The prospect of a long-term joint venture could hardly have been stated more clearly. The letter continued:-
"The tests would be on a 50/50 capital investment basis, shared equally between Hungry Jack's and BKC. Shell, the landlord, will erect the building for us and fit it out prior to our equipment installation. The operation would then be managed on a day to day basis by your own organisation at cost and we would have to work out a fair distribution of the P&L impact so that we would both obtain a return on our investment.
I would emphasise that this is at present only an expression of interest. However, if we can firm up the precise nature of the sites and the financial evaluations backing up the investment proposal I will put it to Jim Adamson for a formal approval for the capital for a test on the first four to six units."
287 Mr Fitzjohn's third letter was to Mr Mummery, a copy being sent to Mr Cowin. A "preliminary agreement" to be entered into between BKC and Shell was attached to it, and Mr Fitzjohn stated:-
"In the event that we are able to agree on terms for buildings to give us representation on the site, these units will trade under the Hungry Jack's trade name capitalising upon the brand equity in the Australian market place. We at Burger King Corporation are excited about this opportunity to the extent that we are considering forming a joint venture to support our colleagues at Hungry Jack's with meaningful capital investment to test this concept."
288 Mr Miolla acknowledged that, at least as at 28 March 1994, HJPL, BKC and Shell were to be involved in the arrangements to develop Burger King restaurants at Shell sites, and it was contemplated that the three companies would be involved in at least some, if not all of those sites, if the test sites were successful.
289 On 29 March 1994 there was a meeting between Shell and HJPL representatives, which commenced with a similar presentation to that of the meeting on 1 March 1994. There was discussion about the test sites and various other matters, and the minutes recorded:-
"This particular meeting was intended to focus more specifically on how a relationship between Shell and BK/HJ could be progressed and put into operation on a test basis as soon as possible, in order to establish in the first instance compatibility of companies in systems and to look at guidelines and principles for a larger scale and long-term arrangement between the parties which could be implemented on a national basis."
290 Mr Fitzjohn received a copy of these minutes, which he read, and he accepted that between his meeting in early March and that meeting HJPL had been taking the principal role on behalf of BKC and itself in forwarding the proposals with Shell and was expending its capital to advance them. Mr Fitzjohn conceded that, to his perception, HJPL was doing so as it perceived that a long-term benefit could accrue to it and BKC from the proposal, and that it was his understanding that HJPL perceived itself as a joint venturer with BKC in relation to the proposal, subject to the qualification that the test was successful. His evidence made it clear that, at that time, he was contemplating a long-term relationship between the three companies: Tpp.2227-2228.
291 Mr McKenzie responded favourably to Mr Fitzjohn's letter of 28 March 1994, noting in that letter that Shell had been progressing the concept discussed "with your colleagues at Hungry Jack's" and that Shell was working "closely with them on a number of trial locations". Mr Fitzjohn said he was sure he read the letter from which he understood that the venture between BKC, Shell and HJPL was progressing well and:-
"Q. And of course the only purpose of pursuing this venture with Shell from both the position of Burger King and Hungry Jack's to your perception, was a belief that it could result in a long-term relationship with Shell for both Hungry Jack's and Burger King; correct?
A. Yes.
Q. If one came to be aware that there was no reasonable prospect of that, there was no purpose in going forward with this; correct?
A. Yes": Tpp.2228-2229.
292 The position thus far reached was that the three parties intended to proceed on a test site basis and on a more expansive basis over a long term provided that the test site situation did not lead to any business or commercial difficulties, which made a longer term relationship inappropriate. The significance of this was that there was a clear expectation by the parties that the test site arrangements were being pursued in the context of a potentially longer term relationship in which, at the least, the parties would be joint venturers.
293 Mr Bathurst put the submission in this way. He said it was important to remember that the meeting of 1 March 1994 was not in the context "of setting up a couple of restaurants to see what would happen". That submission was made to counter what he understood to be the thrust of BKC's submissions, namely that the negotiations were only in relation to restaurants the subject of the Test Site Agreement and did not go beyond that.
294 In paragraph 22.13 of his written submissions, Mr Bathurst commenced to deal with the chronology to which I have referred, which he submitted demonstrated that the negotiations were not confined to the Test Site Agreements, but were entered into with the intention of forming a long-term alliance, although that was "in some way contingent on the test sites being successful". However, he submitted that contingency was imposed in the expectation "that the arrangements would take place on a tripartite basis" and, if successful, this would eventuate. He referred to the evidence of Mr Fitzjohn in paragraphs 22.21 and .23 of the written submissions and stressed that he was unequivocal that a long-term relationship was being considered. The submission continued that there were good reasons for Mr Fitzjohn to take that position, the essential one being that BKC was not able, in March 1994, to proceed to develop with Shell without HJPL's assistance, because BKC did not have access to the necessary infrastructure, save through HJPL. Therefore, as the Shell arrangement was important from BKC's point of view, the involving of HJPL in it was a matter of great significance. The evidence on which reliance was placed to support this submission is collected in paragraphs 19.13 and .14 of the written submissions, in the latter paragraph it being noted, inter alia, that as late as February 1995 Mr Fitzjohn realised that if HJPL withdrew from the test arrangements there would be nobody to run the existing test restaurants in Australia, so that it suited the purpose of BKC, so it was submitted, for HJPL to become actively involved in the planning and discussions with Shell for the operation of co-branded restaurants.
295 In paragraph 19.5 of his written submissions, Mr Bathurst referred to evidence to support the proposition that throughout the remainder of 1994 and in early 1995 Messrs Fitzjohn, Miolla and Power were aware that HJPL was devoting substantial time and money to the establishment of the two test sites and in participating with Shell employees in the identification of future sites for co-branded development. So much was not in issue and, in so far as it may have been, I accept that HJPL was acting in that way. Indeed the evidence is that Messrs Fitzjohn and Miolla, at least, were caused acute embarrassment in early 1995 when Shell advised that it was not prepared to proceed with HJPL and, thereafter, in circumstances which reflect no credit on them, they failed to advise HJPL for some time. It was submitted by Mr Bathurst, and in my view this is the proper inference to draw, that Messrs Fitzjohn and Miolla adopted this course, i.e. delayed advising HJPL of Shell's attitude, until they were satisfied that Shell was prepared to enter into a firm relationship with BKC. Notwithstanding their earlier knowledge of Shell's attitude, Messrs Fitzjohn and Miolla were prepared to allow HJPL to continue to invest not insubstantial amounts and time in progressing what HJPL obviously understood to be the arrangements for a long-term tripartite agreement. Not only did those officers of BKC and others fail to advise HJPL of Shell's change of mind, but they also actively took advantage of it to bring about a situation whereby BKC would deal with Shell to the exclusion of HJPL. This conduct, on the part of BKC, gave rise to the allegations of breach of fiduciary duty.
296 The various activities in which HJPL engaged are set forth in paragraphs 22.25 to 22.28 of its written submissions and, in paragraph 22.26, reference is made to the evidence that when Mr Power took up his position with BKC in Australia in about late July 1994 he understood that if the test was successful there would be continuing involvement by both BKC and HJPL in any future relationship with Shell.
297 Mr Miolla conceded that he believed that HJPL expected to be involved in any venture with Shell, that that was the basis on which HJPL was investing time and money, and that it would have been "unethical" for BKC to encourage Shell to proceed to the exclusion of HJPL in those circumstances. However, that, so it was submitted, and I am satisfied that this is the fact, was precisely what BKC did.
298 In this context some very significant evidence was elicited from Mr Fitzjohn. It is referred to in paragraph 22.25(e) of the written submissions. On 14 July 1994 Mr Fitzjohn sent a facsimile transmission to Mr Mummery, which he copied to Messrs McCarthy, Montgomery, Miolla and Power. It stated that BKC continued to be "very excited about the possible strategic alliance"; that new BKC employees were to be appointed in Australia, but that it remained most efficient for Messrs Montgomery and McCarthy to be Shell's principal points of contact; and that they had done "an excellent job" of keeping BKC informed of progress in relation to the three test locations. Mr Fitzjohn agreed that when he sent that message BKC was still reliant upon either HJPL or Shell to provide resources to move forward the alliance with Shell, and that he was putting HJPL forward as an organisation eminently qualified to participate in the joint venture, which was to form the basis of the strategic alliance with Shell. He continued that he would not have risked that strategic alliance by putting HJPL forward in that context unless he had complete confidence in its competence to perform the role and that having made every attempt to satisfy himself of that matter he considered HJPL was appropriate to be so put forward. Reference was then made to re-examination of Mr Fitzjohn on this point at Tp.2470, when he was asked by Mr Oslington whether his views remained the same about HJPL after July 1994 and he said that they did. This concession was the more potent coming as it did in re-examination.
299 Mr Bathurst, quite understandably, fastened on it because, as he submitted, Mr Fitzjohn was the most senior officer of BKC on the development side, who was called. He continued that I would have to contrast the views he expressed with the submissions made by BKC, firstly, that the Shell arrangements, so far as HJPL was concerned, were terminated because of some mutually perceived dissatisfaction with HJPL by Shell and BKC. The submission was that this evidence showed that could not have been, as a matter of fact, the truth. Secondly, it was submitted that Mr Fitzjohn's evidence stood "in stark contrast to the denial of operational and financial approval", because if HJPL was "good enough" in Mr Fitzjohn's view to be involved in the development with Shell, there could be no real reason why it was not good enough to develop elsewhere in Australia. Mr Fitzjohn was involved with the development area and, as I have noted, there was a deliberate division between it and other areas. However, linked with this submission was the failure by BKC to call the relevant operations manager, Mr Blauer, who was the most senior man on the operational side with relevant responsibility to give evidence that, from an operational perspective, HJPL was not suitable to be considered for the joint venture with Shell. Mr Oslington's submission was that it was hardly surprising that Shell expressed dissatisfaction with HJPL having regard to its poor operational record, which manifested itself in many ways and led, ultimately, to operational disapproval. However, Mr Bathurst pointed to the fact that not only was no evidence called from BKC on this point, and that the evidence from Mr Fitzjohn and, so far as Mr Blauer's letter of 27 November 1995 disclosed, from Mr Blauer, was to the contrary, but that no evidence was called from Shell to explain the reason for the views to which, according to BKC officers, it was said to have come.
300 The submissions of HJPL were that notwithstanding that no final agreement was entered into in relation to the longer term development proposal between it, BKC and Shell, the fact that the parties were negotiating to bring about that agreement, and taking the preliminary steps of having several test sites, gave rise to a series of fiduciary duties owed by BKC and Shell, relevantly for present purposes, to HJPL, such that if either BKC or Shell sought to subvert the arrangements in so far as they included HJPL and, of course, without advising HJPL that the negotiations in which the parties were engaging were at an end, there were breaches of fiduciary duty entitling HJPL to equitable compensation.
301 The asserted breach of fiduciary duty was considered in detail in paragraph 30 of HJPL's written submissions. The terms pleaded are set forth in paragraph 30.1 and, in paragraph 30.2, it was submitted that the joint venture or proposed joint venture existed prior to the Test Site Agreement between the parties, which was executed in February 1995 and exchanged on or about 20 March 1995.
302 In paragraph 30.3 it was submitted that by reason of either the joint venture or proposed joint venture, BKC owed fiduciary duties and obligations to HJPL, which required that it not take steps, either itself or in conjunction with Shell, to exclude HJPL from the development, operation and/or servicing of Burger King restaurants at Shell service stations in Australia, and that those duties required that the two parties, namely BKC and Shell, must not secretly negotiate to exclude HJPL from the proposed joint venture. Alternatively, it was submitted, the dealings between HJPL and BKC, so far as they concerned negotiations with Shell, were directed to the formation of a joint venture between HJPL and BKC to establish and operate Burger King restaurants at Shell service stations in Australia, and BKC owed HJPL fiduciary and contractual duties of good faith in relation to that.
303 The submission continued that there existed from March 1994 either a venture by HJPL and BKC to deal jointly with Shell for the promotion of a long-term relationship with it through the medium of a Test Site Agreement; and/or a venture by the three companies to undertake the establishment and operation of a series of restaurants under the terms of a Test Site Agreement to be executed in due course, with a view to establishing a long-term relationship, which would involve Shell establishing restaurants at service stations utilising the Burger King system but operated or serviced by HJPL. The submission continued that the fact that detailed arrangements were still the subject of negotiation heightened the element of trust and confidence which existed between HJPL and BKC, the essential subject matter of the arrangement between them being the opportunity to develop a long-term relationship with Shell after the development of the test restaurants and provided that proved successful. Each was dependent on the other to do all in its power to convert that opportunity into reality, or, from a negative point of view, not to do anything which would jeopardise that occurring.
304 In these circumstances Mr Bathurst submitted that whilst the arrangements, albeit in a loose and not finally formulated form, continued, the fiduciary duties also continued, which had the effect of precluding BKC from encouraging, either expressly or impliedly, Shell from proceeding without HJPL's involvement and from not taking active steps to try to ensure that Shell would continue with the long-term plans.
305 Reliance was placed upon the decisions of the High Court in United Dominions Corporation Limited v Brian Pty Limited (1987) 157 CLR 1 at 12; Australian Breeders Co-operative Society Limited v Jones (1997) 26 ACSR 26; and Marr v Arabco Traders Limited [1987] 1 NZBLC 102,732 at 102,745.
306 The submission continued that the common object of BKC and HJPL was the promotion of a continuing relationship between them and Shell, the effectuation of that object depending upon both relying on the other to deal with Shell, and as between themselves, "with utmost good faith". In these circumstances it was submitted that in so far as BKC was in a fiduciary relationship with HJPL on either basis that carried with it a fiduciary duty to refrain from pursuing, obtaining or retaining for itself any collateral advantage from the proposed project without the knowledge and informed assent of the other participants: United Dominions at p.13. Further, it was submitted, BKC owed a duty of utmost good faith to HJPL: United Dominions at p.6 and Bialla v Mallina (1993) 11 ACSR 785 at p.831.
307 Clause 16 of the Test Site Agreement contained an "entire understanding" provision, which Mr Bathurst submitted was no answer to the allegation concerning the fiduciary obligations for which he contended. He submitted, firstly, that as a matter of construction the clause was only concerned with matters "connected with the subject matter of the agreement", and superseded and merged any prior agreement or understanding; and with the fact that each party entered into the agreement without relying on any representation by the other. The basic submission was that the clause was only concerned with the subject matter of the Test Site Agreement, which did not regulate or purport to regulate the entire relationship between the three companies, but rather was, in effect, one incident of the joint venture or proposed joint venture between them.
308 Secondly, Mr Bathurst submitted that in any event the Test Site Agreement was not executed until February 1995 and exchanged until after 20 March 1995, whereas the conduct which amounted to a breach of duty had occurred prior to that date. That conduct involved Shell's having raised the possibility of being a direct franchisee with BKC in September 1994; BKC and Shell having discussed in October 1994 the need to send a letter to HJPL indicating that Shell preferred to deal with BKC rather than HJPL; on 27 February 1995, Mr Lannen having reiterated Shell's position that it was not prepared to go forward opening restaurants, while they were called "Hungry Jack's" and supported by HJPL; and BKC's having not sought to dissuade Shell from that position or having obtained HJPL's fully informed consent to it.
309 It was submitted that in breach of the duties pleaded in paragraphs 28 to 31 of the Summons, BKC and Shell were discussing and developing plans, no later than September 1994, to expand the business of the joint venture to the exclusion of HJPL; that they pursued those plans; and that they did not inform HJPL until, at the earliest, mid-May 1995 of the possibility that HJPL might be excluded from participating in the joint venture. In the meantime they allowed HJPL to continue to pursue matters relevant to the joint venture, including expending considerable amounts. On 18 July 1995 BKC entered into a second Test Site Agreement with Shell to the exclusion of HJPL and, so it was submitted, BKAL was knowingly involved in BKC's breach of duty, at least from its incorporation.
310 At Tp.3880 Mr Bathurst put the way in which he asserted BKC breached its fiduciary obligations "a little more precisely". He submitted that that arose at the very least by BKC's encouraging Shell to go ahead without HJPL; secondly, by BKC's taking the benefit of the service royalties from the Shell restaurants to the exclusion of HJPL; and, thirdly, by BKC's withholding the fact that negotiations were taking place with Shell behind HJPL's back.
311 In paragraph 22.31 of the written submissions Mr Bathurst set forth a series of matters, which it was submitted supported these propositions. Reference was made to meetings between Messrs Power and McKenzie on 19 September 1994 and between Messrs McKenzie, Power, Paci, Miolla and Payne-Drueke on 14 October 1994; a meeting between Messrs Farnik, Fitzjohn, Paci, Beaudrand, Miolla and Power on 2 November 1994; a meeting between Messrs Power, McKenzie and Lannen on 5 December 1994; and a meeting between Messrs Fitzjohn, Hothorn, Power, Mummery and Lannen on 16 February 1995. By 19 February 1995 Mr Fitzjohn was concerned that if he told HJPL that it was effectively excluded from any long-term benefit from the arrangement with Shell, it would have withdrawn from further participation in that arrangement, and that that was one of the reasons why he decided not to do so. He agreed that, to his knowledge, HJPL at that time had no real possibility of benefiting in the long-term from the joint venture alliance with Shell.
312 In February 1995 there were meetings between Messrs Fitzjohn, Hothorn and Cowin at a Franchisee Convention in Bangkok. During one such meeting, Mr Hothorn, on Mr Fitzjohn's instructions, offered to Mr Cowin to reimburse HJPL for the costs of the tripartite Test Agreement. Mr Hothorn denied that the reason for making the offer was because of knowledge about Shell's attitude as expressed to Mr Fitzjohn at the meeting of 16 February 1995, and it was submitted that Mr Fitzjohn used Mr Hothorn to make the offer so that he, Mr Fitzjohn, would not have to do so and, accordingly, answer any embarrassing questions raised by Mr Cowin. Mr Fitzjohn said he assumed Mr Hothorn knew of Shell's attitude, although Mr Hothorn said he did not.
313 Mr Cowin did not accept the offer and, on 27 February 1995, Mr Power had a telephone conversation with Mr Lannen after which he sent a note to Messrs Fitzjohn, Miolla, Giresi and Hothorn, in which he advised that he had received a telephone call from Mr Lannen, who told him that the Kingsway site issue had been resolved and that Shell was ready to proceed with the second test site, but asked "how he wanted to manage this, before advising HJ that the site was now available". Mr Lannen asked how the site ought to be branded to which Mr Power said he replied that "ideally" BKC would like to have it branded as a Burger King site, but there was an agreement in place that required BKC to allow HJPL to operate the first three test sites. This was the memorandum that continued:-
"He took the trouble to reiterate the Shell position that they were not prepared to go forward opening restaurants with us while they were called HJ and supported by HJ. I confirmed that we had clearly received that message and were dealing not with the 'whether to' question but with the 'how to' question at this stage."
314 This, in my opinion, was a significant communication. Certain evidence was led to try to establish that it was nothing more than one between two low ranking officers and that, accordingly, no particular significance should be attached to it. Mr Bathurst submitted that proposition should not be accepted firstly, because the telephone conversation was "plainly a follow up of the meeting" of 16 February 1995, and, secondly, because the language was plainly referable to an earlier discussion on the various topics raised. I accept that submission and in my view, of high significance, is the failure by either Mr Fitzjohn or Mr Miolla, or indeed any other senior officer of BKC, to advise Mr Power that the position he had set forth was not the true one and to take any steps to correct the situation.
315 At the risk of repetition, it is to be noted that there was no evidence from Shell as to why it had taken this position, nor as to what its attitude would have been if BKC had stated that it was committed to proceeding with HJPL and intended to do so.
316 On 1 March 1995 Mr Fitzjohn had a conference telephone call with Mr Power and two representatives of Host Marriott, after which Mr Power sent a note of the conversation to Mr Miolla, which stated, inter alia, that Shell was not interested in moving forward with HJPL, but wanted BKC, including the brand name. Host Marriott was seen as a possible substitute for HJPL. It was made absolutely clear that Shell was seeking to proceed with BKC. Various attempts to explain away this evidence by Mr Fitzjohn and Mr Power should, in my view, be rejected. They were quite spurious and it was obvious that by 1 March 1995 Shell had made it clear to BKC that it wished to continue with BKC. BKC did nothing to dissuade it from that attitude nor to advise HJPL. Mr Power expressed his obvious reservations about the situation in the memorandum to Mr Fitzjohn of 21 March 1995. It is clear he appreciated that there was, at the least, the possibility that BKC was allowing the position to be misrepresented to HJPL. Mr Fitzjohn agreed that Mr Power's memorandum raised problems associated with not informing HJPL of Shell's attitude; that he had been conscious of those problems from early February; but that he did nothing to remove them until mid-May 1995. Mr Miolla agreed that at least by 21 March 1995 he was aware that Mr Power held the view that Shell wished to proceed with BKC and not HJPL, and that he did not recall any conversation in which anyone from BKC took the view that Shell should be discouraged from adopting that course, nor did he see any document taking that stance. I am satisfied BKC never adopted that attitude, its reason being that it suited its overall strategy of developing the market in Australia, in the way it wished, to have Shell abandon HJPL. BKC was content with that course, once it was satisfied that Shell was committed to it. Those arrangements were being entered into behind HJPL's back and whilst notwithstanding their existence and BKC's and Shell's obvious knowledge of them, HJPL was being allowed to continue to expend time and money to advance the joint venture not knowing that the others had no intention of doing so. In my opinion, BKC's approach, in all the these circumstances, was thoroughly discreditable.
317 Thereafter the position became worse so far as BKC was concerned. On 15 March 1995 Mr Cowin wrote to Mr Hothorn advising that Mobil had approached HJPL about the possibility of a strategic alliance in respect of thirty two Mobil sites between Sydney and North Queensland. On 16 March 1995 Mr Power had a meeting with Messrs Lannen, Mummery and McKenzie, during which there was discussion about Shell being a franchisee and a commitment by BKC to support Shell directly in Australia. Mr Power said he felt that there was "perhaps" a need for a communication to HJPL in relation to Shell's attitude. He also said that his notes indicated the likelihood that HJPL would not have ongoing access to Shell test sites as a franchisee.
318 On 21 March 1995 Mr Power sent two memoranda to Messrs Fitzjohn, Hothorn and some others in relation to Shell. In the first he advised that Shell had been very explicit about its intent to become the franchisee in all locations possible, and had sought a commitment from BKC for a clear sign of its commitment to the market for the long term:-
".. and also made it blatantly obvious that they did not want to continue the relationship for the long term with BK, if they would have to rely on the current service partner structure in Australia via HJ. This Marriott opportunity must involve into a drive by them to buy-out HJ at least in the East and then we address the field support/training issues with BK resources."