V8 Supercars Holdings Pty Ltd v Sanpoint Pty Ltd

[2017] NSWSC 1043

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:

V8 Supercars Holdings Pty Ltd v Sanpoint Pty Ltd [2017] NSWSC 1043

Hearing dates:

10, 11 and 12 April 2017.

Decision date:

10 August 2017

Jurisdiction:

Equity

Before:

Robb J

Decision:

The parties are required to bring in short minutes of order to give effect to these reasons for judgment. See in particular par 425.

Catchwords:

CONTRACTS – Breach of contract – Where cross claimant racing team surrendered racing entitlement contract to cross defendant organisation – Where cross defendant tendered cross claimant’s contract – Where cross defendant was obliged to ensure that the price paid for the contract was ‘as commercially advantageous as possible having regard to the current market situation by offering the Contract to the market by tender’ – Whether cross defendant breached obligation.

  CIVIL PROCEDURE – Pleadings – Whether cross claimant should be able to rely upon submissions outside the scope of its pleadings.

Cases Cited:

Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd (2009) 73 NSWLR 653; [2008] NSWCA 206.
Sellars v Adelaide Petroleum NL (1994) 179 CLR 332; [1994] HCA 4.
Seltsam Pty Ltd v McGuiness (2000) 49 NSWLR 262; [2000] NSWCA 29.
Siegwerk Australia Pty Ltd v Nuplex Industries (Aust) Pty Ltd (2016) 334 ALR 443; [2016] FCA 158.

Texts Cited:

Austin, Ford and Ramsay, Company Directors Principles of Law & Corporate Governance (LexisNexis Butterworths, 2005).

Category:

Principal judgment

Parties:

V8 Supercars Holdings Pty Ltd (first plaintiff/first cross defendant)
Australian Motor Racing Partners Pty Ltd (second plaintiff/second cross defendant)
Sanpoint Pty Ltd in any capacity (including as trustee for the Fiore Family Trust and as trustee for the partners of Sanpoint) (second defendant/cross claimant)

Representation:

Counsel: PS Braham SC/M Izzo/T O’Brien (plaintiffs/cross defendants)

 

CRC Newlinds SC/BK Koch (second defendant/cross claimant)

 

Solicitors: Deutsch Miller (plaintiffs/cross defendants)

  Shanahan Tudhope (second defendant/cross claimant)

File Number(s):

2014/254679

Judgment

1. The parties to these proceedings were involved at relevant times in the racing of the class of racing motor vehicles known as V8 Supercars.

2. The proceedings were commenced by summons filed on 29 August 2014. The first plaintiff is V8 Supercars Holdings Pty Ltd (V8 Holdings). The second plaintiff is Australian Motor Racing Partners Pty Ltd (AMRP).

3. The structure of the business that conducted V8 Supercars racing at relevant times was complicated, and not all of the detail is relevant to the determination of these proceedings. Archer Capital Funds (Archer) was an equity investor that owned the majority shares in AMRP. That company held shares in V8 Holdings that gave it 65% of the voting rights in that company. The remainder of the interest in V8 Supercars was held by entities who had a right to enter V8 Supercars in the championship, and who were generally referred to as Teams. By this means, the parties with an economic interest in the conduct of the V8 Supercars Championship held the underlying companies and trusts through V8 Holdings as the effective holding company.

4. Through various subsidiaries, V8 Holdings held all of the shares in V8 Supercars Australia Pty Ltd (V8SCA), which was the trustee of a number of trusts. In its capacity as trustee of one of those trusts, V8SCA was the owner and manager of the business that operated the V8 Supercars Championship.

5. The basis upon which the Teams were entitled to participate in the V8 Supercars Championship was regulated by a standard form of contract called a Racing Entitlement Contract (REC). The parties to each REC were V8SCA, V8 Holdings, another wholly-owned subsidiary of V8 Holdings, called Touringcar Entrants Group Australia Pty Ltd (TEGA), and the entity that represented the Team. Where a Team entered more than one car in the championship, it would enter into a separate REC in respect of each car.

6. Each of the defendants in these proceedings is an entity who represented a Team, and who was a party to a REC.

7. The first defendant was Lucas Dumbrell Investments Pty Ltd. The proceedings involving that defendant were in substance the same as those involving the second defendant, but they have been settled. There is no need to refer further to the aspect of the proceedings that involved the first defendant.

8. The second defendant is Sanpoint Pty Ltd in its capacity as trustee for the Fiore Family Trust and as trustee for the partners of Triple F Racing (Sanpoint). It appears that a number of members of the Fiore family were involved in racing a V8 Supercar in the championship under the name Triple F Racing. The evidence refers principally to Dean Fiore and his father Frank.

9. V8 Supercars racing was tightly controlled by the terms of the RECs and related agreements. The number of Teams was limited at the beginning of the relevant time to 28. Teams agreed to onerous obligations in relation to participation in all of the races that constituted the V8 Supercars Championship. Participation in the championship was expensive, and many Teams operated at a significant loss. Participation was in many cases for the passionate and the wealthy. The RECs contained terms that regulated how the Teams could retire from participation in the championship. One of those terms regulated the manner in which a Team could surrender its REC to V8 Holdings. V8 Holdings was given authority to attempt to sell the rights created by the REC by tender. The amount of any price obtained, less tender costs and any accumulated debts owed by the Team to V8 Holdings, would then be paid to the entity that represented the Team.

10. These proceedings arise out of the surrender by Sanpoint of its REC, and the process by which V8 Holdings attempted to sell the REC by tender. The tender yielded no bids, and V8 Holdings sold the REC to AMRC for a price of $20,000, on the basis that the tender process established that the current market price for Sanpoint’s REC was nil.

11. Sanpoint challenged the legitimacy of the process whereby its REC was sold to AMRC. In response, V8 Holdings and AMRC sought by their summons a declaration to the effect that, on 1 December 2013, Sanpoint, in accordance with its REC, surrendered its rights under the REC, and on 28 August 2014, V8 Holdings sold Sanpoint’s rights under the REC to AMRC, and from that point Sanpoint had no rights under the REC.

12. Both defendants responded by filing cross summonses, in Sanpoint’s case on 26 September 2014. Sanpoint sought various declarations and orders concerning the propriety and validity of the sale of its REC.

13. Later, on 12 March 2015, Sanpoint filed what appears to be called a third cross summons statement of cross claim. That is the operative pleading on the basis of which, together with the defendants’ defence, these proceedings have been conducted.

14. In the manner that I will explain below, Sanpoint confined its case at the hearing to a claim that V8 Holdings breached the terms of Sanpoint’s REC in the manner in which it conducted the tender process and sold the rights under the REC to AMRC, for which breach V8 Holdings is liable to pay damages to Sanpoint. Sanpoint no longer seeks any declaration or order to the effect that the sale to AMRC was invalid so that Sanpoint remains the owner of the rights under the REC. Consequently, AMRC has ceased to be an active party to the proceedings.

15. As Sanpoint was the party that alleged that it was entitled to damages for breach by V8 Holdings of the REC, the parties recognised that Sanpoint was the moving party, and Sanpoint proceeded upon its cross claim as if it were a plaintiff.

16. It should be recorded that the proceedings were conducted on the basis of documentary evidence. The parties served affidavits of witnesses that apparently contained evidence going to be substance of the issues, and those affidavits were included in the court book. Neither Sanpoint nor V8 Holdings read any affidavits.

Relevant terms of the REC

17. As all of the issues in these proceedings essentially spring out of cl 10 of Sanpoint’s REC, it will be convenient to begin by considering the relevant terms of that agreement.

18. The parties to the REC entered into the agreement on 2 June 2011. The primary relationship was between V8SCA as the owner and operator of the V8 Supercars Championship and Sanpoint as representative of the Triple F Racing Team. V8 Holdings became a party to these proceedings because an adjunct of the right under the REC to participate in the championship was an entitlement to hold a share in V8 Holdings, as the material holding company, and it was V8 Holdings that was given the right to conduct the sale of the rights under the REC following their surrender by Sanpoint.

19. Part C of the Background recorded that the relationship between V8SCA and Sanpoint was governed by the REC, and what were called the Operations Manual and the Commercial Rules. The latter documents apparently regulated in a precise manner how the V8 Supercars Championship would be conducted. The terms of those documents need not be considered further.

20. Clause 1 of the REC obliged Sanpoint to become the holder of a share in V8 Holdings, and to enter into what was called the “V8 Holdings Shareholders Agreement”.

21. The period of the REC was made indefinite by cl 2, which contemplated that the terms of the agreement would be reviewed by the board of V8 Holdings every five years.

22. Under cl 3, Sanpoint was limited to owning a maximum of four RECs, each of which would entitle it to enter one racing car. The maximum number of RECs was limited to 28. A Team required a separate REC and the holding of a separate share in V8 Holdings in respect of each car.

23. Clause 4 provided for a V8 Supercar Commission that would make and supervise the Rules for conducting the V8 Supercars Championship.

24. Clause 5 was headed “Team obligations” and provided for obligations imposed upon Sanpoint for the benefit of V8SCA and the other Teams, and upon V8SCA for the benefit of all of the Teams and separately for Sanpoint. The clause also imposed obligations on TEGA, to which I will return.

25. Clause 5.1(a) provided that Sanpoint recognised the cooperative nature of the arrangements between the V8SCA Teams and V8SCA and required Sanpoint to use its reasonable endeavours to ensure and support the competitive nature, viability, and commercial and sporting success of the V8 Supercars Championship.

26. Clause 5.1(d) is significant as it triggered the surrender of Sanpoint’s REC and led to the present proceedings. It provided:

5.   Team obligations

5.1   Provide Support

…

(d)   Subject to clause 5.1(e), the Team must (in respect of this Contract and each other subsisting Racing Entitlement Contract to which it is a party) commit to enter a car to Compete in all Events (by submitting to V8SCA an entry registration form in the form attached at Annexure 1 or otherwise approved by a Special Majority of the V8Holdings Board (Entry Registration Form)) by 1 December of each year of the Term for the following year. Time will be of the essence in relation to submitting the Entry Registration Form. Should the Team fail to submit to V8SCA an Entry Registration Form in respect of this Contract by 1 December then the Team will surrender its Rights under this Contract on the first day of the following year for subsequent sale in accordance with clause 10 of this Contract.

27. Accordingly, by 1 December of each year Sanpoint had to formally commit to enter its car to compete in all of the V8 Supercars Championship races in the following year. That could be a very onerous obligation if a particular Team’s participation in the championship involved significant financial loss, particularly as the next season’s loss could only be estimated. A failure to submit the required Entry Registration Form would lead to the surrender of the REC and its subsequent sale under cl 10 of the REC.

28. The effect of cl 5.1(e) was that if a Team entered into a REC after 1 December of a particular year, it had to enter a car to compete in all events during the year after the date of the REC.

29. Under cl 5.1(g), Sanpoint was subjected to the following burden, if it was unable to compete in an event in accordance with its Entry Registration Form:

(g)   If the Team fails (in respect of this Contract) to enter a car to Complete in an Event in accordance with its Entry Registration Form as submitted under clause 5.1(d) or otherwise in accordance with clause 5.1(e), it will be in breach of this Contract and, to remedy that breach, must pay to V8SCA liquidated damages in the sum of one hundred and fifty thousand dollars (AUD $150,000.00) per Event for any car that the Team fails to include to Compete in accordance with this Contract…

30. Clause 5.1(m) provided that if Sanpoint failed to enter a car to complete in an event for a second time in a season, it would be required to pay a further $150,000 as liquidated damages per event.

31. Under cl 5.1(n), the result of Sanpoint failing to enter a car to compete in an event for a third time in a season would be that, not only would it be required to pay the liquidated damages in respect of that event, it would also have to surrender its rights in accordance with clause 10 of the Contract. Thus, the consequence of Sanpoint’s inability to enter its car in a race three times in a season would be the obligation to pay $450,000 in liquidated damages to V8SCA and the surrender of its REC, with the effect that the rights under the REC would be sold by V8 Holdings.

32. Clause 5.1(o) had the effect that a failure by Sanpoint to enter its car in any race would be to forfeit any Appearance Money and payments under cl 5.6(c)(ii) in respect of that month.

33. The combined effect of these provisions was to oblige Sanpoint by 1 December of each year to commit to the full schedule of races for the next year. Failure to do so would cause the surrender of its REC. However, once it had committed to the next year’s racing it was placed at risk of having to pay $150,000 for each race in which it was unable to enter its car, up to three missed races, following which its REC would be surrendered in any event. It would also lose the appearance money for each month in which it failed to enter a race. These burdens would naturally be material to any party who contemplated buying Sanpoint’s rights under its REC, and would have the tendency to depress the value of those rights.

34. Clause 5.6 of the REC is also significant in that it obliges TEGA to pay what is defined as the Appearance Money pro-rated on a monthly basis to each of the Teams. “Appearance Money” is defined in cl 18.1 as having the meaning given to that term in the V8 Holdings Shareholders Agreement. That agreement defines the term as meaning 92.5% of the Forecast Distributable Income. That term is defined as meaning, in respect of the calendar year, the V8 Teams’ Proportion of the EBITDA of V8SCA and related trusts less capital expenditure as forecast in the Budget. It is not necessary to examine these provisions in detail. It is sufficient to understand that the Teams’ collective 35% economic interest in V8 Holdings entitled the Teams to share pro rata per REC in 35% of most of the net earnings of the V8 Supercars business. The contemporary documents tended to refer to the total amount of the net earnings to be shared between the Teams and Archer as the EBIT, rather than by reference to the more complicated formula based upon the EBITDA (which in turn was defined in the conventional way as earnings before interest, tax, depreciation and amortisation).

35. The significance of cl 5.6 is that the distribution of Appearance Money represented Sanpoint’s share of the net profit from the running of the V8 Supercars Championship, which could be applied in funding part of the costs of participating in the championship.

36. Clause 6 of the REC imposed another potentially onerous condition on Sanpoint in that, if Sanpoint’s car finished last on the Drivers’ Championship Points table in two consecutive years, then the V8 Holdings board by a special majority could expel Sanpoint from the V8 Supercars Championship, in which event Sanpoint would be given one month to sell its REC, and if it failed to do so, then the REC would be surrendered and sold by V8 Holdings in accordance with cl 10.1.

37. Clause 9.5 permitted Sanpoint to sell the rights under its REC, but any sale had to be approved by a special majority of the board of V8 Holdings.

38. The critical provision of the REC is cl 10.1, which provides:

10.   Surrender of Rights

10.1   Surrender

In the event that the Team is required by this Contract to surrender its Rights, the Team must do so on the following basis:

(a)   the surrender or a sale of the Rights will be administered by a Special Majority of the V8Holdings Board as agent for the Team in its absolute discretion;

(b)   V8Holdings will ensure that the price paid for the Rights is as commercially advantageous as possible having regard to the current market situation by offering the Contract to the market by tender;

(c)   V8Holdings may, in its absolute discretion, elect to compensate the Team for the surrender of its Rights for substantially the same price (with substantially the same conditions) as those negotiated with a proposed purchaser by tender (and will direct the Shares held by the Team to be transferred to its nominee);

(d)   any proceeds from the surrender or sale of the Rights will be paid by V8Holdings to the Team, less any costs incurred by V8Holdings. Costs incurred by V8Holdings may include advertising, administrative and legal costs and all other outlays; and

(e)   the amount paid and the names of the parties involved in the sale of the Rights will be entered in the Register by the V8Holdings Board.    

39. It follows from the chapeau to cl 10.1 that the basis upon which the REC was to be surrendered is as set out in the following sub-paragraphs.

40. In-so-far as cl 10.1(a) refers to “the surrender or sale of the Rights”, the parties were agreed that the use of the word “or” may have been infelicitous, and the purpose of the provision may have been served better had the word “and” been used. The surrender would be effected by operation of cl 5.1(d) automatically on the first day of January in the year following the failure of Sanpoint to submit the required Entry Registration Form by 1 December. It is not clear what the precise legal effect of the surrender was intended to be, but that is of no significance in the present case. Nor is the use of the word “or” of any significance, as the parties accepted that cl 10.1 required the REC to be dealt with in the terms of that provision.

41. Clause 10.1(a) specifies that the sale “will be administered by a Special Majority of the V8Holdings Board as agent for the Team in its absolute discretion”. It is sufficient to note that “Special Majority of the V8Holdings Board” is defined in cl 18.1 as having the same meaning as that term in the V8 Holdings Shareholders Agreement. That is an agreement between V8 Holdings, the Teams and AMRP (the last-mentioned party representing the interests of Archer). In effect, the Special Majority is an ordinary majority of the board of directors provided that the majority includes one director appointed by AMRP and one director appointed by the Teams. Clause 10.1(a) literally suggests that the sale will be administered by the Special Majority. That would be impracticable for a number of reasons including the identification in advance of the Special Majority. As I understand it, the parties accepted that the provision involved more infelicitous drafting, and that what was meant was that V8 Holdings would administer the sale acting by a Special Majority of its board.

42. The parties did not attribute any difficulty to how the expression “as agent for the Team” would operate, and as I understand it Sanpoint accepted that, provided V8 Holdings otherwise complied with the provisions of cl 10.1, V8 Holdings could conduct the tender and ultimately effect the sale as if it had full authority from Sanpoint to do so.

39. Difficulty could potentially arise in reconciling sub-cll (a) and (b) in so far as the former gave V8 Holdings an “absolute discretion” as to how it was to administer the sale, while the latter provision imposed upon V8 Holdings a positive and definite obligation concerning how the price was to be achieved.

40. Sanpoint submitted that, whatever was intended to be the subject of the absolute discretion reposed in V8 Holdings for the purposes of the administration of the sale, the existence of that absolute discretion did not in any way limit the positive obligation imposed by sub-cl (b).

41. In final oral submissions, V8 Holdings accepted that Sanpoint’s submission that the absolute discretion granted to V8 Holdings in sub-cl (a) was clearly limited by the obligation upon V8 Holdings in sub-cl (b), and that however broad the discretion was, V8 Holdings was obliged to do what sub-cl (b) stated (T 108.12). The consequence of this concession, which I believe was clearly correct, is that the question becomes whether V8 Holdings complied with sub-cl (b), and it is not necessary to resolve the dispute by entering upon a consideration of how the absolute discretion could have limited the content of the obligation in sub-cl (b).

42. Conceptually, there may not as a practical matter be a clear dividing line between the discretionary administration of the sale for the purposes of sub-cl (a) and compliance with the requirements of sub-cl (b), but as I understand the way in which the parties conducted the case, they did not raise any significant issue based upon the interrelationship in practice between the two sub-clauses.

43. The crucial question therefore becomes whether, in the events that happened, V8 Holdings ensured that the price for the Rights created by Sanpoint’s REC was as commercially advantageous as possible having regard to the current market situation by offering the rights created by the REC to the market by tender, for the purposes of sub-cl (b) of the REC.

44. In its final submissions, V8 Holdings approached the case that it had to meet by suggesting that Sanpoint had put its submissions on two alternative bases, which depended upon attributing significantly different meanings to sub-cl (b). The first proceeded on the basis that the wording “ensure that the price paid for the Rights is as commercially advantageous as possible having regard to the current market situation” imposed upon V8 Holdings an obligation tantamount to a guarantee that the price ultimately achieved would in fact be as commercially advantageous as possible having regard to the current market situation. V8 Holdings submitted that, if this position reflected Sanpoint’s primary case, it was based upon an impermissible construction of the provision.

45. The second, and alternative, case that V8 Holdings apprehended Sanpoint to have made focused on the use of the word “by” after the extract from sub-cl (b) set out immediately above, which had the effect that the attainment of the most “commercially advantageous” price possible was to be achieved by means of the offer of the REC to the market by tender. This alternative construction of the provision, which V8 Holdings accepted was correct, would still require V8 Holdings to “ensure” the identified outcome, but only to the extent that it occurred in fact as a result of a tender that was calculated to ensure that the market would generate the most commercially advantageous price for the REC that was possible having regard to the current market situation.

46. While the former construction would involve, in practical effect, V8 Holdings guaranteeing that it would achieve the most commercially advantageous price possible, whatever the actual outcome of the tender process, V8 Holdings submitted that sub-cl (b) would be satisfied by whatever price, if any, that was in fact generated by the tender process, provided that V8 Holdings had done everything possible to ensure that the tender had been conducted in a manner capable of generating the most commercially advantageous price as possible in the current market situation. (In putting these two possibilities, as V8 Holdings did in its submissions, I have not ignored V8 Holdings’ argument that, as a matter of strict logic, the first proposition could not stand alone divorced from the practical need to determine the most commercially advantageous price as a result of the tender process).

47. Ultimately, as I understand Sanpoint’s final written submissions, V8 Holdings’ apprehension that Sanpoint contended that cl 10.1(b) had the absolute effect of the first of the alternatives set out above was misplaced, as in the introduction Sanpoint put its case in the following way:

1. Sanpoint’s case is that the tender process adopted by V8 Holdings was not one capable of ensuring that the price paid for the rights was “as commercially advantageous as possible having regard to the current market situation”.

52. That submission is consistent with the second of the alternatives stated by V8 Holdings. Sanpoint did submit that the words “ensure that the price paid…” were in the nature of a guarantee and imposed “an onerous obligation” that was “something considerably more burdensome than an obligation to use “best endeavours” or ”take all reasonable steps so as to…” (par 5). Sanpoint accepted that the inter-relationship between that obligation and the part of the provision which said “by offering the contract to the market by tender” was at the heart of the case (par 6). Sanpoint concluded by saying:

8. The tension between the two halves of clause 10.1(b) is resolved by accepting that the content of the tender must be such as to be conducive to it ensuring that the price paid is as commercially advantageous as possible. That is, V8 Holdings must conduct the tender in such a manner as to achieve a price as commercially advantageous as possible.

53. That submission appears to accept that the parts of cl 10.1(b) that are joined by the word “by” create a composite obligation whereby V8 Holdings must put the REC to the market by tender in a manner calculated to ensure that the price offered is as commercially advantageous as possible having regard to the current market situation, and if it does that, whatever price is in fact offered by the highest bidder will be the price that satisfies V8 Holdings’ obligation to achieve the result contemplated by the clause. In that way the focus of what must be ensured is the process rather than the outcome.

54. In my view that is the correct way to construe cl 10.1(b). If my understanding of the parties’ final submissions is correct, there is no issue between them concerning the proper construction of this provision.

55. It may be that some oral submissions made on behalf of Sanpoint during its opening suggested to V8 Holdings that Sanpoint contended for the more absolute of the constructions of cl 10.1(b) set out above, but when those submissions are considered carefully their real thrust appears to be to establish that, whatever the subject of V8 Holdings’ obligation was, the degree of the obligation imposed by the use of the word “ensure” was akin to a guarantee rather than a requirement to act reasonably.

56. That conclusion is reinforced by a consideration of the terms of Sanpoint’s cross claim. The implied term the subject of the declaration in par 1 of the claim for relief, in using the words “required to offer…to the market by tender in such a manner as to achieve…” is consistent with the way Sanpoint put its case in final submissions (although it no longer propounded the implied term). The list of shortcomings in the tender process in the declaration in prayer 2 of the claim for relief is consistent with the obligation to ensure only relating to the manner in which the tender was implemented. The same is true for Sanpoint’s allegation of breach of cl 10.1(b) in par 23 of the cross claim, save for the addition of sub-par 23(h), which I will consider separately below.

57. The parties are in dispute as to what the use of the words “current market situation” in cl 10.1(b) concurrently with the requirement that V8 Holdings was to “ensure” a specified result of the tender process required V8 Holdings to do in relation to the information that was provided to bidders. Without elaboration on their part, the parties appear to have accepted that the use of the expression “current market situation” directed attention to the economic reality that the fixing of prices by markets depends upon the information that is available to competing bidders. If the agent of the seller has an obligation to ensure that the price offered by the highest bidder in the tender process is as advantageous to the seller as possible, the agent must disclose to competing bidders the information material to an assessment by the bidders of the value of the rights on offer that will induce the bidders to offer the highest prices possible. That is in my view a sensible way to approach the meaning of the words “current market situation”.

58. The parties differed in their contentions as to what V8 Holdings was actually required to do in order to satisfy its obligation to give information to competing bidders to cause them to offer the most advantageous price possible. In a manner that I will consider more fully below, the substance of the information that was known to V8 Holdings that might have influenced bidders evolved over the duration of the tender process. It was Sanpoint’s case that the obligation upon V8 Holdings to ensure the achievement of the most commercially advantageous price possible through the tender process required V8 Holdings in substance to provide all of the evolving information to bidders, and to do so on a continuing basis. Sanpoint went so far as to submit that, if it became practically difficult for V8 Holdings to paraphrase the available information, as that information was substantially embodied in emails that were exchanged between relevant persons, V8 Holdings could have, and should have, simply made all of the emails available to potential bidders.

59. The practical effect of the obligation to “ensure” was to require V8 Holdings to act in Sanpoint’s interests, rather than its own, or the interests of Archer or the remaining Teams. It is also implicit in Sanpoint’s case that the obligation on V8 Holdings to “ensure” that bidders had all of the information that was likely to induce them to offer the most advantageous price obliged V8 Holdings to make that information available in a manner that was not circumscribed by any self-interested objective of V8 Holdings to minimise any litigation risk to itself at the suit of bidders by reason of possibly misleading overstatements as to the underlying value of the REC.

60. In essence, although Sanpoint did not expound the argument, Sanpoint contended that the obligation upon V8 Holdings in cl 10.1(b) to ensure a particular result by the manner in which it conducted the tender “having regard to the current market situation” had to recognise that the word “current” applied to the whole of the period of the tender leading up to its close, so that if the available information evolved in a way that was likely to encourage competing bidders to offer higher prices, then V8 Holdings was required to progressively provide that information to bidders. Furthermore, the obligation to “ensure” that the highest bid would be as advantageous as possible given the evolving information required V8 Holdings to provide the information fully and not to restrict the information in any way in order to achieve the interests of itself or any other parties than Sanpoint. Sanpoint did not, of course, go so far as to submit that the REC required V8 Holdings to conduct the tender in a manner that was misleading and deceptive, or was likely to mislead and deceive bidders, or was in any other manner unlawful. However, it did submit that the obligation to “ensure” required V8 Holdings to go to the fullest extent that fell short of a real risk of unlawful behaviour.

61. As will be seen, V8 Holdings’ position was that the obligation imposed upon it by cl 10.1(b) was much more static and constrained. V8 Holdings considered that it was sufficient for it to make a single notification of the possibility of an event occurring that would tend to increase the price that competing bidders might offer for the REC, and to do so in a neutrally worded and conventional manner that would minimise the risk of misleading or deceiving bidders.

62. It will be convenient to defer further consideration of the position adopted by V8 Holdings, and the resolution of the contest between the parties, until after the relevant facts have been determined.

63. As I have observed, at the end of the tender process no bids had been made for Sanpoint’s REC. The board of V8 Holdings resolved to compensate Sanpoint for the surrender of its rights under the REC by a payment of $20,000, notwithstanding that no price had been offered by any bidder. Following the surrender, V8 Holdings transferred Sanpoint’s share in V8 Holdings to AMRP, and Sanpoint’s REC was novated in favour of AMRP.

64. I initially understood that V8 Holdings’ authority for taking these steps was to be found in cl 10.1(c) of the REC.

65. Clause 10.1(c), of course, provides that the price at which V8 Holdings might elect to compensate Sanpoint for the surrender of its REC must be “for substantially the same price (with substantially the same conditions) as those negotiated with the proposed purchaser by tender”. In the present case, there was no such price or conditions, because there were no bids. V8 Holdings made the following submission (at T 108.28):

[V8 Holdings] didn’t act under 10.1(c). What it did was effect a sale which was the purpose of the surrender under cl 5, acting within its absolute discretion under cl (a) but having complied with cl (b).

66. V8 Holdings explained this position by reference to the decision of Pembroke J in relation to a number of separate questions that his Honour has already decided in these proceedings. It will therefore be convenient to consider the separate questions and Pembroke J’s determination of those questions.

Separate questions determined by Pembroke J

67. As I have observed above, Sanpoint initially expressed its claim in a cross summons filed on 26 September 2014. Materially, the cross summons claimed the following relief:

1.   A declaration that, upon the proper construction of clause 10.1 of the Racing Entitlement Contract between V8 Supercars Australia Pty Ltd, Touringcar Entrants Group Australia Pty Ltd, the First Plaintiff and the Second Defendant (“Triple F REC”), the Special Majority of the board of directors of the First Plaintiff (“V8Holdings Board”) is only entitled to sell or otherwise dispose of the “Rights”:

a.   to a proposed purchaser by tender; or

b.   by paying to the Second defendant a price for the Rights that has been negotiated with a proposed purchaser pursuant to a tender to the market.

2.   A declaration that, upon the proper construction of clause 10.1 of the Triple F REC, if a tender to the market results in no proposed purchasers, the Rights may only be sold pursuant to a further tender to the market which results in a proposed purchaser by tender.

3.   A declaration that clause 10.1(a)-(c) did not contemplate or authorise the sale of the Rights by the First Plaintiff to the Second Plaintiff purportedly made on 28 August 2014.

4.   A declaration that, upon the proper construction of clause 5.1(d) of the Triple F REC, a surrender of Rights is conditional upon subsequent sale by tender in accordance with clause 10.1 of the Triple F REC so that a sale by tender does not take place, the Second Defendant retains ownership of the Rights.

5.   In the alternative to orders 1-4 above, a declaration that it is an implied term of the Triple F REC that the V8 Holdings Board is required to offer the Triple F REC to the market by tender in such a manner so as to achieve a price as commercially advantageous as possible having regard to the current market situation (the “Implied Term”).

6.   A declaration that, by reason of the relationship between the First Plaintiff and the Second Plaintiff, the Share Transfer, Novated Contract or Deed of Accession amounted in substance to a purported sale by the First Plaintiff to itself which is not a sale at all nor within the terms of clause 10.1 of the Triple F REC.

7.   A declaration that a tender as contemplated by clause 10.1(b) of the Triple F REC, or alternatively the Implied Term, did not take place prior to the execution of the Share Transfer, Novated Contract or Deed of Accession for reasons which include but are not limited to the failure by the First Plaintiff to: [there is then listed a number of alleged shortcomings in the tender process implemented by V8 Holdings].

8.   A declaration that the Share Transfer, Novated Contract or Deed of Accession are void or, alternatively, voidable and had no effect on the contractual rights of the Second Defendant under the Triple F REC.

…

11.   In the alternative to orders 8-10 above, a declaration that the Share Transfer, Novated Contract or Deed of Accession were entered into by the First Plaintiff in breach of the Triple F REC.

68. On 8 October 2014, Pembroke J by consent of the parties, made the following order for the determination of aspects of the claims made in the cross summons as separate questions:

1. Pursuant to rule 28.2 of the Uniform Civil Procedure Rules 2005, there be a decision on the following questions separate to all other questions in the case:

…

b.    the Second Defendant's entitlement to the relief claimed in paragraphs 1, 2, 4 and 6 (sic) 8-11 of the First Cross-Summons filed 26 September 2014

on the basis that

i.    each matter raises a question limited to the proper construction of the REC, and the hearing of the separate question will be so limited…

69. Pembroke J heard argument on the separate questions on 8 October 2014 and gave judgment on 13 October 2014: see [2014] NSWSC 1391. His Honour said:

[12] Having regard to those considerations, I have reached the view that Clause 10.1(b) does not compel a sale by tender. The clause simply does not say that the Rights must be sold by tender. Relevantly, the obligation is confined to "offering the Contract to the market by tender". That can occur without the Rights actually being sold by tender. The defendants' competing construction requires that some additional restriction, implication or qualification be read into Clause 10.1. The plaintiffs' construction adheres more faithfully to the actual language and syntax used in the clause.

70. Pembroke J held at [13] that it would be “inconvenient and probably also commercially absurd” if, after the tender process produced no bids, V8 Holdings was obliged by the REC to continually renew the tender process until a bid was received. His Honour held:

[14] … Having a market tender is a useful mechanism for ascertaining a market price. But an actual sale by tender is not required. The function of the tender process is to invite interested buyers to submit offers for the Rights. But when an offer is received, the Special Majority of the V8 Holdings Board (which includes a Teams representative) is not obliged by Clause 10.1(b) to accept the offer. Conversely, if no bid is received, the Special Majority is not precluded from selling to a third party, as long as the requirements of Clause 10.1(b) have been satisfied.

[15] Clause 10.1(c) is however different. Its language is unambiguous. And it deals with a different subject matter, namely the surrender or forfeiture of the Rights rather than their sale to a third party. The process of surrender or forfeiture by V8 Holdings involves the Class A preference share held by the Team being transferred to a nominee of V8 Holdings. The object of paragraph (b) is not quite the same as that contemplated by paragraph (c). And the choice of language in each paragraph is markedly different. Under paragraph (b), there need only be a process of 'offering the Contract to the market by tender'. In contrast, paragraph (c) requires that there must be a price 'negotiated with a proposer purchaser by tender'.

71. This aspect of Pembroke J’s judgment appears to say that, provided the tender process required by cl 10.1(b) has been carried out, in order to ascertain the most commercially advantageous price possible, the board of V8 Holdings is not obliged to sell the Rights to the highest bidder, but can sell those rights to a third party at the highest price. Clause 10.1(c) deals with a separate subject-matter, being the surrender or forfeiture of the Rights, and the transfer of the share in V8 Holdings to a nominee. In that case, the transaction can only occur on the basis of the price “negotiated with the proposed purchaser by tender”.

72. This appears to be the source of V8 Holdings’ submission at T 108.28, which I have set out above, that the surrender of Sanpoint’s Rights under its REC and the sale of its share in V8 Holdings did not take place under cl 10.1(c), but under, apparently, cl 10.1(a) and (b). The point appears to be that, because on 28 August 2014 V8 Holdings, as agent for Sanpoint, entered into a Racing Entitlement Contract and share acquisition agreement under which Sanpoint’s REC was novated in favour of AMRP, cl 10.1(c) was not enlivened, as the REC was not simply surrendered, but was effectively sold to AMRP.

73. While it is not entirely clear, with respect, what the commercial rationale could be for requiring that a surrender could only take place on terms and conditions negotiated with the proposed purchaser by tender, but a sale could take place subject only to a tender process having been undertaken, I should proceed upon the basis that the issue has been determined by Pembroke J’s judgment.

74. His Honour made the following order

1.   I dismiss the claims for relief in…prayers 1, 2, 4 and 6 of the first cross summons.

75. Consequently, for the purpose of these reasons for judgment it has been determined conclusively against Sanpoint that the REC did not have the effect of proscribing the sale or other disposition of the REC unless to a purchaser by tender, or by paying to Sanpoint a price that had been negotiated with a proposed purchaser pursuant to a tender (as claimed in prayer 1). The dismissal of the claim in prayer 2 has the result that, insofar as it depended upon the proper construction of the REC, V8 Holdings was not required to conduct a further tender if the initial tender resulted in no proposed purchasers. Sanpoint did not remain the owner of the REC if following its surrender the REC was not sold by tender (as claimed in prayer 4). Contrary to the claim in prayer 6, the sale by V8 Holdings to AMRP was not outside cl 10.1 on the basis that it was a sale by V8 Holdings to itself.

Sanpoint’s pleaded claim

76. After Pembroke J delivered his judgment on the separate questions, Sanpoint pleaded the basis of its claim by a cross claim filed on 12 March 2015.

77. Sanpoint amended its claim for relief, apparently to accommodate Pembroke J’s orders, and relevantly Sanpoint claimed the following relief:

2.   A declaration that a tender as contemplated by clause 10.1(b) of the Racing Entitlement Contract … did not take place prior to the execution of the Share Transfer, Acquisition Agreement or Deed of Accession for reasons which include but are not limited to the conduct of V8 Holdings in that it:

a)   delayed the conduct of the Tender from the date upon which the Rights were surrendered to V8 Holdings, being 1 January 2014, and conducted a tender process concluding 1 August 2014, such that any successful tenderer would have a period of less than 4 months to put itself in a position to submit an Entry Registration Form on 1 December 2014;

b)   failed to adequately advertise and/or manage the proposed sale of the Rights;

c)   failed to disclose to the market information relevant to the sale of the Rights and touching upon the value of the Rights including the existence of negotiations for the sale of shares in V8 Supercar Holdings Pty Limited by all teams competing in the V8 Supercar Championship (being holders of Racing Entitlement Contracts) to Archer Capital Ltd with the effect that each team would become entitled to receive the sum of approximately $500,000 per year for 6 years in exchange for the sale of that team’s shares in V8 Supercar Holdings Pty Ltd;

d)   provided potential purchasers of the Rights with a period of only two weeks from the announcement of the Tender to submit a mandatory Registration of Interest Form;

e)   failed to obtain any valuation of the Rights and any other independent expert opinion as to the market value of the Rights;

f)   failed to conduct a further market tender of the Rights in circumstances where no offers to purchase the Rights were made during the course of the Tender;

g)   sought to bring about the “retirement” of the Rights by means other than those provided by clause 10.1(c) of the Racing Entitlement Contract.

78. During the course of final submissions, Sanpoint abandoned all but one of the pleaded bases of V8 Holdings’ liability; that is breach of fiduciary duty (pars 24 to 30), unconscionable conduct (par 31), fraud on a power (pars 33 to 35), and ‘oppression’, being conduct in contravention of s 232 of the Corporations Act 2001 (Cth) (pars 36 and 37). The only remaining claim was a claim for breach of cl 10.1(b) of the REC (pars 23 and 32). Paragraph 23 of the cross claim also alleged that V8 Holdings had breached the implied term alleged in par 12 of the cross claim but Sanpoint did not support the existence of such an implied term or its breach in its final submissions.

79. Sanpoint’s case as finally put was a claim for damages against V8 Holdings for breach of cl 10.1 of the REC.

80. The grounds for the breach of cl 10.1 of the REC relied upon by Sanpoint were set out in par 23 of the cross claim. Sanpoint repeated each of the grounds that I have extracted above in respect of the declaration sought in prayer 2 of the claim for relief. Whereas prayer 2 was expressed to be on an inclusive and not exhaustive basis, par 23 of the pleading was drawn on the basis that it stipulated all of the grounds for breach relied upon. Paragraph 23 contains an additional ground (h) that is not included in prayer 2. (As par (g) of prayer 2 ends with a semicolon rather than a full stop, it may be that some error occurred in the typing of prayer 2). Sub-paragraph 23(h) is:

h)   sold the Rights for an amount less than the market value of the Rights as at the date upon which the Rights were sold.

81. In final submissions, Sanpoint further confined its case by abandoning some of the sub-paragraphs of par 23 of its cross claim; being sub-pars (b) and (g). Furthermore, Sanpoint said that it would only rely upon the claim in sub-par (e) in a defensive way if it was required to do so as a result of submissions made by V8 Holdings in its response to Sanpoint’s claim. As I understand it, V8 Holdings in its final submissions said that it would not make any submissions in relation to sub-par (e), so that allegation also falls away.

82. Sanpoint did not specifically support the claim for breach in par 23(d), being that only two weeks was given to potential purchasers to submit a Registration of Interest Form, but V8 Holdings treated that claim as being alive and answered it in its written submissions.

83. Sanpoint also did not support the claim in par 23(f), that V8 Holdings failed to conduct a further market tender where no offers to purchase the Rights were made during the course of the tender. It is not clear how this aspect of Sanpoint’s claim survived Pembroke J’s determination of the separate questions. The claim is in substance inconsistent with Pembroke J’s decision that, on the proper construction of cl 10.1 of the REC, V8 Holdings was not required to undertake a new tender if the initial tender yielded no bids. Although that ruling was based upon the proper construction of the term, and may not exclude a case that a new tender was required because of the events that happened, I do not understand Sanpoint to have attempted to make out a separate case that a new tender was required.

84. I do not understand Sanpoint to have formally abandoned its claim in par 23(h). However, Sanpoint did not support this aspect of its pleaded claim in its final submissions. This claim would depend upon cl 10.1(b) of the REC being given the more absolute of the two possible constructions formulated by V8 Holdings that I have set out above. V8 Holdings could only be in breach of cl 10.1 of the REC by selling the Rights for an amount less than the market value of the Rights if on its proper construction the provision required V8 Holdings to ensure that the most commercially advantageous price possible was obtained, which is at least arguably equivalent to obtaining the market value of the Rights. Sanpoint did not lead any evidence as to what the market value of the Rights was at the time the REC was assigned to AMRP. I will proceed on the basis that as a practical matter, Sanpoint has also abandoned this aspect of its claim. In any event, par 23(h) depends upon a construction of cl 10.1(b) of the REC that is incorrect, as it ignores the requirement that V8 Holdings is required to ensure that the price is as commercially advantageous as possible by offering the Contract to the market by tender.

85. Furthermore, the claim for damages that Sanpoint finally made was a claim based upon the value of the chance that it lost that its REC would have been sold for a higher price than $20,000 if the alleged breach by V8 Holdings of cl 10.1 of the REC had not occurred, rather than damages equal to the difference between the value of the REC and the amount received. That is also consistent with Sanpoint having abandoned its claim that the REC was breached in the manner set out in cl 10.1(h) of the cross claim.

Relationship between final claim and pleaded claim

86. There is an issue between the parties as to whether Sanpoint is precluded by the way it pleaded its claim in its cross claim from making the claim as put in its final submissions.

87. Sanpoint put its claim for breach by V8 Holdings of cl 10.1 of the REC in its final written submissions in the following terms:

9. Sanpoint’s case is that the tender process designed and implemented by [V8 Holdings] was in breach of that obligation in two important respects. The first is the timing of the tender and in particular the periods of time between the initial advertisements and the close of the tender (6 weeks) and the short period between the close of tenders on 1 August 2014 and the time it would be necessary for any team to have its sponsorship and other commercial arrangements finalised in order to be in a position to race in 2015. The second is the failure to disclose to interested bidders all details known to the directors of [V8 Holdings] concerning the prospective potential restructure being considered by Archer at the time.

88. The first issue between the parties arises in relation to the first basis of Sanpoint’s claim. The first basis expressed by Sanpoint in par 9 of its written submissions in fact contained two components. The first concerned the allowance of only six weeks between the initial advertisements and the close of the tender. The second concerned the alleged inadequacy of the time between the close of the tender and the time it would take for any new Team to have its sponsorship and other commercial arrangements finalised in order to race in 2015.

89. V8 Holdings first raised the suggestion that Sanpoint was departing from its pleadings during Sanpoint’s oral opening, when V8 Holdings’ senior counsel said that “some of the ideas developed this morning are entirely new to the cross defendants” and continued (T 32.40):

… And I’ll include amongst those ideas, the suggestion that V8 Holdings was at fault for not delaying the tender until after the Archer deal. The complaint made in the pleading is that the fault of V8 was to delay until late June or early July, there is no complaint that there should have been a further delay, nor is there any suggestion in the pleading of an improper purpose.

Well, my friend said in opening something about a conscious and deliberate decision to delay, that might just be adjectival background, but it certainly forms no part of any case, either in the pleading or even in the outline we got last week, and there is no evidence addressing the purpose that we’ve put on, either documentary or witness. Nor have we addressed in evidence the reasons why it would be impossible to delay the tender until after the conclusion of a restructure, because that has never formed part of the case.

While I’m on the topic, nor is the suggestion that the value of the [REC] is somehow informed by the greenmail idea that my friend did address in writing last week, and briefly on his feet, or indeed any suggestion that the value of the [REC] is informed by anything other than what happened in the tender. There’s no suggestion in the pleading that your Honour – or that the court has to take into account, or even consider events that happen from the end of the tender until the sale.

90. V8 Holdings’ senior counsel repeated on a number of occasions that it was not part of Sanpoint’s pleaded case that V8 Holdings should have waited until the deal with Archer was done before going to tender (T 70.34), that the events that happened in August after the tender are relevant (T 105.10), that the only complaint made is about the period of two weeks that people were given to submit a mandatory registration of interest form, and that there was no pleaded claim that the length of time that the due diligence period was open was inadequate (T 105.50), there was no claim that the tender should have been put off because of the negotiations with Archer (T 108.40), and there was no case pleaded that anything that happened during the course of the tender required V8 Holdings to extend the tender or have a new tender (T 107.5).

91. In my view, V8 Holdings’ fears that Sanpoint was departing from its pleaded case were not misplaced.

92. Upon a fair analysis, the first basis of Sanpoint’s case that it articulated in par 9 of its final written submissions is essentially the same as that pleaded in par 23(a) of the cross claim, although it is put in slightly different words. The first basis of Sanpoint’s claim is that V8 Holdings, by delaying the commencement of the tender so that it was required to be conducted in the 6 week period concluding on 1 August 2014, did not leave sufficient time for any Team to have its sponsorship and any other commercial arrangements finalised in order to be in a position to race in 2015.

93. However, the case that Sanpoint developed in paragraphs 11 to 15 of its final written submissions extends well beyond the first case outlined in par 9.

94. Sanpoint starts at par 11 by submitting that those in control of the tender process were conscious of the negotiations with Archer and the importance of some restructure with Archer being implemented “at the time they nominated the tender time periods”. That submission is supported by reference to the nine documents listed in sub-pars 11(a) to (i). Those documents will be considered below. Put broadly, they are capable of supporting a conclusion that it was essential for the remaining Teams to negotiate a new structure for V8 Supercars racing so that the Teams could be assured of receiving substantially more income each year to defray the operating losses that many of the Teams were suffering. That new deal had to be struck as soon as possible so that many Teams would not surrender their RECs on 1 January 2015, as if that happened it could jeopardise the viability of V8 Supercars racing as there would be insufficient cars to satisfy obligations to sponsors and advertisers. The decision was made that the timing of the tender process should be selected so that the tender ended before the deal with Archer was concluded. Sanpoint submitted that one consequence of that decision was that the time that was allowed for the whole of the tender process was too short. Another consequence was that potential bidders could not be told that a deal that made the REC more viable had been struck with Archer before the tender process was concluded.

95. Sanpoint relied in par 12 on a statement made by the general counsel of V8 Holdings that in ordinary circumstances the tender process would take many months, and submitted that the only factor that was out of the ordinary was the negotiations with Archer.

96. Sanpoint submitted in par 13 that the court should conclude that the timing of the tender process was inadequate because V8 Holdings had not followed its general counsel’s advice because of a desire to complete the tender process before any restructure, and that doing so was for the benefit of the other Teams and the overall organisation.

97. The extension of Sanpoint’s claim beyond its pleaded case becomes obvious from par 14 of its final written submissions, wherein it states that “(an)other aspect of the complaint about timing is the short period between the close of tenders and September when…it would be necessary for any team to have its sponsorship and other contractual arrangements finalised”. This other aspect of the complaint is the only aspect pleaded in par 23(a) of the cross claim.

98. Sanpoint concluded by submitting in par 15:

Accordingly, the court should conclude that not only were the time periods imposed by the tender manifestly too short the actual timing of the tender in relation to the following season was itself wholly inappropriate.

99. That submission confirms that Sanpoint seeks to make a case that goes beyond the case that it pleaded.

100. It is worth observing at this stage that there is some tension in the case that Sanpoint has ultimately sought to make in relation to the times at which the tender process was commenced and completed, and the overall length of the tender. Sanpoint now wishes to complain that V8 Holdings wrongly truncated the tender process so that it ended before the restructure agreement with Archer could be made, but it also complains that there was not enough time between the end of the tender and the time when any new Team had to have its sponsorship and other arrangements in place to be ready to be able to race in 2015. Any lengthening of the tender process to cause the tender to finish after the deal with Archer was done would have given the new Team even less time to make the necessary arrangements to race in 2015.

101. Sanpoint did not seek to make a case that the agreement with Archer could have been made earlier if V8 Holdings had sought to do so, and a submission to that effect could not be sustained because the agreement had to be reached between Archer and the remaining Teams. The only way that the period of the tender could have been increased in a manner that still gave the successful bidder time to make sponsorship and other arrangements would have been for the tender process to start earlier. That would not, however, solve the problem of the tender process ending before the Archer agreement had been made. In any case, senior counsel for Sanpoint appears to have accepted that “the question of when the tender actually happens is a matter for [V8 Holdings]”, and that “(w)e take no issue with the decision they made at that point and say it was within the contractual provisions, and it was a sensible thing to do” (T 80.39). Sanpoint did not appear to complain that V8 Holdings started the tender too early, as it would not have been in Sanpoint’s interests for V8 Holdings to have tried to complete the tender process early enough to enable any successful bidder to commence racing in March 2014 for the 2014 racing season.

102. The relevant principles concerning the circumstances in which a party should be confined to its pleadings have been set out authoritatively by Ipp JA, with whom Giles and Hodgson JJA relevantly agreed, in Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd (2009) 73 NSWLR 653; [2008] NSWCA 206, and it will be appropriate for me to set out his Honour’s reasons fully, so far as they are relevant to the present issue:

[419] In Dare v Pulham the High Court said (at 664):

Pleadings and particulars have a number of functions: they furnish a statement of the case sufficiently clear to allow the other party a fair opportunity to meet it; they define the issues for decision in the litigation and thereby enable the relevance and admissibility of evidence to be determined at the trial; and they give a defendant an understanding of a plaintiff’s claim in aid of the defendant’s right to make a payment into court. Apart from cases where the parties choose to disregard the pleadings and to fight the case on issues chosen at the trial, the relief which may be granted to a party must be founded on the pleadings. (footnote omitted)

[420] As to the importance of pleading issues clearly and the obligations of parties in this regard, Allsop J observed in White v Overland [2001] FCA 1333 (at [4]):

[B]y way of general principle I would simply like to make perfectly plain my view that in the efficient and proper conduct of civil litigation, even civil litigation hard fought between parties, it should always be recognised that in the propounding of issues for trial the parties should take steps to ensure that all relevant parties to the dispute are cognisant of what the issues are. Any practice of quietly leaving footprints in correspondence or directions hearings to be uncovered some time later in an attempt to reveal that a matter was always in issue should be discouraged firmly. Even if something has been said, where it is evident, or indeed suspected, that the other side is proceeding on the basis of a misconception or has not appreciated something, as a general rule, efficiency, common sense and an appreciation of the costs and resources (both public and private) likely to be wasted by confusion in litigation will mandate that a party through his or her representative ensure that the other is not proceeding on a misconception or that the other does appreciate something that has been said. Litigation is not a game … In the long run, the only consequence of keeping issues hidden or not clearly identifying them is to disrupt the business of the court leading to the waste of valuable public resources and to lead to the incurring of unnecessary costs by the parties, costs which ultimately have to be borne by someone.

These observations were approved by Heydon JA in Nolan v Marson Transport Pty Ltd [2001] NSWCA 346; (2001) 53 NSWLR 116 (Mason P and Young CJ in Eq agreeing) at [29], 128.

[421] Recently, in Baulderstone Hornibrook Engineering Pty Ltd v Gordian Runoff Ltd [2008] NSWCA 243, Allsop P returned to the topic. His Honour emphasised (at [160] to [165]) the need for clarity, precision and openness in delineating the issues in a long and complex trial in the Commercial List. His Honour stressed that any matter that may cause surprise must be pleaded. He observed (at [162]):

Indeed, from the late 1970s and early 1980s, the Commercial List of this Court … has been sought to be run on the strict basis of the clear and full enunciation of issues for trial, in a way that has always demanded the fullest co-operation among parties and legal practitioners to delineate and illuminate the real issues in dispute.

[422] At trial, there may be a departure from the pleadings where adherence to them would be unjust or unfair. In Banque Commerciale SA (In Liq) v Akhil Holdings Limited [1990] HCA 11; (1990) 169 CLR 279 Mason CJ and Gaudron J said at (286–287):

The function of pleadings is to state with sufficient clarity the case that must be met: In this way, pleadings serve to ensure the basic requirement of procedural fairness that a party should have the opportunity of meeting the case against him or her and, incidentally, to define the issues for decision. The rule that, in general, relief is confined to that available on the pleadings secures a party's right to this basic requirement of procedural fairness. Accordingly, the circumstances in which a case may be decided on a basis different from that disclosed by the pleadings are limited to those in which the parties have deliberately chosen some different basis for the determination of their respective rights and liabilities.

Ordinarily, the question whether the parties have chosen some issue different from that disclosed in the pleadings as the basis for the determination of their respective rights and liabilities is to be answered by inference from the way in which the trial was conducted. It may be that, in a clear case, mere acquiescence by one party in a course adopted by the other will be sufficient to ground such an inference.

[423] Dawson J (at 293) quoted the following statement by Isaacs and Rich JJ in Gould and Birbeck and Bacon v Mount Oxide Mines Ltd (In Liq) [1916] HCA 81 ; (1916) 22 CLR 490 at 517:

But pleadings are only a means to an end, and if the parties in fighting their legal battles choose to restrict them, or to enlarge them, or to disregard them and meet each other on issues fairly fought out, it is impossible for either of them to hark back to the pleadings and treat them as governing the area of contest.

And observed: (at 296–7):

But modern pleadings have never imposed so rigid a framework that if evidence which raises fresh issues is admitted without objection at trial, the case is to be decided upon a basis which does not embrace the real controversy between the parties. Special procedures apart, cases are determined on the evidence, not the pleadings.

[424] The following propositions may be extracted from these authorities:

(a) The rule that, in general, relief is confined to that available on the pleadings secures a party's right to a basic requirement of procedural fairness.

(b) Apart from cases where the parties choose to disregard the pleadings and to fight the case on additional issues chosen at the trial, the relief that may be granted to a party must be founded on the pleadings.

(c) It may be that, in a clear case, mere acquiescence by one party in a course adopted by the other will be sufficient to ground an inference that the parties have chosen a different basis to the pleaded issues for the determination of their respective rights and liabilities.

(d) Acquiescence giving rise to a departure from the pleadings may arise from a failure to object to evidence that raises fresh issues — it is in this sense that “cases are determined on the evidence, not the pleadings”.

(e) While cases are to be decided upon a basis that embraces the “real controversy” between the parties, the real controversy has to be determined in accordance with the principles stated.

[425] The next point is that a departure from the pleaded issues is a matter for the discretion of the trial judge. In Mummery v Irvings Pty Ltd Dixon CJ, Webb, Fullagar and Tayor JJ said (at 112):

There is, of course, no doubt that the question of extending the issues [on the pleadings] at the trial was peculiarly within the discretion of the trial judge.

[426] In Coal and Allied v AIRC [2000] HCA 47; (2001) 203 CLR 194 Gleeson CJ, Gaudron and Hayne JJ said (at [19]):

Discretion” is a notion that “signifies a number of different legal concepts”. In general terms, it refers to a decision-making process in which “no one [consideration] and no combination of [considerations] is necessarily determinative of the result”. Rather, the decision-maker is allowed some latitude as to the choice of the decision to be made. (footnotes omitted)

[427] The High Court has occasionally used the language of “duty” in speaking of circumstances under which a trial judge should allow a case to be decided on the basis of issues not revealed by the pleadings. In Leotta v Public Transport Commission (NSW) Stephen, Mason and Jacobs JJ spoke (at 668) of “the duty of the trial judge to leave the issue of negligence to the jury”. In Banque Commerciale SA (In Liq) v Akhil Holdings Ltd, Dawson J said (at 297):

It is incumbent upon the trial judge to see that the pleadings or particulars are amended so that the record reflects the proceedings as they have been conducted, but his failure to do so will not result in the invalidity of those proceedings

.

[428] These observations have to be seen in the wider context of the well-settled rule that the question whether cases are to be resolved by reference to issues beyond those pleaded is a matter for the discretion of the trial judge. The statements of the kind to which I have referred in the preceding paragraph were made in a context where, not to go beyond the pleadings, would be “unreasonable or plainly unjust” (House v R [1936] HCA 40; (1936) 55 CLR 499 at 504–505). See also State of Queensland v JL Holdings Pty Ltd [1997] HCA 1; (1997) 189 CLR 146 at 173 per Kirby J.

103. It will be convenient to defer the issue of whether Sanpoint should be permitted to prosecute any claim that was not pleaded in its cross claim until after the consideration of the facts and the claims that were pleaded.

Background to surrender of REC

104. In 2009, Sanpoint purchased its original racing entitlement contract and one share in TEGA.

105. In 2011, a restructure occurred of the way the V8 Supercars Championship operated. As part of the restructure, Sanpoint entered into the REC the subject of these proceedings, entered into an agreement called the Car of the Future Agreement, and sold its TEGA share. Sanpoint received $3,523,958.58 as consideration for the restructure. It also received a single share in V8 Holdings.

106. One relevant effect of the restructure is that Archer received a 65% economic interest in V8 Holdings and all of the Teams retained 35%.

107. Under the Car of the Future Agreement, Sanpoint became entitled on signing to $1,100,000, as well as monthly payments totalling $196,491.23 for 2011, $240,701.75 for 2012, and $95,438.60 for 2013. These payments helped defray the operating costs of participating in the V8 Supercars Championship.

108. The primary significance of the payments that Sanpoint received under the Car of the Future Agreement is that the payments stopped at about the time that Sanpoint decided to surrender its REC, so that any purchaser of the REC would not receive any continuing benefit under the agreement.

109. Sanpoint made operating losses each year following its entry into the new REC. Sanpoint made a net profit of $1,220,300 for the year ended 30 June 2011 after a capital gain on the restructure of $1,217,310, and the Car of the Future Payments of $1,128,310. Its underlying operating loss was $1,125,320. In the following years, after receiving appearance money and Car of the Future Payments, Sanpoint made net losses of $316,160 (2012), $437,979 (2013), and $198,244 (in respect of the REC surrendered on 1 January 2014).

110. At all relevant times, in Sanpoint’s annual financial statements, its REC was given a value of one dollar and its share in V8 Holdings was valued at $58,085.

111. Immediately before Sanpoint decided to surrender its REC, it had determined an operating budget for racing in 2014 that suggested costs of about $1.8 million.

Surrender of REC

112. In an email to his father Frank on 12 November 2013, with copies to other members of the Fiore family, Deane Fiore suggested that the only sensible course for Sanpoint was to surrender its REC. He said that it was the “best option as it is free of any liability to run a car and/or receive a fine for not turning up”. Mr Fiore suggested that there were two things that could happen if the REC was surrendered. First, the REC would get put out to tender and Sanpoint would get all of the proceeds, less legal and administrative fees. Secondly, the board of V8 Holdings might decide that it was a bad time to put the REC out to tender and the REC would get ‘shelved’ for a year, in which case Sanpoint could buy the REC back.

113. It may be of some significance that not only did Mr Fiore say that it would be a struggle for Sanpoint to run the car itself, but also that it would be a struggle to “lease it out properly”. That suggests that Mr Fiore believed that it was unlikely that anyone who was competent to do so would be available to lease Sanpoint’s REC. That may be material to the issue of whether there were potential buyers in the market for RECs.

114. In the events which happened, V8 Holdings put the REC out to tender, even though it was arguably a bad time to do so, and no bids were received. V8 Holdings did not shelve the REC as Mr Fiore contemplated by his second alternative.

115. Mr Fiore ended his email by saying:

Scary to think it might come to this, but the alternative is to throw money at keeping it alive and if you look at it as every dollar spent to keep it alive is money we won’t get back, then it doesn’t take much before the thing is worth nothing anyway!

116. This observation by Mr Fiore is also material to the question of what the REC was worth, in the sense of the price that might be obtained for it.

117. On 1 December 2013, Mr Fiore advised James Warburton, the CEO of V8 Holdings, that Sanpoint was unable to return its REC registration form on that day. Mr Fiore sought an extension of the registration date, in order to pursue the possibility of receiving the sponsorship necessary to enable Sanpoint to race in 2014.

118. On 3 December 2013, V8 Holdings responded by saying that on 1 January 2014, the REC would be surrendered, and V8 Holdings would tender the REC to the market.

119. On 1 December 2013, two other holders of RECs, being Lucas Dumbrell Investments and Al d’Alberto, also failed to submit the necessary registration form to V8 Holdings.

120. At a meeting of the board of V8 Holdings held on 9 December 2013, Mr Warburton noted that up to three RECs could be handed back before the commencement of the 2014 season. Mr Warburton advised that “although some of the sanction agreements required a minimum number of 26 cars to race”, he would take steps to manage this problem.

Events subsequent to decision to surrender REC

121. On 18 December 2013, V8 Holdings issued a press release in relation to a six-year media deal that it had entered into with Foxtel, Fox Sports and the Ten Network. The deal involved $241 million across six years, of which $196 million was in cash, and $45 million was in advertising.

122. On 20 December 2013, Mr Warburton sent an email on behalf of V8 Holdings to all of the Teams, including Sanpoint, concerning distributions and 2014 appearance money. The email dealt with over-distributions, which involved payments to Teams in a given year in excess of the amounts to which they were entitled. Over-distributions had to be repaid in subsequent years. There had been a $2.9 million over-distribution in 2012 that had been deferred until 2014. There was a further over-distribution of $2.7 million in 2013. The email included:

As a result of the above the Board has set the Appearance Money for 2014 at a level to recover all of the outstanding carried forward over distribution from 2012 with the remaining element of the 2013 over distribution not being covered by the Media Rights above being deferred until 2015.

With three REC’s not meeting the entry date, distributions have been calculated on the basis of an equal share of 25 and on this basis the total gross distribution for 2014 per REC is $208,116 which is an increase of $40,116 on the 2013 total. Once you account for hockers, tyres, DVS costs and AGP prize money this represents a cash payment of $31,950 (excl GST) per REC.

123. The $31,950 would be the amount distributed to each of the 25 cars in the 2014 year, after payment of the costs referred to out of the gross distribution of $208,116. The email announced that, as a result of a three year fuel deal, fuel prices would be reduced by approximately 50% on 2013 fuel prices. The email forecast: “2014 will be a tough year, but with our Media Rights now locked in for 2015 at an all-time record we have an end goal of historically high EBIT for the company with much work to do”.

124. On 17 December 2013, one of the existing REC holders, Nemo Racing Pty Ltd, entered into a contract with SJB Racing Pty Ltd to sell its REC, together with its share in V8 Holdings. The completion date was 1 January 2014, and the price was $800,000 excluding GST. The whole of the purchase price was required to be paid on completion.

125. There is no evidence about the circumstances in which this sale took place, other than the REC and share acquisition agreement itself. However, there is also nothing in the evidence to suggest that the agreement was other than a straight sale of the REC and share for a price payable on completion.

126. On 3 January 2014, Mr Warburton wrote an email to Dean Fiore and said:

At this stage we have been talking to potential buyers of REC’s and discussing options. It will be a matter for the Board to consider which will happen when everyone is back, probably not until mid Jan.

I believe that we will ‘shelve’ the REC’s for 2014 ahead of a tender for 2015 to realise the best value possible.

127. There was no evidence concerning the discussions with potential buyers of RECS or who those buyers were.

128. The parties were agreed that the suggestion that the RECS would be shelved for 2014 did not mean that the tender process would not be implemented until 2015. The racing calendar commenced in March of each year. If V8 Holdings had tried to sell the RECS by tender on the basis that the purchasers would start to race in March 2014, that would have left almost no time for the process to occur. Instead, what was suggested was that the RECS would be put to tender on the basis that any purchasers would not be expected to start to race until March 2015. The proposal would involve the tender process occurring during 2014.

129. On 28 January 2014, an adviser by the name of Tim Miles wrote a memorandum to Mr Mehrotra, one of Archer’s directors on the board of V8 Holdings, with a copy to Mr Warburton, in which he considered the future of V8 Supercars racing. Mr Miles appears to have had considerable experience in motorsports over a number of decades. The memorandum dealt with risks to the sport, apparently in the context of Archer’s aspiration to sell its stake in the sport. Mr Miles said :

Over the past few months, I have become increasingly aware of the looming risks to V8SC – which, in my opinion, did not exist 12 months ago. Unfortunately, it has been easier to identify the risks than any potential solutions, however, I would welcome the opportunity to discuss some ideas with you.

130. Mr Miles set out his view of the current status of the V8 Supercars operation in the following terms:

2.1 Team Composition

In 2014 there will be 25 cars on the grid – which could be categorised as;

a)   19 cars – entered by teams operating as long-term sustainable businesses. Of these, in 2013:

i. 2 – Were profitable,

ii. 7 – Broke even or made a small loss,

iii. 10 – Made a significant loss.

b)   6 cars – entered by teams with a “benefactor owner”.

2.1 Team income Requirements

To run “the show” (if there are 25 cars) the total income required is at least $60M ($2.4M average per car). However, for a sustainable business, the teams need to be highly competitive and this means the actual “per car spend” varies from $2M per car to $5.25M per car.

…

On these estimates, there will be a (cumulative) $23M loss, to be split between; benefactor owners ($11M, or $1.8M ave per car) and team trading losses ($12M, or $650K ave per car).

131. Mr Miles identified two substantial risks to the viability of the V8 Supercars operation. The first involved, for the first time in 14 years, a competing series that was in a position to challenge V8 Supercars’ position as ‘the only game in town’. This was what was called the GT Championship. This was apparently a recognised class of vehicle that had championships in Europe, America, Japan and Australia. The second risk was the Team trading performance. Mr Miles gave the following summary:

In summary, whilst these two key risks exist at the same time, there is a very real danger that AGT will (inadvertently) grow as it will continue to attract the stars. In parallel, teams are ever more likely to move to AGT – as it makes better business sense (and the international flavour of the series makes it seem like more fun).

351. Senior counsel for Sanpoint acknowledged in submissions that the disclosure of the information of which V8 Holdings became aware during the due diligence period “would of course scare the market off”: see par 245 above. He was clearly right.

352. The only additional information concerning the possibility that Archer would agree to the restructure with the remaining Teams after the data room was opened is to be found in Archer’s internal document dated 21 July 2014. Even if cl 10.1(b) required V8 Holdings to disclose any of this information to the registered bidders, which I have found that it was not required to do, it would have been necessary for it to find a way to contact the bidders and to inform them that there was additional information in the data room that they may find material to their deliberations. Sanpoint’s submissions did not deal with this problem. It is questionable that the obligation imposed upon V8 Holdings to conduct a tender process obliged that company to revise the information in the data room, if that introduced a concomitant requirement that V8 Holdings monitor the access by registered bidders to the data room, and communicate with them to ensure that all had equal access to the information included after the commencement of the process.

353. All of this analysis leads to the conclusion that, when the evidence is considered in detail, there is no reason to conclude that the provision of that information would have encouraged potential bidders to make a bid. On the contrary, it would probably have tended to scare them away.

354. Although Sanpoint challenged the sufficiency of the information that V8 Holdings included in the data room concerning the state of negotiations between Archer and the remaining Teams about the restructure, it did not plead that there was anything specifically wrong with the actual disclosure included in the Information Memorandum. That is, Sanpoint did not specifically challenge the wording of the disclosure.

355. That wording, in any case, was more expansive than the wording recommended by Ernst & Young in the course of the preparation of the Information Memorandum, where Ernst & Young made the recommendation: “We would perhaps limit the information on the implications of the Archer transaction to something like ‘this may impact the final arrangements for future years’”.

356. There is force in V8 Holdings’ submission that, if anything, the actual disclosure that was made may have been more optimistic than was shown to be warranted by future events. Although, after the tender process ended, Mr Mehrotra negotiated a deal with the remaining Teams that would have given them a fixed distribution for six years in return for the transfer of the Teams’ remaining 35% interest in V8 Holdings to Archer, that deal was subsequently withdrawn by Archer, and replaced by an agreement that gave the Teams a greater share in the EBIT that was generated by the V8 Supercars Championship. As finally agreed, the Teams’ entitlement to distributions was proportional to the actual profits generated. Had V8 Holdings created too strong an impression that the incomplete negotiations were likely to lead to guaranteed distributions each year, it would have been at risk of having misled and deceived potential bidders.

357. I conclude that Sanpoint has failed to make out the case that it alleged in par 23(c) of the cross claim.

Adequacy of two week period for registrations of interest

362. The only specific complaint that Sanpoint pleaded concerning the adequacy of the time allowed by V8 Holdings for the tender process was the complaint that two weeks was insufficient time for the submission of a Registration of Interest Form: see cross claim par 23(d).

363. I do not understand Sanpoint to have submitted in its final submissions that allowing only two weeks for expressions of interest was a separate breach of cl 10.1(b) of the REC.

364. I would, in any case, accept V8 Holdings’ submission that the evidence does not establish that the two week period was inadequate.

365. The evidence establishes that the appropriateness of the two week period was recommended by Ernst & Young, and was specifically considered by the board of V8 Holdings.

366. The advertising undertaken by V8 Holdings of the opening of the period for lodging expressions of interest was thorough and extensive: see par 202 above.

367. There is force in the view expressed by Mr Dane on a number of occasions that it was highly likely that parties who were realistically in a position to contemplate buying a REC would have been closely connected with V8 Supercar racing, and be in a position to take the simple step of registering their interest in a short space of time.

368. Registrants were required to complete a form expressing interest, and to execute a confidentiality deed. Thirteen requests for those documents were received on 24 or 25 June 2014, within a day or two of the first notice to the market of the tender. After the initial expression of interest in the first two days, only one other independent person contacted Mr Hogarth to request the expression of interest documents. That person, Mr Grove, requested the documents on 6 July 2014 but did not return them. No other person requested the expression of interest documents after 25 June 2014.

369. Finally, Mr Dean Fiore was told of the timeframe for the tender (including the two week period for submission of registrations of interest), and invited to contact V8 Holdings if he had any concerns regarding the content of the tender. Mr Fiore made no complaint about the adequacy of the two week period.

370. Sanpoint has failed to establish that allowing only two weeks for the submission of expressions of interest was a breach by V8 Holdings of cl 10.1(b) of the REC.

Completion of tender before restructure

371. Sanpoint seeks to make a case that V8 Holdings breached cl 10.1(b) by limiting the time for the tender process to a shorter time than was usual or appropriate, in order for V8 Holdings to decide what to do following the tender (being to decide whether to compensate Sanpoint for the surrender of the REC under cl 10.1(c)) in order to facilitate the subsequent completion of the restructure negotiations between Archer and the remaining Teams, which was essentially for the benefit of the remaining Teams rather than Sanpoint. Alternatively, Sanpoint claimed that V8 Holdings should have extended the tender period to capture the benefit of the initial restructure agreement that was struck between Mr Mehrotra and the Teams (but subsequently abandoned by Archer).

372. In my view Sanpoint is precluded by the terms of its cross claim from making either of these claims.

373. First, neither claim is specifically pleaded in the cross claim.

374. Secondly, Sanpoint was specifically warned during its oral opening that it was exceeding the boundaries of its pleaded claim (see par 89 above). Sanpoint did not seek to amend its cross claim.

375. Thirdly, I am satisfied that the parties (and in particular V8 Holdings) did not contest these claims in any substantial way, and I accept the assurance from senior counsel for V8 Holdings that they raise evidentiary questions that had not been addressed by V8 Holdings’ witnesses or its documentary evidence.

376. In terms of the principles discussed by the Court of Appeal in the Ingot Capital Investments case, set out above at par 102, Sanpoint should be confined to its pleaded case.

377. The evidence (such as it is) does establish that Mr Hogarth at least initially thought that the tender process was too short. It also establishes that the board of V8 Holdings decided to complete the tender process before the remaining Teams and Archer finally addressed the terms of the restructure in earnest. The restructure was agreed in principle soon after the tender period ended (before the CEO of Archer intervened and rejected the tentative agreement, with the result that it was replaced by a materially different one in October 2014).

378. However, it would not follow from those circumstances alone that it would be a breach by V8 Holdings of cl 10.1(b) for it to decide to complete the tender process before the terms of any restructure were agreed.

379. There was no certainty that Archer and the remaining Teams would ever reach an agreement on the restructure, even though all interested parties probably thought that a restructure had to be agreed because the alternative of the collapse of V8 Supercars racing was unthinkable.

380. Any delay by V8 Holdings of the tender process until a restructure agreement had been made may have been indefinite. As it is, the delay would have had to be to at least October 2014.

381. V8 Holdings was obliged by cl 10.1(b) of the REC to put the REC to tender in a way that had “regard to the current market situation”. It is highly doubtful that on its proper construction of the word “current” was elastic enough to extend to requiring (or even entitling) V8 Holdings to defer the tender until the conclusion of negotiations of uncertain duration or outcome.

382. Further, the new case that Sanpoint sought to raise was inconsistent with the case that it pleaded.

383. Sanpoint alleged in its pleaded case that the tender process finished too late, because any party that had bid to acquire its REC would not have had sufficient time to take specific steps necessary to enable it to be in a position to start racing in March 2015. As Sanpoint also pleaded that the registration of interest period was too short, the implication of Sanpoint’s pleaded claim is that cl 10.1(b) of the REC required V8 Holdings to commence the tender process and end it significantly earlier than occurred.

384. The only way Sanpoint could have run its pleaded case consistently with its new case is it if it was in a position to establish that V8 Holdings could have caused the parties who were negotiating the restructure to reach an agreement before the earlier end of the tender process. Although V8 Holdings was an interested party, and through Mr Warburton attempted to facilitate the agreement, the parties to the negotiations were Archer and the remaining Teams. V8 Holdings was not in a position to ensure that the negotiating parties ever reached an agreement, let alone that they did so within a time frame measured against an earlier end to the tender process.

385. Whatever may be the validity of these considerations, I am satisfied that the new case that Sanpoint sought to run at the hearing raised many contentious issues that were not fully addressed in the evidence, and it would not be procedurally fair to V8 Holdings to permit Sanpoint to run its new case.

386. Sanpoint’s claim that V8 Holdings ought to have extended the tender period to capture the agreement reached in principle between Archer and the remaining Teams in August 2014 seemed to be somewhat of an afterthought. It also was not pleaded.

387. There is no basis to support Sanpoint’s claim that V8 Holdings, having formally committed itself to a tender process on specific terms, was obliged to casually extend the due diligence period for whatever time it may take for Archer and the remaining Teams to reach a final restructure agreement. As there was no assurance that an agreement would be reached, such a casual extension of the tender process would have been a breach of cl 10.1(b) of the REC, and also in all probability of V8 Holdings’ obligations to parties who had registered to participate in the tender process.

Damages

388. The question whether Sanpoint has established that it suffered recoverable damage as a result of any breach by V8 Holdings of cl 10.1(b) of the REC does not, given the findings I have made above, arise.

389. However, in case I am wrong in those findings, I should set out my reasons for finding that Sanpoint has also not established that it is entitled to an award of damages.

390. In submissions, Sanpoint put a case that it suffered damage that should be measured in terms of the value of the chance that it lost that someone would have submitted a bid to acquire its REC at a price greater than $20,000.

391. V8 Holdings complained that Sanpoint had not formulated its damages claim in its cross claim in terms of the value of a chance that it lost as a result of the alleged breaches of the REC by V8 Holdings. I am satisfied, however, that the terms in which Sanpoint pleaded its cross claim do not preclude it from seeking damages based on the loss of a chance.

392. The parties were agreed that the principles governing how the court should determine whether a loss has been suffered in these circumstances, and how that loss should be quantified, were as considered by the High Court in Sellars v Adelaide Petroleum NL (1994) 179 CLR 332 at 355; [1994] HCA 4 at [38]-[39], in the following terms:

Notwithstanding the observations of this court in Norwest, we consider that acceptance of the principle enunciated in Malec requires that damages for deprivation of a commercial opportunity, whether the deprivation occurred by reason of breach of contract, tort or contravention of s 52(1), should be ascertained by reference to the court's assessment of the prospects of success of that opportunity had it been pursued. The principle recognised in Malec was based on a consideration of the peculiar difficulties associated with the proof and evaluation of future possibilities and past hypothetical fact situations, as contrasted with proof of historical facts. Once that is accepted, there is no secure foundation for confining the principle to cases of any particular kind.

On the other hand, the general standard of proof in civil actions will ordinarily govern the issue of causation and the issue whether the applicant has sustained loss or damage. Hence the applicant must prove on the balance of probabilities that he or she has sustained some loss or damage. However, in a case such as the present, the applicant shows some loss or damage was sustained by demonstrating that the contravening conduct caused the loss of a commercial opportunity which had some value (not being a negligible value), the value being ascertained by reference to the degree of probabilities or possibilities. It is no answer to that way of viewing an applicant's case to say that the commercial opportunity was valueless on the balance of probabilities because to say that is to value the commercial opportunity by reference to a standard of proof which is inapplicable.

393. The first step is that Sanpoint must prove on the balance of probabilities that it has sustained some loss or damage as a result of the alleged breaches by V8 Holdings. As Sanpoint put it in par 25 of its final written submissions:

The question of damages needs to be analysed with care. The first step is can Sanpoint prove on the balance of probabilities that had the tender process been properly conducted, a better price would have been obtained. If that question is answered in the affirmative then what is in essence a loss of a chance can be valued by assessing the chance…

394. Sanpoint had to establish that, if the tender process had been conducted in a manner that did not involve the breaches alleged by Sanpoint, on the balance of probabilities a bid would have been made for Sanpoint’s REC that would have led to Sanpoint receiving a greater return for the sale of its REC than it in fact received.

395. I accept V8 Holdings’ submission that the common law test of balance of probabilities will not be satisfied by evidence that fails to do more than establish a possibility: Seltsam Pty Ltd v McGuiness (2000) 49 NSWLR 262; [2000] NSWCA 29, [81] (Spigelman CJ). As Beach J said in Siegwerk Australia Pty Ltd v Nuplex Industries (Aust) Pty Ltd [2016] FCA 158; (2016) 334 ALR 443:

[86] It is not sufficient that the circumstances give rise to conflicting inferences of an equal degree of probability or plausibility or that the choice between them can only be made by conjecture (Coastwide Fabrication & Erection Pty Ltd v Honeysett [2009] NSWCA 134 at [60] per McDougall J, Ipp and Young JJA agreeing). I accept though that the process of inference may involve an intuitive element that is not susceptible to detailed support or explanation (at [64] per McDougall J).

[87] There is a distinction between inference and conjecture even if the reasoning process occurs on a continuum in which there is no bright line division (Seltsam Pty Ltd v McGuiness (2000) 49 NSWLR 262; [2000] NSWCA 29 at [84]–[88] per Spigelman CJ). A conjecture, even though plausible, is no more than a guess, whereas an inference is a deduction from the evidence. If the deduction is reasonable, the inference may rise to legal proof (Jones v Great Western Railway Co (1931) 144 LT 194 at 202). But there must be objective facts from which the inference could be drawn, otherwise what is left is mere speculation or conjecture (Caswell v Powell Duffryn Associated Collieries Ltd [1940] AC 152 at 169 and 170; [1939] 3 All ER 722 at 733 and 733 per Lord Wright).

[88] Generally, the proper inference to be drawn on the balance of probabilities depends upon a practical and reasonable assessment of the evidence as a whole (BGC Residential Pty Ltd v Fairwater Pty Ltd [2012] WASCA 268 at [51] and [54] per Pullin JA).

396. The evidence does not rise above speculation that any of the changes that Sanpoint claims ought to have been made in the tender process would have caused a bidder to offer a price of more than $20,000 for Sanpoint’s REC, and by no means establishes that it is more likely than not that such a result would have occurred.

397. Sanpoint accepted in its submissions that it must generally have been known that a substantial proportion of the Teams were experiencing dire financial circumstances. For the reasons I have given above, if V8 Holdings had more fully disclosed all of the communications and documents relating to the need for a restructure and the negotiations to achieve a restructure, the reality of the situation would have been made clear to any potential bidder who registered its interest.

398. The article in The Daily Telegraph mentioned above at par 136 would probably have brought home to potential bidders who were close to the V8 Supercars Championship that spectacular losses could be made.

399. The very fact that Teams holding three RECs had surrendered them at the one time would naturally tend to accentuate the appearance that the holder of any REC was likely to incur substantial financial losses each year.

400. The financial burden of racing a V8 Supercar was exacerbated by the fact that the right to receive Car of the Future payments had been exhausted.

401. It was probably common knowledge that the GT Championship was exerting substantial competitive pressure on V8 Supercars racing.

402. Any potential bidder who accessed the terms of the RECs in the data room would quickly have learned of the onerous terms discussed above at pars 26 to 37 above.

403. The disclosure that Archer contemplated that only 26 cars would race in 2015 (later reduced to 25 cars) created a real risk to a party who tendered to buy a REC that it would have acquired the right to an onerous contract but not be guaranteed the ability to actually participate in the V8 Supercars Championship. The significance of this risk would depend upon whether other parties acquired the other RECS on offer, a matter beyond the control of any potential bidder. A bidder would understand that it would have the same rights in respect of an acquired REC as would all other REC owners, but that would still leave a substantial measure of commercial uncertainty.

404. In my view it is not an adequate response to this difficulty to say, as did Sanpoint, that any purchaser of its REC would still have a valuable right. That may be so, but the value would depend upon the uncertain process of how V8 Supercars, Archer and the Teams resolved the issue of which RECs should not be permitted to compete in the V8 Supercars Championship. Why would a potential bidder offer a substantial price for the right to a REC with knowledge that circumstances beyond the bidder’s control might deny the bidder the enjoyment of the REC, and where the entitlement to receive compensation was unpredictable?

396. The information in the data room concerning the estimated gross cash distributions for 2014 (see par 221 above) would not have encouraged bidders, as it was plainly at a level that had historically been insufficient to permit many of the Teams to avoid suffering very substantial annual operating losses.

397. In my opinion, far from the available information concerning the likelihood of a restructure agreement encouraging potential bidders to bid to acquire a REC, on balance that information was likely to depress the enthusiasm of potential bidders to bid a substantial price for a REC. When added to the uncertainty as to the number of Teams that would be permitted to race in 2015, the most rational course for potential bidders was to wait and see the outcome of any negotiations.

398. The most significant factor, however, is that save for the possibility that more potential bidders would have registered their interest if the two week registration period had been longer, and the whole tender process had been timed to end earlier, the names of all of the three registrants who were not surrendering Teams are actually known. It is entirely a matter for speculation that the timing issues would have led to more registrations of interest if the tender had been conducted in accordance with Sanpoint’s case. The widespread advertising and the relatively immediate registration of a small number of interested parties suggests otherwise.

399. The likelihood that any of the three external registrants would have bid substantial prices for Sanpoint’s REC had V8 Holdings provided to them all of the information that was available is so doubtful that I would not be able to find on the balance of probabilities that a substantial bid would in fact have been made without hearing evidence to that effect from one of the registrants.

400. These considerations do not even take into account the possible consequences that could flow from substantial bids being made in respect of one or two RECS, when three RECS were on offer.

401. On the evidence, not only is it a matter of speculation whether any substantial bid would have been made if the tender process had been conducted differently, but there is an inherent contingency in the entitlement of Sanpoint to receive anything for its REC that flows out of the fact that there were three RECS on offer, that were separately identified.

402. On the evidence, it is a matter for speculation as to how the board of V8 Holdings would have dealt with the situation if one or two but not all of the three RECs on offer had been sold. The board may have elected to compensate the Teams who surrendered their RECs under cl 10.1(c), but there is evidence to suggest that V8 Holdings was not in a financial position to do so, unless the prices offered were relatively low.

403. I have set out above at par 219 the terms of the Rules governing the tender process that dealt with the fact that three RECs were available for purchase at the one time. Each REC was identified by a name that only Ernst & Young could attribute to a particular Team. Intending bidders were required to bid for a particular REC, even though the terms of each REC were identical. It may be that technically the board of V8 Holdings was not bound by the Rules in its dealings with the Teams who had surrendered their RECs, but on the balance of probabilities V8 Holdings would have acted in accordance with the Rules.

404. The existence of the Rules concerning the making of bids for specific RECs logically increases the difficulty faced by Sanpoint in establishing on the balance of probabilities that it suffered some actual loss. The parties did not in their submissions suggest any mathematical way to deal with this problem. As the RECs were identical, it should be the case that if only one bid was made, there would be a one third chance that the subject of the bid would be Sanpoint’s REC. If two bids were made, there would be a two thirds chance that Sanpoint’s REC would be the subject of a bid. Of course, as no conforming bids were made, these mathematical considerations remain theoretical. As a practical matter, the court can do little more than to act on the basis that the evidence would need to be particularly persuasive that the tender proceeds would have yielded bids above $20,000 if the alleged breaches had not occurred before the court could be satisfied on the balance of probabilities that a bid would have been made for Sanpoint’s REC.

405. The difficulties that arise from the fact that three RECs were on offer, and substantial prices may not have been bid in respect of all of them, is not decisive against the possibility that Sanpoint suffered a loss on the balance of probabilities. However, when added to the other uncertainties considered above, it causes me to conclude that the likelihood that Sanpoint suffered a loss rises no higher than a matter of speculation.

406. In saying this I have not ignored the evidence that on 17 December 2013, one of the existing REC holders sold its REC for a price of $800,000 excluding GST. Nor have I ignored the evidence that after the restructure was finally agreed, five sales of the new RECs occurred between 1 January 2015 and 1 January 2016.

407. There is no evidence about the circumstances in which the 17 December 2013 sale took place. It is inherently likely that it will be a rare event that a party is prepared to acquire a REC in circumstances where that party either has the expertise to make the operation of the REC profitable, or has the passion and financial resources sufficient to allow the party to carry on regardless of loss.

408. At the end of the day, the court should not lose sight of the fact that a professional tender process was carried out by V8 Holdings with the assistance and advice of experts at Ernst & Young. That process did not yield any substantial bidders. Notwithstanding the complaints made by Sanpoint, there is no reason for the court to find that the tender process was otherwise not an effective one.

409. Accordingly, I would not have found that Sanpoint has established on the balance of probabilities that it suffered some actual loss, if I had found that V8 Holdings had breached the RECs in any of the ways alleged by Sanpoint.

Quantification of loss

419. As I have decided that Sanpoint has not established that V8 Holdings breached cl 10.1(b) of the REC, or that it has suffered any recoverable loss, I will not attempt to value the loss that would have been recoverable had I found in favour of Sanpoint on those issues.

420. It is often appropriate for a court to determine the damages to which a plaintiff would have been entitled had the plaintiff established a relevant breach against the defendant, against the possibility that the plaintiff will succeed on the issue of liability on appeal. The reasons I have taken a different course in the present case are, first, the quantum of loss depends upon the assessment of the value of a lost chance, and that assessment depends upon the precise nature of the chance that was lost; and secondly, there is a paucity of evidence relevant to the determination of quantum.

421. As to the first reason, it will be pointless and speculative for this court to assess the value of any particular lost chance, until the precise nature of that chance has been identified on any appeal in which Sanpoint is successful.

422. As to the matter of quantum, there is little evidence other than the sales of RECS in the period June 2011 to 1 January 2016 that are summarised in Schedule 2 of Sanpoint’s submissions.

423. I would find it to be a very difficult exercise to attempt to value the loss of any chance suffered by Sanpoint on the evidence in this case, but if that must be done at some time, it will be better that it be done with a complete understanding of the chance that was lost.

Conclusion

424. In principle, the court should make the orders sought by V8 Holdings in its summons, and should also dismiss Sanpoint’s cross claim. Sanpoint should be ordered to pay V8 Holdings’ costs of the proceedings, save in respect of any costs order that has already been made, including the particular costs order made by Pembroke J upon the determination of the separate questions.

425. It is appropriate that I invite the parties to confer and provide to my Associate appropriate short minutes of order to give effect to these reasons for judgment.

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Amendments

18 August 2017 - amendment to parties legal representatives

Decision last updated: 18 August 2017