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.