Tube Securities Ltd v Australian National Industries Ltd

[1998] QSC 182

IN THE SUPREME COURT

OF QUEENSLAND  No. 8279 of 1997

Brisbane

[Tube Securities Ltd v Australian National Industries Ltd]

BETWEEN:
  TUBE SECURITIES LIMITED
  (A.C.N. 010 602 123)

Plaintiff

AND:
  AUSTRALIAN NATIONAL INDUSTRIES LIMITED
  (A.C.N. 000 066 071)

Defendant

CATCHWORDS:     PRACTICE - Striking out - Statement of claim - whether plaintiff failed to plead an essential element material to its cause of action - Particulars - whether the plaintiff should particularise the value attributed to goodwill

Counsel:J.C. Bell QC with J.D. McKenna for the plaintiff.

G.A. Thompson for the defendant.

Solicitors:Hopgood & Ganim for the plaintiff.

Mallesons Stephen Jacques for the defendant.

Hearing date:               24 August, 1998

REASONS FOR JUDGMENT - MOYNIHAN J.

Judgment delivered 11 September, 1998

1. The plaintiff sues for damages for misrepresentation, false and misleading conduct, non-disclosure and negligence as a consequence of its acceptance of a take-over offer made under the Corporations Law.  The following account is no doubt an over-simplification of the plaintiff’s case and the issues to which it gives rise but it is sufficient for purposes of disposing of the applications that I am dealing with.

2. On 30 September, 1994 the plaintiff accepted the defendant’s take-over offer in respect of its shareholding in Palmer Tubemills Limited (Palmer) and transferred its shares in that company to the defendant in exchange for shares in the defendant and a cash consideration.

3. The plaintiff alleges that it accepted and retained the shares in the defendant in reliance on offer documents which inadequately disclosed or concealed the financial position and prospects of the defendant, particularly what are conveniently referred to as its “German subsidiaries” which are identified in the Statement of Claim.  The subsidiaries formed part of the defendant’s environmental engineering division.

4. On 3 September 1996, the defendant announced that the value of its environmental engineering division would be written down, reflecting among other things a complete write off of goodwill which the plaintiff pleads was in any event valueless at all material times.  The plaintiff thereupon sold the shares in the defendant, obtained in exchange for its Palmer shares, for less than their market value at the time of acceptance of the defendant’s take-over offer.

5. The plaintiff, relevantly for present purposes, seeks compensation pursuant to the Trade Practices Act 1974 (Commonwealth) or the Corporations Law; or damages for negligence.  A claim of deceit made in earlier editions of the Statement of Claim is abandoned in the current edition.  The plaintiff seeks $33,848,269.60 plus the dividends which would have been paid on the 61,054,400 shares in Palmer from 30 September 1994 had they been retained by the plaintiff.  The $33,848,269.60 is calculated on the basis of the market value of the plaintiff’s shares in Palmer on the date of its acceptance of the defendant’s take-over offer “had the offer not been accepted” less the cash consideration and other deductions of no present relevance.

6. Put shortly, the plaintiff’s case is that had it not been induced to part with its Palmer shares by what is conveniently referred to as the unlawful conduct of the defendant, it would have retained its shares and received income.  Its damages in the former case are founded on its capital loss represented by the difference between what it paid for the shares on 30 September 1994, and what it sold them for in November and December 1996.  In this context it seems to me relevant to appreciate that the plaintiff’s case is that it not only accepted the defendant’s take-over offer and transferred its Palmer shares in reliance on the defendant’s unlawful conduct, but that it also retained the shares until it dispersed of the last of them on 27 December 1996 in the circumstances referred to earlier in reliance on that conduct.  Whether the plaintiff succeeds in making out this case is not a matter of present concern.

7. As I understand the defendant’s complaint reflected in the applications with which I am dealing, it is that the plaintiff must plead and prove that the shares in the defendant which it received in exchange for its Palmer shares were worth less than it paid for them and that it has not done so.  It submits to the effect that the plaintiff has failed to prove an essential fact material to its cause of action and that the pleading of its damages does not reflect the measure of damages appropriate to the causes of action pleaded.  It therefore seeks to strike out in particular 14.1 and 14.5 of paragraph 14 of the Statement of Claim and in particular 24.1 of paragraph 24.  In the event that paragraph 14.1 is not struck out the defendant seeks specified further and better particulars of the allegations contained in that paragraph.

8. I am not persuaded that the deficiencies to which the defendant points or the consequences for which it contends are sufficiently clear for the issues to be disposed of summarily.[1]  It may be accepted that broadly speaking the measure for damages in the event of the pleaded contraventions of the Trade Practices Act or the Corporations Law is analogous to damages for deceit.[2]  It may similarly be accepted that damages for negligence are assessed on a comparable basis, subject to the necessary requirement of foreseeability; see Kennedy v. Goode (supra).  It may also be accepted for present purposes that damages are the gist of the statutory causes of action sued on[3] but it must be borne in mind that the tort rule is no more than an appropriate guide[4].

   [1]General Steel Industries Inc. v. Commissioner for Railways (NSW) (1964) 112 CLR 125 at 130; Dey v. Victorian Railways Commissioner (1949) 78 CLR 62 at 91.

   [2]Kennedy v. Goode Pty Ltd v. MGICA (1992) Ltd (1997) 77 FCR 307 at 330; Gates v. City Mutual Assurance Society Limited (1986) 160 CLR at 1, 11; Broome v. Speake (1903) 1 Ch 586 CA 605 at 623; Clarke v. Urquhart (1930) AC 28 at 627; Kizbeau v. WG&B Pty Ltd (1995) 184 CLR 281 at 290.

   [3]Wardley Australia Ltd v. State of Western Australia (1992) 175 CLR 514 at 525; Kennedy v. Goode at 324.

   [4]Gates v. City Mutual Life; Kizbeau v. WG&B; Kennedy v. Goode at 324. 

9. It may be convenient to say that it is “well established” that in an action for deceit where the plaintiff has been unlawfully induced to enter into a contract to acquire property, the measure of damages “usually applicable” is the difference between the real value of the property and what the plaintiff paid for it⁵.  In Gould[5] however Gibbs CJ rejects as too inflexible an approach reflected in Jordan CJ’s judgment in Macalister,[6] that is, it was “only in exceptional circumstances” that damages in a decit action could be awarded in addition to those calculated on the basis of “the usual measure” of the difference between the real value of the property at the time of purchase and the price paid.  The damages claimable in “exceptional circumstances” have been referred to as consequential losses and their recovery is dependent on it being established that they flowed directly from the fraud[7]. 

   [5]Gould v. Vaggelas & Others (1985) 157 CLR 215; Potts v. Miller (1940) 64 CLR 282;     Totef v. Antonious (1952) 87 CLR 647.

   [6] Macalister v. Richmond Brewing Co.(NSW) Pty Ltd (1942) 42 S.R. (NSW) 187 at 192.

   [7]Gould v. Vaggelas⁵; Doyle v. Olbey (Ironmongers) Ltd (1969) 2Q.B. 150.

10. Put shortly however, what once may have been arguably an uncategorical proposition can no longer be regarded in that light, see Gould⁵.  Moreover in Smith v. Newcourt Securities[8], the House of Lords held that the “general rule” as to market value on the date of acquisition did not apply where the misrepresentation continued to operate so as to induce the plaintiff to retain property acquired in reliance on actionable representations and in other circumstances which are of no present concern.  Doyle v. Olbey⁷ was a case of a purchaser induced to acquire a business by fraudulent misrepresentation.  Damages were calculated to include the purchase price less the price ultimately obtained and trading losses flowing from the representation, see also Gates v. City Mutual Life[9].  Doyle⁷ was followed by the House of Lords in Smith v. Newcourt Securities⁸.

    [8]Smith Newcourt Securities Ltdv. Citibank N.A. (1997) A.C. 255.

    [9]Gates v. City Mutual Life Assurance Society Ltd. (1985) 160 CLR 1.

11. As I understand the plaintiff’s pleading it undertakes to prove both that it suffered damage and that the damages it seeks to recover flow directly from its reliance on what I have described as the defendant’s unlawful conduct.  Given particularly the allegation of reliance on the defendant’s unlawful conduct for both the acquisition and retention of the shares I do not read the pleading as claiming damages  “independent, extrinsic, supervening or accidental” to the loss of value by the shares subsequent to the date of purchase c.f. Gould⁵.  The plaintiff pleads that it was induced to transfer its shares in  Palmer and to accept and retain shares in the defendant in reliance on the truth and accuracy of the statements complained of.  To the extent to which it fails to prove damages directly flowing from this inducement its action will fail.

12. I turn to the question of the request for particulars of paragraph 14.1 of the Statement of Claim.  Paragraph 14 alleges that each of the representations pleaded in the preceding paragraphs was false in a material particular and/or materially misleading and/or misleading or deceptive conduct and/or likely to mislead or deceive.  It then pleads that the book value of the total assets of the environmental group incorporated a sum representing the book value of the goodwill attributable to what were referred to earlier as the German subsidiaries. It is then alleged that the subsidiaries had incurred substantial losses with little prospect of improving and that there was no justification for placing any value on the goodwill.

13. The particulars sought are of the facts, matters and circumstances relied on to support an allegation that the book value of the environmental engineering division:-

    “...incorporated a sum of not less than $115,357,000.00 representing the book value attributable (to the German subsidiaries) including identifying the basis for the calculation of the goodwill figure”.

    It seems not unreasonable that the plaintiff identify how the figures for goodwill pleaded were arrived at.  In so far however as the figure is derived from the defendant’s account it does not seem appropriate to require the plaintiff to particularise the basis for the calculation of the figure.