Garrick Michael Hawkins v Tom Michael Oates

In 2009 Mr Tom Oates (“Mr Oates”) commenced proceedings against Mr Garrick Hawkins (“Mr Hawkins”), Mr Scott Tyne (“Mr Tyne”), Mrs Tyne (Mr Tyne’s mother), Mrs Evelyn Hawkins (Mr Hawkins’ wife), Pegela Pty Ltd (“Pegela”) and other defendants including Matrix Group Ltd (“Matrix”).

In those proceedings (which I shall refer to as “the 2009 proceedings”), and simplifying matters somewhat, Mr Oates claimed that Mr Hawkins and Mr Tyne had fraudulently, and in breach of fiduciary duties owed to Mr Oates, arranged for monies payable to Matrix from the Western Australian Government to be paid to entities connected with Mr Hawkins and Mr Tyne offshore. Mr Oates claimed that he was entitled to a percentage of the amount that should, on his case, have been paid to Matrix. He also claimed that Mr Tyne created a false identity as “Scott McClay” for purposes connected with the loss of his motor vehicle license in both New South Wales and Queensland and that Mr Tyne and Mr Hawkins had prepared company documents of Matrix which recorded the fictitious personage as a director of Matrix. These allegations were denied by Mr Hawkins and Mr Tyne. Matrix (in liquidation) was joined as a defendant at the behest of the Court but the liquidator of Matrix (who I shall refer to as “the Liquidator”) took no active part in the 2009 proceedings.

The hearing of the 2009 proceedings commenced before Ball J in the Commercial List of the Equity Division of the Supreme Court of New South Wales on 5 September 2011. On 7 September the Court was informed that the proceedings had settled and on 8 September 2011 orders were made by the Court bringing the 2009 proceedings to an end.

As between Mr Oates and those who became known as the ‘Active Defendants’ (which included Mr Hawkins, Mr Tyne, Mrs Hawkins, Mrs Tyne and Pegela- see Schedule 1 p 529) the 2009 proceedings were settled on terms which are separate from the terms agreed between Mr Oates and the Liquidator. The latter terms were that the proceedings against Matrix would be dismissed and that Mr Oates would pay the Liquidator’s costs of the proceedings.

In the 2009 proceedings Mr Hawkins, Mr Tyne, Mrs Hawkins, Mrs Tyne and Pegela were represented by Mr Stitt QC and Mr Hogan Doran and Mr Oates was represented by Mr Leeming SC (as his Honour was then known) and Mr Hewitt. In the balance of these reasons I shall continue to refer to his Honour as Mr Leeming given that his role was as counsel at that time and without intending any disrespect to his Honour. The interests of Mr Hawkins, Mrs Hawkins and Pegela are coextensive and I shall in the balance of these reasons refer only to Mr Hawkins.

The terms on which the 2009 proceedings settled as between Mr Oates and Mr Hawkins are not now in dispute. They are found in a draft deed (which was never executed) annexed to Mr Leemings’ affidavit of 9 September 2011 (Exh A2 pp 523- 531) and are as follows:

Mr Hawkins asserts, and Mr Oates accepts that there was, in addition to the terms contained in the draft deed, a further term of the settlement to be implied, namely a duty of good faith between Mr Hawkins and Mr Oates.

The evidence of how the settlement came to be reached is found in the affidavits of Mr Leeming of 8 September 2011, 9 September 2011, 22 May 2013 and in a memorandum of Mr Leeming of 12 September 2011. Some portions of Mr Leemings’ affidavits were tendered by Mr Hawkins in his case in chief and some were read by Mr Oates in his case. Mr Leeming was not required for cross examination. An affidavit of Mr Stitt which had been filed by Mr Hawkins was not relied on by Mr Hawkins at the hearing.

I shall refer to the settlement reached by counsel for Mr Oates and Mr Hawkins on behalf of their clients and reflected in the draft deed and incorporating the implied term of good faith as “the Settlement Agreement”.

There are two conversations deposed to by Mr Leeming which have assumed some importance in the case. The first is found at para 13 of Mr Leemings’ affidavit of 22 May 2013, Court Book (Exh A2) p 549

In his opening on behalf of Mr Oates in the 2009 proceedings Mr Leeming made reference to the matters in the pleadings to which I have referred and drew attention (see Exh A4 T50 – T53 of the transcript of the hearing before Ball J) to the following:

Of critical importance in this case is the fact that on 2 September 2011 the Liquidator sought approval in the Federal Court for a funding agreement between himself on behalf of Matrix and Mr Oates. On 6 September 2011 Jacobson J of the Federal Court approved the entry by the Liquidator into that funding agreement (“the Funding Agreement”). It provided for Mr Oates to pay up to $300,000 to the Liquidator of which $27,000 was for the Liquidator’s past costs and the balance of which was to be used towards the examination of the officers of Matrix in relation to the examinable affairs of the company. Clause 13.1 of the Funding Agreement provided that:

There is no dispute that neither the existence of the Funding Agreement or the negotiations leading to the Funding Agreement were advised by Mr Oates to Mr Hawkins. There is no suggestion made by Mr Hawkins that Mr Oates’ legal representatives in the 2009 proceedings had any knowledge of the Funding Agreement or the negotiations leading to it.

Mr Hawkins claims that Mr Oates’ provision of funds to the Liquidator constituted a breach of the general release term of the Settlement Agreement (“breach of the general release term”), or alternatively constituted a breach of the implied duty of good faith owed by Mr Oates to Mr Hawkins (“the good faith breach”).

Mr Hawkins also claims that by Mr Oates’ silence (in not making reference to the Funding Agreement) Mr Oates engaged in misleading and deceptive conduct within the meaning of, and in breach of, s 18 of the Australian Consumer Law. I shall refer to this as “the trade practices claim”.

Mr Hawkins made a further claim, namely that Mr Oates misled the Liquidator by telling him that the Settlement Agreement was not inconsistent with the terms of the Funding Agreement, and that this conduct was also misleading and deceptive conduct.

Mr Hawkins is represented in these proceedings by Mr Studdy SC (with Ms K.C. Morgan) and Mr Oates is represented by Mr Sullivan QC (with Mr A.M. Hochroth).

Mr Studdy made it clear in his submissions that Mr Hawkins’ principal case is that had he been made aware of the Funding Agreement he (and the other active parties to the settlement) would not have entered into the Settlement Agreement- ie that his case is what is sometimes described as a ‘no transaction’ case.

Mr Tyne has been made bankrupt and the proceedings against him (or his bankrupt estate) and his mother have been abandoned.

Mr Studdy described the second claim as a breach of the general release term. He asserted that there was to be added to the actual terms of the Settlement Agreement the first conversation between Mr Leeming and Mr Stitt to which I have earlier made reference at [10].

In my view, since the draft deed records the agreement into which the parties to the Settlement Agreement entered, it must be assumed that what Mr Leeming contemplated by “divorce” and what Mr Stitt contemplated by “a clean break” has found its way into the terms. Rectification of the agreement is not sought and I do not regard this conversation as having any additional significance to the contract claim.

The phrase ‘Active Defendants’ was defined and did not include Matrix. Mr Hawkins says that he sought to have the Liquidator made a party to the settlement and provide a release but that did not occur: see Mr Hawkins 22 March 2015 para 7.

Clauses 7, 8, 9, 10 and 11 of the Settlement Agreement are all indicative of the resolution of disputes between Mr Oates and Mr Hawkins and these are very specific clauses which reflect the termination of the possibility of any claims between Mr Oates and Mr Hawkins, and agreement not to report each other to the regulatory authorities or agencies.

In my view Mr Oates was clearly giving up any right to claim against Mr Hawkins, Mrs Hawkins, Mr Tyne, Mrs Tyne and Pegela but he did not, by the settlement, agree not to provide assistance or funding to the Liquidator of Matrix. If Mr Hawkins had required such a promise as part of the settlement then it was incumbent on him to insist on such a term as a condition of his settlement with Mr Oates which he did not do.

I am not persuaded that it was a term of the settlement that Mr Oates would not provide funding to the Liquidator.

It was agreed that this term only assists Mr Hawkins if the general release breach is established. If the complete release breach is established Mr Hawkins does not need this breach. Mr Sullivan contended that the duty of good faith only applies to obligations imposed under the contract: see Macquarie International Health Clinic Pty Ltd v Sydney South West Area Health Service [2010] NSWCA 268 [13] per Allsop P and Mr Studdy accepted that this was so (T78.26- 40).

This claim is a claim based on the proposition that the Settlement Agreement was inconsistent with the Funding Agreement.

As I have held that the Settlement Agreement did not preclude Mr Oates from funding the Liquidator the foundation for the argument is not made out. Further, no evidence was called from the Liquidator to the effect that he was misled or relied on the communication: see email of 7 September 2011 from Mr Calabria of Bridges Lawyers by which Mr Oates, in effect, responded to the enquiries for confirmation that the terms of the deed of release were not inconsistent with the Funding Agreement by saying

Mr Hawkins primary case is one based on s 18 of the Australian Consumer Law which provides that

Mr Studdy accepts that Mr Hawkins’ case is one based on silence- that is a failure by Mr Oates to tell Mr Hawkins that he had, prior to the settlement (the day before in fact), entered into an agreement with the Liquidator to fund examinations which would clearly involve inquiry into the conduct of Mr Hawkins and Mr Tyne and others as directors of Matrix. Mr Studdy drew to my attention the recent decision of the Court of Appeal in Traderight (NSW) Pty Ltd v Bank of Queensland Ltd [2015] NSWCA 94 in which Barrett JA, with whom Bathurst CJ and Beazley P agreed, approved the summary of principles taken from two earlier cases:

Mr Sullivan accepted that Traderight provided the test for consideration of whether silence constituted misleading and deceptive conduct.

The focus is thus on the relevant circumstances which are said to give rise to a reasonable expectation that the party asserting misleading and deceptive conduct claims would be told by the other about the matter of which he was not informed.

Mr Hawkins asserts that the following matters are relevant:

Mr Oates submits in response:

As to the six matters relied on by Mr Hawkins

I accept the submissions on behalf of Mr Oates and particularly having regard to the context in which the parties found themselves. In my view no obligation was imposed on Mr Oates to inform Mr Hawkins of what he had agreed with the Liquidator. He made no promise not to assist Matrix or the Liquidator and I do not think the circumstances imposed on him a duty to inform Mr Hawkins of the Funding Agreement. I did raise with counsel the question of the significance of the words “Despite all this Tom does not want to see them get into trouble with the tax man, the RTA or anyone else” set out at [10] above. In my view that statement was potentially misleading if Mr Oates was contemplating funding the examination summonses which he was, and could provide support for a case going beyond mere silence. Mr Sullivan contended that the comment made by Mr Leeming had to be seen in the context of what he had said in opening his case and that the Liquidator was not someone Mr Hawkins would be ‘in trouble’ with since he is not an authority like the RTA, ASIC or the ATO. In my view the words “anyone else” are wide enough to cover the Liquidator. There is no evidence, however, that Mr Hawkins was ever told of (or relied on) that comment (it was not even recorded in the note made by his solicitor) and it was not part of his case.

In their submissions counsel for Mr Oates pointed out that even if, contrary to their primary submissions, Mr Oates had engaged in misleading and deceptive conduct the damages claimed by Mr Hawkins could not be established. There were in effect two species of damage claimed- the first being amounts expended or foregone in accordance with the terms of the settlement (eg $375,000 paid to date, the foregone costs orders obtained in other proceedings) and the second being the costs incurred in seeking to have the examination summonses set aside and having representation at the examination summonses.

As Mr Sullivan pointed out that the first category could all be said to be amounts incurred as a result of the Settlement Agreement but the second category was not incurred as a result of the Settlement Agreement. In other words had the Settlement Agreement not been entered into costs connected with the examination summonses incurred would still have been incurred.

Mr Hawkins could not establish that any of the examination summons costs were costs which he incurred because he had entered into the Settlement Agreement (for example he did not base the attempt to set aside the examinations or the Funding Agreement on the existence of the Settlement Agreement).

It follows in my view that Mr Hawkins could not recover both species of damage. This leads me to the next problem which is this. If Mr Hawkins was induced to enter into the Settlement Agreement because of the alleged misleading and deceptive conduct it was open to him to seek to set aside the Settlement Agreement as between himself and the other plaintiffs with Mr Oates and the orders made as a consequence. He did not, however, seek to do so. Rather what he asserts is that all of the amounts paid and foregone should be repaid to him, and that he should not be liable for the remaining $375,000 due under the Settlement Agreement but not paid.

Mr Sullivan pointed out that to succeed on such a basis Mr Hawkins would have to establish on the balance of probabilities that he would not have entered into the Settlement Agreement had he been told by Mr Oates of the Funding Agreement and also to establish what result he would have achieved in the litigation had it proceeded, as his position is that had he known of the Funding Agreement he would not have settled the 2009 proceedings. It was not a part of Mr Hawkins’ case that had he known of the Funding Agreement he would have sought to require Mr Oates and the Liquidator to abandon such activity as a condition of settlement.

S 236 of the Australian Consumer Law provides that a person who suffers loss or damage because of the conduct in contravention of the Act, may recover an amount of the loss or damage from that other person. The plaintiff must establish that he has suffered loss or damage. Here the plaintiff claims that by entering into the Settlement Agreement he suffered loss and damage.

In Wardley Australia Ltd v State of Western Australia [1992] HCA 55; (1992) 109 ALR 247 Mason CJ, Dawson, Gaudron and McHugh JJ approved Ackner LJ’s statement of principle in UBAF Ltd v European American Banking Corporation [1984] QB 713, at 725, that

Mr Hawkins bears the onus of proving on the balance of probabilities that he would not have entered into the Settlement Agreement, that he has suffered loss and of establishing the quantum of loss: see McCrohon v Harith [2010] NSWCA 67 applying Commonwealth v Amann Aviation Pty Ltd [1991] HCA 54; (1991) 174 CLR 64 and see LMI Australasia Pty Ltd v Baulderstone Hornibrook Pty Ltd [2003] NSWCA 74. Here that means he has to establish that he would not have entered into the Settlement Agreement and that if had not entered into the Settlement Agreement he would be better off.

Mr Studdy contended that Mr Hawkins’ evidence that he would not have entered into the Settlement Agreement if he had been told of the Funding Agreement should be accepted. Mr Studdy accepted that to establish loss and damage he had to establish that Mr Hawkins would have been better off if he had not entered into the Settlement Agreement. He contended that the Court should find that Mr Hawkins would have been completely successful in the 2009 proceedings and he submitted that the following basis for such a conclusion existed on the evidence before the Court (see T108- T109)

Mr Studdy submitted that this was a case in which, difficult as it may be, the Court should ‘do its best’ in accordance with the principles laid down in Howe v Teefy (1927) 27 SR (NSW) 301 and see Amann at p 125 per Deane J.

There is a problem with each of the matters on which Mr Studdy relies.

I am unable to accept Mr Hawkins’ evidence concerning Mr Stitt’s advice, and for the following reasons:

The second problem is that even were Mr Stitt to have given the advice he did there is no indication whatsoever as to when it was given and on what basis it was given nor whether it was given in contemplation that Mr Hawkins would not give (or might not give) evidence in the 2009 proceedings.

The third problem is that [45](2) offers no support for the proposition that Mr Hawkins would successfully defend Mr Oates’ claims in the 2009 proceedings, but is concerned with Mr Hawkins wish to defend the proceedings. What is mentioned at [45](3) can offer no real support for the contention that Mr Hawkins would win his case having regard to the content of Exh 2. If Mr Stitt thought that Mr Hawkins would win notwithstanding the problems that he had identified that occasion would be an appropriate one to have mentioned that view.

I observe also that Mr Hawkins could not have understood that there would be no investigations by the Liquidator because of the Settlement Agreement because the Liquidator was not a party to that agreement and Mr Hawkins himself says that he tried to have the Liquidator made a party.

This undermines his evidence that he would not have entered into the Settlement Agreement had he known of the Funding Agreement.

It has often been remarked that evidence by a person of what he or she would have done had the defendant not engaged in the conduct of which complaint has been made (ie had the defendant told the plaintiff something the plaintiff was not told) needs to be very carefully considered. In Chappel v Hart [1998] HCA 55; (1998) 195 CLR 232 McHugh J said at p 246 footnote 64

Those comments have relevance here. The prospect of problems in Mr Hawkins’ case of the sort encapsulated in Mr Stitt’s advice as recorded in Exh 2 would provide a reason for Mr Hawkins to have settled even if there was a prospect of examinations looming. This is coupled with another aspect which is the absence of any detailed evidence from Mr Hawkins as to the advice he received and the ‘you will win advice’ evidence which I deal with below. As Mr Sullivan pointed out evidence as to what Mr Hawkins was told in the context of his decision to enter into the settlement is a matter very much within his power to lead (see Blatch v Archer (1774) 98 ER 969 cited with approval in the High Court in Hampton Court Ltd v Crooks (1957) 97 CLR 367 at 371). Since Mr Hawkins has not provided any evidence other than unconvincing evidence as to why he entered into the Settlement Agreement and that he knew that the Liquidator was not providing him with any release. As Mr Sullivan pointed out, whilst reliance and causation overlap they are separate questions: see Tomasetti per Macfarlan JA [58]- [59]. Whilst I accept it is possible that Mr Hawkins would not have entered into the Settlement Agreement if he had known about the Funding Agreement I am not persuaded that he would not have done so.

The fourth problem is that the plaintiff has provided no evidence on which I could conclude that Mr Oates would be certain or likely to fail in the 2009 proceedings. Whilst it is true that Courts are, on occasions, called on to assess what would have been the likely result in litigation eg Johnson v Perez (1988) 166 CLR 351, I do not think that the task could be fulfilled without regard to the evidence that would have been before the Court and with nothing more than advice from counsel saying “you will win” with no analysis and no detail as to how that conclusion was reached, even accepting that Mr Stitt gave that advice which, as I have indicated, I do not.

In Malabar RSL Sub-Branch Club Pty Ltd v RSL Custodians Pty Ltd [2014] NSWSC 1016 I dealt with the question of what must be established in relation to damages where a breach of contract has been established.

In Malabar I made reference to NCON Australia Ltd v Spotlight Pty Ltd [2012] VSC 604 as to the principles summarised by Robson J in that case as

NCON and Malabar were contract cases but a similar approach to causation and damages applies to claims based on misleading and deceptive conduct: see Sellars v Adelaide Petroleum NL; Poseidon Ltd v Adelaide Petroleum NL [1994] HCA 4; (1994) 179 CLR 332 at p 355 per Mason CJ, Dawson, Toohey and Gaudron JJ and p 264 per Brennan J.

I am inclined to think that since it was open to Mr Hawkins to seek to set aside the Settlement Deed if misleading and deceptive conduct were established that it is not open to ask the Court to, in effect, embark on a trial within a trial. If I am wrong in that view then there is simply insufficient evidence before the Court on which it could be concluded that the Settlement Deed produced a worse outcome to Mr Hawkins then he would have obtained had the 2009 proceedings progressed to judgment. If I am wrong in that view the only conclusion that can be reached on the material presented is that the outcome would have been equivalent to what the parties themselves (advised by the eminent practitioners who they had retained) agreed upon.

Another issue on which there was dispute was whether all of the costs which Mr Hawkins incurred in seeking to set aside the examination summonses (as opposed to the costs of representation at the examinations) was part of the his loss and damage as a result of Mr Oates’ failure to inform him of the Funding Agreement. Mr Oates contended that even if, contrary to his principal contentions he was liable to Mr Hawkins for costs arising out of the examination summonses he should not be held liable for applications to set aside the summonses which failed. This argument is based on the need for there to be a connection between the costs claimed with the alleged misleading and deceptive conduct. If Mr Hawkins would not have entered into the Settlement Agreement he would still have had to face the examination summonses. His application to set aside the examination summonses and the appeal did not arise because he had entered into the Settlement Agreement they arose because of the Funding Agreement. Mr Sullivan referred to Banque Bruxelles Lambert SA v Eagle Star Insurance Co Ltd [1997] AC 191 in this connection. The only way those costs might be recoverable is if Mr Oates was in breach of the Settlement Agreement by funding the Liquidator. Even in that circumstance it would have to be established that the costs which were incurred were reasonably foreseeable: see South Australia v Johnson (1982) 42 ALR 161, at 169- 170 and see Blacker v National Australia Bank Ltd [2001] FCA 254 at [85]- [86] and [93]- [96]. These arguments appear to me to have a great deal of substance but given my conclusions on liability, causation and the absence of any proof that Mr Hawkins was worse off by having entered into the Settlement Agreement I do not think it is necessary to express a concluded view on these matters.

The defendant provided a table detailing the invoices referred to in the various affidavits and submissions that many of the amounts should be disallowed even if the plaintiffs succeeded. This was marked MFI 2. The plaintiffs were given leave to respond to this table and their submissions were received on 24 April 2015. The defendant’s response to the plaintiffs’ submissions was received on 29 April 2015. There were disputes regarding a number of items, the defendant claiming that the following should not be recovered by the plaintiffs:

Mr Oates cross claimed against Mr Hawkins seeking payment of the remaining $375,000 due under the Settlement Agreement. It was agreed that Mr Hawkins had no answer to that claim if he was unsuccessful in his claim against Mr Oates. The interest on that amount as at 21 April 2015 was $73,648.57 running at $66.78 per day making a total till today, 15 May 2015, of $75,251.29.

For the reasons given above there should be judgment for the defendant on the plaintiffs’ claim and judgment for Mr Oates on his cross claim in the amount of $375,000 plus interest $75,251.29, ie a total of $450,251.29. I will hear the parties on the question of costs.