Rich-lister Tim Roberts has achieved a pyrrhic victory against law firm Clayton Utz, after his aircraft leasing business claimed $US37 million ($A54 million) because of negligent advice.
Rich-lister Tim Roberts has achieved a pyrrhic victory against law firm Clayton Utz, after his aircraft leasing business claimed $US37 million ($A54 million) because of negligent advice.
In a ruling handed down today, Supreme Court Justice John Vaughan found partly in favour of AVWest Aircraft but crucially did not accept its claim for damages.
Justice Vaughan agreed that Clayton Utz failed to exercise reasonable skill, care and diligence in providing legal advice.
He quantified the damages as being just $US546,725 ($A804,000).
The case stemmed from legal advice provided in September 2010, when Clayton Utz reviewed four clauses of a draft cabin modification agreement.
Two solicitors employed by Clayton Utz spent about 42 minutes on the review and then spent no more than 12 minutes in a telephone conversation with AVWest's representative.
Clayton Utz subsequently charged AVWest $1,183.60.
The legal action commenced after the relevant aircraft, which cost $US31 million, was damaged in a fire while it was being modified.
Crucially, the cabin modification agreement with Switzerland-based Comlux included an indemnity clause relieving the contractor of damages associated with the fire, which occurred at its Indiana hangar.
AVWest sought damages from Clayton Utz to compensate it for alleged loss of opportunity due to the $US31 million not being available for deployment in its business. Based on expert evidence the amount claimed was $US36,961,330.
This was after AVWest secured a $US30 million payment from its insurers, in 2013, and a $US5 million payment from Comlux, in 2016.
In evaluating the case, Justice Vaughan assessed Mr Roberts to be an honest witness.
He largely dismissed claims by Clayton Utz that Mr Roberts was an unsatisfactory witness who gave non‑responsive and evasive answers.
Justice Vaughan was also impressed with Mr Roberts’ business acumen.
“Mr Roberts struck me as a particularly astute and shrewd business person, one well used to seeking to extract commercial advantage, who would not shrink from employing an advantage he had obtained,” the judgement stated.
“In that respect Mr Roberts was prepared to take commercial risks.
“As will be seen, however, Mr Roberts' approach was one of undertaking measured risk ‑ he weighed risk and commercial outcome and sought to balance risk as against the transaction as a whole.”
Justice Vaughan described the AVWest business – which was a key part of Mr Roberts investment company, Warburton Group – as spectacularly successful.
For the year to June 2011, AVWest reported a net profit of $2.5 million, a result affected by a substantial loss on foreign currency exchange.
Subsequent years saw profits of $23.7 million, $15.7 million and $87.6 million.
The AVWest business model was based on a commercial relationship with Canadian manufacturer Bombardier.
Justice Vaughan said the relationship was highly lucrative for AVWest.
He substantiated this by summarising transactions between the two parties between April 2009 and April 2014
- AVWest purchased 50 new or used aircraft which were on‑sold. The aircraft were principally purchased from Bombardier or were 'slots' on Bombardier's production line.
- The notional purchase prices for the 50 aircraft were just under $US2.13 billion. However, the payments actually made were a far lesser amount of slightly more than $US644 million.
- The third‑party sales of the aircraft or aircraft positions saw AVWest record net profit of over $US172 million.
In its defence, Clayton Utz contended that Warburton Group and its chief financial officer Tim Burton were concurrent wrongdoers.
This was caused by their delay in referring the draft CMA to Clayton Utz and by the limited terms (i.e. review and amend) which confined the scope of Clayton Utz's retainer.
In his ruling, Justice Vaughan concluded that Clayton Utz’s negligence caused AVWest to suffer compensable loss.
“It was deprived of a valuable commercial opportunity, namely, the opportunity to negotiate the CMA on more beneficial terms that would have resulted in AVWest obtaining a materially higher settlement sum at an eventual mediation with the counterparty to the CMA,” his judgement stated.
“However, AVWest has not established that, had it received non‑negligent advice, it would not have proceeded with the CMA and an associated purchase of an aircraft for $US31 million.
“Accordingly, AVWest has not succeeded on its loss of opportunity case based on CU's negligence causing or materially contributing to the $US31 million purchase price not being available for deployment in AVWest's business.
“It was this case that grounded the claim for damages exceeding $US36.96 million.”
Clayton Utz issued the following statement this afternoon.
"We respect the decision of the Court in what was a complicated matter and which has resulted in AV West Aircraft being awarded approximately 1.5 per cent of the damages it sought from the firm. Clayton Utz expects to seek an indemnity costs order against AV West."
