These proceedings arise out of a dispute in relation to the sale of a thoroughbred racehorse known as "Arlington" (the horse) in April 2012. The horse was purchased as a yearling colt by Mr Gerald (Gerry) Harvey at the 2006 Conrad Jupiters Magic Millions Yearling Sale for $1.55 million. Mr Harvey then sold the horse to the first defendant, Graeme Rogerson (the defendant), but agreed to retain a 25% interest in the horse. The defendant also kept an interest in the horse but on the day of the sale he offered percentage interests for sale to various people, including Sir Patrick Hogan, who took up a 10% interest and Ms Joy Jenkins, who took a 15% interest for herself and her daughter, Samantha Jenkins.
At a later date others purchased interests in the horse. The first and second plaintiffs, Antonio Capogreco (Antonio) and his wife, Rosa Capogreco, purchased a 12.5% interest in the horse; and Joseph Mark Pirrello (Joseph), the fourth plaintiff, purchased a 12.5% interest in the horse for his wife, Anna Pirrello, the third plaintiff. The plaintiffs paid the defendant a total of $426,992.50 on 25 January 2006 for their respective shareholdings.
The great expectations for the horse as a racehorse were not realised. It raced both in Australia and New Zealand and did not achieve success in any Group 1 races although it raced third in the Randwick Guineas, a Group 1 race, in March 2008. Success in Group 1 races was seen (at least by some people) as a pre-requisite to a successful career as a stallion at stud.
In 2011 a decision was made to sell the horse. There is an issue as to how this decision was made. In any event, after that decision was made a majority of the owners decided to race the horse for one more year to see if it could achieve success in Group 1 races. The horse was withdrawn from sale and continued to race. Unfortunately success remained elusive.
In April 2012 the defendant entered the horse into the Magic Millions Broodmare auction Sale planned for June 2012. On 11 April 2012 there was a purported private sale of the horse to Bruce McHugh (Mr McHugh), the second defendant, for the sum of $60,000 ($63,300 inclusive of taxes and commission).
Capogreco v Rogerson [2015] NSWSC 1371 | Case summary | Zoe
The plaintiffs claim that they were not advised of the offer made to purchase the horse privately nor were they informed or consulted by the defendant of any purported sale or transfer of their ownership interest in the horse to Mr McHugh. The plaintiffs claim that they did not authorise or consent to this purported sale or transfer of their respective ownership interests in the horse. Indeed they claim that they wished to take up the opportunity to purchase the horse at the Magic Millions auction and that there was no indication that the horse was to be sold to Mr McHugh.
The plaintiffs have refused to accept any monies from the sale of the horse and have claimed that there has been no ratification of the sale of the horse.
The plaintiffs have made a demand on Mr McHugh for the return of their shares in the horse but this demand has been rejected. The horse currently attracts $5,500 as a service fee.
The purchase of the shares in the horse
On 16 January 2006 Antonio saw an article in the Daily Telegraph entitled "This colt is worth a king's ransom". There was a picture of Mr Harvey with the colt that the article reported he had sold at the Magic Millions sale for $1.55 million. The article referred to the colt's half-brother, Savabeel, as a Cox Plate winner and included the claim that: "Harvey sold the colt to trainer Graeme Rogerson who will syndicate the youngster, and committed to keep the 25 per cent share".
After reading the article Antonio showed it to Joseph and suggested that they have a look at the possibility of investing in the colt. He informed Joseph that Mr Harvey had sold the horse and then bought back 25% and said "so it must be pretty good". Antonio telephoned the defendant who advised him that he still had "some shares available". Antonio claimed that in this conversation Mr Rogerson said that the colt was "the perfect horse" and that he should meet with him in Picton where the horse was staying.
In about late January 2006 Antonio drove to Picton with each of the other plaintiffs and met with the defendant. Antonio's affidavit evidence was that at this meeting the defendant said the following:
This horse will make you money on the track and off it because it's got good breeding. This horse will change your lives.
This horse is a half-brother to the champion 3 year old winner of the Cox Plate, Savabeel, which I also trained. Its dam, Savannah Success, was a stakes winner. He has perfect conformation which is important for racing and breeding. If Gerry Harvey bought back a share in the horse after selling it through the sales that should tell you something.
Dr Tim Roberts, who is the best vet in Sydney, said the horse is perfect and has no problems. I can give you a copy of his report.
I will train the horse at Randwick and we will target the big races. You will receive a monthly bill from me for training expenses.
The owners will regularly get together to decide Arlington's racing and stud plans.
Joseph's affidavit evidence was that at this meeting the defendant said words to the following effect:
This horse will change your life. Not only is he impeccably bred but he also has perfect conformation. Breeders look at both of these things when choosing a stallion to breed their mares with.
This horse is a safe investment. It doesn't matter if he wins a race or not because his bloodlines make him a valuable stud prospect after his racing career is over. You can't go wrong with this horse. He will change your lives.
Other owners of the horse will include Gerry Harvey, Sir Patrick Hogan and Bruce Reid. These blokes know what they are doing and wouldn't buy a horse if they thought they were going to lose money from it.
All the owners will have regular meetings to discuss and decide the plans of the horse.
Antonio claimed that at the conclusion of the Picton meeting Joseph said "Let's have a go Tony as we can make money from the horse even if he can't run fast". Antonio and Joseph wrote cheques totalling $426,992.50 and gave them to the defendant.
On 25 January 2006 an employee of the defendant's stable sent a copy of the Vet's report to Antonio by email. Also enclosed with the email was a letter that the defendant requested Antonio sign. It was in the following terms:
Re Lot 480 Magic Millions Gold Coast Sale
2004 colt by Red Ransom out of Savannah Success
Dear Graeme,
I Mr Capagreco (sic) wish to purchase 25% of Lot 480 (Red Ransom - Savannah Success Colt) purchased by you at the recent Magic Millions Sale on the Gold Coast. I understand my 25% share will cost $387,500.00 for the horse plus $675.00 additional fee for the colt to be nominated for the Magic Millions Race Series for next season the total amount owing to you will be $426,992.50 including GST.
It is not clear why a single invoice was sent by the defendant for the 25% share rather than two invoices for the 12.5% interests in the horse. Nor is it clear why the defendant required Antonio to sign the letter in respect of a 25% interest rather than a 12.5% interest.
On 15 March 2006 Antonio insured the horse for a 12.5% share at $193,750 at a cost of $7,154.73. The insurer valued the horse at $1.55 million exclusive of GST.
Registration of the horse
On 25 July 2006 an "Application to Register a Horse" was filed with the Registrar of Racehorses (the Registrar) in which the defendant was identified as the proposed trainer. The name "Arlington" was approved and registration was completed on 28 July 2006. Although there was some dispute about it I am satisfied that each of the owners authorised the defendant's wife to sign the Application on their behalf.
On 9 August 2006 a form entitled "Ownership Details" was lodged with the Registrar identifying the owners as: the defendant as Owner 1 (5%) (with a note that the defendant "shall be treated as the MANAGER (Subject to AR.57)"; Mr Harvey as Owner 2 (25%); Rajesh Upadhyaya as Owner 3 (5%); the syndicate Bruce Reid Racing as Owner 4 (15%); Joy Jenkins as Owner 5 (7.5%); Samantha Jenkins as Owner 6 (7.5%); Sir Patrick Hogan as Owner 7 (10%); Antonio as Owner 8 (6.25%); Rosa Capogreco as Owner 9 (6.25%); and Joseph as Owner 10 (12.5%). It is not in issue in the proceedings that Joseph held the shares (12.5%) on Mrs Pirrello's behalf.
The reference to AR.57 in the note in respect of the defendant being treated as the Manager was to Rule 57 of the Australian Rules of Racing (the Rules) that provides as follows:
(1) The manager may be removed or replaced by a memorandum signed by the joint owners or lessees or syndicate members representing a majority interest in the horse.
(2) The manager of a horse shall, alone of the joint owners, lessees or syndicate members be entitled to:
(a) enter, nominate, accept or scratch such horse for any race;
(b) engage a jockey to ride such horse for any race;
(c) receive any prize money or trophy won by such horse; or
(d) act for and represent the joint owners, lessees or syndicate members in relation to the horse in all respects for the purpose of these Rules.
(3) The entry or nomination of every such horse for any race shall state thereon the name of the manager.
(4) The trainer of any such horse who enters, nominates, accepts or scratches such horse shall be deemed to have done so with the authority of the manager and all other nominators.
Rule 1 (AR.1) includes the following definition:
"Manager" means the first-named person recorded by the Registrar of Racehorses in the official ownership records including the transfer or lease (if leased) of a horse or if the horse is owned or leased by a syndicate, the person first-named in the certificate of registration of the syndicate, subject always to the provisions of A.R.57(1). If the horse is owned or leased by more than one syndicate, the first-named person appearing in the certificate of registration of the first-named syndicate shall be deemed to be the manager.
Lacklustre performances
Between February 2006 and mid 2011 the horse did not achieve the success on the racetrack for which the owners had hoped. The defendant said that he tried every avenue but felt that the horse was "half a cheat". He trained well but did not bring his best form to the track on race day.
During this period Antonio's son, Carlo Capogreco (Carlo), made contact with the defendant to check what was happening with the horse. Carlo reported his communications to Antonio. During the early part of the period 2006 to 2009, Carlo reported that the defendant had said that the horse was going well in training and that he would be targeting the big races with big prize money that would increase his value as a stallion. Antonio claimed that he was never notified of or participated in any meetings between the owners, nor was he ever consulted by the defendant or the other owners (apart from Joseph) about the racing plans for the horse. He claimed that the defendant's stable would provide email reports of the racing program and the horse's performances but he was never given the opportunity to have any input into the horse's racing program.
In about April 2011 the defendant had a telephone conversation with Joseph in which he informed him that the "owners have decided to sell Arlington as a stud prospect". He advised him that the horse would be entered in the Magic Millions National Broodmare Sale. Joseph's unchallenged evidence was that the following conversation then took place:
Joseph: Nobody asked me whether I wanted to sell. What if I'm not happy with the sale price and want to purchase all of the horse?
Defendant: Nothing is stopping you from purchasing the horse at the auction.
Joseph: Please let me and Antonio know when Arlington will go through the auction ring. We will buy the horse if the price isn't high enough.
It is not in issue that Joseph intended to convey that he and Antonio would buy the horse if the price was not too high. Joseph informed Antonio that the defendant had just informed him that the horse was to be sold. However the defendant telephoned Joseph in about May 2011 and informed him that the other owners had decided to race the horse for one more year. Joseph claimed that the defendant said that they could "increase the horse's stud value" if it won some Group 1 races.
On 10 May 2011 the defendant's office administrator, Ms Wendy Maybury, sent an email to all the owners in the following terms:
Graeme has asked me to let you know that ARLINGTON has been withdrawn from the Magic Millions Sale in June as the majority of owners have elected to race him for one more year.
If you require any further information regarding the progress of your horse, please call [details provided].
The sale of the horse
On 2 November 2011, Ms Maybury sent an email to the owners of the horse in terms that included the following:
ARLINGTON finished twelfth in his race at Flemington yesterday. He is heading back to Sydney today and will go out for a three week spell on Friday, ahead of Summer racing. Graeme is trying to find a stud for him.
On 3 November 2011 Joseph wrote to Ms Maybury in the following terms:
Thanks Wendy what does this mean for myself if the horse goes to stud.
On 4 November 2011 Ms Maybury wrote to Joseph advising "I believe Graeme will look for a stud to purchase him".
In February 2012 Carlo informed Antonio that the defendant had informed him that all of the other owners, except for Joseph, wanted to sell the horse through Magic Millions. Antonio then had a conversation with Joseph in which they discussed the prospect of them buying out the other owners.
According to Joseph's affidavit evidence, he had a conversation with Ms Maybury in about February 2012 in the following terms:
Ms Maybury: Arlington's future will be decided by Joy and Sam Jenkins. The horse will be put through the Magic Millions auction ring if it is to be sold.
Joseph: Tony and I want the opportunity to buy the horse at auction if the price isn't high enough. What does Graeme think we will get for Arlington?
Ms Maybury: I don't think he expects much. Probably less than $100,000.00
Joseph claimed that he had a conversation with the defendant in about February 2012 in which he asked him how much the horse was worth. He claimed that the defendant said that he did not know "exactly". However Joseph's affidavit evidence made no mention of any conversation with the defendant on this occasion in which he said that he and Antonio wanted the opportunity to buy the horse at the auction.
Notwithstanding that Ms Jenkins had put on an affidavit about it, neither Antonio nor Joseph referred in their affidavits to a meeting with Ms Jenkins at about this time. However they agreed in cross-examination that they met with her in a café in Double Bay during which meeting there was discussion about the horse.
Ms Jenkins' affidavit evidence was that Joseph informed her that he and Antonio were in favour of keeping the horse and finding a stud to stand him. She claimed that Joseph asked her whether she was interested in keeping her share and standing the horse at a stud with them. Ms Jenkins claimed that she informed Joseph that there was no way that she wished to do that as Mr Harvey and Sir Patrick Hogan both owned studs and neither of them were interested in the horse. Ms Jenkins claimed that Joseph then informed her that he and Antonio were friends with Tony Santic (the owner of Makybe Diva a three time winner of the Melbourne Cup) who would take the horse. Ms Jenkins claimed that she did not think this would happen as she had heard that Mr Santic was easing out of standing stallions. She claimed that she informed Joseph that she just wanted the defendant to find the horse a good home.
In cross-examination Antonio agreed that he had a conversation with Ms Jenkins about the prospect of her "coming with us we can buy the horse for stud" (tr 68). The following cross-examination then occurred (tr 68-70):
Q. You and Joe wanted to buy the horse yourself and stand him at stud?
A. Yes.
Q. You wanted the group of owners to sell the horse to you and Joe?
A. Yes. No, no, no. When we discussed with Joy Jenkins it was said if the horse, they going to go cheap we going to buy.
HER HONOUR
Q. If the horse is going cheap we will buy?
A. We going to buy.
ANGYAL
Q. You asked Joy Jenkins whether she would keep her share and stand Arlington at stud with you, didn't you?
A. Yes.
Q. And she said no?
A. She say no. Yes.
…
Q. She told you and Joe that she didn't think the idea of trying to get Arlington to stand at Tony Santic's stud was a good idea, didn't she?
A. No.
Q. What did she say when you told her that you were thinking of standing Arlington at Tony Santic's stud?
A. I say if he want to take, if we going to bought we can give it to him, that's what I said to Joy.
Q. So the outcome of the conversation, as you understood it, was that Joy wasn't interested in retaining any interest in the horse?
A. That's okay. We bought me and Joe.
Q. You and Joe?
A. We bought me and Joe to give to her, yes. We was prepared to buy the horse and give to Tony Santic.
Q. So, summing up, in early 2012 you were in favour of Arlington being sold but you wanted to buy him yourself with Joe?
A. Yes.
Joseph was also cross-examined about the meeting with Ms Jenkins in Double Bay relevantly as follows (tr 107-109):
Q. You told Joy Jenkins that you were in favour of keeping Arlington and finding a stud to stand him?
A. Yes.
Q. By that you meant you wanted to buy the horse from the other owners?
A. If we had to, yes.
Q. And stand him in the stud?
A. Yes.
Q. And you asked Joy if she was interested in keeping her share and standing Arlington at stud with you?
A. Yes.
Q. And she said, "No way. Gerry Harvey and Sir Patrick both own studs. If neither of them are interested in standing him then how can we possibly do it"?
A. Yes. Pretty much words to that effect, yeah.
…
Q. And she just wanted Mr Rogerson to find a good home for the horse?
A. Yes, I think that's what she said, yes.
…
Q. … . You and Mr Capogreco wanted to buy the horse from the other owners and own him outright?
A. I think what, what the situation was that if it had to be sold, if it didn't go to, for a price which we thought we could afford to buy him for or was worth to us, if, if it went lower than that that we would take him ourselves.
Q. And you and Mr Capogreco between you were prepared to pay up to 120,000 for the horse, weren't you?
A. No. When we discussed it, it was about a hundred thousand.
Q. So 120,000 would not be the right figure?
A. I think if it went to auction, I don't know what the real figure, I get excited at auctions so I may have gone to 120,000. But when we discussed it we discussed that we would, in our mind if it went less than a hundred thousand we would buy it ourselves. If it went more than a hundred thousand we would probably sell it if we had no choice.
Q. In April 2012 you knew that the horse had been consigned to Magic Millions to be sold at auction?
A. I'm not sure. I, I knew that Graeme had said that he was going to be looking for a home for it or a stud to buy it. I, I'm not completely sure if, if at that time it was, that it had been consigned with Magic Millions. I'm not, sorry, I can't honestly answer that question.
In early April 2012 Mr Harvey received a call from David Chester of Magic Millions who informed him that he had an offer to purchase the horse from a blood stock agent, Les Young, on behalf of Mr McHugh. Mr Harvey's affidavit evidence was that he informed Mr Chester that he thought the offer was a good offer and more than the horse would bring "in the ring". He also advised Mr Chester that he was in agreement that the horse should be sold.
The defendant's evidence was that Mr Chester telephoned him on about 11 April 2012 and advised that the horse had been sold and that he was "dealing direct with the other owners".
On about 14 April 2012 Ms Jenkins telephoned Carlo and said "did you hear that Arlington has been sold". Carlo informed Ms Jenkins that he had not heard of the sale. Although he did not give evidence of any further details of the conversation with Ms Jenkins, Carlo claimed that he immediately rang Antonio and said "Joy Jenkins just called to let me know Arlington was sold for $60,000". It is clear that Ms Jenkins must have given this detail to Carlo at the time she called him. Carlo claimed that Antonio expressed his anger because he and Joseph wanted the opportunity to bid for the horse at auction.
On 14 April 2012 Joseph wrote to the defendant in the following terms:
I have heard on the grape vine that Arlington has been sold. Can you confirm either way, if this is true it is very disappointing the way you have treated me. Not to tell me that he was going for sale, not to ask if I had a interest in buying him or even telling me where he is going. The only thing you did tell me a couple of month ago was the Joy and Sam were going to control what happen's next (sic). I have taken some advice and have been told it is not possible for you to sell my property, I or my wife have not signed anything, so I'm a little in the dark can you please tell me what's going on.
On 15 April 2012 Carlo telephoned the defendant. He claimed that he had the following conversation with him:
Carlo: I heard from Joy Jenkins that Arlington was privately sold a couple of days ago before he went to auction. Is that right?
Defendant: That's right.
Carlo: My Dad and Joe are angry that you sold the horse without giving them a chance to buy it at auction.
Defendant: I already gave my share to Bruce Reid so don't talk to me about it. Joy Jenkins is the managing owner so you should talk to her about it.
The price was good so we had to take it. The horse was never going to make this much money at auction so you should be happy with the price.
On 17 April 2012 Ms Maybury wrote to Joseph in the following terms:
Sorry for the delay, I have been without my computer since Friday.
Magic Millions Sales organised the sale and I believe he is heading to stud up Tamworth way.
As you may recall, we did enter him in the Magic Millions June sale last year but then withdrew him when the majority of owners opted to give him one more preparation. The majority shareholding of owners have been pressuring for him to be sold for some time now. He has now been sold through Magic Millions for $60,000 which was organised by Gerry Harvey and Joy Jenkins.
If you require any further information, please give Graeme a call on [number].
On 17 April 2012 Joseph wrote to Ms Maybury in the following terms:
How does this affect me I don't want to sell, do I still have a share in the horse?
On 17 April 2012 Ms Maybury responded to Joseph in the following terms:
[T]he majority shareholders have sold the horse. I will forward you your share of the sales proceeds as soon as they become available.
Sorry if I don't have all the information that you need. Graeme is in Sydney at present if you would like to call him on [number].
On 17 April 2012 Joseph responded to Ms Maybury in the following terms:
Wendy don't send me anything I and Tony do not want to sell.
On 18 May 2012 Ms Maybury signed a letter on the defendant's letterhead addressed to Joseph in the following terms:
In response to your request for information about Arlington's sale in writing, Graeme has provided me with the following details.
1. Arlington arrived back into Australia on 7th February 2011.
2. He was entered into the June 2011 Magic Millions Broodmare Sale (Stallion section).
3. He was subsequently withdrawn from this sale due to the majority of shareholders elected to race him for one more year (see attachment 1).
4. After disappointing race results you were advised that Graeme was actively looking for a stud to purchase the horse (see attachment 2).
5. The majority of owners (75% shareholding) expressed their wishes for Arlington to be sold.
6. One other owner (a 12.5% shareholder) not included in this 75% majority, instructed that he will not pay anymore training fees after 16th March 2012 and insisted the horse be sold.
7. Arlington was entered into the June 2012 Magic Millions Broodmare Sale (Stallion Section) but was sold prior.
8. He was sold by Magic Millions to a private buyer on 11th April 2012 for $60,000 (see attachment 3).
9. Magic Millions are still holding on to these funds as you instructed me on 17th April to not send you your share of the funds. You also mentioned in this email (attachment 4) that Tony Capogreco did not want to sell either although he was the owner who instructed me (point 6 above) to pass on that he wished for Arlington to be sold at once.
Graeme tells me that he has tried numerous times to contact you by telephone to discuss this matter but has been unable to reach you and has had no return calls from you. You can reach him on [number] or if you prefer you can provide me with a time suitable for him to call you.
There was further email communication between Joseph and Ms Maybury in which Joseph tried to find out who had purchased the horse. On 15 June 2012 Joseph wrote to Ms Maybury in the following terms:
What I need to know please is why do you say I no long (sic) have a share in Arlington when we have not signed over any transfer to that effect. Also why is it a secret who brought (sic) the horse?
The proceedings
The proceedings were commenced on 9 December 2013. They were heard on 20 to 23 July 2015 when Mr MR Pesman SC, leading Mr A Di Francesco, of counsel, appeared for the plaintiffs; Mr RS Angyal SC, leading Mr EW Young, of counsel, appeared for the defendant; and Ms V Brigden, of counsel, appeared for Mr McHugh.
The plaintiffs alleged that the defendant engaged in misleading or deceptive conduct. They pleaded that the defendant made representations (referred to as the "Initial Representations") to them in mid to late January 2006 that: the horse was a perfect horse; they would make money on and off the track because of its good breeding; it was a safe investment; it did not matter if he won a race or not because his bloodlines made him a valuable stud prospect after his racing career was over; they could not go wrong with the horse; other owners included Gerry Harvey, Sir Patrick Hogan and Bruce Reid who knew what they were doing and would not buy a horse if they thought they were going to lose money from it.
The plaintiffs also pleaded that the defendant made representations (referred to as the "Syndication Representations") to them that: the affairs of the syndicate (the owners as a group) would be managed generally by him and/or his agents; he would advise, inform and consult the plaintiffs in respect of all significant matters involving the sale and/or disposal of the horse; there would be regular meetings with the owners to discuss the horse's management and future plans including the sale and/or disposal of the horse; no sale or disposal would occur without the express approval of each owner; and he did not intend to and would not act in his own interests where they conflicted with the interests of the plaintiffs, except in accordance with their informed consent.
At the conclusion of the trial the plaintiffs relied on what they described as their "principal claim" that the defendant represented that: (a) the horse was a safe investment: and (b) that it did not matter whether the horse won a race or not because his bloodlines made him a valuable stud prospect after his racing career was over (tr 290) (the principal representations). There is an issue as to whether these representations were made. There is no real issue that if the principal representations were made, they were made in trade or commerce. There is an issue as to whether if made, the plaintiffs relied upon them. The plaintiffs claim that this is a "no transaction case" and accept that they must demonstrate that but for the principal representations, they would not have purchased the shares in the horse (tr 294).
Although there were other alternative claims made against the defendant (for conversion; breach of contract; breach of fiduciary duty; the loss of opportunity to purchase the horse; and relief pursuant to the Competition and Consumer Act 2010 and the Fair Trading Act 1987) the only claim pressed at the conclusion of the trial was based on the contention in contract that the defendant was not authorised to sell the plaintiffs' shares in the horse and a claim for declarations that the plaintiffs' own their respective percentage interests in the horse.
The plaintiffs alleged that either Mr McHugh or his agent, Les Young, had reason to suspect, or alternatively constructive knowledge, that the defendant did not have authority to convey title in the horse to Mr McHugh in respect of the plaintiffs' shares. However these claims were not pressed at the conclusion of the trial (tr 307-310). The plaintiffs claim declarations in respect of their interest in the horse and each resultant foal owned by Mr McHugh; that Mr McHugh holds all money paid in respect of the horse's stud activities on trust for the plaintiffs in accordance with their percentage ownership of the horse; and an order that Mr McHugh account to them. The plaintiffs abandoned their claim for damages against Mr McHugh for conversion and detinue (tr 281, 340).
Mr McHugh eschewed any estoppel claim under s 26 of the Sale of Goods Act 1923. He also accepted that if it is found that the defendant did not have authority to sell to him the plaintiffs' share in the horse, it follows that the plaintiffs are entitled to the declarations they seek and an order for an account.
The principal representations claim
The real issue in the plaintiffs' claims against the defendant for misleading or deceptive conduct is whether the defendant made the principal representations that: (a) it was a safe investment; and (b) it did not matter if the horse won a race or not because his bloodlines made him a valuable stud prospect after his racing career. There is nothing in writing that supports either version of the conversation that occurred at the meeting at Picton. It is necessary to review the evidence of each of the parties, their witnesses and the surrounding circumstances to determine these issues.
Antonio's evidence
The transcribing of Antonio's evidence was clearly made difficult by his entrenched Italian accent. On occasions the cross-examiner indicated an inability to hear or grasp what had been said. This observation should not be taken as any criticism of anyone. Rather it is a matter that needs to be taken into account in assessing the whole of Antonio's evidence. However I should also record that there was no application made to amend the portions of the transcript referred to in these reasons.
Antonio did not claim that the defendant said that purchasing an interest in the horse was a "safe investment". He claimed that the defendant said that it was a "good investment". The defendant admitted that at the meeting with Antonio and Joseph at Picton he did say that it was a "good investment".
In cross-examination Antonio gave the following evidence on matters pertinent to the claim that the defendant made the second of the principal representations (tr 35):
Q. For any horse, any male horse, it was important to win Group 1 races?
A. Yes.
Q. If it was going to become a stallion?
A. Become a stallion, yes
Q. When I say, "Become a stallion", I mean become a successful expensive stallion?
A. Yes.
However only minutes later Antonio gave the following evidence in further cross-examination (tr 38):
Q. You knew at the time you read the article, you knew that a horse had to win Group 1 races to be valuable as a stallion?
A. No.
Q. You agreed with me earlier that that was what you knew?
A. No, I knew the horse was good because it was a good breed and they wanted to try and convince me it's, you know, always about winning a race. It's a good valuable horse, that's why we bought.
Q. You hoped that he would be successful on the track, and that that would make him valuable as a stallion when he stopped racing, didn't you?
A. If he's valuable - I can't understand that.
Q. You hoped if you bought the horse that he would be successful on the track, correct?
A. Yeah.
Q. If he was successful on the track, that would make him valuable as a stallion when he stopped racing?
A. I couldn't understand that again, no.
Antonio was asked about the contents of Joseph's affidavit and their discussions before they made contact with the defendant in January 2006 and he gave the following evidence (tr 41-42):
HER HONOUR:
Q. What you are being asked is, did you tell Joe Pirrello?
A. Yeah.
Q. That the family of the horse had a lot of winners?
A. Yes.
Q. Did you tell him that?
A. Yes.
Q. Did you tell him that he could make a lot of money or he could make money by selling the foals after the horse had finished racing?
A. Yes.
Q. You told Joe that?
A. Yes.
ANGYAL
Q. Did you also tell Joe that whether you can make money selling the foals depended on whether the horse was a success as a racehorse?
A. Yes.
Antonio denied that he and Joseph were prepared to buy a share in the horse without seeing it and that the defendant had said that he wanted them to look at the horse before they made up their minds whether to buy a share in the horse (tr 42). He agreed that he took his cheque book of the account that was linked to his home mortgage with him when he went to inspect the horse at Picton (tr 43). He was then cross-examined as follows (tr 43-45):
Q. You got there and saw the horse, and you formed the view it was a beautiful horse didn't you?
A. It looked a beautiful horse, yes.
Q. Very athletic, very attractive?
A. I thought it looks very good. Graeme Rogerson was giving my - encouraging me to buy the horse because he said the horse is a good breed, the horse can make a lot of money even if he didn't win any race. He's a brother who won the Cox Plate, he's already from the start and that's why we bought the horse because Mr Rogerson encouraged us to buy the horse.
Q. You just said, I think, that Mr Rogerson told you that you would make money out of a horse even if it didn't win any races?
A. Yes.
Q. Now, if he had said that to you --
A. Yeah?
Q. -- you would have known that that was untrue, wouldn't you?
A. I wouldn't know if it's true or not, because he has a brother. In general he said to us, "He has a brother. He's already won, he won a good race," which is $25,000 in service for his brother that day; 25 or whatever it was, and he said, "This horse, even if it doesn't win any race we can use for breed". That's why we bought the horse.
Q. If Mr Rogerson had said that to you you would have done one of two things. You would have said to him, "Mr Rogerson, that's just not right", wouldn't you?
A. No, I wouldn't say that, no.
Q. Well if you didn't do that you would have thought to yourself, "I can't trust this man because he's telling me something that [is] not true," wouldn't you?
A. How am I going to trust this man if first time I see him, talk to him? I never saw that man Mr Rogerson before ever.
Q. Your evidence is Mr Rogerson told you you could make money out of this horse --
A. One wanted to look at a horse over there, yes.
Q. If he didn't win any races you wouldn't get any prize money, would you?
A. No.
Q. If he didn't win any races he wouldn't be valuable as a stallion, would he?
A. Well I wouldn't see the horse if you don't win any races so.
HER HONOUR:
Q. No. You're being asked, you knew, didn't you, that if he didn't win any races he wouldn't be valuable at stud?
A. No.
Q. You didn't know that?
A. No.
…
ANGYAL
Q. Mr Capogreco, you've given evidence several times this morning to her Honour that you knew that to be valuable as a stallion a horse had to win some big races?
A. No. I didn't know that, no.
…
Q. Why wouldn't you have known that?
A. Because I know, because I know the horse has already got his bloodline.
Q. But you knew the bloodlines are one thing?
A. We knew the bloodline was the bloodline, and that's why we bought the horse.
Antonio was pressed further in cross-examination as follows (tr 47):
Q. If Mr Rogerson had told you that you were going to make money out of this horse, whether or not he won races --
A. Yes?
Q. -- you wouldn't have believed him, would you?
A. I believe him. Why not? I believe him there.
Q. You wouldn't have believed him because you knew that that wasn't true?
A. No, I believe him.
Q. Why did you believe him?
A. Because I know his brother is a good champion horse. His bloodline is there.
Antonio denied that the defendant said that he thought the horse was a potential stallion if he could win Group 1 races (tr 49). However he gave the following evidence (tr 50):
Q. But the value as a stallion was dependent on winning Group 1 races, wasn't it?
A. Group 1 races, yes.
Q. Mr Rogerson told you that Sir Patrick Hogan also thought the horse was a potential stallion if he could win Group 1 races?
A. Yes.
Antonio gave evidence in cross-examination that the reasons why he bought a share in the horse included its bloodlines; that he knew Mr Harvey thought enough of the horse to buy back 25% of it; that the defendant had paid $1.55 million for it; that the defendant was going to train the horse; that it was a beautiful horse; and that he hoped to make a lot of money from the horse as a stallion (tr 52). He said that it was "not really" that he hoped to make a lot of money from the horse as a racehorse (tr 52). He said that the reason he paid for the horse and purchased it was because of the breed of the horse (tr 54). He accepted that he knew about the risks when he paid for the horse but gave the following evidence (tr 53-55):
Q. I just told you about the number of risks involved in buying a yearling, that you agreed with, and what I'm suggesting to you is that you were prepared to take all those risks when you gave Mr Rogerson your cheque for over $200,000 for this horse?
A. No.
Q. Well why did you do it then?
A. Because of the breed of the horse.
…
Q. Mr Capogreco, are you telling this Court that you thought that this was a dead set certainty?
A. I can't understand that.
Q. I withdraw the question. Are you telling this Court that you thought that it was guaranteed that you would make money out of this horse?
A. Well Graeme Rogerson guarantee to us we're going to make money.
Q. Can you answer the question, please. When you put down your cheque for over $200,000, and saw Mr Pirrello do the same, are you telling this Court that you believed that it was 100% guaranteed that you would make money out of this horse?
A. Yes.
Q. That's not true, is it? You didn't think that, did you?
A. I know we going to make money off the horse. We were always going to make money. The horse is money.
Rosa Capogreco's evidence
Mrs Capogreco swore two affidavits, the first on 1 October 2014 and the second on 1 March 2015. In her first affidavit she gave evidence that Antonio makes all the major financial decisions in their household. She said that she trusted him to look after their family's finances. Antonio informed her in January 2006 that he was thinking of buying some shares in a horse with Mr and Mrs Pirrello. Mrs Capogreco said that she did not at any time have any knowledge about horses or horseracing. However she liked the idea of owning a horse so that she could go to the races to watch it race.
Her affidavit evidence was that she accompanied Antonio, Joseph and Mrs Pirrello to the farm at Picton to see the horse and to meet with the defendant. She said that she did not recall what was said but remembered that the men were talking to each other in the presence of herself and Mrs Pirrello but that she and Mrs Pirrello were not actively involved in those discussions. She did not remember the defendant telling her about contracts or terms of buying the horse.
Mrs Capogreco said that after Antonio purchased the shares in the horse in January 2006 she did not involve herself in the affairs of the horse. She said that she did not discuss the profits and expenses of the horse with anyone, and that their son, Carlo, handled the management of the horse, including the bills.
Mrs Capogreco's affidavit evidence also included a recollection of Antonio informing her in about May 2011 that the owners were going to sell the horse without telling them but that it was to race for another year "to increase his value". Mrs Capogreco also recalled that on about 14 April 2012 Antonio informed her that Joseph had just told him that the other owners had sold the horse "without telling us".
Mrs Capogreco's second affidavit annexed various documents in relation to the registration of the horse and changes in ownership. Although there was some possibility of an issue about a signature on one of the documents, that fell away at trial.
Mrs Capogreco was not cross-examined.
Carlo's evidence
Carlo is the son of Antonio and Rosa Capogreco. He described himself as a restaurateur. He said that he and Antonio have "a couple of businesses in Ulladulla" and generally on the "couple of days" that Antonio works he looks after the restaurants and on the other days Carlo looks after the restaurants (tr 145).
Carlo gave affidavit evidence (paragraph 3) that in January 2006 Antonio had a conversation with him in which he said:
I am going to buy a share in a racehorse with good breeding. It's a good investment because even if we don't win at the races we will win from breeding from him.
In cross-examination Carlo agreed that at the time of this conversation with his father he understood that he was talking about something that he was going to do in the future (tr 138). He gave the following further evidence in cross-examination (tr 140-144):
Q. On your evidence, before your father bought the share of the horse, he thought that it would be a good investment even if it didn't win races, didn't he?
A. On breeding potential, yes.
…
Q. Look again at paragraph 3 of your affidavit, please. That's what you say your father said to you before he bought a share in the horse, correct?
A. Yes.
Q. You understood that to reflect his understanding of the investment he was thinking about making, correct?
A. Yes.
Although there was no mention in Carlo's affidavit of any discussion with the defendant in relation to the horse's potential as a stallion, he claimed in his cross-examination that the defendant had said to him that "the horse, whether he does or does not make it to the track, will become a very, very high commodity in the breeding industry" (tr 140). He also claimed that the defendant had said on "numerous occasions" that the horse would "change our lives financially" (tr 143). He was cross-examined in respect of this claim as follows (tr 143):
Q. In your affidavit of 23 August 2014, you don't say anywhere, do you, that Mr Rogerson told you that this horse would change your life?
A. No, I didn't think I had to put it down at the time but I heard him, I heard him say it to me, I heard him say it to my father, I heard him say it to Joe.
Q. Is that something you just remembered?
A. No, it's just something I didn't feel I needed to put into the affidavit.
Q. Why not?
A. I didn't think of it at the time.
Joseph's evidence
Joseph gave affidavit evidence that the defendant said to him at the meeting in Picton (15/08/14 [5]).
This horse is a safe investment. It doesn't matter if he wins a race or not because his bloodlines make him a valuable stud prospect after his racing career is over.
In cross-examination Joseph gave the following evidence (tr 89-91):
Q. I suggest to you that Tony told you that Gerry Harvey had bought back 25% and that meant the horse must be pretty good?
A. When I heard that, you know, what I recall is that when I heard that Gerry Harvey and a few other high profile racehorse owners, I got the impression that the horse was - I thought they thought the horse was going to be pretty good.
…
Q. When you heard that Gerry Harvey and Sir Patrick and Mr Reid were buying shares in the horse, that led you to believe that they thought the horse was a good investment, didn't it?
A. That led me to believe that they thought the horse was a good investment.
…
Q. You understood, didn't you, that even though a horse might have a good bloodline what depended ultimately was its track record?
A. At that time that's what I thought, until I spoke to Graeme.
Joseph said that he did not know much about horses. He asked the defendant who else was buying into the horse and he gave the following evidence in cross-examination about the conversation at the meeting in Picton (tr 93-94):
Q. And he told you that Gerry Harvey thought the horse was a potential stallion?
A. No, he told me he thought the horse was a potential stallion - no, that the horse would make a very nice stallion. It wasn't even potential.
Q. What did you understand that to mean?
A. To mean that the price of the horse was not necessarily the price for buying a horse which was racing. It was buying a horse which had a very good bloodline, and after racing it would make a very good stallion because of its bloodline. But I was aware that Gerry Harvey had a stud and I did think that "Wow, I wonder if he's thinking the same thing as I am".
Q. What do you mean by that?
A. The horse is going to be worth a lot of money as a stallion.
Q. You understood, didn't you, that a horse is not going to be a good stallion unless it has a good track record?
A. No, no, not at all.
Q. Why did you think that?
A. Because Rogerson said doesn't matter if it wins a race or not, it still, because of its bloodline, is going to make a very good stallion. If it wins a Group 1, it would be worth a lot of money.
Q. As a stallion?
A. As a stallion, yes.
Q. If it didn't win a Group 1?
A. It wouldn't be worth as much as if it did win a Group 1.
Q. You understood from what Mr Rogerson told you that the value of this horse as a potential stallion depended on whether it won Group 1 races?
A. Can you ask me that question again, please?
Q. You understood during the meeting at the Spelling Farm that the value of this horse as stallion in the future depended on whether as a racehorse it won Group 1 races?
A. I understood that it already had value as a stallion because of its bloodline, and the other thing, Graeme said it was a very well formed horse, it looked great and it was the sort of the horse which a breeder would like, and so in my mind that was the value in the horse. If it were lucky enough to win a Group 1 then it would be worth a lot of money, a lot more than what we paid for it - if we was to buy it, a lot more than what we paid for it.
Q. You understood from what Mr Rogerson said that there was a relationship between success on the racetrack in Group 1 races and the value of the horse as a stallion?
A. Yes.
Q. And that stood to reason?
A. Oh, it made sense to me, yes.
Q. It made sense to you because you understood that people who wanted to breed future winners would look to breed their mare with a winner?
A. So I'm told by Mr Graeme Rogerson.
Q. That made good sense to you, didn't you?
A. It made sense, yes.
Q. If Mr Rogerson had said to you, "It doesn't matter if this horse wins a race or not because his bloodline makes him a valuable stud prospect after his racing career is over", you would think to yourself, "Well, that's not quite right, is it?".
A. No.
Q. You would have thought that was not quite right because you knew there was a relationship between track record on the one hand and value as a stallion on the other hand?
A. I understood if you win a Group 1 it obviously was a horse which had potential to run against the best of them and the more Group 1s you win the more value as a stallion it becomes.
Q. And vice-versa?
A. To a point where the stallion part - the Group 1 part kicks in and then the bloodline dictates, because not all service stallions are the same value. So there's - I understood there was a lot of stallions which are quite cheap at stud.
Q. That was because they hadn't won Group 1 races?
A. I'm not a horse person, but I guess it is a combination of haven't won Group 1 races or hadn't had any children which had won any races, yeah.
Joseph was then asked about his claim that the defendant had said that the horse was a "safe investment". He gave the following evidence in cross-examination (tr 95-97):
Q. If he had said that to you, you would have known immediately that that wasn't right, wouldn't you?
A. I took it on board, but also was sceptical that I am dealing with someone who is trying to sell me a horse. But, you know, he knew a lot more about horses than I did so I actually took it into account.
Q. How did you take it into account?
A. That - can you ask me that question, the question before? I am losing my train of thought, I'm sorry.
Q. You say in your affidavit that Mr Rogerson said to you, "This horse is a safe investment" and you were commenting on --
A. I took it into account because it was top dollar at the auction sale. That's where the market had put the value on the horse, and the fact that it had Savabeel as the half-brother and Savabeel, when I sort of checked up on it, was Horse of the Year in either New South Wales or Australia. So it made some sense that the fact that it had such a strong family that there would have been a lot of value in that part of the horse, yeah, in that part of the combination of running fast and bloodline.
Q. Is this right, that you understood the horse, because it had good bloodlines, had a good chance of being a fast horse?
A. No, I didn't think of it that way. I thought it had more of a chance to be a fast horse, but I was more concerned about the fact that it had good bloodlines and would have use as a stallion.
Q. What if even though it had good bloodlines it didn't run fast and didn't win Group 1 races?
A. It still would have value as a stallion but maybe not as much as a stallion that won a Group 1.
Q. That wouldn't make it a safe investment, would it, given that the horse cost 1.55 million?
A. It would, if you don't make anything out of it as a racehorse, you've got the added advantage of then making something out of it as a stallion, opposed to a horse, a gelding or something like that, which you would only make money out of it as a racehorse.
…
Q. You took your chequebook because you were thinking seriously of investing in the horse?
A. If we liked it, yes.
Q. You did like what you saw?
A. I actually like what I heard.
Q. What was it that you heard that you liked?
A. That it was a perfect conformed horse. It was the sort of horse breeders would like. Graeme said it reminded him a lot of Savabeel. He said that it would make - it was a safe investment and we'd get a lot of fun out of the horse and to me all that made a lot of sense.
After further reference to the Picton meeting, Joseph was taken to a portion of his affidavit in which he claimed that he said to Antonio that "it looks like if we can't have fun with the horse on the track, we can make money from breeding him when he is retired" (tr 98). He was cross-examined as follows (tr 99-100):
Q. What you were trying to say on your evidence to Tony was that even if the horse doesn't make money in prize money, you can still make money from breeding him when he's retired?
A. Yes.
Q. You knew, didn't you, when you said that, that the amount of money that you could make when he was retired from breeding him depended on his track record as a racehorse?
A. Yes.
…
Q. Foremost in your mind at the time when you were thinking of putting down your money was whether you would get your money back?
A. I had enough confidence in what I was hearing that I would have fun on the racetrack with my wife, and we would get our money back as a stallion over - over some years, and if it wins a reasonable race, well, we hit the jackpot.
Q. What was it you were hearing that gave you that confidence, Mr Pirrello?
A. That Graeme said that it reminded him a lot of Savabeel. He was perfectly formed and he had terrific bloodlines.
Q. But you understood that there was no guarantee despite all that, that the horse was going to be a success as a racehorse?
A. That's right.
…
Q. So you knew you were taking a substantial risk in buying this horse, didn't you?
A. No, I was taking less of a risk than most people buying a horse because I had - the reason we were paying so much money so we mitigate that risk of buying a horse which could be a very good stallion and with a really good bloodline which actually mitigates against a lot of those risks. We weren't buying a $20 horse.
Q. Your attitude was, in horses as in life, you get what you pay for?
A. If you are going to make an investment and you don't know much about it, you try and make the safest possible investment you can, and that is, pay a little bit more and try and get the best value for money, yep.
In later cross-examination Joseph was asked about the various reasons that he decided to purchase an interest in the horse. He said those reasons included: the horse's bloodlines; that Mr Harvey was keeping 25% of the horse; that he knew the defendant had paid $1.55 million for the horse; and that Sir Patrick Hogan and Bruce Reid were taking a share of the horse (tr 102). He gave the following evidence (tr 103):
Q. Another factor was, you hoped to make a lot of money from the horse once it retires as a racehorse, as a stallion?
A. That was my main factor, I was more interested in that than anything else.
Q. But again you understood there was a substantial risk that that wouldn't happen?
A. No, why wouldn't it happen?
Q. You've already told me that if it didn't make a lot of money as a racehorse, it wasn't going to make a lot of money as a stallion?
A. It wouldn't make as much money as a stallion if it didn't win. If it won the Group 1, the price would be up. If it didn't win the Group 1, it would be down on the lower class of the stallion.
Anna Pirrello's evidence
Mrs Pirrello swore two affidavits in the proceedings, the first on 15 August 2014 and the second on 2 March 2015. Mrs Pirrello describes herself in her affidavit as a housewife but gave oral evidence that she had worked as a salesperson.
Mrs Pirrello recalled the meeting at Picton in January 2006 with the defendant and said that he talked to each of the plaintiffs about the horse. Mrs Pirrello claimed that Joseph and Antonio did all the talking for Mrs Capogreco and for herself. However she did recall that the defendant said words to the following effect:
Your life will never be the same if you buy this horse.
I will train the horse for you and we will win big races. This horse will make you a lot of money because it has good breeding.
Mrs Pirrello claimed that the defendant did not discuss the terms and conditions of the sale with her "except as they related to him training the horse". She did not remember discussing the terms of sale with anyone and claimed that she could not understand a lot of what the defendant was saying. She saw Mr Pirrello's purchase of a share in the horse "as an opportunity to dress up and go to the races when the horse was racing". She said that she had no involvement, nor did she wish to have any involvement with the management of the horse or the financial decisions relating to the horse. She left those matters to Mr Pirrello. Her evidence was that she remembered seeing Mr Pirrello very angry in April 2012 when he informed her that the horse had been sold by the defendant.
Mrs Pirrello's second affidavit attached various documents in respect of which there is no issue. In cross-examination Mrs Pirrello agreed that she and Joseph are very good friends with Antonio and Mrs Capogreco. She agreed that Joseph has coffee with Mr Capogreco every morning (tr 127). She agreed that she knew that Mr Capogreco was involved in "maybe" one horse or another horse but did not know much about it (tr 128). She claimed that she did not get involved with the detail and she left it to Joseph (tr 129). However she agreed that when she saw the horse at Picton she thought that it was a "beautiful horse" and very athletic looking (tr 130). She claimed that at this meeting the defendant "was talking about how beautiful the horse is going to win a lot of money and, yeah, like a salesman he was talking" (tr 130). She gave the following further evidence in cross-examination (tr 131-132):
Q. You said a moment ago that Mr Rogerson was talking like a salesman?
A. Like he was saying how beautiful the horse, you would be sorry if you don't buy the horse, it's going to make a lot of money. And then I went, I just went and looked at the horse and talked to the horse. I have never been involved in horses and I thought it was, you know, something different.
Q. The fact that on your evidence Mr Rogerson was talking like a salesman made you a bit suspicious, didn't it?
A. No, not really, because I used to be a saleswoman and if you want to sell something you really, you know.
Q. You talk it up?
A. Yeah, that's, exactly.
Q. And you formed a view that is what Mr Rogerson was doing?
A. I couldn't understand much how he talks, but that was what I, but I went away and looked at the horse because I wanted to see what the horse, you know, have a look. Looked around the stables, see what - never been to anything like that before.
Q. It must have crossed your mind that because Mr Rogerson was trying to sell you the horse it was important to make your own enquiries about the horse?
A. Well, I leave everything up to my husband. My husband looks after everything like that. I just, he just was making me happy to go somewhere to enjoy myself somewhere.
Q. Did you feel a need to take Joe aside and say to him, "look, this guys talking like a salesman, you have got to be careful."
A. No, not really. I trusted my husband, he looks after everything. I don't do any book work, I don't do anything. I always trust him. Whatever he, I know that he, he is my husband.
…
Q. You knew that racing was a risky business, didn't you?
A. I have nothing to do with horses. I don't know nothing about horses. I was just excited that my husband, we were going to do something together and go out and have a good time, with another couple.
Mrs Pirrello said that she did not remember the defendant saying that he would manage the horse and if there was anything that needed the owners to decide it would be decided by majority rule (tr 133).
The defendant's evidence
The defendant's affidavit evidence in relation to the meeting at Picton was as follows:
[Antonio and Joseph] liked him when they saw him and they both confirmed that they wanted to proceed to purchase a share.
They asked a few questions about who the other owners were and who would manage the horse. I told them that Gerry Harvey liked the horse a lot and thought he was a potential stallion if he could win Group 1 races. I told him that Sir Patrick Hogan was of the same opinion. They both know that Gerry Harvey and Sir Patrick Hogan were leading studmasters standing their own stallions.
I told both Joe Pirello (sic) and Antonio Capogreco that I though (sic) this horse was a good investment. I said words to the effect "He is well bred, a good type. We are going to have a lot of fun with him". They asked me words to the effect of "Who will manage the horse?" I replied words to the effect "I run these syndicates as partnerships. I will manage the horse and if there is anything I need the owners to decide, then that will be decided by majority rule".
In cross-examination the defendant said that if the horse was sold to a stud he would have got a percentage. He gave the following evidence (tr 166):
Q. Sorry, a percentage of what?
A. Well, when a stallion is sold, like you take, for instance, Vancouver and that, Gai Waterhouse would have got 10 per cent. He made 40 million, so that's 4 million.
Q. So, did you tell Mr Capogreco and Mr Pirrello that if the horse was sold at stud you were going to get a percentage?
A. I don't know whether I did or not, you know. That's, I don't know, I mean that's normal in training.
Q. Can I suggest to you, you didn't tell them anything of the sort?
A. I wouldn't say that. I explained everything to them.
Q. I'm sorry, is it your evidence that you explained everything about this horse?
A. I done my best, and.
Q. When you say you explained everything to them, was that before or after they decided to buy their shares?
A. Well, from my recollection they rang me, they were going to buy the horse without seeing it. I asked them to come and look at the horse because I didn't want them to buy a share in the horse until they seen him. He was an outstanding athlete and he was a very good-looking horse. And they came down to Oak Ridge to see him. I told them how it worked, who was in the horse, look at the horse. I told them that the majority rules in the horses, and every horse I train the majority rules. And at the end of it I said do you want to be in or not in. They said we will pay you for him now.
Q. To the extent you say you told them everything about the horse, it was before they wrote the cheques?
A. Well, I asked them did they want to be in it after I told them everything and then they shook hands, wrote the cheque and give it to me.
The defendant was asked about his evidence in paragraphs 16 to 18 of his affidavit referred to above. He gave the following evidence (tr 169-170):
Q. Is it your evidence that they told you that they wanted to buy the horse before you said anything to them at all?
A. Oh, I can't remember.
Q. You see in paragraph 16 you say, "They liked him when they saw him and though both confirmed that they wanted to proceed to purchase a share." Do you see that?
A. Yes.
Q. Are you saying to her Honour that they agreed to purchase the share before you said anything?
A. No, no, they came, I paraded the horse, they looked at the horse. I told them everything about him, the mother, I trained the mother and they knew. They knew a hell of a lot about the horses and they had done their homework and they knew all about Zabeel and everything.
…
Q. So, the only evidence you give about what was said in that meeting is contained at about paragraph 17 to 19, you see that?
A. Yeah.
Q. Can I suggest that when you were preparing this affidavit you were asked to set out everything you can remember and that is the sum total of everything you can remember?
A. Oh, even, I am stretching myself ten years, it's a --
HER HONOUR
Q. It is a long time?
A. You know, I remember clearly that Gerry Harvey and Sir Patrick, because, I mean, I had in the back of my mind that they are two of the biggest stallion people in Australia and in New Zealand and if it turns out a Group 1 horse, we got a ready-made home, and I can remember that as clear as the day.
PESMAN
Q. But perhaps if you can direct your attention to the question I asked you; is what appears in paragraphs 17 to 19 everything you can remember about the conversations?
A. Basically, you know.
Q. When you told me a quarter of an hour ago or so that you told them everything about the horse before the cheques were signed, is that everything that is contained in paragraphs 16 to 18?
A. I don't understand your question, but if you referring to the horses athleticism, his thing and everything, and I did remember one thing. Because they were new people, I don't normally give vet certificates, and I sent them, to my best of my knowledge, I sent them the vet thing that inspected them, like before I bought him, and all that. I did. But he was, you know, he was a magnificent individual, once anyone ever looked at him and that's why the likes of Peter Moody and all them at the sales, they all wanted to buy him. He just stood out.
Q. But returning to the question. At the commencement of your cross-examination you told the Court that before the cheques changed hands you told them everything about the horse and I want to know is everything about the horse what appears in paragraphs 16 to 18?
A. Hang on, let me have a look. They like what they saw. I asked them. Yeah, I agree that, 16. 17; they asked a few questions. Yeah, about Gerry and the people. Yes. And 18; yes. Because the bottom of 18, the majority rules, and I have trained thousands of horses, nearly trained 5,000 winners, and I run all my thing, the majority rules. How else would I run? The majority rules. If the decision to be made goes on majority rule. And I explained that to them.
…
Q. Was that what you said to them before the cheques were signed?
A. Yes.
Q. Anything else?
A. I can't, no. I think that's basically it. They looked at the horse. They liked what they saw, the thing, and six and a half years I trained that horse --
I understood the defendant's reference in this evidence to having a "ready-made home" to mean that in his mind if the horse had turned out to be a Group 1 winner, either Mr Harvey or Sir Patrick Hogan would have welcomed him as a stallion at their studs. His reference to Zabeel is also pertinent. The horse's half-brother, Savabeel, was one of Zabeel's progeny. The defendant's evidence was that Joseph and Antonio had done their research on the horse's family before the Picton meeting.
The defendant claimed that he advised the plaintiffs that "to be a stallion it had to be a Group 1 winner" (tr 183). The defendant also gave the following evidence (tr 183-184):
Q. You say a horse can only be a successful stallion if it wins a Group 1 race?
A. It is certainly more commercial if it wins a Group 1.
HER HONOUR
Q. You don't say you have to win a Group 1 race to be a valuable stallion?
A. No, no.
Q. That's the question?
A. I am sorry, I was just explaining about Savabeel, his Group 1, you know, and he's very commercial?
There is no doubt that the defendant was very enamoured of the potential of the horse. He accepted that he informed Antonio and Joseph that the horse was a "good investment". He gave the following evidence (tr 185-186):
Q. You understood that Mr Pirrello was looking at putting a substantial amount of money into this horse, correct?
A. He was putting money into this, the horse because he was half-brother to Savabeel and looking at the thing, I don't know whether they was advising him, Tony and that. They rang me, approached me to go in the horse, I didn't ring them. I, I at that time I did like the horse. I thought he was, he was the next Savabeel, and that's the bottom line.
…
Q. You say that you told them that the horse was a good investment?
A. I thought he was. I mean, if he would have, if he would have been a Group 1 winner, I think he's a good investment. That's why everyone wanted a go in him.
Q. You did not say anything about that qualification that if he's Group 1 winner, he's a good investment?
A. No. We got talking about Savabeel. I told them the reason he was going to make a great stallion was because of what he didn't, and everything. I thought this horse was a good investment. I stand by that.
Q. But did you say more than "I thought this was a good investment"?
A. I think I said, my words were "well bred" and a "good type" and "we're going to have a lot of fun with him" and "racing, I think it's a lot of fun". I don't know whether if you race them more ‑ when you win races, certainly it's a lot of fun.
Q. You certainly did say: "He would only be a good investment if he wins a Group 1"?
A. I would say more like: "For him to be a stallion, he would have to be a Group 1." That's why I pointed out to them Savabeel and they knew all the way.
Q. Did you or did you not say: "He will only be a good investment if he wins a Group 1"?
A. I can't, I don't remember.
Q. I suggest to you you said nothing of the sort. That's correct, isn't it?
A. I don't know.
I am satisfied that at the conclusion of this segment of cross-examination the defendant effectively abandoned any suggestion that he had said to Antonio and Joseph that the horse would only be a "good investment" if he were a Group 1 winner. However I understood from the whole of his evidence that he maintained that he said to Antonio and Joseph that the horse would only be a potential stallion if he could win Group 1 races.
Consideration
There are two principal representations upon which the plaintiffs rely in respect of their misleading or deceptive conduct claim against the defendant. Although they were both allegedly made at the Picton meeting, it is appropriate to consider them separately.
Safe Investment
The first matter for determination is whether the defendant made the principal representation that the horse was a "safe investment".
Antonio owns and operates a number of restaurants in Ulladulla on the south cost of New South Wales. Prior to his purchase of the share in the horse, Antonio had owned three racehorses with others and in his own right, Lucky Lad, Pronto and De Lago King. These horses did not achieve a great deal of success on the track. At the time of the Picton meeting Antonio was no stranger to the racing industry, although he was certainly far less experienced than the other owners in the horse.
As indicated earlier, Antonio did not at any stage of his evidence claim that the defendant said that the purchase of the shares in the horse was a "safe investment".
Although Joseph described himself as a "fisherman" he admitted that he is the managing director of a substantial fishing company known as Seafish Tasmania (tr 86). He used to "commute" to Tasmania from Ulladulla every week but by the time of the trial that had been reduced to once a month (tr 87). Joseph claimed that he always sees himself as a fisherman rather than as a businessman or a director (tr 86). However it is clear that Joseph is an experienced businessman.
Joseph claimed that the defendant said that the purchase of the shares in the horse was a "safe investment". The defendant denied saying that it was a "safe investment". He claimed that he said that it was a "good investment" and was corroborated in that regard by Antonio's evidence.
On balance I am satisfied that the defendant said it was a "good investment". I am not satisfied that the defendant said it was a "safe investment".
Group 1 winner
The next matter for determination is whether the defendant said to Antonio and Joseph that Mr Harvey and Sir Patrick Hogan thought the horse was a potential stallion if he could win Group 1 races.
Antonio's evidence was marred in part by the inconsistent positions he adopted in his evidence in respect of whether he knew that it was important for the horse to be a Group 1 winner to be a valuable stud prospect. After first agreeing with the proposition (tr 35), he then denied it (tr 38) and appeared later to accept it again (tr 50).
Antonio's affidavit evidence was that the defendant said that the horse would make the plaintiffs' money "on the track and off it because it's got good breeding" (tr 38). In his affidavit in reply of 1 March 2015 dealing with paragraph 17 of the defendant's affidavit Antonio denied that the defendant said that the horse "was a potential stallion if he could win Group 1 races". Antonio sought to maintain that denial in general terms in his cross-examination. However Antonio admitted that he told Joseph that whether they could make money selling the foals depended upon whether the horse was a success as a racehorse (tr 42). In addition Antonio's evidence that "they wanted to try and convince me it's, you know, always about winning a race" was not explored further, but highlights Antonio's understanding that the aim was for the horse to race on to see if it could achieve success on the racetrack.
Neither Antonio nor Joseph mentioned in their affidavits that the defendant had said anything about the horse's prospects at stud being dependent upon winning Group 1 races. The defendant's affidavit evidence in paragraph 17 was that he informed Antonio and Joseph that Mr Harvey thought that the horse was a potential stallion if he could win Group 1 races. He also claimed he informed them that Sir Patrick Hogan was of the same opinion. Notwithstanding that Joseph responded to paragraph 17 of the defendant's affidavit in his reply affidavit of 2 March 2015, he did not deny that the defendant had said that Mr Harvey liked the horse and thought he was a potential stallion if he could win Group 1 races. Nor did he deny that the defendant said that Sir Patrick Hogan was of the same opinion. However he claimed in his reply affidavit that the defendant "clearly said words to the effect that the horse would be worth a lot of money as a stallion even if he did not win races".
However in cross-examination Joseph claimed that the defendant had said something about Group 1 races at the Picton meeting. He accepted that he understood from what the defendant said at the meeting that there was a relationship between Group 1 races and the value of the horse as a stallion. He accepted that this made good sense and that the defendant said that people who wanted to breed future winners would look to breed their mare with a winner.
It is clear that Joseph accepted that the defendant did say something about Group 1 races and the need for the horse to win Group 1 races and that this was connected in some way to the potential for the horse at stud.
On balance I am satisfied that the defendant did say that Mr Harvey had said that he thought the horse was a potential stallion if he could win Group 1 races and that Sir Patrick Hogan was of the same opinion.
Irrespective of winning
The next question is whether in the circumstances, it is probable that the defendant also said that it did not matter if the horse won a race or not because his bloodlines made him a valuable stud prospect after his racing career was over.
Antonio did not give affidavit evidence that the defendant made this statement. Rather he claimed that the defendant said that the "horse will make you money on the track and off it because it's got good breeding". There was no mention in Antonio's affidavit that the defendant said that it did not matter whether the horse won a race or not. Even when he had a further opportunity in his affidavit in reply to respond to the defendant's affidavit no mention was made of such a statement. The absence of any evidence in Antonio's affidavit needs to be taken into account in assessing whether Mr Pirrello's evidence that the defendant did make such a statement should be accepted.
Carlo's affidavit evidence of his conversation with Antonio before he purchased the share in the horse is significant. Antonio informed him that it was "a good investment because even if we don't win at the races we will win from breeding him". Any possible doubt about the timing of this conversation was jettisoned in cross-examination when Carlo made it very clear that it occurred before Antonio purchased the share at a time when he was thinking about making the investment (tr 140-144). It was clearly before Antonio had the meeting with the defendant at Picton.
This conversation with Carlo puts a very different complexion on Antonio's claim that the defendant said that the horse would make him money "on the track and off it because it's got good breeding". It was only in Antonio's cross-examination that he changed what he had claimed the defendant said to him by suggesting that the defendant said that the horse can make "a lot of money even if he didn't win any race". This was the first time that Antonio mentioned this, nine years after the meeting at Picton.
Joseph's claim in his affidavit was that the defendant said that it did not matter if the horse won a race or not because his bloodlines made him "a valuable stud prospect" after his racing career was over. Joseph also changed the content of his claim in his cross-examination. At first he said that the defendant said that he thought the horse was a "potential stallion" but then denied that and claimed that the defendant said that the horse "would make a very nice stallion" and that it "wasn't even potential". He then claimed that the defendant said that the horse was "going to make a very good stallion".
The defendant denied that he said that it did not matter if the horse won a race or not for it to be a valuable stud prospect.
I did not find Carlo's evidence in cross-examination on this principal representation convincing. He made no mention in his affidavit of any discussion with the defendant about the horse's stud prospects if it did not win a race. Yet nine years after the event when he was giving his evidence he claimed that the defendant said that "whether he does or does not make it to the track," the horse "will become a very, very high commodity in the breeding industry". There has never been any suggestion, and it was never put to the defendant, that irrespective of the horse's performances on the track he would become a "very, very high commodity in the breeding industry" (tr 140).
One of the real difficulties for each of the parties and the witnesses in this case was the time lag between the relevant events in a paddock in Picton in 2006 and the giving of their evidence nine years later in 2015. This horse raced for years with varying results both in Australia and New Zealand and there is no documentation that supports the proposition that the defendant ever said that irrespective of the horse's performance he would be a valuable stud prospect.
Indeed if as the plaintiffs claim they had relied upon such a statement it is inconceivable that they would not have suggested that the horse go to stud perhaps at a time after he came third in a Group 1 race or at some time earlier than the beginning of the complaints about the training fees having to be paid with no return. Even when the decision was communicated about the horse being kept for a further year rather than selling it at the Magic Millions auction in mid-2011, neither Antonio nor Joseph suggested that the horse go to stud at that time.
It was never suggested in the conversations with Ms Jenkins in early 2012 that the defendant had informed the plaintiffs that irrespective of his performances he would be a valuable stud prospect. True it is that at this time the plaintiffs were looking at the possibility of placing the horse at stud with Mr Santic. However when Joseph spoke with the defendant in February 2012 he did not suggest to him that he must be valuable because of his bloodlines. Rather he asked the defendant what he thought the horse was worth. When the defendant responded that he did not know "exactly" what the horse was worth, there was no suggestion that Joseph then recounted to the defendant his claimed representation that irrespective of his performance on the track he would be a "valuable stud prospect".
In all these circumstances I am satisfied that the defendant did not say that irrespective of his performance on the track, or whether he won a race or not, the horse would be a valuable stud prospect.
I am not satisfied that the defendant made the second principal representation. It was accepted that if I were to find against the plaintiffs in respect of their principal representations claim it is unnecessary to consider the other pleaded representations (tr 294).
The plaintiffs' claim for misleading or deceptive conduct against the defendant will be dismissed.
Contract claim
The plaintiffs limited their alternative cases to a claim that the defendant in breach of contract purported to sell their shares (or cause their shares to be sold) in the horse by private sale to Mr McHugh. It is alleged that the defendant was not authorised to accept the offer made on Mr McHugh's behalf without advising the plaintiffs that the offer had been made. If this finding is made Mr McHugh accepts that he cannot obtain any better title and does not make any claim under s 26 of the Sale of Goods Act 1923 that the plaintiffs' are precluded by their conduct from denying the defendant's authority to sell. In those circumstances Mr McHugh does not oppose the declarations and order sought by the plaintiffs.
The arrangements in respect of the purchase of the shares in the horse and the management of the horse were very loose. However it is clear that there was an oral agreement that was partly evidenced in writing by the cheques and invoice and in the documents that were lodged with the Registrar that Antonio, Rosa and Joseph on behalf of Mrs Pirrello had each agreed to purchase their respective shares in the horse for the consideration paid to the defendant at Picton in January 2006.
The Rules provide that any person who "takes part in any matter" coming within the Rules "thereby agrees with the Australian Racing Board and each and every Principal Racing Authority to be bound" by the Rules (AR.2). The word "syndicate" means and includes a combination of persons not exceeding twenty (AR.69A). The Rules provide that every member of a syndicate "shall in all respects and for all purposes" be bound by the Rules "irrespective of the nature or extent of the interests or rights of such members in the syndicate" (AR.69L). In this case the syndicate was not registered. Rather the horse was raced by the co-owners with the defendant as Manager.
Each of the owners of the horse agreed to be bound by the Rules and agreed that the defendant was not only the trainer of the horse but also the Manager to which AR.57 applied. The owners agreed that the mechanism for removing or replacing the defendant as Manager was by memorandum signed by the owners "representing a majority interest in the horse" (AR.57(1)). They also agreed that the defendant alone was entitled to, inter alia, "act for and represent" them "in relation to the horse in all respects for the purpose" of the Rules (AR.57(2)(d)). The Rules are silent in respect of the sale of thoroughbred horses.
There is in evidence a copy of the Australian Bloodstock Code of Practice issued by the Australian Racing Board. The Introduction to that Code is in the following terms:
Australian Racing and its participants place great value on the reputation it has achieved for high standards of integrity and transparency in all of the industry's facets. This Code of Practice sets out principles that apply to sales of bloodstock and sales of stallion shares and nominations, be they private sales or sales at public auction, helping to ensure that sales of bloodstock in Australia continue to achieve this high standard of integrity and transparency, in order to safeguard the interests of vendors, consignors, bloodstock agents, owners, trainers and sales companies.
The definition section of the Code includes the following:
"Agent" means any trainer, consignor, bloodstock agent, racing or stud manager or other person or entity who represents and/or advises a principal in the sale or purchase of bloodstock, stallion shares or nominations, whether or not the agent is paid by way of retainer, commission or other forms of remuneration, or has ongoing financial arrangements (for example the payment of management or training fees).
"Principal" means a person or entity who, either formally or informally, appoints an agent to represent and or advise him in the sale or purchase of bloodstock, stallion shares and nominations as in the definition above.
"Trainer" means a person licensed or holding a permit to train granted by a Principal Racing Authority or Association, or a person qualified to train under AR.80.
The Code also deals with obligations of agents and includes the following:
3.8 If an agent receives an offer to purchase a horse he must relay that offer in its entirety to his principal at the earliest opportunity and respond in accordance with the principal's instructions.
It was not suggested in final submissions that this Code applied to the defendant. However the Code is informative of the obligation of an agent who represents a principal in the sale of a thoroughbred horse, particularly in the circumstances of the sale of the horse to Mr McHugh.
Antonio's affidavit in chief made no mention of any statement made by the defendant about what would happen regarding the sale of the horse. Antonio claimed that the defendant said that the owners "will regularly get together" to decide the horse's "racing and stud plans". There was no mention in his affidavit in reply of any discussions about any meetings of the owners to deal with the sale of the horse. Joseph's affidavit evidence in chief was that at the Picton meeting the defendant said that all the owners "will have regular meetings to discuss and decide the plans of the horse". There was no express reference to the sale of the horse. Nor was there any such reference in Joseph's affidavit in reply.
Although it has been unnecessary to deal with the other pleaded representations, having regard to the conclusions reached in respect of the plaintiffs' claim against the defendant for misleading or deceptive conduct in respect of the principal representations, it is appropriate to say something at this juncture about the relevant pleaded Syndicate Representations. It was alleged that the defendant represented to Antonio and Joseph that "no sale or disposal [of the horse] would occur without the express approval of each owner". It is understandable that the plaintiffs focused on the principal representations in their final submissions because there is no basis to justify a finding that this representation was made at the meeting at Picton.
One issue between the parties is whether the defendant said that he managed the syndicate on the basis of "majority rule". However even if the defendant did say this and it was accepted by the plaintiffs, there is the further issue as to whether such a "rule" applied to the sale of the plaintiffs' shares in the horse.
"Majority rule"
As referred to earlier, the defendant claimed in his affidavit that at the meeting at Picton in response to their enquiry as to who would manage the horse he said to Antonio and Joseph, "I run these syndicates as partnerships. I will manage the horse and if there is anything I need the owners to decide, then that will be decided by majority rule"
The defendant gave the following evidence in cross-examination (tr 171-174):
Q. When you're talking about the majority in relation to a jointly owned asset, a racehorse as an example --
A. Yes
Q. -- do you understand that "majority" could mean one of two things. First, a majority of the human beings who own the animal, or second, a majority of the shareholdings?
A. The percentage - the way I work it, if you've got 50 per cent, you've got a 50 per cent vote. If you've got 25 per cent, you've got a 25% vote. If you've got ten per cent, you've got a ten per cent vote, and that's how it worked so that's majority rule and that's my interpretation.
…
Q. Returning to the majority rule question, I just want to explore with you what you mean by "majority rule". Does that mean that 51 per cent of the owners tell you to do something, you just do it without consulting the rest of them?
A. If there was - it came down to a vote and there was - 51 per cent want it, yes.
…
Q. If owners of Arlington representing 55 per cent of the shareholding had directed you to geld Arlington, would you have done that without telling the other 45 per cent owners?
A. No, they would all have got - what we do, they all get a letter and we say we're going to geld. When we get the result back, then we tell them.
Q. What you mean by "majority rules" is this, isn't it, everybody gets a chance to participate in the discussion but if there has to be a vote majority rules?
A. No, we don't have votes. I mean I just ask them and whatever. When he came to - Joy Jenkins had a majority rule to withdraw the horse from the sale. She had, what the numbers are I can't remember but she had the numbers.
After further cross-examination the question of the meaning of "majority rule" was raised again (tr 192-193):
Q. Do you agree with this proposition: no decisions could be made in relation to this horse without everyone being given an opportunity to contribute to the horse (sic)?
A. I don't agree with that, no.
Q. You say if 51 per cent of the owners tell you to sell it, you would sell it without telling the rest?
A. You would - the majority rule, yes. But I didn't say that.
HER HONOUR
Q. Just so I understand what you are telling me so I am clear. The majority rules in your mind, if you hear from 51 percent of your owners you don't have to hear from the other 49 percent what they want?
A. No.
Q. Is that right?
A. Yes.
PESMAN
Q. If 51 percent of the owners called you and said: "We want to geld it", you just run with the decision?
A. No, I wouldn't have done that. I would've let the others know there's a majority decision to do it and that's going to be done.
Q. The reason you would tell them was to give them an opportunity to dissuade the majority, correct?
A. I have, I've never thought of it. I don't know.
Q. What was your purpose in telling them?
A. What is - I don't know, but it's courtesy I suppose.
The defendant gave a further explanation of how the majority rule works in practice (tr 188):
Q. If you go to assemble a majority to make a decision about the horse, how do you put the majority together?
A. I talk to them all. I mean we do, I do come as one of the best communicators in the business. That's why I think I trained in five countries at once. I have people who can communicate.
Q. To the extent that you are having discussions as you understood it, you had to have discussions with all of the owners?
A. No. I never told anyone I'll have them with all of them. They all know my phone numbers to ring me.
The defendant also explained that in the event of an hypothetical 50/50 split between the owners over a decision touching upon the management of the horse, he would have the deciding vote (tr 176). However he could not recall whether he had informed Antonio and Joseph of this "casting vote" arrangement when he met with them at Picton.
Antonio and Joseph denied that they were advised of any "majority rule" term at the Picton meeting (tr 61; 101). However Joseph's evidence was that he assumed that decisions "would be by consensus" (tr 101).
The events of mid-2011, when the horse was entered into the Magic Millions sale and then withdrawn are an example of the majority rule in practice. The defendant gave the following affidavit evidence in respect of the entry of the horse into that sale:
24. During the early part of 2011, the majority of the owners, including Joe Pirello (sic) and Antonio Capogreco were indicating to me, either directly, or to my Administration Manager Wendy Maybury, that they did not want to keep on paying the training fees and other racing expenses for Arlington a[n]d wanted him sold as soon as possible.
25. I entered the horse for the 2011 Magic Millions Annual National Broodmare Sale (Stallion Section), which is usually a big sale held in May/June each year.
26. Subsequent to entering Arlington for the auction, Joy Jenkins and her daughter Samantha both indicated to me that they would like to race the horse on for one more year and that they would talk to the other owners, which they did do and I withdrew Arlington from the auction.
27. We continued to race the horse, without any significant success.
There is an issue about whether Antonio or Joseph indicated to the defendant or Ms Maybury that they wanted the horse sold as soon as possible. Both denied giving such indication to the defendant. It appears that the "indication" came mainly from Ms Maybury who reported her conversations with Antonio or Carlo and Joseph to the defendant. She claimed that Antonio (although it would appear it was Carlo) was complaining about the training fees and indicating that the horse should be sold. On balance I accept Ms Maybury's evidence that there were complaints made about the training fees. However I am satisfied that those complaints were made in the context of the horse's lack of success in Group 1 races and/or races generally. I am not satisfied that Antonio (or Carlo) said that they wanted the horse sold as soon as possible. I am satisfied that Joseph did not make any complaint either to Ms Maybury or the defendant and did not indicate that he wished to sell the horse as soon as possible.
In any event, both Antonio and Joseph were notified of the outcome of Ms Jenkins' discussions with the other owners in achieving a majority decision that the horse should be withdrawn from the Magic Millions sale in mid-2011 and raced for a further year. I accept that neither Antonio nor Joseph was consulted about this outcome before they were notified by email. In one sense the decision to race the horse for a further year was a "matter" affected by the Rules and one in respect of which the defendant was entitled to represent the owners as Manager. Clearly the outcome was achieved on the basis of a majority decision. However Joseph's unchallenged evidence was that he complained to the defendant that no one had consulted him or Antonio about the sale. This complaint was met by the defendant suggesting that Antonio and Joseph could bid at the auction. I am not satisfied that the plaintiffs' conduct in respect of these events of mid-2011 justifies a finding that they agreed to or acquiesced in other owners making a decision to sell their shares in the horse without their consent.
On balance I am satisfied that the defendant informed Antonio and Joseph at the Picton meeting that he ran the syndicates as partnerships and if he needed the owners to decide matters about the horse, it would be decided on the basis of majority rule. However I am satisfied that this statement related to the defendant's role as trainer of the horse and as Manager under AR.57. There was no discussion about what would happen if the horse was to be sold. The parties were focused on what they clearly regarded as the very exciting prospect of achieving great success in racing the horse and thereafter standing him at stud. I am not satisfied that the plaintiffs agreed at the meeting at Picton that their shares in the horse could be sold without their consent by the decision of the majority interests in the horse.
The sale of the horse
The Magic Millions records in evidence (Ex E) include a sheet entitled "Private Sales". The only vendor identified on that document is the defendant and the only purchaser is identified as Mr Young's company, Doncaster Bloodstock Services Pty Ltd. That document records that it was generated by Mr Chester on 11 April 2012. It records a purchase price of $60,000 together with commissions and or GST making a total of $63,300.
There is also in evidence the Conditions of Sale for the 2012 Magic Millions sale (Annexure "D" to the affidavit of Mahsa Curci sworn 14 July 2015 (the MM Conditions)). The MM Conditions include the following:
IMPORTANT: PLEASE READ
All bids and offers to purchase shall be treated as offers made upon the following Conditions of Sale and all persons attending the Sale or bidding at the Sale shall be deemed to have notice of these Conditions of Sale.
The MM Conditions provide that: the "sale" will be conducted by an Auctioneer with absolute discretion to withdraw any Lot before or during the sale (2.4.3); the vendor is entitled to instruct the Auctioneer to re-offer the Lot on the completion of the Auction and "the horse shall be re-offered without reserve" (2.4.7); and subject to any reserve price "all Lots are sold at the final bid accepted by the Auctioneer" (2.5). The only references to a private sale in the MM Conditions are as follows:
9.1 Any Purchaser requiring credit from the Auctioneer or Vendor must enter into a satisfactory credit or terms agreement with the Auctioneer or Vendor in writing prior to the Sale. All such agreements entered into at any time prior to delivery of the Lot shall be made by the Auctioneer as principal and not as Agent of the Vendor and such agreements shall not form part of any Sale and purchase whether made by auction or private.
15.1 In the event that the Purchaser breaches any of these Conditions of Sale and fails to remedy such breach within reasonable time after receiving written notice from the Vendor or Auctioneer requiring such breach to be remedied, or all monies payable by the Purchaser to the Auctioneer pursuant to these Conditions of Sale shall not have been paid and liquidated by the due date for payment thereof, or where the Auctioneer has, in its discretion, agreed to an extension of the date for payment (in which event time shall be of the essence in respect of such extended date) and the same shall not have been paid and liquidated by such extended date, the Auctioneer or the Vendor may at any time without prejudice to any other rights or remedies which the Auctioneer or Vendor may have at law or in equity and without notice to the Purchaser:
…
15.1.3 resell the Lot by auction or private Sale at the risk and expense of the Purchaser
…
21.2 These Conditions of Sale shall, in so far as possible, apply to the private Sale by the Auctioneer of any Lot entered for the sale.
I am satisfied that on a reasonable reading of the MM Conditions the "private sale" referred to in the MM Conditions is a private sale at the date of the auction or thereafter and not some months prior to it.
The defendant gave affidavit evidence that during the latter part of 2011 and the first few months of 2012 Ms Maybury informed him of her telephone conversations with Joseph and Antonio in which they advised that they did not want to pay any more costs and wanted the horse sold. His affidavit in this regard included the following:
30. Wendy asked me to call them. I attempted to call both Joe Pirrello and Antonio Capogreco, but got their voicemails. I left a message, but neither of them returned my calls. This was nothing new, as a number of my previous calls were also not returned. On a number of the occasions when I did get through to Joe, he made appointments to come and see me, but never turned up.
…
32. On or about 11th April, 2012, I received a call from David Chester, who told me that he had Arlington sold for $60,000, which I said words to the effect "That is a good result. There is no interest in him as a stallion and I have been struggling to find a home for him". David Chester said words so (sic) the effect "I am dealing direct with the other owners".
33. Soon after I received the call from David Chester, I received a call from Joy Jenkins, who said words to the effect "I am happy with the result, knowing that we were at a loose end trying to find a stud to stand him".
34. I have had no direct contact with either of the Plaintiffs since Arlington was sold.
In examination-in-chief the defendant was taken to the period at the end of 2011 and early 2012. He gave the following evidence (tr 156-159):
Q. In that period, did you have conversations with some of the owners of Arlington about the future of the horse?
A. Yes, yes.
Q. Who did you speak to among the owners?
A. I've spoken to Gerry for sure.
Q. When you say "Gerry"?
A. Gerry Harvey, sorry.
Q. Doing the best you can, what was the conversation you had with him about the future of the horse?
A. He - I, his form had tapered right off.
…
HER HONOUR
Q. Tell me what you said to him about the future of Arlington?
A. Well, he tapered right off. He got older and I'd taken him, I think it was 2009 to New Zealand. He desperately needed to win a Group 1 race what, five times.
…
Q. Just pause there. What did you say to Gerry Harvey?
A. I think I would have asked him would I stand the horse but I didn't. Every stud person I knew I trained for and he didn't want to.
ANGYAL
Q. What did Mr Harvey say to you about the future of the horse?
A. Well, he didn't want to keep him, you know. He was a seven year old stallion.
Q. Did he say what he wanted you to do with the horse?
A. Enter him in the Magic Millions sale.
Q. Did you speak at this time to other owners of Arlington about the future of the horse?
A. For sure, for sure.
Q. Who else did you speak to?
A. I would have spoken to Joy Jenkins for a start.
Q. What did you say to her and what did she say to you to the best of your recollection?
A. She wanted the horse, you know. We don't do any more. She's desperate. I'm trying to find a stud to stand him. She didn't know anyone. I didn't know anyone. That's why he was entered in the sale.
Q. You said a moment ago "she wanted to, you know". You said a moment ago Ms Jenkins wanted to and then you said "you know", what do you mean by that?
A. Put him in the Magic Millions sale we had no ‑
Q. Did you talk to any of the other owners?
A. I would have.
Q. Who did you speak to?
A. Spoken to David Reid Sir Patrick, I'm not sure of the date but when the horse was, come back. If I have a look at my paper, I can tell you on his form. I could tell you Sir Patrick didn't want the horse at stud and he didn't want to spend any more expense on him. He gave me his share.
Q. Doing the best you can, what did you say to Mr Reid and what did Mr Reid say to you?
A. I would have for sure. I would have said to him, you know, I've tried everything, every trick in the book to get the horse to go. I couldn't get him to perform at one level. He was going to enter him in the sale. That was withdrawn out of the year before.
Q. What did Mr Reid say about this?
A. Yes, he agreed.
Q. Did you speak to any of the others? You mentioned you spoke to Rajesh?
A. Yes, he wanted him sold.
Q. Did you speak to Sir Patrick Hogan about that?
A. Yes.
Q. What did you say to Sir Patrick and what did he say to you?
A. He said the horse hasn't measured up. He hasn't performed, and he'll run in the four Group 1 races in New Zealand. I can tell you, I think he run 10th ,14th, 18th and I think 12th.
Q. But coming back to what Sir Patrick said to you?
A. He said he didn't want to have any more expense on the horse. He said, "I'll tell you what, I'll give you my share", and he gave me his share in the horse.
Q. What was his share in the horse to the best of your recollection?
A. Oh Gee, I really can't remember, but do you want me to have a guess.
…
Q. Did you speak to Joy Jenkins' daughter, Samantha, about the future of Arlington, around this time?
A. I would have I think. She would have been there with her, Joy, for sure.
Q. Did they tend to travel together?
A. Yeah, yeah. They came and visited the horse all the time. She was probably, of all the owners she went to the races all the time when he run.
HER HONOUR
Q. You mean Joy, or Samantha?
A. Both of them, but Samantha got sick at some stage, very sick. But Joy was sort of my go-between with the Capogrecos and Pirrello because I hadn't spoken to them for the last eighteen months of the horse running.
Q. Did Joy tell you anything about what the Capogrecos and the Pirrellos wanted to do about the future of Arlington?
A. I can't remember exactly but I knew from what Wendy had told me that they wanted to sell the horse, he didn't want to pay no more bills on him.
On two occasions during his cross-examination the defendant said that Ms Jenkins was his "go-between" with the plaintiffs (tr 159; 217). During his cross-examination he also reiterated his affidavit evidence that he tried without success to get in touch with Antonio and Joseph. He was cross-examined as follows (tr 225-226):
Q. The reason you were trying to get in touch with them was the horse was going to be sold.
A. I don't remember now. I would think so, but I want to be sure.
Q. You were about to sell the horse, that's right?
A. Yes, for sure. But the horse had been for sale for a long time, a hell of a long time.
Q. The reason you were trying to get in touch with them, that's when you left the voicemails because the horse was going to be sold, is that right?
A. For sure, for sure.
…
Q. When you say the horse was for sale for a long time, when was that decision made?
A. That would have been on my mind from when he was - for the last probably two years. It had been on my mind to try and find someone to want to make an offer to buy him or we had to try and win a big race to find a home for him.
Q. When you say it was on your mind, you are not suggesting the owners had it for sale for two years, are you?
A. I, I would have to think he'd been for sale for at least 18 months. I wanted to sell him the year before, you know. If I could have got a buyer for him, I wouldn't have been certainly on the phone to them, but I didn't have a buyer; that's as simple as that.
Q. It is fact, isn't it you did not offer the horse to Mr Pirrello and Mr Capogreco?
A. They didn't ask me if they wanted to buy it or they weren't talking to me the last 18 months, and that Joy Jenkins never told me they wanted to buy it.
In this passage of evidence the defendant agreed that the reason he wished to get in touch with Antonio and Joseph was because "for sure" the horse was going to be sold. At this stage it was to be sold through Magic Millions at auction.
The defendant was reminded that a decision had been made by the majority of the owners not to sell the horse and to race it for a further twelve months from mid-2011. He was cross-examined further (tr 227):
Q. If the owners agreed to race it, as you understand, for another 12 months, you didn't have authority to sell the horse during this period, did you?
A. I think everyone wanted to sell it, so - and the majority wanted to sell it, I know that.
The defendant relied upon a number of other witnesses in support of his case and it is appropriate at this juncture to deal with their evidence.
Mr Gerry Harvey
Mr Harvey swore an affidavit of 17 December 2014 in which he referred to his background in breeding and racing thoroughbred horses since 1972. At the time he gave his evidence he owned approximately 500 broodmares and, either wholly or in partnership with others, approximately 300 racehorses. He is also the co-owner with his wife, Katie Page, of Magic Millions Sales Pty Ltd.
In the 2006 Magic Millions Yearling Sale Mr Harvey offered a number of yearlings on behalf of his Baramul Stud. One of those yearlings was the horse. Mr Harvey claimed in his affidavit that the defendant confirmed that he would take an ownership interest in the horse and would manage it, with any decisions to be taken by the owners "to be determined in accordance with what the majority wanted to do". Mr Harvey left the management of the horse entirely to the defendant and said that he regarded himself as "just one of the owners".
Mr Harvey's affidavit evidence was that he was aware that the horse was listed in the 2011 Magic Millions Sale in May or June of that year. Soon after that listing he received a call from Ms Jenkins who advised him that she was calling all of the owners to get them to agree to race the horse for one more year. Mr Harvey informed Ms Jenkins that if this was what the majority wanted to do then he would go along with it.
Mr Harvey said that after the horse was withdrawn from the 2011 Magic Millions sale, and over the next few months, he had a number of discussions with the defendant and expressed his opinion that the horse should be sold. The defendant agreed with him and indicated that he was trying to find a stud that would take him. Mr Harvey also said that at various times during the first few months of 2012 he discussed the horse with the defendant who confirmed "that the other owners no longer wanted to continue racing" the horse and that "the horse would be sold at the 2012 Magic Millions sale, unless he could find a stud to take him prior to the sale".
In cross-examination Mr Harvey gave the following evidence (tr 198-200):
Q. As far as you were concerned the arrangement in relation to big decisions for Arlington was the majority got what they wanted?
A. Yep.
Q. Was that something you discussed with Mr Rogerson or was it just an assumption you made based on all the other horses you owned?
A. Exactly, be an assumption.
Q. You didn't sit down and reach agreement?
A. No, no, no.
…
Q. And in relation to that assumption you didn't understand it to be that if 51 per cent of the owners made a decision Mr Rogerson acted on it immediately, did you?
A. I ‑ if ‑ in all horses I am involved in with everyone, lots of, heaps, hundreds, it's just majority make the decision, and like when they make it or what, you know, they just make the decision.
...
Q. There are some decisions that have to be made by the owners, as you understand it, correct?
A. Oh, not many.
Q. One of decisions that the owners have to make is whether or not to sell the horse?
A. That's often made, under the, you know when the trainer brings it up more than the owner bring it up, probably.
Q. But the trainer says to the owners the horse isn't going anywhere, do you want to sell it?
A. Yeah.
Q. The decision is made by the owners?
A. Yes.
Q. Is in your experience what happens this; somebody wants to make a decision about the horse, rings you up or rings the trainer up and there is a discussion about what is going to happen, correct?
A. Yes.
Q. And after that discussion a decision is made and it is usually by consensus, isn't it?
A. Yes.
Q. Everybody gets an opportunity to put their views about what should happen?
A. Yes.
Q. There are three decisions in this case about Arlington; the decision to put it into the 2011 sale; the decision to pull it out of that sale; and the decision to sell it in 2012?
A. Yes.
Q. And to the extent that you had any understandings about those decisions you understood that all the owners got a chance to participate in them?
A. Yes.
Mr Harvey agreed that by the standards of Australian racing, the horse was a very expensive yearling (tr 201). He had no interest in standing the horse at Baramul Stud and agreed with the defendant that it should be sold. He gave the following evidence in further cross-examination (tr 201):
Q. You understand that agreement was subject to him canvassing the opinions of everybody?
A. Yes.
Q. And you would expect him to do that?
A. Yes.
Q. In fact, you thought he had to do that, didn't you?
A. It's the right thing to do.
…
Q. And you would expect him to talk to all of the other owners before the horse was sold, correct?
A. Yes.
Although Ms Maybury had advised Joseph that it was Mr Harvey and Ms Jenkins who organised the sale through Magic Millions, Mr Harvey was not cross-examined about this matter.
Ms Joy Jenkins
Although Ms Jenkins' evidence in relation to her meeting with Antonio and Joseph in early 2012 in Double Bay is referred to earlier it is appropriate to refer to her additional evidence in relation to this aspect of the plaintiffs' claims.
Ms Jenkins' affidavit evidence of 9 February 2015 referred to her involvement with owning or part owning at least 100 racehorses and breeding stock over the previous 30 years including several trained by the defendant. Ms Jenkins has acquired shares in several horses from the defendant and raced them in partnership with other owners introduced by the defendant. Ms Jenkins said that the horse showed "early promise" running a place in the Group 1 Randwick Guineas as a three year old. However she said that after the Randwick Guineas he lost form.
Ms Jenkins' affidavit evidence was that in early 2012 she received a call from the defendant who informed her that the horse was not going to make it in Group 1 and that the other owners did not want to keep on paying the bills for training him "and want the horse to be sold". Although Ms Jenkins had been instrumental in removing the horse from the Magic Millions sale in mid-2011 she advised the defendant that she "now" agreed the horse should be sold. She claimed that the defendant informed her that he had located a stud that would accept him and informed her that it was a "good home", that they would look after him well and would provide him with good mares. Ms Jenkins said that the defendant did not tell her the name of the buyer at that time.
Ms Jenkins claimed that "a little later" some time in early April 2012 she was informed by the defendant or his personal assistant that the horse had been sold privately to Mr McHugh for $60,000, which she considered to be a good price.
In cross-examination Ms Jenkins said that she purchased Sir Patrick Hogan's 5% share in the horse bringing the combined shareholding with her daughter up to 20% (10% each) (tr 261). Ms Jenkins said that if she owned a share in a horse with others she would expect to be consulted before the horse was sold (tr 261). She gave the following evidence (tr 261-262):
Q. For example, if 51 percent of owners of a horse told a trainer to sell it and it was sold and you were not consulted, you would be horrified, wouldn't you?
A. I would be perturbed, but 51 percent is majority, so.
Q. I understand that.
A. I'd have to go along with it.
Q. Is it a fair description of your understanding if the majority want to sell the horse it is sold, but first everybody else has to be asked?
A. Yes.
Ms Jenkins was asked about her conversation in her affidavit with Joseph regarding keeping the horse as follows (tr 266-267):
Q. Understand, but you understood that before the horse was sold both Mr Pirrello and Mr Capogreco were interested in buying Arlington themselves?
A. Well, I didn't know they were interested in buying him, I think they wanted me to stay in him and I said no way.
Q. Well they were trying to persuade you --
A. Yes.
Q. -- to go in with them to buy a (sic) horse?
A. Yes, and I said no.
Q. Did you communicate that conversation to Mr Rogerson?
A. Yes. Oh, I don't know. What do you mean to Mr Rogerson? I thought you meant to Mr Pirrello. I don't know if I communicated to Mr Rogerson about that.
Q. If Mr Pirrello and Mr Capogreco were expressing an interest in buying the horse, either themselves --
A. There was no money mentioned.
Q. I understand - if Mr Capogreco and Mr Pirrello were interested in buying the horse by themselves or with others that is something you would pass on to Mr Rogerson, isn't it?
A. I don't remember, don't remember that conversation at all.
Q. Is it possible you passed it on to Mr Rogerson?
A. Oh, possible but they didn't want to buy him, they just wanted me to stay in, and I said no. Because I knew we couldn't do the horse justice. He had to go to a stud. I was wishing it was Coolmore but it wasn't.
Although the defendant claimed that Ms Jenkins was his "go-between" with Antonio and Joseph, Ms Jenkins did not give evidence of such an arrangement, nor was she cross-examined about it.
Mr David Reid
David Reid is a director of a company that has either owned or part owned approximately 100 racehorses over the past ten years including a number trained by the defendant. He has acquired shares in approximately twenty horses from the defendant and raced them in partnership with other owners introduced by the defendant. He agreed to take a 15% share in the horse.
Mr Reid's affidavit evidence (16 December 2014) was that he was willing to sell the horse in 2011 but after he was informed that the majority wished to keep racing it he was prepared to go along with it. His affidavit evidence included the following:
14. In early 2012, I had another discussion with Graeme Rogerson, and indicated to him that I was still happy to sell Arlington. He agreed to talk to the other owners, and in particular Joy Jenkins, who had been instrumental in deferring the sale plans previously.
15. I was subsequently informed by Graeme that Arlington would again be entered in the Magic Millions Sale, and was happy with that.
16. After the sale I was informed by Wendy Maybury that Magic Millions had been able to sell Arlington privately for $60,000, which I considered to be a good price at the time.
Mr Reid gave the following evidence in cross-examination (tr 252-256):
Q. From time to time when the owners - I withdraw that. So far as decisions about the sale of horse is concerned, that's a decision as you understood the owners make, not the trainer, the trainer does not make, is that correct?
A. Not quite. Obviously, the trainer has a lot of input into recommendations or his thoughts.
Q. But he wouldn't sell a horse without asking the owners?
A. Certainly not.
…
Q. Although you don't necessarily know who the other owners are, it would be your expectation before a horse is sold all the owners would be consulted?
A. Yes.
Q. In fact, as you understood that would happen in relation to Arlington, correct?
A. I would expect so. Because it's always the case that the majority of horse sold unless the majority of the shareholders (sic).
Q. Once you get 51 percent, it does not mean you don't talk to the other 49 percent?
A. I've never been in the position to sell a horse like that. I have only ever been a part owner so I can't say.
Q. That is what you would expect to happen. You try to make the decision a consensus, don't you?
A. Yes. But often there's not a consensus, then it is majority.
…
Q. In paragraph 12 you say Mr Rogerson said something to you like the majority had agreed to keep Arlington. Did he tell you who the majority was?
A. I think it was Joy, Gerry and Patrick. I think their shareholding was enough to swing it, or I think actually on memory, I think it was only myself and Graeme that didn't have the majority to sell.
Mr Reid said that the arrangements in relation to these syndicates is "fairly loose". He regarded it as a group of people who were together in a horse on a "handshake deal" (tr 257).
Wendy Maybury
Wendy Maybury gave affidavit evidence (17 December 2014) that she worked as the office administration manager for the defendant for the period May 2005 to August 2013. Ms Maybury claimed that Mr Capogreco complained that the horse was costing him a lot of money with few returns. She informed the defendant that Antonio had said that he would not be paying any more training fee accounts and wanted "out of the horse" and said that he would talk to the defendant and the other owners.
Ms Maybury claimed in her affidavit evidence that after the horse was withdrawn from the Magic Millions sale in 2011, Antonio continued to express his "displeasure" that the horse was still in training and had not been sold. She recalled that Antonio said that he would not be paying any more accounts and wanted him sold. She informed the defendant of this conversation.
In cross-examination Ms Maybury accepted that she had the capacity to send emails to all of the owners simultaneously (tr 237). She agreed that notwithstanding her evidence about Antonio complaining about the training fees, all of the fees were paid on time (tr 239). When she received Joseph's email complaining about the sale of the horse in April 2012 she would have immediately discussed it with the defendant (tr 242). However she claimed that she did not recall the particular discussion (tr 242). Although initially resisting the proposition that she would not have responded to Joseph's email without discussing it with the defendant, she ultimately agreed that she probably did discuss it with him (tr 243). Although she did not recall it she agreed that the defendant probably told her what to put into the reply. Indeed she accepted it was "very likely" (tr 244). She was cross-examined as follows (tr 244):
Q. You knew that Mr Pirrello didn't want to sell the horse?
A. I wasn't aware of his feelings either way.
HER HONOUR
Q. Just give that some thought?
A. Well, I was aware at that stage, yes.
Q. So you were aware ‑‑
A. Yes.
Q. ‑‑ that Mr Pirrello didn't want to sell the horse, is that correct?
A. Yes.
…
PESMAN
Q. I suggest to you that you also knew that Mr Capogreco didn't want to sell the horse?
A. No, I wasn't aware either way.
Ms Maybury ultimately accepted that her affidavit was probably not correct where it referred to Antonio's continued expression of "displeasure" (tr 245).
Les Young
Although he gave evidence in Mr McHugh's case, Mr Young's evidence is relevant to the determination of the matter. Mr Young is the principal of Doncaster Bloodstock Services Pty Ltd and has worked as a bloodstock agent for about 35 years. He first saw the horse as a yearling at the Magic Millions Sales in January 2006 and thought that he was "a very good horse, and had a commercially attractive pedigree". He followed the horse's racing career and developed the opinion that it had not been well managed. He felt it was a better horse than his performances suggested and would be a good stallion prospect.
In 2011 he attempted to purchase the horse for one of his clients who was looking to purchase a stallion to go to stud in 2011. He put an offer of $80,000 but this offer was rejected. The offer went through David Chester of Magic Millions who, Mr Young said, "obviously passed it on to Mr Rogerson". He said he did not know what actually happened but he would have expected it would have been discussed with the owners (tr 271). The defendant denied any knowledge of this offer (tr 229). Part of Mr Young's interest in the horse was that although it had not performed as well as hoped on the racetrack it had "excellent bloodlines" (tr 271). He agreed that the expectation would be that the offer would only be rejected after consultation with the owners of the horse (tr 272).
Mr Young explained some of the vagaries of the registration of thoroughbred racehorses (tr 273):
It is a strange thing with the way the paperwork is done, if you were buying a horse to continue to race you would need to register the change of ownership. Whereas when the horse is retired to stud there is no change of ownership officially registered with the racing authorities. They are not interested, once the horse is going to stud they are not interested in knowing who actually owns him at that stage.
Mr Young also explained that in a lot of cases the arrangements in respect of purchasing racehorses are "oral" with no real written communication. One receives a copy of the contract between the two agents involved, one representing the seller and one representing the buyer, in this instance being Magic Millions and Doncaster Bloodstock Services Pty Limited respectively. The industry practice as Mr Young has experienced it in respect of syndications and purchasing and selling thoroughbred racehorses is rather "loose" (tr 276).
Mr McHugh
Mr McHugh has been involved in the thoroughbred breeding and racing industry for fifty years and has owned or part-owned a large number of thoroughbred horses over that time. He gave evidence of instructing Mr Young to purchase the horse in April 2012. Mr McHugh said that if he had been offered $120,000 for the horse at any time up to the end of June of 2012 he would have sold it (tr 284).
The real issue
Antonio agreed in cross-examination that in early 2012 he was "in favour" of the horse being sold (tr 70). I am satisfied that Joseph's conduct, including his conversation with the defendant in February 2012 about his expectation of what the horse may be worth amounted to an acquiescence that the horse could be sold at the Magic Millions auction. I am satisfied that both Joseph and Antonio authorised the defendant to act on their behalf in arranging for the sale of the horse at the Magic Millions auction in mid-2012. The defendant was acting as their agent (and that of the other owners) in making that arrangement for sale at auction.
Mr Reid's description of the arrangements between the co-owners as being "on a handshake" is most apt. It appears that much of the business that is done between at least Mr Harvey, the defendant, Mr Reid and/or Sir Patrick Hogan and Ms Jenkins is on a very informal rather osmotic basis with mutual understandings established over the years whilst they have been co-owners of various horses.
There is nothing in AR.57 that authorised the defendant to sell the horse without notifying the plaintiffs. Indeed that is not the real issue between the parties. Clearly the defendant was authorised to list the horse for sale at the Magic Millions auction in mid-2012.
The real issue is whether there was an obligation on the defendant to inform each of the owners (or to ensure that each was informed) of the quite different proposal to that which had been agreed (the sale at the Magic Millions auction) that an offer had been received to purchase the horse privately for $60,000.
The prospect of the horse being sold at private sale was not communicated to the plaintiffs. Mr Harvey, who in fact is the co-owner of Magic Millions (about which no complaint is made in this case) was advised of the sale. There was no evidence that Mr Chester telephoned any owner other than Mr Harvey to advise them of the offer. Rather Ms Jenkins and the defendant claimed they were informed of the "sale" (not the offer) by Mr Chester. The plaintiffs were not contacted at all by Mr Chester.
The defendant claimed in his affidavit that Mr Chester informed him that he was "dealing direct with the other owners". He claimed that Mr Chester made this statement after he had informed him that the horse had been sold for $60,000. It was also said after the defendant had informed Mr Chester that he thought that this was a "good result" because there had been "no interest in him as a stallion" and that he had been "struggling to find a home for him". The defendant was cross-examined about this evidence as follows (tr 226):
Q. It's fact that you didn't tell them you planned to sell it for $60,000.
A. I would have sold it for what we could have got for it. I think we got a hell of a good price.
Q. You did not, as a matter of fact, having received that offer, ring the owners and say: Did anyone want to do anything in relation to that?
A. The horse had left my place. He'd gone to Evergreen Lodge to be put in for sale. It'd gone there and David Chester was to handle the sale of the horse, and he was dealing direct the owners.
HER HONOUR
Q. He was dealing direct with --
A. All the owners of the horse. The money didn't come from me. The money went to the owners, not me.
PESMAN
Q. Did you mean Mr Chester was dealing with the owners before or after the sale.
A. The horse was for sale. He sold the horse. No doubt he got hold of them and talked to the owners.
Q. The time Mr Chester was talking to the owners it was only after the sale?
A. I would say so.
The defendant's suggestion that "no doubt" Mr Chester talked to the owners is indicative of an understanding that it was necessary to talk to the owners. It is odd that Mr Chester would say that he was going to deal "directly" with the owners when the Magic Millions Private Sales Sheet that he generated recorded the defendant as the only vendor. In any event it is clear that Mr Chester did not deal directly with the owners. He dealt with Mr Harvey in that he advised him of the offer. Mr Harvey did not instruct Mr Chester to accept the offer. Rather he claimed that he informed Mr Chester that he was "in agreement the horse should be sold".
Each of Antonio, Mrs Capogreco and Mrs Pirrello had ownership of part of a chattel: Leason Pty Ltd v Princes Farm Pty Ltd [1983] 2 NSWLR 381 at 382A-B. It was submitted that prior to the sale to Mr McHugh, the horse was owned by the plaintiffs and the other co-owners as tenants in common in proportion to their shares. In Re Gillie & Ors; Ex parte Cornell (1996) 150 ALR 110, Finn J was dealing with a claim in respect of a herd of dairy cattle. The wife of a bankrupt had (with her husband's help) removed approximately half of the herd of cattle that were claimed to be part of the bankrupt estate. His Honour said at 114:
I am of the view that the appropriate rule to be applied, because it accords with principle, is that stated in "Cotenancy and Joint Ownership", 20 Am Juris 2d, para 40. It both reflects, and is reflected in, judicial decisions in the United States: see eg Kelly v Lang 62 NW 2d 770 (1954) [a case involving sheep]; Deutscher v Broadhurst 12 NW 2d 807 (1944) [a case involving ewes]:
The general rule of the common law is that property held in common can be divided only by the consent of the owners or by a proceeding in a court of equity; and it appears that this rule still prevails where the common property embraces several things of different qualities or values, or consists of but a single object that cannot be divided without destroying its character or identity. But where personal property is severable in its nature, in common bulk, and of the same quality, each tenant may sever and appropriate his share, if it can be determined by measurement or weight, without the consent of the others.
His Honour also referred to a "considerable body of early, arcane, but subsisting law" on the rights of co-owners of chattels when one co-owner assumed to deal with the co-owned property for his own benefit (at 113). In this regard his Honour referred to a number of articles, one of which is by DB Derham, "Conversion by Wrongful Disposal as Between Co-Owners" (1952) 68 LQR 507. In that article Mr Derham's statement that if two people became co-owners of a chattel there is no presumption of a partnership was in reliance upon the decision in French v Styring (1857) 2 CB (NS) 357; 140 ER 455. That was a case dealing with joint ownership of a racehorse and the question of whether the agreement between the parties constituted a partnership. Cockburn CJ (Cresswell, Crowder and Willes JJ agreeing) said at 457:
I think the fair result of the evidence is, that there was no partnership between the plaintiff and the defendant in the horse in question. They were owners in common, each being entitled to an undivided moiety, - part-owners, but not partners in the ordinary sense of the term. I incline to agree with the defendant's counsel, that, though not partners in the horse, the plaintiff and defendant might be partners in the mode of working and managing it for their common benefit.
Mr Derham said at 508:
Thus, even if two persons own a racehorse in shares, even though the racehorse is obviously intended to earn money either by racing or by breeding, without more there is no partnership.
It was submitted there is nothing special about a racehorse in the sense that it attracts the law as it relates to chattels including s 26 of the Sale of Goods Act 1923 and s 36A of the Conveyancing Act 1919. The Sale of Goods Act 1923 provides relevantly:
26 Sale by person not the owner
(1) Subject to the provisions of this Act, where goods are sold by a person who is not the owner thereof and who does not sell them under the authority or with the consent of the owner, the buyer acquires no better title to the goods than the seller had, unless the owner of the goods is by the owner's conduct precluded from denying the seller's authority to sell.
Section 36A of the Conveyancing Act provides:
36A Power to direct division of chattels
Where any chattels belong to persons jointly or in undivided shares, the persons interested to the extent of a moiety or upwards may apply to the court for an order for division of the chattels or any of them, according to a valuation or otherwise, and the court may make such order and give any consequential directions as it thinks fit.
In Ferrari v Beccaris [1979] 2 NSWLR 181 McLelland J made an order under s 36A for the sale of a racehorse co-owned by the plaintiff and defendant who had leased it to the plaintiff. In interpreting s 36A his Honour said at 183B-D (footnotes omitted):
This section is open to two interpretations, namely, that it does not apply to a case where the chattel or chattels in question are not susceptible to physical division or, alternatively, that in its application to such case and, indeed, in any case, the expression "division" embraces, where appropriate, a division by conversion into money and distribution of that money, being in many cases the only method of carrying out a division.
I am assisted in determining which of these is the true meaning of the section by a decision of the Supreme Court of Victoria, in relation to s.187 of the Property Law Act 1928 (Vic.) which is in substantially similar terms to s.36A of the Conveyancing Act. In Tillack v Tillack, Lowe J. made an order for the sale of a motor car and it seems clear, especially having regard to the comment on that case in Jacobsen v Jacobsen, that his Honour must be taken to have been exercising the power conferred by s.187 of the Property Law Act.
In my opinion, the better view is that s. 36A of the Conveyancing Act does authorise the sale of a chattel in appropriate cases, and I consider that the present is an appropriate case for that course to be taken. The horse in question is not permitted to race while the current dispute subsists between the parties, and it is incurring continuing expense for its maintenance. Its sale would seem to me to be in the interests of both parties. I, therefore, propose to make an appropriate order for sale.
In Dennis v Dennis (1971) 124 CLR 317 the High Court dealt with an appeal in which the trial judge had found that an agreement had been reached pursuant to which the plaintiff obtained a half interest in the subject horse. The High Court held that it could not be concluded that the legal consequence of the agreement was as found by the trial judge such as to create a proprietary interest in the horse. Although that case is distinguishable from the facts of this case Windeyer J said at 325:
The suit was instituted in equity as a claim for a declaration that, as it was expressed, "the horse is owned by the plaintiff and the defendant equally between them as tenants in common". I criticized this terminology on the ground that tenancy in common is not, except by analogy, a technically correct expression for the co-ownership of a chattel. My criticism was perhaps pedantic, for did not Blackstone say that "things personal may belong to their owners, not only in severalty, but also in joint tenancy, and in common, as well as real estates"? He gave as an example a horse belonging to two or more persons. They might be joint tenants or tenants in common thereof: Commentaries, vol. 2, p.399. Ownership in common of a chattel connotes that the owners have a unity of possession, but a distinct and several title to their shares, which need not be equal.
Windeyer J also said that ownership of the horse "is a matter of a legal title" (at 325).
In Colin Graham Kimber and Lynette Mary Manwaring v Susan and John McNair [2008] NSWDC 114, the plaintiffs claimed that the defendants had breached the agreement between them by selling the horse the subject of the proceedings without their consent. That case is also distinguishable from the present in that the parties entered into a written agreement pursuant to which the second defendant agreed to train the subject horse in accordance with its terms and the first defendant acquired a one-half share in the horse.
In that case the defendants argued that AR.57(2) enabled the defendants to deal with the horse, including selling the horse. There was also the additional provision of the written agreement between the parties pursuant to which the trainer, the second defendant, had "100% control over the horse" for the term of the agreement.
Rolfe DCJ held that AR.57(2) did not operate so as to authorise the manager of a horse to sell it. Nor was his Honour satisfied that the provision of the written agreement entitled the defendants to sell the horse without the plaintiffs' consent. His Honour concluded that the defendants breached the agreement by selling the horse without the plaintiffs' consent.
The discernment of the terms of the contract between the plaintiffs and the defendant is not straightforward in the circumstances of this case. However it is clear that the owners agreed that possession of the horse would vest in the defendant whilst he trained, raced and managed the affairs of the horse for the purposes of the Rules.
Joseph and Antonio met each morning for coffee. I am satisfied that Joseph would have kept Antonio informed of all the developments in relation to the horse of which he became aware. Joseph understood that decisions would be made by "consensus". When the majority of the owners decided to sell the horse in 2011 and a decision was then made to keep it for a further twelve months to see if it could improve on the track, Antonio and Joseph accepted this outcome.
The email communications in late 2011 in which Joseph sought clarification of what it meant for him if the horse went to stud clearly concluded with advice that the defendant was looking for a stud to purchase the horse. From this time Joseph, and I conclude Antonio, knew that the defendant was, on their behalf, attempting to find a stud that would purchase the horse. Far from suggesting that the defendant was attempting to arrange for the horse to stand at stud whilst the horse remained in the ownership of the plaintiffs and their co-owners, this was clearly an indication that the defendant was trying to sell the horse. The plaintiffs' silence after these communications amounted to a consent for the defendant to act on their behalf to try to find a stud that would purchase the horse from them and their co-owners. That did not mean that the defendant could simply decide on his own to sell the horse for any amount he wished to any stud he could find. Rather I am satisfied that he was obliged to advise the plaintiffs and seek their views on any offer that he received.
In any event circumstances changed in early 2012. Although Ms Maybury could not recall the conversation with Joseph in February 2012 I accept that she informed him that the horse was to be sold at the 2012 Magic Millions auction. I am satisfied that in this conversation Joseph advised Ms Maybury that he and Antonio wanted the opportunity to buy the horse at auction if the price was not too high.
I am also satisfied that the meeting with Ms Jenkins in Double Bay was consequent upon Joseph and Antonio's desire to keep their shares in the horse and attempt to purchase it outright at the auction. Although Ms Jenkins suggested that she may have understood the conversation differently, I find it difficult to accept that she could reach any other conclusion than that Joseph and Antonio wanted to keep their interest in the horse and buy it outright. I am satisfied that Ms Jenkins knew at that time that Joseph and Antonio wished to purchase the horse and send it to a stud.
Although the role of Manager under AR.57 was limited to managing the horse for the co-owners for the purposes of the Rules, the co-owners, including the plaintiffs, authorised the defendant to represent them in placing it with Magic Millions for the auction sale in June 2012.
I am satisfied that the defendant had notice through the conversation between Joseph and Ms Maybury that Antonio and Joseph wished to and intended to bid for the horse at the Magic Millions auction. Although the defendant said he was relying upon Ms Jenkins as a "go-between" with the plaintiffs, there is nothing in the evidence that establishes that Ms Jenkins understood that she had any obligation to inform the defendant of the conversations that she had with the plaintiffs. Accordingly I am not satisfied that the conversation between Antonio and Joseph and Ms Jenkins in Double Bay amounted to notice to the defendant that Joseph and Antonio wished to bid at the auction.
Ms Jenkins' affidavit evidence that in early 2012 the defendant said "I've located a stud that will accept him" is at odds with the defendant's evidence that he was advised of the sale after the event. In cross-examination the defendant said he did not recall such a conversation with Ms Jenkins and suggested that if it did occur it would have been after he knew that Mr McHugh had purchased the horse (tr 230-231).
There was no evidence of the instructions given to Magic Millions nor was there any documentation recording communications Mr Chester had with any of the owners.
The plaintiffs submitted that from all of the evidence there are three possible terms of the contract between them and the defendant in relation to the defendant's ability to sell their interests in the horse. The first is that the defendant could only sell the plaintiffs' shares in the horse with their consent (irrespective of the majority view); the second is that the defendant could sell the plaintiffs' shares in the horse if co-owners of more than 50% of the shares in the horse so agreed (irrespective of the plaintiffs' views); and the third is that the defendant could sell the plaintiffs' shares in the horse if co-owners of more than 50% in the horse so agreed and the plaintiffs were advised of the offer to purchase the horse before any sale took place.
The defendant submitted that although the plaintiffs' third possibility might present as a probable term of the arrangements between the parties, it is really more elaborate than the term suggested. It was submitted that what the plaintiffs are really proposing in this term is that they be informed of the following six matters: (1) the method of sale (auction, private treaty, public tender); (2) the date, time and location of the proposed sale; (3) if by private treaty, the proposed sale price (PSP); (4) if by private treaty, any price offered by a putative purchaser (PPP) greater than the PSP, with sufficient notice to enable the plaintiffs to consider whether to make an offer matching or exceeding the PPP; (5) if the mode of sale notified pursuant to (1) changes, reasonable notice of that fact and of the alternative mode adopted by the defendant; and (6) in the event of (5), fresh compliance with (1) to (4).
These contentions did not focus upon the specific change of circumstances in early 2012 when the horse was listed for sale at the Magic Millions auction. It is necessary to review the conduct of the parties to determine the nature of the agreement that was reached at this time. In all the circumstances I am satisfied that by late March early April 2012 the co-owners of the horse, including the plaintiffs, had agreed that the defendant was authorised to put their shares in the horse up for auction at the Magic Millions auction sale in mid-2012. Listing the horse for auction at the Magic Millions mid-2012 sale is quite a different and separate matter from pursuing a private sale of the horse, obviously involving possible offers, the taking of instructions, possible counter offers and ultimately, if suitable, acceptance of any offer.
One of the curiosities of this case is Mr Young's evidence that in 2011 he made an offer of $80,000 to purchase the horse and that the offer was rejected. There was no evidence that any of the owners knew about this offer, let alone considered it and instructed anyone to reject it. Another curiosity in this case was the apparent sale of Sir Patrick Hogan's share in the horse to Ms Jenkins for an undisclosed amount. It is apparent that none of the other owners were offered this shareholding and no notice of this transaction was given to the other owners or to the Registrar. In addition when the defendant spoke with Carlo on 15 April 2012 he claimed that he "gave" his share to Bruce Reid. These arrangements do not appear at all consistent with the Australian Bloodstock Code of Practice in its aim to achieve high standards of transparency. It appears that these co-owners who deal with each other on a regular basis and seem to know each other's expectations, dealt with their shares on a "handshake" without consulting each other.
Once the horse was entered into the Magic Millions sale for mid-2012, the owners were in a position to know from the MM Conditions the confines within which the sale would take place. This was one of the very few instances in the six year history of their relationships that there was some certainty. It was a sensible and reasonable process to adopt where some owners wanted to terminate their interests in the horse and others (the plaintiffs) preferred to keep their interests in the horse. It was in these circumstances unnecessary to seek an order under s 36A of the Conveyancing Act. The auction provided the opportunity to the owners to terminate their relationships in a transparent and fair way letting the market fix the value of their interests. It also provided the opportunity to the plaintiffs to maintain their interests in the horse by bidding at the auction. This, for the plaintiffs, was a far more preferable process than seeking to negotiate with the other owners who were obviously so very much more experienced in the racing industry than both Joseph and Antonio, but more so Joseph.
Much of what happened between these parties occurred in the context of the loose handshake arrangements in the racing industry setting which is governed by the Rules and codes of practice. Each of the owners expected that all owners would be consulted about an offer to purchase the horse. That is particularly understandable where hundreds of thousands of dollars had been paid for their respective shares in the horse and on training fees.
When the private offer was received each owner holding the legal title to the shares in the horse was entitled to be advised that such an offer had been received. Although the defendant claimed that Mr Chester contacted him to advise that the horse was sold, Ms Jenkins' evidence that the defendant informed her that he had found a home for the horse some time before she heard from Mr Chester about the sale, suggests that the defendant probably was aware that an offer had been made. Although the defendant claimed that he did not recall the conversation with Ms Jenkins before the horse was sold, I am of the view that it is probable that Mr Chester would have made contact with the named vendor, the defendant, to advise him of the offer that was received.
The defendant was obliged to inform the plaintiffs that rather than proceeding with the plan that was in place for the horse to go to auction at the Magic Millions sale in June 2012, there was now an offer of $60,000 for the horse from a private buyer. The defendant was not entitled to sell the horse at private sale without the plaintiffs' knowledge. The fact that a majority of owners may have expressed their satisfaction with the outcome after the event does not mean that the defendant was authorised to sell the plaintiffs' shares in the horse at a private sale of which they had no notice.
The defendant did not have authority to sell the plaintiffs' interests in the horse. They are entitled to the declarations that they hold their respective percentage interests in the horse and an account from Mr McHugh.
Conclusion
The plaintiffs' claims against the defendant for misleading or deceptive conduct are to be dismissed.
The defendant did not have authority to sell the plaintiffs' shares in the horse at the private sale. The plaintiffs are entitled to the declarations that they hold their respective percentage interests in the horse and to an order for an account as against Mr McHugh. I am of the view that the parties should proceed to mediation to see if they can reach a more commercial arrangement now that they have these reasons.
I will give the parties time to consider these matters and/or to prepare Short Minutes of Order to reflect the outcome of the proceedings including the question of costs. I will deal with all outstanding matters when the proceedings are next listed on 23 October 2015.
[2]
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 17 September 2015