Knox Basketball Inc v Carroll
[2014] VCC 1418
•5 September 2014
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE CIVIL DIVISION | Revised Not Restricted Suitable for Publication |
COMMERCIAL LIST
EXPEDITED CASES DIVISION
Case No. CI-13-04194
| KNOX BASKETBALL INCORPORATED | Plaintiff |
| v | |
| WAYNE FRANCIS CARROLL | First Defendant |
| and | |
| SIXTH MAN PROMOTIONS PTY LTD | Second Defendant |
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JUDGE: | HIS HONOUR JUDGE COSGRAVE | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 18-19, 25-26 August and 1 September 2014 | |
DATE OF JUDGMENT: | 5 September 2014 | |
CASE MAY BE CITED AS: | Knox Basketball Inc v Carroll & Anor | |
MEDIUM NEUTRAL CITATION: | [2014] VCC 1418 | |
REASONS FOR JUDGMENT
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Subject: ASSOCIATIONS, EMPLOYMENT LAW, RESTITUTION
Catchwords: ASSOCIATIONS – Directors' duties – Fiduciary duties – Duty to avoid conflicts of interest.
ASSOCIATIONS – Directors' duties – Fiduciary duties – Duty to not profit from position.
ASSOCIATIONS – Directors' duties – Fiduciary duties – Duty to not profit from position.
ASSOCIATIONS – Duties of office holders – Associations Incorporation Reform Act 2012 (Vic) ss 83(1), 83(2), 84(1) and 85(1).
EMPLOYMENT LAW – Termination for breach – Whether breach provided grounds for immediate termination – Whether notice of termination required.RESTITUTION – Account stated.
Legislation Cited: Associations Incorporation Act 1981 (Vic); Associations Incorporation Reform Act 2012 (Vic); Civil Procedure Act 2010 (Vic).
Cases Cited:Adami v Maison de Luxe Ltd (1924) 35 CLR 143; Blyth Chemicals Ltd v Bushnell (1933) 49 CLR 66; Chan v Zacharia (1984) 154 CLR 178; Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373; Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41; Howard v Pilkington (Australia) Ltd [2008] VSC 491; Queensland Mines Ltd v Hudson (1978) 18 ALR 1; Randall v Aristocrat Leisure Ltd [2004] NSWSC 411; Rankin v Marine Power International Pty Ltd [2001] VSC 150; Sautner v Melbourne Stadiums Limited [2014] VCC 476.
Judgment:
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr D Harrison | Goodman Group Lawyers |
| For the Defendants | Mr J Ribbands | Hardys Lawyers |
HIS HONOUR:
Nature of the dispute
1 This is an employment dispute between Knox Basketball Incorporated (“KBI”) against its former chief executive officer, Wayne Carroll (“Carroll”) and Sixth Man Promotions Pty Ltd (“Sixth Man”), a company of which Carroll was at all relevant times a director and shareholder.
Background
2 KBI is an unincorporated body. It is a not for profit organisation whose aim is to promote basketball in the immediate community and beyond. Carroll is a former Australian basketball player, a dual Olympian and an inductee in the Australian Basketball Hall of Fame. He assumed the role of chief executive officer of KBI in about early September 2011. In June 2013, KBI terminated Carroll’s employment with immediate effect.
3 While he was the chief executive officer, Carroll told the KBI Board of a potential opportunity to obtain a major sponsorship arrangement with the Microsoft Corporation (“Microsoft”) or persons associated with that company. In an attempt to bring this sponsorship arrangement to fruition, Carroll incurred expenditure of approximately $153,000 on behalf of KBI. As part of the exercise, Sixth Man was incorporated.
4 It is common ground that KBI incurred expenditure of the following kind:
(a) payments of $78,470 to Stephen Gordon (“Gordon”), who was said to be an associate of Stephen Ballmer (“Ballmer”), the former chief executive officer of Microsoft;
(b) an obligation to pay $34,914 in respect of a photocopier located at KBI’s premises in Boronia;
(c) miscellaneous payments for –
(i) the incorporation and maintenance of Sixth Man - $6,786;
(ii) payments to or for the benefit of Robbie Baldwin - $9,454;
(iii) a variety of expenses or payments including sponsoring a disadvantaged indigenous team in the national school basketball championships, airline tickets and accommodation for attending a FIBA (International Federation of Basketball Associations) conference in Malaysia and clothing - $56,960.
5 KBI says that Carroll either made or authorised this expenditure. In doing so, KBI says that the payments made or expenses incurred were not for the benefit of KBI but were for the benefit of Carroll or Sixth Man and were not authorised by KBI. KBI contends that by conducting himself as he did, Carroll breached both his fiduciary obligations to KBI and statutory duties imposed upon him as an office holder of KBI. In addition, KBI says that Carroll is liable to KBI on an account stated.
6 Carroll denies the allegations against him and says broadly that all expenditure was intended to benefit KBI and was directed to fulfilling its objectives, in particular, the pursuit of the sponsorship deal with Microsoft. This was known within KBI as “the Seattle Project”.
Issues
7 The main issues raised by the proceeding are whether:
· Carroll’s conduct in relation to the agreement between KBI and Gordon justified his immediate termination.
· Carroll’s conduct in relation to the photocopier agreement justified his immediate termination.
· Carroll’s conduct in relation to the miscellaneous payments and expenses set out in Annexure A of the Amended Statement of Claim justified his immediate termination.
· Carroll is liable to KBI on an account stated.
· Carroll breached his fiduciary duty to KBI.
· Carroll breached his statutory duty to KBI.
· Carroll is entitled to sue KBI for breach of the employment agreement because it dismissed him summarily without any payment for the notice period or balance of the contract term.
Did Carroll’s conduct regarding the Gordon agreement justify his summary dismissal?
(a) Evidence
8 KBI alleges that Carroll procured KBI to enter into an agreement with Gordon whereby KBI paid him the sum of $78,470 to act on its behalf or as a consultant in order to effect the special sponsorship arrangement with Microsoft.
9 KBI contends that the payments made to Gordon were for the benefit of Carroll and Sixth Man and were made without KBI’s authorisation. KBI further contends that the making of the payments to Gordon breached Carroll’s duties to KBI because, as a result of his conduct, he preferred his own interests or those of Sixth Man to KBI and made a profit at the expense of KBI.
10 Subject to one aspect of the matter regarding payments made to Gordon in 2013, dealt with below, I reject KBI’s allegations.
11 While it is clear that Carroll introduced Gordon and the issue of potential sponsorship funds for KBI, I do not accept that Carroll procured KBI to enter into an agreement with Gordon. Carroll said, and I accept, that after he began work at KBI in early September 2011, he sent a generic email to his email contacts advising them of his new position. Thereafter, Gordon contacted him to say that Microsoft was still interested in developing its relationship with basketball in the Asia-Pacific region and queried whether KBI had any interest in assisting with that objective.
12 Gordon’s approach was made in a context where an earlier approach to Basketball Australia had come to nothing. While Carroll was at Basketball Australia, a colleague, Brett Brown, the coach of the Australian men’s basketball team and assistant coach at the San Antonio Spurs in America, contacted him. Brown said that when the Spurs played the Portland Trailblazers, a team owned by Paul Allen, a co-founder of Microsoft, he was told that Allen was keen to work with Australia and the well-known indigenous basketball player, Patty Mills, who played for Portland. The aim was to develop a program for the Asia-Pacific region.
13 As a result, Carroll spoke to Gordon, a former National Basketball Association player working for Portland at the time and godfather to Steve Ballmer’s children. Ballmer was the chief executive officer of Microsoft at the time.
14 After Gordon contacted him at KBI, Carroll spoke to Gordon and ascertained that he was interested in being a consultant to KBI to work on obtaining the sponsorship deal.
15 Carroll advised the KBI Board of this proposal. It included an explanation about making the new State Basketball Centre (“the Centre”), to which KBI had contributed significant funds, a high tech training centre and seeking to sell sponsorship/naming rights in respect of the centre. The Centre would be the venue for ongoing activities involving Chinese teams and would represent major infrastructure in the Knox area.
16 The then chairman of KBI, Robert Crotty (“Crotty”), agreed in court that the matter was brought to the Board’s attention and the Board was agreeable to retaining Gordon.
17 Crotty described the initial proposal put to the Board by Carroll in about October or November 2011 as KBI being able to look to Gordon to secure an international global sponsorship arrangement from Ballmer and Microsoft. There was no discussion at the time about precisely how much funding would be obtained through the Seattle Project. However, an email sent to Carroll suggests that the amount could have been $5 million, although Crotty said that this specific sum was never communicated to the Board. Nonetheless, Crotty was clear that the amount of $4,000 per month to be paid to Gordon for 12 months was discussed and agreed by the Board. The Board of KBI entered a written agreement to pay that monthly retainer for the period from 1 November 2011 to 30 October 2012.
18 Crotty said that Carroll, as the chief executive officer, had the full support of the Board in pursuit of the Microsoft opportunity and the Board tried to work with him on that matter.
19 Crotty agreed that the potential benefits to KBI, if it became aligned with Microsoft, would be huge, not just financially but in terms of the influence which KBI might have in basketball more generally.
20 Another witness called by the plaintiff, Andrew Trott (“Trott”), has been on the Board of KBI for 14 years. Trott agreed that Carroll advised the Board of some of the background regarding the earlier proposal to Basketball Australia. He said that the Project specifically involved working with indigenous and refugee groups but there would also be a flow-on impact because Microsoft was interested in promoting basketball in connection with China. It seemed that Microsoft saw some advantage in the marketplace in China and believed the connection with basketball in the Asia-Pacific region could help them connect with senior Chinese officials.
21 Trott acknowledged that in October 2011, the KBI Board was keen to source some external sponsorship in light of the soon to be completed State Basketball Centre. The Board was also keen to pursue funding opportunities through naming rights and similar initiatives. He said that the Board collectively thought this was a very good opportunity. The potential benefits in a large sponsorship deal with Microsoft were attractive. The funding would put KBI in a healthy financial position because it could hopefully get the stadium paid for, secure significant ongoing revenue through sponsorship, sell naming rights and still retain substantial accumulated savings.
22 Trott agreed that the potential rewards from the sponsorship deal with Microsoft were huge. In terms of KBI’s revenue, approximately $4 million per annum, the money spent by KBI on the Centre and the like, the money spent on the Project was a reasonable investment. It was a nominal investment for a potentially large return. If the deal came off, the dividend was significant and was well worth pursuing.
23 The agreement between KBI and Gordon provided that Gordon was to:
· develop an international partnership for philanthropic foundations targeting basketball venue and program development; and
· develop international sponsorship partnerships for the State Basketball Centre and Knox basketball programs.
24 The agreement said that “no other fees or expenses are authorised unless specifically identified in this contract”. KBI drew attention to the fact that the payments made by KBI to Gordon exceeded $48,000 per annum and $4,000 per calendar month thereafter. For example, on 20 September 2012 there was a payment of $6,850 comprising the usual $4,000 monthly retainer plus $2,850 in respect of keyman insurance; on 15 January 2013 there was a payment for both $4,000 and $3,500, the former being the monthly retainer and the latter comprising business consulting fees (insurance); on 12 February 2013 there was a payment of $4,120, being $120 more than the agreed payment – there was no evidence about the purpose of the extra money. Carroll could not explain the discrepancies or the matters which caused the irregular payments to be made.
25 Although there was evidence of discussions and emails passing between Carroll and Gordon in 2012 and 2013, and also discussions between Crotty, Gordon and Ballmer (or at least someone purporting to be Ballmer),[1] the mooted sponsorship arrangement never materialised. Notwithstanding the substantial time and effort KBI spent in procuring a successful outcome, the Seattle Project ultimately came to nothing.
[1]On at least one occasion, Noordzy was party to the conversation.
26 A major area of controversy was the payments to Gordon in February, March and April 2013. On 17 January 2013, the KBI Board met and noted that while the Board remained keen to see the final sign-off on the Seattle Project, given the massive value which the Project would bring to KBI, the organisation’s then current financial position did not allow it to allocate any further funds to the Project. It resolved that “no additional funds are to be allocated to the Project”.
27 Crotty said that before this time the Board had not discussed the prospect of a halt in funding the Project. His recollection of the meeting was that the intent of the discussion was to stay the monthly payments to Gordon.
28 The written consulting agreement between KBI and Gordon lapsed in accordance with its terms on 30 October 2012. KBI contended[2] that there was no extension of the agreement and that KBI made payments totalling $27,620 after the expiry date. KBI submitted that it was no more than speculation that the payments were authorised by KBI.
[2]Plaintiff final submissions para 5
29 Crotty said he thought the agreement was extended until December 2012 and that he, presumably as chairman of KBI, signed something to that effect. Trott did not recall an extension being granted but said he would accept the fact of the extension if Crotty gave evidence to that effect. For his part, Carroll said that he recalled Crotty giving evidence of the extension, however he was not particularly aware of Gordon’s 12 month retainer having run out by November 2012. In the circumstances, I find that the agreement with Gordon was extended for the balance of 2012.
30 Trott believed the question of ending the funding for the Seattle Project came before the Board in September or October 2012. The monthly payments to Gordon were specifically referred to: if the sponsorship funds did not come through by the end of 2012, KBI would no longer fund the consultancy. He said that the embargo on spending applied to all expenditure directed to the Seattle Project (not just Gordon).
31 Crotty gave evidence about a meeting with Carroll, approximately a week after the Board meeting of 17 January 2013, about which he said:
“Wayne was concerned that it would jeopardise the opportunity. I said, ‘Okay, I’ll see what I can do,’ but with all of the other things that were happening at the time, I’ve sort of just left it at that.”
32 Although Crotty informed Carroll at this later meeting that he would “see what [he could] do” in relation to authorising further payments, he never explicitly extended the Board’s authorisation to fund the Project. He failed to report back to Carroll on the issue, whether to permit the expenditure or to confirm its cancellation.
33 Both Crotty and Trott agreed that Carroll gave updates to the Board at the monthly meetings regarding his dealings with Gordon and what KBI was getting for its monthly payment. Crotty said that Carroll, as a matter of course, advised him about phone calls he had with Gordon and meetings he arranged with him. Carroll also reported upon the difficulties he experienced with the cancelled meetings and the fact that the task of bringing the Seattle Project to fruition was not proceeding as Carroll had been led to expect. Carroll expressed his frustrations to the Board and Board members suffered a similar frustration.
34 Carroll initially said in his evidence that he could not recall whether he had discussed with anyone the fact of the payments to Gordon in February, March and April 2013. He subsequently said he believed that Crotty authorised the payments in discussions which he had with him. Carroll said:
“I had conversations with Bob Crotty that the need – if they wanted to keep engaging with Steve Gordon, which is what they wanted to do by telephone, they would need to pay him”.
35 Carroll also referred to the greater involvement after January 2013 of Crotty in the pursuit of the Seattle Project. Carroll contended, and Crotty agreed, that after the 17 January 2013 meeting, Crotty had telephone calls directly with Gordon and Ballmer.
36 The gist of Carroll’s evidence was to the effect that, in circumstances where, after 17 January 2013:
· the KBI Board remained keen to try and obtain the sponsorship benefits contemplated under the Seattle Project;
· Carroll had informed Crotty that if the Board were to maintain contact with Gordon with a view to bringing the Project to fruition, it was necessary to keep paying Gordon;
· Crotty was aware of Carroll’s concerns that KBI’s opportunity was jeopardised if no payment were made and Crotty had told him that he would see what he could do, but never came back to Carroll,
it appears that Carroll considered that he had Crotty’s consent to continue the monthly payments.
(b) Breach
37 While I am satisfied as to the genuineness of Carroll’s belief that it was in KBI’s best interests to make the payments to Gordon in February, March and April 2013, I consider that the payments were not authorised by the Board. Looking at the issue objectively:
· Carroll, through being at the January 2013 meeting, was aware that the Board had resolved to allocate no additional funds to the Project due to KBI’s financial position.
· Carroll spoke to Crotty, who agreed to see what he could do regarding the continuation of the payments. The approach to Crotty evidenced Carroll’s awareness that some kind of dispensation was needed to make the payments.
· Crotty said that he did not communicate with Carroll again about the matter so Carroll knew there was no express authority from KBI to pay Gordon.
· Carroll could not give precise evidence about Crotty’s consent to the payments.
38 I also note that various Board minutes in the court book showed that a confidential report was provided to the KBI Board each month with respect to the Seattle Project. The Board also received a finance report on a monthly basis. Accordingly, I would have expected the fact of the payments to Gordon to appear in the material provided to the Board. However, I accept that there was no direct evidence on the matter because the confidential documentation put before the Board was not produced to the court. Nonetheless, if those three payments were revealed to the Board at the time, no one from the Board appears to have made any complaint.
39 In his judgment in Sautner v Melbourne Stadiums Limited,[3] Judge Anderson had to consider whether various allegations made against the plaintiff employee justified the summary termination of his employment by the defendant on the basis that there was “a serious or persistent breach of any of the terms of this contract”. His Honour examined in some detail a series of cases dealing with the gravity of a contractual breach required to justify summary termination in an employment context.
[3][2014] VCC 476
40 In short, the relevant statements of principle were to the following effect:[4]
[4]Adami v Maison de Luxe Ltd (1924) 35 CLR 143, 151, 155; Blyth Chemicals Ltd v Bushnell (1933) 49 CLR 66, 81-2; Rankin v Marine Power International Pty Ltd [2001] VSC 150, at [239]-[240], [250] and [264]; Randall v Aristocrat Leisure Ltd [2004] NSWSC 411; Howard v Pilkington (Australia) Ltd [2008] VSC 491, at [41].
· There is a difference between mere disobedience of a lawful order from an employer and using that act to justify a complete dissolution of the employment contract.
· To justify the latter, the disobedience must be wilful – not just a breach but a radical break of the relationship which is inconsistent with its continuance. The breach must be of such a nature as to enable the employer to conclude that the employee no longer intends to be bound by the terms of their agreement.
· The conduct of the employee must give rise to a serious breach of the contract of employment involving a repudiation of the essential obligations under the contract or conduct which is repugnant to the continuation of the relationship.
· While each case must be considered on its particular facts, isolated conduct would not normally be sufficient. However, if the conduct shows that if the employee is repudiating the agreement or deliberately flouting one of its central conditions, it can be enough.
· Because of the significant consequences of summary dismissal, there is a heavy onus upon the employer to show that the dismissal without notice is justified.
41 I do not consider the payments to Gordon made in 2013 were a sufficiently serious breach of the terms of the employment agreement to constitute a lawful basis for summary dismissal. Because I accept that Carroll was well motivated, albeit mistaken regarding the payments, his conduct was not wilful or effective, to repudiate the employment relationship between the parties. However, I consider it was quite possibly negligent to make the three payments to Gordon because it was in breach of a Board directive and Carroll took insufficient care to obtain authorisation to make the payments.
Did Carroll’s conduct regarding the photocopier justify his summary dismissal?
(a) Evidence
42 KBI alleges that Carroll caused it to enter into an agreement with Sharp Corporation of Australia to lease a photocopier. The agreement, made on 31 August 2012, required KBI to pay $581.90 each calendar month for five years. KBI in fact took delivery of the photocopier on about 25 January 2013 at its Boronia premises. KBI alleged that on about 25 January 2013, the photocopier was delivered to premises at Boronia used by Sixth Man. It contended that at that date, Sixth Man had set up an office at the Boronia premises and KBI had moved its offices from those premises to 291 George Street, Wantirna South. In those circumstances, KBI alleged that the photocopier agreement was not for the benefit of KBI but was intended to benefit Carroll and/or Sixth Man. KBI has claimed as loss and damage the payments required pursuant to the photocopier agreement totalling $34,914.
(b) Breach
43 While I accept the evidence of Crotty and Trott that even now, the photocopier is still wrapped in plastic and unused at Boronia, I do not accept that the agreement was intended to benefit Carroll and Sixth Man and was not for the benefit of KBI.
44 First, Sixth Man did not set up an office at the Boronia premises. During the course of a no case submission by the defendants at the close of KBI’s case, KBI acknowledged that on the evidence before the court, it was open to the court to conclude that Carroll’s submission regarding the situation with the rental lease agreement in relation to the Boronia premises was made out. I made a ruling that there was no case for the defendants to answer on the claim against Sixth Man regarding the rental agreement at Boronia or the claim against Carroll for a contravention of the Australian Consumer Law in respect of his involvement in Sixth Man’s contravention of this Act.
45 The removal of these causes of action due to the absence of a factual underpinning has a consequential impact on this cause of action regarding the photocopier. Plainly, if Sixth Man were not using the premises and had not set up an office at the Boronia premises, those facts cannot be established. Moreover, it becomes correspondingly more difficult to convincingly contend that the photocopier agreement remained for the benefit of Sixth Man when, ex hypothesi, Sixth Man has no office at, or agreement to lease, the Boronia premises.
46 Secondly, I accept Carroll’s explanation of events relating to the photocopier. He said that the delay between making the agreement and taking possession of the photocopier was due partly to delay by the supplier and partly due to the maintenance work being done at Boronia. KBI was repairing the floors and there was a huge amount of dust in the building arising from the sanding of the floors.
47 As a result, Carroll said that the Boronia Stadium was being upgraded at the time in a range of areas and he intended to upgrade the office area as well, so that it would be similar to KBI’s other venue. He wanted more people working at Boronia. Carroll acknowledged that moving part of the office and staff to Boronia had not taken place by June 2013. He said it was not a priority in the context of other events which were taking place around that time: the aftermath of the meeting of the KBI Board on 17 January 2013; the special meetings of KBI on 5 March and 19 March 2013; the impending annual general meeting of KBI scheduled for 30 May 2013.
48 Thirdly, I do not consider there is any evidence to say that the agreement was for the benefit of Carroll. If it were for his benefit, I would expect him, or persons associated with him, to at least use the photocopier. It seems accepted by all parties that up until at least June 2013, when Carroll left KBI, the machine had not been unwrapped or used.
49 Fourthly, at worst for the defendants, Carroll acted prematurely in ordering the photocopier when the expansion of the office facilities had not taken place and would not in fact occur at all before his departure from KBI. This may have been an error of judgment on his part, but if the photocopier were bought as part of a planned improvement of facilities and the relocation of staff, then it does not seem to me to warrant a summary termination of Carroll’s employment.
50 Also, to the extent that the photocopier was bought in anticipation of the funding coming through from the Seattle Project, and Sixth Man having extensive responsibilities regarding those funds, I would find in any event that the purchase was for the benefit of KBI and its related companies. It should not be overlooked that the only reason for creating Sixth Man was to protect and insulate KBI from risk. KBI set up and established Sixth Man – it nominated the director at the outset. It placed its own chief executive officer in that position. I do not consider that it would be appropriate in those circumstances to penalise the chief executive officer for buying a piece of equipment which, as things turned out, has not been used.
51 Although there was no argument on the point, I also query why KBI did not seek to mitigate its loss by paying out the contract and seeking to sell the new machine still wrapped in plastic.
52 The legal principles regarding summary termination have already been set out. I do not consider that Carroll’s conduct in connection with the purchase of the photocopier justified KBI summarily dismissing Carroll from his position as chief executive officer. With the benefit of hindsight, it would perhaps have been better to delay the purchase until the staff had relocated to the Boronia office and actually needed the machine. However, it was within his implied authority to purchase the photocopier and buying it prematurely was not a sufficiently grave error as to warrant immediate dismissal.
Did Carroll’s conduct regarding the miscellaneous payments and expenses alleged at Annexure A of the amended statement of claim justify his summary dismissal?
53 The other payments claimed by KBI comprise the following categories:
(a) payments regarding the incorporation and maintenance of Sixth Man - $6,786;
(b) payments to or for the benefit of Robbie Baldwin - $9,454.71;
(c) assorted miscellaneous payments - $56,960.78;
(d) payments to Gordon - $78,470.
(a)Payments regarding the incorporation and maintenance of Sixth Man
54 KBI alleged that the payments made regarding the incorporation and maintenance of Sixth Man were for the benefit of Carroll and/or Sixth Man and were made without the authorisation of KBI. I reject that allegation.
55 Carroll contends that Sixth Man was established as a company to be involved in, or give effect to, any sponsorship arrangement which might develop between KBI and Microsoft. He alleged that KBI controlled the company.
56 KBI alleged, or at least implied, that Sixth Man was a company which Carroll controlled as director and shareholder and operated independently of KBI.
57 I find that Sixth Man was a company established by KBI after it received legal and financial advice regarding the possible adverse consequences upon the organisation’s “not for profit” status of receiving substantial sponsorship funds. In effect, Sixth Man was incorporated to have a separate entity at arm’s length from KBI but one which would willingly assist KBI in the Seattle Project once the sponsorship deal was done and the sponsorship monies became available. The plan was to have two companies, Sixth Man and Stockton to Malone Pty Ltd (“Stockton”). Stockton was the financial arm. It would receive the sponsorship funds. Sixth Man would then draw upon those funds and make them available to KBI as sponsorship moneys. The establishment of this framework was intended to have two benefits:
(a) KBI protected its “not for profit” status;
(b) KBI could not be legally liable for the conduct of or any wrongdoing by Sixth Man or Stockton.
58 Crotty and Trott gave evidence to this effect. KBI established Sixth Man. KBI wanted Carroll to be a director of Sixth Man because he was the chief executive officer of KBI, was bound by contract to KBI, and owed allegiance to it. Initially, he was the sole director. Later, the Board thought there should be another director. While there was some consideration given to Crotty becoming a director, ultimately Gordon became an equal shareholder and director with Carroll. Subsequently, Gordon asked to relinquish his involvement in Sixth Man.
59 KBI sought to make something at the hearing of the fact that Carroll was still a director and shareholder in Sixth Man and that since his dismissal in June 2013, he had not taken any steps to return control of the company to KBI. Carroll said that KBI had never asked him to return the shares he held to KBI or resign as director. Although it had the opportunity to do so, KBI did not challenge that evidence.
60 I do not consider that this issue of the retained directorship and shares has any pivotal bearing on the case. It does not detract from the clear evidence regarding Sixth Man’s establishment and the reasons therefor. There is no evidence that Carroll has used the company to conduct any activity or business independently of KBI. Crotty saw nothing sinister or dishonest underpinning the relationship between Carroll and Gordon. I inferred from this that he did not consider that they were planning to act in some way detrimental to KBI. Indeed, Crotty regarded Carroll as a person of integrity. Trott, too, did not think that Carroll was pursuing an agenda of his own. He considered that Carroll acted with the best interests of KBI at heart.
61 The same could not be said of Noordzy. He viewed Sixth Man as Carroll’s company and considered that Carroll was using the company with Gordon to create some scheme which would disadvantage or cause harm to KBI in some way. He was suspicious. I find that this view reflected Noordzy’s apparent lack of appreciation of the history of the matter, including the circumstances in which Sixth Man was incorporated and the KBI Board deciding that Gordon, and not Crotty, should be the other director/shareholder of Sixth Man.
62 I find there was nothing in respect of Carroll’s conduct in relation to the incorporation and maintenance of Sixth Man which justified the summary termination of Carroll’s employment.
(b) Payments to Robbie Baldwin
63 KBI cannot make any complaint regarding the payments to Robbie Baldwin.
64 The payments to Baldwin concerned the team of indigenous female basketball players who attended the National Schools Tournament in Melbourne. Baldwin was an indigenous basketball player of some repute who coached the team. Crotty said that KBI supported the Elcho Island team attending the championships by raising funds from sponsors. He, or the company for which he worked, contributed $4,000 for this purpose. To the extent that there was a shortfall between the cost of assisting the Elcho Island team and the sponsorship funds raised, Crotty acknowledged that KBI had to meet the difference. KBI was committed to the Elcho Island team independently of the Seattle Project. However, once the Seattle Project appeared, KBI sought to take advantage of its commitment to the team to “sell” itself more widely.
65 The coaching and development of the indigenous team was part of a project taken on by KBI. KBI understood that if it were to have a sponsorship arrangement through the Seattle Project, the benefactors might want some assurance that KBI could deliver value for them. Crotty recognised that it was in KBI’s interest to show its capacity to develop the sport in areas other than the immediate geographical confines of Knox. To engage with the Elcho Island team would highlight to prospective partners that KBI believed in the Project.
66 The engagement with the Elcho Island indigenous team enabled KBI to demonstrate its credentials to potential sponsors. It evidenced KBI’s belief in the project of developing health skills and healthy lifestyle for young people through basketball.
67 For this reason, KBI was happy for Carroll to pursue the issue on its behalf by bringing players down to Melbourne, coaching and developing them, and spending the requisite funds as required. These matters, together with the shooting of the DVD, became part of KBI’s objective of showing Microsoft that KBI would “pull off” the job expected of it. Crotty had no issue with the money expended in the tournament regarding coaching, video, buying uniforms, and the like. Trott acknowledged that these expenses were related to the Seattle Project, insofar as Carroll had said that the expenses would be funded by the Gates Foundation in furtherance of that Foundation’s commitment to indigenous communities. He also conceded that the expenses were of mixed purpose, in the sense that they assisted a disadvantaged group and also demonstrated KBI’s credentials in relation to the Seattle Project.
68 I note that KBI was critical of Carroll for never showing or sending the video to Gordon or Microsoft. Carroll had planned to give it to Gordon and/or Ballmer when they met together with the KBI basketball clothing. As all parties acknowledged, no meeting ever occurred. The fact that the meeting did not take place does not retrospectively invalidate the pursuit of an otherwise legitimate purpose.
69 There was no aspect of Carroll’s conduct regarding the payments to Baldwin which justified the summary termination of his employment.
(c) Associated Miscellaneous Payments
70 KBI alleged in relation to each category of the payments set out in Annexure A to the claim that they were made for the benefit of Carroll and/or Sixth Man and without authorisation of KBI. Broadly, I reject the allegations of KBI.
71 The first item was the Farewell Series tickets. These were tickets which were given to people to mark the special opening games at the new State Basketball Centre. Carroll said that he gave tickets to a lot of individuals whom he wanted to see the centre as part of the promotion of the Seattle Project. Attendees included people like Bob Elphinstone from FIBA and Matt Weston, with whom Carroll hoped to cultivate an ongoing relationship regarding China. I accept Carroll’s evidence that the cost of the tickets was designed to advance KBI’s interest in relation to the Seattle Project.
72 I further accept Carroll’s evidence that KBI incurred some expenses securing domain names for Sixth Man and Stockton as part of the preparation for the implementation of sponsorship agreements with the Seattle Project. Although on one view, it might be said that to have been premature to have spent the money in this way, I consider that having established the companies, it made good practical sense to obtain domain names which were consistent with the company names. It would have been a nuisance at best and embarrassingly inept at worst to receive the go-ahead regarding sponsorship arrangements only to find that the required domain names were no longer available.
73 Certain airline and accommodation expenses related to the trip by Carroll, Larry Sengstock and Michael Horan to Malaysia to meet with the Central Board of FIBA are also in dispute. Sengstock was a four time Olympic basketball player for Australia and former CEO of Basketball Australia. Horan was a media and communications expert who had worked for the Herald Sun for about 40 years. Sengstock and Horan each went to Malaysia in an unpaid role to assist Carroll. Carroll was interested as part of the Seattle Project, in exploring the possibility of a global partnership with FIBA and sponsoring the 2014 Basketball World Cup.
74 Bob Elphinstone, a former President of FIBA, secured for the trio the chance to address the Central Board about developing a relationship.
75 In cross-examination, Carroll said that he wanted to gain access to FIBA’s global programs or sponsorship so that KBI could offer that to Microsoft as part of the package which KBI brought to the table. I find these FIBA related expenses were justified because they related to the Seattle Project.
76 I have referred already to Carroll’s evidence about the Elcho Island expenses. Accordingly, I find that KBI has no claim regarding those expenses.
77 In relation to the costs for the KBI hoodies, wraps and socks, I accept Carroll’s evidence that he obtained the items to give to Gordon and Ballmer at a meeting scheduled with them in Australia. Carroll agreed that the meeting did not take place and he still had the clothes. He denied the suggestion that he had given them to his own children. I note also that there was no admissible evidence from any witness on behalf of KBI supporting that suggestion. The intended use of the clothing was legitimate and consistent with pursuit of the Seattle Project. However, given the intended use has not materialised Carroll should return the clothing or reimburse KBI for its cost.
78 KBI also complains about an amount of $6,773.01 spent on flights, meetings and accommodation. KBI did not lead any specific evidence about the constituent elements of this item. In his evidence, Crotty was asked to look at a purported invoice from KBI to Sixth Man in which the item, together with other miscellaneous expenses claimed by KBI in this case, was set out. Crotty said that he spoke to Carroll about two of the items on the invoice, pointing out that those items had not been approved by the Board. I infer from Crotty’s evidence, and the context, that KBI had no issue at the time with the other items set out. This current item was not one of those to which Crotty drew attention. Because KBI failed to lead evidence about the sum claimed (a matter on which it has the onus of proof), I reject its claim that this amount represents impermissible expenditure which is recoverable from Carroll.
79 There were some other expenses referred to in KBI’s Annexure A including office phone expenses and car rental. KBI did not produce any, or any compelling, evidence on these matters and I find that KBI’s complaints were not made out.
80 Because of my findings regarding the miscellaneous payments and expenses referred to by KBI, I do not consider that Carroll making such payments or incurring such expenses justified his summary dismissal. Crotty agreed that Carroll as the chief executive officer enjoyed the full support of the Board in pursuing the Microsoft sponsorship opportunity and the Board tried to work with him on the Seattle Project. Crotty and Trott both agreed that if the Seattle Project had become a reality, the benefits for KBI would have been enormous. It must be borne firmly in mind that at least until 17 January 2013, Carroll had considerable authority as chief executive officer to act in what he judged to be the best interests of KBI.
81 A corollary of this was, in my view, was that he could expend funds or incur obligations which were intended to promote the best interests of KBI. Crotty accepted there was a Board delegation to Carroll. Accordingly, the Board did not authorise all expenditure on an item by item basis. Nor did the Board expect to be informed of expenditure on a day to day basis. Rather, the Board delegated to its paid chief executive officer the task of acting appropriately to pursue the objective of fostering the growth of basketball including the pursuit of the Microsoft sponsorship opportunity.
82 I should note that some of Crotty’s evidence regarding expenditure was inconsistent, in particular on some of the expenses which he at first queried or challenged but later resiled from in cross-examination. Because of the balance and different perspective the responses in cross-examination bring, I attributed greater weight to that part of his evidence.
83 Trott too agreed that he relied upon the typical delegation of authority from the KBI Board to Carroll for him to pursue the Board’s objective. Trott accepted that in the absence of an express Board direction not to spend money in a particular way, the chief executive officer had authority to make decisions.
(d) Payments to Gordon
84 I have already addressed the issue of the payments to Gordon. I find that the initial 12 month contract was validly made by KBI and all the KBI payments from November 2011 until December 2012 were valid. They cannot be recovered from Carroll. However, to the extent that Carroll could not explain and justify as appropriate the extra payments of $2,850, $35,00 and $120 referred to earlier, he should reimburse KBI. The same applies to the three monthly payments made in 2013 after 17 January 2013.
Has KBI established an account stated?
85 KBI referred to the law regarding accounts stated as set out in the judgment of Brennan J in Bank of New South Wales v Brown[5]. The judgment there explained that an account stated can take one of two forms:
[5](1983) 151 CLR 514, 535-6
a) an admission of debt out of court that one party owes money to another;
b) where the account contains items both of credit and debit and the figures on both sides are adjusted between the parties and a balance struck.
86 KBI maintains that Carroll and/or Sixth Man is liable on an account stated because of an acknowledgment that the money advanced by KBI had to be repaid by Sixth Man. KBI pointed to an affidavit of Carroll in which he accepted this proposition (Exhibit P3) and a letter signed by Carroll dated 15 March 2013.
87 While, from one perspective, the plaintiff’s material is persuasive, I reject it because it ignores the context in which Sixth Man was created, the financial resources available to it and the conditionality of the arrangements regarding the reimbursement of moneys to KBI. I have referred elsewhere in the judgment to these matters. In short, I find that KBI has not established a claim to an account stated because:
a) there was no unqualified admission by Carroll or Sixth Man that either owed money to KBI. There were no loans to Carroll personally or moneys spent as he directed in any personal capacity. Similarly, the moneys which KBI expended for or in connection with Sixth Man were spent on the basis that KBI would recover that expenditure if and when the Seattle Project deal was made and the sponsorship moneys became available. At its highest, the reimbursement of the moneys claimed by KBI was conditional.
b) There was no taking of accounts in any strict sense where items of claim were brought into account on either side and a balance struck.
Did Carroll breach his fiduciary obligation to KBI?
88 KBI submits that Carroll had a fiduciary duty as an employee to:
a) avoid conflicts between KBI’s interest and his own interests;
b) avoid conflicts between KBI’s interest and the interests of others; and
c) not to make profits at the expense of KBI.
89 In its closing submissions, KBI identified breaches by Carroll of his fiduciary obligation including:
· Allowing himself to act as a director and shareholder of Sixth Man and to lend money to Sixth Man[6]
[6]Plaintiff’s outline of final submissions para 41
· Expecting to be compensated if the Seattle Project came through[7]
[7]Ibid para 42
· Failing to disclose specific emails between Gordon and him[8]
[8]Ibid para 47
· Failing to disclose the contents of specific emails between Gordon and him[9]
· Failing to disclose the draft planning documents he prepared if the sponsorship were realised[10]
[9]Ibid para 47
[10]CB 120
90 In my view, there was nothing impermissible about Carroll acting as director and shareholder of Sixth Man. KBI wanted him in that position and he did as he was instructed. I do not consider KBI can make any complaint about this. It seems to me that taking such a point raises an issue about KBI’s compliance with its obligations under the Civil Procedure Act 2010 (Vic).
91 In final submissions, KBI sought to make much of what it said Carroll expected to happen if the sponsorship deal was achieved. This included, as evidenced by the document found at the photocopier, the hope of a well-paid job for himself and his wife. In my view, KBI exaggerated the significance of this document (and the other draft versions of it). I accept that it was a draft of a planning document so that, if required, Carroll cold implement matters quickly if the sponsorship materialized. He wanted to appear prepared and organised for discussions with Microsoft. I note also that the suggested salary for Carroll in the document was nominated not by Carroll but someone else unconnected with him.
92 I accept that Carroll did not show to the Board all the emails which passed between him and Gordon. Probably he did not reveal all the details of the emails and communications which passed between him and Gordon. But, as noted, he did give monthly reports to the Board which were not all positive – he included information about the delays, the cancellations, the broken commitments and the resulting frustration. I do not consider it was necessarily the case that he had to inform the Board that Gordon had referred to Carroll as his brother or family. Having regard to the KBI Board’s interest in obtaining the Microsoft sponsorship, I am confident it would have made little or no difference to the Board’s conduct or attitude.[11]
[11]Even in June 2013, after the new Board was elected, it still pursued the deal.
93 With respect to the prospect of Carroll having a senior role in Sixth Man once the sponsorship moneys came through, this was a possibility but far from a certainty. It depended upon the attitude of Microsoft as benefactor – would it want or allow a local person in a senior role or would it require Microsoft personnel to take the senior roles. Mere contingencies do not attract the conflicts rule. The scope for conflict has to be real and sensible and more than purely hypothetical.[12]
[12]Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41, 103; Chan v Zacharia (1984) 154 CLR 178, 205; Queensland Mines Ltd v Hudson (1978) 18 ALR 1,3; Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373, 399.
94 The facts of this case are very different from one in which, for example, a director in breach of fiduciary duty appropriated investment opportunities for himself in circumstances where his job was to find, investigate and report upon properties for his employer to invest in.
95 If Carroll succeeded in realising the Microsoft sponsorship, there was great benefit for KBI but no necessary benefit for Carroll or his family. Without the sponsorship, there was no benefit for either – indeed KBI spent money pursuing the Seattle Project. But the Board members who gave evidence thought the pursuit was worth the effort and expenditure given the potential prize.
Did Carroll breach his statutory duty to KBI?
96 KBI contended that Carroll breached his obligations under various provisions of the Associations Incorporation Act 1981 (Vic) (“the 1981 Act”) and the Associations Incorporations Reform Act 2012 (Vic) (“the 2012 Act”). The obligations under the 1981 Act apply to actions until 25 November 2012 and the obligations under the 2012 Act apply thereafter.
97 Having regard to the matters previously addressed, I do not consider that Carroll knowingly or recklessly:
· made improper use of information acquired by virtue of his position in KBI or
· made improper use of his position in KBI
to gain a pecuniary benefit or material advantage for himself or any other person or so as to cause detriment to KBI.
98 In my view, there is no evidence that Carroll made improper use of information or gained a benefit for himself or someone else. I accept that KBI contracted with Gordon and expended money on the Seattle Project. But the KBI board made the decision to retain Gordon and approved of Carroll pursuing the Seattle Project. On one view, KBI suffered some detriment by expending money but not succeeding in obtaining the sponsorship it hoped for. However, I do not consider that Carroll acted knowingly or recklessly to cause detriment to KBI. Any harm suffered by KBI is not attributable to a contravention of the 1981 Act or, subject to my comments below, the 2012 Act.
99 Section 83(1) of the 2012 Act requires an officeholder like Carroll to exercise his powers and discharge his duties with the degree of care and diligence that a reasonable person would if that person:
a) were an office holder of KBI in the circumstances applying at the time of the exercise of the power or the discharge of the duty; and
b) occupied the office held by and had the same responsibilities within the association as the office holder.
100 I consider that Carroll has not shown the requisite degree of care and diligence required of him to the extent that:
· He overpaid Gordon $6,470 without explanation.
· He made three payments to Gordon in February, March and April 2013 after the board meeting of 17 January 2013.
· He retained KBI basketball clothes intended as gifts for Gordon and Ballmer even after the intended meeting did not take place.
· He has failed to account to KBI for the balance, if any, of the $1,000 which Gordon sent as a test payment.
101 Although KBI criticised Carroll’s conduct in relation to the Seattle Project[13], I do not consider that his other conduct contravened the legislation. Hindsight is always clear. At the time events occurred, Carroll had the support of the Board and kept the Board informed of major developments and disappointments. If the Board had wanted more detailed information, for example copies of emails or file notes of conversations with Gordon and/or Ballmer, it was open to the Board to require this from Carroll. It appears to me that at the relevant time, KBI and Carroll had their eyes firmly fixed on the prize of a very significant sponsorship deal. Now a new Board is looking at events with fresh eyes and wanting to apportion blame for the failure to secure the sponsorship.
[13]Plaintiff’s Final Submissions paragraph 53
The defendants’ counterclaim
102 Because I find that Carroll did not engage in any conduct which justified his summary dismissal, his counterclaim succeeds.
103 Carroll has claimed, and is prima facie entitled to, damages for the period from 17 June 2013 to 22 August 2014, comprising his base salary and superannuation entitlements.
104 KBI contended that Carroll failed to mitigate his loss. KBI criticised the evidence which Carroll gave regarding his attendance at interviews and attempts to find alternative employment. While I agree that the evidence Carroll gave on the point was limited and not detailed, I accept that he has made efforts to find alternate employment. Carroll appears to be a man aged in his middle fifties. I take judicial notice of the fact that many men of that age who lose their jobs often have difficulty obtaining further employment. As noted previously, there was no evidence led about Carroll’s educational background. One might imagine that if he were unskilled or his work experience is limited to basketball, then securing another job might well be difficult. If prospective employers hear allegations of alleged financial mismanagement by Carroll or that he allegedly spent KBI’s money for the benefit of himself or Sixth Man contrary to the interests of KBI, that would not assist his employment prospects.
105 Carroll agreed that since December 2013 he had received unemployment benefits of $400-499 each fortnight. Given the uncertainty of his evidence on the point, it is appropriate to take the higher figure. On this basis, I find that Carroll has to deduct $8,000 from his claim.
106 The onus of proof is on the party who alleges that the claimant has failed to respond reasonably to the former’s breach of contract. If the party fails to show that the claimant ought reasonably have taken mitigating steps open to them then there is no basis to reduce the damages.
Jones v Dunkel
107 Each party contended that the court should draw an adverse inference against the other for failing to call certain witnesses. The principles regarding the application of Jones v Dunkel are well established.[14]
[14]Cross on Evidence (9th ed) para 1215
108 KBI contended that it was open to the court to infer that the evidence of persons such as Gordon, Scriven, Wack, Brookhouse and other KBI board members would not have helped Carroll.
109 Gordon was not in Carroll’s camp. Gordon was most interested in himself and now might reasonably think that neither KBI nor Carroll was well disposed towards him. Further, because it seems that Gordon lives in America and not in this jurisdiction, he cannot be compelled to give evidence.
110 I do not regard the other witnesses mentioned as being especially useful having regard to the other evidence in the case. I doubt that any evidence these persons might have given would have assisted much in determining the main issues which had to be resolved. This is particularly so having regard to the evidence of board members Crotty and Trott, much of whose evidence supported Carroll. In short, I do not draw any adverse inference against Carroll for failing to call the persons named. Even if I were prepared to draw the inference, I consider it most unlikely to have any effect upon the result: broadly speaking, I accept most of the evidence of Crotty, Trott and Carroll and consider that any breach of contract or duty by Carroll was not sufficiently serious to justify his summary dismissal.
Credibility of Witnesses
111 The main witnesses were Crotty, Trott, Noordzy and Carroll.
112 Generally, I regarded Crotty and Trott as witnesses whose testimony could be accepted. Crotty in particular was credible. He answered questions in a direct and forthright manner and appeared to be attempting to assist the court as a subpoenaed witness. Trott struck me as someone who was aware of his position as a person who served on the old Board under Crotty and is now on the new Board under Noordzy. He was a person who approved of the pursuit of the Seattle Project at the time but now seems to have used hindsight to have some second thoughts about the matter. To that extent, I do not readily accept from him comments such as:
· The question of continuing to fund the Project was queried at the Board in September/October 2012.
· If more information had been provided, he would have sought to stop sooner the funding for the Seattle Project.
If the former comment were true, the Board minutes would have confirmed this but nothing was produced. Given the change in circumstances since the Annual General Meeting last year, the latter comment seemed self-serving and convenient. While he was supportive of KBI’s actions in 2011-12, Trott now sits on a Board which perceives the Seattle Project as a waste of money and seeks to hold Carroll responsible.
(a) Noordzy
113 Noordzy was somewhat combative in the witness box. He presented as a someone who strongly believed in his cause and, as chairman of KBI, was keen to obtain orders against Carroll to make good the alleged loss which KBI suffered. Noordzy was unnecessarily argumentative and, on occasion, would not assent to propositions which were obvious and not contentious. He was suspicious of Carroll and believed, partly from talking to others and partly from looking at documents, that Carroll and Gordon had a scheme designed to take advantage of KBI or to not act in its best interests.
114 A particular matter of concern with Noordzy was the reason for Carroll’s dismissal. The new Board, with Noordzy as chairman, was created on about 30 May 2013.
115 On 4 June, the first meeting of the new Board took place. At that time, the Board decided it wanted to continue the pursuit of the Seattle Project. The Board was keen to finalise it.
116 On Thursday 13 June, Noordzy sent Carroll an email which, among other things:
· noted Carroll’s use of KBI’s funds notwithstanding the Board resolution of 17 January 2013 that no further funds were to be allocated to the Seattle Project.
· referred to Carroll agreeing to go to the bank on the following Monday to transfer funds so as to repay KBI the moneys it had advanced in connection with Sixth Man.
· gave Carroll a list of urgent matters for him to address.
At the time the KBI Board had no issue with Carroll’s continuing employment as the chief executive officer of KBI.
117 On 17 June 2013, KBI gave Carroll two letters, a “without prejudice” letter and an open letter. The “without prejudice” letter referred to Carroll agreeing to repay KBI the moneys it expended in connection with Sixth Man. The open letter terminated Carroll’s employment based upon Carroll’s statements at the May annual general meeting that he had used members’ money without the knowledge and consent of the Board to fund the operation of Sixth Man.
118 As Noordzy acknowledged, the Board was aware on 4 June of all the matters referred to in the 17 June correspondence.
119 At the Board meeting on 25 June 2013, Noordzy told the Board that Carroll was terminated for misconduct, namely, expending moneys in relation to Sixth Man after the Board directive on 17 January 2013 that no further funds be allocated to the Seattle Project.
120 This inconsistency of approach and Noordzy’s explanation of the basis for Carroll’s termination caused me to have doubts about the reliability of Noordzy’s evidence.
(b) Carroll
121 KBI submitted that Carroll should not be accepted as a witness of truth, save where his evidence was corroborated by other witnesses or documents.
122 KBI made a sustained attack upon Carroll’s credibility. To this end, it was put to Carroll that he both lied to the court and made up or invented evidence on a range of issues. In particular, KBI focused upon the claim by Carroll in court that any obligation which he or Sixth Man had to repay moneys to KBI was subject to, and conditional upon, sponsorship deal coming to fruition, and funds flowing to KBI via Stockton and Sixth Man.
123 KBI pointed to Carroll’s failure to raise the issue at an earlier time as evidenced by various contemporary documents including minutes of the special general meeting on 19 March 2013, minutes of the annual general meeting on 30 May 2013, text messages sent on 17 June 2013, and Carroll’s response to KBI’s letters of demand.
124 It is plain that the condition is not explicitly found in the various documents to which KBI referred. However, that is not the end of the matter. In my opinion, the submission does not take sufficient account of:
(a) the financial status of Sixth Man;
(b) Carroll’s nature and background.
(i) The financial status of Sixth Man
125 Carroll submitted that it was understood that Sixth Man would have no funds until the promised sponsorship came through from Microsoft. As a result, it was submitted, it was understood by KBI that Sixth Man could make no payments nor cover any of its expenses until that money from Microsoft came through. The defendants said that the arrangement was that Sixth Man would incur expenses in pursuit of the Microsoft deal, and KBI would cover those expenses until the money came through. KBI would be reimbursed by Sixth Man for those expenses when the funding from Microsoft was received.
126 I accept the defendants’ submission in this regard.
127 Crotty said that the plan was that the money would go to Stockton, would then be drawn upon by Sixth Man and then given to KBI as sponsorship. Crotty also said that Sixth Man was the activation company if the funding did become available. Implicit in this statement was an acknowledgement on the part of Crotty that Sixth Man would not have any money until the sponsorship funding became available. It is also an acknowledgement of the inherent risk of the Microsoft deal, which I will discuss later.
128 It was put to Crotty, and Crotty agreed, that until the Microsoft deal came about, it was known and appreciated by KBI that Sixth Man was for all intents and purposes sitting on the shelf doing nothing. It was not contemplated by the Board at any point in time that Sixth Man was going to be in a position to fund ‘this exercise’ (being the expenses incurred in procuring the Microsoft sponsorship).
129 In the course of cross-examination, Crotty agreed that, as Sixth Man was a ‘third arm’ of KBI, it was perfectly appropriate for KBI to pay for the costs of Sixth Man set out in the first group of expenses at Appendix A of the statement of claim. Crotty also agreed that Sixth Man was not Carroll’s private company on the side, but rather a third arm of KBI.
130 At a special general meeting KBI held on 5 March 2013, the minutes record Crotty as saying, “6 Man Promotions at present is a company in name only until the sponsorship funding comes through and will then flow through to Knox Basketball Incorporated. This is set up to ensure that Knox Basketball Incorporated maintains and protects its non-profit status”.
131 It was put to Crotty and Crotty agreed that it was anticipated that the money received by Sixth Man from Microsoft would go to KBI. One of the first payments KBI would be expecting to receive was reimbursement of costs expended on the sponsorship processes, including retention of Gordon, and all costs that had been incurred by Sixth Man in the initial stages of pursuit of the Seattle Project. Crotty also agreed that while it was expected that those funds would be received as a priority from Sixth Man when all the Microsoft money finally arrived, it was altered to show in the accounts as a loan, even though it was not strictly a loan in the sense that money was lent by KBI to Sixth Man.
132 In part of his evidence in chief, Trott said that:
· All of the costs incurred or moneys spent by KBI which were attributable to Sixth Man were to be recovered from Sixth Man once the money came through.
· Carroll said at a meeting Trott attended that all the KBI costs would be recovered once the money came through.
I inferred from this statement that Trott and the Board acknowledged not only the inherent risk in the Project, but also the fact that KBI would have to cover Sixth Man’s costs because Sixth Man would not be in a position to do so unless the sponsorship deal came to fruition.
133 It was put to Trott, and Trott agreed, that if Carroll had identified costs incurred by KBI that were attributable to the Seattle Project and billed them to Sixth Man, then that would be an appropriate thing to do. Trott said that the expenses had already been incurred and paid for by KBI, and the idea of attributing them to Sixth Man was based on the premise that when the money came through, KBI would be reimbursed. I infer from this statement that the Board was willing to pay for expenses incurred by Sixth Man in relation to the Seattle Project, on the basis that Sixth Man could not do so until funding became available from Microsoft.
134 The overwhelming inference to be drawn from the evidence of the two KBI Board members who gave evidence was that:
· the Board incorporated Sixth Man to protect itself;
· the Board agreed that KBI should fund all the outgoings and expenses of Sixth Man in relation to the prospective sponsorship arrangement because the ultimate anticipated benefit for KBI was very substantial;
· KBI expected to be repaid once the sponsorship moneys came through;
· unless and until the sponsorship arrangement was made and the money became available through Stockton and Sixth Man, Sixth Man had no obligation to repay KBI (because KBI recognised that it had no means to do so).
135 In my view, this financial reality governed the whole context within which KBI and Carroll operated. For this reason, I reject the contention put to Carroll several times that, when he referred to Sixth Man’s obligation to repay moneys being conditional, he was lying and making up the evidence. What Carroll said about the condition was true. Moreover, for practical purposes, the evidence of Crotty and Trott was to the same effect.
(ii) Carroll’s nature and background
136 While watching Carroll give evidence, I formed the impression that he was trying to answer questions truthfully to the best of his ability. He was not belligerent, argumentative or evasive, but usually answered directly the question asked. However, it is true that he became confused on occasion and struggled to grasp the question.
137 There was not a great deal of evidence about Carroll’s educational background and work experience. While Carroll was undoubtedly a talented basketball player and enthusiastic about its promotion, he did not appear to be a particularly academic person or one blessed with exceptional business acumen. I consider that this is borne out by him being over 50 years of age before he had his first job as a chief executive officer. The job he left at Basketball Australia was high performance manager. This presumably involved working with basketballers to develop their talents so that they realised their full potential.
138 Carroll struck me as an unsophisticated person who had a simple and uncomplicated approach to issues and the way he gave evidence. From his perspective, he was not lying or fabricating evidence when he gave evidence about the financial status of Sixth Man. This was obvious to him because it reflected the reality, which was also well-known to the KBI Board, of why Sixth Man was established and the resources available to that company.
139 Also, I regard it as a matter of major importance that the KBI Board members called to give evidence swore to a version of the facts which was substantially the same as Carroll’s on this point. This fortifies me in my view that the attacks made upon Carroll were largely unjustified. Particularly on this aspect of the case, I found Carroll to be an honest and reliable witness.
140 KBI further submitted that the conditionality point was also inconsistent with:
· invoices passing between KBI and Sixth Man;
· the email from Carroll to Gordon on 28 May 2013;
· the so-called repayment commitment signed by both Carroll and Gordon on 15 March 2013.
141 I do not accept that Carroll’s evidence about the conditional obligation is inconsistent with the documents alleged.
142 The invoices must be seen against the same underlying factual matrix and not in isolation. In context, it can be readily accepted that the invoices formed a record of the expenses which KBI could legitimately claim as reimbursable from the sponsorship funds as a properly incurred excuse. The invoice created a record both for KBI and for the purposes of any audit which the sponsoring benefactor such as Microsoft might require in the future.
143 The emails refer to Sixth Man not having any assets or funds. Apart from limited share capital of $10, it never had either in its own right.
144 The 15 March 2013 letter from Carroll to Gordon specifically recognised that KBI will be repaid when operational funds are available in Sixth Man. That will not take place unless and until the sponsorship deal comes to fruition. The “repayment commitment” signed by Gordon agreed in effect to repay the legitimate costs incurred as set out in a negotiated schedule. There was no evidence that such a schedule was created and agreed upon. But, as before, the commitment must be seen in context – it became enlivened when Sixth Man had funds and not otherwise.
145 I accept that the conditional obligation claim does look to be inconsistent with the affidavit Carroll swore on 29 November 2013 to set aside a default judgment. There he said that “if no deal was secured then the Second Defendant would repay the expenses”. However, I note that in the same paragraph of the affidavit Carroll says that the agreement between KBI and Sixth Man about funding was that, in the event of the sponsorship deal being secured, the expenses would be reimbursed through that arrangement. On one view, this at least constitutes an implicit recognition of the conditional arrangement.
146 The paragraph is confusing because, viewed another way, Carroll says that the agreement to engage Gordon as a consultant was not documented. This is plainly wrong. So, while this example raises some doubts about Carroll, overall on this point I accept his evidence about the conditional nature of the repayment.
147 Overall and notwithstanding the matters referred to above, I found Carroll a credible and reliable witness. Given my reservations about Noordzy in particular, I would prefer Carroll’s evidence to his on any contested point.
Conclusion
148 This case is an unfortunate one. The volunteers who run KBI are no doubt keen to act in the best interests of that body. A major problem here is the difference in perception. The Crotty Board thought it a good idea to pursue the Seattle Project and the sponsorship and other benefits which would accrue from it. The Board accepted that this involved the expenditure of money. Sixth Man and Stockton were set up especially for the purpose. Because money was spent for no ultimate benefit to KBI, the Noordzy Board has taken a different view of what it sees as the unproductive pursuit of the sponsorship. The new Board’s perception is influenced by KBI’s reduced financial resources. However, the fact that the Seattle Project did not ultimately materialise does not mean that the KBI Board in general, and Carroll in particular, acted improperly. Carroll did not seek to advance his own interest or anyone else’s interest at the expense of KBI. He was anxious to deliver the project for KBI and hoped for a better outcome. Perhaps he and the previous Board could have been more exacting in their approach to the whole matter. But no aspect of Carroll’s conduct justified his summary dismissal.
149 I invite the parties to agree on a final form of order which reflects these reasons. If orders cannot be agreed, I shall hear the parties regarding appropriate orders.
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