Climit Pty Limited v Captech Group Limited

[2004] NSWSC 956

CITATION:	Climit Pty Limited v Captech Group Limited [2004] NSWSC 956
HEARING DATE(S):	16 April 2004 (written submissions to 20 April 2004)
JUDGMENT DATE:	15 October 2004
JURISDICTION:	Equity Division
JUDGMENT OF:	Master McLaughlin at 1
DECISION:	(1). I assess the damages which are payable by the First, Second and Third Defendants to the Plaintiffs to be in the sum of $175,000. (2) . I order that the First, Second and Third Defendants pay the costs of the Plaintiffs of the enquiry as to damages. (3). The exhibits may be returned.
CATCHWORDS:	Damages. - Assessment. - Common Law damages for loss of bargain. - Measure of such damages. - Whether Plaintiffs should be required to pursue uncertain litigation against the First Defendant. - Whether, in any event, First Defendant could meet any verdict which Plaintiffs might obtain in such litigation.
CASES CITED:	Banco de Portugal v Waterlow and Sons Ltd [1932] AC 452 at 506 Segenhoe Ltd v Akins (1990) ACSC 691 Sacher Investments Pty Ltd v Forma Stereo Consultants Pty Ltd [1976] 1 NSWLR 5
PARTIES :	Climit Pty Ltd and Ors (Plaintiffs) Captech Group Ltd and Ors (Defendants)
FILE NUMBER(S):	SC 1378 of 2002
COUNSEL:	Mr. N. Cotman SC (Plaintiffs) Mr. P. Hack SC (Defendants)
SOLICITORS:	Hopgood Ganim (Plaintiffs) McCabe Terrill (Defendants)

- 1 -

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

MASTER McLAUGHLIN

Friday, 15 October 2004

1378/02 CLIMIT PTY LTD and ORS -v- CAPTECH GROUP LTD and ORS

JUDGMENT

1 MASTER: After a contested hearing in the substantive proceedings Windeyer J published his reasons for judgment on 6 June 2003. Consequent upon those reasons (in which his Honour dismissed the claim of the Plaintiffs for equitable damages in addition to or in lieu of specific performance) his Honour stood the matter over to allow the parties to consider the proper order which ought to made and to give to the Plaintiffs an opportunity to apply to amend their statement of claim in order to include a claim for damages for breach of contract.

2 His Honour held, essentially, that the Defendants had repudiated their contract with the Plaintiffs, and that the Plaintiffs, by their Solicitor, accepted that repudiation, thereby bringing the contract to an end. By electing to treat the agreement as at an end the right of the Plaintiff to seek specific performance was abandoned and the remedy of the Plaintiff became one for damages of breach of contract. His Honour observed, however, that the difficulty with that conclusion was that the Plaintiffs had made no claim for damages for breach of contract. It was, in consequence of the foregoing omission that his Honour entertained the application for amendment of the statement of claim and made substantive orders which I shall shortly set forth, together with consequential orders in respect to costs.

3 The Plaintiffs on 11 June 2003 made such an application for leave to amend the statement of claim to include a claim for damages for breach of contract. His Honour granted that application, for the reasons set forth in his judgment delivered on that date.

4 The orders thereupon made by his Honour included the following:

(1). Grant leave to the plaintiffs to amend the Statement of Claim to claim:

“(k) A declaration that the First, Second and Third Defendants repudiated the contract of 15 June 2001, by refusal to pay $175,000 and accept a transfer of options described therein, which repudiation was accepted and the contract terminated on 30 October 2001.”

(2). Grant leave to the plaintiffs to amend the Statement of Claim to claim:

“(1) An Order the First, Second and Third Defendants pay the plaintiffs Common Law damages for loss of bargain”

(3). Grant leave to the plaintiffs to amend the Statement of Claim to claim:

“(m) An Order that damages be assessed by a Master”

(4). Orders and declarations in accordance with para. 12 (k), (l), (m) of the Amended Statement of Claim.

….

(6B) Order costs of proceedings before the Master be determined by the Master.

5 It is in consequence of the foregoing orders that the matter has come before me for the assessment of the damages payable to the Plaintiffs, Climit Pty Limited, and other associated persons and entities, by the First, Second and Third Defendants, being respectively Captech Group Limited, Gerard Amal Wahab and Mark Roberts Davison.

6 It is appropriate here to record that on the first day of the hearing I was informed that the First Defendant had changed its name to Integrated Investment Group Limited, and that in consequence, I ordered that Integrated Investment Group Limited be substituted for Captech Group Limited as the name of the First Defendant wherever appearing in the heading of all pleadings and other documents filed herein.

7 I have had the benefit of receiving written outlines of submissions from Counsel for the respective parties. Those documents will be retained in the Court file.

8 The basis upon which the Plaintiffs claim to be entitled to damages for breach of contract arises out of the conduct of the Defendants in repudiating the contract through refusing to complete, and the acceptance by the Plaintiffs of such repudiation, thereby bringing about the termination of the contract. The contract of the benefit of which the Plaintiffs have thus been deprived and in consequence whereof the Plaintiffs assert their entitlement to damages is described in the judgment of Windeyer J of 6 June 2003. That agreement is set forth in a deed dated 15 June 2001, which provided, inter alia, that the Plaintiffs would transfer to the Second and Third Defendants or their nominees certain options to take up shares in the First Defendant, that the Defendants would pay to the Plaintiffs the sum of $175,000, and that upon such payment upon the date and in the manner specified in the deed the Plaintiffs would discontinue certain proceedings which had been commenced by them against the First Defendant in the Supreme Court of Queensland (to which proceedings I shall refer as the “the Queensland proceedings”), with each party bearing his or its own costs of those proceedings.

9 In the course of his reasons for judgment of 6 June 2003 Windeyer J said (at paragraph 26),

Even if it were open to me to award damages there is no evidence to enable damages to be assessed. As I understand it the options may now be worthless, but that is not proved. On the other hand the Queensland action may produce a result favourable to the plaintiffs.

10 The Queensland action to which his Honour referred was described earlier in the judgment as being litigation in Queensland by the Plaintiffs against a company then called Technology Licensing Limited (“TLL”) but later called Captech Group Limited (“Captech”), which is the First Defendant to the present proceedings (which, it will be recalled has subsequently yet again changed its name, to Integrated Investment Group Limited).

11 It will be appreciated that the basis of the claim of the Plaintiffs for damages is that the Plaintiffs asserted that they have been deprived of the benefit of the foregoing agreement with the Defendants, that benefit being so it was submitted, the payment to the Plaintiffs of the sum of $175,000 and the discontinuance by the Plaintiffs of the Queensland proceedings without the Plaintiffs being liable to any costs penalty in those proceedings in consequence of such discontinuance.

12 The Defendants in resisting that claim for damages submit that the consequence of the repudiation by them of the agreement with the Plaintiffs is that, whilst the Plaintiffs have not received payment of the sum of $175,000, the obligation upon the Plaintiffs to discontinue the Queensland proceedings has ceased, and that thus the Plaintiffs are still entitled to pursue those proceedings against the First Defendant.

13 The Defendants submit that the pursuit by the Plaintiffs of the their rights against the First Defendant in the Supreme Court of Queensland is of greater benefit to them than the deprivation of $175,000, and that, in consequence, they have in monetary terms lost nothing as a result of the repudiation by the Defendants of the agreement with the Plaintiffs.

14 The Plaintiffs, however, have responded to that approach by attempting to establish that their rights to pursue the First Defendant in the Queensland proceedings are of little practical benefit to the Plaintiffs, on account of, firstly, the uncertainties of litigation and, more significantly, the financial position of the First Defendant, which (so the Plaintiffs submit) would not have the funds necessary to meet any verdict that might ultimately be awarded to the Plaintiffs.

15 At the hearing before me most of the evidence was directed to the financial position of the First Defendant, and, in particular, to the question whether it could meet any verdict awarded against it in favour of the Plaintiffs in the Queensland proceedings.

16 On behalf of the Defendants evidence was given by Lyall Norman Gorman, a Director and the Secretary of the First Defendant. Mr Gorman had sworn an affidavit on 19 August 2003 and was cross-examined. The purpose of Mr Gorman’s evidence was to establish the ability of the First Defendant to meet any verdict which might be awarded against it in the Queensland proceedings.

17 Essentially, it was the evidence of Mr Gorman that the First Defendant was in a good financial position, and was well able to meet any verdict which might be awarded against it in the Queensland proceedings. I note the evidence of Mr Gorman that, in the event that the Plaintiffs pursued the Queensland proceedings, the First Defendant would defend those proceedings. However, it emerged that in the various financial accounts and reviews of the First Defendant there was no reference to the Queensland proceedings and no provision had been made for any contingent liability arising out of those proceedings.

18 I was not favourably impressed by either the manner or the content of Mr. Gorman’s evidence.

19 Despite the denial of Mr Gorman that at all material times the First Defendant had a deficiency in its total equity, that fact clearly emerged from the accounts which were placed before the Court. Further, it emerged that the aggregate debt of the First Defendant increased by $2 million between June 2002 and June 2003, and that at 31 December 2003 its liabilities exceeded its assets by some $652,000, its total assets being $3.489 million, whilst its total liabilities were $4.14 million.

20 It was quite apparent that the capacity of the First Defendant to meet a verdict against it in the Queensland proceedings would depend upon demands made upon it by other creditors. Mr Gorman placed very considerable reliance upon the fact that an undertaking had been provided by an entity, Kanilo Pty Limited, to the extent of $3 million, “in respect of the cost of the [Queensland] proceedings”. That company is a significant shareholder in another company Benetec Pty Limited, which, however, has reduced its investment in the First Defendant from about $700,000 to $510,000. One of the Directors of the First Defendant is also a Director of Kanilo Pty Limited and of Benetec Pty Limited.

21 Despite the denial by Mr Gorman, it is abundantly obvious that, in the event of a judgment in the Queensland proceedings being given against the First Defendant in an amount of $1 million plus interest, the First Defendant would be incapable of meeting that judgment out of its own resources.

22 I am not persuaded by Mr Gorman’s evidence that the First Defendant has the ability to meet from its own resources any verdict that might be given against it in the Queensland proceedings, or that it would have the desire or willingness to meet such verdict from other resources which might be or become available to it (such as, possibly, the foregoing undertaking of Kanilo Pty Limited to the extent of $3 million, which undertaking is in its terms in respect to “the cost of the proceedings”, not in respect to any verdict against the First Defendant).

23 In regard to the submission of the Defendants that the Plaintiffs are entitled to pursue the Queensland litigation and that that entitlement is worth more to the Plaintiffs than the benefits which they would have received under the repudiated agreement with the Defendants, I have been taken to the decision of Giles J (as he then was) in Segenhoe Ltd v Akins (1990) ACSC 691. His Honour said at 703,

In fulfilling its obligation to mitigate its loss, Segenhoe is only required to act reasonably, and the standard of reasonableness is not high in view of the fact that DHS is the wrongdoer: See Banco de Portugal v Waterlow and Sons Ltd [1932] AC 452 at 506; Sacher Investments Pty Ltd v Forma Stereo Consultants Pty Ltd [1976] 1 NSWLR 5; McGregor on Damages , 14 ed. (1980), Sweet & Maxwell, paragraph 233. In particular, Segenhoe was not obliged to take the risk of bringing uncertain litigation against the shareholders.

24 In the instant case the approach of the Defendants is that the Plaintiffs have not suffered any loss in consequence of the conduct of the Defendants, since, so the argument of the Defendants runs, the Plaintiffs still have the right to litigate the Queensland proceedings, which if successful may ultimately result in the Plaintiffs obtaining as much as $1,240,000.

25 I am satisfied that even if the Plaintiffs were to be successful in obtaining a verdict in the Queensland proceedings, the likelihood of them recovering from the First Defendant the foregoing sum (or, indeed, in any sum) is at best uncertain.

26 In my conclusion, the Plaintiffs by the conduct of the Defendants have been deprived of receiving a certain amount of $175,000 and of being relieved, without costs penalties to them, of the necessity of pursuing the Queensland proceedings (and thus being relieved of the uncertainties and vagaries of litigation, as well as the time and expense, quite apart from emotion, associated therewith), and have been left to the possibility of obtaining a verdict considerably in excess of that amount, with the probability (almost certainty) that they will never be able to recover from the First Defendant the amount of any such verdict.

27 I do not consider it reasonable that the Plaintiffs when confronted, on the one hand, with the amount of $175,000 and the termination (without costs penalties) of the Queensland proceedings, to which they were entitled under the agreement with the Defendants which was the subject of the proceedings before Windeyer J, and, on the other hand, the possibility of obtaining a verdict against the First Defendant in the Queensland proceedings in a considerably greater amount, but with no certainty (indeed, little likelihood) that that verdict would ever be paid to them, that the Plaintiffs should be required to pursue to a conclusion the uncertain litigation against the First Defendant, and then attempt to recover the amount of any verdict which they might obtain.

28 In my conclusion the damages sustained by the Plaintiffs in consequence of the repudiation by the Defendants of their agreement with the Plaintiffs is the amount which the Plaintiffs were entitled to receive under that agreement, being the sum of $175,000. I assess the damages of the Plaintiff in that amount.

29 The Plaintiffs are entitled to an order that their costs of the assessment be paid by the Defendants.

30 I make the following orders:

(1). I assess the damages which are payable by the First, Second and Third Defendants to the Plaintiffs to be in the sum of $175,000.

(2) . I order that the First, Second and Third Defendants pay the costs of the Plaintiffs of the enquiry as to damages.

(3). The exhibits may be returned.

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Last Modified: 10/18/2004