Saxby Bridge Mortgages Pty Ltd v Saxby Bridge Pty Ltd

Saxby Bridge Mortgages Pty Ltd v Saxby Bridge Pty Ltd - [2000] NSWSC 433 - NSWSC 1999 case summary — Zoe

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EQD1618/99 FRIDAY 26 MAY 2000 SAXBY BRIDGE MORTGAGES PTY. LIMITED & ANOR. v SAXBY BRIDGE PTY. LIMITED JUDGMENT The Proceedings Statement of Claim 1 HIS HONOUR: By their further amended statement of claim filed 24 November 1999 the plaintiffs alleged that since prior to 1995 the defendant had carried on the business of providing by its employed and sub-contract consultants ("consultants"), investment and insurance advice and investment and insurance products, including investment properties, superannuation policies and funds, life and general insurance products, managed funds and shares. The plaintiffs further alleged that in or about February 1995 John Brett Kingston, the second plaintiff, and Saxby Bridge Pty. Limited, the defendant, entered into an agreement (thereinafter called "the February 1995 Agreement") which was partly oral and partly in writing, the oral part of the agreement arising from conversations between the second plaintiff and Jeff Braysich on behalf of the defendant and the written part of the agreement arising from letters of 13 February 1995 from the second plaintiff to Jeff Braysich and 16 February 1995 from Jeff Braysich to the second plaintiff. 2 The statement of claim further alleged that the February 1995 Agreement contained express terms and conditions to the effect that the second plaintiff and the defendant would form a new company to operate under the name "Saxby Bridge Mortgages Pty. Limited", that the new company would occupy premises within those of the defendant on terms agreed between them, that the new company would otherwise adopt the logo and trade dress of the defendant so as to be identifiable by members of the public, including clients of the defendant, as an operating division of the defendant; that the new company would provide mortgage services which would be available to clients of the defendant; and that the shareholding of the new company would be held as to 80% by the second plaintiff and as to 20% by the defendant. 3 It was also alleged in the statement of claim that there were further express terms and conditions of the February 1995 Agreement, namely, that the new company would provide training and other assistance to consultants of the defendant from time to time as to the role mortgage finance might play in the investment strategies of clients of the defendant; that the defendant would instruct its employees and consultants to refer to the new company clients who were contemplating borrowing money for investment and other purposes; and that the new company would confer with such clients of the defendant and advise each such client and the consultant responsible as to the possibility and desirability of using mortgage secured finance arranged by the new company for such purposes having regard to the situation of the client. 4 It was further alleged in the statement of claim that the defendant would receive 80% of each initial commission or fee received from a client in respect of a settled loan secured by a residential mortgage and further that the defendant would receive a portion of the "trailing" commission received from the funds provider in respect of each such loan during its term. 5 It was further alleged in the statement of claim that it was an implied term and condition of the February 1995 Agreement that the parties would deal with each joint client with whom the first plaintiff consulted, who made an application for mortgage finance to the first plaintiff, who received an offer of mortgage finance as a result of an application made through the first plaintiff and who received mortgage finance as a result of an application made through the first plaintiff "in good faith in the interests of both of them". 6 It was further alleged that there was a further implied term and condition of the February 1995 Agreement that each of the parties would deal with each joint client in a way which was not in conflict with the interests of each of them in that joint client. 7 It was further alleged that in about March 1995 the second plaintiff and Jeff Braysich on behalf of the defendant agreed that the first plaintiff would be utilised as the new company; that the first plaintiff would thereupon commence business under the name Saxby Bridge Mortgages Pty. Limited; that the second plaintiff and Jeff Braysich would become directors of the first plaintiff; and that the shareholding in the first plaintiff would be held as to 80% by the second plaintiff and 20% by the defendant. 8 It was further alleged in the statement of claim that by taking up its shareholding in the first plaintiff and adopting the name "Saxby Bridge Mortgages Pty. Limited" the defendant by necessary implication, concluded a further agreement with the first plaintiff ("the Operational Agreement") which included terms and conditions as between the first plaintiff and the defendant corresponding to the terms and conditions of the February 1995 Agreement. In the course of the hearing it was conceded on behalf of the defendant that the defendant did become a party to such agreement (if any) as the Court should find with the defendant. 9 It was further alleged in the statement of claim, further and alternatively that at all times each of the first plaintiff and the defendant has owed a fiduciary duty to the other in relation to the relevant joint clients to deal with each such client in good faith in the interests of both of them and in a way which was not in conflict with the interests of each of them in that joint client. That allegation was particularised as follows:- "The relationship between the parties which involved them dealing with joint clients as though they (the parties) were a single enterprise and which involved them sharing the single income stream which might result from such dealings was one of trust and confidence." 10 It was further alleged in the statement of claim that there was an implied term in the February 1995 Agreement and in the Operational Agreement to the effect that it could not be terminated by either party other than on reasonable notice. 11 Certain further implied terms were alleged in the Operational Agreement including a term that the defendant would not operate any business competitively to the business known as "Saxby Mortgages" nor adopt a name for any of its other businesses which included the words "Saxby Mortgages". 12 It was alleged that the first plaintiff had performed the whole of its obligations under the Operational Agreement as a consequence of which members of the public had come to regard the first plaintiff as the defendant or as a part of the defendant's business structure and as a substantial part of the first plaintiff's client base had come to comprise the clients of the defendant and that in fact the first plaintiff's client base was substantially comprised of clients of the defendant by February 1999. 13 The statement of claim then alleged that on 24 February 1999 the defendant had given notice to the plaintiff purporting to terminate the agreement between the parties by letter from the defendant to the first plaintiff dated 23 February 1999 and had since that date treated it as terminated. It was alleged that the said notice was a wrongful repudiation of the Operational Agreement by the defendant because the letter purported to determine the Operational Agreement immediately when there was an implied term that it could not be terminated except on reasonable notice. 14 The statement of claim alleged that as a result of that breach the first plaintiff had suffered and would suffer certain particularised loss and damage including the loss of initial commission and trailing commission generated from clients of the defendant who would have become joint clients during the remaining term of the Operational Agreement and further that the first plaintiff would suffer loss and damage being loss of income during the period required to re-establish an identity and client base other than the defendant's clients. The statement of claim alleged further breaches of the Operational Agreement and of the fiduciary duties alleged. 15 The statement of claim also alleged breaches by the defendant of a tenancy between the first plaintiff and the defendant of certain premises being part of the premises occupied by the defendant by reason of the defendant's purported wrongful termination of the tenancy. 16 The plaintiffs sought and were granted certain interlocutory relief in respect of that occupation of the premises and in respect of telephone services relating to those premises and no further relief is presently sought in respect of those matters. 17 The plaintiffs then sought certain relief including a declaration that it was a term of the relevant agreement that it should not be terminated by either party other than on reasonable notice and that in the relevant circumstances eighteen months (or alternatively such other period as the Court may determine) was reasonable notice.

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Defence 18 By its defence filed 24 November 1999 the defendant, with certain exceptions, generally admitted the broad parameters of certain of the matters alleged by the plaintiffs but denied certain of the alleged terms of the alleged agreements, denied that any fiduciary duty came into existence, denied that the relevant agreement contained any term to the effect that it could not be terminated by either party other than on reasonable notice, denied that the first plaintiff had performed the whole of its obligations under the Operational Agreement, did not admit that members of the public had come to regard the first plaintiff as the defendant or as part of the defendant's business structure, admitted the letter of termination dated 24 February 1999 but stated that it wished to refer to the letter at the hearing for its full terms and effect, and denied that delivery of the said notice was a wrongful repudiation of the Operational Agreement by the defendant. 19 In its defence the defendant admitted that on or about 25 February 1999 it established (as a wholly owned subsidiary) Saxby Bridge Mortgages and Finance Pty. Limited and that on or about 8 March 1999 it established Saxby Bridge Home Loans Pty. Limited as a wholly owned subsidiary of Saxby Bridge Mortgages and Finance Pty. Limited. The defendant also alleged that Saxby Mortgages and Finance Pty. Limited was now called Saxby Property and Finance Pty. Limited which was a group holding company solely providing services to Saxby Bridge Home Loans. The defendant further alleged that Saxby Bridge Home Loans had carried on business since about mid-March 1999 as a provider of mortgage backed facilities. Otherwise the plaintiffs denied that the relevant allegations concerning the existence of express and implied terms and as to its own conduct in respect thereof and also the allegations of breach. 20 In answer to the whole of the statement of claim the defendant claimed that if it was found that the parties were bound by an agreement in the terms alleged by the plaintiffs (which was denied) the defendant was entitled to terminate such agreement by reason that the plaintiffs were in breach of that term of the agreement which provided that the plaintiff would provide mortgage services which would be available to clients of the defendant by carrying on business other than providing mortgage services available to clients of the defendant. This alleged breach was particularised as follows:- "The First Plaintiff was lending money interest free with no fixed term other than in connection with providing mortgage services available to clients of the Defendant. The details of such loans are set out in Schedule A hereto." 21 In further answer to the claims of the plaintiffs for equitable relief the defendant claimed that the plaintiffs were disentitled to such equitable relief by reason of the fact that they had approached the Court with unclean hands having regard inter alia to the breaches referred to.

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Express Contractual Terms 22 The relevant terms of the contract which the plaintiffs alleged came into existence between the first plaintiff and the defendant are as set out in the further amended statement of claim filed 24 November 1999. There is no dispute as to some of the terms of the contract alleged by the plaintiff to have come into existence between the first plaintiff and defendant including, for example, the term to the effect that a new company would be incorporated to operate under the name "Saxby Bridge Mortgages Pty. Limited" in respect of which the shareholding would be held as to 80% by the second plaintiff and as to 20% by the defendant. So also, for example, there was no dispute that it had been agreed that the new company would occupy premises within those of the defendant on terms agreed between them. 23 There were, however, critical differences between the parties in respect of the alleged express term of the contract, and the import of that term, as pleaded in paragraph 6(aa) of the further amended statement of claim. Paragraph 6(aa) of the further amended statement of claim (which was first pleaded as an express term in the further amended statement of claim which was filed in Court on 24 November 1999) was in the following terms:- "6. The following were express terms and conditions of the February 1995 Agreement … (aa) That the defendant would instruct its employees and consultants to refer to the new company clients who were contemplating borrowing money for investment and other purposes." 24 Although it was not so pleaded expressly, counsel for the plaintiffs, in the course of the hearing, made it plain that he contended, on one view of the case of the plaintiffs, that the "import" of this "express" term was to the effect that the defendant was bound to instruct its employees and consultants to refer to the new company all clients of the defendant who were contemplating borrowing money for investment and other purposes by way of mortgage, and was, indeed, bound to ensure that its employees and consultants did not refer such clients to any one other than the new company. 25 Put another way, it was submitted on behalf of the plaintiffs that on this view of the plaintiff's case, this was the effect, on its true construction, of the express term pleaded in paragraph 6(aa) of the further amended statement of claim. 26 It was also submitted on behalf of the plaintiffs in the course of the hearing that this term should be construed, or, alternatively, that there was an additional implied term to this effect, as being qualified by an agreement that the term would operate only "when it was practicable to do so in the best interests of the clients of the defendant". This qualification was put forward in an attempt to accommodate the difficulties that would have otherwise arisen if it were to be submitted that the relevant clients of the defendant had to be referred to the new company regardless of whether it was in the best interests of the client to do so, for example, even when the client insisted on an application for mortgage being made only to a mortgagee of his choice, not being a mortgagee with whom the new company originated or sub-originated mortgage business, or where, for some other reason, it was plain that the best interests of the relevant client would not be served by referral to the new company. 27 In my opinion, the evidence does not establish the coming into existence of an express term of the contract to be construed in the manner contended for on behalf of the plaintiffs and whether or not an implied term to the effect contended for on behalf of the plaintiffs came into existence. 28 In the first place, as was submitted on behalf of the defendant, there is no evidence of any conversation or written document which would support the coming into existence of an express term as so construed nor the coming into existence of an implied "qualifying" term as contended for on behalf of the plaintiffs. 29 There is no doubt that the parties intended that relevant clients of the defendant would be referred to the first plaintiff, and the agreed structure for the operation of the new company, both as to the shareholding in the new company and as to the fee and commission arrangements, had the result that the defendant and its consultants and employees had an incentive to do so. It is equally plain, however, in my opinion, that the parties never agreed as to whether the defendant was to be prohibited, in effect, from referring relevant clients to any other person or entity and, in my opinion, if this particular matter had been adverted to between the parties the strong probability is that the second defendant would not have agreed, not least, inter alia, because there were other entities to whom such clients had and were being referred for the same purposes. 30 It is equally plain, in my opinion, that the parties did not conduct themselves in any way which would justify a conclusion that any obligation which the defendant might have had, (but did not have), to refer relevant clients of the second defendant to the new company, was subject to an implied term that the obligation would be qualified to the extent that it would exist either only "where it was practicable to refer such clients" or alternatively, "only when it was in the best interests of the client" to do so. 31 In any event, in my opinion, an implied term to this effect, purporting to qualify the alleged obligation to refer all clients, would, in my opinion, have been void for uncertainty, having regard to the imprecision of the content of the words "where practicable" and "where it was in the best interests of the client to do so", and having regard to the varied circumstances that would exist in regard to relevant clients upon the basis of which the parties, or in the last resort, a court, would have to make a value judgment as to whether or not it was "practicable" or "in the best interests" of the relevant client to be referred. In addition, the very difficulty, if not impossibility, of drafting an implied term which would avoid these difficulties is itself, in my opinion, some evidence that no such implied term ever came into existence. 32 Moreover, the very fact that Saxby Bridge consultants could not and would not have referred relevant clients to the first plaintiff if it had not been in the interests of the client to do so also makes it improbable, in my opinion, that Mr. Braysich or any reasonable person in his position would have agreed to undertake the obligations contended for on behalf of the plaintiffs because it would have been quickly realised that such an exception to an otherwise unqualified obligation to refer would have involved very difficult decisions as to when that obligation arose which would be dependent as stated above, upon an evaluation of the circumstances of the particular client to decide whether or not it was in the best interests of their client to refer. 33 The evidence, or lack of evidence, which supports these conclusions includes the following. 34 In the first place there is no reference in the correspondence or conversations between the parties to which I have been referred, to any such obligation on the part of the second defendant. 35 Mr. Joseph Braysich' understanding of the position appears, inter alia, from the following passages in his cross-examination:- "Q. Why did you understand that you would be placing your clients before him if you did not think you had an obligation to do so?

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Reasonable Notice 53 If, on the other hand, contrary to my view, there was an obligation on the part of the second defendant to refer certain of its clients to the first plaintiff, contrary to my view, and if, there was a term in the relevant contract to the effect that the contract could only be brought to an end upon reasonable notice, then in my opinion the relevant period of notice would have been thirty days as expressly agreed between the parties in the correspondence referred to above. 54 On these assumptions, if the financial arrangements (contractual terms) embodied in the correspondence had been terminated thirty days after the giving of notice to do so by the defendant, this would, in my opinion, have effectively brought any contract, including any obligation by the defendant to refer clients to the first plaintiff, to an end, because it would be plain, in my opinion, that any such contract could not continue unless there was agreement both in respect of the obligation to refer as well as in relation to the financial arrangements arising out of the contract containing such an obligation. 55 It was submitted on behalf of the plaintiffs that this result did not necessarily follow because if the financial arrangements had been brought to an end in relation to a contract which imposed upon the defendant an obligation to refer clients to the first plaintiff, the position would be that the parties would renegotiate, and presumably be bound to renegotiate, substitute financial arrangements. 56 It is plain, however, in my opinion, that a purported contract containing such terms would be void for uncertainty since neither party could compel the other to agree on any particular level of financial arrangements, nor could the Court impose any particular level. 57 In my opinion, if there had been any obligation to refer to clients to the first plaintiff, the letter dated 23 February 1999 from the defendant to the first plaintiff constituted thirty days' notice of the defendant's intention to cease to introduce new business to the first plaintiff. This is made clear, in my opinion, by the following paragraph in the letter of 23 February 1999, and in particular, by the reference in that paragraph to an intention on the part of the defendant to cease to introduce new business "in accordance with the terms of your letter of 5 June 1996":- "Accordingly, we now intend to cease to introduce new business to you and in accordance with the terms of your letter of 5 June 1996, hereby give you notice of cessation." (underlining supplied). 58 I reiterate, however, my earlier expressed view that since, in my opinion, there was no binding legal obligation upon the defendant to refer relevant clients to the plaintiff, it was unnecessary for the defendant to give any notice of its intention to cease referring such clients.

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Alleged Further Implied Term 59 It was submitted and pleaded on behalf of the plaintiffs that it was an implied term and condition of the alleged agreement between the parties that the parties would deal with each client "with whom the first plaintiff consulted"; who made an application for mortgage finance to the first plaintiff; who received an offer of mortgage finance as a result of an application made through the first plaintiff; and who received mortgage finance as a result of an application made through the first plaintiff, "in good faith in the interests of both of them". 60 In this connection it was submitted on behalf of the plaintiffs, in effect, that in relation to each such "joint client" who had, inter alia, received mortgage finance as the result of an application made through the first plaintiff, the defendant would not thereafter deal with that "joint client" in any way which would result in the mortgage finance which that joint client had received being cancelled or disturbed by the provision of substitute mortgage finance or otherwise which would have the effect of disturbing the continuing receipt by the first plaintiff of any moneys being received by the first plaintiff in respect of that mortgage finance by way of trail commission or otherwise. 61 In my opinion, it has not been established on the evidence that in the circumstances of the present case any such implied term ever came into existence. In the first place, it does not appear that the subject matter of this alleged further implied term, was ever the subject of discussion or correspondence between the parties. In the second place, and more importantly, the conditions necessary for any such implied term to exist have not been satisfied. The necessary conditions were referred to by Mason J. (as he then was) in Codelfa Construction Pty. Limited v State Rail Authority of New South Wales (1981-1982) 149 CLR 337 at 347 per Mason J. in the following terms:- "The conditions necessary to ground the implication of a term were summarized by the majority in B P Refinery (Westernport) Pty. Ltd. v Hastings Shire Council (1977) 52 ALJR 20 at p26: "(1) It must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that 'it goes without saying'; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract." 62 In my opinion it is plain that the alleged further implied term contended for on behalf of the plaintiffs was neither necessary to give business efficacy to the contract, nor so obvious that it went without saying. In my opinion, if the parties had expressly adverted to the subject matter of the alleged further implied term, they would have had considerable difficulty in agreeing on a formulation of a relevant term. Importantly, the alleged further implied term as pleaded makes no allowance for the case of a "joint client" in whose best interests it might be or have become necessary or desirable to disturb or replace existing mortgage finance in place as a result of the endeavours of the first plaintiff. If the parties had wished to agree to some such qualification of the alleged further implied term they would quickly have appreciated the difficulties involved in evaluating the circumstances relevant to a particular joint client with a view to reaching a conclusion as to whether it was in the best interests of that joint client to disturb or replace existing mortgage finance arranged for that joint client by the first plaintiff, even assuming that both parties were agreeable to the alleged further implied term and any qualification thereof. 63 It is not unlikely, in my opinion, by reason of the difficulty involved in attempting to agree and enforce any such qualification to the alleged further implied term, that the defendant would not have agreed to the alleged further implied term or the qualification thereof. In this connection it must be borne in mind that the probability was that the joint client was first and foremost, and principally, the client of the defendant, and that the investment advice given by the defendant to such joint clients would be of a more general and wide ranging nature than merely the desirability of obtaining mortgage finance, having regard to the business of the defendant which was, inter alia, to provide, as alleged in the further amended statement of claim, "investment and insurance advice and investment and insurance products, including investment properties, superannuation policies and funds, life and general insurance products, managed funds and shares." Regard would also have been had, in my opinion, by the parties and, in particular, by the defendant, to the fact that the sources of mortgage finance available to the first plaintiff were limited to certain lenders, it being plain, of course, that there were many, many more such lenders whose mortgage products might have been, or might have become, more suitable to the particular needs of any particular "joint client". 64 One may hypothesise or speculate as to what term, if any, the parties might have agreed upon if they adverted to that subject matter. For present purposes, however, the only relevant matter is that these various considerations make it plain beyond doubt, in my opinion, that it cannot be said that the alleged further implied term was so obvious that it went without saying, nor that it was necessary to give business efficacy to such contract as may have come into existence between the parties, particularly, a contract in respect of which I have found that there was no obligation upon the second defendant to refer all joint clients who may have required mortgage finance to the first plaintiff. I would only add that even if the plaintiffs had been successful in establishing such an obligation on the part of the second defendant that circumstance would not have affected the conclusion to which I have come, namely, that the plaintiffs have failed to establish the coming into existence of the alleged further implied term for which they contended.

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Alleged Fiduciary Duty 67 The plaintiffs sought to achieve the same result as might have been achieved by the finding that one or other of the alleged further implied terms had come into existence, by alleging that a fiduciary relationship had come into existence between the first plaintiff and the defendant, with each party owing a fiduciary duty to the other to act "in good faith in the interests of both of them" in relation to "joint clients", and to avoid conflicts between the interests of the first plaintiff in each joint client and the interests of the defendant in each joint client. 68 In my opinion, no such "reciprocal" or "mutual" fiduciary duties owed by the defendant to the first plaintiff and by the first plaintiff to the defendant ever came into existence. In my opinion, the various considerations to which reference has been made in relation to the alleged two further implied terms make this plain. Further, in my opinion, in the context of a contract in which as I have found there was no obligation upon the defendant to refer clients to the first plaintiff, and in all the circumstances of the case generally, it cannot be said that, within the meaning of the relevant principles, there arose between the plaintiff and the first defendant a relationship of trust and confidence to the effect that regardless, as it were, of the best interests of the client, neither the first plaintiff nor the defendant would seek to interfere with or disturb the financial arrangements put in place on part of a joint client by the other party. Moreover, as stated above, it is for all practical purposes, impossible to define the ambit of any particular alleged fiduciary duties when consideration is given as to what the best interests of a joint client may require having regard to the practical impossibility of evaluating with certainty in respect of a joint client when interference or disturbance with the financial arrangement made for that client by one or other of the parties it would be the best interests of that joint client. 69 Further, in my opinion, it is plain that if the relevant representatives of the defendant, including Mr. Jeffrey Braysich, had had their attention directed to this situation they would plainly not have been prepared to agree not to interfere with the arrangements made for their joint client by the first plaintiff, not least because the financial advice given by the defendant to its clients was more general and comprehensive than the advice being given to joint clients by the first plaintiff whose sources of mortgage finance were limited, and because it might have been the case that, in the best interests of the client, those arrangements needed to be changed. 70 Nor, in my opinion, could it be said, in all the circumstances of the present case, that the first plaintiff was in a position of vulnerability vis-a-vis the defendant in that the defendant was as in a position, after the first plaintiff had arranged mortgage finance for a joint client, to advise such client that the mortgage arrangements made for that client by the first plaintiff should be changed, more especially in circumstances in which the interests of that client might so require and where, in any event, the client was principally the client of the defendant in the first place anyway. In other words, in the relevant circumstances, in my opinion, it would not have been reasonable for the first plaintiff to have reposed in the defendant trust and confidence that the defendant would at no stage seek to disturb the mortgage arrangements put in place for a joint client by the first plaintiff, more especially, in circumstances in which, as I have said, I have held that there was no obligation upon the second defendant to refer clients to the first plaintiff. 71 The "labelling" of what occurred as "a joint venture" and of the mortgages originated or sub-originated by the first plaintiff as "joint assets" cannot alter the true significance and import of the relevant facts in the context of considering whether they do or do not give rise to a fiduciary duty. It is plain that there are many arrangements which may be not inaccurately called "joint ventures" which do not give rise to fiduciary duties but owe their existence only to some contract between the parties, and it is equally plain that there are many assets which may not inaccurately be called "joint assets" which also give rise to no fiduciary duties. Nor is the existence or otherwise of the alleged fiduciary duty or fiduciary duties advanced by a description of the content of the alleged fiduciary duties as comprehending alleged duties not to establish a competitive business and to continue to direct clients to the first plaintiff. The question of whether or not there was a fiduciary duty upon the defendant which fiduciary duty had a certain content is a question which depends upon analysis of the relevant facts in light of the relevant legal authorities, and the question is not answered by deciding whether or not particular labels may be given to particular facts. See e.g. Hospital Products Limited v United States Surgical Corporation & Ors (1984-1985) 156 CLR 41.

At a glance

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Before

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Judgment (97 paragraphs)

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Cases Cited (1)