Chirnside v Fay [2004] NZCA 111; [2004] 3 NZLR 637 (29 June 2004)

Last Updated: 18 December 2011

IN THE COURT OF APPEAL OF NEW ZEALAND

CA34/03

BETWEEN W A C CHIRNSIDE & RATTRAY PROPERTIES LTD
Appellant

AND R E FAY
Respondent

Hearing: 18 February 2004

Coram: Anderson P McGrath J Hammond J

Appearances: P F Whiteside and J V Ormsby for Appellants
H McIntosh for Respondent

Judgment: 29 June 2004

JUDGMENT OF THE COURT

Introduction

[1] We have before us appeals and cross appeals with respect to two judgments delivered by William Young J on 20 December 2002 (liability) and 15 August 2003 (relief), in a commercial cause.
[2] Broadly, the issues in the case are whether there was a fiduciary relationship between one of the appellants, Mr Chirnside, and the respondent, Mr Fay, in relation to a joint venture; whether there was a breach of that relationship; and if so, as to the appropriate monetary compensation to be paid to Mr Fay.

Background

[3] Mr Chirnside is now in his late fifties. He had been in business as a caravan manufacturer, but from the mid-1970s he turned to property development.
[4] Mr Fay is in his late sixties. He is a real estate agent and property developer. Up until 1999 he was principally based in Dunedin; thereafter he moved to Christchurch.
[5] The second appellant, Rattray Properties Ltd (RPL), is a company associated with Mr Chirnside. The other partners in that firm are associated with a Dunedin law firm. RPL was to become the holding vehicle for a property proposal which we will call the Harvey Norman project. That project is central to this litigation.
[6] Messrs Fay and Chirnside had known each other for many years. In 1985 Mr Fay, acting as a real estate agent, was involved in the sale of a property called “Taunton Mews” in central Dunedin to a company associated with Mr Chirnside and his brother. From time to time Mr Fay also had other business dealings with Mr Chirnside.
[7] In 1996 Mr Fay and Mr Chirnside decided to work together as property developers, if and when opportunities should arise for them. Young J described the arrangement as a "loose" one.
[8] It is common ground that Messrs Fay and Chirnside completed one development as joint venturers. This was in fact a three-way joint venture between Messrs Fay and Chirnside and Combined Rural Traders Ltd, which utilised as a vehicle a joint venture company called Cumberland Investments Ltd. We will call this the CRT project.
[9] It is also common ground that Messrs Fay and Chirnside looked at, but did not proceed with, certain other property developments in Dunedin.
[10] This, then, was the context as between the parties to this litigation when the Harvey Norman project came into view.
[11] By 1997 Lion Nathan Ltd was attempting to sell the old Speights Brewery building in Dunedin. The Judge called this the "Speights site", and we adopt that term. The Speights site is adjacent to Taunton Mews; it was zoned for retail use; and it was close to a major retail outlet, The Warehouse. This suggested a potentially attractive concentration of retail outlets. The biggest development problem with the Speights site related to carparking constraints.
[12] The potential of the Speights site had not gone unobserved. Both Mr Fay and Mr Chirnside had independently made approaches to Lion Nathan in 1997, and another Dunedin property developer actually obtained an option over the Speights site in mid-1997. That option was not proceeded with.
[13] The Judge found that in late 1998 Messrs Fay and Chirnside began to discuss together the possibilities of redeveloping the Speights site. They visited this site in March 1999. One possible solution to the carparking problems was to use an adjacent property at Taunton Mews in respect of which Mr Chirnside was a joint owner for this purpose. The Judge made no specific finding as to who originated this idea, but it had some real attraction for Mr Chirnside because by this time he was aware that there were subsidence difficulties attaching to the buildings on the Taunton Mews site which might imperil their long term future. Indeed, although the building thereon had been erected only comparatively recently, it might well have to be demolished.
[14] In March 1999, Messrs Fay and Chirnside began to give this redevelopment proposal intensive consideration. They set about calculating the possible redevelopment costs of the Speights site, and Taunton Mews, and what the likely end values might be. What they were trying to establish between themselves was a value to be attributed to the Taunton Mews site, and a possible purchase price for the Speights site.
[15] It was common ground that these exercises were confidential as between the parties. Indeed it was expressly accepted before us on the appeal that had either Mr Fay or Mr Chirnside gone to a third party and disclosed these financial workings, that disclosure would have been actionable as a breach of confidence.
[16] Both Messrs Fay and Chirnside were looking to this exercise as one in which Harvey Norman, a substantial Australian-based furniture retailer which was expanding in New Zealand, would be the anchor tenant. It was known that Harvey Norman was looking for retail and warehouse space in Dunedin.
[17] With this end in mind, Mr Chirnside approached Lion Nathan and entered into negotiations for the conditional purchase of the Speights site. The Judge described these negotiations as "tortuous". But by September 1999 a conditional purchase agreement had been entered into between Lion Nathan and Mr Chirnside "as trustee for a company". The obligations under that agreement were guaranteed by one of Mr Chirnside's companies, Southern Realty Ltd. The agreement was essentially a six months option. It was conditional upon Mr Chirnside conducting, within the period of the option, a due diligence exercise and "being satisfied ... as to all matters touching upon the property".
[18] At about the same time as these negotiations between Mr Chirnside and Lion Nathan got underway, Mr Fay approached Harvey Norman's Auckland office. He was advised that the companies requirements in Dunedin were for 8000 sq.m of retail space, and 1700 sq.m of warehousing. Mr Fay then had intermittent contact with Harvey Norman over the next three or four months to ascertain what sort of timeframe Harvey Norman had in mind for a development.
[19] After Mr Chirnside's conditional agreement for sale and purchase with Lion Nathan was executed, Messrs Fay and Chirnside, as the Judge put it, "worked through possible financial arrangements with Harvey Norman".
[20] By November 1999 Messrs Fay and Chirnside had put themselves in an adequately informed position for an approach to again be made to Harvey Norman. It was in that context that Mr Fay spoke further with a Mr Berryman of Harvey Norman. He was then met with the advice that Harvey Norman had already turned its mind to the Speights site, and that the company was not interested in that site.
[21] Mr Fay claimed (and the Judge appears to have accepted this) that he managed to talk Harvey Norman around, on the basis that the site was worth looking at again when the advantages of a joint development with the adjacent Taunton Mews site were taken into account. And in fact Harvey Norman's interest was renewed, although thereafter its dealings were principally with Mr Chirnside. This because he was an owner of Taunton Mews; and because the burden of the detailed planning and associated matters would principally fall upon him.
[22] There were a number of meetings in February and March of 2000 involving Mr Fay and Mr Chirnside, planning officers, Lion Nathan staff, and architects. Mr Chirnside claimed that the only reason Mr Fay was at these meetings was that he was there as a prospective participant in the venture, depending on how he (Mr Chirnside) structured it. Mr Fay's claim on the other hand was that he was always seen by them both as a distinct "co-venturer". Mr Fay's evidence was in large part accepted by the Judge.
[23] Harvey Norman committed itself to this project, as a tenant, in July 2000. The Judge found that by this time Mr Chirnside "had gone cold on Mr Fay," for three reasons. First, relations between the two men had deteriorated somewhat with respect to some matters pertaining to the CRT project. Secondly, Mr Chirnside was by then bearing the burden of the substantial amount of work associated with the Harvey Norman project. Mr Fay's ability to participate (otherwise than financially) in the Harvey Norman project lay in his real estate background, his knowledge of Dunedin, and his ability to introduce Harvey Norman as the anchor tenant. To the extent that there would be other space generated in the proposed development, the other possible tenants would be not such critical factors. Thirdly, Mr Fay had the greater financial resources, although Mr Chirnside was putting in more of the detailed work. But Mr Chirnside was "uncertain", as the Judge put it, as to his ability to secure a sufficient stake in the project, commensurate with the effort that he was putting into it.
[24] It was in this context that Mr Chirnside unilaterally decided to bring into the Harvey Norman project, investors associated with his solicitors, and to exclude Mr Fay. There was no formal hindrance to his so doing. All the relevant agreements were in Mr Chirnside's name. An agreement to this effect was executed on 11 July 2000. This followed the signing of an agreement for the purchase of the Taunton Mews site by RPL, which was executed on 21 June 2000. The Judge said "it may be that this exemplified a prior decision by Mr Chirnside to exclude Mr Fay".
[25] Mr Fay was not told about Mr Chirnside's change of position. At this time he entertained the notion that what he saw as an engagement was still to blossom into a marriage. By now, Mr Fay was living in Christchurch. He was only infrequently in Dunedin, and at times both men were overseas from New Zealand. But like a disconsolate engagee, Mr Fay became increasingly troubled as to when the marriage would be celebrated. Communications from Mr Chirnside largely dried up. Nevertheless Mr Fay had been setting about organising finance for his anticipated share of the project. He then became aware, in or about August 1999, that Mr Chirnside’s solicitors had arranged major finance for a property development in Dunedin, and that investors had been secured for the Harvey Norman project.
[26] Mr Fay thereupon communicated with Mr Chirnside after Mr Chirnside’s return from London on 27 August 2000. He put to him what he (Fay) had learnt. He was fobbed off by Mr Chirnside. On a further communication by Mr Fay on 1 September 2000 he was told that the “Chirnside family” had decided that they could not finance their share of the project, and had therefore sold it. Also, it was said that there was a "confidentiality agreement" as to this sale so that there could be no discussion of the details of it.
[27] On 9 October 2000 Mr Fay sent a formal communication to Mr Chirnside. He asserted that Mr Chirnside had "sold our project ... we are partners in this project and you should have first got my authority to sell out." Despite further correspondence from Mr Fay, Mr Chirnside did not reply until 27 November. He said that he and Mr Fay were never partners in the Harvey Norman project. He accepted that the matter had been discussed, but he asserted:

Our discussions were brief and of a casual manner and no conclusions were reached as I wasn't interested in entering into any form of agreement with any party or parties until such time as the anchor tenant and all required consents were in place. Prior to that there was nothing to obtain any partnership in. These discussions certainly did not constitute any formal partnership.

At all times during which the negotiations were carried out with the various parties all contracts, guarantees and expenses incurred were borne by myself and the project was entirely under my sole control.

This letter further asserted that it had indeed been impossible for the Chirnside family "to proceed with the development ... as originally envisaged" and that he (Mr Chirnside) was under no obligation to account to anybody.

[28] Subsequently, the agreement with Lion Nathan was confirmed, and RPL settled with that company. The project with Harvey Norman as the anchor tenant was completed. RPL is primarily controlled by Mr Chirnside, but it also has some shareholders associated with his law firm, who invested in the project in exchange for a 25% share of RPL.

The case in the High Court

(a) Liability

[29] As pleaded, Mr Fay's claim was put three ways. First, it was alleged that the underlying relationship between Messrs Fay and Chirnside involved a joint venture giving rise to fiduciary obligations, which Mr Chirnside had breached. Secondly, there were averrments that there had been a partnership, and that Mr Fay was entitled to relief under either or both of s32 and s42 of the Partnership Act 1908. Thirdly, the conduct of Mr Chirnside was asserted to have been misleading and deceptive and in breach of s9 of the Fair Trading Act 1986.
[30] The partnership and the Fair Trading Act causes of action fell away in the course of the litigation. The case went to trial on the footing that the liability issue was whether there was a fiduciary relationship between Messrs Fay and Chirnside from early 1999 through to 1 September 2000.
[31] The Judge appears to have been primarily concerned as to whether the joint enterprise was sufficiently far advanced for any liability to attach. He paid particular regard to Kahn v Miah [2001] 1 All ER 20 (HL). He referred to an observation in the opinion of Lord Millett where his Lordship said, "the question is not whether the restaurant had commenced trading, but whether the parties had done enough to be found to have engaged so to have commenced the joint enterprise in which they had agreed to engage ..." (at 25). Young J then said, "much of what Lord Millett said in that case is applicable here". In the result, he was of the view that Messrs Fay and Chirnside had "performed enough" that they could be regarded as engaging in a joint venture associated with the Harvey Norman project. He held that it did not matter that Mr Fay was excluded from the venture before "all aspects of it crystallised". But, he "hesitated" to conclude that Messrs Fay and Chirnside were partners in the legal sense. This was because the intention of the parties was that once the deal crystallised a joint vehicle venture would be formally utilised to complete the development. The Judge said, "it was not necessarily the intention that Messrs Fay and Chirnside would be shareholders in the joint venture vehicle ... each would have been perfectly entitled to introduce other family associated entities, say family trusts or family companies". The Judge then held that this was not at all inconsistent "with the venture generally being regarded as a joint venture with each of the parties owing the usual fiduciary obligations to each other."
[32] Having reached that point, the Judge took the view that Mr Chirnside was "not entitled to exclude Mr Fay from the venture when he did". He said Mr Fay was entitled to relief “being either damages or an account of profits” ([52]). He indicated that "provisionally" he was of the view that Mr Fay was also entitled to relief against RPL. Exemplary damages had also been claimed. Without coming to a final view, the Judge indicated that it was “most unlikely” that he would be persuaded that this was a case for relief of that character.

(b) Quantum

[33] In his separate judgment on this issue, the Judge went about matters this way. With counsel's apparent approval, he set to one side the possibility of an account of profits. This because, in the particular circumstances, almost inevitably this would have required a sale of the property. But a fire sale would not achieve the best price for either side in this dispute. The Judge also rejected an argument (advanced by Mr Whiteside) that Mr Fay should be awarded shares in RPL. This because the parties were already estranged. To continue a metaphor already employed by this Court, an enforced marriage after a broken engagement was not a happy prospect.
[34] The Judge took the view that he was empowered to award damages, and that was the most appropriate remedy in this particular case. As to that remedy, the Judge said:

If such damages were awarded they would reflect Mr Fay's loss associated with his wrongful exclusion at the hands of Mr Chirnside but this loss would be closely associated with the gains made by RPL and Mr Chirnside relating to the development.

[35] The Judge considered that such an exercise would also require consideration as to "what if any allowance should be made to the disproportionate contribution made by Mr Chirnside to the development as a whole".
[36] Having resorted to this approach, the Judge then held that Mr Fay was entitled to damages of $495,000, made up as under:

1. Net profit attributable to the joint venture $1,290,000

2. Allowance for Mr Fay's disproportionate contribution $300,000

3. Total profit attributable to the joint venture $990,000

4. Mr Fay's half share $495,000

[37] Judgment was entered for Mr Fay in that sum, together with interest at the rate of 7.5% per annum from 1 April 2003 until the date of the judgment.

The appeals and cross appeals

(a) Mr Chirnside's appeal

[38] Mr Chirnside and RPL appeal on the footing, as to liability, that Messrs Fay and Chirnside were not joint venturers; they submit that "New Zealand law should not impose fiduciary obligations on parties negotiating towards a joint venture nor on joint venturers who have not agreed that obligations in the nature of fiduciary obligations are owed between them"; they maintain that on the facts no fiduciary obligations had been raised; and they say that, having found what he described as a joint venture existed, the Judge had in effect assumed a fiduciary relationship without any close or appropriate analysis of the basis for holding this relationship was fiduciary in character.
[39] As to relief, Mr Chirnside appeals against “the whole of [the] judgment” in that respect. More specifically, down to the actual hearing before us, there was an appeal point against the declinature of the Judge to vest shares in RPL and Mr Fay. That point was abandoned at the hearing. The appellants seek what amounts to "adjustments" to the damages awarded. This would see a substantial increase in an allowance for Mr Chirnside's contributions to the project; alterations to the capitalisation rate used in certain calculations; and adjustments to what is said to be the incorrect measurement of certain vacant storage space (which in turn affects other calculations made by the Judge). The argument was also advanced that there should be an adjustment in the calculation of the damages payable to Mr Fay for the cost of converting certain vacant space to storage space, including a new floor in a tank room in the building.

(b) The cross appeal

[40] Mr Fay cross appeals against Young J's quantum judgment. The submission was that the sums awarded were too low, having regard to:

(a) The value attributed to certain undeveloped space within the development premises; and

(b) The $300,000 allowance made for what is said to be the greater contribution of time and effort by Mr Chirnside.

[41] Mr McIntosh strongly contended that, given a found breach of fiduciary duty, "the Judge's treatment of Fay overall has been unduly harsh". Mr McIntosh argued that a breach of fiduciary duty is a very serious matter; that Mr Chirnside had behaved egregiously; and that "Fay did nothing wrong at all, and was found to be the honest one, yet the Judge has consistently found in favour of Chirnside on matters in respect of which Chirnside's behaviour does not warrant such findings". Mr McIntosh argued that Mr Chirnside should not have had an allowance of any more than $50,000 for his efforts.

Resolution

(a) Liability

[42] At common law there is no separate legal concept of a “joint venture”. (In Scots law, there is a legal concept of a joint “adventure”: a partnership entered into for a particular enterprise only and not constituting any firm).
[43] In everyday terms, a joint venture is a commercial term used to describe two or more persons associating together to a common commercial end. Under New Zealand law, the persons associated in that venture may have their relationship regulated by contract; they may be partners; they may have a joint venture company; or, although associating to some degree, there may be no formal legal relationship between them at all.
[44] Mr Whiteside’s submissions on liability fall to be considered under two heads: the facts; and whether any legally cognisable relationship had come into being between these two men. He did not accept that, on the facts, there was here a commercial joint venture between Messrs Fay and Chirnside, let alone a legally cognisable relationship.
[45] Mr Whiteside’s argument, on the facts, was that what the Judge himself described as a “loose arrangement” was so loose that it did not even deserve the commercial appellation the Judge gave to it. The short answer under this head is that there was evidence on which the Judge could form the view (as he did) that there was here a joint venture of a commercial kind. We are not disposed to interfere with that inference, founded as it was on findings of primary fact. In a significant measure, those findings involved findings of credibility. The Judge cast a critical eye over the evidence of both Mr Fay and Mr Chirnside – so much so that Mr Fay complained on the appeal that the Judge had been too critical of him – but even with the deficiencies which the Judge noted with respect to Mr Fay’s evidence, or more accurately his demeanour when giving it, the Judge was still satisfied that, on the critical matters, these two men were commercially associated in the manner Mr Fay had said they were. Given the primary facts as found by the Judge, it has not been shown that he erred in concluding that a commercial joint venture existed.
[46] There is one distinct factual matter upon which Mr Whiteside placed some real importance. It was said that Mr Chirnside had specifically claimed that nothing had been resolved between these two men as to who would participate in the venture in the future – Mr Fay might not even be participating – but that the Judge had not specifically dealt with this point. It is correct that there is no specific finding on this point. But we consider that not to be fatal to the claim: the Judge’s findings were such that where there was a conflict of evidence he appears to have accepted Mr Fay’s evidence, and the way the Judge proceeded shows that he did not accept Mr Chirnside’s assertion. And in an allied vein, Mr Whiteside urged on this court that Mr Fay had accepted that there was in fact no joint venture. However, a review of that portion of the evidence has convinced us that all Mr Fay was there saying was that, whilst there was presently no joint venture agreement, the parties were working together in the manner described by the Judge towards a possible joint venture agreement.
[47] Turning to the law, in our view the fact that there is in a commercial sense a joint enterprise, but no joint venture agreement yet entered into, is not fatal to a claim that there may nevertheless have been a fiduciary relationship at the relevant time.
[48] This is an area which has historically given appellate courts some difficulty although, in our view, the difficulties are today those of application rather than principle. For instance, in LAC Minerals Ltd v International Corona Resources Ltd (1989) 61 DLR (4th) 14 the Supreme Court of Canada held that a fiduciary relationship did not in that case exist between parties negotiating a joint venture. Sopinka J, at p65 said “the parties had not advanced beyond the mere negotiation stage. Indeed they had not yet defined what precisely their relationship might be”. On the other hand, in United Development Corporation Ltd v Brian PTY Ltd [1985] HCA 49; (1985) 59 ALJR 676 the High Court of Australia held that a fiduciary relationship can arise between parties who have not reached, and who may never reach, agreement upon the consensual terms which are the governing relationship. (And see McPherson, “Joint Ventures” in Finn (ed.) Equity and Commercial Relationships (1987)).
[49] Mr Whiteside urged on us that “New Zealand law should not impose fiduciary obligations on parties negotiating towards a joint venture.” And he said that, in any event, the point had not been reached in this case where fiduciary obligations arose between Mr Fay and Mr Chirnside.
[50] We do not accept Mr Whiteside’s argument that there can not or should not ever be a fiduciary relationship between parties negotiating towards a joint venture. For many years now New Zealand law has accepted in principle that, whilst there are some well defined and long established categories of fiduciaries (trustee/beneficiaries; solicitor/client and the like) a fiduciary duty may nevertheless be raised upon the special facts of a given case. There is no reason in principle why that doctrine should not apply to an evolving joint venture. (See, in New Zealand Marr v Arabco (1987) 1 NZBLC 102, 732; and Butler, Equity & Trusts in New Zealand (2003) at para 14.3.12.) The real question, as a matter of law, is what in principle is required to be established for the fiduciary doctrine to be invoked. And what is important here is less the particular verbal formulae which is adopted than a proper appreciation of the purposes which fiduciary law serves.
[51] Fiduciary law is not concerned with private ordering. That is, it is not the function of fiduciary law to mediate between the various interests of parties who are dealing with each other. That is for contract law. Fiduciary law serves to support the integrity and utility of relationships in which the role of one party is perceived to be the service of the interests of the other. It does so by imposing a specific duty of loyalty. As La Forest J said (for the majority) in Hodgkinson v Simms (1994) 117 D.L.R. (4th) 161 (SCC):

...the question to ask is whether, given all the surrounding circumstances, one party could reasonably have expected that the other party would act in the former’s best interests with respect to the subject matter at issue. Discretion, influence, vulnerability and trust were mentioned as non-exhaustive examples of evidential factors to be considered in making this determination. (at 176)

[52] It follows that, in doctrinal terms, the starting point must always be whether there was a relationship of mutual trust and confidence between the parties giving rise to an obligation of loyalty.
[53] This concept was emphasised in a recent New Zealand Privy Council appeal, which was not cited by counsel to the Judge, or to this Court. In delivering the reasons of their Lordships in Arklow Investments Ltd v McLean [2000] 2 NZLR 1, Henry J referred, with approval, to a dictum of Millett LJ (as he then was) in Bristol and West Building Society v Mothew [1998] Ch 1:

A fiduciary is someone who has undertaken to act for or on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence. The distinguishing obligation of a fiduciary is the obligation of loyalty. The principal is entitled to the single-minded loyalty of his fiduciary. This core liability has several facets. A fiduciary must act in good faith; he must not make a profit out of his trust; he must not place himself in a position where his duty and his interest may conflict; he may not act for his own benefit or the benefit of a third person without the informed consent of his principal. This is not intended to be an exhaustive list, but it is sufficient to indicate the nature of fiduciary obligations. They are the defining characteristics of the fiduciary. As Dr Finn pointed out in his classic work Fiduciary Obligations (1977), p2, he is not subject to fiduciary obligations because he is a fiduciary; it is because he is subject to them that he is a fiduciary (at 18).

[54] For the Board, Henry J said:

.... equity will recognise, that the fiduciary will not utilise his or her position in such a way which is adverse to the interests of the principal. .... The existence and the extent of the duty will be governed by the particular circumstances. It is therefore essential at the outset to turn to the circumstances which it is said gave rise to FAR’s duty of loyalty (at 4).

[55] We do not find it necessary, for present purposes, to go beyond this concise and authoritative exposition of the basis of this doctrine. The issue with respect to liability in this case is therefore: was the relationship between Mr Fay and Mr Chirnside at the relevant time such that they were obliged to act towards each other within appropriate bounds of loyalty, and hence good faith? We think the answer to his question is, “yes”.
[56] As to the second limb of his submissions on the liability issue, Mr Whiteside complained that the Judge devoted no real analysis as to why he thought the fiduciary doctrine could here be fairly invoked. It is correct that the analysis of the fiduciary point in the judgment under appeal is not extensive, but it is plain enough that the Judge did consider that, on the facts, there was here a fiduciary obligation.
[57] In our view the relevant factors in this case can conveniently be ordered under five heads. First, the Harvey Norman project was not a one-off dealing between these two men. They had already mounted one agreed joint venture and their relationship was still ongoing. Although in Mr Chirnside’s eyes this earlier venture had not been entirely successful, it seems that on the evidence Mr Chirnside was not entirely straightforward about that. But in any event he had not terminated the relationship. Secondly, each man had something to contribute to the Harvey Norman venture; Mr Fay more in terms of contacts, money, and knowledge of Dunedin; Mr Chirnside in the form of detailed work. The point is that each man was looking for something from the other, which gave rise to a degree of mutuality. Thirdly, each in fact contributed to the venture what was understood to be their part, so far as it had advanced. Fourthly, the evidence was that, but for the contributions from each side, the venture would not have reached the point where it could be concluded. Fifthly, it was common ground that there was here a relationship of confidence which would have been independently actionable, if breached.
[58] In our view, these factors, in combination, are such that they led to a duty of loyalty between these two men. The chief incidence of that duty was one of good faith. The import of that obligation was that there would be no presumptive hijacking of the incipient transaction by either man (or his interests); and no destruction of their relationship without good faith efforts to come to terms.
[59] It necessarily follows, in our view, that those elements not having been observed, what Mr Fay “lost” was the chance to come to satisfactory terms with Mr Chirnside or his interests. This leads us logically to the question of damages, to which we now turn.

(b) Relief

[60] At the end of his liability judgment, William Young J provisionally suggested this to be a case for “damages”, or an account of profits. Counsel thereafter rejected an account, and proceeded as if this was a more or less orthodox claim for damages. Doubtless this explains why the Judge proceeded as he did, although he calculated the actual amount of damages in what appears to have been a hybrid manner. First, he calculated (just as a Judge would do in a contract case) the “expectancy” by way of profit to be had from this joint venture. He arrived at a figure of $1,290,000 for that sum. He then made an allowance of $300,000 for a super-contribution by Mr Chirnside. That left a net figure ($990,000) which the Judge then divided equally between Mr Fay and Mr Chirnside.
[61] What happened in this case, therefore, is that counsel proceeded as if what was involved closely approximated contract damages. The Judge distinctly followed that path, but superimposed on it an adjustment in Mr Chirnside’s favour.
[62] Some comment is required here. Damages are a remedy which evolved at law, and to the extent to which damages were available, at law, before the Judicature Acts of the 19th Century would be unattainable in equity. As Story put it: “... the just foundation of equitable jurisdiction fails in all such cases, as there is a plain, complete and adequate remedy at law.” (Story, 2 Commentaries on Equity Jurisprudence (8th ed, 1861) at 2). Subsequent to the Judicature Acts, damages could statutorily be awarded in addition to or in lieu of (for instance) specific performance. This left, however, a potential “compensation gap” in the case of equitable rights: because the common law took no cognisance of equitable rights, ex hypothesi, damages were unavailable in such a case.
[63] There has been a good deal of academic debate as to whether equity possessed jurisdiction to award compensation in its exclusive jurisdiction (see eg I E Davidson, “The Equitable Remedy of Compensation” (1982) 13 Melb U Law Rev 349 and C Harpum, “Specific Performance with Compensation as a Purchaser’s Remedy – A Study in Contract and Equity” [1981] Camb L J 4). Whatever the true historical position was, there is no doubt that there exists today in our Courts, independently of equitable damages derived from the statutory jurisdiction, a remedy called “compensation” which is available against trustees and other fiduciaries who act in breach of their equitable obligations. See, for instance, Nocturn v Lord Ashburton [1914] AC 932; Muschinski v Dodds [1985] HCA 78; (1985) 160 CLR 583; and in this Court, Day v Mead [1987] 2 NZLR 443; and see generally in New Zealand, McClay, “Equitable Damages” in Civil Remedies in New Zealand (2003) (Ch 3).
[64] There has also been much academic discussion as to whether this remedy of compensation is more accurately “restitutionary” in character, or whether it is truly compensatory (see, for instance, Rickett & Gardner, “Compensating for Loss in Equity: the Evolution of a Remedy” (1994) 24 VUWLR 19). In Day v Mead Cooke P suggested that what was involved in this debate is a “difference without a distinction” (at 451).
[65] We are inclined to the view that both principle and sound usage suggest that it is more appropriate to consider equitable compensation as truly compensatory in nature. The point was well put by Brightman LJ in Bartlett v Barclays Bank Trust Co Ltd [1980] Ch 515. His Lordship said of the remedy that “... it cannot be for restitution in the strictest sense ... the so called restitution which the defendant must now make to the plaintiff ... is in reality compensation for loss suffered by the plaintiffs ... not readily distinguishable from damages except with the aid of a powerful legal microscope” (at 545).
[66] If then, particularly in a legal system (such as in New Zealand) where the distinction between law and equity has effectively lost its force, the object of equitable “compensation” as we have described it is the same as damages, does the “compensation” remedy differ from “damages”? These points can be made. First, there is an immediate distinction in point of principle: since “compensation” is an equitable remedy, its availability and assessment must be subject to the normal equitable discretionary considerations. Hence (as Somers J put it in Day v Mead at 462) this remedy will be barred by considerations of “conscience, fairness and hardship and other features such as laches and acquiescence”. Secondly, because of the more absolute nature of some equitable obligations – and the fiduciary obligation is a good example – an award of compensation may be appropriately assessed in a manner in which it would not most usually be assessed at common law.
[67] It follows, in our view, that the essential task of a Court under the head of equitable compensation is to compensate whatever real loss or detriment the plaintiff may have suffered in the particular case, on the sort of considerations which have always impelled Chancery Judges. Those considerations may be, but will not always be, the same as would have arisen at common law. A variety of remedial considerations may be appropriate.
[68] All of that said, we take the view that what Mr Fay “lost” in this case was the opportunity or chance to enter into a joint venture agreement with Mr Chirnside as a result of Mr Chirnside’s pre-emptive abandonment of him, which is a quite different thing from a breach of a (putative) agreement.
[69] Such an approach is maintainable in New Zealand law. In Aquaculture Corp v New Zealand Green Mussel Co (supra) this Court was clear that loss of a chance damages are available for breach of the equitable obligation of confidence (at p301). And in Guerin v The Queen (1984) 13 DLR (4th ) 321 (SCC) (a fiduciary case) the Supreme Court of Canada held that a trial judge had correctly assessed the “damages” as at the date of trial on the basis of a lost opportunity to develop certain land for the duration of a lease.
[70] In our view, compensation for this kind of loss should be approached primarily by reference to the Court’s assessment of the prospect of success of the particular opportunity, had it gone forward. (See, for instance, Sellers v Adelaide Petroleum NL & Ors [1994] HCA 4; (1992) 120 ALR 16 (HCA)). And, even where the chances of success are not of a high order, there may still be a proper case for compensation (see, for instance, Marlec v J C Hutton Pty Ltd [1990] HCA 20; (1990) 169 CLR 638 (HCA)) because a defendant can be appropriately protected by a significant discount factor, although a purely speculative chance may attract no damages (Allied Maples Group Ltd v Simmons and Simmons [1995] 4 All ER 907 (CA)).
[71] We further emphasise that nothing that has fallen from this Court is intended to deflect from the ability of a trial Judge in assessing equitable compensation, to make an adjustment for additional work and labour to a party which is not otherwise properly taken into account.
[72] In our view, the quantum issues in this case have gone off, because counsel misconceived the proper approach to be adopted in this case. They seem to have thought that, if there was a legally cognisable relationship, the “damages” should somehow reflect a (fully assumed) expectancy, very much as in contract. That in turn led to a great deal of evidence and argument both in the High Court, and in this Court, which in the end was substantially beside the point.
[73] Both sides appealed on the damages issues in this case. But we did not hear from counsel on the question of loss of chance damages, despite some indication from the Bench in the course of argument that the case might be more properly viewed from that perspective.
[74] In the result, we are of the view that fairness requires that the parties should now be given the opportunity to settle what the compensation of that character should be, if they can. In the event that the parties cannot agree, we will hear counsel further, and resolve that issue in this Court, on the evidential material already in Court. If the parties are unable to reach agreement, counsel should jointly so indicate to the Registrar of this Court. The President will then give directions as to the manner in which renewed argument will be conducted.
[75] For completeness, we record that the extant application to adduce further evidence is dismissed because it does not assist the resolution of the relief issues in this case, if they are approached in the manner we have indicated.
[76] In case it should assist the parties, we make these observations. The figure adopted by the trial Judge of a profit to be had in this venture of something over $1 million appears to us to be sound enough. A figure of that kind can never be a scientific or arithmetical figure. It can only be a fair estimate. But there then has to be factored in these questions, which are the essential matters on which we have not heard argument:

• Would the parties likely have finally come to terms? There has to be a real discount for the fact that they may not have done so.
• If they did come to terms, would Mr Fay have achieved something like a 50% interest in the venture?
• It is legitimate to bring into account (as the Judge did) an adjustment for additional work and labour which is not otherwise properly taken into account. We do indicate that the figure of $300,000 adopted by the Judge was very favourable to Mr Chirnside.
• We presently leave open whether Mr Fay should have interest, on what basis, and from what date.

Conclusion

[77] The appeal against the finding of liability on the part of the trial Judge is dismissed.
[78] The appeal and cross-appeal against the award of damages are adjourned for further argument, as may be required, on the footing set out in this judgment.
[79] Mr Fay has had a real measure of success in holding the liability portion of the judgment. He will have a sum of $4,000 in costs in that respect, together with his reasonable disbursements, if necessary as fixed by the Registrar. Those disbursements are to include the reasonable travel and accommodation costs of counsel. Costs on the damages issues are reserved.

Solicitors:
Wynn Williams & Co, Christchurch for Appellants
Russell McVeagh, Auckland, for Respondent
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