RinRim Pty Ltd v Deutsche Bank AG

Background

1. Primary was established in 1985 and was listed on the ASX in 1998. Its founder was Dr Edmund Bateman (deceased) and members of the Bateman family have been involved in various aspects of Primary's operations over the years. Edmund James Carwardine Bateman (James Bateman), the Group Executive Diagnostics of Primary, first became acquainted with Dr Volfneuk in 1998 when Primary was negotiating with him to purchase his pathology business. That purchase concluded in 1999. Subsequently Mr Bateman became involved in managing the merger of the purchased business with that of Primary and in doing so had irregular contact with Dr Volfneuk. Mr Bateman had Dr Volfneuk's contact details including his mobile telephone number. He was aware that Dr Volfneuk held a relatively large parcel of shares in Primary through his private company, the plaintiff.
2. In 2007 Primary operated three business units: medical centres, pathology and health technology. Symbion was a health care company with operations in areas including pathology, medical centres, imaging and pharmacy services. In late 2007 Primary (which by that time had acquired a 20% interest in Symbion) decided to launch a takeover bid for 100% of Symbion's equity.
3. To fund its acquisition, Primary required a volume underwrite commitment of $1,560 million comprising: (a) a base volume underwrite commitment of up to $1,410 million made up of: (i) an underwritten institutional placement to raise up to $200 million once the announcement of the takeover offer was made; and (ii) an AREO to raise up to $1,210 million to be launched when Primary's takeover offer became unconditional; and (b) an additional underwrite commitment of up to $150 million to be taken out by institutional placement when Primary's takeover offer became unconditional and it received acceptances of between 84% and 89.9% of Symbion at the close of the takeover offer.
4. On 7 November 2007 the JLMs made a presentation to Primary in which they made a number of recommendations in respect of Primary's funding of the acquisition of Symbion. That presentation included a recommendation that a $1.2 billion rights issue be priced at a 20-25% discount to the theoretical ex-rights issue price (TERP) using the closing price of Primary's ordinary shares for the day immediately preceding the offer commencement date. The presentation included the following (Ex A 295):

▪ A 20-25% discount to TERP is appropriate for the planned Primary rights issue for a number of reasons: - $1.2 billion rights issue is a very large call on existing shareholders - potentially up to 1-for-1 rights issue ratio. Importantly, this is an unprecedented ratio for a corporate rights issue of this size - The discount is being agreed well in advance of the capital raising with an uncertain transaction structure and market conditions - Given requirement for renounceability (to enable partial participation by Dr Bateman), it is appropriate for the discount to create a meaningful value in any renounced rights - Flagging a discount in this range will deliver stronger market support in the lead up to launch from investors - The discount is in-line with precedent renounceable rights issues by corporate issuers - as shown below Renounceable rights issue by corporate greater than A$250 million since 2003 Date Issuer Size (A$m) Entitlement Ratio Discount to TERP Nov 2003 ANZ 3,381 2-for-11 22.7% Mar 2004 Alinta Limited 465 3-for-7 21.6% Feb 2005 Origin Energy 641 1-for-6 15.0% Dec 2006 Australian Pipeline Trust 356 2-for-7 15.0% Dec 2006 Orica 513 1-for-8 24.7% Mar 2007 Worley Parsons 480 1-for-9 6.4% Mar 2007 MFS 256 1-for-8.25 9.9% Apr 2007 Suncorp 1,169 2-for-15 24.7% May 2007 Lihir Gold 1,070 1-for-3 25.7% Oct 2007 Newcrest Mining 2,043 7-for-20 28.1% Weighted average 22.5% Note: Excludes rights issues by Listed Property Trusts, given yield of such trusts Source: Company announcements

The Project Poppins Letter

1. The JLMs were engaged by Primary on 8 November 2007 in accordance with the "Project Poppins - Equity Commitment Letter" (the Project Poppins Letter). In that letter the JLMs confirmed Primary's advice that it proposed to acquire Symbion either by way of an off market offer with or without a recommendation from Symbion's board or a scheme of arrangement under s 411 of the Corporations Act 2001 (referred to as the "Bid") or alternatively by acquisition of Symbion of all or a substantial part of Symbion's assets (referred to as the "Acquisition"). The Project Poppins Letter included the following (Ex A 339-340): Commitment and description of the Financing In relation to the Bid or the Acquisition, each Underwriter is pleased to offer to severally commit to provide, or to cause one or more of its affiliates to provide, on the terms and conditions documented in this Equity Commitment Letter and in the term sheet attached to this Equity Commitment Letter as Exhibit A (the "Offer Term Sheet") 33.33% of a volume equity underwriting of the Offer (as defined in the Offer Term Sheet). Each Underwriter also severally commits to provide, or to cause one or more of its affiliates to provide, on the terms and conditions set out in the bridge loan term sheet attached as Exhibit D (the "Bridge Loan Term Sheet") 33.33% of the Bridge Loan (as defined in the Bridge Loan Term Sheet). The Offer Term Sheet and the Bridge Loan Term Sheet are collectively referred to in this Equity Commitment Letter as the "Term Sheets". The Equity Commitment Letter and the Term Sheets will together be referred to as the Engagement. All monetary amounts referred to in this Engagement are references to Australian dollars unless otherwise stated. All capitalised terms not otherwise specifically defined in this Equity Commitment Letter have the meaning given to them in the Term Sheets.
2. The gross commitment referred to in the Offer Term Sheet was a base commitment of up to $1,410 million reduced by the value of any upfront placement made by Primary and an additional commitment of up to $150 million if Primary elected to complete the additional placement. The Offer Term Sheet defined the "Offer" as follows (Ex A 349-350): An offer by the Company to raise: (a) up to the Base Commitment as part or all of its financing package for the Bid or Acquisition by way of: ● a rights offer of ordinary shares in the Company to shareholders ("Rights Offer"); or ● an entitlement offer of ordinary shares in the Company to shareholders renounceable pro rata to their shareholding which will comprise an institutional entitlement offer, an institutional bookbuild and a retail entitlement offer ("Accelerated Entitlement Offer") that may also include a retail bookbuild if the offer is renounceable; and/or ● a placement of ordinary shares in the Company ("Initial Placement"); and/or ● an issue of hybrid securities in the Company ("Hybrid Offer"), (collectively, the "Initial Offer"); and (b) up to the Additional Commitment as part of its financing package for the Bid or Acquisition by way of the Additional Placement ("Additional Offer"). The decision on whether to: ● raise the Base Commitment by way of a Rights Offer or an Accelerated Entitlement Offer; and ● include a Placement and/or a Hybrid Offer to raise the Base Commitment, will be made by the Joint Lead Managers and Underwriters acting reasonably and in good faith and with the agreement of the Company, on or before the date the Bid ceases to be subject to defeating conditions ("Bid Unconditional Date") in the case of a Bid or within a reasonable time before financial close or settlement in the case of an Acquisition.
3. The JLMs also agreed that they would procure or provide a Bridge Loan to Primary of up to $400 million to cover any acceptances from Symbion shareholders under the takeover offer which increased the total consideration payable by Primary to Symbion shareholders above the amount to be raised from institutional investors under the Initial Offer (Ex A 361).
4. Exhibit B of the Project Poppins Letter included the timetable for an AREO as follows (Ex A 356): Event Date Bid Unconditional Date T Trading Halt Announcement Date and Offer Commencement Date T+1 Institutional Opening Date T+1 Institutional Closing Date T+2 Institutional Shortfall Notification Date T+4 Institutional Bookbuild Opening Date T+4 Institutional Bookbuild Closing Date T+4 Record Date (7.00pm) T+5 Lodgement Date T+5 Listing Approval Date T+5 Institutional Settlement Date T+7 Institutional Trading Date T+8 Retail Opening Date and Despatch Date T+8 Retail Closing Date T+21 Retail Shortfall Notification Date T+24 Retail Bookbuild Opening Date if Offer is renounceable T+25 Retail Bookbuild Closing Date if the Offer is renounceable T+25 Retail Settlement Date T+28 Retail Trading Date T+30

1. The Project Poppins Letter also included the following (Ex A 340): Conditions Despite any other provision of this Engagement the commitment of each Underwriter under this Engagement is conditional on Primary proceeding with the Bid or Acquisition in its own right or as part of the joint venture arrangement with Pacific Equity Partners, and not with the involvement of any other third party investor by way of a joint venture, co-investment or consortium arrangement. The obligations of each Underwriter under this Engagement, including to underwrite the Offer and/or to provide the Bridge Loan, do not become binding unless the following conditions are fulfilled (or waived by the Underwriters acting jointly in their absolute and unfettered discretion):
2. There was then set out a number of conditions relating to Primary's conduct in announcing either an Acquisition or a Bid together with delivery of certain documents and lodgement of documents with ASIC. The Project Poppins Letter also included the following (Ex A 346). No fiduciary duty You acknowledge and agree that the Underwriters are being retained solely to act as Joint Lead Managers and Underwriters with respect to the Offer and the lenders with respect to the Bridge Loan and that no fiduciary relationship between you and any Underwriter is being created in respect of the Offer, the Bridge Loan or the Engagement, regardless of whether either Underwriter has advised or is advising you on other matters. In connection with this Engagement the Underwriters are acting as independent contractors and not in any other capacity including as a fiduciary, with duties owing solely to you. … Conduct of the Accelerated Entitlement Offer The parties agree that in addition to the other rights and obligations contained in this Engagement, if there is an Accelerated Entitlement Offer the Underwriting Agreement will contain those provisions included in Exhibit E (or equivalent provisions acceptable to the Underwriters (acting reasonably and in consultation with the Company)). In particular the Company must provide or procure the provision of the information listed in paragraph 1.1 of Exhibit E to identify those shareholders in the Company entitled to participate in an Accelerated Entitlement Offer (as defined in the Offer Term Sheet). The Company acknowledges and agrees that the Underwriters may rely on the information provided by the Company pursuant to paragraph 1.1 of Exhibit E and will not be in breach of this engagement or the Underwriting Agreement in so relying.
3. Exhibit E entitled "Conduct of the Accelerated Entitlement Offer" included the following (Ex A 362): 1.1 Conduct - General 1.1 Information The Company must provide or procure the provision of the following information: (a) immediately following a written request from the Underwriters, the Company must provide to each Underwriter information which is reasonably requested by any Underwriter and known to the Company (following the making of reasonable enquiries by the Company) of the identity of those Shareholders who are Institutional Investors and the identity of those Shareholders who are Excluded Shareholders (including information regarding the beneficial owners of any shares in the Company). The Underwriters may rely on information provided by or on behalf of the Company in this regard and will not be in breach of the Underwriting Agreement in so relying; (b) on each subsequent Business Day up to and including the Record Date, the Company must give to each Underwriter full details of the changes to the information regarding Institutional Shareholders provided under paragraph 1.1(a) that become known to it (the Company having instructed its registry to inform the Company of the changes to the register in relation to the Shareholders who are Institutional Investors); (c) not later than 10.00am on the 2nd Business Day following the Record Date, the Company must give, at the request of any Underwriter, full details of all Shareholdings in the Company as at the Record Date to each Underwriter; and (d) not later than 10.00am on the 3rd Business Day following the Institutional Trading Date, the Company must give, at the request of any Underwriter an Initial Allotment Date Report to each Underwriter. … 2 Conduct - First Round Offer 2.1 First Round (a) The Underwriters will, on behalf of the Company and during the period between the Institutional Opening Date and the Institutional Closing Date, use reasonable endeavours to make contact with all eligible Institutional Shareholders so as to offer them the Offer Shares on a pro rata basis.
4. The definition section of Exhibit E included the following (Ex A 363-364): "ASX Waiver" means the waiver from Listing Rules 3.20, 7.1, 7.40 and 10.11 obtained in respect of the offer. … "First Round Offer" means the offer: (a) To eligible Institutional Shareholders in the Company as part of the Accelerated Entitlement Offer of their pro rata proportion of the Offer Shares (which offering will be by the Company); or (b) As part of the Institutional Bookbuild, of Offer Shares not taken up by the Shareholders under paragraph (a) or of any Offer Shares attributable to Institutional Shareholders which are ineligible to participate in the Offer (which offering will be by the Underwriters as principal), in the manner prescribed in the ASX waiver. "First Round Offer Shares" means the Offer Shares offered to Institutional Investors under the First Round Offer in accordance with the ASX Waiver as part of the Accelerated Entitlement Offer. 1. … "Institutional Bookbuild" means the institutional bookbuild process conducted by the Underwriters in accordance with the Underwriting Agreement; provided that Shares in the Institutional Bookbuild may not be offered or sold in the United States or to, or for the account or benefit of, U.S. Persons. "Institutional Investor" means a person whom the Underwriters reasonably believe is a person to whom an offer of shares for issue may lawfully be made without disclosure under Part 6D.2 of the Corporations Act and "Institutional" has a corresponding meaning. 1. … "Institutional Shareholder" means a holder of Shares that is an Institutional Investor and that is identified by the Company and advised to each Underwriter as being an Institutional Shareholder to whom First Round Offers should be made or an Institutional Shareholder which is ineligible to participate in the Offer. 1. … "Offer Shares" means the Shares of the Company to be offered under the Accelerated Entitlement Offer.

ASX Announcements

1. On 8 November 2007 an ASX Announcement recorded that Primary intended to make an all cash offer for Symbion of $4.10 per share which valued Symbion at $3.5 billion. The ASX Announcement recorded that Primary would fund the total consideration by a combination of debt and equity; that the committed debt facilities would be provided by ABN AMRO Bank NV Australian Branch, Calyon Australia Limited, Credit Suisse (Australia) Ltd, National Australia Bank Limited and Deutsche Bank AG; and that the equity raising was to be underwritten by the JLMs. It also included the following (Ex A 369): The equity will be raised via a placement (announced today) with the balance intended to be raised via an accelerated renounceable entitlement offer following the Offer being declared unconditional. Further detail in relation to Primary's debt and equity funding will be set out in Primary's Bidder's Statement. Further detail in relation to the underwritten placement is set out in Primary's investor presentation lodged with the ASX today. Primary is being advised by Caliburn Partnership and Mallesons Stephen Jaques is Primary's legal adviser.

Bidder's Statement

1. On 8 November 2007 Primary provided its Bidder's Statement to the ASX setting out its offer to the Symbion shareholders. It also lodged it with the Australian Securities & Investment Commission (Ex A 404). The Bidder's Statement included an overview of the equity commitment with reference to the existence of Project Poppins Letter and the placement agreement with the JLMs. It also referred to the Bridge Loan and included the following (Ex A 442) : The Equity Commitment is comprised of: ● A base commitment of up to $1,410,000, 000 reduced by the value of the Placement ("Base Commitment"). The Base Commitment may be made by way of: - A rights offer of ordinary shares in Primary to Primary's shareholders; or - An entitlement offer of ordinary shares in Primary to Primary's shareholders renounceable pro rata to their shareholding and comprising an institutional entitlement offer, an institutional bookbuild and a retail entitlement offer that may also include a retail bookbuild if the offer is renounceable; and/or - A further placement of ordinary shares in Primary; and/or - An issue of hybrid securities in Primary (the "Equity Offer"). ● An additional placement of up to $150,000,000 ("Additional Placement").
2. One of the conditions precedent to the Equity Commitment referred to in the Bidder's Statement was the "Bateman Family investors" in Primary's partial acceptance of their entitlement in "the institutional entitlement offer" such that the Bookbuild proceeds from their remaining renounced entitlements was sufficient to fund their acceptances (Ex A 442).

Initial Placement

1. On 9 November 2007 Primary announced that it had successfully completed the institutional placement that was launched on 8 November 2007. That announcement included the following (Ex A 534): In response to strong demand from domestic and international institutional investors, the full placement capacity of 15.5 million shares was utilised. The shares were placed to a number of existing Primary shareholders and new institutional investors at $11.90 per share, raising a total of approximately $184.5 million. The placement price represents a discount of less than 1% to Primary's 5 day volume weighted average share price up to and including 7 November 2007 of $11.97, being the last day of trading prior to the date of Primary's trading halt, signifying a high level of support for Primary's takeover offer for Symbion Health Limited announced yesterday.

The Register

1. On 30 October 2007 Primary's advisers, Caliburn Partnership (Caliburn), provided the JLMs with what they described as the "only register" that Primary had which they claimed was not "overly useful" because it only referred to "nominee accounts".
2. Caliburn also advised the JLMs that Orient Capital Pty Ltd (Orient) had been engaged "to undertake a full register analysis". The register that was provided to the JLMs listed 77 individuals or entities. The plaintiff was the 14th entry with a Post Office Box address in Bondi Junction recorded as its registered address (Ex A 164).

Orient Capital engagement

1. Primary's engagement of Orient was formalised by a letter from Orient to Primary dated 14 November 2007 (reissued in February 2008). The reference in the letter to "RAPIDS" is another name for an AREO (Ex A 558). That letter included the following (Ex A 544): We set forth hereunder a proposal from Orient Capital Pty Ltd ('OC') to provide assistance to Primary Health Care Limited ('PRY') in connection with a potential entitlement offer (the 'Offer'). This proposal sets forth services and fees for a RAPIDS entitlement structure. RAPIDS Structure OC shall provide the following support services ('Services'): (a) Daily Analysis of the Register (Top 100 for PRY) from 8 business days prior to the transaction date until the record date. (b) Record Date report. OC shall provide a record date report setting forth its findings no later than 72 hours after the record date. (c) Provision of all relevant nominee contact details to lead manager. (d) Review of all RAPIDS documentation, including: ● Bookbuild and procedure manual; ● Nominee corporate action notification announcements; ● Nominee corporate action email; ● Nominee prospectus covering letter; ● Institutional discrepancy email; ● Institutional confirmation letters; ● Institutional clawback letters; and ● All other correspondence (letters, emails or other) arising from the resolution of discrepancies between registered holdings and claimed holdings. (e) Contacting of all relevant nominees on announcement to advise of corporate action and remind nominees of reporting requirements in relation to stock lending via: ● Phone call; and ● Agreed email (f) Liaison with institutions, nominees and the lead manager to resolve discrepancies between registered and claimed holdings, including: ● providing breakdowns of holdings on both an institution and nominee basis as required; and ● distributing individual discrepancy emails to institutions during Institutional Entitlement Offer. (g) Review of Institutional Entitlement Offer applications to advise on whether any renouncement of holdings should be refused in the Institutional Entitlement Offer. (h) Review of Institutional Entitlement Offer applications for any changes between advised holdings and the final Record Date report. (i) Provision of breakdown of holdings on both institution and nominee basis for purposes of providing to lead managers/nominees/institutions to provide institutions with information on where renounced proceeds are directed and determine direction of renounced proceeds in institutional offer. (j) During the retail offer we will analyse the applications from the custodians to ensure there is no "double dipping" from the institutions. (k) Reconciliation against final record date register to take-ups under the institutional offer on a nominee by nominee basis to calculate total shortfall for sale in retail entitlement offer and renounced proceeds owed to each nominee including: ● Liaison with registry (Computershare Investor Services) ● Liaison with the Lead Manager(s) (l) The reports we normally undertake for the market do not take into account t+3 and/or stock-lending positions. For a transaction such as this it requires a lot more work to ensure that all responses from the custodians reflect exactly the positions held on CHESS as at record date. We will also provide notification and tracking of any stock-lending in the week leading up to the record date. (m) OC has worked on fourteen pro-rata accelerated renounceable entitlement offers and understands in depth the amount of work that is required from OC in order to ensure a smooth transaction. To date we understand there have been sixteen pro-rata accelerated renouncement offers undertaken in the market. We also understand the pitfalls of not having proper procedures in place to undertake this type of transaction. To this end, in order to minimise all parties' risks, we have developed an online capital raising system which facilitates proper communication between all parties involved in the transaction. The larger custodians in the market have used this system on various capital raising projects to date. (See testimonials attached). (n) Constant support during the institutional book build period including real time access to OC team. This includes real time discrepancy analysis of holdings. During the entitlement offer OC will have two senior OC employees (who have worked on the 14 offers outlined above) together with a supporting team dedicated to the project. (o) During the bookbuild period we will be constantly talking to custodians/back offices of fund managers to reconcile their positions to ensure that the bids from the fund manager are verified.

Request for ASX Waiver

1. On 14 November 2007 Primary's legal advisers, Mallesons Stephen Jaques, sought an in principle approval from the ASX to the grant of waivers of relevant ASX Listing Rules in relation to the proposed AREO and its consent to the proposed timetable for the AREO.

Orient Reports

1. On 20 November 2007 Orient provided Caliburn and Credit Suisse with its analysis of the top one hundred registered shareholders in Primary as at 14 November 2007 (Ex A 621). Orient also provided "Investor Classifications" which included independent fund management institutions identified as "(FM)"; hedge funds as "(HF)"; investment banks as "(IB)"; investment companies as "(IC)"; and mutual funds as "(MF)". It also included the category "Private Stakeholders" as "(PK)" and defined them as "individual private investors who appear under their own name on the register or are considered substantial enough to appear under their own name in the analysis, rather than being allocated to the pooled Private Investor (PI) position". The PI was defined as "small retail investor positions that have been identified under custodial/nominee holdings or private company holdings that are registered in their own name" (Ex A 662-664).
2. From 20 November 2007 Orient moved to "daily analyses" of Primary's register (Ex A 621). Between November 2007 and March 2008 Orient provided 36 reports to Primary, the majority of which were copied or provided to the JLMs.
3. On 12 February 2008 Credit Suisse requested Orient to provide the register analysis as at 11 February 2008 to it that night so that it could have the most accurate shareholding for the launch of the Institutional Offer the following day. Orient advised that this was "the plan" (Ex A 3009). The Orient report with the analysis as at 11 February 2008 was forwarded to Credit Suisse and Deutsche Bank at approximately 6.00 pm on 12 February 2008 (Ex A 3011).
4. None of the Orient reports that were provided to Primary and the JLMs between 20 November 2007 and 11 February 2008 referred to the plaintiff. Dr Volfneuk and Ms Safro were listed as the investors in the category "PK" holding 2,500,657 Primary shares.

The Market Falls

1. The Project Poppins Letter included a provision pursuant to which the JLMs were entitled to terminate their commitment under the Engagement if the S&P ASX 200 Index fell by an amount that was 15% or more of the level on a particular defined day and remained at that level for three business days. This was referred to as a "market fall" termination event.
2. On 18 January 2008 an internal communication within Credit Suisse noted that the S&P/ASX 200 had fallen to the point where if it closed at that level for a period of three business days "the market out termination right" in the Project Poppins Letter "(15%) will have been triggered" (Ex A 1874).
3. On 23 January 2008 the JLMs solicitors, Baker & McKenzie, wrote to Primary's solicitors putting Primary on notice that each of the JLMs was aware that a market fall termination event had occurred. That letter included the following (Ex A 2259): We are instructed that each Underwriter is monitoring developments and is considering its respective position. In the meantime, we are instructed to advise that each of the Underwriters expressly reserves all of its respective rights. No conduct by or on behalf of each or any of the Underwriters is to be construed as an intention to, on the part of any of them, waive any existing or future rights.

Application for Trading Halt

1. On 31 January 2008 Mallesons Stephen Jaques wrote by email to the ASX in the following terms (Ex A 2422): In respect of the proposed AREO to be undertaken by Primary, it is the view of Primary and the Joint Lead Managers that a trading halt is warranted for the purposes of undertaking the "retail bookbuild" of new shares not otherwise taken up under the retail offer. We have outlined the reasons why we consider such a trading halt should be granted. 1. The offer size is expected to be in the order of a 1:1 offering and although the size of the retail bookbuild is currently unknown, with the current volatility in markets, there is the possibility that the retail bookbuild may be significant. 2. It is our objective to maximise the proceeds for non-participating retail shareholders. The trading halt will provide us with sufficient time to undertake the retail bookbuild to ensure that we are able to undertake marketing efforts required to a broad investor audience, optimising the pricing outcome and ultimately the proceeds for non-participating retail shareholders. 3. Announcement of the size of the retail bookbuild will not be made until the bookbuild is completed and as such the securities should be in halt to ensure all market participants are informed of the size and pricing outcome of the bookbuild prior to the resumption of trading. We further note that ASX has granted a trading halt in respect of retail bookbuilds in the following accelerated renounceable entitlement offers: (a) HealthScope Limited accelerated renounceable pro-rata offer - January 2005; (b) Allco Finance Group Limited accelerated renounceable pro-rata offer - December 2006; and (c) Westfield Group accelerated renounceable pro-rata offer - July 2007. In the light of the above, please confirm that the proposed retail trading halt at T+25 is acceptable to ASX.

JLMs Lists

1. On 11 February 2008 Ms Diana Sarrouf, of ABN AMRO, forwarded a document she described as the "agreed Top 10 Sounding list for Monday 11 February 2008" to the other JLMs. Notwithstanding its title there were fourteen entities on the list that were in the categories of fund managers, hedge funds, investment companies or banks. Each, but one, was listed in the top seventeen of the investors identified in the Orient report of 1 February 2008 as being in the top one hundred "by size" (Ex A 2740).
2. The JLMs planned meeting on Monday 11 February 2008 was to consider the target list. On 8 February 2008 Peter Molesworth of Deutsche Bank forwarded to the other JLMs "the spreadsheet that we propose be used for the institutional offer and bookbuild" (Ex A 2747). That was a list of 80 "investors". There were only two individuals on that list, Dr Edmund Bateman and Mr Daniel G Scamps, the holder of 72,237 shares in Primary. Mr Scamps was identified in the Orient report as located in Hong Kong (Ex A 2872). Mr Molesworth gave unchallenged evidence that when he was preparing his affidavit he noticed that Mr Scamps was included in the 8 February 2008 draft list. His evidence was that he did not recognise that individual; he was not sure why he included him in the list; he believed that he did so by mistake; and Mr Scamps was not accelerated. The balance of the investors were made up of thirty six fund managers, twelve brokers, nine hedge funds, three insurance companies and various other entities including self-managed pension funds and banks.
3. On 11 February 2008 Credit Suisse prepared an internal memorandum identifying "investor feedback received today during confidential investor soundings" of major primary shareholders (Ex A 2918). There were twenty four institutions on the list prepared by Credit Suisse, the majority of which were fund managers, brokers and investment companies. There were no individuals on that list (Ex A 2919).

ASX Waiver

1. On 12 February 2008 the ASX granted Primary waivers from the relevant Listing Rules to enable it to issue securities pursuant to the AREO (Ex A 2922). That waiver notification included the following: On or before the Record Date, security holders who are believed by [Primary] or [the JLMs] to be exempt investors in accordance with Chapter 6D of the Corporations Act 2001 ("Exempt Investors") may be invited by [Primary] to subscribe for a number of securities at least equal to their pro-rata allocation of the Renounceable Offer ("Institutional Offer"), unless listing rule 7.7.1 would permit the holder not to be included in a pro-rata offer.
2. This waiver allowed the acceleration of part of the capital raising by conferring a discretion on Primary to invite security holders who it, or the JLMs, believed were exempt investors under chapter 6D from the otherwise mandatory disclosure requirements involving the issue of a prospectus. In this regard a person may be exempt from those disclosure requirements because they are either a "sophisticated investor" or a "professional investor" under ss 708(8) & (11) of the Act.

ASX Announcement

1. On 12 February 2008 the ASX announcement recorded that Primary had achieved 52.27% of Symbion shares.

Further preparation for launch

1. On 12 February 2008 an internal Deutsche Bank email recorded the following (Ex A 3106): Over the wall discussions - we have completed our sounding process today. The three JLMs met with 11 institutions (representing 49% of the Primary register) out of the top 13 Primary shareholders. The overwhelming feedback we received was that 10/11 shareholders we met with expressed an intention to take up all their entitlement (the other investor indicated they would take up 50% of their entitlement). Most acknowledged that the healthy discount (approx. 35-45% discount to market & a 20-25 per cent discount to TERP) would drive them to participate and that the capital raising has been well anticipated. Another consistent message was that existing shareholders were comfortable the deal makes sense and are prepared to back Primary management. In fact some shareholders such as Schroders (who is also 8.6% shareholder in Symbion) indicated they wanted pro rata plus and would look for additional stock in the bookbuild of any renounced rights so that they could receive a similar $ investment to their current exposure in Symbion, this would require them to invest an additional A$120m. Update on relevant interests & institutional acceptance facility - Primary's total relevant interest in Symbion currently stands at 53% (we needed to get to a minimum interest of 50.1% by the close of business today) although if something unforeseen occurred overnight that resulted in a withdrawal taking the relevant interest to circa 49% then Primary still wish to proceed if they have intentions to accept the offer that would be sufficient to get them to 50.1%. Legal counsel for Primary have indicated they would be comfortable that this approach complies with the law and the offer and we believe it would be acceptable to the market. Therefore subject to confirmation from the committee we are looking to sign the underwriting tomorrow morning simultaneously with Primary declaring their bid unconditional and commence the $1.2bn accelerated renounceable entitlement offer at a discount of 20-25% to TERP.
2. On 12 February 2008 an internal Credit Suisse communication from the Vice President, Mr Sherman, (forwarded later in the day to Deutsche Bank (Ex A 3169)) included the following (Ex A 3164): Think we agreed last year that we would offer to the large retail holders (eg ex-UBS people) the ability to participate in the insto offer. It is simply a phone call, I imagine, but may increase our insto pot, therefore reduce our retail risk position. We should discuss.
3. On 13 February 2008 the Deutsche Bank JLM wrote to Mr Sherman in the following terms (Ex A 3556): We would prefer not to have to adopt large retail shareholders as clients so my suggestion is that we should encourage these holders to bid via there private wealth mgt arms (I suspect most of these guys are of UBS Wealth Mgt) so that we can avoid client adoption issues and minimise the number of parties we need to settle with.
4. Mr Sherman responded that he "agreed" (Ex A 3556).

AREO book

1. Two officers of Deutsche Bank, Mr Molesworth and Ms Mary Xu, were tasked to identify the shareholders that Deutsche Bank would propose to be accelerated by the JLMs during the AREO. Mr Molesworth and Ms Xu liaised with the other JLMs about the recording of that information in what has been described as the "AREO Book". The AREO Book was used to keep track of information including: (1) the institutions that had been contacted as part of the Institutional Offer and had returned their shareholder declaration forms to Orient; (2) any discrepancy between the holding as understood by Orient and the holding recorded by the shareholder in their declaration form; (3) whether the shareholder intended to take up or renounce its entitlement, or part thereof; and (4) whether the shareholder had placed a bid into the Institutional Bookbuild.
2. On 12 February 2008 Ms Pamela Maine of Credit Suisse sent to the JLMs what was described as the "update AREO book" that reflected the shareholdings as at 11 February 2008. Ms Maine advised the JLMs that this was the template that was to be utilised on 13 February 2008 and asked that everyone use "this version as well". Ms Maine also asked the JLMs to send her a list of the people from each of their banks that were to be included "on the hourly book updates during the AREO and bookbuild" (Ex A 3108). The only entries on that list were institutions such as fund managers and banks (Ex A 3109).

Pricing Discussion

1. On 13 February 2008 the JLMs had what was described as a "Pricing Discussion" with Primary utilising a document which analysed the price to be recommended for the issue of shares which included graphic depiction of the performance of the Primary share price against the ASX 200 and a graph of the ASX 200 Daily Market Performance. The pricing recommendation made by the JLMs to Primary in this document was in the following terms (Ex A 3166): The JLMs recommend an 8 for 5 AREO at $5.40 per share which equates to a 24.9% discount to TERP (ex the interim dividend and using $10.27 as the VWAP of PRY shares on 12 February, 2008) The JLMs believe this is an appropriate level for the planned Primary accelerated entitlement offer for a number of reasons: ● The $1.226 billion entitlement offer is a very large call on existing shareholders - the offer will be the largest % of issued capital raised and the third largest in $ terms in this form in the Australian market, and equates to 1.6 new shares for every one share currently held ● Following discussions with PRY shareholders over the last two days, the JLMs believe that a 25% discount to TERP is the most appropriate and will produce the most successful outcome for all Primary stakeholders ● Market conditions have, and continue to be volatile and the discount insulates the issue price from significant falls (either in the broader market or PRY specifically) over the course of the offer ● Given the renounceability of the offer (allowing all shareholders to achieve value for entitlements if they do not wish to take up), it is appropriate for the discount to create a meaningful value in any renounced rights (sold in either of the two bookbuilds) ● The discount is in-line with precedent renounceable rights issues by corporate issuers - as shown below
2. The JLMs also provided a table setting out the performance in nine previous AREOs by corporate issuers greater than $250 million since 2003. In five of those AREOs the discount was less than 24.9%. In two of them the discount was 24.7% and in the other two the discount was 25.7% and 28.1%.

Underwriting Agreement

1. The Underwriting Agreement was executed by Primary and the JLMs on 13 February 2008 (Ex A 3173). Although there were some differences between its terms and those contained in Exhibit E to the Project Poppins Letter, the only matters of significance for present purposes were the following definitions (Ex A 3180): … Institutional Investor means a person whom the Underwriters reasonably believe is a person to whom an offer of Offer Shares for issue may lawfully be made without disclosure under Part 6D.2 of the Corporations Act or under the laws in any other relevant jurisdiction and without any other lodgement, registration or approval with or by a Government Agency (other than one, which the Company, in its absolute discretion, is willing to comply) and Institutional Investors has a corresponding meaning. … Institutional Shareholders means each person who receives an Institutional Entitlement Offer as determined pursuant to clause 1 of Schedule 5, provided that any Institutional Shareholder must be an Institutional Investor and must not be a Non-Qualifying Institutional Shareholder.
2. The Project Poppins Letter was included in Schedule 6 of the Underwriting Agreement and defined as the "Equity Commitment Letter". The Underwriting Agreement provided that if Primary elected to raise an additional placement amount such additional placement was to be regulated by the terms of the Project Poppins Letter as if those terms were incorporated into the Underwriting Agreement (cl 6.4).

The Procedures Manual

1. On 12 February 2008 Credit Suisse updated the "internal sales force briefing sheet" with the "latest data" and reviewed what was described as the "implementation manual", at that time suggested to be destined for "all our current shareholders" (Ex A 3132). On the following morning, 13 February 2008, Credit Suisse wrote to the JLMs in the following terms (Ex A 3268): Thank you for your comments overnight and this morning on all the documents. All of the changes suggested have been flowed through the documents - with the exception of the request to include the dial-in details for the presentation on the dealer sheet, because we would prefer for the sales guys at each of the banks to provide this information to investors either via phone or in a separate email to ensure that no US investors receive the dial-in details by accident. I have attached to this email an exact copy of the email (including the attachments) that will be sent by CS to all of the institutional shareholders. Since this email and all of the attached documents reference both the institutional entitlement offer and the institutional entitlement bookbuild, it can be sent to both shareholders and non-shareholders. We will also distribute the final version of the pathfinder prospectus to all institutional shareholders as soon as it is sent around this morning. Please note that CS will also distribute the Bid Form to our sales guys in an "internal only" format and I have attached the final version of the Bid Form to this email as well for consistency.
2. The Accelerated Renounceable Pro-rata Entitlement Offer Procedures Manual dated 13 February 2008 (the Procedures Manual) was sent to institutions including fund managers and banks. The front sheet recorded that the Manual required the recipient's "immediate attention" (Ex A 3283). It included the procedures for "Eligible Institutional Shareholders" and "institutional investors" to participate in the Institutional Bookbuild and the Retail Bookbuild.
3. The "General information" section of the Procedures Manual included the following (Ex A 3284): ABN AMRO Equity Capital Markets Australia Limited ("ABN AMRO"), Credit Suisse (Australia) Limited ("Credit Suisse") and Deutsche Bank AG, Sydney branch ("Deutsche Bank") (each a Joint Lead Manager or JLM) and Primary reserve the right to withdraw or modify the Offer (or a part thereof), or modify or supplement this Manual (including any dates or times in this Manual) or an Offer Document without prior notice. A reference in this Manual to an Eligible Institutional Shareholder contacted by a JLM includes an Institutional Investor contacted by a JLM whose Shares are held on its behalf by a nominee (in respect of those Shares). This Manual has been distributed with an Offer Document (refer to section 1 of this Manual). The Manual and the Offer Document should be read in their entirety. … This Manual is confidential to the recipient. … This Manual is not an offer to issue or sell or a solicitation of an offer to acquire any shares or other securities or entitlements. … The information in this Manual is general information only and does not constitute a securities recommendation or financial product advice. The information has been prepared without taking account of the investment objectives, financial situation or needs of any particular investor. You should consider whether the information is appropriate having regard to your objectives, financial situation or needs before acting on the information.
4. The Manual included the following "Key Terms" (Ex A 3285): ● Eligible Institutional Shareholder: a Shareholder (either directly or through a custodian) as at the Record Date, who is not an Ineligible Institutional Shareholder or a US Person nor acting for the account or benefit of a US Person, and to whom Primary or a Joint Lead Manager has extended an offer to subscribe for New Shares under the Institutional Entitlement Offer on the basis of Primary or the Joint Lead Managers' belief that they were an institutional investor ● Ineligible Institutional Shareholder: A Shareholder who, if they had a registered address in Australia would, in the reasonable opinion of Primary, be an institutional investor, but who Primary and the Joint Lead Managers agree will not receive an offer under the Institutional Entitlement Offer ● Shareholder: a holder of a Share at 7.00pm (AEDST) on the Record Date ● Record Date: 7.00pm (AEDST), 18 February 2008
5. The Manual included section 3.1 entitled "Checklist for the Institutional Entitlement Offer". That section included a table that set out "what Eligible Institutional Shareholders, once contacted by a JLM" were required to do in relation to the Institutional Offer. The last paragraph in the "Checklist" section is an important aspect of the plaintiff's claims. It was in bold print in the following terms (Ex A 3289): The JLMs accept no responsibility or liability to those investors who are, for whatever reason, not contacted and invited by the JLMs to participate in the Institutional Entitlement Offer. The onus rests with each investor to contact the JLMs if it is of the view that it should be treated as an Eligible Institutional Shareholder.

AREO launched

1. On 13 February 2008 an ASX announcement recorded that Primary's offer for Symbion was unconditional. It included the following (Ex A 3354): Accelerated renounceable pro-rata entitlement offer ("Entitlement Offer") Primary launches today an 8 for 5 accelerated renounceable pro-rata entitlement offer to raise $1.231 billion. Eligible shareholders on the register as at 7:00pm on 18 February 2008 will be invited to subscribe for new Primary shares ("New Shares") at a price of $5.40 per share ("Offer Price"). The Entitlement Offer is fully underwritten by ABN AMRO Equity Capital Markets Limited, Credit Suisse (Australia) Limited and Deutsche Bank AG, Sydney Branch ("the Joint Lead Managers"). Primary's shares have been placed in trading halt whilst the institutional component of the Entitlement Offer is undertaken.

Draft Prospectus

1. On 13 February 2008 the plaintiff accessed on the internet a draft document which recorded that it was "not a Prospectus" that was sent under cover of a letter from Primary to the ASX. This document has been referred to in the proceedings conveniently as the "Draft Prospectus". The covering letter included the following (Ex A 3392): Primary announced today an equity capital raising of A$1,226 million through an accelerated shareholder entitlement offer. Primary will today commence the institutional entitlement offer. Attached is a draft document to be made available to institutional investors as part of the process. A prospectus under which the entitlement offer will be made to retail investors is expected to be lodged with the Australian Securities and Investments Commission on Monday 18 February 2008 ("Prospectus"). A printed copy of the Prospectus together with a personalised entitlement and acceptance form will be mailed to each eligible retail shareholder by Friday 22 February 2008. Eligible shareholders who are considering applying for shares should read the Prospectus in full. An application for shares can be made on the personalised entitlement and acceptance form accompanying the Prospectus.
2. The Draft Prospectus included the key dates of the Institutional Offer (13 and 14 February 2008), the Institutional Bookbuild (15 February 2008), the Retail Offer (22 February to 13 March 2008) and the Retail Bookbuild (19 March 2008) (Ex A 3402). It also included a copy of the Chairman's letter dated 18 February 2008 referring to the history to the offer and acquisition of Symbion. That letter included the following (Ex A 3404): If you have any questions about the Entitlement Offer, you should seek advice from your stockbroker, accountant or other professional adviser or call the Primary Entitlement Offer Information Line on 1800 302 248 from within Australia or +61 2 8256 3384 from within New Zealand. The Directors urge you to carefully read this Prospectus in its entirety (including Section 10 which contains a summary of the major risks associated with an investment in Primary) before deciding how to deal with your Entitlement.
3. The Draft Prospectus also included the following (Ex A 3412): 5. QUESTIONS If you have any questions relating to the Entitlement Offer, you should consult your stockbroker, accountant or other professional adviser or you can call the Primary Entitlement Offer Information Line on 1800 302 248 (within Australia) or on +61 2 8256 3384 (within New Zealand) at any time from 8.30am to 5.00pm (Sydney time) Monday to Friday during the Offer Period.
4. Section 1, Questions and Answers, included a number of questions in relation to the Offer. In answer to the first question "What is the Entitlement Offer?" the Draft Prospectus included the following (Ex A 3414): 1. the Institutional Entitlement Offer - Eligible Institutional Shareholders were approached and required to decide whether or not they would take up their Entitlement. 2. the Institutional Entitlement Bookbuild - Entitlements that were not taken up by Eligible Institutional Shareholders, together with those of Ineligible Institutional Shareholders were sold on their behalf; 3. the Retail Entitlement Offer - Eligible Retail Shareholders will be sent this Prospectus together with a personalised Entitlement and Acceptance Form and required to decide whether or not to take up their Entitlement; and 4. the Retail Entitlement Bookbuild - Entitlements that are not taken up by Eligible Retail Shareholders, together with those if Ineligible Retail Shareholders, will automatically be sold on their behalf. The Institutional Entitlement Offer and the Institutional Entitlement Bookbuild were conducted between 13 February 2008 and 15 February 2008.
5. In answer to the question whether Dr Edmund Bateman and other shareholder directors intended to participate in the Entitlement Offer the Draft Prospectus included the following (Ex A 3420): The Shareholder Directors and the Bateman Investors may accept more Entitlements than they are obliged to under the arrangements above. Instead of, or in addition to, participating in the manner described above, the Bateman Investors may participate or procure that related entities participate in the Institutional Entitlement Bookbuild, but in doing so, no Bateman Investor (together with any related entity it nominates) will be entitled to acquire New Shares in excess of the Bateman Investor's Entitlement.
6. The Draft Prospectus also included the following (Ex A 3423; 3424-3425; 3485): The Entitlement Offer is structured into four parts: ● The Institutional Entitlement Offer - Eligible Institutional Shareholders were approached by the Joint Lead Managers and were required to decide whether or not they would take up their Entitlement. ● The Institutional Entitlement Bookbuild - Entitlements which were not taken up by Eligible Institutional Shareholders, together with those of Ineligible Institutional Shareholders, were sold on their behalf to Institutional Investors (which may include Eligible Institutional Shareholders whether or not they took up their full Entitlement under the Institutional Entitlement Offer). … 2.4 The Institutional Entitlement Offer 2.4.1 Overview of Institutional Entitlement Offer The Institutional Entitlement Offer was conducted between 13 February 2008 and 14 February 2008. A total of [XX] million New Shares were allocated to Eligible Institutional Shareholders under the Institutional Entitlement Offer raising $[XX] million. Settlement of the issue of New Shares under the Institutional Entitlement Offer is expected to occur on 21 February 2008. Eligible Institutional Shareholders are those persons who were registered as holders as Shares as at 7.00pm (Sydney time) on the Record Date with a registered address in Australia, New Zealand, Singapore, Hong Kong, the United Kingdom or any other member state of the European Union to whom the Joint Lead Managers extended an offer under the Institutional Entitlement Offer on the basis of the Joint Lead Managers' belief that they were an institutional or other professional or sophisticated investor. … 10.4 GENERAL RISKS The market price of Shares on ASX does rise and fall due to multiple interrelated and unrelated factors, which may affect the market performance of Primary, including: ● general economic conditions, including inflation rates and interest rates; ● variations in the local and global market for listed stocks; ● changes to government policy, legislation or regulation; ● general operational and business risks; ● the market may from time to time re-rate downwards the healthcare sector; and ● the market may from time to time re-rate downwards one or more of the broad categories of stock of which Primary is viewed by the market to form part at the time. For example, the market may re-rate down growth stocks (and re-rate up yield stocks) or re-rate down large cap stocks (and re-rate up small cap stocks). The market prices from many listed entities have in recent times been subject to wide fluctuations. In many cases this may reflect the diverse range of non-entities specific influences such as global hostilities and tensions, acts of terrorism and the general state of the international economy. Such market fluctuations may materially adversely affect the market price of Shares. No assurances can be given that Primary's market performance will not be adversely affected by any such market fluctuations or factors. None of Primary, its Directors or any other person guarantees the market performance of Shares. The Shares may experience extreme price and trading volume fluctuations. There can be no guarantee that the price of shares will increase. There may be relatively few, or many, potential buyers or sellers of Shares on ASX at any time. This may increase the volatility of the market price of Shares. It may also affect the prevailing market price at which Shareholders are able to sell their Shares. This may result in Shareholders receiving a market price for their Shares that is less or more than the price that Shareholders paid.
7. There was also a section in the Draft Prospectus dealing with the Bateman Investors. That entry made clear that the Bateman Investors intended to partially accept their respective entitlements and that they may participate or procure related entities to participate in the Institutional Bookbuild (Ex A 3490). Another section of the Draft Prospectus recorded that the JLMs had given their consent to being named in the Draft Prospectus as JLMs and Underwriters to Primary. However this section also recorded that the JLMs did not make or purport to make any statement that was included in the document and that there was no statement in the document which was based on any statement by the JLMs. That section also recorded that the JLMs did not authorise the issue of the Prospectus and that they expressly disclaimed and took no responsibility for any part of it (Ex A 3495).
8. The Draft Prospectus included the following definitions (Ex A 3503-3504): Eligible Institutional A Shareholder (either directly or through a custodian) as at the Record Date, who is not an Ineligible Institutional Shareholder or a US person or acting for the account or benefit of a US person, and to whom Primary or a Joint Lead Manager has extended an offer to subscribe for New Shares under the Institutional Entitlement Offer on the basis of Primary or the Joint Lead Managers' belief that they were an Institutional Investor. Shareholders Eligible Retail A Shareholder as at the Record Date, who has a registered address in a Relevant Jurisdiction, is not a US person or acting for the account or benefit of a US person, and has not otherwise participated in the Institutional Entitlement Offer and is not an Ineligible Institutional Shareholder. Shareholders … Ineligible Institutional A Shareholder who, if they had a registered address in Australia would, in the reasonable opinion of Primary, be an Institutional Investor, but who Primary and the Underwriters agree shall not receive an offer under the Institutional Entitlement Offer. Shareholder … Institutional Investors A person in a jurisdiction agreed between Primary and the Underwriters, to whom offers and issues of New Shares may lawfully be made without the need for disclosure to investors under Chapter 6D of the Corporations Act or without any other lodgement, registration or approval with or by a government agency (other than one with which Primary, in its absolute discretion, is willing to comply).

1. At the back of the Draft Prospectus the "Corporate Directory" included the telephone numbers for the Primary Share Entitlement Offer Information Line and the JLMs (Ex A 3507).

List of Investors

1. The JLMs prepared a list of institutional shareholders who received an invitation to participate in the Institutional Offer during the period 13 and 14 February 2008. That List consisted of institutions such as fund managers and banks. The only individual on that list was Dr Edmund Bateman (Ex A 4128).

Institutional Offer concludes

1. The Institutional Offer closed on 14 February 2008. In an email of 14 February 2008 Credit Suisse wrote to the other JLMs in terms that included the following (Ex A 3836): Attached is the book following market close today. This is a book that Orient Capital and I will work through this evening. The only additional shareholder that will be permitted to accept their entitlement is Tudor who has advised that they will not be in a position to return the forms until 10pm tonight. I will send another version of the book late tonight to reflect where Orient gets to in the reconciliation process, but those smaller institutions at the bottom of this file will likely be rolled into the retail offer.
2. On 15 February 2008 a communication between the JLMs and Primary included the following (Ex A 3962): We today completed the institutional portion of the Primary Health Care 8-for-5 pro rata entitlement offer to raise A$1.231 billion. … Institutional and founding shareholders renounced approximately 35 million shares (of which 11 million were from Dr Bateman - the Managing Director of Primary). The Joint Lead Managers and Underwriters (Deutsche Bank, ABN and Credit Suisse) placed these shares to existing and new shareholders at $6.60 per share (or a $1.20 premium to the entitlement offer price of $5.40). Several high quality institutional investors have been introduced to the Primary register through the institutional bookbuild. … The retail entitlement offer will now run its course, with an additional bookbuild of renounced shares taking place on 19 March 2008.
3. The Institutional Bookbuild took place on 15 February 2008 with a clearing price of $6.60 achieved representing a $1.20 premium on the offer price. Following the completion of the Institutional Bookbuild, the trading halt ceased and trading resumed on 18 February 2008. The accelerated shareholders who accepted their entitlements in the Institutional Offer did so about 1 week before they had to pay for those entitlement shares. There is no issue that in the interim the JLMs took credit and counter party risks in relation to whether those accelerated shareholders would ultimately pay for their entitlements. Approximately $960 million of the $1,231 million total was raised within 1 week of the offer being launched. During the Institutional Offer there was a take up rate of approximately 80%, with approximately 142,813,869 entitlement shares taken up and approximately 35,237,870 entitlement shares to be sold in the Institutional Bookbuild. The institutional components accounted for approximately 78% of the total offer size (Ex A 3976; 4013-4014; 4112).
4. On 18 February 2008 Primary advised the ASX that the Institutional Offer had closed on 14 February 2008 raising approximately $958 million with over 80% of "existing eligible institutional shareholders agreeing to take up their entitlement". It also advised the ASX that existing eligible retail shareholders would be invited to participate in the Retail Offer under the Prospectus (Ex A 4102). The Prospectus was issued on 18 February 2008.
5. On 18 February 2008 an internal Deutsche Bank email referring to the Bateman Investors taking up their shares recorded the following (Ex A 4115): DB will need to adopt them as a client of the firm (part of our anti-money laundering requirements). The attached memo details source documents required for each shareholder (differs for individuals and companies). We have also attached the "investor certificate" required to be completed for each applicant.
6. On 19 February 2008 an internal Deutsche Bank email in relation to the "size & composition of retail" recorded the following (Ex A 4152): On analysis of the PRY register the level of retail ownership is approximately 10-15% within insto ownership 85-90% (the Bateman family have been included as part of insto ownership). The reason we have only accelerated 80% of the register in the institutional offer is that some small insto's couldn't be identified or contacted within 48 hours to they have gone into the retail pool. Of this circa 10-15% the vast majority are either founding shareholders, employees or sophisticated high net worth investors who hold more than 50,000 shares. From our experience on previous accelerated renounceable entitlements I'd expect the majority of these investors to take-up their rights rather than sell them. Therefore concern over the potential size over the retail bookbuild on 19th March could well be overstated.
7. On 22 February 2008 in an ABN AMRO document entitled "Primary Health Care Case Study" the following was recorded (Ex A 4294): Despite a number of significant challenges, the Institutional Offer and Institutional Bookbuild have been executed successfully. Adverse equity market conditions ▪ Equity markets globally have been very volatile since the emergence of the sub-prime crisis, which has compounded investor uncertainty ▪ S&P/ASX 200 had fallen 18% from the November 2007 peak prior to AREO launch ▪ Despite the volatility, the successful execution of the Institutional Offer provides evidence that the equity new issue market is still open and active for well priced transactions.

Share price

1. The Primary share price fluctuated between approximately $12.20 in early November 2007 and approximately $10.40 in late January 2008. It then increased to $11.00 in the period up to 7 February 2008. It dropped to $6.60 at 15 February 2008 and declined to $5.00 between 6 and 13 March 2008. It returned to approximately $6.00 at the end of March 2008 (Ex D4-3).
2. On 4 March 2008 internal communications within Primary's advisers, Caliburn, recorded the following (Ex A 4362-3): I wonder if there is anything we can do to explain how a share price will fall following a discounted rights issue and that theoretically pry should be trading at $7.20 post the insto rights offer ie the TERP (all other things being equal). I think a lot of punters may be confused about the large fall in share price following the discounted entitlement offer and that this has produced some negative sentiment. … It is a good point to address if they are getting questions, but they should not go on the front foot and try to say the stock is performing well. Better to say when asked that the board is concerned by the fall as there are no business-related explanations: the fundamentals remain as in prospectus, and the acquisition is fully funded and progressing well. They could also note that for most ASX listed companies a large issue can lead to an increase in share price volatility in the short term, and the difficult market may have increased that volatility.

Trading halt request

1. On 14 March 2008 Baker and McKenzie wrote to the ASX in terms that included the following: (Ex A 4778): 1. As you would be aware, take up under Primary's institutional entitlement offer was relatively strong at approximately 80%. By comparison, total acceptances under the Primary retail entitlement offer as at close on 12 March 2008 were relatively weak at approximately 6%. As at close on 12 March 2008, there was consequently a substantial shortfall of approximately 50 million shares that (save for those shares taken up on 13 March 2008) will be offered to institutional investors under Primary's retail bookbuild. As you would be aware, Primary's retail entitlement offer closed yesterday. While it could be expected that there was limited additional take up under the retail entitlement offer yesterday, based on the figures as at close on 12 March 2008, it is evident that the size of the retail bookbuild will be substantial. … Hence, both Primary and the Joint Lead Managers believe that a different set of facts is applicable to the retail bookbuild to be completed by Primary and that for the reasons outlined in the attached email and above, it is important that Primary be granted a one day trading halt to facilitate the retail bookbuild.

Retail Offer and Bookbuild

1. The Retail Offer took place between 22 February and 13 March 2008. The Retail Bookbuild took place on 19 March 2008 (Ex A 3402). The Retail Bookbuild achieved a price of $5.50, representing a premium of $0.10 on the offer price of $5.40.
2. By letter dated 22 February 2008 from Primary the plaintiff was invited to participate in the AREO "available for all eligible retail shareholders recorded on the Primary Register as at 7.00pm (Sydney time) on 18 February 2008". Enclosed with that letter was a copy of the Prospectus (Ex 2: 54).
3. The plaintiff took part in the Retail Offer and renounced its shares. It received $400,105.20.

Proceedings commenced

1. The plaintiff did not commence these proceedings until the eve of the expiration of the limitation period on 11 February 2014. It was granted leave to amend its pleadings a number of times and sought leave to make further amendments at the commencement of the hearing which was not granted.
2. The proceedings were heard on 15, 16, 17, 18 and 22 August 2016. Mr LV Gyles SC, leading Mr SA Lawrance, of counsel, and Mr H Chiu, of counsel appeared for the plaintiff. Dr AS Bell SC, leading Mr A Shearer, of counsel, appeared for the JLMs. Mr IM Jackman SC, leading Mr DFC Thomas, of counsel, appeared for Primary.
3. The plaintiff claims damages for loss allegedly suffered by reason of the defendants' alleged negligence and/or misleading or deceptive conduct.

The plaintiff's evidence

1. The plaintiff relied upon two affidavits of Dr Volfneuk affirmed on 6 June 2014 (in chief) and 3 July 2015 (in reply).
2. In his first affidavit Dr Volfneuk claimed that it was his practice to look at the internet each day (sometimes more than once each day) for stock exchange announcements, corporate announcements, trading prices and the like that "might have any impact on my investments". He claimed that when he came across any new announcements his "practice was to read them on the internet as well as any attachments to them".
3. Dr Volfneuk claimed that on 13 February 2008 he "browsed through" a Primary ASX announcement and the documents attached to it. He identified those documents as the "Investor Presentation"; the "Draft Prospectus Document Announcement"; the "Draft Prospectus Document"; and the "Request for Trading Halt". He claimed that when he "browsed through" the Draft Prospectus Document he saw the description of an "institutional entitlement offer" which had commenced on that day. He claimed that "this was the first time I had known about this institutional offer and its timing". He also claimed that he did not know or suspect that the plaintiff might be entitled to participate in that offer; nor did he appreciate that Dr Edmund Bateman, or any of the other directors of Primary, were taking part in the Institutional Offer.
4. Dr Volfneuk claimed that because the plaintiff had not been contacted about taking part in the Institutional Offer, he assumed that it was not an "Institutional Investor" and he did not make enquiries about the Institutional Offer.
5. Dr Volfneuk claimed that on 18 February 2008 he read certain documents that were included with the Primary ASX Announcement in particular a letter dated 18 February 2008, headed "Primary Health Care Limited ("Primary") Completes Institutional Entitlement offer". He claimed that from reading this letter he understood that any unwanted new share entitlements of the "Institutional Investors" were sold in the Institutional Bookbuild at the price of $6.60 per share, $1.20 above the offer price of $5.40. His affidavit evidence included the following (par [35]): A few days later I received a hardcopy of the Prospectus. I decided that RinRim would not take up any of its new share entitlements in the retail offer, because I did not have the cash available.
6. Dr Volfneuk also claimed that at about this time (that is about 20 or 21 February 2008) he had a conversation with James Bateman in which Mr Bateman asked him whether he was interested in taking up the Retail Offer. He claimed that he advised Mr Bateman as follows (par [37]): No, I do not want to borrow money to buy the shares unless I can obtain a hedge contract to underpin any subsequent drop in Primary's share price.
7. Dr Volfneuk claimed that Mr Bateman suggested that he should call Deutsche Bank about obtaining "such an instrument". Although Mr Bateman gave affidavit evidence that he could not recall such conversation he claimed that he was not in a position to deny that it occurred. Dr Volfneuk claimed in his affidavit that he "later spoke" with a representative of Deutsche Bank but he decided "not to proceed" (par 37).
8. Dr Volfneuk gave affidavit evidence of the various ASX Announcements by Primary from which he learnt on 26 February 2008 that Dr Bateman had been treated as an institutional investor. He claimed that he also observed on 10 March 2008 that another individual had been buying shares in the market before the close of the Retail Offer which suggested to him that it was "possible" that such individual might have been offered shares in the Institutional Offer, renounced them, received money from the sale in the Institutional Bookbuild and used that money to buy Primary shares in the market. He made similar observations about another individual in respect of a Primary ASX Announcement on 17 March 2008.
9. On 1 April 2009 Dr Volfneuk received a notice that the plaintiff had been paid $400,105.20 for renounced entitlements at $0.10 for each of its 4,001,052 entitlements in the Retail Offer.
10. Dr Volfneuk claimed in his first affidavit that had he been informed before the Institutional Offer or before the Institutional Bookbuild that the plaintiff fell within the definition of institutional investor he would have sought to have the plaintiff included in the Institutional Offer and the Institutional Bookbuild.
11. Dr Volfneuk also gave affidavit evidence that in late 2013 he saw the Procedures Manual and referred in particular to clause at 3.1 of the Checklist section (repeated here for convenience): The JLMs accept no responsibility or liability to those investors who are, for whatever reason, not contacted and invited by the JLMs to participate in the Institutional Entitlement Offer. The onus rests with each investor to contact the JLMs if it is of the view that it should be treated as an Eligible Institutional Shareholder.
12. Dr Volfneuk claimed that had he been provided with, or had access to, the Procedures Manual before the Institutional Offer, he would have read it and he would have sought to have the plaintiff included in the Institutional Offer and the Institutional Bookbuild "because I perceived at the time of the Institutional Offer, that it was more advantageous for RinRim to take part in the institutional offer rather than the retail offer" (par [50]).
13. The plaintiff's claim that it was vulnerable because it had no notice until 13 February 2008 that the equity raising would be by way of an AREO (CLS 63(a)) was supported by Dr Volfneuk's affidavit evidence referred to earlier that it was only on 13 February 2008 when he "browsed through" the Draft Prospectus that he saw the description of an Institutional Entitlement Offer which had commenced on that day and that this was the "first time I had known about this institutional offer and its timing".
14. This aspect of the plaintiff's claim and this evidence suggested that the plaintiff was vulnerable as it had no time to consider the nature of the AREO because it was effectively sprung on it when Dr Volfneuk browsed through the Draft Prospectus on 13 February 2008. The reality of the situation after cross-examination is quite different. Dr Volfneuk was cross-examined by Dr Bell for the JLMs and later by Mr Jackman for Primary.
15. Dr Bell took Dr Volfneuk to the Primary ASX announcement on 8 November 2007 in which there was reference to the AREO (Ex A 369; tr 53). Dr Volfneuk accepted that he read that announcement "carefully" (tr 53); and saw that Primary intended to fund the acquisition of Symbion with a combination of debt and equity (tr 54-55). He accepted that he saw the reference to the AREO (tr 55); but claimed that it did not arouse his curiosity (tr 56). He gave the following evidence in cross-examination in this regard (tr 56-57): Q. You say you weren't curious? A. No. Q. About it? A. It did not arouse my curiosity. Q. You hadn't heard of an accelerated -- A. No. Q. -- renounceable entitlement offer? A. I did not hear or care to hear about it. Q. That was the first time you'd seen reference to it as a concept was it? A. It did not mean anything to me.
16. Dr Bell then took Dr Volfneuk to the Bidder's Statement filed with the ASX on 8 November 2007 (Ex A 404; tr 57). Dr Volfneuk agreed that he read that document. He was taken in particular to the reference to the funding section of the Bidder's Statement in which reference was made to the Institutional Entitlement Offer, the Institutional Bookbuild, the Retail Entitlement Offer and the Retail Bookbuild (see paragraph [22] above) and gave the following evidence (tr 57-58): Q. I take it in accordance with your practice you would have read that? A. Yes. Q. Did you know what a retail bookbuild was? A. I'm not sure I know even now. I think it's technical knowledge. Q. Are you saying you don't know what it, you're not sure what it means? A. I, I have a rough idea because, because I was put in one, but that's, that's about the only one I know about, and, and maybe a couple of previous ones but yeah, exactly what it is I wouldn't try to begin to explain to anyone what it is. Q. You say you know now. Did you know in November 2007 what an institutional bookbuild was, or a retail bookbuild? A. Well I know now. Did I know before what it was? Q. Yeah. A. I don't think I would make myself, would make myself out to be someone who knows exactly what it is. Q. No, I'm asking you about in November 2007. Is your evidence that you didn't know what it was in November 2007? A. Most likely not. Q. How about February 2008? Did you know what an institutional bookbuild was or a retail bookbuild was? A. Yes, because I read the announcement. Q. What announcement? A. In February, on the 13th. On 13 February it was in the announcement, that on 13 February there's a trading halt and an institutional placement, institutional - a round of this equity raising procedure is going to be conducted on the 13th and 14th, with the bookbuild being on the 15th. Q. What was the bookbuild? What did you understand the bookbuild to be? A. Well, it's not like I understood but I read that it's, it's a procedure that places entitlements that are not taken up by institutional shareholders, to which they became entitled as a, as a matter of pro rata entitlement, to other, other shareholders who may not have been Primary shareholders before, but who were willing to take up more shares in, new shares in Primary, and other Primary shareholders who were willing to take up more than their entitlement.
17. Dr Volfneuk was also cross-examined in relation to his opinion of Primary and its founder, Dr Bateman. The defendants were seeking to elicit from Dr Volfneuk his view that Primary was a good investment in February and March 2008. His evidence was as follows (tr 43-46): Q. All right I'll come back to that. As at 2008, early 2008, you had an extremely positive opinion about Primary didn't you? A. At what point in time? Q. In early to mid-February 2008? A. If you - mid-February was past 13 February? Q. Yes? A. There was a difference to my opinion before and after that date. Q. Well what was your opinion of Primary and its prospects and its strength as a company on 13 February? A. Right on 13 February I was in a little bit of shock. Q. Why? A. Because I saw $5.40. Q. Where did you see $5.40? A. On 13 February it was published in the announcements that the new offer or rather, or rather entitlement offer would be conducted on an eight to five basis and the new shares can be taken up at $5.40. Q. Yes but that wasn't the market price at the time was it? A. It was - that announcement was combined with the pricing halt. Q. Yes? A. So the market price on the day of a trading halt cannot be ascertained. Q. The price immediately before the trading halt wasn't $5.40 was it? A. Correct. Q. What was it? A. It was ten dollars-something. It was in the $10 mark. Q. Let me go back to my question. As at that date you had a very positive opinion of Primary didn't you? A. Before or after I read the announcement? Q. Before? A. Before yes. Q. Yes and after? A. No. Q. You had a very high opinion of Dr Bateman didn't you? A. I respected him. Q. You had a very high opinion of his ability to manage the company profitably didn't you? A. When I saw $5.40 I was not happy about it. … Q. Indeed sir after the announcement you continued to have a very high opinion of Primary didn't you, after the announcement on 13 February 2008? A. On, right on the 13th I was in a bit of a shock, so I was re-evaluating everything I knew about Primary on that day. Q. Putting your shock to one side, let's go to the 14th? A. Okay. Q. You had a very high opinion of Primary on the 14th didn't you? A. I didn't know what to make of it because the shock continued. I'll tell you why it continued is because, because I read the announcement and I realised the announcement of $5.40 was not a positive announcement. I did not like it, and -- Q. I'll ask you this question, you knew it was designed to raise money didn't you? A. Yes. Q. For Primary to acquire Symbion Health? A. Yes. Q. You thought that was a very positive development for the company didn't you? A. It depends. Q. Well did you or did you not think it was a very positive development for the company? A. It depends on the price paid for the Symbion. … Q. I suggest to you that in the second half of February up to the beginning of March you held the view that shares in Primary would double in value within three years didn't you? A. Yes. Q. You thought that they would be $12, at least $12 in three years' time didn't you? A. Double from $5.40 or -- Q. No? A. Okay. Q. You thought they would double in value didn't you? A. Yes. Q. You therefore thought did you not that Primary was a very attractive investment? A. Yes. Q. You thought that in the second half of February didn't you? A. Yes. Q. And the beginning of March didn't you? A. Yes. Q. So whatever shock you may have had on the 13th and 14th you'd overcome by the second half of February because you thought Primary shares would double in value within three years? A. Not really. I didn't overcome my shock because they were that value the day before - a couple of days before the capital raising so the shock continued and the disappointment continued. The hope stayed that they will recover. Q. It was more than a hope, it was a considered opinion wasn't it on your part that they would double in value within three years? A. When you make predictions you reflect hope more than considered opinion because I do not believe you can have a considered opinion about future. Q. You believed that they would double within three years didn't you? A. That's right.
18. Dr Volfneuk claimed that he did not want to be involved in the bookbuilding exercise, either institutional or retail, and that he did not have any interest in buying shares in the bookbuild process (tr 59). He was asked about the announcement on 13 February 2008 which he accepted that he read with "enormous interest". He gave the following evidence (tr 60-61): Q. You worked out that what it meant for you was that as you had two and a half million shares, you could acquire up to a further 4 million shares in Primary at $5.40 a share? A. That's what it says. Q. In other words it would cost you about $21.6 million to increase your portfolio from 2.5 million to 6.5 million shares? A. I understood that, yes. Q. That was something you seriously considered isn't it? A. Seriously? Q. Yes? A. No. … Q. Your answer "No," namely that you didn't seriously consider taking up the offer, your answer "No," is that your seriously considered answer? A. Yes. Q. Can I suggest to you sir that your immediate reaction, that's to say on the very day you received this offer or the details of the offer, your immediate reaction was to begin to explore borrowing money to participate in it? A. Correct. … Q. -- the very day of the offer, was exploring how you could borrow the money to take up the offer? A. Yes. Q. That's because you were seriously contemplating doing it weren't you? A. Seriously, yes. I was, I was - I was doing my duty to explore all possible options. Q. You had a very positive view of Primary and you saw this, you had a view that Primary would double its value in three years and you saw a possibility of doubling your money if you could only get a loan to take up the offer didn't you, that's what you saw? A. Seriously -- Q. Yes? A. No. Did I go through the motions, absolutely. Q. This is going through the motions was it? A. Yeah. Q. Just a trifling this -- A. Not trifling, no not trifling, I was -- Q. What do you mean by go through the motions? A. Well because as far as I knew okay, I was not a taker up of any shares, not on this occasion, not in previous occasion much, or buyer of any shares in anything much. But I, I did not see any harm in applying for a facility. I did not see a downside in applying for a facility, exploring what if a facility could be obtained, what if things have changed since the times I know, what if it's cheap, what if it is safe? So I owe to myself a duty and considering - and I, I realise that I had a month to explore it. Q. Yes and you certainly didn't have the cash available to accept the offer immediately did you on the 13th or 14th? A. I didn't have the inclination to accept the offer. Q. Listen to the question and answer it please. You did not have the cash available to accept or take up the offer on 13 or 14 February did you? A. No. Q. You couldn't have participated in the institutional offer if you wished to accept the offer on the 13th and 14th could you? A. I didn't, I didn't wish to upset --
19. Dr Volfneuk was challenged in respect of his claim in paragraph 35 of his affidavit that a few days after 18 February 2008 (on 20 or 21 February 2008) he decided that the plaintiff would not take up its entitlements in the Retail Offer because he did not have the cash available. This challenge included a claim by the defendants that Dr Volfneuk was gearing the plaintiff up to borrow funds to take part in the Retail Offer. In this regard Dr Volfneuk was taken to his communications with various entities and individuals about the prospect of obtaining loan funds (Ex 2). It is appropriate at this point to refer to that correspondence.
20. On the opening day of the Institutional Offer, 13 February 2008, Dr Volfneuk wrote to his accountants in terms that included the following (Ex 2: 6): My trust RinRim P/L owns 2,500,000 shares in primary healthcare P/L listed on ASX as PRY. I also have some lazy money on deposit with Westpac. PRY are taking over Symbion P/L. They havve (sic) just announced 8 for 5 shares entitlement to raise capital for that takeover. I can decide to participate in it to some degree or all or none. Do you know or have contact/working relationship with anyone who would lend money for that purpose? If so, can you please let me know who to contact and take it from there.
21. On 14 February 2008 Dr Volfneuk wrote to Stanley Liew, the Relationship Manager, Corporate Financial Services, of the Commonwealth Bank, advising him of the plaintiff's shareholding; the Primary takeover of Symbion and the announced entitlement of 8 for 5 shares. That email included the following (Ex 2: 11): Does Commsec have an indicative rate and proportion at which it would lend money for that purpose? If so, can you please let me know who to contact and take it from there.
22. On 15 February 2008 Mr Kritikos, of Commsec, wrote to Dr Volfneuk in the following terms (Ex 2: 21-22): We can offer you the following, 1 An interest rate of 15.34% pa (for 5 years) to fully hedge $20M worth of PRY 1. An application fee of 0.75% (usually 1.00%). This is a one off. This will involve the lodgement of your PRY share @ 100% LVR. The funds from this will pay for the rights issue. If you have any queries, please do not hesitate to contact me.
23. On 18 February 2008 Dr Volfneuk wrote to Mr Kritikos in the following terms (Ex 2: 21): Further to our conversation this morning - the actual borrowing rate of 8.9% - is it fixed for five years or is it linked to Reserve Bank rate or is it published regularly somewhere?
24. On the same day Mr Kritikos advised Dr Volfneuk that he would effectively be entitled to a 1% discount off the advertised standard variable rate which was linked to the RBA cash rate. He also advised him that the full advertised rate was 9.9% and published on the Commsec website. Mr Kritikos wrote, "I am still waiting to hear from the counter party" (Ex 2: 21). In response on the same day, Dr Volfneuk wrote "So far so good, we'll wait to hear more thanks a lot" (Ex 2: 21).
25. On 19 February 2008 Mr Kritikos wrote to Dr Volfneuk in the following terms (Ex 2: 25): The counterparty is not playing ball. The main reason is that PRY traded 10% down yesterday. This has blown out the volatility in there (sic) models and the quote below is now not valid. They are still crunching the numbers. So we do not run out of time. Did you want to go through the application process of a Margin Loan so we can work on this being approved?
26. On the same day Dr Volfneuk responded to Mr Kritikos (Ex 2: 24): Sure, and I am watching developments myself. Let's do the preliminaries that can be done whilst waiting for other people to make decisions. Let me know what you need. By the way my accountant is Frank Varapodio on [number provided]. He has been told to prepare accounts for submission to a lender anyway quicksmart. There will be some bargains at some stage let's be ready for them. Thanks a lot.
27. Mr Kritikos responded on 19 February 2008 requesting Dr Volfneuk to advise whether the application was for the plaintiff and whether the stock was in its name. He also advised that he needed the completion of the margin loan application and "the financials" for the past two financial years (Ex 2: 24). On the same day Dr Volfneuk responded in terms that included the following (Ex 2: 24): Mostly in RinRim. However for prudent tax planning it might be better if some stock is bought and negatively geared by Alex Volfneuk and Elina Safro (some 10-15% of the total I think).
28. On 20 February 2008 Dr Volfneuk wrote to Mr Liew at CBA asking him for a "big favour" as he was experiencing difficulties in locating his bank statements because his "old accountant" had sold his practice. That request included the following (Ex 2: 34-35): I plead with you to look up the statements (CBA) only in your case specified on the accountant's email to me and supply us with a copy ASAP - I need it for Commsec.
29. On 20 February 2008 an internal Deutsche Bank email recorded the following (Ex 2: 45A): A particular Primary shareholder wishes to participate in the bookbuild of the retail offer - they believe they are a sophisticated investor. Do you mind if this shareholder contacts you directly on the matter?
30. In response it was noted (Ex 2: 45A): That's fine - if you just ask them to call me that would be great + I will be sure to be in touch w them at that time.
31. In a further Deutsche Bank internal communication by email the following was recorded (Ex 2: 45): The gentleman's name is Mr Alex Volfneuk and his contacts are [provided] I will call him now and let him know you will be expecting his call tomorrow morning.
32. On 20 February 2008 Dr Volfneuk advised Mr Kritikos that he had sent the forms to him by express post the previous evening (Ex 2: 48).
33. It is apparent that Michael Parsons of Deutsche Bank met with Dr Volfneuk on 26 February 2008 and recorded the following in an internal Deutsche Bank email (Ex 2: 52): He was wanting to split his entitlement if possible but has been advised that it would incur tax so is not inclined to pursue this. By way of background, he is about 50 years old, married with 6 children, migrated from Russia, qualified as a GP and then got into Pathology and sold his practice to Primary in 1999. In addition to his Primary shareholding he said that he owns residential and commercial property (excluding his residence) to the value of about $20m and has about $6m in bank bills that he rolls and prefers to keep in cash. He mentioned in passing that he is not a good client for brokers because all he does is buy and hold (and didn't say what he held in his portfolio). He is looking to borrow to take up his entitlement and Commsec was quoted 1% off their published rate which is currently 9.9% with interest pre-paid. Can you see if we can better this. At this stage he is not wanting anything else from DB.
34. On 2 March 2008 Gordon Jenkins of Deutsche Bank wrote to Dr Volfneuk in the following terms (Ex 2: 73): Further to our conversation on Friday, the lending facility fee, offered by Deutsche Private Wealth Management, in regards to you (sic) PRY entitlement is 8.75% pa. This rate is subject to any potential changes in the underlying cost of funds. I'm in the process of gathering the documentation required for this lending facility and will email to you as soon as possible. With regards to protection, I noted your comments regarding you being a long-term holder of Primary regardless of what may happen to the shareprice. Over the last 3 months we have seen a dramatic turnaround in several companies, considered by some investors as "blue chip". The value of these companies have, in some cases, dropped by more than 50% and it may be several years until valuations seen in 2007/08 are seen again. Unfortunately dividends in these companies have also been cut or cancelled. It would be prudent to place some protection over part or all of your holding. This is, as you mentioned, a type of "insurance". To gain further understanding of what this means and how its calculated, as requested I've attached an example, comparing the cost of protection at current prices to historical prices/volatility. I will call you on Monday afternoon to discuss the lending facility further. If you have had an opportunity to review the attached document I will also discuss this.
35. On 2 March 2008 Dr Volfneuk responded to Mr Jenkins advising that he had looked at his options and that he needed protection for more extreme events than the ones that Mr Jenkins had outlined. That communication including the following (Ex 2: 81): If shares dropped to $5.40 then the most prudent thing for me would be to sell them to Alex Volfneuk atv $5.40 thereby realising a loss in RinRim but still keeping them. If they then drop below $5.40 I can sell them back to RinRim and realise a loss in my name etc. I need protection from them falling below $4.70 or thereabouts/or whatever level may trigger default/margin call from the bank. I can cope with some margin call by simply keeping some money in the bank as insurance. So maybe protection should be even at a lower level then $4.70. I believe they will double in value in the next three years (very conservatively) - so the collar and resultant taxable profit would not be desirable. Let me know whatv (sic) is possible along those lines.
36. Dr Volfneuk sent Mr Jenkins' email to his accountant, Craig Stone, who advised him that the Colonial Rate was likely to be around 8.9% to 9.0% with no other fees or charges. On 3 March 2008 Mr Stone advised Dr Volfneuk that he was in the process of firming up the tax/accounting strategy that would ensure "the refund of all the imputation credits" to him with minimal additional tax payable on the income itself (Ex 2: 76).
37. On 3 March 2008 Mr Stone wrote to Dr Volfneuk in terms that included the following (Ex 2: 84): I have watched with interest the share trading of PRY shares of late, including this afternoon where the price has decreased a reasonable amount over the last hour or so. Compared to other similar-sized companies, the volume is still quite light, so it will be interesting to see what sort of PRY price recovery occurs tomorrow, if the US wakes up in a happy mood tonight. In preparation for your meeting with Frank tomorrow, I have given him the attached application form to ensure that the new Margin Lending account is established in time for the rights issue to take place by the 13th March. There will be other ASIC related 'compliance' documents that will need to be prepared, so that you are fully aware of the risks/benefits of the margin lending strategy, etc… of which you are already aware. These will follow in due course, once Colonial Margin Lending has clarified any final issues that may arise. … In broad terms, the loan of $21,600,000 can be prepaid on 30 June 2008 for 10 months, as this will ensure that the net income of the trust will be close to zero. These figures may change and will need to be reviewed towards the end of June, depending on the level of interest income received and interest expense paid (which will in turn depend on the 4 RBA meetings prior to the end of June).
38. In the forms for the Colonial Margin Loan Dr Volfneuk requested a credit limit of $26.5 million (Ex 2: 92).
39. On 4 March 2008 Mr Jenkins wrote again to Dr Volfneuk in terms that included the following (Ex 2: 104): I've spent a lot of time with Deutsche Bank and other financial institutions attempting to develop a concept that meets your needs both in terms of lending capability and the issue of margin call/protection. … I understand your positive outlook on PRY, yet as we have seen recently with other "blue chip" stocks, global events can adversely affect our domestic companies. Within the past few weeks we have seen individuals with large share holdings in these companies lose a substantial amount of wealth, much of which will take a lot longer to recover, if ever. In addition leaders of such companies may leave the organisation and hence a business today may look completely different in three years' time. Given our discussions I would suggest that the best product on offer from Deutsche Bank is the Protected Equity Loan with a trigger level in the $3-$3.50 level. However, we need to ensure you fully understand the risks involved, should this level ever be triggered. We can in fact go to a lot lower level - you can determine this trigger level, the premium charged however increases the lower the trigger level.
40. On 4 March 2008 Mr Stone provided Dr Volfneuk with the terms and conditions for the margin lending account with Colonial (Ex 2: 109). On 5 March 2008 Dr Volfneuk wrote to Mr Stone in terms that included the following (Ex 2: 109): Further to our conversation this morning I am just reminding you to ask people at Colonial to set up a Share Trading/Margin Loan Account in the name of Alex Volfneuk and Elina Safro and enable us to have internet access to that (presumably Commsec) account.
41. On 5 March 2008 Mr Stone enclosed the completed application form for the Joint Margin Lending Account in an email to Dr Volfneuk requesting signature in a particular form (Ex 2: 108). On the same day Dr Volfneuk advised Mr Stone that he had just faxed the documents to him for passing to Colonial (Ex 2: 153). Mr Stone advised that he would attend to the documents "ASAP" in response to which Dr Volfneuk advised "all the more reason to set this account up in our names ASAP" (Ex 2: 152). On 6 March 2008 Dr Volfneuk wrote to Mr Stone in terms that included the following (Ex 2: 152): Considering what the market is doing it would be great to be set up to exploit the situation. Can you stir the Colonial boys up to get it set up by tomorrow.
42. Dr Volfneuk was cross-examined in relation to these emails of 5 and 6 March 2008 as follows (tr 97-98): Q. You wanted it set up ASAP because you intended to draw down on the loan, didn't you? A. No, because 6 March was very close to the 13th and approval hasn't come yet. Q. Yes, but something was happening on about 6 March which made you want to get into the market, didn't it? A. You have to remind me what it is. Q. Now just look further up the page. A. Yes. Q. You say, "It would be great to be set up to exploit the situation." A. Yes. Q. The only way to exploit the situation was by being a buyer, wasn't it? A. Yes. Q. Again I remind you of your evidence yesterday, that you weren't a buyer, you're not a buyer. A. Correct. Q. That's false, isn't it? A. No, I stand by. Q. You were urging Mr Stone up to put pressure on Colonial to get the account set up, the loan approved by the following day. A. Correct. Q. You didn't want to miss out on the bargains, did you? A. I didn't want to not get the application approved. Q. You didn't want to miss out on the bargains, did you? A. I didn't want to not get an application approved. I've missed out on a lot of bargains in my lifetime. Q. You didn't want to miss out on these bargains though did you? A. I didn't want to miss on any bargains but I'm happy to miss on all of them if it means borrowing money to pay for them. Q. Your whole conduct for two weeks was involved in testing the market and having loan applications drawn up. A. I believe that was my duty to do, to explore all the options. Q. But you went further than exploring the options. A. What do you mean? Q. You actually had a loan application set up. A. That wasn't - that was for - that was exploring the option. See if they approve it. How, how do you know if they approve it if you don't apply for it?
43. Mr Stone responded to Dr Volfneuk on 6 March 2008 advising that he was working with Colonial "to get it established as fast as we can" (Ex 2: 151). In response on the same day Dr Volfneuk advised (Ex 2: 151): I need at least the facility to trade on-line thru commsec established in AV+ES. Should it take long? The way it's going I may be better off just buying what I feel like/safe on market and choose the entity buying it. For tax purposes it may well be better be in our names if it is negatively geared. Please give them a push.
44. Mr Stone responded on 6 March 2008 advising that he had begun the process of setting up the Commsec account in joint names so that Dr Volfneuk could go ahead and purchase shares as soon as it was established. He advised (Ex 2: 151): Once the Joint loan is then settled, the shares that you have purchased can be lodged as security and it will be all systems go!!
45. On 7 March 2008 Mr Stone advised Dr Volfneuk that the previous two minutes of trading "shows the volatility of a share like PRY" (Ex 2: 168). In response Dr Volfneuk wrote (Ex 2: 168): Yep and after closing there are some trades showing on tradingroom.com.au some of those "abnormal trades" could be non arms length transfers for tax purposes??? For example if I bought some before at $5.40 in the trust, I could be tempted to sell them to Alex at $5.40 and instruct the broker accordingly - and on a small transaction the taxman is not going to pick on you - taxman is only interested in substantial/artificial transactions. I have to be extra careful but most people disregard strict application of the rules.
46. On 7 March 2008 Mr Stone advised Dr Volfneuk that when his "Colonial boy" was at work that morning he would be finding out the name of the Commsec contact who would be "fast tracking the application" that Dr Volfneuk was to drop off that day. There appears to have been some difficulty with the paper work and on 10 March 2008 Dr Volfneuk wrote to Mr Stone with a "thought for the day" that if Colonial/Commsec had "difficulty opening an account and establishing a facility for me, Who do they do business with????". In response Mr Stone advised that the "credit team are working feavourishly (sic) on the application and will let me know the limits they are happy to approve". Mr Stone also advised that it seemed "a little complex, given the size and uniqueness of the deal". (Ex D4 -1).
47. On 11 March 2008 Mr Stone advised Dr Volfneuk as follows (Ex 2: 173): I have received an email this morning from Colonial to confirm the acceptance of the deal - how exciting!! They have viewed the current asset position of the trust and are seeking security over the current cash balance. I am currently getting them to confirm their approval limit without the cash and will let you know ASAP.
48. In response Dr Volfneuk advised Mr Stone (Ex 2: 172): $6 mil is sitting with Westpac rolling bank bills and matures very beginning of July - I did it on purpose to bring taxable income into next year. Frank Varapodio has got the relevant piece of paper about it from Westpac. At today's prices I may not need as much as $23 mil - I don't propose to pay more for the shares than I can get away with. Say I buy 4 mil new shares at $5 each over time, I will end up with 6,500,000 shares in total worth $32,500,000 and a loan of $20,000,000. That equates to a ratio/gearing of 61.6% which is well within their 65%. What do directors guarantees mean? under these circumstances???????
49. Dr Volfneuk was cross-examined about this email as follows (tr 101): Q. But I want to really ask you about what you said to him. A. Okay. Q. "I don't propose to pay more for the shares than I can get away with." A. That's right. Q. I put to you that you were seriously contemplating that? A. No, I was not seriously contemplating it. Q. And that this evidence can't at all be squared with paragraph 35 of your first affidavit in which you said, "I decided on 20 February that RinRim would not take up any of its new share entitlements in the retail offer," do you remember you said that in paragraph 35? A. Yes, and I stand by it. Q. You can't possibly stand by it in light of this material. A. I do stand by it.
50. In response Mr Stone advised Dr Volfneuk on 11 March 2008 as follows (Ex 2: 172): Am checking these items as we speak and will chat shortly. A bit of support for PRY this morning, will be interested to see what happens over the next few days. Colonial are organising themselves assuming that the rights will be taken up (upon our instructions/direction on Thursday). As discussed, the rights will not be exercised should the price be below $5.40. The market is very jumpy.
51. Dr Volfneuk was asked about his discussion with Mr Stone that is referred to in the above email confirming that the rights would not be exercised should the price be below $5.40. He gave the following evidence (tr 101-102): Q. You had told Mr Stone that you would exercise the rights so long as the price was not below $5.40, hadn't you? A. I think it was one of the options being considered. Q. Look, it says, "As discussed, the rights will not be exercised should the price be below $5.40." That's as discussed with you and not as a possibility but as to what was actually the concrete proposal. A. I read this. I see. HER HONOUR Q. What do you say about it? A. (no verbal reply). Q. Do you agree with Dr Bell's question or not? A. Can you put the question to me again? BELL Q. Certainly. You had had a discussion with Mr Stone that what would happen is that the rights would be exercised so long as the price was not below $5.40? A. Possible. Q. More than possible, that's exactly what was the position, wasn't it? A. I, I can't remember. Q. You see in the previous sentence he says, "Colonial are organising themselves assuming that the rights will be taken up upon our instructions and directions on Thursday". A. Which sentence is that? Q. The sentence before the one beginning, "As discussed". A. Yes. Q. I suggest to you that Colonial had that assumption which Mr Stone refers to because that reflects what you had told Mr Stone? A. Yes.
52. Dr Volfneuk responded on 11 March 2008 in the following terms (Ex 2: 175): Considering the market price I am happier to just buy on the market in my own name gradually using RinRim PRY shareholding as security and my $7 mil in the bank as insurance for me. Perhaps they should just approve 65% of existing PRY shareholding value and revue it if and when I acquire enough additional shares to warrant a review? But if the process has started and you don't want to rock the boat, I understand.
53. Dr Volfneuk was cross-examined in relation to this email as follows (tr 104-106): Q. Yes, and at page 175 of the bundle, if you would turn back to it. Your thinking was because of the market price you'd be happier just buying on the market than taking up the offer? A. That was one possibility. … Q. The market did turn quickly in the period between 13 February and 13 March didn't it? A. I beg your pardon? Q. The market in Primary shares did turn quickly between -- A. What do you mean by "turn quickly"? Q. It went from $10.62 down to about $5.40? A. Yes, yes. Q. The market generally declined in that time too didn't it? A. Possibly. Q. Until the market plummeted the position was that you did want to increase RinRim's shareholding in Primary? A. No I never wanted to increase RinRim's shareholding in Primary. Q. So all of these documents I have taken you to over the last few hours and yesterday afternoon are just an elaborate farce were they? A. It wasn't a farce. Q. If you didn't want to, and you had formed the view on 20 February, what on earth were you doing? A. I wasn't trying to fool anyone. I was exploring the options. Q. Your statement in your affidavit paragraph 64, that "You did not want to increase RinRim's shareholding with borrowed money" is false, isn't it? A. No, it's not false. Q. You have spoken yesterday and a little bit this morning about what you considered to be the duty you're under to explore all options? A. Yes. Q. That was what, your duty as a trustee was it? A. Well, I didn't think it was a legal duty but it was a duty that I owed to myself. I considered it a duty to myself. Q. You've accepted you didn't have the cash in position on 13 and 14 February 2008 to take up the offer, you accepted that yesterday? A. I - I'm not -- HER HONOUR Q. You didn't have enough cash in February 2008 to take up any offer did you? A. I didn't have any finance in place, yes that's right. BELL Q. No, so to explore the options that would necessarily take some time to be in touch with financial institutions, see what rates they would lend, see what security they required et cetera, do you agree? A. As far as I knew from what I read on 13 February I had a month - from what I understood I had a month in which nobody was going to ask me to make a decision. My decision was made long time before but from the announcement I deduced that it does not have to be told to anyone and I have to explore all the options because I don't want to miss out on doing something because I didn't - I couldn't be bothered to ring up, I couldn't be bothered to ask for it, I couldn't be bothered to inquire. It was my duty to do so.
54. Mr Stone responded to Dr Volfneuk on 11 March 2008 in terms that included the following (Ex 2: 178): I have just got off the phone and have requested them tell me the maximum amount that they will lend based on the current shares, and using no cash as security. All margin lenders are very jumpy at the moment, and the Colonial/Commsec guys are feeling a little toey about single stock portfolios (any share). How the market can change in a short fortnight. With credit tightening up around the world, there is a feeling of reluctance to do anything outside the ordinary. To use the cash as security would be a hassle and no doubt cost some fees/charges to rearrange, given the maturity some 4 months away. I have stressed to the Colonial guys that there would have to be a good story as to why we should consider organising early access to these fund to be held as security for this loan. The trading accounts are basically set up, waiting for these final details to be sorted out. Working on it!
55. Dr Volfneuk responded to Mr Stone on 11 March 2008 in the following terms (Ex 2: 178): I am sure the bankers themselves are mostly to blame for the current conditions - the more edgy they are the more edgy I am - they are affraid (sic) to lend so I'm afraid to borrow so nobody borrows and nobody buys. I can live with that but then what do they do for a living? I am in a good position to exploit the situation and try to buy at the bottom whenever that is. As well as that I think it makes more sense to buy and borrow/negatively gear in my name. I can always pay tax in RinRim and then declare/pay dividends out of RinRim itself with franking attached, can't I?
56. Dr Volfneuk was cross-examined about this email to Mr Stone as follows (tr 102): Q. You say, "I'm in a good position to exploit the situation and try to buy at the bottom, whenever that is." A. That's what it says. Q. "As well as that, I think it makes more sense to buy and borrow, negatively gear in my name. I can always pay tax in RinRim and then declare/pay dividends out of RinRim with the franking attached, can't I?" A. That's right. That's one version of what would be possible.
57. Dr Volfneuk persisted in his claim that he was not keen to take the offer up notwithstanding that he was taken through all the correspondence referred to above. He persisted in his claim that he was not seriously contemplating taking up the entitlement (tr 64). He reiterated his claim that he was looking at all the possibilities because it was his "duty" to explore them (tr 65). He accepted that he asked his accountant to prepare the accounts "quick smart" and was asked about his email to Mr Kritikos on 19 February 2008 as follows (tr 66): Q. You said, "There will be some bargains at some stage. Let's be ready for them"? A. Yes. Q. You just told her Honour about five minutes ago you that you're not a buyer, you're just going through the motions and you weren't particularly interested. What are the bargains you were referring to in this email? A. Okay, but it will be a long answer. I acquired my shareholding in '99 and maybe a little bit prior to that we got some shares in NRMA as a, as a matter of demutualising of NRMA. Since I acquired shares in Primary in '99, I've been watching shares go up and down like a rollercoaster and it was riveting watch and I could see that sometimes they go down and at those times they represent bargains. However, at none of those times I knew that those times were there at the time that they were there, but I knew that such times happen. I just can't tell them that - can't, can't tell myself that they are - exactly when they're happening. So I, I know that there are bargains out there at, at any time, I just can't pick them, but there are bargains out there. But you only know about them in hindsight. Q. You were referring to bargains on the bookbuild, weren't you? A. No. No. Not at all.
58. Dr Volfneuk was taken back to his email to Mr Kritikos of 19 February 2008 in which he had suggested there will be some "bargains" and "let's be ready for them". He was cross-examined as follows (tr 80): Q. What did you mean in the email at the bottom of page 24 when you said, "Let's be ready for them"? You were a buyer, weren't you? A. Let's have a facility available just in case something happens. Q. Yes, because you were a buyer, weren't you? A. No, I wasn't a buyer. Q. It makes absolutely no sense to say to someone, "There will be bargains out there, let's be ready for them," if you weren't a buyer. A. I wasn't a buyer. In all my life. Q. What was the purpose of telling Mr Kritikos, "Let's be ready for the bargains"? A. Because I'd like to have the facility available. Q. To do what? A. To be able to make decisions. Q. What decisions? A. In case I want to buy, but except I've never bought. I've never bought. Q. You wanted to buy Primary, you saw this entitlement offer and the related bookbuild is a very good opportunity to buy your favourite stock for a very cheap price. That's the truth, isn't it? A. No.
59. Dr Volfneuk was also asked about his evidence in paragraph [35] of his first affidavit in which he claimed that a few days after he received the hard copy of the prospectus on 18 February 2008 he decided that the plaintiff would not take up any of its new share entitlements in the retail offer because he did not have the cash available. He gave the following evidence in cross-examination in relation that claim (tr 68-69): Q. Can I suggest to you, you didn't decide at that point in time, 20 or 21 February that RinRim would not take up any of its new share entitlements in the retail offer, did you? A. I did. I did decide that RinRim was not going to take up any shares in any entitlement offer on that day, before that day and after that day. Q. You made that decision? A. It's my standing decision. Q. You made that decision? A. Yes.
60. Dr Volfneuk was challenged as to whether his claim that it was his "standing decision" was true. He gave the following evidence (tr 69): Q. If you made the decision why did you continue to explore finance, if you'd made the decision? A. Because nobody asked me if I made that decision. Q. I'm asking you, if you made the decision as you said in your affidavit and as you affirmed in your evidence on oath in the witness box, on the 20th or 21st, why did you continue to explore - seriously explore finance to acquire the shares for the next three weeks? A. Because I didn't have to give any answers to any, anybody until the 13th, including myself, until 13 March. Q. Therefore the truth is you hadn't made any decision, had you, as at 20 or 21 February? A. It's my standing decision. It's my standing decision. I've always had that decision. Q. If you made that decision you wouldn't have wasted your own time or anyone else's, would you, exploring finance? A. I don't believe exploring finance is wasting my time. Q. Exploring finance to take up the offer, that's what you were doing, isn't it? A. Exploring finance to take up my offer or anybody else's offer, or anything to do with my finances is not my waste of time. Q. You weren't exploring finance generally, you were exploring for up to the 20th and indeed for the next two or three weeks after that, you were exploring finance to take up the Primary share entitlement offer weren't you? A. I was definitely exploring it because it's something I have to do.
61. Dr Volfneuk persisted in his claim that he had made the decision on 20 February 2008. However he agreed that he was "shopping around" for a loan (tr 70). He also agreed that he became aware on 26 February 2008 that Dr Bateman had taken part in the Institutional Offer and that he did not complain to anyone (tr 70). He was cross-examined as follows (tr 71): Q. And you didn't complain to anyone about it, did you? A. No. Q. You didn't complain to anyone about it for a full six years until you commenced these proceedings, did you? A. Not quite six years, no. Not six years. Q. Yes, five and a half? A. No, not five and a half. Q. Many, many years. That's correct, isn't it? A. Yes, yes. Q. You didn't make any enquiry on 26 February whether you too could participate in the institutional offer -- A. No I didn't -- Q. -- and be treated like Dr Bateman? A. It didn't occur to me because the institutional offer was already closed. Q. The reason you didn't contact anyone or complain to anyone about it, because you knew you didn't have the finance in place to take it up. A. I didn't have the finance in place because I never organised the finance before and I never thought I needed any finance because I wasn't going to take any up.
62. Dr Volfneuk was asked about his loan application for $26.5 million, $5 million more than the amount to take up the entitlement in the Retail Offer. He gave the following evidence (tr 93-95): Q. The reason that you wanted to borrow an additional $5 million, is you wanted to have the cash available so you could make bids during the bookbuild phase to the retail offer in addition to taking up your entitlements? A. Did not even occur to me. Q. Why did you sign an application for $26.5 million? A. It's an application for a loan. Q. Why did you sign an application for $26.5 million? A. I wanted to get an approval. Q. Yes, why did you want an approval for $26.5 million, it wasn't a random number was it? A. No, there was a - there was a rationale behind it. Q. Yes and the rationale was twofold, one to take up the $21.5 or 6 million entitlements, correct? A. Yes. Q. And the balance was to be used to fund potential purchase of Primary shares during the retail bookbuild phase? A. Did not occur to me. Q. Didn't occur to you? A. Didn't occur to me. Q. That's absolutely false isn't it? A. No it did not occur to me. Q. It was one of the bargains you wanted to be in a position to snap up. You thought there'd be bargains during the retail bookbuild phase? A. There will be bargains but I'm not prepared to pay for them. Q. No, you wanted to be ready to pay for them too didn't you? A. I wanted an approval. Q. Pardon? A. I wanted an approval. Q. You wanted to be ready to pay for them if the price was right for you? A. I wanted to be in the position to be able to make that decision yes. Q. So you accept that the $5 million or so which was in addition to what you would need to take up the entitlement was to put you in a position to purchase Primary shares in the retail bookbuild phase? A. No. Q. What was it for? A. I think part of it was for the actual prepayment of interest. Q. Pardon? A. A prepayment of interest I think because if, according to this version, according to this scenario, the interest would have to be prepaid so they would lend me the money to prepay the interest, something like that. Q. Yes but the prepaid interest wasn't anything in the order of $5 million was it? A. It wouldn't be. Q. No, so what was the extra $5 million for? A. I'm not sure. Q. Can I suggest that you do recall that it was because you wanted to be in a better position to pick up some bargains during the retail bookbuild? A. No. Q. The bargains you'd referred Mr Kritikos to on 19 February? A. I wanted to be in a position to consider it. Q. So you now accept you wanted to be in a position to consider making acquisitions during the retail bookbuild? A. Or to be able to. Q. Yes? A. If there is a facility in place. Q. So your evidence yesterday at p 59 of the transcript that you had no interest, "No not at all" in buying shares in the retail bookbuild process was not accurate was it? A. It was, it was accurate. Q. It can't have been accurate in light of your evidence that one of the reasons you borrowed or applied to borrow $26.5 million, that you wanted to be in a position to acquire Primary shares in the retail bookbuild? A. I wanted to be in a position to have an approved loan. Q. To acquire -- A. To then be able to consider things. Q. Yes including acquiring Primary shares in the retail bookbuild phase? A. Considering all sorts of things. Q. Including what I have just put to you? A. No, no. It didn't occur to me.
63. Dr Volfneuk persisted in his claim that he was not a buyer and was cross-examined as follows (tr 108-110): Q. Right, given everything you have said about what you sensed was your duty to explore all options -- A. Yes. Q. -- it would have suited you more to be in the retail phase because that gave you a longer time to explore your options, correct? A. If I was a buyer yes but I was not a buyer. Q. That proposition, you hadn't excluded the possibility of being a buyer until you'd explored the option surely? A. Because as far as I knew from what I knew at the time I had a month to explore that option and I was exploring that option. Q. I know but I am asking you on the assumption that there was a possibility of being included in the institutional offer or the retail offer? A. If I was given that choice. Q. If you were given that choice the choice you would have taken is: "I would prefer to be in the retail phase because I want to explore the market to see whether I can borrow the money to take up the entitlements. I want to see what rates I can get and I want to see whether I can hedge it, I want to see if I can get security, and I can take it up for the same price in the retail phase, $5.40, as in the institutional phase so my preference would be to take it up in the retail phase."? A. If I was a buyer, yes but I wasn't a buyer. Q. You had not excluded the possibility of being a buyer had you, right up -- A. Not in that hypothetical situation. Q. -- right up until the end? A. Because I had a month to consider it and I took a month. No, I didn't owe anybody an answer before the 13th as far as I knew. Q. But if you had to make, you had a choice between two days in circumstances where you certainly didn't have $21 million cash, and what limited cash you had was tied up in term deposits, as opposed to having a month to explore the possibility, you would have always rationally opted for the month wouldn't you? A. Only if I was a buyer but I was not a buyer. Q. You would not have excluded the possibility that you could be a buyer until you'd completed your inquiries? A. No, I did not exclude it under the circumstances that I found myself in, but in that situation that you are hypothesising about, it wouldn't - I wouldn't be wasting anyone's time because the answer that I am not a buyer is easier for me to make than considering all the options of buying. Q. But you would have the same price, the same price, $5.40? A. But I'm not a buyer at that price. In fact I'm not a buyer at any price. Q. All right so you would have been indifferent as to whether you were in the institutional phase or the retail phase wouldn't you? A. No I wouldn't be indifferent because I was not a buyer, I was not a taker up of those options. I would be happy for those options to be sold to somebody else who wants to buy them. Q. As you said the market goes up, the market goes down, you didn't know whether you'd be better off being in the institutional phase or the retail phase because you didn't know what the market was going to do did you? A. I don't know what the market is going to do but knowing that I am not a buyer means that I, I can make a very easy decision, I am not a buyer. Q. Yes? A. And if my entitlements are to be sold then sell them quickly under the cover of trading halt and be done with it. I would not be putting them at risk. Q. The risk would be no different whether it was in the institutional phase or the retail phase because you didn't know what the market would do. A. No, not - I could not know what the market will do. I never know what the market will do but the risk is there and I appreciated the risk.
64. Dr Volfneuk was then taken to his second affidavit in which he claimed in reply that at the time of his conversation with James Bateman about Deutsche Bank he "had not made a final decision about" taking up the entitlements. He was also referred back to his original affidavit in which he claimed that he made the decision on 20 or 21 February 2008. That cross-examination was as follows (tr 111-112): Q. Yes, I've asked you a couple of times about paragraph 35 of your affidavit where you say that on or about 20 or 21 February -- A. Yes. Q. -- you decided that RinRim would not take up any of its new share entitlements in the retail offer? A. That's right. Q. That was your final decision you'd made? A. It was my default decision. It was my lifetime decision. It was decision that was made before that and after that, unless something changes to drastically change my lifestyle, but I was of that, yeah, that decision was always with me. Q. It was effectively a final decision, wasn't it? A. For practical purposes, yes. Q. When you swore your second affidavit after the Commonwealth Bank had been subpoenaed and et cetera, and you said in paragraph 20, explaining your application to Colonial, you said, "I had not made a final decision about taking up the offer"? A. The final decision, I didn't have to make, because, because I was told that I've got a month to make that final decision. Q. Virtually what you were doing in your second affidavit was trying to accommodate the inconsistency between the documents and what you'd said in paragraph 35 of your first affidavit? A. No, it was explaining the situation. Q. This is correct, isn't it, that as at 13 and 14 February you didn't have any view as to whether or not the institutional offer would be more advantageous for RinRim than the retail offer did you? A. I didn't need to have that view. Q. Can you just answer my question? You didn't have any view, did you? A. I didn't put my mind to it. Q. So you didn't perceive at the time anything one way or the other about it? A. It didn't occur to me.
65. At this point Dr Volfneuk was referred back to his first affidavit in which he had claimed in paragraph 50 that he "perceived at the time of the institutional offer, that it was more advantageous for RinRim to take part in the institutional offer rather than the retail offer". He was cross-examined further (tr 112): Q. So the statement in paragraph 50 of your affidavit that you perceived at the time of the institutional offer that it was more advantageous for RinRim to take part in the institutional offer rather than the retail offer can't be right, can it? A. Yeah, it can be right. It is right. Q. It can't be right in the context of your previous answer that you didn't even turn your mind to it? A. At the time of it happening I did not turn my mind to it, because I did not need to turn my mind to it. I had no idea to turn my mind to it.
66. In cross-examination by Mr Jackman, Dr Volfneuk agreed that he read the ASX announcement on 13 February 2008 diligently and he gave the following evidence (tr 118): Q. You noticed from that, may we take it, that there was to be an institutional entitlement offer conducted on 13 and 14 February 2008? A. Yes. Q. Was it of any significance to you at all as to which shareholders would be entitled to participate in that institutional entitlements offer? A. I don't think I turned my mind to it at the time. Q. But was it of any significance to you at all on 13 February as to which shareholders would be entitled to participate in the institutional entitlements offer? A. I did not turn my mind to it at that point in time. Q. Do you agree with me therefore that it was a matter of no significance to you on 13 February 2008? A. I'm not sure it was. It was a matter of significance because I would have been included if, if I was correctly classified but I wasn't included so if I - either I'm included or not included, is of significance to me.
67. In further evidence in relation to whether he read the Draft Prospectus or "browsed" it Mr Jackman cross-examined Dr Volfneuk as follows (tr 119-121): Q. You read the draft prospectus didn't you? A. I browsed through it. Q. No, you read it didn't you? A. No I browsed through it. Q. Well yesterday you said that you read all of the announcements on 13 February, do you recall that? A. Yes. Q. That was true wasn't it? A. Yes. Q. Of all these announcements the most significant one in re-evaluating what you knew about Primary, was to read the draft prospectus. A. I'm not sure. Q. Was there another announcement of greater significance in re-evaluating what you knew about Primary than to read the draft prospectus? A. Yes there was. Q. Okay what was that? A. The offer price of $5.40. Q. Yes thank you, but you were re-evaluating everything you knew about Primary on 13 February weren't you? A. I started thinking about it. Re-evaluation is a process. Q. Yes? A. I couldn't have possibly re-evaluated everything about Primary considering the information that I had available. Q. You were certainly very keen to read the draft prospectus on 13 February when it was announced, correct? A. Keen to read it, not particularly. Q. Do you say that do you despite the fact that you say you were re-evaluating everything you knew about Primary on 13 February, is that right? A. Re-evaluation is a long process. I don't believe I can do it in a day and I don't believe I had all the information available, in prospectus or without prospectus or whatever could possibly be obtained on that day. Q. You say you browsed through the draft prospectus, is that what you say? A. Yes. … Q. Which parts of the draft prospectus did you actually read to your recollection? A. I don't remember. … Q. Right, now I want to suggest to you Dr Volfneuk that you read the draft prospectus thoroughly? A. No. Q. You read all of it? A. No. Q. Because you were re-evaluating everything you knew about Primary on that day? A. No I did not believe the prospectus would give me all that much information that I required. Q. But it would give you a great deal of information which would help alleviate your anxiety about Primary that day, correct? A. Not at all. Q. I see, you were worried about Primary that day weren't you? A. Yes. Q. What steps did you take to alleviate your worry? A. What steps did I take? I started considering all, all the available options. Q. The most obvious thing to do, don't you agree, was to read the draft prospectus thoroughly? A. No, not really.
68. Dr Volfneuk agreed that he did read the page in the Draft Prospectus which recorded the key dates for the AREO (tr 121). However when asked whether he read the Chairman's letter included in the Draft Prospectus he said that he "browsed through it" (tr 122). He accepted that he read the section of the letter in which the shareholders were urged to read the Prospectus carefully in its entirety (tr 122). However he said that he did not follow the advice (tr 122). Dr Volfneuk accepted that he read the section of the Draft Prospectus in relation to Dr Bateman and the other director shareholders participating in the Entitlement Offer but could not remember the day upon which he read it (tr 123). However he claimed that he did not appreciate at the time that they were participating in the Institutional Bookbuild (tr 124).
69. He claimed that he "browsed through" the section of the Draft Prospectus relating to the description of the Entitlement Offer. He accepted that he certainly saw the description of the Institutional Offer which commenced on 13 February 2008 (tr 124). He also claimed that he was not sure that he appreciated on 13 February 2008 the section of the Draft Prospectus which recorded that eligible institutional shareholders were approached by the JLMs and were required to decide whether or not they would take up their entitlement (tr 124).
70. Dr Volfneuk claimed that he had no idea that the plaintiff was a shareholder to whom offers of new shares could lawfully be made without the need for disclosure under Chapter 6D of the Act (tr 125). He gave the following evidence (tr 125-126): Q. Well you regarded RinRim as a sophisticated investor within the meaning of the Corporations Act, did you not? A. No I don't regard myself as sophisticated anything. … Q. Was it of any significance to you at all on 13 or 14 February to ascertain who were the institutional investors and the eligible institutional investors? A. I didn't know there was a legal definition - even a concept of a legal definition of that, of that, of that category. Q. May we take it from that answer that it was not a matter of any significance to you at all on 13 or 14 February to ascertain who was in those definitions? A. I did not appreciate it. Q. It was a matter of no significance to you in terms of what you were actually thinking on 13 and 14 February 2008, correct? A. On that day I had no idea that I might have been one of those. Q. And you said before you didn't turn your mind to it, is that right? A. I didn't know to turn my mind to it. … Q. Do you accept that if you had read this document carefully you would have seen that there were definitions of those two concepts? A. Yes.
71. Dr Volfneuk accepted that he remembered seeing the information about the structure of the Institutional Offer on 13 February 2008 (tr 126). He was cross-examined further as follows (tr 127-128): Q. Do you see at the top of the page a heading, "Bateman Investor and Shareholder Director Arrangements"? A. Yes. Q. The first paragraph refers to assuming the price achieved in the retail entitlement bookbuild in the case of the shareholder directors and the institutional entitlement bookbuild in the case of the Bateman investors is higher than the offer price, then it is the intention of the shareholder directors and the Bateman investors to partially accept their respective entitlements. Do you see that? A. I see that. Q. This is something you read on 13 or 14 February, isn't it? A. I didn't appreciate or realise the full significance of it. Q. No, but did you read it on 13 or 14 February? A. I'm not sure. I browsed through it. Q. It clearly told you, clearly told you, did it not, on 13 February, that the Bateman investors were intending to participate in the institutional entitlement bookbuild, correct? A. I can see that it says so on this page. Q. And that the Bateman investors would partially accept their respective entitlements, correct? A. I can see that that's what it says. Q. So you knew, did you not, on 13 February, that the Bateman investors were being treated as institutional investors? A. I did not realise. Q. It's obvious from a reading of this document now, isn't it, that -- A. Now, yes. Q. -- that the Bateman investors were being treated as institutional investors, correct? A. Yes. Q. And they were being treated as eligible institutional shareholders, correct? A. Of course.
72. Dr Volfneuk agreed that there was probably nothing in the Draft Prospectus that suggested that he could not ring up or make enquiries and ask to be treated as an institutional investor (tr 129). He claimed that although he reviewed the relevant publications in relation to Primary on the internet and elsewhere he did not see the article in the Australian Financial Review on 13 February 2008 referring to the two day institutional application phase and referring to Dr Bateman's entitlement (tr 130-131). He agreed that he read the Bidder's Statement "thoroughly" (tr 132) but claimed that aspects of it relating to the Bateman investors accepting their entitlement in the Institutional Offer were not appreciated by him (tr 133). He was cross-examined on this aspect of his evidence as follows (tr 134): Q. It's obvious from that that the institutional entitlement offer was one where it was contemplated that the Bateman investors would participate, correct? A. I don't think so. I'm not sure it's obvious. Q. It's obvious from the document is it not Dr Volfneuk? A. I'm not sure. Q. Why aren't you sure? A. Because I'm not sure. Q. But what other interpretation could you possibly place on the references on that page to the Bateman investors? A. If you put it to me like this then it says what it says.
73. Although pressed further Dr Volfneuk resisted accepting that he understood the position when he read the Bidder's Statement in 2007. He continued to claim that he did not appreciate that the Batemans were treated as institutional investors (tr 134). However he said that if he had read the Draft Prospectus with his characteristic diligence he "possibly" would have appreciated it on 13 February 2008 (tr 134).
74. Mr Jackman cross-examined Dr Volfneuk in relation to his conversation with James Bateman in February 2008 as follows (tr 136-140): Q. No but did you say to James Bateman that you wished to participate in the bookbuild of the retail offer? A. Not unless I can get a hedge. Q. I see, so you said to him did you that you wished to participate in the bookbuild of the retail offer if you could get a hedge, is that what you said? A. Words to that effect. … Q. Just to be clear about it Dr Volfneuk your evidence is that you said to James Bateman around about 18 February that you wished to participate in the bookbuild of the retail offer if you could get a hedge, correct? A. I said that I couldn't take up - I wouldn't take a loan unless I could get a hedge. Q. No, you agreed a few minutes ago that you said to James Bateman on about 18 February that you wished to participate in the bookbuild of the retail offer if you could get a hedge? A. I couldn't have said that. Q. I see, well I'd suggest that is the direct opposite of what you just said a few minutes ago? A. I got confused. ... Q. You now wish to contradict that evidence is that right? A. I didn't appreciate that you said bookbuild because bookbuild was never, was never, never ever in my consideration. … Q. When I used the word "bookbuild" you were conscious weren't you that I was quoting from the email at page 45A correct? A. No I wasn't conscious of that. Q. I see but you were reading the email at the time I asked the question weren't you? A. I, I got confused. Q. You agree you were reading the email at the time I asked the question? A. I wasn't studying the email. It's not my email. I don't know what to make of it. Q. You agree with me don't you? A. I'm, I'm not sure. … Q. It's the case is it that you said to James Bateman that you did wish to participate in the retail entitlements offer? A. No I said I, I will not participate unless I get a hedge. Q. Did you say that you will participate if you do get a hedge? A. If - look obviously the implication of that conversation is if I get a hedge, I may, I may participate yes. Q. That you would participate? A. I would participate.
75. The plaintiff also relied upon the affidavits of Brian Audley Mullins sworn on 28 October 2015 and Phillipa Stevens affirmed on 29 October 2015. Neither Mr Mullins nor Ms Stevens was required for cross-examination. Their evidence established that Dr Volfneuk was listed in the phone book at the relevant time.

The defendants' evidence

1. The JLMs relied upon the evidence of Kelvin Jit-Loong Chee, the Head of Operations at Orient. Mr Chee was part of the Orient team that worked on the Primary AREO. He described the various categories into which Orient classified the Primary shareholders for the purposes of the Orient Reports. At the time of the Primary AREO Mr Chee had provided similar types of services in nine previous AREOs. In his evidence-in-chief Mr Chee said that the classification categories and the criteria for those classifications did not change in any of the AREOs in which he was involved (tr 158). He gave evidence that he became familiar with the type of shareholder that was accelerated in an AREO (tr 159). He could not recall any AREO in which a private stakeholder had been accelerated (tr 159-160).
2. In cross-examination by the plaintiff Mr Chee gave the following evidence (tr 161-163): Q. In relation to this AREO, was it your decision as to how many shareholders should be included in the Orient reports? A. No. Q. Whose decision was that? A. The company. Q. Which company? A. The client. Q. Is it the case or can we take it that Primary requested Orient to produce an Orient report which incorporated its top hundred shareholders, is that correct? A. Yes. Q. And thereafter in accordance with that request made to Orient, the Orient reports were prepared on that basis? A. Yes. … Q. You understood that there was going to be an institutional round of the capital raising and then a retail round of the capital raising, didn't you? A. Yes. Q. And you knew, didn't you, that the reports that your company were providing were going to be used by the company and by the joint lead managers to make decisions as to which of the shareholders should be included as participating in the institutional round? A. Yes. Q. And the information that you were providing at Primary's request to advise and inform the joint lead managers about that concerned, didn't it, the top 100 shareholders in Primary? A. Yes. … Q. You knew, didn't you, that the information which you were providing to Primary would be used in the making of the decision as to which shareholders would be accelerated into the institutional round? A. No. Q. So you say that your belief was that they would be using other information is that right? A. Not solely ours. Q. What other information do you say they would have been using? A. The investors themselves. Q. So you say that in your vast experience of AREOs, a joint lead manager in making a decision as to who should be accelerated will have regard, first, you'd agree, to the information in your reports? A. Yes. Q. Second, you would say that they would also have regard to information about shareholders, which was not incorporated into your reports? A. Yes. Q. That's the way these things operate from your observations, is that right? A. Yes. Q. So far as you were concerned, was it possible, was it, that shareholders who were not identified in the top 100 of the - and identified in the Orient reports, may well be accelerated and participate in the institutional offer? A. Depending on the timing, but yes. Q. In any event, you did expect, didn't you, that the information that Orient was providing would be at least part of the consideration that the joint lead managers would have regard to in making that decision? A. Yes.
3. In further cross-examination Mr Chee made clear that it was no part of Orient's role to have any involvement in the decision making as to which shareholders would or would not be accelerated in the AREO.
4. The JLMs relied upon the evidence of Peter John Molesworth who is the Director of Equity Capital Markets (ECM) at Deutsche Bank. He has been with Deutsche Bank since 2004. In the relevant period in 2007 and 2008 he was an Associate and then the Vice President of the ECM Group. His experience with placements and AREOs is described in his affidavit sworn on 1 September 2015. He had only worked on one AREO prior to the Primary AREO. However he has worked on a number of AREOs since that time.
5. Mr Molesworth described the four stages of the AREO. In particular he said that the Institutional Offer phase of the AREO is where significant existing shareholders "almost exclusively institutions" who did not require an offer document under the Act were approached to ascertain whether they would like to take up their entitlements of new shares in the Institutional Offer in which they had two business days to make that decision. It is clear from Mr Molesworth's evidence that the JLMs took the view that the Institutional Offer was for "institutions" rather than individuals. The only exception was the founder of Primary, Dr Bateman.
6. Mr Molesworth's evidence placed emphasis upon the risk that the JLMs were taking in underwriting the equity raising. His evidence in this regard was as follows (paragraph 34): I understood that there were significant consequences associated with accelerating a shareholder that was not qualified to be accelerated under the Corporations Act. To manage that risk, a cautious approach was taken in relation to which shareholders would be accelerated, and that meant that individuals unknown to the JLMs were not accelerated.
7. Mr Molesworth also gave affidavit evidence of the requirement for the accelerated shareholder to be a client of Deutsche Bank (or one of the other JLMs), more importantly because Deutsche Bank was the "settlement agent" for the Institutional Offer. That meant that Deutsche Bank managed the electronic exchange with the investors in the Institutional Offer, the Institutional Bookbuild and the Retail Bookbuild; the parties to the settlement being those that either accepted some, or all, of their entitlements during the Institutional Offer, or received an allocation of shares in either Bookbuild. Mr Molesworth described the process of the adoption of the client with reference to the process known as "Know Your Client" and the new client adoption guidelines and procedures. He gave the following affidavit evidence (paragraph 34): I did not want to expose Deutsche and the other JLMs to potentially significant credit and counterparty risk by attempting to accelerate certain large individual shareholders in the Institutional Entitlement Offer that were not familiar to me. Because the JLMs had underwritten the AREO, they had, subject to conditions, in effect guaranteed Primary certain funds in return for new shares irrespective of what Primary's shareholders chose to do. In an AREO the accelerated shareholders who accept their entitlements generally do so about 1 week before they have to pay for those entitlement shares. Therefore the JLMs take credit and counterparty risk in relation to whether those accelerated shareholders will ultimately pay for their entitlements. Taking such credit and counterparty risk in relation to an institution and existing client such as AMP would be a very different proposition to taking such a risk in relation to an individual.
8. This aspect of Mr Molesworth's evidence was supplemented by two Deutsche Bank documents; the first entitled "Know Your Customer Guidelines"; and the second entitled "Global Markets (Equity) New Client Adoption Guidelines and Procedures" (Ex 3). These documents refer to the then recently enacted Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) and record Deutsche Bank's intention to set standards as a key component to protect the bank from "being misused for money laundering, terrorism financing and fraudulent transactions" (Ex 3).
9. The procedures for the adoption of clients was "mandatory" within Deutsche Bank. For a private company the bank required various checks including what was known as a Preventative Crime Research (PCR) database check; certificates of incorporation; Memorandum and Articles of Association and various documents relating to individual shareholders who owned 20% or more of the capital in the company. In addition, if the private company was a Wealthy or Sophisticated Investor there was a requirement for a certificate by a Qualified Accountant. If a trust was involved then a certified copy of a trust deed had to be provided with detailed information about the name of the trust; the type of trust; the date on which the trust was established; details in respect of each beneficiary and the details relating to each individual trustee. There were also requirements for certified copies of identification documents and the prohibition on any transactions prior to the completion of the "adoption process" (Ex 3).
10. Mr Molesworth also gave affidavit evidence that the JLMs did not receive or have information sufficient to determine whether a shareholder might satisfy some of the criteria set out in the definitions of "Sophisticated Investors" and "Professional Investors" in section s 708 of the Act.
11. Mr Molesworth was cross-examined about the "soundings" between one or more of the JLMs and key Primary shareholders on 11 February 2008 in relation to the Institutional Offer (tr 196). He gave evidence that such soundings are important for Primary for the success of the transaction and also for the JLMs from "a risk management perspective" (tr 196). He was cross-examined about the email referred to earlier (Ex A 3106) relating to the "over the wall discussions". He gave the following evidence (tr 197): Q. Did you understand what that term means? A. I do. Q. What is it? A. It's a term used when you officially wall cross or make a party an insider, so they have price sensitive information. Q. And the price sensitive information in this case was? A. I'm assuming it was the terms that were going to be launched in relation to the rights issue. Q. So that is information that wouldn't be available to the market generally, but would need to be disclosed if one was sounding out a Primary shareholder as to their likely position in relation to the AREO? A. Correct.
12. Mr Molesworth had been with Deutsche Bank since mid-2004 and at the time of the Metcash AREO (which was before the Primary AREO) he had been with the bank for approximately six months. He was cross-examined on this aspect of his evidence as follows (tr 199): Q. Surely you are not saying that you had responsibility as a six month employee of Deutsche Bank only a few years out of university, for making a decision about which of the shareholders of Metcash were to be accelerated into the institutional round for that offer, are you? A. I can't recall on that very specific topic whether I did that on Metcash. But what I would say is it's not a very involved task. It's, you know, we identify the fund managers on the register as the, the shareholders we're going to accelerate.
13. The consistent position adopted by Mr Molesworth in his evidence was that the JLMs were accelerating "institutions" in the Institutional Offer rather than individuals. He gave the following evidence in cross-examination (tr 200): Q. As you understood it there was no statutory process for that. One didn't go to the Corporations Act and make that decision in that way, that's right isn't it? A. Like I said before -- Q. As you understood it. A. The shareholders that are accelerated are professional fund managers and that's how we identify who we accelerate. So I can't recall whether on Metcash whether I did that, you know, I may well have, I can't recall.
14. Mr Molesworth prepared a list of shareholders in a spreadsheet as at 8 February 2008 that it was anticipated would be accelerated and take part in the Institutional Offer (Ex A 2747). He sent that spreadsheet to the other JLMs and to his colleagues at Deutsche Bank (tr 204). He was cross-examined as follows (tr 204): Q. Can you tell us, was it Ms Xu or you who identified these individuals and prepared this document? A. I can't recall which one of us prepared the spread sheet but you know we were both involved in identifying who the institutional fund managers on the register were.
15. Mr Molesworth was also cross-examined about the process that Deutsche Bank entered into to "on-board" a client. The purpose of this cross-examination was to suggest that it would have been possible to "on-board" the plaintiff as a client, particularly in light of the fact that Dr Bateman was on-boarded as a client of Deutsche Bank in the week after the Institutional Offer had closed. Mr Molesworth was cross-examined as follows (tr 211): Q. So there was some time available to on-board clients who were not clients at the time of the institutional offer, that's right isn't it". A. No, that's not quite right. Dr Bateman and his related parties were obviously known to the JLMs whereas on-boarding is a process where somebody within the bank needs to sponsor the on-boarding of the client so if you don't know who the client is, the on-boarding process, you know, is more, you know, it takes longer. There needs to be somebody within the bank who says "yes I know who that is" and get the documentation and then you can on-board them.
16. A series of hypothetical propositions were put to Mr Molesworth for the purpose of establishing that it would have been realistic to on-board the plaintiff. In this regard Mr Molesworth gave the following evidence (tr 213-214): Q. Well you wouldn't be looking to exclude people would you simply because they weren't a client of Deutsche Bank? A. Well if they don't become adopted, if the adoption is knocked back for some reason and we have allowed them to be part of the institutional offer, the underwriters then have a very big problem because we are settlement underwriting the transaction and if, if for whatever reason they're not adopted we can't settle with them, so -- Q. But if you regard it as in the interests of Primary to have that person included in the institutional offer, then can we take it that you would have facilitated or you wouldn't have stood in the way of their on-boarding as a client? A. Having someone fail settlement and the underwriters taking the stock certainly wouldn't be in the interests of Primary shareholders. Q. But you may have in the course of the discussions that you had with those people, they may have satisfied you that they had hundreds of millions of dollars? A. I'm - that's a separate issue, I'm talking about if the adoption is knocked back for whatever reason. The provision of these documents is one step in the adoption process. It's not the be-all and end-all. Q. Why couldn't the adoption process be expedited, why couldn't a decision be made in a day? A. Because it's quite an involved process to be on-boarded with a global financial institution. Q. Right, but if it was something that was important in the role that you were playing on this capital raising, I presume that Mr Gray [his superior at the time] would have said "we need to get this person on-boarded very quickly" and that could have happened? A. Well you use the word "could". The problem is that if the adoption got knocked back like I'm saying, at that point you know either that shareholder that we've allowed into the institutional offer has either taken up their rights or renounced them at, you know, we've got a problem because if they're taking them up we are not going to be able to settle with them because they are not a client, so in the circumstances we'd be better off allowing them to participate in the retail part of the offer where we don't have that impediment.
17. Mr Molesworth later explained that the "impediment" would not be present because the JLMs were not making the offer under the Retail Offer; rather Primary was making that offer to those shareholders (tr 217). Mr Molesworth also explained that the adoption process of a client was about "vetting" the client and the question of whether the bank would transact with them was a completely separate matter. He said that the vetting of the client is for a whole range of purposes including the bank's statutory obligation in respect of money laundering and other requirements (tr 216).
18. Mr Molesworth was also cross-examined in relation to Mr Sherman's suggestion in the email extracted earlier (par [44]) that certain individuals might be included in the Institutional Offer (Ex A 3164). He gave the following evidence (tr 218-219): Q. You'll see that he says that it's simply a phone call. In other words, a phone call to them he imagines. See that? A. Yeah I see that. Q. And he then says that, "It may increase our Insto pot." A. Yeah. Q. In other words, there'd be more shareholders participating in the institutional offer? A. Yeah I assume that's what he's talking about. Q. Hence the capability to raise more funds in the institutional offer? A. Yeah I assume that's what he's talking about. Q. And then he's saying that that would reduce what he describes as the retail risk position? A. Yes, that's what it says. Q. Presumably when you got this email you read it? A. I can't recall reading it, but presumably I, I would've. Q. Can we take it that you understood as at 12 February that what Mr Sherman was referring to was a concern about the risk of the retail position? A. He, he's just talking about reducing. I'm not sure he was concerned about it. I don't know what his drivers were. Q. You're an ECM person. Obviously what he's saying, isn't it, he's saying that there was a retail risk with the capital raising? A. Like there is on every transaction, yeah. Q. So you understood that plainly enough he's talking about a retail risk? A. Yes. Q. And he's talking about a way in which that might be reduced. A. He is yeah. … Q. Can I suggest to you that it was your understanding that there was a retail risk on this AREO that was about to get underway the following day? A. Well there's a risk position on the retail offer but that's the same on any accelerated rights issue. Q. But here of course you'd had a substantial drop in Primary share price hadn't you, between mid December and 12 February? A. I can't recall the exact movements in Primary share price over that period. Q. Are you saying that you cannot recall now that there'd been a reduction in the Primary share price between mid December and 12 February? A. It may be the case, I just can't recall right now that that was the case. Q. Do you accept that if there had been a drop in the order of 20% in the Primary share price between December and - or 15% from December until 12 February, then you would've been very alive to that fact as at 12 February given that the AREO was to - the institutional offer was to open the following day? A. It would've been a consideration. Q. But you would've known about that drop in the share price, wouldn't you? A. Yeah. Q. And you knew obviously that we have this period of time between the institutional offer and bookbuild and the retail offer and bookbuild? A. Correct.
19. Mr Molesworth was also cross-examined about the distribution of the Procedures Manual. He accepted that it was an important document and that it was going to the people on the list that he had prepared who were to be accelerated. His evidence was as follows (tr 220): Q. And you knew that it wasn't going to other shareholders, didn't you? A. This document wouldn't be sent to retail shareholders who are in the retail offer, no. Q. So to your knowledge on 13 February the only people who are getting this document were those on the list that you originally prepared? A. And it would've been sent more broadly to institutional investors across the market, whether or not they're shareholders.
20. Mr Molesworth was then asked about the paragraph in bold in the checklist section in 3.1 of the Procedures Manual. His evidence was as follows (tr 221-226): Q. Would you accept that it must follow that the only point of that sentence is that those persons, if contacted by the JLMs and the JLMs were satisfied of their eligibility, that they would be included in the institutional offer? A. Not necessarily. Q. Or might be included? A. Could be included. I think to clarify one reason this is in there is because we're dealing with a register that's in the past. You know, register's in the past, the record date is in the future. Q. Yes but there is no point saying this if persons may not have had a chance at being included in the institutional round if they did make contact. That's right, isn't it? A. If an institution had purchased shares in the - and they are a client, so we didn't have the on-boarding issues we've been through, and they had purchased shares in the period between when we got our last Orient report and when we launched the rights issue, if they make contact with us - so they wouldn't be on our list of institutional fund managers that we're accelerating, if they make contact with us we can then accelerate them because they're an institution and they're a client. Q. If a shareholder believes that they should be treated as an eligible institutional shareholder then this is indicating that they should make contact with the JLMs? A. Yes. Q. And if they did have that belief and they did contact the JLMs, presumably that inquiry would have been considered by the JLMs? A. Yes. Q. In an appropriate case they would have been allowed to participate? A. Yes. … Q. What I'm putting to you is that what is being communicated by that sentence is that if a Primary shareholder who was not on your list wished to participate, or seek participation in the institutional offer, that they should contact the JLMs? A. Yes. … Q. I think you've agreed with me that what is being communicated in that sentence is that if a Primary investor who was not on the list you prepared, was of the view that they should be treated as an eligible institutional shareholder for the purposes of the offer, that the onus rested on them to take that up with the JLMs? A. Yes. So this document's, as we've been through, distributed to the institutional market, so the fund managers in the market. So if they have become a shareholder of Primary between the time of our Orient report and now when we're communicating then, they should get in contact with us. … Q. You were prepared to take their call weren't you? A. I would have, would have taken a call. Q. If they had said they wanted to participate, and they had satisfied you that they were an eligible institutional shareholder, there would be no reason, subject to on-boarding of the client issues -- A. Correct. Q. -- that you would include them in the first round? A. Yes, so they would need to be on-boarded as a client, which has the issues we discussed earlier. Q. Yes. A. So potentially they would not be able to participate in the institutional offer. … Q. You knew that there were eligible shareholders who could be accelerated into the institutional offer who were not being accelerated, that's right isn't it? A. No, not necessarily, no. Q. Are you saying that the list you prepared you regarded as the only -- A. Sorry, no, the list we accelerate is the institutional fund management of clients on the register. Is there the possibility that there are other shareholders on the list that, you know, could be accelerated or not need a prospectus? Absolutely. But we only accelerate the institutional fund managers on the, on the list. It's the institutional offer.
21. In re-examination Mr Molesworth said that it was not realistic that the JLMs would treat an individual who was not known to them or not a client of the JLMs as an "insider" (tr 232). He gave the following evidence (tr 233): Q. Would you ever undertake that process with a person who was unknown to you, and when I say you, Deutsche Bank to your knowledge and experience ever undertake that process with a person who was unknown to you and circumstances where you knew very little if anything about them? A. It would be highly unlikely. Q. Why is that? A. Because it's - you know, the price sensitive information you're passing to that party is just that and you know, having had experience with that party and knowing that they're a professional investor is, is important in that regard.
22. The JLMs also relied upon the affidavits of Gordon Jenkins affirmed on 19 May 2015 and Michael Parsons affirmed on 20 May 2015. Both Mr Jenkins and Mr Parsons were employed with Deutsche Bank at the time they affirmed their affidavits. Neither was required for cross-examination.
23. Mr Parsons gave evidence that he met with Dr Volfneuk on 26 February 2008 during which meeting Dr Volfneuk advised him that he was looking to borrow to take up "my entitlement" and asked him what Deutsche Bank could offer him. It was as a result of this meeting that Mr Parsons wrote by email to Mr Jenkins on 27 February 2008 to advise him of Dr Volfneuk's request in relation to funding. Mr Parsons had no further direct involvement with Dr Volfneuk. He did not recall Dr Volfneuk complaining to him at any point about the plaintiff being treated as a retail rather than an institutional shareholder during the AREO.
24. Mr Jenkins referred to the email he received from Mr Parsons on 27 February 2008 and to his "numerous" communications with Dr Volfneuk between 27 February 2008 and 12 March 2008. His evidence was that during these communications Dr Volfneuk advised him of his view that Primary's share price would double in three years but that if it dropped drastically he would sell the shareholding from one entity to another and take a capital loss. Mr Jenkins also gave evidence that Dr Volfneuk made no complaint to him during the period about the plaintiff being treated as a retail rather than an institutional shareholder during the AREO.
25. Primary relied upon the affidavit of Maria Dzopalic sworn on 26 February 2015 for the purpose of establishing the number of shareholders in Primary as at 13 February 2008 (3,930 registered holders of ordinary shares). Ms Dzopalic also gave affidavit evidence that as at 13 February 2008 5.3% of Primary shareholders had provided an email address. Ms Dzopalic was not required for cross-examination.
26. Primary also read the affidavit of Dr Bateman sworn on 25 March 2015 which sets out the background to the takeover bid for Symbion, Dr Bateman's relationship with Dr Volfneuk and the management of the AREO. Primary also relied upon the affidavit of Mr Edmund Bateman affirmed on 26 March 2015. Mr Bateman was not required for cross-examination. He gave evidence that he was aware that Dr Volfneuk had a relatively large parcel of shares in Primary which he acquired as part of the sale of his business to Primary. He believed that Dr Volfneuk held those shares "through his private company", the plaintiff.

Expert evidence

1. Although it was anticipated at the outset of the trial that there would be numerous expert witnesses, the plaintiff decided not to read the affidavits of a number of its expert witnesses with the consequence that the defendants did not need to rely upon the witnesses that they had qualified. The only expert evidence tendered was that of Associate Professor Maurice Peat and Professor Erik SchlÖgl, for the plaintiff, and Professor Alessandro Frino for the JLMs. Professor Peat is an economist and his evidence was unchallenged. The purpose of his evidence was to value the plaintiff's claim at the difference between the amount it received in the Retail Offer, $400,105.20, and the amount it would have received had it taken part in the Institutional Offer, $4,801,262.40.
2. Professor SchlÖgl is the Professor of Finance, including Asset Valuation and Financial Risk Management, at the Business School, University of Technology, Sydney (UTS). He is also the Director of the Quantitative Finance Research Centre at UTS. He studied economics at the University of Bonn, Germany, between 1987 and 1992 and received a Diploma in October 1992. He holds a PhD in Economics from the University of Bonn, conferred in October 1997. He has held various lecturing positions at University of NSW and UTS between 1998 and 2004. He was an Associate Professor in the School of Finance and Economics at UTS from 2004 until 2009 when he took up his present role. The two reports of Professor SchlÖgl relied upon by the plaintiff were dated 29 October 2015 and 14 July 2016.
3. Professor Frino holds a Bachelor of Commerce (Honours) from the University of Wollongong (1989); a Master of Philosophy from the University of Cambridge (1991); and a Doctor of Philosophy from Sydney University in Finance (1995). At the time he provided his first report in 2015 Professor Frino was the Professor of Finance and Dean of the Macquarie Graduate School of Management at Macquarie University. He is the Executive of the Capital Markets Cooperative Research Centre Limited and the Director of Financial Markets Consulting Pty Limited. Professor Frino held lecturing positions at the University of Sydney between 1992 and 1998 and then became an Associate Professor to the Department of Finance where he worked until June 2001. Between June 2001 and 2012 Professor Frino was the Professor, Finance Discipline, at Sydney University. He was Dean and Professor of Finance at the Macquarie Graduate School of Management from 2013.
4. Professor Frino worked as an analyst for Credit Suisse First Boston in Sydney between October 1994 and March 1996. He worked as an economist at the Sydney Futures Exchange between 2000 and 2001 and was Chair of Finance at the School of Business at Sydney University, between 2001 and 2005. In 2005 he was a Visiting Fellow at the Commodity Futures Training Commission in Washington DC, USA. In 2006 he was a Visiting Fellow at Christchurch University, New Zealand. From 2005 to 2012 he was the Chief Executive Officer of Capital Markets CRC Limited and from 2012 to date he has been the Executive of that company.
5. Both Professor SchlÖgl and Professor Frino have published broadly in their field. Professor Frino provided two reports dated 22 May 2015 and 15 August 2016. The joint report of Professor SchlÖgl and Professor Frino is dated 11 August 2016.
6. Professor SchlÖgl's first report was in response to Professor Frino's report itself being in response to a report by one of the expert witnesses that the plaintiff ultimately did not rely upon.
7. Professor Frino provided an analysis of all of the relevant AREOs both before and after the Primary AREO to show that in 67% of the AREOs, the retail investor in the Retail Offer achieved a higher financial return than the institutional investor in the Institutional Offer. This was accepted by Professor SchlÖgl (tr 254). Professor SchlÖgl created his own table by excluding six of the AREOs that Professor Frino had included in his analysis focusing only on the AREOs in the eighteen months prior to the Primary AREO. He claimed that he was making a statement about the "riskiness and volatility in the market" at the time of those AREOs (tr 255). Even on Professor SchlÖgl's approach, the results were around the 50% mark.
8. In his first report (25/10/15) Professor SchlÖgl posed the question as to whether the difference in timing between the Institutional Offer and the Retail Offer favoured one group of shareholders over the other. Later in his report Professor SchlÖgl referred to the previous AREO results in which renouncing retail shareholders achieved higher prices than renouncing institutional shareholders. He concluded that "looking at average past returns as a best estimate of future expected returns does not permit a statistically significant conclusion either way, neither favouring institutional shareholders nor favouring retail shareholders" (par [7]). Professor SchlÖgl's report included the following (par [8]): I agree that there is no conclusive empirical evidence in the present context, as of February 2008, which would allow one to state that there is any significant difference in expected returns in an AREO for participating institutional shareholders as opposed to participating retail shareholders.
9. Notwithstanding this statement Professor SchlÖgl expressed the following opinion (par [9]): The difference lies in the risk faced by the two classes of shareholders in the AREO process, where this risk is a direct consequence of the delay between the institutional and retail bookbuilds.
10. In support of this opinion Professor SchlÖgl relied upon an extract from an article by R Pick and T Story in 2009 entitled "Tapping the Markets - Director Decision-Making When Raising Equity" in which the learned authors said the following (extracted in paragraph 9 of Professor SchlÖgl's report): Given the longer offer period, underwritten rights issues will generally be conducted at a significantly larger discount to a placement. Despite the larger discount, which means that shareholders will face the prospect of significant dilution if they do not take up their rights, most investors generally prefer rights issues because their pro rata structure is seen to be more equitable. Further, by structuring the rights issue as renounceable - whether as a traditional renounceable rights issue (where rights trading on ASX takes place) or as an AREO - a company can provide an opportunity to shareholders that do not participate to receive some value for their rights. However, the outcome for rennouncing shareholders will ultimately depend upon the strength of the company's share price following announcement of the transaction.
11. Professor SchlÖgl placed particular emphasis on the last sentence of this extract in relation to the strength of the company's share price. However in cross-examination he agreed that this was nothing more than acknowledging that a market can go up or down and that this affects the relative outcomes for the participants in the retail and institutional bookbuilds (tr 266).
12. Professor SchlÖgl also expressed the following opinion in his first report (par [10]): However, the institutional bookbuild occurs in much closer temporal proximity to the time the AREO is announced than the retail bookbuild and typically during a trading halt of the existing shares which is lifted well prior to the retail bookbuild. Thus the price determined in the institutional bookbuild is much more likely to be close to the market price of existing shares at the time the AREO is announced, than the price determined in the retail bookbuild. Retail investors who intend to renounce their entitlements therefore face a much greater risk that their potential monetary compensation will evaporate due to a decline in the share price between the time the AREO is announced and the time the retail bookbuild is conducted.
13. Professor SchlÖgl also analysed the probabilities of the movement in the share price (par [11]). Sensibly he accommodated the "chance" that the price determined in the retail bookbuild could be greater than the price determined in the institutional bookbuild and that renouncing retail shareholders could gain more than the renouncing institutional shareholders (par [12]). Ultimately he expressed the opinion that the AREO in the present case advantaged shareholders who participated in the Institutional Offer over those who participated in the Retail Offer on the assumption "that shareholders are risk adverse" (par [14]).
14. Professor SchlÖgl's second report (14/07/16) dealt with a number of matters including the volatility of the market. Clearly the defendants were cognisant that there was volatility in the market prior to and as at 13 February 2008. This much is clear from the contents of the document produced by the JLMs for their "Pricing Discussion" with Primary on 13 February 2008 in which they specifically referred to market conditions having been volatile and continuing to be volatile (Ex A 3166; see par [50] above). However Professor SchlÖgl referred to the volatility of the markets for the purpose of expressing the opinion that investors in participating in the Retail Bookbuild were "much more exposed" to the market risks than those participating in the Institutional Bookbuild (par [11]).
15. One of the matters relied upon by Professor SchlÖgl in his second report in relation to the volatility of the markets was the Chicago Board Options Exchange (CBOE). In referring to the CBOE Professor SchlÖgl included a footnote (fn 2) in the following terms: This index refers to North American share prices. There is now a similar index for the Australian market, but the Australian volatility index is not available for the time under consideration in this report. However, the CBOE VIX is a useful proxy for global share market uncertainty for the period in question.
16. Professor Frino responded to this aspect of Professor SchlÖgl's report in his report dated 15 August 2016 contending that the statements in footnote 2 was "not factually correct". In support of this contention Professor Frino included a Chart identifying the Australian VIX and the USA VIX index from the beginning of January 2008 to the middle of 2008. That Chart shows that the two indices do not move in exactly the same way and exhibit different trend patterns over certain periods. Professor Frino's report included the following (par 2.7): Hence, in my opinion, Professor SchlÖgl cannot draw accurate inferences about Australian equity market volatility by examining proxies for volatility drawn from USA equity markets. Second, while the USA and Australian indices exhibit a rising trend from the beginning of 2008 until approximately the end of January 2008, they were declining from the beginning of February 2008 until the time of PRYs AREO. This suggests that at the time of the AREO executed by PRY total equity market risk was declining and hence the total market risk faced by investors was declining.
17. Although Professor Frino was not cross-examined, Professor SchlÖgl sought to justify his reliance upon the CBOE VIX and was cross-examined as follows (tr 259-261): Q. … At the time you prepared your third report you were under the mistaken belief that there was no data available - there was no equivalent to the VIX index for the Australian market, correct? A. For the period in question? Q. Yes? A. Yes. Q. Otherwise you surely would have included that material rather than the American material? A. Absolutely. Q. How is it professor if you're an expert in this area you weren't aware that there was in fact data available, VIX data available for the Australian market for the relevant period? A. Maybe we are disagreeing on what the relevant period is. Q. Well no, with respect you said explicitly in your third report that, and let me be fair to you and refer to your footnote 2, "The Australian volatility index is not available for the time under consideration in this report"? A. Yes and for the entirety of that period it is not available. It is available for part of that period. Q. It's available from February 2008, or sorry, it is available from January 2008? A. That's correct. Q. Were you aware of that at the time you provided your third report? A. Yes I was aware of that. … Q. … If you were aware of the existence of Australian data from the beginning of 2008 bearing in mind that this AREO was launched in mid-February 2008, why did you not include it or even refer to the availability of that data in your third report? A. Because the CBOE data as one can see from the graph in Professor Frino's third report, shows that the Australian VIX data is of the same order of magnitude and that is what I am talking about, follows the same order of magnitude as the CBOE data. Q. I'll come to that but can you just answer directly the question. If you're aware of the existence of Australian data why did you not even make the barest reference to it in your third report? A. I did not feel that it would add to the report. … Q. You were providing evidence about the volatility in the Australian market at the time of this Primary AREO in February 2008, that's what you were doing in your report was it not? A. I was making a statement about volatility in financial markets globally. Q. You were making a statement were you not about volatility in the Australian market? HER HONOUR Q. Do you agree with that proposition? A. To the extent that the global financial markets strongly affect the Australian market yes and I, I would suggest that they do. BELL Q. Yes but as a matter of academic honesty and proper disclosure as an expert, are you saying it didn't occur to you to include the Australian data even for the sake of completeness? A. For the sake of academic honesty it would have been necessary to include the data if it contradicted the conclusions drawn from the US data. Q. Well the data is not the same is it? A. In terms of the order of magnitude which is all that I was referring to, it is the same. Q. Is it really the case professor that you were aware of this at the time of your report prepared about a month ago or is it the case that you weren't aware of it and you only became aware that this data was available as a result of your receipt earlier this week of Professor Frino's third report? A. When I wrote my third report I explicitly searched for this data and the search took me to the ASX website which shows exactly the graph that Professor Frino had included in his third report. So I saw that graph on the ASX website at the time when I prepared my report.
18. Professor SchlÖgl sought to explain this matter further in his re-examination as follows (tr 276): Now the reason why I did not use this particular graph is because it does not show the way the volatility in global equity markets have increased from the much more benign period prior to 2008 and that is shown in the graph of my third report where I graph the VIX and where you actually see that effect, that in the course of 2007 the VIX starts - the CBOE VIX starts to pick up. So to repeat my answer to that previous question, I did not feel it addressed the issue at hand to use the Australian data which only started in January 2008. Furthermore I did not feel that it was dishonest not to include the Australian data because the Australian data, if anything, shows the effect more extremely during the period in question than the American data.
19. Professor SchlÖgl's suggestion that there was justification for the statement in the footnote because the Australian VIX index was not available for the "whole" of the period was most unsatisfactory. It is one thing to omit a reference to an index. It is an entirely different thing to positively state that an index did not exist when it did.
20. Professor SchlÖgl was then asked about the comparison between the two indices in the Chart in Professor Frino's third report (tr 263): Q. Just have a look at chart 1 in Professor Frino's third report, do you accept this basic proposition, that this volatility index which according to the professor's footnote measure the change in the volatility of the market illustrates that between 30 January to 13 February there was a significant change and drop in market volatility in Australia, do you agree with that proposition? A. Yes. But it doesn't address my report. Q. No okay, just address my propositions now. Do you agree with my proposition, a significant change in volatility and a downward change in volatility in the Australian market? A. There was a change in - a downward change in the VIX index in the Australian market and actually in the US market as well in the period that you have suggested to me. Q. The market volatility is affected by a host of factors many of which are not necessarily known, correct? A. Well there are many things that are not known in finance. Q. Yes and they affect market movements don't they? A. It could be. Q. If you look at the period between 16 January and 27 February for example you will see that the drop in volatility in the Australian market was even more pronounced than it had been in the period between 16 January and 13 February? A. That is correct but I also note that in the graph that Professor Frino has provided during the periods that you have mentioned the blue curve is above the red curve so the volatility index shows that the volatility in the Australian market was even higher than the volatility in the US market. Q. This index is measuring change in volatility isn't it? A. If you look at the change in the index you are measuring the change in the volatility. If you're looking at the level of the index you are measuring the level of the volatility.
21. Professor SchlÖgl said that the movement of the level of the market in general gives some information about the expected movement of individual shares but does not give you a certainty in which way it will move (tr 264).
22. Professor SchlÖgl accepted that his experience is limited; indeed he has never worked on or provided consultation services in respect of an AREO. He was cross-examined about his opinion expressed in paragraph 12 of his report dated 29 October 2015 that the plaintiff was in a much riskier position in the retail offer with $4,801,262.40 at risk. He gave the following evidence (tr 268-270): Q. The relative risk between the institutional bookbuild and the retail bookbuild in two-thirds of the cases for which the data is available suggests that the risk was greater for the institutional renouncers than the retail renouncers, correct? A. Yes and if we actually move to your three-quarters number that you have put up which I also agreed with, that is actually the number that I say that was in part of my report that again I would have to look up, but it's in there. I said that one would expect, just given the market movements, just given the movement of the market in general one would expect exactly that outcome, that three-quarters, in three-quarter of the cases because the market was moving up. Q. Just staying at paragraph 12, I think you accepted, if you didn't please correct me, but that $4.8 million figure you have derived with the benefit of hindsight haven't you? A. If I ignore - if we accept that I have underestimated the risk -- Q. No, just answer the question. That figure you have derived with the benefit of hindsight haven't you? A. As I said in the answer to your previous question which went in the same direction, to calculate it to the last cent yes it's with the benefit of hindsight. Q. Well it's completely with the benefit of hindsight because it's completely a function of the actual bookbuild price that was achieved? A. Indeed. Q. Which was massively lower than the bookbuild price you would have anticipated on your theoretical analysis? A. Let me put it this way, if you calculate -- Q. Is that right? A. If you calculate - we're looking at the figure at risk here, if you calculate that figure based on the stock price that was known when the AREO was announced that figure would be even higher. Q. Yes but -- A. So this is a conservative estimate. Q. But historically experience would suggest you shouldn't calculate it by reference to that figure at all, don't you agree? A. I am talking about the relative risk between the retail bookbuild and the institutional bookbuild and -- Q. Yes, a risk you accept didn't come to pass in three-quarters of the cases? A. Risk don't (sic) come to pass, risk is the potential of a loss not - it does not - the existance of a risk does not depend on a loss actually eventuating. It's an ex-ante view, it's not a view with hindsight. Q. The risk is a two-way street isn't it, shares can go up and shares can go down and that's the sense of risk which you are using isn't it? A. Indeed, if you were indifferent to risking $5 million on whether the market would at least stay stable you wouldn't care in this situation. Q. You're a theoretician, I don't mean that disrespectively, you are a theoretician correct? A. I have expertise in theory yes. Q. You haven't ever worked for a stock broker or an investment bank have you? A. I have done extensive consulting for investment banks. Q. In respect of AREOs? A. No. Q. You would accept wouldn't you that as basic tenet of the academic profession that if theories developed don't accord with emperical data there would be some reason to question the accuracy of the theoretical analysis? A. That's correct. Q. Just in that context your theoretical analysis led you amongst other things to anticipate that a significant portion of new shares on offer in the Primary AREO would not be taken up by existing investors during both the institutional and the retail bookbuild phases correct? A. No, what I said was that the underwriters would be worried about this possibility. Q. Can I take you to paragraph 13 of your third report? A. Yes. Q. Have a look at the last sentence from which I was reading? A. Yes. Q. That's what you said, do you adhere to that, that's what you would anticipate based on your theoretical analysis of the matter? A. Yes that's correct.
23. Professor SchlÖgl had to accept that his theoretical position was that a significant portion of new shares on offer would not be taken up. However he said that the word "significant" referred to 5% because in academia that is where it usually starts (tr 270). He was cross-examined about this opinion as follows (tr 272): Q. Wouldn't it be more accurate to describe 5% as a small fraction of the new shares rather than a significant portion? A. Well if that causes confusion my apologies but it's - I am just using significant in the way it is usual in the academic literature. … Q. If that's what you meant [it would have] been more accurate to refer to a small fraction rather than a significant proportion, if you -- A. It would have been less ambiguous understanding now that it can be misunderstood.
24. Professor Frino was not required for cross-examination. There is an important aspect of his evidence with which Professor SchlÖgl did not take any issue (tr 254). That evidence was as follows: ○ Stock price movements over the period extending from the first day of trading after the announcement of an AREO to the close of the retail period increase on a risk-adjusted basis, although this increase is not statistically significant; ○ The price achieved by renouncing institutional shareholders in the Institutional Bookbuild is on average lower than the price achieved by retail shareholders in the Retail Bookbuild as is the difference after risk adjustment; and ○ There is no reliable empirical evidence to conclude that the AREO process favours participating institutional shareholders as at February 2008.
25. The concession made by Professor SchlÖgl that he did not take any issue with these matters means that as at February 2008 there was no empirical evidence to suggest to Primary or the JLMs that institutional shareholders taking part in the Institutional Offer would be favoured over the retail shareholders.

Claims in negligence

1. In its Second Further Amended Commercial List Statement (CLS) the plaintiff contended that at the time of the Institutional Offer on 13 February 2008, the defendants were aware or should have been aware that the plaintiff was (CLS 61):

• one of 144 institutional investors with shareholdings in Primary;
• ranked eleventh by size of shareholding;
• one of a class of high-net-worth shareholders within the top one hundred shareholders who were collectively identified in the Orient reports as "Private Stakeholders" with the designation "PK";
• one of an identifiable and limited sub-set of PKs who by reason of their shareholding in Primary alone controlled over $10 million and were "professional investors" as defined in s 9 of the Corporations Act;
• one of a sub-set of PKs who by reason of their shareholding qualified to receive an Institutional Offer without full disclosure under Part 6D.2 of the Corporations Act;
• an Institutional Shareholder as defined in the Underwriting Agreement; and
• an Eligible Institutional Shareholder as defined in the Procedures Manual and Draft Prospectus.

1. It was not established that the defendants were aware that the plaintiff was "one of 144 institutional investors with shares in Primary". The defendants would certainly have been aware from reading the Orient reports that Dr Volfneuk and his wife were ranked eleventh on the list of investors in those reports. However the plaintiff was not listed in any of the Orient reports. The absence of the plaintiff in these reports has significant consequences in respect of these claims in the CLS. The JLMs would have been aware from reading the Orient reports that Dr Volfneuk and his wife were classified as Private Stakeholders or PKs. However there are real difficulties for the plaintiff in respect of the other allegations regarding the defendants' knowledge as pleaded in paragraph 61 of the CLS. There is no evidence that the JLMs were ever advised prior to 13 February 2008 or during the period 13 and 14 February 2008, that the plaintiff (rather than Dr Volfneuk and his wife) was the shareholder in the eleventh position on the Orient reports.
2. In those circumstances the plaintiff's claim that the JLMs knew that it was one of an identifiable and limited sub-set of PKs who by reason of their shareholding in Primary alone controlled over $10 million and "professional investors" as defined in s 9 of the Corporations Act is not made out. Nor is its claim that the JLMs knew that it was one of a sub-set of PKs who by reason of their shareholding in Primary qualified to receive an Institutional Offer without full disclosure under Part 6D.2 of the Act. Similarly the plaintiff's claims that the JLMs knew that it was an "Institutional Shareholder" within the meaning of that term in the Underwriting Agreement and an "Eligible Institutional Shareholder" within the meaning of that term in the Procedures Manual and Draft Prospectus are not made out.
3. It is probable that Primary knew that the plaintiff (rather than Dr Volfneuk and his wife) was the shareholder. Mr Bateman gave affidavit evidence that he was aware that Dr Volfneuk held shares "through his private company". However it does not automatically follow that Primary was aware that the plaintiff was one of an identifiable and limited sub-set of PKs who by reason of their shareholding in Primary alone controlled over $10 million and were a "professional investors" as defined in s 9 of the Act. There was no evidence that Primary knew the basis upon which the plaintiff held its shares, outright or on trust, and there was no evidence that Primary knew that the plaintiff controlled the asset such as to qualify it as a professional investor under the Act. It follows that the plaintiff's claims regarding Primary's knowledge as pleaded in paragraph 61 of the CLS are not made out.
4. The plaintiff contended that the matters that were reasonably foreseeable to a person in the position of the defendants about to undertake or manage an AREO were (CLS 62):

• conducting separate bookbuilds for the sale of renounced shares in the AREO was likely to result in each bookbuild achieving a different sale price per share entitlement;
• as the Retail Bookbuild was to take place a month after the Institutional Bookbuild and at the end of the original trading halt, the price difference might be significant, depending on general market volatility and market reaction to the AREO;
• private stakeholders, including the plaintiff, had shareholdings in Primary worth millions of dollars, such that any price difference would have a substantial effect on the ultimate value of their entitlements under the AREO;
• shareholders that took part in the Retail Bookbuild would, as compared with shareholders that took part in the Institutional Bookbuild, face a greater risk of a decline in the value of the shares;
• private stakeholders might prefer to take on the lower risk afforded by receiving the Institutional Offer and selling any renounced entitlements through the Institutional Bookbuild; and
• in these circumstances an Institutional Investor that qualified to receive an Institutional Offer might suffer economic loss if it were deprived of the opportunity to receive an Institutional Offer and, as a result of this deprivation, the greater risk it had not wished to be exposed to materialised due to a further decline in the market value of Primary's shares prior to the Retail Offer.

1. The plaintiff also contended that as at 13 February 2008 it was vulnerable to any failure by the defendants to take reasonable care in carrying out the Institutional Offer pursuant to the Underwriting Agreement, Procedures Manual and the Draft Prospectus because (CLS 63):

• it had no notice of the fact that the equity raising would be in the form of an AREO until the ASX announcement on 13 February 2008 or that it qualified to receive an Institutional Offer;
• it was not aware of the content of the Underwriting Agreement;
• it was not aware of the content of the Procedures Manual, in particular that the defendants purported to accept no responsibility or liability to those investors who were not contacted to participate in the Institutional Offer;
• it was not advised by the defendants that the Procedures Manual placed the onus upon each Institutional Investor to contact the JLMs if the investor wished to receive an Institutional Offer;
• it had less than 24 hours from the announcement of the Institutional Offer to contact the JLMs to receive an Institutional Offer;
• no information was provided to Institutional Investors about the process, if any, by which the identity of those that would receive an Institutional Offer was determined;
• despite having limited information and no control over the process by which the defendants carried out the AREO, it was exposed to potential economic loss; and
• it was reliant upon the defendants to carry out the AREO avoiding prejudice or disadvantage to it as a substantial shareholder, to provide sufficient information to it to enable it to protect its own interest and to take reasonable care in the course of the Institutional Offer to extend it to each investor as intended in the Underwriting Agreement, Procedures Manual and the Draft Prospectus.

1. The plaintiff contended that in managing the AREO the JLMs owed it a duty to take reasonable care to avoid the foreseeable risk of harm having regard to (CLS 64): (a) the structure of the AREO; (b) the underlying intention under the Corporations Act, Listing Rules and the general law that particular shareholders in Primary not suffer prejudice or disadvantage from the AREO as compared with other shareholders in Primary; (c) the structure and intended process of the Institutional Offer; (d) the fact that the obligations the JLMs owed to Primary are not inconsistent with the imposition of such a duty; (e) the fact that the plaintiff was part of an identifiable and limited sub-set of Private Stakeholders who qualified to take part in the Institutional Offer; (f) the fact that the risk was reasonably foreseeable harm; (g) the plaintiff's vulnerability to any failure to take reasonable care; and (h) public policy considerations in favour of shareholder protection from harm arising from arbitrary decision making by underwriters and managers of AREOs. The plaintiff contends that Primary owed a duty to take reasonable care to avoid foreseeable risks of harm to the plaintiff on the same bases (CLS 65).
2. The plaintiff contended that there was a risk that an Institutional Investor such as itself would suffer economic loss if its entitlements in the AREO were dealt with under the Retail Offer and Retail Bookbuild rather than the Institutional Offer and the Institutional Bookbuild. The plaintiff contended that this was the "relevant risk of harm" for the purposes of s 5B(1) of the Civil Liability Act 2002 (CLA) (CLS 66).
3. The plaintiff also contended that the relevant risk of harm was known to the defendants because that risk was contemplated by the defendants in clause 3.1 of the Procedures Manual and clauses 1.1 and 3.1 of Schedule 5 of the Underwriting Agreement. Alternatively the plaintiff contended that the relevant risk of harm ought to have been known to the defendants by reason of the provisions of the Procedures Manual and the Underwriting Agreement and the other matters referred to above (CLS 67-68).
4. The plaintiff also contended that the relevant risk of harm was not insignificant for the purposes of s 5B(1)(b) of the CLA and that a reasonable manager of the AREO in the position of the JLMs would have taken precautions in response to the relevant risk of harm. The precautions that the plaintiff contended a reasonable JLM would have taken would have been (CLS 69-70):

• to ascertain from the Orient Reports and from the Investor Lists that the plaintiff's shareholding was 1.76% of Primary's total shares and worth about $20 million based on the then market price of about $8.00 per share;
• to ascertain that the plaintiff was entitled to 4,001,052 new shares under the AREO and could potentially contribute in excess of $21 million to the capital raising if it were to take up all its entitlement;
• to ascertain that the plaintiff was the eleventh on the list of Primary's Institutional Investors by size of shareholding and that Dr Volfneuk and Ms Safro were the "fund managers" for the plaintiff;
• to conclude that the plaintiff was an Institutional Investor because it controlled more than $10 million;
• to contact the plaintiff on or before 13 or 14 February 2008 to extend an Institutional Offer to it;
• alternatively to contact the plaintiff at that time to provide a copy of the Procedures Manual to it;
• alternatively to inform the plaintiff that it qualified to receive an Institutional Offer and should contact the JLMs if it wished to receive it rather than to receive a Retail Offer a month later.

1. There is no issue that the JLMs did not positively ascertain these matters or conclude that the plaintiff was an Institutional Investor. There is also no issue that the JLMs did not contact the plaintiff or provide a copy of the Procedures Manual to it or inform it that it qualified to receive an Institutional Offer. However there are real issues about whether these are in fact "precautions" and whether the JLMs had any obligations to ascertain those matters or conduct themselves in the manner alleged.
2. The plaintiff alleged that the JLMs breached their duty of care to it by: failing to contact it on or before 13-14 February 2008 to extend the Institutional Offer to it; failing to contact it on 13-14 February 2008 to provide a copy of the Procedures Manual dated 13 February 2008; and failing to inform it on before 13-14 February 2008 that it qualified to receive an Institutional Offer and should contact the JLMs if it wished to receive such offer rather than a Retail Offer a month later (CLS 71). There is no issue that the JLMs did not contact the plaintiff or provide it with a copy of the Procedures Manual or inform it of these matters. However, once again, there are real issues as to whether the JLMs were obliged to do so.
3. In its claim against Primary the plaintiff alleged that for the purposes of s 5B(1)(c) of the CLA a reasonable publicly listed corporation undertaking the AREO would have taken the following precautions in response to the relevant risk of harm (CLS 72):

• it would have informed the JLMs that the plaintiff's shareholding as at 13 February 2008 was 1.76% of Primary's 142,447,384 total shares on issue and worth about $20 million based on the then market price of about $8.00 per share;
• it would have informed the JLMs that the plaintiff was an "Institutional Investor" within the meaning of ss 9 and 708(11)(b) of the Act and as defined in the Underwriting Agreement because the plaintiff controlled more than $10 million;
• it would have directed the JLMs to extend the Institutional Offer to the plaintiff on 13-14 February 2008;
• alternatively, it would have directed the JLMs to provide a copy of the Procedures Manual on 13-14 February 2008;
• alternatively, it would have directed the JLMs to inform the plaintiff on or before 13-14 February 2008 that it qualified to participate in the Institutional Offer and should contact the JLMs if it wished to have Institutional Offer extended to it.

1. The JLMs were given the information contained in the Orient reports. There is no issue that those reports did not contain any information about the plaintiff and accordingly there is no issue that Primary did not inform the JLMs of the plaintiff's shareholding or that it was an "Institutional Investor". There is also no issue that Primary did not direct the JLMs as alleged. However there are real issues in relation to whether Primary had such obligations in the circumstances.
2. During final submissions the plaintiff sought to characterise the Orient reports as a direction or advice from Primary to each of the JLMs in respect of who should be accelerated. However the plaintiff made it quite clear in its opening submissions that the Orient reports could not be characterised as a direction by Primary to the JLMs as to who should be made an offer but rather were appropriately characterised as a provision of information (tr 34).
3. The plaintiff claimed that Primary breached its duty to it by: failing to direct the JLMs to contact the plaintiff on before 13-14 February 2008 to extend the Institutional Offer to it; failing to direct the JLMs to contact it on 13-14 February 2008 to provide a copy of the Procedures Manual to it; and failing to direct the JLMs to inform the plaintiff on or before 13-14 February 2008 that it qualified to receive an Institutional Offer and should contact the JLMs if it wished to receive such offer rather than a Retail Offer a month later (CLS 73). Once again there are real issues about whether Primary had any obligation to give these directions.

Real issues to be determined

1. There was a deal of movement in the plaintiff's position as the trial proceeded. In final oral submissions it ultimately relied upon two negligence claims. The first negligence claim relates to the period 13 and 14 February 2008. The second negligence claim relates to the period from November 2007 up to 13 February 2008.
2. The first negligence claim against the defendants is that they owed a duty to the plaintiff (it being in a class of persons who were exempt from a need for disclosure under Part 6D.2 of the Act) to take reasonable care to notify it that there was a mechanism (described as an "opportunity") by which it could minimise the "time risk" or "duration risk" said to be present in the Retail Offer, by making contact with the JLMs and asking to be accelerated into the Institutional Offer. The alleged "time risk" or "duration risk" is the "time" or "duration" between the two Bookbuilds which the plaintiff claimed exposed the shareholders in the Retail Offer to the prospect of adverse movement in the Primary share price. The plaintiff claims that it was vulnerable because there was no other way that it (and those in the class of exempt investors) could find out about the mechanism than being notified of it by the JLMs.
3. The second negligence claim against the defendants is that they knew from November 2007 that eligible shareholders would need to be contacted to offer them acceleration in the AREO; that preparatory work obviously had to be done; and that they had an obligation from early November 2007 to take reasonable steps to enable those shareholders who were eligible to be accelerated to be contacted during the very short period of the Institutional Offer (tr 288-289). The plaintiff claims that at "some time" prior to 13 February 2008 the defendants should have looked down the list provided by Orient and decided that they had "better find out about" Dr Volfneuk and offer him the opportunity to be accelerated (tr 293).
4. It will be necessary to determine whether in all the circumstances the defendants owed a duty of care to the plaintiff and if so whether they breached the duty. There is a very live issue in relation to causation. If the defendants owed a duty to the plaintiff as alleged it will be necessary to determine whether, if contacted and offered acceleration into the Institutional Offer, the plaintiff would have sought to be included and whether the JLMs would have agreed to accelerate the plaintiff. There is also a question as to whether the plaintiff suffered loss. If these matters are determined in the plaintiff's favour it will be necessary to determine proportionate liability claims and claims against the plaintiff of contributory negligence and failure to mitigate its loss.

The relevant interest

1. In cases of pure economic loss it is necessary to identify the interest said to have been infringed to determine whether a duty can arise: Hawkins v Clayton (1988) 164 CLR 539 at 601 per Gaudron J; Perre v Apand Pty Ltd (1999) 198 CLR 180 at [191]-[192] per Gummow J.
2. The defendants submitted that at this point the plaintiff's case flounders because it has been unable to identify any right that it had to be included in the Institutional Offer. Indeed the plaintiff accepted that neither the ASX Listing Rules nor the Act imposed any requirement on the defendants to contact all Institutional Shareholders (par 98(b)). The plaintiff did not allege in its pleading that it had any "right" to be in the Institutional Offer. The ASX waiver gave Primary permission to deviate from the standard timetable so that it had the discretion to invite shareholders reasonably believed to be exempt investors to subscribe for their entitlements on an accelerated basis. The ASX waiver did not impose a duty on Primary to accelerate all exempt investors (or some subset of them), nor did it confer a right on all exempt investors (or some subset of them) to be accelerated.
3. The plaintiff did not have a right to be accelerated into the Institutional Offer.

A novel claim

1. The plaintiff accepted that its claims in negligence are novel. Where the alleged duty of care is novel, it is necessary to undertake a close analysis of the relationship between the plaintiff and the defendants by reference to the salient features or factors affecting the appropriateness of the imposition of a legal duty to take reasonable care to avoid harm or injury: Caltex Refineries (Qld) Pty Ltd v Stavar (2009) 75 NSWLR 649; [2009] NSWCA 258 per Allsop P (as his Honour then was) with whom Basten JA and Simpson J (as her Honour then was) agreed, at [102] (Caltex v Stavar). In this multifactorial approach, it is not compulsory to make findings in respect of all the features or factors identified by Allsop P. Rather it is appropriate to consider those factors and features that are relevant to the circumstances or novelty of the particular case: Caltex v Stavar, Allsop P, at 676 [104].

The contractual setting

1. One of the relevant salient features for consideration is "the existence or otherwise of a category of relationship" between the plaintiff and the defendants: Caltex v Stavar 103. The category of relationship between the plaintiff and Primary was that of a publicly listed company and shareholder pursuant to their statutory contract under s 140 of the Act. That contract in the form of Primary's Constitution included the following (Ex A 6): Shares 3(1) Subject to: (a) Any provision in the Memorandum of Association and these Articles; (b) Any conditions contained in a resolution to increase the nominal capital of the Company by virtue of which further capital is available for issue; (c) Any special rights previously conferred on the holders of any shares or class of shares, including the rights of redeemable preference shareholders; and (d) The Listing Rules, shares in the Company shall be under the control of and may be issued by the Directors and any shares (whether original or created by reason of an increase in a nominal capital) may be issued to such persons at such times on such terms and conditions and with such preferred, deferred, qualified, guaranteed or other special rights, privileges, conditions, restrictions or limitations whether in regard to dividend, voting, return of share capital, distribution of assets or otherwise as the Directors may from time to time determine with full power for the Directors to issue shares classified or designated in such manner as the Directors think fit and to issue shares at par or at a premium and to give any person whether already a member or not the call or option over any shares either at par or at a premium and for such period or periods and for such consideration as the Directors may think fit
2. In this statutory contractual setting Primary and the plaintiff agreed that the issue of shares in Primary was under the control of the directors and could be issued in any manner that the directors thought fit.
3. There was no category of relationship between the plaintiff and the JLMs.
4. As the plurality observed in Badenach v Calvert (2016) 331 ALR 48; [2016] HCA 18 at 615 [23], a "contractual relationship may create the occasion for and give rise to a tortious duty of care owed by one contracting party to the other and/or a third party". The plaintiff claimed that the contractual relationship between the defendants governed by the Project Poppins Letter from 8 November 2007 to 13 February 2008 and the Underwriting Agreement on 13 and 14 February 2008, gave rise to a duty of care on the defendants to invite it into the Institutional Offer in the AREO or inform it of the mechanism by which it could seek to be included in that Offer. It claimed that in the period from 8 November 2007 to 13 February 2008, the terms of the Project Poppins Letter imposed a duty of care upon the defendants to identify it as an Institutional Shareholder and to arm themselves with appropriate contact details so that they would be ready to contact it when the Institutional Offer opened. It claimed that in the period 13-14 February 2008, the terms of the Underwriting Agreement imposed a duty of care on the defendants to make contact and offer it acceleration into the Institutional Offer or to notify it of the mechanism to make contact with the JLMs to seek inclusion in the Institutional Offer.
5. It is appropriate at this point to determine the nature of the contractual obligations on the defendants in respect of the acceleration of shareholders into the Institutional Offer.
6. The Project Poppins Letter and the Underwriting Agreement must be considered in all the relevant commercial circumstances of a capital raising by means of an AREO, including the statutory contract between the plaintiff and Primary.
7. The plaintiff contended that clause 2.1(a) of Exhibit E to the Project Poppins Letter, contained a promise to Primary by the JLMs that they would use reasonable endeavours to make contact with, amongst others, the plaintiff between the opening date and closing date of the Institutional Offer so as to offer shares to it as part of the Institutional Offer. The plaintiff submitted that clause 3 of Schedule 5 of the Underwriting Agreement corresponds to clause 2.1(a) of Exhibit E of the Project Poppins Letter.
8. The Project Poppins Letter expressly provided that the JLMs' obligations did not become binding unless certain conditions were fulfilled or waived (Ex A 340-341). It provided for the parties to "work expeditiously and in good faith" to prepare and execute an underwriting agreement on terms "satisfactory to" the JLMs provided that such agreement was to be executed in advance of Primary declaring its bid for Symbion unconditional.
9. The Project Poppins Letter did not impose any obligations or requirements on the JLMs in respect of the conduct of an AREO. It stated explicitly that "if there is" an AREO, the Underwriting Agreement was to contain the provisions in Exhibit E "or equivalent provisions acceptable" to the JLMs "acting reasonably and in consultation with" Primary (Ex A 346). The terms of Exhibit E were not obligations and requirements binding the JLMs to take the alleged steps preparatory to the AREO during the period prior to the execution of the Underwriting Agreement on 13 February 2008.
10. Even if Exhibit E of the Project Poppins Letter imposed obligations on the defendants in respect of the AREO (that was yet to be announced and was conditional upon Primary's offer for Symbion becoming unconditional) the plaintiff faced real difficulties in establishing any obligation on the defendants to invite it into the Institutional Offer having regard to the definition of "Institutional Shareholder" in Exhibit E. Clause 2.1(a) of Exhibit E provided that the JLMs would "use reasonable endeavours to make contact with all eligible Institutional Shareholders so as to offer them the Offer Shares on a pro rata basis". However an "Institutional Shareholder" was defined relevantly as a "holder of Shares that is an Institutional Investor and that is identified by the Company and advised to each Underwriter as being an Institutional Shareholder to whom First Round Offers should be made" (emphasis added). The decision as to whether a person "should" receive such an offer was a matter for Primary. It was not a "right" or an entitlement in any shareholder. That is perfectly understandable having regard to the very real risks that were being taken on by Primary and the JLMs in this very large capital raising. It was a matter for Primary whether it communicated its view to the JLMs that a particular Institutional Investor shareholder "should" receive a First Round Offer or whether it left that decision to the JLMs. Certainly the Orient reports included Institutional Investors but did not include any communication as to whether such Institutional Investors "should" be accelerated.
11. I am not satisfied that Exhibit E of the Project Poppins Letter imposed any obligations on the defendants between 8 November 2007 and 13 February 2008 in respect of the management of the AREO or in respect of obtaining contact details for the plaintiff.
12. The definition of "Institutional Shareholders" in the Underwriting Agreement was extracted earlier but is repeated here for convenience: "Institutional Shareholders" means each person who receives an Institutional Entitlement Offer as determined pursuant to clause 1 of Schedule 5, provided that any Institutional Shareholder must be an Institutional Investor and must not be a Non-Qualifying Institutional Shareholder.
13. An "Institutional Investor" was defined as a person the JLMs reasonably believed was a person to whom an offer could lawfully be made without disclosure under Part 6D.2 of the Act.
14. The plaintiff seemed to recognise the difficulty with which it was presented by these definitions in its submission that the drafting of the Underwriting Agreement "might not have been perfect" (par [62]). It submitted that the Underwriting Agreement replicated the procedures that appeared in the Project Poppins Letter for determining which Primary shareholders would be placed into the Institutional Offer and for the JLMs to contact them. The plaintiff still faced the difficulty of what it described as the rather "circular" definition of "Institutional Shareholders" in the Underwriting Agreement. Far from imposing some obligation on Primary or the JLMs to make contact with the plaintiff to offer to accelerate it into the Institutional Offer, the discretion remained with the defendants with the absence of prescription other than the pre-requisite that any entity to be offered acceleration had to be exempt under Part 6D.2 of the Act. There was no contractual obligation on the defendants to make contact with the plaintiff to offer it acceleration into the Institutional Offer. The discretion as to whether any of those Institutional Investors "should" be accelerated remained with Primary and/or the JLMs.
15. The coherence of the law would not be well served by the imposition of a duty of care on the contracting parties to a third party in these circumstances: Badenach v Calvert at [23].
16. I should deal with another aspect of the plaintiff's opening written submissions which included the following (par [42]): Even if the Court does not find that the contractual obligation existed, as a matter of principle there is no barrier to the imposition of a duty to protect the interests of shareholders, in the facts of this case.
17. The defendants submitted that this contention is "hopelessly vague" and does not articulate what a reasonably competent JLM should have done but did not do. That is a reasonable criticism. The defendants also submitted that whatever else might be said, the JLMs did not undertake "to protect the interests of shareholders". Their closing submissions included the following (par [110]): In the context of commercial enterprises which were underwriting risk to an amount in excess of $1.2 billion (that they were then exposed to) with no relationship vis-a-vis shareholders, as well as the overarching context of a capital raising, the suggestion that the JLMs were under such a duty is patently hopeless. Such would be akin to making the JLMs a fiduciary of shareholders, which they plainly were not.
18. There is force in this submission. The contractual arrangements between the JLMs and Primary expressly excluded the existence of any fiduciary relationship between them (Ex A 346). I agree also with the defendants' submission that it is not a question of whether there is "no barrier" to the imposition of a duty, because that would reverse the inquiry in the context of a pure economic loss case. Caution must be exercised in the imposition of a duty of care to new types of relationships particularly in cases of pure economic loss: Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 (2014) 254 CLR 185 at [126].

Nature of the activity

1. Another relevant salient feature for consideration is the nature of the activities undertaken by the defendants: Caltex v Stavar 103. The nature of the activity undertaken by Primary was the provision of medical and pathology services as described earlier. In many respects these were and are essential services for the maintenance of an affordable, efficient and professional health system for the community. The nature of the activity undertaken by the JLMs was relevantly the provision of finance (equity and debt) and investment banking and underwriting services. These services enabled the development and delivery of the essential health services through such companies as Primary taking on the financial risk (with the JLMs).
2. In February 2008, these contracting parties were pursuing a commercial endeavour (the AREO) with the many attendant risks of the stock market upon which the raising of many millions of dollars was dependent. It was a process that had only been adopted in the Australian commercial/financial sector in 2004. The environment in which corporations are willing to take part in, guarantee and underwrite such transactions is sophisticated and complex and the maintenance of that willingness is important for the commercial development of the community particularly where that development involves the provision of essential services.
3. In considering the social utility of the activity that created the risk of harm (s 5B(2)(d) CLA) it is not in issue that the raising of capital serves a social good in facilitating productive investment. I agree with the defendants' submission that the AREO has a particular benefit for corporations, shareholders and underwriters in providing what might be seen as a kick start to a capital raising in obtaining the majority of its funds from sophisticated fund managers and institutions that imposed less risk on underwriters. The AREO is therefore an attractive proposition for an underwriter compared to a capital raising that does not differentiate between the two types of shareholders. The JLMs submitted that there is no social utility in imposing a duty of care to, in effect, accelerate one or a number of shareholders from a large number, the majority of which it must be accepted will not and could not be accelerated. I agree that to impose such a duty may make underwriting either more expensive or otherwise make AREOs as a form of available capital raising unattractive and less obtainable.

Nature of the harm

1. Another salient feature to be considered is the nature of the harm alleged: Caltex v Stavar 103. There is a real issue as to whether in the circumstances of this case there was any "harm". What was foreseeable was that there may be different results in the two offers, particularly having regard to the empirical evidence about AREOs available at the time that those shareholders who renounced their entitlements in a Retail Offer achieved a greater return or higher amount than those who renounced their entitlements in the Institutional Offer.
2. The increase in the shares on issue in the capital raising had an impact on the Primary shareholders. Those who were in a position to take up their entitlements (buying 8 new shares for every 5 then owned) or taking up part of their entitlements could increase their shareholding at a discounted share price. Those shareholders who were not in a position to take up their entitlements by buying the additional shares would receive the difference between the issue price and the Bookbuild price as compensation for the relative dilution of their shareholding. Obviously if the Bookbuild share price was different in each offer then the amounts received in one or other would not be as great. Put another way the amount received would be less in one than the other. However the prospect of that difference was a known attribute of an AREO, not to be seen as a prospect of "harm", but rather as an amount that was fixed at the time by reason of the demand for the shares at the particular price - an intrinsic attribute of the share market.
3. In any event I am not satisfied that the difference between the returns in the Institutional Offer and the Retail Offer is appropriately described as a "loss". In each case it was a gain. True it is that some gained more than others. However there was no entitlement in any shareholder to be included in the Institutional Offer. As I said it was at Primary's or the JLMs' discretion.

Foreseeability of harm

1. Another salient feature to be considered is the foreseeability of harm: Caltex v Stavar 103. Notwithstanding my conclusion that it is not appropriate to characterise the different outcomes in the two offers as a "loss" or "harm" I will in any event deal with this aspect of the matter.
2. The plaintiff submitted that it was reasonably foreseeable that if the JLMs did not take reasonable care in identifying which Primary Institutional Shareholders were to be accelerated then those who were not offered acceleration might suffer economic loss (closing submissions [93]). It was contended that those shareholders who were excluded from the Institutional Offer would be offered their entitlements a month later in the Retail Offer or Bookbuild and would therefore face a greater risk of an adverse shift in the share price (closing submissions [94]).
3. A problem the plaintiff faced in this regard was that the evidence of its expert witness, Professor SchlÖgl, and indeed the force of common sense and commercial experience, establishes that it was foreseeable that the share price might go up or it might go down. It is accepted that any person who is involved in the share market and trading of shares in that market takes on a level of risk that the share price may be affected on a daily basis or indeed on an hourly basis. The fact that a share price may decline over a period may be foreseeable. However what is pertinent is the foreseeability of harm in the circumstances of the AREO that was in the two phases of Institutional Offer and Retail Offer in the circumstances that existed in February 2008.
4. As already indicated, in February 2008 the majority of AREOs had achieved a better outcome for the shareholders in the Retail Offer. The volatility of the market had in fact settled slightly in the period January/February 2008. The performance of the Primary share price as against the ASX 200 (rebased) between November 2007 and the launch of the AREO on 13 February 2008 was, particularly in late January/early February, better than the ASX 200 (Ex D4-3). However volatility in the market means that movement in share prices is all the more unpredictable.
5. In the presentation to Primary on 13 February 2008, the JLMs recognised that at that time market conditions had and continued to be volatile. It recommended the offer price at $5.40 per share which they advised would insulate the issue price "from significant falls (either in the broader market)" or for Primary specifically "over the course of the offer". This was no more than recognition of the intrinsic attributes of the share market (that share prices may rise or fall) and could not be seen as an indication of the defendants' knowledge that their conduct of the AREO could cause "harm" in the relevant sense.
6. Professor SchlÖgl accepted that one would not have known at the beginning of an AREO whether the market was to go up or down and that this is something one could only know with the benefit of hindsight (tr 255). I am not satisfied that harm was reasonably foreseeable.

Risk and precautions

1. Section 5B of the CLA required the plaintiff to identify and articulate the "risk of harm" in respect of which it alleged that the defendants were obliged to "take precautions". As indicated earlier, the plaintiff alleged that the relevant risk of harm was a risk that the institutional investors, such as itself, might suffer economic loss if its entitlements were dealt with in the Retail Offer rather than the Institutional Offer (CLS 66).
2. The plaintiff alleged that various precautions referred to earlier should have been taken by a reasonable JLM (CLS 70). It alleged that certain things should have been "ascertained" or "concluded" from the Orient reports and the Investor List (CLS 70(a)-(e)). It also alleged that a reasonable JLM would have contacted it to extend the offer to participate in the Institutional Offer and to provide it with a copy of the Procedures Manual. It also alleged that a reasonable JLM would have informed the plaintiff that it qualified to receive an Institutional Offer and should contact the JLMs if it wished to receive such an offer rather than a Retail Offer a month later (CLS 70(f)-(h)).
3. In determining whether a reasonable JLM would have taken the alleged precautions against a risk of harm the Court is to consider the matters in s 5B(2) of the CLA. As to the probability that the harm would occur if care were not taken, the empirical evidence at the time indicated that it was more likely that a Retail Bookbuild would achieve a better outcome than the Institutional Bookbuild. As to the likely seriousness of the harm (s 5B(2)(b) CLA), once again the empirical evidence indicated that it was more likely that the Retail Bookbuild would achieve a better outcome than the Institutional Bookbuild. As to the burden of taking precautions to avoid the risk of harm (s 5B(2)(c) CLA) such burden was significant. Although the plaintiff sought to make light of the restraints and constraints on the JLMs, in particular Deutsche Bank, in respect of "on-boarding" of clients, it is clear that the process was necessary and demanding. In 2008 the process was mandatory and imposed serious obligations on the JLMs having regard to the then recently enacted Anti-Money Laundering and Counter-Terrorism Financing Act. I agree with the JLMs' submission that to impose a requirement on them to accelerate particular shareholders who may be unknown to them would force them to be exposed to credit and counterparty risk in dealing with those shareholders if they decided to take up their entitlements.

Degree of control to avoid harm

1. On the assumption that the lesser return in one or other Offer could be characterised as a loss and therefore "harm", another salient feature for consideration is "the degree and nature of control able to be exercised by the defendants to avoid harm": Caltex v Stavar 103.
2. The defendants had no control over the date of the AREO because Primary had announced that this would occur when its offer to acquire Symbion became unconditional. The satisfaction of that condition depended on the conduct of others. Consequently the defendants had no capacity to conduct the Offers when the Primary share price was at any particular level or the volatility of the market was at any particular level, albeit Primary took the precaution of securing trading halts during the two offers. The AREO process was chosen and its outcome was dependent upon the vagaries of the share market and the attributes and eccentricities of those in the market over which the defendants had no control other than to sweeten the offer by the discount on the issue price of the shares.

Degree of vulnerability

1. Another salient feature for consideration is the degree of vulnerability of the plaintiff to harm from the defendants' conduct, including the plaintiff's capacity and reasonable expectation to take steps to protect itself: Caltex v Stavar at 103. An ironic feature of this case is that the prerequisite for acceleration in the AREO is that the shareholder is a Professional Investor or a Sophisticated Investor: s 708 of the Act. The policy of exempting certain shareholders from the necessity for disclosure before they make an investment recognises that these investors are not vulnerable to a lack of knowledge or capacity to look after themselves in making financial decisions and investments.
2. Although Dr Volfneuk claimed that he was not "sophisticated", the main plank of the plaintiff's case was that it was a sophisticated investor and qualified to be accelerated in the Institutional Offer. The particular vulnerability that the plaintiff claimed was its incapacity to know that it could have contacted the JLMs to ask to be accelerated into the Institutional Offer. In this regard it claimed that the defendants had an obligation to provide it with the information that was included in clause 3.1 of the Checklist section of the Procedures Manual that if it wished to be included in the Institutional Offer the onus was on it to contact the JLMs. It claimed that it was vulnerable because it did not know (and could not know unless so advised by the JLMs) that it had such an onus. Clause 3.1 of the Procedures Manual was a disclaimer by the JLMs to the fund managers to whom it was sent in respect of the discretion that had been exercised to accelerate certain fund managers and institutions in the Institutional Offer. It was not a notice to all shareholders who might be exempt investors.
3. The plaintiff was aware by no later than mid-November 2007 that Primary was going to utilise an AREO with the four stages of the Institutional Offer, Institutional Bookbuild, Retail Offer and Retail Bookbuild. It knew this when Dr Volfneuk read the Bidder's Statement soon after 8 November 2007. Dr Volfneuk also read the Draft Prospectus that in numerous places provided detail of the manner in which a shareholder could contact the "Primary Entitlement Offer Information Line" to ask "any questions" relating to or about the "Entitlement Offer".
4. The plaintiff could have made contact with either the Primary Entitlement Offer Line or the JLMs whose numbers were also provided in the Draft Prospectus to seek clarification of the position in respect of its entitlement to be in either or both Offers. It did not do this. Rather on the day that the Institutional Offer opened, it immediately pursued a loan to take up its entitlements in the Retail Offer and commenced readying itself to persuade the prospective lenders to provide it with a facility not only to enable it to take up its entitlements but also to secure any "bargains" in the process. I am not satisfied that the plaintiff was vulnerable. It had every opportunity as a sophisticated investor to make inquiries of the defendants about the AREO and its entitlements.
5. There were other aspects of the AREO in respect of which the plaintiff claimed it was vulnerable. It claimed that it was vulnerable because it "did not have the power to obstruct the AREO" and did not know the timing of the AREO in advance, the steps in the ASX waiver application process, the discount that would be imposed, or the method by which the JLMs or Primary would determine which shareholders would be accelerated. These are not matters that rendered the plaintiff relevantly vulnerable. There was no complaint made about the choice of the AREO process and these were the necessary steps in the process in respect of which all investors and shareholders were in the same position.

Potential indeterminacy of liability

1. Another relevant salient feature for consideration is the potential indeterminacy of liability: Caltex v Stavar at 103. The plaintiff's contentions in respect of the identification of the class of persons that would suffer the relevant risk of harm ebbed and flowed during the course of the trial. The identification of the so-called "class" changed from Institutional Investors; to Private Stakeholders; to the top 100 shareholders or a group within the top 100 shareholders; to risk averse shareholders; and to all shareholders. It ultimately settled on "exempt investors" as the relevant class; that is, those investors who were exempt from the disclosure requirements in Part 6D.2 of the Act who may lawfully be offered their entitlements, as part of the Institutional Offer.
2. As indicated earlier an investor is exempt by reason of them qualifying as a "Sophisticated Investor" under s 708(8) of the Act or a "Professional Investor" under s 708(11) of the Act. The relevant provisions in respect of Sophisticated Investors under s 708 of the Act were as follows: Sophisticated Investors (8) An offer of a body's securities does not need disclosure to investors under this Part if: (a) the minimum amount payable for the securities on acceptance of the offer by the person to whom the offer is made is at least $500,000; or (b) the amount payable for the securities on acceptance by the person to whom the offer is made and the amounts previously paid by the person for the body's securities of the same class that are held by the person add up to at least $500,000; or (c) it appears from a certificate given by a qualified accountant no more than 6 months before the offer is made that the person to whom the offer is made: (i) has net assets of at least the amount specified in regulations made for the purposes of this subparagraph; or (ii) has a gross income for each of the last 2 financial years of at least the amount specified in regulations made for the purposes of this subparagraph a year; or (d) the offer is made to a company or trust controlled by a person who meets the requirements of subparagraph (c)(i) or (ii).
3. The relevant provisions in relation to Professional Investors under s 708 of the Act were as follows: Professional Investors (11) An offer of securities does not need disclosure to investors under this Part if it is made to: (a) a person covered by the definition of professional investor in section 9 (except a person mentioned in paragraph (e) of the definition); or (b) a person who has or controls gross assets of at least $10 million (including any assets held by an associate or under a trust that the person manages).
4. A "Professional Investor" was defined in s 9 of the Act as follows: "Professional Investor" means a person in relation to whom one or more of the following paragraphs apply: (a) the person is a financial services licensee; (b) the person is a body regulated by APRA, other than a trustee of any of the following (within the meaning of the Superannuation Industry (Supervision) Act 1993); (i) a superannuation fund; (ii) an approved deposit fund; (iii) a pooled superannuation trust; (iv) a public sector superannuation scheme; (c) the person is a body registered under the Financial Corporations Act 1974; (d) the person is the trustee of: (i) a superannuation fund; or (ii) an approved deposit fund; or (iii) a pooled superannuation trust; or (iv) a public sector superannuation scheme; within the meaning of the Superannuation Industry (Supervision) Act 1993 and the fund, trust or scheme has net assets of at least $10 million; (e) the person controls at least $10 million (including any amount held by an associate or under a trust that the person manages); (f) the person is a listed entity, or a related body corporate of a listed entity; (g) the person is an exempt public authority; (h) the person is a body corporate, or an unincorporated body, that: (i) carries on a business of investment in financial products, interests in land or other investments; and (ii) for those purposes, invests funds received (directly or indirectly) following an offer or invitation to the public, within the meaning of section 82, the terms of which provided for the funds subscribed to be invested for those purposes; (i) the person is a foreign entity that, if established or incorporated in Australia, would be covered by one of the preceding paragraphs.
5. The plaintiff conceded that there may well be some Primary shareholders who were exempt investors but who would not be identified as such even by reasonable inquiries on the part of the JLMs (paragraph 48 of its Opening Submissions, repeated in paragraph 109 of its Closing Submissions).
6. It would be unrealistic to require the defendants to conduct an investigation to ascertain whether each of the Primary shareholders (3,930 at the relevant time) met one of the numerous and less than straightforward limbs of the definitions referred to above. It would not be possible to determine whether a shareholder had or "controlled" gross assets of at least $10 million or whether assets were owned or controlled by "associates" of the shareholder. There are also issues as to whether any assets are "controlled" in circumstances where an entity on the list holds the assets on trust perhaps as a bare trustee.
7. The defendants contended that all of this has to be viewed against a legislative backdrop, where, if an investor is approached to invest without a prospectus and it is not an eligible investor, there is a contravention of the Act (s 727) and the commission of an offence (s 1311). In addition there may also be a breach of the Listing Rules for offering securities on an accelerated basis outside the provisions of the ASX waiver.
8. Mr Molesworth gave evidence that in his experience lead managers do not attempt to undertake this task of identification and that it would not have been possible for the JLMs to do so in this case. Although the plaintiff focused on the JLMs' capacity to make contact with Dr Volfneuk notwithstanding the lack of provision of his contact details in the Orient report, it was submitted that this says absolutely nothing about the feasibility of assessing the entire corpus of Primary shareholders. I agree with that submission.
9. The JLMs also emphasised Mr Chee's evidence in particular in relation to the identification of shareholders in the Orient reports taking into account the fact that the reports were an historical snapshot. The completion of share trading under CHESS means that the Orient report will not necessarily show the shareholding of the persons listed at the time the report is published. The JLMs emphasised that this is not a trivial matter and referred to the need for the investor taking up its entitlement to make a declaration in respect of its entitlement. They also emphasised the need for the reconciliation between the Orient report and the declarations. The JLMs also submitted that the issues of stock lending and control may also present difficulties.
10. The plaintiff submitted that its negligence case is "an incremental extension of the principle recognised by the High Court in Hill v Van Erp (1997) 188 CLR 159". In this regard the plaintiff relied upon the passage in Brennan CJ's judgment (at 166) in which it was said that "the undertaking of a specialist task pursuant to a contract between A and B may be the occasion that gives rise to a duty of care owed to C who may be damaged if the task is carelessly performed". This case is distinguishable from the facts in that case. In that case there was a single beneficiary to whom it was said the duty was owed. In the present case the plaintiff had much difficulty in settling on the identity of the class of persons to whom it is said a duty was owed. Although the plaintiff finally settled on "exempt investors" as a class, the practical difficulties identified above in determining the members of such a class in the circumstances of an AREO, establishes its indeterminate nature.
11. Unlike Hill v Van Erp this case involves complex and competing commercial interests. An observation in Hill v Van Erp more apt to the present circumstances was made by Dawson J as follows (at 179): The process is affected by relevant policy considerations, such as the need to avoid indeterminate liability or the placing of impediments in the way of ordinary commercial activity.
12. Similarly in Woolcock Street Investments v CDG (2004) 216 CLR 515 the plurality said at [21]: Claims for damages for pure economic loss present peculiar difficulty. Competition is the hallmark of most forms of commercial activity in Australia. As Brennan J said in Bryan v Maloney [(1995) 182 CLR 609 at 632]: If liability were to be imposed for the doing of anything which caused pure economic loss that was foreseeable, the tort of negligence would destroy commercial competition, sterilise many contracts and, in the well-known dictum of Chief Judge Cardozo, expose defendants to potential liability 'in an indeterminate amount for an indeterminate time to an indeterminate class'. That is why damages for pure economic loss are not recoverable if all that is shown is that the defendant's negligence was a cause of the loss and the loss was reasonably foreseeable.
13. I am not satisfied that the defendants owed a duty of care to the plaintiff as alleged.

Causation

1. Notwithstanding my conclusion that the defendants did not owe a duty of care to the plaintiff as alleged I will deal with the causation question on the basis that a duty of care arose.
2. The plaintiff accepted that a "critical point" in both the negligence claims and the misleading or deceptive conduct claim is the acceptance of Dr Volfneuk's evidence that, if given the opportunity, the plaintiff would have sought participation in the Institutional Offer (tr 328). The plaintiff accepted that if Dr Volfneuk's evidence is not accepted all of its claims will fail (tr 328-329). However in respect of the negligence claims it is appropriate to consider all of the evidence to determine this matter subjectively in the light of all the relevant circumstances.
3. In assessing Dr Volfneuk's credit and credibility I have had regard to the fact that the events about which he was giving evidence occurred six years prior to the time that he made his first affidavit. The difficulties in recalling events with precision in those circumstances are exacerbated where what is being recalled is a state of mind at a particular time.
4. Dr Volfneuk agreed that he understood that it would cost the plaintiff $21.6 million to increase its shareholding in Primary from 2.5 million shares to 6.5 million shares. He claimed he was not considering such an acquisition "seriously". The position he adopted when confronted with the stark reality of his clearly serious efforts to secure funding was to resist any suggestion that he was a buyer and to claim he was doing his duty (to himself) to explore all his options.
5. Dr Volfneuk did not present well when confronted with all of his communications in relation to his pursuit of a loan of $26.5 million. I have no doubt that he is a highly intelligent and shrewd businessman. He has amassed a fortune with a gross worth of at least $40 million from hard work, savvy and sophisticated negotiations and diligent maintenance of his assets. His suggestion that he was "going through the motions" rather than seriously considering taking up the plaintiff's entitlements in the Retail Offer was an unimpressive retort to the withering cross-examination which led inexorably to the point of establishing that he was readying himself to take up, or at least be in a position to take up, the plaintiff's entitlements and more. This was a far cry from the sworn evidence in his affidavit that he simply "later spoke with a representative at Deutsche Bank" but "decided not to proceed". That statement in his affidavit gave the impression of a single discussion with a representative of Deutsche Bank when the reality is that he had detailed discussions with various people, pressing for the approval of a loan for $5 million more than the cost of taking up the plaintiff's entitlements.
6. Dr Volfneuk had a practice of keeping a close eye on matters pertinent to Primary shares by daily (sometimes twice daily) review of the internet for ASX announcements, company announcements and the share price movement in the market. He accepted that he read the 8 November 2007 ASX Announcement and the Bidder's Statement but suggested that he only "browsed" the Draft Prospectus on 13 February 2008. Although he accepted that he read the section of the Chairman's letter within the Draft Prospectus in which he was urged to read the document carefully, he claimed he did not follow that advice. Yet on the same day he embarked on the course of pursuing a loan for $26 million in respect of the very matters contained in the Draft Prospectus. I do not accept Dr Volfneuk's evidence that he only browsed the Draft Prospectus. I am satisfied that he read it and read it carefully.
7. Dr Volfneuk's explanation, or lack thereof, in relation to why it was that he sought an additional $5 million in loan funds was equally unimpressive. I have no doubt that he had decided to take up the entitlements in the Retail Offer and to ready the plaintiff to secure the "bargains" in respect of which he communicated with Mr Stone. Although he suggested that he was not a "sophisticated anything" (tr 81) I have no doubt from his communications in relation to the loan (Ex 2) he is not only sophisticated but he is also capable of hard-nose negotiation.
8. Another aspect of Dr Volfneuk's evidence that was quite unsatisfactory was his claim in his affidavit that he perceived "at the time" of the Institutional Offer that it was "more advantageous" for the plaintiff to take part in that offer rather than in the Retail Offer. In cross-examination Dr Volfneuk agreed that at that time he simply did not turn his mind to whether the Institutional Offer was more advantageous than the Retail Offer. When Dr Volfneuk was referred back to the claim in his affidavit he then suggested that the two positions could be "right". I do not accept Dr Volfneuk's affidavit evidence that he had the perception that he claimed he had. It is also very difficult to understand why in the circumstances he would persist with a claim that the two positions could be "right". It was a most unimpressive claim.
9. Although Mr Gyles submitted that Dr Volfneuk's evidence might be described as retrospectively inaccurate or wishful thinking, I am afraid that does not sit comfortably with reality. The defendants' diligent preparation for trial in obtaining the relevant documents to test Dr Volfneuk's claims and their forensic deployment in challenging his claims in cross examination ultimately exposed the reality that might otherwise have remained hidden. I do not accept Dr Volfneuk's claims that he was not really intending at any stage to be a "buyer". Whether as Mr Gyles submitted there was an element of "wishful thinking" in Dr Volfneuk's approach to his evidence, I am satisfied that he intended to be a "buyer" and that he knew at the time of his cross-examination that this was the true position.
10. The unsatisfactory nature of Dr Volfneuk's evidence affects the determination of whether I accept his evidence that if the plaintiff had been invited into the Institutional Offer, he would have accepted that offer on its behalf and renounced its shares. This evidence was admitted in respect of the misleading or deceptive conduct claim but not in respect of the negligence claims. Rather, as stated earlier, the determination of this aspect of the matter in the negligence claims needs to be determined subjectively taking all the relevant matters into account.
11. It is very difficult in the circumstances to be confident that any of Dr Volfneuk's claims where they are not corroborated can be accepted. However there is a great deal of evidence to suggest that his claim that he would have caused the plaintiff to enter the Institutional Offer and renounce its entitlements should not be accepted. Dr Volfneuk took advice from his accountants in the relevant period. He had what was described as "initial discussions" with them in relation to the "pending rights issues" for Primary (Ex 2: 300). The correspondence upon which Dr Volfneuk was cross-examined establishes a very different landscape to the one that Dr Volfneuk claimed that he was operating within. He was in urgent need of assistance from his accountants to have the financial statements for the plaintiff ready for the proposed lender. He was investigating the prospect of making sure that whatever borrowings he obtained would be tax effective for not only the plaintiff but for himself and his wife. He was exploring the prospect of whether he could obtain a hedge product to cocoon him against the risks that he apparently perceived.
12. Although Dr Volfneuk claimed that he was making all these plans because he owed a duty to himself to do so, I am satisfied that he was in fact readying himself to enable the plaintiff to take up its entitlements and also seeking to obtain an additional $5 million to supplement the plaintiff's shareholding in Primary. I am satisfied that Dr Volfneuk felt a deep connection to Primary because he regarded it as a continuation of his own business that he sold to Primary in 1998.
13. The irresistible conclusion in all the circumstances is that Dr Volfneuk was intending to cause the plaintiff to acquire shares in the Retail Offer. During the course of his cross-examination he was confronted with the following: Q. Yes and you certainly didn't have the cash available to accept the offer immediately did you on the 13th or 14th? A. I didn't have the inclination to accept the offer.
14. It was not so much that the plaintiff did not have the inclination to accept the offer immediately on 13 and 14 February 2008, although that is a significant matter. It was its inability to do so by reason of a lack of funds. The contemporaneous records of Mr Jenkins (extracted earlier) establish that Dr Volfneuk had advised that he was a holder of Primary shares "long term" irrespective of what happened to the share price. I am satisfied that the reality of the situation as at 13 and 14 February 2008 was that the plaintiff wished to acquire the additional shares but did not have the funds to pursue the purchase of the shares until it put in place the loan that Dr Volfneuk set about diligently pursuing on and from 13 February 2008.
15. Dr Volfneuk believed that the Primary share price would double in three years which I am satisfied was an important driver in his desire to not only take up the plaintiff's entitlements in the Retail Offer, with a plan to keep the shares "long-term", but also to snap up the "bargains" that he believed would be available in the Retail Offer/Bookbuild. When he saw the share price slump he observed that he would be better off purchasing on the market.
16. I am satisfied that the plaintiff's claim that if it had been invited it would have entered the Institutional Offer and renounced its entitlements cannot be accepted.
17. The plaintiff's claims in negligence will be dismissed.

Misleading or deceptive conduct claim

1. The plaintiff claims that the defendants engaged in conduct in trade or commerce within the meaning of s 52 of the Trade Practices Act 1974 (TPA) and s 42 of the Fair Trading Act 1987 (FTA). Alternatively the plaintiff claims that the defendants engaged in conduct in trade or commerce in relation to financial services within the meaning of s 12DA of the Australian Securities and Investment Commission Act 2001 (ASIC Act). Alternatively the plaintiff claims that in undertaking the equity raising the defendants were engaging in conduct in relation to a financial product or a financial service within the meaning of s 1041H of the Corporations Act.
2. As indicated earlier the misleading or deceptive conduct claim relies heavily upon the Procedures Manual. The plaintiff alleged that the defendants did not disclose to it that some Institutional Investors would have their renounced share entitlements sold in the Institutional Bookbuild and others would have their renounced entitlements sold in a Retail Bookbuild a month later. It also alleged that the defendants did not advise it that they intended to deny, or would act in a manner consistent with a denial of any responsibility for the AREO process and failed to advise it that the onus was on it to contact the JLMs if it was of the view that it should have been invited to participate in the Institutional Offer (CLS 77-78).
3. The plaintiff claimed that the defendants did not provide a copy of the Procedures Manual to it; did not notify it that it had any right or mechanism to dispute the decision not to include it in the Institutional Offer; did not disclose to it any basis or methodology upon which they invited some investors to participate in the Institutional Offer and not others; and did not disclose to it that there was in fact no, or no reasonable basis or methodology upon which they invited some Institutional Investors into the Institutional Offer but not others (CLS 78).
4. The plaintiff alleged that the defendants' conduct led it to believe falsely that: the defendants would take responsibility in properly determining the identity of those investors who would be invited to take part in the Institutional Offer; the defendants would apply reasonable care and skill in making that determination; that it had no mechanism by which to challenge or dispute the determination not to invite it into the Institutional Offer; that it had no onus to protect its own interests in the determination process; and it had no entitlement to participate in the Institutional Offer (CLS 79).
5. The plaintiff alleged that the defendants' conduct was misleading or deceptive or likely to mislead or deceive in contravention of s 52 of the TPA; s 42 of the FTA; s 12DA of the ASIC Act; and s 1041H of the Corporations Act (CLS 84).
6. The plaintiff claimed that if it had been given the opportunity to participate in the Institutional Offer it would have made contact with the JLMs to indicate that it wished to take part so that it could renounce its share entitlements to be sold in the Institutional Bookbuild (CLS 89). It alleged that if it had applied to the defendants they would have allowed it into the Institutional Offer and it would have renounced its entitlement and received a total of $4,801,262.40 (CLS 91). The plaintiff claims the difference between the amount it received, $400,105.20, and the amount it claims it would have received had it been in the Institutional Offer, $4,801,262.40.
7. The plaintiff claims that the defendants' conduct in failing to notify it of the mechanism to make contact with the JLMs to ask to be accelerated, was misleading or deceptive, in that it led the plaintiff to believe that it did not have the "right" to participate in the Institutional Offer (tr 293). This claim cannot be sustained in light of the fact that there was no such "right".
8. However I should record at this juncture the fact that the plaintiff sought to amend its misleading and deceptive conduct claim on the first day of the trial. The amendment proposed against the JLMs was that they represented in the Draft Prospectus announcement, the ASX announcement, the Draft Prospectus and the request for the trading halt on 13 February 2008 that only those shareholders of Primary who were contacted by the JLMs before 14 February 2008 were able to be included in the Institutional Offer. Similar claims were proposed against Primary. Although the plaintiff requested that the defendants be required to deal with the proposed amendments before Dr Volfneuk gave evidence, such request was declined. At the conclusion of the first day of the hearing the proposed amendments were disallowed.
9. On the morning of the second day of the hearing the plaintiff indicated that it wished to propose a further amendment to the CLS. However Dr Volfneuk had already been under cross-examination for some time and the plaintiff was not allowed to propound the amendment until the conclusion of the cross-examination.
10. The plaintiff's application to amend its pleading was made at the conclusion of Dr Volfneuk's evidence. The application was dismissed. The plaintiff had made a number of applications to amend its pleading prior to the commencement of the trial, including an application that was heard over a full day in the week before the trial. There was no real explanation as to why in these circumstances the amendment had not been brought forward earlier. The plaintiff waited almost 6 years to commence these proceedings and I did not regard it as just or fair in the circumstances to allow such an amendment when all parties had filed opening submissions and both lay and expert evidence and were ready to proceed on the case as pleaded. In any event the proposed claim against the JLMs was doomed to fail having regard to the statement in the Draft Prospectus (candidly pointed out by junior counsel for the plaintiff, Mr Lawrance) that the JLMs did not make, or purport to make, any statement included in the Prospectus; that there was no statement in the Prospectus which was based on any statement by the JLMs; and that the JLMs had not authorised the issue of the Prospectus. Although such an exclusion did not apply to Primary, as I have said, I was satisfied that in all the circumstances it was not just or fair to allow the amendment at that late stage of the proceedings.
11. As indicated earlier the plaintiff relies heavily upon the Procedures Manual in its claim against the JLMs and Primary that they misled or deceived it. The first allegation that the plaintiff makes that the defendants did not disclose to it that some Institutional Investors would have their renounced share entitlements sold in the Institutional Bookbuild and others would have their renounced entitlements sold in the Retail Bookbuild a month later cannot be sustained. Dr Volfneuk accepted that he read the ASX announcements, the Chairman's letter and the Draft Prospectus. He also admitted that he read the Bidder's Statement albeit that from time to time he would lapse into his claim, which I do not accept, that he only "browsed" some of them. In each of those documents the process of the AREO was described.
12. The plaintiff claims that the defendants failed to notify it that it had the mechanism to dispute the decision not to include it in the Institutional Offer. In this regard the plaintiff faced the difficulty of the invitations issued to shareholders in the Draft Prospectus that if they had any questions at all about the AREO then they could contact either Primary or the JLMs on the numbers provided.
13. It is not necessary to consider this claim any further having regard to the rejection of Dr Volfneuk's evidence that had it been invited the plaintiff would have taken up the Institutional Offer. The plaintiff's misleading or deceptive conduct claims will be dismissed.
14. In those circumstances it is also unnecessary to consider the proportionate liability claims and the allegations of contributory negligence and failure to mitigate.

Orders

1. The plaintiff's claims in the Second Further Amended Commercial List Statement are dismissed. The plaintiff is to pay the defendants' costs of the proceedings.
2. These orders will be entered on 12 October 2016 unless the parties make an application to be heard on costs prior to that date by contacting my Associate.

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: 07 October 2016