Damages for breach of fiduciary duty
127 In United Dominions Corporation v Brian Pty Ltd [1985] HCA 49; (1985) 157 CLR 1 at 10, Mason, Brennan and Deane JJ said:
The term "joint venture" is not a technical one with a settled common law meaning. As a matter of ordinary language, it connotes an association of persons for the purposes of a particular trading, commercial, mining or other financial undertaking or endeavour with a view to mutual profit, with each participant usually (but not necessarily) contributing money, property or skill. Such a joint venture (or, under Scots' law, "adventure") will often be a partnership. The term is, however, apposite to refer to a joint undertaking or activity carried out through a medium other than a partnership: such as a company, a trust, an agency or joint ownership. The borderline between what can properly be described as a "joint venture" and what should more properly be seen as no more than a simple contractual relationship may on occasion be blurred. Thus, where one party contributes only money or other property, it may sometimes be difficult to determine whether a relationship is a joint venture in which both parties are entitled to a share of profits or a simple contract of loan or a lease under which the interest or rent payable to the party providing the money or property is determined by reference to the profits made by the other. One would need a more confined and precise notion of what constitutes a "joint venture" than that which the term bears as a matter of ordinary language before it could be said by way of general proposition that the relationship between joint venturers is necessarily a fiduciary one but cf. per Cardozo C.J., Meinhard v. Salmon [(1928) 164 NY 458, at p 462; 164 NE 545, at p 546]. The most that can be said is that whether or not the relationship between joint venturers is fiduciary will depend upon the form which the particular joint venture takes and upon the content of the obligations which the parties to it have undertaken. If the joint venture takes the form of a partnership, the fact that it is confined to one joint undertaking as distinct from being a continuing relationship will not prevent the relationship between the joint venturers from being a fiduciary one. In such a case, the joint venturers will be under fiduciary duties to one another, including fiduciary duties in relation to property the subject of the joint venture, which are the ordinary incidents of the partnership relationship, though those fiduciary duties will be moulded to the character of the particular relationship: see, generally, Birtchnell v. Equity Trustees, Executors and Agency Co. Ltd. [(1929) 42 CLR 384, at pp 407-409].
128 As appears from [81] above, Mr Batterham's claim is that he and Mr Nauer (and probably others) were partners in a joint venture. The relationship between partners is a well-established, status-based, fiduciary relationship. In Birtchnell v Equity Trustees, Executors and Agency Co Ltd [1929] HCA 24; (1929) 42 CLR 384 at 407-408, Dixon J explained:
The relation between partners is, of course, fiduciary. Indeed, it has been said that a stronger case of fiduciary relationship cannot be conceived than that which exists between partners. "Their mutual confidence is the life-blood of the concern. It is because they trust one another that they are partners in the first instance; it is because they continue to trust one another that the business goes on" (per Bacon V.C. in Helmore v. Smith [(1886) 35 Ch D 436, at p 444]). The relation is based, in some degree, upon a mutual confidence that the partners will engage in some particular kind of activity or transaction for the joint advantage only. In some degree it arises from the very fact that they are associated for such a common end and are agents for one another in its accomplishment. Lord Blackburn found in this consideration alone sufficient reason for the fiduciary character of the partnership relation (Cassels v. Stewart [(1881 6 App Cas, at p 97]). The subject matter over which the fiduciary obligations extend is determined by the character of the venture or undertaking for which the partnership exists, and this is to be ascertained, not merely from the express agreement of the parties, whether embodied in written instruments or not, but also from the course of dealing actually pursued by the firm.
129 In Breen v Williams [1996] HCA 57; (1996) 186 CLR 71 at 82, Brennan J stated:
Fiduciary duties arise from either of two sources, which may be distinguished one from the other but which frequently overlap. One source is agency; the other is a relationship of ascendancy or influence by one party over another, or dependence or trust on the part of that other. Whichever be the source of the duty, it is necessary to identify "the subject matter over which the fiduciary obligations extend". It is erroneous to regard the duty owed by a fiduciary to his beneficiary as attaching to every aspect of the fiduciary's conduct, however irrelevant that conduct may be to the agency or relationship that is the source of fiduciary duty. As Fletcher Moulton LJ pointed out in In re Coomber [[1911] 1 Ch 723 at 728-729], fiduciary relations are of many different types and where there is a fiduciary relation the court may interfere and set aside acts which, between persons in a wholly independent position, would have been perfectly valid. His Lordship then added:
"Thereupon in some minds there arises the idea that if there is any fiduciary relation whatever any of these types of interference is warranted by it. They conclude that every kind of fiduciary relation justifies every kind of interference. Of course that is absurd. The nature of the fiduciary relation must be such that it justifies the interference. There is no class of case in which one ought more carefully to bear in mind the facts of the case, when one reads the judgment of the Court on those facts, than cases which relate to fiduciary and confidential relations and the action of the Court with regard to them."
As Mason J said in Hospital Products Ltd v United States Surgical Corporation [[1984] HCA 64; (1984) 156 CLR 41 at 102; see also at 73, per Gibbs CJ]:
"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.
130 "The essence of a fiduciary relationship … is that one party exercises power on behalf of another and pledges himself or herself to act in the best interests of the other": Pilmer v Duke Group Ltd (in liq) [2001] HCA 31; (2001) 207 CLR 165 at 197 (McHugh, Gummow, Hayne and Callinan JJ) quoting McLachlin J in Norberg v Wynrib [1992] 2 SCR 226 at 272.
131 The scope of a fiduciary relationship will be defined by the terms of the venture, which must be ascertained by having regard to the express terms of the contract between the parties to the relationship (although an informal arrangement may also give rise to a fiduciary relationship) and the parties' course of dealing.
132 The most common remedies awarded for breach of fiduciary duty are an account of profits, equitable compensation or the imposition of a constructive trust. Damages are not available for a breach of fiduciary duty but equitable compensation aims to restore a party who has suffered loss as nearly as possible to the position they would have been in, but for the breach: O'Halloran v RT Thomas & Family Pty Ltd (1998) 45 NSWLR 262 at 273.
133 The fundamental deficiency in the ASOC, insofar as its seeks to allege a fiduciary relationship, is that Mr Batterham has not pleaded facts from which it could be found that there was a partnership between Mr Batterham and Mr Nauer. Paragraph 30 of the ASOC pleads certain matters said to have occurred "[p]ursuant to the Joint Venture". However, no facts are pleaded that identify the creation of the joint venture, the parties to the joint venture or any contractual terms of the joint venture.
134 In his submissions, Mr Batterham asserts that the parties to the joint venture "are pleaded with precision" and are the parties identified in the 4 September 2009 presentation made by Parazelsus to Mr Nauer "to encourage him to invest $2 million in the joint venture".
135 Contrary to Mr Batterham's submission, the ASOC does not plead the parties to the alleged joint venture at any time. Paragraph 26(a) of the ASOC states that the 4 September 2009 presentation contained the following information:
(a) A legal structure depicting that Ztrata Capital Limited (ZCL) would be incorporated having the Respondent as a 34% shareholder, Parazelsus as a 60% shareholder and Promoter (the Applicant) as a 6% shareholder. Another company called Ztrata Limited (ZL) would be incorporated having Tan Sri Razali (Urunga) as a 39% shareholder, ZCL as a 58.5% shareholder and the Applicant as a 2.5% shareholder.
(b) The Applicant to serve as a Senior Advisor to the Board of Directors and the Company.
(c) Financial information provided by the Applicant in the Due Diligence Package provided to Parazelsus in February 2009 under the Parazelsus Confidentiality Deed.
(d) Proposed equity contributions by Parazelsus, the Respondent and Urunga to the joint venture.
136 The first reference to Mr Nauer in the chronological facts set out in the ASOC is at para 25, which refers to a presentation made to him on 4 September 2009.
137 Paragraphs 25, 26 and 27 do not allege the existence of the partnership at this point. Rather, what appears to be suggested is that a joint venture was proposed to Mr Nauer. This suggestion is reinforced by para 29 of the ASOC, which commences: "[o]n 29 December 2009 Parazelsus advised the Applicant of the envisaged structure for the joint venture that was in accordance with the 4 September Presentation".
138 The particulars to para 29 refer to an email from Parazelsus to Mr Batterham dated 29 December 2009, which sets out what is described as "the proposed structure for your shareholding in the Strata business". The email refers to shareholdings in ZCL by Parazelsus: 60%; a "Swiss Investor": 34%; and Maylord: 6%. The email also states:
Peter Batterham
It is proposed that you serve as a Senior Advisor to the Board of Directors and the Company. The annual remuneration is proposed at AUD 150,000. I assume this arrangement could be structured with you or with Maylord.
…
4) This arrangement starts 18 months after the acquisition of VBCS.
139 In that context, the following statement, at para 28 of the ASOC, must be read as a statement about the structure proposed as at 9 November 2009, but not yet agreed:
On 9 November 2009 … [t]he joint venture structure inter alia provided that ZCL would have control of the joint venture by its majority shareholding in the joint venture.
140 The first alleged breach of fiduciary duty by Mr Nauer, at para 117(a) of the ASOC, is that he:
(a) Purposely and deliberately failed to engage with the Applicant at any time after 4 September 2009, notwithstanding that he knew the Applicant was the promoter of the joint venture, a shareholder in it and an ongoing consultant to the joint venture.
141 On the earlier pleaded facts, this allegation predates the existence of any possible fiduciary relationship between Mr Batterham and Mr Nauer.
142 The allegation at para 117(a) implies the existence of a joint venture prior to 4 September 2009. But, if so, there is no fact alleged to support a conclusion that Mr Nauer was a party to that joint venture.
143 The allegation at para 117(a) also implies that Mr Batterham was a "shareholder" in the joint venture, but there is no allegation of shares held by Mr Batterham in any entity prior to 4 September 2009. This could not be a reference to the alleged shareholdings in ZCL and ZL. As noted earlier, Mr Batterham pleads that the 600 shares in ZCL were issued to him on 9 November 2009. Paragraph 36 of the ASOC pleads that ZL was incorporated on 15 March 2010.
144 Further, the ASOC does not plead facts that could support a conclusion that Mr Batterham was "an ongoing consultant to the joint venture" as at 4 September 2009. As set out above, the only facts pleaded concerning a consultancy prior to that time concern the prospect of a consultancy identified by Parazelsus (at para 23 and para 24 of the ASOC).
145 The allegation at para 117(a) is also, at least on its face, inconsistent with the creation of a fiduciary relationship between the two men after 4 September 2009. A fiduciary relationship is consensual and is a relationship of trust and confidence: it is objectively unlikely that it could arise between a party who purposely and deliberately fails to engage with another.
146 At para 30(c) of the ASOC, Mr Batterham pleads that, by electing to become a shareholder "in companies established to consummate the joint venture", Mr Nauer became a partner in the joint venture. The relevant companies are not specified but I take them to be ZL and ZCL. Mr Batterham pleads that Mr Nauer became a shareholder in ZCL in November 2009 (para 28 of ASOC) and, subsequently, a controlling shareholder in Vesture.
147 Assuming, in Mr Batterham's favour, that his case is that Mr Nauer acquired shares in ZCL in November 2009 and thereby (or with other facts) became a partner in the joint venture, there remains an absence of any pleading of the terms of the partnership or joint venture. In this regard, it is of some relevance to note that, at the 26 October 2016 hearing before Bergin CJ in Eq, her Honour sought to explain to Maylord's counsel that it was not sufficient to allege a joint venture on the sole basis that Mr Nauer had acquired shares in what is identified as a joint venture. As her Honour put it, "[y]ou have to actually give him the knowledge that he's actually taking on a commercial operation with partners or co-venturer".
148 In the light of her Honour's comments, it is not surprising that Mr Batterham specifically submitted that "[i]t is not alleged that [Mr Nauer] became a party to the joint venture solely by reason of him becoming a shareholder in ZCL" (although Mr Batterham submitted that this would be sufficient, citing UDC v Brien). Mr Batterham submitted that he also sought to rely on the following matters:
[Mr Nauer] was not merely a shareholder of ZCL, the entity that controlled the joint venture. [Mr Nauer] was a director of ZCL from its incorporation, took action with his brother in law to take control of Vesture Limited, a public company, that was a target of the joint venture identified by [Mr Batterham] for a merger to provide value to it. Additionally [Mr Nauer] installed this brother in law as the manager of the joint venture entity formed in Australia to manage the joint venture. [Mr Nauer] later became a director of this entity when his brother in law became the manager of Vesture and ceased to be the manager of the joint venture entity in Australia. He also funded the acquisition of another target of the joint venture (Ernst) introduced by [Mr Batterham] and subsequently purchased the shares owned by two other partners to take control of the joint venture without the knowledge of [Mr Batterham] and completed the merger with Vesture. The structure of the planned joint venture and the involvement of [the Batterham Retirement Fund] as its promoter was contained in a presentation dated 4 September 2009 provided to [Mr Nauer] by [Parazelsus] to encourage him to become a partner. The existence of this document only became available to [Mr Batterham] in August 2016 and as such was not pleaded in April 2016.
149 These matters do not substantially advance the case because they presuppose the existence of a joint venture, rather than identifying the facts upon which it is alleged that a joint venture was created being a joint venture or association between Mr Batterham and Mr Nauer and which, among other things, was "controlled" by ZCL. In particular, the mere fact that Mr Nauer was a director of ZCL does not, without more, provide a basis to conclude that Mr Nauer and Mr Batterham had formed, or were part of, a partnership by virtue of which Mr Nauer owed fiduciary duties to Mr Batterham (or to the Batterham Retirement Fund). It is not enough to assert that ZCL was the joint venture vehicle. It is necessary to plead facts to support a finding that ZCL was "the joint venture vehicle", including facts concerning the scope of the relevant joint venture.
150 In the absence of any other relevant pleaded facts, the ASOC does not plead a case that could support a claim for relief for breach of a fiduciary duty owed by Mr Nauer to Mr Batterham on the basis of the existence of a partnership between them, or them and others.
151 I have also considered whether Mr Batterham has pleaded facts that might support or even suggest the existence of a fiduciary relationship arising out of a relationship between Mr Batterham and Mr Nauer as prospective joint venturers: cf. UDC v Brien; Fraser Edmiston Pty Ltd v AGT (Qld) Pty Ltd [1988] 2 Qd R 1; Gibson Motorsport Merchandise Pty Ltd v Forbes [2003] FCA 583. However, no facts are pleaded of any relationship between Mr Batterham and Mr Nauer prior to 4 September 2009 and, as noted above, on Mr Batterham's own case, Mr Nauer deliberately avoided a relationship thereafter.