Court Dismisses Claims for Breach of Contract and Fiduciary Duty Between Joint Venturers

The Supreme Court of Victoria in Brady Queen Pty Ltd v Austhome Developments Pty Ltd [2021] VSC 18 has dismissed claims for breach of contract and fiduciary duty brought by joint venturers in circumstances where the relationship between the principals was unworkable but no loss was caused by the breach of contract and no fiduciary duty was established.

Brady Queen (BQ) and Austhome Developments (AD) came together to develop a property at 280 Queen Street Melbourne. They entered into Heads of Agreement (HoA) for a joint venture, promising to enter into a detailed Joint Venture Agreement (JVA). The joint venture was pursued via a unit trust, with a new company (280 Queen St) as trustee. Mr Brady, Mr Pethica (both associated with BQ) and Mr Wu (associated with AD) were each directors of 280 Queen St. The parties’ relationship broke down irrevocably and the JVA was never signed.  Meanwhile, BQ’s sister company, Brady Lonsdale, of which Mr Brady and Mr Pethica were directors, continued to develop another residential property nearby at 380 Lonsdale Street Melbourne.

BQ claimed that AD breached the HoA by, amongst other things, failing to use best endeavours to enter into the JVA and to authorise payment of necessary expenses. AD and Mr Wu counterclaimed against Mr Brady for similar breaches, including failing to provide a JVA in accordance with the HoA and against Mr Brady and Mr Pethica for breach of fiduciary duty allegedly arising out of the joint venture relationship. AD and Mr Wu argued that Mr Brady and Mr Pethica as directors of Brady Lonsdale breached the ‘no conflict’ rule by continuing to develop 380 Lonsdale Street in competition with 280 Queen St.

All of the parties’ claims were dismissed. Sifris JA found that, from the outset, the parties’ views as to how the project was to be managed were entirely different and their relationship was unworkable to such an extent that any agreement between them would not have been achieved.

Accordingly, in relation to the parties’ claims for breach of contract, Sifris JA found that, even assuming each party had breached the HoA, no loss was suffered at all or as a result of any breaches as:

•   the parties would never have reached necessary consensus; and
•   the failure to enter into the JVA had no effect on and did not stall the project to any relevant degree.

In regard to AD’s and Mr Wu’s counterclaim for breach of fiduciary duty, Sifris JA found that no fiduciary relationship arose between Messrs. Brady and Pethica and AD or Mr Wu as a result of the joint venture relationship, relevantly for reasons including:

•   the chosen vehicle for the project was a company;
•   there was no relationship of trust, confidence, and loyalty between the parties;
•   there was no inequality of bargaining power between the parties;
•   Mr Brady did not undertake to act in Mr Wu’s or AD’s interests, or restrict his own interests in other developments;
•   Mr Brady and Mr Wu (and AD) remained free to engage in other projects and, to each other’s knowledge, had previously engaged in projects involving construction of apartment buildings and had ongoing business in that domain; and
•   Mr Brady had no power to affect Mr Wu’s or AD’s interests in any legal or practical sense.

In these circumstances, Sifris JA concluded that the parties acted at arm’s length, as principals on an equal footing, in a purely commercial relationship, and that all of the key indicators of a fiduciary relationship – loyalty, dependency, ascendency, reliance, vulnerability – were absent. Even if there was a fiduciary relationship, Sifris JA reasoned that, in the circumstances of the case, the nature, content and scope of any fiduciary duty owed was limited and did not include any restriction on the ability of either party to engage in their own projects, even in competition with 280 Queen St.

The judgment of Sifris JA provides a useful summary of the factors relevant in determining whether a fiduciary relationship arises between joint venturers and confirms that the scope of any such relationship will depend on all of the circumstances of the case.  Further, that the ‘no conflict’ rule refers to the duty of a fiduciary not to be swayed by considerations of self interest or act in conflict with the interests of the beneficiary.

The full decision of Brady Queen Pty Ltd v Austhome Developments Pty Ltd [2021] VSC 18 can be found here.