New South Wales Supreme Court CITATION : Racing New South Wales v Sydney Turf Club & Ors [2005] NSWSC 426 HEARING DATE(S) : 26, 27, 28, 29 April 2005 2 May 2005 JUDGMENT DATE : 3 May 2005 JURISDICTION : Commercial List JUDGMENT OF : Bergin J DECISION : [SEPARATE QUESTIONS]- Part 31 questions - Did the plaintiff have power to issue the particular directions - Were the directions actually authorised - Should the directions be quashed for failure to provide procedural fairness. Answers: No; No; Yes CATCHWORDS : [STATUTORY CONSTRUCTION] - The role of the plaintiff as the representative body controlling thoroughbred horse racing in New South Wales - Whether the Thoroughbred Racing Act 1996 (NSW) and / or the Totalizator Act 1997 (NSW) gave to the plaintiff power to issue directions to the defendants prohibiting them from entering into contracts for the broadcasting of horse races from their racecourses without the plaintiff's written consent - [CONTRACTS] - The nature and extent of the plaintiff's obligations under a series of contracts which provide for the distribution of revenue from wagering to the racing industry - Whether those contracts entitled the plaintiff to issue the directions - [ADMINISTRATIVE LAW] - The nature of the plaintiff's obligations under the Acts - Apprehension of Bias Australian Jockey Club Act 1873 (NSW) Supreme Court Act 1970 (NSW) Supreme Court Rules 1970 (NSW) LEGISLATION CITED : Sydney Turf Club Act 1943 (NSW) Thoroughbred Racing Act 1996 (NSW) Totalizator Act 1997 (NSW) Totalizator Agency Board Privatisation Act 1997 (NSW) Aerial Taxi Cabs Co-operative Society Ltd v Lee (2001) 178 ALR 73 Allen v Thorn Electrical Industries Ltd [1968] 1 QB 487 Bropho v State of Western Australia (1990) 171 CLR 1 FCT v Australia & New Zealand Banking Group Ltd (1979) 143 CLR 499 Hughes & Anor v NM Superannuation Pty Ltd & Anor (1993) 29 NSWLR 653 Kioa v West (1985) 159 CLR 550 CASES CITED : Legal & General Insurance Australia Ltd v Board of Fire Commissioners of NSW [1982] 1 NSWLR 555 Legal & General Insurance Australia Ltd v Board of Fire Commissioners of NSW [1983] 2 NSWLR 131 NM Superannuation Pty Ltd v Hughes & Ors (1992) 27 NSWLR 26 The Commonwealth of Australia v The State of New South Wales (1923) 33 CLR 1 Transfield Pty Ltd v Arlo International Ltd (1980) 144 CLR 83 Waterhouse v New South Wales Thoroughbred Racing Board [2003] NSWSC 541 Racing New South Wales (Plaintiff) Sydney Turf Club (First Defendant) PARTIES : Dr Treve Williams (Second Defendant) The Australian Jockey Club (Third Defendant) Thoroughvision Pty Ltd (Fourth Defendant) FILE NUMBER(S) : SC 50059/05 Phillip Taylor SC and M. Allars (Plaintiff) COUNSEL : T.F. Bathurst QC and A.S. Bell (First, Second, Third Defendants) R. Beech-Jones (Fourth Defendant) Gilbert + Tobin (Plaintiff) SOLICITORS : Mallesons Stephen Jaques (First, Second, Third Defendants) Phillips Fox (Fourth Defendant) LOWER COURT JURISDICTION : - 91 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST BERGIN J 3 MAY 2005 50059/05 RACING NEW SOUTH WALES V SYDNEY TURF CLUB & ORS JUDGMENT 1 The issues in this case relate to entitlements to broadcast thoroughbred racing in New South Wales. Sky Channel Pty Ltd (Sky) has for some years broadcast the races pursuant to agreements with the Australian Jockey Club (the AJC), The Sydney Turf Club (the STC) and the provincial and country race clubs. Those agreements expired in March 2004. Subsequently the AJC and the STC entered into an agreement with ThoroughVision Pty Ltd (TVN) for the broadcasting of the races that expires on 3 May 2005. The shareholders of TVN are Victorian Racing Limited as to 50% and the AJC and the STC as to 50%. Between March 2004 and April 2005 interim arrangements have been in place whilst negotiations in respect of rights to broadcast the races after 3 May 2005 have continued. During that period some race meetings have not been broadcast; this has been referred to in the litigation as "blackouts". 2 The plaintiff, Racing New South Wales, is a body corporate established under section 4 of the Thoroughbred Racing Act 1996 (NSW) (the Act). In January and February 2005 it purported to issue a number of directions to the AJC, the STC and provincial and country race clubs requiring them not to enter into any new agreements in relation to the broadcasting of the races without its written consent. On 1 April 2005 the plaintiff commenced these proceedings in which it seeks injunctions against the AJC and the STC restraining them from acting inconsistently with its purported directions. Subsequently the plaintiff joined TVN to the proceedings and seeks restraining orders against it. 3 The defendants proffered undertakings to the Court to enable an urgent final determination of separate questions prior to 4 May 2005 because relevant contracts expire on 3 May 2005. The hearing took place on 26, 27, 28 and 29 April 2005 and 2 May 2005 when Mr Phillip Taylor SC, leading Ms M Allars of counsel appeared for the plaintiff, Mr TF Bathurst leading Dr A Bell of counsel appeared for the AJC and the STC and Mr R Beech-Jones of counsel appeared for TVN. On 29 April 2005 I made orders pursuant to s 110K of the Supreme Court Act 1970 that the parties attempt to settle their disputes by mediation with a mediator of their choice on 30 April 2005. That mediation failed to achieve an agreed outcome. Separate Questions 4 An order has been made pursuant to Part 31 of the Supreme Court Rules 1970 that the following questions be decided separately: 1. Whether, having regard to the terms of the directions dated 28 January 2005, 1 February 2005 and 17 February 2005 ("Directions") referred to in the affidavit Peter Nicolas V'Landys sworn 1 April 2005 in these proceedings, Racing NSW had power to issue any one or more of those Directions, whether by reason of its statutory powers and functions under the Thoroughbred Racing Act 1996 (NSW) and Totalizator Act 1997 (NSW) or pursuant to the agreement and deeds referred to in paragraphs 6(a) – (c) of the Amended Summons and any acknowledgements and consents signed by STC or AJC. 1A. Were the Directions purportedly made by Racing NSW in fact authorised by Racing NSW. 2. Whether, if Racing NSW had power to issue any one or more of the Directions, that or those Directions was or were vitiated and ought to be set aside or quashed on the basis that it was or they were issued: (a) for an improper purpose or purposes; (b) in circumstances where there was a denial of procedural fairness, namely actual or apprehended bias on the part of Racing NSW; or (c) on the basis of Racing NSW having taken into account irrelevant considerations and having failed to take into account relevant considerations, as pleaded in the cross-claim (of the first, second and third defendants) and particularised. 3. To the extent that any of the Directions was issued pursuant to any contract, arrangement or other agreement with STC and/or AJC, whether the issue of that or those Directions was in breach of implied duties of good faith and co-operation or duties to exercise any power or right impartially and without actual or apprehended bias or to exercise any power or right for a proper purpose and by reference to relevant considerations and not by reference to irrelevant considerations. 4. Subject to the answers to 1, 1A, 2 and 3 above, whether, on the assumption that the Directions were valid and binding on STC and AJC, the entry into the agreements referred to in paragraph 32 of the Amended Summons, was in contravention of the Directions. Thoroughbred Racing Act 1996 (NSW ) 5 The long title to the Act states that it is an "Act to make provision for the establishment, management and functions of "the plaintiff" as the representative body to control thoroughbred horse racing in the State; and for other purposes". Section 4 provides for the establishment of a body corporate with the corporate name of Racing New South Wales that may, in the exercise of its functions, use the name "Racing NSW". Section 5 provides that the plaintiff does not represent the Crown and is not subject to direction or control by or on behalf of the Government. The membership of the plaintiff consists presently of nine members, nominees of: (1) the AJC; (2) STC; (3) the Provincial Association of New South Wales (PANSW); (4) the Board of Directors of the Country Racing Council Ltd (CRC); (5) eligible industry bodies representing the interests of owners and breeders of thoroughbred racehorses; (6) eligible industry bodies representing the interests of license trainers, licensed jockeys and apprentice jockeys, licensed bookmakers and bookmakers' clerks, stable hands and race club employees; and (7) the Chairperson selected by the nominated members: The other two members are the Chief Executive and an additional member appointed by the plaintiff who is considered to have "expertise relevant to the functions exercisable" by the plaintiff (s 6). 6 The functions of the plaintiff are set out in section 13 of the Act which provides: 13 Functions of Racing NSW (1) Racing NSW has the following functions: (a) all the functions of the principal club for New South Wales and committee of the principal club for New South Wales under the Australian Rules of Racing, (b) to control, supervise and regulate horse racing in the State, (c) to initiate, develop and implement policies considered conducive to the promotion, strategic development and welfare of the horse racing industry in the State and the protection of the public interest as it relates to the horse racing industry, (d) functions with respect to the insuring of participants in the horse racing industry, being functions of the kind exercised by the AJC on the commencement of this section, and such other functions with respect to insurance in the horse racing industry as may be prescribed by the regulations, (e) such functions as may be conferred or imposed on Racing NSW by or under the Australian Rules of Racing or any other Act, (f) such functions with respect to horse racing in New South Wales as may be prescribed by the regulations. 7 The powers of the plaintiff are set out in section 14 of the Act as follows: 14 Powers of Racing NSW (1) Racing NSW has power to do all things that may be necessary or convenient to be done for or in connection with the exercise of its functions. (2) Without limiting subsection (1), Racing NSW has power to do the following: (a) investigate and report on proposals for the construction of new racecourses, and inspect new racecourses or alterations or renovations to existing racecourses, (b) register or licence, or refuse to register or licence, or cancel or suspend the registration or licence of, a race club, or an owner, trainer, jockey, stablehand, bookmaker, bookmaker's clerk or another person associated with racing, or disqualify or suspend any of those persons permanently or for a specified period, (c) supervise the activities of race clubs, persons licensed by Racing NSW and all other persons engaged in or associated with racing, (d) inquire into and deal with any matter relating to racing and to refer any such matter to stewards or others for investigation and report and, without limiting the generality of this power, to inquire at any time into the running of any horse on any course or courses, whether or not a report concerning the matter has been made or decision arrived at by any stewards, (e) allocate to registered race clubs the dates on which they may conduct race meetings, (f) direct and supervise the dissolution of a race club that ceases to be registered by Racing NSW, (g) appoint an administrator to conduct the affairs of a race club, (h) register and identify galloping horses, (i) disqualify a horse from participating in a race, (j) exclude from participating in a race a horse not registered under the Rules of Racing, (k) prohibit a person from attending at or taking part in a race meeting, (l) impose a penalty on a person licensed by it or on an owner of a horse for a contravention of the Rules of Racing, (m) impose fees for registration of a person or horse, (n) require registered race clubs to pay to it such fees and charges (including fees for registration of a race club) as are required for the proper performance of its functions, calculated on the basis of criteria notified to race clubs by Racing NSW, (o) consult, join, affiliate and maintain liaison with other associations or bodies, whether in the State or elsewhere, concerned with the breeding or racing of galloping horses, (p) enter into contracts, (q) acquire, hold, take or lease and dispose of real and personal property whether in its own right or as trustee, (r) borrow money, (s) order an audit of the books and accounts of a race club by an auditor who is a registered company auditor, (t) scrutinise the constitutions of race clubs to ensure they conform to any applicable Act and the Rules of Racing and that they clearly and concisely express the needs and desires of the clubs concerned and of racing generally, (u) publish material, including periodical publications, to inform and keep informed the public concerning matters relating to racing, whether in the State or elsewhere, (v) undertake research and investigation into all aspects of the breeding of horses and of racing generally, (w) take such steps and do such acts and things as are incidental or conducive to the exercise of its powers and the performance of its functions. 8 The Act also includes the following sections: 19 Procedure (1) Racing NSW may regulate its proceedings as it considers appropriate, subject to this section. (1A) Proceedings in respect of an inquiry conducted by Racing NSW may be conducted in public or in private, or partly in public and partly in private, as Racing NSW may decide. (1B) In conducting an inquiry, Racing NSW may examine any witness on oath or affirmation, or by use of a statutory declaration. (2) The quorum for a meeting of Racing NSW is a majority of the voting members of Racing NSW as constituted for the time being. (3) The Chairperson or, in the absence of the Chairperson, the Deputy Chairperson is to preside at a meeting of Racing NSW. If neither the Chairperson nor Deputy Chairperson is present at a meeting, the members present may elect one of their number to preside at the meeting. The person presiding at a meeting has a deliberative vote and, in the event of an equality of votes, has a second or casting vote. (4) A decision supported by a majority of the votes cast at a meeting of Racing NSW at which a quorum is present is the decision of Racing NSW. (5) A failure to nominate a person to a category of nomination specified in section 6 (1) (a)–(f) does not affect the membership of persons who are nominated in accordance with that section. (6) If an eligible industry body fails to participate in the nomination of a member referred to in section 6 (1) (e) or (f), the nomination by the other eligible industry bodies or body, as the case may be, is taken to be effective for the purposes of the relevant provision. 20 Transaction of business outside meetings or by telephone (1) Racing NSW may, if it thinks fit, transact any of its business by the circulation of papers among all of its members, and a resolution in writing approved in writing by a majority of the voting members is taken to be a decision of Racing NSW. (2) Racing NSW may, if it thinks fit, transact any of its business at a meeting at which members (or some members) participate by telephone, closed-circuit television or other means, but only if a member who speaks on a matter at the meeting can be heard by the other members. (3) For the purposes of: (a) the approval of a resolution under subsection (1), or (b) a meeting held in accordance with subsection (2), the Chairperson and each other member have the same voting rights as they have at an ordinary meeting of Racing NSW. (4) A resolution approved under subsection (1) is to be recorded in the minutes of the meetings of Racing NSW. (5) Papers may be circulated among members for the purposes of subsection (1) by facsimile or other transmission of the information in the papers concerned. 9 Section 24 of the Act provides: 24 Delegation of functions (1) Racing NSW may delegate to unauthorised person or body any of its functions, other than this power of delegation. (2) A delegate may sub-delegate to an authorised person or body any function delegated by Racing NSW if the delegate is authorised in writing to do so by Racing NSW. (3) In this section, authorised person or body means: (a) the Chief Executive or any other member of Racing NSW, or (b) a committee of Racing NSW or any member of such a committee, or (c) a race club or racing association. Totalizator Act 1997 (NSW) 10 For the purposes of the Totalizator Act 1997 (NSW) (the Totalizator Act), the plaintiff is a "controlling body" and the AJC and the STC are "major racing bodies". TAB Limited is entitled to the exclusive off-course totalizator license during the exclusivity period expiring 15 years after a day declared by the Minister as the operative date (s 11 & 13). 11 The "racing industry" is defined in this Act as comprising such one or more persons as the controlling bodies and major racing bodies nominate in writing to the Minister for the purposes of the licence concerned. The Minister is unable to grant a licence unless satisfied that the applicant has made "commercial arrangements with the racing industry in respect of the licence and the conduct of activities authorised by the licence" to the satisfaction of the racing industry (s 21A). The Minister supervises the conduct of totalizators and is able, inter alia, to direct licencees to terminate certain contractual arrangements (s 67). 12 Clauses 14 and 15 of Schedule 2 of the Totalizator Act provide as follows: 14. Commercial arrangements with racing bodies Each controlling body has such additional powers, authorities, duties and functions as may be necessary or convenient for enabling it to enter into and perform its obligations under the following arrangements: (a) commercial arrangements for facilitating the conduct of totalizator betting and other betting activities authorised by this Act and arrangements ancillary to those arrangements, (b) commercial arrangements referred to in sections 200D (2A) and 207 (2A) of the Liquor Act 1982 and section 140 (2A) of the Registered Clubs Act 1976 , (c) arrangements for the giving of financial assistance and support to the racing industry or individual racing clubs, and arrangements ancillary to those arrangements, (d) arrangements for the distribution of moneys payable under the arrangements referred to in paragraphs (a) and (b), (e) arrangements with the State in connection with the restructuring and reorganisation of the racing industry consequent on the enactment of this Act and the Totalizator Agency Board Privatisation Act 1997 . 15. Power of controlling bodies to give directions (1) Each controlling body has power to give the racing clubs for which it is responsible such directions as the controlling body considers to be necessary or desirable for the purpose of enabling it to exercise its rights and perform its obligations under, and otherwise to give effect to, arrangements referred to in clause 14. (2) A contract under seal is taken to exist between each controlling body and the racing clubs for which it is responsible, under which each racing club agrees to comply with the directions given to the racing club under this clause. (3) Each controlling body must exercise is powers under this clause to give directions to the racing clubs for which it is responsible so as to ensure that the arrangements referred to in clause 14 are carried into effect. The "Commercial Arrangements" 13 There are a number of "commercial arrangements" that the plaintiff claims fall within the categories described in clause 14. The first is what has been referred to as the Government Agreement entered into on 25 November 1997 between the New South Wales Government and "Representative Bodies" defined to include the plaintiff, the AJC, the STC, PANSW, CRC, Harness Racing New South Wales (HRNSW), and the Greyhound Racing Association (GRA). This Agreement is said to be the "arrangement" referred to in clause 14 (e) of the Totalizator Act. Although it is not in evidence it is described as "setting out a package of reforms, measures and procedures for the reform of the financial and other arrangements of the New South Wales racing industry". 14 Prior to 25 November 1997 off-course wagering on the races was conducted through the Totalizator Agency Board of New South Wales. As part of the reforms of the racing industry that Board was converted to a public company, TAB Ltd (TAB), pursuant to the Totalizator Agency Board Privatisation Act 1997 (NSW). TAB is licensed under the Totalizator Act to conduct off-course totalizator wagering in New South Wales, and elsewhere. In December 1997 TAB entered into a Racing Distribution Agreement (RDA) with an entity known as NSW Racing Pty Limited, referred to as "Racingcorp", as agent for the plaintiff, HRNSW and GRA. The RDA was amended a number of times up to April 2003. In December 2004 the same parties, together with TABCORP Limited, which by that time had acquired TAB, which in turn had acquired Sky, entered into a Deed of Accession, Co-Operation and Amendment (DACA). Both the RDA and the DACA are claimed to fall within the description of the commercial arrangements referred to in clause 14(a) and (b) of Schedule 2 of the Totalizator Act. 15 Under the RDA, TAB pays Racingcorp as agent for the other entities, including the plaintiff, a product fee and a wagering incentive fee (WIF). For each dollar that is earned as revenue by TAB the Racing Industry receives 4.5c distributed to it pursuant to two further agreements, the Racing Inter-Code Deed and the Intra Code Deed. These two Deeds are claimed to fall within the description of the commercial arrangements referred to in clause 14(c) and (d) of Schedule 2 of the Totalizator Act. The RDA 16 In the RDA, the letters "NSWR" refer to Racingcorp and the term "Representative Bodies" includes the plaintiff. It is acknowledged by TAB, Tabcorp and Racingcorp, that Racingcorp entered into the RDA in its capacity as agent for the plaintiff and that the plaintiff is severally and not jointly responsible for the performance of the obligations of Racingcorp under the RDA. In that regard the obligations of the plaintiff are "the supply of the NSW Racing Programme and NSW Racing Information and other obligations insofar as they relate to thoroughbred racing (cl 2.1(b)(i)). The NSW Racing Programme is defined as "the annual programme of Race Meetings which NSWR determines will be staged in New South Wales pursuant to clause 5.2" of the RDA. The NSW Racing Information is defined as "in respect of a Race in New South Wales, the information described in Schedule 2 which, for the avoidance of doubt, does not include the racing spectacle itself or any reproduction thereof" (emphasis added) (cl 1.1). 17 The plaintiff undertook "to make, maintain in force and enforce directions in relation to the Racing Clubs under Schedule 2, clause 15 of the Act required to enable NSWR to comply with its obligations" under the RDA (cl 2.5). Clause 3.1 provides as follows: 3 Relationship of Parties 3.1 Independent representation The parties acknowledge and agree that on and subject to the terms set out in this Agreement: (a) they will consult with each other in the conduct of their respective businesses as is expressly provided for in this Agreement; (b) subject to any express contractual obligations, covenants and undertakings of this Agreement each party has the right to conduct its own business as it thinks fit and management of the party's business remains solely the function and responsibility of that party; (c) nothing in this Agreement will be deemed to confer on one party the right or ability to direct or manage the business of any other, and (d) each party is, with respect to the others, an independent contractor and nothing in this Agreement will: (i) make a party the partner of the other parties; (ii) constitute one party the agent or legal representative of the others; or (iii) create any fiduciary relationship or duties between them. 18 TAB and TABCORP undertook to Racingcorp and the plaintiff that they would "not take actions or make decisions (to take an action or not take an action) which could reasonably be expected to materially reduce the Total Financial Benefit and otherwise could reasonably have been expected to have been payable to Racingcorp but for such actions or decisions (cl 3.4). They also undertook not to "take actions or make decisions to take an action which could reasonably be expected to materially adversely affect the development of the Codes in New South Wales (cl 3.5). 19 The RDA provided for the establishment of a Racing Product Committee comprised of representatives appointed by TAB and Racingcorp. TAB and Racingcorp agreed that they would ensure that their respective representatives would monitor the compliance of the obligations under the Agreement in relation to "the supply of racing programme, racing information and TAB coverage and operational aspects associated with the activities contemplated" by the RDA (cl 4.4). Functions of that Committee included the discussion of any issues of concern, the proposal of solutions and working towards the resolution of the issue of concern. TAB and Racingcorp agreed "to consider in good faith "any matters raised in any meeting of the Committee and to "engage in good faith discussions" in relation to any such matters (cl 4.4). It was agreed that the role of the Committee was only advisory (cl 4.9). 20 Racingcorp and TAB acknowledged that one of their objectives in relation to determining each NSW Racing Programme was to enhance that Programme so as to: (a) maximise Wagering Revenue; (b) maximise Wagering Earnings; (c) encourage public interest in racing in New South Wales; (d) encourage public attendance at Race Meetings in New South Wales; and (e) otherwise promote the quality and development of the Codes in New South Wales (cl 5.1). 21 Racingcorp agreed to "procure the supply to TAB of NSW Racing Information in respect of each of the Races included in each NSW Racing Programme at the times and in the manner specified" in the RDA. TAB agreed to obtain at its cost and to supply to Racingcorp and the Racing Clubs, NSW Racing Information and interstate and overseas Racing Information and wagering information (cl 6.1 and 6.2). 22 The RDA contains a number of provisions relating to broadcasting, including the following: 7 Broadcasts 7.1 NSWR to Enable Broadcast of NSW Coverage Programme NSWR must use its best endeavours to ensure that each Racing Club makes available facilities at the relevant Racecourse to enable all Race Meetings in a NSW Coverage Programme to be broadcast by a third party (including by television and radio), live or as soon as practicable, to TAB Outlets and to all oncourse venues in New South Wales operating on the day of the Race Meeting and TAB must use its be endeavours to facilitate receipt of such broadcast by TAB Outlets. [ clause 7.1 amended – clause 4.1 (mm) Second Amending Agreement] 7.2 Broadcasting Agreements (a) Both TAB and NSWR will use their respective best endeavours to ensure that any new arrangements with third parties for television, radio or other broadcasting of Races and Race Meetings in New South Wales will be on commercial terms which do not cause financial detriment or commercial disadvantage to either party which in the case of TAB is limited to financial interests in relation to Wagering or Gaming. (b) On renegotiation or renewal of any existing broadcast arrangements, TAB and NSWR will confer with each other and use their respective best endeavours to ensure that those arrangements or contracts are renewed or made on commercial terms which do not disadvantage the financial interests of either party which in the case of TAB is limited to financial interests in relation to Wagering or Gaming. [ clauses 7.2(a) and (b) amended – clause 4.1 (nn) Second Amending Agreement] 7.A Sky Broadcasting Arrangements 7A.1 Arrangements for the Provision of Broadcast/Audio-Visual Rights (a) If prior to the Control Date [5 July 2004], a NSW Racing Entity [which includes NSW thoroughbred racing clubs] entered into an arrangement or arrangements with any Existing TAB/SKY Company in relation to the provision to any Existing TAB/SKY Company of broadcast or audio-visual rights of any nature then (notwithstanding any contracts in effect at the Control Date) that NSW Racing Entity will be entitled to elect (by notice to TAB given at any time on or before 31 December 2005) either: (i) to remain with any arrangement or arrangements in place and in operation as at the Control Date; or (ii) to maintain or reinstate (as the case may be) with effect from the date (the "Election Date") on which the relevant NSW Racing Entity delivers to Sky Channel the executed documentation referred to in clause 7A.1(c) until 30 June 2006, the full contractual arrangements which were in place and in operation as at 30 June 2003 between the NSW Racing Entity and the relevant Existing TAB/SKY Company in relation to the provision to the relevant Existing TAB/SKY Company of broadcast and other audio visual rights of any nature (as amended to the extent necessary to reflect the extended or reduced (as the case may be) term) in which case such new arrangements shall supersede and replace any arrangements of the nature referred to in clause 7A.1(a)(i) to which that NSW Racing Entity was party. Provided that if the NSW Racing Entity does not give a notice to TAB by 31 December 2005, the NSW Racing Entity will be deemed to have made the election set out in clause 7A.1(a)(i) (in the case where arrangements referred to in clause 7A.1(a)(i) exist) or in any other case to have elected not to exercise the rights contemplated by this clause 7A.1. For the avoidance of doubt, nothing in this clause 7A.1 will require any party to ensure that any NSW Racing Entity or Existing TAB/Sky Company is made good or compensated for the difference between its actual situation at or before the Election Date and the situation it would have been in at or before the Election Date if the full contractual arrangements referred to in clause 7A.1(a)(ii) had been in place continuously between their expiry and the Election Date, or continuously between their expiry or the Control Date and the Election Date. (b) TAB and TABCORP will ensure that each relevant Existing TAB/Sky Company gives effect to each election made (or deemed to have been made) pursuant to clause 7A.1(a)(i) and to each maintained or reinstated arrangement to which that election (including any deemed election) relates. (c) Subject to the relevant NSW Racing Entity executing and delivering to Sky Channel confirmatory documentation to give effect to an election pursuant to clause 7A.1(a)(ii) (which documentation, when executed by the relevant Existing TAB/SKY Company or Existing TAB/SKY Companies, would record the renewed conferral of the relevant broadcast or other audio-visual rights on Sky Channel and in the case where the arrangement or arrangements in place and in operation as at the Control Date were not also in place and in operation as at 30 June 2003, result in the termination without liability to any party of the arrangement or arrangements in place and in operation as at the Control Date). TAB and TABCORP will ensure that each relevant Existing TAB/SKY company promptly executes such documentation and gives effect to each election made pursuant to clause 7A.1(a) and to each maintained or reinstated arrangement to which that election relates. (d) Giving effect to the election set out in clause 7A.1(a)(ii) will not involve the maintenance or reinstatement of contractual arrangements with different terms as to fee levels or payment mechanisms, or as to the substance of obligations to those contractual arrangements which were in place as at 30 June 2003 except that: (i) for all Racing Clubs other than the Australian Jockey Club and the Sydney turf Club, any rights of first or last refusal or options to renew or extend in favour of any Existing TAB/SKY Company in those maintained or reinstated contractual arrangements shall not apply; and (ii) for the Australian Jockey Club and the Sydney Turf Club, any rights of first or last refusal or options to renew or extend in favour of any Existing TAB/SKY Company in those maintained or reinstated contractual arrangements will continue to apply in accordance with their terms, as amended to the extent necessary to reflect the extended term of the contractual arrangements. (e) For so long as the relevant NSW Racing Entities negotiate in good faith. TAB and TABCORP will ensure that prior to 30 June 2006, Sky Cannel will negotiate in good faith with any NSW Racing Entities which wish to participate in negotiations with Sky Channel in relation to the provision by such NSW Racing Entities to Sky Channel of broadcast and other audio-visual rights for the period from 1 July 2006. (f) Each of TAB and TABCORP hereby: (i) waives and will ensure that its Related Bodies Corporate (including Sky Channel) which hold any right of veto or objection will waive any right of veto or object they may otherwise have had; and (ii) irrevocably consents and will ensure that its Related Bodies Corporate (including Sky Channel) will consent to any or all NSW Racing Entities within and across Codes negotiating collectively in respect of the provision to Sky Channel of broadcast and other audio-visual rights for Races in New South Wales (and associated spectacle) for the period from 1 July 2006 through NSWR or a body nominated by NSWR (notwithstanding the terms of any existing contract with TAB or any of its Related Bodies Corporate (including Sky Channel)). (g) Nothing in this clause 7A.1 will affect the term or provisions of any contractual arrangement in place and in operation as at the Control Date which a NSW Racing Entity elects or is deemed to have elected to remain with pursuant to clause 7A.1(a)(i). 7A.2 Disposal of Sky Channel (a) Subject to clause 7A2(b) TABCORP and TAB must not, and must ensure that their respective Related Bodies Corporate will not offer to dispose of an equity interest or similar interest in: (i) Sky Channel or any of its audio-visual Race broadcasting businesses ("Relevant Business"); or (ii) any other Relevant Business conducted by TAB or any of its Related Bodies Corporates. to any Victorian racing entity unless a corresponding and contemporaneous offer is made to NSWR or the relevant NSW Racing Entities nominated by NSWR. (b) Clause 7A.2(a) will not apply in relation to any disposal in connection with a joint venture or similar arrangement in relation to Sky Channel or any of its Relevant Businesses or any other Relevant Business conducted by TAB or any of its Related Bodies Corporate (including a disposal of an interest in that joint venture or similar arrangement in accordance with the terms of that joint venture or similar arrangement), provided that in either case the Australian Jockey Club and the Sydney Turf Club (directly or indirectly) have (or at the time of the inception of that joint venture or similar arrangement had) an equity interest or participating interest in that joint venture or similar arrangement and the Australian Jockey Club and Sydney Turf Club agreed to the relevant equity or participating interest. … 7.A6 No Requirement to Broadcast Nothing in this clause 7A requires a member of the TABCORP Group to continue to provide or procure the provision of the Sky Commercial Service or the Sky Domestic Service. … 8.3 No Broadcast Rights For the avoidance of doubt, nothing in this clause 8, clause 6 or any other provision of this Agreement permits or otherwise entitles TAB, its Related Bodies Corporate or Associates already other person to broadcast or transmit by any means or method (including free to air, pay-TV, internet or radio) the racing spectacle or picture. … 10 Television and Radio Broadcasting Charges 10.1 TAB and NSWR each acknowledge and agree that there are issues in relation to broadcasting and that they will consult with each other and use their respective best endeavours to develop a strategy to deal with broadcasting issues by 31 December 1998. Such broadcasting issues shall include that not be limited to: (a) increases in charges by television or radio broadcasters for coverage of the NSW Racing Program; (b) future broadcast rights; (c) domestic television; (d) free-to-air television; (e) narrowcast television; and (f) Internet. 10.2 Without limitation to any other provision of this Agreement, TAB and NSWR will in good faith discuss, on an ongoing basis, existing and proposed arrangements in relation to international broadcasting of Australian Races and, in that context the associated taking of overseas bets on Australian races as a result of such international broadcasting arrangements and the associated pooling of such overseas debts. 23 The RDA provided for the establishment of a Business and Strategy Committee with representatives from each of TAB and Racingcorp. The functions of that Committee included considering and making recommendations to NSWR in relation to: "its proposed strategies which impact on Wagering"; and "business plans for the conduct, promotion and development of the racing industry in New South Wales" (cl 16.4 (a) (ii) & (iv)). Its function also included reviewing: (i) material policy; (ii) medium to long term strategy; (iii) monthly reports; (iv) draft operating plans and budgets; and (v) advertising programs, in relation to the Wagering business and the Gaming business (cl 16.4 (c)). The parties agreed, through their respective representatives on the Business and Strategy Committee, to "consider in good faith any matters raised in any meeting" of the Committee and to "engage in good faith discussions in relation to those matters" (cl 16.4A(a)). TAB agreed not to adopt or implement any matter referred to in clause 16.4 (c) without the Committee having the opportunity to review it and the NSWR representatives having a reasonable opportunity to express their views about that matter and to resolve any differences (cl 16.4A (c)). The parties agreed to provide to each other all material information to allow the Committee representatives to evaluate matters coming before the Committee (cl 16.5). This Committee was also only advisory. The DACA 24 The DACA was entered into for reasons that included TABCORP becoming a party to the RDA and to amend the RDA. Recital G of the Deed provided that the DACA and the RDA and some other agreements constituted "commercial arrangements for the purposes of s 43A(1) of the" Totalizator Act. The terms of the RDA include the amendments made by the DACA. The Racing Inter-Code Deed 25 The parties to the Racing Inter-Code Deed (the Inter-Code Deed) are Racingcorp (NSWR), the plaintiff, HRNSW and GRA. The Recitals record that the Inter-Code Deed sets out: (a) the terms and conditions upon which NSWR is to be operated, controlled and funded; (b) the basis upon which funds received by it will be distributed between the Racing Codes; (c) the respective obligations, rights and entitlements of each party in respect of the Totalizator Act, the RDA, the Government Agreement and associated matters; and (d) the terms of NSWR's agency. 26 The Objectives of NSWR are set out in clause 3.14 as follows: 3.14 Objectives of NSWR (a) The primary object of NSWR is the encouragement and promotion of animal races, including the provision of grants to the Racing Codes. (b) The secondary objects of NSWR are: (i) to be a successful business operating at least as efficiently as any comparable business and maximising the revenue received by the Racing Codes under the Racing Distribution Agreement; and (ii) to conduct its activities having regard to the interests of each other Racing Codes, including metropolitan, provincial and country racing activities, taking into consideration: (iii) the scale and operations of each of the Racing Codes and the country/provincial and metropolitan divisions within those Racing Codes; and (iv) the desire of each of the Racing Codes to increase their operations. 27 Each of the Controlling Bodies, including the plaintiff, appointed NSWR as its sole and exclusive agent and they agreed, pursuant to clause 3.15, to procure that the business of NSWR was, inter-alia, to appoint representatives to the Racing Product Committee and Business and Strategy Committee (cl 3.15 (b) & (c)). Such business also included: (d) to remit all moneys received under the Government Agreement and the Racing Distribution Agreement in accordance with the provisions of this Deed; (e) to procure that the Racing Facilities are maintained and made available in accordance with its obligations under the Racing Distribution Agreement; (f) to determine the NSW Racing Programme and procure that it is made available in accordance with its obligations under the Racing Distribution agreement; (g) to procure that the NSW Racing Information is made available in accordance with its obligations under the Racing Distribution Agreement; and (h) anything else determined by the Board of NSWR having regard to the objectives of NSWR set out in clause 3.14. 28 Clause 3.18 provides: 3.18 Racing Programme and Racing Information to be supplied to NSWR Each of the Controlling Bodies will procure and they and all Racing Clubs in their respective Racing Code will throughout the term of the Racing Distribution Agreement: (a) supply the NSW Racing Programme and the NSW Racing Information to NSWR on an exclusive basis for the purposes set out in the Racing Distribution Agreement; (b) stage the NSW Racing Programme; (c) maintain the Racing Facilities available in accordance with their obligations under the Racing Distribution Agreement; and (d) do all things necessary to ensure compliance with their obligations and the obligations of NSWR under the Racing Distribution Agreement and the Government Agreement (including the issue and enforcement of directions as required under the Racing Distribution Agreement). 29 "Racing Facilities" are defined to include "any racecourse, track or other place and associated structures and equipment at which the racing club of one of the Racing Codes conducts or is authorised to conduct" thoroughbred racing (cl 1.1). 30 The Inter-Code Deed provides for the allocation of funds pursuant to specific formulas and provides that the plaintiff receives approximately 70% of the available funds, with HRNSW and GRA sharing the balance, with the former receiving a little more than half of the remaining funds. 31 It is agreed that "neither NSWR nor any Controlling Body of a Racing Code will take any action which would materially adversely affect the welfare of, in the case of NSWR, any of the Racing Codes and in the case of a Controlling Body, any other Racing Code (cl 8.6(a)). The plaintiff agreed that each year it would procure the production of a business plan for its respective racing code and produce it to NSWR (cl 9.1). The plaintiff also agreed to use "its best endeavours (consistently with due prudence and the other provisions of the Deed) to foster the development and profitable operation of NSWR's business" and that it would provide "such assistance as may from time to time be reasonably requested of it by NSWR or which the parties agree would assist in the development of NSWR's business" (cl 9.4). The Intra-Code Deed 32 The parties to the Intra-Code Deed are the plaintiff , the AJC, the STC, PANSW and CRC. In the "Background" section of the Deed the parties record that they each intend to put in place appropriate arrangements to ensure the obligations, rights and entitlements of race clubs in connection with and arising from the Deed, including arrangements to ensure that the race clubs can be compelled to do all things necessary to enable NSWR to comply with its obligations under the RDA. 33 The Deed provides: 4 Objectives Each Racing Club acknowledges that principal objectives of these arrangements include to: (a) maximise Net Wagering Revenue; (b) maximise Wagering Earnings; (c) encourage public interest in thoroughbred racing in New South Wales; (d) encourage participation and public attendance at thoroughbred racing meetings in New South Wales; and (e) otherwise promote the quality and development of the thoroughbred code in New South Wales. 5 General Obligations Each Racing Club will, in accordance with the [plaintiff's] and NSWR's obligations under the RDA: … (c) maintain the Racing Facilities and make the Racing Facilities available to ensure compliance by the [plaintiff] and NSWR in accordance with their respective obligations under the RDA. (d) provide all information to NSWR required by the [plaintiff] and NSWR from time to time including that required to properly and fully exercise its rights and fulfil its obligations under the Act, the RDA, the Government Agreement and the Racing Inter-Code Deed; and (e) do all things which the [plaintiff] considers necessary, convenient or desirable to ensure the [plaintiff] and NSWR are able to fully exercise their respective rights and fulfil their respective obligations under, and to otherwise give effect to, the Act, the Government Agreement, the RDA, the Racing Inter-Code Deed and any ancillary agreements, arrangements or understandings from time to time (as any or all may be amended from time to time). 34 The Racing Clubs agreed to supply to the plaintiff "all information available to it as requested from time to time" (cl 8). Clause 9 provides as follows: 9 Broadcasts 9.1 Each Racing Club will use its best endeavours to make available facilities at its Racecourse to enable all Race Meetings in a NSW Coverage Program to be broadcast by a third-party (including by television and radio), live or as soon as practicable, to TAB outlets and to all on-course then use operating on the day of the Race meeting. 9.2 Each Racing Club will do all things necessary or desirable to ensure NSWR complies with its obligations under clause 10 of the RDA. 35 The Deed also includes the following: 17 Breach 17.1 Each Racing Club acknowledges that any breach by it of their obligations under this document may have an adverse effect on the entitlements of the [plaintiff] and other Racing Clubs. Accordingly, each Racing Club agrees that it will: … (b) comply with all directions issued by the [plaintiff] under the Act. 36 Clause 24 of that Deed provides as follows: The [plaintiff] will not issue a direction which has the effect of varying any of the conditions of this agreement without the consent of the AJC, STC, PANSW and NSWCRC. The Consents 37 The AJC, on 19 February 1998, and the STC, on 23 February 1998, wrote to the plaintiff in the following terms: BACKGROUND We acknowledge that the New South Wales Government and the TAB have entered into Agreements with you and the other major racing bodies in the three Codes of Racing in New South Wales (the "Representative Bodies"). Those agreements relate to the reform of the Racing Industry and the financial and other arrangements presently existing for that Industry and contain the commercial arrangements contemplated by the Totalizator Act 1997 (NSW) ("the Act"), the Liquor Act 1982 (NSW) and Registered Clubs Act 1976 (NSW) as amended. The New South Wales Government and the TAB require the receipt of this acknowledgement and consent in order to give effect to certain aspects of the arrangements. This acknowledgement is required to provide evidence to the New South Wales Government and the TAB about consent to you for the above purposes. OPERATIVE We hereby acknowledge and consent to you: (a) Issuing directions in your discretion, binding this Club and all Racing Clubs in our Code, as are necessary or convenient for enabling you: (i) to perform your duties and functions under the Act; (ii) to enter into and perform the commercial arrangements with the New South Wales Government and TAB contemplated by the Act; (iii) to facilitate the conduct of Totalizator betting and other betting activities authorised by the Act; and (iv) to put in place appropriate arrangements within the respective Codes regarding the obligations, rights and entitlements of the Representative Bodies and the Racing Clubs under those Agreements. (b) Appointing NSW Racing Pty Ltd ACN 080 959 495 as your agent or otherwise to act on behalf of and to represent your interests and those of this Club in respect of the rights, entitlements and obligations under those Agreements The facts 38 Sky Channel Pty Limited (Sky) was acquired by TAB in or about April 1998 and is a subscription channel broadcaster that holds extensive rights to broadcast live thoroughbred, harness and greyhound race meetings conducted by various racing clubs across Australia and internationally for which it pays the racing clubs a rights fee. Sky specialises in the broadcasting of racing and operates a commercial service (Sky Channel) which is telecast to subscribers in commercial premises such as hotels, registered clubs, TAB agencies and other wagering outlets seven days a week. It also produces a pay television service that it provides to pay television licensees such as Foxtel, Optus and Austar for inclusion in their pay television service to residential subscribers. This service is known as Sky Racing Domestic Service (Sky Racing). 39 As I have said earlier the rights that Sky had to broadcast the NSW races pursuant to agreements with the AJC and the STC expired in March 2004. At that time the AJC and the STC granted commercial and pay TV rights to TVN up to and including 3 May 2005. 40 In August 2004 TABCORP Limited (TABCORP) acquired control of TAB and Sky. Shortly thereafter, on about 6 August 2004 TVN and TABCORP signed Heads of Agreement regarding the production of a new thoroughbred racing/sports channel to operate in conjunction with Sky Channel (the joint venture). In January 2005 TABCORP and TVN decided that the joint venture would no longer take place and TVN then announced that it intended to establish a new channel in its own right. Although the decision was not announced until January 2005, it is apparent that the plaintiff was aware in late 2004 that the joint venture would probably not go forward. 41 On 23 December 2004 the Chairman of the plaintiff, Gary Pemberton, sent an e-mail to the Chief Executive of the plaintiff, Peter V'Landys, in the following terms: Subject: TVN Peter: At the farm today. Thinking about conditions under which we might consent to TVN second channel. 1. No production cost impact on Racing in NSW. 2. Channel only available in NSW to Tab outlets carrying the full wall to wall SKY service, including all NSW and Victorian Thoroughbreds. 3. No additional cost to NSW Tab outlets. We would separately intrude in terms of SKY renewal in May with AJC/STC and trade-off reduced fees to NSW Tab outlets. This would be contrary to DACA provisions but AJC/STC may have no recourse as they are not parties to DACA. Need to check that NSWR and RNSW acting as agents does not give them rights. Might be a short meeting in January. Gary P. 42 On 21 January 2005 the Chief Executive of Racingcorp, Gary Purcell sent the Chairman of the plaintiff a memorandum entitled "Broadcast Discussion Draft" that included the following: Broadcast, wagering & racing product are inextricably linked and of significant strategic importance. The successful exploitation of intellectual property is core to the commercial performance of the NSW Racing Industry. RDA arrangements do not deal in a comprehensive manner with the linkage between wagering and broadcast. This brings inherent risk and potential opportunities to Tab Limited and RACINGCORP and race clubs. … Sky Channel currently holds an effective monopoly of the broadcasting of Australian racing. Sky Channel established this effective monopoly by obtaining broadcast rights of all race clubs of all codes in all states of Australia. Sky has maintained its monopoly position by ensuring contracts with individual race clubs have concertina expiry dates, wide definitions of broadcast rights (some now including right to racing information), different contractual terms, significant confidentiality obligations, various extension options and first and last rights of refusal. Sky Channel broadcasted approximately 5581 race meetings in FY04. … For the period between 20 March 2004 and 14 May 2004 Sky Channel decided not to broadcast Sydney metropolitan race meetings despite an offer from the AJC and STC for Sky to do so free of charge. The blackout had a detrimental effect on Tab Limited revenue. Wagering growth had grown by 6.0% during the period 1 July 2003 to 19 March 2004 and dropped back to a growth rate of 3.3% during the blackout period. … Over recent years, Tab Limited has actively reduced its more costly agency distribution network in favour of a more cost-effective expansion of its ClubTAB and PubTAB distribution network. The number of Tab Limited operating agencies has reduced by 38% over a six-year period, from 525 in FY99 to 324 in FY04. During the same period PubTAB and ClubTAB operations have increased by 85% from 955 to 1771. Incremental Sky Channel revenues generated from the 716 new PubTAB and ClubTAB operations do not form revenue for the purpose of Wagering Earnings under the RDA. However, there has been no appropriate pro-rata reduction under the Sky Channel Domestic Agreement. 43 After setting out what he saw as the risks to the NSW Racing Industry of both a joint-venture and/or TVN arrangements with other third parties Mr Purcell wrote: The fundamental starting point in considering how to progress this issue is to determine: 1. If broadcasting issues fall within the responsibilities of Racing NSW (and the other controlling bodies)? Section 13 (1) (c) of the Thoroughbred Racing Act 1996 states: "Racing NSW has the following functions: (c) to initiate, develop and implement policies considered conducive to the promotion, strategic development and welfare of the horse racing industry in the State and the protection of the public interest as it relates to the horse racing industry". 2. Should Racing NSW be involving itself in broadcast issues? Given both the financial and strategic importance, Racing NSW must. Racing NSW has significant obligations to TABCORP, Tab Limited, Sky Channel, RACINGCORP, Controlling Bodies and race clubs, in relation to broadcasting arrangements under the RDA and associated agreements. In the event of a breach of these obligations, Racing NSW or the defaulting NSW Thoroughbred race clubs/s may incur significant liability. 3. If Racing NSW decides to involve itself in these issues then its objectives need to be determined. These may include: · Ensuring ownership and control of intellectual property · Maximising NSW Thoroughbred Racing Industry revenue, having regard to: O Total broadcast revenue (as opposed to individual club revenue) O Impacts of broadcast on wagering earnings through: - Effect on wagering revenue (turnover) - Effect on wagering costs O Optimising broadcast exposure of racing product 4. What approach to broadcast arrangements should Racing NSW undertake? There are four broad alternatives: · Do nothing Allowing others determine the direction of broadcasting arrangements will not optimise the NSW Racing Industry's strategic and commercial objectives. · Join TVN arrangements Racing NSW could integrate its position through TVN. This would maximise commercial leverage with Sky Channel and other parties. However it does so by significantly reducing control and increasing what is already a high-level of Trade Practices exposure that TVN faces. · Undertake a structure of NSW arrangements Establish a single structure for the negotiation of broadcast rights in NSW. This may replicate previous RACINGCORP proposals or the TVN model. · Negotiate an equity position in Sky Channel Take an equity position in Sky Channel 44 Although a "Board" of the plaintiff is not constituted under the Act the members have referred to themselves collectively as a Board and have held what have been described as "Board Meetings". The plaintiff's Board Meetings were usually held on the third Monday of each month and one such meeting was held on 25 January 2005. The Minutes of that meeting, at which all members were present, record the following: TVN It was moved that Racing NSW place the following conditions on the AJC and STC, if TVN start another thoroughbred racing channel(s), and it were to broadcast AJC and STC races: (i) that Tabcorp and/or Racing NSW will not contribute to the production costs of the channel(s); (ii) that no additional charge will be levied on the NSW wagering distribution network to carry the channel(s); (iii) subject to Trade Practices considerations the broadcast cannot be provided to outlets in NSW that have existing Sky Channel subscription; (iv) that no action be taken by TVN that could prejudice revenue from international broadcast rights; and (v) that it be confirmed by the parties that there is a mechanism whereby Racing NSW will have a veto right, by way of prior written approval, for any action that would effect Racing NSW interests. Carried 45 Notwithstanding that the Minutes of this meeting were approved at the next usual meeting on 21 February 2005 without change to this resolution, the evidence establishes that the discussion at the meeting conveyed at least to one member, John Bernard Costigan, that the members agreed to a different condition (iii) in the following terms: (iii) subject to Trade Practices considerations the broadcast cannot be provided to outlets in NSW that do not have existing Sky Channel subscription. 46 The Minutes of the meeting on 25 January 2005 also recorded the following: It was moved that Racing NSW issue a directive to the AJC and STC, that they: (i) terminate their current agreement with TVN; and (ii) pursuant to the provisions in the RDA that allow extensions of the broadcast right, extend the AJC/STC/Sky Channel agreement as a 30 June 2003, for a period to 30 June 2006. Carried It was further moved that the Directive not be issued until the Chief Executive ascertain from Sky Channel that they agree: (i) to amend the above agreement so as to make it a non-exclusive license to grant broadcast rights to Sky Channel, rather than an exclusive license; (ii) that the rights of first or last refusal, or options to review or extend, in favour of any existing Tabcorp Sky Channel company not apply; and (iv) that NSW Hotels and Clubs have their Sky Channel subscriptions reduced by the equivalent rights reduction on a formula agreed by Sky Channel and Racing NSW. Carried 47 On 27 January 2005 the Chief Executive spoke to the CEO of Sky, Mr Peter Caillard. The Chief Executive informed Mr Caillard that the plaintiff would not "sit back and let the picture be turned off again". He said that the plaintiff would "compel the AJC and the STC to sign up with Sky up to 30 June 2006 in accordance with the option contained in the RDA" but suggested in his evidence that he said that this was "one option" that the plaintiff had. He denied that he said that "conditions will be imposed on the AJC/STC which may make continuing with tvn unattractive". He admitted that he asked Mr Caillard to share with him its financial analysis "which shows the loss to tvn/racing", but denied that this was a general request and related only to why Sky had pulled out of the joint venture. There was also discussion in which the Chief Executive expressed his concern about the inclusion of the first and last right of refusal. 48 On 28 January 2005 at 7.45 am the Chairman sent the following email to the Chief Executive: Subject: TV Rights Peter: Overnight thoughts. Our correspondence to AJC/STC should foreshadow that we will be raising issues in relation to TVN and a second channel but deal specifically only with the immediate Feb 6 issue. That has many advantages for us. My overnight suggestion is no first and lasts, or extension rights as agreed 30 June 2006 expiry as agreed AJC and STC paid at old rate of approx $5mill each (need to check detail of what is agreed on escalation) AJC and STC have right to go non-exclusive but if they do, their rights fees fall to $2 mill each (note this puts them on same rate as Country for roughly same TAB turnover - see p2 of Greg's memo to me of 21/1/05) $1 mill reduction to Pubs and clubs ($1.5m previously agreed) $0.5 mill extra in rights fees to Provincials – this brings Provincials into line with Country in proportion to TAB turnover and takes some of the heat out of another problem for you. If AJC/STC trigger the non-exclusive, they will create a situation where NSW fees are related to TAB turnover. I think that has advantages to both ourselves and Tabcorp next time round. AJC/STC will have triggered a loss of their rights premium (they currently get paid at 2.5 times the rate in relation to TAB turnover – an additional reason for them to think hard) If you like this, the spin should be this is the Racing NSW proposal to Tabcorp which insulates Tabcorp from having to comment on the logic. We should not comment publicly on the turnover logic until we get the deals done. Gary P 28 January 2005 Direction 49 On 28 January 2005 the Chief Executive wrote to both the AJC and the STC in the following terms: Re: Broadcast Rights Could you please provide as a matter of urgency a copy of your agreement with TVN. Further and taking into account our recent discussions, your club should not extend or vary the above agreement with TVN or enter into any new agreement regarding broadcasting rights until and unless specifically agreed with Racing NSW. 50 Also on 28 January 2005 the Chief Executive wrote to Mr Caillard of Sky suggesting that he consider the following: 1. The AJC/STC agreements be varied so as any rights or first or last refusal or options to review or extend in favour of any existing TAB/Sky company shall not apply. 2. The broadcast rights be exclusive on the pre-existing payment schedule. The AJC/STC have the option to revert to non-exclusive agreement during the term. If the option is exercised by either club, the fee to that club reduces to an annual rate of $2m for non-exclusive rights. 3. NSW hotels and clubs have their Sky Channel subscriptions reduced by $1m per annum on a formula agreed to by Sky and Racing NSW. 4. The domestic agreement between Sky Channel and NSW provincial thoroughbred clubs dated 14 August 1998 be amended to increase the rights fees by $500,00 per annum. 51 The Chairman sent a further email to the Chief Executive on 29 January 2005 in the following terms: Subject: TV Rights Peter: Have been reading again Greg's 30 page note to me of 21 January. Racingcorp negotiated three important rights as part of the takeover consent; 1. the right for all NSW clubs to pick up old agreements with a common termination date of 30 June 2006. 2. with the exception of AJC/STC, those agreements to exclude first and last and extension rights in favour of SKY. 3. the right to joint negotiation on the common termination date It occurs to me that this gives us a basis to issue a direction under the Act to ALL clubs and Associations/Councils (not just AJC and STC) that, in order to take advantage of the provisions and ensure they are exercised in the best overall interests of racing in the state, no club or association may directly, or indirectly through agents, give effect to any new or varied agreements or arrangements in relation to broadcast rights without the consent of Racing NSW. If you like this, lets do a board paper for a circular resolution Monday. This gets us in publicly boots and all and effectively represents our first assumption of power under the Act. For Tabcorp, there is then no question that we will intercede – only whether we do it for them or agin' them. It's their choice. Gary P. 52 On 30 January 2005 the Chairman sent a further email to the Chief Executive in the following terms: Subject: TV Rights Peter: It was not my intention to join a board where the Chairman wrote board papers. I got out of that a long time ago. However, we are up to our arse in alligators and it is all hands to the pump at the moment. I don't want you working seven days a week so I put together a possible board paper to fix our position on TV rights while you work out what we want. Tell me if this gets up your nose, but if you are comfortable, lets get the resolution and directive in place Monday and you can run with the issue and I can get back to the farm! GaryP 53 The attachment to that e-mail was entitled "TV and Media Rights". After the Chairman advised that he proposed that the members agree by "circular resolution" the following is recorded in a section headed "Proposed Media Directive": A directive will not of itself solve the problem. In fact, we may find ourselves in a very difficult situation trying to unravel the looming blackout problem – given that Tabcorp is unlikely to agree with our demands and we would not want them to agree with those of TVN. I think NSW is in for a painful time in the short term which will only be avoidable by unacceptable concessions against our future long term interests. As usual, Victoria is in a far stronger position having long since prepared for these issues. The Victorians have a common expiry date, a common negotiating entity, all their pubs and clubs are geared to take TVN, and they have AJC and STC (and their key rights) halfway into the Victorian tent. For NSW to achieve its common expiry objective, we need an AJC/STC deal with SKY to June 2006, ie past the Victorian rollover date. For roughly $15 million, Victoria could decide to go ahead with a minimum cost, bare-bones version of its own thoroughbred channel. There is a possible combination of circumstances where Victorian outlets could have access to our picture but NSW have no Victorian thoroughbred picture. It is a complex chess game with many possible outcomes and no clear solution. There is a wealth of information and detail to which Racing NSW is not currently privy. Under these circumstances, and in the first instance, it is better that Racing NSW issues a general directive based on negative powers of approval rather than positive powers of direction, ownership or control. There is no barrier to Racing NSW issuing supplementary orders later to instruct clubs to act in a specific manner when such a requirement has been clearly identified. Despite the difficulties, the downside risk of not becoming involved from a state perspective is substantial. We are a week away from adverse effects on NSW wagering income from the AJC and STC situation. The more we learn of TVN, the more apparent it becomes that TVN objectives are capable of being leveraged at the expense of NSW in general, eg NSW may be facing an AJC/STC blackout because, in part, TVN is insisting on access to unrelated rights to further its own objectives. Whether conscious or otherwise, TVN has the potential to divert returns that would go more broadly to NSW to the benefit of the AJC and STC. The situation is complex, with a wide range of potential outcomes. A number of possible outcomes have long term implications and impacts of important strategic and financial significance to thoroughbred racing in NSW. I submit to directors that we cannot responsibly stand aside from this issue, despite the risk of "why don't you fix it" criticism. We should ensure that Racing NSW gains access to a wide range of information not currently available to us as a pre-requisite to determining and exerting an influence on the eventual outcome in the best long term interest of all thoroughbred participants in the state. Essential to that position, is first ensuring that the "status quo" cannot be changed, nor new arrangements entered, without our consent – pending the determination of Racing NSW's overall strategy and specific requirements. I propose that a directive be issued to all clubs, and their representative associations requiring that, either directly or indirectly, including through agents or associated bodies or corporations, no new agreements or arrangements or variations to existing agreements or arrangements in relation to any aspect of media or broadcast rights, may be entered without the specific written consent of Racing NSW. For the purposes of clarity, this directive incorporates all forms of media, including without restriction, new media internet, interactive etc and is both national in and international in scope. The directive is given in accordance with powers and responsibilities under the Act, RDA, DACA etc. 54 The evidence is that the Chief Executive sent this material by email to the members of the plaintiff. Some members responded in writing, by email or fax, although only one email has been found. Some responded orally. A resolution was not recorded in the Minutes of any of the Board Meetings prior to the commencement of this litigation. 55 On 31 January 2005 Sky responded to the Chief Executive's letter of 28 January 2005 advising that the "first and second amendments" proposed were "acceptable" subject to the condition that "(c) if the option to revert to a non-exclusive agreement is exercised, then the fee payable to the relevant club reduces to $1 million per annum and Sky will be under no obligation to include their races in its programming". 56 On 1 February 2005 the STC and the AJC responded by separate letters to the purported direction of 28 January 2005 in the following terms: Our agreement with TVN in relation to the broadcast rights is one which contains certain confidentiality obligations on the parties. Accordingly, it will be necessary to seek TVN's consent in relation to your request for provision of a copy of that agreement. It would be of assistance in so doing if you were able to indicate the basis on which that request is made and the purpose for which you require access to the agreement. Secondly, you have issued a direction in relation to any extension or variation of agreement with TVN for the broadcast rights and, indeed, as to the entry by the club into any new agreement regarding broadcast rights. I would appreciate it if you could set out the basis on which that demand has been made, so that there is no misunderstanding as to the position which Racing NSW is adopting. 1 February 2005 Direction 57 On 1 February 2005 the plaintiff issued a Notice signed by the Chief Executive to all racing clubs in New South Wales in the following terms: NOTICE TO ALL CLUBS I wish to advise that the agreements between the three codes of Racing in NSW and TABCORP in relation to the take over of TAB Limited have now been finalised. I enclose for your information a summary of the major items of the agreement. The matter which however I particularly bring to your attention relates to broadcast and media rights. The amended Racing Distribution Agreement incorporates important changes which provide an opportunity for all three sectors of thoroughbred racing in NSW to vary their Sky Channel Agreements and lay the foundation for an integrated state wide media policy. To ensure these opportunities are exercised in the best overall interest of thoroughbred racing in New South Wales a coordinated approach will be essential. In this regard, no NSW thoroughbred club, representative body, or its agent or associated corporations, is to enter into any new agreements or arrangements or vary existing agreements or arrangements in relation to any aspect of media or broadcast rights without the specific written consent of Racing NSW. For purposes of clarity, this directive incorporates all forms of media, including without restriction, new media, internet, interactive and is both national and international in scope. This directive is given in accordance with the powers and responsibilities of the Racing NSW Act 1996, the Totalizator Act 1997 as amended, the Intracode Agreement, Racing Distribution Agreement and other agreements. By order of the Board. 58 At 7.19pm on 1 February 2005 the Chairman sent another email to the Chief Executive in the following terms: Subject: Slatter Peter: Herewith a revised version for overnight consideration. It incorporates the wif issue plus other thoughts. What comes out of this is that, I am starting to get my head around the term issue to give Sky security but 1. we must have a package that allows the AJC and STC to retain their total income levels (fees + incentives) 2. so that, if the competition evaporates, we can't be accused of screwing our own clubs to prop up Sky 3. the package must be attractive overall -the incentives for country and provincial are important 4. it must be non-exclusive This means Tabcorp will be paying more than they think they should for a non-exclusive - and they are right to a degree. If we can get this together, I am thinking we may have to risk some pain on the term of the agreement. Gary P 59 The document attached to the Notice included the following: Sky Channel New South Wales racing clubs will be given an option of maintaining, until 30 June 2006, the contractual arrangements relating to Sky Channel which were in place as at 30 June 2003. Alternatively, those clubs will have the option to continue with any other arrangements agreed before TABCORP acquired control of Tab. For clubs other than New South Wales metropolitan thoroughbred racing clubs, any rights of first or last refusal or options to renew or extend in favour of Tab or Sky Channel will be disregarded. NSW thoroughbred clubs can terminate their Sky Channel domestic agreements at 30/6/2006, by providing six months notice. TABCORP will be required to procure that Sky Channel Pty Ltd negotiates in good faith with the New South Wales racing clubs in relation to broadcast rights for Sky Channel from 30 June 2006 onwards. The future TABCORP group (including Tab and Sky Channel) will not object to those clubs negotiating collectively if they wish to do so. TABCORP has also given NSW Racing a number of assurances that Sky Channel Pty Ltd will not give undue preference to the Victorian racing industry to the detriment of the New South Wales racing industry. There will be annual meetings of a consultative committee comprising representatives of state racing industries to discuss the Sky Channel coverage program. 60 The document that was attached to this e-mail put a proposal that AJC and STC received $2 million per year for non-exclusive rights and that Tabcorp had a most favoured nation clause which prohibited the charging of fees less than the escalated fees in the document to another party. It contained an arrangement between the plaintiff and Tabcorp fixing the minimum price which the AJC and the STC could obtain for their rights. The document also included the following: Some will argue that this package has the potential to limit or eliminate the development of a competitive channel. I have insufficient access to TVN plans to pass a judgment. If that were to be the case, it is important to pitch the AJC and STC potential numbers at a level that it can't be argued that they have been forced by Racing NSW to take a discount as part of a manouvre to protect Sky. What these numbers show is that objective can only be achieved at a lower differential between exclusive and non-exclusive value than what Tabcorp has put forward. I accept that increases the obligation on me to address the term and security issues you have advanced and any ancillary benefits such as MFNs. The numbers also illustrate the importance of dealing with this issue in conjunction with TVN and associated matters to better judge the likely future shape of the competitive landscape. However, it would be nice to make more progress on this issue in the meantime, or at least to better progress our understanding of our respective constraints and priorities. 61 On 9 February 2005 the AJC and the STC wrote in the following terms to the plaintiff in response to the direction of 1 February 2005: I refer to your notice of 1 February 2005 directing all New South Wales thoroughbred clubs, representative bodies, agents or associated corporations not to enter into any new agreements or arrangements or vary existing agreements or arrangements in relation to any aspect of media or broadcast rights without the specific written consent of Racing NSW. Could you please confirm whether this supersedes the direction issued by you under cover of your letter dated 28 January 2005. I note your advice that the latest directive is given in accordance with the powers and responsibilities of the Racing NSW Act (1996), the Totalizator Act (1997) as amended, the Intra-Code Agreement, the Racing Distribution Agreement and other (unidentified) agreements. To ensure that I fully understand Racing NSW's position could you please identify the specific powers and responsibilities in the particular legislation and agreement on which Racing NSW relies for the issue of this directive and the basis upon which Racing NSW believes that this directive is necessary. You have summarised in the Notice the major items of the agreement which have been finalised between the three codes of racing in NSW and Tabcorp in relation to the takeover TAB Limited and have noted that the amended Racing Distribution Agreement will provide an opportunity for variation of the Sky Channel agreements and lay the foundation for an integrated state-wide media policy. I would appreciate it if you could provide me with a copy of the amended Racing Distribution Agreement. 62 On 4 February 2005 the Chairman sent a further email to the Chief Executive in the following terms: Subject: Sky Deal Peter: We need to watch future deals with other States. Pro rata no better than NSW? There is a simple alternative which leaves everybody on our side except AJC and STC the same or better off. We agree their deal with following modification. Their point 1. Incentive amount not conditional ongoing exclusive. Their 2-4. $0.5 to provincials unconditional. 5. Our escalation. 10. Sky agrees to remit reduced fees (net $1.5m) to outlets on basis to be agreed. 11. Incentives not conditional on exclusivity. No additional incentives to Country and provincial. 13. Term 5 + 5. Payments not conditional on exercise of option. All payments based on their 12 year proposal. 14. No firsts and lasts This virtually ensures TVN will get up (on terms we will dictate). TABCORP has made it cheap to go elsewhere (MFN $1m per club) and reduced costs to outlets gives TVN room to charge if we so determine. You need to check financial impact of reverting to 1993 agreements for provincial and country as per cursor (sic) to common expiry date. GaryP 63 Later on the morning of 4 February the Chairman sent a further email to the Chief Executive in the following terms: Subject: Sky Deal Peter Sorry to disturb you one last time. It may be better if we count the $2m in incentives in the MFN. My previous note put the MFNs at base fee only of $1m. The $3m probably suits TABCORP because it makes it more expensive for a competitor. It suits us, because TVN then has to pay AJC $3m to bring them to $6m. Gary P I'll get off your back now I heard a trainer say yesterday that "good jockeys don't need instructions and bad ones don't know how to follow them"! 64 On the evening of 4 February 2005 the Chairman sent an email to the Chief Executive Officer of TABCORP, Matthew Slatter, with a copy to the Chief Executive in the following terms: Subject: Sky Contract Dear Matthew Thanks for your outline of a non-exclusive contract proposal. In terms of the "big issues" I think we are down to two differences between us. We would accept AJC and STC coming down to $1m if another party exploits the rights but not that the $2m incentive fee and the $0.5m provincial payment are conditional on non-exploitation by another party. The incentive and provincial issues are very fundamental to us and are a real sticking point. At a lesser level, I think there are possible variations on the exclusive rights fees we should discuss to our mutual advantage – nothing I would expect to be material to this agreement. I understand there are practical issues behind the sub-licensing of rights which sound OK but I would like to understand more fully before confirming agreement. I appreciate the offer to hold the fees in escrow. However, we should be cautious at any public disclosure of the basis because we risk serious misunderstandings if the $2m figure is aired in isolation of the whole package. My inclination is not to pay fees: it keeps the heat on for a resolution. I am comfortable with the proposed press release but suggest in any media response we should manage expectations and not disguise the fact that important issues remain outstanding, despite the considerable progress made. I would think any public disclosure of any of the elements should await agreement on the whole package. Thanks for your efforts, Regards Gary P 65 Shortly after having sent that email to Mr Slatter the Chairman then sent an email to the members of the plaintiff and the Chief Executive in the following terms: Sky Negotiations: Dear all A rushed courtesy note in accordance with the "doctrine of no surprises" to advise TABCORP is issuing a press release offering to hold off a blackout for 14 days to allow further negotiations with Racing NSW. Peter and Calliard and Slatter and I have made good progress towards a resolution following many long discussions, documenting a proposals etc. That being said we still have one major sticking point which I consider a dealbreaker and which would prevent me coming to you with a recommendation for support. Will advise in detail when the situation is clearer. Gary P 66 On 5 February 2005 the Chairman wrote to the Chief Executive in the following terms: Subject: TABCORP Deal Peter, attached are some thoughts for our meeting with Caillard. TABCORP have pitched the deal below current income levels for AJC and STC particularly if the incentives are not fully achieved. The effect that the situation is unstable. They are trying to make it unattractive or difficult for us to continue on a non-exclusive basis for any length of time. If TVN falls over or we impose conditions which block it, we will be under pressure to take up the exclusivity option and the $10m. Equally the $1m is designed for maximum pain if we open a second operation. They have been very clever, but maybe too clever by half. They have given us too much time to think about it. Accordingly, I am strengthening in the view that we need more money or that they get less rights. Gary P 67 On 6 February the Chairman wrote a further email to the Chief Executive in the following terms: Subject: Caillard Peter I am moving to the view that, if TABCORP want the non-exclusive fee as low as $1m then they have to pay $5 m for the exclusive (no other operator) situation. Alternatively, if they want to pay $4 m for the exclusive (ie below current) then they have to pay more ($3m for the non-exclusive). They can't have the best of both. An alternative tactic is we could say that they are valuing the gap at $3m; ie $4m and $1m. We could offer to deal at $5m and $2m. At $5m and $2m it's a good deal for us and we could go in hard with AJC, STC and TVN. Either of the other combinations, I would be more cautious and inclined to consult the clubs on their preference. Just to think about before we meet Caillard. Gary P 68 On 7 February 2005 the Chairman and the Chief Executive met with representatives from TVN who gave a presentation in relation to its business model. Later that day the Chairman and the Chief Executive met with Mr Caillard from Sky who made a file note of the meeting that included the following: "The meeting was positive with Gary Pemberton appearing to remain strong in his resolve to prevent Sky from losing the rights to broadcast AJC and STC races … Sky would continue to enjoy its existing rights to broadcast races". 69 On 11 February 2005 the plaintiff responded to the letters from AJC and STC of 9 February 2005 in the following terms: I refer to your letter of 9 February 2005. I do not understand your apparent concern as to whether the direction issued on 1 February 2005 to all NSW thoroughbred racing clubs (including the AJC [STC]) supercedes the direction issued to the AJC [STC] on 28 January 2005. Insofar as the AJC is concerned, both directions stand and it is a simple matter to comply with both directions as there (sic) requirements are entirely consistent. Each direction requires that the AJC [STC] not enter into, extend or vary any agreements or arrangements regarding broadcast or media rights unless and until it has obtained the prior specific consent of Racing NSW. In both cases any such specific consent would need to be in writing. If there is something particular which you do not understand in relation to how the AJC can comply with both directions concurrently, please let me know so that we can ensure that the course of action required of the AJC [STC] is clearly understood. Racing NSW is charged with responsibility for controlling thoroughbred racing in NSW including the promotion, strategic development and welfare of the NSW thoroughbred racing industry. Clearly, broadcast and media arrangements are important issues impacting on the NSW thoroughbred industry. Racing NSW is concerned to ensure that, in the context of such arrangements, the interest of the thoroughbred industry in NSW are safeguarded and advanced. The directions of 28 January and 1 February 2005 were issued for that purpose. As you are aware, Racing NSW can issue directions to clubs by virtue of the powers in section 14 of the Thoroughbred Racing Act 1996 ("Racing NSW Act") and the powers conferred in sections 14 and 15 of Schedule 2 of the Totalizator Act 1997 . Dealings by the AJC [STC] (directly or through its affiliates) in relation to broadcasting issues have significant implications, including potentially affecting distributions under the Racing Distribution Agreement which can impact not only on the AJC [STC] but also other participants in the NSW thoroughbred industry. Racing NSW reserves the right to take steps to ensure that the AJC [STC] bears any adverse financial consequences of actions taken by the AJC [STC] or their nominees, alone or in conjunction with others, without the prior consent of Racing NSW (including actions not specifically within directions issued on 28 January and 1 February 2005 and that other NSW thoroughbred clubs are not financially disadvantaged. As requested in your letter of 9 February 2005 I have arranged to have the Deed of Accession Co-Operation and Amendment dated 22 December 2004 which contains the latest amendments to the Racing Distribution Agreement as summarised in my notice of 1 February to be emailed to you. This document is provided on a confidential basis to enable the AJC [STC] to understand its obligations under the Intra-Code Agreement and directions previously issued by Racing NSW. 70 On 15 February 2005 TVN signed a Sales Agency Agreement with the Australian Hotels Association (AHA) conditional upon the consent of the racing clubs. On the same day Brian Judd, the general manager of the Industry Department of the plaintiff, wrote to the Chief Executive expressing the view that "whether the development of a thoroughbred racing channel by a broadcast or other than Sky Channel, which in NSW may only cater for the two metropolitan clubs is in the best interests of racing generally, will only be determined over time". 71 On 16 February 2005, Mr Caillard wrote to Mr Les Vance of the plaintiff in respect of a draft Heads of Agreement. That letter included the following: "Gary Pemberton clearly spelt out that he had "shaken hands" with Matthew Slatter and an "agreement in principle" had been reached". 72 On 16 February 2005 a special meeting of the members of the plaintiff was held. The only resolutions recorded in the Minutes of that meeting are as follows: Mr Esplin moved that the Chief Executive rights to the Chief Executive of TVN confirming TVN's undertakings: (i) to advise Racing NSW immediately of the outcome of their discussions with Tabcorp (ii) to respect the directives issued by RNSW on the AJC-STC re new broadcast agreements. (iii) that TVN has not yet progressed towards any executed agreement in regards to post 3 May 2005 broadcast rights with AJC-STC (iv) to respond to our concerns in regards to TVN's impact on NSW wagering revenue. Carried It was moved by Mr Esplin that all communications to the public by Directors on the issue be deferred to the Chairman Carried 73 The Minutes also recorded that: "Steps need to be examined to reinforce compliance by the AJC and STC with the directions regarding broadcast rights". 74 The handwritten notes taken by the Minute Secretary, Mr Archibald, include a statement by one of the members of the plaintiff, Mr Hopkins, that: "there is no doubt that they are not going to sign it. 1. Undertaking 2. Wait for response 3. Go to court 4. get Tabcorp agreement 5. Get them to sign 6. If they don't/appt an administrator". 17 February 2005 Direction 75 On 17 February 2005 the plaintiff issued the following document: DIRECTION TO ALL CLUBS BROADCAST RIGHTS 17 February 2005 Racing NSW has previously issued directions to NSW thoroughbred racing clubs which require all clubs not enter into, extend or vary any agreements or arrangements regarding any aspect of media or broadcast rights unless and until the club has obtained in writing the prior specific consent of Racing NSW. There appears to be a degree of uncertainty in some quarters as to the scope of the directions which have been issued. In short given the potential implications of events regarding media and broadcast of racing on the promotion, strategic development and welfare of the NSW thoroughbred racing industry, in the current climate Racing NSW needs to assess the potential impact of any proposed dealings with media and broadcasting of NSW thoroughbred racing. Accordingly, to avoid uncertainty as to clubs' requirements, Racing NSW directs all clubs not to, directly or indirectly, take any action in respect of media or broadcasting rights without first obtaining the specific written consent of Racing NSW to that action. Without limitation, this includes a requirement to first obtaining the specific written consent of Racing NSW to: · entering into any new agreement or arrangement, or extending or varying any existing agreement or arrangements in relation to the transmission or any aspect of the transmission, of any coverage at a race; · appointing, or extending or expanding the appointment of, any agent or contractor to transmit any coverage of a race or to conduct negotiations in relation to rights to transmit any coverage of a race; · any transmission of any coverage of a race, irrespective of whether that transmission is conducted by the club directly or indirectly such as through agents, affiliates, nominees, representatives or contractors. The only exception to this is the on-course display of coverage at the club's racetrack on a day on which the club is conducting a race meeting at that track; · any use or exploitation whatsoever of any coverage of a race which was not of the same nature, type and extent as was occurring by the relevant club prior to 1 February 2005. In this direction: · "coverage" includes any visual or audio-visual representation of a race or race meeting; · "including" means "including but not limited to" and "includes" has a corresponding meaning; · "transmission" includes transmission, distribution, display or dissemination by any means whatsoever whether now known or devised in the future (including commercial, pay television, free-to-air television, internet, new media and interactive) and "transmit" has a corresponding meaning. This direction applies to all forms of media, broadcasting and transmission both within Australia and internationally. This direction is additional and supplementary to previous directions issued by Racing NSW in relation to broadcasting and media issues (including the directions of 1 February 2005). The issue and terms of this direction do not expressly or by implication restrict the terms or interpretation of any previous direction issued by Racing NSW, including the direction of 1 February 2005. This direction is given by Racing NSW in accordance with the powers and responsibilities of Racing NSW under the Thoroughbred Racing Act 1996, the Totalizator Act 1997 and agreements and arrangements referred to in section 14 of Schedule 2 of the Totalizator Act. By order of the Board 76 On 17 February 2005 the Australian Hotels Association (the AHA) announced the agreement regarding its appointment as an exclusive sales agent for the provision of the "TVN Channel" in Australian hotels and clubs. The announcement stated that the TVN Channel would include AJC and STC race meetings and that the TVN Channel was to commence in May 2005. The joint press release of AHA and TVN referred to it as an historic agreement "expected to maximise the penetration of the Channel into Australian pubs and clubs, a key distribution channel for the sport and its wagering." 77 On 17 February 2005 the Chief Executive informed Sky that "TVN continues to work hard and that the resolve of certain members of the Racing NSW Board may be tested if [Sky] cannot quickly finalise arrangements". The Chief Executive gave evidence that this conversation was a "negotiating strategy", whatever that might mean. Although he was not asked to explain what he meant by this term it is clear from all the surrounding circumstances that the members of the Board were not losing their resolve at all, particularly when the day before Mr Hopkins had suggested to the members of the plaintiff at their meeting that they should "get" the AJC and the STC to sign with Sky (Tabcorp) and if they did not to appoint an administrator to the clubs. 78 On 18 February 2005 Sky wrote to the plaintiff in relation to draft Heads of Agreement indicating that it was "now happy with the draft document except for the concept of 'open access' pay TV not triggering an automatic fee reduction". After further communication Mr Caillard informed the Chief Executive that the Heads of Agreement were "acceptable" to Sky. 79 On 21 February 2005 the AJC and the STC entered into a "letter agreement" in which the AJC and the STC appointed TVN as their agent to achieve the objective of the AJC and the STC transmitting their "on-course race coverage (Coverage) direct to Commercial Premises after 3 May 2005". That agreement recited that each of the AJC and STC wished to: (a) sub-lease satellite time from TVN; (b) use TVN's infrastructure in the Commercial Premises for the purposes of receiving the satellite transmission; and (c) appoint TVN as its agent to enter into various agreements on its behalf. 80 The arrangement set out in the letter agreement provides for the delivery of the Coverage from the Racecourse to a production house with whom a delivery arrangement will be entered into between that production house and the AJC, with TVN acting as AJC/STC's agent for that purpose. It provides that TVN is to act as AJC/STC's agent to enter into appropriate arrangements to have the Coverage delivered from the production house to an agreed satellite play out centre for transmission to Commercial Premises. "Commercial Premises" are defined in the agreement to include licensed and registered clubs, private and public hotels, motels, TAB agencies and branches, casinos, racetracks, mining sites, hospitals and media business including radio stations, emergency services premises. TVN is appointed as AJC/STC's agent to enter into the agreements with the Commercial Premises for the transmission of the Coverage of the races to them. The letter agreement includes the following: 7. TVN must ensure that all intellectual property rights arising from the services carried out by the Production House for and on behalf of AJC (STC) are assigned to, and are owned by, AJC (STC) … 20. All intellectual property rights in the Coverage remain with AJC (STC) and nothing in this letter agreement grants to TVN any intellectual property rights in the Coverage or any broadcast of the Coverage. 81 On the same day the STC and the AJC entered into a Bilateral Arrangement in respect of the Sales Agency Agreement between the Australian Hotels Association and TVN that had been concluded on 15 February 2005 under which TVN appointed AHA as a sub-agent for the transmission of the AJC/STC Coverage. In this letter AJC and STC consented to the appointment of AHA as the sub-agent in relation to the Coverage on the terms of the Sales Agency Agreement entered into between AHA and TVN. The agreement of 15 February 2005 between TVN and AHA appoints AHA for the purpose of negotiating and entering into agreements with pubs and clubs for the transmission of TVN Coverage, AJC Coverage and STC Coverage to business premises. 82 A further meeting of the members of the plaintiff took place on 21 February 2005. The Minutes of that meeting include the following: It was moved that at the meeting with the Australian Jockey Club and Sydney Turf Club at 7 p.m. on 21 February 2005, that the board request that the Australian Jockey Club and Sydney Turf Club undertake to not sign any agreement with TVN until an independent financial review, by an agreed third-party, of the TVN business model, to ascertain its financial and commercial viability, was carried out and that they further not sign any agreement with TVN until the agreement is approved by Racing NSW. Carried It was moved that in the event that the Australian Jockey Club and Sydney Turf Club refuse to sign the undertaking, or otherwise deal with TVN contrary to the Direction given to them, that the Chief Executive has authority to seek an injunction or order from the Court. Carried 83 The plaintiff had been negotiating with Sky in respect of a draft Heads of Agreement for the provincial and country racing clubs. On 21 February 2005 Sky advised the plaintiff that it was "now happy" with the documents that had been provided to them. On 22 February 2005 the Chairman telephoned Mr Calliard and advised him that the "Board had consented to the draft Heads of Agreement" for metropolitan, provincial and country racing. The Chairman suggested to Mr Calliard that Sky "should now approach" the race clubs "directly for them to consider their proposal". 84 On 24 February 2005 the Chief Executive retained PriceWaterhouse Coopers (PWC) to prepare a report in relation to the TVN business model. By this time the plaintiff had already indicated its consent to the agreement with Sky. There are confidentiality claims in respect of the content of the material that was provided to PWC and the content of the report. It is not necessary to detail the findings of PWC or the observations made by a witness called by the defendants, Mr GCA Gower, chartered accountant, because of the views referred to later in this judgment. 85 It is apparent that negotiations then took place between the racing clubs and Sky. The defendants rejected the Sky offer and the country and metropolitan clubs continued their negotiations with Sky. The Chief Executive suggested to the country/provincial representatives that a number of the members of the plaintiff had indicated that if was up to them they would not invest any money in TVN. The Chief Executive also suggested to the representatives of the country and provincial clubs that they should consider whether the Sky offer would be on the table for much longer. This observation was made at the time the Chief Executive suggested to the representatives that they should consider any offer from TVN. For the reasons I have referred to below that suggestion seems to have been more in the nature of window dressing than anything else. The Provincial and Country Race Clubs signed Agreements with Sky after further negations with Sky. 86 On 20 April 2005 a document recording the following was sent to all the members of the plaintiff. Each of the members subsequently signed it: Resolution under section 20(1) of the Thoroughbred Racing Act 1996 To: All Racing NSW Board members Background 1. At the Racing NSW Board meeting on 25 January 2005, the Board determined to impose conditions on the Australian Jockey Club ( "AJC" ) and the Sydney Turf Club ( "STC" ) which required them to obtain Racing NSW's prior written approval to certain actions in respect of broadcast arrangements. 2. Following on from the 25 January 2005 Racing NSW Board meeting, Racing NSW issued directions to the AJC and STC by letters dated 28 January 2005 signed on behalf of Racing NSW by the Chief Executive (" 28 January 2005 Direction "). 3. On 31 January 2005, the Chief Executive circulated by e-mail to all directors a confidential business paper from the Chairman in relation to media rights, the Chairman's paper proposed the issue of a direction to all clubs requiring that " either directly or indirectly, including through agents or associated bodies or corporations, no new agreements or arrangement or variations to existing agreements or arrangement sin relation to any aspect of media or broadcast rights, may be entered without the specific written consent of Racing NSW". Racing NSW Board members were requested to confirm their agreement or otherwise with that proposal as a resolution under section 20 of the Thoroughbred Racing Act. A copy of the Chief Executive's e-mail of 31 January 2005 is attached. 4. All Racing NSW Board members, other than Mr Ferguson who was overseas and not available, indicated their agreement with the course proposed by the Chairman and the proposed resolution, some orally and some in writing. 5. Consistently with the approved course, on 1 February 2005 a direction was circulated to all NSW thoroughbred racing clubs signed by the Chief Executive on behalf of Racing NSW (" 1 February 2005 Direction "). 6. The Agenda for the special Racing NSW Board meeting on 16 February 2005 specifically included the 28 January 2005 Direction and the 1 February 2005 Direction. Copies of the 28 January 2005 Direction and the 1 February 2005 Direction were included in the papers circulated to all Racing NSW Board members with the Agenda for that meeting. A copy of the Agenda for that meeting is attached. 7. At the special Racing NSW Board meeting on 16 February 2005, the Racing NSW Board noted and approved the 28 January 2005 Direction and the 1 February 2005 Direction. However while documented in the Agenda and approved at the meting, the minutes of the meeting refer to the directions but do not record a formal resolution approving those directions or record the written resolution referred to in paragraphs 3-4 above. 8. Additionally to the special Board meeting on 16 February 2005, the Racing NSW Board noted some possible structures which could be adopted in relation to racing broadcasts and there was discussion as to whether those structures may technically fall within the literal wording on the 28 January 2005 Direction and the 1 February 2005 Direction. It was recognised that the intention of the Racing NSW Board was that the direction should encompass all such structures and the matter was delegated to those members of the Racing NSW Board and management with legal expertise to examine the sufficiency of the directions in light of potential structures which may be adopted and address any perceived uncertainty. 9. Following consideration, it was determined that an additional direction should be circulated to avoid any uncertainty as to the scope of the directions. Accordingly, a further direction was issued by Racing NSW on 17 February 2005 (" 17 February 2005 Direction "). The 17 February 2005 Direction was signed by the Chief Executive on behalf of Racing NSW. 10. All Racing NSW Board members were notified of the issue of the 17 February 2005 Direction in the papers for the Racing NSW Board meeting on 21 February 2005 (which papers also included a copy of the direction) which were dispatched to all Board members on 17 February 2005. 11. At the Racing NSW Board meeting on 21 February 2005 the Racing NSW Board noted and approved the 17 February 2005 Direction. However while documented in the papers and approved at the meeting, the minutes of the meeting refer to the direction but do not record a formal resolution approving that direction. 12. The Racing NSW Board members were at all material times aware of, and approved, the issue of the 28 January 2005 Direction, the 1 February 2005 Direction and the 17 February 2005 Direction. 13. However to formally address any actual or perceived deficiency which may exist in respect of the formal record of that approval, it is considered appropriate that the following resolutions are passed in accordance with section 20(1) of the Thoroughbred Racing Act. Resolution It is resolved in accordance with section 20(1) of the Thoroughbred Racing Act that: (a) paragraphs 1-12 above are true and accurate record of events and the position of the Racing NSW Board; (b) the issue of each of the 28 January 2005 Direction, the 1 February 2005 Direction and the 17 February 2005 Direction was approved by Racing NSW, although there may be some deficiencies in the record of the formal approval of those directions; (c) Racing NSW again approves, endorses and ratifies: (i) the issue of each of the 28 January 2005 Direction, the 1 February 2005 Direction and the 17 February 2005 Direction; and (ii) the conduct of the Chief Executive in signing and issuing the 28 January 2005 Direction, the 1 February 205 Direction and the 17 February 2005 Direction on behalf of Racing NSW. Question 1 87 The first question for determination is: Whether, having regard to the terms of the directions dated 28 January 2005, 1 February 2005 and 17 February 2005 ("Directions") referred to in the affidavit Peter Nicolas V'Landys sworn 1 April 2005 in these proceedings, Racing NSW had power to issue any one or more of those Directions, whether by reason of its statutory powers and functions under the Thoroughbred Racing Act 1996 (NSW) and Totalizator Act 1997 (NSW) or pursuant to the agreement and deeds referred to in paragraphs 6(a) – (c) of the Amended Summons and any acknowledgements and consents signed by STC or AJC. 88 The plaintiff was established as a representative body to control thoroughbred horse racing in New South Wales. The extent and nature of that "control" is set out in the Act and the Australian Rules of Racing (the Rules). The plaintiff has all the functions of the Principal Authority, or principal club for New South Wales, referred to in the Rules, and is required to control, supervise and regulate horse racing in New South Wales (s 13((1)(a) & (b)). "Horse racing" is defined in the Act as "the racing of galloping horses as referred to in" the Rules. 89 The Rules provide the plaintiff with the discretion to exercise powers including: to hear and decide appeals as provided for in the Rules; to licence jockeys, trainers and others and suspend vary and revoke those licences; to inquire into and deal with any matter relating to racing and to refer any such matter to stewards for investigation and report on matters including the running of any horse upon any course; punish any person contravening the Rules; to register clubs, race meetings, owners bookmakers, horses, jockeys and other riders, trainers and their employees; and to appoint persons to hear and adjudicate upon any matter brought by the stewards relating to a breach of the Rules (AR 7). The Rules also include rules relating to the appointment of Stewards and their powers "to assist in the control of racing" (AR 8-10A); the registration of clubs and meetings (AR 11-13); the registration of horses (AR 14-27); the leasing of horses (AR 32-34); race meetings (AR 35-46B); nominations and entries (AR 47-68A); syndicates and syndicate regulations (AR 69-70); stakes and forfeits, trainers, jockeys and riders, apprentices allowances, stablehands, amateurs; and weights penalties and allowances (AR 71- 101); scratching, weighting out, starting, running, weighing, dead-heats, judge's decision and walk-over (AR 114-160). There are also rules relating to objections and complaints, offences, prohibited substances, and punishments (AR 161- 200). 90 The only Rules relating to "telecasts" are AR 160A to 160C "Course Telecasts" which provides: AR. 160A. No photograph, film or telecast of a race shall be exhibited or replayed at the racecourse on which a meeting is being conducted without the permission of the Stewards in charge of such meeting. AR. 160B No person shall, without the permission of the Stewards - (1) transmit in any way from the grounds of a racecourse any betting odds being offered by bookmakers on any horse that is competing at a racecourse in Australia or elsewhere; (2) while betting is taking place on the grounds of a racecourse, have turned on or use in any way at any of the following places on the racecourse any portable telephone, radio transmitter, radio transceiver or any other appliance, apparatus, instrument or equipment that is capable of receiving or transmitting information: (a) in the Mounting Yard; (b) in the Scales area; (c) in any other area designated by the Stewards. (3) within the area of the jockeys room bring in to, have in his possession, or use any portable telephone, radio transmitter, radio transceiver or any other appliance, apparatus, instrument or equipment capable of receiving or transmitting information. AR. 160C: The Stewards may impound any appliance, apparatus, instrument or equipment that is used without their permission by any person in contravention of AR. 160B. 91 The Rules make no other mention of the broadcasting of the races. In the main the Rules concentrate on the control of the galloping of horses and all the regulatory matters that go to the establishment of a racing system of integrity free of cheating and drug enhancement. However the Rules do not limit the functions of the plaintiff (s 13(2)). 92 In addition to the control, supervision and regulation of the galloping of horses, the plaintiff has what might be described as an overarching function as a policy maker. That function is no doubt an extremely important one which requires the plaintiff to "initiate, develop and implement policies" that are "considered conducive to the promotion, strategic development and welfare of the horse racing industry in the State and the protection of the public interest as it relates to the horse racing industry" (s 13(1)(c)). The term "horse racing industry" is not defined within the Act, however the content and context of the Act and the Rules together with commercial common sense dictate that the term includes the commercial and other operations integral to and dependent upon the galloping of horses under the Rules. That includes persons, both individual and corporate, who work within the industry such as the racing clubs, the breeders and trainers, the jockeys and apprentices and other riders. It includes the commercial operations of on-course and off-course betting from which the plaintiff and the Clubs obtain much of their revenue. 93 The policy making function will impact upon not only the industry but also upon the broader constituency, the "public interest as it relates to" the industry. The development of those policies are limited to those that will contribute to or help the promotion, strategic development and welfare of the horse racing industry. The "public interest" is not defined but is to be understood in the context in which an integral element of the industry's success is wagering, or placing of bets, by the members of the public on the outcome of the races. The industry cannot survive without the public's involvement in this regard. Those members of the public who "invest" their money on a race have an interest in knowing that the horses running in the race are run on their merits and that the wagering system that is provided is one that is open and honest. The public has an interest in the industry operating openly, fairly and commercially successfully. 94 The make up of the members of the plaintiff as a "representative body" and the broad range of activities within the industry suggest that the initiation, development and implementation of policies that promote the industry, its strategic direction and welfare will require delicate, commercially sensible, open and broad consultation and collaboration with a view to protect that public interest. The plaintiff's powers that are specified in the Act support this approach. It has the power to "consult, join, affiliate and maintain liaison with other associations and bodies, whether in the State or elsewhere, concerned with the breeding or racing of galloping horses" (s14(2)(o)). It is able to "publish material, including periodical publications, to inform and keep informed the public concerning matters relating to racing, whether in the State or elsewhere" (s 14(2)(u)) and "to undertake research and investigation into all aspects of the breeding of horses and of racing generally" (s 14(2)(v)). 95 The plaintiff's powers to be used in carrying out its functions under the Act are quite broad. It is able to "do all things that may be necessary or convenient to be done for or in connection with the exercise of its functions" (s 14(1)). It has the power to "supervise the activities of race clubs, persons licensed by [it] and all other persons engaged in or associated with racing" (s 14(2)(c)). This is a very broad range of persons and it is therefore very important to ensure that the plaintiff only exercises that supervisory power "for or in connection with the exercise of its functions". It is able to: "appoint an administrator to conduct the affairs of a race club" (s 14(2)(g); disqualify a horse from participating in a race (s 14(2)(i); prohibit a person from attending at or taking part in a race meeting (s 14(2)(k); and impose a penalty on a person licensed by it or an owner of a horse for a contravention of the Rules of Racing (s14(2)(l)). The exercise of the plaintiff's powers may have serious professional, commercial and financial impact upon those in respect of whom the power is exercised. These are public powers and should therefore be exercised impartially, fairly and reasonably. 96 The plaintiff purported to rely upon the Act as giving it its entitlement to issue the Directions on 28 January 2005, 1 February 2005 and 17 February 2005 (the Directions). It stated that its purpose in issuing the directions of at least 28 January 2005 and 1 February 2005 was as follows: Racing NSW is charged with responsibility for controlling thoroughbred racing in NSW including the promotion, strategic development and welfare of the NSW thoroughbred racing industry. Clearly, broadcast and media arrangements are important issues impacting on the NSW thoroughbred industry. Racing NSW is concerned to ensure that, in the context of such arrangements, the interest of the thoroughbred industry in NSW are safeguarded and advanced. The directions of 28 January and 1 February 2005 were issued for that purpose. 97 There is no mention of any "policy" making power in this explanation of the purpose of the directions proffered by the plaintiff to the AJC and the STC on 11 February 2005. It is quite clear that the reference to the "promotion, strategic development and welfare" of the industry is taken from s 13(1)(c) of the Act. Indeed it was that sub-section that Mr Purcell pressed upon the Chairman in his memorandum of 21 January 2005 as the basis upon which "broadcasting issues" fell within the plaintiff's responsibilities. Mr Purcell suggested that if the plaintiff was going to involve itself in these "issues" then "its objectives need to be determined". This did not happen within the confines of its policy making and policy implementation function. 98 The evidence establishes that the plaintiff has not developed a policy within the confines of its functions and broad powers in relation to the manner of broadcasting races that would be helpful to the promotion, strategic development and welfare of the racing industry. The Chief Executive who has only been in that role for just over one year prepared a Strategic Plan at some time during 2004. The Mission Statement in that document is recorded as: "To establish a dynamic NSW Thoroughbred Racing Industry which advances participation, ensures integrity and delivers quality Racing at all levels". One of the objectives under the heading "Vision" is recorded as: "Maximise betting turnover on NSW Thoroughbred meetings by accommodating punters needs and desires, and working with TAB Limited to promote new wagering products, to keep up with changes in demand". These statements were made in the context of the introduction to the document which stated: The NSW Thoroughbred Racing Industry is at a critical juncture in its existence. Unfortunately, the last 10 years has seen a decline in all levels of participation. Further, TAB turnover on Thoroughbred Racing in NSW has diminished in real terms, and on-course attendances have dropped substantially. This Plan will identify the causes of the above-mentioned deterioration and provide solutions to move the Industry in a positive direction. It should be stressed however that this document is only the commencement of the process and the Plan will be updated on a quarterly basis. 99 The Strategic Plan recorded that in the last five years TAB sales on NSW Thoroughbred Racing had declined by 6.8% at the same time as TAB sales generally increased by 12.2%. It also recorded that the Thoroughbred Racing Market share as a percentage of total TAB sales on the three codes of Racing had also significantly declined, from 80.4% in 1993 to 69.5% in 2004. The Strategic Plan is divided into sections, the first of which after the introduction is entitled "Major Issues". There is then a section entitled "Strategies to Address Industry Major Issues". Within those strategies there are suggestions that include the establishment of a Jockeys Academy as an imperative in developing and marketing a career path in the Racing Industry; the establishment of a Trainers Co-operative to assist with trainers accounting functions; the establishment of a mechanism for efficient and cost-effective dispute resolution between trainers and owners; the undertaking of a major review of programming and the handicapping system; the absorption of the administration of Country Racing into the plaintiff's operations; and the drafting of a document by a relevant expert in consultation with the Industry to specify minimum track requirements. There is a section dealing with Corporate Bookmakers and Betting Exchanges headed "Copyright on Racing Information". The Plan suggests that the Racing Industry "must take all actions necessary to provide copyright protection on Race Fields and Results, including legal action for damages to be taken immediately upon infringement "so as to stop the pilferage of NSW betting turnover". 100 The Chief Executive was cross-examined about the Strategic Plan and gave the following evidence (tr. 89-90): Q. Your strategic plan, you would agree with me, doesn't, in any way, address, apart from what I'm showing you-look at it for as long as you like the issue of the best manner of broadcasting races to the public, does it? A. No, it doesn't. Q. And there is, would you agree with me, no document in existence which formulates a strategic plan dealing with that issue? A. No, there isn't. 101 The term "policy" is not defined in the Act but its plain meaning suggests that it is a "plan" for action in respect of aspects of the racing industry. The policy development function of the plaintiff is not limited to "horse racing" and is specifically extended to the "horse racing industry", in contrast to its function to control, supervise and regulate "horse racing". That is an important distinction. The plaintiff has not initiated or developed a "policy" within the meaning of that term in section 13 of the Act in relation to the broadcasting of races. Its actions in giving directions could therefore not have been in pursuit of its function of implementing such a policy. 102 Even if one assumes that the power in s 14(2) of the Act allows the plaintiff to issue a direction in pursuit of its policy making function the Directions were devoid of and totally unrelated to any "policy" within the meaning of that term in s 13(1)(c) of the Act. The Directions purported to prohibit the AJC and the STC from entering into contracts in relation to the broadcasting of the races. It was suggested in final submissions that this was just to maintain the status quo whilst the plaintiff obtained more information and developed a policy. It can hardly have been the legislature's intention that the plaintiff could prohibit the racing clubs exercising their contractual rights or require them to put those rights on hold whilst the plaintiff thought about developing a policy pursuant to its functions in s 13(1)(c). This is particularly so, having regard to the plaintiff's obligation under the RDA to use its "best endeavours to develop a strategy to deal with broadcasting issues" as long ago as 31 December 1998. This was simply not done. 103 Having regard to the terms of s 13(1)(c) it would be reasonable to expect that a "policy" in respect of something as important as the broadcasting of races would be initiated and developed in an open, fair and consultative manner. Indeed, Mr Purcell's memorandum to the Chairman dated 21 January 2005 seems to me to contemplate the setting of objectives including ensuring ownership and control of intellectual property, maximising revenue and optimising exposure of the "product". It would be reasonable to expect that those who have an interest in the "product", the members of the racing industry and the public generally would be able to assist in the development of a policy that would satisfy the public interest referred to in this subsection. That is what seems to be contemplated by the Act rather than reactive conduct to business crises and blackouts. 104 Under the Sydney Turf Club Act 1943 (NSW), the STC has the express power (s.7(4) and Schedule 3(j)) to: install, use or work and maintain totalisators and other machines and appliances, including broadcasting and television apparatus, and to grant the right of installing, using or working the same upon any lands vested in or under the control and management of the Club and to arrange the terms upon which such right is granted and the payment to be made therefor. 105 Under section 9 of the Australian Jockey Club Act 1873, "all lands tenements and hereditaments real and personal and all personal chattels and effects" of the Australian Jockey Club are vested in the Chairman in trust for the club. As such, the Chairman, in trust for the club, has the "lawful right to exercise over, upon and in respect to the land every act of ownership which can enter into the imagination": The Commonwealth of Australia v The State of New South Wales (1923) 33 CLR 1 at 42. 106 If the legislature intended to limit the manner in which a party in the Industry is able to deal with its own property, in particular only with the consent of the plaintiff, then express provisions specifying such limitations would be needed. There are none. There is nothing in the Act or Rules that empowers the plaintiff to issue these particular Directions. 107 The Plaintiff also advised the AJC and the STC that the Directions were issued "by virtue of the powers" in clauses 14 and 15 of Schedule 2 of the Totalizator Act and that "dealings" by the Clubs "in relation to broadcasting issues" have "significant implications, including potentially affecting the distributions under" the RDA. 108 Clause 15 gives the plaintiff power to issue directions "it considers to be necessary or desirable" to enable it to exercise its rights and perform its obligations under the arrangements referred to in clause 14; and to otherwise give effect to those arrangements. The commercial arrangements the subject of submissions in this case referred to in clause 14 are firstly arrangements for facilitating the conduct of totalizator betting and other betting and arrangements ancillary thereto and secondly the arrangements for the distribution of moneys payable under those arrangements (cl 14(a) & (d)). The plaintiff claims that the RDA/DACA, the Inter-Code Deed and the Intra-Code Deed are such arrangements.and that the Directions were issued to enable it to exercise its rights and perform its obligations under those agreements and/or to otherwise give effect to those agreements. 109 An arrangement "for facilitating the conduct of totalizator betting" as referred to in clause 14(a) of Schedule 2 of the Totalizator Act is in my view an arrangement to enable the conduct of that activity to go forward, or to enable the betting to take place. Ancillary arrangements referred to in this clause are also arrangements for that purpose, to enable the totalizator betting to operate or occur. It has been submitted that the broadcasting of races has a direct and/or indirect impact on the amount that is wagered on the totalizator. However that seems to me to be something quite different from facilitating the conduct of totalizator betting, rather it is the enhancement of the amount of betting on the totalizator. The plaintiff's obligations under the RDA in respect of the broadcasting of races were not in my view obligations "for facilitating the conduct of totalizator betting" or ancillary thereto. It follows that the arrangements for the distribution of money pursuant to the arrangement to facilitate the conduct of totalizator betting are not arrangements for the distribution of moneys under arrangements for the broadcasting of races or arrangements that will increase the amount of betting on the totalizator. 110 I should make it plain that the defendants agree that the plaintiff has statutory power to issue directions to them as provided in clause 15. What is in issue is whether the arrangements fall within the defined arrangements in clause 14 and if so whether the specific Directions fell within the terms of clause 15. Notwithstanding my finding in the previous paragraph, I will assume that the RDA and other agreements fall within the arrangements defined in clause 14. It is important to understand the obligations and rights the plaintiff has under the RDA and the other agreements. 111 The plaintiff's obligations under the RDA/DACA in respect of broadcasting of races are found in clauses 7.1 and 7.2. It is required by clause 7.1 to use its "best endeavours" to ensure that each racing club makes available facilities at the racecourse to enable the broadcasting of the races "live or as soon as practicable" thereafter to TAB outlets and all oncourse venues in New South Wales operating on the day of the race meeting. This obligation is therefore limited to the making available of the facilities with those qualities. The other more relevant obligations to the facts of this case are those found in clause 7.2. The plaintiff is obliged to "use its best endeavours to ensure that any new arrangements with third parties" for the broadcasting of the Races "will be on commercial terms" which do not cause financial detriment or commercial disadvantage to either party. It is further obliged to confer with TAB in respect of any renegotiation or renewal of any broadcasting arrangements and use its best endeavours to ensure that "those arrangements or contracts are renewed or made on commercial terms which do not disadvantage the commercial interests of either party". 112 Clauses 7.1 and 7.2 of the RDA do not enable TAB or the plaintiff to restrict the freedom of the racing clubs to enter into contracts with parties of their choice nor do they entitle them to require the racing clubs to contract with parties only chosen or approved by the TAB or the plaintiff. The obligation on the plaintiff is to use its best endeavours to ensure that the arrangements that the Clubs enter into for the broadcasting of the races are on "commercial terms" which are not financially detrimental to TAB or the plaintiff. 113 The RDA only requires "best endeavours" and any directions that are issued under clause 15 of Schedule 2 of the Totalizator Act must be consistent with and not exceed the ambit of that obligation. A clause must be construed as only permitting a party to do that which is lawful to be done: Aerial Taxi Cabs Co-operative Society Ltd v Lee (2000) 178 ALR 73 at 89 (para75) per Katz J. In Transfield Pty Ltd v Arlo International Ltd (1980) 144 CLR 83 at 101, Mason J said: A "best endeavours" clause thus prescribes a standard of endeavour which is measured by what is reasonable in the circumstances, having regard to the nature, capacity, qualifications and responsibilities of the licensee viewed in the light of the particular contract. 114 To prohibit the clubs from entering into any contract for the broadcasting of the Races unless approved in writing by the plaintiff exceeds the best endeavours clause of the RDA. The Directions go beyond the ambit of the best endeavours obligation and give to the plaintiff more than what is able properly to be achieved by best endeavours – it gives an effective right to prohibit contracts. That is a substantial interference with the defendants' legal rights to deal with their property. Legislation will not be interpreted as permitting such an interference unless its terms are expressed with "irresistible clearness": Bropho v Western Australia (1990) 171 CLR 1 at 18. Existing legal rights are not to be taken away except by clear words in the statute: Allen v Thorn Electrical Industries Ltd [1968] 1 QB 487 at 505, Dankwerts LJ as expressly approved by Stephen J in FCT v Australia and New Zealand Banking Group Ltd (1979) 143 CLR 499 at 509. There are no such express terms in the Totalizator Act. 115 I am not satisfied that the Totalizator Act empowered the plaintiff to issue the Directions. 116 If the RDA fell within clause 14, the plaintiff would be entitled, by direction under clause 15, to request access to the terms that the AJC and the STC were proposing in respect of new arrangements with third parties for the broadcasting of the races in an endeavour to ensure that the proposed terms were "commercial". However, it seems to me that it would not be entitled to give a direction that trespassed upon trade secrets and commercially sensitive negotiations without proper protections in place. The RDA seems to me to reflect the understanding that it may be very difficult to ensure the presence of "commercial terms" and has therefore required only "best endeavours". 117 The plaintiff also submitted that the contracts together with the consents signed by the defendants gave it power to issue the subject directions. I have already dealt with clause 7 of the RDA and what I have said in respect of the alleged statutory power applies equally to the contractual power. That leaves for consideration the Intra-Code Deed and the Inter-Code Deed. 118 It was submitted by the plaintiff that its obligations under the Inter-Code Deed in clause 3.18(c) to procure the Racing Clubs to "maintain the Racing Facilities and make the Racing Facilities available" in accordance with the obligations under the RDA, meant that the plaintiff was required to procure the defendants to provide the broadcasting of races. The plaintiff relied upon the definition of Racing Facilities which includes any "racecourse, track or other place and associated structures and equipment" at which thoroughbred racing is conducted. It was submitted that the term "associated structures and equipment" includes broadcasting equipment and thus the plaintiff has an obligation in respect of this matter about which directions may be given. Even if this is right I do not see how this could give the plaintiff the power to issue the subject directions. They had nothing to do with the maintenance of physical broadcasting equipment. They were directions preventing the defendants exercising their contractual rights and purporting to give the plaintiff the right of veto. 119 There was then reliance on the more general obligation in clause 3.18(d) to do all things necessary to comply with the obligations under the RDA. The obligation of the plaintiff under the RDA other than those referred to already under clause 7 was the requirement to supply the NSW Racing Programme and the NSW Racing Information (cl 2.1(b)(i)). Neither of those obligations would entitle the plaintiff to give the subject directions particularly when the definition of the NSW Racing Information specifically and expressly excluded "the racing spectacle itself and any reproduction thereof" (cl 1.1). 120 The Intra-Code Deed includes an acknowledgment by the defendants that the "arrangements" include the objective of maximizing Net Wagering Revenue and Wagering Earnings. The plaintiff does not have an obligation under this Deed in relation to Broadcasting of Races. It is the defendants who have the obligation to use their best endeavours to "make available facilities" for the broadcast of races by a third party (cl 9.1). This clause is a mirror of clause 7 of the RDA as it applies to the plaintiff. There is nothing in this clause restricting the defendants' rights to contract with that third party for the broadcasting of races. The power given to the plaintiff under this Deed to issue directions to the defendants is tied back to the power under the Totalizator Act. Having regard to what I said above in relation to that statutory power, there was no power for the plaintiff to issue the Directions. 121 The answer to Question 1 is NO 122 Having regard to that answer, there is really no requirement to answer any of the remaining questions. However having regard to the commercial decisions that have to be made in relation to the important matter of broadcasting the metropolitan races and the public interest therein, I have reached the view that there is some utility in attending to some of the other questions on the premise that the directions were within power. I am of the view that the directions were not in fact properly authorised for the reasons given. However if within power and authorised, I am satisfied that the directions are vitiated by a failure to provide procedural fairness in that for the reasons given in answer to part of question 2, there was a reasonable apprehension of bias in the plaintiff. Question 1A 123 The next question for determination is 1A: Were the Directions purportedly made by Racing NSW in fact authorised by Racing NSW? 124 The procedures to be adopted for the transaction of the plaintiff's business are set out in s 19 and s 20 of the Act extracted earlier in this judgment. The general power in section 19 (1) permits the plaintiff to regulate its proceedings, as it considers appropriate, subject to that section. Section 20 eases that restriction by permitting the plaintiff to transact its business by the circulation of papers among all its members and "a resolution in writing approved by a majority of the voting members is taken to be a decision" of the plaintiff. 125 It is understandable that there are stringent requirements on the plaintiff in respect of the conduct of its business and the recording of its decisions because it is a public body exercising important statutory powers, not the least of which are its disciplinary powers. 126 The first direction issued on 28 January 2005 was not the subject of any express resolution of the members of the plaintiff. However the plaintiff submitted that one of the paragraphs in the resolution on 25 January 2005 that purported to impose conditions on the AJC and the STC authorised the direction. That paragraph was as follows: (v) that it be confirmed by the parties that there is a mechanism whereby Racing NSW will have a veto right, by way of prior written approval, for any action that would effect Racing NSW interests. 127 This does not seem to me to be an authorisation of the direction that was issued. Firstly it was part of conditions the plaintiff wished to impose on the AJC and the STC "if TVN start another thoroughbred racing channel(s) and it were to broadcast AJC and STC races". Paragraph (v) was a requirement that it be "confirmed by the parties that there is a mechanism" to give to the plaintiff a veto right "for any action that would effect" the plaintiff's interests. What the Chief Executive did in the letter of 28 January 2005 was not to have anything "confirmed by the parties", but rather imposed on the defendants a prohibition on extending or varying their current agreement with TVN. That was not what was purportedly authorised by paragraph (v). 128 The first direction was not authorised by the plaintiff. 129 The plaintiff seeks to support the direction issued on 1 February 2005 with evidence of a resolution said to be achieved by circular purportedly pursuant to s 20 of the Act. The evidence establishes that the Chief Executive forwarded the Chairman's paper on media rights to each of the members of the plaintiff by email. There is only one response in evidence which was an email from one of the members of the plaintiff stating that he was "prepared to support the Chairman on this issue". It is not clear what the terms of the allegedly agreed resolution were. The document that was circulated included the following: That a directive be issued to all clubs, and their representative associations requiring that, either directly or indirectly, including through agents or associated bodies or corporations, no new agreements or arrangements or variations to existing agreements or arrangements in relation to any aspect of media or broadcast rights, may be entered without the specific written consent of Racing NSW. For purposes of clarity, the directive incorporates all forms of media, including without restriction, new media, internet, interactive etc and is both national an international in scope. The directive is given in accordance with powers and responsibilities under the Act, RDA, DACA etc. 130 The Act requires that when the plaintiff decides to transact its business by the circulation of papers among its members, that business is to be transacted by a resolution in writing, approved in writing by a majority of the voting members. It is not possible to know what was stated in whatever writing was produced by the other members of the plaintiff. The Chief Executive has given evidence of various searches for documents evidencing the approval in writing of the resolution. Those searches were not completed at the conclusion of the evidence and it is not possible to conclude that such a resolution was approved consistently with s 20 of the Act. There is certainly no evidence that such a resolution was agreed to by a majority of the members in writing as required by the Act prior to 1 February 2005. Indeed the purported resolution of 20 April 2005 referred to below contains an admission that "some" members, without indicating how many, responded orally. There is no evidence that the members responded by any particular date. No such resolution is recorded in the Minutes of the meeting of the members of the plaintiff as required by the Act. 131 This direction was not in fact authorised by the plaintiff. 132 The 17 February 2005 direction was issued, it seems, because the plaintiff had considered the prospect of the AJC and the STC entering into an agency agreement with TVN to broadcast on its behalf, rather than licensing its rights directly or indirectly to TVN. A special meeting of the members of the plaintiff took place on 16 February 2005. The following is recoded in the Minutes: Steps need to be examined to reinforce compliance by the AJC and the STC with directions regarding broadcast rights. 133 This statement in the Minutes is not in the form of a resolution but rather it seems, as a record of some discussion about the need to examine the situation. There is no resolution that any further direction is to be given to the AJC or STC and the only authorisation, to put the content of the minutes at their highest, was for the examination of what steps may be needed to "reinforce compliance" with "directions regarding broadcasting rights" without any specificity. This direction was not in fact authorised by the plaintiff. 134 After the litigation commenced and two business days before the hearing commenced the members of the plaintiff signed the document dated 20 April 2005 purporting to be a resolution pursuant to s 20(1) of the Act. That document admits that, "there may be some deficiencies in the record of the formal approval of the directions". It is obvious that it was intended to convey that the directions were approved but that the paperwork was merely deficient. That seems to evidence a misunderstanding of what went on in January and February 2005. It also seems to indicate a lack of understanding of the need to comply with the Act in relation to the conduct of the business of the plaintiff. The members of the plaintiff were endeavouring to issue directions to the racing clubs restricting their freedom to enter contracts in relation to broadcasting rights. The seriousness of the consequences of such directions called for strict adherence to the Act and the procedures for the transaction of the plaintiff's business. There was no such adherence and the discipline and professional attention to the requirements needed in such circumstances is sadly lacking . 135 The document was admitted with limitations on the content of the section headed "background". That section includes a suggestion that on 25 January 2005 the Board "determined to impose conditions" on the AJC and the STC "which required them to obtain" the plaintiffs prior written approval to "certain actions in respect of broadcast arrangements". This document makes no mention of the resolution in relation to the proposed direction to the plaintiff to cancel its contract with TVN and enter into a contract with Sky until June 2006. Of course the resolution relating to the conditions to be imposed suggested that the "parties confirm a mechanism" for the plaintiff to have a veto in relation to the contractual rights of AJC and STC. The background also presumes and assumes what was "approved". For instance it contains a clear misunderstanding of the requirement of s 20 of the Act in respect of business transacted by way of circular resolution. 136 This resolution includes an attempt to "approve, endorse and ratify" the issue of the Directions. On 21 February 2005 TVN acquired contractual rights to act for reward as agent for the AJC and the STC. It was submitted that such rights acquired before ratification cannot be divested by ratification. In support of that submission reliance was placed on NM Superannuation Pty Ltd v Hughes & others (1992) 27 NSWLR 26 Cohen J; affirmed on appeal, Hughes & Anor v NM Superannuation Pty Ltd & Anor (1993) 29 NSWLR 653. The plaintiff submitted that this case does not assist the defendants because no estate was vested. Notwithstanding the correctness of that particular statement, I am of the view that because there was the intervention of third party rights and valuable contractual rights established on 21 February 2005 the principle applies. In any event I have the same "serious doubts" as expressed by McLelland J, as his Honour then was, in Legal & General Insurance Ltd v Board of Fire Commissioners (1982) 1 NSWLR 555 at 560 that it possible to render effective a direction when it was issued without authority:. 137 It is true that the direction of 28 January 2005 and 1 February 2005 were included in the Board papers for the meeting of 16 February 2005. In the Minutes of that meeting there is a resolution that the Chief Executive write to TVN confirming its undertakings: "to respect the directives issued by RNSW on the AJC-STC re new broadcast agreements". That entry is said by the plaintiff to be a ratification of the direction of 28 January 2005 and 1 February 2005. In this regard reliance was placed upon what Hutley JA said in Legal & General Insurance Ltd v Board of Fire Commissioners (1983) 2 NSWLR 131 in the appeal from McLelland J, that the Board's noting of the officer's readiness to proceed amounted to a direction that he so proceed. By analogy it is suggested that the resolution of the plaintiff referring to the directions "issued" is an unequivocal statement that the directions were issued by the plaintiff – in other words issued with the authority of the plaintiff. This statement is in a different category to that with which Hutley JA was concerned. There was no authorisation of the direction of 28 January 2005 and 1 February 2005 and a statement that they were "issued" does not in my view ratify the issuing of those directions. There is no unequivocal and clear statement that it was the plaintiff's intention to ratify the issue of the directions. There is no evidence of any cognisance of what had occurred in respect of the issuing of those directions, for instance that there was a failure to comply with s 20 of the Act in respect of the circular resolution. 138 The answer to Question 1A is NO 139 However I shall as indicated proceed to deal with part of the answer to question 2 on the assumption that the answer to questions 1 and 1A are "yes". Question 2 140 The next question for determination is question 2: Whether, if Racing NSW had power to issue any one or more of the Directions, that or those Directions was or were vitiated and ought to be set aside or quashed on the basis that it was or they were issued: (a) for an improper purpose or purposes; (b) in circumstances where there was a denial of procedural fairness, namely actual or apprehended bias on the part of Racing NSW; or (c) on the basis of Racing NSW having taken into account irrelevant considerations and having failed to take into account relevant considerations, as pleaded in the cross-claim (of the first, second and third defendants) and particularised. 141 I intend only to deal with the apprehension of bias. If it is assumed that the Directions were within power, they were issued pursuant to very broad powers under the Act and required the adoption of fair procedures. The statutory power must be exercised fairly and reasonably and, having regard to the nature of the power: Kioa v West (1985) 159 CLR 550 at 585. Subject to the submissions in relation to the doctrine of necessity, all parties agreed that the content of the duty in the plaintiff in the exercise of its powers and functions included a requirement that it be free from any apprehension of bias. I agree with the plaintiff's submissions that in assessing what the hypothetical reaction of a fair–minded observer would be, the court attributes to the fair–minded observer knowledge of the actual circumstances of the case but not that of a lawyers understanding. I do not agree with the plaintiff's submissions in paragraphs 5.13 to 5.18 of its final submissions in chief that the doctrine of necessity ousts the application of the requirement for procedural fairness in this instance. In further submission in reply the plaintiff recognised the power to delegate in s 24 of the Act but sought to distinguish the finding by Davies J in Waterhouse v New South Wales Thoroughbred Racing Board [2003] NSWSC 541 at [63] on the basis that his Honour was dealing with a disciplinary matter involving very different considerations to those with which the members of the plaintiff must deal in the general operation of the plaintiff. It was submitted that the persons referred to in s 24(3) as those to whom delegations of the plaintiff's functions may be made, do not appear to be suitable. I disagree. The development of a policy for the broadcasting of races taking into account the public interest, would seem to me to be able to be handled appropriately by any of the delegates. The presence of section 24 of the Act in fact ousts the doctrine of necessity. 142 It seems to me that the resolutions at the meeting of the plaintiff on 25 January 2005 are of major significance on this aspect of this case. For ease of reference they are set out again (the italicised (iii) accommodates the evidence that there was a "typographical" error in the Minutes): TVN It was moved that Racing NSW place the following conditions on the AJC and STC, if TVN start another thoroughbred racing channel(s), and it were to broadcast AJC and STC races: (i) that Tabcorp and/or Racing NSW will not contribute to the production costs of the channel(s); (ii) that no additional charge will be levied on the NSW wagering distribution network to carry the channel(s); (iii) subject to Trade Practices considerations the broadcast cannot be provided to outlets in NSW that have existing Sky Channel subscription; [(iii) subject to Trade Practices considerations the broadcast cannot be provided to outlets in NSW that do not have existing Sky Channel subscription .] (iv) that no action be taken by TVN that could prejudice revenue from international broadcast rights; and (v) that it be confirmed by the parties that there is a mechanism whereby Racing NSW will have a veto right, by way of prior written approval, for any action that would effect Racing NSW interests. Carried It was moved that Racing NSW issue a directive to the AJC and STC, that they: (i) terminate their current agreement with TVN; and (ii) pursuant to the provisions in the RDA that allow extensions of the broadcast right, extend the AJC/STC/Sky Channel agreement as a 30 June 2003, for a period to 30 June 2006. Carried It was further moved that the Directive not be issued until the Chief Executive ascertain from Sky Channel that they agree: (i) to amend the above agreement so as to make it a non-exclusive license to grant broadcast rights to Sky Channel, rather than an exclusive license; (ii) that the rights of first or last refusal, or options to review or extend, in favour of any existing Tabcorp Sky Channel company not apply; and (iv) that NSW Hotels and Clubs have their Sky Channel subscriptions reduced by the equivalent rights reduction on a formula agreed by Sky Channel and Racing NSW. Carried 143 There is no discussion in the Minutes as to how it was that the plaintiff thought it had any entitlement to direct cancellation of third party contracts in this proposed fashion nor is there any discussion about its apparent power to require the entry into contracts by third parties. Indeed there is no discussion at all in the Minutes in relation to these resolutions. However three of the conditions in the first resolution mirror what the Chairman wrote to the Chief Executive in his email of 23 December 2004. The attitude and approach of not dealing fairly with the AJC and the STC is evidenced in that email when the Chairman wrote: We would separately intrude in terms of SKY renewal in May with AJC/STC and trade-off reduced fees to NSW Tab outlets. This would be contrary to DACA provisions but AJC/STC may have no recourse as they are not parties to DACA. Need to check that NSWR and RNSW acting as agents does not give them rights. Might be a short meeting in January. 144 The Chairman's email of 28 January 2005 to the Chief Executive referring to his "overnight thoughts" further evidences his approach, in particular, after referring to the AJC and STC triggering a loss of their rights premium, he wrote: "if you like this, the spin should be this is [the plaintiff's] proposal to Tabcorp which insulates Tabcorp from having to comment on the logic". There is also the suggestion that the plaintiff should not "comment publicly on the turnover logic until we get the deals done". 145 Immediately after the 25 January 2005 meeting the Chief Executive commenced the negotiations with Sky and from then until mid February 2005, he and the Chairman endeavoured to reach an agreement with Sky on terms that the plaintiff informed Sky it would approve. This included the valuation of exclusive and non-exclusive broadcasting rights without any input form the persons who owned the rights, the AJC and the STC. The need to maintain the status quo, as it has been described, was to allow the plaintiff to move forward with its plan to get the Sky deal approved by the plaintiff. 146 At the time he wrote his TV and Media Rights memorandum that was circulated in the unsuccessful attempt to achieve a circular resolution under s 20 of the Act, the Chairman had no relevant information in relation to the TVN business model but stated that "we would not want" Tabcorp to agree with the demands of TVN. This of course is at a time when the negotiations with Sky pursuant to the 25 January 2005 resolution had already commenced. That same document included the statement that "there is no barrier" to the plaintiff "issuing supplementary orders later to instruct a club to act in a specific manner when such a requirement has been clearly identified". This is obviously a continuation of the plan hatched in the 25 January 2005 resolution to direct the Clubs to cancel their contracts and enter the contracts with Sky when, of course, they had agreed the terms with Sky, or to put it another way when the "requirement" was clearly identified. 147 Where the Chairman thought the powers to issue "orders" forcing people in and out of contracts came from has never been explained adequately. The Chairman was not called to give evidence in these proceedings. It was the subject of a number of questions directed to Senior Counsel for the plaintiff during the trial. His candour would not allow him to suggest that there was such a power but he suggested at one stage that this was really not an issue in the trial. I disagree. It is a factual issue on this aspect of the case. The fact that the plaintiff proceeded with its plan in this environment of directions and possible supplementary orders purporting to force third parties in and out of contracts, with no proper understanding of the confines within which it had to act is a matter to be taken into account when deciding whether a fair minded person, knowing of this and the other conduct and surrounding circumstances, would apprehend that the plaintiff had closed its mind as and from 25 January 2005 about what it was going to force the AJC and the STC to do, irrespective of their views. 148 Senior Counsel for the plaintiff relied upon the Chairman's circular memorandum in support of the submission that the plaintiff had advised the defendants what it was doing. The first paragraph of that memorandum refers to the Chairman speaking to the Chairmen of the AJC and the STC indicating "as a matter of courtesy" that the plaintiff held the view that the amendments negotiated in the DACA to the Sky agreement could avoid a potential blackout on 6 February 2005. It is suggested that the second and third paragraphs include content of the discussions with the defendants' representatives. Accepting that suggestion as accurate, it seems that the Chairman was intending to convey that negotiations were taking place to achieve a non-exclusive arrangement with Tabcorp and that the plaintiff had concerns about TVN. The note also includes a reference what the plaintiff "would require" if it was successful in obtaining non exclusive arrangements with Tabcorp. Finally the note suggests that the Chief Executive had "parallel but more detailed" conversations with the CEOs of the AJC and the STC. 149 The Chief Executive's evidence does not support the content of these paragraphs. He was cross-examined about his conduct in late January 2005, and in particular the negotiations with Sky. He gave the following evidence (tr. 141): Q: Did you consult the AJC or the STC in relation to this before you did it? A: No. Q: Did you inform the AJC and the STC of the resolutions which had been passed on 25 January? A: No. Q: Why not? A: Because I needed to progress the matter before we went to the AJC and the STC. Q: Why? Was that because you wanted to present the AJC and the STC with a fait accompli? A: No. Q: Why? A: Because I was implementing the resolution of the Board. 150 In the light of this conflicting evidence and in the absence of the Chairman, the construction to be placed on the commencing paragraphs of the memorandum is that if they reflect discussions, they were in the most general of terms without any disclosure to the defendants that the plaintiff had passed a resolution evidencing its intention to direct the defendants to "cancel" their contract with TVN. 151 The notes of the 16 February 2005 meeting are quite devastating for the plaintiff on this aspect of the matter. It evidences the continuation of the plaintiff's clear intention to force the AJC and the STC into a contract with Sky and out of a contract with TVN without letting it know what it had done in detail in respect of its negotiations with Sky/Tabcorp in respect of their rights until the "deal was done". The notes record that a member of the plaintiff, Mr Hopkins, states that "there is no doubt they [AJC/STC] are not going to sign it". Whether that particular reference is to the Sky/Tabcorp agreement or an undertaking to comply with directions does not matter much because there is then proposed the following plan: 1. undertaking 2. wait for response 3. go to Court 4 get Tabcorp Agreement 5. get them to sign 6 if they don't appoint administrator/….. 152 This is totally consistent with the resolutions of 25 January 2005. Far from giving the clubs the option to provide their input into the negotiations with Sky, the plaintiff appears and would appear to the fair minded bystander to have acted in the manner described by the Chairman in his email of 29 January 2005 to get in "boots and all" and carry out their plan. It was also accompanied by some window dressing. In the email of 1 February 2005 the Chairman suggested that in the deal they were progressing with Sky, the AJC and the STC must be able to retain their total income levels "so that if the competition evaporates, we can't be accused of screwing our own clubs to prop up Sky". There was also the disclosure of they way in which he intended to deal with the AJC and the STC in his email of 6 February 2005 to the Chief Executive: "At $5m and $2m, its a good deal for us and we could go in hard with AJC, STC and TVN. Either of the other combinations, I would be more cautious and inclined to consult the clubs on their preference". This email demonstrates at the very least a lack of consultation and also comprehension of the alternative to consult with the clubs. This was not done. The email also evidences the boots and all approach of going in hard with the defendants. 153 There does not seem to have been any comprehension that the clubs may have negotiated differently with Sky and perhaps in a more effective manner. The plaintiff's conduct took away from the clubs the capacity to go into negotiations with Sky with a possible lever that the plaintiff would be using its best endeavours to ensure the terms were commercial. That ground was taken from under them because the plaintiff decided what it thought was apparently commercial without any input from the Clubs. 154 The Chief Executive gave evidence that he thought the Chairman was trying to promote competition. A fair minded person, reading the resolution of 25 January 2005, observing the conduct referred to including the strategy proposed by Mr Hopkins, and knowing that the plaintiff sought to prohibit TVN from operating in any outlet unless Sky was already present, would not accept the Chief Executive's observations, in particular in the absence of any explanation by the Chairman by way of evidence. 155 The strategy proposed by Mr Hopkins of appointing an administrator to these clubs plummeted the plaintiff's lack of professionalism to an all time low. The legal principles to be considered for the justification of the appointment of an administrator were not part of the discussion evidenced in the notes at which this strategy was proposed. Neither could they be. This was not a principled approached but rather strong arm tactics to force contracts upon clubs operating pursuant to statutory and contractual obligations. A fair minded bystander would be left with no doubt that this was a further step along the way for the plaintiff to implement the resolution it had passed on 25 January 2005 irrespective of the views of the clubs. 156 Senior counsel for the plaintiff suggested that a benign view of the plaintiff's conduct could be justified by observing that the clubs were in fact not forced into the contract with Sky, because they rejected Sky's offer. I am afraid I do not find favour with that submission. The fact that the clubs would not brook being treated in this fashion does not change the character of the plaintiff's conduct which I have outlined above. 157 I should say something about the controversial condition (iii) in the first resolution of 25 January 2005. The version that it is in the Minutes precludes TVN from going into any premises in which Sky is present. That resolution remains on the books of the plaintiff and if it truly is a reflection of what occurred at the meeting it may have serious consequences for the members of the plaintiff. However Mr Costigan's evidence establishes that he at least did not intend to pass that resolution but intended only to approve of prohibiting TVN from going into premises where Sky was not present. This debacle of minutes recording such serious matters and being approved without amendment at the next formal meeting of the plaintiff, is further evidence available to the fair minded observer as to the state of the plaintiff's mind. It would be reasonably expected that an open minded corporate body would review those minutes and adjust them if they are inaccurate. It is not unreasonable to conclude that such lack of attention to erroneous minutes demonstrates that the plaintiff was on a course of conduct settled as at 25 January 2005 and did not pay attention to further detail after it had decided that it wanted the clubs to cancel the TVN contract. Of course if the Minutes are accurate the position may be worse. 158 The evidence given by two of the members of the plaintiff, Mr JB Costigan and Mr DPR Esplin in relation to their motivation does not impact upon this aspect of the matter. 159 The plaintiff has placed much emphasis on its alleged motivation to act in the public interest of protecting wagering revenue. It has been suggested by the Chief Executive that the plaintiff was acting to ensure that the revenue distributed to the racing industry was maximised. I have little doubt that there was an aim akin to that buried somewhere in all of this . What is troubling is that in exercising its powers the plaintiff seemed to forget that it had to be fair to interested parties whose rights may be adversely affected by its conduct and decisions. The correspondence between the Chairman and the Chief Executive in particular demonstrate business strategies with the use of military epithets to describe the planned outcome suggesting that the war could be won. The Chairman expressed possessory interest in the "network", claiming that he had two gorillas trying to damage "his network". 160 The plaintiff had a responsibility to be open and fair with the defendants and in the public interest, to provide to them procedural fairness in respect of the decisions made by it as they affected the defendants' rights. Any fair-minded observer of this conduct would in my view have a reasonable apprehension of bias such that would infect each of the directions and justify the quashing of those directions. 161 The answer to question 2 is YES 162 There is in the circumstances no utility in answering questions 3 and 4. The parties are to agree Short Minutes to dispose of the proceedings consistently with the answers to these separate questions. Those Minutes should include an agreed costs order. The matter is listed in the Commercial List at 9.15 on 6 May 2005 for that purpose. If the parties are unable to agree on a costs order I will hear argument on that occasion. ********* DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. 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