FEDERAL COURT OF AUSTRALIA HID Global Corporation v Keycorp Limited [2009] FCA 1343 Trade Practices Act 1974 (Cth) Fair Trading Act 1987 (NSW) HID GLOBAL CORPORATION v KEYCORP LIMITED (ACN 002 519 986), ROBERT GORDON BISHOP and KENNETH MARTIN CARR NSD 539 of 2009 EMMETT J 23 OCTOBER 2009 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NSD 539 of 2009 GENERAL DIVISION BETWEEN: HID GLOBAL CORPORATION Applicant AND: KEYCORP LIMITED (ACN 002 519 986) First Respondent ROBERT GORDON BISHOP Second Respondent KENNETH MARTIN CARR Third Respondent JUDGE: EMMETT J DATE OF ORDER: 23 OCTOBER 2009 WHERE MADE: SYDNEY THE COURT ORDERS THAT: 1. Leave be granted to the applicant to file an amended statement of claim in the form initialled by Emmett J and dated with today's date. 2. The notice of motion filed on 24 September 2009 be dismissed. 3. The applicant pay the second and third respondents' costs of the motion. 4. As between the applicant and the first respondent, the parties' costs of today be the respective parties' costs of the proceeding. 5. The respondents file and serve their defences by 13 November 2009. 6. The applicant file and serve any reply by 27 November 2009. 7. The parties exchange their proposed categories of documents to be discovered by 4 December 2009. 8. The matter be stood over for further directions on 11 December 2009. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using eSearch on the Court's website. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NSD 539 of 2009 GENERAL DIVISION BETWEEN: HID GLOBAL CORPORATION Applicant AND: KEYCORP LIMITED (ACN 002 519 986) First Respondent ROBERT GORDON BISHOP Second Respondent KENNETH MARTIN CARR Third Respondent JUDGE: EMMETT J DATE: 23 OCTOBER 2009 PLACE: SYDNEY REASONS FOR JUDGMENT 1 The applicant, HID Global Corporation (HID Global), commenced a proceeding on 9 June 2009 seeking damages against Keycorp Limited (Keycorp) and two directors of Keycorp, Messrs Robert Bishop and Kenneth Carr (the Directors). The basic claim made by HID Global is that it suffered loss by conduct of Keycorp and the Directors that contravened provisions of the Trade Practices Act 1974 (Cth) and the Fair Trading Act 1987 (NSW). Following correspondence between the parties, the Directors applied to the Court, by notice of motion filed on 24 September 2009, for an order that paragraph 46 of the statement of claim be struck out. Following oral submissions and written submissions from both parties I indicated my view that the application should succeed. 2 Following that indication, counsel for HID Global propounded amendments to the statement of claim. Those amendments were accepted by the respondents as answering the complaint that they had made. However, the respondents asked for their costs of the motion. In particular Keycorp, although it was not a party to the motion, seeks its costs of attendance today. In order to determine the question of costs, it is necessary to say something about the allegations in the statement of claim and the correspondence that led to the filing of the notice of motion. 3 The material allegations may be summarised briefly as follows: · On 11 June 2008, Keycorp entered into an agreement with certain other parties. · It was a term of that agreement that, until the closing of certain transactions (the Gemalto Transactions), Keycorp would not offer its Smartcard business to any person other than one of the parties to the agreement and would not enter into negotiations with any other party for the disposition of the Smartcard business unless certain steps involving an extraordinary general meeting of one of the parties occurred (the Exclusivity Arrangement). · That exclusivity Arrangement remained binding on Keycorp at all material times. · Keycorp represented to HID Global that o Keycorp wished to sell part or all of its businesses, o Keycorp had entered into the Exclusivity Arrangement with respect to the Smartcard business, o Keycorp was not able to sell the Smartcard business, o The Exclusivity Arrangement did not prevent Keycorp from selling all of its business, including the Smartcard business, and o Keycorp was interested in obtaining a bid from HID Global for the purchase of all of Keycorp's business, including the Smartcard business. · Thereupon, HID Global submitted an expression of interest to Keycorp offering to buy the entire business of Keycorp. 4 There is no complaint concerning those alleged representations. However, the statement of claim then alleges that Keycorp subsequently represented to HID Global that the Exclusivity Arrangement had lapsed and that Keycorp was free to sell the Smartcard business to HID Global. There are other similar representations alleged in relation to the question of whether or not the Exclusivity Arrangement continued to operate. HID Global then alleges that, in reliance on the representations concerning the continuation of the Exclusivity Arrangement, HID Global engaged advisers to assist it in conducting due diligence into the Smartcard business and negotiating for the purchase of the Smartcard business and incurred expense in conducting due diligence and in submitting revised offers to purchase the Smartcard business. 5 The statement of claim then alleges that HID Global suffered loss and damage, by reason of its reliance on the representations, in that it incurred those costs and expenses in relation to the possible purchase of the Smartcard business. No complaint is made by the respondents so far as that cause of action and damage is concerned, although Counsel has foreshadowed that there will be a factual issue as to whether or not the representations were made, and as to whether or not there was any reliance upon any such representations. 6 However, paragraph 46 of the statement of claim then alleges that, by reason of the representations to which I have referred, HID Global lost the chance of acquiring Keycorp's entire business and has suffered loss and damage as a result. That allegation is particularised by an assertion that: · the Exclusivity Arrangement expressly did not prevent Keycorp from negotiating or accepting an offer to purchase the entire business of Keycorp, · the Directors had a fiduciary duty to Keycorp and its shareholders to consider any such offer, · HID Global made an indicative offer to purchase the entire business of Keycorp, · by reason of the representations HID Global lost the chance of acquiring Keycorp's entire business and has suffered loss and damage by reason of that loss of opportunity. 7 I consider that there was a defect in that pleading insofar as it fails to allege any causal connection between the damage claimed, being the loss of opportunity of buying the whole of Keycorp's business, and the making of the relevant representations. It may be that a causal connection might be capable of being implied or inferred. However, in a case such as this, the causal connection between alleged misleading conduct and the damage alleged to have been suffered by that misleading conduct is critical. Almost invariably the causal connection will be the reliance by a relevant person upon misleading or deceptive representations, assuming the representations are shown to be misleading or deceptive. Having indicated that view, HID Global then sought leave, which was not opposed, to amend the statement of claim. 8 In effect, the amendment now will constitute an allegation that, in reliance upon the relevant representations, HID Global turned away from the proposal to buy the entire business of Keycorp. That allegation satisfies the requirement for there to be an allegation of a causal connection between the misleading conduct and the damage. 9 However, as I have said, the respondents seek their costs. That involves a consideration of correspondence between the parties prior to the filing of the notice of motion. 10 On 10 July 2009, the solicitors for Keycorp wrote to the solicitors for HID Global seeking further particulars of the statement of claim and making some complaints about the statement of claim. In relation to paragraph 46, Keycorp's solicitors said that, as currently drafted, paragraph 46 was embarrassing and liable to be struck out. It asserted that, if the allegations in that paragraph and the particulars are to be maintained, they will need it to be pleaded in the proper way. HID Global was invited to amend the statement of claim by properly pleading that aspect. HID Global's solicitors responded on 14 August 2009. In relation to paragraph 46, they said that they did not agree that it was embarrassing and liable to be struck out. They invited Keycorp's solicitors to indicate why that assertion was made, so that the matter could be considered further. The letter confirmed that HID Global intended to maintain the allegations in paragraph 46 and the particulars in relation to it. 11 On 1 September 2009, the solicitors for the Directors wrote to the solicitors for HID Global in relation to the statement of claim. In relation to paragraph 46, their letter said that it was implicit in the loss of chance claim that there was an allegation that HID Global would somehow have acted differently had the relevant representations not been made. The letter said that, in the context of an allegation that HID Global lost the chance of acquiring the entire business of Keycorp, the only things that Keycorp could have done to have brought about such a result would have been either to have made an offer, or a different offer, to acquire the entire business, or to have accepted an offer to acquire the entire business of Keycorp made by Keycorp. The letter pointed out that the second alternative was not alleged. 12 The letter also said that, as to the first alternative, even if the alleged representations were made, they could not have led a person in the position of HID Global to have reasonably believed that it was not entitled to make an offer for the entire business of Keycorp. After setting out detailed reasons in relation to those assertions, the letter finished by expressing the view that paragraph 46 of the statement of claim was liable to be struck out. The letter invited HID Global's solicitors to amend the statement of claim by deleting the paragraph and threatened to file a motion seeking orders that it be struck out in the event that an amendment was not made. 13 HID Global's solicitors responded on 10 September 2009. In that letter they said that there was no claim that, as a result of the representations, HID Global was not entitled or permitted to make another offer for Keycorp's entire business. The letter said that HID Global claimed it had lost the opportunity to acquire the entire business in reliance on the representations, in believing that the Smartcard business was available for sale on a standalone basis. It said that, because of that reliance, it ceased seeking to pursue Keycorp's entire business and instead pursued acquisition of only the Smartcard business. The letter said that, had the representations not been made, HID Global would have acted in a different way by continuing to pursue a purchase of Keycorp's entire business. As I have indicated, that is, in effect, the substance of the statement of claim as amended. 14 The solicitors for the Directors replied on 23 September 2009. That letter summarised the case as an assertion that, in reliance on the representations and believing that the Smartcard business was available on a standalone basis, HID Global ceased seeking to pursue the purchase of Keycorp's entire business and instead pursued the acquisition of only the Smartcard business. The letter said that, if that is HID Global's case, the statement of claim fails to explain the causal connection between the representations as alleged and HID Global's conduct. It asserted that the representations made clear that HID Global was free to bid for the whole or any part of Keycorp's business and that, in those circumstances, it was difficult to understand how HID Global was misled into believing it was only entitled to make a bid for a part of Keycorp's business. It said that, at the very least, those unexplained causal steps need to be pleaded. 15 In their submissions, filed in support of the motion on 25 September 2009, the Directors said that on the facts pleaded on the statement of claim, any suggestion of a link between the alleged representations and the alleged loss of opportunity was illogical. First, the alleged representations related only to Keycorp's ability to sell its Smartcard business and said nothing about HID Global's ability to offer to purchase Keycorp's entire business. Secondly, HID Global was aware at all times that it could make an offer for Keycorp's entire business and, in fact, issued an expression of interest for Keycorp's entire business. The submission said that any failure to pursue an acquisition of Keycorp's entire business had nothing to do with the alleged representations but was, rather, a decision taken by HID Global, well aware that it had a choice to try to purchase all or part of the business. 16 In dealing with the problems with paragraph 46, upon which the motion was based, the submission asserted that the lack of any pleaded link between the alleged representations and the alleged loss of chance was most important. The submission said that, if HID Global wished to continue with its loss of opportunity claim, there must be some material facts in the causation chain linking the alleged representations about the Exclusivity Arrangement with the loss of the chance to purchase the entire business, and that those material facts, if they existed, should be pleaded. Since they had not been, paragraph 46 was embarrassing and should be struck out. 17 I consider that, in the exchange of correspondence to which I have referred, and in the submissions made on behalf of the Directors, HID Global was clearly enough alerted to the substance of the complaint that has now led to the amendment of the statement of claim. Certainly, the contentions in the correspondence and, to some extent, in the submissions, go beyond a mere pleading complaint, insofar as they assert, in substance, that the causal link could not be established. That, of course, is a matter of fact to be determined in due course by the evidence. Nevertheless, there was no acceptance on the part of HID Global of the deficiency in the pleading that I consider existed until the amendment. To that extent, the Directors, the applicants on the motion, have been successful and they are entitled to their costs of the motion. 18 As I have said, Keycorp was not a party, and did not expose itself to costs. As between Keycorp and HID Global, I consider that the costs of today should be their respective costs in the proceeding. It was fair enough for Keycorp to attend to see the outcome of the motion since the success of the motion would be for its benefit as well. However, since it was not prepared to risk costs, I do not consider that it is entitled to an order for costs at this stage. I certify that the preceding eighteen (18) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett. Associate: Dated: 18 November 2009 Counsel for the Applicant: Mr NJ Kidd Solicitor for the Applicant: Allens Arthur Robinson Counsel for the First Respondent: Mr A McGrath Solicitor for the First Respondent: Henry Davis York Counsel for the Second and Third Respondents: Mr IM Jackman SC and Mr I Pike Solicitor for the Second and Third Respondents: Arnold Bloch Leibler Date of Hearing: 23 October 2009 Date of Judgment: 23 October 2009