United Dominions Corporation Ltd v Brian Pty Ltd

United Dominions Corporation Ltd v Brian Pty Ltd - [1985] HCA 49 - HCA 1973 case summary — Zoe

[8]

Both Brian and U.D.C. had undertaken to accept an interest in each development. U.D.C. had made payments on account of its share (as equity participant) of the cost of each venture; and Brian had paid its share of the cost of the hotel project. S.P.L. had embarked upon its duties as manager, and was expending moneys to advance this business, with the knowledge and approval of both Brian and U.D.C. Brian knew that S.P.L. would mortgage the lands in order to secure the necessary funds from U.D.C.; and assumed by 24 October 1973 that a mortgage had been given to U.D.C. for that purpose. U.D.C. undoubtedly knew that Brian was involved. Samuels J.A. went on to point out that the inference was inescapable that all the parties regarded the expenditure being made and the other steps being taken as consistent with the terms of the formal agreement they intended to execute, and therefore done in furtherance of the joint venture. When the mortgage was given U.D.C. was fully aware that the land registered in the name of S.P.L. was held in circumstances which required S.P.L. to account to the intended partners. The evidence shows also that before that time U.D.C. had become aware that "a joint venture agreement in identical terms and conditions as the Brookfield project" was in the course of preparation - S.P.L., U.D.C. and others, not including Brian, were parties to an agreement made on 28 March 1973 regarding a similar venture at Brookfield. The Brookfield agreement provided that all moneys (other than contributions payable under par. 5) required for the purposes of the joint venture would be borrowed, "upon such terms as the parties shall unanimously agree" and that the parties authorized S.P.L. to execute any mortgage "which the parties shall unanimously agree should be given or [entered into] in respect of the [joint venture]". The same provisions appeared in the agreement when it was executed on 23 July 1974. U.D.C. was not a financier dealing at arm's length with S.P.L. and entitled to leave it to S.P.L. to disclose the terms of the mortgage to the persons, including Brian, for whom S.P.L. was acting, but was in a relationship with those persons which, if not one of partnership, was one between persons who, intending to become partners, had already embarked on the partnership venture, of which the execution of the mortgage was an incident. Moreover, U.D.C. knew that it would be contrary to the understanding between the parties, later to be elevated into a formal agreement, if S.P.L. were to grant the mortgage on terms to which Brian did not agree and for purposes unconnected with the joint venture. There was no reason to believe that Brian had agreed or would agree to the inclusion of the collateralization clause, which was so obviously adverse to its interests. Although it is not easy to attempt to define the circumstances in which a fiduciary relationship will be found to exist (see the discussion in Hospital Products Ltd. v. United States Surgical Corporation [7] ) there was, in the circumstances of the present case, a relationship between U.D.C. and Brian based on the same mutual trust and confidence, and requiring the same good faith and fairness, as if a formal partnership deed had been executed. 1. [1983] 1 N.S.W.L.R. 490, at p. 507. 2. (1984) 156 C.L.R., at p. 67 ff.

[11]

During 1973, the respondent Security Projects Ltd. ("S.P.L.") was engaged in promoting two distinct but related "joint ventures" involving the development of land which it was purchasing in the Brisbane suburb of Redcliffe. One proposed joint venture, which was intended ultimately to lead to the transfer of part of the land to a company in which the participants would be shareholders, involved the development of that part of the land (not then defined) as an hotel. The other involved the development of the residue of the land as a shopping centre. By September 1973, the participants in each of the proposed ventures had been settled. Brian was to have a 20 per cent share in the hotel venture and a 5 per cent share in the shopping centre venture. S.P.L. was to be the main participant in each proposed joint venture. U.D.C. was also to be a participant in both. Draft joint venture agreements had been circulated among the proposed participants but not finalized and it was not until July 1974 that a formal agreement in respect of the shopping centre venture was executed. It was anticipated that approximately 90 per cent of the finance for each project would be provided by borrowings from U.D.C. with the remainder being contributed by the proposed participants according to their respective shares. The prospective parties to the hotel project had, by September 1973, all made payments to S.P.L. as the project manager: Brian had contributed $43,503 (of which $6,503 was later refunded as an overpayment) in August 1973. The prospective participants in the shopping centre project, other than Brian which had not been accepted as a participant until August 1973, had also made financial contributions: Brian's first payment was made in November 1973 when it made a payment of $25,585. On 24 October 1973, S.P.L. mortgaged the Redcliffe land as security for borrowings from U.D.C. for the proposed joint ventures. Two further mortgages, each of a subsequently acquired adjoining parcel, were executed by S.P.L. in U.D.C.'s favour in November 1973 and September 1974 respectively.

[14]

The term "joint venture" is not a technical one with a settled common law meaning. As a matter of ordinary language, it connotes an association of persons for the purposes of a particular trading, commercial, mining or other financial undertaking or endeavour with a view to mutual profit, with each participant usually (but not necessarily) contributing money, property or skill. Such a joint venture (or, under Scots' law, "adventure") will often be a partnership. The term is, however, apposite to refer to a joint undertaking or activity carried out through a medium other than a partnership: such as a company, a trust, an agency or joint ownership. The borderline between what can properly be described as a "joint venture" and what should more properly be seen as no more than a simple contractual relationship may on occasion be blurred. Thus, where one party contributes only money or other property, it may sometimes be difficult to determine whether a relationship is a joint venture in which both parties are entitled to a share of profits or a simple contract of loan or a lease under which the interest or rent payable to the party providing the money or property is determined by reference to the profits made by the other. One would need a more confined and precise notion of what constitutes a "joint venture" than that which the term bears as a matter of ordinary language before it could be said by way of general proposition that the relationship between joint venturers is necessarily a fiduciary one: but cf. per Cardozo C.J., Meinhard v. Salmon [9] . The most that can be said is that whether or not the relationship between joint venturers is fiduciary will depend upon the form which the particular joint venture takes and upon the content of the obligations which the parties to it have undertaken. If the joint venture takes the form of a partnership, the fact that it is confined to one joint undertaking as distinct from being a continuing relationship will not prevent the relationship between the joint venturers from being a fiduciary one. In such a case, the joint venturers will be under fiduciary duties to one another, including fiduciary duties in relation to property the subject of the joint venture, which are the ordinary incidents of the partnership relationship, though those fiduciary duties will be moulded to the character of the particular relationship: see, generally, Birtchnell v. Equity Trustees, Executors & Agency Co. Ltd. [10] .

[18]

In the present case, the relationship between U.D.C., Brian and S.P.L. had plainly assumed a fiduciary character prior to 24 October 1973 when S.P.L. gave the first of the mortgages to U.D.C. By that time, the arrangements between the prospective joint venturers had passed far beyond the stage of mere negotiation. Each had, by then, agreed to be, and been accepted as, a participant in each of the proposed joint ventures, if both or either of them went ahead. Each had made or agreed to make financial contributions towards the costs of the project or projects in which it or he had agreed to participate. S.P.L. was acting as agent for the proposed joint venturers in relation to the establishment of each of the joint ventures and as trustee of those funds with which it had already been entrusted. In so far as Brian was concerned, it was a fundamental element of the substratum of the fiduciary relationship that then existed that the subject land, which was being purchased with joint venture funds for joint venture purposes, would be held available to be devoted to any ensuing joint venture or joint ventures and that Brian, as an accepted joint venturer who had already made financial contribution towards the proposed hotel joint venture, was and would remain able to participate in the net profits in accordance with its share in the relevant joint venture. To transpose the words of Dixon J. in Birtchnell [12] , the participants in each of the then proposed joint ventures were "associated for a common end" and the relationship between them was "based upon a mutual confidence" that they would "engage in [the] particular activity or transaction for the joint advantage only". It matters not, for present purposes, whether that relationship is seen as that which may exist between prospective partners or joint venturers before the terms of any partnership or joint venture agreement have been settled or whether it is seen as a limited preliminary partnership or joint venture to investigate and explore the possibilities of an ultimate joint venture or ventures. On either approach, it was a fiduciary one.

At a glance

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Before

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Judgment (30 paragraphs)

Parties