Charter Pacific Coporation Ltd v Berilda Enterprises Pty Ltd & Ors [2000] QCA 488

[2000] QCA 488 COURT OF APPEAL McMURDO P McPHERSON JA DOUGLAS J Appeal No 7745 of 2000 CHARTER PACIFIC CORPORATION LIMITED Appellant(Plaintiff) and BELRIDA ENTERPRISES PTY LTD First Defendant (Not a Party to the Appeal) and THOMAS QUINN Second Defendant (Not a Party to the Appeal) and MICHAEL JOHN COVENTRY and LYNETTE HELEN COVENTRY as trustees for the MIKE and LYN COVENTRY FAMILY TRUST First Respondent (Third Defendant) and BARRY TABE as trustee of the TABE TRUST Fourth Defendant (Fourth Defendant) and -- 1 of 7 -- 2 ANDREW PAUL COVENTRY Third Respondent (Fifth Defendant) BRISBANE ..DATE 27/11/2000 JUDGMENT -- 2 of 7 -- 27112000 D.1 T15/TW12 M/T COA310/2000 3 JUDGMENT McPHERSON JA: The applicant, which is Charter Pacific Corporation Limited, entered into a transaction with the respondent, who are the defendants in this action, under which the plaintiff conferred on the defendants options to acquire shares in the capital of the plaintiff. In the pleadings in the action, the plaintiff alleges that the transaction was induced by misrepresentation, contravention of the Trade Practices Act and otherwise, on the part of the defendants. In consequence the plaintiff claims damages for the resulting loss to it that it says it has suffered as a result of the defendants' conduct. An amendment related to this question was sought, but refused by the learned trial Judge, and it is now the subject of the appeal from his decision. His Honour's reason for refusing the amendment was that the proposed amendment was defective in that it did not allege a fact, which his Honour considered was material to the cause of action for damages, namely, that if the plaintiff had not issued options to the defendant, the plaintiff would have sold, or been able to sell and issue those options to some other person. With great respect, this view is, in my opinion, not well founded. The plaintiff claims that, owing to the defendants misrepresentation or otherwise, it was induced to part with the options to the defendant. Of course, the plaintiff must plead and at the trial prove the misrepresentation and, no doubt, also the inducement as part of its case. But when it comes to -- 3 of 7 -- 27112000 D.1 T15/TW12 M/T COA310/2000 4 JUDGMENT establishing the plaintiff's resulting loss, the plaintiff is required to prove no more than that the options had a market value and that the plaintiff was deprived of it by the defendants' actions. See Duke Group Limited v. Pilmer (1999) 31 ASCR 313. Market value in the case of shares, or options to purchase shares, in public limited companies like this is ordinarily ascertained by reference to stock exchange prices at the relevant time or times. If the options in this instance were not themselves listed or quoted on the stock exchange at the time in question, their value in a case like this would, I expect, be the ruling stock exchange price of shares in the plaintiff at the relevant date, less the cost of exercising the options so as to convert them into shares that were, or were capable of being, listed and offered on the Stock Exchange. There are, of course, other ways of proving value which in this context means the market price, or market value of shares. The plaintiff is not bound to plead, but merely to prove, that there was a market for the options at the relevant time. One would expect, as a matter of particulars, that the damages claimed and pleaded, would explain how the loss was being calculated, or arrived at. In the present case, the proposed amendment that was refused satisfied that requirement. The plaintiff was not required to do more and, in particular, was not required to plead that someone else would have bought the options. That goes simply to the existence and proof of a -- 4 of 7 -- 27112000 D.1 T15/TW12 M/T COA310/2000 5 JUDGMENT market for options and consequently of a market price, or what is really the same thing, a market value of the options. In my opinion his Honour was wrong in refusing to allow the amendment on the ground he did. It was submitted by Mr Coventry, who appeared in person for himself and other defendants on this appeal, that there were reasons for supposing that his Honour's decision was right. He submitted that the issue of options would not dilute the value of shares in the capital of the plaintiff company. With respect, that is so, but only so long as the options were not exercised; and since they have a potential to be exercised, they would increase the issued capital of the company and, to that extent, dilute the value of other shares, for what relevance, if any, that may have. The second point he made was that, in effect, company capital, especially nominal capital, is really a commodity in unlimited supply because the company may go on issuing it ad infinitum. Of course that is so, but it does not mean that, as a consequence, the capital has no value. If the company can find buyers for its shares or share capital when issued, then the capital has a value and, indeed, in the case of popular shares or share capital, it is likely to be very valuable. Finally, he said the price of shares was not an asset of the company. Again, with respect, that is not correct. The potential of the company to issue shares is an asset that it -- 5 of 7 -- 27112000 D.1 T15/TW12 M/T COA310/2000 6 JUDGMENT may exercise by issuing and appropriating shares to particular persons. They then become a marketable commodity and plainly have a value even before issue. That this is so, and that the capital of the company is properly treated as one of its assets, can be seen by glancing at the balance sheet of any reputable company that is carrying on business, especially if it is listed on the Stock Exchange. In my opinion, therefore, and for the reasons I have given, his Honour was wrong in refusing to allow the amendment in this case on the ground that he did. The appeal should be allowed and the order refusing the amendment set aside. There should be leave to amend paragraph 31 of the further amended statement of claim in the form of the draft marked Exhibit 1, that was handed to us in the course of the appeal hearing, and which will be placed with the papers. Perhaps, we should hear the parties on the question of costs; but, because neither party promoted or encouraged the course adopted by his Honour, I would order that the respondents pay the appellant's costs of this appeal, but also that they be granted an indemnity certificate under the Appeal Costs Fund Act 1973. THE PRESIDENT: I agree. DOUGLAS J: I agree. -- 6 of 7 -- 27112000 D.1 T15/TW12 M/T COA310/2000 7 JUDGMENT ... THE PRESIDENT: The orders are as proposed by Mr Justice McPherson. ----- -- 7 of 7 --