OzEcom v Hudson Investment Group - [2007] NSWSC 719

No judgment structure available for this case.

CITATION: OzEcom & Anor v Hudson Investment Group & Ors [2007] NSWSC 719

HEARING DATE(S): 23, 26, 27, 30 April 2007 and 1, 2 May 2007

JUDGMENT DATE :
3 August 2007

JURISDICTION: Equity Division
Commercial List

JUDGMENT OF: McDougall J at [1]

DECISION: See paras [365] to [368] of judgment

CATCHWORDS: CORPORATIONS - Capital raising - Underwriting agreement - First defendant agreed to underwrite IPO of shares in first plaintiff – Second plaintiff agreed to act as manager and lead broker – Public offering failed – Achievement of spread necessary for plaintiff to be listed on ASX - Whether first defendant breached obligations in relation to spread and to underwrite the issue – ‘Best endeavours’ obligation - Whether first defendant used ‘best endeavours’ to procure spread required by ASX – Delegation of performance to second defendant - whether delegator liable if delegate fails to use best endeavours – agreed extensions of time in accordance with underwriting agreement – Whether further extensions made either formally or on ad hoc basis. - CONTRACT - Whether agreement to extend closing date can be inferred from conduct – Offer and acceptance – Whether ‘best endeavours’ used to do all that could reasonably be done to achieve the contractual object. - ESTOPPEL – By representation – Whether evidence of reliance – Whether any detriment suffered if reliance on any representations - Whether unconscionable for first defendant not to comply with underwriting obligations where agreements allegedly made to extend – Whether plaintiff refrained from enforcing its rights due to alleged representation of extension. - NEGLIGENCE – Duties of care in negligence – Whether second defendant owed to plaintiff duties of care relating to its activities as sponsoring broker – Assumption of responsibility. - DAMAGES – Claim against first defendant for pure economic loss - Whether failure of IPO amounted to a loss to the company of the capital sum not raised – Whether wasted expenditure recoverable – Whether expenditure made or liability incurred on the faith of first defendant’s using its ‘best endeavours’ to achieve spread

LEGISLATION CITED: Evidence Act 1995

CASES CITED: Adelaide Petroleum NL and Others v Poseidon Ltd and Others (1990) 98 ALR 431.
Astley And Others v Austrust Limited (1999) 197 CLR 1
Australian Broadcasting Commission v Australasian Performing Right Association Limited (1973) 129 CLR 99
Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153
Commonwealth v Verwayen (1990) 170 CLR 394
Commonwealth of Australia v Crothall Hospital Services (Aust) Ltd (1981) 36 ALR 567
Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 523
Esanda Finance Corporation Limited v Peat Marwick Hungerfords (1997) 188 CLR 241
Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22
Hadley v Baxendale (1854) 9 Ex 341; 156 ER 145
Hexiver Pty Ltd v Lederer [2006] NSWSC 1129
Hospital Products Limited v United States Surgical Corporation (1985) 156 CLR 41
Ingot Capital Investments & Ors v Macquarie Equity Capital Markets & Ors [No 6] [2007] NSWSC 124
Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR 11, 110
J. & H. Manktelow Pty Ltd v Alloway Grazing Pty Ltd (1975) 1 NSWLR 385
Jones v Barkley (1781) 2 Dougl 684; 99 ER 434
Jones v Dunkel (1959) 101 CLR 298
McRae And Another v Commonwealth Disposals Commission And Others (1951) 84 CLR 377
Perre And Others v Apand Pty Limited (1999) 198 CLR 180
Peter Turnbull and Company Proprietary Limited v Mundus Trading Company (Australasia) Proprietary Limited (1954) 90 CLR 235
Phillips v Ellinson Brothers Proprietary Limited (1941) 65 CLR 221
Pilmer And Ors v Duke Group Limited (In Liquidation) And Others (2001) 207 CLR 165 Poseidon Ltd and Another v Adelaide Petroleum NL and Others (1991) 105 ALR 25
Sargent v A.S.L Developments Limited (1974) 131 CLR 634
Segenhoe Ltd v Akins And Others (1990) 29 NSWLR 569
Sheffield District Railway Co v Great Central Railway Co (1911) 27 TLR 451
Strategic Minerals Corporation NL v Basham & Ors (1997) 15 ACLC 1,155
Sullivan v Moody And Others (2001) 207 CLR 562
Terrell v Mabie Todd & Coy Ld (1952) 69 RPC 234
Transfield Proprietary Limited v Arlo International Limited (1980) 144 CLR 83
Williams And Another v Natural Life Health Foods Ltd [1998] 1 WLR 83
Woolcock Street Investments Pty Ltd v CDG Pty Ltd And Another (2004) 216 CLR 515

PARTIES: OzEcom Limited (In Liquidation) (First Plaintiff)
Andrew Hugh Jenner Wiley (Second Plaintiff)
Hudson Investment Group Limited (First Defendant)
Hudson Securities Pty Limited (Second Defendant)
Vincent See Yin Tan (Third Defendant)
David Sutton (First Cross Defendant to the Fourth Cross Claim)
Bruce McLeod (Second Defendant to Fourth Cross Claim)

FILE NUMBER(S): SC 50080/05

COUNSEL: N A Cotman SC/M A Izzo (Plaintiffs)
A I Tonking (First Defendants)
A Leopold (Second Defendant)
J R J Lockhart (Third Defendant)
B A Coles QC/Ms M Painter (First Defendant to the Fourth Cross Claim - David Sutton)
D Cook (Second Defendant to the Fourth Cross Claim - Bruce McLeod)

SOLICITORS: K P Farmer & Associates (Plaintiff)
Thompson Eslick Solicitors (First Defendant)Watson Mangioni Lawyers Pty Ltd (Second Defendant)
Allens Arthur Robinson Solicitors (Third Defendant)
Peter Kemp Solicitors (First Cross Defendant to the Fourth Cross Claim)
Wordsworth Lawyers (Second Cross Defendant to the Fourth Cross Claim)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
COMMERCIAL LIST

McDOUGALL J

3 August 2007

HUDSON INVESTMENT GROUP LIMITED & ORS

JUDGMENT

1 HIS HONOUR: The first defendant (Hudson Investment) agreed to underwrite an initial public offering (IPO) of shares in the first plaintiff (ozEcom). Hudson Investment agreed with its subsidiary the second defendant (Hudson Securities) that Hudson Securities would act as the sponsoring broker for the IPO and, in that capacity, use its best endeavours to undertake and manage the listing of ozEcom on the Australian Stock Exchange (ASX) and arrange the required “spread” of shareholders. (At that time, the listing rules of the ASX required a listed company to have at least 500 shareholders each holding at least $2,000 in share capital. Hudson Investment had agreed with ozEcom to use its best endeavours to achieve the required spread.) The IPO was a failure. OzEcom claims that Hudson Investment has breached its obligations in relation to spread and to underwrite the issue. It claims further that Hudson Securities owed it duties of care, relating to its activities as sponsoring broker, and breached those duties of care.

The parties and their respective roles

2 The relevant transactions occurred during 1999. At that time, ozEcom was an unlisted public company. It is now in liquidation; and the second plaintiff is its liquidator. OzEcom was seeking to develop a business, the detail of which I have to say I find somewhat obscure. It is simplest to quote from the prospectus for the IPO:

“The “principal product” is “a business-to-business transaction service” known as the ozEcom Rewards Program.

The ozEcom Rewards Program is a service that enables businesses to outsource the administration and processing of the sales of their end product. The Program provides: order entry, order tracing, order fulfilment, logistic services and the facilitation of purchaser credit, trade credit, and debt management services.”

3 Ms Rowena Sylvester was a non executive director of and consultant to ozEcom. Mr Campbell Corfe was its chief financial officer. Mr Ross Breadman was a solicitor who advised ozEcom from time to time on the capital raising, although he was not the solicitor named in the prospectus. That office fell to the firm then known as Barker Gosling. Mr Philip Stevens, a partner in that firm, was a non executive director of ozEcom. Other directors of ozEcom were Mr Robert Cleland (non executive) and Mr Ross Smyth-Kirk (the executive chairman of the board of directors). Ms Sylvester, Mr Corfe and Mr Breadman each gave evidence and each was cross-examined.

4 OzEcom formed a due diligence committee (DDC) in connection with the IPO. Ms Sylvester chaired that committee. Its members included Messrs Corfe and Stevens. There were other members (including representatives of ozEcom’s accountants and auditors) and Mr David Sutton. Mr Sutton was at the time a director of Hudson Investment and the chairman of its board of directors.

5 Hudson Investment was a listed public company. It carried on, through subsidiaries, a number of separate businesses. It carried on no separate business in its own right, unless the task of overseeing its subsidiaries can be described as a separate business. It is convenient to refer to Hudson Investment and its subsidiaries together as the Hudson Investment Group.

6 Mr Allan Scadden, who was the joint company secretary of the Hudson Investment Group from April 2001 until recently, gave evidence and was cross-examined. Mr Scadden’s only knowledge of relevant events was derived from enquiries made of others or from his investigation of the books and records of the Hudson Investment Group. No other officer or employee of the Hudson Investment Group gave evidence. It was not suggested that there was any reason why those who were actually involved in the relevant transactions could not have given evidence.

7 Hudson Investment did not hold a security dealer’s licence. Hudson Securities, which at the time was a wholly owned subsidiary of Hudson Investment, did. Mr Bruce McLeod was the managing director and (I think) the chief executive officer of Hudson Securities. Initially, it was Mr Sutton who directed Hudson Securities’ activities in relation to the IPO. Mr Sutton went overseas in mid September 1999 and, thereafter, Mr McLeod oversaw the relevant activities and was the point of contact. Mr McLeod was not a member of the DDC. As I have indicated neither Mr Sutton nor Mr McLeod gave evidence (although each had sworn, and there were filed and served, an affidavit or affidavits). There was no suggestion that either was unable to give evidence.

8 Standing behind Hudson Investment and (at least at the time) Hudson Securities was Mr Vincent Tan. Mr Tan appears to have been the principal shareholder in Hudson Investment, controlling in excess of 20 percent of its issued capital. He was not (at least in terms of formal appointment) a director of Hudson Investment or Hudson Securities, although ozEcom alleged that he was a shadow director of Hudson Investment. Mr Tan was a consultant to the Hudson Investment Group. OzEcom alleged that it was he who was responsible for a number of the decisions relevant to these proceedings. Mr Tan did not give evidence, although, as is now common ground, he attended most of the hearing. It was not suggested that there was any reason why he could not have given evidence.

9 There were a number of cross-claims for contribution or indemnity. Those cross-claims included a somewhat unusual cross-claim – the fourth cross-claim – brought by Hudson Investment against Messrs Sutton and McLeod (as directors at the time) and Mr Tan.

The issues

10 The simplest way to explain in more detail ozEcom’s case and the various cross-claims is to set out the issues agreed by the parties:

‘‘ 1. Contractual claims

A. Hudson Investment’s underwriting obligation

what was the date which under the Underwriting Agreement was finally the Closing Date for the IPO?

(ii) Did OzEcom deliver to Hudson Investment a Shortfall Notice on or before 10am 1 Business Day after the final Closing Date, in conformity with the requirements of clause 6?

(iii) Did OzEcom deliver to Hudson Investment a Closing Certificate and certified copy of a unanimous board resolution at the time of the delivery of the Shortfall Notice, in conformity with the requirements of clause 8.1?

(iv) If the answer to (ii) or (iii) is no, did Hudson Investment waive any right to rely on the requirements of clauses 6 or 8.1 so as to relieve OzEcom of the obligation to comply to that extent with the requirement?

(a) Permission to list was not granted before the end of 6 weeks after the date of issue of the prospectus or such longer period as was notified to the ASX within s 1031(1)(b);

(b) The ASX spread requirement was not satisfied?

(a) It had failed to use its best endeavours to procure the grant of official quotation as required by clause 3.6?

Corporations

ASIC Act

Trade Practices Act

Fair Trading Act

Corporations Law

ASIC Act

Trade Practices Act

Fair Trading Act

Corporations Law

ASIC Act

Trade Practices Act

Fair Trading Act

(vii) Is Hudson Investments precluded from relying on any misleading and deceptive statements in fact contained in the prospectus by reason of Mr Sutton’s participation in the due diligence process?

(viii) Did Hudson Investments validly terminate the Underwriting Agreement?

(ix) In the light of the answers to the foregoing questions, was Hudson Investments obliged to subscribe for Shortfall Shares in accordance with clause 7?

(x) If so, is OzEcom entitled to recover from Hudson Investments the damages claimed in the Further Amended Summons?

B. Other contractual obligations owed by Hudson Investments to OzEcom

(i) Did the Underwriting Agreement contain the terms pleaded at paragraph 10 of the Further Amended Summons?

(ii) If so, did Hudson Investments breach the terms identified in (i) above?

(iii) Did Hudson Investments breach clause 3.5 of the Underwriting Agreement?

(iv) If the answer to (ii) and (iii) is yes, is OzEcom entitled to recover from Hudson Investments the damages claimed in the Further Amended Summons?

C. The obligation to pay the underwriting fee

(i) In the events that occurred, was OzEcom obliged to pay Hudson Investments the underwriting fee and commission stipulated in clause 12?

2. Duties of care in negligence

A. Duty owed to OzEcom by Hudson Investments

(i) Did Hudson Investments owe OzEcom a duty of care in relation to the conduct of the underwriting?

(ii) If so, what was the scope of that duty?

(iii) If the alleged duty was owed, did Hudson Investments breach the duty by failing to exercise the requisite standard of care, having regard to the scope of the duty?

B. Duty owed to OzEcom by Hudson Securities

(i) Did Hudson Securities owe to ozEcom a duty of care in relation to the management of the Initial Public Offering and arranging the shareholder spread specified by the ASX.

(ii) If so, what was the scope of that duty?

(iii) To the extent that Hudson Securities did owe a duty of care to ozEcom, did the duty cease to be owed from about early September 1999, in the light of the adverse aspects of the IPO identified in paragraph 30A(e) of Hudson Securities’ Defence?

(iv) If the alleged duty was owed, what was the requisite standard of care?

(v) If the alleged duty was owed, did Hudson Securities breach the duty by failing to exercise the requisite standard of care, having regard to the scope of the duty?

C. Causation

(a) Any failure by OzEcom to comply with the requirements of clauses 6 or 8.1;

(b) Any inability by OzEcom to give a Closing Certificate in conformity with clause 8.2;

(c) The fact (if it be so) that any allotment or issue of shares would have been void under s 1031 of the Corporations Law?

(a) Would the spread have been achieved if Hudson Securities had exercised the requisite standard of care;

(b) Would performance by Hudson Securities of its duty in a lawful manner have resulted in any potential applicant for Offer Shares OzEcom not proceeding with any application for Offer Shares having regard to the matters identified in paragraph 30A(e) of the Hudson Securities’ Defence to the Further Amended Summons, and if so is the period from about early September 1999 irrelevant to any allegation of breach of duty against Hudson Securities?

D. Damages

(i) In consequence of the breaches of duty identified above, is OzEcom entitled to recover from Hudson Investments or Hudson Securities the damages claimed in the Further Amended Summons?

(ii) If so, has it failed properly to mitigate its loss and, if so, to what extent?

(a) Any failure to comply with clauses 6 and 8.1;

(b) Any misleading and deceptive conduct engaged in by it,

and if so to what extent?

(a) Did ozEcom convey the Spread Representations pleaded in paragraph 33(d) of Hudson Securities’ Defence;

(b) If so, did the Spread Representations materially contribute to Hudson Securities having a liability or liabilities which it would not have had absent the Spread Representations;

(c) If so, is the liability of Hudson Securities to ozEcom extinguished by equitable set-off, having regard to the equivalent liability of ozEcom to Hudson Securities for misleading or deceptive conduct?

3. Unconscionable conduct

(i) Is Hudson Investment’s reliance on the requirements clauses 6 and 8.1 conduct that is, in all the circumstances, unconscionable within s 51AC Trade Practices Act , s 43 Fair Trading Act , s 12CB Australian Securities and Investments Commission Act ?

(ii) If so, is OzEcom entitled to recover from Hudson Investments the damages claimed in the Further Amended Summons?

4. Misleading and deceptive conduct by Hudson Investments

(i) Did Hudson Investments make the representations pleaded at paragraph 6 of the Further Amended Summons (the “Underwriting Representations”)?

(ii) If so, were the Underwriting Representations misleading and deceptive within s 52 of the Trade Practices Act , s 42 of the Fair Trading Act , s 995 of the Corporations Law and s 12DA of the ASICAct ?

(iii) If so, has OzEcom suffered the damage particularised at paragraph 33 [?35] [sic] of the Further Amended Summons in reliance on those representations?

(iv) Did Hudson Investments make the representation pleaded at paragraph 67 of the Further Amended Summons (the “Extension Representation”)?

(v) If so, was the Extension Representation misleading and deceptive within s 52 of the Trade Practices Act , s 42 of the Fair Trading Act , s 995 of the Corporations Law and s 12DA of the ASICAct ?

(vi) If so, has OzEcom suffered the damage particularised at paragraph 33 [?35] [sic] of the Further Amended Summons in reliance on that representation?

5. OzEcom’s claims against Mr Tan

(i) To the extent that the Underwriting and Extension representations were made by Mr Tan, did he have the authority to make them?

(ii) If not, did Mr Tan warrant that he had the authority to make those representations?

(iii) If so, as a consequence of Mr Tan’s breach of warranty is OzEcom entitled to recover from Mr Tan the damages claimed in the Further Amended Summons?

(iv) Was Mr Tan a person “involved” in making the Underwriting and Extension representations within the meaning of s 75B Trade Practices Act , s 61 Fair Trading Act , s 79 Corporations Law and as that term is used in s 12GF of the ASIC Act ?

(v) If so, is OzEcom entitled to recover from Mr Tan the damages claimed in the Further Amended Summons?

6. Misleading and deceptive conduct by OzEcom

(i) Did OzEcom make the representations pleaded in paragraph 59A of Hudson Investments’ Second Further Amended Defence?

(ii) If so, was any of these representations misleading and deceptive within the terms of 52 of the Trade Practices Act , s 42 of the Fair Trading Act , s 995 of the Corporations Law and s 12DA of the ASICAct ?

(iii) Did OzEcom make the representations pleaded in paragraph 59B of Hudson Investments’ Second Further Amended Defence (the “IAMA Investment Representations”)?

(iv) If so, was any of these representations misleading and deceptive within the terms of 52 of the Trade Practices Act , s 42 of the Fair Trading Act , s 995 of the Corporations Law and s 12DA of the ASICAct ?

(v) Did Hudson Investment rely on either the Spread Representations or the IAMA Investment Representations in entering the Underwriting Agreement?

(vi) If so, is Hudson Investment entitled to any of the orders sought in its Amended Cross-Claim against OzEcom?

7. Hudson Investment's Third Cross-Claim against Hudson Securities

(i) Is Hudson Investment liable to ozEcom and, if so, is such liability of a kind which may be sheeted home to Hudson Securities by Hudson Investment pursuant to the alleged breach of contract by Hudson Securities (in respect of which alleged breach the issues referred to below arise)?

(ii) Was it a term, whether express or implied, of any agreement between Hudson Securities and Hudson Investment (whether that agreement was in the form of the unsigned 18 June 1999 letter or the unsigned 18 July 1999 letter or otherwise) that Hudson Securities would use best endeavours to arrange the Spread?

(iii) If so, did Hudson Securities breach that term?

(iv) If so, did that breach give rise to a liability on the part of Hudson Investment to ozEcom which Hudson Investment would not otherwise have had?

8. Hudson Securities’ Second Cross-Claim against Hudson Investment

(i) Did the agreement between Hudson Securities and Hudson Investment contain the implied terms pleaded in paragraphs 5(b) and/or 5(c) of the Defence by Hudson Investment to the Second Cross-Claim?

(ii) If not, is Hudson Securities entitled to the payment of $100,000 by Hudson Investment pursuant to the agreement (described in 7(ii) above) between them?

9. Hudson Investment’s Fourth Cross-Claim against Mr Sutton, Mr McLeod and Mr Tan

(ii) Whether a breach of any such duties on that basis is causally linked to any damages suffered by Hudson Investment.

(iii) If Hudson Investment is found to have any liability to ozEcom, the respective levels of responsibility (if any) of Hudson Investment, Sutton, Tan and McLeod in relation to that loss or damage.

10. Issues of contribution/indemnity generally

(i) If ozEcom establishes any loss or damage which is claimable, then what were the respective levels of responsibility (if any) of each of Hudson Investment, Hudson Securities, Mr Tan, Mr McLeod and Mr Sutton in relation to that loss or damage (i.e., an issue as to contribution or indemnity re ozEcom’s claims)?

Credibility

11 Before I turn to the relevant facts, I shall deal briefly with the question of credibility.

12 In my view, each witness who gave evidence sought to do so truthfully and accurately to the best of her or his ability. In general, I concluded that I could rely on each as a witness of truth whose evidence was in substance acceptable.

13 There were problems with some aspects of the evidence given by Ms Sylvester and Mr Corfe. I shall deal with two. Firstly, each of them gave evidence of a meeting (in person) with Mr McLeod on 17 September 1999. Mr McLeod’s passport was tendered. It is clear (and, ultimately, ozEcom accepted) that he was then overseas. Thus, the meeting could not have happened on that day. I think it likely that the meeting occurred a few days earlier. I was a little perplexed as to why Ms Sylvester and Mr Corfe should remain so firm on the date of the meeting even when confronted with the passport. However, on reflection, I see no reason in this not to accept the substance of the rest of their evidence. I conclude that Mr McLeod did use words substantially to the effect of those attributed to him by Ms Sylvester and Mr Corfe, but that he did so in a meeting that occurred approximately two days earlier than the date that they assign. Nothing turns on the precise date; the words in question are not (for example) words that could not have been said two days earlier; and, perhaps more importantly, Mr McLeod was not called to deny that he did at any time use words to the effect of those attributed to him.

14 The second problem relates only to Ms Sylvester: in particular, to her evidence regarding the due diligence process. I deal with this in paras [39] to [43] below. For the reasons that I give there, I do not regard this aspect of her evidence as reflecting adversely on her credibility.

15 Thus, I accept as truthful the substance of the evidence given by Ms Sylvester and Mr Corfe. I am comforted in that by the circumstance that no relevant witness was called to contradict them.

16 I deal with Mr Breadman’s evidence in paras [77] to [79] below. As I indicate in the last of those paragraphs, I accept the substance of his evidence.

17 There was no attack on the credibility of Mr Scadden. He gave evidence in a clear and confident way. So far as his evidence goes (and I repeat that he had no personal knowledge of the events in question) I accept it.

18 To the extent that inferences in favour of the plaintiffs are available from the evidence as it stands, I am more confident in drawing those inferences because of the unexplained failure of the defendants to call the relevant witnesses: Messrs Sutton, McLeod and Tan.

ozEcom’s relationship with IAMA

19 IAMA Limited (IAMA) was described in the prospectus variously as a “listed, rural merchandising organisation” and “a major agribusiness inputs supplier”. OzEcom and IAMA signed a “letter of commitment” on 24 May 1999. The object of the relationship thereby documented was, from paragraph 3 of that letter, “to facilitate the implementation and development of the ozEcom Rewards System, so that all IAMA’s customers can purchase their agricultural requirements from IAMA through the ozEcom Rewards System.” To that end, according to paragraph 15, ozEcom and IAMA agreed to “use their best endeavours to develop a plan for the implementation of the ozEcom Rewards System as discussed in this letter.”

20 It is plain both from the prospectus and otherwise that ozEcom regarded its relationship with IAMA as the key to its success. This is apparent from, among other things:

“My board is in the fortunate position of being able to report that we have achieved a key milestone in the deployment of the Program.

This milestone was the signing of a Letter of Commitment with our first “billion dollar turnover” suppliers - the listed, rural merchandising organisation, IAMA.”

“ozEcom’s business plan anticipates that a significant portion of IAMA’s turnover will be transacted through the Rewards Program by 30 June 2000.”

(3) In the discussion of the ozEcom Rewards Program in section 2 of the prospectus, IAMA was referred to as an (or the) “INITIAL PARTICIPANT” and reference was made to the letter of commitment. That may be contrasted with the following heading, which referred to “POTENTIAL PARTICIPANTS”.

“The Company plans to launch its Program in conjunction with the initial participant, IAMA, in October 1999. The company intends to target the top 1000 of IAMA’s Buyer community in terms of dollar turnover. …

Once the IAMA project’s mobilisation stage has been completed, the Company intends to develop other specific programs for the potential participants.”

“(b) SPECIFIC ASSUMPTIONS

Launch Date

The Group will commence its Program launch, processing live transactions on the ozEcom Rewards Program in conjunction with its initial supplier participant, IAMA from October 1999. Other potential rollout participants are assumed to follow:

…

Basis of Revenue Model

The service fee revenue model is based on the IAMA relationship and is anticipated to be followed by the other potential rollout participants.”

“ozEcom’s initial participant is IAMA. OzEcom will target the top 1,000 customers of IAMA. These customers account for a significant portion of IAMA’s turnover.”

21 In the discussion of material contracts, the following was said:

“ IAMA (LETTER OF COMMITMENT)

ozEcom Limited and IAMA Limited A.C.N. 008 724 052 exchanged a Letter of Commitment on the 24th May 1999.

This letter proposes a “close working relationship between IAMA and ozEcom to facilitate the implementation and development of the ozEcom Rewards System, so that all IAMA’s customers can purchase their agricultural requirements from IAMA through the ozEcom Rewards System”.”

22 There was no binding agreement in place between ozEcom and IAMA whereby IAMA undertook to avail itself of ozEcom’s services, and whereby ozEcom would derive revenue. Indeed, it would appear that the letter of commitment was revised (or a further letter of commitment was prepared) following a meeting on 27 September 1999. There is no evidence that the revised letter was executed; but an e-mail pursuant to which it was sent asserts that it was prepared following, and in accordance with discussions at, the meeting to which I have referred. That assertion has not been rebutted. The revised letter says among other things that what is to be undertaken is “the management of the process of review of the Program in order to establish the feasibility of its application for IAMA in a cost effective manner and to ensure that, in the opinion of IAMA’s board of directors, it has an acceptable impact on the processes, procedure and culture of IAMA’s business.”

23 The second letter recognised that the outcomes would be “to either continue the relationship between the parties by establishing a further contractual relationship or terminate the relationship between the parties.”

The underwriting agreement

24 Ms Sylvester and Mr Corfe gave evidence of the events leading up to and following the making of the underwriting agreement. For the reasons that I have indicated, I accept the substance of their evidence. What follows on those topics is drawn in substance from their accounts.

25 Ms Sylvester and Mr Cleland met Mr Sutton at ozEcom’s premises in early May 1999. Mr Cleland described ozEcom and its business to Mr Sutton and showed him a list of prospective investors. Mr Cleland said that ozEcom sought to raise $10 million, and asked whether “Hudsons” would act as underwriter and lead manager.

26 Mr Sutton replied, according to Ms Sylvester, that “a $10 million float is not difficult for us to do”. He said that:

o “Hudsons” had the necessary infrastructure and could meet preconditions for listing;

o “We should be able to meet the shareholder spread of 500 investors from our own client bases”;

o Hudson Investment would be the underwriter because it had the asset backing, and “will be more than able to meet any shortfall if we can’t raise sufficient capital from the public and our own client bases”;

o Hudson Securities would be the broker because it held the necessary licence;

o he would have to speak to Mr Tan; and

o “it’s Vincent’s decision in the end”.

27 Ms Sylvester said that she and Mr Cleland had lunch with Messrs Sutton and Tan “a few days after the meeting” to which I have just referred. Mr Cleland provided “an overview” of ozEcom’s Rewards Program. He said that ozEcom had a list of prospective investors, including some from London, which he thought would cover the $10 million required. Mr Tan replied that he did not need details, but that he wanted the list with telephone numbers so he could check it. He said “once I am comfortable we draw up underwriting agreement. Me [sic] fee is 5 per cent plus options.”

28 Shortly thereafter, Mr Cleland sent a letter dated 21 May 1997 to Mr Sutton as chairman of Hudson Investment. The letter confirmed “our discussion today regarding the underwriting of an initial public offering of $10 million for ozEcom Limited”. Mr Cleland confirmed that:

o OzEcom would provide its list of potential subscribers, and Hudson could take steps to substantiate what was said in the list.

o The fee would be 5%, or $500,000, together with 1.5 million options.

o “A substantiated heads of agreement from a major client will be provided before the underwriting agreement is signed.”

o The parties should work towards signing an underwriting agreement by 26 May 1999.

29 The list of prospective investors was sent to Mr Sutton, to pass on to Mr Tan, the following day (it is not clear whether this means the day following the lunch or the day following 21 May 1999). The list showed some 551 prospective applicants, seeking a possible total in excess of 25 million shares (which, at the issue price of 50 cents, would oversubscribe the offer). The letter was signed by Mr Sutton on behalf of Hudson Securities (not Hudson Investment): presumably, to indicate agreement with its contents.

30 The underwriting agreement was indeed made on 26 May 1999. There is nothing in it that is particularly surprising. It is however necessary to set out a number of its provisions:

“ …

2. AGREEMENT TO UNDERWRITE

Agreement to Underwrite and Manage

The Underwriter will underwrite the subscription of all the Underwritten Shares at the Offer Price on the terms of this Agreement and in compliance with the Corporations Law subject to:

(a) the registration by the ASIC of the Prospectus prior to 5.00 pm on the Registration Date in a form in relation to which the Underwriter has given its consent to be name [sic]; and

(b) the issue of the Prospectus referred to in clause 2.1(a) on or before the Despatch Date.

If any of these conditions precedent are not satisfied by the relevant date, the Underwriter may terminate this Agreement by notice in writing to the Company.

3. TIMETABLE AND LISTING

Timetable

Subject to clause [sic] 3.2 to 3.4, the Company shall ensure that the Offers are made in compliance with the Timetable.

Company Variations to the Timetable

The Company may vary any date specified in the Timetable by up to three (3) Business Days from the date specified in the Timetable without the consent of the Underwriter, provided that at least two (2) Business Days’ notice is given to the Underwriter [of] the proposed variation.

Underwriter Variations to the Timetable

The Underwriter may vary the Closing Date by extending that date without the consent of the Company provided that:

(a) at least two (2) Business Days’ notice is given to the Company; and

(b) the Closing Date is not extended for a period in excess of fourteen (14) days.

Other Variations to the Timetable

Other than as provided in clauses 3.2 and 3.3, any variation of the Timetable requires the consent of both the Company and the Underwriter.

Spread

The Underwriter must use its best endeavours to procure the minimum number of shareholder spread as may be required by the ASX Listing Rules current as at the expected date of the Company listing on the ASX.

Quotation by ASX

The Company must use its best endeavours to procure that the official quotation is granted for the Offer Shares by the ASX as soon as practicable and in accordance with s.1031 of the Corporations Law and the Prospectus.

4. THE OFFERS

Compliance with the Agreement and the Prospectus

The Company shall make the Offers and issue the Offer Shares in accordance with and subject to the terms of this Agreement and the Prospectus.

…

6. SHORTFALL NOTICE

The Company shall, at or before 10.00 am on the day which is one (1) Business Day after the Closing Date, provide the Underwriter with a notice in writing of the number of Offer Shares for which Valid Applications have been received.

7. OBLIGATIONS OF THE UNDERWRITER

Underwriter Applications

(a) Subject to clauses 2.1, 6 and 8 the Underwriter will lodge or cause to be lodged with the Company at or before the Shortfall Payment Date, Valid Applications for all of the Shortfall Shares. The Price for the Shortfall Shares is fifty (.50c) cents each.

(b) The Underwriter has the exclusive right to nominate subscribers for all of the Shortfall Shares.

Allotment of Shortfall Shares

The Company shall, on or before the Allotment Date, allot the Shortfall Shares in accordance with Valid Applications lodged or caused to be lodged by the Underwriter with the Company under clause 7.1.

Sub-Underwriters

The Underwriter may at any time appoint sub-underwriters of its choice but will take into consideration such sub-underwriters as may be nominated by the Company to underwrite up to the total number of Offer Shares and may nominate the allottees of all or any of the Shortfall Shares.

Receipt of a Closing Certificate

The Underwriter’s obligation to subscribe for Shortfall Shares under this Agreement is conditional on the receipt by the Underwriter of a certificate, which complies with clause 8.2, approved by all of the directors of the Company by a unanimous resolution and signed by at least two (2) directors of the Company. This certificate shall be delivered by the Company to the Underwriter at the time of delivery of the Shortfall Notice and shall be accompanied by a certified copy of the unanimous resolution.

Content of Closing Certificate

The Closing Certificate will certify to the Underwriter that, as at the date of the Certificate and as at the Allotment Date, to the best of the knowledge and information of all of the directors of the Company after having made all reasonable enquiries:

…

(c) none of the events set out in clause 13.1 has occurred;

…

(e) the warranties set out in clause 9 are true and correct.

…

9. WARRANTIES BY THE COMPANY

9.1 The Company warrants to the Underwriter that:

…

(d) on and from the Despatch Date, the Prospectus will not contain any material statements that are false or misleading including, without limitation, misleading representations within the meaning of s.765 of the Corporations Law and the Prospectus will not have any material omissions and the issue and distribution of the Prospectus will not involve any conduct that is misleading or deceptive;

…

Continuance of Warranties

The Company warrants that each of the warranties set out in clause 9.1 is as at the date of this Agreement and will at all times up to and including Completion be true and correct in every respect.

…

13. TERMINATION OF UNDERWRITER’S OBLIGATIONS

13.1 The Underwriter may terminate this Agreement without cost or liability to the Underwriter by written notice to the Company if any of the following happen [sic] between the signing of this Agreement and the Offers being fully subscribed.

…

(c) the Underwriter becomes aware that there is a material statement in the Prospectus that is false or misleading or that there is a material omission from the Prospectus;

…

(e) the Company or its officers materially contravenes any of:

…

(ii) the listing Rules;

…

and the contravention is materially adverse to the Offers in the Underwriter’s reasonable opinion;

…

(r) an event occurs in relation to the Prospectus that is a significant change or a significant new matter within the meaning of s.1024(1) of the Corporations Law in the Underwriter’s reasonable opinion and the Company does not lodge a Supplementary Prospectus containing particulars of the change or matter within a reasonable time;

…

Quotation of Shares by the ASX

Notwithstanding any other provision of this Agreement, the Underwriter shall have no obligation to subscribe for the Shortfall Shares under clause 7 if:

(a) any allotment or issue of Offered Shares would be void including, without limitation, by reason of s.1031(1) of the Corporations Law; or

(b) any undertaking give [sic] by the directors of the Company under s.1031(7) of the Corporations Law is contravened.

…

16. NOTICES

Form of Notice

A notice, approval, consent or other communication in connection with this Agreement:

(a) shall be in writing;

…

17. MISCELLANEOUS

…

Waiver and Variation

(a) A provision of or a right created under this Agreement may not be:

Party granting the waiver; or

…

Amendment

This Agreement may only be amended in writing signed by the Parties.

… “

31 The “Timetable” in clause 1.1 of the underwriting agreement was defined to mean “the Timetable set out in the Schedule as it may be varied under clause 3”. That Timetable included the following:

“Event	Date
Registration Date – Last date for registration of Prospectus by ASIC	22 June 1999
Despatch Date – Last date for despatch of Prospectus to potential investors	29 June 1999
Listing Approval Date – Last date for ASX to give listing approval	Allotment Date
Closing Date – Date of closing of Offers	Registration plus 30 days
…
Allotment Date – Last date for allotment of Offer Shares	Closing date plus 14 days
… “

32 Otherwise, I think, defined terms in the agreement (indicated by the use of initial capital letters) are generally self-explanatory.

The engagement of Hudson Securities

33 It is clear enough that ozEcom and Hudson Investment accepted that Hudson Securities would act as the broker to the IPO. On 21 June 1999, Mr Stevens (apparently acting in his capacity as ozEcom’s legal representative) wrote to Mr Sutton. He asked “if you would forward to us consenting and confirming [sic] Hudson Securities Pty Limited as being engaged by ozEcom Limited [sic] as the Lead Brokers to the issue.” The evidence does not show that Mr Stevens received a reply to that request.

34 The evidence included at least two drafts (in the sense that the documents proved were not on letterhead and were not signed) of a letter of engagement from Hudson Investment to Hudson Securities. Each draft made provision for signature by Mr McLeod on behalf of Hudson Investment and Mr Sutton on behalf of Hudson Securities. One bore the date 5 July 1999. The other bore the date 18 July 1999.

35 The draft dated 18 July 1999 was proved through the evidence of Mr Scadden to have been created on 6 August 1999. It reads as follows (omitting formal parts):

“We wish to confirm that Hudson Securities has been mandated to act as the sponsoring broker for the proposed ozEcom Limited IPO. The second interim fee payable to Hudson Securities Pty Limited will be $100,000, for which Hudson Securities will, on a best endeavours basis:

If agreed please sign and confirm in the appropriate position as shown below.”

36 The draft dated 5 July 1999 was proved through the evidence of Mr Scadden to have been created on 12 October 1999. It reads as follows (again omitting formal parts):

“We confirm our letter dated the 8th July 1999 whereby Hudson Investment Group Limited will offer Hudson Securities 50% ($250,000) of the negotiated fee for the proposed Initial Public Offering of ozEcom Limited.

As agreed, Hudson Securities will undertake all IPO coordination, marketing, distribution and customer presentations. The fee earned for the services undertaken by Hudson Securities will in no way commit or imply an underwriting obligation by Hudson Securities under the Underwriting Agreement entered into between Hudson Investment Group Limited and ozEcom Limited dated 26 May 1999.

We look forward to working with you on this basis and for the successful listing of ozEcom on the ASX. I await your confirmation by the attached letter.”

37 No letter of 8 July 1999 from Hudson Investment to Hudson Securities was proved; nor was there proved any letter (of whatever date) whereby Hudson Investment offered Hudson Securities 50 percent of the negotiated fee for the IPO in exchange for the services set out in the draft dated 5 July 1999.

38 There is no doubt that Hudson Securities was engaged, on some basis, as lead broker. There was evidence, to which it will be necessary to return in considering the “best endeavours” aspect of ozEcom’s case, of activities undertaken by Hudson Securities, presumably in its capacity as lead broker to the IPO.

The DDC

39 Preparation for the due diligence process began in about March 1999. On 19 March 1999, Clayton Utz (who were retained by ozEcom in relation to the IPO) wrote to Mr Cleland enclosing “a barely customised version of our pro forma Due Diligence Planning Memorandum”. Thereafter, Clayton Utz undertook work on various tasks connected with the due diligence process. That work appears to have been undertaken at the same time as Barker Gosling was undertaking work in relation to the preparation of the prospectus.

40 In her affidavit sworn on 27 September 2005, Ms Sylvester said (para 17) that the DDC “met at least once a week, if not more, to review the current draft of the prospectus and make amendments to it”. The meetings commenced in early April 1999 and ceased in late September 1999.

41 The evidence disclosed only three documented meetings of the DDC. They were described as meeting #1, meeting #2 and meeting #3. They took place (according to the minutes) on 1, 4 and 6 June 1999 respectively. The minutes of those meetings show that Mr Sutton (among others) attended each of them. The minutes of the third meeting indicate that there was to be another the following day. The “realistic timetable for completion” given in the minutes of the third meeting referred to activities occurring after 7 June, and up until 15 June (this date appearing against the item “DDC Final Report”) and contemplated lodgement of the prospectus on 17 June, with registration perhaps on 22 June.

42 It is clear enough that the first formal meeting of the DDC occurred on 1 June 1999; the form and contents of the minutes of that meeting confirm this. It is equally clear that due diligence work had been under way for some time before 1 June. I suspect that when Ms Sylvester referred to meetings as commencing in early April 1999, she was referring to informal due diligence activities and not to formal meetings of the DDC as it was finally constituted (the membership of that committee was not finalised until some time in May 1999).

43 However, I think, it is more than likely that there were also meetings of the DDC after 6 June 1999. There were certainly a number of activities to be undertaken. I do not think that those activities would have been completed, or that the DDC would have produced its “Final Report”, without further meetings.

44 I do not regard this aspect of Ms Sylvester’s evidence, either in isolation or considered in the context of the totality of her evidence (including what I think to be her erroneous evidence as to a meeting with Mr McLeod on 17 September 1999), as having an adverse impact on her credibility or on the general acceptability of her evidence.

45 Ms Sylvester said (para 19 of her affidavit sworn on 27 September 2005) that at “almost every” meeting of the DDC, Mr Sutton would be asked words to the effect “have you got the spread organised?” and that he would reply with words to the effect of “it is going well”; and that he did not indicate that there was any problem. She said further that, on one occasion, Mr Sutton said words to the effect that “we have a group of individuals on our books to place shares with to achieve the spread if we need to. There is no need to worry. It’s something we do all the time.”

46 Further, Ms Sylvester said (para 20 of the same affidavit) that she and Mr Cleland reported to the DDC on presentations that Mr Cleland had made to potential investors. At one meeting of the DDC, she asked Mr Sutton whether he had any suggestions of interested investors and Mr Sutton replied in words to the effect that “no, you have covered a lot of investors and everything seems to be under control.”

47 Whilst preparation of the prospectus was in progress, the ASX changed its “spread” requirements from a minimum of 500 investors to a minimum of 400 investors (in each case with each investor taking at least $2,000 worth of securities). Ms Sylvester discussed with Mr Sutton whether the change would apply to the ozEcom IPO. She said (para 21 of the same affidavit) that at one meeting of the DDC, Mr Sutton said that he had confirmed with the ASX that the minimum subscription would be 400 rather than 500; that he was then asked whether he could achieve 400; and that he replied “yes”.

Extensions of time; registration

48 On 23 June 1999, Hudson Investment wrote to ozEcom confirming that it agreed to extend the Registration Date to 14 July 1999 (from 22 June 1999) and the Despatch Date to 20 July 1999 (from 29 June 1999).

49 The evidence includes unsigned copies of what purports to be a letter dated 22 July 1999 prepared for signature by Messrs Sutton and McLeod and addressed to Mr Cleland. If a letter in those terms were sent, it would have confirmed that Hudson Investment agreed to extend the Registration Date to 2 August 1999 and the Despatch Date to 6 August 1999. The evidence does not, I think, include any signed copy of the letter on Hudson Investment’s letterhead. The copies to which I have referred are – at least in part – on ozEcom’s stationery. They bear a footer “cc 90722-Dft to Hudsons”.

50 The prospectus was registered on 5 August 1999. On that day, Hudson Investment wrote to ozEcom confirming that it agreed to extend the Registration Date “to on or before 13 August 1999” and the Despatch Date “to on or before 18 August 1999”. Each letter was signed by Mr Sutton as chairman and Mr McLeod as CEO.

The “Closing Date” and closing the offer

51 The Timetable in the Schedule to the underwriting agreement refers, among other things, to a “Registration Date” and a “Closing Date”. The Registration Date (an event for which a calendar date is specified) is the “Last Day for registration of Prospectus by ASIC”. The Closing Date is not fixed by reference to a calendar date. It is “Registration plus 30 days”. Clearly, in this context, “Registration” means the date on which “registration of Prospectus by ASIC” is achieved. So long as that event occurred before the Registration Date (the last day specified, as from time to time extended), the condition precedent set out in clause 2.1(a) would be met and the event of registration would be effective to start the clock ticking for the calculation of the Closing Date.

52 The Closing Date is not specified as something to be calculated by reference to the Registration Date (as that might be fixed, or varied, from time to time). I do not think that it is possible, as a matter of construction, to read the Timetable in this way. The concept of a “Registration Date”, as defined, has its own work to do: defining (or confining) the condition precedent set out in clause 2.1(a). There does not seem to be any reason to extend that concept to something quite separate: namely, calculation of the Closing Date (which only becomes a live issue if clause 2.1(a), among other things, has been satisfied).

53 For the reasons that I have given, it follows from clause 3.1 of and the schedule to the underwriting agreement that the Closing Date of the offer was a date 30 days after 5 August 1999. However, in his letter of 27 September 1999 (see para [90] below), Mr McLeod appears to have treated the calculation of the Closing Date as running from 13 August 1999 (the last date for registration) rather than from 5 August 1999 (the date on which registration was achieved). On the correct view (that time ran from 5 August 1999), the Closing Date would have been 4 September 1999. On the other (and as a matter of interpretation of the agreement incorrect) view, the Closing Date would have been 12 September 1999. At this point by way of an aside, I note that (Hudson Securities raised as an issue whether the letters to which I have referred in paras [48] to [50] above were intended to be letters extending the Closing Date, or that had that effect. I deal with that issue in paras [122] to [125] below and conclude that the letters should be treated as having had that effect.

54 OzEcom submitted that, as 12 September 1999 was a Sunday, the Closing Date would have been the next day, 13 September 1999. The other parties, although they disputed that the Closing Date was (or would have been) 12 September, appeared to accept that if it did fall on that date, it should be taken to have been the next day. Presumably, if 4 September 1999 (a Saturday) were the nominal Closing Date, the same logic would take it on to Monday 6 September 1999.

55 The prospectus also contains references to the closing of the offer. Under the heading “IMPORTANT DATES” on page 3, information is given including the following:

56 In section 1 of the prospectus, dealing with “THE OFFER” and under the heading “TIMETABLE”, the following appears:

“TIMETABLE

Applications for Shares may be lodged at any time after the issue of this Prospectus. The Offer will open at 9:00 am (AEST) on 9 August 1999 and will remain open until 5:00 pm (AEST) on 30 August 1999 subject to the right of the Directors to close the Public Offer at an earlier or later date with or without prior notice.

Applicants are encouraged to submit their Public Offer Application Forms and accompanying Application Monies as early as possible.”

57 Thus, as to the various ways in which the concept of Closing Date or some analogous verbiage is employed in the underwriting agreement and the prospectus, there are the following possibilities:

(1) To the extent that the reference is clearly to the underwriting agreement and the Timetable in it:

(b) There is no reason why ozEcom could not have employed that mechanism successively, by giving successive notices, so as to achieve an overall extension in excess of three Business Days comprised of a number of individual extensions each of three Business Days;

(c) Hudson Investment could vary the Closing Date without the
consent of ozEcom in accordance with clause 3.3;

(d) At least arguably (clause 3.3(b)), Hudson Investment could not extend the Closing Date under clause 3.3 by more than 14 days in all; but

(e) The parties could extend the Closing Date by consent pursuant to clause 3.4; at least prima facie, any such variation would need to be in writing signed by the parties (clause 17.2(a)(ii)).

(2) As to the closing of the public offer:

(a) The directors of ozEcom could close it early, or extend the date of the offer, with or without prior notice;

(b) That extension did not require the consent of Hudson Investment; but

Events up to 27 September 1999

58 In the narrative sections that follow, I draw once more substantially on the evidence of Ms Sylvester and Mr Corfe. I accept the substance of their accounts of the relevant events; and I am comforted in doing so because none of the defendants or cross-defendants has taken the stand to controvert their accounts.

59 Ms Sylvester said that from mid August 1999, she and others from ozEcom were seeking subscriptions for the IPO. In particular, they were conducting discussions with Messrs Rodney Adler and René Rivkin, and seeking to negotiate a facility with the Commonwealth Bank of Australia to provide funds to enable investors to subscribe for shares in ozEcom.

60 Ms Sylvester gave hearsay evidence of a conversation in mid-August 1999 with Mr Cleland that involved, as well, Messrs Stevens, Corfe and Smyth-Kirk. Mr Cleland reported on discussions that, he said, he had had with Mr Sutton. According to Ms Sylvester, Mr Cleland said that he had agreed with Mr Sutton “that we will not formally extend the offer. We’re just going to see how we go so that if we get Adler or Rivkin tomorrow then we can close it off. We’re just going to keep it open on an ad hoc basis until we can reduce the shortfall amount.” On Ms Sylvester’s evidence, those discussions occurred before the Closing Date of 4 (or 6) September 1999.

61 Mr Cleland was not called to give evidence of those discussions. His absence from the witness box was not explained. No application was made pursuant to s 64 (or, for that matter, s 63) of the Evidence Act 1995. Ms Sylvester’s evidence of what Mr Cleland had said was admitted on a limited basis, but not as evidence of the fact or content of his alleged discussions with Mr Sutton.

62 On 9 September 1999, Mr Corfe had a discussion with Messrs Tan and Sutton. Mr Sutton confirmed that the required shareholder spread was now 400 and not 500, and that “we will be able to use the names from our client list”.

63 Thereafter, Mr Corfe said, he had a telephone discussion with Mr Sutton in which Mr Sutton referred to the shareholder spread requirement and said “we should issue applications for the required names as soon as possible. I will issue instructions to Suzzanne [sic: Mr Sutton’s personal assistant] on the way to the airport.”

64 Mr Corfe made a file note of his discussions with Mr Sutton. Although Mr Corfe was cross-examined at some length on his evidence, I accept the substance of it. I note that on a number of occasions Mr Corfe’s evidence was supported by file notes. The veracity of those file notes was not impugned; specifically, it was not put to Mr Corfe that they had been fabricated or that they were anything other than an honest attempt to record accurately the events to which they referred.

65 By mid September 1998, ozEcom had attracted about $6 million in subscriptions. However, Ms Sylvester said (para 31 of her affidavit sworn 27 September 2005) “the market for “dot.com” companies … was starting to experience a downturn” and subscribers started to request withdrawals of their applications.

66 Ms Sylvester said (para 32 of the same affidavit) that on 15 September 1999 she and Mr Cleland had a discussion, by speaker phone, with Mr Sutton. Mr Cleland asked what was the ability of Hudson Investment to underwrite $2 million if required. Mr Sutton replied “that will be too much. We wouldn’t want to meet that.” He said, in answer to a question from Mr Cleland, that “a shortfall of about $1 million will be more acceptable. We could close off for a $1 million shortfall but I will have to talk to Vincent.” The conversation continued with discussions of attempts being made by ozEcom “to close the amount of the shortfall for you”. In answer to a request for further suggestions, Mr Sutton said, in effect, that he had none.

67 Ms Sylvester said (para 33 of the same affidavit) that she and Mr Cleland met Mr Sutton the following day, 16 September 1999. Mr Cleland said that “there looks like there will be a shortfall of more than $1 million”. Mr Sutton said “Vincent will not want that level of shortfall. It will be better if we worked towards reducing the shortfall before closing the issue.” He added that he was going to the United Kingdom the following day and that Mr McLeod would be taking over from him.

68 Ms Sylvester said (para 34 of the same affidavit) that she and Mr Cleland met Messrs Tan, McLeod and Sutton later the same day, at about 6 o’clock. She or Mr Cleland said that the shortfall was “currently at about $2 million”. Mr McLeod said “The ANZ will not fund Hudson Securities for a $2 million shortfall.” Mr Tan said that ozEcom would have to keep working on its investors, because “I do not want the issue closed if there is going to be that size shortfall.”

69 The following day (17 September 1999), Ms Sylvester said (para 35 of the same affidavit), she and Mr Corfe met Messrs Tan and McLeod. Either she or Mr Corfe said that the board of ozEcom had decided “not to issue a formal notice of closure for the time being.” There were then discussions of the ways in which the shortfall might be narrowed, including by Hudson Investment’s lending money to ozEcom to enable it to pay out pre-float creditors, who would invest the money so repaid in applications for shares. Mr McLeod requested that this be put in writing. There was then discussion of other matters to be taken, and of the position between ozEcom and Mr Adler.

70 It is plain that this meeting could not have occurred on 17 September 1999, because Mr McLeod was overseas on that day. I think that both Ms Sylvester and Mr Corfe must have mistaken the date of the meeting. Having said that, I accept that there was a discussion with Mr McLeod shortly before 17 September 1999 in which words to the effect of those attributed to him were said.

71 OzEcom sent three letters to Hudson Investment after that meeting. The first letter was addressed to Mr Tan. It started with the words:

“Further to our meeting this morning I wish to confirm our understanding of the applications received to date and the actions required to effectively close the Issue today.”

72 The letter then discussed the ways in which the shortfall could be reduced.

73 Mr Corfe said that, after he sent this letter, Mr Tan rang him, said that he did not want any letters addressed to him, and that the letter should be addressed to Mr McLeod and re-sent. That was done. The version directed to Mr McLeod started with the words:

“Further to our various discussions over the last few days with yourself and Messrs Sutton and Tan … “.

74 Again, the letter dealt with the steps being taken to close the shortfall. It said in item 3:

“3. We are, as discussed with Mr Tan this morning, in the process of concluding a transaction with Adler Corporation who we understand will provide an application (or applications if appropriate) amounting to 8 million shares ($4 million). This would bring the cumulative total to $9.5 million.

Mr Adler has proposed, and Mr Tan agreed in principle, to a Put Option for the shares to Hudson Investment Group Limited, which in turn will request a similar Option to companies associated with Mr Cleland. Further details of this arrangement will follow shortly.”

75 According to Mr Corfe, Mr McLeod rang Mr Corfe and said that the letter was still not suitable, and that paragraph 3 should be changed “by taking out the reference to Vincent”. (I accept that Mr McLeod was overseas on 17 September 1999; but in an age of almost instantaneous communication, that of itself is no reason for rejecting this aspect of Mr Corfe’s evidence.) The requested change was made. The third version of the letter commenced as did the previous ones. However, item 3 stated:

“3. We are in the process of concluding a transaction with Adler Corporation who we understand will provide an application (or applications if appropriate) amounting to 3 million shares ($4 million). This would bring the cumulative total to $9.5 million.

Mr Adler has proposed, and we seek your agreement in principle, to a Put Option for the shares to Hudson Investment Group Limited, which in turn will request a similar Option to companies associated with Mr Cleland. Further details of this arrangement will follow shortly.”

76 As I have said, I accept Mr Corfe as a witness of truth on whose evidence I can rely. I therefore accept:

(1) That the letter as drafted (on the first and second occasions) did fairly summarise the discussions that had been held; and

77 Mr Breadman gave evidence that he and Mr Cleland met Mr Adler on 24 September 1999, to solicit Mr Adler’s investment in ozEcom. According to Mr Breadman, Mr Adler agreed to invest $1 million “provided the company is publicly floated”. Mr Breadman said that Mr Adler then telephoned Mr Tan and had a discussion by speaker phone. Mr Adler said to Mr Tan that he would be prepared to invest $1 million “but I need your assurance that Hudson Investment will fulfil the underwriting”. Mr Tan sought to persuade Mr Adler to commit $2 million. Mr Adler declined, and asked “will Hudsons be good for the shortfall and stand by the underwriting commitment?”. Mr Tan said “yes”, and Mr Adler said that on that basis he would proceed.

78 Mr Breadman made a file note of that conversation. Relevantly, it referred to Mr Tan’s attempts to talk Mr Adler up from $1 million to $2 million and said:

“Rodney again reiterated his decision and said words to the effect that Hudsons should be good for the underwriting shortfall if any. After further discussion Tan agreed and left me with the distinct impression that the underwriting agreement was still on foot.”

79 Mr Breadman was challenged vigorously in cross-examination on this evidence. The challenge did not extend to a suggestion that the file note was fabricated, or that it was anything other than an honest attempt to record the events to which it referred. Mr Breadman adhered to the substance of his evidence, although his formulation of the conversation varied slightly both from what he had said in his affidavit and what he had said in his file note. I do not regard this as surprising, having regard to both the passage of time and the relatively general wording of the file note. By way of example, Mr Breadman said (T70.18-.25):

“I can remember the conversation with Mr Tan in Rodney’s office and I remember him saying yes, because there was a lot of discussion and the phone – and the conversation finished very quickly. It was, “will you underwrite it?”. “Yes.” “I’m in.” and then when I got back to the office, I wrote the file note and I was left with the distinct impression that the underwriting was on foot.”

80 I accept the substance of Mr Breadman’s evidence. For the reasons that I have given, I do not regard the variations between his accounts of it as in any way detracting from its overall acceptability. I therefore conclude that Mr Adler did have a discussion with Mr Tan on 24 September 1999 in which, among other things, Mr Adler said that he would invest $1 million if Hudson Investment stood by its commitment to underwrite, that Mr Tan said Hudson Investment would, and that Mr Adler thereupon confirmed his commitment. Although it is not essential to my acceptance of the substance of Mr Breadman’s evidence, I am comforted in my acceptance of it by the fact that Mr Tan, who as I have said was in Court for much of the hearing, chose not to rebut it.

81 In the meantime, Ms Sylvester had continued her discussions with Mr McLeod in relation to the advance of a sum of money to ozEcom, to enable ozEcom to repay certain creditors and thereby to enable those creditors to subscribe for shares. On 21 September 2005, and as requested by Mr McLeod, she sent a draft loan agreement to him. Mr McLeod said that he would ask his legal department to look at it.

82 The evidence included a minute of a meeting of ozEcom’s board at which the following resolutions were passed:

“1. Resolved that the Public Offer of shares in ozEcom Limited dated 23 July 1999 be closed at 5pm on Friday, 24 September 1999.

2. That ozEcom having completed all necessary steps as provided for in the Underwriting Agreement proceed with the issuing of a Closing Certificate.

3. That Robert Cleland in his capacity as Executive Chairman is empowered to issue such notices without further reference to the Board.”

83 That minute was signed as a true record by Mr Cleland (as chairman) and Ms Sylvester (as director). On its face, that minute relates to a meeting that occurred on or prior to 24 September 1999.

84 In para 10 of her affidavit sworn 19 December 2006, Ms Sylvester suggested that the minute to which I have referred was a minute of the meeting that, she said, took place on the morning of 28 September 1999. However, I think, she was mistaken in this; indeed, she accepted in cross-examination that the relevant resolution was one that she thought was “passed on the 24th … it would appear to be on the 24th.”

85 On 27 September 1999, Mr Cleland sent five letters to Mr McLeod. The first of those letters reads as follows (omitting formal parts):

“We note our earlier discussion concerning Hudsons providing sufficient names for it to meet the ASX’s determination on ‘spread’, and enclose the copy of the amended ruling. We note that this request was initiated by your Mr David Sutton.”

86 The second letter (I should perhaps note that in attributing an order to them, I am simply following their order in the court book) reads as follows (again omitting formal parts):

“As noted in our earlier correspondence we are using our best endeavours to secure an application for the additional 2,000,000 shares, to enable a smooth and immediate closing of the Offer.

We note that as time is of the essence, the applicant may need to take up a Put Option to Hudsons at 180-220 days for the said shares as previously agreed. While we will use our best endeavours the exercise price will be between 0.53c and 0.55c.

We will keep you advised of progress.”

87 The third reads (again omitting formal parts):

“We note our earlier discussion concerning Hudsons providing sufficient names for it to meet the ASX’s determination on ‘spread’, and enclose the copy of the amended ruling. We note that this request was initiated by your Mr David Sutton.”

88 The fourth reads (so far as is relevant, and again omitting formal parts):

“Please find attached a standard letter confirming that the ozEcom Limited Share Offer will close tonight at 5pm. This in effect gives ozEcom Limited and Hudson Investment Group Limited until the close of business on Wednesday, 29 September 1999 to fully satisfy the Offer and avoid the necessity to declare a shortfall.

We confirm the advice of yourself, Mr David Sutton and Mr Vincent Tan, in his capacity as a controlling shareholder to Mr Rodney Adler, Mr Ross Breadman and myself that Hudsons can and will standby [sic] its obligations as the Underwriter, to enable an immediate closing before there is a further erosion of the applicants.

We note that Mr Rodney Adler has agreed to take up 2,000,000 shares on the basis of this warranty. We note Mr Tan’s advise [sic] to Mr Adler, and our own conversation at the close of business on Friday, that it would have been ‘more convenient’ if Mr Adler had elected to take up 4,000,000 shares. In this regard we advise that we will continue to use our own best endeavours to secure applications for additional shares before the close of business on Wednesday.

…

Finally we confirm your advice that you will ensure that the Offer closes “fully subscribed” which will lay the best foundation for the future trading of the script.

… “

89 The fifth was enclosed with the fourth. Relevantly, it reads as follows:

“ …

ozEcom confirms that the closing date nominated in the Prospectus issued on 23 July 1999 has been extended on an ad hoc basis by mutual consent. We now confirm that by agreement between Hudson Investment Group Limited and ozEcom Limited, the Offer will close at 5pm on Monday, 27 September 1999. Preparations for the normal administration of the closing of the Offer and the admission of the Company to the Official List of the ASX as provided for in the Underwriting Agreement will now commence.

May we take this opportunity of expressing our sincere appreciation and respect for your assistance.”

90 Mr McLeod responded promptly to those letters, later on the same day. His response said (omitting formal parts):

“I refer to the four letters received from you earlier today.

We are a little surprised at why you saw fit to send us four letters today. We are also concerned with the content of those letters and in particular several self serving statements contained in those letters which do not reflect the actual position.

We will respond in more detail in due course.

As you are aware, David Sutton is presently overseas. While we have looked through his file we do not appear to have a copy of any consent from Hudson Investment Group Limited to the extension of the offer period and the closing of the offer period at 5pm today. Would you please provide us with a copy as a matter of urgency.”

91 Two draft letters from Hudson Investment to Mr Cleland were in evidence. One of those drafts stated, relevantly (and omitting formal parts):

“ …

2. Discussions with Mr Rodney Adler.

As above our only discussion with Mr Adler was for Mr Adler or Adler Corporation Limited to take up 4 million shares. It should also be noted in our discussion with Mr Adler that he indicated that $6 million of the IPO had been completed and that he would take $2 million of the Issue leaving $2 million to be completed by Hudson Investment Group. It was agreed with Mr Adler that Hudson Investment Group would commit to placing the $2 million with its clients. There was not discussion at all in relation to Hudson Investment Group taking up $2 million as a shortfall under the Underwriting Agreement. It was shown at the end of the day that only $4.9 million of the Issue had been completed, Adler Corporation taken [sic] up $1 million only. Hudson Investment Group continues to seek investors for the balance.

…

4. Offer closer. The agreed closing date between the parties 13 September 1999. This was further extended to 17 September 1999 by consent of both parties. Due to the lack of success as at 17 September 1999 it was agreed by the parties that the issue would be extended and that the management and major shareholders of ozEcom Limited were finalising a loan facility from Commonwealth Bank for $3 million. This was taking a longer period for finalisation than initially thought by the directors of ozEcom Limited. In addition an agreement was being finalised with Adler Corporation to subscribe for up to $4 million of shares with the remaining balance coming from either the CBA loan or from Hudson clients. This was to be completed by Monday 20 September 1999 as per your letter dated 17 September.”

92 The other stated, relevantly (and again omitting formal parts):

“ …

The previous agreement between the two parties was as per our letter dated 5 August 1999 whereby Registration for the Prospectus was 13 August 1999. Under the Underwriting Agreement the Closing Date was to be 30 days later, being 12 September 1999, which was a Sunday with the next business day being 13 September 1999. As per your schedule of funds raised as at 13 September 1999 the Offer was still less than 50% subscribed for and total shareholders were substantially less than the 500 required. No Shortfall Notification was issued on the understanding that the Offer was extended on an [sic] “best endeavours basis” while endeavour basis” [sic] while you finalised your discussions [with the] Commonwealth Bank Limited and Adler Corporation Limited to issue the remaining $5 million.”

93 The latter draft was adorned with some handwritten notes. It was not proved by whom those notes were made, or when. One would have expected that evidence to come from the defendants or the cross-defendants had it been desired to rely on the truth of what was stated in those notes.

The events of 28 September 1999 and following

94 Ms Sylvester telephoned Mr McLeod on 28 September 1999, to ask whether he had received the letters referred to in paras [85] to [89] above. Mr McLeod confirmed that he had received them. Ms Sylvester said that she had a conversation with Mr McLeod to the following effect:

“Me: “Are there any changes you would like to have made as we are happy to discuss anything which will progress closing the issue? Would you be able to take up a put arrangement with IAMA?”

I then discussed how the put arrangement would work and that IAMA was interested in this type of arrangement.

“I am not sure we can enter into a put arrangement or what disclosure requirements there are under the prospectus regulations.”

Me: “I will get some advice from Clayton Utz and get back to you. Have you seen a letter from IAMA confirming their interest to take up a shareholding?”

Bruce McLeod:

Me: “I will fax a copy to you. Have you covered the minimum shareholder’s spread of 400 in the float?”

“I am not familiar with that issue.”

Me: “We have discussed it several times with David about obtaining sufficient names for the spread requirement. Every time he has been asked he has said “that’s under control, we have a list of 400 investors.””

318 Thus, I conclude, issue 1C(i) should be answered “no”.

Issue 2A: Hudson Investment’s duty of care

319 OzEcom did not press this issue.

Issue 2B(i), (ii) and (iv): Hudson Securities’ duty of care

320 OzEcom submitted that Hudson Securities did owe it a duty of care. Hudson Securities submitted that no such duty was owed. It was common ground that if a duty of care were owed, its content was as stated by Hudson Securities in paras 87 and 88 of its outline of submissions dated 30 April 2007. Those paragraphs read as follows (omitting citations):

“ordinary”

“the ordinary skilled practitioner within the field”

“only average skill”. …

“to bring to the task the competence and skill that was usual amongst”

321 OzEcom’s claim is one for pure economic loss. I considered the relevant principles in Ingot Capital Investments & Ors v Macquarie Equity Capital Markets & Ors [No 6] [2007] NSWSC 124, and summarised relevant factors as follows in para [540]:

“[540] Recent decisions of the High Court make it plain, in the context of a claim for pure economic loss, that:

(1) Reasonable foreseeability of loss is not of itself a sufficient basis to impose a duty of care: Tame v New South Wales (2002) 211 CLR 317, 329 [6] (Gleeson CJ; Tame was a case of alleged psychiatric injury, but what his Honour said applies a fortiori to a case of pure economic loss); Sullivan v Moody And Others (2001) 207 CLR 562, 576 [420] (another case of alleged psychiatric and other injury; the comment just made in relation to Tame applies).

(2) Nonetheless, reasonable foreseeability is a necessary condition of duty: Tame at 355 [103] (McHugh J).

(3) The absence of reasonable foreseeability negates the existence of a duty of care (following from (2)).

(4) A plaintiff’s “vulnerability”, in the sense of its inability to protect itself from the consequences of a defendant’s want of reasonable care, is an important requirement in analysing whether any such duty of care is owed: Woolcock Street Investments Pty Ltd v CDG Pty Ltd And Another (2004) 216 CLR 515, 530 [23] (Gleeson CJ, Gummow, Hayne and Heydon JJ).

(5) Another important consideration is assumption of responsibility coupled with known reliance: Woolcock Street at 531 [24] (ibid).

(6) The existence and terms of any relevant contract may bear upon the existence and content of a duty of care: Astley And Others v Austrust Limited (1999) 197 CLR 1, 22 [47] (Gleeson CJ, McHugh, Gummow and Hayne JJ). To adapt the words of Lord Steyn (with whom the rest of the House of Lords agreed) in Williams And Another v Natural Life Health Foods Ltd [1998] 1 WLR 830 at 857, the role of the law of tort is to fill gaps where other remedies are not available.

(7) The relevant statutory and common law context, including the allocation of responsibilities and the provision of remedies, is relevant to the determination, whether a duty of care should be imposed in a particular case: Esanda Finance Corporation Limited v Peat Marwick Hungerfords (1997) 188 CLR 241, 282, 286 (Mc Hugh J); and see Perre And Others v Apand Pty Limited (1999) 198 CLR 180, 192 [5] (Gleeson CJ; his Honour repeated this sentiment in Tame at 329 [6]), 226 [120] (McHugh J).”

322 As I observed in para [541], of the same judgment the material relevant to those headings might overlap to some extent.

323 OzEcom’s pleadings provide little enlightenment as to the basis on which, it is said, Hudson Securities owed a duty of care. Paragraph 40 of its contentions reads as follows:

“40. Hudson Securities owed a duty to OzEcom to take reasonable care and to exercise professional care, skill and diligence so as to prevent the occurrence of any loss or damage to OzEcom in the conduct of the underwriting.”

324 A request for particulars of that bald assertion was met with the response that the duty of care was owed “as a matter of law”. That cannot be correct as a complete response; the ascertainment of the existence of a duty of care to avoid economic loss necessarily involves examination of the facts of a particular case. See Gummow J in Perre And Others v Apand Pty Limited (1999) 198 CLR 180 at 253 [198].

325 Presumably, what was meant was that the law imposed a duty of care on Hudson Securities in, or by reason of, the circumstances alleged elsewhere in the contentions. From the way that ozEcom put its closing submissions, that would appear to be the case; and since Hudson Securities was content to meet the case thus argued, I shall move on to consider the competing submissions.

326 It is clear that, from the outset, Hudson Securities was to be involved. That is apparent from the conversation that Ms Sylvester and Mr Corfe had with Mr Sutton early in May 1999, in the course of which Mr Sutton said that Hudson Securities would be the broker because it held the licence, and Hudson Investment would be the underwriter because it had the assets. It is also apparent from Mr Cleland’s letter to Mr Sutton of 21 May 1999 which, as I have noted in para [30] above, was sent to Mr Sutton in his capacity as chairman of Hudson Investment but signed, apparently to indicate acceptance, by him on behalf of Hudson Securities.

327 Mr Sutton was a director of Hudson Securities and appears, from his exhortations to advisers, to have had some executive role in the company.

328 The duties undertaken by Hudson Securities pursuant to its retainer as lead broker and manager included managing the float and seeking to procure the necessary spread. OzEcom could not market the securities. Nor could Hudson Investment (as Mr Sutton had made plain to Ms Sylvester and Mr Corfe at the outset). Hudson Securities could (as, again, Mr Sutton had made plain to Ms Sylvester and Mr Corfe at the outset).

329 It is correct to say that as between ozEcom and Hudson Investment, it was Hudson Investment that assumed responsibility for the use of best endeavours to achieve the spread (through clause 3.5 of the underwriting agreement). But, as both ozEcom and Hudson Investment knew, the practical responsibility for that task was to be assigned to Hudson Securities. Hudson Securities knew that. It either held itself out as capable of performing that task, or permitted itself to be held out in that way (depending upon the identification of the hat that Mr Sutton wore in his initial discussions with Ms Sylvester and Mr Corfe).

330 Further, after the underwriting agreement was signed, Hudson Securities either represented that it was working towards achieving the spread, or permitted Hudson Investment to represent that it was doing so (again, depending on the identification of the hat that Mr Sutton was wearing from time to time when, as I have recounted above, he assured Ms Sylvester and others that steps were being taken to ensure that the requisite spread would be obtained).

331 The outcome that ozEcom wished to secure was twofold: raising $10 million in capital and listing on the ASX. Achieving the spread was critical to the attainment of each outcome.

332 In my view, the facts demonstrate that:

(1) Hudson Securities assumed the responsibility for the performance of Hudson Investment’s obligations in relation to spread;

(2) OzEcom (and Hudson Investment) knew that Hudson Securities would do so;

(3) OzEcom relied on Hudson Securities’ assumption of responsibility; and

333 Those circumstances – which do fall within ozEcom’s pleaded case at para 16 of its contentions – are sufficient in my view to give rise to a duty of care on the part of Hudson Securities. That duty would arise upon the assumption of responsibility: as to which, see paras [34] to [37] above. As I have said, the content of that duty (if found to exist) was agreed.

334 There was some difference between the parties relating to what they called the scope of the duty of care. Hudson Securities submitted that the scope of the duty did not extend to achieving the spread (or using best endeavours to do so) or managing the listing. Those obligations, Hudson Securities submitted, were undertaken by it to Hudson Investment pursuant to whichever (if either) of the letters referred to in paras [34] to [37] above was the letter of engagement.

335 I do not accept that submission. For the reasons that I have given, the assumption of responsibility is a key factor in my conclusion that a duty of care was imposed on Hudson Securities. It would be anomalous if the extent or scope of the duty was not also to be determined by reference to the responsibilities that were assumed.

336 Issues 2B(i), (ii) and (iv) should be answered accordingly.

Issue 2B(iii): did the duty of care lapse in early September 1999?

337 This issue is founded on para 30A of Hudson Securities’ defence. The unwieldy nature of the allegations in that paragraph were addressed thus in Hudson Securities’ written submissions at paras 80 to 82:

No duty owed from early September 1999

80. Further, a duty of care will not be found to have been owed by a person if that duty would not be compatible with other duties which that person owed: …

“reasonable care”

[CB2/763, 2nd para; CB3/866];

[CB2/755, 2nd para, but see further the evidentiary references in paragraphs 97 to 101 below].

[CB3/866].

Each of these pieces of information must have been of significance to a potential applicant, because they all would have suggested a lack of demand for the stock.

“reasonable care”

338 I am not sure that the submissions reflect the full extent of para 30A of the defence. But this does not matter because, on the findings that I have made, Hudson Investment’s breach of its obligations under clause 3.5 cannot have extended beyond the Closing Date of 6 September 1999. Given that the scope of Hudson Securities’ duty, as I have found it, related to the performance of the obligations undertaken by Hudson Investment in relation to spread, the same must be true of the duty of care.

339 Since nothing in the pleadings or submissions identifies any relevant event or circumstance prior to the Closing Date, it is unnecessary to deal further with issue 2(b)(iii).

Issue 2B(v): breach

340 For the reasons that I have given in relation to issue 1B(iii), this issue must be answered “yes”.

Issue 2C: causation

341 It is possible to deal relatively briefly with the various sub issues. The only breach (whether of contract or of a duty of care) that I have found relates to the issue of spread. In a sense, the case is one of loss of an opportunity, in that it cannot be said with certainty that, had Hudson Investment used its best endeavours, or had Hudson Securities used reasonable care and skill, the requisite spread must have been achieved. However, Hudson Investment represented on numerous occasions that the spread could be and would be achieved. Hudson Securities either made the same representations or permitted them to be made (again, depending upon the identification of Mr Sutton’s hat from time to time). I do not find persuasive the argument that, in the face of those repeated representations, nonetheless the spread would not have been achieved.

342 Insofar as the other causation issues are concerned (relating to clauses 8.1, 8.2 and s 1031), it is sufficient to say that the breaches of duty in relation to spread, coupled with the conclusion that, but for those breaches of duty the spread would have been achieved, renders them irrelevant. They would be, at the most, hypothetical subsequent alternative causes of loss.

Issue 2D: damages

343 For the reasons that I have given above, the only sustainable claim for damages is that relating to wasted expenses.

344 There is a defence of mitigation of loss, relating to the fact that ozEcom did in fact raise some $5 million in capital through a private placement early in 2000. Hudson Securities submits (written submissions dated 30 April 2007, para 121) that “[i]t may be inferred that its ability to do that would have been diminished very significantly if it had raised the $10 million it had hoped to raise in September 1999.”

345 There is no evidence in support of that proposition. It is not one of self evident truth. Indeed, one might think, the completion of a successful capital raising, coupled with the development of ozEcom’s business model through the employment of the capital thus raised, might have enhanced its ability to raise capital at a later time.

346 There are raised also issues of contributory negligence, based on the same matters identified in relation to causation. I do not think that any failure by ozEcom to comply with its obligations under clauses 6 and 8.1 of the underwriting agreement, or any misleading or deceptive conduct in which it may have engaged, relevantly caused or contributed to the wasted expenditure which is the measure of the loss that it has sustained by reason of Hudson Investment’s breach of clause 3.5 and Hudson Securities’ breach of its duty of care. That loss was complete by 6 September 1999, on the findings that I have made.

Issue 2D(iv): the “Spread Representations”

347 Hudson Securities does not press this issue.

Issues 3 and 4: unconscionable conduct and misleading or deceptive conduct

348 For the reasons that I have given in paras [181] to [187] above, these issues do not arise.

Issue 5: claim against Mr Tan

349 These claims relate to the underwriting and extension representations alleged by ozEcom against Hudson Investment. Since I have found that this aspect of its case fails, it follows that there can be no case against Mr Tan based on breach of warranty of authority.

Issue 6: misleading or deceptive conduct by ozEcom

350 This issue relates to the following representations pleaded by Hudson Investment in its amended cross-claim against ozEcom at paras 59A and 59B (I omit the particulars):

Spread Representations”)

(a) the First Plaintiff could provide the spread of shareholders to take up the offer of the proposed IPO;

(b) the First Plaintiff had received expressions of interest from investors wanting to subscribe for shares to invest in the First Plaintiff up to or beyond $10 million;

(c) the First Plaintiff would procure the shareholder spread required to make an IPO successful.

…

The IAMA Investment Representation).

… “

351 The representation pleaded in para 59B was made, at the latest on about 21 May 1999 when Mr Cleland wrote to Mr Sutton enclosing the list of subscribers to which I have referred in para [29] above. The representation was correct: on the evidence, ozEcom had received expressions of interest from prospective investors wishing to subscribe for at least $10 million worth of shares. The representation was not misleading or deceptive.

352 The list was given to Mr Tan to check. As I have said, little if anything was done to check it. Ms Sylvester’s evidence supports the conclusion that the para 59A(b) representation was of interest to Mr Tan, and I am prepared to conclude that he, and through him Hudson Investment, relied on it in deciding to enter into the underwriting agreement. That goes nowhere since, as I have said, the representation was not misleading or deceptive.

353 There is no evidence that the other representations were made.

354 Issue 6(i) should be answered “yes” as to the representation pleaded in para 59A(b), but “no” otherwise.

355 Issue 6(ii) should be answered “no as to the representation that was made”.

356 Issue 6(iii) should be answered “no”.

357 Issue 6 (iv) should be answered “does not arise”.

358 Issue 6(v) should be answered “yes, as to the representation alleged in para 59A(b), but not otherwise.”

359 Issue 6 should be answered “no”.

Issues 7 and 8: cross-claims between Hudson Investment and Hudson Securities

360 These cross-claims relate to contribution or indemnity for any liability that the cross-claimant may be found to have to ozEcom. In addition, Hudson Securities seeks payment of its agreed fee of $100,000.

361 So far as the claims for contribution or indemnity are concerned, they can attach only in respect of the breach of the obligations (contractual or in negligence) relating to spread. In circumstances where Mr Sutton seems to have been involved very heavily both on behalf of Hudson Investment and on behalf of Hudson Securities, and seems to have taken responsibility for co-ordinating (if that is the right word) the activities of Hudson Securities, I think that the appropriate conclusion is that they should each be held, as between themselves, liable to contribute equally to whatever loss ozEcom may prove.

362 The claim to recover the fee falls into a different category. It was a fee payable for performance of the obligations that, the relevant parties appear to agree, were summarised in the unsigned letter of 18 July 1999 that was apparently created on 6 August 1999 (see para [35] above). The fee was payable for Hudson Securities’ undertaking, on a best endeavours basis, two activities: undertaking and managing the application of the listing, and arranging shareholder spread. It was an entire consideration, not divisible between the two activities. On my findings, Hudson Securities failed singularly to use its best endeavours to arrange shareholder spread. For essentially the same reasons as I have given above in relation to the underwriting fee and commission (issue 1C(i)), Hudson Securities’ claim for payment of its fee must fail.

Issue 9: Hudson Investment’s fourth cross-claim against Messrs Sutton, McLeod and Tan

363 So far as I understand this cross-claim (and I have to say that the submissions in support of it have not greatly assisted me to do so), it is predicated on a finding that the Extension Representations or Extension Agreements were made, or that Mr Tan separately somehow agreed to extend the Closing Date or represented that this would occur (see paras 83, 85, 92, 96 and 98 of Hudson Investment’s written submissions dated 30 April 2007). Since I have found that Hudson Investment has no liability to ozEcom in respect of those matters, and since (as appears to be articulated in the written submissions to which I have referred) the fourth cross-claim does not relate to the breaches that I have found in relation to spread, the fourth cross-claim requires no further consideration.

Issue 10: contribution or indemnity generally

364 It is not necessary to add to what I have said in relation to issues 6 to 9.

Conclusions

365 OzEcom is entitled, should it wish to pursue the matter, to judgment for damages to be assessed in respect of wasted expenses incurred in reliance upon Hudson Investment’s promise in clause 3.5 of the underwriting agreement or referable to Hudson Securities’ breach of its duty of care. If that claim is pursued, and if the parties cannot agree on its quantification, it will be necessary for the question of quantification to be dealt with either by an Associate Justice of the Court or by a referee. OzEcom’s claims should be dismissed otherwise.

366 The first cross-claim – by Hudson Investment against ozEcom, for recovery of the underwriting fee – fails, and it should be dismissed.

367 As between Hudson Investment and Hudson Securities, there should be judgments on the second and third cross-claims to achieve the result that each is liable for one half of such damages as ozEcom may prove should it pursue the matter. The fourth cross-claim should be dismissed.

368 I make the following orders:

(1) Stand the proceedings over to 9.30 am on 31 August 2007 before me for directions.

(2) Direct the plaintiffs to notify the defendants by 17 August 2007 of the orders that they seek to give effect to these reasons.

(3) Direct the defendants to notify the plaintiffs by 24 August 2007 of the orders that each of them seeks to give effect to these reasons.

(4) Direct any party seeking an order for costs to notify the party against whom a costs order is sought by 17 August 2007 of the costs order sought and, in brief, the reasons why it is sought.

(5) Direct any party against whom a costs order is sought who disputes that the order as sought should be made to notify the party seeking the costs order by 24 August 2007 of that fact and, in brief, the reasons why the costs order sought is opposed.

(6) Direct copies of all documents exchanged pursuant to orders (2) to (5) to be delivered to my associate at the same time as they are sent to their respective recipients.

(a) the orders to be made including, if necessary, for the further

conduct of these proceedings; and

(b) the questions of costs.

– o0o -

Citations

OzEcom v Hudson Investment Group [2007] NSWSC 719

Most Recent Citation

Cases Citing This Decision

36

Glover v Blumer [2008] ACTCA 1

Ramsay v BigTinCan Pty Ltd [2014] NSWCA 324

Cases Cited

29

Statutory Material Cited

1

Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets (No 6) [2007] NSWSC 124

Mount Isa Mines Ltd v Pusey [1970] HCA 60

Sullivan v Moody [2001] HCA 59

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CITATION:	OzEcom & Anor v Hudson Investment Group & Ors [2007] NSWSC 719
HEARING DATE(S):	23, 26, 27, 30 April 2007 and 1, 2 May 2007
JUDGMENT DATE :	3 August 2007
JURISDICTION:	Equity Division Commercial List
JUDGMENT OF:	McDougall J at [1]
DECISION:	See paras [365] to [368] of judgment
CATCHWORDS:	CORPORATIONS - Capital raising - Underwriting agreement - First defendant agreed to underwrite IPO of shares in first plaintiff – Second plaintiff agreed to act as manager and lead broker – Public offering failed – Achievement of spread necessary for plaintiff to be listed on ASX - Whether first defendant breached obligations in relation to spread and to underwrite the issue – ‘Best endeavours’ obligation - Whether first defendant used ‘best endeavours’ to procure spread required by ASX – Delegation of performance to second defendant - whether delegator liable if delegate fails to use best endeavours – agreed extensions of time in accordance with underwriting agreement – Whether further extensions made either formally or on ad hoc basis. - CONTRACT - Whether agreement to extend closing date can be inferred from conduct – Offer and acceptance – Whether ‘best endeavours’ used to do all that could reasonably be done to achieve the contractual object. - ESTOPPEL – By representation – Whether evidence of reliance – Whether any detriment suffered if reliance on any representations - Whether unconscionable for first defendant not to comply with underwriting obligations where agreements allegedly made to extend – Whether plaintiff refrained from enforcing its rights due to alleged representation of extension. - NEGLIGENCE – Duties of care in negligence – Whether second defendant owed to plaintiff duties of care relating to its activities as sponsoring broker – Assumption of responsibility. - DAMAGES – Claim against first defendant for pure economic loss - Whether failure of IPO amounted to a loss to the company of the capital sum not raised – Whether wasted expenditure recoverable – Whether expenditure made or liability incurred on the faith of first defendant’s using its ‘best endeavours’ to achieve spread
LEGISLATION CITED:	Evidence Act 1995
CASES CITED:	Adelaide Petroleum NL and Others v Poseidon Ltd and Others (1990) 98 ALR 431. Astley And Others v Austrust Limited (1999) 197 CLR 1 Australian Broadcasting Commission v Australasian Performing Right Association Limited (1973) 129 CLR 99 Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153 Commonwealth v Verwayen (1990) 170 CLR 394 Commonwealth of Australia v Crothall Hospital Services (Aust) Ltd (1981) 36 ALR 567 Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 523 Esanda Finance Corporation Limited v Peat Marwick Hungerfords (1997) 188 CLR 241 Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22 Hadley v Baxendale (1854) 9 Ex 341; 156 ER 145 Hexiver Pty Ltd v Lederer [2006] NSWSC 1129 Hospital Products Limited v United States Surgical Corporation (1985) 156 CLR 41 Ingot Capital Investments & Ors v Macquarie Equity Capital Markets & Ors [No 6] [2007] NSWSC 124 Integrated Computer Services Pty Ltd v Digital Equipment Corp (Aust) Pty Ltd (1988) 5 BPR 11, 110 J. & H. Manktelow Pty Ltd v Alloway Grazing Pty Ltd (1975) 1 NSWLR 385 Jones v Barkley (1781) 2 Dougl 684; 99 ER 434 Jones v Dunkel (1959) 101 CLR 298 McRae And Another v Commonwealth Disposals Commission And Others (1951) 84 CLR 377 Perre And Others v Apand Pty Limited (1999) 198 CLR 180 Peter Turnbull and Company Proprietary Limited v Mundus Trading Company (Australasia) Proprietary Limited (1954) 90 CLR 235 Phillips v Ellinson Brothers Proprietary Limited (1941) 65 CLR 221 Pilmer And Ors v Duke Group Limited (In Liquidation) And Others (2001) 207 CLR 165 Poseidon Ltd and Another v Adelaide Petroleum NL and Others (1991) 105 ALR 25 Sargent v A.S.L Developments Limited (1974) 131 CLR 634 Segenhoe Ltd v Akins And Others (1990) 29 NSWLR 569 Sheffield District Railway Co v Great Central Railway Co (1911) 27 TLR 451 Strategic Minerals Corporation NL v Basham & Ors (1997) 15 ACLC 1,155 Sullivan v Moody And Others (2001) 207 CLR 562 Terrell v Mabie Todd & Coy Ld (1952) 69 RPC 234 Transfield Proprietary Limited v Arlo International Limited (1980) 144 CLR 83 Williams And Another v Natural Life Health Foods Ltd [1998] 1 WLR 83 Woolcock Street Investments Pty Ltd v CDG Pty Ltd And Another (2004) 216 CLR 515
PARTIES:	OzEcom Limited (In Liquidation) (First Plaintiff) Andrew Hugh Jenner Wiley (Second Plaintiff) Hudson Investment Group Limited (First Defendant) Hudson Securities Pty Limited (Second Defendant) Vincent See Yin Tan (Third Defendant) David Sutton (First Cross Defendant to the Fourth Cross Claim) Bruce McLeod (Second Defendant to Fourth Cross Claim)
FILE NUMBER(S):	SC 50080/05
COUNSEL:	N A Cotman SC/M A Izzo (Plaintiffs) A I Tonking (First Defendants) A Leopold (Second Defendant) J R J Lockhart (Third Defendant) B A Coles QC/Ms M Painter (First Defendant to the Fourth Cross Claim - David Sutton) D Cook (Second Defendant to the Fourth Cross Claim - Bruce McLeod)
SOLICITORS:	K P Farmer & Associates (Plaintiff) Thompson Eslick Solicitors (First Defendant)Watson Mangioni Lawyers Pty Ltd (Second Defendant) Allens Arthur Robinson Solicitors (Third Defendant) Peter Kemp Solicitors (First Cross Defendant to the Fourth Cross Claim) Wordsworth Lawyers (Second Cross Defendant to the Fourth Cross Claim)