New South Wales District Court CITATION: Colin Graham Kimber and Lynette Mary Manwaring v Susan and John McNair [2008] NSWDC 114 HEARING DATE(S): 17/06/08 - 19/06/08 JUDGMENT DATE: 4 July 2008 JURISDICTION: Civil JUDGMENT OF: Rolfe DCJ DECISION: See paragraph 60 of Judgment CATCHWORDS: Racehorse - Agreement for Training and Co-ownership - Sale of horse by one co-owner without the other's consent - Breach of contract - Conversion of horse - Calculation of damages - Lost opportunity to win prize money - Lost opportunity to place successful bets LEGISLATION CITED: Partnership Act 1992 (NSW) Civil Procedure Act 2005 (NSW) Penfolds Wines Pty Ltd v Elliott (1946) 74 CLR 204 at 229 Hill v Reglon Pty Limited (2007) NSW CA 295 at (90) CASES CITED: The Anderson Group Pty Limited v Tynan Motors Pty Limited (2006) 65 NSW LR 400 Scarfe v Morgan (1838) 150 ER 1430 at 1436 Sellars v Adelaide Petroleum NL (1994) 179 CLR 332 Colin Graham Kimber (1st Plaintiff) PARTIES: Lynette Mary Manwaring (2nd Plaintiff) Susan McNair (1st Defendant) John McNair (2nd Defendant) FILE NUMBER(S): 133/07 COUNSEL: M Condon with L Gorham for the Plaintiffs M Maxwell for the Defendants JUDGMENT 1 The plaintiffs have been involved in race horses as a hobby for some time. The First plaintiff, Colin Graham Kimber, bred the racehorse "Mindreader" with Bernadette Nutman, the owner of the brood mare. The horse's sire was "Mind Games", a champion sprinter. Mindreader was a thoroughbred brown gelding foaled on 6 October 2000. 2 On 11 February 2002 Mr Kimber purchased Ms Nutman's share in the horse and sometime thereafter sold a 20% interest in it to the Second plaintiff, Lynette Mary Manwaring. 3 The Second defendant, John Charles McNair, is a successful racehorse trainer with more than 40 years experience in the industry. Mr McNair has bought and sold horses in partnership with his wife, Susan McNair, the First defendant. 4 Mr McNair trained Mindreader for the plaintiffs during late 2002 and early 2003 before Mr McNair was suspended for 4 months. During his suspension, the plaintiffs engaged Kevin Moses as the trainer. 5 After returning from suspension, Mr McNair trained Mindreader from late 2003 until about August 2004 when he was suspended again, this time for 12 months. After Mr Nair's 12 month suspension was imposed, the horse was trained by two other trainers, first, Dale Sutton and then, Stephen Jones. 6 On 7 October 2005 Mr McNair spoke to Mr Kimber. They disagreed in their evidence as to what was said. For reasons expressed later in this judgment and except where Mr McNair's evidence to the contrary was collaborated by other oral testimony or documents which were in evidence, I prefer Mr Kimber's account of all relevant events. 7 On 7 October 2005 Mr McNair asked Mr Kimber if he could lease Mindreader. Mr Kimber said he would speak to Ms Manwaring. After he did so, the plaintiffs and the defendants entered into the written agreement dated 10 October 2005, which is annexure E to exhibit A. Under the Agreement Mr McNair agreed to train the horse in accordance with its terms and Mrs McNair acquired a one-half share in Mindreader. 8 Once the Agreement was executed the Registrar of Race Horses issued the certificate of transfer endorsement (Annexure F, exhibit A) which recorded the owners of the horse as follows: Mr Kimber (40%) Ms Manwaring (10%) Mrs Sinclair (50%) 9 The Australian Racing Board is the National body for thoroughbred racing in Australia. It approves the Australian Rules of Racing (exhibit D). In accordance with the definition of "Manager" under those rules, Mr Kimber was the Manager of Mindreader and under Rule 57 (2) was entitled to do the following things: "(2) The manager of a horse shall, alone of the joint owners, lessees or syndicate members be entitled to: (a) Enter, nominate, accept or scratch such horse for any race; (b) Engage a jockey to ride such horse for any race; (c) Receive any prize money or trophy won by such horse; or (d) Act for and represent the joint owners, lessees or syndicate members in relation to the horse in all respects for the purpose of these Rules." 10 Between early December 2005 and the end of April 2006, Mindreader ran in 13 races. The history of his form in those races is Annexure C to exhibit 3. The horse did well in that he won on three occasions, came second once and came third twice. 11 After watching a race that took place on 17 April 2006, Mr Kimber telephoned Mr McNair and complained about the performance of the jockey. This conversation created considerable tension between Mr Kimber and Mr McNair. Prior to the execution of the Agreement they had already had a falling out in relation to an entirely different horse. 12 Further tension occurred when Mr McNair raced the horse at Hawkesbury on 29 April 2006 without discussing the matter with either Mr Kimber or Ms Manwaring. In this respect, the Court is satisfied that Mr McNair had previously told Mr Kimber that the horse had had his last race for a while and was due for a spell. I am satisfied that once he found out the horse was racing on 29 april 2006 Mr Kimber tried to speak to Mr McNair about it but Mr McNair would not answer his calls. The result was that between the end of April 2006 and the end of June 2006 neither Mr Kimber nor Mr McNair spoke to the other. This occurred because they were both angry with each other. 13 On or about 27 June 2006 Mr McNair rang Mr Kimber and told him he was about to send him an email or fax concerning expenses which he said had been incurred relating to the horse. In response, Mr Kimber asked about the horse and Mr McNair told him that the horse was still in the paddock. Immediately following this conversation Mr McNair faxed to Mr Kimber the document headed "Mindreader Expenses" which is Annexure I to exhibit A. The document purported to be a request of the plaintiffs for payment of $2,167.50 said to be a 50% share of certain expenses which the defendants claimed they had incurred in relation to the horse. Alternatively, the defendants asked for $1,750 "if paid in cash … plus a good bottle of red". The fax also recorded that the horse was still spelling at the moment but was "due in shortly". 14 Clause 2 of the Agreement provided: "(2) Veterinarian and race acceptance fees will be shared on an equal 50% basis with copies of all invoices provided by the trainer." 15 After the fax was received by Mr Kimber he had a telephone conversation with Mr McNair in which Mr McNair demanded payment of the expenses. I am satisfied that the conversation was a very heated one during which Mr Kimber expressed dissatisfaction and frustration with the lack of proof of the expenses, and in particular, the lack of invoices recording amounts actually spent on veterinarian expenses for Mindreader by the defendants. I am satisfied that Mr Kimber asked Mr McNair for copies of such invoices and that he challenged Mr McNair about extra expense items appearing on the document which had been faxed to him and that, as a result, Mr McNair told Mr Kimber that unless (either) amount referred to in the fax was paid that the horse would stay in the paddock. 16 Following this discussion, Mrs McNair sent an email to the plaintiffs in which she both endeavoured to repair the broken relations, but, at the same time, sought an apology on behalf of Mr McNair for the critical comments made about the jockey's performance on 17 April 2006 insofar as they reflected on her husband. Ms Manwaring responded with her email of the same date, which was inflammatory because it reiterated the criticism about the jockey's ride. But it also reiterated that the plaintiffs would pay their share of the veterinary expenses once they were shown the veterinarian's invoices. 17 After the emails, nothing happened until 12 October 2006 when Mr McNair phoned Mr Kimber and told him that the plaintiffs would have to buy the defendants out because the parties could not get on. Mr Kimber told him to forget it and that he had not complied with the terms of the Agreement. 18 Although Mr McNair denied that such words were said, I do not accept this evidence. In this respect, during the course of the hearing, Mr McNair made a further affidavit (exhibit 4) in which he asserted that during the telephone conversation which took place on 27 June 2006 he told Mr Kimber that unless the veterinary fees were paid that he would have no alternative but to sell the horse. He also claimed that when they spoke on 12 October 2006 he told Mr Kimber that unless the plaintiffs paid him what they owed he would sell the horse and that as they were never going to get on, the plaintiffs had left Mr and Mrs McNair with no alternative but to sell the horse in an auction. I do not accept any of this evidence. In my assessment, Mr McNair made up this conversation because he realised that, without it, there was no evidence that the plaintiffs were aware of the possibility that Mrs McNair would sell the horse. In my assessment, Mr McNair had no proper or adequate explanation for the reason as to why he omitted details of this important conversation in his original statement (exhibit 3). In the Court's assessment he was prepared to say and do anything in order to ensure that the defendants would avoid any liability to the plaintiffs arising out of their conduct with regard to the horse. In this respect, the attempt by Mr McNair to put the matter down to poor recollection was a feeble excuse which did not impress the Court at the time it was given. Mr Kimber, on the other hand, was an impressive witness who told the truth and whose evidence was quite clear about not being told of any proposed or potential sale of the horse by the defendants. 19 Another reason for the Court not accepting Mr McNair's evidence is because the evidence demonstrates he was a deceitful person. In this respect, Mrs McNair signed the form authorising William Inglis & Sons Limited to sell the horse on 3 October 2006. The form was received by William Inglis & Sons Limited on 9 October 2006, three days before the conversation occurred between Messrs Kimber and McNair. In other words, at the time the conversation took place, Mr McNair withheld telling Mr Kimber that the horse had been placed with William Inglis & Sons Limited for the purpose of a sale. Nor did Mr McNair tell Mr Kimber that he had arranged for Mindreader to be transported from his property near Gosford to the sale yards in Melbourne. 20 The upshot was that, without the knowledge of the plaintiffs, the horse was sold by William Inglis & Sons Limited at its Melbourne sale on 13 October 2006 for $10,500. The Court was informed that the proceeds of sale have been held in a trust account by the auctioneer pending the outcome of this litigation. The Court has assumed that the plaintiffs will receive at least one half of the amount held in trust equivalent to their one-half share in Mindreader. Because the auctioneer acted properly in the matter, ownership of the horse has been transferred to the new owners, Mr and Mrs Zampatti. Mr Zampatti is also a trainer of racehorses. 21 The plaintiffs allege that by their actions in selling the horse the defendants destroyed the entire basis of the Contract because ownership of the horse passed to Mr Zampatti. 22 Counsel for the defendants submitted that under the Agreement Mr McNair had 100% control over the horse for the term of the Agreement. Therefore, Rule 57 (1) of the Australian Rules of Racing applied and, accordingly, under Rule 57 (2) (d) set out earlier, Mr McNair was authorised by the plaintiffs and Mrs McNair to effect a sale of the horse. 23 In the first place, the control given to Mr McNair in relation to the horse was as trainer only and it was conditional upon him supplying the plaintiffs with a weekly summary of the horse's progress and five days notification of any race the horse had been nominated to run in. Clause 5 of the Agreement provides as follows: "5. The trainer has 100% control over the horse for the term of this Agreement provided he provides a weekly summary of the horse's progress and a minimum of five (5) days notice of any race the horse is a nominee." 24 In October 2006 Mr McNair had breached Clause 5 because he had not provided the plaintiffs with a weekly summary of the horse's progress and had failed to give them the required notice of the race which took place on 29 April 2006. 25 Secondly, Rule 57 (1) is in the following terms: "The manager may be removed or replaced by memorandum signed by the joint owners or lessees or syndicate members representing a majority interest in the horse." 26 Counsel for the defendants submitted that the Agreement constituted a memorandum signed by the joint owners. However, the certificate of transfer issued by the Registrar of racehorses on 16 November 2005 post dates the Agreement and speaks for itself. In other words, by virtue of the Rules of Racing, Mr Kimber was the manager of Mindreader as at 16 November 2005 insofar as that issue is relevant. 27 More importantly, Rule 57 (2)(d) does not operate so as to authorise the manager of a horse to sell it. Counsel could not point the Court to any other racing rules which had any bearing on the sale of a racehorse, including Mindreader. 28 Finally, counsel for the defendants submitted that, applying the contra proferentem principle, the Court should conclude that the Agreement authorised Mr McNair as trainer to sell the horse. Applying that principle results in the Court reaching the opposite conclusion. The Agreement merely vested control of Mindreader in Mc McNair for the purpose of training him and no more. Indeed, Clauses 1 & 8 reinforce this conclusion. Clause 1 provided for Mrs McNair to be responsible for the costs of training, thereby diminishing Mr McNair's role. Clause 8 envisaged an extension of the initial 12 month training term whereby the plaintiffs would pay 50% of Mr McNair's fees for training the horse; in other words, the parties did not contemplate, by the Agreement, a sale of the horse. 29 Accordingly, the defendants breached the Agreement by selling the horse without the plaintiffs' consent. 30 As a fallback, counsel for the defendants submitted that the plaintiffs were estopped from denying that Mr McNair was the manager of Mindreader. First of all, estoppel was not pleaded. Secondly, the submission takes the defendants nowhere because of the Court's finding that Rule 57 (2)(d) did not authorise a sale of a racehorse. 31 The defendants are also liable in conversion to the plaintiffs. Although counsel for the defendants relied on the well known judgment of Dixon, J in Penfolds Wines Pty Limited v Elliott (1946) 74 CLR 204 at 229 and submitted that the plaintiffs did not have an immediate right of possession of the racehorse, it will be seen that Dixon, J had the sale of a chattel specifically in mind when he said at 229: "The essence of conversion is a dealing with a chattel in a manner repugnant to the immediate right of possession of the person who has the property or special property in the chattel. It may take the form of a disposal of the goods by way of sale, or pledge or other intended transfer of an interest followed by delivery …." By taking steps to sell the horse in contravention of the contract the defendants gave the plaintiffs an immediate right of possession to their property in the horse. By selling the horse the defendants dealt with it in a manner repugnant to the plaintiffs' rights. 32 The defendants are therefore liable in damages to the plaintiffs for converting the plaintiffs' one-half share in Mindreader by selling him at the auction on 13 October 2006: see also Hill v Reglon Pty Limited (2007) NSW CA 295 at (90) and The Anderson Group Pty Limited v Tynan Motors Pty Limited (2006) 65 NSW LR 400. 33 The defendants pleaded that there was a partnership between them and the plaintiffs or between Mrs McNair and the plaintiffs so that the partnership was dissolved at "the expiration of the Agreement" whereby, pursuant to s 39 of the Partnership Act 1992 (NSW), Mindreader was sold for the purposes of applying the sale price in payment of the debts and liabilities of the partnership. 34 The Court is satisfied there was no partnership arrangement as pleaded by the defendants. The defendants' submission overlooks the distinction between a partnership and a separate arrangement between co-owners to share profits. If each co-owner merely receives his or her due share of the produce or gross returns derived from the employment of the joint property, no partnership is created: see s 2 (2) of the Partnership Act. In addition, as a matter of fact, no steps were taken which would evidence a partnership such as the preparation of partnership accounts or tax returns for a partnership. Moreover, although Mr McNair was to train the horse, Mr Kimber remained the manager. The roles were separate and distinct and Mr McNair as trainer and a party to the Agreement obtained no interest in the horse. 35 The defendants' submission on this issue therefore fails. 36 Finally, the defendants submitted that Mr McNair had "a right or lien/pledge on account of outstanding fees … as a consequence of that lien/pledge the defendants sold the horse". 37 The defence of lien is fundamentally flawed because the horse was sold by Mrs McNair. Mrs McNair was not owed any money by the plaintiffs. 38 For completeness I should add that the defendants relied on what was said in Scarfe v Morgan (1838) 150 ER 1430 at 1436 where reference was made to a horsebreaker having a lien over chattels in his possession to cover monies owing for services provided. In this respect, I am not satisfied that the defendants have discharged the onus of establishing that Mr McNair was owed money by the plaintiffs. He was unable to explain to the Court's satisfaction in the witness box how it was he arrived at the figures in the document headed "Mindreader Expenses". It became apparent during his evidence that he had not been billed by the veterinarian Dr Rose for specific services provided by Dr Rose to Mindreader. Mr McNair repeated in his evidence that he made some "contra-deals" with Dr Rose, but there was no evidence from Dr Rose as to precisely what these arrangements were or what services had been provided to the horse. In relation to the so called "Mindreader Expenses" I am satisfied that the plaintiffs did not ever receive from either of the defendants any invoices or statements which set out amounts which were truly owing to them for expenditure incurred on the horse. 39 The defendants' submission concerning a pledge is also flawed because, again, Mrs McNair sold the horse and there is no basis for her asserting a pledge. Secondly, Mr Nair obtained possession of Mindreader as its trainer, not as security for the payment of any debt or performance of an obligation giving rise to a right to sell. 40 In terms of damages, the plaintiffs claim damages for lost opportunity in three respects, first, the lost opportunity to sell Mindreader for a better price, secondly, lost prize money and thirdly, loss of the opportunity to win money from betting. 41 Annexure D to exhibit A sets out Mindreader's racing history. His first race was on 16 November 2002 and between then and 29 April 2006 Mindreader ran in 36 races, won 10 of them, came second on three occasions, third on five occasions and finished in the first five on 20 occasions. Prize money is presented for running fifth and better and during the period referred to Mindreader's total prize money, including bonuses, was $386,300. On an arithmetical basis, therefore, over a period of approximately three and half years Mindreader ran in 10 races per year (round figures) and earned approximately $10,700 (round figures) per race. The evidence also establishes that Mindreader had to be spelled for up to 10 weeks after racing with the length and timing of the spell varying with regard to the horse's performance and medical condition. 42 The evidence also establishes that in the 15 months prior to the Agreement being entered into, whilst under the control of the trainers Dale Sutton and Steve Jones, Mindreader was unplaced in five starts. 43 The evidence in exhibit 6 establishes that since he was sold to Mr & Mrs Zampatti Mindreader has not won a race or been placed second or third in 10 starts. In his last race on 13 June 2008 Mindreader ran 11th out of a field of 12 and bled, which has resulted in a mandatory three month suspension. There is evidence that Mindreader bled previously whilst under Mr Sutton's care and after a race on 9 December 2005. In certain circumstances bleeding can lead to ineligibility to start in a race. 44 Apart from Mr McNair's success with Mindreader during the term of the Agreement, he was successful with Mindreader when he trained him between February and June 2003. During this time Mindreader won four races. 45 The Court can infer on the evidence that Mr McNair was a good trainer; see his own evidence of his history in the racing industry plus the contents of exhibit G and the results referred to above. It may be inferred that Mindreader raced well under Mr McNair's training whilst he was not so successful under other trainers, particularly since his new owners have come into the picture and Mr Zampatti has been his trainer. 46 On the evidence, the Court can infer that between the end of April through to the end of June 2006 the horse was being spelled, but that by the beginning of July, the horse was ready to be raced again. The Court is satisfied that Mr McNair did not race the horse again because of the argument he had had with Mr Kimber. 47 In Sellars v Adelaide Petroleum NL (1994) 179 CLR 332, the High Court held that damages for deprivation of a commercial opportunity by reason of breach of contract or tort should be ascertained by reference to the Court's assessment of the prospects of success of that opportunity if it had been pursued. In this respect I am satisfied that it was the parties expectation that Mindreader would race under Mr McNair from the beginning of July 2006 until mid October 2006 when the initial term of 12 months expired. Thereafter, the most likely scenario, had the defendants not sold the horse, but because the parties had fallen out, was that the plaintiffs, through Mr Kimber as manager, would have appointed another trainer aiming for someone of the calibre of Mr McNair. They would then have arranged for the horse to participate in races. In this respect, there was every likelihood of Mindreader racing 20 times during the period from 1 July 2006 – 30 June 2008 (10 races per annum) and receiving prize money of $214,000. 48 Although the plaintiffs submitted that their claim for loss of earnings should be calculated for a period of three years, I consider that the period of two years referred to above is more realistic, having regard to the horse's age (Mindreader will be eight years old in October this year) and Mr Kimber's evidence that only about 3.5% of all horses racing are aged over eight years. 49 I propose to discount the prize money figure of $214,000 by one-third to take into account the following factors. First, the impact of the equine flu epidemic which the parties agreed the Court could take judicial notice of as having occurred between August 2007 and January 2008. Secondly, the horse has not won a race since April 2006, admittedly for most of that time being under the care of a trainer whose record does not match that of Mr McNair. Thirdly, although the plaintiffs' expectation was they could find a replacement trainer as good as Mr McNair there was no certainty of this happening. Fourthly, the Court has to take into account the horse's medical history. Mindreader has a long history of joint problems. He had received equine physiotherapy from Kathleen Pall and at times had to be given anti-arthritic medication. Also, there is evidence the horse has bled, once under the care of Dale Sutton, on another occasion after a race on or about 9 December 2005, and most recently on 13 June 2008 which has resulted in a mandatory three month suspension from racing. In this respect, in certain circumstances, a horse will be ineligible to start in any race once there is bleeding (Rule 53A). 50 Applying a discount of one-third to the prize money figure of $214,000 results in a figure for lost earnings of $142,700 (gross). From this gross figure the following expense items need to be deducted: Trainer: 10% of winnings $14,300 Jockey: 5% of winnings $7,150 Training Expenses: $40,000 Veterinary Expenses, equine therapy and so on $10,000 ________ Total: $71,450 51 I have arrived at the figure for training of $40,000, having regard to Mr Kimber's evidence that the cost of training a horse is $25,000 per annum or $50,000 for two years. I have deducted an amount of $10,000 from this sum because Mr McNair was to train the horse for free between 1 July 2006 and mid October 2006 and to take account of "downtime" during the equine flu epidemic. 52 After taking into account the above expense items the Court arrives at a figure for net lost prize money of $71,250 in respect of which the plaintiffs, as 50% owners, are entitled to a one-half share. 53 Accordingly, the amount of $35,625 will be included in the plaintiffs' damages. 54 I now turn to the plaintiffs' claim for loss of betting opportunity. 55 Mr Kimber's evidence was that between the horse's first race in November 2002 and 29 April 2006 the plaintiffs won $115,000 (including quinellas and trifectas) from bets they placed on the horse. The highest bet placed was $1,200 to win and $1,000 on a place in July 2004. Mr Kimber's evidence was that he would have continued to bet on the horse in much the same way that he had in the past if he and Ms Manwaring had remained owners. I accept this evidence. It was not contradicted in cross-examination. 56 Annexure U to Mr Kimber's affidavit (exhibit A) discloses that the plaintiffs placed bets in 36 races. Accordingly, accepting they won $115,000, this works out at $3,200 (round figures) per race. Proceeding on an assumption that Mindreader would have raced in 20 races between 1 July 2006 and 30 June 2008, I arrive at a gross figure for the lost opportunity to bet successfully of $64,000 ($3,200 x 20). This amount ought be discounted by 50% to take into account the matters referred to in the assessment of lost prize money plus allowing for money saved in lost bets. Thus, I arrive at a net figure of $32,000 for the loss of successful bets. This amount will be included in the plaintiffs' damages. 57 Although the plaintiffs claim that they suffered a loss on the sale price of the horse as at 13 October 2006 (they say it should have been sold for more than $10,500), in my opinion it would be inconsistent for the Court to award them any amount for such a claim because the Court has awarded them other damages based on their evidence that they would have retained the horse to run in races and would have placed bets on it. Whilst the plaintiffs may have been able to pursue a claim for loss of value of the horse if they could show, as at the present time, that he was worth more than he was sold for on 13 October 2006, there is no evidence of present day value and accordingly this aspect of the plaintiffs' claim fails. 58 The total amount awarded to the plaintiff for damages is therefore $67,625. 59 The plaintiffs claim interest in accordance with s 100 of the Civil Procedure Act 2005 (NSW). An award of interest in this respect is in the Court's discretion. I see no reason not to award interest in this case, having regard to the defendants' breach of contract and their conversion of the horse. However, since the damages awarded spans a period of two years, it seems to me that it would be just and equitable to award the plaintiffs' interest on the amount of $67,625 for a period of one year only to take this into account. Under the rules of Court the rate to be applied is 10% per annum and hence I arrive at a figure of $6,725. 60 In the result: 1. There will be a Verdict and Judgment for the plaintiffs against the defendants in the sum of $74,350. 2. Costs should follow the event on the ordinary basis, but if there is any reason why a different order might be made, I will hear submissions. 3. I direct that the exhibits be returned. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.