FEDERAL COURT OF AUSTRALIA

Admiralty - action in rem seeking warrant for arrest of a ship - joint venture to fund a commercial fishing operation - defendants withdrew ship from the joint venture - whether contractual right to do so - construction of the contract.

Words and Phrases - meaning of “jointly” and “satisfied” - whether “satisfactory” to the defendants or to all the joint venturers.

Equity - joint ventures - whether relationship fiduciary.

Harward v Hackney Union (1898) 14 TLR 306 - appl.

Everett v Griffiths [1921] 1 AC 631 - cited

Meehan v Jones (1982) 149 CLR 571 - foll.

Walker v Hirsch (1884) 27 Ch. D. 460 - cons.

United Dominions Corporation Ltd v Brian Pty Ltd (1985) 157 CLR 1 - foll.

Noranda Australia Ltd v Lachlan Resources NL (1988) 14 NSWLR 1 - foll.

PHILIP KORYAR, ELMA KORYAR AND JOHN CLARKE TRADING AS “PHILMA EXPORT FISHERIES CO” V DONALD N PERRY AND GRAHAM S ALLEN

NG 756 OF 1997

REASONS FOR JUDGMENT (NO. 2)

JUDGE:          BEAUMONT J.

PLACE:          SYDNEY

DATE:            4 DECEMBER 1997

ORDERS:

1.         Order that the separate question be answered as follows:

Question:          What is the meaning of clause 3 in the joint venture agreement?

Answer:            The defendants were at liberty to decide, in their own interests, to withdraw the “Tiwi Pearl” from the joint venture provided they both so decided and acted honestly in doing so.

2.         Plaintiffs pay the defendants’ costs of the separate question.

Note:                Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

REASONS FOR JUDGMENT (NO. 2)

(on the separate question)

BEAUMONT J:

INTRODUCTION

The plaintiffs, Phillip Koryar, Elma Koryar and John Clarke, trading as “Philma Export Fisheries Co”, have brought an action in rem in Admiralty seeking a warrant for the arrest of the ship “Solomon Pearl” (formerly known as “Tiwi Pearl”).  According to a certificate dated 7 August 1996 given under the Shipping Registration Act 1981, the registered owner of the ship is the first defendant, Donald Netterville Perry.

The plaintiffs’ claim in this matter is described by Mr Clarke in his affidavit sworn on 16 September 1997 as follows:

·        By a Joint Venture Agreement dated 21 August 1996, the plaintiffs and the defendants entered into a joint venture to fund a commercial fishing venture in the waters of the Solomon Islands and to market the products caught, upon the terms provided in the Joint Venture Agreement, a copy of which is annexed to these reasons.

·        At the time of execution of the Joint Venture Agreement, the parties also executed a Charter Agreement and a Fishing Agreement both dated 21 August 1996, by which the parties agreed to a charter of two vessels, including the “Tiwi Pearl”, for a period of twelve months “for an agreed price of $1 annually... payable in arrears”.

·        The plaintiffs claim that the defendants did not supply the “Tiwi Pearl” to the joint venture as agreed in the Joint Venture Agreement.  The defendants, on the other hand, do not dispute that they withdrew the ship from the joint venture, but they assert that they had a contractual right to do so.

THE SEPARATE QUESTION

Clause 3 of the Joint Venture Agreement provides as follows:

“3.       Perry/Allen shall have the right to retain ownership of the fishing vessels and equipment and are at liberty to withdraw their vessels and equipment if not jointly satisfied.”

The defendants now rely, inter alia, on the provisions of cl 3 as a complete answer, they say, to the plaintiffs’ claim.  The plaintiffs, for their part, argue that the word “jointly” in the phrase “jointly satisfied” in cl 3, is a reference to the joint venturers as a whole and not merely a reference to the defendants jointly.

It has been ordered, by consent, that the meaning of cl 3 be determined as a separate question.

CONCLUSION ON THE MEANING OF CLAUSE 3

In my opinion, the purpose, language, structure and context of cl 3 all clearly indicate that the joint satisfaction in question is that of the defendants, rather than the satisfaction of the joint venturers as a whole.

In my view, if the word “jointly” had not appeared in cl 3, it would have been clear that the state of satisfaction in question was intended to be that of the defendants.  The structure of the sentence makes that clear.  What work then was the word “jointly” intended to perform?  In my view, it was intended to make plain that both of the defendants had to be dissatisfied before their liberty to withdraw could be exercised.  In other words, it was intended to remove any possible room for argument that the liberty could be exercised severally, that is, by either of them (see, as to the meaning of “joint”, Stroud’s Judicial Dictionary, 5th ed. at 1367).  Put differently, the use of “jointly” was intended to make it clear that this liberty should not be construed distributively.  The consequence is that if both defendants were not “satisfied”, they could not withdraw. 

The evident purpose of the provisions of cl 3 supports this interpretation.  It would make no sense to purport to confer a “liberty” on all of the joint venturers to withdraw the vessel when only the defendants owned them.  Clause 3 is clearly designed to protect the interests of the defendants.

The next point to be determined then is the meaning of  “satisfied” in cl 3.

The primary dictionary meanings (Macquarie Dictionary) of the transitive verb “satisfy” are:

“1.       to fulfil the desires, expectations, needs, or demands of, or content (a person, the mind etc.);  supply fully the needs of (a person etc.).  2. to fulfil (a desire, expectation, want, etc.)...”

As an intransitive verb, “satisfy” means “to give satisfaction”.  The primary meanings of “satisfaction” are:

“1.  the act of satisfying.  2.  the state of being satisfied.”

The present context indicates, in my view, that the words “not satisfied”, here used intransitively, were intended to mean that the joint venture had not fulfilled the defendants’ desires or expectations of the venture.

What implications, if any, should the law make in this regard?  It is convenient to consider first the position at common law.  Ordinarily, such a provision is construed in subjective, not objective, terms but subject to a requirement of honesty in deciding whether there is a state of satisfaction.  In Harward v Hackney Union (1898) 14 TLR 306, legislation conferred certain powers upon an officer if “satisfied that it is necessary for the public safety or the welfare of the [person concerned]...”.  A L Smith LJ said (at 307):

“The section said nothing about its being the duty of the relieving officer to take reasonable care to satisfy himself that it was necessary to remove the [person].  It said simply that he was to be satisfied that it was necessary to take that course.  To say that he must be honestly satisfied was only another way of saying that he must be in fact satisfied.  A dishonest satisfaction would be no satisfaction at all”.

The approach taken in Harward was followed in Everett v Griffiths [1921] 1 AC 631 (per Viscount Haldane at 660;  per Viscount Finlay at 666;  per Viscount Cave at 678-679;  per Lord Atkinson at 692;  per Lord Moulton at 696-697).

A similar approach was taken in Meehan v Jones (1982) 149 CLR 571 where a contract for the sale of land was executed subject to a condition that the purchaser receive approval for finance on “satisfactory” terms.

Gibbs CJ said (at 580-581):

“The intention of such a clause... is to leave it to the purchaser himself to decide whether the terms... are satisfactory.  The condition prevents a purchaser from being obliged to go through with a sale when he does not believe that he can raise the necessary funds.  Such a condition is generally entirely for the protection of the purchaser, not that of some hypothetical reasonable man.... No doubt it may be implied that the purchaser will act honestly in deciding whether or not he is satisfied.”

Mason J held (at 588, 592) that since the object of the condition was to protect the purchaser, “satisfactory” meant “satisfactory to the purchaser” and not “satisfactory to both parties”.

I turn next to the position in equity and, in particular, to consider whether, by virtue of the description of the relationship as a "joint venture", and the application of equitable principles, there is any relevant equitable obligation imposed by implication upon the defendants in connection with the exercise by them of their right to withdraw under cl 3. 

In Walker v Hirsch (1884) 27 Ch. D. 460 (at 468-470), Cotton LJ identified the concrete terms of the agreement, fairly construed, as the primary source in ascertaining the scope of the fiduciary duties owed by parties in dealing with each other, rather than adopting an abstract classification of the relationship as either a "joint venture" or a "partnership" (see B.H. McPherson, "Joint Ventures" in "Equity and Commercial Relationships" (P.D. Finn ed.) at 26). 

Further guidance is given in United Dominions Corporation Ltd v Brian Pty Ltd (1985) 157 CLR 1, where Mason, Brennan and Deane JJ said (at 11):

“...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.”

Thus, in considering a resources joint venture in Noranda Australia Ltd v Lachlan Resources NL (1988) 14 NSWLR 1, Bryson J said of a clause providing for the sale or assignment of an interest in the joint venture (at 17):

            “...there is a need to give full effect to cl 14 and in doing so to see that there are limits between the ambit of matters for which there are or could be fiduciary obligations, and the ambit of matters for which a member, as the owner of his own interest, has no such obligations but may treat his interest as a piece of property to be used for its own benefit in the same way as other property which it owns.”

As one commentator has noted, where the terms of the contract provide that the alleged fiduciary is able to make decisions entirely in terms of his self-interest, this will preclude a finding that, in this respect, a fiduciary relationship exists, even if the contract is one that is expressly stipulated to be fiduciary in nature (see I Renard, "Fair Dealing and Good Faith" in "Courts of Final Jurisdiction" (C. Saunders ed.)  at 79).

In my opinion, those observations are equally applicable to a provision such as cl 3 (see also Cummings v Lewis (1993) 113 ALR 285 per Cooper J at 312-314).

I now summarise the foregoing interpretation of cl 3 as follows:

In my opinion, the defendants were at liberty to decide, in their own interests, to withdraw the “Tiwi Pearl” from the joint venture provided they both so decided and acted honestly in doing so.

ORDERS

I order that the separate question be answered in accordance with these reasons for judgment. 

I further order that the plaintiffs pay the defendants’ costs of the separate question.

Associate:

Dated:              4 December 1997