Liquor National Wholesale Pty Ltd v The Redrock Co Pty Ltd

CATCHWORDS : PARTNERSHIP - joint venture - where Heads of Agreement provide for incorporation of joint venture vehicle - where vehicle not incorporated but parties proceed substantially in accordance with Heads of Agreement - where relationship breaks down - who is entitled to name and goodwill of joint venture business - RECEIVERS - whether appointment should be declined on basis that it would be ruinous - INJUNCTIONS - Interlocutory injunctions - undertaking as to damages - dissolution of joint venture - where one party to retain conduct of business in interim for benefit of joint venture - both parties restrained from exploiting commercial opportunities for separate benefit - where Defendant declines to offer undertaking as to damages as condition of corresponding restraint on Plaintiff - Plaintiff relieved from undertaking as to damages

Alcock v Robb (1978) 2 BPR 9625 Australian Broadcasting Corp v O'Neill [2006] HCA 46 Barnes v Addy (1874) LR 9 Ch App 244 Chan v Zacharia (1984) 154 CLR 178 Cuming v Hennessy [2005] NSWSC 1219 Davey v Donnelly (NSWSC, McLelland J, 16 May 1991, unreported) CASES CITED : Fitz-Gibbon v Khoury (NSWSC, Powell J, 1 March 1985, unreported) Henry v Stewart (NSWSC, Cohen J, 9 June 1995, unreported) Keech v Sandford (1726) 25 ER 223 Muschinski v Dodds (1985) 160 CLR 583 Rowlands v MacDonald [2002] NSWSC 282 Sobell v Boston [1975] 2 All ER 282 Tate v Barry (1928) 28 SR 380 United Dominions Corp Ltd v Brian Pty Ltd (1985) 157 CLR 1

Liquor National Wholesale Pty Ltd (plaintiff) PARTIES : The Redrock Co Pty Ltd (first defendant) Ian Kinsella (second defendant) Simon Stonier (third defendant)

COUNSEL : Mr D Allen (plaintiff) Mr J Kewley (defendants)

SOLICITORS : Catalyst Legal (plaintiff) Kemp Strang (defendants)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION DUTY JUDGE LIST

1726/07 Liquor National Wholesale Pty Ltd v The Redrock Company Pty Ltd & 2 Ors JUDGMENT (ex tempore) 1 HIS HONOUR: The Plaintiff Liquor National Wholesale Pty Ltd seeks interlocutory injunctions restraining the First Defendant The Redrock Company Pty Limited, and its directors the Second and Third Defendants Ian Kinsella and Simon Stonier, from conducting any soft drink distribution business under the name Redrock; compelling the Defendants to procure for the Plaintiff at cost price the supply of Split Rock and Tiro brand soft drinks for distribution in New South Wales; requiring the Defendants to deliver up a computer server removed from the Plaintiff's premises and the Plaintiff's customer lists, the registry keys for the domain name redrockbev.com.au and email extensions connected with it, and all mail addressed to Redrock-named entities; and requiring them to notify Australia Post that the address for delivery of all mail for Redrock Beverages and Redrock Distributors to the Plaintiff's post office box. 2 Liquor National has, since 2002, conducted a wholesale liquor and soft drink business styled Blue Hills Liquor. Since at least 2004, The Redrock Company has conducted a soft drink distribution business styled Redrock Beverages distributing soft drinks, the brands of which include Split Rock and Tiro, which are manufactured in Victoria by Australian Pure Waters Pty Limited.

The Heads of Agreement 3 On or about 19 September 2005, after earlier negotiations between them, The Redrock Company, by its director Mr Stonier and its secretary Mr Kinsella, signed and returned to Liquor National a document entitled Heads of Agreement providing for the commencement, from 1 October 2005, of a new company, to be called Redrock Distributors Pty Limited, to acquire the sales and distribution activities of The Redrock Company trading as Redrock Beverages. 4 The Heads of Agreement provided that the shareholding of the new company Redrock Distributors would comprise an equal number of ordinary shares with equal rights to vote, with distribution of future profits allocated 49 percent to The Redrock Company and 51 percent to Liquor National or its nominee. They provided that there would be either two or four directors representing both shareholders, with one of the Liquor National appointees to be Chairman and have the casting vote. 5 The Heads of Agreement also provided that The Redrock Company would arrange a meeting with Australian Pure Waters to obtain a formal distribution agreement between Australian Pure Waters and Redrock Distributors, under which Redrock Distributors would hold the distribution rights. Liquor National agreed to forego any profit share for 18 months from 1 October 2005, so that the availability of funds to The Redrock Company would be maximised, in order to facilitate the reduction and discharge of its then considerable and pressing liabilities. But from 2007 onwards, Liquor National and The Redrock Company were to share in the profits of Redrock Distributors on the shared percentage basis. During the first 18 months, while The Redrock Company was exclusively entitled to profit, it was required to maintain its operating overheads to $2.50 per case; from 2007 onwards, that increased to $3.25 per case. The Heads of Agreement envisaged that those operating overheads would include the wages and expenses of employed directors or shareholders, which were to be maintained at commercially acceptable levels for the tasks they were performing, with the focus of keeping costs to a minimum to ensure rapid repayment of The Redrock Company's liabilities. Nonetheless, it is clear from this clause that it was contemplated that Redrock Distributors would pay some wages and expenses of directors or shareholders employed in its business. 6 The directors from The Redrock Company were to be responsible for the marketing and sales activities of Redrock Distributors, and also for sales and product training for Liquor National sales personnel. Liquor National was to be responsible for warehousing and distribution activities through its business division, Blue Hills Logistics. Provision was made for Liquor National to provide personnel to cover purchase and stock control and account management, including debt collection. Liquor National was to provide employment where possible for current staff of The Redrock Company who could assist in such activities, and The Redrock Company was to terminate employees and pay out their termination entitlements. Provision was also made for The Redrock Company to provide a schedule of relevant stock, and for Liquor National to produce a purchase order for all saleable stock. A schedule of The Redrock Company's plant and equipment was also to be produced; Liquor National was to assess which of those assets it required, and was to purchase them; all remaining plant and equipment was to be disposed of by The Redrock Company, the proceeds to be applied to the reduction of its debt. 7 The Heads of Agreement included an indicative description of how the income split would work in the first 18 months. It envisaged that Liquor National, trading as Blue Hills, might make a sale worth $20 to a customer, that Liquor National would pay the supplier, say, $13.50 cost of goods, that Liquor National would retain $2.50 to cover its logistic costs and pay $4.50 to Redrock Distributors, of which overheads would account for $2.50, and the remaining $1.50 would be paid to The Redrock Company and applied in reduction of its liabilities. 8 On the face of the Heads of Agreement, it seems clear enough that the concept was that, to the extent that directors and shareholders were employed in the business, their wages would form part of the $2.50 overheads paid by Redrock Distributors before the profit was distributed to shareholders. 9 Also contained in the Heads of Agreement was a 'buy out clause', which provided as follows: The put/call agreement will be activated if party 1 makes an offer to party 2. The Agreement will allow either party to make an offer at any price with the party receiving the purchase request by the offer either agreeing to sell at that price or, alternatively, buying at that price. This will occur in accordance with the put/call option agreement.

10 Provision was also made that bad debts would be the property of Redrock Distributors, and that Redrock Distributors would ensure that Liquor National was paid its logistics lost for work done. Finally, the Heads of Agreement provided that Liquor National's solicitors would document the Agreement in legal terms.

Implementation 11 No Agreement ever was documented 'in legal terms', nor was the company 'Redrock Distributors Pty Limited' ever incorporated. However, The Redrock Company and Liquor National did make arrangements that resulted in the sales and distribution activities of Redrock Beverages being conducted jointly by The Redrock Company and Liquor National, substantially upon the terms envisaged in the Heads of Agreement. 12 Mr Kinsella says that Redrock Beverages relocated its business to Liquor National's premises at Homebush on 1 October 2005, and that about that time he had a conversation with Mr James to the following effect: Kinsella: Can you provide me with the details of the new company so we can assign the correct ABN to invoices?

James: Let's use the ABN of Liquor National as it will be buying the stock and therefore selling the stock. 13 According to David Anthony James, a director of Liquor National, he had a conversation with Mr Kinsella after having received the executed Heads of Agreement (which, at least sofar as the evidence goes, were never executed by Liquor National) to the following effect: Kinsella: No company has been incorporated to run the distribution. What did you want to do there?

James: We will just run the business through Liquor National Wholesale Pty Limited trading as Redrock Beverages. It makes little difference as Liquor National Wholesale will be paying all the bills any way.

Kinsella: That's fine. 14 Mr James says that, following that conversation, no new company was incorporated, and instead Liquor National used the name and operated the business Redrock Beverages and, from October 2005, distributed Split Rock and Tiro brand soft drinks. He says that Liquor National was the only distributor of those brands in New South Wales until the end of February 2007, and that as part of the operation of the business it acquired those brands from Australian Pure Waters, and that he gave a personal guarantee to obtain that supply and credit for it.

15 On 9 November 2005, Mr Stonier sent an email to Daniel at Split Rock, Mr James at Liquor National and Mr Kinsella which said, amongst other things: Ian briefed Michael on the proposed company structure prior to the agreement being finalised, and it remains unchanged. We have entered into a joint venture with Liquor National. The joint venture allows Liquor National to handle all stock purchase and logistic functions while Redrock Distributors handles all sales and marketing functions. Therefore, the entity which purchases APW stock is Liquor National, hence the credit application you have received. This joint venture allows the two entities to concentrate on their areas of expertise in terms of the APW account. Redrock Beverages received the purchaser with the last shipment to Mascot (and the last invoice will be paid tomorrow). Since 1 October 2005 the purchaser is Liquor National trading as Redrock Distributors... 16 According to Mr James, Mr Kinsella and Mr Stonier began working for Liquor National under his control and supervision. Their wages were paid by a Liquor National group company, Killara 9 Pty Limited. There is no doubt that, as a matter of form, Mr Kinsella and Mr Stonier appear to have been employees of Killara 9 and were paid salary or wages by that company, and had PAYE tax deducted from their salaries by that company. Mr Kinsella says that, shortly after 1 October 2005, Mr James said to him: I don't want you guys paying yourself 150 grand and driving around in Porches. We'll process the payroll from Redrock from head office and deduct it from the amounts payable to Redrock under the Agreement.

17 Mr Kinsella says that although he was not comfortable with that idea, he reluctantly accepted, to ensure that Liquor National would be paid the salary component of the moneys payable to Redrock Distributors under the Agreement. He says, and the evidence tends to confirm, that the salary costs paid by Killara 9 were deducted from the proceeds payable to Redrock Distributors so that, in effect, Redrock Distributors ultimately bore the cost of the salaries of Mr Stonier and Mr Kinsella. That is not entirely clear on the evidence at this stage, but such evidence as there is weighs more in favour of that conclusion than the alternative. 18 As I have said, Liquor National purchased soft drink and Blue Hills sold soft drink using the name Redrock Beverages and Redrock Distributors. That soft drink included Split Rock and Tiro brand soft drink acquired from Australian Pure Waters. A related entity of Liquor National purchased a computer from The Redrock Company which it later had upgraded. The web site redrockbev.com.au was used in the business of Redrock Distributors. Promotional materials were acquired by Liquor National from The Redrock Company, as were some motor vehicles. The business of Redrock Beverages continued to be conducted in this style throughout 2006 until early 2007.

19 On 19 October 2006, The Redrock Company registered the name 'Redrock Distributors' as a business name, apparently without Liquor National's knowledge or consent. The business name extract indicates that the sole proprietor of that business name was said to be The Redrock Company. The Redrock Company also registered in its own name, as a trademark, the trade name 'Pep', which it had apparently developed during the course of the joint venture with Liquor National. 20 It is alleged that, on 24 November 2006, The Redrock Company approached a rival logistics supplier Elite, but the evidence on that is inconclusive, The Redrock Company saying that this was an approach made at the suggestion of Liquor National to test the competition and, in any event, it is unclear that there was any serious approach at that stage to set up an alternative means of distribution. 21 On 6 December 2006 or thereabouts, the directors of The Redrock Company discussed with insolvency advisers a proposal for voluntary administration, which included refinancing their warehouse, forklift, trucks and inventory, and commencing a separate business on a stand alone basis. By this time at least, the idea of leaving the joint venture and trading on their own account must have been alive in the minds of the directors of The Redrock Company. 22 There is evidence that on 10 January 2007 The Redrock Company received a communication from a venture capitalist, but the evidence as to the nature of this communication is equivocal, and does not establish that investment from such a capitalist was being sought. 23 Apparently without the knowledge or consent of Liquor National, The Redrock Company was, in January 2007, developing a brand 'Bling', which was a sparkling wine which would have competed with products of Liquor National. 24 On 6 February 2007, Mr Kinsella obtained approval to have work emails diverted to his home. On 14 February 2007, Mr Stonier approached Telstra to establish a free call telephone number. At about the same time Ms Hausemer, a former employee of The Redrock Company who had been taken on by Liquor National, sent Mr Kinsella and Mr Stonier Liquor National's new customer account register for all customers of the Liquor National business, not limited to those who were customers of Redrock Beverages or Redrock Distributors. On 16 February 2007, directors of The Redrock Company applied for registration of the names 'Redrock Beverages' and 'Redrock Distributors' and the associated Redrock logo. On 19 February 2007, in a letter to Pitcher Partners, accountants, they expressed an intention to sever their relations with Liquor National. Termination 25 On 21 February 2007, in a letter which Liquor National did not put into evidence, Mr James wrote to Mr Stonier and Mr Kinsella, asserting that Blue Hills and Redrock disagreed on many fundamental aspects of the business, including: first, whether an agreement existed at all or whether it was effective, "given that the precondition of setting up a third company and the transfer of the distribution rights never took place"; secondly, as to the interpretation of the Agreement; thirdly, as to whether Blue Hills owed Redrock moneys; fourthly, as to whether Blue Hills had benefited from the business; fifthly, as to profit calculations; sixthly, as to the business model that ought to be employed; seventhly, about the level of overheads; and eighthly, as to whether Blue Hills was in breach of the agreement by failing to pay moneys due under it. The letter then continued: To the extent that there is any agreement with The Redrock Company Pty Ltd, (and we note that this is denied), Liquor National Wholesale Pty Ltd (trading as Blue Hills Liquor) hereby terminates that agreement. Termination is based on the failure of the following conditions precedent from occurring within a reasonable time: (a) The failure of the parties to cause a new company, Redrock Distributors Pty Ltd, to be incorporated within a reasonable time after the entering into of the agreement.

(b) The failure of The Redrock Company Pty Ltd to transfer to any new company, or to Liquor National Wholesale Pty Ltd the distribution rights with APW.

(c) The failure by the directors of The Redrock Company Pty Ltd to minimise overheads of the division as required, and in particular, failure to justify the salary of Simon Stonier.

(d) Fundamental breach of an implied term of the agreement that the directors of The Redrock Company Pty Ltd devote all their working hours to the operation of the soft drink division that was to be incorporated into The Redrock Distributors Pty Ltd in that the directors have spent considerable working hours attending to the affairs of The Redrock Company Pty Ltd including development of soft drink products which have than registered for the benefit of The Redrock Company Pty Limited. ... In any event and as an alternative, Liquor National Wholesale Pty Ltd hereby rescinds the agreement on the basis that the parties had committed a mistake as to the effect of the terms of the agreement, and as such were never in actual agreement.

26 On the same day, Liquor National sent another letter to the directors of The Redrock Company, containing an offer for a continued relationship on different terms. Mr Kinsella replied, on 23 February 2007, relevantly: After careful consideration, we thank you for your offer, but have chosen to accept your termination advice and opt not to enter into the proposed new agreement. Accordingly, under the strict terms of your proposal, we accept that as of this date, we must make arrangement to handle the distribution of our portfolio of brands elsewhere.

27 Shortly following the letter of 26 February 2007, Mr Kinsella attended at the premises of Liquor National and it is probable that on that occasion he removed the computer server, which served the Redrock business, from those premises. On 26 February 2007, four persons who had been employed by The Redrock Company before 1 October 2005 and whose employment had been taken over by Liquor National or one of its related entities, resigned from Liquor National. By 2 March 2007, The Redrock Company had obtained access to the domain name, and had emails redirected. It also had mail addressed to Redrock entities redirected, by giving notice to do so to Australia Post. It seems likely, although the evidence is not conclusive, that it sought to appropriate a rebate on distribution of water supplied by Fiji Waters, which had been distributed during the period of the joint venture between 1 October 2005 and February 2007.

28 Meanwhile, The Redrock Company has leased premises at 1/1307 Botany Road, Mascot, in respect of which lease its directors have given guarantees; ordered two new delivery trucks under an arrangement with Westpac with a limit of $250,000, supported by directors' guarantees; purchased and installed racking and other warehouse fit out items in the premises at 1307 Botany Road; employed five staff (in addition to Mr Kinsella and Mr Stonier); purchased in excess of $100,000 worth of stock; and entered into a new facility agreement with Westpac to cover stock purchases and set up costs to a limit of $380,000, secured by personal guarantees of Mr Kinsella and Mr Stonier and a mortgage over Mr Stonier's home. Although Mr Kinsella says in his affidavit that these are events which have taken place since the termination of the agreement by Liquor National, there must be doubt that a lease of the Mascot premises and all the finance arrangements with Westpac could have been put in place so quickly after 26 February without significant work prior to that date. Issues 29 As the argument evolved, the position of the parties can be summarised for present purposes as follows. Liquor National's primary case is that it is entitled absolutely to the Redrock business, including the associated goodwill and name. It contends that it acquired the sales and distribution activities of the business formerly carried on by The Redrock Company under the name Redrock Beverages, and that by now setting up and conducting its own business The Redrock Company is passing off its new business as that of Liquor National, engaging in misleading and deceptive conduct, derogating from the grant of its former business to Liquor National, and converting Liquor National's customer lists, computer server, mail, Internet Registry keys and web site, books and records to its own use. Mr Kinsella and Mr Stonier are said to be in breach of fiduciary duties or duties of fidelity owed by them as employees to Liquor National, or otherwise liable as accessories under Barnes v Addy (1874) LR 9 Ch App 244 for breaches of fiduciary duty by The Redrock Company. 30 Liquor National's alternative case, as it developed in the course of argument, is that although the company Redrock Distributors Pty Limited was never incorporated, the effect of what the parties did on and after 1 October 2005 was that the business formally conducted by The Redrock Company became the property of a joint venture of Liquor National and The Redrock Company which has now been terminated - according to Liquor National, for breach by The Redrock Company and, in particular, making preparations to set up a competing business. In those circumstances, it is said that The Redrock Company is not entitled to take for itself the business, the business name, the customer connection, the supplier connection and the business records of the joint venture. 31 The competing position of The Redrock Company, as I apprehend it to be, is first, that the arrangements between the parties did not amount to a joint venture to which fiduciary obligations attached, but mere contractual or quasi-contractual arrangements by which one party agreed to provide the logistics and the other the marketing and sales activities and a contractual obligation to share profit after the first 18 months was imposed, which contract The Redrock Company says was breached and repudiated by Liquor National, both by failing to pay to the joint venture the moneys to which it was entitled, and ultimately by the termination letter, which repudiation The Redrock Company says it has accepted; alternatively, The Redrock Company says that if there was a joint venture, that joint venture has broken down without attributable blame at least on its part, whereupon each party is entitled to the return of what they contributed to the joint venture, it following that The Redrock Company is entitled to the return of the business name, goodwill, and the computer or the upgrade of that computer, the Registry keys and web site. 32 This being an application for an interlocutory injunction, the ultimate issue is whether there is a sufficiently serious question to be tried on the claim for final relief as to justify the grant of interlocutory relief having regard to the balance of convenience. As appears from the decision of the High Court of Australia in Australian Broadcasting Corp v O'Neill [2006] HCA 46, both elements - the strength of the case for final relief, and the balance of convenience - are interdependent, so that the stronger a case for final relief the less may be required to tilt the balance of convenience in favour of the applicant for interlocutory relief, whereas the stronger the balance of convenience in favour of one party or the other, the less strong a case on the question of final relief that party might require to sustain (or resist) a claim for interlocutory relief.

Serious question to be tried? 33 I will consider first those matters which go to the case for final relief. 34 Liquor National's primary claim, that it is entitled absolutely to the Redrock business (including the goodwill and the business name), depends on the contention that it has acquired the business from The Redrock Company. The written Heads of Agreement do not make any provision to that effect, nor do they contemplate it. Rather, they contemplate that the former business of The Redrock Company will be controlled by a new jointly-held company, to be called Redrock Distributors. That vehicle, as I have recorded, was never created. 35 Liquor National relies on the conversations between Mr James and Mr Kinsella, to which I have referred, as having the effect of conveying to Liquor National property in the business that the Heads of Agreement plainly contemplated would be held for the benefit of both companies. On neither version did the conversation do so in terms. To my mind, it is highly improbable that by so short a conversation, so indirectly addressing the matter, these parties intended radically to change the nature of their venture from that which they had, at least to some extent, documented in the Heads of Agreement, to an outright transfer of the business to Liquor National. 36 Nor does what happened about the employment of Mr Stonier and Mr Kinsella advance that case. As I have indicated, the evidence at this stage favours the view, though it is not conclusive, that while they were employed in form by Killara 9, they appear to have been employed under a structure which reflected that contemplated by the Heads of Agreement, so that the costs of their employment came out of the overheads of the joint venture before profit was calculated for distribution. The parties continued to act on the basis that The Redrock Company was entitled to a share of the profits, and Liquor National does not appear to have made any assertion of absolute ownership prior to February 2007. 37 I appreciate that I am not at this stage involved in finding facts, except on a limited basis. But it seems to me that on the evidence presently available, the far preferable characterisation of what happened as a result of the conversations to which I have referred is that Liquor National was merely substituted as the convenient invoicing vehicle, as indeed the Heads of Agreement had already anticipated, and that there was no intention to effect a transfer of the business and its goodwill to the benefit of Liquor National alone. The business and goodwill was an asset of the joint venture, although the vehicle contemplated to conduct that joint venture was not incorporated. If the alternative, for which Liquor National contends - namely, there was an outright transfer - is arguable, on the material before me, it is but faintly so. 38 However, that the business and goodwill became assets of a joint venture between The Redrock Company and Liquor National is strongly arguable. I have already referred to Mr Stonier's email of 9 November 2005, which describes the relationship between the parties in those terms. Other matters which favour the view that there was a joint venture include the arrangement for profit share which, prima facie, suggests a partnership, or at least a joint venture; the employment in the business of The Redrock Company directors by a Liquor National group company, but at the ultimate cost of the joint venture; and particularly the buy out clause in the Heads of Agreement - which would hardly make sense if the intent were not that both parties would have equity in the business which arose from their own efforts. 39 As was said in United Dominions Corp Ltd v Brian Pty Ltd (1985) 157 CLR 1; 60 ALR 741, by Mason, Brennan and Deane JJ (at 10-11), with whom Gibbs CJ and Dawson J separately agreed: 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 CJ, Meinhard v Salmon (1928) 164 NE 545 at 546). The most that can be said is 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 407-9). In the present case, it is apparent in the relationship between the participants in the shopping centre venture was a fiduciary one, at least from the time when the formal agreement was executed. Under the agreement, the participants were joint venturers in a commercial enterprise with a view to profit. Profits were to be shared. The joint venture property was held upon trust. The participants indemnified the managing participant (SPL) against losses. The policy of the joint venture was ultimately a matter for joint decision. Apart from the absence of any reference in the agreement to "partnership" or "partners", the relationship between the participants under the agreement exhibited all the indicia of, and plainly was, a partnership (cf Canny Gabriel Castle Jackson Advertising Pty Ltd v Volume Sales (Finance) Pty Ltd (1974) 131 CLR 321 at 326-7). It is true that the UDC came to the joint venture in the role of prospective financier and, in so far as borrowings from it by the SPL group on behalf of the partnership were concerned, occupied the role of lender as well that of partner. In so far as the property which was the subject of the joint venture was concerned however, the fact that UDC was a lender to SPL on behalf of the partnership did not absolve it from the ordinary fiduciary obligations of a partner.

40 Having regard to the indicia to which I have already referred, and those mentioned by their Honours in the passage cited, it is strongly arguable that in the current case the relationship between the participants in the soft drink distribution business was that of a joint venturers, owing fiduciary obligations each to the other. One significant consequence of that relationship is illustrated by the judgment of the High Court in Chan v Zacharia (1984) 154 CLR 178, in which Dr Zacharia and Dr Chan conducted a medical practice in partnership from premises in South Australia leased by Dr Zacharia, who had previously conducted a practice on his own account from those same premises. In November 1979, the owner of the property granted a lease to both doctors for three years from 1 January 1979, with an option to renew for a further period of two years exercisable by 30 September 1981. On 21 May 1981, the partnership was dissolved by notice given by Dr Chan. Doctor Chan declined to join with Dr Zacharia in exercising the option. On 30 November 1981, after dissolution but before the affairs of the partnership had been wound up, the owner agreed to lease the premises to Dr Chan. The High Court held that, in those circumstances, the agreement for the new lease obtained by Dr Chan was held upon constructive trust for those entitled to the property of the dissolved partnership, on the principle, well-known from Keech v Sandford (1726) 25 ER 223, that even though no other person may be able to take advantage of an opportunity which comes to a fiduciary in the course or as a result of the fiduciary relationship, the fiduciary is not able to take that opportunity for himself and a constructive trust will be imposed in respect of it. 41 This, it seems to me, has significant analogies to the acquisition since 27 February 2006 by The Redrock Company of what seem to be exclusive distribution rights in New South Wales of Split Rock and Tiro brand soft drinks from Australian Pure Waters. Generally speaking, on the breakdown of a partnership - and, by analogy, on the breakdown of a joint venture short of partnership, but in which there are fiduciary obligations - one partner or joint venturer is not entitled to take for itself the assets of the joint venture, including the name, the business and the goodwill. Chan v Zacharia itself illustrates that, as does the case referred to by Mr Allen in the course of argument, Alcock v Robb (1978) 2 BPR 9625. There, Bowen CJ in Eq said [at 9627]: The right to use a partnership name is an element in goodwill. On dissolution, in the absence of express provision in the partnership agreement covering the matter, the prima facie right of the partners is to have the partnership assets, including goodwill, sold, and the proceeds applied first in discharging liabilities of the partnership and then by way of distribution to the partners. In the case where goodwill is sold following dissolution, the purchaser will be entitled not only to represent himself as the successor of those who formerly carried it on, but also to use the name, and to restrain others from using it. ... If goodwill including the firm name is to be sold, no previous partner will be entitled thereafter to use the firm name. Such a right would be inconsistent with the right of the other partners to have the goodwill sold for the common benefit of all.

On the other hand, if the goodwill is not to be sold, either because the partnership agreement contains a contrary provision, or because the partners agree on terms of dissolution which preclude its sale, or because they act in such a way, as, for example, by dividing the clients between them, as to render the sale of goodwill impracticable, then each partner may continue in business in competition with his former partners; each may represent himself as 'late of' the old firm; and each may use the old firm name, provided he does not hold out that the other members of the old firm are still in partnership with him, and does not use the name in such a way as to expose his former partners to the risk of liability: Banks v Gibson (1865) 34 Beav 566; Burchell v Wilde [1900] 1 Ch 551; Chappell v Griffith (1885) 53 LT 459; and Scott v Bail [1914] VLR 270; cf Hill v Fearis [1905] 1 Ch 466 and In re David and Matthews [1899] 1 Ch 378; and see Lindley on Partnership , 13th Ed, pp 469-70; Halsbury's Laws of England 3rd Ed vol 28 pp 560, 580, 582.

42 On the other hand, where money or other property is paid or applied on the basis of some consensual joint relationship or endeavour which fails without attributable blame, equity will intervene where it is unconscionable to draw a line leaving assets and liabilities to be owned and borne according to where they may, prima facie, lie, to the intent that the parties recover what they have contributed to the failed joint venture. This was explained by Deane J in Muschinski v Dodds (1985) 160 CLR 583 at 618-620: Nor has it been suggested that there was a true partnership or contractual joint venture between the parties. The case has been approached and argued on the basis that they were not partners and that the overall arrangement between them, while consensual, was a non-contractual one. That does not mean, however, that particular rules applicable to regulate the rights and duties of the parties to a failed partnership or contractual joint venture might not be relevant in the search for some more general or analogous principle applicable in the circumstances of the collapse of the consensual commercial venture and personal relationship in the present case.

Both common law and equity recognize that, where money or other property is paid or applied on the basis of some consensual joint relationship or endeavour which fails without attributable blame, it will often be inappropriate simply to draw a line leaving assets and liabilities to be owned and borne according to where they may prima facie lie, as a matter of law, at the time of the failure. Where there are express or implied contractual provisions specially dealing with the consequences of failure of the joint relationship or endeavour, they will ordinarily apply in law and equity to regulate the rights and duties of the parties between themselves and the prima facie legal position will accordingly prevail. Where, however, there are no applicable contractual provisions or the only applicable provisions were not framed to meet the contingency of premature failure of the enterprise or relationship, other rules or principles will commonly be called into play. If, in the last-mentioned case, the relevant relationship is merely contractual and the contract has been frustrated without fault on either side, the present tendency of the common law is that contributions made should be refunded at least if there has been a complete failure of consideration in performance (cf Fibrosa Spolka Akcyjna v Fairbairn Lawson Combe Barbour Ltd [1943] AC 32; Denny, Mott and Dickson Ltd v James B Fraser and Co Ltd [1944] AC 265 at 275; and, generally, Treitel: The Law of Contract , 6th ed (1983) pp 695ff). If the relevant relationship is a partnership, the prima facie rule of equity on premature dissolution is, as in the case of an ordinary dissolution, that the parties are, after the discharge of partnership debts, entitled to be repaid their respective capital contributions. More important for present purposes, if a premium has been paid by a fixed term partner who is not to be held responsible for the premature dissolution, an equity court will order a refund or partial refund of the premium to the extent that its retention by the other partner would be unconscionable (cf Atwood v Maude (1868) 3 Ch App 369). If the relevant relationship is not a partnership, but takes the form of a contractual joint venture for the pursuit of some commercial advantage, a similar prima facie rule of equity applies in the event of the premature collapse of the joint venture and the consequent preclusion of the attainment of the commercial advantage, namely, that, to the extent that the joint funds allow, the joint venturers are entitled to the proportionate repayment of their capital contributions to the abortive joint venture. This is so notwithstanding that it was the common understanding or agreement that the funds advanced were to be applied for the purposes of the joint venture and that the return from them would take the form, not of a repayment of capital contributed, but of a share in the proceeds of the joint venture when it was carried to fruition (cf, eg, Allen v Kent (1957) 136 A 2d 540 at 541; Ewen v Gerofsky (1976) 382 NYS 2d 651 at 653 at 653; Legum Furniture Corporation v Levine (1977) 232 SE 2d 782 at 785-6, and cf, generally, 'Joint Ventures', Corpus Juris Secundum , vol 48a, pp 452-3, 463).

The prima facie rules respectively entitling a fixed term partner to a proportionate refund of his or her premium and a contractual joint venturer to a proportionate repayment of his or her capital contribution on the premature dissolution of the partnership or collapse of the joint venture are properly to be seen as instances of a more general principle of equity. That more general principle of equity can also be readily related to the general equitable notions which find expression in the common law count for money had and received (cf Moses v Macferlan (1760) 2 Burr 1005 at 1012 ; [97 ER 676 at 680-1]; J & S Holdings Pty Ltd v NRMA Insurance Ltd (1982) 41 ALR 539 ; 61 FLR 108 at 120) and to the rationale of the particular rule of contract law to which reference has been made (cf Fibrosa , supra , at pp 61ff and esp at p 72). Like most of the traditional doctrines of equity, it operates upon legal entitlement to prevent a person from asserting or exercising a legal right in circumstances where the particular assertion or exercise of it would constitute unconscionable conduct (cf Story: Commentaries on Equity Jurisprudence , 12th ed (1877: Perry), vol 2, para 1316; Legione v Hateley , 152 CLR at p 444). The circumstances giving rise to the operation of the principle were broadly identified by Lord Cairns LC, speaking for the Court of Appeal in Chancery, in Atwood v Maude, supra , at p 375 where "the case is one in which, using the words of Lord Cottenham in Hirst v Tolson (1850) 2 Mac and G 134 ; 42 ER 52, a payment has been made by anticipation of something afterwards to be enjoyed [and] where … circumstances arise so that future enjoyment is denied". Those circumstances can be more precisely defined by saying that the principle operates in a case where the substratum of a joint relationship or endeavour is removed without attributable blame and where the benefit of money or other property contributed by one party on the basis and for the purposes of the relationship or endeavour would otherwise be enjoyed by the other party in circumstances in which it was not specifically intended or specially provided that that other party should so enjoy it. The content of the principle is that, in such a case, equity will not permit that other party to assert or retain the benefit of the relevant property to the extent that it would be unconscionable for him so to do (cf Atwood v Maude at pp 374-5 and per Jessel MR, Lyon v Tweddell (1881) 17 Ch D 529 at 531). 43 This analysis produces the following results. Prima facie, neither The Redrock Company nor Liquor National is entitled, following termination of the arrangements between them, to appropriate for their own benefit the business, business name, goodwill or commercial opportunities that arise as a result. All those assets are held for the benefit of those entitled to the joint venture upon winding up. Where neither has exercised its right to buy out the other, it would seem, prima facie, that those assets ought to be sold and divided between Liquor National and The Redrock Company, in proportions 51:49. For The Redrock Company to carry on business under the name Redrock Beverages, which is only colourably different from, and conveys an association with, Redrock Distributors, and to exploit a distribution agreement with Australian Pure Waters which it was obliged to obtain, if at all, for the benefit of the joint venture, is a breach of its fiduciary obligations as a joint venturer, and is misleading and deceptive. Accordingly, Liquor National has a seriously arguable case that it is entitled to an injunction restraining The Redrock Company from carrying on the Redrock business and/or requiring it to account for the profits it makes from doing so. 44 The Redrock Company's response is that the venture failed without attributable blame on its part, and that it ought to be entitled to a return of its contributions, including the business name, and the benefit of the association with the supplier, Australian Pure Waters. There is much to be said for the view that the joint venture was never fully implemented: not only was the contemplated vehicle not incorporated, but the Heads of Agreement themselves left many matters for further resolution and were expressed in imprecise terms; the agreement 'in legal form' that they contemplated was never prepared; and there may be something to be said for the view that this joint venture came to an end before it was fully perfected, so that the Muschinski v Dodds doctrine might be attracted. That view, it must be said, is one which was forcefully expressed on behalf of the Liquor National in its termination letter to Redrock Distributors, although I apprehend Liquor National now takes rather a different approach. 45 However, although the vehicle was not incorporated, it was not the failure to incorporate the vehicle that brought about the failure of the joint venture. While Liquor National contends that it terminated the agreement for The Redrock Company's breach in preparing to set up in competition, The Redrock Company contends that Liquor National was in breach by failing to account to the joint venture for the moneys to which it was entitled and which were then, in part, to be passed on to The Redrock Company after payment of overheads. In the latter months of 2006, The Redrock Company or the joint venture through Mr Stonier and Mr Kinsella were pressing for payment and were not receiving what they demanded. There is a significant factual dispute, not capable of resolution on this application, as to who is in the right and who is in the wrong in that respect. But if, in fact, as on the present material is at least arguable, Liquor National was not accounting to the joint venture for the amounts for which the Heads of Agreement contemplated it would account, then it might well be the case that its breach in that respect precipitated what subsequently happened. 46 In short, on the material presently available to the Court, it is at least arguable that the Muschinski v Dodds doctrine may be attracted, and that The Redrock Company may be entitled to recover on the winding up of the joint venture what it contributed, rather than simply 49 percent of the proceeds. 47 That said, as presently minded, I think the contrary argument is the stronger one, largely because of the provisions of the buy out clause, and partly because for the first 18 months of the arrangement the greatest benefit was for The Redrock Company, with Liquor National foregoing its profit share during that period, and it would prima facie seem inequitable that The Redrock Company could have that benefit and recover its contribution, and leave Liquor National with none of the benefit that it was envisaged it would eventually derive from the arrangement by way of profit share. 48 Accordingly, both parties have an arguable case so far as final relief is concerned, but Liquor National, at least on its alternative position, somewhat more strongly so. Which of them will ultimately prevail is incapable of resolution and it would be inappropriate to endeavour to resolve it at this stage. That means that the outcome of the interlocutory proceedings must abide the balance of convenience. Entitlement of a partner to a receiver 49 On the breakdown of a partnership either partner, prima facie, has a strong case for the appointment of a receiver. In Tate v Barry (1928) 28 SR 380, Long Innes J said that it should be regarded as settled in an equity suit for the winding up of a partnership already dissolved, or for the dissolution of an admitted partnership in which it was clear that dissolution would be granted at hearing, that the Plaintiff was entitled as a general rule, and practically as a matter of course, to the appointment of an interim receiver. That was endorsed by McLelland J (as he then was) in Davey v Donnelly (NSWSC, 16 May 1991, unreported). 50 In more recent times, however, the approach has been somewhat modified, with reference being made to the substantial cost of installing a receiver in a partnership with only moderate assets and to the circumstance that the law has moved on since 1928 [see Cuming v Hennessy [2005] NSWSC 1219 (Young CJ in Eq)]. In Fitz-Gibbon v Khoury (NSWSC, Powell J, 1 March 1985, unreported), Powell J said that the Court must pay attention, notwithstanding the general rule, to the circumstances, that an interim receiver and manager was not inevitable, the Court retaining a residual discretion as to whether an appointment should be made; and that one of the bases upon which, in an appropriate case, an appointment might be refused, is that the consequences of such an appointment would be ruinous, for which reference was made to Tate v Barry and to Sobell v Boston [1975] 2 All ER 282. 51 In Henry v Stewart (NSWSC, Cohen J, 9 June 1995, unreported) - which, like many of the cases that consider the ruinous consequences of an appointment, concerned a partnership of solicitors - his Honour observed that it was desirable that there should be no step which would have an adverse effect upon the professional standing and integrity of the parties as solicitors, and it could not be denied that news of a receiver of a professional practice might well cause members of the public to hesitate in resorting to it. More recently, in Rowlands v MacDonald [2002] NSWSC 282, Barrett J said (at 29): The 'ruinous' concern manifests itself principally in cases where, following the dissolution which is the occasion for the application for appointment of a receiver, some or all of the partners will conduct business with the aid of the existing goodwill. 52 If I do not appoint a receiver, but require accounts to be maintained strictly with an opportunity for regular inspection and verification, then presumably The Redrock Company will continue to carry on The Redrock business. If, ultimately, it is held liable in these proceedings, it will be required to account to Liquor National for a proper share of the profits which it derives from that business, and although Liquor National will be deprived of the business until final determination of the matter, this can be met by an award of interest. On the other hand, if I do appoint a receiver, the receiver will endeavour to carry on the business, but may have great difficulty in doing so if Australian Pure Waters is not prepared to supply the receiver, and having regard to the evidence that Australian Pure Waters, which has expressed the view that it will decide who it wants to supply and it will supply The Redrock Company, it is far from clear in that the receiver would obtain supply from Australian Pure Waters. As the Split Rock and Tiro brands seem to be the main stay of the Redrock business, this could be destructive of the business. That would be to the detriment of both parties, or at least of whichever party ultimately succeeds. Other balance of convenience considerations 53 Additionally, appointment of a receiver would visit on the ultimately successful party, if not both parties, the costs of the receivership. It may affect the ultimate saleability of the business, and the price that might be realised. If The Redrock Company ultimately succeeds, the asset which it recovers might well be a diminished one. The Defendants will be forced into default of the obligations which they have entered into consequent upon or in anticipation of the termination of the joint venture. Although it might be said that all this is counterbalanced by the Plaintiff's undertaking as to damages, it does not seems to me that an undertaking as to damages, however valuable, meets the potential for the Defendants being put into default of obligations with lessors and financial institutions. 54 Accordingly, on the balance of convenience it seems to me that this case is in the territory of those in which appointment of a receiver may be "ruinous". Appointment of a receiver in this case might well ruin a business which it is desirable be maintained in the interests of whichever party ultimately succeeds. It may do so because it is far from certain that a receiver will secure the source of supply from Australian Pure Waters, which is the main stay of the business. In addition, irremediable prejudice would be occasioned to the Defendants by appointment of a receiver, putting them into default of their obligations to third parties. I see no irremediable prejudice to Liquor National, because any detriment to it may be remedied upon the winding up of the joint venture.

Conclusion 55 I will not pronounce formal orders at this stage, but indicate in principle what I think the orders should provide, and stand the matter down while the parties prepare short minutes to give effect to them. 56 I will decline to restrain The Redrock Company from carrying on the Redrock business on an interim basis. I will decline to appoint a receiver to the Redrock business. I will grant an injunction which requires The Redrock Company to keep strict accounts, provide regular reports in verified form, and provide regular opportunities for Liquor National to have inspections conducted that will enable it to satisfy itself of the veracity of those accounts. The computer server and the Registry keys should remain with The Redrock Company on an interim basis. I will require delivery up to Liquor National of its customer lists, and I would restrain The Redrock Company from soliciting Liquor National's customers from that list. As to the mail, although I will hear further argument, it seems to me that as the Redrock business is to be conducted in the interim by The Redrock Company, the mail should continue to go to The Redrock Company, subject to The Redrock Company making a copy of each item received and providing it to Liquor National. My prima facie view, although I will hear counsel if they wish, is that costs of the interlocutory applications should be costs in the proceedings. 57 I will stand the matter down to enable counsel to work out some short minutes.

58 The intent of the decision that I delivered yesterday was that, by regard to the balance of convenience rather than by any claim of superior merit, I concluded that, pending the determination proceedings, in preference to appointing a receiver to the former joint venture business, the First Defendant should conduct that business in the interim, for the benefit of the parties according to what might, upon final determination of the proceedings, prove to be their ultimate respective entitlements. I declined to appoint a receiver notwithstanding the otherwise strong case for one, because such an appointment was likely to be ruinous of the joint venture business. It follows that the role of the First Defendant is to conduct the business as a quasi-receiver or quasi-trustee for benefit of the joint venturers. 59 One implication of that is that it is not a legitimate basis for The Redrock Company to oppose Liquor National having access to its commercial information that some commercial confidence or sensitivity attaches to it. In effect, The Redrock Company is obliged to provide information to the beneficiaries, who include Liquor National and The Redrock Company. Another implication is that neither party should for its own benefit - as distinct from as quasi-receiver of the joint venture - exploit commercial opportunities which, if they are to be exploited at all, should be exploited for the benefit of the joint venture; nor use, for its own separate benefit, assets and goodwill of the joint venture. 60 Identification of these principles facilitates resolution of the dispute about the precise form of the orders that are to be made. Accordingly, so far as the keeping of accounts are concerned, I will make an order in the following form:

(1) Order that the First Defendant maintain strict and comprehensive accounts of the business of Redrock Beverages, being the entire business it currently carries on, and deliver to the Plaintiff within seven days of the end of each month a full account of the business for that month verified by affidavit sworn by both its directors, and provide to the Plaintiff a reasonable opportunity each week to inspect the original accounts and source documents. 61 So far as customer lists are concerned, there is no proper basis for the Defendants to retain any customer lists of the Plaintiff other than those which list customers of the joint venture. I will make the following order:

(2) Order that by 22 March 2007 the Defendants deliver up to the Plaintiff with verification all original and copy customer lists of the Plaintiff in the possession, custody or power of any of them, and delete and erase with verification any electronic copy thereof, such customer lists to include without limiting the generality of the foregoing those referred to in Annexure H to the affidavit of Mr David James sworn on 14 March 2007, but excluding the list entitled Redrock Distributors therein, and to include those referred to in paragraphs 2 and 3 of the affidavit of Mr James sworn on 20 March 2007. 62 So far as solicitation of customers is concerned, I have found this the most difficult question. The Heads of Agreement envisaged that the joint venture would form the basis of the soft drink business of Liquor National, and would promote and market soft drinks to mainly unlicensed premises and the greater group trade. The Heads of Agreement envisaged that the joint sales force of Liquor National and the joint venture would promote the total group products to the market place, and the undertaking would be based on the parties being willing to subsidise the operation and build a strong and successful soft drinks division for the future. Although envisaging that the joint venture would sell mainly to unlicensed premises, the Heads of Agreement did not contemplate that it would do so exclusively, nor that it would not sell to customers of Liquor National. As at this stage I am concerned only with the interim position during which the business is, in effect, being carried on for the benefit of the joint venture, I do not think there should be any restraint on solicitation. Quite different considerations may apply when it comes to the final hearing and an entitlement to the business of the joint venture is eventually worked out. 63 So far as mail is concerned, it is common ground that in the light of the conclusions I have previously expressed, an order should be made in the following terms:

(3) Order that the Defendants provide to the Plaintiff copies of any mail addressed to Redrock Distributors received by the Defendants, and forward to the Plaintiff any cheques payable to Redrock Distributors in respect of the invoices that were raised by the Plaintiff. I note the undertaking of the Plaintiff that it will deposit the proceeds of any such cheques in the trust account of the Plaintiff's solicitor until further order. 64 Consistent with the principles I have sought to express, the Plaintiff ought not be at liberty itself to conduct business under the Redrock name and I will, therefore, make an order in the following terms:

(4) Order that the Plaintiff be restrained from carrying on any soft drink distribution business under the names Redrock Beverages, Redrock Distributors, or any name only colourably different from those names. 65 However, the Defendants decline to proffer an undertaking as to damages in connection with that injunction. On the one hand, the Plaintiff having sought to restrain the Defendants from appropriating assets of the joint venture, the principle that one who seeks equity must do equity suggests that the Plaintiff must submit to a similar restraint; on the other, it is quite unfair that one party should be able to enforce that obligation on an interim basis only on giving an undertaking as to damages, while the other does not. While I am conscious that this course is an exceptional one, in circumstances where the Defendants decline to proffer an equivalent undertaking for the relief they seek, I should relieve the Plaintiffs from the usual obligation to give an undertaking as to damages as a condition of relief. 66 I am not satisfied that there is sufficiently particular evidence to justify the order sought in paragraph 4 of the Defendants' Motion, and so far as paragraph 5 is concerned, as I apprehend the evidence at this stage, the computer server which served the Redrock business is now in the Defendants', and not the Plaintiff's, possession. Accordingly, I will not make orders 4 and 5 sought in the Notice of Motion. 67 I will, therefore, make each of the enumerated orders I have referred to above. Each will be expressed to be until further order. For the reasons I have indicated, I will not require the Plaintiff to give an undertaking as to damages as a condition of the relief it has gained. 68 I further order: (5) That the Plaintiff's Notice of Motion be otherwise dismissed. (6) That the Defendants' Notice of Motion be otherwise dismissed. (7) That the costs of each Motion be costs in the proceedings.

(8) That the proceedings be stood over to the Expedition List on 23 March 2007 at 10am before the Expedition Judge.

(9) That the Plaintiff file a Notice of Motion for expedition by close of business on 21 March 2007. Such Motion may be made returnable before the Expedition Judge on 23 March 2007. Abridge time for service of the Motion for expedition to noon on 22 March 2007.

(10) That the Plaintiff file and serve an affidavit setting out the grounds for expedition by close of business on 21 March 2007.

(11) That the exhibits be returned. **********

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