The application was lodged with the Tribunal on 5 September 2016.
The applicant appeared in person. The applicant is a solicitor. The respondent appeared represented by a solicitor, Ms Chen, by telephone.
The applicant was seeking a total amount of $13,994.06 for losses he alleged occurred as a result of a breach of contract. The only cause of action he has alleged is breach of contract and makes no claim on other grounds, including any of the causes of action contained in the Australian Consumer Law. The applicant is a shareholder of the respondent Corporation. The applicant bringa this matter as a consumer claim alleging that the respondent failed to deliver what it had promised in a prospectus.
The parties had the opportunity to exchange documents. The Tribunal received a folder of documents from the applicant on 3 November 2016. That folder has been marked exhibit 1. The Tribunal allowed leave for an amendment to the application for the applicant to seek the costs of making an application to the Australian Government Takeovers Panel. The applicant confirmed that all the documents the applicant was seeking to rely on were contained in the folder marked as exhibit 1.
The Tribunal received the respondent's documents on 18 October 2016, 21 October 2016 and 24 October 2016. On 17 October 2016 the respondent provided a bundle including most of those documents previously filed, including an index and pagination. It became apparent during the hearing that some of the previous documents provided by the respondent were not contained in the bundle and further documents were collated with that bundle and page numbered. The respondent's bundle of documents was subsequently marked exhibit 2. The respondent confirmed that all the documents the respondent was seeking to rely on were contained in the folder marked as exhibit 2.
The Tribunal confirmed that each party had received the other party's documents and had been given an opportunity to view them. The applicant had not provided his own statement at hearing and gave his evidence orally at the hearing. It was raised with the respondent as to whether they sought an adjournment to deal with anything raised and they confirmed they could proceed. Further, the respondent was given the opportunity to lead further evidence from their witness Mr Timothy Lyons in relation to the new assertions raised by the applicant in his oral evidence. The respondent was given the opportunity to cross-examine the applicant. The applicant was given the opportunity to cross examine the respondent's witness Mr Timothy Lyons who had provided a written statement prior to the hearing. Exhibits 1 and 2 and the party's oral evidence given at the hearing have been considered by the Tribunal in coming to this decision.
[2]
Jurisdiction
The applicant made the claim pursuant to Part 6A of the Fair Trading Act 1987 (the Act). The respondent objected to the claim on the basis that the claim was not a consumer claim and the Tribunal lacked jurisdiction.
s 79J of the Act states:
The Tribunal has jurisdiction, except as otherwise provided by this Division, to hear and determine a consumer claim the subject of an application under this Division.
s 79 E defines a consumer claim as follows:
(1) For the purposes of this Part, a
"consumer claim" means a claim by a consumer, for one or more of the following remedies, that arises from a supply of goods or services by a supplier to the consumer (whether or not under a contract) or that arises under a contract that is collateral to a contract for the supply of goods or services:
(a) the payment of a specified sum of money,
(b) the supply of specified services,
(c) relief from payment of a specified sum of money,
(d) the delivery, return or replacement of specified goods or goods of a specified description.
(2) For the avoidance of doubt, a reference in this Part to a consumer claim includes a reference to a claim by a consumer against a supplier (for example, a manufacturer or wholesaler) who is not the direct supplier of goods or services to the consumer if the claim arises from or in connection with the supply of those goods or services by the direct supplier to the consumer.
The applicant stated that he is a consumer for the purposes of the definition contained in s79D as he is a natural person.
"Goods" and "services" are each defined by the Act.
A "good" is defined in s 79D as:
"goods" means any tangible thing that is or may be the subject of trade or commerce, but does not include money or an interest in land.
A service is defined in s 79F of the Act.
The applicant referred the Tribunal to the Corporation Act 2001 (Cth). In particular s1070A relates to the nature of shares and certain other interests in a company or registered scheme under the Corporations Act and relevantly states:
(1) A share, other interest of a member in a company or interest of a person in a registered scheme:
(a) is personal property; and
The applicant made a submission that because the Corporations Act defines a share as personal property then it meets the definition of a good under the Fair Trading Act and for that reason the Tribunal has the jurisdiction to deal with the matter as a consumer claim.
The respondent made a submission that shares are not goods or services. They refer to s12BAA of the Australian Securities and Investment Commission Act 2001 (Cth) (ASIC Act). Relevantly the section relates to the definition of a financial service under the ASIC ACT which relevantly states:
Note 1: Examples of actions that constitute making a financial investment under this subsection are:
(a) a person paying money to a company for the issue to the person of shares in the company (the company uses the money to generate dividends for the person and the person, as a shareholder, does not have control over the day-to-day affairs of the company); or
(b) a person contributing money to acquire interests in a registered scheme from the responsible entity of the scheme (the scheme uses the money to generate financial or other benefits for the person and the person, as a member of the scheme, does not have day-to-day control over the operation of the scheme).
The respondent contends that as the application concerns the purchase and issue of the shares to the applicant as a shareholder, the matters raised by this application are governed by the ASIC Act and not by the Fair Trading Act. It was put to the respondent to demonstrate whether the ASIC Act was conferred with exclusive jurisdiction in relation to the matter and the respondent could not demonstrate that it was.
Both parties' submissions suffer from the same flaws. A definition of a good or a service in another Act is not definitive of what is meant by 'goods' and 'services' in relation to a 'consumer claim' under the Fair Trading Act. For the Tribunal to have jurisdiction to deal with this matter, it must be satisfied that shares come within the definition of a good or service under the Fair Trading Act.
Having considered the definition of "good" contained in the Fair Trading Act, the Tribunal is not satisfied that just because it is defined as personal property under the Corporations Act, it becomes a tangible thing for the purposes of the Fair Trading Act.
Further, the Tribunal finds nothing in the ASIC Act which expressly prevents the applicant from bringing a claim under the Fair Trading Act.
Williams J in the case of Archibald Howie Pty Ltd v Commissioner of Stamp Duties (NSW) [ 1948] HCA 28 confirms the common law position in relation to the nature of shares
6. In Borland's Trustee v. Steel Bros. & Co. Ltd. (1901) 1 Ch 279, at p 288 , Farwell J., in a passage which Lord Russell of Killowen in Inland Revenue Commissioners v. Crossman (1937) AC 26, at p 66 described as an accurate exposition of the nature of a share, stated that a share is the interest of a shareholder in the company measured by a sum of money for the purpose of liability in the first place and of interest in the second, but also consisting of a series of mutual covenants entered into by all the shareholders inter se in accordance with . . . the Companies Act . . . a share is an interest measured by a sum of money and made up of various rights contained in the contract, including the right to a sum of money of a more or less amount (the italics are mine). Lord Russell himself said in Crossman's Case (1937) AC, at p 66 that the nature of the property in a share is that "it is the interest of a person in the Company, that interest being composed of rights and obligations which are defined by the Companies Act and by the memorandum and articles of association of the company." (at p156)
The Commonwealth Corporation's Act does govern Corporations. While shares being defined as personal property may not mean they are a tangible things for the purpose of the definition of 'goods' in the Fair Trading Act, the definition may be relevant to whether they are 'services.'
Section 79F (1)(i) defines services as being
any other rights (including rights in relation to, and interests in, property), benefits, privileges or facilities that are, or are to be, provided, granted or conferred in trade or commerce.
Section 21 of the Interpretation Act 1987 (NSW) defines property as
"property " means any legal or equitable estate or interest (whether present or future and whether vested or contingent) in real or personal property of any description, including money, and includes things in action.
The definition of services in section 79F(1)(i) is wide. s79F(2) specifically excludes the supply of goods or the performance of work under a contract of employment, a service contract within the meaning of the Retirement Villages Act 1999 and the provision of assurance cover in respect of a person's life.
It is clear from the Interpretation Act that the definition of property is intended to be wide. The Tribunal finds that as interest in a share in a company is capable of being a chose in action and that is an interest property, that it comes within the definition of a service pursuant to s79F.
The Tribunal also finds that the applicant is a consumer and the respondent a supplier for the purposes of the Act. The Tribunal is satisfied that the application is capable of being a consumer claim as defined by s 79E of the Act.
The applicant alleges that the offer in the prospectus was made to him on 4 July 2016 and that gave rise to a contract and to the cause of action. The Tribunal is satisfied that the alleged cause of action giving rise to the claim was less than 3 years from when the claim has been lodged and that the application is within time pursuant to the provision of 79L of the Act.
Accordingly the Tribunal is satisfied that it has jurisdiction to decide the claim.
[3]
Background to the Matter
It is not in dispute that the respondent Corporation issued a prospectus to the applicant on 4 July 2016. The prospectus was provided as part of Exhibit 1. At 1.1 of the prospectus the respondent provided an entitlement offer for shareholders.
Clause 1.2 of the prospectus identifies a "Shortfall Offer" and relevantly states as follows:
Any Entitlement not taken up pursuant to the Entitlement Offer will form the Shortfall Offer. Eligible Shareholders may, in addition to their entitlement, apply for Shortfall Shares.
….
Shortfall Shares will only be issued if the Entitlement Offer is undersubscribed and will only be issued to the extent necessary to make up any shortfall in subscriptions. Eligible Shareholders applying for Shortfall Shares in excess of their full Entitlement will have priority under the Shortfall Offer subject to applications being received by the Closing Date. In the event of oversubscription from these applications they will be scaled back.
Any remaining Shortfall Shares will be subscribed for by the Underwriter in satisfaction of its commitment under the Underwriting Agreement.
No New Shares will be issued under the Shortfall Offer if their issue would contravene the takeover prohibition in section 606 of the Corporations Act. In addition, no New Shares will be issued under the Shortfall Offer to any related parties of the Company.
The Shortfall Shares are to be issued at the discretion of the Company and as such there is no guarantee that any Shortfall Shares will be issued to Eligible Shareholders or other third parties. Excess Application Monies for the Shortfall Offer will be refunded without interest.
It is not in dispute that the applicant provided a cheque for $14,000.00 before the closing date and that shortfall shares were available. It is also not in dispute that the $14,000.00 cheque was returned to the applicant and subsequently the shares were subscribed to the underwriter.
The applicant also made a separate application to the Australian Government Takeover Panel. A copy of the decision and its reasons has been provided in exhibit 1 of the documents. In the application to the Takeover Panel the applicant sought various declarations from the takeover panel that:
(a) Regal rejected applications for shortfall shares in a manner that was inconsistent with the disclosures in the entitlement offer prospectus and
(b) the structure of the entitlement offer was designed to increase substantially Ndovu' s stake in Regal, at a material discount to Regal's prevailing share price.
10. The applicant submitted that the effect of the circumstances was that:
(a) Ndovu took control of nearly 9% of Regal (being the shortfall shares) other than in an efficient, competitive and informed market and
(b) the holders of Regal shares have not all had a reasonable and equal opportunity to participate in any benefits accruing through any proposal under which a person (Ndovu) would acquire a substantial interest in Regal.
On 14 October 2016 the Takeover Panel declared unacceptable circumstances in relation to the affairs of Regal and made orders consistent with Regal making offers to the scaled back shareholders in much the same terms as what had been offered in the prospectus.
In relation to clause 1.2 of the prospectus the Takeover Panel found that in relation to the respondents contention that there was a discretion contained in the shortfall offer:
this passage implies that it is a limited discretion of the kind necessary to give effect to the statements in the previous paragraph regarding contravention of the takeovers threshold and related parties. It should not be treated as negating the very clear statement in the first paragraph as to the priority to be given to applications by eligible shareholders. This is consistent with the view we have expressed above as to the market's expectations regarding shortfall facilities. Indeed, it suggests that Regal and Ndovu had a similar understanding themselves.
The Takeover Panel at the time of writing its decision was clearly aware of the the NCAT proceedings and relevantly stated the following:
63. The applicant submitted that the NCAT application and the application to the Panel do not make the same claim, as the former seeks damages for a breach of contract whereas the latter seeks to have remedied unacceptable control effects. The applicant nonetheless offered an undertaking to the Panel to address this concern.
64. As a general principle, we consider that we should not decline to consider an application or make orders merely because the applicant may be concurrently pursuing other avenues of relief in connection with the same circumstances, unless there is a clear overlap in the nature of the proceedings (such as a scheme of arrangement where the court has commenced scrutiny of the scheme).
65. The applicant submitted that "Regal has already raised with NCAT the issue of potential "double recovery", and as Regal knows, NCAT has expressly acknowledged that if the Panel Application was first resolved and the Applicant benefited from that, that would be taken into account by NCAT in calculation of any damages due to the Applicant for the contractual breach complained of in the NCAT proceedings.
66. Having regard to the above, we are satisfied that it is not necessary or appropriate for the Panel to attempt to pre-empt any possible decision by NCAT.
[4]
Breach of Contract
The applicant made submissions that the prospectus formed a contract between the parties and that he respondent breached the contract when it returned the cheque for $14,000.00 and failed to allocate to him the shortfall shares.
The respondent makes submissions as follows:
1. No contract was formed and the prospectus is nothing more than an invitation to treat. The prospectus was vague and did not identify the number of shares offered and therefore lacked a fundamental term.
2. In the alternative, the contract was a conditional contract and by virtue of clause 1.2, the respondent had discretion not to issue to the shortfall shares and exercised that discretion.
The Tribunal finds that the prospectus is capable of amounting to a contract between the parties and that that when the applicant sent his cheque he accepted the contract.
Mindful of the Takeover Panels finding in relation to the respondent's discretion to issue the shares, the Tribunal finds that the prospectus and there the terms of the contract were conditional in relation to the respondent exercising its discretion to issue the shares.
However, the applicant's case fails on a more fundamental basis. Even if it was accepted that the prospectus formed the basis for a contract and that the respondent breached the contract and did not have discretion to issue the shares to the underwriter pursuant to the terms, it simply cannot be concluded, on the evidence and on the balance of probabilities, what course the applicant would then have taken in relation to his shares had he been assigned them.
Prior to the hearing the applicant had claimed an amount equivalent to the peak value of the shares at a price of 1.8 on 2 September 2016 and his loss had been calculated on that basis. At hearing the applicant indicated that he was no longer claiming an amount of 1.8, but rather that he would have sold the shares at 1.7 on 14 October 2016.
The applicant stated that he was very experienced in trading shares and on the morning of 14 October 2016 he had seen a spike of interest in people waiting to buy the shares and researched the matter further. He provided a copy of a feed from Port Phillip Publishing and stated he became aware of a post that had been published on the internet which indicated a rising of the buy-up-to price on Regal Resources. He stated that he recognised that this was what had increased the interests in the shares and that if he had the shares he would of sold them. He conceded in cross examination that he had not sold the shares which he did own in Regal and claims given the small quantum it was not worth the profit to sell them.
It was raised by the Mr Lyons, a stockbroker and expert for the respondent that what Mr Sauer was putting to the Tribunal was nothing more than speculative and with the benefit of hindsight. He stated that saying he would have sold the shares on 14 October 2016 assumes he would not have sold them at their peak earlier on 2 September 2016. Mr Lyons also explained that when a larger number of shares are placed on the stock market for sale on a particular day the demand for those shares decreases. The applicant sought to challenge that assertion in cross examination and indicated that the price could increase.
The Tribunal agrees with Mr Lyons that much of the applicants claims are speculative and have been made with the benefit of hindsight. The Tribunal accepts that various factors could have impacted on the price differently had the shares been placed for sale. The Tribunal needs to be satisfied that there was substantial prospect that Mr Sauer would have sold the shares on 14 October 2016 if he had been allocated the shares in the first place.
In the recent High Court case of Badenach v Calvert [2016] HCA 18 (11 May 2016) French CJ, Kiefel and Keane JJ discussed loss of opportunity in the contexts of a tort and relevantly stated at 41.
41. The onus of proving causation of loss is not discharged by a finding that there was more than a negligible chance that the outcome would be favourable, or even by a finding that there was a substantial chance of such an outcome. The onus is only discharged where a plaintiff can prove that it was more probable than not that they would have received a valuable opportunity. To the extent that the majority in Allied Maples Group Ltd v Simmons & Simmons[47] holds that proof of a substantial chance of a beneficial outcome is sufficient on the issue of causation of loss, as distinct from the assessment of damages, it is not consistent with authority in Australia and is contrary to the requirements of s 13(1)(a) of the Civil Liability Act.
The Tribunal is not satisfied that it can be found that it was probable that the applicant would have sold his shares on 14 October 2016 had he of received them. He may have sold them at their peak price earlier. Given the Takeover Panels decision, the applicant still has not lost the opportunity to receive the shares or sell them. Whether he will be able to sell them for more or less than 1.7 within a reasonable time is also a matter of speculation. The applicant simply has not discharged his onus in terms of loss and for that reason his application is dismissed.
The applicant also seeks the costs of having to apply to the Takeover Panel for a decision. He claims that these are damages which flow from the breach of contract. The Takeover Panel expressly denied costs in its reasons. They declined to award costs on the following basis:
71. We are satisfied that Regal conducted itself in a businesslike way and did not:
(a) present a case that was not arguable or make unsubstantiated assertions
(b) delay or obstruct proceedings, abuse the process or unreasonably refuse to negotiate or
(c) waste time on a particular issue or elongate proceedings.
72. In these circumstances, we do not consider that an order for costs should be made against Regal.
The Tribunal is not satisfied that the application fee for the Takeover Panel is a loss which flows from breach of contract. The Takeover Panel application relates to a different cause of action and the Panel has already decided on costs in relation to that cause of action.
Accordingly the applicant's case is dismissed in its entirety.
T Simon
Senior Member
Civil and Administrative Tribunal of NSW
1 December 2016
[5]
I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales.
Registrar
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: 18 January 2017
Parties
Applicant/Plaintiff:
Sauer
Respondent/Defendant:
Regal Resources Ltd
Legislation Cited (4)
Australian Securities and Investment Commission Act 2001(Cth)