Trainers and owners beware! Sheila Laxon & John Symons judgment offers lessons for all

By Natalie Hickey, October 29, 2014

Background

John Symons and Sheila Laxon are partners in their horse training business, JSL Racing (“JSL”), and in life. Francis Butler and his wife Karen were their close friends.

Mr Butler’s late father owned racehorses trained by Mr Symons and Ms Laxon (through their business, JSL Racing (“JSL”)). In about May 2006, Mr Butler acquired a horse named “Admiral’s Lady” which had been part of his late father’s estate. This was the first of the Butlers’ horses to be trained by JSL. The source of the Butlers’ wealth, according to the Herald Sun, was the sale of the Butlers’ Greenvale farm to developers.

Initially, Mr Butler had little experience with racehorses. However, his enthusiasm grew. Mr Butler helped JSL as a paid driver and horse handler. Mrs Butler helped JSL as a casual unpaid office assistant. Their daughter Caitlin also worked from time to time in the JSL office. The Butlers attended the JSL training facility almost daily.

This enthusiasm, however, did not mean Mr Butler was an expert in breeding racehorses nor in relation to racehorses more generally. The Butlers relied heavily on the expertise of Mr Symons in those areas. Whilst Mr Symons focused on training the horses, Ms Laxon was principally responsible for the JSL business records and invoicing.

Meanwhile, the Butlers acquired interests in many racehorses. These were trained by JSL, and they were likely very significant owners (if not the most significant) for the training business.

There were no written agreements and the only documents referring to the purchases were invoices subsequently issued by JSL to the Butlers.

Unfortunately, the Butlers fell “heavily” out of friendship (as Justice Digby put it) with Mr Symons and Ms Laxon. This led to Supreme Court of Victoria litigation. There were 29 individual racehorses with which the Butlers’ case was concerned, and more than 50 horses in question in the proceeding.

Proceedings commenced in July 2011. The trial took place in May 2013. Judgment was handed down on 10 October 2014. The judgment is 195 pages long.

Justice Digby was required to pick a winner and he picked the Butlers. The Herald Sun has estimated that, if they do not appeal, Mr Symons and Ms Laxon could face a $1 million legal bill including costs. That estimate appears reasonable.

How things went wrong

As happens from time to time, the chance to buy horses at the Queensland Magic Millions Sales and the Inglis Sales came up. Like many potential racehorse owners, the Butlers were prepared to buy a part interest (ranging from 20% to 50%) but not own the horses outright.

The process was typical for many racehorse owner and trainer relationships. Mr Symons would buy a particular horse. Mr Butler and Mr Symons would discuss the prospect of the Butlers taking a stake. Mr Symons would usually ask Mr Butler what percentage ownership Mr Butler was interested in having. Mr Butler would then discuss this with his wife. Mr Butler would then tell Mr Symons of the share he wished to take in the horse (at [220]).

The Butlers claimed that their decision to buy horses was based on:

• Mr Symons and Ms Laxon sourcing further syndicate members to acquire the remaining ownership interests in each horse; and
• if such members were not available, Mr Symons and Ms Laxon themselves acquiring the remaining stake.

In 2009 and 2010 a number of horses were purchased at the Sales. Mr Symons had a loan account with the relevant Auction Houses. Presumably, he was permitted to buy the horses on condition full payment was made within a reasonable period (the longest period offered by the Magic Millions and Inglis was found to be 90 days).

Some of the horses bought in early 2009 were yearlings. The aim was to train each of them to the standard needed to sell them at the 2009 Ready to Run Sales unless everyone agreed to retain a horse identified as a “good one”. There were 9 horses in the Ready to Run category.

It seems that when horses were bought, the Butlers paid for their own share promptly. However, the respective Auction Houses were not paid the balance in full by JSL within the 90 day period. The threat of horse repossession loomed.

By January 2010 it was obvious Mr Symons and Ms Laxon would have trouble paying down the loan account with the Magic Millions in particular. The Butlers therefore deposited $50,000 in the Symons’ Magic Millions loan account to pay off the debt (even though they had bought the horses assuming that this sum would be paid by JSL or new co-owners). Unfortunately though, and not to their knowledge at the time, this sum did not pay down the full debt.

A couple of days later, on 14 January 2010, two of the horses (one out of Redoutes’ Choice & Anigma; the other called God Jul) were advertised in the Magic Millions catalogue for repossession sale.

Meanwhile, Inglis started chasing its debts with JSL. By November 2010 this had escalated to formal demands.

The agreed chronology (refer end of Judgment) shows a growing pattern of chaotic behavior. The relationship between the parties began to break down.

By April 2011, the tone of the Butlers’ communications had become – if not hostile – at least more challenging of Mr Symons and Ms Laxon. An email from the Butlers to JSL dated 13 April 2011 asked for specific clarification about the proposed relocation of a number of horses to Queensland and concluded:

“What was disappointing about the last few weeks, has been that this all could have been resolved simply by an open discussion. If we had been informed through the planning stages of this campaign, we would have seen some of the benefits of our horses going to QLD, instead of hearing this at such a late stage and being forced to consider our options within a day of the horses leaving the state.”

In June 2011 the Butlers demanded from JSL repayment of the loan and that outstanding payment of the horses be completed.

Later that month they demanded JSL to stop training the horses. Mr Symons and Ms Laxon refused to do this. Between July and October 2011, the horses were trained and the Butlers were invoiced for training expenses.

It was during this period that the Butlers commenced the Supreme Court of Victoria litigation.

On 16 December 2011, ten of the horses were sold. Three of the horses made money. Seven did not. Of those that lost money, three sold for less than $1000 even though their total purchase price was $38,000. One $50,000 horse was sold for $2,200.

Meanwhile, the fate of four of the horses remained in limbo. One of the most significant was the Redoutes’ Choice / Anigma filly, purchased at the Queensland Magic Millions Sale in January 2009 for $200,000.   The Butlers paid their portion of the purchase price to Magic Millions by cheque on 20 February 2009. However Magic Millions Sales would not release the papers for this and other affected horses (such as a Snitzel / Flying Spur colt purchased for $150,000), until Mr Symons and Ms Laxon paid them in full.

Given the length of time from when the unpaid horses were purchased until judgment, it was found that this would render those horses “unusual” such that they would now struggle to race (at [465]).

As for the Ready to Run horses? The Butlers claimed that most of these floundered, for the most part not undertaking in racing.

Mr Symons and Ms Laxon did not take the claims lying down. Their position was clear. The Butlers owed them large sums of money for the training and care of many horses they partly owned.

In support of their position, they relied on standard Australian Training Association Terms (at the least with respect to the Ready to Run horses), claiming that these were incorporated into the training agreements between the parties.

Mr Symons and Ms Laxon otherwise denied the allegations.

A remaining dispute concerned the proper identity of the Manager of some of the horses. For the most part Mr Butler was the nominated Manager. However, Mr Symons and Ms Laxon were also named as ‘Manager’ of several horses, a matter which was less pivotal to the overall dispute, but crucial to the adverse credit findings ultimately made against them.

What the judge found

Overall

Justice Digby described the legal relationship between the parties as one of “ad hoc informal agreements”. He further said: “these were arrangements which had been put in place again and again” (at [759]).

The parties had competing explanations about the nature of those arrangements.

Credit findings

Mr Symons’ and Ms Laxon’s explanation was not believed because they were not regarded as truthful. The Butlers, by contrast, were regarded as “truthful and reliable witnesses” (at [144]).

Justice Digby stated that his evaluation of Mr Symons’ lack of creditworthiness and reliability as a was witness was fortified by “what I considered to be an evasive demeanour adopted by Mr Symons in relation to much of his evidence given under cross-examination. I also consider that on occasions Mr Symons’ evidence was obfuscated and contrived” (at [150]).

This conclusion followed 20 specific findings of false, inaccurate and unreliable evidence by Mr Symons (at [145]). This was said to include false statements on affidavit, false evidence about the circumstances concerning the Ready to Run Sales, a false denial that Mr Symons was present at a Racing Stewards’ interview, and a false denial that Mr Symons had ignored a court ordered injunction to stop training.

Justice Digby also regarded Ms Laxon as a witness who was “untruthful, inaccurate and unreliable” and that her credibility had been “severely” impugned (at [152]; also see [178-9]). Examples were provided where her evidence was contradictory.

Several matters called for detailed analysis to justify the adverse credit findings. First, it was found that Ms Laxon instructed a JSL employee to alter documents relating to three horse registration applications. Specifically, in about March 2011 the employee whited out ‘Managing Owner 1’ (Frank Butler) for each of Prince of Darkness and God Jul and replaced this with ‘Owner 5’ (John Symons). The employee testified that Ms Laxon said this was done “so that they could have control of the managing owner, they needed control”.

In May 2011, a similar alteration was made at Ms Laxon’s direction in relation to another horse.

The employee testified that she resigned after Ms Laxon asked her to write a false letter in relation to a separate Magistrates’ Court court case concerning unpaid agistment fees: “I didn’t want to perjure myself”. The employee gave evidence that she was asked to write a letter saying “we had not received invoices from Springbank, we hadn’t sighted them. I had.” (see [160ff]).

Justice Digby further found that Ms Laxon “deliberately altered” Horse History records relevant to the case “in significant respects” after document discovery in the proceeding before him, and for the purpose of supporting their defence in relation to a horses called Acclaim (see [165]).

It is important to note that Ms Laxon has suffered significant injuries from falls from horses in 2002, 2005 and earlier. For news reports please see here and here.

Unfortunately though, these matters were not conveyed to the court during Ms Laxon’s evidence in chief. The topic was raised for the first time at a very late stage of the proceedings, after Ms Laxon had been cross-examined, and when she was re-examined by her Counsel. Only then did Ms Laxon concede “her memory was not good at all”. For instance, she would talk to someone on the phone, put the phone down, and then not remember the identity of the person to whom she had been speaking moments earlier (see [172-3]).

Justice Digby did not apparently consider Ms Laxon’s poor memory to ameliorate his adverse findings stating: “I consider that Ms Laxon was not a truthful or reliable witness in this proceeding. Further, as to Ms Laxon’s accuracy and reliability, I make such finding additionally on Ms Laxon’s admitted inadequate and imperfect memory”.

Implied terms

As to the nature of the ad hoc informal agreements, because nothing was in writing the judge needed to infer the key terms based on the conduct of the parties. Some of the key implied terms Justice Digby found which are specific to this matter are set out below:

1. The JSL parties were obliged to provide good title for the racehorses in which the JSL parties were selling interests within a reasonable time of purchase.
2. Mr Symons was therefore obliged to find enough purchasers to achieve 100% sale price or arrange for JSL to pay the outstanding money to the Auction House.
3. A reasonable time for payment was 90 days, namely, the longest period of time for payment allowed by Magic Millions and Inglis.
4. Frank Butler was to be registered as Owner 1/Manager of such racehorses subject to any contrary majority resolution by the owners of such racehorses. Justice Digby noted the practical requirement to sort this out to fulfill one of the nomination requirements for registering a racehorse.

The judge also found a number of additional implied terms relevant to any horse owner or trainer in an informal business relationship. For instance, JSL was to:

1. be the trainer of each of the horses, subject to the right of the owners of the horses to change trainers;
2. appropriately care and train for each of the horses in its custody as a Trainer;
3. undertake the care and training of race horses in their custody with the skill and care of a competent racehorse trainer;
4. ensure that, at the earliest reasonable date, each of the horses was able to be trained, trialled and/or raced so as to maximise the potential performance and value of each of the horses as a racehorse;
5. inform the plaintiffs and Mr Fielding of any impediment to a horse being able to be trained, trialled or raced;
6. account to the plaintiffs and Mr Fielding for all external and internal costs and charges incurred by JSL in caring for and training each of the said horses;
7. account to the plaintiff and Mr Fielding for their share of any proceeds of sale received by them in respect of any of the horses; and
8. act on the instructions of the Manager of each of the horses, save only as a majority of the respective ownership interests in each horse might otherwise instruct, in respect of all matters concerning the horses, including as to:
   1. the physical location of each of the horses;
   2. the training of each of the horses;
   3. the ongoing care and health of each of the horses; and
   4. the racing of each of the horses,
9. comply with the Rules of Racing of Racing Victoria, insofar as those Rules applied from time to time, to the racehorse placed in JSL’s custody; and
10. be paid their usual charges in relation to the care and training of the horses placed in JSL’s custody for training.

Justice Digby found that the parties must have intended the above implied terms would form part of their bargain given the nature of the relationship between them and the fact that Mr Symons and Ms Laxon enjoyed very exclusive information and knowledge and usually custody of the relevant horses. They also had significantly superior knowledge of the racehorses, their condition and requirements. The JSL parties were also in control of the process of purchasing the racehorses from the Auction Houses and controlled the process of procuring additional owners for the horses (see [319f]).

Failure of consideration

Because JSL did not fully pay for and secure good title over the unpaid horses, Justice Digby found there was a fundamental failure of consideration. The upshot was that the Butlers were entitled to a refund of what they had paid for their share. They were also entitled to a refund of all “futile and wholly wasted money” expended on training fees and other outgoings.

Ready to Run claim – misrepresentation upheld

As for the Ready to Run claim, Mr Symons relied on the expert evidence of two expert racehorse trainers. The evidence did not help him. In short, Justice Digby found that Mr Symons had not been sufficiently clear with the Butlers that horses bought early in the calendar might be too immature for Ready to Run Sales later that calendar year. The judge found that this amounted to a misrepresentation.

Mr Moroney had testified that, whilst on average, a horse purchased as a yearling might be ready for Ready to Run races later that year, a Trainer or owner needed to be careful not to push too far. Mr Guy had also testified that only 15% of the foal crop raced at two years of age, and only 40% raced at three years of age. As the experts noted, there was no certainty any yearling purchased would ultimately race at all, let alone be able to run up to 200 metres within approximately seven months of purchase.

It was held that these risks were not conveyed to the Butlers.

ATA Terms not incorporated

Finally, Mr Symons and Ms Laxon had claimed that the Ready to Run Agreement included the standard terms and conditions contained in the Australian Trainers’ Association Contract (ATA Terms) relating to the training of racehorses.

The judge held that the parties did not agree to these terms and that they were not incorporated into the agreement.

How to avoid the pitfalls

Some very important lessons emerge from this case. For owners and trainers, print this list out and put it in a prominent place.

Trainers

First, you have a duty to inform potential owners of the risks before they buy an interest in a horse. Prepare an email setting this out. It can be friendly and need not be ‘legal’ in tone. Make sure everyone knows what you know. Getting a horse to a track is a combination of good luck and management. Anything can go wrong along the way. Send this to every owner. Do not rely on the Manager to do this for you. Importantly, do not rely on the fact that the owner has given you repeat business.

Second, you must keep your loan account with the Auction Houses up to date. We all understand cash flow can be an issue. However, if you cannot afford to pay for a horse in full now, do NOT buy it.

Third, if worst comes to worst, know that you are legally obliged to pay the Auction House in full within their payment period (e.g. 90 days). Check the fine print.

Fourth, if you cannot meet Item 3, you may be required to refund the payment price plus training fees and other outgoings to those owners who have paid their share.

Fifth, if you want to rely on the standard ATA terms and conditions of training, they must be brought properly to the owners’ attention. For instance, email them to the owner and ask for acknowledgement. Use the ‘read receipt’ function of your computer to ensure you have a record that they have been seen.

Sixth, if you have informal purchase arrangements with owners (e.g. a conversation, followed by an invoice, payment, and then the later registration of the horse), expect the implied terms found by Justice Digby to apply. Note in the particular the requirement to follow the Manager’s instructions.  So why not turn these into an easy email to send to owners when they buy a horse? Ask them to confirm they agree by reply email. This means you have something in writing.

Seventh, if you decide to depart from the ‘typical’ arrangements, you MUST record it in writing. Preferably get everyone to sign. This will help avoid angst and likely litigation. If the parties do not understand each other properly, best to know this now rather than 24 months down the track.  Also, have these discussions in an office.  Having them at a restaurant or in the back of a car makes it less likely for a court to assume that legal relations have been created by the discussion.

Eighth, be careful not to rely too heavily on one owner. Yes it is wonderful when one or two people want to invest heavily with you. Equally, you can be left without any buffer when they decide to move on.

Nineth, be careful before mixing business and pleasure. Business relationships with friends often do not work out. Too much is assumed. Not enough ‘business’ discussion takes place. It is a potential recipe for disaster unless you are very clear with each other about the risks.

Tenth, do NOT try to fix up the problems by covering your tracks. It can only make things a lot worse.

Owners

One of the implied terms found by Justice Digby was that Trainers are entitled to be paid their usual charges for the training and care of your horse.

If you have a look at the long list of implied terms, most of the burden falls on the Trainer. Not much falls on you. The least you can do is to pay the Trainer’s fee as and when it falls due.

Trainers and Owners

Communicate with each other. Make sure you are on the same page.  That is probably the biggest lesson of them all.

 

NOTE: The author owns a part interest in a few racehorses. She has found the experience to be excellent. Sharing the trials and (many) tribulations with her co-owners and friends is a great life experience. Experiencing track work has only grown her respect for Trainers and jockeys who have such an early start to their working day. Having a proper legal basis to the owner and trainer relationship is the best way to ensure that these great experiences continue.