Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd - [2008] NSWCA 206

No judgment structure available for this case.

New South Wales

Court of Appeal

CITATION: Ingot Capital Investments Pty Ltd & Ors v Macquarie Equity Capital Markets Ltd & Ors [2008] NSWCA 206

HEARING DATE(S): 4 August 2008 - 29 August, 5 September 2008

JUDGMENT DATE:
3 December 2008

JUDGMENT OF: Giles JA at 1; Hodgson JA at 52; Ipp JA at 84

DECISION: (a) The appeal against Mr Daya succeeds.
(b) The orders made by the trial judge in respect of the claims against Mr Daya by ICI, AOITL, ASC, AOITP and ESS are set aside.
(c) Mr Daya is ordered to pay damages to ICI of $1,581,172.80.
(d) Mr Daya is ordered to pay damages to AOITL of $6,177,561.
(e) Mr Daya is ordered to pay damages to ASC of $6,500,000.
(f) Mr Daya is ordered to pay damages to AOITP of $7,540,000.
(g) Mr Daya is ordered to pay damages to ESS of $15,964,927.05.
(h) The appeals are otherwise dismissed.
(i) Leave is granted to the appellants to amend the notice of appeal so as to enable them to rely on the representations in paragraphs 104(a) and (e) of 6FAS.
(J) The parties have liberty to apply for any other orders that need to be made in accordance with these reasons.
(k) The parties are directed to arrange a date with the registrar for a directions hearing relating to the further disposition of the remaining matters to be resolved in the appeal (including, but not necessarily limited to, costs, interest on the damages awarded, any orders made by McDougall J that should be set aside in accordance with these reasons, and any further orders that need to be made). Thereafter a date will be allocated for the hearing of outstanding matters.

CATCHWORDS: CORPORATIONS - capital raising - convertible note issue - whether misleading or deceptive conduct by lead manager, underwriter and broker before issue of the prospectus - whether draft prospectus misleading or deceptive - whether misleading or deceptive conduct in relation to securities after issue of prospectus and before issue of securities - CAUSATION - where company board relied on representations by due diligence committee and resolved to issue securities - whether but for contraventions the note issue would not have proceeded and the appellants would therefore not have sustained loss - whether appellants can recover in circumstances where they were not misled - DAMAGES - whether appellants entitled to recover damages for issue purchases as well as on market purchases - whether appellants have proved their loss - whether appellants were locked in to their investments - whether rule in Potts v Miller applies - PRACTICE AND PROCEDURE - pleadings - surprise rule - materiality - requirement to expressly plead materiality - dishonesty - requirement to expressly plead dishonesty - PRACTICE AND PROCEDURE - trial - failure by trial judge to deal with argument - where trial judge and parties agreed that case would be decided on the pleadings - argument previously pleaded but abandoned in later pleading - whether argument raised in pleadings - PRACTICE AND PROCEDURE - appeals - argument not made at trial - whether fair to allow argument to be raised on appeal

LEGISLATION CITED: Acts Interpretation Act 1901 (Cth)
Civil Procedure Act 2005
Corporations Law (Cth)
Partnership Act 1982
Trade Practices Act 1974 (Cth)
Uniform Civil Procedure Rules 2005

CATEGORY: Principal judgment

CASES CITED: Aaron’s Reefs Ltd v Twiss [1896] AC 273
Abigroup Contractors Pty Ltd v Sydney Catchment Authority (No 3) [2006] NSWCA 282; (2006) 67 NSWLR 341
Adam P Brown Male Fashions Pty Ltd v Philip Morris Inc [1981] HCA 39; (1981) 148 CLR 170
Allianz Australia Insurance Ltd v GSF Australia Pty Ltd [2005] HCA 26; (2005) 221 CLR 568
Banque Commerciale SA (In Liq) v Akhil Holdings Ltd [1990] HCA 11; (1990) 169 CLR 279
Baulderstone Hornibrook Engineering Pty Ltd v Gordian Runoff Ltd [2008] NSWCA 243
Beale v GIO of NSW (1997) 48 NSWLR 430
Belmont Finance Corporation Ltd v Williams Furniture Ltd [1979] Ch 250
Brambles Australia Ltd v Tatale Pty Ltd [2006] NSWSC 204
Brown v Jam Factory Pty Ltd [1981] FCA 35; (1981) 53 FLR 340
Burston v Melbourne & Metropolitan Tramways Board [1948] HCA 36; (1948) 78 CLR 143
Butcher v Lachlan Elder Realty Ltd [2004] HCA 60; (2004) 218 CLR 592
Cackett v Keswick [1902] 2 Ch 456
Campomar Sociedad Limitada v Nike International Ltd [2000] HCA 12; (2000) 202 CLR 45
Coal and Allied v AIRC [2000] HCA 47; (2001) 203 CLR 194
Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; (1982) 149 CLR 337
Commonwealth Bank of Australia v Mehta (1991) 23 NSWLR 84
Costa v The Public Trustee of NSW [2008] NSWCA 223
Coulton v Holcombe [1986] HCA 33; (1986) 162 CLR 1
Dare v Pulham [1982] HCA 70; (1982) 148 CLR 658
Demagogue Pty Ltd v Ramensky [1992] FCA 557; (1992) 39 FCR 31
Digi-Tech (Australia) Ltd v Brand [2004] NSWCA 58; (2004) 62 IPR 184; (2004) ATPR 46-248
Dow Hager Lawrance v Lord Norreys (1890) 15 App Cas 210
Edgington v Fitzmaurice [1885] 29 Ch D 459
Ellis v Leeder [1951] HCA 44; (1951) 82 CLR 645
Elna Australia Pty Ltd v International Computers (Aust) Pty Ltd (No 2) [1987] FCA 230; (1987) 16 FCR 410
Ford Motor Company of Australia Ltd v Arrowcrest Group Pty Ltd [2003] FCAFC 313; (2003)134 FCR 522
Fraser v NRMA Holdings Ltd (1995) 55 FCR 452
Gardiner v Agricultural & Rural Finance Pty Ltd [2007] NSWCA 235
Gould and Birbeck and Bacon v Mount Oxide Mines Ltd (In Liq) [1916] HCA 81; (1916) 22 CLR 490
Gould v Vaggelas [1985] HCA 85; (1985) 157 CLR 215
Hampic Pty Ltd v Adams [1999] NSWCA 455; (2000) ATPR 41-737
Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (No 1) [1988] FCA 40; (1988) 39 FCR 546
Heydon v NRMA Ltd [2000] NSWCA 374; (2000) 51 NSWLR 1
Henville v Walker [2001] HCA 52; (2001) 206 CLR 459
House v The King [1936] HCA 40; (1936) 55 CLR 499
HTW Valuers v Astonland Pty Ltd [2004] HCA 54; (2004) 217 CLR 640
I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd [2002] HCA 41; (2002) 210 CLR 109
In Re Will of Gilbert (dec'd) (1946) 46 SR (NSW) 318
Janssen-Cilag Pty Ltd v Pfizer Pty Ltd [1992] FCA 437; (1992) 37 FCR 526
Johnson v Perez [1988] HCA 64; (1988) 166 CLR 351
Kenny & Good Pty Ltd v MGICA (1992) Ltd [1999] HCA 25; (1999) 199 CLR 413
Ketteman v Hansel Properties Pty Ltd [1987] AC 189
Kirby v Sanderson [2001] NSWCA 44; (2001) 54 NSWLR 135
Krakowski v Eurolynx Properties Ltd [1995] HCA 68; (1995) 183 CLR 563
Kuru v State of NSW [2008] HCA 26
Leotta v Public Transport Commission (NSW) (1976) 9 ALJR 666
March v E & M H Stramare Pty Ltd [1991] HCA 12; (1991) 171 CLR 506
Marks v GIO Australia Holdings Ltd [1998] HCA 69; (1998) 196 CLR 494
Mummery v Irvings Pty Ltd [1956] HCA 45; (1956) 96 CLR 99
Murphy v Overton Investments Pty Ltd [2004] HCA 3; (2004) 216 CLR 388
Netaf Pty Ltd v Bikane Pty Ltd [1990] FCA 35; (1990) 26 FCR 305
Nocton v Ashburton [1914] AC 932
Nolan v Marson Transport Pty Ltd [2001] NSWCA 346; (2001) 53 NSWLR 116
North Sydney Council v Ligon 302 Pty Ltd (1995) 87 LGERA 435
Oldfield Knott Architects Pty Ltd v Ortiz Investments Ltd [2000] WASCA 255
Orix Australia Corporation Limited v Moody Kiddell and Partners Pty Limited [2006] NSWCA 257
Paringa Mining and Exploration Company Plc v North Flinders Mines Ltd [1988] HCA 53; (1988) 165 CLR 452
Poignand v NZI Securities Australia Limited [1992] FCA 369; (1992) 37 FCR 363
Potts v Miller [1940] HCA 43; (1940) 64 CLR 282
Saffron v Societe Miniere Cafrika [1958] HCA 50; (1958) 100 CLR 231
Smith New Court Securities Ltd v Citibank NA [1997] AC 254
State of Queensland v JL Holdings Pty Ltd [1997] HCA 1; (1997) 189 CLR 146
Stockland (Constructors) Pty Ltd v Retail Design Group (International) Pty Ltd [2003] NSWCA 84
Suttor v Gundowda Pty Ltd [1950] HCA 35; (1950) 81 CLR 418
Taco Co of Australia Ltd v Taco Bell Pty Ltd [1982] FCA 136; (1982) 42 ALR 177
The Marriner v Bishop of Bath and Wells [1893] P 145
Travel Compensation Fund v Tambree [2005] HCA 69; (2005) 224 CLR 627;
Visible Results Properties Inc v Sushi Train (Australia) Pty Ltd [2005] FCA 1159
Wardley Australia Ltd v Western Australia [1992] HCA 55; (1992) 175 CLR 514
Whisprun Pty Ltd v Dixon (2003) HCA 48; (2003) 77 ALJR 1598
White v Overland [2001] FCA 1333
Yorke v Lucas [1985] HCA 65 (1985) 158 CLR 661

TEXTS CITED: Bernard Cairns, Australian Civil Procedure, 7th ed (2007)
The Hon Justice R S French, A Lawyer’s Guide to Misleading or Deceptive Conduct (1989) 63 Australian Law Journal 250

PARTIES:
Ingot Capital Investments Pty Ltd (ACN 006 538 147) (First Appellant)
Eclectic Stocks Limited Company No 3241668 (Second Appellant)
Utilico Pty Limited (ACN 003 573 475) (Third Appellant)
Eclectic Investment Trust PLC No 02133976 (Fourth Appellant)
Eastern States Securities Ltd (Fifth Appellant)
Ingot Capital Management Pty Ltd (ACN 066 017 712) (Sixth Appellant)
Macquarie Equity Capital Markets Ltd (ACN 001 374 572) (First Respondent)
Macquarie Equities Ltd (ACN 002 574 923) (Second Respondent)
Macquarie Bank Ltd (ACN 008 583 542) (Third Respondent)
Udayan Daniel Ghose (Fourth Respondent)
Jonathan Paul Beach (Fifth Respondent)
Azmin Firoz Daya (Sixth Respondent)
Craig H Deery (Seventh Respondent)
Michael J Morrissey (Eighth Respondent)
William Peck (Ninth Respondent)
Paul Laurence Williams (Tenth Respondent)
Peter Aroney (Eleventh Respondent)
Patrick Murray and the persons listed in Schedule "B" to the Notice of Appeal (Twelfth Respondent)
Andrew Mutton and the persons listed in Schedule "A" to the Notice of Appeal (Thirteenth Respondent)
John Trowbridge Consulting Pty Limited (Cross-Respondent)

FILE NUMBER(S): CA 40249/07

COUNSEL: D F Jackson QC; T G R Parker SC; W G Muddle SC; K H Barrett; J A Arnott (First - Sixth Appellants)
B C Oslington QC; A S Bell SC; J Williams (First - Third Respondents)
P Wood; P Silver (Fourth Respondent)
D J Fagan SC; A P Cheshire (Fifth, Seventh and Eighth Respondent)
P S Braham (Sixth Respondent)
L Gor (Ninth Respondent)
A J Bannon SC; M J Cohen (Tenth Respondent)
P S Braham (Eleventh Respondent)
T F Bathurst QC; S M Nixon (Twelfth Respondent)
J T Gleeson SC; R A Dick; J A Watson (Thirteenth Respondent)
P H Greenwood SC (Cross Respondent)

SOLICITORS:
Deacons (First - Sixth Appellants)
Mallesons Stephen Jaques (First, Second,Third Respondent)
Chang Pistilli & Simmons (Fourth Respondent)
Colin Biggers & Paisley (Fifth, Seventh, Eighth Respondent)
Dibbs Abbott Stillman (Tenth Respondent)
Deutsch Partners Lawyers Pty Ltd (EleventhRespondent)
Blake Dawson (Twelfth Respondent)
Freehills (Thirteenth Respondent)
Minter Ellison (Cross-Respondent)

LOWER COURT JURISDICTION: Supreme Court - Equity Division

LOWER COURT FILE NUMBER(S): SC 50169/01

LOWER COURT JUDICIAL OFFICER: McDougall J

LOWER COURT DATE OF DECISION: 30 March 2007

LOWER COURT MEDIUM NEUTRAL CITATION: Ingot Capital Investments & Ors v Macquarie Equity Capital Markets & Ors [No 6] [2007] NSWSC 124

CA 40249/07
SC 50169/01

GILES JA
HODGSON JA
IPP JA
3 DECEMBER 2008

Ingot Capital Investments Pty Ltd & Ors v Macquarie Equity Capital Markets Ltd & Ors

Headnote

New Cap Reinsurance Holdings Limited (NCRH) effected a convertible note issue on 12 January 1999. The six appellants invested approximately A$40M in the note issue, in rights to the notes and in acquiring NCRH shares. The thirteen respondents were involved in different ways in bringing about the note issue. Within months after issuing the notes, NCRH was placed in liquidation and the notes, in effect, were valueless. The appellants contended that, in consequence, each suffered substantial damages for which the respondents were liable.

The appellants maintained nine causes of action on appeal against various sets and sub-sets of the respondents.

Case 1 alleged misleading and deceptive conduct against Macquarie Bank Limited and two of its subsidiaries (acting as lead manager, underwriter and broker for the note issue), said to have occurred before the prospectus was issued, in a series of representations made to Mr Duncan Saville who, on the strength of them, entered into sub-underwriting contracts on behalf of certain of the appellants that gave rise to loss.

Case 2 alleged various contraventions of ss 995 and 996 of the Corporations Law against respondents who were directors or officers of NCRH and members of the Due Diligence Committee (DDC) appointed by NCRH to perform various functions in connection with the note issue. Case 2 consisted of several categories and subcategories based on various permutations of four arguments relating to representations in the prospectus. The four arguments were described on appeal as the “smoothing cover argument”, the “Trowbridge/NTA argument”, the “trading prospects argument” and the “note issue purposes argument”.

Case 3 alleged contraventions of s 995 which occurred during the period from the issue of the prospectus to the issue of the notes. The appellants argued that during this period, circumstances changed so as to falsify statements made in the prospectus and that the members of the DDC, as well as director Mr Daya had contravened s 995 by failing to disclose these changed circumstances to the board. Case 3.1 was brought against the members of the DDC. Case 3.2 was brought against Mr Daya alone.

The trial judge, McDougall J, held that the appellants had failed to establish liability on the part of any respondent save for Mr Daya on the basis of case 3.2. His Honour held, further, that the appellants had failed to prove their loss. Thus, he dismissed all their claims, including that against Mr Daya.

A key aspect of several of the appellants’ cases was the contention that, but for the alleged contraventions, the note issue would not have proceeded and the appellants would not have invested and therefore sustained any loss. Based on this contention, the appellants argued that they were entitled to succeed even though they were not misled. This causation argument was referred to at trial and in argument on appeal as the “indirect causation” argument.

Per Ipp JA (Giles JA and Hodgson JA agreeing) dismissing case 1:

(i) As regards the representations alleged in paragraphs 46 and 55 of the Sixth Further Amended Summons (6FAS) to establish liability under case 1, those representations were either not made (paras 46(a), (c) and 55(f)), did not mislead the appellants (paras 46(a), (b) and (d)), were not falsified (paras 46(f), 55(e), (h) and (n)) or had not been argued as false at trial (para 46(d)).

(ii) Macquarie is not liable for the representations alleged in paragraph 55 because it acted as a mere conduit.

Yorke v Lucas

Butcher v Lachlan Elder Realty Pty Limited

Orix Australia Corporation Limited v Moody Kiddell and Partners Pty Limited

Per Ipp JA (Giles JA and Hodgson JA agreeing) dismissing the smoothing cover argument:

(i) Materiality is an essential ingredient of civil liability for contravention of s 996. It is therefore an essential element of the pleadings for a contravention of that section.

(ii) The dictates of procedural fairness as embodied in the surprise rule require the pleading of the materiality of the misleading or deceptive conduct that is contended to have contravened s 995 or s 996.

Uniform Civil Procedure Rules

Fraser v NRMA Holdings Limited

Abigroup Contractors Pty Ltd v Sydney Catchment Authority (No 3)

Kirby v Sanderson

(iii) The appellants were required to plead expressly any part of their case that relied upon lack of integrity on the part of NCRH and those involved in the note issue.

Belmont Finance Corporation Ltd v Williams Furniture Limited

Oldfield Knott Architects Pty Limited v Ortiz Investments Limited

(iv) The elements of materiality and lack of integrity upon which the smoothing cover argument was based were not pleaded.

(v) Nothing in the pleadings, nor in the way the case was conducted led to error on the trial judge's part in not dealing with the smoothing cover argument. The smoothing cover argument was not a live issue at trial and it would be unfair to allow the argument to be raised on appeal.

Mummery v Irvings Pty Ltd

Coal and Allied v AIRC

Leotta v Public Transport Commission

Beale v GIO of NSW

In Re Will of Gilbert (dec’d)

Adam P Brown Male Fashions Pty Limited v Philip Morris Inc

Saffron v Societe Miniere Cafrika

Suttor v Gundowda Pty Ltd

Coulton v Holcombe

Per Hodgson JA further dismissing the smoothing cover argument:

In a simple case, where the misleading conduct merely suggested something positively advantageous about a transaction, which was not true, it will generally be sufficient just to allege the conduct and what it suggested, and to allege that this was false. Where, however what was truly misleading was rather the suppression or non-disclosure of something disadvantageous, or of something that would otherwise have induced the claimant to have acted otherwise, then in it will generally be necessary, if this is not obvious, to allege what it was that was suppressed or not disclosed. In addition, if it is not obvious what is important or material about what was conveyed or not disclosed, it may be necessary also to make this clear in the pleadings. This is particularly so if what is alleged is non-disclosure of dishonesty, or if some non-disclosure is alleged to be material on the ground that it involved dishonesty.

Per Ipp JA (Giles JA and Hodgson JA agreeing) dismissing the Trowbridge/NTA, trading prospects, and note issue purposes arguments:

The Trowbridge/NTA, trading prospects, and note issue purposes arguments fail on the facts.

Per Ipp JA (Giles JA and Hodgson JA agreeing) dismissing Cases 2.1, 2.2, and 2.3(a)-(d):

(i) Case 2.1 fails because the smoothing cover and Trowbridge/NTA arguments fail.

(ii) Case 2.2 fails because the smoothing cover and Trowbridge/NTA arguments fail.

(iii) Case 2.3(a) fails because the Trowbridge/NTA, trading prospects and note issue purposes arguments fail.

(iv) Case 2.3(b) fails because the smoothing cover and Trowbridge/NTA arguments fail.

(v) Case 2.3(c) fails because the Trowbridge/NTA, trading prospects and note issue purposes arguments fail.

(vi) Case 2.3(d) fails because the smoothing cover, Trowbridge/NTA, trading prospects and issue purposes arguments fail.

Per Giles JA further dismissing cases 2.1, 2.2 and 2.3(a)-(d):

(i) The distinction drawn in Digi-Tech (Australia) Pty Ltd v Brand is between cases where conduct on the part of the plaintiff forms a link in the causation chain and where it does not. Where it does, there must be reliance on the misleading conduct. Where it does not, there may be recovery if the act of the innocent party induced by the misleading conduct by its very nature, causes the plaintiff’s loss.

Digi-Tech (Australia) Ltd v Brand

Ors

Janssen-Cilag Pty Ltd v Pfizer Pty Ltd

(ii) The purpose of ss 995 and 1005 is achieved by proscription of engaging in misleading conduct and provision of compensation. Section 1005 should be applied in a way that promotes provision of correct information to investors and protects them in making investment decisions. But this does not warrant compensating investors regardless of the effect on their decision-making of the misleading conduct.

(iii) It does not follow from the proscriptive terms of s 996 that causation is satisfied by no more than the fact that the defendant authorised or caused the issue of a prospectus in which there was a material misstatement or omission. The issue of a prospectus containing a material misstatement or omission opens the door to recovery of compensation in a “but for” sense, but as Digi-Tech (Australia) Pty Ltd v Brand shows that may not be sufficient.

Digi-Tech (Australia) Ltd v Brand

Ors

(iv) Compensation is to be recovered under s 1005 not simply because a misleading prospectus was issued, but because the investor was misled by its issue. Subject to cases where the investor is not passive but undertook decision-making to which what appeared in the prospectus was material, there must be reliance on the material misstatement or omission in a like manner to Digi-Tech (Australia) Pty Ltd v Brand.

Digi-Tech (Australia) Ltd v Brand

Ors

Janssen-Cilag Pty Ltd v Pfizer Pty Ltd

Per Ipp JA further dismissing cases 2.1, 2.2 and 2.3(a)-(d):

(i) Proof that the loss was caused by conduct that contravened s 996 must include proof of one of the two following sets of circumstances: firstly, had s 996 not been contravened, the corporation concerned would not have issued the offending prospectus but would have issued a different prospectus in non-contravening form and the different prospectus would have caused the plaintiff not to invest in the securities that gave rise to its loss; and, secondly (and alternatively), the corporation concerned would not have issued a prospectus at all and, hence, would not have issued the securities that gave rise to its loss.

(ii) Mere proof of a material false statement or omission does not constitute proof that a different prospectus, on which the plaintiff would not have relied to its detriment, would have been issued, or no prospectus would have been issued.

Wardley Australia Limited v

Western Australia

(iii) Where an element of a plaintiff’s case under s 996 is that either a different prospectus would have been issued which would have caused the plaintiff not to purchase the securities, or no prospectus (and no relevant securities) would have been issued, the plaintiff’s summons or statement of claim should allege these facts. Not to plead them would be contrary to the surprise rule.

Digi-Tech (Australia) Ltd v Brand

Ors

(iv) In a case based on misleading conduct directed against identified individuals, if the person alleged to have been misled is not induced by the conduct in question to act or refrain from acting, there is no “erroneous assumption” in the sense required to establish misleading or deceptive conduct. This is fatal to a cause of action based on misleading conduct.

Campomar Sociedad, Limitada v Nike International

Ltd

Taco Co of Australia

Inc v Taco Bell Pty Ltd

Brown v Jam Factory Pty Ltd

(v) Persons who claim damages on the ground of misleading or deceptive conduct in contravention of s 995, and who allege that they incurred those damages by acquiring something in consequence of such conduct, must prove that they were misled by that conduct.

Digi-Tech (Australia) Ltd v Brand

Ors

Ford Motor Company of Australia Ltd v Arrowcrest Group Pty Ltd

Janssen-Cilag Pty Ltd v Pfizer Pty Ltd

(vi) Cases 2.1 and 2.2 fail because the smoothing cover and Trowbridge/NTA arguments fail. Those arguments fail for the further reason that the appellants did not prove that, but for the misleading conduct alleged, NCRH would have issued a different prospectus (which would have resulted in the appellants not making any NCRH-related investments), or NCRH would not have issued any prospectus (which would have had the same consequence).

(vii) Cases 2.3(a)-(d) fail for the further reason that the board was not misled.

(viii) Cases 2.3(a)-(d) fail for the further reason that the appellants did not prove that their damages were suffered “by” misleading conduct as required by s1005 of the Corporations Law.

Per Ipp JA (Giles JA and Hodgson JA agreeing) dismissing case 3.1:

(i) Case 3.1 fails because the appellants did not prove that their damages were suffered “by” misleading conduct as required by s1005 of the Corporations Law.

(ii) Case 3.1 fails for the further reason that the board was not misled.

(iii) Case 3.1 fails for the further reason that all the representations (save for that upon which the “further issues argument” was based) alleged to arise out of the DDC Supplementary Report were not falsified. As regards the further issues argument, that argument was not pleaded at trial and the appellants should not be allowed to raise it on appeal.

Per Ipp JA (Giles JA and Hodgson JA agreeing) upholding case 3.2:

(i) The case based upon Mr Daya’s independent liability fails because that argument was not pleaded at trial and the appellants should not be allowed to raise it on appeal;

(ii) The trial judge erred in finding that Mr Daya engaged in misleading conduct as regards the information he received in December 1998 but did not disclose to the board;

(iii) As regards the case based upon Mr Daya’s accessorial liability relating to the information he received in January 1999:

a. This case was pleaded at trial;

b. The trial judge rightly found that NCRH (by Mr Daya remaining silent about the January information) engaged in misleading conduct;

c. By that misleading conduct the appellants were misled and suffered damage, and;

d. The challenges as to whether the 2nd and 5th appellants were the proper plaintiffs fails on the facts, as do the challenges based on the proposition that certain of the appellants had not proved that they had paid for their notes, and;

(iv) As regards the appellants’ damages:

a. The rule in Potts v Miller [1940] HCA 43; (1940) 64 CLR 282 does not apply;

b. The appellants were locked in to their investments, and;

c. The appellants’ damages should be assessed as the difference between what they paid for their investments and the value of the investments following the failure of NCRH. Because the investments ultimately proved to be worthless, the appellants’ damages are the entirety of the amounts invested, less the proceeds of any investments sold.

Potts v Miller [1940] HCA 43; (1940) 64 CLR 282 distinguished
Smith New Court Securities Ltd v Citibank NA [1997] AC 254 applied
Gould v Vaggelas [1985] HCA 85; (1985) 157 CLR 215 referred to
HTW Valuers v Astonland Pty Ltd [2004] HCA 54; (2004) 217 CLR 640 referred to
Henville v Walker [2001] HCA 52; (2001) 206 CLR 459 referred to
Kenny & Good Pty Ltd v MGICA (1992) Ltd [1999] HCA 25; (1999) 199 CLR 413 referred to

ORDERS

(a) The appeal against Mr Daya succeeds.

(b) The orders made by the trial judge in respect of the claims against Mr Daya by ICI, AOITL, ASC, AOITP and ESS are set aside.

(c) Mr Daya is ordered to pay damages to ICI of $1,581,172.80.

(d) Mr Daya is ordered to pay damages to AOITL of $6,177,561.

(e) Mr Daya is ordered to pay damages to ASC of $6,500,000.

(f) Mr Daya is ordered to pay damages to AOITP of $7,540,000.

(g) Mr Daya is ordered to pay damages to ESS of $15,964,927.05.

(h) The appeals are otherwise dismissed.

(i) Leave is granted to the appellants to amend the notice of appeal so as to enable them to rely on the representations in paragraphs 104 (a) and (e) of 6FAS.

(j) The parties have liberty to apply for any other orders that need to be made in accordance with these reasons.

(k) The parties are directed to arrange a date with the registrar for a directions hearing relating to the further disposition of the remaining matters to be resolved in the appeal (including, but not necessarily limited to, costs, interest on the damages awarded, any orders made by McDougall J that should be set aside in accordance with these reasons, and any further orders that need to be made). Thereafter a date will be allocated for the hearing of outstanding matters.

CA 40249/07
SC 50169/01

GILES JA
HODGSON JA
IPP JA
3 DECEMBER 2008

Ingot Capital Investments Pty Ltd & Ors v Macquarie Equity Capital Markets Ltd & Ors

Judgment

1 GILES JA: I agree with the orders proposed by Ipp JA and, subject to the following, with his Honour’s reasons.

Case 2.3 and “indirect causation”

2 Case 2.3 was based on contravention of s 995 of the Corporations Law. The appellants claimed that the DDC respondents had engaged in misleading conduct in providing to NCRH’s board on 18 November 1998 their report to the effect that the members of the DDC were not aware of any material misstatement or omission in the prospectus.

3 Mr Saville did not see the DDC report, and was not misled by it. The appellants did not rely on any direct effect on his decision-making. On the reasoning in Case 2.3, the board was misled and the appellants suffered loss or damage by the contravention of s 995 because the board would otherwise not have issued the prospectus and the note issue would not have taken place.

4 This brought consideration of Digi-Tech (Australia) Pty Ltd v Brand [2004] NSWCA 58; (2004) ATPR 46-248; (2004) 62 IPR 212. McDougall J had held that it precluded the appellants from maintaining a case so structured.

5 In Digi-Tech (Australia) Pty Ltd v Brand Digi-Tech had provided revenue and profit projections to Deloitte; on the basis of the projections Deloitte had arrived at a valuation of products which were purchased as part of a tax-driven scheme; and a Mr Urwin (not from Digitech or Deloitte) had marketed the scheme to investors. In a claim against Digi-Tech the investors alleged that the projections were incorrect and their provision to Deloitte was misleading conduct, and sought to recover compensation for their entry into the scheme.

6 The case at trial was one of direct reliance on the incorrect projections. The trial judge found that the investors’ reliance had not been established. It was held on appeal that this finding had been come to on an incorrect premise as to the effect of the representation of the projections, and that the issue should be remitted for retrial.

7 The Court (Sheller, Ipp and McColl JJA) went to deal with an alternative case first propounded on appeal, namely -

148 The appellants submitted that it was not necessary for a party seeking to recover damages to show direct reliance upon misleading conduct by the representor. They submitted that the misleading conduct might cause other persons to act in a way that leads to loss suffered by a plaintiff. They submitted that this approach gives effect to the words in s 82 of the Trade Practices Act 1974

namely, ‘suffers loss or damage by conduct of’. They relied on Janssen-Cilag Pty Limited v Pfizer Pty Limited (1992) 37 FCR 526 at 529-530, Wardley Australia Limited v Western Australia (1992) 175 CLR 514 at 525, Marks v GIO Australia Holdings Limited (1998) 196 CLR 494, Hampic Pty Ltd v Adams [1999] NSWCA 455 and Stockland (Constructors) Pty Ltd v Retail Design Group (International) Pty Ltd [2003] NSWCA 84.

149 The appellants put their case in this way. They said that if Digi-Tech had not produced misleading and deceptive forecasts concerning the revenue and gross margin of the products, Deloitte would not have produced a valuation to support the price of $72.5m. In the absence of that valuation, or any valuation supporting that price, the investment scheme would not have gone ahead and Mr Urwin would not have proposed the scheme to any of the investors. It was submitted that Digi-Tech’s misleading conduct, thereby, caused Mr Urwin to act in a way that led to loss or damage to the appellants. They described this argument as the ‘indirect causation theory’.

8 Their Honours spoke of the cases on which the investors relied, as to Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 citing a passage from the judgment of Mason CJ and Dawson, Gaudron and McHugh JJ at 525 which included that “by” in s 82 of the Trade Practices Act 1974 (Cth) -

… clearly expresses the notion of causation without defining or elucidating it. In this situation, s 82(1) should be understood as taking up the common law practical or common-sense concept of causation recently discussed by this Court in March v Stramare (E & M H) Pty Ltd , except in so far as that concept is modified or supplemented expressly or impliedly by the provisions of the Act.

9 Their Honours then said -

155 Stockland, like Janssen-Cilag, was not a case where the plaintiff claimed damage caused by entering into a transaction induced by misleading conduct. In both cases the misleading conduct had caused others to act to the direct prejudice of the plaintiff. That is to say, the chain of causation was as follows: firstly, misleading conduct by the defendant; secondly, an innocent party is induced by the misleading conduct to act in some way; thirdly, the innocent party’s act, by its very nature, causes the plaintiff loss. On this basis, no act of the plaintiff contributes to the loss. The chain of causation is complete without there needing to be any act or omission on the part of the plaintiff.

156 The Janssen-Cilag and Stockland category of claim is materially different to that which occurs when plaintiffs suffer loss because they, themselves, are induced by misleading representations to perform some act or omission by which they are prejudiced. The difference lies in the fact that in the first category of case no conduct on the part of the plaintiff forms a link in the causation chain. In the second category, the inducement of the plaintiff and his or her act or omission causing loss is an essential part of the chain. Without such inducement and a consequential act or omission on the part of the plaintiff there is indeed no linking chain between the misleading conduct and the plaintiff’s loss.

157 This analysis demonstrates the fallacy of applying the so-called indirect theory of causation to this case.

158 On the assumption that Digi-Tech’s forecasts as to the revenue and gross margin of the products were misleading and deceptive, that misleading and deceptive conduct resulted in Deloitte producing, in essence, a misleading and deceptive valuation to support the price of $72.5m. That valuation enabled the investment scheme to be put together and proposed by Urwin to the appellants. But to complete the chain of causation, there must be something linking the appellants’ loss to their entry into the investment scheme. That link is the inducement of the appellants and their consequential act of entering into the transaction to their prejudice. Without that link, there is no proof that the misleading conduct caused the loss.

159 We accept Mr Sheahan’s submission that, whatever might be the position in other contexts, in cases of this kind (misrepresentation inducing a transaction) the courts have required reliance by or on behalf of the plaintiff on the misrepresentation as being essential to the proof of causation as required by s 82(1) of the Trade Practices Act 1974. Persons who claim damages under s 82(1) on the ground that they entered into transactions induced by the misrepresentations of other persons must prove that they relied on such misrepresentations and, therefore, “by” that conduct, they suffered loss or damage. As Mr Sheahan pointed out, were it otherwise, representees could succeed even though they knew the truth, or were indifferent to the subject matter of the representation.

10 The appellants did not directly submit that Digi-Tech (Australia) Pty Ltd v Brand was wrongly decided in this respect. They submitted (i) that what was said in the passages I have set out was obiter because the Court held also that the “indirect causation theory” was not available to the investors because it had not been pleaded; (ii) that the present case was different because it was not one in which “the plaintiffs suffer loss because they themselves are induced by misleading representations to perform an act or omission by which they are prejudiced” (at [156]) but one in which “misleading conduct had caused others to act to the direct prejudice of the plaintiff” (at [155]); and (iii) that “in connection with a dealing in securities” in s 995 of the Corporations Law and the purpose of protecting investors in Parts 7.11 and 7.12 gave a wider scope to causation than “in trade or commerce” in s 52 of the Trade Practices Act and enabled recovery by investors who did not act directly in reliance on misleading conduct. They said that because s 1005 enables recovery for contravention of s 1024 of the Corporations Law (which requires the issue of a supplementary prospectus if there are material developments after the issue of the prospectus), there was recognition for the purposes of s 1005 of a kind of indirect causation, in that such a contravention will ordinarily not have been relied on by an investor who is unaware of the occasion for a supplementary prospectus.

11 I do not regard the Court’s supplementary observation that the “indirect causation theory” was unavailable on pleading grounds as detracting from the considered statements in the passages I have set out. Nor in my opinion is there material difference between the Trade Practices Act and the Corporations Law in their legislative contexts, s 52 and s 995 both being directed to what may broadly be called consumer protection. The partly different phrasing of the norms of conduct in s 52 of the Trade Practices Act and s 995 of the Corporations Law are not to the point. The present question does not concern the norms of conduct but the provisions for recovery of loss or damage upon contravention, and there is relevantly identity between s 82 of the Trade Practices Act and s 1005 of the Corporations Law. Both are in terms of loss or damage suffered by contravening conduct, and the approach to causation should be the same. Section 1024 does not bring recognition of a kind of indirect causation. Satisfaction of the causation involved in “by” in s 1005 will call for regard to whether or not the investment would have been made if a supplementary prospectus had issued.

12 The appellants’ reliance on the reference in [156] of Digi-Tech (Australia) Pty Ltd v Brand to the category of claim ”when plaintiffs suffer loss because they themselves are induced by misleading representations to perform an act or omission by which they are prejudiced” was in my view misplaced. Their Honours were contrasting the kinds of claim, and were not restricting what followed to where there was direct inducement of the plaintiff; they were identifying the kind of claim in which inducement of the plaintiff played a part. The distinction drawn in Digi-Tech (Australia) Pty Ltd v Brand is between cases where conduct on the part of the plaintiff “forms a link in the causation chain” (at [156]) and where it does not. Where it does, there must be reliance on the misleading conduct in the manner next explained. Where it does not, there may be recovery if the act of the innocent party induced by the misleading conduct “by its very nature, causes the plaintiff’s loss” (at [155]), but that is where the plaintiff passively suffers loss from another’s act (as in Janssen-Cilag PtyLimited v Pfizer Pty Limited (1992) 37 FCR 526 at 529-530, where consumers were led by the misleading conduct to buy less of the plaintiff’s product).

13 In saying that in a case of “misrepresentation inducing a transaction” reliance on the misrepresentation was required for proof of causation (at [159]), from the facts before them and their Honour’s discussion they meant a case where the plaintiff was not a passive sufferer from another’s act, but was someone who made a decision to enter into the transaction to which the representation was material. Their Honours did not mean direct inducement, but that the decision and the materiality to it of the representation was a link in the causal chain.

14 Since Wardley Australia Ltd v Western Australia there has been some withdrawal from the common law practical or common sense concept of causation, and emphasis on the purpose to which the question of causation is directed, see for example Allianz Australia Insurance Ltd v GSF Australia Pty Ltd [2005] HCA 26, (2005) 221 CLR 568 at [96]-[97] per Gummow, Hayne and Heydon JJ.

15 In Travel Compensation Fund v Tambree [2005] HCA 69; (2005) 224 CLR 627 Gummow and Hayne JJ said at [45] -

It is now clear that there are cases in which the answer to a question of causation will differ according to the purpose for which the question is asked. As was recently emphasised in Allianz Australia Insurance Ltd v GSF Australia Pty Ltd, it is doubtful whether there is any "common sense" notion of causation which can provide a useful, still less universal, legal norm. There are, therefore, cases in which the answer to a question of causation will require examination of the purpose of a particular cause of action, or the nature and scope of the defendant's obligation in the particular circumstances.

16 In the same case, referring particularly to Henville v Walker [2001] HCA 52; (2001) 206 CLR 459 and I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd [2002] HCA 41; (2002) 210 CLR 109, Gleeson CJ said at [30] -

In recent cases, this Court has pointed out that, in deciding whether loss or damage is ‘by’ misleading or deceptive conduct, and assessing the amount of the loss that is to be so characterised, it is in the purpose of the statute, as related to the circumstances of a particular case, that the answer to the question of causation is to be found.

17 There can be postulated, even where the representation was material to the plaintiff’s decision to enter into the transaction, that loss or damage is suffered by misleading conduct because the plaintiff would not otherwise have had the opportunity to enter into the transaction. The plaintiff would not have had occasion to make a decision. There is “but for” causation; is it sufficient?

18 In Henville v Walker, after noting that “by” in s 82 of the Trade Practices Act invokes the common law concept of causation but is not to be applied rigidly without regard to the terms of objects of that Act, and that causation in law is concerned with determining legal responsibility for a past act or omission, McHugh J said -

100 In some situations, the legal framework may require a finding that, despite a causal connection in a physical sense between the breach and damage, no causal connection exists for legal purposes. In other situations, the legal framework may require a finding that a causal connection exists even though no more appears than that the damage followed after breach of a legal norm.

101 In the first class of case, some act of the defendant may have set in train, or some omission of the defendant may have failed to set in train, a series of physical events that resulted in or could have avoided damage to another person or property. In this situation, the damage occurred because, given the act or omission, the laws of nature dictated the result. The physical connection between the defendant's act or omission and the damage suffered, and the materiality of the connection is usually apparent, although often enough it will require expert evidence to demonstrate the connection. In this situation, questions of causation usually present no difficulty, although questions of remoteness of damage may do so. Exceptionally, however, the policy or rationale of the legal norm that has been breached will require the court to disregard the physical connection and to make a finding of no causal connection.

…

103 In the second class of case, the damage will not have occurred because of the laws of nature but because a person has acted to his or her detriment by reason of or following some conduct of the defendant. The conduct may be an act, an omission, a statement or a suggestion. But it will not be regarded as causally connected with the detriment if it provides no more than the reason why the person acted to his or her detriment. If the defendant intended the person suffering a detriment to act in the general way that he or she did, the common law will invariably hold that a causal connection existed between the conduct and the detriment. But if the conduct merely provides the reason why the person acted, it will not be sufficient to establish a causal connection unless the purpose of the legal norm that the defendant has breached is to prevent persons suffering detriment in circumstances of the kind that occurred. If a broker negligently advises a client to retain shares because they are a good investment, the broker will be liable for the loss sustained in retaining those shares. But if, having received that advice, the client decides to buy more shares, the broker will not be liable for the further losses unless the terms of the original retainer imposed a duty on the broker to advise in respect of further purchases.

19 His Honour’s discussion provides guidance here. Where there is a decision by the plaintiff whether or not to enter into a transaction, any resulting loss or damage is not dictated by the laws of nature. That is not the first class of case, but the second. If the plaintiff would not have had the opportunity to enter into the transaction, that “but for” element does not go beyond a reason why the plaintiff entered into it. Conduct which merely provides the opportunity for the plaintiff to enter into the transaction will not suffice, unless the purpose of ss 995 and 1005 is to provide recompense for loss or damage suffered only because there was the opportunity to enter into the transaction and without regard to materiality of the representation to the plaintiff’s decision to enter into the transaction.

20 The purpose of ss 995 and 1005 is achieved by proscription of engaging in misleading conduct and provision of compensation. In Henville v Walker Gleeson CJ referred at [18] to the purpose of the broadly equivalent provisions of the Trade Practices Act as “establish[ing] a standard of behaviour in business by proscribing misleading and deceptive conduct, whether or not the misleading or deception is deliberate, and by providing a remedy in damages”, and McHugh J said at [96] that a court “should strive to apply s 82 in a way that promotes competition and fair trading and protects consumers”.

21 Section 1005 should be applied in a way that promotes provision of correct information to investors and protects them in making investment decisions. But this does not warrant compensating investors regardless of the effect on their decision-making of the misleading conduct. Once provided with correct information, the investors must make their investment decisions. Perhaps in some circumstances a plaintiff enters into a transaction simply because the opportunity to do so is available, when it would not have been available had there not been the misleading conduct, and that plaintiff can be regarded as in like position to the passive sufferer from another’s act. That will not be so as a matter of course, and was not so in the present case.

22 As was pointed out in Digi-Tech (Australia) Pty Ltd v Brand at [159], ss 995 and 1005 should not be given a scope whereby an investor entering into a transaction could recover even if it knew the truth of the underlying misrepresentation, or was indifferent to its truth, and proceed nonetheless. In my respectful opinion Digi-Tech (Australia) Pty Ltd v Brand was correctly decided on its facts, and its reasoning holds good. The present case is not one of a plaintiff in like position to the passive sufferer from another’s act. The appellants presented a case of decision-making by Mr Saville and materiality of representations to his decision-making; the materiality case was largely not accepted by McDougall J. Mr Saville was certainly not an unthinking investor, and did not decide upon investment simply because the opportunity was available.

Case 3.1 and “indirect causation”

23 Case 3.1 was also based on contravention of s 995 of the Corporations Law. The appellants claimed that the DDC respondents had engaged in misleading conduct in providing to Messrs Peck and Daya as the board sub-committee on 12 January 1999 their report to the effect that nothing had come to their attention causing them to believe that there was a material misstatement or omission in the prospectus or any significant change affecting any matter in it.

24 Again, Mr Saville did not see the DDC supplementary report, and was not misled by it. The reasoning in Case 3.1 was again that the board (Messrs Peck and Daya) was misled, and that the appellants suffered loss or damage by the contravention of s 995 because the board would otherwise not have issued the notes.

25 Ipp JA considers that Case 3.1 fails because of the approach adopted in Digi-Tech (Australia) Pty Ltd v Brand. I respectfully question whether that is so. I can give my reasons briefly, in the light of what I have said thus far.

26 By 12 January 1999 Mr Saville had made his investment decisions. The appellants had entered into transactions. They had applied for notes, and their applications awaited issue of the notes. Assuming that disclosure in the DDC supplementary report of the material changes on which the appellants relied would have caused the board not to issue the notes, the appellants could be said to be passive sufferers from the misleading conduct of the DDC respondents. There would be no question of a decision by the appellants to which the DDC’s representation to the board was material. Case 3.1 would not be one of “misrepresentation inducing a transaction”, and the necessary causation could be found.

27 The assumption must be taken further. As Ipp JA has explained, the board was not unfettered. NCRH had obligations towards the applicants for notes. Postponement of the issue date might have meant that NCRH would have met its demise prior to issue of the notes and for that reason the applicants’ money would have been returned. But if the board had offered to cancel the note issue and return the applicants’ money in the manner in which Ipp JA refers, the appellants may have had to make a further decision in the light of their knowledge of the changes. Would that bring Case 3.1 within the reasoning in Digi-Tech (Australia) Pty Ltd v Brand, as one of misrepresentation inducing the transaction of deciding to accept the offer to cancel the note issue? And if it did, why should the chain of causation not be completed by the finding (made in relation to Case 3.2) that the strong likelihood is that the appellants would have accepted the offer?

28 It is unnecessary to take this further, and I do not do so.

Case 3.2 and “indirect causation

29 Had Mr Daya’s liability been an independent liability rather than an accessory liability, what I have said in relation to Case 3.1 could arise. However, for his accessory liability the contravention lies in NCRH’s misleading conduct in failing to disclose the January information to the appellants. Whether the appellants thereby suffered loss or damage does not raise a similar question of “indirect causation”.

Cases 2.1 and 2.2 and s 996 of the

Corporations Law

30 Cases 2.1 and 2.2 were based on contravention by NCRH of s 996 of the Corporations Law and knowing involvement of a number of the respondents in that contravention. The appellants claimed that NCRH issued the prospectus with material misstatements or omissions in the respects the subject of the smoothing cover and trading prospects arguments. McDougall J made findings generally adverse to Mr Saville’s reliance on the prospectus in these respects. The appellants sought to overcome this by challenging his Honour’s findings in relation to the making of the para 46 representations and submitting that error in those findings infected his Honour’s view of Mr Saville’s credibility. But they also contended that it was sufficient that there was contravention of s 996 by the issue of the prospectus followed by their acquisition of notes, without reliance by Mr Saville on any material misstatement or omission in the prospectus.

31 Ipp JA assumes without deciding that the appellants’ contention in this respect is correct, but considers that it does not avail them because they did not plead or prove that NCRH otherwise would not have issued a prospectus at all or would have issued a different prospectus, with the result that they would not have acquired their notes. I would go further. In my opinion, the contention should not be accepted.

32 Section 996 proscribes certain conduct. Section 1005 prescribes civil liability for contravention of s 996. The legislative purpose in s 996 is to set a standard of corporate behaviour, emphatically done because breach attracts criminal liability, in the interests of investors through provision of correct information for their investment decisions. Section 1005 encourages adherence to the standard and advances the interests of investors by providing for compensation. But the compensation is conditioned by the causation involved in “by” in s 1005.

33 The appellants’ submission, which at least some of the respondents said had not been put at the trial, was in substance (and also with reference to s 1007 of the Corporations Law, see below) that the contravention of s 996 lay in the issue of a prospectus containing a material misstatement or omission, and that the issue of the prospectus as the requisite contravention itself attracted civil liability regardless of reliance or the investor being misled.

34 The submission did not adequately recognise the requirements of “by” in s 1005. It does not follow from the proscriptive terms of s 996 that the causation is satisfied by no more than the fact that the defendant authorised or caused the issue of a prospectus in which there was a material misstatement or omission. The issue of a prospectus containing a material misstatement or omission opens the door to recovery of compensation in a “but for” sense, but as Digi-Tech (Australia) Pty Ltd v Brand shows that may not be sufficient.

35 There is overlap between s 995 and s 996. The issue of a prospectus containing a material misstatement or omission will be both a contravention of s 996 and engaging in misleading conduct in contravention of s 995. Section 996 creates an offence, but is in less general terms than s 995 and permits defences of reasonableness or inadvertence. The duality is understandable, but when both are picked up in s 1005 it is not to be expected that “by” should have a different meaning or application according to which of the provisions is contravened.

36 The appellants’ submission is unpersuasive unless the requisite causation would also be satisfied in the case of contravention of s 995 by the issue of a flawed prospectus. The appellants held back from that submission with respect to Digi-Tech (Australia) Pty Ltd v Brand, save that at one point they faintly suggested in argument that there was similar “connection” between s 1005 and each of s 995 and s 996, it seems meaning that the connection for s 996 would suffice for s 995. However, the similarities between ss 52 and 82 of the Trade Practices Act and ss 995 and 1005 of the Corporations Law are such that the established jurisprudence in relation to the former guides the construction and application of the latter (see for example Fraser v NRMA Holdings Ltd (1995) 55 FCR 452 at 463-4; Gardiner v Agricultural and Rural Finance Pty Ltd [2007] NSWCA 235 at [285]), and reason must be found for a different causation where the contravention is of s 996.

37 The proscription of the issue of a prospectus containing material misstatements or omissions is so that investors will not be misled, and the prescription of civil liability is so that investors who have been misled can recover the loss or damage suffered “by” the contravention. The proscription and attendant criminal liability is not for its own sake, but so that investors will not be misled; as earlier mentioned, by encouraging provision of correct information to investors. The vice is not issuing misleading prospectuses, but misleading investors by issuing misleading prospectuses. When it comes to s 1005, then, compensation is to be recovered not simply because a misleading prospectus was issued, but because the investor was misled by its issue. Subject to cases of the Janssen-Cilag PtyLimited v Pfizer Pty Limited kind, where the investor was not passive but undertook decision-making to which what appeared in the prospectus was material, there must be reliance on the material misstatement or omission in like manner to Digi-Tech (Australia) Pty Ltd v Brand.

38 There is no reason here for causation in accordance with the appellants’ contention where the contravention is of s 996. Acceptance of the contention would mean that an investor in Mr Saville’s position could recover for loss or damage suffered following the issue of a prospectus in contravention of s 996, even though the investor knew that the truth of the material misstatement or omission or was indifferent to the correctness of the statement or the omitted matter. It would be enough that the investor knew that a prospectus had issued; perhaps not even that. Such departure from the established jurisprudence relevant to s 995 in my view does not accompany s 996.

39 Section 1007 of the Corporations Law adds to the legislative context, and arguably does provide reason for the causation in question. It provides a defence in an action under s 1005 if it is proved that the investor knew that the statement in the prospectus was false or misleading or was aware of the omitted matter. Since it applies only to an action under s 1005 brought against a person who authorised or caused the issue of the prospectus or a person who by s 1006(2) is by statute involved in that issue, it is confined to where there has been contravention of s 996. It could suggest that where the contravention is of s 996, the “by” in s 1005 is satisfied by the issue of the prospectus followed by investment, because it places on the defendant the burden of proving that the investor was not misled.

40 Against that, s 1007 leaves untouched the situation where the investor is indifferent to the false or misleading statement or the omitted matter. It would be odd if this dealing with one matter, albeit an important one, relevant to suffering loss or damage “by” contravention of s 996 were intended to bring a new causation where the contravention was of that provision; and if so, why not also where the same conduct (the issue of a prospectus containing a material misstatement or omission) is also a contravention of s 995? In my opinion, the better view is that s 1007 stands alongside the causation of “by” in s 1005, and is to be seen as a statutory recognition that causation will be negated, in practice the burden being on the defendant, if it is shown that the investor knew the true position.

41 In Gardiner v Agricultural and Rural Finance Pty Ltd at [442] Handley AJA said, referring to s 996 as well as s 995, that a plaintiff relying on a contravention “must establish that he relied on the misleading or deceptive conduct, or the false or misleading statement, or that he would have acted differently if the material omission had been disclosed”. It does not appear that the present question was raised, but in my opinion his Honour stated the correct approach to an action under s 1005 to recover loss or damage suffered by contravention of s 996.

Cases 2.3 and 3.1 and misleading the board

42 As Ipp JA has explained, the appellants accepted that the board relied on the truth of the representations made in the DDC report or supplementary report only to the extent that the DDC had “certified” that the prospectus or the issue of the notes could proceed.

43 When an allegedly false representation has been made to identified individuals, whether there was misleading conduct (the complete phrase in s 995(2) is “conduct that is misleading or deceptive or is likely to mislead or deceive”) involves asking whether the representation would be misleading to those individuals. Ipp JA has referred to Brown v Jam Factory Pty Ltd [1981] FCA 35; (1981) 53 FLR 340 at 349. Reference may also be made to Butcher v Lachlan Elder Realty Pty Ltd [2004] HCA 60; (2004) 218 CLR 592 at [38], where Gleeson CJ and Hayne and Heydon JJ point out, in relation to an estate agent passing on information obtained from the vendor, that “it is necessary to consider the character of the particular conduct of the particular agent in relation to the particular purchasers, bearing in mind what matters of fact each knew about the other as a result of the nature of their dealings and the conversations between them, or which each may be taken to have known”. The point is wider than where information was passed on. At its widest, if the representor reasonably believed that the individuals knew the truth and the individuals did know the truth, it would be difficult to find that making the representation was misleading or deceptive or likely to mislead or deceive. This goes to contravention, and is prior to and distinct from whether the individuals were in fact misled as part of the inquiry into loss or damage suffered “by” the contravention.

44 As part of the last-mentioned inquiry, there may be misleading conduct but the individuals were not in fact misled. So in Gould v Vaggelas [1985] HCA 85; (1985) 157 CLR 215 at 236 one of the principles stated by Wilson J was that the inference that the representee was induced to enter into a contract by a false representation may be rebutted by showing that the representee “either was possessed of actual knowledge of the true facts and knew them to be true or alternatively made it plain that whether he knew the true facts or not he did not rely on the representation”. This is a commonly litigated issue.

45 Saying that the board was not misled can obscure the separate questions of contravention and causation of loss or damage. Those questions are better addressed upon the basis that the board did not rely on the correctness of what was said in the DDC report and supplementary report but relied on the fact that the DDC had “certified” that the prospectus or the issue of the notes could proceed.

46 In Case 2.3, the fact that the board did not rely on the correctness of what was said the DDC report leaves open a finding of misleading conduct. That fact of itself does not have the consequence that there was no misleading conduct in providing to the board a false or deficient report. It is true that Mr Peck was both a member of the DDC and a member of the board, but that does not mean that the board as a body is taken to have known all that Mr Peck knew, or that the other members of the DDC reasonably believed that the members of the board other than Mr Peck knew all that Mr Peck knew. Misleading conduct is a matter of fact, not of legal attribution of a board member’s knowledge to the corporation. Had one or more of the smoothing cover, Trowbridge/NTA, trading prospects or note issue purposes arguments succeeded, in my opinion there would have been misleading conduct on the part of the members of the DDC.

47 The question then would have been whether the fact that the board did not rely on the correctness of what was said in the DDC report, but on the fact of “certification”, meant that any loss or damage was not suffered “by” the contravention of s 995. I do not see a gulf between reliance on the correctness of what was said in the DDC report and reliance to the extent that the DDC had “certified “ that the prospectus could proceed. The fact that the DDC gave the go-ahead necessarily conveyed to the board that, having carried out appropriate investigations and given due consideration, the DDC saw no material misstatement or omission in the prospectus. If on one of the arguments abovementioned that was not so, then the board was misled, and (subject to Digi-Tech (Australia) Pty Ltd v Brand considerations) it could be found that loss or damage was suffered “by” the contravention.

48 For Case 3.1, however, in my view the particular facts brought failure at the prior point of contravention, as well as in relation to causation of loss or damage.

49 The appellants relied on misrepresentation in provision of the DDC supplementary report in that it failed to advise of material changes falsifying the prospectus. The material changes were the four matters more fully described by Ipp JA concerning the stop loss proposal, new losses, a special prudential margin and the provision of a further Trowbridge report.

50 Assuming that the DDC supplementary report should have made those matters known as material changes, the misrepresentation was made to Messrs Peck and Daya as the delegates of the board to whom the report was directed. They were the persons who acted upon it to the extent to which it was acted upon. Messrs Peck and Daya must have known of all four matters, and the members of the DDC must have known that they knew of them. The difficulty lies in making the assumption, but once it is made I do not think the members of the DDC engaged in misleading conduct by failing to make known to Messrs Peck and Daya matters of common knowledge between them. Nor in those circumstances could the fact of “certification” convey absence of the material changes.

General

51 In what I have said under these five headings I have to an extent respectfully differed from Ipp JA. The differences do not, however, bring a different outcome in the appeal.

52 HODGSON JA: I agree with the orders proposed by Ipp JA and, subject to what I say below, I agree with his reasons.

53 I would prefer to reserve my position in relation to the following matters:

(2) “Indirect causation” and Digi-Tech (Australia) Limited v Brand [2004] NSWCA 58.

54 As well as giving reasons in relation to those matters, I will also briefly state my views on one of the main matters at issue in these appeals.

Pleading

55 A crucial question in relation to some aspects of what Ipp JA has called the appellants’ “smoothing cover argument” is whether they are available, having regard to the way the case was pleaded and run below.

56 Although the case was brought in the Commercial List, the statement of the claim included in the Summons was treated as a pleaded statement of claim. No one contended it should be treated any differently, and in my opinion this is the appropriate approach. I will refer to the document as the statement of claim.

57 The primary judge made it clear throughout the hearing that he would decide the case on the basis of the pleadings, and the appellants’ counsel agreed that this was the appropriate course.

58 The statement of claim was extremely long (214 pages) and extremely complex, with 299 paragraphs and extensive cross-references. It had been amended five times. There were 14 defendants or groups of defendants, with different cases alleged against various groups of them. On appeal, there were ten separately represented defendants or groups of defendants, some of whom had similar cases alleged against them, and some of whom had quite different cases alleged against them.

59 In certain respects, the opening before the primary judge by the appellants’ counsel went outside the pleadings, and no objection was taken. There was evidence and cross-examination that was relevant to this wider case, although it was also relevant to other issues, such as those raised by defences to the effect that defendants had acted honestly and reasonably. The appellants’ final submissions also supported this wider case; and while some defendants responded that this was outside the pleadings, all defendants responded to the substance of this case.

60 The primary judge in his judgment stated that he would decide the case on the pleadings, and he did not consider this wider case. In circumstances where this had been stated and agreed to during the hearing, I agree with Ipp JA that the primary judge’s approach should not be set aside on appeal.

Pleading Misleading Conduct

61 Very broadly, the case against all defendants was one based on misleading conduct, and there was some debate on appeal as to how such a case should be pleaded, and as to the width of the case available on the basis of the way it was pleaded in this case.

62 In a simple case, where misleading conduct merely suggested something positively advantageous about a transaction, which was not true, it will generally be sufficient just to allege the conduct and what it suggested, and to allege that this was false.

63 However, where what was truly misleading was rather the suppression or non-disclosure of something disadvantageous, or of something that would otherwise have induced the claimant to have acted otherwise, then in my opinion it will generally be necessary, if this is not obvious, to allege what it was that was suppressed or not disclosed. In addition, if it is not obvious what is important or material about what was conveyed or not disclosed, it may be necessary also to make this clear in the pleadings. This is particularly so if what is alleged is non-disclosure of dishonesty, or if some non-disclosure is alleged to be material on the ground that it involved dishonesty.

64 In my opinion, this is what would generally be necessary if pleadings are to fulfil their function of disclosing the case sought to be made out and avoiding surprise.

65 Thus, in cases like Abigroup Contractors Pty Ltd v Sydney Catchment Authority (No 3) [2006] NSWCA 282, (2006) 67 NSWLR 341, where what was important about the misleading conduct was not so much the assertion that there were no plans as the non-disclosure of the fact that there were in fact plans, ideally the pleading should allege that non-disclosure, unless it is obvious. In Abigroup itself, however, it was obvious what it was that had not been disclosed, and also obvious why it was material.

66 One important area of alleged misleading conduct in this case concerned the inclusion in the prospectus of a summary of NCRH’s balance sheet as at 30 June 1998, showing a figure of US$13.839 million for retrocession. As noted by Ipp JA, evidence in the case suggested that this could have been misleading in various respects, which he formulated as follows:

(2) NCRH’s accounts as at 30 June 1998 in that respect did not give a true and fair view of the financial position of the company.

(3) There was material non-disclosure in the following respects:

(b) The transaction was in any event after the closing date of the accounts, and should not have been included at all.

(c) The financial position of the company was such that the company was in breach of a covenant with its financier Dresdner.

(d) The effect of the wrongful treatment of the transaction was to show the company as not being in breach of that covenant.

(e) The transaction had been entered into, and the accounts prepared in that way, with the purpose of showing the company as complying with the covenant.

(f) The persons responsible for the transaction and/or the accounts knew that it was wrong to prepare the accounts in this way.

(g) They nevertheless did so dishonestly in order to present a false view of the company’s position.

(h) They did so in order to deceive Dresdner.

(i) Those in control of the company who were responsible for the prospectus knew of the above non-disclosures and nevertheless concealed them in order to mislead the public.

(j) Those in control of the company who were responsible for the prospectus showed lack of integrity in failing to disclose one or more of the above.

67 The evidence in the case might possibly have supported a finding that the prospectus in this case was misleading in all of these respects, if they had been in issue. And had a finding been made that the prospectus was misleading in failing to disclose the matters in pars (3)(c) to (j), it could well have been concluded that these non-disclosures were material, and either that no prospectus disclosing these things would have been issued or that no one (including the appellants) would have invested if these things had been disclosed. However, as shown by Ipp JA, only (1), (2) and (3)(a) were raised by the pleadings against the directors and Williams and Aroney; and while (3)(c) and (d) might possibly be considered as having been raised against Phillips Fox, (3)(e) to (j) were clearly not raised against anyone.

68 The case was opened before the primary judge so as to suggest all of these things (possibly excepting (3)(i) and (j)), and the same suggestion was made in closing submissions. On appeal, the appellants have sought to rely on (3)(e) and (f). They pointed to par 112 of the statement of claim, which alleges that the directors and Williams and Aroney knew of the falsity of the accounts (in respects 1, 2 and 3(a)). However, the pleading did not allege that the prospectus was misleading in that this knowledge by the directors and Williams and Aroney was not disclosed in the prospectus, and did not allege that any such non-disclosure was material. Particulars of materiality of misleading conduct were sought, and nothing was given in reply that widened allegations in the pleadings. The allegation of this knowledge in the directors and Williams and Aroney was made only in support of an allegation of their knowing concern in NCRH’s misleading conduct, in terms of s 79 of the Corporations Law.

69 In my opinion, reliance on any of (3)(e) to (j) is not available on appeal against any defendant. This may seem an unreasonably narrow approach, but in the circumstances set out above, it is in my opinion correct. (3)(e) to (j) involve dishonesty, and should have been directly alleged if they were to be relied on. The appellants were represented at the trial by astute and experienced counsel, and there is no reason to think there was any mistake or misapprehension about the way the case was pleaded. There could be tactical reasons for not alleging dishonesty, for example to improve the chances that insurance would be available to defendants; and no evidence was led excluding this as an explanation.

70 It is notable that the only expert accounting evidence in the case was that led by the appellants against PricewaterhouseCoopers (PWC) and evidence led by PWC in response to it. The expert evidence led by PWC supported the view that it was legitimate to include, in the accounts as at 30 June 1998, a transaction entered into after that date, and this evidence was not accepted by the primary judge. If the matters in (3)(e) to (j) had been alleged against the directors and Williams and Aroney, and also against Phillips Fox, there may well have been expert accounting evidence called on their behalf, and there may also have been investigation of whether or not the deception of Dresdner was either intended or achieved. It might be considered unlikely that this evidence would have made any difference to the primary judge’s decision on the accounting issue, but additional evidence of this kind could possibly have been significant in relation to any alleged dishonesty by the directors and others.

71 The primary judge made findings adverse to some defendants along the lines of (3)(e) to (j), which findings were relevant to credibility and would have been relevant to defences, if it had been necessary to decide them. However, for the reasons I have given, these findings are not available to support causes of action relying on (3)(e) to (j).

DDC Reports

72 Case 2.3 alleged misleading conduct by members of the DDC in representing to the Board of NCRH that there was no material statement in the draft prospectus that was false or misleading and that there was no material omission. Ipp JA has held that this was not made out because the smoothing cover, Trowbridge/NTA, trading prospects and issue purposes arguments all failed. With this I agree. However, Ipp JA also held that this case failed because the Board was not misled, in that the Board did not rely on the truth of anything stated in the DDC Report. On this, I would prefer to express no concluded view.

73 Although it was not shown that the DDC Report changed the Board’s belief as to whether there was any material statement in the draft prospectus that was false or misleading or there was any material omission from it, the DDC Report conveyed, in the circumstances, that the DDC had carefully investigated the matter and had honestly and reasonably held the opinion conveyed; and if it had been proved that in any respect the DDC had not carefully investigated the matter and honestly and reasonably held the opinion conveyed, then I think that misleading conduct and reliance by the Board could possibly have been proved.

74 That is, while Ipp JA takes the view that it was just certification by the DDC that was regarded by the Board as necessary for the prospectus to go ahead, I think the better view is that the Board’s beliefs could have been affected to the extent that members were relying on the DDC to have carried out proper investigations and reached reasonable conclusions based on those investigations, and that the Board could have been misled if the DDC had not done this.

75 It could be argued that this approach was not spelt out in the pleadings; but this way of considering representations of opinion by persons given the task of applying diligence and expertise to some question is very familiar: see Heydon v NRMA Limited [2000] NSWCA 374; (2000) 51 NSWLR 1 at [429]-[432] per McPherson AJA.

76 Having regard to my view that case 2.3 fails for other reasons, it is not necessary to reach a concluded opinion as to whether this approach to case 2.3 was open on the pleadings or otherwise made out.

77 Similar considerations apply to case 3.1.

Indirect Causation

78 A further basis on which Ipp JA found against the appellants on case 2.3 was on the basis of the approach exemplified by Digi-Tech, especially par [159] of the judgment in that case.

79 In Digi-Tech, the claim was made that the plaintiffs had invested in a scheme in response to a proposal put together on the basis of an accountant’s valuation of two telecommunications products, which valuation in turn was based on misleading and deceptive forecasts by Digi-Tech concerning the revenue and growth margin of the products. The Court of Appeal held that the plaintiffs could not obtain damages for Digi-Tech’s misleading conduct without proving that they had themselves relied on and been misled by Digi-Tech’s misleading conduct; and also held that, in any event, no other basis for the plaintiff’s claim had been pleaded.

80 I am inclined to think that investors may be able to claim damages on the basis of misleading conduct where:

(1) Because of misleading conduct that misleads people involved in putting together an investment opportunity, an investment opportunity is made available to investors which would not have been made available at all but for the misleading conduct;

797 In paragraphs 56 to 59 of Mr Saville’s statement of 23 July 2003 (1 Blue 18), he testified that, as between AOITP and AOITL, the notes were allotted in particular proportions and in a particular manner so as not to breach “the 15% Rule”. Advice in this regard was received from “[AOITL’s] tax advisers” and concerned tax payable in the United Kingdom. The “15% Rule”, according to Mr Saville, was a rule under “United Kingdom taxation law” whereby “[AOITP] was not required to pay capital gains tax on its portfolio if certain rules were adhered to. One rule was that no one investment, at the date of acquisition, could [comprise] at cost, more than 15% of [AOITP’s] portfolio” (1 Blue 18 paragraph 56). According to Mr Saville, the notes in respect of which AOITL sues were allotted to it and not AOITP so that AOITP would comply with that rule.

798 According to Mr Saville, AOITP decided that the notes “held by AOITL should be held in AOITL’s share trading or ‘speculative’ account; which made any subsequent profit or loss taxable” (1 Blue 18 paragraph 57). Mr Saville explained that “by describing AOITL’s investments in NCRH as ‘speculative’ and allocating them to a share trading or ‘speculative’ account, those investments automatically became taxable”. (1 Blue 18 paragraph 58).

799 Mr Saville stated:

AOIT’s tax advisers considered that in this way [AOITP] would continue to adhere to the 15% Rule and its tax position would be protected in declaring AOITL’s investments in NCRH taxable, both [AOITP] and AOPITL would show the necessary good faith to negate any suggestion that the allocation of NCRH investments to AOITL was an attempt to comply with the form, but not the substance of the 15% Rule.

800 It is apparent that the allocation of notes as between AOITP and AOITL was part of a considered scheme. The decision to allot the notes to AOITL was made by AOITP. As AOITL was a wholly owned subsidiary of AOITP, I would infer that AOITP was authorised by AOITL to allot the notes to it. The tenor of Mr Saville’s evidence as a whole was that the scheme to comply with the 15% Rule was implemented. Indeed, Mr Saville’s evidence was that, to protect AOITP, AOITL was to take steps to ensure that any profit made on the notes would give rise to the payment of tax by it. No evidence to the contrary (either in chief or by cross-examination) was adduced.

801 In my view, Mr Saville’s evidence is sufficient to establish AOITL’s standing to sue for damages arising out of its acquisition of the notes. There is other evidence that tends to support this conclusion. That evidence is of little weight on its own, but it does create a picture that goes some way to confirm that AOITL acquired the notes as part of an overall scheme to which it was a party.

802 The appellants led evidence by Mr Bushell, the chairman of AOITL, that the notes in respect of which AOITL sued were paid for by it pursuant to an inter-company loan agreement with AOITP. McDougall J held that Mr Bushell’s evidence to this effect could not be relied upon as “some loan documents had been prepared and backdated in an attempt to circumvent perceived problems”. Mr Bushell apparently backdated the agreement for United Kingdom tax purposes (presumably to ensure compliance with the 15% Rule).

803 McDougall J did not accept that Mr Bushell’s evidence provided credible corroboration of any of Mr Saville’s evidence (at [148]). Such a finding, however, does not preclude the backdated agreement from providing evidence, by implication, that AOITL agreed to acquire the notes. The thrust of Mr Bushell’s evidence as a whole was to the effect that AOITL accepted that it had acquired the notes.

804 The parties to the backdated agreement were AOITP and AOITL. Mr Bushell purported to sign for AOITP and Mr Hambro for AOITL. Mr Dick, relying on the finding that the agreement was backdated, submitted that there was no evidence that the inter-company loan agreement was ever properly executed. He also submitted that the inter-company loan agreement should be regarded as having no effect because it “was not executed prior to the tombstone announcement on 24 February 1999” (T1350). He pointed out that Mr Saville testified that, as at late February 1999, the inter-company loan agreement was not yet operative. Accepting these submissions as correct, the existence of the inter-company loan agreement, even in its backdated form, lends some support (albeit slight) to Mr Saville’s evidence that the notes were acquired by AOITL pursuant to an arrangement, for tax purposes, between it and AOITP.

805 The appellants tendered a report by an expert, Mr Silvia. In his report Mr Silvia explained that he was asked to verify each of the transactions in respect of which the appellants claimed damages. The transactions in respect of which AOITL sues were referred to in Mr Silvia’s report as transactions 28, 29 and 31 respectively. In his report, Mr Silvia stated:

Under transaction 28, AOITL took up 1,411,899 notes in respect of [AOITP’s] sub-underwriting obligations to MECM at a cost of $1,835,468.21.

Under transaction 29, AOITL took up 850,000 notes in respect of [AOITP’]s sub-underwriting obligation to MECM at a cost of $1,105,000.00.

These details are confirmed in a letter from MECM dated 6 January 1999.

A bank statement confirms that both transactions were paid for by [AOITP] on 11 January 1999.

806 In regard to transaction 31, Mr Silvia’s report stated:

Under transaction 31, AOITL took up 2,490,071 notes at a cost of $1.30 per right for a total cost of $3,237,092.30.

The take up of these rights into [AOITL] has been agreed to confirmation provided by ANZ Nominees dated 30 December 1998.

…

A cash account statement from ANZ Nominees confirms that transaction 31 was paid for by AOITL. Payment for this transaction was made by AOITL. This is further supported by an Intercompany loan agreement between AOITL and [AOITP].

807 Mr Silvia gave oral evidence. He was cross-examined, (his cross-examination commences at 4 Black 2083) but not directly about transactions 28, 29 and 31. In my opinion, Mr Silvia’s report is evidence that AOITL “took up” the notes in question. That is, there was a decision by AOITL so to act. That evidence, too, is flimsy, but it adds to the picture created by Mr Saville’s testimony.

808 For the reasons I have stated, I would not accept Mr Dick’s submissions in regard to AOITL.

809 I turn now to ESS.

810 On 15 February 1999 the Royal Bank of Scotland, under the heading “Eastern States Securities – 5,500,000 New Cap Cnv Notes” requested ICM to arrange for delivery of those notes to its agent, ANZ Nominees. On 17 February 1999 ICM gave the necessary instructions and on 26 February 1999 a firm of stockbrokers confirmed that they had “transferred to ANZ Nominees [the notes] on behalf of [ESS] as requested” (see 13 Blue 6091, 6092; 3 Orange 738).

811 Based solely on this evidence, Phillips Fox’s written submissions argued, “ESS is neither the legal nor the beneficial owner of … the notes” (3 Orange 738). I do not accept, however, that the documents relied on by Phillips Fox prove a transfer by ESS of its beneficial interest in the notes. The mere fact that the notes were delivered to ANZ Nominees on behalf of the Royal Bank of Scotland is neutral in this regard; it does not alone tend to prove Phillips Fox’s submission.

812 In the alternative, Mr Dick submitted that the claim by ESS involved a claim by that company as a beneficiary. This submission was based on the fact that the notes acquired by ESS were renounced by ESS and transferred a company known as Saltbush Nominees Pty Ltd “for the account of [ESS]”. ( 1 Blue 272)

813 The fact that the notes were in the name of a nominee company does not mean that ESS had no entitlement to sue. Legal title is not an element of causes of action based on the operation of ss 87(1A), 80, 82 and 52 of the TPA): see Poignand v NZI Securities Australia Ltd [1992] FCA 369; (1992) 37 FCR 363 at 372 per Gummow J. The same is true in regard to causes of action based on the operation of ss 995, 996 and 1005 of the Corporations Law. The true question is simply whether the appellant suffered loss by the contravening conduct. That does not depend on whether the appellants had legal title to the notes.

814 Accordingly, I would not uphold Mr Dick’s submissions in regard to ESS.

815 Mr Dick submitted that there was no evidence that AOITL paid for its notes (in this context I refer to notes and rights to notes as “notes”). Assuming that to be correct, there is a prima facie inference that either AOITL acquired the notes by way of a loan agreement with AOITP or a resulting trust arose with AOITL as trustee. On either basis, AOITL would have standing to sue.

57. Payment for the notes

816 In Phillips Fox’s written submissions, the submission was made that no general ledgers were produced for ASC, ESS, AOITL and AOITP. It was said that this meant that these companies had not adequately proved that they had paid for their notes. Further, it was submitted that the evidence as to whether a particular appellant paid for its notes was not clear and it seemed as if certain payments were made by an entity other than the holder of the notes in question. It was argued that absence of payment by the holder of the notes meant that the holder had not suffered loss.

817 The notes were acquired, generally, in the course of transactions in which several companies in the group of companies (to which the appellants belonged) participated, and funds were moved around within the group to enable these transactions to take place. The appellants, moreover, proved that each appellant took up the notes for which it sued and proved the purchase price of those notes.

818 In my opinion, in the absence of any evidence that tended to refute that the holder of the notes was either the trustee in respect of or beneficial holder of the notes, the holder must be taken to be entitled to sue for loss computed by reference to the difference between the price of the notes and nil (the latter being the true value of the notes).

58. Mr Daya’s liability for damages

819 McDougall J held (at [1063]):

[T]he losses suffered by those plaintiffs who had agreed to subscribe for converting notes or to sub-underwrite the issue would have been avoided had Mr Daya and NCRH complied with their obligations. That would not have availed those of the plaintiffs whose alleged loss flows otherwise than from subscription or underwriting. In their cases, the misleading or deceptive conduct could not be said to be causative of any losses sustained by plaintiffs other than those for whom proper disclosure would have provided an avenue of escape.

820 Mr Jackson, on the other hand, submitted that there was no basis for that distinction in regard to Case 3. He submitted:

[W]hen Mr Daya misrepresented the position to the DDC on 12 January we had made commitments to acquire all the notes that we did. We had committed to acquire, first of all, of course, the placement and sub-underwritten notes, and, your Honours, equally, we had committed ourselves to acquiring the other notes, the ex-rights ones and he deferred purchase notes, and, of course, they were all [acquired] on the issue going ahead, the allotment going ahead. It is difficult to see how a distinction could be drawn about them.

821 Mr Jackson submitted that, if the consequence of NCRH’s conduct was that the issue went ahead when it should not have gone ahead, then the loss that was sustained was the loss occasioned by the issue going ahead.

822 In my opinion, Mr Jackson’s submission is correct. Had NCRH not engaged in conduct that contravened s 995, the notes would not have been issued. By NCRH’s contravening conduct, in which Mr Daya was knowingly concerned, the appellants suffered loss being the difference between what they paid for the notes less their true value. I have expressed the opinion that the true value of the notes was nil.

823 On that basis, the appellants, individually, are entitled to damages against Mr Daya as follows:

(a) ICI is entitled to damages of $1,581,172.80 made up as to $1,720,752.80 in respect of sub-underwritten notes less $139,580 for notes sold on the market on 1 February 1999.

(b) AOITL is entitled to damages of damages of $6,177,561 made up as to $3,237,092.30 in respect of ex-rights notes and $2,940,468.70 in respect of sub-underwritten notes.

(c) ASC is entitled to damages of $6,500,000 in respect of ex-right notes.

(d) AOITP is entitled to damages of $7,540,000 in respect of the acquisition of ex-rights notes.

(e) ESS is entitled to damages of $15,964,927.05 made up as to $15,230,845.50 in respect of ex-rights notes and $734,081.55 in respect of deferred settlement notes.

ICM makes no claim for damages on appeal.
XIV CONCLUDING OBSERVATIONS

59.

Kuru

824 I have taken account of the majority’s remarks in Kuru v State of New South Wales [2008] HCA 26 about the duty of intermediate courts of appeal to deal with all grounds of appeal, namely:

This Court has said on a number of occasions that, although there can be no universal rule, it is important for intermediate courts of appeal to consider whether to deal with all grounds of appeal, not just with what is identified as the decisive ground. (footnotes omitted)

825 This case, however, is far different from Kuru. Kuru was a relatively straightforward case from the point of view of the number of issues involved. The appeal involved a claim for damages for trespass to land and the person. The parties conducted the appeal to this Court on the footing that the single determinative issue as to liability was whether police officers were trespassing in the appellant's flat at a particular moment in time. The quantum of damages was the only other principal issue in the case. This Court (of which I was a member) did not deal with damages and the High Court said that that was wrong.

826 The present proceedings, in contrast, involve, in effect, nine different cases, each with different parties having different interests. The issues in the case are so many, and their identification (particularly by reference to 6FAS and the other pleadings) in many instances so difficult that it is simply not practicable to count them. More than 1000 pages of written submissions were filed before the appeal, hundreds of pages of submissions were handed up during oral argument (many of which were not orally addressed but – quite properly – left for the court to read), and oral argument lasted for four weeks. The arguments were most helpful, and of the highest quality, but they tended to increase the intricacy and density of what was already an extremely complex appeal. It is sufficient to say that, during the appeal, an extraordinarily vast number of issues were canvassed. Although my reasons are more than 200 pages in length, I have deliberately omitted to deal with many of those issues. In the light of what was said in Kuru, I should explain why I have adopted this approach.

827 I have dealt with all the arguments raised on behalf of Mr Daya in support of his argument that Case 3.2 against him should be dismissed.

828 In dealing with each of the other eight cases, I have given more than one ground for my conclusion that the appeal should be dismissed. The grounds in question, in each such case, include either a ground based on a question of practice (namely, whether the argument raised on appeal was pleaded below and whether it should be allowed on appeal) or on a question that turns substantially on factual issues. In essence, I consider that McDougall J made no relevant error. The grounds based on questions of practice and fact do not involve any question of principle that is not well settled.

829 Most of the issues that I have not dealt with involve difficult factual or legal questions that would take many additional weeks to determine. The Court has already devoted far more time and other resources than is normal (even for a significantly complex matter involving a great deal of money) to the hearing and resolution of this appeal. In Visible Results Properties Inc v Sushi Train (Australia) Pty Ltd [2005] FCA 1159, Allsop J (as his Honour then was) said at [29]:

The court system is a finite public resource. Judicial time expended on the resolution of one case is time not spent on the resolution of the controversies of other litigants.

830 The point so made is part of the rationale underlying s 57 of the Civil Procedure Act 2005. Section 57(2) requires the practice of the court to be regulated so as best to ensure the attainment of the objects referred to in s 57(1). The object set out in s 57 (1)(c) is “the efficient use of available judicial and administrative resources”. In a case such as the present, I do not think that it would be an efficient use of available judicial and administrative resources for this court to deal with more issues than are dealt with in my reasons.

831 Although it is theoretically possible for parties at trial or on appeal to raise a vast number of issues, a judge is not always required to deal with each and every one. It is for the discretion of each individual judge how far to go in resolving issues that do not seem to be essential to the determination of the dispute. Of course, each judge must bear in mind and pay due regard to the possibility of a successful appeal, with consequential expense and inconvenience to the parties and waste of judicial resources, should a retrial be required. As far as reasonably possible, the need for a retrial should not be brought about by a judge’s failure to determine issues. Thus, ordinarily, when liability and damages are in issue, the judge should decide both.

832 But it does not follow that judicial duty requires, in every case, the resolution of all issues that the parties raise. Such a practice would result in an indiscriminate use of judicial resources to the prejudice of the general administration of justice. It is neither helpful nor desirable that the ether be flooded with masses of unnecessary obiter dicta. A reasonable balance must be struck between the need to cover all avenues should an appeal succeed and the need to be available to decide other cases. Time limits on submissions and other manifestations of case management are now accepted responses to lengthy litigation. These measures recognise that, if justice is to be administered for the benefit of the entire community, reasonable limits must be imposed on the availability of judicial resources to particular cases. Subject to the criteria I have mentioned, a court is entitled to call a halt after resolving decisive questions. After all, in addition to the factors I have mentioned, the unalterable fact is that the span of human life is limited.

833 Having given consideration, as Kuru requires, to whether I should deal with all the issues raised, I have decided that it is appropriate and consistent with my judicial duty to deal only with those issues discussed in these reasons.

60. Orders proposed

834 No submissions were received as to costs and interest and, as contemplated by the case management orders that were made, other matters in connection with the orders made by McDougall J remain outstanding. In view of the potential complexity of these outstanding matters and the number of parties involved, I consider that a date be allocated for their oral hearing. I do not think that the circumstances are suitable for these matters to be addressed by written submissions.

835 At the hearing of the appeal the appellants applied to amend their notice of appeal. To varying extents there were objections to the amendments, but the submissions were directed to them. One amendment was to bring into the appeal paragraph 55(m) of 6FAS; reliance on that paragraph fell away, and it need not further be considered. The other amendment was to bring into the appeal reliance on the representations in both paras (a) and (e) of paragraph 104 of 6FAS. Leave to amend in that respect should be granted.

836 I propose the following orders:

(a) The appeal against Mr Daya succeeds.

(b) The orders made by the trial judge in respect of the claims against Mr Daya by ICI, AOITL, ASC, AOITP and ESS are set aside.

(c) Mr Daya is ordered to pay damages to ICI of $1,581,172.80.

(d) Mr Daya is ordered to pay damages to AOITL of $6,177,561.

(e) Mr Daya is ordered to pay damages to ASC of $6,500,000.

(f) Mr Daya is ordered to pay damages to AOITP of $7,540,000.

(g) Mr Daya is ordered to pay damages to ESS of $15,964,927.05.

(h) The appeals are otherwise dismissed.

(i) Leave is granted to the appellants to amend the notice of appeal so as to enable them to rely on the representations in paragraphs 104 (a) and (e) of 6FAS.

(j) The parties have liberty to apply for any other orders that need to be made in accordance with these reasons.

837 For the avoidance of doubt, the orders made in sub-paragraphs (a) to (g) are not orders finally disposing of all the appellants’ claims against Mr Daya and all outstanding matters.

**********

Citations

Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd [2008] NSWCA 206

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230

Larsen v Tastec Pty Ltd [2023] NSWCA 39

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71

Statutory Material Cited

6

Gates v City Mutual Life Assurance Society Ltd [1986] HCA 3

Digi-Tech (Australia) Ltd v Brand [2004] NSWCA 58

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CITATION:	Ingot Capital Investments Pty Ltd & Ors v Macquarie Equity Capital Markets Ltd & Ors [2008] NSWCA 206
HEARING DATE(S):	4 August 2008 - 29 August, 5 September 2008
JUDGMENT DATE:	3 December 2008
JUDGMENT OF:	Giles JA at 1; Hodgson JA at 52; Ipp JA at 84
DECISION:	(a) The appeal against Mr Daya succeeds. (b) The orders made by the trial judge in respect of the claims against Mr Daya by ICI, AOITL, ASC, AOITP and ESS are set aside. (c) Mr Daya is ordered to pay damages to ICI of $1,581,172.80. (d) Mr Daya is ordered to pay damages to AOITL of $6,177,561. (e) Mr Daya is ordered to pay damages to ASC of $6,500,000. (f) Mr Daya is ordered to pay damages to AOITP of $7,540,000. (g) Mr Daya is ordered to pay damages to ESS of $15,964,927.05. (h) The appeals are otherwise dismissed. (i) Leave is granted to the appellants to amend the notice of appeal so as to enable them to rely on the representations in paragraphs 104(a) and (e) of 6FAS. (J) The parties have liberty to apply for any other orders that need to be made in accordance with these reasons. (k) The parties are directed to arrange a date with the registrar for a directions hearing relating to the further disposition of the remaining matters to be resolved in the appeal (including, but not necessarily limited to, costs, interest on the damages awarded, any orders made by McDougall J that should be set aside in accordance with these reasons, and any further orders that need to be made). Thereafter a date will be allocated for the hearing of outstanding matters.
CATCHWORDS:	CORPORATIONS - capital raising - convertible note issue - whether misleading or deceptive conduct by lead manager, underwriter and broker before issue of the prospectus - whether draft prospectus misleading or deceptive - whether misleading or deceptive conduct in relation to securities after issue of prospectus and before issue of securities - CAUSATION - where company board relied on representations by due diligence committee and resolved to issue securities - whether but for contraventions the note issue would not have proceeded and the appellants would therefore not have sustained loss - whether appellants can recover in circumstances where they were not misled - DAMAGES - whether appellants entitled to recover damages for issue purchases as well as on market purchases - whether appellants have proved their loss - whether appellants were locked in to their investments - whether rule in Potts v Miller applies - PRACTICE AND PROCEDURE - pleadings - surprise rule - materiality - requirement to expressly plead materiality - dishonesty - requirement to expressly plead dishonesty - PRACTICE AND PROCEDURE - trial - failure by trial judge to deal with argument - where trial judge and parties agreed that case would be decided on the pleadings - argument previously pleaded but abandoned in later pleading - whether argument raised in pleadings - PRACTICE AND PROCEDURE - appeals - argument not made at trial - whether fair to allow argument to be raised on appeal
LEGISLATION CITED:	Acts Interpretation Act 1901 (Cth) Civil Procedure Act 2005 Corporations Law (Cth) Partnership Act 1982 Trade Practices Act 1974 (Cth) Uniform Civil Procedure Rules 2005
CATEGORY:	Principal judgment
CASES CITED:	Aaron’s Reefs Ltd v Twiss [1896] AC 273 Abigroup Contractors Pty Ltd v Sydney Catchment Authority (No 3) [2006] NSWCA 282; (2006) 67 NSWLR 341 Adam P Brown Male Fashions Pty Ltd v Philip Morris Inc [1981] HCA 39; (1981) 148 CLR 170 Allianz Australia Insurance Ltd v GSF Australia Pty Ltd [2005] HCA 26; (2005) 221 CLR 568 Banque Commerciale SA (In Liq) v Akhil Holdings Ltd [1990] HCA 11; (1990) 169 CLR 279 Baulderstone Hornibrook Engineering Pty Ltd v Gordian Runoff Ltd [2008] NSWCA 243 Beale v GIO of NSW (1997) 48 NSWLR 430 Belmont Finance Corporation Ltd v Williams Furniture Ltd [1979] Ch 250 Brambles Australia Ltd v Tatale Pty Ltd [2006] NSWSC 204 Brown v Jam Factory Pty Ltd [1981] FCA 35; (1981) 53 FLR 340 Burston v Melbourne & Metropolitan Tramways Board [1948] HCA 36; (1948) 78 CLR 143 Butcher v Lachlan Elder Realty Ltd [2004] HCA 60; (2004) 218 CLR 592 Cackett v Keswick [1902] 2 Ch 456 Campomar Sociedad Limitada v Nike International Ltd [2000] HCA 12; (2000) 202 CLR 45 Coal and Allied v AIRC [2000] HCA 47; (2001) 203 CLR 194 Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; (1982) 149 CLR 337 Commonwealth Bank of Australia v Mehta (1991) 23 NSWLR 84 Costa v The Public Trustee of NSW [2008] NSWCA 223 Coulton v Holcombe [1986] HCA 33; (1986) 162 CLR 1 Dare v Pulham [1982] HCA 70; (1982) 148 CLR 658 Demagogue Pty Ltd v Ramensky [1992] FCA 557; (1992) 39 FCR 31 Digi-Tech (Australia) Ltd v Brand [2004] NSWCA 58; (2004) 62 IPR 184; (2004) ATPR 46-248 Dow Hager Lawrance v Lord Norreys (1890) 15 App Cas 210 Edgington v Fitzmaurice [1885] 29 Ch D 459 Ellis v Leeder [1951] HCA 44; (1951) 82 CLR 645 Elna Australia Pty Ltd v International Computers (Aust) Pty Ltd (No 2) [1987] FCA 230; (1987) 16 FCR 410 Ford Motor Company of Australia Ltd v Arrowcrest Group Pty Ltd [2003] FCAFC 313; (2003)134 FCR 522 Fraser v NRMA Holdings Ltd (1995) 55 FCR 452 Gardiner v Agricultural & Rural Finance Pty Ltd [2007] NSWCA 235 Gould and Birbeck and Bacon v Mount Oxide Mines Ltd (In Liq) [1916] HCA 81; (1916) 22 CLR 490 Gould v Vaggelas [1985] HCA 85; (1985) 157 CLR 215 Hampic Pty Ltd v Adams [1999] NSWCA 455; (2000) ATPR 41-737 Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (No 1) [1988] FCA 40; (1988) 39 FCR 546 Heydon v NRMA Ltd [2000] NSWCA 374; (2000) 51 NSWLR 1 Henville v Walker [2001] HCA 52; (2001) 206 CLR 459 House v The King [1936] HCA 40; (1936) 55 CLR 499 HTW Valuers v Astonland Pty Ltd [2004] HCA 54; (2004) 217 CLR 640 I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd [2002] HCA 41; (2002) 210 CLR 109 In Re Will of Gilbert (dec'd) (1946) 46 SR (NSW) 318 Janssen-Cilag Pty Ltd v Pfizer Pty Ltd [1992] FCA 437; (1992) 37 FCR 526 Johnson v Perez [1988] HCA 64; (1988) 166 CLR 351 Kenny & Good Pty Ltd v MGICA (1992) Ltd [1999] HCA 25; (1999) 199 CLR 413 Ketteman v Hansel Properties Pty Ltd [1987] AC 189 Kirby v Sanderson [2001] NSWCA 44; (2001) 54 NSWLR 135 Krakowski v Eurolynx Properties Ltd [1995] HCA 68; (1995) 183 CLR 563 Kuru v State of NSW [2008] HCA 26 Leotta v Public Transport Commission (NSW) (1976) 9 ALJR 666 March v E & M H Stramare Pty Ltd [1991] HCA 12; (1991) 171 CLR 506 Marks v GIO Australia Holdings Ltd [1998] HCA 69; (1998) 196 CLR 494 Mummery v Irvings Pty Ltd [1956] HCA 45; (1956) 96 CLR 99 Murphy v Overton Investments Pty Ltd [2004] HCA 3; (2004) 216 CLR 388 Netaf Pty Ltd v Bikane Pty Ltd [1990] FCA 35; (1990) 26 FCR 305 Nocton v Ashburton [1914] AC 932 Nolan v Marson Transport Pty Ltd [2001] NSWCA 346; (2001) 53 NSWLR 116 North Sydney Council v Ligon 302 Pty Ltd (1995) 87 LGERA 435 Oldfield Knott Architects Pty Ltd v Ortiz Investments Ltd [2000] WASCA 255 Orix Australia Corporation Limited v Moody Kiddell and Partners Pty Limited [2006] NSWCA 257 Paringa Mining and Exploration Company Plc v North Flinders Mines Ltd [1988] HCA 53; (1988) 165 CLR 452 Poignand v NZI Securities Australia Limited [1992] FCA 369; (1992) 37 FCR 363 Potts v Miller [1940] HCA 43; (1940) 64 CLR 282 Saffron v Societe Miniere Cafrika [1958] HCA 50; (1958) 100 CLR 231 Smith New Court Securities Ltd v Citibank NA [1997] AC 254 State of Queensland v JL Holdings Pty Ltd [1997] HCA 1; (1997) 189 CLR 146 Stockland (Constructors) Pty Ltd v Retail Design Group (International) Pty Ltd [2003] NSWCA 84 Suttor v Gundowda Pty Ltd [1950] HCA 35; (1950) 81 CLR 418 Taco Co of Australia Ltd v Taco Bell Pty Ltd [1982] FCA 136; (1982) 42 ALR 177 The Marriner v Bishop of Bath and Wells [1893] P 145 Travel Compensation Fund v Tambree [2005] HCA 69; (2005) 224 CLR 627; Visible Results Properties Inc v Sushi Train (Australia) Pty Ltd [2005] FCA 1159 Wardley Australia Ltd v Western Australia [1992] HCA 55; (1992) 175 CLR 514 Whisprun Pty Ltd v Dixon (2003) HCA 48; (2003) 77 ALJR 1598 White v Overland [2001] FCA 1333 Yorke v Lucas [1985] HCA 65 (1985) 158 CLR 661
TEXTS CITED:	Bernard Cairns, Australian Civil Procedure, 7th ed (2007) The Hon Justice R S French, A Lawyer’s Guide to Misleading or Deceptive Conduct (1989) 63 Australian Law Journal 250
PARTIES:	Ingot Capital Investments Pty Ltd (ACN 006 538 147) (First Appellant) Eclectic Stocks Limited Company No 3241668 (Second Appellant) Utilico Pty Limited (ACN 003 573 475) (Third Appellant) Eclectic Investment Trust PLC No 02133976 (Fourth Appellant) Eastern States Securities Ltd (Fifth Appellant) Ingot Capital Management Pty Ltd (ACN 066 017 712) (Sixth Appellant) Macquarie Equity Capital Markets Ltd (ACN 001 374 572) (First Respondent) Macquarie Equities Ltd (ACN 002 574 923) (Second Respondent) Macquarie Bank Ltd (ACN 008 583 542) (Third Respondent) Udayan Daniel Ghose (Fourth Respondent) Jonathan Paul Beach (Fifth Respondent) Azmin Firoz Daya (Sixth Respondent) Craig H Deery (Seventh Respondent) Michael J Morrissey (Eighth Respondent) William Peck (Ninth Respondent) Paul Laurence Williams (Tenth Respondent) Peter Aroney (Eleventh Respondent) Patrick Murray and the persons listed in Schedule "B" to the Notice of Appeal (Twelfth Respondent) Andrew Mutton and the persons listed in Schedule "A" to the Notice of Appeal (Thirteenth Respondent) John Trowbridge Consulting Pty Limited (Cross-Respondent)
FILE NUMBER(S):	CA 40249/07
COUNSEL:	D F Jackson QC; T G R Parker SC; W G Muddle SC; K H Barrett; J A Arnott (First - Sixth Appellants) B C Oslington QC; A S Bell SC; J Williams (First - Third Respondents) P Wood; P Silver (Fourth Respondent) D J Fagan SC; A P Cheshire (Fifth, Seventh and Eighth Respondent) P S Braham (Sixth Respondent) L Gor (Ninth Respondent) A J Bannon SC; M J Cohen (Tenth Respondent) P S Braham (Eleventh Respondent) T F Bathurst QC; S M Nixon (Twelfth Respondent) J T Gleeson SC; R A Dick; J A Watson (Thirteenth Respondent) P H Greenwood SC (Cross Respondent)
SOLICITORS:	Deacons (First - Sixth Appellants) Mallesons Stephen Jaques (First, Second,Third Respondent) Chang Pistilli & Simmons (Fourth Respondent) Colin Biggers & Paisley (Fifth, Seventh, Eighth Respondent) Dibbs Abbott Stillman (Tenth Respondent) Deutsch Partners Lawyers Pty Ltd (EleventhRespondent) Blake Dawson (Twelfth Respondent) Freehills (Thirteenth Respondent) Minter Ellison (Cross-Respondent)

LOWER COURT JURISDICTION:	Supreme Court - Equity Division
LOWER COURT FILE NUMBER(S):	SC 50169/01
LOWER COURT JUDICIAL OFFICER:	McDougall J
LOWER COURT DATE OF DECISION:	30 March 2007
LOWER COURT MEDIUM NEUTRAL CITATION:	Ingot Capital Investments & Ors v Macquarie Equity Capital Markets & Ors [No 6] [2007] NSWSC 124