Hadid, Albert v Lenfest Communications Inc

[1998] FCA 902

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NG 36  of  1995

BETWEEN: 

ALBERT HADID
APPLICANT

AND: 

LENFEST COMMUNICATIONS INC.
FIRST RESPONDENT

GERRY LENFEST
SECOND RESPONDENT

BAIN CAPITAL MARKETS LIMITED
THIRD RESPONDENT

WAYNE BURT
FOURTH RESPONDENT

AUSTRALIS MEDIA LIMITED
FIFTH RESPONDENT

RODNEY PRICE
SIXTH RESPONDENT

LENFEST COMMUNICATIONS INC.
CROSS CLAIMANT

ALBERT HADID
CROSS RESPONDENT

JUDGE:	LEHANE J
DATE:	23 JULY 1998
PLACE:	SYDNEY

EX TEMPORE REASONS FOR JUDGMENT

The question to be decided arose originally from an objection taken by Mr Hughes, senior counsel for the third and fourth respondents, to a question asked of the fourth respondent in cross-examination.  The question was, did Continental Venture Capital and Century Communications Corporation (“Century”) form a company under the name Continental Century Pty Limited.  The question was objected to on the ground, as Mr Hughes put it, that the cross-examination was “just running out into quicksand beyond the pale of relevance and even any arguable relevance”.

Some argument as to the relevance of the question and of any evidence which might be given in answer to it followed and it had not been resolved when the court adjourned yesterday afternoon.  This morning Mr Burbidge, senior counsel for the applicant, provided, as he had foreshadowed yesterday, a list of facts which he seeks to establish through the line of cross-examination which began yesterday afternoon and at an early stage of which he asked the question to which Mr Hughes objected.

The facts sought to be established include the circumstances in which, during and after December 1993, the satellite pay television licence known as Licence A was taken up, the various corporate transformations through which the owner or potential owner of Licence A went and the ultimate circumstance that Licence A was by May 1994 wholly owned, indirectly, by Century, Century being a US cable pay television operator.

Counsel seeks also to cover a rather wider territory.  That territory includes the circumstances in which, during 1994, the fifth respondent entered into franchising arrangements with three companies known as ECT, CTV and STV, the ownership, at various times during 1994, of the shares in those franchisee companies and particularly the extent to which the fourth respondent, and also I think the first and fifth respondents and those associated with them, had interests in those franchisee companies.

The evidence thus sought to be adduced is said to be relevant on a series of bases.  As senior counsel for the applicant listed them yesterday, shortly after the objection was first taken, they were these.  First it is said that the evidence sought to be adduced is relevant to the applicant’s claim for an account of profits not merely, I think, against the fourth respondent but against other respondents as well.  Secondly, it was put, as I understood it, that the applicant was entitled, in relation to the characterisation of the conduct of each respondent, to have conduct of other respondents taken into account.  Thirdly, it was submitted that the evidence was relevant for the purpose of demonstrating both the substance and the implementation of the conspiracy alleged by the applicant against the respondents: that conspiracy, in the applicant’s submission, including, particularly, a proposal or understanding that the respondents would either retain or at least exert some control over the destiny of Licence A as well as the licence with which the case is more directly concerned, Licence B.  Fourthly, it was said that the material is relevant to a defence, upon which the respondents rely, of acquiescence and delay: that the circumstances surrounding the dealings with Licence A might be taken as explanatory of any tardiness by the applicant in commencing proceedings against the respondents, alleging the breaches of duty on which he now relies.

Fifthly, this morning it was said that the evidence sought to be adduced goes to the question of damages, in the sense that the franchising arrangements that were entered into are among the matters which both gave value to that of which the applicant claims to have been deprived by the wrongful conduct he alleges against the respondents and also because of the light which the franchising arrangements actually entered into are said to cast on a particular head of damage which Mr Hadid claims: the deprivation of a right or option to have for himself the benefit of franchising arrangements in relation to the exploitation of the two licences, A and B.

Each respondent has this morning argued vigorously in opposition to the reception of this evidence and it is necessary to determine now whether, or to what extent, it ought to be received.

The first two bases on which the evidence was said to be relevant may be dealt with quite quickly.  First, the relevance to an account of profits may be disposed of, I think, by saying that an entitlement to an account depends upon the applicant establishing a breach of duty for which an account is an available and appropriate remedy.  In other words, it is not sufficient for the applicant to establish merely the circumstance that a respondent has, from some dealing in relation to one of the licences, made a profit.  The profit must arise from a transaction entered into upon which the applicant relies in his allegations of breach of duty.

It follows, of course, that the necessary preliminary step in relation to this head of claimed relevance is to establish that the evidence sought to be adduced is relevant to a breach of duty alleged against the respondent or respondents concerned.  Similar considerations, I think, govern the second ground of relevance asserted, that is the relevance of the conduct of one respondent to the characterisation of that of others.  Again, the question takes one back to the relevance of the conduct sought to be characterised and that must depend upon the breaches of duty pleaded and particularised.

The third matter is one that requires rather more substantial treatment.  It was expanded somewhat in submissions made in the course of the cross-examination of an earlier witness and it comes, as I understand it, substantially to this: the evidence is relevant to establish a conspiracy which extends to what was described in earlier submissions as the manipulation of Licence A or perhaps, to put it in another way, a course of conduct agreed upon between the respondents or various of them which extended to a series of events and transactions relating to Licence A, perhaps not fully formulated or planned at the outset, but always understood in principle, which involved combined action in breach of duties owed by the respondents to the applicant.  By “always understood” I mean, of course, at times relevant for the purposes of the allegations made in this case, particularly since about mid October 1993.  It is not immediately evident how the proposed evidence in relation to the franchising arrangements fits into that picture.  It does so, as I understood the argument, in this way: the dealings with Licence A and the franchising arrangements combined to permit the exploitation of both the licences in ways which provided substantial benefits to various of the respondents and involved breaches of duty, both fiduciary and I think contractual, said to be owed to the applicant.

If that is the way in which this evidence is said to be relevant, it is necessary to test the claimed relevance by reference to the second further amended statement of claim and the particulars which the applicant has provided, particularly in relation to the alleged conspiracy.  It is appropriate no doubt to take into account also the way in which the case was opened on behalf of the applicant. 

My conclusion, and I think it is appropriate to state it first and then explain it briefly, is that the particular question to which objection was taken ought not to be allowed on this basis and that at least a  number of the facts sought to be proved by the foreshadowed line of cross-examination ought not to be permitted to be adduced on this basis.  My reasons may be fairly shortly stated.

I was referred by counsel on each side in some detail to a number of paragraphs of the second further amended statement of claim.  It is, I think, a fair summary to say that the conspiracy alleged in para 64 of that document relates to a claim that the respondents conspired to cheat and defraud the applicant so as to cause him to dispose of his interest in New World Telecommunications Pty Ltd (“New World”), the company which was entitled to the successful bid for Licence B (not Licence A) by the “Sale” and at an undervalue.  “Sale” is a defined term: it refers to a transaction which took place on 17 November 1993 by which parties associated with the respondents acquired from the applicant and his associates the shares in New World.

By its use of the phrase “by reason of the matters pleaded above,” para 64 refers back to a number of other paragraphs of the statement of claim.  The “matters pleaded above” include a series of allegations as to dealings and negotiations between the parties in relation to both licences commencing in late August 1993.   Subject to one qualification to which I shall return, the dealings in relation to both licences, to which both the statement of claim and the particulars provided by the applicant refer, are those which took place on or before 17 November 1993.  In substance what is said is that, having regard to what had occurred commencing in late August 1993, what was done on 17 November 1993 constituted, in the circumstances in which it was done, a number of serious breaches of duty owed by each of the respondents to the applicant, including conspiracy to cheat and defraud.

The qualification to that general proposition, to which I have referred, is that the applicant relies, among other things, upon an alleged agreement or arrangement between the respondents that they would perform tasks allocated in accordance with those documents called action plans, exhibits A92 and A118.  Exhibit A92, which is dated 4 November 1993, contains at least an indirect reference to Licence A in its cryptic description, of the last action to be taken, as “determine century interest”.

It is said that that refers to a contemplation that Century had an interest, the existence or depth of which required ascertainment, in participating in transactions, concerning Licence A, of the general sort which ultimately took place.  There is also a direct reference to Licence A, in a step described as “pass on licence A”, that is to say, presumably, an announcement that Licence A, or at least the then current bid for Licence A, would not be taken up.  If that is the correct interpretation, the proposed action as stated perhaps involves one or two assumptions but is otherwise, I think, not of any great importance for present purposes.

The second action plan, exhibit A118, is one the precise provenance and date of which remain obscure.  But it does refer to certain transactions which occurred after November 1993 in relation to Licence A, of which evidence has already been given, particularly the preparation of a co-operation agreement between the owners of the two licences and the provision of the deposit for the A licence (which actually occurred early in December 1993) and the provision and documentation of security in relation to that deposit.

What emerges, I think, from a reading of the second further amended statement of claim, the particulars (particularly the applicant’s submissions in relation to particulars of conspiracy) and the applicant's opening is that some aspects of what happened to Licence A after November 1993 may have some relevance.  It may well be relevant, and the trial has proceeded so far on the basis that it is relevant, to establish the circumstances in which the deposit was paid in December 1993 on the A licence, the circumstance that a company ultimately controlled by Century acquired the A licence, the circumstance that initially the applicant had an interest in that company by way of shareholding and the circumstances in which the applicant exchanged that interest in some manner for shares in the fifth respondent.  Similarly, a success fee paid to the fourth respondent, arising from the Licence A transactions, is among the alleged profits, set out in the particulars, of which the applicant claims an account.  But I can see no basis in what has been pleaded, particularised or opened for a suggestion that the case pleaded by the applicant against the respondents includes a conspiracy which extended to the precise way in which either Licence A would be got in, who would control that process, who, except to a limited extent to which I shall return, would benefit from it or, more particularly, how franchising arrangements would be entered into and who might in various ways benefit from those arrangements.

The matters concerning the franchising arrangements simply are not, as I read them, contemplated by the statement of claim or the particulars.  Unquestionably, the applicant makes a claim for damages arising from what he claims to be his deprivation of rights to engage in franchising arrangements, but what is sought to be adduced cannot possibly, I think, be relevant to that matter.

I turn, then, to the defence of acquiescence and delay.  Evidence of transactions relating to Licence A may, of course, be relevant to the extent that they form part of the circumstances of which the applicant was aware and which might provide an explanation of his delay in commencing proceedings.  But the particular facts sought to be adduced go well beyond that.  Indeed, it is difficult to see how any of the facts sought to be adduced (other than those of which evidence has already been given) could be relevant to that defence.

Finally there is the question of damages.  So far as the Licence A transactions are concerned, the reasons which lead me to the conclusions I have reached about the relevance of the proposed evidence to questions of breach of duty, must equally lead to the conclusion that the particular events and particular circumstances relating to those transactions, which Mr Burbidge now seeks to add to facts already in evidence, cannot be relevant for the purpose of establishing the damages or their quantum which the applicant may have suffered by reason of the breaches of duty which he alleges.   In simple terms what he has lost is, as he puts it, the opportunity to participate in the exploitation of Licences A and B.  The precise way in which ownership, for example, of the company which came to own Licence A passed through various hands before coming to rest in the hands of Century cannot, I think, conceivably be relevant to the claim for damages.   As for franchising, it is, I suppose, quite conceivable that the franchising arrangements which were entered into, and particularly their financial results, may at least on one view of the matter, be relevant to a claim for damages incurred by the applicant as a result of a loss of opportunity or a right to enter into franchising arrangements himself.  That, however, has not been canvassed in the present argument and I shall say no more about it.  What, however, cannot matter for the purposes of the damages claim, is the ownership of the various franchisee companies or the identity of those who in fact stood to benefit directly or indirectly from the franchising arrangements actually entered into.

The applicant has, after all, given his own evidence as to his loss and has called expert evidence as to the way in which that loss should be quantified.  I cannot see how it can be appropriate or indeed relevant to add to that evidence by material of the sort now sought to be adduced. 

I have, I hope, in these reasons given a sufficient indication of my general attitude to the evidence sought to be adduced to enable the cross-examination of the fourth respondent to proceed and be completed.  The formal result is that the particular question, to which I referred at the beginning of these reasons, is rejected.

I certify that this and the preceding seven (7) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Lehane

Associate:

Dated:            31 July 1998

Counsel for the Applicant:	R.J. Burbidge QC N.A. Cotman SC D.A. Caspersonn
Solicitor for the Applicant:	Garrett & Walmsley
Counsel for the First and Second Respondents:	P.G. Hely QC R.M. Smith
Solicitor for the First and Second Respondents:	Clayton Utz
Counsel for the Third and Fourth Respondents:	T.E.F. Hughes QC L.G. Foster SC J.V. Nicholas
Solicitor for the Third and Fourth Respondents:	Phillips Fox
Counsel for the Sixth Respondent:	M.J. Slattery QC T.D. Castle
Solicitor for the Sixth Respondent:	Freehill Hollingdale & Page
Date of Hearing:	23 July 1998
Date of Judgment:	23 July 1998