Tasmanian Seafoods Pty Ltd v Kossman
[2006] TASSC 40
•2 June 2006
[2006] TASSC 40
CITATION: Tasmanian Seafoods Pty Ltd v Kossman [2006] TASSC 40
PARTIES: TASMANIAN SEAFOODS PTY LTD
v
KOSSMAN, Peter Jaochim
ADELAIDE BAY SEAFOODS PTY LIMITED
TITLE OF COURT: SUPREME COURT OF TASMANIA (FULL COURT)
JURISDICTION: APPELLATE
FILE NO/S: FCA 48/2005
DELIVERED ON: 2 June 2006
DELIVERED AT: Hobart
HEARING DATE: 7 November 2005
JUDGMENT OF: Slicer, Evans and Tennent JJ
CATCHWORDS:
Equity – Trusts and trustees – Constitution and classification of trusts generally – Classification of trusts in general – Implied trusts – Constructive trusts – General principles – Common intention – Express trust becoming impossible of performance – Frustrated by statutory and regulatory changes – Breach of fiduciary duty – Remedy of constructive trust on terms moulded according to the nature of the relationship and the facts of the case – Terms of the trust.
Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41, applied.
Tasmanian Seafoods Pty Ltd v MacQueen [2005] TASSC 36, followed.
Aust Dig Equity [102]
REPRESENTATION:
Counsel:
Appellant: S B McElwaine
Respondent: W A Ayliffe
Solicitors:
Appellant: Shaun McElwaine
Respondent: Wallace Wilkinson & Webster
Judgment Number: [2006] TASSC 40
Number of paragraphs: 52
Serial No 40/2006
File No FCA 48/2005
TASMANIAN SEAFOODS PTY LTD v PETER JOACHIM KOSSMAN
ADELAIDE BAY SEAFOODS PTY LIMITED
REASONS FOR JUDGMENT FULL COURT
SLICER J
EVANS J
TENNENT J
2 June 2006
Orders of the Court:
Appeal dismissed.
Serial No 40/2006
File No FCA 48/2005
TASMANIAN SEAFOODS PTY LTD v PETER JOACHIM KOSSMAN
ADELAIDE BAY SEAFOODS PTY LIMITED
REASONS FOR JUDGMENT FULL COURT
SLICER J
2 June 2006
The factual circumstances giving rise to this appeal are sufficiently set out by the learned primary judge in his reasons for judgment [2005] TASSC 5, and require no detailed exposition.
The sole ground of appeal is that:
"The Learned Trial Judge erred in law in determining that the gross income derived by the first named respondent from the taking of abalone pursuant to deed entitlements numbers 119, 120, 121 and 122 issued to him on or about 30 June 1994 be divided 25% to the appellant and 75% to the first named respondent."
At trial, the respondents had contended that there existed a constructive trust in favour of the appellant with respect to the "gross beach price" of abalone harvested by the first respondent in accordance with the terms of a deed of agreement entered into in 1985. The appellant had, in 1994, elected not to terminate the agreement because of continuing anticipated return and since that date had not insisted on its contractual right to the exclusive supply of the catch. However, at trial it maintained a right to one half of the price of all abalone harvested since that date, because:
(1)it has lost the right of commercial advantage of processing;
(2)all fish taken had been disposed of to other purchasers;
(3)the first respondent had the benefit, through regulatory change, of being able to employ other divers to take his quota and no longer needed to rely on his own physical endeavours, with attendant risk, which lessened any basis for a claim for greater return.
The learned trial judge was not prepared to "Strike down" the clause of exclusive reply as constituting restraint of trade. Rather, he considered the competing equities in accordance with the principles stated by the High Court in Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41. He regarded the 1985 agreement as providing the foundation for the basic rights and liabilities of the parties, and found that:
"The 1985 contractual arrangements laid the foundation for the basic rights and liabilities of the parties. Until 1994, and notwithstanding the frustration of the arrangements on 1 January 1991 by the regulatory changes, the parties essentially continued to deal with each other as if those arrangements still applied, with Mr Kossman paying the plaintiff 25 per cent of the price for the abalone and selling and delivering all of the fish to the plaintiff. What then happened in 1994 and thereafter was that Mr Kossman, contrary to the protests of the plaintiff, breached his plain fiduciary duties by withholding supply and ceasing payment."
The learned trial judge rejected the respondents' claim that they should be entitled to any profit of processing all the fish and "also receive 75 per cent of the price, in circumstances where he provided only 50 per cent of the capital to acquire the right to obtain the fish".
The learned trial judge concluded that the appellant "should continue to be entitled to the benefit of exclusive supply" and ordered that "an account should be taken including an inquiry into the profit made … out of processing those abalone". It is necessary to take into account this order in considering the appellant's claim that the finding of 25 per cent entitlement was inequitable. The remedy obtained by the appellant was not confined to "25% of the average market price". In assessing these competing interests, he considered the change to the regulatory scheme which permitted the first respondent to employ other divers, but concluded, at par44:
"I find no relevant significance in the fact that Mr Kossman has not dived for most of the fish taken pursuant to the entitlements since 1994. There is no reason to think that he arranged for a person or persons who were unlicensed to do the diving or that he did anything else to jeopardise the plaintiff's interests in a licence or in the entitlements. The deed of agreement basically imposed on him the responsibility for ensuring that all of each year's entitlement would be taken and supplied to the plaintiff. At the time of the deed of agreement, the law required him to personally do the diving. From 1991, the law did not so provide. Equity should hold him to the obligations of ensuring that the whole of the entitlement was taken and supplied to the plaintiff. Equity should not punish him by ordering him to pay to the plaintiff 50 per cent of the price of the abalone because he did not personally dive for it. The purpose of equity's relief is to do what is practically just and prevent unjust enrichment, but not to punish. Warman International Ltd v Dwyer (1995) 182 CLR 544 at 557; Vadasz v Pioneer Concrete (SA) Pty Ltd (1995) 69 ALJR 678 at 684; Maguire v Makaronis (1997) 188 CLR 449 at 496; Hospital Products Ltd v United States Surgical Corporation (supra) at 109."
Consistent with that application of principle to his other findings, the learned trial judge concluded at par49:
"I therefore hold that the amount outstanding to the plaintiff from the 20 permanent quota units and the 1995 exploratory entitlement, includes 25 per cent of the average Tasmanian market price payable to Mr Kossman for the sale of any abalone taken within the authority of the 20 permanent quota units and the exploratory entitlement, the expression 'average Tasmanian market price' having the meaning accorded to it in the 1985 deed of agreement. If that is not clear to the parties, I will hear submissions and make a further determination as to the meaning. Because Mr Kossman breached his fiduciary duty by failing to supply the abalone to the plaintiff, it would in normal circumstances be entitled either to equitable compensation representing its losses suffered as a consequence, or, alternatively, to an account of profits. However, the parties have agreed that if I make the finding that I have, that is to say that Mr Kossman is liable to pay 25 per cent of the price to the plaintiff and that he should have continued to supply the abalone to the plaintiff, then an account should be taken including an inquiry into the profit made by the second defendant out of processing those abalone."
The approach taken by the learned trial judge was approved by this Court in a subsequent decision of Tasmanian Seafoods Pty Ltd v MacQueen [2005] TASSC 36, a case involving a similar contractual relationship between the appellant and another Furneaux diver. The argument advanced by this appellant at trial was identical to that rejected by the Full Court in MacQueen. Here, the appellant does not seek to assail that authority, but seeks to distinguish the factual circumstances and reasons for outcome. Here the appellant contends that the "practicable equitable assessment" was overly generous in that the first respondent:
(1)retained the allowance for the cost of diving;
(2)possessed the right to delegate the task of diving;
(3)retained the benefit of all of the abalone taken;
(4)derived a profit from the difference between the allowance for diving and the actual rates paid to contractual diving.
Proposition (3) is incorrect. An account has yet to be taken of "processing profits" and the order made by the learned trial judge formed but part of the remedy provided. Propositions (1) and (4) state an identical complaint. The learned trial judge did consider the benefit gained by the first respondent through regulatory change and rejected it. That change occurred some six years after the 1985 agreement. The appellant derived physical benefit and was able to reduce personal risk from the regulatory change. He was able, through the market forces, to contract for that physical effort, skill and risk for an amount less than previously calculated if he had undertaken all of the work himself. But it was that physical capacity and his licence which he had brought into the relationship. The respondent had introduced capital in return for supply of a commodity. Had it been able to reduce its costs of processing and marketing, it would have been entitled to retain the benefit.
The notice of appeal seeks as the only order one which varies the division of income to one half of the sale price of the harvested abalone after payment of expenses, but not interference with the other remedies, such as the taking of an account and assessment of profit out of the processing of the abalone which were components of the exercise in equity. The result desired by the appellant was that it receive one half of the sale price, plus an additional sum for lost profit. On the hearing of the appeal, counsel for the appellant offered to forego the existing order, if the 50 per cent division was allowed. But until that concession, its own claim was one of economic advantage, rather than equitable division.
The learned trial judge was engaged in the assessment of competing equities within a particular relationship in an industry. Differing industries have disparate mechanisms and financial methods and his Honour was required to consider the specific relationship. This was not a case where regulatory change altered the entire basis of the industry and "freed up the market" so that all terms of economic relationship were altered fundamentally and required equitable restructure.
In Vadasz v Pioneer Concrete SA Pty Ltd (1995) 69 ALJR 678, the High Court was required to consider the competing equities where a:
"… practical restoration of the status quo which existed before the execution of the guarantee and the subsequent supply of goods on credit … would involve not only a cancellation of the appellant's obligations under the guarantee but either a return of the goods subsequently supplied … actual payment … of an amount equivalent …".
In that case it was insolvency which was the intermediate factor. In dealing with the argument of unconscionability, Deane, Dawson, Toohey, Gaudron and McHugh JJ said, at 684:
"Thus unconscionability works in two ways. In its strict sense, it provides the justification for setting aside a transaction. More loosely, it provides the justification for not setting aside the transaction in its entirety or in doing so subject to conditions, so as to prevent one party obtaining an unwarranted benefit at the expense of the other."
Here the appellant was properly seeking equitable compensation for breach of the terms of a constructive trust. It was entitled to that remedy. It does not follow that because of regulatory change the respondent is required to deliver up a portion of the original bargain because that change has, independently of his own conduct, afforded him an additional benefit, namely to reduce his physical risks and exertions and to contract, from his own share of the return, with others for the performance of the physical work necessary for the taking of the abalone.
It was not, as the appellant contends, unconscionable for the first respondent to take advantage of regulatory change which enhanced his means and costs of conducting his part within the relationship.
In MacQueen (supra), Underwood CJ stated at pars 76 – 77:
"In fashioning the practical equity to the circumstances of each case, regard should be had to the nature of the trust property, whether earnings from that property had been derived by the labour and skill of the trustee and any antecedent arrangements for profit sharing. See Warman International Ltd v Dwyer (supra) at 368 – 370.
The terms of the trust propounded by Mr McElwaine are unjust to the respondents in that although they will benefit from the absence of an obligation to supply, they will lose the generous allowance, provided by the antecedent arrangements, for the cost of diving, a task that the first respondent cannot delegate to another. On the other hand, the order made by the learned trial judge deprives the appellant of supply, which was, according to Mr Hansen's evidence, a significant benefit to the appellant also provided by the antecedent arrangements. In these circumstances it seems to me that the practical equity calls for the terms equivalent to the pre-1994 arrangements, viz:
· the respondents to pay all the costs of diving, royalties and licence fees;
· the respondents to pay the appellant one-third of the average price for abalone taken pursuant to the eight Furneaux Group quota units;
· the respondents to deliver all those abalone to the appellant's factory 'in the mainland of Tasmania'."
The learned trial judge acted in accordance with those terms. There were a number of potential methods he could have used or a variable set of calculations. The outcome would have been but slightly different. He was engaged in a practical exercise. I am not persuaded that his conclusion was erroneous. The ground is not sustained and I would dismiss the appeal.
File No FCA 48/2005
TASMANIAN SEAFOODS PTY LTD v PETER JOACHIM KOSSMAN
ADELAIDE BAY SEAFOODS PTY LIMITED
REASONS FOR JUDGMENT FULL COURT
EVANS J
2 June 2006
The appellant, Tasmanian Seafoods Pty Ltd ("Tas Seafoods") appeals against a decision as to the terms of a constructive trust pursuant to which the first respondent, Peter Joachim Kossman ("Kossman"), holds income derived from 20 permanent abalone quota units. In the decision subject to appeal, Tasmanian Seafoods Pty Ltd v Kossman [2005] TASSC 5, Crawford J in substance declared that Kossman held the gross income he derived from the 20 permanent units, as well as a further 8 abalone quota units known as Furneaux units, on trust to be divided 25 per cent to Tas Seafoods and 75 per cent to Kossman. The manner in which the gross income is to be calculated was specified and is not in dispute. Further terms of the trust were declared to be that:
·Kossman is responsible for the payment of all royalties, licence fees and diving and catching costs in respect of the diving and taking of abalone pursuant to such units;
·Kossman is obliged to sell and deliver the entire catch of abalone taken pursuant to such units to Tas Seafoods; and
·the amount payable to Kossman by Tas Seafoods for the abalone is less any costs of freight incurred by Tas Seafoods in having such abalone freighted to Launceston or St Helens or such other destination in Tasmania as is agreed between Tas Seafoods and Kossman from time to time.
Tas Seafoods contends that as to the 20 permanent units subject to the trust, as distinct from the 8 Furneaux units, the learned trial judge erred and should have declared that the division of the income therefrom be one-half to Tas Seafoods and one-half to Kossman after the payment of all expenses.
The factual and legislative background to this dispute is comprehensively detailed in the decision subject to appeal. I briefly summarise the following salient matters.
·In 1985, the effect of the law governing the commercial abalone industry was that only an individual, not a company, could hold a commercial abalone fishing licence and the licence holder was the only person who could take abalone pursuant to the licence.
·At all material times Tas Seafoods was a substantial processor of abalone and a substantial investor in the abalone industry.
·Tas Seafoods being a company, could not directly hold or obtain an abalone licence. It was, however, anxious to do so. To circumvent the restriction on a company obtaining a licence, it on occasions joined with a person interested in acquiring and working an abalone licence and financed that person's purchase of a licence on terms that it included holding the licence on a trust which gave Tas Seafoods an interest in the licence and the income derived from abalone taken pursuant to it. Tas Seafoods entered into a number of arrangements of this nature.
·On 16 December 1985, Tas Seafoods and Kossman entered into such an arrangement governed by two deeds, one described as a trust deed and the other a deed of agreement. By the trust deed, Kossman acknowledged that one-half of the purchase price paid for Commercial Abalone Fishing Licence No 121, ("licence 121"), which he had acquired, was provided by Tas Seafoods and Kossman agreed that he held a one-half interest in the licence on trust for Tas Seafoods and would deal with the licence in accordance with the terms of the deed of agreement. That deed included terms that:
(i)Kossman would pay Tas Seafoods a sum equivalent to 25 per cent of the average Tasmanian market price payable to him for the sale of any abalone caught by him pursuant to the licence;
(ii)Kossman would sell and deliver his total catch of abalone pursuant to the licence to Tas Seafoods and no other person or company; and
(iii)Tas Seafoods would pay Kossman the average Tasmanian market price for abalone delivered by Kossman, less any freight costs incurred by Tas Seafoods in freighting the abalone to Launceston or St Helens or such other destination in Tasmania as agreed by Tas Seafoods and Kossman from time to time.
·Prior to 1 January 1990, licence 121 entitled Kossman to take 20 abalone quota units. A quota unit was a weight of abalone that varied from time to time, dependent on the availability of resources and other circumstances. As a consequence of legislative changes, with effect from 1 January 1990, licence 121 was granted 8 additional quota units, known as "Furneaux units". Furneaux units were granted subject to conditions that included requirements that: the units were personal to the holder, Kossman in the case of licence 121; the units were to be surrendered upon the holder ceasing to be a licensed abalone diver; the units could not be transferred; and, abalone taken pursuant to the units had to be taken personally by the holder.
·With effect from 1 January 1991, the abalone licence system was re-structured. Changes included distinguishing between a diving entitlement and a quota entitlement. Abalone quota licences were created. Commercial abalone licences became known as commercial abalone diver's licences and the provisions relating to them were substantially amended. The holder of a commercial abalone diver's licence was entitled to take abalone for commercial purposes under the authorisation of the holder of an abalone quota licence.
The parties agree that the 1985 deeds governed the relationship between them until the 1991 re-structure came into effect, insofar as they governed their mutual entitlements with respect to licence 121 and the 20 permanent units linked to that licence. It is common ground that the deeds did not thereafter directly govern their relationship, because they dealt with their interests in licence 121 and did not deal with Kossman's entitlement to take abalone under the abalone quota licence issued to him consequent upon the 1991 restructure. The deeds also did not deal with the 8 Furneaux units. Those units came into existance subsequent to the deeds. Notwithstanding these matters, including the frustration of the contractual arrangement constituted by the 1985 deeds, from 1 January 1991 until 1994 Kossman continued to supply and deliver to Tas Seafoods 28 quota units of abalone on terms consistent with the terms and conditions of the 1985 deeds. In 1994, the relationship between Kossman and Tas Seafoods broke down. In result Tas Seafoods instituted proceedings against Kossman seeking a variety of remedies.
At trial the parties were in agreement that the contractual arrangements between them that had been governed by the 1985 deeds had been frustrated as a consequence of the legislative changes that came into effect on 1 January 1991. In those circumstances, there being a fiduciary relationship between the parties, it fell to the learned trial judge to determine what, if any, was the nature and extent of the parties' entitlements referable to the 20 permanent units and the 8 Furneaux units. As to such a determination, Underwood CJ explained in Tasmanian Seafoods Pty Ltd v MacQueen [2005] TASSC 36 at par48:
"… the exact nature and extent of a fiduciary's obligations in any given case will depend upon the nature and scope of the relationship between the parties. See, eg, Kelly v Cooper [1993] AC 205 at 215; Maguire v Makaronis (1997) 188 CLR 449 at 465 - 467; Hospital Products Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 at 97. In determining the extent of the obligations, and consequentially declaring the terms of a constructive trust, the obligation of a Court of Equity is to do 'practical equity'. See Bridgewater v Leahy (1998) 72 ALJR 1525."
In his approach to this issue in the decision subject to appeal, the learned trial judge referred to dicta in Hospital Products Ltd (supra), where Mason J, at 97, said:
"… 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."
At 102 he added:
"The categories of fiduciary relationships are infinitely varied and the duties of the fiduciary vary with the circumstances which generate the relationship. … it is now acknowledged generally that the scope of the fiduciary duty must be moulded according to the nature of the relationship and the facts of the case … ."
Counsel for Tas Seafoods said he did not submit that the learned trial judge had applied the wrong legal test as to doing practical equity. Rather, it was submitted that the learned trial judge erred in the application of that test to the facts in this case.
At trial, Kossman acknowledged that the 20 permanent units and related exploratory entitlements had at all times been the subject of a constructive trust in favour of Tas Seafoods. The parties were however in dispute as to the terms of that trust. As to the 8 Furneaux units, Kossman maintained that they were not the subject of a constructive trust. With the consent of the parties, the trial proceeded on the basis that the matters in contention between the parties would be resolved by the determination of the following issues:
"1Is the amount outstanding to the plaintiff from the 20 permanent quota units and from the exploratory entitlement in 1995, to be determined on a division of:
(a) 50 per cent of the beach price after expenses in each year;
(b) 25 per cent of the gross beach price in each year; or
(c) some other basis and if so what?
2What is the rate of interest to be paid by the defendants on the amount outstanding and how is it to be calculated.
3Is the income derived from the eight Furneaux units to be included in the amount due to the plaintiff? That is, are the eight Furneaux units subject to a trust in favour of the plaintiff or not and if so, what are the terms of the trust?
4What are the obligations of the plaintiff and the first defendant in the future with respect to:
(a) the 20 permanent quota units;
(b) the eight Furneaux units?"
The third issue was determined against Kossman. In summary the learned trial judge held, (as was not in dispute), that Kossman owed Tas Seafoods fiduciary obligations in relation to licence 121. His Honour further held that the 8 Furneaux units, being a benefit that Kossman derived under that licence, were also held subject to fiduciary obligations in favour of Tas Seafoods. Although his Honour accepted that the 8 Furneaux units were inalienable, he concluded that abalone obtained pursuant to them were not inalienable and that they were subject to the same constructive trust as that declared in relation to abalone obtained pursuant to the 20 permanent units. As to that trust, his Honour said it was an appropriate case for the application of the principles stated by Mason J in Hospital Products Ltd (see par6 above) and that the 1985 contractual arrangements between the parties laid the foundation for their basic rights and liabilities. In consequence, his Honour held that, amongst other things, the gross income derived by Kossman from taking abalone in respect of the 20 permanent units as well as the 8 Furneaux units was held on trust to be divided 25 per cent to Tas Seafoods and 75 per cent to Kossman.
Tas Seafoods has appealed the learned trial judge's decision only insofar as it relates to the apportionment of the gross income derived in respect of the 20 permanent units. No appeal is made against the apportionment of the income derived from the 8 Furneaux units. I assume that this is because the learned trial judge's decision referable to those units finds strong support in the decision of the Full Court in Tasmanian Seafoods Pty Ltd v MacQueen (supra). That decision involved 8 Furneaux units and the pertinent facts of that case are barely distinguishable from the facts of Mr Kossman's case. The constructive trust imposed in Tasmanian Seafoods Pty Ltd v MacQueen was based on the contractual arrangement between the parties that pre-dated the issuing of the 8 Furneaux units in question in that case.
Counsel for Tas Seafoods submited that a clear distinction can be drawn between the trust that is appropriate referable to the 8 Furneaux units and the trust that should be imposed in respect of the 20 permanent units. As to that distinction, he relied on the fact that the 1985 deeds applied to licence 121 and that the 8 Furneaux units were never expressly the subject of those deeds. Whilst this is correct, it is of little consequence as, regardless, the terms of the constructive trust in relation to both the 8 Furneaux units and the 20 permanent units were derived from the contractual arrangement created by the 1985 deeds. A further distinction relied on by counsel for Tas Seafoods, a distinction that he categorised as critical, arises from Kossman's personal obligation to catch any abalone taken in respect of the 8 Furneaux units. In contrast, since 1991, Kossman has not been subject to an obligation to personally catch abalone taken in respect of the 20 permanent units. The evidence establishes that since 1998 Kossman has rarely dived for abalone taken in respect of those units.
In the course of the appeal, counsel for Tas Seafoods submitted that the removal of the requirement that Kossman personally dive for abalone taken in respect of the 20 permanent units provided a good reason for distinguishing between the trust imposed in respect of those units and that imposed in respect of the 8 Furneaux units. In his written submissions, and initially in his oral submissions, counsel contended that the distinction should be drawn as Kossman was substantially better off financially if he did not personally dive for abalone in respect of the 20 permanent units. The calculation that underpinned that conte+ntion was erroneous. When corrected, the calculation showed the contrary to be so, that is, that Kossman was worse off financially if he did not dive for the abalone. (Counsel for Tas Seafoods withdrew the contention as to Kossman benefiting financially from the removal of the dive requirement and also conceded that as the cost of diving for the abalone was borne by Kossman, the removal of that requirement had no financial impact on Tas Seafoods.) The misconception that Kossman benefited financially from the removal of the dive requirement was significant as that removal was the only substantive reason advanced by counsel for Tas Seafoods for drawing a distinction between the effect of the trust imposed in respect of the 20 permanent units and the trust imposed in respect of the 8 Furneaux units. Other arguments advanced in support of the claim that the income from the 20 permanent units should be shared equally were correspondingly applicable to how the income from the 8 Furneaux units should be divided. Extracting those arguments from counsel's written submissions, the matters relied upon were:
·the underlying equal ownership of the asset;
·acknowledgment that Tas Seafoods did not receive by sale and delivery of ablone taken referable to the units, the economic advantage to it of processing abalone either by deduction of its fixed costs or an increase in its profit;
·recognition that Kossman sold and delivered all the abalone so taken to whomever he chose at whatever price he could achieve in the market place and as a consequence retained the economic advantage of so doing.
Counsel for Tas Seafoods also argued that the apportionment of the income derived from the 20 units should be adjusted in Tas Seafoods' favour because a consequence of the frustration of the 1985 contractual arrangement was that Tas Seafoods lost the benefit of a number of advantageous contractual terms. Whilst I accept that Tas Seafoods' interests may have been better served had the contractual arrangement not been frustrated, with one exception, I am not persuaded that the loss of the benefit of any of the terms identified by counsel for Tas Seafoods could have justified making the adjustment sought. The exception is the term contained in cl 2(c), which required Kossman to sell and deliver his total catch of abalone to Tas Seafoods and no other person or company. Whilst the frustration of that term may have warranted an income adjustment, its benefit has not been lost. The constructive trust imposed includes a requirement that Kossman supply the entire catch of abalone referable to the 20 permanent units to Tas Seafoods on terms that are consistent with the frustrated contractual arrangement.
I can discern no good reason for imposing a trust with different effect in relation to the 20 permanent units than the trust with respect to the 8 Furneaux units. In each case, the contractual arrangement that arose from the 1985 deeds laid the foundation for the basic rights and liabilities of the parties and it was appropriate to impose a trust that accommodated those arrangements and was consistent with, and conformed, to them. Pursuant to that trust, Tas Seafoods received that which it had contracted for, that is, a 50 per cent interest in the underlying asset, the supply of abalone caught referable to the asset, and 25 per cent of the income derived from the asset. Stripped bare, these were the key benefits Tas Seafoods paid for and there was no justification for increasing those benefits in consequence of the frustration of the contractual arrangement.
I would dismiss the appeal.
File No FCA 48/2005
TASMANIAN SEAFOODS PTY LTD v PETER JOACHIM KOSSMAN
ADELAIDE BAY SEAFOODS PTY LIMITED
REASONS FOR JUDGMENT FULL COURT
TENNENT J
2 June 2006
The appellant, Tasmanian Seafoods Pty Ltd ("Tas Seafoods"), and the respondent, Peter Kossman, had, some years before these proceedings, entered into certain contractual arrangements relating to the catching of abalone and its subsequent sale and processing. Circumstances then altered and at first instance the appellant sought declarations that the respondent held certain fishing licences and/or entitlements in trust for it as to one half. It also sought declarations as to the terms of any such trusts.
The proceedings related to 20 permanent abalone quota units and 8 further units known as Furneaux units. An important distinction between the two was that any diver could be employed to dive for abalone pursuant to the 20 permanent units, while only the respondent could dive for abalone on the Furneaux units.
The learned trial judge made a number of findings of fact to which no objection is taken on this appeal. He then declared the existence of trusts as sought by the appellant and set out the terms of those trusts. One of those terms was that the gross income derived from the taking of abalone pursuant to the units was to be divided as to 75 per cent to the respondent and 25 per cent to the appellant.
This appeal was confined to the terms of the trust relating to income derived in respect of the 20 permanent quota units. The manner in which the gross income itself was to be calculated was not in dispute.
The ground of appeal was as follows:
"The Learned Trial Judge erred in law in determining that the gross income derived by the first named respondent from the taking of abalone pursuant to deed entitlements numbers 119, 120, 121 and 122 issued to him on or about 30 June 1994 be divided 25% to the appellant and 75% to the first named respondent."
The order sought by the appellant was:
"That order 5(b) of the orders made by the Learned Trial Judge on 14 June 2005 be varied so as to provide for a division of income from the taking of abalone from deeds 119, 120, 121 and 122 as to one half to the appellant and one half to the first named respondent after the payment of all relevant expenses and that such division of income be applied from 1 January 1994."
The terms of the trust to be applied to the gross income as determined by the learned trial judge were:
-that that gross income be divided as to 25 per cent to the appellant and 75 per cent to the respondent;
-that the respondent from his share of the gross income pay all royalties, licence fees and costs associated with diving for and catching the abalone;
-that the respondent sell and deliver the entirety of his catch to the appellant; and
-that the respondent be responsible for certain freight costs.
As can be seen from the ground of appeal, it was only the term relating to the percentage division of the gross income which was challenged.
The appellant has been involved in proceedings with another licence holder about a similar type of arrangement. In Tasmanian Seafoods Pty Ltd v MacQueen [2005] TASSC 36, the Full Court dealt with an appeal by the appellant against orders declaring a trust in similar circumstances and its terms. In that case, the court determined a division of gross income as between the appellant and the licence holder, as to two thirds to the licence holder and one third to the appellant, on the facts of that case. However, in doing so it canvassed a number of principles applicable to the circumstances of the parties. Those circumstances were almost identical to those of the parties to this appeal.
In the present case, counsel for the appellant submitted not that that decision was wrong, but that on the facts of this case a different division of the income was appropriate, the essential difference between the two being that this case was limited to the 20 permanent quota units and not the Furneaux units dealt with in that case.
In his written and oral submissions, counsel for the appellant submitted the appropriate division of income was an equal division of net income, such net income to be after:
"… payment of all necessary expenses and after the making of a reasonable allowance in favour of the first respondent for the costs of diving, be those costs personal or the actual costs paid to other divers. And with no obligation to supply."
It is useful to be reminded of some of the background to the dealings between these parties in relation to the permanent quota units. The parties contributed equally to the costs of the licence, but it had to be held by the respondent. They agreed he held it in trust as to one half for the appellant. They agreed the respondent would dive for the abalone and sell it all to the appellant. The beach price was to be divided 75 per cent to the respondent and 25 per cent to the appellant, with the respondent to pay from his share all expenses such as royalties, licence fees and costs of diving. Up to 1991 the respondent had to personally dive for the abalone.
However, the law changed then and from then he could assign the right to dive to another diver. Thereafter the abalone was caught using the units, but not always by the respondent personally. In fact, between 1998 and 2004 he did not personally dive for and take any abalone pursuant to the units. Instead other divers were paid to catch the abalone.
Counsel for the appellant submitted that the first named respondent was substantially better off financially and personally by the continuation of the 75/25 division when he ceased to dive personally for the abalone. In his submissions, he set out certain calculations to demonstrate that the respondent was financially better off. These were predicated on the respondent paying another diver to dive for and catch the abalone pursuant to the units, and then otherwise dividing the income in terms of the proposed trust. However, the calculations proved to be incorrect, the reality being that the respondent would, to an extent, lose ground by not diving personally but paying another diver.
During the course of argument, counsel for the appellant was obliged to concede that his calculations were wrong. He had also to concede that there was no evidence that the appellant suffered any financial loss simply because the respondent did not personally dive, and no evidence the respondent got a financial benefit from that. However, he submitted that this did not matter. The original deed required the respondent to personally dive and he was now no longer being required to do so. To, in effect, re-impose contractual terms in the climate of that change did not, counsel submitted, "achieve a practicable equitable readjustment of the rights of the parties".
In his submissions, counsel referred to a number of benefits he said were lost to the appellant by the frustration of the original contractual arrangements. He submitted that an equal division of income, on the basis he proposed, achieved the necessary practical readjustment of positions because it:
- recognised the underlying equal equitable ownership of the licence;
-acknowledged that the appellant did not receive the economic advantage of being able to process the abalone caught;
-recognised the respondent retained the full economic advantage of being able to sell to whomsoever he wished; and
- recognised the respondent could make whatever arrangements he wanted to for diving.
The learned trial judge said at pars42, 43 and 44 of his judgment:
"In my view the answer to the issue is clear. This is an appropriate case for the application of the principles stated by Mason J in the Hospital Products ((1984) 156 CLR 41) case to which I referred earlier. The 1985 contractual arrangements laid the foundation for the basic rights and liabilities of the parties. Until 1994, and notwithstanding the frustration of the arrangements on 1 January 1991 by the regulatory changes, the parties essentially continued to deal with each other as if those arrangements still applied, with Mr Kossman paying the plaintiff 25 per cent of the price for the abalone and selling and delivering all of the fish to the plaintiff. What then happened in 1994 and thereafter was that Mr Kossman, contrary to the protests of the plaintiff, breached his plain fiduciary duties by withholding supply and ceasing payment. In the words of Mason J, 'the fiduciary relationship ... must accommodate itself to the terms of the contract so that it is consistent with, and conforms to, them', to the extent reasonably possible.
I do not accept that the agreement of the parties concerning exclusivity of supply should be struck down as an unreasonable restraint of trade. That arrangement reflected the fact that a licensed diver was required to hold the commercial abalone fishing licence necessary for what the parties planned, and Mr Kossman was the holder of such a licence. To balance to some extent his preferential entitlement to retain 75 per cent of the price, the parties agreed that he would supply all of the abalone to the plaintiff so that it could process the fish and make a profit from doing so. On its face, a reasonable commercial arrangement was made. The price at which Mr Kossman was effectively to be paid for the fish appears to have been a reasonable one having regard to all of the terms of their arrangement. On its face, that arrangement contained no unreasonable restraint of trade. On the contrary, Mr Kossman's insistence that he or his company should now be entitled to the profit from processing all of the fish and also receive 75 per cent of the price, in circumstances where he provided only 50 per cent of the capital to acquire the right to obtain the fish, seems an unreasonable one. The plaintiff should continue to be entitled to the benefit of exclusive supply. I find no relevant significance in the fact that Mr Kossman has not dived for most of the fish taken pursuant to the entitlements since 1994. There is no reason to think that he arranged for a person or persons who were unlicensed to do the diving or that he did anything else to jeopardise the plaintiff's interests in a licence or in the entitlements. The deed of agreement basically imposed on him the responsibility for ensuring that all of each year's entitlement would be taken and supplied to the plaintiff. At the time of the deed of agreement, the law required him to personally do the diving. From 1991, the law did not so provide. Equity should hold him to the obligations of ensuring that the whole of the entitlement was taken and supplied to the plaintiff. Equity should not punish him by ordering him to pay to the plaintiff 50 per cent of the price of the abalone because he did not personally dive for it. The purpose of equity's relief is to do what is practically just and prevent unjust enrichment, but not to punish. Warman International Ltd v Dwyer (1995) 182 CLR 544 at 557; Vadasz v Pioneer Concrete (SA) Pty Ltd (1995) 69 ALJR 678 at 684; Maguire v Makaronis (1997) 188 CLR 449 at 496; Hospital Products Ltd v United States Surgical Corporation (supra) at 109."
Counsel for the appellant submitted that the learned trial judge applied the correct legal test, but erred in his application of it.
I am unable to see how it can be said the learned trial judge has not applied the test correctly. He has recognised by the declaration of trust itself the underlying equal ownership. He has re-imposed the condition of supply, thus giving back to the appellant the economic benefit of being able to process all the abalone caught. He has given the appellant back its 25 per cent of the gross income without deduction. They were the main benefits to which the appellant was entitled under the original arrangements.
I am not satisfied that the learned trial judge erred in his application of the principles he was obliged to apply. I see no reason why the approach in Tasmanian Seafoods Pty Ltd v MacQueen (supra), even though it related also to Furneaux units, should not equally apply to the permanent units.
I would dismiss the appeal.
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