O'Halloran v R.T. Thomas & Family Pty Ltd

[1999] HCATrans 232

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S166 of 1998

B e t w e e n -

JAMES FRANCIS O’HALLORAN

Applicant

and

R.T. THOMAS & FAMILY PTY LIMITED

Respondent

Application for special leave to appeal

GLEESON CJ
CALLINAN J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 6 AUGUST 1999, AT 9.30 AM

Copyright in the High Court of Australia

MR J.B. SIMPKINS:   May it please the Court, I appear with MR T.W.L.STUART for the applicant.  (instructed by David Cass)

MR R.S. ANGYAL:   May it please the Court, I appear for the respondent.  (instructed by Macedone Christie Willis, Solari Partners)

GLEESON CJ:   Mr Simpkins.

MR SIMPKINS:   Your Honours, the special leave questions all relate to the manner of determining causation in equity where the relevant default is that of a non‑trustee fiduciary.

The principal judgment in the Court of Appeal is that of the Chief Justice who dealt with causation and equity at some length.  That part of his Honour’s judgment is to be found at pages 125 to 138 of the application book.

His Honour, however, found causation on what was described as a less stringent test which we understand to be in application of common law causation principles; doing so at pages 138 to 139 of the application book.  It is accepted that the special leave questions will not arise unless we can demonstrate to your Honours the arguability of the proposition that in applying common law causation the Court of Appeal erred.          Can I invite your Honours to turn, therefore, to the application book at page 138.

GLEESON CJ:   All the four judges who decided this case so far have been against you.

MR SIMPKINS:   That is correct.

GLEESON CJ:   Yes.

MR SIMPKINS:   Could I just say this before turning to the precise way in which the Chief Justice dealt with the matter.  The loss which was found by the Court of Appeal was the lost opportunity on the part of the respondent to sell the relevant shares to a person other than Bowes & Brown.  Bowes & Brown being the purchaser under an extant contract for the sale of the shares.

GLEESON CJ:   This on page 138, Mr Simpkins?

MR SIMPKINS:   Yes, I am about to go to 138.

GLEESON CJ:   All right.

MR SIMPKINS:   On page 138 his Honour applies the less stringent test at about line 30, saying this:

In any event, although it is not necessary to decide, causation could be established on a less stringent test.

As I have indicated, we understand that to be, in that case, for common law principles:

I would not accept the submission that a sale to a third party should be discounted because no such sale could occur unless the contract with Bowes & Brown was terminated.  Loss of the chance should be assessed on the basis that such termination occurred.  It was O’Halloran’s continued deception of both Thomas and Bowes & Brown which deprived Thomas and Bowes & Brown of the knowledge which would have impelled and enabled one or the other to take that step.  It is clear that Thomas did intend to sell the shares.

Furthermore, I would not accept the submission put for O’Halloran that the findings about O’Halloran’s subsequent conduct are not relevant to a case based on breach by improper registration.  O’Halloran’s systematic obstruction of all attempts to prevent any dealing with the shares or rectification of the register…..constitutes a continuation by him of the original wrongful act.  This conduct does not necessarily constitute, although it could also constitute, a further distinct breach of duty…..It also constitutes a direct link between the original conduct and the loss.

Then his Honour refers to what Justice McLachlin said in Canson Enterprises v Broughton.  Then continues:

This is directly applicable in the present case, save that the wrongful acts permitted by O’Halloran’s original wrongful act, included further acts by himself, as well by another.

Then his Honour concludes that is:

an “adequate and sufficient” connection –

Before telling your Honours why we say that analysis is arguably flawed, can I just remind your Honours why there was no loss of the Bowes & Brown sale; Bowes & Brown being the purchaser. 

There was no loss of the Bowes & Brown sale because the only relevant breach of duty, having regard to the form of the pleadings, was the facilitation of the applicant of the wrongful registration of the shares out of the name of Thomas, the respondent, and in to the name of Bowes & Brown.  The factual position demonstrated before the trial judge and accepted by the Court of Appeal was that both the vendor of the shares – that is the current respondent – and Bowes & Brown with knowledge of that registration, that is with knowledge, in effect, of the consequence of the wrongful conduct, endeavoured to proceed towards completion of the contract for sale of shares, for the obvious reason that the contract for sale of the shares if it was completed would involve, in any event, the transfer of the shares into the name of Bowes & Brown.  That is a summary, in effect, of what his Honour the Chief Justice said.

GLEESON CJ:   What do you say about what Justice Meagher said on page 151?

MR SIMPKINS:   We would say, in substance, two things:  one is that his Honour is dealing with equitable causation; two, that his Honour, contrary to the approach which was adopted by the Chief Justice and by his Honour Justice Priestley, is assuming that it was open to the court to have regard to what his Honour describes as “many and serious breaches of the fiduciary duties”.

The point which was made before the Court of Appeal and accepted by the Chief Justice and by Justice Priestley, was that having regard to the form of the pleadings the wrongful act, which was the only relevant wrongful act, was the facilitation of the registration of the shares out of the name of the respondent and in to the name of Bowes & Brown.  What his Honour Mr Justice Meagher is doing there, is assuming that notwithstanding the form of the pleading, and having regard to the findings made by the trial judge, it was nevertheless open to the court to deal with causation, having regard to those findings rather than to pleading.  In summary, we would say Mr Justice Meagher adopts an approach which is not consistent with the approach of the other two judges of the Court of Appeal.

I just want to take your Honours briefly to page 122 of the application book where his Honour the Chief Justice dealt with this pleading point, and with the reason why there was no lost cause in relation to the sale to Bowes & Brown.  At page 122 of the application book at about line 25, his Honour said this:

Nevertheless, in view of the fact that the pleadings are limited, as noted above, to conduct with respect to registration, it remains necessary to identify a causal link between that conduct and the loss.

Obviously there is a vast gulf between that approach and Mr Justice Meagher’s approach:

There is no such link to the loss of a sale to Bowes & Brown.  Registration was a necessary step for any such sale, it was not an impediment to it.  The absence of a specific pleading of breach of a fiduciary obligation relevant to deals with the new certificate issued in the name of Bowes & Brown, means that Thomas must establish loss of an opportunity to sell to a third party.

So, his Honour is saying, effectively, two things:  pleadings confine the relevant breach to facilitating registration; and Bowes & Brown was not a sale which was frustrated, therefore the relevant loss needs to be a loss of opportunity to sell to another.

Notwithstanding that, the thrust, we say of what the Chief Justice found to be the relevant facts on causation was that there was deception, and having said in that early part of his judgment that “the breach which was relevant was facilitating the registration”, if your Honours would be good enough to go back to page 138 of the application book, when his Honour comes to deal with common law causation, his Honour deals with it by having regard to what is described as “continued deception”.  This is at about line 40 on page 138.  In order to explain why in his Honour’s view that was relevant, his Honour turns, at the foot of page 138, to say this:

I would not accept the submission…..that…..subsequent conduct are not relevant to a case based on breach by improper registration.

So, he is endeavouring in his reasons to explain why one can have regard to the deception, notwithstanding the pleading.  The explanation that his Honour gives is that the deception is part of a continuation of an “original wrongful act”, and the authority that his Honour relies upon to support that analysis is the decision of Justice McLachlin in Canson Enterprises.

The authority, itself, in its terms does not support the approach which the Chief Justice took, as is plain from the extract of it.  It was dealing with a trustee’s breach.  It was dealing with a breach which, in turn, permitted some further conduct and it was dealing with that further conduct being the conduct of third parties.  We would contend that the authority had no application, whatsoever, to the facts before the Court of Appeal.  In particular, we would contend that if the only breach was facilitating an improper registration, and if that improper registration was a fact which became known, as it did to the parties, the fact that there may have been some further act or acts of deception is not causally related and cannot said to be a continuation of the original wrongful act.  They are separate breaches; they should have been pleaded as separate breaches. 

If one was looking at this as a pleading problem, it is commonplace in the rules of court, in particular in the Rules of the Supreme Court, as your Honours would know, that where there is a matter which might take a party by surprise, it is required to be pleaded.  This case advanced against the applicant at trial was a case based upon improper facilitation of registration of the shares.  It was not a case based upon deception.  There was not any aspect of the pleading which alerted the applicant to a need to investigate any causal connection between any deception and any loss.

CALLINAN J:   What about 30.2A on page 16?  That is not such an allegation?

MR SIMPKINS:   Yes, that is a specific allegation of a breach of fiduciary duty by sending a letter authorising and directing the sale of the shares to a third party.

CALLINAN J:   It is not mere registration, is it?

MR SIMPKINS:   No, your Honour, I accept that qualification.  It is true that one looks at the way in which the breaches are formulated; that there are, if you like, claims about the registration - this is 30.1 on page 15;  claims about executing an ordinary stock certificate - this is 30.2 on page 16; and the paragraph your Honour Justice Callinan has directed attention to, namely the letter of 6 April referred to in 30.2A. 

What is significant, however, though, is if one goes to paragraph 31 and sees how the loss was stated and what acts the loss was said to be related to, your Honours will see in paragraph 31 at about line 32 that the complaint was that:

By the wrongful registration of the share transfer and of the bonus shares, R.T. Thomas lost the opportunity to sell its shares in Jeffries before their fall in value.

The point we made before the Court of Appeal was that notwithstanding that there might have been other aspects of breach alleged, can I firstly say this:  there was no complaint about deception resulting in the loss referred to in paragraph 31, and we would also say, even though there might have been other aspects of a breach of fiduciary duty referred to in those paragraphs to which we have just gone, that when the question of loss is raised and it is connected to anything which preceded it in the pleading, the connection is only to the wrongful registration, so the issue to be explored at the trial was an issue which focused on what the financial consequences were, if any, to Thomas of the wrongful registration.

CALLINAN J:   May not paragraph 31 merely be fixing the date for the assessment of the loss, or the calculation of the loss?

MR SIMPKINS:   It does two things.  It obviously asserts a factual circumstance, namely the suspension of the shares, and it goes on to make a statement about the value of the shares as at the date of filing the summons.  But the significance of what follows in paragraph 31 is that it makes plain, on the face of the pleading, that the loss which is being attended to by those factual statements is a loss which is said to have flowed from the wrongful registration, and the wrongful registration alone.

CALLINAN J:   But there must have been a lot of events flowing, or leading up to the wrongful registration that had to occur in order for the wrongful registration to take place.

MR SIMPKINS:   That is correct, but when his Honour the Chief Justice was referring to acts of deception he, as we would understand it, is referring to things which occurred post‑registration, not before. 

The point we made before the Court of Appeal and the point we would seek to make now about the causation is that on the face of the pleadings the financial loss, which is said to be the financial loss of Thomas, was said to be related to the wrongful registration.  So, the area of facts on inquiry at the trial was only one which directed attention to the connection between those two events.  The pleading did not direct attention to any connection between acts of deception and loss. 

Can I put the matter in more practical terms:  if there was a case based upon that kind of causation, it might readily be expected that someone from the respondent would have given evidence that if they knew the true state of affairs, contrary to what had been represented, or not disclosed, by Mr O’Halloran, then some different course of conduct might have been entered into.  So, for example, it might have been expected if this was an issue at the trial that a director of Thomas would have given evidence that with true knowledge of the whereabouts of the share certificates, for example, the Bowes & Brown agreement would have been rescinded, or brought to an end in some way, and that they would have gone into the marketplace to sell the shares.

That evidence was not given.  There was no direct evidence at the trial that any deception which might have been practised by the applicant in any way prevented, impeded, frustrated or deflected the respondent from otherwise selling these shares to any third party and securing market value for them.

Indeed, can I put this to your Honours?  If one is asking the question, “How was the loss caused and if the true state of affairs was known what would have occurred?”, apart from the fact that there was no direct evidence on the part of the respondent that it would have acted differently, the overwhelming inference is that it would have continued to press ahead with its sale of Bowes & Brown.  The judgments of the trial judge in the Court of Appeal are replete with a recitation of the facts where notwithstanding knowledge of the wrongful registration; notwithstanding continuing delay by Bowes & Brown and making payment, it continued to press for several months to complete the sale transaction.  So, it even got to the stage where, on a date after matters had well and truly come to a head – this is in July of 1994 – that the respondent was still wanting to press ahead with the sale.

If your Honours turn in the application book to page 56, your Honours will see part of the minutes of meeting of the respondent held on 26 July 1994, and on page 56 of the application book at about line 20 your Honours will see this resolution:

That a letter of demand be despatched to Bowes and Brown Pty Ltd requesting the immediate payment of six hundred and seventy five thousand dollars ($675,000.00) being the agreed purchase price –

so, the course of conduct engaged in for several months prior to this date and even after this date was a course of conduct where notwithstanding the fact that Bowes & Brown were not paying and not completing, there was an insistence that the transaction be completed.  If one poses the question, “If there had been a disclosure by Mr O’Halloran that he held the certificates, what would have happened?”, what would have happened is the Bowes & Brown sale would have been completed.  There is not the slightest basis for concluding that if Mr O’Halloran had not been guilty of the deception, that there would have been a rescission of the Bowes & Brown contract and conduct engaged in by the respondent where it went in the marketplace to sell the shares to a third party.

In relation to common law causation, we would say it is not pleaded; there is no evidence to support the conclusion that the sale would have been rescinded and another sale entered into.  The only way in which the deception becomes relevant is if his Honour the Chief Justice is correct in what he said about linking it up as part of a continuing course of conduct.  We would say that the breaches are quite separate and distinct.  The wrongful registration has nothing to do with any further deception, and the authority cited by the Chief Justice at page 129 of the application book does not support the approach which was taken.

We would also say that even if the deception was a relevant circumstance, that the evidence demonstrated that the respondent suspected

that Mr O’Halloran had the certificates.  Indeed, in conversations which were referred to and found as facts by the trial judge and referred to in the Court of Appeal’s judgment, it is accepted that Mr Marriott, a director of the respondent, when asked in about June – this is on 5 June and 8 June – where the certificates were, said to Mr Kennett, who was a director of Bowes & Brown, that he thought the certificates were with Mr O’Halloran or Mr O’Halloran knew about it.  So, whatever the deception was that the Chief Justice had in mind, it was not a deception which deflected the respondent from appreciation that Mr O’Halloran probably knew where the certificates were.  The evidence demonstrates, indeed, this is a fact which is cited in our outline of argument and not contradicted by the respondent, during the period of time that Bowes & Brown had finance available to it, simply nothing was done by way of any inquiry of Mr O’Halloran, the applicant, about the whereabouts of the certificates which might be necessary to complete that finance.

GLEESON CJ:   Thank you, Mr Simpkins.  We do not need to hear you, Mr Angyal. 

In this matter, the Court is of the view that there are insufficient prospects of success of an appeal to warrant a grant of special leave.  The application is refused.  Do you resist an order for costs, Mr Simpkins?  The applicant must pay the costs of the respondent to the application.

AT 9.52 AM THE MATTER WAS CONCLUDED