Company - Directors' powers - Share issue - Bona fides - Whether honestly acting in the discharge of their powers in the interests of the company - Incidental effect - Whether proper purpose.

Commonwealth Bank v Smith [1991] FCA 375; (1991) 102 ALR 453

Gardner & Ors v Marsh & Parsons (A firm) (1997) 3 All ER 871

Harlowe's Nominees Pty Ltd v Woodside (Laker Entrance) Oil Co NL [1968] HCA 37; (1968) 121 CLR 483

Howard Smith Ltd v Ampol Petroleum Ltd [1974] AC 821

Ngurli Ltd v McCann [1953] HCA 39; (1953) 90 CLR 425

Whitehouse & Anor v Carlton Hotel Pty Ltd [1987] HCA 11; (1987) 162 CLR 285

This is an appeal from a judgment of Steytler J dated 14 August 1997 whereby the learned Judge awarded the second respondent damages for negligent misstatement in the sum of $185,000 plus interest and that a counterclaim by the appellants against the respondents be dismissed.

While there were nine grounds of appeal, counsel for the appellants informed the Court in opening that there were only two principal issues on which the appellants wished to press argument before the Court. The first related to the amount of damages awarded to the second respondent ("Leamak") in consequence of the negligent misrepresentations made to it by Mr Tay. The essential contention was that the learned trial Judge should have held that Leamak had avoided its loss by developing the land in question as a strata titled shopping centre, selling part of it and retaining the balance, thereby realising a profit. The learned Judge held that the financial consequences of this activity was conduct collateral to or disconnected from the purchase of the land and in a context where the original development plan, which was part of the subject matter of the misrepresentations relied upon, had been frustrated and a different development undertaken.

The second issue concerned the validity of an allotment of 5,000 shares in Leamak to the first respondent, Dr Koh.

So far as the first issue is concerned, I am in agreement with the reasons to be published by Ipp and Walsh JJ. There is no doubt that the learned trial Judge was correct in assessing the damages on the basis of the difference between the price paid for the land on the faith of the representation and the true value of the land at the date of acquisition: Kizbeau Pty Ltd v WG & B Pty Ltd [1995] HCA 4; (1995) 184 CLR 281 at 291 per Brennan, Deane, Dawson, Gaudron and McHugh JJ. The appellants' case that Leamak not only avoided loss but in fact made a profit on the subsequent alternative development of the land was a case which the appellants were required to plead and prove: McGregor On Damages (16th Ed para 388); and Monroe Schneider Associates (Inc) v No 1 Raberem Pty Ltd [1991] FCA 592; (1991) 33 FCR 1 at 10 per Beaumont J and at 17 per Burchett J (with whom O'Loghlin J at 29 agreed). The question in each case is whether the subsequent conduct was carried out with the object of avoiding loss and formed part of a continuous dealing with the situation in which those who had suffered damage found themselves as distinct from an independent or disconnected transaction: Westinghouse Electric and Manufacturing Co Ltd v Underground Electric Railways Co of London Ltd [1912] AC 673 at 691-692 per Viscount Haldane LC.

In Hussey v Eels [1990] 2 QB 227, it was held that the purchase of a defective property having been induced by negligent misrepresentation, a subsequent profit made on resale of the property was not to be taken into account when assessing damages for the negligent misrepresentation, if the resale was not part of a continuous transaction commencing with the original purchase of the property, so that the negligence which caused the damage could not be said to be the cause of the profit. Mustill LJ said at 246:

"Ultimately, as with so many disputes about damages, the issue is primarily one of fact. Did the negligence which caused the damage also cause the profit, if profit there was? I do not think so. It is true that in one sense there was a causal link between the inducement of the purchase by misrepresentation and the sale two and a half years later, for the sale represented a choice of one of the options with which the plaintiff had been presented by the defendants' wrongful act but only in that sense. To my mind the reality of the situation is that the plaintiffs bought the house to live in, and did live in it for a substantial period. It was only after two years that the possibility of selling the land and moving elsewhere was explored and six months later still this possibility came to fruition. It seems to me that when the plaintiffs unlocked the development value of the land they did so for their own benefit, and not as part of a continuous transaction of which the purchase of land and bungalow was the inception."

These authorities and other cases such as Nadreph Ltd v Willmett & Co [1978] 1 WLR 1537 distinguished between a continuous dealing, on the one hand, and an independent, collateral or disconnected transaction, on the other. Benefits from the former are required to be brought into account in the assessment of damages, whereas the profit or advantage as a consequence of the latter are irrelevant and may be disregarded.

The appellants' case on the appeal required the bringing into account of the realised value of seven units sold between 1991 and 1995, together with the value of the remaining shopping centre units as at April 1997 and the expenditure on development down to 1991. The purchase price which Leamak was induced to pay by the misrepresentation was founded on a recommended purchase price, having regard to the development potential of the land and the prospects of approval of its development as markets. The price paid exceeded the true value of the land at the time. The subsequent development of the land as a shopping centre, albeit containing strata titled units for sale, was a significantly different development, financed over a much longer period than that anticipated by the representation, with the result that the value in 1997 not only reflected the capital expenditure but also fluctuations in the real property market: cf Jamal v Moola Dawood Sons & Co [1916] 1 AC 175; Prendegast v Chapman [1988] 2 NZLR 177; Campbell Mostyn v Barnett [1954] 1 Lloyd's Rep 65; and Kizbeau Pty Ltd, above, at 291.

In my opinion, the learned Judge was entitled to conclude that the profit, if any, derived from the alternative development was collateral and too remote to be taken into account in the assessment of damages on the basis of avoidance of loss.

Senior counsel for the appellants cited Smith New Court Securities Ltd v Scrimgeour Vickers (Asset Management) Ltd [1996] UKHL 3; [1997] AC 254 in which Lord Browne-Wilkinson (with whom Lords Keith and Slynn agreed) said at 266:

"In many cases, even in deceit, it will be appropriate to value the asset acquired as at the transaction date if that truly reflects the value of what the plaintiff has obtained. Thus, if the asset acquired is a readily marketable asset and there is no special feature (such as a continuing misrepresentation or the purchaser being locked into a business that he has acquired) the transaction date rule may well produce a fair result. The plaintiff has acquired the asset and what he does with it thereafter is entirely up to him, freed from any continuing adverse impact of the defendant's wrongful act. The transaction date rule has one manifest advantage, namely, that it avoids any question of causation. One of the difficulties of either valuing the asset at a later date or treating the actual receipt and realisation as being the value obtained is that difficult questions of causation are bound to arise. In the period between the transaction date and the date of valuation or resale other factors will have influenced the value or resale price of the asset. It was the desire to avoid these difficulties of causation which led to the adoption of the transaction date rule. But in cases where property has been acquired in reliance on a fraudulent representation, there are likely to be many cases where the general rule has to be departed from in order to give adequate compensation for the wrong done to the plaintiff, in particular where the fraud continues to influence the conduct of the plaintiff after the transaction is complete or where the result of the transaction induced by fraud is to lock the plaintiff into continuing to hold the asset acquired."

The situation referred to towards the end of that passage was one which was touched upon by Gibbs J in Gould v Vaggelas [1984] HCA 68; (1985) 157 CLR 215 at 220 who acknowledged that while the transaction date was usually applicable:

"Events that happened after the time of purchase may throw light on the real value of the property at that time ... Where the property has depreciated in value after the purchase, and the depreciation was due to some cause inherent in the property itself, the depreciation must be considered in determining the real value of the property at the relevant time, but where the cause of the depreciation was 'independent', 'extrinsic', 'supervening' or 'accidental', the additional loss is not the consequence of the inducement and it should not be taken into account in arriving at the value of the property at the time of the purchase."

It is apparent that the converse is also true. In my view, nothing said by Lord Browne-Wilkinson was helpful to the appellants' case. Given the disconnected, collateral and remote character of the alternate development undertaken of the land, the subsequent events could safely be disregarded in the assessment of damages and that assessment made in terms of the value of the subject land as at the transaction date. It follows that the grounds of appeal relating to the assessment of damages fail.

So far as the grounds of appeal relating to the share issue are concerned, I am of the opinion that these grounds fail for the reasons to be published by Ipp J and Walsh J, with which I am in agreement.

This is an appeal, essentially as it was argued before us, against an award of damages of $185,000 plus interest awarded by the learned trial Judge to the respondents following upon the loss by the second respondent, Leamak Holdings Pty Ltd ("Leamak") resulting from its reliance upon representations made by the appellants, Richard Ah Boey Tay ("Mr Tay") and Cotswold Holdings Pty Ltd ("Cotswold"). His Honour found that Leamak would not have brought land at Marangaroo ("the Marangaroo land") were it not for the representations of Mr Tay, being the first representations pleaded in the statement of claim. He was satisfied that in paying an amount of $1,385,000 for that land Leamak incurred a loss of $185,000. The representations were made by Mr Tay on his own behalf and by Cotswold, which operated as Mr Tay's family company, which he controlled.

The first respondent is a retired surgeon (Dr Koh) and the second respondent, Leamak, is a company which was incorporated for the purpose of the acquisition and development of the Marangaroo land.

His Honour in his reasons referred to the background to the purchase of the Marangaroo land which arose when Mr Tay visited Dr and Mrs Koh at their home in Dalkeith during 1989, and told them about the proposed development of the land. His Honour specifically found as follows:

During 1989 Mr Tay visited Dr and Mrs Koh at their home in Dalkeith. He told them that he was proposing to buy the Marangaroo land. He said that he and a Singaporean investor would, as joint venturers, develop the land as a market and that each would make a profit of in excess of $1,000,000. The profit would, he said, be quickly realised as the shops comprising the development would be "pre-leased and pre-sold".

Later than month Mr Tay again visited Dr and Mrs Koh at their home. He expressed some dissatisfaction with the Singaporean investor who was to be his joint venturer in respect of the project. He invited Dr Koh to take the place of that investor.

Dr Koh expressed some interest and, on 8 November 1989, Mr Tay took him and Mrs Koh to see the Marangaroo land. Mr Tay told them, as was the fact, that the land was adjacent to a shopping centre known as the Newpark Shopping Centre. He told them also that the land was ideal for development as a market. He said that it was to be auctioned on 28 November 1989.

On about 12 November 1989 Mr Tay showed Dr and Mrs Koh the Wanneroo Markets as an example of what might be achieved. Dr Koh said, and I accept, that, after driving Dr and Mrs Koh home, Mr Tay told Dr Koh that the development project was likely to realise a profit of in excess of $2,500,000. He said that there would be a construction period of 6 months, that the shops would be 'pre-leased or pre-sold' by the end of the construction period and that the two of them could then move on to other projects. He said that they would 'get the profit and go on'.

He told Dr Koh that he would be prepared either to go into the development with Dr Koh as an equal partner or to make the whole of the development available to Dr Koh subject to the payment by Dr Koh to Mr Tay of a management fee of 10 per cent of the profit from the venture.

Mr Tay told Dr and Mrs Koh that the total cost of the project, including the land acquisition cost, would be around $3,000,000 and that the total proceeds of sale would amount to around $6,000,000.

Mr Tay assured Dr and Mrs Koh that a market development was permitted on the land.

Dr Koh expressed interest in the venture but only upon the basis that he and Mr Tay would be equal partners. He said, and I accept, that he felt more comfortable if Mr Tay was to place some of his own money at risk.

Mr Tay thereupon offered to arrange for the incorporation of a company which would acquire the land and develop it.

On 13 November 1989 Mr Tay again visited Dr and Mrs Koh. He told them that he anticipated that the sale price of the Marangaroo land was likely to be $1,400,000 and that Dr Koh should, consequently, be prepared to pay $700,000 as his share.

Not long thereafter Mr Tay told Dr and Mrs Koh that he had incorporated the second plaintiff, Leamak, for use as the purchaser of the land and as the company which would carry out the development.

On 28 November 1989 Mr Tay and Mrs Koh attended the auction. Mr Tay bid for the property on Leamak's behalf. Leamak was the highest bidder, having bid an amount of $1,385,000. The property was passed in at that sum, a reserve price having been fixed by the vendor.

However, negotiations later took place between Mr Tay, on behalf of Leamak, and the City of Wanneroo, which owned the land, and the City agreed to sell the land to Leamak for $1,385,000.

Mr Tay told Dr Koh of the purchase on about 4 December 1989. He told him also that Cotswold had paid a deposit of $138,500 on behalf of Leamak."

In early March 1990 Mr Tay visited Dr and Mrs Koh at their home and told them that the Wanneroo City Council had rejected Leamak's proposal to build a market on the Marangaroo land as the proposal had not met the City of Wanneroo's planning requirements. He advised them that a shopping centre could be built on the land instead of the markets and presented them with a feasibility study in respect of this new development which had a conservative estimated profit of $1,236,193, the total cost of the project being $3,118,307.

The feasibility study showed that the shopping centre would be constructed, let and sold within 12 months and Mr Tay told them that Leamak would realise its profit within a short time. Whilst Dr Koh was disappointed that a market development had not been approved, a profit in excess of $1,200,000 was still acceptable to him and he agreed to the new proposal. The building contract for the construction of the shopping centre was executed on 28 May 1990.

The shopping centre was completed in February 1991 with the exception of the construction of a Kentucky Fried Chicken outlet, which was only then about to commence. By then none of the shops had been sold and only five had been let. The rental income from the five shops was insufficient to meet the monthly interest charges.

It was pointless attempting to sell any of the shops at a time when the shopping centre was still largely untenanted. His Honour found that the shopping centre was fully let for the first time in about the middle of 1995, largely as a consequence of the efforts which had been made in that regard by Mrs Koh.

"Of the 14 shops which were initially constructed on the Marangaroo land (Mr Tay having increased the number of shops initially proposed to be built from 13 to 14 in about August 1990) only five have, according to an agreed schedule which was tendered at the trial, been sold. These were respectively sold in June 1991, December 1993, July 1994 and (two shops) March 1995.

Mrs Koh decided during 1995 that Leamak would, in place of the bank (for which no tenant had been obtained), build an additional three shops. She had, towards the middle of 1995, located a person willing to come onto the site as a pharmacist. She decided that one of the three new shops would, consequently, be a pharmacy. Leamak sold this stop to the pharmacist. She then located an automobile spare parts salesman who was prepared to purchase another of the three shops and Leamak sold this shop to him. The third shop was ultimately let to a butcher.

I will, against this background, deal with each of the heads of claim which have been raised."

As to the first representations, his Honour specifically found that they were to the effect that the Wanneroo City Council would give planning permission for the development of the Marangaroo land into a market centre and that the profits from that development would exceed $2,500,000. He further found that the subject matter of each representation was critical to the proposed transaction which was of some financial magnitude and that each representation was confidently and unequivocally made. He was satisfied that Mr Tay, and therefore Cotswold, did not, in fact, have reasonable grounds for making either representation. He concluded that the upshot of Leamak's reliance upon these first representations by Mr Tay is that it brought the Marangaroo land, when it would not otherwise have done so, for the price of $1,385,000 when it was worth $1,200,000.

His Honour had before him the evidence of valuers and relied upon that of Messrs Hughes and Cooper who valued the property at $1,200,000 as at 1 March 1990. He preferred their evidence to that of Mr Low who valued the land at $1,450,000 on 5 September 1989. It has not been suggested that his Honour erred in so doing.

His Honour concluded that in paying an amount of $1,385,000 for the land, Leamak incurred a loss of $185,000. He went on to state why:

"Once it is appreciated that Leamak was induced to pay more for the land than it was worth, in circumstances in which, were it not for the first representations by Mr Tay and Cotswold, it would not have bought the land, then it follows that it is entitled to recover from Mr Tay and Cotswold the difference between what it paid for the land and its true value. (See Wardley Australia Limited v The State of Western Australia [1992] HCA 55; (1992) 175 CLR 514 at 529-530; Potts v Miller, supra, at 297-9; Toteff v Antonas [1952] HCA 16; (1952) 87 CLR 647 at 650-1; Gould v Vaggelas, supra at 220; and Kizbeau Pty Ltd v W, G & B Pty Ltd, supra, at 291).

Counsel for the defendants sought to suggest that, because Leamak elected to pursue the avenue of a shopping centre development rather than that of selling the land and recovering from the defendants its loss incurred as a consequence of its acquisition, it cannot now make any claim in respect thereof. That, he said, follows from the fact that it has profited from the development or, at least, avoided its loss.

However, that contention does not, I think, withstand scrutiny.

Even if it be assumed that the development of the Marangaroo land as a shopping centre was not collateral to the acquisition of that land for the purpose of a market development, the defendants have failed to establish that Leamak has avoided a loss on the development. I have already mentioned that there was no evidence upon which any conclusion could be reached, one way or another, in that regard.

That the defendants bear the onus of establishing that the loss has been avoided in circumstances such as these is, I think, plain from the authorities to which I have referred.

However, it does seem to me, in any event, that the development of the shopping centre was a matter collateral or disconnected to the acquisition, by Leamak, of the land pursuant to the first representations. What Leamak did with the land, after its acquisition, was based upon its decision, freed from any continuing adverse impact of the first representations, made on the strength of the second representations. (Cf Smith New Court Securities Ltd v Scrimgeour Vickers (Asset Management) Ltd [1996] UKHL 3; (1996) 4 All ER 769 at 778 and Hussey v Eels [1990] 2 QB 227 (CA)).

If, in this case; Leamak lost additional money as a consequence of its decision to develop the land as a shopping centre that it is not something which could be ascribed to the first representations. If, on the other hand, it was able to turn the land to a profit in a manner not originally contemplated at the time of the acquisition, then there is no reason why the defendants, as the makers of the first representations, should have the benefit of that profit by way of the amelioration of the loss caused by the making of the first representations.

It follows, in my opinion, that there is no substance to the defendants' contentions in this respect."

Counsel for the appellant acknowledges that his Honour considered the correct measure of damages but contends that he erred in failing to bring to account the advantage enjoyed by the respondents from the transaction.

The appellants emphasise that after hearing that the first representations were false Leamak deliberately decided to hold onto the land and developed it as a strata titled retail shopping centre in lieu of the markets development, thereby realising eventually a substantial profit. It is further said that the change from a market style development to a strata titled retail shopping centre was not so dramatic as to relieve Leamak from the obligation of bringing its retained profit in the development to account in reduction of its alleged loss.

In McGregor on Damages (15th Ed) the learned author sets out at paragraphs 325-327 the relevant principles as to the wider formulation in torts that a matter completely collateral and merely res inter alios acta cannot be used in mitigation of damage.

"4. THE RULE AS TO AVOIDED LOSS: NO RECOVERY FOR LOSS WHICH THE PLAINTIFF HAS AVOIDED, UNLESS THE MATTER IS COLLATERAL

Frequently a plaintiff will have taken the required reasonable steps of mitigation and thereby have avoided such part of the loss as was avoidable. No difficulty arises in such circumstances. But the plaintiff may have gone further and by sound action have avoided more consequences than the dictates of the law required of him. In such circumstances the position has been definitively stated by Viscount Haldane LC in the leading case of British Westinghouse Co v Underground Ry. He put the rule thus: 'When in the course of his business he [the plaintiff] has taken action arising out of the transaction, which action has diminished his loss, the effect in actual diminution of the loss he has suffered may be taken into account even though there was no duty on him to act.' Later in his speech he said similarly: 'Provided the course taken to protect himself by the plaintiff in such an action was one which a reasonable and prudent person might in the ordinary conduct of business properly have taken, and in fact did take whether bound to or not, a jury or an arbitrator may properly look at the whole of the facts and ascertain the result in estimating the quantum of damage.' He emphasised however that 'the subsequent transaction, if to be taken into account, must be one arising out of the consequences of the breach and in the ordinary course of business,' and the important practical question is therefore what steps taken by the plaintiff satisfy this definition.

Viscount Haldane's formulation of this rule, with its reference to steps taken in the ordinary course of business, is geared to contract rather than to tort: this is understandable since British Westinghouse Co v Underground Ry was a case of breach of contract. A wider formulation, which more readily includes tort, is that matter completely collateral and merely res inter alios acta cannot be used in mitigation of damage. This has the great merit of stating the rule at once concisely and completely: but it gives no indication of how the rule operates and of what solutions would be reached when applying it to particular circumstances. Indeed the line between those avoided consequences which are collateral and those which are not is an exceedingly difficult one to draw. It is thought that, in considering the relevant decided cases which are widely dispersed over many fields, Viscount Haldane's formulation is of value, and that assistance is also derived from a division into actions taken before breach and actions taken after breach, and from a subdivision of the latter group into actions taken by third parties and actions taken by the plaintiff.

Where it appears that steps have been taken by the plaintiff to avoid loss, being steps which are not completely collateral and which are therefore to be taken into account in assessing the damages, the onus is on the defendant to prove that, and also how far, loss has thereby been avoided."

In Smith New Court Securities Ltd v Scrimgeour Vickers (Asset Management) Ltd [1996] UKHL 3; (1996) 4 All ER 769, Browne-Wilkinson LJ, at 778-779 emphasised the difficulties which arise in treating the actual receipt on realisation as being the value obtained and summarised the relevant principles in these terms:

"In the light of these authorities the old nineteenth century cases can no longer be treated as laying down a strict and inflexible rule. In many cases, even in deceit, it will be appropriate to value the asset acquired as at the transaction date if that truly reflects the value of what the plaintiff has obtained. Thus, if the asset acquired is a readily marketable asset and there is no special feature (such as a continuing misrepresentation or the purchaser being locked into a business that he has acquired) the transaction date rule may well produce a fair result. The plaintiff has acquired the asset and what he does with it thereafter is entirely up to him, freed from any continuing adverse impact of the defendant's wrongful act. The transaction date rule has one manifest advantage, namely that it avoids any question of causation. One of the difficulties of either valuing the asset at a later date or treating the actual receipt on realisation as being the value obtained is that difficult questions of causation are bound to arise. In the period between the transaction date and the date of valuation or resale other factors will have influenced the value or resale price of the asset. It was the desire to avoid these difficulties of causation which led to the adoption of the transaction date rule. But in cases where property has been acquired in reliance on a fraudulent misrepresentation there are likely to be many cases where the general rule has to be departed from in order to give adequate compensation for the wrong done to the plaintiff, in particular where the fraud continues to influence the conduct of the plaintiff after the transaction is complete or where the result of the transaction induced by fraud is to lock the plaintiff into continuing to hold the asset acquired.

Finally, it must be emphasised that the principle in Doyle v Olby (Ironmongers) Ltd [1969] EWCA Civ 2; [1969] 2 All ER 119, [1969] 2 QB 158, strict though it is, still requires the plaintiff to mitigate his loss once he is aware of the fraud. So long as he is not aware of the fraud, no question of a duty to mitigate can arise. But once the fraud has been discovered, if the plaintiff is not locked into the asset and the fraud has ceased to operate on his mind, a failure to take reasonable steps to sell the property may constitute a failure to mitigate his loss requiring him to bring the value of the property into account as at the date when he discovered the fraud or shortly thereafter.

In sum, in my judgment the following principles apply in assessing the damages payable where the plaintiff has been induced by a fraudulent misrepresentation to buy property.

(1) The defendant is bound to make reparation for all the damage directly flowing from the transaction.

(2) Although such damage need not have been foreseeable, it must have been directly caused by the transaction.

(3) In assessing such damage, the plaintiff is entitled to recover by way of damages the full price paid by him, but he must give credit for any benefits which he has received as a result of the transaction.

(4) As a general rule, the benefits received by him include the market value of the property acquired as at the date of acquisition; but such general rule is not to be inflexibly applied where to do so would prevent him obtaining full compensation for the wrong suffered.

(5) Although the circumstances in which the general rule should not apply cannot be comprehensively stated, it will normally not apply where either (a) the misrepresentation has continued to operate after the date of the acquisition of the asset so as to induce the plaintiff to retain the asset or (b) the circumstances of the case are such that the plaintiff is, by reason of the fraud, locked into the property.

(6) In addition, the plaintiff is entitled to recover consequential losses caused by the transaction.

(7) The plaintiff must take all reasonable steps to mitigate his loss once he has discovered the fraud."

In my opinion his Honour's conclusion that, in any event, the development of the shopping centre was a matter collateral or disconnected to the acquisition, by Leamak, of the land pursuant to the first representations is amply supported by the evidence. The land was acquired (in reliance on the first representations) for a market type development and Dr Koh and Mr Tay agreed to develop the market as, in effect, co-venturers. Their proposal was to develop the market on the land and within six months sell the shops and realise a capital profit. The contract for the purchase of the land was made (though not settled) before Mr Tay discovered the Council would not grant an acceptable approval for market development.

In the events that later happened the land was developed as a retail shopping centre. From 10th January 1991 Mr Tay had no significant interest in the project (which for many years was a financial burden on the Kohs). The shopping centre was an initial failure and none of the units were sold at completion and only five were let. The shopping centre was not completely let until 1995. It could not be, and was not sold, for a quick capital profit.

Initially the receipts from the centre were insufficient to cover the interest charges incurred on funding the development. Dr and Mrs Koh funded the shortfall from their own resources by selling other assets and by borrowing from Mrs Koh's family. The shopping centre ultimately constructed, was different in significant respects from that proposed by Mr Tay. That the shopping centre was finally let, was substantially due to Mrs Koh's efforts. The appellants contended that a valuation made in April 1997 should be relied on to show Leamak had made a profit. However, this was in excess of seven years after the Marangaroo land was acquired, and all the units in the shopping centre still had not been sold.

For these reasons I am not satisfied that the grounds of appeal challenging the award of damages of $185,000 plus interest has been made out.

The appellants further contend that his Honour erred in law and in fact in finding that the allotment of 5000 shares in Leamak to Dr Koh was not made for an improper purpose.

This ground refers to the allotment of shares on or about 7 January 1991 by the Directors which brought about a change in control of the voting power and shareholding in Leamak, which is said to be to the detriment of the appellants. Thereafter Dr Koh held 5070 of the 5200 shares in Leamak, the remainder being held by the appellants.

I turn now to the events leading up to the share issue.

The building contract for the construction of the shopping centre was executed on 28 May 1990. The date for practical completion was to be 24 weeks from the date of issue of the building licence. Building work commenced during June 1990. Financial difficulties were encountered and the relationship between the parties became strained after the project became short of money. Dr Koh's accountant, Mr Yzelman, recommended a further allotment of shares in Leamak in order to meet Leamak's funding requirements. A meeting of the shareholders was held on 13 November 1990 and each of three resolutions which had been set out in the notice of meeting was passed notwithstanding the opposition of Mr Tay.

His Honour, in his reasons, referred to what happened over the ensuing week:

"Thereafter, on 11 December 1990, Mr Tay met with Mr Yzelman. He told Mr Yzelman that he had no objection to the postponement of the share issue to 20 December 1990. Also, on 13 December 1990 Mr Clark (who was also an alternate director, for Dr Koh, of Leamak) and Mr Tay signed a resolution of directors of Leamak deferring the issue of 599,800 ordinary shares in Leamak to 7 January 1991 and setting back, for a period of one month in each case, the due dates which had been set at the meeting on 13 November 1990 in respect of the issue of 400,000 ordinary shares in Leamak in lots of 100,000.

Then, on 7 January 1991 Mr Yzelman sent a facsimile transmission to each of Mr Tay and Mr Tanto reminding them that the entitlements of KT & T and Cotswold to take up their respective proportions of the new allotment would expire at 5.00pm on that day.

However neither Cotswold nor KT & T took up any of the shares.

At 4.58pm on that day Dr Koh applied for 5,000 shares in Leamak and paid to it an amount of $5,000 accordingly. He did so on the advice of Mr Yzelman. That advice was to the effect that, because it had by then become apparent that neither Cotswold nor KT & T was going to take up its entitlement, it would be preferable for Dr Koh to lend an amount of $300,000 to the company rather than take up his full entitlement of shares. That, he said, would give Dr Koh considerably more flexibility in obtaining the return of his investment and the taking up of a further 5,000 shares would give him complete control of Leamak thereby enabling him to 'protect' that investment.

I should mention that, while Mrs Koh had a somewhat different recollection of the content of the advice given by Mr Yzelman in this regard (she having been present when it was given on the afternoon of 7 January 1991), I have preferred the recollection of Mr Yzelman (who was, as I have said, an impressive witness) and Dr Koh to that of Mrs Koh in that respect.

Thereafter, on 10 January 1991, after having taken legal advice from his solicitor, Dr Koh convened a meeting of Leamak's shareholders to take place on 29 January 1991 in order to remove Mr Tay as a director of that company. On 15 January 1991 Mr Tay, faced with that prospect, chose to resign as a director of Leamak. He took no further part in the overseeing of the shopping centre development."

His Honour accepted that the purpose of diluting the shareholding of Cotswold and KT & T was Dr Koh's dominant purpose or his "substantial object" in taking up the 5000 shares. He also, however, accepted that the purpose of the resolutions of 13 November 1990 was that of raising capital for Leamak.

The onus of showing that a power has been misused rests on the person who asserts misuse, see Ascot Investments Pty Ltd v Harper [1981] HCA 1; (1981) 148 CLR 337 at 348.

In finding whether a power has been used on proper grounds the court has regard to what, subjectively, were the reasons of the Directors for their actions. In ascertaining the minds of the Directors the Court may have regard to the circumstances surrounding the decision.

In Hindle v John Cotton Ltd (1919) 56 ScLR 625, Viscount Finlay, at 630-631, stated:

"Where the question is one of absence of powers, the state of mind of those who acted, and the motive on which they acted, are all important, and you may go into the question of what their intention was, collecting from the surrounding circumstances all the materials which genuinely throw light upon that question of the state of mind of the directors so as to show whether they were honestly acting in discharge of their powers in the interest of the company or were acting from some bye-notice, possibly of personal advantage, or for any other reason."

A merely incidental effect following from pursuit of a permissible purpose does not vitiate the decision. If the actions of the Directors were adopted in good faith as a means of putting the company's financial affairs in order, in my opinion the proper purpose will not be made improper by incidental action taken to protect the interests of a Director lending substantial amount of monies to the company under circumstances such as this.

"I accept that the purpose of diluting the shareholding of Cotswold and KT & T was Dr Koh's dominant purpose, or his 'substantial object' (see Ngurlie Ltd v McCann [1953] HCA 39; (1953) 90 CLR 425 at 445 and Whitehouse v Carlton Hotel Pty Ltd, supra, at 294) in taking up the 5,000 shares. I accept also that the purpose of the resolutions to which I have referred was that of raising capital for Leamak.

However this does not, as it seems to me, dispose of the issue. The fact remains that, as I have said, there is no challenge to the lawfulness of the resolutions which were passed in respect of the issue and allotment of shares. I have also mentioned that it is not disputed that, under the terms of the resolutions, it was open to Dr Koh to take up only 5,000 shares. Nor is it disputed that a contract came into existence when Dr Koh accepted Leamak's share offer, to the extent of the 5,000 shares, by tendering the subscription moneys payable in respect of them. There was no suggestion that the terms of the resolutions were drawn up by or on behalf of Dr Koh with the intention that he would take up only 5,000 shares in circumstances in which he knew that no other shareholder would take up its allotment. Indeed there was no dispute as regards the evidence of Dr Koh and Mr Yzelman to the effect that Mr Yzelman advised Dr Koh for the first time on 7 January 1991 that he should take up only 5,000 shares.

In these circumstances the defendants have failed to make out their pleaded case that the allotment of 5,000 shares to Dr Koh was for an improper purpose.

Leamak's directors did not exercise their fiduciary power to allot shares for the purpose of defeating the voting power of existing shareholders by creating a new majority. Rather, as has been conceded, the shareholders exercised their power to pass the resolutions to which I have referred, which dealt with the issue and allotment of the shares, for the purpose of raising capital. Dr Koh, in exercising his entitlement to take up only 5,000 shares, was not acting as a director of the company. Rather, he was taking up only a part of his entitlement in his capacity as a shareholder.

It seems to me that, in these circumstances, having made a commercial decision not to take up any part of its entitlement, it is not now open to Cotswold to complain of the fact that Dr Koh chose to take up only a small part of his entitlement, thereby gaining control of Leamak, and then to lend to the company the moneys required by it in order to enable it to complete the project rather than to provide the necessary funds by taking up the whole of his entitlement."

In my opinion, it has not been demonstrated that his Honour erred in the conclusion he reached that in these circumstances, the allotment of 5000 shares to Dr Koh was for an improper purpose and this ground has also not been made out.

For these reasons I would accordingly dismiss the appeal.

I have had the benefit of reading the draft reasons to be published by Walsh J. I agree that the appeal should be dismissed and wish to state, briefly, my own reasons for coming to that conclusion. The relevant facts are set out in the reasons to be published by Walsh J and I shall not repeat them, save so far as is necessary to elucidate my reasons.

The appellants' notice of appeal raises two principal issues. The first concerns the damages the learned trial Judge found that the second respondent ("Leamak") had sustained in consequence of the negligent misrepresentations made to it by Mr Tay. The second concerns the lawfulness of an allotment to Dr Koh of 5,000 shares in Leamak.

As regards the first issue, Mr Tay represented to Dr Koh that the Wanneroo City Council would give planning permission for the development of the Marangaroo land as a retail market and that the profits from that development would exceed $2,500,000. Mr Tay impliedly represented that he had reasonable grounds for making these representations. All these representations (referred to by the parties as "the first representations") were false.

It was not in dispute that the first representations, although made to Dr Koh, were to be regarded as also having been made to Leamak. Leamak relied on the first representations to buy the Marangaroo land; but for the first representations it would not have bought the land.

The Marangaroo land was purchased between 28 November 1989 and 4 December 1989 for the price of $1,385,000. Settlement occurred on 20 March 1990. On 19 March 1990, Dr Koh gave Mr Tay two cheques for amounts totalling $351,500, being Dr Koh's final financial contribution enabling Leamak to pay for the land. Thus, the transaction whereby Leamak acquired the Marangaroo land was completed by 20 March 1990.

The learned trial Judge found that the Marangaroo land "was worth $1,200,000", based on a valuation of the land as at 1 March 1990. Thus, his Honour found that, in paying $1,385,000 for that land, Leamak incurred a loss of $185,000. His Honour stated:

"Once it is appreciated that Leamak was induced to pay more for the land than it was worth, in circumstances in which, were it not for the first representations by Mr Tay ... , it would not have bought the land, then it follows that it is entitled to recover from Mr Tay ... the difference between what it paid for the land and its true value."

His Honour relied on Wardley Australia Ltd v The State of Western Australia [1992] HCA 55; (1992) 175 CLR 514 at 529 to 530; Potts v Miller [1940] HCA 43; (1940) 64 CLR 282 at 297 to 299; Toteff v Antonas [1952] HCA 16; (1952) 87 CLR 647 at 650 to 651; Gould v Vaggelas [1984] HCA 68; (1985) 157 CLR 215 at 220; and Kizbeau Pty Ltd v W, G & B Pty Ltd [1995] HCA 4; (1995) 184 CLR 281 at 291. These authorities support the approach adopted by his Honour.

As I have mentioned, the Marangaroo land had been acquired by Leamak with a view to developing it as a market. Because the Wanneroo City Council did not give the requisite planning permission, it could not be so developed. Thereafter, Leamak developed the land as a shopping centre. Senior counsel for the appellants submitted that the profit that Leamak derived from the shopping centre development was some $500,000. The calculations on which this sum was based were disputed by counsel for the respondent, but, for the purposes of these reasons, I shall assume that they are correct. The profits contended for by the appellants were earned after Leamak had caused the shopping centre to be constructed on the Marangaroo land, and had leased and sold various "retail shopping units", being part of the centre.

The construction of the shopping centre occurred after the completion of the transaction whereby Leamak had acquired the Marangaroo land. The profits said to have been earned by Leamak, and relied on by the appellants, were made over a period of at least three years after the transaction had been completed. It was the submission of senior counsel for the appellants that the profits so made should have been set off against the $185,000 sustained by Leamak, as these profits had been made by the time of the trial. On this basis, it was argued, Leamak suffered no loss. These submissions have to be seen in the light of the relevant facts, to which I hereafter refer.

By the time Leamak decided to develop the Marangaroo land as a shopping centre and not a market, Mr Tay had no significant interest in the project. The development of the Marangaroo land to the point where profits might be made took a number of years. The shopping centre was, for some years, a financial burden on Dr Koh; initially, the money received from the centre did not cover the interest charges on the expenditure required to fund the development. The centre, initially, was not a financial success, and by the date of its completion, as Walsh J points out, none of the units was sold and only five were let; indeed, it was only in 1995 that the centre was fully let. As Walsh J also points out, the shopping centre could not have been and was not sold for a quick capital profit.

The leasing of the shopping centre and the sale of the units had nothing to do with Mr Tay, but a great deal to do with Dr Koh and his wife. The ultimate viability of the shopping centre development was due to their efforts; it could not be ascribed to the inherent value or characteristics of the Marangaroo land. Moreover, the centre as ultimately constructed was different in concept and in significant respects from the market initially contemplated.

I turn now to the legal principles applicable to a damages claim of the kind made by Leamak.

In this kind of action (i.e. a claim for damages for inducing a person to enter a contract of purchase) the ordinary measure of damages is the difference between the real value of the thing acquired as at the date of acquisition and the price paid for it. The relevance of subsequent events is limited. As was pointed out by the High Court in Kizbeau Pty Ltd v W G & B Pty Ltd (supra) at 291:

"[A]lthough the value is assessed as at the date of the acquisition, subsequent events may be looked at in so far as they illuminate the value of the thing as at that date .... A distinction is drawn, however, between subsequent events that arise from the nature or use of the thing itself and subsequent events that affect the value of the thing but arise from sources supervening upon or extraneous to the fraudulent inducement ... Events falling into the former category are admissible to prove the value of the thing, those falling into the latter category are inadmissible for that purpose."

The subsequent events that resulted in Leamak arguably making profits from the Marangaroo land stem principally from contributions made by Dr Koh and his wife to the development of the project. Dr and Mrs Koh contributed in manifold respects. Management, financial support, determination and staying power are but some of them. Further, the value of the Marangaroo land of $1,200,000 at the date of the transaction included the potential to use the land in some way other than as a market. Accordingly, the fact that that potential has been realised, at least to a degree, is due entirely to supervening or extraneous factors, unrelated to the inherent value of the land.

In Gould v Vaggelas [1984] HCA 68; (1985) 157 CLR 215 at 220 Gibbs CJ explained:

"It is well established that in an action of deceit where the plaintiff has been induced by the fraudulent misrepresentation of the defendant to enter into a contract of purchase, the measure of damages usually applicable is the difference between the real value of the property at the time of the purchase and what the plaintiff paid for it ... Events that happened after the time of the purchase may throw light on the real value of the property at that time ... Where the property has depreciated in value after the purchase, and the depreciation was due to some cause inherent in the property itself, the depreciation must be considered in determining the real value of the property at the relevant time, but where the cause of the depreciation was 'independent', 'extrinsic', 'supervening' or 'accidental', the additional loss is not the consequence of the inducement and it should not be taken into account in arriving at the value of the property at the time of the purchase."

Similarly, where a wronged plaintiff has made a profit from the exploitation of the purchased land, after the transaction has been completed, and that profit does not stem from some cause inherent in the property itself, but - as in the present case - from independent, extrinsic or supervening factors, that profit is entirely collateral to the plaintiff's loss and is not to be taken into account in assessing the defendant's liability for damages caused by his or her negligent misrepresentation.

Senior counsel for the appellants referred to Smith New Court Securities Ltd v Scrimgeour Vickers (Asset Management) Ltd [1996] UKHL 3; [1997] AC 254 where Lord Browne-Wilkinson (with whom Lord Keith and Lord Slynn agreed) said (at 266):

"In many cases, even in deceit, it will be appropriate to value the asset acquired as at the transaction date if that truly reflects the value of what the plaintiff has obtained. Thus, if the asset acquired is a readily marketable asset and there is no special feature (such as a continuing misrepresentation or the purchaser being locked into a business that he has acquired) the transaction date rule may well produce a fair result. The plaintiff has acquired the asset and what he does with it thereafter is entirely up to him, freed from any continuing adverse impact of the defendant's wrongful act. The transaction date rule has one manifest advantage, namely, that it avoids any question of causation. One of the difficulties of either valuing the asset at a later date or treating the actual receipt and realisation as being the value obtained is that difficult questions of causation are bound to arise. In the period between the transaction date and the date of valuation or resale other factors will have influenced the value or resale price of the asset. It was the desire to avoid these difficulties of causation which led to the adoption of the transaction date rule. But in cases where property has been acquired in reliance on a fraudulent misrepresentation there are likely to be many cases where the general rule has to be departed from in order to give adequate compensation for the wrong done to the plaintiff, in particular where the fraud continues to influence the conduct of the plaintiff after the transaction is complete or where the result of the transaction induced by fraud is to lock the plaintiff into continuing to hold the asset acquired."

In my view, nothing said by his Lordship in the above passage affords assistance to the appellants. For the reasons I have stated, it is appropriate to value the Marangaroo land as at the transaction date as that truly reflects the value of what Leamak obtained by the transaction. Any departure from this approach would not give adequate compensation for the wrong done to Leamak.

"It is right that the normal method of calculating the loss caused by the deceit is the price paid less the real value of the subject matter of the sale. To the extent that this method is adopted, the selection of a date evaluation is necessary. And generally the date of the transaction would be a practical and just date to adopt. But it is not always so. It is only prima facie the right date. It may be appropriate to select a later date. That follows from the fact that the valuation method is only a means of trying to give effect to the overriding compensatory rule (see Potts v Miller [1940] HCA 43; (1940) 64 CLR 282 at 299 per Dixon J and County Personnel (Employment Agency) Ltd v Alan R Pulver & Co (A firm) [1987] 1 All ER 289 at 297-298, [1987] 1 WLR 916 at 925-926 per Bingham LJ). Moreover, and more importantly, the date of transaction rule is simply a second order rule applicable only where the valuation method is employed. If that method is inapposite, the court is entitled simply to assess the loss flowing directly from the transaction without any reference to the date of the transaction or indeed any particular date. Such a course will be appropriate whenever the overriding compensatory rule requires it. ... there is in truth only one legal method of assessing damages in an action for deceit: the plaintiff is entitled to recover as damages a sum representing the financial loss flowing directly from his alteration of position under the inducement of the fraudulent representations of the defendant."

The financial loss flowing directly from Leamak's alteration of position, caused by its reliance on the first representations, is represented by the difference between the price paid for the Marangaroo land and the real value thereof. Accordingly, the "valuation method" referred to by Lord Steyn and employed by the learned trial Judge was entirely apposite, the date of the transaction being a practical and just date to adopt. In the circumstances of the present case, his Honour's approach was entirely in accordance with the overriding compensatory rule.

Accordingly, I consider that the grounds of appeal relating to the damages award should be dismissed.

I now turn to the share issue. This arises from an allotment of 5,000 shares made on 7 January 1991 by Leamak to Dr Koh. The appellants contend that this allotment was for an improper purpose. The share issue brought about a change in control in the voting power and shareholding in Leamak. Prior to the allotment, 200 shares in Leamak had been issued. Dr Koh held 70 shares and the appellants held the remainder. By allotting 5,000 shares to Leamak, Dr Koh obtained control. The improper purpose is said to be enabling Dr Koh to obtain control.

On 8 November 1990, Leamak gave due notice of a general meeting to be held on 23 November 1990 to pass with or without modification certain resolutions, including the following, to which I shall refer as "resolution 2".

"That the issued capital of the company be increased by the issue of 599,800 ordinary shares of $1 each from the unissued capital of the company, such shares to be issued at par and to rank for dividend and all other purposes pari passu with existing issued ordinary $1 shares; and

That the said shares will in the first instance be offered to the ordinary shareholders ... on the footing that the full amount of one dollar ($1) on each share taken up shall be paid to the company on acceptance not later than 5pm on 7 December 1990 and such shares not so accepted by payment shall be deemed to have been declined ... "

On 23 November 1990 the meeting did not proceed because a quorum of members was not present. The meeting was adjourned to 30 November 1990. On 30 November 1990, the meeting was duly held and resolution 2 was passed, notwithstanding the opposition of Mr Tay.

The appellants do not contend that there was anything untoward about the meeting of 30 November 1990 and the passing of resolution 2. In particular, it is not said that resolution 2 was passed with an improper purpose. The fact is that Leamak required additional capital for the construction of the shopping centre. The purpose of the resolution was to enable that capital to be raised.

It was a term of resolution 2 that payment of the shares to be allotted had to be made when the shares were in fact issued, and it was contemplated that that would occur on 7 December 1990. On 7 December 1990, Mr Yzelman, Dr Koh's accountant, sent a facsimile to Mr Tay noting that payment for the shares to be allotted had been set for that date, but pointing out that Mr Clark, an alternate director (for Dr Koh) of Leamak had suggested that the date for payment be changed to 14 December (on which date the allotment would then take place). On 11 December 1990, Mr Tay met with Mr Yzelman and told him that he had no objection to the postponement of the share issue to an even later date, namely 20 December 1990. On 12 December 1990 Mr Yzelman wrote to Mr Tay confirming this. On 13 December 1990, Mr Clark and Mr Tay signed a resolution of directors of Leamak deferring the issue of the 599,800 ordinary shares, the subject of resolution 2, to 7 January 1991. The resolution of 13 December 1990 further recorded that Mr Yzelman be appointed joint secretary of Leamak with Dr Koh.

On 7 January 1991, Mr Yzelman advised Mr Tay and another shareholder of Leamak (KT&T Developments Pty Ltd) that their entitlements to take up their respective proportions of the new allotment would expire at 5pm on that day. What then occurred is described by the learned trial Judge as follows:

"At 4.58pm on that day Dr Koh applied for 5,000 shares in Leamak and paid to it an amount of $5,000 accordingly. He did so on the advice of Mr Yzelman. That advice was to the effect that, because it had by then become apparent that neither [one of the other shareholders] was going to take up its entitlement, it would be preferable for Dr Koh to lend an amount of $300,000 to the company rather than take up his full entitlement of shares. That, he said, would give Dr Koh considerably more flexibility in obtaining the return on his investment and the taking up of a further 5,000 shares would give him complete control of Leamak thereby enabling him to 'protect' that investment."

The learned trial Judge accepted that the purpose of diluting the shareholding of the other shareholders was Dr Koh's dominant purpose in taking up the 5,000 shares. His Honour, however, was of the view that that did not dispose of the question. Having noted that the purpose of the resolution was that of raising capital for Leamak, his Honour observed:

"The fact remains, as I have said, there is no challenge to the lawfulness of the resolutions which were passed in respect of the issue and allotment of shares. I have also mentioned that it is not disputed that, under the terms of the resolutions, it was open to Dr Koh to take up only 5,000 shares. Nor is it disputed that a contract came into existence when Dr Koh accepted Leamak's share offer, to the extent of the 5,000 shares, by tendering the subscription moneys payable in respect of them. There was no suggestion that the terms of the resolutions were drawn up by or on behalf of Dr Koh with the intention that he would take up only 5,000 shares in circumstances in which he knew that no other shareholder would take up its allotment. Indeed there was no dispute as regards the evidence of Dr Koh and Mr Yzelman to the effect that Mr Yzelman advised Dr Koh for the first time on 7 January 1991 that he should take up only 5,000 shares.

In these circumstances the defendants have failed to make out their pleaded case that the allotment of 5,000 shares to Dr Koh was for an improper purpose."

"Leamak's directors did not exercise their fiduciary power to allot shares for the purpose of defeating the voting power of existing shareholders by creating a new majority. Rather, as has been conceded, the shareholders exercised their power to pass the resolutions to which I have referred, which dealt with the issue and allotment of the shares, for the purpose of raising capital. Dr Koh, in exercising his entitlement to take up only 5,000 shares, was not acting as a director of the company. Rather, he was taking up only a part of his entitlement in his capacity as shareholder.

It seems to me that, in these circumstances, having made a commercial decision not to take up any part of its entitlement, it is not now open to [the appellants] to complain of the fact that Dr Koh chose to take up only a small part of his entitlement, thereby gaining control of Leamak, and then to lend the company the moneys required by it in order to enable it to complete the project rather than to provide the necessary funds by taking up the whole of his entitlement."

Senior counsel for the appellants submitted, initially, that the finding that Dr Koh's dominant purpose was to dilute the shareholding of the other shareholders in Leamak meant that that was the purpose of Leamak. That, however, does not follow. The purpose of a shareholder in accepting an offer to allot shares is not necessarily the purpose of the company in allotting the shares, even if the shareholder is a director of the company.

The learned trial Judge recorded that it was not disputed that a contract came into existence when Dr Koh accepted Leamak's share offer, to the extent of the 5,000 shares, by tendering the subscription moneys payable in respect of them. It is implicit in his Honour's reasons that "Leamak's share offer" was constituted by resolution 2. During the course of argument on appeal, senior counsel for the appellant said that there was no "separate offer document" and accepted that, on the evidence, resolution 2 "stood as the offer". This, indeed, appeared to have been common cause at the trial.

Once it is accepted that the allotment was made pursuant to the contract entered into when Dr Koh accepted the offer constituted by resolution 2 (by paying for the 5,000 shares), it follows that the learned trial Judge was entirely correct in concluding that the purpose of the company in issuing those shares was to comply with the terms of that resolution (which was admittedly valid). Once Leamak became obliged to issue 5,000 shares to Dr Koh in accordance with the contract that had so been arrived at, its purpose in issuing the shares was to comply with its contractual obligations. As indicated, those obligations arose pursuant to the offer lawfully made in terms of resolution 2. On these facts, the purpose of Dr Koh in accepting the offer, was his own purpose, acting as a shareholder, and not the purpose of Leamak. Dr Koh's purpose as a shareholder cannot then be attributed to the company, and the appellants' argument must fail.

Senior counsel for the appellants, however, sought to counter this line of reasoning by referring to a receipt dated 7 December 1990 issued by Mr Yzelman, on his letterhead, under which appeared the following:

I acknowledge receipt of two hundred and nine thousand, nine hundred and thirty dollars ($209,930) from Andrew Koh being the application for 209,930 Ordinary Shares in accordance with the resolution passed at the meeting of shareholders held on 30 November 1990.

Ref: Westpac Applecross Branch cheque number 873900"

This receipt was part of the bundle of documents admitted as an exhibit at the trial. Also part of the bundle was the cheque referred to in the receipt, namely, a cheque dated 7 December 1990 drawn by Dr Koh on Westpac Savings Bank Ltd in favour of Leamak for $209,930.

The argument advanced by senior counsel on behalf of the appellants was as follows. He submitted that the receipt of 7 December 1990 established that on 7 December 1990 Dr Koh paid Leamak $209,930 for the entire parcel of 209,930 shares to which he was entitled in terms of resolution 2. Dr Koh thereby accepted the offer made to him in terms of that resolution. A contract between Leamak and Dr Koh accordingly came into existence on 7 December 1990 in terms of which Dr Koh accepted the 209,930 shares allotted to him by Leamak. The allotment to be made in terms of that contract was for the purpose of raising capital as contemplated. Neither party was unilaterally entitled to withdraw from that contract and substitute an allotment of 5,000 shares for the agreed allotment of 209,930 shares.

It follows, according to the argument, that a second contract for the allotment of shares was entered into at 4.58pm on 7 January 1991 (this time for 5,000 shares, and not 209,930). This second contract was not constituted by an acceptance of resolution 2. As the offer to Dr Koh, in respect of the entire parcel of shares to which he was entitled by resolution 2, was accepted by him on 7 December 1990 (when he paid Leamak $209,930), resolution 2, thereafter, no longer contained any offer to allot shares to Dr Koh. Thus, a new offer must have been made to Dr Koh on 7 January 1991 which he accepted by paying for the 5,000 shares. The only director of Leamak concerned with the issue of the 5,000 shares pursuant to the new contract was Dr Koh. The inference to be drawn is that he acted for Leamak in agreeing to the allotment. Accordingly, Dr Koh's purpose of diluting the shareholding of the other shareholders should be attributed to Leamak.

There are a number of evidentiary problems with this argument. It was never put to the learned trial Judge and for that reason his Honour made no findings in connection with it. The only evidentiary material on which the argument could be based is the receipt of 7 December 1990 and the cheque in favour of Leamak for $209,930 of that date. The entire argument depends on inferences to be drawn from these documents.

Senior counsel for the appellants submitted that it should be inferred that the cheque was deposited to the credit of Leamak's bank account and paid in accordance with its tenor. That, of course, is an essential part of the argument that on 7 December 1990 Dr Koh accepted Leamak's offer in terms of resolution 2. However, there are no marks or other indications on the cheque itself which indicate that it was received by a bank and paid. There was no evidence from any person that the cheque was deposited and paid. No questions were asked of Dr Koh or Mr Yzelman or any other witness on this issue. There was no other evidence which throws any light on the matter.

At best for the appellants, the cheque was received by Mr Yzelman as agent for Leamak. As I have mentioned, the receipt was typed on Mr Yzelman's letterhead and issued by him. However, on 7 December 1990 Mr Yzelman was not an officer of Leamak. It was only on 13 December 1990 that he was appointed joint secretary with Dr Koh. There is no evidence to establish that Leamak authorised Mr Yzelman to receive the sum of $209,930; that is, if he did, indeed, receive it (and not merely a cheque for that amount). Again, no witness was asked any question about Mr Yzelman's authority to receive the cheque or the proceeds thereof on Leamak's behalf.

It is necessary to refer again to the fact that it was not disputed (as the learned trial Judge records) "that a contract came into existence when Dr Koh accepted Leamak's share offer, to the extent of the 5,000 shares". It is also necessary to reiterate that "Leamak's share offer" which resulted in the contract in question was constituted by resolution 2. These matters are fundamentally inconsistent with the proposition that a contract had earlier been entered into, ie, on 7 December 1990, when Dr Koh is alleged to have paid for the 209,930 shares. Once it was undisputed that, on 7 January 1991, a contract for the allotment of 5,000 shares so came into existence, it follows that it was undisputed that there were 5,000 shares available for allotment pursuant to resolution 2. But had Dr Koh agreed to take up his full entitlement of 209,930 shares on 7 December 1990, there could have been no further shares available for allotment to him pursuant to that resolution. On the latter basis a contract could not have come into existence on 7 January 1991 by Dr Koh accepting Leamak's share offer (as contained in the resolution) to the extent of 5,000 shares.

Thus, the factual finding by the learned trial Judge (that is accepted by the appellants) that a contract came into existence on 7 January 1991 when Dr Koh accepted Leamak's offer contained in resolution 2 (to the extent of 5,000 shares), negates the argument that it is to be inferred that on 7 December 1990 Dr Koh accepted Leamak's offer to allot 209,930 shares to him.

In the light of the undisputed acceptance of the contract that came into existence, as recorded by the learned trial Judge, on 7 January 1991, the ambiguities to which I have referred relating to the receipt and the cheque, the uncertainty as to whether the cheque for $209,930 was paid, the uncertainty as to the authority of Mr Yzelman, the absence of any oral evidence on the relevant issues, and the omission to advance this argument before the learned trial Judge, lead me to conclude that the argument should not be upheld. Accordingly, I would dismiss the appeal.