Written during my final year at university, this 12,000 word research project explores the potential for judicial bias when adjudicating fiduciary breaches across four countries including Australia, Canada, United Kingdom and the United States of America.
Having kept this frankly illuminating piece to myself for the last three years, I thought perhaps it was time to share it with those interested or curious enough to view it, while for the record I was delighted to receive a first-class grade for my earnest efforts.
While the strictness of fiduciary duties within a corporate entity are prime examples of greed overshadowing obligation, this particular case demonstrates the need for contextual adjudication when examining the seemingly selfish actions of those shouldering such burdens.
Having been appointed managing director of a company designed to pursue mining opportunities within the Australasian continents in 1958, the respondent was later sued for breach of duty when obtaining coal and iron ore mining licences from the Tasmanian government by way of his position.
In the first instance, the Equity Division of the Supreme Court of New South Wales found in favour of the appellants, although legal recourse was unavailable due to its commencement beyond the statute of limitations, and so upon appeal to the Privy Council, the council was compelled to review the findings of the supreme court, while dissecting the sizeable case material used.
Here the council found that although the respondent had been serving as a director at the time negotiations had begun, it was also evident that a severe loss of capital over the preceding years had resulted in the respondent placing the company in ‘stasis’ whilst seeking alternative funding to carry out the work should they eventually receive the licences.
In addition to this, it had been made expressly clear by the board of shareholders following the receipt of the licences in 1961, that they no longer had any financial interest in the company, and that the appellant was free to pursue the benefits arising from the mining of the land available.
However in March 1962, the appellants had also sold their existing interest in the company to a third party for the sum of £2500, and so despite any claim of breach, they had by all accounts financially, contractually and orally divorced themselves from the company and those still remaining, and so when establishing the fiduciary parameters required for such a case, the council turned to Boardman v Phipps, in which Cohen LJ had held that:
“[I]t does not necessarily follow that because an agent acquired information and opportunity while acting in a fiduciary capacity he is accountable to his principals for any profit that comes his way as the result of the use he makes of that information and opportunity.”
And so basing their judgment on the strength of Boardman the council noted that not only had the respondentbeen transparent in his dealings with the Tasmanian government and the appellants, but that the appellants themselves had unequivocally shown their disinterest both in the value of the company and the actions of the respondent prior to their departure; and so with little hesitation the council dismissed the appeal while holding that:
“[A] limit has to be set to the liability to account of one who is in a special relationship with another whose interests he is bound to protect.”
In a case embroiling both arms-length and personal agreements, the unavoidable overlapping of contract and equity are held to extensive scrutiny in a suit between corporations and individuals across two jurisdictions.
After an American surgical staple manufacturer entrusted their foreign sales to a New York salesman, the man whose reputation historically rested upon a handshake eventually used his informal approach to business to establish an overseas corporation, under which he manufactured his own version of the patented staples and promoted them to an Australian market via the prolific brand name used by his new business partners.
Upon discovery his underhand scheme, the now respondents sued for damages in the New South Wales Supreme Court under § 2-306(2) of the Uniform Commercial Code, which read that:
“A lawful agreement by either the seller or the buyer for exclusive dealing in the kind of goods concerned imposes unless otherwise agreed an obligation by the seller to use best efforts to supply the goods and by the buyer to use best efforts to promote their sale.”
While contesting that any sales accrued during the years accounted for were now held upon constructive trust for the respondents.
In the first instance, the court found that a fiduciary relationship had become evident when the respondents had entrusted their product in the appellant, therefore showing a unique vulnerability to his actions when working overseas, while under challenge before the Court of Appeal, the court supported the principle of a constructive trust and thus held accordingly.
Presented to the High Court of Australia, the question of trust relationships and contractual breach became central to the issue in hand, and so the court quickly noted that the contract rested upon verbal agreements and subsequent exchanges of correspondence, yet no legally binding agreements had been entered into; and so when examining the question of validity the court referred to Oscar Chess Ltd v Williams, in which the English Court of Appeal illustrated that a representation made during contractual negotiations could also be construed as a binding warranty, and so held that:
“The question whether a warranty was intended depends on the conduct of the parties, on their words and behaviour, rather than on their thoughts. If an intelligent bystander would reasonably infer that a warranty was intended, that will suffice.”
However the court also noted that in order for any implication of a warranty to sustain judicial scrutiny it must be:
Reasonable and equitable
Necessary so as to show that the contract would be useless without it
So obvious to the bargain that it needs no expression
Capable of clear expression if called upon
Wholly supportive of the contract
And so moving on to the concept of fiduciary obligations arising from the heart of the working relationship, the court noted that in Reading v The King the English Court of Appeal held how:
“[A]‘fiduciary relation’ exists (a) whenever the plaintiff entrusts to the defendant property, including intangible property as, for instance, confidential information, and relies on the defendant to deal with such property for the benefit of the plaintiff or for purposes authorized by him, and not otherwise….and (b) whenever the plaintiff entrusts to the defendant a job to be performed, for instance, the negotiation of a contract on his behalf or for his benefit, and relies on the defendant to procure for the plaintiff the best terms available….”
Yet in vol. 25 of the University of Toronto Law Journal (1975) it also reads that in commercial dealings:
“[A] mere sub-contractor is not a fiduciary. Although his work may be described loosely as work which is to be carried out in the interests of the head contractor, the sub-contractor cannot in any meaningful sense be said to exercise a power or discretion which places the head contractor in a position of vulnerability.”
Therefore with little to warrant the existence of either a trust/trustee relationship or the presence of fiduciary duty with which to underline the machiavellian behaviour of the appellant, the court remitted the case back to the New South Wales Supreme Court with a view to an assessment of damages in favour of the respondents.