Cummings, J.B. v Lewis, M.T

Re:JAMES BARTHOLOMEW CUMMINGS
And: MICHAEL TERENCE LEWIS; DESMOND RUNDLE; JOHN BRADSHAW (as representing all
members of the firm practising as KPMG Peat Marwick Hungerfords between 1
February 1989 and 28 March 1989); NOEL SIDNEY LECKIE and PAUL ISHERWOOD (as
representing all members of the firm practising as Coopers and Lybrand between
1 May 1988 and 30 June 1989)
No. G668 of 1989
FED No. 443
Contract - Trade Practices - Partnership

COURT

IN THE FEDERAL COURT OF AUSTRALIA

NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
Wilcox J.(1)

CATCHWORDS

Contract - Racing syndicate - Arrangement between racehorse trainer and two firms of accountants for syndication of racehorses - Nature of agreement between the parties - Role of the accountants - Whether it was agreed that horses would be bought by the trainer on behalf of the accountants - Whether it was agreed that the accountants should indemnify the trainer against any loss

Trade Practices - Statements made by accountant regarding sale of syndicate units - Whether misleading conduct - Statements relating to future conduct - No evidence of lack of genuine intention to carry out promised action or of reckless indifference

Partnership - Whether the arrangement between the trainer and the accountants constituted a partnership

Trade Practices Act 1974: s.52

Fair Trading Act 1987 (NSW): s.42

Partnership Act 1892 (NSW): ss.1, 2

HEARING

SYDNEY

#DATE 2:8:1991

Counsel for the Applicant: F.S. McAlary, QC and V.R. Gray

Solicitors for the Applicant: Malcolm Johns and Co.

Counsel for the First, D.E. Horton, QC and B.W. Walker Second and Third Respondents:

Solicitors for the First, Freehill Hollingdale and Page Second and Third Respondents:

Counsel for the Fourth and T.E.F. Hughes, QC, P.M. Jacobson Fifth Respondents: and T. Muddle

Solicitors for the Fourth Norton Smith and Co. and Fifth Respondents:

ORDER

The Application be dismissed.

The matter of costs be reserved, leave being granted to any party to apply in relation thereto on seven days' notice.

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

JUDGE1

James Bartholomew Cummings, the applicant in this proceeding, is probably Australia's most successful racehorse trainer. His remarkable record includes successes, not only in long-distance classics, such as the Melbourne Cup (by mid-1989, seven wins), Caulfield Cup (five wins) and Brisbane and Sydney Cups (each three wins), but also in sprints, such as the Newmarket Handicap (six wins), the Golden Slipper (four wins) and the Oakleigh Plate (two wins). Moreover, by the second half of the 1980's, "Bart" Cummings - as he is widely known in the racing world - had established a reputation as a good judge of yearlings. He commonly attended the leading yearling sales in Australia and New Zealand, selecting and purchasing promising horses, not only on behalf of clients but also in his own name. Sometimes he would purchase a yearling "on spec"; that is, not in fulfilment of any particular commission but in the expectation that one of his clients would take the horse and relieve him of his obligation to pay the auctioneer. In this way, he would secure the yearling for his stable.

In the financial year ended 30 June 1988, Mr Cummings' speculative activity expanded to the point where he put up a group of horses for syndication. These syndicates were named "Leilani Lodge 1-6", the name coming from that of Mr Cummings' stable at Kensington, in Sydney. The 1988 syndication was sufficiently successful to persuade Mr Cummings to involve himself in a further syndication in the financial year ended 30 June 1989. That enterprise was more ambitious than its predecessor, involving the proposed sale of units with a total value of $18 million. Mr Cummings was assisted in it by two leading accountancy firms, Coopers and Lybrand (hereafter "Coopers") and KPMG Peat Marwick Hungerfords ("Peats"). The enterprise failed, the requisite 80% minimum subscription not being obtained. Mr Cummings was left with a personal liability for some $20 million to the auctioneers who conducted the sales at which the yearlings were purchased. With his consent, three of the auctioneers held a special sale at which they re-sold the horses that Mr Cummings had purchased through them a few months earlier. They advertised the sale as "The Night of the Stars". But Mr Cummings' description, "the fire sale", is more apt. The yield from this sale fell well short of the total amount owing to the auctioneers. There is dispute about some elements in the claim for damages. But, on any view, the loss suffered by Mr Cummings from this venture exceeds $8 million.
The questions raised by this case are whether Mr Cummings is to be left to bear this loss alone, or whether he is entitled to pass on the whole or part of the loss to Coopers and/or Peats. The answer to those questions depends upon the precise nature of the relationship, and transactions, between him and the two accountancy firms. Those matters are in hot dispute. They can be resolved only by looking at Mr Cummings' dealings with each of the accountancy firms over a lengthy period of time. Accordingly, the parties tendered to the Court a considerable volume of evidence. Not all of it needs to be referred to in these reasons; but much of it does. I will deal with it as succinctly as possible.
The respondents
Mr Cummings commenced his training career in Adelaide. Whilst he was in Adelaide he became a client of Peats' Adelaide office. He had particular contact with Desmond Rundle, a partner in that office. When Mr Cummings moved to Sydney, Peats' Adelaide office retained his business. From time to time, they sent people to Sydney to attend to his needs. The person with whom Mr Cummings and his secretary, Juanita Marusich, had the most frequent contact was Grant Hancock, a chartered accountant who was employed by Peats Adelaide as Group Manager for Mr Rundle. But Mr Cummings also knew Michael Lewis, a partner in Peats who was located in Adelaide. Mr Lewis took a leading role in the firm's services to the bloodstock industry. He is the first respondent in this proceeding. Mr Rundle is the second respondent. James Bradshaw, who otherwise has no apparent connection with the case, is named as third respondent in order to represent the persons who were members of Peats in February and March 1989.
Mr Cummings had no professional or commercial relationship with Coopers until 1988, when the Leilani Lodge 1-6 syndicates were organised. In May 1988, he met Noel Sidney Leckie, one of two partners located in Coopers' Scone office. Mr Leckie was interested in, and knowledgeable about, horses. He was involved in a number of horse-breeding syndicates, as the manager or as an investor. I gather that much of his work as an accountant was related to horse enterprises. Mr Leckie is the fourth respondent in this proceeding. Paul Isherwood, who also has no other apparent connection with the case, is the fifth respondent, representing the members of Coopers between 1 May 1988 and 30 June 1989.
Leilani Lodge 1-3
Leilani Lodge 1-3 syndicates, which were filled, or substantially filled, in 1988, do not give rise to any claim for damages. But Mr Cummings' counsel say that this syndication is the back-drop against which the 1989 syndication is illuminated. So it must be considered.
During the years 1986 and 1987, Mr Cummings bought several yearlings which he did not immediately resell. He put them into training. Some, at least, were raced. Those horses included "Beau Zam" and "Sky Chase", each of which proved to be large stake-winners. About the end of 1987, Mr Cummings decided to free up his capital by syndicating this group of horses. He formed a syndicate, to contain 20 shares each having a value of $250,000; $5 million in all. The syndicate would own interests in 22 listed two and three year old horses. Mr Cummings prepared a letter setting out his scheme. This was sent to stable clients and some other people. Almost immediately, two shares were purchased. Perhaps encouraged by that result, Mr Cummings purchased some more yearlings at the auctions which occurred in early 1988. But no more purchasers appeared.
On 6 May 1988 John Roger Darvall, an Associate Director of the private banking division of NZI Securities Australia Limited ("NZI"), introduced Mr Leckie to Mr Cummings. Mr Darvall had previously discussed with Mr Cummings the possibility of syndication. He knew Mr Leckie through NZI's financing of brood mare syndicates and he had previously asked him whether he would be interested in coming into a Cummings syndicate as the independent investors' representative. Mr Leckie had said that he would; and he had mentioned the possibility of marketing syndicate shares through the "500 partners in Coopers and Lybrand".
The meeting of 6 May was held at Mr Cummings' office at "Leilani Lodge". Those present were Mr Cummings, his son Anthony who acted as his stable manager, Mr Darvall and Mr Leckie. The four men discussed the possibility of "repackaging" the 1987 syndicate, in conjunction with the 1988 yearling purchases, in a more "tax-effective" form. Mr Leckie told Mr Cummings that he understood how to do this from his experience with breeding syndicates and he spoke of selling units through Coopers. Mr Darvall indicated that NZI would provide the necessary investor finance.
According to Mr Darvall, during this discussion he outlined the task of an independent investors' representative; namely, to advise the people who came into the syndicate, independently of Mr Cummings, about matters such as the structure of the syndicate and to look at "the tax angle and the cheques and as to the running of the syndicate". According to Mr Darvall, he asked Mr Leckie whether he would like to fulfil that role. He said that he would.
Mr Cummings' account of this conversation is less detailed than that of Mr Darvall. But it covers much the same ground and is consistent with it. Mr Anthony Cummings corroborates part of his father's and Mr Darvall's account. But he says that he was not present throughout the conversation. Being the stable manager, he was "in and out of the office a bit". However, he claims a recollection that, after the meeting, he accompanied his father, Mr Darvall and Mr Leckie to lunch at a Paddington Hotel during which Mr Leckie said to his father "I've been very impressed with your record of selecting yearlings and making Group One winners of them. I feel that with your name and your history we can make a great success of syndication. I'd like to be given the chance to put these horses together and show you what I can do".
The significance of these conversations, according to Mr Cummings' counsel, is that they show that, right from the beginning, Mr Leckie's role was not that of Mr Cummings' accountant but of an independent person undertaking an entrepreneurial role for which he would be remunerated by others.
Mr Leckie's version of this conversation has much in common with the other accounts. He acknowledges that he outlined the concept of a taxation-geared syndicate and talked about finance. He also says that he talked about marketing, although his version is lower keyed: "I'd be prepared to send a memo to all of my partners within the firm". I think that the only real points of difference are that Mr Leckie makes no reference to any conversation about his acting as investors' representative and he says that, at this meeting, there was discussion about the need for Mr Cummings to obtain a dealer's licence. I do not think that the differences matter much. Both of these topics were certainly discussed at either this meeting or the following meeting; perhaps at both.
Mr Cummings agreed, either on 6 May or shortly afterwards, to take the course suggested by Mr Darvall and Mr Leckie. Mr Cummings and Mr Leckie discussed the need for legal advice. Mr Cummings mentioned Brian Agnew of Moray and Agnew, whom he had used in the past and who was known to Mr Leckie. A meeting was arranged. During the course of that meeting, Mr Darvall suggested advertising the syndicates. Mr Agnew pointed out that this would be illegal unless the advertiser held a dealer's licence under the Securities Industries (New South Wales) Code. He asked Mr Cummings whether he held such a licence. Mr Cummings said that he did not. He asked Mr Agnew to explain what a dealer's licence was and why it was necessary. Mr Agnew did so, pointing out that the licence would take some months to issue; it would not be available for use in the then current financial year. According to Mr Cummings, Mr Leckie said that he thought that Mr Cummings should obtain a licence anyway "because when we do a syndicate next year you'll need it because it will be a big help to keep up with the opposition". Mr Cummings agreed that a licence should be sought. Mr Darvall agrees that Mr Leckie "suggested that we get that licence immediately" and says that he undertook to do so. Apparently Mr Leckie did lodge the necessary application, naming as the applicant a company, International Bloodstock Management Pty Limited, of which Mr Bart Cummings and Mr Anthony Cummings were the directors.
With the assistance of Mr Agnew, a syndicate prospectus was formulated. The two existing unit-holders agreed to aggregate their interests in the 1987 syndication with interests in the yearlings purchased in 1988, making a total complement of interests valued at $12,121,578. (In some cases, a part interest in a particular horse had been purchased from Mr Cummings by a client. So it is more accurate to speak of "horse-interests" than horses.) This capital sum was broken down into six syndicates ("Leilani Lodge 1-6"), each containing twenty units. So each unit-holder would have an undivided 1/120th share in the aggregated interests, and in each individual horse-interest. The price of a unit was $143,483, a "horse component" price of $100,000 and $43,483 by way of contribution to "working capital". Finance was to be available to approved applicants through NZI.
A prospectus setting out the above information was published early in June 1988. Under the heading "Venture Manager", the prospectus stated the name "J Bart Cummings". The "Accountants" were shown as "Noel Leckie, Coopers and Lybrand, Scone NSW, 2337".
In view of the shortness of time before the end of the 1988 financial year, it was decided to market in that year only three syndicates; that is, 60 units. They were Leilani Lodge 1-3. In the period of approximately three weeks between the issue of the prospectus and 30 June, 48 units were sold. According to Mr Darvall, who processed the applications on behalf of NZI, 40 of the 48 units were sold through the Coopers' network - either to clients of the firm or to Coopers' partners. Mr Leckie says that this is incorrect, that eight units were sold to Coopers' partners and twelve to Coopers' clients. I have no way of knowing who is correct about this matter.
Cummings-Leckie contact before the first purchases
Between 30 June 1988 and the completion of the purchase of the yearlings which were eventually to be offered in the 1989 syndicates, there was - on anybody's story - considerable contact between Mr Cummings and Mr Leckie. Counsel for Mr Cummings led evidence of many incidents, during this period, involving Mr Leckie. Their justification was that these incidents throw light upon the nature of the relationship between the two men and of the role which Mr Leckie had undertaken. Undoubtedly, the incidents have the potential to do that. The problem is that much of the evidence about the incidents is strenuously disputed.
During the period with which this case is concerned, Mr Cummings kept a boat at Rose Bay. Mr Cummings says that, on or about Friday, 26 August 1988, Mr Leckie was in Sydney and he, Mr Cummings, invited Mr Leckie to accompany him on a short harbour cruise. He says that, during the course of this cruise, he referred to the success achieved with the Leilani 1-3 syndicates, telling Mr Leckie that he thought him to be "some sort of genius" because, in two weeks, he had achieved what he, Mr Cummings, had not been able to do in several months; that is, sell nearly $5 million worth of syndicate interests. Mr Cummings says that Mr Leckie replied:

"We'll do it bigger and better next year because you'll have your licence through by then. The stake money will then be good and the marketing right and time will be no trouble".

According to Mr Cummings, Mr Leckie mentioned $12 million. He, Mr Cummings, pointed that "we had a few million or $2 million or more (left over) at this stage" and said "let's make it $10 million" and Mr Leckie said "$10 million will be all right". Mr Leckie went on to refer to Mr Cummings' application for a dealer's licence and said:

"We'll be able to sell it easier next year because you'll be able to advertise to the broader public."

Mr Leckie denies any recollection of this boat trip. He agrees that he has been on Mr Cummings' boat. But he says that, to the best of his recollection, he did not see Mr Cummings between the end of June and 8 September. After referring to his diary, he said that he was in his office in Scone on 26 August. But he did concede the possibility that he was in Sydney on the following Monday, 29 August.
Approximately two weeks after the alleged boat cruise, Mr Leckie visited "Leilani Lodge" in the morning. The participants appear to agree that this visit was on 8 September. It is common ground that the purpose of the visit was to discuss the re-structuring of the Leilani Lodge 4-6 syndicates. During the course of this visit, according to Mr Cummings, Mr Leckie said words to the effect of:

"You've got the ability to pick the eyes out of the sales to acquire the horses to win the Group One races. I, as an accountant, have the ability to package them in a tax effective manner to sell them down to the clients and partners in Coopers and Lybrand".

He added:

"The next syndicate we do, we should have no problem selling it because it makes it so much easier for me when your licence comes through".

Mr Cummings says that, at the time, there was in his office a pile of prospectuses for various syndicates. He and Mr Leckie looked through them. Mr Leckie commented that "with the proper prospectus and starting early next year, you wouldn't have any trouble doing another syndicate". There was then discussion about the Leilani Lodge 4-6 syndicates. Mr Leckie pointed out that, with the horses now in training and being looked after for one year less, the figures would have to be adjusted; but "we'll leave the same brochure we've got for the other one because it's easier to leave it the way it is and not worth repackaging that particular article". He said that he would do the new figures. Mr Cummings says that, during this conversation, Mr Leckie referred to the Magic Millions sale, which is held on the Gold Coast each January, and said that it would be a good idea to start buying there.
Mr Leckie's version of this meeting emphasises the discussion about the Leilani Lodge 4-6 syndicates. But he does agree that he and Mr Cummings together looked at some "brochures", as he called them, in the context of a discussion about 1989. He says that Mr Cummings asked him his assessment of "my chances of doing a syndicate in 1989", and to that he replied:

"...it is very difficult to compare one year to the next. Last year the syndicate was rapidly put together and internally marketed. This year you will in all likelihood have the benefit of a dealer's licence and access to far more potential investors so you would really be selling to an unknown market."

Mr Leckie says he went on to refer to his intention to send the Leilani Lodge 4-6 prospectus to his partners when it was released "so we should get a guide on that pretty quickly". Mr Leckie denies any statement about having no trouble doing another syndicate and that he mentioned the Magic Millions sale.
Mr Cummings invited Mr Leckie to dinner at his home that evening. Others were present at the dinner, including Mrs Cummings and Miss Marusich, his secretary. Mr Cummings says that, before dinner, Mr Leckie used the telephone in the kitchen. While Mr Leckie was in the kitchen, there was a further conversation about 1989 during which Mr Leckie suggested to Mr Cummings that units be sold for $50,000 each, explaining that this would "make it much easier" and adding: "I'm comfortable I'll be able to sell it down at that price".
Miss Marusich also refers to a conversation in the kitchen, she thinks in the absence of Mr Cummings. According to her, she commented to Mr Leckie "that we are very happy with nearly 50 per cent of the syndicate being placed, people were keen and time was short". She says that Mr Leckie responded: "Next year when we do a syndicate, the units should be dropped to $50,000 and people can take two if necessary".
Mr Leckie agrees that he had dinner at Mr Cummings' home on 8 September and that he used the kitchen telephone. But he denies that he referred to the 1989 syndicate or to units of $50,000 - either to Mr Cummings or to Miss Marusich.
On 14 September 1988, Mr Cummings wrote a letter to Mr Leckie enclosing a final draft of the Leilani Lodge 4-6 prospectus. He enclosed the syndicate forms required by the Australian Jockey Club ("AJC"). He commented:

"I really am at a loss to know how to tackle them and as you have a much better understanding as well as the list of names of who is in each Syndicate, it seems logical that you start the ball rolling.

Once we get the first one right, it won't be so hard for us to follow. Incidentally, I also enclose a list of the Syndicate rules."

The opening sentence of the last paragraph seems to reflect an expectation that other syndicates would follow Leilani Lodge 4-6.
In the week before each Melbourne Cup meeting, it is the custom to hold a luncheon in Melbourne known as the Carbine Club luncheon. This luncheon is usually well-attended and prolonged. In 1988, Mr Cummings was present, as was Mr Leckie. They were seated a little apart, so they could not then converse. However, after the formal part of the function had concluded, Mr Cummings and Mr Leckie had a brief conversation, according to Mr Cummings, in which Mr Leckie remarked on the fact that the favourite for the pending V.R.C. Derby, a horse called Sir Midas, had been purchased at the Magic Millions sale two years earlier. Mr Cummings says that Mr Leckie commented that "the Magic Millions has come a long way in the last couple of years and is probably as good as New Zealand and probably better than the Inglis Easter sale". Mr Cummings says that he responded that he did not know about that, but that "a lot of good horses are coming out of it". Various horses were named and Mr Leckie said "we should buy again at the Magic Millions sale for $10 million or $12 million". Once again, according to Mr Cummings, Mr Leckie commented on the ease of selling down a syndicate of $10 million to $12 million.
Mr Leckie agrees that he attended the 1988 Carbine Club luncheon and that he spoke briefly to Mr Cummings. But he says that his conversation was limited to normal greetings of the day. In particular, he says that he made no mention of Sir Midas or the Magic Millions sale; but he does recall commenting on Sir Midas whilst watching early track work with Mr Cummings at Flemington racecourse on the following Saturday morning.
In December 1988, Mr Cummings travelled to New Zealand. His purpose was to inspect yearlings intended to be offered at the January 1989 sale conducted by Wrightson Bloodstock Limited at Karaka, Auckland. During this visit, he examined some horses bred by Patrick Hogan of the Cambridge Stud. He says that, upon his return to Australia, he spoke to Mr Leckie and told him "I don't think we should be buying too many there. They're very expensive from Hogan's place". According to Mr Cummings, Mr Leckie replied, "I agree. You could probably get better value elsewhere with a few exceptions". Once again, he claims, Mr Leckie referred to the Magic Millions sale.
Mr Anthony Cummings gives evidence substantially corroborating his father's version of this conversation. He also deposes to another exchange, at about that time, during which Mr Leckie said:

"We should be looking to see what we can do about a syndicate for next year. Now that we've got your dealer's licence, it should be a much easier task to fill the syndicate. We could circulate amongst all the Coopers and Lybrand offices and I have no doubt it would be much easier, much more successful, given the time that we have."

The dealer's licence had issued on 13 December 1988.

Mr Leckie denies having any conversation with Mr Cummings in relation to the horses to be offered at Karaka. He also denies the statement attributed to him by Mr Anthony Cummings. He says that there might have been a conversation about circulating Coopers' offices in relation to the Leilani Lodge 4-6 syndicate, "but not any other prospective syndicate".
The Magic Millions and Karaka sales
The Magic Millions sale was held on 15 and 16 January 1989. Shortly before that date, Mr Cummings had a conversation in Sydney with officers of Elders Pastoral Limited. The Magic Millions sale was conducted by this company or another member of the Elders Group. A memorandum from an officer of Elders Pastoral, Mr C.P. Farrington, to Mr J.M. Fremantle, Executive Director Rural Finance of the company, contains this paragraph:

"Cummings has indicated his intention to purchase at our sale up to say $1.5 million. Yearlings purchased will form part of the next Leilani Lodge syndication or to be sold to his existing clients. Brochure for syndicate already completely sold is attached. The next syndication is to be offered in this financial year and finalised prior to 30th June 1989 to ensure participants receive current significant taxation benefits."

Mr Cummings and Mr Leckie both attended the Magic Millions sale. According to Mr Cummings, the two men spent a lot of time in each other's company, including a period during which they inspected yearlings being offered for sale. He says that, before the sale commenced, he had a conversation with Mr Leckie during which he suggested that "we should spend between $1 million and $2 million" and that Mr Leckie agreed. Mr Cummings acknowledges that Mr Leckie had another interest in the sale, as manager of the Bhima breeding partnership which had sent to the sale a number of yearlings. Mr Leckie, for his part, acknowledges that he spent some time with Mr Cummings. But he asserts that his main interest in the sale was as a vendor. He says that he was a partner in, and manager of, five breeding partnerships that were selling yearlings at the sale. Also, a man named Alan Bell and he had been approached by some other people to structure a fillies partnership that year "and we commenced buying at that sale." Mr Leckie denies that he inspected yearlings with Mr Cummings with a view to joint purchase or that he was involved in the purchase decisions made by Mr Cummings.
According to Mr Cummings, the prices achieved at the Magic Millions sale were much higher than he had expected. During the course of the sale, he says, he had a conversation about this with Mr Leckie. Mr Leckie's reaction was that it might be necessary for Mr Cummings to sign a stock mortgage over the horses he purchased in order to secure the necessary additional credit. Mr Leckie denies any such conversation.
Mr Anthony Cummings accompanied his father to the Magic Millions sale. Anthony Cummings gave evidence about three incidents during this sale. The first of them occurred when he first met Mr Leckie at the sale. Mr Leckie said to him: "I've seen a horse that might look all right in the syndicate". Mr Leckie took Mr Anthony Cummings to the Bhima Stud yard. He pointed out a filly. Mr Anthony Cummings says that he replied: "She looks fine". Mr Bart Cummings subsequently purchased the horse. I think that Mr Leckie was not asked about this particular incident but he does deny a more general conversation about the syndicate alleged by Mr Anthony Cummings.
Secondly, at the sale, Mr Cummings purchased a filly by What a Guest out of Gelsomino. She was a half-sister to a successful performer, Mercury. Mr Anthony Cummings said that, after the filly was knocked down to his father for $350,000, Mr Leckie came up and said: "Don't sell that to anyone". Mr Bart Cummings replied: "What if Antico wants to come and buy it back?" (Sir Tristan Antico, a stable client of Mr Cummings, owned the stud where the filly was bred). Mr Leckie replied: "Don't sell it to him. With Mercury going so well she'll be a great asset for the syndicate", whereupon his father said: "Okay". Mr Leckie denies this evidence. He agrees that there was a conversation between Mr Cummings and himself about the What A Guest/Gelsomino filly. But his version of the matter is that, a few days after the sale, he was in Mr Cummings' office when Mr Cummings took a telephone call. After he finished the call, Mr Cummings said to him:

"That was Antico on the phone. He's been trying to buy back that Gelsomino filly. To shut him up I told him I'd bought it for you."

Thirdly, Mr Anthony Cummings says that, towards the end of the first day, Mr Leckie came to him and asked "how much we'd spent". Mr Anthony Cummings says that he opened the back of his sale catalogue and started to tally figures; but Mr Leckie said: "Give it to me", and took the book. According to Mr Anthony Cummings, Mr Leckie wrote down the individual purchase figures in the back of the catalogue and added up the total. He says that it came to just over $2 million.
Mr Leckie also denies this incident. In relation to this incident, at least, his denial is clearly justified. The catalogue is in evidence. When it was printed, a double page immediately inside the back cover was left blank. The left hand page, of that double page, contains a hand-written list of horses and their prices. These same prices are then listed separately on the right hand facing page. They are totalled at $2,040,000. But the list includes horses which, as notes on the list itself show, were intended in whole or in part for clients who had commissioned Mr Cummings to purchase on their behalf. Those horse-interests were irrelevant to the syndicate. It would have been absurd to include them in any addition of syndicate outlay. Moreover, evidence has been adduced from two handwriting experts who have considered samples of Mr Leckie's handwriting, including indisputably authentic figures, that it is highly improbable that the list of figures was written by Mr Leckie. There is no doubt in my mind that Mr Anthony Cummings is mistaken in relation to this incident.
At the end of the Magic Millions sale, Mr Cummings says, Mr Leckie inspected the horses which he, Mr Cummings, had purchased and complimented him on his selection. Mr Cummings says that he told Mr Leckie: "We spent about $3 million. We've got $7 million to spend" and that Mr Leckie replied: "We'll get that in New Zealand and I'll come with you". Mr Leckie denies all of this.
Both Mr Cummings and Mr Leckie did attend the Karaka sale, which was held during the last week of January. They travelled to New Zealand in the same aircraft, although they were apparently not seated together. They stayed at the same hotel and shared a car out to the sale one morning. But Mr Leckie says that he was there primarily as a vendor - three breeding partnerships in which he was interested were selling yearlings. He was also buying fillies with Mr Bell. He concedes that he had contact with Mr Cummings at the sale. But once again, there is a dispute as to the extent of that contact. Mr Cummings says that he inspected the yearlings on offer on Wednesday, 25 January and attended the first two days of the sale, Thursday 26 and Friday 27 January. It is common ground that Mr Leckie was present on all three of those days. Mr Cummings says that, on the Wednesday, he inspected yearlings in company with Mr Leckie and Mr Alan Bell. Mr Leckie commented favourably on a colt by Western Symphony out of Kind Regards, saying: "You couldn't go wrong buying that for the syndicate, it's one of the top lookers in the sale". Mr Cummings says that he responded: "Yes, the pedigree is very good. It's a bit top heavy but it is a lovely colt". Mr Cummings did buy the colt, only to discover that the breeder had informed the auctioneers that she would like to retain a 25% interest. When the auctioneer told him this, he says, he responded that he would "speak to Noel about it". But Mr Leckie was opposed, saying: "It's too messy". So Mr Cummings insisted on the full 100% interest. Mr Leckie denies any conversation about this horse.
Evidence was given by two witnesses of incidents said to have occurred during the course of the Karaka sale, but not referred to by Mr Cummings. The first witness was Murray Bell, a journalist who has specialised in writing about the racing industry since 1973. Mr Bell had met Mr Leckie in 1988. He attended the Karaka sale in January 1989. He says that he saw Mr Cummings and Mr Leckie inspecting horses together on several occasions. He also claims a clear recollection of Mr Leckie's bidding for a particular yearling. Later that day, when the sales list was published, the yearling was shown as bought by Mr Cummings. Mr Leckie denies any such incident.
The second incident was deposed to by Martin King, a turf photographer. Mr King had known Mr Cummings for about five years before the Karaka sale, having seen him in and around various stables, sale yards and race meetings. Mr King attended the 1989 Karaka sale and was there introduced to Mr Leckie. Mr King says that, towards the end of the first day of the sale, he was in the Ra Ora Stud hospitality tent. He noticed Mr Cummings and Mr Anthony Cummings having refreshments. He joined them and there was general conversation. A few minutes later, Mr Leckie entered the tent and stood at the table next to Mr Cummings, with whom he commenced to converse. Mr Leckie said: "We're right on budget". Mr Cummings said: "What's that?". Mr Leckie replied: "Three million". Mr Cummings said: "Australian or New Zealand". Mr Leckie said: "New Zealand". Mr Cummings replied: "That's okay then". Mr King says that, when Mr Cummings made this last statement, he looked at him, Mr King, with a grin on his face. When asked in cross-examination about his recollection of the conversation, Mr King said that he mentioned it to Reg Inglis of William Inglis and Son Limited, the Sydney auctioneers, in February 1991. It was put to Mr King that the conversation was not, at the time, important to him. But he replied: "Funnily enough, it was, yes". When asked why it was important, he referred to the fact that, a couple of months before the Karaka sale, he and a partner had started a thoroughbred newspaper. He thought that expenditure of $3 million in one day was a lot of money at a yearling sale and he had mentioned it to his partner, the editor of the newspaper.
The evidence does not reveal how much Mr Cummings spent on the first day of the sale. Overall, it seems he spent about NZ$8.5 million. But this figure includes over NZ$2 million spent on horses, and interests in horses, purchased on commission. Mr Leckie says that he has no specific recollection of seeing Mr King in the hospitality tent, although he may have. He knows Mr King and he did speak to him during the course of the sales. But he denies any incident such as that described by Mr King, particularly the use of the word "budget" or a reference to $3 million. Mr Leckie says that, after dinner on the first day of the sale, he happened to meet Mr Cummings in the hotel foyer. Mr Cummings invited him to his suite for a drink. Anthony Cummings was already there with the day's sales results. Mr Leckie says that Mr Cummings said to him: "Well I bought some horses today". He replied, looking at the list: "Yes, by the look of this list you've spent about $4 million. What do you think you are going to spend at these sales?" He says that Mr Cummings said: "Well perhaps you ought to be telling me that" and that he responded: "Me tell you how much to spend on horses. You would have to be joking".
Intervening events: January and March
Before I deal with the remaining two sales at which horses were purchased, I should refer to some other matters. First, sometime in January 1989 a revised prospectus was issued, covering the Leilani Lodge 4-6 syndicates. This prospectus named Mr Cummings as manager/trainer. The named promoter was International Bloodstock Pty Limited. Under the heading "Accountants" appeared the words "Noel Leckie Coopers and Lybrand", with an address at Scone. The prospectus offered 54 undivided interests in the horses included in the syndicates, the remaining six interests being retained by Mr Cummings. The price was $142,483. The evidence is that the prospectus was put out in January in the hope of attracting investors who were facing the necessity to make provisional tax payments. It attracted little interest.
Secondly, in about January 1989, Mr Leckie lodged 1988 income tax returns in respect of each of the syndicates Leilani Lodge No.1, Leilani Lodge No.2 and Leilani Lodge No.3. Each return claimed as a loss the sum of $245,414, being $12,271 for each of the 20 units in each syndicate. Each return included a statement "Details of Business Activity" in which reference was made to Mr Cummings' success as a trainer. In view of evidence attributing certain statements to Mr Leckie about Mr Cummings' success, it is appropriate to quote part of this statement:

"The nature of the business is to: 1) Race the horses with a view to securing a profit through the winning of prizemoney. The management is of the opinion that the huge escalation of prizemoney in Metropolitan racing in Australia gives experts in the industry a unique opportunity to obtain substantial profits by racing high quality horses of their choice. In this regard Mr J.B. Cummings is without doubt the leading expert in selecting and training horses to win the major prizemoney events in Australia. During the year ended 31st July, 1988, horses trained by J.B. Cummings earned a Southern Hemisphere record $6.3 million. An analysis of the horses in training with J.B. Cummings reveals that approximately 60 horses had been selected by Cummings in earlier yearling sales. These 60 horses won in excess of $4.5m or an average of $75,000. The average cost of maintaining a horse in training for a full year would not exceed $18,000. All of the 48 horses in this syndicate were personally selected and will be trained by Cummings and include shares in Champion horses such as Beau Zam (Australian Horse of the Year 1987/88) and Sky Chase."

The statement went on to refer to breeding possibilities. It concluded:

"The organisation of the day-to-day affairs are delegated to the manager, J.B. Cummings and the Investors Representative, Coopers and Lybrand, Scone. The manager and investors representative have control of the every day activities relating to horse management and liase and report to the partners in all matters. Accounting, taxation and financial matters are handled by Coopers and Lybrand, Chartered Accountants, Scone.

The objective tests applied by the Australian Taxation Office following the issuance of assessing handbooks and furthermore following certain board of review decisions are complied with by this partnership to fully support that the partnership is carrying on a business and the objective of the partnership to make fully assessable profits for its partners."

The third matter is that some time in February, or perhaps early March, two gentlemen named Riddington and Wright came to "Leilani Lodge" by appointment to offer their services in selling syndicate units. They were interviewed by Mr Cummings and Mr Leckie. According to Mr Cummings, Mr Leckie was unimpressed with them. He said: "I will be answering all the inquiries about taxation and accounting and those fellows will be getting the commission." They were sent away empty-handed.
Enter Peats
Fourthly, and more importantly, it is common ground that, before the next yearlings sale on 12 March 1989, Peats became involved in Mr Cummings' syndication activities. But there is a great gulf between Mr Cummings' account of their intervention and that given by Mr Hancock, Mr Lewis and Mr Rundle. According to Mr Cummings, during the first few days of March, there was a series of telephone conversations during which he was asked to purchase on behalf of Peats yearlings worth $10 million. These conversations are denied by each of the relevant Peats' people.
The first conversation was claimed to be with Mr Hancock. Mr Cummings says that Mr Hancock called him from Adelaide and said: "I've got some good news for you". He went on to say that "Michael Lewis, from here, and Des Rundle have decided to get you to buy some yearlings to package in a tax-effective manner and are going to sell them down between now and the end of the financial year." Mr Cummings says that Mr Hancock asked how much Coopers had asked him to buy for them and he replied: "$10 million". Mr Hancock responded: "That's the exact amount they were talking about". At some stage during this conversation, according to Mr Cummings, he expressed surprise and asked what Mr Rundle said about it. Mr Hancock said that he agreed, and so did Mr Lewis. Mr Cummings said that he asked whether they would confirm and Mr Hancock said that he would be hearing from them.
Mr Cummings' account of this conversation is corroborated, to a limited extent, by Miss Marusich. She said that sometime before the Easter sale, she was in Mr Cummings' office when he was speaking on the telephone. She claims to remember hearing Mr Cummings say:

"Tell me, Grant, what's going on? What does Des Rundle think about it? Does he agree? What is the boardroom decision?"

and

"I'd like Des Rundle to confirm it with me".

The prediction attributed by Mr Cummings to Mr Hancock was fulfilled: he did hear from them. First, according to Mr Cummings, Mr Lewis telephoned on the following day. He confirmed what Mr Hancock had said. Mr Cummings asked him how he had got Mr Rundle to do this, saying: "he's a pretty conservative sort of bloke". Mr Lewis responded: "Well I think he was impressed with the number of Group One winners that the stable was having". Some horses were mentioned before Mr Lewis concluded by saying: "The market's pretty good at the moment and with your successes it should be very easy for us to market".
Mr Cummings claims that Mr Rundle telephoned him, either that afternoon or the next morning. He said:

"You've been speaking to Michael Lewis and I just want to confirm that we want you to buy the horses so we could package them in this tax-effective way so we'll be able to sell it down at the end of the financial year. Your performance is very good and I'm relaxed about you buying the yearlings for us."

Mr Rundle went on, according to Mr Cummings, to mention a merino sheep embryo syndicate for the Collinsville Stud at Burra, with which he had been involved and which had been very successful.
As I have indicated, Peats' version of their introduction into the matter is radically different. According to that version, the first relevant event was that, in early 1989, Mr Hancock received copies of the 1988 tax returns of the three syndicates, Leilani Lodge No.1, Leilani Lodge No.2 and Leilani Lodge No.3. With the returns came financial statements showing operating expenses, including a payment of $45,000 to Coopers in respect of each of the three syndicates. Mr Hancock had a discussion with Mr Rundle and Mr Lewis. On 2 March, according to Mr Hancock, he was in his office in Adelaide when Mr Cummings phoned. After discussion on other matters, Mr Hancock asked Mr Cummings how many of the 1989 yearlings had been placed. Mr Cummings mentioned a couple of horses and Mr Hancock asked him his plans for the remainder. Mr Cummings replied: "I'm going to syndicate them". Mr Hancock asked whether the format of the syndicate would be similar to the 1988 syndicate. Mr Cummings said: "Yes".
Mr Hancock says that, after this conversation, he spoke again to Mr Rundle and Mr Lewis. Thereafter, on 7 March, he telephoned Miss Marusich to arrange a meeting on 16 March between Mr Cummings, Mr Lewis and himself. When he spoke to her, he says, she asked why Mr Lewis and he were coming and he replied: "We are going to ask Mr Cummings if we can do the accounting work for the 1989 syndicate". An appointment was made for 1pm on 16 March.
It is common ground that, on 9 March 1989, Mr Cummings attended a luncheon at a Sydney city restaurant with Peter Done of Peats' Sydney office. The luncheon was arranged by Clive Hinton, a solicitor who was a partner in Phillips Fox' Sydney office. Mr Hinton had acted for Mr Cummings on many matters in the past. Mr Hinton did not give evidence in this case so we do not know his version of the luncheon. But Mr Cummings and Mr Done both agree that they met at the luncheon for the first time. At that time, they both understood that Mr Hinton had introduced them in the belief that it might be advantageous for Mr Cummings to switch his accountancy work from the Adelaide office of Peats to its Sydney office. Mr Cummings says that he found Mr Done a "pleasant young fellow" and that they had an enjoyable lunch. He says that, during the lunch, he mentioned to Mr Done "that we are going to acquire these $10 million horses for the boys in Adelaide who were going to package it in a tax-effective way and they are quite confident that they can sell it down". According to Mr Cummings, Mr Done commented: "Gee, they must be pretty confident because it is a fair amount for them to sell" and went on to mention a new investment advisory service which Peats' Sydney was planning to establish.
Mr Done denies that Mr Cummings said anything about $10 million worth of horses. His version is that Mr Cummings merely said "something to the effect that Peats Adelaide want to talk to me about being involved in a syndicate".
Mr Lewis and Mr Hancock attended at "Leilani Lodge" on 16 March. Their flight was late, so they were late for their appointment. When they entered "Leilani Lodge" they found both Miss Marusich and Mr Anthony Cummings standing outside Mr Bart Cummings' office. Mr Cummings was at his desk. The men went into the office and a conversation ensued. According to Mr Hancock, Mr Lewis said that Peats would be interested in being involved in a syndication of the 1989 purchases "and doing the accounting work for it". Mr Cummings asked: "What can Peats do for me?", to which Mr Lewis replied that Peats would charge lower fees than Coopers had charged in 1988 and would not charge any commission on the sale of units. Mr Cummings asked what Peats got out of it, to which Mr Lewis replied: "We still get the accounting fees, though not as much as Coopers". He added: "We would also be able to increase the exposure of the syndicate by the use of our bloodstock industry group". Mr Lewis explained that the bloodstock industry group consisted of himself in Adelaide, Peter Done, and a Melbourne partner. The group had an established mailing list of clients interested in the bloodstock and racing industries.
Mr Hancock says that he left the meeting at that stage to attend to some accounting queries raised by Miss Marusich. He later came back and heard further conversation; but nothing of any significance.
Mr Lewis' account of this meeting substantially accords with that of Mr Hancock. But he adds that Mr Cummings spoke about the horses he had purchased in New Zealand and on the Gold Coast. Mr Cummings said that these were stayers and that he needed to buy some shorter distance horses, which he proposed to buy at the Inglis sale. Mr Lewis recalls some conversation about the Cummings' company, International Bloodstock Management. But he says that the total conversation, including breaks while Mr Cummings took phone calls, took no more than 20 minutes to half an hour. He did not see a catalogue for the Inglis sale.
Mr Cummings agrees that Mr Lewis and Mr Hancock came to "Leilani Lodge" on 16 March. But he gives a different account of the visit. Mr Cummings started to talk about the forthcoming Sydney Easter sale, to be conducted by William Inglis and Son. Mr Cummings offered Mr Lewis a copy of the sale catalogue but Mr Lewis said that he already had one and commented on the quality of the yearlings being offered. Mr Lewis said: "You should get anything from, say, 25 to 36. If you get a few cheapies, you might stretch it a bit, but most of all buy quality rather than quantity because we've got to maintain them after". Mr Cummings says that there was a conversation about finance, during which Mr Lewis said something about NZI being approached for lease financing. Mr Lewis also mentioned a seminar being planned by Peats and that Peats would "do some media releases which would come from Adelaide Office".
Miss Marusich mentions this visit. She says that she was in Mr Cummings' office for part of the time and that she remembers hearing Mr Cummings ask Mr Lewis how Mr Rundle came to agree to a racing syndicate. According to her, Mr Lewis replied that they had been impressed with the stable's performance, mentioning the names of some of the horses, "and that the time was right for a syndicate like that". Miss Marusich says that she asked Mr Lewis whether people were interested in "these tax-effective schemes", "did they want to invest in them?"; and he replied: "Yes".
Mr Anthony Cummings also gave evidence about this conversation. He says that he was present for part of the time and that he remembers Mr Lewis talking about "$10 million worth of horses so that we can package them in a tax scheme for our clients". There was some reference to a sheep embryo scheme. And he says that he recalls Mr Lewis saying: "We couldn't get the powers that be to agree to a syndicate last year, but this year they're quite happy to do one". Mr Anthony Cummings also says that, when asked about the numbers or types of horses required for the syndicate, Mr Lewis replied: "We want quality and we want Group One winners or close relations to Group One winners and black type pedigrees to be attractive to the investors".
Before returning to the sales evidence, it is convenient to note the evidence of Mr Cummings and Mr Leckie as to Mr Leckie first learning of Peats' interest in the proposed syndication. As on so many other matters, this evidence conflicts. Mr Cummings says that he remembers having a telephone call with Mr Leckie "early in March" in which he, Mr Cummings, said that Peats wanted him "to do a similar syndicate to Coopers" and had asked him to buy $10 million worth of horses. He says that Mr Leckie replied to the effect: "They're big enough to handle it". Mr Leckie's version of the matter appears in this answer in his evidence in chief:

"Mr Cummings rang me on I believe 20 March 1989 and said; I've been speaking to Peats about this syndicate and they want to get involved this year, they are a bit annoyed that they missed out last year. I said, well, what do you mean by involved, and he said; well, I don't know, I want you to keep the same role you had last year, perhaps they could be auditors or something. I said, well, I'm not particularly happy about it but if - it's your syndicate, if you want them involved there's not much I can do about it. Cummings then said; well, I'm hoping that perhaps they'll be able to help me market it, and I said; well, the way that the Leilani 4 to 6 syndicate is selling, you're going to need all the help that you can get but don't believe that the introduction of Peats or any other accountants is going to create a whole new market, after all you've got a dealer's licence and you can approach all the professional people that you want anyway."

The Dalgety and Easter Sales

A few days before the 16 March meeting, Mr Cummings and Mr Leckie attended another sale: the Dalgety Bloodstock International sale in Melbourne. The sale was held over two days, Friday 10 March and Sunday 12 March. But Mr Cummings attended on one day only. He had previously arranged for a veterinary surgeon to inspect the yearlings on offer and had not been impressed with his report. He spoke about this report to Mr Leckie who said: "Well keep looking because we might find something down there that will suit". But Mr Cummings made only a short visit to Melbourne, attending only on the Sunday and purchasing only two horses.
During the course of the Dalgety sale, Mr Leckie had a conversation with Anthony Fleiter, the General Manager of Dalgety Bloodstock International. Mr Cummings was not present. Mr Fleiter thought that the conversation probably took place on the first day, before Mr Cummings' arrival.
Mr Fleiter says that he may have previously met Mr Leckie - he certainly knew who he was - but that he had never had a detailed conversation with him. He sought out Mr Leckie because he was keen to establish whether the horses that he expected Mr Cummings to buy would be "for the rumoured breeding venture that the horses in New Zealand had been purchased for". Mr Fleiter had been at Karaka and had seen Mr Leckie there. He said to Mr Leckie in Melbourne: "Are you going to be buying horses at this sale?". Mr Leckie replied: "We bought big in New Zealand. We'll be buying some horses here and we'll be buying big in Sydney". Mr Leckie went on to say words to the effect that they would not be buying many horses in Melbourne. Mr Fleiter says that he then asked Mr Leckie whether they would be able to pay for the horses they did buy within 30 days or whether they would need a longer period; and that Mr Leckie replied:

"We probably wouldn't be able to pay for them within the 30 days, but we would be paying for them before 30 June because all the horses have to be paid for prior to 30 June for the investors to get their tax deduction."

Mr Fleiter, who had practised as a solicitor until he joined Dalgetys in April 1984, went on, according to him:

"I've been involved in some tax shelter work in the early 80s and I didn't think there was as big a market for this type of scheme at this time as what there was then."

He says that Mr Leckie replied to the effect: "I've still got a market. I've got clients committed to these ventures" or "I've got clients ready to put their money in as soon as we've bought the horses." Mr Fleiter says that he asked about Mr Cummings' role, to which Mr Leckie replied:

"Bart will be training all the horses. We chose him to do the buying because we found he had the best record of choosing Group One winners out of the yearling sales. So therefore we chose him to do the buying and he'll end up doing all the training."

There was then discussion about the way in which investors would get back their investment.
Under cross-examination, Mr Fleiter said that he was not certain that he had used the words "breeding venture" in his opening question to Mr Leckie. He agreed that, at the time, he knew that Mr Leckie was involved in a number of breeding ventures. But he said that he had in mind a racing syndicate, or venture, when he questioned Mr Leckie. Mr Fleiter agreed that he understood that the two horses which Mr Cummings did buy were purchased for this syndicate. He also agreed that he took Mr Leckie's answer as a statement that the horses would be bought for Mr Leckie or his firm. But he said that he never thought of invoicing Coopers. Mr Fleiter explained that it was commonplace for prominent trainers to bid on behalf of other people, "we quite often would send the account to a trainer who signed for it and let him sort it out".
Mr Leckie does not agree even with Mr Fleiter's evidence as to when this conversation took place. He says that he thinks that it was on the second day. Mr Leckie concedes that he had a conversation with Mr Fleiter in which he referred to his still having a market. But he says that this was a reference to breeding ventures. He denies all other elements in Mr Fleiter's account.
Before dealing with the Easter sales, I should mention three fragments of evidence from about this period. The first comes from Mr Darvall. It was not challenged in cross-examination or denied. Mr Darvall says that, one day before the Easter sale, he was with Mr Leckie at a race meeting. He claims that he asked him: "Noel, do you believe that we will have any trouble selling those syndicates down?" and that Mr Leckie replied: "I do not believe we will have a problem selling down any syndicates through the Coopers and Lybrand network". It is not clear to what syndicates this conversation referred. NZI was involved in Leilani Lodge 4-6 syndicates, so it is possible that Mr Darvall was referring to them.
The second fragment of evidence comes from Miss Marusich. She says that one day, whilst he was working in the "Leilani Lodge" office, Mr Hancock told her "that Peats had suggested to Bart they would like him to do a syndicate out of the upcoming Easter sale". According to Miss Marusich, she replied: "Wouldn't you be interested in the New Zealand ones as well?", but Mr Hancock said: "They thought it was a very good brochure and that they could do a good syndicate out of that one". I take the word "brochure" to refer to the Easter sale catalogue. Mr Hancock denies this alleged conversation.
Thirdly, there is in evidence a bundle of photocopy documents taken from the files of Phillips Fox, solicitors. It is common ground that, after Easter, Mr Hinton became heavily involved in the syndication proposals on behalf of Mr Cummings. There is no evidence as to the date when he was first instructed in the matter by Mr Cummings or as to the terms of his instructions. However, it seems probable that the date was between the initial approach by Peats and Easter. A diary note dated 23 March records a telephone attendance by Mr Hinton on Mr Cummings which might have constituted Mr Hinton's first involvement. The note deals with several matters, including the item:

"(1) Adelaide - $10m syndicate - Michael Lewis to organise."

The Sydney Easter sales were spread over three days, Tuesday 28 March, Wednesday 29 March and Thursday 30 March. Mr Cummings attended each day, as did Mr Leckie. According to Mr Cummings, the two men inspected yearlings together. Mr Leckie was particularly attracted by a colt by Biscay out of Tommasina Fiesco which he thought would top the sale. It did. It was purchased by Mr Cummings for $1.5 million. This was only part of Mr Cummings' heavy spending. He purchased nearly $13 million worth of yearlings at the sale; $4.8 million on the Tuesday, $2.98 million on the Wednesday and $4.93 million on the Thursday.
During his evidence, Mr Cummings recounted two Easter sale incidents involving Mr Leckie. The first concerned the Biscay/Tommasina Fiesco colt. The vendor, David Haines, spoke to Mr Cummings before the sale and told him that if he bought the colt he, Mr Haines, would not mind staying in for 25%. Mr Cummings told him that he would have to "find out from Noel whether he would like to do that". He says that he spoke to Mr Leckie who preferred to have 100%. So the request was refused.
Once again, Mr Leckie has a different account of the matter. He says that there was a conversation about this colt but that it took place on the Friday morning after the sale at "Leilani Lodge". Mr Leckie says that he asked Mr Cummings how much equity he had sold down in the yearlings he had just purchased and that Mr Cummings replied that he had not yet worked it out. He then asked him about the Biscay/Tommasina Fiesco colt. Mr Cummings said that Mr Haines might keep half of it. Mr Leckie said that he went on to urge Mr Cummings to get out a list of horses quickly so that he could "get the structure of the syndicate started". Mr Cummings told him that he proposed to use Mr Hinton for the syndicate and Mr Leckie said that he would see Mr Hinton during the following week. As will appear, Mr Leckie apparently had a meeting with Mr Hinton on the following Wednesday, 5 April.
Secondly, according to Mr Cummings, Mr Leckie was attracted by a filly by Luskin Star out of Impede. But he expressed concern to Mr Cummings that, if he bid, "they might run you up". So he suggested to Mr Cummings that he, Mr Cummings, bid, and then drop out. He, Mr Leckie, would stand in a different part of the ring and take over the bidding. Mr Cummings agreed. The plan was followed and the horse was knocked down to Mr Leckie for $750,000. When the auctioneer's assistant brought over the contract book for signature, Mr Leckie directed him to where Mr Cummings was standing with his son, Anthony. Anthony Cummings signed on behalf of his father.
Mr Leckie agrees that he bid for this filly. But his version of the matter is different. According to him, he had earlier advised Mr Cummings that one Fred Kelly was interested in taking shares in the syndicate but that depended on what happened with the Luskin Star/Impede filly. Mr Cummings said that he would have to watch the bidding on that filly. Subsequently, Mr Leckie was in the yard when his name was called over the loudspeaker. He returned to the ring, where Mr Cummings saw him and asked him to bid after he, Mr Cummings, dropped out at $400,000. Mr Leckie says that he did so. He agrees that the horse was knocked down to him and that he directed the auctioneer's assistant to Mr Cummings.
Keith Lock, a finance officer who had been employed by NZI until March 1988 and, since then, by Mortgage Acceptance Limited, attended the Easter sale. He knew Mr Leckie, whom he had first met when NZI provided finance for one of his breeding ventures. He saw Mr Leckie standing beside the sale ring with another person whose identity Mr Lock does not now recall. He says that the comment was made: "Don't you think that Bart is buying heavily?", to which Mr Leckie replied: "It doesn't matter. We're going to syndicate them" or "We're going to need them". Mr Leckie denies that this was said.
Cross-examined as to the reason why this snippet of conversation sticks in his mind, Mr Lock said that he was questioned later in 1989 by a private investigator, Peter Cox, and he then recalled the incident. He agreed that Mr Cox put to him leading questions; that is, questions which suggested answers. But, nonetheless, Mr Lock reiterated his belief that Mr Leckie did use words to the effect of his evidence.
Prior to the commencement of bidding on the final day, Mr King, the photographer who had seen Mr Cummings and Mr Lewis together in Karaka, attended "Leilani Lodge" for the purpose of taking some photographs. He finished this task not long before the day's sale activities were due to begin. He planned to go to the sale. Mr Leckie was at "Leilani Lodge" and Mr King offered to take Mr Leckie in his car. On the way, the two men had a conversation. According to Mr King, he asked Mr Leckie: "How are you putting the package together?" and Mr Leckie replied that there would be 400 units of $50,000 each. According to Mr King, Mr Leckie went on to say that he had "done a lot of research into Bart's prizemoney earnings in the previous season and that the stable had shown a profit on training fees and that there was every chance that the whole thing would be a great success". In cross-examination, it was put to Mr King that Mr Leckie had made this comment in the context of a remark about the 1988 syndicates' taxation returns. But Mr King would not accept that there was any conversation about tax returns or tax benefits. He said that his understanding of the research was "that it was to convince the investors to invest, of why it was a good investment, rather than the tax Commissioner as to why it was a good tax deduction". Mr Leckie's only denial, in connection with this conversation, is of the comment that there was every chance that the whole thing would be a great success.
It is common ground that Mr Hancock was working in the "Leilani Lodge" office during the Easter sale, doing normal accounting work. Mr Cummings says that, towards the end of the sale, he remarked to Mr Hancock: "We have almost spent the $10 million. You should be comfortable with that". He says that Mr Hancock replied: "Yes, I am". Mr Hancock denies this conversation.
After the purchases: the scheme evolves
On 3 April 1989, the Monday after the Easter yearlings sale, Mr Leckie was in Sydney to attend a brood mares sale. At 9 a.m. that day, by prior arrangement, he was visited at his hotel by two people, Arthur Harris and William Harcourt, who were interested in selling syndicate units. Apparently, Mr Cummings had mentioned this possibility to Mr Harris, he referring to what became the Cups King syndicates of June 1989. But there was not yet a prospectus for any 1989 syndicate. So Mr Cummings said that, in the meantime, the two men might wish to sell some of the remaining Leilani Lodge units. Mr Cummings had given them a copy of one of the Leilani Lodge prospectuses; it is not clear whether it was the original prospectus or the later document for syndicates 4-6. But whichever it was, Mr Haines and Mr Hancock had had difficulty in understanding some aspects of it. Mr Harris had asked Mr Cummings for clarification. But he could not assist and had referred Mr Harris to Mr Leckie.
Mr Harris and Mr Harcourt went to Mr Leckie's room in the hotel. Mr Leckie handed each of them his card. Mr Harris noticed the Scone address and commented on it. According to him, Mr Leckie replied:

"Yes, I am situated in the heart of the horse country at Scone. I am into horse syndications in a big way for tax deduction. I don't only do syndications for Bart Cummings. I also do brood mare syndications and I am going to attend a brood mare sale later today."

The conversation turned to Mr Cummings. According to Mr Harris, Mr Leckie said words to the effect:

"We have selected Bart Cummings to do our buying for us. We, that is Coopers and Lybrand, did a survey of the leading trainers in Australia for the yearling purchases they had acquired in 1983-84 and we then followed through the careers of these horses to see how they fared and the trainer that came out best was Bart Cummings. The yearlings that were selected had on the average, won about $70,000 and that is why we have got Bart Cummings to do our buying for us".

Mr Harris says that he particularly noted the figure of $70,000 because, the previous September, Mr Cummings had bought a horse for him and some friends for $70,000; and he thought at the time "I hope Bart runs up to his average with this horse". There was discussion about the Leilani Lodge scheme. Mr Harris says that he asked Mr Leckie who drew it up and Mr Leckie replied: "I did". Mr Harris said: "Well, if I've got to be selling this, is it a hundred percent?". Mr Leckie responded: "We have put our clients into it and we have presented their deductions to the Taxation Department and the deductions have been allowed". Mr Harris says that he then asked: "Have you got clients for the forthcoming syndicates?" and Mr Leckie replied: "Yes".
The conversation then turned to the form of the 1988 prospectus, Mr Harris complaining of comprehension problems and Mr Leckie saying that it had to be done like that so that it would not look like a tax avoidance scheme.
Under cross-examination, Mr Harris said that he had a vivid recollection of the figure of $70,000, and that he had commented to Mr Harcourt about it as they left the hotel. He said that he had no recollection of that figure being contrasted with a training cost of $17,000 per horse.
Mr Harcourt's account of this conversation substantially accords with that of Mr Harris. His words are not identical. He attributes to Mr Leckie the claim: "I thought out the operation, I put it together" and he makes no mention of the figure of $70,000. But he also says that Mr Leckie spoke of selecting Mr Cummings after a survey and of arriving at a conclusion "that in terms of our future potential Bart Cummings was the best judge". He did not recall any reference by Mr Leckie to satisfying the Taxation Commissioner.
Once again, Mr Leckie has a different version of this conversation. He agrees that he saw Mr Harris and Mr Harcourt and discussed the Leilani Lodge brochure. He says that, during the course of that discussion, one of the two men asked him why the Commissioner allowed taxation deductions for this type of syndicate. He says that he replied:

"When we lodged the 1988 return for the Leilani syndicates that I had done a great deal of research into Cummings' record and I had established that horses purchased by him in a particular year had earned $70,000 in prize money on average, and that the average cost of training those horses was $17,000. I had therefore been able to demonstrate to the Commissioner that it was a potentially profitable investment and that the expenses relative to running that venture should be tax deductible."

Mr Leckie specifically denies saying anything about selecting Mr Cummings "to do our buying for us".

On this same day, 3 April, Mr Cummings sent a facsimile letter of instructions to Mr Hinton. It read:

"In relation to the documentation required for the Leilani Lodge Syndicates, would you please consider how to handle the following points:

1. The package will be in the vicinity of $25 million adjusted into units of $50,000 shares. This is obviously too much for one party to handle and will be placed with Noel Leckie of Coopers and Lybrand, and Grant Hancock of Peats Adelaide and possibly Kleinwort or other interested underwriters.

2. The documents need to be able to reflect the responsibilities of the varying investors' representatives. It should be centralised through International Bloodstock Management (IBM) if practicable.

3. At present there is a 3% commission payable to any party that sells a share directly to an investor.

4. There is also a 1% Management fee which covers the administrative costs of accounting work such as invoices, telephone usage, racehorse reports and costs associated with the running of the Syndicate. As most of this is centralised at my office it helps to subsidise the time and cost factor and it is my suggestion that we could use it as an incentive to share this 1% cost with Peats or Coopers for all the shares they personally help place. What are your thoughts?"

It seems likely that, some time during the Easter sale week, Miss Marusich spoke to Paul Enemark, a person who carries on business as a bloodstock marketing consultant and bloodstock valuer. A decision had apparently been made to retain Mr Enemark to arrange the publication of a prospectus. On the Monday after the sale, 3 April, Miss Marusich sent to Mr Enemark a facsimile message in these terms:

"Further to our phone call last week, I now enclose a list of the horses bought by Bart at the Easter Sale. I've included the bulk regardless of those vendors who have expressed an interest.

I could not remember if I gave you the ones form

(sic) Dalgety or Gold Nugget but they are on this list too.

Incidentally, we discussed a `flyer' type of prospectus that needs only be a couple of pages covering the background to the horses, the type of venture etc. This still seems a good idea and you appeared to have some thoughts on how to approach this.

Noel is at the broodmare Sale today and said he might see you up there but we are now ready to get going. Let me know what I can assist with."

The enclosure was a list of 45 horses.

The next day, Miss Marusich sent a fax to Mr Hancock in Adelaide. It enclosed what she called "List of horses in proposed syndicate and costs". She commented in the fax: "There are a total of 80 individual horses for $21,609,722." The enclosed document was a single list; that is, it did not divide the horses into groups. On Thursday 6 April, Miss Marusich telexed a copy of what was, apparently, the same list to Mr Leckie. But Mr Leckie was already aware of the scale of the syndicate. Mr Hinton's file contains a diary note of an attendance on Mr Leckie on 5 April. After references to the Leilani Lodge syndicates, the note includes the following:

"20m stock to placed - 90

horse - yearlings only at cost + fees, agistment and breaking in to 30/6

Units of $50,000

JBC keeps $2m

- 18 pship/syndicates

- 1/18 interest in each horse to go in syndicate

- to seek $18m - 360 investors @ $50,000 p.a. who is target investor - professionals who will sell - Coopers and Lybrand - Heatleys - (tax promoter) (Peter Hemmings) principal Potter Partners (Peter Muir) Divide with Peats on 50/50 basis (ie $9m to sell each)"

On 7 April Miss Marusich sent a letter to Mr Leckie, with copies to Mr Rundle and Mr Hinton, reading:

"This is the final list of the yearlings for the proposed Syndicate.

It has been checked for spelling errors, transposition mistakes and general corrections. I believe it to be in order. The final tally is 80 individual horses for a total of $21,618,891."

The enclosed list included the horses purchased at each of the four sales - that is, Magic Millions, Karaka, Dalgetys and Inglis Easter Sale - setting out in tabular form the cost of each horse (with conversion of New Zealand currency to Australian currency at the rate of NZ$1.27 = AUS$1.00), interest on the purchase prices to 30 June 1989, selection fees and expenses (breaking-in, pre-training fees, agistment, veterinary charges, transportation and administration fees). The grand total of $21,618,891 included all of these items.
During the week commencing on 3 April, there was a further incident involving a person who wished to sell syndicate shares, one Greg Tarplett. Mr Anthony Cummings recalls him being interviewed by his father, Mr Leckie and himself and, after the interview, Mr Leckie expressing the opinion that he was unsuitable. He was sent away.
According to Mr Rundle, on 4 April Miss Marusich spoke to him about her concern that the "Leilani Lodge" computer may not be able to cope with the number of horses Mr Cummings had purchased. Mr Rundle spoke to one of his partners who was conversant with the computer system. On the following day, Mr Done went to "Leilani Lodge", primarily to review the computer system and to discuss the appointment of a financial controller of the Cummings' interests. During the course of this visit, according to Mr Done, he asked Mr Cummings what he was doing "about getting these syndicates together", commenting on the need to "get moving" in order to sell down by 30 June. Mr Cummings said that Mr Leckie would be in Sydney the next day and "we had better organise a meeting and get things going".
During this same week, Mr Hancock became further involved in the proposed syndication. On the evening of 6 April, he received a telephone call from Gregory France, an officer of Pegasus Leasing Limited and a personal friend. Mr France was stationed in Sydney. He had known Mr Leckie since 1986; Pegasus had funded transactions introduced by Mr Leckie. Mr France had attended the 1989 Easter racing carnival in Sydney where he had seen Mr Leckie. Mr Leckie had said to him: "I'd like to get Pegasus to have a look at Bart Cummings' syndicate that we're going to do this year". Mr France had expressed interest and, a few days later, gone with Mr Leckie to "Leilani Lodge" to see Mr Cummings, whom he already knew. There had been a conversation about two topics: AJC approval of the syndicate and interest rates. Following this visit, Mr France had commenced preparation of a submission to senior management regarding the provision of finance. According to Mr Hancock, Mr France's phone call to him arose out of that task.
Mr Hancock says that Mr France told him that he had, that day, had a meeting with Mr Leckie and that he wanted clarification of some matters. Mr Hancock says that he told Mr France that Peats was trying to do the accounting work for the syndicate but Mr France told him that Peats had not been mentioned during his meeting with Mr Leckie. Mr Hancock told Mr France that Peats would try to get some confirmation of their position over the next couple of days. The conversation with Mr Hancock ended with him agreeing to look at some material Mr France had prepared in order to indicate whether it seemed to be in order. In fact, on the following day, he did look at some material sent to him by Mr France. But he did so as a friend of Mr France, not as an accountant acting for Mr Cummings.
Peats Adelaide had a system of recording the time spent by professional personnel. The record was kept on the firm's computer, using a code number for each client. Time was recorded in units of six minutes. Since a date before the matters with which this case is concerned, all time spent on Mr Cummings affairs had been recorded in this manner, using a particular code number.

The critical element in this chain of reasoning is Mr Leckie's creation of what counsel call "the single syndication heresy". They say that, absent that creation, Mr Cummings would have proceeded on the basis that there were two distinct syndicates, each with their own group of horses. As I have said, there is no hint in Mr Cummings' account of his purchasing activities that he had in mind two separate groups. But worse, from his point of view, it is apparent that Miss Marusich was unaware of any notion of two separate syndicates. On Monday 3 April, she sent to Mr Enemark a "list of the horses bought by Bart at the Easter sale", with a couple of others included. On counsel's argument, most of those horses would be for Peats - $10 million out of the approximate $13 million spent by Mr Cummings at the Easter sale. Yet Miss Marusich wrote to Mr Enemark in terms of a single prospectus, and she mentioned contact between Mr Leckie and Mr Enemark.
More significantly, on the following day, Miss Marusich sent a single list of the total purchases - 80 horses worth $21,609,722 - to Mr Hancock. So far as the evidence reveals it was only two days later, on the Thursday, that Mr Leckie was sent his copy of this list. Miss Marusich must also have been a heretic, with infection pre-dating any activity by Mr Leckie.
Of course, it would be theoretically possible for Miss Marusich to be unaware of the nature of Mr Cummings' arrangement with Peats. But that possibility is excluded by her evidence of overhearing Mr Cummings' telephone conversation with Mr Hancock and of her own later conversation with Mr Hancock. In any event, having seen and heard Miss Marusich, I do not believe that she was ignorant of the position. As I previously indicated, my assessment of Miss Marusich is that she is a capable person who is, and was, very conversant with the detail of Mr Cummings' business affairs; perhaps more so than he was himself. I have no doubt that he would have told her of his conversation with the Peats' representatives and that she would have appreciated that this meant two syndicates, with two groups of horses. If that had been her understanding, it would have been nonsensical for her to send a single list to Mr Enemark, Mr Hancock and Mr Leckie. She would have needed Mr Cummings first to allocate $10 million of his Easter purchases to Peats.
Two other matters are put by counsel for Mr Cummings in support of this claim of an enforceable promise by Peats. First, they point to the evidence of Mr France that Mr Hancock (on 6 April) and Mr Rundle (subsequently, during the course of negotiations about Pegasus' terms) each told him that: "Peats would be using their best endeavours to market the syndicate within their partnership base throughout Australia". In that evidence, Mr France did not refer to a marketing date. But he knew of the intention - subsequently, the necessity - to sell all the units by 30 June. So I will assume a reference to that date. Even so, the statements attributed to Mr Hancock and Mr Rundle fall well short of an undertaking by Peats to procure that all of the units were taken by 30 June. Indeed, if Peats was in that position, one would have expected someone to tell Mr France of the fact. The information might have led Pegasus to offer more favourable terms; in particular, the fatal 80% requirement might have been unnecessary.
Secondly, counsel refer to Peats' considerable marketing effort, suggesting that this is consistent only with a recognition by Peats that the firm had some personal liability in the matter. I do not agree with this. Peats undoubtedly had an interest in the success of the syndicates, especially syndicates 2 and 3 of which Mr Rundle was investors' representative. This is enough to explain the marketing effort.
Finally, I do not overlook Mr Condon's evidence. That evidence is not inherently improbable and there is no reason for me to doubt Mr Condon's integrity. But this was a casual conversation at a social function, recalled many months later. I cannot be so satisied of the clarity of Mr Condon's recollection as to prefer this evidence to the clear picture which emerges from the contemporaneous documents.
I reject the first cause of action, as against all respondents.
The representation claims
I turn to the second cause of action against each respondent; the claim under s.42 of the Fair Trading Act. I have already referred to the terms of that section . Like s.52 of the Trade Practices Act it proscribes misleading or deceptive conduct. Where a particular statement is an indication of future action, it is ordinarily difficult to establish that it constitutes misleading or deceptive conduct. The complainant has to prove that, when the statement was made, the belief of the speaker was different from that which was indicated, or that the speaker had no relevant belief; see Stack v Coast Securities No. 9 Pty Ltd (1983) 46 ALR 451 at p 456; Bill Acceptance Corporation Ltd v GWA Ltd (1983) 50 ALR 242 at pp 247-250. As Lockhart J pointed out in the latter case, at p 250:

"The mere fact that representations as to future conduct or events do not come to pass does not make them misleading or deceptive, notwithstanding that the applicant has relied on them and has altered his position on the faith of them".

I have already set out the statements attributed by Mr Cummings to Mr Leckie. I need not repeat them. Whether or not these precise statements were made, and it is unlikely that they were, I have no doubt that, on a number of occasions, Mr Leckie made statements to Mr Cummings about the prospects for 1989 which encouraged him to purchase yearlings at the four sales. It is clear that, from the outset, Mr Leckie discussed marketing with Mr Cummings. At the very first meeting, on 6 May 1988, he offered Coopers' network as a marketing aid. He spoke of "tax-effective packages" and he emphasised the need for a dealer's licence. Mr Leckie admits that, on 8 September, he compared the 1988 result with the prospects for 1989. The comparison was to the disadvantage of 1988. Mr Leckie spoke of the 1988 syndicate having been "rapidly put together and internally marketed", in contrast to 1989 when there would be more time and Mr Cummings would have the benefit of a dealer's licence. So it is unlikely that Mr Leckie ended with the limp statement: "You would really be selling into an unknown market". The logic of his comparison was that the prospects ought to be better in 1989 than in 1988, when units worth $4.8 million had been sold in two or three weeks. I have no difficulty in accepting that Mr Leckie gave Mr Cummings to understand that he (Mr Leckie) believed that, with a dealer's licence and plenty of time, it would be possible to sell down units worth $10 million in 1989. And, if something like this was said on 8 September, it is not unlikely that it was repeated subsequently; the precise occasions do not matter. Certainly, there is no suggestion that Mr Leckie ever retracted his optimism or warned Mr Cummings against over-spending.
But, assuming that Mr Leckie made statements to him along the lines he claims, Mr Cummings runs into the difficulty that there is nothing to show that Mr Leckie did not have the intentions and beliefs he claimed. Although Mr Leckie had a motive for encouraging Mr Cummings to pursue a 1989 syndicate, he had nothing to gain by an unsuccessful venture. His remuneration would be dependent upon success.
It seems that, in June 1988, the market for syndicate units was buoyant. During the latter half of 1988, there was no reason to believe that it had changed. No representations are ascribed by Mr Cummings to Mr Leckie after the beginning of 1989. But, if it matters, there was nothing to indicate that the new year had brought a different climate. It is true that the January 1989 release of the revised prospectus for the Leilani Lodge 4-6 syndicates did not meet with any significant response. But nobody seems to have attributed any importance to that fact. It seems to have been accepted on all sides that the critical time was the end of the financial year.
The 1989 yearling sales were extremely buoyant, record prices being achieved. Mr Cummings' own bidding substantially contributed to these results; but, as one of the witnesses remarked, "there must always be an under-bidder". The impression I get is that the general financial climate seemed propitious up to, and including, the Easter sale. Thereafter, the weather quickly changed. Within a very short period after Easter, perceptive people, such as Mr Hinton, Mr Keene and Mr Leaver, were able to detect the storm clouds. But the ranks of the perceptive did not include Mr Leckie. As late as 21 April, he was still contending for a single syndicate which would require 360 investors at $50,000 each. If that failed, he would get nothing for his trouble. His attitude at that time is, perhaps, the best evidence of his continuing confidence and of the genuineness of the optimistic assurances that he gave Mr Cummings.
Consequently, although I accept that Mr Leckie made statements such as: "We'll have no trouble selling down $10 million"; "It will be easier this year when you get your licence"; "We will have no problem selling the syndicate"; and so on, I see no reason to believe that, when he made such statements, Mr Leckie lacked genuine intentions and a genuine belief in the accuracy of his prediction, or that he was indifferent to those questions. I think that he genuinely believed his encouraging assertions. He turned out to be wrong, of course; grievously wrong, from Mr Cummings' point of view. But that fact does not establish misleading conduct.
Turning to Peats, my conclusion is similar. The predictions attributed by Mr Cummings to Peats' representatives were less numerous. But I do not doubt that Mr Cummings was encouraged in the purchase of horses by Peats, especially by Mr Lewis. On any version of the evidence, it is clear that, until Peats' intervention, nobody contemplated a 1989 syndicate exceeding $10-12 million. Yet, two weeks after Mr Lewis' 16 March visit, Mr Cummings spent some $13 million at the Easter sale; taking his total outlay on uncommitted horse interests to over $20 million. I think that it is an inescapable conclusion that Peats' intervention constituted a massive spending spur. I can understand Mr Anthony Cummings' angry comment to Mr Rundle on 10 July.
However, having said all this, there is no evidence to suggest that Mr Lewis, or anybody else in Peats, lacked an honest belief in the prospects of selling down the syndicate. Once again, Peats had nothing to gain from an unsuccessful syndicate. On the contrary, they would jeopardise their relationship with a long standing client whose business provided for them a steady and substantial stream of income. It is true that, only a few weeks later on 12 April, Mr Rundle apparently expressed some doubts to Mr Hinton. Perhaps, as Mr Hinton's note has it, Mr Rundle agreed with Mr Hinton's doubts. But that does not mean that, on 16 March, Mr Rundle had a belief contrary to Mr Lewis' assertions on that day. It is not clear to what extent Mr Rundle knew of those assertions. He gave evidence that he did not know of Mr Lewis' visit until afterwards, and then only in general terms. In any event, a financial climate can quickly change. Pessimism on 12 April does not negate optimism four weeks earlier.
Finally, in relation to this aspect of the claim, it should be noted that counsel for Mr Cummings do not place any reliance on s.43 of the Fair Trading Act which deals with unconscionable conduct (cf. s.52A of the Trade Practices Act). Perhaps this is because s.43 is limited to "the supply of goods and services to a customer", a description hardly appropriate to the syndicate dealings of either Coopers or Peats with Mr Cummings.
The joint venture claim
By way of further alternative, counsel for Mr Cummings argue that this is a case of a joint venture between Mr Cummings on the one hand and the two firms of accountants on the other; or perhaps two joint ventures, each involving Mr Cummings and one firm of accountants. They concede that, on this approach to the case, their client would not be entitled to recover all his losses; but they say that the accountants would be liable to make a contribution to those losses.
The first step in the joint venture argument is the proposition that neither firm of accountants was involved as accountants, but rather in an entrepreneurial role. As indicated, I accept that proposition. Counsel then say that the nature of the entrepreneurial role is discernible from the various conversations between Mr Cummings and Mr Leckie, in the latter half of 1988, when there was talk of repeating in 1989 a syndication like Leilani Lodge 1-3, but bigger. The concept underlying Leilani Lodge 1-3, say counsel, was one of mutual, but differing, benefits to two parties. Mr Cummings gained the benefit of retaining in his stable promising young horses which he could not afford to keep indefinitely, thereby earning training fees, prize money and incidental financial benefits. The benefit to Coopers was two-fold; the earning of substantial fees as the investors' representative and accountants for the syndicate, and the availability of an acceptable product to offer to clients seeking to minimise their taxation liability. So, counsel say, when Mr Cummings and Mr Leckie decided to repeat the exercise in 1989, they had in mind an arrangement whereby they would share an entrepreneurial role, but each take a share of the overall benefits of a successful syndicate in his own way. When Peats invited themselves into the exercise, say counsel, they had in mind adopting the same position as Coopers' 1988 role. They also were entrepreneurs on a joint venture basis. Counsel say that their industry in marketing the syndicate is consistent with the acceptance of an entrepreneurial role. They point to the notes made by Mr Hinton - the note of 23 March "Adelaide - $10m syndicate - Michael Lewis to organise", and 5 April, "Divide with Peats on 50/50 basis (i.e. $9m to sell each", and 11 April, "Peats place $9m and we place $9m" - as indications that Mr Cummings had always understood that Peats would actively market the syndicate.
There was, of course, one difference between the 1988 syndicates and those offered in 1989: the horses syndicated in 1988 were already owned by Mr Cummings; those used in 1989 had yet to be paid for. Counsel accept that this circumstance imposed a time limit, making it critical that the venture be successfully concluded by 30 June - when, under the extended credit arrangements made with the auctioneers, payments would fall due - but they say that this did not affect the substance of the arrangement. The gist of the arrangement remained the same: Mr Cummings was to contribute his name and his selection skills, the two firms of accountants their expertise in "tax-effective packaging" and their marketing contacts. Instead of providing horses, for which he had to be paid, as in 1988, Mr Cummings was to provide the opportunity for the syndicates to obtain horses, for which they would have to pay the auctioneers.
Counsel say that, when the arrangements were made, nobody contemplated the possibility that the syndicates would fail, so that the debt to the auctioneers would remain unpaid. But this was a risk inherent in the arrangements. The parties never agreed to abandon their obligations to each other. Accordingly, say counsel, the principle of Electronic Industries Limited v David Jones Limited (1954) 91 CLR 288 applies. That case related to an agreement for the display of television sets in a department store between 11 July and 23 July 1949. Because of a strike, the display was postponed but the arrangement was never cancelled. The appellant recovered damages for breach of contract but, upon appeal, the verdict was set aside, the basis of that decision being that the defendant was under no continuing obligation to permit the display. Upon further appeal, the High Court restored the verdict. At pp 297-298 the Full High Court said:

"In the situation which resulted both parties remained bound by the contract. The fact that there was no longer a fixed date for performance brought into application the principles which impose on parties, in all cases where the performance of their obligations requires co- operative acts, the duty of complying with the reasonable requests for performance made by the other. In Mackay v Dick (1881) 6 App Cas 251 at p 263 Lord Blackburn says:- `I think I may safely say, as a general rule, that where in a written contract it appears that both parties have agreed that something shall be done, which cannot effectually be done unless both concur in doing it, the construction of the contract is that each agrees to do all that is necessary to be done on his part for the carrying out of that thing, though there may be no express words to that effect'."

In the present case, say counsel, the parties remained committed to their contract. In the unforeseen situation of failure of the syndicates, the respondents were obliged to do what was reasonable, namely to bear their share of the loss incurred in pursuit of their intended mutually beneficial venture.
I do not think that the principle applied in Electronic Industries has anything to do with the present litigation. In that case, there was no qualitative difference between the original obligation and the enforced obligation; the only difference related to the time of performance. In effect, the High Court held time not to be an essential element of the defendant's obligation. In the present case, the applicant seeks to impose upon the respondents an obligation which, upon my findings of fact, they never accepted for themselves; namely, an obligation to pay out their own money for the horses. Such an imposition would not be an enforcement of an existing contractual obligation but the creation of a new one.
As it seems to me, it being conceded for the purposes of this argument that the parties did not in fact contemplate the possibility of a failure of the syndications or make any agreement dealing with the situation which would then arise, the only possible way in which this third claim can be put is to say that, by operation of law and regardless of their intention, or lack of intention, the effect of the parties' arrangements was to cast upon them an obligation to share amongst themselves any unforeseen loss. In my opinion, this possibility depends upon the applicant establishing that the arrangements which he made with the respondents amounted to a partnership, or two separate partnerships, with them. If the true relationship between persons is that of partnership, in the absence of an agreement between them to the contrary, each is bound to contribute equally to the losses sustained by the firm: see Partnership Act 1892 (NSW) s.24(3). But, absent an express agreement to share losses or an obligation arising out of the law of partnership, I see no basis for imposing upon the respondents a legal liability to contribute to Mr Cummings' losses, whatever their moral obligation might be.
Conceptually, there is no difficulty about a single joint venture constituting a partnership: see Canny Gabriel Castle Jackson Advertising Pty Limited v Volume Sales (Finance) Pty Limited (1974) 131 CLR 321 and United Dominions Corporation Limited v Brian Pty Limited (1985) 157 CLR 1. But not all joint ventures are partnerships: see United Dominions Corporation at pp 10-11. Section 1(I) of the Partnership Act (NSW) defines the concept of partnership as "the relation which exists between persons carrying on a business in common with a view to profit". A single venture may not amount to "carrying on a business": see per Dawson J in United Dominions Corporation at p 15. In the present case, counsel for Mr Cummings argue that the acquisition of the horses and the issue of the Cups King prospectuses was an enterprise amounting to the carrying on of a business.

I do not find it necessary to determine that matter. I am of the opinion that, even if the contention is correct, the argument in favour of the existence of a partnership runs into difficulty in regard to the third element of the definition: "with a view to profit". It is true that, in acquiring the horses and issuing the prospectuses, both Mr Cummings and the accountants were profit-motivated. The syndicates offered the prospect for each party to increase their professional earnings. But, as is explained in Lindley on Partnership (15th ed.) at p 12, the effect of this third element is that it "is essential that what is to be shared is the profits of the business in the sense of the net gain resulting after payment of all outgoings". Lindley cites In Re the Spanish Prospecting Company Limited (1911) 1 Ch 92 wherein Fletcher Moulton LJ. said, at p 98:

"`Profits' implies a comparison between the state of a business at two specific dates usually separated by an interval of a year. The fundamental meaning is the amount of gain made by the business during the year. This can only be ascertained by a comparison of the assets of the business at the two dates."

The word "profit" is used in this sense in the Partnership Act, as is made clear in several of the provisions of s.2. Notably, s.2(III) provides that: "The receipt by a person of a share of the profits of a business is prima facie evidence that he is a partner in the business ...". Although it is true that, if the syndicates had succeeded, all parties would have profited by that fact (in the sense that the revenues of their own separate businesses would have been augmented), this is not enough. No case was cited to me, and I have not been able to find any case, wherein a relationship has been held to be a partnership simply because each party stood to gain a financial benefit, through the revenues of their own separate businesses, from a particular activity. An essential aspect of the notion of partnership is the sharing of jointly derived profits. In the present case, it cannot be said that the parties would have shared the profits of the "business" of syndicating the horses.
I do not think that the relationship between Mr Cummings, on the one hand, and the firms of accountants, on the other, amounted in law to a partnership. If, nonetheless, it was a joint venture, it was a joint venture in relation to which there was no agreement for the common ownership of property or for the sharing of losses. The third claim must also fail.
Orders
It follows from the above that the Application must be dismissed, as against all the respondents. This is a conclusion which I reach with regret. I have no doubt that the respondents' statements about marketing caused Mr Cummings to spend more money on 1989 yearlings than would otherwise have been the case. If the syndicates had succeeded, all the parties would have benefited. It seems hard that, the syndicates having failed, Mr Cummings is forced to bear the whole loss. But, as it seems to me, that result inexorably flows from a proper analysis of the facts and the relevant law.
The Court has a discretion in regard to costs: see s.43 of the Federal Court of Australia Act 1976. It is usual to exercise that discretion in favour of the successful party. But this is not an absolute rule. The leading authority on the matter is Donald Campbell and Company Limited v Pollak (1927) AC 732. In that case, at pp 811- 812, Viscount Cave LC set out some principles in relation to the costs discretion which continue to apply:

"A successful defendant in a non-jury case has no doubt, in the absence of special circumstances, a reasonable expectation of obtaining an order for the payment of his costs by the plaintiff; but he has no right to costs unless and until the Court awards them to him, and the Court has an absolute and unfettered discretion to award or not to award them. This discretion, like any other discretion, must of course be exercised judicially, and the judge ought not to exercise it against the successful party except for some reason connected with the case. Thus, if - to put a hypothesis which in our Courts would never in fact be realized - a judge were to refuse to give a party his costs on the ground of some misconduct wholly unconnected with the cause of action or of some prejudice due to his race or religion or (to quote a familiar illustration) to the colour of his hair, then a Court of Appeal might well feel itself compelled to intervene. But when a judge, deliberately intending to exercise his discretionary powers, has acted on facts connected with or leading up to the litigation which have been proved before him or which he has himself observed during the progress of the case, then it seems to me that a Court of Appeal, although it may deem his reasons insufficient and may disagree with his conclusion, is prohibited by statute from entertaining an appeal from it."

The matter of costs has not been argued in this case. I would certainly not be justified in depriving the successful respondents of their costs out of sympathy with Mr Cummings' predicament. But this is a case where the predicament, and therefore the litigation, was occasioned, at least in part, by the conduct of the respondents; conduct which does not impose upon them any legal liability towards the applicant but which might be argued to be "facts connected with or leading up to the litigation". I have no firm view about this matter. It may well be appropriate to award the respondents their costs; as I say, the matter has not been argued. But I think that the situation is not so clear cut that I should proceed to make an order for costs, without giving to the parties an opportunity to put submissions on the matter. The appropriate course is for me to reserve the matter of costs, giving leave to any party to apply on seven days' notice in relation thereto.

[1991] FCA 443

02 AUGUST 1991