Supreme Court New South Wales Medium Neutral Citation: Akea Limited v Paltar Petroleum Limited [2017] NSWSC 319 Hearing dates: 29 March 2017 Decision date: 29 March 2017 Jurisdiction: Equity - Commercial List Before: Ball J Decision: The plaintiff given leave to file in court further amended summons Catchwords: PRACTICE AND PROCEDURE – summons – application to file further amended summons – whether defendants would be unfairly prejudiced if the amendment were allowed and no adjournment granted Legislation Cited: Australian Consumer Law ss 237(1) and 243 Australian Securities and Investment Commission Act 2001 (Cth) Civil Procedure Act 2005 (NSW) ss 56 to 60 Corporations Act 2001 (Cth) Cases Cited: Haydon v Jackson (1988) ATPR 40-845 Morellini v Adams [2011] WASCA 84 Category: Procedural and other rulings Parties: Akea Limited (First Plaintiff) Guangyue Qian (Second Plaintiff) Xinyu Wang (Third Plaintiff) Paltar Petroleum Limited (First Defendant) Marc Alan Bruner (Second Defendant) Darryl John Causbrook (Third Defendant) Hamish Leslie McIntosh (Fourth Defendant) Stephen Wee (Seventh Defendant) Representation: Counsel: GKJ Rich SC with S Lawrance (Plaintiffs) I Jackman SC with D Klineberg (First to Fourth Defendants) PS Braham SC with Y Shariff (Seventh Defendant) Solicitors: Arnold Bloch Liebler (Plaintiffs) North Rose Fulbright (First to Fourth Defendants) Deutsch Miller (Seventh Defendant) File Number(s): 2015/89532 Publication restriction: None EX TEMPORE Judgment 1. In these proceedings, the plaintiffs claim damages for misleading and deceptive conduct and unconscionable conduct in connection with the issue to them by the first defendant, Paltar, of a convertible note. The amount invested was $5 million. Under the terms of the convertible note, Paltar had a right which it exercised to issue to the first plaintiff, Akea, five million shares in repayment of the amount due under the note. Relevantly, the claim for damages is made against Paltar and a number of its directors who are said to have engaged in misleading, deceptive or unconscionable conduct or to have been involved in contraventions by Paltar. 2. By their amended commercial list statement, the plaintiffs claim damages calculated as the difference between the amount they invested and the value of the shares issued under the convertible note, which they say is zero. Neither party has sought to lead expert evidence concerning the value of the shares. It is the plaintiffs' case that the court can infer that the shares have no value from the financial statements of the company, the absence of up-to-date financial statements and a number of other facts concerning the financial position of the company, including the apparent loss of certain petroleum exploration licences held by the company following the failure to pay the requisite fees. 3. It is the first to fourth defendants' case that the plaintiffs have failed to prove that the shares are worthless and as a consequence, the plaintiffs have failed to prove the loss they claim, with the result that the case must fail. 4. During the hearing on 28 March 2017, the plaintiffs made an application to amend their claim to claim, as damages, the difference between the amount they had paid and the value of the shares, whatever it was. I refused that amendment. Mr Rich SC, who appeared for the plaintiffs, rightly conceded that if the amendment were allowed the defendants would be entitled to an adjournment to permit them to consider what, if any, additional evidence they would want to lead concerning the value of the shares. I was not prepared to permit an amendment which would have that result. 5. Today the plaintiffs have sought leave to file a further amended summons in which they seek as an alternative to a claim for damages relief under ss 237(1) and 243 of the Australian Consumer Law and equivalent provisions of the Australian Securities and Investment Commission Act 2001 (Cth) and Corporations Act 2001 (Cth), requiring the second to fourth defendants (the affected defendants) to pay the plaintiffs $5 million in exchange for the shares held by Akea. The affected defendants resist that amendment. They point to the fact that originally it appears that the plaintiffs raised as an issue in the proceedings whether the convertible note should be set aside or varied, but had subsequently abandoned that relief. The affected defendants submit that the plaintiffs should not be permitted to reinstate that relief now. 6. That point aside, the affected defendants claim that they will suffer prejudice of three types if the amendment is allowed. 7. First, they submit it will be necessary to investigate the question whether the transaction can be unwound and what effect that would have on the affected defendants and third parties. That could not be done without granting an adjournment. 8. Second, they say there is authority that an order of the type sought by the plaintiffs could only be made against the direct or indirect recipients of the funds, and that that, again, raises a factual matter that could only be investigated with the benefit of an adjournment. 9. Third, they say that a precondition to an order of the type sought by the plaintiffs is that the plaintiffs have suffered, or are likely to suffer, loss or damage. Consequently, the position is no different from the position in relation to the previous amendment sought by the plaintiffs. The defendants may want to lead evidence that the plaintiffs have suffered no loss in which case the plaintiffs would be disentitled to the relief that they seek. In addition, the affected defendants may want to lead evidence of the consequences for them if they were ordered to take a transfer of the shares. 10. It is not in dispute that in considering whether the amendment should be permitted the court must apply ss 56 to 60 of the Civil Procedure Act 2005 (NSW). Relevantly, those provisions require the court to act in accordance with the dictates of justice and require the court to consider among other things: 1. the just determination of the real issues in dispute between the parties, 2. the efficient disposal of the business of the court, 3. the efficient use of available judicial resources, and 4. the timely disposal of the proceedings. 1. During the course of argument yesterday, I indicated briefly why I thought that consistently with those requirements it would not be appropriate to grant an adjournment. Nothing has changed. The question then is whether the affected defendants would be unfairly prejudiced if the amendment were allowed and no adjournment was granted. 2. It is self-evident that the plaintiffs will be prejudiced if the amendment is not allowed since, as the case stands, they may be able to prove the contraventions they allege and that they have suffered loss, but may still not recover any damages. 3. Although the defendants point to the history of the pleadings, in my view, little weight can be placed on that. The plaintiffs are not seeking to reintroduce a case they abandoned; rather, they are seeking to correct what appears to be an error in the way they put their case. They should be permitted to do so provided the defendants are not unfairly prejudiced. 4. As to the first point of prejudice raised by the defendants, in my view, that point carries little weight. The plaintiffs are not seeking to unwind the transaction. They are simply claiming the amount they have always claimed from the affected defendants, but now in effect they agree to give those affected defendants the shares that they obtained. It is hard to see how the affected defendants or any third party could be worse off simply because the defendants obtain shares they otherwise would not have. 5. As to the second point raised by the affected defendants, the plaintiffs point to the decision of the Western Australian Court of Appeal in Morellini v Adams [2011] WASCA 84, which clearly supports their contention that the court has power to make an order of the type they seek. Mr Jackman SC, who appears for the affected defendants, submitted that there were cases to the contrary: see, eg, Haydon v Jackson (1988) ATPR 40-845. That, however, raises a legal question which does not give rise to any relevant prejudice. Mr Jackman also submitted that it would necessitate investigation of the question whether any of the affected defendants had received any part of the $5 million. However, Mr Rich indicated that the plaintiffs were willing to concede that there was no evidence that the affected defendants had personally received any part of the $5 million. On the basis of that concession, the issue is a legal one only. 6. That leaves the third point raised by the affected defendants. The prejudice is said to be of two types. The first is the effect it would have on the affected defendants if they were required to take a transfer of the shares. I doubt that that this consideration carries much weight. The proposed amendment must be looked at in context. On the plaintiffs' case, the defendants always faced the possibility of a judgment against them for $5 million plus interest. The only thing the new relief adds is that the affected defendants would receive shares to take account of the possibility that the shares are worth something. In any event, in my opinion there is sufficient time for the defendants to prepare additional evidence going to the question of the effect on them if the court grants the relief sought by the plaintiffs. 7. The second type of prejudice is the inability to lead additional evidence on loss. This seems to be is the most powerful point in the affected defendants' favour. However, I have concluded that it is not sufficient to provide a reason for refusing the amendment. I say that for three reasons. 8. First, although I have reached no conclusion on the point, in my opinion the plaintiffs are likely to have suffered some loss. On their case they were entitled to be repaid the amount they invested together with interest or to receive shares in Paltar at their election. The position they are now in is that they have a small minority shareholding in an unlisted company which may never be listed and which may never pay a dividend. On the face of it, that appears to involve some loss. Even if the affected defendants had led some valuation evidence, it is far from clear whether that valuation evidence would be determinative of the question whether the plaintiffs have suffered any loss in the circumstances of this case. 9. Second, and connected to the first point, the amendment does not raise an issue of quantification to which valuation evidence may be very relevant. It remains open to the defendants to submit that the plaintiffs have not proved any loss and to point to evidence in support of that submission. Indeed, they sought to do so on the hearing of the application. It may be in the light of this ruling that they may seek to put other evidence before the court on that question. In my view they should be entitled to do so. It seems to me that that is something which is much more easily done than the preparation of evidence going to quantification. 10. Thirdly, it is necessary to look at the position from the point of view of the interests of justice. If the true position is that with more time the affected defendants could have led evidence that would have established that the plaintiffs are not entitled to the relief they seek because they have suffered no loss, then the prejudice that the defendants will suffer by not being able to lead that evidence will still be minimal because they will end up with shares that are worth at least the amount of money they would have to pay to the plaintiffs. 11. On the other hand, if the amendment is not allowed and the true position is that the shares are worth something but less than $5 million, the plaintiffs may be disentitled to any relief, even if they had otherwise made out their case. In my opinion, that result would not be consistent with the interests of justice. 12. For those reasons, the court gives leave to the plaintiffs to file in court the further amended summons. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 31 March 2017