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Lowe Hunt ordered to pay $300,000 after boss misled staff about financial situation

Advertising agency Lowe Hunt must pay $300,000 in compensation after the Federal Court found that former boss Ben Colman misled a member of staff into joining the Sydney-based agency by claiming it was in a good financial position when it was actually technically insolvent.

This week the Federal Court ruled in favour of Andrew Moss, who gave up working for his consultancy Pegasus Planning based on the claims made by Colman, who is now a partner in Colman Rasic.

In her judgement on Moss versus Lowe Hunt & Partners, The Hon Justice Katzmann described Colman as “an unimpressive witness, who presented as one who was inclined to say what he thought at the time might help him or the case he had been called to support. It was difficult to know when he was telling the truth. Where his evidence is in conflict with that of Mr Moss, I prefer the evidence of Mr Moss.”

She also said of Colman: “He was given to overstatement. He conceded he had made a number of misleading statements in significant documents and he was quick to shift responsibility to others. At one point in cross-examination he admitted to making a false statement to prospective clients in Mr Moss’s presence because he perceived it to be in his employer’s interests.”

She said that Colman’s evidence had contained inconsistencies, and he had denied being a director of Lowe Hunt despite ASIC documents suggesting otherwise. She added: “His answers in cross-examination to the questions about this matter were troubling. At first he told the Court that the financial statements which showed him to be a director were false and so, too, he said, was the ASIC historical extract that also showed him as a director. It was put to him that there were only two explanations for his conduct – either he was lying to the Court or he was “staggeringly incompetent” for not knowing whether he was a director or not. He replied that there was a third – that someone had processed the documents without his knowledge – a course he conceded would have been scandalous and one I consider extremely improbable.”

Moss’ s claim was that when Colman offered him the role of strategy director he claimed the agency had $300m in billings and was one of 150 worldwide offices. Part of the case revolved around a  Powerpoint creds presentation which was also shown to a number of potential clients that was potentially misleading and deceptive conduct. Justice Katzmann said: “The presentation was clearly designed to create the impression that the business was a financial success with a solid base.”

The judgement went on:

“In my view, the representation that Mr Colman made in April 2005 was likely to lead a reasonable person to believe that the business was financially successful. Without qualification and in the context in which the statement was made, the reference to $300 million in billings and 150 offices around the world amounted to a representation that the business was financially successful.

“Yet, the business did not enjoy financial success.

“At all material times Lowe Hunt depended upon IPG’s financial support to continue trading because there was an excess of liabilities over assets.

“For the reporting period 1 January 2003 to 31 December 2003 Lowe Hunt made a net loss of over $1.1 million, net liabilities exceeded net assets by over $2.5 million, and was only able to continue to trade as a going concern due to the agreement of IPG to continue to provide financial support.

“The fundamentals of Lowe Hunt’s business did not improve. In fact, the figures conceded by Lowe Hunt show that the situation grew steadily worse with the business making larger trading losses in 2004, 2005 and 2006 and the ratio of liabilities to assets also worsening throughout the same period.”

And she ruled that Moss joined the company because of the promises that Colman made. She wrote:

“In all the circumstances, I think it is most unlikely Mr Moss would have accepted Mr Colman’s offer but for his repeated assurances about the strength of the business and the implicit representations concerning its financial security. It is also more likely than not that Mr Moss accepted the offer of employment on the faith of misleading or deceptive representations about the financial security of the business.”

As well as ordering damages of $306,740, Justice Katzmann indicated that she is likely to order Lowe Hunt to pay costs.

Colman said in a statement to Mumbrella: “I am surprised by the Federal Court’s ruling. I was not privy to the reason Andrew Moss was terminated by Lowe Hunt, as it was well after I had left the agency. Lowe Sydney continues to operate as an agency in Australia and has done so for over 10 years. Beyond that I have no further comment.”

Stephen Pearson, Lowe Hunt’s current CEO who was not involved at the time, told Mumbrella today that the agency is now in a much stronger financial position. He said: “The agency is doing very well. the case is something that’s dealing with a legacy. It’s good that this is now resolved and put to bed.”

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