FEDERAL COURT OF AUSTRALIA Ambergate Limited v CMA Corporation Limited (Administrators Appointed) [2016] FCA 94 File number(s): NSD 939 of 2013 Judge(s): BUCHANAN J Date of judgment: 17 February 2016 Catchwords: TRADE PRACTICES – applicant alleged misleading and deceptive conduct – applicant claimed reliance on public statements for purchases of shares in company – applicant claimed reliance on later public statements to retain shares in company – public statements connected with the issuing of shares is the provision of "financial services": section 52 of Trade Practices Act 1974 (Cth) not applicable – section 12DA of the Australian Securities and Investments Commission Act 2001 (Cth) applied – section 1041H of the Corporations Act 2001 (Cth) applied – public statements made before the share purchases not misleading or deceptive – statements after the purchases of shares misleading and deceptive – applicant did not demonstrate it would have sold shares – applicant did not prove a resulting loss Legislation: Australian Securities and Investments Commission Act 2001 (Cth), ss 5(3), 12BB, 12BAB, 12DA Competition and Consumer Act 2010 (Cth), Sch 2—Australian Consumer Law, s 236 Corporations Act 2001 (Cth), ss 79, 769C, 1041H Federal Court Rules 2011 (Cth), rr 1.34, 1.40, 8.03(1), 16.02(4) Trade Practices Act 1974 (Cth), ss 4, 51A, 51AF, 52, 75B, 82, 87CB(3), 87CC(1)(b) Civil Liability Act 2002 (NSW), ss 34A, 35 Fair Trading Act 1987 (NSW), ss 41, 42 Cases cited: Australian Securities and Investments Commission v Narain (2008) 169 FCR 211 Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592 Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304 Forrest v Australian Securities and Investments Commission (2012) 247 CLR 486 Placer (Granny Smith) Pty Ltd v Thiess Contractors Pty Ltd [2003] HCA 10; (2003) 77 ALJR 768 Quinlivan v Australian Competition and Consumer Commission (2004) 160 FCR 1 Tomasetti v Brailey [2012] NSWCA 399; (2012) 274 FLR 248 Williams v Pisano [2015] NSWCA 177; (2015) 299 FLR 172 Date of hearing: 6, 7, 8, 9, 13 July 2015 and 26 October 2015 and 18, 25 November 2015 and 3 December 2015 Registry: New South Wales Division: General Division National Practice Area: Commercial and Corporations Sub-area: Regulator and Consumer Protection Category: Catchwords Number of paragraphs: 285 Counsel for the Applicant: Mr T G R Parker SC with Mr J S Emmett Solicitor for the Applicant: Garland Hawthorn Brahe Counsel for the First Respondent: The matter was not pressed against the first respondent and it did not appear Counsel for the Second Respondent: Mr T M Faulkner SC Solicitor for the Second Respondent: Toomey Pegg Counsel for the Third Respondent: Mr C E Bannan Solicitor for the Third Respondent: Madgwicks Table of Corrections 18 February 2016 In paragraph 284, the figure "$80,333" has been replaced with "$72,300". ORDERS NSD 939 of 2013 BETWEEN: AMBERGATE LIMITED (NZ COMPANY NUMBER 963855) Applicant AND: CMA CORPORATION LIMITED (ABN 40 113 329 016) (ADMINISTRATORS APPOINTED) First Respondent TREVOR SCHMITT Second Respondent DOUGLAS ROWE Third Respondent JUDGE: BUCHANAN J DATE OF ORDER: 17 FEBRUARY 2016 THE COURT ORDERS THAT: 1. The second and third respondents bring in short minutes of order to give effect to the findings in this judgment within 14 days. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. REASONS FOR JUDGMENT BUCHANAN J: Introduction 1 These proceedings seek damages for misleading and deceptive conduct. They were originally commenced, on 28 May 2013, only against CMA Corporation Ltd ("CMA"), which was later placed into voluntary administration. 2 After CMA was placed into voluntary administration, the second and third respondents (Trevor Richard Schmitt and Douglas Trevor Rowe) were joined as parties. Mr Rowe was the Managing Director and Chief Executive Officer of CMA during the events referred to in this judgment; Mr Schmitt was the Chief Financial Officer and Company Secretary. The proceedings are not now maintained against CMA, in administration. 3 CMA was formed in 2005. Mr Rowe became a board member and Chief Operating Officer in around July 2007. On 1 February 2008, he was appointed Managing Director and Chief Executive Officer. 4 CMA's business was metal recycling. It was the publicly listed Australian parent company of a metals recycling group with business interests and operations in a number of countries, although its principal base of operations was Australia. 5 The applicant ("Ambergate") is a New Zealand company, which is the corporate trustee of the "Ambergate Trust". The managing director of Ambergate is John Andrew Sorensen, whose role, he said, was "to invest the trust funds for the long term benefit of the trust". From 1990 until the events in question, Mr Sorensen directed the activities of Ambergate in a way described by him as follows: 6. In or around mid 1990 I started investing in the share market and taking shareholder interests in other businesses. I carried on this type of investing through to 2009. As at 2009 I considered myself as a sophisticated investor. Initially I invested in my own name before gradually investing on behalf of my family Trust. 7. As at 2009 when looking to make an investment: (a) I did not use a broker for research into investments; (b) I used a number of different brokers mainly as a facility to buy and sell shares only and not for the provision of regular advice although I may make specific enquiries of a broker from time to time ("my practice"). (Emphasis in original.) 6 It will be relevant to bear in mind Mr Sorensen's description of himself as a "sophisticated investor" and the fact that he did not rely on professional or research advice; those were roles he performed himself on behalf of Ambergate. It follows that Ambergate, through Mr Sorensen, appreciated the inherent risks and potential volatility of stock market investing. As will appear, Mr Sorensen caused Ambergate to make two substantial investments in CMA, by way of purchase of its shares, at a time when he hoped to take advantage of a return by CMA to profitability after the effects of the "Global Financial Crisis" in 2008 ("GFC"), which had been very serious for CMA. 7 The share purchases were made by Ambergate entering into sub-underwriting agreements with BBY Limited ("BBY"), the underwriter of a public placement of CMA shares intended to raise $15 million in extra working capital. The shares were offered at 10 cents each, at a discount of 18.7% to the recent market price. Ambergate purchased 6.5 million shares on 25 September 2009 ($650,000) and a further 1.5 million shares on 12 October 2009 ($150,000). Ambergate received a sub-underwriting fee of $13,000 (2%) for the first purchase. The nature of case 8 The applicant's case is that Ambergate relied, when making the first share purchase, on public statements made by or on behalf of CMA on 1 May 2009, 22 July 2009, 28 August 2009 (x 2) and 1 September 2009 and on statements made in a conversation between Mr Sorensen and Mr Schmitt in early September 2009. It was asserted that, in making the second share purchase, Ambergate relied again on all those statements and on further public statements made by CMA and Mr Rowe on 28 and 29 September 2009, respectively. 9 Those further statements were identified in a second further amended statement of claim as particular statements in a letter by the Chairman of CMA dated 28 September 2009 and particular statements in a report by Mr Rowe, as Managing Director, on 29 September 2009. Both of the documents (the Chairman's Letter and Mr Rowe's Report) were published to the stock market on 29 September 2009 as part of CMA's Annual Report for 2009. 10 Both share purchases were settled on 20 October 2009. The second further amended statement of claim pleaded that Ambergate relied on the foregoing matters, and also on an announcement on 14 October 2009, to settle the purchase. However, Ambergate was committed contractually by this time to BBY. Although I shall discuss the 14 October 2009 announcement in another context, I do not regard it as relevant to the cause of action arising directly from the share purchase. 11 Then, it is contended that CMA was liable to Ambergate because, relying on the same matters, and statements made after the shares were purchased (on 14 October 2009, 23 November 2009 and 11 December 2009) Ambergate held the shares, rather than selling them, when it could have sold at a much reduced loss than it ultimately suffered. 12 Mr Rowe and Mr Schmitt are each said to be liable for their own participation in various aspects of CMA's conduct, as persons who were "involved" in that conduct and thus liable as accessories to CMA's conduct. In addition, Mr Rowe and Mr Schmitt are each said to be directly liable for their own misleading and deceptive conduct represented by their participation in various aspects of the matters referred to above. By the time closing oral submissions were taken, this had become the primary focus of attention by the applicant. 13 The closing written and oral submissions for both Mr Rowe and Mr Schmitt spent a good deal of time arguing a case that Ambergate should be held strictly to its pleaded case; by reference to which (strictly applied) they argued that Ambergate had failed to make good a complete case against each of them. In substance, this was an argument based on pleading points, with the unattractive qualities that such lines of defence often have if they appear designed to avoid confronting the substance of the case which has been fairly disclosed. However, some attention to those issues will be required. 14 Otherwise, Mr Rowe and Mr Schmitt in their defences resisted the various ways in which they were said to be personally liable, alleged that there were reasonable grounds for making any representation about future matters, pleaded that the applicant contributed by its own negligence to any loss it might have suffered and contended that if either bore any personal liability, it should be reduced by reference to the conduct of alleged concurrent wrong-doers. The structure of the pleaded case 15 The case went to trial on the basis of the second further amended statement of claim filed on 20 November 2014. 16 As commenced, and by an amended originating application filed on 20 November 2013, Ambergate sought relief by way of damages under s 82 of the Trade Practices Act 1974 (Cth) ("TP Act") or under its statutory successor, the Australian Consumer Law ("ACL"), (see s 236). Although the amended pleading (the second further amended statement of claim filed on 20 November 2014, 12 months later) stated causes of action against Mr Rowe and Mr Schmitt personally under the Fair Trading Act 1987 (NSW) ("FT Act"), in the alternative, the amended originating application was never further amended to seek such relief. 17 The second further amended statement of claim also stated causes of action relying on s 52 of the TP Act, s 1041H of the Corporations Act 2001 (Cth) ("Corporations Act") and s 12DA of the Australian Securities and Investments Commission Act 2001 (Cth) ("ASIC Act") (relating to CMA's conduct) with Mr Rowe and Mr Schmitt alleged to be "knowingly concerned" in the conduct and thereby liable as accessories to it. Again, however, the originating application was not amended to seek such relief. (Hereafter, my references to statement of claim refer to the second further amended statement of claim). 18 In the Federal Court Rules 2011 (Cth) ("the Rules"), rr 8.03(1) and 16.02(4) state: 8.03 Application to state relief claimed (1) An originating application must state: (a) the relief claimed; and (b) if the relief is claimed under a provision of an Act—the Act and the provision under which the relief is claimed. … 16.02 Content of pleadings—general … (4) A party is not entitled to seek any additional relief to the relief that is claimed in the originating application. 19 Accordingly, the pleaded claims under the FT Act, the Corporations Act and the ASIC Act were technically not available to the applicant. I have considered whether that aspect of the pleaded claim should be dismissed on that basis, but I have decided that it should not be. 20 I am satisfied that the failure to seek any further amendment of the originating application must have been an oversight. The respondents had adequate notice of the pleaded claim against them. Indeed, the respondents took no point based on the Rules. There is ample power under the Rules to dispense with their particular requirements on the Court's initiative (rr 1.34, 1.40), and I do so. 21 The pleading technique which was used was, first, to identify public statements or announcements made by CMA (paragraphs 3, 4, 5, 6, 7, 9, 10, 11, 12, 13, 14). This reflected the origins of the case, when it was commenced only against CMA. I will identify the particular statements in due course. 22 Then, by amendments made to the statement of claim when Mr Rowe and Mr Schmitt were joined to the proceedings as respondents, it was pleaded that Mr Rowe (paragraphs 3A, 4A, 5A, 6A, 7A, 10A, 11A, 13A, 14A), or Mr Schmitt (paragraphs 3B, 5B, 12A, 13B), or both of them, were "knowingly concerned" in making particular statements. 23 In addition, statements made by Mr Schmitt in a conversation with Mr Sorensen were pleaded (paragraph 8). 24 The pleaded statements were made in the period 1 May 2009 to 11 December 2009. 25 Then it was pleaded that the applicant relied on such of the statements as had been made up to particular points in time to purchase shares in CMA (in two tranches) and to hold the shares until they were worth substantially less than the price paid for them (paragraphs 17, 19, 21, 23). 26 Then, paragraph 24 appeared. It dealt with statements made by CMA before the first share purchase by Ambergate. It pleaded the way in which the various statements represented conduct which was misleading or deceptive: 24. The conduct alleged … was misleading and deceptive in that: a. the relevant statements gave the misleading impression that CMA, despite having been in a difficult position, was well placed to recover financially in 2010; or b. the relevant statements gave the misleading impression that CMA, despite having been in a difficult position, would in fact recover financially in 2010; or c. the relevant statements gave a misleadingly optimistic impression of CMA's existing financial position and likely performance in the 2010 financial year; or d. the relevant statements gave the misleading impression that CMA would return to profitability in 2010. 27 The following particulars were provided: Particulars 1. In making these allegations, Ambergate relies on: a. the fact that, on 19 February 2010, CMA requested immediate suspension in trading of its shares; b. the fact that, on 16 March 2010, CMA published its Half Year Report for the period from 1 July 2009 to 31 December 2009, which included a statement that CMA Meretec recorded a $2,604,000 loss at the EBITDA level; c. the fact that, on 30 September 2010, CMA announced a net loss after tax for the 2010 financial year of $72.4 million; d. the failure of CMA, or any person on behalf of CMA, to point to unforeseen or unexpected events that occurred or came to light after the alleged conduct that could explain the difference between the impression created by the statements and CMA's actual financial performance; e. the failure of CMA or either of the Respondents to point to reasonable grounds for making the statements alleged; f. the inference available from these matters that the statements, taken cumulatively, were misleading in one or more of the respects alleged in the paragraph. 2. To the extent that the conduct involved representations as to future matters, Ambergate will rely on section 51A(2) of the Trade Practices Act 1974 (Cth) (the TPA) and section 12BB(2) of the Australian Securities and Investments Commission Act 2001 (Cth) (the ASIC Act) insofar as those sections are applicable. 3. Further particulars to be provided following subpoenas and discovery. (Emphasis in original.) 28 Those particulars, in my view, fall short of providing support for the matters pleaded in paragraph 24, with the possible exception of particular 1.e, which may suffice to refer to matters arising under the FT Act which it will be necessary to discuss separately. 29 The fact that a representation about some future matter does not come to pass, or is falsified, does not suffice to show that the representation was made without reasonable grounds, although it may be a matter relevant to consider as part of the overall circumstances. However, particulars are not pleadings and the evidentiary case sufficiently exposed the matters to be examined in connection with the conduct asserted by paragraph 24. 30 It should be borne in mind, that the conduct pleaded by paragraph 24 was conduct by CMA, not conduct by Mr Rowe or Mr Schmitt. 31 One further point should be made about paragraph 24 at this stage. It will be seen, when I deal with the content and context of the particular statements identified by the pleading from 1 May 2009 up to early September 2009 (i.e. the conduct alleged in paragraphs 3 to 8, as referred to in paragraph 24), that 24.b and 24.d cannot be sustained. In my view, they do not satisfactorily state the impression likely to be left upon an interested, but neutral, reader. In oral submissions, no effort was made to defend that part of the pleading. 32 Then, paragraphs 24A, 24B, 24C and 25 pleaded, progressively, that statements made from 1 May 2009 to the end of September 2009, statements made from 1 May 2009 to 14 October 2009, and statements made from 1 May 2009 to 11 December 2009, all represented misleading or deceptive conduct by CMA under s 52 of the TP Act or s 1041H of the Corporations Act or s 12DA of the ASIC Act. 33 Paragraphs 25A and 25B pleaded that Mr Rowe and Mr Schmitt were each "knowingly concerned" in CMA's misleading and deceptive conduct. Particulars identified the earlier paragraphs which alleged that they were knowingly concerned in the making of particular statements. 34 As a further, and final alternative, each of Mr Rowe and Mr Schmitt was alleged to be directly liable (at that stage, under s 42 of the FT Act, s 1041H of the Corporations Act or s 12DA of the ASIC Act) for misleading and deceptive conduct arising from the alleged personal and direct participation in the various groupings of statements up to particular points in time (paragraphs 25C-25H). 35 The applicant's alleged loss was identified by pleading that, by the time Ambergate knew or could have known that the alleged conduct was "false or misleading", the shares were worth substantially less than the price paid for them (paragraph 26). A preliminary observation 36 Conduct which is alleged to be misleading or deceptive must be evaluated by looking at the relevant course of conduct as a whole, including what was not done as well as what was done. In Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304, the majority judgment (at [102]) approved statements by McHugh J in Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592 (at [109]) which included the following: 109 The question whether conduct is misleading or deceptive or is likely to mislead or deceive is a question of fact. In determining whether a contravention of s 52 has occurred, the task of the court is to examine the relevant course of conduct as a whole. It is determined by reference to the alleged conduct in the light of the relevant surrounding facts and circumstances. It is an objective question that the court must determine for itself. It invites error to look at isolated parts of the corporation's conduct. The effect of any relevant statements or actions or any silence or inaction occurring in the context of a single course of conduct must be deduced from the whole course of conduct. (Emphasis added.) (Footnotes omitted.) 37 As will be seen in due course, although I do not find that a case has been made out of misleading or deceptive conduct by CMA, or by either Mr Rowe or Mr Schmitt before Ambergate committed to its share purchases, the opposite is the case in the period which followed. Those conclusions involve consideration of a failure by CMA and Mr Rowe to correct the effect of the statements made before the shares were purchased, when it had become clearly apparent to CMA and Mr Rowe that those earlier statements could no longer be justified. 38 Before I turn to the underlying events in more detail, it will be convenient to briefly refer to some matters concerning the onus of proof in matters where representations about future matters are relied upon. Onus of proof 39 Ambergate's primary case concerned representations as to future matters. In that connection, it also relied upon s 51A of the TP Act, s 12BB of the ASIC Act and s 41 of the FT Act. Section 51A of the TP Act provided: 51A Interpretation (1) For the purposes of this Division, where a corporation makes a representation with respect to any future matter (including the doing of, or the refusing to do, any act) and the corporation does not have reasonable grounds for making the representation, the representation shall be taken to be misleading. (2) For the purposes of the application of subsection (1) in relation to a proceeding concerning a representation made by a corporation with respect to any future matter, the corporation shall, unless it adduces evidence to the contrary, be deemed not to have had reasonable grounds for making the representation. (3) Subsection (1) shall be deemed not to limit by implication the meaning of a reference in this Division to a misleading representation, a representation that is misleading in a material particular or conduct that is misleading or is likely or liable to mislead. [Section 12BB of the ASIC Act is to the same effect.] 40 Ambergate accepted that the respondents had adduced "evidence to the contrary" and that Ambergate, therefore, retained the onus under the TP Act to establish that CMA had made relevant representations as to future matters, without reasonable grounds for doing so. 41 In closing written submissions, Ambergate said: 6. Ambergate does not press the pleaded claim based on section 12DA of the Australian Securities & Investments Commission Act 2001 (Cth), on the basis that the impugned conduct is not misleading conduct in relation to "financial services" as that term is defined in section 12BAB of the Act. Nothing of substance turns on this, given that the legislation on which Ambergate relies is in relevantly similar terms. 42 However, the straightforward nature of that approach became complicated by the position taken by the respondents, and I will not hold Ambergate to it. 43 In closing written submissions for Mr Rowe it was argued that s 51A of the TP Act (and s 52) may not be available to Ambergate in the present case. The reasons for that contention were that the conduct alleged by Ambergate was in relation to a "financial product" and therefore conduct to which s 1041H of the Corporations Act would apply (which Ambergate also relied on). If the contention is correct, it would mean that s 12DA of the ASIC Act applied, rather than s 52 of the TP Act but, as Ambergate pointed out, nothing would turn on that because the legislative schemes are (for the present case) indistinguishable. In other words, if the conduct was "carved out" of s 52 of the TP Act, it was covered by s 12DA of the ASIC Act and was potentially subject to s 12BB of the ASIC Act which operates like s 51A of the TP Act. 44 No deeming provision such as s 51A of the TP Act or s 12BB of the ASIC Act applies to conduct alleged under s 1041H of the Corporations Act (see Corporations Act, s 769C), but that point goes nowhere either. Ambergate accepted, as I have already indicated, that it retained an onus of showing relevant representations about future matters were made without reasonable grounds, even if it relied on s 52 of the TP Act. 45 A further argument, put by each of Mr Rowe and Mr Schmitt in closing written submissions, was that a qualified presumption of the kind effected by s 51A of the TP Act and s 12BB of the ASIC Act will not operate against an alleged accessory (see Quinlivan v Australian Competition and Consumer Commission (2004) 160 FCR 1 ("Quinlivan") at [15]). The test for when a person is "involved in" the conduct of another (such as a corporation) is set out in s 75B of the TP Act and in s 79 of the Corporations Act (which is also picked up by s 5(3) of the ASIC Act). Section 79 of the Corporations Act will suffice as an example: 79 Involvement in contraventions A person is involved in a contravention if, and only if, the person: (a) has aided, abetted, counselled or procured the contravention; or (b) has induced, whether by threats or promises or otherwise, the contravention; or (c) has been in any way, by act or omission, directly or indirectly, knowingly concerned in, or party to, the contravention; or (d) has conspired with others to effect the contravention. 46 The test to be applied is set out in Quinlivan as follows: 15 … as against the accessorial respondent, the onus will be on the applicant to show the respondent had actual knowledge that: • the representation was made and • it was misleading or • the corporation had no reasonable grounds for making it … 47 In response to these various challenges, in the oral submissions, the primary focus of Ambergate's case shifted to the alleged primary liability, of Mr Rowe and Mr Schmitt under s 42 of the FT Act, which provides: 42 Misleading or deceptive conduct (TPA s 52) (1) A person shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive. (2) Nothing in this Part shall be taken as limiting by implication the generality of subsection (1). 48 Section 41 of the FT Act provides: 41 Interpretation (TPA s 51A) (1) For the purposes of this Part, where a person makes a representation with respect to any future matter (including the doing of, or the refusing to do, any act) and the person does not have reasonable grounds for making the representation, the representation shall be taken to be misleading. (2) The onus of establishing that a person had reasonable grounds for making a representation referred to in subsection (1) is on the person. (3) Subsection (1) shall not be taken to limit by implication the meaning of a reference in this Part to a misleading representation, a representation that is misleading in a material particular or conduct that is misleading or is likely or liable to mislead. 49 The applicant chose at the end of the case to concentrate on this source of statutory liability, leaving it to Mr Rowe and Mr Schmitt to discharge the onus, if they could, of showing that the statements attributed to them were made with reasonable grounds. However, the applicant did not abandon the case based on alleged accessorial liability. 50 The result is that the case against Mr Rowe and Mr Schmitt must first be examined to see whether either of them bears direct personal responsibility for the statements attributed to them. If so, I must examine whether the onus under s 41 of the FT Act has been discharged where the statements relied upon concerned future matters. If liability is established, separate examination of the position commencing with s 52 of the TP Act, s 12DA of the ASIC Act or s 1041H of the Corporations Act will not be strictly necessary. 51 Examination commencing with any of those provisions would raise different issues. Each would first require assessment of the conduct of CMA. In either case, the onus would rest on Ambergate to make out both a case of contravention by CMA and also a case of accessorial liability. That would be unnecessary if personal liability arises under the FT Act. However, examination of the position under the TP Act, the ASIC Act or the Corporations Act would be required in one situation: namely, if no potential personal liability arises under the FT Act. In that case, consideration of the case about accessorial liability will be required. 52 I have become persuaded that s 52 of the TP Act cannot apply in the present case. 53 Section 51AF of the TP Act provides: 51AF Part does not apply to financial services (1) This Part does not apply to the supply, or possible supply, of services that are financial services. (2) Without limiting subsection (1): (a) sections 52 and 55A do not apply to conduct engaged in in relation to financial services; and (b) if a financial product consists of or includes an interest in land, section 53A does not apply to that interest; and (c) section 63A does not apply to: (i) a credit card that is part of, or that provides access to, a credit facility that is a financial product; or (ii) a debit card that allows access to an account that is a financial product. (3) In subsection (2): credit card has the same meaning as in section 63A. debit card has the same meaning as in section 63A. (Emphasis in original.) 54 The TP Act defines "financial services" as follows: financial service has the same meaning as in Division 2 of Part 2 of the Australian Securities and Investments Commission Act 2001. (Emphasis in original.) 55 Section 12BAB(1)(b), (7) and (8) of the ASIC Act provides: 12BAB Meaning of financial service When does a person provide a financial service? (1) For the purposes of this Division, subject to paragraph (2)(b), a person provides a financial service if they: … (b) deal in a financial product (see subsection (7)); … … … Meaning of dealing (7) For the purposes of this section, the following conduct constitutes dealing in a financial product: (a) applying for or acquiring a financial product; (b) issuing a financial product; (c) in relation to securities or managed investment interests—underwriting the securities or interests; (d) varying a financial product; (e) disposing of a financial product. (8) Arranging for a person to engage in conduct referred to in subsection (7) is also dealing in a financial product, unless the actions concerned amount to providing financial product advice. (Emphasis in original.) 56 In my view, on the facts of the present case, the statements upon which Ambergate sues are connected with the issue of shares. They concern dealing in, or arranging for someone to deal in, financial products and therefore relate to the provision of financial services. Section 52 of the TP Act does, therefore, not apply to them. Section s 12DA of the ASIC Act would apply. So, also, may s 1041H of the Corporations Act. If I am wrong, then s 52 of the TP Act applies. It makes no real difference. On the findings I make later, however, more detailed examination of those complexities is not required. Statements before the first share purchase 57 For the financial year to 30 June 2007 CMA reported a net profit of $6,517,000. For the financial year to 30 June 2008 CMA reported a net profit of $18,076,000. That profit was announced to the stock market on 28 August 2008. The announcement predicted an increased net profit after tax ("NPAT") for the following year (FY2009) of 25% to 30%. 58 However, the global financial crisis ("GFC") struck in the first half of the next financial year and on 24 October 2008 CMA announced a reversal in its fortunes, saying: Based on the uncertainty and volatility in the market at present, CMA is unable to provide guidance on the company's financial performance for the first half of FY09, only to say that it is expected to be below last year's result. The company hopes to provide profit guidance for the half year at its AGM on 24 November 2008. 59 On 24 November 2008, Mr Rowe informed the Annual General Meeting (and CMA announced to the stock market): Looking now at the current financial year and as Alan [CMA's Chairman, Mr Alan Good] mentioned CMA has had a pretty tough start to 2009. The global financial crisis has had a huge impact on trading conditions in all countries. We've seen a dramatic fall in commodities prices over the past 4 months and a massive slowdown in demand for scrap. These are conditions neither I nor any of my colleagues have seen before. Metal prices have fallen across the full range of commodities, but it's the extent of the fall and the short period over which that has happened that has surprised the market. The result is that we expect our first half of 2009 to be well down on last year. Indeed the Board of CMA is most likely expecting a loss which will have a number of significant "one off" write-downs. 60 On 16 December 2008, CMA announced a likely net loss after tax ("NLAT") for the first half year to 31 December 2008 of about $35 million. In an announcement to the stock market on 20 February 2009, the actual loss was more precisely stated as $36.5 million. 61 This was the background to the announcement and statements made during 2009, about the possibilities of FY2010, upon which Mr Sorensen said he relied to purchase, and then to hold, the shares which Ambergate acquired in CMA in September and October 2009. 62 Mr Sorensen's evidence was that he had an interest in scrap metal recycling and thought (as at January 2009) that the industry in general was "doing well". He said in his affidavit: 9. … I thought the metal recycling industry was an opportunity to make money following the increase in demand for iron ore and with this I was of the view that the secondary or scrap metal industry may too increase. It was as a result of the view that I had formed that the scrap metal industry may present investment opportunities that I became aware of CMA. 63 In early 2009, Mr Sorensen was following the share performance of CMA. By this time, CMA had taken on a major new shareholder – Scholz Invest GmbH ("Scholz") – a German based scrap metal recycler and trader which acquired 45 million shares, injecting $11.25 million capital into CMA. On 13 February 2009, CMA announced that Scholz had agreed to take a further 230 million shares, providing almost $49 million extra capital and raising its shareholding to 42.18%. The announcement also said: Under the terms of the investment agreement, Scholz will also have a right to participate for its pro rata share in any future placements by CMA subject to Scholz maintaining a shareholding in CMA of at least 25%. 64 In April 2009, CMA produced a two year business plan which identified both general and particular "critical success factors". A general critical success factor was: The key critical success factors over the next 2 years are to return the business to profitability and sustainable cash flows whilst building robust structures and processes as a fundamental for growth. 65 One particular critical success factor was: Reduce materials throughput time • Target of less than 30 days by increasing stock turn from 8.5 to 12 • … 66 This objective should be borne in mind. Later in the proceedings Mr Schmitt attempted to assert that low stock turn times in the Australian business came to light in late 2009 as a rectifiable explanation for a forecast slide from a hoped-for profit to a potential loss. The stock turn issue had, however, been identified (indeed it was the first-named particular critical success factor) in the two year business plan in April 2009 and, as will become apparent, by late 2009 the stock turn position in the Australian business had actually declined further. 67 Mr Sorensen had access to all the announcements made by CMA, if he wished to refer to them. Although he said that his attention was caught by an announcement on 1 May 2009, to which I will refer shortly, he claimed to be a "sophisticated investor". He might, therefore, be expected to conduct reasonable inquiries which extended at least to recent public announcements if considering an investment which involved a hope of a rising share price on the back of an improved trading position, as was clearly his objective. 68 I do not impute to Mr Sorensen any particular appreciation of operational difficulties such as unacceptably low stock turn numbers but the general position announced to the market may, in my view, be attributed to his likely or constructive knowledge, as a sophisticated investor. That picture, before 1 May 2009, was of a company struggling to recover from a massive reversal, dependent on global recovery in scrap metal markets, suffering from a lack of working capital, needing capital injections, and seeking increased efficiencies and co-operation from its financiers and bankers. There can be no doubt that any investment in this context, hoping for a reversal of present fortunes, involved risk and speculation. 69 In the various announcements and statements which follow I will either emphasise (with bold) or set out or summarise the particular statements identified by the pleadings as the ones which constituted misleading or deceptive conduct, and upon which Mr Sorensen relied. 70 On 1 May 2009 CMA made an upbeat announcement to the stock market about its USA operations. The announcement concerned use of a "Meretec" process available at its plant in East Chicago. The plant needed feedstock and had the capacity to recycle 125,000 tonnes of galvanised steel per annum. The announcement referred to an agreement (the Worthington agreement) to supply about 4,000 tonnes and said: "We look forward to expanding our US-based client base in the months ahead and feel confident that our plant in East Chicago will soon be running at full capacity." 71 This statement about the Worthington agreement was factually correct. I regard the remaining statements (despite their expression in the present tense) as representations about future matters. 72 Whatever the grounds for this optimism at the time, the East Chicago plant never reached anything like full operating capacity and was later mothballed. Be that as it may, the difficulties discussed hereunder were not principally based on the success or failure of the USA operation, which was running at a loss but which was only a very small part of the overall picture. What was dragging CMA down was its Australian operation. 73 Nevertheless, it is convenient to record at this point that I do not accept the contention that there were no reasonable grounds to make this, or later, announcements about the operational position of the East Chicago plant, including the later generalised proposition that it could be expected to "contribute" by the end of FY2010. I accept the evidence given by Mr Rowe that discussions with various potential suppliers in the USA were well advanced during 2009 and that there were good grounds to be optimistic that those or other discussions would lead to greater utilisation of the East Chicago plant and its technology and that a modest contribution might reasonably be anticipated in the months ahead. As I have said, neither this forecast, nor its failure, appear to me to be in any way decisive or more than moderately relevant. 74 The next announcement to which Mr Sorensen referred, as one on which he relied, was made by CMA on 22 July 2009. Mr Sorensen said in his affidavit: 13. I read the 22 July Announcement in or about July 2009. After reading the 22 July Announcement I was of the opinion that despite the loss incurred for the 2009 financial year CMA was likely to financially recover and return to profitability in 2010. 75 In the 22 July 2009 announcement the following things were said: During the second half of the 2009 financial year, the economic downturn continued to have a significant impact on trading conditions across CMA's global operations. Based on the latest review of the company's position, CMA is expecting a net loss after tax of between $54 and $56 million for the 2009 financial year, subject to an impairment review of Goodwill which is still under consideration. The revised NPAT guidance is based on an estimated second half loss of between $17.5 and $19.5 million. This compares to a loss of $36.5 million recorded for the first half of 2009. and: CMA Managing Director Doug Rowe said despite the FY09 loss there were indications of a turn around in FY10 with bottoming of the market and the industry in general showing signs of improvement. "While obviously we are very disappointed that the global financial crisis has had such a significant impact on trading conditions in our key markets, we believe there are a number of positives to look forward to in FY10," said Mr Rowe. "It's still too early to know when trading conditions in the metal recycling industry will fully recover but we're confident that the worst is behind us." Mr Rowe said the company was well positioned for a recovery in 2010. "We have aggressively dealt with the past issues and made a conscious effort to have all things settled ready for the new financial year," he said. "We have reviewed CMA's operations and cost structure and will provide details to the markets in due course but we believe we are well placed to return to profitability to in 2010. (Emphasis added.) 76 Being well positioned for recovery, or well placed to return to profitability, does not say that a return to profitability in FY2010 would necessarily occur, or even that it was more likely than not. It is obvious that a return to profitability in FY2010 (or thereafter) would depend on the favourable "positioning" or "placement" coinciding with other possibilities. The company was said to be in a position to take advantage of improvements in the market position (prices, volumes etc) but those statements fall well short, in my view, of even a confident prediction, much less any assurance. 77 In order to put this announcement into perspective it is necessary to go back to at least April 2009. At the monthly Board meeting on 21 April 2009, the Board was provided with the two year business plan to which I earlier referred. Despite the identification of various matters critical to success, the business plan forecast a return to a profit of almost $8 million in FY2010, after a total loss of $22.6 million in FY2009. Those figures were optimistic on any view. As I have said, the first half loss alone was announced on 20 February 2009 as $36.5 million and the two year business plan did not forecast a substantial profit in the second half of FY2009. 78 At the 21 April 2009 Board meeting Mr Rowe expressed doubt about the reliability of the plan as put to the Board. His report to the Board said: As to the business plans I have read the first cut as submitted to the Board and while the numbers are good I don't really see them as being realistic. … and: We will be back to the Board with a revised set of numbers for the business plans at the Board meeting on 22 June 2009 … 79 At the same time the revised plans were prepared, Mr Schmitt prepared a budget for the Board, based on the revisions, which was also used for presentations to the ANZ Bank which on 9 June 2009 was asked for additional funding of $10 million. Mr Schmitt's assessment (as provided to the ANZ Bank and the Board) was that if the additional funding was provided the budget showed a NPAT of $6.7 million for FY2010; without funding a NLAT of $4.1 million. His report to the Board for its 22 June 2009 meeting concluded: In summary, the combination of the new funding initiatives noted above should allow CMA to achieve its goal of obtaining a further $10m funding to meet is FY 2010 earning assumptions. It is managements intention to keep the Board updated on its progress of the additional funding request and then at the next meeting to seek a final sign off on the Budget for FY 2010. As until the additional funding is achieved it is very difficult to ask the Board for approval on the revised Business Plans for FY 2010. 80 Very shortly before this meeting the ANZ Bank confirmed that it would provide the additional funding but the trading performance of CMA was not up to expectations and Mr Schmitt informed the Board at its monthly meeting on 20 July 2009 that a second half unaudited NLAT of $17.4 million, before any impairment charge, had been incurred in FY2009. He recommended an announcement to the stock market, suggesting mid-August 2009 as the appropriate timing, after audit clearance. Instead, the announcement referred to above was made on 22 July 2009. 81 It is apparent that by this time the Board had accepted the budget prepared by Mr Schmitt based on the revised business plans provided in June 2009. At the Board meeting on 20 July 2009, Mr Rowe apparently provided an oral report. It was, in part, summarised in the minutes of the 20 July 2009 meeting as follows: The Managing Director spoke to the key issues facing the business and again highlighted the cash constraints in Australia and the United States. The Australian Cash Flow for FY2010 was noted and the funding requirement of at least $20m that needs to be raised being $10m through debt and $10m via raising equity, in order for the Australian Metals business to meet their FY2010 budget assumptions. 82 The proposal to raise equity was through a share purchase plan ("SPP"). The SPP was to be underwritten by BBY and consisted of an initial offering of shares at 10 cents each to the value of $15 million. Initially, it was suggested that the SPP might go forward in August 2009, but ultimately the funds (oversubscribed and more than $15 million) were received in late October 2009. 83 Another reference to Mr Rowe's report in the minutes said: On a more positive front it was noted that commodity pricing are starting to rise on the back of stronger demand. However, the full impact of increasing margins is still too early to call for FY2010 but July 2009 trading so far indicates that we are on track to meet budget assumptions. 84 I see no basis to conclude that, to this point, there was anything unreasonable or irresponsible about the budget which the Board had adopted, which appears to have been accepted by its bankers, or about the suggestion made in the announcement on 22 July 2009 that CMA was "well positioned for a recovery in 2010" and was "well placed to return to profitability in 2010" after an (but only one) unprofitable financial year in 2009. 85 The expected loss for the second half was referred to in the announcement on 22 July 2009. It was less than the first half loss, but the full year loss was substantial. The economic downturn, at the date of this announcement, was still having a "significant impact on trading conditions across CMA's global operations". Obviously, those were matters beyond CMA's control. All that could responsibly be said was that CMA was (if it was the case) well positioned to take advantage of an improvement and (if an improvement occurred in a timely way) was well placed to return to profitability. 86 In my view, it is not reasonable to imbue the statements with any greater significance in their own right and I reject any suggestion that they were misleading statements of the then current position. 87 In my view, those were not representations about future matters. 88 On 28 August 2009, the SPP was announced to the stock market. The announcement said: The SPP will allow eligible shareholders to subscribe for up to $15,000 worth of CMA ordinary shares (subject to obtaining Australian Securities Exchange relief) at 10 cents per share. This price represents an 18.70% discount to the CMA closing sale price over the last 5 days on which CMA shares have been traded prior to this announcement. The SPP is underwritten to $15 million by BBY Limited. The major shareholders including Managing Director, Doug Rowe have indicated their support for the SPP by committing to sub-underwriting the issue. and: Mr Rowe said that the outlook for the metal recycling industry had improved substantially in the past month. "The metal recycling industry was severely impacted by the global and national economic downturn. However, with the improved economic outlook, we're starting to see firmer demand and stronger scrap metal prices across all our operating regions," said Mr Rowe. "The improved market outlook, together with this capital raising and a range of cost reduction initiatives implemented over the past few months provides CMA with a significantly strengthened financial position. "We feel confident of a return to profitability in FY10." (Emphasis added.) 89 In my view, the first of the statements I have emphasised was a statement about current matters. There is no evidence that it was incorrect, misleading or deceptive. The second statement was, in my view, a representation that CMA and Mr Rowe expected (i.e. confidently expected) a return to profitability in FY2010. That statement appears to me to contain a representation about future matters – i.e. that a return to profitability in FY2010 was likely on the information available to CMA and Mr Rowe. 90 The statements were made with a view to promoting the SPP. Mr Rowe, as Managing Director, played a sufficiently prominent and independent role that the statements attributed to him are ones for which he must take personal responsibility, as well as being ones which may, through him, be attributed to CMA (Australian Securities and Investments Commission v Narain (2008) 169 FCR 211 ("ASIC v Narain") at [26], [50], [91], [96], [100]). Mr Rowe assertively declared, at one point in his evidence, that in relation to statements published in his name as Managing Director: "No one puts words in my mouth". A consequence is that the statements are his for the purpose of the Corporations Act and the FT Act. 91 The applicant's case emphasised that, at the time this assessment was made, CMA and Mr Rowe knew that a critical requirement for a return to profitability was missing – namely, available cash to purchase stock for processing. 92 I accept the general thrust of this proposition, but not its suggested consequence. 93 There is no doubt that a shortage of working capital was hampering CMA's prospects for recovery. The difficulty was referred to in the Board papers at about this time. 94 In the Australian Metals report to the Board for its 20 July 2009 meeting, the following statements were made: Cash flow details are attached and provide the detail for the next 12 months. It is clear with the cash that there is a discord with the debtors and creditors and we need an additional $20M to sustain the business and remove the legacy creditors. This allows for the flexibility to move forward and pay clients early as necessary, to bring in greater volumes and new business and get a maximum return on our investments. … Cash is still an issue and is hindering the business driving forward. It's a constant battle to provide the necessary monies to the Australian Business and from myself down to the state managers and the finance team. It doesn't allow us to focus on the business. The difficulty is to continue to motivate staff and keep the positive attitude as this is the key to the Account Managers succeeding in getting more tonnes into the business. Plans are in process to raise additional capital which is imperative and that this takes place sooner rather than later. At the time of writing we have allowed minimal funding to go to pay clients and are well short of the monies we owe, to not only metal clients but to normal business essential suppliers. This has a major impact on client retention, procurement of new business and service levels to our sites. 95 In the Australian Metals report to the Board meeting on 28 August 2009, the following was said: The cash issues are still present making it even more difficult to work on the business. Our day to day focus continues to be short term customer maintenance, cash flow related and damage minimization to see our way through to the next week and then the month. This is still having an effect on the moral of the staff and their ability to perform their jobs to the best of their abilities. We are unable to court and really attack the market with certainty and procure the necessary feed for our plants. Once this is resolved we will be in a strong position to move forward in the procurement of material. 96 The first sentence is not unimportant in the overall context. The need for working capital was being addressed by a variety of means, in conjunction with CMA's bankers. The contribution by Scholz was one aspect. Negotiated arrangements with the ANZ Bank were another. The third was the proposal for the SPP, announced to the market on the day of this Board meeting. 97 The applicant's closing submissions drew attention to the fact that additional funds from the ANZ Bank, showing in the cash flow projections as receivable in July, were received in August and that funds from the proposed SPP were initially expected in August but were not received until October 2009. The submissions, both written and oral, sought to make timing of the receipts essential. I do not accept that suggestion, in the context of the present case. 98 It must have appeared to the management of CMA that it was managing a difficult situation, which was exacerbated by delays in receipt of extra funds but not to the point where optimism about the future once the funds were received was misplaced. There is certainly no evidence to the contrary. I am not prepared, in this retrospective way, to substitute lawyerly analysis for commercial pragmatism, under the watchful gaze of the company's bankers and its largest shareholder. 99 I do not accept, therefore, that there was any misleading or deceptive conduct involved in the second statement to the extent it was one of current fact. I do not accept that the applicant has shown that there were no reasonable grounds for making the second statement, treating it as a representation about future matters. On the contrary, I am satisfied that Mr Rowe discharged any onus he bore in relation to that statement. 100 On the same day (28 August 2009), CMA announced its full year results with the headline – "CMA result in line with expectations, well positioned for recovery in 2010". It was implicit that CMA had not, by then, recovered to profitability, although confident about the future. 101 The announcement also said: Based on the cash flow forecasts that indicate that the Group will be profitable for the year ending 30 June 2010, the announced Underwritten Share Purchase Plan and the provision of further funding facilities of $6 million by the ANZ bank; the Financial Report has been prepared on the basis that the Group can continue to meet their commitments as and when they fall due, and can therefore realize assets and settle liabilities in the ordinary course of business. The directors are satisfied that the going concern basis of preparation is appropriate. The funds raised through the SPP will be used for working capital and to support the continued growth of the Company's operations. Mr Rowe said the company has aggressively dealt with the issues faced in FY09 to ensure the company was well positioned for a recovery in 2010. "We have started FY10 in a significantly strengthened financial position and with a substantially improved outlook in our markets, we look forward to delivering a turn around in revenue and earnings in FY10." (Emphasis added.) 102 I regard the statement that CMA was well positioned for recovery (which was relied upon in the pleaded case) as a statement about current matters, in the same way as the similar statements on 22 July 2009. I reject the contention that such a statement was misleading or deceptive (whether by CMA or Mr Rowe) for the reasons already given. 103 The statement of claim (using only the words I have emphasised in the first statement) characterised this part of the announcement as a representation that: "cash flow forecasts indicated that the CMA group would be profitable for the year 30 June 2010". 104 The pleading unacceptably rewrote and distorted the statement actually made. I reject any case based upon such an approach. 105 In fact, there were such cash flow projections and they did show a projected return to profit in FY2010. In argument, an attempt was made to imbue the word "forecast" with the quality of a definitive factual statement about a future matter. I do not accept this argument. It amounts to saying that CMA was guaranteeing to itself, and then to the world at large, that it would in fact return to profitability in FY2010, come what may. That is not the basis on which the projections were constructed. 106 Moreover, read in an appropriate context, the statement in the announcement was directed to explaining the basis of the preparation of the Financial Report, taking into account all the factors mentioned which sustained the conclusions about solvency. 107 I reject this part of the pleaded case. 108 It will, however, be necessary in due course to consider how CMA, Mr Rowe and Mr Schmitt dealt with the cash flow forecasts when reason arose to doubt the premises on which they were constructed. 109 On 1 September 2009, Mr Rowe delivered a presentation to major investors which was also released in documentary form to the stock market on the same day. In several places the document drew attention to "Measures to Secure Profitability for 2010". The presentation material proclaimed the following: We will… • Be successful against all odds; • Be expanding; • Be profitable; • Be environmentally responsible; • Operate a safe workplace; and • Continue to lead. 110 Mr Rowe's name and Mr Schmitt's name appeared against those predictions. The unqualified prediction of profitability should be noted, but it is not irrelevant that on this occasion it was open-ended. 111 However, the pleaded case did not raise, or rely upon, any of those matters. Rather, it referred to the following particular statements in the document: Market Environment • General economic outlook: – Slight improvement in the short-to medium-term expected from the substantially reduced demand. • Steel production: – 2008: since mid 1990s first time lower than year before – 2009: Q1-23% worldwide. In Q2 slight improvement on low level that should last until end of year. Trends indicate a bottom found and improved stability. Upside from global stimulus packages (infrastructure investments etc). • Scrap industry: – Extreme price volatility as steel production fell. Q4/2008 and Q1/2009 were the worst quarters the scrap industry experienced over decades, indeed the worst year on record – Failure of some ferrous and non-ferrous clients to honour contracts and commitments – Currently clear stabilisation of prices and volumes – Most metals are in contango – Seen a stronger and better environment after a most confronting 12 months … The Outlook for CMA • CMA will continue to be very selective in our approach to acquisitions, considering opportunities that will provide CMA with new clients, a foothold in new markets and the potential to generate value for the Group • USA Meretec Plants forecast to contribute for second half of FY2010 • CMA EcoCycle continues to expand with growth opportunities and increased profitability • Contracting is less than 5% of the group's revenue, so less volatility in earnings going forward but a positive future • Adding increased value in metal processing through sharing resources across the Group, delivering improved margins • Making a stronger and leaner Group without the harrowing legacies from the past enabling us to focus on the future. (Emphasis added.) 112 The pleading misstated the effect of the second of those statements, putting it as: "CMA saw a stronger and better environment after a confronting 12 months". 113 Both Mr Rowe and Mr Schmitt were pleaded to be the "authors" of the presentation because their names appeared on the first page of the document, where they were identified as the Managing Director and Chief Financial Officer respectively. They were therefore said to be knowingly concerned in making the statements. It was later pleaded that they were also personally liable for the statements. 114 For the reasons I gave earlier, statements about the USA operations have no great significance. The USA operations were only a very small part of the total operating picture and even if they were forecast to make an unquantified contribution by way of some unstated profit that did not necessarily signify much for the overall fortunes of CMA. In any event, I have no doubt, for the reasons given earlier, that CMA and Mr Rowe were optimistic about that matter. On the limited evidence before me I would not reject that optimism as unfounded at the time. The applicant has not shown that there were no reasonable grounds for this forecast. I accept that Mr Rowe's reasons for making it did disclose reasonable grounds. 115 Once the second statement is considered according to its actual terms, rather than the inaccurate statement in the pleadings, I see no reason to regard it as other than a statement of a current position which was neither misleading nor deceptive. The statement about the scrap industry must be seen in the context given by the whole of the extract I set out above. The then current position was contrasted to the previous 12 months, which had been most confronting. Now, there was a stronger and better environment, including for the reasons given in the previous entries. 116 I therefore conclude that no liability arises from any of the statements made by CMA in the presentation on 1 September 2009. 117 Apart from those difficulties for the applicant's case, the document commenced with a prominent disclaimer which said the following: Disclaimer This presentation for CMA Corporation Limited is designed to provide a high level overview of aspects of the operations of CMA Corporation Limited. The material set out in the presentation is current as at 28 August 2009 and is in summary form only. The presentation may contain forward looking statements about assumptions, estimates and outcomes, which are based on internal business data and external sources which may or may not have been independently verified. Given the nature of the industry, business risks, and other factors, the assumptions, estimates and outcomes are uncertain and may be subject to change. These statements do not constitute forecasts. They may be affected by internal and external factors which may have a material effect on future business performance and results. No assurance or guarantee is, or should be taken to be, given in relation to the future business performance or results of CMA Corporation Limited or the likelihood that the assumptions, estimates or outcomes will be achieved. While management has taken every effort to ensure the accuracy of the material in the presentation, the presentation is provided for information only. CMA Corporation Limited, its officers and management exclude and disclaim any liability in respect of anything done in reliance on the presentation to the maximum extent permitted by law. You should make your own enquiries and take your own advice (including financial and legal advice) before making an investment in the company's shares or in making a decision to hold or sell your shares. This document does not form part of any offer or invitation to sell or issue, purchase or subscribe for shares in CMA Corporation Limited. 118 No final conclusions about the effect of the statements referred to by the applicant could be reached without taking this disclaimer and its contents properly into account. In view of the conclusions already expressed, which are adverse for the applicant's case, it is not necessary to pursue that question further. 119 One final event was relied upon by Mr Sorensen in his claim to have been misled before the first share purchase was agreed. He claimed to have had a telephone conversation with Mr Schmitt in early September 2009 when Mr Schmitt said the following: Mr Schmitt said: "CMA's trading went well and will return to profitability in the 2010 financial year. You should ring BBY, they are organising the capital raising for CMA. We are recovering from our 2009 trading loss results. We are seeing good signs of recovery in the various markets that we operate in. I don't think there is any doubt that CMA will return to profitability in the 2010 financial year." (Emphasis added.) 120 The statements were distilled in the statement of claim as follows: a. that CMA was trading well; b. that CMA was recovering from its 2009 trading loss results; c. that CMA would return to profitability in the 2010 financial year. 121 The first two elements of this distillation involved representations about then current matters. Only the third could be seen as a representation about a future matter. 122 Mr Schmitt responded in his own affidavit, first, as follows: 32. I refer to paragraph 19 of Mr Sorensen's affidavit where he says he had a telephone conversation with me in early September 2009. I recall having a telephone conversation about CMA's position but I do not recall the name of the person I spoke to. I have no reason to think it was not Mr Sorensen. I do not recall when this conversation took place. 33. Although I recall having a conversation about CMA's position, I do not recall what I was asked or what I said. If I spoke to Mr Sorensen in early September 2009, at that time it was my view that CMA was trading well and that it was recovering from the trading loss results from the 2009 financial year. It was also my view that CMA was seeing good signs of recovery in the various markets it was operating. If these matters were relevant to what I discussed during this call, I can see no reason why I would not have expressed these views. 123 As to the first two pleaded statements, which Mr Schmitt accepted he may have made, the applicant has failed to make any case against him, or against CMA, that such a statement at this time would have been misleading or deceptive, according to Mr Schmitt's state of knowledge at the time. I have no reason, on the evidence, to doubt that those two statements attributed to Mr Schmitt represented his belief, and CMA's view, at the time and that they sufficiently accorded with objective, even if optimistic, assessments that were available. 124 Attention may therefore be focussed on the third matter attributed to Mr Schmitt. 125 Mr Schmitt went on, in his affidavit: 35. However, in all the time I have worked for publically listed companies, it has been my practice never to give a forecast or to provide any guidance on future profit. I consider these to be important matters which ought not be commented upon unless the Board has approved the terms of the statement to be made (if any). For this reason, I deny that I said to Mr Sorensen "CMA will return to profitability in the 2010 financial year" or "I don't think there is any doubt that CMA will return to profitability in the 2010 financial year". I consider each such statement to be inconsistent with my practice as set out above. 126 There are three reasons why Mr Sorensen's claims about this aspect of the conversation give no support to his case. 127 The first reason is that I am not persuaded to the necessary standard that the conversation (I will assume that some conversation occurred) took place in early September as Mr Sorensen claimed. In a letter written to CMA with the assistance of his (then) solicitors on 8 November 2011, Mr Sorensen asserted that the conversation occurred on or about 9 October 2009. He had no contemporary record supporting the assertion that it occurred in early September, relying only on an equally general assertion that it was before his first share purchase. Equally on this logic (as it was in truth only a deduction or reconstruction on his part), it may have occurred shortly before the second share purchase on 12 October 2009. I found Mr Sorensen's attempted denial of that possibility to be unconvincing. 128 The second reason is that the character of the conversation reported in the letter was, in my view, not consistent with the assertions in Mr Sorensen's affidavit or oral evidence. The letter said (placing the conversation chronologically after statements made by CMA on 28 September 2009, and assigning a date of "on about 9 October 2009"), that Mr Sorensen relied on: • Representations made by Trevor Schmitt of CMA to me personally on about 9 October 2009 about CMA's future financial strength and stability. 129 I do not regard this as the same representation to which Mr Sorensen deposed in his affidavit. 130 The third reason why I do not accept Mr Sorensen's account (whenever the conversation occurred) is that I accept Mr Schmitt's evidence about this particular issue. 131 Mr Schmitt's evidence had a number of unsatisfactory features. In large measure he was unresponsive, insufficiently candid and sometimes actively unhelpful in his evidence but I do not reach those conclusions about his evidence in this particular respect. 132 Mr Schmitt's oral evidence was that he would have referred any potential investor to the underwriter (BBY), as Mr Sorensen's version of the conversation accepts. Mr Schmitt well knew the conditional nature of the budgeted forecast for FY2010, and the adjustments made to the business plans before they were adopted. He appreciated keenly, as his advice to the Board disclosed, the potential effects on profitability of any shortage of working capital. That was one of the issues to which the SPP was addressed. I think it is unlikely that he would have made the definite and unqualified statements in the first and last sentences which were attributed to him by Mr Sorensen. 133 On the pleadings it was the matters so far identified upon which the applicant relied to first commit $650,000 to the purchase of shares in CMA. Statements before the second share purchase 134 The statement of claim then identified particular statements which were published on 29 September 2009 (in a Chairman's Letter and a Managing Director's Report), as ones on which Ambergate also relied when making the second share purchase. Mr Sorensen's affidavit evidence was that he also relied on the same matters he had relied upon to make the first share purchase. 135 The statements published on 29 September 2009 accompanied the 2009 Annual Report. 136 The Chairman's Letter included the following statements: … [1] The past year has been a challenging one for us and, like many others in our sector, we have felt the impact of the global and national economic downturn. The financial crisis that led to dramatic and unprecedented falls in commodity prices and volatile currency movements had a significant impact on trading conditions in our key markets. This resulted in CMA posting a loss for the 2009 financial year, which was very disappointing for the Board and for shareholders. With markets and demand for our products weakening and becoming increasingly unpredictable, the Board and Management of CMA focussed in on what we could control in order to keep the company in the strongest possible position. Substantial operational and financial changes to the company were implemented to reduce costs and to ensure the company's financial position remained sound. These steps have enabled us to work through the current downturn and, coupled with our continued focus on developing the business for long term growth, have positioned the group to rebound as conditions stabilise and return to what we expect will be stronger economic conditions in 2010. [2] Markets for our products and services have shown signs of improvement in recent months, particularly in metal recycling where we are beginning to see stronger commodity prices and increased demand from customers in our key markets. … [3] We feel very confident that the investment made in recent years in CMA's network and infrastructure will pay good dividends as markets recover, with the value of our integrated supply chain coming through. We look forward to returning the company to profitability and restoring shareholder value in FY10. (Emphasis added.) (Paragraph numbers added.) 137 The first two of those statements is about then current matters. Those statements have not been shown, on the evidence, to be misleading or deceptive at the time they were made. 138 The third statement seems to be a confident prediction of a return to profitability, but (on one reading) not necessarily in FY2010 although shareholder value is predicted to be restored within that time frame. No doubt that could be accomplished by a sufficiently strong performance to support and improve the share price and the underlying value of the company. If the reference to profitability should also be regarded as referring to FY2010, then for the reasons which I give after I discuss the announcement immediately hereunder I would nevertheless reject any assertion that there was an absence of reasonable grounds to make those statements at that time. 139 The Managing Director's Report said: Introduction I am pleased to say that CMA Corporation has weathered the storm of the global financial crisis and we are in a better position than ever to deliver on our vision of creating a leading, integrated recycling business with a broad global reach. Like many companies CMA has experienced a very difficult year, marked by extreme volatility in our key customer markets and declining demand for our products and services. The fall in demand for commodities impacted demand for metals, with clear consequences for our metal recycling businesses. Our contracting operations were also affected as liquidity in financial markets dried up, affecting the progress of major projects and slowing demand for our deconstruction services. I am proud to report that despite the difficult year CMA can also boast some important achievements. The most significant development for CMA was the investment in our company by global scrap metal recycling group Scholz Invest GmbH (Scholz), which now holds approximately 42 per cent of CMA's stock. CMA took decisive action to reduce its capital and operating expenditure, strengthen its balance sheet and improve operations efficiency, preserve our assets and position us to emerge a stronger company, while remaining focussed on our strategy for long term growth in the future. The introduction of tight inventory management protocols, and significant and sustainable cost savings will be maintained as conditions return to normal. Developing Our Business … In the past year, we scaled back our capital expenditure in line with the financial constraints we faced. However, we continued to invest where we could identify value adding opportunities that supported our overall growth strategy, positioning the business well for a recovery in customer markets. … We believe these investments, coupled with our disciplined approach to costs and inventory management, puts us on a sustainable path for the long term and in a very strong position to leverage the anticipated rebound in demand and prices for our products. … Meretec … Our Meretec facilities have generated significant interest from organisations that are seeking an environmentally responsible and economically feasible solution to recycling their galvanised or zinc coated products. We have signed contracts with a number of suppliers to provide feedstock to the Meretec plants during the year and we expect the Meretec facilities to be operating at full capacity in 2010. … Corporate The investment in CMA by global metals recycling leader Scholz was a significant development for our business. With the approval and support of CMA shareholders, Scholz became CMA's largest investor and now holds 42.18% of CMA stock. Scholz has provided CMA with access to $60m in capital as well as direct access to new markets through its position as one of the world's largest scrap metal recycling businesses. CMA also successfully implemented a number of strategies to cope with the downturn and return the business to profitability in 2010, including: - Sustainable reduction in employment costs of $9m pa - Sustainable reduction in overhead costs of $13m pa - Optimisation of our path to market to concentrate on high value opportunities and leverage our leadership in zinc and mercury recovery and the recycling business In addition to the capital injection from Scholz, CMA also provided shareholders the opportunity to increase their holdings through an underwritten Share Purchase Plan, which closes in October and is underwritten to $15 million by BBY Limited. The combination of new capital, which will be used as working capital and for acquisitions, and improved operational efficiencies, puts CMA in a sound financial position to return to profitability in 2010 and grow the business as economic conditions continue to improve. (Emphasis added.) and, under the heading "Outlook": Outlook … Markets are showing signs of recovery and our new investments are gaining momentum in the marketplace. We are confident we have the right mix of products and services, in the right locations, to take full advantage of the recovery in our key markets. Finally, on behalf of our Management Team, I would like to thank to the Board for their continued support and advice, and our loyal hardworking staff who have made a very difficult year an enjoyable and rewarding one through their hard work and dedication. We look forward with confidence to a return to profitability in 2010 and beyond. (Emphasis added.) 140 The first two of the statements I have emphasised in this Report are about then current matters. Those statements have not been shown, on the evidence, to be misleading or deceptive at the time they were made. 141 As in the Chairman's Letter, the third emphasised statement seems to be a confident prediction of a return to profitability, and in this case clearly refers to FY2010. I will say more about it shortly. 142 Again, in my view, the selective way in which the particular statements were identified in the pleadings, obscured the overall context in which they are properly to be seen. Mr Rowe's statements in this announcement set out the significance of the Scholz investment and the intended role of the working capital then being sought. I do not, for reasons given earlier, think that much attaches to the statements made about the USA operations but I accept the applicant's submission that the representation that "we have signed contracts with a number of suppliers" was not true, to Mr Rowe's knowledge. 143 I also accept that the last sentence set out above is a statement of a confident expectation of a return to profitability in FY2010. I will here make the same assumption about the proper meaning to be attributed to the concluding statement in the Chairman's Letter. I am satisfied that the expectation at the time was that the capital raising then under way would resolve the cash shortages which were plaguing the Australian Metals operations. It is easy to say, in hindsight, that the expectations were too optimistic, but this was a company which had appeared to be trading progressively more strongly before the GFC and it now appeared that the worst was over. The immediate difficulties in responding to improving conditions revolved around a lack of competitiveness in the trading terms which could be offered to customers, but there was optimism in the Board discussions, as well as from senior management, that a further cash injection would, when added to the Scholz investment and support from the ANZ Bank, clear the decks and permit CMA to compete on more even terms with others in the scrap metal market who were taking advantage of the emerging opportunities. Mr Sorensen's own decisions were influenced by his assessment that there were good opportunities in the scrap metal markets globally after the GFC. 144 I therefore reject the applicant's case against CMA, and Mr Rowe as an accessory, that there was an absence of reasonable grounds to make those statements. 145 The case against Mr Rowe personally, under the FT Act where he bears the onus to show that his statements were reasonable, is more finely balanced. I do not find that he decisively discharged that onus with respect to the statements he made on 29 September 2009. Nevertheless, having regard to the full context in which the statements were made, and the legitimate expectations associated with the capital raising pursuant to the SPP, I find that on the balance of probabilities Mr Rowe did discharge that onus. 146 The statements made on 29 September 2009, by both the Chairman and Mr Rowe will have a further significance, however. The note of expectant optimism which each disclosed, even if acceptable at the time, cannot be overlooked when things changed, as they did shortly thereafter. 147 The matters with which I have dealt set the context in which the two share purchases occurred. 148 As earlier indicated, Mr Sorensen caused Ambergate to subscribe for 6.5 million shares ($650,000) on 25 September 2009 and a further 1.5 million shares ($150,000) on 12 October 2009. The share purchases were settled on 20 October 2009 but, as Ambergate's closing written submissions acknowledged, it was committed to the purchases from the date of each agreement with BBY. 149 Ambergate argued that it should have been obvious to CMA and its officers such as Mr Rowe and Mr Schmitt before the share purchases were made that it was sufficiently unlikely there could be a return to profitability in the time frame forecast and that there were no reasonable grounds for making any such forecast, or being a party to it. 150 In my view, for all the reasons I have so far given, there is too much hindsight involved in this argument to accept it in the period before Ambergate committed to the second share purchase. 151 Ambergate's closing written submissions suggested three main factors determining trading profitability: commodity prices, tonnage and a requirement for cash. The third factor was said to be "critical to making a trading profit". The argument was developed by suggesting that "CMA had no committed lines of credit from its bankers on which it could draw to meet additional requirements for working capital". 152 It is not unusual for a business to have an ongoing dialogue with its bankers, or for banking and financial accommodation to be adjusted and reviewed in the light of trading and market conditions. Sometimes the relationship becomes ruptured at some point in time; often it does not. In my view, in the present case the evidence gave a picture of co-operation (sometimes conditional and rigorous to be sure) from the ANZ Bank at least until after the second share purchase. Indeed, ongoing co-operation by the ANZ Bank in response to the business plan approved by the Board, with the injection also of fresh capital, denies rather than supports the argument that a forecast or projected return to profitability was fanciful or unreasonable. 153 Mr Sorensen claimed to have made both share purchases for Ambergate in reliance upon the announcements or presentations on 1 May 2009, 22 July 2009, 28 August 2009 (x 2) and 1 September 2009, as well as the discussion with Mr Schmitt. In addition, Ambergate pleaded it had relied on the announcements on 29 September 2009 also when Mr Sorensen caused the second share purchase to be agreed. It is inconceivable that those were the only matters Mr Sorensen took into account if I am not to regard him as far from the sophisticated investor he claimed to be. As to those particular announcements, presentations or the discussion, I do not regard the specific representations which were identified in the pleaded case to be ones which the applicant has shown were misleading or deceptive, or to have been made without reasonable grounds, where it bore the onus on that question. 154 Where the onus lay on Mr Rowe or Mr Schmitt, I am satisfied it was discharged. 155 In Mr Schmitt's case, my rejection of Mr Sorensen's evidence about the conversation assists Mr Schmitt's position. So far as the presentation on 1 September 2009 is concerned, the representations were too general and non-specific to give much support to the applicant's case. Those representations were, I am satisfied, ones which Mr Schmitt believed to be responsible and, on the material then available, that belief was not based on grounds which lacked reasonableness. There were reasonable grounds for making those statements. 156 In any event, as I later explain, I do not regard Mr Schmitt as liable in his own right. He was the agent of the corporation and did not act in any independent or personal capacity. 157 In Mr Rowe's case also, I find that there were reasonable grounds for the optimism expressed about a return by CMA to profitability in FY2010. The characterisation by the pleaded case of the various statements made by CMA and by Mr Rowe as positive assertions that a return to profitability would occur are simply inaccurate, and no real attempt was made to sustain those allegations in closing oral submissions. 158 The statements were upbeat and optimistic. They were no doubt intended to encourage subscription to the SPP. However, I see no reason to doubt that they were thought to be responsible and I see no reason to suppose, much less to find, that there were such negative factors at work that there were no reasonable grounds for predicting that CMA would soon trade its way back to a profit. 159 Such grounds emerged shortly thereafter, as I discuss hereunder, but I am satisfied that Mr Rowe has discharged his onus of showing he had reasonable grounds for his statements at least until the shares were all purchased by Ambergate. 160 I am satisfied that the eventual inability to keep the business going was not anticipated before the second share purchase had occurred – i.e. 12 October 2009. 161 It follows that the applicant has not made out a case for any relief with respect to either of its share purchases. Statements after commitment to the share purchases 162 It is now necessary to deal with the case for relief based upon retention of the shares until trading in the shares was suspended on 19 February 2010. Insofar as that aspect of the case is based directly on the representations with which I have dealt it cannot succeed. However, those forecasts of a likely return to profitability in FY2010 are important background to the discussion which follows. 163 On 14 October 2009 CMA announced that it had raised $25 million through the SPP, represented by $8 million from existing shareholders, $12 million from institutional and domestic investors and a further placement of $5 million to institutional and professional investors. 164 The announcement attributed the following statements to Mr Rowe: "The very strong support from existing and new investors indicates they appreciated the company's efforts to manage its way through the global downturn and understand that CMA is now in a strong position to take advantage of improving economic conditions," said Mr Rowe. and: "Demand for our products and services has started to improve, particularly in metal recycling where we are beginning to see increased demand from customers in our key markets. and: "Our contracting division is also experiencing an improved pipeline of opportunities and we are confident we can secure several significant new demolition, remediation and deconstruction projects in the year ahead." 165 Shortly thereafter at the monthly Board meeting on 19 October 2009, Mr Schmitt sounded a formal alarm. In his oral evidence he disclaimed any recollection of whether he had alerted Mr Rowe, the Chairman of the Board or the Board generally before the meeting. 166 Pending finalisation of the SPP, CMA's trading position had been significantly adversely affected by a shortage of cash and working capital. It had been unable to compete on equal terms with its competitors. In the reports to the Board in October, however, there was no mention of any difficulty with stock turn, a circumstance which is relevant to later discussion. 167 Mr Rowe's report to the Board on 19 October 2009 observed: The lack of cash has really taken its toll and has been our focus in Sept – Oct; it has been very ugly, indeed it has been for a long time, however the aim in November and early December is to try to get some credibility back and recover some of the many clients we've lost – we can't expect too much success this year but will be ready for a full onslaught in late January when the account managers are back, recharged and ready to go. … 168 Mr Schmitt's report was even more focussed on the potential consequences. He said: In my view, there is a risk around two Divisions being Australian Metals and the US not achieving their budget assumptions. The Australian Metals business has been impacted by the delay in the receipt of cash from the SPP/Private Placement and the US by the non signing of the GM Tolling Deal. The impact to EBITDA for these two Divisions could be in the order of $5m to $6m with the Australian Metals business only likely to make an EBITDA for the Second Quarter of between $1.5m to $2.5m and the US will loss a further $0.5m, compared to Second Budget of $7m and $2m respectively. The bottom line impact is that for the First Half I believe that the Group's NPAT could be a loss of between $5m to $6m compared to a Budget assumption of a positive NPAT of just under $1m. For the First Quarter, we have a negative NPAT of $3.36m and do believe that we will have a similar sort of loss for the Second Quarter. The goal needs to be to get a close as we can to a neutral NPAT position by the end of December 2009. 169 At this point, the budget which the Board had adopted in June 2009 was still showing a budgeted profit of $4.23 million for the second quarter to produce a profit for the first half of $0.84 million (after predicted losses in the first quarter) and a year end profit of $6.12 million. The effect of Mr Schmitt's advice was that the actual loss of $3.36 million in the first quarter was now anticipated to be followed by a similar loss in the second quarter. This would, if it happened, produce a first half loss of $6.72 million. It would eclipse the budgeted second half profit of $5.28 million, even if it was achieved. It would render FY2010 unprofitable. However, perhaps the better view is that Mr Schmitt's estimate at that time was a likely first half loss of $5-6 million, still possibly resulting in a small profit for FY2010. In fact, the first half loss turned out to be $6.9 million. 170 Reference to the disturbing possibility referred to in this advice (in essence, a likely wipeout of the budgeted full year profit) arose during Mr Rowe's evidence after Mr Schmitt had first given his own evidence. Mr Schmitt was recalled to deal with it. In that later oral evidence he attempted to insist that he was merely identifying a risk which he believed would not occur. This attempt was connected with an explanation, proffered for the first time in a supplementary affidavit, that the real (and only real) cause of the departure from the budget lay in low stock turn figures for the Australian Metals business which, once identified and addressed, could be remedied together with avoidance of the risk to the budget itself. 171 Those attempts and explanations had not been mentioned by Mr Schmitt or Mr Rowe in their earlier affidavit or oral evidence, when they had drawn no attention to, nor made any comment about, this warning to the Board by Mr Schmitt in mid-October. I do not accept Mr Schmitt's explanation. It is contrary to the plain words of his report to the Board ("we have a negative NPAT … we will have a similar sort of loss for the Second Quarter"). This was timely and proper advice. How it was received and probably concealed is revealing and requires attention. 172 The Board minutes for the 19 October 2009 meeting recorded: The Board noted the Finance & Treasury Report as circulated with the Board Papers. It was also noted that there is a risk to achieving the Second Quarter Forecast to December 09. In particular for Australian Metals due to the delay in the receiving the SPP/Private Placement funds and the US as a result of the delay in signing the General Motors Tolling Deal. A revised Forecast for the First Half to December 09 and for the Second Half of FY 2010 would be tabled to the next Board Meeting to be held on 23 November 09, so the Board can assess what actions are required to be implemented to ensure that the CMA Group achieves a positive NPAT Result for FY 2010. 173 The Board's recording (in minutes prepared by Mr Schmitt) of the reasons for the "risk" should be noted. There is no record at this point of any explanation connected with stock turn, which was far from a new issue. Nevertheless, on the face of things, the Board remained committed to a goal of a positive NPAT for FY2010. 174 As required by the Board, Mr Schmitt prepared a revised "forecast" for both the first half and second half of FY2010. Mysteriously, the report made by Mr Schmitt to the next Board meeting on 23 November 2009 made no direct reference to the contents or significance of the revised forecast for overall profitability – i.e. NPAT or NLAT. Instead, Mr Schmitt simply set out in quotation marks the two paragraphs from his October report which I have set out above. 175 Mr Schmitt's report did, however, (under the heading "Liquidity") say the following: Liquidity We have detailed the relevant stock turns by Country as usual in the October 2009 Finance Report, refer Page 12, and if you refer to the Divisional Commentaries it will become apparent that when stock turns are in excess of 10 times, then generally there are no short term cash issues. The external bench marks for stock turns are Sims who target 12 times. This was confirmed in the latest Sims Quarterly Results Announcement to 30 September when they confirmed that for the Quarter they bought in 3.6m tonnes of product and shipped 3.5m tonnes of product. I have also confirmed with Scholz that they target a stock turn of 12 times. In summary our Stock Turn by Country for CMA at 31 October 2009 as follows : Australian Metals 7.0 down from 8.9 in September; NZ 24 up from 16.2; Singapore 7 down from 11.2; Malaysia 0.5 down from 0.6 but all material sales through Singapore; US 5.1 up from 4.3 and PNG 18.9 down from 21.9 (refer Finance Report Page 12). I understand that each of the Country businesses have different models and we are not comparing like with like but we need to agree a minimum stock turn and margin return for each Country. The Banks are not funding inventory and when we do not turn stock then we can't pay our Creditors. This is apparent when you review the Australian Metals Divisional Operating Funds Employed as Creditors have decreased during the month of October 09 by $3.2m only to $27.9m even though they received all the SPP proceeds. This is reflected in inventory increasing by $3.9m to $24.8m at the end of October 09 with stock turn decreasing from 8.9 to 7 times. 176 In his further evidence, Mr Schmitt attempted to defend continuing reliance on the original budget, rather than the revised forecast based on the up to date figures, by suggesting that rectification of low stock turn in Australian Metals could address the problem. If that was so it might be expected that the Board would say so, or Mr Schmitt's own reports would say so, but neither occurred. The fact was that stock turn performance in Australian Metals had slid well below even the unsatisfactory position reported in April 2009. 177 In his evidence, Mr Schmitt accepted that the revised forecast was based on the latest up to date information from each of the businesses about what they estimated was likely to in fact happen. The revised forecast, constructed on actual figures to the end of October 2009, and the most up to date estimates thereafter, projected a loss of $6.01 million for the first half of FY2010 ($6.85 million worse than budget), a $0.72 million loss for the second half of FY2010 ($6 million worse than budget) and a $6.73 million loss for the full year ($12.85 million worse than budget). Obviously enough, this was a predicted major reversal at every stage of the year. 178 The Board's formal response to the material before it, as reflected in the minutes of the 23 November 2009 Board meeting, was to note the following about a report from Mr Rowe: It was noted that the Stock Turn in the Australian Metals business has declined due to the switch in Domestic and Export Sales. However, the Board asked that the Australian Metals Business consider Stock Turn targets of 8, 10 and 12 times. Then present to the Board at its next meeting a revised Australian Business Plan that showed the various earnings outcomes that could be achieved with the Stock Turn's at 8, 10 and 12 times. and the following about Mr Schmitt's report: The outlook for the first half trading performance to 31 December 2009 was that there would be a Net Loss after Tax in the range of $6 to $7m and that once the November 2009 Trading result where known in early December 09, the relevant disclosure would be made to the market, in order to meet our continuous market disclosure requirements. 179 The reference to an obligation of continuous disclosure should be noted. In fact, on the very same day (23 November 2009) presentations were made by the Chairman of the Board, and by Mr Rowe, to CMA's Annual General Meeting and corresponding announcements were made to the stock market which, to say the least, obscured the business position. The Chairman's address noted: Directors and staff took pay cuts and we continue to vigorously review expenditure. Within these constraints, we remained focused on what we needed to do to ensure the business remained viable and able to grow once conditions in the economy returned to normal. That has been our thinking for some time now and remains our strategy for achieving the strongest, most sustainable rebound once conditions turn in our key markets. CMA has come through what I hope is the worst of the crisis with our businesses intact and primed to take full advantage of that rebound when it comes. and: Although trading conditions have improved since earlier this year uncertainties in the market remain and for that reason we believe it is not practical to give shareholders forecast profit guidance at this stage. However, we are seeing improved volumes going through the business, and we are confident of the long term prospects of the group. 180 Mr Rowe said: There is more work for us to do to secure profitability in 2010, including: • Expanding our network of metal trading scrap yard facilities in Australia, New Zealand, Singapore, Malaysia and the United States • Continuing the integration process so that our facilities crystallise synergies, maximise profit margins and work to together to increase value-creation opportunities • Completing the implementation of new systems and procedures in financial reporting and control, occupational health and safety and employee development and remuneration • Appraising and where appropriate proceeding with strategic acquisitions that create value for shareholders • Further work on optimising our cost structure. As the Chairman has said, given the volatility still inherent in our major markets, we feel it would not be prudent to provide profit guidance at this stage. However, it is fair to say that we are optimistic about what we can achieve over the next twelve months and beyond. I hope and expect that this time next year I will be standing before you with a report on a far better year for CMA in 2010. 181 Bearing in mind that the previous announcements had recorded barely qualified optimism about a return to profitability during FY2010 it may be doubted whether any interested investor, sophisticated or not, would glean from those anodyne statements any inkling of the magnitude of the financial reversal for FY2010 about which the Board had now been warned on two occasions. The second and quite precise forecast, prepared at the direction of the Board, carried the likely scenario forward in a way that made it clear that what faced CMA as an imminent prospect was no longer a simple wipeout of anticipated profits but a further debilitating annual loss. 182 Far from responding publicly to the new financial predictions available to the Board, even at this point, CMA and Mr Rowe made an extraordinary announcement on 11 December 2009. It said: CMA expects EBITDA for the first six months to 31 December 2009 in the range of $7m to $9m, however is still forecasting a net loss after tax of approximately $6m to $7m before any impairment charges. This compares to the corresponding period in 2008 which saw the company post a net loss after tax of $36.5m, so a significant reduction in the net after tax loss. In updating the market on the company's trading conditions today, CMA Managing Director Doug Rowe said the turnaround in the company's performance could also be attributed to the Board's strong focus on strengthening the company's balance sheet, prudently investing in CMA's core business operations and reducing the company's operating costs. "This is a significant rebound in CMA's performance and it confirms our confidence in the improvement in metals and recycling markets, in line with the general economic recovery," Mr Rowe said. 183 The following was attributed directly to Mr Rowe: "The substantial improvement in our performance at NPAT level in the December half will continue in the second half and we are targeting a return to profit at the NPAT level for the full year," Mr Rowe said. Mr Rowe said CMA's decision to continue investing in its metal recycling business during the downturn was paying dividends. 184 The comparison between first half FY2009 and the corresponding period in FY2008 (when the GFC struck) as illustrative of an "improved outlook" was quite misplaced. The suggestion that a "substantial improvement" would "continue" in the second half of FY2010 was, in my view, simply false in light of what was known about CMA's deteriorating financial position. The position was getting worse, not better. Equally unacceptable, especially in the context of the earlier announcements, was any suggestion of a return to profit for the full year. The odium is not relieved by the use of the word "targeting". This announcement, in my view, was a clear breach of CMA's obligation of disclosure and reasonable candour with the stock market and investors. It was unacceptable. There were no reasonable grounds for the impression it was no doubt calculated to leave. Subsequent events 185 One week later, a Board meeting took place on 18 December 2009. Mr Schmitt reported: A Trading Update ASX announcement dated 11 December 2009 stated that the Net Loss After Tax for the six month period ending 31 December 2009 will be in the range of $6m to $7m, this holds true based on the revised forecasts for December 09, refer Page 4 of the November 2009 Finance Report. 186 The forecasts in the Finance Report now reported that the first half loss would be $7.81 million (up from $6.01 million in the previous month's forecast, and now $8.65 million worse than budget) and (with the forecast unchanged for the second half) the forecast loss for the full year was now $8.53 million ($14.64 million worse than budget). It seems remarkable that this further forecast deterioration passes without comment in Mr Schmitt's report. 187 He did, however, point out that stock turn in Australian Metals had slumped further to 6.3 and referred to the fact that Australian Metals had prepared a "Financial Restructuring Transition Plan". That plan recorded a "current capacity utilisation" of 31% Australia wide and sought to make a case for an increase in working capital finance (figures of $25 million increasing to $40 million were specifically discussed). 188 The only relevant note about those matters in the Board minutes appears to me to be the following: The Australian Metals Transition Plan was discussed and it was noted that a detailed State based review was going to be conducted during January 2010 and then a revised Australian Metals Transition Plan tabled to the next Board Meeting which would set out by State with detailed action plans to support the earning recovery targets, together with the require funding plan to support the earnings assumptions in the Revised Transition Plan. Also to be set out in the Revised Australian Metals Business Plan would be the earnings impact of Stock Turn Target of 8, 10 and 12 times for FY 2011. and: It was noted that the First Half NPAT Forecast of Loss to 31 December 2009 of $6.73m, as per the November 2009 Finance Report Page 4, was in line with the Trading Update NPAT Loss of between $6m to $7m announced to the market on 11 December 2009. 189 Meanwhile, the business was haemorrhaging while the market remained uninformed. 190 The next Board meeting was on 4 February 2010. The half year results had in fact been a NLAT of $6.8 million, but the second half loss was now forecast to be $1.19 million (up from the earlier forecast of $0.72 million loss) with a full year forecast loss of $7.98 million. Stock turn in Australian Metals was still at 6.3. Still the market had not been alerted to the likelihood of a full year loss, rather than a profit. 191 Mr Schmitt recorded in his first affidavit that: 55. As at February 2010, CMA's major financier in Australia was the ANZ bank. During February 2010, CMA was in negotiations with ANZ in order to increase the working capital facilities available to it. On 15 February 2010, I attended a specially convened meeting of the Board at which it was reported that ANZ required CMA to reduce its long term debt in order for ANZ to increase the working capital facilities. The Board resolved that CMA ought proceed with a capital raising (for example, a rights issue to existing shareholders) to enable it to reduce its long term debt. … 192 It is not clear what the ANZ Bank was told about CMA's financial position. However, the minutes of the Special Meeting of Directors held on 15 February 2010 record: The ANZ provided an update on the requirements to increase its facilities to CMA Australia being that the ANZ believed that CMA needed to reduce its long term debt and on that basis, the ANZ would be prepared to increase its short term working capital facilities. In essence, it is a necessary requirement for CMA to raise sufficient equity being approximately $20m to repay its long term debt. The ANZ would then match with an increase of a similar amount in working capital facilities being the additional funding request of $20m, to normalise Australian Metals Creditors. 193 It is apparent that Scholz was offered the opportunity to take up its pro rata share in any new capital raising. I infer that Scholz was expected to do so. 194 The minutes of a further Special Meeting of Directors held on 18 February 2010 record: 01/66 CAPITAL RAISING Following the Board Meeting held on 15 February 2010 the Chairman asked the Scholz Directors as to whether Scholz would be prepared to take up its entitlement under a discounted Rights Issue and underwrite any shortfall, if required. The Scholz Directors confirmed that Scholz would not take up its entitlement under a Rights Issue, if that was the form that the Capital raising would take place, nor would Scholz be prepared to underwrite any shortfall of a Rights Issue. It was noted that the ANZ Bank had sent through a draft Inventory Finance Facility in the amount of $16m just before the start of the Board Meeting and that management had not yet had time to consider all the conditions precedent and subsequent, but one of the requirements was a need to raise equity to at least match the short increase in working capital facilities being proposed by the ANZ. The Board was informed that there were potential equity investors being either the Smorgon Family or a Chinese Investor Fengli willing to invest in CMA. However, there is uncertainty at the pricing levels that this equity would be contributed and the initial thoughts were that in relation to the Smorgon Family, it would most likely be a discount to the current share price and that in Fengli's case, it could be at a premium to the current CMA share price. The uncertainty around the possible pricing levels of the potential equity that maybe contributed by either the Smorgon Family or Fengli into CMA, together with the ramifications of still having to work through the ANZ and the BNZ refinancing options. As well as, the lack of support from CMA's major shareholder to contribute equity meant that the Board felt that the market could not be kept properly informed of potential share price movements to the positive or negative. After discussions with Minter Ellison in relation to the legal position the company found itself in, the Directors formed the opinion that the market could not be kept fully informed whilst the company considered its options for a capital raising, as well as the restructuring of its debt facilities with all of CMA bankers. IT WAS RESOLVED to seek Voluntary Suspension immediately from the ASX as CMA is not able to presently provide the market with sufficient information to ensure that CMA's shares do not trade on an uninformed basis. Whilst it considered its potential capital raising alternatives and conducts negotiations with its lenders to restructure its working capital and inventory finance facilities 195 The following day CMA shares were voluntarily suspended from trading. 196 On 16 March 2010, CMA released its half year results, showing a NLAT of $6.918 million, said to be in line with guidance given in December (of an expected loss of $6 million to $7 million). The announcement said, however: CMA Managing Director Doug Rowe said while the result was disappointing for shareholders, there were also clear signs that CMA was regaining stability and moving towards profitability after the calamitous impact of the global financial crisis. 197 On 30 September 2010, CMA announced an underlying NLAT of $72.4 million, including impairments of $50.2 million attributable to Meretec assets in the USA and Australia. 198 CMA shares started trading again on 6 September 2011, after consolidation of each 40 shares into one. Ambergate's holding was correspondingly reduced to 200,000 shares. 199 On 2 August 2013, the CMA Group was placed into administration and, on 17 December 2013, the CMA Group entered into a Deed of Company Arrangement. The return to creditors is estimated to be "up to" 2 cents in the dollar. Conclusions about conduct 200 In my view, the representations made on 23 November 2009 gave a seriously misleading impression. They carried with them (in a known context of continuous and adequate disclosure) the unmistakable implication that, apart from specifically announced reservations or qualifications, there was no reason to doubt the overall picture previously outlined of confidence in a return to profitability during FY2010. By 23 November 2009, there were no reasonable grounds for such confidence or such an impression. 201 Similarly, the representations made on 11 December 2009 gave a misleading impression of a markedly improved position in the second half of FY2010 and did nothing to dispel the earlier forecast of a return to profitability during that year at least. 202 The pleaded case against CMA arising from the statements on 23 November 2009 and 11 December 2009 was supplemented by allegations that Mr Rowe and Mr Schmitt were each accessories, by contentions that Mr Rowe was personally liable for each of the statements and that Mr Schmitt was personally liable for the statement made on 23 November 2009. 203 The pleaded basis on which Mr Schmitt was said to be liable as an accessory, and personally, was set out in particulars as follows (at paragraph 13B): Particulars 1. Mr Schmitt sent the address to the Australian Stock Exchange by letter dated 23 November 2009 for immediate release to market. 2. Mr Schmitt was Company Secretary and Chief Financial Officer of CMA. 204 I reject the contention that Mr Schmitt was liable as an accessory, or personally, based on those particulars. 205 CMA had a continuous disclosure policy. It was set out in the 2009 Annual Report in the following terms: Continuous Disclosure The Board has adopted a Disclosure Policy that is designed to ensure compliance with ASX Listing Rules, disclosure requirements and to ensure accountability at a senior management level for that compliance. The Company Secretary is the Disclosure Officer appointed in accordance with the policy. The Disclosure Officer is responsible for the lodgement of all announcements with the ASX during the year after receiving appropriate approvals for the content of each announcement. Under the policy the Board conducts regular reviews to ensure that all relevant information that should have been provided to the ASX, including the company accounts: - has been prepared and lodged in a timely manner; - is factual; - does not omit material information; and - is expressed in a clear and objective manner that allows the input of the information when making investment decisions. (Emphasis added.) 206 On the findings I have made, the Board, the Chairman and the Managing Director Mr Rowe, fall short of the stated objectives by a considerable margin. 207 Mr Schmitt, however, performed a role subject to direction and approval. In his affidavit he said (in evidence which I accept): 14. As Company Secretary, I also performed the role of CMA's Disclosure Officer. Whilst I was Company Secretary, the Board of CMA had a Disclosure Policy. I do not now have a copy of it, but it was referred to in a number of documents issued by CMA, such as the Annual Report for 2009. A copy of the Annual Report is at page 34 of the Exhibit JS-1 to Mr Sorensen's affidavit. The Annual Report refers to the Board's Disclosure Policy at page 52 of Exhibit JS-1. 15. I understood the importance of disclosure to the ASX. In my role as Chief Financial Officer, I reported to CMA's Managing Director, Doug Rowe. However, as Company Secretary (and as the Disclosure Officer), my reporting line was also to the Chairman of the Board, Alan Good. It was my practice to bring to the Chairman's attention any matters that I was aware of that I considered may need to be disclosed. I considered such matters to include anything that was likely to be of significance, either positively or negatively, to shareholders or potential shareholders, in order to keep them fully informed of matters outside the mandatory reporting periods. 16. As Company Secretary, it was my role to lodge with the ASX any announcements to be made on behalf of CMA. Throughout my time as Company Secretary at CMA, I lodged numerous announcements with the ASX. In each case, the process by which the announcement came to be lodged was as follows. I received the initial draft of the announcement from whoever had prepared it. For announcements which addressed operational matters, I generally received the initial draft from Mr Rowe's personal assistant, Adrienne Porter. I read the initial draft and considered whether I thought any changes were necessary. Sometimes I discussed the terms of the draft with Mr Rowe and sometimes changes were made. I then emailed the draft to CMA's media consultants, who in 2009 were FD Third Person. I also provided the draft to any other person who I considered to be concerned with the content of the announcement, such as any manager who was quoted in the announcement. After receiving any comments from FD Third Person and anyone else I had sent the draft to, I requested Adrienne Porter (who was also my personal assistant) to email the draft announcement to the Chairman and each director, with an email which requested each such person's approval for the announcement to be released to the market. Mr Rowe and I were cc'd on these emails. Once I had seen a reply email from each director giving approval, I would then inform the Chairman (either by phone or by email) that all the directors had approved the announcement and request his authorisation to lodge the announcement with the ASX. Upon receiving that authorisation, I then lodged the announcement with the ASX. 17. I regarded this process of obtaining approval for each announcement as important. As a result of this process, I considered that each announcement which I lodged with the ASX had been properly considered by the Chairman, the Board and Mr Rowe, and that nothing was said to the market which was incorrect or misleading. 208 Mr Schmitt also described the way in which addresses were prepared for the Annual General Meetings of CMA, by particular reference to the meeting on 23 November 2009 which I earlier discussed. In evidence which I accept, Mr Schmitt said: 37. The meeting included an address by the Chairman, Alan Good, and an address by the Managing Director, Mr Rowe. Whilst I was at CMA, the process by which the addresses to the AGM were prepared was as follows. I provided CMA's media consultant with the annual report for the purpose of the media consultant preparing the first draft of the Chairman's address and the Managing Director's address. I then received draft addresses from the media consultant and provided them to (respectively) the Chairman and the Managing Director. I also checked the draft addresses to ensure any financial figures included in them were consistent with the annual report. Once I had received any comments from the Chairman and the Managing Director, I sent the draft addresses back to the media consultant for further review. After that, I requested Adrienne Porter to email the addresses to the Chairman and each director, with an email which requested each person's approval for the addresses. Mr Rowe and I were cc'd on these emails. Once I had seen a reply email from each director giving approval, I would then inform the Chairman that all the directors had approved the addresses and request his authorisation to lodge the addresses with the ASX. Upon receiving that authorisation, I then lodged the addresses with the ASX. 209 I am satisfied that Mr Schmitt was not at any time acting independently of direction or approval by the Board (ASIC v Narain at [96]-[100]). 210 The contrary is the case for Mr Rowe. He was a direct, and authoritative, participant in the events on the two dates in question. 211 I am satisfied that the applicant has established that CMA's conduct in making the statements on 23 November 2009 and 11 December 2009 was both misleading and deceptive, and so was Mr Rowe's. In particular, the failure to dispel the representations of a confident expectation of a return to profit in FY2010, the failure, on the contrary, to indicate that a loss was forecast, the deceptive and misleading nature of the suggested comparisons on 11 December 2009 and the suggestion, contrary to the forecast and the known facts, that there would be a profit for FY2010 deserve that conclusion. 212 Insofar as any of those matters concern representations about future matters I am satisfied, on the evidence, that there were no reasonable grounds for making the representations. Insofar as he bore the onus to show that such reasonable grounds existed, Mr Rowe failed to discharge that onus by a considerable margin. I am also satisfied, to complete the picture, that Mr Rowe was knowingly concerned in CMA's conduct. 213 However, before I deal further with questions of liability, and loss, it is necessary to deal with complaints which were made by Mr Rowe and Mr Schmitt about the applicant's pleadings. Pleading arguments 214 It is not necessary to resolve arguments of this kind so far as they relate to the share purchases themselves, because I have not upheld Ambergate's case that CMA's conduct, or Mr Rowe's conduct or Mr Schmitt's conduct before that time was misleading or deceptive. 215 Although a lot was said about the alleged deficiencies in the pleadings so far as they concern the purchases of shares, relatively little was said about retention of the shares. Mr Schmitt's closing written submissions included: 67. There is nothing in the evidence which warrants a finding that between June 2009 and 23 November 2009 the June Business Plan ceased to be a reasonable basis for the Board's view of CMA's future, having regard to the Board's attitude to it during this period. 68. Implicit in the Applicant's case is the suggestion that at some stage between June and November 2009, the Board should have immediately and definitively concluded that a loss would be made in FY2010 and immediately made an announcement to the ASX to that effect. There is an air of unreality about this argument. CMA was a large and complicated business. Its future profitability would be determined by many interrelated matters and could not be reduced to the simplistic propositions for which the Applicant contends. Before changing its current forecast, the Board had to give consideration to all relevant matters. There is no allegation of misrepresentation by silence. (Footnote omitted.) 216 Mr Rowe's closing written submissions did not take this point. Rather, they argued that the position was not sufficiently clear. 217 The present case is not adequately described (as Mr Schmitt's written submissions suggested) as one of "misrepresentation by silence". What is alleged by paragraph 24 of the statement of claim (and the subsequent paragraphs which adopt and rely on it) concerns CMA's (and Mr Rowe's and Mr Schmitt's) conduct. Although I have rejected two of the elements of paragraph 24 (i.e. b and d), the pleaded case which remains in paragraph 24.a and c extends to include the events on 23 November 2009 and 11 December 2009, especially when considered in the context of the rosy optimism portrayed by earlier announcements and statements, culminating in the statements made on 29 September 2009 by the Chairman and Mr Rowe to accompany the Annual Report for FY2009. 218 I reject the argument that no case was adequately pleaded, so far as that argument might extend to the findings I have made. 219 I would not dismiss this part of the case for any alleged defect in the pleaded case or any failure of the evidence to make good the pleaded case. 220 As indicated earlier, attention must be given to the whole of CMA's course of conduct including, in this particular respect, its failure to take steps to dispel the impression (now obviously misleading) which, I accept, must have been left by the announcements and statements up to and including 14 October 2009. 221 Those matters were adequately pleaded. There was no evidence from Mr Rowe or Mr Schmitt which provided any satisfactory answer to the picture which emerges from the documents which were in evidence. 222 I am satisfied, therefore, that Ambergate made out a case in misleading and deceptive conduct by CMA and Mr Rowe referable to the period after Ambergate committed to obtain the shares. Reliance and loss 223 Mr Schmitt's closing written submissions included: 140. As for the Chairman's address and the Managing Director's address on 23 November 2009, Mr Sorensen did not attend the AGM. At first he said he read the addresses on the ASX website, but it then became apparent that he did not actually recall doing so. 141. Even if it be assumed that he did read them, the claim that Mr Sorensen held his shares after 23 November 2009 because of the addresses is even less plausible. Both the Chairman and the Managing Director included in their addresses an explicit refusal to give any profit guidance. Mr Sorensen's evidence contends for a hypothetical, namely he would have immediately sold his shares had the announcements on 23 November 2009 not given the alleged impressions. This kind of evidence needs to be treated with caution because such evidence is naturally infected by hindsight guided by self-interest. (Footnotes omitted.) 224 I accept the force of the cautionary statement there recorded, and the force of the criticism of Mr Sorensen's evidence. Those matters alone would not have dissuaded me from a conclusion that Mr Sorensen might have wished to sell Ambergate's shares if he thought he could recoup the bulk of their value, although that is a premise which will require examination. 225 On this aspect of the case, Ambergate's submission was that the face value to be attributed to the shares at 23 November 2009 was $624,000 (i.e. 7.8 cents per share to reflect an opening and closing range on that day of 7.7 to 7.9 cents per share). 226 I will later discuss how a loss to Ambergate might be assessed upon the assumption or premise that Mr Sorensen might have caused Ambergate to sell its shares on 23 November 2009 (or so soon thereafter as was possible) if he had not been misled about the true picture at that date. However, before any consideration of that matter, Ambergate must first establish on the balance of probabilities that Mr Sorensen would have taken that course. 227 Ambergate must prove (at least some) loss, as well as misleading or deceptive conduct. It must prove that the conduct caused the loss. 228 Mr Rowe's written submissions included: 171. Mr Sorensen refers to particular statements in announcements of 23 November 2009 and 11 December 2009 and says that he relied on those statements, and that he would have sold the shares but for those statements. … 173. Of course, it may be accepted that Mr Sorensen would have sold his shares had he known that shares would be suspended on 19 February 2010 and his investment would ultimately be worth far less when it eventually re-listed on 20 September 2011. 174. However, Mr Sorensen needs to demonstrate that the two announcements in question were misleading and that they caused him to retain his CMA shares. The relevant counterfactual is not one in which Mr Sorensen was apprised of the ultimate fate of CMA, but rather one in which any misleading statement in the relevant announcements was excised. The overwhelming likelihood is that Mr Sorensen would have retained his shares in that counterfactual. 229 I do not accept the proposition that the relevant "counterfactual" is one in which statements are merely "excised" but otherwise the general point being made is an important one. 230 Any correction by the Board, or by Mr Rowe, to dispel the misleading and deceptive effect of the earlier announcements in the light of the clear and dismal picture now before the Board would not have been confined to Mr Sorensen. In my view, the effect on the share price would most probably have been substantial. In a later section of these reasons I attempt to estimate what it might have been. 231 I have already referred to the fact that CMA shares commenced trading again on 6 September 2011 after a consolidation of 40 shares into one, and the fact that CMA was placed into voluntary administration on 2 August 2013. In that period, Mr Sorensen did not cause Ambergate's shareholding in CMA to be sold. As a result, Ambergate accepts that credit must be allowed, in any evaluation of loss, for the market value of the shares on 6 September 2011 (i.e. 29 cents per share x 200,000 = $58,000). 232 The failure to sell the shares then, but instead to retain them perhaps in the hope of a future increased value is a relevant circumstance, although it does not necessarily suggest that Mr Sorensen, in late 2009, would have retained the shares come what may. There is a big difference between selling to curtail a loss, and holding a share which has already crashed, hoping for any relief that might later be available. 233 The statement of claim asserted the current position by way of the following particulars (which are not in issue): 26. … Particulars … 3. On 19 September 2011 the CMA Shares were consolidated by CMA in the ratio of 40 shares to 1 new share. Ambergate held 200,000 consolidated new shares (the new shares until 31 January 2012. 4. On or around 31 January 2012, Ambergate transferred the new shares to a nominee company, Custodian Nominee Company Ltd to be held on behalf of Ambergate. 5. Ambergate has retained the beneficial interest in the CMA Shares since the transfer. 234 In other words, Ambergate has never divested itself of its interest in the shares. It continues to hold that interest, even now. The shares were held, despite abandonment of CMA by Scholz, until finally CMA was placed into administration. 235 The original investment was obviously based on a hope of increased share value arising from improved performance after a period of operational and trading difficulty. At 23 November 2009, the ANZ Bank had not withdrawn support and nor had Scholz. Those difficulties did not arise until February 2010. 236 The statement of claim, and Mr Sorensen's evidence, identified the events in February 2010 as the reason why Mr Sorensen was alerted to the possibility of misleading or deceptive conduct constituted by the earlier statements. The statement of claim gave as particulars to that assertion: Particulars 1. In making these allegations, Ambergate relies on: a. the fact that, on 19 February 2010, CMA requested immediate suspension in trading of its shares; … d. the failure of CMA, or any person on behalf of CMA, to point to unforeseen or unexpected events that occurred or came to light after the alleged conduct that could explain the difference between the impression created by the statements and CMA's actual financial performance; 237 So far as the evidence shows, Mr Sorensen did not have under active consideration any sale of Ambergate's shares prior to 19 February 2010. 238 Even though the statements made on 23 November 2009 and 11 December 2009 did not, in my view, represent adequate disclosure of the true position, and they represented misleading and deceptive conduct by CMA and Mr Rowe, nevertheless they gave a much less optimistic picture than earlier statements. They said it would not be practical or prudent to give profit guidance and that there was more work to do to secure profitability in FY2010. Proffered optimism about achieving things in the 12 months from then (i.e. well into FY2011) and ongoing uncertainty and volatility in CMA's markets also revealed, in my view, the distinct possibility that the earlier optimism had evaporated as FY2010 was entered and negotiated. 239 Mr Sorensen may have sold Ambergate's shares at that stage. He could have realised most of the value paid for them (about $624,000). I infer that he was not anxious to sell the shares at that point even if the prediction about profitability in FY2010 might not come to pass. I infer, further, that it was really the events in February 2010 which spelt the end of his investment plans in CMA and the hope for a good return based on resumed profitability. 240 However, on the evidence before me, the immediate cause of the suspension of shares from trading was the combined effect of new requirements imposed by the ANZ Bank, together with the refusal by Scholz to provide further support. Mr Schmitt said he was shocked by those events, which were unexpected. I accept his evidence to that effect. 241 At a general level, Mr Sorensen's evidence was that he relied on optimistic statements about a return to profitability in FY2010. However, he did not say that the investment would not have been made or maintained if that expected return to profitability did not occur until FY2011. He did not say it was only, or strictly, a short term investment. More particularly, Mr Sorensen's evidence about the effect of the announcements on 23 November 2009 and 11 December 2009 was: 31. These statements reinforced the belief I held that, despite CMA having been in a difficult financial position in 2009, it was well placed to recover financially in 2010 and would in fact financially recover in 2010 and become profitable. … 33. If this had not occurred, or if I had received different information I would have sold the shares. … 242 Mr Sorensen does not explain why he would have sold the shares, or what level of disappointed expectation might have provoked such action. 243 The vice in the conduct by CMA and Mr Rowe on 23 November 2009 and 11 December 2009 was not in any positive statements which were made (such as they are). I may test Mr Sorensen's assertions by asking whether he would have sold his shares if no such statements (or any other statements) had been made. There is no reason to think that he would have done so. I would not be prepared to simply accept his bald assertion, made for the purpose of the proceedings, that he would have done so. Mr Sorensen showed a disposition to tailor both his affidavit and oral evidence to his pursuit of the litigation. My reservations are sufficient to require more from him than unexplained assertion. 244 Perhaps Mr Sorensen would have sold if the earlier optimism had been corrected or dispelled but Mr Sorensen did not say why profit in FY2010 was critical or even important compared, say, to FY2011. Furthermore, if Mr Sorensen had chosen to sell in response to candid disclosure of the prospects for FY2010 known to the Board in late 2009, he may not have been the only one to take that decision. 245 The stock was relatively thinly traded. I do not doubt that immediate sustained selling would have caused a dramatic slump in the share price. Would Mr Sorensen have sold on such a slump? Would there have been sufficient market liquidity for Mr Sorensen to have sold on such a slump? 246 It was accepted that it may have taken more than a week to sell all the shares at the volumes currently traded, even in the market conditions at the time (i.e. when Mr Sorensen, for example, was prepared to hold the shares). I think sustained selling of a large volume of shares (Ambergate held shares equating to about 10% of the shares traded between 23 November 2009 and 19 February 2010) would have caused a significant slump in the share price. 247 Ultimately, I am not satisfied that it is more probable than not that Mr Sorensen would have sold at what was likely to have been a much reduced price on the day, and thereafter, if proper disclosure had been made. It is clear from his subsequent conduct that he would not sell at just any price – e.g. at 10% of previous value. Neither am I satisfied on the balance of probabilities he would have sold at 50% or less of previous value, an estimate I will explain shortly. 248 I therefore cannot be, and am not, satisfied that Mr Sorensen would have caused Ambergate to sell its shareholding on 23 November 2009 (still 8 million shares) at a much reduced value if the true position had been provided by the Board at that time. 249 It follows that, even though I am satisfied that CMA and Mr Rowe engaged in misleading and deceptive conduct, I am not satisfied that Ambergate has proved a resulting loss. 250 Regardless of my other findings, that conclusion compels dismissal of the proceeding, in all respects. 251 Nevertheless, I shall attempt to estimate a likely loss on the alternative basis that the shares would have been sold on 23 November 2009, if the true position had been revealed. Alternative assessment of loss 252 Ambergate accepts that, in any calculation of loss, credit must be allowed for a sub-underwriting fee to Ambergate on its first purchase of shares (2% for 6.5 million shares) of $13,000 and the amount at which the shares could have been sold (but were not) when trading resumed in September 2011 ($58,000). 253 The share price on resumption of trading was 29 cents per share (after consolidation). The price rose for the fortnight thereafter to a little above 34 cents and then fell to between 24 and 28 cents per share. I accept, as Ambergate submitted, that a price of 29 cents per share is a fair one to assign for this purpose. Credit must, therefore, be given for $58,000, as Ambergate proposed. 254 What if Mr Sorensen had known the true position at 23 November 2009 (as the Board knew it and should have disclosed) and had sold Ambergate's shares as quickly as he could and cut its losses however serious those losses might be? 255 As I have already said, Mr Sorensen would not have been the only person with that knowledge. Ambergate also held a very substantial block of shares, compared with normal trading volumes. It could not be expected that an announcement by CMA which effectively displaced the optimism about a return to profitability which had underpinned the capital raising would have been treated by the market with equanimity or by unaltered confidence in the value of the shares. The reaction which is proper to be attributed to Mr Sorensen must also be attributed to a large proportion of other investors. 256 Perhaps, the market reaction may not have been so negative as in the period after the trading halt when it became apparent that Scholz had abandoned CMA, but in my view, the immediate reduction in share value would inevitably have been substantial. 257 The 1:40 consolidation during the trading halt, coupled with the effect of the share price on resumed trading, suggests that the shares had become worth less than 10% of their previous value. 258 The share price the day after the AGM on 23 November 2009 opened at 7.7 and closed at 7.9 cents per share (pre-consolidation) (fluctuating between 7.5 and 7.9 cents). At 7.8 cents per share for 8 million shares, the face value of the shares at that date would have been $624,000. 259 The value on resumed trading, for which in any event credit must be given, is $58,000. In addition, credit must be given for $13,000 (i.e. a total of $71,000). 260 In Placer (Granny Smith) Pty Ltd v Thiess Contractors Pty Ltd [2003] HCA 10; (2003) 77 ALJR 768, Hayne J said (at [37]-[38]): 37 Placer undoubtedly bore the burden of proving not only that it had suffered damage as a result of Thiess Contractors' breach of contract, but also the amount of the loss it had sustained. It goes without saying that it had to prove these matters on the balance of probabilities and with as much precision as the subject matter reasonably permitted. 38 It may be that, in at least some cases, it is necessary or desirable to distinguish between a case where a plaintiff cannot adduce precise evidence of what has been lost and a case where, although apparently able to do so, the plaintiff has not adduced such evidence. In the former kind of case it may be that estimation, if not guesswork, may be necessary in assessing the damages to be allowed. References to mere difficulty in estimating damages not relieving a court from the responsibility of estimating them as best it can may find their most apt application in cases of the former rather than the latter kind. … (Emphasis in original.) (Footnotes omitted.) 261 Gleeson CJ, McHugh and Kirby JJ agreed (at [6]), saying: 6 Furthermore, we agree, for the reasons given by Hayne J, that, when due allowance is made for the fact that the calculation of damages was necessarily based on information that was primarily within the knowledge of Thiess, and involved matters of estimation as well as calculation, the assessment made by the trial judge was not shown to be in error. 262 As will be seen, some process of estimation in the present case is inevitable. 263 Doing the best I can, in my view CMA shares should not be estimated to have sustained a value of greater than 50% of the trading price on 23 November 2009 (say 7.8 cents per share on that day as Ambergate suggested) if the facts had been revealed to the market (which was the only source of Mr Sorensen's knowledge) on that day. On that approach the shares should be estimated to have been worth $312,000, from which $71,000 must be deducted. 264 I would, therefore, have assessed Ambergate's loss at $241,000, if it was necessary to do so. 265 It is not necessary to deal in any detail with aspects of the defences which alleged contributory negligence by Ambergate. Nothing was identified that Ambergate or Mr Sorensen might reasonably have done which would have exposed the true position not being disclosed by CMA, its Chairman or its Managing Director. I would not have accepted that Ambergate contributed to any loss by its own negligence. The findings I have made contradict such a proposition. 266 On the assumption that Ambergate proved loss by retaining the shares on and after 23 November 2009, the next question is who, in the present proceedings, is liable for that loss and in what amount. 267 For the reasons already given, Mr Schmitt is not personally liable. Nor would I find him to be liable as knowingly involved in CMA's conduct, and therefore a concurrent wrongdoer. 268 Mr Rowe is directly liable under the FT Act. It is not strictly necessary to deal with whether he would be liable as knowingly involved in CMA's conduct, although I have no doubt that would be an appropriate conclusion. Mr Rowe was directly involved in painting the rosy picture up to and including 29 September 2009, and in perpetrating it to a substantial extent by failing, through his own words and deeds, to correct the misleading position which carried over post 23 November 2009. 269 Mr Rowe's defence alleged that each member of the Board, as well as CMA and Mr Schmitt were concurrent wrongdoers. There was no specific evidence presented concerning the conduct of any of the directors, except such inferences as may be available about Mr Good's conduct from statements made by him as the Chairman of CMA. Those inferences in my view, although they suggest wrongdoing also by Mr Good, are insufficient in the absence of an evidentiary case directed to supporting the pleaded defence. 270 I reject the identification of Mr Schmitt as a concurrent wrongdoer, for the reasons I have given. 271 As a final alternative, Ambergate argued that any liability Mr Rowe bore as an accessory could not be reduced by apportionment under the federal statutory regimes because it was not "independent or jointly shared" with CMA (see e.g. TP Act, s 87CB(3)). I do not accept this argument. On the contrary, liability as an accessory is both dependent on, and bound up with, the conduct of a primary contravenor. As a result, there could be no question of obtaining more than 100% of assessed loss from the combined conduct of a primary contravenor and an accessory. For the reasons given generally by Emmett AJA in Williams v Pisano [2015] NSWCA 177; (2015) 299 FLR 172 at [86]-[93], liability for loss may be apportioned in this situation. 272 If the argument was rejected, Ambergate relied on the notion of a "fraud exception" (see e.g. TP Act, s 87CC(1)(b)). For the reasons given hereunder I do not accept that this assists Ambergate. Mr Rowe's liability, whatever its statutory source, may and should be apportioned. 273 In my view, CMA was a concurrent wrongdoer. It would, therefore, be necessary to apportion responsibility as between Mr Rowe and CMA. 274 CMA's responsibility extends beyond what may be attributed to it necessarily for the conduct of Mr Rowe (c.f. Tomasetti v Brailey [2012] NSWCA 399; (2012) 274 FLR 248 per Macfarlan JA at [154]-[156]). CMA also carries responsibility for the inaction of its Board and the representations and conduct of its Chairman. On the findings which I have made, that inaction and those representations and conduct were also a direct cause of loss to Ambergate, if it is assumed that loss was proved. 275 Under s 35(1) of the Civil Liability Act 2002 (NSW), therefore, any judgment against Mr Rowe could normally not exceed an amount representing the proportion of the loss justly attributable to his conduct, rather than CMA's conduct. His liability would not be limited, however, if s 34A applied. Section 34A(1)(b) was relied on by Ambergate in a reply to Mr Rowe's defence and in its closing submissions. Section 34A(1)(b) provides: 34A Certain concurrent wrongdoers not to have benefit of apportionment (1) Nothing in this Part operates to limit the liability of a concurrent wrongdoer (an excluded concurrent wrongdoer) in proceedings involving an apportionable claim if: … (b) the concurrent wrongdoer fraudulently caused the economic loss or damage to property that is the subject of the claim, … (Emphasis in original.) 276 Ambergate relied also upon statements by French CJ, Gummow, Hayne and Kiefel JJ in Forrest v Australian Securities and Investments Commission (2012) 247 CLR 486 ("Forrest") at [22]. However, in my view, their Honours' reasons expose a difficulty for this aspect of Ambergate's pleaded case. Their Honours said at [26]: 26 … It is fundamental, and long established, that if a case of fraud is to be mounted, it should be pleaded specifically and with particularity. A pleading of fraud will necessarily focus attention upon what it was that the person making the statement intended to convey by its making. And the pleading must make plain that it is alleged that the person who made the statement knew it to be false or was careless as to its truth or falsity. If an alternative case of misleading or deceptive conduct is to be advanced, it is necessary to identify that claim as separate from the allegation of fraud. And for the purposes of the misleading or deceptive claim the pleader must identify what it is alleged that the impugned statements conveyed to their intended audience. … (Footnote omitted.) 277 The distinction was further explained at [28]: 28 As already noted, ASIC's allegations were taken, at trial, to be allegations of fraud. Yet on appeal to the Full Court of the Federal Court, and again on the appeals to this Court, ASIC advanced its case on the wholly different footing that the impugned statements should be found to be misleading or deceptive. That is, whereas the case that was presented at trial focused upon the honesty of Fortescue, its board and Mr Forrest, the case which ASIC mounted on appeal focused on what it was that the impugned statements would have conveyed to their intended audience. 278 Although reliance on s 34A(1)(b) arose in Ambergate's pleaded reply, as a response to reliance by Mr Rowe on the apportionment regime in s 35 of the Civil Liability Act, it was no less necessary to plead the fraudulent conduct with particularity. That was not done. Rather, the pleading was: 1. In answer to paragraphs 34 to 36 of the second respondent's defence and paragraphs 31 to 34 of the third respondent's defence, the applicant: (a) says the loss was caused fraudulently within the meaning of section 87CC(1)(b) of the Competition and Consumer Act 2010, section 1041M(1)(b) of the Corporations Act 2001, section 12GQ(1)(b) of the Australian Securities and Investments Commission Act 2001 and section 34A(1)(b) of the Civil Liability Act 2002; Particulars The applicant repeats the particulars to paragraphs 25A and 25B of the second further amended statement of claim. 279 Paragraph 25A of the statement of claim (which applied to Mr Rowe) said: 25A. Mr Rowe was knowingly concerned in the contraventions alleged in paragraph 25. Particulars 1. Mr Rowe was knowingly concerned in the alleged conduct by reason of the matters alleged in paragraphs 3A, 4A, 5A, 6A, 7A, 10A, 11A, 13A and 14A above. 2. In making the allegation that Mr Rowe was knowingly concerned in the conduct being misleading, CMA relies on: a. Mr Rowe's position within CMA and the knowledge that Mr Rowe must have had by reason of that position; b. the failure of Mr Rowe or anyone else on behalf of CMA to proffer a reasonable basis for the statements; c. the inference available from those matters that Mr Rowe in fact knew that the conduct was misleading. 3. Further particulars to be provided following subpoenas and discovery. 280 I do not regard that combination of pleaded assertions as one raising a proper case of fraud, in the sense identified in Forrest. On the contrary, what it emphasises is CMA's wrongdoing. In fact, this part of the statement of claim is not concerned with alleging any direct liability on Mr Rowe's part; that was done in paragraphs 25C to 25F. 281 However that technical criticism may be regarded, the more important point is that the necessary material facts to sustain an allegation of fraud were not pleaded at all. As Forrest makes clear, it is insufficient to concentrate upon "what it is alleged that the impugned statements conveyed to their intended audience". What must be addressed is that the person who made the statement knew it to be false. 282 Furthermore, on the facts which I have found, the vice in the position adopted by CMA and Mr Rowe on 23 November 2009 and 11 December 2009 lies not so much in what was actually said, but in the failure to correct earlier statements which had, by then, been effectively falsified. 283 I would not find that Ambergate had adequately pleaded, or established, a case which engaged s 34A(1)(b) of the Civil Liability Act. Mr Rowe was therefore not an "excluded" concurrent wrongdoer. CMA was a concurrent wrongdoer for this purpose. 284 Although I have found that Mr Rowe is directly and personally liable for his own conduct, it must be acknowledged also that he was, nevertheless, subject to control and direction by the Board and not a completely free agent. In my view, primary responsibility must be attributed to the conduct of the Board of CMA, and therefore to CMA. I assess the proportion of loss for which Mr Rowe would justly be found liable to be 30% – i.e. $72,300. If Ambergate had proved that it had suffered loss, I would have entered a verdict against Mr Rowe in that amount. Orders 285 The proceedings will be dismissed with costs. Monies held as security may be released towards those costs. The second and third respondents should bring in short minutes of order to give effect to the findings in this judgment within 14 days. I certify that the preceding two hundred and eighty-five (285) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Buchanan. Associate: Dated: 17 February 2016