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Invion Limited v SGB Jones Pty Ltd

 

[2014] QSC 97

 

SUPREME COURT OF QUEENSLAND 

 

CITATION:

Invion Limited v SGB Jones Pty Ltd & Ors [2014] QSC 97

PARTIES:

INVION LIMITED (formerly CBIO LIMITED)

ACN 094 730 417

(plaintiff)

v

SGB JONES PTY LTD

ACN 082 326 350

(first defendant)

STEPHEN GEORGE BURCH JONES

(second defendant)

JASON RICHARD YEATES

(third defendant)

JAMES GREIG

(fourth defendant)

BENJAMIN LEE GRAHAM

(fifth defendant)

CHARTIS AUSTRALIA INSURANCE LIMITED

ACN 004 727 753

(third party)

FILE NO/S:

SC No 1671 of 2012

DIVISION:

Civil

PROCEEDING:

Trial

ORIGINATING COURT:

Supreme Court at Brisbane

DELIVERED ON:

4 June 2014

DELIVERED AT:

Brisbane 

HEARING DATE:

5, 6, 7, 8, 9, 12, 15 May 2014

JUDGE:

Chief Justice

ORDER:

I publish these reasons, and invite the parties to seek to agree on minutes of judgment.  If costs are to be debated, written submissions would be appropriate.  If these matters cannot be managed by agreement, the matter should be relisted before me through an approach to my Associate.  The parties are I know conscious these administrative matters must be finalized well in advance of my intended resignation from the court on 8 July 2014.

CATCHWORDS:

CORPORATIONS – MANAGEMENT AND ADMINISTRATION – AUTHORITY, RIGHTS AND POWERS OF OFFICERS OF CORPORATION – AUTHORITY – OF DIRECTORS – the defendants were directors of the plaintiff – the second defendant was executive Chairman, the third defendant Chief Executive Officer and the fourth defendant Chief Financial Officer – the Board of the plaintiff resolved to amend the contracts with the defendants to extend the termination notice period to be provided by the plaintiff to the defendants to 12 months – the defendants, amongst themselves, amended their contracts with the plaintiff so as to provide that each defendant or the plaintiff could terminate the respective contracts for any cause and each defendant could unilaterally elect to either be paid out 12 months salary/retainer or work 12 months – the defendants did not request approval from the Board or notify the Board of the amendments they had made to the contracts – the defendants asserted they had authority to amend executive contracts without Board notification or approval because of convention or a course of dealings – whether the defendants had authority to amend executive contracts without notification or approval of the Board

CORPORATIONS – MANAGEMENT AND ADMINISTRATION – MEETINGS – MEETINGS OF DIRECTORS – DIRCTOR HAVING MATERIAL PERSONAL INTEREST AND DUTY OF DISCLOSURE – the defendants were directors of the plaintiff – the second defendant was executive Chairman, the third defendant Chief Executive Officer and the fourth defendant Chief Financial Officer – the Board of the plaintiff resolved to amend the contracts with the defendants to extend the termination notice period to be provided by the plaintiff to the defendants to 12 months – the defendants, amongst themselves, amended their contracts with the plaintiff so as to provide that each defendant or the plaintiff could terminate the respective contracts for any cause and each defendant could unilaterally elect to either be paid out 12 months salary/retainer or work 12 months – the defendants did not request approval from the Board or notify the Board of the amendments they had made to the contracts – whether the defendants were required to seek Board approval or notify the Board of the amendments to the defendants’ contracts given the personal interest of each defendant in the amendments

CORPORATIONS – MANAGEMENT AND ADMINISTRATION – DUTIES AND LIABILITIES OF OFFICERS OF CORPORATION – FIDUCIARY AND RELATED STATUTORY DUTIES – OF CARE, SKILL AND DILIGENCE – the defendants were directors of the plaintiff – the second defendant was executive Chairman, the third defendant Chief Executive Officer and the fourth defendant Chief Financial Officer – the Board of the plaintiff resolved to amend the contracts with the defendants to extend the termination notice period to be provided by the plaintiff to the defendants to 12 months – the defendants, amongst themselves, amended their contracts with the plaintiff so as to provide that each defendant or the plaintiff could terminate the respective contracts for any cause and each defendant could unilaterally elect to either be paid out 12 months salary/retainer or work 12 months – the defendants did not request approval from the Board or notify the Board of the amendments they had made to the contracts – whether the defendants breached their respective duties to act with the care and diligence of a reasonable director when they either amended a co-defendant’s contract or accepted the amendment to their own contract offered by a co-defendant purportedly on behalf of the plaintiff

CORPORATIONS – MANAGEMENT AND ADMINISTRATION – DUTIES AND LIABILITIES OF OFFICERS OF CORPORATION – FIDUCIARY AND RELATED STATUTORY DUTIES – OF GOOD FAITH AND PROPER PURPOSE – TO ACT IN GOOD FAITH IN BEST INTEREST OF COMPANY  – the defendants were directors of the plaintiff – the second defendant was executive Chairman, the third defendant Chief Executive Officer and the fourth defendant Chief Financial Officer – the Board of the plaintiff resolved to amend the contracts with the defendants to extend the termination notice period to be provided by the plaintiff to the defendants to 12 months – the defendants, amongst themselves, amended their contracts with the plaintiff so as to provide that each defendant or the plaintiff could terminate the respective contracts for any cause and each defendant could unilaterally elect to either be paid out 12 months salary/retainer or work 12 months – the defendants did not request approval from the Board or notify the Board of the amendments they had made to the contracts – whether the defendants breached their respective duties to act in good faith in the best interests of the plaintiff by failing to seek Board approval or ratification for the contractual amendments

CORPORATIONS – MANAGEMENT AND ADMINISTRATION – DUTIES AND LIABILITIES OF OFFICERS OF CORPORATION – FIDUCIARY AND RELATED STATUTORY DUTIES – TO ACT FOR A PROPER PURPOSE –  the defendants were directors of the plaintiff – the second defendant was executive Chairman, the third defendant Chief Executive Officer and the fourth defendant Chief Financial Officer – the Board of the plaintiff resolved to amend the contracts with the defendants to extend the termination notice period to be provided by the plaintiff to the defendants to 12 months – the defendants, amongst themselves, amended their contracts with the plaintiff so as to provide that each defendant or the plaintiff could terminate the respective contracts for any cause and each defendant could unilaterally elect to either be paid out 12 months salary/retainer or work 12 months – the defendants did not request approval from the Board or notify the Board of the amendments they had made to the contracts – whether the second, third or fourth defendants breached their duty to act for a proper purpose when they either amended a co-defendant’s contract or accepted the amendment offered by a co-defendant purportedly on behalf of the plaintiff

CORPORATIONS – MANAGEMENT AND ADMINISTRATION – DUTIES AND LIABILITIES OF OFFICERS OF CORPORATION – FIDUCIARY AND RELATED STATUTORY DUTIES – DEFENCES TO BREACH OF DUTY – the defendants were directors of the plaintiff – the second defendant was executive Chairman, the third defendant Chief Executive Officer and the fourth defendant Chief Financial Officer – the Board of the plaintiff resolved to amend the contracts with the defendants to extend the termination notice period to be provided by the plaintiff to the defendants to 12 months – the defendants, amongst themselves, amended their contracts with the plaintiff so as to provide that each defendant or the plaintiff could terminate the respective contracts for any cause and each defendant could unilaterally elect to either be paid out 12 months salary/retainer or work 12 months – the defendants did not request approval from the Board or notify the Board of the amendments they had made to the contracts – the defendants asserted an authority to amend the plaintiff’s contracts with co-defendants without Board notification or approval because of convention and asserted they acted honestly and fairly – whether the defendants ought fairly to be excused from any breaches of their duties to the plaintiff

CORPORATIONS – MANAGEMENT AND ADMINISTRATION – DUTIES AND LIABILITIES OF OFFICERS OF CORPORATION – FIDUCIARY AND RELATED STATUTORY DUTIES – REMEDIES AND PENALTIES FOR BREACH OF DUTY – COMPENSATION – the defendants were directors of the plaintiff – the second defendant was executive Chairman, the third defendant Chief Executive Officer and the fourth defendant Chief Financial Officer – the Board of the plaintiff resolved to amend the contracts with the defendants to extend the termination notice period to be provided by the plaintiff to the defendants to 12 months – the defendants, amongst themselves, amended their contracts with the plaintiff so as to provide that each defendant or the plaintiff could terminate the respective contracts for any cause and each defendant could unilaterally elect to either be paid out 12 months salary/retainer or work 12 months – the defendants did not request approval from the Board or notify the Board of the amendments they had made to the contracts – the defendants resigned as executive directors and received a 12 month termination payout from the plaintiff – whether the plaintiff is entitled to compensation for the termination payouts pursuant to s 1317H of the Corporations Act 2001 (Cth)

EQUITY – EQUITABLE REMEDIES – EQUITABLE COMPENSATION – BREACH OF FIDUCIARY OBLIGATIONS – the defendants were directors of the plaintiff – the second defendant was executive Chairman, the third defendant Chief Executive Officer and the fourth defendant Chief Financial Officer – the Board of the plaintiff resolved to amend the contracts with the defendants to extend the termination notice period to be provided by the plaintiff to the defendants to 12 months – the defendants, amongst themselves, amended their contracts with the plaintiff so as to provide that each defendant or the plaintiff could terminate the respective contracts for any cause and each defendant could unilaterally elect to either be paid out 12 months salary/retainer or work 12 months – the defendants did not request approval from the Board or notify the Board of the amendments they had made to the contracts – the defendants resigned as executive directors and received a 12 month termination payout from the plaintiff – whether the plaintiff is entitled to equitable compensation for any breach of fiduciary duty by the defendants

CORPORATIONS – MANAGEMENT AND ADMINISTRATION – AUTHORITY, RIGHTS AND POWERS OF OFFICERS OF CORPORATION – TERMINATION PAYMENTS – the defendants were directors of the plaintiff – the second defendant was executive Chairman, the third defendant Chief Executive Officer and the fourth defendant Chief Financial Officer – the Board of the plaintiff resolved to amend the contracts with the defendants to extend the termination notice period to be provided by the plaintiff to the defendants to 12 months – the defendants, amongst themselves, amended their contracts with the plaintiff so as to provide that each defendant or the plaintiff could terminate the respective contracts for any cause and each defendant could unilaterally elect to either be paid out 12 months salary/retainer or work 12 months – the defendants did not request approval from the Board or notify the Board of the amendments they had made to the contracts – whether the contractual amendments amount to termination payouts – whether the contractual amendments were done in breach of the defendants’ fiduciary duties and/or Corporations Act 2001 (Cth) duties

CORPORATIONS – MANAGEMENT AND ADMINISTRATION – AUTHORITY, RIGHTS AND POWERS OF OFFICERS OF CORPORATION – OTHER MATTERS – the defendants were directors of the plaintiff – the Board of the plaintiff resolved to pay performance rights to the defendants if specific criteria was met – the defendants resigned prior to all criteria being met – following the defendants resignation, the Board of the plaintiff resolved to rescind the issuing of performance rights to the defendants – all criteria was met following the rescinding of the resolution – whether the performance rights constituted an enforceable contract by the defendants – whether the defendants resignation or rescinding of the Board’s resolution cancelled any entitlement to the performance rights

INSURANCE – DIRECTORS AND OFFICERS INSURANCE – the defendants were directors of the plaintiff – the second defendant was executive Chairman, the third defendant Chief Executive Officer and the fourth defendant Chief Financial Officer – the Board of the plaintiff resolved to amend the contracts with the defendants to extend the termination notice period to be provided by the plaintiff to the defendants to 12 months – the defendants, amongst themselves, amended their contracts with the plaintiff so as to provide that each defendant or the plaintiff could terminate the respective contracts for any cause and each defendant could unilaterally elect to either be paid out 12 months salary/retainer or work 12 months – the defendants did not request approval from the Board or notify the Board of the amendments they had made to the contracts – the second, third and fourth defendants resigned as executive directors and received a 12 month termination payout from the plaintiff – the plaintiff filed proceedings seeking reimbursement of the 12 month termination payouts – the defendants seek indemnity under the plaintiff’s directors and officers liability insurance policy from the third party – the insurance policy excluded ‘employment related benefits’, deliberate dishonesty or fraud and wilful contravention of s 199B(1) of the Corporations Act 2001 (Cth) – whether the defendants are indemnified under the directors and officers  insurance policy the plaintiff held with the third party

Corporations Act 2001 (Cth), s 180(1), s 181(1), s 182(1), s 199B(1), s 1317H, s 1317S, s 1318

Australian Securities and Investments Commission v Adler & Ors (2002) 168 FLR 253, cited

Chan v Zacharia (1984) 154 CLR 178, cited

Gillfillan v Australian Securities and Investments Commission (2012) 92 ACSR 460, cited

Permanent Building Society (in liq) v Wheeler & Ors (1994) 14 ACSR 109, cited

R v Byrnes (1995) 183 CLR 501, cited

Shafron v Australian Securities and Investments Commission (2012) 247 CLR 465, cited

COUNSEL:

M R Hodge for the plaintiff

The second defendant appeared on his own behalf

The third defendant appeared on his own behalf

The fourth defendant appeared on his own behalf

R Perry QC for the third party

SOLICITORS:

McCullough Robertson for the plaintiff

The second defendant appeared on his own behalf

The third defendant appeared on his own behalf

The fourth defendant appeared on his own behalf

Carter Newell for the third party

Introduction

  1. This case primarily concerns the lawfulness of payments made by a company to departing executives purportedly under contracts affording them those entitlements.  The principal questions are whether the absence of board approval negates the purported entitlements, and whether the defendants were dishonest.
  2. At the hearing before me, the defendant directors appeared competently for themselves.  Mr Hodge appeared for the plaintiff company, and Mr Perry QC appeared for the third party insurer, against which the defendants pursue a claim for indemnity.  (The claim against the fifth defendant, Mr Graham has been settled.  The first defendant has been deregistered.)
  3. Many of the facts are uncontroversial, as emerged from Mr Hodge’s opening for the plaintiff and as was confirmed as the hearing progressed.  The defendants’ affidavits contain a lot of argument and assertion, but the plaintiff – and the third party, reasonably proceeded on the basis I would distinguish evidence from contention.
  4. The third party claim depended primarily on documents, and importantly, on whether I were to find that the defendants acted dishonestly in agreeing to and drawing upon the requisite termination entitlements.

The uncontroversial facts

  1. I proceed now to set out the uncontroversial facts.

Contractual documentation

  1. The plaintiff, Invion Limited, previously CBio Limited and prior to that CBio Pty Ltd, came into existence on 11 October 2000.[1] The plaintiff’s first constitution as a proprietary limited company was agreed to by its temporary founding directors on 11 October 2000.[2]
  2. At a meeting on 11 October 2000, held on Floor 5, 293 Queen Street, Brisbane, the two founding directors resigned and Mr Stephen George Burch Jones (the second defendant), Dr Wolfgang Helmut Hanisch and Mr Stephen Francis Goodall were appointed new directors and were each issued 33 shares.[3]
  3. The company’s constitution, agreed to on 11 October 2000, contained the following provisions about delegation of authority:[4]

67. Delegation to Committees

67.1 The directors may delegate any of their powers to a committee of directors consisting of such of their number as they think fit.

67.2  A committee must exercise the powers delegated to it in accordance with any of the directors. The effect of the committee exercising a power in this way is the same as if the directors exercised it.

67.3  The members of such a committee may elect one of their numbers as chairman of their meetings.

67.4  A committee may meet and adjourn as it thinks proper.

67.5 Questions arising at a meeting of a committee shall be determined by a majority of votes of the members present and voting. The chair has a casting vote if necessary in addition to any vote they have in their capacity as director (if any).

69. Managing Director

69.1 The directors of the Company may appoint 1 or more of themselves to the office of managing director of the Company for the period and on the terms (including as to remuneration) as the directors see fit.

69.2  A person ceases to be a managing director if they cease to be a director.

69.3 The directors may confer on a managing director any of the powers that the directors can exercise. Any powers so conferred may be concurrent with or to the exclusion of the powers of the directors.

69.4 The directors may revoke or vary an appointment or any of the powers conferred on the managing director.”

  1. The directors, Mr Jones, Dr Hanisch and Mr Goodall, resolved on 26 February 2001 to convert the plaintiff from a proprietary limited company into a limited company.[5]
  2. In early 2001, it was resolved that Mr Jones would be the non-executive Chairman, Dr Hanisch the Chief Executive Officer and Managing Director, Mr Goodall the non-executive Chief Operating Officer and Ms Kay Humphryes the Company Secretary. Those appointments were confirmed at a Board meeting on 14 May 2001.[6] During that meeting, it was resolved that each director “be and is hereby authorised to approve expenditure up to a maximum of $5,000 per item without further reference to the Board”.[7]
  3. A new constitution was adopted by the plaintiff following its transition to a limited company on 20 June 2001. It contained the following provisions as to delegation of authority:[8]

“27.9 The Directors may delegate any of their powers to committees consisting of such Member or Members of their body as they think fit; any committee so formed shall in the exercise of the powers so delegated conform to any regulations that may form time to time be imposed on it by the Directors. The Meetings and proceedings of any such committee consisting of two or more Members shall be governed by the provisions herein contained for regulating the meetings and proceedings of Directors so far as the same are applicable thereto and are not superseded by any regulations made by the Directors pursuant to this Rule.

29. MANAGING DIRECTOR

29.1 The Directors may from time to time appoint one or more of their body to the Office of Managing Director for such period and on such terms as they think fit and, subject to the terms of any agreement entered into in any particular case, may revoke any such appointment.

29.2 A Managing Director shall, subject to the terms of any agreement entered into in any particular case, receive such remuneration, whether by way of salary, commission, participation in profits or other benefits, or partly in one way and partly in another, as the Directors may determine.

29.3 The Directors may entrust to and confer upon a Managing Director any of the powers exercisable by them upon such terms and conditions and with such restrictions as they may think fit, and either collaterally with or to the exclusion of their own powers, and may from time to time revoke, withdraw, alter, or vary all or any of those powers.”

  1. The plaintiff changed its constitution a second time in preparation for public listing. This constitution was adopted, and signed by Mr Jones on 2 October 2009, and remains current. Unlike the previous two constitutions, this constitution does not provide for delegation to a Managing Director, but contains this clause allowing delegation of powers to Committees:[9]

18.7  Delegation of powers to Committees

The Board may, subject to the constraints imposed by law, delegate any of its powers to Committees consisting of one or more Directors or any other person or persons as the Board thinks fit. Any Committee formed or person or persons appointed to the Committee must, in the exercise of the powers delegated, conform to any regulations that may from time to time be imposed on the Board. A delegate of the Board may be authorised to sub-delegate any of the powers for the time being vested in the delegate.”

  1. The plaintiff entered into a consultancy agreement with the now non-existent first defendant, SGB Jones Pty Ltd, to take effect on 1 December 2006.[10] SGB Jones Pty Ltd was the company of the second defendant, Mr Jones, through which he provided consultancy services to the plaintiff in addition to his being Chairman of the Board.
  2. Under that consultancy agreement, the plaintiff was entitled to terminate the appointment of SGB Jones Pty Ltd as consultant, by providing “6 months notice in writing or the equivalent amount of the fees in lieu”, or, by providing 12 months notice on the occurrence of a number of events, being in the event of a takeover or sale of the business of the plaintiff or reorganization of the plaintiff. SGB Jones Pty Ltd was entitled to terminate the appointment by giving “not less than six months’ notice in writing.”[11]
  3. The plaintiff entered into a contract of employment with Mr Ben Graham on or about 10 January 2005.[12] Mr Graham’s contract could be terminated by the plaintiff, or by Mr Graham, by notice in accordance with a table contained within clause 8.2 (between 1 and 5 weeks notice depending on Mr Graham’s age and length of employment). If Mr Graham did not give the required notice, he authorized the plaintiff, pursuant to clause 8.4, “to withhold or deduct from [his] termination pay, the equivalent amount of remuneration in lieu.”[13]
  4. The plaintiff entered into a contract of employment with Mr James Greig, the fourth defendant, as Chief Financial Officer, on 7 December 2006.[14] Mr Greig’s employment contract provided, under clause 7.2, that the plaintiff could terminate his employment by giving “3 months notice or the equivalent amount of [his] total remuneration package in lieu.” As with the consultancy agreement with SGB Jones Pty Ltd, the plaintiff was obliged to give 12 months’ notice in the event of a takeover or sale of the business of the plaintiff or reorganization of the plaintiff. Mr Greig was obliged to give three months’ notice on resignation and, as with Mr Graham, Mr Greig authorized the plaintiff, under clause 7.4, “to withhold or deduct from [his] termination pay, the equivalent amount of remuneration in lieu.”[15]
  5. Mr Jason Yeates, the third defendant, entered into an almost identical employment contract on or about 6 December 2006,[16] save that Mr Yeates’s position was Chief Executive Officer and the plaintiff was obliged to give him six months’ notice for termination rather than Mr Greig’s three months. 

“The Hanisch Precedent”

  1. Dr Hanisch entered into an employment contract with the plaintiff on 28 June 2001, containing these provisions:[17]

14. TERMINATION OF APPOINTMENT BY THE COMPANY

14.5 Notwithstanding anything else to the contrary, the [plaintiff] may terminate the Appointment by giving to the Executive notice in writing commensurate with the length of his service to such point in time as follows:-

Length of ServiceNotice Required

  • less than twelve months             3 months
  • less than thirty months but equal to or

              greater than twelve months6 months

  • equal to or greater than thirty months 9 months

15. TERMINATION OF APPOINTMENT BY EXECUTIVE

15.1  The Executive may terminate the Appointment by giving to the [plaintiff] not less than three months’ notice in writing and at the expiration of the period of that notice, the Appointment shall be deemed to be terminated.”

  1. In 2006, the plaintiff’s Board (absent Dr Hanisch), resolved to have Dr Hanisch resign or failing that, be removed by the Board. Dr Hanisch was informed of this by Mr Yeates and was advised he could either resign and be paid a 12 months’ termination payout (contrary to the terms of his employment contract), or be removed and paid a nine months’ termination payout. Dr Hanisch chose to resign.[18] He was then paid a 12 months’ termination payout.
  1. This change in the amount of the termination payout was authorized by Mr Jones as Chairman. Mr Jones referred to this in his evidence “the Hanisch Precedent”, and relied on neither the plaintiff’s auditors nor the Board’s questioning or challenging, as being corroborative of an established “precedent”.[19]  He invoked this “precedent” as supporting his involvement in these arrangements – that is, that he could authorize such a payment though inconsistent with Dr Hanisch’s contract.

Amendments to the consultancy agreement and employment contracts

  1. The plaintiff’s 2010 Annual General Meeting took place on 26 November 2010. During the meeting, members of the plaintiff criticized, amongst other things, the remuneration of Mr Jones, the suitability of Mr Jones and the skills and performance of the directors of the plaintiff generally (including Mr Jones and Mr Yeates).[20]
  2. At a Board meeting on 28 January 2011, Mr Greig was appointed a director of the plaintiff.[21]
  3. The next month, the plaintiff was in the process of updating its employment contracts generally in accordance with National Employment Standards through which Mr Greig, as CFO, was involved.[22]
  4. The agenda and board papers for a Board meeting on 25 March 2011 were circulated by Mr Graham as Company Secretary on 17 March 2011.[23] A revised agenda was circulated by Mr Graham on 23 March 2011, 2 days prior to the meeting.[24] It included an additional item, “Amendment of Executive Management Contracts”, to be spoken to at the meeting by Mr Jones and Mr Greig.
  5. Mr Jones (in person), Mr Yeates (in person) and Mr Greig (by telephone) (with the other non-executive directors) participated in the Board meeting on 25 March 2011. It was resolved to amend the executive management employment contracts (the contracts of Mr Jones’s company, Mr Yeates and Mr Greig) to “extend the termination notice period to be provided by the [plaintiff] … to 12 months.” This was in light of uncertainty on the part of the executives as to the future, given the “high likelihood” that their positions would be terminated if a major transaction with a pharmaceutical company took place, and as explained in the evidence before me, threats to resign from Mr Jones and Mr Yeates which, if followed through, would have destabilized the company. Mr Jones, Mr Yeates and Mr Greig all abstained from voting on that resolution.[25]
  6. On 4 April 2011, Mr Jones sent an email to Mr Graham, copying in Mr Yeates and Mr Greig, requesting Mr Graham to prepare “codicils” with respect to the employment contracts for the four of them to extend the termination provisions from 6 to 12 months. Mr Graham responded, “we are on it as we speak”.[26]
  7. Mr Greig emailed Mr Reece Walker, partner at McCullough Robertson, on 6 April 2011, attaching the employment contracts of Mr Graham and Mr Yeates and the consultancy agreement with SGB Jones Pty Ltd. Mr Greig listed what he believed to be the required changes to those contracts to reflect the Board’s resolution to change the termination period to 12 months notice, and he stated “I don’t see the need to change anything else to give effect to the Board’s decision to increase notice period to 12 months.” He also said, “internally we have been updating all staff contract documentation, and we will update these contracts as well for consistency.”[27]
  8. Mr Greig then emailed Mr Jones (copying in Mr Yeates and Mr Graham), on 13 April 2011, with the updated Consultancy Agreement with SGB Jones Pty Ltd advising that he had “updated [his] previous agreement … to now reflect a 12 month notice period as recently approved by the Board.”[28] There was no amendment to the notice period required from SGB Jones Pty Ltd.
  9. Mr Jones replied by email 38 minutes later, stating:[29]

“… Do not agree to the 6 months notice period by SGBJPL [SGB Jones Pty Ltd]. It should be either party can terminate without cause and the 12 months can be paid out or worked out depending on the decision of SGBJPL. Please amend otherwise ok.”

  1. Mr Greig replied to Mr Jones early that same afternoon stating “[s]ee revised document attached, with changes tracked.”[30] The revised consultancy agreement contained the following amended provision:[31]

“Notwithstanding anything else to the contrary, either party may terminate this Agreement at any time and in this case, the [plaintiff] will make payment to [SGB Jones Pty Ltd] of the amount equivalent to 12 months of fees, any portion of which may be worked at the discretion of the Consultant.”

  1. Mr Jones replied by email 6 minutes later advising that the amendment to the termination provision was “fine”.[32]
  1. The next day, 14 April 2011, Mr Greig emailed to Mr Jones a final version of the amended consultancy agreement with the amendment set out in paragraph 30 above.[33] Mr Yeates and Mr Graham were again copied into the email. Mr Jones signed the contract on 14 April 2014 on behalf of SGB Jones Pty Ltd. Mr Grieg in his position as Finance Director signed the amended contract on behalf of the plaintiff on 10 May 2011.[34]
  1. Mr Greig sent a letter dated 4 April 2011 to Mr Graham and Mr Yeates on behalf of the plaintiff providing them with updated employment contracts.[35] Mr Yeates sent a similar letter to Mr Greig, on behalf of the plaintiff, also dated 4 April 2011, providing Mr Greig with his updated contract.[36] All updated contracts contained handwritten notes next to clauses 8.3 and 8.4. They stated “Refer Schedule 1 Amendment”, and were initialled by Mr Yeates for Mr Greig’s contract and Mr Greig for Mr Yeates’ and Mr Graham’s contracts. Clauses 8.3 and 8.4 dealt with termination of employment by the plaintiff or the employee and provided that notice of between 1 to 5 weeks was required depending on the years of service and age.
  1. Schedule 1 to both Mr Yeates’s and Mr Greig’s updated contracts contained the following statement under the heading “Other terms specific to your employment:”

“Clauses 8.3 and 8.4 are amended, so that the notice period to be given either by the [plaintiff] or you is 12 months. In either scenario, given the executive position held, you will be entitled to a payment of 12 months salary, however you will not be required to work during this period unless agreed to by both you and the [plaintiff]. The payment in lieu of notice by the [plaintiff] is 12 months salary.”

  1. Mr Yeates signed his updated contract on 14 April 2011 and Mr Greig on 15 April 2011. Both of these updated contracts, as well as the updated signed contract of Mr Graham, were sent by Mr Greig to Mr Jones via email on 15 April 2011.[37]
  1. Mr Jones emailed Mr Grieg, copying in Mr Yeates and Mr Graham, on 15 April 2011, asking Mr Greig whether the plaintiff was required to sign the updated contracts of Mr Greig, Mr Yeates and Mr Graham and, if so, he would print them out, sign them and return them on behalf of the plaintiff.[38]  Mr Greig replied that the plaintiff need not sign the employment contracts; the covering letter of the plaintiff advising that each employment contract had been updated was sufficient.[39]
  1. The Board met again on 12 May 2011.[40] Mr Jones, Mr Yeates and Mr Greig and non-executive directors were present. The minutes of the previous meeting on 25 March 2011, where it was resolved that executive contracts be amended to increase the notice period to 12 months if the plaintiff terminated the employment or consultancy of the executives, were approved and signed by Mr Jones as Chairman. Mr Greig, Mr Yeates and Mr Jones did not inform the Board of the amendments, which occurred in April 2011, to the employment contracts of Mr Yeates, Mr Greig and Mr Graham, or the amendments to the consultancy agreement with SGB Jones Pty Ltd.
  1. The Board met again on 11 October 2011.[41]  Mr Jones, as Chairman, stated that the shareholder group of the plaintiff was distributing a level of misinformation and propaganda which could not be ignored, essentially that capital management and corporate governance were poor. The Board agreed that a letter be sent to all shareholders in the coming week to correct any misinformation spread by the shareholder group.
  1. During this meeting on 11 October 2011:[42]
  1. Mr Jones advised he would resign as Executive Chairman at the completion of the Board meeting but would remain on the Board as non-executive Chairman;
  1. Mr Yeates advised he would step down as Managing Director but would remain on the Board as a non-executive Director; and
  1. Mr Greig advised he would step down as Finance Director but would remain on the Board as a non-executive Director.
  1. Again, the defendants did not inform the Board of the amendments made to their contracts in April.
  1. Also on 11 October 2011, Mr Jones, as Director of SGB Jones Pty Ltd, wrote to Mr Graham as Company Secretary of the plaintiff terminating the consulting agreement between the plaintiff and SGB Jones Pty Ltd.[43]  The letter advised that termination of the agreement was effective immediately and attached an invoice to the plaintiff in the amount of $551,341.25 with $504,900.00 being:[44]

“Termination Payment pursuant to Cl9 [sic] of the Consulting agreeemnnent [sic] with Cbio being an amount equal 12 months aggregate billings to date of termination ie from and including October 2010 to 15.9.2011”

  1. On 12 October 2011, Mr Yeates sent a resignation letter via email to Mr Jones in his capacity as Chairman.[45] The letter contained the following statement as to termination and notice:[46]

“In accordance with my employment contract, I give notice of my resignation and advise that, again in accordance with my employment contract, that I will work out my notice period only as is required to provide an appropriate transition to the incoming executive and only if my own position permits me to do so.”

  1. Mr Jones, as Chairman, responded to Mr Yeates via email and stated “[p]lease send to me for approval your statement of monies owing in accordance with your employment contract which should include the 12 months motor vehicle emolument.” Mr Yeates answered, “[i]n accordance with my contract of employment I am entitled to a payment of 12 months’ one year’s salary ($350K)…” to which Mr Jones replied “[a]pproved”.[47]
  1. Mr Greig also sent his resignation letter on 12 October 2011 to Mr Yeates in his capacity of Managing Director and Chief Executive Officer of the plaintiff. Mr Greig stated, with respect to termination and notice:[48]

“I therefore provide you in accordance with my employment contract, the required notice period, and advise that, also in accordance with my employment contract, that due to this situation [the shareholder action group], I will not work out my notice period and will leave the company as an executive with immediate effect.”

  1. Mr Graham, as Company Secretary of the plaintiff, wrote to Mr Jones via email at 12.28 pm on 12 October 2011, responding to the termination of the consultancy agreement with SGB Jones Pty Ltd and in relation to termination payments to SGB Jones Pty Ltd, Mr Greig and Mr Yeates. Mr Graham expressed concern about making termination payments without notifying the board:[49]

“On the payment of termination payments, i [sic] am not comfortable making those payments without the awareness of the Board. Not their approval, but their awareness. I have no issue with the validity of the payments, but I think it is prudent and in everybody’s best interests, particularly in the current circumstances, that the board are made aware of the fact that (a) the board changes have been made, (b) that they receive a copy of the ASX announcement, and (c) they be advised that termination payments will be made in accordance with the various agreements. A simple email will do the trick and cover everybody’s ass. I don’t want anybody to be able to say when it comes up in the Dec 4C or the half yearly accounts or the annual report that they did not know, or that the payments were made without the knowledge of the board. Again, I am not questioning the payments, but I just want to make sure we dot the ‘i's and cross the ‘t’s.”

  1. Mr Jones responded to Mr Graham via email at 12.53 pm on the same day, copying in Mr Yeates and Mr Greig, and stated:[50]

“As for the payments they should be made and [sic] today. They are contractual. I agree that you should make the Board aware that they have been made and that they are in order, contractual and also distribute the release at the same time to our colleagues that way all are in the loop.”

  1. Later that same day at 6.50 pm, Mr Graham, as Company Secretary of the plaintiff, wrote to all members of the Board, including Mr Jones, Mr Yeates and Mr Greig, and advised that Mr Jones, Mr Yeates and Mr Greig had resigned from their executive roles and that “[i]n accordance with our contractual obligations termination payments will be made to [Mr Jones], [Mr Yeates] & [Mr Greig] in accordance with the terms of their employment contracts and consulting agreements. These will equate to 12 months salary/12 months previous consulting fees.”[51]
  1. Dr Ando, a non-executive Director of the plaintiff, responded to Mr Graham the next day (13 October 2011) and stated: “I assume [Mr Jones], [Mr Yeates] and [Mr Greig] have formal contracts which gives them 12 months salary also when they resign?”[52] Mr Graham replied, “Yes, all have contracts with a 12 month termination payment clause. There was a board resolution early in the year agreeing to the 12 month payment, except in the circumstances of summary dismissal etc. I can send copies if you like?”[53] Dr Ando did not request anything further.
  1. Mr Graham was incorrect in saying the earlier Board resolution covered this situation.
  1. The payments to SGB Jones Pty Ltd, Mr Yeates and Mr Greig were approved by Mr Graham as Company Secretary on 17 October 2011.[54] The following termination payments were made:
  1. $504,900 (including 10% GST) to SGB Jones Pty Ltd (partly on 13 October 2011 and the remainder on 17 October 2011) (only $458,999.99 is claimed in the second further amended statement of claim and referred to in the written submissions);[55]
  1. $371,329 (direct payment and tax paid to ATO) to Mr Yeates on 17 October 2011;[56] and
  1. $220,000 (direct payment and tax paid to ATO) to Mr Greig on 17 October 2011.[57]
  1. Mr Graham resigned by letter dated 26 October 2011 to Mr Jones (as non-executive Chairman at this stage). With respect to termination and notice, Mr Graham said:[58]

“In accordance with the terms of my employment contract, I am not prepared to provide a notice period and my resignation is effective immediately. In accordance with Schedule 1 of my employment contract, I am entitled to a payment of 12 months salary on my termination. I request that the [plaintiff] make appropriate arrangements in regards to this payment as soon as practical.”

  1. Mr Graham emailed Mr Jones on 27 October 2011 requesting a final termination payment of $146,371 (less tax). This amount was an average of the base salary of three years prior; not the (higher) 12 months salary as per Mr Graham’s amended employment contract. Mr Graham did not consider he could be paid the higher amount, being the 12 months salary, without shareholder approval. However, he considered the termination payments made to Mr Jones, Mr Yeates and Mr Greig did fall below the threshold requiring shareholder approval.[59]
  1. Mr Jones approved the payment of $146,371 to Mr Graham and said he would gladly put the difference between the termination payment of $146,371 and 12 months salary to be paid to Mr Graham to the shareholders for their approval.[60] Mr Graham was paid his termination payment of $98,795.37 (exclusive of tax) on 28 October 2011.[61]
  1. Mr Greig resigned as a non-executive director on 26 October 2011 by letter to Mr Jones as non-executive Chairman of the plaintiff.[62]

Performance rights

  1. As stated in paragraph [24] above, the agenda and board papers for the Board meeting of the plaintiff on 25 March 2011 were circulated on 17 March 2011.[63] Within the Board papers was a proposed resolution, put forward by Mr Jones, for the issue of performance rights (shares in the plaintiff) (aggregating 4.2 million) to current directors and executives of the plaintiff (including Mr Jones, Mr Yeates and Mr Greig) on the occurrence of certain conditions, namely, a major collaboration, licence transaction or trade sale of specific technology or a significant change of ownership of the plaintiff.[64]
  2. During the Board meeting on 25 March 2011, the issue of performance rights was discussed and it was resolved that shareholder approval be sought for the 4.2 million performance rights to directors and the executives. The minutes of the meeting note the reasons:

“It was noted that the exemplary loyalty shown by CBio’s Directors and Executives in directing, managing and completing development activities over the past 3 to 4 years in particular and at a time when the [plaintiff] was subject to considerable financial pressure, should not go unrewarded and the Board was asked to consider this situation. The [plaintiff] will be in a position during 2011 to enter into negotiations with pharma companies concerning XToll and the Directors’ and Executives’ continued efforts will be required to this point and beyond.”[65]

  1. On 14 April 2011 a “circular resolution”, circulated to Board members by Mr Jones, proposed the issue of 7.2 million “performance rights” to directors and executives (on condition that certain criteria were met), up from the 4.2 million proposed in March.[66]
  2. On 10 June 2011 Mr Graham, as Company Secretary of the plaintiff, wrote to the Australian Stock Exchange (“ASX”) and advised that a General Meeting of the plaintiff’s members would take place on 15 July 2011.[67] In the Notice of the General Meeting of the plaintiff, several resolutions were included to issue performance rights to the directors and executives:[68]
  1. resolution 4 was the approval for the issue of performance rights to Mr Graham;
  1. resolution 5 was the approval for the issue of performance rights to Mr Jones;
  1. resolution 6 was the approval for the issue of performance rights to Mr Yeates; and
  1. resolution 13 was the approval for the issue of the performance rights to Mr Greig.
  1. With respect to Mr Graham, the performance rights were proposed in recognition of his past performance and to offer sufficient incentive for him to remain engaged with the company.[69] Conversely, with respect to the plaintiff’s directors, including Mr Jones, Mr Yeates and Mr Greig, the proposed performance rights would only vest if a key performance criterion were met, that is, either a major collaboration or licence transaction, a sale of the plaintiff’s business, achievement of a $1 share price or a shareholder acquiring 19.9% of shares in the plaintiff.[70]
  1. The explanatory memorandum for the General Meeting of the plaintiff’s members attached to the Notice of General Meeting provided that any performance rights to be issued to directors and executives of the plaintiff would be on specific terms, including:

“Cessation of Employment: [Mr Graham] [71]

The Performance Rights will not vest if the recipient ceases to be an employee of the [plaintiff] prior to the vesting of the Performance Rights, unless the [plaintiff] determines otherwise, such as in circumstances where the employee has left the [plaintiff] for a reason beyond their control (for example, due to sickness, invalidity or redundancy).

Termination of Directorship: [Mr Jones, Mr Yeates and Mr Greig] [72]

The Performance Rights will not vest if the recipient ceases to be a Director of the [plaintiff] prior to the vesting of the Performance Rights, unless the [plaintiff] determines otherwise, such as in circumstances where a Director has left the [plaintiff] for a reason beyond their control (for example, due to sickness, invalidity or redundancy)”

  1. On 13 July 2011, two days prior to the General Meeting of the plaintiff, Mr Graham sent an email to Mr Jones, Mr Yeates and Mr Greig, in which he stated, “Todays [sic] proxies attached. All over red rover.”[73] An attachment contained a spreadsheet of the proxies received in respect of the resolutions to be tabled at the Plaintiff’s General Meeting. At that stage, the proxies were in favour of every resolution save for: [74]
  1. resolution 4 (issue of performance rights to Mr Graham);
  1. resolution 5 (issue of performance rights to Mr Jones);
  1. resolution 6 (issue of performance rights to Mr Yeates); and
  1. resolution 13 (issue of performance rights to Mr Greig).
  1. Later that same morning on 13 July 2011, Mr Graham sent an email to all directors saying:[75]

“Gents,

We have today lodged a notice with the ASX advising that the resolutions for the issue of performance rights for Stephen, Jason, James and myself have been withdrawn.

The proxies lodged show all four resolutions would be soundly defeated, and on that basis it was appropriate that they be withdrawn before the meeting. All other resolutions are well and truely [sic] in favour at this stage.

The ASX announcement is attached for your files.”

  1. The plaintiff’s Board met on 1 September 2011. The Directors discussed and resolved to provide an “executive bonus” to Mr Jones, Mr Yeates, Mr Greig and Mr Graham “in lieu of the issue of Performance Rights”, in the following amounts, with 20% to be paid on $10 million capital raising, and the other 80% on the same performance criteria as for the previously proposed performance rights:[76]
  1. Mr Jones - $500,000;
  1. Mr Yeates - $500,000;
  1. Mr Greig - $250,000; and
  1. Mr Graham - $166,667.
  1. Over $10 million of capital was raised by the plaintiff. SGB Jones Pty Ltd issued an invoice dated 26 October 2011 for $110,000 (including GST) for 20% of the executive bonus.[77] This was authorised and payment issued by the plaintiff on 26 October 2011 after approval was received for that payment by both Mr Jones (acting in the role of non-executive Chairman) and Mr Yeates (as non-executive Director).[78]
  1. Further, the performance rights 20% cash bonuses for Mr Yeates, Mr Greig and Mr Graham were sent to Mr Jones and Mr Yeates (again acting in their roles as non-executive Chairman and non-executive director respectively) for their approval by email on 27 October 2011.[79] Mr Jones replied “Approved”.[80] The bonuses were:
  1. Mr Yeates - $100,000;
  1. Mr Greig - $50,000; and
  1. Mr Graham - $33,333.

Inquiries by the plaintiff

  1. At the first Board meeting after the resignation and departure of Mr Jones, Mr Yeates, Mr Greig and Mr Graham, on 10 November 2011, Dr Craven, Ms Cameron and Mr Brown (non-executive directors) raised questions about the termination payments and performance rights paid. The Minutes say:[81]

“Dr Craven, Ms Cameron and Mr Brown raised questions relating to the minutes of prior Board meetings as provided, including:

- Minutes of 1 September 2011 … Dr Craven, Mr Brown & Ms Cameron questioned the appropriateness of the bonuses and termination payments agreed for Executives, whether conditions had been satisfied, whether disclosure of contractual obligations and payments had been made to the market and authorisation of payments. The minute approving the bonuses and termination payments appeared to be in response to shareholders not approving the performance rights.

- Ms Cameron stated that there did not appear to be any financial delegations manual in place or levels of authority for payments. Copies of the individual employment contracts were requested to be provided.

Noted pages 25 & 26 of the 2011 Annual Report contained disclosure on terms of payment and contracts.

Agreed 3 main issues need to address:-

- Terms and conditions for bonus payments and timing re meeting hurdles (20% payable on finance completion, 80% on deal with Pharma).

- Separation payments and if in accordance with contractual terms.

- Approvals and authorisation of payments for Jones, Greig, Yeates and Graham.

Agreed to follow up investigations of authority levels and systems in place and implement a formal delegations of authority – draft being prepared and to be circulated to Board.

Mr Brown queried payments to former executives and whether in accordance with terms of their employment contracts. Directors agreed that external lawyers be briefed to review executive employment contracts, payments made and provide legal advice and actions (if any) to take, particularly if any illegality involved.”

  1. Also, at the meeting, the directors resolved to rescind the previous Board resolutions relating to bonus payments to the then former executives Mr Jones, Mr Yeates, Mr Greig and Mr Graham, and to investigate the timing of their resignations and as to whether the conditions had been met to justify the payment of the 20% bonus.[82]

Board decisions regarding remuneration and fees

  1. A number of Board minutes were tendered by the plaintiff during the course of Mr Jones’s evidence. The minutes were signed by Mr Jones in his (then) capacity as Chairman of the plaintiff. During cross-examination, Mr Jones accepted, in light of his signature, that the minutes were accurate.[83]
  1. Staff contracts were noted as being “set up” during the Board meeting on 18 January 2001. Mr Goodall (then Chief Operations Officer) was to discuss the staff contracts with Ms Humphreys (then Company Secretary).[84]
  1. Mr Jones’s consulting fees and Ms Humphreys’s retainer and hourly rate as Company Secretary were tabled and resolved at the Board meeting on 26 February 2001.[85] Mr Jones recused himself for the resolution regarding his fees, with Dr Hanisch stepping into the role of acting Chairman. These resolutions were passed:

“That the fees as already agreed to be paid to Stephen Jones as Chairman and non-executive director and Mr Jones’ consulting fees be and are hereby approved.”

“That Kay Humphreys be retained for 16 hours per month @ $100 per hour. Any requirement over and above 15 hours to be paid on an hourly basis.”

  1. It was noted in the minutes of 15 June 2001 that “executive service agreements” were being finalised by the law firm Russells.[86]
  1. During the Board meeting on 17 August 2001, Dr Hanisch tabled an email from a Mr Mahler with whom Dr Hanisch was liaising, in relation to a short-term contract with the plaintiff.[87]
  1. During the Board meeting on 31 August 2001, the Board resolved to retain a public relations company and specifically authorized Mr Jones as Chairman to sign the retainer letter on behalf of the Board.[88]
  1. On 3 May 2002, the Board resolved to create a Remuneration Committee and approved an increase in the hours of Mr Goodall as Chief Operations Officer from 3 days to 4 days per week.[89]
  1. On 22 August 2002, the Board ratified a contract entered into between the plaintiff and QIMR relating to the acquisition of the services of Andreas Suhrbier as a consultant.[90]
  1. On 19 September 2002, the Board noted that the services of two doctors had been terminated and that they would be requesting a payout of their contracts. The Board specifically noted the “potential liability is approximately $205,000”. Further, on 19 September 2002, the Board authorised the appointment of Dr Suhrbier to the Scientific Advisory Panel of the plaintiff.[91]
  1. Staff salaries, job descriptions and career paths were advised as being reviewed by Mr Goodall as Chief Operations Officer at the Board meeting on 20 May 2004.[92]
  1. On 24 June 2004 the Board noted that Dr Hanisch agreed to become an employee of the plaintiff with a salary of $250,000 plus superannuation. It was agreed by the Board that Dr Hanisch’s contractor’s fees would be increased to $250,000.[93] At the next Board meeting on 29 July 2004, the employee salary and increased contractor’s fees were “reconfirmed”.[94] The employment contract of Dr Hanisch was both tabled and adopted by the Board at its meeting on 26 August 2004[95] and on 8 November 2004.[96]
  1. At the Board meeting on 2 February 2006, the Board resolved upon the following matters in relation to remuneration and fees:[97]

Directors Fees: It was agreed that the Chairman’s fees would be set at $75,000 PA and non-executive directors’ fees would be set at $50,000 PA plus superannuation. Directors could choose to take lessor fess [sic] but change consulting fees. These were to take effect from 1 February 2006.

Managing Directors Fees: These were to be increased to $275,000 per annum, effective 1 February 2006

Executives: Executive salaries were discussed and the Managing Directors recommendations were accepted”

  1. The Board meeting minutes on 18 July 2007, signed by Mr Jones, refer to remuneration reviews and fees paid to directors:[98]

Remuneration review: A list of staff remuneration increases (attached to these minutes) was tabled. Following discussion the directors resolved to approve the proposed increases.

Fees: One off $50,000 fee payments to Dr G Ando, Dr Peter Coors and Dr John Funder (AO) were approved.”

Issues arising from the pleadings

The plaintiff

  1. The plaintiff alleges the defendants did not act in good faith, in its best interests, or for a proper purpose, and that they used their position as directors improperly “to gain an advantage for themselves or someone else”.
  1. The plaintiff contends the termination payments resulted from a mistake of law or fact on the part of the plaintiff, and that the plaintiff is entitled to restitution on the basis of the unjust enrichment of the defendants.
  1. The plaintiff alleges breach by the defendants of their fiduciary duties as directors, and of ss 180(1), 181(1), and 182(1) of the Corporations Act 2001 (Cth).
  1. The plaintiff claims an account of profits, alternatively equitable compensation, and compensation under s 1317H of the Corporations Act 2001 (Cth).
  1. On the basis the new contracts were ineffectual, the plaintiff additionally relies on its entitlement to withhold fees should the executive not give the requisite termination notice – that is, under the previous contract, which was, at least six months’ notice. The deponent Melanie Farris confirms payment to Mr Yeates of $12,640.45 (the “termination pay payment”, direct payment, superannuation and tax paid on his behalf to ATO), and to Mr Greig, $8,512.87 (direct, superannuation and tax) (in the second further amended statement of claim larger amounts are referred to, but are not pursued in the written submissions).

The director defendants

  1. The defendants’ pleadings are similar. It is not necessary that I traverse here the content of the defences, because that will be covered in my treatment of the evidence of the director/defendants.
  1. But I should mention that the defendants raise counter-claims for the 80 per cent balance of the cash bonus payments, on the basis the criteria for payment of that balance were met.
  1. The plaintiff relies, in answer, on the rescission on 10 November 2011 of the Board resolution (as to the payment of executive bonuses) of 1 September 2011. Had the 1 September 2011 resolution subsisted, the defendants’ entitlements depended, it is asserted, on their remaining as directors, which was not the case (they resigned on 26 October 2011).

The insurer third party

  1. The third party resists the claim against it on the basis the defendants’ claims amount to an “employment related benefit” excluded by cl 4.20 of the relevant policies; or that cl 3.1 of the policies operates to exclude the insurer’s liability, because of an established contravention of s 199B(1) of the Corporations Act 2001 (Cth), or deliberate dishonesty or fraud (in either case as established by the court).[99]

A broad statement of major issues

  1. Speaking very broadly for the moment, the defendants seek to support their relevant contracts on the basis board approval was not needed, because of an agreement among the directors in the year 2000, and the “conventional” way of transacting such business in this company, which fitted in with the way these contracts were effected.  Further, the legitimacy of the contracts, it was asserted, was vindicated by the lack of query on independent audit (by Ernst and Young), or by solicitors engaged in reviewing the company’s operations in another context (McCullough Robertson).
  2. The defendants emphasized that these contracts, obviously very beneficial to them, were set in place at a time when they were personally at considerable risk for their support of a company of doubtful solvency, and where their past and continuing devotion to the company was exacting both for themselves and for their families; and that they were necessary to forestall destabilizing resignations by directors.
  3. Nevertheless the first question to be determined is whether the amended contracts were lawfully effected.  The pleadings show the various theories which bear on that, by reference to authority, breach of statutory duty, breach of fiduciary duty, and so on. 

Whether the directors agreed in 2000 to delegate board powers to themselves respectively

  1. I earlier covered what I termed “uncontroversial facts”. The controversy in the case arose from the evidence of the defendant directors, and concerned not so much what occurred, as how it should be assessed. I deal now with the position of each defendant director.

The position of Mr Jones

  1. Mr Jones gave evidence of an unminuted oral agreement he reached with the other directors in the year 2000, Dr Hanisch and Mr Goodall, that any of them, acting alone, could exercise the authority of the Board, subject only to the company’s constitution and to their acting lawfully and properly.  Mr Jones relied on this as justification for the respective directors committing the company to the contracts in issue in the proceeding, notwithstanding their not having been approved by the Board.  Mr Jones acknowledged that he did not tell anyone else about this agreement, including the auditors and McCullough Robertson who conducted the due diligence process precedent to the public listing of the company.
  2. It must be said that Mr Jones’s evidence about this arrangement, which would ordinarily be considered unusual, was vague and on my assessment, unconvincing.
  3. Mr Jones’s claim was inconsistent with the only other evidence on this (the non-executive directors did not give evidence), being the oral evidence of Dr Hanisch (the overriding principle was that everything had to be agreed to by the Board) and Mr Goodall (anything financial had to be agreed to at Board level).  Each of them denied there was a meeting in 2000 at which any such delegation was agreed.  Mr Jones strongly challenged the credibility of each of them.
  4. I accepted however the evidence of Dr Hanisch, which was relevantly to the effect that decisions at this level were for the Board, not individual directors.  There was extensive cross-examination of Dr Hanisch, but I did not consider it otherwise bore on the resolution of the matter.  I considered Dr Hanisch a credible witness.
  5. I also accepted the evidence of Mr Goodall, an original director and Chief Operational Officer of the plaintiff company.  He gave no evidence which advanced the defendants’ contention that the respective directors were authorized to establish the entitlements for which they now contend. 
  6. It is convenient to mention here that I also accepted the evidence of the current company secretary Ms Farris, who was asked about her knowledge of the amended contracts.  She did not become Company Secretary until April 2012.  Her incidental prior knowledge of the presently relevant events could not relevantly influence my determination of their significance.  Perhaps most relevantly, Ms Farris confirmed there was at no material time a “delegations manual” in existence, and I considered that tended to support the plaintiff company’s constitutional position, that all directors needed to join in decisions, at least those instrumental to the company’s operations, as were these.
  7. The documentary evidence sits uncomfortably with Mr Jones’s claim. 
  8. Exhibit 14 is a collection of minutes of Board meetings of the plaintiff.  They contain numerous instances where the Board, rather than a single director, concerned itself in authorizing employment contracts, including for executives, authorizing expenditure, authorizing the leasing of premises and so on.  This is inconsistent with the contention that a single director could effect such things (even if subject to the constitution of the company and the considerations of lawfulness and propriety).  Mr Jones suggested, when cross-examined about those entries, that they simply showed directors raising those matters at Board level notwithstanding there was no need for them to do so. 
  9. The minutes of 2 February 2006 are particularly significant, in that they show the Board approving (“accepting”) the Managing Director’s recommendations as to “executive salaries”.[100]  Also, there are the minutes of the meeting of 8 November 2004, where we see the Board “adopting” the tabled “managing director’s employment contract”.[101]
  10. Furthermore, inconsistently with his claim of devolution of authority by the Board to respective directors, Mr Jones signed as correct the financial reports for the years ended 30 June 2005, 2008 and 2010.  The reports for 2005 and 2008 include the statement, under the heading “corporate governance”, that “the Board determines the remuneration packages for executive directors and senior employees”.[102]  Under cross-examination Mr Jones said this would embrace delegation by the Board to individual directors, but I found that explanation unconvincing.
  11. In the report of 2010, there is the statement:  “All matters relating to the nomination of new directors and remuneration of directors and managers are dealt with by the Board as a whole”.[103]  Similarly, the prospectus for the public float specified (cl 3.2.5), as to matters which would otherwise be dealt with by a Remuneration Committee, that they were “being dealt with by the full Board”.[104]
  12. The minutes of a Board meeting on 1 September 2011 noted the establishment of a remuneration committee “to make recommendations to the Board concerning remuneration”.  In the annual report for the year ended 30 June 2011, signed by Mr Jones, there is the statement, “the Board is responsible for determining and reviewing compensation arrangements for the directors themselves, the CEO and executive team”.[105]   Later in that report, there is the statement:  “The Board as a whole was responsible for all matters relating to remunerations which would otherwise be attended to by a remuneration committee.  Subsequently to the end of the year, the Board formed a remuneration committee which will now be responsible for making recommendations to the Board on the remuneration arrangements for non-executive directors, executives and employees”.[106]
  13. These statements present a situation which is inconsistent with the contention that each director had authority on behalf of the Board to enter into contracts such as those in issue in this proceeding, and I reject the evidence given by the directors in support of such a position. 
  14. As to informing the solicitors who conducted the IPO process, if the 2000 agreement existed, the answer to question 57[107] (trial bundle volume 2 of 3, tab 34) given by Mr Jones to them was disingenuous, in not qualifying the Board’s involvement “in the major decisions affecting the company” by referring to such wide-ranging authority vested in the hands of individual directors.
  15. Mention may also be made here of the original defence exhibit 15, which pleaded (para 3) the agreement advanced at the trial by Mr Jones, particularizing five matters said to have been delegated on 11 October 2000 to him as director.  That pleading was withdrawn, on the basis Mr Jones had not authorized the pleading, and Mr Jones on 15 January 2014 complained about his then solicitors to the Legal Services Commission (exhibit 16).
  16. In his letter of complaint, Mr Jones said that the solicitor had “invented (the) alleged meeting”.  In his oral evidence, Mr Jones explained that his contention was that the directors had agreed to an even broader delegation than particularized in the original defence.[108]
  17. If so, reference to the “invention” of the alleged meeting was at least infelicitous.  Mr Jones may have become uncomfortable about contending for a meeting which he knew had not led to the delegation on which he now relies. 
  18. It is convenient to deal here with Mr Jones’s contention that the April changes did not materially affect the plaintiff’s interests.  They did, because they gave the defendants the right to terminate their contracts at once, and take 12 months’ remuneration, as occurred (six months on).  Having to pay 12 months’ remuneration for no return obviously affected the plaintiff’s interest.  Compared with the March position, under which the company was obliged to give 12 months’ notice of termination, the April changes in that way did confer additional financial benefit on the defendants to the detriment of the plaintiff.
  19. Then Mr Jones contended that the resignations of the directors anticipated the prospective removal of Mr Greig and him by shareholders under s 249D of the Corporations Act 2001 (Cth) at an extraordinary general meeting.  He contended, in effect, that it was the shareholder action which operated to pass the benefit to him.  The fact is it was the defendants’ termination of the contracts which crystallized the entitlements.  The reasons behind their terminations are not to the point.  What is relevant is how the April changes came about, and the defendants’ motivation discernible from those circumstances.  I return to this later.

The position of Mr Yeates

  1. In terms of the credibility of Mr Yeates, his response or lack of response, to a challenge in cross-examination,[109] to his claim the Board resolution of 25 March 2011 was not “of sufficient detail as to how the resolution was to be implemented”,[110] which bore on his consciousness that he lacked authority to do what he did, was unimpressive, and provides a good example of a range of matters which reflected poorly on his credibility.  Mr Yeates was often unprepared to provide direct answers to uncomplicated questions, and often took a defensive approach.  I mention also Mr Yeates’s claim in para 92 of his affidavit,[111] as to the requisite payments, that “all directors subsequently authorized for these payments to be made”.  That is untrue, and Mr Yeates would have appreciated it to have been untrue.  His response to the challenge to this under cross-examination[112] was unimpressive.
  2. Mr Yeates offered, as the sources of his authority to bind the company to the contracts, his contract as Managing Director, his position as Managing Director under the constitution, his implied authority as Managing Director, and the Board’s acquiescence in his actions. 
  3. As to the first matter, Mr Yeates said that his authority to change executive employment contracts stemmed from his power as CEO “to manage all aspects of (the plaintiff’s) business…”, in terms of schedule two to his contract.[113]  That would be an insufficient foundation for such specific authority.  Importantly also, that schedule to the contract, under the heading “Authorities (financial/staffing/policy)”, specifies, “as delegated by the Board”,[114] and Mr Yeates could point to no relevant delegation.
  4. As to Board approval, Mr Yeates relied on the Board’s signing off on the annual financial reports, suggesting that the Board had no problem with his having concluded executive contracts.  But other than Mr Jones and the other defendant directors, the non-executive directors had not been informed of the presently relevant changes which had been made. 
  5. As to board acquiescence more generally, there is no evidence the Board knowingly endorsed what had occurred in April, and there is no evidence the defendants were awaiting such endorsement before exercising their newly enlarged power of termination.
  6. As to Mr Yeates’s ostensible or implicit authority, it is extraordinary to think that he could as CEO, together with the other defendant directors, authorize, without Board involvement, contracts which conferred substantial potential personal benefit on himself and themselves.  I refer below to cl 13.7(b) of the October 2009 constitution.[115]
  7. As to the approach of his predecessor CEO, Dr Hanisch, that did not involve the authorizing of contracts such as these. 
  8. Insofar as Mr Yeates relied in his defence on a sub-delegation by Mr Jones (para 3 exhibit 20, and also see paras 11 and 13 of Mr Yeates affidavit), I have already rejected Mr Jones’s claim to have received an effective delegation at the meeting of directors in 2000.  In his oral evidence, Mr Yeates appeared to diminish his reliance on any such sub-delegation from Mr Jones as being a basis for his authority.
  9. As to the company’s constitution, there was no relevant authority (relevant, that is, to these actions) “conferred” on Mr Yeates as Managing Director by the Board (cl 29.3 constitution).[116]  (I also note, in passing, cl 29.2 which provides that it is for the Board to determine a Managing Director’s remuneration.)
  10. A similar position obtained under the later constitution (of October 2009) at cl 17.1,[117] and there was no specific conferral of presently relevant powers, by the Board, upon the managing director.  (I also note cl 13.7(b) of that constitution, which prevents a director from voting in respect of any contract in which he had a personal interest, which would militate against there being authority in these directors to conclude these arrangements without board involvement.)[118]

The position of Mr Greig

  1. The tenability of the way Mr Greig approached the issue may be considered in light of the way Mr Greig dealt with the variation for Mr Jones’s company. Mr Greig was the Chief Financial Officer and Financial Director of the plaintiff.
  1. Purportedly on behalf of the plaintiff company, as Finance Director and CFO, Mr Greig agreed to the new contract for Mr Jones’s company on the basis it was necessary to ensure that Mr Jones remained within the plaintiff. He submitted that was his “proper purpose”.
  1. Mr Greig agreed to it after a couple of hours’ consideration, and without having taken external advice, notwithstanding the new arrangement would expose the company to a potential liability exceeding $400,000.
  1. The fallacy in Mr Greig’s approach was that the new provision could not guarantee his object – retaining Mr Jones within the plaintiff company, but by contrast, created the temptation which, if yielded to, could produce quite the opposite result: that through his company, Mr Jones would resign and demand 12 months’ remuneration.
  1. I have given protracted consideration to whether Mr Greig was dishonest in this. In the end, I am strongly influenced – against him, by my view that it was so obvious this change should have been taken to the Board that Mr Greig as an experienced businessman must have appreciated that.
  1. There are these additional matters.
  1. Mr Greig was evasive when cross-examined[119] about why he did not inform the Board of the arrangement to which the defendants came in April.  He acknowledged it was a material matter relevant to the financial position of the plaintiff.  But he did not adequately explain why he did not inform the directors of the matter.  Mr Greig was an experienced chartered accountant and company director.  That he was not candid with the whole Board about this matter is consistent with what I regrettably conclude – his having wished to keep the matter from the Board, in his own personal financial interests.  Mr Greig emotionally rejected that position, under cross-examination.  He may have convinced himself he was acting rightly and honourably.  But as I have said, that possibility falls to be measured against the plain wrongness of what was being set in place.
  1. Mr Greig acknowledged that the statement in the 2011 annual Report[120] that, with relation to executive contracts, “notice periods vary depending on the period of service and the level of seniority of the executive”, was inaccurate.  It was plainly inaccurate in relation to the three defendant directors, concerning the April variations to their contractual position, where there was no discrimination among them in relation to those aspects, and they were given the blanket right to terminate with 12 months’ remuneration immediately payable.
  1. Under cross-examination by Mr Hodge,[121] Mr Greig held strongly to his assertion of authority to bind the plaintiff to these contracts (as CFO via the CEO and Managing Director).  When tested, he conceded that a change to the termination period (for termination, that is, by the plaintiff) which the Board had ordained in March 2011, would have to go to the Board.  Yet he held to the position that the individual directors had authority themselves to set up other benefits for themselves, such as those established here in April, because such benefits concerned what he presented as a different issue – termination not by the plaintiff company, but by the individual director.  I considered that to be an untenable distinction.  The relevant issue was termination (generally) of executives’ contracts.
  1. It is also worth noting the proposed “circular resolution” of 14 April 2011, in relation to the issue of performance rights to directors and executives, increasing the units from 4.2 million to 7.2 million. Mr Greig acknowledged that such a resolution could have been taken to the Board in relation to the instant contractual amendments, but he would say that that was unnecessary because the respective directors had power to bind the company without Board involvement. While it is true that the issue of shares was a matter for the Board, it would be odd were changes which exposed the company to these substantial contingent liabilities not to be dealt with similarly. Also, it is significant that the explanation to the Board for that resolution made no mention of what had occurred just the day before.
  1. In case it become relevant, in an area of difference in the accounts of the defendants, I preferred the evidence of Mr Greig as to dealings among them in early April 2011 as to the effecting of the changes of the contracts.

The character of the defendants’ actions in effecting these amended contracts

  1. A number of features point in the direction of a conclusion that the conduct of the three directors was, as they knew, discreditable.
  1. First there is the issue of what led the directors to take the presently impugned course.  Mr Jones would as necessary have relied on the so-called “Hanisch precedent” to circumvent the prospect of the shareholders dooming, in relation to them, the performance rights proposal.  It was the actions of the shareholders which prompted (but did not cause) the contract revisions.  The defendants secured and agreed in these changes to their contracts at a time when there had been vocal expression of shareholder concern about the existing level of directors’ remuneration.  Yet they did so without taking the matter to the Board, in the context of the Board’s having only recently directed a change to the notice period to be given by the company upon termination under the preceding contracts.
  1. The performance rights issue was tied to variation to the employment contracts.  On 13 April 2011, the defendant directors agreed contracts would be drawn up as in fact eventuated.  The so-called “circular resolution” was sent to the Board on 14 April 2011 as to the performance rights issue, but the defendants did not inform the Board of what had happened the day before – involving as it did such a departure from the notice position resolved upon by the Board in March 2011.  The two issues being so closely connected, they plainly should have informed the Board of the contract changes when advancing the case for an increase in performance rights from 4.2 million to (the substantially higher level of) 7.2 million.
  1. Then there are the means by which these directors secured the contract revisions.  As part of that, the directors recused themselves from the Board meeting which approved the extension from 6 months to 12 months in relation to company termination, and they say or would say they did that on ethical grounds, but they later amended the contracts without reference to the Board in a way which allowed them all to resign and be paid 12 months’ remuneration.  Further, their method – Mr Jones agreed to the change to Mr Yeates’s contract, Mr Yeates to Mr Greig’s, and Mr Greig to that of SGB Jones – could hardly be considered arms-length, as Mr Greig in particular emphasized.  It rather suggests the contrary, that it was a collegial or corporate or complicit endeavour, done that way to avoid the alternative, which was separate Board endorsement.
  1. Then there is the directors’ treatment, including limited disclosure, of what they had secured.  The defendant directors did not advise the Board, over the six months prior to their resignation, of the changes which had been made six months earlier.
  1. The annual report for the year ended 30 June 2011, signed by Mr Jones, did not record what amounted to a “termination benefit” because of the revision of the contracts (notwithstanding its contingent character), in relation to the three defendant directors. 
  1. While minds may differ on this, I incline to the view it should have been specified, even though contingent.
  1. If I am right about that, and assuming Mr Jones should have considered the information should be included, then that omission would be consistent with Mr Jones’s and Mr Yeates’s not having informed the auditors or the other directors of what had occurred with the revision of the contracts in April 2011.

I acknowledge there is a provisional aspect of this view.

  1. Indeed, Mr Jones signed off on that report which included an assertion that “board members are fully informed on relevant issues in a timely manner”.[122]  Mr Jones did not achieve that goal.  He said the Board had acquiesced in what had been done, but that point is hollow in circumstances where the defendant directors had not informed their fellow non-executive directors of what they had done.
  1. Especially where the solvency of the company was doubtful, not informing the Board of the creation of a potential liability of this magnitude (more than $1 million), and where the defendant directors were themselves the beneficiaries, was, quite apart from the matter of authority, discreditable.  It was a clear breach of the obligation to keep the full Board informed of all matters relevant to its role; “ensuring that Board members are fully informed on relevant issues in a timely manner”.[123]

Summary

  1. The position in summary was this.
  1. The defendant directors were concerned about their security should a major pharmaceutical company become involved with the plaintiff. The Board responded by extending to 12 months the notice period for termination by the plaintiff company of their contracts.
  1. The defendants also sought performance rights, but because the shareholders would not countenance that, the defendants took that matter to the Board.
  1. Dissatisfied with the level of security being achieved, the defendant directors arranged for new contracts giving them the right to resign whereupon they would be paid 12 months’ remuneration. In response to a submission from Mr Jones, and as previously explained, that greatly enhanced their position: they could resign at once and take 12 months’ remuneration, whereas under a company termination, they would have to work out the notice period.
  1. Those who purportedly bound the plaintiff to those contracts had no authority to do so. In purporting to do so, they breached their duty as directors and their fiduciary duty.
  1. Inferentially, the defendant directors by-passed the Board because they surmised the Board would not agree. Consistently, they did not disclose to the Board what they had done.
  1. After six months, they resigned and sought payment of the sums allegedly due to them. That payment was made does not bind the plaintiff, because the full Board was not aware of what the defendants had done in April: the defendants had kept that information from their fellow Board members.
  1. The defendant directors were patently obliged to inform their fellow directors of those matters, especially where the solvency of the plaintiff was in doubt, the contingent liability was so substantial, and the defendants were themselves the potential beneficiaries.
  1. I draw the inference, which I say is clear and reasonable, that they wanted to establish this “entitlement” and realize upon it with no notice to the full Board. Knowing this matter should have gone to the Board, the defendant directors should be seen as having acted dishonestly, in dereliction of their duties as directors.
  1. I conclude that the defendants (obviously) knew of the Board resolution of 25 March 2011, and must have appreciated that the April changes greatly enhanced their potential benefit. They also appreciated that the authority of a director was subject to any Board direction (para 52B further amended statement of claim, which was admitted). By its March resolution the Board was “occupying the field” of termination. (Even if Mr Yeates as Managing Director had the implied authority he claims he had, it could not have survived this assertion of full Board authority.) I conclude also that the defendants were acting in concert in April, and that they knew this matter should have gone to the Board, so that ipso facto, they knew they lacked actual authority to effectuate this alone.
  1. The defendants owed fiduciary duties to the plaintiff, to avoid conflict of duty and interest and not take advantage of their position to secure a personal benefit (Chan v Zacharia (1984) 154 CLR 178, 198-9).  Also, in relation to s 180 (director exercising reasonable care and diligence), see Shafron v Australian Securities and Investments Commission (2012) 247 CLR 465, 476 and for s 181 (good faith in the interests of the company) of the Corporations Act 2001 (Cth), see Permanent Building Society (in liq) v Wheeler & Ors (1994) 14 ACSR 109, 137.  As to s 182 (prohibition on using position to gain personal advantage “for themselves or someone else”), see R v Byrnes (1995) 183 CLR 501, 514-5 and Australian Securities and Investments Commission v Adler & Ors (2002) 168 FLR 253, 365.
  1. For reasons already developed, the defendants breached these common law and statutory duties: the fiduciary duty, by taking advantage of the position of director to obtain a personal benefit; as to s 180, because a reasonable person would not have made such a contract or accepted payment pursuant to it; under s 181, because of the absence of good faith and proper purpose; and as to s 182, because they used their position to gain an advantage for themselves (or their co-defendants).

Relief

  1. Under s 1317H of the Corporations Act 2001 (Cth), the plaintiff is entitled to compensation for the breaches of statutory duty.  The plaintiff is also entitled to equitable compensation for breach of fiduciary duty.
  1. The plaintiff seeks:
  1. orders that Mr Jones and Mr Yeates each pay compensation of $1,050,328.99, the total of the payments made; and
  1. in the case of Mr Greig, an order for the payment of $678,999.99, the total of the payments to himself and Mr Jones’s company.

I have taken those amounts from Mr Hodge’s written submissions.

The amounts being claimed from Mr Jones and Mr Yeates are $220,000, $371,329 and $458,999.99, which add to $1,050,328.99.

The amounts being claimed from Mr Greig are $458,999.99 and $220,000, which add to $678,999.99.

It appears the GST is not being pursued: see para 50 above.

The plaintiff also seeks restitution:

  1. from Mr Yeates, in the amount of $371,329, and the “final wages” of $12,640.45; and
  1. from Mr Greig, in the amount of $220,000 and the “final wages” of $8,512.87.
  1. Because the 2011 contractual changes were ineffective, the 2006 contracts subsisted.
  1. The payments were premised on the applicability of the 2011 changes. That was the operative mistake. Because the notice required by the 2006 contracts was not given, the plaintiff was entitled to withhold the “final wages”. I accept they equate to “termination pay” within the contracts, being amounts payable on due termination of the contract.
  1. The defendants invoke ss 1317S and 1318 of the Corporations Act 2001 (Cth) for relief from liability, but cannot, for reasons already expressed, satisfy the criteria of honesty, or fairness (cf. Gillfillan v Australian Securities and Investments Commission (2012) 92 ACSR 460, 529).
  1. In these circumstances, the relief sought by the plaintiff should be granted (subject to any necessary correction of the amounts).

The counter-claim

  1. The counter-claim, for the cash bonuses, should fail, for these reasons.
  1. The resolution of 1 September 2011 was rescinded by the Board on 10 November 2011. The Board was entitled to do that. The earlier resolution bore no contractual complexion. The defendants’ rights under the September resolution were effectively cancelled in November.
  1. In any event, assuming satisfaction of the condition in July 2012, the circumstance of the defendants’ earlier resignations as directors denied them the bonuses. See the Explanatory Memorandum under the heading: “Termination of Directorship”.[124]

The third party claim

  1. The defendants seek indemnity under the plaintiff’s directors and officers liability insurance policy. The third party, resisting the claim which it has declined, relies on this exclusion provided for by cl 3.1:

3.Exclusions

The Insurer shall not be liable under any Cover or Extension for any Loss:

3.1Conduct

arising out of, based upon or attributable to:

(i)any conduct or contravention in respect of which a liability is the subject of a prohibition in section 199B(1) of the Corporations Act 2001 (Commonwealth); or

(ii)the committing of any deliberately dishonest or deliberately fraudulent act;

In the event that any of the above is established by final adjudication of a judicial or arbitral tribunal or by any formal written admission by the Insured Person.

For the purposes of determining the applicability of this Exclusion 3.1, the conduct of any Insured shall not be imputed to any other Insured Person.”

Section 199B(1) of the Corporations Act provides:

Insurance premiums for certain liabilities of director, secretary, other officer or auditor

(1)A company or a related body corporate must not pay, or agree to pay, a premium for a contract insuring a person who is or has been an officer or auditor of the company against a liability (other than one for legal costs) arising out of:

(a)conduct involving a wilful breach of duty in relation to the company; or

(b)a contravention of section 182 or 183.

This section applies to a premium whether it is paid directly or through an interposed entity.

(2)An offence based on subsection (1) is an offence of strict liability.”

Section 182 of the Corporations Act is in these terms:

Use of position –civil obligations

Use of position—directors, other officers and employees

(1)A director, secretary, other officer or employee of a corporation must not improperly use their position to:

(a)gain an advantage for themselves or someone else; or

(b)cause detriment to the corporation.

Note:This subsection is a civil penalty provision (see section 1317E).

(2)A person who is involved in a contravention of subsection (1) contravenes this subsection.”

  1. The third party also relies on the requisite amounts, being “employment related benefits” which are excluded from the policy definition of the “loss” which may be recovered from an “insured person”.
  1. Mr Yeates and Mr Greig were employees, whereas Mr Jones was Chairman of the Board and a director. His company provided the consultancy services.
  1. Being a director, Mr Jones was an “insured person”, and he is subject to a “claim” alleging a “wrongful act”, defined to include an “employment practices breach”. That term is defined, in turn, to cover acts of the insured person “with respect to any employment of any past, present, future or prospective employee”.
  1. Because that applies here, Mr Jones is subject to a “claim” within the meaning of the policy. It remains for determination, however, whether the claim concerns “employment related benefits” so as to be excluded under the definition of “loss”. The benefit went to Mr Jones’s company, which was not employed by the plaintiff, but was retained to render consultancy services.
  1. I therefore doubt that this exclusion applies to Mr Jones.
  1. I am however satisfied that the amounts being recovered by the plaintiff from Mr Yeates and Mr Greig are “employment related benefits”, within the definition of “loss” under the policy, notwithstanding they were improperly gained.
  1. In any event, the third party may rely against each defendant on the exclusion under cl 3.1, because of what I have found to be the deliberately dishonest conduct of the defendants. Also, the policy effectively excludes cover for liabilities arising out of conduct involving wilful breach of duty to the company (here, the fiduciary duty), or contravention of s 182 of the Corporations Act 2001 (Cth).
  1. The third party claims fail.

Conclusion

  1. I publish these reasons, and invite the parties to seek to agree on minutes of judgment. If costs are to be debated, written submissions would be appropriate. If these matters cannot be managed by agreement, the matter should be relisted before me, through an approach to my Associate. The parties are I know conscious these administrative matters must be finalized well in advance of my intended resignation from the court on 8 July 2014.

Footnotes

[1] Exhibit 1, Trial Bundle, vol 1, tabs 6, 7.

[2] Exhibit 1, Trial Bundle, vol 1, tab 7.

[3] Exhibit 1, Trial Bundle, vol 1, tab 6.

[4] Exhibit 1, Trial Bundle, vol 1, tab 2, p 24.

[5] Exhibit 1, Trial Bundle, vol 1, tab 9, p 1.

[6] Exhibit 1, Trial Bundle, vol 1, tab 10, pp 1-2.

[7] Exhibit 1, Trial Bundle, vol 1, tab 10, p 4.

[8] Exhibit 1, Trial Bundle, vol 1, tab 3, pp 20, 22.

[9] Exhibit 1, Trial Bundle, vol 1, tab 4, pp 1, 25.

[10] Exhibit 1, Trial Bundle, vol 1, tab 13.

[11] Exhibit 1, Trial Bundle, vol 1, tab 13, p 3.

[12] Exhibit 1, Trial Bundle, vol 1, tabs 11, 12.

[13] Exhibit 1, Trial Bundle, vol 1, tab 12, p 3.

[14] Exhibit 1, Trial Bundle, vol 1, tab 14.

[15] Exhibit 1, Trial Bundle, vol 1, tab 14, p 3.

[16] Exhibit 1, Trial Bundle, vol 1, tab 15.

[17] Exhibit 8, Affidavit of Wolfgang Helmut Hanisch affirmed 23 April 2014, exhibit WH-1, Executive Services Agreement between CBio Limited and Wolfgang Helmut Hanisch, pp 6-7 (court document number 149).

[18] Exhibit 13, Affidavit of Stephen George Burch Jones affirmed 28 April 2014, [21] (court document number 151); Transcript of Proceedings, 2-58, 2-76.

[19] Exhibit 13, Affidavit of Stephen George Burch Jones affirmed 28 April 2014, [21], [22] (court document number 151).

[20] Second Further Amended Defence of the Second Defendant dated 17 February 2014, [24C] (court document number 129).

[21] Exhibit 1, Trial Bundle, vol 2, tab 37, p 1.

[22] Exhibit 1, Trial Bundle, vol 2, tab 47.

[23] Exhibit 1, Trial Bundle, vol 2, tab 51.

[24] Exhibit 1, Trial Bundle, vol 2, tab 52.

[25] Exhibit 1, Trial Bundle, vol 2, tab 53, p 5.

[26] Exhibit 1, Trial Bundle, vol 3, tab 61.

[27] Exhibit 1, Trial Bundle, vol 3, tab 62.

[28] Exhibit 1, Trial Bundle, vol 3, tab 63.

[29] Exhibit 1, Trial Bundle, vol 3, tab 65.

[30] Exhibit 1, Trial Bundle, vol 3, tab 64.

[31] Exhibit 1, Trial Bundle, vol 3, tab 64, p 3.

[32] Exhibit 1, Trial Bundle, vol 3, tab 66.

[33] Exhibit 1, Trial Bundle, vol 3, tabs 66, 67, p 3.

[34] Exhibit 1, Trial Bundle, vol 3, tab 67, p 3.

[35] Exhibit 1, Trial Bundle, vols 2, 3, tabs 56, 58.

[36] Exhibit 1, Trial Bundle, vol 3, tab 59.

[37] Exhibit 1, Trial Bundle, vol 3, tab 68.

[38] Exhibit 1, Trial Bundle, vol 3, tab 69.

[39] Exhibit 1, Trial Bundle, vol 3, tab 70.

[40] Exhibit 1, Trial Bundle, vol 3, tab 72.

[41] Exhibit 6, signed Minutes of the Board Meeting of the plaintiff on 11 October 2011, p 1.

[42] Exhibit 6, signed Minutes of the Board Meeting of the plaintiff on 11 October 2011, p 1.

[43] Exhibit 1, Trial Bundle, vol 3, tab 82.

[44] Exhibit 1, Trial Bundle, vol 3, tab 83.

[45] Exhibit 1, Trial Bundle, vol 3, tab 84.

[46] Exhibit 1, Trial Bundle, vol 3, tab 85.

[47] Exhibit 1, Trial Bundle, vol 3, tab 84.

[48] Exhibit 1, Trial Bundle, vol 3, tab 86.

[49] Exhibit 1, Trial Bundle, vol 3, tab 93, p 2.

[50] Exhibit 1, Trial Bundle, vol 3, tab 93, p 1.

[51] Exhibit 1, Trial Bundle, vol 3, tab 90.

[52] Exhibit 1, Trial bundle, vol 3, tab 94, pp 1-2.

[53] Exhibit 1, Trial Bundle, vol 3, tab 94, p 1.

[54] Exhibit 1, Trial Bundle, vol 3, tabs 103-104.

[55] Exhibit 1, Trial Bundle, vol 3, tabs 137, 139.

[56] Exhibit 3, Affidavit of Melanie Farris sworn 24 April 2014, p 5 (court document number 148).

[57] Exhibit 3, Affidavit of Melanie Farris sworn 24 April 2014, p 6 (court document number 148).

[58] Exhibit 1, Trial Bundle, vol 3, tab 110.

[59] Exhibit 1, Trial Bundle, vol 3, tab 124.

[60] Exhibit 1, Trial Bundle, vol 3, tab 125.

[61] Exhibit 1, Trial Bundle, vol 3, tabs 129, 135; Exhibit 3, Affidavit of Melanie Farris sworn 24 April 2014, p 7 (court document number 148).

[62] Exhibit 1, Trial Bundle, vol 3, tab 111.

[63] Exhibit 1, Trial Bundle, vol 2, tab 51.

[64] Exhibit 1, Trial Bundle, vol 2, tab 51, pp 50-51.

[65] Exhibit 1, Trial Bundle, vol 2, tab 53, p 3.

[66] Exhibit 2, Third Party’s Trial Bundle, pp 1-4.

[67] Exhibit 1, Trial Bundle, vol 3, tab 73.

[68] Exhibit 1, Trial Bundle, vol 3, tab 73, pp 1-3.

[69] Exhibit 1, Trial Bundle, vol 3, tab 73, p 10.

[70] Exhibit 1, Trial Bundle, vol 3, tab 73, p 13.

[71] Exhibit 1, Trial Bundle, vol 3, tab 73, p 11.

[72] Exhibit 1, Trial Bundle, vol 3, tab 73, p 14.

[73] Exhibit 1, Trial Bundle, vol 3, tab 75.

[74] Exhibit 1, Trial Bundle, vol 3, tab 75.

[75] Exhibit 1, Trial Bundle, vol 3, tab 76.

[76] Exhibit 1, Trial Bundle, vol 3, tab 80, p 2.

[77] Exhibit 1, Trial Bundle, vol 3, tab 120.

[78] Exhibit 1, Trial Bundle, vol 3, tab 118.

[79] Exhibit 1, Trial Bundle, vol 3, tab 122.

[80] Exhibit 1, Trial Bundle, vol 3, tab 123.

[81] Exhibit 1, Trial Bundle, vol 3, tab 138, pp 2, 4.

[82] Exhibit 1, Trial Bundle, vol 3, tab 138, p 3.

[83] Transcript of Proceedings, 3-56.

[84] Exhibit 14, Minutes of Meeting, tab 1.

[85] Exhibit 14, Minutes of Meeting, tab 2.

[86] Exhibit 14, Minutes of the Board Meeting of CBio Ltd on 15 June 2001, p 1.

[87] Exhibit 14, Minutes of the Board Meeting of CBio Ltd on 17 August 2001, p 2.

[88] Exhibit 14, Minutes of the Board Meeting of CBio Ltd on 31 August 2001, p 3.

[89] Exhibit 14, Minutes of the Board Meeting of CBio Ltd on 3 May 2002, pp 5-6.

[90] Exhibit 14, Minutes of Meeting, tab 5, p 2.

[91] Exhibit 14, Minutes of Meeting, tab 6, p 1.

[92] Exhibit 14, Minutes of Meeting, tab 13, p 1.

[93] Exhibit 14, Minutes of Meeting, tab 14, p 3.

[94] Exhibit 14, Minutes of Meeting, tab 15, p 2.

[95] Exhibit 14, Minutes of Meeting, tab 16, p 2.

[96] Exhibit 14, Minutes of Meeting, tab 17 p 2.

[97] Exhibit 14, Minutes of Meeting, tab 24, p 2.

[98] Exhibit 14, Minutes of the Board Meeting of CBio Ltd on 18 July 2007, p 2.

[99] Exhibit 2, Third Party’s Trial Bundle, pp 10, 13.

[100] Exhibit 14, Minutes of Meeting, tab 24, p 2.

[101] Exhibit 14, Minutes of Meeting, tab 17, p 2.

[102] Exhibit 17, Invion Annual Reports, 2005 Annual Report p 9; 2008 Annual Report, p 19.

[103] Exhibit 17, Invion Annual Reports, 2010 Annual Report, p 13.

[104] Exhibit 1, Trial Bundle, tab 28, p 25.

[105] Exhibit 17, Invion Annual Reports, 2011 Annual Report, p 13.

[106] Exhibit 17, Invion Annual Reports, 2011 Annual Report, p 22.

[107] Exhibit 1, Trial Bundle, vol 2, tab 34, p 7.

[108] Transcript of Proceedings, 4-28, 4-29.

[109] Transcript of Proceedings, 5-57 – 5-51.

[110] Exhibit 19, Affidavit of Jason Richard Yeates filed 28 April 2014, [58] (court document number 150).

[111] Exhibit 19, Affidavit of Jason Richard Yeates filed 28 April 2014, [92] (court document number 150).

[112] Transcript of Proceedings, 5-70 – 5-73.

[113] Exhibit 1, Trial Bundle, vol 1, tab 15, p 8.

[114] Exhibit 1, Trial Bundle, vol 1, tab 15, p 8.

[115] Exhibit 1, Trial Bundle, vol 1, tab 4, p 20.

[116] Exhibit 1, Trial Bundle, vol 1, tab 3, p 22.

[117] Exhibit 1, Trial Bundle, vol 1, tab 4, p 23.

[118] Exhibit 1, Trial Bundle, vol 1, tab 4, p 20.

[119] Transcript of Proceedings, 6-39 – 6-42.

[120] Exhibit 17, Invion Annual Reports, 2011 Annual Report, p 26.

[121] Transcript of Proceedings, 6-53 – 6-57.

[122] Exhibit 17, Invion Annual Reports, 2011 Annual Report, p 10.

[123] Exhibit 17, Invion Annual Reports, 2011 Annual Report, p 10.

[124] Exhibit 1, Trial Bundle, vol 3, tab 73, p 14.

Close

Editorial Notes

  • Published Case Name:

    Invion Limited v SGB Jones Pty Ltd & Ors

  • Shortened Case Name:

    Invion Limited v SGB Jones Pty Ltd

  • MNC:

    [2014] QSC 97

  • Court:

    QSC

  • Judge(s):

    de Jersey CJ

  • Date:

    04 Jun 2014

  • White Star Case:

    Yes

Litigation History

Event Citation or File Date Notes
Primary Judgment [2014] QSC 97 04 Jun 2014 -
Appeal Determined (QCA) [2015] QCA 100 12 Jun 2015 -
Application for Special Leave (HCA) File Number: B37/15 09 Jul 2015 -
Application for Special Leave (HCA) File Number: B39/15 13 Jul 2015 -
Special Leave Refused [2015] HCASL 177 04 Nov 2015 -

Appeal Status

{solid} Appeal Determined - {hollow-slash} Special Leave Refused (HCA)