RinRim Pty Ltd v Deutsche Bank AG

Key documents

1. It is convenient to set out the material terms of the key documents referred to by the parties. The documents are:

• the "Equity Commitment Letter" dated 8 November 2007 signed by Primary and the JLMs;
• the ASX waiver;
• the Underwriting Agreement dated 13 February 2008 between Primary and the JLMs, pursuant to which the AREO was conducted; and
• the AREO Procedures Manual dated 13 February 2008.

Equity Commitment Letter (Project Poppins)

1. By the Equity Commitment Letter (Poppins Letter) each of the JLMs severally agreed, subject to a number of conditions precedent, to underwrite an issue of shares up to a value of $1,560 million in Primary. The issue was part of Primary's proposed takeover of Symbion, a project designated as "Project Poppins".
2. The parties agreed to work expeditiously and in good faith to prepare and execute an Underwriting Agreement on terms satisfactory to the JLMs but which would be consistent with the Poppins Letter. The Exhibits to the Poppins Letter set out terms and conditions on which the underwriting was to take place. Most if not all of those terms and conditions were subsequently incorporated into the Underwriting Agreement executed by the parties on 13 February 2008. [15]

ASX waiver

1. The ASX waiver included the following provisions: "1. … ASX Limited ('ASX') grants Primary Health Care Limited (the 'Company') waivers from the following listing rules to the extent necessary to permit the Company to issue securities in the Company pursuant to a capital raising consisting of an accelerated rencounceable [sic] entitlements offer of shares on a pro-rata basis with dual bookbuilds ('Renounceable Offer') and an institutional placement (the 'Placement'), without shareholder approval and according to the timetable given to ASX. 1.1 In respect of the Renounceable Offer, listing rules 3.20, 7.1, 7.40 and 10.11, on condition that the Renounceable Offer complies with the following 1.1.1 There is a record date for the Renounceable Offer (the 'Record Date'). The Record Date must be no fewer than 3 business days after the date the Renounceable Offer is announced. 1.1.2 On or before the Record Date, security holders who are believed by the Company or Credit Suisse (Australia) Limited, Deutsche Bank AG and ABN AMRO Rothschild (together, the 'Underwriters') to be exempt investors in accordance with Chapter 6D of the Corporations Act 2001 ('Exempt Investors') may be invited by the Company 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. [16] 1.1.3 Entitlements not taken up by Exempt Investors in the Institutional Offer … are offered to other Exempt Investors through a bookbuild process conducted and completed on or before the Record Date ('Institutional Bookbuild'). … 1.1.5 All security holders, other than security holders who are offered shares in the Institutional Offer … are offered a number of shares at least equal to their pro-rata allocations of the issue (the 'Retail Offer'), unless listing rule 7.7.1 would permit the holder not to be included in a pro-rata offer. 1.1.6 Entitlements not taken up in the Retail Offer … are offered to Exempt Investors and others through a bookbuild immediately following the close of the Retail Offer. 1.1.7 Securities are offered under the Institutional Offer and Retail Offer at the same price."

Underwriting Agreement

1. Clause 6 of the Underwriting Agreement provided as follows: "Making of Offer 6.1 The offer of the Offer Shares for subscription must be conducted in accordance with an Offer Document, this agreement, the Timetable, the Listing Rules, the Corporations Act and all other applicable laws. Pricing and form of Offer 6.2 The Offer will be made in accordance with the provisions in Schedule 5."
2. The "Timetable" was set out in Sch 2 to the Underwriting Agreement. It contemplated that the "Institutional Opening Date" would be 13 February 2008 and the "Institutional Closing Date" would be 14 February 2008, while the Institutional Bookbuild would open and close on 15 February 2008. The "Retail Opening Date" was to be 22 February 2008 and the "Retail Closing Date" 13 March 2008. The Retail Bookbuild was to be conducted on 19 March 2008. The "Record Date" was to be 18 February 2008.
3. Schedule 5 included the following provisions: "PART 1 - CONDUCT OF THE INSTITUTIONAL ENTITLEMENT OFFER 1 Institutional Shareholders 1.1 The Company must provide or procure the provision of the following information: (a) immediately following entry into this agreement, 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 holders of Shares who are Institutional Investors and the identity of those holders of Shares who are Non Qualifying Institutional Shareholders (including information regarding the beneficial owners of any Shares). The Underwriters may rely on information provided by or on behalf of the Company in this regard and will not be in breach of this agreement in so relying; … (c) not later than 10.00 am on the second Business Day following the Record Date, the Company must give, at the request of any Underwriter, full details of all Shareholdings as at the Record Date to each Underwriter; … 3 Institutional Entitlement Offer 3.1 In the period between the Institutional Opening Date and the Institutional Closing Date, the Underwriters will, on behalf of the Company, use reasonable endeavours to make contact with all Institutional Shareholders (other than the Non Qualifying Institutional Shareholders) so as to offer them the Institutional Entitlement Shares at the Subscription Price on a pro rata basis. … 5 Valid Applications 5.1 The Company must accept all Valid Applications for Institutional Entitlement Shares received by the Underwriters on or before 5.00 pm on the Institutional Closing Date (or such later time as the parties agree)."
4. The following definitions are relevant to Sch 5: "Institutional Entitlement Offer means the pro rata entitlement offer of Offer Shares to Institutional Shareholders who are not Non-Qualifying Institutional Shareholders entitling each Institutional Shareholder to subscribe at the Subscription Price for a certain number of Offer Shares. 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. Non-Qualifying Institutional Shareholder means a person who: ... (c) if they had a registered address in Australia would, in the reasonable opinion of the Company, be an Institutional Investor, but who the Company and the Underwriters agree shall not receive an offer under the Institutional Entitlement Offer."

AREO Procedures Manual

1. The AREO Procedures Manual was provided to exempt shareholders to whom Primary or the JLMs extended an invitation to subscribe for shares in the Institutional Offer. The AREO Procedures Manual described four components of the "Offer Structure", being the Institutional Offer, the Institutional Bookbuild, the Retail Offer and the Retail Bookbuild.
2. The AREO Procedures Manual described the first two components of the Offer Structure as follows: "• Institutional Entitlement Offer ◦ Eligible Institutional Shareholders contacted by a JLM may apply for 8 New Shares for every 5 Shares held as at the Record Date ◦ Eligible Institutional Shareholders are required to complete the Shareholding Declaration Form and also the Shareholder Application and Renunciation Form to elect to either, in whole or in part: ▪ take up their Entitlements; or ▪ allow their Entitlements to lapse (with New Shares in respect of those lapsed Entitlements to be offered in the Institutional Entitlement Bookbuild) ◦ Once contacted by a JLM, Eligible Institutional Shareholders must make one of the above elections - deferral to the Retail Entitlement Offer is not allowed ◦ If any Eligible Institutional Shareholder who receives an invitation from the JLMs during the Institutional Entitlement Offer does not submit an irrevocable application to take up their full pro rata Entitlement, the balance of their Entitlement not expressly taken up may be treated, in the absolute discretion of the JLMs, as having not been taken up by the Eligible Institutional Shareholder ◦ See Section 3 - 'Information about the Institutional Offer' below for further information on participating in the Institutional Entitlement Offer • Institutional Entitlement Bookbuild ◦ In the Institutional Entitlement Bookbuild, Institutional Investors (including Eligible Institutional Shareholders) and retail brokers (in each case, if invited by the JLMs) may bid for New Shares of an equivalent number to: ▪ Entitlements not taken up by Eligible Institutional Shareholders contacted by a JLM under the Institutional Entitlement Offer; and ▪ Entitlements of Ineligible Institutional Shareholders ◦ The Institutional Entitlement Bookbuild Clearing Price (being the price at which New Shares are issued under the Institutional Entitlement Bookbuild) will be determined by the JLMs in consultation with Primary but may not be less than the Offer Price ◦ Each Ineligible Institutional Shareholder, and each Eligible Institutional Shareholder to the extent its Entitlement was not taken up in full, will receive, in respect of its Entitlement (or any part not taken up), the cash excess (if any) of the Institutional Entitlement Bookbuild Clearing Price over the Offer Price of A$5.40 on a pro rata basis. …" (Emphasis in original).
3. The AREO Procedures Manual defined the following terms: "• Eligible Institutional Shareholder: a Shareholder (either directly or through a custodian) as at the Record Date, who is not an Ineligible Institutional Shareholder … 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".
4. Under the heading "Information About the Institutional Offer", the following disclaimer appeared: "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."
5. Annexure A to the AREO Procedures Manual contained the Shareholder Declaration Form which was to be completed by exempt shareholders who had received an invitation from the JLMs to participate in the Institutional Offer. The Shareholder Declaration Form required details of the exempt shareholder's holding in Primary. The shareholder also had to acknowledge that, as it had "received an invitation from the JLMs", it was obliged to elect whether to take up or not take up its entitlement and could not defer into the Retail Offer.
6. Annexure B to the AREO Procedures Manual contained the Shareholder Application and Renunciation Form. This Form provided for the exempt shareholder to specify the number of shares it wished to take up at $5.40 per share and the number it did not wish to take up.

Draft Prospectus

1. Primary advised the ASX on 13 February 2008 that it would commence the "institutional entitlement offer" that day. The letter attached a Draft Prospectus that was to be made available to "institutional investors as part of the process". The letter advised that a printed copy of the Prospectus under which the Retail Offer was to be made would be lodged with the Australian Securities and Investments Commission on 18 February 2008.
2. The Draft Prospectus provided to institutional investors included the following statements: "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); • The Retail Entitlement Offer - Eligible Retail Shareholders are sent this Prospectus together with a personalised Entitlement and Acceptance Form and required to decide whether or not they will take up their Entitlement; and • The Retail Entitlement Bookbuild - Entitlements which are not taken up by Eligible Retail Shareholders, together with those of Ineligible Retail Shareholders, will be automatically 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). The Institutional Entitlement Offer was conducted between 13 February 2008 and 14 February 2008, and the Institutional Entitlement Bookbuild was conducted on 15 February 2008. … INSTITUTIONAL ENTITLEMENT BOOKBUILD Entitlements that were not taken up by Eligible Institutional Shareholders, together with those of Ineligible Institutional Shareholders, were automatically sold on their behalf. The untaken Entitlements were offered under the Institutional Entitlement Bookbuild. Eligible Institutional Shareholders (whether or not they took up their Entitlement under the Institutional Entitlement Offer) and other Institutional Investors were entitled to participate in the Institutional Entitlement Bookbuild."
3. The Glossary included the following definitions: "Eligible Institutional A Shareholder (either directly or through a custodian) as at the Record Date, who is not an Ineligible Institutional Shareholder … 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 A Shareholder who, if they had a registered address in Australia would, in the reasonable Ineligible Institutional Shareholder opinion of Primary, be an Institutional Investor, but who Primary and the Underwriters agree shall not receive an offer under the Institutional Entitlement Offer 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)"

The primary Judge's understanding of the case at trial

1. In her very careful judgment the primary Judge pointed out that there had been "a deal of movement" in RinRim's position as the trial proceeded. [17] Her Honour identified two alternative negligence claims advanced by RinRim in its final oral submissions, as follows: [18] "[226] … 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. [227] The first negligence claim against the [respondents] is that they owed a duty to [RinRim] (it being in a class of persons who were exempt from a need for disclosure under Part 6D.2 of the [Corporations] 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 [RinRim] claimed exposed the shareholders in the Retail Offer to the prospect of adverse movement in the Primary share price. [RinRim] 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. [228] The second negligence claim against the [respondents] 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. [RinRim] 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." (The reference in this passage to "Orient" is to Orient Capital Pty Ltd, which was engaged in November 2007 to provide services to Primary in connection with the capital raising. The services included providing a daily analysis of Primary's share register showing the top one hundred shareholders during a period leading up to the AREO.)
2. The primary Judge observed that it was necessary to determine whether the respondents owed a duty of care to RinRim and, if so, whether they breached the duty. Her Honour added the following: "[229] … There is a very live issue in relation to causation. If the [respondents] owed a duty to [RinRim] as alleged it will be necessary to determine whether, if contacted and offered acceleration into the Institutional Offer, [RinRim] would have sought to be included and whether the JLMs would have agreed to accelerate [RinRim]. There is also a question as to whether [RinRim] suffered loss. If these matters are determined in [RinRim's] favour it will be necessary to determine proportionate liability claims and claims against [RinRim] of contributory negligence and failure to mitigate its loss." (Emphasis added.)

The arguments on appeal

1. Mr Einfeld QC, who appeared with Mr Russoniello for RinRim, disavowed reliance on the first negligence argument identified by the primary Judge. He indicated that RinRim wished to rely on the second negligence argument identified by her Honour. However, the respondents submitted that the submissions on which Mr Einfeld relied in truth went beyond the pleadings and were inconsistent with RinRim's closing submissions at the trial.
2. RinRim faced a difficulty on the appeal because the primary Judge disbelieved Dr Volfneuk's evidence that, if given the opportunity, he would have taken steps to ensure that RinRim could participate in the Institutional Offer. Her Honour found that Dr Volfneuk intended at all material times that RinRim should take up its entitlement to new shares in the Retail Offer.
3. To circumvent this difficulty Mr Einfeld advanced two arguments on appeal, each of which was designed to enable RinRim to succeed regardless of whether it would have actively sought to participate in the Institutional Offer. The first argument, according to Mr Einfeld, was a modified version of RinRim's second negligence argument advanced at the trial and described by the primary Judge in the Primary Judgment at [228]. Mr Einfeld acknowledged that the second argument, based on the terms of the ASX waiver, had not been put to the primary Judge, but he submitted that he nonetheless should be permitted to rely on it on the appeal. The respondents said that both arguments were entirely new and that Mr Einfeld should not be permitted to rely on either of them on the appeal.
4. The first argument Mr Einfeld sought to advance on the appeal was that if the respondents had exercised reasonable care they would have ascertained that RinRim was an exempt shareholder and would have made the Institutional Offer to RinRim without the need for Dr Volfneuk to have taken any positive action on RinRim's behalf. Making a virtue of necessity, Mr Einfeld relied on the primary Judge's finding that RinRim, as at 13 February 2008, did not have the funds to participate in the Institutional Offer (although her Honour also found that Dr Volfneuk was attempting to raise funds to allow RinRim to acquire shares in the Retail Offer). [19] Thus, so Mr Einfeld argued, RinRim would not have accepted the Institutional Offer and would have disposed of its entitlement to additional shares in Primary in the Institutional Bookbuild at $6.60 per share.
5. The argument had a marked advantage from RinRim's perspective. As Mr Einfeld frankly acknowledged, if accepted the argument would render the primary Judge's findings as to RinRim's intentions and likely conduct entirely irrelevant. It would also mean that the extensive cross-examination of Dr Volfneuk was quite unnecessary and that the 74 paragraphs the primary Judge devoted to assessing Dr Volfneuk's credibility was surplusage.
6. Mr Einfeld's second argument was that the ASX waiver, properly construed, obliged the respondents to make the Institutional Offer to RinRim whether or not Dr Volfneuk actively sought to have RinRim participate in the Institutional Offer. Mr Einfeld also sought to rely on the terms of the ASX waiver to support an argument that the respondents were obliged to form a belief as to whether or not RinRim was an exempt shareholder and that their failure to do so breached the duty of care they owed to RinRim. Mr Einfeld conceded that RinRim had neither pleaded a case based on the ASX waiver nor relied on the ASX waiver in its final submissions at trial.

The ruling

1. The first day of the two day hearing in this Court was largely taken up with argument as to whether RinRim should be permitted to rely on the two contentions Mr Einfeld wished to advance. At the conclusion of the argument, the President announced on behalf of the Court that Mr Einfeld would not be permitted to rely on either of the contentions and that RinRim would be limited to the second negligence case outlined by the Primary Judge in the Primary Judgment at [228]. [20]
2. I set out below my reasons for joining in the ruling.

The Institutional Offer argument

1. Mr Einfeld submitted that RinRim should be permitted to rely on the argument that the respondents would have made the Institutional Offer to RinRim regardless of Dr Volfneuk's actions, for three reasons:

• the argument fell within the primary Judge's formulation of RinRim's second negligence case;
• if the argument was not included within that formulation, the primary Judge had misapprehended the case RinRim ran at trial; and
• in any event, RinRim should be permitted to run the new case on appeal.

The primary Judge's formulation

1. As has been seen, the primary Judge said that RinRim's second negligence claim alleged that the respondents, in the exercise of reasonable care, should have ascertained that RinRim was an exempt shareholder and, having done so, should have offered Dr Volfneuk (on behalf of RinRim) "the opportunity to be accelerated". [21] Mr Einfeld submitted that her Honour had accepted that RinRim's case was that if the respondents had ascertained that it was an exempt shareholder, they would have extended the Institutional Offer to RinRim as a matter of course.
2. As the respondents correctly submitted, Mr Einfeld misinterpreted her Honour's summary of RinRim's second negligence claim. The summary was clearly intended to record the case presented on RinRim's behalf in closing submissions at the trial. RinRim's case, as her Honour understood it, was that the respondents should have notified it of the Institutional Offer on or before 12 February 2008 and given it the opportunity to make contact with the JLMs and ask to be accelerated into the Institutional Offer.
3. That this was the primary Judge's understanding is made quite clear in the next paragraph of the Primary Judgment. Her Honour noted that it would be necessary to determine whether: [22] "if contacted and offered acceleration into the Institutional Offer, RinRim would have sought to be included and whether the JLMs would have agreed to accelerate [RinRim]". (Emphasis added.) This observation was clearly intended to apply to both of RinRim's negligence arguments. The primary Judge's position was restated later in the Primary Judgment. She pointed out that RinRim had acknowledged that a "critical point" in both negligence claims was: [23] "acceptance of Dr Volfneuk's evidence that, if given the opportunity, [RinRim] would have sought participation in the Institutional offer".

No misapprehension

1. Contrary to Mr Einfeld's submission, the primary Judge's summary of RinRim's second negligence case did not involve any misapprehension of the argument advanced on its behalf. The primary Judge pressed senior counsel during closing submissions to clarify the case he wished to present on behalf of RinRim. The summary in the Primary Judgment accurately reflects the exchange that took place.
2. The primary Judge appreciated that RinRim's case needed clarification for several reasons, one of which was the lack of clarity in its pleadings. RinRim's Second Further Amended Commercial List Statement (Points of Claim) alleged that the respondents owed RinRim a duty to take reasonable care to avoid the foreseeable risk of harm, described as follows: [24] "… an Institutional Investor which qualified to receive an Institutional Entitlement Offer might suffer economic loss if it were deprived of the opportunity to receive an Institutional Entitlement 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 Entitlement Offer".
3. The JLMs were alleged to have breached their duty of care, in that they: [25] "(a) Failed to contact RinRim on or before 13-14 February 2008 to extend to RinRim the Institutional Entitlement Offer; (b) Failed to contact RinRim on 13-14 February 2008 to provide to RinRim a copy of the 'Accelerated Renounceable Pro-Rata Entitlement Offer Procedures Manual' dated 13 February 2008. (c) Failed to inform RinRim on or before 13-14 February 2008 that RinRim qualified to receive an Institutional Entitlement Offer, and should contact the JLMs if it wished to receive it rather than to receive a Retail Entitlement Offer a month later. (d) If it decided for any reason that RinRim fell within paragraph (c) of the definition of 'Non-Qualifying Institutional shareholder' in the Underwriting Agreement, failed to treat RinRim as a 'Non-Qualifying Institutional Shareholder' whose entitlements were to be automatically renounced and sold through the Institutional Bookbuild on 15 February 2008."
4. Under the heading "Causation and Damage", the Points of Claim pleaded as follows: [26] "85. By reason of the JLMs' breaches of duty in paragraphs 71 and 71, RinRim was not invited to participate in the Institutional Entitlement Offer or alternatively was not treated as a Non-Qualifying Institutional Shareholder. 86. By reason of the JLM's [sic] breaches of duty in paragraphs 71-(c) … RinRim was deprived of an opportunity to apply to the JLMs for participation in the Institutional Entitlement Offer. … 89. If RinRim had the opportunity on 13 February 2008 to apply to the JLMs for participation in the Institutional Entitlement Offer, it would have done so by contacting the JLMs and Primary to indicate that it wished to receive an Institutional Entitlement Offer rather than a Retail Entitlement Offer, so that its renounced share entitlements would be sold in the earlier Institutional Bookbuild rather than the later Retail Bookbuild. 90. If RinRim had applied to the JLMs or Primary for participation in the Institutional Entitlement Offer, the JLMs would have either: (a) Extended to RinRim an Institutional Entitlement Offer; or (b) Treated RinRim as a Non-Qualifying Institutional Shareholder. 91. If RinRim had been extended an Institutional Entitlement Offer: (a) RinRim would have been entitled to take up approximately 4,001,052 new shares; (b) RinRim would have renounced all of those entitlements; (c) those entitlements would have been sold in the Institutional Bookbuild on 15 February 2008; …" (Emphasis added.)
5. The pleading on causation strongly suggested that RinRim's case was that the respondents should have invited it to participate in the Institutional Offer and, if invited, it would have sought to participate. RinRim was said to have suffered loss because it was denied the opportunity to participate in the Institutional Offer and for that reason did not dispose of its entitlement to new shares in the Institutional Bookbuild.
6. Notwithstanding this form of pleading, a generous reading of the Points of Claim possibly might construe it as alleging that the JLMs, once they ascertained that RinRim was an exempt shareholder, would have extended the Institutional Offer to it without any further action on RinRim's part. It was perhaps for this reason that the primary Judge pressed senior counsel to clarify RinRim's case. Her Honour might also have had in mind Dr Volfneuk's evidence that had he been told at any time before 15 February 2008 that RinRim was an "institutional investor" (apparently meaning an exempt shareholder) he would have "sought to have RinRim included in the [I]nstitutional [O]ffer and the [I]nstitutional [B]ookbuild". [27]
7. During the interchange with the primary Judge, RinRim's senior counsel (Mr Gyles) clearly distinguished between the first and second negligence cases advanced by RinRim. He explained that on the second case the respondents, acting reasonably, should have invited at least the largest shareholders in Primary to participate in the Institutional Offer on the basis that they were exempt shareholders. All the exempt shareholders receiving such an invitation: "could contact the JLMs and seek participation … but they were not contacted and they were never told that they were or may have been eligible for participation … [W]e say that in those circumstances, the [respondents] had a duty to take reasonable care in contacting such shareholders and telling them that they could participate or approach them to seek participation if they desired that." (Emphasis added.)
8. Mr Gyles elaborated later: "And we say that having contacted [Dr] Volfneuk, having told him of [the] institutional offer and having told him that he was an eligible shareholder if he was exempt under 6D [of the Corporations Act] that he would've confirmed with the person he was speaking to that he satisfied the requirements of exemption under 6D, that he was an institutional shareholder and that he wanted to participate and that steps could've then been put in place to on-board him as a client. He would've then participated in the institutional offer, he would've renounced his rights, they would've been sold and he would've received obviously the difference between the prices in respect of those two bookbuilds."
9. In this passage, the reference to Dr Volfneuk being placed "on-board … as a client" is significant. It refers to evidence given by Mr Molesworth, the then Director of Equity Capital Markets at Deutsche Bank. [28] Mr Molesworth explained that Deutsche Bank was the Settlement Agent for the Institutional Offer, meaning that it managed the electronic exchange with the investors in the Institutional Offer, the Institutional Bookbuild and the Retail Bookbuild. Mr Molesworth said that Deutsche Bank had a requirement that an accelerated shareholder (that is, a participant in the Institutional Offer) had to be an existing client of Deutsche Bank or of one of the other JLMs. This was because a client was taken "on-board" only if Deutsche Bank had completed a process known as "Know Your Client" and had followed client adoption procedures and guidelines. According to Mr Molesworth, it would expose Deutsche Bank to potentially significant credit and counterparty risks if it attempted to accelerate large individual shareholders not familiar to the JLMs. The risks included non-compliance with the recently enacted Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth).
10. In his closing submissions at the trial, Mr Gyles accepted that participation in the Institutional Offer was not a simple matter of the JLMs making an offer of shares in accordance with the terms of the AREO to every institutional investor known to them. RinRim's submissions acknowledged that it would have had to take steps to make its wishes known and to satisfy the necessary credit and probity requirements.
11. In Mr Gyles' oral submissions in reply, in the context of addressing Dr Volfneuk's credibility, he made the following concession: "GYLES: If you were to find that your Honour would be against us on what is we accept a critical point in both the negligence case and the misleading and deceptive conduct case which is there's a bridge that we need to get over in respect of each of those two cases which is your Honour accepting that Dr Volfneuk would if given the opportunity have taken up or sought participation in the institutional round. So if your Honour is not prepared to draw that inference, because it is an inference because [sic] obviously his evidence, his subjective mind is relevant to that question but if your Honour doesn't accept that your Honour can simply find that he is using hindsight as witnesses sometimes do in hypothetical questions of that type but that doesn't mean he's being dishonest. Sorry, the short point is if your Honour finds against us on that then the defendants win the case." (Emphasis added.)
12. This concession acknowledges that it was an essential part of RinRim's case to establish that Dr Volfneuk, if given the opportunity to participate or seek participation in the Institutional Offer, would have done so. If his evidence on that point was not accepted RinRim would fail. The concession was entirely inconsistent with Mr Einfeld's argument on appeal that the JLMs were required to make the Institutional Offer to RinRim regardless of whether Dr Volfneuk took steps to ensure that RinRim participated in the Institutional Offer. The concession was also inconsistent with Mr Einfeld's submission that if RinRim simply did nothing its entitlement to shares in Primary would automatically have been disposed of in the Institutional Bookbuild.
13. This interpretation of RinRim's second negligence claim is confirmed by RinRim's written submissions on costs to the primary Judge. These submissions, signed by the experienced junior counsel who appeared for RinRim at the trial, expressly accepted that: "it was an essential element of its case that, if given the opportunity, Dr Volfneuk would have sought participation in the Institutional Round". (Emphasis added.) For these reasons, the submissions that the primary Judge failed to appreciate the case RinRim was putting must be rejected.

The new argument is not permitted

1. It is a well established principle that an appellant is not entitled to raise a new argument on appeal if the contention could possibly have been met by evidence at the trial. [29] However, as Leeming JA pointed out in Tal Life Ltd v Shuetrim, [30] an appellant does not have a right to insist that a point be decided on appeal simply because it raises a question of law only or depends on facts established beyond controversy. The question is always whether the appellate court considers it "expedient and in the interests of justice to entertain the point". [31] One factor to bear in mind is that the parties to litigation, especially those who are well resourced and represented by competent counsel, are ordinarily bound by their forensic choices at trial. [32]
2. RinRim conducted its case in the Equity Division on the basis of Dr Volfneuk's evidence as to what RinRim would have done had it been told that it could seek to participate in the Institutional Offer. Dr Volfneuk was extensively cross-examined and his evidence was not believed. In effect, Mr Einfeld sought to repudiate RinRim's factual case advanced at the trial and to mount a fresh case on the appeal. It is not in the interests of justice to allow a party to fight a case on a factual basis at trial and, having failed because a key witness' evidence is not accepted, attempt to reconstitute it on appeal. [33]
3. In any event, the argument which Mr Einfeld wished to advance would raise a number of issues not explored at the trial. Some of these might have invited further evidence, for example as to whether other exempt shareholders were "relegated" to the Retail Offer.

The ASX waiver argument

1. The same considerations apply to Mr Einfeld's reliance on the terms of the ASX waiver. As he conceded, the point was neither pleaded nor put to the primary Judge. The argument implies that the JLMs contravened a requirement of the ASX without that allegation ever having been formulated or the respondents being given an opportunity to respond to it. It would not be in the interests of justice to allow RinRim to rely on the ASX waiver in the manner proposed for the first time on appeal.

Causation

1. As has been seen, the primary Judge rejected RinRim's claims on two separate grounds. Her Honour held that the respondents did not owe RinRim the duty of care alleged. Her Honour also held that even if the respondents owed a duty of care and had breached that duty, RinRim had not established that the breach had caused it to sustain a financial loss.
2. The primary Judge recorded RinRim's concession that if her Honour rejected Dr Volfneuk's evidence that RinRim would have taken up the opportunity to participate in the Institutional Offer, RinRim had to fail. [34] Since her Honour did reject Dr Volfneuk's evidence, the issue of causation can be dealt with relatively briefly. It is therefore convenient to deal with the issue at this point.

Civil Liability Act

1. The question of causation must be determined in accordance with the requirements of the Civil Liability Act 2002 (NSW) (CL Act). [35] Sections 5D and 5E of the CL Act relevantly provide as follows: "5D General principles (1) A determination that negligence caused particular harm comprises the following elements: (a) that the negligence was a necessary condition of the occurrence of the harm (factual causation), and (b) that it is appropriate for the scope of the negligent person's liability to extend to the harm so caused (scope of liability). … (3) If it is relevant to the determination of factual causation to determine what the person who suffered harm would have done if the negligent person had not been negligent: (a) the matter is to be determined subjectively in the light of all relevant circumstances, subject to paragraph (b), and (b) any statement made by the person after suffering the harm about what he or she would have done is inadmissible except to the extent (if any) that the statement is against his or her interest. 5E Onus of proof In proceedings relating to liability for negligence, the plaintiff always bears the onus of proving, on the balance of probabilities, any fact relevant to the issue of causation."
2. As was pointed out by the High Court in Wallace v Kam, [36] the determination of factual causation in accordance with s 5D(1)(a) of the CL Act: "involves nothing more or less than the application of a 'but for' test of causation. That is to say, a determination in accordance with s 5D(1)(a) that negligence was a necessary condition of the occurrence of harm is nothing more or less than a determination on the balance of probabilities that the harm that in fact occurred would not have occurred absent the negligence". (Citation omitted.)
3. The arguments on appeal did not refer to s 5D(3)(b) of the CL Act. At the trial, however, an objection was taken on the basis of s 5D(3)(b) to paragraphs of Dr Volfneuk's affidavit in which he claimed that he would have sought to include RinRim in the Institutional Offer had he known about it. The primary Judge allowed the paragraphs to be read, but only in RinRim's misleading or deceptive conduct case.
4. Dr Volfneuk was cross-examined at length on the claims made in his affidavit. Insofar as his evidence repeated or adverted to the claims, no objection was taken. Nor was any ruling made that Dr Volfneuk's oral evidence was admitted only in relation to RinRim's misleading or deceptive conduct claim. The parties appear to have proceeded on the basis that all Dr Volfneuk's oral evidence could be taken into account in determining not only RinRim's misleading or deceptive conduct claims but also its negligence case (including the causation issue).

RinRim's causation case

1. RinRim's case as pleaded and presented to the primary Judge required it to establish three matters: [37]

• if RinRim had been advised by the respondents or otherwise been made aware that it could seek acceleration into the Institutional Offer, Dr Volfneuk would have taken the necessary steps for RinRim to do so;
• if RinRim had sought acceleration into the Institutional Offer, the JLMs would have agreed to deal with RinRim on the basis that it could participate; and
• RinRim would have renounced its entitlement to take up new shares and instead disposed of its entitlement in the Institutional Bookbuild.

The Primary Judgment

1. After recording the critical concession made on behalf of RinRim, her Honour observed that in relation to the negligence claims it was appropriate to consider all of the circumstances to determine the matter subjectively in the light of all the relevant circumstances. [38] Although her Honour did not expressly cite the CL Act, this language is drawn from s 5D(3)(a) of the CL Act.
2. The primary Judge assessed the credibility of Dr Volfneuk's evidence that at the time the AREO was conducted RinRim was not intending to acquire further shares in Primary. Her Honour considered that Dr Volfneuk did not "present well" when confronted with documentation demonstrating that he had actively sought to borrow $26.5 million in order to take up RinRim's entitlement to new shares: [39] "… [Dr Volfneuk's] suggestion that he was 'going through the motions' rather than seriously considering taking up [RinRim'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, [RinRim'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 [RinRim's] entitlements."
3. The primary Judge noted that Dr Volfneuk admitted "browsing" the Draft Prospectus on 13 February 2008 but denied reading the document carefully. Yet on the same day Dr Volfneuk "embarked on the course of pursuing a loan for $26 million in respect of the very matters contained in the Draft Prospectus". [40] Her Honour was satisfied that Dr Volfneuk read the Draft Prospectus carefully. She was also satisfied that by this stage Dr Volfneuk had decided to take up RinRim's entitlement in the Retail Offer because he considered the offer price to be a bargain. [41]
4. After referring to other aspects of Dr Volfneuk's "unimpressive" evidence, [42] the primary Judge found that Dr Volfneuk intended to be a "buyer" of Primary shares and, moreover, knew that was the true position at the time of his cross-examination. [43]
5. The primary Judge considered that there was a great deal of evidence inconsistent with Dr Volfneuk's claim that he would have caused RinRim to enter the Institutional Offer and renounce its entitlement in the relevant period. Her Honour was satisfied that Dr Volfneuk: [44] "[298] … was in fact readying himself to enable [RinRim] to take up its entitlements and also seeking to obtain an additional $5 million to supplement [RinRim'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".
6. The "irresistible conclusion" was that Dr Volfneuk was intending to cause RinRim to acquire shares in the Retail Offer. [45]
7. Her Honour also made the following findings: [46] "[300] It was not so much that [RinRim] 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 [of Deutsche Bank] 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 [RinRim] 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. [301] 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 [RinRim'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. [302] I am satisfied that [RinRim's] claim that if it had been invited it would have entered the Institutional Offer and renounced its entitlements cannot be accepted."

The credibility findings

1. RinRim's written submissions on the appeal challenged the primary Judge's adverse findings as to Dr Volfneuk's credibility. Bearing in mind that the findings were based in part on the primary Judge's observation of Dr Volfneuk in the witness box, the challenge faced very considerable difficulties. [47] These were not lessened by Mr Einfeld not developing the written submissions in his oral argument.
2. The primary Judge's findings as to Dr Volfneuk's credibility and RinRim's likely conduct in relation to the Institutional Offer were based on a detailed and meticulous analysis of Dr Volfneuk's evidence and the documentary evidence. [48] Her Honour's analysis demonstrated that many of Dr Volfneuk's claims were directly contradicted by the contemporaneous documentation (much of which was obtained after Dr Volfneuk had affirmed his affidavits). The documentary record showed that:

• Dr Volfneuk wanted RinRim to take up its entitlement to new shares in Primary;
• RinRim did not have the funds to do so at the time of the Institutional Offer;
• over a period of several weeks from 13 February 2008, Dr Volfneuk vigorously pursued sources of finance that would enable RinRim to take up its entitlement in the Retail Offer; and
• at all material times Dr Volfneuk held extremely optimistic views as to Primary's future share price.

1. There is nothing in RinRim's written submissions that could provide grounds for concluding that her Honour's findings were "glaringly improbable", "contrary to compelling inferences" or inconsistent with incontrovertible facts. Indeed, it is difficult to see the relevance of some of the matters on which RinRim relied, such as the fact that it decided not to proceed with a particular loan application on 11 March 2008, nearly one month after the Institutional Offer had closed.
2. RinRim has not demonstrated that the primary Judge's factual findings were in any way affected by error.
3. Faced with the Court's refusal to permit RinRim to rely on fresh arguments on the appeal, in his oral argument Mr Einfeld put an alternative submission that he said was consistent with the case run at trial and with the findings made by the primary Judge. He submitted that even if the primary Judge's findings were accepted, this Court should conclude that the JLMs would have disposed of RinRim's entitlement to acquire new shares in the Institutional Bookbuild. The submission appeared to rest on the proposition that if RinRim had been notified that it could apply to participate in the Institutional Offer but declined to do so, the JLMs would nonetheless have disposed of RinRim's entitlement in the Institutional Bookbuild.
4. In support of this submission Mr Einfeld relied on a letter dated 18 February 2008 from Primary to the ASX. The letter included the following: "Institutional Entitlement Offer The Institutional Entitlement Offer closed on 14 February 2008 raising approximately $958 million with over 80% of existing eligible institutional shareholders agreeing to take up their entitlement. Entitlements that were not taken up by eligible institutional shareholders and those of ineligible institutional shareholders were sold by way of an accelerated bookbuild process ('Institutional Bookbuild') that was undertaken on 15 February 2008."
5. This submission could be seen as an attempt to revive the arguments that the Court ruled were not available to RinRim on the appeal. The proposition underlying the submission was never put to the respondents' witnesses, presumably because it was not regarded as part of RinRim's case at trial. However, as the respondents did not object to Mr Einfeld relying on the submission it should be regarded as open to RinRim.
6. The first difficulty with the submission is that Primary's letter does not bear the meaning Mr Einfeld attributed to it. The letter refers to "eligible institutional shareholders". The expression "Eligible Institutional Shareholder" appears in the Procedures Manual where it is defined to mean: "a Shareholder … 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". Primary's letter to the ASX must be taken to use the expression "eligible institutional investor" in the same sense as the Procedures Manual.
7. The letter is not evidence that if RinRim had declined to apply to participate in the Institutional Offer its entitlement would have been disposed of in the Institutional Bookbuild. The letter indicates only that those institutional shareholders to whom the Institutional Offer had actually been made, and who did not take up the Offer, had their entitlements disposed of in the Institutional Bookbuild. On the primary Judge's findings, RinRim would not have sought to participate in the Institutional Offer and would not have wished to receive the Institutional Offer. There is no evidence to suggest that in these circumstances the JLMs would have extended the Institutional Offer to RinRim or disposed of its entitlement in the Institutional Bookbuild.
8. In any event, there was evidence demonstrating that not all shareholders believed by the JLMs to be "institutional investors" were dealt with in the Institutional Offer. For example, an email from Deutsche Bank's Managing Director of Equity Capital Markets dated 19 February 2008 stated that: "The reason we have only accelerated 80% of the register in the institutional offer is that some small insto's [sic] couldn't be identified or contacted within 48 hours so 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."
9. Mr Molesworth gave unchallenged evidence that the JLMs had attempted to contact a number of exempt shareholders who had not returned the requisite forms within the specified period. These shareholders were moved into the Retail Offer. According to Mr Molesworth's affidavit evidence, this approach gave effect to the JLMs' view that the shareholders had an entitlement to new shares and that they should have an opportunity to take up their entitlements should they wish to do so.
10. Mr Molesworth provided more detail in his oral evidence. In his evidence in chief the following exchange occurred: "Q. … you say that for a shareholder to be accelerated and then … the JLMs had to forcibly renounce, could you just clarify what you meant by forcibly? A. So theoretically if we've made contact with an institutional fund manager and made them aware of the offer and told them the details of the institutional portion of the offer and the timetable they have to accept or otherwise their entitlement, they have to come back to us within that timeframe and tell us whether or not they're participating. Theoretically if they don't come back to us or are un-contactable or you know for some other reason we don't find out whether or not they want to participate and take up their entitlement or not, theoretically we could renounce them at that point. The practice in the market though is that you don't, you just allow them to roll through to the retail offer so that they can participate should they wish to. Q. So forcibly meant explicitly or a positive step to renounce communicated within the relevant timeframe? A. That's right, and like I say in practice I've not, I've not seen it done, to forcibly renounce someone, and it's very rare that the institutional investors don't come back to us in the timeframe." The issue was revisited in Mr Molesworth's cross-examination: "Q. What you're saying here is that if that person, having been appropriately contacted in the way you've described it, did not get back to you, they wouldn't be forcibly renounced, they would be moved to the retail bookbuild, is that what you're saying? A. That's right. In practice, given it's a pro rata offer, it's important that we, you know - it's market practice that we allow them to, to choose to take up or not. If we haven't had a positive confirmation back through the application form, that they want to do one or the other, then they're allowed to roll into the - -"
11. The evidence does not support RinRim's contention that if it had declined to apply to participate in the Institutional Offer, its entitlement would have been disposed of in the Institutional Bookbuild. The submission cannot be accepted.

Conclusion on causation

1. The primary Judge was correct to conclude that even if the respondents breached a duty of care they owed to RinRim, it failed to establish that the breach caused it to suffer a loss.

Duty of care

1. The conclusion I have reached on causation makes it unnecessary to consider whether the primary Judge was correct to reject RinRim's contention that the respondents owed it the duty of care pleaded in the Points of Claim. [49] It is, however, appropriate to address the question without necessarily dealing with it comprehensively.

Primary Judge's analysis

1. The primary Judge noted that RinRim accepted in its closing submissions that there was nothing in the ASX Listing Rules or the Corporations Act that imposed any obligation on the JLMs to use reasonable endeavours to contact all exempt shareholders. [50] Her Honour also noted that the ASX waiver did not impose a duty on Primary to accelerate all exempt shareholders into the Institutional Offer. Thus RinRim had no right to be accelerated into the Institutional Offer. [51]
2. The primary Judge approached RinRim's allegation of a novel duty of care by applying the principles stated by Allsop P in Caltex Refineries (Qld) Pty Ltd v Stavar (Caltex v Stavar). [52] On this basis: [53] "it is necessary to undertake a close analysis of the relationship between [RinRim] and the [respondents] 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 … 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".

Nature of the relationship

1. The first "salient feature" was the nature of the relationship between RinRim and the respondents. The relationship between RinRim and Primary was that of a shareholder and a publicly listed company. That relationship was governed by Primary's Articles of Association, which had the force of a statutory contract. [54] The Articles provided that the issue of shares was under the control of the directors and could be issued in any manner the directors thought fit. [55] There was no "category of relationship" between RinRim and the JLMs. [56]
2. RinRim had relied on the terms of the Poppins Letter. However, the Poppins Letter was subject to a number of conditions and did not impose obligations or requirements on the JLMs in respect of the conduct of the AREO. [57] Her Honour was not satisfied that the Poppins Letter imposed any obligations on the respondents between 8 November 2007 and 13 February 2008 relating to the management of the AREO or obtaining RinRim's contact details. [58]
3. The primary Judge pointed out that the definition of "Institutional Investor" in the Underwriting Agreement was defined to mean a person to whom the offer could lawfully be made without disclosure under Part 6D.2 of the Corporations Act. [59] In the light of this definition and the definition of "Institutional Shareholders" (which referred to "an Institutional Investor"), her Honour held that the Underwriting Agreement did not impose any obligation on the JLMs to make contact with RinRim to offer to accelerate it into the Institutional Offer. The discretion as to whether any "Institutional Investors" should be accelerated remained with Primary and the JLMs. [60] In her Honour's view, the coherence of the law would not be served by imposing a duty of care in these circumstances. [61] She noted that the High Court has warned that caution must be exercised in imposing a duty of care in new types of relationships, particularly in cases of pure economic loss. [62]

Nature of the activity

1. The primary Judge observed that a relevant factor in determining whether a duty of care should be imposed is the social utility of the activity creating the risk of harm. [63] Her Honour agreed with the JLMs' submission that to impose a duty of the kind RinRim alleged: [64] "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 factor" was the nature of the harm alleged by RinRim. Her Honour was not satisfied that: [65] "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 JLM's discretion".

Reasonable foreseeability of harm

1. Nor was her Honour satisfied that assuming (contrary to her view) RinRim had suffered harm, it was reasonably foreseeable that if the JLMs did not take reasonable care to identify which of Primary's shareholders were exempt, those who were not offered acceleration might suffer economic loss. What was foreseeable was that Primary's share price might go up or down. [66] A presentation made by the JLMs to Primary on 13 February 2008 merely recognised that volatility was an inherent characteristic of the share market. It could not be seen as an indication of the respondents' knowledge that their conduct of the AREO could cause harm in the relevant sense. [67]

Risk and precautions

1. In assessing whether reasonable JLMs would have taken the alleged precautions against the risk of harm as required by s 5B(2) of the CL Act, the empirical evidence at the time indicated that it was more likely that the Retail Bookbuild would achieve a better outcome for investors than the Institutional Bookbuild. Serious harm was therefore not likely [68] and, in any event, the burden of taking precautions to avoid the risk of harm was significant. [69]

Degree of control

1. On the assumption that a lower return through the Retail Bookbuild constituted "harm", the respondents were able to exercise little control to avoid the harm. The respondents had no control over the date of the AREO because that had to occur when the offer to acquire Symbion became unconditional. The outcome of the AREO process was dependent on the vagaries of the market. [70]

Vulnerability

1. The capacity of RinRim to take steps to protect itself was an important consideration in determining whether to impose a duty of care on the respondents. The fact that RinRim was an exempt shareholder suggested that it was not a vulnerable investor since the statutory policy of exempting certain shareholders from the necessity of disclosure before making an investment decision recognised that those investors are not vulnerable to a lack of knowledge and have the capacity to look after themselves. [71]
2. The primary Judge noted that the particular vulnerability on which RinRim relied was "its incapacity to know that it could have contacted the JLMs to ask to be accelerated into the Institutional Offer". [72] RinRim claimed that it did not know and could not know unless advised by the JLMs that the onus was on it to apply to be included in the Institutional Offer. [73] Her Honour made the following findings: [74] "[271] [RinRim] 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'. [272] [RinRim] 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 [RinRim] was vulnerable. It had every opportunity as a sophisticated investor to make inquiries of the defendants about the AREO and its entitlements."

Potential indeterminacy of liability

1. The primary Judge pointed out that RinRim's identification of the class of person that would suffer the relevant risk of harm had "ebbed and flowed during the course of the trial". It had ultimately settled on "exempt investors" who are either "Sophisticated Investors" under s 708(8) of the Corporations Act or "Professional Investors" within s 708(11). [75]
2. RinRim had conceded that there were some Primary shareholders who were exempt investors but who would not be identified as such even if the JLMs had undertaken reasonable inquiries. [76] The primary Judge considered that: [77] "[279] It would be unrealistic to require the [respondents] 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 [in the Corporations Act]. 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." Her Honour accepted the evidence of Mr Molesworth that it would not have been possible for the JLMs to have identified all exempt investors. While RinRim's submissions concentrated on the JLMs' capacity to identify it as an exempt shareholder, that said nothing about the feasibility of contacting the entire corpus of Primary shareholders. [78] The practical difficulties in determining the members of the class identified by RinRim in the circumstances of the AREO established its indeterminate nature. [79]

Reasoning on duty of care

1. RinRim's submissions took as their starting point Allsop P's observation in Caltex v Stavar [80] that if a duty of care asserted by a plaintiff is a novel one: "the proper approach is to undertake a close analysis of the facts bearing on the relationship between the plaintiff and the putative tortfeasor by references to the 'salient features' or factors affecting the appropriateness of imputing a legal duty to take reasonable care to avoid harm or injury".
2. Mr Einfeld did not dispute that the primary Judge was correct to consider the "salient features" of the relationship between RinRim and the respondents identified in the Primary Judgment. [81] He submitted, however, that her Honour was wrong in her assessment of each of the factors and that she should have found that the respondents owed RinRim a duty of care as alleged in the Points of Claim.
3. Mr Einfeld's submissions tended to treat the "salient features" identified by the primary Judge as a kind of checklist, without any particular feature being accorded special significance. The principles stated and applied by the High Court in Woolcock Street Investments Pty Ltd v CDG Pty Ltd [82] (Woolcock) and Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 [83] (Brookfield) indicate that some features of the relationship between RinRim and the respondents should be given considerably more weight than others in determining whether to recognise the novel duty of care alleged by RinRim.
4. The general principle is that unless economic loss suffered by a plaintiff is consequential upon injury to person or property, the plaintiff cannot recover damages for negligence even if the loss was foreseeable. [84] In other words, damages for pure economic loss are not recoverable just because the defendant's negligence was a cause of the loss and the loss was reasonably foreseeable. [85]
5. The plurality in Woolcock noted that in recent times: [86] "the vulnerability of the plaintiff has emerged as an important requirement in cases where a duty of care to avoid economic loss has been held to have been owed. 'Vulnerability', in this context, is not to be understood as meaning only that the plaintiff was likely to suffer damage if reasonable care was not taken. Rather, 'vulnerability' is to be understood as a reference to the plaintiff's inability to protect itself from the consequences of a defendant's want of reasonable care, either entirely or at least in a way which would cast the consequences of loss on the defendant."
6. In Brookfield, the High Court unanimously held that a builder who constructed a building containing serviced apartments for a developer did not owe a duty of care to subsequent purchasers of lots in the development to avoid latent defects in the building. The fundamental reason the purchaser failed was that they had not established that they were "vulnerable".
7. French CJ accepted that vulnerability is an important consideration in determining whether a duty of care exists to avoid pure economic loss. His Honour considered that "vulnerability" in this context has the meaning attributed to it by the plurality in Woolcock. [87] In that case, a purchaser of a commercial building sued the engineering company allegedly responsible for designing faulty foundations. French CJ explained the failure of the purchaser on the ground that it had been unable to demonstrate that it was vulnerable in the relevant sense. [88]
8. In Brookfield, Hayne and Kiefel JJ agreed that the plurality in Woolcock based their conclusion that the engineering company did not owe the subsequent purchaser a duty of care on the purchaser's lack of vulnerability to the economic consequences of the engineering company's negligence. [89] While the purchasers may not have been able to check the quality of the builder's work themselves and in that sense relied on the builder, that did not establish they were vulnerable. The purchaser had entered into contracts which gave them rights to have defects in the common property remedied. The ability to protect themselves by contractual terms demonstrated that they were not vulnerable to any lack of care by the builder in the performance of its contractual obligations. [90]
9. Crennan, Bell and Keane JJ took a similar approach. In their Honours' view, it was inconsistent with Woolcock for the purchasers in Brookfield to argue that they were vulnerable, notwithstanding that they could have insisted on having contractual rights enforceable against the builder or the developer. [91] The builder had done nothing to indicate to the purchasers that it was assuming responsibility for the purchasers' decision to acquire the apartments. [92]
10. The facts of the present case are different from the facts in Woolcock and Brookfield. There is no suggestion, for example, that RinRim could have protected itself by entering into contractual arrangements with one or more of the respondents. Nonetheless, Woolcock and Brookfield establish three propositions of significance for this case.
11. First, a plaintiff who has suffered pure economic loss does not demonstrate that the defendant owed a duty of care simply by proving that the defendant's negligence was a cause of the loss and that the loss was reasonably foreseeable. Secondly, in a case in which a plaintiff relies on the existence of a duty of care in novel circumstances, the plaintiff's vulnerability to loss caused by the defendant's negligence is an extremely important if not determinative consideration. Thirdly, "vulnerability" in this context refers to the plaintiff's inability or limited ability to take steps to protect itself from economic loss by reason of the defendant's conduct. Such measures are not limited to entering into contractual arrangements.
12. I accept, as Mr Einfeld submitted, that if RinRim had been denied the opportunity to dispose of its entitlement in the Institutional Bookbuild at $6.60 per share it would have suffered economic loss. This is so notwithstanding that RinRim ultimately disposed of its entitlement at $5.50 per share, a price that yielded it a profit of $0.10 per share. A person may suffer economic loss for the purposes of the law of negligence even though that person makes a "profit" out of a transaction. For example, if a valuer negligently causes a property owner to sell at an undervalue, the owner does not lose the right to claim damages because the sale price exceeded the original purchase price.
13. I am also prepared to assume that it was reasonably foreseeable that the respondents' negligence might cause RinRim financial loss, in the sense that if their negligence relegated RinRim into the Retail Bookbuild there would be a chance, in a volatile market, that the sale price of the shares would fall.
14. However, the primary Judge's conclusion that RinRim was not vulnerable in the relevant sense in my opinion constitutes an insurmountable barrier to its contention that the respondents owed a duty of care as alleged in the Points of Claim. Her Honour's conclusion on vulnerability (or the lack of it) rested on findings of primary fact that could not be and were not challenged.
15. The primary Judge found that by mid-November 2007, Dr Volfneuk knew that Primary intended to raise capital for the Symbion takeover by means of an AREO. He also knew that the AREO was to comprise the four stages of an Institutional Offer, an Institutional Bookbuild, a Retail Offer and a Retail Bookbuild. [93] This finding was based on Dr Volfneuk's admission that he carefully read Primary's announcement to the ASX on 8 November 2007 which recorded Primary's intention to conduct the staged capital raising. Dr Volfneuk also admitted reading the Bidder's Statement of the same date which referred in the section on funding to the four stages of the proposed capital raising.
16. Dr Volfneuk had a close relationship with Dr Bateman, the founder of Primary. Dr Volfneuk acknowledged in his oral evidence that he could have simply asked Dr Bateman for information about the AREO and, to the extent he needed to understand what an AREO involved, he could have searched the internet to obtain the information. Moreover, RinRim had an established relationship with accountants who acted as financial advisers. Dr Volfneuk accepted that he could have asked the accountants for advice in relation to the AREO.
17. The primary Judge found that the Draft Prospectus released on the morning of 13 February 2008 informed shareholders that they could have any questions answered by contacting the Primary Entitlement Offer Information Line. Dr Volfneuk was aware at the time that he could have directed any inquiries to the Information Line.
18. In view of these factual findings, it verges on the fanciful to suggest that RinRim was vulnerable in the sense that it could not protect itself from the consequences of the JLMs' failure to inform it that it could seek to participate in the Institutional Offer. RinRim was a sophisticated investor which had all the information it needed to determine whether it should seek to participate in the Institutional Offer. In my view, this conclusion is enough to warrant rejection of RinRim's contention that the respondents had a duty to exercise reasonable care to alert it to its entitlement to seek participation in the Institutional Offer. Just as in Brookfield the absence of vulnerability was critical to the outcome, so it is here.
19. It is not necessary in these circumstances to consider other "salient features" of the relationship between RinRim and the respondents that militate against recognising the novel duty of care propounded by RinRim. The authorities indicate, however, that an important consideration is whether the defendant has assumed responsibility for taking steps that will avoid financial loss to the plaintiff. [94]
20. Mr Einfeld placed reliance on the exemption of Professional Investors and Sophisticated Investors from the disclosure requirements of the Corporations Act. But the exemption merely enabled an AREO or other offer of securities to be made to exempt Professional Investors and Sophisticated Investors without the disclosure that is required to other investors. The legislation did not require corporations or underwriters to take any particular steps to identify or make offers to all exempt investors.
21. The Underwriting Agreement between Primary and the JLMs did not oblige the JLMs to identify and contact all exempt investors. Primary was required to provide the JLMs with information reasonably requested by them and known to Primary as to the identity of "Institutional Investors" (Sch 5, cl 1.1(a)). The JLMs were obliged, in the period between the opening and closing of the Institutional Offer, to use reasonable endeavours to make contact with "Institutional Shareholders … so as to offer them the Institutional Entitlement Shares at the Subscription Price on a pro rata basis" (Sch 5, cl 3.1). The latter expression was defined to mean a person who, among other requirements, was an "Institutional Investor" - that is, a: "person whom the [JLMs] reasonably believe is a person to whom an offer of Offer Shares for issue may be made lawfully without disclosure under Part 6D.2 of the Corporations Act".
22. RinRim accepted that the JLMs did not hold a belief that RinRim was an exempt investor. Having regard to Mr Molesworth's evidence it is also clear that the JLMs held no relevant belief as to the status of some other investors who were in fact exempt investors. The Underwriting Agreement was structured so as to allow the JLMs to conduct the AREO on the basis of their own identification of exempt investors who should be invited to participate in the Institutional Offer. The Poppins Letter carries the matter no further.
23. There is no basis for a finding that the JLMs or Primary assumed responsibility for ensuring that all exempt investors, including RinRim, would be individually informed of their entitlement to participate in the Institutional Offer.
24. I should add that the primary Judge's analysis of the potential indeterminacy of the duty of care propounded by RinRim is a further reason for rejecting RinRim's contention that the JLMs owed it the duty of care alleged in the Points of Claim.

Notices of Contention

1. Primary and the JLMs filed Notices of Contention seeking to uphold the primary Judge's conclusion on grounds not relied on by her Honour. These included a contention that even if the respondents owed RinRim a duty of care, they had not breached any such duty. It is not necessary to address the grounds identified in the Notices of Contention.

Conclusion

1. For these reasons the appeal must be dismissed. RinRim must pay the respondents' costs.

Endnotes

1. RinRim Pty Ltd v Deutsche Bank AG [2016] NSWSC 1377; 115 ACSR 236 (Primary Judgment).
2. RinRim relied on other causes of action, including a claim of misleading or deceptive conduct in contravention of the Trade Practices Act 1974 (Cth), as in force at the relevant time. The appeal does not challenge her Honour's rejection of these causes of action.
3. I use the expression "exempt shareholder" to refer to shareholders of Primary who were exempt from the disclosure requirements of Chapter 6D of the Corporations Act 2001 (Cth) (Corporations Act). See at [24] below.
4. Exempt shareholders who participated in the Institutional Bookbuild received $1.20 per share, while other shareholders who participated in the Retail Bookbuild received only $0.10 per share: see at [22] below.
5. Primary Judgment at [286].
6. Primary Judgment at [302].
7. RinRim Pty Ltd v Deutsche Bank AG (Costs) [2016] NSWSC 1510 (Costs Judgment).
8. Costs Judgment at [14].
9. Costs Judgment at [5].
10. Costs Judgment at [13].
11. Corporations Act, ss 704-706. A failure to comply with the requirements is a contravention of the Corporations Act and an offence: ss 727(1), 1311(1).
12. Corporations Act, s 708(8)(a).
13. Corporations Act, s 708(11)(b). Section 708(11)(b) applies the exemption also to other "Professional Investors" within the definition of that expression in s 9 of the Corporations Act.
14. See at [35] below.
15. See at [36]-[39] below.
16. Listing rule 7.7.1 relates to the offer of securities to holders with registered addresses outside Australia and New Zealand.
17. Primary Judgment at [226].
18. Primary Judgment at [226]-[228].
19. Primary Judgment at [300].
20. Reproduced at [49] above.
21. See at [49] above.
22. Primary Judgment at [229].
23. Primary Judgment at [288].
24. Points of Claim at [62(f)], [64].
25. Points of Claim at [71]. Similar allegations are made against Primary in Points of Claim at [73].
26. Similar claims are made against Primary: Points of Claim at [87], [88].
27. Evidence referred to in the Primary Judgment at [93].
28. Mr Molesworth's evidence is dealt with in the Primary Judgment at [162]-[179].
29. Suttor v Gundowda Pty Ltd (1950) 81 CLR 418; [1950] HCA 35 at 438 per curiam.
30. (2016) 91 NSWLR 439; [2016] NSWCA 68 at [166] (Beazley P and Emmett AJA agreeing), citing Multicon Engineering Pty Ltd v Federal Airports Corporation (1997) 47 NSWLR 631 at 645 (Mason P, Gleeson CJ and Priestley JA agreeing).
31. Water Board v Moustakas (1988) 180 CLR 491; [1988] HCA 12 at 497 (Mason CJ, Wilson, Brennan and Dawson JJ).
32. Tal Life Ltd v Shuetrim at [166].
33. See Multicon Engineering Ltd v Federal Airports Corporation at 646.
34. Primary Judgment at [288]. See at [73] above.
35. CL Act, s 5A(1).
36. (2013) 250 CLR 375; [2013] HCA 19 at [16] per curiam.
37. See Points of Claim at [85], [86], [90], [91(b)], reproduced at [66] above. See also the Primary Judgment at [229], reproduced at [50] above.
38. Primary Judgment at [288].
39. Primary Judgment at [291].
40. Primary Judgment at [292].
41. Primary Judgment at [293].
42. Primary Judgment at [294].
43. Primary Judgment at [295].
44. Primary Judgment at [298].
45. Primary Judgment at [299].
46. Primary Judgment at [300]-[302].
47. Fox v Percy (2003) 214 CLR 118; [2003] HCA 22 at [26]-[29] (Gleeson CJ, Gummow and Kirby JJ).
48. Primary Judgment at [84]-[157].
49. See at [66] above.
50. Primary Judgment at [231].
51. Primary Judgment at [232].
52. (2009) 75 NSWLR 649; [2009] NSWCA 258 at [102]-[106].
53. Primary Judgment at [233].
54. Primary Judgment at [234], citing Corporations Act, s 140.
55. Art 3(1), which is expressed to operate subject, among other matters, to the Listing Rules.
56. Primary Judgment at [236].
57. Primary Judgment at [241]-[242].
58. Primary Judgment at [244].
59. Primary Judgment at [246].
60. Primary Judgment at [247].
61. Primary Judgment at [248].
62. Primary Judgment at [251].
63. Primary Judgment at [254] citing CL Act, s 5B(2)(d).
64. Primary Judgment at [254].
65. Primary Judgment at [257].
66. Primary Judgment at [260].
67. Primary Judgment at [262].
68. Primary Judgment at [266] citing CL Act, s 5B(2)(b).
69. Primary Judgment at [266] citing CL Act, s 5B(2)(c).
70. Primary Judgment at [268].
71. Primary Judgment at [269].
72. Primary Judgment at [270].
73. Primary Judgment at [270].
74. Primary Judgment at [271]-[272].
75. Primary Judgment at [274]-[275].
76. Primary Judgment at [278].
77. Primary Judgment at [279].
78. Primary Judgment at [281].
79. Primary Judgment at [283].
80. Caltex v Stavar at [102].
81. Allsop P identified 17 potential "salient features" in Caltex v Stavar at [103], but emphasised that the list was non-exhaustive and that it was not compulsory in any given case to make findings about all of them: at [104].
82. (2004) 216 CLR 515; [2004] HCA 16.
83. (2014) 254 CLR 185; [2014] HCA 36.
84. Woolcock at [22] (Gleeson CJ, Gummow, Hayne and Heydon JJ); Brookfield at [127] (Crennan, Bell and Keane JJ).
85. Woolcock at [21].
86. Woolcock at [23], citing Perre v Apand Pty Ltd (1999) 198 CLR 180; [1999] HCA 36.
87. Brookfield at [23].
88. Brookfield at [29].
89. Brookfield at [51].
90. Brookfield at [58].
91. Brookfield at [147]-[148].
92. Brookfield at [148].
93. Primary Judgment at [271].
94. Bryan v Maloney (1995) 182 CLR 609; [1995] HCA 17 at 619 (Mason CJ, Deane and Gaudron JJ); Woolcock at [15]; Brookfield at [22], [33] (French CJ); [128]-[129] (Crennan, Bell and Keane JJ); Caltex v Stavar at [103(f)]. 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: 12 July 2017