamanivong and Mr Mico who paid after the ticket was purchased) to purchase the tickets on behalf of the Winning Syndicate in the 5 May draw. Mr Adams kept separate each of the funds from his various endeavours. He was readily able to account appropriately for all monies he had or was still holding. It follows that the proceeds of each pool belong only to those who contributed to that pool.

381. In my view, Mr Adams has more than adequately accounted for the various funds he obtained from time to time including the funds he obtained for the Winning Syndicate. I am satisfied that Mr Adams purchased the tickets in the 5 May 2016 draw on behalf of the Winning Syndicate, only using the funds that he received from the Winning Syndicate members. Those funds were simply not the subject of any contribution by Mr King and were not mingled funds.

382. The pooling case must therefore fail.

Conclusion

383. I would invite the parties to prepare Short Minutes of Order to reflect my decision. If need be I would also hear any dispute on the question of costs.

*********

Amendments

16 December 2016 - Correct plaintiff's name in cover sheet, pages 39 and 67

15 December 2016 - Jurisdiction: Equity Division - Expedition List

14 December 2016 - 1. Amendment in hearing dates additions

2. Note that legal representation for second defendant filed a notice of appearance on 20 June 2016

Decision last updated: 16 December 2016