Background facts
17 As foreshadowed, Mr Lowndes could be described as the catalyst of the events with which this proceeding is concerned. I have mentioned already his former association with HRT and his growing dissatisfaction with his contractual arrangements with Holden.
18 These arrangements comprised a Management Agreement with TWR (Australia) Pty Ltd ('TWR'), the owner of HRT. Through Mr Watson, Mr Lowndes met Mr Battye, a solicitor from Ebsworth & Ebsworth, lawyers, whom he retained to assist him in circumstances where legal action was being threatened by TWR. In his evidence given on affidavit Mr Lowndes described the Managing Director of HRT, Mr John Crennan, as being 'the head of TWR in Australia and in effect … my manager'. Mr Lowndes said that he had become unhappy 'that Crennan was both my manager and also ran Holden Special Vehicles ('HSV') and ran HRT for TWR.'
19 Due to the terms of his Management Agreement, Mr Lowndes's freedom to exploit his own success was restricted. He said he saw Mr Crennan's position 'as a conflict' and considered that Mr Crennan was not acting in his best interests, and that by 2000 'I had [had] enough of this arrangement and was hoping for an opportunity to leave HRT and Crennan's management.' Mr Lowndes's decision to leave HRT at the end of the 2000 racing season was announced on or about 3 November 2000. The first V8 Supercar race for the 2001 racing season was to be held in Melbourne during the Australian Formula One Grand Prix weekend of 1 - 4 March 2001. However, due to the dispute between Mr Lowndes and HRT, by the end of 2000 Mr Lowndes had had considerable difficulty making arrangements to drive for a new team. If he were unable to find a new team by the start of the 2001 season the risk was that he might not have been able to compete that year.
20 It is necessary also to give some background detail about the other primary actors. Each of Mr Gibson, Mr Watson and Mr Forbes has a long-standing association with Australian motor racing. Mr Gibson was a racing car driver between 1961 and 1984. He won a major event, described as Bathurst in 1976. At various times from 1983 onwards he held positions managing racing teams. In particular, between 1990 and 1999 Mr Gibson conducted a racing car business under the business name GIBSON MOTOR SPORT. This team is said to have been highly successful, winning the Australian Touring Car Championship in 1990, 1991, 1992 and 1994 and the Bathurst 1000 race in 1992, 1994 and 1999. Each of them had longstanding relationships with Ford.
21 Mr Gibson was at all material times the sole and/or controlling director of F.C. Gibson Pty Ltd ('FCG'), the fifth applicant, as well as of Angora Towers Pty Ltd and Favette Pty Ltd (non-parties who were involved in the transactions giving rise to this proceeding). The seventh applicant, Synarby Pty Ltd, was the company through which Mr Gibson issued invoices to RPM for his management services. Along with Mr Watson, Mr Gibson was also a director of the first applicant, Gibson Motor Sport Merchandise Pty Ltd ('GMM'). While such matters were not admitted on the pleadings they were not live issues at the end of the hearing.
22 Mr Forbes first became involved with motor racing in the 1960s, competing as a driver in the touring car competition of the time. He has also had a long and diverse commercial career. With the formation in 1994 of TEGA as the organising body for Australian touring car racing, Mr Forbes became its founding chairman. He has since held office at various times as director of AVESCO and as a commissioner and director of the Australian Motor Sports Commission.
23 Mr Forbes is the sole director of the third respondent, Bob Forbes Corporation Pty Ltd, and has been a director of the second respondent, Racecar Preparation & Management Pty Ltd, since its formation on 12 December 2000.
24 Mr Forbes and Mr Gibson had known each other for years before the events took place, which have given rise to this litigation. They had uneventful business dealings between them. Mr Watson is said also to have had extensive involvement with the management of Australian motor sport, having been a director of TEGA and a founding director of AVESCO, and having been involved with racing teams since the 1980s.
25 Mr Gibson knew of Mr Watson since 1983 when both were involved with Nissan, a car manufacturer. He was said to have marketing, licensing and commercial experience and to be widely known and respected for his expertise. The fourth and sixth applicants were companies under his control utilized by him for the purposes of conducting business. As mentioned above, he was closely associated with Mr Lowndes during the latter half of 2000, and thus in a position to negotiate with teams and sponsors on the latter's behalf. Like Mr Gibson, he was a director of the first applicant.
26 In or about late November 2000, discussions took place between Mr Gibson and Mr Forbes concerning the possible formation of a V8 Supercar team. This discussion was prompted by the availability for sale of assets then held by Bronzco Pty Ltd, a company controlled by Mr Garry Dumbrell. (The company name was later changed to 'Gibson Motor Sport Pty Ltd', but for ease of reference will be referred to in these reasons as 'Bronzco'.)
27 Those assets comprised, generally speaking, everything necessary to run a V8 Supercar team in the TEGA/AVESCO race series. Mr Gibson previously owned these assets. In addition to mechanical plant and equipment, they included the business name 'GIBSON MOTOR SPORT' and the rights under what is called a TEGA franchise agreement. Mr Gibson had sold these assets to Bronzco in December 1999.
28 Independently, each of Mr Forbes and Mr Gibson claims to have had knowledge of the possibility of involving Mr Lowndes as a driver in any such new team, but each disputes how this influenced their negotiations and the contractual arrangements that eventuated. Neither Mr Gibson nor Mr Forbes claims that this topic was discussed in late November 2000 in connection with the possible sale of Bronzco's assets, although each claims to have independently discussed the matter with Mr Watson during the course of October and November 2000.
29 It is not clear when Mr Forbes and Mr Gibson first discussed the position of Mr Lowndes. However, it is common ground that the topic was covered in the important meeting of 7 December 2000, which is discussed below.
30 Simultaneously, Mr Gibson was investigating the possibility of setting up a racing team in South Australia. This team would have been partly funded by the State of South Australia. Mr Gibson would have invested his own assets in any such venture. This proposal remained on foot until April 2001, when in Mr Gibson's words it 'faded away'. The parties contest the precise implications this proposal had for the course of negotiations between Mr Gibson and the other parties.
31 On 7 December 2000, a meeting took place between Mr Gibson, Mr Watson, Mr Forbes, and Mr Forbes's accountant Mr Stanley, who was present for some of the time. At this meeting the initial arrangements were made for establishing the race team. The participants agreed on a number of basic points about the organisation of the team.
32 Among them was the most significant premise for the creation of the new team: that Mr Lowndes would drive for it and that as a result the team (as well as Mr Lowndes personally) would be sponsored by Ford. Those basic matters are common ground in this proceeding, but many further details and implications of the conversation are disputed.
33 The issue in dispute in this proceeding which was given greatest prominence by counsel for all parties, was whether the arrangements that were made on and from 7 December 2000 (the applicants contend in the alternative that the joint venture was negotiated from 7 December 2000 and concluded on or by 26 February 2001) were all part of a broader joint venture between Mr Gibson, Mr Watson and Mr Forbes (as the applicants contend), or whether there was no joint venture agreement but there were discrete contracts between the various parties and their nominee companies (as the respondents contend).
34 The applicants define the core of their putative joint venture agreement as being that 'Watson, Forbes and Gibson would commit themselves to operate a complete motor sport business as described [in the third further amended statement of claim] for the period during which sponsorship income could support its racing activities'. In closing submissions the contract claim was described as follows:
'When all of the tedious detail is stripped away the contractual claim is a simple one. The three principals agreed on 7 December 2000 and thereafter reaffirmed it by words and conduct over a period of time (probably until 7 September 2001). The three of them would contribute their respective resources to a successful race team centred on Craig Lowndes and Ford and that the operating company and the merchandising arm/company would be interdependent and would act for each other's benefit. The venture was a long term venture for the life of the Ford/Lowndes sponsorship which was expected to be at least 5 years.'
35 Senior counsel for the applicants described the applicants' contract case as having been refined over the hearing to various claims in respect of a joint venture in which the 'contribution of respective resources' made by the protagonists was described as follows:
'. . . a venture agreed to by Watson, Gibson and Forbes on 7 December 2000 that in consideration of Gibson contributing his name, making available the workshop, securing the Dumbrell franchise, facilitating Dumbrell selling his race team assets to Forbes, and Watson using his best endeavours to procure Lowndes as a long term driver and Ford as a principal sponsor and to secure other sponsors and agreeing to set up a merchandising company, Forbes would lend the money to enable the operating company to purchase Dumbrell race assets and run the operating company (which became RPM) for so long as sponsorship was available to do so, for the benefit of the merchandising company.'
36 The case was opened on behalf of the applicants on the basis that the agreement between Mr Gibson, Mr Watson and Mr Forbes was not a partnership. In closing submissions it was contended that there was a partnership between those parties or an agreement for something 'in the nature of' a partnership. Although the respondents' counsel was correct to suggest that claiming the parties were partners represented a significant shift in the applicants' position, it was clear throughout the hearing that the main purpose of asserting a joint venture agreement between the parties was to found an argument that once the relationship of joint venture was found to exist, a duty of utmost good faith (of the kind relevant to a partnership) should be implied. That is, the applicants originally contended that whilst the agreement between the parties did not necessarily have all the indicia of a partnership, being a relationship which subsists between persons carrying on a business with a view to profit, it nevertheless should be treated as a partnership in which mutual trust and confidence governed the rights and duties of the parties inter se.
37 The applicants argue that a range of interlocking contractual and equitable duties subsisted under the alleged joint venture agreement, including contractual duties of good faith in negotiation and in dealing with the assets and opportunities of the racing team, as well as fiduciary duties. The contractual duties are said to have been implied in fact, to give business efficacy to the contract. The respondents deny the existence of any such general duties. The applicants argue in the alternative that if no contractual joint venture were formed as described above, then the parties were bound by fiduciary duties arising from the negotiation of a joint venture. The respondents deny this also.
38 It is common ground that it was generally agreed that Mr Forbes should provide the capital required to purchase the Bronzco assets (at least those other than the TEGA franchise). However, it should be noted that Mr Forbes consistently rejected the applicants' description of him (or his interests) as the 'financier' of the team.
39 A significant reason for this was said by Mr Gibson to be that he needed the financial flexibility to continue to pursue a South Australian motorcar racing opportunity, while Mr Watson (as Mr Lowndes's manager) could not legitimately have an interest in the racing team for which Mr Lowndes drove. The evidence showed Mr Lowndes insisted that there be no connection between his manager, Mr Watson, and any team for which he chose to drive.
40 It also seems common ground that the possibility of Mr Forbes buying the team was discussed in the week or so prior to 7 December 2000. While there was some contest of fact arising from Mr Dumbrell's evidence about when he spoke to Mr Forbes, it is not necessary to resolve that in order to deal with the real controversy between the parties.
41 It was also understood that it would be Mr Forbes's responsibility to incorporate the company that would purchase and hold the Bronzco assets. However, at the 7 December 2000 meeting it was left open whether Mr Gibson would become a partial shareholder in that company through providing a minority share of the capital required for the purchase.
42 The parties are in dispute over when it was agreed that Mr Gibson would purchase the TEGA franchise from Bronzco. The applicants contend that this was agreed on 7 December 2000. The respondents say that this was agreed during a telephone conversation on 10 December 2000.
43 This topic is linked to the disputed question of when Mr Forbes became aware of proposed changes the TEGA board was considering to the rules governing ownership of rights called TEGA franchises. Those changes would have had the effect of preventing Mr Forbes from having an interest in more than one Level One franchise.
44 Bob Forbes Corporation already held a TEGA franchise under which Mr Forbes's son, Rodney Forbes, raced. In the event, the changes were not implemented, but the fact that the proposal was on foot as at 7 December 2000 is a significant part of the context. The applicants contend that Mr Forbes was aware of the proposed changes by 7 December 2000, while the respondents contend that Mr Forbes only became aware of the proposal on 8 December 2000.
45 The applicants contend that, because Mr Forbes knew he would be unable to hold an interest in both franchises if those changes were implemented, he agreed that Mr Gibson should hold the franchise. The applicants also say that Mr Gibson had to hold the franchise to keep the new race team separate from the team in which Mr Forbes's son Rodney Forbes was to drive, since Ford was unwilling to sponsor a team in which Rodney Forbes drove, and moreover another driver was to be contracted for the new team but TEGA rules did not allow for more than two cars to race under any one franchise.
46 The respondents contend that the real reason Mr Gibson bought the franchise was that he may have needed it if he chose to pursue the South Australian proposal; that Ford had no objection to Rodney Forbes; that it was possible for three cars to race under a TEGA franchise; and that in the 10 December 2000 conversation Mr Forbes told Mr Gibson that he would allow Mr Gibson to race one car in the team using the Bronzco franchise rights in order to ensure that that franchise remained valid.
47 This last contention by the respondents underpins their contention that a contract was concluded between Forbes (on behalf of RPM) and Gibson (on behalf of FCG) that RPM would allow one of its cars to be raced under FCG's TEGA franchise, and that FCG (as owner of the TEGA franchise) would pay to RPM the appearance money attributable to that car.
48 The applicants contend generally that each of the participants in the putative joint venture held on trust, for the joint venture, any assets that were necessary for the team's activities or which were purchased for that purpose. The respondents deny the existence of any trusts subsisting during the term of whatever contracts existed between the parties, and contend that the various assets held by Mr Forbes, Mr Gibson, Mr Watson and their nominee companies were held absolutely - subject only to any contractual duties on the parties.
49 The applicants also contend that there was an express term of the joint venture agreement that Mr Gibson, Mr Watson and Mr Forbes would acquire a company (which became GMM) to conduct a merchandising business utilising the goodwill associated with the team. All three men would become directors, and they or their nominees would become shareholders, of this merchandising company. The respondents necessarily deny that these arrangements were terms of any joint venture agreement.
50 The applicants contend that the term of the overarching joint venture agreement was for a period defined in the third amended statement of claim to be 'the period during which sponsorship income could support its racing activities'. Once sponsorship income became incapable of supporting the team's racing activities, Mr Forbes, Mr Gibson and Mr Watson would each be entitled to cease being involved in the joint venture.
51 At this time, if Mr Forbes so chose he would be entitled to take absolute ownership of the Bronzco assets and any other plant and equipment purchased by RPM during the currency of the joint venture (that is, the joint venture's equitable interests in those assets would dissolve). If Mr Gibson so chose he would be entitled to take absolute ownership of the TEGA franchise.
52 Whilst the respondents denied the existence of a joint venture agreement, they admitted there was agreement between RPM and Mr Gibson for management services, which was entered into on 7 December 2000 although they say terms of payment were agreed later. They also admitted there was an agreement on 7 December 2000 and confirmed on 18 May 2001 to pay certain commissions to Mr Watson, in particular 20% commission in the first year of the team sponsorship or sponsorships other than the initial Ford sponsorship, which is described below.
53 It appears to be common ground that the participants agreed that for all practical purposes Mr Gibson would be the manager of the team's racing operations. (The applicants attached the label 'Team Principal' to this position, though the respondents preferred to describe Mr Gibson as 'manager' or 'co-ordinator' of the 'operations of the Race Team'. The effect seems to me to be much the same).
54 The applicants claimed this to be part of the wider joint venture agreement, while the respondents say it was the subject matter of a distinct contract made on 7 December 2000 between Mr Gibson and Mr Forbes (on behalf of RPM, yet to be incorporated), which they labelled the 'Gibson Services Agreement'.
55 There was no agreement in the 7 December 2000 meeting upon the terms of Mr Gibson's profit or remuneration for performing his management role. The applicants contend that this aspect of the joint venture agreement was settled later, on or by 26 February 2001, by way of a distinct but related contract between Synarby Pty Ltd and RPM, which the applicants described both as a 'consultancy agreement' and the Gibson Services Agreement.
56 The respondents contend that it was a term of the discrete contract between Mr Gibson and Mr Forbes (or RPM) made on 7 December 2000 that Mr Gibson's remuneration would be agreed upon subsequently, and that agreement was only arrived at on or about 18 May 2001. There is, however, no dispute that the sum to be paid to Mr Gibson (or his nominee) by RPM was $250,000 per annum.
57 The applicants further contend that there were express terms of the joint venture agreement that Mr Gibson would permit the joint venture to use the business name 'GIBSON MOTOR SPORT' and to occupy and use the workshop owned by Angora Towers Pty Ltd, and that Mr Gibson would cause his nominee (FCG) to acquire the TEGA franchise (as discussed above).
58 In contrast to the term of the joint venture pleaded by the applicants, the respondents contend that the discrete contract between Mr Gibson and Mr Forbes (or RPM) was terminable on reasonable notice; that it was limited in duration to the period for which Mr Lowndes would be contractually bound to drive for the team (under the agreement to be made between RPM and Mr Lowndes); and that it would terminate immediately upon Mr Lowndes ceasing to drive for the team. These terms were said to be implied to give business efficacy to the contract.
59 The contractual arrangements with respect to Mr Watson's role in the racing team's activities are somewhat more contentious. It seems clear that Mr Watson played two main roles. First, he procured sponsorship. Secondly, he managed the team's merchandising. The details are contested.
60 The applicants contend that there were express terms of the joint venture agreement that Mr Watson would procure the services of Mr Lowndes as driver for the team; that he would manage the business of a merchandising company to be incorporated (GMM); that he would market and promote the race team and the joint venture and procure sponsors for the race team and joint venture; and that he would receive a commercial rate for those services, such rate to be between 10% and 20% of the sponsorship sums procured. These terms were said to have been agreed orally at the 7 December 2000 meeting.
61 The applicants further contend that at a later meeting, on 26 February 2001, it was agreed that Mr Watson (or his nominee) was to receive a commission of 10% of the sponsorship sum that had been arranged from Ford (the sponsorship being $1.5 million in 2001 and $3 million in each of 2002 and 2003) together with 20% commission (reducing by 2.5% per annum) on all additional sponsorship he might procure for the team, payable by RPM.
62 It must be noted, however, that the precise sum and structure of the Ford sponsorship had not been agreed by 7 December 2000; rather, it was agreed on 13 December 2000 at a meeting between Mr Gibson, Mr Watson, and Mr Geoff Polites of Ford. By 7 December 2000, there had been discussions between various persons which Mr Watson said led to his belief that Ford would support Mr Lowndes's driving, and would sponsor whichever team for which Mr Lowndes chose to drive, provided Mr Lowndes drove a Ford car.
63 The respondents dispute that any binding agreement in respect of Mr Watson's role was arrived at on 7 December 2000 at all. They maintain that Ford had already committed to sponsor the team, and that Mr Watson did not request commission on that sponsorship but only on additional sponsorship.
64 The respondents contend that at the 7 December 2000 meeting, Mr Watson proposed a 20% commission in the first year, and tailing commission (unspecified) thereafter, on additional sponsorship, and that Mr Forbes responded that if Mr Watson could obtain any additional sponsors Mr Forbes would happily pay 20% in the first year of team sponsorship. It is said that these discussions did not constitute a binding agreement, save for Mr Forbes's agreement to pay 20% on sponsorship in the first year of the team if Mr Watson could obtain any sponsors additional to the initial Ford sponsorship.
65 The respondents say that on or about 18 May 2001, Mr Watson informed Mr Forbes that he would obtain additional sponsorship from 'Dunlop/SPT' and Mobil, and that it was agreed at this time that if Mr Watson did procure these sponsorships he would be paid 20% in the first year. The respondents do not admit that Mr Watson had procured additional sponsorships prior to 18 May 2001.
66 In relation to the merchandising role performed by Mr Watson and GMM, the respondents say that the discussions on and from 7 December 2000 between Mr Watson and GMM on the one hand, and Mr Forbes and RPM on the other were wholly inconclusive. The respondents' preferred interpretation of the conversations that occurred was that Mr Watson made certain proposals and Mr Forbes said only that they 'sounded fair'.
67 The principal pleading is of a joint venture concluded on 7 December 2000 with express terms as discussed above. The alternative pleading is that the joint venture agreement was concluded on 26 February 2001, which was partly implied by the course of events between 7 December 2000 and 26 February 2001.
68 The respondents deny both sets of allegations. It would be necessary to outline those events anyway as part of the factual context, but they must be considered in light of their significance in the pleadings.
69 Before dealing with the evidence in the case in more detail, it is necessary to note that the hearing of this matter exceeded the estimate and occupied 19 days. The third further amended statement of claim dated 23 October 2003 ran to some 85 pages yet some changes in the issues identified occurred in the course of the hearing. Affidavits filed and served ran to just under 600 pages, exhibits totalled almost 3,000 pages and written submissions, which were helpful and intended to save court time ran to 100's of pages.
70 In a system of justice which has procedural fairness as a cornerstone, and where procedures permit a trial to be conducted by exchange of evidence in sworn affidavits, supplemented by the giving of oral evidence, there is a heavy obligation on counsel to ensure that material contests of fact do not become buried in paper and obscured by elaborate forensic efforts directed to collateral attacks on credit in respect of many issues, which do not necessarily relate significantly or proportionately to substantive or material issues, but which are now permitted in certain circumstances under the Evidence Act (1995) (Cth)s 103.
71 It would not be practical to refer to every single piece of evidence, aspect or event, in these reasons for judgment. There were countless disputes about conversations which did not require resolution in order to determine the material issues in dispute. All of the evidence in the proceeding, as well as the extensive submissions advanced in respect of such evidence, has been considered by me. Such findings of fact, which I proceed to make, are informed by regard to the whole of the evidence including my observations of all the witnesses when giving oral evidence, particularly about contested matters.