Ultra Thoroughbred Racing v Those Certain Underwriters
[2011] VSC 589
•2 December 2011
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
No. 05957 of 2008
| ULTRA THOROUGHBRED RACING PTY LTD (ACN 103 106 207) trading as BAREE STUD | Plaintiff |
| v | |
| THOSE CERTAIN UNDERWRITERS AT LLOYD’S, LONDON, members of Syndicate 2001 for the 2005 underwriting year of account | Defendant |
| and | |
| CYNTHIA MAIE LADHAMS (as administrator of the estate of PATRICK JAMES LADHAMS) | Second Defendant |
| and | |
| ANGUS O McKINNON | Third Defendant |
---
JUDGE: | J FORREST J | |
WHERE HELD: | Melbourne | |
DATES OF HEARING: | 3, 4, 5, 8, 9, 10, 15, 16, 17, 23 and 24 August 2011 | |
DATE OF JUDGMENT: | 2 December 2011 | |
CASE MAY BE CITED AS: | Ultra Thoroughbred Racing v Those Certain Underwriters & Ors | |
MEDIUM NEUTRAL CITATION: | [2011] VSC 589 | Amended 6 December 2011 |
---
TRADE AND COMMERCE - Misleading or deceptive representations – Sale of racehorse – Issue of veterinary certificate – Agency - Fair Trading Act 1999 (Vic) s 9.
NEGLIGENCE – Part X Wrongs Act 1958 (Vic) – Duty of care - Risk of harm – Foreseeability – Not insignificant risk – Adequacy of response to risk – evidence of loss.
CONTRACT – Breach – Construction - Damages – Failure to effect and maintain Insurance - Whether damages limited to insurance payout - Interpretation of contract of sale - Principles of construction - Deferred payment – Terms providing for a future interest.
EQUITY – Fiduciary duty – Vendor and Purchaser - Existence of a Fiduciary Relationship.
---
APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr A Sandbach | FrancisDaniel Lawyers |
| For the Second Defendant | Mr G J Burns | Ryan Carlisle Thomas |
| For the Third Defendant | Mr C E Shaw | Meridian Lawyers |
HIS HONOUR:
A. INTRODUCTION
In March 2005, the late Mr Pat Ladhams (whose widow is the second defendant) sold his top class thoroughbred mare, Sound Action, to Ultra Thoroughbred Racing Pty Ltd.[1] The sale agreement[2] was subject to the mare passing a veterinary examination.
[1]“Ultra”.
[2]“The agreement”.
Sound Action subsequently underwent a veterinary examination conducted by the third defendant, Dr Angus McKinnon, at the Goulburn Valley Equine Hospital.[3] On 10 March 2005, Dr McKinnon issued a Certificate of Examination for mortality insurance purposes.[4] The certificate did not identify any abnormality with the mare and Ultra subsequently paid $250,000 to Mr Ladhams pursuant to the agreement, which also provided that Mr Ladhams would receive half the proceeds of the sale of the mare’s first two foals.
[3]“GVEH”.
[4]“The insurance certificate”.
Unfortunately, within a short period of time, the mare developed problems with both her front feet, leading to the carrying out of a digital neurectomy[5] at the end of March 2005. Subsequently, things went from bad to worse. On 18 June 2005 notwithstanding further radical surgery, the mare died just prior to being placed on the operating table.
[5]“The neurectomy”.
Ultra initially commenced proceedings against the first defendant, the underwriters[6] of the insurance policy covering the mare for mortality insurance. There was a protracted dispute with the underwriters which was resolved in January 2009.[7] Ultra subsequently amended its statement of claim to join Mr Ladhams and Dr McKinnon. It alleged that Mr Ladhams had engaged in false and misleading conduct by representing to Mr Buckley prior to the sale that the mare was sound in all respects – that is, for both breeding and racing. It made a similar allegation against Dr McKinnon on the basis of the insurance certificate, also alleging negligence in respect of the preparation of that certificate and the associated examination of the mare.
[6]“The underwriters”.
[7]Notice of Discontinue dated 6 March 2009.
Mr Ladhams counterclaimed against Ultra, alleging breaches of the terms of the agreement to pay a further $250,000, as well as negligence and breach of fiduciary duty.
Essentially, Mr Ladhams asserted that the terms of the agreement provided for the payment by Ultra of $250,000 in the event of the death of the mare. Alternatively, he alleged that Ultra’s reduction of the insurance cover of the mare from $500,000 to $250,000 was both in breach of the agreement as well as being negligent and in breach of a fiduciary duty owed by Ultra to Mr Ladhams. He also argued that Ultra’s instruction to the veterinarian to carry out the neurectomy was negligent.
B. ULTRA’S CLAIMS
The case against Mr Ladhams
As will become apparent, it is important to identify precisely the case mounted by Ultra against Mr Ladhams, and for that matter against Dr McKinnon. The pleaded case is as follows:
22.Further or alternatively, at and prior to the execution Sale Agreement, the Second Defendant represented to the Plaintiff that Sound Action was sound in all respects.
PARTICULARS
The representations were oral and were made in discussions in or about February and March 2005 at meetings and over the telephone between the Second Defendant and Mr Sean Buckley of the Plaintiff. The substance of the representations was as alleged.
23.The representations were in trade or commerce and were misleading or deceptive or likely to mislead or deceive within the meaning of section 9 of the Fair Trading Act 1999 (Vic) in one or more of the following respects:
PARTICUILARS
a.Sound Action had been prior to February 2005 under treatment for navicular disease;
b.Sound Action had been prior to February 2005 under treatment for lameness;
c. Sound Action had a previous history of navicular disease;
d. Sound Action had a previous history of lameness;
e.Sound Action had a previous history of bilateral front foot pain.
24.In reliance upon the aforesaid representations, the Plaintiff executed the Sale Agreement.
In the course of the opening, counsel for Mr Buckley confined the case against Mr Ladhams further. In response to a question from me, he accepted that the discussion and representation as to the soundness was confined to what was said by Mr Ladhams at the Oaklands Sale Complex[8] on 3 or 4 March 2005. When asked by me as to what was said about the mare’s soundness, the following exchange took place:
JUDGE: Does he say anything about her soundness?
COUNSEL:Yes, he says she’s sound, that the problem is one that has arisen from what he says is inadequate care on the part of the present trainer.[9]
[8]“Oaklands”.
[9]T 16.
Ultra’s case against Mr Ladhams is therefore simple: Mr Ladhams, in conversations with Mr Buckley, at Oaklands represented to Mr Buckley that the mare was “sound in all respects”. There was a good deal of evidence as to what the expression “soundness” means. I am not sure it was of great assistance as the expression is protean and depends on the particular horse, type of activity and its appearance at any given time. Ultra made it clear that for the purpose of its claim, the expression “sound in all respects” meant that the mare was able to engage in both racing and breeding. Ultra then asserts that in reliance upon the statement it entered into the agreement.
Mr Ladhams passed away in February of this year. I admitted into evidence under s 63 of the Evidence Act 2008 (Vic) a record of an interview of Mr Ladhams that was conducted in 2005 and an affidavit of Mr Ladhams sworn earlier this year. Mr Ladhams denies the substance of the conversation alleged to have occurred at Oaklands. He contends that he told Mr Buckley of the problems associated with the training of the mare in the past and the difficulties with her racing in the future. Mr Ladhams had no intention of racing the mare himself; he says in addition that it was well known that the mare had significant hoof problems and equally well known that he intended to retire her from racing.
The case against Dr McKinnon
Ultra’s claim against Dr McKinnon was pleaded as follows:
25.Further or alternatively, the Plaintiff, pursuant to clause 9 of the Sale Agreement, caused Sound Action to be examined by the Third Defendant.
PARTICUILARS
A copy of the Sale Agreement is in the possession of the solicitors for the Plaintiff and may be inspected by prior arrangement.
26.On or about 11 March 2005 the Third Defendant completed the 1st Certificate of Examination in which he certified that the horse was “clinically normal and in satisfactory condition”.
PARTICULARS
A copy of the 1st Certificate of Examination is in the possession of the solicitors for the Plaintiff and may be inspected by prior arrangement.
27.In terms of the 1st Certificate of Examination, the Third Defendant represented that Sound Action was sound in all respects.
28. The representations were in trade or commerce and were misleading or deceptive or likely to deceive within the meaning of section 9 of the Fair Trading Act 1999 (Vic) in one or more of the following respects:
PARTICULARS
a.Sound Action had been prior to February 2005 under treatment for navicular disease;
b.Sound Action had been prior to February 2005 under treatment for lameness;
c. Sound Action had a previous history of navicular disease;
d. Sound Action had a previous history of lameness;
e. Sound Action had a previous history of bilateral front food pain.
28A.Further or alternatively, the Third Defendant was negligent in his examination of Sound Action and his completion of the 1st Certificate of Examination in one or more of the following respects
PARTICULARS
(a)The Plaintiff repeats and adopts the particulars subjoined to paragraph 28 hereof.
(b)Failing to make inquiry as to, or seek the medical records of Sound Action at her previous treating veterinary surgeons.
(c)Failing to make inquiry as to, or see the medical history of Sound Action from her previous veterinary surgeons, in particular Dr Ian Fulton of the Colac Veterinary Clinic.
(d)Failing to make inquiry as to, or seek, the training history or racing history of Sound Action from her previous trainer (Ms Roberta McLeod) and the Second Defendant.
(e)Failing to exercise the care and skill expected of a veterinary surgeon in the circumstances.
29.In reliance upon the aforesaid representations of the Third Defendant, further or alternatively by reason of the Third Defendant’s negligence as aforesaid, the Plaintiff did not exercise its right under clause 9 of the Sale Agreement (which right the Plaintiff would have exercised if it had known that Sound Action suffered from navicular disease, lameness or front foot pain) to treat the Sale Agreement as null and void.
PARTICULARS
A copy of the Sale Agreement is in the possession of the solicitors for the Plaintiff and may be inspected by prior arrangement.
The misleading and deceptive conduct claim against Dr McKinnon relates solely to his completion of the insurance certificate and the related examination on 11 March 2005. Ultra contends that the insurance certificate amounted to a representation by Dr McKinnon that the mare was sound in all respects – again this is said to mean that she was able to engage in both racing and breeding. It says that it relied upon the certificate in not exercising its option under the agreement to treat the sale as null and void in the event of the mare failing a pre-purchase veterinary examination.[10]
[10]See clause 9 of the agreement (exhibit UTR1).
In the course of opening, counsel for Ultra confirmed that the misleading and deceptive conduct case turned solely upon the insurance certificate provided by Dr McKinnon on 11 March 2005 but contended that the certificate needed to be read in the light of all the circumstances of the mare’s admission to GVEH.
Dr McKinnon responds that the insurance certificate means no more than what it says: that at the time of his inspection the mare was not lame. It is not, Dr McKinnon argues, meant to be anything other than a mortality insurance declaration – it was not an assessment for racing purposes and, he says, no such assessment was ever requested of him.
Ultra’s negligence claim also turns on the certificate and the examination: the asserted inadequacies in the examination and certificate, as well as a failure by Dr McKinnon to make appropriate inquiries about the mare’s history.
Dr McKinnon asserts that the certificate was accurate and that there was no obligation for him to make further enquiries given the nature of the certificate.
C. THE TRIAL (FACTS AND FINDINGS)
Veterinary lexicon
To understand some of the decisions made at various times during this saga, it is helpful to set out my imperfect understanding of several of the important veterinary terms used in the course of the trial:
Lameness is an abnormality of gait where a horse places increased (or decreased) weight when exercising, on a particular leg or legs. The abnormal leg or legs will have decreased weight placed on it; in contrast, the normal leg will take on more of the weight.
Laminitis is an inflammation of the lamini which are the sensitive tissues located under the hoof wall. The condition can result in acute lameness. It can have a variety of causes, including a disruption of the blood supply to the hoof.
Navicular syndrome or Navicular disease is a condition of the hoof. The navicular bone is located within the hood and sits adjacent to the coffin bone and is weight bearing. Adjacent to it are a number of other structures compendiously known as the navicular bursa. A description of a horse suffering from navicular disease or syndrome does not provide a precise identification of what is wrong with a horse. It may be that there is radiological evidence of damage to the navicular bone. It may also be that the area around the navicular bone has been disturbed or damaged and is productive of symptoms. It is also possible (somewhat like arthritis) that there can be damage to either the bone or the bursa with no clinical symptoms. The condition is generally not life-threatening and with reasonable care and farrier attention a broodmare will suffer no complications.
Palmer or plantar digital neurectomy is an operative procedure directed to the relief of pain in horses with signs of chronic lameness, including particularly those with navicular disease. The operation is carried out on the nerves in the hoof. The surgeon divides the nerves (with the aim of blocking out any feeling in the hoof). The procedure is one of some delicacy as the nerve is located only a millimetre away from the artery within the hoof.[11] Complications associated with the procedure are: (a) re-innervation: that is, the nerves re-attach; and (b) laminitis, which can develop after a second operation or (as is highly relevant here) injury to the accompanying blood vessels.[12]
[11]T 941.
[12]Exhibit UTR12. Extract from Ava and Stock, Equine Surgery, Edition 3.
The main participants (equine and human)
Sound Action was foaled in 1999. She was unfashionably bred, yet Mr Ladhams in August 2002 had the good judgment (or perhaps the good fortune) to purchase her. Throughout her career she was trained at Birregurra by Ms Roberta Maguire.[13]
[13]Ms Maguire has since remarried and is now known as Roberta McLeod. I have however referred to her by her previous name – as she is described by the witnesses.
Sound Action had her first start at Ararat on 17 November 2002 as a three year old maiden which she won by a length and a half. Subsequently she won her next six starts, including four in the metropolitan area.[14] On 3 May 2003 at Morphettville she won the Group One Australasian Oaks by nearly three lengths. Two weeks later, she suffered her first defeat when she ran fourth, beaten 1.3 lengths, in the South Australian Oaks.
[14]One of her victories was somewhat fortuitous. She ran second but the winner returned a positive swab.
She had one run in the spring of 2003, a fourth in the weight-for-age Liston Stakes. Her autumn campaign of six starts resulted in a further Group One success in the Ranvet Stakes at Randwick on 20 March 2004; she had previously finished third and second, beaten half a length and 1.3 lengths behind Lonhro in the C F Orr and St George Stakes respectively. After the Ranvet she ran fourth, beaten nearly ten lengths in the BMW and had her final start in the Queen Elizabeth Stakes on 17 April in which she was beaten by nearly 14 lengths.[15]
[15]Exhibit PL2.
After the Queen Elizabeth, the mare pulled up sore and was spelled for six to eight weeks with the idea of bringing her back in the spring. By this time she had developed symptoms of lameness in both front feet. Notwithstanding careful veterinary care, she did not race again.
Mr Pat Ladhams was a retired dairy farmer. He lived in Colac and had been intensely interested in racing over many years. He owned the mare, which was the subject of a nominal lease to some of his children and in-laws. However, he paid the bills, made all the decisions about the horse and followed her career and veterinary management closely. He was responsible for giving instructions in relation to the mare’s racing career and it was his decision to retire her to stud. None of the other listed owners played any part in the management or in the negotiations for the sale of the mare. Sadly Mr Ladhams passed away in February of this year.
Mr Chris Ladhams is the son of Pat Ladhams. He accompanied his father to the Oakland sales where a meeting was held with Mr Buckley to finalise the terms of the sale.
Mr Sean Buckley was the managing director of Ultra. He was a relative newcomer to the racing/breeding industry. He initially purchased a controlling interest in the company which, at that time, had a stud at Macedon. He relocated the stud to Kilmore in 2004 on a property which had sophisticated training and breeding facilities. At this time there were three other directors of Ultra: Mr George, who had originally (via his company) owned the stud and remained on as a director. Mr Coleman, who was also a director of several of the Ultratune companies and had experience in racing; and Ms Gabrielle Suenza, Mr Buckley’s partner at the time. Mr Buckley directed operations at the Baree stud[16] and was the driving force behind the purchase of the mare. He made the decisions in relation to the purchase of the mare and the various veterinary procedures carried out upon her.
[16]“Baree”.
Mr Terry Bolger was the farm manager at Baree. He had considerable experience in racing, initially as a jockey and then as a trainer. He reported to Mr Buckley, and with Mr Coleman, made the day to day management decisions at the stud.
Mr Paul Guy is an experienced bloodstock agent. He put the deal together for the sale of the mare and drew up the agreement ultimately signed by Messrs Buckley, Ladhams and Guy. Mr Guy and his wife Rebecca were the directors of Heritage Bloodstock Pty Ltd at the time of Sound Action’s purchase.
Dr Len Fulton, a veterinary surgeon, practises at Ballarat. He is also a specialist in equine surgery and management and treated the mare between 9 August 2004 and 21 February 2005 shortly prior to her sale to Ultra.
Dr Angus McKinnon is a veterinary surgeon who specialises in equine reproductive management. He has been in practice at GVEH since 1998.
Dr Jim Vasey is also a veterinary surgeon and has been a partner with Dr McKinnon in the GVEH since its establishment in 1995. His speciality is equine surgery. He was contacted by Mr Buckley at the time of the purchase and asked to arrange examinations of the mare.
Drs Vasey and McKinnon are “partners” in the GVEH. It is located at Congupna, near Shepparton. In 2005, it employed between 12-15 veterinarians with 30-40 staff members.
Dr Sarah Jalim also worked as a veterinarian at GVEH and assisted in the lameness workup of Sound Action with Dr Vasey On 10 or 11 March 2005.
Ms Kate Bertoli worked as a nurse at GVEH and admitted the mare on 10 March 2009.
Dr Maxine Brain practices at Kilmore and was the on-call veterinary surgeon at Baree. She first treated the mare on 21 March 2005 shortly prior to the digital neurectomy being carried out at GVEH.
Dr Rick Redden is an American veterinary surgeon who practises in Versailles, Kentucky. He travelled to Australia and carried out radical surgery on the mare’s front feet on 23 May . He returned to Australia to carry out further surgery on 18 June and was present when the mare died on the operating table. He did not give evidence at the trial.
Newmarket Insurance Brokers[17] were the agents for the underwriters, a Lloyd’s syndicate, initially joined as the only defendant to this proceeding. Newmarket specialised in equine insurance. No representative of Newmarket or the underwriters gave evidence.
[17]“Newmarket”.
The expert witnesses
Three expert witnesses gave evidence at trial. Two on the veterinary management score relevant to the negligence claim against Dr McKinnon: Dr James Veneer (called by Ultra) and Professor Kannegieter (called by Dr McKinnon). In addition, an experienced thoroughbred valuer, Mr Heagney, was called by Ultra.
Non-controversial factual matters
The summary which follows represents my findings of fact on mostly non-controversial matters. I shall, subsequently, deal with my findings of fact where there is dispute between the parties.
Towards the end of the autumn carnival in Sydney in 2004, Sound Action experienced problems with her front feet – not significant but enough to put an end to her campaign.[18] Prior to that, there had been no significant issues about her soundness. After a six week spell she was put back into work and showed consistent signs of lameness when asked to do foot work.[19]
[18]T 552.
[19]T 553.
Dr Fulton treated the mare from 9 August 2004 until 21 February 2005[20] and diagnosed the condition of navicular bursitis in her front feet.[21]
[20]T 300.
[21]T 557, Exhibit UTR11.
During the latter months of 2004 and January 2005, the mare was sound enough to be got ready to race. She had special treatment plates fitted. She was also being given small doses of phenylbutazone (an anti-inflammatory drug) by Ms Maguire and occasional injections of cortisone under the supervision of Dr Fulton.
Bone scans and x-rays did not reveal damage to the navicular bone; rather the problem, degenerate in nature, was in the structures surrounding the bone.
On 24 February 2005, the mare was sufficiently fit to be taken to what is colloquially known as a “jump out trial” at Geelong. She ran third but this was disappointing; and, afterwards she pulled up “average”.[22] It was apparent to Ms Maguire that she could not stand a further preparation in the absence of medication.[23] Mr Ladhams, after consultation with Ms Maguire, decided that he would retire the mare from racing.
[22]T 562.
[23]T 562.
Over the ensuing week, articles appeared in the press concerning the mare and it became public knowledge that she may be available for sale.[24] In the Herald Sun, it was reported that her hoof problems had recurred and she might be retired. Mr Guy, the bloodstock agent, contacted Mr Buckley suggesting that the mare might be of interest to him in his new venture.
[24]Exhibit UTR5.
Mr Buckley was, indeed, interested and in the days around the end of February and early March 2005 Mr Guy pursued enquiries in relation to the purchase of the mare. He spoke to both Mr Ladhams and Ms Maguire.[25] He went to Ms Maguire’s property where he inspected the mare. He subsequently prepared a draft agreement for the sale of the mare to Ultra.
[25]Exhibit PL4 – attachment 2.
Mr Guy also arranged for Mr Ladhams and Mr Buckley to meet at the Inglis sales complex at Oaklands to finalise the terms of the deal. What was said at that meeting on 3 March 2005 is in dispute and I shall return to it later.
Putting to one side what transpired at the meeting, within a few days the terms had been settled upon and the agreement was in final form.
On 8 March 2005, both Mr Guy and Mr Ladhams signed the agreement.[26]
[26]Set out fully at exhibit UTR1.
On 9 March 2005, Mr Buckley contacted Dr Vasey. There is a dispute as to what was said on that occasion and I will return to it later. It was not in dispute however that it was arranged that the mare would be taken to GVEH and a veterinary examination undertaken.
On 9 March 2005, Newmarket advised Ultra that it would provide mortality cover for the mare subject to receiving a veterinary certificate.[27]
[27]Exhibit UTR4A.
On 10 March 2005, and notwithstanding that Mr Buckley had not signed the agreement, the mare was collected from Mr Ladhams’ property by Mr Bolger and taken directly to GVEH for a veterinary examination.[28] Mr Guy had accompanied Mr Bolger to Mr Ladhams’ property and assisted in loading the mare on to the float.[29] She was fit and in good condition.[30] She was not apparently lame.[31]
[28]T 339.
[29]T 606.
[30]T 340, T 607.
[31]T 340, T 606.
On 11 March 2005 (and perhaps the day before), Dr Vassey conducted his lameness examination of the mare and performed a number of tests on her.
On the same day, Dr McKinnon examined the mare and completed the insurance certificate. Of critical importance, according to Ultra, is the answer to the question “Is the horse lame at the walk or trot” – to which the answer “no” was given.
In the early evening, a copy of the insurance certificate was sent by GVEH by facsimile to the Ultra head office. In turn, it was sent by facsimile to Newmarket.[32] It was subsequently forwarded to Mr Buckley.
[32]Exhibit AM3, T 229.
On the same evening, there was a discussion by telephone between Mr Buckley and Dr Vasey concerning Dr Vasey’s examination. The contents of that discussion were in dispute (to which I shall return), as were those of a discussion on the following day concerning the mare.
In the late afternoon or early evening, Mr Buckley signed the agreement in the presence of Mr Guy and dated it 8 March.[33] Later that evening, after the conversation with Dr Vasey, Mr Buckley authorised Mr Guy to provide Mr Ladhams with a cheque Ultra had drawn for $250,000 and a cheque for $16,500 for Mr Guy as his commission.[34]
[33]T 97; T 161.
[34]T 162.
On 14 March 2005, the mare was discharged from GVEH and taken by Mr Bolger to Baree.[35] On the next day, Mr Bolger observed that the mare was “a little bit proppy”.[36]
[35]Exhibit AM1.
[36]T 332.
On 22 March 2005, there were further discussions between Dr Vasey and Mr Buckley concerning the mare and her treatment (again the substance of those discussions were very much in issue).
On 30 March 2005, Dr Vasey performed the neurectomy at GVEH.
On 31 March 2005, another mortality insurance certificate dated 9 March 2005 was apparently completed by Dr Arnott, a veterinary surgeon at GVEH and forwarded by facsimile to Ultra.[37] Contrary to Dr McKinnon’s certificate, the answer to the question of lameness was “yes”. This certificate also noted “[h]istory of bilateral front foot pain” and “[n]ot a mortality issue”.
[37]Exhibit UTR3.
On 6 April 2005, the mare was discharged from GVEH back to Baree, but upon her return she was noted to have continuing problems with her feet and on 9 May 2005 she was re-admitted to GVEH with a purulent discharge from both front feet.[38]
[38]Exhibit AM16.
On 13 May 2005, the mare was discharged from GVEH back to Baree.
On 20 May 2005, the mare was re-admitted to GVEH. Her left hoof was in a shocking state. Dr Vasey could see the pedal bone and he recommended to Mr Buckley that she be euthanased.[39] Mr Buckley did not accept this advice.
[39]Exhibit AM18.; T 151, T 206, T 835.
Mr Buckley had made contact with Dr Redden in the United States who proposed further surgery to the mare’s front feet.
Although Dr Vasey advised against the surgery, the facilities at GVEH were made available to Dr Redden who, on 23 May 2005, operated on the mare. The procedure was radical: essentially the mare’s front hooves were cut off, her legs placed in casts – it being hoped the hooves would regrow. Dr Vasey assisted in the operation and the mare was discharged back to Baree on the following day.
The mare was kept at Baree but her condition, notwithstanding the surgery, continued to deteriorate.
Dr Redden, who had returned to the United States, was consulted again and agreed to return to carry out further surgery. The mare could not be moved from Baree and the operation was scheduled for 18 June 2005.
On 18 June, as the mare was prepared for the operation, she sustained a cardiac arrest and died.
The credibility of Mr Buckley
Much of Ultra’s case against both Mr Ladhams and Dr McKinnon turns upon my acceptance, or otherwise, of Mr Buckley’s evidence. I will, in the course of my analysis of the contested factual issues, comment in detail as to a number of inconsistencies or improbabilities surrounding the evidence of Mr Buckley. I identify in particular the following matters which I have resolved adversely to Mr Buckley:
(a) Mr Buckley’s denial of any knowledge of the mare suffering from navicular disease when contrasted with the evidence of Mr Guy;
(b) Mr Buckley’s conversations with Dr Vasey on 11 and 12 March after he completed the lameness examination;
(c)Mr Buckley’s conversation with Dr Vasey on or around 22 March concerning Dr Vasey’s asserted disclosure to Mr Buckley of the mare’s prior history and in particular the existence of a navicular condition;
(d)Mr Buckley’s conversation with Dr Vasey at about the same time in relation to the carrying out of the digital neurectomy;
(e)Mr Buckley’s determination to assert that Mr Guy was not his agent for the purpose of the purchase of Sound Action and, particularly, his answers to interrogatories on this issue; and
(f)Mr Buckley’s discussion with Mr Ladhams at Oaklands.
The first and third matters go to a critical issue in the case, namely Mr Buckley’s knowledge of the mare suffering from navicular disease. My findings[40] are consistent with Mr Buckley endeavouring to distance himself, by whatever means possible, from such knowledge. If I reject his account of these conversations I may infer that his false account of such lack of knowledge demonstrates that he had greater awareness of the condition of the mare’s feet than he wished to disclose. These matters also go to his credit generally. The second matter goes to the exact nature of the advice given to Mr Buckley as a consequence of the lameness examination and the decision to proceed with the purchase of the mare (in the sense of not withdrawing from the agreement). The fourth matter, relating to the neurectomy goes to another important point – why the operation was carried out only twenty days after the purchase of the mare. The fifth matter, the nature of his relationship with Mr Guy, again reinforces the proposition that Mr Buckley is prepared to make any allegation which he perceives will support his case. Finally, his account of the discussions at Oaklands with Mr Ladhams relating to Ms Maguire also goes to an issue in the trial, namely, the reality of the mare ever returning to the racetrack and, accordingly, Mr Ladham’s asserted declaration concerning her soundness.
[40][89]-[112] below.
I shall return to each of these matters in greater detail in due course. But suffice to say, that compendiously each of these matters (plus several others I shall advert to) mean there are many parts of Mr Buckley’s evidence that I simply do not accept.
The condition of the mare prior to her sale to Ultra
Ms Maguire’s evidence, which I accept, was that prior to puling up sore in the Queen Elizabeth Stakes the mare had experienced relatively minor episodes of lameness, which was essentially treated by a farrier working on her front feet.[41] Ms Maguire identified the problems as being related to foot abscesses in both feet.[42]
[41]T 553.
[42]T 553.
After the Queen Elizabeth Stakes at Randwick on 17 April 2004, the mare was spelled and brought back into work at Ms Maguire’s stables at Birregurra in mid-to-late June.
It became clear to Ms Maguire that for the mare to have any chance of returning to racing she required expert veterinary treatment. She was taken to Dr Fulton’s clinic at Ballarat on 9 August 2004 and he treated the mare until February 2005.
Dr Fulton diagnosed the mare as suffering from the condition of navicular bursitis and described her condition as one of “navicular syndrome”. The navicular bones did not show any major abnormality, however the condition affected the tissues and structures surrounding the bone.[43] It is a difficult condition to treat if a horse is to compete at a high level in thoroughbred racing. Each of the horse’s front feet can be sensitive to the jarring impact generated by the constant high velocity of the pressure of racing or working at fast pace.
[43]Exhibit UTR11.
Dr Fulton, after conducting a series of nerve blocks and bone scans, opted to treat the mare with regular doses of phenylbutazone and occasional injections of corticosteroids. He also gave advice as to appropriate farrier treatment.[44] The problem often facing racehorses with this condition is that at some point of time prior to racing it is necessary to withhold the administration of drugs as a horse must compete drug-free.
[44]Exhibit UTR11.
Despite multiple outpatient visits to Dr Fulton’s clinic, the mare’s preparation did not progress well. She was not handling work well, even on grass surfaces. She was sore when pushed to do pace work.[45] So in late October 2004, the mare was taken to Ballarat and admitted as an inpatient at the clinic for approximately one week.
[45]T 556.
After this visit, the mare returned to Ms Maguire’s property and was treated with phenylbutezone and corticosteroids.[46]
[46]T 557.
On 2 December 2004, Dr Fulton injected the navicular bursa with long acting cortisone – a treatment designed to give the mare pain relief so she was able to be worked.[47]
[47]T 558.
On 21 February 2005, an injection with Kenacort (a form of cortisone) was given by Dr Fulton who described it as a “last attempt to try and maintain a level of soundness”.[48]
[48]T 299-300.
The mare had improved sufficiently on this regime to run in a trial on 24 January at Geelong. She finished third but Ms Maguire described it as “average”[49] and “nowhere near what she would have expected from her”. Ms Maguire’s conclusion after the race was:
It was becoming apparent that even though we were able to work her on the drugs that Dr Fulton prescribed, when it actually was going to become able to race her it was not going to be able to happen.[50]
She took the view that the mare could not race again in a drug-free condition.
[49]T 561.
[50]T 562.
It should be noted that at the time of sale, apart from “navicular syndrome”, the mare was in very good condition. She was a large, well conditioned mare and, as Ms Maguire described her at this time, as looking “fantastic”.[51] Mr Bolger, when he picked up the mare from Mr Ladhams’ property on 10 March 2005, described her as fine and looking healthy in the coat.[52] Mr Guy described her as having “no problems at all”.[53] Neither Mr Bolger nor Mr Guy (who loaded the mare on to the float) suggested that at the time she left Mr Ladhams’ property she was lame, or perhaps to put it more accurately, noticeably lame (bearing in mind that both Mr Guy and Mr Bolger had considerable bloodstock experience).
[51]T 563.
[52]T 330-331.
[53]T 605.
I am satisfied that:
(a)the mare, by February 2005, was suffering from chronic hoof problems which resulted in Ms Maguire recommending that she be retired from racing;
(b)that otherwise she was in particularly good condition and, given her size, confirmation and performance was a very good broodmare prospect; and
(c)when taken from Mr Ladhams’ property on 10 March 2005 the mare was not noticeably lame.
Mr Ladhams’ intentions in relation to the future of the mare
Dr Fulton had told both Ms Maguire and Mr Ladhams (who usually went to the clinic with Ms Maguire) that the mare suffered from navicular disease and that was the cause of her problems.[54]
[54]T 564-565.
After the mare’s trial at Geelong, Ms Maguire advised Mr Ladhams that her preparation should be curtailed and that she should be retired to stud. Dr Fulton was also consulted and concurred with this decision.[55] Mr Ladhams accepted the advice of both the veterinary surgeon and Ms Maguire and decided to retire the mare.[56]
[55]T 319.
[56]Exhibit PL4 [8].
Shortly afterwards, an article was published in the Herald Sun, under the by-line of Mr Tim Habel with the following sub-title and title:
Off to the paddock: Sound Action will not race this autumn and could be retired because of recurring hoof problems.
Unsound Action flares up again.
The article referred to recurring hoof problems sidelining the mare for twelve months and Ms Maguire stating that “[s]he shuffles a bit in front. She just can’t take the workload”.[57]
[57]Exhibit PL4.
I am satisfied that Mr Ladhams knew of the mare’s lameness when in work and was also aware, having sought the advice of Dr Fulton, that she suffered from navicular disease.[58] I am also satisfied that Mr Ladhams after the Geelong trial took the view that the mare should be retired and that her racing career had been ended by the condition of her front feet.[59]
[58]Exhibit PL4 [6].
[59]Exhibit PL4[8].
I should add that I find that Ms Maguire had known as a result of her conversations with Dr Fulton, that the mare suffered from navicular disease.[60]
[60]T 564.
Mr Buckley’s knowledge of the mare’s condition and in particular the existence of navicular disease
Mr Buckley accepted that from his reading of the press reports he was aware that the mare had pulled up lame and that there was a problem with abscesses or a stone bruise.[61] He was adamant, though, in his denial of any knowledge of a navicular condition to the point that he was “the only person in town who didn’t know this because I didn’t know she had a history of navicular disease”.[62] He specifically denied being told by Mr Guy of any navicular issue.[63]
[61]T 87; T 93.
[62]T 159, T 212-T 213.
[63]T 184.
However, Mr Buckley agreed that there was considerable discussion between himself and Mr Guy before her purchase about the mare’s problems, including the need for corrective shoeing, the presence of abscesses, future methods of treatment such as the water wheel, hyperbaric chamber and swimming and the condition of the Maguire’s property (located in a rain belt). Indeed everything except the existence of navicular disease.[64]
[64]T 183-184.
Mr Guy obtained details of Ms Maguire via the racing calendar. He made arrangements to visit her property at Birregurra and discussed the mare (who was still stabled at Ms Maguire’s property with her after carrying out an inspection of Sound Action). He described the mare as a lovely big mare who would make a good broodmare.[65]
[65]T 591.
Ms Maguire’s evidence, which I accept, was that she explained the mare’s condition in detail to Mr Guy.[66] In particular, she told him the mare had “navicular” described her treatment of the mare and gave her opinion as to what she thought would be an appropriate level of care of the mare in the future in the form of medication and corrective shoeing.[67]
[66]T 565, T 566, T 573, T 578, T 619, T 643.
[67]T 641-T 642.
In Mr Ladhams’ affidavit, he said:
From the start of my contact with the agent I told him that Sound Action had become lame during preparations for racing and that she had had “abscesses”. I told him that Sound Action had been treated for lameness from navicular disease.
He thought that he had met Mr Guy three or four times and had two or three telephone discussions with him prior to the signing of the agreement.[68]
[68]Exhibit PL4, [13].
Mr Guy accepted that Ms Maguire had told him both of the problems with abscesses and “some navicular issues”.[69] He then went to Mr Ladhams’ property and discussed the sale of the mare. He confirmed that Mr Ladhams also told him of the problems with both abscesses and the navicular issues.[70]
[69]T 592.
[70]T 613.
On the way back to his home in Geelong, Mr Guy rang Mr Buckley. He described the conversation as follows:
I reported to Mr Buckley she was a good type of mare. She had a big frame, lots of capacity to be a good broodmare. That she wasn’t perfect in front confirmation wise but was acceptable. Her feet weren’t in great condition but a change of farrier might have some effect there. They had got very close to racing, she had only just pulled up sore after a trial. She was in pretty good condition – she was in good condition, the mare and mentioned that the history of foot troubles was predominantly the foot abscesses and that where she was based at Birregurra was very high rainfall and as we say you could bog a duck there. There had also been a mention of some navicular issues so if we were going to proceed that she would definitely require to get a proper veterinary examination, including x-rays to see where we stood there.[71]
[71]T 595.
In cross-examination he made the point, which has real force, that there was no advantage to him in concealing a disability in the mare if he wanted to build up a long term relationship[72] with Mr Buckley and Ultra.
[72]T614, see also T 620, T 646-647.
Mr Guy accepted that he did not know whether Mr Buckley was aware of what navicular might mean but was adamant that he told him of that fact. He agreed that he recommended the purchase of the mare to Mr Buckley, notwithstanding the disclosure of navicular issues.[73]
[73]T 647.
In my view, Mr Buckley’s account of his conversation with Mr Guy should be rejected. Mr Guy impressed me as a truthful and careful witness. He had been told by both Ms Maguire and Mr Ladhams of the horse’s condition, including the presence of some form of navicular problem. There was no reason for him to not disclose this to Mr Buckley. There was no issue that all the other information about the mare, relating to abscesses, the condition of the property and the need for careful farrier treatment in the future, was disclosed by Mr Guy to Mr Buckley in that conversation. Why, one might ask, would he not tell Mr Buckley of that condition. On the other hand, there is a clear motivation for Mr Buckley to distance himself from such knowledge – it affects any argument that he may mount in relation to his reliance upon his discussion with Mr Ladhams and the insurance certificate as to the mare’s condition.
Mr Buckley’s knowledge of the nature of the mare’s condition is also corroborated by Dr Vasey’s account of his conversation with Mr Buckley around 9 April 2005 in which Mr Buckley told Dr Vasey the mare had a history of navicular disease.[74]
[74]T 776-777. See [139] below.
Whilst this evidence was somewhat equivocal (Dr Vasey later said he could not remember whether it was Mr Buckley or Mr Bolger who told him),[75] I think it likely that Mr Buckley was the source of this information. Mr Bolger denied any such knowledge and it leaves Mr Buckley alone as the source.
[75]T 779, T 827.
I am satisfied that as a result of the conversation with Mr Guy, Mr Buckley was aware that the mare had problems with her feet in the form of both abscesses and a navicular condition. I cannot be satisfied as to whether Mr Buckley had any greater knowledge as to the effect that that condition may have upon the mare, but at the very least he was aware that this was a problem from which she had suffered in the past.
Putting to one side the question of navicular disease, it is clear that Mr Buckley regarded the prospects of the mare ever making a return to the racetrack as remote. She was five years old; she had not raced for 12 months; she had ongoing problems with her feet and her preparation had been halted due to those problems. In answer to an interrogatory, he said as follows:
The horse was principally purchased for breeding. There was no real intention to race, however this had not been totally dismissed.[76]
[76]T 251, Exhibit AM5. Answer to interrogatory 13.
I should deal with one other matter now. There was much argument about any inference to be drawn from an entry in GVEH’s clinical records[77] concerning the first admission of the mare which read ”previous history of navicular disease. Has been lame – Won 2 Group 1’s”.
[77]Exhibit AM1.
Mr Ladhams and Dr McKinnon contended that the entry made in the records was, necessarily, the result of instructions given by a representative of Ultra – be it Mr Bolger who delivered the horse to GVEH or Mr Buckley by telephone.
Ms Bertoli, who admitted the mare, confirmed that she made a number of the entries at the commencement of the clinical records – particularly relating to the details of the ownership of the mare, but she did not make the entry in question. She had no recollection of any of the events surrounding the making of the entries in the hospital other than identifying her own writing.[78] She was, however, able to identify other handwriting in the records. In relation to the subject entry, she thought it was written by another nurse, Ms Crystal Mills.[79]
[78]T 976.
[79]T 978.
A number of the other entries on the page were made by Dr Jalim.[80] She recognised the subject entry as being the writing of one of the nurses at the hospital but could not nominate her identity.
[80]T 981.
The “lameness exam” worksheet completed during the course of Dr Vasey’s lameness examination workup also referred to “navicular”. Ms Bertoli thought it was also completed by Ms Mills,[81] who was not called as a witness.
[81]T 979.
For any inference to be drawn from the entry I would need to be satisfied, as a probability, that the entry was the result of a discussion with either Mr Buckley, or Mr Bolger.
Mr Bolger flatly denied that he knew anything about Sound Action suffering from navicular disease or that he ever made a statement to anyone at GVEH that she suffered from such a disease[82] – as did Mr Buckley.[83]
[82]T 331.
[83]T 212-T 213.
Counsel for Dr McKinnon argued that whether it was Mr Bolger or Mr Buckley who told the staff at GVEH abut the condition was immaterial – the only source of that information was Mr Buckley. That may well be a possible scenario but it ignores two matters: Mr Bolger’s denial on oath that he said anything about the condition and the absence of evidence from Ms Mills who probably made the entry.
Absent evidence from the author of the note, I am not satisfied that I can exclude the source being someone apart from Mr Buckley who had knowledge of the problems with the mare.
It follows that I am not persuaded that there was any a discussion between Mr Buckley or Mr Bolger with a member of staff of GVEH which led to the entry. However, as I have already said, I accept Dr Vassey’s evidence that Mr Buckley spoke to him by telephone and described the mare as suffering from navicular disease.
Mr Buckley’s dealings with Mr Guy and Mr Ladhams prior to the Oaklands meeting
It was common ground that Mr Guy initiated contact with Mr Buckley in late February 2005 having read one of the newspaper articles. Mr Buckley said that he was contacted by Mr Guy who asked him whether he had read the paper today and then said:
There’s a mare in there I think you should look at buying. It’s just won a barrier trial by ten lengths and its name is Sound Action…[84]
[84]T 84.
Pausing here, I have difficulty accepting this account – although it is a minor matter. Sound Action had not won any trial by ten lengths; to the contrary she had run third and performed in a mediocre fashion. The report in the Herald Sun confirmed the problems with her feet. Mr Buckley accepted that he was aware of the reports to the effect that the mare had pulled up lame after the trial and that there was a mention of abscesses in the article.[85]
[85]T 87.
Both Mr Buckley and Mr Guy agreed that it was Mr Guy who approached Mr Buckley in relation to making enquiries as to the availability of the mare, given what had appeared in the press.[86] It was also common ground that Mr Guy kept Mr Buckley informed of developments in the negotiations with Mr Ladhams.[87] Whilst Mr Guy drew up the agreement, the terms of the deal were discussed by him with Mr Buckley as reflected by the draft agreement and the agreement.[88]
[86]T 588-589.
[87]T 89.
[88]T 89, T 171, T 596-597, T 617-618.
The meeting at Oaklands
The meeting at Oaklands, arranged by Mr Guy, came after a number of discussions and the production of the draft agreement which had been considered by Mr Ladhams in conjunction with Mr Guy.[89] With one exception, it was agreed that the meeting took place in early March 2000.
[89]See [322]-[327] below.
It was not in issue that both Mr Ladhams and Mr Buckley discussed matters relevant to the sale of the mare during the course of their meeting. It was also not in issue that Mr Guy was initially present at the meeting. What was in hot dispute was what was said about the mare’s future, also whether Mr Chris Ladhams, Mr Ladhams’ son, was present at the meeting. For reasons I shall set out in a moment, although I regarded Mr Chris Ladhams as an honest witness, I cannot reconcile his evidence with that of Mr Buckley and Mr Guy as to the participants at the meeting and accordingly have put his account of the conversation to one side.
Mr Buckley’s account, in précis, was as follows: that the meeting occurred outside the parade ring at the sales complex, that the conversation covered a number of topics, including the commission payable to Mr Guy and by whom it will be paid. Mr Ladhams told him “he hated” Ms Maguire and identified the difficulties with her training setup at Birregurra, particularly its location and its dampness and the benefits that he thought would flow from having the horse trained with better facilities such as those at Baree. Later in his evidence Mr Buckley said that Mr Ladhams had an “angry demeanour” towards Ms Maguire and was involved in a fight with her.[90]
[90]T 178-179.
As to the “soundness” of the mare, the following was said:
COUNSEL: Did he say to you anything about the physical condition of the horse at that time?
ANSWER: No, just that the horse had abscesses.
COUNSEL: Did he say anything to you about what had previously caused the foot problems of the horse?
ANSWER: No. He did mention one thing, the horse had had a stone bruise at one stage but I’m not sure what time that was in terms of the whole scheme of things. He mentioned stone bruise, that’s all.
COUNSEL: Was there any discussion about the newspaper articles?
ANSWER: I can’t recall that, to be honest with you.
COUNSEL: Did you discuss with him at the time positive racing plans as to ---?
ANSWER: Yes
COUNSEL: Could you tell his Honour what was said in relation to racing plans for the horse?
ANSWER: He just talked about racing it in the spring carnival again and I knew the horse hadn’t run after it had finished sixth or seventh out of eighth in the previous year, so ’04, so it had been out for a while and that does happen with horses. Horses break down and have problems or have a spell. I’ve horses that haven’t raised [sic] for a year and come back so to me it wasn’t that bad. He was very bullish on the spring carnival and he felt we had a chance as long as we had the right trainer, right conditions and right environment, that was basically what he was saying to me.[91]
Mr Buckley went on to say that he had a further telephone conversation with Mr Ladhams shortly prior to 8 March 2005 in which Mr Ladhams rang and asked whether Mr Buckley had had any other thoughts about trainers to which he replied that the deal should be completed and the mare passed the vet before they considered the question of trainers.[92]
Subsequently, the discussion turned to the question of who might train the horse in the future. On Mr Buckley’s account the only outstanding item to be resolved was the payment of the commission.[93]
[91]T 93-T 94.
[92]T 96.
[93]T 95.
Sadly, Mr Ladhams died before being able to give evidence; however, in his affidavit sworn in February of this year, he said as follows:
On or about 3 or 4 March 2005 I was introduced to Mr Sean Buckley (“Buckley”) by the Agent and I discussed with Buckley and agreed upon the further conditions of the proposed Sale Agreement to the effect that I would be paid a further $250,000 if Sound Action did not produce foals after three years. This is reflected in clause 19 of the final Sale Agreement. In that discussion at Oaklands I did not say or indicate to Buckley that she was “sound in all respects”. Indeed I said to Buckley that in my view Sound Action would struggle to race again because of the pressure she put herself under during fast work preparation which would cause her to go lame, and I that thought that she was not a racing proposition. That conversation at Oaklands was the only conversation I had with Mr Buckley prior to the sale on 8 March 2005.
Mr Guy, who had set up the meeting, said that it took place on 4 March at a mixed bloodstock sale.[94] He described the meeting as taking place in an area between the walking ring and the café and did not recall going into the café. As far as he could remember, the only person present with Mr Ladhams was a Western District trainer, Mr Daryl Cannon. He confirmed the evidence given by Mr Buckley that he, Mr Guy, did not stay for long and he left the prospective vendor and purchaser to discuss the mare. As far as he was concerned, it was for Mr Ladhams and Mr Buckley to shape the final details of the contract.[95] His recollection of the conversation at which he was present related to the mare racing in the future and the choice of stallions;[96] As far as he was aware there was no discussion about the question of his commission as on his account this had been resolved, with Mr Buckley being responsible for it.[97] When he rejoined the two of them the discussion was as to her prospects of returning to racing with an anticipation that by July or August they would know whether she should be retired to stud.[98]
[94]T 601.
[95]T 600, T 602.
[96]T 603.
[97]T 639.
[98]T 603-604.
I accept that Mr Guy’s evidence as to the meeting at Oaklands. I reject the submission that he was “hostile” to Mr Buckley, as submitted by counsel for Mr Buckley. He was an impressive and, I thought, independent witness – much of his account of his dealings with Mr Buckley and others was corroborated by other evidence.
I should now mention two other pieces of evidence relevant to what occurred at the Oaklands meeting. First there is the evidence of Mr Chris Ladhams. Essentially it is to this effect – that the meeting took place within the cafeteria and was between his father, Mr Guy, Mr Buckley and a female friend of Mr Buckley’s.[99]
[99]T 486.
On Mr Chris Ladhams’ account, the only matter raised by his father was that the mare was being sold as a broodmare and could not come back from her feet problems.[100] Mr Buckley did most of the talking and it related primarily to the facilities at Baree.[101]
[100]T 486.
[101]T 487.
My opinion at the time (which has not changed) was that Mr Ladhams endeavoured to give his evidence honestly and to the best of his ability. However, there are several major obstacles in accepting his evidence: On both Mr Guy and Mr Buckley’s version, the conversation did not occur in the cafeteria; nor was there any other person present (such as the lady whom he said accompanied Mr Buckley). Further, in his father’s account (by affidavit) there is no reference to Chris Ladhams being present in the discussions with Mr Buckley; moreover, Mr Ladhams’ account of what was discussed differs markedly to that suggested by Mr Chris Ladhams.[102] Mr Guy could not recall seeing Mr Chris Ladhams in any conversation with Mr Ladhams or Mr Buckley.[103]
[102]T 512.
[103]T 593.
I have no reason to doubt that Mr Chris Ladhams accompanied his father to Oaklands and in all likelihood observed his father in the course of discussion with Mr Buckley. I am unable, however, to rely upon his evidence as to the substance of the discussions between his father and Mr Buckley given that it is at odds with the evidence of Mr Buckley and Mr Ladhams, as well as that of Mr Guy who had an immediate and direct interest in what was going on.
Second, there is the evidence of Mr George. He was an unimpressive witness and I have serious reservations as to whether his evidence was of any assistance on any issue in the trial. His evidence was that in February at the Premier Sale at Oaklands he had seen Mr Buckley with Mr Guy and another gentleman in discussion in the lawn area at the sales complex. Afterwards Mr Buckley told him that the other person was “the guy who owns Sound Action, Ladhams”.[104]
[104]T 364.
The problem with Mr George’s account is that the sale at which the conversations between Mr Buckley and Mr Ladhams took place was not the premier sale (which is a yearling sale) nor was it in February of that year. Mr Guy’s evidence, which I accept given his knowledge of the industry and of the details concerning the sale of this mare, was that the sale was in fact a mixed sale (i.e. bloodstock of all ages) conducted on 4 March 2005.
I reject Mr Buckley’s account that Mr Ladhams told him that he “hated” Ms Maguire. I do, however, accept Mr Guy’s evidence that there was some disquiet on the part of Mr Ladhams with the conditions at Ms Maguire’s property and the effect that it may have had upon the mare’s feet. The suggestion of hatred is inconsistent with other evidence. If there was such enmity, then Mr Ladhams who appears to have been an independent minded man, would no doubt have removed the horse from Ms Maguire’s care; in fact he continued to have at least one other horse trained by Ms Maguire both while Sound Action was in work (she was still trained by Ms Maguire when she trialled at Geelong on 24 February 200?) and after her sale.[105] On this score I accept the evidence of his son, Mr Chris Ladhams that there was no bad blood between the two, other than Mr Ladhams’ desire to have his horses trained on a different property.[106] He had purchased a property close to the Colac racecourse and wanted his horses trained from there. Ms Maguire was not prepared to do so and accordingly, Mr Ladhams engaged the services of Mr Cannon. Ms Maguire also denied any enmity between herself and Mr Ladhams.[107]
[105]T 503-504.
[106]T 502-510.
[107]T 570, 575-576.
Mr Guy’s evidence that there was an apparent souring of the relationship between Mr Ladhams and Ms Maguire was merely an impression – what is clear from those who were closely involved with the Ladhams family and the mare was that Mr Ladhams would have preferred Ms Maguire to relocate closer to the Colac racecourse.[108] Understandably (given that hope springs eternal in racing), Mr Ladhams may well have thought, and said so, that a new training establishment with all its advanced facilities would assist if the mare were to have any chance of racing again - but this is light years away from a representation that to the effect that the mare was “sound in all respects”; particularly when Mr Buckley admitted that “there was no real intention to race her but this had not been totally dismissed”.[109]
[108]T 575.
[109]T 251. Answer to interrogatory 13. Exhibit AM5.
Further, Mr Buckley’s account of the Oaklands meeting cannot stand with that of Mr Guy. On Mr Buckley’s version, the major topic of conversation about the deal was that of Mr Guy’s commission – whilst Mr Guy was not present at the discussion between Mr Ladhams and Mr Buckley, he says that this was simply not an issue;[110] it had been settled, rather the purpose was to arrange for the two to get together and finalise the deal.
[110]T 639-640.
I reject the submission made by counsel for Mr Buckley that a Jones v Dunkel[111] inference should be drawn against Mr Ladhams on the basis of his failure to call Mr Daryl Cannon, the trainer who was also present at Oaklands on the day of the conversation. It was not suggested by anyone that Mr Cannon was present at, or a witness to, the conversation and at best his evidence would be peripheral to the substantive issues in the case. In my view, one could not have expected Mr Ladhams to call Mr Cannon; moreover I doubt whether anything he could have said would have been of assistance in resolving the issues I have to determine.
[111](1959) 101 CLR 298.
What then of what was said at the meeting. I am satisfied that:
(a)there was a meeting between Mr Buckley and Mr Ladhams at Oaklands on 4 March at a mixed bloodstock sale;
(b)that the two had not met before;
(c)that they were introduced to each other by Mr Guy who then left the two to discuss the sale of the mare in an area outside the cafeteria;
(d)that there was discussion finalising the deal as to the foal share aspect of the agreement; and
(e)that there was a discussion between the two as to the future race prospects of the mare. This is confirmed by the terms of the sale agreement which envisages such a prospect. Although not referred to by Mr Ladhams in his affidavit, I accept Mr Guy’s evidence on this issue. I conclude that there was a discussion about attempting to get the mare back to the racetrack, particularly given Mr Buckley’s enthusiasm for the facilities at Baree, including the hyperbaric chamber. However, this was as far as it went.
As to the discussion concerning the alleged soundness of the mare and any representation to the effect that she was “sound in all respects”, I am satisfied that notwithstanding that there was discussion about the mare’s future racing prospects, Mr Ladhams’ account that he told Mr Buckley the mare would struggle with the pressure of training because of her foot condition should be accepted. It is consistent with clause 6 of the agreement and particularly the words “should Sound Action (Aus) ever race” (emphasis added). Moreover, it is consistent with Mr Ladhams’ own knowledge of the problems the mare had faced in the past.
I accept that there are some inconsistencies between his account given over the telephone to an investigator (tendered by Mr Ladhams).[112] However, these differences do not affect the substance of his evidence, particularly, that relating to the mare’s ability to race. I should add that I have also taken into account Ultra’s inability to cross-examine Mr Ladhams. Allowing for both those matters, I remain persuaded that Mr Ladhams’ account of the conversation is to be preferred over that of Mr Buckley. Given what I perceive to be inaccuracies in Mr Buckley’s account of the conversation and my general views as to his credit, I am not able to accept his evidence as to the discussion and particularly that relating to the future prospects of the mare. In my view, the account given by Mr Ladhams is a more probable account of what actually transpired between the two at the Oaklands meeting.
[112]Exhibit PL5.
Finally, I should return to the alleged telephone conversation between Mr Buckley and Mr Ladhams subsequent to the meeting at Oaklands. Mr Buckley said that Mr Ladhams rang him and discussed who might train the mare.[113] Mr George, whose reliability I question, corroborated this account.[114] Mr Ladhams denies any such conversation.[115] As it transpires, I do not need to make any finding about this conversation as it was not relied upon by Mr Buckley – understandably so, as even on his account it was simply a discussion about possibilities and no more.
[113]T 96.
[114]T 362-363.
[115]Exhibit PL4 [15].
Mr Buckley’s dealing with Dr Vasey prior to the mare’s admission to the GVEH
Although Mr Buckley was only a relatively new player in the racing industry, he had used GVEH’s services in the past, and particularly those of Dr Vasey:
He [Dr Vasey] was a man that I contacted, he was the man I spoke to with all my concerns and he was guy I communicated with at all levels. So I don’t know what he did behind the scenes and who he delegated to, to get the result that I needed.[116]
whereas Dr Brain carried out “the basic run of the mill stuff”.[117]
[116]T 191, also at T 159.
[117]T 99-100.
Mr Buckley said that on or around 9 March 2005 he contacted Dr Vasey to carry out a lameness check on the mare; Mr Buckley described his discussion with Dr Vasey as follows:
I’ve just bought a horse. I would like to do a veterinary exam on it, please. I would like you to do some reproductive work to make sure she can have some babies and work out some lameness issues…and I told him the horse had run a trial apparently she was having problems with abscesses and could he check out it for me please and let me know what was going to happen with her and he asked what was I buying it for and I said it was a racing and breeding proposition depending upon what comes back and he asked me whether I would be insuring it and I said I would be and I think that was about the level of the conversation.[118]
[118]T 100.
Before turning to Dr Vassey’s account, it is appropriate now to mention the evidence given by a number of the veterinarians as to the type of veterinary examinations carried out on horses. Each of the experts agreed that a mortality insurance examination is a fairly basic type of examination involving limited observations of the horse’s action and the completion of a fairly basic standard form certificate.[119] I shall return to it in more detail when considering Dr McKinnon’s conduct. The next step up is a lameness examination which involves a specific series of tests with clinical examination and the use of nerve blocks to determine the level of lameness (if any) of particular horse. An example of this type of examination and its conduct is the lameness worksheet which form part of the mare’s GVEH record.[120] Finally, there is a pre-purchase examination which had a comprehensive examination carried out using a detailed Equine Veterinarians Australia form.[121] The examination is not confined to lameness but is an all round detailed examination of the horse’s physical condition and includes the provision of statements completed by both vendor and purchaser as to the horse’s history and specifically any past history of lameness or medication.[122]
[119]E.g. Professor Kannegieter T 925, Dr Vanner, T 429, Professor Kannegieter’s report, Exhibit AM 21.
[120]Exhibit AM1.
[121]Exhibit AM7.
[122]T 673.
Dr Vasey confirmed, by reference to his hospital message book,[123] that he spoke to Mr Buckley on 9 March. However, he described a different conversation to that of Mr Buckley:
[Mr Buckley said] “I’ve purchased a mare by the name of Sound Action. She’s done very well on the racetrack”. The client’s knowledge is that she has had some feet issues in the past and he would like me to assess those concerns. I then asked him, “Have you bought the horse or do you want us to do a pre-purchase examination on the horse?”. He said “No, I’ve bought the horse, you do not need to carry out a pre-purchase exam…” the phrase “navicular disease” was mentioned… they have bought her, she had the history of navicular disease which is a feet issue, a subtle sort of foot problem. The discussion went along the lines that day the previous owners of the horse had been managing the problem, she had done well on the racetrack. I think in the history we received when she came in on the 10th that she had won two Group 1 races which is no mean feat.[124]
[123]Exhibit AM11.
[124]T 776-T 777.
Dr Vasey said Mr Buckley’s request was one to assess the subtle lameness in the feet and no more. In particular, he was not specifically asked to perform a pre-purchase examination, but rather, as he understood it, to carry out a lameness examination.
Although clause 9 of the agreement provided for a pre-purchase examination,[125] the contemporaneous evidence points to the arrangement being for a lameness examination, rather than a pre-purchase examination. The entry in the clinical records made by Ms Bertoli on admission of the mare refers to a “lameness exam”.[126] An entry in GVEH message book asking Dr Vasey to ring Mr Buckley regarding a “lameness workup” is consistent with a lameness examination rather a pre-purchase examination being requested.[127] A diary entry also has the mare arriving on the Friday 11 March 2005 (although in fact she arrived on 10 March) and the words “Lameness w/up Baree.”[128] There was no good reason for Dr Vasey to not carry out a pre-purchase examination if asked to do so. Indeed, in terms of income for the practice it was more rewarding. On Mr Buckley’s own account, he did not ask specifically for a pre-purchase examination – in fact, he told Dr Vasey that he had “just bought” the mare.
[125]See [318] below.
[126]Exhibit AM1; T 976.
[127]Exhibit AM11.
[128]Exhibit AM13.
It follows that I am satisfied that Mr Buckley’s request was properly interpreted by Dr Vasey as a request for a lameness examination and it was just that examination which he performed with the assistance of Dr Jalim and a veterinary nurse.
The admission to GVEH and the examinations carried out by Dr Vassey – around 11 March 2005
Mr Bolger took the mare in a three horse float directly from Mr Ladhams’ property to GVEH on 10 March 2005.[129] He was met by an attendant who instructed him to put the mare into a box. He described the mare as being healthy and looking fine in the coat.[130]
[129]T 330.
[130]T 331.
It is probable that he spoke to Ms Bertoli who completed part of the clinic’s card relating to the mare.[131] The card refers to “Terry”, presumably a reference to Mr Bolger whose mobile number is also recorded. The date of admission is 12.45 on 10 March with the owner being noted as “Sean Buckley, Baree Stud.” As I noted before, the Client Problem Entry is recorded as “lameness exam”.
[131]T 976-977.
Dr Vasey could not say whether he carried out the examination on 10 or 11 March 2005.[132] He was assisted by Dr Jalim and a veterinary nurse.
[132]T 784.
The worksheet, which was completed by Dr Jalim (the nurse led the horse), was developed by the clinic and sets out various grades of lameness as observed by the veterinarian in the course of the examination.[133] The degree of lameness is rated from 0 (being no lameness) to 5 (being particularly lame).
[133]T 981.
The first step of the work-up is what is described as a hoof test or examination which involves the use of a large set of pinchers which tests whether there is any pain in the feet. This test was negative.[134] Then the mare was trotted on hard and soft surfaces in different ways. On a soft surface, the mare displayed no lameness to the trot. On a hard surface, there may have been some subtle lameness.[135] Then when the mare was lunged on a hard surface there were findings of lameness of two out of five when lunged to the left and 1.5 out of 5 when lunged to the right[136] - each in relation to the left foreleg. There was no right leg lameness when lunged.[137]
[134]T 785.
[135]T 786-T 787.
[136]T 789.
[137]T 790.
A series of nerve blocks were then carried out by Dr Vasey which confirmed that the problems with the mare were confined to her front feet – there being some evidence of lameness in the right foot as well during the nerve block examination.[138]
[138]T 793.
At the conclusion of the nerve blocks, having localised the problem to the front feet, x-rays were taken of the lower limb.[139] As I followed Dr Vasey’s evidence, the x-rays, taken on the afternoon of 11 March 2005, were regarded as not definitive of any overt sign of navicular disease – similar to the view taken by Dr Fulton of the x-rays he had taken during late 2004.
[139]T 794, Exhibit AM14.
The end result was that after the various clinical and radiological tests (taking between 2-3 hours) Dr Vasey could not make a definitive diagnosis of a navicular condition or navicular disease. Rather his diagnosis was generalised in that the mare “had some feet issues” and needed corrective shoeing and use of the water walker.[140] The recommendation as to treatment is contained in the GVEH records: “Corrective shoeing, water treadmill and re-assess”.[141]
[140]T 802.
[141]Exhibit AM1.
I accept the evidence of Dr Vasey and Dr Jalim as to the examination and I conclude that the whole work-up was completed by the afternoon of 11 March 2005.
Dr McKinnon’s examination and certificate – 11 March 2005
The form completed by Dr McKinnon was extracted from a pad of AEVA[142] pro forma blank mortality insurance forms. The cover sheet of the pad contains the following guidelines:[143]
[142]Australian Equine Veterinary Association.
[143]Exhibit AM9, AM20.
· Please make sure that the horse is identified at least by name or breeding and owner’s details if known
· It is important to include all clinical abnormalities encountered, not those you might consider a mortality risk – this is the barometer of the underwriter
· Record if the animal is under treatment for any condition or of any treatment or surgical procedure is anticipated
· Disclosure of history is the responsibility of the owner not the veterinarian.[144]
[144]T 679-680.
The evidence as to the carrying out of the examination comes solely from Dr McKinnon. There was no serious challenge to his description of the examination and I accept his account of the manner in which it was carried out and the completion of the certificate.
Dr McKinnon said that he was initially asked on 11 March 2005 to carry out a reproductive examination of the mare which he completed and recorded the results on the mortality insurance form – which was his practice.[145] For present purposes, it suffices to note that the reproductive examination demonstrated no abnormality in terms of breeding.
[145]T 679.
Dr McKinnon said that, after carrying out the reproductive examination, he had been asked by the veterinary nurse, Ms Barry, to carry out an examination[146] for the purposes of a mortality insurance certificate. This is, as I have mentioned, a basic examination for which a modest fee is charged.
[146]T 680.
The examination took place in the late afternoon. To determine the mare’s level of lameness (if any) Dr McKinnon had her taken out into the car park area which has a gravel to dirt to sand surface.[147] He asked the nurse to walk the mare away and then to trot the mare away from him. His observations as to lameness were as follows:
The horse was fine relative to lameness. I didn’t see – I mean typically one evaluating a lame horse looks for head carriage, like nodding of the head which indicates one leg to be more sore than another leg or to have pain associated with that leg and I did not detect any abnormalities in head carriage and lameness.[148]
[147]T 682.
[148]T 683.
The insurance certificate, signed by Dr McKinnon, identifies the mare and the time of the examination as 4.30pm. It is clearly labelled “CERTIFICATE OF EXAMINATION FOR MORTALITY INSURANCE PURPOSES”. It then has a series of questions, all of which relate to a physical examination of the horse. The two relevant matters within the certificate are as follows:
Any physical evidence of laminitis---No
Is the horse lame at the walk or trot?---No
The form also contains a mistake – Dr McKinnon ticked the box which stated the “practice occasionally attended the horse.”[149] It had not prior to its admission on 10 March 2005.
[149]T 681.
The following statement on the form just above Dr McKinnon’s signature reads: “I have today performed a clinical examination on this horse in accordance with the AEVA insurance guidelines and accept as noted above that to the best of my knowledge and belief the horse is clinically normal and in a satisfactory condition”.
Dr McKinnon did not have any history relevant to the mare’s prior condition nor did he have the clinical records of GVEH. He had no knowledge of the lameness examination carried out by Dr Vasey.[150] He knew nothing of any navicular condition.[151] Dr McKinnon did not speak to either Mr Buckley, Mr Bolger, or anyone associated with the mare in the past. Dr McKinnon was unable to say what had happened with the certificate subsequent to him completing it.[152]
[150]T 679-680.
[151]T 684.
[152]T686.
The circumstances surrounding Mr Buckley signing the agreement on behalf of Ultra on 11 March 2005
Both Mr Ladhams and Mr Guy had signed the agreement on 8 March 2005 with the mare being collected two days later on 10 March and taken to the GVEH.
When Newmarket wrote to Ultra on 9 March 2005 confirming cover, it stipulated the condition that “cover is subject to a current veterinary certificate stating the mare is fit and health for mortality insurance purposes.”[153]
[153]Exhibit UTR4A.
On the early afternoon of 11 March 2005, Ultra confirmed with Newmarket that GVEH was writing up the certificate and would send it that afternoon.[154] It was forwarded around 5.00pm to Ultra.[155] At 5.17pm (according to the fax header), Ultra sent the insurance certificate by facsimile to Newmarket.[156]
[154]Exhibit AM2.
[155]Exhibit UTR2.
[156]Exhibit AM3.
Mr Buckley said he did not see the insurance certificate until it was faxed to him at about 7.00pm or 7.30pm. According to Mr Buckley, “I thought the certificate satisfied what I was after, that I had asked Dr Vasey for. It covers reproduction and it covers lameness”.[157]
[157]T 190.
In the late afternoon or early evening, Mr Guy took the agreement to Mr Buckley at his apartment in Southbank, Melbourne. Mr Buckley signed it and dated it 8 March and instructed Mr Guy to take the Ultra cheque for $250,000 to Mr Ladhams. Mr Buckley also gave Mr Guy his own cheque for $16,500. However, both Mr Buckley and Mr Guy were agreed that the cheques were not to be utilised until veterinary clearance was given.[158]
[158]T 188, T 609, T 612.
Turning now to the differing accounts I mentioned earlier as to advice received from GVEH and/or Dr Vasey that evening. In his evidence-in-chief, Mr Buckley said he received a phone call from GVEH:
I had a 30 to 35 second phone call from somebody there, either McKinnon or Vassey. It was a frantic call saying that the horse had passed the vet on reproduction and lameness. It was clear to go and they would fax me the certificate for insurance purposes that afternoon which came in at approximately 5 o’clock and once I got that certificate I rang Mr Guy and said “Paul, we’ve got the clearance from the vet. You can now give the cheque and the signed contract to Mr Ladhams”.[159]
It was subsequently accepted by Mr Buckley that this conversation was between himself and Dr Vasey.
[159]T 188.
In other words the certificate gave the final tick for Ultra to proceed with the purchase. In my opinion, there are two immediate problems with this account, both of which are obvious. First, the certificate was a mortality insurance certificate which Ultra had been chasing and needed to provide to Newmarket. Second, it was absolutely clear that it did not come from Dr Vasey, who was the veterinarian who carried out the lameness examination and was the only expert Ultra relied upon.
[323]T 203.
[324]Exhibit PL4 [28].
[325]Exhibit PL4 [32].
In any event, Ultra’s defence did not assert that Mr Ladhams had agreed to any variation of the terms of the agreement.
On 20 May, Ultra forwarded payment of $19,772.50 to Newmarket. When queried by Newmarket its notation reads:
Owners [had] decide[d] on 20/5/05 to go ahead with the original sum insured of $500,000.[326] On that day Newmarket endorsed the policy with the increase to $500,000, but subject to a veterinary mortality insurance certificate. [327]
[326]Exhibit UTR4G.
[327]Exhibit UTR4H.
On 23 May 2005, Ultra sent a facsimile to Newmarket in the following terms:
We advise that the mare known as “Sound Action” has fallen ill over the weekend. Under vet advice the mare is undergoing emergency operation on its feet today by Dr Redding of Kentucky.[328]
[328]Exhibit UTR4J.
On the same day an undated bloodstock mortality insurance proposal form in the name of Baree Stud was received by Newmarket.[329] It referred to veterinary attention “as per vet report”; the box dealing with physical defect or deformity had an asterisk placed in it and to the question asking for “information of which you are aware that may affect our decision to accept your insurance proposal” the answer given was “She is currently being treated for” with no further details.
[329]Exhibit AM24.
On 22 June 2005, Newmarket purported to refund the amount of $8,107.40 being the difference between the premium for the insured sum of $500,000 and that of $250,000.[330]
[330]Exhibit UTR4R.
On 17 November 2005, Ultra, through Mr Buckley, completed a Bloodstock claim form which was lodged with Newmarket on 24 November 2005. Mr Ladhams was described as having a financial interest in the mare.[331]
[331]Exhibit PL1.
On 5 October 2006, the solicitors for the underwriters wrote to Ultra denying liability and setting out the basis for the denial.[332]
[332]“The solicitor’s letter”.
On 2 May 2008, Ultra issued proceedings against the underwriters.
In January 2009, Ultra’s proceeding against the underwriters was settled for $100,000 inclusive of costs.[333]
[333]Exhibit UTR4Z.
Analysis of Mr Ladhams’ contractual claim
Notwithstanding that the mare had a value of $500,000 at the time of sale, the agreement had six core components:
(a)the payment of $250,000 immediately by Ultra to Mr Ladhams;
(b)an equal split of any potential race winnings of the mare;
(c)an equal split of the proceeds of the sale of the first two foals of the mare;
(d)the mare passing a pre-purchase veterinary examination;
(e)insurance cover of the mare for mortality purposes of $500,000 (which also provided for the foals to be insured); and
(f)a payment of a further $250,000 by Ultra to Mr Ladhams if the mare did not produce a live foal in her first three seasons at stud.
The agreement did not provide for the payment of $500,000, nor did it by its terms provide for the payment of a further $250,000 at any set point of time or in the event of death of the mare. The only time at which a further sum of $250,000 became payable was if the mare failed to produce a live foal in her first three seasons at stud.
Objectively, and taking into account the commercial context of the sale, it is clear that a number of the provisions were directed at safeguarding Mr Ladhams’ interest against the most obvious adverse contingencies facing a broodmare – infertility or death. So the death of the mare was covered by creating an obligation upon Ultra to keep the mare insured for $500,000 (clause 15). In the event that the mare died, Mr Ladhams was to receive “half the insurance payout” (clause 16). If the parties had wished, the agreement could have stipulated that Mr Ladhams receive a cash payment of a sum certain, but they did not. The terms of the deal on this point are clear; Mr Ladhams would receive his proportion of the insurance payout.
The other eventuality, that of the mare being infertile, was covered by clause 20. If the mare failed to breed at stud (within three seasons) then Mr Ladhams was entitled to $250,000. In my opinion, this clause is directed solely to that scenario, namely, the mare remaining alive and being unable to breed. So just as the insurance provisions, dealt with the consequences of death, this separate provision dealt with the consequences of infertility. This is made clear by the use of the words “within 3 seasons” as the time in which the mare was required to produce a live foal. In my view this presupposes the mare surviving these three seasons.
I am reinforced in this conclusion by the need to look at the agreement as a whole. It sets out, in effect, a scheme by which the various adverse contingencies that may be met in the life of a broodmare were to be dealt with.
Whilst I accept that the agreement was drawn up by Mr Guy, an expert in bloodstock matters and not in legal drafting, it cannot, in my view, yield to the construction urged by Mr Ladhams. If it was intended that a payment of $250,000 was to be made in the event of the death of the mare then this was not a difficult matter to address; there is no sophistication involved in the drafting of such a clause.
Even if it is accepted that there is an ambiguity in the agreement in relation to the interpretation of clause 20, there is nothing in the surrounding circumstances that I have set out that leads to any different construction of the terms of the agreement. Mr Ladhams, after discussion with Mr Guy, was prepared to accommodate the idea of taking a half-share in the first two foals rather than payment of the full amount in cash. There was, of course, a degree of speculation in this venture. Whatever type of foal was produced (and by that I mean whether it was a reasonable type or had some abnormality) it had to be sold at auction. The two foals may have realised a total of, say, $800,000 and in that situation Mr Ladhams had backed a winner. On the other hand, if there was some abnormality or deformity in even one of the two foals then he may have struggled to attain a figure approximating $250,000. All this, of course, is speculation but demonstrates that whatever the situation, this was the risk Mr Ladhams was prepared to take by, in effect, entering into a joint venture with Ultra for the sale of the first of two foals. He also had the advantage of not meeting any of the costs associated with the mating of the mare and the rearing and preparation for sale of the foals; ultimately the value of his remaining interest would be determined by the sale ring. In summary, if there is an ambiguity in clause 20 (which I doubt) there was no evidence from Mr Guy or Mr Ladhams as to any discussions or matters which would prevent clause 20 being given what I consider to be its commercial objective.
I conclude, therefore, that the death of the mare engaged clause 16 but not clause 20. There was no obligation under the agreement to pay $250,000 by reason of clause 20 in the event of the death of the mare. Rather, absent any breach of a term of the agreement, Mr Ladhams is entitled to half the insurance payout of $100,000, from which is to be deducted the costs associated with Ultra obtaining the payout. I accept the evidence of Mr Sirianni, Ultra’s solicitor, that this amounted to $17,565.35.[334] I do not accept Mr Ladhams’ argument that the costs incurred should be discounted or ignored. These costs were legitimately incurred in procuring the payout. Accordingly, pursuant to the agreement, Mr Ladhams is entitled to the sum of $41,117.00.
[334]Exhibit UTR 14, T 476.
But this conclusion does not resolve the question of Mr Ladhams’ entitlement, if any, to damages over and above that of the insurance payout occasioned by Ultra’s unequivocally clear breach of clause 15 which is: Ultra was required to keep Sound Action insured for $500,000 until such time that she produced two live foals.
Ultra did not comply with this condition of the agreement. When it altered the cover to half that amount on 13 May 2005, it breached its obligation, notwithstanding that it endeavoured to rectify the breach by its actions a week later in purporting to reinstate the policy cover to $500,000.
As I mentioned earlier, it is to be noted that Ultra does not contend that there was any agreement between itself and Mr Ladhams as to a variation of the amount for which the mare was required to be insured, or some other variation to give effect to Ultra’s actions. Rather, Ultra argued that it:
took reasonable steps to obtain insurance of $500,000 and invited the second defendant to join in recovery against the insurer. The steps taken by the plaintiff were reasonable in the circumstances. The second defendant’s entitlement does not extend beyond the actual insurance payout.[335]
[335]Ultra’s written submissions of 22 August 2011.
In other words, it contends that no loss was sustained by Mr Ladhams over and above his entitlement to half of the insurance payout of $82,235.00 resulting from the settlement of the insurance claim. This approach, in my view, is too simplistic and ignores Ultra’s conduct in effecting the reduction of the cover by one half.
The following matters are germane on the point:
(a)at the time that the Ultra took out the policy (9 March 2005) the mare, apart from her navicular issues, was in good health, as attested to by Mr Bolger and Ms Maguire. The navicular problem at that time was a minor consideration in relation to her longevity as a broodmare (as opposed to her racing prospects), and to her risk of mortality generally. The veterinarians were in heated agreement that with reasonable care she would live a long and productive life as a broodmare[336] as navicular disease does not inhibit reproduction and with appropriate farrier attention problems experienced in terms of movement can be minimised;
(b)for the purpose of mortality insurance, the mare did not suffer from a disability which would have prevented mortality insurance being taken out. The examination carried out by Dr McKinnon was adequate and the report as compiled by him at that time was accurate. This report, one can readily assume given that it is prepared for the insurance industry and the form has been in use for a considerable time, was the primary basis upon which the underwriter would take on the risk – indeed that is just what happened. The underwriters requested such a report and when provided with it did not refuse cover;[337]
(c)no evidence was led from the underwriters, Newmarket, or any person experienced in insurance law and practice to suggest that the underwriters would have denied cover or, alternatively, that they would have been able to maintain a denial of indemnity on the basis of either failure to comply with the terms of the policy or non-disclosure of the mare’s pre-existing condition and in particular, the navicular condition. The solicitor’s letter simply contains an array of assertions and moreover, it deals with the situation after Ultra had reduced the level of cover.
[336]See for instance Professor Kannegieter: “The foot problems she had as a result of race training were extremely unlikely to impact on her career as a broodmare”. Exhibit AM21.
[337]T 761.
As I have just mentioned, the position in May 2005 when Ultra sought to reinstate the cover to $500,000 was totally different to that which had obtained in early March:
(a)the mare had experienced a disastrous course after undergoing the neurectomy which, as I have found, led to the necrosis of the structure of the hoof which in turn led to her death. From the 13th to the 20th of May the mare’s condition deteriorated markedly and by 20 May she was in a parlous condition, to the extent that Dr Vasey recommended that she be euthanased;[338] and
(b)there was no prospect that a veterinary surgeon would have certified the mare as fit for mortality risk insurance on 20 May 2005 thus enabling the policy to be reinstated for $500,000 meaning that the reduction to $250,000 maximised the level of the underwriters’ obligation at that figure.
[338]T 835-836.
Ultra’s contention that, in effect, the insurance payout of $100,000 inclusive of costs reflects the extent of its obligation for any breach of clause 15 lacks evidentiary foundation. As far as I can determine, the only evidence as to the considerations taken into account in reaching resolution of the claim is the solicitor’s letter. It contains a series of assertions made by the underwriters – a number of which were not made out at trial: for instance, the allegation that Dr McKinnon’s veterinary certificate was false or misleading was not proved; the allegation that the policy only covered an animal which was “in sound health and free from any illness, disease, lameness, injury or physical disability whatsoever” was not properly substantiated either in an evidentiary or in a practical sense. Whilst the existence of such a condition is confirmed by the tax invoice,[339] the whole of the policy was not produced. Moreover, I doubt whether, as a matter of practice, effect could ever be given to this provision as almost every thoroughbred has a problem of one sort or another. The key to obtaining mortality insurance, one could well surmise, is the existence of an appropriate veterinary certificate relating specifically to that form of cover. This assumption is reinforced by Newmarket’s letter accompanying its acceptance of the cover in which the following was said:
Cover is subject to a current veterinary certificate of health stating the mare is fit and healthy for mortality insurance purposes. You should note that coverage is restricted to death or humane destruction due to accidental external injury only and excludes any pre-existing conditions until such time as our office receives the certificate, when death from sickness and disease will be included.[340]
[339]Exhibit UTR4B.
[340]Exhibit UTR4A.
Further, no evidence was led in the course of the trial to sheet home the suggestion that an underwriter would, in the event of non-disclosure of the existence of navicular disease (producing mild lameness affecting its racing career but not its breeding potential) have refused mortality cover as opposed to, at most, adjusting the premium.
The only point of substance in the solicitor’s letter about which one could be satisfied is that the underwriters would not have increased the risk from $250,000 to $500,000 on 20 May 2005, given the mare’s condition at that time. Indeed Mr Buckley’s evidence on this issue was illuminating:
COUNSEL: That’s paragraph 28. You had no discussions with him about insurance until after the horse actually did you?
MR BUCKLEY: No. that’s not true. Totally false. When the vet certificate came in that went to the insurance company and we had a quote or an offer of insurance for $500,000 and the quote for that was $19,000, $20,000. After that and prior to the operation with the neurectomy Mr Ladhams requested for me to split that policy into two; one for me of $250,000 and one for him, for him as beneficiary of $250,000. That caused me a cavalcade of disasters in relation to the insurance by trying to change it because by the time I tried to change it and there was an administrative error at the office the horse had to go back in and was lame and could no longer pass a prepurchase examination as no pre-existing illness because it was already lame and that’s where the fight with the insurance company was. So by trying to change the insurance policy caused me a lot of grief.[341]
[341]T 203.
This answer is significant in two ways. First, there is no evidence that Mr Buckley endeavoured to take out a policy on behalf of Mr Ladhams for $250,000. Rather, for reasons that were never addressed in the course of the trial, Ultra simply sought to reduce the level of cover. Second, in my view Mr Buckley was correct in identifying the contest with the insurance company as relating to the mare’s condition at the time Ultra endeavoured to reinstate the insurance because, as he put it, she was already lame.
Apart from asserting that the settlement was reasonable, no evidence was led by Ultra to demonstrate that the settlement, in effect, reflected what would have, as at 9 March 2005, transpired had clause 15 been complied with. It would have been open to Ultra to adduce evidence from its solicitor (who was called in the trial) to give evidence as to the matters that influenced the resolution and the reasonableness of the settlement. No such evidence was led. In any event, as I have already mentioned, this was not determinative as the settlement involved consideration of the conduct of Ultra subsequent to March 2005.
It follows that reliance by Ultra upon the settlement figure (with adjustment for costs) as being the proper measure of damage occasioned by its breach of condition 15 is misplaced.
Mr Ladhams has proved:
(a) that mortality insurance cover was available for the mare as required by the agreement at $500,000;
(b) that the certificate of mortality insurance relied upon by the underwriters was an accurate description of the mare’s condition provided in the appropriate form;
(c) that Ultra breached the terms of the agreement by varying the cover under the policy; and
(d) that the mare’s value was approximately $500,000 (if this finding be necessary; the policy was not produced at trial).
Further, I am satisfied that but for the breach by Ultra in reducing the cover to $250,000 the underwriters would have been obliged to pay the sum of $500,000 pursuant to the policy. I do not accept that any of the defences asserted by the underwriters, other than that as to the reduction of the cover, could have been sustained.
In summary, Ultra was obliged to maintain insurance cover at $500,000. It failed to do so. I am not satisfied that any of the matters which appear to have influenced the settlement of the claim demonstrate that the insurance payout should have been any less than the sum insured of $500,000 – of which Mr Ladhams is entitled to his share of $250,000.
The claim for breach of fiduciary duty in relation to insurance cover
This part of Mr Ladhams’ claim is pleaded as follows:-
57.Further, the plaintiff and/or its servants and agents owed to the second defendant a duty as his fiduciary to take out and maintain insurance over Sound Action against death in the sum of $500,000.00 until such time as the consideration of the Sale Agreement had been fulfilled and/or paid.
PARTICULARS
The second defendant refers to and repeats paragraph 41 thereof.
58.Alternatively, the plaintiff and/or its servants and agents owed to the second defendant a general duty of care when taking out the insurance cover on Sound Action required under the Sale Agreement.
PARTICULARS
The second defendant refers to and repeats paragraph 41 hereof and clause 15 of the Sale Agreement.
If, as is alleged by the insurer, in taking out the insurance on Sound Action the plaintiff and/or its servants and agents failed to disclose to the insurer matters entitling the insurer to avoid the insurance, the plaintiff was negligent and/or breached the fiduciary duty and/or the general duty of care that it owed to the second defendant.
The first, (and in my view determinative) question is whether the relationship between Ultra and Mr Ladhams was one that gave rise to a fiduciary duty.
The relationship between Ultra and Mr Ladhams does not fall into any of the established categories of fiduciary relationships. Consequently, the nature of the relationship needs to be examined to determine whether such a relationship existed.
In Hospital Products v United States Surgical Corporation[342], Dawson J said that, notwithstanding the existence of clear examples, no satisfactory single test has emerged which will serve to identify a relationship which is fiduciary. His Honour went on to say that it is usual that in such a relationship one party should place confidence in another in acting on his behalf or in his interest in some respect, but not every case where that happens will result in a fiduciary relationship.[343]
[342](1984) 156 CLR 41 (“Hospital Products”).
[343]Ibid, 141.
Also in Hospital Products, Mason J stated that:
…every such transaction must be examined on its merits with a view to ascertaining whether it manifests the characteristics of a fiduciary relationship.[344]
[344]Ibid, 100.
His Honour went on to say that:
The categories of fiduciary relationships are infinitely varied and the duties of the fiduciary vary with the circumstances which generate the relationship… it is now acknowledged generally that the scope of the fiduciary duty must be moulded according to the nature of the relationship and the facts of the case.[345]
[345]Ibid, 102.
His Honour also said:
The critical feature of these relationships is that the fiduciary undertakes or agrees to act for or on behalf of or in the interests of another person in the exercise of a power or discretion which will affect the interests of that other person in a legal or practical sense.[346]
[346]Ibid, 96.
His Honour then said that the relationship between the parties was therefore one which gives the fiduciary:
…a special opportunity to exercise the power or discretion to the detriment of that other person who is accordingly vulnerable to abuse by the fiduciary of his position. The expressions “for”, “on behalf of”, and “in the interests of” signify that the fiduciary acts in a “representative” character in the exercise of his responsibility…[347]
As to the relationship between contractual obligations and fiduciary duties said to arise under a contract, his Honour said that the contract provides the foundation for any fiduciary relationship:
In these situations it is the contractual foundation which is all important because it is the contract that regulates the basic rights and liabilities of the parties. The fiduciary relationship, if it is to exist at all, must accommodate itself to the terms of the contract so that it is consistent with, and conforms to, them. The fiduciary relationship cannot be superimposed upon the contract in such a way as to alter the operation which the contract was intended to have according to its true construction.[348]
Although Mason J was in the minority on the facts as to the existence of a fiduciary relationship, these principles have been applied in subsequent cases.[349]
[347]Ibid, 97.
[348]Ibid.
[349]See, for example, John Alexander's Clubs Pty Ltd v White City Tennis Club Ltd (2010) 241 CLR 1; Watson v Ebsworth & Ebsworth (A Firm) (2010) 278 ALR 487; Berndale Securities Ltd v How Trading Pty Ltd (2010) 78 ACSR 218 and Blackmagic Design Pty Ltd v Overliese (2011) 276 ALR 646.
In a similar vein, Gibbs CJ held that it is critical to determine what is the subject matter of the fiduciary obligation,[350] after referring to what had been said by Dixon J in Birtchnell v Equity Trustees Executors & Agency Co Ltd,[351] His Honour held that a fiduciary relationship can exist in respect to a particular aspect of a relationship and not others:
The subject-matter over which the fiduciary obligations extend is determined by the character of the venture or undertaking for which the partnership exists, and this is to be ascertained, not merely from the express agreement of the parties... but also from the course of dealing actually pursued by the firm.[352]
Gibbs CJ found that this principle was of general application and that it applied in relation to every fiduciary relationship.
[350]Also see the principles referred to in Moorgate Tobacco v Philip Morris Ltd (No 2) (1984) 156 CLR 414, 436-437 referred to in Elecon Australia Pty Ltd v Brevini Australia Pty Ltd (2009) 263 ALR 1.
[351][1929] 42 CLR 384.
[352]Birtchnell v Equity Trustees Executors & Agency Co Ltd [1929] 42 CLR 384, [408].
Here the contractual obligation of Ultra to Mr Ladhams is said to be the subject matter of the fiduciary obligation. That of itself would not be enough to establish such a relationship. There is no evidence that Ultra was under an obligation to treat Sound Action in a way that elevated the interests of Mr Ladhams above its own. The agreement, as I have already mentioned, contained a number of safeguards of Mr Ladhams’ interests in the mare. He was protected by the fact that to a large extent the interests of both himself and Ultra were contiguous. In accepting partial consideration in the form of a portion of Sound Action’s net prize money (if any) and a portion of the net sale proceeds of the mare’s first two foals (if any), Mr Ladhams also accepted the risk that no such property would ever come into existence.
I do not consider that Ultra owed a fiduciary duty to Mr Ladhams to act for and on behalf of him in respect of the treatment of Sound Action or in relation to the requirement under the sale agreement that Ultra keep Sound Action insured.
The obligations of Ultra to Mr Ladhams in relation to the treatment of Sound Action were contractual and not fiduciary, as was the requirement that Ultra keep Sound Action insured. It may well be that the obligations created under the contract gave rise to an implied term that Ultra take reasonable care in relation to the health of the mare – however this does not need to be considered as it was not alleged against Ultra.
The claims in negligence
Negligence in relation to the carrying out of the neurectomy
I adopt and apply here the principles I set out at [277] to [289] in relation to Ultra’s claim in negligence.
Although denied in the defence, it was not argued at trial that Ultra did not owe a duty of care to Mr Ladhams in relation to keeping the mare in good health whilst he retained an interest in the two putative foals. It could hardly have contended to the contrary. It was foreseeable as I shall explain that the mare would be exposed to the risk of injury in the course of the operation. There is no question of an indeterminate class. The contract gave Mr Ladhams an interest in the two foals but the control of the mare and her management passed to Ultra; Mr Ladhams had no say in how she was to be looked after; his economic interest in the two foals was entirely dependent upon Ultra maintaining the mare in a proper way; he was vulnerable insofar as he had no ability to protect his own interest given that Ultra had total control over the mare.
The first issue to be identified is that of the precise risk of harm: it was the risk of injury or death as a result of Ultra, through Mr Buckley, authorising the carrying out of the neurectomy.
Next is the question of foreseeability. Here, Mr Buckley had been given specific advice by Dr Vasey as to the risks and benefits of the operation. As I have already indicated, I accept Dr Vasey’s account of those conversations rather than that of Mr Buckley. Ultra, through Mr Buckley, knew that there was a risk of adverse consequences as a result of the surgery.
Dr Vasey, having been asked by Mr Buckley to carry out the neurectomy, explained the complications, which included the development of a neuroma, the inability of the horse to feel its feet and the prospect that the nerves would, in any event, rejoin.[353] Mr Bolger described the mare as being marginally lame.[354] Dr Vasey was of the view that the horse, given its condition, did not need to undergo neurectomy;[355] such a procedure was not necessary for the welfare of the horse at that time.[356]
[353]T 808.
[354]T 334.
[355]T 809, 835.
[356]T 835.
It was, therefore, foreseeable that there were adverse risks associated with the surgery and that the cutting of the nerve carried a risk of morbidity, if not mortality. Whilst I accept that the risk of death was not one of the consequences referred to by Dr Vasey, it was nonetheless clear that there were potential adverse health consequences to the mare if this operation went ahead.
Next it is necessary to determine whether the risk of the operation was not insignificant. What needs to be borne in mind here is the condition of the mare at this time. She had some lameness; Dr Vasey had recommended corrective shoeing. She was generally in good health and had a full and productive future ahead of her as a broodmare. Whilst Dr Vasey did not in terms refuse to carry out the operation or strongly advise against it, there was no suggestion by him to Mr Buckley that the mare needed the procedure. Mr Buckley did not seek a second opinion from his local veterinarian Dr Brain, nor did he seek any other veterinarian advice. The procedure was entirely Mr Buckley’s idea but one that ultimately Dr Vasey was prepared to go along with.[357]
[357]T 904.
I am satisfied that, notwithstanding that death was an unlikely result of the surgery but given that injury was a potential consequence, exposing the mare to the surgery in a situation where it was unwarranted did create a not insignificant foreseeable risk to her health generally, her morbidity and her mortality.
Finally, there is the question of the adequacy or otherwise of Mr Buckley’s response to the risk (s 48(2) and s 49 of the Wrongs Act. The answer is straightforward – the operation should not have been carried out until the mare’s condition warranted it or veterinary advice recommended that it be carried out. It was Mr Buckley’s idea to carry out the surgery, which I infer may have been directed (misguidedly) to his belief that he might be able to get the mare back to the racetrack. But his motivation is not to the point. Dr Vasey would not have recommended the surgery; no other opinion was sought by Mr Buckley. An appropriate response, given the mare’s condition, was not to rush into surgery without acting on the advice of an experienced surgeon. Moreover, Ultra had to be conscious of the position of Mr Ladhams who maintained an interest in the putative foals. It was, in my view, quite unreasonable for Ultra to proceed to major surgery with no veterinary support, in effect, within 20 days of the purchase of the mare.
As to causation, the evidence, as I have already observed, is overwhelming that the neurectomy led to the death of the mare. Dr Vasey thought that it was most likely that the problems from which the mare suffered were related to the neurectomy.[358] The two expert witnesses Professor Kannegieter and Dr Vanner, although describing the end condition as laminitis were in heated agreement that compromise of the vascular supply to the hoof caused by the neurectomy led to the mare’s death.[359] Therefore the surgery was a necessary condition of the death of the mare.
[358]T 835, 836.
[359]T 416, T 941.
I am satisfied that Mr Ladhams’ case in negligence is made out. The more difficult consideration is the assessment of damages. Counsel for Mr Ladhams contends that the appropriate assessment of damages is $250,000, being the balance outstanding under the agreement. But that does not represent Mr Ladhams’ loss. His loss is, in effect, the opportunity to obtain half the proceeds of the sale of the first two foals. No evidence was led at trial to establish what the likely value of the foals was.
I accept that any such estimate would necessarily have involved a degree of speculation. Undoubtedly the foals would have had significant value, but that value would have been affected by any number of considerations, for instance the identity of the sire of the foals, the popularity of the sire at the time of sale, the buoyancy of the market at the time of sale, the foals’ confirmation and size, the sex of the foals and the particular sale to which the foals were consigned; indeed there are probably many other considerations. None were addressed in the course of the trial.
I am simply unable at the present time to form a view as to what is the likely loss sustained as a result of Ultra’s negligence. I propose to give Mr Ladhams and Ultra the opportunity to make any submissions relating to the evidence concerning the assessment of damages under this head should they wish. From a practical point of view this assessment would only have relevance if it exceeded the award of damages for breach of agreement, assuming I permit evidence of such loss to be adduced.
Negligence in relation to the reduction in cover under the insurance policy
Again, I adopt and apply the principles that I have set out earlier in these reasons at [277] to [289].
Notwithstanding the breadth of the particulars of negligence contained in the counterclaim, it was apparent that the thrust of Ultra’s claim was collateral to that mounted in respect of breach of the agreement, namely that Ultra was negligent in not maintaining the policy at the stipulated level of $500,000. In my view, Mr Ladhams’ claim is also made out on this basis.
As to existence of duty, I repeat the considerations I set out in relation to Ultra’s duty to Mr Ladhams to act reasonably in keeping the mare in good health. Similar considerations apply to this aspect of this claim. Mr Ladhams was reliant upon Ultra to insure his interest in the mare. There is no question of an indeterminate class; the insurance of the mare protected his interest in the event of death. Admittedly he may have been able to insure his interest in the mare separately (although this may be open to doubt given the terms of the agreement as to the ownership of the mare), but nevertheless he relied upon Ultra to take out the policy and cover as it promised. In effect, Ultra, by reason of the agreement, assumed the responsibility, on behalf of Mr Ladhams, for the insurance of the mare.
The foreseeable risk on this point can be clearly identified – namely, that if the cover was reduced then the mare would be underinsured and in the event of her death the payout would be necessarily reduced.
The questions of foreseeability and the assessment of the degree of risk are also answered affirmatively in Mr Ladhams’ favour. It was patently foreseeable that in the event of the death of the mare Mr Ladhams would be out of pocket as the insurance payout would be necessarily less given the reduction in cover. Ultra owed Mr Ladhams a duty of care.
On the issue of breach, that risk, in the context of the purchase of the mare , was not insignificant. Potentially, the mare was at risk of death at any time (be it from the consequences of the neurectomy or a bolt of lightning). If she was insured for less than had been agreed then there was a not insignificant prospect that the payout would diminish accordingly.
The answer to the question of adequacy of the response is self-evident. A reasonable vendor with Ultra’s obligations would not have reduced the cover. Ultra had an obligation to insure the mare for $500,000 and that is what it should have done. By reducing it to $250,000, without any credible explanation being proffered, its response was inadequate and constitutes a breach of duty.
The failure to insure the mare for an appropriate amount was, on the findings I have made previously, a necessary condition of the loss of $250,000 occasioned to Mr Ladhams who would have been entitled to the payment of that amount pursuant to the agreement. The assessment of damages in respect of that figure at $250,000 is appropriate. I should add that no argument was put by Ultra that this loss was to be characterised as one of the loss of a commercial opportunity and therefore required a discount on that sum.
F. Summary of conclusions
In my opinion:
(a)Ultra has not established that Mr Ladhams engaged in misleading and deceptive conduct in breach of s 9 of the Fair Trading Act. There should be judgment for Mr Ladhams on the claim;
(b)Ultra has not established that Dr McKinnon was either negligent or engaged in misleading and deceptive conduct in breach of s 9 of the Fair Trading Act. There should be judgment for Dr McKinnon on the claim;
(c)Mr Ladhams has established that Ultra breached the terms of the agreement by reducing the cover under the policy to $250,000. He is entitled to an award of damages of $250,000 plus interest;
(d)Mr Ladhams has established that Ultra was negligent in subjecting the mare to the neurectomy. I am unable to determine the quantum of the damages on the material adduced at trial. Bearing in mind the award of the damages for breach of agreement it may not be necessary for this question to be agitated further; and
(e)Mr Ladhams has established that Ultra was negligent in reducing the cover from $500,000 to $250,000. He is entitled to an award of damages of $250,000 plus interest.
I will give the parties the opportunity to consider these reasons and submit minutes of the appropriate orders.
4