RinRim Pty Ltd v Deutsche Bank AG

1. [1]

   BEAZLEY P: I have had the considerable advantage of reading in draft the reasons of Sackville AJA. For the reasons his Honour gives, I agree with the orders proposed. I also agree with the additional observations of Payne JA.

2. [2]

   PAYNE JA: I have had the opportunity to read the judgment of Sackville AJA in draft. I agree with his Honour’s comprehensive reasons and the orders his Honour proposes. I wish only to add a few brief observations of my own.

3. [3]

   Those observations concern the new arguments sought to be advanced on the appeal. Sackville AJA sets those arguments out at [54]-[56]. As to the first argument advanced in this Court, that had the respondents exercised reasonable care they would have ascertained that RinRim was an exempt shareholder and would have made the Institutional Offer to RinRim, it is clear that such a case is inconsistent with the case conducted below. The primary judge identified fully and fairly the ways the negligence case was advanced by experienced commercial senior and junior counsel at [226]-[228] of her Honour’s judgment.

4. [4]

   At the trial, RinRim accepted that it would have been impossible for the respondents to identify all exempt shareholders in Primary, or even all “professional investors” as defined in s 9 of the Corporations Act, because that would mean the respondents would have been obliged to contact every shareholder of Primary. RinRim’s case below was that the duty owed by the respondents was limited to one whereby steps would be taken to invite the largest shareholders in Primary, including RinRim, to participate in the Institutional Offer. All exempt shareholders receiving such an invitation could contact the respondents “and seek participation” in the Institutional Offer. This limited formulation of the duty avoided the otherwise obvious problems of a duty of care being imposed upon the respondents requiring them to take a credit risk in relation to parties unknown to them or to act in a way inconsistent with their obligations under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth). This limited formulation of the duty of care allowed the respondents to make the checks they were required to make and to decide whether parties not previously known to them, including RinRim, should be permitted to participate in the Institutional Offer.

5. [5]

   Under this limited formulation of the duty of care, the critical question was whether, if offered an opportunity to “seek participation” in the Institutional Offer, Dr Volfneuk on behalf of RinRim would have sought participation in that offer or waited until the Retail Offer, as the evidence established he could have chosen to have done, when he would have been in a financial position to take up that offer. In a lengthy and careful judgment, her Honour rejected Dr Volfneuk’s evidence that RinRim would have sought participation in the Institutional Offer if given that opportunity. That finding was dispositive of all of the ways RinRim put its negligence case before the primary judge. So much was accepted by experienced junior counsel who appeared for RinRim at the trial in his costs submissions. It is clear that her Honour did not misunderstand the way RinRim put its case below.

6. [6]

   I agree with Sackville AJA that the appellant does not have a right to insist that this new argument be decided and that this is a case where it is not appropriate to permit RinRim to mount a different case on appeal. Further, if RinRim had raised this new argument before the primary judge, it is obvious that further factual issues would have needed to be addressed. Although unnecessary to express any concluded view, expressed in the broader way the duty of care was sought to be advanced on appeal, the duty is likely to have been “crippling”: Badenach v Calvert (2016) 257 CLR 440; [2016] HCA 18 per Gageler J at [58].

7. [7]

   The second argument, which places reliance on the ASX waiver, was not pleaded or relied upon by the appellant before the primary judge. It suffers from the same vice as the first argument in seeking to depart from the negligence case advanced below which was limited to giving RinRim an opportunity to “seek participation” in the Institutional Offer. The argument assumes that the respondents have failed to perform an obligation owed to the ASX, with potentially very serious consequences, in circumstances where the respondents were given no opportunity to address that issue at the trial. It raises obvious questions about the extent of additional evidence which could have been led had such an allegation been made below. It would be fundamentally unfair to the respondents to permit the issue to be litigated for the first time in this Court.

8. [8]

   For these additional reasons, which are consistent with those of Sackville AJA, I joined in the order announced at the end of the first day of the appeal that RinRim’s case on appeal was limited to the negligence case outlined by the primary judge.

9. [9]

   SACKVILLE AJA: The appellant (RinRim) appeals from a decision of a Judge of the Equity Division (Bergin CJ in Eq) dismissing claims against the respondents. [1] RinRim’s principal cause of action at the trial was founded upon the alleged negligence of the respondents. [2]

The proceedings

1. [10]

   RinRim held shares in the fourth respondent (Primary) which was undertaking a capital raising through what is known as an Accelerated Renounceable Entitlement Offer (AREO). Primary engaged the first to third respondents as underwriters and Joint Lead Managers (JLMs) for the AREO.

2. [11]

   RinRim claimed that the respondents were negligent because they failed to ascertain that it was within the class of “exempt shareholders” entitled to participate in the first stage of the AREO known as the Institutional Entitlement Offer (Institutional Offer). [3] By reason of the respondents’ negligence, so RinRim alleged, it had been relegated to participation in the Retail Entitlement Offer (Retail Offer), which was extended to all shareholders not participating in the Institutional Offer. The Retail Offer, which was on the same terms as the Institutional Offer, closed about a month after the Institutional Offer closed. During this time the price of shares in Primary fell sharply.

3. [12]

   RinRim did not take up the Retail Offer to acquire further shares in Primary. The entitlements of shareholders who did not accept the Institutional Offer or the Retail Offer (whichever applied), had their entitlements sold in a bookbuild. [4] RinRim claimed that it suffered financial loss because it would have received substantially more from the sale of its entitlement to shares in the Institutional Bookbuild than it in fact received from the later sale of its entitlement to shares in the Retail Bookbuild.

4. [13]

   RinRim’s case as presented and as understood by the primary Judge rested on the contention that if the respondents had exercised reasonable care, as they were obliged to do, RinRim would have had the opportunity to participate in the Institutional Offer and would have taken the necessary steps to do so. On RinRim’s case it would not have acquired the shares to which it was entitled under the Institutional Offer, but would have disposed of its entitlement in the Institutional Bookbuild. Accordingly, RinRim sustained a financial loss for which the respondents were liable.

5. [14]

   In the Primary Judgment, delivered on 7 October 2016, her Honour held that:

6. [15]

   The primary Judge’s finding on causation was based on her rejection of the evidence of Dr Volfneuk, the principal of RinRim. Dr Volfneuk had asserted that if RinRim had been given the opportunity, it would have sought to participate in the Institutional Offer. On his evidence, RinRim would not have purchased additional shares in Primary through the Institutional Offer but would have disposed of its entitlement in the Institutional Bookbuild. Her Honour considered that Dr Volfneuk’s evidence that RinRim would have sought to participate in the Institutional Offer was not credible and should not be accepted.

Costs judgment

1. [16]

   The primary Judge delivered a separate judgment on costs on 2 November 2016 in which she ordered RinRim to pay the respondents’ costs of the proceedings, such costs to be payable on an indemnity basis from 14 July 2016. [7] Her Honour chose this date because by 14 July 2016 RinRim had reviewed the subpoenaed material and must have known that “any claim that it did not intend to be a buyer in the Retail Offer was not sustainable”. [8]

2. [17]

   The primary Judge accepted the respondents’ submission that Dr Volfneuk must have known well before he actually gave evidence that RinRim always intended to be a buyer in the Retail Offer and knowingly proceeded with the case on a false basis. [9] Her Honour added this observation: [10]

Background

1. [18]

   The AREO took place in February and March 2008. Primary’s object was to raise approximately $1.2 billion to fund in part its takeover of Symbion Health Ltd (Symbion). Primary’s business included medical centres, pathology and health technology. Symbion’s business was similar in nature.

2. [19]

   RinRim was the private company of Dr Volfneuk who had sold his pathology business to Primary in 1999. As a result of that transaction RinRim had acquired a large shareholding in Primary. In February and March 2008 RinRim held 2,500,657 shares in Primary, equivalent to about 1.76 per cent of Primary’s total shares on issue.

3. [20]

   Primary engaged the first, second and third respondents (Deutsche Bank, Credit Suisse and CIMB, respectively) as underwriters and JLMs for the capital raising.

4. [21]

   The key feature of the AREO was that part of the capital raising was accelerated in circumstances permitted under a waiver granted by the Australian Stock Exchange (ASX). The accelerated part of the AREO was designed primarily to facilitate the early raising of capital from large institutional investors, although retail investors were to be offered shares on the same terms.

5. [22]

   The AREO in the present case consisted of the following elements:

6. [23]

   The AREO took place within the regulatory regime provided by Part 6D.2 of the Corporations Act and the Listing Rules of the ASX. Part 6D.2 requires an offer of securities to be made with disclosure to investors in accordance with a prospectus or other disclosure document. [11] This requirement is, however, subject to exceptions.

7. [24]

   An offer of securities does not need disclosure to investors under Part 6D.2 if 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. [12] Such investors are described in Part 6D.2 as “Sophisticated Investors”.

8. [25]

   Part 6D.2 also provides that an offer of securities does not need disclosure to investors if it is made to:

9. [26]

   There was no dispute at trial that the appellant satisfied the definition of “Professional Investor” and was therefore eligible to receive an offer of securities without Primary complying with the statutory disclosure requirements. (There was, however, a dispute as to whether Primary or the JLMs knew or should have known of RinRim’s status as a “Professional Investor”.)

10. [27]

    The ASX Listing Rules, r 7.7, required an entity which proposed a “pro rata issue” to offer the securities to all holders with registered addresses in Australia or New Zealand. On 12 February 2008, the ASX granted Primary a waiver from certain Listing Rules. The relevant terms of the waiver are reproduced below. [14]

11. [28]

    The JLMs did not notify RinRim at any stage that it was entitled to participate in the Institutional Offer. Nor was an offer made to RinRim for it to subscribe for 4,001,052 shares (or any other number of shares) in accordance with the terms of the Institutional Offer. None of the shares to which RinRim was entitled under the AREO were disposed of in the Institutional Bookbuild.

12. [29]

    Since RinRim was entitled to subscribe for 4,001,052 shares in the AREO, it would have received $4,801,262.40 had its entitlement been disposed of in the Institutional Bookbuild (that is, $1.20 for each of the 4,001,052 shares to which it was entitled).

13. [30]

    RinRim was included in the Retail Offer, but did not take up its entitlement to subscribe for shares. Accordingly the 4,001,052 shares for which it was entitled to subscribe were sold in the Retail Bookbuild. Thus RinRim received $400,105.20 from the Retail Bookbuild (that is $0.10 for each of the 4,001,052 shares to which it was entitled).

14. [31]

    RinRim claimed damages of $4,401,157.20 representing the difference between the amount it would have received from the Institutional Bookbuild, had it participated, and the amount it actually received from the Retail Bookbuild.

Key documents

1. [32]

   It is convenient to set out the material terms of the key documents referred to by the parties. The documents are:

2. [33]

   By the Equity Commitment Letter (Poppins Letter) each of the JLMs severally agreed, subject to a number of conditions precedent, to underwrite an issue of shares up to a value of $1,560 million in Primary. The issue was part of Primary’s proposed takeover of Symbion, a project designated as “Project Poppins”.

3. [34]

   The parties agreed to work expeditiously and in good faith to prepare and execute an Underwriting Agreement on terms satisfactory to the JLMs but which would be consistent with the Poppins Letter. The Exhibits to the Poppins Letter set out terms and conditions on which the underwriting was to take place. Most if not all of those terms and conditions were subsequently incorporated into the Underwriting Agreement executed by the parties on 13 February 2008. [15]

4. [35]

   The ASX waiver included the following provisions:

5. [36]

   Clause 6 of the Underwriting Agreement provided as follows:

6. [37]

   The “Timetable” was set out in Sch 2 to the Underwriting Agreement. It contemplated that the “Institutional Opening Date” would be 13 February 2008 and the “Institutional Closing Date” would be 14 February 2008, while the Institutional Bookbuild would open and close on 15 February 2008. The “Retail Opening Date” was to be 22 February 2008 and the “Retail Closing Date” 13 March 2008. The Retail Bookbuild was to be conducted on 19 March 2008. The “Record Date” was to be 18 February 2008.

7. [38]

   Schedule 5 included the following provisions:

8. [39]

   The following definitions are relevant to Sch 5:

9. [40]

   The AREO Procedures Manual was provided to exempt shareholders to whom Primary or the JLMs extended an invitation to subscribe for shares in the Institutional Offer. The AREO Procedures Manual described four components of the “Offer Structure”, being the Institutional Offer, the Institutional Bookbuild, the Retail Offer and the Retail Bookbuild.

10. [41]

    The AREO Procedures Manual described the first two components of the Offer Structure as follows:

11. [42]

    The AREO Procedures Manual defined the following terms:

12. [43]

    Under the heading “Information About the Institutional Offer”, the following disclaimer appeared:

13. [44]

    Annexure A to the AREO Procedures Manual contained the Shareholder Declaration Form which was to be completed by exempt shareholders who had received an invitation from the JLMs to participate in the Institutional Offer. The Shareholder Declaration Form required details of the exempt shareholder’s holding in Primary. The shareholder also had to acknowledge that, as it had “received an invitation from the JLMs”, it was obliged to elect whether to take up or not take up its entitlement and could not defer into the Retail Offer.

14. [45]

    Annexure B to the AREO Procedures Manual contained the Shareholder Application and Renunciation Form. This Form provided for the exempt shareholder to specify the number of shares it wished to take up at $5.40 per share and the number it did not wish to take up.

15. [46]

    Primary advised the ASX on 13 February 2008 that it would commence the “institutional entitlement offer” that day. The letter attached a Draft Prospectus that was to be made available to “institutional investors as part of the process”. The letter advised that a printed copy of the Prospectus under which the Retail Offer was to be made would be lodged with the Australian Securities and Investments Commission on 18 February 2008.

16. [47]

    The Draft Prospectus provided to institutional investors included the following statements:

17. [48]

    The Glossary included the following definitions:

The appellant’s case

1. [49]

   In her very careful judgment the primary Judge pointed out that there had been “a deal of movement” in RinRim’s position as the trial proceeded. [17] Her Honour identified two alternative negligence claims advanced by RinRim in its final oral submissions, as follows: [18]

2. [50]

   The primary Judge observed that it was necessary to determine whether the respondents owed a duty of care to RinRim and, if so, whether they breached the duty. Her Honour added the following:

3. [51]

   Mr Einfeld QC, who appeared with Mr Russoniello for RinRim, disavowed reliance on the first negligence argument identified by the primary Judge. He indicated that RinRim wished to rely on the second negligence argument identified by her Honour. However, the respondents submitted that the submissions on which Mr Einfeld relied in truth went beyond the pleadings and were inconsistent with RinRim’s closing submissions at the trial.

4. [52]

   RinRim faced a difficulty on the appeal because the primary Judge disbelieved Dr Volfneuk’s evidence that, if given the opportunity, he would have taken steps to ensure that RinRim could participate in the Institutional Offer. Her Honour found that Dr Volfneuk intended at all material times that RinRim should take up its entitlement to new shares in the Retail Offer.

5. [53]

   To circumvent this difficulty Mr Einfeld advanced two arguments on appeal, each of which was designed to enable RinRim to succeed regardless of whether it would have actively sought to participate in the Institutional Offer. The first argument, according to Mr Einfeld, was a modified version of RinRim’s second negligence argument advanced at the trial and described by the primary Judge in the Primary Judgment at [228]. Mr Einfeld acknowledged that the second argument, based on the terms of the ASX waiver, had not been put to the primary Judge, but he submitted that he nonetheless should be permitted to rely on it on the appeal. The respondents said that both arguments were entirely new and that Mr Einfeld should not be permitted to rely on either of them on the appeal.

6. [54]

   The first argument Mr Einfeld sought to advance on the appeal was that if the respondents had exercised reasonable care they would have ascertained that RinRim was an exempt shareholder and would have made the Institutional Offer to RinRim without the need for Dr Volfneuk to have taken any positive action on RinRim’s behalf. Making a virtue of necessity, Mr Einfeld relied on the primary Judge’s finding that RinRim, as at 13 February 2008, did not have the funds to participate in the Institutional Offer (although her Honour also found that Dr Volfneuk was attempting to raise funds to allow RinRim to acquire shares in the Retail Offer). [19] Thus, so Mr Einfeld argued, RinRim would not have accepted the Institutional Offer and would have disposed of its entitlement to additional shares in Primary in the Institutional Bookbuild at $6.60 per share.

7. [55]

   The argument had a marked advantage from RinRim’s perspective. As Mr Einfeld frankly acknowledged, if accepted the argument would render the primary Judge’s findings as to RinRim’s intentions and likely conduct entirely irrelevant. It would also mean that the extensive cross-examination of Dr Volfneuk was quite unnecessary and that the 74 paragraphs the primary Judge devoted to assessing Dr Volfneuk’s credibility was surplusage.

8. [56]

   Mr Einfeld’s second argument was that the ASX waiver, properly construed, obliged the respondents to make the Institutional Offer to RinRim whether or not Dr Volfneuk actively sought to have RinRim participate in the Institutional Offer. Mr Einfeld also sought to rely on the terms of the ASX waiver to support an argument that the respondents were obliged to form a belief as to whether or not RinRim was an exempt shareholder and that their failure to do so breached the duty of care they owed to RinRim. Mr Einfeld conceded that RinRim had neither pleaded a case based on the ASX waiver nor relied on the ASX waiver in its final submissions at trial.

9. [57]

   The first day of the two day hearing in this Court was largely taken up with argument as to whether RinRim should be permitted to rely on the two contentions Mr Einfeld wished to advance. At the conclusion of the argument, the President announced on behalf of the Court that Mr Einfeld would not be permitted to rely on either of the contentions and that RinRim would be limited to the second negligence case outlined by the Primary Judge in the Primary Judgment at [228]. [20]

10. [58]

    I set out below my reasons for joining in the ruling.

11. [59]

    Mr Einfeld submitted that RinRim should be permitted to rely on the argument that the respondents would have made the Institutional Offer to RinRim regardless of Dr Volfneuk’s actions, for three reasons:

12. [60]

    As has been seen, the primary Judge said that RinRim’s second negligence claim alleged that the respondents, in the exercise of reasonable care, should have ascertained that RinRim was an exempt shareholder and, having done so, should have offered Dr Volfneuk (on behalf of RinRim) “the opportunity to be accelerated”. [21] Mr Einfeld submitted that her Honour had accepted that RinRim’s case was that if the respondents had ascertained that it was an exempt shareholder, they would have extended the Institutional Offer to RinRim as a matter of course.

13. [61]

    As the respondents correctly submitted, Mr Einfeld misinterpreted her Honour’s summary of RinRim’s second negligence claim. The summary was clearly intended to record the case presented on RinRim’s behalf in closing submissions at the trial. RinRim’s case, as her Honour understood it, was that the respondents should have notified it of the Institutional Offer on or before 12 February 2008 and given it the opportunity to make contact with the JLMs and ask to be accelerated into the Institutional Offer.

14. [62]

    That this was the primary Judge’s understanding is made quite clear in the next paragraph of the Primary Judgment. Her Honour noted that it would be necessary to determine whether: [22]

15. [63]

    Contrary to Mr Einfeld’s submission, the primary Judge’s summary of RinRim’s second negligence case did not involve any misapprehension of the argument advanced on its behalf. The primary Judge pressed senior counsel during closing submissions to clarify the case he wished to present on behalf of RinRim. The summary in the Primary Judgment accurately reflects the exchange that took place.

16. [64]

    The primary Judge appreciated that RinRim’s case needed clarification for several reasons, one of which was the lack of clarity in its pleadings. RinRim’s Second Further Amended Commercial List Statement (Points of Claim) alleged that the respondents owed RinRim a duty to take reasonable care to avoid the foreseeable risk of harm, described as follows: [24]

17. [65]

    The JLMs were alleged to have breached their duty of care, in that they: [25]

18. [66]

    Under the heading “Causation and Damage”, the Points of Claim pleaded as follows: [26]

19. [67]

    The pleading on causation strongly suggested that RinRim’s case was that the respondents should have invited it to participate in the Institutional Offer and, if invited, it would have sought to participate. RinRim was said to have suffered loss because it was denied the opportunity to participate in the Institutional Offer and for that reason did not dispose of its entitlement to new shares in the Institutional Bookbuild.

20. [68]

    Notwithstanding this form of pleading, a generous reading of the Points of Claim possibly might construe it as alleging that the JLMs, once they ascertained that RinRim was an exempt shareholder, would have extended the Institutional Offer to it without any further action on RinRim’s part. It was perhaps for this reason that the primary Judge pressed senior counsel to clarify RinRim’s case. Her Honour might also have had in mind Dr Volfneuk’s evidence that had he been told at any time before 15 February 2008 that RinRim was an “institutional investor” (apparently meaning an exempt shareholder) he would have “sought to have RinRim included in the [I]nstitutional [O]ffer and the [I]nstitutional [B]ookbuild”. [27]

21. [69]

    During the interchange with the primary Judge, RinRim’s senior counsel (Mr Gyles) clearly distinguished between the first and second negligence cases advanced by RinRim. He explained that on the second case the respondents, acting reasonably, should have invited at least the largest shareholders in Primary to participate in the Institutional Offer on the basis that they were exempt shareholders. All the exempt shareholders receiving such an invitation:

22. [70]

    Mr Gyles elaborated later:

23. [71]

    In this passage, the reference to Dr Volfneuk being placed “on-board … as a client” is significant. It refers to evidence given by Mr Molesworth, the then Director of Equity Capital Markets at Deutsche Bank. [28] Mr Molesworth explained that Deutsche Bank was the Settlement Agent for the Institutional Offer, meaning that it managed the electronic exchange with the investors in the Institutional Offer, the Institutional Bookbuild and the Retail Bookbuild. Mr Molesworth said that Deutsche Bank had a requirement that an accelerated shareholder (that is, a participant in the Institutional Offer) had to be an existing client of Deutsche Bank or of one of the other JLMs. This was because a client was taken “on-board” only if Deutsche Bank had completed a process known as “Know Your Client” and had followed client adoption procedures and guidelines. According to Mr Molesworth, it would expose Deutsche Bank to potentially significant credit and counterparty risks if it attempted to accelerate large individual shareholders not familiar to the JLMs. The risks included non-compliance with the recently enacted Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth).

24. [72]

    In his closing submissions at the trial, Mr Gyles accepted that participation in the Institutional Offer was not a simple matter of the JLMs making an offer of shares in accordance with the terms of the AREO to every institutional investor known to them. RinRim’s submissions acknowledged that it would have had to take steps to make its wishes known and to satisfy the necessary credit and probity requirements.

25. [73]

    In Mr Gyles’ oral submissions in reply, in the context of addressing Dr Volfneuk’s credibility, he made the following concession:

26. [74]

    This concession acknowledges that it was an essential part of RinRim’s case to establish that Dr Volfneuk, if given the opportunity to participate or seek participation in the Institutional Offer, would have done so. If his evidence on that point was not accepted RinRim would fail. The concession was entirely inconsistent with Mr Einfeld’s argument on appeal that the JLMs were required to make the Institutional Offer to RinRim regardless of whether Dr Volfneuk took steps to ensure that RinRim participated in the Institutional Offer. The concession was also inconsistent with Mr Einfeld’s submission that if RinRim simply did nothing its entitlement to shares in Primary would automatically have been disposed of in the Institutional Bookbuild.

27. [75]

    This interpretation of RinRim’s second negligence claim is confirmed by RinRim’s written submissions on costs to the primary Judge. These submissions, signed by the experienced junior counsel who appeared for RinRim at the trial, expressly accepted that:

28. [76]

    It is a well established principle that an appellant is not entitled to raise a new argument on appeal if the contention could possibly have been met by evidence at the trial. [29] However, as Leeming JA pointed out in Tal Life Ltd v Shuetrim, [30] an appellant does not have a right to insist that a point be decided on appeal simply because it raises a question of law only or depends on facts established beyond controversy. The question is always whether the appellate court considers it “expedient and in the interests of justice to entertain the point”. [31] One factor to bear in mind is that the parties to litigation, especially those who are well resourced and represented by competent counsel, are ordinarily bound by their forensic choices at trial. [32]

29. [77]

    RinRim conducted its case in the Equity Division on the basis of Dr Volfneuk’s evidence as to what RinRim would have done had it been told that it could seek to participate in the Institutional Offer. Dr Volfneuk was extensively cross-examined and his evidence was not believed. In effect, Mr Einfeld sought to repudiate RinRim’s factual case advanced at the trial and to mount a fresh case on the appeal. It is not in the interests of justice to allow a party to fight a case on a factual basis at trial and, having failed because a key witness’ evidence is not accepted, attempt to reconstitute it on appeal. [33]

30. [78]

    In any event, the argument which Mr Einfeld wished to advance would raise a number of issues not explored at the trial. Some of these might have invited further evidence, for example as to whether other exempt shareholders were “relegated” to the Retail Offer.

31. [79]

    The same considerations apply to Mr Einfeld’s reliance on the terms of the ASX waiver. As he conceded, the point was neither pleaded nor put to the primary Judge. The argument implies that the JLMs contravened a requirement of the ASX without that allegation ever having been formulated or the respondents being given an opportunity to respond to it. It would not be in the interests of justice to allow RinRim to rely on the ASX waiver in the manner proposed for the first time on appeal.

Causation

1. [80]

   As has been seen, the primary Judge rejected RinRim’s claims on two separate grounds. Her Honour held that the respondents did not owe RinRim the duty of care alleged. Her Honour also held that even if the respondents owed a duty of care and had breached that duty, RinRim had not established that the breach had caused it to sustain a financial loss.

2. [81]

   The primary Judge recorded RinRim’s concession that if her Honour rejected Dr Volfneuk’s evidence that RinRim would have taken up the opportunity to participate in the Institutional Offer, RinRim had to fail. [34] Since her Honour did reject Dr Volfneuk’s evidence, the issue of causation can be dealt with relatively briefly. It is therefore convenient to deal with the issue at this point.

3. [82]

   The question of causation must be determined in accordance with the requirements of the Civil Liability Act 2002 (NSW) (CL Act). [35] Sections 5D and 5E of the CL Act relevantly provide as follows:

4. [83]

   As was pointed out by the High Court in Wallace v Kam, [36] the determination of factual causation in accordance with s 5D(1)(a) of the CL Act:

5. [84]

   The arguments on appeal did not refer to s 5D(3)(b) of the CL Act. At the trial, however, an objection was taken on the basis of s 5D(3)(b) to paragraphs of Dr Volfneuk’s affidavit in which he claimed that he would have sought to include RinRim in the Institutional Offer had he known about it. The primary Judge allowed the paragraphs to be read, but only in RinRim’s misleading or deceptive conduct case.

6. [85]

   Dr Volfneuk was cross-examined at length on the claims made in his affidavit. Insofar as his evidence repeated or adverted to the claims, no objection was taken. Nor was any ruling made that Dr Volfneuk’s oral evidence was admitted only in relation to RinRim’s misleading or deceptive conduct claim. The parties appear to have proceeded on the basis that all Dr Volfneuk’s oral evidence could be taken into account in determining not only RinRim’s misleading or deceptive conduct claims but also its negligence case (including the causation issue).

7. [86]

   RinRim’s case as pleaded and presented to the primary Judge required it to establish three matters: [37]

8. [87]

   After recording the critical concession made on behalf of RinRim, her Honour observed that in relation to the negligence claims it was appropriate to consider all of the circumstances to determine the matter subjectively in the light of all the relevant circumstances. [38] Although her Honour did not expressly cite the CL Act, this language is drawn from s 5D(3)(a) of the CL Act.

9. [88]

   The primary Judge assessed the credibility of Dr Volfneuk’s evidence that at the time the AREO was conducted RinRim was not intending to acquire further shares in Primary. Her Honour considered that Dr Volfneuk did not “present well” when confronted with documentation demonstrating that he had actively sought to borrow $26.5 million in order to take up RinRim’s entitlement to new shares: [39]

10. [89]

    The primary Judge noted that Dr Volfneuk admitted “browsing” the Draft Prospectus on 13 February 2008 but denied reading the document carefully. Yet on the same day Dr Volfneuk “embarked on the course of pursuing a loan for $26 million in respect of the very matters contained in the Draft Prospectus”. [40] Her Honour was satisfied that Dr Volfneuk read the Draft Prospectus carefully. She was also satisfied that by this stage Dr Volfneuk had decided to take up RinRim’s entitlement in the Retail Offer because he considered the offer price to be a bargain. [41]

11. [90]

    After referring to other aspects of Dr Volfneuk’s “unimpressive” evidence, [42] the primary Judge found that Dr Volfneuk intended to be a “buyer” of Primary shares and, moreover, knew that was the true position at the time of his cross-examination. [43]

12. [91]

    The primary Judge considered that there was a great deal of evidence inconsistent with Dr Volfneuk’s claim that he would have caused RinRim to enter the Institutional Offer and renounce its entitlement in the relevant period. Her Honour was satisfied that Dr Volfneuk: [44]

13. [92]

    The “irresistible conclusion” was that Dr Volfneuk was intending to cause RinRim to acquire shares in the Retail Offer. [45]

14. [93]

    Her Honour also made the following findings: [46]

15. [94]

    RinRim’s written submissions on the appeal challenged the primary Judge’s adverse findings as to Dr Volfneuk’s credibility. Bearing in mind that the findings were based in part on the primary Judge’s observation of Dr Volfneuk in the witness box, the challenge faced very considerable difficulties. [47] These were not lessened by Mr Einfeld not developing the written submissions in his oral argument.

16. [95]

    The primary Judge’s findings as to Dr Volfneuk’s credibility and RinRim’s likely conduct in relation to the Institutional Offer were based on a detailed and meticulous analysis of Dr Volfneuk’s evidence and the documentary evidence. [48] Her Honour’s analysis demonstrated that many of Dr Volfneuk’s claims were directly contradicted by the contemporaneous documentation (much of which was obtained after Dr Volfneuk had affirmed his affidavits). The documentary record showed that:

17. [96]

    There is nothing in RinRim’s written submissions that could provide grounds for concluding that her Honour’s findings were “glaringly improbable”, “contrary to compelling inferences” or inconsistent with incontrovertible facts. Indeed, it is difficult to see the relevance of some of the matters on which RinRim relied, such as the fact that it decided not to proceed with a particular loan application on 11 March 2008, nearly one month after the Institutional Offer had closed.

18. [97]

    RinRim has not demonstrated that the primary Judge’s factual findings were in any way affected by error.

19. [98]

    Faced with the Court’s refusal to permit RinRim to rely on fresh arguments on the appeal, in his oral argument Mr Einfeld put an alternative submission that he said was consistent with the case run at trial and with the findings made by the primary Judge. He submitted that even if the primary Judge’s findings were accepted, this Court should conclude that the JLMs would have disposed of RinRim’s entitlement to acquire new shares in the Institutional Bookbuild. The submission appeared to rest on the proposition that if RinRim had been notified that it could apply to participate in the Institutional Offer but declined to do so, the JLMs would nonetheless have disposed of RinRim’s entitlement in the Institutional Bookbuild.

20. [99]

    In support of this submission Mr Einfeld relied on a letter dated 18 February 2008 from Primary to the ASX. The letter included the following:

21. [100]

    This submission could be seen as an attempt to revive the arguments that the Court ruled were not available to RinRim on the appeal. The proposition underlying the submission was never put to the respondents’ witnesses, presumably because it was not regarded as part of RinRim’s case at trial. However, as the respondents did not object to Mr Einfeld relying on the submission it should be regarded as open to RinRim.

22. [101]

    The first difficulty with the submission is that Primary’s letter does not bear the meaning Mr Einfeld attributed to it. The letter refers to “eligible institutional shareholders”. The expression “Eligible Institutional Shareholder” appears in the Procedures Manual where it is defined to mean:

23. [102]

    The letter is not evidence that if RinRim had declined to apply to participate in the Institutional Offer its entitlement would have been disposed of in the Institutional Bookbuild. The letter indicates only that those institutional shareholders to whom the Institutional Offer had actually been made, and who did not take up the Offer, had their entitlements disposed of in the Institutional Bookbuild. On the primary Judge’s findings, RinRim would not have sought to participate in the Institutional Offer and would not have wished to receive the Institutional Offer. There is no evidence to suggest that in these circumstances the JLMs would have extended the Institutional Offer to RinRim or disposed of its entitlement in the Institutional Bookbuild.

24. [103]

    In any event, there was evidence demonstrating that not all shareholders believed by the JLMs to be “institutional investors” were dealt with in the Institutional Offer. For example, an email from Deutsche Bank’s Managing Director of Equity Capital Markets dated 19 February 2008 stated that:

25. [104]

    Mr Molesworth gave unchallenged evidence that the JLMs had attempted to contact a number of exempt shareholders who had not returned the requisite forms within the specified period. These shareholders were moved into the Retail Offer. According to Mr Molesworth’s affidavit evidence, this approach gave effect to the JLMs’ view that the shareholders had an entitlement to new shares and that they should have an opportunity to take up their entitlements should they wish to do so.

26. [105]

    Mr Molesworth provided more detail in his oral evidence. In his evidence in chief the following exchange occurred:

27. [106]

    The evidence does not support RinRim’s contention that if it had declined to apply to participate in the Institutional Offer, its entitlement would have been disposed of in the Institutional Bookbuild. The submission cannot be accepted.

28. [107]

    The primary Judge was correct to conclude that even if the respondents breached a duty of care they owed to RinRim, it failed to establish that the breach caused it to suffer a loss.

Duty of care

1. [108]

   The conclusion I have reached on causation makes it unnecessary to consider whether the primary Judge was correct to reject RinRim’s contention that the respondents owed it the duty of care pleaded in the Points of Claim. [49] It is, however, appropriate to address the question without necessarily dealing with it comprehensively.

2. [109]

   The primary Judge noted that RinRim accepted in its closing submissions that there was nothing in the ASX Listing Rules or the Corporations Act that imposed any obligation on the JLMs to use reasonable endeavours to contact all exempt shareholders. [50] Her Honour also noted that the ASX waiver did not impose a duty on Primary to accelerate all exempt shareholders into the Institutional Offer. Thus RinRim had no right to be accelerated into the Institutional Offer. [51]

3. [110]

   The primary Judge approached RinRim’s allegation of a novel duty of care by applying the principles stated by Allsop P in Caltex Refineries (Qld) Pty Ltd v Stavar (Caltex v Stavar). [52] On this basis: [53]

4. [111]

   The first “salient feature” was the nature of the relationship between RinRim and the respondents. The relationship between RinRim and Primary was that of a shareholder and a publicly listed company. That relationship was governed by Primary’s Articles of Association, which had the force of a statutory contract. [54] The Articles provided that the issue of shares was under the control of the directors and could be issued in any manner the directors thought fit. [55] There was no “category of relationship” between RinRim and the JLMs. [56]

5. [112]

   RinRim had relied on the terms of the Poppins Letter. However, the Poppins Letter was subject to a number of conditions and did not impose obligations or requirements on the JLMs in respect of the conduct of the AREO. [57] Her Honour was not satisfied that the Poppins Letter imposed any obligations on the respondents between 8 November 2007 and 13 February 2008 relating to the management of the AREO or obtaining RinRim’s contact details. [58]

6. [113]

   The primary Judge pointed out that the definition of “Institutional Investor” in the Underwriting Agreement was defined to mean a person to whom the offer could lawfully be made without disclosure under Part 6D.2 of the Corporations Act. [59] In the light of this definition and the definition of “Institutional Shareholders” (which referred to “an Institutional Investor”), her Honour held that the Underwriting Agreement did not impose any obligation on the JLMs to make contact with RinRim to offer to accelerate it into the Institutional Offer. The discretion as to whether any “Institutional Investors” should be accelerated remained with Primary and the JLMs. [60] In her Honour’s view, the coherence of the law would not be served by imposing a duty of care in these circumstances. [61] She noted that the High Court has warned that caution must be exercised in imposing a duty of care in new types of relationships, particularly in cases of pure economic loss. [62]

7. [114]

   The primary Judge observed that a relevant factor in determining whether a duty of care should be imposed is the social utility of the activity creating the risk of harm. [63] Her Honour agreed with the JLMs’ submission that to impose a duty of the kind RinRim alleged: [64]

8. [115]

   Another “salient factor” was the nature of the harm alleged by RinRim. Her Honour was not satisfied that: [65]

9. [116]

   Nor was her Honour satisfied that assuming (contrary to her view) RinRim had suffered harm, it was reasonably foreseeable that if the JLMs did not take reasonable care to identify which of Primary’s shareholders were exempt, those who were not offered acceleration might suffer economic loss. What was foreseeable was that Primary’s share price might go up or down. [66] A presentation made by the JLMs to Primary on 13 February 2008 merely recognised that volatility was an inherent characteristic of the share market. It could not be seen as an indication of the respondents’ knowledge that their conduct of the AREO could cause harm in the relevant sense. [67]

10. [117]

    In assessing whether reasonable JLMs would have taken the alleged precautions against the risk of harm as required by s 5B(2) of the CL Act, the empirical evidence at the time indicated that it was more likely that the Retail Bookbuild would achieve a better outcome for investors than the Institutional Bookbuild. Serious harm was therefore not likely [68] and, in any event, the burden of taking precautions to avoid the risk of harm was significant. [69]

11. [118]

    On the assumption that a lower return through the Retail Bookbuild constituted “harm”, the respondents were able to exercise little control to avoid the harm. The respondents had no control over the date of the AREO because that had to occur when the offer to acquire Symbion became unconditional. The outcome of the AREO process was dependent on the vagaries of the market. [70]

12. [119]

    The capacity of RinRim to take steps to protect itself was an important consideration in determining whether to impose a duty of care on the respondents. The fact that RinRim was an exempt shareholder suggested that it was not a vulnerable investor since the statutory policy of exempting certain shareholders from the necessity of disclosure before making an investment decision recognised that those investors are not vulnerable to a lack of knowledge and have the capacity to look after themselves. [71]

13. [120]

    The primary Judge noted that the particular vulnerability on which RinRim relied was “its incapacity to know that it could have contacted the JLMs to ask to be accelerated into the Institutional Offer”. [72] RinRim claimed that it did not know and could not know unless advised by the JLMs that the onus was on it to apply to be included in the Institutional Offer. [73] Her Honour made the following findings: [74]

14. [121]

    The primary Judge pointed out that RinRim’s identification of the class of person that would suffer the relevant risk of harm had “ebbed and flowed during the course of the trial”. It had ultimately settled on “exempt investors” who are either “Sophisticated Investors” under s 708(8) of the Corporations Act or “Professional Investors” within s 708(11). [75]

15. [122]

    RinRim had conceded that there were some Primary shareholders who were exempt investors but who would not be identified as such even if the JLMs had undertaken reasonable inquiries. [76] The primary Judge considered that: [77]

Reasoning on duty of care

1. [123]

   RinRim’s submissions took as their starting point Allsop P’s observation in Caltex v Stavar [80] that if a duty of care asserted by a plaintiff is a novel one:

2. [124]

   Mr Einfeld did not dispute that the primary Judge was correct to consider the “salient features” of the relationship between RinRim and the respondents identified in the Primary Judgment. [81] He submitted, however, that her Honour was wrong in her assessment of each of the factors and that she should have found that the respondents owed RinRim a duty of care as alleged in the Points of Claim.

3. [125]

   Mr Einfeld’s submissions tended to treat the “salient features” identified by the primary Judge as a kind of checklist, without any particular feature being accorded special significance. The principles stated and applied by the High Court in Woolcock Street Investments Pty Ltd v CDG Pty Ltd [82] (Woolcock) and Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 [83] (Brookfield) indicate that some features of the relationship between RinRim and the respondents should be given considerably more weight than others in determining whether to recognise the novel duty of care alleged by RinRim.

4. [126]

   The general principle is that unless economic loss suffered by a plaintiff is consequential upon injury to person or property, the plaintiff cannot recover damages for negligence even if the loss was foreseeable. [84] In other words, damages for pure economic loss are not recoverable just because the defendant’s negligence was a cause of the loss and the loss was reasonably foreseeable. [85]

5. [127]

   The plurality in Woolcock noted that in recent times: [86]

6. [128]

   In Brookfield, the High Court unanimously held that a builder who constructed a building containing serviced apartments for a developer did not owe a duty of care to subsequent purchasers of lots in the development to avoid latent defects in the building. The fundamental reason the purchaser failed was that they had not established that they were “vulnerable”.

7. [129]

   French CJ accepted that vulnerability is an important consideration in determining whether a duty of care exists to avoid pure economic loss. His Honour considered that “vulnerability” in this context has the meaning attributed to it by the plurality in Woolcock. [87] In that case, a purchaser of a commercial building sued the engineering company allegedly responsible for designing faulty foundations. French CJ explained the failure of the purchaser on the ground that it had been unable to demonstrate that it was vulnerable in the relevant sense. [88]

8. [130]

   In Brookfield, Hayne and Kiefel JJ agreed that the plurality in Woolcock based their conclusion that the engineering company did not owe the subsequent purchaser a duty of care on the purchaser’s lack of vulnerability to the economic consequences of the engineering company’s negligence. [89] While the purchasers may not have been able to check the quality of the builder’s work themselves and in that sense relied on the builder, that did not establish they were vulnerable. The purchaser had entered into contracts which gave them rights to have defects in the common property remedied. The ability to protect themselves by contractual terms demonstrated that they were not vulnerable to any lack of care by the builder in the performance of its contractual obligations. [90]

9. [131]

   Crennan, Bell and Keane JJ took a similar approach. In their Honours’ view, it was inconsistent with Woolcock for the purchasers in Brookfield to argue that they were vulnerable, notwithstanding that they could have insisted on having contractual rights enforceable against the builder or the developer. [91] The builder had done nothing to indicate to the purchasers that it was assuming responsibility for the purchasers’ decision to acquire the apartments. [92]

10. [132]

    The facts of the present case are different from the facts in Woolcock and Brookfield. There is no suggestion, for example, that RinRim could have protected itself by entering into contractual arrangements with one or more of the respondents. Nonetheless, Woolcock and Brookfield establish three propositions of significance for this case.

11. [133]

    First, a plaintiff who has suffered pure economic loss does not demonstrate that the defendant owed a duty of care simply by proving that the defendant’s negligence was a cause of the loss and that the loss was reasonably foreseeable. Secondly, in a case in which a plaintiff relies on the existence of a duty of care in novel circumstances, the plaintiff’s vulnerability to loss caused by the defendant’s negligence is an extremely important if not determinative consideration. Thirdly, “vulnerability” in this context refers to the plaintiff’s inability or limited ability to take steps to protect itself from economic loss by reason of the defendant’s conduct. Such measures are not limited to entering into contractual arrangements.

12. [134]

    I accept, as Mr Einfeld submitted, that if RinRim had been denied the opportunity to dispose of its entitlement in the Institutional Bookbuild at $6.60 per share it would have suffered economic loss. This is so notwithstanding that RinRim ultimately disposed of its entitlement at $5.50 per share, a price that yielded it a profit of $0.10 per share. A person may suffer economic loss for the purposes of the law of negligence even though that person makes a “profit” out of a transaction. For example, if a valuer negligently causes a property owner to sell at an undervalue, the owner does not lose the right to claim damages because the sale price exceeded the original purchase price.

13. [135]

    I am also prepared to assume that it was reasonably foreseeable that the respondents’ negligence might cause RinRim financial loss, in the sense that if their negligence relegated RinRim into the Retail Bookbuild there would be a chance, in a volatile market, that the sale price of the shares would fall.

14. [136]

    However, the primary Judge’s conclusion that RinRim was not vulnerable in the relevant sense in my opinion constitutes an insurmountable barrier to its contention that the respondents owed a duty of care as alleged in the Points of Claim. Her Honour’s conclusion on vulnerability (or the lack of it) rested on findings of primary fact that could not be and were not challenged.

15. [137]

    The primary Judge found that by mid-November 2007, Dr Volfneuk knew that Primary intended to raise capital for the Symbion takeover by means of an AREO. He also knew that the AREO was to comprise the four stages of an Institutional Offer, an Institutional Bookbuild, a Retail Offer and a Retail Bookbuild. [93] This finding was based on Dr Volfneuk’s admission that he carefully read Primary’s announcement to the ASX on 8 November 2007 which recorded Primary’s intention to conduct the staged capital raising. Dr Volfneuk also admitted reading the Bidder’s Statement of the same date which referred in the section on funding to the four stages of the proposed capital raising.

16. [138]

    Dr Volfneuk had a close relationship with Dr Bateman, the founder of Primary. Dr Volfneuk acknowledged in his oral evidence that he could have simply asked Dr Bateman for information about the AREO and, to the extent he needed to understand what an AREO involved, he could have searched the internet to obtain the information. Moreover, RinRim had an established relationship with accountants who acted as financial advisers. Dr Volfneuk accepted that he could have asked the accountants for advice in relation to the AREO.

17. [139]

    The primary Judge found that the Draft Prospectus released on the morning of 13 February 2008 informed shareholders that they could have any questions answered by contacting the Primary Entitlement Offer Information Line. Dr Volfneuk was aware at the time that he could have directed any inquiries to the Information Line.

18. [140]

    In view of these factual findings, it verges on the fanciful to suggest that RinRim was vulnerable in the sense that it could not protect itself from the consequences of the JLMs’ failure to inform it that it could seek to participate in the Institutional Offer. RinRim was a sophisticated investor which had all the information it needed to determine whether it should seek to participate in the Institutional Offer. In my view, this conclusion is enough to warrant rejection of RinRim’s contention that the respondents had a duty to exercise reasonable care to alert it to its entitlement to seek participation in the Institutional Offer. Just as in Brookfield the absence of vulnerability was critical to the outcome, so it is here.

19. [141]

    It is not necessary in these circumstances to consider other “salient features” of the relationship between RinRim and the respondents that militate against recognising the novel duty of care propounded by RinRim. The authorities indicate, however, that an important consideration is whether the defendant has assumed responsibility for taking steps that will avoid financial loss to the plaintiff. [94]

20. [142]

    Mr Einfeld placed reliance on the exemption of Professional Investors and Sophisticated Investors from the disclosure requirements of the Corporations Act. But the exemption merely enabled an AREO or other offer of securities to be made to exempt Professional Investors and Sophisticated Investors without the disclosure that is required to other investors. The legislation did not require corporations or underwriters to take any particular steps to identify or make offers to all exempt investors.

21. [143]

    The Underwriting Agreement between Primary and the JLMs did not oblige the JLMs to identify and contact all exempt investors. Primary was required to provide the JLMs with information reasonably requested by them and known to Primary as to the identity of “Institutional Investors” (Sch 5, cl 1.1(a)). The JLMs were obliged, in the period between the opening and closing of the Institutional Offer, to use reasonable endeavours to make contact with “Institutional Shareholders … so as to offer them the Institutional Entitlement Shares at the Subscription Price on a pro rata basis” (Sch 5, cl 3.1). The latter expression was defined to mean a person who, among other requirements, was an “Institutional Investor” – that is, a:

22. [144]

    RinRim accepted that the JLMs did not hold a belief that RinRim was an exempt investor. Having regard to Mr Molesworth’s evidence it is also clear that the JLMs held no relevant belief as to the status of some other investors who were in fact exempt investors. The Underwriting Agreement was structured so as to allow the JLMs to conduct the AREO on the basis of their own identification of exempt investors who should be invited to participate in the Institutional Offer. The Poppins Letter carries the matter no further.

23. [145]

    There is no basis for a finding that the JLMs or Primary assumed responsibility for ensuring that all exempt investors, including RinRim, would be individually informed of their entitlement to participate in the Institutional Offer.

24. [146]

    I should add that the primary Judge’s analysis of the potential indeterminacy of the duty of care propounded by RinRim is a further reason for rejecting RinRim’s contention that the JLMs owed it the duty of care alleged in the Points of Claim.

Notices of Contention

1. [147]

   Primary and the JLMs filed Notices of Contention seeking to uphold the primary Judge’s conclusion on grounds not relied on by her Honour. These included a contention that even if the respondents owed RinRim a duty of care, they had not breached any such duty. It is not necessary to address the grounds identified in the Notices of Contention.

Conclusion

1. [148]

   For these reasons the appeal must be dismissed. RinRim must pay the respondents’ costs.