OzEcom & Anor v Hudson Investment Group & Ors

OzEcom Limited (In Liquidation) (First Plaintiff) Andrew Hugh Jenner Wiley (Second Plaintiff) Hudson Investment Group Limited (First Defendant) PARTIES : Hudson Securities Pty Limited (Second Defendant) Vincent See Yin Tan (Third Defendant) David Sutton (First Cross Defendant to the Fourth Cross Claim) Bruce McLeod (Second Defendant to Fourth Cross Claim)

N A Cotman SC/M A Izzo (Plaintiffs) A I Tonking (First Defendants) COUNSEL : A Leopold SC (Second Defendant) J R J Lockhart (Third Defendant) B A Coles QC/Ms M Painter (First Defendant to the Fourth Cross Claim - David Sutton) D Cook (Second Defendant to the Fourth Cross Claim - Bruce McLeod)

K P Farmer & Associates (Plaintiff) Thompson Eslick Solicitors (First Defendant) SOLICITORS : Watson Mangioni Lawyers Pty Ltd (Second Defendant) Allens Arthur Robinson Solicitors (Third Defendant) Peter Kemp Solicitors (First Cross Defendant to the Fourth Cross Claim) Wordsworth Lawyers (Second Cross Defendant to the Fourth Cross Claim)

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST

50080/05 OZECOM LIMITED (IN LIQUIDATION) & ANOR v HUDSON INVESTMENT GROUP & ORS [No.2] JUDGMENT 1 HIS HONOUR: In my judgment given on 3 August 2007 ([2007] NSWSC 719), I held that the plaintiff's primary claim for damages, arising out of a failed IPO undertaken in 1999, did not succeed. I did however conclude that in principle the plaintiff might have an alternative claim for damages, limited to some of its wasted expenses of the IPO. The parties cannot agree on the orders to be made to give effect to my reasons. The first and second defendants say that I should recall those parts of my earlier reasons in which I left open the claim for wasted expenses; the plaintiff says that I should not. There are also applications for costs, including of the various cross-claims, and in some cases, for indemnity costs. These reasons deal with those remaining issues. 2 I assume that the reader of these reasons has read my earlier reasons. I shall not set out again, or attempt to summarise, the relevant facts in these reasons; and henceforth I shall use, without explanation, the defined terms by which I referred to the various parties in my earlier reasons.

The applications to recall 3 By notice of motion filed on 21 August 2007, Hudson Investment sought leave to reopen its case to put further submissions in relation to paras [277], [314], [316] and [360] of my earlier reasons. In the event, although there was some debate as to para [277], Hudson Investment's submissions focused principally on para [316]. 4 By notice of motion filed in court on 31 October 2007, Hudson Securities sought orders that I recall and amend paras [53], [306], [309], [312], [313], [340] and [365]. 5 There is no doubt that I have the power to recall or amend reasons. Although the steps may be regarded as "exceptional" (see Barrett J in Wentworth v Rogers [2002] NSWSC 921 at [9]), it is a power that should generally be exercised where for some reason the decision has miscarried and where the miscarriage can be rectified by the judge rather than on appeal. In this case, orders to give effect to my earlier reasons have not been entered. There is no reason not to exercise the power to recall, and every reason that the issues in any appeal should be confined to the full extent possible.

Paragraph [53] 6 The last sentence of this paragraph of my earlier reasons reads as follows: I deal with that issue in paras [122] to [125] below and conclude that the letters should be treated as having had that effect.

7 It is clear from what I said in the paragraphs of my earlier reasons referred to in that sentence that the word "not" should be inserted between the words "should" and "be". No party submitted otherwise. 8 The last sentence of para [53] should be withdrawn and replaced with the following: I deal with that issue in paras [122] to [125] below and conclude that the letters should not be treated as having had that effect. Paragraph [277] 9 This paragraph reads as follows: Issue 1B(iii) should be answered "no". 10 Issue 1B(iii) of the agreed issues inquired whether Hudson Investment breached clause 3.5 of the Underwriting Agreement. Clause 3.5 reads as follows: 3.5 Spread The Underwriter must use its best endeavours to procure the minimum number of shareholder spread as may be required by the ASX Listing Rules current as at the expected date of the Company listing on the ASX. 11 It is clear from what I said in discussing this issue at paras [229] to [266] that the word "no" in para [277] should read "yes". Mr Tonking of Senior Counsel, who appeared with Ms McWilliam of counsel for Hudson Investment, accepted that on my findings and reasoning Issue 1B(iii) should have been answered "yes" instead of "no". (I hasten to say that this involved no concession as to the underlying findings and reasoning.) 12 It follows that para [277] should be withdrawn and replaced by the following: Issue 1B(iii) should be answered "yes".

Paragraph [316] 13 In this section of my earlier reasons, I was dealing with issue 1C(i), which inquired whether, in the events that had happened, ozEcom was obliged to pay Hudson Investment its underwriting fee and commission. Those matters were dealt with by clause 12 of the Underwriting Agreement. It is not necessary to set out that clause. 14 Mr Tonking submitted, as I understood it, that ozEcom had not "pleaded" that Hudson Investment had breached clause 3.5.

15 I accept that ozEcom's "pleadings" (to use a convenient but inaccurate term) display some confusion. Paragraphs 9 and 10(c) of ozEcom's contentions read as follows: "9. It was an express term of the Underwriting Agreement that Hudson Investment would use its best endeavours to procure the shareholder spread required by ASX by procuring application from a sufficient number of persons for sufficient number of shares to satisfy ASX listing rules as to spread of shareholding of a listed company.

10. It was a term of the Underwriting Agreement that: …

(c) Hudson Investment could and would ensure all reasonable steps would be taken to ensure the shareholders spread was achieved; and…" 16 Paragraph 44 of those contentions, so far as it is relevant, reads as follows: 44. Hudson Investment breached the Underwriting Agreement. Particulars Hudson Investment: (i) did not have the necessary expertise, skill and infrastructure to effectively, efficiently and expeditiously manage the float and market the shares; (ii) did not apply the necessary expertise, skill and infrastructure to effectively, efficiently and expeditiously manage the float and market the shares; (iii) did not take all reasonable steps to ensure the shareholders spread was achieved; (iv) did not take all reasonable steps to ensure the float was fully subscribed; and (v) did not meet the Shortfall Notice. 17 Mr Tonking's point was that this alleged a breach of the term (apparently an implied term) alleged in paragraph 10, and not a breach of the express term alleged in paragraph 9. (It should be noted that ozEcom did not press its case based on implied terms of the Underwriting Agreement. See its written submissions in reply at page 23, dealing with issues 1B(i), (ii).) 18 That strikes me as an overly technical approach to a document that is not intended to be a pleading and that is supposed to eschew excessive formality. As a matter of substance, I think, the alleged failure to use all reasonable steps to ensure that the requisite spread was achieved should be understood as including a failure to use best endeavours to achieve that outcome. 19 Thus, I see no reason to withdraw or vary para [316]. 20 Further, as I pointed out in para [315], Hudson Investment accepted that the underwriting fee "was clearly a payment for services, being the assumption of risk in underwriting the IPO and the discharge of the obligation in clause 3.5." Those submissions continued by accepting that "[i]n the absence of a finding that the latter was not discharged, HIG should be entitled to its fee…". It is clearly implicit in that submission that a finding of breach of clause 3.5 would disentitle Hudson Investment to its fee. I found the breach. The implicit consequence follows. Paragraphs [306], [309], [312] and [365] 21 These paragraphs can be dealt with together. They deal with or refer to the claim for wasted expenses. That was a claim, introduced by an amendment made on the first morning of the hearing (although flagged a few days earlier) based on McRae v Commonwealth Disposals Commission [1951] 84 CLR 377. 22 There were two attacks on these paragraphs, and on the claim for wasted expenses more generally. One, mounted only by Hudson Securities, was that the claim had not been pleaded against it. The other, mounted by both Hudson Investment and Hudson Securities, was that reliance (said to be an essential prerequisite to "McRae" damages) was neither pleaded nor proved. The approach at trial 23 Before I turn to the particular attacks, I shall deal with the reasons why a reconsideration of the McRae issue is necessary. 24 As I have said, the claim was introduced by an amendment made at the commencement of the hearing. The only evidence in support of the claim for wasted expenses was a substantial volume of documents, said to be invoices for expenses that ozEcom had incurred in relation to the IPO. There was nothing on the face of those documents to suggest that the expenses in question had been incurred on the faith of any promise made or obligation undertaken by Hudson Investment in the Underwriting Agreement (which was made on 26 May 1999) or on the face of any assumption of responsibility by Hudson Securities. (I interpose to note that the case in negligence against Hudson Securities was based on a duty of care "to take reasonable care and to exercise professional care, skill and diligence so as to prevent the occurrence of any loss or damage to ozEcom in the conduct of the underwriting" (contentions, para 40). There was no pleaded or particularised case against Hudson Securities of negligent misstatement.) 25 Because the amendment was made at a late stage, I sought to accommodate the defendants' position when I granted leave to amend. See para [311] of my earlier reasons (in which the "very problem" referred to was the problem that there was no evidence that any item of expense had been incurred on the faith of any promise): [311] The very problem that has arisen was foreseen at the outset of the hearing. When I granted ozEcom leave further to amend its summons I said the following (T4.9-.17): "To the extent that it may be necessary to do so to accommodate the position of the defendants who may be taken by surprise, I reserve for further consideration the amendments to the particulars at paragraph 35. My present view is that if the case gets to the point where that is a head of damage claimable by the plaintiff then, unless the relevant defendants or cross-defendants consent, the quantification of that head of damage may need to be dealt with after the principal issues in the proceedings." 26 The parties' submissions on the McRae issue were not extensive. In para [114] of my earlier reasons, I adverted to the diffuse and unclear submissions put for ozEcom. Its closing written submissions did not address the McRae case. Nor, so far as a relatively quick perusal of the transcript discloses, did its closing oral submissions. 27 For the reasons indicated in para [114] of my earlier reasons, I directed ozEcom to file written submissions in reply in which, among other things, it was to address each issue specifically. Those written submissions in reply did deal with the McRae case: Wasted expenditure 69. Alternatively, OzEcom is entitled to damages in respect of the expenditure it incurred in connection with the public offering, since that expenditure has now been wasted as result of Hudson Investment's breaches: e.g. McRae v Commonwealth Disposals Commission (1951) 84 CLR 377. That expenditure is set out at Schedule A which is annexure to the Amended Summons and amounts to $472,371.83. 70. There is said to be some uncertainty as to whether the claim for wasted expenditure is pressed. OzEcom confirms that the claim is indeed pressed. The basis on which the matter was left was that if an amendment were allowed so as to permit the claim to be made, the question of quantification could be dealt with if necessary after the principal issues in the proceedings had been determined. 71. It is also asserted that the claim for wasted expenditure is not properly pleaded. However, paragraph 35 of the Further Amended Summons specifies that the expenditure was incurred "in relation to the failed share capital raising". This is plainly a reference to the failure of Hudson Investment to honour the Underwriting Agreement which, it is pleaded in paragraph 33, led to the loss of the benefit of the share capital raising. The pleading thus makes it clear that the expenditure was incurred in reliance on Hudson Investment's performance of its obligations under the Underwriting Agreement. 28 So far as I can tell, those paragraphs constitute the entirety of ozEcom's submissions on the McRae issue. Although the issue of reliance was expressly raised by Hudson Securities, ozEcom did not take the opportunity, in its written submissions in reply, to address the issue of reliance. It asserted that the pleaded case "makes it clear that the expenditure was incurred in reliance on Hudson Investment's performance of its obligations under the Underwriting Agreement" (written submissions in reply, paragraph 71; my emphasis). OzEcom did not refer to any evidence on the question of reliance. 29 Thus, none of ozEcom's submissions dealt with the issue of reliance. In this context, I refer to what I said in para [300] of my earlier reasons: that the decision in McRae goes no further than supporting a claim for wasted expenditure incurred on the faith of the broken promise. 30 Further, as I noted in para [306], there was no pleaded allegation that any expenses were incurred on the faith of, or in reliance on, any promise made by Hudson Investment (or, for that matter, any duty to ozEcom assumed by Hudson Securities); nor was there any evidence of such reliance. 31 In those circumstances, it is perhaps not surprising that the closing submissions for Hudson Investment and Hudson Securities addressed the McRae issue at a level of some generality. By way of brief summary:

(1) Hudson Investment submitted that the claim was misconceived because the expenses in question would have been incurred even if there had been no breach of the underwriting agreement (closing written submissions, paragraph 43; the topic was touched on, but the submission was not amplified, orally at T25-255).

(2) Hudson Securities submitted that reliance on the performance on the relevant obligation was an essential pre-condition of recovery, and that reliance was neither pleaded nor proved (closing written submissions, paragraph 65). The pleading point 32 The claim for recovery of wasted expenditure was introduced by an amendment to the particulars to paragraph 35 in ozEcom's contentions. I set out paragraph 35 as it stands following that amendment: "35. By reason of the matters alleged, OzEcom has suffered loss and damage. Particulars OzEcom has suffered loss and damage in that:

(i) it did not receive either $10,000,000 or the shortfall;

(ii) it lost the opportunity of raising $10,000,000; Alternatively, OzEcom has suffered loss and damage in that it incurred expenditure on professional costs and ASX filing fees in relation to the failed share capital raising as set out in Annexure A." 33 The "matters alleged" are directed in the main at Hudson Investment. Although some allegations were made involving Hudson Securities, there was not, at that point, any allegation of either existence or breach of duty against Hudson Securities. 34 The claim for breach of contract against Hudson Investment was pleaded in paragraphs 43 to 45. The pleading referred to those earlier paragraphs of the contentions where Hudson Investment's express and implied contractual duties had been alleged, alleged breaches of those duties in the terms to which I have referred in para [16] above, alleged that ozEcom had thereby suffered loss and damage and, by way of particulars, repeated paragraph "33" (sic: clearly, it was intended to repeat paragraph 35). 35 Thus, it is reasonably clear that ozEcom's pleaded case against Hudson Investment claimed damages for breach of contract quantified either as the loss of the amount of the capital raising or as the loss of the alleged amount of the underwriting commitment, or by reference to wasted expenditure. 36 The claim in negligence against Hudson Securities is pleaded in paragraphs 40 to 42 of ozEcom's contentions. As I have noted, the duty alleged to have been owed, and to have been breached, was one to take reasonable care. The allegation of damage is that by reason of the alleged and particularised breaches, ozEcom suffered loss and damages. The particulars are given as follows: 42. In the premises, OzEcom has suffered loss and damage. Particulars By reason of the failure to obtain shareholder spread Hudson Securities jeopardised or prevented the admission into the official list of securities contrary to the representations in the prospectus that the securities would be listed and provided Hudson Investment with an excuse not to perform the Underwriting Agreement.

The failure to market the securities effectively or to an appropriate market created a circumstance where a financial call on the underwriter would or might exceed its resources or capacity to take up the shortfall, as in fact happened. 37 In marked contrast to the damages against Hudson Investment (both for the claim in contract and for the abandoned claim in negligence - the latter too claimed damages in accordance with paragraph 35 of the contentions), the particulars of damage alleged against Hudson Securities make no reference whatsoever to wasted expense. Nor is there any pleaded allegation that any item of expense was incurred in reliance upon Hudson Securities' assumption of any duty of care. As I have said already, there is no case of negligence against Hudson Securities based on negligent misstatement. 38 In my view, the inevitable inference from all of this is that the pleaded case of damage against Hudson Securities did not extend to recovery of wasted expenditure. 39 When the question of the amendment to paragraph 35 was argued at the beginning of the hearing, Mr Leopold, then of Counsel and now of Senior Counsel, who appeared for Hudson Securities, said that he had no objection to the amendment on the basis that "I apprehend that the amendment doesn't affect my client" (T2.5). At no stage then or during the balance of the hearing did Mr Cotman of Senior Counsel, who appeared with Mr Izzo of counsel for ozEcom, suggest that Mr Leopold's understanding was incorrect. 40 Consistently with what Mr Leopold had said at T2.5, Hudson Securities' defence to the further amended summons explicitly noted, in relation to the alleged wasted expenses set out in annexure "A" to the further amended summons, that Hudson Securities understood those items "to be loss and damage allegedly resulting from the alleged breach by Hudson Investments of the Underwriting Agreement in allegedly failing with the Shortfall Notice. " 41 Further, and as will be apparent from the portions of ozEcom's written submissions in reply that I have extracted in para [27] above, ozEcom's case up until the conclusion of the hearing was that the claim for wasted expenditure was one brought against Hudson Investment, by reason of its alleged breaches of contract. 42 The inference from this material is strengthened by the fact that in it ozEcom is dealing with an attack made on the adequacy of its pleading. Presumably, those who drafted the submissions in reply focused carefully on the pleaded case. It is, I think, particularly significant that they suggested that the case for recovery of wasted expenditure was pursued against Hudson Investment, and did not mention that it was pursued also against Hudson Securities. 43 Thus, I conclude that:

(1) The claim for wasted expenditure was not pleaded against Hudson Securities.

(2) Hudson Securities ran its case on the basis that the claim for wasted expenditure was not pleaded against it, and ozEcom must have been well aware of this.

(3) OzEcom ran its case on the basis that the claim for wasted expenditure was pressed only against Hudson Investment. 44 In those circumstances, it may be wondered why the closing submissions for Hudson Securities dealt with the claim for wasted expenditure as they did - by going to its merits - rather than by repeating that it was not pressed against Hudson Securities. 45 For the reasons that I have given, I conclude that I should not have left the claim for wasted expenditure alive as against Hudson Securities. Thus, so much of each of the paragraphs in question as refers to Hudson Securities should be withdrawn. Specifically:

(1) Para [306]: the last two (parenthesised) sentences should be withdrawn.

(3) Para [313]: the last sentence should be withdrawn.

(4) Para [365]: the words "all referable to Hudson Securities' breach of its duty of care" should be withdrawn. 46 Para [312] should not be withdrawn for this reason.

No basis for reference for assessment of damages 47 Hudson Investment submitted, and Hudson Securities submitted in the alternative, that the case based on wasted expenditure should not be allowed to go further because there was no basis for concluding, even at a prima facie level, that ozEcom had suffered any loss. 48 The relevant principles were not in dispute (although no party referred to them in its final submissions at the conclusion of the hearing). For example, in Enkelmann v Glissan (1982) 2 BPR 9640, in dealing with a tenant's claim for damages through having been wrongfully locked out overnight, Rath J said that there should be no order for an inquiry as to damages unless there was some evidence of damage, or some circumstances suggesting that damage was likely to have occurred: "Before an order is made for an inquiry as to damages, the court requires to be satisfied that it is proper to direct such an inquiry, and ordinarily the court will not be so satisfied unless there is before the court evidence of damage, or there are circumstances indicative of a probability of damage." 49 Hodgson J expressed a similar view in Frank Davies Pty Ltd v Container Haulage Group Pty Ltd (No2) (1989) 98 FLR 324 at 325. His Honour said that there must be proof - if only at a prima facie level - of damage before an inquiry would be ordered; and that this was so even where damages were not of the gist of the action, so that a cause of action could be made out without proof of actual damage: "… The party seeking the inquiry as to damages does have to prove that it has suffered some damage. This may only be perhaps a prima facie case of some damage, but at least a prima facie case of some damage must be shown. In my view, this is the case, not only where the existence of damage is part of the course of action, but is also the case where a cause of action is made out although no actual damage is suffered. Accordingly, I adhere to the view… that without at least a prima facie case of damage, the court should not order any inquiry as to damages…" 50 There are numerous other cases that make good the proposition; and, as I have said, the proposition itself was not contested. Such debate as there was was directed to the application (or non-application) of the proposition.

51 As I have said more than once, Hudson Investment and Hudson Securities submitted that there was no pleading or evidence of reliance. I said as much in para [306] of my earlier judgment (consistent with what I have said in para [45(l)] above, I omit the sentences that I have concluded should be withdrawn): "There is no allegation that the expenses in question were incurred on the basis of, or in reliance upon, any promise made by Hudson Investment to ozEcom. Nor was there any evidence that this was so. Further, there could have been no such reliance in respect of anything spent, or incurred, before 26 May 1999 at the very earliest." 52 I did refer to the possibility of an inference of reliance after 26 May 1999 in para [307]: It is clear that ozEcom would not have proceeded with the IPO had it not entered into an underwriting agreement of the kind that was in fact made with Hudson Investment. Thus, it might be possible to infer that some expenditure made, or liabilities incurred, after 26 May 1999 were made, or incurred, on the faith of Hudson Investment's promises set out in the underwriting agreement. But the problem of dissection was not addressed in submissions, and is not something that is capable of easy resolution on the evidence as it stands. For example, some expenditures made or liabilities incurred after 26 May 1999 might have been made or incurred for ongoing services provided under a contract made before 26 May 1999. Even if Hudson Investment had declined to underwrite the IPO, ozEcom might have continued to incur those expenses in the hope that it would find someone else to do so. Indeed, given that substantial expense on any view had been incurred prior to 26 May 1999, in preparation for the IPO (and with the knowledge that it would have to be underwritten), I think that this is a reasonable inference. 53 Mr Cotman submitted that there was available a clear inference of reliance. He relied on the principle, well known in cases under section 52 of the Trade Practices Act 1974 and its analogues, that reliance may be inferred where misleading or deceptive conduct was aimed at inducing someone to act (or refrain from acting) in a particular way, and that person did so act (or refrain from acting) after the misleading or deceptive conduct occurred. Mr Cotman referred to the decision of the Court of Appeal in Smith v Noss [2006] NSWCA 37. In that case, speaking of the question of causation in a case of misleading or deceptive conduct, Giles JA (with whom Beazley and Ipp JJA agreed) said at para [27] that "specific evidence of reliance is not essential for proof of causation. Such evidence may be one strand, perhaps an important one, in the factual scheme, but causation may be found without it." His Honour referred to the well known passage from the judgment of Wilson J in Gould v Vaggelas (1985) 157 CLR 215 at 238; it is not necessary to set out that passage. 54 There is a difficulty in applying that reasoning to the facts of this case. The difficulty was exposed in para [307] of my earlier reasons. The documentary evidence on which ozEcom relied to prove the amount of its wasted expenditure showed that it had commenced to incur expenditure much earlier than the date of the Underwriting Agreement (26 May 1999), and that it had incurred substantial expenditure before that date. Clearly, no such expenditure could have been incurred on the faith of any promise made by Hudson Investment in the Underwriting Agreement. (Although a case in negligence was pleaded against Hudson Investment, and although the damages claimed for the alleged negligence included wasted expenditure, ozEcom's closing written submissions made it clear that the case for recovery of the wasted expenditure was based on the alleged failure of Hudson Investment to honour the relevant provisions of the Underwriting Agreement - see in particular paragraph 71, which I have set out in para [27] above.) 55 Further, as I concluded in para [307], I think that there was "a reasonable inference" that ozEcom would have continued to incur expenditure even if it had not made the Underwriting Agreement with Hudson Investment, in the hope that it might find someone else to underwrite the IPO. 56 At the risk of wearying the reader with excessive repetition: no witness called by ozEcom gave any evidence of causing or permitting ozEcom to incur, or to continue to incur, expenditure on the faith of Hudson Investment's assumption of the duties cast upon on it by the Underwriting Agreement. Even accepting that the amendment was introduced at a late stage, one might have expected some attention to have been given to the problem of proof. There was no application made to supplement the statements of the relevant witnesses by oral evidence directed to proof of reliance. In those circumstances, I think, there may be room for application of the principle explained by Handley JA in Commercial Union Assurance Company of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389 at 418 - 419. But it is not necessary to conclude that ozEcom feared the prospect of adducing evidence in chief from the relevant witnesses. It is sufficient to say, paraphrasing Handley JA at 418, that the Court should not draw inferences in favour of a party bearing the onus of proof of a particular matter - in this case, reliance - when no attempt was made to prove it by direct evidence, and when no relevant questions were asked of witnesses who were called and who, clearly, could have given the relevant evidence. In this context, I do not think that any criticism can be levelled at Hudson Investment or Hudson Securities for not cross-examining the relevant witnesses on this point. I refer to what I said in para [308] of my earlier judgment: "The defendants did not address these problems in the cross-examination of Ms Sylvester and Mr Corfe. That is hardly surprising, given the absence of any pleading of " McRae " reliance. In those circumstances, I do not feel inclined to draw in favour of ozEcom any but the clearest inferences from such evidence as there is." 57 In the circumstances, I do not regard the decision in Smith v Noss, or the principles referred to by Giles JA in paras [27] and [28] of that decision, as requiring, on the facts of this case, that I draw an inference of reliance in favour of ozEcom. 58 I have set out in para [25] above para [311] of my earlier reasons, which paragraph records some observations that I made when I granted ozEcom leave further to amend its summons. Mr Cotman sought to take advantage of those observations: in particular, the words "the quantification of that head of damage may need to be dealt with after the principal issues in the proceedings". As is plain when the words are read in context, that was said to accommodate the position of the defendants and cross-defendants, in circumstances where the plaintiffs had introduced at the last moment a new case on damages. It was certainly not intended to suggest that the plaintiffs could defer all questions of proof relating to the new claim for damages. Nor, I think, did the plaintiffs so understand it. Their documentary tender included some hundreds of pages of documents that were said to prove the amounts of the wasted expenses. Had the plaintiffs understood that all questions of quantification were to be deferred, that tender would have been unnecessary. 59 Accordingly, reliance being an essential ingredient of a claim for "McRae" damages (and Mr Cotman did not submit to the contrary), there is no prima facie case of damage. Nor, in the words of Rath J in Enkelmann, are there "circumstances indicative of a probability of damage". It follows that the relevant paragraphs of my earlier reasons should be withdrawn. Specifically:

(2) Para [313]: the last sentence should be withdrawn. In its place there should be substituted the following: "There is no evidence that any expenditure was incurred on the faith of the relevant promises. Further, as to Hudson Securities, ozEcom's claim for damages was not pleaded to include a claim for wasted expenditure, nor was such a case (if otherwise open) put in final submissions."

(3) Para [365]: the paragraph should be withdrawn. In its place there should be substituted:

"OzEcom's claim for damages, whether expressed as a claim for loss of the capital raising, or for loss of the promise to underwrite, or for wasted expenditure, fails." Orders apart from costs OzEcom's claims 60 OzEcom submitted that, even allowing for the conclusions that I have just expressed (which were expressed in principle at the conclusion of argument on the issues with which I have just dealt) it was entitled to verdict and judgment on its claim against Hudson Investment, but for nominal damages only. My finding that Hudson Investment breached clause 3.5 of the Underwriting Agreement stands. However, between my conclusions on damages in the earlier reasons and my conclusions on the claim for wasted expenditure in these reasons, no damages have been proved. Damages are not of the gist of the action in contract. It follows, as Hudson Investment accepted, that there should be judgment for ozEcom on its claim against Hudson Investment for nominal damages. In the circumstances of this case, and without any submissions to guide me, I quantify those damages in the sum of $1.00. 61 In my earlier reasons, I concluded that Hudson Securities owed, and breached, a duty of care. However, my conclusions on damages in the earlier reasons, coupled with what I have just said, means that ozEcom has failed to prove that it suffered any damages as a result of that breach. Damages being of the gist of the action in negligence, it follows that there should be judgment for Hudson Securities on ozEcom's claim. 62 Nothing in these reasons affects the conclusions as between ozEcom and Mr Tan that are reached in my earlier reasons. It follows that Mr Tan is entitled to judgment on ozEcom's claim against him. 63 The first cross-claim was one brought by Hudson Investment against ozEcom. It included a claim for recovery of Hudson Investment's fee and commission, and other matters. It has failed. Hudson Investment accepted that there should be judgment for ozEcom against Hudson Investment on the first cross-claim. 64 The second cross-claim was brought by Hudson Securities against Hudson Investment. It sought contribution or indemnity from Hudson Investment in relation to ozEcom's claim against Hudson Securities, and payment of the fee of $100,000.00 said to be payable by Hudson Investment to Hudson Securities under the "Sponsoring Broker Agreement" between them. That cross-claim fails. As to the claim for contribution or indemnity, it fails because ozEcom's claim against Hudson Securities fails. As to the claim for the fee, it fails because I have found that Hudson Securities did not perform all of its obligations under the relevant agreement: specifically, it did not use its best endeavours to achieve the relevant spread. Hudson Securities accepted that there should be judgment for Hudson Investment against Hudson Securities on the second cross-claim. 65 The third cross-claim was brought by Hudson Investment against Hudson Securities. It sought contribution or indemnity in respect of ozEcom's claim. That cross-claim fails because ozEcom's claim against Hudson Investment fails. Hudson Investment accepted that there should be judgment for Hudson Securities against Hudson Investment on the third cross-claim. 66 The fourth cross-claim was brought by Hudson Investment against Messrs Sutton, McLeod and Tan. It sought contribution or indemnity in respect of ozEcom's claim. However, it sought that on a basis that did not merely reflect the claim brought against it by ozEcom. It asserted that Messrs Sutton and McLeod owed, and breached, statutory and common law duties as officers of Hudson Investment. As against Mr Tan, it asserted that he owed common law duties of care. It asserted against all three that if Hudson Investment were found to have contravened the Trade Practices Act and cognate legislation as alleged by ozEcom, then they were involved in those contraventions and liable to contribute accordingly. 67 Since ozEcom's claim against Hudson Investment fails, the fourth cross-claim must fail. Hudson Investment accepted that there should be judgment in favour of each of the cross-defendants against Hudson Investment on the fourth cross-claim. 68 The fifth cross-claim was brought by Mr Tan against Hudson Investment, Hudson Securities and Messrs Sutton and McLeod. It claimed contribution or indemnity in respect of the claims against Mr Tan brought by ozEcom and Hudson Investment. The claims against Mr Tan have failed, and it must follow that the fifth cross-claim fails. As I understand Mr Tan's position, he accepted that this was so. 69 Each of the cross-defendants of the fifth cross-claim is entitled to judgment in its or his favour against Mr Tan.

Costs Costs follow the event 70 In general, costs should follow the event. In this context, I make two observations:

(1) As between ozEcom and Hudson Investment, I regard the relevant "event" as being the substantial failure of its claim and not its nominal success. Mr Cotman did not submit otherwise. (See T [31.10.07]36.30).

(2) The cross-claimants on the cross-claims for contribution or indemnity submitted, with varying degrees of enthusiasm, that ozEcom should pay the cross-defendant's costs of those cross-claims. I do not accept that proposition. The cross-defendants are entitled to look to the parties who brought the cross-claims; the relevant "event" is the failure of the cross-claim as between those parties. It is a separate question, whether those cross-claimants should be indemnified by ozEcom for the costs of those "defensive" cross-claims. 71 The basic costs liabilities are therefore as follows:

(1) Subject to what I say in paras [72] to [74], ozEcom should pay each defendant's costs of the proceedings against it or him.

(2) Hudson Investment should pay ozEcom's costs of the first cross-claim.

(3) Hudson Securities should pay Hudson Investment's costs of the second cross-claim.

(4) Hudson Investment should pay Hudson Securities' costs of the third cross-claim.

(5) Hudson Investment should pay the costs of the cross-defendants to the fourth cross-claim.

(6) Mr Tan should pay the costs of the cross-defendants to the fifth cross-claim. Costs against both plaintiffs? 72 The defendants submitted that costs orders should be made against both plaintiffs. They pointed to the fact that, when security for costs was sought at a relatively early stage of the proceedings, the plaintiffs opposed giving security because the second plaintiff, ozEcom's liquidator, accepted that he was "exposed to liability for adverse costs orders made against either himself or the Company" (letter of 15 February 2006 from the plaintiffs' solicitors to Hudson Investment's solicitors). It is clear that the plaintiffs regarded that acceptance of liability as an absolute answer to any application for security for costs. 73 Although, as I have indicated, the relevant correspondence passed between the plaintiffs' solicitors and Hudson Investment's solicitors, Mr Cotman did not suggest that there should be any different costs liability as between the plaintiffs and Hudson Investment on the one hand and as between the plaintiffs and the other defendants on the other. 74 In those circumstances, the defendants are entitled to costs orders against both plaintiffs. Indemnity costs 75 The defendants submitted that any costs ordered to be paid to them by the plaintiffs should be paid on the party and party basis up until 19 February 2007 and on the indemnity basis thereafter. They relied on a letter of 19 February 2007 from Hudson Investment's solicitors to the plaintiffs' solicitors. That letter stated that it was an offer made on behalf of all defendants "with their legal representatives' authorisation". 76 The letter was formulated "as a joint offer to [the plaintiffs] to resolve these proceedings including all cross-claims on a sensible commercial basis without further costs being incurred". It offered payment of "the sum of $150,000.00 to the Plaintiffs, in full and final settlement of all claims and cross-claims made against the Defendants by the Plaintiffs in the Proceedings". It proposed that the proceedings be dismissed or that the plaintiffs discontinue, and that the plaintiffs give appropriate releases to the defendants. Leaving aside machinery matters, the letter provided also that the defendants would pay the plaintiffs' costs up to the date of acceptance in an amount to be agreed or assessed. 77 The offer was expressed to be open for 21 days and to expire at 5:00pm on 12 March 2007. That date was described as "the date when the parties are required to attend to matters for the preparation for the hearing…". The letter noted that there would be substantial costs incurred after that date. 78 The defendants made a further offer on 26 April 2007. It too was "a joint offer… to resolve these proceedings including all cross-claims on a sensible commercial basis". The amount offered was $375,000.00 "inclusive of costs to the Plaintiffs, in full and final settlement of all claims and cross-claims made against the Defendants by the Plaintiffs in the Proceedings". It required that there should be "mutual releases… between all parties to the proceedings and Cross-Claims". 79 Mr Cotman submitted that there should be no order for indemnity costs based on the letter of 19 February 2007, because that letter on its face did not propose the resolution of all matters in dispute between the parties. Specifically, Mr Cotman submitted, the letter made no proposal for the resolution of Hudson Investment's first cross-claim, insofar as that cross-claim sought recovery of the underwriting fee and commission. In this, he contrasted the wording of the letter of 19 February 2007 with that of the letter of 26 April 2007 (which provided specifically for mutual releases that extended to the cross-claims). 80 I do not accept the submission. The letter of 19 February specifically provided that the offer was made "to resolve these proceedings including all cross-claims". Further, it provided that the sum of $150,000.00 was payable "in full and final settlement of all cross-claims made against the Defendants by the Plaintiffs". Perhaps not surprisingly, there was no cross-claim "made" by the plaintiffs against any defendant. The only cross-claims that were "made" in the proceedings were those brought by defendants: against each other and in some cases against ozEcom. 81 In my view, when the letter of 19 February 2007 is read in its entirety, it is clear that the proposal was one for the resolution of all matters in dispute in the proceedings between the parties: whether advanced by way of the plaintiffs' claim against the defendants or by way of the various cross-claims. 82 There was no suggestion that the plaintiffs made any inquiry of the defendants as to whether (contrary to what I think is the clear reading of the letter) Hudson Investment intended to press its cross-claim for recovery of its underwriting fee even if the offer contained in the letter had been accepted. 83 Mr Cotman did not submit that indemnity costs should be refused because the defendants' offer was made by way of Calderbank letter rather than by way of offer of compromise pursuant to UCPR r20.26. The defendants submitted that the rule did not accommodate a joint offer by more than one party. Certainly, subr(1) talks of one party making an offer to another ("any party… any other party"). It may be that the singular should be taken to include the plural; but I accept that the position is unclear. There is of course a difference between an offer of compromise under the rules and an offer in a Calderbank letter. Failure to better the offer contained in an offer of compromise effectively creates presumptions as to costs consequences (see UCPR part 42 division 3). Failure to better a Calderbank offer creates no presumption; before the offeror obtains an order for indemnity costs it must be shown not only that the offeree has not bettered the offer but that the offeree's failure to accept the offer was in all the circumstances unreasonable (see for example SMEC Testing Services Pty Ltd v Campbelltown City Council [2000] NSWCA 323 at [37] and Leichhardt Municipal Council v Green [2004] NSWCA at [19]). 84 Mr Cotman did not submit that the offer contained in the letter of 19 February 2007 was not a genuine offer of compromise, or an offer with no real element of compromise in it, designed merely to trigger costs sanctions (see Santow JA in Leichhardt Council at paras [22], [23]). Thus, it is unnecessary to consider the question; but if it were, I would conclude that the offer did contain a real element of compromise. 85 In the circumstances of this case, I do think that it was, in the relevant sense, unreasonable for the plaintiffs not to accept the offer contained in the letter of 19 February 2007. At the time that letter was written, their claim was for loss of the amount of the capital raising or alternatively of the underwritten amount. For the reasons that I gave in paras [279] to [298] of my earlier reasons, that claim was misconceived. There was a substantial body of authority against it (including at the immediate appellant level). The case on which ozEcom relied - the decision of Giles J in Segenhoe Ltd v Akins (1990) 29 NSWLR 569 - did not deal with the particular point. Indeed, as I observed in para [296], ozEcom's reliance upon it appeared to stem from a misunderstanding of the defendants' submissions on this point. 86 Thus, the effect of the offer of 19 February 2007 is that the plaintiffs would receive $150,000.00 together with their costs to date for a case that, on the existing state of the authorities, was bound to fail. It was not reasonable for the plaintiffs to reject that offer. 87 As I have said, the defendants asked that indemnity costs run from the date of the letter. They relied on the analogy with an offer of compromise. However, the analogy is less than perfect. For a Calderbank offer to be effective, it must allow the offeree a reasonable time to consider and, if thought fit, to accept it. A failure to accept a Calderbank offer before that reasonable time expires cannot of itself be unreasonable. The form of the offer suggests that 21 days was a reasonable time for its consideration. The offer was not rejected. It expired, unaccepted, by effluxion of time. In those circumstances, the relevant unreasonable conduct was the failure to accept the offer within the time limited for its acceptance. In my view, there having been no express rejection, the plaintiffs' conduct did not become unreasonable until that time had expired. 88 Thus, in my view, costs payable by the plaintiffs to the defendants should be paid on the party and party basis up until 12 March 2007 and on the indemnity basis thereafter. Costs of the cross-claims 89 As I have said, it is my view that the various unsuccessful cross-claimants should bear primary responsibility to the cross-defendants for the costs of the failed cross-claims. The relevant question is whether the plaintiffs should indemnify those cross-claimants for the amounts of those costs. That question arises in relation to the second, third, fourth and fifth cross-claims. The second cross-claim 90 The second cross-claim included not only a claim for contribution or indemnity but also a claim for payment of Hudson Securities' fee. The claim for payment of the fee cannot be said to have been merely defensive, or reflexive of ozEcom's claim against Hudson Securities. However, the claim for contribution or indemnity did no more than rely on ozEcom's claim against Hudson Investment, in the event that both that claim and the claim against Hudson Securities were successful. 91 Having regard to the facts as I have found them in my earlier judgment, ozEcom must have understood, when it sued both Hudson Investment and Hudson Securities, that there were likely to be cross-claims between them for contribution. To the extent that those cross-claims are defensive, and merely reflect ozEcom's claims against the relevant cross-claimant, then ozEcom - or more accurately, for the reasons that I have given, the plaintiffs - should be ordered to indemnify the cross-claimant. 92 Applying those considerations to the second cross-claim, and seeking to take account of the claim for the fee, an appropriate exercise of the discretion in relation to costs is to order that the costs payable by the plaintiffs to Hudson Securities include one-half of the costs payable by Hudson Securities to Hudson Investment in respect of the second cross-claim. The third cross-claim 93 This cross-claim was entirely defensive, and reflected only ozEcom's claim against Hudson Investment. For the reasons that I just given in relation to the second cross-claim, the plaintiffs should bear the costs that Hudson Investment is liable to pay Hudson Securities in respect of this cross-claim. Since the third cross-claim contains no extraneous element, the costs payable by the plaintiffs to Hudson Investment should include the whole of the costs payable by Hudson Investment to Hudson Securities in respect of the third cross-claim. The fourth cross-claim 94 As I have noted in para [65] above, this cross-claim, although brought for contribution or indemnity, was not merely reflexive of claims made by ozEcom (and could not be so, insofar as the cross-defendants to the fourth cross-claim included Messrs Sutton and McLeod, who were not defendants). 95 In those circumstances, I see no reason for ordering the plaintiffs to pay to or indemnify Hudson Investment for the costs that it must pay to the cross-defendants in respect of the fourth cross-claim.

The fifth cross-claim 96 The fifth cross-claim, brought by Mr Tan, was purely defensive, and the cross-claims stood or fail alongside ozEcom's claims. (I have not overlooked that two of the defendants to the fifth cross-claim - Messrs McLeod and Sutton - were not defendants in ozEcom's action. However, Mr Tan ran no affirmative case against them, and relied on such evidence as was adduced by others in the proceedings.) 97 In the circumstances, an appropriate exercise of the discretion is to order that the costs payable by the plaintiffs to Mr Tan include the whole of the costs payable by Mr Tan to the cross-defendants to the fifth cross-claim. Indemnity basis 98 The cross-claimants submitted that any costs ordered to be paid by the plaintiffs to the defendants as cross-defendants in respect of the cross-claims should be payable on the party and party basis up until 19 February 2007 and on the indemnity basis thereafter. There is a real difficulty with that proposed order. It could be effected simply enough by ordering that the costs payable by the cross-claimants to the cross-defendants in respect of the second, third and fifth cross-claims should be payable on the party and party basis up until some particular date, and on the indemnity basis thereafter. An order that the plaintiffs indemnify those cross-claimants for those costs would be effective. However, there is no basis for making indemnity costs orders as between the cross-claimants and the cross-defendants; and no cross-defendant sought an order that a cross-claimant pay his or its costs on the indemnity basis. 99 In the circumstances of this case, I think that sufficient justice is done if the defendants in their capacity as defendants receive indemnity costs to the extent that I have indicated, but that costs payable to them as cross-defendants should be on the party and party basis.

(1) Order that the last sentence of para [53] of my reasons for judgment given on 3 August 2007 ("earlier reasons") be withdrawn and replaced by the following: "I deal with that issue in paras [122] to [125] below and conclude that the letters should not be treated as having had that effect."

(2) Order that para [277] of my earlier reasons be withdrawn and replaced by the following: "Issue 1B(iii) should be answered "yes"."

(3) Order that the last two (parenthesised) sentences of para [306] of my earlier reasons be withdrawn.

(4) Order that para [309] of my earlier reasons be withdrawn.

(5) Order that para [312] of my earlier reasons be withdrawn.

(6) Order that the last sentence of para [313] of my earlier reasons be withdrawn and replaced by the following: "There is no evidence that any expenditure was incurred on the faith of the relevant promises. Further, as to Hudson Securities, ozEcom's claim for damages was not pleaded to include a claim for wasted expenditure, nor was such a case (if otherwise open) put in final submissions."

(7) Order that para [365] of my earlier reasons be withdrawn and replaced by the following:

"OzEcom's claim for damages, whether expressed as a claim for loss of the capital raising, or for loss of the promise to underwrite, or for wasted expenditure, fails."

(8) On the plaintiff's claim against the first defendant: direct entry of judgment for the first plaintiff against the first defendant in the sum of $1.00.

(9) On the plaintiffs' claim against the second defendant: direct entry of judgment for the second defendant against the plaintiffs.

(10) On the plaintiffs' claim against the third defendant: direct entry of judgment for the third defendant against the plaintiffs.

(11) On the first cross-claim: direct entry of judgment for the cross-defendant against the cross-claimant.

(12) On the second cross-claim: direct entry of judgment for the cross-defendant against the cross-claimant.

(13) On the third cross-claim direct entry for judgment for the cross-defendant against the cross-claimant.

(14) On the fourth cross-claim: direct entry of judgment for the cross-defendants against the cross-claimant.

(15) On the fifth cross-claim: direct judgment for the cross-defendants against the cross-claimant.

(16) Order the plaintiffs to pay the defendants' costs of the proceedings.

(17) Order that the costs so payable by the plaintiffs to the defendants be payable on the party and party basis up until 12 March 2007 and on the indemnity basis thereafter.

(18) On the first cross-claim: order the cross-claimant to pay the cross-defendant's costs of that cross-claim.

(19) On the second cross-claim: order the cross-claimant to pay the cross-defendant's costs of that cross-claim.

(20) On the third cross-claim order the cross-claimant to pay the cross-defendant's costs of that cross-claim.

(21) On the fourth cross-claim order the cross-claimant to pay the cross-defendants' costs of that cross-claim.

(22) On the fourth cross-claim: order the cross-claimant to pay the cross-defendants' costs of that cross-claim.

(23) On the fifth cross-claim: order the cross-claimant to pay the cross-defendants' costs of that cross-claim.

(24) Order that the costs payable by the plaintiffs to the first defendant include the costs payable by the first defendant, as cross-claimant on the third cross-claim, to the cross-defendant to that cross-claim.

(25) Order that the costs payable by the plaintiff to the second defendant include one half of the costs payable by the second defendant, as cross-claimant on the second cross-claim, to the cross-defendant to that cross-claim.

(26) Order that the costs payable by the plaintiff to the third defendant include the costs payable by that defendant, as cross-claimant on the fifth cross-claim, to the cross-defendants to that cross-claim.

(27) Order that the exhibits remain with the file for 28 days and that thereafter they be dealt with in accordance with the Rules.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.