Fiduciary duty - principles
92The case propounded by the City at trial was that certain conduct of Streetscape in and about the use of the Smartpole system and technology and the manufacture and supply of poles was in breach of, first, the licence agreement, second, a fiduciary duty and, third, a duty of confidence. The three species of duty - contractual duty, fiduciary duty and duty of confidence - were put forward as co-extensive, at least to the extent (and in the sense) that the particularly alleged conduct was said to amount to breach of each duty.
93The pleaded fiduciary duty is not an incident of any of the established fiduciary relationships recognised by equity. It is, rather, fact-based. The particular circumstances of the case are said to be the source of Streetscape's fiduciary responsibility to subordinate its own interests and to afford paramountcy to those of the City.
94The claim founded on a fact-based fiduciary duty is made in circumstances where the parties chose to enter into a comprehensive written contract in August 2002, some three years after their relationship began. And the claim is framed in terms corresponding precisely with those of a duty created by the contract.
95The City emphasised that, until the comprehensive written contract was made, the relationship had been relatively informal, particularly during the phase beginning in 1999 that preceded the execution of the licence agreement (see [12] to [16] above). The City argued that that informality, coupled with the respective roles of the parties (with one exploiting commercial advantages developed by the other and doing so in a largely unsupervised way), warranted a conclusion of fiduciary duty on Streetscape's part during the subsistence of the informal relationship. There is no need to decide whether such a duty existed during that period. The actions said to have amounted to breach of fiduciary duty occurred after the parties had entered into the licence agreement of August 2002; and it is to the relationship existing after the contract had been concluded that attention must be directed.
96The main and obvious source of rights and obligations, from that point, was the comprehensive written contract. Streetscape had given, and the City had received, detailed and explicit promises regulating its right to turn the Smartpole technology to account and forbidding certain activities - chief among them exploitation of the product contrary to the contract's terms, including by sales outside the permitted territory.
97A fiduciary duty may exist in a contractual setting. Reference need only be made to the following statement by Mason J in Hospital Products Ltd v United States Surgical Corporation (above) at 97:
"That contractual and fiduciary relationships may co-exist between the same parties has never been doubted. Indeed, the existence of a basic contractual relationship has in many situations provided a foundation for the erection of a fiduciary relationship."
98Mason J continued (also at 97):
"In these situations it is the contractual foundation which is all-important because it is the contract that regulates the basic rights and liabilities of the parties."
99And then:
"The fiduciary relationship, if it is to exist at all, must accommodate itself to the terms of the contract so that it is consistent with, and conforms to, them. The fiduciary relationship cannot be superimposed upon the contract in such a way as to alter the operation which the contract was intended to have according to its true construction."
100The contractual terms are paramount. A fiduciary duty cannot detract from or contradict them. The two types of obligation - contractual and fiduciary - will, in general, co-exist only if and to the extent that the sanctions available for breach of contract (including any implied terms) are insufficient to deal with some possibility of unconscionable conduct to which one party is exposed.
101The point is illustrated by Gummow J's discussion, in Scott v Davis [2000] HCA 52; (2000) 204 CLR 333 (at [229]), of the position of an agent as against his or her principal:
"A claim by the principal for moneys had and received by the agent to the use of the principal may be made in cases such as those where the principal has entrusted money to the agent for a particular purpose which the agent has not carried out. Likewise where the agent has received money on behalf of the principal. Equity supplements the common law respecting principal and agent and adds a further dimension to their relationship by treating the agent as a fiduciary who is disqualified from asserting against the principal rights unconscientiously acquired, and who also is bound to account for profits improperly made and, in some circumstances, to answer as a constructive trustee; further, the principal may have tracing remedies in respect of abuse by the agent of the fiduciary relationship." [citations omitted]
102The common law provides a remedy by action for money had and received in the first two situations referred to by Gummow J, that is, where the agent receives money from the principal for a particular purpose which the agent does not carry out and where the agent receives money for the principal and does not hand it over. Beyond that, the common law remedy does not run in a case of bare agency and, as Gummow J put it, equity "supplements the common law" by adding "a further dimension to their relationship" by imposing fiduciary requirements upon the agent.
103In Breen v Williams [1996] HCA 57; (1996) 186 CLR 71 (at 132), Gummow J referred to another but allied example. He cited partnership as an obvious relationship involving both contractual and fiduciary duties and said that the mere presence of a contract does not exclude the co-existence of concurrent fiduciary duties. At the same time, however:
"[A] contractual term may be so precise in its regulation of what a party may do that there is no scope for the creation of a fiduciary duty."
104In Re E Dibbens & Sons Ltd [1990] BCLC 577 (at 582), Harman J took the view that the relationship between a warehouse company and customers for whom it stored furniture for reward was exclusively contractual and "no fiduciary obligation could usefully be added to the contractual obligations which arise between the parties".
105A similar approach was taken in Re Goldcorp Exchange Ltd [1995] 1 AC 74. A bullion company had sold unsegregated gold forming part of a bulk on terms that it would be stored for buyers pending their requests for delivery. Those buyers had clear contractual rights. The Privy Council rejected the proposition that they were also the beneficiaries of fiduciary duties. Their Lordships accepted (at 98) that "the fact that one person is placed in a particular position vis-à-vis another through the medium of a contract does not necessarily mean that he does not also owe fiduciary duties to that other by virtue of being in that position". One argument put by the claimants was that the seller by whom their gold was stored in mingled form owed them fiduciary duties because of the trust they reposed in it to satisfy their entitlements. Their Lordships dealt with that argument thus (also at 98):
"But the essence of a fiduciary relationship is that it creates obligations of a different character from those deriving from the contract itself. Their Lordships have not heard in argument any submission which went beyond suggesting that by virtue of being a fiduciary the company was obliged honestly and conscientiously to do what it had by contract promised to do."
106The following important point was then made:
"Many commercial relationships involve just such a reliance by one party on the other, and to introduce the whole new dimension into such relationships which would flow from giving them a fiduciary character would (as it seems to their Lordships) have adverse consequences far exceeding those foreseen by Atkin LJ in In re Wait [1927] 1 Ch 606. It is possible without misuse of language to say that the customers put faith in the company, and that their trust has not been repaid. But the vocabulary is misleading; high expectations do not necessarily lead to equitable remedies."
107The adequacy of remedies for breach of contract is therefore, in general, the determinant of whether there is scope for equity to play a supplementing role by way of the imposition of a fiduciary duty upon a contracting party; and the mere fact that one party puts faith and trust in the other is not of itself sufficient to bring equity to centre stage in that way.
108The City places particular reliance on the decision of the New Zealand Court of Appeal in Watson v Dolmark Industries Ltd [1992] 3 NZLR 311. That case concerned manufacture and distribution in New Zealand by Dolmark of plastic trays that Watson had been marketing in Australia. An oral agreement was made under which Dolmark was given sole rights in New Zealand and agreed to pay Watson a royalty of $2 per tray. Dolmark's principal (Davies) dishonestly concealed sales and created false invoices. Watson was successful at first instance upon a cause of action in contract and recovered a judgment for damages. Dolmark, however, was "not in a position to satisfy the judgment" and Watson, on appeal, pressed an alternative claim for breach of fiduciary duty by Dolmark and knowing involvement in the breach by Davies.
109The Court of Appeal upheld that claim. Reference was made by Cooke P to Hospital Products Ltd v United States Surgical Corporation (above) and, in particular, to the following passage in the judgment of Mason J (at 101):
"HPI's position as custodian of USSC.'s product goodwill in Australia may be likened in a general way to that of a bailee whose duty is to protect and preserve a chattel bailed to him. It has been well recognized, at least since the judgment of Jessel M.R. in In re Hallett's Estate [(1880) 13 Ch D 696 at 708-9], that a bailee stands in a fiduciary relationship with the bailor when the bailor entrusts to the bailee goods to be held or dealt with by him for the benefit of the bailor or for certain limited purposes stipulated by the bailor."
110Cooke P then said (at 315) of the case before him:
"Applying that principle, it can be seen that here the appellant entrusted to Dolmark property (namely the dies) and relied on Dolmark to deal with it for the benefit of the appellant (by way of royalties, though not of course for her exclusive benefit) or for purposes authorised by the appellant as well as Dolmark) and not otherwise. The entrusting of property means that there was more than an obligation to account, which is the analysis for which Mr Henry has contended. Sinclair J rejected the fiduciary argument because he thought that the appellant was never placed in a vulnerable position vis-a-vis the first respondent, given her immediate powers to uplift the dies and terminate the contract. I respectfully agree that vulnerability is an important, indeed cardinal, feature of a fiduciary relationship; but it seems to me to have existed here, for the appellant was dependent on the faithfulness of Dolmark for knowledge of the extent of manufacturing and marketing in New Zealand."
111Gault J said (at 318):
"I respectfully differ from the learned Judge on his finding that no fiduciary duty arose. His view appears to have flowed from his finding of the terms of the verbal agreement between the appellant and the first respondent as to production and sale of articles made in the moulds. I consider that the bailment which involved entrusting the dies to the control of the first respondent in another country in circumstances leaving her dependent upon its good faith to employ them in accordance with the arrangement from which both were to benefit, gave rise to the fiduciary obligation to use those moulds for that purpose and not to use them for separate purposes of the first respondent. The very absence of express contractual terms governing the use of the moulds emphasises the element of trust involved."
112Key factors identified were thus that there was only a "verbal agreement" (that is, there was no written agreement), the entrusting of the dies by Watson to Dolmark, the fact that Dolmark was "in another country in circumstances leaving [Watson] dependent on [Dolmark's] good faith to employ them in accordance with the arrangement from which both were to benefit" and the "very absence of express contractual terms governing the use of the moulds". The case was one of a bare and rudimentary contract the terms of which were not necessarily clear and provided little by way of safeguards for a licensor whose absence in another country meant that there was very limited ability to exercise practical oversight and self-help. The protection and redress available as a matter of contract were tenuous.
113Some of these factors were at work also in Hospital Products Ltd v United States Surgical Corporation. As French CJ, Gummow, Hayne, Heydon and Kiefel JJ pointed out in John Alexander's Clubs Pty Ltd v White City Tennis Club Ltd [2010] HCA 19; (2010) 241 CLR 1 (at [93]), the dissenting view of Mason J as to the existence of a fiduciary duty in Hospital Products came from the circumstance that the overseas party was "a remote principal lacking the capacity to observe what was happening half the world away" and in a situation where the Australian distributor was the only person in touch with the Australian market and thus positioned so as to enrich itself at the overseas principal's expense. This, their Honours said, created the principal's "vulnerability to the distributor's abuse of its position".
114Mason J was the only member of the High Court in Hospital Products Ltd v United States Surgical Corporation who considered that the Australian distributor owed a fiduciary duty to the overseas party. The finding in Watson v Dolmark Industries Ltd in favour of the existence of a fact-based fiduciary duty is thus to be contrasted with the reasoning employed by the other members of the High Court.
115Gibbs CJ expressed (at 72) two reasons for rejecting the fiduciary claim: first, the distributorship arrangement was "a commercial one entered into by parties at arm's length and on an equal footing, with the principal able to include in the contract whatever provisions it thought necessary for its protection;" and, second, the whole purpose of the transaction was that the distributor should make a profit.
116Deane J (at 122) had regard to the nature of the parties' relationship, characterising it as one of seller and buyer, with the distributor, as buyer, seeking, in its own interests, to sell as much of the product as possible. He also noted (at 123) that the contract did not make the relationship a partnership or joint venture; nor did it authorise the distributor to act as the manufacturer's agent or require it to subordinate its own interests.
117Dawson J said (at 143):
"By its very nature a distributorship agreement does not ordinarily give rise to a relationship in which any conflict between duty and interest must be eliminated. It is, if anything, an exception to the adage that a man cannot serve two masters. Whilst the parties have the common aim of exploiting a market and, no doubt, rely upon that coincidence of aim as much as any contractual provision to ensure the success of their arrangement, nevertheless their interests do not always and entirely coincide"
118Wilson J agreed generally with Gibbs CJ and Dawson J. He saw as applicable to the circumstances of the case an observation of Dixon CJ, McTiernan and Fullager JJ in Keith Henry & Co Pty Ltd v Stuart Walker & Co Pty Ltd [1958] HCA 33; (1958) 100 CLR 342 (at 351):
"It cannot be suggested that the plaintiff and the defendant at any stage stood in any fiduciary relationship one to the other. The position is simply that business men - or business firms - were engaged in ordinary commercial transactions with each other, dealing with each other, as the saying goes, at arm's length."
119A key passage in the joint judgment in John Alexander's Clubs Pty Ltd v White City Tennis Club Ltd (above) is the following (at [83]):
"The only vulnerability of the Club was that which any contracting party has to breach by another. The only reliance was that which any contracting party has on performance by another. If JACS committed any breach of contract, it was quite open about it. If the Club could have established that JACS was in breach of contract, it had an ample array of contractual remedies to protect itself. It chose not to do so. It spoke of the difficulty of a social club giving an undertaking as to damages, and of the inutility of damages to a social club which wishes to continue its past activities in a new guise on the same site. It also said that monetary remedies against impecunious companies like JACS and Poplar were worthless. These factors do not justify converting the contractual relationship between JACS and the Club into a fiduciary relationship."
120In the present case, the City likewise had at its disposal "an ample array of contractual remedies". It did not face any of the obstacles that apparently dissuaded the relevant party in the John Alexander's Clubs case from resorting to the readily available contractual remedies. To the contrary, the City relied squarely and openly on its contractual rights. It saw those rights as a source of precisely the relief that it sought, in a parallel way, for breach of a supposed fiduciary duty.
121The Supreme Court of Canada emphasised in Galambos v Perez [2009] SCC 48; [2009] 3 SCR 247 that a fact-based fiduciary duty cannot arise unless one party undertakes, expressly or impliedly, to act in the particular factual context solely in the interests of the other. The word "solely" deserves particular emphasis. That essential requirement shows why fiduciary duties, of their nature, do not ordinarily attend bargains struck at arm's length between sophisticated parties with equal bargaining power who, in pursuing their own financial ends, take care to document their respective rights and obligations in a comprehensive way. A person of that kind who makes such a bargain in that way safeguards his or her own interests and aims to achieve the particular advantage sought for the person's own benefit. The contract may import implied duties of good faith performance. One party may have a clear interest in fostering the ability of the other to perform and in seeing that other derive the advantages that the contract is intended to confer. A relationship with a contented counterparty is usually more productive than a relationship with a hostile one. But none of this alters the reality that each party's role is a selfish role, not one of self-denial and subordination of personal interest.