Hadid v Lenfest Communications Inc - [1999] FCA 1798

FEDERAL COURT OF AUSTRALIA
Hadid v Lenfest Communications Inc [1999] FCA 1798
CONTRACTS – commercial joint venture – alleged contract imposing on a joint venturer obligation to seek investors – whether contract existed – contract establishing joint venture – terms – express terms – whether obligation of a venturer to seek investors an express term of contract – implied terms – alleged implied terms of a fiduciary nature – whether terms to be implied – alleged contract between underwriter of fund raising in relation to venture and a venturer – alleged term that underwriter would provide financial advice to the venturer – whether oral contract existed – whether contract to be implied from conduct – whether underwriter agreed to act as financial adviser to participants in venture – derivative liability – consequences of findings for allegations of procurement or inducement by other respondents of alleged breaches of contract by certain respondents
EQUITY – fiduciary relationships – alleged fiduciary duties arising out of terms of commercial written contract – parties to contract participants in commercial venture – relevance of events and actions succeeding formation of contract – whether fiduciary relationship contended for the fiduciary relationship pleaded – whether, assuming existence of obligation of party to seek investors, the alleged fiduciary duties arose – whether circumstances of venture gave rise to relationship analogous to partnership – fiduciary relationships – alleged fiduciary duties, including duty of disclosure, owed to venturer by underwriter of fund raising in relation to venture – whether fiduciary duties arose – circumstances of provision by venturer of information to underwriter – interests pursued by underwriter – whether underwriter acted as financial adviser to the applicant venturer or the participants in the venture together – whether underwriter a participant in the venture – derivative liability – consequences of findings for allegations of participation of other respondents in breach of fiduciary duty by each respondent – whether, assuming existence of alleged fiduciary duties, respondent involved in transaction complained of, but not a participant in venture, participated in breach of fiduciary duty
NEGLIGENCE – duty of care – whether duty of care and skill, in relation to the seeking of investors for the purpose of fund raising relating to commercial venture, owed by one venturer to another, arose from terms, as found, of contract establishing venture and their performance – duty of care – whether duty of care, including duty to provide full and frank advice, owed to a venturer, or to participants in venture together, by underwriter of fund raising in relation to venture, arose from relationship of underwriter and venturer or participants in venture
TRADE PRACTICES – conduct that is misleading or deceptive – representations allegedly made expressly by one venturer to another regarding present and future dealings in relation to the subject matters of the venture – whether representations made – whether, in relation to certain of the representations, assuming the representations were made, applicant suffered loss as a result – alleged failure, on the part of all respondents, before or during course of a negotiation between venturers, to disclose to a venturer matters arising out of certain discussions of which the venturer was not aware and which allegedly were relevant to negotiation – whether misleading or deceptive – liability of venturer – whether allegedly misled venturer had a reasonable expectation that such matters would be disclosed – effect, in context of relationship and negotiations between venturers, of statements made by allegedly misleading venturer – liability of mediator of negotiation, who was also a representative of future underwriter of fundraising in relation to venture – effect of disclosure of interests and knowledge by mediator – whether duty to disclose the matters – whether allegedly misled venturer had a reasonable expectation that mediator would disclose such matters – pleadings – whether case against mediator and underwriter available on pleadings – whether case relating to certain conduct of venturer available on pleadings – whether conduct pleaded as misleading or deceptive alleged to be conduct in trade or commerce and conduct relied upon by applicant – derivative liability – whether each respondent liable, on the basis of a relationship of agency, for any deceit or misrepresentation of any other respondent – consequences of findings for allegations of involvement in misleading and deceptive conduct – cross-claim – conduct that is misleading or deceptive – alleged representation by applicant venturer as to expected lack of competition with venture and as to commitment of underwriter – whether representation made
DECEIT – availability of action where alleged misleading or deceptive conduct not made out
CONSPIRACY TO CHEAT AND DEFRAUD – alleged agreement by respondents that certain matters would be concealed from applicant – whether agreement existed – whether matters occurring subsequently to alleged agreement were steps agreed, on the occasion of alleged agreement, to be taken – whether, in the absence of independent legal duty to disclose, failure to disclose matters dishonest
CORPORATIONS – inducement to deal in securities – whether misleading or deceptive statement knowingly made – whether dishonest concealment of matters – misleading or deceptive conduct in dealing with securities – availability of action where alleged misleading or deceptive conduct under Trade Practices Act 1974 (Cth) s 52 not made out and alleged contractual and fiduciary duties not established – alleged “securities recommendation”, made by representative of underwriter of fund raising in relation to venture during his conduct as mediator of negotiation between participants in venture, contravening Corporations Law s 849 and s 851 – whether recommendation made – adequacy of disclosure – whether respondent venturer or a party ultimately involved in transaction the subject of the negotiation but not participant in venture “associate” of underwriter – extent of particulars of matters required to be disclosed – whether applicant venturer suffered loss or damage as a result of alleged recommendation
EVIDENCE – credit – matters reflecting on credit of certain witnesses – whether certain witnesses involved in “collaborative concoction” of evidence
CONTRACTS – defences – releases from claims, demands or causes of action – effect of written releases from claims – relevance of Trade Practices Act 1974 (Cth) s 87 – alleged oral agreement by applicant not to take legal action against underwriter or its representative – whether agreement existed – availability of relief under Trade Practices Act s 87 in relation to later release of liability
EQUITY – defences – acquiescence – availability of defence in answer to claim for equitable compensation for breach of equitable duty – requirements of practical justice in relation to alleged acquiescence – estoppel – availability of defence where alleged oral agreement not to sue not established
PRACTICE AND PROCEDURE – defences – non-joinder of parties – whether proceeding improperly constituted
DAMAGES – loss of opportunity to deal with property in ways other than property actually dealt with – extent of alleged loss – loss of opportunity to negotiate more favourable terms in relation to transaction actually entered into – whether opportunity existed – whether damages case put to witnesses for respondents
WORDS AND PHRASES – “conduct that is misleading or deceptive” – “joint venture” – “securities adviser” – “securities recommendation” – “particulars”
Trade Practices Act 1974 (Cth) ss 50, 52, 75B, 82, 87
Broadcasting Services Act1992 (Cth) ss 18, 93, 96, 97, 98, 98A, Pt 7 Div 3
Corporations Law ss 9, 15, 94, 471B, 849, 851, 852, 995, 1000
Fair Trading Act 1987 (NSW) ss 42, 61, 68, 72
Law Reform (Miscellaneous Provisions) Act 1946 (NSW) s 5
Federal Court Rules O 6 r 7
Browne v Dunn (1894) 6 R 67 applied
Allied Pastoral Holdings Pty Ltd v Commissioner of Taxation [1983] 1 NSWLR 1 at 23 applied
Jones v Dunkel (1959) 101 CLR 298 at 308 applied
Hospital Products Ltd v United States Surgical Corporation (1985) 156 CLR 41 at 66 applied; at 96, 97 referred to
BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 52 ALJR 20 cited
Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 cited
United Dominions Corporation Ltd v Brian Pty Ltd (1985) 157 CLR 1 distinguished
Phipps v Boardman [1967] 2 AC 46 cited
Tate v Williamson (1866) LR 2 Ch App 55 cited
Breen v Williams (1996) 186 CLR 71 cited
Chan v Zacharia (1984) 154 CLR 178 cited
Briginshaw v Briginshaw (1938) 60 CLR 336 at 361, 362 applied
Barnes v Addy (1874) LR 9 Ch App 244 cited
Ahern v The Queen (1988) 165 CLR 87 discussed
Tripodi v The Queen (1961) 104 CLR 1 at 6, 7 applied
The Koursk [1924] P 140 referred to
Kimberley NZI Finance Ltd v Torero Pty Ltd (1989) ATPR (Digest) ¶46‑054 at 53,195 applied
Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31 at 31, 32 applied
Brunninghausen v Glavanics (1999) 46 NSWLR 538 discussed
Lam v Ausintel Investments Australia Pty Ltd (1989) 97 FLR 458 discussed
Poseidon Ltd v Adelaide Petroleum NL (1992) ATPR ¶41‑164 referred to
General Newspapers Pty Ltd v Telstra Corporation (1993) 45 FCR 164 referred to
Glavanics v Brunninghausen (1996) 19 ACSR 204 discussed
Percival v Wright [1902] 2 Ch 421 cited
Nescor Industries Group Pty Ltd v Miba Pty Ltd (1997) 150 ALR 633 cited
Galland v Mineral Underwriters Ltd [1977] WAR 116 cited
Trade Practices Commission v Allied Mills Industries Pty Ltd (1980) 48 FLR 102 cited
Pancontinental Mining Ltd v Posgold Investments Pty Ltd (1994) 121 ALR 405 cited
Peters v R (1998) 192 CLR 493 cited
Williams v Hursey (1959) 103 CLR 30 cited
Lonrho plc v Fayed [1992] 1 AC 448 cited
Womboin Pty Ltd v Reichelt (Supreme Court of New South Wales, Windeyer J, 25 August 1995 unreported) cited
Fraser v NRMA Holdings Ltd (1995) 55 FCR 452 cited
Gantry Acquisition Corp v Parker & Parsley Petroleum Australia Pty Ltd (1994) 51 FCR 554 cited
Lindsay Petroleum Company v Hurd (1874) LR 5 PC 221 discussed
Clegg v Edmondson (1857) 8 De GM & G 787 discussed
Warman International Ltd v Dwyer (1995) 182 CLR 544 cited
Kizbeau Pty Ltd v W G & B Pty Ltd (1995) 184 CLR 281 distinguished
Willis v The Commonwealth (1946) 73 CLR 105 distinguished
Sellars v Poseidon Ltd (1994) 179 CLR 332 referred to
ALBERT HADID v LENFEST COMMUNICATIONS INC AND GERRY LENFEST AND BAIN CAPITAL MARKETS LIMITED AND WAYNE BURT AND AUSTRALIS MEDIA LIMITED AND RODNEY PRICE
N 36 OF 1995
LEHANE J
24 DECEMBER 1999
SYDNEY

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 OF ORDER:

24 DECEMBER 1999

WHERE MADE:

SYDNEY

THE COURT ORDERS THAT:
1.        The application be dismissed.
2.        The cross-claim of the first and second respondents be dismissed.
3.The applicant pay the costs of the proceeding, other than the costs of the cross-claim of the first and second respondents, of the first, second, third, fourth and sixth respondents.

4.        The first and second respondents pay the applicant’s costs of the cross-claim.
5.        Orders 3 and 4 not be entered before 15 February 2000.
6.        The parties have liberty to apply on 5 days’ notice.
Note:   Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules

TABLE OF CONTENTS
1.Nature of proceedings  1
2.Background  3
(a)     Statutory framework: “cascading” bids  3
(b)     Successive failures: ultimate cascades to New World and UCOM Australia   8
(c)     UCOM: principal members of the team  8
3.Narrative  11
(a)     Introduction of Bain and Nomura  12
(b)     Lenfest introduced; deposits paid  14
(i)     First conversation between Mr Hadid and Mr Lenfest, 28 August 1993,
about 4.00 am  15
(ii)     “Free carry”  19
(iii)    Exchange of correspondence following first conversation  20
(iv)    Ms O’Connor speaks to Mr Lenfest: morning, Saturday,
28 August 1993  21
(v)     Second conversation between Mr Hadid and Mr Lenfest,
early morning 29 August 1993: substantial agreement reached             21
(vi)    “Operating company”  25
(vii)   Agreement reduced to writing  25
(viii) Payment of deposit  28

(c)     Dealings between LCI and Mr Hadid up to the first LCI visit;
“solicitation agreement”  29
(d)     30 August to 3 September 1993: UCOM and Bain  33
(e)     First LCI visit: 4 to 8 September 1993  38
(f)     Bain: meeting of 10 September 1993 and beyond  45
(g)     Visit to the United States; troubles with the ABA  54
(i)     Funding the licences  55
(ii)     TPL  56
(iii)    Time Warner  57

(h)     Second LCI visit: 28 September to 8 October 1993  59
(i)     Further involvement of Bain during and following second LCI visit              63
(j)     UCOM/LCI: period between second LCI visit and subsequent visit by
Mr Plant: 8 to 20 October 1993  70
(k)     Mr Plant’s visit: 21 to 27 October 1993  74
(i)     Mr Plant’s meetings; his advice to Mr Heller  74
(ii)     Further dealings between Mr Hadid and Dr Burt  82
(iii)    First suggestion of Project Midsummer  84

(l)     LCI and UCOM: events surrounding and following disclosure of Project
Midsummer proposal to Mr Plant  85
(i)     The TPL suggestion  85
(ii)     Proposal and counter‑proposal  87
(iii)    Banking arrangements: negotiation of facility  91
(iv)    Dr Burt and Mr Hadid: TPL’s role  91

(m)    Project Midsummer: the St Louis meetings  92
(n)     “Action Plan” of 4 November 1993  98
(o)     Activity preceding the third visit by Mr Heller  101
(i)     Ms Combs’ intervention  101
(ii)     TPL retainer terminated  103
(iii)    UCOM/LCI negotiations  103
(iv)    UCOM and Bain  106

(p)     Mr Heller’s third visit: 10 November 1993 to final negotiation  108
(i)     UCOM and LCI  108
(ii)     The Meridian interlude  117
(iii)    Bain’s activities: 10 to 14 November  120

(q)     15 and 16 November 1993: Regent Hotel negotiation  123
(r)     16 and 17 November 1993: negotiating the terms of the agreement                128
(s)     The signing and its aftermath: shouting and slamming of doors?                   136
(t)     Mr Price’s activities subsequent to St Louis meetings; final negotiation of
agreement between LCI and Australis; agreement reached and announced     138
(u)     Mr Hadid’s reaction to the announcement: correspondence and
conversations on and after 18 November 1993  141
(v)     Licence A – Century  153
(w)    Drama commissioning agency; commencement of proceedings  158
4.Mr Hadid’s pleaded case  161
(a)     Sources of obligations of LCI and Mr Lenfest  161
(i)     Joint Venture Agreement  161
(ii)     Solicitation Agreement  163

(b)     Duties arising from (and from carrying out) the Joint Venture Agreement
and the Solicitation Agreement  163
(c)     Sources of obligations of Bain and Dr Burt  164
(d)     Obligations of Bain and Dr Burt  165
(e)     Project Midsummer and its consequences  166
(f)     Representations  168
(i)     Licence A  168
(ii)     “The Representations” (lack of investor interest)  168
(iii) Alleged infringement of s 52 of the Trade Practices Act and s 42 of the Fair
Trading Act  170

(g)     Breach of particular duties pleaded  170
(h)     Conspiracy to cheat and defraud  172
(i)     Inducement to breach contract  172
(j) Corporations Law breaches 173
(k)     Contumelious disregard; relief claimed  174
5.Defences and cross‑claims against Mr Hadid  174
(a)     LCI and Mr Lenfest  175
(b)     Bain and Dr Burt  176
(c)     Australis and Mr Price  178
(d)     Cross‑claims between respondents  178
6.Credit  179
(a)     Witnesses for Mr Hadid  182
(i)     Mr Hadid  182
(A)    Nomura, New York  183
(B)    Alan Elkhatib  188
(C)    Response to Bain’s letter of 13 October 1993  195
(D)    Free carried interest  204
(E)     Conclusion  220
(ii)     Dr Gadir  221
(iii)    Mr Egan  221
(iv)    Mr Noah  228
(v)     Mr Cooper  232
(vi)    Other witnesses called by Mr Hadid  239
(vii)   Response to attacks on credit of Mr Hadid and witnesses called by
him  239

(b)     LCI witnesses  240
(i)     Mr Lenfest  240
(A)    MDS  240
(B)    The “underwriting” representation  243
(C)    Drama commissioning agency  251
(D)    “Miscellaneous” matters  260
(E)     Conclusion as to Mr Lenfest  269
(ii)     Mr Heller  269
(A)    The Meridian option  269
(B)    Other matters relating to Mr Heller  271
(C)    Conclusion as to Mr Heller  280
(iii)    Mr Plant  280
(iv)    Witnesses called by Bain, Dr Burt and Mr Price; “missing witnesses”   283

7.“Joint Venture Agreement” and “Solicitation Agreement”: terms, express
and implied; fiduciary obligations; duty of skill and care?  284
(a)     Was there a “solicitation agreement”?  285
(b)     Express oral terms of agreement of 29 August 1993  299
(c)     Implied terms?  306
(d)     Fiduciary duties; duty of skill and care?  308
8.Bain and Dr Burt: contract; fiduciary obligation; duty of care  316
(a)     Contract  316
(b)     Other duties  319
(i)     Provision of information to Bain  320
(ii)     Bain and Dr Burt as advisers  326

9.An interpolation: credit of Dr Burt  346
(a)     The Meridian option  346
(b)     The drama commissioning agency; Regent Hotel negotiations  346
(c)     Miscellaneous matters  349
(d)     The “deception” of Ms Combs  364
(e)     Conclusion  368
10.The licence A representations  368
11.Project Midsummer – discussion and findings  373
12.Events following St Louis: discussion and some conclusions  389
13.Representations as to Australis; as to whether other parties interested in
acquiring or investing in licence B; as to LCI having to “go it alone”               398
(a)     The events of 10 and 11 November 1993  399
(b)     The alleged statements made on 15 and 16 November 1993  417
14.Failure to disclose Project Midsummer or possible Australis transaction: misleading or deceptive conduct, or other breach of duty?  426
(a)     Principal and derivative liability  426
(b)     The positions of Bain and Dr Burt; LCI and Mr Lenfest  428
(c)     Misleading or deceptive conduct, or other breach of duty?  436
(d)     Pleading of contravening conduct  447
15.Conclusion as to claims based on Trade Practices Act and Fair Trading Act 449
16.Conclusion as to claims of breach of fiduciary obligation, and participation
in it; breach of contract and inducement of it; and negligence  450
17.Conclusions as to conspiracy claim  450
18.Corporations Law claims 452
(a) Section 1000 452
(b) Section 995 453
(c) Sections 849 and 851 455
19.Overall result of findings; some comments on the evidence  464
20.Defences  470
(a)     Documentary releases  470
(b)     Alleged oral release of Bain and Dr Burt  473
(c)     Acquiescence  482
(d)     Estoppel  484
(e)     Want of parties  484
21.Damages  485
22.Cross‑Claim by LCI and Mr Lenfest  501
23.Conclusion  502

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:

24 DECEMBER 1999

PLACE:

SYDNEY

REASONS FOR JUDGMENT

1. Nature of proceedings

The applicant, Albert Hadid (Mr Hadid), claims damages (including exemplary damages) from five of the six respondents: the first respondent, Lenfest Communications Inc (LCI), a United States corporation based near Philadelphia, a substantial part of the business of which is the provision of subscription television services (pay TV), by cable, in south‑eastern Pennsylvania; the second respondent, Harold Fitzgerald Lenfest (known usually as Gerry Lenfest) (Mr Lenfest), the chairman, president and chief executive officer of LCI; the third respondent, Bain Capital Markets Limited (Bain) which was, at the time of the events with which this judgment is concerned, a substantial Australian stockbroker and underwriter, wholly owned by Deutsche Bank AG; the fourth respondent, Wayne Leonard Burt (Dr Burt), at the time of those events a director of the Corporate Services Division of Bain; and the sixth respondent, Rodney Price (Mr Price), who was chairman of the fifth respondent, Australis Media Limited (Australis). While the trial was in progress, an order was made, in other proceedings, that Australis be wound up; no leave was sought under s 471B of the Corporations Law, with the result that the applicant (and, for that matter, the other respondents) could no longer proceed against Australis and no remedy is now sought against it.
The final formulation of Mr Hadid’s case appears in a second further amended statement of claim, filed by leave on 16 July 1998. Where I use the expression “the statement of claim”, that is the document to which I refer. Mr Hadid bases his claims for relief on causes of action which include breach of contract, breach of various alleged fiduciary obligations, negligence, deceit, conduct infringing s 52 of the Trade Practices Act 1974 (Cth) and s 42 of the Fair Trading Act 1987 (NSW), breaches of various provisions of the Corporations Law and conspiracy to cheat and defraud. Mr Hadid also alleges that each of the respondents (a word which I use, and will continue to use, to refer to the “live” respondents, that is all of them other than Australis) are liable as accessories in respect of breaches of various duties on the part of other respondents. Thus there are, for example, allegations of inducement to breach contract, knowing assistance or participation in breaches of fiduciary duties and involvement, of the kind defined in s 75B of the Trade Practices Act and s 61 of the Fair Trading Act, in infringements of those Acts.
The claims arise from events following the conditional allocation, on 25 August 1993, of the right to acquire two licences each of which would entitle its holder to provide pay TV services, by satellite, through four channels. Both were conditionally allocated to companies controlled by Mr Hadid: one, known as the “A” licence, was allocated to Focus Telecommunications Pty Ltd, which shortly afterwards changed its name to UCOM Australia Pty Ltd (I shall refer to it as “UCOM Australia”); the other, licence “B”, was allocated to New World Telecommunications Pty Ltd (New World). UCOM Australia and New World were two of a group of associated companies having substantially the same shareholders and directors, all, in practical terms, controlled by Mr Hadid. I shall use the expression “UCOM group” to refer to that group of companies and the expression “UCOM” to refer generically to companies within it – including, of course, UCOM Australia and New World.
2. Background
(a) Statutory framework: “cascading” bids
The Broadcasting Services Act 1992 (Cth) provided, in Pt 7, for the allocation of licences for subscription television broadcasting. It dealt, first, with the allocation of satellite licences. There were initially to be three such licences, known as “A”, “B” and “C” Licence C was to be allocated to a subsidiary of the Australian Broadcasting Corporation (s 93(2)) and was to provide two subscription television broadcasting services, that is, two channels. The Minister was to determine a price‑based allocation system for allocating licences A and B, each of which was to allow the provision of services over four channels. No other licences for the provision of broadcast television services by satellite were to be allocated before 1 July 1997 (s 96(3)).
Section 96 also provided for the allocation of licences for subscription television broadcasting by means other than satellite. There were two such means in contemplation. One was delivery by cable, as to which there were no temporal constraints on the allocation of licences. The other was known as MDS. That was a microwave transmission system: it had the advantage over satellite delivery that the technology was well tried and readily available and the equipment required (particularly at the receiving end) relatively cheap. It had the disadvantages that whereas a satellite transmitter might have a “footprint” including most of the populated parts of Australia, an MDS transmitter had an effective transmission radius of about 50 kilometres and that, because microwave transmissions travel in straight lines, a receiving antenna must have line of sight to the transmitter: there were thus obvious difficulties, for example, with hilly terrain, difficulties which required, if there were to be substantial coverage of metropolitan Sydney, a number of “repeat” transmitters.
The Broadcasting Services Act offered to the holders of the three satellite licences, if they established their services reasonably quickly, protection against competition from already established MDS broadcast services: licences for the provision of television broadcasting by a service dependent on an MDS system as its means of transmission were not to be allocated before services commenced under licence A, B or C, or 31 December 1994 if none of those services had then commenced: that was the combined effect of subss (3A) and (3B) of s 96.
Before considering in more detail the statutory process for allocating satellite broadcasting licences, it is necessary to note the distinction between broadcasting services and narrowcasting services. Narrowcasting services were those directed to special interest groups (for example ethnic communities) or particular locations, events or periods or otherwise having a limited appeal or limited reception: s 18. By 10 August 1993 Australis held licences to transmit over eleven of eighteen available MDS frequencies in Sydney, eleven of nineteen available MDS frequencies in Melbourne, two of nineteen in Canberra and one of nineteen in Adelaide. It was able to use those frequencies for narrowcasting transmissions; if it were to use them for broadcasting services it would require licences allocated under s 96 of the Broadcasting Services Act.
Thus, satellite licences A and B were available for allocation in circumstances where their holders would have an opportunity to commence broadcasting services no later than the commencement of competitive MDS services and well before any additional satellite licences were issued; and, although there were no restrictions on the allocation of cable licences, the evidence is that it was the common expectation that, because of practical considerations, the commencement of cable services would be delayed at least for several years.
The principal statutory distinction between licence A and licence B lay in “cross‑media” restrictions applicable exclusively to licence A. Broadly, the effect of those restrictions, in Div 3 of Pt 7 of the Broadcasting Services Act, was that a person in a position to exercise control of a large circulation newspaper, a commercial television licence or a telecommunications carrier was not to have “company interests” exceeding 2 per cent in, or to be in a position to exercise control of, licence A. There were foreign ownership restrictions applicable to both licences: a foreign person might not have “company interests” of more than 20 per cent in either licence, and aggregate company interests held by foreign persons might not exceed 35 per cent. Then there were cross‑ownership restrictions as between the two licences: a person in a position to exercise control of one might not have company interests exceeding 2 per cent in, or be in a position to exercise control of, the other.
On 19 January 1993 the Minister determined, under s 93(1) of the Broadcasting Services Act, a price‑based allocation system for allocating licences A and B. In broad terms it worked as follows. Applications for either licence were to be made by written tender. The Minister was to advertise nationally for tenders for both licences, stating when, where and in what manner tenders might be lodged. A tender might be for either of the licences or for both; if tendering for both, the applicant was to state its preferred choice of licence if it bid the highest price for each. A tender was to “contain” an application fee of $500, a statement of the price bid, a copy of the applicant’s “industry plan” and a statement of the proposed ownership and control structure of the applicant company. In particular, an applicant was to provide information as to aspects of its ownership or control relevant to the restrictions on cross‑media interests and foreign control. Allocation, however, was to be strictly in accordance with price. Paragraph 8(1) of the determination was as follows:
“8(1)The Secretary must give notice in writing to the applicant which bid the highest amount for licence A or licence B (the ‘first applicant’) that:
(a)subject to the Trade Practices Commission’s approval under subsection 93(7) of the Act; and
(b)unless the ABA decides that subsection 98(2) of the Act applies to the applicant;
that applicant will be allotted the licence upon payment of the price bid.”
I shall return to the role of the Trade Practices Commission and the Australian Broadcasting Authority (ABA). If, however, the applicant failed either of those hurdles, in effect the process began again: a notice under par 8(1) was to be given to the second highest bidder, and so on, if notified tenderers failed to obtain the Commission’s approval or were subject to an unfavourable decision by the ABA. If the two hurdles were surmounted, the ABA was to notify the applicant that the licence would be allotted to it on payment of the amount bid; the applicant then had 30 days to pay that amount. If it did so, the licence was to be allocated to it; if it did not, then (par 8(8)) the whole process was to begin again, on the footing that the applicant which had failed to pay was “taken not to have lodged a tender.”
Section 97 of the Broadcasting Services Act provided for the part to be played by the Trade Practices Commission. It was to provide, on request by the ABA, a report as to whether, in the Commission’s opinion, if the allocation of the licence to the applicant were an acquisition by it of an asset, there would be an infringement of s 50 of the Trade Practices Act because the allocation would have the effect, or be likely to have the effect, of substantially lessening competition in a market and the allocation would not be authorised under s 88 of the Trade Practices Act if the applicant had applied for an authorisation. Under s 98 of the Broadcasting Services Act the ABA had power to decide that an applicant was not “suitable” as a licensee or applicant for a subscription television broadcasting licence. It might make such a decision if satisfied that allocating a licence to the applicant would lead to a significant risk of an offence against the Broadcasting Services Act or the regulations or a breach of conditions applicable to the licence. In making such a decision, the ABA was to take into account such matters as the business record, and record in situations requiring trust and candour, of the applicant and of each person who would, if the licence were allocated, be in a position to exercise control of the licence.
The system thus determined had the obvious consequence that the field of potential applicants was not limited to persons or corporations of considerable financial substance. If one were prepared to risk the loss of the cost of preparing a tender plus $500, one could bid on the basis that, if the bid were successful, there was a substantial period of time within which one might attract other investors capable of providing the funds necessary to pay for the licence and to meet the initial costs of establishing and operating a pay TV service. If the successful bidder were unsuccessful in that endeavour, then it lost only the amount initially at risk and the costs of seeking to attract investment. Potentially, also, actual allocation of the two licences might be delayed for a considerable period. A successful tenderer need not pay the price bid until 30 days following the ABA’s notice following a favourable report by the Trade Practices Commission; the Commission had 45 days within which to report (s 93(7)) and that period commenced only on receipt of a request from the ABA which, no doubt, might in turn be delayed while the ABA itself gave some consideration to matters relating to suitability. One might well not know, therefore, for at least three months after the close of tenders whether the process might have to start again and, if the highest tenderers comprised a number of insubstantial companies which failed successively to attract the necessary investment, the period between tender and final allocation might be very considerable indeed.
That problem was compounded by an element of the allocation system which occurred to at least two groups of bidders. A single bidder, no doubt, could not itself lodge a series of tenders at successively lower prices: that was so because it if were (for example) to be the highest tenderer and accordingly received a provisional allocation, but ultimately did not pay the price bid, it would be “taken not to have lodged a tender.” That consequence would not follow, however, if there were a series of bids lodged by separate companies in common ownership; and that course was adopted by two groups, one being a group known by the name “Hi Vision” and the other the UCOM group associated with Mr Hadid. That an aspiring tenderer might proceed in that way occurred to Mr Leo Grey, a barrister who was a member of the syndicate controlling the Hi Vision group. Mr Hadid’s evidence was that he, virtually simultaneously and coincidentally, thought of it himself. Whether that is so or not does not particularly matter. There was a degree of association or cooperation between Hi Vision and UCOM. Its precise extent is not altogether clear from the evidence and does not matter. There was some sharing of facilities and of information; and, as will appear, when ultimately all the Hi Vision bids proved unsuccessful, persons formerly associated with Hi Vision assisted, and made information available to, UCOM. But it appears that their bids were prepared, and particularly their bid prices set, independently and that whatever association existed between them was insufficient to suggest to the ABA that, in circumstances where Hi Vision was the successful bidder for one licence and UCOM was the successful bidder for the other, an infringement of the cross‑ownership restrictions in the Broadcasting Services Act would result.
The Hi Vision group lodged, through separate companies, a total of seven bids. The five highest of those bids, ranging from $211,999,715 to $150,000,755, were for licence B; the other two, for $130,999,165 and $130,990,165, were for both licences. The UCOM group, through separate companies, lodged ten tenders. They ranged from $177,000,999 to $37,001,000. All the Hi Vision, and the four highest of the UCOM bids, were higher than any bids lodged by other tenderers. The result of the process established by the Minister’s determination was, therefore, that on 30 April 1993 the first provisionally successful bidder for licence B was the highest bidder in the Hi Vision group and, for licence A, the highest of the UCOM tenders. Because neither group had the capacity to fund, from resources available to it, any of the prices which its various emanations had bid, ultimate success depended on attracting participation by other investors. Should it prove difficult to attract that participation, however, the potential for prolongation of the process was obvious.
That potential was mitigated, however, by an amendment of the Broadcasting Services Act which took effect on 14 May 1993, some two weeks after tenders closed. The amendment applied to any applicant given notice of provisional allocation after it took effect. Thus it did not apply to the initially successful Hi Vision and UCOM bids but, if those proved ultimately unsuccessful, it would apply to all the others. Its effect was to require the payment of a substantial deposit, 5 per cent of the price. Section 98A, inserted in the Broadcasting Services Act by the amendment, required that deposit to be paid within three business days after the day on which notice of provisional allocation was given. If the deposit was not paid, the bidder was taken not have lodged a tender and there was a “cascade” to the next highest bidder. Section 98B provided that the deposit would be repaid, with interest, if the Trade Practices Commission made an adverse report; but if the ABA decided the applicant was not suitable or if, within the time required, the applicant did not pay the bid price then the deposit was forfeited.
(b) Successive failures: ultimate cascades to New World and UCOM Australia
Between late April and late August 1993 both Hi Vision and UCOM made substantial efforts to attract investors, both in Australia and overseas. Hi Vision, in particular, employed among others Nomura Australia Limited (Nomura), a subsidiary of a large Japanese investment bank, and a New York investment bank, Wasserstein Perella & Co (Wasserstein Perella), which was associated with Nomura. Those efforts, however, were unsuccessful: after the initially successful bids failed, Hi Vision was unsuccessful in its attempts to raise the deposits payable in respect of its remaining bids and UCOM likewise, its first bid having failed, had been unsuccessful in its attempt to raise the deposits payable on subsequent bids. The result was a series of cascades until, on 25 August 1993, licence B was conditionally allocated to New World and the A to UCOM Australia: the price bid by New World was $117,001,000 and UCOM Australia had tendered $97,001,000. Each, if its bid was to remain alive, had to pay a deposit, equal to 5 per cent of its bid price, within three business days, that is by the close of business on the following Monday, 30 August 1993.
(c) UCOM: principal members of the team
The directors of both New World and UCOM Australia were Mr Hadid, Dr Simon Gadir (Dr Gadir) and Mr Stephen Joseph Blanks (Mr Blanks). Mr Hadid had graduated in computer science and pure mathematics. His business career had been concerned substantially with computers. He had been involved in the establishment of Osborne Computer Company and, in August 1993, was Chief Executive Officer of Complete Technology Pty Ltd (Complete Technology), a reseller of computer hardware and software which carried on its business from premises in Stanmore. He claimed to have had a long‑standing interest in film, television and video, which had begun with an involvement in making and presenting films at the University of Sydney. Dr Gadir had degrees from the Hebrew University in Jerusalem and a PhD from Macquarie University. He had worked on policy research and media analysis in the office of the Premier of Victoria and later had established his own marketing and research consultancy. In 1987 he became Manager, Corporate Development of Village Roadshow Corporation Limited. Before joining the UCOM group shortly before the lodgment of the tenders for licences A and B, he had been a shareholder in the Hi Vision group. Thus he had substantial experience generally in media and communications and he had a particular interest in pay TV. Mr Blanks was a solicitor, practising as principal of his own firm in Balmain. The main areas of his practice included intellectual property, trade practices and commercial litigation.

New World and UCOM Australia each had 100 issued shares. Of those, Mr Hadid held 84, Dr Gadir 10 and Mr Blanks 2. The remaining four shares were held by three others who played no significant part in the events with which this case is concerned. Mr Hadid thus had a controlling shareholding and the evidence establishes beyond doubt that he was the dominant and controlling force in the UCOM group.
Mr Robert Lynch (Mr Lynch) was employed by UCOM, apparently in a senior corporate secretarial role. His precise position does not, I think, appear in the evidence but it is clear that he occupied a position of some trust and responsibility; he took part in a number of the significant discussions with which the case is concerned and prepared, or played a part in preparing, some significant documents. He did not give evidence. Mr Frank O’Brien (Mr O’Brien) was engaged under a title described in a UCOM information memorandum dated July 1993 as Director of Technology. He also participated in a number of the significant discussions and some of the notes he made are in evidence. He was not, however, called to give oral evidence. Mr Danny Mackay (Mr Mackay) was engaged as Director of Programming. His expertise and experience lay in television programming and film distribution. His role in the relevant events was relatively insignificant; he did not give evidence. Mr Craig Ritchie (Mr Ritchie) had financial modelling skills and experience. He was engaged as a consultant to assist in the preparation of successive versions of financial models and projections for a pay TV business based on the licences. He took part in a number of relevant meetings and discussions; he did not give evidence.
Mr Albert Joseph Noah (Mr Noah) was involved in the Hi Vision syndicate; he was both a shareholder and a director. On 25 August 1993 – the day on which the conditional allocations were made to New World and UCOM Australia – it was evident that Hi Vision was finally excluded from the tendering process. Mr Noah had known Mr Hadid for about eight years. His earlier employment had included work in the design, installation and sale of computer systems and software. He had training and experience in financial modelling; his principal function with Hi Vision had to do with financial modelling and the preparation of business plans and he had been involved in some negotiations with potential investors. On 25 August he approached Mr Hadid seeking engagement as a contractor with the UCOM group on the footing that he could assist with information which had been acquired in the course of Hi Vision’s activities. He played a substantial role from that time in financial modelling on behalf of UCOM and he was a significant participant in the events shortly to be described. Mr Noah gave evidence. Mr Ian Malcolm Wright (Mr Wright) (who gave evidence) was also a director of Hi Vision. He offered his services to UCOM on 25 August 1993. He also provided certain Hi Vision information to the UCOM group and had a significant involvement in later events.
Mr James Egan (Mr Egan) was a corporate consultant engaged by the UCOM group in about July 1993. He was Managing Director of a company called First Australia Capital Corporation Limited; it carried on business from an office in Bligh Street which was used a great deal in the course of the activity following 25 August and was frequently referred to in the evidence as the UCOM city office. In fact there was an agreement between UCOM and Mr Egan, constituted by a letter dated 13 July 1993, which provided for the use by UCOM of Mr Egan’s premises, on a month by month basis and an initial brief to Mr Egan “to guide the preparation of an information memorandum for investors, and financial & corporate structures maximising advantage to UCOM, to the stage of completion of such documentation.” The letter referred to the prospect of further assignments in the future. In fact, Mr Egan played a substantial part in the ensuing activities, attending many of the significant meetings which occurred between the end of August and late November 1993; he gave evidence, and was one of the relatively few witnesses able to refresh his recollection from contemporary notes which he had taken (there is nevertheless, as will appear, considerable controversy as to a number of aspects of his evidence).
Finally, Turnbull & Partners Limited (TPL) was appointed as financial adviser to the UCOM group. This appointment was made initially by an agreement dated 25 August 1993 between UCOM Pty Limited, acting on behalf of the companies in the UCOM group (including New World and UCOM Australia), Complete Technology and TPL. TPL was appointed sole financial adviser for the principal purposes of raising funding for licence A and finding a purchaser of licence B. TPL was to be paid a retainer of $10,000 per calendar month, to be offset against commissions of 3 per cent of funds raised through the sale of licence B and 4 per cent of the funding raised for licence A. The obligations of the UCOM group under the agreement were guaranteed by Complete Technology. TPL were merchant bankers. They had substantial media experience and connections. As will appear, their role changed somewhat as matters progressed. They played, however, a significant part in the events. Principally involved on behalf of TPL was Ms Cass O’Connor (Ms O’Connor); the Managing Director, Mr Malcom Turnbull (Mr Turnbull), was involved also. Neither gave evidence.
A number of other people may be described, loosely, as having had an involvement on the UCOM side. It is convenient, however, to introduce them later in the narrative.
3. Narrative
A narrative of the events following the provisional allocations on 25 August 1993 is necessary if the claims and cross‑claims in the pleadings are to be intelligibly discussed. Additionally, there are serious differences, a number of which at least will have to be resolved, in the evidence as to many of the significant events. Again, however, intelligible discussion of the detail requires, first, a narrative.
In very brief summary, Mr Lenfest provided the deposits required to maintain the bids for the two licences. He did so on terms negotiated over the weekend of 28 and 29 August 1993. Those terms, among other things, entitled LCI to an interest, on capitalisation, in the successful bidders. They also, according to Mr Hadid, gave rise to obligations, including fiduciary as well as contractual duties, on the parts of LCI and Mr Lenfest.
There followed attempts, involving both LCI and Mr Hadid (and his group) to attract investors in the licences, both in Australia and overseas. Bain (represented principally by Dr Burt) participated as (at least) a potential underwriter. The terms on which it did so imposed on it, according to Mr Hadid, contractual, tortious and fiduciary duties.
By early November 1993, the attempts to attract investors had not borne fruit. Dr Burt in late October conceived, and then put to LCI and Australis, a proposal whereby LCI would acquire all the shares in New World, would fund the amount payable on issue of licence B and would then transfer New World to Australis in exchange for the issue to LCI of Australis securities.
Ultimately, that proposal was in substance adopted and put into effect. As a result of negotiations between LCI and Mr Hadid, in which Dr Burt (on behalf of Bain) acted as “mediator”, Mr Hadid and the other shareholders agreed to sell to LCI their shares in New World: that was the first, necessary step in implementing the proposal. Mr Hadid and the other shareholders did not know, and were not told, that further steps (particularly, steps involving Australis) might shortly follow.
Mr Hadid’s claims are based on an assertion that, in the circumstances in which the sale of the New World shares came about, each respondent breached a number of duties owed to him and engaged in misleading or deceptive conduct.
It is now necessary to go in some detail to the evidence about those, and surrounding, events.
(a) Introduction of Bain and Nomura
Mr Rowan Scott Johnston (Mr Johnston) was in August 1993, like Dr Burt, a Director, Corporate Services, of Bain. He had been employed by Bain since late 1987. He gave evidence (which was not challenged and which I accept) that in May 1993 he had had a meeting with two officers of Nomura, Mr Andrew Price and Mr David Johns (Mr Johns). Andrew Price (as I shall describe him, to distinguish him from the sixth respondent, Mr Rodney Price) told Mr Johnston that Nomura and its United States associate, Wasserstein Perella, were working towards raising capital for Hi Vision; they had been unsuccessful to date; they inquired whether Bain might be interested in working with them. During a subsequent meeting, in late July, Andrew Price handed to Mr Johnston a bundle of documents apparently assembled by Wasserstein Perella in connection with its efforts on behalf of Hi Vision. It included 10 year financial projections prepared in June 1993 and an offering memorandum also dated June 1993. Mr Johnston knew Ms O’Connor of TPL, who had earlier been employed by Bain as a media analyst; she had left Bain in about 1992. Late in August 1993 – presumably on Thursday, 26 August – either Andrew Price or Ms O’Connor telephoned Mr Johnston and invited him to attend a meeting at TPL’s office on Friday, 27 August. The meeting took place. Ms O’Connor was there; so were Mr Johnston and Dr Burt; so were Andrew Price and, probably, Mr Johns. Mr Hadid arrived about twenty minutes after the meeting began.
There is some dispute as to exactly what was said but the matters in dispute are by no means critical. Certainly there was discussion of the position that UCOM was in (it had to find substantial deposits within three days, over a weekend), of the situation generally in relation to pay TV (Dr Burt in a previous employment had assisted in a fund raising for the original shareholders of Australis) and of the prospect of an underwritten capital raising in which Bain might participate. There is a conflict of evidence as to whether Mr Hadid, immediately after the meeting and again on the telephone later in the day, asked Dr Burt whether he (or Bain) was prepared to act as an adviser to UCOM. Dr Burt says that Mr Hadid did so and that he, Dr Burt, refused, saying that Bain’s interest was solely as a potential underwriter. Mr Hadid denies asking Dr Burt (or Bain) to act as an adviser. At all events, Ms O’Connor sent Mr Johnston and Dr Burt, by fax, shortly after the meeting a letter setting out what was described as a “brief time chart and strategy outline” for two alternative strategies for financing the licences. It is abundantly plain that no clear path forward had emerged from the meeting. The letter described strategies in very broad terms, one being to sell one of the licences for an amount sufficient to pay the deposit on the other and to provide “some payback to current bid holders and transaction costs.” The other was to finance the deposits without first selling either licence. The letter indicated, without descending to detail, that negotiations were in progress with other parties in relation to both those strategies. It concluded:
‘Rowan and Wayne, I understand this is brief and not very concrete. However, the process has been one in which there have been interested parties present, most of whom have spent a lot of time and money on potential involvement but all of whom need a catalyst. The most likely catalysts are the paid deposits, which is why we have been concentrating on Strategies 1 & 2 rather than post‑payment.”
(b) Lenfest introduced; deposits paid
One of those who assisted UCOM in its attempts to raise funds was Ms Margaret Combs (Ms Combs). She was well known and respected in the United States cable television industry: she was a former president of the Cable Television Administration and Marketing Society and had been recently appointed as Chief Executive Officer of Americana Television Network Inc. The precise sequence of events is a little difficult to piece together from the evidence and, fortunately, does not greatly matter. Mr Hadid appears to have spoken to Ms Combs twice on 27 August. By coincidence, Ms Combs was telephoned the same day by Mr Donald Heller (Mr Heller). Mr Heller was Vice President of LCI. He telephoned Ms Combs for a purpose unconnected with pay TV in Australia. Ms Combs proceeded to ask whether LCI might be interested in an investment opportunity in Australia. Mr Heller’s account was that Ms Combs told him:
“… that there was a tendering process that had taken place that a small entrepreneur had gained the rights to satellite licences that were going to be offered in Australia. There were four channels allowed to be broadcast under each of the licences. They were designated A and B. She indicated to me that Time Warner and TCI were a bidder. She also indicated to me that TCI and Time Warner Comcast had bid together. She told me that she had spoken to Continental Cable. She also told me that Bain and Nomura had agreed to do an underwriting. She also told me that Turnbulls would be the financial adviser and that the deposits or that money was needed to be committed for deposits on the licence and that that is what they were looking for.”
It should be interpolated that TCI (Tele‑Communications, Inc) was a very substantial United States cable TV company which in turn owned Liberty Media Corporation, the owner of 50 per cent of LCI (the other 50 per cent of LCI was owned by Mr Lenfest and his family). Continental and Comcast were also very substantial United States cable TV companies.
Mr Heller made a note of the conversation which substantially supports his recollection (though it does not specifically note that Nomura and Bain “had agreed to do an underwriting”: the relevant entry is simply “Nimora [sic] & Banes & Co [sic] of Australia.”) Mr Heller told Mr Lenfest what he had heard from Ms Combs. Mr Lenfest and Mr Heller then arranged a conference call to Ms Combs and spoke to her together. Mr Heller’s evidence was that Ms Combs repeated substantially what she had earlier told him; Mr Lenfest’s account was similar but added that Ms Combs informed them that there was an exciting opportunity for pay TV in Australia and that she knew Simon Gadir and Albert Hadid and had a very high opinion of them. At all events, Mr Lenfest encouraged Ms Combs to suggest that Mr Hadid “provide me with more information and give me a call.”
That, apparently, is what Ms Combs proceeded to do. Mr Hadid faxed to Mr Lenfest, at 4:09 am, Sydney time, on Saturday, 28 August, a UCOM information memorandum, including financial projections for a single licence satellite pay TV business, prepared in July 1993. There followed a series of conversations of critical importance to the case.
(i) First conversation between Mr Hadid and Mr Lenfest, 28 August 1993, about 4.00 am
Mr Hadid telephoned Mr Lenfest shortly after sending him the information memorandum. The time was shortly after 4.00 am in Sydney and shortly after 2.00 pm the day before, Eastern United States time. Mr Hadid had previously arranged that Andrew Price would be asked to join in the conversation at some time during its course, and that was done. Apart from the time during which Andrew Price took part in the conversation, the only participants in it were Mr Hadid and Mr Lenfest. No one else heard it; neither Mr Hadid nor Mr Lenfest made (or, at least, retained) a note of the conversation; Andrew Price prepared a note relating to his participation. There are very significant differences between the accounts of Mr Hadid and Mr Lenfest. As Mr Lenfest gave the briefer and less complex version, it is convenient to summarise his evidence first.
According to Mr Lenfest, Mr Hadid described what he called a “unique opportunity”, in that he had both licences with four channels of programming each; that pay TV had not come to Australia “primarily because of the influence of Mr Packer who to protect his own broadcasting interests had prevented cable, any kind of pay TV from arriving” (Mr Lenfest gave evidence that he had not previously heard of Mr Packer); that if cable television came to Australia, satellite television would have a five to ten years’ “window”; that MDS was not an effective competitor because MDS licensees were restricted to narrowcasting and could not broadcast until, as Mr Lenfest recalled it, 1 July 1997. Mr Lenfest’s account continued that Mr Hadid told him that the deposits were required to be paid by 5.00 pm on Monday, Australian time; UCOM was looking for a United States operator to be involved, and if LCI paid the deposits Nomura “would be able to complete the financing required and … our deposits would be returned.” Mr Hadid also said, according to Mr Lenfest, that there would be a 30 per cent “free carry” in each licence, and LCI could choose the licence in which it wished to have a substantial interest and receive half of the free carry; Mr Hadid proceeded to explain the restrictions on foreign ownership, a consequence of which (and of the cross‑ownership restrictions) was that LCI could have a 2 per cent interest in the other licence. There was discussion about the satellite’s coverage of population centres and the technology to be used. Mr Hadid said that TPL was involved as financial adviser and that he had tried to arrange for Ms O’Connor to participate in the conversation.
Andrew Price then joined the conversation and, questioned by Mr Lenfest, said:
“Mr Lenfest, I represent Nomura in Australia, I will confirm to you that Nomura will be in a position to complete the financing and your deposits will be returned.”
Mr Lenfest asked whether Andrew Price would confirm that in writing; Andrew Price responded that he would. According to Mr Lenfest’s account, the conversation concluded with the following remark on his part:
“Albert, this sounds like a very good opportunity. My wife, Marguerite, and I are driving down to Ocean City on the Shore … why don’t you prepare, you know, a simple letter what this offer is and we will have further discussions tomorrow.”
Mr Hadid’s version of the conversation was very different. According to him, it was Mr Lenfest who volunteered that it was an excellent opportunity; then in answer to a question about what LCI sought for taking the risk of paying the deposits, Mr Lenfest said, “I understand that you believe you can retain 30 per cent on the licences,” which Mr Hadid confirmed. According to Mr Hadid’s account he told Mr Lenfest that MDS and cable could compete before 1997 and Mr Lenfest responded “… we know about cable and MDS, cable is years away and MDS … has problems with your city terrains.”Mr Hadid responded that cable would compete gradually and that MDS was “mostly in the hands of Steve Cosser” (then the Chief Executive Officer of Australis and its largest shareholder). After further discussion of the likely competition from MDS and the possibility of a “shared monopoly” (which Mr Hadid claims to have said would not be allowed in Australia) Mr Lenfest said, “… but the thing you’ve got, one has to watch out for is Packer and Murdoch are very greedy, one has to get those licences up very quickly … .”There followed further discussion of the regulatory and competitive environment in Australia.
According to Mr Hadid, Mr Lenfest then said:
“I’ll think through what licence we’re interested in but I am happy to do a deal with you … are you at the moment using any banks to raise funds for the licences.”
Mr Hadid then explained that they were using TPL, that they had recently met Nomura and that Nomura were trying to help and seemed keen; and that there had been a meeting that day with Bain and they seemed very interested but it was “early to say how committed they are but they appear to be quite committed”: they seemed very keen and both they and Nomura seemed very interested in working on an underwriting. At that point Andrew Price was telephoned and joined the conversation. After Andrew Price had made some supportive but cautious comments about what Nomura might do, the following exchange occurred:
“… Mr Lenfest asked him … ‘can you – will you underwrite’
and Andrew said ‘it’s hard to say but we’re working – we are working quite solidly with Bains and are keen to do the underwriting. We are committed to the pay TV industry in Australia and I can give you … a lot of confidence or I can give you – sorry, some confidence that the prospects of underwriting … being successful are there’
and Mr Lenfest … said ‘in that case you’re prepared to help basically’
and he said ‘yes, we’re prepared to do more than that. With you coming in that will give all of us more confidence and it would give the market more confidence. I would certainly like to do business if I can.’ ”

I have recorded this conversation, and will record later conversations, without making alterations to the transcript: so that punctuation and the use, or non‑use, of quotation marks will appear as they do in the transcript. I have, however, in an attempt to make the accounts of some long conversations a little clearer than they might otherwise be, started a new line with each change of speaker.
In cross‑examination, Mr Hadid abbreviated Andrew Price’s response to Mr Lenfest’s question to “it’s too early to say.”
At that point Andrew Price’s participation in the conversation came to an end. Mr Lenfest then said (according to Mr Hadid):
“Don’t worry about them, they’re all elusive, I wouldn’t rely on one or two contacts anyway and I would [sic] rely on your local contacts alone. I can raise the money here in the US and I have a very strong relationship, solid relationship with established financiers who will do it.”
Mr Hadid referred again to the restrictions on foreign ownership and to a likely need to raise funds in Australia. Mr Lenfest said:
“I agree with you. I am happy to do that but if the need comes, we won’t need them to raise the finance, I can do it without them.”
After a reference by Mr Lenfest to the hard time UCOM had been having in the marketplace, there was some discussion about the advantages likely to accrue from LCI’s involvement because of its connections with Liberty and TCI. There was then a reference to the circumstance that TCI, Time Warner and Comcast had lodged a joint tender for one of the licences; that reference provoked the following comment from Mr Lenfest:
“… yes, they are big bullies, [Albert], … that’s the way they have to do it to be able to control the business world wide and keep it between themselves … but now that … we’re going to be on the same team together and our joint venture means they will not treat you as … enemies and when you come to the United States, Albert, John Malone, who’s the chairman … of TCI and a director of my company, you will meet him. He’ll be very helpful and he could also help us with News Limited and so on.”
Mr Lenfest then said that if he paid the deposits he would expect, “when we raise the money”, to get the deposits back or buy shares at his option and would want half the free carry in one of the two licences. When Mr Hadid indicated agreement with those propositions, Mr Lenfest said:
“I’m feeling very good about it … let’s say the deal is done. Why don’t you … put what we discussed over in a contract and send it to me but keep it simple, don’t send me a major contract, just send me something like a simple letter.”
An arrangement was then made that Ms O’Connor would speak to Mr Lenfest during the ensuing few hours. Mr Hadid’s account of the conclusion of the conversation was as follows:
“And I said, I will do that, Mr Lenfest, but can we say that … the deal will be done?
And he said, we can say the deal will be done – we can say the deal will be done and I’ll talk to you tomorrow after I have had a chance to read the information and … consider the deal points we discussed.”
In addition to the arrangement that Mr Hadid would send Mr Lenfest a short letter, it was arranged that Mr Lenfest would send Mr Hadid, by fax, copies of the LCI letterhead.
That recital is sufficient to demonstrate the very significant differences between the two accounts of the conversation. I shall need to examine the differences in more detail later. Some of Mr Lenfest’s responses to Mr Hadid’s version may, however, be noted now. Mr Lenfest agreed that the ownership of LCI was discussed, and said that he described it. Mr Lenfest thought that he mentioned Dr John Malone (Dr Malone) as the Chief Operating Officer of TCI, as a member of the LCI board and as probably the most respected person in the American cable industry. Mr Lenfest denied, however, knowledge of any prior involvement of TCI with respect to pay TV in Australia or of any partnership between TCI, Time‑Warner and Comcast; he denied that anything was said about such a partnership. Mr Lenfest denied also that he made any mention of Mr Packer (of whom he had not previously heard) or Mr Murdoch (whom he knew by reputation but had not met); he did not recall any mention of Bain; significantly, he denied any discussion of whether he or LCI could raise money in the United States to pay for the licences and that he told Mr Hadid that if the need arose he could raise finance to pay for the licences. He denied saying anything to the effect that the deal was done.
(ii) “Free carry”
Free carry, and what the various parties thought and said about it, was the focus of a good deal of attention in the evidence. In its simplest form (at least, in the UCOM version) it referred to a shareholding in a licence‑owning company to be acquired by UCOM or LCI without payment, on the footing (assuming a 30 per cent free carry) that, on capitalisation of the company, other investors would subscribe the full amount required to acquire the licence, pay associated costs and provide working capital, in return for a 70 per cent equity interest in the company. The term “free carry” might include more complex arrangements having the same economic effect. In broad terms, the UCOM view was that the equity representing the free carry would (though its holders had in the end paid no money for it) rank equally in all respects with the equity paid for by other investors. The evidence of the LCI witnesses was that they would not expect “carry” to be “free”: the “carried” equity would be subordinate to the “paid” equity, in the sense that holders of the former would receive no return until the holders of the latter had recovered their outlay (or at least part of it). These are topics to which I shall have to return.
(iii) Exchange of correspondence following first conversation
At about 6:40 am, Sydney time, on 28 August 1993 Mr Hadid faxed to Mr Lenfest a short letter. The substance of it was:
“Further to our discussion we would like to confirm the following figures based on an exchange rate of $0.67 cents per dollar for your consideration of our proposal.
Your investment of U.S. $7.169 mill will secure half of the free carry in one of the two Australian Pay TV Licences, the other half will remain for our group.
As discussed, we believe at the existing prices we will achieve 30% free carry, this will mean 15% for each party.
We will return your investment of U.S. $7.169 mill or we are prepared to convert the U.S. $7,169 mill into shares in the compnay [sic] at your option on reasonable terms and conditions which are acceptable to you but which terms and conditions shall be no more onerous than the terms and conditions upon which any other investor (including UCOM group) invests in the licence.”
Mr Hadid added his telephone number and those of Andrew Price and Ms O’Connor. He attached copies of each of their business cards.
Mr Lenfest reciprocated by sending a copy of the letterhead of “The Lenfest Group”: that appears to have been faxed from Pottstown, Pennsylvania (where Mr Lenfest’s office was situated) late in the afternoon of 27 August, Eastern United States time. Both in conversations and in correspondence “The Lenfest Group” was used to describe the entity with which Mr Hadid dealt; the parties proceeded on the footing that “The Lenfest Group” was synonymous with LCI.
(iv) Ms O’Connor speaks to Mr Lenfest: morning, Saturday, 28 August 1993
Shortly after faxing his letter to Mr Lenfest, Mr Hadid sent a handwritten fax note to Ms O’Connor, exhorting her to wake up and telephone Mr Hadid. The fax reflects, understandably enough, a degree of euphoria following the conversation with Mr Lenfest:
“Guess what?
We have had a very exciting prospect, if I was to judge by what was said, then the deal is done?”
Mr Hadid gave evidence that Ms O’Connor came to UCOM’s office a short time afterwards: possibly between 7:00 and 8:00 in the morning. A number of others were then at UCOM’s office, according to Mr Hadid: Andrew Price was there; Dr Gadir, Mr Blanks and Mr Lynch were there; so was Mr Martin Przybylski (Mr Przybylski), a partner of Sly & Weigall, solicitors. At some point there was a telephone conversation with Mr Lenfest in which Mr Hadid introduced Ms O'Connor to him, and Mr Lenfest and Ms O'Connor had a conversation. Mr Hadid did not give evidence of its content because, after introducing Ms O'Connor, he did not hear what was said; and Mr Lenfest’s evidence is somewhat confusing on the topic because, although he accepted that the conversation with Ms O'Connor occurred after the first conversation between Mr Lenfest and Mr Hadid but before any further negotiation had taken place between them, his account of the conversation with Ms O'Connor seems to assume that some of the further negotiation had already occurred. Fortunately, nothing seems to turn on this. It is necessary only to note that Ms O'Connor was introduced, on the telephone, to Mr Lenfest, and they had a discussion; and that later evidence suggests that Ms O’Connor put to Mr Lenfest that UCOM should have the option on capitalisation, instead of repaying LCI’s deposits in cash, to require them to be applied in subscribing for shares in the licence‑owning company.
(v) Second conversation between Mr Hadid and Mr Lenfest, early morning 29 August 1993: substantial agreement reached
Mr Hadid and Mr Lenfest spoke again in the early hours of the morning, Sydney time, on Sunday, 29 August. Dr Gadir was in the UCOM office and participated in the conversation. Mr Noah was there also but he did not participate or hear what was said. Again no one took notes of the conversation (or, if anyone did, the notes were not retained). Again, the accounts differ, in some respects very significantly. I shall begin with Mr Hadid’s version.
According to that version, the conversation began with a comment by Mr Lenfest that he had considered matters and had looked at the information memorandum and projections which Mr Hadid had faxed to him; and he expressed the view that, though the plan should be “revisited”, it looked “pretty good” and Mr Lenfest thought that the figures would hold up. Mr Lenfest then said:
“Our assessment is that we believe that 30% vendor shares as he called them are quite possible to achieve from the figures providing that we pay for the licences and use 70% of the shares to raise the money that would be needed to pay for the licence fees and the operations of the licences.”
When asked by Mr Hadid whether he would consider paying for the licences Mr Lenfest said that he would reserve it as an option but would first “look into the market as to other US investors.” Mr Lenfest said that he would be prepared to pay the deposits; he wanted in return half the free carry in one licence and 2 per cent in the other. Additionally, should the free carry achieved be less than 30 per cent, Mr Lenfest would require 60 per cent of actual free carry achieved and on the basis that, in any event, LCI would receive a free carry of not less than 13.5 per cent. The following discussion ensued:
“I said, Mr Lenfest that’s not what we talked about yesterday. What if we don’t achieve the free carry?
He said, well, that’s precisely the point. You’re in control, we both think 30 per cent is achievable, now, if we don’t achieve 30 per cent then obviously I would have to accept less. Now, if … you can’t achieve … enough to give me 13 [sic] per cent then we can only do a deal if we both consent to it. Because you’re in control of the joint venture, I would need that assurance for the risk that I am taking … and … when the time comes we both have to accept the realities of the market.
And I said, fine, I understand that.”
After further discussion and agreement on that point the conversation proceeded to the topic of an operating company. After some discussion of possibilities, Mr Lenfest said, according to Mr Hadid:
“… I’d be prepared to give you all of my free carry in the … licences in exchange for benefits in the operating company and I said, Mr Lenfest, with all due respect everyone knows the operating company’s where the money is, it’s the gateway. I can’t take that risk until we do eventually know what your investment is, and who owns the licences, because that’s got to be protected. It should be … the people who finally make all the investments make that decision so it’s got to be protected so that it’s … owned between licence A and B.”
Further discussion resulted in a proposal by Mr Lenfest that LCI have a contract to manage the operating company, receiving by way of remuneration 0.75 per cent of the turnover plus costs. Mr Hadid agreed to that on condition that he maintain joint control, but he would not interfere in day to day matters. There was then, according to Mr Hadid, discussion of the possible use by the satellite television operation of MDS and cable as additional delivery mechanisms (that is, the possibility that agreements might be reached with the MDS and cable licensees under which they would carry the satellite licensee’s programmes), no conclusion being reached; but in the course of the discussion Mr Hadid attributed to Mr Lenfest agreement “with the figures of MDS and Cable you’ve put into the plan” (that is, a realisation that the document initially faxed to Mr Lenfest contemplated delivery via MDS and cable as well as delivery by satellite and an acceptance that it did so in an appropriate way).
Mr Hadid stressed the necessity to pay the deposits – and therefore to have the money with which to do so – by Monday in Australia (still Sunday in the United States) and it was agreed that Mr Hadid would fax to Mr Lenfest a letter setting out what had been agreed. Mr Lenfest agreed to Mr Hadid’s suggestion that Mr Lenfest personally, as well as LCI, should be bound by the agreements reached.
Dr Gadir substantially supported many aspects of Mr Hadid’s account and added some others. According to Dr Gadir, the conversation began with reciprocal congratulations and:
“Mr Hadid made a point to the effect that we were very excited to work with Lenfest, a credible and professional cable company in America and that we were looking forward to working together in partnership and Mr Lenfest reciprocated on that point.”
According to Dr Gadir, Mr Lenfest demonstrated a reasonable awareness of the “Australian environment at that point, regulatory and legal” although he referred to a need for more detailed discussions, to take place when LCI executives visited Australia. Dr Gadir also added that during a conversation:
“Mr Hadid made a particular point of his interest in local film production in Australia and said words to the effects [sic] … Gerry, I’ve been involved for a long time and had the ambition for a long time to be involved in Australian film production; you realise that the Australian law, the Broadcasting Communication Act [sic], requires that the pay television licensees provide a certain amount of Australian content and UCOM would like to be involved in that and especially myself personally, I would like to be involved substantially in that local content element and this should become part of our agreement. To that basically Gerry responded that he had no problem with that and once you guys formulate the draft agreement that that can be put in there in some form.”
In cross‑examination, Dr Gadir added a further element: Mr Lenfest agreed that LCI would “find the necessary partners and put together the venture.” Mr Lenfest said, according to Dr Gadir:
“Well basically we are going into a partnership where we will find the financing, we will find the partners, we will put together the deal.”
Those, Dr Gadir said, were commitments assumed by Mr Lenfest during the course of the conversation.
Mr Lenfest gave a somewhat briefer account of the discussion. It was as follows:
“I said, Albert, you had told me that it would be my selection or I asked it to be my selection, of which licence I received the carried interest in. And I said, Albert, what if you cannot achieve a 30% free carry and the negotiation was that in such event our company would get 60% of the free carry with a floor of 13.5%. I also had asked for a management contract pursuant to their expression of need for a US cable operator … their initial discussion with me was that they needed a US cable operator who had experience in pay cable television and I said, Fine, we’ll be able to act in that role but we want a management fee of .75% of revenues and reimbursement of our expenses …
he said, Gerry, we would agree to that. … Hadid said that he wanted to be involved in the management company to make sure it conformed with the Australian law and regulations
and I said, Well, you know, you’ve asked us to bring our expertise, we do not want you to interfere with the pay television operations. …
He agreed. … Albert said he would send me a letter confirming our discussions.”
Mr Lenfest’s account of the discussion of the management contract is undoubtedly an amalgam of the first and second conversations, but that is not a matter of any significance. Mr Lenfest denied commenting on the UCOM business plan; he denied having examined it; he denied having formed any view as to whether a 30 per cent carried interest was achievable; he denied that there was any discussion of LCI taking less than 13.5 per cent carried interest; he denied that there was any other discussion about the management agreement or benefits in the operating company; he denied that there was any discussion about the use of MDS or cable to distribute the UCOM signal; he denied that there was any conversation about him personally signing the letter. Finally, he denied particular matters attributed to him by Dr Gadir: that working together in partnership was mentioned; that he would find partners, put the venture together or find the financing; that there was any discussion about Mr Hadid’s interest or involvement in film production or about Australian drama content requirements; and that anything was said about Mr Hadid being in control of a joint venture.
(vi) “Operating company”
This also is a concept which received a good deal of attention in the evidence. In simple terms, what was contemplated was a company, the function of which was to manage and operate the pay TV channels on behalf of the licence holders, and, particularly, to coordinate the operations (especially programming) of all the channels available under both licences. It was contemplated that the operating company would be managed by an experienced United States pay TV operator (such as LCI itself).
(vii) Agreement reduced to writing
Having concluded their discussion with Mr Lenfest, Mr Hadid and Dr Gadir prepared a letter which Mr Noah typed. Mr Hadid and Dr Gadir signed it and they sent it by fax to Mr Lenfest. Mr Lenfest made some handwritten alterations, signed it and faxed it back. Mr Hadid and Dr Gadir approved and initialled the changes made by Mr Lenfest. The letter is a critical document and I shall set the text of it out in full. The additions made by Mr Lenfest are indicated in bold print.
“29^th August, 1993
Mr Gerry Lenfest
Chairman
The Lenfest Group
202 Shoemaker Road
Pottstown, PA 19464
Fax No: (609) 391 0438
PRIVATE & CONFIDENTIAL
Dear Sir,
This letter is to confirm the arrangements we have discussed for your participation in the Australian Pay TV Licences B and A. The rights to obtain these licences are currently held respectively by New World Telecommunications Pty Ltd (“New World”) and Focus Telecommunications Pty Ltd (“Focus”). It is on behalf of those two companies and their shareholders that I now write.
You will forward to us by no later than Sydney time 12:00 pm Monday 30^th August 1993 a net amount of US$7,200,000 clear of fees to the following bank account in Sydney Australia
UCOM Pty Ltd
Commonwealth Bank of Australia
Westgate N.S.W.
Branch No:2269
Account No: 10007959
In return for that payment you will receive the following
1.
a)on capitalisation, one half of existing shareholders’ free‑carried interest in the equity of New World (current holder of Licence ‘B’) or Focus (current holder of Licence ‘A’) as you select but not both. However, should the total free‑carried interest of existing shareholders in the Licence you participate in be less than 30%, then you will receive 60% of the existing shareholders’ free‑carried interest, but not less than 13.5%;
b)on capitalisation, you will be given 2% of the alternate Licence
2.A management contract to run the operating company to be negotiated jointly with New World, Focus, and Albert Hadid (or his nominee) and to include the following:
a)        5‑year term,
b)        management fee of 0.75% of total subscription revenue,
c)reimbursement of reasonable management expenses incurred under the management contract, and
d)major management decisions to be made jointly with Albert Hadid (or his nominee), but without the right to interfere in the day‑to‑day decisions.
In exercising your rights under paragraphs 1 and 2 you will do so in a manner that complies with the Australian Broadcasting Services Act and other relevant laws and regulations.
The funding of approximately A$10,700,000 is the 5% deposit for licences A and B as required by the Australian Government to be paid by end of business day Monday 30^th August, 1993.
Your confirmation by return fax will bind both the Lenfest Group and yourself personally to the above terms.
Yours sincerely,
[      signature      ][      signature      ]
Albert Hadid  Simon Gadir
Confirmed
[      signature      ]
H.F.    (Gerry) Lenfest
August, 1993”

There are similar problems also with Mr Cox’s evidence about decisions made by Australis. Two striking examples were evidence which Mr Cox gave about the availability of particular types of decoders (“set‑top boxes”) at the time when Australis was attempting to start its business, and his evidence about the way in which Australis conducted negotiations with suppliers of programs. It is not necessary to go further into detail. As to the matters with which Mr Cox dealt, I prefer the evidence of Mr Lonergan and other witnesses called by the respondents, notably Mr Stanley Gunn and, on Australis’ negotiations with the movie studios, Mr Kenneth Ziffren (as well as evidence which was given by both Mr Heller and Mr Price).
For those reasons, which go to the assumptions upon which Mr Ferrier’s evidence was based and the particular enquiry he undertook, I would not accept his evidence as a reliable guide in considering whether any, and if so what, loss was suffered by Mr Hadid as a result of a lost opportunity to deal with the licences other than in the way he did. Mr Ferrier provided a separate report as to the value of the “franchisee market”: that is, the right to distribute Australis’ subscription television services in areas of Australia not directly serviced by Australis itself. In that respect, however, Mr Ferrier does not – because the information he had did not enable him to – estimate any particular loss suffered by Mr Hadid. I do not accept Mr Hadid’s evidence that he sought to negotiate, with LCI, arrangements in relation to franchising or equipment leasing. Mr Heller denied it and there is no suggestion in any of the contemporaneous notes or other documents that either matter was a topic discussed between Mr Hadid and Mr Heller. In any event, senior counsel for Mr Hadid made it clear in final submissions that no damages were sought specifically in relation to franchising or equipment leasing.
Expert evidence was given also specifically in relation to the drama commissioning agency. Mr Hadid gave evidence that had he been negotiating under less pressure and had he realised that Australis was involved he would have negotiated an agency on a more advantageous basis. He would have sought to negotiate directly with Australis; he would have sought a longer term; and he would not have agreed to be tied exclusively to Australis. Mr Hadid tendered a series of reports of Mr Ian Bradley (Mr Bradley), a drama producer with long experience in the Grundy organisation. The essence of Mr Bradley’s reports was that Mr Hadid, as owner of the drama commissioning rights, would be able to build upon them a business of producing and distributing Australian dramas through which he would earn substantial revenues. He used as his “template” a model based on a budget of $5,000,000 annually available from Australis and the use of Film Finance Corporation funding. That, in Mr Bradley’s opinion, was a conservative approach and other methods of financing were available, the use of which might increase the return to the producer and distributor.
Mr Bradley did not, however, quantify any results which might be achieved by alternative approaches to financing, and the approach on which he based his template was subjected to detailed attack by two expert witnesses called by the respondents, Mr Matthew Carroll (Mr Carroll) and Mr John Borglund (Mr Borglund), both of whom had substantial experience in the field and were impressive witnesses. In the result, I would not find that Mr Hadid suffered a quantifiable loss, attributable to any of the wrongs alleged against the respondents, through being unable to proceed in the manner proposed by Mr Bradley. I appreciate that that is a brief and summary way of dealing with a question which involved a good deal of detailed and complex evidence. But there is, I think, little purpose to be served in selecting a mid‑point between that treatment and a detailed discussion of the evidence. And the latter course is not warranted, in my view, because no attempt was made in closing submissions of senior counsel for Mr Hadid to suggest a basis on which I would prefer the evidence of Mr Bradley over that of Mr Carroll and Mr Borglund or to suggest a basis on which I might hold, on that body of evidence, that Mr Hadid had, as a result of any of the alleged breaches of duty by the respondents, suffered a loss which could be quantified.
There was a submission that the evidence indicated that, if one had an effective drama commissioning agency, one had the capacity to use the fees flowing from the agency “against the production of product directed toward not only satisfying the Australian content requirement but also to optimising the capacity of the product to be sold elsewhere”. But that proposition does not advance matters far in suggesting an answer to the question whether Mr Hadid would have sought to obtain and, if so, would have obtained from LCI (let alone Australis) an agreement which would have permitted activities of the sort contemplated by Mr Bradley, rather than an agreement of the much more limited kind contemplated by the heads of agreement attached to the share sale agreement. It is not insignificant that Mr Cooper offered advice to Mr Hadid as to what he saw as deficiencies in the terms of the drama commissioning agency; and there is no evidence that Mr Hadid either himself took up, or instructed Mr Cooper to take up, any of those matters with LCI.
The case put in final submissions was that if Mr Hadid had known about Australis’ interest he would have been able to negotiate with LCI for a substantially better result than the one which, in the event, he obtained, and would have done so: a substantially better result both in relation to the terms on which he ceded control of licence B and as to the benefits obtainable from his control over the existing holder (UCOM Australia) and subsequent bids for licence A. The argument did not draw upon any of the expert evidence called by Mr Hadid, though it did claim some support in a report of Mr Mark Bryant (Mr Bryant), an expert accountant called by Bain and Dr Burt (though, it should be said, it reached a conclusion substantially at odds with that propounded by Mr Bryant). It was to the effect that LCI proceeded on the basis that the transaction with Australis was of great value. It would provide benefits to LCI – particularly, it would release a “premium” – which LCI, rather than lose entirely, must rationally have been prepared to share with Mr Hadid and the other UCOM shareholders. If Mr Hadid had known about the possibility or likelihood of a transaction with Australis, he would have pressed demands for much larger benefits than he actually obtained; and, because it would have appeared to be in the interests of LCI to do so, LCI would have substantially conceded those demands. When the matter is looked at in that light, it was said, later events are irrelevant. What mattered was LCI’s perception in November 1993. Thus, for example, LCI’s rational perception must have been that the technical services agreement which it had negotiated in principle with Australis was of substantial value; the fact that, in the event, no money was ever paid under that agreement and the fact that it was terminated are of no significance; nor are the actual struggles and ultimate demise of Australis of any significance. What matters, and all that matters, is the way things rationally appeared in November 1993.
It may be said immediately, I think, that if the damages claimed represent the loss of an opportunity to negotiate a better deal with LCI, then senior counsel for Mr Hadid was right in submitting that future events, not in contemplation in November 1993, are not relevant. The case is not analogous to one in which what happens in the conduct of a business after its sale may throw light on its true value at the date of sale (Kizbeau Pty Ltd v W G & B Pty Ltd (1995) 184 CLR 281) or one where what, at the time of an accident, appeared as a possible or probable consequence has, by the time of the trial of an action for damages, either become fact or, on the other hand, ceased to be possible (Willis v The Commonwealth (1946) 73 CLR 105 at 109 per Latham CJ and at 116 per Dixon J). Nor, though there were numerous references in argument to Sellars v Poseidon Ltd (1994) 179 CLR 332, do I think that the principles stated in that case have much direct application to this. This is, after all, not a case in which, on Mr Hadid’s argument, one is required to ascertain, first, on the balance of probabilities whether, in the absence of actionable conduct, a transaction would have been entered into in the past and then, by assessing the relative likelihood of various events which might have occurred had the transaction been entered into, to assess the damage sustained by reason of the loss of the opportunity to enter into it. The exercise here is, in a sense, much more straightforward: it is to ascertain how much more Mr Hadid might have demanded had he known all the circumstances and how much LCI would have conceded in order to gain the shares in New World and, then, enter into the transaction with Australis.
Nor does the argument depend on Mr Hadid having been able to participate, in any way, in the transaction with Australis. Though it was not conceded that I should accept Mr Price’s evidence that he would not be interested in a transaction which involved any continuing participation by Mr Hadid, the effect of the argument was that it did not matter whether I accepted that evidence or not: the benefits contended for would have come from LCI and would not necessarily have involved Mr Hadid having any continuing interest in the owner of licence B.
The argument relied also on the 29 August agreement and on the correspondence between the parties as to how benefits might be shared if the shares in New World were sold. That aspect of the argument was expressed in oral submissions as follows:
“… so far as the Lenfest side of the negotiation or indeed the Ucom side of the negotiation is concerned the logical upper limit that Mr Lenfest would sensibly be likely to pay is simply that amount that Mr Hadid and his fellow shareholders [were] entitled to get anyway [if] the 29^th agreement applied to the transaction in contemplation. That on the face of it is the 50/50 split of the benefits in crude terms because the transaction in contemplation does not envisage the use of free carry in the classic sense. It’s using the surrogate of allowing any benefit to be released in an increase in the value of the shares.”
The argument proceeded as follows. The value of the technical services agreement was equivalent, in LCI’s collective mind, to the premium at which LCI acquired its Australis securities over the price at which those securities traded on the market. That was made explicit, it was said, in Mr Plant’s memorandum to Mr Lenfest of 11 January 1994:
“For our investment of $A138 mm we received approximately 180 million shares of Australis at a buy in rate of $A.75. While Australis’ stock was then trading at $A.52, we paid a premium in return for a technical services agreement providing revenue over 10 years on a formula basis.”
Thus if the market’s perception of the value added to Australis by its acquisition of licence B is reflected by the increase in the price at which Australis shares were traded in the period shortly following the acquisition, then the “premium” released to LCI was one-half (treating LCI as a 50 per cent shareholder of Australis) of the increase in Australis’ market capitalisation; and one-half of that premium was what Mr Hadid, together with the other UCOM shareholders, was reasonably able to expect, having regard to the terms of the 29 August agreement. If one took 11 January 1994 (the date of Mr Plant’s memorandum) as the appropriate date for ascertaining the premium, its amount was $234,000,000. If it were objected that the parties could not know, in mid-November, precisely what the premium would be, the answer was that the parties would have negotiated a “wait and see” arrangement under which Mr Hadid would receive his appropriate share of whatever the premium should in fact turn out to be.
Alternatively, it was said, one might take as a guide to LCI’s appreciation of the value of the licence a version of the UCOM business plan and projections. One might reasonably use that as a guide because of the substantial part played by the LCI representatives, particularly Mr Heller, in its development and refinement; and from the circumstance that LCI was prepared to use that document as the basis of its presentation to Cox and Continental. If one took a version of the business plan produced on 4 October 1993, it attributed to a business based on licence B a net present value of $190,000,000. That figure might rationally have been taken as the likely premium, one half of it ($95,000,000) being attributable to LCI and available to be shared with the UCOM shareholders, giving them $47,500,000.
Other aspects of the evidence were referred to as supporting the proposition that LCI must have seen the licence as having, in Australis’ hands, a value much greater than the sum LCI paid to acquire it. There was an extremely optimistic valuation issued by BT Securities Australia Ltd, a version of which was received by Mr Lenfest and a more detailed version by Mr Plant, at the beginning of October. Secondly, there was Mr Dougherty’s proposal. A draft agreement was submitted by Mr Dougherty’s company, Pankhan, to Mr Hadid, and a copy was sent to Mr Heller, on 15 October 1993. By that agreement Pankhan would have bought the shares in New World for $15,000,000. It would have provided the following additional benefit:
“The purchaser will on the written request of the vendor
(a)cause the vendors’ nominee or nominees to receive 5% of the issued shares in the company;
(b)pay to the vendors’ nominee or nominees the sum of $15,000,000.00 at the discretion of the vendor such option or payment not to be exercised or required before the expiration of three years from the date of issue of the licence.”
The argument seems to assume that the 5 per cent shareholding and the additional payment were cumulative, rather than alternative, benefits. I am by no means sure that that is right. In any event, the argument relied upon Mr Plant’s written suggestion that Mr Dougherty’s offer be pursued “without panic” and his evidence that, after discussions with BBY, he regarded the offer as having some credibility. Reliance was placed also on the circumstance that on 16 November BBY stated in writing that it was prepared to enter an underwriting agreement “subject to terms and conditions to be agreed … to assist in raising the required amount of capital for the B Licence”. The submission was that LCI must at least have regarded the Australis transaction as having a greater value than Mr Dougherty’s offer, to the extent that LCI was prepared to part with a very large sum of money in order to bring the Australis transaction about (the Pankhan transaction, of course, would not have required LCI to part with any more money at all).
In reliance on Mr Hadid’s evidence, it was submitted also that Mr Hadid, if forewarned about the Australis transaction and having ascertained beyond doubt that LCI would not finance the acquisition of licence A, would have both resumed the search for investors in licence A and also have negotiated (successfully) with LCI, as a fall-back, for the provision of a deposit on the next bid should the current bid cascade, so that Mr Hadid would then have been in the position to negotiate in relation to licence A without time pressures and would thus have been able to obtain greater benefits than he did in relation to the bid the deposit on which was paid on 3 December.
I am not inclined to place much weight on the Pankhan proposal. Mr Lenfest gave evidence that towards the end of October he believed that “it was a common understanding that that was not a real proposal …”; Mr Heller’s note of the meeting on 12 November with Mr Hadid, Dr Gadir, Mr Blanks and Mr Cooper recorded a statement by him, in response to a question by Mr Hadid, that Mr Dougherty “wasn’t for real”. The 16 November letter from BBY, even if LCI knew about it, was hardly calculated to inspire confidence.
One difficulty – and a considerable one – with the way in which the damages case was put is that none of those involved – particularly Mr Lenfest – was directly confronted with any of its elements. I have discussed already (pars 672 to 681) the question whether, in the circumstances of the actual negotiations, Mr Lenfest was prepared to offer more than $13,000,000 (particularly $15,000,000) and found that he was not; and I have referred to the fact that he was not challenged, in cross-examination, about his evidence that he authorised Mr Heller to offer no more than $13,000,000 and instructed him, if that was not accepted, to “come home”. That finding, and the considerations on which it is based, provide obvious difficulties in the path of the present argument. It does not, however, theoretically rule out the possibility that if confronted with a knowledgeable, and accordingly more aggressive, Mr Hadid, Mr Lenfest might have taken a different approach. It is not easy, however, to conclude that he would have done so where the circumstances which, it is said, would have activated him have not been put to him for comment. For that and for several other reasons, to which I shall come, I do not think that Mr Hadid’s argument is made out.
I accept that, if he had known about the Australis proposal, Mr Hadid would very likely have increased his demands and been more persistent in them. He might well have taken an optimistic view of the likely worth, and of market perception of the worth, of licence B in the hands of Australis. And Mr Lenfest himself was clearly of the view that if Mr Hadid were informed about Australis he would demand more money; he would take an “unreasonable” approach to negotiations; he would “hang up” the deal. But I have already referred at length to Mr Heller’s notes and his communications with Mr Lenfest during the November negotiations. There is no sign in that material of any perception on the part of either Mr Heller or Mr Lenfest that, if only they could acquire New World from Mr Hadid and his fellow shareholders, they would have possession of a gold mine. The “pull out” and “come home” evidence and notes suggest not an artificial constraint resulting from a deliberate decision to keep Mr Hadid in the dark but a real limit on what LCI was prepared to pay or provide in order to acquire the New World shares.
And the indications as to what LCI might reasonably be expected to think do not all point in the direction for which Mr Hadid contends. Hi Vision and UCOM both bid at levels well in excess of the amounts tendered by established media organisations. Both Cox and Continental had expressed the view that the prices bid for both licences were too high. Mr Heller made a note recording that reaction as late as 29 October 1993. Time Warner had, earlier, reacted similarly (par 155). Mr Lenfest and Mr Heller approached Dr Malone seeking assistance from TCI on 6 October. Mr Lenfest attributed this response to Dr Malone:
“We think … Hadid paid too much for the licences. I don’t think you’ll be able to get the US investors, and I think you made a mistake and I’m not interested.”
There is no reason to doubt Mr Lenfest’s evidence on that matter. Dr Malone’s reaction, when asked to provide his written consent as a director in November, amply corroborates it. Mr Price gave evidence that at St Louis he thought, and said, that “most of the critics of the process were indicating that the prices that were being talked about were absolutely outrageous”. When at West Chester he discovered that the total amount expended was $138,000,000 rather than $130,000,000, he said that he told Mr Lenfest that “I thought he was off his mind”. I accept that evidence. Obviously, what was said at West Chester merely reinforced what had been said earlier: it was too late to have any effect on LCI’s conduct of its negotiations with Mr Hadid.

Then there is the Meridian option. I have referred to the calculations made by Mr Heller both before and during the Regent Hotel negotiations. It was submitted on behalf of Mr Hadid that little weight should be attributed to the Meridian option. Though it was in fact the next bid for licence B, and though it was generally thought likely to be the next in line, Mr Heller (and hence LCI) did not know that that was the case. Additionally, however, the New World bid was not about to cascade (time had not begun to run) and there must have been at least some room for doubt about what Mr Hadid might have been able to achieve in relation to the New World bid and, for that matter, what claims he might have made in relation to the Meridian bid. Those are potentially significant considerations. There are, however, in my view two problems with them. One is that, again, they were given no investigation in evidence; they were not explored with Mr Lenfest or Mr Heller. The other is that, whatever the logic of it might have been, Mr Heller’s notes and his recommendations to Mr Lenfest treat a deal with the UCOM shareholders and exercise of the Meridian option as true alternatives, so that it made sense to compare the respective costs of taking each course. As I have commented previously, I find the evidence about the approach taken by Mr Lenfest and Mr Heller at the time of the negotiations a good deal more persuasive than inferences which might be drawn from ex post facto justifications prepared by Mr Plant largely, apparently, for the benefit of Dr Malone or anything that might be inferred, for example, from documents prepared by LCI’s bankers.
Other matters were referred to by counsel for LCI and Mr Lenfest. It was said, for example, that it was not appropriate to suppose that LCI would regard the division of “premium” as appropriate to be done by analogy with the 29 August agreement. The crucial difference was that that agreement – and subsequent correspondence about the division of sale proceeds – did not contemplate LCI outlaying, in cash, the full amount required to pay up the licence. It was said on behalf of Mr Hadid that the cash outlaid, or part or it, might have been recouped from the subsequent underwritten offering of Australis shares (Mr Plant accepted, in his evidence, that such a transaction was a possibility). And bank documents indicate that at least in discussions between LCI and its bankers the possibility of a return of capital from an initial public offering was contemplated (but this clearly arose from negotiations commenced before the suggestion of Project Midsummer: the proposal was that the $85,000,000 facility might be used by LCI to finance the purchase of either or both licences and that:
“In the event that the Borrower receives return of capital from any initial public offering of equity or other offering of equity raised in connection with one of the Licenses, such return of capital shall be used to permanently prepay outstandings under the Facility. However, if the Borrower intends to use such return of capital for the purchase of the other License, the foregoing shall not apply.”
There is no suggestion in the Project Midsummer proposal or the St Louis document which suggests that it was specifically contemplated in relation to the Australis transaction. Indeed, Dr Burt’s letter of 1 November contemplated raising funds from the public “to fund the start up cost of Pay TV by satellite and MDS” and the 3 November letter prepared by Mr Heller spoke of a public offering “to raise additional capital for the operation of the company”. In short, there is no evidence of any contemplation, in the context of the Australis transaction, that capital contributed by LCI would be returned; and in fact it was not returned. (Mr Lenfest gave evidence that, far from actually making a profit, LCI ultimately lost more than $US132,000,000).
Counsel for LCI suggested also that, having regard to the amount outlaid by LCI, one half of the supposed premium was by no means such a windfall that LCI should readily be supposed to be likely to share it equally with the UCOM shareholders: when the uncertainties of a new and untried business are taken into account, as well as the size of LCI’s capital commitment, that submission has obvious force. And even the agreement actually reached with Mr Hadid required a greater cash outlay than the facility arranged by LCI permitted. Mr Lenfest borrowed $US5,000,000 personally to make up the difference.
In the end, I think, and perhaps at the risk of oversimplifying, there are two alternative ways of viewing the situation. One is that LCI saw in Project Midsummer the prospect of great profit, a prospect which it concealed from Mr Hadid so as to ensure that it would pay as little as possible for the New World shares, thus maximising its own profit; but in circumstances where it knew it would have had to pay more, and would have done so, had Mr Hadid, fully informed, insisted upon it. That is the view propounded by Mr Hadid. The other is that LCI saw in Project Midsummer a means of protecting and capitalising upon the investment (in the form of the deposits) which it had already made, offering greater certainty than any other transaction in prospect and worth pursuing if the New World shares could be obtained at a price which LCI, in addition to the other money it had already outlaid and would outlay, was prepared to pay: but that it was unlikely that Mr Hadid would agree to terms which LCI considered reasonable – particularly, would accept the maximum that LCI was prepared to offer – if he knew that New World would be acquired by Australis. That is the view that LCI propounds and it is, in my view, the view which is, on the evidence, substantially the more probable. It is sufficient to find, as I do, that LCI would not have agreed to pay more than it did.
There remains the question of licence A. I see no ground in the evidence to think, however, that Mr Hadid would have succeeded in attracting investment in licence A in time to fund UCOM Australia’s bid. The history of the unsuccessful attempts to find investors over many months suggests that such an outcome would have been extremely unlikely, even if the prospect that licence B would be funded (and transferred to Australis) were known. The reasons already given preclude, in my view, a finding that Mr Lenfest would have agreed to provide a deposit on the next cascade of licence A. Additionally, it must be remembered that he refused to do so during the actual negotiations; and he refused, once the Australis transaction was known, to advance the date for payment of the $13,000,000 due to the UCOM shareholders in order to enable a deposit to be paid. In any event, I would not conclude, on the evidence, that Mr Hadid could or would have achieved an outcome, in relation to licence A, better than that which he in fact achieved with Uncanny and then Century. I do not think there is any reliable evidence supporting a finding that he might have done better.
For those reasons, in my view, even if I am wrong as to liability, Mr Hadid’s claim to compensatory damages, or equitable compensation, is not made out. It is inappropriate, in the circumstances, that I consider the claim for exemplary damages. Such a claim would succeed only if, in several respects, findings were made very different from those I have made; and nothing is to be gained by considering what those findings, or their result, might be.
22. Cross‑claim by LCI and Mr Lenfest
The cross-claim is described in pars 445, 446 and 448. It alleges three misrepresentations by Mr Hadid, all relied on also by way of defence to Mr Hadid’s claims against LCI and Mr Lenfest. The first misrepresentation is that an underwriter had agreed to underwrite the capitalisation of the holders of licence A and licence B, subject only to the deposit on the licences being paid. I have indicated, in par 652, that I am not satisfied that this representation was made. The second is that MDS technology had been prohibited by Commonwealth legislation from competing with subscription broadcasting services until July 1997. I have already found (par 631) that, following his late August conversation with Mr Hadid, Mr Lenfest believed that MDS could not compete until July 1997. The question is, how did Mr Lenfest (and Mr Heller) acquire that impression? Mr Lenfest gave evidence that Ms Combs told him, during their conversation on 27 August, that “there was no pay television in Australia, no cable, no broadband MDS and that it appeared to be a very exciting opportunity to be the first to deliver pay television [to] the Australian market”. Mr Lenfest also said that Mr Hadid told him that MDS was restricted to narrowcasting until 1 July 1997. Mr Heller made a note of the discussion with Ms Combs:
“DBS: 2 licences
4 channels of Pay TV each
Window for a number of years.”
It was contended on behalf of LCI and Mr Lenfest, in written submissions, that Ms Combs was to be regarded as the agent of Mr Hadid. It is sufficient to say, I think, that there is no evidence establishing an agency of the kind that would be required. It seems to me highly unlikely that Mr Hadid would say, knowing it to be false, that MDS broadcasting was prohibited until July 1997: he would have realised that the falsehood would have been promptly discovered. It is not clear how Mr Lenfest and Mr Heller obtained the impression which they did obtain. I am not satisfied, however, that Mr Hadid made the misrepresentation attributed to him. No submissions were made in support of the third misrepresentation and there is no evidence that Mr Hadid made a representation to that effect.
The result is that the cross-claim fails. It would in any event fail, I think, by reason of the releases in the 17 November agreements, on which LCI and Mr Lenfest rely for other purposes.
23. Conclusion
The result of these lengthy reasons is that the application will be dismissed and the cross-claim of LCI and Mr Lenfest will be dismissed also. Orders will be made accordingly on publication of these reasons. Mr Hadid should pay the costs of the proceeding, except in relation to the cross-claim of LCI and Mr Lenfest, of LCI, Mr Lenfest, Bain, Dr Burt and Mr Price. LCI and Mr Lenfest should pay Mr Hadid’s costs of the cross-claim. I shall make orders to that effect on publication of these reasons but, because I have heard no argument in relation to costs and it may be that the parties may have particular submissions to make on that subject, I shall order also that the orders for payment of costs not be entered before 15 February 2000. In the light of the findings I have made, I do not think any other orders are required; nor do I think that there are any other issues between the parties requiring further consideration. Lest I be wrong about that, however, and in order to accommodate any argument about costs, I shall grant the parties liberty to apply on five days’ notice.

I certify that the preceding one thousand one hundred and thirty-two (1132) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lehane.

Associate:
Dated: 24 December 1999

Counsel for the Applicant:

Mr R J Burbidge QC with Mr N A Cotman SC and Mr D A Caspersonn

Solicitor for the Applicant:

Garrett Walmsley Madgwick

Counsel for the First and Second Respondents:

Mr P G Hely QC with Mr R M Smith

Solicitor for the First and Second Respondents:

Clayton Utz

Counsel for the Third and Fourth Respondents:

Mr T E F Hughes QC with Mr L G Foster SC and

Mr J V Nicholas

Solicitor for the Third and Fourth Respondents:

Phillips Fox

Counsel for the Sixth Respondent:

Mr M J Slattery QC with Mr T D Castle

Solicitor for the Sixth Respondent:

Freehill Hollingdale & Page

Dates of Hearing:

2 – 5, 9 – 13, 16 – 19, 23 – 26 February 1998;

10 – 13, 16 – 20, 23, 24, 26, 27, 30, 31 March 1998;

1, 2, 6 – 9, 15 – 17, 20 – 24, 27 – 30 April 1998;

1, 4, 5, 7, 8, 11 – 15, 18 – 22, 25 – 29 May 1998;

1 – 5, 9 – 12, 15 – 17, 19, 22 – 25, 29, 30 June 1998;

1 – 3, 6 – 10, 13 – 17, 20 – 24, 27 – 30 July 1998;

3 – 7, 24, 25, 27, 28, 31 August 1998; and

1 – 4, 7 – 11, 14 – 18, 21 – 25, 30 September 1998

Date of Judgment:

24 December 1999

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 OF ORDER:	24 DECEMBER 1999
WHERE MADE:	SYDNEY

Counsel for the Applicant:	Mr R J Burbidge QC with Mr N A Cotman SC and Mr D A Caspersonn
Solicitor for the Applicant:	Garrett Walmsley Madgwick
Counsel for the First and Second Respondents:	Mr P G Hely QC with Mr R M Smith
Solicitor for the First and Second Respondents:	Clayton Utz
Counsel for the Third and Fourth Respondents:	Mr T E F Hughes QC with Mr L G Foster SC and Mr J V Nicholas
Solicitor for the Third and Fourth Respondents:	Phillips Fox
Counsel for the Sixth Respondent:	Mr M J Slattery QC with Mr T D Castle
Solicitor for the Sixth Respondent:	Freehill Hollingdale & Page
Dates of Hearing:	2 – 5, 9 – 13, 16 – 19, 23 – 26 February 1998; 10 – 13, 16 – 20, 23, 24, 26, 27, 30, 31 March 1998; 1, 2, 6 – 9, 15 – 17, 20 – 24, 27 – 30 April 1998; 1, 4, 5, 7, 8, 11 – 15, 18 – 22, 25 – 29 May 1998; 1 – 5, 9 – 12, 15 – 17, 19, 22 – 25, 29, 30 June 1998; 1 – 3, 6 – 10, 13 – 17, 20 – 24, 27 – 30 July 1998; 3 – 7, 24, 25, 27, 28, 31 August 1998; and 1 – 4, 7 – 11, 14 – 18, 21 – 25, 30 September 1998
Date of Judgment:	24 December 1999