RinRim Pty Ltd v Deutsche Bank AG

[2016] NSWSC 1377

Supreme Court

New South Wales

• Summary available

Medium Neutral Citation:

RinRim Pty Ltd v Deutsche Bank AG [2016] NSWSC 1377

Hearing dates:

15, 16, 17, 18 and 22 August 2016

Date of orders:

07 October 2016

Decision date:

07 October 2016

Before:

Bergin CJ in Eq

Decision:

Plaintiff’s claims dismissed with costs.

Catchwords:

BANKING AND FINANCE – where capital raising by Accelerated Renounceable Entitlement Offer (AREO) underwritten by three underwriters/joint lead managers – where contract between underwriters and publicly listed company – whether underwriters or publicly listed company owed obligations to particular shareholders and/or investors in AREO process.

 

NEGLIGENCE – where novel claim for imposition of duty of care – identification of particular class – salient features to be considered – whether duty of care to be imposed – if duty of care imposed success of claims dependent upon whether evidence leads to a conclusion that plaintiff would have acted in a particular manner.

  MISLEADING OR DECEPTIVE CONDUCT – where plaintiff claims that defendants failure to provide it with notice that it could make contact with the joint lead managers to ask to be included in an aspect of the AREO led it to believe that it was not qualified for inclusion – where outcome dependent upon acceptance of plaintiff’s witness evidence as to what it would have done if given such notice.

Legislation Cited:

Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth)
Australian Securities and Investment Commission Act 2001(Cth)
Civil Liability Act 2002
Corporations Act 2001(Cth)
Fair Trading Act 1987
Trade Practices Act 1974 (Cth)

Cases Cited:

Badenach v Calvert (2016) 331 ALR 48; [2016] HCA 18
Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 (2014) 254 CLR 185
Caltex v Stavar [2009] NSWCA 258
Hawkins v Clayton (1988) 164 CLR 589
Hill v Van Erp (1997) 188 CLR 159
Perre v Apand Pty Ltd (1999) 198 CLR 180

Category:

Principal judgment

Parties:

RinRim Pty Limited (Plaintiff)
Deutsche Bank AG, Sydney Branch (1st Defendant)
Credit Suisse (Australia) Limited (2nd Defendant)
CIMB Capital Markets (Australia) Limited (3rd Defendant)
Primary Health Care Limited (4th Defendant)

Representation:

Counsel:
LV Gyles SC/SA Lawrance/H Chiu (Plaintiff)
AS Bell SC/A Shearer (1st to 3rd Defendants)
IM Jackman SC/DFC Thomas (4th Defendant)

  Solicitors:
Carlisle Attorneys (Plaintiff)
Allen & Overy LLP (1st to 3rd Defendants)
Corrs Chambers Westgarth (4th Defendant)

File Number(s):

2014/43644

Publication restriction:

nil

Judgment

1. These proceedings arise out of an equity capital raising undertaken by the fourth defendant, Primary Health Care Limited (Primary), in February and March 2008 for the purpose of funding its takeover of Symbion Health Limited (Symbion). Primary engaged the first to third defendants, Deutsche Bank AG, Credit Suisse (Australia) Limited and CIMB Capital Markets (Australia) Limited, as underwriters and Joint Lead Managers (JLMs) of the capital raising.

2. The form of the capital raising was an Accelerated Renounceable Entitlement Offer (AREO) in which some parts of the capital raising were accelerated in circumstances permitted by the Australian Stock Exchange (ASX). The timing of the balance of the capital raising was largely dictated by the requirements of the Listing Rules and the Corporations Act 2001 (Cth) (the Act) including in relation to the issuing of a prospectus.

3. The AREO comprised two components. The first was an Institutional Entitlement Offer (Institutional Offer) in which selected existing institutional shareholders (exempt from the requirements of disclosure under the Corporations Act 2001 (Cth)) were offered 8 new shares for every 5 they held. The Institutional Offer took place on 13 and 14 February 2008. Any entitlements not taken up by an institutional shareholder in the Institutional Offer were sold to the market (other institutional shareholders) in an “Institutional Bookbuild” on 15 February 2008. That was followed by the release of a Prospectus on 18 February 2008 and a Retail Entitlement Offer (Retail Offer) which took place from 22 February 2008 to 13 March 2008. In the Retail Offer all existing shareholders who had not received an offer in the Institutional Offer were offered 8 new shares for every 5 they held. Any entitlements not taken up by a retail shareholder in the Retail Offer were sold to the market in a “Retail Bookbuild” on 19 March 2008.

4. The shareholders whose entitlements were sold in each Bookbuild received the difference between the price for those shares in the Bookbuild and the offer price of $5.40.

5. As at 13 February 2008, the plaintiff, RinRim Pty Ltd, held 2,500,657 shares in Primary, equivalent to about 1.76% of Primary’s total shares on issue. The plaintiff was the eleventh largest of the 3,930 shareholders in Primary at the time. The plaintiff’s shareholders and directors at all relevant times were (and are) Dr Alexander Volfneuk and his wife, Ms Elina Safro.

6. The plaintiff claims that the contractual arrangements between Primary and the JLMs gave rise to a duty of care to it, requiring Primary and the JLMs to invite it into the Institutional Offer or to notify it that it could contact the JLMs to seek such inclusion. The plaintiff was not invited into the Institutional Offer and only took part in the Retail Offer. The plaintiff claims that it was not included in the Institutional Offer because of the negligence and/or misleading or deceptive conduct of the JLMs and Primary. It claims that the defendants’ breaches caused it loss in the amount of $4,401,157.20 being the difference between the amount it received from the Retail Bookbuild ($400,150.20) and the amount it would have received had it taken part in the Institutional Offer ($4,801,262.40).

7. It is not in issue that the plaintiff’s claim in negligence is novel, there being no precedent for the imposition of a duty of care in the circumstances of this case.

Background

8. Primary was established in 1985 and was listed on the ASX in 1998. Its founder was Dr Edmund Bateman (deceased) and members of the Bateman family have been involved in various aspects of Primary’s operations over the years. Edmund James Carwardine Bateman (James Bateman), the Group Executive Diagnostics of Primary, first became acquainted with Dr Volfneuk in 1998 when Primary was negotiating with him to purchase his pathology business. That purchase concluded in 1999. Subsequently Mr Bateman became involved in managing the merger of the purchased business with that of Primary and in doing so had irregular contact with Dr Volfneuk. Mr Bateman had Dr Volfneuk’s contact details including his mobile telephone number. He was aware that Dr Volfneuk held a relatively large parcel of shares in Primary through his private company, the plaintiff.

9. In 2007 Primary operated three business units: medical centres, pathology and health technology. Symbion was a health care company with operations in areas including pathology, medical centres, imaging and pharmacy services. In late 2007 Primary (which by that time had acquired a 20% interest in Symbion) decided to launch a takeover bid for 100% of Symbion’s equity.

10. To fund its acquisition, Primary required a volume underwrite commitment of $1,560 million comprising: (a) a base volume underwrite commitment of up to $1,410 million made up of: (i) an underwritten institutional placement to raise up to $200 million once the announcement of the takeover offer was made; and (ii) an AREO to raise up to $1,210 million to be launched when Primary’s takeover offer became unconditional; and (b) an additional underwrite commitment of up to $150 million to be taken out by institutional placement when Primary’s takeover offer became unconditional and it received acceptances of between 84% and 89.9% of Symbion at the close of the takeover offer.

11. On 7 November 2007 the JLMs made a presentation to Primary in which they made a number of recommendations in respect of Primary’s funding of the acquisition of Symbion. That presentation included a recommendation that a $1.2 billion rights issue be priced at a 20-25% discount to the theoretical ex-rights issue price (TERP) using the closing price of Primary’s ordinary shares for the day immediately preceding the offer commencement date. The presentation included the following (Ex A 295):

▪   A 20-25% discount to TERP is appropriate for the planned Primary rights issue for a number of reasons:

- $1.2 billion rights issue is a very large call on existing shareholders – potentially up to 1-for-1 rights issue ratio. Importantly, this is an unprecedented ratio for a corporate rights issue of this size

- The discount is being agreed well in advance of the capital raising with an uncertain transaction structure and market conditions

- Given requirement for renounceability (to enable partial participation by Dr Bateman), it is appropriate for the discount to create a meaningful value in any renounced rights

- Flagging a discount in this range will deliver stronger market support in the lead up to launch from investors

- The discount is in-line with precedent renounceable rights issues by corporate issuers – as shown below

Renounceable rights issue by corporate greater than A$250 million since 2003

Date	Issuer	Size (A$m)	Entitlement Ratio	Discount to TERP
Nov 2003	ANZ	3,381	2-for-11	22.7%
Mar 2004	Alinta Limited	465	3-for-7	21.6%
Feb 2005	Origin Energy	641	1-for-6	15.0%
Dec 2006	Australian Pipeline Trust	356	2-for-7	15.0%
Dec 2006	Orica	513	1-for-8	24.7%
Mar 2007	Worley Parsons	480	1-for-9	6.4%
Mar 2007	MFS	256	1-for-8.25	9.9%
Apr 2007	Suncorp	1,169	2-for-15	24.7%
May 2007	Lihir Gold	1,070	1-for-3	25.7%
Oct 2007	Newcrest Mining	2,043	7-for-20	28.1%
Weighted average		22.5%
Note: Excludes rights issues by Listed Property Trusts, given yield of such trusts Source: Company announcements

The Project Poppins Letter

12. The JLMs were engaged by Primary on 8 November 2007 in accordance with the “Project Poppins – Equity Commitment Letter” (the Project Poppins Letter). In that letter the JLMs confirmed Primary’s advice that it proposed to acquire Symbion either by way of an off market offer with or without a recommendation from Symbion’s board or a scheme of arrangement under s 411 of the Corporations Act 2001 (referred to as the “Bid”) or alternatively by acquisition of Symbion of all or a substantial part of Symbion’s assets (referred to as the “Acquisition”). The Project Poppins Letter included the following (Ex A 339-340):

Commitment and description of the Financing

In relation to the Bid or the Acquisition, each Underwriter is pleased to offer to severally commit to provide, or to cause one or more of its affiliates to provide, on the terms and conditions documented in this Equity Commitment Letter and in the term sheet attached to this Equity Commitment Letter as Exhibit A (the “Offer Term Sheet”) 33.33% of a volume equity underwriting of the Offer (as defined in the Offer Term Sheet).

Each Underwriter also severally commits to provide, or to cause one or more of its affiliates to provide, on the terms and conditions set out in the bridge loan term sheet attached as Exhibit D (the “Bridge Loan Term Sheet”) 33.33% of the Bridge Loan (as defined in the Bridge Loan Term Sheet).

The Offer Term Sheet and the Bridge Loan Term Sheet are collectively referred to in this Equity Commitment Letter as the “Term Sheets”. The Equity Commitment Letter and the Term Sheets will together be referred to as the Engagement.

All monetary amounts referred to in this Engagement are references to Australian dollars unless otherwise stated. All capitalised terms not otherwise specifically defined in this Equity Commitment Letter have the meaning given to them in the Term Sheets.

13. The gross commitment referred to in the Offer Term Sheet was a base commitment of up to $1,410 million reduced by the value of any upfront placement made by Primary and an additional commitment of up to $150 million if Primary elected to complete the additional placement. The Offer Term Sheet defined the “Offer” as follows (Ex A 349-350):

An offer by the Company to raise:

(a)   up to the Base Commitment as part or all of its financing package for the Bid or Acquisition by way of:

●   a rights offer of ordinary shares in the Company to shareholders (“Rights Offer”); or

●   an entitlement offer of ordinary shares in the Company to shareholders renounceable pro rata to their shareholding which will comprise an institutional entitlement offer, an institutional bookbuild and a retail entitlement offer (“Accelerated Entitlement Offer”) that may also include a retail bookbuild if the offer is renounceable; and/or

●   a placement of ordinary shares in the Company (“Initial Placement”); and/or

●   an issue of hybrid securities in the Company (“Hybrid Offer”),

(collectively, the “Initial Offer”); and

(b)   up to the Additional Commitment as part of its financing package for the Bid or Acquisition by way of the Additional Placement (“Additional Offer”).

The decision on whether to:

●   raise the Base Commitment by way of a Rights Offer or an Accelerated Entitlement Offer; and

●   include a Placement and/or a Hybrid Offer to raise the Base Commitment,

will be made by the Joint Lead Managers and Underwriters acting reasonably

and in good faith and with the agreement of the Company, on or before the date the Bid ceases to be subject to defeating conditions (“Bid Unconditional Date”) in the case of a Bid or within a reasonable time before financial close or settlement in the case of an Acquisition.

14. The JLMs also agreed that they would procure or provide a Bridge Loan to Primary of up to $400 million to cover any acceptances from Symbion shareholders under the takeover offer which increased the total consideration payable by Primary to Symbion shareholders above the amount to be raised from institutional investors under the Initial Offer (Ex A 361).

15. Exhibit B of the Project Poppins Letter included the timetable for an AREO as follows (Ex A 356):

Event	Date
Bid Unconditional Date	T
Trading Halt Announcement Date and Offer Commencement Date	T+1
Institutional Opening Date	T+1
Institutional Closing Date	T+2
Institutional Shortfall Notification Date	T+4
Institutional Bookbuild Opening Date	T+4
Institutional Bookbuild Closing Date	T+4
Record Date (7.00pm)	T+5
Lodgement Date	T+5
Listing Approval Date	T+5
Institutional Settlement Date	T+7
Institutional Trading Date	T+8
Retail Opening Date and Despatch Date	T+8
Retail Closing Date	T+21
Retail Shortfall Notification Date	T+24
Retail Bookbuild Opening Date if Offer is renounceable	T+25
Retail Bookbuild Closing Date if the Offer is renounceable	T+25
Retail Settlement Date	T+28
Retail Trading Date	T+30

16. The Project Poppins Letter also included the following (Ex A 340):

Conditions

Despite any other provision of this Engagement the commitment of each Underwriter under this Engagement is conditional on Primary proceeding with the Bid or Acquisition in its own right or as part of the joint venture arrangement with Pacific Equity Partners, and not with the involvement of any other third party investor by way of a joint venture, co-investment or consortium arrangement.

The obligations of each Underwriter under this Engagement, including to underwrite the Offer and/or to provide the Bridge Loan, do not become binding unless the following conditions are fulfilled (or waived by the Underwriters acting jointly in their absolute and unfettered discretion):

17. There was then set out a number of conditions relating to Primary’s conduct in announcing either an Acquisition or a Bid together with delivery of certain documents and lodgement of documents with ASIC. The Project Poppins Letter also included the following (Ex A 346).

No fiduciary duty

You acknowledge and agree that the Underwriters are being retained solely to act as Joint Lead Managers and Underwriters with respect to the Offer and the lenders with respect to the Bridge Loan and that no fiduciary relationship between you and any Underwriter is being created in respect of the Offer, the Bridge Loan or the Engagement, regardless of whether either Underwriter has advised or is advising you on other matters. In connection with this Engagement the Underwriters are acting as independent contractors and not in any other capacity including as a fiduciary, with duties owing solely to you.

…

Conduct of the Accelerated Entitlement Offer

The parties agree that in addition to the other rights and obligations contained in this Engagement, if there is an Accelerated Entitlement Offer the Underwriting Agreement will contain those provisions included in Exhibit E (or equivalent provisions acceptable to the Underwriters (acting reasonably and in consultation with the Company)). In particular the Company must provide or procure the provision of the information listed in paragraph 1.1 of Exhibit E to identify those shareholders in the Company entitled to participate in an Accelerated Entitlement Offer (as defined in the Offer Term Sheet). The Company acknowledges and agrees that the Underwriters may rely on the information provided by the Company pursuant to paragraph 1.1 of Exhibit E and will not be in breach of this engagement or the Underwriting Agreement in so relying.

18. Exhibit E entitled “Conduct of the Accelerated Entitlement Offer” included the following (Ex A 362):

1.1   Conduct - General

1.1 Information

The Company must provide or procure the provision of the following information:

(a)   immediately following a written request from the Underwriters, the Company must provide to each Underwriter information which is reasonably requested by any Underwriter and known to the Company (following the making of reasonable enquiries by the Company) of the identity of those Shareholders who are Institutional Investors and the identity of those Shareholders who are Excluded Shareholders (including information regarding the beneficial owners of any shares in the Company). The Underwriters may rely on information provided by or on behalf of the Company in this regard and will not be in breach of the Underwriting Agreement in so relying;

(b)   on each subsequent Business Day up to and including the Record Date, the Company must give to each Underwriter full details of the changes to the information regarding Institutional Shareholders provided under paragraph 1.1(a) that become known to it (the Company having instructed its registry to inform the Company of the changes to the register in relation to the Shareholders who are Institutional Investors);

(c)   not later than 10.00am on the 2nd Business Day following the Record Date, the Company must give, at the request of any Underwriter, full details of all Shareholdings in the Company as at the Record Date to each Underwriter; and

(d)   not later than 10.00am on the 3rd Business Day following the Institutional Trading Date, the Company must give, at the request of any Underwriter an Initial Allotment Date Report to each Underwriter.

…

2   Conduct – First Round Offer

2.1   First Round

(a)   The Underwriters will, on behalf of the Company and during the period between the Institutional Opening Date and the Institutional Closing Date, use reasonable endeavours to make contact with all eligible Institutional Shareholders so as to offer them the Offer Shares on a pro rata basis.

19. The definition section of Exhibit E included the following (Ex A 363-364):

“ASX Waiver” means the waiver from Listing Rules 3.20, 7.1, 7.40 and 10.11 obtained in respect of the offer.

…

“First Round Offer” means the offer:

(a)   To eligible Institutional Shareholders in the Company as part of the Accelerated Entitlement Offer of their pro rata proportion of the Offer Shares (which offering will be by the Company); or

(b)   As part of the Institutional Bookbuild, of Offer Shares not taken up by the Shareholders under paragraph (a) or of any Offer Shares attributable to Institutional Shareholders which are ineligible to participate in the Offer (which offering will be by the Underwriters as principal),

in the manner prescribed in the ASX waiver.

“First Round Offer Shares” means the Offer Shares offered to Institutional Investors under the First Round Offer in accordance with the ASX Waiver as part of the Accelerated Entitlement Offer.

1. …

“Institutional Bookbuild” means the institutional bookbuild process conducted by the Underwriters in accordance with the Underwriting Agreement; provided that Shares in the Institutional Bookbuild may not be offered or sold in the United States or to, or for the account or benefit of, U.S. Persons.

“Institutional Investor” means a person whom the Underwriters reasonably believe is a person to whom an offer of shares for issue may lawfully be made without disclosure under Part 6D.2 of the Corporations Act and “Institutional” has a corresponding meaning.

2. …

“Institutional Shareholder” means a holder of Shares that is an Institutional Investor and that is identified by the Company and advised to each Underwriter as being an Institutional Shareholder to whom First Round Offers should be made or an Institutional Shareholder which is ineligible to participate in the Offer.

3. …

“Offer Shares” means the Shares of the Company to be offered under the Accelerated Entitlement Offer.

ASX Announcements

20. On 8 November 2007 an ASX Announcement recorded that Primary intended to make an all cash offer for Symbion of $4.10 per share which valued Symbion at $3.5 billion. The ASX Announcement recorded that Primary would fund the total consideration by a combination of debt and equity; that the committed debt facilities would be provided by ABN AMRO Bank NV Australian Branch, Calyon Australia Limited, Credit Suisse (Australia) Ltd, National Australia Bank Limited and Deutsche Bank AG; and that the equity raising was to be underwritten by the JLMs. It also included the following (Ex A 369):

The equity will be raised via a placement (announced today) with the balance intended to be raised via an accelerated renounceable entitlement offer following the Offer being declared unconditional.

Further detail in relation to Primary’s debt and equity funding will be set out in Primary’s Bidder’s Statement. Further detail in relation to the underwritten placement is set out in Primary’s investor presentation lodged with the ASX today.

Primary is being advised by Caliburn Partnership and Mallesons Stephen Jaques is Primary’s legal adviser.

Bidder’s Statement

21. On 8 November 2007 Primary provided its Bidder’s Statement to the ASX setting out its offer to the Symbion shareholders. It also lodged it with the Australian Securities & Investment Commission (Ex A 404). The Bidder’s Statement included an overview of the equity commitment with reference to the existence of Project Poppins Letter and the placement agreement with the JLMs. It also referred to the Bridge Loan and included the following (Ex A 442) :

The Equity Commitment is comprised of:

●   A base commitment of up to $1,410,000, 000 reduced by the value of the Placement (“Base Commitment”).

The Base Commitment may be made by way of:

-   A rights offer of ordinary shares in Primary to Primary’s shareholders; or

-   An entitlement offer of ordinary shares in Primary to Primary’s shareholders renounceable pro rata to their shareholding and comprising an institutional entitlement offer, an institutional bookbuild and a retail entitlement offer that may also include a retail bookbuild if the offer is renounceable; and/or

-   A further placement of ordinary shares in Primary; and/or

-   An issue of hybrid securities in Primary

(the “Equity Offer”).

●   An additional placement of up to $150,000,000 (“Additional Placement”).

22. One of the conditions precedent to the Equity Commitment referred to in the Bidder’s Statement was the “Bateman Family investors” in Primary’s partial acceptance of their entitlement in “the institutional entitlement offer” such that the Bookbuild proceeds from their remaining renounced entitlements was sufficient to fund their acceptances (Ex A 442).

Initial Placement

23. On 9 November 2007 Primary announced that it had successfully completed the institutional placement that was launched on 8 November 2007. That announcement included the following (Ex A 534):

In response to strong demand from domestic and international institutional investors, the full placement capacity of 15.5 million shares was utilised.

The shares were placed to a number of existing Primary shareholders and new institutional investors at $11.90 per share, raising a total of approximately $184.5 million.

The placement price represents a discount of less than 1% to Primary’s 5 day volume weighted average share price up to and including 7 November 2007 of $11.97, being the last day of trading prior to the date of Primary’s trading halt, signifying a high level of support for Primary’s takeover offer for Symbion Health Limited announced yesterday.

The Register

24. On 30 October 2007 Primary’s advisers, Caliburn Partnership (Caliburn), provided the JLMs with what they described as the “only register” that Primary had which they claimed was not “overly useful” because it only referred to “nominee accounts”.

25. Caliburn also advised the JLMs that Orient Capital Pty Ltd (Orient) had been engaged “to undertake a full register analysis”. The register that was provided to the JLMs listed 77 individuals or entities. The plaintiff was the 14th entry with a Post Office Box address in Bondi Junction recorded as its registered address (Ex A 164).

Orient Capital engagement

26. Primary’s engagement of Orient was formalised by a letter from Orient to Primary dated 14 November 2007 (reissued in February 2008). The reference in the letter to “RAPIDS” is another name for an AREO (Ex A 558). That letter included the following (Ex A 544):

We set forth hereunder a proposal from Orient Capital Pty Ltd (‘OC’) to provide assistance to Primary Health Care Limited (‘PRY’) in connection with a potential entitlement offer (the ‘Offer’). This proposal sets forth services and fees for a RAPIDS entitlement structure.

RAPIDS Structure

OC shall provide the following support services (‘Services’):

(a) Daily Analysis of the Register (Top 100 for PRY) from 8 business days

prior to the transaction date until the record date.

(b) Record Date report. OC shall provide a record date report setting forth its

findings no later than 72 hours after the record date.

(c) Provision of all relevant nominee contact details to lead manager.

(d) Review of all RAPIDS documentation, including:

●   Bookbuild and procedure manual;

●   Nominee corporate action notification announcements;

●   Nominee corporate action email;

●   Nominee prospectus covering letter;

●   Institutional discrepancy email;

●   Institutional confirmation letters;

●   Institutional clawback letters; and

●   All other correspondence (letters, emails or other) arising from the resolution of discrepancies between registered holdings and claimed holdings.

(e) Contacting of all relevant nominees on announcement to advise of corporate action and remind nominees of reporting requirements in relation to

stock lending via:

●   Phone call; and

●   Agreed email

(f) Liaison with institutions, nominees and the lead manager to resolve discrepancies between registered and claimed holdings, including:

●   providing breakdowns of holdings on both an institution and nominee basis as required; and

●   distributing individual discrepancy emails to institutions during Institutional Entitlement Offer.

(g) Review of Institutional Entitlement Offer applications to advise on whether

any renouncement of holdings should be refused in the Institutional Entitlement Offer.

(h) Review of Institutional Entitlement Offer applications for any changes between advised holdings and the final Record Date report.

(i) Provision of breakdown of holdings on both institution and nominee basis for purposes of providing to lead managers/nominees/institutions to provide institutions with information on where renounced proceeds are directed and determine direction of renounced proceeds in institutional offer.

(j) During the retail offer we will analyse the applications from the custodians to ensure there is no “double dipping” from the institutions.

(k) Reconciliation against final record date register to take-ups under the institutional offer on a nominee by nominee basis to calculate total shortfall for

sale in retail entitlement offer and renounced proceeds owed to each nominee

including:

●   Liaison with registry (Computershare Investor Services)

●   Liaison with the Lead Manager(s)

(l) The reports we normally undertake for the market do not take into account t+3 and/or stock-lending positions. For a transaction such as this it requires a lot more work to ensure that all responses from the custodians reflect exactly the positions held on CHESS as at record date. We will also provide notification and tracking of any stock-lending in the week leading up to the

record date.

(m) OC has worked on fourteen pro-rata accelerated renounceable entitlement offers and understands in depth the amount of work that is required from OC in order to ensure a smooth transaction. To date we understand there have been sixteen pro-rata accelerated renouncement offers undertaken in the market. We also understand the pitfalls of not having proper procedures in place to undertake this type of transaction. To this end, in order to minimise all parties’ risks, we have developed an online capital raising system which facilitates proper communication between all parties involved in the transaction. The larger custodians in the market have used this system on various capital raising projects to date. (See testimonials attached).

(n) Constant support during the institutional book build period including real time access to OC team. This includes real time discrepancy analysis of holdings.

During the entitlement offer OC will have two senior OC employees (who have worked on the 14 offers outlined above) together with a supporting team dedicated to the project.

(o) During the bookbuild period we will be constantly talking to custodians/back offices of fund managers to reconcile their positions to ensure that the bids from the fund manager are verified.

Request for ASX Waiver

27. On 14 November 2007 Primary’s legal advisers, Mallesons Stephen Jaques, sought an in principle approval from the ASX to the grant of waivers of relevant ASX Listing Rules in relation to the proposed AREO and its consent to the proposed timetable for the AREO.

Orient Reports

28. On 20 November 2007 Orient provided Caliburn and Credit Suisse with its analysis of the top one hundred registered shareholders in Primary as at 14 November 2007 (Ex A 621). Orient also provided “Investor Classifications” which included independent fund management institutions identified as “(FM)”; hedge funds as “(HF)”; investment banks as “(IB)”; investment companies as “(IC)”; and mutual funds as “(MF)”. It also included the category “Private Stakeholders” as “(PK)” and defined them as “individual private investors who appear under their own name on the register or are considered substantial enough to appear under their own name in the analysis, rather than being allocated to the pooled Private Investor (PI) position”. The PI was defined as “small retail investor positions that have been identified under custodial/nominee holdings or private company holdings that are registered in their own name” (Ex A 662-664).

29. From 20 November 2007 Orient moved to “daily analyses” of Primary’s register (Ex A 621). Between November 2007 and March 2008 Orient provided 36 reports to Primary, the majority of which were copied or provided to the JLMs.

30. On 12 February 2008 Credit Suisse requested Orient to provide the register analysis as at 11 February 2008 to it that night so that it could have the most accurate shareholding for the launch of the Institutional Offer the following day. Orient advised that this was “the plan” (Ex A 3009). The Orient report with the analysis as at 11 February 2008 was forwarded to Credit Suisse and Deutsche Bank at approximately 6.00 pm on 12 February 2008 (Ex A 3011).

31. None of the Orient reports that were provided to Primary and the JLMs between 20 November 2007 and 11 February 2008 referred to the plaintiff. Dr Volfneuk and Ms Safro were listed as the investors in the category “PK” holding 2,500,657 Primary shares.

The Market Falls

32. The Project Poppins Letter included a provision pursuant to which the JLMs were entitled to terminate their commitment under the Engagement if the S&P ASX 200 Index fell by an amount that was 15% or more of the level on a particular defined day and remained at that level for three business days. This was referred to as a “market fall” termination event.

33. On 18 January 2008 an internal communication within Credit Suisse noted that the S&P/ASX 200 had fallen to the point where if it closed at that level for a period of three business days “the market out termination right” in the Project Poppins Letter “(15%) will have been triggered” (Ex A 1874).

34. On 23 January 2008 the JLMs solicitors, Baker & McKenzie, wrote to Primary’s solicitors putting Primary on notice that each of the JLMs was aware that a market fall termination event had occurred. That letter included the following (Ex A 2259):

We are instructed that each Underwriter is monitoring developments and is considering its respective position. In the meantime, we are instructed to advise that each of the Underwriters expressly reserves all of its respective rights. No conduct by or on behalf of each or any of the Underwriters is to be construed as an intention to, on the part of any of them, waive any existing or future rights.

Application for Trading Halt

35. On 31 January 2008 Mallesons Stephen Jaques wrote by email to the ASX in the following terms (Ex A 2422):

In respect of the proposed AREO to be undertaken by Primary, it is the view of Primary and the Joint Lead Managers that a trading halt is warranted for the purposes of undertaking the “retail bookbuild” of new shares not otherwise taken up under the retail offer. We have outlined the reasons why we consider such a trading halt should be granted.

1.   The offer size is expected to be in the order of a 1:1 offering and although the size of the retail bookbuild is currently unknown, with the current volatility in markets, there is the possibility that the retail bookbuild may be significant.

2.   It is our objective to maximise the proceeds for non-participating retail shareholders. The trading halt will provide us with sufficient time to undertake the retail bookbuild to ensure that we are able to undertake marketing efforts required to a broad investor audience, optimising the pricing outcome and ultimately the proceeds for non-participating retail shareholders.

3.   Announcement of the size of the retail bookbuild will not be made until the bookbuild is completed and as such the securities should be in halt to ensure all market participants are informed of the size and pricing outcome of the bookbuild prior to the resumption of trading.

We further note that ASX has granted a trading halt in respect of retail bookbuilds in the following accelerated renounceable entitlement offers:

(a)   HealthScope Limited accelerated renounceable pro-rata offer – January 2005;

(b)   Allco Finance Group Limited accelerated renounceable pro-rata offer – December 2006; and

(c)   Westfield Group accelerated renounceable pro-rata offer – July 2007.

In the light of the above, please confirm that the proposed retail trading halt at T+25 is acceptable to ASX.

JLMs Lists

36. On 11 February 2008 Ms Diana Sarrouf, of ABN AMRO, forwarded a document she described as the “agreed Top 10 Sounding list for Monday 11 February 2008” to the other JLMs. Notwithstanding its title there were fourteen entities on the list that were in the categories of fund managers, hedge funds, investment companies or banks. Each, but one, was listed in the top seventeen of the investors identified in the Orient report of 1 February 2008 as being in the top one hundred “by size” (Ex A 2740).

37. The JLMs planned meeting on Monday 11 February 2008 was to consider the target list. On 8 February 2008 Peter Molesworth of Deutsche Bank forwarded to the other JLMs “the spreadsheet that we propose be used for the institutional offer and bookbuild” (Ex A 2747). That was a list of 80 “investors”. There were only two individuals on that list, Dr Edmund Bateman and Mr Daniel G Scamps, the holder of 72,237 shares in Primary. Mr Scamps was identified in the Orient report as located in Hong Kong (Ex A 2872). Mr Molesworth gave unchallenged evidence that when he was preparing his affidavit he noticed that Mr Scamps was included in the 8 February 2008 draft list. His evidence was that he did not recognise that individual; he was not sure why he included him in the list; he believed that he did so by mistake; and Mr Scamps was not accelerated. The balance of the investors were made up of thirty six fund managers, twelve brokers, nine hedge funds, three insurance companies and various other entities including self-managed pension funds and banks.

38. On 11 February 2008 Credit Suisse prepared an internal memorandum identifying “investor feedback received today during confidential investor soundings” of major primary shareholders (Ex A 2918). There were twenty four institutions on the list prepared by Credit Suisse, the majority of which were fund managers, brokers and investment companies. There were no individuals on that list (Ex A 2919).

ASX Waiver

39. On 12 February 2008 the ASX granted Primary waivers from the relevant Listing Rules to enable it to issue securities pursuant to the AREO (Ex A 2922). That waiver notification included the following:

On or before the Record Date, security holders who are believed by [Primary] or [the JLMs] to be exempt investors in accordance with Chapter 6D of the Corporations Act 2001 (“Exempt Investors”) may be invited by [Primary] to subscribe for a number of securities at least equal to their pro-rata allocation of the Renounceable Offer (“Institutional Offer”), unless listing rule 7.7.1 would permit the holder not to be included in a pro-rata offer.

40. This waiver allowed the acceleration of part of the capital raising by conferring a discretion on Primary to invite security holders who it, or the JLMs, believed were exempt investors under chapter 6D from the otherwise mandatory disclosure requirements involving the issue of a prospectus. In this regard a person may be exempt from those disclosure requirements because they are either a “sophisticated investor” or a “professional investor” under ss 708(8) & (11) of the Act.

ASX Announcement

41. On 12 February 2008 the ASX announcement recorded that Primary had achieved 52.27% of Symbion shares.

Further preparation for launch

42. On 12 February 2008 an internal Deutsche Bank email recorded the following (Ex A 3106):

Over the wall discussions – we have completed our sounding process today. The three JLMs met with 11 institutions (representing 49% of the Primary register) out of the top 13 Primary shareholders. The overwhelming feedback we received was that 10/11 shareholders we met with expressed an intention to take up all their entitlement (the other investor indicated they would take up 50% of their entitlement). Most acknowledged that the healthy discount (approx. 35-45% discount to market & a 20-25 per cent discount to TERP) would drive them to participate and that the capital raising has been well anticipated. Another consistent message was that existing shareholders were comfortable the deal makes sense and are prepared to back Primary management. In fact some shareholders such as Schroders (who is also 8.6% shareholder in Symbion) indicated they wanted pro rata plus and would look for additional stock in the bookbuild of any renounced rights so that they could receive a similar $ investment to their current exposure in Symbion, this would require them to invest an additional A$120m.

Update on relevant interests & institutional acceptance facility – Primary’s total relevant interest in Symbion currently stands at 53% (we needed to get to a minimum interest of 50.1% by the close of business today) although if something unforeseen occurred overnight that resulted in a withdrawal taking the relevant interest to circa 49% then Primary still wish to proceed if they have intentions to accept the offer that would be sufficient to get them to 50.1%. Legal counsel for Primary have indicated they would be comfortable that this approach complies with the law and the offer and we believe it would be acceptable to the market.

Therefore subject to confirmation from the committee we are looking to sign the underwriting tomorrow morning simultaneously with Primary declaring their bid unconditional and commence the $1.2bn accelerated renounceable entitlement offer at a discount of 20-25% to TERP.

43. On 12 February 2008 an internal Credit Suisse communication from the Vice President, Mr Sherman, (forwarded later in the day to Deutsche Bank (Ex A 3169)) included the following (Ex A 3164):

Think we agreed last year that we would offer to the large retail holders (eg ex-UBS people) the ability to participate in the insto offer. It is simply a phone call, I imagine, but may increase our insto pot, therefore reduce our retail risk position. We should discuss.

44. On 13 February 2008 the Deutsche Bank JLM wrote to Mr Sherman in the following terms (Ex A 3556):

We would prefer not to have to adopt large retail shareholders as clients so my suggestion is that we should encourage these holders to bid via there private wealth mgt arms (I suspect most of these guys are of UBS Wealth Mgt) so that we can avoid client adoption issues and minimise the number of parties we need to settle with.

45. Mr Sherman responded that he “agreed” (Ex A 3556).

AREO book

46. Two officers of Deutsche Bank, Mr Molesworth and Ms Mary Xu, were tasked to identify the shareholders that Deutsche Bank would propose to be accelerated by the JLMs during the AREO. Mr Molesworth and Ms Xu liaised with the other JLMs about the recording of that information in what has been described as the “AREO Book”. The AREO Book was used to keep track of information including: (1) the institutions that had been contacted as part of the Institutional Offer and had returned their shareholder declaration forms to Orient; (2) any discrepancy between the holding as understood by Orient and the holding recorded by the shareholder in their declaration form; (3) whether the shareholder intended to take up or renounce its entitlement, or part thereof; and (4) whether the shareholder had placed a bid into the Institutional Bookbuild.

47. On 12 February 2008 Ms Pamela Maine of Credit Suisse sent to the JLMs what was described as the “update AREO book” that reflected the shareholdings as at 11 February 2008. Ms Maine advised the JLMs that this was the template that was to be utilised on 13 February 2008 and asked that everyone use “this version as well”. Ms Maine also asked the JLMs to send her a list of the people from each of their banks that were to be included “on the hourly book updates during the AREO and bookbuild” (Ex A 3108). The only entries on that list were institutions such as fund managers and banks (Ex A 3109).

Pricing Discussion

48. On 13 February 2008 the JLMs had what was described as a “Pricing Discussion” with Primary utilising a document which analysed the price to be recommended for the issue of shares which included graphic depiction of the performance of the Primary share price against the ASX 200 and a graph of the ASX 200 Daily Market Performance. The pricing recommendation made by the JLMs to Primary in this document was in the following terms (Ex A 3166):

The JLMs recommend an 8 for 5 AREO at $5.40 per share which equates to a 24.9% discount to TERP (ex the interim dividend and using $10.27 as the VWAP of PRY shares on 12 February, 2008)

The JLMs believe this is an appropriate level for the planned Primary accelerated entitlement offer for a number of reasons:

●   The $1.226 billion entitlement offer is a very large call on existing shareholders – the offer will be the largest % of issued capital raised and the third largest in $ terms in this form in the Australian market, and equates to 1.6 new shares for every one share currently held

●   Following discussions with PRY shareholders over the last two days, the JLMs believe that a 25% discount to TERP is the most appropriate and will produce the most successful outcome for all Primary stakeholders

●   Market conditions have, and continue to be volatile and the discount insulates the issue price from significant falls (either in the broader market or PRY specifically) over the course of the offer

●   Given the renounceability of the offer (allowing all shareholders to achieve value for entitlements if they do not wish to take up), it is appropriate for the discount to create a meaningful value in any renounced rights (sold in either of the two bookbuilds)

●   The discount is in-line with precedent renounceable rights issues by corporate issuers – as shown below

49. The JLMs also provided a table setting out the performance in nine previous AREOs by corporate issuers greater than $250 million since 2003. In five of those AREOs the discount was less than 24.9%. In two of them the discount was 24.7% and in the other two the discount was 25.7% and 28.1%.

Underwriting Agreement

50. The Underwriting Agreement was executed by Primary and the JLMs on 13 February 2008 (Ex A 3173). Although there were some differences between its terms and those contained in Exhibit E to the Project Poppins Letter, the only matters of significance for present purposes were the following definitions (Ex A 3180):

…

Institutional Investor means a person whom the Underwriters reasonably believe is a person to whom an offer of Offer Shares for issue may lawfully be made without disclosure under Part 6D.2 of the Corporations Act or under the laws in any other relevant jurisdiction and without any other lodgement, registration or approval with or by a Government Agency (other than one, which the Company, in its absolute discretion, is willing to comply) and Institutional Investors has a corresponding meaning.

…

Institutional Shareholders means each person who receives an Institutional Entitlement Offer as determined pursuant to clause 1 of Schedule 5, provided that any Institutional Shareholder must be an Institutional Investor and must not be a Non-Qualifying Institutional Shareholder.

51. The Project Poppins Letter was included in Schedule 6 of the Underwriting Agreement and defined as the “Equity Commitment Letter”. The Underwriting Agreement provided that if Primary elected to raise an additional placement amount such additional placement was to be regulated by the terms of the Project Poppins Letter as if those terms were incorporated into the Underwriting Agreement (cl 6.4).

The Procedures Manual

52. On 12 February 2008 Credit Suisse updated the “internal sales force briefing sheet” with the “latest data” and reviewed what was described as the “implementation manual”, at that time suggested to be destined for “all our current shareholders” (Ex A 3132). On the following morning, 13 February 2008, Credit Suisse wrote to the JLMs in the following terms (Ex A 3268):

Thank you for your comments overnight and this morning on all the documents. All of the changes suggested have been flowed through the documents – with the exception of the request to include the dial-in details for the presentation on the dealer sheet, because we would prefer for the sales guys at each of the banks to provide this information to investors either via phone or in a separate email to ensure that no US investors receive the dial-in details by accident.

I have attached to this email an exact copy of the email (including the attachments) that will be sent by CS to all of the institutional shareholders. Since this email and all of the attached documents reference both the institutional entitlement offer and the institutional entitlement bookbuild, it can be sent to both shareholders and non-shareholders. We will also distribute the final version of the pathfinder prospectus to all institutional shareholders as soon as it is sent around this morning.

Please note that CS will also distribute the Bid Form to our sales guys in an “internal only” format and I have attached the final version of the Bid Form to this email as well for consistency.

53. The Accelerated Renounceable Pro-rata Entitlement Offer Procedures Manual dated 13 February 2008 (the Procedures Manual) was sent to institutions including fund managers and banks. The front sheet recorded that the Manual required the recipient’s “immediate attention” (Ex A 3283). It included the procedures for “Eligible Institutional Shareholders” and “institutional investors” to participate in the Institutional Bookbuild and the Retail Bookbuild.

54. The “General information” section of the Procedures Manual included the following (Ex A 3284):

ABN AMRO Equity Capital Markets Australia Limited (“ABN AMRO”), Credit Suisse (Australia) Limited (“Credit Suisse”) and Deutsche Bank AG, Sydney branch (“Deutsche Bank”) (each a Joint Lead Manager or JLM) and Primary reserve the right to withdraw or modify the Offer (or a part thereof), or modify or supplement this Manual (including any dates or times in this Manual) or an Offer Document without prior notice.

A reference in this Manual to an Eligible Institutional Shareholder contacted by a JLM includes an Institutional Investor contacted by a JLM whose Shares are held on its behalf by a nominee (in respect of those Shares).

This Manual has been distributed with an Offer Document (refer to section 1 of this Manual). The Manual and the Offer Document should be read in their entirety.

…

This Manual is confidential to the recipient.

…

This Manual is not an offer to issue or sell or a solicitation of an offer to acquire any shares or other securities or entitlements.

…

The information in this Manual is general information only and does not constitute a securities recommendation or financial product advice. The information has been prepared without taking account of the investment objectives, financial situation or needs of any particular investor. You should consider whether the information is appropriate having regard to your objectives, financial situation or needs before acting on the information.

55. The Manual included the following “Key Terms” (Ex A 3285):

●   Eligible Institutional Shareholder: a Shareholder (either directly or through a custodian) as at the Record Date, who is not an Ineligible Institutional Shareholder or a US Person nor acting for the account or benefit of a US Person, and to whom Primary or a Joint Lead Manager has extended an offer to subscribe for New Shares under the Institutional Entitlement Offer on the basis of Primary or the Joint Lead Managers’ belief that they were an institutional investor

●   Ineligible Institutional Shareholder: A Shareholder who, if they had a registered address in Australia would, in the reasonable opinion of Primary, be an institutional investor, but who Primary and the Joint Lead Managers agree will not receive an offer under the Institutional Entitlement Offer

●   Shareholder: a holder of a Share at 7.00pm (AEDST) on the Record Date

●   Record Date: 7.00pm (AEDST), 18 February 2008

56. The Manual included section 3.1 entitled “Checklist for the Institutional Entitlement Offer”. That section included a table that set out “what Eligible Institutional Shareholders, once contacted by a JLM” were required to do in relation to the Institutional Offer. The last paragraph in the “Checklist” section is an important aspect of the plaintiff’s claims. It was in bold print in the following terms (Ex A 3289):

The JLMs accept no responsibility or liability to those investors who are, for whatever reason, not contacted and invited by the JLMs to participate in the Institutional Entitlement Offer. The onus rests with each investor to contact the JLMs if it is of the view that it should be treated as an Eligible Institutional Shareholder.

AREO launched

57. On 13 February 2008 an ASX announcement recorded that Primary’s offer for Symbion was unconditional. It included the following (Ex A 3354):

Accelerated renounceable pro-rata entitlement offer (“Entitlement Offer”)

Primary launches today an 8 for 5 accelerated renounceable pro-rata entitlement offer to raise $1.231 billion. Eligible shareholders on the register as at 7:00pm on 18 February 2008 will be invited to subscribe for new Primary shares (“New Shares”) at a price of $5.40 per share (“Offer Price”). The Entitlement Offer is fully underwritten by ABN AMRO Equity Capital Markets Limited, Credit Suisse (Australia) Limited and Deutsche Bank AG, Sydney Branch (“the Joint Lead Managers”). Primary’s shares have been placed in trading halt whilst the institutional component of the Entitlement Offer is undertaken.

Draft Prospectus

58. On 13 February 2008 the plaintiff accessed on the internet a draft document which recorded that it was “not a Prospectus” that was sent under cover of a letter from Primary to the ASX. This document has been referred to in the proceedings conveniently as the “Draft Prospectus”. The covering letter included the following (Ex A 3392):

Primary announced today an equity capital raising of A$1,226 million through an accelerated shareholder entitlement offer.

Primary will today commence the institutional entitlement offer. Attached is a draft document to be made available to institutional investors as part of the process.

A prospectus under which the entitlement offer will be made to retail investors is expected to be lodged with the Australian Securities and Investments Commission on Monday 18 February 2008 (“Prospectus”). A printed copy of the Prospectus together with a personalised entitlement and acceptance form will be mailed to each eligible retail shareholder by Friday 22 February 2008. Eligible shareholders who are considering applying for shares should read the Prospectus in full. An application for shares can be made on the personalised entitlement and acceptance form accompanying the Prospectus.

59. The Draft Prospectus included the key dates of the Institutional Offer (13 and 14 February 2008), the Institutional Bookbuild (15 February 2008), the Retail Offer (22 February to 13 March 2008) and the Retail Bookbuild (19 March 2008) (Ex A 3402). It also included a copy of the Chairman’s letter dated 18 February 2008 referring to the history to the offer and acquisition of Symbion. That letter included the following (Ex A 3404):

If you have any questions about the Entitlement Offer, you should seek advice from your stockbroker, accountant or other professional adviser or call the Primary Entitlement Offer Information Line on 1800 302 248 from within Australia or [phone] from within New Zealand.

The Directors urge you to carefully read this Prospectus in its entirety (including Section 10 which contains a summary of the major risks associated with an investment in Primary) before deciding how to deal with your Entitlement.

60. The Draft Prospectus also included the following (Ex A 3412):

5.   QUESTIONS

If you have any questions relating to the Entitlement Offer, you should consult your stockbroker, accountant or other professional adviser or you can call the Primary Entitlement Offer Information Line on 1800 302 248 (within Australia) or on [phone] (within New Zealand) at any time from 8.30am to 5.00pm (Sydney time) Monday to Friday during the Offer Period.

61. Section 1, Questions and Answers, included a number of questions in relation to the Offer. In answer to the first question “What is the Entitlement Offer?” the Draft Prospectus included the following (Ex A 3414):

1.   the Institutional Entitlement Offer – Eligible Institutional Shareholders were approached and required to decide whether or not they would take up their Entitlement.

2.   the Institutional Entitlement Bookbuild – Entitlements that were not taken up by Eligible Institutional Shareholders, together with those of Ineligible Institutional Shareholders were sold on their behalf;

3.   the Retail Entitlement Offer – Eligible Retail Shareholders will be sent this Prospectus together with a personalised Entitlement and Acceptance Form and required to decide whether or not to take up their Entitlement; and

4.   the Retail Entitlement Bookbuild – Entitlements that are not taken up by Eligible Retail Shareholders, together with those if Ineligible Retail Shareholders, will automatically be sold on their behalf.

The Institutional Entitlement Offer and the Institutional Entitlement Bookbuild were conducted between 13 February 2008 and 15 February 2008.

62. In answer to the question whether Dr Edmund Bateman and other shareholder directors intended to participate in the Entitlement Offer the Draft Prospectus included the following (Ex A 3420):

The Shareholder Directors and the Bateman Investors may accept more Entitlements than they are obliged to under the arrangements above. Instead of, or in addition to, participating in the manner described above, the Bateman Investors may participate or procure that related entities participate in the Institutional Entitlement Bookbuild, but in doing so, no Bateman Investor (together with any related entity it nominates) will be entitled to acquire New Shares in excess of the Bateman Investor’s Entitlement.

63. The Draft Prospectus also included the following (Ex A 3423; 3424-3425; 3485):

The Entitlement Offer is structured into four parts:

●   The Institutional Entitlement Offer – Eligible Institutional Shareholders were approached by the Joint Lead Managers and were required to decide whether or not they would take up their Entitlement.

●   The Institutional Entitlement Bookbuild - Entitlements which were not taken up by Eligible Institutional Shareholders, together with those of Ineligible Institutional Shareholders, were sold on their behalf to Institutional Investors (which may include Eligible Institutional Shareholders whether or not they took up their full Entitlement under the Institutional Entitlement Offer).

…

2.4   The Institutional Entitlement Offer

2.4.1   Overview of Institutional Entitlement Offer

The Institutional Entitlement Offer was conducted between 13 February 2008 and 14 February 2008. A total of [XX] million New Shares were allocated to Eligible Institutional Shareholders under the Institutional Entitlement Offer raising $[XX] million. Settlement of the issue of New Shares under the Institutional Entitlement Offer is expected to occur on 21 February 2008.

Eligible Institutional Shareholders are those persons who were registered as holders as Shares as at 7.00pm (Sydney time) on the Record Date with a registered address in Australia, New Zealand, Singapore, Hong Kong, the United Kingdom or any other member state of the European Union to whom the Joint Lead Managers extended an offer under the Institutional Entitlement Offer on the basis of the Joint Lead Managers’ belief that they were an institutional or other professional or sophisticated investor.

…

10.4   GENERAL RISKS

The market price of Shares on ASX does rise and fall due to multiple interrelated and unrelated factors, which may affect the market performance of Primary, including:

●   general economic conditions, including inflation rates and interest rates;

●   variations in the local and global market for listed stocks;

●   changes to government policy, legislation or regulation;

●   general operational and business risks;

●   the market may from time to time re-rate downwards the healthcare sector; and

●   the market may from time to time re-rate downwards one or more of the broad categories of stock of which Primary is viewed by the market to form part at the time. For example, the market may re-rate down growth stocks (and re-rate up yield stocks) or re-rate down large cap stocks (and re-rate up small cap stocks).

The market prices from many listed entities have in recent times been subject to wide fluctuations. In many cases this may reflect the diverse range of non-entities specific influences such as global hostilities and tensions, acts of terrorism and the general state of the international economy. Such market fluctuations may materially adversely affect the market price of Shares.

No assurances can be given that Primary’s market performance will not be adversely affected by any such market fluctuations or factors. None of Primary, its Directors or any other person guarantees the market performance of Shares.

The Shares may experience extreme price and trading volume fluctuations.

There can be no guarantee that the price of shares will increase. There may be relatively few, or many, potential buyers or sellers of Shares on ASX at any time. This may increase the volatility of the market price of Shares. It may also affect the prevailing market price at which Shareholders are able to sell their Shares. This may result in Shareholders receiving a market price for their Shares that is less or more than the price that Shareholders paid.

64. There was also a section in the Draft Prospectus dealing with the Bateman Investors. That entry made clear that the Bateman Investors intended to partially accept their respective entitlements and that they may participate or procure related entities to participate in the Institutional Bookbuild (Ex A 3490). Another section of the Draft Prospectus recorded that the JLMs had given their consent to being named in the Draft Prospectus as JLMs and Underwriters to Primary. However this section also recorded that the JLMs did not make or purport to make any statement that was included in the document and that there was no statement in the document which was based on any statement by the JLMs. That section also recorded that the JLMs did not authorise the issue of the Prospectus and that they expressly disclaimed and took no responsibility for any part of it (Ex A 3495).

65. The Draft Prospectus included the following definitions (Ex A 3503-3504):

Eligible Institutional

Shareholders

A Shareholder (either directly or through a custodian) as at the Record Date, who is not an Ineligible Institutional Shareholder or a US person or acting for the account or benefit of a US person, and to whom Primary or a Joint Lead Manager has extended an offer to subscribe for New Shares under the Institutional Entitlement Offer on the basis of Primary or the Joint Lead Managers’ belief that they were an Institutional Investor.

Eligible Retail

Shareholders

A Shareholder as at the Record Date, who has a registered address in a Relevant Jurisdiction, is not a US person or acting for the account or benefit of a US person, and has not otherwise participated in the Institutional Entitlement Offer and is not an Ineligible Institutional Shareholder.

…

Ineligible Institutional

Shareholder

A Shareholder who, if they had a registered address in Australia would, in the reasonable opinion of Primary, be an Institutional Investor, but who Primary and the Underwriters agree shall not receive an offer under the Institutional Entitlement Offer.

…

Institutional Investors

A person in a jurisdiction agreed between Primary and the Underwriters, to whom offers and issues of New Shares may lawfully be made without the need for disclosure to investors under Chapter 6D of the Corporations Act or without any other lodgement, registration or approval with or by a government agency (other than one with which Primary, in its absolute discretion, is willing to comply).

66. At the back of the Draft Prospectus the “Corporate Directory” included the telephone numbers for the Primary Share Entitlement Offer Information Line and the JLMs (Ex A 3507).

List of Investors

67. The JLMs prepared a list of institutional shareholders who received an invitation to participate in the Institutional Offer during the period 13 and 14 February 2008. That List consisted of institutions such as fund managers and banks. The only individual on that list was Dr Edmund Bateman (Ex A 4128).

Institutional Offer concludes

68. The Institutional Offer closed on 14 February 2008. In an email of 14 February 2008 Credit Suisse wrote to the other JLMs in terms that included the following (Ex A 3836):

Attached is the book following market close today. This is a book that Orient Capital and I will work through this evening. The only additional shareholder that will be permitted to accept their entitlement is Tudor who has advised that they will not be in a position to return the forms until 10pm tonight.

I will send another version of the book late tonight to reflect where Orient gets to in the reconciliation process, but those smaller institutions at the bottom of this file will likely be rolled into the retail offer.

69. On 15 February 2008 a communication between the JLMs and Primary included the following (Ex A 3962):

We today completed the institutional portion of the Primary Health Care 8-for-5 pro rata entitlement offer to raise A$1.231 billion.

…

Institutional and founding shareholders renounced approximately 35 million shares (of which 11 million were from Dr Bateman – the Managing Director of Primary). The Joint Lead Managers and Underwriters (Deutsche Bank, ABN and Credit Suisse) placed these shares to existing and new shareholders at $6.60 per share (or a $1.20 premium to the entitlement offer price of $5.40). Several high quality institutional investors have been introduced to the Primary register through the institutional bookbuild.

…

The retail entitlement offer will now run its course, with an additional bookbuild of renounced shares taking place on 19 March 2008.

70. The Institutional Bookbuild took place on 15 February 2008 with a clearing price of $6.60 achieved representing a $1.20 premium on the offer price. Following the completion of the Institutional Bookbuild, the trading halt ceased and trading resumed on 18 February 2008. The accelerated shareholders who accepted their entitlements in the Institutional Offer did so about 1 week before they had to pay for those entitlement shares. There is no issue that in the interim the JLMs took credit and counter party risks in relation to whether those accelerated shareholders would ultimately pay for their entitlements. Approximately $960 million of the $1,231 million total was raised within 1 week of the offer being launched. During the Institutional Offer there was a take up rate of approximately 80%, with approximately 142,813,869 entitlement shares taken up and approximately 35,237,870 entitlement shares to be sold in the Institutional Bookbuild. The institutional components accounted for approximately 78% of the total offer size (Ex A 3976; 4013-4014; 4112).

71. On 18 February 2008 Primary advised the ASX that the Institutional Offer had closed on 14 February 2008 raising approximately $958 million with over 80% of “existing eligible institutional shareholders agreeing to take up their entitlement”. It also advised the ASX that existing eligible retail shareholders would be invited to participate in the Retail Offer under the Prospectus (Ex A 4102). The Prospectus was issued on 18 February 2008.

72. On 18 February 2008 an internal Deutsche Bank email referring to the Bateman Investors taking up their shares recorded the following (Ex A 4115):

DB will need to adopt them as a client of the firm (part of our anti-money laundering requirements). The attached memo details source documents required for each shareholder (differs for individuals and companies). We have also attached the “investor certificate” required to be completed for each applicant.

73. On 19 February 2008 an internal Deutsche Bank email in relation to the “size & composition of retail” recorded the following (Ex A 4152):

On analysis of the PRY register the level of retail ownership is approximately 10-15% within insto ownership 85-90% (the Bateman family have been included as part of insto ownership). The reason we have only accelerated 80% of the register in the institutional offer is that some small insto’s couldn’t be identified or contacted within 48 hours to they have gone into the retail pool. Of this circa 10-15% the vast majority are either founding shareholders, employees or sophisticated high net worth investors who hold more than 50,000 shares. From our experience on previous accelerated renounceable entitlements I’d expect the majority of these investors to take-up their rights rather than sell them. Therefore concern over the potential size over the retail bookbuild on 19th March could well be overstated.

74. On 22 February 2008 in an ABN AMRO document entitled “Primary Health Care Case Study” the following was recorded (Ex A 4294):

Despite a number of significant challenges, the Institutional Offer and Institutional Bookbuild have been executed successfully.

Adverse equity market conditions

▪   Equity markets globally have been very volatile since the emergence of the sub-prime crisis, which has compounded investor uncertainty

▪   S&P/ASX 200 had fallen 18% from the November 2007 peak prior to AREO launch

▪   Despite the volatility, the successful execution of the Institutional Offer provides evidence that the equity new issue market is still open and active for well priced transactions.

Share price

75. The Primary share price fluctuated between approximately $12.20 in early November 2007 and approximately $10.40 in late January 2008. It then increased to $11.00 in the period up to 7 February 2008. It dropped to $6.60 at 15 February 2008 and declined to $5.00 between 6 and 13 March 2008. It returned to approximately $6.00 at the end of March 2008 (Ex D4-3).

76. On 4 March 2008 internal communications within Primary’s advisers, Caliburn, recorded the following (Ex A 4362-3):

I wonder if there is anything we can do to explain how a share price will fall following a discounted rights issue and that theoretically pry should be trading at $7.20 post the insto rights offer ie the TERP (all other things being equal). I think a lot of punters may be confused about the large fall in share price following the discounted entitlement offer and that this has produced some negative sentiment.

…

It is a good point to address if they are getting questions, but they should not go on the front foot and try to say the stock is performing well. Better to say when asked that the board is concerned by the fall as there are no business-related explanations: the fundamentals remain as in prospectus, and the acquisition is fully funded and progressing well. They could also note that for most ASX listed companies a large issue can lead to an increase in share price volatility in the short term, and the difficult market may have increased that volatility.

Trading halt request

77. On 14 March 2008 Baker and McKenzie wrote to the ASX in terms that included the following: (Ex A 4778):

1.   As you would be aware, take up under Primary’s institutional entitlement offer was relatively strong at approximately 80%. By comparison, total acceptances under the Primary retail entitlement offer as at close on 12 March 2008 were relatively weak at approximately 6%. As at close on 12 March 2008, there was consequently a substantial shortfall of approximately 50 million shares that (save for those shares taken up on 13 March 2008) will be offered to institutional investors under Primary’s retail bookbuild. As you would be aware, Primary’s retail entitlement offer closed yesterday. While it could be expected that there was limited additional take up under the retail entitlement offer yesterday, based on the figures as at close on 12 March 2008, it is evident that the size of the retail bookbuild will be substantial.

…

Hence, both Primary and the Joint Lead Managers believe that a different set

of facts is applicable to the retail bookbuild to be completed by Primary and

that for the reasons outlined in the attached email and above, it is important

that Primary be granted a one day trading halt to facilitate the retail bookbuild.

Retail Offer and Bookbuild

78. The Retail Offer took place between 22 February and 13 March 2008. The Retail Bookbuild took place on 19 March 2008 (Ex A 3402). The Retail Bookbuild achieved a price of $5.50, representing a premium of $0.10 on the offer price of $5.40.

79. By letter dated 22 February 2008 from Primary the plaintiff was invited to participate in the AREO “available for all eligible retail shareholders recorded on the Primary Register as at 7.00pm (Sydney time) on 18 February 2008”. Enclosed with that letter was a copy of the Prospectus (Ex 2: 54).

80. The plaintiff took part in the Retail Offer and renounced its shares. It received $400,105.20.

Proceedings commenced

81. The plaintiff did not commence these proceedings until the eve of the expiration of the limitation period on 11 February 2014. It was granted leave to amend its pleadings a number of times and sought leave to make further amendments at the commencement of the hearing which was not granted.

82. The proceedings were heard on 15, 16, 17, 18 and 22 August 2016. Mr LV Gyles SC, leading Mr SA Lawrance, of counsel, and Mr H Chiu, of counsel appeared for the plaintiff. Dr AS Bell SC, leading Mr A Shearer, of counsel, appeared for the JLMs. Mr IM Jackman SC, leading Mr DFC Thomas, of counsel, appeared for Primary.

83. The plaintiff claims damages for loss allegedly suffered by reason of the defendants’ alleged negligence and/or misleading or deceptive conduct.

The plaintiff’s evidence

84. The plaintiff relied upon two affidavits of Dr Volfneuk affirmed on 6 June 2014 (in chief) and 3 July 2015 (in reply).

85. In his first affidavit Dr Volfneuk claimed that it was his practice to look at the internet each day (sometimes more than once each day) for stock exchange announcements, corporate announcements, trading prices and the like that “might have any impact on my investments”. He claimed that when he came across any new announcements his “practice was to read them on the internet as well as any attachments to them”.

86. Dr Volfneuk claimed that on 13 February 2008 he “browsed through” a Primary ASX announcement and the documents attached to it. He identified those documents as the “Investor Presentation”; the “Draft Prospectus Document Announcement”; the “Draft Prospectus Document”; and the “Request for Trading Halt”. He claimed that when he “browsed through” the Draft Prospectus Document he saw the description of an “institutional entitlement offer” which had commenced on that day. He claimed that “this was the first time I had known about this institutional offer and its timing”. He also claimed that he did not know or suspect that the plaintiff might be entitled to participate in that offer; nor did he appreciate that Dr Edmund Bateman, or any of the other directors of Primary, were taking part in the Institutional Offer.

87. Dr Volfneuk claimed that because the plaintiff had not been contacted about taking part in the Institutional Offer, he assumed that it was not an “Institutional Investor” and he did not make enquiries about the Institutional Offer.

88. Dr Volfneuk claimed that on 18 February 2008 he read certain documents that were included with the Primary ASX Announcement in particular a letter dated 18 February 2008, headed “Primary Health Care Limited (“Primary”) Completes Institutional Entitlement offer”. He claimed that from reading this letter he understood that any unwanted new share entitlements of the “Institutional Investors” were sold in the Institutional Bookbuild at the price of $6.60 per share, $1.20 above the offer price of $5.40. His affidavit evidence included the following (par [35]):

A few days later I received a hardcopy of the Prospectus. I decided that RinRim would not take up any of its new share entitlements in the retail offer,

because I did not have the cash available.

89. Dr Volfneuk also claimed that at about this time (that is about 20 or 21 February 2008) he had a conversation with James Bateman in which Mr Bateman asked him whether he was interested in taking up the Retail Offer. He claimed that he advised Mr Bateman as follows (par [37]):

No, I do not want to borrow money to buy the shares unless I can obtain a hedge contract to underpin any subsequent drop in Primary’s share price.

90. Dr Volfneuk claimed that Mr Bateman suggested that he should call Deutsche Bank about obtaining “such an instrument”. Although Mr Bateman gave affidavit evidence that he could not recall such conversation he claimed that he was not in a position to deny that it occurred. Dr Volfneuk claimed in his affidavit that he “later spoke” with a representative of Deutsche Bank but he decided “not to proceed” (par [37](b)).

91. Dr Volfneuk gave affidavit evidence of the various ASX Announcements by Primary from which he learnt on 26 February 2008 that Dr Bateman had been treated as an institutional investor. He claimed that he also observed on 10 March 2008 that another individual had been buying shares in the market before the close of the Retail Offer which suggested to him that it was “possible” that such individual might have been offered shares in the Institutional Offer, renounced them, received money from the sale in the Institutional Bookbuild and used that money to buy Primary shares in the market. He made similar observations about another individual in respect of a Primary ASX Announcement on 17 March 2008.

92. On 1 April 2009 Dr Volfneuk received a notice that the plaintiff had been paid $400,105.20 for renounced entitlements at $0.10 for each of its 4,001,052 entitlements in the Retail Offer.

93. Dr Volfneuk claimed in his first affidavit that had he been informed before the Institutional Offer or before the Institutional Bookbuild that the plaintiff fell within the definition of institutional investor he would have sought to have the plaintiff included in the Institutional Offer and the Institutional Bookbuild.

94. Dr Volfneuk also gave affidavit evidence that in late 2013 he saw the Procedures Manual and referred in particular to clause at 3.1 of the Checklist section (repeated here for convenience):

The JLMs accept no responsibility or liability to those investors who are, for whatever reason, not contacted and invited by the JLMs to participate in the Institutional Entitlement Offer. The onus rests with each investor to contact the JLMs if it is of the view that it should be treated as an Eligible Institutional Shareholder.

95. Dr Volfneuk claimed that had he been provided with, or had access to, the Procedures Manual before the Institutional Offer, he would have read it and he would have sought to have the plaintiff included in the Institutional Offer and the Institutional Bookbuild “because I perceived at the time of the Institutional Offer, that it was more advantageous for RinRim to take part in the institutional offer rather than the retail offer” (par [50]).

96. The plaintiff’s claim that it was vulnerable because it had no notice until 13 February 2008 that the equity raising would be by way of an AREO (CLS 63(a)) was supported by Dr Volfneuk’s affidavit evidence referred to earlier that it was only on 13 February 2008 when he “browsed through” the Draft Prospectus that he saw the description of an Institutional Entitlement Offer which had commenced on that day and that this was the “first time I had known about this institutional offer and its timing”.

97. This aspect of the plaintiff’s claim and this evidence suggested that the plaintiff was vulnerable as it had no time to consider the nature of the AREO because it was effectively sprung on it when Dr Volfneuk browsed through the Draft Prospectus on 13 February 2008. The reality of the situation after cross-examination is quite different. Dr Volfneuk was cross-examined by Dr Bell for the JLMs and later by Mr Jackman for Primary.

98. Dr Bell took Dr Volfneuk to the Primary ASX announcement on 8 November 2007 in which there was reference to the AREO (Ex A 369; tr 53). Dr Volfneuk accepted that he read that announcement “carefully” (tr 53); and saw that Primary intended to fund the acquisition of Symbion with a combination of debt and equity (tr 54-55). He accepted that he saw the reference to the AREO (tr 55); but claimed that it did not arouse his curiosity (tr 56). He gave the following evidence in cross-examination in this regard (tr 56-57):

269. There were other aspects of the AREO in respect of which the plaintiff claimed it was vulnerable. It claimed that it was vulnerable because it “did not have the power to obstruct the AREO” and did not know the timing of the AREO in advance, the steps in the ASX waiver application process, the discount that would be imposed, or the method by which the JLMs or Primary would determine which shareholders would be accelerated. These are not matters that rendered the plaintiff relevantly vulnerable. There was no complaint made about the choice of the AREO process and these were the necessary steps in the process in respect of which all investors and shareholders were in the same position.

Potential indeterminacy of liability

274. Another relevant salient feature for consideration is the potential indeterminacy of liability: Caltex v Stavar at [103](l). The plaintiff’s contentions in respect of the identification of the class of persons that would suffer the relevant risk of harm ebbed and flowed during the course of the trial. The identification of the so-called “class” changed from Institutional Investors; to Private Stakeholders; to the top 100 shareholders or a group within the top 100 shareholders; to risk averse shareholders; and to all shareholders. It ultimately settled on “exempt investors” as the relevant class; that is, those investors who were exempt from the disclosure requirements in Part 6D.2 of the Act who may lawfully be offered their entitlements, as part of the Institutional Offer.

275. As indicated earlier an investor is exempt by reason of them qualifying as a “Sophisticated Investor” under s 708(8) of the Act or a “Professional Investor” under s 708(11) of the Act. The relevant provisions in respect of Sophisticated Investors under s 708 of the Act were as follows:

Sophisticated Investors

(8)   An offer of a body’s securities does not need disclosure to investors under this Part if:

(a)   the minimum amount payable for the securities on acceptance of the offer by the person to whom the offer is made is at least $500,000; or

(b)   the amount payable for the securities on acceptance by the person to whom the offer is made and the amounts previously paid by the person for the body’s securities of the same class that are held by the person add up to at least $500,000; or

(c)   it appears from a certificate given by a qualified accountant no more than 6 months before the offer is made that the person to whom the offer is made:

(i)   has net assets of at least the amount specified in regulations made for the purposes of this subparagraph; or

(ii)   has a gross income for each of the last 2 financial years of at least the amount specified in regulations made for the purposes of this subparagraph a year; or

(d)   the offer is made to a company or trust controlled by a person who meets the requirements of subparagraph (c)(i) or (ii).

276. The relevant provisions in relation to Professional Investors under s 708 of the Act were as follows:

Professional Investors

(11)   An offer of securities does not need disclosure to investors under this Part if it is made to:

(a)   a person covered by the definition of professional investor in section 9 (except a person mentioned in paragraph (e) of the definition); or

(b)   a person who has or controls gross assets of at least $10 million (including any assets held by an associate or under a trust that the person manages).

277. A “Professional Investor” was defined in s 9 of the Act as follows:

“Professional Investor” means a person in relation to whom one or more of the following paragraphs apply:

(a)   the person is a financial services licensee;

(b)   the person is a body regulated by APRA, other than a trustee of any of the following (within the meaning of the Superannuation Industry (Supervision) Act 1993);

(i)   a superannuation fund;

(ii)   an approved deposit fund;

(iii)   a pooled superannuation trust;

(iv)   a public sector superannuation scheme;

(c)   the person is a body registered under the Financial Corporations Act1974;

(d)   the person is the trustee of:

(i)   a superannuation fund; or

(ii)   an approved deposit fund; or

(iii)   a pooled superannuation trust; or

(iv)   a public sector superannuation scheme;

within the meaning of the Superannuation Industry (Supervision) Act1993 and the fund, trust or scheme has net assets of at least $10 million;

(e)   the person controls at least $10 million (including any amount held by an associate or under a trust that the person manages);

(f)   the person is a listed entity, or a related body corporate of a listed entity;

(g)   the person is an exempt public authority;

(h)   the person is a body corporate, or an unincorporated body, that:

(i)   carries on a business of investment in financial products, interests in land or other investments; and

(ii)   for those purposes, invests funds received (directly or indirectly) following an offer or invitation to the public, within the meaning of section 82, the terms of which provided for the funds subscribed to be invested for those purposes;

(i)   the person is a foreign entity that, if established or incorporated in Australia, would be covered by one of the preceding paragraphs.

278. The plaintiff conceded that there may well be some Primary shareholders who were exempt investors but who would not be identified as such even by reasonable inquiries on the part of the JLMs (paragraph 48 of its Opening Submissions, repeated in paragraph 109 of its Closing Submissions).

279. It would be unrealistic to require the defendants to conduct an investigation to ascertain whether each of the Primary shareholders (3,930 at the relevant time) met one of the numerous and less than straightforward limbs of the definitions referred to above. It would not be possible to determine whether a shareholder had or “controlled” gross assets of at least $10 million or whether assets were owned or controlled by “associates” of the shareholder. There are also issues as to whether any assets are “controlled” in circumstances where an entity on the list holds the assets on trust perhaps as a bare trustee.

280. The defendants contended that all of this has to be viewed against a legislative backdrop, where, if an investor is approached to invest without a prospectus and it is not an eligible investor, there is a contravention of the Act (s 727) and the commission of an offence (s 1311). In addition there may also be a breach of the Listing Rules for offering securities on an accelerated basis outside the provisions of the ASX waiver.

281. Mr Molesworth gave evidence that in his experience lead managers do not attempt to undertake this task of identification and that it would not have been possible for the JLMs to do so in this case. Although the plaintiff focused on the JLMs’ capacity to make contact with Dr Volfneuk notwithstanding the lack of provision of his contact details in the Orient report, it was submitted that this says absolutely nothing about the feasibility of assessing the entire corpus of Primary shareholders. I agree with that submission.

282. The JLMs also emphasised Mr Chee’s evidence in particular in relation to the identification of shareholders in the Orient reports taking into account the fact that the reports were an historical snapshot. The completion of share trading under CHESS means that the Orient report will not necessarily show the shareholding of the persons listed at the time the report is published. The JLMs emphasised that this is not a trivial matter and referred to the need for the investor taking up its entitlement to make a declaration in respect of its entitlement. They also emphasised the need for the reconciliation between the Orient report and the declarations. The JLMs also submitted that the issues of stock lending and control may also present difficulties.

283. The plaintiff submitted that its negligence case is “an incremental extension of the principle recognised by the High Court in Hill v Van Erp (1997) 188 CLR 159”. In this regard the plaintiff relied upon the passage in Brennan CJ’s judgment (at 166) in which it was said that “the undertaking of a specialist task pursuant to a contract between A and B may be the occasion that gives rise to a duty of care owed to C who may be damaged if the task is carelessly performed”. This case is distinguishable from the facts in that case. In that case there was a single beneficiary to whom it was said the duty was owed. In the present case the plaintiff had much difficulty in settling on the identity of the class of persons to whom it is said a duty was owed. Although the plaintiff finally settled on “exempt investors” as a class, the practical difficulties identified above in determining the members of such a class in the circumstances of an AREO, establishes its indeterminate nature.

284. Unlike Hill v Van Erp this case involves complex and competing commercial interests. An observation in Hill v Van Erp more apt to the present circumstances was made by Dawson J as follows (at 179):

The process is affected by relevant policy considerations, such as the need to avoid indeterminate liability or the placing of impediments in the way of ordinary commercial activity.

285. Similarly in Woolcock Street Investments v CDG (2004) 216 CLR 515 the plurality said at [21]:

Claims for damages for pure economic loss present peculiar difficulty. Competition is the hallmark of most forms of commercial activity in Australia.

As Brennan J said in Bryan v Maloney [(1995) 182 CLR 609 at 632]:

If liability were to be imposed for the doing of anything which caused pure economic loss that was foreseeable, the tort of negligence would destroy commercial competition, sterilise many contracts and, in the well-known dictum of Chief Judge Cardozo, expose defendants to potential liability ‘in an indeterminate amount for an indeterminate time to an indeterminate class’.

That is why damages for pure economic loss are not recoverable if all that is shown is that the defendant’s negligence was a cause of the loss and the loss was reasonably foreseeable.

286. I am not satisfied that the defendants owed a duty of care to the plaintiff as alleged.

Causation

287. Notwithstanding my conclusion that the defendants did not owe a duty of care to the plaintiff as alleged I will deal with the causation question on the basis that a duty of care arose.

288. The plaintiff accepted that a “critical point” in both the negligence claims and the misleading or deceptive conduct claim is the acceptance of Dr Volfneuk’s evidence that, if given the opportunity, the plaintiff would have sought participation in the Institutional Offer (tr 328). The plaintiff accepted that if Dr Volfneuk’s evidence is not accepted all of its claims will fail (tr 328-329). However in respect of the negligence claims it is appropriate to consider all of the evidence to determine this matter subjectively in the light of all the relevant circumstances.

289. In assessing Dr Volfneuk’s credit and credibility I have had regard to the fact that the events about which he was giving evidence occurred six years prior to the time that he made his first affidavit. The difficulties in recalling events with precision in those circumstances are exacerbated where what is being recalled is a state of mind at a particular time.

290. Dr Volfneuk agreed that he understood that it would cost the plaintiff $21.6 million to increase its shareholding in Primary from 2.5 million shares to 6.5 million shares. He claimed he was not considering such an acquisition “seriously”. The position he adopted when confronted with the stark reality of his clearly serious efforts to secure funding was to resist any suggestion that he was a buyer and to claim he was doing his duty (to himself) to explore all his options.

291. Dr Volfneuk did not present well when confronted with all of his communications in relation to his pursuit of a loan of $26.5 million. I have no doubt that he is a highly intelligent and shrewd businessman. He has amassed a fortune with a gross worth of at least $40 million from hard work, savvy and sophisticated negotiations and diligent maintenance of his assets. His suggestion that he was “going through the motions” rather than seriously considering taking up the plaintiff’s entitlements in the Retail Offer was an unimpressive retort to the withering cross-examination which led inexorably to the point of establishing that he was readying himself to take up, or at least be in a position to take up, the plaintiff’s entitlements and more. This was a far cry from the sworn evidence in his affidavit that he simply “later spoke with a representative at Deutsche Bank” but “decided not to proceed”. That statement in his affidavit gave the impression of a single discussion with a representative of Deutsche Bank when the reality is that he had detailed discussions with various people, pressing for the approval of a loan for $5 million more than the cost of taking up the plaintiff’s entitlements.

292. Dr Volfneuk had a practice of keeping a close eye on matters pertinent to Primary shares by daily (sometimes twice daily) review of the internet for ASX announcements, company announcements and the share price movement in the market. He accepted that he read the 8 November 2007 ASX Announcement and the Bidder’s Statement but suggested that he only “browsed” the Draft Prospectus on 13 February 2008. Although he accepted that he read the section of the Chairman’s letter within the Draft Prospectus in which he was urged to read the document carefully, he claimed he did not follow that advice. Yet on the same day he embarked on the course of pursuing a loan for $26 million in respect of the very matters contained in the Draft Prospectus. I do not accept Dr Volfneuk’s evidence that he only browsed the Draft Prospectus. I am satisfied that he read it and read it carefully.

293. Dr Volfneuk’s explanation, or lack thereof, in relation to why it was that he sought an additional $5 million in loan funds was equally unimpressive. I have no doubt that he had decided to take up the entitlements in the Retail Offer and to ready the plaintiff to secure the “bargains” in respect of which he communicated with Mr Stone. Although he suggested that he was not a “sophisticated anything” (tr 81) I have no doubt from his communications in relation to the loan (Ex 2) he is not only sophisticated but he is also capable of hard-nose negotiation.

294. Another aspect of Dr Volfneuk’s evidence that was quite unsatisfactory was his claim in his affidavit that he perceived “at the time” of the Institutional Offer that it was “more advantageous” for the plaintiff to take part in that offer rather than in the Retail Offer. In cross-examination Dr Volfneuk agreed that at that time he simply did not turn his mind to whether the Institutional Offer was more advantageous than the Retail Offer. When Dr Volfneuk was referred back to the claim in his affidavit he then suggested that the two positions could be “right”. I do not accept Dr Volfneuk’s affidavit evidence that he had the perception that he claimed he had. It is also very difficult to understand why in the circumstances he would persist with a claim that the two positions could be “right”. It was a most unimpressive claim.

295. Although Mr Gyles submitted that Dr Volfneuk’s evidence might be described as retrospectively inaccurate or wishful thinking, I am afraid that does not sit comfortably with reality. The defendants’ diligent preparation for trial in obtaining the relevant documents to test Dr Volfneuk’s claims and their forensic deployment in challenging his claims in cross examination ultimately exposed the reality that might otherwise have remained hidden. I do not accept Dr Volfneuk’s claims that he was not really intending at any stage to be a “buyer”. Whether as Mr Gyles submitted there was an element of “wishful thinking” in Dr Volfneuk’s approach to his evidence, I am satisfied that he intended to be a “buyer” and that he knew at the time of his cross-examination that this was the true position.

296. The unsatisfactory nature of Dr Volfneuk’s evidence affects the determination of whether I accept his evidence that if the plaintiff had been invited into the Institutional Offer, he would have accepted that offer on its behalf and renounced its shares. This evidence was admitted in respect of the misleading or deceptive conduct claim but not in respect of the negligence claims. Rather, as stated earlier, the determination of this aspect of the matter in the negligence claims needs to be determined subjectively taking all the relevant matters into account.

297. It is very difficult in the circumstances to be confident that any of Dr Volfneuk’s claims where they are not corroborated can be accepted. However there is a great deal of evidence to suggest that his claim that he would have caused the plaintiff to enter the Institutional Offer and renounce its entitlements should not be accepted. Dr Volfneuk took advice from his accountants in the relevant period. He had what was described as “initial discussions” with them in relation to the “pending rights issues” for Primary (Ex 2: 300). The correspondence upon which Dr Volfneuk was cross-examined establishes a very different landscape to the one that Dr Volfneuk claimed that he was operating within. He was in urgent need of assistance from his accountants to have the financial statements for the plaintiff ready for the proposed lender. He was investigating the prospect of making sure that whatever borrowings he obtained would be tax effective for not only the plaintiff but for himself and his wife. He was exploring the prospect of whether he could obtain a hedge product to cocoon him against the risks that he apparently perceived.

298. Although Dr Volfneuk claimed that he was making all these plans because he owed a duty to himself to do so, I am satisfied that he was in fact readying himself to enable the plaintiff to take up its entitlements and also seeking to obtain an additional $5 million to supplement the plaintiff’s shareholding in Primary. I am satisfied that Dr Volfneuk felt a deep connection to Primary because he regarded it as a continuation of his own business that he sold to Primary in 1998.

299. The irresistible conclusion in all the circumstances is that Dr Volfneuk was intending to cause the plaintiff to acquire shares in the Retail Offer. During the course of his cross-examination he was confronted with the following:

Q.   Yes and you certainly didn’t have the cash available to accept the offer immediately did you on the 13th or 14th?

A.   I didn’t have the inclination to accept the offer.

300. It was not so much that the plaintiff did not have the inclination to accept the offer immediately on 13 and 14 February 2008, although that is a significant matter. It was its inability to do so by reason of a lack of funds. The contemporaneous records of Mr Jenkins (extracted earlier) establish that Dr Volfneuk had advised that he was a holder of Primary shares “long term” irrespective of what happened to the share price. I am satisfied that the reality of the situation as at 13 and 14 February 2008 was that the plaintiff wished to acquire the additional shares but did not have the funds to pursue the purchase of the shares until it put in place the loan that Dr Volfneuk set about diligently pursuing on and from 13 February 2008.

301. Dr Volfneuk believed that the Primary share price would double in three years which I am satisfied was an important driver in his desire to not only take up the plaintiff’s entitlements in the Retail Offer, with a plan to keep the shares “long-term”, but also to snap up the “bargains” that he believed would be available in the Retail Offer/Bookbuild. When he saw the share price slump he observed that he would be better off purchasing on the market.

302. I am satisfied that the plaintiff’s claim that if it had been invited it would have entered the Institutional Offer and renounced its entitlements cannot be accepted.

303. The plaintiff’s claims in negligence will be dismissed.

Misleading or deceptive conduct claim

304. The plaintiff claims that the defendants engaged in conduct in trade or commerce within the meaning of s 52 of the Trade Practices Act 1974 (TPA) and s 42 of the Fair Trading Act 1987 (FTA). Alternatively the plaintiff claims that the defendants engaged in conduct in trade or commerce in relation to financial services within the meaning of s 12DA of the Australian Securities and Investment Commission Act 2001 (ASIC Act). Alternatively the plaintiff claims that in undertaking the equity raising the defendants were engaging in conduct in relation to a financial product or a financial service within the meaning of s 1041H of the Corporations Act.

305. As indicated earlier the misleading or deceptive conduct claim relies heavily upon the Procedures Manual. The plaintiff alleged that the defendants did not disclose to it that some Institutional Investors would have their renounced share entitlements sold in the Institutional Bookbuild and others would have their renounced entitlements sold in a Retail Bookbuild a month later. It also alleged that the defendants did not advise it that they intended to deny, or would act in a manner consistent with a denial of any responsibility for the AREO process and failed to advise it that the onus was on it to contact the JLMs if it was of the view that it should have been invited to participate in the Institutional Offer (CLS 77-78).

306. The plaintiff claimed that the defendants did not provide a copy of the Procedures Manual to it; did not notify it that it had any right or mechanism to dispute the decision not to include it in the Institutional Offer; did not disclose to it any basis or methodology upon which they invited some investors to participate in the Institutional Offer and not others; and did not disclose to it that there was in fact no, or no reasonable basis or methodology upon which they invited some Institutional Investors into the Institutional Offer but not others (CLS 78).

307. The plaintiff alleged that the defendants’ conduct led it to believe falsely that: the defendants would take responsibility in properly determining the identity of those investors who would be invited to take part in the Institutional Offer; the defendants would apply reasonable care and skill in making that determination; that it had no mechanism by which to challenge or dispute the determination not to invite it into the Institutional Offer; that it had no onus to protect its own interests in the determination process; and it had no entitlement to participate in the Institutional Offer (CLS 79).

308. The plaintiff alleged that the defendants’ conduct was misleading or deceptive or likely to mislead or deceive in contravention of s 52 of the TPA; s 42 of the FTA; s 12DA of the ASIC Act; and s 1041H of the Corporations Act (CLS 84).

309. The plaintiff claimed that if it had been given the opportunity to participate in the Institutional Offer it would have made contact with the JLMs to indicate that it wished to take part so that it could renounce its share entitlements to be sold in the Institutional Bookbuild (CLS 89). It alleged that if it had applied to the defendants they would have allowed it into the Institutional Offer and it would have renounced its entitlement and received a total of $4,801,262.40 (CLS 91). The plaintiff claims the difference between the amount it received, $400,105.20, and the amount it claims it would have received had it been in the Institutional Offer, $4,801,262.40.

310. The plaintiff claims that the defendants’ conduct in failing to notify it of the mechanism to make contact with the JLMs to ask to be accelerated, was misleading or deceptive, in that it led the plaintiff to believe that it did not have the “right” to participate in the Institutional Offer (tr 293). This claim cannot be sustained in light of the fact that there was no such “right”.

311. However I should record at this juncture the fact that the plaintiff sought to amend its misleading and deceptive conduct claim on the first day of the trial. The amendment proposed against the JLMs was that they represented in the Draft Prospectus announcement, the ASX announcement, the Draft Prospectus and the request for the trading halt on 13 February 2008 that only those shareholders of Primary who were contacted by the JLMs before 14 February 2008 were able to be included in the Institutional Offer. Similar claims were proposed against Primary. Although the plaintiff requested that the defendants be required to deal with the proposed amendments before Dr Volfneuk gave evidence, such request was declined. At the conclusion of the first day of the hearing the proposed amendments were disallowed.

312. On the morning of the second day of the hearing the plaintiff indicated that it wished to propose a further amendment to the CLS. However Dr Volfneuk had already been under cross-examination for some time and the plaintiff was not allowed to propound the amendment until the conclusion of the cross-examination.

313. The plaintiff’s application to amend its pleading was made at the conclusion of Dr Volfneuk’s evidence. The application was dismissed. The plaintiff had made a number of applications to amend its pleading prior to the commencement of the trial, including an application that was heard over a full day in the week before the trial. There was no real explanation as to why in these circumstances the amendment had not been brought forward earlier. The plaintiff waited almost 6 years to commence these proceedings and I did not regard it as just or fair in the circumstances to allow such an amendment when all parties had filed opening submissions and both lay and expert evidence and were ready to proceed on the case as pleaded. In any event the proposed claim against the JLMs was doomed to fail having regard to the statement in the Draft Prospectus (candidly pointed out by junior counsel for the plaintiff, Mr Lawrance) that the JLMs did not make, or purport to make, any statement included in the Prospectus; that there was no statement in the Prospectus which was based on any statement by the JLMs; and that the JLMs had not authorised the issue of the Prospectus. Although such an exclusion did not apply to Primary, as I have said, I was satisfied that in all the circumstances it was not just or fair to allow the amendment at that late stage of the proceedings.

314. As indicated earlier the plaintiff relies heavily upon the Procedures Manual in its claim against the JLMs and Primary that they misled or deceived it. The first allegation that the plaintiff makes that the defendants did not disclose to it that some Institutional Investors would have their renounced share entitlements sold in the Institutional Bookbuild and others would have their renounced entitlements sold in the Retail Bookbuild a month later cannot be sustained. Dr Volfneuk accepted that he read the ASX announcements, the Chairman’s letter and the Draft Prospectus. He also admitted that he read the Bidder’s Statement albeit that from time to time he would lapse into his claim, which I do not accept, that he only “browsed” some of them. In each of those documents the process of the AREO was described.

315. The plaintiff claims that the defendants failed to notify it that it had the mechanism to dispute the decision not to include it in the Institutional Offer. In this regard the plaintiff faced the difficulty of the invitations issued to shareholders in the Draft Prospectus that if they had any questions at all about the AREO then they could contact either Primary or the JLMs on the numbers provided.

316. It is not necessary to consider this claim any further having regard to the rejection of Dr Volfneuk’s evidence that had it been invited the plaintiff would have taken up the Institutional Offer. The plaintiff’s misleading or deceptive conduct claims will be dismissed.

317. In those circumstances it is also unnecessary to consider the proportionate liability claims and the allegations of contributory negligence and failure to mitigate.

Orders

318. The plaintiff’s claims in the Second Further Amended Commercial List Statement are dismissed. The plaintiff is to pay the defendants’ costs of the proceedings.

319. These orders will be entered on 12 October 2016 unless the parties make an application to be heard on costs prior to that date by contacting my Associate.

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Decision last updated: 07 October 2016