Causation and compensation
88BTC puts its claim for compensation in two ways. First, it says that, as a result of Mr Ramsay's and Mr Pollers' conduct, it lost the opportunity to raise capital and it should be compensated for that lost opportunity. Alternatively, it says that it spent a net amount of $418,781.04 on the development of the BigTinCan Connect and BuzzMe, that as a result of what has happened that money was wasted and it should be compensated for that wasted expense. In making that submission, Mr Cheshire, who appeared for BTC, sought to draw an analogy between the present case and cases in contract where courts have on occasion been prepared to award damages for breach of contract calculated by reference to money thrown away by the innocent party in performing the contract on the basis that, at a minimum, the innocent party could have expected to recover its investment if the contract had been performed: see, for example, CCC Films (London) Ltd v Impact Quadrant Films Ltd [1985] QB 16; Commonwealth v Amann Aviation Pty Ltd [1991] HCA 54; (1991) 174 CLR 64.
89In my opinion, the former approach is preferable in this case. That approach draws a direct connection between Mr Ramsay's breach of duty and the loss that BTC is alleged to have suffered. I have characterised Mr Ramsay's breach of duty as the formulation of a plan to raise capital for another company which necessarily put Mr Ramsay in a position where he had an interest in seeing the task that it was his duty to pursue - that is, to assist BTC itself to raise capital - fail. There is a direct link between that conduct and compensation which seeks to compensate BTC for the lost opportunity to raise capital. The alternative way in which BTC puts its claim for compensation is one way of measuring the expectation loss that BTC has suffered because it has been unable to develop the BigTinCan Connect service. There is no direct connection between Mr Ramsay's breach of duty and that loss; and that way of putting the claim raises questions about whether, for example, the service would have been successful even assuming the additional capital had been raised.
90Three points should be made about the first way in which BTC puts its claim for compensation.
91First, there is a question concerning the requirement of causation in a claim for compensation for breach of fiduciary duty. The role causation plays in claims for breach of fiduciary duty was discussed by Spiegelman CJ (with whom Priestley and Meagher JJA agreed) in O'Halloran v T R Thomas & Family Pty Ltd (1998) 45 NSWLR 262; (1998) 29 ACSR 148 at 273ff. At 276-7 his Honour explained the test of causation in these terms:
To adopt the words of the High Court in Maguire v Makaronis [[1997] HCA 23; (1997) 188 CLR 449] (at 473), the court must identify "the criteria which supply an adequate or sufficient connection between the equitable compensation claimed and the breach of fiduciary duty". In the case of a trustee dealing with trust property, the law has proceeded beyond the invocation of the formulaic "common sense" approach to causation, by adopting a stringent test to the selection of those events preceding loss which are to be taken as causing the loss. There is sufficient connection, irrespective of the identification of a separate and concurrent cause, when the loss would not have occurred if there had been no breach of duty.
Spiegelman CJ concluded that policy required the same strict approach with respect to the exercise of the fiduciary power of directors to dispose of company property. However, his Honour left open whether the same test should be applied for breach by a director of other fiduciary duties.
92Like the High Court in Maguire v Makaronis, Spiegelman CJ also left open the question whether, in accordance with the principles stated by the Privy Council in London Loan & Savings Co v Brickenden [1934] 3 DLR 465, there was a class of case in which the court does not enquire into aspects of causality at all. In that case, the solicitor of a finance company stood to benefit from loans to a customer because the customer intended to use part of the amount lent to repay amounts the customer owed to the solicitor. The solicitor, in breach of his fiduciary duties, did not disclose that fact to the finance company. When the customer failed to repay the loans, the finance company sought to recover the amount of the loans together with interest less certain deductions from the solicitor. The Privy Council, upholding the decision of the Canadian Supreme Court, expressed the opinion that it was entitled to do so. It was not necessary for the finance company to prove that it would not have advanced the money if the solicitor had disclosed his interest in the transaction:
Once the Court has determined that the non-disclosed facts were material, speculation as to what course the [finance company], on disclosure would have taken is not relevant. ([1934] 3 DLR 465 at 469)
As both Spiegelman CJ and the High Court observed, Brickenden has been followed, or not disapproved, by a number of courts in Australia, including intermediate appellate courts, although the suggestion that there may be a class of case in which proof of causation is not necessary has been rejected in some cases: see Adler v Australian Securities and Investments Commission [2003] NSWCA 131; (2003) 179 FLR 1 at [707] per Giles JA.
93The "strict" test of causation referred to by Spiegelman CJ has, as one of its elements, a generous view of what is to count as a preceding cause. The causal event need only be one event but for which the consequence would not have occurred. But causation for breach of an equitable duty differs from causation in the case of breach of contract or in the case of a tort in other respects. In particular, the test of causation is normally stated in terms of whether the loss would have occurred but for the breach. Consequently, questions of foreseeability and remoteness "do not readily enter the matter": Re Dawson (dec'd) (1966) 84 WN (Pt 1) (NSW) 399 at 404.
94Second, the principles applicable to the recovery of damages for loss of a chance or opportunity apply to a claim for equitable compensation for breach of fiduciary duty: Spotless Group Ltd v Blanco Catering Pty Ltd [2011] FCA 979; (2011) 212 IR 396 at [125]. It is not necessary for BTC to prove that, but for Mr Ramsay's breach, BTC would have raised additional capital. It is sufficient that it prove that it lost an opportunity to do so.
95In the case of breach of contract, tort and statutory claims for misleading and deceptive conduct, the party claiming damages for a lost opportunity must prove, on the balance of probabilities, that there was a commercial opportunity available to the injured party and that, as a consequence of the wrong-doer's conduct, that commercial opportunity was lost. The injured party does not, however, have to prove that, on the balance of probabilities, that lost opportunity would have come to fruition. The value of the opportunity is determined by the likelihood of that happening: Sellars v Adelaide Petroleum NL [1994] HCA 4; (1994) 179 CLR 332 at 355. Precisely how that principle applies in cases involving equitable compensation for the loss of a chance remains unresolved, since, as I have explained, the role of causation itself remains uncertain in claims of equitable compensation for breach of fiduciary duties.
96Third, it is no bar to recovery that it is difficult to assess the value of the lost opportunity. Where it is not possible to assess the loss that the plaintiff has suffered because the assessment involves speculation about what might have happened, the court must do the best that it can using common sense: see McCrohon v Harith [2010] NSWCA 67 at [118]ff per McColl JA with whom Campbell JA and Handley AJA agreed; see also Barescape Pty Ltd v Bacchus Holdings Pty Ltd (No 9) [2012] NSWSC 984 at [269] per Black J; Sydney Attractions Group Pty Ltd v Frederick Schulman (No 2) [2013] NSWSC 1153 at [49]ff per Sackar J.
97In applying these principles to the present case, it is important to bear in mind that, on the findings I have made, it was Mr Ramsay's duty to assist BTC to raise capital. Notwithstanding that, he put himself in a position where he had a personal interest in seeing any attempt by BTC to raise capital fail, although he also had a personal interest in seeing another company in which he would hold shares raise capital to acquire BTC's business and carry on that business itself. BTC certainly had a real prospect of raising capital. ETT had initially been prepared to lend BTC $225,000, although ultimately it decided against investing in the company. Mr Ramsay told Mr Keane that he was confident he could secure up to $1,200,000 in capital for BTC and the second email Mr Ramsay sent to Mr Pollers on 3 January 2010 contemplated that he would be able to raise that amount. By the time of the board meeting on 28 January 2010, Station Capital had placed an initial amount of $200,000 in a trust account operated by Mr Sharp in anticipation that the capital raising would proceed. However, it is unclear from the evidence whether Mr Ramsay's breach of duty had any effect on the capital raising because it is unknown what he said to potential investors and what effect that may have had on them.
98Two things, however, may be said about this last point. First, although it is unclear whether Mr Ramsay's conduct contributed to BTC's failure to raise capital before mid-April 2010, Mr Cohen's evidence, which was not challenged and which I accept, was that Mr Ramsay's conduct meant that, by the beginning of May 2010, it was no longer possible to seek to raise capital from investors who had previously expressed an interest and there were few other investors who could be approached. Moreover, it may be inferred that, once BTC had commenced court proceedings, what prospect there was of finding investors was lost. Any investment in BTC was speculative; and the risks associated with it would be substantially increased once the company became embroiled in significant litigation. Looked at in this way, the opportunity that was lost was an opportunity to approach investors who had previously indicated an interest in investing in BTC to see whether they could be persuaded to invest unaffected by the attempt of two of its shareholders to obtain control of the company or its assets and the uncertainty that that attempt would be likely to cause in the minds of investors. Viewed in that way, there is a clear causal connection between Mr Ramsay's conduct and the opportunity that BTC is said to have lost.
99Second, in my opinion, it is not open in the circumstances of this case for Mr Ramsay to say that his conduct did not cause BTC to lose the opportunity to raise capital. He was the director responsible for the capital raising. He put himself in a position where in breach of his duties he had an interest in seeing that capital raising fail. BTC failed to raise any capital. The likelihood is that BTC's prospects of raising capital would have been better if Mr Ramsay had not put himself in the position he did. BTC is entitled to be compensated for that fact. There are two possible ways of reaching that conclusion. One way is to treat this case as falling into that category of special cases where the strict requirement of causation is not necessary, applying the approach taken by the Privy Council in Brickenden. There is a sufficient connection between Mr Ramsay's breach of duty and the lost opportunity to hold Mr Ramsay responsible for that lost opportunity because Mr Ramsay's breach involved him putting himself in a position where he had an interest in failing in the very task that it was his duty to perform.
100But even if the approach in Brickenden is no longer good law, in my opinion, this is a case where it is appropriate to infer that BTC lost the opportunity to raise capital as a consequence of Mr Ramsay's conduct. In various branches of the law, courts are prepared to draw inferences against wrongdoers in the absence of evidence to the contrary. So for example, if a defendant makes a fraudulent representation that is calculated to induce the plaintiff to enter a contract and the plaintiff enters the contract, the court will infer in the absence of other evidence that the contract was induced by the fraudulent representation: Gould v Vaggelas [1985] HCA 75; (1985) 157 CLR 215 at 236 per Wilson J; at 250 per Brennan J. Where a party seeks to recover damages for breach of contract calculated by reference to the expenses incurred in performing the contract on the basis that the plaintiff would have recovered at least those expenses, the onus is on the defendant to prove that the plaintiff would not have done so: Commonwealth v Amann Aviation Pty Ltd [1991] HCA 54; (1991) 174 CLR 64. Where damages are difficult to assess because of the defendant's conduct, it may be appropriate to draw inferences in the plaintiff's favour concerning the assessment of that loss: New South Wales v Burton [2008] NSWCA 319 at [107]-[108] per Basten JA with whom Allsop P and Handley AJA agreed. In my opinion, for the reasons I have given in the absence of any other evidence it is appropriate to infer that Mr Ramsay's conduct caused BTC to lose an opportunity to raise finance.
101It is difficult to place a value on that lost opportunity. Mr Ramsay told Mr Keane that he was confident he could raise up to $1,200,000 and at the board meeting on 28 January 2010 he reported that it was hoped that between $800,000 and $1,200,000 would be in trust by 12 February 2010. However, that did not happen. It is difficult to draw any conclusions from what actually happened because of the effect that Mr Ramsay's desire to raise capital for a new entity would have had on his efforts to raise capital generally. On the other hand, notwithstanding Mr Ramsay's confidence in January 2010, the likelihood is that it would have been difficult to raise capital in any event because of the risks associated with the venture. Taking these matters into account, I have concluded that an appropriate way to value BTC's lost opportunity is to assume that it had a 25 per cent chance of raising $1,200,000. On that basis, the value of the lost opportunity is $300,000.
102Mr Ramsay is liable to pay BTC equitable compensation in that amount. As a person knowingly involved in Mr Ramsay's breach, Mr Pollers is also liable to pay BTC equitable compensation in that amount.
103In view of the conclusions I have reached, it is not necessary to consider whether Mr Ramsay is also liable to pay compensation under s 1417H of the Corporations Act. That section raises different issues of causation: see Adler v Australian Securities and Investments Commission at [707]ff per Giles JA. However, it was not suggested that BTC could succeed under the Corporations Act if it failed at common law; and it was not suggested that BTC could recover more under s 1417H than it could recover for breach of the equitable duties owed by Mr Ramsay.