Ramsay v BigTinCan Pty Ltd

THE APPLICATION TO ADDUCE FURTHER EVIDENCE ON APPEAL 42By Notice of Motion filed on 15 April 2014, Mr Ramsay and Mr Pollers sought an order from this Court that transcripts of two telephone conversations, not in evidence at first instance, now be admitted into evidence.

The first conversation 43This conversation occurred between Mr Ramsay and Mr Keane on or about 14 April 2010. The parts of the transcript to which the Court was taken by the appellants' counsel were to the following effect: (a)Mr Ramsay said that two prospective investors wanted BTC's business to be in a new company. Mr Keane said that that would be "all right" (p 11 of Mr Pollers' affidavit of 12 April 2014). (b)Because of the difficulty in obtaining funding for BTC, both Mr Ramsay and Mr Keane were considering obtaining alternative employment (p 13). (c)Mr Ramsay referred to the possibility of a joint venture arrangement under which a new investor and BTC would each own a large percentage of the shares in a new company that would conduct BTC's business. Mr Keane said that he would be happy with such an arrangement. Mr Ramsay said that the stumbling block in his negotiations with potential investors was that they were concerned that BTC may have "baggage" and that they therefore did not want to undertake due diligence inquiries. Mr Ramsay referred to the potential investors as having kept saying this and Mr Keane having kept saying that there was no "baggage" (p 14). (d)Mr Keane said that if Mr Williams (from Carling Capital Partners) and others had a plan in relation to funding, he was happy to talk to them (p 16). (e)Mr Keane reiterated that BTC did not have any potential due diligence issues (p 18). 44I do not consider that admission into evidence at first instance of the transcript of these exchanges would have changed the outcome of the proceedings. On the contrary, the extracts are in my view consistent with, and to some extent supportive of, his Honour's findings. First, they do not indicate that Mr Keane had any knowledge before late April 2010 that Mr Ramsay and Mr Pollers were involved in a plan for a new company, not involving BTC as a major shareholder, to obtain BTC's business. The plan that Mr Ramsay discussed with Mr Keane was conformable with BTC's interests in that it involved BTC (and not just some, or even all, of its shareholders) holding those shares in the new company that were not required to be issued to the investor who was to provide funding. 45Secondly, the extracts confirm that Mr Keane would have been willing to support the establishment of a new company on this basis. This accords with the primary judge's finding that Mr Ramsay's explanation for the failure to raise capital for BTC (Mr Keane's refusal to agree to establish a new company) was not plausible (Judgment [73] and [80] quoted in [28] to [29] above). 46Thirdly, the fact that Mr Keane was considering other job opportunities did not indicate that he was not interested in pursuing BTC's business. On the contrary, the implication from the extracts is that Mr Keane was still interested in BTC obtaining funding but was, understandably, becoming increasingly pessimistic about that occurring.

The second conversation 47The second transcript sought to be tendered was of a conversation between Mr Keane and a Mr Jon Peters. The conversation occurred in early 2010. Precisely when is not clear. 48In the part of the transcript to which the Court's attention was directed, Mr Keane is recorded as saying to Mr Peters that Mr Ramsay believes that he has an investor prepared to fund BTC to the extent of $1 million. The appellants say that the conversation is important because, in response, Mr Keane expressed doubts as to whether the investment was "real". 49However, admission into evidence of this transcript would not advance the appellants' case. The transcript is consistent with the primary judge's finding that Mr Keane was anxious for BTC to obtain funding. That he might have expressed some scepticism about whether a particular funding proposal advanced by Mr Ramsay might come to fruition does not in any way derogate from that.

Conclusion on application to adduce further evidence 50The appellants accepted that recordings of the two conversations were available to them at the time of the hearing at first instance. As a result, s 75A(8) of the Supreme Court Act 1970 (NSW) applies to prohibit this Court receiving the further evidence tendered on appeal "except on special grounds". Akins v National Australia Bank (1994) 34 NSWLR 155 and cases which have followed it, such as Tjiong v Tjiong [2012] NSWCA 201 at [166], establish that, in general, the following three conditions need be met to satisfy this requirement: "(1) It must be shown that the evidence could not have been obtained with reasonable diligence for use at the trial; (2) The evidence must be such that there must be a high degree of probability that there would be a different verdict; (3) The evidence must be credible" (Akins at 160). 51There is an issue in the present case of whether the appellants ought be excused from compliance with the first requirement because they were unrepresented at the hearing at first instance. The various factors bearing on this question need not be addressed as in my view the second condition has plainly not been met. Far from the further evidence being such that, if admitted at first instance, it would, or even might, have led to a different result, for the reasons I have given above the further evidence would not in my view have assisted the appellants' case at all. The application to admit it on appeal should accordingly be rejected.

MR RAMSAY'S BREACHES OF FIDUCIARY DUTY 52The appellants indicated on appeal that they would only be able to mount a challenge to the primary judge's finding that Mr Ramsay breached his fiduciary duties to BTC if their application to adduce further evidence was allowed and they could therefore rely on that evidence in their submissions. As that application has in fact been unsuccessful, there is no challenge to the primary judge's finding of breach of duty.

MR POLLERS' LIABILITY 53Mr Pollers challenged the finding against him upon the basis that "there was no pleading of a dishonest and fraudulent design ... , there were no particulars of such an allegation, there was no pleading at all of dishonesty in relation to Pollers and it appears not to have been put to Ramsay or Pollers that they were engaged in a dishonest and fraudulent design" (Appellants' Amended Written Submissions, [48]). I deal with these complaints in turn. 54First, I do not agree that the claim against Mr Pollers was not adequately pleaded. Paragraph 57 of the Statement of Claim alleged, under the heading "Accessorial liability of Pollers", that the breaches of duty earlier pleaded (in [24]-[44]) against Mr Ramsay constituted "a dishonest and fraudulent design". Thus, contrary to the appellants' submission, a design of the relevant character was pleaded. Detailed allegations about the design were contained in the earlier paragraphs to which reference was made, and particulars were included in the paragraphs. If the appellants needed further particulars, they should have sought them. It was not suggested to this Court that they were sought. 55The appellants next complained that "there was no pleading at all of dishonesty in relation to Pollers" but it was not necessary for BTC to make that allegation. What it had to, and did, plead was that Mr Ramsay's breaches constituted "a dishonest and fraudulent design" and that Mr Pollers had knowledge of those breaches and assisted in them. Knowing assistance by Mr Pollers in Mr Ramsay's dishonest breaches gave rise to liability without the necessity to plead or prove a separate allegation of dishonesty on the part of Mr Pollers. As indicated by the High Court in Farah Constructions v Say-Dee at [173], "a person may have acted dishonestly, judged by the standards of ordinary, decent people, without appreciating that the act in question was dishonest by those standards". In their Honours' view, it would have been sufficient to establish liability of the third parties in that case to show that they had "consciousness of those elements of the transaction which [made] participation transgress ordinary standards of honest behaviour" (at [165]). 56It was not suggested that the factual matters constituting Mr Ramsay's breaches and Mr Pollers' knowledge and assistance were not adequately put to them in cross-examination. It was not necessary for BTC to go further and put to Mr Ramsay or Mr Pollers in cross-examination that they were engaged in a dishonest and fraudulent design. BTC's assertion that the factual matters relied upon constituted "a dishonest and fraudulent design" appeared plainly in the Statement of Claim and it was unnecessary, and probably not appropriate in any event, for Mr Ramsay and Mr Pollers to be asked to agree that that was the appropriate legal characterisation of the matters alleged against them. 57There cannot justifiably be, and does not appear to have been, any complaint by the appellants about the manner in which the primary judge interpreted the words "dishonest and fraudulent". His Honour found that they would be satisfied if the conduct could as a matter of ordinary language be described as morally reprehensible, as was so in the case before him. His Honour found it unnecessary to consider whether a lower threshold was appropriate (see for example Westpac Banking Corporation v Bell Group Ltd (in liq) (No 3) [2012] WASCA 157; 44 WAR 1 at [2112] and following) and it is unnecessary to do so on appeal.

CAUSATION 58The appellants' written submissions dealt at length with the question of whether the Brickenden test (see [33] above) applied to the present case. It is however unnecessary to consider whether it did because, as already noted (see [35] above), the primary judge dealt with the question of causation on two bases - that the Brickenden test applied and that it did not apply. His Honour found causation was established on both bases (see [35] above). 59As to his Honour's finding on the latter basis, the appellants submitted that "the funding failed not because of Mr Ramsay but because of misgivings about the technology" and that the primary judge failed to consider the impact of the following other relevant factors (Appellants' Amended Written Submissions, [19], [41] and [42]): "a. Certain investors preferred to see an investment into a Newco; b. Ramsay had discussed investment into a Newco with Keane in December 2009 or January 2010 and Keane said that it was not necessary; c. A Newco had the advantage that there would be minimal due diligence, thereby reducing the time to complete and accelerating the release of funds; d. Timing was important because for investors like Cadence Capital investing with public money, completion for Cadence was predicated on BTC being listed quickly; e. Karl Siegling of Cadence Capital had misgivings about the technology because the app was not working to his satisfaction on the Blackberry platform and decided not to invest; f. The investment of $1.2m was conditioned on each of Cadence Capital, Clodene and Station Capital investing equally, the withdrawal of Cadence compromised the entire investment and resulted in Ramsay proposing a reduced investment in BTC of $500,000; g. Concerns about BTC's (lack of) ownership of the Intellectual Property concerning its products; h. Lack of appetite in the markets; i. Concern by some investors about the extent of Mr Keane's majority shareholding". 60The primary judge was not however considering whether, on the balance of probabilities, the cause of BTC's failure to obtain funding was Mr Ramsay's conflict of interest. 61Rather, the primary judge considered not the probabilities of the funding being obtained but whether BTC lost an opportunity of some value to obtain that funding. 62Further, his Honour was not required to consider whether Mr Ramsay's breaches were the cause of loss to BTC but whether they were a cause. This is the general law test (see for example Fitzgerald v Penn [1954] HCA 74; 91 CLR 268 at 275-6; March v E & M H Stramare Pty Ltd [1991] HCA 12; 171 CLR 506 at 522; Chappel v Hart [1998] HCA 55; 195 CLR 232 at [24]; Kenny & Good Pty Ltd v MGICA (1992) Ltd [1999] HCA 25; 199 CLR 413 at [118]; I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd [2002] HCA 41; 210 CLR 109 at [56] - [57]; see also Howard v Commissioner of Taxation [2014] HCA 21; 88 ALJR 667 at [63]-[64]). 63His Honour concluded that the evidence before him established the required causal link (see Judgment [98] to [100] referred to in [34] and [35] above). Bearing in mind that he was required to approach the issue on the bases I have just mentioned, this conclusion appears to me to reflect commonsense. There may have been many other factors which would ultimately have thwarted BTC's funding hopes but there were clearly a number of potential investors who were interested in BTC's business and seriously considering investing in it. Little store can be put on Mr Ramsay's assertions that some or all of the investors had a preference for investing in a new company when Mr Ramsay was obliged to act loyally on behalf of BTC to obtain funding for it but was in fact motivated by his personal interests. The primary judge was right to regard Mr Ramsay's capacity as a wrongdoer as justifying inferences being readily drawn in favour of BTC when considering whether Mr Ramsay's conduct had caused BTC loss (see Judgment [100] quoted in [35] above) as Mr Ramsay's breaches were such that BTC would never have been able to prove precisely what impact his disloyal motivation had on his negotiations with the proposed investors. 64Furthermore, Mr Ramsay's evidence that BTC did not obtain funding because potential investors wanted a new company did not support his argument that there was no causal connection between his breaches of fiduciary duty and the failure of BTC to obtain funding. If, as appears may have been the case, the potential investors were concerned to avoid due diligence issues that might have arisen from investment in BTC, there was no reason why BTC itself could not have established a new company as a subsidiary in which investors obtain shares in return for funding. Moreover, as his Honour held (see [29] above), Mr Keane would have supported BTC establishing such a new company if it had been necessary to do so in order to obtain funding. 65Clearly the time and energy expended by Mr Ramsay and others in the first four months of 2010 is indicative of their view as experienced businesspeople that BTC had a worthwhile business which had significant chances of obtaining funding, at least through a new company. That is not to say that other considerations, including some of those listed in [59] above, may not have thwarted BTC's attempt to obtain funding. His Honour's appreciation of this is reflected in his reference to the difficulty of raising capital because of the risks associated with the venture (Judgment [101] quoted in [37] above) and his adoption of a percentage of 25 as the chance of raising $1.2 million. 66I reject the appellants' submission that BTC's commencement of the present proceedings in May 2010 (see [12] above) constituted a novus actus interveniens breaking the chain of causation between Mr Ramsay's breaches (and Mr Pollers' knowing assistance in them) and BTC's loss. Even if the concept of novus actus interveniens were relevant in this context (compare Maguire v Makaronis [1997] HCA 23; 188 CLR 449 at 470), the court proceedings were commenced as a consequence of those breaches of duty and did not therefore constitute an extraneous event that might have broken the chain of causation. The fact, as the primary judge indicated in Judgment [61], that BTC subsequently sought interlocutory relief requiring Mr Pollers to restore a code that he had removed from BTC did not deprive the proceedings of their connection to the breaches for which damages and equitable compensation were sought. This is so even if the removal of the code was unrelated to those breaches. 67For these reasons, I do not consider that his Honour erred on the question of causation.

COMPENSATION 68As already noted, the primary judge 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" (see [37] above). 69After this Court raised the issue, the appellants submitted that the primary judge erred in treating BTC's loss of an opportunity to obtain funding as, of itself, a substantial financial loss. I accept this submission as I consider that the raising of funds would only have been of benefit to BTC if it could have done something useful with them. Otherwise, whilst the company would have received money, it would have incurred a liability to the investor to repay an equivalent amount, either as a debt due to a creditor or as share capital ultimately to be returned to a shareholder. If the evidence established that funding would, or might, have enabled BTC to earn profits, the absence of that funding might fairly be regarded as causally related to a financial loss. Otherwise, it could not be so regarded. 70Authority confirms the correctness of this view. In Adelaide Petroleum NL v Poseidon Ltd (1990) 98 ALR 431 at 530-2, French J (as his Honour then was) took the view that a company's failure to obtain funding by way of a share placement could not of itself be loss suffered by the company and that any recoverable loss in this context would have to be represented by the profit not able to be earned by use of the expected funding. This approach was upheld on appeal to the Full Federal Court (Poseidon Ltd v Adelaide Petroleum NL [1991] FCA 663; 105 ALR 25 at 42 and 51) and was applied by McDougall J in OzEcom v Hudson Investment Group [2007] NSWSC 719 at [279]-[298]. It was not addressed on the further appeal to the High Court in Adelaide Petroleum (Sellars v Adelaide Petroleum NL [1994] HCA 4; 179 CLR 332). 71I reject the respondent's submission that these authorities should be distinguished because they were concerned with the assessment of common law or statutory damages, and not equitable compensation. The decisions concerned the same question as arises when assessing equitable compensation: namely, whether loss has flowed from identified breaches of duty (Nicholls v Michael Wilson & Partners Ltd [2012] NSWCA 383). In this respect it does not matter whether the breaches were of common law, statutory or equitable duties. 72In my view the primary judge should therefore have considered, not only BTC's prospects of obtaining funding, but also whether, if obtained, that funding would have been put to profitable use. His Honour's approach was thus erroneous, the result being that this Court should reassess BTC's claim for equitable compensation. 73BTC objected to the appellants relying upon this point on appeal but I consider that they should be allowed to do so as the Court's grant of leave to the parties to lodge further written submissions has given BTC an adequate opportunity to address it. 74Further, I reject the appellants' submission that assessment of compensation in the correct manner would fall outside BTC's pleadings at first instance. Paragraph 62 of BTC's Statement of Claim alleged that BTC suffered damage as a consequence of the appellants' breaches, including breaches of fiduciary duty, that it had earlier pleaded. Subsequent paragraphs making more particular allegations concerning damages did not purport to, or in fact, limit the generality of paragraph 62. 75Paragraph 62 and the subsequent paragraphs of the Statement of Claim appeared under the heading "Damages" and the appellants pointed out in submissions that in its Summons BTC had clearly distinguished between "Damages" and "Equitable compensation". However the context in which the heading "Damages" appeared made it clear that that word was there used in a loose manner to cover equitable compensation as well as common law and statutory damages because many of the breaches referred to under it were breaches of fiduciary, and thus equitable, duties. 76The appellants complained also that BTC had not filed a Notice of Contention seeking re-assessment of BTC's loss on a loss of profits basis. However the opportunity offered to the parties to lodge written submissions on the issue has overcome any prejudice that may otherwise have been suffered. 77I turn then to reassessment of BTC's claim for equitable compensation. 78The appellants contended that the Court should reject BTC's claim for equitable compensation because any attempt to value the alleged loss of opportunity would be too speculative. They rightly pointed to the considerable uncertainty of outcome which attends investment in a business such as that of BTC. It was a start-up company in the information technology field, its principal intended product was new to the market and it needed to raise capital to pursue its business. 79The appellants also submitted that this was a case in which BTC was able to, but did not, adduce evidence of its loss. They relied upon the observation of Hayne J in Placer (Granny Smith) Pty Ltd v Thiess Contractors Pty Ltd [2003] HCA 10; 77 ALJR 768 at [38] to the effect that in such a case a court should be less inclined to engage in estimation, if not guesswork, in assessing damages than in cases where it is impossible for a plaintiff to adduce precise evidence of its loss (see also at [6] per Gleeson CJ, McHugh and Kirby JJ). 80However, the present was a case of the latter kind. The anticipated profits were to be earned in the future by exploitation of new technology. It is difficult to see what more BTC could have done to prove its loss than, as it did, to lead evidence that suggested that a significant number of people in the industry, or considering entering the industry, (who can be assumed to include people with considerable relevant business and technological experience) took the view that BTC's business had a worthwhile prospect of success (see [11] and [65] above). Their time and energy would not have been devoted to it if they had not thought this. 81Unsurprisingly, the documents they produced therefore contemplated the earning of substantial profits. For example, a 2009 BTC document described by Mr Keane in evidence as a "presentation" projected earnings before interest, tax and depreciation ("EBITDA") as $1,847,816 in 2011 and $5,394,385 in 2012, after a loss of $46,808 in 2010. The proposed Newco's projected EBIT for 2011 of $574,707 was considerably lower but that projection appears to have been made in 2010 after delays had been experienced and is probably more aptly compared to BTC's projection for 2010 than that for 2011. The profit-making aspirations of those involved were clearly not limited to the 2011 and 2012 financial years, as their documents referred to future valuations for the business of $7.5 million and $10 million and elsewhere of a minimum of $20 million. 82In the therefore readily explicable absence of evidence precisely proving BTC's loss, the Court must do its best to assess the probabilities, or indeed possibilities, involved (see McCrohon v Harith [2010] NSWCA 67; Aust Torts Reports 82-056 at [118]-[127] per McColl JA and the authorities to which her Honour referred). As is apparent from State of New South Wales v Moss [2000] NSWCA 133; 54 NSWLR 536 at [71] per Heydon JA, performance of this task may involve a degree of speculation by the Court. 83Although in my view the primary judge erred in the approach that he took, I consider the figure of $300,000 at which he arrived to be a fair assessment of BTC's loss. The task of assessment in the present case is undoubtedly a highly subjective one. To my mind it is of particular significance that Mr Ramsay and others, who appeared to have considerable relevant expertise, pursued the relevant business opportunity with considerable vigour over a lengthy period of time and that Mr Ramsay, with the assistance of Mr Pollers and others, was prepared to go to the lengths of acting in the underhand manner that he did in order to preserve and pursue it. 84I have arrived at the figure of $300,000 after attaching significance to this factor and taking into account the very significant business contingencies to which the prospect of deriving the anticipated profits was subject. I cannot, with respect, accept Gleeson JA's view that 10% of $650,000 represents a fair assessment of the value of the business opportunity (see [139] below). The parties involved were contemplating far greater returns than $650,000 in profits and I do not consider that they would have committed the time and effort that they did if they had not assessed the business's prospects of success at more than 10%. There is no better evidence available than can be gleaned from their approach. 85In these circumstances it is unnecessary to deal with the alternative basis of wasted expenditure upon which BTC put its claim for equitable compensation as BTC relied on that basis of calculation to support, but not to have increased, the award made by the primary judge. 86Finally, BTC would not be assisted by having its claim assessed as one for compensation under s 1417H of the Corporations Act, as the same issues of proof of its loss would arise as in the case of its claim for equitable compensation.

THE CROSS-CLAIMS 87There are two aspects of the cross-claims that need to be addressed on appeal. The first is the claims made in them by the appellants concerning the June 2010 rights issue (see [39] above). The second concerns the claims in the cross-claims not dealt with by the primary judge (see [41] above).

The rights issue 88As reflected in the primary judge's conclusion on this topic (see [40] above), the essence of the appellants' complaint was that the rights issue was oppressive to them because it was made in the face of their unwillingness to subscribe to it (the rights issue being at least in part for the purpose of BTC prosecuting the present litigation against them), with the result that their interests in BTC were diluted. 89Knowledge that some shareholders cannot, or will not, subscribe to a rights issue cannot be enough in itself to render the rights issue oppressive, although it may be a relevant factor in that respect (see Re Dalkeith Investments Pty Ltd (1984) 9 ACLR 247 at 252). The appellants provided no adequate reason why this rights issue should have been regarded by the Court as oppressive. They simply submitted that evidence "about the transfer of BTC assets to America" should have been taken into account "in considering whether the rights issue[] was made for a proper purpose" (Appellants' Submissions in Reply, [54]). Assuming there was evidence of such a transfer, this would not of itself have rendered the rights issue oppressive. 90The appellants' cross-claims alleged repeatedly that BTC's purpose, or at least one of its purposes, in making the rights issue was to dilute the appellants' percentage shareholdings. However, on appeal the Court was not referred to any evidence that would suggest that this was a purpose, rather than simply an effect, of the rights issue. 91The appellants' challenge to the primary judge's decision concerning the rights issue accordingly fails.

The other contentions in the cross-claims 92As noted above, the primary judge did not deal with other aspects of the appellants' cross-claims. Presumably, he took this course because only the rights issue claim was expressly referred to in address. However, this did not in my view warrant the inference that the other aspects of the cross-claims were not pressed, particularly bearing in mind that the appellants were not represented at the hearing at first instance and that, as indicated below, they made general references to their cross-claims in their oral addresses. 93At the conclusion of his address, Mr Ramsay said: "Your Honour with respect to the cross-claim I don't think that has been addressed but the second defendant [Mr Ramsay] relies on the facts provided in the affidavit associated with that claim" (Transcript p 293). 94In the appellants' written submissions at trial, reference was made to various of Mr Ramsay's claims contained in his cross-claim, in addition to reference to the rights issue claim. The submissions then said that "[t]his claim remains in force" ([29]), without making it clear which claim was referred to. Arguably, it was a reference to the cross-claim generally. 95Furthermore, Mr Pollers said towards the end of his oral address that "[m]ost of the other stuff I think is pretty much covered but [sic] in our cross-claims shortly after the start of the proceedings, myself and Mr Ramsay ..." (Transcript p 295). Mr Pollers went on to deal with the rights issue claim. Arguably he was referring to the remainder of the allegations in his cross-claim as "the other stuff". 96Although I consider that in these circumstances the primary judge erred in not dealing with the balance of the cross-claims, I do not consider that the remaining claims should be remitted for determination at first instance: in my view, those claims would inevitably fail. Consistently with r 51.53 of the Uniform Civil Procedure Rules 2005 (NSW), no remitter should occur because no "substantial wrong or miscarriage" has been occasioned by the error. 97My reasons for concluding that these claims would be bound to fail on remission are as follows. 98Mr Ramsay's first additional claim was founded on an allegation that he lent two computer servers to BTC. BTC admitted that the servers had been delivered to its premises but there was no admission or evidence that, as alleged by Mr Ramsay, the servers were lent by him to BTC. The basis on which the delivery to BTC occurred was not addressed in his evidence, or elsewhere. (I add that I have, in Mr Ramsay's favour, proceeded upon the basis that the documents attached to his cross-claim were part of the evidentiary material before the Court. Although that was not strictly so, it is clear that Mr Ramsay, with some justification, proceeded upon the assumption that those documents were in evidence (see Transcript pp 54 and 293)). 99His second claim was for outstanding salary or director's fees, but there was no evidence before the Court of the oral agreement alleged by Mr Ramsay in his cross-claim to found his entitlement to the amount claimed. 100His third claim was for reimbursement of expenses totalling $3,000. BTC admitted that that amount had not been paid by it to Mr Ramsay but there was no evidence before the Court, or admission, that the expenses were incurred or that there was an arrangement entitling Mr Ramsay to recoup them. 101The only additional claim in Mr Pollers' cross-claim that was pressed on appeal was founded on an alleged oral representation made to him by Mr Keane "[o]n about 6 February 2010" that BTC was solvent and would be able to pay Mr Pollers' salary "on an ongoing basis". As there was no evidence of that representation, the claim must fail. I add that the claim appeared in Mr Pollers' cross-claim in part under the heading "Copyright of the 'BigTinCan Connect Version 2' Software" but what appeared under that heading did not assert that there had been a breach of copyright.

CONCLUSION AND ORDERS 102For the reasons that I have given, the appeal should be dismissed with costs. 103GLEESON JA: I have had the advantage of reading in draft the judgment to be delivered by Macfarlan JA. 104In relation to the appeal by Mr Ramsay and Mr Pollers against the judgment against them, I agree with the reasons of Macfarlan JA, except [83]-[84] on the reassessment of the respondent's (BTC) claim for equitable compensation for the lost opportunity to obtain funding for its businesses. 105I also agree with his Honour's reasons at [87]-[101] that Mr Ramsay's and Mr Pollers' appeal against the dismissal of their cross-claims should be dismissed.

Introduction and summary of conclusions 106BTC was engaged in a start-up business in the telecommunications field. It focused on developing and selling mobile phone applications (apps) to provide international call and messaging services, as well as web and app conference calling, at a cheaper price than conventional telecommunication suppliers. BTC was also involved in developing location based services for advertisers which would enable them to deliver content and promotions directly to consumers' mobile phones (Blue 1/219-224). 107The purpose of the funding which BTC was seeking to raise in early 2010 was to pursue product development and marketing of its smart phone applications and related services (Buzz Me) and its telecommunications business (BigTinCan Connect). BTC anticipated that this funding would enable these businesses to reach a break-even trading position by the end of 2010 and thus prepare the company for a further capital raising by way of an initial public offering (IPO) in 2011. If this last step was successful, BTC was projecting significant earnings before interest and taxes (EBIT) from its businesses in the financial years ending 30 June 2011 ($1.8 million) and 2012 ($5.4 million) (FY 2011 and FY 2012). BTC claimed on appeal that it had lost the opportunity to obtain a financial benefit in the form of projected future profits from its businesses. 108The difference in view between Macfarlan JA and my own is that, although finding error in the primary judge's approach to valuing the lost opportunity, on the reassessment of compensation Macfarlan JA would not disturb the primary judge's award of equitable compensation of $300,000. For the reasons which follow, I would reassess equitable compensation in a lesser amount of $65,000. This amount reflects my estimation on the available indications of the "value" of BTC's lost opportunity claim. An allowance for interest should be added to this amount. The statutory prejudgment interest totals $11,048.93: see [141] below. 109On the view I favour the appellants have enjoyed some success on the appeal in reducing the amount of equitable compensation that they are liable to pay by a little over three quarters. An order reflecting that limited success, viewed in light of the appellants' failure on all other grounds of appeal, is that the respondent pay 30% of the appellants' costs of the appeal. 110It follows that the orders which I would propose for the disposition of the appeal are as follows: (2)Appeal allowed in part. (3)Set aside order 1 made by Ball J on 4 September 2013. (4)In lieu thereof, judgment for the plaintiff against the second and third defendants for the sum of $76,048.93. (5)The judgment in order 3 is to take effect from 4 September 2013. (6)Respondent to pay 30% of the appellants' costs of the proceedings in this Court.

Compensation 111BTC is entitled to compensation for Mr Ramsay's and Mr Pollers' breach of duty. BTC put its case in two ways. One involved treating BTC's loss of an opportunity to obtain funding as, in and of itself, a compensable loss. As explained by Macfarlan JA at [69]-[71] the primary judge erred in accepting this submission. The other and alternative basis was a claim of wasted expenditure of $418,781.04 in respect of two parts of BTC's business. Nonetheless BTC did not contend on appeal for a higher award of compensation than that ordered by the primary judge. In view of the conclusion reached by Macfarlan JA on the lost opportunity claim, his Honour did not find it necessary to deal with this alternative claim: at [85]. 112Having regard to the view I have reached in relation to BTC's lost opportunity claim, it is necessary that I deal with the wasted expenditure claim. It is convenient to turn to this claim first.

(a) Wasted expenditure claim 113BTC's wasted expenditure claim of $418,781.04 represented the combined loss for the period 1 July 2008 to 30 June 2010 in relation to two segments of BTC's business - Buzz Me (and related applications) and BigTinCan Connect (Blue 918L-Q and 920H-T). 114The wasted expenditure claim may be put aside for the reason given by the primary judge at [89] - there is simply no direct connection between Mr Ramsay's breach of duty and that loss. Although his Honour did not elaborate on this conclusion it is amply supported by the following matters. 115First, on the findings of the primary judge there was no evidence of Mr Ramsay's breach of duty prior to the period from late March to the end of April 2010: at [71]. Accordingly, the net losses incurred by BTC in respect of its Buzz Me and BigTinCan Connect businesses prior to the date of Mr Ramsay's breach of duty had no causal connection with that breach. 116Secondly, BTC's evidence at trial did not attempt to attribute what amount, if any, of the losses which were incurred in FY 2011 related to the period April to June 2010 (and therefore would have coincided with the earliest date of Mr Ramsay's breach of duty). 117Thirdly, BTC did not put its case of wasted expenditure on the basis that, had it known of Mr Ramsay's breach of duty in late March 2009, it would not have continued to pursue the development and marketing of the Buzz Me and BigTinCan Connect segments of its business so as to avoid further losses being incurred. Moreover there was no evidence that this step, even if taken, would have avoided or reduced any losses which BTC had in fact incurred in these segments of its business in the period April to June 2010. 118Accordingly, BTC's claim for wasted expenditure was not made out on the evidence.

(b) Lost opportunity claim 119As regards BTC's lost opportunity claim, the starting point is to recall the fundamental error in BTC's argument. This is the notion that a company's failure to obtain funding is, of itself, "loss suffered by the company". The reasons and authorities referred to by Macfarlan JA at [69]-[70] demonstrate why this is not so. BTC would only have lost something of "value" if the funding it was seeking to obtain from investors would, or might, have enabled BTC to obtain a financial benefit (relevantly, in this case, the projected future profits in FY 2011 and FY 2012). The purpose of compensation is only to make good a loss that was in fact suffered by BTC and which, using hindsight and common sense, can be seen to have been caused by the breach: O'Halloran v R T Thomas & Family Pty Ltd (1998) 45 NSWLR 262 at 273 (Spigelman CJ; Priestley and Meagher JJA agreeing) citing Target Holdings Ltd v Redferns (A Firm) [1996] 1 AC 421 at 439 (Lord Browne-Wilkinson). See also AMP Services Ltd v Manning [2006] FCA 256 at [64]-[69] (Finkelstein J). 120The principles to be applied in the assessment of equitable compensation were reviewed by this Court in Nicholls v Michael Wilson & Partners Ltd (Michael Wilson & Partners) [2012] NSWCA 383 at [171], [174] (Sackville AJA; Meagher JA and Barrett JA agreeing). It is unnecessary to repeat what was there stated. It is sufficient to note two matters which are of significance in the present case. 121First, it is to be recognised that the task of the Court in the present case involves "judicial estimation on the available indications": Warman International Ltd v Dwyer [1995] HCA 18; 182 CLR 544 at 567, a case involving the assessment of an amount to which a plaintiff was entitled against an errant fiduciary on an account of profits. 122Secondly, BTC is entitled to invoke the principle that where a party's actions have made an accurate determination of damage or loss problematic, doubtful questions should be resolved against that party and the Court should assess damages or compensation in a robust manner: Michael Wilson & Partners at [287]; Houghton v Immer (No 155) Pty Ltd (1997) 44 NSWLR 46 at 59 (Handley JA; Mason P and Beazley JA agreeing). Nonetheless, as Sackville AJA observed in Michael Wilson & Partners at [287], this principle is not a licence for the Court to choose an arbitrary figure and certainly not a licence to award an amount of compensation which is designed to punish the appellants for their misconduct. 123In assessing equitable compensation the Court may make a determination on the basis of loss of opportunity: AMP Services Ltd v Manning [2006] FCA 256 at [69] (Finkelstein J); Spotless Group Ltd v Blanco Catering Pty Ltd [2011] FCA 979; 212 IR 396 at [125] (Mansfield J). For the reasons given by Macfarlan JA, it should be accepted that BTC lost the opportunity to obtain a financial benefit in the form of projected future profits and that this opportunity had "some" commercial value: Daniels v Anderson (1995) 37 NSWLR 438 at 530-531 and 539. The critical issue is the quantification of the "value" of that lost opportunity. 124Here Mr Ramsay's breach of duty was a cause of BTC failing to obtain the pre-IPO funding in mid 2010. However this funding was but a necessary step to preparing BTC for a further capital raising by way of an IPO in late 2010. On the evidence, there was no possibility of BTC raising any capital in respect of its businesses as they existed at the time, once it became embroiled in the litigation against Mr Ramsay and others in May 2010. Thus the possibility of an IPO and the projected future profits were also lost. 125BTC's loss is not to be equated necessarily with the value of the financial benefit it hoped to obtain, but may be discounted, taking into account the degree of possibilities or probabilities of achieving the projected future profits if it had been successful in raising funds in or about the middle of 2010: Sellars v Adelaide Petroleum NL [1994] HCA 4; 179 CLR 332 at 355. 126The prospects of BTC achieving those projected future profits would have depended upon a number of contingencies, the most important of which are: (1)the attitude of the secured creditor of BTC and whether it would have been prepared not to call up its loan, as it did on 22 April 2010, assuming no breach of duty by Mr Ramsay; (2)whether BTC could have solicited sufficient interest from other investors in late March and April 2010, having regard to the change of attitude of two of the investors (Cadence Capital and Station Capital) who had previously committed to the capital raising proposal earlier in 2010 but had since withdrawn for reasons apparently unrelated to Mr Ramsay's breach of duty. In particular whether it is likely that there would be sufficient investors at the pre-IPO stage with a risk appetite for the potential returns which might be achievable for initial investors in the event of a subsequent successful IPO; (3)the risks inherent in (a) successfully developing and marketing new technology in the highly competitive telecommunications market and (b) achieving sufficient growth in the number of subscribers to make BTC's businesses financially viable to prepare them for a further capital raising by way of an IPO; (4)whether the contemplated IPO was likely to be successful in raising further capital of $2 million required for BTC's businesses; and (5)whether BTC would likely achieve the growth in the number of subscribers to its products in FY 2011 and FY 2012 consistent with the assumptions underlying BTC's profit projections in early 2010. 127Although both capital raising proposals were related, the contingencies affecting each phase were, at least to some extent, independent of each other. Accordingly the prospects of BTC achieving its financial projections in FY 2011 and FY 2012 depended to some degree upon the separate prospects of BTC successfully executing each phase of these proposals. 128The contingencies to be taken into account in the assessment of the value of BTC's lost opportunity are various and do not readily lend themselves to the assignment of probabilities, particularly as BTC was essentially a company with start-up businesses. Furthermore the evidence concerning the likelihood of successfully raising capital was necessarily limited and largely a matter of inference. Nor was the reasonableness of the assumptions underlying BTC's future profit projections a matter explored in the evidence or debated at trial. For these reasons the discounting exercise associated with assessment of the lost opportunity is fundamentally of a qualitative nature: Adelaide Petroleum NL v Poseidon (1990) 98 ALR 431 at 532 (French J). 129There is a further consideration which must be taken into account in relation to the pre-IPO capital raising. The primary judge proceeded upon the basis that, at the time of Mr Ramsay's breach, BTC's proposal was to raise up to $1.2 million (at [101]) and that any capital raising would have been complete by 30 June 2010: at [106]. His Honour did not find it necessary to consider the prospects of the IPO capital raising. However, by April 2010 BTC's capital raising proposal had evolved. What was then in contemplation was that the pre-IPO capital raising would proceed in two tranches (at Blue 53, 218-232, especially at 230):

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. Decision last updated: 16 September 2014