Federal Court of Australia

Pacific Current Group Limited v Fitzpatrick (No 2) [2025] FCA 1152

ORDERS

THE COURT ORDERS THAT:

1.    The applicant’s proceeding against the second respondent be dismissed.

2.    The applicant pay 80% of the second respondent’s costs of and incidental to this proceeding concerning the applicant’s claims against the second respondent.

3.    The second respondent’s cross claim against the first respondent be dismissed with no order as to costs.

4.    Order 3 of the orders made by Beach J on 18 December 2024 be vacated.

5.    Any period stipulated under the Federal Court Rules 2011 (Cth) for the filing and service of any notice of appeal from orders 1 to 3 be suspended until further order.

6.    Liberty to apply.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

BEACH J:

1    This proceeding concerns a merger that was completed on 25 November 2014 between Pacific Current Group Ltd (PAC) and Northern Lights Capital Partners LLC. As part of the merger, each of PAC and Northern Lights transferred substantially all of their assets to a unit trust known as the Aurora Trust in exchange for units.

2    PAC brought the present proceeding against the then directors of PAC who approved the merger asserting that those directors breached their various statutory and other duties as directors.

3    I heard the trial of this matter over 6 weeks in 2023 and subsequently delivered judgment in the matter ([2024] FCA 1480).

4    On 18 December 2024 I made the following orders:

1.    The applicant’s proceeding against the first and third to fifth respondents be dismissed.

2.    The applicant pay the first and third to fifth respondents’ costs of and incidental to this proceeding concerning the applicant’s claims against those parties.

3.    There be a stay on the operation of order 2 until further order.

4.    Any period stipulated under the Federal Court Rules 2011 (Cth) for the filing and service of any notice of appeal from orders 1 and 2 be suspended until further order.

5.    A case management hearing be fixed at 9.30 am on 7 February 2025 to determine the procedure under which any outstanding issues concerning, inter-alia, any of these orders, the case against the second respondent, any cross-claim between the respondents or any other costs question are to be resolved.

6.    To the extent necessary, any prior confidentiality orders made in this proceeding or proceeding VID 608 of 2019 are varied so as to allow public access to and public dissemination of the reasons of the Court published today.

5    There are various outstanding questions that I now need to address, but before doing so it is convenient to set out some background.

6    In the decade leading up to 2014, the business of PAC involved making investments by taking minority shareholdings in fund managers who were not aligned with major institutions; in my principal reasons I referred to these fund managers as boutiques.

7    By 2012, PAC’s boutiques were regarded as too Australian-centric as most were located in Australia and specialised in Australian asset classes. Further, PAC’s income and consequently its ability to pay dividends to its own shareholders largely depended on two mature boutiques. The board of directors recognised that PAC needed to diversify its boutiques including by geography and by asset class.

8    From 2012 to late 2013, PAC endeavoured to diversify, including by merging with or taking over one of its competitors being Pinnacle Investment Management Ltd. This was without success.

9    Now Northern Lights and its related entities had for several years prior to 2014 conducted a similar business to PAC’s business but predominantly in the United States.

10    It was perceived to be advantageous to both PAC and Northern Lights to merge their businesses. And as I have identified, in November 2014 PAC and Northern Lights merged their businesses. PAC and Northern Lights transferred their respective interests in various boutique fund managers to a new, unlisted Australian company, being Aurora Investment Management Pty Limited (the Aurora trustee) in exchange for units in the Aurora Trust.

11    As part of the merger, PAC held approximately 61% of the units in the Aurora Trust and Northern Lights including the interest of BNP Paribas Asset Management Inc held approximately 39% of the units in the Aurora Trust.

12    Now in the proceeding before me PAC asserted that the then directors of PAC who approved the merger breached s 180 of the Corporations Act 2001 (Cth) and various other cognate duties at four key decision points.

13    The four key decision points identified by PAC were the following. First, on 24 February 2014 the board of directors resolved that it execute a terms sheet to formalise negotiations for the merger. Second, on 16 April 2014 the board resolved that PAC sign a revised terms sheet. Third, on 23 July 2014 the board resolved that the merger be approved. And fourth, on 16 November 2014 the board signed a circular resolution to proceed with completion of the merger.

14    PAC said that at each of these four key decision points, and particularly on 23 July 2014 when the board resolved that the merger be approved, the directors failed to exercise their powers and discharge their duties with the degree of care and diligence required under the general law and s 180 of the Act.

15    Further, it was said that the directors failed to seek and obtain the approval of PAC’s shareholders to the merger as required by PAC’s constitution and listing rule 11.2 of the ASX listing rules.

16    Let me again identify the respondents to the proceeding. Mr Michael Fitzpatrick was a director of PAC between 5 October 2004 and 1 March 2019, and the chairman of PAC’s board. Mr Andrew McGill was the managing director and chief executive officer of PAC between 30 August 2013 and 28 August 2015. Mr Peter Kennedy at the time of trial was a director of PAC and had been from 4 June 2003. Ms Melda Donnelly was a non-executive director from 28 March 2012 to the time of trial. And Mr Reubert Hayes was a director of PAC between 22 February 2007 and 31 March 2015. Generally speaking, Mr McGill and Mr Fitzpatrick were largely responsible for effecting the merger.

17    Now in its third further amended statement of claim, PAC alleged that by voting in favour of specific resolutions in relation to the merger in 2014, each of the directors breached his or her statutory duty under s 180 of the Act and their common law and equitable duties to PAC to exercise reasonable care, thereby causing it loss.

18    The first claim of breach of duty concerned the decision to vote in favour of the resolution passed at the board meeting on 24 February 2014 that PAC enter into a non-binding terms sheet with Northern Lights.

19    The second claim of breach of duty concerned the decision to vote in favour of the resolution passed at the board meeting on 16 April 2014 that PAC sign a revised terms sheet with Northern Lights.

20    The third claim of breach of duty concerned the decision to vote in favour of the resolution passed at the board meeting on 23 July 2014 that approved the merger subject to various conditions being satisfied or waived.

21    The fourth claim of breach of duty concerned the signing by each of the directors on or prior to 16 November 2014 of the circular resolution to proceed to complete the merger and to authorise execution of the documents necessary to achieve completion.

22    The fifth claim of breach of duty concerned the decision to vote in favour of the transaction documents execution resolution and the signing of the circular resolution without first causing PAC to seek or obtain approval of the merger from PAC’s shareholders in an extraordinary general meeting as allegedly required by PAC’s constitution and rule 11.2 of the listing rules of the ASX. A related claim involved PAC seeking restitution of the value of PAC’s assets allegedly dissipated as a result of the contraventions. PAC alleges that by failing to obtain shareholder approval, the transaction documents execution resolution and the circular resolution were ultra vires. Further, it was alleged that by failing to obtain shareholder approval, the directors breached their duty in equity to exercise care and diligence to ensure that PAC’s assets were applied in accordance with PAC’s constitution.

23    Now in addition to these claims against all directors, PAC made separate allegations against Mr McGill claiming that he had breached his duties in the following respects. First, it was said that he failed to give the non-executive directors the Deloitte due diligence report. Second, it was said that he failed to bring to the non-executive directors’ attention two versions of the financial model prepared by Gresham Advisory Partners Limited and information concerning risks as to whether WHV Investment Management Inc (WHV) would make a distribution to Northern Lights.

24    Mr McGill also filed a cross-claim against Mr Fitzpatrick in respect of the alleged failures concerning WHV and the financial modelling of WHV’s value in the merged business and the alleged failures to bring matters to the attention of the other board members prior to them resolving to enter into the merger.

25    In summary, I found that PAC’s claims against Mr Fitzpatrick, Mr Kennedy, Ms Donnelly and Mr Hayes had not been made out. Accordingly, PAC’s case against them was dismissed.

26    In passing I had cause to observe the following at [21] to [25]:

First, members of the board had both the necessary and sufficient complementary commercial backgrounds, motivations, personalities and skill sets. The productive yield of this was an operative and direct intellectual diversity as between the individuals, which by several orders of magnitude trumped any superficial ex facie diversity or irrelevant self-referential identification. This advantageously reflected itself in the decision-making processes of the board and the debates which took place.

Second, given that the time frame of the decision-making processes under consideration was over ten years ago, there was little in the way of meretricious mission statements and correlative performative processes that one normally associates with public companies these days.

Third, the board operated a relatively lean management structure where shareholders’ funds were efficiently managed and spent for proper purposes. This was all quite refreshing when one compares this to many boards of public companies today that even go so far as to pride themselves on allocating shareholders’ funds to social causes of the directors for which they have an affinity or affection, with such expenditure or donation of others’ money purportedly justified by little more than humbug and adding no real economic value to the company and its shareholders.

Fourth, meta-themes concerning social licence theory can be put to one side. They are a superfluous add-on to the legislative regime applying to directors and companies. It is not necessary to cite Milton Friedman to state the obvious. Any so-called social licence granted on incorporation has its boundaries and content provided by the company’s constitution and the detailed legislative regime, albeit ultimately built upon social policy. Nothing more, nothing less.

In summary, and notwithstanding the litany of complaints made by PAC against the then directors, in my view the board of PAC and the management of PAC appears to have been well run, generally speaking.

27    And as to PAC’s case against Mr McGill, in my view the only part of its case that it had made out against Mr McGill concerned various issues relating to the WHV dividend and appreciation rights agreement and the question of the potential dividends and distributions.

28    I said that I would hear further from the parties concerning the position of Mr McGill and the future conduct of these proceedings including on the cross-claim, any proportionate liability defence, outstanding questions of causation, loss and damage and any application that Mr McGill be excused from liability under ss 1317S and 1318 of the Act.

29    Now Mr McGill’s present position is that the claims against him should now be dismissed without the need for me to address whether he ought be excused from liability under ss 1317S and 1318.

30    He says that on my findings in the principal reasons, no case on causation or loss and damage has been made out or could be made out by PAC on its pleaded case, which even now it has not sought to amend. Further, no declaratory relief has been sought by PAC against him. So he says that the claims against him should be dismissed. But he also accepts that if that be so, then his cross-claim against Mr Fitzpatrick should also be dismissed.

31    Contrastingly, PAC submits that Mr McGill’s position is inconsistent with the way the case was run below and my reasons. It submits that the matter should be timetabled for a further hearing to determine Mr McGill’s claims under s 1317S and s 1318 of the Act, to determine remaining issues in respect of causation, and to assess and quantify PAC’s loss. PAC in essence says that it wants a further opportunity to put its loss and damage case, and it would seem on some “alternative transaction” scenario, although none of this is clear.

32    For the reasons that follow, in my view it is not open for PAC to put such a case. Accordingly, it is appropriate to dismiss PAC’s case against Mr McGill and also to dismiss Mr McGill’s cross-claim against Mr Fitzpatrick.

33    First, although I have found that Mr McGill contravened s 180 concerning the WHV conduct, none of that sounds in damages against him, which was the only relief sought against him on this aspect. As I have said, no declaration was sought.

34    Second, there is no extant damages claim concerning the WHV conduct because PAC only ever pleaded and ran a “no transaction” case, which I rejected in all its permutations and combinations referable to the various and many breaches of directors’ duties that were asserted by PAC. Even to this day it is only the “no transaction” scenario that is pleaded and particularised. But the breach of duty that I found against Mr McGill concerning the WHV conduct could have only ever sounded in an “alternative transaction” scenario, and even then that was only a possibility that PAC never chose to forensically explore let alone plead.

35    Third, if on PAC’s pleaded and particularised case and my findings concerning the failure of the “no transaction” case PAC ultimately had no sustainable case on damages against Mr McGill, then it is simply unnecessary for me to address the ss 1317S and 1318 issues raised by Mr McGill.

36    Now perhaps for reputational reasons Mr McGill may have desired a ruling from me under s 1317S and s 1318. But he has not now sought this if I now make an order for dismissal. And it is not for PAC to demand that I should engage in such an unnecessary exercise.

37    I will dismiss PAC’s case against Mr McGill with costs, but discounted by 20% to reflect PAC’s limited forensic success at trial on the WHV issue.

38    It also follows that Mr McGill’s cross-claim against Mr Fitzpatrick should be dismissed, as I will discuss later. And consistently with the discussion at the last hearing, it is appropriate that I make no order as to costs on this cross-claim.

39    Now before proceeding further I should identify what has been and remains pleaded by PAC relevant to the case against Mr McGill concerning relief including loss and damage.

The third further amended statement of claim — relief

40    In [59] of the third further amended statement of claim it was pleaded that “[as] a result of each of the contraventions by the Respondents set out at paragraphs 46, 48, 50, 50B, 50E, 50I, 50L and 57 above of: (a) the general law duty referred to in paragraph 11 above, PAC has suffered loss and damage; and (b) section 180(1) referred to in paragraph 11 above, PAC has suffered damage and is entitled to an order pursuant to s 1317H of the Corporations Act that the Respondents compensate PAC for that damage.”

41    The following particulars were given to [59]:

PAC would not have entered the merger with Northern Lights but for the contraventions pleaded herein of the Respondents.

More particularly:

(i)    In respect of the contraventions set out at paragraph 46 above, if the Respondents had not breached their general law and statutory duties alleged, the Terms Sheet Execution Resolution would not have been passed and PAC would not have entered into the merger with Northern Lights.

(ii)    In respect of the contraventions set out at paragraph 48 above, if the Respondents had not breached their general law and statutory duties alleged, the Revised Terms Sheet Execution Resolution would not have been passed and PAC would not have entered into the merger with Northern Lights.

(iii)    In respect of the contraventions set out at paragraph 50 above:

(A)    if the Respondents had not breached their general law and statutory duties alleged, the Transaction Documents Execution Resolution would not have been passed and PAC would not have entered into the merger with Northern Lights;

(B)    alternatively, if Mr McGill, having regard to the matters alleged in paragraph 49(aa), had determined not to vote in favour of the Transaction Documents Execution Resolution, then each of the non-executive Respondents exercising their powers and discharging their duties with the degree of care and diligence that a reasonable person would exercise if they were a director of a corporation in PAC’s circumstances and occupied the office held by, and had the same responsibilities within PAC as, that Respondent, would also have determined not to vote in favour of the Transaction Documents Execution Resolution such that the Transaction Documents Execution Resolution would not have been passed and PAC would not have entered into the merger with Northern Lights;

(C)    if the Respondents had not breached their general law and statutory duties alleged, they would not have signed the Circular Resolution and PAC would not have entered into the merger with Northern Lights; and

(D)    alternatively, if Mr McGill, having regard to the matters alleged in paragraph 49(ab) had determined not to sign the Circular Resolution, then each of the non-executive Respondents exercising their powers and discharging their duties with the degree of care and diligence that a reasonable person would exercise if they were a director of a corporation in PAC’s circumstances and occupied the office held by, and had the same responsibilities within PAC as, that Respondent, would also have determined not to sign the Circular Resolution and PAC would not have entered into the merger with Northern Lights.

(iv)    In respect of Mr McGill’s contraventions set out at paragraph 50B above, if Mr McGill had provided the Deloitte Due Diligence Report to each of the non-executive Respondents then each of the non-executive Respondents exercising their powers and discharging their duties with the degree of care and diligence that a reasonable person would exercise if they were a director of a corporation in PAC’s circumstances and occupied the office held by, and had the same responsibilities within PAC as, that Respondent, would have determined not to vote in favour of the Transaction Documents Execution Resolution or to sign the Circular Resolution such that the Transaction Documents Execution Resolution would not have been passed and PAC would not have entered into the merger with Northern Lights.

(v)    In respect of Mr McGill’s contraventions set out at paragraph 50E above, if Mr McGill had informed each of the non-executive Respondents of the matters in paragraph 49(aa) above and ensured that each of Mr Kennedy, Ms Donnelly and Mr Hayes were provided with a copy of Model v 341, then each of the non-executive Respondents exercising their powers and discharging their duties with the degree of care and diligence that a reasonable person would exercise if they were a director of a corporation in PAC’s circumstances and occupied the office held by, and had the same responsibilities within PAC as, that Respondent, would have determined not to vote in favour of the Transaction Documents Execution Resolution such that the Transaction Documents Execution Resolution would not have been passed and PAC would not have entered into the merger with Northern Lights.

(vi)    In respect of Mr McGill’s contraventions set out at paragraph 50I above, if Mr McGill had brought the matters referred to in paragraphs 50C to 50D above to the attention of the non-executive Respondents and not signed the Implementation Deed on behalf of PAC, then each of the non-executive Respondents exercising their powers and discharging their duties with the degree of care and diligence that a reasonable person would exercise if they were a director of a corporation in PAC’s circumstances and occupied the office held by, and had the same responsibilities within PAC as, that Respondent, would have directed Mr McGill not to sign the Implementation Deed on behalf of PAC and taken steps to rescind the Transaction Documents Execution Resolution and PAC would not have entered into the merger with Northern Lights.

(vii)    In respect of Mr McGill’s contraventions set out at paragraph 50L above, if Mr McGill had informed each of the non-executive Respondents of the matters in paragraph 49(ab) above and ensured that each of Mr Kennedy, Ms Donnelly and Mr Hayes were provided with a copy of Model v 368, then each of the non-executive Respondents exercising their powers and discharging their duties with the degree of care and diligence that a reasonable person would exercise if they were a director of a corporation in PAC’s circumstances and occupied the office held by, and had the same responsibilities within PAC as, that Respondent, would have determined not to sign the Circular Resolution and PAC would not have entered into the merger with Northern Lights.

(viii)    In respect of the contraventions set out at paragraph 57 above, if the Respondents had not breached their general law and statutory duties alleged, the Transaction Documents Execution Resolution would not have been passed and the Circular Resolution would not have been signed and PAC would not have entered into the merger with Northern Lights.

The Applicant’s damage is to be assessed by:

(a)    the price versus true value approach – being the difference between the price paid by PAC to obtain an interest in the Aurora Trust less a fair price at the time of acquisition. This is to be calculated by comparing the value of the assets transferred by PAC to the Aurora Trust as at November 2014 to the value of the interest PAC received in the Aurora Trust in November 2014; or

(b)    alternatively, the net gains or losses approach – being the current value of PAC as at the date of Trial less the hypothetical current value of PAC if the acquisition of the interest in the Aurora Trust had not occurred plus loss of profit on an alternative hypothetical investment.

A likely alternative hypothetical investment for PAC, which would have been continued to be held, was as follows:

(i)    PAC acquiring 100 per cent of the shares in Wilson HTM Investment Group Ltd in or about October 2013 for approximately:

(A)    $AU43.5 million (based on 42 cents per share);

(B)    alternatively, $AU60.1 million (based on 60 cents per share); or

(C)    alternatively, $AU82.8 million (based on 80 cents per share)

(Alternative Investment 1);

(ii)    alternatively, PAC acquiring 100 per cent of the shares in Pinnacle Investment Management Limited (PNI) in or about July 2014 for approximately $AU43 million (Alternative Investment 2); or

(iii)    alternatively, PAC using the proceeds from the sale of the RARE Securities to invest in or about late 2015 into comparable companies, comprising:

(A)    Australian Finance Group Ltd (ASX:AFG);

(B)    Magellan Financial Group Ltd (ASX:MFG);

(C)    Platinum Asset Management Ltd (ASX:PTM);

(D)    Hub24 Ltd (ASX:HUB);

(E)    Pendal Group Ltd (ASX:PDL);

(F)    Netwealth Group Ltd (ASX:NWL) (from 20 November 2017 onwards); and

(G)    PNI (ASX:PNI)

(Alternative Investment 3).

In relation to the composition of Alternative Investment 3, the Applicant refers to paragraphs 3.4.7 (at page 24) and 6.9.11 - 6.9.25 (at pages 55 - 58) of the report of Dawna Wright dated 19 August 2022 (the Wright Report).

Assessing the Applicant’s damage on the:

(a)    price versus true value measure, the Applicant refers to and repeats pages 31 - 39 of the Wright Report where Ms Wright assesses loss as at 25 November 2014 as $AU112,462,024 or $AU115,559,270; and

(b)    net gains or losses measure, the Applicant refers to and repeats pages 40 - 59 of the Wright Report where Ms Wright assesses loss as at 31 December 2021 as:

(i)    Alternative Investment 1 – $AU2,529,589,282 or alternatively, $AU2,507,155,836, or alternatively, $2,482,229,784,

(ii)    Alternative Investment 2 - $AU2,531,688,385; and

(iii)    Alternative Investment 3 - $AU93,570,162.”

42    At the time that these particulars were ultimately finalised and given, there was no suggestion and never has been a suggestion that they would be supplemented by an “alternative transaction” scenario. The particulars and PAC’s case generally were only ever pitched at a “no transaction” case as the particulars clearly reflect. Further, any reference to further particulars being provided in an earlier iteration of the pleading had been removed. The case was pleaded and fought on the basis that these particulars provided the boundaries and content of the material allegations in [59] concerning both causation and loss and damage.

43    It was also pleaded at [59A] that “[as] a result of each of the contraventions by the Respondents set out at paragraph 55(b) above, the Applicant seeks a declaration that the Transaction Documents Execution Resolution and the Circular Resolution were ultra vires and that the value of the Applicant’s assets that were dissipated be restored (particulars were also given, but it is not necessary to set them out).”

44    It was also pleaded at [60] that “[as] a result of each of the contraventions by the Respondents set out at paragraph 55(c) above, PAC is entitled to equitable compensation.”

45    The following particulars were given to [60]:

PAC would not have entered into the merger with Northern Lights but for the contraventions pleaded herein of the Respondents.

PAC is entitled to reparative compensation by reason of the merger with Northern Lights.

This is to be calculated having regard to the current actual value of PAC as at the date of Trial less the hypothetical current value of PAC if the acquisition of the interest in the Aurora Trust had not occurred plus loss of profit on an alternative hypothetical investment.

In relation to likely alternative hypothetical investment for PAC, the Applicant refers to and repeats the particulars subjoined to paragraph 59(b) above.

The Applicant refers to and repeats pages 40 – 59 of the Wright Report where Ms Wright assesses loss as at 31 December 2021 as:

(a)    Alternative Investment 1 - $AU2,529,589,282 or alternatively, $AU2,507,155,836, or alternatively, $2,482,229,784,

(b)    Alternative Investment 2 - $AU2,531,688,385; and

(c)    Alternative Investment 3 - $AU93,570,162.”

46    All of these full particulars were provided by the applicant after receipt of the expert evidence, and it was not suggested by the applicant that there was to be any additional particularisation of its case in this respect concerning loss and damage.

47    Moreover, I dealt with all aspects of this particularised case on causation and generally all aspects of the “no transaction” scenario in my reasons including dealing with and disposing of PAC’s case concerning “Alternative Investment 1” (see at [2404] to [2423]), “Alternative Investment 2” (see at [2424] to [2442]) and “Alternative Investment 3” (see at [2443] and [2444]). I set out my conclusions on this aspect in the following terms (at [2445] and [2446]):

In my view, none of the hypothetical investment options posited by PAC have been established on the balance of probabilities or even as a loss of a chance in the “no transaction” scenario. In summary, the evidence from the directors was consistent with the proposition that the alternative investments suggested by PAC would not have been made.

Further, all of this fortifies what I have said earlier as to PAC’s “no transaction” scenario. There were few if any alternatives open to PAC other than the merger.

48    I should say that this is all consistent with how the case was set down for hearing and run.

49    On 15 March 2022 I made an order that “[t]he matter be fixed for trial on all issues (subject to further order)”. Evidence was prepared and filed on all issues as was well understood by the parties. Moreover, it was only prepared and filed on a “no transaction” scenario basis consistent with the pleadings.

50    Now during the running I indicated that I would not deal with quantum quantification questions. But this was all concerning the “no transaction” scenario. Further, I also indicated that I would postpone dealing with s 1317S and s 1318 questions. As to causation, I did make some brief reference to possible postponement. But in fact I dealt with all aspects of the pleaded causation case on the “no transaction” scenario.

The findings made at trial in respect of Mr McGill and WHV

51    Now PAC has pointed to the following findings that it says that I made.

52    First, it says that I found that Mr McGill breached his duties under s 180 of the Act concerning the WHV question. I did so find.

53    Second, it says that I found that because of Mr McGill’s conduct, the percentage split in the Aurora Trust was not properly addressed, and that there should have been a re-adjustment of the unit percentages in the Aurora Trust in favour of PAC to reflect the WHV risks. This latter aspect is not wholly accurate. I found that this re-adjustment could or may have been explored. But where this went was another matter.

54    Third, PAC says that I found that if Mr McGill had not breached his duties, the directors may have postponed voting in favour of the merger at the 23 July 2014 meeting. That is correct as far as it goes. But where this went was another matter.

55    As I said (at [2048]):

Further, if Mr McGill had informed each of Mr Kennedy, Ms Donnelly and Mr Hayes that there was serious doubt about whether WHV was required to make, and whether it would in fact make, a distribution to Northern Lights, and if Mr McGill had provided those directors with the Gresham model v 341, in which $4 million in distributions from WHV continued to appear, but yet the discount rate had decreased from 14% in the previous model to 13%, then it is likely that they would have postponed voting in favour of the transaction documents execution resolution and instead sought to re-negotiate the relevant percentage split concerning the units in the Aurora Trust. At the least they would have asked what was going on.

56    Fourth, PAC says that I found that if Mr McGill had not breached his duties, the directors may have postponed signing the circular resolution on 16 November 2014 to proceed with completion of the merger. That is correct as far as it goes. But where this went was another matter.

57    I said (at [2189] to [2192]):

First, if those directors had been properly informed prior to the 23 July 2014 meeting and indeed prior to signing the implementation deed, it is likely that they would have caused the approval of the merger to be delayed, sought more information and then sought to re-negotiate the percentages split. But I should say that I do not accept PAC’s “no transaction” causation scenario as I will return to in the next section.

Second, if those directors had been properly informed after the signing of the implementation deed but before signing the circulation resolution, they would likely have:

(a)    sought proper legal advice concerning whether clause 3.1(k) of the implementation deed could be triggered;

(b)    at the least sought to use clause 3.1(k) as negotiation leverage; and

(c)    taken the steps referred to in the first point just mentioned to try and re-negotiate the percentages split.

Now the difficult question concerns Mr Fitzpatrick’s position. He had less knowledge than Mr McGill but more knowledge than the other three directors concerning WHV. But in my view Mr McGill did not keep him fully informed about the detail of the problems and the risks. On balance, Mr Fitzpatrick did not breach his duty. Now I accept on causation that he may have been more robust in considering whether to push on with the merger even if he had known all of the difficulties. But even so, the other three directors would have carried the day on the causation scenario likely response.

But I accept that none of this has been fully explored in the evidence and there may have to be a further hearing on causation and other matters in light of my principal findings.

58    PAC says that there are key findings in my reasons which bear on causation and loss.

59    First, it is said that I found that the merger with Northern Lights would have been postponed and a renegotiation likely sought, and it is said that I found that had Mr McGill discharged his duties, PAC’s board would likely have sought to re-negotiate the percentage split. That is true as far as it goes. I said (at [2256]):

In my view PAC had a reasonable case to trigger the condition precedent or at least threaten to do so in order to, at the least, re-negotiate the percentages split on the basis of a much lower value of WHV. And at the least, legal advice should have been sought on the question.

60    Second, it is said that I found that PAC and Northern Lights would have merged on “revised terms”. That over-states the position. PAC may have sought revised terms, but whether this would have been procured is an open question.

61    I said (at [1195], [2312] and [2313]):

It seems to me that the other directors would not have abandoned the transaction in the counterfactual scenario to be assumed. They would have proceeded with the merger, albeit on revised terms.

…

Of course, the issue then arises as to whether I should consider a “no transaction” scenario or a scenario where the percentage split between PAC and Northern Lights would have been adjusted to deal with the WHV issue.

In my view the latter scenario is more likely. On that basis I do not need to deal with the “no transaction” scenario and the three possibilities set out above. But on the assumption that I am wrong, it is appropriate that I say something concerning the evidence led. Moreover, it fortifies my conclusion as to why I have not accepted the “no transaction” scenario.

62    I did not make any finding on the precise change in the terms.

63    I also noted that none of this has been fully explored in the evidence, and that no director had adduced evidence about the willingness of Northern Lights to negotiate a different transaction. I said (at [2299]):

Further, the directors have adduced no evidence from anyone at Northern Lights and point to no documentary evidence which supports the proposition that Northern Lights would have been willing to go back to the drawing board in any significant way with respect to the relevant percentages split. I agree. I will need to hear further from the parties.

64    Mr McGill pointed to the following findings that I made.

65    At trial, I said (at [40]):

And as to PAC’s case against Mr McGill, in my view the only part of its case that it has made out against Mr McGill concerns various issues relating to the WHV dividend and appreciation rights agreement and the question of the potential dividends and distributions.

66    And as I said (at [1864] to [1881]):

Specific allegations were made by PAC against Mr McGill, in addition to those allegations made against all the directors of PAC, which in my view have been made out against Mr McGill.

First, it is said that Mr McGill failed to bring various concerns, such as whether WHV would make or was required to make a distribution to Northern Lights in 2014 or in any subsequent year, to the attention of PAC’s board at the time that they voted in favour of the transaction documents execution resolution at the 23 July 2014 board meeting, at the time when he signed the implementation deed and at the time when each of the non-executive directors signed the circular resolution on or about 16 November 2014.

Generally, I have accepted PAC’s case in this respect given the context of the terms of the instrument that I am considering. The distributions under the dividend and appreciation rights agreement and the risks associated therewith were not to be equated with the scenario of potential dividends that a shareholder might receive and the risks of not receiving such dividends.

Second, it is said that he failed to ensure that each of Mr Kennedy, Ms Donnelly and Mr Hayes were provided with model v 341, which significantly increased the value ascribed to WHV, prior to voting in favour of the transaction documents execution resolution at the 23 July 2014 board meeting. More generally, it is said that Mr McGill failed to bring the Gresham model v 341 and concerns regarding WHV and its payment of dividends to Northern Lights to the attention of PAC’s board.

Generally, I have accepted PAC’s case in this respect.

Third, it is said that he failed to ensure that each of Mr Kennedy, Ms Donnelly and Mr Hayes were provided with model v 368, which further increased the value ascribed to WHV, prior to the time the non-executive directors signed the circular resolution on or about 16 November 2014.

I have rejected this part of PAC’s case as I do not accept that Mr McGill received model v 368.

Fourth, it is said that Mr McGill signed the implementation deed in circumstances where there was concern about WHV and where he had not ensured that each of Mr Kennedy, Ms Donnelly and Mr Hayes had received model v 341. More generally, it is said that Mr McGill executed the implementation deed in circumstances where, inter alia, he had not provided the Deloitte report to the PAC board and had not brought the Gresham model v 341 and concerns regarding WHV and its payment of dividends to Northern Lights to the attention of the PAC board.

Generally, I have accepted PAC’s case in this respect, but only as to concerns relating to WHV.

Fifth, it is said that prior to the non-executive directors signing the circular resolution, Mr McGill failed to inform them that there was serious doubt about whether WHV would make a distribution to Northern Lights in 2014 or in any subsequent year. Mr McGill accepted in his evidence that he did not circulate communications between 23 July 2014 and signing the circular resolution regarding his concerns about WHV to the PAC board.

Generally, I have accepted PAC’s case in this respect.

Now the risks for PAC associated with WHV in the context of the proposed transaction were twofold.

First, the terms of the dividend and appreciation rights agreement as between WHV and Northern Lights reserved to WHV the discretion to decide to not declare a dividend at all, and to instead divert any excess cash flow to reasonable reserves for capital expenditure.

Second, it was not clear, based on the information and modelling which was made available to the directors of PAC, whether WHV had sufficient cash reserves to declare a dividend in 2014 and thereafter.

Further, Northern Lights only held contractual dividend and appreciation rights in WHV rather than an equity interest. Mr McGill did not properly understand the significance of the risks associated with this difference. Further, the values attributed to WHV in the iterative versions of the Gresham models were and remain based on unexplained assumptions. Mr McGill was responsible for not addressing this deficiency.

Further, given the position concerning WHV, there was no reliable evidence before the PAC directors prior to them signing the circular resolution that the proposed merger would be EPS accretive. Again, Mr McGill was responsible for this failure.

Further, PAC has alleged that at each decision point in February 2014, April 2014, July 2014 and November 2014, the percentages split in the units in the Aurora Trust was not properly addressed. I agree with this criticism given the WHV problem. There should have been a re-adjustment of the unit percentages in favour of PAC to reflect the WHV risks. Mr McGill was responsible for this not having occurred.

But I should also say upfront that I have rejected PAC’s case against the non-executive directors concerning WHV. Any blame for WHV not having been properly addressed is to be attributed to Mr McGill.

67    Further, I should also note that I said at [2297] to [2304]:

Now as I have said, in my view there is not sufficient evidence to find a “no transaction” case.

Now PAC says that none of the directors pleaded that the merger would have proceeded on different terms, and none gave any evidence as to what those terms would or could have been, given the need to obtain Northern Light’s agreement thereto. I agree. I will need to hear further from the parties.

Further, the directors have adduced no evidence from anyone at Northern Lights and point to no documentary evidence which supports the proposition that Northern Lights would have been willing to go back to the drawing board in any significant way with respect to the relevant percentages split. I agree. I will need to hear further from the parties.

Now I have rejected PAC’s case on the “no transaction” scenario. This is so for various reasons.

First, the WHV transaction had various advantages to PAC concerning funds under management and exposure to the US.

Second, Mr Kennedy and others gave evidence that they would only have sought to renegotiate the percentages split.

Third, in any event there were no other realistic alternative commercial transactions that PAC could have engaged in, particularly so as to achieve the necessary diversification and overseas exposure.

This is well apparent from the possibilities that I have discussed in the next section of my reasons, which possibilities were also relevant to the question of potential loss and damage.

PAC’s arguments concerning whether dismissal is appropriate

68    Now Mr McGill argues that the case against him must be dismissed because PAC only ran a “no transaction case” at trial, and PAC did not advance a case that it would have entered into some unspecified “alternative transaction” scenario.

69    But PAC takes issue with this characterisation of its case.

70    PAC says that the function of pleadings and particulars is to put the other side on notice of the case they need to meet and to define the issues for trial. So much may be accepted.

71    PAC says that as to particulars, the obligation of a party is to give the best particulars that it can and that the requirement to provide particulars is also affected where there is an information asymmetry between the parties, which is the case here. Such a statement in my view is seductive in its simplicity but spin with a decontextualised bias.

72    PAC says that where the issues on the pleadings have been enlarged, the Court is not required to decide the case solely by reference to the pleadings.

73    It referred to a limited extract from Gould v Mount Oxide Mines Ltd (In Liq) (1916) 22 CLR 490, where Isaacs and Rich JJ said (at 517):

But pleadings are only a means to an end, and if the parties in fighting their legal battles choose to restrict them, or to enlarge them, or to disregard them and meet each other on issues fairly fought out, it is impossible for either of them to hark back to the pleadings and treat them as governing the area of contest.

74    It also referred to a limited extract from Dawson J in Banque Commerciale SA (In Liq) v Akhil Holdings Pty Ltd (1990) 169 CLR 279 who said (at 296 and 297):

But modern pleadings have never imposed so rigid a framework that if evidence which raises fresh issues is admitted without objection at trial, the case is to be decided upon a basis which does not embrace the real controversy between the parties. Special procedures apart, cases are determined on the evidence, not the pleadings.

75    I will say something more about these cases later, but for the moment I note that there is more focused Full Federal Court authority addressing alternative causation and damages cases.

76    So, in Barnes v Forty Two International Pty Ltd (2014) 316 ALR 408, as a member of the Full Court that allowed an appeal from the trial judge’s decision based on an unpleaded alternative causation and damages case, I said the following ([119] to [123]):

A fundamental requirement for the fair trial of allegations of contravention of law requires “the party making those allegations [in this case BlueFreeway] to identify the case which it seeks to make and to do that clearly and distinctly” (Forrest v Australian Securities and Investments Commission (2012) 247 CLR 486 at [25] per French CJ, Gummow, Hayne and Kiefel JJ). BlueFreeway failed to do this in relation to its alternative causation and damages case.

Further, it was necessary to plead the necessary material facts to establish the causal relationship between the misleading or deceptive conduct and the loss. BlueFreeway failed to do this in relation to its alternative scenario. As French J (as he then was) said in Bond Corporation Pty Ltd v Thiess Contractors Pty Ltd (1987) 14 FCR 215 at 222:

“ … facts and circumstances should be set out leading to a reasonable inference that the conduct and the damage stood to each other in the relation of cause and effect.”

His Honour also referred to what Toohey J had said in James v Australia and New Zealand Banking Group Ltd (1985) ATPR 40-504 at 46,034, that the Bank was “entitled to know with some certainty what [was] being claimed and the basis of the claim”. The necessity to plead a causal link between the contravention and the damage was also referred to by Goldberg J in Mitanis v Pioneer Concrete (Vic) Pty Ltd (1997) ATPR 41-591 at 44,153-4. BlueFreeway did not comply with any such precepts.

Further, “if a plaintiff has suffered damage of a kind which is not the necessary and immediate consequence of the wrongful act, he must warn the defendant in the pleadings that the compensation claimed will extend to this damage” (Perestrello E Companhia Limitada v United Paint Co Ltd [1969] 1 WLR 570 at 579 per Lord Donovan delivering the judgment of the Court). This was not done by BlueFreeway. Moreover, “if the claim is one which cannot with justice be sprung upon the defendants at the trial it requires to be pleaded so that the nature of that claim is disclosed” (at 580). Again, this was not done by BlueFreeway. Further, as Lord Donovan went on to say:

“What amounts to a sufficient averment for this purpose will depend on the facts of the particular case, but a mere statement that the plaintiff claims ‘damages’ is not sufficient to let in evidence of a particular kind of loss which is not a necessary consequence of the wrongful act and of which the defendant is entitled to fair warning.”

Not only were the appellants “entitled” to a pleading by BlueFreeway identifying the head of loss as “loss of opportunity”, but they were also entitled to have that head of damage properly particularised (see, for example, David Benson Nominees Pty Ltd v Dicksons Ltd [2005] SASC 97 at [39]-[40] per Besanko J). None of this was done by BlueFreeway. For his Honour to permit BlueFreeway late in the day to put its case based upon the alternative scenario produced an unsatisfactory and inherently unfair state of affairs so far as the appellants were concerned. Pleadings serve “to ensure the basic requirement of procedural fairness that a party should have the opportunity of meeting the case against him … ” (Banque Commerciale SA (En Liqn) v Akhil Holdings Ltd (1990) 169 CLR 279 at 286 per Mason CJ and Gaudron J). BlueFreeway's further amended statement of claim did not ensure that basic requirement in relation to its alternative scenario. To ensure this basic requirement of procedural fairness, BlueFreeway should have been confined to its pleaded case that did not include this alternative scenario. This was not a case “in which the parties [had] deliberately chosen some different basis for the determination of their respective rights and liabilities” (at 287 per Mason CJ and Gaudron J). How the trial was conducted provides no support for such an inference.

In summary, once his Honour had found against BlueFreeway's pleaded causation and damages case, he should have dismissed the proceeding. The alternative scenario had not been pleaded, opened or run. Moreover, to allow it to be advanced for the first time in closing addresses produced inherent unfairness to the appellants. The course of evidence was not conducted on the basis of the alternative scenario. Moreover, the appellants lost the opportunity to call evidence and to appropriately cross-examine on such a scenario. Grounds 7 to 8 of the notice of appeal should be sustained, with the consequence that this appeal should be allowed and his Honour's judgment set aside. The proceeding before his Honour should, accordingly, have been dismissed.

77    Siopis J (at [2]) agreed with my analysis, as did Flick J who said (at [15]):

Concurrence is expressed with the principal conclusion of Beach J that the “alternative causation and damages case was not pleaded”. That alternative case founded upon a claim for damages by reference to the “loss of opportunity” was neither pleaded nor raised for resolution before the primary Judge during the course of the hearing. It emerged for the first time in closing submissions. Concurrence is also expressed with Beach J's reasons for so concluding and with his conclusion that the primary Judge should have dismissed the proceeding before his Honour on that basis.

78    Specific cases like Barnes trump PAC’s selection of decontextualised generalities from other cases. I will return to Banque Commerciale and Gould v Mount Oxide Mines Ltd later. Let me return to PAC’s arguments.

79    In summary, PAC says that it follows from my reasons that I found that had Mr McGill not breached his duties, the merger would not have been approved on 23 July 2014, and would not have been completed at least in the form that it was presented to the board for approval. And it is said that those findings reflect how PAC put its case at trial.

80    PAC says that the material allegation at [59(b)] is not confined to a “no transaction” allegation. It says that it simply alleges that by reason of the various contraventions pleaded, including with regard to WHV, of:

section 180(1) referred to in paragraph 11 above, PAC has suffered damage and is entitled to an order pursuant to section 1317H of the Corporations Act that the Respondents compensate PAC for that damage.

81    Now PAC had to accept that the particulars to [59] do in terms refer to a “no transaction” case. For example, sub-paragraph (v) of the particulars reads:

In respect of Mr McGill’s contraventions set out at paragraph 50E above, if Mr McGill had informed each of the non-executive Respondents of the matters in paragraph 49(aa) above and ensured that each of Mr Kennedy, Ms Donnelly and Mr Hayes were provided with a copy of Model v341, then each of the non-executive Respondents exercising their powers and discharging their duties with the degree of care and diligence that a reasonable person would exercise if they were a director of a corporation in PAC’s circumstances and occupied the office held by, and had the same responsibilities within PAC as, that Respondent, would have determined not to vote in favour of the Transaction Documents Execution Resolution such that the Transaction Documents Resolution would not have passed and PAC would not have entered into the merger with Northern Lights

82    But PAC says that it is only the final phrase (“and PAC would not have entered into the merger with Northern Lights”) which Mr McGill can attempt to characterise as confined to a “no transaction” case. But exactly. Now this is the confession. But what is the avoidance? Let me proceed further.

83    PAC says that the fact that PAC particularised the breach of s 180 by reference to “the” merger not proceeding does not preclude PAC seeking a compensation order reflecting the facts now found by me, namely, that “the” merger, on the terms presented to the Board at that time, was infected by misinformation about the value of WHV and would not have proceeded absent Mr McGill’s contravening conduct. But I found that the merger would have proceeded and that it was only a possibility that it may have proceeded on different terms. I will return later to what I see as potentially a semantic shift by PAC concerning the definition of the “no transaction” scenario.

84    Further, PAC says that the failure to amend particulars after my reasons were delivered should not preclude PAC from seeking judgment in accordance with the facts as found by the Court.

85    PAC says that in Dare v Pulham (1982) 148 CLR 658 it was held that a failure to amend particulars to accord with the evidence should not preclude a plaintiff from seeking a verdict alleged on the facts established in the evidence (at 664):

But where there is no departure during the trial from the pleaded cause of action, a disconformity between the evidence and particulars earlier furnished will not disentitle a party to a verdict based upon the evidence. Particulars may be amended after the evidence in a trial has closed, though a failure to amend particulars to accord precisely with the facts which have emerged in the course of evidence does not necessarily preclude a plaintiff from seeking a verdict on the cause of action alleged in reliance upon the facts actually established by the evidence. [citations omitted]

86    Further, PAC says that if all the parties had been bound by their pleadings at trial in the manner now contemplated by Mr McGill, PAC ought to have succeeded on its “no transaction” scenario case. That is because of the following matters.

87    First, PAC says that it ran a case that the merger would not have been approved on 23 July 2014. And it says that it succeeded on that case, because I found that the transaction would not have been approved absent the contravention of s 180 by Mr McGill.

88    Second, PAC says that Mr McGill never pleaded or ran an alternative case, that is, that even if he had complied with his duties, PAC would still have suffered loss.

89    Third, PAC says that the directors adduced no evidence from or about the preparedness of Northern Lights to re-negotiate. Now I said (at [2299]:

Further, the directors have adduced no evidence from anyone at Northern Lights and point to no documentary evidence which supports the proposition that Northern Lights would have been willing to go back to the drawing board in any significant way with respect to the relevant percentages split. I agree. I will need to hear further from the parties.

90    Further, PAC asserts that I did not strictly hold Mr McGill to his pleadings or to the case he presented at trial. So, PAC says that I proceeded to determine the issues, not based on the pleaded case propounded by Mr McGill, but rather based on the evidence that emerged at trial from other respondents.

91    Further, PAC says that there are three difficulties which arise from the suggestion from Mr McGill that I should only make findings on the pleadings.

92    First, it is said that I have already found that absent the contravention of s 180 by Mr McGill, there would likely have been a different transaction entered into and the terms of that transaction would have been adjusted with respect to the value assigned to WHV. But I did not so definitively find.

93    Second, it is said that Mr McGill cannot now complain that PAC should be held to a “no transaction” scenario case, where it is he who has benefited from the approach taken by me. In my view that submission is problematic to say the least.

94    Third, it is said that the effect of Mr McGill’s approach is that PAC, as an applicant who has received derivative leave, would be precluded from seeking compensation based on facts already determined by the Court, in circumstances where it could not reasonably have pleaded the terms of any alternative merger with Northern Lights, those being matters within the knowledge of Mr McGill and/or the other directors, and in circumstances where Mr McGill chose to plead no alternative case and to lead no evidence from or about Northern Lights’ willingness to accept an alternative transaction. This in substance rolled-up jury address has no intrinsic intellectual merit.

95    I did not find a formulated “alternative transaction” scenario and nor did PAC plead one or seek to raise one at any stage. The flow of PAC’s case and the evidence was clear.

96    PAC only ran a “no transaction” case. Contrastingly, the respondents’ forensic case generally in support of their pleaded denial of PAC’s “no transaction” scenario case was that the transaction would have gone ahead anyway even if the relevant breaches had been established. The most some of the directors may have done if breaches had been drawn to their attention may have been to seek further time and to seek to negotiate a change to the percentages split with Northern Lights. Now this may have produced an “alternative transaction” scenario, but this is speculative. But it would not have led to a “no transaction” scenario.

97    Either way you look at it, this was all demonstrating a rejection of the “no transaction” scenario.

98    It is just misconceived for PAC to assert that Mr McGill had to plead and prove an “alternative transaction” scenario. His whole case was directed to defending and defeating PAC’s “no transaction” scenario, which he successfully did through the notable efforts of Mr Christopher Caleo KC.

99    Let me elaborate on some of these topics in more detail.

What was the only case in the frame? PAC’s “no transaction” case

100    Now I agree with Mr McGill that at trial PAC made clear that it was only running a “no transaction” case. It did not run an “alternative transaction” case. Its sole case on causation was that had the alleged breaches not occurred, PAC would not have entered into the Northern Lights merger.

101    And as I have indicated, the particulars to [59] of the third further amended statement of claim provide: “PAC would not have entered the merger with Northern Lights but for the contraventions pleaded herein of the Respondents.” There are various further particulars provided, all of which say that but for the breaches there would have been no transaction.

102    As Mr McGill pointed out, in opening the case, PAC’s then senior counsel said:

However, your Honour, this is, as your Honour knows, a no transaction case, and our central point is that the directors voted in favour of the merger in circumstances where they should not have done so. And if the directors had not breached their duties, as we say they did, then the resolutions would not have passed and the merger would not have proceeded, and in those circumstances we say there’s no need for PAC to engage in some sort of retrospective hypothetical.

103    Later, PAC’s junior counsel said:

Our case is a no transaction case. And our case is a no transaction case because the directors should have turned their mind to certain matters. Our case is that they didn’t turn those minds to certain matters

104    As Mr McGill points out, PAC’s closing submissions state the following matters.

105    First, it was said that PAC’s approach at trial was that this is a “no transaction” case and that if the respondent directors had not breached their duties, the resolutions would not have passed and the merger would not have gone ahead.

106    Second, it was said that had the respondent directors not breached their general law and statutory duties by voting in favour of the merger, the merger would not have been approved. Further, it was said that as a matter of common sense, the breaches of duty by the respondent directors, by voting in favour of the merger, should be regarded as a cause of the loss resulting from the entry into the transaction.

107    Third, it was said that had Mr McGill not breached his duties by failing to bring models v 341 and v 368 and his concerns regarding WHV to the attention of the non-executive directors, the merger would not have proceeded, as alleged in [50E], [50I] and [50L] of the third further amended statement of claim. It was said that a diligent director should have appreciated that the concerns regarding WHV posed significant risks for PAC and not voted in favour of the resolutions giving effect to the merger.

108    PAC failed at trial to establish its “no transaction” case.

109    I stated that (at [2189]):

if those directors [the NEDs] had been properly informed prior to the 23 July 2014 meeting and indeed prior to signing the implementation deed, it is likely that they would have caused the approval of the merger to be delayed, sought more information and then sought to re-negotiate the percentages split. But I should say that I do not accept PAC’s “no transaction” causation scenario as I will return to in the next section.

110    Similarly, I stated that ([2283], and also [2266]):

In summary then, the directors say that assuming that there was a breach of various duties, a merger would have occurred but on different terms. I agree with the directors. So I agree with the directors that PAC has failed to prove its “no transaction” case.

111    Moreover, on a “no transaction” case, it was not up to Mr McGill to set up an “alternative transaction” scenario. He had no legal or evidentiary onus to do so. Moreover, he did not need to plead such a scenario in his defence. PAC rolled the dice with an all or nothing “no transaction” bet. It lost. And it never sought to lay off any risk with an “alternative transaction” scenario as a fall back.

112    Further, as Mr McGill pointed out, the pleadings and related correspondence indicate that PAC consistently ran a “no transaction” causation case.

113    The “no transaction” formulation of causation was reflected in PAC’s further amended statement of claim dated 20 December 2021, in the particulars to [59] which stated:

PAC would not have entered the merger with Northern Lights but for the contraventions pleaded herein of the Respondents.

114    This formulation remained unamended in the second further amended statement of claim dated 9 September 2022, and further particulars were given of the alternative investments which PAC says would have been made had the Northern Lights transaction not occurred.

115    Mid-way through the trial, I granted PAC an indulgence and allowed it to amend its claims, as reflected in the third further amended statement of claim, particularly concerning the WHV question. I allowed the amendments which were reflexive of the flow of the evidence including cross-examination.

116    Now as Mr McGill pointed out, in resisting the grant of leave to amend, Mr Caleo KC submitted that PAC’s case on causation was deficiently expressed in the proposed pleading.

117    There was then the following exchange between PAC’s then senior counsel and his Honour:

HIS HONOUR:    But I also require you to rectify the deficiencies that Mr Caleo has pointed out in terms of your causation plea about what you’re saying; in other words, if McGill had done what you say he ought to have done, is it being said that the vote of 23 July wouldn’t have passed or, if it had, would that resolution have been revoked before the implementation deed was signed, or the implementation deed not signed even though the resolution was not revoked, or are you saying that the directors, come November, would have decided not to execute the circular resolution? So I think that should be - - -

MR WALLER:    We can do that, your Honour.

118    And as I have already set out, the particulars to [59] of the third further amended statement of claim provide that: “PAC would not have entered the merger with Northern Lights but for the contraventions pleaded herein of the Respondents.” And as I have set out, there are various further particulars to that paragraph that provide very detailed descriptions as to how PAC says the directors would have acted had there been no breach, which particulars all say that but for the breaches, there would have been no transaction.

119    Now PAC says that “[t]he material allegation at 3FASOC paragraph 59(b) is not confined to a no transaction case”. But this statement is problematic to say the least. Until the delivery of my reasons for judgment, PAC ran a consistent case on causation.

120    And I agree with Mr McGill that had PAC wished to run an “alternative transaction” case in addition to its “no transaction” case, it would have been obliged to plead such a case and then adduced evidence through cross-examination or otherwise in support of that case. It never did so. Indeed, I was the one that asked several questions on the topic. PAC showed no interest in doing so during the running of the trial, although it now wants to opportunistically breathe life into such a hypothetical.

121    Further, and as I have said, in addition to the content of the pleadings, PAC’s counsel stated repeatedly that the case was a no transaction case. Further, in closing written and oral submissions, PAC did not depart from this position.

122    Moreover, as Mr McGill points out, PAC’s written reply submissions state the following matters: (a) “the Court indicated at an early stage that the “first stage hearing” would deal with liability issues only, with issues of quantum to follow at a second stage”; (b) “the Court must consider what would have happened had the Respondent Directors not breached the Act by voting in favour of the Merger. What “would have happened” is that the Merger could not have proceeded”; and (c) “the relevant inquiry in the context of causation is what would have occurred had each of the Respondent Directors said (e.g., during a Board Meeting) that they would not support the Merger. In that circumstance, it is clear that the Merger could not have proceeded”.

123    So, the case was heard and determined by reference to the allegation that had there been no breach, there would have been no merger.

124    And the case pursued by PAC was rejected in my reasons in the passages Mr McGill has noted; see [1189], [1192], [1195], [1196], [2189] (“I should say that I do not accept PAC’s “no transaction” causation scenario”), [2266] (“PAC’s approach to causation is a “no transaction” case. I should say now that I do not accept the “no transaction” case”), [2278], [2283] (“I agree with the directors that PAC has failed to prove its “no transaction” case”), [2297], [2300] to [2304] (“I have rejected PAC’s case on the “no transaction” scenario”), [2312], [2313] and [2446].

125    Further, as my reasons indicate, my appreciation of the “no transaction” case on causation was consistent with PAC’s case on loss; see [2306], [2310] and [2313].

126    At [2306], I said:

As part of its damages counterfactual, being what PAC would have done had PAC not merged with Northern Lights, PAC alleges three hypothetical scenarios which it refers to as PAC’s three likely alternative hypothetical investments. PAC alleges that it would still be holding the following hypothetical investments.

127    As to those counterfactuals, I later said ([2445] and [2446]):

In my view, none of the hypothetical investment options posited by PAC have been established on the balance of probabilities or even as a loss of a chance in the “no transaction” scenario. In summary, the evidence from the directors was consistent with the proposition that the alternative investments suggested by PAC would not have been made.

Further, all of this fortifies what I have said earlier as to PAC’s “no transaction” scenario. There were few if any alternatives open to PAC other than the merger.

128    Moreover, these statements all reflect findings of fact based on the evidence. They are of a different complexion to observations made as to potential next steps.

129    Further, the expert evidence filed by PAC as to the counterfactuals further indicates that PAC was only running a “no transaction” case. In PAC’s letter of instruction to its expert, Ms Dawna Wright dated 9 June 2022, she was asked “[i]n your opinion, had the merger not occurred, what is your estimate of the current value (as at the date of your report) of PAC?” That letter of instruction gave three counterfactuals, none of which were proved at trial. The letter does not use the term “counterfactual”, but instead describes “alternative investments”. But it is well apparent that these are counterfactuals. They are described in the letter as potential outcomes which would have occurred but for the merger. And as I have already said, in my reasons I disposed of the three alternative investment scenarios. None of them were made out.

The “no transaction” scenario — PAC’s semantic shift

130    Let me deal with another point which on one view PAC seems to have put. And it is a semantic point concerning what I have referred to, and the parties during the trial referred to, as the “no transaction” scenario.

131    Now I have used this phrase in the sense of there being no merger in any sense between PAC and Northern Lights. This is consistent with the parties’ use of the term “no transaction” during the trial. It is also consistent with the pleadings.

132    But in PAC’s recent written submissions, it now seems to want to say that the “no transaction” scenario should be read narrowly to refer only to a particular form of the merger and its terms as at 23 July 2014 or even in November 2014.

133    In other words, PAC appears to want to say that if the percentages had been recut because of the WHV question and the merger went ahead with that modification, that this was all consistent with PAC’s “no transaction” scenario, because the precise transaction in the “no transaction” scenario, being the 23 July 2014 precise form of the merger, would not have gone ahead. So, there was a “no transaction” concerning that precise form.

134    But this clever point does not work.

135    The case was not run with that meaning. And [59] of the third further amended statement of claim makes it unviable. The reference to the alternative investments of 3 types is clearly being put in the context of there being no merger at all with Northern Lights. That is the “no transaction” scenario. The “transaction” is the merger generally rather than a particular form of it.

136    Let me at this point say something more about the cases referred to by PAC.

PAC’s case references

137    PAC referred to what Dawson J said in Banque Commerciale, but he was in dissent.

138    The usually cited exposition of the principles is that given by Mason CJ and Gaudron J who said at 286 and 287:

The function of pleadings is to state with sufficient clarity the case that must be met. In this way, pleadings serve to ensure the basic requirement of procedural fairness that a party should have the opportunity of meeting the case against him or her and, incidentally, to define the issues for decision. The rule that, in general, relief is confined to that available on the pleadings secures a party’s right to this basic requirement of procedural fairness. Accordingly, the circumstances in which a case may be decided on a basis different from that disclosed by the pleadings are limited to those in which the parties have deliberately chosen some different basis for the determination of their respective rights and liabilities.

Ordinarily, the question whether the parties have chosen some issue different from that disclosed in the pleadings as the basis for the determination of their respective rights and liabilities is to be answered by inference from the way in which the trial was conducted. It may be that, in a clear case, mere acquiescence by one party in a course adopted by the other will be sufficient to ground such an inference.

[citations omitted]

139    On any view the parties before me did not agree to fight their case outside the terms of the pleadings, and nor did Mr McGill so acquiesce or lead evidence or put his case outside the pleadings. If anything, some of the evidence was brought about by my questioning of some of the witnesses. But even then, PAC never chose to seek to amend its case as a consequence of any evidence given in answers to my questions concerning an “alternative transaction” scenario.

140    Further, Mr McGill had no legal or evidentiary onus to set up any “alternative transaction” scenario with Northern Lights. His defence legally and forensically was to justify his denial of PAC’s “no transaction” scenario.

141    Further, what Dawson J said should not be taken out of context and cannot simply be read as broadly as PAC would have it. The proper framework within which it should be read was provided by Mason CJ and Gaudron J.

142    Now PAC has made reference to Gould v Mount Oxide Mines Ltd. But the more complete passage of what Isaacs and Rich JJ said (at 517 and 518) is as follows:

Undoubtedly, as a general rule of fair play, and one resting on the fundamental principle that no man ought to be put to loss without having a proper opportunity of meeting the case against him, pleadings should state with sufficient clearness the case of the party whose averments they are. That is their function. Their function is discharged when the case is presented with reasonable clearness. Any want of clearness can be cured by amendment or particulars. But pleadings are only a means to an end, and if the parties in fighting their legal battles choose to restrict them, or to enlarge them, or to disregard them and meet each other on issues fairly fought out, it is impossible for either of them to hark back to the pleadings and treat them as governing the area of contest. There is abundant authority for this, even if the matter were required to rest on authority only.

But in the present instance the defendants, whatever course might have been open to them at the hearing, unquestionably adopted that of fighting the claims as presented in argument upon the evidence as if the particular claims made had been specifically alleged, and as if there were no other evidence upon those claims which the defendants desired to adduce. There is no suggestion even now that other evidence would have been available; and it is perfectly obvious that any objection raised could have been instantly met by a formal amendment, and that no further evidence would have been offered.

[citations omitted]

143    Now the case before me is far removed from what they were discussing.

144    First, there was no unquestionably adopted course by the parties of fighting outside the pleadings.

145    Second, there was other evidence that Mr McGill would likely have sought to adduce.

146    Third, there would have been real objections raised to any pleading amendment if PAC had sought it, or sought to provide more particulars. Its current particulars were not put as just inclusive. Such caveats or qualifications had been removed a long time ago.

147    Fourth, generally the case was not fought through any enlargement of the pleadings or any disregard of them.

148    Further, PAC has made reference to Dare v Pulham, but the more complete extract of the Court’s reasons at 664 is the following:

Pleadings and particulars have a number of functions: they furnish a statement of the case sufficiently clear to allow the other party a fair opportunity to meet it; they define the issues for decision in the litigation and thereby enable the relevance and admissibility of evidence to be determined at the trial; and they give a defendant an understanding of a plaintiff’s claim in aid of the defendant’s right to make a payment into court. Apart from cases where the parties choose to disregard the pleadings and to fight the case on issues chosen at the trial, the relief which may be granted to a party must be founded on the pleadings. But where there is no departure during the trial from the pleaded cause of action, a disconformity between the evidence and particulars earlier furnished will not disentitle a party to a verdict based upon the evidence. Particulars may be amended after the evidence in a trial has closed, though a failure to amend particulars to accord precisely with the facts which have emerged in the course of evidence does not necessarily preclude a plaintiff from seeking a verdict on the cause of action alleged in reliance upon the facts actually established by the evidence.

[citations omitted]

149    This extract also does not assist PAC as its context provides no relevant analogy.

Questions of liability — the first stage

150    PAC’s submissions refer to there being a “two-stage trial”. But there was no order for a split trial. And I agree with Mr McGill that PAC cannot sensibly contend that there was an arrangement that questions of causation were to be dealt with at a second stage hearing. Indeed, that was clearly not the position given that I dealt with causation definitively in my judgment.

151    Now there was some relevant discussion on the first day of trial in the following terms:

HIS HONOUR:    … The other thing too is in terms of quantum or remedy, now that the trial has been set down, as it has, but it may be that I take the view that I will hear the evidence and what the parties are saying about it, but in terms of a judgment, it’s an open question for me at the moment as to how I would deal with it.

MR WALLER:    Your Honour adverted to that, I think, in one of our directions hearings or case management hearings, and certainly we’re ready to deal with the case in all respects, both as to liability and quantum …

    …

HH:    No. That’s why I say I’m quite happy to hear all of that evidence, have cross-examination, certainly for quantum and different methodologies, and so it’s all there.

152    There was then on the third day of the trial a discussion that there would need to be a separate hearing as to the operation of the excusing provisions of ss 1317S and 1318. I said that it would be necessary to publish a judgment on contravention and liability before I hear the directors on whether this provision is triggered. I then put to PAC’s then senior counsel the following proposition:

And then, if that’s so, how do I deal with any element of remedy or relief or quantum? Because that would only follow after: (1) I had found a contravention, and (2) I had decided not to excuse any of the directors; then and only then would they be liable for damage. But how does that sequence work? In the sense that you’re asking me to deal with quantum now.

153    PAC’s senior counsel replied “yes”.

154    There was then the following exchange:

MR WALLER:    I think your Honour’s going to hear the evidence in relation to loss and damage and, at least – and I think we agreed earlier that there may be a need to bifurcate, perhaps, the process. It may be, your Honour, that this – your Honour’s first judgment deals with liability and then, depending on what your Honour decides, we would then come back and deal with 1317S and quantum at the same time.

HIS HONOUR:    Yes. It may be too that there may be some parts of this first phase of the trial that I can make a ruling on questions of methodology at least.

155    On the fifteenth day of the trial, there was a further discussion:

HIS HONOUR:    Well, here’s the thing: the more I look at this case, the less likely it is that I’m going to say very much about that in what I will describe as my first stage judgment. So I’m quite happy for the parties to put questions to these experts, but after I’ve determined the principal questions, it may be that they will either need to be recalled or they may need to focus down further on the specific pathway that they will need to travel consistently with my first stage judgment.

MR WALLER:        Yes.

HH:    I know I’m speaking cryptically, but I think you understand what I mean.

W:    I understand fully what your Honour means, and certainly, there are things that the experts say that touch on matters of liability, if I can put it that way.

HH:    That’s fine. I expect that to be challenged.

W:    For instance, the value of particular boutiques at the relevant time and we say that that is certainly relevant to issues of liability quite separately from quantum.

156    So, clearly questions of quantum and the operation of the exculpatory provisions were to be deferred. But there was no suggestion at all that questions of causation on PAC’s pleaded case were to be dealt with at any subsequent hearing.

157    PAC’s assertion that the parties always contemplated a two stage trial, with stage two addressing causation and quantum of compensation, are not consistent with PAC’s submissions at trial and the way the trial was conducted concerning causation on PAC’s pleaded case.

158    Further, PAC made forensic choices at trial as to causation. I agree with Mr McGill that it should be held to those choices.

159    Further, my observation that PAC’s board may have sought to renegotiate the terms of the merger did not go beyond the pleadings.

160    I found that the merger would have occurred regardless of the breach, which necessarily involved a rejection of PAC’s allegation that there would not have been a merger. Whether the terms of that merger would have altered upon any possible attempt at renegotiation was not an issue that required determination.

161    As Mr McGill rightly points out, any observations by me as to possible renegotiation cannot provide a springboard by which PAC can seek to reformulate its case on causation. Moreover, there has been no application to amend PAC’s pleadings on causation, loss and damage even after judgment in terms of the case against Mr McGill.

162    Now PAC has complained that it was disadvantaged by an information asymmetry in running the case and that it gave the best particulars it was able to do so. But PAC had full discovery and the benefit of advice from a corporate governance expert. Moreover, there is no evidence that PAC sought to engage with Northern Lights personnel or retired PAC personnel as to the merger. Nor did PAC seek to avail itself of procedures by which it might have sought further information. I agree with Mr McGill that it is not now open to PAC to be given new latitude to recharacterise its case, following the failure of the case that it actually ran at trial.

Any s 1317H liability finding for a breach of duty under s 180 or by analogy requires the determination of causation

163    Now s 180 provides that a director is to act with the requisite degree of skill and care, but s 180 does not provide a cause of action. The cause of action is provided by s 1317H.

164    It is for that reason that PAC pleaded at [59(b)] of its third further amended statement of claim that it had “suffered damage and is entitled to an order pursuant to s 1317H of the Corporations Act that the Respondents compensate PAC for that damage”.

165    Section 1317H(1) provides that:

(1)    A Court may order a person to compensate a corporation, registered scheme or notified foreign passport fund for damage suffered by the corporation, scheme or fund if:

(a)    the person has contravened a corporation/scheme civil penalty provision in relation to the corporation, scheme or fund; and

(b)    the damage resulted from the contravention.

166    So, there is a causal requirement that needs to be shown under s 1317H(1) that the claimant’s damage “resulted from” the contravention.

167    Consequently, a failure to establish harm means an action under s 1317H(1) has not been made out. A similar conclusion can be reached with respect to the general law duty to act with due care and skill, which is an analogue of the tort of negligence where damage is the gist of the action.

168    Now for completeness I should make one other point. I accept that to establish a s 180 contravention proof of actual damage is not required. What is required to be shown is a foreseeable risk of harm to the relevant corporation connected to the impugned conduct of the director.

169    As I said in Australian Securities and Investments Commission v Mariner Corporation Ltd (2015) 241 FCR 502 at [450] and [451]:

Further, relevant to the question of breach of duty is the balance between, on the one hand, the foreseeable risk of harm to the company flowing from the contravention and, on the other hand, the potential benefits that could reasonably be expected to have accrued to the company from that conduct.

Not only must the Court consider the nature and magnitude of the foreseeable risk of harm and degree of probability of its occurrence, along with the expense, difficulty and inconvenience of taking alleviating action, but the Court must balance the foreseeable risk of harm against the potential benefits that could reasonably be expected to accrue from the conduct in question.

170    Now in my view a foreseeable risk of harm and a contravention concerning the WHV conduct was established against Mr McGill. But I am here not focused upon that but rather focused on the cause of action pleaded under s 1317H for damages. And that case failed given my rejection of PAC’s case on causation and the “no transaction” scenario.

171    And as I have said, no declaration has been sought against Mr McGill.

Summary

172    PAC has made many points. At the risk of repetition, let me summarise my position.

173    First, PAC asserts that I somehow allowed Mr McGill to run a case outside the pleadings. I do not accept this in substance.

174    Second, PAC was given many indulgences by me which allowed it to belatedly modify its case against Mr McGill concerning WHV. Mr McGill only ever properly responded to that modified case.

175    Third, PAC asserts that [59] of the third further amended statement of claim now allows it to run an “alternative transaction” scenario case. I simply disagree.

176    Fourth, PAC refers to information asymmetry as an excuse for not running an “alternative transaction” scenario. But it never sought to address such asymmetry or run such a case. Moreover, the so-called “information asymmetry” is no excuse. It was up to it to run the “alternative transaction” scenario. If it did not want to or could not do so, so be it.

177    Fifth, even today PAC has not put forward in pleadings or particulars an “alternative transaction” scenario. As I say, it rolled the dice on an all or nothing “no transaction” case and lost.

178    And perhaps it is understandable why it has not run an “alternative transaction” scenario. On one view, PAC under the merger already had a generous percentages split with Northern Lights. Perhaps Northern Lights may not have permitted PAC to have gone higher even if the WHV question had been raised further with it. Moreover, even if the percentages split had increased in PAC’s favour, by how much would it have done so? And how would that have quantified out in incremental value and ultimately damages referable to the hypothetical lost increase in the percentage in PAC’s favour? One suspects that this would all be an order or several orders of magnitude below what PAC has sought to claim by way of damages for the “no transaction” scenario. And so PAC may have had no appetite to squarely put an “alternative transaction” scenario case based solely on the WHV question.

179    Sixth, PAC seems to want to make a point that the quantum of loss was not to be dealt with at trial. But that concerns the quantum of loss relevant to the “no transaction” scenario. In other words, the quantum of loss on PAC’s pleaded and particularised case.

180    Seventh, I consider that it would be prejudicial to Mr McGill at this late stage to allow PAC to belatedly keep open let alone now seek to newly particularise an “alternative transaction” scenario. Indeed I have not even been blessed today with a formulation of such a case.

181    Finally, it is not in the interests of justice including its proper administration to indulge PAC further on such possibilities. And ultimately there must be some finality to this litigation, at least at the trial level. The appropriate way to achieve this is to now dismiss PAC’s case against Mr McGill. And of course Mr McGill’s cross-claim falls as a consequence. But let me for completeness make some independent observations on the cross-claim.

The cross-claim

182    Despite the dismissal of the proceeding brought by PAC against Mr Fitzpatrick, he remains a cross-respondent to the unresolved cross-claim for contribution brought by Mr McGill with respect to WHV. Mr Fitzpatrick contends that I should proceed now to dismiss the contribution claim.

183    Now whilst the cross-claim remains extant, it has been substantively decided by my reasoning on the principal claims.

184    For the contribution claim to succeed, both Mr Fitzpatrick and Mr McGill must be liable to PAC in respect of WHV.

185    Now in the contribution claim Mr McGill has the burden of proving two propositions being, first, that had Mr Fitzpatrick been sued by PAC in respect of WHV, Mr Fitzpatrick would have been found liable (first limb) and, second, that Mr McGill is also liable to PAC in respect of WHV (second limb).

186    As for the first limb, I found that there was no breach of duty regarding WHV by Mr Fitzpatrick. That issue has been determined for all purposes, including the contribution claim. Moreover, with respect to causation and as I have already said, PAC ran a “no transaction” case, namely, that had the breaches of duty not occurred, the merger would not have proceeded. And it elected to run an all or nothing “no transaction” case, which I rejected, including the “no transaction” case with respect to WHV. As with breach, I have determined the causation issue for all purposes, including the contribution claim.

187    As for the second limb, my causation findings with respect to WHV applies equally to both Mr Fitzpatrick and Mr McGill.

188    Consequently, it is not possible in the contribution claim for Mr McGill, in the face of my causation findings, to prove that he is liable to PAC for the purpose of the contribution claim.

189    Neither the first limb nor the second limb can be satisfied or has been satisfied. The cross-claim must be dismissed.

Conclusion

190    For the foregoing reasons I will make orders dismissing PAC’s proceeding against Mr McGill and dismissing Mr McGill’s cross-claim against Mr Fitzpatrick. I will also make the necessary consequential orders.

Associate:

Dated:    18 September 2025

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