Daniels Corporation International Pty Ltd v Australian Waste Services Pty Ltd [2003] QSC 192

Hopgood Ganim (Brisbane) acting as Town Agents for Meerkin Apel (Melbourne) for the plaintiff/respondent

Carter Newell (Brisbane) for the defendants/applicants

[1] This is an application by the first, second and third defendants pursuant to rule 171 of the Uniform Civil Procedure Rules (UCPR) to strike out certain paragraphs of the amended statement of claim. The application itself also refers to the Court's inherent jurisdiction but that argument was not pressed when the application was heard. The application was extremely wide but in argument was limited to paragraphs 7, 8(b) to (f), 9, 23, 24A and 26 to 28 of the amended statement of claim.

[2] These proceedings have been transferred from the Federal Court (Victorian Registry) where they were commenced by application and statement of claim on 13 September 2002. The plaintiff obtained injunctive relief in that court before the transfer to this court. Because of the volume of affidavit material filed, the defendants are apprised of the case the plaintiff has against them. On 6 October 2002, the proceedings were put on the supervised case list. However, they have not yet progressed beyond the stage of the plaintiff's pleading of its claim. As a result of various complaints made by the defendants and a previous application for striking out various parts of the statement of claim, the plaintiff has amended the statement of claim.

[3] The defendants have continued to prosecute their application to strike out on grounds previously agitated as well as new ones. The defendants assured the court that they have exhaustively raised all of their grounds of complaint about the plaintiff's pleading in this application.

[4] The rule of the UCPR with regard to striking out pleadings, r 171, provides:-

"(1) This rule applies if a pleading or part of a pleading -

(a) discloses no reasonable cause of action or defence; or

(b) has a tendency to prejudice or delay the fair trial of the proceeding; or

(e) is otherwise an abuse of the process of the court.

(2) The court, at any stage of the proceeding, may strike out all or part of the pleading and order the costs of the application to be paid by a party calculated on the indemnity basis.

(3) On the hearing of an application under subrule (2), the court is not limited to receiving evidence about the pleading."

[5] Rule 171 repeats the grounds which have traditionally applied to striking out a pleading. A case must be very clear to justify the summary intervention of the court to prevent a party from preventing its case for determination at trial.[1] As Barwick CJ observed in General Steel Industries Inc v Commissioner for Railways (NSW) and Ors[2], the plaintiff ought not be denied access to the court to determine its matter unless its lack of a cause of action is clearly demonstrated. The question to be considered is whether or not the plaintiff's case is so clearly untenable that it cannot succeed.[3] Essentially, the defendants' argument is that parts of the plaintiff's statement of claim disclose no reasonable cause of action.

[6] It is necessary, therefore, to examine the amended statement of claim in some detail. The amended statement of claim is divided into 19 parts, A to N, as well as the prayer for relief. The only paragraphs that are the subject of this application to strike out are found in Parts C ("Fiduciary Relationship"), I ("Joint Venture Variation") and J ("Breach of the Distributorship Agreement as Varied").

[7] After formal matters, the plaintiff alleges first that there was an agreement dated 22 December 2000 by which the first defendant, Australian Waste Services Pty Ltd ("AWS"), appointed the plaintiff, Daniels Corporation International Pty Ltd ("Daniels"), as its sole distributor in the United Kingdom of certain clinical waste sterilisation equipment ("the distributorship agreement"). The plaintiff pleads a number of express terms of the distributorship agreement including the term that the distributorship agreement was to have a term of 10 years commencing on 22 December 2000. There is no objection to that part of the pleading which is found in Part B.

[8] The plaintiff then pleads, in paragraph 7, that there was a fiduciary relationship between AWS and Daniels and that AWS owed fiduciary duties to Daniels. In paragraph 8, the plaintiff sets out the relevant fiduciary duties said to be owed and in paragraph 9, alleges that the terms referred to in paragraph 8 were implied by operation of law or to give business efficacy to the distributorship agreement. In the course of argument, the plaintiff said that it would amend paragraph 9 to plead the source of the implication of the terms enumerated in paragraph 8 with more specificity and, should it be necessary, I would give the plaintiff leave to do so. Counsel for the plaintiff said in oral submissions that the terms set out in

subparagraphs 8(a) to (c) are implied from the facts of the case and by implication of law, with (b) and (c) implied from the equitable obligation of confidence, whilst (d), (e) and (f) are implied terms to give business efficacy to the contract. As already noted, paragraphs 7 to 9 (with the exception of paragraph 8(a)), which are found in Part C of the amended statement of claim, are the subject of the application to strike out.

[9] In paragraphs 10 to 13, under the heading "D. Acquisition Agreement", the plaintiff, pleads the existence of an agreement which it refers to as the acquisition agreement. The acquisition agreement is said to be found in a schedule to the distributorship agreement. It is alleged to have been part performed. There is no objection to that part of the pleading. Part E, paragraphs 14 to 15, pleads what is said to be the first breach of the acquisition agreement and loss suffered thereby. There is no objection to this part of the pleading. Nor is there any objection to Parts F, G and H, paragraphs 16 to 22, which deal with the commencement of operations in the United Kingdom, the appointment of David Tarn as general manager of the plaintiff and the scope of his duties, the existence of his associates, John Kennedy and Michael Barwick, and their lack of authority to act on behalf of the plaintiff, the fitness of the first AWS system and an alleged breach in relation to the first AWS system.

[10] Paragraph 23 in Part I ("Joint Venture Variation") alleges that the distributorship agreement was varied in about February to April 2002 so that it became a joint venture agreement (the "distributorship agreement as varied"). This paragraph is objected to. The defendants do not object to the allegation found in paragraph 24 that between October 2001 and July 2002, Daniels made modifications and improvements to the first AWS system. The defendants do, however, object to paragraph 24A which alleges that by reason of the distributorship agreement as varied, the property in the modifications and improvements remained with the plaintiff. There is no objection to paragraph 25 which alleges that the modifications increased the capacity of the AWS system.

[11] Part J deals with breach of the distributorship agreement as varied and each of the paragraphs 26 to 28 is objected to. The nature of the breach alleged is knowing encouragement by AWS of the diversion of the distributorship business from Daniels to its general manager, Mr Tarn, and his business associates, Mr Kennedy and Mr Barwick. Detailed particulars are given and it is said that further particulars will be provided prior to trial (that is, after disclosure). Paragraph 29 in Part J alleges each of the particularised breaches of the distributorship agreement as varied arose by reason of the conduct of the first respondent aided and abetted by the second respondent, his co-director of AWS. This paragraph was not objected to although it is clear that the reference to the first and second respondents should refer to the second and third defendants respectively.

[12] There were no further objections to the amended statement of claim, which goes on to plead that AWS was in breach of fiduciary duties owed to Daniels and in breach of the distributorship agreement as varied. The plaintiff also alleges that AWS and the second and third defendants engaged in misleading and deceptive conduct in contravention of the Trade Practices Act 1974 and the Fair Trading Act 1999. The plaintiff also pleads that the defendants have engaged in unconscionable conduct.

[13] It is convenient to consider the objections to particular paragraphs under the headings used in the amended statement of claim: fiduciary relationship, joint venture variation and breach of the distributorship agreement as varied.

[14] As previously noted, with the exception of paragraph 8(a) which is not objected to, paragraphs 7 to 9 of the amended statement of claim, which appear under the heading "fiduciary relationship" are objected to. They provide:-

7. Further, at all material times the relationship between AWS and Daniels International under the distributorship agreement was a fiduciary one pursuant to which fiduciary duties were owed by AWS to Daniels International.

The fiduciary relationship arose and the fiduciary duties were owed by reason of the following matters:

(a) Daniels International by the expenditure of a considerable amount of time, effort and resources in the UK:

(i) identified that there was a significant market for clinical waste treatment by autoclave sterilization and grinding using a system like the AWS system ("the method").

(ii) developed, marketed and promoted clinical waste treatment by the method in the UK.

(iii) obtained regulatory authority approval for use of the method in the UK.

(iv) identified customers and potential customers for both clinical waste treatment by the method and a system for clinical waste treatment by the method such as the AWS system.

(v) established a clinical waste treatment plant at Spennymoor, UK, for the purpose of treating clinical waste by the method for customers and using it as a demonstration site for sale of clinical waste treatment systems using the method.

(b) Dan Daniels of Daniels International informed the second respondent of the matters referred to in part (a) above.

(c) The matters referred to in part (a) above created a valuable commercial opportunity for Daniels International and any person involved with Daniels International in the exploitation of that commercial opportunity.

(d) AWS was aware by reason of Dan Daniels and Michael Magyar orally informing the second respondent that Daniels International only entered into the acquisition agreement (defined in paragraph 10 below) on the condition that Daniels International was appointed the sole distributor of the AWS system in the United Kingdom.

(e) AWS was aware by reason of Dan Daniels orally informing the second respondent that Daniels International had expended a significant amount of time and resources in establishing a clinical waste treatment plant in the United Kingdom at which the first AWS system (as defined in paragraph 13 below) was to be installed.

(f) The distributorship agreement envisaged that from time to time Daniels International would supply to AWS so as to enable the exploitation of the commercial opportunity referred to in part (c) hereof and the promotion and sale of the AWS system in the United Kingdom, confidential information belonging to Daniels International relating to its commercial operations in the clinical waste industry in the United Kingdom using the method.

(g) that the entering into of the distributorship agreement conferred on AWS the ability to join with Daniels International in exploiting the commercial opportunity referred to in part (c) hereof and the following opportunities:

(i) for the AWS system to become known in the United Kingdom clinical waste industry through the promotion and marketing efforts of Daniels International.

(ii) to obtain from Daniels International confidential information concerning the clinical waste business of Daniels International in the United Kingdom and the commercial opportunity referred to in part (c) above ("the confidential business information").

(iii) to appropriate for itself, and at the expense of Daniels International a significant part of the commercial opportunity referred to in part (c) hereof and of the clinical waste treatment market in the United Kingdom by use of the confidential business information.

(h) that the provision by Daniels International of the confidential business information to AWS placed AWS in the position where it had a special opportunity to use the confidential business information to the detriment of the commercial operations of Daniel International in the United Kingdom.

(i) that in supplying the confidential business information to AWS, Daniels International was vulnerable to AWS using the confidential business information for its own commercial purposes and to the detriment of the commercial operations of Daniels International in the United Kingdom.

(j) that Daniels International relied on AWS to preserve and protect the confidential business information belonging to Daniels International which was supplied to AWS so as to protect and develop the commercial operations of Daniels International in the United Kingdom.

(k) that by reason of sub-paragraphs (a) to (j) above, the relationship between Daniels International and AWS was one of trust and confidence.

8. By reason of the matters referred to in paragraph 7, AWS owed to Daniels International fiduciary duties as follows:

(a) to at all times act fairly and in good faith in the exercise of its rights and the performance of its obligations under the distributorship agreement;

(b) to preserve and maintain the confidentiality of any know-how, trade secret and/or confidential information belonging to Daniels International which came to the knowledge of AWS;

(c) not to use or disclose (except for the purposes of furthering the commercial interests of both Daniels International and AWS under the distributorship agreement) any trade secret, know-how or confidential information belonging to Daniels International which AWS obtained as a consequence of the distributorship agreement;

(d) not to place itself in a position where its interests conflicted with its duties to Daniels International;

(e) not to take advantage of the relationship created by the distributorship agreement to obtain a benefit for itself to the detriment of Daniels International;

(f) to disclose all relevant matters and information to Daniels International.

9. Further, or in the alternative, the duties referred to in paragraph 8(a) to (f) above were implied terms of the distributorship agreement.

(ii) to give business efficacy to the distributorship agreement.

[15] The question to be decided is whether the relationship between the parties in this case is one that is capable of giving rise to fiduciary duties as pleaded. If it is not, then the pleading should be struck out.

[16] Usually, an ordinary commercial relationship between parties, without more, will not be burdened with fiduciary duties. As Gibbs CJ said in the Australian case which examined the limits of fiduciary duties in a commercial context, Hospital Products Ltd v United States Surgical Corporation[4]: "... the fact that the arrangement between the parties was of a purely commercial kind and that they had dealt at arm's length and on an equal footing has consistently been regarded by this Court as important, if not decisive, in indicating that no fiduciary duty arose". In this case, cl 5.01 of the distributorship agreement provided that each party should act as an independent contractor and nothing in the agreement could be construed to make either an employee, joint venturer or partner of the other.

[17] Contracting parties are usually expected to act in their own interests rather than in the interests of those with whom they contract. As Professor Finn (as his Honour then was) said in "Contract and the Fiduciary Principle"[5]:

".. contracting .. is at once a selfish and a cooperative endeavour. A contracting party, ordinarily, is bound at least to do some prescribed act or acts for the other's benefit and can be relied upon for this: such is the effect of the consideration doctrine. A fiduciary, ordinarily, is obliged to act in the beneficiary's interests in some particular matter or matters and can be relied upon for that. Yet despite the apparent similarity we hold there is a difference. It is one thing to act for another's benefit. It is another to act in that other's interest."

[18] In a commercial relationship, contracting parties are free to define the extent of each party's obligations to the other and, absent particular circumstances, there is no occasion for equity to impose further fiduciary obligations.

[19] As a result, courts have been reluctant to impose fiduciary obligations in addition to the obligations contractually agreed by the parties in the context of commercial relationships. This principle was referred to most recently by the High Court in ACCC v CG Berbatis Holdings Pty Ltd and Ors[6]. Gleeson CJ[7] stated that ".. good conscience does not require parties to contractual negotiations to forfeit their advantages, or neglect their own interests". Kirby J affirmed his statement in Austotel Pty Ltd v Franklins Selfserve Pty Ltd [8]:

"Courts should be careful to conserve relief so that they do not, in commercial matters, substitute lawyerly conscience for the hard-headed decisions of business people."

[20] And as the Full Court of the Federal Court observed in The Paul Dainty Corporation Pty Ltd and Anor v The National Tennis Centre Trust and Ors[9] :

".. the authorities make it clear that equity will not impose fiduciary obligations on parties who have entered into ordinary and arm's length commercial relationships, which fully prescribe the respective powers and duties of the parties. This is particularly so when the parties involved are substantial corporations, having equal bargaining power. There is simply no need for the intervention of equity, to imply fiduciary responsibilities, in such circumstances".

[21] It is not impossible, however, for a fiduciary relationship to exist in the context of a commercial contractual relationship: see Mason J in Hospital Products Ltd[10]. Indeed, the parties' contractual obligations may simply evidence or source the parties' fiduciary relationship.

[22] In the present case, the relationship is based in contract and is commercial in nature. The bargain was for an exclusive distributorship in the United Kingdom. The question is whether this relationship has as a critical feature an element of trust and confidence or the exercise of power or advantage over one by the other so as to give rise to a fiduciary relationship. The plaintiff's allegation is that the liability of the first defendant for breach of fiduciary duties was direct rather than accessorial.[11]

[23] The bargain was struck between the two companies in the form of an exclusive distributorship agreement. The affidavit of M Magyar sworn 13 September 2002 describes the negotiations taking place over a few weeks. There is no indication in the affidavit material that Daniels was in an unequal bargaining position. Indeed, the exclusivity of the distributorship arrangement became part of the bargain at the insistence of Daniels.

[24] The plaintiff's argument is that the contractual relationship, by requiring the disclosure of confidential business information by Daniels to AWS, put AWS and Daniels in a relationship of confidence, which might be abused.[12] AWS, it is submitted, is bound not only by contract, but also in equity, to use confidential information only for the purpose for which it received it.[13] Breach of confidence has, since the foundation of the chancery jurisdiction, been a cause of action in equity.[14] The obligation to maintain the confidence has been regarded as a fiduciary obligation.[15]

[25] The parties dealt with the duty of confidentiality in cl 15 of the distributorship agreement. Clause 15 of the distributorship agreement provided:

"(a) AWS shall not disclose to a third party any confidential matters relating to [Daniels'] business activities, such as price structure, sales channel, financial standing or the like.

(b) [Daniels] shall not disclose to a third party confidential information relating to systems, such as prices, financial standing, production planning and schedules, technical information or the like relating to AWS unless necessary for the completion of an order and subject to a confidentiality agreement between [Daniels] and interested third party."

[26] The equitable obligations pleaded in subparagraphs 8(b) and (c) of the amended statement of claim are derived from and arguably supplement the contractual duty of confidence. The case that these duties are implied in the distributorship agreement and give rise to a limited fiduciary relationship of trust and confidence is not, in my view, so untenable that these paragraphs of the statement of claim should be struck out. The trial of the action will determine whether these equitable or fiduciary obligations are in fact implied in the particular circumstance of this agreement between these parties. It may be that when those facts are fully determined at trial there is no warrant to supplement the contractual terms with equitable obligations or a limited fiduciary relationship.[16]

[27] However, it could not in my view be said that the fiduciary relationship which might have arisen was sufficiently wide to support the proposition that AWS must prefer Daniels' interest over its own or not to place itself in a position where its interest conflicted with its duties to Daniels. Its general duties of good faith would not seem to be able to go beyond those pleaded in paragraph 8(a) of the amended statement of claim. The fiduciary duty arguably capable of arising in this case is a limited one[17], relating only to the duty of confidence arising from the disclosure of confidential business information from Daniels to AWS.

[28] In a case such as this, where a commercial contract was entered into between two parties at arm's length with no apparent inequality of bargaining power, there does not appear to be any occasion to impose additional fiduciary duties beyond those consistent with the contractual duties and obligations. The relationship between the parties is a commercial one with only the duty of confidence potentially giving rise to fiduciary duties. I would accordingly strike out subparagraphs 8(d), (e) and (f) of the amended statement of claim.

[29] Paragraphs 23 and 24A, which fall under the heading "joint venture variation" in the amended statement of claim, are objected to. They provide:

"23 Further, the distributorship agreement was during the period from in or about February 2002 to April 2002 varied to be a joint venture agreement as follows:

(a) Daniels International agreed to contribute its know-how, skill, expertise, trade secrets, confidential information, material and resources to make in addition to the modifications and improvements already made by Daniels International to the AWS system as at the date of such variation, further modifications and improvements (with the modifications and improvements already made and those to be made being referred to collectively as "the modifications and improvements") so that the AWS system functioned in accordance with the terms of the distributorship agreement and the acquisition agreement referred to in paragraph 21 hereof;

(b) Daniels International owned and would continue to own the industrial and intellectual property and the confidential and proprietary information ("the information") comprised in the modifications and improvements to the AWS system ("the modified AWS system").

(c) The modified AWS system would be promoted, marketed and sold:

(ii) by Daniels International and AWS elsewhere in the world.

The variations to the distributorship agreement was partly oral and partly to be implied. Insofar as they were oral, they were comprised in conversations between the second respondent on behalf of AWS and Michael Magyar on behalf of Daniels International taking place by telephone on various occasions prior to and after 10 April 2002 and at a meeting between them in Melbourne on 10 April 2002, the material substance of which was to the effect alleged. Insofar as the same were to be implied, they were to be implied from the acts, facts matters and circumstances referred to in paragraphs 21, 22, 24 and 25 hereof. Further, the same were to be implied from the fact that the AWS system was not useable or saleable without the modifications and improvements referred to in paragraph 24 below and that AWS did not have the funding, know-how, skill, expertise, materials or resources to make the modifications and improvements. In the event that the modifications and improvements were not made to the AWS system, AWS would have been liable to Daniels International for substantial loss and damage which it could not afford to pay and would have gone into liquidation. AWS consequently permitted and encouraged Daniels International to make the modifications and improvements so that the first AWS system operated, the second AWS system could be made operational and the modified AWS system could be sold pursuant to the distributorship agreement as varied."

"24A By reason of the distributorship agreement as varied, the industrial and intellectual property and the confidential and proprietary information comprised in the modifications and improvements set out in paragraph 24 above were owned and would continue to be owned by Daniels International."

[30] There seems to be no reason in principle why the plaintiff cannot plead that the distributorship agreement was varied in the manner alleged. This claim is not so clearly untenable that it could not possibly succeed. The complaints made by the defendants in their submissions were in essence complaints about particularisation which could be remedied by appropriate requests for further and better particulars, if necessary. I note however, that such requests have already been made and answered and it is intended to give further particulars after discovery.

[31] The application to strike out paragraphs 23 and 24A of the statement of claim is without substance.

Breach of the distributorship agreement as varied

[32] The defendants have also applied to strike out paragraphs 26 to 28 of the amended statement of claim, which allege in detail breaches of the distributorship agreement as varied.

[33] The claims set out in these paragraphs do not seem so clearly untenable as to be unable to succeed at trial. If the plaintiff is successful at trial in proving that the distributorship agreement has been varied as alleged, there is no reason to deny it the opportunity to litigate the breaches alleged in paragraphs 26 to 28. There is therefore no reason to strike those paragraphs out pursuant to r 171. If the defendants are in fact seeking a request for further and better particulars which differs from any previous request, then they should do so. The plaintiff has already given extensive particulars and indicated an inability to give full particulars of its claim until after discovery.

[34] In light of the reasons given, I propose to order that only subparagraphs 8(d), (e) and (f) of the amended statement of claim be struck out. In my view, the appropriate course is for the defendants to plead to the amended statement of claim without further delay. I will hear submissions as to costs and as to minutes of the order.

[1] Dey v Victoria Railways Commissioners (1948) 78 CLR 62 at 91; Hubbuck & Sons Ltd v Wilkinson Heywood & Clark Ltd [1899] 1QB 86 at 91; Davis and Ors v Commonwealth of Australia and Anor [1986] HCA 66; (1986) 68 ALR 18 at 23.

[2] [1964] HCA 69; (1964) 112 CLR 125 at 129.

[3] (supra) at 130; Tara Shire Council v Garner & Ors [2002] QCA 232 at [6].

[4] [1984] HCA 64; (1984) 156 CLR 41 at 70.

[5] UNSW Law Journal 12 (1989) 76 at 77 and 83.

[6] [2003] HCA 18, 9 April 2003.

[8] (1989) 16 NSWLR 582 at 585 at [112].

[9] [1990] FCA 163; (1990) 22 FCR 495, 515-516.

[11] Barnes v Addy (1874) LR 9 Ch App 244; Royal Brunei Airlines Sdn Bhd v Tan [1995] UKPC 4; [1995] 2 AC 378; Tara Shire Council v Garnerand Ors (supra).

[12] Hospital Products Ltd v United States Surgical Corporation (supra) at 69.

[13] P J Millett `Equity's Place in the Law of Commerce' in Law Quarterly Review 114 (1998) 214 at 222.

[14] HAJ Ford and WA Lee (eds), Principles of the Law of Trusts, Law Book Company at [1040].

[15] Schering Chemicals Ltd v Falkman Ltd and Ors [1982] 1 QB 1 at 27; R Meagher, D Heydon and M Leeming, Equity Doctrines and Remedies, 4th ed (2002) Butterworths at [41-035].

[16] cf Glover J_, Commercial Equity Fiduciary Relationships_ (1995) Butterworths, Sydney at [9.7].

[17] Hospital Products Ltd v United States Surgical Corporation (supra) at 98 per Mason J.