Watson v Ebsworth & Ebsworth (a firm)
[2008] VSC 510
•25 November 2008
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
| AT MELBOURNE COMMON LAW DIVISION MAJOR TORTS LIST |
No. 8085 of 2003
| ROBERT NOEL WATSON | Plaintiffs |
| FREDERICK CHARLES GIBSON GIBSON MOTORSPORT MERCHANDISE PTY LTD F.C. GIBSON PTY LTD | |
| v | |
| EBSWORTH & EBSWORTH (A FIRM) | Defendants |
| PHILIP BATTYE |
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| JUDGE: | BEACH J |
| WHERE HELD: | Melbourne |
| DATE OF HEARING: | 20-24, 27-31 October, 3, 5-7, 11, 13 and 14 November 2008 |
| DATE OF JUDGMENT: | 25 November 2008 |
| CASE MAY BE CITED AS: | Watson & Ors v Ebsworth & Ebsworth |
| MEDIUM NEUTRAL CITATION: | [2008] VSC 510 |
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LEGAL PRACTITIONERS – Solicitor – Existence of retainer – Terms of retainer – Contractual duties – Duty of care – Negligence – Fiduciary duties – Conflicts of interests – Causation – Equitable compensation.
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| APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr P. Riordan SC with | Madgwicks |
| Mr M. Rivette | ||
| For the Defendants | Mr C. Macaulay SC with | Minter Ellison |
| Dr A. Hanak |
TABLE OF CONTENTS
Introduction.........................................................................................................................................2
The background facts ........................................................................................................................8
The issues ..........................................................................................................................................22
Mr Watson, Mr Gibson and Mr Battye as witnesses.................................................................26
The role and conduct of Mr Battye ...............................................................................................31
Meaning of “the team”....................................................................................................................36
Meaning of “Gibson Motorsport” ................................................................................................40
Conversations with Mr Battye about acting for the team ........................................................40
Conduct and involvement of Mr Battye from February 2001..................................................41
Who was Mr Battye (Ebsworths) retained by between February 2001 and October 2001? 62
What relevant duties (if any) were owed by the defendants to the plaintiffs?....................69
Was there any breach of duty?.......................................................................................................71
Causation and loss ...........................................................................................................................78
Conclusion.........................................................................................................................................88
HIS HONOUR:
Introduction
The plaintiffs claim that in 2001 the defendants were their solicitors,[1] supposedly acting on their behalf and on behalf of what I will call “the Forbes interests”. They contend that as a result of breaches of duty by the defendants (which are said to involve the defendants preferring the Forbes interests over the plaintiffs’ interests) they suffered economic loss in excess of $24 million.[2] The defendants deny that they were acting for the plaintiffs in the relevant matters. The plaintiffs respond to this denial by saying that even if the defendants are correct, because of the dealings between them (the plaintiffs and the defendants), the defendants owed to the plaintiffs the duties owed by solicitors to their clients. The defendants deny owing the duties alleged and say further that, even if duties were owed, there was no breach. The facts giving rise to the plaintiffs’ claims concern the establishment in 2001 of a new V8 supercar racing team. It is necessary to say a little more about the underlying facts.
[1] The second defendant, Mr Battye, is and was at all relevant times a partner of the first defendant, Ebsworth & Ebsworth.
[2] The figures in the particulars under paragraph 36 of the plaintiffs’ third amended statement of claim total $24,385,721.14. Whilst the major component of this claim ($21,176,000) is described in the third amended statement of claim as being an amount that one of the plaintiffs lost the opportunity to earn, in the further and better particulars of loss and damage dated 7 November 2008 this amount is said to be the total economic loss of that plaintiff. This apparent discrepancy may be explained by a developing emphasis by the plaintiffs during the trial on a claim for equitable compensation, rather than common law damages. I will say more about this below.
Australian Vee Eight Supercar Company Pty Limited (“AVESCO”) markets and manages V8 supercar racing championships. This company was established as a joint venture with Touring Car Entrants Group Australia Pty Ltd (“TEGA”) to run the V8 Supercar Racing Championship. AVESCO is responsible for marketing and managing the Championship and TEGA is responsible for determining issues of technical parity between V8 supercars, licensing teams to race in the V8 Championship (formerly called franchises) and ensuring that only licensed teams compete in race meetings authorised by AVESCO.
Since 1988, Holden have supported the Holden Racing Team (“HRT”), which has, in effect, been the factory team of Holden. HRT has been the most successful team over the years, and early on established a merchandising and apparel business. In 2000, HRT’s merchandising and apparel business was the most successful race team merchandising operation in Australia. At that time, HRT was owned by TWR Group Limited (“TWR”). TWR stands for Tom Walkinshaw Racing. HRT won the 1998 and 1999 Championship series, and had two of the most successful drivers in the competition – Mr Mark Skaife and Mr Craig Lowndes. In 2000, there was no equivalent Ford-backed team. Ford merely sponsored a number of teams on a smaller scale to the support Holden offered HRT.
Mr Noel Watson, the first plaintiff, was a founding director of AVESCO. In May 2000, he was contacted by Mr Lowndes, who said he needed Mr Watson’s assistance in relation to Mr Lowndes’ position with HRT. At that time, Mr Lowndes was managed by TWR pursuant to a contract which did not expire until January 2007. Pursuant to that contract, Mr John Crennan, the managing director of HRT, was Mr Lowndes’ manager. At the same time, Mr Lowndes had a driver’s agreement with HRT which was due to expire at the end of 2000. Mr Lowndes was not happy at HRT. He was looking for a new manager and someone who could help him to move from HRT to a new team and to find new personal sponsors. Mr Watson agreed to assist Mr Lowndes, although he was not formally appointed Mr Lowndes’ manager until 2001. As Mr Lowndes saw it, Mr Watson’s main task in 2000 was to help him move from HRT to a new team for the 2001 season.
Following his meeting with Mr Lowndes, Mr Watson contacted a lawyer who had done work for him, Mr Daniel Butler, who recommended that Mr Watson speak to Mr Philip Battye of Ebsworth & Ebsworth. An initial meeting was held between Mr Lowndes, Mr Watson and Mr Battye which resulted in Mr Battye agreeing to act for Mr Lowndes.
Between May and December 2000, Mr Watson spent time identifying potential options for Mr Lowndes so far as his future in the racing industry was concerned. During this time, Mr Watson explored the possibility of a new Holden team being established for Mr Lowndes and it was suggested that Mr Fred Gibson, the second plaintiff, could possibly manage such a team. Mr Gibson had extensive experience in the motorsport industry. He was a previous winner of Bathurst and, from 1990 until 1999, he had conducted a racing car team under the name “Gibson Motorsport”. During the 1990s, the Gibson Motorsport team won many races and championships, including races at Bathurst. In December 1999, Mr Gibson had sold his racing team, including all plant and equipment, to Bronzco Pty Ltd, a company owned by a Mr Dumbrell.
Additionally, during this period, interest was expressed by Ford in the possibility of Mr Lowndes racing a Ford car in the 2001 season. The possibility of Mr Lowndes driving for a team managed by Mr Gibson was raised with Mr Lowndes. Mr Lowndes knew of Mr Gibson’s experience and accepted this idea. On 23 November 2000, Mr Watson and Mr Gibson had a telephone conversation concerning the possibility of Mr Gibson purchasing back his TEGA franchise and race car equipment from Mr Dumbrell. During this conversation, Mr Gibson said that he had discussed the proposed race team with a colleague, Mr Robert Forbes, who might finance part of the purchase of the race team assets from Mr Dumbrell and join the venture to run the new race team.
Mr Watson asserts that in late November 2000, there was a meeting between Mr Watson, Mr Gibson, Mr Lowndes, Mr Lowndes’ wife and Mr Battye. Mr Battye denies this meeting occurred. Mr Watson’s account of this meeting is that during it, the proposal for a new team to be sponsored by Ford, managed by Mr Gibson, in which Mr Lowndes would drive and Mr Watson would manage the team’s merchandising and commercial operations was discussed. Subsequently, Mr Watson had a meeting with Mr Battye and Mr Howard Marsden (the general manager of Ford Motorsport) in which Mr Watson outlined the basis for the new team as follows:
(a)
Mr Gibson would purchase his old TEGA franchise and race car equipment from Mr Dumbrell.
(b) Ford would sponsor the Gibson team for a period of three to five years. (c) Mr Lowndes would drive for the Gibson team. (d)
Mr Lowndes would enter into a driver’s contract, committing him to drive for the team between two to three years.
(e)
Mr Lowndes would enter into a separate driver’s contract with Ford, committing him to drive for five years.
(f)
Ford would waive its 12.5% royalty normally charged to its teams to use the Ford oval on merchandise.
(g)
Ford would provide technical support and various components free of charge.[3]
[3] This is Mr Watson’s summary of the meeting. Mr Battye’s summary of the meeting is a little different, but not in a way which affects the outcome of this case.
On 7 December 2000, Mr Watson met with Mr Forbes and Mr Gibson. Mr Watson’s account of this meeting is that during it, it was agreed that the new team would be comprised as follows:
(a)
A mechanical arm, which would include plant and equipment, the race cars, spare parts, mechanical engineering and staff essential to the preparation of the race cars for competition. This would be purchased by Mr Forbes from Mr Dumbrell and held in a company Mr Forbes controlled.
(b)
An operational arm, which would hold the level one TEGA franchise under which the race cars would be entered into competition. This would be purchased by Mr Gibson from Mr Dumbrell and held by a company Mr Gibson controlled.
(c)
A commercial arm which would be responsible for the securing of sponsorship arrangements, procuring and selling team merchandise, and exploiting intellectual property. This company would also sell merchandise on track, under the authority given to all level one TEGA franchise-holders. A new company was to be incorporated to exploit team merchandise and intellectual property, in which all three of them would be equal shareholders. Once incorporated, the running of this company was to be the responsibility of Mr Watson.
Mr Forbes has a different recollection of the meeting. He says that those at the meeting discussed matters including the purchase by Mr Forbes of the Gibson Motorsport business from Mr Dumbrell and how that purchase might be structured; the possibility of Mr Watson and Mr Gibson having equity in the company that would own the team; the setting up of a company to sell merchandising and ownership of that company; the role of Mr Gibson as team manager; Ford’s sponsorship of the team and additional sponsorship which Mr Watson could obtain for the team. He says that no agreement was reached at the meeting as to the management, merchandising or sponsorship arrangements for the team. Mr Forbes summarised the position at the meeting as follows: Mr Forbes was going to buy the team, Mr Gibson was going to manage it and Mr Watson was going to run the merchandising arm. However, the real position as at 7 December 2000 was that these were just discussions and there was no concluded agreement.[4] Mr Gibson gave evidence that was largely supportive of Mr Watson’s version.
[4] T1129.19 - .25.
Matters progressed (about which I will say more below) and on 4 January 2001, there was a press conference announcing that Mr Lowndes would be driving in the 2001 season as a Ford driver as part of a team managed by Mr Gibson. In early 2001, whilst Mr Watson and Mr Gibson thought there were in principle agreements between various parties and whilst Mr Lowndes had signed driver agreements, much of what had supposedly been arranged and agreed in principle had not been formally documented. Nevertheless, the elements of what was needed to form a new team appeared to be in place and the company contemplated by Mr Watson and Mr Gibson as being incorporated to exploit team merchandise and intellectual property was incorporated on 6 February 2001, being Gibson Motorsport Merchandise Pty Ltd (“GMM”), the third plaintiff. F.C. Gibson Pty Limited (“FCG”), the fourth plaintiff, ultimately became the company that held the level one TEGA franchise which Mr Watson and Mr Gibson say was contemplated in the meeting of 7 December between Mr Watson, Mr Forbes and Mr Gibson.
On 2 February 2001, Mr Watson contacted Mr Battye and asked him if he would be prepared to act for “the team”. Mr Battye was concerned about the possibility of a conflict of interest between acting for the team and being Mr Lowndes’ lawyer. Mr Battye needed to discuss the issue with Mr Lowndes. Ultimately, on 9 February 2001, Mr Battye agreed to accept a retainer. The circumstances surrounding the acceptance of this retainer and the terms and parties to the retainer are issues in this proceeding. In essence, the plaintiffs contend that this retainer was a retainer to act for each of them. Whereas the defendants contend that the retainer was limited to a retainer for Gibson Motorsport, being the entity with whom Mr Lowndes had entered into a driver’s agreement on 4 January 2001. That is, the company originally known as ACN 095 359 041 Pty Limited which later changed its name to Racecar Preparation and Management Pty Ltd (“RPM”). This is a central issue to the resolution of this proceeding.
Over the months that followed, the relationship and arrangement between Mr Forbes on the one hand and Mr Gibson and Mr Watson on the other hand fell apart to the point that, in October 2001, Mr Watson and Mr Gibson were excluded from the team. Mr Lowndes stayed with the team, then being run by Mr Forbes and sponsored by Ford. As a result of this break-up, the plaintiffs claim that they have suffered the economic loss referred to in paragraph 1 above. In this proceeding, the plaintiffs allege various breaches of contractual, tortious and fiduciary duties against the defendants. They seek equitable compensation and damages in respect of the losses identified.[5] However, during final addresses I raised with Senior Counsel for the plaintiffs the fact that he had made no submissions on the issue of damages – having confined himself to submissions about the assessment of equitable compensation.[6] In response, I was told that the plaintiffs were not pursuing a claim for damages and that the claims in respect of tortious duties and breaches of contract were “all subsumed … by the fiduciary claims”.[7] For the reasons given below, there will be judgment for the defendants.
[5] T4.20.
[6] T1511.
[7] T1511.16.
The background facts
I have already set out some of the background facts to this dispute. It is now necessary to provide some further detail. There were a large number of conversations that occurred either by telephone or at various meetings between Mr Watson, Mr Gibson, Mr Battye, Mr Lowndes, Mr Forbes and various employees of Ford and other people during the period from November 2000 until October 2001. Different accounts have been given of many of these meetings and conversations. Having regard to the effluxion of time, this is not surprising. For the purpose of deciding this case, it is not necessary to resolve every difference between the witnesses as to what was said during every conversation or meeting. One thing that is clear is that, as discussions progressed between Mr Watson, Mr Gibson and Mr Forbes, Mr Watson and Mr Gibson had one view of the proposed arrangements and Mr Forbes had another. Whilst all three were working towards the creation of a new team which Mr Gibson would manage and in which Mr Lowndes would drive a Ford, their views about how this would be brought about differed.
I turn now to consider the relevant events that occurred after the 7 December 2000 meeting. On 8 December, Mr Forbes and Mr Dumbrell signed a document headed “HEADS OF AGREEMENT” for the sale and purchase of the business known as “Gibson Motorsport”. Mr Dumbrell was the vendor and the purchaser was Mr Forbes and/or his nominee. The price was $2.7 million. The business was defined as comprising:
“(a) The business name of ‘Gibson Motorsport’. (b) All plant, stock and equipment of ‘Gibson Motorsport’ and related entities including (but not limited to) all racing vehicles, spare parts and engine components, stock, other motor vehicles, pantechnicon, promotional material and workshop and office equipment wherever situated and free of all debt, charge, lien and any other encumbrance whatsoever.
(c) The total current shareholding of the Vendor in Touringcar Entrants’ Group Australia Pty Ltd comprising a Level-1 Franchise and all attaching
shareholding.”
Clauses 8 and 9 of the Heads of Agreement provided:
“8. The Vendor agrees that he will obtain confirmation of K-Mart sponsorship for the Business for the year 2001 in the sum of $1.4 million together with associated signwriting and incidental expenses as negotiated with K-Mart and that such written confirmation shall be available to the Purchaser at or prior to settlement. It is agreed that this condition is fundamental to this Sale and that without it the Purchaser shall not proceed with the purchase. 9. It is agreed by the Parties hereto that in the event that the Vendor is unable to Transfer to the Purchaser the shareholding and Franchise with Touringcar Entrants’ Group Australia Pty Ltd referred to in Recital (c) hereof the Sale price shall be reduced by the sum of $400,000.”
On a date almost certainly between 7 December and 14 December 2000, Mr Gibson sent a letter to TEGA saying that his company (FCG) would “assume all of the obligations and responsibilities of the Team under the Franchise agreement currently held by Garry Dumbrell Motorsport Pty Ltd”. In the letter, TEGA was told that the cash purchase price being paid for the franchise was $400,000. On 12 December 2000, ACN 095 359 041 Pty Limited was incorporated. By letter dated 14 December 2000, TEGA replied to Mr Gibson confirming that the TEGA board had approved the transfer of Mr Dumbrell’s franchise to him.
On 18 December 2000, Gibson Motor Sport Pty Ltd (formerly Bronzco Pty Ltd) sold the business conducted at Kitchen Road, Dandenong to Mr Forbes’ company, RPM (then called ACN 095 359 041 Pty Limited). Mr Dumbrell signed on behalf of the vendor and Mr Gibson signed on behalf of the purchaser. The price was $2.225 million. The difference between this price and the price in the Heads of Agreement was, at least in part, reflected by the fact that the franchise did not pass under this agreement. On the same day, the business name, Gibson Motor Sport,[8] was transferred from Mr Dumbrell’s company, Bronzco to FCG.
[8] Whilst many of the documents refer to this business name as Gibson Motorsport, the certificate of Commissioner for Corporate Affairs relating to the registration of a business name records the business name as a three word name, Gibson Motor Sport. However, nothing seems to turn on this issue, as the case was conducted on the basis that this certificate was the relevant certificate in respect of the two word business name referred to in many of the documents.
On the same day, Ford sent a letter to Mr Gibson as follows:
“Dear Fred,
This letter confirms our agreement for Ford Australia to sponsor the Fred Gibson Racing Team in the AVESCO/TEGA Shell Championship Series for the 2001, 2002 and 2003 years on the basis that:
1. Craig Lowndes is the Team’s principal driver; and
2. the Team only races Ford vehicles.
In consideration of your agreement to the above conditions, we agree to pay the Team the following sponsorship amounts:
1. Year 2001 AUD $1.5 million 2. Year 2002 AUD $3.0 million 3. Year 2003 AUD $3.0 million In recognition of the Team needing to be up and running as soon as possible, we will pay 50% of the first year’s payment, being $750,000, on 15 January, 2001.
Whilst these are the basic terms of our agreement, a more detailed agreement will be drawn up early next year to finalise our arrangements.
Would you kindly countersign this letter and fax it back to me on 9359 7482 today to confirm your agreement.”
Mr Gibson crossed out the words “Fred Gibson Racing Team” and handwrote “Gibson Motor Sport” on the letter, which he then signed and faxed back to Mr Polites, the President of Ford.
On 20 December 2000, Mr Lowndes and his company (Craig Lowndes Pty Ltd) entered into a racing driver agreement (“the Ford driver agreement”) with Ford. Clause 2.1 of the Ford driver agreement provided:
“The Company [Craig Lowndes Pty Ltd] will procure for Ford and Ford agrees to engage the Company to procure the services of the Driver [Mr Lowndes] as a motor racing driver to the Team in consideration of the Payment for the Term in accordance with the provisions of this Agreement.”
The term of the agreement was five years from 1 January 2001 to 31 December 2005. The expression “Team” was defined to mean “a Team which operates the Racing Car in the Championship”. The expression “the Team” is one that has caused difficulty in this case. It is an expression that appears in documents and an expression that has been used from time to time by the participants in meetings and during conversations. The defendants contend that “the Team” means RPM. The plaintiffs contend that it has a wider meaning, encompassing at least RPM, GMM and FCG, if not those three entities plus Mr Watson, Mr Gibson and Mr Forbes. This is a matter I will deal with below. A similar difficulty arises from some of the references to the business name, Gibson Motorsport. Again, I will deal with that matter below.
In the second half of December 2000, events occurred which, on Mr Forbes’ evidence, started to sour the relationship between Mr Forbes and Mr Gibson. First, Mr Forbes received a letter from Mr Falconer of White Cleland[9] in which he was advised that the business name “Gibson Motor Sport” was in the process of being transferred back to FCG. Mr Forbes’ understanding was that the business name was to be transferred to RPM. This became the subject of dispute and remained an issue between Mr Watson, Mr Gibson and Mr Forbes in 2001. Secondly, Mr Forbes wanted the issue of the entity that Ford was going to be dealing with sorted out. To that end, he drafted a letter for Mr Gibson to send to Ford.[10] Mr Gibson did not send the letter. To use Mr Forbes’ words: “I think he [Mr Gibson] just made all the right noises but nothing ever actually got done”.[11] This was also an issue between the parties into 2001.[12]
[9] Exhibit 26.
[10] Exhibit 18.
[11] T1140.5.
[12] T1152.2 - .11.
On 4 January 2001, Mr Lowndes and his company entered into a driver agreement (“the RPM driver agreement”) with RPM.[13] Clause 2.1 of the RPM driver agreement provides:
[13] Then called ACN 095 359 041 Pty Limited.
“The Company [Craig Lowndes Pty Ltd] will procure for ACN the services of
the Driver [Mr Lowndes] as a motor racing driver to the Team.”
“Team” is defined to mean “Gibson Motorsport (“FGM”) or ACN as may be appropriate”. The term of the agreement was three years expiring on 31 December 2003. However, clause 14.3 provided for the possibility of determining the agreement on 31 December 2002 if any of the parties did not agree that the terms and conditions of the agreement had been complied with and the performance of the team had been satisfactory. The RPM driver agreement provided for payment by RPM to Craig Lowndes Pty Ltd of a percentage of the manufactured wholesale purchase price of team merchandise. Events of default were defined in clause 16.1, paragraph (l) of which made it an event of default (entitling the party not committing the event of default to determine the agreement) if Mr Gibson ceased to be involved actively in the management “of the Team or ceases to be Team Principal and a replacement person acceptable to the Driver cannot be appointed within a reasonable time”.
Immediately after the execution of the RPM driver agreement, a press conference was held and Ford issued a press release in the following terms:
“NEW DRIVER, NEW TEAM, NEW ALLIANCE
A closely guarded secret can finally be revealed – the answer to the 64,000 dollar question of the 2000 season - where will Craig Lowndes drive in 2001?
Many of the pundits have had Craig going to Ford and, despite a last-minute flurry of rumours concerning the setting up of a new team by Peter Brock, the early backers of the Ford move have now been proved right.
The big part of the whole equation, the question of just which Ford team he might drive for has been an even bigger question.
Today Ford Australia announced not only that they had signed Lowndes as a Ford contracted driver for the next five years, but that they had also signed a deal with one of Australia’s top team managers, Fred Gibson.
Late last year Gibson bought his team and his level one franchise back from
Garry Dumbrell.The surprise announcement of the day is that Fred has signed a deal with Ford to run Lowndes in a Falcon. Fred has elected to return to his Ford roots, and his Commodores are on the market.
Craig will open the season for the new Gibson Motorsport team at the
Melbourne Formula One Grand Prix in March.”On 11 January 2001, Mr Gibson and Mr Forbes met. Mr Gibson’s accountant, Mr Kinchington, was present and produced a document for the meeting.[14] Mr Gibson told Mr Forbes that he did not want to be a director of RPM. At or about the time of this meeting, Mr Forbes found out that Mr Gibson had resigned as a director of RPM.[15] This was a source of disappointment to Mr Forbes because it was a departure from what had been talked about on 7 December 2000. Further, Mr Forbes wanted Mr Gibson to be a director of RPM “which gave him fiduciary dut[ies] and responsibilities in the company”.[16] On 24 January 2001, Mr Watson instructed his accountant, Mr Damien Butler, to incorporate GMM with Mr Gibson, Mr Forbes and Mr Watson being directors and equal one third shareholders in the company. On 25 and 29 January 2001, there were discussions between Mr Damien Butler and Mr Forbes’ accountant, Mr Stanley,[17] concerning the need to have a shareholders’ agreement in place in relation to the proposed merchandising company (GMM). On 30 January 2001, FCG executed a consent to the use of the business name, Gibson Motorsport, by RPM.[18] On 13 February, Mr Stanley received a letter dated 9 February from Mr Damien Butler in which he advised that GMM had been incorporated and that DBA Butler – Lawyers had been requested to draft a buy- sell agreement to deal with the directors/shareholders leaving GMM. However, according to a Butler Pty Ltd chartered accountants file note,[19] on 26 February 2001, Mr Watson gave instructions that he did not want to follow up this issue. Mr Watson’s dealings with Mr Damien Butler and Mr Daniel Butler and Mr Gibson’s dealings with Mr Kinchington and Mr Falconer of White Cleland were bases for the defendants’ submissions that the fact that Mr Watson and Mr Gibson were getting advice from these people demonstrated that Mr Battye was not their solicitor. I will say more about this below.
[14] Exhibit 28.
[15] Exhibit 27 is Mr Gibson’s written resignation dated 12 December 2000. Mr Forbes believes that this document was executed in January 2001 and backdated to the day of Mr Gibson’s appointment.
[16] T1142.12 - .19.
[17] A partner of Stanley & Williamson, Chartered Accountants.
[18] Whilst unlike the Certificate of Registration (which has a three word name) the consent has a two word name. However, both of them bear the number 985630D - showing that they are the same business name.
[19] Exhibit 6.
In early February 2001, there was discussion between Mr Watson and Mr Battye concerning the possibility of Mr Battye acting for the team. I will deal with these matters in more detail below when I come to deal with Mr Battye’s role and his involvement with the team. It is sufficient for present purposes to say that on 9 February 2001, Mr Battye sent a letter addressed to Mr Gibson, Gibson Motorsport, confirming Ebsworth and Ebsworth’s retainer by Gibson Motorsport. The letter relevantly provided:
“Dear Fred,
EBSWORTH & EBSWORTH RETAINER
We confirm our retainer by Gibson Motorsport to act generally on its behalf for which we thank you.
As you are aware we also act as solicitors on behalf of Craig Lowndes and his various corporate entities. Whilst this currently presents no actual conflict of interest we advise that our retainer by Mr Lowndes and his entities may potentially give rise to a conflict of interest in the future. The most obvious potential source of conflict arises in the context of the driving contract entered into between Craig Lowndes Pty Ltd and Mr Lowndes with Gibson Motorsport. Conceivably there could also be potential conflicts in respect of sponsorship arrangements between third parties, the team and Mr Lowndes and his entities.
Notwithstanding the potential conflict including those detailed above as illustrations we confirm our retainer by you. We advise that we are prepared to accept your retainer on condition that in the event of any actual conflict between Mr Lowndes and his entities and Gibson Motorsport we will be free to cease our retainer by you in respect of the particular matter notwithstanding any information, documents or otherwise with which we may have been instructed by you in the course of our retainer by you. You also agree to waive any solicitor client privilege in respect of any such documents and/or communications or instructions.”
(“The February 2001 retainer letter”).
On 12 February 2001, Mr Gibson received a sponsorship contract (“the Ford sponsorship contract”) from Ford. The front page of the agreement was dated 1 January 2001 and provided that the parties to it were Ford and FCG. Mr Gibson faxed the agreement to Mr Watson, who then faxed it to Mr Battye with some handwritten annotations – including one that suggested that FCG was the wrong company. Whilst the Ford sponsorship contract does not contain the expression “the team”, it refers to the party with whom Ford was proposing to contract as “the participant”. In the recitals, the “participant” is said to be utilising the services of the driver (Mr Lowndes). The plaintiffs’ case is that references to the “participant” in the Ford sponsorship contract are references to the team (being the consortium). The defendants’ case is that references to the participant are references to RPM – it being the only entity with a relevant contract with Mr Lowndes entitling it to “utilise” his services. Clause 22 of the Ford sponsorship contract provided that Ford could terminate the agreement in a number of defined circumstances, including (b) “if the DRIVER no longer drives the RACE VEHICLE for the PARTICIPANT or the RACE TEAM”.
On 26 February 2001, Mr Gibson, Mr Forbes and Mr Watson met at the team workshop in Dandenong. This was eight days before the team’s first race at the Australian Grand Prix weekend at Albert Park. Mr Watson’s account of this meeting was that as all sponsorship money was now being paid into RPM, there was discussion concerning the payments RPM would need to make to him and to Mr Gibson for being the two working parties in the venture (Mr Forbes was regarded as a financier). The level of Mr Gibson’s remuneration for being team principal was confirmed, as were the sponsorship procuration fees that Mr Watson would charge RPM for doing the work necessary in securing sponsors for the team. Mr Forbes wanted reassurance that sponsorship money would continue to be paid into RPM to prepare the race cars. Further, Mr Forbes said that he was unhappy that Mr Gibson had refused to become a director of RPM and Mr Forbes saw that he alone was “on the hook”, given that it was RPM’s responsibility to pay for the preparation of the cars and pay most of the wages. Mr Watson referred to the possibility of a side agreement between FCG and RPM to cover the flow of Ford sponsorship money from FCG to RPM. Mr Forbes’ account of the meeting was that he suggested that if the Ford sponsorship contract could not be executed by RPM, then a side agreement could be put in place between RPM and FCG, and that FCG could then execute the agreement with Ford. He said that this suggestion was made because Mr Gibson had not disclosed to Ford that Mr Forbes owned the team (via RPM).
On 1 March 2001, Mr Watson sent a letter to Mr Gibson, purporting to deal with Mr Gibson on the basis that he was capable of acting for and on behalf of RPM. The letter was signed by Mr Watson, but underneath his name and signature was the name of his company “Noel Watson (Aust.) Pty Ltd. The letter asked Mr Forbes to sign the bottom of the letter as confirmation of an arrangement between Noel Watson (Aust.) Pty Ltd and RPM. The acknowledgement line for Mr Gibson to sign had his name followed by the words “for and on behalf of Race Car Preparations & Management Pty Ltd trading as Gibson Motorsport”. The letter provided:
“Dear Fred
Re: RPM/Gibson Motorsport – Commercial Appointment
The commercial arrangements we discussed on 26 February with Bob Forbes will obviously need to be firmed up in a separate agreement. However, to enable us to keep the ball rolling and put in place, employ and appoint personnel and/or contractors (i.e. PR/Media agency) we have outlined below the basis of the commercial appointment. If all is in order, I would be pleased if you would accept and sign the bottom of this letter as confirmation of our arrangement.
As I understand the arrangement, my company is exclusively appointed and is required to establish, manage and maintain the necessary operations to handle all matters relating to the following areas:
Commercial arrangements and sponsorship contracts
Marketing, media and PR activities
Merchandising and Licencing appointments
Web site design, implementation and managementAs we agreed with Bob remuneration will be based on 10% of the Ford commercial arrangement for 2001 ($1.5m), 2002 ($3.0m) and 2003 ($3.0m). Additionally, 20% diminishing by 2.5% pa of all other commercial arrangements or sponsorship income generated for the Team i.e. Ford/Ford Dealer Network, Mobil Oil or Optus.
Noel Watson (Aust) agrees that the remuneration shall cover reimbursement for all expenses and staffing costs made or incurred by the company in connection with the above services except for those expenses which RPM agrees in its absolute discretion to reimburse to Noel Watson (Aust.)
I hope this meets with your approval, I believe that the synergy between this appointment and being Craig’s Manager will advantage not only Craig but also the team both financially and operationally.”
Whilst I have said that I will deal with what is meant by the expression “the team” below, in cross-examination Mr Watson conceded[20] that the reference to “the team” in the third paragraph of this letter was a reference to RPM.
[20] At T383.10 – 383.18.
On 4 March 2001, Mr Lowndes and TWR executed an agreement releasing Mr Lowndes from his management contract with TWR. This freed Mr Lowndes to enter into a management contract with Mr Watson. On 20 March, there was a meeting between Mr Gibson, Mr Watson and Mr Battye at the workshop in Kitchen Road, Dandenong. During that meeting, a number of matters were discussed, including the fact that Ford thought that Mr Gibson owned the team. Mr Battye was concerned that Ford did not know about Mr Forbes. Mr Gibson said he would speak to Mr Forbes and see what his thoughts were, and then come back to Mr Battye in respect of that matter. Additionally, there was discussion about the possibility of Mr Gibson buying out Mr Forbes. Mr Gibson was not getting on with Mr Forbes as well as he thought that he should be, and therefore thought that a buy-out of Mr Forbes might be appropriate.
On 30 March 2001, Mr Gibson received a telephone call from Mr Forbes. Mr Gibson’s account of this conversation is that Mr Forbes expressed concern about the financial position of the team and questioned Mr Gibson’s integrity, professionalism and competence in a very heated conversation. Mr Gibson’s evidence was that from that point his relationship with Mr Forbes broke down irretrievably. After the telephone conversation, Mr Gibson telephoned Mr Watson and told him of the conversation. Mr Gibson told Mr Watson that he (Mr Gibson) now definitely wanted to buy Mr Forbes out as soon as possible, as he considered that he was unable to work with Mr Forbes on a long-term basis.
The team raced at the Clipsal Race in Adelaide on 6 and 7 April 2001. This was the third race for the team, it having already competed at the Australian Grand Prix and Phillip Island. The GMM merchandising range was launched to the public on 6 April 2001 and was well received. At the Clipsal race, there were discussions between Mr Forbes and Mr Watson, Mr Forbes and Mr Battye and Mr Battye and Mr Watson relating to concerns Mr Forbes had about Mr Gibson, sponsorship issues and solvency. According to Mr Battye, he told Mr Watson that he was concerned that Ford was unaware of the true ownership of the team and that the position needed to be sorted out before Ford became aware. It was not until the Clipsal race that Mr Polites became aware that Mr Forbes had any involvement with the team.[21] It seems tolerably clear that Ford only became aware of Mr Forbes’ involvement in early April 2001.
[21] See paragraph 20 of Mr Polites’ affidavit sworn 26 February 2004 – which affidavit was tendered pursuant to s 55 of the Evidence Act as Mr Polites died before trial.
On 18 May 2001, Mr Watson and Mr Gibson flew to Sydney to meet with Mr Forbes in the Sydney Golden Wing lounge. During that meeting, the possibility of Mr Gibson and Mr Watson buying out Mr Forbes’ interest in the team was discussed. On 1 June 2001, there was a further meeting between Mr Forbes, Mr Gibson and Mr Watson at the Golden Wing lounge in Melbourne. During this meeting, Mr Forbes offered to sell his interest in the team to Mr Gibson and Mr Watson. However, on Mr Forbes’ evidence, this was on condition that the sale be completed by 30 June 2001.[22] On 20 June 2001, Craig Lowndes Promotions Pty Ltd and Watson & Associates Vic Pty Ltd executed a management agreement in respect of Mr Lowndes. The buy-out of Mr Forbes that had been contemplated did not proceed, Mr Forbes always maintaining that for a buy-out to occur, it had to occur before 30 June 2001. Whilst this was disputed by Mr Watson and Mr Gibson, the fact is that no buy-out was ever consummated. Indeed, when the matter was raised again on 13 July, Mr Forbes said “Well, it’s now past 30 June so it’s finished”.[23] Subsequently, Mr Forbes failed to respond to a letter dated 13 July 2001 concerning the buy-out. His reason for not responding was, “Because the time had past”.[24]
[22] T1164.30 - .31.
[23] T1166.18.
[24] T1166.27.
On 29 August 2001, Mr Watson learned that Mr Forbes had consulted solicitors. There were then multiple discussions on 30 and 31 August 2001 between Mr Watson and Mr Battye, the substance of which is disputed. Whilst there is agreement that there was a reference by Mr Battye to a conflict of interest, the substance of what was actually said is in dispute.
On 3 September 2001, there was a meeting at Ford’s office in Campbellfield between Mr Watson, Mr Gibson, Ms Sue Allen (Ford’s legal counsel), Mr Howard Marsden (the General Manager of Ford Motor Sport), Mr Bruce McDonald (Vice President, Sales and Marketing) and Mr Polites.[25] Mr Polites asked how the buy-out of Mr Forbes was going and was told that Mr Watson and Mr Gibson had received “financials” from Mr Forbes which were being checked by their accountant. There was discussion about how the race team budget was being “expensed”. On the evening of 3 September 2001, there was a meeting between Mr Watson and Mr Gibson and Ms Meagher (General Manager, Marketing of Ford) and Ms Louise Teasdale (General Manager of Corporate Affairs, Ford) at the Hilton Hotel. Ms Meagher said that Ford was prepared to proceed with a sponsorship plan at $4 million per year, starting in January 2002 and that Ford was supportive of the buy- out of Mr Forbes’ interest by Mr Gibson and Mr Watson.
[25] It is the plaintiffs’ case that Mr Battye was also present at this meeting (relying upon the evidence of Mr Watson). However, Mr Battye denies this allegation.
On 7 September 2001, Mr Forbes formally rejected the buy-out offer, stating:[26]
[26] In a fax dated 7 September 2001 addressed to Mr Watson and Mr Gibson.
“I wish to inform you that your proposal to acquire RPM and its business is
rejected.
A number of issues have emerged during the Ford sponsorship and the financial management of RPM by Fred Gibson that are of extreme concern to me as the sole Director of RPM. Also of concern is the unauthorised use of the name Gibson Motorsport in connection with the business of the Watson Group Australia.
As you are both aware, rights to that business name were acquired by RPM pursuant to the terms of the Sale of Business Agreement dated 18 December 2000 between it and Gibson Motorsport Pty Ltd. The circumstances in which that business name appears to have been transferred to FC Gibson Pty Ltd upon settlement of that sale has been referred to the company’s lawyers for further investigation and advice.
You can expect to receive further correspondence from me early next week in relation to this and other issues.”
Mr Watson telephoned Mr Battye in respect of this letter. Whilst it is the plaintiffs’ case that on 7 September 2001 Mr Battye was asked to act on their behalf in relation to their dispute with Mr Forbes, Mr Battye denies that he received any instructions from them to take any steps in relation to the letter. Subsequently, there were further discussions, culminating in a letter being sent by Mr Battye to Mr Forbes on 11 September 2001. That letter provided:
“Dear Mr Forbes,
CRAIG ANDREW LOWNDES & CRAIG LOWNDES PTY LTD
(“LOWNDES”)
We confirm that we act on behalf of Lowndes.
We are advised by Ms Allen of Ford Motor Company of Australia Limited
(“Ford”) that you conferred with her in the week of 3 September 2001.We refer to our telephone discussion on 30 August 2001 wherein we discussed inter alia, issues in respect of the solvency of RaceCar Preparation and Management Pty Ltd (“RPM”). Further, we confirm that you personally raised solvency issues in respect of RPM with the writer in the course of the Clipsal 500 Race in Adelaide during Easter 2001.
In addition to the solvency issues noted above we confirm that in our telephone discussion on 30 August 2001 you intimated that you were dissatisfied with the management of the Gibson Motor Sport Team (“the Team”) by Fred Gibson.
Naturally Lowndes is concerned at both the solvency issues and the management issue and has instructed us to seek from you further clarification in respect of both issues. We seek your response to the following questions by return:
1. Do you contend that RPM is or at any time from 4 January 2001 has been unable to pay its debts when they fall due?
2. Do you contend that RPM is or at any time from 4 January 2001 has been insolvent?
3. Is it your intention to replace Fred Gibson as Team Principal and/or in the active management of the Team?
4. If in the affirmative to question 3 whom do you intend to appoint to manage the Team in lieu of Mr Gibson?
You will be aware that representations were made to Lowndes in the course of negotiating the Driver Agreement dated 4 January 2001 with RPM that Fred Gibson would not only act as Team Principal and be actively involved in the management of the Team but that in effect he would ‘buy back’ the Team, including its plant and equipment, from Mr Dumbrell. A search at ASIC evidences that whilst Mr Gibson was a director of RPM on 12 December 2000 at the time of these representations he is no longer a director and does not appear at any stage to have been a shareholder. Would you please confirm that you do not hold your shareholding in RPM as nominee for and on behalf of Mr Gibson or in any other capacity on his behalf.
We understand that notwithstanding a letter from Ford to Mr Gibson dated 18 December 2000 in his capacity as proprietor of the “Fred Gibson Racing Team” and the subsequent payment of instalments of sponsorship moneys by Ford to FC Gibson Pty Ltd, it may be contended by RPM that Ford in fact entered into a contract with RPM in respect of sponsorship of the Fred Gibson Racing Team or the Team. Ms Allen advises us that Ford regards its contractual relationship as existing with Mr Gibson personally and not with RPM. Would you please confirm or otherwise our understanding of RPM’s contention concerning the existence of a contract with Ford.
You will no doubt appreciate the extremely serious and damaging nature of the solvency, management and contractual issues noted above. In the event that these matters were to become public knowledge both Lowndes and Ford would suffer significant adverse effects to their interests, name, goodwill and reputation.
In the circumstances we would appreciate a response within 48 hours.”
This letter was responded to by Mr Forbes’ lawyers, Andersen Legal, by letter dated 12 September 2001 in which they concluded that there was no foundation for the perceived concerns and that RPM looked forward to its ongoing relationship with Mr Lowndes pursuant to the terms of the RPM driver agreement.
There were further discussions, meetings and letters passing between the parties until a meeting on 10 October 2001. In summary, at this meeting Mr Lowndes said that he wanted to remain with the team. Mr Forbes would not sell to Mr Watson and Mr Gibson. Mr Watson and Mr Gibson could not work with Mr Forbes and so, after this meeting, the team became a Ford-sponsored team in which Mr Lowndes drove and which was owned by Mr Forbes. Ultimately, Mr Watson resigned as Mr Lowndes’ manager on 16 November 2001. On 23 November 2001, Mr Gibson spent his last full day in the workshop and on 21 December 2001, FCG sold its TEGA franchise to John Briggs Motorsport Pty Ltd. On 17 January 2002, RPM’s solicitors (Andersen Legal) wrote to Mr Watson advising him that RPM does not require any ongoing services from him personally or from GMM. Mr Lowndes stayed with the team during the 2002 season. At the end of that season, Ford moved its sponsorship money to a new team called Ford Performance Racing and Mr Lowndes decided to go with Ford to the new team. Subsequently, there were proceedings in the Federal Court in which the plaintiffs in this proceeding were applicants (along with three other applicants) and the respondents were Mr Forbes, RPM and Bob Forbes Corporation Pty Ltd. After an 18 day trial concluding on 27 July 2004, judgment was given on 9 June 2005 in which it was held that the applicants were not entitled to the relief sought, other than some relief in respect of specified agreements.[27] In this proceeding, the plaintiffs contend that in the Federal Court proceeding, whilst they recovered some moneys, they suffered a net loss of $1,079,721.14.[28] They also claim to have suffered two other heads of loss which, together with the net loss suffered as a result of the Federal Court proceeding, make up the total claim referred to in paragraph 1 above.
[27] An appeal by the applicants to the Full Court of the Federal Court was dismissed on 31 March 2006.
[28] At the commencement of the trial, the claim under this heading was for an amount of the order of $1.3 million. However, in the amended further and better particulars of loss and damage dated 7 November 2008, this claim was reduced to $1,079,721.14, being the amount of $3,041,813.58 which the plaintiffs allege they paid in legal costs and disbursements in relation to the Federal Court proceedings less the amount of $1,953,331.07 which they recovered in settlement of their claims and costs pursuant to a Deed of Release which is part of Exhibit M and less an amount of $9,331 recovered for interest.
The issues
The plaintiffs claim equitable compensation alleging breaches of fiduciary duties in relation to the retainer evidenced by the February 2001 retainer letter and the alleged 7 September 2001 retainer[29] and also generally from the dealings between the parties.[30] On day two of the trial, I asked the parties to summarise the issues to be decided in this proceeding. The plaintiffs summarised the issues as follows:
[29] See paragraph [34] above.
[30] Remembering that in final addresses the plaintiffs abandoned claims for damages and contented themselves with the position that the tortious duties and breaches of contract were all subsumed by the fiduciary claims.
“Liability
1. During the period from on or about 20/3/01 to the end of 2001, did the defendants owe duties to the plaintiffs:
a. of loyalty and good faith; b. to avoid a conflict between their interests and the interests of other clients including Mr Lowndes and Mr Forbes? 2. If yes to question 1, did the defendants breach the duty by not informing Mr Watson and Mr Gibson that:
a. the lack of inter se contracts and the competing interests of Mr Forbes rendered their interests vulnerable; b. he was unable to act on behalf of their interests; and c. they should seek independent representation? 3. During the period from 30/8/01 to the end of 2001, did the defendants owe duties to the plaintiffs:
a. of loyalty and good faith; b. to avoid a conflict between their interests and the interests of other clients including Mr Lowndes and Mr Forbes? 4. If yes to question 3, did the defendants breach the duty by:
a.
positively acting against the interests of the plaintiffs during the said period;
b.
failing to inform them that Mr Forbes was not proposing to sell his interest;
c.
[failing to inform them that] he [Mr Battye] was unable to act on behalf of their interests; and
d.
[failing to inform them that] they should seek independent legal representation?
Causation
5. If yes to questions 3 and/or 4, but for the conduct:
a. would the plaintiffs been able to continue the business of GMM; b. would the plaintiffs have avoided the Federal Court litigation; c. would Mr Gibson have retained the TEGA franchise.
Quantum
6. If yes to question 5:
a. What would the value of the benefit lost as a result of plaintiffs losing the business or the opportunity to continue the business; b. What amount did the plaintiffs lose in the Federal Court litigation; c. What amount did Mr Gibson lose by reason of the sale of the TEGA franchise in 2001.”
Whilst the defendants raised the question of whether the pleadings as they stood at the commencement of this trial entitled the plaintiffs to raise issue 4b, this matter was taken care of by an amendment[31] made to the plaintiff’s further amended statement of claim by the addition of particular AA under paragraph 35 in the following terms:
[31] Which amendment was allowed by consent on 24 October 2008.
“Between 30/8/01 and 10/10/01, the defendants failed to inform the
plaintiffs that Forbes was not proposing to sell his interest in RPM.”
The defendants summarised the issues to be decided in this proceeding as follows:
“1. Was there a retainer of Mr Battye by GMM or FCG on 9 February 2001,
or was the retainer limited to RPM?2. If Mr Battye was retained to act for GMM or FCG, was it negligent in the circumstances, for Mr Battye to give the advice in the letters dated 22 February 2001 and 4 April 2001 to the effect that the agreement with Ford and the agreement between GMM and RPM should wait the resolution of ownership issues with Mr Forbes?
3. Was the real impediment to the finalisation of those agreements the advice of Mr Battye, or the lack of agreement between Mr Watson, Mr Gibson and Mr Forbes and the subsequent change of priorities of Mr Watson and Mr Gibson when the buy out of Mr Forbes’ interest in RPM was raised?
4. Did the alleged negligent advice in February or April 2001 cause GMM or FCG to suffer any loss, and if so what?
5. Did Mr Watson and Mr Gibson retain Mr Battye to act for them personally on 7 September 2001 in relation to the dispute with Mr Forbes, or was Mr Battye retained to act for Mr Lowndes only?
6. Did Mr Battye owe the plaintiffs, or any of them, the fiduciary duties as alleged, in or about September and October 2001, in connection with the dispute with Mr Forbes?
7. Did the alleged breach of retainer or failure to comply with fiduciary obligations, in September and October, cause any of the plaintiffs to suffer any loss, and if so what?
8. Was there a contract between Mr Gibson and Ford in October 2001, and
if so did Mr Battye wrongly interfere with it?[32]
[32] Subsequently, this question became irrelevant when the plaintiffs amended their pleadings again to delete a claim for interference with contractual relations.
9. If any of the plaintiffs suffered loss as a result of either the wrongs alleged in February or April, or the wrongs alleged in September or October, what is the measure of that loss?”
The defendants’ list of issues was, not unexpectedly, premised on a narrower view of the pleadings than the plaintiffs’ list. Further, some of the issues limit the matter for consideration to two of the four plaintiffs in circumstances where the plaintiffs’ case as opened (and ultimately pleaded) in respect of those issues involves all four of them. Additionally, the defendants’ list focused upon issues that they contend, if resolved in their favour, defeat the plaintiffs’ claims. During the course of the trial, the defendants maintained that the way the plaintiffs were now putting their case was outside the pleadings. On day ten,[33] I gave leave to the plaintiffs to deliver a third amended statement of claim which conformed with the issues as stated by the plaintiffs during the course of their opening.[34] Whilst read literally, some of the questions in the plaintiffs’ list of issues are too broad,[35] the plaintiffs’ list provides the framework for deciding this proceeding. Having said that, the defendants’ list provides a useful focus in respect of some of the issues.
[33] On day 12 I gave further leave to the plaintiffs to deliver another version of the third amended statement of claim. The substance of the amendments made pursuant to the leave granted on days 10 and 12 of the trial was to permit the plaintiffs to run a case that the tortious and fiduciary duties they alleged arose not merely because of the retainers they allege – but alternatively in the circumstances of their relationships with Ebsworths and Mr Battye.
[34] For the sake of completeness, I should note that, in addition to making those amendments in the third amended statement of claim, the plaintiffs abandoned previously pleaded causes of action of defamation, malicious falsehood and interference with contractual relations.
[35] For example, in the resolution of this proceeding it is not productive to ask whether the defendants owed GMM a duty of loyalty and good faith in respect of some of the discrete matters attended to by Mr Battye in which GMM was a central party.
Central to the resolution of this proceeding is a determination of the correctness or otherwise of the following allegations made by the plaintiffs in their pleadings:
(a)
On or about 9 February 2001, Ebsworths were retained to act generally on behalf of GMM (described by the plaintiffs as “the Gibson Motorsport Merchandise retainer”).
(b)
On or about 9 February 2001, Ebsworths were retained to act generally on behalf of FCG (described by the plaintiffs as “the FC Gibson retainer”).
(c)
On 7 September 2001, Ebsworths were retained to act on behalf of Mr Watson and Mr Gibson in connection with a dispute between them and Mr Forbes and RPM (described by the plaintiffs as “the disputation advice retainer”).
(d)
During the period from March to October 2001, Ebsworths knew or ought to have known that the plaintiffs were relying and would rely upon advice given to them and their legal expertise generally so as to give rise to tortious duties of care.[36]
(e)
During the period from March to October 2001, Ebsworths were in a fiduciary relationship with the plaintiffs and owed them fiduciary duties.
[36] Although the existence of tortious duties of care is no longer a central issue having regard to the way in which the plaintiffs ultimately put their cases in final address, wherein they stated that the tortious duties were subsumed by the fiduciary claims (T1511.16).
In order to deal with the issues this case raises for determination, it is now necessary to examine more closely the role and conduct of Mr Battye. However, before turning to the role and conduct of Mr Battye, it is appropriate at this point to make some observations about the main witnesses, Mr Watson, Mr Gibson and Mr Battye.
Mr Watson, Mr Gibson and Mr Battye as witnesses
Each of Mr Watson, Mr Gibson and Mr Battye gave their evidence in a straightforward fashion. To my observation, each of them attempted to give an honest and accurate account of events as recollected by them. As is the nature of cases like this, Mr Battye had the advantage of having file notes from which he could refresh his memory (albeit that some of the file notes were relatively brief). On the other hand, Mr Watson and Mr Gibson were forced to reconstruct events some years after they occurred and by reference to documents discovered or produced in the earlier Federal Court proceedings. This had the result of making their evidence (and in particular Mr Watson’s evidence) appear from time to time to be a reconstruction. I do not mean to be critical about this. It was the inevitable consequence of the fact that this proceeding required them to give evidence of many conversations and meetings that now occurred more than seven years ago. Indeed, in answer to a question as to how he could remember conversations in the detail that he purports to remember them,[37] Mr Watson said:
[37] T381.24 – 382.4.
“I spent a lot of time constructing my witness statement as accurately as I could remember, probably laboriously. I tried to piece it together and to reconstruct it faithfully.”
Further, it should not be thought that Mr Battye’s evidence did not involve elements of reconstruction. Inevitably, all of the major witnesses to the conversations and meetings that occurred in 2000 and 2001 had to reconstruct matters to some extent. However, the evidence of Mr Watson appears to me to involve significantly more reconstruction than the evidence of Mr Battye. Generally speaking, Mr Battye either had the benefit of a file note or was prepared to concede that he did not have a specific recollection of matters outside his file notes.
It was apparent during the evidence of Mr Watson that in order to give detailed evidence of the large number of conversations and meetings, he had done a lot of work to reconstruct and recollect the events that occurred as best as he was able. It was not suggested that Mr Watson had a memory for dates and conversations that was superior to what might have been expected. Nevertheless, without any file notes to speak of,[38] he purported to give detailed evidence of the various conversations and meetings. His evidence appeared to have a “learned” quality about it. Again, I make no criticism about this, as I suspect it is simply a product of the amount of work Mr Watson has done over the years to put himself in the best position he can put himself in for the purpose of giving detailed and accurate evidence.[39] I have no doubt that Mr Watson believes that the detail of his evidence is accurate. However, because his evidence relies so heavily upon what is a substantial reconstruction, it is necessary to scrutinise it carefully by reference to the contemporaneous documents that are in evidence.
[38] There were some small notes made in a diary and on some documents occasionally.
[39] Indeed, Mr Watson frankly conceded in evidence-in-chief, in answer to a question about
Similar comments can be made in respect of Mr Gibson’s evidence. However, in evidence Mr Gibson was more willing to abandon his recollection if it was shown to be inconsistent with a contemporaneous document or record. In the end, the true contest was largely between Mr Watson and Mr Battye as to Mr Battye’s role and involvement. It was Mr Watson who had the greater contact with Mr Battye. That said, there were some aspects of Mr Watson’s and Mr Gibson’s evidence that caused me to have concerns about their accuracy. Examples include:
(a) The evidence of Mr Watson that Mr Battye sought to conceal a meeting on 14 September 2001 from him,40 which was clearly wrong. (b) Mr Watson’s evidence that it was not until 26 December 2001 that he realised for the first time that Mr Battye was acting against his interests.41 This evidence is very improbable, having regard to the dealings between the parties between 10 October and 26 December 2001. For example, see the email from Mr Battye to Mr Watson on 18 October 200142 in which Mr Watson’s second sentence begins with the words “without prejudice” and in which Mr Watson refers to a deed of release sent to him by Mr Battye as “not representative of the whole picture”. In this email, Mr Watson also states that he is not interested in “a bun fight about the whole thing”. (c) The circumstances in which the three corrections came to be lodged to the annual return of GMM.43 conversations that occurred with Mr Battye in early February 2001: “I am trying to distil a thousand
conversations” (T185.26).
Paragraph 230 of Mr Watson’s principal witness statement – part of Exhibit A.
Paragraph 288 of Mr Watson’s principal witness statement – part of Exhibit A.
CB 10/3079 – part of Exhibit A.
Exhibit 3 and T290 – 293.
(d)
The significant alterations made by Mr Gibson to paragraphs 148 to 150 of his principal witness statement.[44]
(e)
The significant misrepresentation of Mr Gibson’s true position as to advisers contained in paragraph 56 of his principal witness statement.[45]
[44] Part of Exhibit O.
[45] Compare paragraph 56 of Mr Gibson’s witness statement with p.532 of the transcript of Mr Gibson’s evidence in the Federal Court (part of Exhibit 20). See also T576.
Whilst Mr Battye had the benefit of his file notes, he freely and fairly conceded that in many instances his diary notes did not necessary prompt or refresh his memory – but rather he presumed that, as he had made the diary notes, they were accurate at the time.[46] Further, in respect of his evidence, Mr Battye acknowledged that a difficulty he had was that this case involves events that happened a long time ago and, having seen so many documents, read the transcript and sat with is lawyers for a month or more poring over documents and preparing his witness statement, the difficulty he had was in recalling what was in his mind at the time and what he now might think was in his mind. In this respect, Mr Battye said that he was “not confident that I can distil the two in respect of these matters”.[47] In Mr Battye’s favour was the way in which he answered questions in cross-examination. He was precise. He promptly conceded matters about which he had no recollection. He did not embellish his answers and he did not take opportunities given to him to give answers that would have been more favourable to his case. He made appropriate concessions. For example, when asked whether it was inappropriate for him not to have mentioned that his belief in 9 February 2001 was that his client was RPM, he said that in hindsight he supposed it was – but there was not any doubt in his mind as to who his client was when he wrote the February 2001 retainer letter.[48]
[46] See T859.29 – 860.1.
[47] T833.15 - .27.
[48] T881.6 - .12.
At the commencement of his final address, Senior Counsel for the plaintiffs submitted that whilst there were some issues of credit, they were not matters that went to the essence of the case.[49] However, in paragraph 43 of the plaintiffs’ outline of submissions,[50] it was submitted:
[49] T1465.13 - .16.
[50] Dated 12 November 2008, but handed up on the last day of the trial (14 November).
“[I]t is open to the court to find that much of Battye’s evidence is not credible. There are areas of contradiction between the evidence given by Battye and that given by his client Lowndes such that could lead to the inference that Battye was not being candid with the court.”
Particular areas of what are said to be contradictions between Mr Battye’s evidence and Mr Lowndes’ evidence were then identified. I have looked at each of these matters. None of them leads me to infer what it is said that I “could” infer – namely that Mr Battye was not being candid with the court. Such discrepancies as exist between Mr Battye’s evidence and Mr Lowndes’ evidence are easily explained by the effluxion of time and both witnesses doing their best to give an accurate account of what occurred during 2000 and 2001.
Whilst there are many differences between the account of Mr Watson and the account of Mr Battye in respect of individual meetings and conversations, a possible explanation for some of the differences is the different backgrounds of the two parties. Central to Mr Battye’s evidence (and the defendants’ case) is that when acting for “the team” or “Gibson Motorsport”, Mr Battye contends that he was acting for one entity, RPM. Central to Mr Watson’s evidence (and the plaintiffs’ case) is that references to “the team” are (as he has always understood them for many years in the motor racing industry) references to all of the entities involved in racing the race cars, including their employees.[51] Thus, Mr Watson’s evidence as to his meetings and conversations with Mr Battye start from the premise that everything being said about the team is being said about a group of entities and people, whereas Mr Battye’s recollections of the various conversations and meetings starts from the proposition that he was first Mr Lowndes’ lawyer and then (subject to any conflict that might arise) RPM’s lawyer. Having made these points, for the reasons given above, where there is a dispute between Mr Battye on the one hand and Mr Watson and Mr Gibson on the other hand concerning what was said in conversations or at meetings, I prefer the evidence of Mr Battye. With these matters in mind, I turn now to consider the role and conduct of Mr Battye.
[51] See T426.6 - .17 and T384.22 - .27. But cf Mr Watson’s evidence that the team consisted of the three companies, FCG, RPM and GMM at T329.22 – 330.16.
The role and conduct of Mr Battye
Mr Battye’s first involvement in this matter was on 24 May 2000 when he received a telephone call from Mr Watson. Mr Watson told Mr Battye that he had been referred to Mr Battye by Mr Daniel Butler, who was Mr Watson’s lawyer in a proceeding relating to the Ford Tickford Racing Team. Mr Watson told Mr Battye that he was advising Mr Lowndes in relation to a number of issues, and he asked whether Mr Battye would accept instructions. Mr Battye declined to act on behalf of Mr Watson, but said that he would be prepared to accept instructions from Mr Lowndes. A file was opened in the name of Mr Lowndes and, shortly thereafter, Mr Battye met in conference with Mr Watson and Mr and Mrs Lowndes. In the following months, Mr Battye acted as Mr Lowndes’ lawyer. Specifically, Mr Battye provided legal advice to Mr Lowndes in connection with the TWR management agreement and Mr Lowndes’ driving arrangements with HRT. During this period, Mr Battye frequently communicated with Mr Watson and received instructions from him on behalf of Mr Lowndes.
In approximately August 2000, Ebsworth & Ebsworth retained Mr Watson. The purpose of the retainer is in dispute. Mr Watson contends that he was retained by Ebsworth & Ebsworth so that he could be covered by the firm’s indemnity insurance and/or so that communications could be clothed with legal professional privilege. Mr Battye asserts that the purpose of the retainer was to seek Mr Watson’s assistance in relation to sponsorship and driving opportunities for Mr Lowndes. Mr Lowndes has a recollection that the retainer of Mr Watson had “something to do with the fact that Mr Watson was at risk of being sued because of what he was doing” whilst the TWR management agreement was on foot.[52] In the end, it is not necessary to resolve this dispute. However, it is more likely that Mr Battye’s explanation is the correct one. It is doubtful how the stated purpose identified by Mr Watson could be achieved and even more doubtful as to why Mr Battye would want to attempt to clothe communications with Mr Watson with legal professional privilege[53] and/or bring him under the umbrella of the firm’s indemnity insurance.[54] Further, Mr Battye’s evidence on this issue is corroborated by the letter he wrote to Browne & Co (who acted for TWR) on 5 September 2000.[55]
[52] T1312.14 - .19.
[53] Although Mr Battye conceded at T834 that there was a possibility of invoking privilege and that it was something that he may have mentioned to Mr Watson – although he did not recall.
[54] See Mr Battye’s evidence at T834-5 in which he says that he did not turn his mind to this issue, did not believe he raised it with Mr Watson and did not think that the firm’s cover extended in that manner.
[55] See CB 5/1185 which is part of Exhibit A.
On 6 September 2000, Mr Watson received a letter of demand from TWR in which it was asserted that it had come to the attention of TWR that Mr Watson had or intended to approach “third parties for the driving and other services of Craig Lowndes”. Mr Watson forwarded this letter to Mr Battye. Further letters were received by Mr Watson from Browne & Co, culminating in a letter dated 6 November 2000 in which Browne & Co threatened to commence proceedings against Mr Watson on behalf of their client, TWR. Eventually, Mr Battye referred Mr Watson to Mr Patrick McCabe of McCabe’s Solicitors for Mr McCabe to act on Mr Watson’s behalf in relation to the demands being made by TWR. This was done because of the obvious conflict of interest in Mr Battye (or Ebsworth & Ebsworth) acting on behalf of both Mr Lowndes and Mr Watson. Mr Battye never acted for Mr Watson in relation to this matter.
According to Mr Battye, in August 2000, he was introduced by Mr Watson to Mr Gibson. Mr Watson told Mr Battye that Mr Gibson was a person knowledgeable in the motor racing industry and would be able to provide advice on the options available to Mr Lowndes for the 2001 season.[56] Later in 2000, Mr Gibson was put forward to Mr Battye as a person who might manage a third car driven by Mr Lowndes for HRT – an option which ultimately did not proceed. Various options were conveyed during this time to Mr Battye concerning teams with which Mr Lowndes might drive in 2001. It is not necessary to set out the detail of these options.
[56] Whilst, as I will recount below, Mr Watson asserts that it was in a meeting in late November 2000 that he introduced Mr Gibson to Mr Battye, so far as the resolution of this case is concerned, nothing of great moment turns on this conflict.
On 22 November 2000, there was a meeting between Mr Battye, Mr Watson and Mr Polites and Mr Marsden of Ford. During the meeting there was discussion about the terms on which Mr Lowndes might enter into an agreement with Ford to drive a Ford racing car during the 2001 season. On 27 November 2000, Mr Battye and Mr Watson had a telephone conversation concerning Mr Lowndes’ options for the 2001 season in which Mr Watson expressed the opinion that he thought that Mr Gibson was the best option as team principal with Ford as the sponsor and Mr Lowndes as the driver. There were other discussions concerning the terms on which Mr Lowndes might be released from his agreement with TWR. It is not necessary to refer to the detail of those discussions.
Mr Watson asserts that it was in a meeting in late November 2000 at the offices of Ebsworth & Ebsworth that he introduced Mr Gibson to Mr Battye. Mr Battye has no record of this meeting and believes that it did not occur. It is unnecessary to resolve this issue. All that needs be said is that by late November 2000, Mr Battye had been introduced to Mr Gibson (Mr Battye’s recollection being that this introduction occurred in approximately August 2000). In any event, at this time the parties were moving forward towards a team run by Mr Gibson, sponsored by Ford and in which Mr Lowndes was the principal driver. There was then a meeting on 29 November 2000 between Mr Battye, Mr Watson and Mr Marsden of Ford. I have dealt with this meeting above.
On 5 December 2000, there was a meeting between Mr Battye, Mr Watson and Mr Gibson at which the scenario of Mr Lowndes driving a team managed by Mr Gibson was again discussed. Mr Battye was told that Mr Gibson would be buying back his old team from Mr Dumbrell. Mr Battye asked who would be handling the purchase of the team, as he would need to speak to them about the arrangements for a driver agreement between the team and Mr Lowndes. Mr Battye was told that Mr Neil Falconer of White Cleland would be acting on Mr Gibson’s behalf.
There were a number of conversations between Mr Watson and Mr Battye during December 2000. There is a dispute between them as to the detail of these conversations. Broadly speaking, Mr Watson alleges that he kept Mr Battye updated with the detail of the various meetings that he attended, including the 7 December meeting. Mr Battye’s recollection (supported by his file notes and by an absence of file notes in respect of some conversations alleged by Mr Watson) is that he was not advised of all of the detail that Mr Watson now asserts, and specifically that he was not advised on 7 December of the meeting or the discussions which took place on that day. This was a very busy period for Mr Watson. I find it is more likely that, with all that was going on during this period, he did not inform Mr Battye in the detail that he now asserts. Mr Battye’s account of the conversations he had with Mr Watson during this period is more likely to be correct. It follows that I do not accept Mr Watson’s assertion that he told Mr Battye about Mr Forbes on the evening of 7 December. I accept Mr Battye’s statement that the first time he heard Mr Forbes’ name was on 11 December 2000 when he was told by Mr Falconer that Mr Falconer was acting for Mr Gibson and Mr Robert Forbes. At that time, Mr Battye did not ascribe any significance to Mr Falconer’s statement that he was also acting for Mr Forbes because he did not know who Mr Forbes was or what his association was with the team.
In December 2000, Mr Battye prepared a draft of a driver agreement between Mr Lowndes, Craig Lowndes Pty Ltd and Fred Gibson Motorsport (“FGM”). There was discussion between Mr Battye, Mr Lowndes and Mr Watson as to the terms of the sponsorship agreement between Ford and Mr Lowndes. On 18 December 2000, Mr Battye was told by Mr Falconer that the entity purchasing the racing team from Mr Dumbrell was “ACN 095 359 041 Pty Ltd” – which later became RPM. Mr Battye believed at that stage that RPM was a company controlled by Mr Gibson. Again, I do not accept the evidence of Mr Watson that during this period he told Mr Battye about Mr Forbes and Mr Forbes’ involvement in the structure. I accept Mr Battye’s evidence that it was some time after Mr Forbes’ name was mentioned by Mr Falconer that he had a conversation with Mr Watson during which he asked who Mr Forbes was. Whilst nothing of any great moment turns on the issue, it is clear that, in any event, by 4 January 2001, Mr Battye had been told that Mr Forbes was providing financial backing to allow the team to be purchased from Mr Dumbrell. At some time after 19 December 2000, Mr Battye was told that the sole director of RPM was now Mr Forbes, but that Mr Gibson would nonetheless act as team principal.
Up until 2 February 2001, Mr Battye only acted for Mr Lowndes.[57] On 2 February 2001, Mr Watson telephoned Mr Battye and asked whether he would be prepared to act for “the team”. Whilst it is common ground that this conversation occurred, there is a dispute between Mr Battye and Mr Watson as to its ambit and, specifically, what was meant by the expression “the team”. Both Mr Watson and Mr Battye agree that the possibility of a conflict of interest was raised by Mr Battye, being a conflict because of his position as Mr Lowndes’ lawyer. Mr Battye’s evidence is that he did not ask Mr Watson what he meant by “the team”. The only company that he was aware of that was “the team” was RPM (a matter about which I will say more below). Mr Battye’s evidence was that he had not heard of GMM at this time and that, by referring to “the team”, he understood this to be a request that he act on behalf of RPM.
[57] Whilst Mr Battye also acted for Mr Lowndes’ company, Craig Lowndes Pty Ltd, it is not necessary to specifically refer to this company and references hereafter to Mr Battye acting for Mr Lowndes should be taken to include references to him acting for Mr Lowndes’ company.
Mr Watson’s evidence was that, during this conversation, he asked “Philip, would it be appropriate if you represented us so you could put it all together?”[58] and that in his discussion with Mr Battye “us” was “the whole consortium”. Mr Watson’s recollection is that he asked Mr Battye to deal with all the contracts that were necessary for the different components that made up the team and that contracts needed to be developed for sponsors going forward. There was discussion about the Ford contract and that “sponsor templates” were needed before negotiations with sponsors could be concluded. Mr Watson’s evidence was “I spoke about a myriad of things that we needed to do at that point in time”. Mr Watson recollects that he told Mr Battye that GMM had been incorporated.[59] However, at best, Mr Watson can only have told Mr Battye that he had given instructions on 24 January 2001 to incorporate GMM as GMM was not incorporated until 6 February 2001. This evidence was given orally by Mr Watson in substitution for paragraphs 88 and 89 of his principal witness statement.[60] It may be that Mr Watson’s evidence concerning telling Mr Battye about the incorporation of GMM was meant to refer to a conversation that occurred on 6 February.[61] Equally, it may refer to a conversation held subsequently at the workshop. In any event, if Mr Watson did say on 2 February that GMM had been incorporated, this was wrong.[62]
[58] T182.6.
[59] T187.2.
[60] Paragraphs 88, 89, 90, 94, 96, 97, 119-121, 190, 191, 194, 208, 209, 274 and 278 of Mr Watson’s original witness statement were originally not received in evidence as they contained conversations about which there was a dispute between the parties.
[61] Set out in paragraph 94 of Mr Watson’s original witness statement, one of the paragraphs not received because it contained evidence of a conversation which was disputed.
[62] Again, see Mr Watson’s evidence as to his attempts to “distil a thousand conversations” at T185.26.
In advancing their claims for equitable compensation the plaintiffs rely heavily upon what Lord Thankerton said in Brickenden v London Loan and Savings Co.[184] Lord Thankerton said:[185]
“When a party, holding a fiduciary relationship, commits a breach of duty by non-disclosure of material facts, which his constituent is entitled to know in connection with the transaction, he cannot be heard to maintain that disclosure would not have altered the decision to proceed with the transaction, because the constituent’s action would be solely determined by some other factor such as the valuation by another party of the property proposed to be mortgaged. Once the court has determined that the non- disclosed facts were material, speculation as to what course the constituent, on disclosure, would have taken is not relevant.”
However, as was explained by Kirby J in Maguire v Maguire v Makaronis[186] facts will not be “material” if the relevant loss would have happened if there had been no breach (see also Warren CJ in Pearce (supra)). As was said by Tipping J in Bank of New Zealand v New Zealand Guardian Trust Co Ltd[187] when discussing breaches of duty committed by fiduciaries involving an element of infidelity or disloyalty:
“Once the plaintiff has shown a loss arising out of a transaction to which the breach was material, the plaintiff is entitled to recover unless the defendant fiduciary, upon whom is the onus, shows that the loss or damage would have occurred in any event, i.e. without any breach on the fiduciary’s part.”
Bearing the above principles in mind, I turn now to consider the three heads of claim advanced by the plaintiffs.
[184] (1934) 3 DLR 465.
[185] At 469.
[186] (1997) 188 CLR 449 at 493.
[187] [1999] 1 NZLR 664 at 687.
It is not immediately apparent why breaches of duty by any defendant would lead, as a matter of commonsense, to a plaintiff commencing legal proceedings against a third party in which that plaintiff suffers a net loss. The plaintiffs were largely unsuccessful in the Federal Court proceedings. They failed to establish the joint venture that they sought to establish. Whilst one could accept that the loss of a joint venture may or may not have been as a result of the defendants’ breach of duty, the launching of legal proceedings in which claims made by the plaintiffs were properly dismissed and which resulted in them incurring costs cannot in this case, as a matter of causation, be laid at the feet of the defendants. Indeed, Senior Counsel for the plaintiffs conceded in his final address that these amounts could not be recovered as common law damages.[188] That concession was correctly made. Notwithstanding the different principles to be applied when assessing equitable compensation in some cases, the result is no different in this case, whether one is assessing common law damages or equitable compensation.
[188] T1524.24 – 1525.1.
If I am wrong in this conclusion, then the chain of causation between any breach of duty by the defendants on the one hand and the incurring of the net loss caused by the commencement and maintenance of the Federal Court proceeding was broken by the plaintiffs’ failure to accept Calderbank offers made by the respondents in the Federal Court proceeding on 23 April 2004 and 19 July 2004 in the amounts of $1,750,000 plus costs and $2,600,000 plus costs respectively.[189] Neither of these offers was accepted by the plaintiffs. Had they been, it is difficult to see how the plaintiffs would have suffered any loss at the conclusion of the Federal Court proceeding. It follows from what I have said that I reject this head of the plaintiffs’ claim.
[189] Exhibit 12.
I turn now to consider the plaintiffs’ claim that FCG lost $2,130,000 as a result of selling the TEGA franchise. FCG paid $400,000 on 18 December 2000 for the TEGA franchise. It was sold on 21 December 2001 to John Briggs Motorsport Pty Ltd for $650,000 (a 62.5% increase in price in a little over 12 months). The plaintiffs’ claim that FCG was required to sell the franchise because it was not able to fulfil its obligations under the AVESCO Agreement for the 2002 V8 Supercar Season.[190] Mr Gibson gave evidence that, had he been able to retain the TEGA franchise, it would have been valued, in December 2003, at $3 million.[191] During the course of the trial, I admitted a deed of agreement[192] concerning the sale in September 2004 of two category one licences (the equivalent of a TEGA franchise held in 2001) pursuant to s 55 of the Evidence Act 1958[193] as evidence of the statement that in September 2004, two category one licences were sold for $3 million plus GST.[194] I rejected on discretionary grounds the tender of a similar statement[195] in relation to another sale because of issues of potential unreliability.
[190] CB 10/3202 – part of Exhibit O.
[191] See Mr Gibson’s principal witness statement (part of Exhibit O) at paragraph 156.
[192] Exhibit W.
[193] Relying upon Saffron v The Queen (1989) 17 NSWLR 395; Albrighton v Royal Prince Alfred Hospital (1980) 2 NSWLR 542; Nolan v Nolan (2003) 10 VR 626; ATRA v Farmers and Graziers Coop (1986) 5 NSWLR 281; RW Miller & Company v Krupp (Australia) Pty Ltd (1991) 32 NSWLR 152; Re Marra Development (1979) 2 NSWLR 193 and Ritz Hotel v Charles of the Ritz (Nos 15 & 16) (1987) 14 NSWLR 107.
[194] Ruling at T812 – 816.
[195] Contained in Exhibit V for identification.
In December 2001, FCG’s TEGA franchise was not going to be used in respect of a team in which Mr Lowndes was the principal driver. However, I am not satisfied that this fact caused FCG to sell its franchise. The evidence discloses that it was open to Mr Gibson to start another team. Indeed, there were other proposals from time to time (for example, the Adelaide proposal) which, if taken up, would require a TEGA franchise. Whilst FCG may not have needed its TEGA franchise in December 2001 because Mr Lowndes had stayed with RPM and whilst this may have brought about an occasion whereby FCG could sell its TEGA franchise, theoretically there was no reason why FCG could not have used it with another team based out of the factory next to the Dandenong workshop (as was contemplated if Mr Lowndes had left RPM in October 2001). Mr Lowndes was not the only driver and Ford was not the only sponsor. Indeed, for the purposes of valuing GMM as at 31 December 2006, the plaintiffs asked Mr Blashki to assume that Ford could be replaced (albeit with perhaps some reduction in sales) and to assume that the risk of losing Mr Lowndes was not “critical” as “a similar relationship could probably be generated”.[196] This suggests that Mr Gibson could have (if he chose to) used the TEGA franchise in 2002 and following with another driver and sponsor, remembering that he was quite prepared, on 10 October 2001, to “basically start again”.[197] Further, I am not satisfied on the basis of one sale (or perhaps two) that it is appropriate to value FCG’s franchise at $3 million or any figure like it in 2003 or thereafter. The plaintiffs have not established any loss caused by the sale of the TEGA franchise in December 2001. This head of the plaintiffs’ claim must be rejected.
[196] See paragraphs 38b and 44f of Mr Blashki’s report dated 5 February 2007 (part of Exhibit S).
[197] To use the words of Mr Lowndes.
I turn now to consider the plaintiffs’ claim that GMM lost the opportunity to earn $21,176,000. Notwithstanding the finding I have made that Mr Battye did not breach any duty in relation to the allegation that he failed to inform Mr Watson and Mr Gibson about a lack of contracts, I will look first at this claim on the basis that Mr Battye should have done more to progress the contract issue. I find that even if Mr Battye had done more than he did (which was to raise the issue and seek instructions which were never provided), the contracts the plaintiffs would have me accept should have been in place would not have been in place in any event. This is largely because, notwithstanding the views of Mr Watson and Mr Gibson that there was consensus between them and Mr Forbes, it is clear that right from the start Mr Forbes had a different view from the view shared by Mr Watson and Mr Gibson. Even if contracts were prepared and tendered to Mr Forbes in February/March 2001, the overwhelming likelihood is that Mr Forbes would not have executed any contract or permitted RPM to enter into a binding agreement. The possibility of Mr Forbes entering into a contract became even more remote after 30 March and then again after 30 June 2001.
The real issue is whether or not Mr Watson and Mr Gibson could have changed the outcome of the meeting on 10 October 2001 had they been kept fully informed of Mr Forbes’ intentions and activities. The first question to be asked is whether Mr Watson and Mr Gibson had a prospect of staying with Mr Lowndes and Ford as at the 10 October meeting. Mr Lowndes had not finally made up his mind. The question becomes whether Mr Watson’s and Mr Gibson’s chances would have been enhanced to any and what extent if they were more fully prepared to put their case on 10 October. As I have said above, this assumes that Mr Watson and Mr Gibson did not in fact put their best foot forward on 10 October - a conclusion I have rejected. Neither Mr Watson nor Mr Gibson gave any evidence of a “better” presentation that could have been made on 10 October had they been better prepared. Indeed, at no time in this trial was it suggested that there was relevant material which could have been put before Mr Lowndes on 10 October 2001 which might have enhanced Mr Watson’s and Mr Gibson’s case. Further, it is to be remembered that, as at 10 October, Mr Lowndes was contractually bound to RPM under the RPM driver agreement until at least 31 December 2002. Whilst this matter does not appear to have been expressly referred to, it seems likely that, had Mr Lowndes suggested that he would leave RPM, an issue of breach of contract would have been raised. Ordinarily, one would think that a person in Mr Lowndes’ position would not take a step (if he did not have to) that would place him in breach of contract. Whilst Mr Lowndes might have taken such steps in relation to TWR in the second half of 2000 and in early 2001, the circumstances were very different and there would have been no up side in Mr Lowndes exposing himself (and his company) to a claim for breach of contract by RPM in October 2001. In the circumstances, and with Mr Forbes maintaining that he would not sell to Mr Watson nor Mr Gibson, there was no realistic prospect of a different outcome in relation to the 10 October meeting and the separation at or shortly after that time of the Watson and Gibson interests from the team.
It follows from what I have said above that, even accepting the plaintiffs’ case that there were breaches of duty by the defendants in the period from 31 August to 10 October, any such breaches did not lead to GMM being deprived of an opportunity to earn income. Any such losses were brought about by the fact that Mr Forbes would not sell to Mr Watson and Mr Gibson and that realistically it was too late to set up a new team and that, in any event, Mr Lowndes was contractually bound to stay with RPM for the 2002 season. That is, any loss suffered by GMM of a kind claimed by the plaintiffs would have occurred in any event notwithstanding any breach on Mr Battye’s part. However, on the basis that I might be found to be wrong in that conclusion, I should assess the value of the opportunity that GMM alleges it lost. Even if one accepts the plaintiffs’ case that the defendants’ breaches of duty between 31 August and 10 October 2001 deprived Mr Watson and Mr Gibson of a chance that Mr Lowndes would go with them (rather than Mr Forbes), at best what was lost was a 50/50 chance. For the reasons given above, I have found that no real chance was lost. However, on the assumption that I am wrong, I turn now to value this opportunity.
In order to value the opportunity allegedly lost by GMM, each side called an expert. The plaintiffs called Mr Blashki of Pitcher Partners. The defendants called Mr Meredith of Ferrier Hodgson. Various calculations were performed on various different scenarios. The scenarios assumed a business life in the range one to five years. Calculations were made on the basis of figures forecast by Mr Watson and GMM budget figures with different growth rates applied to them. Further scenarios were calculated with Biante revenue removed and on the basis that particular savings would or would not be achieved by the manufacturer of some apparel overseas.[198]
[198] As to other variables and scenarios, see paragraph [148] below.
As we now know, Mr Lowndes and Ford left RPM at the end of 2002. Theoretically, it might be contended that, had Mr Lowndes gone with Mr Watson and Mr Gibson in October 2001, Ford would not have moved its sponsorship money at the end of 2002 and the team would have continued past the end of 2002. However, there is no real basis for any such contention. There is no basis for concluding that what occurred at the end of 2002 would not have occurred had Mr Lowndes gone with Mr Watson and Mr Gibson, rather than with Mr Forbes. Even if FCG and Ford had entered into a binding agreement in 2001, there is no reason to suppose that it would not have contained a clause entitling Ford to terminate the agreement if Mr Lowndes no longer drove for the team (that is, a clause equivalent to clause 22(b) of the draft agreement proposed by Ford to be entered into between it and FCG). It is to be remembered that the RPM driver agreement permitted Mr Lowndes to leave (as he did) at the end of 2002.
The appropriate assessment of GMM’s loss of the opportunity to conduct the merchandising business is, in the circumstances (having regard to what actually happened, with the full benefit of hindsight and not speculating against the interest of the plaintiffs), calculated by reference to Mr Lowndes and Ford leaving at the end of 2002. Indeed, the facts as we now know them disclose that Ford moved its money at the end of 2002 to the new team, Ford Performance Racing, and Mr Lowndes (as he was entitled to under the RPM driver agreement) went with them. Whilst Mr Blashki’s opinion has been expressed on an assumption that Mr Lowndes and Ford could be replaced, if that is true then there is no reason why GMM could not have operated and conducted its business for another team involving another driver and major sponsor.[199] Whilst there was debate between the parties concerning the use of either the GMM budget figures for 2002 or Mr Watson’s forecast figures, I find that the GMM budget figures (having been produced without any reference to potential litigation) are more likely to reflect the true position.[200] Making these assumptions, Mr Meredith values GMM’s loss at $848,459.201 However, this amount includes a component described as “actual net cash loss on winding up”. Further, the value is calculated in 2007 dollars, which, if appropriate, would require some counterbalancing alteration when any claim for statutory interest pursuant to the provisions of the Supreme Court Act 1986 was considered.
[199] See the assumptions Mr Blashki was asked to make as demonstrated in paragraphs 38b and 44f of his report dated 5 February 2007 (part of Exhibit S).
[200] In making this conclusion I have not overlooked the evidence concerning the success of HRT and the merchandising revenue it achieved in the years leading up to and during the same period (In particular the evidence of Mr Crennan and Mr Skaife). Again, the success of HRT and its ability to
Mr Blashki has not performed a calculation on the basis of GMM conducting its business for a Lowndes/Ford team only up to 31 December 2002. However, if one takes the surplus cash net of tax, which would have been generated to December 2002 as calculated by him ($564,000) and adds back 30% for tax, one arrives at the figure of $733,200. Whilst Mr Blashki’s calculations of GMM’s loss were calculated by adding surplus cash net of tax at the conclusion of the relevant period during which the business would have operated, an amount for income tax, a loss on winding up and a terminal business value (about which Mr Meredith disagreed as a matter of methodology), on the evidence there does not appear to be any reason why one would necessarily conclude (and I do not conclude) that GMM would cease operating at the conclusion of the period being examined. GMM’s loss (if any) was the loss of an ability to earn income during 2002. It is too speculative to conclude that GMM suffered any loss of an ability to earn income in 2003 and beyond. Consistently with the assumptions Mr Blashki was asked to make, GMM’s loss was the loss of income it could have earned in 2002 before then continuing on as a business involving another driver and another sponsor. Having said that, the figure of $733,200 clearly does not reflect Mr Blashki’s valuation of GMM’s loss, but rather my extrapolation of his figures which formed the basis for three and five year loss calculations.
If one takes Mr Meredith’s scenario two figures202 and removes the actual net cash loss on winding up component,203 then the estimated loss would be $644,430 (in 2007
generate revenues substantially greater than the amounts here under discussion were known at the
time the GMM budget figures were calculated.
Mr Meredith’s scenario two, supported by his revised annexure I (part of Exhibit 39).
Which produce the valuation figure referred to in paragraph [146] above.
Again, on the basis that the business could continue with the team engaging another driver and another major sponsor.
dollars).[204] However, there are a number of other variables capable of impacting positively or negatively on the valuation. Specifically, the possibility of cost savings in respect of overseas manufacturing, whether a fee to RPM at any and what level should be assumed, whether GMM would have had to subsidise RPM’s operations (and if so, then to what level and with what possible subsequent benefit to GMM) and the ownership of the Biante sponsorship moneys (GMM or RPM) need to be considered. It is not possible to make specific dollar allowances in respect of each of these contingencies and possibilities. Having considered them (and taking the broad brush that I was invited by the parties to take),[205] I consider that an appropriate valuation of the loss (in 2007 dollars – and thus with the necessity to make an appropriate adjustment for interest) is $700,000.
[204] $550,184 x the CPI index of 1.1713.
[205] T1463.1 - .21 and T1516.13.
The evidence discloses that if GMM was deprived of an opportunity to earn income as a result of breaches of duty by Mr Battye in September and October 2001, then the amount of the loss is of the order of $700,000. As I said above, at best, GMM lost a 50/50 chance to earn that income. In the end, had I been called upon to assess common law damages, I would have taken that matter into account. However, the plaintiffs did not pursue a common law remedy, pursuing only a claim for equitable compensation. Accordingly, had my findings required me to assess equitable compensation, I would have (in accordance with the principles I have identified above[206]) assessed such compensation at $700,000.[207]
[206] In particular, paragraph [71] of the judgment in Pearce (supra) and the judgment of Lord Thankerton in Brickenden (supra). See also O’Halloran v RT Thomas & Family Pty Ltd (1998) 45 NSWLR 262 at 277.
[207] Bearing in mind what I have said about 2007 dollars and interest in paragraph [148] above.
Conclusion
Whilst I have examined questions of causation and loss and made the findings set out above, the plaintiffs having failed on the issue of liability, there will be judgment for the defendants. I will hear the parties on the question of costs.
“That contractual and fiduciary relationships may coexist between the same parties has never been doubted. Indeed, the existence of a basic contractual relationship has in many situations provided a foundation for the erection of a fiduciary relationship. In these situations it is the contractual foundation which is all important because it is the contract that regulates the basic
“Although the remedy which equity makes available for breach of the equitable duty of skill and care is equitable compensation rather than damages, this is merely the product of history and in this context is in my opinion a distinction without a difference. Equitable compensation for breach of the duty of skill and care resembles common law damages in that it is awarded by way of compensation to the plaintiff for his loss. There is no reason in principle why the common law rules of causation, remoteness of damage and measure of damages should not be applied by analogy in such a case. It should not be confused with equitable compensation for breach of fiduciary duty, which may be awarded in lieu of rescission or specific restitution.”
(See Youyang Pty Ltd v Minter Ellison (2003) 212 CLR 484 per Gleeson CJ, McHugh, Gummow, Kirby and Hayne JJ at paras [38]-[40]. See also Meagher, Gummow & Lehane, Equity Doctrines & Remedies (4th ed) at 840.)
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