Leadenhall Australia Ltd & Ors v Peptech Limited S247/2001 [2002] HCATrans 307 (21 June 2002)

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry

Sydney No S247 of 2001

B e t w e e n -

LEADENHALL AUSTRALIA LTD

First Applicant

ADVENT INVESTORS PTY LTD

Second Applicant

NOBLE INVESTMENTS PTY LTD

Third Applicant

and

PEPTECH LIMITED

Respondent

Application for special leave to appeal

GLEESON CJ

GUMMOW J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON FRIDAY, 21 JUNE 2002, AT 11.58 AM

Copyright in the High Court of Australia

MR D.J. HAMMERSCHLAG, SC: May it please the Court, I appear with my learned friend, MR V.F. KERR, for the applicants. (instructed by Aleco Vrisakis)

MR S.D. ROBB, QC: May it please the Court, I appear with MR C.E. MOORE for the respondent. (instructed by Clayton Utz)

GLEESON CJ: Yes, Mr Hammerschlag.

MR HAMMERSCHLAG: Your Honours, at first instance his Honour Mr Justice Hunter found that the applicants had proved misleading and deceptive conduct by the respondent and reliance by the applicants on that conduct. The conduct was the failure to disclose in its public documents the fact that some 14 million shares out of about 135 million on issue were in escrow and shortly to come out. The case was run, your Honours, on the basis - and it was found that the applicants would not have entered into the subscription agreements they did enter into or at the time they did so. The approach adopted by his Honour Mr Justice Hunter really commenced relevantly in application book page 65, paragraph 148, where his Honour said that:

One way of approaching that problem is to conclude that Leadenhall, in the absence of any dumping of the restricted shares on the market, would have negotiated an agreement not materially different from the allotment agreement.

The critical findings of his Honour which appear at application book 68 were:

that an allotment agreement, possibly of a modified form, would have been negotiated . . . There may have been reduced consideration negotiated -

but -

no attempt has been made to quantify any such reduced consideration.

One was entitled, therefore, to conclude that "any reduction" in consideration "would not have been significant".

GUMMOW J: What about paragraph 158 on page 68?

MR HAMMERSCHLAG: Yes, your Honour, I will deal with that shortly. The Court of Appeal, the principal judgments delivered by his Honour Mr Justice Meagher and Mr Justice Giles, found that Mr Lebbon who represented the applicant did not condescend to inform the Court what he would have done when he had finished waiting, nor how long that process would take, nor what he was waiting for and he did not say what he would have done once he realised that the release of the escrowed shares had no effect on the price. In the other judgment, his Honour Mr Justice Giles held similarly.

At the centre of debate, your Honours, is the question whether it is incumbent on a plaintiff to lead evidence on what different transaction it would have done when it is not within that applicants' power, the plaintiff's power, to force the other party to do business with it on some other terms and whether it must do so before it established damages. The proposition from the Court of Appeal judgment was that it was not for the respondent to put to Mr Lebbon that he would have later proceeded with some other agreement sufficient for it to negate the position that he would have not gone ahead with the transaction at all.

Now, your Honours will have read that there was no evidence from the respondent what transaction it would have done. The applicants established what they would not have done. So that at the end of the trial the evidence was in the following state. The applicants would not have entered into the agreements they did but for the respondent's conduct. The applicants would have waited. There was no evidence from the respondent whether it would have been prepared to do some deal at some later time or the terms of it and there was also no such evidence from the applicants. In fact, no such proposition was even put to Mr Lebbon. But there was a finding that any such new deal would probably have involved reduced consideration.

Both Mr Justice Hunter and the Court of Appeal approached the matter on the basis that that meant the applicants failed because they bore the onus of, on the balance, showing what further deal would have resulted. Now, our submissions, your Honours, are as follows. We submit that, approached correctly, it meant that the applicants should have won on those very premises for three reasons. This is the kernel of what we put to your Honours. Firstly, the evidence, when weighed according to the power of the party to produce it meant the plaintiff was entitled to succeed.

The judgments, we respectfully submit, are internally contradictory. On the one hand, they found that the plaintiff did not lead evidence of the hypothetical transaction it might have entered into; yet, on the other hand, there is a finding that such a transaction would not have been materially different from the one that was entered into. Secondly, we submit that the law is not that the plaintiff must prove that it is more probable than not that it would have done some new deal. There can be a compensable loss, even where there is a less than 50 per cent chance. So has been held by this Court in The Commonwealth v Amann Aviation.

Finally, we submit to your Honours that once the plaintiff proved reliance by showing it would have not done the deal it did, it lost the opportunity of another deal. That was approached by the court wrongly, we submit, on the basis that it was a matter for the balance of probabilities and we submit that that situation calls for the approach of this Court in Sellers v Adelaide Petroleum. The Court of Appeal dealt with that question at the application book 107 where the applicants pleaded as their damage the difference between the transaction they had done and no transaction at all. The court at first instance considered there was enough evidence to conclude something about the deal that had been done.

So what this calls for, in our respectful submission, and the question we submit should be appropriately considered for special leave is what is incumbent upon a plaintiff who sues for misleading and deceptive conduct establishes reliance that he would not have done the deal that he did and there is no evidence as to what subsequent deal may have been done. Is there a distinction? We submit there is not, forensically, between what has been described as a no transaction case and a different transaction case.

GLEESON CJ: Mr Hammerschlag, coming back to paragraph 158 on page 68, the last sentence in that paragraph seems to involve a finding of fact. What do you say about that?

MR HAMMERSCHLAG: Yes, your Honour. Your Honour, once one finds that there would have been a reduction, it must follow that there must be damage.

GLEESON CJ: But he found it a fact, based on this August presentation, that the reduction would have been insignificant.

MR HAMMERSCHLAG: Yes, your Honour.

MR HAMMERSCHLAG: Yes, your Honour. What had happened was Mr Lebbon had entered into the subscription agreements at a price which by the time the misleading and deceptive conduct which was found was disclosed and obvious to him the share price had fallen significantly. But his Honour found that notwithstanding that Mr Lebbon had not given evidence as to what deal he would have done because he said he would have waited, he did not know what he would have done, he would have negotiated at some later point, his Honour nevertheless found that the reduction would not have been significant. Now even if, your Honours, there was a $10 reduction, that was damage.

What the Court of Appeal found, his Honour Mr Justice Giles considered that what his Honour meant to say was that the reduction would not have been sufficient to warrant an award of damage. That is a proposition, your Honours, that we have difficulty in comprehending. If there was a reduction, then the extent of the reduction is damage, even if it be $1. Those are our submissions.

GLEESON CJ: Thank you. Yes, Mr Robb.

MR ROBB: Your Honours, we respectfully submit that the Court should start by, as it naturally would, looking closely at the draft notice of appeal as to which special leave is sought and the questions that are said to be special leave questions. The draft notice of appeal is found at the application book page 112. Obviously I will not read out the whole of paragraph 2, but it said:

The Court of Appeal erred in concluding that the Applicants, having successfully established that -

certain things -

and having found that the Applicants would have waited before doing any transaction, the Applicants were also required, and bore an onus, as a matter of law, to establish precisely the terms of a different, but unknown, transaction -

and then it moves on. What the applicant is representing to this Court is that the process at first instance and in the Court of Appeal involved the court in a finding as a principle of law that when a party proved that it had been misled into entering into a transaction, first; secondly, that it would not have entered into that transaction but for the misleading conduct, but the evidence, three, justified a finding that it would have entered into some other contract, the plaintiff has a burden of proving precisely the terms of the contract which it would have entered into in the alternative. So the court is then, as it were, with a calculator able to work out the difference in value, as it were, between what would have been entered into and what was entered into.

We respectfully submit that that does not accurately at all reflect the course of the proceedings before the trial judge or the Court of Appeal. In particular, neither court purported to lay down or apply a rule that the plaintiff was in peril unless it took on the burden of precisely proving the terms of the alternative transaction. What happened is no more remarkable than that the court, starting of course at first instance, decided the case on the evidence, given, as is uncontroversial, that the plaintiff had the burden

of proving what its damages was. What the court, in fact, did is very much a matter of the findings of fact in this relatively special case.

Now, the Court has in argument, when my friend was on his feet, pointed out the findings that Justice Hunter made at application book page 68 and those findings of cause are at the end of a long and subtle process of reasoning as to what the evidence involved in this case. If I may be permitted to summarise the position, though if asked I am of course prepared to take the Court through the individual findings - - -

GLEESON CJ: I think we understand the burden of what you have to say, Mr Robb, which, really, you have summarised in your written submissions.

MR ROBB: I have, your Honour, yes. If your Honour is satisfied that we have put our submissions, I have nothing further to say.

GLEESON CJ: I think we understand that. Yes, Mr Hammerschlag?

MR HAMMERSCHLAG: It is true, your Honour, that there is a finding of fact at page 158, that the principle that we say which was invoked was the applicant having established the misleading conduct and reliance, having established it would not have done that deal, there being no evidence as to what further deal it would or could have done, there being no evidence from the respondents that it would have been prepared to do some other deal, the court, in effect, applied a principle casting upon the plaintiff an onus which it did not have and we draw your Honour's attention to paragraph 3 of the draft notice of appeal, page 114 of the application book, where the ground is raised that:

3. The Court of Appeal, having found that the Applicants would have entered into a different transaction, erred in declining to assess the value of the difference or to remit the matter to the Court at first instance for that Court to do so.

So, in our respectful submission, once there is a finding of fact that a deal would have been done, the consideration would have been less, it followed inexorably that damage had been proved. Neither Justice Hunter nor the Court of Appeal embarked upon the exercise of doing the best it could to work out what those damages were.

GLEESON CJ: The outcome of this case turned on the way in which the plaintiff put its case and the view that was taken by the trial judge of the evidence and, in particular, the evidence of one witness. The case does not raise an issue suitable to a grant of special leave and the application is refused with costs.

We are going to adjourn for a short time to reconstitute.

AT 12.14 PM THE MATTER WAS CONCLUDED