Stellar Vision Operations Pty Ltd v Hills Health Solutions Pty Ltd

THE COURT: The appellant (Stellar) appeals from a judgment (the primary judgment or PJ) of Ward CJ in Eq (primary judge), as the President then was, sitting in the Equity Division, dismissing proceedings brought by Stellar against the respondent (Hills) in which Stellar claimed:

For the reasons which follow, the appeal must be allowed, the orders of the primary judge set aside and a judgment for damages entered in favour of Stellar.

The primary judgment is extensive. It is not necessary to recount in full the primary factual findings made by the primary judge. Her Honour’s factual findings are not challenged. What is challenged are her Honour’s characterisations of, and the legal conclusions drawn by her Honour from, those findings.

The facts below are those which the Court considers material to the disposition of the appeal.

Stellar was formed in 2012 to market an in-flight entertainment system for “fly-in-fly-out” mine workers. However, in 2013, Stellar started developing bedside hospital entertainment systems, commonly referred to as Patient Entertainment Systems (or PES). Stellar is associated with a group which supplies in-flight entertainment systems.

Questek Australia Pty Ltd (Questek) was a company which specialised in providing nurse call systems for hospitals and aged care homes. Questek was part of a group called the Brighton Technology Group. From 2012, it too moved into the area of supplying PES to hospitals.

In their mutual dealings, Stellar was principally represented by Mr Brendan McCarthy (McCarthy), its Chief Executive Officer, and Questek was principally represented by Mr Daniel Linderman (Linderman), a technical and sales representative whose designation at some point was National Infotainment Manager. In technical matters, McCarthy was assisted by Dr Abul Rahman (Rahman), an engineer and Stellar’s Chief Technical Officer. Mr Bryan Curtin (Curtin) was a consultant to Stellar.

In February 2013, Linderman approached McCarthy with a view to Stellar and Questek working together to provide PES to hospitals.

The first enterprise in which they became associated was the possible supply of PES to a Brisbane hospital operated by Queensland Children’s Health (QCH). Questek successfully tendered for the supply of PES to QCH but Questek did not have its own PES. Linderman asked Stellar to provide a working model of PES for a demonstration at QCH. At or about this time, Stellar and Questek started discussing the possibility of entering into a joint venture. Questek had experience and a reputation working on government contracts and doing installation of hardware in hospitals. It would provide the hardware and Stellar would provide PES content and software.

Following negotiations between them, the detail of which is not necessary to recount, on 23 May 2013, Stellar and Questek entered into a written agreement entitled “Outline of Agreement”, under which Stellar agreed to provide the software for the PES to be provided to QCH. It is appropriate to set it out in full:

Notable features of the Outline of Agreement include that Stellar would provide the software and Questek acknowledged that it was Stellar’s fiduciary with respect to the technical know-how and intellectual property which Stellar was allowing Questek to use. Stellar granted exclusivity to Questek for use of its software until both parties had met to identify future cooperation or up to 12 months from the date of signing the Outline of Agreement and the parties agreed (but in non-binding fashion) to enter into bona fide discussions to develop the concept of working exclusively with each other on a project-by-project Joint venture arrangement for mutual benefit.

On 11 June 2013, McCarthy, Linderman and Rahman conducted an onsite demonstration of Stellar’s PES for QCH. Thereafter, Stellar and Questek continued to work together on that project.

For most of the remainder of 2013, Stellar and Questek had discussions about other requests for tender and possibly entering into a joint venture. These included a meeting on 27 June 2013 where they discussed the work required to submit joint tenders and where each potential project was referred to as a “bucket” to which each party would contribute. They also included discussions about the possibility of Stellar acquiring an equity stake in Questek.

On 25 September 2013, HealthShare NSW (NSW) (a State Government instrumentality) issued a written Request for Proposal (RFP) for the supply of PES to the Western Sydney Local Health District (referred to throughout this judgment as WSLHD) for use in its hospitals at Auburn, Westmead, Blacktown and Mount Druitt. An addendum to the RFP was issued on 18 October 2013. Linderman sent both documents to McCarthy. The RFP is a substantial document requiring a tenderer to provide a significant amount of information.

Stellar and Questek worked together to respond to the RFP. Linderman was given shared access to technical specifications information being put together by McCarthy and Rahman for the purpose of responding to the RFP.

On 9 October 2013, Linderman and McCarthy had a conversation, during which Linderman referred to the fact that a proposal could only be submitted under the banner of one party and in which he said that until such time as they had a joint venture company up and running, they should just list Questek as the nominee party for their joint venture because they had all the proper accreditation and experience with hospitals. He also said that they would brand everything with both Stellar and Questek logos and that he would leave “them” (presumably meaning WSLHD) in no doubt whenever he spoke with them that this was a joint Stellar and Questek bid and should be treated as such. According to McCarthy, he responded to the effect that everyone on the procurement end knew who Stellar was and what they did and knew what their stake was in the bid, which was “ok” with them.

On 24 October 2013, Questek responded to the RFP. The response was sent under cover of a letter signed by Linderman on behalf of Questek on a letterhead which had the following header:

Under the heading “Executive Summary”, Questek wrote, amongst other things, the following:

The letter included a photograph of a proposed PES terminal (reminiscent of a small television or computer screen). Amongst others, on the screen were the words “Stellar Vision”. The letter included a heading “Tender Documentation”, under which documentation was identified. It is not in issue that some of this was prepared by Stellar.

The tender response required provision of information about the tenderer’s capacity to perform and the human resource levels that would be available to perform the services being tendered for. It required the tenderer(s) to state the number of years they had “been in business under their present constituted form” and to state the human resource levels that would be available to do so. It also required the tenderer(s) to state its annual turnover. In answer to these requests, the response said respectively (erroneous spelling of Stellar not corrected):

Linderman and McCarthy made a presentation at Westmead Hospital on 11 November 2013 at which Linderman made reference to the fact that it was a joint bid combining the individual strengths of Stellar and Questek. There was a PowerPoint presentation which included slides referring to both Stellar and Questek.

Hills is a public company whose shares are listed on the Australian Stock Exchange (ASX). At the times material to this dispute, Ms Peta Jurd (Jurd) was an executive director. Mr David Starkey (Starkey) was Divisional Commercial Finance Manager.

Hills proposed to buy Questek’s business. To that end, from about November 2013, it conducted due diligence on Questek which included due diligence on the tender to WSLHD. This process included a meeting on 21 January 2014 between Stellar, Questek and Hills at which Jurd apparently requested a demonstration of Stellar’s PES. A demonstration was given on 30 January 2014.

On 5 February 2014, NSW notified Linderman on behalf of Questek that Questek had been selected as the preferred supplier for WSLHD, subject to a signed agreement. Questek immediately informed Hills of this.

On 26 February 2014, a meeting took place between NSW representatives, McCarthy and Linderman, at which McCarthy referred to the fact that the tender was a joint submission and requested the tender entity to be changed to a joint venture entity when it was formed. The following day, he wrote to Linderman, amongst others about changing the entity. Linderman responded on the same day that he could not ask to change the contract details without having any details to change to but said that “they were all keen to move ahead with the JV but until hills [sic] are in or out we will need to sit tight”.

On 13 March 2014, there was another meeting at which Linderman, Jurd, Curtin and Mr Mark White (White) of Hills were present. White asked of Stellar, “What makes you think you have an interest in the Western Sydney tender?” to which Mr Curtin responded that Stellar submitted the tender jointly with Questek under an agreement that the contract would be entered into by the joint venture; that this was in compliance with the Outline of Agreement reached with Questek under which Stellar and Questek agreed to work together in a project-by-project joint venture arrangement; that Stellar in fact wrote the tender response based on Stellar’s software; and that the tender had Stellar’s name all over it. Curtin further said that Questek had simply acted as a facilitator given its existing relationship with the client.

Jurd said that instead of a joint venture, they would put in place a structure where Stellar got the same financial outcome, that they were about to finalise the deal with Questek and were completing the final legal documents and needed Stellar to sign a letter.

Between 13 and 24 March 2014, Stellar and Hills negotiated an instrument (the Undertaking), the final form of which was a letter from Hills to Stellar bearing the date 13 March 2014 and which, it is common ground, was countersigned on behalf of Stellar on 24 March 2014. It is necessary to set it out in full.

On 3 April 2014, Hills, Brighton Technology Group, Questek and others entered into a Business Purchase Agreement (Purchase Agreement) under which Hills purchased, relevantly, all of Questek’s right, title and interest in its assets and business.

Under cl 3.1, completion was conditional upon parties to Key Contracts with Questek consenting in writing to the novation of them to Hills. Key Contracts were listed in a schedule and included the Outline of Agreement. The Purchase Agreement made provision for Hills to take over Questek’s employees engaged in the business as at the completion date. It also provided for payments to be made to Key Persons as consideration for them entering into Non-Compete Deeds. Linderman was identified as a Key Person. He became employed by Hills as National Sales Manager – Patient Entertainment.

Under cl 19, each seller (including Questek) represented and warranted that each Warranty given was correct and not misleading on the date of the Purchase Agreement. The Warranties included what the Purchase Agreement defines in cl 1.1 to be Business Warranties, which are contained in Part B of schedule 9 to the Purchase Agreement. Paragraph 18 of that schedule included a Warranty that information in the Disclosure Material was complete, correct and not misleading in all respects. Disclosure Material is defined in cl 1.1 to include matters specifically disclosed in the Due Diligence Materials which in turn is defined to include materials listed in Part B of schedule 10. Schedule 10 includes an item described as “Stellar QT current relations.pdf”. That document sets out information as to the status of various tenders. In relation to WSLHD, it says:

On 2 April 2014, Hills made an ASX announcement via media release. It is appropriate to set it out in full.

Hills had an existing relationship with an organisation called Lincor which, according to Hills, had the ability to deliver the services which it had been contemplated would be provided by Stellar for the WSLHD project.

By 12 May 2014, it was in contemplation by Hills that Stellar might be replaced by Lincor with respect to WSLHD.

Nevertheless, following Hills’ acquisition of Questek’s business, Stellar continued to work on the WSLHD project.

To Hills’ knowledge, from April 2014 until at least November 2014, Rahman and others from Stellar worked to develop the software architecture, system design and services architecture for the WSLHD project. McCarthy and Linderman worked together to source hardware. Rahman’s development team spent an estimated 80% of its time on customisation of Stellar’s core software for use on the WSLHD project. Rahman (in fact) continued to work on the project until late February 2015.

On 13 May 2014, Curtin met Jurd in the context of the requirement in the Undertaking to commence negotiations to draft an agreement that suited both parties for a long-term relationship. Jurd said to him that there was no rush to formalise the agreement between them while they were waiting for the contract with NSW to be signed.

On 27 May 2014, Linderman emailed Jurd and Starkey. He said:

On 5 June 2014, Hills and Lincor entered into an Exclusive Distribution Agreement.

On 3 July 2014, McCarthy emailed Hills requesting that both Questek and Stellar be parties to the proposed contract with NSW. On 15 July 2014, Hills declined the request. Following this, a conversation between McCarthy and Linderman to the following effect took place:

On about 21 July 2014, Hills ceased work on the QCH project.

On 25 July 2014, Linderman forwarded to McCarthy a copy of a draft contract for the WSLHD project. Whereas Questek had been the contracting party in previous drafts, now Hills was the contracting party. Stellar was involved in the review of this draft. Curtin made comments on it in an email dated 2 September 2014.

In August and September 2014, Stellar and Hills collaborated on a joint financial value model to value the WSLHD contract. In particular, a model (called the 9 September Model) was brought into existence. It was revised on 16 September 2014 to include an additional item for Stellar’s software licensing fees.

Earlier, on 8 September 2014, McCarthy, Starkey and Linderman had attended a meeting organised by WSLHD at which a WSLHD representative expressed some concern that the WSLHD contract had not been finalised. At the meeting, McCarthy and Linderman confirmed that Stellar and Hills were ready and committed to the project.

On 7 October 2014, Jurd sent an email to Curtin stating, amongst others, that Hills required a review of the software package being proposed by Stellar. The email said:

Curtin’s email response on 9 October 2014 was:

On 27 November 2014, Stellar demonstrated the operation of the then current version of its PES at Hills’ office. Thereafter, there were communications between Stellar and Hills about a further demonstration. It is plain that, by this time, Hills had in contemplation proceeding with Lincor and not Stellar.

In an internal document brought into existence on about 10 December 2014, Linderman wrote:

On 16 December 2014, Linderman emailed Jurd: “As they still don’t have the proposed terminal and in light of the ethical issues what would we like to do from a legal point?” and she responded: “Once we align with WSLHD we will terminate our association with Stellar. We can’t risk them going behind our back again.” In an email later that day, Jurd corrected the word “align” to “sign”.

A further demonstration by Stellar of the PES took place at its office on 22 December 2014. By all accounts, the demonstration was not successful. Who was at fault was a matter of contention, which it is not necessary to resolve.

On about 23 December 2014, Hills and WSLHD executed a Deed of Agreement for the supply of a PES for a contract period of 10 years plus an optional extension of 60 months.

On 31 December 2014, Jurd sent Curtin a letter stating that there was no contract between Stellar and Hills or conduct “enforceable as such” and that at no time had there been any agreement with Hills. She informed Stellar that Hills would not be proceeding further with considering Stellar to be the software supplier for the project.

At trial, Stellar framed its case variously (or alternatively) as:

On appeal, Stellar ultimately did not press its contentions of trust and estoppel on the basis that neither added to the relief claimed on the bases of contract and fiduciary relationship.

The primary judge found that the Acknowledgement and Agreement did not constitute a binding contract between Stellar and Hills and that they were not in a fiduciary relationship.

At trial, Hills contended that if the Undertaking was binding, Stellar had repudiated it. This submission did not find favour with the primary judge. Hills did not file any Notice of Contention.

It was not put by Hills that if the Acknowledgement and Agreement (or the relevant part of it) was binding, or if Stellar and it were in a fiduciary relationship, it did not breach it.

It follows that on the question of liability, only two issues arise for consideration, namely, whether or not the findings of the primary judge were correct that the Acknowledgement and Agreement was not binding and that the parties were not in a fiduciary relationship.

With respect to damages, the primary judgment left open the final calculation of the damages suffered by Stellar (assuming liability of Hills). The Notice of Appeal raises three matters, two of which were agreed by the parties during the hearing of the appeal. Only one question with respect to the quantification of damage remains, namely, the timing and costs of future PES terminal replacements.

We deal first with whether the Acknowledgement and Agreement was binding.

The primary judge’s dispositive reasoning on Stellar’s claim in contract was:

As well, the primary judge said:

The primary judge’s reference (at PJ [526]) to the “nub of the problem”, being Stellar’s recognition that absent a joint venture agreement, it was left with a 50/50 joint venture (which was never finalised), is evidently a reference to Curtin’s response in his 9 October 2014 email: see [46].

Whether parties intend to create binding legal relations is ascertained objectively, that is, by determining whether a reasonable person in the position of the parties would have taken them to have intended to contract. The presence (or absence) of that intention is fact-based, to be found in all the circumstances, including by drawing inferences from their words and their conduct in making their agreement. In ascertaining their intention, whether from a series of communications or from a single document, regard can be had to the commercial circumstances in which the parties exchanged their communications and to the subject matter of the supposed contract: Sagacious Procurement Pty Ltd v Symbion Health Ltd (formerly Mayne Group Ltd) [2008] NSWCA 149 at [69] (“Sagacious”); Allen v Carbone (1975) 132 CLR 528 at 532; [1975] HCA 14; Hospital Products v United States Surgical Corp (1984) 156 CLR 41 at 61 (Gibbs CJ); [1984] HCA 64 (“Hospital Products”); Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540 at 548-9 (“ABC”); Branir Pty Ltd v Owston Nominees (No 2) Pty Ltd (2001) 117 FCR 424; [2001] FCA 1833 at [369] (Allsop J); Ermogenous v Greek Orthodox Community of SA Inc (2002) 209 CLR 95; [2002] HCA 8 at [25]; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165; [2004] HCA 52 at [38], [40]; Mount Bruce Mining v Wright Prospecting Pty Ltd (2015) 25 CLR 104; [2015] HCA 37 at [110]-[113]; Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd (2017) 261 CLR 544; [2017] HCA 12 at [16].

There is a type of case illustrative of the requirement for parties to intend to effect legal relations where, whether they are bound, turns on whether they intended to be bound immediately (by an oral agreement or an informal written one) or did not intend to make a concluded bargain unless and until they executed a formal instrument. This category of cases is often referred to as a Masters and Cameron after the leading decision in Masters v Cameron (1954) 91 CLR 353 at 360; [1954] HCA 72 in which the High Court identified the following three categories of such cases: first, where the parties reach finality in arranging all the terms of their bargain and intend immediately to be bound but propose to have the terms restated in a form which would be fuller or more precise but not different in effect; second, where the parties have agreed upon all the terms of their bargain and intend no departure from or addition to their agreed terms but have made performance of one or more of the terms conditional upon the execution of a formal contract; and third, where they do not intend to make a concluded bargain at all unless or until they execute a formal contract.

Subsequent cases have spoken of a fourth category, namely, where parties enter into an immediately binding agreement on certain specified terms and on such other terms as are either subsequently agreed by the parties or able to be determined by the Court: Baulkham Hills Private Hospital Pty Ltd v GR Securities Pty Ltd (1986) 40 NSWLR 622 at 627; Helmos Enterprises Pty Ltd v Jaylor Pty Ltd [2005] NSWCA 235 at [25]; Sagacious at [67]; Harold R Finger & Co Pty Ltd v Karellas Investments Pty Ltd [2016] NSWCA 123 at [69].

The existence of matters of importance on which the parties have not reached consensus in their informal agreement will render it less likely that they intended immediately to be bound before the execution of a formal document. That the terms have not been fully or well stated is material to whether a contract has been made. The more important the term, the less likely it is that the parties will have left it over for future decision, but there is no legal obstacle which prevents the parties agreeing to be bound now while deferring important matters: Geebung Investments Pty Ltd v Varga Group Investments No 8 Pty Ltd [1995] NSWCA 166; (1995) 7 BPR 14,551 at 14,579; ABC at 548; Sagacious at [73]; Feldman v GNM Australia [2017] NSWCA 107 at [60]-[61].

Regard may be had to the parties’ subsequent communications and other conduct to assess whether it was in their contemplation that they were not to be bound until all the essential preliminaries had been agreed to or until the formal contract had been drawn up embodying all the matters incidental to the transaction: ABC at 547-8 and the authorities cited there; Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153; [2001] NSWCA 61 at [25]; Howard Smith and Co Ltd v Varawa (1907) 5 CLR 68 at 78; [1907] HCA 38; B Seppelt and Sons Ltd v Commissioner for Main Roads (1975) 1 BPR 9,147 at 9,155; Sagacious at [99].

The thrust of the primary judge’s reasoning appears to be that the parties did not intend to be bound by any part of the Acknowledgement and Agreement and that they intended to be bound in connection with the WSLHD project (and or for that matter, the other projects in Annexure A and any other future projects) by way only of the contemplated subsequent formal, written agreement for a long-term relationship. The primary judge considered that how the parties would share 50/50 in the gross profits of the project remained to be agreed. Her Honour appears to have equated the reference to a written agreement for a long-term relationship (in the final paragraph of the Undertaking) with a joint venture agreement, although the Undertaking does not in terms refer to a joint venture agreement. It is also to be recalled that on 13 March 2014, Hills had conveyed that it did not want a joint venture but that there would be an arrangement, which from Stellar’s perspective, would have the same financial outcome: see [26]-[27].

Her Honour considered the Acknowledgement and Agreement not to have any binding effect of its own and placed it into the third category in Masters v Cameron.

Her Honour’s reasoning, and the conclusion to which it leads, are, in our view, at odds with the objective features of the Acknowledgement and Agreement viewed in the context of the Undertaking as a whole, the commercial circumstances in which it was entered into, and the parties’ evident aims and expectations as revealed by the Undertaking and those commercial circumstances.

The Acknowledgement and Agreement uses the language of contract. It is an express agreement that Hills and Stellar would honour the intent of previous discussions. Those discussions were those that had occurred less than two weeks earlier on 13 March 2014. The Acknowledgement and Agreement elevated what may previously have been intent, to an undertaking to honour. It was the parties’ evident aim and expectation that that intent would be honoured, not that they could simply choose to dishonour it.

Hills required Stellar to formally sign and accept the Undertaking as a whole, which Stellar did, an indication that the Undertaking was intended to be binding.

The Undertaking covers three distinct subjects: first, the QCH project; second, tenders which had been submitted jointly by Questek and Stellar and identified in Annexure A; and, third, a formal agreement for a long-term relationship.

There is a plain separation, conceptual and practical, between the first and second subjects on the one hand and the third on the other. The QCH project was already on foot and the parties had already jointly tendered for the Annexure A projects (including WSLHD). The long-term relationship contemplated to be embodied in a formal agreement (as referred to in the final paragraph of the Undertaking) was another subject. It was not needed for either the QCH project or the Annexure A ones. They were not dependant on the entry into of a long-term relationship agreement.

Importantly, Hills conceded that that part of the Undertaking which deals with the QCH project is binding, which it plainly is. There is no discernible, logical or rational commercial reason why Stellar and Hills would have intended their agreement so far as it dealt with QCH to be binding but not so far as it dealt with WSLHD. This is especially so as the topics were dealt with in one and the same paragraph of the Acknowledgement and Agreement.

The acknowledgement in the Undertaking that the Annexure A tenders had been submitted as joint tenderers was plainly not dependent on the subsequent execution of a formal, long-term relationship and was self-evidently to be of immediate effect in relation to tenders which were already on foot.

This is reflected in the fact that, to Hills’ knowledge, Stellar continued to work on the development of the software for the WSLHD project for many months and that Hills saw fit to disclose to the market by way of ASX release that it had a partnership with Stellar. Whether or not that was accurate as a matter of strict legal technicality or characterisation, and on the assumption that Hills was not intending to mislead the market, the disclosure was confirmatory of Hills’ intent to be bound by those parts of the Undertaking relating to QCH and the projects referred to in Annexure A, including the WSLHD project. Linderman’s reference to “their [Stellar’s] share of the contract” in his email of 27 May 2014 noted at [38] is equally telling in this respect.

Paragraphs 1 to 5 of the Acknowledgement and Agreement provide in precise terms for contributions to be made, things to be done and profits to be shared in relation to projects where there had already been joint tenders. Nothing more of substance was required to determine how they would do so. The process of reasoning which led the primary judge to conclude in PJ [525] that the terms of the Acknowledgement and Agreement were “on their own… largely unworkable” is not revealed.

The idea that the parties were free to dishonour these agreements unless and until some other agreement for a long-term relationship was negotiated and entered into is inconsistent with, and inimical to, the plain commercial objectives of providing for the respective rights and entitlements of the parties in those projects. The primary judge erred in characterising the Acknowledgement and Agreement as, “in essence an agreement to agree”.

The Undertaking was executed in the commercial context of Hills seeking confirmation from Stellar to provide its support to QCH for the Questek PES and any open purchase orders, tenders and/or requests for proposal which had been jointly submitted or pitched by Questek and Stellar, at a time when Hills was about to acquire Questek’s business. It was plainly in Hills’ commercial interest to have Stellar bound. It was plainly in Stellar’s commercial interest to ensure its entitlement to participate in the projects.

So far as Curtin’s 9 October 2014 email is concerned, we do not (as her Honour did) read it as conceding that a formal joint venture agreement was necessary to make the Acknowledgement and Agreement binding. To the contrary, Curtin’s position was that, in the absence of a formal agreement, the parties were in a 50/50 joint venture with respect to WSLHD, this no doubt being a reference to paragraphs 1 to 5 of the Acknowledgement and Agreement. Tellingly, Curtin said that “in the absence of any agreement [being a reference to the long-term agreement contemplated in the final paragraph of the Undertaking] our legal position is that Stellar Vision remains in a 50/50 Joint Venture with Questek in respect of the WSLHD contract” (emphasis added).

Hills argued that a matter of importance upon which they had not reached consensus, and which made it less likely that they intended immediately to be bound, was how the WSLHD project would be managed. We do not consider that this was any obstacle, legal or practical, to them going forward together on the WSLHD project, particularly given that they were joint tenderers. It is to be observed that the scope of each parties’ participation and entitlements was specified in the Acknowledgement and Agreement and the QCH project had proceeded without any agreement as to management participation between them.

The appeal must be allowed.

Although it is not strictly necessary to do so, it is appropriate to deal with the fiduciary duty grounds of appeal because we consider that the primary judge erred in finding that the parties were not in a fiduciary relationship but more importantly, because as appears below, we consider that even if the Acknowledgement and Agreement was not binding, Hills nevertheless owed Stellar fiduciary obligations not to exclude Stellar from participation in the WSLHD project or take it for itself.

At trial (and on appeal), Stellar argued that its relationship with Hills was fiduciary in nature, even if the Acknowledgement and Agreement was not binding. It relied on the following passage in United Dominions Corporations Ltd v Brian (1985) 157 CLR 1 at 12; [1985] HCA 49 (“Brian”):

The primary judge’s dispositive reasoning in relation to Stellar’s contention that it and Hills were in a fiduciary relationship was:

Hospital Products concerned the relationship between a manufacturer and a distributor of medical products, a relationship which is not an established fiduciary one. In the oft-cited passage at 96-97 (referred to by the primary judge at PJ [466]), Mason J (as his Honour then was) observed that the accepted fiduciary relationships are sometimes referred to as relationships of trust and confidence or confidential relations, that the list of such relationships is not closed and that a critical feature of all such relationships is that the fiduciary undertakes or agrees to act for or on behalf of 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. His Honour observed that it is partly because the fiduciary’s exercise of the power or discretion can adversely affect the interests of the person to whom the duties are owed and because the latter is at the mercy of the former that the fiduciary comes under a duty to exercise a power or discretion in the interests of the person to whom it is owed. His Honour went on to say:

We consider that her Honour fell into error both in finding that Stellar and Hills never progressed beyond mere negotiation and that they were not agreed as to the form their relationship should take. For the reasons set out earlier, they bound themselves by way of the Acknowledgement and Agreement which stipulates for the form and terms of their immediate relationship.

We consider that her Honour fell into error in finding that the relationship did not involve mutual confidence or an undertaking or agreement on Hills’ behalf to act for or on behalf of the interests of Stellar in the exercise of a power or discretion which would affect the interests of Stellar in a legal or practical sense.

Beyond the finding that the parties were not agreed as to “the form that relationship should take” (which we read as referring to the form of the prospective long-term relationship), her Honour’s reasons do not reveal the basis for a finding that mutual confidence or the required undertaking were not present.

In a well-known passage in Brian at page 10, Mason, Brennan and Deane JJ (as their Honours then were) observed that the term “joint venture” is not a technical one with a settled common law meaning and that, as a matter of ordinary language, it connotes an association for the purposes of a particular commercial or other financial undertaking or endeavour with the view to mutual profit, with each participant usually (but not necessarily) contributing money, property or skill. Such a joint venture will often be a partnership, however the term is apposite to refer to a joint undertaking or activity carried out through a medium other than a partnership.

It was further observed at page 11 that whether or not the relationship between joint venturers is fiduciary will depend on the form which the particular joint venture takes and upon the content of the obligations which the parties to it have undertaken. Any fiduciary duties will be moulded to the character of the particular relationship.

At least the following features of the parties’ relationship make it clear that it was necessarily one of mutual trust and confidence:

Having regard to these features, it can hardly be suggested that the parties’ relationship accommodated:

It is self-evident that Stellar reposed trust and confidence in Hills not to act in this fashion.

As the party dealing directly with WSLHD and ultimately the only contracting party, Hills was manifestly in a position where it could exercise a discretion which would affect the interests of Stellar, both in a legal and practical sense. Proof of this resides in the mere fact that Hills was able to bring about the exclusion of Stellar from the WSLHD project and bring in Lincor in its place. It can hardly be suggested that Hills was free to act in this way or that it had not undertaken not to act in this way. So much follows from the mere fact that they were joint tenderers.

It also reveals the extent to which, in their relationship, Stellar was in a position of vulnerability to Hills’ breach. Such vulnerability may be a characteristic of those to whom fiduciary duties are owed (although on its own it is not sufficient to create a fiduciary relationship): John Alexander’s Clubs at [83].

Hills argued that the present case was distinguishable from Brian because there, the prospective parties had reached an informal arrangement to assume such a relationship and had proceeded to take steps involved in its establishment or implementation, whereas here, the parties did not proceed beyond mere negotiation. Even if, contrary to our view, as set out earlier, one could properly characterise the parties’ dealings as not having proceeded beyond mere negotiation, the nature of their dealings was such that the mutual confidence and trust which would underlie the most consensual fiduciary relationship, was readily apparent in this case.

The primary judge did not quantify Stellar’s damages (on the assumption that it had succeeded). Each party called a forensic accountant. They were agreed that the discounted cash flow (or DCF) methodology was appropriate to calculate Stellar’s loss based on the WSLHD contract period being 10 years plus a 5-year extension.

The parties differed with respect to various of the inputs for the DCF model which the experts used. Her Honour resolved these disputes on the footing (with which the parties agreed) that the calculation would be carried out reflecting the Court’s rulings.

By the time of the appeal, only one input (identified as item 17) was in dispute, being the timing and cost of future PES terminal replacement. The primary judge’s finding on this item was (at PJ [736]):

At PJ [283], the primary judge said:

In adopting the September Model, it may thus be that the primary judge relied on paragraph 19 of the Joint Expert Report dated 23 April 2021, which reads:

However, on the appeal, it was common ground that the paragraph was not admitted into evidence.

Perhaps more importantly, the figures for replacement terminals in the September Model were those of Starkey, who said of them in an affidavit affirmed 10 May 2018:

Stellar argued, correctly, that the primary judge erred in relying on the September Model in her finding with respect to item 17 because there was no satisfactory basis for it in the evidence.

Stellar argued that actual terminal replacement costs (which could be used to forecast future terminal replacement costs) were, in any event, included in the experts’ calculations in item 17 of the disputed items, which were “Software Maintenance and Service Costs”, which were in turn based on Income Statements of Hills under the heading “Cost of Sales – Patient Entert” which incorporated a line item “Service Parts”.

On the material available to the Court, it is not possible for the Court to determine with any degree of confidence whether the figures for item 17 cover the costs of future replacement of PES terminals. However, by the same token, the Court was not taken to any satisfactory basis for finding otherwise. Nor is the Court in a position to carry out calculations based on the figures in Income Statements which were in evidence as to what future costs would be.

Evidence is to be weighed according to the power of the party to produce it: Hampton Court Ltd v Crookes (1957) 97 CLR 367 at 371-372 (Dixon CJ); [1957] HCA 28. Hills entered into and administered the WSLHD contract. Compared to Stellar, it was in a better position to lead evidence on the subject.

The disputed item represents a deduction from revenue for which Hills was contending. Although Stellar bore the ultimate onus of establishing its damages, we consider that Hills had an evidentiary onus in respect of this deduction which it did not discharge.

It follows that the calculation of damages is to be made without inclusion of the deduction found by the primary judge to have been established from the September Model.

The Court requested the parties to produce final figures based on the alternative assumptions of including the September Model figures and disregarding them to enable a final judgment to be given if the appeal succeeded. Regrettably, the parties did not comply with this request.

The Court makes the following orders: