If the shareholder is allowed to recover in respect of such loss, then either there will be double recovery at the expense of the defendant or the shareholder will recover at the expense of the company and its creditors and other shareholders. Neither course can be permitted. This is a matter of principle; there is no discretion involved.
35 Lord Millett returned to the question of "reflective loss" at 66. He said that it "extends beyond the diminution of the value of the shares; it extends to the loss of dividends… and all other payments which the shareholder might have obtained from the company if it had not been deprived of its funds'. At 67, his Lordship noted that the rule did not prevent the shareholder (subject to the principles governing remoteness of damage) from recovering "in respect of a loss which he has sustained by reason of his inability to have recourse to the company's funds and which the company would not have sustained itself".
36 The decision in Prudential was considered in Gould v Vaggelas (1985) 157 CLR 215 (a case of deceit). Gibbs CJ referred to Prudential at 219 and affirmed the principle, which his Honour stated at 220, that the shareholders in a company could not recover damages merely because the company had suffered damage, "and cannot recover damages which are merely a reflection of a loss suffered by the company". However, his Honour pointed out, the shareholders "may recover damages for the loss which they personally have suffered and which is separate and distinct from the loss suffered by the company." The other members of the majority in that case expressed themselves in terms emphasising the distinction between a cause of action personal to the individual plaintiff, and a cause of action belonging in truth to the company. See Murphy J at 231; Wilson J at 245-246; and Brennan J at 257. Dawson J, who dissented, did so because of his Honour's view of the application of the rule to the facts, not because he denied the existence of the principle: see for example at 269.
37 In Chen v Karandonis [2002] NSWCA 412, Beazley JA (with whom Heydon and Hodgson JJA agreed) referred to Johnson at [36] and following. Her Honour at [39] referred to the speech of Lord Bingham, and at [40] to [43] to the speech of Lord Millett. It is I think clear that her Honour accepted their Lordships' statement of the relevant principles as applicable in this State.
38 In Thomas v D'Arcy (2005) 52 ACSR 609, McPherson JA (with whom Williams JA and White J agreed) considered, among many other cases, the decisions in Prudential and Johnson. His Honour treated Lord Bingham's statement of the relevant principles as commanding the support of Lord Millett and Lord Goff. I respectfully agree.
39 At 615 [15], McPherson JA pointed to the need to analyse claims for damages to establish that a particular claim is not in reality one to recover a loss suffered by the company. This, his Honour said, was required by "the point of principle… that a shareholder will not be permitted to recover damages for a loss caused by a breach of duty owed both the company and the shareholder where the shareholder's loss reflects the diminution in the value of his shareholding".
40 At 615 [16], McPherson JA noted that loss suffered by a shareholder in his capacity as a guarantor of the company's obligations may be recoverable. That, I think, is consistent with the observations of Lord Millett in Johnson at 67 (see at [35] above).
41 At 616 [18], McPherson JA reinforced the proposition that the application of the principle was to be determined as a matter of substance, not of form; the Court should not countenance "legerdemain".
Application of the principle to the heads of damage claimed
Paragraph (i): liability as a guarantor
42 I do not think that the Prudential principle, as explained in the cases to which I have referred, would deny recovery of the payments in question. From the particulars to the particulars, it would appear that Mr Ballard claims to have paid amounts owed by Stoneglow to its bank or to the Australian Taxation Office. Stoneglow did not suffer any loss by not making those payments. Presumably, it was legally obliged to pay them, and would have paid them but for its lack of funds. Mr Ballard paid them, pursuant to legal obligations which for present purposes must be assumed to have bound him, because Stoneglow, being incapable of paying them, did not. If Mr Ballard recovers judgment for the payments, there will be no question of the defendants' being exposed to double liability. Nor will there be any question of Stoneglow's assets being depleted by Mr Ballard's recovery. (In each case, I leave aside the not insignificant practical consideration that Stoneglow has been wound up and dissolved.)
43 This head of claim seems to me to fall within the exception recognised by Lord Millett in Johnson at 67, and recognised - at least as a possibility - by McPherson JA in Thomas (see, respectively, at [35] and [40] above).
44 I conclude that this aspect of Mr Ballard's claim for damages is not barred by what I have called the Prudential principle.
Paragraph (ii): deprivation of income and dividends
45 This aspect of Mr Ballard's claim appears to be that, because Stoneglow lost earnings from its three contracts with the Multiplex defendants and could not obtain other work, Mr Ballard was deprived of the amounts that otherwise he would have earned through Stoneglow.
46 This seems to me to be a recovery of a kind that is barred by the Prudential principle. Assuming for the moment that the defendants' activities caused loss to Stoneglow for which Stoneglow could have recovered damages, that loss was the cause of this head of Mr Ballard's loss. His claim to recover in his own right is in truth a reflective claim.
47 It was submitted for Mr Ballard that, because Stoneglow has been wound up and dissolved, there is no prospect that it will sue for or recover the underlying losses. Thus, it was submitted, the policy reasons underlying the Prudential principle do not apply, and the principle itself should not apply.
48 I do not accept those submissions. The underlying policy considerations explain the principle. They neither define it, nor limit its application. If effect is to be given to this aspect of the submissions for Mr Ballard, it is a matter for an intermediate, or perhaps final, appellate court.
Remaining heads of claim
49 None of the remaining heads of claim asserts a loss that is referable to, or reflective of, an underlying loss suffered by Stoneglow. They are not barred by the Prudential principle. There are however separate arguments in respect of them, to which I now turn.
Paragraphs (iii) and (v): loss of earning capacity and reputation
50 Paragraphs (iii) to (vii) allege, in various ways, that Mr Ballard lost the opportunity to pursue his "Occupation" as defined, to earn an income from that occupation, and to earn an income in any occupation. They further allege loss of reputation, loss of the satisfaction and enjoyment of pursing his occupation, and psychological or psychiatric illness.
51 There are drafting complications in the way these aspects of the claim are pressed. There are also particular objections, in relation to the claim for loss of reputation and the claim for psychological or psychiatric illness.
52 The drafting difficulty relates to the definition of Mr Ballard's "Occupation". In para 3 of the contentions, that is defined as "the trade, business or occupation of performing demolition work in the" building and construction industry. The particulars to para 3 note that Mr Ballard was a director of Stoneglow, and that "[h]is services in performing demolition work in the [building and construction industry] were provided to Stoneglow in that capacity and/or as director, shareholder and employee of Wingrove…".
53 As was submitted for the defendants, there is some confusion in the specification of Mr Ballard's "Occupation". Thus, it was submitted for the defendants, it was unclear whether the claim for loss of earning capacity and the like related only to Mr Ballard's earnings as a director of Stoneglow or a director, shareholder and employee of Wingrove; or whether it was intended to go further.
54 I accept that the drafting of the contentions is less than clear. However, as I understand it, Mr Ballard's case is that: