Saxby Bridge Mortgages Pty Ltd v Saxby Bridge Pty Ltd

D J Hammerschlag (Defendant) Webster O'Halloran & Associates (Plaintiff) SOLICITORS : Atanaskovic Hartnell (Defendant) CATCHWORDS : Contract - express and implied terms - held: Plaintiff had failed to establish the express and implied terms alleged. Fiduciary duty - held: Plaintiff had failed to establish the fiduciary duty alleged. CASES CITED : Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1981-1982) 149 CLR 337 at 347; Hospital Products Limited v United States Surgical Corporation & Ors (1984-1985) 156 CLR 41. DECISION : Proceedings dismissed.

THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION

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.

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.

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?

A. What we had agreed is that I would allow Brett access, privileged access, to prove himself to the consultants as somebody that they could trust to do a good job on their mortgages, to get them fair rates and let them achieve the needs that they want, as we have done with many other companies over that period of time and still continue to do so." 36 The following appears in the cross-examination of Mr. Jeffrey Braysich:- "Q. Why were you then prepared to subsidise the start-up of the company if you thought it was going to have an independent business absent any clients from Saxby Bridge?

A. The way you framed the question was that it would absolutely depend on it, and it was not my understanding at the time. I understood that we would be providing clients and we would be giving Brett a privileged access to our client base, but that he would be using many of his contacts, as he was a large business writer of mortgages to be bringing in the business in at the same time." 37 Further the alleged express term was alleged on behalf of the plaintiffs to have been a term of an agreement particularised in paragraph 4 of the further amended statement of claim as being partly oral and partly in writing. To the extent that the agreement was oral, it was said to be constituted by conversations contained in the affidavit of the second plaintiff sworn 13 July 1999, and to the extent that it was in writing, the agreement was said to be constituted by letters of 13 February 1995 from the second plaintiff to Mr. Jeff Braysich and 16 February 1995 from Mr. Jeff Braysich to the second plaintiff. 38 In cross-examination, however, the second defendant reluctantly agreed that nobody ever said in his presence that "every single Saxby Bridge consultant across the board was obliged to refer every mortgage financing inquiry within the group" to him. 39 The relevant cross-examination was as follows:- "Q. It was never said in your presence that every consultant employed by Saxby Bridge across the board was obliged to refer every inquiry as to mortgage finance to you, was it?

A. There was no other referral point for the Saxby Bridge consultant.

Q. That is not an answer to the question. It was never said in your presence that that was the case, was it?

A. It was the basis on which I agreed to do the Saxby Bridge Mortgages thing with Saxby Bridge in January and February of 1995.

Q. Mr. Kingston, I will ask the question again: it was never said in your presence, I suggest to you, that every single Saxby Bridge consultant across the board was obliged to refer every mortgage financing inquiry within the group, to you, was it?

HIS HONOUR: Mr. Kingston, you really have to answer the question you are being asked, not expectation, but whether you heard anyone say anything. Ask the question again.

HAMMERSCHLAG:Q. I am suggesting to you that it was never said in your presence that every Saxby Bridge consultant across the board was obliged to refer every mortgage finance inquiry to Saxby Bridge Mortgages?

A. I would like to take some time to think about that.

A. I do not recall specifically somebody saying that.

Q. Certainly not said to you that every consultant would have to refer every mortgage inquiry to you, was it?

HIS HONOUR: Mr. Kingston, you have made it clear what your understanding was. Now you are being asked about what was said by others.

Q. It was never said that every Saxby Bridge consultant would have to refer all mortgage inquiries to you, was it?

A. Not specifically." 40 Nor, in my opinion, do either of the two letters particularised use any words to the effect of the alleged express term pleaded in paragraph 6(aa) of the statement of claim. Those letters were in the following terms:- " 91 Wideview Road Berowra Heights NSW 2082

Mr. Jeffrey Braysich Saxby Bridge Pty Limited 4 O'Connell Street SYDNEY NSW 2000

Further to our discussions concerning the formation of a mortgage company to work closely with Saxby Bridge personnel, I confirm the following:-

1. A new company will be formed (yet to be named) with the shareholding as follows:-

JB Kingston 80% Saxby Bridge Pty Limited 20%

2. All fees earned together with ongoing trailing commissions are to form an income stream of which Saxby Bridge Pty Limited will be paid 20%.

3. Where Saxby Bridge Pty Limited salespersons have referred a client, the fees will be split as follows:-

Saxby Bridge Pty Limited 20% JB Kingston (or nominee) 10% Floor (to be allocated by Saxby Bridge Pty Limited) 70%

4. Trailing commissions will be shared as follows:-

Saxby Bridge Pty Limited 20% JB Kingston 80%

5. All loans introduced by myself will attract an 80% payment of fees and trailing commission with the balance payable to Saxby Bridge Pty Limited.

6. Loans introduced by either agents or employees of the new company will be paid by negotiation, but Saxby Bridge Pty Limited will earn 20% of fees and trail regardless.

7. All JB Kingston's loan and funding activities will be channelled through the new company, with fees to be shared on the above ratios. These will include private funding, development finance, leasing etc.

8. Saxby Bridge Pty Limited will provide office accommodation, secretarial support, stationery, telephone, fax and all other office related services for the new company.

9. Mutually acceptable office accommodation will be provided free of charge for a six (6) month period. A pre-determined Saxby Bridge Pty Limited earnings figure in the sixth month will then determine what rent (if any) will be paid on a monthly basis thereafter.

10. Preliminary discussions have already commenced with mortgage originators and funders, and negotiations are well under way to finalising a trailing commission on loans introduced.

11. It is important that a good product line (with trail) is established, either before my official start or very soon thereafter, to maximise impact with the sales personnel.

I look forward to finalising our agreement and to a mutually profitable and enjoyable relationship.

Mr JB Kingston 91 Wideview Road BEROWRA HEIGHTS NSW 2082

Thank you for your time earlier today to discuss the forthcoming 'Road Runner'.

In essence, we agreed to the ownership of 'Road Runner' to be as follows:

1. JB Kingston or his nominees 80% 2. Saxby Bridge Pty Ltd 20%

We would envisage that in any new equity participation with regardless of the percentage of it, Saxby Bridge Pty Ltd would not drop below 15%. With regards to client/bank fees the monies will be paid to 'Road Runner" and then divided to as follows:

1. Saxby Bridge sales floor 60% 2. JB Kingston 10% 3. 'Road Runner' 10% 4. Saxby Bridge Pty Ltd 20%

Where the client introduction comes about from JB Kingston or an introducer working directly for 'Road Runner' then JB Kingston at his discretion will divide the appropriate 70%.

Consulting fees shall be divided on the same bases as above with JB Kingston and the lead generating person per agreeing to the split of fees.

Property Fees - Property fees on property deals and project introduced by 'Road Runner' will be split as follows:

1. Saxby Bridge sales floor 60% 2. 'Road Runner' 20% 3. Saxby Bridge Pty Ltd 20%

The situation with regards to those Saxby Bridge agents holding Colonial franchises will be one of further negotiation.

With regards to trailer fees we believe it is important that the consultant receive trailers and we envisage that 1/3 of the trailer received be paid to the sales structure provided that those individual remain with the Saxby Bridge/Road Runner groups of companies.

Saxby Bridge agrees for a period of 6 months beginning 20/2/95 to provide 'Road Runner' with reasonable and necessary cost bar formation expenses.

We look forward to establishing a worthwhile and profitable venture and hope that we can begin business within the next seven days.

Yours sincerely for and on behalf of Saxby Bridge Pty Ltd

JEFF BRAYSICH DIRECTOR" 41 I also note that the express and/or implied terms contended for in this connection on behalf of the plaintiffs are, in effect, inconsistent with the understanding of Mr. Kingston that there was, in any event, no obligation on the defendant or its consultants or employees to refer clients to the first plaintiff unless those consultants or employees had confidence in the second defendant, it being the position that as at the inception of the arrangements between the parties the second defendant was not known to any consultants or employees of the second defendant. This understanding would relevantly need to have been accommodated by some express or implied term in the contract to the effect that the alleged obligation would operate, inter alia, only when the relevant consultant or employee of the second defendant had sufficient confidence in the second plaintiff to refer the relevant clients of Saxby Bridge. In this connection I note that the defendant's consultants had begun to lose such confidence towards the end of 1998 and the beginning of 1999 by reason of which any obligation to refer would have been coming to an end at that time. 42 In this connection, the relevant cross-examination of the second plaintiff included the following:- "Q. At the time that you started at Saxby Bridge one of the things you understood was that you were going to have to build up the confidence of the members of the floor?

Q. Many of those consultants were even unknown to you?

A. They were all unknown to me, almost without exception.

Q. It was said at meetings, for example, at which you were present that you would have to earn the trust and respect to obtain a referral, like everyone else.

A. It was explained to me by Jeff Braysich, prior to starting Saxby Bridge Mortgages, because of the bad past experience of previous divisions, that it would take some time to build the confidence of the guys on the floor." 43 The difficulties adverted to above in relation to the coming into existence of the term of the contract alleged in paragraph 6(aa) of the further amended statement of claim in relation to situations in which the relevant client of Saxby Bridge may not have wished to be referred to the first plaintiff, or in which such a referral may not have been in the best interests of that client, were recognised by the second plaintiff, inter alia, in the following passages in his cross-examination:- "Q. So you certainly do not tell His Honour that Mr. Braysich at any time said to you that you would have exclusive access to all of the Saxby Bridge consultants and their clients and they will have to use you exclusively?

A. You can't have an exclusive arrangement when clients choose to do their own financing through the bank of ten or twenty years …

Q. You have told His Honour that such an arrangement would not be permissible, yet you have told His Honour also in paragraph 26 (of your affidavit of 13 July 1999) that Braysich said to you 'You will have exclusive access to all our guys and all our clients and they will have to use the new company exclusively', that was not said was it?

A. Probably not in those exact words but it should have perhaps added 'wherever possible' or 'wherever practicable' …

Q. Please have a look at paragraph 26 of your affidavit of 13 July. In that affidavit for the first time in these proceedings, you say that in one of the conversations with Jeff Braysich and you he said words to the following effect: 'And the third paragraph is you will have exclusive access to all our guys and all their clients and they will have to use the new company exclusively.' He did not say that, did he?

A. He probably didn't say those exact words because I don't recall the exact words but the effect was that we would have the sole access to mortgages within the group.

A. We addressed those things I believe in his letter of 16 February. We addressed that as saying the guys with Colonial would have to look at that down the line.

Q. So you could not have understood that you had exclusivity with respect to the people with Colonial, did you?

A. Wherever possible." 44 There was also evidence, in addition to the above evidence, relating to the "exception" that consultants of the defendant who had Colonial franchises were permitted to refer relevant clients to Colonial. That evidence included the following cross-examination of the second plaintiff in relation to Colonial:- "Q. What about Colonial?

A. We addressed those things I believe in his letter of 16 February. We addressed that as saying the guys with Colonial will have to look at that down the line.

Q. So you could not have understood that you had exclusivity with respect to the people with Colonial, did you?

A. Wherever possible." 45 The relevant passage in the letter of February 16, 1995, set out above, was as follows:- "The situation with regards to those Saxby Bridge agents holding Colonial franchises will be one of further negotiation." 46 Other cross-examination of the second defendant on this issue included the following:- "Q. Now, apart from CFC Home Loans and Colonial, through whom mortgage business was also being written (by the second defendant), I want to suggest to you that mortgage finance was also arranged through the group called the Advisor Business Services?

Q. Would it be fair to say that you didn't have any knowledge of the activities of the entire Saxby Bridge group, with respect to the arranging of mortgage finance?

A. I believe so." 47 The following passages also appear in the cross-examination of the second plaintiff:- "Q. Yesterday we discussed the fact that it was understood by you that you would need time to achieve the confidence of the consultants who would be using Saxby Bridge Mortgage services?

Q. You agree with me, of course, that the opposite is also the case: You would not expect them to use your service if, for example, they lost confidence in you, would you?

A. Yes." 48 Having regard to all these considerations, I am of the opinion, as stated above, that no such contractual term as is alleged in paragraph 6(aa) of the further amended statement of claim having the construction contended for on behalf of the plaintiffs and accompanied by the implied term contended for on behalf of the plaintiffs, ever came into existence. 49 It also follows, in my opinion, that, in the absence of any such contractual term or terms as alleged on behalf of the plaintiffs, the defendant was not in breach of any such contractual term when it wrote the letter dated 23 February 1999 stating that the defendant would no longer be referring relevant clients to the first plaintiff.

Express Term as to Financial Arrangements 50 Notwithstanding these conclusions, however, I am of the opinion that what might be loosely called the financial arrangements between the first plaintiff and the defendant in relation to relevant clients actually referred to the first plaintiff came into existence as contractual terms and remained in existence until terminated appropriately. This appears, in my opinion, inter alia, from the following correspondence, namely, the letter dated 5 June 1996 from the first plaintiff to the defendant, the letter dated 13 June 1996 from the defendant to the first plaintiff and the letter dated 15 July 1996 from the first plaintiff to the defendant. These letters were in the following terms:- "5 June, 1996

Mr J Braysich Managing Director Saxby Bridge Pty Ltd Level 6, 4 O'Connell St SYDNEY NSW 2000

This letter outlines the agreement concerning the on-going trailing commission on business introduced to Saxby Bridge Mortgages Pty Ltd.

This agreement commences from the date of this letter and will cease after either party has given 30 days notice in writing for any reasons. This cessation will not effect the on-gong trail on business settled to the date of the notice.

Saxby Bridge Pty Ltd shall be entitled to a commission equivalent to all interest margin in excess of 9.2% (current variable rate 9.4%) on outstanding principal of up-to-date loan transactions.

You will be advised as to the new base interest rate as and when interest rates change.

This amount is payable to you within one week of receipt of trailing commissions from Australian Mortgage Securities Limited.

We look forward to a long and mutually beneficial relationship.

BRETT KINGSTON MANAGING DIRECTOR"

Mr B Kingston Managing Director Saxby Bridge Mortgages Pty Ltd Level 6 4 O'Connell Street SYDNEY NSW 2000

Thank you for your letter of 5 June 1996 concerning the ongoing trail arrangement.

Could you please explain what would be our 'trail' should interest rates fall to say 8.5%? Are we correct in saying that Saxby Bridge Pty Ltd would receive 0.2% per annum paid monthly on the outstanding principal of all up to date loans?

Yours sincerely for and on behalf of SAXBY BRIDGE PTY LTD

JEFF BRAYSICH MANAGING DIRECTOR"

Mr J Braysich Managing Director Saxby Bridge Pty Ltd Level 12 4 O'Connell St SYDNEY NSW 2000

Further to your letter of 13 June 1996, we advise that margins remain the same regardless of whether interest rate fall or rise.

BRETT KINGSTON MANAGING DIRECTOR" 51 There is no dispute before me as to any payments not having been made by the second defendant to the first defendant. However, I record that, if there had been any such dispute, in my opinion it would have had to be resolved by reference, inter alia, to the contents of this correspondence. 52 However, there being, as stated earlier, in my opinion, no obligation upon the defendant to refer relevant clients to the first plaintiff, the decision of the defendant to cease to refer such clients to the plaintiff did not involve the second defendant in any breach of contract, nor was there any necessity on the part of the defendant to give to the first plaintiff any notice of its intention to cease to refer clients.

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.

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.

Alleged Second Further Implied Term 65 It was further alleged and pleaded on behalf of the plaintiff that there was an implied term of the alleged agreement between the parties to the effect "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." In my opinion, and generally for the same kinds of reasons as I have stated in respect of the alleged (first) further implied term, the plaintiffs have not established that any such second further implied term came into existence in any contract between the parties. 66 It may be noted, however, that in relation to this alleged second further implied term that the allegation was, as stated above, that it was an implied term that 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". Presumably this was intended to convey that, in relation to both the alleged first and second further implied terms, there was some kind of mutual or reciprocal obligation upon the first plaintiff to the effect that it would not seek to disturb any arrangements which had been made on behalf of the "joint client" by the defendant. In my opinion this aspect of each of the alleged further implied terms gives rise to the same problems as referred to above relating to what action might be required in the best interests of the client, as well as all the other difficulties faced by the plaintiffs in their attempt to establish these alleged further implied terms.

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.

Order of the Court 72 For the foregoing reasons the Court orders that the proceedings be dismissed and that the plaintiffs pay the costs of the defendant and of the proceedings.

Last Modified: 09/25/2000 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.