Case: Beach Petroleum NL v Kennedy [1999] NSWCA 408 ; (1999) 48 NSWLR 1
Outcome: followed
The subject matter over which any fiduciary obligations will extend must be determined by the character of the venture or undertaking: see Birtchnell v The Equity Trustees, Executors and Agency Company Limited [1929] HCA 24 ; (1929) 42 CLR 384 at 408 per Dixon J; United Dominions v Brian at 13 per Mason, Brennan and Deane JJ; News Limited at 539 per Lockhart, von Doussa and Sackville JJ. This is to be ascertained from the terms of the agreement and the course of dealing between the parties: see News Limited at 539 per Lockhart, von Doussa and Sackville JJ; Australian Breeders Co-operative Society Limited v Jones (1997) 150 ALR 488 at 514 per Wilcox and Lindgren JJ; Beach Petroleum NL v Kennedy [1999] NSWCA 408 ; (1999) 48 NSWLR 1 at [194] per Spigelman CJ, Sheller JA and Stein JA. 289 The distinguishing or over-riding duty of a fiduciary is the obligation of undivided loyalty: see Gibson Motorsport Merchandise Pty Limited v Forbes [2006] FCAFC 44 ; (2006) 149 FCR 569 at [11] per Finn J; Beach Petroleum at [201] per Spigelman CJ, Sheller JA and Stein JA; Bristol and West Building Society v Mothew [1998] Ch 1 at 18 per Millett LJ. 313 Further support may be found in the discussion of the authorities by the New South Wales Court of Appeal in Beach Petroleum at [199] [206] per Spigelman CJ, Sheller JA and Stein JA. The duty of a fiduciary is one of undivided loyalty. The "no conflict" rule is based on practical considerations and recognises that the fiduciary's over-riding duty may be swayed by a conflicting interest. The existence of a Chinese wall cannot, of itself, overcome the prohibition against a fiduciary acting at the same time both for and against the same client. Indeed, it exposes the vice to which Professor Finn referred. 314 However, as the UK Law Commission observed, a financial conglomerate may obtain protection against any allegation of breach of the duty of loyalty if the client consents to the company carrying on business using Chinese walls as part of its organisational structure. The extent of the duty of loyalty would then be determined according to the contractual arrangements between the parties: see Law Commission Consultation Paper at [4.5.1]. 335 It is true, as Frankfurter J said in Securities and Exchange Commission v Chenery Corporation 318 US 80 (1942) at 85, that "to say a man is a fiduciary only begins the analysis": see the citation in Beach Petroleum at [185] per Spigelman CJ, Sheller JA and Stein JA. But it is otherwise where the parties acknowledge that they are not in a fiduciary relationship. In my view, those words mean what they say and should be enforced accordingly, unless the mandate letter was vitiated as a matter of law. 365 Brickenden has been followed in this Court in CBA v Smith at 394 per Davies, Sheppard and Gummow JJ. It has also been followed and explained by the New South Wales Court of Appeal in Beach Petroleum at [435] [450] per Spigelman CJ, Sheller JA and Stein JA. 366 Their Honours said in Beach Petroleum at [444] that Brickenden is not authority for the general proposition that in no case involving breach of fiduciary duty may a court consider what would have happened if the duty had been performed. This is because Brickenden is now to be understood in light of the decision of the House of Lords in Target Holdings Limited v Redferns [1996] 1 AC 421. Their Lordships there said at 439 that causation is to be determined using commonsense and hindsight: see Beach Petroleum at [432] per Spigelman CJ, Sheller JA and Stein JA. I respectfully agree with the views of the Court of Appeal. 368 I do not need to decide the issue of causation. ASIC's submissions assumed, contrary to my finding, that Citigroup and Toll were in a fiduciary relationship. Whilst the issue of causation does not need to be determined, it seems to me that in light of the observations of the New South Wales Court of Appeal in Beach Petroleum , ASIC's submission that "the expectations, or inclination to give permission of the beneficiary Toll are irrelevant", should be rejected. 369 ASIC alleges five separate breaches of fiduciary duty by Citigroup. These claims fail because I have come to the view that Citigroup was not in a fiduciary relationship with Toll. Nevertheless, I will address each of the five alleged conflicts because there are other reasons why those claims would fail even if Citigroup did owe fiduciary duties to Toll. 370 I will deal with the five "conflicts" in the order in which they were pleaded. All of them are said to be conflicts of interest and duty.