Armour v Fewster (No. 2) No. DCCIV-02-10

ARMOUR –v- FEWSTER (No. 2)

[2004] SADC 1
Judge Robertson
Civil
Introduction

On 9 May 2003 I delivered Reasons in these proceedings confined to the issue of liability, in which I found that:
·on 4 April 2001 the Defendant orally agreed to sell to the Plaintiff the total B class shares held by the Defendant and his father Allan Fewster in AWB Limited (“AWB”) for $2.20 per share;
·at the date of the contract the Defendant and his father Allan Fewster jointly held 30,992 B class shares;
·on 19 April 2001 the Defendant breached the oral agreement by refusing to complete the sale and transfer of the shares to the Plaintiff.
In the Plaintiff’s Statement of Claim, filed in this Court, he sought specific performance of the agreement, damages for loss of a Dividend paid by AWB on the shares and damages for breach of contract. However, at the commencement of the Trial the Plaintiff, through his Counsel Mr Dal Cin, indicated that he was not pursuing the claim for specific performance and that his claim was for damages for breach of contract including damages for the loss of the Dividend. It is the assessment of those damages which is the subject of these Reasons.
Quantification of the Plaintiff’s Claim
The first head of the Plaintiff’s claim for damages is for the difference between the contract price of $2.20 per share and the value of $3.46 per share on 22 August 2001, being the day AWB shares were listed on the Stock Exchange. The quantification of this head of damage is:
Value of shares not transferred as at 22 August 2001
30,992 x $3.46        $107,232.32
Less contract price $30,992 x $2.20   $68,182.40
   $39,049.92
   ========
The second head of the Plaintiff’s claim is for the loss of the July Dividend declared by AWB, being 14 cents per share on 30,992 shares which amounts to $4,338.88.
AWB Shares and the Sellers’ Register
As I mentioned, the Contract for the sale of the B class shares was entered into on 4 April 2001. The Defendant wrongfully repudiated the Contract on 19 April 2001 by refusing to sell the shares. The Defendant asserted during the Trial on liability that he had not entered into an agreement with the Plaintiff for the sale of the shares. However, as I stated, I found that the Defendant had entered into an enforceable contract to sell the shares to the Plaintiff.
At the time the Contract was formed between the Plaintiff and the Defendant, AWB was an unlisted public company. AWB listed its shares on the Stock Exchange on 22 August 2001.
The B class shares in AWB had their genesis in what was called Wheat Industry Fund Units known as “WIF Units”. These Units had been issued by the Australian Wheat Board to farmers throughout Australia as a result of a levy being charged for wheat sold to the Australian Wheat Board. When AWB was incorporated, it issued B class shares to the holders of WIF Units on a one for one basis. In April 2001 there were 241 million B class shares issued by AWB.
In the period prior to AWB’s listing on the Stock Exchange it established a Register entitled “AWB Matching Facilities – Sellers Register” (“the Sellers’ Register”) for the purpose of enabling those shareholders who were interested in selling their shares prior to the Stock Exchange listing to be identified. Shareholders interested in selling their shares could place their name on the Sellers’ Register together with their telephone number. The Sellers’ Register was managed by Computershare Investor Services Pty Ltd (“Computershare”). Computershare would from time to time publish a complete list of those shareholders registered on the Register and would also publish updates from time to time which included shareholders who had been placed on the Sellers’ Register since the last publication. Any person seeking to acquire shares in AWB could obtain a copy of the Sellers’ Register from Computershare. The information in the Sellers’ Register could be used by a prospective buyer to make contact with shareholders listed for the purpose of negotiating a sale of shares. The number of shares held by a shareholder was not recorded on the Sellers’ Register nor was the price being sought by a shareholder.
The Plaintiff’s Involvement in Acquiring AWB Shares
The Plaintiff was at the time of the Contract and remains a practising solicitor. He had been involved in buying and selling shares over many years. Prior to April 2001 he had acquired B class shares in AWB from other shareholders, using the Sellers’ Register. In each case, the method of contact used by the Plaintiff was by telephone. Negotiations took place over the telephone. On reaching an agreement, it was the Plaintiff’s practice to forward a share transfer to the seller, with written instructions indicating that upon the seller returning the executed transfer and the share certificate relating to the shares, he would then remit payment.
The share transfer was a standard share transfer form. In each case, the Plaintiff would not include the name of the purchaser in the transfer. On receiving the memorandum of transfer executed by the seller the Plaintiff would insert in the place set aside for the transferee’s name either the name of his wife, Rosalie Vaughan or the names of his wife and himself. In the latter circumstance the insertion of the joint names was in their capacity as trustees of a self managed superannuation fund entitled “JWA and RCV Superannuation Fund” (“Superannuation Fund”). The Plaintiff explained in his evidence, which I accept, that he would make a decision regarding the name of the transferee after he had received the executed share transfer share certificate. He said that he had never personally held shares in AWB.
Events After the Formation of the Contract
After the Plaintiff had entered into the oral Contract with the Defendant to purchase the shares on 4 April 2001 he followed his usual practice by forwarding a share transfer to the Defendant without the name of the transferee inserted in the transfer form. This transfer was forwarded with an accompanying letter giving instructions to the Defendant regarding the manner in which the transaction was to be completed. Those instructions were similar to the instructions he gave in all previous transactions, and to which I have earlier made reference. The memorandum of transfer was never executed because, as I said, the Defendant maintained that he had never entered into a contract of sale with the Plaintiff.
The Plaintiff’s Claim For Specific Performance
The Plaintiff did not accept the Defendant’s repudiation of the Contract. He insisted on specific performance of the Contract. On 6 July 2001 the Plaintiff filed proceedings in the Magistrates’ Court seeking specific performance of the Contract and damages, being the amount of a fully franked dividend of 14 cents per share paid by AWB on 4 July 2001.
On 14 December 2001 Mr Gumple SM, ordered that the Magistrates’ Court proceedings be transferred to this Court. In this Court, as I mentioned, the Plaintiff filed an Amended Statement of Claim in which was added a claim for damages for breach of Contract.
Plaintiff’s Share Purchases After 19 February
Following the Defendant’s wrongful repudiation of the Contract on 19 April 2001, the Plaintiff continued to acquire B class shares in AWB using the Sellers’ Register. He purchased a total of 24,162 B class shares after that date arising from six separate transactions. The purchase price for the shares ranged from $2 per share to $2.65 per share. It was the Plaintiff’s evidence, which I accept, that these shares were not purchased as replacement shares for the shares he failed to acquire from the Defendant. The purchase of these shares were part of the Plaintiff’s plan to continue to acquire AWB shares. Each of these purchases were placed in the name of his wife Rosalie Vaughan. It was the Plaintiff’s evidence, again which I accept, that after the last purchase, which was on 18 June 2001, he continued to pursue the acquisition of further AWB shares. However, he did not acquire any further shares after that date. I also accept the Plaintiff’s evidence that at all relevant times he was ready, willing and able to purchase the Defendant’s shares.
Is the Plaintiff’s Claim for Equitable Damages or Common Law Damages?
I mentioned earlier in these Reasons, that at the commencement of the Trial the Plaintiff elected not to pursue his claim for specific performance and indicated that he was only seeking damages for breach of contract. Mr Dal Cin, Counsel for the Plaintiff submitted in his final address that the Plaintiff’s claim was for damages in lieu of specific performance or alternatively damages at common law. He said in the end it was not going to matter whether the damages were classified as equitable damages or common law damages. Whilst that may be the case, it is possible that the classification of the damages may assume some importance and accordingly I consider it appropriate that the issue be resolved.
The starting point in considering this question is Section 36(2)(a) of the District Court Act 1991. That Section provides:
“In particular -
(a) where a party seeks relief by way of injunction or specific performance, the Court may award damages in addition to or in substitution for such relief;”
This sub-section in effect reproduces the terms of Section 2 of Lord Cairns’ Act passed in England in 1858. That Section empowered the Court of Chancery to award damages in addition to or in substitution for specific performance. Until that time the Court of Chancery had no power to award damages. The remedy of damages was the province of the common law.
It has been recognised for many years by the Courts that apart from a small number of exceptions, none of which are relevant here, there is no difference in principle between the assessment of equitable damages, under Lord Cairns’ Act, and an assessment of damages at common law. In other words, where damages are given in substitution for an order for specific performance, the assessment of damages at equity is similar to that which would be undertaken at common law. (Johnson v Agnew (1980) AC 367 at 400.)
Whilst the assessment of damages under the legislation is similar to that undertaken at common law, it is important to recognise that the power provided by Section 36(2)(a) of the District Court Act to award damages can only be exercised where at the time of the commencement of the proceedings the facts would provide a valid basis for a Court to properly order specific performance. (The Millstream Pty Ltd v Schulz (1980) 1 NSWLR 547 at 552; Wentworth v Woollahra Municipal Council (1981) 149 CLR 672). In other words, the power to award equitable damages under Section 36(2)(a) may only be exercised where there is a properly constituted claim seeking an equitable remedy such as specific performance. In such a case, a Court may award damages in addition to granting relief for specific performance. Furthermore, where a Court exercises its discretion not to grant specific performance, then the Court may award damages in substitution for specific performance. In such circumstances the damages would be classified as equitable damages.
Here, the Plaintiff commenced proceedings for specific performance and additional damages, being the lost dividend on the shares. The Plaintiff later amended his claim to include damages for breach of contract as an alternative to his claim for specific performance. However, what is important is that the Plaintiff did not pursue his claim for specific performance. As I stated earlier, at the time of the commencement of the hearing, the Plaintiff abandoned his claim for specific performance and elected to proceed on the basis of damages for breach of contract. From that point the Plaintiff was not seeking any equitable relief. In my view, by doing so the Plaintiff took his claim outside the bounds of Section 36(2) of the District Court Act. At that stage all that was in issue was a claim for damages for breach of contract. That is a remedy at common law. As a result, it follows, in my opinion, that the damages being sought by the Plaintiff are damages at common law.
Has the Plaintiff suffered a loss?
Before proceeding any further, there is a threshold question which needs to be determined. Mr Boylan Q.C., Counsel for the Defendant, submitted that the Plaintiff was only entitled to nominal damages because he could not prove that he had suffered any loss resulting from the breach of contract. I mentioned earlier, with respect to the shares the subject of the Contract, that the Plaintiff, at the time of entering into the Contract, intended that they be transferred either to his wife, Rosalie Vaughan, or to his wife and himself, as trustees of the Superannuation Fund. That was in accordance with his past practice when he had acquired AWB shares.
At the time of the Defendant’s wrongful repudiation of the Contract the Plaintiff had not determined who was to be the eventual transferee. Mr Boylan Q.C. submitted that as the contracting party, the Plaintiff had lost nothing as he was never intending to obtain the legal or beneficial ownership of the shares. Accordingly, said Mr Boylan, the Plaintiff is only entitled to nominal damages.
Mr Dal Cin’s response to this submission was first that the Plaintiff has lost the shares for which he contracted to acquire and accordingly is entitled to damages. Secondly and in the alternative, Mr Dal Cin submitted that at the time of entering into the Contract the Plaintiff was acting as an undisclosed agent for his wife and himself.
In my opinion there is a short answer to the submission made on behalf of the Defendant. The Plaintiff entered into a contract which was breached by the Defendant. The Plaintiff has lost the shares he contracted to purchase. At the time of the Contract he was acting for himself. Whilst his intention was to make a nomination of the transferee of the shares, that nomination was in fact only to take place after the purchase of the shares had been completed. Until such time as the Plaintiff made the nomination he would be the owner of the shares. Accordingly, I reject the submission that he is only entitled to nominal damages. He is entitled to be placed in the same position with respect to damages as if the contract had been performed.
If I am in error in reaching this conclusion then the alternative submission by Mr Dal Cin that the Plaintiff was acting as an undisclosed agent must prevail. That is the only other conclusion which may be logically reached on the evidence. In other words, in entering into the contract with the Defendant, the Plaintiff was acting as the undisclosed agent for his wife, Rosalie Vaughan, and his wife and himself as trustees of the Superannuation Fund. It was the Plaintiff’s evidence that he intended to nominate either his wife alone or his wife and himself, in their capacity as trustees of the Superannuation Fund, as the transferee. This is what he had done in the past when purchasing AWB shares.
The essential elements of the doctrine of the undisclosed principal in a principal/agency relationship is found in the speech of Lord Lloyd in the decision of Siu Yin Kwan v Eastern Insurance Co Ltd (1994) 2 AC 199 where he said (at 202):
“(1) An undisclosed principal may sue and be sued on a contract made by an agent on his behalf, acting within the scope of his actual authority. (2) In entering into the contract, the agent must intend to act on the principal’s behalf. (3) The agent of an undisclosed principal may also sue and be sued on the contract. (4) Any defence which the third party may have against the agent is available against his principal. (5) The terms of the contract may, expressly or by implication, exclude the principal’s right to sue, and his liability to be sued. The contract itself, or the circumstances surrounding the contract, may show that the agent is the true and only principal.”
One of the elements identified by Lord Lloyd in Siu Yin Kwan indicates that an undisclosed agent may sue on a contract entered into by the agent. Accordingly, the Plaintiff was entitled to sue on the Contract as agent of an undisclosed principal and to recover any losses suffered as a result of a breach of the Contract by the Defendant.
In the end, whichever of the two alternatives prevail, the submission by Mr Boylan Q.C. that the Plaintiff has not suffered any loss and is only entitled to nominal damages cannot succeed.
Before I leave this issue, there is one further matter I should mention. The Plaintiff did not plead in his Statement of Claim that he was contracting for an undisclosed principal. The Defendant, in his Defence, did not plead that the Plaintiff should only receive nominal damages because he had suffered no loss. This issue only arose during the final address on the issue of damages by Counsel for the Defendant. I raised the question of an undisclosed principal when the issue came to the surface. It was not suggested by Mr Boylan Q.C. that the Defendant was prejudiced by it being raised at that stage. In any event, as I have said, it came to the surface in direct response to the assertion by Counsel for the Defendant that the Plaintiff had not suffered any loss.
Was the Plaintiff Entitled to Pursue his Claim for Common Law Damages?
The nature of the Plaintiff’s claim is damages at common law. Damages for loss of a bargain arising from breach of contract are only available when a contract is at an end. (Sunbird Plaza v Maloney (1988) 166 CLR 245 at 260; Ronnoc Finance v Spectrum Network Systems Pty Ltd (1998) 45 NSWLR 624 at 633). In this case, the Plaintiff did not accept the Defendant’s repudiation of the Contract on 19 April 2001. By his claim for specific performance, he was insisting that the Defendant perform the contract. However, as I stated earlier, at Trial, the Defendant, through his Counsel, elected not to pursue the claim for specific performance and to seek only damages for breach of contract. Whilst the Plaintiff has not formally indicated that he accepted the repudiation of the Contract by the Defendant, in my opinion, his act of electing to pursue only common law damages has the effect of accepting the Defendant’s repudiation. This brought the contract to an end. Accordingly, from that point the Plaintiff was entitled to pursue his claim for common law damages for the loss of his bargain.
General Principles for Assessing Damages for the Sale of Shares.
Before turning to consider the issues between the parties it is appropriate to make some observations regarding the principles applicable to the assessment of damages for breach of contract for the sale of shares. The general principle regarding the measure of damages for breach of contract is that where a party suffers a loss by reason of a breach then that party is, so far as money can do so, to be placed in the same position with respect to damages as if the contract had been performed (Robinson v Harman (1848) 1 Ex 850; Wenham v Ella (1972) 127 CLR 454 at 471).
In Shaw v Holland (1846) 153 ER 794 it was held that the measure of damages for breach of a contract by a vendor for failing to deliver shares listed on a stock exchange was analogous to the measure for non-delivery of goods resulting from a breach of contract for the sale of goods. Furthermore, it was held that such damages are to be measured at the time of the breach of contract. Parke B. (at 798) said:
“With respect to the amount of damages, I was at first disposed to think that this was like the case of an action for not replacing stock, in which the measure of damages is the difference of price on the day on which it ought to have been replaced, and on the day of the trial; but, upon consideration, I think it more resembles the case of an action for the non-delivery of goods. In the case of Gainsford v Carrol (2 B. & C. 624), which was an action for not delivering goods on a given day, the Court held, that it was not like the case of a loan of stock, where the borrower holds in his hands the money of the lender, and thereby prevents him from using it altogether; for that the plaintiff, having his money in his possession, might purchase the like goods the very day after the contract was broken; and therefore that the true measure of damages was the difference between the price agreed upon and the market price of the goods at the time the contract was broken. Here the plaintiff had his money in his own possession, and might have gone into the market and bought other shares as soon as the contract was broken. The question therefore is, when it was broken.”

It is clear that the use of the analogy of damages for non-delivery of sale of goods arises in assessing damages for non-delivery of listed shares because in both cases there is an available replacement market at the time of the breach. The presence of an available replacement share market is emphasised by Parker J. in Re Schwabacher (1908) 98 LT 127 (at 128):
“In the first place, it is not usual for a court of equity to pronounce a decree or specific performance, when it is of opinion that the remedy in damages is ample satisfaction for the breach; and, although I have no doubt that it is within the power of a court of equity to decree specific performance of a contract for the sale and purchase of shares, yet when shares are dealt in largely on the market, and anyone can go and buy them as appears to be the fact in this case – there is no reason why they should not be in the same position as Government Stock is in the case of a contract for the sale and purchase of such stock.”
By contrast to a breach of contract for the sale of shares in a listed company, the Courts have held that where the contract for the sale of shares in an unlisted company is breached, then specific performance is the appropriate remedy and not damages. The reasoning in such decisions is that there is not an available market to replace the shares which have not been delivered. This point was made by Vice-Chancellor, Sir L. Shadwell, in Duncruft v Albrecht (1841) 59 ER 1104 (at 1107-1108):
“Then the only question is whether there has been any decision, from whence you can extract a conclusion that the Court will not decree a specific performance of an agreement for the sale of such shares? Now, I agree that it has been long since decided that you cannot have a bill for the specific performance of an agreement to transfer a certain quantity of stock. But, in my opinion, there is not any sort of analogy between a quantity of 3 per cent or any other stock of that description (which is always to be had by any person who chooses to apply for it in the market), and a certain number of railway shares of a particular description; which railway shares are limited in number, and which, as has been observed, are not always to be had in the market. And, as no decision has been produced to the contrary, my opinion is that they are a subject with respect to which an agreement may be made which this Court will enforce.”
The contrast between the two approaches was highlighted by Dixon J. in Dougan v Ley (1946) 71 CLR 142 (at 151):
It was not difficult to say that a purchaser of ‘articles of unusual beauty rarity and distinction’ was entitled to obtain them in specie (Falcke v Gray (1)). Though a less obvious case, it was settled that ‘a certain number of railway shares of a particular description, which railway shares are limited in number’ and are not to be obtained by going on the share market, are a subject in respect of which a contract of sale will be enforced specifically (Duncuft v Albrecht (2)). But though it is within the power of a court of equity to decree specific performance of a contract for the sale and purchase of shares, yet when shares are dealt in largely on the market and anyone can go and buy them, there is no reason why they should not be in the same position as government stock it, in a contract for its sale and purchase (per Park J., Stern v. Schwabacher; Re Schwabacher (3)).”
The Main Issue - the Time when Damages are to be Assessed
There is no conflict between the parties regarding the measure of damages. The issue between the parties is the date at which the damages should be assessed.
Mr Dal Cin, Counsel for the Plaintiff, submitted that on 19 April 2001, being the date of the breach of Contract, there was not an available market in AWB shares. The absence of an available market, said Mr Dal Cin, meant that the disappointed buyer could not replace the shares, which the seller had failed to deliver by going back into the market. Counsel for the Plaintiff further submitted that in those circumstances it was reasonable for the Plaintiff to seek specific performance of the Contract. Mr Dal Cin submitted that upon AWB’s shares listing on the stock exchange on 22 August 2001 a market became available through which the shares could be replaced. Accordingly, it was submitted, that was the relevant date in measuring the Plaintiff’s loss.
Mr Boylan Q.C., Counsel for the Defendant, on the other hand, submitted that at the date of the breach, namely 19 April 2001, there was an available market to replace the AWB shares and accordingly that is the date at which the damages should be assessed. Mr Boylan submitted that the Sellers’ Register had created an available market from which the shares could have been replaced on 19 April 2002 or, as I interpret his submissions, within a reasonable time thereafter. This submission is tied up with his submission that the Plaintiff has failed to mitigate his loss by failing to acquire replacement shares on 19 April 2001 or soon thereafter by use of the Sellers’ Register.
The Available Market – Mitigation of Loss Dichotomy
Before I consider the facts relevant to the issue which set the parties apart I need to make some observations regarding what I describe as the available market - mitigation of loss dichotomy.
In the circumstances of this case, to a large extent the available market issue and the mitigation of loss issue are closely associated. It may be said that the two issues intermingle. However, having said that, I do not overlook that there is a further issue involving mitigation of loss which I will need to address later.
The association of the two concepts can be clearly seen when the analogy of the assessment of damages for non-delivery of goods is considered. The sale of goods principles of damages expressed in the common law are now contained in Section 50(3) of the Sale of Goods Act 1895. The Section provides that where there is an available market, the damages are prima facie ascertained by the difference between the contract price and the market price on the date when the goods should have been delivered.
When discussing the mitigation principle that an innocent party must take reasonable steps to avoid loss, the authors of Benjamin’s Sale of Goods (4^th Ed), expressed the association between the two concepts in the context of sale of goods in the following terms (at p.800):
“In the sale of goods, the principle of mitigation is a foundation of the normal rule for measure of damages which requires the innocent party to act immediately upon the breach and buy or sell in the market, if there is an available market. (Emphasis Added)
This passage emphasises that the measure of damages in such circumstances has its genesis in the principles relating to mitigation of loss. The measure of damages is predicated on an assumed basis that the innocent party will enter into the market immediately there has been a failure to deliver goods for the purpose of replacing those non-delivered goods with other goods. The same two concepts and their association are also present in assessing damages when there has been non-delivery of shares. The question is whether there is an available market at or about the date of the breach.
What is an Available Market?
It is the presence of the Sellers’ Registry at the time of breach which takes this case out of the ordinary. Where there has been a failure to deliver shares, a Court generally is not required to undertake any analysis to determine whether there is an available market. The authorities indicate that where the shares are publicly listed, there is a market available which can be utilised to acquire replacement shares and the innocent victim’s claim is for damages. Where the shares are not in a listed company the Courts have held that specific performance is generally the appropriate remedy. However, as I indicated, the presence of the Sellers’ Register makes it necessary to consider whether it constitutes an available market. In doing so, in my opinion, some assistance can be gained by reference to some of the principles dealing with an available market in the context of sale of goods.
Judicial attempts to ascribe a meaning to the expression “available market” in the context of sale of goods have produced varied results. These cases illustrate that it is unwise to attempt to rigidly define the expression. In the context of sale of goods it has been suggested that one of the essential characteristics which needs to be present is the availability of sellers and their ready capacity to supply the relevant goods (Benjamin’s Sale of Goods 4^th Ed. p. 815). The question whether there is an available market is to be considered at the time of the breach or within a reasonable period of that time. (Shearson Lehman Hutton Inc v Maclaine Watson and Co Ltd.(No. 2) (1990) 3 All ER 723). Whilst there are other factors which have been identified by the Courts in considering whether there is an available market in the context of sale of goods, in my view these are the only relevant matters which require consideration in the circumstances of this case.
I now turn to consider whether there was an available market to replace the shares at the date of the breach or within a reasonable time of the breach.
Was there an Available Market?
Was there an available market at or about the time of the breach, namely 19 April 2001? I mentioned earlier that the format of the Sellers’ Register was simple. It recorded the name of each shareholder registered, the State of residence, the telephone number of the shareholder and where applicable a facsimile number. The Sellers’ Register did not indicate the quantity of shares held by a shareholder or the price being sought by the shareholder for the shares. The Sellers’ Register also indicated that there were “multiple buyers” looking to purchase shares. At or about the time of the breach of contract there were approximately 507 shareholders registered on the Sellers’ Register. The only method by which a prospective purchaser could make contact with a shareholder was by telephone. It was only at the time contact was made with the shareholder that the quantity of shares could be ascertained and the price being sought for the shares.
As stated earlier, the Plaintiff had purchased some AWB shares through the Sellers’ Register prior to entering into the Contract with the Defendant. During the course of conversing with a shareholder the Plaintiff would attempt to negotiate a price. Sometimes he was informed by a shareholder that the shares had already been sold. At the hearing for the assessment of damages at which the Plaintiff gave evidence, he said he had negotiated six further sales of shares after 19 April at prices ranging from $2 per share to $2.65 per share. The total shares purchased were 24,162 B class. These purchases were part of his plan of continuing to acquire shares in AWB. Some of these purchases were for an extremely small quantity of shares. The first purchase after 19 April 2001 was for 9,584 shares at a price of $2.20 per share and was made on 23 April 2001. The last of these purchases was on 18 June 2001 when the Plaintiff purchased 1,088 shares at $2.60 per share. The largest quantity of shares purchased in this period was 11,466 at $2.65 per share on 1 May 2001.
It was the Plaintiff’s evidence that he was unable to acquire any further shares in the price range of $2 to $2.65 per share after the last purchase. He said that he would have been prepared to pay a higher price than $2.65 but was not prepared to pay more than $3 per share. The Plaintiff said that he would not have been prepared to pay $3 per share in the period immediately after April 19. The Plaintiff said however, that by sometime in June he would have been prepared to pay $3 per share.
The Plaintiff said that even before 19 April 2001 it was not an easy process to identify persons from the Sellers’ Register who were willing to sell their shares. He said on occasions he was unable to make contact on the first call to a shareholder and it was necessary to call back. He said that on occasions the price sought by the shareholder was more than he was prepared to pay. The Plaintiff said as time went on after 19 April 2001, the price sought by the shareholders was on the increase. He said that in the period after the shareholders received letters of advice from AWB he detected more of a reluctance on the part of those shareholders on the Sellers’ Register to part with their shares.
The two letters referred to by the Plaintiff were dated 30 April 2001 and 6 June 2001. In the first of those letters the Chairman of AWB referred to the public announcement by a company called Graincorp that it intended to seek up to 10% of AWB’s B class shares at $2.60 per share. In that letter the Chairman stated that he was aware of the low and unfair prices which were being offered to shareholders on the Sellers’ Register. He indicated that the Directors were anxious to list on the Stock Exchange. The letter further informed shareholders that only 59,000 B class shares out of a possible 241 million B class shares or less than .02 per cent had been traded through the Sellers’ Register during March 2001.
In a letter dated 6 June 2001 the Chairman of AWB announced that a fully franked interim dividend of 14 cents per share would be paid to shareholders owning shares at 6 June 2001. The letter announced a substantial increase in half-yearly profit over the previous half-yearly profit. The Chairman indicated that AWB was on schedule to list by August 2001. He also advised that any decision to sell shares to Graincorp at $2.60 per share needed to be balanced against the potential sale proceeds when the shares were listed.
The information supplied in these letters tends to give support to the Plaintiff’s evidence that the price of the shares was rising and there was an increasing reluctance on the part of shareholders on the Sellers’ Register to sell their shares. The letter of 30 April also indicated the very small number of shares being acquired through Sellers’ Register.
In my opinion the Sellers’ Register did not create an available market at 19 April 2001 or within a reasonable time of that date. The evidence of the Plaintiff is that he continued to seek shares after 19 April 2001 through the Sellers’ Register. However, as I mentioned a moment ago his evidence indicates that it was a slow and somewhat difficult process in which a trend emerged that sellers willing to sell were demanding higher prices. No doubt such a trend was fuelled by the information shareholders were receiving from AWB concerning the price of the shares and the impending listing of the shares on the Stock Exchange.
In my view the evidence does not establish that there were sellers readily available which could be prevailed upon to sell shares to the Plaintiff to replace the 30,992 shares which were not delivered by the Defendant within a reasonable time of 19 April. Indeed, the evidence indicates that in the month of March, only 59,000 shares were sold. This has to be viewed against the background that there were multiple buyers seeking to acquire shares. In my opinion there was not a market available to replace the shares.
As a result of these findings I reject the submission by Counsel for the Defendant that the appropriate time to assess damages is 19 April 2001 or within a reasonable time of that date.
Should the Plaintiff Had Mitigated his Loss in any event?
Having reached the conclusion that there was no available market at or about the time of 19 April does not bring the issue of mitigation to an end. Such a finding only leads to the conclusion that 19 April is not the date for assessing the Plaintiff’s loss. The question of the appropriate date for assessing damages still remains.
It was submitted by Mr Dal Cin that the assessment should be at the date of listing of the shares, namely 22 August 2001. In considering whether that is the appropriate date it is necessary to consider whether the Plaintiff should have attempted to acquire replacement shares during the period from 19 April 2001 to 22 August 2001. The fact that there was not an available market does not absolve the innocent party from acting reasonably to mitigate his loss.
Whilst this issue may seem to be similar to the question whether there was an available market, the two matters are, in my opinion, quite distinct. The issue whether there was an available market has its focus on what is the appropriate date for assessing damages. In dealing with the current issue, the question is whether the Plaintiff should have mitigated his loss by purchasing replacement shares during the period up to 22 August 2001 at a price less than $3.46 per share.
At one point Mr Boylan Q.C. submitted that to mitigate his loss the Plaintiff should have worked his way through each shareholder on the Sellers’ Register and transacted sales until such time as he acquired shares to replace the shares not delivered. However, later in his submissions Mr Boylan submitted that the doctrine of mitigation required the Plaintiff to use the Sellers’ Register to contact a reasonable number of shareholders for the purpose of acquiring shares to mitigate his loss.
The doctrine of mitigation of loss places the onus of proof upon the defendant. (TC Industrial Plant Pty Ltd v Roberts’ Queensland Pty Ltd (1963) 37 ALJR 289 at 292). Whilst the burden of proving a loss is upon a plaintiff, it is upon a defendant to establish that the plaintiff acted unreasonably. These two propositions were expressed by Yeldham J. in Sacher Investments Pty Ltd v. Forma Stereo Consultants Pty Ltd (1976) 1 NSWLR 5 (at 9):
“Although a plaintiff cannot recover for loss consequent upon a defendant’s breach of contract, where he could have avoided such loss by taking reasonable steps, nonetheless a defendant who seeks to rely upon a failure to mitigate must show that the plaintiff ought, as a reasonable man, to have taken certain steps for the purpose of doing so.”
In my opinion it would be entirely unreasonable to expect the Plaintiff to perform the exercise outlined by Mr Boylan. In any event, the evidence indicates that the price of the shares was rising and that in the end buyers were seeking $3 or more per share. It would be unreasonable to expect the Plaintiff to expend more and more money to acquire shares even if such shares were available for acquisition. The evidence does not indicate how many listed shareholders were willing to sell their shares and at what price. As I pointed out earlier, in the entire month of March only 59,000 shares were sold when there were multiple buyers seeking shares. It is also important to recognise that the Plaintiff could not have predicted the listing price of the shares.
The onus is upon the Defendant to establish that the Plaintiff has acted unreasonably. In my opinion the Defendant has failed to discharge that onus.
What is the Date to Assess Damages?
What then is the appropriate date for assessing the Plaintiff’s loss? It is for the Court to decide, where the date for assessment is not the date of the breach, what date would ensure that the innocent party is fairly compensated for the wrong suffered by him. (Johnson v Perez (1988-89) 166 CLR 351 at 355-356; Johnson v Agnew (1980) AC 367 at 400-401).
Mr Dal Cin submitted that on 22 August 2001, being the day when AWB shares listed on the Stock Exchange, a market first became available which would have allowed the Plaintiff to purchase shares to replace those not delivered. I agree with this submission. Mr Dal Cin also submitted that it is reasonable to take the last sale price on that day namely, $3.46 for the purpose of determining the cost of the replacement shares. Counsel for the Defendant did not demur from such a proposition so I am prepared to accept that $3.46 is the replacement cost of the shares. Therefore, prima facie, the Plaintiff’s loss is the difference between that price and the contract price of $2.20 per share.
The Second Mitigating Issue

I say “prima facie” as there is a further issue of mitigation which needs to be addressed. It is the submission of Counsel for the Defendant that the Defendant should receive a benefit in the assessment of damages process for the 24,162 shares which the Plaintiff purchased in the period from 19 April to 22 August. Mr Boylan Q.C. submitted that the average cost of the 24,162 shares purchased by the Plaintiff after 19 April 2001 should be used as the replacement cost for 24,162 of the 30,992 shares, the subject of the Contract, for the purpose of assessing the Plaintiff’s damages. The average cost was $2.39 per share, which is far less than the price of $3.46 per share. There is an issue regarding whether it is the “weighted” average which is relevant and not the simple average. However, I do not stay to consider that question.
I stated earlier that I accepted the Plaintiff’s evidence that the purchase of shares he made subsequent to 19 April 2001 were part of a plan to continue to purchase AWB shares where the price of the shares was to his liking. The Plaintiff did not purchase those 24,162 shares to replace the shares which the Defendant had failed to deliver. Indeed, he remained anxious to complete the acquisition of the contracted shares as is evidenced by the fact that he instituted proceedings in the Magistrates Court in July 2001 seeking specific performance. In those circumstances, does it accord with principle that the average cost of purchase of the 24,162 shares can be applied in mitigation of the Plaintiff’s loss?
In resolving this issue it is unnecessary to go past the leading authority British Westinghouse Electric and Manufacturing Company Limited v Underground Electric Railways of London Limited (1912) AC 673 to identify the relevant principles.
The fundamental principle of mitigation is expressed by Viscount Haldane L.C. in the following terms (at 689):
“Subject to these observations I think that there are certain broad principles which are quite well settled. The first is that, as far as possible, he who has proved a breach of a bargain to supply what he contracted to get is to be placed, as far as money can do it, in as good a situation as if the contract had been performed.
The fundamental basis is thus compensation for pecuniary loss naturally flowing from the breach; but this first principle is qualified by a second, which imposes on a plaintiff the duty of taking all reasonable steps to mitigate the loss consequent on the breach, and debars him from claiming any part of the damage which is due to his neglect to take such steps. In the words of James L.J. Dunkirk Colliery Co. v Lever (1), ‘The person who has broken the contract is not to be exposed to additional cost by reason of the plaintiffs not doing what they ought to have done as reasonable men, and the plaintiff not being under any obligation to do anything otherwise than in the ordinary course of business.’
As James L.J. indicates, this second principle does not impose on the plaintiff an obligation to take any step which a reasonable and prudent man would not ordinarily take in the course of his business. But when in the course of his business he has taken action arising out of the transaction, which action had diminished his loss, the effect in actual diminution of the loss he has suffered may be taken into account even though there was no duty on him to act.”
After referring to the decision of Steinforth v Lyall Viscount Haldane L.C. said:
“I think that this decision illustrates a principle which has been recognized in other cases, that, provided the course taken to protect himself by the plaintiff in such an action was one which a reasonable and prudent person might in the ordinary conduct of business properly have taken, and in fact did take whether bound to or not, a jury or an arbitrator may properly look at the whole of the facts and ascertain the result in estimating the quantum of damage”.
His Lordship then went on to say, considering the circumstances of the case, (at 691):
“I think the principle which applies here is that which makes it right for the jury or arbitrator to look at what actually happened, and to balance loss and gain. The transaction was not res inter alios acta, but one in which the person whose contract was broken took a reasonable and prudent course quite naturally arising out of the circumstances in which he was placed by the breach”.
In Monroe Schneider Associates (Inc.) v No 1 Raberam Pty Ltd (1991) 104 ALR 397 (at 423) Burchett J, emphasised the point that for a subsequent transaction to be taken into account it needs to have arisen from the consequences of the breach and in the ordinary course of business.
In this case, the purchase of the 24,162 shares did not arise out of the transaction between the Plaintiff and the Defendant and in the ordinary course of business. It was part of an on-going plan to purchase shares in AWB which was entirely independent of the relationship between the Plaintiff and the Defendant. In those circumstances the average price for the purchase of the shares is not to be applied in mitigation of the loss suffered by the Plaintiff. I reject the submission made by Mr Boylan Q.C.
Assessment of the Plaintiff’s Damages
It follows from all that I have said that with respect to the first head of the Plaintiff’s loss, that the damages are to be assessed as at 22 August 2001 when a market became available to replace the shares which were not delivered. The price for the shares in that market was $3.46 per share and that is the figure upon which the Plaintiff’s loss is to be calculated. Consistent with the assessment of damages for non-delivery of goods, whilst the Plaintiff did not enter the market and purchase replacement shares, the assessment of damages contemplates a hypothetical purchase of the replacement shares from that market. (Shearson Lehman supra at 726).
The difference between the market price of $3.46 and the contract price of $2.20 is $1.26. Accordingly the Plaintiff’s loss amounts to $39,049.92 being the sum arrived at by the multiplication of 30,992 shares by $1.26. I therefore assess the Plaintiff’s damages under the first head of claim at $39,049.
I come now to consider the second head of claim being the loss of the dividend of 14 cents per share amounting to $4,338.88. It was not in dispute that AWB paid such a dividend on B class shares in July 2001. If the Defendant had delivered the shares to the Plaintiff in accordance with the terms of the Contract that dividend would have been received by the Plaintiff. As the loss of the dividend arises naturally from the breach of contract the Plaintiff is entitled to damages for that loss in order to place him in the same position as if the contract had been performed.
The Plaintiff’s total damages are therefore $43,837 and he is to have judgment for that sum.
I will hear the parties on interest and costs.

[2004] SADC 1

20 January 2004