CellOS Software Ltd v Huber
[2018] FCA 2069
•20 December 2018
FEDERAL COURT OF AUSTRALIA
CellOS Software Ltd v Huber [2018] FCA 2069
File number: VID 951 of 2015 Judge: BEACH J Date of judgment: 20 December 2018 Catchwords: CORPORATIONS – securities – share scheme – equity capital raising opportunity – director setting up secondary market in shares – grey market in shares – breach of director’s duties – ss 181 to 183 of the Corporations Act 2001 (Cth) – breach of fiduciary duties – use of off-shore corporations – diversion of business opportunity – action by director to divert direct investment – discussion of Beam v Stewart 833 A 2d 961 (Del Ch, 2003) – limitations on equity capital raising under Singaporean law – ss 2(2), 240(1), 272A, 272B, 274 and 275 of Securities and Futures Act (Singapore, cap 289) – related party transactions – related party loans – non-disclosure of interest – conversion options under loans – uncommerciality of terms – strike price for conversion option less than market value – accessorial liability of other participants Legislation: Companies Act (Singapore, cap 50)
Corporations Act 2001 (Cth) ss 79, 181, 182, 183, 195, 208, 228
Securities and Futures Act (Singapore, cap 289) ss 2(2), 240(1), 272A, 272B, 274, 275
Securities and Futures (Offers of Investments) (Shares and Debentures) Regulations (Singapore)
Cases cited: Ancient Order of Foresters in Victoria Friendly Society Ltd v Lifeplan Australia Friendly Society Ltd (2018) 360 ALR 1
Beam v Stewart 833 A 2d 961 (Del Ch, 2003)
Furs Ltd v Tomkies (1936) 54 CLR 583
Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296
Hasler v Singtel Optus Pty Ltd (2014) 87 NSWLR 609
Howard v Federal Commissioner of Taxation (2014) 253 CLR 83
Medical Benefits Fund of Australia Ltd v Cassidy (2003) 135 FCR 1
Pereira v Director of Public Prosecutions (1988) 82 ALR 217
Prestige Lifting Services Pty Ltd v Williams (2015) 333 ALR 674
Regal (Hastings) Ltd v Gulliver [1967] 2 AC 134
The Zamora [1921] 1 AC 801
Warman International Ltd v Dwyer (1995) 182 CLR 544
Yorke v Lucas (1985) 158 CLR 661
Date of hearing: 11 to 15, 18 to 22 September 2017, 21 to 24 May, 12 and 13 June 2018 Registry: Victoria Division: General Division National Practice Area: Commercial and Corporations Sub-area: Commercial Contracts, Banking, Finance and Insurance Category: Catchwords Number of paragraphs: 1058 Counsel for the Applicant: Mr P Crutchfield QC with Dr COH Parkinson Solicitor for the Applicant: Corrs Chambers Westgarth Counsel for the First and Fifteenth Respondents: Mr DB Bongiorno (11 to 15, 18 to 22 September 2017) and thereafter these Respondents in person Solicitor for the First and Fifteenth Respondents: Grindal Patrick (11 to 15, 18 to 22 September 2017) Counsel for the Second, to Fourteenth Respondents: The Second to Fourteenth Respondents did not appear Counsel for the Seventeenth and Eighteenth Respondents: Mr D Crennan QC with Mr JDS Barber Solicitor for the Seventeenth and Eighteenth Respondents: Hall & Wilcox Counsel for the Nineteenth Respondent: Mr TI Purdey Solicitor for the Nineteenth Respondent: Landers & Rogers ORDERS
VID 951 of 2015 BETWEEN: CELLOS SOFTWARE LTD (ACN 114 670 094)
Applicant
AND: JASON JOSEPH EMMANUEL HUBER
First Respondent
BIRINC TRADE CORP
Second Respondent
SKY WEALTH INTERNATIONAL LTD (and others named in the Schedule)
Third Respondent
JUDGE:
BEACH J
DATE OF ORDER:
20 DECEMBER 2018
THE COURT ORDERS THAT:
1.The proceedings as against the seventeenth to nineteenth respondents be dismissed with costs.
2.The applicant and the first and fifteenth respondents within 28 days of the date of these orders file and serve short minutes of orders to give effect to these reasons and for the further conduct of these proceedings.
3.Costs reserved.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
BEACH J:
The applicant, CellOS Software Limited (CellOS), an Australian unlisted public company, is a software development company in the field of data analytics. CellOS has brought these proceedings against numerous respondents. Primarily it has brought these proceedings against its former chief executive officer and director, Mr Jason Huber, the first respondent. Mr Huber was CEO of CellOS from 19 December 2005 to 3 September 2015. He was a director from 19 December 2005 to 12 May 2010 and from 1 March 2012 to 3 September 2015.
CellOS alleges that Mr Huber carried out a scheme against it, and in carrying out this scheme breached various statutory and fiduciary duties owed to CellOS, particularly under ss 181, 182 and 183 of the Corporations Act 2001 (Cth). Broadly, CellOS alleges that the scheme carried out by Mr Huber consisted of the following steps.
At all relevant times CellOS was not generating sufficient revenue and was reliant upon new equity capital or debt funding to continue its operations and its business of software development. Mr Huber was personally responsible for securing this funding.
From late 2012, Mr Huber instructed a corporate secretarial services provider to establish a web of offshore companies registered in Belize, Panama, Anguilla, British Virgin Islands and Samoa, which Mr Huber was to control, and which were designed to disguise Mr Huber’s involvement in his planned scheme and in those vehicles. Mr Huber established a web of offshore companies to hold his CellOS shares (Huber controlled entities) with the corporate secretarial assistance of Mr Chua Min Wee and his company Grandeza Corporate Services Pte Ltd (Grandeza), a Singaporean company, and Mr Harveen Singh Narulla. The Huber controlled entities disguised Mr Huber’s involvement in what later occurred.
From at least late 2012, Mr Huber procured through these Huber controlled entities at least 47,872,063 CellOS shares from early investors in CellOS, without disclosing his involvement to the vendors or to CellOS; it is said that these transactions were entered into without CellOS’ knowledge. It is known that Huber controlled entities purchased 19,059,834 shares (out of 47,872,063 shares transferred from private investors) for AU$4,848,094. The price for the remainder is not known.
From at least late 2012, Mr Huber sought out potential investors for CellOS, ostensibly to raise funds for CellOS’ ongoing operations. But instead of CellOS issuing shares directly to new investors, Mr Huber procured investors to purchase shares from Huber controlled entities at prices between US$2 and US$10. Between late 2012 and mid-2015, the Huber controlled entities sold 51,945,132 shares in CellOS to 355 private investors. It is known that Huber controlled entities sold 22,832,921 shares out of 51,945,132 shares transferred to private investors for AU$50,353,076. The price for the remainder is not known.
Mr Huber directly or indirectly lent part of the proceeds from these share sales back to CellOS in order to fund its operations.
In or around May 2013, Mr Huber arranged for CellOS to enter into a loan agreement with one of his offshore companies, LGA Energy Investments Ltd based in Belize (LGA) to loan CellOS up to SG$25 million (LGA loan) without disclosing his interest in LGA or the LGA loan to either CellOS’ board or its shareholders, on terms that the loan could be converted to shares at SG$1.80. Mr Huber wearing his CellOS hat would call for loans from LGA and then convert those loans to shares. At the time, CellOS was able to issue new shares at US$5 per share and CellOS shares were on the secondary market at up to US$5 per share.
LGA is not a party to the proceedings. The LGA loan operated such that:
(a)The loan operated retrospectively to cover money advanced since 1 March 2012, that is, over a year earlier and included advances by third parties nominated by LGA;
(b)LGA or third parties would loan money to CellOS; and
(c)LGA had an option to convert the loan amount into CellOS shares at the price of SG$1.80 per share, which was favourable to Mr Huber and LGA but disadvantageous to CellOS and the other shareholders.
The effect of the LGA loan allowed:
(a)Mr Huber to immediately benefit from the funds he had been lending CellOS since March 2012 by converting them into new CellOS shares at the favourable strike price of SG$1.80 per share; and
(b)Mr Huber to, first, prospectively sell CellOS shares held by the Huber controlled entities, second, then lend the funds to CellOS under the LGA loan and, third, obtain more shares at SG$1.80 per share by exercising the conversion option.
Significant proceeds from the sale of shares by the Huber controlled entities were paid to CellOS and attributed to the LGA loan. In all, Mr Huber procured payments into CellOS of SG$29,143,387.90 and AU$1,228,786.85, which were attributed to the LGA loan, and through LGA converted those loan funds into 17,477,204 shares in CellOS at SG$1.80 per share.
Mr Huber directed LGA to transfer 16,815,157 of those shares to Huber controlled entities for no consideration and then procured the on-sale of 4,265,157 of those shares, of which 2 million were sold at US$2 per share, 399,000 at US$10 per share, and the remainder at unknown prices.
As I say, between 28 June 2013 and 27 March 2014, LGA came to hold almost 17 million CellOS shares by way of its conversion option under the LGA loan. In May 2014, LGA transferred these shares to seven of the Huber controlled entities.
On 1 July 2014 Mr Huber arranged for CellOS to enter into another loan arrangement with another associated company, Pized Management Ltd (Pized) (Pized loan). Pized is the fourteenth respondent. The Pized loan was similar to the LGA loan, and Mr Huber again failed to disclose his interest. Significant proceeds from the sale of shares by the Huber controlled entities were advanced to CellOS and attributed to the Pized loan. When Mr Huber was removed from his position in September 2015, amounts under the Pized loan in the order of SG$2.5 million and US$8.3 million had not been converted and still remain a liability owing to Pized on CellOS’ books.
CellOS alleges that Mr Huber’s scheme, which it characterises as fraudulent, generated significant profits for him.
But Mr Huber’s response to CellOS’ claims is that Mr Min Wee and particularly Mr Narulla went rogue and set up and used the Huber controlled entities to buy and sell CellOS shares without Mr Huber’s knowledge and for their own profit. Further, in respect of the LGA loan and the Pized loan, Mr Huber says that both of these arrangements were entered into with proper disclosure being made to CellOS that he was the controller of both companies.
As I say, Mr Huber’s defence is that the fraud perpetrated against CellOS was not by him, but by his personal assistant Mr Narulla. Mr Huber says that he instructed Mr Narulla to sell off some of Mr Huber’s personal shares to raise funds for CellOS through the LGA loan and the Pized loan, but that Mr Narulla went rogue and bought and sold shares using the Huber controlled entities. But CellOS says that the contemporaneous record establishes that Mr Huber did carry out the fraudulent scheme. In any event it says that even if the evidentiary foundation of Mr Huber’s defence were to be accepted, nevertheless because Mr Narulla was his agent and Mr Narulla directed the profits from the fraudulent scheme to Mr Huber’s personal benefit both for the purchase of assets and for payment into the LGA loan and the Pized loan, Mr Huber is still liable for that conduct and required to account to CellOS for any profits.
Let me turn to the other respondents. The second to thirteenth and fifteenth respondents include some of the Huber controlled entities that it is said were involved in Mr Huber’s scheme. They are the following:
(a)Birinc Centre Corp (Birinc) is the second respondent, although it has been incorrectly described as “Birinc Trade Corp” in CellOS’ originating process. Its alleged involvement is the receipt of CellOS shares from LGA as part of the LGA loan scheme.
(b)Sky Wealth International Ltd (Sky Wealth) is the third respondent. Its alleged involvement is the receipt of CellOS shares from LGA as part of the LGA loan scheme.
(c)Rex Investors Ltd (Rex Investors) is the fourth respondent. Its alleged involvement is the purchase of CellOS shares from early investors, the sale of those shares to private investors and the receipt of CellOS shares from LGA as part of Mr Huber’s scheme.
(d)Sun Way Global Group Limited (Sun Way) is the fifth respondent. Its alleged involvement is the receipt of CellOS shares from LGA as part of the scheme.
(e)Aura Finance Limited (Aura Finance) is the sixth respondent. Its alleged involvement is the receipt of CellOS shares from LGA as part of the scheme.
(f)Harvest Sky Holdings Limited (Harvest Sky) is the seventh respondent. Its alleged involvement is the purchase of CellOS shares from early investors, the sale of those shares to private investors and the receipt of CellOS shares from LGA as part of the scheme.
(g)Rich Max Investments Limited (Rich Max) is the eighth respondent. Its alleged involvement is the receipt of CellOS shares from LGA as part of the scheme.
(h)Nesterland Services Ltd (Nesterland) is the ninth respondent. Its alleged involvement is the purchase of CellOS shares from early investors and the sale of those shares to private investors. There is a contest between the parties as to which of Mr Huber or Mr Narulla truly controlled Nesterland and the identity of its ultimate beneficial owner.
(i)Willow Financial Limited (Willow) is the tenth respondent. Its alleged involvement is the sale of early investor shares to private investors, which it received by way of transfers from other Huber controlled entities.
(j)Lighthouse Investments Limited (Lighthouse) is the eleventh respondent. Its alleged involvement is the sale of early investor shares to private investors, which it received by way of transfers from other Huber controlled entities.
(k)Leario Overseas Corp (Leario) is the twelfth respondent. Its alleged involvement is the purchase of CellOS shares from early investors.
(l)Stardust Financial Corporation (Stardust Financial) is the thirteenth respondent. Its alleged involvement is the purchase of CellOS shares from early investors and the sale of those shares to private investors.
(m)Blue Delorite Investments Pty Ltd (Blue Delorite) is the fifteenth respondent; it has also been incorrectly described in CellOS’ originating process. Its alleged involvement is the purchase of CellOS shares from early investors and the sale of those shares to private investors.
Now defences have only been filed by the first and fifteenth respondents, that is, by Mr Huber and by Blue Delorite. The second to fourteenth respondents are variously registered in Belize, Anguilla, Samoa, Panama and the British Virgin Islands. Service out of the jurisdiction has been effected on some of these respondents, but they have otherwise taken no role in these proceedings.
The proceedings have been dismissed as against the sixteenth respondent. I need say nothing more about him.
Let me turn to a separate group of respondents, who are alleged to have been accessories to Mr Huber’s breaches of his statutory duties as a director of CellOS. Mrs Constance Peck and Mr Alan Peck are the seventeenth and eighteenth respondents, respectively. They purchased CellOS shares through the Huber controlled entities or through Mr Melvin Tan at US$2 per share and sold those shares to friends, associates and members of their church network, usually at the price of US$2 or US$5 per share. Mr Tan is the nineteenth respondent, and was a broker for CellOS at one point.
CellOS alleges against Mr and Mrs Peck and Mr Tan that they were knowingly involved in
Mr Huber’s breaches of his statutory duties. CellOS at trial abandoned its case against them under the second limb of Barnes v Addy.
CellOS says that Mr Huber was assisted in his fraudulent scheme by Mrs Peck and Mr Peck, who were introduced to Mr Huber as potential investors in CellOS in or about March 2013. It is said that in order to sell around 50 million shares in CellOS, Mr Huber was helped by the Pecks. Mr Huber agreed to sell them shares at US$2 per share, at times when the market value of those shares was at least US$5, and in all sold them 18,842,000 shares on the understanding that they would assist Mr Huber to sell his shares to third parties and that they would also be able to sell their shares at a profit. Mrs Peck and Mr Peck sold around 9 million of their shares to investors, many of whom were members of their church community. CellOS says that by assisting Mr Huber, Mrs Peck and Mr Peck generated profits from the sale of the 9 million shares.
Further, CellOS says that in or about 2014, Mrs Peck and Mr Peck reached an agreement with Mr Tan to assist him in the sale of further CellOS shares purchased from Mr Huber at US$2 per share and to split the profit. Mrs Peck and Mr Peck generated further profit from these sales, which indirectly allowed Mr Huber to continue selling shares to Mr Tan.
In essence, the elements of the accessorial claims against them are the following.
First, each of the Pecks knew that between September 2013 and July 2014:
(a)there were willing buyers of CellOS shares at US$5 per share and up to US$10 per share; and
(b)CellOS could issue new shares to willing investors at more than US$2 per share and indeed did issue shares at US$5 per share.
Second, each of them procured from September 2013 to July 2014 the sale of shares in CellOS to investors at various prices and improperly diverted third party investors from taking up shares in CellOS under CellOS’ actual, contemplated or possible equity raisings.
Third, by doing so each of them:
(a)benefited by procuring the sale to themselves of shares in CellOS at US$2 per share and on-selling at a profit; and
(b)caused detriment to CellOS being the difference between the amount CellOS actually raised and the amount CellOS would have raised if the shares had been issued by CellOS to investors.
CellOS says that Mr Huber was also assisted in his scheme by Mr Tan, who was CellOS’ broker and who facilitated the sale of Mr Huber’s shares to investors. Further, in or about 2014, Mr Tan reached an agreement with Mrs Peck and Mr Peck in relation to selling further CellOS shares purchased from Mr Huber at US$2 per share, and sharing the profit. It is said that Mr Tan’s involvement generated a significant profit for himself.
Now the Pecks and Mr Tan raise similar matters in their defences. First, they submit that CellOS’ case against Mr Huber fails and therefore without any principal being liable their liability as accessories falls away. Second, they say that even if CellOS’ case against Mr Huber were to be made out, they are not liable as accessories because they did not have the requisite knowledge of Mr Huber’s scheme.
Further, not only is the Pecks’ defence that they did not know about Mr Huber’s scheme, but they say that they were carrying out another scheme whereby they, with Mr Tan, were fooling Mr Huber into selling them shares at US$2 per share, which they were then on-selling to their church community and others for a significant profit.
Now the present trial has proceeded on the basis of liability only at this stage. And it has been significantly fragmented for three reasons: (a) first, the parties significantly exceeded the initial two weeks allocated to the trial based upon counsels’ estimates; (b) second, the re-scheduling had to take into account the availability of overseas witnesses who the parties insisted could not be disposed of on a video link; and (c) third, counsels’ and the Court’s availability.
In summary and for the reasons which follow, CellOS’ principal claims against Mr Huber and the Huber controlled entities succeed. But the claims against the Pecks and Mr Tan fail. They did not hold the relevant knowledge to be liable as accessories to Mr Huber’s scheme and his statutory breaches. Before getting into the detail, let me make a few preliminary observations.
I should state at the outset that there is nothing wrong per se with a director entering into buy and sell transactions in relation to shares in the company of which he is a director, putting to one side for the moment insider trading questions or the take-over or change in control type scenarios. Moreover, such activity is usually undertaken by the director qua shareholder and has nothing to do with his statutory or fiduciary duties qua director. Further, there is no diversion of any business opportunity by the company by such activity as, of course, the company is usually not in the business of buying and selling shares in itself. It is not an opportunity that a company can or should avail itself of, putting to one side lawful reductions of capital including share buy-backs.
Now take a different scenario. What if the director is the CEO and is charged with raising equity funding for the company as its principal if not sole source of essential capital? And what is the situation where instead of discharging that duty the CEO goes off and creates a large secondary or grey market in the company’s shares by and for himself and through off-shore vehicles in exotic locations created for that purpose? And what happens if by doing so he diverts investors who otherwise would have participated in an equity raising by the company? And what happens if by that scheme there is a diversion of the company’s business opportunity to raise equity funds? And what happens if the CEO uses the profits he achieves from the sale to such investors through the secondary or grey market that he has created to make advances of such profits to the company as debt funds by entities related to him but which relationship is not disclosed to the board? So, instead of equity subscribed with dividends payable normally out of profits, the company is saddled with debt and an interest bill. But there is more. What happens if the loan agreement(s) allow the CEO related creditor to convert the debt into equity, but at a strike price per share well below what the company could have issued the shares for to the investors that were originally diverted by the CEO’s scheme? Does such conduct overall amount to a breach of the CEO’s statutory duties? And is this also an occasion where equity is useful to both impose a fiduciary duty and condemn the CEO for its breach?
I will answer all of these questions later, including explaining why my case is quite different to that dealt with by Chancellor Chandler in the Court of Chancery of Delaware in Beam v Stewart 833 A 2d 961 (Del Ch, 2003). But in doing so it will be necessary to embark upon a lengthy evidentiary odyssey. My case is rich in facts, including the application of Singaporean law proved as a foreign fact. Now brevity may be desirable where one is intellectualising on a legal issue stripped of the complexity of intricate commercial dealings over a lengthy period. But it is a luxury I cannot afford in the present case.
Let me make one other related point at this stage. A tricky feature of the present case has been that although on the one hand Mr Huber is said to have been the principal contravener with the Pecks and Mr Tan as his accessories, on the other hand the so called accessories were running their own agendas and making profits in tension at times with what Mr Huber knew or intended. So, although their objective conduct may have facilitated Mr Huber’s scheme, the so-called accessories’ intentions and knowledge did not have the same boundaries and content as Mr Huber’s intention and knowledge. And therein lies one important flaw in the foundations of CellOS’ case against the alleged accessories, which I will develop later.
For convenience, I have divided my reasons into the following sections:
(a)The Huber controlled entities ([39] to [157]).
(b)Chronology ([158] to [416]).
(c)The witnesses ([417] to [495]).
(d)Singaporean law on share issues ([496] to [526]).
(e)Diversion of equity investment ([527] to [595]).
(f)LGA and Pized loans ([596] to [717]).
(g)The claims against Mr Huber and related entities ([718] to [842]).
(h)The claims against the Pecks and Mr Tan ([843] to [1056]).
(i)Conclusion ([1057] to [1058]).
THE HUBER CONTROLLED ENTITIES
Let me address a discrete issue that needs to be developed before proceeding further. There are a number of companies who bought, sold and transferred amongst themselves CellOS shares during the relevant period. In broad terms, CellOS submits that these entities were controlled by Mr Huber and used by him to cover his tracks. I would say now that I have little doubt that these entities were controlled by Mr Huber and, generally speaking, used to conceal his share dealings. Moreover, the opaque structures that he used, the denial of his control and his assertion that somehow Mr Narulla had gone rogue in relation to a large number of transactions did not instil me with great confidence as to the reliability of his evidence generally or the weight I should give to it. Indeed I would say at this point in relation to Mr Huber’s evidence that I have given it little weight except where it has been independently corroborated by other probative evidence or where it was adverse to his interest.
It is convenient to divide the following discussion into three parts: (a) first, those entities that received shares from early investors; (b) second, those entities used to on-sell early investor shares; and (c) third, those entities receiving CellOS shares as part of the LGA loan structure.
(a) Huber controlled entities that received shares from CellOS early investors
One category of these Huber controlled entities are the offshore companies that between 20 September 2011 and 12 August 2015, received 47,872,063 CellOS shares from third party investors. These transactions are listed in schedule 1 to the Fifth Further Amended Statement of Claim (5FASOC) as follows and were summarised pursuant to s 50 of the Evidence Act 1995 (Cth) in the affidavit of Mr Matthew Critchley dated 22 September 2017, solicitor for CellOS.
These companies received the following number of CellOS shares from private investors:
Company
Total shares transferred from private investors
Basalt Pte Ltd
25,152,717
Maitreya Mandala Pte Ltd
5,642,500
Marsh Commercial Corp
4,336,940
Child and Family Education Foundation Pte Ltd
3,110,000
Star Gazer Ventures Corp
2,764,034
Stardust Financial
1,588,181
Harvest Sky
1,234,000
Rex Investors
1,025,319
Schuller Investments Ltd
1,000,000
Money Max Foundation
600,000
Nesterland
457,286
Blue Delorite
400,000
Gambier Agency Ltd
245,000
Leario
241,086
Carreville Agents Ltd
75,000
Total
47,872,063
I would also note that most of these entities also sold large numbers of CellOS shares to private investors.
Basalt Pte Ltd (Basalt)
Basalt is not a party to these proceedings. Basalt purchased 25,152,717 CellOS shares from early investors, over half the total shares purchased by the Huber controlled entities.
Mr Huber gave evidence that Basalt was one of Mr Narulla’s companies. Mr Narulla’s involvement is also shown from Basalt’s company address being the same as for Maitreya Mandala Pte Ltd.
Mr Wolfenden gave evidence regarding the circumstances in which Basalt purchased around 20 million CellOS shares. First, at CellOS’ AGM on 1 June 2012, Mr Narulla approached an early investor and said to him that he knew of a buyer and that he could connect him and then step out of the transaction. Mr Wolfenden acted for that early investor. Second, Mr Wolfenden also negotiated the sale of shares of other early investors. Some of those investors had bought in 2005 and 2006 for around AU$0.10 per share, and others in 2008 and 2009 for around AU$0.35. The known consideration paid by Basalt for these shares was between AU$0.11 and AU$0.74.
By 11 November 2012, Basalt went from a holding of 0 to a holding of 23,538,717 shares, and thereby became the registered holder of around 12% of the issued shares in CellOS.
Mr Wolfenden dealt only with an intermediary for the undisclosed principal, and that whilst he did not know the identity of the principal, he thought that it was Mr Huber.
Mr Huber’s denial that he directed Mr Narulla to purchase these shares on his behalf should be rejected for the following reasons.
First, Mr Narulla was undertaking consulting work relating to fundraising work for CellOS between June and December 2012, and Mr Narulla issued invoices to CellOS for this work. Mr Huber personally approved the payment of these invoices. CellOS was paying Mr Narulla to facilitate the purchase of shares from early investors on behalf of Mr Huber.
Second, the evidence indicates that Mr Narulla did not personally have the funds to purchase the shares. In relation to Mr Narulla’s invoices for the above consulting work, Mr Narulla’s covering emails twice stated that he was short of funds and asked that his fees be paid without delay. When asked how it was that Mr Narulla could purchase these shares, and yet be so short of funds, Mr Huber’s answer was only that it was a good way for Mr Narulla to hide the trading. I agree with CellOS that this answer should be rejected. The documentary evidence is contrary to any inference being drawn that Mr Narulla was hiding his involvement with Basalt from Mr Huber, and that when then pressed as to how Mr Narulla got the money in the first place to buy the shares from the early investors, Mr Huber had no explanation.
Third, Mr Huber personally signed the share statement for Basalt dated 30 November 2012 that showed these transactions. Mr Huber also accepted that he knew most of the sellers listed on Basalt’s share statement, and knew that they were early investors. Further, Mr Huber accepted that at that time he knew that these people had sold their shares to Basalt, that is, Mr Huber admitted that at this time he knew that Basalt had bought 12% of the issued shares in CellOS.
Fourth, on or around 21 November 2012 Mr Narulla effected a payment to the intermediary who negotiated the share purchase on behalf of Basalt in the sum of US$10,000. Mr Huber’s own evidence was that Mr Min Wee, independently of Mr Narulla, was administering his CellOS shares through offshore companies as his agent. But Mr Narulla forwarded this email to Mr Min Wee and there was no reason for Mr Narulla to forward this email to Mr Min Wee unless acting for and on behalf of Mr Huber in buying the shares for Basalt.
Fifth, Mr Huber personally gave instructions to Computershare to transfer shares from Basalt to Rex Investors and other companies that he controlled.
Sixth, Basalt transferred shares to offshore companies that Mr Huber admitted are his. Mr Huber said that the first three companies he set up to hold his shares were Prestongate Foundation, Palgrave Foundation, and Grand Maidstone Foundation. On or around 18 April 2013, transfers of 8,252,717 CellOS shares from Basalt to Prestongate Foundation (2,500,717 shares), Palgrave Foundation (2,252,000 shares) and Grand Maidstone (3,500,000 shares) were registered.
Seventh, significant payments to CellOS attributable to the LGA loan (and hence claimed by Mr Huber as his contributions) derived directly from the shares purchased by Basalt from these early investors, that is, the proceeds from the sale of Basalt shares were applied to Mr Huber’s benefit.
Eighth, Mr Huber admitted that shares Mr Narulla was selling on his behalf were not shares that he had transferred to Mr Narulla (or Mr Narulla’s controlled entities) for that purpose. The necessary inference is that Mr Huber knew where the shares were being sourced, namely from early investors.
Maitreya Mandala Pte Ltd (Maitreya Mandala)
Maitreya Mandala is not a party to these proceedings. Maitreya Mandala purchased 5,642,500 CellOS shares from early investors and sold 5,019,921 CellOS shares to private investors.
Mr Huber’s evidence was that Maitreya Mandala was a company controlled by Mr Narulla, and that to his knowledge as at early 2013 it was holding and selling his (i.e. Mr Huber’s) CellOS shares.
Mr Huber accepted that on 14 May 2013 he gave instructions to Computershare to approve the transfer of CellOS shares to Maitreya Mandala.
On or around 10 September 2012, when Basalt was purchasing shares from early investors, Maitreya Mandala purchased 400,000 from Mark and Sandra Evers, who were early investors personally known to Mr Huber. When it was put to Mr Huber that he had directed Mr Narulla to buy those shares at US$0.15 (the known sale price), Mr Huber denied it. Mr Huber also denied that he even knew that Maitreya Mandala had bought these shares from the Evers, but this denial should not be accepted. Aside from anything else, Mr Huber personally signed a Maitreya Mandala share statement form showing this purchase.
Further, there are the following transfers from Maitreya Mandala:
(a)of 949,000 CellOS shares to Child and Family Education Foundation Pte Ltd, registered on 1 June 2012;
(b)of 900,000 CellOS shares to Child and Family Education Foundation Pte Ltd, registered on 10 November 2012; and
(c)of 342,579 CellOS shares to Rex Investors, registered on 13 April 2015.
Marsh Commercial Corp (Marsh Commercial)
Marsh Commercial is not a party to these proceedings. Marsh Commercial purchased 4,336,940 CellOS shares from early investors, and it sold 6,247,000 CellOS shares to private investors, including to the Pecks and to Mr Tan’s wife Ms Seah Chye Tin.
Mr Huber said that he did not recall this company, but it was used in the transfer and sale of his purchased CellOS shares.
Further, there are the following transfers from Marsh Commercial:
(a)of 96,940 CellOS shares to Rex Investors, registered on 19 January 2015; and
(b)of 2 million CellOS shares to the Pecks on 9 April 2014 (registered on 2 May 2014), sold for consideration of US$4 million.
Child and Family Education Foundation Pte Ltd (Child and Family Foundation)
Child and Family Foundation is not a party to these proceedings. Child and Family Foundation purchased 3,110,000 CellOS shares from early investors and it sold 9,125,755 CellOS shares to private investors.
Mr Huber accepted that Child and Family Foundation were selling shares on his behalf. It transferred 615,745 CellOS shares directly to his personal company, Swallow Limited (registered on 5 September 2013) (Swallow).
Swallow
Swallow is not a party to these proceedings, nor is it a company that purchased CellOS shares from early investors.
On 4 June 2013, Mr Huber entered into a service agreement with CS+ Services FZE (CS+)
(a company registered in the United Arab Emirates) to arrange for the incorporation of Swallow in the UAE and for the provision of corporate services, and that under the terms of the agreement, CS+ would act on Mr Huber’s instructions in causing Swallow to take actions or enter into transactions. Mr Huber admitted that he controlled Swallow, that Swallow received, held and transferred CellOS shares, and that in December 2014, he instructed Grandeza to cause CellOS shares held by Swallow to be transferred.
Star Gazer Ventures Corp
Star Gazer Ventures Corp is not a party to these proceedings. It purchased 2,764,034 CellOS shares from early investors.
Mr Huber said that he did not recall this company, but that Star Gazer Ventures Corp was involved in the transfer of CellOS shares to Huber controlled entities. Star Gazer Ventures Corp transferred 675,000 CellOS shares to Harvest Sky, 764,034 CellOS shares to Willow and 1.1 million CellOS shares to Stardust Financial, which transfers were registered on 21 January 2014.
Stardust Financial
Stardust Financial as I have said is the thirteenth respondent in these proceedings. It purchased 1,588,181 CellOS shares from early investors and sold 477,181 CellOS shares to private investors.
Stardust Financial was incorporated in Belize on 19 April 2013, and at the time a certificate of incumbency was issued on 10 May 2013 its sole shareholder was Dinastia Limited and its sole director was Majestic Limited.
I would note that Dinastia Limited is not a party to these proceedings and was incorporated in the British Virgin Islands on 24 October 2012. Grandeza was its sole shareholder and director when a certificate of incumbency was issued on 29 October 2012.
I would note further that Majestic Limited is not a party to these proceedings and was incorporated in Belize on 29 October 2012. Grandeza was its sole shareholder and director when a certificate of incumbency was issued on 11 April 2013.
Mr Huber admitted that he controlled, and is the ultimate beneficial owner of, Stardust Financial, though Mr Huber says that he was not aware of this until July 2014. There was evidence that Stardust Financial was being administered to hold Mr Huber’s CellOS shares on his behalf.
Mr Huber also admitted that he directed Mr Min Wee in relation to Stardust Financial’s transactions.
In May 2013, Stardust Financial directly purchased 775,000 shares from Mark and Sandra Evers for US$0.15 per share. When it was put to Mr Huber that it had bought 775,000 shares from the Evers at US$0.15 in May 2013, Mr Huber denied any knowledge of the purchase. But Mr Huber’s affidavit in the Singapore proceeding expressly states that he bought the 775,000 shares because the Evers wanted to exit the company. When asked whether evidence that Mr Narulla bought these shares without his knowledge, or he bought them, was correct, Mr Huber said the former. As to how he then knew of the Evers’ motivation for selling, Mr Huber could not say.
The above is direct evidence of Mr Huber’s personal knowledge that his companies were buying CellOS’ shares at well below market price. Mr Huber’s denials should be rejected.
Harvest Sky
Harvest Sky as I have said is the seventh respondent in these proceedings. It purchased 1,234,000 CellOS shares from early investors, sold 2,573,000 CellOS shares to private investors, and received 2,583,641 CellOS shares from LGA in May 2014.
Mr Huber admitted that Harvest Sky was one of the offshore companies operated by Mr Narulla to handle his shares. Both Mr Narulla and Mr Min Wee stated in writing to Mr Huber that Harvest Sky was being administered to hold Mr Huber’s CellOS shares on his behalf.
Mr Huber directed the Pecks, as buyers of 4 million CellOS shares from Harvest Sky, to pay the purchase price to Swallow, Mr Huber’s personal Dubai company. In July 2014, Harvest Sky sold 70,000 CellOS shares for US$10 per share (transfers were registered on 1 July 2014 and 7 July 2014), and according to Mr Huber those proceeds were being directed by him through the Pized loan.
Rex Investors
Rex Investors as I have said is the fourth respondent in these proceedings. It purchased 1,025,319 CellOS shares from early investors, it sold numerous CellOS shares to private investors, and it received 1,681,516 CellOS shares from LGA in May 2014.
Mr Huber admitted that Rex Investors was associated with him, and was holding his shares.
Reference may be made to the following transfers involving Rex Investors:
(a)Basalt transferred 1.5 million shares directly to Rex Investors (registered on 27 May 2013);
(b)on 28 November 2013, Mr Huber sold the Pecks 250,000 CellOS shares that were transferred from Rex Investors (registered on 25 November 2013); and
(c)Stardust Financial transferred 96,500 CellOS shares to Rex Investors (registered on 7 October 2014).
Mr Huber also personally approved transfers (see letters to Computershare) from Rex Investors and to Rex Investors, including from Nesterland, from Basalt and from Maitreya Mandala. On Mr Huber’s evidence, he was unconcerned by these transactions because they were his shares being transferred.
Schuller Investments Ltd (Schuller)
Schuller is not a party to these proceedings. It received 1 million CellOS shares from Mr Narulla (registered 22 May 2013). In around April 2014 those shares were transferred to Nesterland (registered 1 April 2014).
Mr Huber said that he did not know this company.
Money Max Foundation (Money Max)
Money Max is not a party to these proceedings. It purchased 600,000 CellOS shares from early investors and sold 2,978,500 CellOS shares to private investors, including the Pecks.
Mr Huber admitted that Money Max was transacting the sale of his shares, and that Mr Narulla was selling these shares to third parties on his behalf.
Basalt transferred shares both directly and indirectly to Money Max. The direct transfer was registered on 18 April 2013 of 5 million CellOS shares from Basalt to Money Max. The indirect transfer was first of 3.5 million CellOS shares from Basalt to Islington International Foundation (registered 18 April 2013) and then from Islington International Foundation to Money Max (registered 27 May 2013).
Money Max transferred shares to two known Huber controlled entities: Lighthouse (9 million CellOS shares) and Rex Investors (121,500 CellOS shares), which were registered on 25 February 2014.
Mr Huber sold shares to the Pecks that were transferred from Money Max, being a sale of 50,000 shares around 26 April 2013 (registered 27 May 2013), a sale of 800,000 shares on 22 May 2013 (registered 29 July 2013) and a sale of 700,000 shares around 17 June 2013 that was registered on 29 July 2013.
Mr Huber personally received legal advice in relation to Money Max making a large sale to an investor, Mr Steven Ng, and when Computershare refused to process the transfer of 9,121,500 in September 2013 because there was no certification for Money Max’s directors, Mr Huber personally directed Computershare to make the transfers.
Nesterland
Nesterland as I have said is the ninth respondent to these proceedings. It purchased 457,286 CellOS shares from early investors and sold 11,842,000 CellOS shares to private investors, including the Pecks.
Mr Huber admitted that Nesterland was one of the offshore companies operated by Mr Narulla to inter-alia hold and sell Mr Huber’s shares. Moreover, at one stage both Mr Narulla and Mr Min Wee stated in writing that Nesterland was being administered to hold Mr Huber’s CellOS shares on his behalf. However, Mr Huber stated in evidence that, although he did not realise at the time, the company was also being used as a conduit for Mr Narulla to buy other shares.
Mr Huber sold over 7 million CellOS shares to the Pecks that were transferred from Nesterland, and he gave instructions to Computershare to approve transfers from Nesterland. Further, Mr Huber knew that the proceeds from the sale of his shares were being paid to Nesterland, including by the Pecks.
Further, Mr Huber’s personal expenses were being paid out of a Nesterland bank account, into which the proceeds from the sale of CellOS shares were also being paid.
Further, Mr Huber had instructed his lawyers in the Singapore proceedings that he was the ultimate beneficial owner of Nesterland, although he now says that Mr Narulla was actually the ultimate beneficial owner of the corporate entity; see the letter dated 1 October 2015 from Oon & Bazul to Mr Narulla. But I would note at this point that in evidence was an email dated 6 October 2015 from Mr Narulla to Mr Huber asserting that Nesterland was Mr Narulla’s company.
In summary, there is conflicting evidence as to whether the ultimate beneficial owner of Nesterland was Mr Huber. But, on any view, Nesterland was used by Mr Huber as one of the conduits for the implementation of his scheme.
Blue Delorite
Blue Delorite as I have said is the fifteenth respondent in these proceedings. It purchased 400,000 CellOS shares from early investors and it sold 2,050,000 CellOS shares to private investors.
Mr Huber has admitted that he is the legal and beneficial owner of Blue Delorite. Mr Huber is its sole shareholder and director.
Both Mr Narulla and Mr Min Wee have also stated in writing that Blue Delorite was being administered on Mr Huber’s behalf.
Gambier Agency Ltd (Gambier Agency)
Gambier Agency is not a party to these proceedings. It purchased 245,000 CellOS shares from early investors and it sold 2,740,000 CellOS shares to private investors, including Mr Tan’s wife Ms Seah Chye Tin.
Mr Huber’s evidence was that Gambier Agency was Mr Narulla’s company.
Between 18 April 2013 and 17 December 2013, Basalt transferred 493,000 shares indirectly to Gambier Agency, via Prestongate Foundation and Nostrand Agency.
Leario
Leario as I have said is the twelfth respondent in these proceedings. It purchased 241,086 CellOS shares from early investors.
Leario was incorporated in Belize on 2 January 2014 and at the time a certificate of incumbency was issued on 4 February 2014 its sole shareholder and director was Autumn Harmony Corp.
I would note that Autumn Harmony Corp is not a party to these proceedings. It was incorporated in Belize on 21 January 2014, and at the time a certificate of incumbency was issued on 4 February 2014 its sole director and shareholder was Mr Min Wee.
Mr Huber admitted that he is the ultimate beneficial owner of Leario, though he says that he was not aware of this until July 2014. He also said that Mr Min Wee was administering it for his benefit.
Carreville Agents Ltd (Carreville)
Carreville is not a party to these proceedings. It purchased 75,000 CellOS shares from early investors.
Mr Huber’s evidence was that he did not know this company.
Between 18 April 2013 and 2 August 2013, Basalt indirectly transferred 700,000 CellOS shares to Carreville (via Prestongate Foundation). Carreville later transferred 700,000 CellOS shares to Marsh Commercial (registered on 6 November 2013).
(b) Huber controlled entities used for on-selling early investor shares
Between 20 September 2011 and 8 May 2015, the Huber controlled entities transferred 51,945,132 CellOS shares into 12 companies that would be used to sell the shares to private investors. The transfers between Huber controlled entities are set out in schedule 2 to the 5FASOC and the transfers to individual purchasers are set out in schedule 3. That is, the same companies were not necessarily both buying and selling shares in the marketplace. And some companies were merely intermediaries.
I have already noted above where a company was involved in selling to private investors. But there were two additional companies, Lighthouse and Willow, that were solely involved in the sale of CellOS shares.
Lighthouse
Lighthouse as I have said is the eleventh respondent in these proceedings. It sold 5,150,000 CellOS shares to private investors, including 5 million shares to the Pecks.
Lighthouse was incorporated in Samoa on 19 July 2013 and at the time that a certificate of incumbency was issued on 30 July 2013 its sole shareholder and director was Dinastia Limited. I have addressed Dinastia Limited above.
Mr Huber admitted that he is the ultimate beneficial owner of Lighthouse though he says that he did not know this until July 2014. Both Mr Narulla and Mr Min Wee also stated in writing that Lighthouse was being administered to hold Mr Huber’s CellOS shares on his behalf.
Willow
Willow as I have said is the tenth respondent in these proceedings. It sold 320,000 CellOS shares to private investors.
Willow was incorporated in Belize on 30 April 2013 and when a certificate of incumbency was issued on 11 June 2013 its sole shareholder was Dinastia Limited. Its sole director is Enorme Ltd.
I would note that Enorme Ltd, which is not a party to these proceedings, was incorporated in Belize on 22 April 2013. Its sole shareholder and director is Grandeza.
Mr Huber admitted that he is the ultimate beneficial owner of Willow. Both Mr Narulla and Mr Min Wee stated in writing that this company was being administered to hold Mr Huber’s CellOS shares on his behalf.
(c) Huber controlled entities receiving CellOS shares as part of the LGA loan structure
On 9 May 2014 LGA transferred shares to seven Huber controlled entities, as follows:
(a)2,800,000 to Birinc;
(b)2,300,000 to Sky Wealth;
(c)1,681,516 to Rex Investors;
(d)2,350,000 to Sun Way;
(e)2,800,000 to Aura Finance;
(f)2,583,641 to Harvest Sky; and
(g)2,300,000 to Rich Max.
I have already discussed Rex Investors and Harvest Sky. Let me describe these other companies.
Birinc
Birinc as I have said is the second respondent to these proceedings. As noted above, it received 2.8 million CellOS shares from LGA.
Birinc was incorporated in Belize on 21 January 2014 and its sole shareholder and director is Autumn Harmony Corp.
Mr Huber admitted that he is the ultimate beneficial owner of Birinc though he says that he did not know this until July 2014. Both Mr Narulla and Mr Min Wee have stated in writing that Birinc was being administered to hold Mr Huber’s CellOS shares on his behalf.
Sky Wealth
Sky Wealth as I have said is the third respondent in these proceedings. As noted above, it received 2.3 million CellOS shares from LGA.
Sky Wealth was incorporated in Anguilla on 3 January 2014 and its sole shareholder and director at the time a certificate of incumbency was issued on 10 February 2014 was Autumn Harmony Corp.
Mr Huber admitted that he is the ultimate beneficial owner of Sky Wealth, though he says that he did not know this until July 2014. Both Mr Narulla and Mr Min Wee have stated in writing that Sky Wealth was being administered to hold Mr Huber’s CellOS shares on his behalf.
Sun Way
Sun Way as I have said is the fifth respondent to these proceedings. As noted above, it received 2.35 million CellOS shares from LGA.
Sun Way was incorporated in Anguilla on 3 January 2014 and its sole shareholder and director at the time a certificate of incumbency was issued on 10 February 2014 was Autumn Harmony Corp.
Mr Huber admitted that he is the ultimate beneficial owner of Sun Way, though he says that he did not know this until July 2014. Both Mr Narulla and Mr Min Wee have stated in writing that Sun Way was being administered to hold Mr Huber’s CellOS shares on his behalf.
Aura Finance
Aura Finance as I have said is the sixth respondent to these proceedings. As noted above, it received 2.8 million CellOS shares from LGA.
Aura Finance was incorporated in Belize on 21 January 2014 and its sole shareholder and director at the time a certificate of incumbency was issued on 4 February 2014 was Autumn Harmony Corp. I have already discussed Autumn Harmony Corp.
Mr Huber admitted that he is the ultimate beneficial owner of Aura Finance, though he says that he did not know this until July 2014. Both Mr Narulla and Mr Min Wee also stated in writing that Aura Finance was being administered to hold Mr Huber’s CellOS shares on his behalf.
Rich Max
Rich Max as I have said is the eighth respondent in these proceedings. As noted above, it received 2.3 million CellOS shares from LGA.
Rich Max was incorporated in Anguilla on 3 January 2014 and its sole shareholder and director at the time a certificate of incumbency was issued on 10 February 2014 was Autumn Harmony Corp.
Mr Huber admitted that he is the ultimate beneficial owner of Rich Max, though he says that he did not know this until July 2014. Both Mr Narulla and Mr Min Wee also stated in writing that Rich Max was being administered to hold Mr Huber’s CellOS shares on his behalf.
(d) Mr Huber’s submissions concerning Mr Narulla
Mr Huber says that he did not instruct a corporate secretarial services provider to establish a web of offshore companies to disguise his involvement from CellOS’ shareholders and directors. The reason Mr Huber instructed Mr Narulla to meet with Heritage Fiduciary Services was based on advice given to him that if he was going to sell his personal shares to fund CellOS that he should do so via a corporate structure.
Mr Huber says that with the exception of the three companies that Mr Narulla told Mr Huber that Heritage Fiduciary Services had recommended he set up, the Huber controlled entities were established by Mr Narulla and Mr Min Wee without Mr Huber’s knowledge.
Mr Huber says that despite the assertions of CellOS, the procurement of some 30 million shares from early investors in CellOS was undertaken by the offshore companies established by Mr Narulla without Mr Huber’s knowledge. Mr Huber says that he did not become aware of what Mr Narulla was doing because the names of the purchasing shareholders were unknown to him. He therefore did not discover that these “new shareholders” were companies that Mr Narulla had established.
It is said that both Mr Huber’s lack of knowledge and Mr Narulla’s purchase and on-sale of early investor shares is evidenced in an email from Mr Narulla to Mr Min Wee dated 30 September 2016 in which he states “the lawyers in Melbourne seem to have assumed that whatever is held by these companies [Rex Investors and Nesterland] was Huber’s. This is not correct, but I can understand them making this mistake.” I would note that CellOS released Mr Narulla from any claims it may have had against him.
Further, Mr Huber says he was also unaware that the Pecks were purchasing shares from Mr Narulla which he had in turn purchased from early investors. Mr Huber was simply unaware of this having occurred. It is said that Mr Huber’s lack of knowledge or involvement in this scheme is supported by the evidence including his direction to Computershare to refuse to allow share transfers without his approval. But I would note that the direction in evidence dated 25 February 2015 was not general in nature, and appears to have concerned shares concerning three particular individuals.
Further, Mr Huber contends that Mr Huber’s lack of knowledge of the purchase and sale of early investor shares by Mr Narulla, the Pecks and Mr Tan is also supported by Mr Tan’s witness statement at paragraphs 26 to 28, which stated: “Harveen took the opportunity to tell me that he had a lot of shares to sell… Harveen then said that he would sell to me on one condition - I was never to let Jason or anyone else know that he was selling CellOS shares”. This evidence was uncontested. Mr Tan’s evidence was that he believed that from early June 2013 he was purchasing shares sourced from Mr Narulla, despite the fact that some payments were directed to Huber controlled entities.
Mr Tan’s evidence was that Mr Narulla hid the sale of his shares from Mr Huber and further that Mr Tan did not disclose to Mr Huber or the Pecks that Mr Narulla was selling shares to Mr Tan. Mr Tan’s evidence suggested that Mr Tan and the Pecks attempted to hide from Mr Huber the on-sale of Mr Tan’s shares.
Mr Huber referred to other evidence from Mr Tan which he contends supports the proposition that the share trading with Mr Narulla was covertly conducted without Mr Huber’s knowledge.
So, Mr Tan gave evidence under cross-examination (see also his amended witness statement at [28] to [32]) as follows:
(a)“You know, from Constance because it – Jason Huber would know about it. So she would transfer to my wife’s name because my wife’s name is Sao Chat Ing in Chinese. Jason Huber would not be able to identify this name. Therefore, the name – the – the shares were transferred to my wife and for her to on-transfer to her buyers, and it’s true if it’s the amount that’s shown.”
(b)“Narulla told me that he has a lot of shares in his name and his wife’s name, his family name and his friends’ name, and that if I’m interested he can sell it to me. Yes. But he says that on the one condition that I must never ever let Jason Huber know that he is selling sell-of shares. As a matter of fact, he has repeatedly sworn me to secrecy that this will be the only condition that he’s willing to sell the shares to me and to my clients. Thank you.”
(c)“I was not given a copy of the engagement letter, at all. I’m not privy to the commercial terms, but what has been verbally put across to me is that it’s strictly meant for financial institution and PE funds. That’s it.
Who do you say told you that, Mr Tan?---Sorry?
Who do you say told you that?---Jason Huber, as well as – wait – Jessie Wong Mei Lee, who is the dealing director of UOB Kay Hian.
Now, during 2013 – after March 2013 when this letter was entered into, you’re aware, aren’t you, that there was a number of presentations that were given by Mr Huber and by you, in many cases, in respect of prospective investors in CellOS; that’s right, isn’t it?---Yes, sir.
And you understood that those presentations were being done for at least a purpose of people investing under the UOB offer; that’s right, isn’t it?---Are you talking about the meeting with UOB Kay Hian, or the meeting at his office?
I’m talking about presentations that were given during the course of 2013 either by your or Mr Huber or Mrs Peck; you understood a purpose of those presentations was for investors to invest in the UOB offer; that’s right, isn’t it?---Absolutely – absolutely no, because UOB Kay Hian is only strictly meant for financial institution and private equity funds. It’s not open to private individuals.”
(d)“- - - you knew that UOB – through UOB, CellOS was offering people to subscribe for shares in CellOS at $5 a share in 2013; you knew that, didn’t you?---Yes. I know. But I would like to stress it is meant for financial institution and PE funds only.
Well, I want to put to you that that’s false, Mr Tan, and you know it to be false. That’s right, isn’t it? You knew - - -?---No, I - - - - - - the UOB offer was open to wealthy people?---I beg to differ. It is absolutely meant for financial institution as well as PE funds only.”
(e)“MR CRUTCHFIELD: … What I want to suggest to you, Mr Tan, is that you well knew in 2013 that you introducing investors to CellOS and arranging for those investors to receive existing CellOS shares at $2 per share had the effect of diverting investors from CellOS and those investors might have invested at $5 a share. That’s right, isn’t it?---No, I – I disagree. Like what I say, I reiterate UOB Kay Hian PE fundraising is only meant for financial institution and PE funds. That’s it.”
(f)“Mr Anthony Cooper, I do not know him. I don’t – I don’t talk to him during that time at all. When this letter came to me – this email was forwarded to me, I rang Jessie Wong Lee – Wong Lee Mei of UOB Kay Hian and Jessie Wong told me that Melvin – we would only accept PE funds as well as financial institution. So any private individuals we would not take.”
(g)“And a company called Irrika Centre Corporation?---Yes. This I know. This company belongs to Harveen Narulla Singh. And a company called Apex - - -?---Yes. - - - Pte Ltd?---Yes, this is one of Harveen’s company. In fact, I also invested in this particular company. You did. Yes. That’s right?---Yes, sir.
Well, I want to suggest to you that Irrika Centre Corporation and Apex Pte Ltd, you don’t know one way or the other whether or not Mr Narulla was the ultimate beneficial owner of those companies, do you?---Mr – Harveen told me that, “Please invest in my company. I have a few companies.” And Apex Peak is one of the company, Gilcrux Holding, Click Central are his company. And also there’s one logistic company in Africa. In fact, time and again, he’s trying to ask me to bring clients, investors, to invest in his companies.”
(h)“Look, I will withdraw the question – I apologise, Mr Tan – in the interests of time. It’s in your defence. I will move on. So the last thing I wanted to – I think the last thing I wanted to ask you about is I just wanted to put it to you squarely that you understood, didn’t you, that the effect of Mr Huber making available shares by way of one of these vendor entities at $2 and then those shares being on-sold of between US$5 and US$10 was causing CellOS to be disadvantaged because investors were buying shares from you or from the Pecks that they might otherwise have subscribed for in CellOS. You understood that, didn’t you?---No, I – I think if the market is upbeat and there are people who are prepared to pay $10, $25 – I do not know who sold at $25, but if there is a market for that kind of price every shareholder would be very, very happy, and it’s also very good for the company because we are all very hopeful that the company would go IPO, even above US$25.
All right. When you sold shares with Mrs Peck or for Mrs Peck in 2013 and 2014, can you just explain to his Honour how the profits were split between you and the Pecks?---Okay. Your Honour, basically, the process is if Constance client were to purchase shares at $5 and I’m able to get shares below $5 the difference I would split with Constance.
Fifty/fifty?---Not quite 50/50 because some of the clients are Constance’s friend and they also want to have a cut of the commission. It is their friends, so we split in many ways.”
(i)“I want to suggest to you that you knew that those shares were shares that were either owned by Mr Huber or shares that he could otherwise facilitate the sale of. That was right, isn’t it?---No, that’s incorrect. That’s incorrect, sir.
Well, some of the companies that you were – that were the vendors of the shares after June 2013 were the very same entities that you have already agreed were Huber-controlled entities – I withdraw that – were entities that were associated with Mr Huber, such as Nesterland?---Yes, sir.
Well, how do you explain the fact that magically Nesterland becomes – those shares become owned by Mr Narulla? How does that happen?---Okay. When I purchase shares from Harveen, Harveen told me that this are shares of his company, his friends, his family and himself, and my cheques are all issued to Harveen, to Harveen’s wife, just Nicole, to Click Central, Gilcrux and to Nesterland, and I believe that these are his company and he swore me to secrecy that Melvin – if you want to buy these shares, this – my shares and never ever to let Jason Huber know that I am selling CellOS shares.
And how many shares did you - - -?---So I believe that these - - -
I’m sorry, Mr Tan?---Yes, sir.
How many shares, roughly, did you - - -?---Yes, sir.
- - - did you acquire from, you say, Mr Narulla after June 2013?---I – I didn’t calculate because there’s a lot of shares. In fact, I have given some cheque butts to – to – as a - -
Okay. But millions of shares; you agree?---Sorry?
Millions of shares?---Millions. Yes. That’s right.
Yes. And you well knew, didn’t you, that Mr Narulla was not in a position to be owning millions of CellOS shares?---On the contrary, I think he should be able to, because he owns many companies. And I think he has a lot of money. He owns many company. And I – I believe that he – he has the money. And, also, he was telling me that he is able to – to go to the market to look for more shares if I want more.
Well, I suggest to you, you well knew that these shares were coming from a Jason Huber-controlled – or company, or companies associated with Jason Huber after June 2013?---No. Absolutely – I – I strongly believe there’s no inkling between Jason Huber and – and Harveen, because he swore me to secrecy time and time and again that, “Melvin, please, never, ever – if you want to buy my shares, never, ever to let Jason Huber know that I am selling CellOS shares.” So I strongly believe that it’s nothing to do with Jason Huber. He is completely out of the loop.”
Mr Huber contends that some of this evidence constitutes an admission that Mr Tan and Mrs Peck used Mr Tan’s wife to hide transactions from Mr Huber to prevent him from discovering and from blocking the share transfers.
Further, Mr Huber referred to Mr Douglas Reid’s affidavit dated 8 September 2017 attaching a number of emails from Mr Narulla to various parties that Mr Huber says shows that he regarded a number of the “Huber Controlled Entities” as his own companies and that he had used Grandeza for various services for his own companies. But I would note that many of these emails were well after the event and of doubtful veracity or probative value.
For example, in an email dated 30 September 2016, between Mr Narulla and Mr Min Wee, Mr Narulla writes to Mr Min Wee stating that Grandeza had “managed (Mr Narulla’s) CellOS assets” and that while the lawyers in Melbourne (i.e. the Applicant's present lawyers) “seem to have assumed that whatever is held by these companies was Huber’s”, “(t)his is not correct” and that should CellOS claim against Mr Huber, “any award now may overlap with the shares that were mine and do not belong to Huber”.
Mr Huber refers to another part of the same email:
Fast forward to 2015, and Huber and I had not been close for some time, it made sense for me to ensure that my shares were managed discretely, with no reference to him. Hence on one of my trips back from Africa, we went through an exercise where I took control of 2 entities, without reference to their previous transacting history, which I am not privy to.
Consequently, the shares in Rex Investors Ltd (‘RIL’) and Nesterland Services Ltd CNSL’) were mine. I accordingly instructed for them to be transferred respectively to be held by Kwik Vaish Ltd (C0000002l12) and by me (SRN C0000000715). Unfortunately, I note RIL and NSL have been named by the Melbourne lawyers as respondents in Cellos’ action against Huber.
Mr Huber submits these documents show that Mr Narulla has admitted he used the services of Mr Min Wee and Grandeza to set up and manage companies for himself. He then recruited the main CellOS share broker, Mr Tan, to stop raising capital for Mr Huber and CellOS and instead to join Mr Narulla in trading shares which evidently was a lot more profitable for Mr Tan than the commission he was earning as a broker for Mr Huber and CellOS.
Further, he says that Mr Narulla purchased many shares and mixed them with Mr Huber’s shares which Mr Huber had entrusted to Mr Narulla to manage for the benefit of CellOS. As a result Mr Narulla was able to clandestinely trade millions of shares he purchased on the side and accumulate sizeable wealth for himself.
Further, Mr Huber refers to an email that Mr Narulla sent to Mr Huber and his lawyers Oon & Bazul on 6 October 2015. The email refers to a further attached email addressed to Mr Min Wee which lists various Huber controlled entities. Mr Narulla admits to Mr Huber that Nesterland is his own entity and further states that “[t]o the extent that the other companies listed hold Cellos shares, these would be held for [Mr Huber].” The entities listed are:
Aura Finance Limited
Birinc Centre Corp
Blue Delorite
Harvest Sky Holdings Limited
Lighthouse Investments Ltd
Rich Max Investments Ltd
Sky Wealth International Ltd
Swallow Limited
Willow Financial Limited
Pized Management Ltd
Stardust Financial Corp
Further, Mr Huber refers to an email from Mrs Peck dated 8 October 2013 in which Mrs Peck says to Mr Huber in respect of vendors selling early investor shares in CellOS “no one knows who the sellers are, and Melvin is not at liberty to disclose who they are.” This document is more comprehensively extracted later in my reasons.
What should be made of all of this? I am prepared to accept in favour of Mr Huber that there were some dealings engaged in by Mr Narulla, which may also have involved Mr Tan, that were unknown to Mr Huber. I am also prepared to accept that some dealings between Mr Tan and Mrs Peck were kept from Mr Huber. But to so accept does not substantially detract from my finding that Mr Huber set up and engaged in the relevant scheme. And more generally, as I have said, Mr Huber set up and ultimately controlled the Huber controlled entities, subject to the qualification I have already made concerning Nesterland.
CHRONOLOGY
Having discussed the relevant Huber controlled entities, it is now convenient to set out a detailed chronology of the salient events.
(a) Events prior to 2011
On 8 June 2005, CellOS was incorporated under the name “Indoaust Investments Pty Ltd”. Notwithstanding that the company retained the name Indoaust until 2013, I have used the name “CellOS” to describe the company throughout.
On 19 December 2005, Mr Huber became a director and CEO of CellOS.
On 20 February 2007, the company held its AGM, at which it was resolved that the status of the company be changed to a public company, known as “Indoaust Investment Ltd”.
Now, in evidence before me is an undated copy of the CellOS’ constitution, titled “Constitution of IndoAust Investments Ltd” and prepared by Middletons. Let me set out some relevant extracts:
2. Capital
2.1. Power of Directors to Issue Shares and other securities
(a)The issue of Shares, options and other securities of the Company is under the control of the Directors.
(b)Any Share, option or other security may be issued with preferred, deferred or other special rights or restrictions, whether with regard to dividends, voting, return of capital, payment of calls or otherwise, as the Directors decide.
(c)Clause 7.1(a) has effect without prejudice to any special rights conferred on the holders of any issued Shares, options or other securities.
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2.4.Non-recognition of equitable or other interests
Except as otherwise provided in this Constitution, the Company must treat the registered holder of any Share as the absolute owner of the Share and must not, except as ordered by a court or as required by statute, recognise (even when having notice) any equitable or other claim to or interest in the Share on the part of any other person.
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8. Transfer of Shares
8.1. Transferability of certificated Shares
(a)Subject to this Constitution, the Act, the Listing Rules and ASTC Settlement Rules, a Member's Shares may be transferred by instrument in writing in any form authorised by the Act or in any other form that the Directors approve.
(b)No fee may be charged by the Company on the transfer of any Shares.
(c)A transferor of Shares remains the holder of the Shares until the transfer is registered.
8.2Registration of transfers
(a)Subject to this Constitution, the Act, the Listing Rules and ASTC Settlement Rules, where Shares are transferred, the following documents must be lodged for registration at the registered office of the Company or the location of the relevant Share register:
(i)the instrument of transfer;
(ii)the certificate (if any) for the Shares; and
(iii)any other information that the Directors may require to establish the transferor’s right to transfer the Shares.
(b)On compliance with clause 8.2(a), the Company must, subject to any powers of the Company to refuse registration, register the transferee as a Member.
(c)The Directors may waive compliance with clause 8.2(a)(ii) on receipt of satisfactory evidence of loss or destruction of the certificate.
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8.6Cases where registration may be refused
In any case here the Company is entitled to refuse registration of the transfer in accordance with the Act and this Constitution, the Company may do any or all things permitted by the Act.
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11.Alteration of capital
11.1.Power to alter capital
The Company may, by resolution, do any one or more of the following:
(a)increase its share capital by the creation of new Shares;
(b)consolidate all or part of its share capital;
(c)subdivide all or any of its share capital; and
(d)cancel Shares that at the time of the resolution have not been taken or agreed to be taken by any person or that have been forfeited and reduce its share capital by the amount of the Shares so cancelled.
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15.1.Appointment and removal [of Directors]
(a)There must be at least 4 Directors, or such greater number of Directors not exceeding 10 as the Directors think fit, in office at all times.
(b)Subject to the Act, the Company may at any time by resolution passed in general meeting:
(i) appoint any person to be a Director; or
(ii) remove any Director from office.
(c)Subject to the Act, the Directors may at any time appoint any person to be a Director. That person holds office until the end of the next following general meeting and is eligible for election at that meeting.
On 28 May 2007, there was a meeting of directors, at which it was resolved that Mr Narulla was to be employed by the company:
3. Singapore
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d.It was resolved that appointment of Harveen Singh Narulla as General Counsel to manage all legal work of the company at a rate of AU$220K p.a. A job description will be required for this role of Legal Counsel and Business Development.
On 19 July 2007 there was a meeting of directors, which minutes record:
c. CEO Position
ŸJason Huber provided his formal resignation as CEO to the Board which is accepted with thanks for the significant contribution he has made to the company
ŸThe Board hereby assumes the role of CEO and shall continue to do so until a replacement is found with the appropriate attributes and experience to take the company to a listing on the Nasdaq.
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d. Director appointments
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ŸJason Huber was appointed Chairman of the Board until January 2008 subject to the affirmative resolution of Jesbir Narulla.
From March 2009 to mid-2011, as a consequence of the global financial crisis, CellOS effectively ceased operating due to lack of funds.
On 8 May 2009, Mr Ramchandra Hegde was appointed a director of CellOS. This appointment was ratified by a meeting of the directors on 7 October 2009.
As at 30 June 2009, CellOS had 179,220,714 ordinary shares on issue, with an increase of 12,855,595 shares since 30 June 2008 (taken from the financial statements dated 26 July 2011):
(a)13,263,529 shares had been issued;
(b)793,242 shares had been created by the conversion of debt into equity; and 1,201,176 shares had been cancelled.
On 7 October 2009 a board meeting was held, the minutes of which record as follows:
4. Fundraising
The Board of Directors noted the latest Information Memorandum that was tabled at the meeting. Mr Jason Huber gave the meeting an update on the current fundraising efforts:
a.The present focus for short term funding was 3 investors that had shown serious interest in investing sums up to USD 250,000 each. Aside from this there was also a list of telecommunications investment funds provided by Merrill Lynch that would be studied to identify potential target investors.
b.The Company had received industry endorsement from operators for CellOSTM and was planning its approach to Network Equipment Manufacturers.
From 2009 onwards, CellOS had a form of information memorandum for use in its fundraising activities. This document was continually being updated for this purpose: for example, in evidence before me was a copy of the information memorandum dated 26 April 2013, which KPMG Corporate Finance Pty Ltd had assisted with preparing (Information Memorandum). The Information Memorandum is extracted later in the chronology, in accordance with its date.
From 13 May 2010 to 29 February 2012, Mr Huber was subject to a sequestration order.
As at 30 June 2010, CellOS had 179,708,714 ordinary shares on issue, with an increase of 488,000 shares from 30 June 2009 (taken from the financial statements dated 8 March 2012):
(a)433,000 shares issued by subscription;
(b)5,000 shares created by the conversion of debt into equity; and
(c)50,000 shares issued by allotment.
On 14 December 2010, there was a meeting of the directors, with the minutes recording:
Resignation – Mr Harveen Narulla
ŸThe Board of Directors noted the resignation by Harveen Narulla as Company Secretary. Mr Harveen Narulla is stepping down to pursue other interests. The Board of Directors accepted the resignation …
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7. Fund Raising and Commercial Development
ŸThe Board agreed that the Global Financial Crisis has made the fund raising effort more difficult, yet noted that the last 5 months from July 10 have seen more positive activity.
ŸThe Board agreed that major funding is dependent on Indoaust getting contract(s) and that the Indonesia project is currently the most realisable contract. The JV between Indoaust and Telemedia will have a 15% stake in the Indonesian public company of which Indoaust will have a 50% share. A CellOSTM demo is planned for Q1 2011 followed by a road show to demonstrate the technology to the operators.
ŸThe Board noted the other business opportunities being pursued, they are:
ŸChina Satcom
ŸBoeing – to re ignite
ŸAeromobile – to re ignite
ŸNokia – to re ignite
ŸCISCO
ŸThe Board noted that Public Equity (PE) firms have shown some interest in Indoaust but none of them have furnished Letters of Intent.
ŸMr. Daniel informed the board that he has had discussions with SF Funds who informed him that they are looking to invest between USD50M – USD100M which they need to invest by end of Q1, 2011 and are considering Indoaust. At this stage Daniel cannot verify if this is true or just talk.
ŸOther PEs that have shown an interest in Indoaust are:
ŸTorus
ŸBentleigh Capital
ŸEQ Ventures
ŸSwiss Funds Management
ŸCK
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Settlement of Jason Huber’s HSBC debt of $15,574.52
ŸThe Board of Directors by unanimous agreement passed a resolution that Indoaust will settle a debt of Jason Huber to HSBC of AUD15,574.52. The Board agreed to Company Secretary’s proposal to offset this amount against Jason’s loan in the Company accounts.
(b) Events in 2011
From at least January 2011, Mr Huber was in the marketplace raising funds for CellOS in order to recapitalise the company.
According to the Information Memorandum, between 2011 and 2012, CellOS raised an amount of close to US$10 million at US$2 per share.
On 4 January 2011, CellOS engaged Mr Tan to act as CellOS’ broker selling shares to raise funds. Let me set out the terms of Mr Tan’s engagement, which was signed by him and by Mr Huber:
MANDATE AND ADVISORY AGREEMENT
This MANDATE AND ADVISORY AGREEMENT (“Agreement”), dated this 04 day of January 2011, is entered into by and between Tan Choon Huat, Melvin, (hereinafter referred to as “Advisor”), NRIC: S1296406D
and Indoaust Investments Ltd (hereinafter referred to as “Indoaust”), a corporation duly organized and existing under the laws of the Victoria, Australia, with office address at the Level 4, 43 Hardware Lane, Melbourne, Victoria 3000, Australia.
1. Mandate Defined
INDOAUST hereby mandates the Advisor, on a non-exclusive basis and according to the terms and conditions set out below to seek and refer to INDOAUST one or several potential investors (hereinafter commonly referred to as “Investor”) for investment in its upcoming fundraising exercise.
Indoaust’s goals in connection with this mandate include, but are not limited to, securing an investment of up to USD 20 Million from Investors.
This mandate applies only to Indoaust’s upcoming round of fundraising and Investment accepted from referrals by the Advisor shall be limited to the aggregate investment amount of USD 20 million.
2. Consultancy Services
The Advisor’s duties under this Agreement shall include, but not be limited to providing advice and assistance in raising equity as defined above.
3. Compensation
Subject to the proviso below in this clause, with respect to any Investor introduction by Advisor and in recognition of any successful transaction taking place as a result of Advisor’s introductions, whether direct or indirect, INDOAUST shall pay to Advisor a commission which shall be earned upon a benefit (hereinafter commonly referred to as “Investment”) received by INDOAUST as follows:
For the total amount of equity, either by way of issue of fresh shares/sale of existing shares, the fee (all inclusive) shall be 5% (five percent) of the equity below USD 1mil; plus an additional 10% commission paid in shares for investment up to $5 mill [“1mill” has been crossed out and amended to “5mill”].
A 5% (five percent) of the equity above USD 1mil up to USD 20mil, which shall be the total fee paid out by INDOAUST for any funds raised by the Advisor. The Advisor will arrange compensation for any intermediaries connected with it whose assistance is used in the course of raising funds pursuant to this Agreement. INDOAUST shall not have any obligation to compensate such intermediaries.
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6. Term
Subject to the proviso below In this clause, this Agreement and the right to earn compensation on Investment as set out above shall be valid and enforceable until 28 February 2011, and may be extended upon mutual agreement, INDOAUST however reserves the right to terminate this Agreement without having any obligation to provide any reasons or explanation therefore, upon giving the Advisor 21 days’ written notice of the same. In the event of termination, any discussions in progress for the raising of funds for INDOAUST shall be allowed to continue and complete, with fees payable as agreed above, upon successful conclusion of the said discussion(s) irrespective of the time/date limitation.
Proviso:
Upon the completion of the Indoaust fundraising exercise to raise USD 20 million, the parties agree that INDOAUST shall have the option of terminating this Agreement irrespective of the stage of discussions with any proposed Investor referred by the Advisor. In the event that any discussions are ongoing between any proposed Investor referred by the Advisor and INDOAUST. INDOAUST may at its option continue with such discussions, with the result that if any Investment is received by INDOAUST the Advisor shall nonetheless be compensated as set out above.
7. Investor Disclosure
In conjunction with each prospective Investor referral to INDOAUST by Advisor, Advisor will obtain in writing, signed by the prospective Investor a Non-Disclosure Agreement provided by INDOAUST or satisfactory to INDOAUST prior to release of any proprietary and confidential information of INDOAUST Upon receipt of a signed NDA from a prospective investor introduced by Melvin, Indoaust shall extend exclusive rights to Melvin to that prospective investor in relation to this Mandate.
Indemnification
Advisor hereby indemnifies and holds harmless INDOAUST its affiliates and its and/or their respective directors, officers, employees, agents and controlling persons from and against any and all losses, claims, damages, liabilities and expenses whatsoever, joint or several, as incurred, related to or arising out of or based upon any act or omission of Advisor in connection with any Investor referral by Advisor to INDOAUST.
8. Governing Law and Jurisdiction
This Agreement shall be governed by and construed in accordance with the laws of Victoria, Australia, and the parties agree that the Courts of Victoria, Australia, shall have exclusive jurisdiction over any dispute arising in connection with this Agreement.
9. Miscellaneous provisions
Any taxes or contributions levied by State or local authorities on a party shall be paid by and shall be the exclusive liability of that party and shall in no way be chargeable to the other party to this Agreement.
None of the parties hereto shall act or have the power to act for the other in any respect whatsoever, and the relationship between the parties hereto shall be deemed to be that of independent contractors (and not of agent and principal) and neither party has any authority to commit or bind the other party in any manner whatsoever. All persons employed or engaged by each of the parties hereto in connection with the performance of this Agreement shall in no way, either directly or indirectly, be considered employees or agents of the other party hereto.
This Agreement and any of the terms hereof may not be disclosed to or relied upon by any party other than the parties hereto. This Agreement, and the rights and obligations of Advisor, may not be assigned by Advisor without the prior written consent of INDOAUST.
This Agreement contains the entire agreement between the parties, and all prior agreements, whether oral or written, are merged herein. This Agreement may not be amended, altered or changed in any way except in writing executed by the parties hereto.
The invalidation or unenforceability in any particular circumstance of any of the provisions of this Agreement shall in no way affect any of the other provisions hereof, which shall remain in full force and effect.
But Mr Peck went on to explain why he “didn’t bother to pry or get into why”:
… When I buy shares from a broker, I don’t go into all the philosophy of how he got the shares and all that nowadays, so that is ingrained in my brain, you know, when I do that. So it’s just one of – and besides, I don’t have 100 per cent of the time to dwell on this. I have got my other businesses to focus on. So as long as someone offers me shares, my broker says “Singapore Airlines shares are $10, I can get $8 from it.” “Get them. You deliver the scrip, I will give you the cheque.” That’s it. So I don’t drill right down to all this who and what, you know.
DR PARKINSON: Were you not curious?---Not at all. I’m quite used to this kind of posture, yes.
CellOS also refers to the following excerpts of evidence in relation to its submission that Mr Peck’s denial ought be rejected:
But you said that your understanding was that he could have turned off the tap?---Yes.
So to your mind, at that time, how could he have done that?---Okay. A negative signal to whoever was providing the shares could have influenced the flow.
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You were aware, weren’t you, that Mr Huber owned approximately 40 per cent or thereabouts of the shares in the company? He – he did own a large chunk, but I mean, whether these were his or in that bundle, I’m not sure – that were sold to us, yes.
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And you’re aware that CellOS – the CellOS shares that Mr Huber was making available for US$2 to you and other people, they were not new shares issued by CellOS; you were aware of that?---I was only aware that there were shares provided through Mr Jason Huber. Yes. But - - -
The distinction I’m seeking to draw is between new shares and a transfer of existing shares?--- I didn’t drill – never – I didn’t drill into whether new, old, or semi-new, old, no, I didn’t.
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And I wish to put to you that you knew that the shares that Mr Huber was making available to you at US$2 were for the purpose of raising funds for CellOS?---I wouldn’t dismiss that, yes.
I’m sorry, I didn’t - - -?---I wouldn’t dismiss that fact, yes.
CellOS submits that like Mrs Peck, Mr Peck’s explanation for his denial of knowledge was that he had closed his mind to further enquiry because he just wanted to keep getting hold of the US$2 shares. In these circumstances, and where Mr Peck was presented with the facts but was wilfully blind to them, it is said that I should infer his actual knowledge. I disagree with CellOS’ submissions that Mr Peck was wilfully blind.
Let me make some more general points. The contention that the Pecks were aware that the shares they bought through Mr Huber were through entities controlled by him is also in some respects inconsistent with some of the contemporaneous documentary record.
On 18 June 2013, Mrs Peck sent a message to Mr Huber which said in part, “For one, I couldn’t understand why the USD2.00 share continued to be so freely available as Dan kept telling me they were. That was one thing that did not make sense to me”.
On 8 October 2013, Mrs Peck sent a long email to Mr Huber describing in detail the trading that had gone on, and specifically requesting at the end that the email be forwarded to Mr Patel and Mr Chan.
On 11 July 2014, Mr Peck exchanged emails with Mr Huber over payment for 2 million shares from Harvest Sky. In the emails Mr Huber repeatedly referred to “the vendor” or “the principal of Harvest Sky” in order to give the impression that it was an independent third party with whom Mr Huber was in communication. Mr Peck’s replies show that he accepted that the vendor was a separate party independent of Mr Huber.
I agree with the Pecks that these messages are inconsistent with either Mrs Peck or Mr Peck knowing that Mr Huber was the owner of the shares that they were purchasing through him.
Further, it would seem that the Pecks did not know that shares they bought from Mr Tan were sourced from Mr Huber. Mrs Peck’s evidence was that the first time she was aware of this fact was when she was told it in conference by CellOS’ solicitor Mr Critchley. She immediately rang Mr Tan to ask him where he had got his shares from. She was shocked when he told her that his source was Mr Narulla, and not the early purchasers she had been led to believe. I accept her evidence on this aspect.
CellOS did not directly raise any new equity by the purchase of shares from the Huber controlled entities: 21ML(h)
CellOS submits that although Mrs Peck denies that she knew that CellOS did not directly raise any new equity by the purchase of shares from the Huber controlled entities, that denial cannot be accepted.
CellOS submits that by about June or July 2013, Mrs Peck agreed that her understanding of what was happening was that early buyers who needed to sell were selling their shares cheaply to a company, one example being Nesterland, which then parked the shares, then Mrs Peck would purchase those shares from Nesterland, and that was how CellOS was being funded. It is said that that evidence is inconsistent with Mrs Peck’s denial. But I repeat what I have said above regarding Mrs Peck’s knowledge of shares being “parked” in Nesterland.
Further, CellOS submits that although Mr Peck denies that he knew that CellOS did not directly raise any new equity by the purchase of shares from the Huber controlled entities, that denial should not be accepted. I disagree for the reasons I have already given.
In my view, the Pecks did not necessarily know that CellOS was not raising new equity by their purchases. They seem to have understood that their purchases were helping CellOS in some way, but they appear never to have turned their minds to precisely how. In the case of Mrs Peck, she may have had some realisation from late 2013 onwards as to the difference between vendor shares and newly issued shares that might have alerted her to the possibility that the money the Pecks were paying for shares sourced through Mr Huber was not going as new equity to CellOS. But she appears to have thought that the shares she was purchasing were shares that CellOS had “parked” with the entities to which she and Mr Peck were asked to make out their cheques.
By Mr Huber making available and selling to them CellOS shares held by the Huber controlled entities at US$2, them on-selling those shares at between US$5 and US$10, and them promoting the sale of CellOS shares from the Huber controlled entities to third parties at and for more than US$5 per share, they benefited and CellOS suffered loss and damage: 21ML(j)
CellOS submits that it is axiomatic that both Mr and Mrs Peck benefited and CellOS suffered loss and damage. CellOS submits further that Mr Peck accepted that he and Mrs Peck benefited from buying CellOS shares at US$2, because it gave rise to “some profit” element. But in my view there does not seem to be any evidence that the Pecks knew that CellOS suffered loss or damage by their purchasing CellOS shares.
General
Let me draw together some general themes before dealing with Mr Tan.
First, the Pecks did not know that Mr Huber lacked the informed consent of the board. Moreover, it has not been pleaded that the Pecks knew that Mr Huber lacked the informed consent of the board. Now CellOS said that knowledge of the absence of informed consent need not be pleaded or established. But in my view it was required to be established. Under s 79 of the Corporations Act, actual knowledge of each essential fact of the contravention is required. The absence of informed consent of the board is an essential fact. If Mr Huber had the informed consent of the board to sell his shares to the Pecks, there could be no contravention of ss 181 to 183. Further, the official nature of the CellOS’ presentations would, to any reasonable person in the Pecks’ position, have obviated any need for them to make enquiries of the board as to whether Mr Huber was acting with their sanction.
Indeed CellOS’ allegations of wilful blindness fail not only on the actual extent of the Pecks’ ignorance of the true position, but also because I cannot infer wilful blindness when the circumstances were such as to reassure the Pecks and put them off any enquiry that someone in their position might think to make. On the contrary, I infer that had the Pecks turned their minds to the question, the Pecks would have concluded that Mr Huber had the informed consent of the board of CellOS for what he was doing.
Moreover, as I have indicated, this approach is supported by what Mrs Peck actually said and did at the time. In her 8 October 2013 email, she explained to Mr Huber how the share transactions worked, as she understood it. Her 8 October 2013 email is inconsistent with the allegation that she knew the essential facts of any contravention by Mr Huber. Further, at the end of the 8 October 2013 email, Mrs Peck said “I would like to request that the above information be passed to Kamlesh and Jonathan Chan to set the record straight”. This displays an understanding or assumption that the board was aware of the transactions in which she and Mr Huber had been engaging. As I have said, Mrs Peck had an honest and reasonable belief in circumstances that, if true, would render Mr Huber’s action, and her’s, innocent.
Second, the Pecks did not know that CellOS was not raising new equity by their purchases. They seem to have understood that their purchases were helping CellOS in some way, but they appear never to have turned their minds to precisely how. As I have already said, in the case of Mrs Peck a dawning realisation from late 2013 onwards as to the difference between vendor shares and newly issued shares might have alerted her to the possibility that the money the Pecks were paying for shares sourced through Mr Huber was not going as new equity to CellOS. But she appears to have thought that the shares she was purchasing were shares that CellOS had “parked” with the entities to which she and Mr Peck were asked to make out their cheques.
Third, there does not seem to be any evidence that the Pecks knew that CellOS suffered loss or damage by their purchasing CellOS shares.
Finally and for completeness, I should say that I have carefully considered material relating to Mrs Peck in particular including her WhatsApp messages in evidence, her email to Mr Huber of 8 October 2013 and her emails to Mr Justin Lau of 10 and 19 December 2013. I have also considered her emails of 21 August 2013 concerning Mr Cooper. Clearly from time to time she made some misrepresentations. Clearly from time to time she kept things from Mr Huber; and at times some of her dealings with Mr Tan were not fully transparent to Mr Huber. But at the end of the day, none of this establishes the requisite actual knowledge required for accessorial liability. Moreover, from her perspective she appeared to assume that CellOS was aware of and condoned the secondary or grey market.
(b) Knowledge held by Mr Tan
CellOS submits that Mr Tan’s position is different from the Pecks, in that he was formally engaged by CellOS as its broker for the relevant period. It says that his conduct should therefore be assessed through that prism. CellOS submits that the evidence demonstrates that Mr Tan had actual knowledge of each fact as alleged in paragraph 21ML of the 5FASOC.
Contrastingly, Mr Tan submits generally that while he may have assisted in the sales of shares by Mr Huber to the Pecks, he did not have knowledge of any matters which would take those sales beyond being apparently innocent acts.
Before getting into the detail, let me say something on the factual background.
On 4 January 2011, Mr Huber wrote to Mr Tan appointing him as an advisor and broker to CellOS. The terms of that appointment were governed by Mr Tan’s engagement letter dated 4 January 2011. Mr Tan gave evidence that his role was to seek out and refer investors who might be interested in investing in CellOS to Mr Huber for the purpose of investing in CellOS. The scope of the engagement included both the issue of new shares and the sale of existing shares, and Mr Tan understood that to be so.
Mr Tan’s evidence was that he raised US$10 million in 2011 in new issue shares. At this time, and later into 2013, Mr Tan was selling shares held by Child and Family Foundation. Mr Tan assumed that Child and Family Foundation was a Huber controlled entity. He understood that the proceeds from the sale of these shares was to be used to fund CellOS.
Initially, Mr Tan received 10% commission on share sales. It later changed to 6%, when Mr Tan brokered the sale of some CellOS shares at US$5 instead of US$2, and his commission was thereafter reduced.
As early as December 2012, Mr Tan told Mr Huber about potential clients who had the financial capacity to take up shares at US$5 per share. And Mr Tan said that he believed buyers of CellOS shares could be found at US$5 per share throughout 2013.
In March 2013, Daniel Tan, Mr Tan’s brother, arranged for CellOS’ management to present to the Pecks about investing in CellOS shares.
At this meeting, Daniel Tan introduced Mr Tan to the Pecks as CellOS’ “official broker”. Mrs Peck’s evidence was that she understood Mr Tan to be CellOS’ official broker, and she thereafter introduced him to people as such, although there was a later falling out between Mr Huber and Mr Tan.
Now Mr Tan says that he was not CellOS’ “official broker” during the relevant period. He was an advisor to CellOS on a non-exclusive basis pursuant to a mandate and advisory agreement dated 4 January 2011, by which he assisted CellOS in specific fundraising exercises when called upon to do so. In about June 2013 Mr Huber told Mr Tan he was not needed for further fundraising work and, during the period September 2013 to July 2014, the only occasions on which he was asked to assist CellOS were in respect of sales of shares made by Mr Huber to the Pecks for the purpose of funding CellOS and on a discrete fundraising in November and December 2013.
Mr Tan denied the allegation that Mr Huber “procured the sale” to Mr Tan of shares during the relevant period. The evidence is that during this period Mr Tan bought shares from Mr Narulla as part of share trading he conducted with the Pecks separately from Mr Huber, who denied having anything to do with it, did not approve of it taking place and tried to stop it. Mr Huber said he did not sell shares to Mr Tan and that the payments made by Mr Tan to Mr Narulla for such shares were not received by Mr Huber, nor was Mr Narulla receiving them on his behalf.
Let me now deal with the matters that CellOS says Mr Tan had knowledge of.
CellOS was not generating sufficient revenue to meet its operational expenditure and was reliant upon, and sought to effect, equity raisings and loans: 21ML(a)
I note that Mr Tan has admitted that he knew that between 2011 and 2014 CellOS was engaged in fund-raising. Now as to CellOS’ proposition that Mr Tan knew that CellOS was not generating sufficient revenue to meet its operational expenditure, CellOS refers to the following.
CellOS submits that Mr Tan assisted Mr Huber to raise funds in 2011 to recapitalise CellOS. I accept this. Mr Tan’s evidence was:
Jason told me that the funds had gone towards supporting the company’s operating expenses and that he was now able bring in a management team to get the business going and work towards listing the company on Nasdaq, which was always his aim.
CellOS submits that Mr Tan was one of CellOS’ brokers, and held shares in CellOS. He had access to company reports as broker and obtained information as a shareholder including AGM information. I am also prepared to accept this.
I also accept that in May 2014, Mrs Peck wrote, copied to Mr Tan: “Most important thing now is the revenue – once that comes, everything will become v upbeat I m told”.
Now as to CellOS’ proposition that Mr Tan knew that CellOS was reliant upon and sought to effect equity raisings and loans, CellOS refers to the following.
CellOS submits that Mr Tan assisted Mr Huber to raise funds in 2011 to recapitalise CellOS. So much is true.
CellOS submits that Mr Tan admitted that during the relevant period he was acting as a broker for CellOS and that he understood that CellOS was in the market seeking to raise funds if it could. I think this all has to be read with the chronology I have just indicated.
Further, CellOS submits that Mr Huber, too, was clear that Mr Tan knew that Mr Huber was selling shares to raise money to fund CellOS. Further, CellOS submits that Mr Tan knew that Mr Huber was selling shares from his associated companies to the Pecks at US$2 per share to raise funds for CellOS, when the market price of shares was higher than US$2. These are more problematic submissions.
Now Mr Tan said that he did not know:
(a)first, that CellOS was not generating sufficient revenue to meet expenses and was reliant upon equity raisings and loans; and
(b)second, that the sale of shares to Mr Huber by the Pecks did not involve any new shares being issued by the company.
But as to the first matter, I am prepared to find that Mr Tan knew this.
But as to the second matter, in my view there is no evidence that Mr Tan knew or could be expected to know what had taken place within CellOS with respect to shares being sold by Mr Huber to the Pecks. It was possible that new shares were or had been issued to the seller for the purpose, or in anticipation, of such transactions.
CellOS was seeking to raise funds - US$100 million by way of a private share placement at US$5 per share: 21MA, 21ML(b)
I note that Mr Tan admitted that he knew that CellOS was seeking to raise US$100 million by way of a private share placement at US$5 per share. Mr Tan’s evidence is that he knew generally that UOB was engaged to raise funds, but that he never saw the terms of engagement. Mr Tan admits that the purpose of the UOB placement was to provide CellOS with funds to prepare for an IPO and expansion and the funds were not expected to be available in the short-term. But he thought that the UOB placement was for institutional investors and private equity funds, not individual investors.
The purpose of the equity raising was to provide CellOS with funds sufficient to meet its operational expenditure: 21ML(c)
I am prepared to accept that Mr Tan knew that this was one of the purposes.
Between 1 September 2013 to 22 January 2015, all shares CellOS issued to third party investors (exclusive of shares issued to employees and conversions pursuant to the LGA loan), were issued at $5 per share: accordingly, shares in CellOS could be placed in the market at US$5: 21ML(d)
CellOS submits that Mr Tan was involved in CellOS’ raising of funds through the issue of new shares in November and December 2013, and accepted that he knew that CellOS placed shares at this time at US$5 per share. But I would note that Mr Tan’s witness statement suggests very little involvement in late 2013, just receiving occasional commissions. But his defence says he was aware of shares being issued at the price of US$5.
Further, I would note the following:
(a)As early as November 2012, Mr Tan had expressed confidence that CellOS could issue shares at US$5 per share.
(b)He admitted that he knew of sales of CellOS shares for US$5 and US$10 in the period of September 2013 to July 2014.
(c)He admitted that he knew that CellOS was able to place its shares in the marketplace at US$5 per share during 2013.
(d)He accepted that throughout 2013 he held the belief that buyers for shares in CellOS could be found at prices of US$5 or more.
(e)Mr Tan knew about, and was involved in, the Pecks’ sale of 2 million shares to Yeo-Tan at US$5 per share in January 2014.
Between 1 September 2013 and 18 July 2014, there were willing buyers for CellOS shares at US$5 and up to US$10: 21MB, 21ML(e)
Mr Tan admits that he was aware that in the period September 2013 to July 2014, shares in CellOS were being sold on the market at various prices, including some at prices of US$5 and US$10.
Mr Huber was the chief executive officer and a director of CellOS: 21ML(f)
Mr Tan admits that he was aware that Mr Huber was CEO and a director of CellOS.
CellOS shares that Mr Huber was making available were not new shares issued by CellOS but were shares being sold by the Huber controlled entities, for the purpose of raising funds for CellOS: 21ML(g)
As to whether Mr Tan knew that the CellOS shares that Mr Huber was making available to the Pecks and others were not new shares issued by CellOS, CellOS says that Mr Tan knew the sellers were companies associated with Mr Huber. It is said that Mr Tan said he would assume that Child and Family Foundation was a Huber controlled entity. It is said that as to Maitreya Mandala, Money Max, Rex Investors and Nesterland, Mr Tan knew that these were companies associated with Mr Huber and that Mr Huber was using them to sell shares.
Now Mr Tan’s evidence in some respects was equivocal. For example, occasionally he filled in transfer forms with a blank seller. But the general effect was that he accepted that he knew that the vendor companies were in some way associated with Mr Huber or had some arrangement with him.
As to whether the shares Mr Huber was making available were shares being sold by the Huber controlled entities, CellOS says that Mr Tan accepted that he knew the sellers were companies associated with Mr Huber.
When Mr Tan was pressed about what he understood when he said Mr Huber was using these companies, the following exchange occurred.
HIS HONOUR: That’s why I asked you the question earlier about “using”. What was your understanding about how - - -?---Yes, your Honour.
- - - Jason Huber was able to use these companies?---This company – it’s just when we bring our clients to see Jason and, if our clients are interested, Jason will give us a form to put down which are the company. So during that time, whatever company he gives, we will just ask my client to issues cheques to that particular company, and I just submit my invoice.
MR CRUTCHFIELD: So is it fair, Mr Tan, as far as you were concerned, you didn’t inquire into who was - - -?---I did not inquire.
- - - the ultimate owner of any of these companies. That’s right?---Yes, sir.
Okay. But you did understand that in some way or another they were associated with Mr Huber, and Mr Huber was able to facilitate those companies selling shares?---I think my understanding would be whoever – whichever company that has been – we are told to issue the cheques to, there were – I believe that this certain arrangement that Jason would somehow pass the money to CellOS for it – for them to run the company.
As to whether the purpose of the share sales was to raise funds for CellOS, CellOS says that Mr Tan’s evidence was clear that he knew this to be so. Evidence was given as follows:
HIS HONOUR: So the question, Mr Tan, was if you’re dealing with the sale of shares, how does that raise equity for the company or how does money flow into CellOS, I think is the question of Mr Crutchfield?---Yes, your Honour. Jason told me that actually, for me, your Honour, my duty is to bring customers to – shareholders, potential shareholders, to the company. I – I will not question Jason Huber as to which arrangement. It could be his subsidiary, it could be his company, but, ultimately, the arrangement for Jason is that somehow the money raised would still be given to the company. I did not know about the … arrangement. I did not ask. That’s right, your Honours.
Mr Tan also gave the following evidence in relation to the Huber controlled entities selling shares at US$2 per share:
Okay. But you did understand that in some way or another they were associated with Mr Huber, and Mr Huber was able to facilitate those companies selling shares?---I think my understanding would be whoever – whichever company that has been – we are told to issue the cheques to, there were – I believe that this certain arrangement that Jason would somehow pass the money to CellOS for it – for them to run the company.
Mr Tan admits that he was aware that the sales of shares by Mr Huber to the Pecks at US$2 per share were for the purpose of raising funds for CellOS. Further, he knew of the details of these transactions, including the amounts paid by the Pecks.
But nevertheless, there is no evidence that Mr Tan knew, or could be expected to know, what had taken place within CellOS with respect to the shares being sold by Mr Huber to the Pecks. It was possible that new shares were, or had been, issued to the seller for the purpose, or in anticipation, of such transactions. In any case, Mr Tan knew little about the real source of the shares or the funding arrangements.
CellOS did not directly raise any new equity by the purchase of shares from the Huber controlled entities: 21ML(h)
I am not prepared to find that Mr Tan knew this in terms.
Mr Tan knew that by Mr Huber making available and selling to the Pecks and Mr Tan CellOS shares held by the Huber controlled entities at US$2, them on-selling those shares at between US$5 and US$10, and them promoting the sale of CellOS shares from the Huber controlled entities to third parties at and for more than US$5 per share, they benefited and that CellOS suffered loss and damage: 21ML(j)
CellOS submits that it is axiomatic that Mr Tan benefited and CellOS suffered loss and damage.
Now Mr Tan admits that he obtained some profits from the sale of some of the US$2 shares and that he and the Pecks split those profits.
CellOS submits that Mr Tan accepted that at the same time as he was acting as CellOS’ broker or adviser and raising money for CellOS by way of CellOS issuing its shares at US$5, he was also arranging for the US$2 shares to be sold into the market. But Mr Tan did not agree that he knew his conduct caused CellOS to be disadvantaged because investors were buying the US$2 shares from the Pecks and him rather than subscribing for new shares in CellOS. His reason for that disagreement was as follows:
No, I – I think if the market is upbeat and there are people who are prepared to pay $10, $25 – I do not know who sold at $25, but if there is a market for that kind of price every shareholder would be very, very happy, and it’s also very good for the company because we are all very hopeful that the company would go IPO, even above US$25.
But CellOS says that this should not be accepted. I disagree.
Now Mr Tan submits that by paragraph 21ML(j), CellOS goes beyond the elements of the pleaded “diversion of opportunity conduct” claim, alleging the Pecks and Mr Tan knew that:
the effect of Huber making available and selling to them CellOS shares held by the Huber controlled entities at US$2, them on-selling those shares at between US$5 and US$10, and them promoting the sale of CellOS shares from the Huber controlled entities to third parties at or for more than US$5 per share, was that:
(i) CellOS was suffering loss and damage and being disadvantaged; and
(ii) Constance Peck, Alan Peck and Melvin Tan benefited.
But I disagree.
Generally, I am not prepared to find that Mr Tan knew that what he was doing was causing CellOS loss and damage.
(c) General
For CellOS to succeed on the accessorial claims, it is necessary to prove that the Pecks and Mr Tan had actual knowledge of the essential facts constituting the contravention (Yorke v Lucas (1985) 158 CLR 661 at 670 per Mason ACJ, Wilson, Deane and Dawson JJ); but it is not necessary to show that they knew that the relevant conduct contravened the statute. Now strictly CellOS must show more than that the Pecks and Mr Tan, if it be the case, wilfully and recklessly failed to make such inquiries as an honest and reasonable man would make or had knowledge of circumstances which would indicate the facts to an honest and reasonable man. Concepts of constructive knowledge in the context of a claim under the second limb of Barnes v Addy have no direct relevance in the present context. CellOS has not pursued such a claim against the Pecks or Mr Tan. However, such concepts may be relevant to the question of inference.
The Pecks submit that if the diversion of business opportunity as pleaded did amount to a contravention of the Corporations Act, the Pecks were not involved in the contravention. They say that CellOS has failed to prove that they possessed actual knowledge of the essential facts of any contravention as pleaded within the meaning of Yorke v Lucas. The Pecks submit that the essential facts that the Pecks did not know entail that CellOS cannot sheet home to them accessorial liability for any breach by Mr Huber. I agree.
Now CellOS seemed to suggest at one stage that Mrs Peck could be said to have knowledge applying what was said by Leeming JA in Hasler v Singtel Optus Pty Ltd (2014) 87 NSWLR 609 at [140]:
Let it be assumed that a third party knows of the essential facts which, absent fully informed consent, amount to a breach of fiduciary duty which is a dishonest and fraudulent design. If that third party continues to participate in what prima facie amounts to a dishonest and fraudulent breach of fiduciary duty without inquiring whether there is fully informed consent, then the third party is liable. It is not necessary for the plaintiff to take the further step of proving knowledge of the absence of fully informed consent. Once in possession of knowledge of what would otherwise amount to a dishonest breach of duty, an honest and reasonable person in the position of the third party would make inquiries. If there is no other evidence as to the third party’s state of mind, the third party will have the requisite knowledge to be rendered liable to account as a constructive trustee.
But these propositions have little direct bearing on the present context concerning the claims against the Pecks and Mr Tan. I am dealing with accessorial liability where actual knowledge or as good as actual knowledge must be demonstrated. I am not dealing with constructive knowledge in the context of the second limb of Barnes v Addy or what Leeming JA described as requisite knowledge.
But I accept of course that awareness of suspicious circumstances and the failure to make inquiry may sustain an inference of actual knowledge (Pereira v Director of Public Prosecutions (1988) 82 ALR 217 at 220). So too, wilful blindness may sustain such an inference. But I do not consider that in the present case from what was known by the Pecks and Mr Tan that such an inference should be drawn. The inference that CellOS seeks me to draw is not the only rational inference. Further, if the facts known to the alleged accessory demonstrate an apparently innocent act or, at least, as equally demonstrate that as not, then no finding of actual knowledge or an inference drawn as to actual knowledge can be made.
Let me also say something further concerning ignorance by setting out the classic statement of Lord Sumner tendering the advice of the Privy Council in The Zamora (No 2) [1921] 1 AC 801 at 812 in the following terms:
It may be that in his anxiety not to state more than he found against Mr Banck, the learned President appeared to state something less, but there are two senses in which a man is said not to know something because he does not want to know it. A thing may be troublesome to learn, and the knowledge of it, when acquired, may be uninteresting or distasteful. To refuse to know any more about the subject or anything at all is then a wilful but a real ignorance. On the other hand, a man is said not to know because he does not want to know, where the substance of the thing is borne in upon his mind with a conviction that full details or precise proofs may be dangerous, because they may embarrass his denials or compromise his protests. In such a case he flatters himself that where ignorance is safe, ‘tis folly to be wise, but there he is wrong, for he has been put upon notice and his further ignorance, even though actual and complete, is a mere affectation and disguise.
Let me also refer to Medical Benefits Fund of Australia Ltd v Cassidy (2003) 135 FCR 1 at [15] where Moore J said (Mansfield J agreeing):
I should add that, in my opinion, liability as an accessory (in circumstances where the contravening conduct of the principal was making false or misleading representations) does not depend on an affirmative answer to the question whether the alleged accessory knew the representations were false or misleading. All that would be necessary would be for the accessory to know of the matters that enabled the representations to be characterised in that way. In a comparatively simple situation, such as the situation considered in Yorke v Lucas, where particular representations were being made to individuals or groups of individuals, knowledge of those matters would almost inevitably result in the alleged accessory also knowing the representations were false or misleading. Had Lucas known of the real turnover figures, then it is difficult to imagine that he would not have appreciated, additionally, that what he was saying about the business was false and misleading.
This observation was made in the context of Moore J’s observations at [12] where he said:
The majority [in Yorke v Lucas] used two expressions in these passages. One is “essential matters” making up the offence and the other is “essential elements” of the contravention. It is relatively clear from the example used in the first passage, that the expression “essential matters” comprehends matters of fact which must be known to the alleged accessory before liability arises. The example given (from the facts in Giorgianni v R (1985) 156 CLR 473) was knowledge of the condition of the brakes. On any view of what was held by the High Court, accessorial liability only arises in the present matter if it is at least demonstrated that the alleged accessory knew of the facts which constituted the conduct of MBF which contravened the ASIC Act.
In summary and based on the factual analysis set out above, CellOS has not made out its case against the Pecks and Mr Tan concerning the requisite knowledge necessary to establishing accessorial liability.
In my view, the Pecks and Mr Tan lacked actual knowledge of or relevant to the following matters. Moreover, I am not prepared to infer actual knowledge of such matters from a lesser constructive knowledge foundation or reckless indifference.
First, they had no appreciation or awareness that their relevant conduct or Mr Huber’s activities was causing or would be likely to cause loss to CellOS.
Second, they had no appreciation or awareness that Mr Huber’s activities were done without the knowledge or consent of CellOS and its board.
Third, they had no appreciation or awareness that their relevant conduct or Mr Huber’s activities were diverting from CellOS a valuable business opportunity.
Fourth, the fact that the Pecks and Mr Tan from time to time acted against Mr Huber’s intentions is a point against finding accessorial liability.
Fifth, they had no appreciation or awareness of the use by Mr Huber of LGA and Pized and the use of and the vice in the LGA loan and the Pized loan.
Sixth, the Pecks had less than a sophisticated appreciation of the difference between CellOS issuing new shares and trading by Mr Huber and others in existing shares in terms of providing equity funding to CellOS.
Seventh, the Pecks at least had little awareness of who was behind the Huber controlled entities in terms of the sellers of shares to them, although their suspicions were raised at one stage. They were aware at one stage that they were being kept in the dark.
Eighth, it would also seem that the Pecks and Mr Tan thought that the making available of shares by or through Mr Huber to them, if they perceived that to be the case, raised no issue in their minds that this was not in the interests of CellOS.
Generally, CellOS’ case rose no higher than establishing that at times suspicions were raised as to who was doing what to whom and why. But that is not sufficient to show the requisite actual knowledge or to justify drawing an inference thereof sufficient to establish accessorial liability.
CONCLUSION
In my view, CellOS has made out its case against Mr Huber and the Huber controlled entities. I will hear further from the parties as to the necessary orders to make to facilitate the next stage of the proceedings.
But CellOS has failed in its claims against the Pecks and Mr Tan. The proceedings against them will be dismissed with costs.
I certify that the preceding one thousand and fifty-eight (1058) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Beach. Associate:
Dated: 20 December 2018
SCHEDULE OF PARTIES
VID 951 of 2015 Respondents
Fourth Respondent:
REX INVESTORS LTD
Fifth Respondent:
SUN WAY GLOBAL GROUP LIMITED
Sixth Respondent:
AURA FINANCE LIMITED
Seventh Respondent:
HARVEST SKY HOLDINGS LIMITED
Eighth Respondent:
RICH MAX INVESTMENTS LIMITED
Ninth Respondent:
NESTERLAND SERVICES LTD
Tenth Respondent:
WILLOW FINANCIAL LTD
Eleventh Respondent:
LIGHTHOUSE INVESTMENTS LTD
Twelfth Respondent:
LEARIO OVERSEAS CORP
Thirteenth Respondent:
STARDUST FINANCIAL CORP
Fourteenth Respondent:
PIZED MANAGEMENT LTD
Fifteenth Respondent:
BLUE DELORITE PTY LTD (ACN 116 976 151)
Seventeenth Respondent:
CONSTANCE EMILY PECK
Eighteenth Respondent:
ALAN PECK
Nineteenth Respondent:
MELVIN TAN
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