Australian Competition & Consumer Commission v Universal Sports Challenge Ltd - [2002] FCA 1276 - FCA 2002 case summary — Zoe

CTHFCA

Australian Competition & Consumer Commission v Universal Sports Challenge Ltd

[2002] FCA 1276

Federal Court of Australia|2002-10-23|Before: Emmett J

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Source facts

Court

Federal Court of Australia

Decision date

2002-10-23

Before

Emmett J

Source

Original judgment source is linked above.

Judgment (40 paragraphs)

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REASONS FOR JUDGMENT 1 The applicant, Australian Competition & Consumer Commission ("the Commission"), commenced a proceeding in the Court alleging contraventions by the first respondent, Universal Sports Challenge Limited ("Universal"), of provisions of Part V of the Trade Practices Act 1974 (Cth) ("the Act"). The alleged contraventions arose out of the promotion of a golfing competition conducted by Universal under the name "The Shark Challenge". In addition, the Commission claimed that the second respondent, Michael Kotowicz ("Mr Kotowicz"), was directly or indirectly knowingly concerned and a party to, the contraventions by Universal. 2 On 31 May 2002, by consent of the Commission and Universal, I declared that Universal had engaged in conduct contrary to ss 52 and 54 of the Act in connection with the promotion of the Shark Challenge. I also made orders by consent restraining Universal from engaging in conduct in contravention of the Act and requiring Universal to send correcting communications to participants in the Shark Challenge. I ordered that the proceeding be otherwise dismissed as against Universal. However, the Commission has continued the proceeding as against Mr Kotowicz. 3 It is common ground that, in connection with the Shark Challenge, Universal was responsible for the publication of certain statements ("the Relevant Statements") on an Internet site with the address "http://www.sharkchallenge.com.au" ("the Internet Site"), in leaflets in circulation in January or February 2000 ("the Leaflets") and in the April 2000 issue of the Australian Golf Digest magazine ("the April Magazine"). It is also common ground that, from 11 October 2000, Mr Kotowicz was the Chief Executive of Universal and was responsible for the management its day-to-day affairs from that date. 4 Section 52 of the Act provides that a corporation must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive. Section 54 provides that a corporation must not, in trade or commerce, in connection with the supply or possible supply of services or in connection with the promotion by any means of the supply or use of services, offer gifts, prizes or other free items with the intention of not providing them or of not providing them as offered. Sections 52 and 54 are both within Part V of the Act. 5 Section 21 of the Federal Court of Australia Act 1976 (Cth) provides that the Court may, in relation to a matter in which it has original jurisdiction, make binding declarations of right. Section 80(1) of the Act provides that, where the Court is satisfied that a person has engaged in conduct that constitutes being in any way directly or indirectly knowingly concerned in, or party to, the contravention by a person of a provision of Part V of the Act, the Court may grant an injunction in such terms as the Court determines to be appropriate. 6 The Commission now claims orders as follows: · a declaration that Mr Kotowicz was, directly or indirectly, knowingly concerned in, and a party to, contraventions by Universal of Part V, constituted by the following conduct: o Universal, in trade or commerce, engaged in conduct that was misleading or deceptive, or was likely to mislead or deceive, by publishing from about 9 November 2000 on the Internet Site, in the Leaflets and in the April Magazine, a representation ("the Overseas Final Representation") that a second final in the Shark Challenge would be held at an overseas destination; o Universal, in trade or commerce, in connection with the promotion of the Shark Challenge, from about 9 November 2000, offered successful participants the prize of the opportunity of participating in a second final in the Shark Challenge at an overseas destination, with the intention of not providing a second final at an overseas destination; · a declaration that Mr Kotowicz was, from about August 2000, or alternatively from about 11 October 2000, directly or indirectly, knowingly concerned in and a party to other contraventions by Universal, of Part V of the Act, constituted by the following conduct: o Universal, in trade or commerce, engaged in conduct that was misleading or deceptive, or was likely to mislead or deceive, by not stating on the Internet Site, in the Leaflets and in the April Magazine that Junior Male participants and Junior Female participants in the Shark Challenge ("Junior Participants") would not be eligible to participate in a second final in the Shark Challenge to be held at an overseas destination; o Universal, in trade or commerce, in connection with the promotion of the Shark Challenge offered successful Junior Participants the prize of the opportunity to participate in a second final at an overseas destination, with the intention of not providing a second final in the Shark Challenge at an overseas destination; · an injunction restraining Mr Kotowicz from being directly or indirectly knowingly concerned in or a party to a corporation offering gifts, prizes or other free items, in relation to the promotion of sporting events, with the intention of not providing such gifts, prizes or other free items; · an order requiring Mr Kotowicz, within three months of the date of the order, to undergo training from a firm of solicitors or compliance professionals with expertise in trade practices law in relation to the law relating to Part V of the Act.

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the issues and the commission's case 8 The allegations pleaded against Mr Kotowicz in the Commission's statement of claim may be summarised as follows: · From December 1999 to 9 December 2000, Universal: - published the Overseas Final Representation on the Internet Site and in the Leaflets and the April Magazine; - offered successful participants in the Shark Challenge the prize of the opportunity to participate in a second final at an overseas destination; - published, on the Internet Site and in the Leaflets and the April Magazine, a representation ("the Junior Participants Representation") that all participants in the Shark Challenge who qualified in the top half of the first final would be eligible to compete in a second final to be held at an overseas destination; and - offered successful Junior Participants the prize of the opportunity to participate in a second final in the Shark Challenge 2000 Golfing Competition Challenge at an overseas destination. · That conduct was in contravention of ss 52 and 54 of the Act. · From about August 2000 Mr Kotowicz participated in the management and affairs of Universal and from about 11 October 2000 he was responsible for the day-to-day affairs of Universal. · On or about 9 November 2000 Mr Kotowicz decided that Universal would not hold a second final at an overseas destination and that Universal would hold a second final at a destination in Australia. · From about August 2000, or alternatively from about 11 October 2000, Mr Kotowicz was aware that Universal did not permit Junior Participants to be eligible to participate in the second final to be held at an overseas destination; · By reason of the above matters, Mr Kotowicz was directly or indirectly knowingly concerned in, or was a party to, the contraventions by Universal. 9 The Commission relies on the provisions of s 51A of the Act in contending that, insofar as the Relevant Statements were made after 9 November 2000, they were made in contravention of s 52 of the Act. Under s 51A(1), where a corporation makes a representation with respect to any future matter and the corporation does not have reasonable grounds for making the representation, the representation is to be taken to be misleading. Section 51A(2) then provides that, in a proceeding concerning a representation made by a corporation with respect to any future matter, the corporation is, unless it adduces evidence to the contrary, to be deemed not to have had reasonable grounds for making the representation. The reason for the emphasis will become clear in due course.

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THE RULES OF THE Shark Challenge 13 The detailed "Terms and Conditions" of the Shark Challenge were set out in the Leaflets and on the Internet Site. Under the Terms and Conditions, in order to be eligible for the finals of the Shark Challenge, participants had to pay a joining fee of $55 for membership for the period up to 1 December 2000. Participants were required to enter a minimum of nine score cards. Scores from the best nine cards were to be totalled to determine the qualifiers for the first round final. The participants in the top half of that final were to be eligible for the second final. 14 A total of 5,809 competitors joined the competition. Of those, sixty-four joined on or after 11 October 2000. Of those, it appears that twenty-one joined on or after 9 November 2000. Of the sixty-four competitors who joined after 11 October 2000, only three submitted nine score cards or more. 15 It is clear that the Shark Challenge, as promoted in the Leaflets and the April Magazine and on the Internet Site, related to the 2000 calendar year. There is nothing on Internet Site or in the Leaflets or the April Magazine that says expressly when the proposed overseas final would be held. However, the Commission contends that, by making the Relevant Statements, Universal represented that there would be a final at an overseas destination in connection with the Shark Challenge for the 2000 calendar year. The Commission says that, unless such a final was held before the end of January 2001, it could not be said that the final was held in connection with the Shark Challenge for the 2000 calendar year. 16 It is curious that there appears to have been no provision of the Terms and Conditions indicating when the time for submitting cards was to end. However, the printout of the Internet Site as at 20 December 2000 contains the following statements on the "News" page: "Final Rounds Sunday November 5 was your last chance to play a round in the 2000 Shark Challenge. All results must be received no later than 5 pm Thursday November 9. Qualifiers and Wildcard winners will be notified by mail from Monday November 13, 2000." Those statements indicate quite unequivocally that it was too late after 9 November 2000 to submit score cards that might qualify a participant for any final, whether at an overseas destination or otherwise. There was no evidence as to when such statements first appeared on the Internet Site. 17 Even if a representation made in the Leaflets or in the April Magazine could reasonably be regarded as constituting a continuing representation as at 9 November 2000, it would have been a keen golfer who relied on the representation in order to pay the sum of $55 and enter the Shark Challenge after 9 November 2000, knowing that the overseas final would be open only to those who had submitted at least nine score cards. By 9 November 2000, no person who read the material contained on the Internet Site could be under any apprehension that it was still possible to enter the Shark Challenge and qualify for a final to be held at an overseas destination. 18 The Commission accepted that, under the rules of the Shark Challenge, Universal could have varied the rules, tournament conditions, prizes and venues at its sole discretion at any time. Rule 16 of the Terms and Conditions expressly so provided. The Commission accepted that, if Universal had made an announcement on 9 November 2000 that there would be no final at an overseas destination, there would have been no contravention of Part V of the Act by Universal after that date. There would have been no contravention in which Mr Kotowicz could have been knowingly involved or to which he could have been a party. The Commission contended, however, that, while it was open to Universal to make such an announcement, it did not do so and, accordingly, it was in contravention of the Act until an announcement was made on 9 December 2000 that the second final would be at Pelican Waters in Queensland, rather than at an overseas destination. 19 Of course, if any participant looked at the Internet Site, as participants were invited to do regularly, such a participant would know that it was no longer possible to submit score cards by way of participation in the Shark Challenge. Any prospective new participant who looked at the Internet Site after 9 November 2000 would have been informed that entry into the Shark Challenge for the 2000 calendar year would have been futile. 20 On the other hand, there may have been participants in the Shark Challenge who, after 9 November 2000, continued to nurture the hope and expectation that there was still a possibility of participating in a final at an overseas destination. Such participants may have experienced disappointment by an announcement on 9 November 2000 that would have prevented any contravention of the Act. The fact that such disappointment was postponed for a month led, according to the Commission's case, to contravention of the Act. Assuming that to be correct, it may be a relevant factor in determining whether, as a matter of discretion, any relief should be granted. The conduct complained of had the effect of postponing disappointment, without in any way occasioning any greater prejudice to any person than would have been occasioned by making an announcement one month earlier.

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Approval of AGU 23 It was important that competitors in the Shark Challenge not prejudice their amateur standing by playing in the competition. That required that the competition be approved by the AGU. The Commission's case against Mr Kotowicz is that, by 9 November 2000, it was no longer feasible for Universal to satisfy the requirements of the AGU for approval in relation to the holding of a final at an overseas destination. In that regard, the Commission relied on the evidence of Mr Thomas Duguid, the Manager, Rules and Handicapping, of the AGU. 24 Mr Duguid gave affidavit evidence, without objection, that the AGU would not approve a final at an overseas destination unless the relevant overseas golfing authority approved the event. In addition, he said that the AGU would not approve a final at an overseas destination unless there were overseas participants in the final. He said that the AGU "would not generally consider it appropriate for Australian amateur players to play golf overseas for no particular reason, when there are many Australian venues". 25 Mr Duguid asserted that the attitude of the AGU was based on certain of the Rules of Golf as promulgated by the Royal and Ancient Golf Club of St Andrews ("the Rules") in force with effect from 1 January 2000. The Rules relied on defined "amateur golfer" as one who plays the game of golf "as a non-remunerative and non-profit making sport". Rule 4-1 provides that, except as provided in the Rules, an amateur golfer must not accept expenses, in money or otherwise, from any source to play in a golf competition. Rule 4-2 then provides that an amateur golfer may receive expenses, not exceeding the actual expenses incurred, to play in a golf competition as set out in the Rules. Rule 4-2g provides as follows: "An Amateur golfer may receive expenses when competing in a sponsored handicap competition, provided the competition has been approved as follows: (i) where the competition is to take place in the player's own country, the annual approval of the Governing Body must first be obtained in advance by the sponsor; and (ii) where the competition is to take place in more than one country or involves golfers from another country, the approval of the two or more Governing Bodies must first be obtained in advance by the sponsor. The application for this approval should be sent to the Governing Body in the country where the competition commences." 26 Mr Duguid's statement that the AGU would not approve a final at an overseas destination unless the relevant overseas authority approved the event is consistent with Rule 4-2g(ii). However, there does not appear to be anything in the Rules that provides expressly that where a competition is to take place in more than one country, residents of both countries must participate. 27 In its initial stages, the Shark Challenge was operated by a joint venture. Those responsible for the arrangements at that stage were Mr Frank Williams, who was a manager of Greg Norman, a world renowned golfer, and Ms Monique Thompson, who also had an involvement in the business affairs of Greg Norman. They originally proposed that the overseas final for the Shark Challenge would be held in Hawaii, USA. However, Mr Duguid told them that the United States Golf Association ("the USGA") might not be in a position to approve a final in Hawaii. 28 On 6 December 1999, Mr Duguid sent a facsimile to Mr Anthony J Zirpoli of the USGA. The facsimile relevantly said: "The AGU is proposing to run, in conjunction with Great White Shark Enterprises (GWSE), an international amateur competition. It is contemplated by GWSE that the final be held in Hawaii, but we have advised them that this has historically not been possible because the USGA, as the host body, does not have the same exception… and therefore does not give the required host body approval…" Mr Zirpoli responded on 8 December 1999 saying: "In response to your recent enquiry, you are absolutely correct that the USGA would not approve the payment of expenses for amateur golfers to compete in the event in Hawaii." 29 Mr Duguid sent a copy of that exchange to Mr Williams under cover of a facsimile in which Mr Duguid said: "I also take this opportunity to clarify that the payment of expenses to an overseas destination will only be approved if one or more other countries are officially participating and the venue is considered reasonable (eg central or in one of the countries) for all finalists. If the event is approved only in Australia, then the final must be in Australia. Anywhere else is considered to be unreasonable (becoming a prize instead of expenses)." That attitude, as I have said, does not appear to be based on any express provision of the Rules. There was no evidence of any rule of the AGU to that effect. 30 In another facsimile of 10 January 2000, Mr Duguid said to Ms Thompson: "Please advise me when the venue for the international final is known as I will need to gain the approval of that country's governing body. I confirm that the USA is not a suitable venue as its rules differ from the rest of the world." 31 On the following day, Mr Duguid sent a further memorandum to Ms Thompson saying, relevantly: "…………

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(a) An international final can only go ahead if the event has a truly international field and the venue is appropriate for all the finalists. The approval of the host nation's governing golf body must be obtained by the AGU. The USA is not a suitable venue." A response was sent to Mr Duguid on 13 January 2000 saying: "We are in the process of finalising the overseas destination. It appears now that the final will not be held in the USA but an alternate country. We will let you know as soon as possible." 32 On 21 March 2000, Ms Thompson sent a facsimile to Mr Duguid relevantly saying: "We are currently planning our launch in Thailand and I would appreciate your guidance as to what is needed to get the approval of the local amateur body. Please let me know if you need to make the initial approach on our behalf and if so, what you need from us to support this." Mr Duguid responded on 29 March 2000 saying: "With regard to the international final, it is important to get the local Thai competition underway. Once that is operating viably we will request approval for our golfers to visit Thailand for the international final. The Thailand GA will have to initially approve payment of expenses (if any) for their local finals. You will need to gain this. At the early stages of discussion you can forewarn them about the AGU's involvement and our imminent approval request. If only the 2 countries are involved in future years it may mean alternating the venue between them so as not to create an exotic imbalance for Australian golfers." 33 Mr Duguid wrote to the secretary of the Thailand Golf Association on 25 May 2000 requesting confirmation that correspondence had been received from "the event organisers" in respect of the Shark Challenge. There was no evidence of any further communication with any Thai golfing organisation. Further, there was no evidence of any other step being taken to secure the approval of the AGU for the holding of a final for the Shark Challenge at an overseas destination prior to discussions with Mr Duguid in December 2000, to which I shall refer later.

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The Terms and Conditions do not provide for a category of junior members under the heading of social golfers. 38 The Internet Site asserts that, at the end of the year, the best of each category would play the first round final in Australia. It then says that the best of those players would "get to join Greg Norman" for the Shark Challenge final "overseas". There is nothing on the Internet Site or in the Leaflets or the April Magazine to indicate that Junior Participants would not be eligible to play in the final at an overseas destination. 39 In the events that happened, Junior Participants were permitted to participate in the second final, albeit a final played in Australia. There was in fact no provision in the Terms and Conditions that restricted eligibility of Junior Participants. It is a matter of for speculation as to whether, had there been a final at an overseas location, Junior Participants would have been permitted to play. That, however, is not relevant for present purposes. 40 It is by no means clear how it came about that Junior Participants were regarded as ineligible to play in the second final overseas. Nor is it clear how Mr Kotowicz became aware of an intention that Junior Participants would not be permitted to play in the overseas final. However, in his defence, Mr Kotowicz admitted the assertion made by the Commission that Junior Participants were not eligible to compete in the second final at an overseas destination. That appears to have been Mr Kotowicz's understanding in October, November and December 2000 since, in a memorandum of 16 November 2000 relating to a "Media Package", he referred to the "National Final" in the following terms: "The National Final will be contested over 36 holes of individual stableford. The top half will win qualification to the International final to be held early in 2001. For the Juniors Coolum will be the final stop with the National Champions being decided." That indicates an understanding that Junior Participants would not be playing in the second final. 41 Mr Kotowicz, on his appointment as chief executive of Universal on 11 October 2000, made a diary note as follows: "Competition: 200 → 100 Across all categories." That suggests that Mr Kotowicz had an understanding that in the first final there would be 200 competitors and that in the second there would be one hundred competitors. There is no indication that the competitors at the second final would not include Junior Participants. The Commission points to that note as an indication that Mr Kotowicz was aware of the nature of the representations made in the materials published by Universal prior to his appointment, whereas his memorandum of 16 November 2000 indicates that, by that time, he had become aware that Junior Participants would not be permitted to play in an overseas final. 42 The Commission makes no complaint about the conduct of Mr Kotowicz before 9 November 2000 in relation to the Junior Participants Representation. It accepts that he had no involvement in the day-to-day management of the affairs of Universal prior to his appointment on 11 October 2000 as its chief executive. The Commission also accepts that some period of time would be required before Mr Kotowicz could have familiarised himself with all of the affairs of Universal. However, it says that, by 9 November 2000, he had had ample opportunity of doing so and that by that time he should be taken to be aware of the making of the Junior Participants Representation and of the Terms and Conditions of the Shark Challenge. By that time, he was aware that Junior Participants would not be permitted to play in an overseas final.

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effect of section 51a of the act 43 In the present case, Universal is no longer a party to the proceeding because, as I have said, the proceeding has now been dismissed as against Universal. Accordingly, it is no longer possible for Universal to adduce any evidence in the proceeding. On one view, if s 51A(2) applies as against Mr Kotowicz, it would give rise to an irrebuttable presumption so far as he is concerned. That is to say, since Universal cannot adduce evidence to the contrary, it is deemed, as against Mr Kotowicz not to have had reasonable grounds for making any relevant representation. No evidence led by Mr Kotowicz would lead to any different conclusion. 44 One view of s 51A is that it provides that a corporation is deemed, as against any party to a proceeding, not to have had reasonable grounds for making a representation unless that party adduces evidence to the contrary - see King v GIO Australia Holdings Limited [2001] FCA 308 paras [28]-[30]. That, however, is not what the section says. There could well be good policy reasons for imposing on a person who makes a representation with respect to a future matter the evidentiary onus of demonstrating that the representation was not misleading. It is a different matter altogether, however, to impose such a burden on a person who did not make the representation, albeit a person who was knowingly involved in the making of the statement. 45 That is a good reason for construing s 51A as giving rise to a deeming only as against a principal contravener of the Act. That is to say, it does not have any relevance as regards a claim against a person who is only alleged to have been involved in or to have been a party to a contravention by another person. That is the present case. 46 Another question concerning the effect of s 51A(2) is whether the provision does no more than require a corporation to go into evidence. That is to say, it does not ultimately reverse the onus but simply provides that the deeming takes effect unless the corporation adduces some evidence to the contrary. Once such evidence is adduced, it is for the Court to make a judgment, on the balance of probabilities, having regard to all the evidence, as to whether the corporation had reasonable grounds for making the representation. If an applicant elects to adduce no evidence as to that question, then the only evidence before the Court would be that adduced by the corporation. Whether that is adequate to establish that the corporation had reasonable grounds for making the representations is a matter for the Court. However, once the corporation has adduced some evidence, there is no deeming arising from s 51A(2). 47 Both the Commission and Mr Kotowicz adduced evidence as to whether Universal had reasonable grounds, after 9 November 2000, for making the representations in question. I propose to decide the question of contravention of s 52, if it arises, without reference to any deeming effect of s 51A of the Act.

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the decision not to hold an overseas final 51 As at 11 October 2000, when Mr Kotowicz was appointed as Chief Executive of Universal, there were no firm arrangements in place for the holding of a final at an overseas destination. No date had been fixed and no logistical preparations had been made. The approval of the AGU had not been given. 52 After his appointment, Mr Kotowicz conducted what he described as a "due diligence" in respect of the affairs of Universal. By 9 November 2000, Mr Kotowicz was in a position to prepare a report on the Shark Challenge, which he described as "Business and Financial Summary". The Business and Financial Summary was, according to its contents, prepared as a discussion paper for Bart Collins, Paul Erickson and Greg Norman in Florida and as a briefing note in anticipation of a meeting in Australia that was to be held later in November 2000. Bart Collins was described by Mr Kotowicz as Greg Norman's worldwide business manager and Paul Erickson was described by him as Greg Norman's in-house legal adviser. 53 On 9 November 2000, Mr Kotowicz sent two facsimile communications. The first was to Bart Collins. The second was to Bart Collins and to Paul Erickson. The second was also expressed to be from Jeff Devitt, a financial officerof Universal. The first facsimile is headed "Shark Challenge International Final" and was in the following terms: "Separate to my note that will be sent to you later today, we have all sorts of problems getting our competitors back from Bali as it is the end of the Australian school holidays. It should also be noted that airfares at this time are at the peak-season rates. However it would be far preferable to secure the two days following the Greg Norman Holden International - the Monday and Tuesday or Tuesday and Wednesday - whereby Greg could in fact fly back via Bali, minimising the dislocation to his Australian trip and getting him back to Florida midweek. The additional benefit would be that the airfares for these dates are at the standard or discount rate. I fully understand Greg's preference, but availability of flights for 150 people was always going to be a pre-condition. Please call me to discuss at your earliest convenience, although it should be discussed in the context of the report to follow today." 54 The reference to "the report to follow today" is a reference to the second facsimile, which is headed "Shark Challenge - Business and Financial Review". Attached to that facsimile was the Business and Financial Summary. It relevantly provided as follows: "EXECUTIVE SUMMARY The Shark Challenge (TSC) has failed to meet the expectations generated by initial marketing and to the original business plan… The inadequate budget from the start has left the business in deficit no matter which course of action is taken… I have produced a brief background and an update on the current state of play that has generated a number of options that might be considered… As the new CEO of TSC having had three weeks to assess the situation I have also given my recommendations as to the way forward. This note has been prepared as a discussion paper for Bart Collins, Paul Erickson and Greg Norman in Florida and a briefing note in anticipation of a meeting in Australia later this month. BACKGROUND ……………………… The past five months have seen TSC managed on a 'care and maintenance' basis, firstly awaiting the i7 transaction then as the implications of not selling equity to i7 sunk in. The suggestion that TSC could be sustained until mid 2001 with no injection of capital, subject to the renegotiation of three contracts did not assume the business was to operate as a going concern. It did not take into account the two finals that are at least morally and from an ongoing business point of view crucial (see legal opinion)…" 55 Mr Kotowicz set out a legal opinion that he had obtained from Mr David Carr. The opinion relevantly said as follows: "Thank you for your email regarding the moral and/or legal obligations to conduct an international final of the Shark Challenge Competition. There are a number of matters to consider. First, your obligations to participants in the competition.

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57 A financial summary prepared by Jeff Devitt was attached. The financial summary contained projections for the periods ended 31 December 2000 and 31 December 2001 on the basis of each of the three options. It also contained a statement of the assumptions upon which the three options had been prepared as follows: "Option 1 This is a budget is based on an ongoing basis Included is a cost for a review of the business strategy and advise. There is $298,000 in unearned [sic] that will be outstanding at the end of Dec 2001, this is due to accounting for the income over the life of the membership not when we receive the monies from members. Option 2 This budget has been put together on the premise that a review of the business is to be completed to determine if we have a model that is going to be successful Option 3 This budget has been designed to voluntary wind up the business after the International Final. The majority of Employee costs will cease after the international final. Included is a write off of the assets, and costs pertaining to accounting and legal fees due to the business winding up." (emphasis added) 58 It is significant that each of the three options contains the same provision for the costs of the finals for the year ended 31 December 2000. A figure of $200,000 is shown in relation to each option. That represents only part of the provision. Until 30 June 2000, the Shark Challenge was conducted by a joint venture. Universal took over the conduct of the Shark Challenge with effect from 1 July 2000. Provision had been made in the accounts of the joint venture in the sum of $455,037 for the conduct of finals. Thus, a total of $655,037 was provided for the conduct of the second final, irrespective of which option was to be adopted. It was not suggested that that provision was inadequate for an overseas final. 59 The fact that, under all three options, the provision for the costs of the finals is the same, indicates that it was no part of the recommendations being made by Mr Kotowicz in the Business and Financial Summary that there be no final for the 2000 year at an overseas destination. That is confirmed by the reference to "the International Final" under option 3. The clear assumption underlying the document is the necessity to hold a final at an overseas destination, irrespective of which option might be chosen. 60 On 16 November 2000, Mr Kotowicz sent a facsimile to Nigel Wall at "Golf Australia" magazine outlining a "Proposal for the Shark Challenge National Final Media Package". Under the heading "International Final" the proposal said: "The top qualifiers from the national final then win qualification for the overseas final hosted by Greg Norman, to be held in the New Year." Under the heading "Media Exclusivity", the proposal said: "It is our intention to package a deal (to be negotiated) to maximise the benefits to the media organisations represented. The media exposure is planned to be limited to key media partners who will then be invited to attend the international final with Greg Norman next year." Those references are simply inconsistent with a decision having been made on 9 November 2000 that Universal would not hold the second final at an overseas destination. 61 In his oral evidence, Mr Kotowicz said that the decision not to conduct the second final at an overseas destination was made in December 2000, shortly before an announcement was made to the participants at the first final held at Coolum in Queensland. He said that on in December 2000, he was approached by and had a discussion with, Mr Duguid at Coolum. Mr Duguid told Mr Kotowicz that, while he had been out on the golf course during the day, in his role as tournament referee of the first final, he had heard discussions suggesting that an international final might be held in either Bali or Thailand. He told Mr Kotowicz that he wanted to restate the AGU's objection to the holding of a final at an overseas destination. 62 Mr Kotowicz said that he was "a little bit in shock" as a consequence of that statement. I accept that evidence as to his state of mind. Indeed, it was not disputed by the Commission. Mr Kotowicz discussed with Mr Duguid whether it would be possible to hold an "international final" domestically, in order to get around the AGU requirements. Mr Duguid said that that would be unusual. When Pelican Waters, in Queensland, was ventured by Mr Kotowicz as an alternative site for the second final, no objection was raised by Mr Duguid. 63 Mr Kotowicz and Mr Williams then had a telephone discussion with Mr Collins and Mr Erickson in Florida. Mr Kotowicz described the conversation as "a reasonably acrimonious discussion between Frank Williams and Paul Erickson". Having characterised the discussion between Mr Williams and Mr Erickson in that way, Mr Kotowicz said: "Paul Erickson started screaming at Frank Williams in relation to Frank's relationship with Alan McDonald and the drafting of Frank's consultancy contract when Alan Donald was in fact engaged by Great White Shark Enterprises. The threats of law suits and whatever that took - and threats of legal action against each other. Bart then, I think, attempted to cool things down. I indicated that we had another biggest problem in relation to what we were going to announce at that night to the participants of the Shark Challenge and we had further discussion on the finalisation of the recapitalisation agreement." The reference to a recapitalisation agreement was to proposals for the injection of further capital into Universal. 64 Such a discussion is not consistent with a decision having been made on 9 November not to hold the second final at an overseas destination. There would have been no need for acrimony if the attitude of the AGU did not come as a surprise. I do not consider that the absence of logistical arrangements or the absence of a clear understanding with the AGU gives rise to an inference that Mr Kotowicz was aware, prior to 9 December 2000, of any intention on the part of Universal, or that he himself had an intention prior to 9 December 2000, that the second final would not be conducted at an overseas destination. I am firmly satisfied that no decision had been made before 9 December 2000 that the second final would not be held at an overseas destination.

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approval of the agu 66 Mr Duguid accepted in cross-examination that the AGU, as governing body in respect of Australian golfers, has a discretion in relation to Rule 4 -2g of the Rules. He accepted that it was a matter for the AGU to determine what its policy might be in relation to the application of the Rules. For the purpose of exercising the AGU's discretion, there is an Amateur Status Committee of the AGU. There was no evidence as to the attitude of that committee and Mr Duguid had no recollection of ever discussing with members of the committee the pre-requisites for the holding of a final at an overseas location. 67 Mr Duguid did not discuss the matter with his superior at the AGU and acknowledged that the AGU could have made a special exception for the first year of the Shark Challenge. Mr Duguid also acknowledged that one alternative would have been for the Shark Challenge participants to link up with some other overseas event that was being held. As I have said, it is by no means clear how the attitude of the AGU, as reported by Mr Duguid, was a reflection of the Rules. 68 In any event, I consider that Mr Kotowicz was not aware, before his discussion with Mr Duguid at Coolum in December 2000, that the requirements of the AGU could be an impediment to the holding of a final at Bali Nirwana at the end of January 2001. Mr Kotowicz gave evidence that, in the position he took concerning the requirements of the AGU for the holding of an overseas final, he relied on Mr Williams. The Commission suggested that that evidence should not be accepted because Mr Kotowicz frankly acknowledged that he did not have much confidence in Mr Williams' judgment in relation to certain matters. He said that Mr Williams had regard to "the big picture" but was not strong on detail. Nevertheless, Mr Kotowicz was adamant that he had confidence in Mr Williams' knowledge of golf and his involvement with the AGU. Mr Kotowicz understood that Mr Williams had extensive experience in relation to golf tournaments and had been Greg Norman's manager for upwards of twenty-five years. I am satisfied that Mr Kotowicz did have faith in Mr Williams' knowledge of the golf industry and his relationship with the AGU, as he asserted. 69 The Commission also said that it was implausible that Mr Williams would not have communicated to Mr Kotowicz, the substance of the communications that he had had with the AGU concerning the holding of a second final at an overseas destination. The Commission does not suggest, and indeed there was no basis for suggesting, that the correspondence that I have summarised above was known to Mr Kotowicz. The most that can be said is that, when he took up his appointment as Chief Executive of Universal on 11 October 2000, he conducted what he described as a "due diligence". However, I accept that the correspondence that I have described did not come to the attention of Mr Kotowicz. 70 The terms of the discussion with Messrs Collins and Erickson that took place on the telephone on 9 December 2000 are significant. The nature of the discussion is consistent only with an understanding on their part, as well as on the part of Mr Kotowicz, that the requirements of the AGU had not been regarded as an impediment to the holding of the second final at an overseas destination. I do not accept that Mr Kotowicz had knowledge, before 8 December 2000, that the AGU would not give its approval for the holding of a final of the Shark Challenge at an overseas destination.

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logistics 71 On 27 October 2000, Mr Kotowicz had a discussion with Mr Collins. He made a note of his discussion in his notebook. The note includes the following: "INTL. Final Bali Nirwana Front end of Heineken/GNHI trip. What are the issues to be considered?" 72 Mr Kotowicz explained that that note was a reference to the fact that Ms Thompson had raised Bali Nirwana as the most likely spot for the overseas final. As at that time, Mr Kotowicz understood that Bali Nirwana was a golf course, in Bali, Indonesia, that had been designed by Greg Norman. He understood that the course was owned by the Medallist Golf Course Development Group, of which Greg Norman was a large shareholder. He also believed that it was managed by a company associated with Greg Norman. 73 The note about "issues to be considered" was prompted by Mr Kotowicz's lack of involvement in golf management. He had never had any involvement with Greg Norman. However, he understood that Greg Norman would be travelling to Australia in January or February 2001 to attend golf tournaments. One tournament was the "Heineken International" in Perth and the other was the "Greg Norman Holden International" in Sydney. Mr Kotowicz said that he wanted to check with Mr Collins what things he needed to factor into his thought processes when planning an overseas final at Bali Nirwana. 74 On 11 or 12 October, Mr Kotowicz made a note in his notebook as follows: "? Monique: Intl final: when and where?" He said that that entry reflected a discussion that he had had with Ms Thompson concerning the arrangements for the proposed overseas final. He said that Ms Thompson told him that there was a range of spots that they had considered through the year, but that there had been no finalised arrangements made. 75 Mr Kotowicz said that he had no doubt about Greg Norman's ability to play at the Bali Nirwana. Greg Norman had his own aircraft and was, as Mr Kotowicz understood it, intending to fly from Queensland to Western Australia in connection with the Heineken International Tournament. Mr Kotowicz believed that the holding of an international final at Bali Nirwana was in the commercial interests of Universal and of the Bali Nirwana resort itself. 76 As at November 2000, Mr Gerry Campbell was general manager of marketing for Traveland Pty Limited ("Traveland"), a subsidiary of Ansett Australia Limited. Traveland was a sponsor of the Shark Challenge and had some responsibility for arranging travel in connection with the Shark Challenge. Traveland arranged transport for participants at the national final in Coolum. That involved travel and accommodation for about three hundred people. It involved such things as locating accommodation, booking rooms, organising transport, organising packages for families, blocking off flights and ensuring that the golf course would be available for the matches. Mr Campbell said that the arrangements are made over a period of about three months during which period he spoke every couple of days to Sean Scott, an employee of Universal. 77 Mr Campbell was in Bali in November 2000 to attend an Ansett marketing conference. He arranged with Sean Scott to take the opportunity to investigate the accommodation, the golf course at Bali Nirwana and the general availability of it as a venue for an international final in January or February 2001. Mr Campbell characterised the golf course at Bali Nirwana "as an excellent golf course". He considered that the Bali Nirwana complex could accommodate one hundred and sixty players and support staff. Following his attendance in Bali, he gave an oral report to Mr Kotowicz on its potential. He said that he resort "would be great" and that it had room to accommodate the finalists. He also said that Traveland could arrange flights and accommodation. 78 Mr Kotowicz gave no instructions at that stage for any arrangements to be made. However, some provisional arrangements were put in place by Mr Campbell. On 27 November 2000, an email was sent by the director of sales and marketing of the Bali Nirwana Resort to Mr Campbell relevantly saying: "We are confident that Nirwana would be a tremendous venue to hold the final of the Shark Challenge and you have my commitment to assist you in every way possible to get this event happening in terms of the accommodation and award ceremonies. I understand the golf event will be handled by Shark Enteprises - directly with the course Managers. Gerry, at this early stage, I can confirm that we are holding a tentative block of rooms as follows: [then followed prices for various categories of accommodation] ……………………… Catering - as you have seen, the hotel has a number of venues that would be suitable for your catered events… For the second event - awards nights, our Grand Ballroom is perfect for a gala event of up to 350… We can assist with all arrangements including entertainment, décor, seating plans, etc. For all transfer arrangements to/from the airport, we would be happy to make an introduction to one of our preferred local ground handlers. We would ensure their complete professionalism and they will be on hand to organise all optional touring pre/post event. ……………………… We are certainly looking forward to the opportunity of having this prestigious event held at the Le Meridien Nirwana Golf & Spa Resort. I look forward to hearing from you after your meetings on Wednesday." 79 At the dinner for the first finalists at Coolum on 9 December 2000, Mr Williams made an announcement that the second final would be held at Pelican Waters in Queensland. As at the date of that announcement, none of the arrangements suggested above had been made for a final to be held at Pelican Waters. Nevertheless, arrangements were then put in place for the conduct of the second final following the announcement. The second final was held at Pelican Waters on 27 and 28 January 2001. All the arrangements referred to above, for transport, accommodation and the playing of golf, were made after 8 December 2000. I am not satisfied from the evidence that similar arrangements could not have been put in place for the conduct of a tournament at Bali Nirwana. 80 Mr Kotowicz said that, in December 2000, he believed that it would be practical to arrange travel to and accommodation in Bali Nirwana in connection with the holding of an international final in late January or early February 2001. In reaching that view, he had regard to the fact that they would need to consider the movement of a substantially fewer number of people than was required for the national final at Coolum. He also believed that they would effectively be dealing with an in-house destination "as being part of the Norman family". 81 He believed that the final could be held at the Greg Norman designed golf course that is part of the Bali Nirwana Resort and believed that it would be far easier to arrange such a final at Bali Nirwana in late January or early February 2001 than it was to put on the national final at Coolum. Mr Kotowicz said that he had seen "the machine of Traveland" operate in relation to co-ordination and preparation for the national final. He thought the national final was logistically far more difficult to arrange than the international final would be. Having regard to the communication that had been received by Traveland from the Bali Nirwana Resort, Mr Kotowicz believed that an overseas final in Bali Nirwana in late January or early February 2001 "was achievable". 82 I accept Mr Kotowicz's evidence concerning his belief, up to 8 December 2000, as to the feasibility and practicability of holding a second final at Bali Nirwana. I do not accept that, even if it were not feasible, Mr Kotowicz had knowledge of that fact. The Commission contended, in the alternative, that if Mr Kotowicz was ignorant of the fact that it was no longer feasible after 9 November 2000 to hold a final at an overseas destination before the end of January 2001, that ignorance was "wilful blindness", because he had failed to make the enquiries that reasonable person in his position would have made or was reckless, in the sense that he did not care whether it was feasible or not. 83 It may be that, with the benefit of hindsight, Mr Kotowicz could have made further enquiries concerning the arrangements that were in place for the second final, when he was appointed to the position of Chief Executive of Universal with effect from 11 October 2000. As it was, he went about examining the affairs of Universal up to 9 November 2000, with a view to ascertaining the options that were available. From that time, he was still considering the options that he identified in the Business and Financial Review. I am not persuaded at all that he deliberately shut his eyes to the question of the arrangements necessary for the second final.