Westgold Resources Nl v St Barbara Mines Ltd - [2004] WASC 274

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: WESTGOLD RESOURCES NL -v- ST BARBARA MINES LTD & ANOR [2004] WASC 274

CORAM: EM HEENAN J

HEARD: 3 DECEMBER 2004

DELIVERED : 3 DECEMBER 2004

FILE NO/S: CIV 2427 of 2000

BETWEEN: WESTGOLD RESOURCES NL (ACN 009 260 306)
Plaintiff
AND
ST BARBARA MINES LTD (ACN 009 165 066)
First Defendant
RONALD WARREN WOSS
Second Defendant
NORMAN THOMAS BEVAN
First Third Party
PETER VERNON JONES
Second Third Party
ROBIN STEPHEN DEAN
Third Third Party
COLIN ROSS ATKINS
Fourth Third Party

Catchwords:

Long causes list - Pleadings - Application to strike out portion of statement of claim - Controversial formulation of damages sought - Corporations Law - Turns on own facts

Legislation:

Corporations Act 2001

Trade Practices Act 1974

Result:

Application dismissed

Category: B

Representation:

Counsel:

Plaintiff:     Mr S K Dharmananda
First Defendant             :     Mr M D Howard
Second Defendant         :     Ms N M Whitby
First Third Party           :     No appearance
Second Third Party       :     No appearance
Third Third Party          :     No appearance
Fourth Third Party        :     In person

Solicitors:

Plaintiff:     Corrs Chambers Westgarth
First Defendant             :     Tottle Partners
Second Defendant         :     Freehills
First Third Party           :     No appearance
Second Third Party       :     No appearance
Third Third Party          :     No appearance
Fourth Third Party        :     In person

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

Nil

Case(s) also cited:

Crestland Investments Pty Ltd v Parisi Holdings Pty Ltd & Anor [2003] WASC 148
Dalgety Australia Ltd v Rubin; unreported; FCt SCt of WA; Library No 5485; 24 August 1984
General Steel Industries Inc v Commissioner for Railways NSW (1964) 112 CLR 125
Henville v Walker (2001) 206 CLR 459
Hospitals Contribution Fund of Australia v Hunt (1983) 44 ALR 365
I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109
Kimberley Downs Pty Ltd v Western Australia, unreported; SCt of WA; Library No 6414; 25 August 1986
March v Stramare (E&MH) Pty Ltd (1991) CLR 506
Marks v GIO Australia Holdings Ltd (1998) CLR 494
Niven v Grant (1903) 29 VLR 102
Packard v Transport Trading and Agency Co Ltd (1912) 14 WALR 191
Wardley Australia Ltd v Western Australia (1992) 175 CLR 514

EM HEENAN J: By a chamber summons dated 15 April 2004 as amended orally at the end of this argument before me this morning, the first defendant seeks to strike out passages in the amended statement of claim which is the subject of a minute dated 14 January 2004. The chamber summons as filed directs attention to subpar 20(c) of the statement of claim however the real intention of the first defendant applicant is to apply to strike out par (a) of the particulars of paragraph 20 of the statement of claim.
It is necessary to put the application in the context of the pleading as a whole. The background facts alleged, and these are only unproved allegations, are that the plaintiff purchased a parcel of shares from the second defendant in the first defendant and held these shares. Later, in circumstances that I will describe more fully in a moment, the plaintiff desired to sell these shares and entered into an executory contract of sale to sell them to a company called Montleigh Pty Ltd, a company associated with Mr Ross Atkins, the fourth third party in these proceedings.
Although the shares were transferred to Montleigh and ownership of the securities being purchased and sold passed to Montleigh. Montleigh was unable to pay the purchase price in full. Of a purchase price of approximately $7.422 million, Montleigh only paid approximately $0.952 million, leaving an outstanding debt for the unpaid balance of the price of approximately $6.5 million dollars.
The plaintiff has been unable to recover that balance from Montleigh and is not pursuing Montleigh in the present proceedings. Instead it brings this action against the first defendant and the original vendor from whom it purchased the shares alleging that there was a material non‑disclosure to the market of price sensitive information which would have affected the value of the shares on the stock market had it been disclosed.
What I call the price sensitive information is to be found in the allegations of fact in pars 8(a) and 9 of the statement of claim. At this stage this can compendiously be described as information casting doubts upon the extent of the reserves in the ore body held by the first defendant, the cost of extraction of the reserves through mining operations, and other factors including an impending levy by the state government which would affect the profitability of mining operations on that ore body. of the reserves in the ore body culled by the first defendant and the cost of extraction of the reserves through mining operations and other factors including an impending levy by the state government which would affect the profitability of mining operations on that ore body.
After the purchase of this parcel of shares by the plaintiff from the second defendant the allegation is that the plaintiff became aware of this price‑sensitive information which was likely to depress the share price and which, had it been generally known, would have meant that its shares were worth much less than it had paid for them. Desiring to sell the shares the plaintiff found that it was prohibited from selling them into the general market because of its possession of the price‑sensitive information and it asserts that it was only able to sell the shares to another person or entity who was similarly possessed of the price‑sensitive information - a proposition which the first defendant does not accept. Nevertheless it was on that basis and for that reason that the shares were sold to Montleigh. Montleigh was unable to pay the agreed consideration in full.
In the course of submissions counsel for the first defendant has submitted that a sale of the shares from the plaintiff to Montleigh in those circumstances was in breach of the Corporations Act, although no specific allegation in that regard is made in the pleadings and there has been no suggestion until now of illegality which would impeach the effect of that transaction. For those reasons it is not necessary for me to consider the potential implications of that submission if it should turn out to be well based, and I put that to one side.
As one basis for the plaintiff's claim for damages against the first defendant and others, the plaintiff seeks to recover damages in an argument equivalent to the unpaid balance of the purchase price which cannot be recovered from Montleigh. The purpose of the present application is to dismiss or strike out those parts of the statement of claim which rely on or assert a right to recover damages measured in that fashion.
The submissions put in support of the application assert that the failure by Montleigh to pay the price in full gives rise to a private cause of action between the plaintiff and Montleigh; that the first defendant should not be put in a position where it is effectively an underwriter of the performance of the contract by Montleigh; and that had Montleigh paid the purchase price in full there would have been no loss but, in fact, a profit. The first defendant therefore submits that nothing in the pleading, and in particular nothing in par 20, supports an allegation that damages of this character have been caused by (to use the words of the Corporations Act,) the alleged misleading nondisclosure of the price-sensitive information.
I am not able to accept that submission. While nothing I now say reflects any final view of the facts and it may well be that there are many other facts which have not been canvassed during this hearing which are material to any eventual conclusion on these points, it appears to me that the pleading as presently framed in effect asserts that the plaintiff bought this parcel of shares from the second defendant at an over value. It also appears that the price which the plaintiff paid for that purchase was inflated because neither the purchaser nor the market had been informed of the price‑sensitive information which was then known both to the first defendant and to the second defendant. It is also the plaintiff's case that had, on this occasion, the first defendant complied with its statutory obligation of continuous disclosure, that information would have been in the market and that would have affected the price at which the securities could have been purchased and perhaps even whether or not the plaintiff would have purchased them at all.
If these propositions were to be made good it would seem to me that it would be arguable that the plaintiff would have a cause of action against the first defendant for damages, the measure of the damages being the difference between what the plaintiff paid for the shares at the date of this original purchase and what the true market value of the shares was as at that date, if ascertainable. Indeed, as I understand the pleading, the plaintiff does advance such a claim which the first defendant accepts and accepts as being orthodox.
In addition to that claim the plaintiff asserts, as I have already attempted to summarise, that it is entitled to recover as damages from the material nondisclosure of the price‑sensitive information, the $6.5 million been the shortfall on the sale of the securities to Montleigh and does so by arguing that, having become aware of the misleading nondisclosure of price‑sensitive information, it decided that it should sell the shares. It found that it could only sell to the limited category of purchasers, of which Montleigh was one, and did so and the sale fell over. It appears to me that it is arguable, but by no means certain, that a claim for damages of that character may succeed or at least that the plaintiff should be permitted to pursue it, at this stage of the proceedings.
One of the potential anomalies about such a formulation of the claim is that the damages are calculated by reference to a price negotiated with Montleigh but not honoured, whereas the orthodox formulations of the measure of damages under comparable statutory provisions, such as s 52 and s 80 of the Trade Practices Act, indicate that the primary commencing point for the quantification of damages is the difference between the market value of a commodity purchased or sold at the date of the sale and the price paid for it.
The formulation of this claim by reference to the shortfall in the proceeds of the sale to Montleigh may or may not conform to that test and indeed there are appearances that it may not conform, but there are many cautious remarks in the reported judgments to indicate that the formulation of damages under comparable statutory provisions needs to concentrate on the meaning of the statutory formula in the commercial setting where the dispute arises and it is not always the case that a classic vendor‑purchaser paradigm will yield an analogous solution. While it seems to me that there is some room for doubt about the formulation of this claim for damages I am not satisfied that it is sufficiently unarguable to warrant it being struck out and I therefore dismiss this application.