Morellini v Adams

[2011] WASCA 84

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

TITLE OF COURT :   THE COURT OF APPEAL (WA)

CITATION:   MORELLINI -v- ADAMS [2011] WASCA 84

CORAM:   McLURE P

PULLIN JA
NEWNES JA

HEARD:   22 NOVEMBER 2010

DELIVERED          :   6 APRIL 2011

FILE NO/S:   CACV 34 of 2010

BETWEEN:   RON MORELLINI

Appellant

AND

HENRY JAMES ADAMS
First Respondent

JULIAN FLETCHER GRILL
Second Respondent

ON APPEAL FROM:

Jurisdiction              :  SUPREME COURT OF WESTERN AUSTRALIA

Coram  :BLAXELL J

Citation  :ADAMS -v- MORELLINI [2010] WASC 61

File No  :CIV 1026 of 2008

Catchwords:

Trade practices - Share transaction induced by misleading or deceptive conduct - 'No transaction' case - Scope of the court's power to grant relief under s 77(1) of the Fair Trading Act 1987 (WA) - Whether the plaintiff required to demonstrate quantum of loss - Meaning of 'refund' and 'return' under s 77(3)(d) of the Fair Trading Act 1987 (WA) - Ordinary measure of damages under s 79 of the Fair Trading Act 1987 (WA) - Whether departure from ordinary measures of damages justified - Role of latent negative factors affecting value - Role of subsequent events affecting value - Whether plaintiff 'locked in' to the property - Causation

Legislation:

Fair Trading Act 1987 (WA), s 77, s 77(1), s 77(3), s 77(3)(d), s 79
Trade Practices Act 1974 (Cth), s 87(2)

Result:

Appeal dismissed
Notice of contention dismissed

Category:    A

Representation:

Counsel:

Appellant:     Mr M L Bennett

First Respondent           :     Mr S Penglis

Second Respondent      :     Mr S Penglis

Solicitors:

Appellant:     Lavan Legal

First Respondent           :     Freehills

Second Respondent      :     Freehills

Case(s) referred to in judgment(s):

Fenech v Sterling (1984) 57 ALR 98

Haydon v Jackson (1988) ATPR 40‑845

Henville v Walker [2001] HCA 52; (2001) 206 CLR 459

HTW Valuers (Central Qld) Pty Ltd 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

Kizbeau Pty Ltd v WG & B Pty Ltd [1995] HCA 4; (1995) 184 CLR 281

March v E & MH Stramare Pty Ltd [1991] HCA 12; (1991) 171 CLR 506

Peek v Derry (1887) 37 Ch D 541

Potts v Miller [1940] HCA 43; (1940) 64 CLR 282

Smith New Court Securities Ltd v Scrimgeour Vickers (Asset Management) Ltd [1997] AC 254

1. McLURE P: The respondents were induced by the appellant's misleading or deceptive conduct to subscribe for shares in Meridian Mining Ltd (Meridian), an unlisted public company which proposed to list on the Australian Securities Exchange Ltd (ASX). The trial judge (Blaxell J) found that the respondents had suffered loss and damage and made orders under s 77 of the Fair Trading Act 1987 (WA) (the FTA) directing the appellant, Ron Morellini, to pay to the first‑named respondent, Henry Adams, the amount paid to Meridian for the shares, upon receipt of which Mr Adams was required to transfer to the appellant the shares held by him in Meridian. A conditional order to the same effect was made in favour of the second‑named respondent, Julian Grill.

2. The appellant does not challenge the trial judge's finding that he engaged in misleading or deceptive conduct.  The appellant contends the trial judge erred in granting the relief to the respondents.

Background and findings

1. Mr Morellini was the founding director and sole shareholder of Meridian until 8 February 2007.  In December 2005 and June 2006, Meridian acquired certain mining tenements that were prospective for gold, known as 'Tampia' and 'Geko' (the tenements).  Thereafter, Mr Morellini set about securing seed capital to enable Meridian to conduct an initial public offering (IPO) to fund the exploration and development of the Tampia and Geko tenements.

2. The tenements were previously owned by Synergy Equities Group Ltd (Synergy). The tenements were transferred to Mr Morellini on 23 December 2005. He transferred the Tampia tenements to Meridian on the same day but delayed the transfer of the Geko tenement until 29 June 2005 [18]. Some time prior to the transfers, Mr Morellini, Mr G Lee and Mr G Howlett were involved in plainting the tenements, seeking their forfeiture for non‑compliance with expenditure conditions. They agreed that any tenements acquired from Synergy would be held by Mr Morellini on trust for Mr Lee, Mr Howlett and Mr Morellini's company, Prime Holdings Pty Ltd (Prime). The plaint proceedings were ultimately settled in April 2005 on the basis that the tenements would be transferred to Mr Morellini, who was to transfer them to Meridian. Synergy was to receive $250,000 in cash from Mr Morellini and shares and options in Meridian upon its listing. In fact Meridian paid the purchase price.

3. In January 2005, Messrs Morellini, Lee and Howlett had agreed to sell their interests in the tenements to Meridian in consideration for which each would receive cash together with shares and options in Meridian (the 21 January 2005 agreement). The sum of $300,000 was payable to Messrs Morellini, Lee and Howlett of which 60% was for Messrs Lee and Howlett [17].

4. In March 2006, Meridian agreed to pay a trustee (KBM) a royalty of 2% on the gross sale price of all minerals mined from the tenements.  The undisclosed beneficiary of the trust was Mr Morellini.

5. In December 2006, Mr Morellini was told by a geologist preparing Meridian's independent geological report that there were anomalies indicative of uranium deposits in an area partially within one of the Tampia tenements [70]. Mr Morellini then incorporated National Uranium Ltd with himself as the sole shareholder. On 6 December 2006, National Uranium Ltd filed applications for two exploration licences abutting Meridian's northern Tampia tenements. The applications were funded by Meridian [71].

6. Based on invoices submitted by Mr Morellini and Prime, some for expenses not incurred, Meridian in January 2007 paid a total of approximately $300,000 to Mr Morellini and Prime by crediting their loan accounts.  Messrs Lee and Howlett were entitled to 60% of the payments pursuant to the January 2005 agreement.  They were not paid. 

7. On or about 23 January 2007, each of the respondents subscribed for shares in Meridian. Mr Adams subscribed for 2 million 25 cent shares and 500,000 one cent shares, for a total of $505,000. Mr Grill subscribed for 400,000 25 cent shares and 100,000 one cent shares for a total of $101,000. These sums were paid to and received by Meridian and the shares were issued on 8 February 2007. On that date, Meridian issued 8 million shares at 25 cents and 21 million shares at one cent. Of the capital raising of $2,210,000, only $1,543,800 was paid in cash [77].

8. At a meeting of directors in May 2007, concern was raised about:

   -why Prime had been paid $97,113 for legal costs and $147,000 for consulting costs (without adequate documentation to support the payments);

   -the circumstances surrounding the applications by National Uranium Ltd for uranium tenements;

   -where the capital raised by Meridian had been spent (as at 2 May 2007 it had only $762,000 in cash);

   -the existence of the 2% royalty.

9. Shares issued to Mr Morellini and Prime were paid for by debiting their loan accounts with Meridian. Some of the cash raised was used to make other payments to Mr Morellini and Prime in reduction of their loan accounts. In this way, the sum of $400,326 was paid by Meridian to Mr Morellini and Prime between January 2007 and March 2007 [78].

10. Mr Morellini convened a shareholders' meeting seeking the removal of the three independent directors.  One resigned and Mr Morellini used the votes he controlled at the meeting held in June 2007 to pass motions removing the two others.

11. On 15 June 2007, Messrs Lee and Howlett commenced Supreme Court proceedings against Mr Morellini, Prime and Meridian seeking a declaration that Meridian held one‑third of its interests in the tenements on trust for them.  They also issued plaints in the Warden's Court seeking forfeiture of the tenements for non‑compliance with expenditure conditions. 

12. On 11 December 2007, plaintiffs by the name of Brosnan issued a similar plaint seeking forfeiture of one of the Tampia tenements. On 2 January 2008, a person named Bronte Stewart lodged plaints against all the tenements. Mr Grill and other Meridian shareholders encouraged the lodgement of the plaints by Mr Stewart [222]. They regarded the plaints as effectively caveats preventing any further dealing with the tenements.

13. The respondents commenced the action the subject of this appeal in January 2008.  In the same month they filed an application for leave to bring a derivative action in the name of Meridian. 

14. The plaints commenced by the Brosnans and Stewart were still unresolved at the date of trial.  The proceedings commenced by Messrs Lee and Howlett were all settled by June 2008.

15. On 20 June 2008 there was a sale of Meridian shares and options by Morellini and Prime to Carl Hribar at 10 cents per share.  As at November 2008, Meridian had a cash surplus of only $25,000. 

16. On 29 June 2009, Mr Morellini caused Meridian to make a pro rata offer to all Meridian shareholders to subscribe for shares at a price of one cent per share.  No shareholders took up the offer.  Meridian had not listed on the ASX at the time of trial.

17. The trial judge found, in respect of Mr Adams, that Mr Morellini engaged in misleading or deceptive conduct by misrepresenting that Meridian would list on the ASX by 30 April 2007 and that he, and any related party of his, would hold no more than in the order of 15% of Meridian's issued capital.  However, the trial judge found that only one of the contraventions had induced Mr Adams to acquire the Meridian shares, being the representation by Mr Morellini made in January 2007 that Meridian would list on the ASX by 30 April 2007.

18. In relation to Mr Grill, the trial judge found that the appellant's misleading or deceptive conduct arose from his misrepresentations to the following effect:

    (a)no party other than Meridian had any interest in the tenements or any minerals to be mined from the tenements;

    (b)Meridian was ready for listing on the ASX subject to successful completion of the pre‑IPO capital raising, and would do so within a short time afterwards;

    (c)Mr Morellini would have an interest in no more than in the order of 15% of Meridian's issued share capital;

    (d)upon listing on the ASX, Meridian would have a wholly owned subsidiary involved in the uranium industry; and

    (e)the total moneys Meridian would receive from the pre‑IPO capital raising would be $2,200,000.

19. The trial judge found that Mr Grill relied on all the representations in deciding to invest in Meridian. 

20. The trial judge was satisfied that, but for the relevant misrepresentations as found, each respondent would not have entered into the transaction by which he acquired shares in Meridian [205]. He characterised it as a 'no transaction' case.

21. The trial judge accepted that the predominant factor affecting the value of the Meridian shares was the value of the tenements it held [208] ‑ [209]. As the trial judge observed, the respondents had not called any expert evidence which would allow a precise determination of the real value of their shares at the date of acquisition or at the date of trial [205].

22. However, the trial judge concluded that any expert valuer would find it extremely difficult, if not impossible, to accomplish such a task [212]. That was because there were a number of latent factors which had the potential to negatively impact upon the value of the shares. Those negative factors included [210]:

    -the incorporation of National Uranium Ltd using funds paid by Meridian, but with the appellant as sole shareholder;

    -National Uranium Ltd's applications for exploration licences abutting Meridian's tenements in respect of a uranium deposit which straddled the boundary;

    -Meridian's liability to Lee and Howlett for their proportion ($180,000) of the balance of $300,000 due under the agreement of 21 January 2005;

    -Meridian's previous payment of the $300,000 to the appellant and Prime (at the appellant's instruction) without there being any attempt to account to Lee and Howlett for the same;

    -the appellant's use of fictitious invoices for the bulk of the payment of $300,000, which invoices falsely claimed reimbursement of legal expenses and other amounts said to be owing in respect of those legal expenses.

23. Having regard to the fact that Meridian was controlled by Mr Morellini who was responsible for all the negative factors which affected the value of its shares, the trial judge concluded it was highly unlikely that a hypothetical purchaser, aware of those matters and of their likely impact on the proposed listing, would have been willing to acquire the respondents' Meridian shares [213]. He further concluded that the respondents were 'locked in' once they purchased the shares in January 2007 and that since then there had been other adverse events which had further impacted on the value of Meridian shares [214]. The trial judge continued:

    In view of the above findings, it is clear that I should not adopt the normal rule for assessment of damages in trying to quantify the loss that [the respondents] have each sustained. If either of them is to be granted any relief, it will have to be an award of damages calculated on some other basis and/or appropriate orders under s 77 of the FTA [215].

24. The trial judge had regard to the subsequent adverse events in fashioning the relief to be granted.  Those events included the rift within Meridian's board resulting in steps taken by the Mr Morellini to remove the independent directors, the litigation commenced by various parties, including the respondents, and plaints for the forfeiture of the tenements [216] ‑ [219].

25. The trial judge concluded:

    In summary, and with the possible exception of the plaints for forfeiture commenced by Stewart, I find that [the appellant's] conduct was either a major cause, or at least a contributing cause, to all of the snowballing subsequent events which have impacted upon Meridian's share value [221].

26. Turning his attention to the appropriate relief, the trial judge said:

    Turning now to the question of assessment of damages, I am satisfied that [Mr Morellini's] contravening conduct has caused a loss in the value of the investment of each of [Messrs Adams and Grill] in Meridian. This is one of those cases where the plaintiffs have been unable to adduce precise evidence of what has been lost. Although I am satisfied that the loss in each instance is very substantial, the uncertainties surrounding the value of the shares makes any estimation of the damages sustained very difficult. In respect of Grill, there is also the peculiar difficulty that he shares causal responsibility for the Stewart plaints, which could conceivably result in the total loss of any residual share value [224].

    In these circumstances, I consider that a just outcome is more likely to be achieved by appropriate orders under s 77, rather than by awards of damages under s 79 [225].

27. The trial judge made the following orders:

    1.[Mr Morellini] pay [Mr Adams] the sum of $505,000 together with interest thereon pursuant to s 32 of the Supreme Court Act 1935 (WA) calculated from 23 January 2007 until the date of judgment.

    2.Upon receipt of the payment in 1 above, [Mr Adams] transfer to [Mr Morellini] (or his nominee) all of the shares held by [Mr Adams] in Meridian Mining Ltd.

    3.[Costs order].

    4.Subject to, within 90 days, the discontinuance or dismissal (without any orders against Meridian Mining Ltd) and no appeal by one Bronte Stewart of all of the plaints filed by Stewart seeking forfeiture of mining tenements held by Meridian Mining Ltd:

    (a)[Mr Morellini] pay to [Mr Grill] the sum of $101,000 together with interest thereon pursuant to s 32 of the Supreme Court Act 1935 (WA) calculated from 23 January 2007 until the date of judgment; and

    (b)[Costs order].

    5.Upon receipt of the payment in order 4(a) above, [Mr Grill] is to transfer to [Mr Morellini] (or his nominee) all of the shares held by [Mr Grill] in Meridian Mining Ltd.

Grounds of appeal and contention

1. The appellant contends the trial judge erred:

   (1)in finding that the respondents had suffered loss by reason of the appellant's contraventions of the FTA in circumstances where there was no expert or other evidence capable of supporting such a finding;

   (2)in finding that an expert valuation of the Meridian shares at the date of acquisition would have been difficult if not impossible to accomplish and thus, that it was appropriate to depart from the normal rule for the assessment of damages, being the difference between the value of the shares as represented and their actual value at the time of acquisition or in an appropriate case, the purchase price less the trial date value of the shares;

   (3)in failing to refuse relief to the respondents because of their failure to produce any, or any adequate, evidence as to the value of the shares;

   (4)in concluding that s 77 of the FTA empowered the making of orders directing the appellant to pay the judgment amounts to the respondents and the respondents to transfer their Meridian shares to the appellant;

   (5)in finding that the appellant's conduct was either a major or contributing cause to all of the subsequent events which impacted on Meridian's share value;

   (6)in concluding that it was a 'no transaction' case when the respondents should have been treated as having affirmed the transaction, thus being restricted to a claim for such damages as they could properly prove.

2. The respondents contend that if the challenge to the relief granted by the trial judge is upheld, the respondents' shares should be valued at an average of 10 cents per share as at the date of acquisition, resulting in a damages award of $255,000 to Mr Adams and $51,000 to Mr Grills.

The statutory framework and legal principles

1. The relief sought by the respondents in their pleading was for damages under s 79 of the FTA and/or such other orders as may be appropriate pursuant to s 77.

2. Under s 79, a person who suffers loss or damage by conduct of another person that was done in contravention of, inter alia, s 10 may recover the loss or damage by action against that person or any person involved in the contravention.

3. The trial judge granted relief pursuant to s 77 which relevantly provides:

   (1)Without limiting the generality of section 74 or 75, if, in a proceeding instituted under this Part … the Supreme Court … is satisfied that a person has suffered, or is likely to suffer, loss or damage by reason of conduct of another person that contravened a provision of this Act, the Court, whether or not an injunction under this Part or any other relief is granted or any other order is made in those proceedings, may make such order or orders as the Court thinks appropriate against the person who engaged in the conduct or a person who was involved in the contravention for the purpose of compensating the first‑mentioned person wholly or in part for the loss or damage or of preventing or reducing the extent of the loss or damage.

   … 

   (3)The orders that may be made under this section include ‑ 

   … 

   (d)an order directing the person who engaged in the conduct or a person who was involved in the contravention constituted by the conduct to refund money or return property to the person who suffered the loss or damage.

4. Paragraphs (a), (b) and (c) of s 77(3) provide for relief in whole or in part from the terms of a contract entered into between the person who suffered, or is likely to suffer, loss or damage on the one hand, and the person who engaged in the conduct or who was involved in the contravention on the other. Section 77(3) also empowers the court to order the person who engaged in the conduct or who was involved in the contravention, to pay money to the person who suffered loss or damage (par e) or to supply services to the person who suffered the loss or damage or is likely to suffer loss or damage (par f). Paragraph (g) of s 77(3) empowers the court to order the person engaged in the conduct or involved in the contravention to vary or terminate an existing instrument creating or transferring an interest in land. It can be inferred that this power is confined to cases where a defendant and the plaintiff are parties to the existing instrument.

1. Section 77(3) does not exhaustively state the scope of relief available under s 77(1). That contrasts with its equivalent in s 87(2) of the Trade Practices Act1974 (Cth) (TPA).

2. The power to make an order under s 77(1) is not enlivened unless and until the court is satisfied that the claimant has suffered loss or damage by reason of the defendant's contravention. This is sometimes referred to as the threshold or gateway requirement. Further, an order under s 77(1) will only be appropriate if it is for the purpose of compensating the respondent wholly or in part for its loss or damage. However, the court's discretion is very wide; it enables orders to be made that could not be made at common law or in equity: I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109 [106].

3. There is no basis in the text or purpose of s 77(1) for requiring as a condition of relief, either at the threshold level or thereafter, that the plaintiff prove the quantum of his actual loss. That is clear from the fact that s 77(1) applies even if the court is satisfied that a person is likely to suffer loss or damage by reason of a contravention. Moreover, the purpose of s 77 is to enable the court to do justice between the parties: Kizbeau Pty Ltd v WG & B Pty Ltd (1995) 184 CLR 281, 298. That purpose would be thwarted when, as is frequently the case, there are real difficulties in proving the quantum of an innocent party's actual loss or damage. The great width and flexibility of the relief available under s 77 enables the court to appropriately compensate a claimant who has suffered loss and damage without having to quantify it. For example, there will be occasions in which the relief will in effect restore the parties to their original positions thereby avoiding any possibility of overcompensation. Such was the effect of the orders in this case.

4. The appellant contends that s 77(3)(d) should be narrowly construed to empower the grant of relief only if the contravener was the recipient of the money or property in question. Such an approach is inconsistent with the purpose of s 77 which is to provide the court with wide and flexible powers in order to do justice between the parties. In my view, the words 'refund' and 'return' in s 77(3)(d) are intended to refer and relate to the person who paid the money or handed over the property, not to limit the scope of the persons against whom the order may be made, being the person who engaged in the conduct or a party to the contravention. That construction is consistent with the observations in Fenech v Sterling (1984) 57 ALR 98, 105, and not inconsistent with Haydon v Jackson (1988) ATPR 40‑845, 49-101 which focussed on discretionary considerations. In any event, s 77(3) does not fix or limit the scope of the power in s 77(1) to grant relief. It is clear from my observations on s 77(1) that the relief given in this case is within the scope of that power.

5. It is also necessary to identify the relevant rules and principles relating to compensable loss and damage under s 79 of the FTA. A common law action for damages for deceit is most closely analogous to an action for damages for breach of s 10 of the FTA: Kizbeau (291).

6. The ordinary measure of damages in deceit is the difference between the real value of the thing acquired as at the date of its acquisition and the price paid for it:  Potts v Miller (1940) 64 CLR 282, 297 ‑ 298; Kizbeau (291), HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd (2004) 217 CLR 640.

7. The 'real value' is what the asset was truly worth or what would have been a fair price to be paid in the circumstances:  HTW [36]. The law does not limit recovery by reference to 'market value', being the amount for which the plaintiff might have sold the assets. There are two reasons for that. First, subject to mitigation issues, the plaintiff is not bound to sell the thing and secondly, there may not be a market: HTW [37].

8. Although under the ordinary rule value is assessed as at the date of acquisition, subsequent events may be looked at insofar as they illuminate the value of the thing as at the acquisition:  Potts v Miller (298); Kizbeau (291); HTW [40] ‑ [47].

9. However, a distinction is drawn between subsequent events affecting value that arise from the nature or use of the thing itself and subsequent events affecting value that arise from sources supervening upon, or extraneous to, the breach:  Potts v Miller (298); Kizbeau (291).  In relation to subsequent events, if the cause of the decline in value is not a consequence of the breach, it will be 'supervening', 'independent' or 'extrinsic':  HTW [40], [43].

10. The ordinary rule is no more than a guide to the assessment of damages under s 79 of the FTA. The High Court in HTW held that an alternative measure of damages, being the difference between the value at trial and the purchase price, was appropriate on the facts in that case.  The court said:

    The deduction of true value at the acquisition date from the price paid is no more than a guide to the assessment of damages under s 82. Section 82 does not in terms refer to that method, and the width of s 82 permits other approaches to the assessment of damages so long as they work no injustice. The alternative approach advocated by the plaintiff has particular appropriateness in the present circumstances. That is because a primary reason for the common adoption, in assessing damages in deceit, of the test of comparing the price paid for an asset with its true value when acquired is the desirability of separating out losses resulting from extraneous factors in the later history of the asset … Since [on the facts in this case] there are no losses resulting from extraneous factors to separate out, there is correspondingly less need to look to a comparison of purchase price and real value on acquisition as the appropriate approach [65].

11. The court in HTW [66] approved the statement of the House of Lords majority in Smith New Court Securities Ltd v Scrimgeour Vickers (Asset Management) Ltd [1997] AC 254 that the general rule will normally not apply where either the misrepresentation has continued to operate after the date of the acquisition of the asset so as to induce the plaintiff to retain the asset, or where the circumstances of the case are such that the plaintiff is, by reason of the deceit, locked into the property.

12. It is clear from HTW and the other relevant decisions of the High Court (including Potts v Miller) that even in a 'no transaction' case not all reductions in the value of the thing caused by subsequent events are recoverable. 

13. Moreover, the authorities reveal that a distinction is drawn in 'no transaction' cases between events that impact on value at, or prior to, the time at which the plaintiff relied on the contravention by entering into the transaction (Potts v Miller and Smith New Court Securities Ltd) and events that occur after the transaction has been entered into.  Events in the former category which affect value do not need to have any independent causal connection with the breach/contravention.  That is consistent with the law relating to causation of (indivisible) damage generally and flows from the fact that the contravention need not be the sole cause of the loss and damage:  Henville v Walker [2001] HCA 52; (2001) 206 CLR 459; I & L Securities Pty Ltd v HTW Valuers.  Thus, the fact that the representation which induced the acquisition of the shares in Potts v Miller did not relate to the value of the shares was not an impediment to the plaintiff's claim based on over‑value at the date of acquisition (300). 

14. The facts of Smith New Court Securities Ltd also illustrate the point.  A broker made fraudulent misrepresentations that caused the plaintiff to buy shares in a public company at a higher price than it otherwise would have paid.  Another unrelated and undiscovered fraud affecting the value of the shares had occurred prior to the plaintiff purchasing the shares.  The plaintiff, acting reasonably, delayed selling the shares because it had been effectively locked in by the high price it had paid.  The House of Lords held that the correct measure of damage was the difference between the price paid by the plaintiff and the amount it subsequently realised on sale.  That measure included the adverse impact of both frauds. 

15. It is as well to remind ourselves that in all cases in which the value of the thing is the appropriate measure of damages, the plaintiff has not rescinded the contract for its purchase or acquisition.

16. Finally, the High Court in HTW confirmed that indirect evidence of value at the acquisition date can be found in market values at later dates:

    While the course of actual events is excluded to a greater degree the further back in time the dates at which values are stated, the later values, being based on fuller experience, and being unaffected by extraneous causes in this case, are capable of pointing to the underlying reality of earlier times [47].

Preliminary matters

1. The respondents were 'strategic investors' in Meridian in which capacity they provided seed capital ahead of the proposed IPO in return for the issue of shares at a discount (to the proposed par value of the shares the subject of the IPO).  No significance was attached at trial or in the appeal to the par value of the shares issued in return for the strategic investment.  It can be inferred that the respondents' shares at 25 cents and one cent respectively were a package in relation to which it is appropriate to determine the price per share by reference to the price paid for the total shareholding (20.2 cents per share).

2. It was common cause that the only relevant effect of the appellant's misleading or deceptive conduct was to induce the purchase by each respondent of the Meridian shares.  It was also common cause that the appeal must succeed if the trial judge erred by in effect valuing the shares as at the date of trial.  That was the practical effect of entering judgment for the respondents for the total purchase price on condition that they transfer the shares to Mr Morellini.

3. There can be no objection in principle to using the date of trial as the valuation date if there is no adverse impact on value resulting from extraneous causes or if the loss from those extraneous causes is added to the real value as at trial or if the residual value is effectively transferred to the appellant in some other way, as by transferring the thing itself. 

Ground 1

1. The terms in which ground 1 is stated gives no notice of the full scope of the scattergun attack in the written submissions. As I understand the submissions advanced on behalf of the appellant, the challenge involves the following contentions. First, there was no proper evidentiary foundation for the court to be satisfied of the gateway requirement in s 77(1), namely that each respondent had suffered loss or damage by reason of the relevant contraventions. Secondly, the gateway requirement, alternatively the requirement that a s 77(1) order be for the purpose of compensating the plaintiff for his loss or damage, requires the plaintiff to prove the quantum of its actual loss or damage. Thirdly, the loss or damage has to be caused by the contravention, applying the March v Stramare test (March v E & MH Stramare Pty Ltd (1991) 171 CLR 506) of factual and legal causation. Fourthly, the trial judge's finding that a very substantial loss in value had been occasioned by the latent negative factors at the date of acquisition and the subsequent events, that were themselves caused by the contraventions, was unsupported by any evidence. Fifthly, none of the latent negative factors or subsequent events were relevantly caused by the only operative contravention (the timing of the listing) on which Mr Adams relied.

2. For the reasons given earlier, there is no basis in the text or purpose of s 77(1) to require that the claimant prove the quantum of its loss or damage.

3. It can be accepted that the loss or damage to which s 77(1) refers is loss or damage 'by reason of' the relevant contravention, applying the March v Stramare test of causation.  However, the authorities establish that in a 'no transaction' case, the real value of the thing at the date of acquisition is determined by all acts, matters, events or things affecting its value as at the time of entry into the transaction, even if they have no causal connection with the contravention.  By contrast, an event which occurs after the entry into the transaction that is not referable to the intrinsic value of the thing as at the date of acquisition must satisfy the usual causation requirements analogous with the tort of deceit, including a causal connection between the contravention and the loss or damage.  There will be a relevant causal connection between the breach and the loss or damage if the claimant would not have entered into the transaction but for the misrepresentation, if that misrepresentation is continuing or if the purchaser 'is locked into' the transaction.  Causation was established in this case.

4. I turn now to the indirect challenge to the finding that the latent negative factors in [210] and the subsequent events in [216] ‑ [221] had a substantial adverse impact upon the value of the shares.

5. The appellant provides no arguable support for the assertion that the negative factors referred to by the trial judge were incapable of supporting the trial judge's conclusion that they adversely impacted on the value of the respondents' shares in Meridian.  The negative factors included in [210] were in existence in January 2007 when the respondents' applications to subscribe for shares in Meridian were accepted, which must have been some time before the issue of the shares on 8 February 2007.  Those factors would inevitably reflect adversely on the governance, credibility and true financial state of Meridian which would significantly impair the prospect of a successful IPO and float and have a substantial adverse flow‑on effect on the value of the shares.  It was open to the trial judge to conclude that the negative factors had rendered the respondents' shares unmarketable. 

6. Moreover, the board spill, the Lee/Howlett litigation and the litigation commenced by the respondents was based on conduct which predated the transaction and was intrinsic to the value of the shares at the acquisition date.  The appellant was unable to demonstrate that that conclusion did not apply to the Brosnan's plaint.

7. The real thrust of the appellant's complaint appears to be that the trial judge concluded that the latent negative factors and subsequent events had a substantial detrimental impact on the value of Meridian shares without bringing to account matters relating to the value of the tenements.  That is not correct.  The trial judge expressly referred to the importance of the tenements in valuing Meridian's shares.  However, it does not follow that matters reflecting adversely on the governance, credibility and financial state of the company would have no substantial detrimental impact on its share value.  

8. Another difficulty for the appellant is that the evidence touching on valuation supported the trial judge's conclusion.  That evidence (referred to at [34] of the appellant's written submissions) is as follows:

   (a)in 2008 the appellant and Prime had sold Meridian shares to Mr Hribar at 10 cents per share;

   (b)in June 2009, Meridian had attempted to raise capital by a pro rata rights issue at one cent with no subscribers;

   (c)there were share transfers from the company secretary, Bruce Waddell, and Joanne McBride to Mr Morellini's son at one cent per share in December 2007;

   (d)Meridian owned valuable mining assets worth at least $3 million using a conservative in situ value of $10 per gold ounce.

9. The evidence for (d) came from Mr Adams (ts 82 ‑ 83), a former geologist, who also gave evidence that his shares were worthless because of the lack of credibility of Meridian and the people involved with it (ts 178).  In any event, even if the tenements were worth at least $3 million and all negative factors are ignored, that results in a real value per share very significantly below the average price of 20.2 cents paid by Mr Adams and Mr Grill.

10. I would dismiss ground 1.

Ground 2

1. The appellant contends the trial judge erred in finding that an expert valuation of the Meridian shares at the date of acquisition would have been difficult if not impossible and in the consequential conclusion that it was appropriate to depart from the normal measure of damages.

2. The ground of appeal again gives no notice of the full scope of the challenge. For example, the appellant contends in its written submissions on this ground that the relief granted by the trial judge went outside the case pleaded and litigated by the respondents. The respondents expressly relied on s 77 of the FTA in their prayer for relief and pressed for valuation of the shares as at the date of trial. Although there was no express submission put on behalf of the respondents for the precise relief granted, it is not suggested that any relevant prejudice was caused to the appellant by that failure. The appellant has not identified any disadvantage in pursuing in this appeal all his substantive attacks on the relief granted.

3. Turning to the matters actually raised by the ground of appeal.  The trial judge concluded that any expert valuer would find it extremely difficult, if not impossible, to value the shares at the date of their acquisition with the consequential departure from the ordinary measure of damages.  It is clear from the context that the trial judge was referring to the difficulty (if not impossibility) of obtaining a precise determination of the real value of the shares at the acquisition date or at the date of trial.  Having regard to the nature and scope of the negative factors to which the trial judge referred, that conclusion was open. 

4. In any event, difficulty in valuation is not a necessary condition for departing from the ordinary measure of damages (the difference between the real value of the thing acquired as at the acquisition date and the price paid for it). The unchallenged finding is that the respondents were locked in once they had purchased the shares in January 2007, there being no market for the shares [213]. It was also open to the trial judge to depart from the ordinary measure because of the number of subsequent events which were referable to the intrinsic value of the shares at the date of their acquisition. I would dismiss ground 2.

Ground 3

1. This ground overlaps with grounds 1 and 2. The appellant repeats the contention that the respondents were required to prove the quantum of the loss to obtain relief under s 77 as at the date of the acquisition. I have rejected both propositions for the reasons given above. Ground 3 should be dismissed.

Ground 4

1. This ground raises the proper construction of s 77(3)(d) of the FTA. The appellant contends that the paragraph only applies if the defendant/appellant is the recipient of money which he is ordered to 'refund'. I have rejected that narrow construction of s 77(3)(d). Moreover, even if s 77(3)(d) is narrowly confined in the way contended for by the appellant, I have concluded that the powers in s 77(3) are not exhaustive and that the orders made by the trial judge are within the scope and purpose of the power in s 77(1).

2. Further, the facts of this case justify the exercise of the power.  At the time of the transactions in January 2007, Mr Morellini was in control of Meridian, being its sole shareholder.  Mr Morellini was also the beneficiary of a very significant amount of Meridian funds between January and March 2007.  Finally, with one exception, all the factors adversely affecting Meridian's share value were attributable to Mr Morellini's conduct.  There is no impediment in law or as a matter of discretion to the orders made by the trial judge.  Ground 4 should be dismissed.

Ground 5

1. This ground challenges the finding that Mr Morellini's conduct was either a major or contributing cause to all of the subsequent events impacting on the Meridian share value. There is little correlation between the ground of appeal and the appellant's written submissions. Those submissions are to the effect that there was no evidence that the subject matter of the contravention which induced Mr Adams to subscribe impacted on the value of the Meridian shares [72]. This is a repetition of an aspect of ground 2 and reflects the same misunderstanding of the law. Mr Morellini's conduct before and, with one exception, after the transaction, reflected on the intrinsic value of the Meridian shares as at the date of acquisition. Thus, the contravention which induced the acquisition was relevantly causative of most of the loss. Any reduction in value not attributable to the contraventions was returned to the appellant with the transfer of the shares. I would dismiss ground 5.

Ground 6

1. The appellant contends the trial judge erred in finding that this was a 'no transaction' case on the basis that the respondents should have been treated as having affirmed the contract for the acquisition of the shares.  This ground of appeal is predicated on the assumption that there cannot be a 'no transaction' case if it was open to the innocent party to rescind the contract.  That assumption is erroneous.  As the High Court stated in HTW, the law does not limit recovery by reference to market value because, subject to mitigation issues, the plaintiff is not bound to sell:  HTW [37]; Peek v Derry (1887) 37 Ch D 541, 594. Mitigation was always potentially relevant to the appropriate date for determining the real value of the shares. However, no claim of failure to mitigate was litigated in this case. Ground 6 should be dismissed.

Notice of contention

1. As the appeal has failed, it is unnecessary to deal with the notice of contention.  It is sufficient for present purposes to note that if subsequent events caused a diminution in share value which was not inherent in the shares at the date of their acquisition or was attributable to extrinsic causes, regard could not be had to subsequent transactions, including the sale of the shares to Mr Hribar.

Conclusion

1. I would dismiss the appeal and the notice of contention.

2. PULLIN JA:  I agree with McLure P.

3. NEWNES JA:  I agree with McLure P.