Tuna Tasmania Pty Ltd v Allison

[2003] TASSC 4

[2003] TASSC 4

CITATION:                 Tuna Tasmania Pty Ltd v Allison [2003] TASSC 4

PARTIES:  TUNA TASMANIA PTY LTD (ACN 066 776 985)

v
ALLISON, Paul Francis

TITLE OF COURT:  SUPREME COURT OF TASMANIA
JURISDICTION:  ORIGINAL
FILE NO/S:  M361/2001
DELIVERED ON:  20 February 2003
DELIVERED AT:  Hobart
HEARING DATE:  11 December 2002
JUDGMENT OF:  Cox CJ

CATCHWORDS:

Partnership - Rights and duties of partners inter se - Fiduciary relationship - Duties owed by virtue of the existence of a partnership or ordinarily subsisting before definition by formal agreement, breach giving rise to caveatable interest as beneficiary of constructive trust.

Birtchnell v Equity Trustees, Executors and Agency Company Ltd (1929) 42 CLR 384; United Dominions Corporation Ltd v Brian Pty Ltd (1984 - 1985) 157 CLR 1, referred to.

Partnership Act (Tas) 1981, s6.
Aust Dig Statutes [12]

REPRESENTATION:

Counsel:
             Applicant:  T J Williams
             Respondent:  J Murphy
Solicitors:
             Applicant:  Gunson Williams
             Respondent:  John White

Judgment  Number:  [2003] TASSC 4
Number of paragraphs:  15

Serial No 4/2003
File No M361/2001

TUNA TASMANIA PTY LTD (ACN 066 776 985)
v PAUL FRANCIS ALLISON

REASONS FOR JUDGMENT  COX CJ

20 February 2003

1. By an originating application dated 3 December 2001, the applicant sought an order that the respondent show cause why the caveat lodged by him with Australian Shipping Registration Office in relation to the ship "Cape Cleveland" should not be removed.  The caveat was lodged on 21 September 2001 by the respondent, who claimed an interest in the ship which he described as "an equitable interest as beneficial owner in the ship under a 50% constructive trust".  The sole evidentiary material relied upon by the applicant was an affidavit sworn by John Frederick Farrer, one of its directors, to the effect that the applicant is the owner of the "Cape Cleveland".  A copy of the caveat was annexed to it. 

1. The respondent filed two affidavits sworn by himself and one by Stephen Chaplin.  Both deponents were cross-examined on their affidavits, but their assertions were not contradicted.  The respondent's affidavits were somewhat confused and prolix and his oral evidence verbose and difficult at times to follow.  Nevertheless, the substance of his evidence was to the effect that he had considerable experience in the fishing industry and that in September 1994 he had met Farrer in Melbourne for the purposes of discussing a joint fishing venture.  Over the next few months agreement was reached that they go into business as equal partners, the business to be conducted through a unit trust of which the applicant company, which was to be formed, should act as trustee.  Farrer was to arrange the formation of the unit trust and the incorporation of the appellant company.  The agreement was that Farrer and the respondent were to be the directors of the company together with another associate of the respondent, one Lowe.  Each of Farrer and the respondent was to own 50 per cent of the shares in the company and of the units in the unit trust.  The respondent had a company under his control which was the owner of a tuna fishing vessel called the "Greshanne" and he undertook to transfer the ownership of it to the applicant company upon its incorporation.  Farrer's contribution was to take the form of loans to the company to fund the purchase of various other assets such as other boats and fishing licences.  The day to day running of the business was to be conducted by the respondent because of his expertise in the fishing industry and he was to be paid a salary therefor.  The profits of the business were to be shared equally between himself and Farrer.

1. The applicant company was duly incorporated and the respondent transferred to it the "Greshanne" in January 1995.  The respondent purchased for the company a number of fishing licences and vessels.  He also transferred some land in which he had an interest to the company in order to increase its capital.  During 1995, he travelled to Queensland and purchased, on behalf of the applicant company, the vessel "Cape Cleveland" for $370,000.  The "Cape Cleveland" was a blue fin tuna boat and the purchase included a tuna licence.  The respondent carried on the day to day operations of the business during 1995, but did not draw a salary or share of profits because Farrer told him the business was not then making profits.

1. During the time the respondent was involved in the business, he did not see any business documents or records and assumed that the business had been set up so that he was an equal partner.  In August 1995, the respondent went to Western Australia for the purposes of negotiating the sale of the "Greshanne" and while there discovered that Farrer had relocated it and had agreed to sell it to another person without consultation with him.  On his return in about October 1995, the respondent spoke to Farrer by telephone asking him what was happening and seeking reimbursement of certain business expenses.  According to the respondent's affidavit, Farrer told him "You're out of the picture, Paul.  Nothing is yours.  That's just the way it goes."  The respondent then discovered that, contrary to the agreement, Farrer and his wife had been made the sole directors and shareholders of the applicant company and that he, Allison, was not a shareholder in it, nor a unit holder in the unit trust.

1. Mr Chaplin gave evidence that on AFL Grand Final day in September 1993 or 1994, both Farrer and the respondent were at his home in Melbourne and had a lengthy discussion about a proposal by Allison that they should start a tuna fishing operation together in Tasmania.  The proposal was to purchase suitable ships and fishing licences.  To start the business, the respondent proposed that he would transfer the "Greshanne" to the eventual business entity as his initial contribution and would seek out other ships and licences and would manage the day to day operations.  Farrer was to inject any further capital required.  After considerable discussion, Farrer asked Chaplin his opinion on the proposal and Chaplin told him that in his opinion the proposed operation would be very profitable.  He said that he later heard Farrer say to Allison words to the effect "It's a good idea, so let's do it", whereupon they all had a drink to celebrate.

1. On the material before me, there is clearly an arguable case for finding that there was an agreement in late 1994, reached after a number of discussions, including that at Chaplin's home in Melbourne and others which took place in Tasmania.  The terms of the contract were that Allison and Farrer would carry on a business together with a view to profit, namely a commercial fishing venture; that the business would be operated through a corporation as trustee for a unit trust; and that each of Allison and Farrer were to be directors of the corporate trustee, together with the person Lowe.  Each of Allison and Farrer were to be the only two shareholders of the corporate trustee and were to be the only two and equal beneficiaries under the unit trust.  Farrer was to be responsible for creating the corporate and trust structure and was entrusted by Allison with that task.  The agreement was that the profits were to be shared equally.  The contract also included terms that Allison would transfer the "Greshanne" to the corporate trustee as part of the process of capitalising the business and manage the day to day field operations of the business and would be responsible for purchasing additional assets including ships and fishing licences, while Farrer would inject any necessary additional capital.

1. The further findings are open that in breach of this agreement, Farrer failed to include the respondent as a director and shareholder of the company or as a unit holder of the trust and took the benefits of the respondent's contributions to the company to the exclusion of the respondent.  Those benefits included his knowledge of the fishing industry, the transfer to the company of the "Greshanne" and the interest in realty, and his activities in acquiring further boats and licences for the enterprise they both contemplated.  A finding is open that the respondent placed confidence and trust in Farrer in respect of the arrangement generally, and in particular in respect of the creation of the business structure which was to operate in carrying it out.  The respondent has an arguable case that the relationship which subsisted between himself and Farrer was a partnership in that they carried on business in common with a view to profit (Partnership Act 1891, s6).

1. In Birtchnell v Equity Trustees, Executors and Agency Company Ltd (1929) 42 CLR 384 at 407 - 408, Dixon J emphasised the fiduciary nature of the relationship between partners. In Chan v Zacharia (1983 - 1984) 154 CLR 178, the obligation to perfect fairness and good faith each partner owes to the other was held to operate even after the dissolution of the partnership but before its affairs had been wound up, so that a renewal of the lease of premises previously occupied by former partners was held to be an asset of the partnership and held by the ex-partner, who had secretly procured it, on constructive trust for the members of the partnership. In United Dominions Corporation Ltd v Brian Pty Ltd (1984 - 1985) 157 CLR 1, it was held that the obligation to perfect fairness and good faith is not confined to persons who actually are partners, but extends to persons negotiating for a partnership. At 12, Mason, Brennan and Deane JJ said:

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

1. In the present case, the findings open are that Farrer and Allison either entered into partnership or at least engaged in prolonged and detailed negotiations for the formation of a partnership; and that Farrer, in breach of the fiduciary relationship which was thereby generated, placed himself, to the exclusion of Allison, in a position of control over the applicant company.  In consequence, he achieved the result that, subject to any equitable remedy Allison may have, all the assets of the enterprise were held by the applicant company for the benefit of himself and his wife as sole shareholders and Allison was excluded from any benefit in the assets and profit they had agreed to share equally.

1. A similar situation arose in Fraser Edmiston Pty Ltd v AGT (Qld) Pty Ltd & Hussey [1988] 2 Qd R 1. The plaintiff negotiated with the defendant Hussey and his wife to enter a partnership as optometrists. The plaintiff was lessee of premises in a shopping centre and was given priority by the landlord to enter into a lease in respect of other premises in the centre. While the negotiations were on foot for a partnership to operate from the new proposed premises, the landlord gave the plaintiff a letter of acceptance which the plaintiff in turn left with the second defendants for perusal. The latter signed and returned the letter of acceptance and entered into a lease of the premises as tenant, excluding the plaintiff, and the partnership was never finalised. The first named defendant then carried on business from those premises and built up a substantial goodwill by virtue of its location. Williams J found for the plaintiff and issued a declaration that the second named defendant held the lease and the business upon trust for themselves and the plaintiff in equal half shares.

1. In the present case the assets, including the "Cape Cleveland" against which the caveat has been entered, are in the hands of the applicant company rather than those of Farrer personally.  Nevertheless, as he is a director of that company, it must be deemed to have acquired the property with knowledge of his breach of fiduciary obligations to the respondent and to hold it upon constructive trust for him to the extent of 50 per cent as he claims in his caveat.

1. The question now arises whether the balance of convenience favours the caveat remaining on the register.  In Four Oaks Enterprises Pty Ltd v Clark [2002] TASSC 39, Blow J said at par8, when dealing with an application to remove a caveat lodged against Torrens System land:

"The appropriate course is for me to determine whether, in the exercise of the discretion conferred by the Land Titles Act, s135(2), I should make an order for the removal of the caveat. There is a strong body of authority supporting the proposition that a statutory discretion to order the removal of a caveat should be exercised in accordance with the 'balance of convenience' test that is applied in relation to interlocutory injunctions: Eng Mee Yong v Letchumanan [1980] AC 331; Re Burman's Caveat [1994] 1 Qd R 123; Lindsay (supra) at 203 - 207; Colbran and Jackson (supra) at 346 - 354. In Western Australia, the view has been taken that the 'balance of convenience' test is relevant but not necessarily decisive: Porter v McDonald [1984] WAR 271; Custom Credit Corporation Ltd v Ravi Nominees Pty Ltd (1992) 8 WAR 42."

Both counsel accepted that the same principles are applicable to caveats lodged pursuant to the Shipping Registration Act 1981 (C'th).

1. The respondent first became aware of the breach of fiduciary obligations alleged by him and the consequence that he had no legal entitlement to the assets or profits of the enterprise agreed upon by the parties towards the end of 1995.  In cross-examination, when asked what steps he had taken to enforce his rights, he said that he had had the "Greshanne" arrested, but the boat had been released as he "couldn't go on with it".  Subsequently he put another caveat on the "Greshanne", but that had been struck out on Christmas Eve about four years ago due to what he described as inadequate representation.  He had not taken any proceedings to enforce his rights against the "Cape Cleveland" because he had been financially ruined by the breach and had only now acquired sufficient funds to do what he had done to date, that is to file the caveat on 21 September 2001 and to defend the present proceedings.  His counsel indicated his willingness for the refusal of the application to be made conditional upon his commencing proceedings against the applicant promptly.

1. There is no evidence that the applicant is suffering or will suffer any prejudice by virtue of the subsistence of the caveat.  It does not impede the use of the boat.  Nor is there any evidence of the present state of the financial affairs of the applicant or Mr Farrer which might indicate the adequacy of a remedy in damages.  In my view, there is justification for the retention by the respondent of the security over the "Cape Cleveland" which the caveat provides, provided he commences his action promptly and prosecutes it with due diligence.  The balance of convenience favours the retention of the caveat.

1. Accordingly, the application for its unqualified removal is refused.  However, I will order its removal, absent proceedings being commenced in this Court by the respondent against the applicant within 14 days and absent the delivery of a statement of claim to the applicant or its solicitors within 21 days hereof.  I will reserve liberty to speak to the minutes of the order and liberty to apply generally and for an unqualified order for its removal upon proof of the respondent's failure to commence proceedings or to deliver the statement of claim within the above time limits.