Ozmen Entertainment Pty Ltd v Neptune Hospitality Pty Ltd
[2019] FCA 721
•3 April 2019
FEDERAL COURT OF AUSTRALIA
Ozmen Entertainment Pty Ltd v Neptune Hospitality Pty Ltd [2019] FCA 721
File number: NSD 1424 of 2017 Judge: RARES J Date of judgment: 3 April 2019 Catchwords: ADMIRALTY – demise charter – construction – nature of demise charter – warranty that vessel would be classed and surveyed to carry 800 passengers – where vessel had not been classed or surveyed at time of entry into charterparty – whether survey for maximum of 450 passengers breach of warranty
CONTRACTS – notice to remedy breach –where notice conveys clear intention to terminate agreement if breaches of continuing obligations not remedied within specified time – where impossible to remedy past breaches – whether possible for party to remedy past breaches by acting “to put things right for the future”
CONTRACTS – termination under contract or at common law – where multiple breaches of obligations and duties under joint venture agreement – where one party required to provide fortnightly financial reports and information to other – duties of trust and good faith and of making decisions jointly – duty not to unilaterally incur debts – duty to comply with taxation obligations – conditions, warranties and innominate terms – whether unremedied breach of innominate terms sufficiently serious to justify termination – whether multiple breaches by party evinced intention not to be bound
EQUITY – joint venture – fiduciary duty – where party obliged to obtain survey and classification of vessel to carry 800 passengers informs other party that surveyor will only issue for lesser number and parties should do work later to bring vessel to standard for 800 passengers – where consequence is other party would lose guaranteed net profit entitlement under joint venture agreement – whether one party had fiduciary duty to inform other of potential loss of guarantee in advising course of action – whether conflict between interests of joint venturers – whether duty to inform of conflict of interests –whether party to joint venture agreement deemed to know its provisions
Legislation: A New Tax System (Goods and Services Tax) Act 1999 (Cth) ss 9-5, 9-40
Evidence Act 1995 (Cth) s 136
Cases cited: Allphones Retail Pty Ltd v Hoy Mobile Pty Ltd (2009) 178 FCR 57
Ankar Pty Limited v National Westminster Finance (Australia) Limited (1987) 162 CLR 549
Australian Securities and Investments Commission v Hellicar (2012) 247 CLR 345
Batson v De Carvalho (1948) 48 SR(NSW) 417
BS&N Ltd (BVI) v Micado Shipping Ltd (Malta) (The “Seaflower”) [2001] 1 Lloyd’s Rep 341
Burger King Corporation v Hungry Jack’s Pty Limited (2001) 69 NSWLR 558
Carr v JA Berriman Pty Limited (1953) 89 CLR 327
Commissioner for Main Roads v Reed & Stuart Pty Limited (1974) 131 CLR 378
Commonwealth Bank v Smith (1991) 42 FCR 390
Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640
Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89
Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41
John Alexander’s Clubs Pty Limited v White City Tennis Club Limited (2010) 241 CLR 1
Jones v Dunkel (1959) 101 CLR 298
Koompahtoo Local Aboriginal Land Council v Sanpine Pty Limited (2007) 233 CLR 115
Kuhl v Zurich Financial Services Australia Ltd (2011) 243 CLR 361
L Schuler AG v Wickman Machine Tool Sales Limited [1974] AC 235
L’Estrange v F. Graucob Ltd [1946] 2 KB 394
Laurinda Pty Limited v Capalaba Park Shopping Centre Pty Limited (1989) 166 CLR 623
Maguire v Makaronis (1997) 188 CLR 449
Pilmer v Duke Group Limited (in liq) (2001) 207 CLR 165
Queensland Mines Ltd v Hudson (1978) 18 ALR 1
Sargent v ASL Developments Ltd (1974) 131 CLR 634
Silverburn Shipping (10M) v Ark Shipping Company LLC (the “Arctic”) [2019] EWHC 376 (Comm)
Stirling v Maitland (1864) 5 B&S 840
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165
Tricontinental Corporation Limited v HDFI Ltd (1990) 21 NSWLR 689
Zhu v Treasurer of New South Wales (2004) 218 CLR 530
Date of hearing: 4-8, 11-15, 22, 26 March 2019 Registry: New South Wales Division: General Division National Practice Area: Admiralty and Maritime Category: Catchwords Number of paragraphs: 304 Counsel for the Applicants: Mr T Castle with Ms E Kovacs Solicitor for the Applicants: Holman Webb Lawyers Counsel for the Respondent: Mr E Cox SC with Ms C Gleeson and Mr J Tryon Solicitor for the Respondent: Barringer Leather Lawyers
Table of Corrections 22 May 2019 In paragraph 7, “Mr Silva” has been replaced with “Mr Silvia” ORDERS
NSD 1424 of 2017 BETWEEN: OZMEN ENTERTAINMENT PTY LTD
First Applicant
KANKI SEA TOURISM HOSPITALITY & ENTERTAINMENT PTY LTD
Second Applicant
AND: NEPTUNE HOSPITALITY PTY LTD
Respondent
JUDGE:
RARES J
DATE OF ORDER:
3 APRIL 2019
THE COURT ORDERS THAT:
1.The parties provide agreed orders to give effect to the reasons delivered orally today on or before 17 April 2019, and, in default of agreement, each party file and serve the draft orders it proposes be made together with written submissions limited to two pages on or before 15 April 2019.
2.The proceeding be listed for case management at 9.30am on 17 April 2019.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
RARES J:
Mert Ozmen is a Turkish businessman. In about August 2014, Mr Ozmen negotiated a loose arrangement with three Australian businessmen, Gavin Douchkov, Mel Como and Scott Robertson, with a view to the Australians paying a hire premium for a new build 42.55 metre LOA motor yacht, Seadeck (formerly named Vanga), to sail from Turkey to Sydney, Australia. Around this time, Mr Ozmen caused the incorporation of Ozmen Entertainment Pty Ltd to hold his interest in Seadeck, and Messrs Douchkov and Como caused the incorporation of Neptune Hospitality Pty Ltd to hold their interest in the negotiated arrangement. In November 2014, Mr Ozmen caused Kanki Sea Tourism Hospitality & Entertainment Pty Ltd to be incorporated.
The plan was that the parties would enter into a charterparty or other dealing in which they would use Seadeck to offer luxury day or night cruises on Sydney Harbour for 800 or more passengers, and generate very large net profits. Those rosy expectations did not come to fruition.
On 6 January 2016, Entertainment demise chartered Seadeck to Kanki and Neptune jointly for the purpose of the charterers employing her under a joint venture agreement (JVA) of the same date between Kanki and Neptune.
The delay in the parties entering into these two contracts occurred through a series of setbacks, including the lengthy detention of the ship in Port Said, Egypt, shortly after she left Turkey. Neptune, through the support of Mr Douchkov and Mr Como, incurred all the expenses of getting Seadeck to Sydney where she finally arrived in November 2015.
The parties had planned on the Australian authorities granting a liquor licence for Seadeck to carry 800 passengers. They projected that the joint venture would earn a net profit of over $10 million per annum and, on that basis, Neptune guaranteed that Kanki would be paid no less than $5 million net profit annually for the term of the JVA.
However, on 25 October 2016 when the liquor licence was granted, it permitted the ship to carry only a maximum 450 passengers in accordance with a survey that Neptune obtained.
As might be expected, not only in part as a result of the reduced capacity, the operation of the joint venture has resulted in significantly less returns to the already financially stressed participants. That was a recipe for not only discord but distrust. On 26 September 2018, Burley J appointed Brian Silvia and Ian Currie as receivers and managers of the joint venture.
The issues
Kanki claims that the JVA automatically terminated or that Kanki, itself, terminated the JVA, as at 25 July 2017 based on Neptune’s failure to remedy breaches of the JVA specified in Kanki’s solicitors’ notice to Neptune dated 11 July 2017 (the Kanki notice). In addition, Entertainment claims validly to have terminated the charterparty by notice on 4 August 2017 (the Entertainment notice) because, upon the termination of the JVA, the purpose for which Entertainment demised the ship to Neptune and Kanki jointly had failed.
Alternatively, Kanki seeks to have the joint venture wound up because:
·Neptune acted in breach of its fiduciary duty under the JVA and in equity by failing to advise Mr Ozmen that Neptune was in a conflict of interest and duty in early March 2016 leading to his agreement that Neptune seek the issue of a survey certificate for 450, instead of 800, passengers in circumstances where a survey for the lesser number of passengers would also restrict a liquor licence to that number and this would excuse Neptune from having to meet its contractual guarantee to pay Kanki a minimum annual net profit of $5 million;
·the substratum (that Neptune would pay Kanki a minimum annual net profit of $5 million), on which the parties contracted, failed because the limited survey and liquor licence capacity of 450, in lieu of 800, passengers caused a substantial reduction in the vessel’s and business’ earning capacity;
·there has been a breakdown in trust and confidence between the parties, in particular because of Neptune’s conduct of the financial affairs of the joint venture, its continuing failures to provide Kanki with financial information, including in respect of the catering arrangements for Seadeck, and its exclusion of Kanki from decision-making; and
·Neptune made a unilateral decision, over Kanki’s objection, to take Seadeck to Brisbane in late June 2017.
Neptune contends that none of the matters raised by Kanki and Entertainment has substance, or that they are entitled to any relief. Neptune argues that each of Kanki and Entertainment cannot obtain any equitable relief because each has unclean hands on the basis that:
·from November 2016, when the joint venture began trading, Mr Ozmen made frequent demands for money to which Kanki was not entitled, and that Neptune met those demands for a period until about 2 February 2017;
·Mr Ozmen threatened to undermine the business if he did not get his demands met;
·from about late January 2017, Kanki contrived to raise unjustified disputes including in relation to the provision of accounting information and Seadeck’s relocation to Brisbane; and
·from about May 2017, Kanki and Entertainment agreed with Culture Map Pty Limited that Culture Map would assist them to terminate the joint venture and that, subsequently, they would all enter into a new joint venture to conduct a business employing Seadeck.
In addition, if Kanki and Entertainment’s claims for relief are successful, Neptune seeks relief in its amended cross-claim by way of a declaration that the ship is an asset of the joint venture, an account of profits and recoupment of the unpaid amounts of shared costs that the JVA provided would be met by Kanki, on the basis of a quantum meruit and a lien over Seadeck to secure any amount Neptune is owed pending its ascertainment and payment.
The parties relied on a considerable body of oral and written evidence about their relationship. I have considered all of that evidence, including documents, the use of some of which I limited under s 136 of the Evidence Act 1995 (Cth) in arriving at the findings below. Those findings necessarily summarise the key features of the whole of that material, but are not exhaustive. Thus, I may not have stated explicitly that any particular document was admitted as, for example, an assertion by its author, and was not evidence of the truth of the assertion. However, I have only relied on the documents as evidence consistently with any limitation on its use.
The parties agreed that the ascertainment of what may be due to one side or the other will occur, probably by the appointment of a referee, once I have decided the substantive issues.
The voyage to Australia
In 2014, an associate of Mr Douchkov informed him of an opportunity to participate in a venture to manage and operate a hospitality vessel of about 140 to 150 feet that was then in Turkey. He understood that her owners were looking to move her to a new market. Following further discussions about the proposed venture, Mr Douchkov and Mr Como entered into a loose arrangement with Mr Ozmen in August 2014 in which they would pay USD400,000 for the ship to be delivered, in working order and in class, from Turkey to Australia, so that Mr Douchkov and Mr Como would own a half share in a hospitality business using the ship in the Australian market.
Mr Douchkov said that on the basis of the arrangement, the ship sailed from Turkey for Australia on about 14 August 2014. However, soon after Seadeck left Turkey, disaster struck and she and her crew were detained by Egyptian authorities at Port Said. It took eight months for Neptune to procure the ship’s release, and another four months to get her crew freed. As soon as she was released, Neptune, with Mr Ozmen’s consent, arranged for Seadeck to sail to Batam, Indonesia to undergo repairs for hull damage and to correct the warping of her timber decks caused by her being neglected while in detention, as well as preparation work to fit out her to trade on Sydney Harbour.
Mr Ozmen had made clear at the outset of the negotiation that he had no available financial resources to contribute to getting Seadeck to Australia or into a condition where she would be fitted out so as to be in class and in survey to carry 800 or so passengers on cruises here, although she had been constructed so that, with proper preparatory work, she could be surveyed and classified to do so. This meant that the financial burden of procuring the release of the ship and her crew and the work to have Seadeck put into a condition to be classified so as to be capable of being licensed to carry 800 passengers and crew on cruises in Sydney Harbour fell entirely on Neptune. Mr Douchkov and Mr Como provided Neptune with the funds to do so.
Following a sea trial on 16 October 2015 conducted after completion of the works in Batam, RINA, a ship survey and classification society, issued a light ship survey for Seadeck.That survey indicated that she would be capable of being classified later to carry 800 passengers and she sailed for Sydney on about 17 October 2015.
On 23 October 2015, Mr Ozmen and some of his associates, including Gunay Koyunoglu, and one of his nephews, Kartal Altikulacoglu, met at the Melbourne office of his solicitors with Messrs Douchkov, Robertson and others to discuss the formalisation of the loose arrangement negotiated in August 2014. The Neptune side made clear that they had incurred very significant unanticipated costs due to the detention of the ship and the crew, consequent repair work in Indonesia, and holding costs in Sydney, including for a mooring.
That led to Mr Robertson sending Mr Ozmen’s solicitors an email on 27 October 2015 confirming what the total known extra costs were, as at 21 October 2015, so that the proposed contracts could deal with any entitlement of Neptune to recoup some or all of them.
In his 27 October 2015 email, Mr Robertson said that Mr Ozmen had come to Sydney shortly after Seadeck’s detention occurred and informed the Neptune side that he was not in a financial position to help in the resolution of the problems in Egypt, and asked if they would pay a sum in US dollars equivalent to AUD250,850.38 to do so. Mr Robertson said that Neptune agreed to lend that sum and paid it in good faith on that basis. He said that Neptune could provide “full details of the breakdown of” each of the following five categories of costs it had incurred, namely:
(1)the legal and further transportation costs to get the vessel to Batam;
(2)the cost of new upholstery;
(3)the costs incurred by Neptune paying for a berth in Sydney whilst Seadeck was detained in Egypt, and undergoing repairs and refitting in Batam;
(4)the costs of Mr Robertson and David Auld, a contractor that Neptune had engaged in project managing delivery of the vessel between Egypt and Sydney; and
(5)the cost of the Batam repairs and maintenance together with the survey costs to get the vessel from Batam to Sydney.
In November 2015, the Neptune side sought advice on the proposed contracts from Mr Douchkov’s solicitor, Gregory Leather.
The JVA and charterparty
In the end, on 6 January 2016, the parties entered into two contracts at the heart of this proceeding, namely, a demise charter to Kanki and Neptune, as charterers, of Seadeck by Entertainment, as her legal and beneficial owner, for three years, with two options of three years each for the total hire of $1 (the charterparty), and the JVA also with a three-year term and two three-year options. Recitals to the charterparty recorded that Entertainment had agreed to demise charter Seadeck to Kanki and Neptune “[f]or the purpose of” the JVA, “to operate the Business more properly defined in the [JVA] in Annexure A”.
Both the charterparty and the JVA contemplated that Neptune would have responsibilities to perform substantial tasks on behalf of the charterers as the joint venturers. Those responsibilities included Neptune obtaining surveys for, and classification of, Seadeck to carry 800 passengers, as well as managing the proposed luxury cruise business and preparing fortnightly, and annual, profit and loss statements and accounts for the trading of the business. The JVA included, as annexure 1, weekly and yearly profit and loss projections that indicated that the business to be conducted in the joint venture would achieve a yearly net profit of over $10.225 million. Annexure 1 also recorded percentage values against each of the line items in the projections.
Importantly, in cl 10(n) of the JVA, Neptune guaranteed that, first, Kanki’s share of the net profit at the end of the first full season of trading ending 30 September 2017 would be at least $5 million and every season thereafter, while the JVA was in force, and, secondly, if Kanki had received a lesser annual total of fortnightly payments as its share of net profit, Neptune would pay Kanki the difference between $5 million and what it had received (the $5 million guarantee). However, the $5 million guarantee was subject to conditions, including that Seadeck was fully licensed by the Independent Liquor and Gaming Authority of New South Wales (the ILGA) “with a Legal Capacity of 800pax” (scil: passengers).
Importantly, the JVA provided that the parties, first, had to ensure that at all times they acted in the best interests of the business and in good faith (cl 6(b)(iii)), and, secondly, owed each other a duty of trust and had immediately to inform the other of any conflict of interest (cl 6(d)).
The JVA also provided that:
·each party had to nominate a firm of accountants and a person to sign all cheques on its behalf (cl 2(b) and (c));
·each party had to appoint a representative to manage on its behalf the affairs of the joint venture (and that the initial nominees were Mr Altikulacoglu for Kanki and Mr Robertson for Neptune), each of whom was to be an onboard employee of Seadeck and to occupy a full-time related role in the day-to-day running of the business (being defined in cl 1(c) as the hospitality, entertainment or other business as the parties might conduct jointly on or from Seadeck “from time to time whether in Australian waters” [sic]) (cl 3);
·the joint venture proposed to operate the business under the business name “Seadeck”, and that name would remain the shared property of the parties after the JVA came to an end or was otherwise terminated (cll 4 and 9);
·Kanki and Neptune “are equally responsible for the day-to-day running of the Business” (cl 6(a));
·the parties had to ensure that they:
(a)did “everything possible to warrant that decisions are made promptly and that full cooperation is given so that the Business is successfully managed and profitable” (cl 6(b)(i));
(b)at all times acted in the best interests of the business in good faith (cl 6(b)(iii));
(c)could not be “directly or indirectly involved in any undertaking or venture, joint or otherwise, that might compete with that of the Business on Sydney Harbour” (cl 6(b)(iv)); and
(d)complied with all applicable laws relating to the business and its assets (cl 6(b)(vi)),
·the only relationship between Kanki and Neptune was that of joint venturers to the JVA (cl 6(c));
·each party owed the other a duty of trust and “must immediately inform the other of any conflict of interest, must not profit separately from the Business unless otherwise agreed to by the other party” (cl 6(d));
·Neptune had reasonably to keep Kanki informed of all corporate and private bookings, pricing for general admission, and “the quality of beverages and food served on [Seadeck]”, and “Both parties will jointly operate and manage the business”. “These arrangements are to be constantly discussed and finalised by both parties so that all decisions are made jointly” (cl 6(e));
·neither party “may unilaterally incur debts or commit another party to liabilities” (cl 6(f));
·if Seadeck required maintenance or repair, Neptune had to notify Kanki, which could request Neptune to obtain a minimum of three written quotations for the work that Kanki had to consider, and if it could provide a comparable quotation for the same work and quality, it had the discretion to select that provider “in the interest of saving the expenses incurred by the Business” (cl 6(g));
·the parties had to ensure that “the joint venture has sufficient working capital to conduct the Business at all times” (cl 7); and
·the business and its assets would be the shared property of the parties except that Seadeck, including all fixtures and attachments listed in an attachment (that was not in evidence) to schedule 3 of the JVA, remained the property of Entertainment (cl 9(b)).
Importantly, in cl 9 of the JVA, Kanki acknowledged that Neptune had paid both the hire premium of $442,900 (that was not to be repaid) and 100% of the shared costs, being those defined in schedule 1 of the JVA, of which Kanki would repay 50% plus interest. In addition, each party agreed to pay 50% of the cost of an awning that would be constructed in Sydney over the ship’s deck areas. Some of the shared costs, including for new generators, the RINA survey fee and the awning were reparable over 36 months from when the vessel began trading with interest calculated from the date when the relevant shared cost was incurred.
The shared costs were:
·an initial loan by Neptune of $250,850.38 to meet the unexpected operation costs associated with the ship’s journey to New South Wales (being the loan to which Mr Robertson referred in his email of 27 October 2015) (see [20] above); and
·four categories of costs as incurred to 22 October 2015 (being four of the specific categories that Mr Robertson had listed in his 27 October 2015 email, but with actual amounts for each category specified in schedule 1, however the shared costs specified in schedule 1 of the JVA did not include any costs of the repairs and maintenance in Batam), together with any further expenditure by Neptune up to the date of the JVA for which it had not yet sought Kanki’s prior consent, that the parties would evaluate as to whether they would be shared under cl 10(k) in respect of:
(a)legal costs and vessel transportation costs (Egypt to Batam) of $437,298.39;
(b)the cost of new upholstery for Seadeck of $39,921.57;
(c)the cost of Neptune providing staff to project manage delivery of the vessel of $105,500; and
(d)the cost of paying for a berth in Sydney while Seadeck was both detained in Egypt and, later, underwent repairs and refitting in Batam of $104,902.31.
However, schedule 1 stipulated that Kanki was not obliged to contribute to the shared costs unless proof of payment and an itemised bill were provided for the same. The total of shared costs to 22 October 2015 set out in schedule 1 of the JVA was $938,472.65, or about $470,000 for each party. Obviously, the berthing costs in Sydney after 22 October 2015 would increase and be an ongoing joint venture expense that had to be shared.
Clause 10 dealt in detail with ascertainment and payment of the net profit share, including the $5 million guarantee. Clause 1(k) and (l) defined the expressions “Net Profit” and “Net Loss” to mean revenue less expenses before taxation if, respectively, a positive or a negative amount.
Clause 10 provided that Neptune “agrees to pay [Kanki] 50% of the Net Profit of the Business (such amount plus any GST payable)” (cl 10(a)), and in the event that there was a loss, Neptune “will bear the said Net Loss of the Business (such amount plus any GST payable)” (cl 10(b)). Under cl 10(c), within five business days of each fortnight throughout the term of the JVA, Neptune had to:
calculate the Net Profit of the Business for the preceding fortnight, and provide all related details to [Kanki] regarding:
(1) A calculation of the Net Profit and/or Net Loss; and
(2) The share of the Net Profit payable to [Kanki] and [Neptune].
Kanki had three business days in which to give Neptune written notice whether or not it accepted the calculations. If it did not give notice, cl 10(d) deemed that Kanki had accepted them. Kanki’s accountants were to review the accounts of the business and figures that Neptune presented and would do so each month “for the purpose of taxation and to comply with any Australian Taxation Office obligations”, and they could also review accounting materials on the vessel, after giving Neptune three business days’ notice of their intention to do so (cl 10(e)).
Relevantly, cl 10(i) provided:
The fortnightly payments, as per the calculations described in Clause 10(c) above, will be based on the management of the accounts [scil: management accounts] of the business and the review of said accounts by the accountant for [Kanki].
If Kanki disputed any of Neptune’s fortnightly calculations under cl 10(c), the parties agreed promptly to attempt to resolve the dispute, and, if they could not, cl 10(g) provided they would engage the services of an independent accountant agreed to by the parties, or, in default of agreement, appointed by the president of Chartered Accountants Australia and New Zealand, to reach a resolution.
Neptune had to pay Kanki its 50% of share of net profit for the relevant fortnight within one business day of either confirmation of Kanki’s acceptance, or the accountant’s resolution under cl 10(g), of the amount, subject to Neptune receiving from Kanki a valid tax invoice that complied with Australian taxation law (cl 10(h)).
Kanki had, and could not unreasonably refuse, to approve and consent to any expenditure by Neptune for the operation of the business (cl 10(j)).
As soon as practicable after the finalisation of the accounts of the business for each financial year during the JVA’s term, Neptune had to provide Kanki with calculations of the net profit for that financial year (or the relevant part, if it extended beyond the term of the JVA) with details of the calculation of net profit under cl 10(c), Kanki’s 50% share of net profit and any reconciliation required on account of the fortnightly payments made during the year (or period). Kanki had 10 business days to give Neptune written notice whether or not it accepted the calculation based on the key performance indicators in annexure 1 (which are not in evidence, unless they are the percentage values in the profit and loss projections included in that annexure), and, if it did not give notice, Kanki was deemed to have accepted them. Clause 10(g) would apply if Kanki disputed the calculations (cl 10(l)(iv)). Within five business days of either Kanki’s acceptance or the decision of the independent accountant, the party that owed the other money had to pay what was due (cl 10(m)).
The JVA also provided, in cl 13(a), that a party defaulted if, relevantly:
·it failed, first, to make a payment owed to the other party under the JVA on the prescribed date, and, secondly, to remedy that failure within seven days written notice by the other party (cl 13(a)(ii));
·it continued to breach any obligation under the JVA after receiving 14 days notice to remedy the breach (cl 13(a)(iii)); or
·it breached any fiduciary duty it owed under the JVA to the other party (cl 13(a)(vi)).
If a default by a party under cl 13(a) occurred, cl 13(b) provided that, first, the JVA was terminated and, secondly, the original fixtures on Seadeck noted in schedule 3 (the attachment to which is not in evidence) could not be removed.
Importantly, cl 16 of the JVA provided that the parties intended that the JVA would be legally binding and constituted “the entire Agreement and any arrangement between the parties in respect of its subject matter. Any former Agreements or Arrangements are negatived and of no force or effect”.
The charterparty provided that:
·during its term, Seadeck “shall be in the full possession of [Kanki] and [Neptune] and under their complete control” and they would, at their cost and risk, crew, manage, maintain, navigate and operate Seadeck (cl 1(a)(i) and (ii));
·Neptune “will carry out the daily operation of the Vessel” (cl 1(c));
·the charterers could not make any additions or alterations to the ship without Entertainment’s consent (cl 1 (d));
·Entertainment warranted in cl 7(a) that the ship “will need to be fully classed and surveyed for a vessel of its type, allowing the Vessel to be used for the purpose of the Business [i.e. is the subject of the JVA] and to carry up to 813 passengers”, and Entertainment agreed that any permits, licences, certificates, registrations or permissions that cl 7(a) required would be taken out in Neptune’s name;
·Neptune had to do all things necessary throughout its term “to ensure the vessel is ‘in class’, ‘in survey’, and to maintain any other relevant licences, certificates, registrations or permissions” (cl 7(b)); and
·Entertainment was and would remain throughout its term the ship’s legal beneficial owner (cl 7(c)).
The 1 March 2016 Sydney survey
Under cl 3(b) of the JVA, Mr Robertson was Neptune’s appointed representative to manage the affairs of the joint venture on its behalf.
On 1 March 2016, from about noon, Mr Robertson was onboard Seadeck with RINA’s Australian surveyor, Anoop Nair, on Sydney Harbour while the ship was undergoing her final sea trial necessary for RINA to issue a survey classifying her and specifying the maximum number of passengers she could carry. Mr Robertson was communicating with Mr Ozmen, who was in Turkey, by WhatsApp messages during that sea trial.
At some point during the sea trial, Mr Nair told Mr Robertson that, because of Australian fire regulations, he was only prepared to issue a survey certificate that would specify that the maximum capacity of Seadeck was 450 passengers. This news was like a bolt from the blue to Mr Robertson. He communicated the news first to Mr Douchkov, and later, at about 2.40 pm, Mr Robertson exchanged messages with Mr Ozmen, telling him that in order to get a greater approved passenger capacity, the ship needed work to satisfy lots of fire requirements under regulations or guidelines issued by the Australian Maritime Safety Authority (AMSA) and NSCV.
At this stage, on 1 March 2016, Mr Robertson and Neptune were placed in a position in which their own interests conflicted with its duties to, and the interests of, Kanki. However, having seen and heard him giving evidence, I am satisfied Mr Robertson did not appreciate this. The conflict was that, while a survey allowing Seadeck to carry 800 passengers had financial benefits for both Neptune and Kanki, it also had the consequence that, come what may, if the joint venture made any net profit less than $10 million in a season, Neptune had to pay the difference between 50% of the profit made and $5 million guaranteed to Kanki. However, if Seadeck were only able to be surveyed to carry 450 passengers, cl 10(n)(i) of the JVA operated to relieve it of the risk of having to meet the $5 million guarantee, and, correspondingly, Kanki would lose the benefit of receiving the guaranteed income. Because he did not appreciate the conflict, Mr Robertson encouraged Mr Ozmen, on 1 March 2016, to accept a survey for a capacity of 450 passengers, that RINA later would issue.
Following the sea trial, at 7.25 pm on 1 March 2016, Mr Robertson messaged with Mr Ozmen as follows (Mr Ozmen’s messages are likely to have been corrupted by either his imperfect English or, more likely, an autocorrection function programmed for his more usual communications in Turkish rather than English on his mobile phone):
Mr Robertson
: For class no problem with capacity but for Australian survey we only meet 450 capacity fire regulation. We can accept this now and then do the work required and increase capacity later. At 450 we can still take her out 2 and 3 times in the same day.
And will be easier to get Liquor Licence approved initially.Mr Ozmen: Ok Good Nexs years We make 850 capacity
Mr Robertson
: Yea next year we can increase
Focus on doing good job this year and keeping police on side
So they see how we operateMr Ozmen: New fire plan
Of course, the ILGA still had to issue a liquor licence to enable Seadeck to trade that also specified the maximum number of passengers she could carry, and the ILGA would do so only if the ship were in class and in survey.
On 3 March 2016, RINA Istanbul issued an intact stability booklet that certified Seadeck’s general particulars as including “No. of Passengers: 800”. The stability booklet also indicated that, on 18 November 2015, RINA Turkey Engineering Centre had approved a RINA lightship survey dated 17 October 2015 based on tests done in Indonesia immediately before the vessel sailed for Sydney.
On 4 March 2016, RINA issued a short term certificate of class and record of equipment that certified the maximum number of passengers for Seadeck was 450. The certificate of class was valid to 4 August 2016, and the record of equipment to 3 March 2017.
In July 2016, Mr Douchkov claimed to the ILGA that by July 2015 (i.e. the previous year), he had invested over $2.8 million and Mr Como claimed that he had invested $1.35 million.
As events unfolded, on 1 October 2016, RINA issued a certificate of survey and operation certifying Seadeck to carry a maximum 450 passengers, and on 25 October 2016, the ILGA issued a liquor licence limiting the ship to carrying that maximum number of passengers. By the time that the liquor licence finally issued, both Neptune and Kanki as well as Entertainment had received no income from the moneys each side had invested in the ship and venture over the previous two years or more, and their respective principals were in financially straightened, if not desperate, circumstances.
The parties’ submissions on breach of fiduciary duty and the construction of the JVA and charterparty
Neptune argued that cl 7(a) of the charterparty was a warranty by Entertainment that Seadeck would be able to operate with 813 passengers in respect of it being both classed and surveyed to do so. It contended that cl 7(b) only required Neptune to maintain whatever the vessel’s class and survey, in fact, was. It submitted that cl 7(b) did not extend to requiring Neptune to remedy any earlier breach by Entertainment of its warranty in cl 7(a) by reason of the ship’s deficient fire rating at the time that it gave that warranty on 6 January 2016. Neptune argued that a term could not be implied that any permit, licence, certificate, registration or permission the subject of cl 7(a) and (b) were to be for a legal capacity of 800 passengers, as Entertainment and Kanki had pleaded, because such an implication would be inconsistent with the express terms of cl 7(a).
Neptune also contended that the parties contemplated in cl 10(n)(i) of the JVA that Seadeck might be registered for less than 800 passengers so that it could not be said that the $5 million guarantee was a fundamental term of their dealings. Neptune submitted that in obtaining the survey and registration for 450 passengers, it did nothing to breach its contractual obligations under cl 7(b) of the charterparty. It argued that, on 2 November 2015, it had applied for a survey approving capacity of 800 passengers and liquor licence for 813 passengers. It submitted that there was no evidence to suggest that it could, or should, have done more or that, if it had, a liquor licence would have been issued for that number of passengers. Next, Neptune argued that, because Entertainment and Kanki had not alleged any breach of contract on the ground that it had failed to obtain a survey certificate or liquor licence for 800 until pleading it in 2018, they could not rely on such a failure to support termination of the JVA or charterparty under the Kanki and Entertainment notices.
Neptune argued that the power of a party to give a notice of termination under cl 13(a)(iii) of the JVA had to be exercised reasonably and in good faith in respect of a substantive breach of an operational provision, and not capriciously for some extraneous purpose, relying on Burger King Corporation v Hungry Jack’s Pty Limited (2001) 69 NSWLR 558 at 571-572 [176]-[177], 573 [183]. It contended that Kanki had not alleged any breaches justifying termination. Rather, it submitted that Kanki had alleged breaches of the general obligations of the parties in cl 6 of the JVA and that the ascertainment of any breach of that character involved Kanki’s subjective evaluative judgments as to the existence and nature of any breach.
Neptune also argued that for a breach and a valid notice of default to remedy it to fall within cl 13(a)(iii) of the JVA, the breach, in fact, had to be capable of remedy. Neptune said that its decision in mid-2017 to relocate Seadeck to Brisbane did not require Kanki’s consent under either the JVA (in contrast to the particular matters for which cl 1(c) (which defined the business to include Australian waters), or cll 6(e), (f), 9(d), 10(a) and (b) provided), or the charterparty, which allowed the vessel to operate worldwide. Neptune admitted that it had breached cl 6(g) of the JVA by altering the mast of Seadeck and, I infer, cl 1(d) of the charterparty.
Entertainment and Kanki argued that Neptune, through Mr Robertson, was acting in a fiduciary capacity when he was pursuing the issue of a survey certificate. They contended that, as soon as Mr Nair advised him onboard Seadeck on 1 March 2016 that he would only issue a survey certifying a carrying capacity of 450 passengers, Mr Robertson had a duty, because of Neptune’s position as a fiduciary, to inform Mr Ozmen fully as to Neptune’s and his conflicted positions. They submitted that Mr Robertson’s duty on behalf of Neptune at that moment was to tell Mr Ozmen to go to someone else for advice as to the course to be taken with RINA and Mr Nair. Entertainment and Kanki relied on what Davies, Sheppard and Gummow JJ had said in Commonwealth Bank v Smith (1991) 42 FCR 390 at 393 to support their claim that by reason of the breach of Neptune’s fiduciary duty, it should be found liable on the $5 million guarantee.
Consideration – construction
In BS&N Ltd (BVI) v Micado Shipping Ltd (Malta) (The “Seaflower”) [2001] 1 Lloyd’s Rep 341 at 351 [63], Rix LJ (with whose reasons Jonathon Parker LJ agreed at 353 [80]) said:
A statement as to a vessel’s class does not involve a promise that she will remain in class throughout the charter period.
A vessel’s class is a matter of status: Silverburn Shipping (10M) v Ark Shipping Company LLC (the “Arctic”) [2019] EWHC 376 (Comm) at [41] per Carr J; The Seaflower [2001] 1 Lloyd’s Rep at 351 [64].
The warranty in cl 7(a) operated in circumstances, known to the parties at the time that the charterparty was entered into on 6 January 2016, that Seadeck had not been issued with an Australian survey or certificate of class permitting her to carry 800 or 813 passengers (the difference between the two numbers is immaterial and I will refer below to 800 only for the sake of simplicity). Indeed, they knew at that time that she had no Australian issued survey or class certificate. It follows that the parties contemplated, when contracting, that any survey for Australia would have to be undertaken after they had entered into the charterparty on execution of which Entertainment delivered possession of Seadeck to the demise charterers, Kanki and Neptune.
Thus, the charterparty transferred possession and control of the ship to the charterers in a state where she had not yet been surveyed or put in class (to carry 800 passengers), and required, as the parties knew, the charterers, who were now in possession and control of her (to the exclusion of Entertainment), to do considerable further work before she would be ready for survey and classification in Sydney to meet Australian standards.
Importantly, the charterparty allocated contractual responsibility to one of the charterers, namely, Neptune, to do all things necessary to ensure that the vessel was both in class and in survey throughout the term.
In my opinion, the parties knew at the time that they entered into the charterparty that Entertainment and Kanki either had no funds to, or would not, pay for the work the ship needed to get her into a condition (including being in class and in survey) to pursue the aim of the joint venture. As recital A to the charterparty stated, Entertainment agreed to demise Seadeck for the purpose of the JVA to operate a business as defined in the JVA, and on the common assumption that Neptune would be successful in obtaining a liquor licence authorising Seadeck to carry 800 passengers.
I reject Kanki’s argument that there was an implied term of the charterparty derived from cl 7(a) and or (b) that any permit, licence, certificate or registration or permission referred to therein was to be for a legal capacity for the vessel of 800 passengers. In my opinion, it is not necessary to imply such a term. That is because cl 7(b) of the charterparty created an express obligation on Neptune to do all things necessary throughout the term to ensure that Seadeck was in class and in survey for her to carry 800 passengers.
When they made the charterparty and JVA on 6 January 2016, the parties also knew that further work still had to be done before the vessel could be ready to be surveyed for a certificate of survey for a new commercial vessel in class 1E for which Neptune had applied on 2 November 2015. They allocated responsibility, in cl 7(b) of the charterparty, to Neptune to have that work done to “ensure that the vessel was in class and in survey” to carry 800 passengers. The parties believed that RINA would certify Seadeck to carry 800 passengers until Mr Nair’s “bolt from the blue” when he told Mr Robertson on 1 March 2016 that he would certify for only 450 passengers in the vessel’s then condition.
Thus, when Mr Robertson exchanged messages with Mr Ozmen about this development on 1 March 2016, both were grappling with an unexpected development. Nonetheless, cl 7(b) of the charterparty created a contractual obligation for Neptune to do all things necessary throughout the term to ensure that Seadeck was in class and in survey in the sense that the parties had envisaged, in cl 7(a), would occur only after they had entered into the charter. Mr Robertson and Mr Ozmen continued to discuss a way forward over the following days on the footing that they both wanted to get an approval to use the ship commercially sooner rather than later. And, as Mr Robertson suggested to Mr Ozmen on 1 March 2016, they could do the further work needed to obtain, at a later time, a survey approving her capacity to carry 800 passengers. Mr Ozmen understood and agreed with that course on 1 March 2016, saying, “Ok Good N years We make 850 capacity” [sic]: by which I infer he intended to convey that in the next year the parties would do the work needed for a survey for 800 passengers.
Moreover, when they entered into the charterparty and JVA on 6 January 2016, the parties knew that the satisfaction of any conditions and classifications necessary to obtain a survey certificate were matters for third parties to decide. And, even if a survey approving Seadeck as having a capacity to carry 800 passengers were obtained, that did not oblige the ILGA to approve a liquor licence for that number of persons.
The position of the parties in being reliant on independent decisions of the surveyor and statutory regulator is a commonplace in the law of contract and the applicable principles are well established. First, as Stephen J with whom McTiernan J agreed, held in Sargent v ASL Developments Ltd (1974) 131 CLR 634 at 645, a party to a contract “is deemed to know the terms of his contract and the rights it confers, at all events he cannot take advantage of his own ignorance (L’Estrange v F. Graucob Ltd [1946] 2 KB 394 at 403, 406)”; see too Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at 181-183 [46]-[49] per Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ. Secondly, as Cockburn CJ said in Stirling v Maitland (1864) 5 B&S 840 at 852, if a party enters into a contract that “can only take effect by the continuance of a certain existing state of circumstances, there is an implied engagement on his part that he shall do nothing of his own motion to put an end to that state of circumstances, under which alone the arrangement can be operative”.
I reject the argument of Entertainment and Kanki that Neptune was in breach of the second of these principles. That is because, on 1 March 2016, the parties were not in an existing state of circumstances in which they had a survey and liquor licence authorising Seadeck to trade with 800 passengers. Rather, they hoped, expected and, indeed, contracted that, after 6 January 2016, Neptune would obtain such a survey and licence on behalf of the joint venture, and that, if and when it did, they would be able to operate a business that could generate net profits to support the $5 million guarantee. But, in March 2016, Neptune had not then put an end to any such state of circumstances. It and Mr Ozmen, as the controlling mind of Entertainment and Kanki, were confronted with a development that their contracts contemplated and both agreed to Mr Robertson’s suggestion of a way forward that involved a temporary change of course.
No doubt Mr Ozmen had second thoughts and, by 17 March 2016, he was agitating for a different outcome, including a change to the contracts to provide for the new position and to reinstate the $5 million guarantee. But on 25 March 2016, Mr Robertson and he exchanged the following messages.
Mr Robertson: RINA emailed me last night and I will respond to them today
Mr Ozmen: Please chenk How much money need 800 capacity.
Because 800 is not no capacity this contract is valid all the ingredients that made connecting to each other because I talked to the lawyer contract valid as legal capacity of 800 people wanted me to know it
I just wanted you to know, you can ask your own lawyer
Mr Robertson: Brother we did not choose the numbers. We were originally told boat would be approved for 1,200. Our contract is binding and we are in this together. We want increased numbers just as much as you do and will do everything we can to get it increased. I will speak to Anoop again so we know exactly what needs to be done to increase numbers after first season
Mr Ozmen: I believe You dont fourget (Ex D/141) (bold emphasis added)
And there the position crystallised. The parties agreed to proceed with a survey capacity of 450 passengers for the time being, and to do what was needed to increase capacity to 800 after the first season. In other words, Mr Ozmen, on behalf of Kanki and Entertainment, waived Neptune’s need to comply fully with cl 7(b) of the charterparty until the end of the first season.
Entertainment and Kanki did not include a ground in the Kanki or Entertainment notices that Neptune had breached either the charterparty or the JVA by not obtaining a survey or liquor licence for Seadeck to carry 800 passengers. Instead of relying on a breach of that nature, in this proceeding they contended that Neptune, through Mr Robertson as its authorised representative, had acted in breach of its fiduciary duty in advising Mr Ozmen on 1 March 2016 to accept a survey with a capacity of only 450 passengers.
I reject that argument. Mr Robertson acted, as I find (and as Entertainment and Kanki submitted), honestly in his dealings with Mr Ozmen in March 2016 and, indeed, throughout their relationship. Both men were discussing the same subject matter as joint venturers faced with a common dilemma.
The sufficiency of any disclosure by a fiduciary can depend, as Gleeson CJ, Gummow, Callinan, Heydon and Crennan JJ held in Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89 at 139 [107], “on the sophistication and intelligence of the persons to whom disclosure must be made”. In Maguire v Makaronis (1997) 188 CLR 449 at 466, Brennan CJ, Gaudron, McHugh and Gummow JJ said (citing Smith 42 FCR at 393, approved in Farah 230 CLR at 139 [107]) that there is no precise formula which will determine in all cases whether a person to whom a fiduciary duty has owned has given fully informed consent. Rather, their Honours held that this was a question of fact in all the circumstances of the case. In Smith 48 FCR at 392, Davies, Sheppard and Gummow JJ said that this question was whether the person had been fully informed of his rights “and of all the material facts and circumstances of the case. The circumstances of the case may include [as they do here] the importance of obtaining independent and skilled advice from other parties” (emphasis added).
Crucially, here, by 17 March 2016, Mr Ozmen had taken legal advice when he told Mr Robertson that the survey for a capacity of less than 800 passengers would deprive Kanki of the benefit of the $5 million guarantee, and that he wanted to have the JVA amended to restore it. The short term certificate of class and record of equipment issued on 4 March 2016 was not a final certification. There was nothing to preclude Neptune making another application and obtaining a greater passenger capacity for the ship.
Entertainment and Kanki relied on a documentary case. Mr Ozmen did not give evidence and there was no explanation for his absence. That has the consequences that, first, I can infer that his evidence would not have assisted their case: Jones v Dunkel (1959) 101 CLR 298; Kuhl v Zurich Financial Services Australia Ltd (2011) 243 CLR 361 at 384-385 [63] per Heydon, Crennan and Bell JJ, and, secondly, any inference favourable to Neptune (as the opposing party) for which there is ground in the evidence “might more confidently be drawn when a person presumably able to put the true complexion on the facts relied on as the ground for the inference has not been called as a witness by [Entertainment and Kanki] and the evidence provides no sufficient explanation of his absence”: Jones v Dunkel 101 CLR at 308; applied in Australian Securities and Investments Commission v Hellicar (2012) 247 CLR 345 at 412-413 [167], per French CJ, Gummow, Hayne, Crennan, Kiefel and Bell JJ.
Mr Ozmen could have given evidence that, on 1 March 2016, he was not conscious of the $5 million guarantee, or that he had treated what Mr Robertson was saying as advice, ignorant of the now asserted benefit to Neptune, namely, that if the parties proceeded with the survey of 450 persons, it would not be burdened by the $5 million guarantee. Absent evidence from Mr Ozmen, I am not prepared to infer that he was not fully aware of those matters at all times when discussing the new developments with Mr Robertson on and after 1 March 2016. After all, the survey to be obtained from the sea trial on 1 March 2016 was essential to the further progress of the joint venture and the $5 million guarantee was self-evidently of great importance to Mr Ozmen at this time.
A fiduciary is under an obligation, without informed consent, not to promote the fiduciary’s interests by making or pursuing a gain in circumstances in which there is “a conflict or a real or substantial possibility of conflict” between the fiduciary’s personal interests or duty and those of the person to whom the duty is owed: Pilmer v Duke Group Limited (in liq) (2001) 207 CLR 165 at 199 [78] per McHugh, Gummow, Hayne and Callinan JJ. They said (at 199 [79]):
The division in the House of Lords in Phipps v Boardman [[1967] 2 AC 46] respecting the application of principles to the facts in that case indicates that different minds may reach different conclusions as to the presence or absence of a real or substantial possibility of conflict between duty and interest or between duty and duty. However, in Hospital Products, Mason J quoted [156 CLR 41 at 104] with approval a statement by Judge Learned Hand in Phelan v Middle States Oil Corporation [(1955) 220 F (2d) 593 at 602-603]. That statement included the following:
[I]f the doctrine be inexorably applied and without regard to the particular circumstances of the situation, every transaction will be condemned once it be shown that the fiduciary had such a hope or expectation, however unlikely to be realised it may be, and however trifling an inducement it will be, if it is realised…We have found no decisions that have applied this rule inflexibly to every occasion in which the fiduciary has been shown to have had a personal interest that might in fact have conflicted with his loyalty. On the contrary in a number of situations courts have held that the rule does not apply, not only when the putative interest, though in itself strong enough to be an inducement, was too remote, but also when, though not too remote, it was too feeble an inducement to be a determining motive.
In the discussions with Mr Robertson on 1 March 2016 and later, I infer that Mr Ozmen knew or was fully informed (even if the presumption of law of such knowledge somehow did not apply: cf: Sargent 131 CLR at 645) that the $5 million guarantee was dependent on the obtaining of both a survey and a liquor licence authorising Seadeck to carry 800 passengers. In those discussions, he knew and was fully informed that he was agreeing to a delay in Neptune doing work to secure a survey for 800 passengers and that this was necessary to entitle Kanki to the benefit of the $5 million guarantee. But, in any event, by 25 March 2016, Mr Ozmen knew that Neptune was not going to agree to any change of the contracts that would reinstate or address the loss of the $5 million guarantee in light of the survey for 450 passengers. In those circumstances, he chose, fully informed as to the impact on the $5 million guarantee, to proceed with Neptune continuing to seek the grant of a liquor licence authorising Seadeck to trade with only 450 passengers.
In analogous circumstances, the Privy Council found in Queensland Mines Ltd v Hudson (1978) 18 ALR 1 at 8-10, that a company’s board had assented, by its conduct, to its managing director holding or pursuing a venture that had come to him in the course of executing his office, because the board had full information as to the subject matter of his conflict of interest and duty. Thus, by 25 March 2016, Mr Ozmen was fully informed, even if (which I have rejected) he was not so on 1 March 2016, that with a survey for Seadeck to carry only 450 passengers, Kanki had lost the $5 million guarantee for the moment (or for the first season). He could have insisted, on 25 March 2016, that Neptune do the work necessary to obtain a survey for 800 passengers immediately but, instead, with full information about all material facts, he told Mr Robertson not to forget to speak to Mr Nair to find out how the joint venture might achieve a survey or classification to enable the ship to carry the higher number of passengers after the first season.
In those circumstances, even if contrary to my finding that Neptune, through Mr Robertson, had acted on 1 March 2016 in breach of its fiduciary duty or obligation, by 25 March 2016 Mr Ozmen, on behalf of Entertainment and Kanki, had given fully informed consent to Neptune proceeding for the first season with a survey capacity of 450 passengers.
In a contractual setting, in order to characterise an obligation of a party to a contract as fiduciary in nature, the person must have undertaken to act for, or on behalf of, or in the interest of, the other party in the exercise of a power or discretion which will affect the legal interests of that other party in a legal or practical sense. If the person has such a discretion or power, he or she or it will have a duty to exercise it in the interests of the other party to whom it is owed: John Alexander’s Clubs Pty Limited v White City Tennis Club Limited (2010) 241 CLR 1 at 34–35 [87] per French CJ, Gummow, Hayne, Heydon and Kiefel JJ applying what Mason J had said in Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 96-97. The court assesses, in a strict sense, whether or not to characterise the relationship as one in which the person (being the putative fiduciary) has undertaken to act for or on behalf of the other party, lest the criterion becomes circular. In explaining why that is so, French CJ, Gummow, Hayne, Heydon and Kiefel JJ relied on what the late John Lehane had written before his appointment to this Court (Lehane, “Fiduciaries in a Commercial Context” in Finn (ed), Essays in Equity 95 at 101, see John Alexander’s 241 CLR at 34–36 [87]-[92]). They adopted what Mason J had said of a case where a contract provides the foundation for an actual claim of fiduciary relationship, namely (241 CLR at 36 [91] citing Hospital Products 156 CLR at 97):
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. (emphasis added)
Importantly, cl 7(b) did not impose the obligation on Neptune to act solely for or on behalf of Kanki or Entertainment to ensure that it obtained a survey for 800 passengers. Rather, Neptune had a contractual obligation under cl 7(b). That contractual obligation defined what Neptune had to do. If Neptune breached cl 7(b), each of Entertainment and Kanki had a right to take proceedings against Neptune for relief based on that breach, which relief could include a claim for specific performance or damages. Moreover, the contractual allocation to Neptune of responsibility to obtain a survey of a specific kind did not solely benefit Entertainment and or Kanki. That was because, as a joint venturer, Neptune also required a valid survey for it personally to have the benefit of the charterparty and the ability to participate in the activities of the joint venture using Seadeck.
When Mr Robertson was occupied on 1 March 2016 in discussing the capacity issue with Mr Ozmen and Mr Nair, he was carrying out Neptune’s contractual obligation under cl 7(b) to do all things necessary to ensure that the survey would certify that the ship had the capacity to carry 813 or 800 passengers. Neptune’s contractual duty did not require it to act as Entertainment’s or Kanki’s agent or fiduciary in obtaining the survey that cl 7(b) required Neptune to obtain. Rather, Neptune’s contractual duty, under cl 7(b), was to do all things necessary to ensure that the vessel was in survey and in class so that she had the capacity to carry at least 800 passengers.
In passing on to Mr Ozmen Mr Nair’s unforeshadowed view that Seadeck was, at that time, in a condition to carry no more than 450 passengers, Mr Robertson conveyed a fact about Neptune’s likely breach of cl 7(b) (if Mr Nair did not change his mind). And, if Mr Nair did issue such a survey, as he suggested he would, Neptune would be in breach of its contractual obligation under cl 7(b). That was the legal framework in which Mr Ozmen and Mr Robertson were interacting. Namely, that Neptune would be likely to be in breach of cl 7(b) of the charterparty if Mr Nair would not certify that Seadeck could carry at least 800 passengers. Of course, such a breach would also have a materially adverse effect on Kanki because of its loss of the $5 million guarantee.
Entertainment and Kanki, however, argued that Neptune, through Mr Robertson, had a fiduciary duty to advise Mr Ozmen that Neptune could not keep acting for Entertainment and Kanki, after Mr Nair revealed his unforeshadowed view on 1 March 2016, in seeking to obtain the survey and could not discuss a way forward with Mr Ozmen, unless and until Mr Ozmen sought and obtained independent advice or gave his fully informed consent.
The problem with this argument is that Neptune was acting for itself and not for Entertainment or Kanki in performing Neptune’s contractual obligation that cl 7(b) imposed on it.
Kanki and Neptune had also agreed in cl 6(b)(iii) and (d) of the JVA that each would act in the best interests of the business and in good faith in accordance with a duty of trust and would inform the other immediately of any conflict of interest. The duty to act in the best interests of the business in good faith under the JVA was not the same duty as a duty to act solely in Kanki’s best interests.
I will order (as the parties jointly sought today (3 April 2019)) that the proceeding stand over to 17 April 2019 and that on or before 17 April 2019, in default of agreement, each party file and serve the draft orders that that it proposes be made, together with written submissions limited to two pages in support of those orders on or before 15 April 2019. I will provisionally list the matter for case management at 9.30am on 17 April 2019.
I certify that the preceding three hundred and four (304) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Rares. Associate:
Dated: 3 April 2019
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