Edmund James Bateman v Face Accountants Pty Limited

[2010] NSWSC 1355

CITATION:	Edmund James Bateman v Face Accountants Pty Limited [2010] NSWSC 1355 This decision has been amended. Please see the end of the judgment for a list of the amendments.
HEARING DATE(S):	8, 9, 10, 15 & 16 November 2010
JUDGMENT DATE :	1 December 2010
JUDGMENT OF:	Hammerschlag J
DECISION:	Plaintiff's claim dismissed
CATCHWORDS:	DAMAGES – NEGLIGENCE – misleading or deceptive conduct – Trade Practices Act 1974 (Cth) – Fair Trading Act 1987 (NSW) – causation – whether by the defendants’ conduct the plaintiff suffered loss or damage – the plaintiff sought specialist tax advice from the defendants concerning the exercise by him of options to acquire shares in a public company for which he worked – they did not advise him that upon exercise he would incur a significant tax liability – when the liability became known to him he believed he could not sell the shares because he held confidential information about the company – defendants accepted liability for such loss and damage as was caused by their conduct – plaintiff promoted two alternative scenarios as to what he would have done in place of what he in fact did – whether loss should be assessed on the basis that the plaintiff lost a commercial opportunity – HELD – held that the case was not one of the loss of a commercial opportunity – that the plaintiff needed to establish either the first scenario or the second scenario to the requisite standard and that one or the other was more likely than what he in fact did – he failed to establish either to the requisite standard – he also failed to establish that he could not sell the shares or that he reasonably believed he could not – he also failed to establish the quantum of any loss resulting from the second scenario
LEGISLATION CITED:	Income Tax Assessment Act 1936 (Cth) Trade Practices Act 1974 (Cth) Fair Trading Act 1987 (NSW) Corporations Act 2001(Cth)
CATEGORY:	Principal judgment
CASES CITED:	Tabet v Gett (2010) 240 CLR 537 Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109 Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1 Sellars v Adelaide Petroleum NL (1992) 179 CLR 332 at 349-350 The Commonwealth of Australia v Amann Aviation Pty Ltd (1991) 174 CLR 64 Malec v JC Hutton Pty Ltd (1990) 169 CLR 638 Daniels v Anderson (1995) 37 NSWLR 438 Rosenberg v Percival (2001) 205 CLR 434 Jones v Dunkel (1959) 101 CLR 298 Troulis v Vamvoukakis [1998] NSWCA 237
PARTIES:	Edmund James Bateman - Plaintiff Face Accountants Pty Limited - First Defendant Michelle Pearce - Second Defendant
FILE NUMBER(S):	SC 2009/298655
COUNSEL:	R.R.I. Harper SC [Plaintiff] M.J. Windsor SC with D.A. Lloyd [Defendants]
SOLICITORS:	Massey Bailey Solicitors & Consultants [Plaintiff] Kennedys (Australia) Ltd [Defendants]

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THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
COMMERCIAL LIST

HAMMMERSCHLAG J

1 DECEMBER 2010

2009/298655 EDMUND JAMES BATEMAN -V- FACE ACCOUNTANTS PTY LIMITED

JUDGMENT

BACKGROUND

1 HIS HONOUR: The issues for determination in these proceedings are whether the plaintiff suffered loss and damage by the defendants’ conduct, and if so, how much.

2 The plaintiff is, and at all material times was, the Chief Operating Officer of Primary Health Care Limited (“Primary”), a listed company which operates medical centres and provides pathology and radiology services. He is principally responsible for Primary’s pathology business known as SDS Pathology and its related corporations. Primary’s pathology business has some six thousand employees and is responsible for approximately 50 per cent of Primary’s total earnings.

3 He holds a Masters of Business degree from the Wharton School of Finance, University of Pennsylvania, a postgraduate diploma in finance and investments from the Financial Services Institute of Australasia and an undergraduate degree in resource and agricultural economics from Sydney University.

4 The second defendant is a chartered accountant. At all material times she practised through, or in association with, the first defendant company.

5 On 6 June 2000, Primary issued to the plaintiff 900,000 options (“options”) to subscribe for and be allotted fully paid ordinary shares in its capital. The exercise price for each option was $4.50.

6 By 2005 the options were “in the money”, that is, the exercise price was lower than the market price of Primary shares.

7 In April 2006, the plaintiff was considering exercising the options and was proposing to engage in what is commonly termed “negative gearing” to do so. Negative gearing is borrowing funds to make an investment where the income derived from the investment is less than the interest payable on the borrowing. The interest paid is tax deductible and the investor has the prospect that the capital value of the investment will increase over time. Commonly, the interest is paid in advance so that the benefit of the tax deduction is accelerated.

8 During April and May 2006, the plaintiff obtained professional advice from the defendants as to his proposed course, but his attention was not drawn to Div 13A of Pt III of the Income Tax Assessment Act 1936 (Cth) (“the Income Tax Act”) under which upon exercise of the options, the discount given in relation to the shares (that is, the difference between the market value of the shares and the exercise price of the options on the date of exercise) was deemed assessable income in his hands.

9 On 1 June 2006, he exercised all 900,000 options. At the time, Primary shares were trading at $11.40. The total market value of the share parcel he received was accordingly $10,260,000. The total exercise price was $4,050,000. He therefore made a taxable gain of $6,210,000.

10 The plaintiff paid the exercise price by borrowing funds from the National Australia Bank (“NAB”) under a Margin Lending Facility (“the margin loan”). This is a facility under which the borrower is required to maintain a specified loan to security ratio, with a provision that if the security provided falls below the ratio, the lender can require the borrower by way of a “margin call” to provide more security (or presumably pay down the loan). The plaintiff gave NAB all the shares as security. The terms of the margin loan were not in evidence, but it was apparently for an initial period of one year. Before 30 June 2006, the plaintiff paid interest of $302,500 for the year to 30 June 2007 ensuring a tax deduction.

11 Unbeknown to the plaintiff, on the exercise of the options he incurred an obligation to pay tax of $3,011,850 by no later than April 2007 (“the tax liability”).

12 The plaintiff discovered the tax liability in about November 2006 when his personal accountant, Mr John Mendl, drew it to his attention in the course of preparing his tax returns.

13 The plaintiff says that at that time and until March 2008, he could not sell any of the shares to discharge the tax liability because he was throughout that period possessed of confidential information concerning Primary, and selling would have been insider trading.

14 On 17 September 2007, the plaintiff emailed Mr Greg Gardiner, the Chairman of Primary, as follows:

Over the oncoming weeks I am likely to hit with a substantial tax bill that relates to exercise of the options I was granted in 1999/2000.
As a result, it is likely that I am going to be in a position where I expect I will need to sell approximately 300,000 primary shares to fund that tax bill and to repay the loan that I took out to exercise the options. Obviously the timing is poor – but I have delayed paying for a significant period and I am incurring penalty interest as we speak.
What is your feeling on this?
The alternatives as I see it are:
a) I sell the PRY shares as required over the coming weeks with your okay
b) I ask my accountant to request the ATO to delay payment due to the illiquidity/sensitivity of trading in PRY shares at the moment
c) Go to the bank to ask for a loan to pay the tax (this is my least preferred alternative)
Sorry about this;
Regards

15 Mr Gardiner’s response was that the plaintiff should “go broke” before he traded the shares.

16 Between 23 October 2007 and 2 May 2008 the plaintiff made payments to the Australian Taxation Office totalling $3,383,015. This included a general interest charge for which he became liable by reason of late payment. He utilised personal savings, sold shares (other than shares in Primary) and borrowed further money from NAB under two loans.

17 Commencing from about August 2008, the price of shares in Primary drifted downwards. Over the period 5 August 2008 to 16 March 2009 NAB made margin calls under the margin loan. The plaintiff sold Primary shares and used the proceeds to repay the margin loan. During the period August 2008 to September 2010, he sold 885,900 Primary shares.

THE CONTEST

18 Section 52(1) of the Trade Practices Act 1974 (Cth) provides that:

A corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.

19 Section 82(1) provides relevantly that a person who suffers loss or damage by conduct of another person that was done in contravention of s 52(1) may recover the amount of the loss or damage by action against that other person.

20 Section 42(1) of the Fair Trading Act 1987 (NSW) provides that:

A person shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.

21 Section 68(1) provides relevantly that a person who suffers loss or damage by conduct of another person that was done in contravention of s 42(1) may recover the amount of the loss or damage by action against that other person.

22 The plaintiff says that had the defendants told him of the tax liability, he would not have acted as he did, and that by acting as he did he suffered loss and damage.

23 He sues at common law for damages for negligence and under the Trade Practices Act 1974 (Cth) against the first defendant and under the Fair Trading Act 1987 (NSW) against the second defendant asserting that their conduct in failing to tell him of the tax liability was misleading or deceptive or likely to mislead or deceive in contravention respectively of s 52(1) and s 42(1).

24 The trial took five hearing days over the period 8 November 2010 to 16 November 2010. Mr R Harper SC appeared for the plaintiff. Mr M Windsor SC together with Mr D Lloyd of counsel appeared for the defendants.

25 The only lay evidence led was that of the plaintiff. He swore two affidavits; the first and principal one on 3 August 2009 and a second one on 30 April 2010. He was cross-examined at some length. Each party relied on reports of expert accountants and a number of joint reports were tendered. The accountants were not cross-examined.

26 During final submissions the defendants admitted that if by their conduct in not advising the plaintiff of the tax liability he suffered loss or damage he is entitled to recover it from them at common law and under statute.

The plaintiff’s case

27 The plaintiff’s primary case, to which I shall refer as “Scenario 1”, is that had he been told of the tax liability, he would still have exercised all of the options but would immediately, or almost immediately, also have sold so many shares as would have produced enough cash to discharge the tax liability. He says he would have invested the cash until he had to pay the tax.

28 The plaintiff’s secondary position is that had he been told of the tax liability, he would neither have exercised the options before 30 June 2006, nor taken out the margin loan to fund the exercise. I shall refer to this position as “Scenario 2”. Under Scenario 2 he would now still be holding the options.

29 With respect to damages, the plaintiff says that by acting as he did, he is in a negative position to the extent of $3,539,041. He says that had he opted for Scenario 1 he would be in a negative position to the extent only of $1,238,522. He claims the difference of $2,300,520 as damages. That this is the arithmetic which results from Scenario 1 is not in dispute. The plaintiff puts that under Scenario 2 his loss is the same, because his net actual position is constant and he would have incurred no financial obligations.

30 The plaintiff put as a subsidiary submission that assessment of his loss can be approached on the basis that he lost a commercial opportunity, which had a value irrespective of whether he establishes that he would have opted for either Scenario 1 or Scenario 2 because he lost the opportunity of opting for either.

The defendants’ case

31 The defendants deny that the plaintiff has established that he suffered loss or damage by their conduct. Doing the best I can to distil their position, it is as follows.

32 Firstly, they put that if the plaintiff had known of the tax liability he would still have acted as he did, leaving it open later to sell all the shares or some of them to pay the tax liability. I shall refer to this as “Scenario 3”.

33 Secondly, they put that by exercising the options in June 2006, the plaintiff made a gain net of tax of $3,198,150, received dividends declared in respect of the shares and received a tax benefit from paying the margin loan interest in advance. They say that he is actually better off than under Scenario 2, in which he could have exercised the options in March 2008 when the insider trading difficulty dissipated and the options were still in the money, but only to the tune, after tax, of $2,166,750.

34 Finally, they put that the plaintiff has failed to establish that he was precluded from lawfully selling shares to pay the tax liability but that if it be found that he was precluded from selling, his loss was caused by a subsequent intervening event (being receipt of confidential information) not by their conduct.

The Law

35 It will suffice only briefly to state the legal principles which apply in this case. They are as follows:

a the plaintiff bears the onus of showing on the balance of probabilities that the conduct complained of caused him loss. This standard applies with respect to the issue of causation and whether he has suffered loss or damage;

b causation is to be approached in a practical or commonsense manner;

c the offending conduct need not be the only cause of the plaintiff’s loss or damage. It is sufficient if it plays a part in the plaintiff’s loss or damage, even if only a minor part;

d the measure of damages is the difference between the position the plaintiff is now in and the position he would have been in had the conduct complained of not occurred;

e where there has been an actual loss of some sort, difficulties in estimating the loss in monetary terms will not defeat an award of damages. A lost commercial advantage or opportunity is a compensable loss even where there is a less than 50 per cent likelihood that the commercial advantage will be realised. Damages are to be assessed by reference to the probabilities or possibilities of what would have happened; and

f where future or hypothetical events must be taken account of in assessing damages and proof of them is necessarily unattainable, the Court assesses the probability that an event would have occurred, or might occur, and adjusts its award of damages to reflect that probability.

See: Tabet v Gett (2010) 240 CLR 537 at 585; Wardley Australia Ltd v Western Australia (1992) 175 CLR 514; I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109; Gates v City Mutual Life Assurance Society Ltd (1986) 160 CLR 1; Sellars v Adelaide Petroleum NL (1992) 179 CLR 332 at 349-350; The Commonwealth of Australia v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 125; Malec v JC Hutton Pty Ltd (1990) 169 CLR 638 at 643; Daniels v Anderson (1995) 37 NSWLR 438 at 529.

CONSIDERATION

36 Contrary to the submission put by the plaintiff, this is not a case concerning a loss by the plaintiff of a commercial opportunity. On 1 June 2006 (immediately before exercising the options), the plaintiff had the opportunity to do as he wished. He lost no opportunity as a result of the defendants’ conduct. On his case, he suffered loss because he acted on their advice (or lack of it) in a particular way.

37 In Tabet v Gett (2010) 240 CLR 537 at 587 Kiefel J said, “[r]esort to the language of ‘chance’ cannot displace the analysis necessary for the determination of the issue of causation of damage”. The approach urged by the plaintiff would amount to that against which Kiefel J cautioned.

38 Moreover, the plaintiff put no submission as to what the value of the lost opportunity was beyond it being the amount he claims as the loss he suffered.

39 It follows that in order to prove loss, the onus is on him to establish on the balance of probabilities:

a what he would have decided to do if he had been told of the tax liability;

b that by acting on that decision he suffered loss, in this case, being that he would have avoided the harm (or some of the harm) he actually suffered.

cf: Rosenberg v Percival (2001) 205 CLR 434 at 449 [45].

40 The plaintiff also has the onus of establishing the extent of the loss or damage he suffered.

What would the plaintiff have decided to do?

41 Although at the trial Scenario 1 was promoted as the plaintiff’s primary position, this was pleaded for the first time by amendment made (over the defendants’ objection) to the plaintiff’s Commercial List Statement during the hearing.

42 The plaintiff puts that he would more probably than not have taken up Scenario 1 because, commercially, it was the most sensible and rational course. It would have enabled him to take advantage of the significant difference between the exercise price and the traded price of the shares, as well giving him the tax benefit of pre-paying interest on the margin loan, whilst at the same time conservatively protecting him against the tax liability. It is put that his seeking specialist tax advice at the beginning indicates financial conservatism. He had in addition at one point asked the defendants whether hedging costs such as put options (which would have protected him against downward movement in Primary shares) were tax deductible – although this inquiry was not taken any further because such options were not available.

43 The plaintiff’s present position reflects a significant change from that taken by him in his principal affidavit sworn more than a year earlier. In that affidavit his position was Scenario 2. In par 67 and par 68 the plaintiff said:

67. If I had been advised of that I would incur a significant tax liability upon the exercise of the options (and not the sale of the shares), I would not have exercised the options before 30 June 2006, nor would I have taken out the margin loan in order to fund the exercise . But in reliance upon the advice of Ms Pearce that there would be no tax liability, what I was looking to do at that time was to take out a margin loan in order to finance the exercise of the options, and then off set any interest payments on the margin loan against my income. This would result in a reduction of my overall tax liability and I could still keep the Primary shares. At that time, I did not intend to sell the Primary shares after the exercise of the options. I intended to retain the Primary shares for a significant period of time. I believed at that time that I was not in a position to sell the Primary shares as I believed I was in possession of confidential and commercially sensitive information on the Primary business that if publicly known might have affected the price of Primary shares in the market .
68. If I had been made aware of the tax consequences of exercising the options I could also have given consideration to exercising the option in relation to a much smaller parcel of shares. I could also have explored using a personal loan for this purpose, secured against the value of the number of shares in respect of which I exercised the option.
(emphasis added)

44 As to the margin loan, in par 60 he said:

60. I believed that a margin loan would enable me to borrow funds and use the shares as security, however, every time the interest on the margin loan fell due I could draw down the margin loan, up to the facility limit, to satisfy the interest payment. In addition, the dividend payments on the Primary shares would be sufficient to service the interest repayments on the margin loan. I was aware that if the value of primary shares fell a margin call would be made, however, I believed that I had sufficient other assets to borrow against and cash funds available to satisfy any margin call that the NAB may have made in the future. I would, therefore, be able to retain the shares.

45 At the hearing he gave evidence to different effect. Under cross-examination he said that he would have exercised the options. In re-examination the following evidence was elicited from him:

Q. If you had known about your tax liability, that is, the advice being given that you were liable for the difference between the exercised price and the market price you said you would have exercised the options but in what circumstances would you have exercised them?
A. I would have exercised the options and sold sufficient shares straight after to pay the tax.
Q. And why do you say you would have done that?
A. Looking back there is a whole heap of reasons why I would have done that and those reasons include things like you would have needed to cover your liability on the tax so you wouldn't have wanted to have an exposure to variation in the stock price when you have a fixed obligation in terms of the tax that arose when you exercised it. The other reason you would have done it is that the actual tax law gives you an incentive or gave me an incentive to exercise to sell the shares within 30 days after I had exercised the option so the incentive under the tax rules was to sell the shares to pay the tax within 30 days of the exercise of the option.

(emphasis added)

(Under s 139CC(3) of the Income Tax Act as it then stood a disposal of the shares within 30 days after exercise of the options would not have attracted capital gains tax).

46 In his second affidavit, the plaintiff had not taken the position that he would have exercised the options either, but in par 17 he said:

… [I]f I had received advice that there was a tax liability on the exercise of the share options I would have:

i. ensured that I had in place funds that would cover the tax liability; and

ii. ensure that I had enough liquidity to cover any possible margin calls under the margin loan.

47 Though the plaintiff now says that he would have acted under Scenario 1, it is an objective fact that despite his commercial nous, this is not the course which (even in hindsight) commended itself to him until well after his principal affidavit and years after the event. Indeed, when he was called no oral evidence in chief was led from him inconsistent with his principal affidavit. By the same token it is an objective fact that in August 2009 his sworn evidence was that he would not have exercised before 30 June 2006.

48 The plaintiff is intelligent, highly educated and commercially experienced. Yet he has in the clearest terms and solemnly under oath given two irresolvably inconsistent versions as to what he would have done.

49 Additionally, it is to be observed that the evidence in his principal affidavit that at the time he exercised the options he believed he was in possession of confidential and commercially sensitive information which put him in a position that he could not sell the shares, was undoubtedly intended to support Scenario 2. However, if he believed at that time that he could not sell, Scenario 1 could not have happened. Later, his evidence was that he came into possession of that information on 7 July 2006, five weeks after he exercised the options. It was put that his principal affidavit merely reflected a timing error. Even if this were so, the profound contradiction between his two positions remains.

50 In the face of all the foregoing considerations I reject the plaintiff’s direct testimony as to what he would have decided.

51 Accordingly, what he would have done falls to be determined on the objective evidence. In this regard it may be observed at the outset that it does not suffice for the plaintiff to establish that each of Scenario 1 and Scenario 2 has an equal degree of probability. He must establish what he would have decided, that is, that a particular one or other has a greater degree of likelihood of occurring than that which in fact occurred.

52 In Jones v Dunkel (1959) 101 CLR 298 at 305 Dixon CJ said:

But the law … does not authorise a court to choose between guesses, where the possibilities are not unlimited, on the ground that one guess seems more likely than another or the others. The facts proved must form a reasonable basis for a definite conclusion affirmatively drawn of the truth of which the tribunal of fact may reasonably be satisfied.

53 This is no less the case with the past hypothetical than it is with the past actual.

54 Scenario 1 reflects one commercially rational and sensible course which was open to the plaintiff. On the other hand, the tax liability was on any view, substantial and the plaintiff’s evidence revealed that Primary was at the time performing well. The price of Primary shares had risen steadily (with some small troughs) from around $3.00 in 2003 to around $11.00 in 2006. Faced with the prospect that the discount on exercise would be eroded by a tax liability of over $3 million, it would hardly have been irrational or lacking in sense for him to have decided not to exercise the options at that time. Indeed, this is the scenario for which he plumped in Scenario 2.

55 Assuming that he had decided to exercise the options, it would also by no means have been irrational or lacking in sense for him not to have sold any shares immediately, but rather to hold them until he had to pay the tax liability some nine months later, deriving in the meantime the dividends declared on the shares and although taking the risk that the share price might fall, also having the prospect that the price might rise and ameliorate the liability for capital gains tax on ultimate disposal. It is to be remembered that on his latest evidence he only obtained confidential information on 7 July 2006 and there is no suggestion that he had any inkling that it was coming. Added to this is his evidence (although given to support Scenario 2) that he intended to hold the shares (meaning all the shares) for a significant period of time and that he was willing to take the risk of a margin call because he had sufficient other assets to borrow against and cash assets to satisfy any margin call.

56 In my view, neither Scenario 1 nor Scenario 2 is any more likely than the other and neither is more likely than Scenario 3.

57 The consequence is that the plaintiff has failed prove to the general standard of proof that he would not have acted as he in fact did. His case accordingly fails.

58 His case also fails for the further reasons which appear below.

Inhibition on sale

59 Upon entry into of the transactions on 1 June 2006, the plaintiff was not in negative financial territory, even taking into account the tax liability to the extent of $3,198,150 on the basis of $11.40 per share and that position prevailed for some time.

60 If the plaintiff had exercised the options and sold all the shares in October/November 2006 and repaid the margin loan in full, provided he received a proportionate refund of interest which had been pre-paid in June 2006, he would have been better off by $17,246. The defendants’ expert considered that such a credit would be typically allowed, but that there may well be some break charges. However, the experts did not have sufficient information with respect to the plaintiff’s particular margin loan.

61 If he had immediately sold sufficient shares so as to be able to pay the tax liability when it fell due, calculated as at 31 March 2008 and taking into account after tax income on the cash invested from the sale, he would have made a gain of $31,172.

62 If in April 2007 he had sold enough shares to pay the tax liability, calculated as at 31 March 2008, he would have been in a net gain position of $121,129.

63 On 17 September 2007 when he contacted Mr Gardiner enquiring about selling approximately 300,000 shares to pay the tax liability, the Primary share price was $12.02 (well above $11.40 – the price at the time he exercised the options). In early 2008 the share price first fell below the exercise price of the options.

64 Hence, but for his decision not to sell sufficient shares to pay the tax liability, the plaintiff would have suffered no loss.

65 The plaintiff says that he did not sell because of an insider-trading problem. He no doubt had in mind the provisions of Div 3 of Pt 7.10 of Ch 7 of the Corporations Act 2001 (Cth) under which he would have been guilty of an offence if, when he had sold, he was in possession of information not generally available, which, if it were generally available, a reasonable person would expect it to have a material effect on the price of Primary shares.

66 The defendants put that the inhibition or perceived inhibition on selling was an intervening event unconnected with them such that even if it were actually present or the plaintiff on reasonable grounds believed it was, their conduct played no part in causing his loss.

67 I do not accept this submission. On the hypothesis that the plaintiff had established either Scenario 1 or Scenario 2, it seems to me that if the plaintiff was in fact inhibited from selling or held a reasonable belief that he was, their conduct would still have played a part in causing the plaintiff’s loss or damage even though the inhibition did not result from anything done by them. This is because, on this hypothesis, but for the defendants’ conduct, the plaintiff would either have sold sufficient shares to meet his tax liability or would not have exercised the options whereas in fact he found himself not being able to sell when he became aware of the tax liability.

68 However, for the plaintiff to establish that the defendants’ conduct played a part in causing his loss, he must establish on the probabilities that he was in fact inhibited from selling or held a reasonable belief that he was. The plaintiff did not put anything to the contrary.

69 In his second affidavit, the plaintiff sought to prove the existence of the inhibition by evidence, set out in table form of “the general nature of the information of which I was aware and that [sic] dates about which I was aware of that information”. The table gave no precise dates and referred in conclusionary form to acts of others and events without any supporting material. Objection to the material was properly taken and I rejected it. In an attempt to cure this difficulty the plaintiff sought to read an affidavit which had been sworn on 5 November 2010 (no doubt in anticipation of the objection) to which was attached a bundle of documents. This affidavit was first provided to the defendants on the morning of the trial. The plaintiff took the position that documents were confidential and required confidentiality undertakings before disclosing their contents. The documents were made available to the defendants’ counsel overnight. The defendants objected to the admission of the material on the basis that it was late and they were not in a position fairly to deal with it. Neither party suggested an adjournment was appropriate. I upheld the defendants’ objection.

70 The plaintiff’s evidence fell well short of identifying confidential information in his hands which would, had it been generally available have materially affected the price of Primary shares. His evidence also did not establish that his view was reasonably based. His evidence on the subject was somewhat unsatisfactory. On the one hand he said his father (who was the Managing Director of Primary) suggested that he speak to Mr Gardiner to see whether he could get dispensation to sell the shares. On the other hand he said he knew from a much earlier date that he “couldn’t be trading the shares” and also said that he “saw that I had an issue”. His evidence did not identify the basis for a reasonable belief that the information was confidential or material. His evidence established little more than that there was some potential or impending transaction involving a takeover of Symbion and that Mr Gardiner took the view that he should rather go bust than sell.

71 The defendants put that an inference could be drawn that there was no inhibition because during the period of the plaintiff’s asserted inability, shares in Primary were sold by Mr Andrew Duff (Chief Financial Officer and Company Secretary of Primary) and by the plaintiff’s father. They also put that there was no evidence that the plaintiff took legal advice on the question. I attach no weight to the evidence concerning other sales. Neither Mr Duff’s motivations nor those of the plaintiff’s father are known. The presence of legal advice may have assisted the plaintiff in proving that his belief was reasonable but its absence does not on its own prove the contrary.

72 Either way, the plaintiff failed to establish either actual existence of a legal impediment to selling or that his belief that there was one was reasonably based.

73 It follows that even if the plaintiff had established Scenario 1 or Scenario 2, he has failed to establish that the defendants’ conduct was a cause of his loss.

Quantum

74 There was agreement between the experts that had the plaintiff succeeded under Scenario 1, his loss is $2,300,520 derived as earlier set out.

75 As to Scenario 2, I do not accept the defendants’ submission that the plaintiff is necessarily better off by having exercised in 2006 than he would have been under Scenario 2. This is because when he exercised, he knew neither of the tax liability nor of the impending insider trading difficulty (on the hypothesis that there was one) and there is no rational basis for regarding him as having been required under Scenario 2 to exercise the options at any particular time, or at all.

76 However, the plaintiff did not establish the quantum of his loss under Scenario 2. I do not accept the plaintiff’s submission that his loss is the same as under Scenario 1. The positions are different. Whilst his negative cash position is the same as under Scenario 1, under Scenario 2, he would now still have the options. Although they would not presently be in the money, the options would have an intrinsic value which would still be in his hands and of which account would have to be taken. The intrinsic value of the options was referred to by the defendants’ expert who stated that valuing this aspect of the options was beyond his expertise. The issue was raised during submissions, however, the plaintiff did not lead any evidence of this value, or any evidence providing a foundation for an assessment of this value or as to how one goes about determining it. There is an absence of raw material to which good sense may be applied, and justice does not dictate that a figure should be plucked out of the air: Troulis v Vamvoukakis [1998] NSWCA 237 at 27 per Gleeson CJ.

77 The fact that quantum under Scenario 1 would necessarily differ from that under Scenario 2 further demonstrates the necessity for the plaintiff to have established that a particular one was more likely.

CONCLUSION

78 The plaintiff’s claim is dismissed. I will hear the parties on costs.

79 The exhibits are to be returned.

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06/12/2010 - grammatical errors - Paragraph(s) 71 and 76