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[2008] VSC 510
Supreme Court of Victoria
2008-11-25
BEACH J
Original judgment source is linked above.
LEGAL PRACTITIONERS - Solicitor - Existence of retainer - Terms of retainer - Contractual duties - Duty of care - Negligence - Fiduciary duties - Conflicts of interests - Causation - Equitable compensation.
1 The plaintiffs claim that in 2001 the defendants were their solicitors,[1] supposedly acting on their behalf and on behalf of what I will call "the Forbes interests". They contend that as a result of breaches of duty by the defendants (which are said to involve the defendants preferring the Forbes interests over the plaintiffs' interests) they suffered economic loss in excess of $24 million. The defendants deny that they were acting for the plaintiffs in the relevant matters. The plaintiffs respond to this denial by saying that even if the defendants are correct, because of the dealings between them (the plaintiffs and the defendants), the defendants owed to the plaintiffs the duties owed by solicitors to their clients. The defendants deny owing the duties alleged and say further that, even if duties were owed, there was no breach. The facts giving rise to the plaintiffs' claims concern the establishment in 2001 of a new V8 supercar racing team. It is necessary to say a little more about the underlying facts.
2 Australian Vee Eight Supercar Company Pty Limited ("AVESCO") markets and manages V8 supercar racing championships. This company was established as a joint venture with Touring Car Entrants Group Australia Pty Ltd ("TEGA") to run the V8 Supercar Racing Championship. AVESCO is responsible for marketing and managing the Championship and TEGA is responsible for determining issues of technical parity between V8 supercars, licensing teams to race in the V8 Championship (formerly called franchises) and ensuring that only licensed teams compete in race meetings authorised by AVESCO.
3 Since 1988, Holden have supported the Holden Racing Team ("HRT"), which has, in effect, been the factory team of Holden. HRT has been the most successful team over the years, and early on established a merchandising and apparel business. In 2000, HRT's merchandising and apparel business was the most successful race team merchandising operation in Australia. At that time, HRT was owned by TWR Group Limited ("TWR"). TWR stands for Tom Walkinshaw Racing. HRT won the 1998 and 1999 Championship series, and had two of the most successful drivers in the competition - Mr Mark Skaife and Mr Craig Lowndes. In 2000, there was no equivalent Ford-backed team. Ford merely sponsored a number of teams on a smaller scale to the support Holden offered HRT.
4 Mr Noel Watson, the first plaintiff, was a founding director of AVESCO. In May 2000, he was contacted by Mr Lowndes, who said he needed Mr Watson's assistance in relation to Mr Lowndes' position with HRT. At that time, Mr Lowndes was managed by TWR pursuant to a contract which did not expire until January 2007. Pursuant to that contract, Mr John Crennan, the managing director of HRT, was Mr Lowndes' manager. At the same time, Mr Lowndes had a driver's agreement with HRT which was due to expire at the end of 2000. Mr Lowndes was not happy at HRT. He was looking for a new manager and someone who could help him to move from HRT to a new team and to find new personal sponsors. Mr Watson agreed to assist Mr Lowndes, although he was not formally appointed Mr Lowndes' manager until 2001. As Mr Lowndes saw it, Mr Watson's main task in 2000 was to help him move from HRT to a new team for the 2001 season.
5 Following his meeting with Mr Lowndes, Mr Watson contacted a lawyer who had done work for him, Mr Daniel Butler, who recommended that Mr Watson speak to Mr Philip Battye of Ebsworth & Ebsworth. An initial meeting was held between Mr Lowndes, Mr Watson and Mr Battye which resulted in Mr Battye agreeing to act for Mr Lowndes.
6 Between May and December 2000, Mr Watson spent time identifying potential options for Mr Lowndes so far as his future in the racing industry was concerned. During this time, Mr Watson explored the possibility of a new Holden team being established for Mr Lowndes and it was suggested that Mr Fred Gibson, the second plaintiff, could possibly manage such a team. Mr Gibson had extensive experience in the motorsport industry. He was a previous winner of Bathurst and, from 1990 until 1999, he had conducted a racing car team under the name "Gibson Motorsport". During the 1990s, the Gibson Motorsport team won many races and championships, including races at Bathurst. In December 1999, Mr Gibson had sold his racing team, including all plant and equipment, to Bronzco Pty Ltd, a company owned by a Mr Dumbrell.
7 Additionally, during this period, interest was expressed by Ford in the possibility of Mr Lowndes racing a Ford car in the 2001 season. The possibility of Mr Lowndes driving for a team managed by Mr Gibson was raised with Mr Lowndes. Mr Lowndes knew of Mr Gibson's experience and accepted this idea. On 23 November 2000, Mr Watson and Mr Gibson had a telephone conversation concerning the possibility of Mr Gibson purchasing back his TEGA franchise and race car equipment from Mr Dumbrell. During this conversation, Mr Gibson said that he had discussed the proposed race team with a colleague, Mr Robert Forbes, who might finance part of the purchase of the race team assets from Mr Dumbrell and join the venture to run the new race team.
8 Mr Watson asserts that in late November 2000, there was a meeting between Mr Watson, Mr Gibson, Mr Lowndes, Mr Lowndes' wife and Mr Battye. Mr Battye denies this meeting occurred. Mr Watson's account of this meeting is that during it, the proposal for a new team to be sponsored by Ford, managed by Mr Gibson, in which Mr Lowndes would drive and Mr Watson would manage the team's merchandising and commercial operations was discussed. Subsequently, Mr Watson had a meeting with Mr Battye and Mr Howard Marsden (the general manager of Ford Motorsport) in which Mr Watson outlined the basis for the new team as follows:
(a) Mr Gibson would purchase his old TEGA franchise and race car equipment from Mr Dumbrell.
(b) Ford would sponsor the Gibson team for a period of three to five years.
(d) Mr Lowndes would enter into a driver's contract, committing him to drive for the team between two to three years.
(e) Mr Lowndes would enter into a separate driver's contract with Ford, committing him to drive for five years.
(f) Ford would waive its 12.5% royalty normally charged to its teams to use the Ford oval on merchandise.
(g) Ford would provide technical support and various components free of charge.[3]
9 On 7 December 2000, Mr Watson met with Mr Forbes and Mr Gibson. Mr Watson's account of this meeting is that during it, it was agreed that the new team would be comprised as follows:
(a) A mechanical arm, which would include plant and equipment, the race cars, spare parts, mechanical engineering and staff essential to the preparation of the race cars for competition. This would be purchased by Mr Forbes from Mr Dumbrell and held in a company Mr Forbes controlled.
(b) An operational arm, which would hold the level one TEGA franchise under which the race cars would be entered into competition. This would be purchased by Mr Gibson from Mr Dumbrell and held by a company Mr Gibson controlled.
(c) A commercial arm which would be responsible for the securing of sponsorship arrangements, procuring and selling team merchandise, and exploiting intellectual property. This company would also sell merchandise on track, under the authority given to all level one TEGA franchise-holders. A new company was to be incorporated to exploit team merchandise and intellectual property, in which all three of them would be equal shareholders. Once incorporated, the running of this company was to be the responsibility of Mr Watson.
Mr Forbes has a different recollection of the meeting. He says that those at the meeting discussed matters including the purchase by Mr Forbes of the Gibson Motorsport business from Mr Dumbrell and how that purchase might be structured; the possibility of Mr Watson and Mr Gibson having equity in the company that would own the team; the setting up of a company to sell merchandising and ownership of that company; the role of Mr Gibson as team manager; Ford's sponsorship of the team and additional sponsorship which Mr Watson could obtain for the team. He says that no agreement was reached at the meeting as to the management, merchandising or sponsorship arrangements for the team. Mr Forbes summarised the position at the meeting as follows: Mr Forbes was going to buy the team, Mr Gibson was going to manage it and Mr Watson was going to run the merchandising arm. However, the real position as at 7 December 2000 was that these were just discussions and there was no concluded agreement.[4] Mr Gibson gave evidence that was largely supportive of Mr Watson's version.
10 Matters progressed (about which I will say more below) and on 4 January 2001, there was a press conference announcing that Mr Lowndes would be driving in the 2001 season as a Ford driver as part of a team managed by Mr Gibson. In early 2001, whilst Mr Watson and Mr Gibson thought there were in principle agreements between various parties and whilst Mr Lowndes had signed driver agreements, much of what had supposedly been arranged and agreed in principle had not been formally documented. Nevertheless, the elements of what was needed to form a new team appeared to be in place and the company contemplated by Mr Watson and Mr Gibson as being incorporated to exploit team merchandise and intellectual property was incorporated on 6 February 2001, being Gibson Motorsport Merchandise Pty Ltd ("GMM"), the third plaintiff. F.C. Gibson Pty Limited ("FCG"), the fourth plaintiff, ultimately became the company that held the level one TEGA franchise which Mr Watson and Mr Gibson say was contemplated in the meeting of 7 December between Mr Watson, Mr Forbes and Mr Gibson.
11 On 2 February 2001, Mr Watson contacted Mr Battye and asked him if he would be prepared to act for "the team". Mr Battye was concerned about the possibility of a conflict of interest between acting for the team and being Mr Lowndes' lawyer. Mr Battye needed to discuss the issue with Mr Lowndes. Ultimately, on 9 February 2001, Mr Battye agreed to accept a retainer. The circumstances surrounding the acceptance of this retainer and the terms and parties to the retainer are issues in this proceeding. In essence, the plaintiffs contend that this retainer was a retainer to act for each of them. Whereas the defendants contend that the retainer was limited to a retainer for Gibson Motorsport, being the entity with whom Mr Lowndes had entered into a driver's agreement on 4 January 2001. That is, the company originally known as ACN 095 359 041 Pty Limited which later changed its name to Racecar Preparation and Management Pty Ltd ("RPM"). This is a central issue to the resolution of this proceeding.
12 Over the months that followed, the relationship and arrangement between Mr Forbes on the one hand and Mr Gibson and Mr Watson on the other hand fell apart to the point that, in October 2001, Mr Watson and Mr Gibson were excluded from the team. Mr Lowndes stayed with the team, then being run by Mr Forbes and sponsored by Ford. As a result of this break-up, the plaintiffs claim that they have suffered the economic loss referred to in paragraph 1 above. In this proceeding, the plaintiffs allege various breaches of contractual, tortious and fiduciary duties against the defendants. They seek equitable compensation and damages in respect of the losses identified.[5] However, during final addresses I raised with Senior Counsel for the plaintiffs the fact that he had made no submissions on the issue of damages - having confined himself to submissions about the assessment of equitable compensation.[6] In response, I was told that the plaintiffs were not pursuing a claim for damages and that the claims in respect of tortious duties and breaches of contract were "all subsumed ... by the fiduciary claims".[7] For the reasons given below, there will be judgment for the defendants.
13 I have already set out some of the background facts to this dispute. It is now necessary to provide some further detail. There were a large number of conversations that occurred either by telephone or at various meetings between Mr Watson, Mr Gibson, Mr Battye, Mr Lowndes, Mr Forbes and various employees of Ford and other people during the period from November 2000 until October 2001. Different accounts have been given of many of these meetings and conversations. Having regard to the effluxion of time, this is not surprising. For the purpose of deciding this case, it is not necessary to resolve every difference between the witnesses as to what was said during every conversation or meeting. One thing that is clear is that, as discussions progressed between Mr Watson, Mr Gibson and Mr Forbes, Mr Watson and Mr Gibson had one view of the proposed arrangements and Mr Forbes had another. Whilst all three were working towards the creation of a new team which Mr Gibson would manage and in which Mr Lowndes would drive a Ford, their views about how this would be brought about differed.
14 I turn now to consider the relevant events that occurred after the 7 December 2000 meeting. On 8 December, Mr Forbes and Mr Dumbrell signed a document headed "HEADS OF AGREEMENT" for the sale and purchase of the business known as "Gibson Motorsport". Mr Dumbrell was the vendor and the purchaser was Mr Forbes and/or his nominee. The price was $2.7 million. The business was defined as comprising:
"(a) The business name of 'Gibson Motorsport'.
(b) All plant, stock and equipment of 'Gibson Motorsport' and related entities including (but not limited to) all racing vehicles, spare parts and engine components, stock, other motor vehicles, pantechnicon, promotional material and workshop and office equipment wherever situated and free of all debt, charge, lien and any other encumbrance whatsoever.
(c) The total current shareholding of the Vendor in Touringcar Entrants' Group Australia Pty Ltd comprising a Level-1 Franchise and all attaching shareholding."
Clauses 8 and 9 of the Heads of Agreement provided:
"8. The Vendor agrees that he will obtain confirmation of K-Mart sponsorship for the Business for the year 2001 in the sum of $1.4 million together with associated signwriting and incidental expenses as negotiated with K-Mart and that such written confirmation shall be available to the Purchaser at or prior to settlement. It is agreed that this condition is fundamental to this Sale and that without it the Purchaser shall not proceed with the purchase.
15 On a date almost certainly between 7 December and 14 December 2000, Mr Gibson sent a letter to TEGA saying that his company (FCG) would "assume all of the obligations and responsibilities of the Team under the Franchise agreement currently held by Garry Dumbrell Motorsport Pty Ltd". In the letter, TEGA was told that the cash purchase price being paid for the franchise was $400,000. On 12 December 2000, ACN 095 359 041 Pty Limited was incorporated. By letter dated 14 December 2000, TEGA replied to Mr Gibson confirming that the TEGA board had approved the transfer of Mr Dumbrell's franchise to him.
16 On 18 December 2000, Gibson Motor Sport Pty Ltd (formerly Bronzco Pty Ltd) sold the business conducted at Kitchen Road, Dandenong to Mr Forbes' company, RPM (then called ACN 095 359 041 Pty Limited). Mr Dumbrell signed on behalf of the vendor and Mr Gibson signed on behalf of the purchaser. The price was $2.225 million. The difference between this price and the price in the Heads of Agreement was, at least in part, reflected by the fact that the franchise did not pass under this agreement. On the same day, the business name, Gibson Motor Sport,[8] was transferred from Mr Dumbrell's company, Bronzco to FCG.
17 On the same day, Ford sent a letter to Mr Gibson as follows:
"Dear Fred,
This letter confirms our agreement for Ford Australia to sponsor the Fred Gibson Racing Team in the AVESCO/TEGA Shell Championship Series for the 2001, 2002 and 2003 years on the basis that:
In consideration of your agreement to the above conditions, we agree to pay the Team the following sponsorship amounts:
In recognition of the Team needing to be up and running as soon as possible, we will pay 50% of the first year's payment, being $750,000, on 15 January, 2001.
Whilst these are the basic terms of our agreement, a more detailed agreement will be drawn up early next year to finalise our arrangements.
Would you kindly countersign this letter and fax it back to me on 9359 7482 today to confirm your agreement."
Mr Gibson crossed out the words "Fred Gibson Racing Team" and handwrote "Gibson Motor Sport" on the letter, which he then signed and faxed back to Mr Polites, the President of Ford.
18 On 20 December 2000, Mr Lowndes and his company (Craig Lowndes Pty Ltd) entered into a racing driver agreement ("the Ford driver agreement") with Ford. Clause 2.1 of the Ford driver agreement provided:
"The Company [Craig Lowndes Pty Ltd] will procure for Ford and Ford agrees to engage the Company to procure the services of the Driver [Mr Lowndes] as a motor racing driver to the Team in consideration of the Payment for the Term in accordance with the provisions of this Agreement."
The term of the agreement was five years from 1 January 2001 to 31 December 2005. The expression "Team" was defined to mean "a Team which operates the Racing Car in the Championship". The expression "the Team" is one that has caused difficulty in this case. It is an expression that appears in documents and an expression that has been used from time to time by the participants in meetings and during conversations. The defendants contend that "the Team" means RPM. The plaintiffs contend that it has a wider meaning, encompassing at least RPM, GMM and FCG, if not those three entities plus Mr Watson, Mr Gibson and Mr Forbes. This is a matter I will deal with below. A similar difficulty arises from some of the references to the business name, Gibson Motorsport. Again, I will deal with that matter below.
19 In the second half of December 2000, events occurred which, on Mr Forbes' evidence, started to sour the relationship between Mr Forbes and Mr Gibson. First, Mr Forbes received a letter from Mr Falconer of White Cleland[9] in which he was advised that the business name "Gibson Motor Sport" was in the process of being transferred back to FCG. Mr Forbes' understanding was that the business name was to be transferred to RPM. This became the subject of dispute and remained an issue between Mr Watson, Mr Gibson and Mr Forbes in 2001. Secondly, Mr Forbes wanted the issue of the entity that Ford was going to be dealing with sorted out. To that end, he drafted a letter for Mr Gibson to send to Ford.[10] Mr Gibson did not send the letter. To use Mr Forbes' words: "I think he [Mr Gibson] just made all the right noises but nothing ever actually got done".[11] This was also an issue between the parties into 2001.[12]
20 On 4 January 2001, Mr Lowndes and his company entered into a driver agreement ("the RPM driver agreement") with RPM.[13] Clause 2.1 of the RPM driver agreement provides:
"The Company [Craig Lowndes Pty Ltd] will procure for ACN the services of the Driver [Mr Lowndes] as a motor racing driver to the Team."
"Team" is defined to mean "Gibson Motorsport ("FGM") or ACN as may be appropriate". The term of the agreement was three years expiring on 31 December 2003. However, clause 14.3 provided for the possibility of determining the agreement on 31 December 2002 if any of the parties did not agree that the terms and conditions of the agreement had been complied with and the performance of the team had been satisfactory. The RPM driver agreement provided for payment by RPM to Craig Lowndes Pty Ltd of a percentage of the manufactured wholesale purchase price of team merchandise. Events of default were defined in clause 16.1, paragraph (l) of which made it an event of default (entitling the party not committing the event of default to determine the agreement) if Mr Gibson ceased to be involved actively in the management "of the Team or ceases to be Team Principal and a replacement person acceptable to the Driver cannot be appointed within a reasonable time".
21 Immediately after the execution of the RPM driver agreement, a press conference was held and Ford issued a press release in the following terms:
"NEW DRIVER, NEW TEAM, NEW ALLIANCE
A closely guarded secret can finally be revealed - the answer to the 64,000 dollar question of the 2000 season - where will Craig Lowndes drive in 2001?
Many of the pundits have had Craig going to Ford and, despite a last-minute flurry of rumours concerning the setting up of a new team by Peter Brock, the early backers of the Ford move have now been proved right.
The big part of the whole equation, the question of just which Ford team he might drive for has been an even bigger question.
Today Ford Australia announced not only that they had signed Lowndes as a Ford contracted driver for the next five years, but that they had also signed a deal with one of Australia's top team managers, Fred Gibson.
Late last year Gibson bought his team and his level one franchise back from Garry Dumbrell.
The surprise announcement of the day is that Fred has signed a deal with Ford to run Lowndes in a Falcon. Fred has elected to return to his Ford roots, and his Commodores are on the market.
Craig will open the season for the new Gibson Motorsport team at the Melbourne Formula One Grand Prix in March."
22 On 11 January 2001, Mr Gibson and Mr Forbes met. Mr Gibson's accountant, Mr Kinchington, was present and produced a document for the meeting.[14] Mr Gibson told Mr Forbes that he did not want to be a director of RPM. At or about the time of this meeting, Mr Forbes found out that Mr Gibson had resigned as a director of RPM.[15] This was a source of disappointment to Mr Forbes because it was a departure from what had been talked about on 7 December 2000. Further, Mr Forbes wanted Mr Gibson to be a director of RPM "which gave him fiduciary dut[ies] and responsibilities in the company".[16] On 24 January 2001, Mr Watson instructed his accountant, Mr Damien Butler, to incorporate GMM with Mr Gibson, Mr Forbes and Mr Watson being directors and equal one third shareholders in the company. On 25 and 29 January 2001, there were discussions between Mr Damien Butler and Mr Forbes' accountant, Mr Stanley,[17] concerning the need to have a shareholders' agreement in place in relation to the proposed merchandising company (GMM). On 30 January 2001, FCG executed a consent to the use of the business name, Gibson Motorsport, by RPM.[18] On 13 February, Mr Stanley received a letter dated 9 February from Mr Damien Butler in which he advised that GMM had been incorporated and that DBA Butler - Lawyers had been requested to draft a buy-sell agreement to deal with the directors/shareholders leaving GMM. However, according to a Butler Pty Ltd chartered accountants file note,[19] on 26 February 2001, Mr Watson gave instructions that he did not want to follow up this issue. Mr Watson's dealings with Mr Damien Butler and Mr Daniel Butler and Mr Gibson's dealings with Mr Kinchington and Mr Falconer of White Cleland were bases for the defendants' submissions that the fact that Mr Watson and Mr Gibson were getting advice from these people demonstrated that Mr Battye was not their solicitor. I will say more about this below.
23 In early February 2001, there was discussion between Mr Watson and Mr Battye concerning the possibility of Mr Battye acting for the team. I will deal with these matters in more detail below when I come to deal with Mr Battye's role and his involvement with the team. It is sufficient for present purposes to say that on 9 February 2001, Mr Battye sent a letter addressed to Mr Gibson, Gibson Motorsport, confirming Ebsworth and Ebsworth's retainer by Gibson Motorsport. The letter relevantly provided:
"Dear Fred,
EBSWORTH & EBSWORTH RETAINER
We confirm our retainer by Gibson Motorsport to act generally on its behalf for which we thank you.
As you are aware we also act as solicitors on behalf of Craig Lowndes and his various corporate entities. Whilst this currently presents no actual conflict of interest we advise that our retainer by Mr Lowndes and his entities may potentially give rise to a conflict of interest in the future. The most obvious potential source of conflict arises in the context of the driving contract entered into between Craig Lowndes Pty Ltd and Mr Lowndes with Gibson Motorsport. Conceivably there could also be potential conflicts in respect of sponsorship arrangements between third parties, the team and Mr Lowndes and his entities.
Notwithstanding the potential conflict including those detailed above as illustrations we confirm our retainer by you. We advise that we are prepared to accept your retainer on condition that in the event of any actual conflict between Mr Lowndes and his entities and Gibson Motorsport we will be free to cease our retainer by you in respect of the particular matter notwithstanding any information, documents or otherwise with which we may have been instructed by you in the course of our retainer by you. You also agree to waive any solicitor client privilege in respect of any such documents and/or communications or instructions."
24 On 12 February 2001, Mr Gibson received a sponsorship contract ("the Ford sponsorship contract") from Ford. The front page of the agreement was dated 1 January 2001 and provided that the parties to it were Ford and FCG. Mr Gibson faxed the agreement to Mr Watson, who then faxed it to Mr Battye with some handwritten annotations - including one that suggested that FCG was the wrong company. Whilst the Ford sponsorship contract does not contain the expression "the team", it refers to the party with whom Ford was proposing to contract as "the participant". In the recitals, the "participant" is said to be utilising the services of the driver (Mr Lowndes). The plaintiffs' case is that references to the "participant" in the Ford sponsorship contract are references to the team (being the consortium). The defendants' case is that references to the participant are references to RPM - it being the only entity with a relevant contract with Mr Lowndes entitling it to "utilise" his services. Clause 22 of the Ford sponsorship contract provided that Ford could terminate the agreement in a number of defined circumstances, including (b) "if the DRIVER no longer drives the RACE VEHICLE for the PARTICIPANT or the RACE TEAM".
25 On 26 February 2001, Mr Gibson, Mr Forbes and Mr Watson met at the team workshop in Dandenong. This was eight days before the team's first race at the Australian Grand Prix weekend at Albert Park. Mr Watson's account of this meeting was that as all sponsorship money was now being paid into RPM, there was discussion concerning the payments RPM would need to make to him and to Mr Gibson for being the two working parties in the venture (Mr Forbes was regarded as a financier). The level of Mr Gibson's remuneration for being team principal was confirmed, as were the sponsorship procuration fees that Mr Watson would charge RPM for doing the work necessary in securing sponsors for the team. Mr Forbes wanted reassurance that sponsorship money would continue to be paid into RPM to prepare the race cars. Further, Mr Forbes said that he was unhappy that Mr Gibson had refused to become a director of RPM and Mr Forbes saw that he alone was "on the hook", given that it was RPM's responsibility to pay for the preparation of the cars and pay most of the wages. Mr Watson referred to the possibility of a side agreement between FCG and RPM to cover the flow of Ford sponsorship money from FCG to RPM. Mr Forbes' account of the meeting was that he suggested that if the Ford sponsorship contract could not be executed by RPM, then a side agreement could be put in place between RPM and FCG, and that FCG could then execute the agreement with Ford. He said that this suggestion was made because Mr Gibson had not disclosed to Ford that Mr Forbes owned the team (via RPM).
26 On 1 March 2001, Mr Watson sent a letter to Mr Gibson, purporting to deal with Mr Gibson on the basis that he was capable of acting for and on behalf of RPM. The letter was signed by Mr Watson, but underneath his name and signature was the name of his company "Noel Watson (Aust.) Pty Ltd. The letter asked Mr Forbes to sign the bottom of the letter as confirmation of an arrangement between Noel Watson (Aust.) Pty Ltd and RPM. The acknowledgement line for Mr Gibson to sign had his name followed by the words "for and on behalf of Race Car Preparations & Management Pty Ltd trading as Gibson Motorsport". The letter provided:
"Dear Fred
Re: RPM/Gibson Motorsport - Commercial Appointment
The commercial arrangements we discussed on 26 February with Bob Forbes will obviously need to be firmed up in a separate agreement. However, to enable us to keep the ball rolling and put in place, employ and appoint personnel and/or contractors (i.e. PR/Media agency) we have outlined below the basis of the commercial appointment. If all is in order, I would be pleased if you would accept and sign the bottom of this letter as confirmation of our arrangement.
As I understand the arrangement, my company is exclusively appointed and is required to establish, manage and maintain the necessary operations to handle all matters relating to the following areas:
Commercial arrangements and sponsorship contracts
Marketing, media and PR activities
Merchandising and Licencing appointments
Web site design, implementation and management
As we agreed with Bob remuneration will be based on 10% of the Ford commercial arrangement for 2001 ($1.5m), 2002 ($3.0m) and 2003 ($3.0m). Additionally, 20% diminishing by 2.5% pa of all other commercial arrangements or sponsorship income generated for the Team i.e. Ford/Ford Dealer Network, Mobil Oil or Optus.
Noel Watson (Aust) agrees that the remuneration shall cover reimbursement for all expenses and staffing costs made or incurred by the company in connection with the above services except for those expenses which RPM agrees in its absolute discretion to reimburse to Noel Watson (Aust.)
I hope this meets with your approval, I believe that the synergy between this appointment and being Craig's Manager will advantage not only Craig but also the team both financially and operationally."
Whilst I have said that I will deal with what is meant by the expression "the team" below, in cross-examination Mr Watson conceded[20] that the reference to "the team" in the third paragraph of this letter was a reference to RPM.
27 On 4 March 2001, Mr Lowndes and TWR executed an agreement releasing Mr Lowndes from his management contract with TWR. This freed Mr Lowndes to enter into a management contract with Mr Watson. On 20 March, there was a meeting between Mr Gibson, Mr Watson and Mr Battye at the workshop in Kitchen Road, Dandenong. During that meeting, a number of matters were discussed, including the fact that Ford thought that Mr Gibson owned the team. Mr Battye was concerned that Ford did not know about Mr Forbes. Mr Gibson said he would speak to Mr Forbes and see what his thoughts were, and then come back to Mr Battye in respect of that matter. Additionally, there was discussion about the possibility of Mr Gibson buying out Mr Forbes. Mr Gibson was not getting on with Mr Forbes as well as he thought that he should be, and therefore thought that a buy-out of Mr Forbes might be appropriate.
28 On 30 March 2001, Mr Gibson received a telephone call from Mr Forbes. Mr Gibson's account of this conversation is that Mr Forbes expressed concern about the financial position of the team and questioned Mr Gibson's integrity, professionalism and competence in a very heated conversation. Mr Gibson's evidence was that from that point his relationship with Mr Forbes broke down irretrievably. After the telephone conversation, Mr Gibson telephoned Mr Watson and told him of the conversation. Mr Gibson told Mr Watson that he (Mr Gibson) now definitely wanted to buy Mr Forbes out as soon as possible, as he considered that he was unable to work with Mr Forbes on a long-term basis.
29 The team raced at the Clipsal Race in Adelaide on 6 and 7 April 2001. This was the third race for the team, it having already competed at the Australian Grand Prix and Phillip Island. The GMM merchandising range was launched to the public on 6 April 2001 and was well received. At the Clipsal race, there were discussions between Mr Forbes and Mr Watson, Mr Forbes and Mr Battye and Mr Battye and Mr Watson relating to concerns Mr Forbes had about Mr Gibson, sponsorship issues and solvency. According to Mr Battye, he told Mr Watson that he was concerned that Ford was unaware of the true ownership of the team and that the position needed to be sorted out before Ford became aware. It was not until the Clipsal race that Mr Polites became aware that Mr Forbes had any involvement with the team.[21] It seems tolerably clear that Ford only became aware of Mr Forbes' involvement in early April 2001.
30 On 18 May 2001, Mr Watson and Mr Gibson flew to Sydney to meet with Mr Forbes in the Sydney Golden Wing lounge. During that meeting, the possibility of Mr Gibson and Mr Watson buying out Mr Forbes' interest in the team was discussed. On 1 June 2001, there was a further meeting between Mr Forbes, Mr Gibson and Mr Watson at the Golden Wing lounge in Melbourne. During this meeting, Mr Forbes offered to sell his interest in the team to Mr Gibson and Mr Watson. However, on Mr Forbes' evidence, this was on condition that the sale be completed by 30 June 2001.[22] On 20 June 2001, Craig Lowndes Promotions Pty Ltd and Watson & Associates Vic Pty Ltd executed a management agreement in respect of Mr Lowndes. The buy-out of Mr Forbes that had been contemplated did not proceed, Mr Forbes always maintaining that for a buy-out to occur, it had to occur before 30 June 2001. Whilst this was disputed by Mr Watson and Mr Gibson, the fact is that no buy-out was ever consummated. Indeed, when the matter was raised again on 13 July, Mr Forbes said "Well, it's now past 30 June so it's finished".[23] Subsequently, Mr Forbes failed to respond to a letter dated 13 July 2001 concerning the buy-out. His reason for not responding was, "Because the time had past".[24]
31 On 29 August 2001, Mr Watson learned that Mr Forbes had consulted solicitors. There were then multiple discussions on 30 and 31 August 2001 between Mr Watson and Mr Battye, the substance of which is disputed. Whilst there is agreement that there was a reference by Mr Battye to a conflict of interest, the substance of what was actually said is in dispute.
32 On 3 September 2001, there was a meeting at Ford's office in Campbellfield between Mr Watson, Mr Gibson, Ms Sue Allen (Ford's legal counsel), Mr Howard Marsden (the General Manager of Ford Motor Sport), Mr Bruce McDonald (Vice President, Sales and Marketing) and Mr Polites.[25] Mr Polites asked how the buy-out of Mr Forbes was going and was told that Mr Watson and Mr Gibson had received "financials" from Mr Forbes which were being checked by their accountant. There was discussion about how the race team budget was being "expensed". On the evening of 3 September 2001, there was a meeting between Mr Watson and Mr Gibson and Ms Meagher (General Manager, Marketing of Ford) and Ms Louise Teasdale (General Manager of Corporate Affairs, Ford) at the Hilton Hotel. Ms Meagher said that Ford was prepared to proceed with a sponsorship plan at $4 million per year, starting in January 2002 and that Ford was supportive of the buy-out of Mr Forbes' interest by Mr Gibson and Mr Watson.
33 On 7 September 2001, Mr Forbes formally rejected the buy-out offer, stating:[26]
"I wish to inform you that your proposal to acquire RPM and its business is rejected.
A number of issues have emerged during the Ford sponsorship and the financial management of RPM by Fred Gibson that are of extreme concern to me as the sole Director of RPM. Also of concern is the unauthorised use of the name Gibson Motorsport in connection with the business of the Watson Group Australia.
As you are both aware, rights to that business name were acquired by RPM pursuant to the terms of the Sale of Business Agreement dated 18 December 2000 between it and Gibson Motorsport Pty Ltd. The circumstances in which that business name appears to have been transferred to FC Gibson Pty Ltd upon settlement of that sale has been referred to the company's lawyers for further investigation and advice.
You can expect to receive further correspondence from me early next week in relation to this and other issues."
34 Mr Watson telephoned Mr Battye in respect of this letter. Whilst it is the plaintiffs' case that on 7 September 2001 Mr Battye was asked to act on their behalf in relation to their dispute with Mr Forbes, Mr Battye denies that he received any instructions from them to take any steps in relation to the letter. Subsequently, there were further discussions, culminating in a letter being sent by Mr Battye to Mr Forbes on 11 September 2001. That letter provided:
"Dear Mr Forbes,
CRAIG ANDREW LOWNDES & CRAIG LOWNDES PTY LTD ("LOWNDES")
We confirm that we act on behalf of Lowndes.
We are advised by Ms Allen of Ford Motor Company of Australia Limited ("Ford") that you conferred with her in the week of 3 September 2001.
We refer to our telephone discussion on 30 August 2001 wherein we discussed inter alia, issues in respect of the solvency of RaceCar Preparation and Management Pty Ltd ("RPM"). Further, we confirm that you personally raised solvency issues in respect of RPM with the writer in the course of the Clipsal 500 Race in Adelaide during Easter 2001.
In addition to the solvency issues noted above we confirm that in our telephone discussion on 30 August 2001 you intimated that you were dissatisfied with the management of the Gibson Motor Sport Team ("the Team") by Fred Gibson.
Naturally Lowndes is concerned at both the solvency issues and the management issue and has instructed us to seek from you further clarification in respect of both issues. We seek your response to the following questions by return:
You will be aware that representations were made to Lowndes in the course of negotiating the Driver Agreement dated 4 January 2001 with RPM that Fred Gibson would not only act as Team Principal and be actively involved in the management of the Team but that in effect he would 'buy back' the Team, including its plant and equipment, from Mr Dumbrell. A search at ASIC evidences that whilst Mr Gibson was a director of RPM on 12 December 2000 at the time of these representations he is no longer a director and does not appear at any stage to have been a shareholder. Would you please confirm that you do not hold your shareholding in RPM as nominee for and on behalf of Mr Gibson or in any other capacity on his behalf.
We understand that notwithstanding a letter from Ford to Mr Gibson dated 18 December 2000 in his capacity as proprietor of the "Fred Gibson Racing Team" and the subsequent payment of instalments of sponsorship moneys by Ford to FC Gibson Pty Ltd, it may be contended by RPM that Ford in fact entered into a contract with RPM in respect of sponsorship of the Fred Gibson Racing Team or the Team. Ms Allen advises us that Ford regards its contractual relationship as existing with Mr Gibson personally and not with RPM. Would you please confirm or otherwise our understanding of RPM's contention concerning the existence of a contract with Ford.
You will no doubt appreciate the extremely serious and damaging nature of the solvency, management and contractual issues noted above. In the event that these matters were to become public knowledge both Lowndes and Ford would suffer significant adverse effects to their interests, name, goodwill and reputation.
In the circumstances we would appreciate a response within 48 hours."
This letter was responded to by Mr Forbes' lawyers, Andersen Legal, by letter dated 12 September 2001 in which they concluded that there was no foundation for the perceived concerns and that RPM looked forward to its ongoing relationship with Mr Lowndes pursuant to the terms of the RPM driver agreement.
35 There were further discussions, meetings and letters passing between the parties until a meeting on 10 October 2001. In summary, at this meeting Mr Lowndes said that he wanted to remain with the team. Mr Forbes would not sell to Mr Watson and Mr Gibson. Mr Watson and Mr Gibson could not work with Mr Forbes and so, after this meeting, the team became a Ford-sponsored team in which Mr Lowndes drove and which was owned by Mr Forbes. Ultimately, Mr Watson resigned as Mr Lowndes' manager on 16 November 2001. On 23 November 2001, Mr Gibson spent his last full day in the workshop and on 21 December 2001, FCG sold its TEGA franchise to John Briggs Motorsport Pty Ltd. On 17 January 2002, RPM's solicitors (Andersen Legal) wrote to Mr Watson advising him that RPM does not require any ongoing services from him personally or from GMM. Mr Lowndes stayed with the team during the 2002 season. At the end of that season, Ford moved its sponsorship money to a new team called Ford Performance Racing and Mr Lowndes decided to go with Ford to the new team. Subsequently, there were proceedings in the Federal Court in which the plaintiffs in this proceeding were applicants (along with three other applicants) and the respondents were Mr Forbes, RPM and Bob Forbes Corporation Pty Ltd. After an 18 day trial concluding on 27 July 2004, judgment was given on 9 June 2005 in which it was held that the applicants were not entitled to the relief sought, other than some relief in respect of specified agreements.[27] In this proceeding, the plaintiffs contend that in the Federal Court proceeding, whilst they recovered some moneys, they suffered a net loss of $1,079,721.14.[28] They also claim to have suffered two other heads of loss which, together with the net loss suffered as a result of the Federal Court proceeding, make up the total claim referred to in paragraph 1 above.
36 The plaintiffs claim equitable compensation alleging breaches of fiduciary duties in relation to the retainer evidenced by the February 2001 retainer letter and the alleged 7 September 2001 retainer[29] and also generally from the dealings between the parties.[30] On day two of the trial, I asked the parties to summarise the issues to be decided in this proceeding. The plaintiffs summarised the issues as follows:
37 Whilst the defendants raised the question of whether the pleadings as they stood at the commencement of this trial entitled the plaintiffs to raise issue 4b, this matter was taken care of by an amendment[31] made to the plaintiff's further amended statement of claim by the addition of particular AA under paragraph 35 in the following terms:
"Between 30/8/01 and 10/10/01, the defendants failed to inform the plaintiffs that Forbes was not proposing to sell his interest in RPM."
38 The defendants summarised the issues to be decided in this proceeding as follows:
"1. Was there a retainer of Mr Battye by GMM or FCG on 9 February 2001, or was the retainer limited to RPM?
39 The defendants' list of issues was, not unexpectedly, premised on a narrower view of the pleadings than the plaintiffs' list. Further, some of the issues limit the matter for consideration to two of the four plaintiffs in circumstances where the plaintiffs' case as opened (and ultimately pleaded) in respect of those issues involves all four of them. Additionally, the defendants' list focused upon issues that they contend, if resolved in their favour, defeat the plaintiffs' claims. During the course of the trial, the defendants maintained that the way the plaintiffs were now putting their case was outside the pleadings. On day ten,[33] I gave leave to the plaintiffs to deliver a third amended statement of claim which conformed with the issues as stated by the plaintiffs during the course of their opening.[34] Whilst read literally, some of the questions in the plaintiffs' list of issues are too broad,[35] the plaintiffs' list provides the framework for deciding this proceeding. Having said that, the defendants' list provides a useful focus in respect of some of the issues.
40 Central to the resolution of this proceeding is a determination of the correctness or otherwise of the following allegations made by the plaintiffs in their pleadings:
(a) On or about 9 February 2001, Ebsworths were retained to act generally on behalf of GMM (described by the plaintiffs as "the Gibson Motorsport Merchandise retainer").
(b) On or about 9 February 2001, Ebsworths were retained to act generally on behalf of FCG (described by the plaintiffs as "the FC Gibson retainer").
(c) On 7 September 2001, Ebsworths were retained to act on behalf of Mr Watson and Mr Gibson in connection with a dispute between them and Mr Forbes and RPM (described by the plaintiffs as "the disputation advice retainer").
(d) During the period from March to October 2001, Ebsworths knew or ought to have known that the plaintiffs were relying and would rely upon advice given to them and their legal expertise generally so as to give rise to tortious duties of care.[36]
(e) During the period from March to October 2001, Ebsworths were in a fiduciary relationship with the plaintiffs and owed them fiduciary duties.
In order to deal with the issues this case raises for determination, it is now necessary to examine more closely the role and conduct of Mr Battye. However, before turning to the role and conduct of Mr Battye, it is appropriate at this point to make some observations about the main witnesses, Mr Watson, Mr Gibson and Mr Battye.
Mr Watson, Mr Gibson and Mr Battye as witnesses
41 Each of Mr Watson, Mr Gibson and Mr Battye gave their evidence in a straightforward fashion. To my observation, each of them attempted to give an honest and accurate account of events as recollected by them. As is the nature of cases like this, Mr Battye had the advantage of having file notes from which he could refresh his memory (albeit that some of the file notes were relatively brief). On the other hand, Mr Watson and Mr Gibson were forced to reconstruct events some years after they occurred and by reference to documents discovered or produced in the earlier Federal Court proceedings. This had the result of making their evidence (and in particular Mr Watson's evidence) appear from time to time to be a reconstruction. I do not mean to be critical about this. It was the inevitable consequence of the fact that this proceeding required them to give evidence of many conversations and meetings that now occurred more than seven years ago. Indeed, in answer to a question as to how he could remember conversations in the detail that he purports to remember them,[37] Mr Watson said:
"I spent a lot of time constructing my witness statement as accurately as I could remember, probably laboriously. I tried to piece it together and to reconstruct it faithfully."
Further, it should not be thought that Mr Battye's evidence did not involve elements of reconstruction. Inevitably, all of the major witnesses to the conversations and meetings that occurred in 2000 and 2001 had to reconstruct matters to some extent. However, the evidence of Mr Watson appears to me to involve significantly more reconstruction than the evidence of Mr Battye. Generally speaking, Mr Battye either had the benefit of a file note or was prepared to concede that he did not have a specific recollection of matters outside his file notes.
42 It was apparent during the evidence of Mr Watson that in order to give detailed evidence of the large number of conversations and meetings, he had done a lot of work to reconstruct and recollect the events that occurred as best as he was able. It was not suggested that Mr Watson had a memory for dates and conversations that was superior to what might have been expected. Nevertheless, without any file notes to speak of,[38] he purported to give detailed evidence of the various conversations and meetings. His evidence appeared to have a "learned" quality about it. Again, I make no criticism about this, as I suspect it is simply a product of the amount of work Mr Watson has done over the years to put himself in the best position he can put himself in for the purpose of giving detailed and accurate evidence.[39] I have no doubt that Mr Watson believes that the detail of his evidence is accurate. However, because his evidence relies so heavily upon what is a substantial reconstruction, it is necessary to scrutinise it carefully by reference to the contemporaneous documents that are in evidence.
43 Similar comments can be made in respect of Mr Gibson's evidence. However, in evidence Mr Gibson was more willing to abandon his recollection if it was shown to be inconsistent with a contemporaneous document or record. In the end, the true contest was largely between Mr Watson and Mr Battye as to Mr Battye's role and involvement. It was Mr Watson who had the greater contact with Mr Battye. That said, there were some aspects of Mr Watson's and Mr Gibson's evidence that caused me to have concerns about their accuracy. Examples include:
(a) The evidence of Mr Watson that Mr Battye sought to conceal a meeting on 14 September 2001 from him,[40] which was clearly wrong.
(b) Mr Watson's evidence that it was not until 26 December 2001 that he realised for the first time that Mr Battye was acting against his interests.[41] This evidence is very improbable, having regard to the dealings between the parties between 10 October and 26 December 2001. For example, see the email from Mr Battye to Mr Watson on 18 October 2001[42] in which Mr Watson's second sentence begins with the words "without prejudice" and in which Mr Watson refers to a deed of release sent to him by Mr Battye as "not representative of the whole picture". In this email, Mr Watson also states that he is not interested in "a bun fight about the whole thing".
(c) The circumstances in which the three corrections came to be lodged to the annual return of GMM.[43]
(d) The significant alterations made by Mr Gibson to paragraphs 148 to 150 of his principal witness statement.[44]
(e) The significant misrepresentation of Mr Gibson's true position as to advisers contained in paragraph 56 of his principal witness statement.[45]
44 Whilst Mr Battye had the benefit of his file notes, he freely and fairly conceded that in many instances his diary notes did not necessary prompt or refresh his memory - but rather he presumed that, as he had made the diary notes, they were accurate at the time.[46] Further, in respect of his evidence, Mr Battye acknowledged that a difficulty he had was that this case involves events that happened a long time ago and, having seen so many documents, read the transcript and sat with is lawyers for a month or more poring over documents and preparing his witness statement, the difficulty he had was in recalling what was in his mind at the time and what he now might think was in his mind. In this respect, Mr Battye said that he was "not confident that I can distil the two in respect of these matters".[47] In Mr Battye's favour was the way in which he answered questions in cross-examination. He was precise. He promptly conceded matters about which he had no recollection. He did not embellish his answers and he did not take opportunities given to him to give answers that would have been more favourable to his case. He made appropriate concessions. For example, when asked whether it was inappropriate for him not to have mentioned that his belief in 9 February 2001 was that his client was RPM, he said that in hindsight he supposed it was - but there was not any doubt in his mind as to who his client was when he wrote the February 2001 retainer letter.[48]
"[I]t is open to the court to find that much of Battye's evidence is not credible. There are areas of contradiction between the evidence given by Battye and that given by his client Lowndes such that could lead to the inference that Battye was not being candid with the court."
Particular areas of what are said to be contradictions between Mr Battye's evidence and Mr Lowndes' evidence were then identified. I have looked at each of these matters. None of them leads me to infer what it is said that I "could" infer - namely that Mr Battye was not being candid with the court. Such discrepancies as exist between Mr Battye's evidence and Mr Lowndes' evidence are easily explained by the effluxion of time and both witnesses doing their best to give an accurate account of what occurred during 2000 and 2001.
46 Whilst there are many differences between the account of Mr Watson and the account of Mr Battye in respect of individual meetings and conversations, a possible explanation for some of the differences is the different backgrounds of the two parties. Central to Mr Battye's evidence (and the defendants' case) is that when acting for "the team" or "Gibson Motorsport", Mr Battye contends that he was acting for one entity, RPM. Central to Mr Watson's evidence (and the plaintiffs' case) is that references to "the team" are (as he has always understood them for many years in the motor racing industry) references to all of the entities involved in racing the race cars, including their employees.[51] Thus, Mr Watson's evidence as to his meetings and conversations with Mr Battye start from the premise that everything being said about the team is being said about a group of entities and people, whereas Mr Battye's recollections of the various conversations and meetings starts from the proposition that he was first Mr Lowndes' lawyer and then (subject to any conflict that might arise) RPM's lawyer. Having made these points, for the reasons given above, where there is a dispute between Mr Battye on the one hand and Mr Watson and Mr Gibson on the other hand concerning what was said in conversations or at meetings, I prefer the evidence of Mr Battye. With these matters in mind, I turn now to consider the role and conduct of Mr Battye.
47 Mr Battye's first involvement in this matter was on 24 May 2000 when he received a telephone call from Mr Watson. Mr Watson told Mr Battye that he had been referred to Mr Battye by Mr Daniel Butler, who was Mr Watson's lawyer in a proceeding relating to the Ford Tickford Racing Team. Mr Watson told Mr Battye that he was advising Mr Lowndes in relation to a number of issues, and he asked whether Mr Battye would accept instructions. Mr Battye declined to act on behalf of Mr Watson, but said that he would be prepared to accept instructions from Mr Lowndes. A file was opened in the name of Mr Lowndes and, shortly thereafter, Mr Battye met in conference with Mr Watson and Mr and Mrs Lowndes. In the following months, Mr Battye acted as Mr Lowndes' lawyer. Specifically, Mr Battye provided legal advice to Mr Lowndes in connection with the TWR management agreement and Mr Lowndes' driving arrangements with HRT. During this period, Mr Battye frequently communicated with Mr Watson and received instructions from him on behalf of Mr Lowndes.
48 In approximately August 2000, Ebsworth & Ebsworth retained Mr Watson. The purpose of the retainer is in dispute. Mr Watson contends that he was retained by Ebsworth & Ebsworth so that he could be covered by the firm's indemnity insurance and/or so that communications could be clothed with legal professional privilege. Mr Battye asserts that the purpose of the retainer was to seek Mr Watson's assistance in relation to sponsorship and driving opportunities for Mr Lowndes. Mr Lowndes has a recollection that the retainer of Mr Watson had "something to do with the fact that Mr Watson was at risk of being sued because of what he was doing" whilst the TWR management agreement was on foot.[52] In the end, it is not necessary to resolve this dispute. However, it is more likely that Mr Battye's explanation is the correct one. It is doubtful how the stated purpose identified by Mr Watson could be achieved and even more doubtful as to why Mr Battye would want to attempt to clothe communications with Mr Watson with legal professional privilege[53] and/or bring him under the umbrella of the firm's indemnity insurance.[54] Further, Mr Battye's evidence on this issue is corroborated by the letter he wrote to Browne & Co (who acted for TWR) on 5 September 2000.[55]
49 On 6 September 2000, Mr Watson received a letter of demand from TWR in which it was asserted that it had come to the attention of TWR that Mr Watson had or intended to approach "third parties for the driving and other services of Craig Lowndes". Mr Watson forwarded this letter to Mr Battye. Further letters were received by Mr Watson from Browne & Co, culminating in a letter dated 6 November 2000 in which Browne & Co threatened to commence proceedings against Mr Watson on behalf of their client, TWR. Eventually, Mr Battye referred Mr Watson to Mr Patrick McCabe of McCabe's Solicitors for Mr McCabe to act on Mr Watson's behalf in relation to the demands being made by TWR. This was done because of the obvious conflict of interest in Mr Battye (or Ebsworth & Ebsworth) acting on behalf of both Mr Lowndes and Mr Watson. Mr Battye never acted for Mr Watson in relation to this matter.
50 According to Mr Battye, in August 2000, he was introduced by Mr Watson to Mr Gibson. Mr Watson told Mr Battye that Mr Gibson was a person knowledgeable in the motor racing industry and would be able to provide advice on the options available to Mr Lowndes for the 2001 season.[56] Later in 2000, Mr Gibson was put forward to Mr Battye as a person who might manage a third car driven by Mr Lowndes for HRT - an option which ultimately did not proceed. Various options were conveyed during this time to Mr Battye concerning teams with which Mr Lowndes might drive in 2001. It is not necessary to set out the detail of these options.
51 On 22 November 2000, there was a meeting between Mr Battye, Mr Watson and Mr Polites and Mr Marsden of Ford. During the meeting there was discussion about the terms on which Mr Lowndes might enter into an agreement with Ford to drive a Ford racing car during the 2001 season. On 27 November 2000, Mr Battye and Mr Watson had a telephone conversation concerning Mr Lowndes' options for the 2001 season in which Mr Watson expressed the opinion that he thought that Mr Gibson was the best option as team principal with Ford as the sponsor and Mr Lowndes as the driver. There were other discussions concerning the terms on which Mr Lowndes might be released from his agreement with TWR. It is not necessary to refer to the detail of those discussions.
52 Mr Watson asserts that it was in a meeting in late November 2000 at the offices of Ebsworth & Ebsworth that he introduced Mr Gibson to Mr Battye. Mr Battye has no record of this meeting and believes that it did not occur. It is unnecessary to resolve this issue. All that needs be said is that by late November 2000, Mr Battye had been introduced to Mr Gibson (Mr Battye's recollection being that this introduction occurred in approximately August 2000). In any event, at this time the parties were moving forward towards a team run by Mr Gibson, sponsored by Ford and in which Mr Lowndes was the principal driver. There was then a meeting on 29 November 2000 between Mr Battye, Mr Watson and Mr Marsden of Ford. I have dealt with this meeting above.
53 On 5 December 2000, there was a meeting between Mr Battye, Mr Watson and Mr Gibson at which the scenario of Mr Lowndes driving a team managed by Mr Gibson was again discussed. Mr Battye was told that Mr Gibson would be buying back his old team from Mr Dumbrell. Mr Battye asked who would be handling the purchase of the team, as he would need to speak to them about the arrangements for a driver agreement between the team and Mr Lowndes. Mr Battye was told that Mr Neil Falconer of White Cleland would be acting on Mr Gibson's behalf.
54 There were a number of conversations between Mr Watson and Mr Battye during December 2000. There is a dispute between them as to the detail of these conversations. Broadly speaking, Mr Watson alleges that he kept Mr Battye updated with the detail of the various meetings that he attended, including the 7 December meeting. Mr Battye's recollection (supported by his file notes and by an absence of file notes in respect of some conversations alleged by Mr Watson) is that he was not advised of all of the detail that Mr Watson now asserts, and specifically that he was not advised on 7 December of the meeting or the discussions which took place on that day. This was a very busy period for Mr Watson. I find it is more likely that, with all that was going on during this period, he did not inform Mr Battye in the detail that he now asserts. Mr Battye's account of the conversations he had with Mr Watson during this period is more likely to be correct. It follows that I do not accept Mr Watson's assertion that he told Mr Battye about Mr Forbes on the evening of 7 December. I accept Mr Battye's statement that the first time he heard Mr Forbes' name was on 11 December 2000 when he was told by Mr Falconer that Mr Falconer was acting for Mr Gibson and Mr Robert Forbes. At that time, Mr Battye did not ascribe any significance to Mr Falconer's statement that he was also acting for Mr Forbes because he did not know who Mr Forbes was or what his association was with the team.
55 In December 2000, Mr Battye prepared a draft of a driver agreement between Mr Lowndes, Craig Lowndes Pty Ltd and Fred Gibson Motorsport ("FGM"). There was discussion between Mr Battye, Mr Lowndes and Mr Watson as to the terms of the sponsorship agreement between Ford and Mr Lowndes. On 18 December 2000, Mr Battye was told by Mr Falconer that the entity purchasing the racing team from Mr Dumbrell was "ACN 095 359 041 Pty Ltd" - which later became RPM. Mr Battye believed at that stage that RPM was a company controlled by Mr Gibson. Again, I do not accept the evidence of Mr Watson that during this period he told Mr Battye about Mr Forbes and Mr Forbes' involvement in the structure. I accept Mr Battye's evidence that it was some time after Mr Forbes' name was mentioned by Mr Falconer that he had a conversation with Mr Watson during which he asked who Mr Forbes was. Whilst nothing of any great moment turns on the issue, it is clear that, in any event, by 4 January 2001, Mr Battye had been told that Mr Forbes was providing financial backing to allow the team to be purchased from Mr Dumbrell. At some time after 19 December 2000, Mr Battye was told that the sole director of RPM was now Mr Forbes, but that Mr Gibson would nonetheless act as team principal.
56 Up until 2 February 2001, Mr Battye only acted for Mr Lowndes.[57] On 2 February 2001, Mr Watson telephoned Mr Battye and asked whether he would be prepared to act for "the team". Whilst it is common ground that this conversation occurred, there is a dispute between Mr Battye and Mr Watson as to its ambit and, specifically, what was meant by the expression "the team". Both Mr Watson and Mr Battye agree that the possibility of a conflict of interest was raised by Mr Battye, being a conflict because of his position as Mr Lowndes' lawyer. Mr Battye's evidence is that he did not ask Mr Watson what he meant by "the team". The only company that he was aware of that was "the team" was RPM (a matter about which I will say more below). Mr Battye's evidence was that he had not heard of GMM at this time and that, by referring to "the team", he understood this to be a request that he act on behalf of RPM.
57 Mr Watson's evidence was that, during this conversation, he asked "Philip, would it be appropriate if you represented us so you could put it all together?"[58] and that in his discussion with Mr Battye "us" was "the whole consortium". Mr Watson's recollection is that he asked Mr Battye to deal with all the contracts that were necessary for the different components that made up the team and that contracts needed to be developed for sponsors going forward. There was discussion about the Ford contract and that "sponsor templates" were needed before negotiations with sponsors could be concluded. Mr Watson's evidence was "I spoke about a myriad of things that we needed to do at that point in time". Mr Watson recollects that he told Mr Battye that GMM had been incorporated.[59] However, at best, Mr Watson can only have told Mr Battye that he had given instructions on 24 January 2001 to incorporate GMM as GMM was not incorporated until 6 February 2001. This evidence was given orally by Mr Watson in substitution for paragraphs 88 and 89 of his principal witness statement.[60] It may be that Mr Watson's evidence concerning telling Mr Battye about the incorporation of GMM was meant to refer to a conversation that occurred on 6 February.[61] Equally, it may refer to a conversation held subsequently at the workshop. In any event, if Mr Watson did say on 2 February that GMM had been incorporated, this was wrong.[62]
58 Subsequently, Mr Battye discussed the matter with Mr Lowndes and Mr Battye was able to accept a retainer for "the team". The February 2001 retainer letter was then sent on 9 February. Before examining further Mr Battye's role and conduct, it is necessary to resolve the dispute about the meaning of "the team". Whilst there is dispute between the parties as to the detail of a myriad of meetings and conversations between 9 February 2001 and the end of October 2001, a great deal of this falls away once the meaning of "the team" is resolved. For example, Mr Watson's evidence is that on some occasions Mr Battye used the words "the other entities". This is said to support a conclusion that "the team" encompassed a number of entities. However, whilst those are the words that Mr Watson may have heard, it may be that Mr Battye said "the other entity's", referring only to RPM.[63]
59 The first relevant use of the expression "the team" in a document is to be found in Ford's letter to Mr Gibson of 18 December 2000. In that letter, the team is described as "the Fred Gibson Racing Team" (although Mr Gibson crossed those words out in the letter and replaced them with Gibson Motor Sport). Ford offers sponsorship on the basis that Mr Lowndes is the team's principal driver and the team only races Ford vehicles. In consideration of an agreement to the above conditions, Ford agrees to pay the team certain sponsorship amounts. Precisely what is meant by "the team" in this letter cannot be ascertained from the terms of the letter. The arrangement was at this time a loose one which Ford contemplated would be more precisely defined when a more detailed agreement was drawn up.
60 The next document to look at is the Ford driver agreement. In that document, the expression "Team" is defined to mean "a Team which operates the Racing Car in the Championship". Whilst the defendants contend that this must be a reference to RPM as it was the entity which would operate Mr Lowndes' car in races, the issue is disputable. Looking at this document alone, references to the "team" could encompass an entity or entities other than RPM. The ambiguity of the term in this document is caused by the fact that whilst Mr Watson, Mr Gibson and Mr Forbes believed they were all heading in the one direction, they were still a long way from binding agreements with precise terms specifying the detail of their arrangements.
61 The next document to be considered is the RPM driver agreement. In this document, "Team" is defined to mean "Gibson Motorsport ("FGM") or ACN as may be appropriate". Again, there is an ambiguity in the definition which was the result of the fact that definitive agreements had not then been put in place. The defendants contend that this document more clearly defines the team as RPM than those documents which preceded it.[64] However, the reference to Gibson Motorsport clouds the issue. At the time the RPM driver agreement was executed (4 January 2001), the business name Gibson Motorsport was owned by FCG and a consent to RPM using the business name had not then been executed.[65] Whilst the plaintiffs maintain that the expression "Team" in this document encompasses the enterprise or the consortium, from the definition it is apparent that the expression only encompasses either RPM or whoever is entitled to use the business name Gibson Motorsport. That is, references to the "Team" in this document are references either to RPM or FCG, but not both and not GMM (which at this stage was yet to be incorporated).
62 I turn now to consider the February 2001 retainer letter. The first sentence of the letter confirms Ebsworth's retainer to act on behalf of Gibson Motorsport. At that time, the entity permitted to use the business name Gibson Motorsport was RPM. In the second paragraph of the letter, Mr Battye makes reference to a potential conflict between acting for Mr Lowndes and acting for Gibson Motorsport - the party with whom Mr Lowndes has contracted in the RPM driver agreement. The references to Gibson Motorsport in the letter are clearly references to RPM. As the plaintiffs would have it, the terms Gibson Motorsport and the team were sometimes used interchangeably and Gibson Motorsport meant the team and the team meant Gibson Motorsport. The reference to "the team" in the second paragraph of the letter does not expand the terms of the retainer. On its face, the February 2001 retainer letter confirmed that Ebsworths would act for RPM. I will deal below with the question of whether, notwithstanding the terms of the letter, Mr Battye actually agreed to act for additional parties, and specifically the plaintiffs in this proceeding.
63 Mr Watson was cross-examined about the use of the expression "the team" in some of the documents. From time to time he appeared to be conceding that on some occasions a reference to the team was a reference to RPM. For example, in the letter of 1 March 2001, which he sent to Mr Gibson,[66] there is a reference to "sponsorship income generated for the Team". Mr Watson was asked whether the reference to "team" was to the body that received the sponsorship income, to which he answered yes. He was then asked: "That was RPM?", to which he answered "Yes. All funds went to RPM."[67] Finally on that issue he was asked the following question and gave the following answer:
"That's what you meant by 'the team' in that sentence?---It was a word that embraced our whole thing but in this instance it was talking about 'the team', where the money was going to fund the building of the race cars."[68]
64 Whilst Mr Watson and Mr Gibson may have meant to encompass various entities and people from time to time when they used the word "team" - and in particular in day-to-day conversations, there is nothing in the written material to suggest that Mr Battye understood that their references to "the team" encompassed more than RPM in a way that made him the lawyer for entities and people additional to RPM. The plaintiffs' case on this issue was not assisted by the lack of precision the use of the word "team" involved. Specifically, at one point in his evidence Mr Watson appeared to limit the team to the three companies FCG, RPM and GMM.[69] However, at other times Mr Watson said that the team was a six person entity (three companies and three individuals) together with all the staff.[70] It cannot be realistically suggested (and it was not suggested) that in acting for the team Mr Battye undertook to act for all of the employees of FCG, GMM and RPM.[71] Further, it is not immediately apparent why, if the team encompasses all the employees, Mr Battye should (in the absence of an express arrangement) have regarded himself as acting for only some parts of the team, being either the three companies or the three companies together with the three principals. Whilst the meaning of the expression "the team" as at February 2001 might not be governed by what was said later in the year, it is relevant to note that the plaintiffs' case was not assisted by later communications from Mr Watson to Mr Battye in which the team was referred to separately from GMM. For example, in Mr Watson's email to Mr Battye of 18 October 2001[72] Mr Watson states: "I want the best for Craig and the best for Ford, the Team, the merchandising company and my people". There being no written retainer stating that Mr Battye acted for the plaintiffs in this case (my conclusion in respect of the February 2001 retainer letter being that it was a retainer letter in respect of RPM only), it will be necessary to look at the conversations and conduct of Mr Battye that the plaintiffs say demonstrates he was in any event acting for them. Before dealing with those matters, I need to deal with the meaning of "Gibson Motorsport".
65 Whilst being cross-examined about the February 2001 retainer letter, Mr Watson was asked the question "There is no question that you treated Gibson Motorsport as the trading name for RPM?".[73] Mr Watson answered: "I treated it as the trading name for RPM and others, yes". As at 9 February 2001, RPM was the entity trading as Gibson Motorsport pursuant to the consent executed on 30 January 2001. References at and about that time to Gibson Motorsport in the relevant documents were (for the reasons given above) references to RPM.
Conversations with Mr Battye about acting for the team
66 Once it is accepted that Mr Watson may well have used the expression "the team" to encompass a wider group of entities than RPM but that this was never expressly conveyed to Mr Battye, who assumed that references to the team were references to RPM, much of the differences between the parties as to the precise terms of conversations falls away and does not require further resolution. In paragraph 55 of his principal witness statement,[74] Mr Gibson stated:
"In late January 2001, Mr Watson, Mr Forbes and I discussed the need for the entities within the team to appoint a solicitor. It was agreed that due to Mr Battye's knowledge of the operation that he would be the most suitable person to act as the solicitor for the team and the entities that made up the team. Mr Watson was to contact Mr Battye to discuss his appointment."
Mr Battye's evidence is that he was not asked to act for "the team and the entities that made up the team" and that had he been asked to do so, he would have immediately asked for the entities concerned to be identified. I accept Mr Battye's evidence. Further, it is notable that if references to the team were indeed references to the entities that were said to make up the team, then why would the principals talk in terms of Mr Battye acting for "the team and the entities that made up the team".
67 Similarly, I reject the plaintiffs' evidence as to statements made later in 2001 to the effect "you are our lawyer". Whilst I have little doubt that, seven years later, the plaintiffs (and in particular Mr Watson) believe that statements of this kind were made, I am satisfied that they are a reconstruction of what might have been in Mr Watson's mind at the time but were not actually said to Mr Battye. I turn now to consider the question of, notwithstanding the absence of any express retainer in or around February 2001, whether Mr Battye, by his conduct or involvement in matters, became the lawyer for the plaintiffs (or any of them) in or after February 2001. In order to look at this issue, it is necessary to examine further the conduct and involvement of Mr Battye from February 2001.
Conduct and involvement of Mr Battye from February 2001
68 One thing is not in dispute between the parties. In acting in this matter, Mr Battye was involved in a large number of meetings and telephone conversations during 2000 and 2001. Exhibit DD discloses no less than 175 file notes of conversations and meetings made by Mr Battye between the start of February 2001 and 10 October 2001. Whilst I have noted the brevity of some of Mr Battye's file notes, others are lengthy and detailed - dealing with matters that were discussed over a period of hours on some occasions. It is neither productive nor necessary for the purposes of deciding this case to set out the detail of every meeting and conversation. Similarly, I was taken to a significant amount of correspondence during the course of the trial. It is not necessary to set out all of that correspondence. What follows below is sufficient to define the parameters of the relationship between the plaintiffs and the defendants.
69 On 12 February 2001, Mr Gibson signed the February 2001 retainer letter. On that day, Mr Battye received a faxed copy of the Ford sponsorship contract as described above. On 14 February 2001, Mr Battye had a conference with Mr Gibson and Mr Watson at the workshop premises in Dandenong. At this meeting, Mr Battye asked for an explanation of the operations of Gibson Motorsport. Mr Battye was told that FCG had purchased the franchise previously owned by Mr Dumbrell and that FCG also owned the building in which the workshop was located. Mr Forbes had purchased the business of the race team via RPM. RPM owned all the machinery in the workshop and was licensed to trade as Gibson Motorsport. Mr Battye was told that there was no contract between Mr Gibson and Mr Forbes, and he said that he thought a contract should be put in place. Mr Gibson said that he would provide Mr Battye with instructions to prepare a contract. Mr Watson told Mr Battye that he (Mr Watson) was responsible for sponsorship and merchandising, and that this would be done using GMM. There was discussion concerning the need for an agreement between RPM and GMM, and Mr Battye asked Mr Watson to provide him with instructions to draw the agreement. Other things were discussed, including the Ford sponsorship contract. Mr Battye said that the contract with Ford would need to be in the name of RPM because it was the entity that had contracted with Mr Lowndes. There was discussion about the implications of telling Ford as to Mr Forbes' involvement with the team. Mr Battye denies saying at the meeting that he would have a look at the Ford sponsorship contract in closer detail and advise. His account (which I accept) is that during the meeting he said he would wait for Mr Gibson and Mr Watson to confirm that the issue with Ford had been resolved or that they were happy for him to raise the issue with Ford. As I have said above, insofar as there is a conflict between Mr Battye's recollection on the one hand, and the recollection of Mr Watson and Mr Gibson on the other hand in relation to meetings and conversations (including this meeting), I prefer the evidence of Mr Battye. His evidence is supported by his file notes and the other contemporaneous documents, and was not as much of a reconstruction as the evidence of Mr Watson and Mr Gibson.
70 During the meeting, there was discussion concerning employment contracts. Mr Battye recommended there be contracts of employment with key members of staff. There was agreement concerning Mr Battye drafting those contracts. Mr Battye explained the information he would require and asked for this to be provided to him. It is common ground that these instructions were never provided. It is Mr Battye's position (which I accept) that neither at this meeting nor any other meeting was he told that "the team" included FCG or GMM. Further, whilst there might have been discussion at this meeting as to providing Mr Battye with instructions to enable him to draft and/or finalise agreements between RPM and Mr Gibson, RPM and Mr Watson, RPM and GMM, sponsorship agreements and employment agreements, these instructions were never provided.
71 On 22 February 2001, Mr Battye wrote to Mr Gibson addressing his letter to Gibson Motorsport. In the letter, Mr Battye confirmed his advice in relation to a sponsorship agreement that had been entered into with K-Mart when the team was owned by Mr Dumbrell. In particular, Mr Battye confirmed a telephone discussion that occurred on 20 February, noting that:
(a) A contract between Gibson Motorsport and Mr Watson needed to be drafted and signed as soon as possible.
(b) Employment contracts with each of the employees of Gibson Motorsport needed to be prepared and signed as soon as possible.
(c) A driving contract between Gibson Motorsport and Mr Neil Crompton needed to be drawn and signed as soon as possible.
(d) A particular sponsorship contract needed to be drawn and signed as soon as possible.
Additionally, Mr Battye noted that he was awaiting details from Mr Watson and Mr Gibson to allow these matters to be finalised. Further, Mr Battye noted that there were contractual issues which needed to be discussed between Mr Gibson and Mr Forbes and that a conference needed to be arranged.[75]
72 In February and March 2001, Mr Watson was involved on behalf of GMM in the negotiation of an agreement with Biante Model Cars to produce a range of collector model race cars depicting Gibson Motorsport and Mr Lowndes. Additionally, Mr Watson had dealings with Southern Model Supplies. Southern Model Supplies had previously had a relationship with Bronzco. On 6 March 2001, Mr Watson forwarded a fax from Mr Rob Thompson of Southern Models to Mr Battye for his advice. On 12 March 2001, Mr Watson referred to Mr Battye an issue where Southern Models were now asserting an existing arrangement with Gibson Motorsport. This culminated in a letter being sent by Mr Battye to Mr Thompson explaining that Gibson Motorsport had no agreement with Southern Models. On 20 March 2001, there was the meeting between Mr Gibson, Mr Watson and Mr Battye at the workshop in Dandenong, to which I have already referred. At this meeting, Mr Gibson told Mr Battye that he would not be given any instructions in relation to the Ford sponsorship agreement or the employment contracts until Mr Gibson had resolved ownership issues with Mr Forbes.[76]
73 On 4 April 2001, Mr Battye sent a letter to Mr Watson confirming instructions received on 27 March 2001 in respect of a sponsorship by Mobil Oil Australia Pty Ltd. In the letter, Mr Battye enclosed a copy of a letter to Mobil.[77] On the same day, Mr Battye sent a letter to Mr Gibson addressed at Gibson Motorsport. In the letter, Mr Battye confirmed -
"... our several conferences to discuss team issues and in particular:
(1) Clarifying the 'ownership' issues with Bob Forbes.
(2) Finalising the contact (sic contract) with Ford.
(3) Preparation and execution of employment contracts with your staff."
"Until such time as the issues concerning Bob Forbes are involved (sic resolved) it is not possible to proceed with either of the above remaining matters. Further, sponsorship contracts and the contract between the team and the merchandising company cannot proceed. We understand from discussions with Noel Watson that the most likely scenario will be a 'buy out' of Bob's interest. We await your further advice in that regard at your earliest convenience."[78]
74 On 2 May 2001, Mr Hall sent to Mr Battye a document headed "Draft agreement and notes to Philip Battye, Gibson Motorsport Merchandise and TNB" concerning, inter alia, the creation of a Gibson Motorsport website.[79] On 11 May 2001, Mr Battye emailed to Mr Hall a draft website agreement between GMM and TNB Holdings Pty Ltd.[80] On 21 May 2001, Mr Battye emailed Mr Watson a draft of the website agreement between GMM and TNB. On 28 May 2001, Mr Battye emailed Mr Watson a copy of a letter from Phillips Fox concerning the website contract.
75 On 12 July 2001, Ebsworths sent a tax invoice to GMM for work done between 1 May 2001 and 6 July 2001.[81] The tax invoice noted that the partner responsible and the service provider was Mr Battye.[82] It gave a line by line account of the work performed for GMM, including telephone attendances on Mr Hall, drafting and settling the website agreement and telephone attendances on Mr Watson and Phillips Fox.
76 On 13 July 2001, Mr Watson sent a letter to Mr Forbes concerning the buy-out proposal.[83] Mr Battye was shown a draft of this letter before it was sent and suggested some alterations to it before it was sent.
77 On 17 July 2001, Mr Battye sent a letter to Mr Watson addressed to GMM concerning a draft of the proposed terms and conditions of a contract with eBay.[84] In the letter, Mr Battye noted that "Presumably the contract will be with GMM rather than RPM". In July, there were a number of communications between Mr Battye and Mr Hall concerning the eBay contract.
78 On 1 August 2001, Mr Hall sent Mr Battye an email concerning the planned launch of the Gibson Motorsport Fan Club.[85] Mr Hall stated to Mr Battye that "We need to be certain that there will be no problem for us using the name G Force as our fan club name, we will probably use the phrase G Force - The Official Fan Club of Gibson Motorsport". Mr Battye was asked: "Please advise your thoughts at your earliest convenience as we need to start ordering merchandise etc". Underneath Mr Hall's name at the end of the email was the name Noel Watson (Aust) Pty Ltd. On 2 August 2001, Mr Battye emailed Mr Hall, stating: "If as you say there are any number of similar names then there can be no 'certainty' as you require in relation to the use of the name. In fact the team may expose itself to proceedings by another or other users of the name".
79 After a number of further communications concerning the eBay contract, on 8 August 2001, Mr Battye sent Mr Hall an email in which he stated that he had reviewed the contract as amended by eBay, noted that apart from an indemnity provision eBay had accepted amendments drawn by him, and recommended that the contract be accepted and signed. In the email, Mr Battye concluded:
"Accordingly, I confirm that I have no difficulties with the contract as amended being executed by GMM. If you need to please call to discuss."
80 On 17 August 2001, Mr Battye sent letters of demand to TomFoolery Holdings Pty Ltd and The Poster Guys in relation to the supplying and selling of images and posters without Gibson Motorsport's permission. These letters were sent after communications between Mr Battye and Mr Watson. In one of those communications, Mr Battye stated to Mr Watson:[86] "Am I instructed on behalf of you and GMM to write ... explaining ... [the] breach of the team's IP, breach of the Trade Practices Act etc ...?".
81 On 20 August 2001, Mr Battye had a meeting with Mr Lowndes. Mr Lowndes told Mr Battye that he wished to assist Mr Gibson to buy back the team from Mr Forbes. Mr Lowndes expressed some concern as to whether or not he was getting value for money from Mr Watson as his manager. He queried whether some of the sponsorship opportunities were in fact opportunities sourced by Mr Watson. For example, Mr Lowndes said that he thought in fact the McDonald's lead had come from either Mr Gibson or Ford, rather than Mr Watson.[87] At this time, Mr Lowndes remained comfortable with Mr Gibson buying back the team and instructed Mr Battye to continue to assist in that process.
82 On 29 August 2001, Mr Battye received a telephone call from Ms Allen of Ford, who told him that Allens Arthur Robinson ("Allens") had told her that Allens had been retained by Mr Forbes to help him regularise the management of the team and to minimise the risk to Mr Lowndes and the sponsorship. It was at this time that Mr Battye had "cause for pause" and to think that his position might need to change in that he might not be able to act for RPM.[88] Following his conversation with Ms Allen, Mr Battye reported the contents of the conversation to Mr Watson. Mr Watson confirmed that Mr Gibson had told Mr Polites of the true position concerning the ownership of the team.
83 On 30 August 2001, Mr Watson telephoned Mr Battye and asked him to find out what was going on with the buy-out negotiations. Mr Watson said that he and Mr Gibson were concerned that Mr Forbes was no longer prepared to sell his interest in RPM to them. Shortly after this conversation, Mr Battye telephoned Mr Forbes. Mr Forbes told Mr Battye that he was concerned about a number of issues relating to the management of the team and that, whilst at the end of May he had told Mr Gibson and Mr Watson that they could buy the team, this had to occur by 30 June 2001 (and it had not). There was further discussion between Mr Battye and Mr Forbes, and ultimately Mr Forbes requested Mr Battye not to detail the nature of their conversation to Mr Watson or Mr Gibson.
84 Later on the same day, there was a conversation between Mr Watson and Mr Battye. Mr Battye told Mr Watson that at Mr Forbes' request, the details of his conversation with Mr Forbes were confidential. However, Mr Battye told Mr Watson that Mr Forbes had retained Allens. Whilst Mr Battye believes that he also told Mr Watson that there was now a potential for a conflict of interest to arise between the interests of Mr Lowndes and the interests of the team, this statement is not recorded in Mr Battye's file note of this conversation.[89] In the circumstances I am not prepared to find that Mr Battye said in this conversation that there was a potential for a conflict to arise. Similarly, I reject Mr Watson's evidence that he said any words to the effect "What is going on, you are our lawyer?".
85 On 31 August 2001, there was a further discussion between Mr Watson and Mr Battye. In this conversation, Mr Battye repeated what he had told Mr Watson the day before, that he could not discuss his conversation with Mr Forbes with him. There was discussion concerning Mr Forbes' agenda. There was discussion concerning the timing of an approach to Mr Forbes. Again, Mr Battye said that he could not comment. Mr Battye then told Mr Watson that there was now a conflict of interest with Ebsworths acting on behalf of Mr Lowndes and the team, and that he was therefore unable to advise Mr Watson or Mr Gibson concerning the buy-out.[90] Mr Battye said that he must now act solely for Mr Lowndes. Mr Battye was cross-examined to the effect that whatever he said about a conflict of interest in his conversation with Mr Watson, he did not have a similar conversation with Mr Gibson. It seemed to be suggested that whatever version of this conversation was to be preferred, Mr Battye had not terminated any retainer with the Gibson interests and that Mr Gibson would have been entitled to continue to view Mr Battye as his solicitor. There are two answers to this proposition:
(a) First, there was a telephone conversation between Mr Watson and Mr Gibson shortly after this conversation and it is very likely that Mr Watson told Mr Gibson what Mr Battye had said to him.
(b) Secondly, it was Mr Gibson's practice to rely on Mr Watson to liaise with Mr Battye on his behalf. As Mr Gibson describes it, "Mr Watson would inform me on conversations he had with Mr Battye, and advice Mr Battye had given, when this advice would affect me".[91]
86 On 4 September 2001, Mr Gibson telephoned Mr Battye and advised him of an agreement with Ford to sponsor the team to the value of $4 million per year for five years.[92] I accept Mr Battye's evidence that he did not attend a meeting on 3 September 2001 as alleged by the plaintiffs. I have set out the details of the meeting which Mr Battye is alleged to have attended above. He has no file note of any such meeting and it seems unlikely that he would not have had a file note in respect of such a meeting, having regard to the fact that it was at Ford's office in Campbellfield, the number of people who attended and the significance of the meeting so far as the buy-out and Ford's sponsorship was concerned.
87 On 5 September 2001, Mr Battye had a meeting with Mr Lowndes in which Mr Lowndes' concerns about Mr Watson's and Mr Gibson's roles were discussed. At this stage, Mr Lowndes wanted to assist Mr Gibson to acquire the team from Mr Forbes. On the same day, there was a meeting between Mr Battye, Mr Watson and Mr Gibson in which Mr Battye was told that the relationship between Mr Watson, Mr Gibson and Ford was very good and there was likely to be a buy-out of Mr Forbes' interests in the team for $2.25 million. Mr Battye's conversations with Mr Lowndes and Mr Gibson and Mr Watson on 5 September 2001 are set out in four pages of file notes.[93] It is not necessary to set out more of the detail of those conversations (as evidenced by the file notes) here.
88 On 6 September 2001, Mr Watson sent an email to Mr Battye[94] in which he sought Mr Battye's thoughts on a draft letter to be sent to Mr Forbes. The draft letter provided:
"Subsequent to our letter of 13 July 2001 and our receipt of the financial reports from your accounting firm Stanley & Williamson on 31 August which are now with our respective accountants, we are pleased to advise that we are now in a position to proceed. The conditions we discussed at our meeting on 13 July were that you were to receive payment of $2,225,000 for the sale of the business, which includes all current contracts, plant and equipment and race cars etc. The current liabilities will be met by the new owners.
If you are still agreeable to proceed we would be keen to have all moneys paid and shares transferred to the new owner before the end of September 2001. Furthermore, for the sake of a speedy execution we seek your opinion on the appointment of the company's current solicitor Mr Philip Battye of Ebsworth & Ebsworth to be responsible for the drawing up of the necessary sale documentation to facilitate a swift conclusion to this acquisition."
89 Mr Battye revised the draft of this letter, including the last paragraph as follows:
"For the sake of speedy execution we seek your agreement to retain Mr Philip Battye of Ebsworth & Ebsworth to be responsible for drawing up the necessary sale documentation to facilitate a swift conclusion to this acquisition."
The letter to Mr Forbes was sent in the terms as amended by Mr Battye.[95]
90 On 7 September 2001, Mr Battye had two telephone conversations with Mr Watson. In the first conversation, Mr Watson told Mr Battye that Mr Gibson had met with Mr Polites and that Mr Forbes had met with his lawyer with Ms Allen of Ford. In the second conversation, Mr Watson and Mr Battye discussed the letter of 7 September 2001 that Mr Watson and Mr Gibson had received from Mr Forbes on that day rejecting their buy-out proposal (the relevant parts of this letter are set out above). Whilst there is dispute between the parties as to whether Mr Battye (or Ebsworths) was retained on 7 September to act on behalf of Mr Watson and Mr Gibson in respect of their dispute with Mr Forbes and RPM, I accept the evidence of Mr Battye that at no time on 7 September was he actually asked by Mr Watson or Mr Gibson to so act. Further, even though Mr Watson alleges a third conversation that occurred with Mr Battye on this day (a matter which Mr Battye denies), Mr Watson's account of this conversations contains no express request for Mr Battye to act on his behalf.
91 On 11 September 2001, Mr Battye sent Mr Watson an email[96] copied to Mr Gibson concerning Mr Forbes. The email provided:
"After discussions with both Craig and Sue Allen we have determined to 'up the ante' on Forbes by challenging him to either confirm or deny his assertions of insolvency and bad management. Sue has advised that Geoff has agreed to see Forbes on Monday obviously after our meeting on Friday.
The misrepresentation issue is directed to another 'out' clause in the driving agreement hence its inclusion in the letter. Similarly the reference to damage to reputation.
I will copy you with Forbes' response."
This email led to the 11 September 2001 letter being sent by Mr Battye to Mr Forbes which I have set out above.
92 On the same day, Mr Watson sent some correspondence in respect of the Tomfoolery matter to Mr Battye asking if he could discuss it with Mr Battye when Mr Battye had time. Mr Battye responded to Mr Watson by email, expressing the opinion that an agreement was undoubtedly required in respect of the Tomfoolery matter. Again on the same day, Mr Battye sent an email to Ms Allen stating that in his capacity as Mr Lowndes' lawyer he would like to discuss the Forbes issue. In the email,[97] Mr Battye said:
"To be clear, I am wanting to discuss Lowndes' interests in this matter and not from the perspective of what may be regarded as the best interests of Gibson and Watson (without in any way conceding or otherwise that the interests may be different)."
93 On 12 September 2001, Mr Battye received a letter from Andersen Legal in which they stated that they acted on behalf of Mr Forbes and RPM. In that letter, Andersen Legal responded to Mr Battye's letter of 11 September 2001. The letter concluded with an assertion that RPM considered that it had a binding sponsorship agreement with Ford and that RPM looked forward to an ongoing relationship with Mr Battye's client (Mr Lowndes) pursuant to the terms of the RPM driver agreement. Mr Battye forwarded copies of the Anderson Legal letter to Ms Allen and Mr Watson, telling Mr Watson that it was "now up to Ford to assert vigorously that it has no contract with RPM".
94 On 13 September 2001, Mr Battye and Mr Watson had a telephone conversation in which Mr Watson stated that Mr Gibson was considering resigning as team principal. The lease of the Dandenong workshop premises was also discussed. On the same day, Mr Watson forwarded to Mr Battye a copy of a fax from Mr Forbes to Mr Gibson, together with his (Mr Watson's) comments.[98] On the next day, Mr Watson sent Mr Battye a draft of a proposed response by Mr Gibson to Mr Forbes. In the covering email, Mr Watson stated:
"I seek your counsel whether you feel that this is appropriate or not."[99]
95 Again, on the same day (14 September), there was a meeting with Ford (Mr Polites, Ms Allen and Mr Marsden). Mr Battye contends that Mr Gibson and Mr Watson attended this meeting. Mr Watson denies that he and Mr Gibson attended and alleges that Mr Battye in fact sought to conceal the meeting from him.[100] Mr Gibson also denies attending this meeting.[101] Mr Battye has a file note of what he says was this meeting. The file note shows that Mr Watson and Mr Gibson attended. However, the file note is undated. Further, Mr Watson gave evidence that the file note appeared to relate to a meeting with Ford on 3 September 2001.[102] There is no other file note in the material which deals with the meeting that Mr Battye had at Ford on 14 September 2001. Ms Allen's file note of this meeting[103] discloses that Mr Gibson and Mr Watson were present at the meeting. In the circumstances, I am prepared to accept that Mr Battye is correct when he says that this undated file note is his file note of this meeting and to accept his evidence that Mr Gibson and Mr Watson attended this meeting. At this meeting, Mr Battye attended in his capacity as Mr Lowndes' lawyer. He provided no advice to Mr Watson or Mr Gibson. Ford advised that it would not continue to pay sponsorship money to the team until such time as the issues between Mr Watson, Mr Gibson and Mr Forbes were resolved.
96 On 17 September 2001, Mr Battye sent Mr Watson an email advising that he had no difficulties with the draft letter that had been forwarded to him on 14 September.[104] On the same day, there were telephone calls between Mr Battye and Ms Allen and Mr Battye and Mr Watson concerning a meeting that had been arranged between Mr Gibson and Mr Polites. Whilst it did not directly involve Mr Battye, on the same day, there was a meeting between Ford (Ms Allen, Mr Marsden and Mr Polites) and Mr Forbes (and his solicitor, James Gibson of Andersen Legal). At the conclusion of this meeting, Mr Polites expressed the opinion that the best way to move forward was for Mr Forbes to resolve his outstanding issues with Mr Gibson and Mr Watson in relation to fees and commissions, and that Mr Forbes should then work towards separating himself from Mr Gibson, Mr Watson and Mr Lowndes. Mr Polites said that if this was done, then Ford would look at a separate relationship with Mr Forbes' team in 2002. Mr Forbes said he was trying to resolve the issues. Mr Polites said "That's good. You do what you need to do. However, I do not want you to rock the boat between now and the end of the series. Craig and the team have had enough distractions already".[105]
97 On the next day (18 September), Mr Battye sent a letter to Mr Gibson addressed to Gibson Motorsport in which he confirmed verbal advice to Mr Watson concerning the provisions of the lease to RPM of the Dandenong premises. The letter concluded:
"Please telephone to discuss this advice at your earliest convenience."
Mr Battye billed the letter to Gibson Motorsport.[106] Mr Battye's evidence was that the letter was written in his capacity as Mr Lowndes' lawyer.[107] On the same day, Mr Hall contacted Mr Battye and asked him to have a look at draft terms and conditions for an on-line shopping site. Mr Hall asked Mr Battye to "advise of any changes we should consider". In relation to this matter, Mr Battye was acting on behalf of GMM. Similarly, on the same day, Mr Hall contacted Mr Battye about the possibility of the trial of voice alert technology at Bathurst by Famoice Technology Pty Ltd. This was another GMM matter.
98 On 19 September 2001, Mr Watson forwarded to Mr Battye a letter of the same date sent to him by Andersen Legal.[108] In that letter, Andersen Legal stated that they acted for RPM and Mr Forbes. The letter purported to set out historical matters before denying Mr Watson any entitlement to commission referable to the Ford sponsorship moneys. The letter went on to assert that the business name, Gibson Motorsport, was owned by RPM and use by any other party was unauthorised. The letter concluded:
"Further, in view of correspondence received by our client last week from Ebsworth & Ebsworth solicitors purportedly on behalf of your client Craig Lowndes, our client also reserves its rights in relation to any attempt to (sic) by you or others to interfere or (sic) with our client's contractual relationship with Craig Lowndes and the Ford Motor Company."
A similar letter was sent by Andersen Legal[109] to Mr Gibson and was also sent on to Mr Battye.[110] After receiving these letters, Mr Battye had a conversation with Mr Watson in which Mr Watson asked him to send the correspondence to Ford. Mr Battye told Mr Watson that the strategy of using Mr Lowndes and Ford to put pressure on Mr Forbes so as to bring about a resolution of the dispute between Mr Gibson and Mr Watson on the one hand and Mr Forbes on the other hand could still work.[111] Mr Battye then sent the correspondence to Ms Allen. There were then further telephone conversations with Ms Allen and Mr Watson, during which Mr Battye told Mr Watson that Ms Allen had told him (Mr Battye) that Mr Polites was very annoyed about the correspondence, which he regarded as inflammatory and not in accordance with an agreement Mr Polites thought he had with Mr Forbes to let the matter cool down until after Bathurst (6 and 7 October 2001). Consistent with what Ms Allen told Mr Battye, Mr Polites sent a letter on the same day to Mr Forbes[112] which concluded:
"I have no idea what your intention was in sending the letters you have sent today - they go against our agreement and have only served to destroy the opportunity you had to establish an involvement with this company."
99 On 20 September 2001, there were further communications between Mr Battye and Mr Hall in respect of the on-line shopping matter (a GMM matter). There was also discussion between Mr Battye and Mr Watson in which Mr Watson asked if there was another way in which pressure could be put on Mr Forbes. Whilst Mr Battye thought that the franchise agreement was not likely to give grounds for making an allegation that Mr Forbes was damaging Ford, Mr Battye was prepared to look at the franchise agreement if Mr Watson wanted to send it to him.[113]
100 On 21 September 2001, there were communications between Mr Watson and Mr Battye concerning three proposed press releases to be issued on behalf of Mr Lowndes. On the same day, Mr Battye had a telephone conversation with Ms Allen in which she advised that until such time as the ownership issues were resolved, Ford was not comfortable with the team finalising other sponsorship agreements. Ms Allen said that the press releases should not be issued and that she was going to approach the other sponsors and advise them of the uncertainty with the ownership of the team. Mr Battye relayed this to Mr Watson. Again, for the reasons given above, broadly speaking I accept Mr Battye's account of these conversations, rather than Mr Watson's account.[114]
101 On 24 September 2001, Mr Watson telephoned Mr Battye and talked about obtaining information and sending draft letters responding to the Andersen Legal letters of 19 September. Mr Watson emailed draft letters to Mr Battye with a covering email asking him to call to discuss them. Mr Battye then sent letters concerning the Andersen Legal letters to both Mr Gibson and Mr Watson. The letter to Mr Gibson said that it "would assist us" if Mr Gibson responded to the Andersen Legal letter as soon as possible. The word "us" was not defined in the letter. The defendants' case is that "us" refers to the Lowndes interests. The letter suggests a number of matters for Mr Gibson's "consideration" before concluding that he ought to indicate that he is seeking legal advice in respect of the business name issue. A question arises as to whether this legal advice was being sought from Mr Battye or some other lawyer. In the letter to Mr Watson, there is a reference to the fact that it would assist "us" in discussions with Mr Forbes if certain accounting information were sent to Mr Forbes' lawyers. Again, "us" is not defined - but it is the defendants' case that "us" is a reference to the Lowndes interests. The letter tells Mr Watson that he may consider "commenting that contrary to the assertion in the last paragraph on page one of the [Andersen Legal] letter, Bob Forbes was and remains a director of GMM". Mr Battye also states that Mr Watson might consider denying assertions in Andersen Legal's letter that he is in any way seeking to interfere with RPM's contractual relations with either Mr Lowndes or Ford. Mr Battye asks both Mr Gibson and Mr Watson to forward him a copy of the letters they ultimately send. Draft letters are provided to Mr Battye, who responds to Mr Watson with an email[115] in respect of them in which he indicates that he has no issues apart from one aspect of Mr Gibson's response. This email concludes:
"PS I confirm that you and Fred are talking to your own lawyers viz any legal issues raised as Fred has noted and as we discussed Noel yesterday."
102 On 24 September, Mr Battye had a conversation with Mr James Gibson of Andersen Legal during which he was told that a meeting was to take place between Mr Forbes and Ford representatives in Sydney. On 25 September, after discussions on 24 and 25 September between Mr Battye, Mr Lowndes and Mr Crompton, a meeting was arranged between Mr and Mrs Lowndes, Mr Forbes and Mr Battye. The meeting took place at Mr Lowndes' home in Queensland on 27 and 28 September 2008. The genesis of the meeting appears to have been Mr Crompton's desire for Mr Lowndes to hear Mr Forbes' account of the dispute between Mr Gibson and Mr Forbes.[116]
103 On 26 September, Mr Battye sent an email to Mr Watson advising that he would be away for a couple of days and that, given Mr Polites was away on holidays and Bathurst preparations would take place next week, it would probably be the week following before anyone had time to sit down and discuss outstanding ownership issues. Mr Watson responded that he and Mr Gibson were concerned that Mr Lowndes be allowed to concentrate on Bathurst, rather than have to deal with ownership matters at that time. On the same day, Mr Battye received a fax from Mr Watson enclosing a copy of a letter of advice from White Cleland, the solicitors for Mr Gibson and FCG, concerning the business name "Gibson Motor Sport".
104 On 27 and 28 September 2001, Mr Battye met with Mr and Mrs Lowndes and Mr Forbes in Queensland. As a result of this meeting, in principle agreement was reached[117] as follows:
"(a) Mr Lowndes would speak to Mr Crompton to tell him that he would be driving for the Team next year and that a second car would be prepared for him;
(b) the Team would be properly organised to ensure that sponsors were required to pay invoices to the correct entity namely RPM;
(c) Mr Lowndes could acquire equity in RPM if he chose to do so;
(d) RPM would continue to own and operate the Team and Mr Lowndes would continue to drive for the Team pursuant to his existing driver agreement even if Mr Gibson chose to leave the Team;
(e) outstanding contracts with sponsors were to be drawn including with Ford and Dunlop;
(f) Mr Forbes would instruct his lawyers to write to Mr Watson confirming that Mr Watson could use the Team's intellectual property until at least after Bathurst;
(g) Mr Gibson would have a continuing role as technical adviser to the Team if he wished to remain with the Team;
(h) Mr Watson would have a continuing role in relation to the Team merchandising subject to negotiation of a proper license agreement between RPM and GMM;
(i) Mr Watson would remain as Mr Lowndes' manager and be paid a percentage of sponsorships he procures;
(j) Steve Horne, an experienced motor sport team manager, would be approached to gauge his interest in acquiring equity in the Team; and
(k) the Team would have a formalised management structure with a board of directors nominated by Ford, Mr Lowndes, Mr Forbes and Mr Horne if he chose to be involved."
105 Mr Forbes' evidence concerning this meeting was that Mr Battye was there as Mr Lowndes' lawyer and "probably more of an observer".[118] Mr Forbes described the conclusion of the meeting in terms of Mr and Mrs Lowndes being happy and "they had the contract with me they just wanted to hear what was going on because they knew there was some disquiet in the team - they were fully aware of that - and we did talk about the option of if Fred didn't want to be there that Horne was available in the background".[119] Mr Forbes' recollection was that no actual decisions were made that he could recall at the meeting. However, on further questioning, Mr Forbes recollected that there was agreement in principle at the conclusion of the meeting that RPM would continue to own the team and there was discussion concerning Mr Gibson's continuing role in the team "all being well".[120]
106 On 1 October 2001, Mr Battye, as instructed by Mr Lowndes, had a meeting with Ford (Mr Polites and Ms Allen). In the meeting, Mr Battye told Ford that he and Mr Lowndes understood that Mr Forbes would not sell the team to Mr Watson or Mr Gibson. Mr Battye spoke of the concern that he and Mr Lowndes held about the initial representation by Mr Gibson and Mr Watson concerning the repurchase of the team by Mr Gibson - which was not in fact the case. The buy-out proposal was discussed. Mr Battye described what, in his view, was the unprofessional operation of the team "indicia of which included the absence of any board of governance for the team, and consequently no meetings of boards or even regular meetings of senior management involving Messrs Forbes, Watson and Gibson and no proper accounting".[121] Mr Battye expressed what he said were his instructions, namely, that Mr Lowndes had lost confidence in Mr Gibson. During the meeting, Mr Polites said that Ford would back Mr Lowndes (whatever he decided), but that Ford's preferred outcome would be for Mr Lowndes to remain with Mr Gibson and Mr Watson at the team. There was discussion about whether Mr Gibson or Mr Watson might start their own team. There was agreement at this meeting again to keep these discussions "quiet"[122] until after Bathurst.[123] After the meeting, Mr Battye telephoned Mr Forbes and, amongst other things, reported how the meeting with Ford had gone.
107 The next day (2 October 2001), Mr Battye had contact with Mr Watson concerning the Dunlop sponsorship agreement. There was also discussion concerning the Forbes issue, with Mr Battye suggesting to Mr Watson that it would be brought to a head after Bathurst. It was put to Mr Battye in cross-examination[124] that he was deliberately stalling Mr Watson from taking any action whilst he put in place "the new arrangements" between Mr Forbes and Mr Lowndes and Ford. Initially in cross-examination of Mr Battye, no motive was suggested for this conduct[125] and, in any event, Mr Battye denied the proposition. There was further contact between Mr Watson and Mr Battye on 3 October concerning sponsorship issues. On 4 October, one of Mr Battye's partners did some work on a privacy issue for GMM. Mr Battye conceded in cross-examination[126] that, as at this time, he still considered GMM a client. There was further discussion between Mr Battye and Mr Forbes concerning sponsorship issues and the arranging of the contemplated meeting for the week after Bathurst. The Bathurst weekend occurred on 6 and 7 October. Mr Lowndes was in the lead, but he crashed his car. On the Monday, the meeting was arranged for Wednesday 10 October.
108 The day before the meeting (9 October 2001), Mr Watson rang Mr Battye. Mr Watson told Mr Battye that he and Mr Gibson were considering opening in opposition to Mr Forbes if they could not get Mr Forbes to sell to them. He talked about the fact that they had a factory next door to the team workshop and that this could be the workshop for the team. There was discussion as to whether the Dyno Cells in the workshop were in fact part of the lease. Mr Battye's recollection of this conversation is that Mr Watson said that he had checked the lease and that the diagram of the premises attached to the lease did not appear to contain the Dyno Cells. However, he conceded that Mr Watson might also have asked him to check the lease as a lawyer to see whether there was merit in what he said.[127] Mr Battye gave the following answers to the following questions:
"You didn't say to him at this stage, 'I am acting for Forbes, I am not acting for you'?---I didn't say that.
That was because you were still quite comfortable to have had him think that you were looking after his interests until all was revealed on the Wednesday?---I repeat, I didn't believe I was looking after his interests.
I didn't ask you that?---It wasn't a question of me being comfortable, it just wasn't in my mind that I was looking after his interests."[128]
109 On the same day (9 October), Mr Battye had meetings with Mr Forbes between 10.30 a.m. and 3.00 p.m., and Mr Lowndes between 3.00 p.m. and 6.00 p.m. There was discussion concerning the possibility of merchandise coming under the control of RPM. Mr Battye's explanation for not including Mr Gibson and Mr Watson in this discussion was that even though he still considered GMM a client of his, he knew that there would be a meeting the next day.[129] Mr Battye discussed with Mr Forbes the nature of the meeting to be held the next day and it was agreed that Mr Forbes would outline his position in respect of the ownership negotiations, Mr Watson and Mr Gibson would be asked to detail their proposals and thereafter Mr Lowndes would be invited to decide what he wanted to do. There was further discussion between them concerning the options of Mr Gibson's future involvement with the team, the possibility that Mr Lowndes might acquire Mr Gibson's TEGA franchise, the future arrangements for team merchandising and arrangements with GMM and the fact that Mr Watson could continue to be a shareholder of GMM and be paid a management fee.
110 Later on the same day, Mr Battye conferred with Mr Lowndes. During this conference, Mr Battye told Mr Lowndes that he would need to consider carefully both Mr Forbes' and Mr Watson and Mr Gibson's perspectives and make a decision as to what he wanted to do. Criticism was made of Mr Battye in cross-examination that Mr Watson and Mr Gibson were not being given a fair opportunity to put their position because, unlike Mr Forbes, they were not aware of "everything that had been going on".[130] I accept that Mr Watson and Mr Gibson were surprised when they attended the meeting on 10 October to find Mr Lowndes there. However, they knew that Mr Forbes was to be at the meeting. Whilst with hindsight more could have been said by Mr Battye to Mr Watson to enable him to prepare as best he could for the 10 October meeting, in the circumstances of this case where everyone's positions were to the front of their own minds by virtue of the constant communications and dealings between the parties, there was no unfairness, nor any unfairness causative of an outcome with which Mr Watson and Mr Gibson were unhappy.[131] Mr Lowndes, unsurprisingly, wanted to stay with the team.[132] The team was owned by Mr Forbes. Mr Watson and Mr Gibson had failed to secure a buy-out. Ford wanted to sponsor Mr Lowndes and/or the team for which he drove. When all this was revealed, Mr Gibson said he was going to leave, and left the meeting. Following the end of the meeting, Mr Battye had a couple of conversations with Ms Allen in which he thinks he probably summarised what had happened, but that his real purpose was to organise a meeting with Mr Polites to explain to him what had happened. The next day, Mr Battye had a conversation with Mrs Lowndes concerning the possible termination of the management agreement with Mr Watson. On the same day (11 October), Mr Watson and Mr Battye had a telephone conversation in which they discussed Mr Watson producing a proposal that he had referred to the previous day in relation to GMM.
111 On 15 October, Mr Battye received a telephone call from Mr Watson during which Mr Watson told him that he would fax a copy of a proposal. The proposal was sent and Mr Battye sent the document on to Mr and Mrs Lowndes. On 15 October, this proposal was discussed in a conference between Mr Battye, Mr Watson, Mr Gibson and Mr Forbes. Further work involving GMM was done after this time. For example, on 17 October 2001, Mr Battye wrote to Mr Hall in relation to the terms and conditions of the GMM website. Ultimately, the plaintiffs' involvement with the team terminated on the various dates and in the various circumstances I have set out above.
Who was Mr Battye (Ebsworths) retained by between February 2001 and October 2001?
112 Up until February 2001, Mr Battye[133] was retained by Mr Lowndes. In February 2001, Mr Battye accepted a retainer for the team, which I have found to mean RPM. That is, prior to February 2001, Mr Battye only acted for the Lowndes interests, but in February 2001, he accepted (subject to there being no conflict) a retainer to act for RPM. Mr Battye's evidence is that this position continued until 31 August when he reverted to acting solely for the Lowndes interests. Mr Battye's evidence was that it was "abundantly clear" that he was only ever acting for Mr Lowndes and his companies and RPM.[134] Up until 11 July 2001, Mr Battye sent bills in respect of team matters to Gibson Motorsport. On 11 July, and after discussion with Mr Watson, a bill previously sent to Gibson Motorsport (dated 31 May 2001) was withdrawn by Mr Battye and separate bills were sent in respect of work done which related to GMM[135] and work done for Gibson Motorsport. The new bill for GMM (dated 12 July 2001) related to the website and attendances on Mr Hall. This bill and the file to which it related are relied upon by the plaintiffs as showing that Mr Battye was retained on behalf of GMM. The plaintiffs point to a number of occasions when Mr Battye gave advice concerning agreements to which GMM was or would be a party as establishing the fact that GMM was his client. Similarly, they point to occasions when Mr Watson sought Mr Battye's advice on matters personal to Mr Watson as showing that Mr Watson was a client of Mr Battye.[136] In stating that it was abundantly clear that Mr Battye was not acting for anyone other than RPM, Mr Battye said in evidence:[137]
"There was no retainer to Mr Watson, there was no retainer to any of Mr Watson's entities, there was no retainer to Mr Gibson, there was no retainer to any of Mr Gibson's entities. There was a retainer to the team. It was clear in the document what entity I was talking about and everything that followed from there, in my view, made it quite clear to me that they understood precisely who I was acting for, RPM and Lowndes."
A little further on in his evidence, Mr Battye said[138] in relation to the question of whether he should have suggested to Mr Watson and Mr Gibson that they should have obtained their own legal advice:
"No, I didn't think I needed to give them that advice. I thought that if they wanted advice they would go and get it but at that point it was a question of discussion between them as the people involved in the activity."
113 Mr Battye was asked and answered the following questions:[139]
"When you say it's clear that you weren't acting for them how do you characterise what you were doing which led to the bill being given to GMM on 11 July?---Well, as I said, ..., I had assumed that the work I was doing was for GMS, Gibson Motorsport, because at that point not having had instructions from Mr Watson I didn't really appreciate where the two sat. So that I put my time on that matter and it was only when Mr Watson directed me to reverse the bill that a file came to be opened in the name of GMM.
Then from thereafter did you regard yourself as acting for GMM as well as RPM?---Not in the retainer sense, ... I saw myself as giving discrete advice when asked to do so on particular matters and [counsel for the plaintiffs] has taken me, I think, to just about all of them."
114 There is no doubt that Mr Watson is (and was in 2001) a very experienced businessperson. The evidence generally discloses this position, as well as the specific evidence of Mr Hall.[140] Indeed, I accept the evidence of Mr Battye that both Mr Gibson and Mr Watson were "sophisticated businessmen" who were not involving themselves in activity of the kind here under discussion for the first time[141] (see further Mr Watson's and Mr Gibson's experience as described at CB 2/555-559 (part of Exhibit A) in relation to Mr Watson and CB 2/565-572 (part of Exhibit O) in relation to Mr Gibson; and see also Mr Gibson's evidence as to deals done on a handshake at CB 2/5658 and T531 - 532 and Mr Watson's evidence concerning business arrangements in which he was involved which were not documented at T248.16 - 253.3). Even without the evidence of Mr Battye on this point, I would have concluded (and do conclude) that Mr Watson, Mr Gibson and Mr Forbes were all sophisticated businessmen in 2000 and 2001, well able to protect their own interests and used to obtaining advice from lawyers and accountants acting solely in their own interests as and when they thought that was required.
115 It is clearly possible to go back through the documents examining individual documents out of the context of the whole of the relationship between the parties as it evolved throughout 2001. By such a process, it is possible to look at an individual document or transaction and assert that it demonstrates that Mr Battye was retained on behalf of one or some of the plaintiffs so as to owe one or some of the tortious and fiduciary duties alleged by the plaintiffs. However, to do so ignores the reality of what actually happened in 2001. I find that Mr Battye was retained by RPM in February 2001 and that, in the course of the performance of that retainer, he was required to do work in which GMM had an interest and then to bill GMM separately in respect of that work. Mr Battye was careful to explain conflict issues, commencing when he was first asked to act for the team on 2 February 2001. Mr Watson and Mr Gibson chose to ask Mr Battye for advice from time to time in respect of matters which involved the team and in which they also had interests, which may or may not have diverged from the interests of the team from time to time. Whilst Mr Watson and Mr Gibson had their own lawyers who acted for them from time to time (Mr Daniel Butler in the case of Mr Watson and Mr Falconer of White Cleland in the case of Mr Gibson) and from whom they would seek advice in relation to their own specific interests whenever the need arose, they were prepared to obtain as much advice as they could from Mr Battye (probably in the knowledge that they were not likely to receive an account for which they would be personally responsible). The very fact that they sought advice from their own lawyers and their own accountants on specific relevant matters during 2001 shows that Mr Battye was not acting for them during this period.[142] Further, the fact that they sent drafts of letters that they proposed to send to others to Mr Battye for comment in circumstances where Mr Battye might have been expected to send the letters if he was acting for them suggests again that Mr Battye was not acting for them.[143] The position of the defendants is corroborated to some extent by the evidence of Mr Forbes that neither Mr Watson nor Mr Gibson ever referred to Mr Battye as "their lawyer".[144]
116 There was a significant amount of cross-examination of Mr Battye designed to show that Mr Battye gave legal advice to Mr Watson and Mr Gibson. On the occasions when Mr Battye did not embrace this proposition, a series of propositions were put to him as follows:
(a) Mr Watson and Mr Gibson sought advice from you.
(c) You expected Mr Watson and Mr Gibson to rely upon your advice.
(f) Therefore you gave Mr Watson and Mr Gibson legal advice which you intended they would rely upon (and, in effect, you could only do that if you were their lawyer).
However, the true position between the parties is not that simple. Undoubtedly, Mr Battye gave Mr Watson and Mr Gibson advice concerning legal matters from time to time. The question is whether he was advising them in his capacity as Mr Lowndes' or the team's lawyer on the one hand, or as a lawyer supposed to be looking after the interests of Mr Watson and Mr Gibson. For the reasons given above, I find that such advice that Mr Battye gave the plaintiffs in 2001 was given to them either in his capacity as acting for Mr Lowndes and his companies or RPM. Ultimately, whatever may have been in the minds of Mr Gibson and Mr Watson, Mr Battye was retained to act in the interests of the Lowndes entities and RPM and it was reasonable for him not to regard himself as acting independently for the plaintiffs. Specifically, insofar as Mr Battye acted for GMM in the discrete matters identified above, this was on the instructions of RPM in order to advance the interests of the team. Whatever instructions Mr Battye had to act for GMM in respect of specific matters, they were not instruction to act on behalf of GMM in relation to the buy-out issue or in relation to the structure of the team. It is not the point that the work done involving GMM was done in a file headed or entitled or designated "general advice" or that that description was the same in respect of the files opened for Gibson Motorsport and Mr Lowndes. The administrative naming of the GMM file in this case sheds no light on the terms upon which Mr Battye and Ebsworths were retained. Further, the fact that Mr Battye may have been a "hub" through which messages were conveyed between the parties does not alter this position. Properly characterised, what occurred during 2001 was that from time to time Mr Watson would tell Mr Battye what he was going to do in respect of a particular matter, Mr Watson having a common goal with the goals of Mr Battye's clients. Mr Watson did this in the same way that different parties with common interests often run ideas and proposals past each other with a view to seeing whether the other has a different view. In such circumstances, each might expect the other to rely on what the other is saying. However, this does not translate into a relationship of solicitor and client.
117 No doubt Mr Battye could have said more from time to time to Mr Watson and Mr Gibson about the fact that he was not acting for them or their entities. With the benefit of hindsight, such allegations are easily made. However, I am satisfied that as matters unfolded throughout 2001, there was no doubt in Mr Battye's mind who he acted for (primarily Mr Lowndes and RPM) and that his thought processes in this regard were not unreasonable. It is, of course, important to remember that events such as these should not be viewed with hindsight.[145] In any event, it is to be remembered that Mr Battye did have communications with Mr Watson and Mr Gibson concerning the taking of their own legal advice.[146]
118 It follows from what I have said above that I do not accept that on or about 9 February 2001 Ebsworths were retained to act generally on behalf of GMM or FCG.[147] That is, there was no Gibson Motorsport Merchandise retainer or FC Gibson retainer as alleged by the plaintiffs. Further, insofar as the plaintiffs allege that as a result of dealings between the parties after 9 February 2001 such retainers came into existence, I disagree. There was no assumption of responsibility on the part of the defendants to look after the interests of the plaintiffs, nor was there any known reliance.[148] Likewise, I reject the plaintiffs' claims that on 7 September 2001 Ebsworths were retained to act on behalf of Mr Watson and Mr Gibson in connection with the dispute between them and Mr Forbes and RPM (the alleged disputation advice retainer). There was no communication between Mr Battye and Mr Watson and Mr Gibson on or about 7 September 2001 giving rise to any such retainer. Additionally, the existence of any such retainer would not have been consistent with the dealings between the parties (for example Mr Watson and Mr Gibson writing their own letters to Andersen Legal and Mr Battye confirming to Mr Watson that Mr Watson and Mr Gibson were talking to their own lawyers). Properly understood, Mr Battye's role in 2001 was acting principally in the interests of Mr Lowndes. He took on RPM as a client with Mr Lowndes' permission on the basis that there would be no conflict and he then proceeded to act on behalf of both clients - taking such steps as were required to bring to fruition a racing team in which Mr Lowndes was the principal driver. In acting in Mr Lowndes' interests, this involved him actively assisting in respect of a wide range of matters, including the various sponsorship proposals and agreements to which GMM might be or have become a party. When the possibility of conflict between the interests of Mr Lowndes and the interests of RPM arose at the end of August 2001, Mr Battye, as he had always said he would, reverted to being Mr Lowndes' lawyer. His conduct thereafter was consistent with acting on behalf of Mr Lowndes and following Mr Lowndes' instructions. There was never any doubt that Mr Battye would take this course. It was a course that he had foreshadowed right from the start.
119 The plaintiffs have failed to establish any relevant retainer. The objective facts do not disclose any relevant retainer.[149] Specifically, they have failed to establish the existence of the Gibson Motorsport Merchandise retainer, the FC Gibson retainer or the disputation advice retainer. However, that is not the end of the plaintiffs' case. The plaintiffs allege that certain tortious and fiduciary duties were owed to them. Originally, these duties were predicated upon the existence of the retainers alleged by the plaintiffs. However, as I have noted above, during the course of the trial, amendments were made to the plaintiffs' pleadings so as to permit them to rely upon the duties they alleged even if the retainers did not exist. I turn now to consider the question of whether, during 2001, the defendants owed to the plaintiffs the duties alleged by the plaintiffs.
What relevant duties (if any) were owed by the defendants to the plaintiffs?
120 There can be no doubt that from time to time (and with respect to specific transactions) the defendants owed duties of care and fiduciary duties to one or some of (and perhaps on some occasions, all of) the plaintiffs. For example, in performing discrete work for GMM in advising about the terms of a particular agreement with a third party, the defendants owed GMM a duty to take reasonable care in relation to the provision of that advice.[150] However, the claim here is that the defendants owed duties of loyalty and good faith to the exclusion of those entities that I have found to be their clients and duties to avoid conflicts of interests, being conflicts between the interests of the plaintiffs and the interests of the defendants' actual clients. The defendants owed duties of care and fiduciary duties to their clients, Mr Lowndes and RPM. No duty that conflicts with these duties can, in the circumstances of this case, be owed by the defendants to the plaintiffs. Even in circumstances where there is a conflict between the interests of two clients, one of them may be unable to complain about it. In related circumstances, the issue was dealt with in Finn, Fiduciary Obligations (1977)[151] in the following terms:
"But notwithstanding that there is such a conflict, one of two beneficiaries may be unable to complain of it. This will be so where he alone gave an informed consent to the double employment; or where he knew of the fiduciary's other engagement at the time he engaged him - in which case the resulting conflict is regarded as being of that beneficiary's own making."[152]
This is enough to dispose of the duty questions as articulated in the plaintiffs' summary of issues set out above.
121 To the extent that the plaintiffs' case is also founded upon an assertion that duties were owed from time to time by the defendants to the plaintiffs to either remind them that the defendants were not acting for them or that the plaintiffs should seek independent advice, such claims are artificial in the circumstances of this case. Mr Battye had no doubt who he was acting for (the Lowndes interests and RPM). A complete review of the contemporaneous documents supports Mr Battye's view. Mr Watson and Mr Gibson were experienced businessmen who were able to (and did) seek professional and independent advice as and when they required it.
122 During the course of their argument, the plaintiffs referred me to a number of authorities concerning implied professional retainers, assumptions of responsibility independent of any retainer, duties owed by solicitors and the effect of consent.[153] Some of these authorities contain statements that, divorced from their facts, are supportive of the plaintiffs' case. However, even in cases where a solicitor engages in work in the interests of a particular person or entity, inquiry needs to be made as to the extent of any fiduciary duty. A relationship may be fiduciary as to all, or as to some but not all, of its aspects. Further, to say that a relationship is a fiduciary one is not always to provide a complete description of the legal nature of the relationship: aspects of it may be governed by the agreement or the understanding of the parties.[154] Additionally, even if there is a fiduciary relationship and the fiduciary obtains a benefit at the expense of the person to whom he owes a duty, the defendant may not be in breach of that duty if the fiduciary position had no operative part in the gaining of the benefit. Finally, generally fiduciary duties do not survive the ending of the fiduciary relationship.[155] In determining the applicability of the propositions advanced in the authorities referred to by the plaintiffs, far more is needed than simply to assert that there was a relationship of solicitor/client between the plaintiffs and the defendants. It is necessary to look in greater detail at the actual relationship (as I have done above) between the parties.
123 The short answer to the plaintiffs' allegations that tortious and fiduciary duties were owed is that for the reasons I have given with respect to the retainer issues, there was no assumption of responsibility by the defendants to advise or act for the plaintiffs. Further, Mr Battye did not give advice or fail to give advice in circumstances where he knew or ought to have known that he was being trusted to look after the interests of the plaintiffs. [156] The transactions between Mr Battye on the one hand and Mr Gibson and Mr Watson (and GMM) on the other hand were not such as to repose trust and confidence in Mr Battye in the relevant sense and in respect of the buy-out and ownership issues concerning RPM so as to give rise to the fiduciary duties alleged by the plaintiffs.[157] Consistently with what I have said above, no relevant duty (tortious or fiduciary) was owed by the defendants to the plaintiffs. It is thus not necessary for me to deal with the question of breach of duty as there will be judgment for the defendants. However, in the event that I am wrong about the issue of the existence of a duty or duties, I propose to deal with the question of breach.
124 From the plaintiffs' summary of issues, the allegations of breach of duty may be summarised as follows:
(a) Failing to inform Mr Watson and Mr Gibson that the lack of inter se contracts and the competing interests of Mr Forbes rendered their interests vulnerable.
(b) Failing to inform Mr Watson and Mr Gibson that Ebsworths were unable to act on behalf of their interests.
(c) Failing to inform Mr Watson and Mr Gibson that they should seek independent representation.
(d) Positively acting against the interests of the plaintiffs during the period 30 August 2001 to the end of 2001.
(e) Failing to inform the plaintiffs that Mr Forbes was not proposing to sell his interest.
125 So far as the lack of inter se contracts allegation is concerned, the plaintiffs contend that they should have been informed that the lack of contracts between RPM, GMM, FCG and Ford and the competing interests of Mr Forbes rendered their interests vulnerable. The first point to be made is that the plaintiffs well knew that there was a lack of contracts between RPM, GMM, FCG and Ford. Further, as experienced businessmen, Mr Watson and Mr Gibson would have known that, in the absence of a contract, either party might be more likely to take a step that was not in accordance with the interests of the other party. Both Mr Watson and Mr Gibson were used to engaging in significant dealings on the basis of a handshake.[158] They did not need advice that their positions might be more fully protected by the existence of specific contracts.
126 In any event, the need for contracts was raised by Mr Battye during the meeting on 12 February 2001. In that meeting, Mr Battye was told that there was no contract between Mr Gibson and Mr Forbes and he said that he thought that a contract should be put in place. Mr Gibson said that he would provide Mr Battye with instructions to prepare a contract and Mr Battye also asked for instructions to draw an agreement between RPM and GMM. There was discussion concerning the fact that the contract with Ford would need to be in the name of RPM and there was discussion concerning employment contracts. Subsequently, there was correspondence (to which I have already referred) in which Mr Battye sought instructions to draw the necessary contracts. These instructions were never provided.[159] In any event, Mr Gibson received advice about the vulnerability of his position, given the existence of a contract between Mr Lowndes and RPM and the lack of a contract with Ford tying up the sponsorship money in late February 2001. These concerns were raised by Mr Gibson's accountant, Mr Kinchington, in a document Mr Kinchington sent to Mr Gibson.[160] I find that the plaintiffs were well aware of the need for contracts to be created, such matters having been raised by and discussed with Mr Battye. Notwithstanding the fact that Mr Battye sought instructions, instructions were not provided. In the circumstances, the plaintiffs' first ground of complaint is not made out.
127 As to the second and third of the plaintiffs' complaints (failing to inform Mr Watson and Mr Gibson that Ebsworths were unable to act on behalf of their interests and/or that they should seek independent representation), much depends upon my conclusion that Mr Battye (and Ebsworths) were not acting on behalf of Mr Watson and Mr Gibson and that this was "abundantly clear" (to use the words of Mr Battye). Clearly, if Mr Battye was acting on behalf of Mr Watson and Mr Gibson, then the possibility of a breach of duty arises if, on any particular occasion, he did not act on behalf of their interests when proper conduct would have required him to do so. A question might then arise as to any causal significance. Had I concluded that Mr Battye was acting on behalf of the plaintiffs after 30 August 2001, I would have concluded that his failure to tell them of Mr Forbes' plans and of the meetings that Mr Forbes participated in (and of their detail) in September and October constituted a breach of duty. However, Mr Battye told Mr Watson on 31 August 2001 that there was now a conflict of interest with Ebsworths acting on behalf of Mr Lowndes and the team, that he was unable therefore to advise Mr Watson or Mr Gibson concerning the buy-out and that he must now act solely for Mr Lowndes. Had he not given this advice and if the true position was that up until that time he was acting on behalf of the plaintiffs, I would have found a breach of duty. However, that was not the true position and he gave the advice. In the circumstances, the plaintiffs' second and third complaints are not made out.
128 As to the fourth complaint (positively acting against the interests of the plaintiffs during the period 30 August 2001 to the end of 2001), much again turns on whether Mr Battye was acting for the plaintiffs during this period. If, contrary to what I have found, Mr Battye was so acting, then, in failing to disclose to the plaintiffs all he knew about Mr Forbes' intentions and the meeting which Mr Forbes attended, he (Mr Battye) did not act in the best interests of his clients. Whilst it overstates the position to say that he acted positively against the interests of the plaintiffs, if the plaintiffs were Mr Battye's clients during this period in respect of the buy-out and structural matters, then I would have found that, in failing to fully inform the plaintiffs about Mr Forbes and his meetings, Mr Battye breached his duty to the plaintiffs. Causation would then become a relevant issue.
129 The second aspect of this fourth complaint is put by the plaintiffs as follows:[161]
"In early September Battye recommended to Lowndes that he improve his negotiating position by considering options not necessarily including Gibson and Watson."
Some support for the underlying allegation that Mr Battye suggested to Mr Lowndes he could improve his negotiating position by exploring all options can be found in the evidence of Mr Lowndes. However, whilst Mr Battye may have suggested taking steps to get out of the RPM driver agreement, there is no evidence that Mr Battye specifically suggested not staying with Mr Gibson and Mr Watson. Indeed, in making the suggestion that Mr Lowndes reconsider his commitment to the RPM driver agreement, Mr Battye (if he made that suggestion) was giving advice potentially adverse to the interests of RPM and Mr Forbes. The fact that it may have been Mr Lowndes' opinion that a fresh start might not necessarily include any participation by Mr Gibson, Mr Watson or Mr Forbes in his racing plans says nothing about what Mr Battye actually said to Mr Lowndes in September 2001. In the end, there is an insufficient evidentiary foundation for drawing the conclusion that Mr Battye advised Mr Lowndes to consider options not necessarily involving Mr Gibson and Mr Watson. Mr Lowndes was obviously doing his best in the witness box to recollect precisely what advice he received from Mr Battye in September and October 2001. However, his recollection was (understandably) vague and uncertain. Mr Lowndes' recollection was uncertain to the point where I would not act upon it to the detriment of any of the parties. It follows that this aspect of the fourth complaint is not made out.
130 As to the fifth complaint (failing to inform the plaintiffs that Mr Forbes was not proposing to sell his interest), there is little (if anything) in this. I accept Mr Forbes' evidence concerning the discussions he had with Mr Watson and Mr Gibson that the buy-out had to occur by 30 June 2001. Mr Watson and Mr Gibson knew on 13 July 2001 that Mr Forbes would not sell to them. His failure to reply to Mr Watson's letter of 13 July 2001 must have confirmed for them what Mr Forbes had already told them. In any event, this issue was raised with Mr Battye on 30 August 2001 by Mr Watson, who told him that Mr Gibson and Mr Watson were concerned that Mr Forbes was no longer prepared to sell his interest in RPM to them. Mr Battye telephoned Mr Forbes, during which conversation Mr Battye was told by Mr Forbes that he would not sell the team to Mr Watson and Mr Gibson.[162] Whilst Mr Battye did not convey this information back to Mr Watson and Mr Gibson, the position so far as they were concerned became crystal clear on 7 September 2001 when they received Mr Forbes' letter rejecting their offer of 6 September.[163] At its highest for the plaintiffs, Mr Battye did not tell them for approximately eight days that he knew that Mr Forbes would not sell to them (30 August to 7 September). Whilst this might constitute a breach of duty if Mr Battye was in fact acting in this matter on behalf of the plaintiffs, it is of doubtful causal significance.
131 Whilst it did not appear specifically in the plaintiffs' summary of issues, complaint was also made concerning advice said to have been given by Mr Battye in his letter dated 4 April 2001 sent to Mr Watson.[164] The complaint was that Mr Battye "positively advised that the agreements between the parties should not proceed and that the contract with Ford should not be finalised".[165] This complaint is not made out. Mr Gibson told Mr Battye at the meeting on 20 March 2001 that he would not be given instructions in relation to the Ford sponsorship agreement or the employment contracts until Mr Gibson had resolved his ownership issues with Mr Forbes. As events have shown, as at 4 April 2001 there was no prospect of an agreement being entered into between GMM and RPM. A buy-out was the only realistic possibility. Mr Battye was correct to say that the Ford contract could not proceed until the issues concerning Mr Forbes had been resolved. Indeed, that was the effect of what Mr Battye was told on 20 March. Further, FCG could not have executed the draft Ford sponsorship agreement in accordance with its terms. This was because RPM was the only party who could fulfil the obligations imposed upon the "Participant" referred to in the Ford agreement - a matter known to Mr Gibson.[166]
132 In making conclusions on the issue of breach of duty, I have not overlooked the evidence of Mr Andrew Joseph. Mr Joseph is a solicitor who gave evidence on behalf of the plaintiffs. His evidence was supportive of the plaintiffs' case on breach of duty.[167] However, Mr Joseph's evidence was predicated upon an assumption that GMM and FCG became clients of Ebsworths as at 9 February 2001 and that Mr Watson and Mr Gibson (who he also refers to as "clients") were clients of the firm either at that time or at some time prior to 7 September 2001. I have found the facts to be different from those which Mr Joseph was asked to assume. Further, Mr Joseph's opinion was predicated on a briefing of the facts which was too high level in its generality to render his opinion of assistance. In the circumstances, his evidence does not assist in the resolution of this proceeding. In passing, I endorse the dicta of Oliver J in Midland Bank Trust Co Limited v Hett, Stubbs & Kemp (a firm):[168]
"I must say that I doubt the value, or even the admissibility, of this sort of evidence, which seems to be becoming customary in cases of this type. The extent of the legal duty in any given situation must, I think, be a question of law for the court. Clearly, if there is some practice in a particular profession, some accepted standard of conduct which is laid down by a professional institute or sanctioned by common usage, evidence of that can and ought to be received. But evidence which really amounts to no more than an expression of opinion by a particular practitioner of what he thinks that he would have done had he been placed, hypothetically and without the benefit of hindsight, in the position of the defendants, is of little assistance to the court; whilst evidence of the witness' view of what, as a matter of law, the solicitor's duty was in the particular circumstances of the case is, I should have thought, inadmissible, for that is the very question which it is the court's function to decide."[169]
133 On a number of occasions during the trial it was put that from 31 August 2001, Mr Battye acted on behalf of Mr Forbes and acted against Mr Watson and Mr Gibson. This is not a proper characterisation of what actually occurred. Mr Battye neither acted for nor against Mr Watson, Mr Gibson or Mr Forbes. He only acted for the Lowndes interests (continuing to act for GMM in respect of specific matters as I have described them above). In acting for the Lowndes interests, Mr Battye took steps that were in the interests of Mr Lowndes and his companies. The fact that they may also have been in the interests of Mr Watson and Mr Gibson at one stage or Mr Forbes at another stage is not to the point. The fact that in acting in Mr Lowndes' interests Mr Battye may have done something that was not in the interests of any of Mr Watson, Mr Gibson or Mr Forbes is also not to the point. In acting for the Lowndes interests as I have described them, there was no breach of any duty entitling the plaintiffs to equitable compensation.
134 Having regard to the findings I have made against the plaintiffs on the retainer and duty issues, it is strictly speaking not necessary for me to consider causation and loss. However, in the event that I am subsequently found to be wrong in respect of the retainer and duty issues, I turn now to consider the issues of causation and loss. In a nutshell, the plaintiffs' case is that, but for the defendants' breaches of duty, GMM would have entered into a written agreement with RPM, Mr Lowndes and Craig Lowndes Pty Ltd under which GMM would have secured contractual rights to conduct merchandising on behalf of the Gibson Motorsport Race Team. It is then alleged that the plaintiffs would have successfully conducted the Gibson Motorsport Race Team (without the Forbes interests) from 2001 for five years. According to the plaintiffs, this opportunity was denied them and they suffered loss as follows:
(a) The plaintiffs incurred legal costs (net of recoveries) of $1,079,721.14 in the Federal Court proceedings. This amount is calculated by taking the sum of $3,041,813.58 (which the plaintiffs paid in legal costs) and deducting from it amounts recovered by the plaintiffs in the sums of $1,953,331.07 and $9,331.07. In fact, when one does the arithmetic, the plaintiffs' claim is $1,079,151.44.
(b) FCG lost $2,130,000, being the difference between what is said to be the current value of the TEGA franchise ($3 million) less the value received ($870,000), being the amount received on the sale in 2002 ($650,000) plus 6% compound return for five years.
(c) GMM lost the opportunity to earn $21,176,000 operating its business until 31 December 2006. I should note immediately that this amount is calculated by calculating GMM's surplus cash net of tax which would have been generated to 31 December 2006, adding back income tax at 30%, adding an amount described as the loss on winding up and adding an amount representing the terminal business value.
135 As I have noted above, during the course of final submissions the plaintiffs did not pursue any claim for common law damages. No doubt this course was taken because equitable compensation (unlike damages at common law) is not subject to the constraints of foreseeability or remoteness.[170] The relevant principles concerning the awarding and assessment of equitable compensation were recently stated by Warren CJ (with whom Chernov JA and Dodds-Streeton AJA agreed) in GM & AM Pearce & Co Pty Ltd v Australian Tallow Producers and Palmer.[171] Warren CJ said:[172]
"[65] The measure of equitable compensation is that sum which would restore the plaintiff to the position he or she would have been in had the breach not occurred.[173] Equitable compensation is not assessed with respect to the foreseeable value at the time the breach of fiduciary duty occurred. This principle is explained by McLachlin J in Canson Enterprises Ltd v Boughton & Co.[174] in reference to an earlier case, Guerin v The Queen[175], where damages awarded at common law (compensation as assessed from the date of breach) from equitable compensation. With respect to equitable compensation, McLachlin J clearly stated that damages will be based on the trial date "having regard to what actually happened", as is the case in an equitable award for restitution.[176] Her Ladyship moreover stated that it is essential that losses made good are only those which, "on a common sense view of causation, were caused by the breach".[177] The dicta of McLachlin J in Canson Enterprises has been followed in Australia,[178] and notably, by the House of Lords in Target Holdings Ltd v Redferns[179]. In Target Holdings, Lord Browne-Wilkinson (with whom Lord Keith of Kinkel, Lord Ackner, Lord Jauncey of Tullichettle and Lord Lloyd of Berwick agreed) held that:
'Equitable compensation for breach of trust is designed to achieve exactly what the word compensation suggests, to make good a loss in fact suffered by the beneficiaries and which, using hindsight and commonsense, can be seen to have been caused by the breach.'[180]
[66] The court is also entitled, with the full benefit of hindsight, not to speculate against the interest of the plaintiff. ...
...
[71] ... [O]ne must have regard to the principle that the court is entitled not to speculate against the interest of the plaintiff[181] or to make assumptions against the defendant on the issue of causation.[182] This allows the plaintiff to lead only a minimum of evidence to discharge the evidentiary burden of causation. Indeed, in this regard it has been said that "[e]quity must strive to repair the breach of fiduciary duty lest the fiduciary in default could be exonerated too easily... [and] the courts being seen to wink at wrong-doing."[183]
"When a party, holding a fiduciary relationship, commits a breach of duty by non-disclosure of material facts, which his constituent is entitled to know in connection with the transaction, he cannot be heard to maintain that disclosure would not have altered the decision to proceed with the transaction, because the constituent's action would be solely determined by some other factor such as the valuation by another party of the property proposed to be mortgaged. Once the court has determined that the non-disclosed facts were material, speculation as to what course the constituent, on disclosure, would have taken is not relevant."
However, as was explained by Kirby J in Maguire v Maguire v Makaronis[186] facts will not be "material" if the relevant loss would have happened if there had been no breach (see also Warren CJ in Pearce (supra)). As was said by Tipping J in Bank of New Zealand v New Zealand Guardian Trust Co Ltd[187] when discussing breaches of duty committed by fiduciaries involving an element of infidelity or disloyalty:
"Once the plaintiff has shown a loss arising out of a transaction to which the breach was material, the plaintiff is entitled to recover unless the defendant fiduciary, upon whom is the onus, shows that the loss or damage would have occurred in any event, i.e. without any breach on the fiduciary's part."
Bearing the above principles in mind, I turn now to consider the three heads of claim advanced by the plaintiffs.
137 It is not immediately apparent why breaches of duty by any defendant would lead, as a matter of commonsense, to a plaintiff commencing legal proceedings against a third party in which that plaintiff suffers a net loss. The plaintiffs were largely unsuccessful in the Federal Court proceedings. They failed to establish the joint venture that they sought to establish. Whilst one could accept that the loss of a joint venture may or may not have been as a result of the defendants' breach of duty, the launching of legal proceedings in which claims made by the plaintiffs were properly dismissed and which resulted in them incurring costs cannot in this case, as a matter of causation, be laid at the feet of the defendants. Indeed, Senior Counsel for the plaintiffs conceded in his final address that these amounts could not be recovered as common law damages.[188] That concession was correctly made. Notwithstanding the different principles to be applied when assessing equitable compensation in some cases, the result is no different in this case, whether one is assessing common law damages or equitable compensation.
138 If I am wrong in this conclusion, then the chain of causation between any breach of duty by the defendants on the one hand and the incurring of the net loss caused by the commencement and maintenance of the Federal Court proceeding was broken by the plaintiffs' failure to accept Calderbank offers made by the respondents in the Federal Court proceeding on 23 April 2004 and 19 July 2004 in the amounts of $1,750,000 plus costs and $2,600,000 plus costs respectively.[189] Neither of these offers was accepted by the plaintiffs. Had they been, it is difficult to see how the plaintiffs would have suffered any loss at the conclusion of the Federal Court proceeding. It follows from what I have said that I reject this head of the plaintiffs' claim.
139 I turn now to consider the plaintiffs' claim that FCG lost $2,130,000 as a result of selling the TEGA franchise. FCG paid $400,000 on 18 December 2000 for the TEGA franchise. It was sold on 21 December 2001 to John Briggs Motorsport Pty Ltd for $650,000 (a 62.5% increase in price in a little over 12 months). The plaintiffs' claim that FCG was required to sell the franchise because it was not able to fulfil its obligations under the AVESCO Agreement for the 2002 V8 Supercar Season.[190] Mr Gibson gave evidence that, had he been able to retain the TEGA franchise, it would have been valued, in December 2003, at $3 million.[191] During the course of the trial, I admitted a deed of agreement[192] concerning the sale in September 2004 of two category one licences (the equivalent of a TEGA franchise held in 2001) pursuant to s 55 of the Evidence Act 1958[193] as evidence of the statement that in September 2004, two category one licences were sold for $3 million plus GST.[194] I rejected on discretionary grounds the tender of a similar statement[195] in relation to another sale because of issues of potential unreliability.
140 In December 2001, FCG's TEGA franchise was not going to be used in respect of a team in which Mr Lowndes was the principal driver. However, I am not satisfied that this fact caused FCG to sell its franchise. The evidence discloses that it was open to Mr Gibson to start another team. Indeed, there were other proposals from time to time (for example, the Adelaide proposal) which, if taken up, would require a TEGA franchise. Whilst FCG may not have needed its TEGA franchise in December 2001 because Mr Lowndes had stayed with RPM and whilst this may have brought about an occasion whereby FCG could sell its TEGA franchise, theoretically there was no reason why FCG could not have used it with another team based out of the factory next to the Dandenong workshop (as was contemplated if Mr Lowndes had left RPM in October 2001). Mr Lowndes was not the only driver and Ford was not the only sponsor. Indeed, for the purposes of valuing GMM as at 31 December 2006, the plaintiffs asked Mr Blashki to assume that Ford could be replaced (albeit with perhaps some reduction in sales) and to assume that the risk of losing Mr Lowndes was not "critical" as "a similar relationship could probably be generated".[196] This suggests that Mr Gibson could have (if he chose to) used the TEGA franchise in 2002 and following with another driver and sponsor, remembering that he was quite prepared, on 10 October 2001, to "basically start again".[197] Further, I am not satisfied on the basis of one sale (or perhaps two) that it is appropriate to value FCG's franchise at $3 million or any figure like it in 2003 or thereafter. The plaintiffs have not established any loss caused by the sale of the TEGA franchise in December 2001. This head of the plaintiffs' claim must be rejected.
141 I turn now to consider the plaintiffs' claim that GMM lost the opportunity to earn $21,176,000. Notwithstanding the finding I have made that Mr Battye did not breach any duty in relation to the allegation that he failed to inform Mr Watson and Mr Gibson about a lack of contracts, I will look first at this claim on the basis that Mr Battye should have done more to progress the contract issue. I find that even if Mr Battye had done more than he did (which was to raise the issue and seek instructions which were never provided), the contracts the plaintiffs would have me accept should have been in place would not have been in place in any event. This is largely because, notwithstanding the views of Mr Watson and Mr Gibson that there was consensus between them and Mr Forbes, it is clear that right from the start Mr Forbes had a different view from the view shared by Mr Watson and Mr Gibson. Even if contracts were prepared and tendered to Mr Forbes in February/March 2001, the overwhelming likelihood is that Mr Forbes would not have executed any contract or permitted RPM to enter into a binding agreement. The possibility of Mr Forbes entering into a contract became even more remote after 30 March and then again after 30 June 2001.
142 The real issue is whether or not Mr Watson and Mr Gibson could have changed the outcome of the meeting on 10 October 2001 had they been kept fully informed of Mr Forbes' intentions and activities. The first question to be asked is whether Mr Watson and Mr Gibson had a prospect of staying with Mr Lowndes and Ford as at the 10 October meeting. Mr Lowndes had not finally made up his mind. The question becomes whether Mr Watson's and Mr Gibson's chances would have been enhanced to any and what extent if they were more fully prepared to put their case on 10 October. As I have said above, this assumes that Mr Watson and Mr Gibson did not in fact put their best foot forward on 10 October - a conclusion I have rejected. Neither Mr Watson nor Mr Gibson gave any evidence of a "better" presentation that could have been made on 10 October had they been better prepared. Indeed, at no time in this trial was it suggested that there was relevant material which could have been put before Mr Lowndes on 10 October 2001 which might have enhanced Mr Watson's and Mr Gibson's case. Further, it is to be remembered that, as at 10 October, Mr Lowndes was contractually bound to RPM under the RPM driver agreement until at least 31 December 2002. Whilst this matter does not appear to have been expressly referred to, it seems likely that, had Mr Lowndes suggested that he would leave RPM, an issue of breach of contract would have been raised. Ordinarily, one would think that a person in Mr Lowndes' position would not take a step (if he did not have to) that would place him in breach of contract. Whilst Mr Lowndes might have taken such steps in relation to TWR in the second half of 2000 and in early 2001, the circumstances were very different and there would have been no up side in Mr Lowndes exposing himself (and his company) to a claim for breach of contract by RPM in October 2001. In the circumstances, and with Mr Forbes maintaining that he would not sell to Mr Watson nor Mr Gibson, there was no realistic prospect of a different outcome in relation to the 10 October meeting and the separation at or shortly after that time of the Watson and Gibson interests from the team.
143 It follows from what I have said above that, even accepting the plaintiffs' case that there were breaches of duty by the defendants in the period from 31 August to 10 October, any such breaches did not lead to GMM being deprived of an opportunity to earn income. Any such losses were brought about by the fact that Mr Forbes would not sell to Mr Watson and Mr Gibson and that realistically it was too late to set up a new team and that, in any event, Mr Lowndes was contractually bound to stay with RPM for the 2002 season. That is, any loss suffered by GMM of a kind claimed by the plaintiffs would have occurred in any event notwithstanding any breach on Mr Battye's part. However, on the basis that I might be found to be wrong in that conclusion, I should assess the value of the opportunity that GMM alleges it lost. Even if one accepts the plaintiffs' case that the defendants' breaches of duty between 31 August and 10 October 2001 deprived Mr Watson and Mr Gibson of a chance that Mr Lowndes would go with them (rather than Mr Forbes), at best what was lost was a 50/50 chance. For the reasons given above, I have found that no real chance was lost. However, on the assumption that I am wrong, I turn now to value this opportunity.
144 In order to value the opportunity allegedly lost by GMM, each side called an expert. The plaintiffs called Mr Blashki of Pitcher Partners. The defendants called Mr Meredith of Ferrier Hodgson. Various calculations were performed on various different scenarios. The scenarios assumed a business life in the range one to five years. Calculations were made on the basis of figures forecast by Mr Watson and GMM budget figures with different growth rates applied to them. Further scenarios were calculated with Biante revenue removed and on the basis that particular savings would or would not be achieved by the manufacturer of some apparel overseas.[198]
145 As we now know, Mr Lowndes and Ford left RPM at the end of 2002. Theoretically, it might be contended that, had Mr Lowndes gone with Mr Watson and Mr Gibson in October 2001, Ford would not have moved its sponsorship money at the end of 2002 and the team would have continued past the end of 2002. However, there is no real basis for any such contention. There is no basis for concluding that what occurred at the end of 2002 would not have occurred had Mr Lowndes gone with Mr Watson and Mr Gibson, rather than with Mr Forbes. Even if FCG and Ford had entered into a binding agreement in 2001, there is no reason to suppose that it would not have contained a clause entitling Ford to terminate the agreement if Mr Lowndes no longer drove for the team (that is, a clause equivalent to clause 22(b) of the draft agreement proposed by Ford to be entered into between it and FCG). It is to be remembered that the RPM driver agreement permitted Mr Lowndes to leave (as he did) at the end of 2002.
146 The appropriate assessment of GMM's loss of the opportunity to conduct the merchandising business is, in the circumstances (having regard to what actually happened, with the full benefit of hindsight and not speculating against the interest of the plaintiffs), calculated by reference to Mr Lowndes and Ford leaving at the end of 2002. Indeed, the facts as we now know them disclose that Ford moved its money at the end of 2002 to the new team, Ford Performance Racing, and Mr Lowndes (as he was entitled to under the RPM driver agreement) went with them. Whilst Mr Blashki's opinion has been expressed on an assumption that Mr Lowndes and Ford could be replaced, if that is true then there is no reason why GMM could not have operated and conducted its business for another team involving another driver and major sponsor.[199] Whilst there was debate between the parties concerning the use of either the GMM budget figures for 2002 or Mr Watson's forecast figures, I find that the GMM budget figures (having been produced without any reference to potential litigation) are more likely to reflect the true position.[200] Making these assumptions, Mr Meredith values GMM's loss at $848,459.[201] However, this amount includes a component described as "actual net cash loss on winding up". Further, the value is calculated in 2007 dollars, which, if appropriate, would require some counterbalancing alteration when any claim for statutory interest pursuant to the provisions of the Supreme Court Act 1986 was considered.
147 Mr Blashki has not performed a calculation on the basis of GMM conducting its business for a Lowndes/Ford team only up to 31 December 2002. However, if one takes the surplus cash net of tax, which would have been generated to December 2002 as calculated by him ($564,000) and adds back 30% for tax, one arrives at the figure of $733,200. Whilst Mr Blashki's calculations of GMM's loss were calculated by adding surplus cash net of tax at the conclusion of the relevant period during which the business would have operated, an amount for income tax, a loss on winding up and a terminal business value (about which Mr Meredith disagreed as a matter of methodology), on the evidence there does not appear to be any reason why one would necessarily conclude (and I do not conclude) that GMM would cease operating at the conclusion of the period being examined. GMM's loss (if any) was the loss of an ability to earn income during 2002. It is too speculative to conclude that GMM suffered any loss of an ability to earn income in 2003 and beyond. Consistently with the assumptions Mr Blashki was asked to make, GMM's loss was the loss of income it could have earned in 2002 before then continuing on as a business involving another driver and another sponsor. Having said that, the figure of $733,200 clearly does not reflect Mr Blashki's valuation of GMM's loss, but rather my extrapolation of his figures which formed the basis for three and five year loss calculations.
148 If one takes Mr Meredith's scenario two figures[202] and removes the actual net cash loss on winding up component,[203] then the estimated loss would be $644,430 (in 2007 dollars).[204] However, there are a number of other variables capable of impacting positively or negatively on the valuation. Specifically, the possibility of cost savings in respect of overseas manufacturing, whether a fee to RPM at any and what level should be assumed, whether GMM would have had to subsidise RPM's operations (and if so, then to what level and with what possible subsequent benefit to GMM) and the ownership of the Biante sponsorship moneys (GMM or RPM) need to be considered. It is not possible to make specific dollar allowances in respect of each of these contingencies and possibilities. Having considered them (and taking the broad brush that I was invited by the parties to take),[205] I consider that an appropriate valuation of the loss (in 2007 dollars - and thus with the necessity to make an appropriate adjustment for interest) is $700,000.
149 The evidence discloses that if GMM was deprived of an opportunity to earn income as a result of breaches of duty by Mr Battye in September and October 2001, then the amount of the loss is of the order of $700,000. As I said above, at best, GMM lost a 50/50 chance to earn that income. In the end, had I been called upon to assess common law damages, I would have taken that matter into account. However, the plaintiffs did not pursue a common law remedy, pursuing only a claim for equitable compensation. Accordingly, had my findings required me to assess equitable compensation, I would have (in accordance with the principles I have identified above[206]) assessed such compensation at $700,000.[207]
150 Whilst I have examined questions of causation and loss and made the findings set out above, the plaintiffs having failed on the issue of liability, there will be judgment for the defendants. I will hear the parties on the question of costs.
[1] The second defendant, Mr Battye, is and was at all relevant times a partner of the first defendant, Ebsworth & Ebsworth.
[2] The figures in the particulars under paragraph 36 of the plaintiffs' third amended statement of claim total $24,385,721.14. Whilst the major component of this claim ($21,176,000) is described in the third amended statement of claim as being an amount that one of the plaintiffs lost the opportunity to earn, in the further and better particulars of loss and damage dated 7 November 2008 this amount is said to be the total economic loss of that plaintiff. This apparent discrepancy may be explained by a developing emphasis by the plaintiffs during the trial on a claim for equitable compensation, rather than common law damages. I will say more about this below.
[3] This is Mr Watson's summary of the meeting. Mr Battye's summary of the meeting is a little different, but not in a way which affects the outcome of this case.
[8] Whilst many of the documents refer to this business name as Gibson Motorsport, the certificate of Commissioner for Corporate Affairs relating to the registration of a business name records the business name as a three word name, Gibson Motor Sport. However, nothing seems to turn on this issue, as the case was conducted on the basis that this certificate was the relevant certificate in respect of the two word business name referred to in many of the documents.
[13] Then called ACN 095 359 041 Pty Limited.
[15] Exhibit 27 is Mr Gibson's written resignation dated 12 December 2000. Mr Forbes believes that this document was executed in January 2001 and backdated to the day of Mr Gibson's appointment.
[17] A partner of Stanley & Williamson, Chartered Accountants.
[18] Whilst unlike the Certificate of Registration (which has a three word name) the consent has a two word name. However, both of them bear the number 985630D - showing that they are the same business name.
[21] See paragraph 20 of Mr Polites' affidavit sworn 26 February 2004 - which affidavit was tendered pursuant to s 55 of the Evidence Act as Mr Polites died before trial.
[25] It is the plaintiffs' case that Mr Battye was also present at this meeting (relying upon the evidence of Mr Watson). However, Mr Battye denies this allegation.
[26] In a fax dated 7 September 2001 addressed to Mr Watson and Mr Gibson.
[27] An appeal by the applicants to the Full Court of the Federal Court was dismissed on 31 March 2006.
[28] At the commencement of the trial, the claim under this heading was for an amount of the order of $1.3 million. However, in the amended further and better particulars of loss and damage dated 7 November 2008, this claim was reduced to $1,079,721.14, being the amount of $3,041,813.58 which the plaintiffs allege they paid in legal costs and disbursements in relation to the Federal Court proceedings less the amount of $1,953,331.07 which they recovered in settlement of their claims and costs pursuant to a Deed of Release which is part of Exhibit M and less an amount of $9,331 recovered for interest.
[30] Remembering that in final addresses the plaintiffs abandoned claims for damages and contented themselves with the position that the tortious duties and breaches of contract were all subsumed by the fiduciary claims.
[31] Which amendment was allowed by consent on 24 October 2008.
[32] Subsequently, this question became irrelevant when the plaintiffs amended their pleadings again to delete a claim for interference with contractual relations.
[33] On day 12 I gave further leave to the plaintiffs to deliver another version of the third amended statement of claim. The substance of the amendments made pursuant to the leave granted on days 10 and 12 of the trial was to permit the plaintiffs to run a case that the tortious and fiduciary duties they alleged arose not merely because of the retainers they allege - but alternatively in the circumstances of their relationships with Ebsworths and Mr Battye.
[34] For the sake of completeness, I should note that, in addition to making those amendments in the third amended statement of claim, the plaintiffs abandoned previously pleaded causes of action of defamation, malicious falsehood and interference with contractual relations.
[35] For example, in the resolution of this proceeding it is not productive to ask whether the defendants owed GMM a duty of loyalty and good faith in respect of some of the discrete matters attended to by Mr Battye in which GMM was a central party.
[36] Although the existence of tortious duties of care is no longer a central issue having regard to the way in which the plaintiffs ultimately put their cases in final address, wherein they stated that the tortious duties were subsumed by the fiduciary claims (T1511.16).
[38] There were some small notes made in a diary and on some documents occasionally.
[39] Indeed, Mr Watson frankly conceded in evidence-in-chief, in answer to a question about conversations that occurred with Mr Battye in early February 2001: "I am trying to distil a thousand conversations" (T185.26).
[40] Paragraph 230 of Mr Watson's principal witness statement - part of Exhibit A.
[41] Paragraph 288 of Mr Watson's principal witness statement - part of Exhibit A.
[45] Compare paragraph 56 of Mr Gibson's witness statement with p.532 of the transcript of Mr Gibson's evidence in the Federal Court (part of Exhibit 20). See also T576.
[50] Dated 12 November 2008, but handed up on the last day of the trial (14 November).
[51] See T426.6 - .17 and T384.22 - .27. But cf Mr Watson's evidence that the team consisted of the three companies, FCG, RPM and GMM at T329.22 - 330.16.
[53] Although Mr Battye conceded at T834 that there was a possibility of invoking privilege and that it was something that he may have mentioned to Mr Watson - although he did not recall.
[54] See Mr Battye's evidence at T834-5 in which he says that he did not turn his mind to this issue, did not believe he raised it with Mr Watson and did not think that the firm's cover extended in that manner.
[55] See CB 5/1185 which is part of Exhibit A.
[56] Whilst, as I will recount below, Mr Watson asserts that it was in a meeting in late November 2000 that he introduced Mr Gibson to Mr Battye, so far as the resolution of this case is concerned, nothing of great moment turns on this conflict.
[57] Whilst Mr Battye also acted for Mr Lowndes' company, Craig Lowndes Pty Ltd, it is not necessary to specifically refer to this company and references hereafter to Mr Battye acting for Mr Lowndes should be taken to include references to him acting for Mr Lowndes' company.
[60] Paragraphs 88, 89, 90, 94, 96, 97, 119-121, 190, 191, 194, 208, 209, 274 and 278 of Mr Watson's original witness statement were originally not received in evidence as they contained conversations about which there was a dispute between the parties.
[61] Set out in paragraph 94 of Mr Watson's original witness statement, one of the paragraphs not received because it contained evidence of a conversation which was disputed.
[62] Again, see Mr Watson's evidence as to his attempts to "distil a thousand conversations" at T185.26.
[63] See for example (and to the extent Mr Watson swore up to paragraph 90 of his principal witness statement, which was not received for reasons already stated) in which it is recorded that Mr Battye said "But Craig is the principal client and his concerns must take priority of the other entities". See further T378.30 - 379.14.
[65] The consent was executed on 30 January 2001, although as subsequent events showed, Mr Forbes had a belief that he (RPM) was entitled to use the business name from December 2000.
[71] Whilst I have referred to Mr Battye acting or not acting for various parties and have not specifically referred to the first defendant, Ebsworth & Ebsworth, this is because it is not suggested by the parties that any other person at Ebsworth & Ebsworth had any relevant involvement in this proceeding. The case is one that succeeds or fails by reference only to Mr Battye's conduct and involvement (albeit that at all relevant times he was a partner of Ebsworth & Ebsworth).
[76] See Mr Watson's evidence at T413.19 - .23 and Mr Gibson's evidence at T585.10 - .14.
[77] CB 7/2066-2067 - part of Exhibit A.
[79] CB 7/2126-2131 - part of Exhibit A.
[80] CB 7/2142-2164 - part of Exhibit A.
[81] CB 8/2488-2491 - part of Exhibit A.
[82] The circumstances of this are more fully described in paragraph [112] below.
[84] CB 8/2518-2520, a signed copy of Court Book 8/2515-2517 - part of Exhibit A.
[90] CB 8/2638 - part of Exhibit 24 and T983.21.
[91] See paragraph 65 of Mr Gibson's principal witness statement (part of Exhibit O), noting that whilst this evidence is contained in a paragraph dealing with Mr Gibson's limited contact with Mr Battye during late 2000, the evidence is not expressly limited to this period. Further, the evidence accords with what was undoubtedly the practice as disclosed by the activities of Mr Battye, Mr Watson and Mr Gibson throughout 2001.
[93] CB 9/2650-2653 - part of Exhibit 24.
[98] CB 9/2752-2753 - part of Exhibit A.
[99] CB 9/2754-2755 - part of Exhibit A.
[100] Paragraph 230 of Mr Watson's principal witness statement - which is part of Exhibit A.
[103] Exhibited to an affidavit sworn by Ms Allen - Exhibit 38.
[105] See paragraph 26 of Mr Polites' affidavit - Exhibit Y.
[110] CB 9/2788-2795 - part of Exhibit A.
[111] See paragraph 211 of Mr Battye's witness statement - part of Exhibit 24; but cf T1032.2 - 1033.12.
[112] Exhibit GP4 of Mr Polites' affidavit (Exhibit Y).
[114] See paragraphs 215 - 221 of Mr Battye's witness statement, rather than paragraphs 247 and 248 of Mr Watson's principal witness statement.
[116] Mr Crompton was the other driver engaged by RPM for the purpose of the dual driver endurance races.
[121] Paragraph 253(e) of Mr Battye's witness statement (part of Exhibit 24).
[123] See also Mr Polites' version of this conversation at paragraph 30 of his affidavit (Exhibit Y).
[125] However, after Mr Lowndes gave evidence (as supposedly the last witness), I gave leave to the plaintiffs to recall Mr Battye for further cross-examination. In this further cross-examination it was suggested to Mr Battye that a reason for his conduct was the possibility that he might take over a managerial role in respect of Mr Lowndes. Mr Battye flatly denied this suggested motive (T1369). I accept his denial. Whilst it is true that after 10 October Mr Battye had contact with sponsors where that contact may have previously been undertaken by Mr Watson, the evidence simply did not bear out the plaintiffs' suggested motive.
[131] As Mr Lowndes described it (T1352.26 - 1353.2), the plan of Mr Gibson and Mr Watson was to try and buy back the team (which at that point was not feasible), with the alternative being that Mr Gibson would operate out of the adjoining factory which he owned and that they would "basically start again".
[132] See Mr Lowndes' evidence at T1353.3 - .20.
[133] In discussing who Mr Battye was retained by or acted for, I include Ebsworths so far as these issues are concerned because Ebsworths are relevantly identical to Mr Battye for these purposes.
[134] Indeed, at T576 - 581, Mr Gibson conceded that during the second half of February 2001 Mr Kinchington (his accountant) was his sole adviser in relation to his and FCG's relationship with Mr Forbes and RPM.
[136] For example, Mr Battye gave Mr Watson advice concerning a beach box: see T944.
[142] For example, Exhibit N discloses that Mr Gibson received advice from his accountant, Mr Kinchington at the end of February 2001 that the existence of a signed contract between Mr Lowndes and RPM concerned him a great deal. In Exhibit N, Mr Kinchington said to Mr Gibson that there was a risk that Ford might well think it to its advantage to go with Mr Forbes rather than Mr Gibson. He also noted that the Ford money was likely to follow Mr Lowndes, even if the Ford people might prefer Mr Gibson to be involved. He concluded: "A speedy signing of the Ford contract tying up the sponsorship money is desperately important".
[143] For example, Mr Watson's and Mr Gibson's responses to the letters dated 19 September 2001 addressed to them from Andersen Legal.
[145] See generally Burge v Swarbrick [2007] HCA 17; (2007) 232 CLR 336 at [65] and Roads and Traffic Authority of New South Wales v Dederer [2007] HCA 42; (2007) 238 ALR 761 at [264].
[146] For example, CB 9/2866 - part of Exhibit A.
[147] In submitting that I should reject the plaintiffs' case as to the existence of the Gibson Motorsport Merchandise retainer, the FC Gibson retainer and the disputation advice retainer, the defendants placed emphasis on the changes that have occurred to the plaintiffs' case over time (see for example T1372.7 - 1373.11). Whilst I have not rejected the plaintiffs' case that on 9 February 2001 Ebsworths were retained to act generally on behalf of GMM or FCG or (as will appear from below) the plaintiffs' case concerning the disputation advice retainer because of the changes in the plaintiffs' case identified by the defendants, it is noteworthy that in earlier versions of the statement of claim (see for example the statement of claim dated 17 September 2004, delivered between the conclusion of the Federal Court hearing and the delivery of judgment in that case), the plaintiffs contended that on or about 8 December 2000 Ebsworths were retained to act as solicitors for "the Venture partners including Mr Watson and Mr Gibson and their related entities, in relation to the Venture and to provide legal advice and services in respect thereof" - a claim that could not, on any view of the evidence, have been correct. No doubt this allegation reflected what was the plaintiffs' then reconstruction of events.
[148] See generally Meerkin & Apel v Rossett Pty Ltd [1998] 4 VR 54 at 62-3 and 65-6.
[149] Cf Beach Petroleum NL v Kennedy [1999] NSWCA 408; (1999) 48 NSWLR 1 at paragraph [227].
[150] Thus, Mr Battye's "concession" that even if he carried out work on RPM's instructions he owed duties to GMM (T944) is of no great moment in the resolution of this case. The additional concession of not acting against the interests of GMM must be viewed in the context of the questioning - and in particular with reference to the third parties involved in the transactions to which GMM was a party.
[152] See also Beach Petroleum NL v Kennedy [1999] NSWCA 408; (1999) 48 NSWLR 1 at paragraphs [465] - [467] and UTi (Australia) Pty Ltd v The Partners of Piper Alderman [2008] NSWSC 219 at paragraphs [53] - [55].
[153] For example, Pegrum v Fatharly (1996) 14 WAR 92; IGA Distribution v King & Taylor Pty Ltd [2002] VSC 440; Moody v Cox & Hat [1917] 2 Ch 71; Commonwealth Bank of Australia v Smith [1991] FCA 375; (1991) 42 FCR 390; Wan v McDonald [1992] FCA 4; (1992) 33 FCR 491; Hilton v Barker, Booth & Eastwood (A firm) [2005] UKHL 8; [2005] 1 All ER 651; Neil v The Queen (2002) 218 DLR (4th) 671; and Spincode Pty Ltd v Look Software Pty Ltd [2001] VSCA 248; (2001) 4 VR 501.
[154] See the judgment of Mason J in Hospital Products Limited v United Surgical Corporation [1984] HCA 64; (1984) 156 CLR 41 at 97 wherein his Honour said:
"That contractual and fiduciary relationships may coexist between the same parties has never been doubted. Indeed, the existence of a basic contractual relationship has in many situations provided a foundation for the erection of a fiduciary relationship. In these situations it is the contractual foundation which is all important because it is the contract that regulates the basic rights and liabilities of the parties. The fiduciary relationship, if it is to exist at all, must accommodate itself for the terms of the contract so that it is consistent with, and conforms to, them. The fiduciary relationship cannot be superimposed upon the contract in such a way as to alter the operation which the contract was intended to have according to its true construction."
[155] See generally Meagher, Gummow & Lehane, Equity Doctrines & Remedies (4th Edition) at paragraph 5 - 010.
[156] See generally Beach Petroleum NL v Kennedy [1999] NSWCA 408; (1999) 48 NSWLR 1 at paragraphs [357] - [365].
[157] See generally Conway v Ratiu [2005] EWCA Civ 1302 per Auld LJ (with whom Laws and Sedley LJJ agreed) at paragraph [73].
[159] There were discussions on 20 February and a letter on 22 February, to which I have already referred.
[161] See paragraph 11(i)(i) of the plaintiffs' outline of submissions.
[162] See paragraph 170 of Mr Battye's witness statement (Exhibit 24) but cf Mr Battye's evidence at T978.7 - .27.
[163] Whilst it might be thought to be curious that Mr Battye participated in the settling of this letter, having regard to what he knew about Mr Forbes' position, Mr Battye's conduct can be explained by the fact that he was (as he said he would) keeping his conversation with Mr Forbes confidential.
[164] I do not mean to suggest that this complaint it outside the plaintiffs' summary of issues. In truth, it is a particular of the complaint "failing to inform Mr Watson and Mr Gibson that the lack of inter se contracts and the competing interests of Mr Forbes rendered their interests vulnerable".
[165] See paragraph 11(d) of the plaintiffs' outline of submissions.
[168] [1979] 1 Ch 384 at 402.
[169] See also the Full Federal Court decision Yates v Boland [1998] FCA 8; (1998) 157 ALR 30 at 56 wherein the Court said: "We think that a court is well placed to determine the liability in negligence of a legal practitioner without the aid of such evidence where questions of particular practices do not arise" - but note the substantial criticism that decision received in the High Court in respect of other issues in Boland v Yates (1999) 167 CLR 575 (see in particular the judgment of Gummow J at paragraph [114]).
[170] By making this statement I do not mean to embark upon the debate created by the judgment of Millett LJ in Bristol & West Building Society v Mothew [1998] Ch 1 at 17 where his Lordship said:
"Although the remedy which equity makes available for breach of the equitable duty of skill and care is equitable compensation rather than damages, this is merely the product of history and in this context is in my opinion a distinction without a difference. Equitable compensation for breach of the duty of skill and care resembles common law damages in that it is awarded by way of compensation to the plaintiff for his loss. There is no reason in principle why the common law rules of causation, remoteness of damage and measure of damages should not be applied by analogy in such a case. It should not be confused with equitable compensation for breach of fiduciary duty, which may be awarded in lieu of rescission or specific restitution."
(See Youyang Pty Ltd v Minter Ellison [2003] HCA 15; (2003) 212 CLR 484 per Gleeson CJ, McHugh, Gummow, Kirby and Hayne JJ at paras [38]-[40]. See also Meagher, Gummow & Lehane, Equity Doctrines & Remedies (4th ed) at 840.)
[172] At paras [65], [66] and [71].
[173] Nocton v Lord Ashburton [1914] AC 932 at 952; Re Dawson; Union Fidelity Trustee Co. Ltd v Perpetual Trustee Co Ltd [1966] 2 NSWLR 211; Hill v Rose [1990] VicRp 13; [1990] VR 129 at 143-4; Target Holdings Ltd v Redferns [1995] UKHL 10; [1996] 1 AC 421 at 436.
[174] Canson Enterprises Ltd v Boughton & Co (1991) 85 DLR (4th) 129.
[175] Guerin v The Queen (1984) 13 DLR (4th) 321.
[176] Ibid. This principle is appropriately illustrated in the case Re Dawson; Union Fidelity Trustee Co Ltd v Perpetual Trustee Co Ltd [1966] 2 NSWLR 211, where the compensation payable by a trustee whose breach of duty resulted in the loss of trust assets was calculated by reference to the (higher) value of the trust assets at the date of restoration and not at the date of loss.
[177] Canson Enterprises Ltd v Boughton & Co (1991) 85 DLR (4th) 129 at 163.
[178] See O'Halloran v R T Thomas & Family Pty Ltd [1998] NSWSC 596; (1998) 45 NSWLR 262 at 273, per Spigelman C.J.; Youyang Pty Ltd v Minter Ellison [2001] NSWCA 198 at [77]; Biala Pty Ltd v Mallina Holdings Ltd (No 2) (1993) 13 WAR 11.
[180] Ibid at 439. See also Youyang Pty Ltd v Minter Ellison [2003] HCA 15; (2003) 212 CLR 484 at [45] - [50] per Gleeson CJ, McHugh, Gummow, Kirby and Hayne JJ.
[181] Charles Lo Presti Pty Ltd v Karabalios [2000] NSWSC 395 at [60], per Austin J.
[183] Maguire v Makaronis [1997] HCA 23; (1997) 188 CLR 449 at 492-493; Kirby J explicating the principle that "once a breach of fiduciary duty is shown, the inquiry is not a simple one as to what caused subsequent losses", as enunciated by Lord Thankerton in Brickenden v London Loan & Savings Co [1934] 3 DLR 465 and Street J. in Re Dawson Union Fidelity Trustees v Perpetual Trustee Co. Ltd [1966] 2 NSWLR 211.
[186] [1997] HCA 23; (1997) 188 CLR 449 at 493.
[187] [1999] 1 NZLR 664 at 687.
[191] See Mr Gibson's principal witness statement (part of Exhibit O) at paragraph 156.
[193] Relying upon Saffron v The Queen (1989) 17 NSWLR 395; Albrighton v Royal Prince Alfred Hospital (1980) 2 NSWLR 542; Nolan v Nolan [2003] VSC 121; (2003) 10 VR 626; ATRA v Farmers and Graziers Coop (1986) 5 NSWLR 281; RW Miller & Company v Krupp (Australia) Pty Ltd (1991) 32 NSWLR 152; Re Marra Development (1979) 2 NSWLR 193 and Ritz Hotel v Charles of the Ritz (Nos 15 & 16) (1987) 14 NSWLR 107.
[195] Contained in Exhibit V for identification.
[196] See paragraphs 38b and 44f of Mr Blashki's report dated 5 February 2007 (part of Exhibit S).
[198] As to other variables and scenarios, see paragraph [148] below.
[199] See the assumptions Mr Blashki was asked to make as demonstrated in paragraphs 38b and 44f of his report dated 5 February 2007 (part of Exhibit S).
[200] In making this conclusion I have not overlooked the evidence concerning the success of HRT and the merchandising revenue it achieved in the years leading up to and during the same period (In particular the evidence of Mr Crennan and Mr Skaife). Again, the success of HRT and its ability to generate revenues substantially greater than the amounts here under discussion were known at the time the GMM budget figures were calculated.
[201] Mr Meredith's scenario two, supported by his revised annexure I (part of Exhibit 39).
[202] Which produce the valuation figure referred to in paragraph [146] above.
[203] Again, on the basis that the business could continue with the team engaging another driver and another major sponsor.
[204] $550,184 x the CPI index of 1.1713.
[206] In particular, paragraph [71] of the judgment in Pearce (supra) and the judgment of Lord Thankerton in Brickenden (supra). See also O'Halloran v RT Thomas & Family Pty Ltd [1998] NSWSC 596; (1998) 45 NSWLR 262 at 277.
[207] Bearing in mind what I have said about 2007 dollars and interest in paragraph [148] above.
Watson & Ors
Ebsworth & Ebsworth
(2007) 232 CLR 336
(2007) 238 ALR 761
(1999) 48 NSWLR 1
(1996) 14 WAR 92
(1991) 42 FCR 390
(1992) 33 FCR 491
(2001) 4 VR 501
(1984) 156 CLR 41
(1998) 157 ALR 30
(1999) 167 CLR 575
(2003) 212 CLR 484
(1998) 45 NSWLR 262
(1993) 13 WAR 11
(1997) 188 CLR 449
(1989) 17 NSWLR 395
(1980) 2 NSWLR 542
(2003) 10 VR 626
(1986) 5 NSWLR 281
(1991) 32 NSWLR 152
(1979) 2 NSWLR 193
(1987) 14 NSWLR 107