When Fiduciary Relationships Arise

In Waller Projects Pty Ltd v F.W. Estate Pty Ltd [2025] QSC 16, Kelly J considered whether a commercial relationship was fiduciary in nature, and highlighted the difference between the obligations of a fiduciary and of loyalty. The case involved a development of a parcel of land at Jimboomba. Questions for determination included whether an agreement had been entered into, and whether the relationship between the parties was such as to give rise to fiduciary obligations. It was found that the agreement had not been entered into and that a fiduciary relationship did not exist.

As to the circumstances giving rise to fiduciary obligations, his Honour said (at [250] – [265]):

[250] In Hospital Products Ltd v United States Surgical Corporation,[33] Mason J delivered a judgment which, although dissenting in the result on the facts, is regarded as “an important and correct statement of principle”.[34] The judgment makes reference to “accepted fiduciary relationships” as being relationships of trust or confidential relations.[35] In Gibson Motorsport Merchandise Pty Ltd v Forbes,[36] Finn J said that the fact that one party to a relationship subjectively trusted another, be it in the course of negotiations or otherwise, “is neither necessary for nor conclusive of the existence of a fiduciary relationship”. After making that important observation, his Honour noted an apparent inconsistency of position when courts speak of a fiduciary as a person “occupying a position of trust and confidence” and of a fiduciary relationship as being one in which “one party is shown to repose substantial trust or confidence in the other”.[37] His Honour resolved that apparent inconsistency by identifying the distinguishing obligation of a fiduciary as the obligation of loyalty. His Honour remarked that once the character of the obligation was understood “the apparent inconsistency … evaporates”.

[251] The accepted or traditional fiduciary relationships include, but are not limited to, the relationships of trustee and beneficiary, agent and principal, solicitor and client, employee and employer, director and company and partners. Mason J identified the critical feature of these relationships as being that

“the fiduciary undertakes or agrees to act for or on behalf of or in the interests of another person in the exercise of a power or discretion which will affect the interests of that other person in a legal or practical sense”.[38] The relationship gives the fiduciary “a special opportunity to exercise the power or discretion to the detriment of that other person who is accordingly vulnerable to abuse by the fiduciary of his position”.[39] Where Mason J used the expressions “for”, “on behalf of” and “in the interest of”, that language signifies that the fiduciary agrees or undertakes to act in a “representative” character in the exercise of his or her responsibility.[40]

[252] The critical feature of the traditional fiduciary relationships, as explained by Mason J, is also a feature of any fiduciary relationship.[41] The facts of the present case, which concern arm’s length dealings in a commercial context, did not involve an accepted category of fiduciary relationship. The courts have been reluctant to recognise the existence of fiduciary relationships in this kind of context.[42] Notably, in Hospital Products[43] Gibbs J said:

“The fact that the arrangement between the parties was of a purely commercial kind and that they had dealt at arm’s length and on an equal footing has consistently been regarded by this Court as important, if not decisive, in indicating that no fiduciary duty arose.”

[253] However, care is required to not overstate the position. In Hospital Products,[44] Mason J made the following cautionary observations:

“There has been an understandable reluctance to subject commercial transactions to the equitable doctrine of constructive trust and constructive notice. But it is altogether too simplistic, if not superficial, to suggest that commercial transactions stand outside the fiduciary regime as though in some way commercial transactions do not lend themselves to the creation of a relationship in which one person comes under an obligation to act in the interests of another. The fact that in the great majority of commercial transactions the parties stand at arm’s length does not enable us to make a generalisation that is universally true in relation to every commercial transaction. In truth, every such transaction must be examined on its merits with a view to ascertaining whether it manifests the characteristics of a fiduciary relationship.”

[254] That the present case does not fit within any clearly established category of fiduciary relationship and involves commercial conduct, is not necessarily a barrier to the recognition of a fiduciary relationship. The High Court has recognised that in a case not involving a traditional category of fiduciary relationship which occurs in a commercial context, the critical feature of the fiduciary undertaking or agreeing to act for or on behalf of or in the interest of another person in the exercise of a power or discretion which will affect the interest of that other person in a legal or practical sense is to be found by reference to the facts.[45] In Coomber v Coomber,[46] Fletcher Moulton LJ famously observed:

“Fiduciary relations are of many different types … There is no class of case in which one ought more carefully to bear in mind the facts of the case … than cases which relate to fiduciary and confidential relations and the action of the Court with regard to them.”

[255] The inquiry into the facts is concerned with matters of substance. Hence, as Finn J observed in Gibson Motorsport,[47] merely ascribing the label “joint venture” to a business relationship does not of itself render that relationship fiduciary for some or all of its purposes. In Edmonds v Donovan,[48] an authority upon which Waller placed particular reliance, the facts involved an agreed joint venture in which profits were to be shared concerning a particular project.

[256] An exemplar of a decision involving careful regard to the facts is United Dominions Corporation Ltd v Brian Pty Ltd.[49] The High Court considered a joint venture involving three parties, UDC, SPL and Brian. The three parties had been joint venturers in land development. UDC acted as the principal financier with the balance of the funds being provided by SPL and Brian. The percentage participation of each joint venturer had been set. By September 1973, the parties had each made substantial payments to SPL which was acting as the project manager for the development of the land. On 24 October 1973, before the joint venture agreement was concluded, SPC mortgaged the land to UDC as security for borrowings by SPL. UDC was aware that the land registered in the name of SPL was held by it in circumstances which required SPL to account to its intended partners. Two further mortgages, each of a subsequently acquired adjoining parcels of land, were executed by SPL in UDC’s favour. Unknown to Brian, the mortgages each contained a collateralization clause which had the effect of subjecting the land to debts incurred by SPL which were extraneous to the joint venture. The joint venture agreement was executed in July 1974. The land development realised a substantial profit but Brian did not receive from UDC either repayment of its contributions or its agreed share of the profit. UDC claimed to retain all profits because of the collateralization clauses and to apply the profits in reduction of amounts owing to it by reason of borrowings made by SPL in relation to two other projects with which Brian had no connection whatsoever. Default occurred under the mortgages and SPL went into liquidation. Brian contended that the collateralization clauses breached the fiduciary duty which UDC owed to it as a joint venturer.

[257] The joint judgment,[50] referencing a submission made on behalf of UDC that no fiduciary relationship existed between the prospective participants and the joint venture until such time as the joint venture agreement was executed, relevantly observed:[51]

“To the extent that that submission involves a general legal proposition that the relationship between prospective partners or joint venturers cannot be a fiduciary one until a formal agreement is executed, it is clearly wrong. A fiduciary relationship can arise and fiduciary duties can exist between parties who have not reached, and who may never reach, agreement upon the consensual terms which are to govern the arrangement between them. In particular, a fiduciary relationship with attendant fiduciary obligations may, and ordinarily will, exist between prospective partners who have embarked upon the conduct of the partnership business or venture before the precise terms of any partnership agreement have been settled. Indeed, in such circumstances, the mutual confidence and trust which underlie most consensual fiduciary relationships are likely to be more readily apparent than in the case where mutual rights and obligations have been expressly defined in some formal agreement. Likewise, the relationship between prospective partners or participants in a proposed partnership to carry out a single joint undertaking or endeavour will ordinarily be fiduciary if the prospective partners have reached an informal arrangement to assume such a relationship and have proceeded to take steps involved in its establishment or implementation.”

[258] The joint judgment then analysed the facts in the following way:[52]

“In the present case, the relationship between UDC, Brian and SPL had plainly assumed a fiduciary character prior to 24 October 1973 when SPL gave the first of the mortgages to UDC. 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. SPL 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. … 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.”

[259] Gibbs CJ relevantly reasoned as follows:[53]

“UDC was not a financier dealing at arm’s length with SPL and entitled to leave it to SPL to disclose the terms of the mortgage to the persons, including Brian, for whom SPL 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, UDC knew that it would be contrary to the understanding between the parties, later to be elevated into a formal agreement, if SPL 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 exists… there was, in the circumstances of the present case, a relationship between UDC 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.”

[260] The facts in UDC v Brian have been cited as an example of a “collaborative” or “horizontal” relationship to which the notion of mutual trust and confidence was readily able to be applied.[54] However, whether or not a relationship between joint venturers is fiduciary depends upon the form of the particular venture and the content of the obligations the parties are undertaking.[55] In Gibson Motorsport,[56] Finn J said:

“If there be trust and confidence present in a business relationship and if it be claimed that the trust and confidence is a building block in establishing that the relationship was a fiduciary one …. it must be shown that that trust was given, that that confidence was reposed, in a context which was capable of attracting, and did attract, a duty of loyalty. In a setting such as the present this would necessitate it being shown that, having regard in particular to what had been agreed and done and to what in consequence each party could properly anticipate would be done, their relationship was such that each could reasonably expect the others to act in their mutual interest to the exclusion of each’s own several interest in relation to at least a part or parts of the [subject matter] ….. Put shortly, if trust and confidence in another is to be relevant, it must relate to a reasonable expectation of loyalty.”

[261] Equity is less concerned with the classification of a relationship than it is with the substance of the relationship. The concern of equity is with whether the relationship is founded on “mutual trust and confidence” in a relevant sense, the critical question always being whether the transaction satisfies criteria which justify characterising the relationship between the parties as fiduciary.[57] In Birtchnell v Equity Trustees, Executors and Agency Co Ltd,[58]Dixon J considered a factual situation where there was an established partnership relationship involving a land agency business. After having stated that the relationship between partners was “of course, fiduciary” and noting an earlier observation to the effect that “a stronger case of fiduciary relationship cannot be conceived than that which exists between partners”, his Honour the observed:[59]

“The relation is based, in some degree, upon a mutual confidence that the partners will engage in some particular kind of activity or transaction for joint advantage only … The subject matter over which the fiduciary obligations extend is determined by the character of the venture or undertaking for which the partnership exists, and this is to be ascertained, not merely from the express agreement of the parties … but also from the course of dealing actually pursued by the firm. Once the subject matter of the mutual confidence is so determined, it ought not to be difficult to apply the clear and inflexible doctrines which determine the accountability of fiduciaries for gains obtained in dealings with third parties.”

[262] In News Limited v ARL,[60] the Court relevantly observed:

“In the end, an important question — if not the question — is whether, in the words of Professor Finn:

‘the actual circumstances of a relationship are such that one party is entitled to expect that the other will act in his interests in and for the purposes of the relationship. Ascendancy, influence, vulnerability, trust, confidence or dependence doubtless will be of importance in making this out, but they will be important only to the extent that they evidence a relationship suggesting that entitlement’.”

[263] In LAC Minerals v International Corona Resources,[61] La Forest J relevantly posed the question to be determined on the facts of that case as “whether the parties have reached a stage in their relationship where their expectations should be protected”. In the same case, Sopinka J, after referencing the recognition of a fiduciary relationship as a “blunt tool of equity,”[62] observed that the element which gives rise to fiduciary relationships is the “implicit dependency by the beneficiary on the fiduciary”, this condition moving equity to subject the fiduciary to its strict standards of conduct.[63] With reference to Tito v Waddell (No. 2),[64] Sopinka J said that it was important to recognise by way of caveat that the presence of conduct that incurs the censure of a court of equity in the context of a fiduciary duty cannot itself create the duty. In Tito, Megarry V-C had said:[65]

“‘If there is a fiduciary duty, the equitable rules about self-dealing apply: but self-dealing does not impose the duty. Equity bases its rules about self-dealing on some pre-existing fiduciary duty: it is a disregard of this pre-existing duty that subjects the self-dealer to the consequences of the self-dealing rules. I do not think that one can take a person who is subject to no pre-existing fiduciary duty and then say that because he self-deals he is thereupon subjected to a fiduciary duty’.”

[264] This caveat reflects an important principle because, if a fiduciary relationship exists, as was also acknowledged by Dixon J in Birtchnell, a fiduciary is regarded as falling under a heavy burden or duty to establish that any transaction in the nature of self-dealing is a righteous transaction, open and fair and free from all objection.[66] The righteousness of a transaction is often demonstrated by the fiduciary obtaining the beneficiaries fully informed consent. The heavy burden applies because of the existence of the fiduciary relationship, and the inflexible doctrines which determine the accountability of fiduciaries, not because of any independent concern about self-interested pursuit of business opportunities.

[265] In Gibson Motorsport, the appellants sought to characterise the relationship of negotiating parties as one of mutual trust and confidence where the parties had embarked on an enterprise without having settled the terms of a series of written agreements they contemplated making for the future conduct of their business. Notably, the relationships which the parties contemplated to exploit the business opportunity were ones based upon severally owned assets. That is, the relationship there being bargained for on the facts of that case was not one which of itself (or would have been) one having fiduciary characteristics. In that factual context, Finn J relevantly observed:[67]

“The use of the word ‘mutual’ here is unhelpful as it presupposes the answer to what actually was in issue: were each of the parties entitled in the circumstances to expect loyalty from the others and if so in what matters? Whatever may have been the courses open to be taken by the parties in defining their relationship given the business opportunity identified ….., that in fact taken and pursued was not one in which they established, or agreed to, mutual rights and obligations (or joint interests). The relationships they actually sought to establish in exploiting the business opportunity were ones based on severally owned assets, individual contracts and distinct business structures which served the several interests of the contractors. They may well have reposed a trust and confidence in each other reflecting an expectation that they could bring to an acceptable finalisation the various arrangements they had in contemplation. But that trust and confidence, if it was there, was not directed to the subordination of self interest to joint interest. There was nothing fiduciary about it.”

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A link to the full decision may be found here.

[33] [1984] HCA 64; (1984) 156 CLR 41, 96-7.

[34] Heydon, Leeming and Turner, Meagher, Gummow and Lehane’s Equity: Doctrines & Remedies, 5th Edition (“Meagher, Gummow and Lehane”) at page 141[5-005].

[35] Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41, 96.

[36] [2006] FCAFC 44; (2006) 149 FCR 569 at 574 [11].

[37] Ibid.

[38] Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41, 96-7.

[39] Ibid, 97.

[40] Ibid, 97.

[41] John Alexander’s Clubs Pty Ltd v White City Tennis Club Ltd [2010] HCA 19; (2010) 241 CLR 1, [86] and [87]; Meagher, Gummow and Lehane, 141 [5-005].

[42] Meagher, Gummow and Lehane at 152 [5-035].

[43] Hospital Products Ltd v United States Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41, 70.

[44] Ibid, 99-100.

[45] John Alexander’s Clubs Pty Ltd v White City Tennis Club Ltd [2010] HCA 19; (2010) 241 CLR 1, [88].

[46] [1911] UKLawRpCh 45; [1911] 1 Ch 723, 728-9.

[47] [2006] FCAFC 44; (2006) 149 FCR 569 at 571.

[48] [2005] VSCA 27; (2005) 12 VR 513 at [7].

[49] [1985] HCA 49; (1984-1985) 157 CLR 1.

[50] Mason, Brennan and Deane JJ.

[51] Ibid, 11-12.

[52] Ibid, 12-13.

[53] Ibid, 7-8.

[54] News Limited v ARL [1996] FCAFC 870; (1996) 64 FCR 410, 539-540.

[55] United Dominions Corporation Ltd v Brian Pty Ltd [1985] HCA 49; (1984-1985) 157 CLR 1, 11; News Limited v ARL [1996] FCAFC 870; (1996) 64 FCR 410, 540.

[56] [2006] FCAFC 44; (2006) 149 FCR 569, 574-575.

[57] News Limited v ARL [1996] FCAFC 870; (1996) 64 FCR 410, 538-539 citing B H McPherson (Joint Ventures) in PD Finn (ed) Equity and Commercial Relationships (1987) at pp 35-36.

[58] [1929] HCA 24; (1929) 42 CLR 384 at 407.

[59] Ibid at 407-408.

[60] [1996] FCAFC 870; (1996) 64 FCR 410, 541.

[61] [1989] 2 SCR 574, 668.

[62] Ibid, 595.

[63] Ibid, 600.

[64] [1977] 3 All E.R. 129.

[65] Ibid, 232.

[66] Maguire v Makaronis [1997] HCA 23; (1996-1997) 188 CLR 449, 465.

[67] Gibson Motorsport Merchandise Pty Ltd v Forbes [2006] FCAFC 44; (2006) 149 FCR 569, 575 [13].

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