Sellars v Adelaide Petroleum NL

REASONS FOR JUDGMENT This is an appeal from a decision of a single judge of this Court (Carr J), dismissing an application by Nexus Minerals NL ('Nexus') against the respondents, on the basis that Nexus had not proved any loss or damage. At all material times the appellant, Nexus, was known as Dry Creek Mining NL. Consistently with the trial judge's reasons it will be referred to here as "Dry Creek". The company was the minority party in a gold-mining joint venture agreement with Samantha Gold NL ("Samantha"). The first respondent Brutus Constructions Pty Ltd ("Brutus"), entered into a management agreement with Dry Creek in January 1991 under which it agreed to provide management and consulting services to Dry Creek as well as the personal services of Mr Kozyrski, the second respondent, who was to be and was appointed managing director of Dry Creek. The claims made by Dry Creek against the two respondents that are of relevance to this appeal were for damages for a loss said to have been sustained when it sold its interest in the joint venture to its co-venturer Samantha. That loss was alleged to have resulted from Brutus' breach of the management agreement contract and from Mr Kozyrski's breach of his duty of care and diligence to Dry Creek imposed by s232(4) of the Corporations Law. The sale itself was in settlement of proceedings initiated by Dry Creek against Samantha in the Supreme Court of Western Australia in consequence of action taken by Samantha under the joint venture agreement to dilute Dry Creek's proportional interest in the venture. The trial judge found that Mr Kozyrski so conducted himself as both to contravene s232(4) and to cause Brutus to be in breach of the management agreement. These breaches notwithstanding, his Honour then found that Dry Creek had not established that it suffered any loss when it sold its interest to Samantha or that it lost a chance that was compensable within the principles outlined in Sellars v Adelaide Petroleum NL (1994) 179 CLR 332. Accordingly the trial judge ordered that the application be dismissed and that the matter of costs be adjourned to a date to be fixed. Before any order as to costs was made or any order was entered, the applicant sought, under O35r1 and O35r7 of the Federal Court Rules, orders inter alia, that it be declared that Mr Kozyrski breached his duties as a director of Dry Creek and Brutus, its contract; that Mr Kozyrski be ordered to pay nominal damages to Dry Creek; and that the respondents pay 75 per cent of Dry Creek's costs of the application (save for certain interlocutory costs). The trial judge declined to make the declarations or orders sought. Having dismissed Dry Creek's application his Honour concluded that costs should follow the event. The essence of Dry Creek's appeal to this Court (as prosecuted) is that the trial judge was incorrect (i) in holding that damage was an essential element of the breach of contract and s232(4) claims; (ii) in not making a declaration of breach of contract and/or of awarding nominal damages therefor; (iii) in finding that no compensable chance (or opportunity) had been lost as a result of Mr Kozyrski's conduct; (iv) in finding that no loss had been suffered on the sale of the joint venture interest to Samantha; and (v) in refusing the applicant a proportionate part of the costs of the application. It is not disputed in this appeal that Mr Kozyrski so conducted himself as to contravene s232(4) of the Corporations Law and to cause Brutus to be in breach of its management agreement with Dry Creek. Accordingly it is sufficient to set out a truncated version of the relevant events. Dry Creek owned certain mining tenements near Eundynie in Western Australia. In 1989 it entered into a joint venture agreement with Samantha under which Samantha on incurring a particular level of exploration expenditure would acquire an 80 per cent participating interest in the tenements. Both companies appointed persons to an Operating Committee, Mr Kozyrski being one of Dry Creek's two appointees. Samantha was to manage the joint venture, Dry Creek was to reimburse Samantha for 20 per cent of Samantha's expenditure on the tenements, and under the joint venture agreement Samantha could dilute Dry Creek's interest in the tenements in the event that Dry Creek did not pay its share of such expenditure. In consequence of such a failure to pay, Samantha's solicitors wrote to Dry Creek on 7 October 1991 enclosing a notice purporting to dilute Dry Creek's interest from 20 per cent to 11.8 per cent. On 21 October 1991 Dry Creek sued Samantha in the Supreme Court of Western Australia seeking relief against forfeiture in respect of the dilution of its interest in the tenements. Those proceedings were settled in April 1992. The terms of the settlement were that Samantha acquired Dry Creek's interest in the tenements (defined as a 20 per cent interest for the purposes of the Agreement for Sale of Joint Venture Interest executed on 9 June 1992) for the sum of $1.6 million. The applicant's Statement of Claim alleged that in consequence of the breach of contract and the contravention of s 232(4): "the First and Second Respondents have caused the Applicant loss and damage. PARTICULARS OF DAMAGE (a) as at 7 October 1991 the Applicant was the beneficial owner of a 20 % interest in Eundynie, worth $3.1 million; (b) by reason of the dilution of its interest, the Applicant was left with an 11.8 % interest in Eundynie; (c) in 1992 the applicant sold its 11.8 % interest in Eundynie to Samantha for the sum of $1.6 million; (d) in the premises the dilution occasioned by the actions of the first and Second Respondents resulted in a loss to the Applicant in the sum of $1.5 million. AND THE APPLICANT CLAIMS against the First and Second Respondents (a) damages (b) interest (c) costs" We would note that, as particularised, the "loss and damage" said to have been suffered was not the loss of some commercial opportunity, nor in the loss of continued participation in the joint venture. We turn to each of the five matters of appeal as earlier set out.