Health & Life Care Limited (in Liquidation) v Price Waterhouse & Ors No. Scgrg-93-289 Judgment No. 6240 Number of Pages 19 Procedure

[1997] SASC 6240

IN THE SUPREME COURT OF SOUTH AUSTRALIA

OLSSON, J

Procedure - Supreme Court procedure - South Australia - practice under rules of court: - application for leave to amend a statement of claim asserting professional negligence on part of the defendant in relation to the purchase of shares by plaintiff assets substantially less valuable than consideration paid for them - consideration for purchase partly in cash and partly by issue of shares in plaintiff company - manner in which quantum of damages for loss to be assessed where shares issued as part consideration whether pleading as to loss of capital arguable - whether pleading of loss of opportunity or so-called Hungerfords claim arguable - effect of issue of shares as consideration discussed. Jeffcott Holdings Limited (in liquidation) v Swiss Partners Pty Ltd and Others (Judge Burley, 17 February 1997, unreported), not followed. Wardley Australia Limited and Another v The State of Western Australia (1992) 173 CLR 514; Ord Forrest Pty Ltd v The Commissioner of Taxation of the Commonwealth of Australia (1973-1974) 130 CLR
124; Craddock (H.M. Inspector of Taxes) v Zevo Finance Co Ltd (1946) 27 TC
267; Banco de Portugal v Waterlow and Sons Limited [1932] AC 452; re Scandanavian Bank Group Plc [1988] Ch 87; Lee Neuchatel Asphalte Company
(1889) XLI Ch D 1; Scott Group Ltd v McFarlane (1978)1 NZLR 553; APT Limited v BDO Binder Hamlyn (May J (QBD), 16 December 1995, unreported); In re Wragg Limited [1987] 1 Ch 796; Takeovers, Share Exchanges and the Meaning of Loss
(1996) 112 LQR 424; Gemstone Corporation of Australia Ltd v Grasso (1994) 62 SASR 239; Archibald Howie Pty Ltd & Ors v Commissioner of Stamp Duties (New South Wales) (1948) 77 CLR 143; Segenhoe Limited v Akins & Ors (1990) 1 ACSR 691; Esanda Finance Corporation Ltd v Peat Marwick Hungerfords (1997) 23 ACSR 1; Sellars v Adelaide Petroleum NL and Others (1994)179 CLR 352; The Commissioner of Taxation of the Commonwealth of Australia v St Helens Farm (A CT) Proprietary Limited (1980-1981) 146 CLR 337; In re VGM Holdings Limited [1942] 1 Ch 235; Lowry v Consolidated African Selection Trust, Limited [1940] AC 648; Allina Pty Ltd v Commissioner of Taxation (1991) 28 FCR 203; BTR Nylex Ltd v Churchill International Inc (1992) 9 ASCR 361; In the Marriage of Wilson
(1993) 114 FLR 439; Australian Securities Commission v Burns and Others (No. 2) (1994) 51 FCR 496; Poseidon Ltd and Others v Adelaide Petroleum NL and Others (1991) 105 ALR 25; Strategic Minerals Corporation NL v Hendry Rae and Court (1996) 14 ACLC 485; Osborne v Steel Barrel Co Ltd (1942) 1 All ER 634; Price Higgins and Fidge v Drysdale (1996) 1 VR 346; Kyogle Shire Council v Francis [1988] Aust Torts Reports 80-182; Avenhouse and Another v Council of Shire of Hornsby [1995] Aust Torts Reports 81-351; State Bank of South Australia v Peat Marwick Mitchell & Co (Olsson J,15 May 1997 (Judt 6129 unreported, available in SCALEplus); Malec v JC Hutton Proprietary Limited
(1990)169 CLR 638; Hungerfords v Walker (1989) 171 CLR 126, considered.

ADELAIDE, 22-23 May, 3, 11 and 17 June 1997 (hearing), 7 July 1997 (decision)

#DATE 7:9:1997

#ADD 22:7:1997

Appearances:

Applicant:

Counsel: Mr T Gray QC with Mr P Mcnamara, Mr M Rice and Mr J Warde

Solicitors: Johnson Winter & Slattery

Respondent:

Counsel: Mr J Karkar QC with Mr A Besanko QC And Mr I Robertson

Solicitors: Kelly & Co

Order: application for leave to amend in relation to paragraph 17.5 refused. Amendments to paragraph 17.8 and by insertion of paragraph 17.8A in their present proposed forms allowed.

OLSSON J

On 21 March 1997 I expressed ex tempore reasons for conclusions to which I then came, in respect of an application made by the plaintiff to amend its statement of claim in various respects.

Three specific amendments sought to be made were objected to by the first defendant, essentially upon the footing that they sought to plead bases of claim which, on the face of them, were said to be patently untenable.

In the event, on the submissions which had then been addressed to me, I upheld one such objection, but considered that the substance of the other two proposed amendments raised issues which appeared at least arguable. However, I pointed out to counsel for the plaintiff that, nevertheless , the arguments against the precise forms of amendment sought to be made were powerful. I suggested that further attention might usefully be given to the form of the proposed pleading, in order to meet those contentions.

The plaintiff now seeks leave to amend in a revised format, which is set out in documents which form Annexures A to C inclusive to the plaintiff's outline of submissions. These have been the subject of detailed and careful analysis and argument by counsel for the parties.

In these proceedings the plaintiff, inter alia, claims damages from the first defendant, a firm of accountants and auditors, for alleged breaches of duty in relation to a transaction whereby the plaintiff entered into an agreement, dated 23 March 1987, to purchase the assets of an entity referred to as the "Consolidated Health Care Group" ("CHC") for a total consideration of $118m. That consideration was said to have been satisfied, in part, by the issue by the plaintiff, to the nominees of the vendors, of a large number of shares in the capital of the plaintiff, at an allotment value of $1.20 per share.

Distilled to the most simplistic terms, it is the case of the plaintiff that it retained the first defendant to investigate the proposed acquisition of CHC and advise on various aspects of the proposed transaction; and that it did not do so with reasonable skill, diligence, competence and care. It is asserted that the actual value of CHC was very much less than the consideration paid for it and that, as a consequence, the plaintiff suffered very substantial losses.

The proposed amendments currently in contention seek to bear on the issue of quantum of damages.

The first such amendment proposes to insert a plea in these terms - "17.5 The Plaintiff's initial capital loss is the difference between:

(a) the price paid for the New Assets (including consideration paid by way of the issue of shares at a price of $1.20 per share) calculated as set out in Appendix A - $118,790,710; and

(b) the value of the New Assets on 18 June 1987 - $59,400,000, alternatively $63,500,000.

Thus the Plaintiff's initial capital loss is the difference between (a) and (b), namely $59,390,710 or alternatively, $55,290,710." The second, omitting some of the particulars set forth in it, sets out to plead as follows - "17.8 The plaintiff claims damages for loss of use of funds, being the market price of the shares in the plaintiff issued as the non-cash component of the purchase price paid for the New Assets, that is to say, 38,908,333 shares, the market price of which was $1.20 each at the date of formation of the Agreement, for the period from 18 June 1987 to date.

PARTICULARS

17.8.1 By reason of purchasing the New Assets, the plaintiff was deprived:

(i) of the opportunity to allot the said 38,908,333 shares at $1.20 each in return for cash for the purpose of purchasing other assets to the value of those shares, namely $46,689,999 ("the allotment moneys").

(ii) of the opportunity to allot the said 38,908,3334 shares at $1.20 each in return for income-producing assets in the health care industry.

(iii) of the use of the allotment moneys or income generating assets to the value of the allotment moneys.

17.8.2 If the plaintiff had not purchased the New Assets, it could have and would have allotted all or part of the said 38,908,333 shares in return for other income-producing assets in the health care industry or in return for the allotment moneys and could have and would have used the allotment moneys to purchase other income-producing assets in the health care industry and would have made a profit on such assets or, in the alternative, would have invested the allotment moneys and earned interest and compound interest on the same." The lastmentioned desired amendment is to be considered in concert with the application for leave to insert a new paragraph 17.8A, which is of some considerable length. Omitting the detailed particulars in it, the core of the proposed addendum is couched in these terms - "17.8A.1 The first defendant's breaches of the duties referred to in paragraphs 11, 12 and 14, as hereinbefore set out, caused the loss and damage referred to in paragraph 17.8 naturally and directly and in the ordinary course of things, of which the first defendant had imputed knowledge at the date of formation of the Retainer.

17.8A.2 In the alternative, it was at all material times in the contemplation of the parties, and the first defendant did or should have foreseen at the date of formation of the Retainer, that if the first defendant breached the duties referred to in paragraphs 11, 12 and 14, the plaintiff would suffer the loss and damage referred to in paragraph 17.8 as probable or likely result of those breaches.

17.8A.3 Further and in the alternative, the first defendant should reasonably have foreseen the loss and damage referred to in paragraph 17.8 as a probable or likely result of those breaches." I first turn to the attempt to recast paragraph 17.5.

When the matter was before me on 21 March 1997, I held that, in the form in which the amendment was then propounded, it constituted a primary plea of lost opportunity, in relation to which an issue arose as to whether it was encumbent on the plaintiff, expressly, to plead what action it would have taken, absent the loss of the relevant opportunity.

In its recast form this amendment is clearly intended to constitute a primary plea of loss of capital, by virtue of the transaction actually entered into by the plaintiff.

By way of contrast, the revision of paragraph 17.8, when read in conjunction with the addition of the proposed new paragraph 17.8A, propounds what is expressed to be a quite separate, cumulative and differently based claim of the nature of either a loss of opportunity claim or, alternatively, a so-called "Hungerford's claim". It focuses on questions of damages for loss of opportunity to invest in other entities at a profit at the relevant time or, alternatively, loss of use of money which might otherwise have been raised on an allotment for cash.

I took it to be the original contention of Mr Karkar QC, of senior counsel for the first defendant, that both pleas were, in their currently proposed form, manifestly bad in law and unsustainable. Accordingly, he said, they ought not to be allowed. However, I took him, later, to resile from that absolute stance, at least to some degree.

Mr Karkar QC submits that the Achilles' Heel of the desired amendment to paragraph 17.5 is that it seeks to equate the allotment of shares as payment, by the allotting company, of money or money's worth - a proposition which, he says, is patently untenable. In this regard he refers to the statement in the outline proffered by Mr Gray QC, of senior counsel for the plaintiff, to the effect that -

"... The plaintiff's case is and always has been, that the portion of consideration passing, which was made up of shares, constituted the equivalent of cash or involved detriment equivalent to the spending of cash." This, undoubtedly, is the proposition which the plaintiff does seek to advance, asserting that loss said to have been sustained by it falls to be computed on the basis of subtracting the actual value of the CHC assets acquired from the total of cash consideration and expenses paid and liabilities acquired, plus the value of the shares allotted at $1.20 per share.

In this regard Mr Gray QC invited attention to what was said by the majority of the High Court in Wardley Australia Limited and Another v The State of Western Australia (1992) 173 CLR 514 at 530 ("Wardley") as exemplifying the basis of the plaintiff's claim as to capital loss; i.e., in the case of negligence which results in a plaintiff entering into a contract to purchase property, the plaintiff's loss, apart from any question of consequential damage, "is measured by the difference between the price paid or payable under the contract and the value of the property at the date of the contract" -

"It will be noticed that, even in such a case, Dixon J spoke in Potts v Miller (1940) 64 CLR 282 at 297-299 (an action in deceit) of the measure of damages consisting in 'the loss or expenditure incurred by the plaintiff in consequence of the inducement upon which he relied, diminished by any corresponding advantage in money or money's worth obtained by him on the other side'. It is that amount that, in such a case, represents 'the prejudice or disadvantage' the plaintiff 'has suffered in consequence of his altering his position under the inducement of the fraudulent misrepresentations made by the defendant' (Toteff v Antonas (1952) 87 CLR 647 at 650), subject to any consequential damage."

Reference was also made to the pronouncement of Brennan J (as he then was) in Wardley at p 536 to the following effect -

"A plaintiff may suffer economic loss or damage in a number of ways: by payment of money, by transfer of property, by diminution in the value of an asset or by the incurring of a liability. Whether loss or damage is actually suffered when any of those events occurs depends on the value of the benefit, if any, acquired by the plaintiff by paying the money, transferring the property, having the value of the asset diminished or incurring the liability. If the plaintiff acquires no benefit, the loss or damage is suffered when the event occurs. At that time, the plaintiff's net worth is reduced. And that is so even if the quantification of that loss or damage is not then ascertainable. But if a benefit is acquired by the plaintiff, it may not be possible to ascertain whether loss or damage has been suffered at the time when the burden is borne - that is, at the time of the payment, the transfer, the diminution in value of the asset or the incurring of the liability. A transaction in which there are benefits and burdens results in loss or damage only if an adverse balance is struck. If the balance cannot be struck until certain events occur, no loss is suffered until those events occur (see Swingcastle Ltd v Gibson [1990] 1 WLR 1223 at 1236)." The fundamental argument advanced by Mr Karkar QC was to the effect that the relevant Australian authorities establish the proposition that, in allotting the shares in question to CHC nominees, the plaintiff simply did not part with or lose any asset or other thing of value belonging to it. Thus the basis of liability adverted to in Wardley was not, he contended, established on the pleadings.

To make good that proposition he embarked on an analysis of what, he submitted, were the applicable authorities, commencing with Ord Forrest Pty Ltd v The Commissioner of Taxation of the Commonwealth of Australia (1973-1974) 130 CLR 124 ("Ord Forrest").

In that case a question arose as to whether the allotment of shares in a company having substantial assets and a very small issued capital constituted a gift to the allottees, thereby attracting a liability for gift duty.

The High Court held that the allotment of shares by the company in no sense constituted a transfer or alienation of its property. In allotting shares a company does not sell or transfer them; and does not transfer or convey any of its property to the allottee. The effect of a concluded allotment of shares does, however, vest in the allottee rights which are, themselves, when created, valuable property in the hands of that person.

A shareholder does not, however, acquire any direct property in the assets of the issuing company. The whole concept involves the notion that a share, when allotted, does not pass any property from the relevant company. Before allotment it does not exist as any form of property; it is only when allotted and issued that any rights conferred by it are created. It is at that point, for the first time, that a chose in action - an asset bearing the character of a proprietary right - is first vested in the shareholder.

Mr Karkar QC pointed out that it was reiterated by Barwick CJ in The Commissioner of Taxation of the Commonwealth of Australia v St Helens Farm (ACT) Proprietary Limited (1980-1981) 146 CLR 337 ("St Helens Farm"), that a shareholder/allottee acquires no property from, or by transfer from, the allotting company. The property consists of rights which may be exercised, after allotment and actual issue, by virtue of membership of the company.

In both of those cases the High Court adopted the reasoning expressed by the Court of Appeal in In re VGM Holdings Limited [1942] 1 Ch 235 at 241, in which Lord Greene MR made the point that "the difference between the issue of a share to a subscriber and the purchase of a share from an existing shareholder is the difference between the creation and the transfer of a chose in action".

That case actually derived its genesis from the earlier decision of the House of Lords in Lowry v Consolidated African Selection Trust, Limited [1940] AC 648 ("Lowry") in which Viscount Caldecote reasoned -

"... Its capital was intact after the issue of the shares: not a penny was in fact disbursed or expended. Its trading receipts were not diminished, nor do I think it is a right view of the facts to say that the respondent gave away money's worth to its own pecuniary detriment." In the same case Viscount Maugham commented that the issue of shares by a limited company "is not a trading transaction at all".

That concept, which is based on the reasoning that a disposition of property connotes a transfer or disposition of something to somebody which was in existence before it was disposed of (Allina Pty Ltd v Commissioner of Taxation (1991) 28 FCR 203 at 211), has been accepted in the Australian setting, ever since the decision in Ord Forrest. (See, for example, BTR Nylex Ltd v Churchill International Inc (1992) 9 ACSR 361, In the Marriage of Wilson
(1993) 114 FLR 439, Australian Securities Commission v Burns and Others (No. 2) (1994) 51 FCR 496 and Adelaide Petroleum NL and Others v Poseidon Ltd and Others (1990) 98 ALR 431 ("Adelaide Petroleum").)

The decision of French J in Adelaide Petroleum is said to be of particular interest for present purposes, because it focused on the proposed acquisition (by allotment) by one company of shares in another - as portion of a somewhat complex commercial agreement involving three companies. French J dealt with the relevant factual situation before him in these terms -

"ADP's losses were calculated on the assumption that it was to have a rights issue or placement of not less than 17,296,011 shares at 30 cents or 20,000,000 shares at 25 cents. The lesser alternative would have yielded $4,877,475 after brokerage. Assuming an issued value of six cents in April 1989 when the ADP shares were selling at seven cents, the proceeds of the placement would have been $875,494. Thus, ADP was said to have suffered a capital loss of $4,001,981, being the difference between $4,877,475 and $875,494. The associated loss of revenue from 26 April 1989 to 31 July 1989 was said to be $191,136. This element of the calculation was attacked by senior counsel for the respondents on the basis that it was not a loss of capital. The funds raised under any placement would have been shareholders' funds and the most that could be said was that ADP would have lost the use of that money over the relevant period. When it was put to Gorey that the true loss was simply the loss of the use of the money, he agreed. In my opinion, the criticism is well founded and only the revenue element of this loss should be included in the calculations." It is to be noted that, on appeal to the Full Court of the Federal Court, this reasoning was upheld (Poseidon Ltd and Another v Adelaide Petroleum NL and Another (1991) 105 ALR 25). At page 42 of the report Burchett J said -

"The principal point raised in the argument on the cross-appeal was the proposition that Adelaide was deprived of some $4 million of capital which would have been raised pursuant to the proposed Pagini agreement, had it proceeded. His Honour declined to allow this capital sum, taking the view that the loss was a loss of revenue which might have been obtained by the use of the money, and not a loss of the capital. In my opinion, his Honour's approach was right. There was no evidence that the capital sum was irrevocably lost. It remained open to the company to make a share issue. I do not accept that the share price, at some arbitrary date in the future, can be selected in order to enable a calculation to be made of how much less capital could be raised at that date, by an issue of the same number of shares as would have been issued pursuant to the Pagini agreement had it been concluded."

(See also Lee J at p 51). The same reasoning was adopted by Scott J in Strategic Minerals Corporation NL v Hendry Rae and Court (1996) 14 ACLC 485 at 501 ("Strategic Minerals"). He expressed the principle as under -

"As I understand their Honours' reasoning in this case, the issue of unallotted share capital by way of acquisition of assets does not represent a loss to the company. The plaintiff in the present case released for issue 8,900,000 unallotted shares in consideration of what the plaintiff pleads to be worthless assets. The effect of that was, of course, to dilute the asset backing of the shareholders as existing prior to the transaction so that in theory the value of the shares was diminished to that extent. However, I agree with their Honours in Poseidon that the issue of such unallotted shares does not of itself represent a loss to the company." So it was, Mr Karkar QC argued, if the assets given as consideration for an allotment of shares proved of little value, then any resultant loss was that of the other shareholders and not that of the Company - which, if it so desired, could issue further new shares if it desired to do so. Thus any right of action to recover loss, if the loss was occasioned by a tortious act, was vested only in those shareholders the value of whose holdings had been diluted by the relevant wrongful act.

In proffering such submissions, Mr Karkar QC conceded that there were two English decisions (relied upon by Mr Gray QC) which might, at first sight, be seen to propound a contrary approach. These are Osborne v Steel Barrel Co Ltd
(1942) 1 All ER 634 ("Osborne") and Craddock (H.M. Inspector of Taxes) v Zevo Finance Co Ltd (1946) 27 TC 267 ("Craddock").

The former case related to a situation in which a company acquired steel for its new business, for which it paid 10,000 pounds sterling in cash and issued fully paid shares of a par value of 30,000 pounds sterling to the vendor of the stock. It was held that, for taxation purposes, the proper opening figure for the value of the stock was 40,000 pounds sterling.

Although the Crown relied on the principle discussed in Lowry, Lord Greene MR (speaking for the Court of Appeal) had this to say -

"In our opinion, what had to be found in the present case was the price paid for the stock. Since this price was cash plus shares, it is necessary in the first instance to ascertain what payment in cash was represented by the issue of the fully paid shares. In our opinion, on the facts of the present case, it must be taken as a sum of cash equal to the par value of the shares. It would have been illegal for the appellant company to issue the shares at a discount, and there is no ground for suggesting that this was done. Accordingly, we must proceed upon the basis that the various benefits obtained by the appellant company under the Agreement of Oct. 15, 1932, were together of a value at least equal to the nominal amount of the shares which it issued to Hood Barrs. We have already pointed out that it was at this value that the benefits in question were entered in the earlier balance sheets, and the special commissioners were strictly accurate in saying, as they did in para. 16 of the case, that the appellant company "paid 29,997 [pounds sterling] in the form of shares for a variety of considerations including the assignment of the benefit of Mr. Hood Barr's agreement with the receiver." The company therefore paid for these considerations 29,997 [pounds sterling] and for the assets acquired from the receiver 10,300, [pounds sterling] or in all 40,497 [pounds sterling], and, since the shares must be treated as not having been issued at a discount, the aggregate value of these considerations and assets must be taken to have amounted at the least to that sum." In the course of his reasons Lord Greene eschewed the application of Lowry on this basis -

"It was strenuously argued on behalf of the Crown that, if a company acquires stock in consideration of the issue of fully-paid shares to the vendor, that stock must, for the purpose of ascertaining the company's profits, be treated as having been acquired for nothing, with the result that, when it comes to be sold, the Revenue is entitled to treat the whole of the purchase price obtained on the sale as a profit. This is a remarkable contention, and it would require conclusive authority before we could accept it. The cases relied on in its support were Inland Revenue Comrs. V Blott and Lowry v Consolidated African Selection Trust Ltd, neither of which, in our view, has any bearing on the point. The argument really rests on a misconception as to what happens when a company issues shares credited as fully paid for a consideration other than cash. The primary liability of an allottee of shares is to pay for them in cash; but, when shares are allotted credited as fully paid, this primary liability is satisfied by a consideration other than cash passing from the allottee. A company, therefore, when, in pursuance of such a transaction, it agrees to credit the shares as fully paid, is giving up what it would otherwise have had - namely, the right to call on the allottee for payment of the par value in cash. A company cannot issue 1,000 [pounds sterling] nominal worth of shares for stock of the market value of 500 [pounds sterling] since shares cannot be issued at a discount. Accordingly, when fully-paid shares are properly issued for a consideration other than cash, the consideration moving from the company must be at the least equal in value to the par value of the shares and must be based on an honest estimate by the directors of the value of the assets acquired." Craddock was also a tax case in which stock in trade was purchased for a consideration which was partly satisfied by the issue of shares in the purchaser company, credited as fully paid. An issue arose as to how the stock purchased ought to be treated in the relevant accounts, as to its cost. The Court of Appeal held that (the transaction being bona fide) the value to be assigned was that attributed by the parties to the shares as part satisfaction of the agreed consideration. The House of Lords upheld that conclusion.

Mr Karkar QC argued that these cases should not be viewed as being at odds with the principle stemming from Lowry; and consistently applied by the Australian courts. The issue addressed in them, he said, was simply at what value the value of stock in trade purchased ought to be taken into account for taxation purposes. That question fell to be answered by reference to the value assigned by the parties themselves (assuming that the relevant agreement for purchase was not a device or sham), being any cash consideration received plus the value of the shares issued, in the hands of the allottee/purchaser.

I consider that he is correct when he says that Osborne and Craddock are not inconsistent with the reasoning in Lowry and the authorities flowing from it; and I do not take Lord Greene to have intended otherwise. It seems to me that the two cases stand as authority for the proposition that, whilst it remains true that, in allotting shares to a vendor in payment for an asset acquired, a company does not give up or transfer any property belonging to it to the vendor, nevertheless, for accounting and tax purposes, that is not to say that the asset acquired is to be shown as having no value in the books of the purchaser company. On the contrary, the value should be shown in the accounts at that which, bona fide, is attributed by the parties to it. If it is resold, the profit achieved will be taken to be the resale price, less the original value. This is because, in allotting the relevant shares, the Company waives its right to receive the par value in cash and accepts other consideration, at the agreed value, in lieu.

In seeking to meet the submissions advanced by Mr Karkar QC, Mr Gray QC drew attention to reasons for decision published in Jeffcott Holdings Limited (in liquidation) v Swiss Partners Pty Ltd and Others (Judge Burley, 17 February 1997, unreported) ("Jeffcott"), in which, on a strike out application, the learned Master held that it was at least arguable that the loss allegedly sustained by the plaintiff in that case was to be measured by reference to the difference between the value of shares issued by Magnacrete and the value of the shares in JIL obtained by that company. He came to that conclusion on the basis that it was at least arguable that the dictum of Scott J in Strategic Minerals rested only on an obiter dictum of one judge in Adelaide Petroleum, which had not been adopted by the whole Court.

No reference was made to the earlier authorities above adverted to. It seems questionable whether the attention of the learned Master was invited to them. I, therefore, consider that Jeffcott does not really assist in the resolution of the present problem.

In developing his argument Mr Gray QC stressed that the line of authorities principally relied upon by Mr Karkar QC were, in the main, cases which focused on revenue issues. He contended that the rationale of them was simply not logically applicable to commercial causes and damages cases. He submitted that, as was indicated by Lord Greene in Osborne, a quite different logic was necessarily attracted by the latter types of case. He sought to develop that theme by reference to certain other authorities, in several different ways.

First, he directed attention to what fell from their Lordships in Banco de Portugal v Waterlow and Sons, Limited [1932] AC 452 ("Banco de Portugal"). That was a claim based on breach of contract, in relation to the unlawful printing of Portuguese bank notes, which were illicitly put into circulation. The Bank, which had an exclusive licence to issue bank notes as legal tender in Portugal, was constrained to recall all bank notes of the relevant type, good or illicit, and issue fresh notes to an equivalent face value. It was argued that the loss to the Bank was limited to the cost of printing and paper in regard to the new issue.

In the course of their speeches their Lordships drew a distinction between the situation of originally unissued notes which are lost (e.g., by a fire negligently lit) - which would merely be a collection of paper bills of no greater value than blank cheque forms - and issued bills which attract an obligation to honour them at the face value expressed in them. As Lord Atkin said, the measure of damages in the latter scenario is market value, "which, in the case of an obligation to pay currency, is face value".

Mr Gray QC sought to draw an analogy between that situation and the situation here in contemplation, because, he said, the bank notes issued in Banco de Portugal and the shares allotted in the instant case both became choses in action on issue. Thus, he sought to argue, the measure of damages is the value of the shares at the time the plaintiff parted with them, just as the value of the new bank notes was their face value.

The riposte of Mr Karkar QC to that suggestion was that the analogy sought to be drawn was inappropriate. All that their Lordships said in Banco de Portugal was that - to use Mr Karkar's words - "when you give good cash in return for bad cash, you suffer loss". This is because you are accepting a monetary obligation, for which no valuable consideration is given in return. In this regard Mr Karkar QC drew attention to what fell from Lord Atkin at p 491 where he commented -

"By issuing a note the Bank provide the holder of it with a piece of currency which he can bring to the Bank the next day and compel the Bank to receive in discharge of his overdraft or in payment under a contract to buy securities or bullion. By issuing 100 million escudos in notes they provide the public with the means of coming to the Bank and depriving it of 100 millions' worth of assets in debts, securities and gold."

By way of contrast, Mr Karkar QC said, when a company allots new shares, it does not become subject to any monetary obligation at all. It parts with nothing and is not a debtor to its own share capital (Re Scandinavian Bank Group Plc [1988] Ch 87 at 106; Lee v Neuchatel Asphalte Company (1889) XLI ChD
1 at 23) ("Lee"). The only practical effect and deficit is a dilution of the value of other, pre-existing, shareholdings. Thus, any loss is that of the other shareholders and not that of the allotting company itself. In my view that argument is unanswerable, so far as it extends in relation to the concept of the Banco de Portugal case.

Mr Gray QC further directed attention to a dictum of Cooke J (as he then was) in Scott Group Ltd v McFarlane (1978) 1 NZLR 553 at 589 ("Scott Group"). This was a professional negligence claim against an auditor in relation to a clear error in the consolidation of accounts of a holding company and its subsidiaries, in the context of a takeover bid for the holding company. In holding that the auditors were not, in the relevant circumstances, liable for damages, Cooke J (who was one of the majority of the Court of Appeal) commented -

"... what has to be compared, in my opinion, is on the one hand, the value of the Scott shares issued as consideration and, on the other, the value to the Scott Company of the Duthie shares (representing the control of assets) immediately after the takeover ..." Woodhouse J reasoned to a similar effect.

Because the value of the controlled assets significantly exceeded that of the shares issued, it was held that no damage had been sustained by the plaintiff, notwithstanding the error in the accounts.

There does not appear to have been any detailed debate, in that case, of the issues ventilated in the instant case.

Mr Gray QC also referred to ADT Limited v BDO Binder Hamlyn (May J (QBD), 16 December 1995, unreported).

This was a claim against auditors for certifying accounts that did not show a true and fair view of the state of affairs of a company which was a takeover target. The claim was based on the difference in price paid and what was said to have been the true worth. The takeover was implemented on the basis of the issue by the takeover company of 69 new shares for every 100 target company shares acquired.

The practical effect was to give the acceptors of the offer 1.37 pounds sterling for each share, when their true worth was much less than that. In the result, shares worth 105m pounds sterling were issued for shares which, effectively, were only worth about 40 pounds sterling. Judgment was given in favour of the plaintiff for 65m pounds sterling.

It is fair comment to say that the issue debated before me was also simply not ventilated before May J. However, he took the view that the appropriate commencement point was to look to the respective market values of the shares exchanged to determine the commercial end result of the transaction. The vendors received shares from the purchaser company which were worth 105m pounds sterling, for which the purchaser received assets, in the form of the shares exchanged, which, in reality, were only worth 40m pounds sterling.

Mr Gray argued that this, like the reasoning in Scott Group, was the same commercial reality approach as that adopted by Lord Greene in Osborne; and that it was a ludicrous proposition to seek to contend that a company which had satisfied an agreed consideration by the issue of shares with a significant market value had lost nothing, when that which it had purchased and accepted in lieu of a cash subscription for the shares issued proved to be worth only a fraction of its represented value. It was, he said, a fallacy to seek to apply the reasoning in revenue duty cases to an entirely different environment.

He went on to argue that the contention that the issue of shares for a consideration that proves to be of a value much less than that attributed for the purpose of a commercial transaction results in no loss to the issuing company is both fallacious and lacking practical reality. He pointed to dicta in In re Wragg Limited [1897] 1 Ch 796 at 813, 829, 835 dealing with the historical evolution of the principles related to issue of shares for money's worth, rather than actual cash, and contended that it was totally artificial and anomalous to seek to draw a distinction between situations where a company acquired assets at over value for cash, by way of contrast with an allotment of its own shares.

It seems to me, with respect, that the simple riposte to that contention is to be found in the discourse of Mr F Oditah titled "Takeovers, Share Exchanges and the Meaning of Loss" (1996) 112 LQR 424. He makes the point that, in share exchange transactions, when a vendor issues shares in itself in exchange for the shares of a takeover target, that is not the same thing as looking at the loss it would have suffered, had it paid cash for the target's shares.

"Where the bidder paid cash for the target, its reliance loss is prima facie the difference between the amount paid and the fair value of the target shares at the date of the acquisition; i.e., the money which was in its bank account prior to the acquisition but which is now in the 'pockets' of the target shareholders."

In other words there has, in such a situation, been a direct diminution in the assets of the bidding company itself. However, the situation is otherwise where there is an allotment of shares as consideration for the acquisition of the target shares. Here, if the target shares prove to be much less valuable than represented,

"The bidder is not seeking to recover the difference between the amount paid [in cash] to the target's shareholders - something which leaves its coffers - and the value of the target shares. The unissued shares given to the target's shareholders were not assets which the bidder owned before the bid, but which it does not own after it."

To adopt his phraseology there is no "outflow" of assets from the bidder.

The conceptual situation is, in my opinion, accurately summarised by Oditah in these terms -

"When, therefore, a bidder acquires shares of a target and in return issues its own shares to the target's shareholders, it is in effect acquiring a bundle of intangible property rights. This bundle of rights consists of the right to income or cash flow produced by the target's assets, a right to capital, if and when there is a return of capital, and a right to exercise control over the target through the exercise of voting rights. In return, the target's shareholders acquire contingent rights to income and capital in the bidder and the right to vote. These rights are not acquired at the expense of the bidder; the bidder has never been entitled to income, capital and voting rights in itself. Nor are they liabilities: the bidder is not a debtor to share capital; it is generally under no enforceable obligation to repay to all its shareholders the capital contributed, in the way in which it may owe enforceable interest and repayment obligation to its bondholders. The income and capital rights of the existing and new (i.e., the target's) shareholders are contingent and are not enforceable entitlements unless and until the contingencies to which they are subject have been satisfied. To put the point another way, what the bidder acquires when it allots shares in itself to the target's shareholders in return for their shares in the target is a contingent entitlement to income and capital from the target and, depending on the circumstances, an immediate right to control the target. In return, the target's shareholders acquire a contingent entitlement to income and capital from the bidder and, depending on the circumstances, a proportionate right of control of the bidder. The rights acquired by the target's shareholders are not acquired at the expense of the bidder." This writer later develops that theme in the following manner -

"The bidder acquired the very shares which it intended to acquire, albeit shares lacking the value which the bidder expected. The target's shares acquired have the bundle of income, capital and control rights which the bidder intended them to have. The consideration provided by the bidder are similar rights in itself which are transferred to the target's shareholders. Prior to issuing the shares to the target shareholders, the bidder did not own or enjoy the contingent income and capital rights or the control rights transferred to the target's shareholders. In no true sense are the shares in the bidder issued to the target's shareholders issued at the bidder's expense. The bundle of intangible rights contained in the shares issued to the target's shareholders involve neither a transfer of money from the bidder to the target nor the creation of true and enforceable liabilities against the bidder. Accordingly, if, for whatever reason, it transpires that the income, capital and control rights acquired by the bidder from the target's shareholders are less valuable than the bidder expected or are even worthless, the bidder suffers no substantial recoverable pecuniary loss unless in the circumstances the court awards the hypothetical cash sum which it would have obtained from the shares had it disposed of them on the market." Mr Gray QC further submitted that, quite apart from his primary basis of argument, the plaintiff's contention could be justified upon the basis of another line of reasoning.

As I understand his submissions, he reasoned that another way of approaching the situation was to recognise that, in relying on the alleged negligent advice, the plaintiff suffered damage to the extent that it was worse off by reason of acting on that advice. Detriment could arise in particular cases because - (i) either the plaintiff parted with an asset or cash for less than full or fair value; or

(ii) as here, it subjected itself to a liability at law, for less than full or fair value. Such a liability constitutes a detriment in law for the purposes of the law of damages. So it was, Mr Gray QC said, that, in relation to the transaction of 18 June 1987, the plaintiff subjected itself to two liabilities, namely - * a liability to repay the principal sum plus interest on the cash element of the consideration paid for the shares acquired (which sum it had borrowed for the purpose); and

* a conferring of the "congeries" of rights attaching to the shares issued in favour of the allottee/vendor, including the right to vote, to receive dividends and to receive capital distributions to the holder upon a winding up or other distribution of capital (Gemstone Corporation of Australia Ltd v Grasso (1994) 62 SASR 239; Archibald Howie Pty Ltd & Ors v Commissioner of Stamp Duties (New South Wales) (1948) 77 CLR 143 at 152-153, 156, 175-8 ("Archibald Howie"); Companies (South Australia) Code, s403. See also the discussion by Barwick CJ in Ord Forrest at p 140). Mr Gray QC particularly pointed to the analysis of Williams J in Archibald Howie, in which the latter had this to say -

"A company obtains capital by the issue of its shares. These shares cannot be issued at a discount but may be issued subject to the payment of their nominal amount or at a premium. The amount payable may be satisfied by the payment of money or by some other proper consideration. But all shares must be paid for in full by money or money's worth. When the person to whom the shares are allotted pays or assumes the liability to pay for the shares in money or money's worth, full consideration in money or money's worth moves from him to the company for all the rights which he acquires under the memorandum and articles of association. Amongst the most valuable of these rights are the rights to share in the distributions of moneys and assets already mentioned. The declaration of a dividend and the taking effect of a special resolution to return capital create debts because the shareholders have acquired the legal right to be paid these moneys for valuable consideration. If the moneys were not payable as debts but as gifts the shareholders would have no legal rights to sue for them. The authorities already cited show that the shareholders have these legal rights. They are legal rights which flow from the original issue of the shares. They are ingredients in the chose in action which each original shareholder purchased from the company." Moreover, Mr Gray QC contended, the fact was that, when the shares were allotted in return for a consideration other than cash, the plaintiff lost its entitlement, on the covenant of the allottee/vendor, to call for the cash which would otherwise be payable on that allotment. Due to the allegedly negligent advice it received an asset which was not of full value. On the reasoning of Lord Greene MR, that was, he said, also a detriment occasioned to it.

It seems to me that the essential fallacy in those lines of argument is that they fail to recognise two fundamental concepts.

The first is that, in truth, any relevant rights attaching to shares do not give rise to any immediate liabilities, as such, on the part of the allotting company (see Archibald Howie at 156-7) and the impact of them, generally speaking, when they do arise, is taken not by the company itself, but by the other shareholders. As has already been said, the dilution of net assets per share (and of any earnings per share) resulting from under value is taken by the other, existing shareholders.

Secondly, as Mr Karkar QC pointed out, not only is its capital not a debt of the company in the legal sense (Lee), but, in general, at common law, a plaintiff can only recover damages for actual loss incurred, as distinct from potential damage (Wardley at 526-7, 532). The alleged "detriment" referred to by Mr Gray QC has not been asserted to have ever sounded in any actual damages.

Mr Gray QC further argued that the reasoning of Burchett J in Adelaide Petroleum (seemingly accepted by Scott J in his obiter dictum in Strategic Minerals) does not, properly read in context, stand as a denial of the validity of the contentions of the plaintiff. He stressed that, in Adelaide Petroleum, the compensation awarded did not include damages for capital loss arising from an allotment of shares, because there was, in fact, no such allotment. The issue in that case was quite different.

It must, I think, be accepted that neither of those cases can fairly be said to be of direct authority in the instant case in relation to the issue presently under discussion.

In summation Mr Gray QC, somewhat passionately declaimed - "My learned friend's argument, no matter how false the statements were about value, no matter how unfair the transaction was, any independent reporter pursuant to a regulatory scheme would never be exposed to any damage, because neither company could suffer any loss. One only has to contemplate that to realise the absurdity of where my learned friend's argument takes one, because on his argument neither company could suffer a loss, regardless of the substantive transaction occurring between them.

Now in a share swap case, if one takes a share swap case where one company is allotting and on the other side shares are simply being transferred the allotting company creates by the act of the allotment, the covenants, creates the obligations. The party transferring the shares is simply transferring covenants. My learned friend's argument would be that the party transferring covenants could suffer damage, the party creating them can't. At the most simplistic level, we must put it to you that the argument put to you is an absurd one." In so saying he argued that, in Lowry, which was the genesis of the line of cases exemplified by Ord Forrest, their Lordships went to some pains to distinguish between situations in which shares are allotted to a subscriber and those in which they are issued to satisfy a debt. He drew attention to the following dictum of Viscount Maugham -

"There is one other fact of importance which must be borne in mind. It is that the company was not discharging a debt or liability to the employees when it issued the 6000 shares to them at par. The word 'remuneration' has been more than once mentioned in this case as if it described the advantages which the employees were obtaining by the issue and I think it has led to some confusion. If money or money's worth in any form, whether from capital or income, is given to an employee in discharge of an ordinary trading obligation or debt due to him incurred in the course of the trade and accepted as such, I am quite ready to accept the view that the amount of the debt or liability so discharged will find its way into the profit and loss account on ordinary commercial principles and will pro tanto reduce the profits for the year for income tax purposes. A man's salary with his consent can be paid in meal or malt as well as in money, and that salary is one of the items of expenditure which go to reduce the amount of the profits and gains. If in this case the employees were paying the par value of the shares and also releasing to the company some amounts of salary due to them the case would be very different from what it is. All we really have before us is that the company has chosen to issue 6000 shares at par to the employees and that they have received the benefit of that issue. There is really nothing more. The employees have given up nothing. The company has not lost or parted with any asset. It has a fewer number of shares remaining for issue; but of course it can create as many more as it pleases. There is here in my opinion no transaction of trade at all, nor an item of any kind that ought to be carried to either side of the profit and loss account." He also drew attention to what fell from His Lordship at p 669 and Lord Wright at p 679, given that the latter was in dissent on the facts of the case. He contended that the issue of the shares for a commercial purpose cast an entirely different light on the situation, as it also had in Osborne and Craddock.

At the end of the day it must be stressed that the question to be resolved is as to whether the line of endeavour sought to be pursued by the plaintiff remains fairly arguable, or whether it has been shown, plainly, to have been foreclosed by the decisions of the High Court upon which Mr Karkar QC relies. Whilst the point is not without what might, at first sight, appear to be some apparent illogic from a commercial viewpoint, it is impossible to escape the conclusion that, on the basis of the reasoning expressed by Oditah with such clarity - which directly reflects what has fallen from the High Court in the authorities to which I have referred - the plaintiff's contention has, irretrievably, been so foreclosed. Any claim which exists is that of the pre-existing shareholders and not that of the plaintiff.

I am therefore constrained to refuse leave to amend paragraph 17.5 as sought.

I now turn to the proposed amended version of paragraph 17.8.

Mr Karkar QC contended that the propositions sought to be propounded in the proposed amendment were, on the face of them, also untenable - a contention which he sought, in part, to demonstrate by reference to hypothetical example.

He pointed out that the claim sought to be made must be categorised as an "expectation loss" - being damages for loss of opportunity to use the relevant allotment in another, unidentified venture.

His first basis of attack was that the claim necessarily suffered from the same legal misconception as the claim sought to be made by the proposed new paragraph 17.5 - in that it treated the unissued shares (actually allotted) as if they were property or cash of the company. As he re-expressed his earlier proposition -

"those who subscribe for such share receive nothing from the company." All that is received, he argued, is "part ownership of the company, at the expense, not of the company itself, but of the original shareholders".

He then set out to demonstrate that the plaintiffs' claim for loss of opportunity to use the allotment in purchasing other income producing assets would, if successful, produce the absurd practical result that any award of damages on such a basis would augment the value of the shareholding of the vendor (who had already benefited by receiving a price far higher than the value of the assets sold by it) at the expense of the original shareholders.

Mr Gray QC met that contention by arguing that, as was demonstrated by Giles J in Segenhoe Limited v Akins & Ors (1990) 1 ACSR 691 at 702, this is by no means necessarily so.

Be that as it may, it was further submitted, on behalf of the first defendant, that the proposed format of paragraph 17.8 fails to plead any loss of an identified valuable opportunity of which it was deprived. Reference was made to the asserted contention of the plaintiff that its -

"... case is not that it would have entered into another particular identified transaction, but rather that it could and would, but for its purchase of ... [the CHC assets], have entered into another unidentifiable transaction or into other unidentifiable transactions." Mr Karkar QC contended that a plea of that nature was, on any view, foredoomed to failure, because it fell foul of the concepts espoused by the High Court in Esanda Finance Corporation Ltd v Peat Marwick Hungerfords (1997) 23 ACSR 1 ("Esanda") and Sellars v Adelaide Petroleum NL and Others (1994) 179 CLR 352 ("Sellars").

These authorities were relied upon for the proposition that, if a plaintiff seeks to recover damages on the basis of loss of a valuable opportunity, then it must specifically plead those facts which are material to make good its bases of claim.

Mr Karkar QC submitted that, in such a case it is encumbent on the plaintiff to both prove and plead that some loss was sustained by virtue of the fact that the alleged conduct caused the loss of a commercial opportunity of some other than a negligible value. In doing so it is normally required to indicate an alternative transaction which would have been entered into, but for the inducement to enter the disputed transaction (see Strategic Minerals at 501, Price Higgins and Fidge v Drysdale (1996) 1 VR 346 at 354-5). As Wineke P said in the latter case "the plaintiff is required to demonstrate by evidence not only that the prospect had a real value but also that, if the true position had been disclosed, he or she would have acted to secure the benefit". Similar reasoning is, Mr Karkar QC argued, to be found in Kyogle Shire Council v Francis [1988] Aust Torts Reports 80-182 at p 67,725 and Avenhouse and Another v Council of the Shire of Hornsby [1995] Aust Torts Reports 81-351 at p 62,546.).

Mr Karkar QC contended that, to allege a loss of opportunity of allotting shares to an unidentified vendor in respect of an unidentified transaction for the possible purchase of

unidentified assets for an unidentified price, is to indulge in a form of speculation negated, as impermissible, by the High Court in Sellars. (See for example, the discussion by Brennan J at p 364). He also referred to State Bank of South Australia and Another v Peat Marwick Mitchell & Co (Olsson J, 15 May 1997, (Judt 6129), unreported, avbailable in SCALEplus).

As to this Mr Gray QC submitted that, in the context of the present case, in which the plaintiff company would be able to demonstrate a history of expansion and dealings involving the allotment of shares for assets, it was open to it to set out to prove that, had the CHC transaction not gone forward, it would, more probably than not, have either raised cash by a similar allotment or issued the shares elsewhere to acquire and turn to profit some other suitable transaction. He contended that it was not encumbent on the plaintiff to prove the existence of a specific, alternative transaction into which it would have entered. In relation to this he called in aid the reasoning of the High Court in Malec v J C Hutton Proprietary Limited (1990) 169 CLR 638 at 643.

The first defendant further argued that, even if its primary submissions as to the proposed new form of paragraph 17.8 were incorrect, then, nevertheless, it was not open to the plaintiff to seek to maintain this head of asserted claim as other than an alternative to the initial capital loss claim. On this score it was contended that a loss of opportunity count must, by its very nature, proceed on the assumption that the plaintiff would not have purchased the CHC assets and would, instead, have utilised the very same allotment in the purchase of another income-producing asset. In other words, the claim for loss of the use of the allotment cannot be additional to the loss of capital claim based on the purchase of the CHC assets, because any case based on lost opportunity is predicated upon entry into a different transaction (within the same share issue) for the purchase of another, income-producing asset.

With all due respect to Mr Gray QC it seems to me that such reasoning is irrefutable as a matter of logic. His present stance indicates a marked divergence from what he earlier intimated on 5 May 1997 (see transcript p 167). However, the point becomes academic by reason of my conclusion as to the proposed amendment to paragraph 17.5.

Mr Karkar QC further attacks the content of the proposed new paragraph 17.8 on the basis that, although it sets out, in the alternative, to raise an element of damages of the nature of that recognised in Hungerfords v Walker
(1989) 171 CLR 126 ("Hungerfords"), it has simply not pleaded the requisite facts upon which to base such a claim. It is, he submitted, of the essence of such a claim that moneys have been paid away by, or withheld from, the plaintiff, with the consequence that the plaintiff has been deprived of the use of that money so paid away or withheld (Hungerfords at p 149).

Whilst these aspects may, in the long term, create difficulties for the plaintiff, dependent upon the precise manner in which it seeks to develop its case at trial, I am, nevertheless, unable to conclude that they provide an unanswerable bar to the type of pleading sought to be espoused by the plaintiff.

In my view that pleading is quite wide and is adequate to at least encompass the type of situation adverted to by French J in Adelaide Petroleum at p 531, which appears to me to reflect the type of reasoning expressed by Oditah earlier cited. In the closing stages of argument Mr Karkar QC was constrained to concede that Adelaide Petroleum stood as authority for such a proposition and that, accordingly, it was at least fairly arguable. I am disposed to give leave to amend paragraph 17.8 in the terms set out in the draft dated 30 May 1997, without prejudice to the right of the defence to re-agitate any of those issues, in light of the actual manner in which the plaintiff seeks to develop its case in detail.

So far as the amendment promoted in the new proposed paragraph 17.8A is concerned, this, in large measure, stands or falls with paragraph 17.8 itself.

However, Mr Besanko QC, of senior counsel for the first defendant complains that, even if the basic cause of action sought to be relied upon is held to be fairly arguable, nevertheless, the particulars articulated fall considerably short of demonstrating how the plaintiff "could" and "would" have allotted shares to its members, or the public, and how it could and would have utilised the funds raised by any share issue, to purchase other assets in the hospital industry. At best there are assertions of possible areas of interest which might have been pursued, in a manner which is so general that the defence really has no idea as to what precise case it has to meet - a situation which directly bears on its ability to seek appropriate expert evidence and advice.

Additionally, it is also complained that there are other deficits of detail in the mode of pleading, upon which Mr Besanko QC elaborated, as recorded in the transcript.

Following the initial submissions made by Mr Besanko QC the plaintiff proffered some revision of its original proposed form of amendments which, in part, meet certain of the objections advanced.

I must confess to some sympathy with the plaintiff in the pleading situation in which it finds itself. At the end of the day, insofar as it seeks to rely on lost opportunity (by way of contrast with loss of income generated by the acquired assets) it is a little difficult to see how, in the circumstances, it can plead in any manner more specific than it has. That pleading will of course need to be read in light of any disclosed expert reports, the content of which will render it apparent how the pleading is to be developed in practice. To the extent that there is a discrepancy between disclosed expert reports and the specific pleadings there may be a need to revise the pleadings at some future date. To what extent the ultimate claims sought to be maintained can be made good as a matter of law is for another day.

Whilst I accept that some matters agitated by the firstnamed defendant remain outstanding, I am concerned that there is a danger that this matter may bog down in a morass of detailed and expensive arguments over particulars of claim in a manner which will simply delay bringing the matter to trial and disposing of it in a timely manner.

I consider that the less of two evils is to permit amendment of the statement of claim as to paragraphs 17.8 and 17.8A in the 30 May 1997 proposed format dated 30 May 1997 and to permit the defendants to file such amended pleadings thereto as they may be advised.

I will protect the defendants against surprise at the trial, even to the extent of deferring cross-examinations if the mode of development of the plaintiff's evidence in chief gives rise to situations in which the defendants reasonably need to seek instructions (or even supplementary expert opinions), to enable them to meet the case as actually advanced against them. At the end of the day argument can focus on the actual developed strands of the plaintiff's case as they emerge.

The stage has been reached at which it is important to bring this matter to trial and isolate and reflect on what are the real issues to be considered, within the broad pleaded framework. As I have indicated, to what extent the plaintiff can make good its various detailed assertions remain to be seen.

In summary then, the application for leave to amend in relation to paragraph 17.5 is refused. The amendments to paragraph 17.8 and by insertion of paragraph 17.8A in their present proposed forms will be allowed.

I will hear counsel as to costs.