RinRim Pty Ltd v Deutsche Bank AG

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Dr Bell then took Dr Volfneuk to the Bidder’s Statement filed with the ASX on 8 November 2007 (Ex A 404; tr 57). Dr Volfneuk agreed that he read that document. He was taken in particular to the reference to the funding section of the Bidder’s Statement in which reference was made to the Institutional Entitlement Offer, the Institutional Bookbuild, the Retail Entitlement Offer and the Retail Bookbuild (see paragraph [22] above) and gave the following evidence (tr 57-58):

Dr Volfneuk was also cross-examined in relation to his opinion of Primary and its founder, Dr Bateman. The defendants were seeking to elicit from Dr Volfneuk his view that Primary was a good investment in February and March 2008. His evidence was as follows (tr 43-46):

Dr Volfneuk claimed that he did not want to be involved in the bookbuilding exercise, either institutional or retail, and that he did not have any interest in buying shares in the bookbuild process (tr 59). He was asked about the announcement on 13 February 2008 which he accepted that he read with “enormous interest”. He gave the following evidence (tr 60-61):

Dr Volfneuk was challenged in respect of his claim in paragraph 35 of his affidavit that a few days after 18 February 2008 (on 20 or 21 February 2008) he decided that the plaintiff would not take up its entitlements in the Retail Offer because he did not have the cash available. This challenge included a claim by the defendants that Dr Volfneuk was gearing the plaintiff up to borrow funds to take part in the Retail Offer. In this regard Dr Volfneuk was taken to his communications with various entities and individuals about the prospect of obtaining loan funds (Ex 2). It is appropriate at this point to refer to that correspondence.

On the opening day of the Institutional Offer, 13 February 2008, Dr Volfneuk wrote to his accountants in terms that included the following (Ex 2: 6):

On 14 February 2008 Dr Volfneuk wrote to Stanley Liew, the Relationship Manager, Corporate Financial Services, of the Commonwealth Bank, advising him of the plaintiff’s shareholding; the Primary takeover of Symbion and the announced entitlement of 8 for 5 shares. That email included the following (Ex 2: 11):

On 15 February 2008 Mr Kritikos, of Commsec, wrote to Dr Volfneuk in the following terms (Ex 2: 21-22):

On 18 February 2008 Dr Volfneuk wrote to Mr Kritikos in the following terms (Ex 2: 21):

On the same day Mr Kritikos advised Dr Volfneuk that he would effectively be entitled to a 1% discount off the advertised standard variable rate which was linked to the RBA cash rate. He also advised him that the full advertised rate was 9.9% and published on the Commsec website. Mr Kritikos wrote, “I am still waiting to hear from the counter party” (Ex 2: 21). In response on the same day, Dr Volfneuk wrote “So far so good, we’ll wait to hear more thanks a lot” (Ex 2: 21).

On 19 February 2008 Mr Kritikos wrote to Dr Volfneuk in the following terms (Ex 2: 25):

On the same day Dr Volfneuk responded to Mr Kritikos (Ex 2: 24):

Mr Kritikos responded on 19 February 2008 requesting Dr Volfneuk to advise whether the application was for the plaintiff and whether the stock was in its name. He also advised that he needed the completion of the margin loan application and “the financials” for the past two financial years (Ex 2: 24). On the same day Dr Volfneuk responded in terms that included the following (Ex 2: 24):

On 20 February 2008 Dr Volfneuk wrote to Mr Liew at CBA asking him for a “big favour” as he was experiencing difficulties in locating his bank statements because his “old accountant” had sold his practice. That request included the following (Ex 2: 34-35):

On 20 February 2008 an internal Deutsche Bank email recorded the following (Ex 2: 45A):

In response it was noted (Ex 2: 45A):

In a further Deutsche Bank internal communication by email the following was recorded (Ex 2: 45):

On 20 February 2008 Dr Volfneuk advised Mr Kritikos that he had sent the forms to him by express post the previous evening (Ex 2: 48).

It is apparent that Michael Parsons of Deutsche Bank met with Dr Volfneuk on 26 February 2008 and recorded the following in an internal Deutsche Bank email (Ex 2: 52):

On 2 March 2008 Gordon Jenkins of Deutsche Bank wrote to Dr Volfneuk in the following terms (Ex 2: 73):

On 2 March 2008 Dr Volfneuk responded to Mr Jenkins advising that he had looked at his options and that he needed protection for more extreme events than the ones that Mr Jenkins had outlined. That communication including the following (Ex 2: 81):

Dr Volfneuk sent Mr Jenkins’ email to his accountant, Craig Stone, who advised him that the Colonial Rate was likely to be around 8.9% to 9.0% with no other fees or charges. On 3 March 2008 Mr Stone advised Dr Volfneuk that he was in the process of firming up the tax/accounting strategy that would ensure “the refund of all the imputation credits” to him with minimal additional tax payable on the income itself (Ex 2: 76).

On 3 March 2008 Mr Stone wrote to Dr Volfneuk in terms that included the following (Ex 2: 84):

In the forms for the Colonial Margin Loan Dr Volfneuk requested a credit limit of $26.5 million (Ex 2: 92).

On 4 March 2008 Mr Jenkins wrote again to Dr Volfneuk in terms that included the following (Ex 2: 104):

On 4 March 2008 Mr Stone provided Dr Volfneuk with the terms and conditions for the margin lending account with Colonial (Ex 2: 109). On 5 March 2008 Dr Volfneuk wrote to Mr Stone in terms that included the following (Ex 2: 109):

On 5 March 2008 Mr Stone enclosed the completed application form for the Joint Margin Lending Account in an email to Dr Volfneuk requesting signature in a particular form (Ex 2: 108). On the same day Dr Volfneuk advised Mr Stone that he had just faxed the documents to him for passing to Colonial (Ex 2: 153). Mr Stone advised that he would attend to the documents “ASAP” in response to which Dr Volfneuk advised “all the more reason to set this account up in our names ASAP” (Ex 2: 152). On 6 March 2008 Dr Volfneuk wrote to Mr Stone in terms that included the following (Ex 2: 152):

Dr Volfneuk was cross-examined in relation to these emails of 5 and 6 March 2008 as follows (tr 97-98):

Mr Stone responded to Dr Volfneuk on 6 March 2008 advising that he was working with Colonial “to get it established as fast as we can” (Ex 2: 151). In response on the same day Dr Volfneuk advised (Ex 2: 151):

Mr Stone responded on 6 March 2008 advising that he had begun the process of setting up the Commsec account in joint names so that Dr Volfneuk could go ahead and purchase shares as soon as it was established. He advised (Ex 2: 151):

On 7 March 2008 Mr Stone advised Dr Volfneuk that the previous two minutes of trading “shows the volatility of a share like PRY” (Ex 2: 168). In response Dr Volfneuk wrote (Ex 2: 168):

On 7 March 2008 Mr Stone advised Dr Volfneuk that when his “Colonial boy” was at work that morning he would be finding out the name of the Commsec contact who would be “fast tracking the application” that Dr Volfneuk was to drop off that day. There appears to have been some difficulty with the paper work and on 10 March 2008 Dr Volfneuk wrote to Mr Stone with a “thought for the day” that if Colonial/Commsec had “difficulty opening an account and establishing a facility for me, Who do they do business with????”. In response Mr Stone advised that the “credit team are working feavourishly (sic) on the application and will let me know the limits they are happy to approve”. Mr Stone also advised that it seemed “a little complex, given the size and uniqueness of the deal”. (Ex D4 -1).

On 11 March 2008 Mr Stone advised Dr Volfneuk as follows (Ex 2: 173):

In response Dr Volfneuk advised Mr Stone (Ex 2: 172):

Dr Volfneuk was cross-examined about this email as follows (tr 101):

In response Mr Stone advised Dr Volfneuk on 11 March 2008 as follows (Ex 2: 172):

Dr Volfneuk was asked about his discussion with Mr Stone that is referred to in the above email confirming that the rights would not be exercised should the price be below $5.40. He gave the following evidence (tr 101-102):

Dr Volfneuk responded on 11 March 2008 in the following terms (Ex 2: 175):

Dr Volfneuk was cross-examined in relation to this email as follows (tr 104-106):

Mr Stone responded to Dr Volfneuk on 11 March 2008 in terms that included the following (Ex 2: 178):

Dr Volfneuk responded to Mr Stone on 11 March 2008 in the following terms (Ex 2: 178):

Dr Volfneuk was cross-examined about this email to Mr Stone as follows (tr 102):

Dr Volfneuk persisted in his claim that he was not keen to take the offer up notwithstanding that he was taken through all the correspondence referred to above. He persisted in his claim that he was not seriously contemplating taking up the entitlement (tr 64). He reiterated his claim that he was looking at all the possibilities because it was his “duty” to explore them (tr 65). He accepted that he asked his accountant to prepare the accounts “quick smart” and was asked about his email to Mr Kritikos on 19 February 2008 as follows (tr 66):

Dr Volfneuk was taken back to his email to Mr Kritikos of 19 February 2008 in which he had suggested there will be some “bargains” and “let’s be ready for them”. He was cross-examined as follows (tr 80):

Dr Volfneuk was also asked about his evidence in paragraph [35] of his first affidavit in which he claimed that a few days after he received the hard copy of the prospectus on 18 February 2008 he decided that the plaintiff would not take up any of its new share entitlements in the retail offer because he did not have the cash available. He gave the following evidence in cross-examination in relation that claim (tr 68-69):

Dr Volfneuk was challenged as to whether his claim that it was his “standing decision” was true. He gave the following evidence (tr 69):

Dr Volfneuk persisted in his claim that he had made the decision on 20 February 2008. However he agreed that he was “shopping around” for a loan (tr 70). He also agreed that he became aware on 26 February 2008 that Dr Bateman had taken part in the Institutional Offer and that he did not complain to anyone (tr 70). He was cross-examined as follows (tr 71):

Dr Volfneuk was asked about his loan application for $26.5 million, $5 million more than the amount to take up the entitlement in the Retail Offer. He gave the following evidence (tr 93-95):

Dr Volfneuk persisted in his claim that he was not a buyer and was cross-examined as follows (tr 108-110):

Dr Volfneuk was then taken to his second affidavit in which he claimed in reply that at the time of his conversation with James Bateman about Deutsche Bank he “had not made a final decision about” taking up the entitlements. He was also referred back to his original affidavit in which he claimed that he made the decision on 20 or 21 February 2008. That cross-examination was as follows (tr 111-112):

At this point Dr Volfneuk was referred back to his first affidavit in which he had claimed in paragraph 50 that he “perceived at the time of the institutional offer, that it was more advantageous for RinRim to take part in the institutional offer rather than the retail offer”. He was cross-examined further (tr 112):

In cross-examination by Mr Jackman, Dr Volfneuk agreed that he read the ASX announcement on 13 February 2008 diligently and he gave the following evidence (tr 118):

In further evidence in relation to whether he read the Draft Prospectus or “browsed” it Mr Jackman cross-examined Dr Volfneuk as follows (tr 119-121):

Dr Volfneuk agreed that he did read the page in the Draft Prospectus which recorded the key dates for the AREO (tr 121). However when asked whether he read the Chairman’s letter included in the Draft Prospectus he said that he “browsed through it” (tr 122). He accepted that he read the section of the letter in which the shareholders were urged to read the Prospectus carefully in its entirety (tr 122). However he said that he did not follow the advice (tr 122). Dr Volfneuk accepted that he read the section of the Draft Prospectus in relation to Dr Bateman and the other director shareholders participating in the Entitlement Offer but could not remember the day upon which he read it (tr 123). However he claimed that he did not appreciate at the time that they were participating in the Institutional Bookbuild (tr 124).

He claimed that he “browsed through” the section of the Draft Prospectus relating to the description of the Entitlement Offer. He accepted that he certainly saw the description of the Institutional Offer which commenced on 13 February 2008 (tr 124). He also claimed that he was not sure that he appreciated on 13 February 2008 the section of the Draft Prospectus which recorded that eligible institutional shareholders were approached by the JLMs and were required to decide whether or not they would take up their entitlement (tr 124).

Dr Volfneuk claimed that he had no idea that the plaintiff was a shareholder to whom offers of new shares could lawfully be made without the need for disclosure under Chapter 6D of the Act (tr 125). He gave the following evidence (tr 125-126):

Dr Volfneuk accepted that he remembered seeing the information about the structure of the Institutional Offer on 13 February 2008 (tr 126). He was cross-examined further as follows (tr 127-128):

Dr Volfneuk agreed that there was probably nothing in the Draft Prospectus that suggested that he could not ring up or make enquiries and ask to be treated as an institutional investor (tr 129). He claimed that although he reviewed the relevant publications in relation to Primary on the internet and elsewhere he did not see the article in the Australian Financial Review on 13 February 2008 referring to the two day institutional application phase and referring to Dr Bateman’s entitlement (tr 130-131). He agreed that he read the Bidder’s Statement “thoroughly” (tr 132) but claimed that aspects of it relating to the Bateman investors accepting their entitlement in the Institutional Offer were not appreciated by him (tr 133). He was cross-examined on this aspect of his evidence as follows (tr 134):

Although pressed further Dr Volfneuk resisted accepting that he understood the position when he read the Bidder’s Statement in 2007. He continued to claim that he did not appreciate that the Batemans were treated as institutional investors (tr 134). However he said that if he had read the Draft Prospectus with his characteristic diligence he “possibly” would have appreciated it on 13 February 2008 (tr 134).

Mr Jackman cross-examined Dr Volfneuk in relation to his conversation with James Bateman in February 2008 as follows (tr 136-140):

The plaintiff also relied upon the affidavits of Brian Audley Mullins sworn on 28 October 2015 and Phillipa Stevens affirmed on 29 October 2015. Neither Mr Mullins nor Ms Stevens was required for cross-examination. Their evidence established that Dr Volfneuk was listed in the phone book at the relevant time.

The JLMs relied upon the evidence of Kelvin Jit-Loong Chee, the Head of Operations at Orient. Mr Chee was part of the Orient team that worked on the Primary AREO. He described the various categories into which Orient classified the Primary shareholders for the purposes of the Orient Reports. At the time of the Primary AREO Mr Chee had provided similar types of services in nine previous AREOs. In his evidence-in-chief Mr Chee said that the classification categories and the criteria for those classifications did not change in any of the AREOs in which he was involved (tr 158). He gave evidence that he became familiar with the type of shareholder that was accelerated in an AREO (tr 159). He could not recall any AREO in which a private stakeholder had been accelerated (tr 159-160).

In cross-examination by the plaintiff Mr Chee gave the following evidence (tr 161-163):

In further cross-examination Mr Chee made clear that it was no part of Orient’s role to have any involvement in the decision making as to which shareholders would or would not be accelerated in the AREO.

The JLMs relied upon the evidence of Peter John Molesworth who is the Director of Equity Capital Markets (ECM) at Deutsche Bank. He has been with Deutsche Bank since 2004. In the relevant period in 2007 and 2008 he was an Associate and then the Vice President of the ECM Group. His experience with placements and AREOs is described in his affidavit sworn on 1 September 2015. He had only worked on one AREO prior to the Primary AREO. However he has worked on a number of AREOs since that time.

Mr Molesworth described the four stages of the AREO. In particular he said that the Institutional Offer phase of the AREO is where significant existing shareholders “almost exclusively institutions” who did not require an offer document under the Act were approached to ascertain whether they would like to take up their entitlements of new shares in the Institutional Offer in which they had two business days to make that decision. It is clear from Mr Molesworth’s evidence that the JLMs took the view that the Institutional Offer was for “institutions” rather than individuals. The only exception was the founder of Primary, Dr Bateman.

Mr Molesworth’s evidence placed emphasis upon the risk that the JLMs were taking in underwriting the equity raising. His evidence in this regard was as follows (paragraph [34](iii)):

Mr Molesworth also gave affidavit evidence of the requirement for the accelerated shareholder to be a client of Deutsche Bank (or one of the other JLMs), more importantly because Deutsche Bank was the “settlement agent” for the Institutional Offer. That meant that Deutsche Bank managed the electronic exchange with the investors in the Institutional Offer, the Institutional Bookbuild and the Retail Bookbuild; the parties to the settlement being those that either accepted some, or all, of their entitlements during the Institutional Offer, or received an allocation of shares in either Bookbuild. Mr Molesworth described the process of the adoption of the client with reference to the process known as “Know Your Client” and the new client adoption guidelines and procedures. He gave the following affidavit evidence (paragraph [34](v)):

This aspect of Mr Molesworth’s evidence was supplemented by two Deutsche Bank documents; the first entitled “Know Your Customer Guidelines”; and the second entitled “Global Markets (Equity) New Client Adoption Guidelines and Procedures” (Ex 3). These documents refer to the then recently enacted Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) and record Deutsche Bank’s intention to set standards as a key component to protect the bank from “being misused for money laundering, terrorism financing and fraudulent transactions” (Ex 3).

The procedures for the adoption of clients was “mandatory” within Deutsche Bank. For a private company the bank required various checks including what was known as a Preventative Crime Research (PCR) database check; certificates of incorporation; Memorandum and Articles of Association and various documents relating to individual shareholders who owned 20% or more of the capital in the company. In addition, if the private company was a Wealthy or Sophisticated Investor there was a requirement for a certificate by a Qualified Accountant. If a trust was involved then a certified copy of a trust deed had to be provided with detailed information about the name of the trust; the type of trust; the date on which the trust was established; details in respect of each beneficiary and the details relating to each individual trustee. There were also requirements for certified copies of identification documents and the prohibition on any transactions prior to the completion of the “adoption process” (Ex 3).

Mr Molesworth also gave affidavit evidence that the JLMs did not receive or have information sufficient to determine whether a shareholder might satisfy some of the criteria set out in the definitions of “Sophisticated Investors” and “Professional Investors” in section s 708 of the Act.

Mr Molesworth was cross-examined about the “soundings” between one or more of the JLMs and key Primary shareholders on 11 February 2008 in relation to the Institutional Offer (tr 196). He gave evidence that such soundings are important for Primary for the success of the transaction and also for the JLMs from “a risk management perspective” (tr 196). He was cross-examined about the email referred to earlier (Ex A 3106) relating to the “over the wall discussions”. He gave the following evidence (tr 197):

Mr Molesworth had been with Deutsche Bank since mid-2004 and at the time of the Metcash AREO (which was before the Primary AREO) he had been with the bank for approximately six months. He was cross-examined on this aspect of his evidence as follows (tr 199):

The consistent position adopted by Mr Molesworth in his evidence was that the JLMs were accelerating “institutions” in the Institutional Offer rather than individuals. He gave the following evidence in cross-examination (tr 200):

Mr Molesworth prepared a list of shareholders in a spreadsheet as at 8 February 2008 that it was anticipated would be accelerated and take part in the Institutional Offer (Ex A 2747). He sent that spreadsheet to the other JLMs and to his colleagues at Deutsche Bank (tr 204). He was cross-examined as follows (tr 204):

Mr Molesworth was also cross-examined about the process that Deutsche Bank entered into to “on-board” a client. The purpose of this cross-examination was to suggest that it would have been possible to “on-board” the plaintiff as a client, particularly in light of the fact that Dr Bateman was on-boarded as a client of Deutsche Bank in the week after the Institutional Offer had closed. Mr Molesworth was cross-examined as follows (tr 211):

A series of hypothetical propositions were put to Mr Molesworth for the purpose of establishing that it would have been realistic to on-board the plaintiff. In this regard Mr Molesworth gave the following evidence (tr 213-214):

Mr Molesworth later explained that the “impediment” would not be present because the JLMs were not making the offer under the Retail Offer; rather Primary was making that offer to those shareholders (tr 217). Mr Molesworth also explained that the adoption process of a client was about “vetting” the client and the question of whether the bank would transact with them was a completely separate matter. He said that the vetting of the client is for a whole range of purposes including the bank’s statutory obligation in respect of money laundering and other requirements (tr 216).

Mr Molesworth was also cross-examined in relation to Mr Sherman’s suggestion in the email extracted earlier (par [44]) that certain individuals might be included in the Institutional Offer (Ex A 3164). He gave the following evidence (tr 218-219):

Mr Molesworth was also cross-examined about the distribution of the Procedures Manual. He accepted that it was an important document and that it was going to the people on the list that he had prepared who were to be accelerated. His evidence was as follows (tr 220):

Mr Molesworth was then asked about the paragraph in bold in the checklist section in 3.1 of the Procedures Manual. His evidence was as follows (tr 221-226):

In re-examination Mr Molesworth said that it was not realistic that the JLMs would treat an individual who was not known to them or not a client of the JLMs as an “insider” (tr 232). He gave the following evidence (tr 233):

The JLMs also relied upon the affidavits of Gordon Jenkins affirmed on 19 May 2015 and Michael Parsons affirmed on 20 May 2015. Both Mr Jenkins and Mr Parsons were employed with Deutsche Bank at the time they affirmed their affidavits. Neither was required for cross-examination.

Mr Parsons gave evidence that he met with Dr Volfneuk on 26 February 2008 during which meeting Dr Volfneuk advised him that he was looking to borrow to take up “my entitlement” and asked him what Deutsche Bank could offer him. It was as a result of this meeting that Mr Parsons wrote by email to Mr Jenkins on 27 February 2008 to advise him of Dr Volfneuk’s request in relation to funding. Mr Parsons had no further direct involvement with Dr Volfneuk. He did not recall Dr Volfneuk complaining to him at any point about the plaintiff being treated as a retail rather than an institutional shareholder during the AREO.

Mr Jenkins referred to the email he received from Mr Parsons on 27 February 2008 and to his “numerous” communications with Dr Volfneuk between 27 February 2008 and 12 March 2008. His evidence was that during these communications Dr Volfneuk advised him of his view that Primary’s share price would double in three years but that if it dropped drastically he would sell the shareholding from one entity to another and take a capital loss. Mr Jenkins also gave evidence that Dr Volfneuk made no complaint to him during the period about the plaintiff being treated as a retail rather than an institutional shareholder during the AREO.

Primary relied upon the affidavit of Maria Dzopalic sworn on 26 February 2015 for the purpose of establishing the number of shareholders in Primary as at 13 February 2008 (3,930 registered holders of ordinary shares). Ms Dzopalic also gave affidavit evidence that as at 13 February 2008 5.3% of Primary shareholders had provided an email address. Ms Dzopalic was not required for cross-examination.

Primary also read the affidavit of Dr Bateman sworn on 25 March 2015 which sets out the background to the takeover bid for Symbion, Dr Bateman’s relationship with Dr Volfneuk and the management of the AREO. Primary also relied upon the affidavit of Mr Edmund Bateman affirmed on 26 March 2015. Mr Bateman was not required for cross-examination. He gave evidence that he was aware that Dr Volfneuk had a relatively large parcel of shares in Primary which he acquired as part of the sale of his business to Primary. He believed that Dr Volfneuk held those shares “through his private company”, the plaintiff.

Although it was anticipated at the outset of the trial that there would be numerous expert witnesses, the plaintiff decided not to read the affidavits of a number of its expert witnesses with the consequence that the defendants did not need to rely upon the witnesses that they had qualified. The only expert evidence tendered was that of Associate Professor Maurice Peat and Professor Erik SchlÖgl, for the plaintiff, and Professor Alessandro Frino for the JLMs. Professor Peat is an economist and his evidence was unchallenged. The purpose of his evidence was to value the plaintiff’s claim at the difference between the amount it received in the Retail Offer, $400,105.20, and the amount it would have received had it taken part in the Institutional Offer, $4,801,262.40.

Professor SchlÖgl is the Professor of Finance, including Asset Valuation and Financial Risk Management, at the Business School, University of Technology, Sydney (UTS). He is also the Director of the Quantitative Finance Research Centre at UTS. He studied economics at the University of Bonn, Germany, between 1987 and 1992 and received a Diploma in October 1992. He holds a PhD in Economics from the University of Bonn, conferred in October 1997. He has held various lecturing positions at University of NSW and UTS between 1998 and 2004. He was an Associate Professor in the School of Finance and Economics at UTS from 2004 until 2009 when he took up his present role. The two reports of Professor SchlÖgl relied upon by the plaintiff were dated 29 October 2015 and 14 July 2016.

Professor Frino holds a Bachelor of Commerce (Honours) from the University of Wollongong (1989); a Master of Philosophy from the University of Cambridge (1991); and a Doctor of Philosophy from Sydney University in Finance (1995). At the time he provided his first report in 2015 Professor Frino was the Professor of Finance and Dean of the Macquarie Graduate School of Management at Macquarie University. He is the Executive of the Capital Markets Cooperative Research Centre Limited and the Director of Financial Markets Consulting Pty Limited. Professor Frino held lecturing positions at the University of Sydney between 1992 and 1998 and then became an Associate Professor to the Department of Finance where he worked until June 2001. Between June 2001 and 2012 Professor Frino was the Professor, Finance Discipline, at Sydney University. He was Dean and Professor of Finance at the Macquarie Graduate School of Management from 2013.

Professor Frino worked as an analyst for Credit Suisse First Boston in Sydney between October 1994 and March 1996. He worked as an economist at the Sydney Futures Exchange between 2000 and 2001 and was Chair of Finance at the School of Business at Sydney University, between 2001 and 2005. In 2005 he was a Visiting Fellow at the Commodity Futures Training Commission in Washington DC, USA. In 2006 he was a Visiting Fellow at Christchurch University, New Zealand. From 2005 to 2012 he was the Chief Executive Officer of Capital Markets CRC Limited and from 2012 to date he has been the Executive of that company.

Both Professor SchlÖgl and Professor Frino have published broadly in their field. Professor Frino provided two reports dated 22 May 2015 and 15 August 2016. The joint report of Professor SchlÖgl and Professor Frino is dated 11 August 2016.

Professor SchlÖgl’s first report was in response to Professor Frino’s report itself being in response to a report by one of the expert witnesses that the plaintiff ultimately did not rely upon.

Professor Frino provided an analysis of all of the relevant AREOs both before and after the Primary AREO to show that in 67% of the AREOs, the retail investor in the Retail Offer achieved a higher financial return than the institutional investor in the Institutional Offer. This was accepted by Professor SchlÖgl (tr 254). Professor SchlÖgl created his own table by excluding six of the AREOs that Professor Frino had included in his analysis focusing only on the AREOs in the eighteen months prior to the Primary AREO. He claimed that he was making a statement about the “riskiness and volatility in the market” at the time of those AREOs (tr 255). Even on Professor SchlÖgl’s approach, the results were around the 50% mark.

In his first report (25/10/15) Professor SchlÖgl posed the question as to whether the difference in timing between the Institutional Offer and the Retail Offer favoured one group of shareholders over the other. Later in his report Professor SchlÖgl referred to the previous AREO results in which renouncing retail shareholders achieved higher prices than renouncing institutional shareholders. He concluded that “looking at average past returns as a best estimate of future expected returns does not permit a statistically significant conclusion either way, neither favouring institutional shareholders nor favouring retail shareholders” (par [7]). Professor SchlÖgl’s report included the following (par [8]):

Notwithstanding this statement Professor SchlÖgl expressed the following opinion (par [9]):

In support of this opinion Professor SchlÖgl relied upon an extract from an article by R Pick and T Story in 2009 entitled “Tapping the Markets – Director Decision-Making When Raising Equity” in which the learned authors said the following (extracted in paragraph 9 of Professor SchlÖgl’s report):

Professor SchlÖgl placed particular emphasis on the last sentence of this extract in relation to the strength of the company’s share price. However in cross-examination he agreed that this was nothing more than acknowledging that a market can go up or down and that this affects the relative outcomes for the participants in the retail and institutional bookbuilds (tr 266).

Professor SchlÖgl also expressed the following opinion in his first report (par [10]):

Professor SchlÖgl also analysed the probabilities of the movement in the share price (par [11]). Sensibly he accommodated the “chance” that the price determined in the retail bookbuild could be greater than the price determined in the institutional bookbuild and that renouncing retail shareholders could gain more than the renouncing institutional shareholders (par [12]). Ultimately he expressed the opinion that the AREO in the present case advantaged shareholders who participated in the Institutional Offer over those who participated in the Retail Offer on the assumption “that shareholders are risk adverse” (par [14]).

Professor SchlÖgl’s second report (14/07/16) dealt with a number of matters including the volatility of the market. Clearly the defendants were cognisant that there was volatility in the market prior to and as at 13 February 2008. This much is clear from the contents of the document produced by the JLMs for their “Pricing Discussion” with Primary on 13 February 2008 in which they specifically referred to market conditions having been volatile and continuing to be volatile (Ex A 3166; see par [50] above). However Professor SchlÖgl referred to the volatility of the markets for the purpose of expressing the opinion that investors in participating in the Retail Bookbuild were “much more exposed” to the market risks than those participating in the Institutional Bookbuild (par [11]).

One of the matters relied upon by Professor SchlÖgl in his second report in relation to the volatility of the markets was the Chicago Board Options Exchange (CBOE). In referring to the CBOE Professor SchlÖgl included a footnote (fn 2) in the following terms:

Professor Frino responded to this aspect of Professor SchlÖgl’s report in his report dated 15 August 2016 contending that the statements in footnote 2 was “not factually correct”. In support of this contention Professor Frino included a Chart identifying the Australian VIX and the USA VIX index from the beginning of January 2008 to the middle of 2008. That Chart shows that the two indices do not move in exactly the same way and exhibit different trend patterns over certain periods. Professor Frino’s report included the following (par 2.7):

Although Professor Frino was not cross-examined, Professor SchlÖgl sought to justify his reliance upon the CBOE VIX and was cross-examined as follows (tr 259-261):

Professor SchlÖgl sought to explain this matter further in his re-examination as follows (tr 276):

Professor SchlÖgl’s suggestion that there was justification for the statement in the footnote because the Australian VIX index was not available for the “whole” of the period was most unsatisfactory. It is one thing to omit a reference to an index. It is an entirely different thing to positively state that an index did not exist when it did.

Professor SchlÖgl was then asked about the comparison between the two indices in the Chart in Professor Frino’s third report (tr 263):

Professor SchlÖgl said that the movement of the level of the market in general gives some information about the expected movement of individual shares but does not give you a certainty in which way it will move (tr 264).

Professor SchlÖgl accepted that his experience is limited; indeed he has never worked on or provided consultation services in respect of an AREO. He was cross-examined about his opinion expressed in paragraph 12 of his report dated 29 October 2015 that the plaintiff was in a much riskier position in the retail offer with $4,801,262.40 at risk. He gave the following evidence (tr 268-270):

Professor SchlÖgl had to accept that his theoretical position was that a significant portion of new shares on offer would not be taken up. However he said that the word “significant” referred to 5% because in academia that is where it usually starts (tr 270). He was cross-examined about this opinion as follows (tr 272):

Professor Frino was not required for cross-examination. There is an important aspect of his evidence with which Professor SchlÖgl did not take any issue (tr 254). That evidence was as follows:

The concession made by Professor SchlÖgl that he did not take any issue with these matters means that as at February 2008 there was no empirical evidence to suggest to Primary or the JLMs that institutional shareholders taking part in the Institutional Offer would be favoured over the retail shareholders.

In its Second Further Amended Commercial List Statement (CLS) the plaintiff contended that at the time of the Institutional Offer on 13 February 2008, the defendants were aware or should have been aware that the plaintiff was (CLS 61):

It was not established that the defendants were aware that the plaintiff was “one of 144 institutional investors with shares in Primary”. The defendants would certainly have been aware from reading the Orient reports that Dr Volfneuk and his wife were ranked eleventh on the list of investors in those reports. However the plaintiff was not listed in any of the Orient reports. The absence of the plaintiff in these reports has significant consequences in respect of these claims in the CLS. The JLMs would have been aware from reading the Orient reports that Dr Volfneuk and his wife were classified as Private Stakeholders or PKs. However there are real difficulties for the plaintiff in respect of the other allegations regarding the defendants’ knowledge as pleaded in paragraph 61 of the CLS. There is no evidence that the JLMs were ever advised prior to 13 February 2008 or during the period 13 and 14 February 2008, that the plaintiff (rather than Dr Volfneuk and his wife) was the shareholder in the eleventh position on the Orient reports.

In those circumstances the plaintiff’s claim that the JLMs knew that it was one of an identifiable and limited sub-set of PKs who by reason of their shareholding in Primary alone controlled over $10 million and “professional investors” as defined in s 9 of the Corporations Act is not made out. Nor is its claim that the JLMs knew that it was one of a sub-set of PKs who by reason of their shareholding in Primary qualified to receive an Institutional Offer without full disclosure under Part 6D.2 of the Act. Similarly the plaintiff’s claims that the JLMs knew that it was an “Institutional Shareholder” within the meaning of that term in the Underwriting Agreement and an “Eligible Institutional Shareholder” within the meaning of that term in the Procedures Manual and Draft Prospectus are not made out.

It is probable that Primary knew that the plaintiff (rather than Dr Volfneuk and his wife) was the shareholder. Mr Bateman gave affidavit evidence that he was aware that Dr Volfneuk held shares “through his private company”. However it does not automatically follow that Primary was aware that the plaintiff was one of an identifiable and limited sub-set of PKs who by reason of their shareholding in Primary alone controlled over $10 million and were a “professional investors” as defined in s 9 of the Act. There was no evidence that Primary knew the basis upon which the plaintiff held its shares, outright or on trust, and there was no evidence that Primary knew that the plaintiff controlled the asset such as to qualify it as a professional investor under the Act. It follows that the plaintiff’s claims regarding Primary’s knowledge as pleaded in paragraph 61 of the CLS are not made out.

The plaintiff contended that the matters that were reasonably foreseeable to a person in the position of the defendants about to undertake or manage an AREO were (CLS 62):

The plaintiff also contended that as at 13 February 2008 it was vulnerable to any failure by the defendants to take reasonable care in carrying out the Institutional Offer pursuant to the Underwriting Agreement, Procedures Manual and the Draft Prospectus because (CLS 63):

The plaintiff contended that in managing the AREO the JLMs owed it a duty to take reasonable care to avoid the foreseeable risk of harm having regard to (CLS 64):

The plaintiff contended that there was a risk that an Institutional Investor such as itself would suffer economic loss if its entitlements in the AREO were dealt with under the Retail Offer and Retail Bookbuild rather than the Institutional Offer and the Institutional Bookbuild. The plaintiff contended that this was the “relevant risk of harm” for the purposes of s 5B(1) of the Civil Liability Act 2002 (CLA) (CLS 66).

The plaintiff also contended that the relevant risk of harm was known to the defendants because that risk was contemplated by the defendants in clause 3.1 of the Procedures Manual and clauses 1.1 and 3.1 of Schedule 5 of the Underwriting Agreement. Alternatively the plaintiff contended that the relevant risk of harm ought to have been known to the defendants by reason of the provisions of the Procedures Manual and the Underwriting Agreement and the other matters referred to above (CLS 67-68).

The plaintiff also contended that the relevant risk of harm was not insignificant for the purposes of s 5B(1)(b) of the CLA and that a reasonable manager of the AREO in the position of the JLMs would have taken precautions in response to the relevant risk of harm. The precautions that the plaintiff contended a reasonable JLM would have taken would have been (CLS 69-70):

There is no issue that the JLMs did not positively ascertain these matters or conclude that the plaintiff was an Institutional Investor. There is also no issue that the JLMs did not contact the plaintiff or provide a copy of the Procedures Manual to it or inform it that it qualified to receive an Institutional Offer. However there are real issues about whether these are in fact “precautions” and whether the JLMs had any obligations to ascertain those matters or conduct themselves in the manner alleged.

The plaintiff alleged that the JLMs breached their duty of care to it by: failing to contact it on or before 13-14 February 2008 to extend the Institutional Offer to it; failing to contact it on 13-14 February 2008 to provide a copy of the Procedures Manual dated 13 February 2008; and failing to inform it on before 13-14 February 2008 that it qualified to receive an Institutional Offer and should contact the JLMs if it wished to receive such offer rather than a Retail Offer a month later (CLS 71). There is no issue that the JLMs did not contact the plaintiff or provide it with a copy of the Procedures Manual or inform it of these matters. However, once again, there are real issues as to whether the JLMs were obliged to do so.

In its claim against Primary the plaintiff alleged that for the purposes of s 5B(1)(c) of the CLA a reasonable publicly listed corporation undertaking the AREO would have taken the following precautions in response to the relevant risk of harm (CLS 72):

The JLMs were given the information contained in the Orient reports. There is no issue that those reports did not contain any information about the plaintiff and accordingly there is no issue that Primary did not inform the JLMs of the plaintiff’s shareholding or that it was an “Institutional Investor”. There is also no issue that Primary did not direct the JLMs as alleged. However there are real issues in relation to whether Primary had such obligations in the circumstances.

During final submissions the plaintiff sought to characterise the Orient reports as a direction or advice from Primary to each of the JLMs in respect of who should be accelerated. However the plaintiff made it quite clear in its opening submissions that the Orient reports could not be characterised as a direction by Primary to the JLMs as to who should be made an offer but rather were appropriately characterised as a provision of information (tr 34).

The plaintiff claimed that Primary breached its duty to it by: failing to direct the JLMs to contact the plaintiff on before 13-14 February 2008 to extend the Institutional Offer to it; failing to direct the JLMs to contact it on 13-14 February 2008 to provide a copy of the Procedures Manual to it; and failing to direct the JLMs to inform the plaintiff on or before 13-14 February 2008 that it qualified to receive an Institutional Offer and should contact the JLMs if it wished to receive such offer rather than a Retail Offer a month later (CLS 73). Once again there are real issues about whether Primary had any obligation to give these directions.

There was a deal of movement in the plaintiff’s position as the trial proceeded. In final oral submissions it ultimately relied upon two negligence claims. The first negligence claim relates to the period 13 and 14 February 2008. The second negligence claim relates to the period from November 2007 up to 13 February 2008.

The first negligence claim against the defendants is that they owed a duty to the plaintiff (it being in a class of persons who were exempt from a need for disclosure under Part 6D.2 of the Act) to take reasonable care to notify it that there was a mechanism (described as an “opportunity”) by which it could minimise the “time risk” or “duration risk” said to be present in the Retail Offer, by making contact with the JLMs and asking to be accelerated into the Institutional Offer. The alleged “time risk” or “duration risk” is the “time” or “duration” between the two Bookbuilds which the plaintiff claimed exposed the shareholders in the Retail Offer to the prospect of adverse movement in the Primary share price. The plaintiff claims that it was vulnerable because there was no other way that it (and those in the class of exempt investors) could find out about the mechanism than being notified of it by the JLMs.

The second negligence claim against the defendants is that they knew from November 2007 that eligible shareholders would need to be contacted to offer them acceleration in the AREO; that preparatory work obviously had to be done; and that they had an obligation from early November 2007 to take reasonable steps to enable those shareholders who were eligible to be accelerated to be contacted during the very short period of the Institutional Offer (tr 288-289). The plaintiff claims that at “some time” prior to 13 February 2008 the defendants should have looked down the list provided by Orient and decided that they had “better find out about” Dr Volfneuk and offer him the opportunity to be accelerated (tr 293).

It will be necessary to determine whether in all the circumstances the defendants owed a duty of care to the plaintiff and if so whether they breached the duty. There is a very live issue in relation to causation. If the defendants owed a duty to the plaintiff as alleged it will be necessary to determine whether, if contacted and offered acceleration into the Institutional Offer, the plaintiff would have sought to be included and whether the JLMs would have agreed to accelerate the plaintiff. There is also a question as to whether the plaintiff suffered loss. If these matters are determined in the plaintiff’s favour it will be necessary to determine proportionate liability claims and claims against the plaintiff of contributory negligence and failure to mitigate its loss.

In cases of pure economic loss it is necessary to identify the interest said to have been infringed to determine whether a duty can arise: Hawkins v Clayton (1988) 164 CLR 539 at 601 per Gaudron J; Perre v Apand Pty Ltd (1999) 198 CLR 180 at [191]-[192] per Gummow J.

The defendants submitted that at this point the plaintiff’s case flounders because it has been unable to identify any right that it had to be included in the Institutional Offer. Indeed the plaintiff accepted that neither the ASX Listing Rules nor the Act imposed any requirement on the defendants to contact all Institutional Shareholders (par 98(b)). The plaintiff did not allege in its pleading that it had any “right” to be in the Institutional Offer. The ASX waiver gave Primary permission to deviate from the standard timetable so that it had the discretion to invite shareholders reasonably believed to be exempt investors to subscribe for their entitlements on an accelerated basis. The ASX waiver did not impose a duty on Primary to accelerate all exempt investors (or some subset of them), nor did it confer a right on all exempt investors (or some subset of them) to be accelerated.

The plaintiff did not have a right to be accelerated into the Institutional Offer.

The plaintiff accepted that its claims in negligence are novel. Where the alleged duty of care is novel, it is necessary to undertake a close analysis of the relationship between the plaintiff and the defendants by reference to the salient features or factors affecting the appropriateness of the imposition of a legal duty to take reasonable care to avoid harm or injury: Caltex Refineries (Qld) Pty Ltd v Stavar (2009) 75 NSWLR 649; [2009] NSWCA 258 per Allsop P (as his Honour then was) with whom Basten JA and Simpson J (as her Honour then was) agreed, at [102] (Caltex v Stavar). In this multifactorial approach, it is not compulsory to make findings in respect of all the features or factors identified by Allsop P. Rather it is appropriate to consider those factors and features that are relevant to the circumstances or novelty of the particular case: Caltex v Stavar, Allsop P, at 676 [104].

One of the relevant salient features for consideration is “the existence or otherwise of a category of relationship” between the plaintiff and the defendants: Caltex v Stavar [103](h). The category of relationship between the plaintiff and Primary was that of a publicly listed company and shareholder pursuant to their statutory contract under s 140 of the Act. That contract in the form of Primary’s Constitution included the following (Ex A 6):

In this statutory contractual setting Primary and the plaintiff agreed that the issue of shares in Primary was under the control of the directors and could be issued in any manner that the directors thought fit.

There was no category of relationship between the plaintiff and the JLMs.

As the plurality observed in Badenach v Calvert (2016) 331 ALR 48; [2016] HCA 18 at 615 [23], a “contractual relationship may create the occasion for and give rise to a tortious duty of care owed by one contracting party to the other and/or a third party”. The plaintiff claimed that the contractual relationship between the defendants governed by the Project Poppins Letter from 8 November 2007 to 13 February 2008 and the Underwriting Agreement on 13 and 14 February 2008, gave rise to a duty of care on the defendants to invite it into the Institutional Offer in the AREO or inform it of the mechanism by which it could seek to be included in that Offer. It claimed that in the period from 8 November 2007 to 13 February 2008, the terms of the Project Poppins Letter imposed a duty of care upon the defendants to identify it as an Institutional Shareholder and to arm themselves with appropriate contact details so that they would be ready to contact it when the Institutional Offer opened. It claimed that in the period 13-14 February 2008, the terms of the Underwriting Agreement imposed a duty of care on the defendants to make contact and offer it acceleration into the Institutional Offer or to notify it of the mechanism to make contact with the JLMs to seek inclusion in the Institutional Offer.

It is appropriate at this point to determine the nature of the contractual obligations on the defendants in respect of the acceleration of shareholders into the Institutional Offer.

The Project Poppins Letter and the Underwriting Agreement must be considered in all the relevant commercial circumstances of a capital raising by means of an AREO, including the statutory contract between the plaintiff and Primary.

The plaintiff contended that clause 2.1(a) of Exhibit E to the Project Poppins Letter, contained a promise to Primary by the JLMs that they would use reasonable endeavours to make contact with, amongst others, the plaintiff between the opening date and closing date of the Institutional Offer so as to offer shares to it as part of the Institutional Offer. The plaintiff submitted that clause 3 of Schedule 5 of the Underwriting Agreement corresponds to clause 2.1(a) of Exhibit E of the Project Poppins Letter.

The Project Poppins Letter expressly provided that the JLMs’ obligations did not become binding unless certain conditions were fulfilled or waived (Ex A 340-341). It provided for the parties to “work expeditiously and in good faith” to prepare and execute an underwriting agreement on terms “satisfactory to” the JLMs provided that such agreement was to be executed in advance of Primary declaring its bid for Symbion unconditional.

The Project Poppins Letter did not impose any obligations or requirements on the JLMs in respect of the conduct of an AREO. It stated explicitly that “if there is” an AREO, the Underwriting Agreement was to contain the provisions in Exhibit E “or equivalent provisions acceptable” to the JLMs “acting reasonably and in consultation with” Primary (Ex A 346). The terms of Exhibit E were not obligations and requirements binding the JLMs to take the alleged steps preparatory to the AREO during the period prior to the execution of the Underwriting Agreement on 13 February 2008.

Even if Exhibit E of the Project Poppins Letter imposed obligations on the defendants in respect of the AREO (that was yet to be announced and was conditional upon Primary’s offer for Symbion becoming unconditional) the plaintiff faced real difficulties in establishing any obligation on the defendants to invite it into the Institutional Offer having regard to the definition of “Institutional Shareholder” in Exhibit E. Clause 2.1(a) of Exhibit E provided that the JLMs would “use reasonable endeavours to make contact with all eligible Institutional Shareholders so as to offer them the Offer Shares on a pro rata basis”. However an “Institutional Shareholder” was defined relevantly as a “holder of Shares that is an Institutional Investor and that is identified by the Company and advised to each Underwriter as being an Institutional Shareholder to whom First Round Offers should be made” (emphasis added). The decision as to whether a person “should” receive such an offer was a matter for Primary. It was not a “right” or an entitlement in any shareholder. That is perfectly understandable having regard to the very real risks that were being taken on by Primary and the JLMs in this very large capital raising. It was a matter for Primary whether it communicated its view to the JLMs that a particular Institutional Investor shareholder “should” receive a First Round Offer or whether it left that decision to the JLMs. Certainly the Orient reports included Institutional Investors but did not include any communication as to whether such Institutional Investors “should” be accelerated.

I am not satisfied that Exhibit E of the Project Poppins Letter imposed any obligations on the defendants between 8 November 2007 and 13 February 2008 in respect of the management of the AREO or in respect of obtaining contact details for the plaintiff.

The definition of “Institutional Shareholders” in the Underwriting Agreement was extracted earlier but is repeated here for convenience:

An “Institutional Investor” was defined as a person the JLMs reasonably believed was a person to whom an offer could lawfully be made without disclosure under Part 6D.2 of the Act.

The plaintiff seemed to recognise the difficulty with which it was presented by these definitions in its submission that the drafting of the Underwriting Agreement “might not have been perfect” (par [62]). It submitted that the Underwriting Agreement replicated the procedures that appeared in the Project Poppins Letter for determining which Primary shareholders would be placed into the Institutional Offer and for the JLMs to contact them. The plaintiff still faced the difficulty of what it described as the rather “circular” definition of “Institutional Shareholders” in the Underwriting Agreement. Far from imposing some obligation on Primary or the JLMs to make contact with the plaintiff to offer to accelerate it into the Institutional Offer, the discretion remained with the defendants with the absence of prescription other than the pre-requisite that any entity to be offered acceleration had to be exempt under Part 6D.2 of the Act. There was no contractual obligation on the defendants to make contact with the plaintiff to offer it acceleration into the Institutional Offer. The discretion as to whether any of those Institutional Investors “should” be accelerated remained with Primary and/or the JLMs.

The coherence of the law would not be well served by the imposition of a duty of care on the contracting parties to a third party in these circumstances: Badenach v Calvert at [23].

I should deal with another aspect of the plaintiff’s opening written submissions which included the following (par [42]):

The defendants submitted that this contention is “hopelessly vague” and does not articulate what a reasonably competent JLM should have done but did not do. That is a reasonable criticism. The defendants also submitted that whatever else might be said, the JLMs did not undertake “to protect the interests of shareholders”. Their closing submissions included the following (par [110]):

There is force in this submission. The contractual arrangements between the JLMs and Primary expressly excluded the existence of any fiduciary relationship between them (Ex A 346). I agree also with the defendants’ submission that it is not a question of whether there is “no barrier” to the imposition of a duty, because that would reverse the inquiry in the context of a pure economic loss case. Caution must be exercised in the imposition of a duty of care to new types of relationships particularly in cases of pure economic loss: Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 (2014) 254 CLR 185 at [126].

Another relevant salient feature for consideration is the nature of the activities undertaken by the defendants: Caltex v Stavar [103](i). The nature of the activity undertaken by Primary was the provision of medical and pathology services as described earlier. In many respects these were and are essential services for the maintenance of an affordable, efficient and professional health system for the community. The nature of the activity undertaken by the JLMs was relevantly the provision of finance (equity and debt) and investment banking and underwriting services. These services enabled the development and delivery of the essential health services through such companies as Primary taking on the financial risk (with the JLMs).

In February 2008, these contracting parties were pursuing a commercial endeavour (the AREO) with the many attendant risks of the stock market upon which the raising of many millions of dollars was dependent. It was a process that had only been adopted in the Australian commercial/financial sector in 2004. The environment in which corporations are willing to take part in, guarantee and underwrite such transactions is sophisticated and complex and the maintenance of that willingness is important for the commercial development of the community particularly where that development involves the provision of essential services.

In considering the social utility of the activity that created the risk of harm (s 5B(2)(d) CLA) it is not in issue that the raising of capital serves a social good in facilitating productive investment. I agree with the defendants’ submission that the AREO has a particular benefit for corporations, shareholders and underwriters in providing what might be seen as a kick start to a capital raising in obtaining the majority of its funds from sophisticated fund managers and institutions that imposed less risk on underwriters. The AREO is therefore an attractive proposition for an underwriter compared to a capital raising that does not differentiate between the two types of shareholders. The JLMs submitted that there is no social utility in imposing a duty of care to, in effect, accelerate one or a number of shareholders from a large number, the majority of which it must be accepted will not and could not be accelerated. I agree that to impose such a duty may make underwriting either more expensive or otherwise make AREOs as a form of available capital raising unattractive and less obtainable.

Another salient feature to be considered is the nature of the harm alleged: Caltex v Stavar [103](b). There is a real issue as to whether in the circumstances of this case there was any “harm”. What was foreseeable was that there may be different results in the two offers, particularly having regard to the empirical evidence about AREOs available at the time that those shareholders who renounced their entitlements in a Retail Offer achieved a greater return or higher amount than those who renounced their entitlements in the Institutional Offer.

The increase in the shares on issue in the capital raising had an impact on the Primary shareholders. Those who were in a position to take up their entitlements (buying 8 new shares for every 5 then owned) or taking up part of their entitlements could increase their shareholding at a discounted share price. Those shareholders who were not in a position to take up their entitlements by buying the additional shares would receive the difference between the issue price and the Bookbuild price as compensation for the relative dilution of their shareholding. Obviously if the Bookbuild share price was different in each offer then the amounts received in one or other would not be as great. Put another way the amount received would be less in one than the other. However the prospect of that difference was a known attribute of an AREO, not to be seen as a prospect of “harm”, but rather as an amount that was fixed at the time by reason of the demand for the shares at the particular price – an intrinsic attribute of the share market.

In any event I am not satisfied that the difference between the returns in the Institutional Offer and the Retail Offer is appropriately described as a “loss”. In each case it was a gain. True it is that some gained more than others. However there was no entitlement in any shareholder to be included in the Institutional Offer. As I said it was at Primary’s or the JLMs’ discretion.

Another salient feature to be considered is the foreseeability of harm: Caltex v Stavar [103](a). Notwithstanding my conclusion that it is not appropriate to characterise the different outcomes in the two offers as a “loss” or “harm” I will in any event deal with this aspect of the matter.

The plaintiff submitted that it was reasonably foreseeable that if the JLMs did not take reasonable care in identifying which Primary Institutional Shareholders were to be accelerated then those who were not offered acceleration might suffer economic loss (closing submissions [93]). It was contended that those shareholders who were excluded from the Institutional Offer would be offered their entitlements a month later in the Retail Offer or Bookbuild and would therefore face a greater risk of an adverse shift in the share price (closing submissions [94]).

A problem the plaintiff faced in this regard was that the evidence of its expert witness, Professor SchlÖgl, and indeed the force of common sense and commercial experience, establishes that it was foreseeable that the share price might go up or it might go down. It is accepted that any person who is involved in the share market and trading of shares in that market takes on a level of risk that the share price may be affected on a daily basis or indeed on an hourly basis. The fact that a share price may decline over a period may be foreseeable. However what is pertinent is the foreseeability of harm in the circumstances of the AREO that was in the two phases of Institutional Offer and Retail Offer in the circumstances that existed in February 2008.

As already indicated, in February 2008 the majority of AREOs had achieved a better outcome for the shareholders in the Retail Offer. The volatility of the market had in fact settled slightly in the period January/February 2008. The performance of the Primary share price as against the ASX 200 (rebased) between November 2007 and the launch of the AREO on 13 February 2008 was, particularly in late January/early February, better than the ASX 200 (Ex D4–3). However volatility in the market means that movement in share prices is all the more unpredictable.

In the presentation to Primary on 13 February 2008, the JLMs recognised that at that time market conditions had and continued to be volatile. It recommended the offer price at $5.40 per share which they advised would insulate the issue price “from significant falls (either in the broader market)” or for Primary specifically “over the course of the offer”. This was no more than recognition of the intrinsic attributes of the share market (that share prices may rise or fall) and could not be seen as an indication of the defendants’ knowledge that their conduct of the AREO could cause “harm” in the relevant sense.

Professor SchlÖgl accepted that one would not have known at the beginning of an AREO whether the market was to go up or down and that this is something one could only know with the benefit of hindsight (tr 255). I am not satisfied that harm was reasonably foreseeable.

Section 5B of the CLA required the plaintiff to identify and articulate the “risk of harm” in respect of which it alleged that the defendants were obliged to “take precautions”. As indicated earlier, the plaintiff alleged that the relevant risk of harm was a risk that the institutional investors, such as itself, might suffer economic loss if its entitlements were dealt with in the Retail Offer rather than the Institutional Offer (CLS 66).

The plaintiff alleged that various precautions referred to earlier should have been taken by a reasonable JLM (CLS 70). It alleged that certain things should have been “ascertained” or “concluded” from the Orient reports and the Investor List (CLS 70(a)-(e)). It also alleged that a reasonable JLM would have contacted it to extend the offer to participate in the Institutional Offer and to provide it with a copy of the Procedures Manual. It also alleged that a reasonable JLM would have informed the plaintiff that it qualified to receive an Institutional Offer and should contact the JLMs if it wished to receive such an offer rather than a Retail Offer a month later (CLS 70(f)-(h)).

In determining whether a reasonable JLM would have taken the alleged precautions against a risk of harm the Court is to consider the matters in s 5B(2) of the CLA. As to the probability that the harm would occur if care were not taken, the empirical evidence at the time indicated that it was more likely that a Retail Bookbuild would achieve a better outcome than the Institutional Bookbuild. As to the likely seriousness of the harm (s 5B(2)(b) CLA), once again the empirical evidence indicated that it was more likely that the Retail Bookbuild would achieve a better outcome than the Institutional Bookbuild. As to the burden of taking precautions to avoid the risk of harm (s 5B(2)(c) CLA) such burden was significant. Although the plaintiff sought to make light of the restraints and constraints on the JLMs, in particular Deutsche Bank, in respect of “on-boarding” of clients, it is clear that the process was necessary and demanding. In 2008 the process was mandatory and imposed serious obligations on the JLMs having regard to the then recently enacted Anti-Money Laundering and Counter-Terrorism Financing Act. I agree with the JLMs’ submission that to impose a requirement on them to accelerate particular shareholders who may be unknown to them would force them to be exposed to credit and counterparty risk in dealing with those shareholders if they decided to take up their entitlements.

On the assumption that the lesser return in one or other Offer could be characterised as a loss and therefore “harm”, another salient feature for consideration is “the degree and nature of control able to be exercised by the defendants to avoid harm”: Caltex v Stavar [103](c).

The defendants had no control over the date of the AREO because Primary had announced that this would occur when its offer to acquire Symbion became unconditional. The satisfaction of that condition depended on the conduct of others. Consequently the defendants had no capacity to conduct the Offers when the Primary share price was at any particular level or the volatility of the market was at any particular level, albeit Primary took the precaution of securing trading halts during the two offers. The AREO process was chosen and its outcome was dependent upon the vagaries of the share market and the attributes and eccentricities of those in the market over which the defendants had no control other than to sweeten the offer by the discount on the issue price of the shares.

Another salient feature for consideration is the degree of vulnerability of the plaintiff to harm from the defendants’ conduct, including the plaintiff’s capacity and reasonable expectation to take steps to protect itself: Caltex v Stavar at [103](d). An ironic feature of this case is that the prerequisite for acceleration in the AREO is that the shareholder is a Professional Investor or a Sophisticated Investor: s 708 of the Act. The policy of exempting certain shareholders from the necessity for disclosure before they make an investment recognises that these investors are not vulnerable to a lack of knowledge or capacity to look after themselves in making financial decisions and investments.

Although Dr Volfneuk claimed that he was not “sophisticated”, the main plank of the plaintiff’s case was that it was a sophisticated investor and qualified to be accelerated in the Institutional Offer. The particular vulnerability that the plaintiff claimed was its incapacity to know that it could have contacted the JLMs to ask to be accelerated into the Institutional Offer. In this regard it claimed that the defendants had an obligation to provide it with the information that was included in clause 3.1 of the Checklist section of the Procedures Manual that if it wished to be included in the Institutional Offer the onus was on it to contact the JLMs. It claimed that it was vulnerable because it did not know (and could not know unless so advised by the JLMs) that it had such an onus. Clause 3.1 of the Procedures Manual was a disclaimer by the JLMs to the fund managers to whom it was sent in respect of the discretion that had been exercised to accelerate certain fund managers and institutions in the Institutional Offer. It was not a notice to all shareholders who might be exempt investors.

The plaintiff was aware by no later than mid-November 2007 that Primary was going to utilise an AREO with the four stages of the Institutional Offer, Institutional Bookbuild, Retail Offer and Retail Bookbuild. It knew this when Dr Volfneuk read the Bidder’s Statement soon after 8 November 2007. Dr Volfneuk also read the Draft Prospectus that in numerous places provided detail of the manner in which a shareholder could contact the “Primary Entitlement Offer Information Line” to ask “any questions” relating to or about the “Entitlement Offer”.

The plaintiff could have made contact with either the Primary Entitlement Offer Line or the JLMs whose numbers were also provided in the Draft Prospectus to seek clarification of the position in respect of its entitlement to be in either or both Offers. It did not do this. Rather on the day that the Institutional Offer opened, it immediately pursued a loan to take up its entitlements in the Retail Offer and commenced readying itself to persuade the prospective lenders to provide it with a facility not only to enable it to take up its entitlements but also to secure any “bargains” in the process. I am not satisfied that the plaintiff was vulnerable. It had every opportunity as a sophisticated investor to make inquiries of the defendants about the AREO and its entitlements.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The plaintiff’s claims in negligence will be dismissed.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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