CLC Corp v Cambridge Gulf Holdings NL
[1997] FCA 1118
•24 October 1997
FEDERAL COURT OF AUSTRALIA
CONTRACT - CORPORATIONS - Company A (whose shares were listed on the Australian Stock Exchange) arranged placement of ten million shares in its capital to raise $20 million - Placement partially underwritten - underwriter filled its portion of the placement - A’s share price subsequently fell - last minute unexpected shortfall in subscriptions for balance of placement (two million shares) - Company B (unlisted) held over half the shares in A’s capital - B had no other business than to manage its investment in A - C was founder of B, chairman of board of directors of both A and B and acted as chief executive officer of both companies - Company P, as trustee of C’s family trust held majority of issued shares in B - C reached agreement with applicant that if applicant subscribed for the two million shares shortfall in A’s placement, applicant would receive ten million “escrowed” shares in A at a later date as a “sweetener” - B then held 32 million fully-paid vendor shares in A, subject to escrow conditions - C caused P’s solicitors to write letter to applicant’s agent confirming that P undertook to deliver ten million shares in A once those shares “free of escrow” - applicant subscribed for two million shares in A and paid full price - whether C contracted on behalf of A, B or P - whether C had actual or ostensible authority to bind B or P - whether agreement illegal - whether agreement unenforceable because P’s solicitor’s letter not stamped - whether agreement unenforceable on basis that applicant had entered into champertous agreement in relation to bringing the application.
Stamp Act 1921 (W.A.) s 27, 31B
Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480 foll.
Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549 foll.
Inland Revenue Commissioners v Ufitec Group Ltd (1977) 3 All ER 924 foll.
Brick and & Pipe Industries Ltd v Occidental Life Nominees Pty Ltd [1992] 2 VR 279 foll.
Northside Development Pty Ltd v Registrar-General (1990) 170 CLR 146 foll.
Jones v. Dunkel (1958) 101 CLR 298 applied
Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378 foll.
Roux v Australian Broadcasting Commission [1992] 2 VR 577 foll.
Davis v Federal Commissioner of Taxation (1989) 86 ALR 195 foll.
Metro Taxi Management Pty Ltd v Commissioner of State Taxation (WA) (1995) 95 ATC 4671 foll.
CLC CORPORATION v. CAMBRIDGE GULF HOLDINGS NL & ORS
No. WAG 74 of 1996
CARR J
PERTH
24 OCTOBER 1997
IN THE FEDERAL COURT )
OF AUSTRALIA )
WESTERN AUSTRALIA )
DISTRICT REGISTRY ) No. WAG 74 of 1996
GENERAL DIVISION )
B E T W E E N : CLC CORPORATION
Applicant
AND: CAMBRIDGE GULF HOLDINGS NL
First Respondent
PENALE PTY LTD
Second Respondent
BRIAN JAMES DENNIS CONWAY
Third Respondent
CORAM: CARR J.
PLACE: PERTH
DATE: 24 OCTOBER 1997
MINUTE OF ORDERS
THE COURT ORDERS THAT:
The first respondent and the second respondent pay to the applicant the sum of $5,600,000.
1A.The first and second respondents have leave to file and serve within 7 days written submissions on the question whether the applicant should be awarded interest upon its judgment for the above sum and, if so, the basis for calculating such interest.
1B.The applicant have leave to file and serve within 7 days of receipt of the above submissions its submissions in relation to those matters.
The first respondent and the second respondent pay the applicant’s costs.
The third respondent having died since judgment was reserved in this matter, the question whether any orders should be made in respect of any claims involving the third respondent be reserved to a date to be fixed.
NOTE:Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT )
OF AUSTRALIA )
WESTERN AUSTRALIA )
DISTRICT REGISTRY ) No. WAG 74 of 1996
GENERAL DIVISION )
B E T W E E N : CLC CORPORATION
Applicant
AND: CAMBRIDGE GULF HOLDINGS NL
First Respondent
PENALE PTY LTD
Second Respondent
BRIAN JAMES DENNIS CONWAY
Third Respondent
CORAM: CARR J.
PLACE: PERTH
DATE: 24 OCTOBER 1997
REASONS FOR JUDGMENT
INTRODUCTION
In this application the applicant, CLC Corporation, seeks specific performance of two contracts for the transfer to it of ten million shares in a company called Cambridge Gulf Exploration NL (“Exploration”). Exploration is and has at almost all material times been listed on the Australian Stock Exchange. The applicant seeks damages in addition to or in lieu of specific performance. Alternatively, the applicant seeks damages against all of the respondents under s.82 of the Trade Practices Act (1974) (Cth) (“the Act”) for misleading or deceptive conduct. In relation to the third respondent, Mr Brian James Dennis Conway, the applicant seeks, in the alternative, damages under s.79 of the Fair Trading Act 1987 (W.A.) or damages for breach of warranty of authority.
The first respondent, Cambridge Gulf Holdings NL (“Holdings”) has at all material times held a controlling shareholding in Exploration. Mr Conway was at all material times a director of Holdings and, since 17 November 1996, has been a director of the second respondent, Penale Pty Ltd (“Penale”). Penale is the trustee of Mr Conway’s family trust. Penale, until quite recently, held about 52% of the issued share capital in Holdings.
FACTUAL BACKGROUND AND THE PLEADINGS
The following factual background is taken largely from the statement of claim. The applicant is a company duly incorporated in the Bahamas. Its incorporation, although not denied, was simply not admitted by the respondents. I find on the evidence that it is and was at all material times duly incorporated and capable of suing. In reaching that finding I rely upon:
.the certified copy of the applicant’s Certificate of Incorporation dated 30 July 1990 issued by the Acting Registrar General of the Commonwealth of The Bahamas to the effect that the applicant was incorporated as an “International Business Company” on 30 July 1990 (page 37 of Exhibit CLC1);
.a Certificate of Good Standing dated 6 May 1997 signed by the Deputy Registrar General of the Commonwealth of The Bahamas (page 341 of Exhibit CLC1);
.a notarially certified copy of the applicant’s memorandum of association and articles of association (Exhibit CLC9); and
.the evidence of Mr Norman Leighton, a director of the applicant, to the effect that it was incorporated on 30 July 1990 and has at all times since that date been in good standing. I accept Mr Leighton’s evidence on those matters.
In May 1994 Exploration was in the course of making a placement of ten million shares in its capital at a price of $2 per share, comprising the nominal value of 25 cents per share and a premium of $1.75 cents per share (“the Placement”). The applicant’s case against Holdings is that on 15 or 16 May 1994, in the course of a telephone conversation between Mr Conway in Perth, (during which the applicant alleges that Mr Conway acted as director of, and within his actual or ostensible authority conferred by Holdings), and a Mr Robert Pittorino in France (acting for or on behalf of the applicant), an agreement was reached concerning the subscription of two million of the abovementioned shares in Exploration. This agreement is referred to in the statement of claim as “the Cambridge Gulf Agreement”. The applicant says that the Cambridge Gulf Agreement was an oral one whereby, in consideration of the applicant subscribing and paying Exploration $4 million for those two million shares, Holdings would, on 8 July 1995, transfer or cause to be transferred to the applicant, or its nominee, ten million fully paid shares (“the Shares”) in Exploration. The applicant pleads that the Shares were then held by Holdings or its nominee. The applicant says that pursuant to the Cambridge Gulf Agreement it paid, through its agent Westpac Custodian Nominees Ltd, the sum of $4 million to Exploration on or about 25 May 1994 and subscribed for the issue of two million shares in Exploration. The applicant further says that Holdings has denied the Cambridge Gulf Agreement and has failed and refused to perform that agreement in accordance with its terms. In particular, the applicant complains that the Shares have not been transferred to it. The applicant says that it is and has at all material times been ready, willing and able to perform its obligations under the Cambridge Gulf Agreement. The applicant seeks specific performance of that agreement. In addition to or in lieu of specific performance the applicant claims damages for breach of the Cambridge Gulf Agreement. Further or alternatively, the applicant claims that Mr Conway impliedly warranted that he was authorised by Holdings to make the Cambridge Gulf Agreement and that it (the applicant) entered into the Cambridge Gulf Agreement in reliance upon that warranty. The applicant pleads that if Mr Conway was not authorised by Holdings to make the Cambridge Gulf Agreement then Mr Conway was in breach of his warranty of authority, by reason of which it has suffered loss and damage. The applicant quantifies its loss and damage as being the benefit of the Cambridge Gulf Agreement, namely the right to the transfer of ten million shares in Exploration on 8 July 1995, at which date (so the applicant pleads) such shares were quoted at 62 cents on the Australian Stock Exchange.
Further or alternatively the applicant alleges the making of an agreement in the same terms as the Cambridge Gulf Agreement with Penale. This is described in the statement of claim as “the Penale Agreement”. The making of the Penale Agreement, the allegation of its breach by Penale and the loss and damage suffered thereby by the applicant are pleaded in precisely the same terms as above save that instead of references to Holdings there are references to Penale. There is a similar plea of breach of warranty of authority on Mr Conway’s part in relation to his alleged role in negotiating on behalf of Penale with the applicant.
Again by way of a further and alternative plea the applicant claims that what Mr Conway said to Mr Pittorino during their telephone conversation amounted to representations made by Mr Conway on behalf of Holdings or, in the alternative, on behalf of Penale. Those representations were that if the applicant were to subscribe for two million shares in Exploration at a total price of $4 million, Holdings intended to and would on 8 July 1995 transfer the Shares to the applicant or its nominee. The representation alleged to have been made by Penale is that it would on 8 July 1995 cause Holdings to transfer the Shares to the applicant. The applicant claims that these representations constituted misleading conduct in trade or commerce contrary to s 52 of the Act and s 10 of the Fair Trading Act. The applicant says that these representations were with respect to a future matter, made without reasonable grounds, and that it relies on s 51A and s 9 respectively of those Acts. Alternatively, it pleads that neither Holdings nor Penale had, as at 15 or 16 May 1994 the intention of transferring or causing Holdings to transfer, the Shares to the applicant. The applicant pleads that Mr Conway was knowingly concerned in the contravention of s.52 of the Act by Holdings and, in the alternative, by Penale. The applicant further says that, acting in reliance upon the representations, it subscribed for two million shares in Exploration and paid $4 million to that company. It claims damages comprising the difference between the subscription money of $4 million and the market value of the two million shares in Exploration at the date of allotment together with the lost opportunity to invest $4 million in other more profitable investments.
THE DEFENCES
Apart from putting the applicant to formal proof of certain matters, the essence of Holdings’ defence is to deny making the Cambridge Gulf Agreement. It says that if the Cambridge Gulf Agreement was made, it was made without actual authority and beyond the ostensible authority of Mr Conway. It makes a similar plea in relation to the representations pleaded against it.
In their amended defence, Penale and Mr Conway:
.deny that either the Cambridge Gulf Agreement or the Penale Agreement was made;
.do not admit that the applicant paid and subscribed for the issue of two million shares in Exploration and deny that any such subscription was pursuant to either the Cambridge Gulf Agreement or the Penale Agreement;
.admit that the Shares have not been transferred to the applicant;
.say that discussions took place by telephone between Mr Pittorino and Mr Conway on or about 15 or 16 May 1994;
.deny that in those telephone discussions with Mr Pittorino, Mr Conway was acting on behalf of Holdings or Penale and assert that he was speaking to Mr Pittorino as chairman of the board of directors of Exploration;
.say that in the course of those telephone conversations Mr Pittorino requested of Mr Conway:
(a)ten million shares in Exploration;
(b)positions on the board of directors of Exploration;
(c)the resignation of Mr Conway as chairman of the board of directors of Exploration; and
(d)the resignation of Mr Conway as a director of Exploration
and that Mr Conway refused those requests;
.make similar denials and allegations in respect of the representations which are described above;
.say that, by an agreement in writing made on or about 19 May 1994, the underwriter to the placement, County Natwest Securities Australia Ltd (“County Natwest”) agreed (by way of a variation of the underwriting agreement referred to below) to place an extra two million of the Exploration shares forming part of the Placement;
.allege that, on or about 19 May 1994 but after making the agreement referred to immediately above, County Natwest had unlawfully demanded that Exploration place, or cause to be placed, the Shares (i.e. the further ten million shares in Exploration) with Mr Pittorino at no cost, or it “would withdraw from” the underwriting agreement;
.say that a letter dated 19 May 1994 sent on Mr Conway’s instructions by Penale’s solicitors (Messrs Bennett & Co) in which Penale undertook to deliver ten million shares in Exploration to Mr Pittorino was not stamped;
.allege that “in the premises” there was no agreement between the applicant and themselves or any of them to transfer shares in Exploration to the applicant at any time;
.in the alternative, if such an agreement is found to have been made, plead that the Penale Agreement is void and unenforceable by reason of it being illegal, alternatively, unlawful.
THE ISSUES TO BE DECIDED
From the above, it can be seen that the issues to be decided in this matter are as follows:
1.Was there an agreement in the terms pleaded as the Cambridge Gulf Agreement or the Penale Agreement, or both. If there was only one agreement - which one was it?
2.If there was such an agreement or agreements:
(a)is it or are they in any way affected by illegality?
(b)is it or are they unenforceable or otherwise affected by virtue of any provision of the Stamp Act 1921 (WA) (“the Stamp Act”)?
(c)is the applicant entitled to specific performance and/or damages?
3.(a) Has there been misleading or deceptive conduct as pleaded by the applicant in its statement of claim?
(b)If so, is the applicant entitled to damages?
I now turn to each of these issues.
Was there an agreement in the terms pleaded as the Cambridge Gulf Agreement or the Penale Agreement, or both. If there was only one agreement - which one was it?
On 15 March 1994 Exploration announced the Placement. In its announcement to the Stock Exchange of that date, Exploration stated that all of the shares to be issued pursuant to the Placement (“the Placement Shares”) had been placed. As will be seen, this was an over-optimistic statement. On 15 March 1994 Exploration had entered into an agreement with County Natwest (“the Underwriting Agreement”) whereby County Natwest agreed to place 6.05 million of the Placement Shares, subject to certain conditions precedent. One of those conditions was that the total number of shares placed be not less than 10 million shares. It is common ground that the Underwriting Agreement with County Natwest was subsequently varied so that the total number of shares which it agreed to underwrite was increased to 6.5 million at a total subscription price of $13 million. [As mentioned above, Penale and Mr Conway contend that there was a further written variation to that agreement whereby County Natwest agreed to underwrite a total of 8.5 million shares at a subscription price of $17 million]. On the date when the Placement was announced, shares in Exploration were traded on the Australian Stock Exchange in a range between $2.25 and $2.30, closing at $2.25 per share. Mr Michael Yang was then a director of Exploration. A company introduced by Mr Yang, Glorious Edge Sdn Bhd (“Glorious Edge”) agreed to take up the balance of 3.5 million of the Placement Shares. On 29 April 1994 Exploration’s shareholders gave approval to the Placement. On 4 May 1994 County Natwest paid subscription monies totalling $13 million to Exploration. County Natwest’s clients had agreed to subscribe for those shares in March 1994. On 5 May 1994 Exploration’s share price fell to 82 cents per share but closed at $1.09 per share. On Friday 13 May 1994 Glorious Edge defaulted in its obligation to subscribe for the 3.5 million shares referred to above. The directors of Exploration became aware of this during the afternoon of that day. The directors of Exploration were subsequently able to find subscribers for 1.5 million of those shares, but this still left two million shares unplaced. In terms of the Underwriting Agreement, the period during which the Placement had to be completed (including the grant of official quotation of the Placement Shares by Australian Stock Exchange Limited) had expired on 6 May 1994. On or about 17 May 1994 County Natwest agreed to extend that period to 20 May 1994.
THE EVIDENCE
MR PITTORINO’S EVIDENCE
Mr Robert Guy Pittorino gave evidence on behalf of the applicant. The following is a summary of that evidence. Mr Pittorino had been joint managing director of County Natwest but left that company in early February 1994. County Natwest had been the sponsoring broker when Exploration listed on the Australian Stock Exchange in July 1993. Mr Pittorino’s evidence was (and I believe him) that as a result of his association with Exploration he was aware (from the prospectus issued by Exploration in 1993) of its corporate structure and the “control shareholding positions”. He said that, in essence, Exploration was controlled by Holdings which held 32 million fully-paid shares and 28 million contributing shares in the capital of that company. Holdings was, in turn, controlled by Penale in that Penale owned 51% of the issued share capital of Holdings and had an option to purchase a further 22% or 23% of that issued share capital. It is common ground that the total number of shares in the capital of Exploration issued before the Placement was approximately 81 million of which Holdings held approximately 74%. Holdings had received its shares in Exploration as the vendor under an agreement, made in April 1993, whereby it sold to Exploration its interest in certain mining and exploration tenements and also in exchange for having paid certain preliminary expenses relating to the preparation and registration of Exploration’s initial prospectus. Mr Pittorino said that he became aware of the Placement when Mr Thomas (then managing director of County Natwest) asked him to interest a couple of his (Mr Pittorino’s) former clients in subscribing for Placement Shares. This was shortly after Mr Pittorino had left County Natwest. Mr Pittorino named two of those former clients whom he caused to subscribe for Placement Shares. Mr Pittorino then went on holiday overseas. A Mr Kim Oxenham had been County Natwest’s branch manager in Monaco until 1993. Mr Pittorino knew Mr Oxenham. Mr Oxenham invited Mr Pittorino to be his guest (with some other business contacts and clients) in Monaco over the weekend of the Grand Prix. He arrived in Monaco on 10 May 1994, a few days before that weekend. On 13 May 1994 Mr Thomas, at that time in Portofino in Italy, telephoned Mr Pittorino. Mr Thomas told him about the problems which Exploration was encountering with the Placement by reason of the default on the part of the company introduced by Mr Yang (i.e. Glorious Edge). Mr Thomas said that he had been speaking to Mr Conway who had asked whether there was anything that he (Mr Pittorino) could do to help the situation. Mr Pittorino said that he would telephone a Mr Mark McNamara. Mr McNamara was then a solicitor in the employment of Exploration in its Perth office. Mr McNamara gave Mr Pittorino certain (unspecified) information about the Placement and about Mr Yang. On the same date (13 May 1994) Mr Pittorino said that he telephoned Mr Conway. He put the time at approximately midday Monaco time on that date. He told Mr Conway that he had spoken to Mr Thomas and to Mr McNamara, thought that he had an understanding of the situation and was telephoning to see if he could be of some assistance. Mr Conway expressed appreciation and they had a discussion about the problem. Mr Conway had told him that there was still a probable shortfall of approximately $4 million in subscription monies for the Placement and asked Mr Pittorino if he could find some subscribers for the shares. Mr Conway had said that he accepted that it would be extremely hard to find a subscriber without providing an inducement. Mr Conway proposed that in return for subscribing for two million shares at $2 per share, such a subscriber would “... receive an additional 5 million shares from his vendor parcel when they became free of escrow and he was able to deliver them across” to that person. Mr Conway had said that he would like an option to repurchase those five million shares at a price of $1 per share, such option to be exercisable on 8 July 1995, being the date when the shares came out of escrow. Mr Pittorino said that he told Mr Conway that he (Mr Pittorino) would find it extremely hard at such brief notice to find a subscriber but that he would make that attempt. Mr Conway had asked him to be as quick as he could, as it was a matter of urgency. Mr Pittorino then rang Mr Oxenham who, in response, came to the hotel at which Mr Pittorino was staying. Mr Pittorino said that he told Mr Oxenham about the Underwriting Agreement, the condition precedent that a total of not less than $20 million be raised and about the default by Mr Yang’s company. Mr Pittorino said that he put Mr Conway’s proposition to Mr Oxenham and asked whether he could think of a client who might do the deal. He explained to Mr Oxenham Mr Conway’s position “via” Penale, the respective shareholding percentages and Mr Conway’s roles on the boards of both Exploration and Holdings. He explained further that the five million shares were vendor shares held in escrow which Mr Conway would not be able to transfer until the shares came out of escrow. On Sunday 15 May 1994 Mr Oxenham spoke to him in the following terms:
“If you can get Mr Conway to give me a firm offer of 10 million shares of the escrowed shares, there will be no option buy back associated with the transaction, I will then seriously go out and try and put that to a client who may react to it.”
Mr Pittorino said that he would “go back to Mr Conway and get his reaction to that”.
Mr Pittorino said that at a time either late on the Sunday or early on the Monday morning (15-16 May 1994) he telephoned Mr Conway. He explained to Mr Conway who Mr Oxenham was and said that Mr Oxenham believed that if he could have an offering of ten million shares without any option of repurchase he might be able to get a client to subscribe for the two million shares at $2 each but would require a firm offer. Mr Conway’s response was “that’s a bit rich”. Mr Pittorino said that he told Mr Conway that it was the best he could do for him. During that telephone conversation or a further telephone conversation with Mr Conway shortly afterwards, Mr Pittorino said that Mr Conway told him that he was prepared to offer ten million escrowed shares to the person that subscribed for the two million shares at $2 each. Mr Pittorino then said that he would phone Mr Oxenham. He telephoned Mr Oxenham and relayed that offer to him. Mr Oxenham in turn said that he would put the offer to his client. Later on the same day (Monday 16 May 1994) Mr Oxenham told Mr Pittorino that he had a client who would “do the transaction”. Mr Oxenham said that the client would like the transaction documented. Mr Pittorino said that he then telephoned Mr Conway and told him that Mr Oxenham had a client who was prepared “to do it” but that he wanted the arrangement concerning the ten million shares put in writing. Mr Conway (according to Mr Pittorino) was appreciative and said that he would talk to Mr McNamara about that. Mr Pittorino said that he told Mr Conway he was about to return to Australia early the next morning (Tuesday 17 May 1994) and that Mr Conway would need to have the documentation in place by the Thursday of that week, as without that documentation being in place Mr Oxenham’s client would not be making a subscription. Mr Pittorino said that in those telephone conversations he believed he -
“... was dealing with Mr Conway as a representative Executive Chairman and major shareholder of Cambridge Gulf Holdings and the only person capable of delivering that number of shares... There was no other party that had anything like that number of shares. Cambridge Gulf Holdings had 32 million fully paids. The nearest other shareholder or - there was no other substantial shareholder to start with and the nearest other shareholder might have had one to two million shares or three million shares. There was no one else capable or (sic) had that number of shares to deliver.”
Mr Pittorino said that he then telephoned Mr McNamara and outlined to him the agreement reached with Mr Conway, told him that he was flying back to Australia and that the documentation had to be put in place before the subscription would be made. Mr Pittorino said that he arrived back in Sydney on 19 May 1994 but there was no documentation from Mr McNamara at his office. He tried, unsuccessfully, to telephone Mr Conway and then spoke to Mr McNamara. He told Mr McNamara that he needed to have -
“a bit of paper that I can forward to Mr Oxenham in Monaco so that once he sees that documentation and he’s comfortable with it, he will then tell his client that he has the paperwork and the client will forward the subscription moneys. Until that documentation comes through, there’ll be no subscription.”
Mr McNamara responded by saying “Mr Conway’s very wary of putting anything down on paper”. Mr Pittorino said that, in response, he told Mr McNamara that there would not be any transaction without the bit of paper. Later in the day Mr McNamara contacted Mr Pittorino and told him that Mr Conway had just given Mr David Shaw of Messrs Bennett & Co, solicitors, an instruction to send the required fax.
It is common ground that by a facsimile letter dated 19 May 1994 (“the Bennett & Co Facsimile”) Messrs Bennett & Co wrote to Mr Pittorino in Sydney in the following terms:
“Dear Sir,
PENALE PTY LTD
We act for Penale Pty Ltd.
We are instructed to confirm that our client undertakes to deliver to you ten million shares in Cambridge Gulf Exploration NL once those shares are free of escrow.”
Mr Pittorino said that he sent a copy of the Bennett & Co Facsimile by fax to Mr Oxenham in Monaco and then telephoned him. In the course of that telephone conversation he told Mr Oxenham that he would have preferred “a more detailed deed” but that it was unlikely that they were going to get it. He said that Mr Conway was on a plane going to Singapore, he trusted Mr Conway and believed that he would deliver the shares.
Mr Pittorino said that in July 1994 he was at a meeting with Mr Conway at the “Four Seasons” hotel in London. He told Mr Conway that he would like to get some more paperwork on the transaction. Mr Conway had replied that that was extremely difficult. Mr Conway had said:
“I gave a commitment to you over these shares, you’ve given a commitment to your people, I will live up to my commitment to you.”
Mr Pittorino gave evidence of another meeting with Mr Conway on 16 March 1995 in Perth. Mr Pittorino said that at that time he was getting apprehensive about the delivery of the Shares. The first part of the meeting involved Mr Conway and another director of Exploration giving a “presentation” to Mr Oxenham and Mr Pittorino about Exploration and its future direction. After that he said to Mr Conway:
“There’s another matter that I wish to discuss with you now and you know what that matter is, Mr Conway. Do you want to discuss that matter in front of Mr Anton Gans?” [the other Exploration director].
Mr Conway had responded:
“There is nothing that I can’t discuss in front of Mr Gans.”
Mr Pittorino then said:
“What I wish to discuss is the delivery of the 10 million escrowed shares that you owe to Mr Oxenham’s client and that delivery is due in July this year.”
Mr Conway had responded “I am not prepared to discuss the matter”.
In cross-examination by Mr M.J.McCusker QC, senior counsel for the first respondent, Mr Pittorino agreed that when he received the Bennett & Co Facsimile he thought that Penale as controlling shareholder in Holdings in some way or other would be able to honour its undertaking and that he was dealing with Mr Conway in his capacity as Executive Chairman of Holdings. He conceded that Mr Conway had never said that he was acting in that capacity. He also conceded that in his telephone conversations with Mr Conway, Holdings was not mentioned. He was confident that the combination of Mr Conway’s oral undertaking and Penale’s written undertaking was enough to ensure that somehow the shares would get into his client’s hands.
I believed Mr Pittorino’s evidence. I formed the distinct impression that he was an honest witness. I noted that on at least two occasions in cross-examination, he made concessions that it was possible that certain events had happened in a manner otherwise than he recalled. He did not endeavour doggedly to maintain his position on every point. Furthermore, there is an inherent likelihood in the substance of his evidence. Given the fact that Exploration’s share price at the relevant time was below the price payable for the Placement Shares, it was unlikely that investors would pay $2 each for those shares unless they were given some other consideration. In their defence Penale and Mr Conway acknowledge that during the course of telephone conversations between Mr Pittorino and Mr Conway on 15 or 16 May 1994, Mr Pittorino had asked for an extra ten million shares in Exploration as part of the consideration for subscribing for the two million shares shortfall in the Placement. I refer below to Mr Conway’s evidence and my reasons for not accepting that evidence unless corroborated by other credible evidence. There is also important contemporaneous documentation which supports Mr Pittorino’s evidence. First, I refer to a facsimile message dated 14 May 1994 from Mr Conway to Mr Thomas (Exhibit CLC12). A somewhat indistinct version of that document, signed “B. Conway” appears at p.208 of Exhibit CLC1. The clearer version (unsigned) was produced by Mr Igor Prosin (a director of both Holdings and Exploration) during the course of his cross-examination. Mr Prosin said that he had received it from Mr Conway. In that fax (“the Conway Facsimile”), Mr Conway discloses a willingness to offer what he described as “our escrowed shares” as inducements to persuade subscribers to take up Placement Shares. The Conway Facsimile refers to three possible alternative solutions. Each involved the offer of varying numbers of shares in Exploration as a “sweetener”. In respect of two of the proposed solutions, CGH is expressly referred to as the entity which would provide the sweetener. The largest of such inducements referred to in that fax is five million such shares. Admittedly, this was a proposal in relation to some 2.5 million Placement Shares. However, given the difficult situation in which Exploration found itself in relation to the Placement, I think it was more likely than not that Mr Conway would have been prepared to make more Exploration shares available as an incentive. Written quantification of the total number of such shares which he was prepared to make available in respect of the two million Placement Shares to be subscribed for by Mr Pittorino’s client can be seen in another document. That is the Bennett & Co Facsimile, which confirms that ten million shares in Exploration were to be delivered, once those shares were free of escrow. In their defence, Penale and Mr Conway acknowledge that that facsimile was sent on Mr Conway’s instructions. They say that those instructions were given in a different context (which I have described above). I return to that matter later in these reasons.
MR OXENHAM’S EVIDENCE
Mr Oxenham’s evidence was both about his dealings with Mr Pittorino on the one hand and with Mr Leighton (on behalf of CLC Corporation) on the other hand. Mr Oxenham is a financial consultant resident in Monaco. One of his clients is Mr Leighton and one of Mr Leighton’s investment companies is the applicant. Mr Oxenham gave evidence that he was aware of Exploration which he described as “one of the best performing stocks price wise on the Stock Exchange in the late 1993 period”. He was familiar with the corporate structure of the companies in the Cambridge Group including Penale, Holdings and Exploration. He was also aware of the office-holders and in particular the role played by Mr Conway. Before the events in issue in this matter, Mr Oxenham maintained a file which included Exploration’s prospectus, analysts’ reports from County Natwest and press cuttings. His evidence concerning what transpired between Mr Pittorino and him substantially confirmed Mr Pittorino’s evidence, which I have summarised above. In relation to the conversation of 16 May 1994, Mr Oxenham said this:
“We had a conversation and he said that the Cambridge Gulf Exploration placement is not complete and he said if your clients would contribute $4 million to take up two million shares at $2 shares (sic) in the placement, the major shareholder of Cambridge Gulf Holdings would deliver 10 million shares at the end of the escrow period for that particular stock, and that was at the end of July 1995.”
Mr Oxenham said that he then telephoned Mr Leighton and said to Mr Leighton:
“I have been offered 12 million shares in a company by the name of Cambridge Gulf Exploration. The deal is 2 parts conditional on each other. There is 2 million shares at $2 a share and a further 10 million shares at - which will come for no cost. The delivery of those ten million shares will be a delayed delivery. In fact, it won’t be until July of 1995. And on that basis you will receiving (sic) approximately 12 million shares at an average cost of 33 cents.”
Mr Oxenham then said that he told Mr Leighton that Exploration’s shares were suspended but had last traded at approximately 25% below $2 per share and recently traded as low as 82 cents per share. He gave some other financial advice in relation to Exploration. He told Mr Leighton what was meant by the shares being “in escrow”, including the fact that they could not be transferred until the escrow period ended. He sent Mr Leighton his research file on Exploration. This included Exploration’s May 1993 prospectus and the analysts’ reports from County Natwest. Mr Leighton had instructed him to “go ahead” with the transaction but to obtain some written “recognition” in relation to the ten million shares. Mr Oxenham said that he then contacted Mr Pittorino, identified his client as CLC Corporation and confirmed that his client would subscribe for two million shares for subscription monies of $4 million on the basis that there was to be confirmation “of the 10 million shares that were due to come out of escrow in July 1995”. Mr Pittorino had telephoned him a little later that day and said:
“The major shareholder of Cambridge Gulf Holdings will deliver 10 million shares at the end of the escrow period and could you arrange to subscribe for 2 million shares at $2 a share.”
Mr Oxenham then said to Mr Pittorino:
“Yes, but please provide proof of the 10 million share deal and fax that to me as soon as it is available.”
Mr Oxenham said that he then telephoned Mr Leighton, confirmed that the transaction had been arranged, and asked him to arrange payment of the $4 million subscription for the shares in the Placement. Mr Leighton had agreed to do so, but had stipulated that Mr Oxenham should arrange “for the confirmation of the 10 million escrowed shares”. Mr Oxenham said that he had received a copy of the Bennett & Co Facsimile from Mr Pittorino and in turn had sent it to Mr Leighton.
Mr Oxenham said that he had two discussions with Mr Conway on 16 and 17 March 1995 respectively (i.e. some ten months later). During the course of the first discussion he said that he had gone into an adjoining room with Mr Conway for a private discussion during the course of which Mr Conway had said:
“Your client’s interests will be looked after. The 10 million shares will be ‘okay’ or ‘shall be all right’.”
Mr Oxenham said that he thought that his client CLC Corporation was dealing with the major shareholder in Exploration, which he in turn identified as Cambridge Gulf Holdings which was controlled by Penale and Mr Conway.
In cross-examination Mr Oxenham said that when Mr Pittorino came back to him with Mr Conway’s second proposal he (Mr Pittorino) had said:
“... the major shareholder of Cambridge Gulf is prepared to deliver 10 million shares at the end of the escrow period.”
He said that he did not recall whether Mr Pittorino had said “... the major shareholder in Cambridge Gulf Holdings (emphasis added) is prepared to deliver ten million shares”, although his evidence-in-chief had, as I have summarised above, been in those terms. Apart from that particular uncertainty, my impression of Mr Oxenham’s evidence was that it corroborated Mr Pittorino’s evidence and was in accordance with what one would expect to have happened in the relevant circumstances. That latter assessment applies equally, in my opinion, to what Mr Oxenham described as having taken place between him and Mr Leighton on behalf of the applicant. I formed the impression that Mr Oxenham was a credible witness and I believed his evidence.
MR LEIGHTON’S EVIDENCE
Mr Leighton gave evidence of his dealings with Mr Oxenham. Mr Leighton’s evidence was to substantially the same effect, in that regard, as Mr Oxenham’s evidence. Mr Leighton also swore that the applicant had subscribed for the two million shares in Exploration and had paid $4 million through its bankers for those shares. He identified documentation which confirmed that transaction. The defences filed by all respondents put the applicant to proof of those matters. I find, on the basis of Mr Leighton’s evidence and the documents which he identified, that the applicant did in fact subscribe for the two million shares and on or about 25 May 1994 paid $4 million, through County Natwest, to Exploration in respect of that subscription. Mr Leighton assumed that it was Holdings which was to provide the ten million shares free of charge but, in cross-examination, conceded that Mr Oxenham had not told him that he had been talking to Mr Conway. Although I formed the impression that Mr Leighton was an honest witness endeavouring to recall the events as best he could, in the end there was not much which he could contribute towards shedding light on the formation of any contract, other than to identify the applicant as the contracting party on the subscription side of the transaction and to confirm payment. He also gave other evidence confirming the legal status of the applicant, to which I have referred earlier in these reasons.
MR CONWAY’S EVIDENCE
Mr Conway’s evidence-in-chief was mainly given in the form of a twelve page proof of evidence. As part of his evidence-in-chief Mr Conway swore that the contents of that document were correct. I shall try to summarise Mr Conway’s sworn version of what took place, starting with Friday 13 May 1994, the day when Glorious Edge defaulted in the manner described earlier in these reasons. Mr Conway said that on that date he spoke by telephone to Mr Thomas. Mr Thomas was aware of the problem of the shortfall faced by Exploration. Mr Thomas said that he would see what Mr Pittorino and a Mr Peter Newton (whom Mr Conway described as Mr Pittorino’s partner) could do to assist.
Mr Conway said that on the same date he had a telephone conversation with Mr Pittorino. Mr Conway’s evidence of that telephone conversation included the following:
“We discussed that all concerned, that is those who knew of the problem, should be involved to search for parties to take up the shortfall. Pittorino advised me that he would do his best to help.”
Next, Mr Conway said that at about 2.00 am on Saturday 14 May 1994 he received a further telephone call from Mr Thomas. Mr Conway summarised that telephone conversation in the following terms:
“He told me that he thought a deal was set, the boys had been working hard and had got things pretty well covered. Thomas also told me that the boys would require an incentive. I told Thomas that I had Mark (McNamara) already working on that.”
Mr Conway then referred to what I have described above as the Conway Facsimile (of 14 May 1994). He said:
“At the time of sending the fax I had no idea of what incentive was being sought. The fax set out solutions to the troubled Yang placement problem and as I have mentioned earlier in my evidence, McNamara had prepared the fax and therefore had prepared the two solutions. At the time I did not dispute McNamara’s suggestions as to the solutions. I was also aware that one of the solutions was that a 5 million shares sweetener be provided to a separate party that would take up the troubled Yang placement. I felt at the time satisfied that I had not committed C.G.H. to either of the two solutions without the approval of the C.G.H. board.”
Mr Conway said that on or about 15 May 1994 Mr Pittorino telephoned him and said that he wanted 10 million shares. I quote below Mr Conway’s evidence as to his response to that request:
“I told Pittorino that it was a bit rich, was unreasonable and that there was no way I could get something like that up. He said to me that if I did not agree, the deal would not go ahead. Pittorino asked me if I put the deal to C.G.H. I refused to do this and stated it would not be acceptable and that we would continue to talk to other parties. I did not speak to Pittorino again until the afternoon of the 19 May 1994. Pittorino did not mention to me that he was acting for anyone else.”
On 16 May 1994, so Mr Conway deposed, he received a telephone call from Mr Thomas. Mr Thomas told him that there would be no incentives and “... that County would guarantee Pittorino.” Mr Conway’s evidence was:
“I asked Thomas why the change of heart and he told me that the ASC had made some enquiries at his Sydney office. He told me that if the matter of an incentive became public this would cause major problems for him and County and that County would guarantee Pittorino.”
Mr Conway’s evidence was that at a board meeting of Exploration later the same day (16 May 1994) several directors asked him if Mr Thomas and Mr Pittorino were putting any pressure on him. Mr Conway said that he responded to the questions in the affirmative and referred to Mr Pittorino trying to “extort 10 million shares out of us”. I must say that I find this piece of Mr Conway’s evidence to be somewhat inconsistent with his evidence that the matter had been sorted out during the course of the telephone conversation with Mr Thomas earlier that day.
Mr Conway then referred to a further telephone call from Mr Thomas which, initially, he swore occurred later that day, in the following terms:
“In a later telephone call on the same day, Thomas was put on speakerphone in the boardroom in my presence together with the members of the board of CGE. Thomas said that County would guarantee Pittorino. Thomas also said that it would cost an arm and a leg and half a body as it had caused him and County a lot of trouble - they had to call in a lot of favours.”
Then Mr Conway referred to a still later telephone conversation with Mr Thomas, which I found again to be somewhat inconsistent with what Mr Conway said had taken place earlier in the day. Mr Conway’s evidence about that later call was in the following terms:
“In the evening of the 16th May 1994, I received a telephone call from Thomas. We had a conversation.
We discussed the fax he had received on the 14th he told me he had conveyed the fax to Pittorino, I told him I have spoken to Pittorino, Thomas asked me if Pittorino was happy with the incentive we had suggested.
I responded no. Thomas said what did he say he wanted? What did it cost you, I said he wanted 10 million shares, He said he would talk to the boys meaning Pittorino and Newton, to see if they would reconsider.
Later that evening Thomas called back and told me he had tried on my behalf but the boys wanted 10 million shares to do the deal.
I said I have got to save the company that I would not put Pittorino’s demand for 10 million shares to C.G.H. I said we, that is C.G.E. would intensify our efforts to cover the 2 million share shortfall that Pittorino was being unreasonable and greedy.”
Mr Conway’s evidence was that by 19 May 1994 he “became aware from the documentation” that a total of $20 million had been subscribed for the Placement Shares. He said that:
“On the 18th May 1994 I sighted a facsimile received from County addressed to McNamara in which it was stated that County would subscribe to 2 million shares at $2.00 each which commitment was over and above the 6.5 million placed by County I have referred to earlier in my evidence.”
That facsimile was not tendered in evidence at the trial of this matter. Mr Conway then described the events which gave rise to the sending of the Bennett & Co Facsimile. In summary, he said that on 19 May 1994 Mr McNamara had told him that Mr Thomas in turn had told him (Mr McNamara) that unless Mr Conway sent a fax to Mr Pittorino agreeing to give 10 million shares to Mr Pittorino, he (Mr Thomas) would have to cancel “the County placement”. Mr Conway said that Mr McNamara had then told him that he (Mr McNamara) had dictated a fax to a Mr David Shaw, a solicitor at Messrs Bennett & Co. [Mr Conway said that Messrs Bennett & Co had been engaged to act for Exploration, Penale, Holdings and himself some weeks earlier.] At this stage, Mr Conway said, he was at Perth International Airport en route to Singapore. He gave evidence, in the following terms, of a telephone conversation which he had with Mr Shaw from the airport:
“I told Shaw that even if I accepted what he was saying that McNamara was concerned, I do not represent Penale and that I am not a Director nor do I have the family’s authority to send a fax for Penale”.
[Again, I must say that I find that statement to be a peculiar one, in the light of other evidence given by Mr Conway to the effect that he controlled the affairs of Penale (see for example T837), however I return to Mr Conway’s evidence-in-chief].
“I told Shaw that it was blackmail. Shaw told me that even if I let him send it, it would have no legal standing. That being the advice, I told Shaw to send the fax and told him that I would swear a statement as soon as I returned from Singapore on what I had been subjected to.”
Part of Mr Conway’s case was that County Natwest charged Exploration a fee of $950,000 for their services in underwriting the Placement and were paid that amount. This represented a 5% commission on $19 million of the $20 million subscribed, not 4% as set out in the (original) Underwriting Agreement. As I understand the submission, the difference represented what Mr Thomas had referred to as “... an arm and a leg and half a body ...” during the course of the telephone conversation on speaker phone on 16 May 1994.
I do not believe Mr Conway’s evidence except where it is confirmed by other credible evidence either orally from a witness or in documentary form. He presented as quite a plausible witness and I took into account the pressures which he faced in having to represent himself and Penale. Nevertheless, I formed the impression that he was not telling the truth. There were too many inconsistencies either within his evidence itself or between his evidence and various other accounts of the events of May 1994 to which Mr Conway had deposed either by way of statutory declaration or on oath before this matter came to trial. That statutory declaration and four affidavits sworn by Mr Conway were admitted into evidence (see Exhibits CLC14A, CLC22, CLC24, CLC25 and CLC 26). There were also inconsistencies between his evidence and a cross-claim by the second and third respondents which was abandoned some weeks before the hearing. I shall refer to some of those inconsistencies, some of which were minor but others were, in my view, major. Where I consider them to be minor, I shall say so:
.In cross-examination, Mr Conway swore that an agreement dated 13 January 1993 between Holdings (under its former name) and Broderemont Zadar DD “the Zadar Agreement” was prepared in Croatia, brought back to Australia and the seal was applied with the board approval. Four questions later Mr Conway said that the company seal was applied in Croatia. I regard that as a minor inconsistency;
.At T776 Mr Conway denied that the Conway Facsimile was forwarded for the purpose of discussing a proposal under which shares were to be provided to an investor as an inducement to invest in Exploration. On the very next page he described the “sweetener” referred to in the second alternative proposal in that fax as being an offer which was rejected by Mr Pittorino during the course of a telephone conversation or telephone conversations. (Once again I consider this to be a relatively minor inconsistency);
.At T785 Mr Conway (when referred to a claim by companies associated with a Mr Mulroney for extra shares in Exploration to be transferred to him free of charge) and a resolution of the board of directors of Holdings on 20 November 1996 that one million fully paid Exploration shares be offered to Mr Mulroney’s companies in full settlement of that claim, said that this was in settlement of Mr Mulroney’s claim for money lent (about $75,000) to Holdings at the time when the company was formed. Immediately prior to this, in his evidence, Mr Conway had sworn that a disagreement had arisen and a claim had been made by Mr Mulroney that he (Mr Conway) had agreed to transfer CGE shares to him as an incentive to subscribe for 500,000 of the Placement Shares. It was common ground that a company associated with Mr Mulroney had subscribed for 500,000 Placement Shares. (I considered Mr Conway’s explanation of the claim which Holdings settled by offering one million shares in Exploration to be quite unacceptable and unbelievable. I regard this as a slightly more serious inconsistency);
.In a statutory declaration made by Mr Conway on 2 June 1994 (i.e. some two weeks after the events described in that document) Mr Conway deposed as follows:
“2.At approximately 2am on Sunday, 15 May 1994 I received a telephone call from Mr Robert Pittarino (sic). We had a telephone conversation to the following effect:
He said:“I’m phoning from Monte Carlo. I’m here for the Grand Prix. These blokes who are going to take up 2 million of the Yang shares want 10 million of your shares as a sweetener for the deal.”
I said:“Can I have the chance to buy them back at a dollar?”
He said:“No. They are not interested in that.”
. . .
“6.In the evening of 16 May 1994 I received a telephone call at my home from Mr Thomas. We had a conversation to the following effect:
He said:“What did it cost you?”
I said: “Ten million shares”.
He said: “Jesus Christ. I’ll see if I can get it down to eight million.
7.On 17 May 1994 Mr Thomas telephoned me and we had a conversation the (sic) following effect:
He said:“Sorry Brian, they want ten million. I tried”.
I said: “I have got to save the company.”
[In my opinion what Mr Conway deposed to in his statutory declaration of 2 June 1994 was significantly different to the relevant portions of his proof of evidence which I have set out above. I do not accept Mr Conway’s explanation of the words “I have got to save the company” which he put forward at T789, namely, that approaches had to be made to other potential subscribers. In my view, Mr Conway was acknowledging to Mr Thomas that, in order to save the company, he had agreed to give ten million “sweetener” shares in Exploration to the subscriber who took up the shortfall of two million shares in the Placement].
.An amended cross-claim was filed in these proceedings, on 13 December 1996, on behalf of Penale and Mr Conway against the applicant (as first cross-respondent), Mr Pittorino (as second cross-respondent), County Natwest Securities Australia Ltd (as third cross-respondent) and Mr Thomas (as fourth cross-respondent). In the material facts pleaded in that document in respect of events occurring in the period before the sending of the Conway Facsimile, there is no reference to any telephone conversation between Mr Conway and Mr Pittorino. Mr Conway agreed that the amended cross-claim was prepared by Mr Shaw after he took a statement from Mr Conway and that he (Mr Conway) had been reasonably careful about looking at the cross-claim to make sure that it represented his case properly. The same observation applies to an affidavit sworn by Mr Conway on 27 March 1997 in opposition to the applicant’s application for summary judgment. In neither document is there any mention at all of Mr Conway’s telephone conversation with Mr Pittorino on 13 May 1994. [I regard this as a moderately serious further inconsistency. In cross-examination (T798) Mr Conway acknowledged that during the course of that telephone conversation Mr Pittorino had said that he would go out and look for parties to take up the shortfall and that he (Mr Pittorino) would try and find some investors];
.Mr Conway’s evidence was that at about 2.00 am on Saturday 14 May 1994 Mr Thomas rang him and told him that he (Mr Thomas) thought a deal was set and “the boys” had got things pretty well covered. In cross-examination Mr Conway said that he understood Mr Thomas to mean that they had an investor to take up the two million shares. Mr Conway also said that at that stage the amount of any incentive had not even been discussed i.e. that there was an investor agreeing to take up the shares whether the incentive was one share or a million shares or ten million shares (see T800). Given the then current price of Exploration’s shares, it must have been obvious to all concerned that an incentive would be required. In those circumstances I do not accept Mr Conway’s evidence of what took place between him and Mr Thomas. It is too inconsistent with the contents of the Conway Facsimile;
.In his proof of evidence, Mr Conway swore that later on the evening of 16 May 1994 (i.e. after the speaker phone telephone conversation in the boardroom) Mr Thomas telephoned him and had a discussion in relation to the Conway Facsimile. In his evidence at T787 Mr Conway confirmed that this telephone conversation occurred after that board meeting. Later in his evidence (at T817 and 818) Mr Conway said that this telephone conversation occurred prior to the board meeting. At T819-820 Mr Conway again confirmed that the conversation took place before the board meeting. Later on the same page he said that the conversation took place after the board meeting. At T822 Mr Conway said that there was a telephone conversation on the evening of the 16th between himself and Mr Thomas during which he related what had happened on 14 May 1994 (see also T823(.8)). At T824 Mr Conway finally acknowledged that the “revisiting” of the events of 14 May 1994 did not occur during a telephone conversation with Mr Thomas on the evening of 16 May 1994. Mr Conway changed his evidence on this particular matter so often that (save as mentioned immediately below) I am not prepared to believe anything which he put forward in relation to telephone conversations between himself and Mr Thomas on 16 May 1994 unless corroborated by other reliable evidence. However, I am prepared to accept that a telephone conversation occurred between those two persons along the lines set out in paragraph 6 of Mr Conway’s statutory declaration of 2 June 1994 at some time shortly after Mr Conway had reached agreement with Mr Pittorino. I refer to my summary of findings set out below.
.In paragraph 24 of his affidavit sworn on 27 March 1997 Mr Conway stated:
“During my discussions with Pittorino, at no stage did he tell me that he was acting on behalf of anyone else and I believed that he was acting as a principal.”
In Mr Conway’s proof of evidence there is a similar statement, after his description of the telephone conversation on 15 May 1994 with Mr Pittorino. I regard those statements as being quite inconsistent with, for example, paragraph 2 of Mr Conway’s statutory declaration of 2 June 1994 and his evidence (when he was referred to that paragraph in cross-examination) that Mr Pittorino had made it very clear to Mr Conway that he was acting for another party. See also Mr Conway’s references (at T813 and 814) to “Mr Pittorino’s consortium”. At T810 Mr Conway acknowledged that what Mr Pittorino had said to him conveyed that he (Mr Pittorino) was acting on behalf of the persons whom he had mentioned. I regard this as a significant inconsistency indicating Mr Conway’s preparedness to swear to something which was not true;
.Paragraph 10 of Mr Conway’s statutory declaration of 2 June 1994 reads:
“10.I then went to the Silver Kris Lounge and immediately telephoned Mr David Shaw at Bennett & Co. I had a conversation with him to the following effect:
I said: “I am being blackmailed by Pittarino (sic). Please send the following fax to Pittarino: ‘We are instructed to confirm that our client undertakes to deliver to you ten million shares in Cambridge Gulf Exploration NL once those shares are free of escrow.’ David, I am only doing this under duress. I want you to prepare a statement as an affidavit or a statutory declaration for me to sign when I get back from Singapore”.”
At T833 Mr Conway acknowledged that he did not dictate such a letter to Mr Shaw. He so acknowledged when it was put to him that the above paragraph differed from the contents of pages 10 and 11 of his proof of evidence. (I would regard this inconsistency on its own as being a minor one in all the circumstances);
.On 27 March 1997 Mr Conway swore another affidavit, this time deposing to his assets and liabilities and those of Penale. Note 1 to the statement of assets and liabilities as at 13 March 1997 (which by his affidavit Mr Conway verified) stated:
“A Conditional Sale Agreement has been entered into for the sale of 950,483 shares for $2.25 million and the assumption of certain debts as disclosed in Note 2 below.” [Note 2 disclosed that the debts totalled $2,000,466.]
The shares referred to were shares in Holdings. It emerged in evidence that, in addition to agreeing to pay $2.25 million, the purchaser of those shares had executed a deed dated 7 February 1997 pursuant to which it agreed to pay what was described as a “consultancy fee” of $2,350,000 over a period of 12 months to a company called Wacon Marine Holdings Ltd of Tortola in the British Virgin Islands for consultancy services to be provided by Mr Conway. There was also in evidence another agreement whereby the same purchaser acquired shares in Holdings from a company called Cambridge Gold NL. Cambridge Gold NL held 55.21% of the issued capital in Holdings and at the same time Penale held 44.78% of the issued capital of Holdings i.e. the two companies between them held virtually all of the shares in Holdings. According to the Cambridge Gold NL sale agreement, it was to receive $5.58 per share for its shares. According to the agreement entered into by Penale it was to receive $2.30 per share. However, if one adds the total consideration payable under the Penale sale agreement, the loans to be assumed, and the consideration payable under the agreement with Wacon Marine Holdings Ltd purportedly for the services of Mr Conway and divides that by the number of shares held by Penale the resultant figure is $6.94 per share. I infer that the true consideration for the sale of Penale’s shares in Holdings was not merely $2,250,000 but included the consideration payable under the agreement with Wacon Marine Holdings Ltd. In my view, in his affidavit sworn on 27 March 1997, Mr Conway deliberately misrepresented the financial position and attempted to cover up the extra monies which would come under his control;
.In cross-examination (T846-847) Mr Conway said that the reason why the consultancy agreement was not disclosed in his affidavit of 27 March 1997 (the transcript shows 27 May was mentioned - but it is obvious from T847 and the previous evidence that Mr Conway understood the reference to be to his affidavit of 27 March 1997) was that “it would never happen”. Mr Conway swore a further affidavit on 3 April 1997 in which there was no reference to the consultancy agreement. On 5 May 1997 Mr Conway swore a further affidavit in which (in paragraph 7) he stated that at the end of April 1997 he had reached the conclusion that the transaction for the sale of the shares would not proceed. In my view, at the very least, Mr Conway was prepared to mislead the Court about the total financial consideration moving from the purchaser for Penale’s shares.
SUMMARY OF FACTUAL FINDINGS
I make the following findings of fact:
That on 15 or 16 May 1994, during the course of a telephone conversation between Mr Pittorino and Mr Conway, Mr Pittorino, acting as agent for and on behalf of the applicant, agreed that the applicant would subscribe for two million shares in Exploration for the sum of $4 million. Mr Pittorino did not disclose to Mr Conway that the applicant was his principal. However, I am satisfied on the evidence that such was the case via the chain of instructions to him from Mr Leighton on behalf of the applicant, relayed to him by Mr Oxenham, to make the agreement. [As a matter of law, there was no need for Mr Pittorino to disclose the name of his principal.] It was a condition of that agreement that ten million fully paid shares in Exploration be transferred to the applicant on 8 July 1995 when those shares ceased to be subject to escrow conditions under the Australian Stock Exchange Listing Rules. Mr Pittorino asked for the contractual arrangement in relation to the ten million shares to be documented and Mr Conway said, in effect, that he would instruct Mr McNamara to prepare such a document.
During the course of that telephone conversation Mr Conway agreed to the condition to which I have referred immediately above i.e. that ten million fully paid shares in Exploration be transferred to Mr Pittorino’s principal. Mr Conway was not contracting as principal. I deal below separately with the question of the capacity in which he contracted and what authority, if any, he had to bind either Holdings or Penale or both of those companies.
County Natwest, through Mr Thomas, played a role in introducing Mr Pittorino and in turn, Mr Oxenham, Mr Leighton and the applicant (albeit that the applicant was not named as a principal and Mr Oxenham was probably not named either) to the abovementioned transaction.
County Natwest did not agree to place the extra two million Exploration shares as Mr Conway claimed. It provided the introductory services which I have referred to above. I am prepared to accept (and do accept) that on or about 16 or 17 May 1994 Mr Thomas telephoned both Mr Conway and the board of Exploration and asked that any minutes or other documents evidencing the “sweetener” which Mr Conway had agreed to provide to Mr Pittorino’s principal should be destroyed. I think that circumstance helps to explain why the documentation did not emerge over the next few days in accordance with Mr Conway’s undertaking referred to above. I think it also explains the way in which the Bennett & Co Facsimile was worded.
County Natwest claimed and was paid $950,000 for its services. This was considerably more than it was entitled to charge under the (original) Underwriting Agreement made on 15 March 1994. The terms of that agreement were subsequently varied on at least one occasion. It is common ground that the number of shares to be underwritten was later increased to 6.5 million. The fee equates to 5% of subscriptions of 9.5 million shares ($19 million). Precisely how the fee was calculated was not explained in the evidence but there was evidence to the effect that a fee of 5% was within the usual range. County Natwest had waived compliance with the condition precedent in the Underwriting Agreement concerning official listing on the Australian Stock Exchange by 6 May 1994 and it had rendered extra services in relation to assisting in the finding of an investor (the applicant) for the two million share shortfall. It also processed the application for those shares and the subscription monies. I infer that the extra fee which it charged Exploration, and which Exploration paid, was for rendering those extra services and handling the receipt of the $4 million paid by the applicant (through its agent Westpac Custodian Nominees Ltd) on 25 May 1994. The evidence of what transpired between 13 May 1994 and that date satisfies me that it was a matter of very considerable importance to Exploration, Holdings and those who held interests in those companies that the Placement be successfully completed. I infer that in those circumstances they were quite prepared to cause Exploration to pay that extra fee. I see no inconsistency between the payment of that fee and the provision of the ten million Exploration share incentive to the applicant. The incentive helps to explain why the applicant was prepared to subscribe for two million shares at $2.00 per share when Exploration’s shares were under suspension, had traded as low as 82 cents on 5 May 1994 and were last traded at $1.45.
I accept Mr Pittorino’s evidence generally as I have earlier outlined in these reasons. In particular, I accept that when Mr Pittorino returned to Australia on 19 May 1994 and pressed Mr McNamara for documentary confirmation of the abovementioned contract, Mr McNamara responded by saying words to the effect “Mr Conway’s very wary of putting anything down on paper”. The impression which I formed of Mr Conway in the course of the hearing was that what Mr McNamara said was most consistent with what I would have expected Mr Conway’s attitude to have been at the relevant time. I consider that this wariness would have been enhanced by the fact that, a few days earlier, Mr Thomas had referred to the need not to keep minutes and to destroy documents in the light of a reported interest in the transaction on the part of the Australian Securities Commission.
The Bennett & Co Facsimile was sent on Mr Conway’s express instructions, not as a result of undue pressure being applied by Mr Thomas, but because Mr Pittorino had made it quite clear that unless there was some documentary confirmation of the oral agreement which I have found above, then his principal would not proceed with the transaction. Mr Conway realised that he had no option but to confirm the arrangement in relation to the ten million “free” shares. He appreciated that the shares would have to come from Holdings. He controlled Penale and Penale at that stage was in the position of controlling shareholder of Holdings. Mr Conway was aware of the Australian Stock Exchange Listing Rules (the Bennett & Co Facsimile itself refers to the matter of escrow shares). So he decided that the appropriate course was for Penale to provide the written confirmation required. To that end, Mr Conway instructed Mr Shaw of Messrs Bennett & Co to send the Bennett & Co Facsimile, the text of which I have set out earlier in these reasons.
In July 1994, in London, when Mr Pittorino asked for some more “paperwork on the transaction”, Mr Conway responded to the effect that this was extremely difficult, but reconfirmed the commitment which he had made to provide ten million shares in Exploration to Mr Pittorino’s principal, once those shares were free of the escrow condition.
I have considered whether Mr Conway’s reluctance to evidence the agreement in writing reflected an intention on his part, and on the part of his principal or principals, not to honour the agreement to transfer the ten million shares in Exploration when they ceased to be subject to the escrow condition. I do not think that is the case. I think that at the time Mr Conway intended that the deal should be honoured and that he meant what he said to Mr Pittorino in July 1994. I find that at some subsequent time between then and 16 March 1995 Mr Conway had decided that the agreement was not going to be honoured. The evidence shows (see Exhibit CLC1 pp 317-331) that at about that time there were some negotiations between Mr Conway and Mr Oxenham (the latter acting on behalf of a client) for Mr Oxenham’s client to lend Penale an amount of $50 million. The negotiations did not bring such a transaction to fruition. I make these findings notwithstanding the respondents’ respective admissions in their pleadings that they did not have any intention to transfer or cause the Shares to be transferred.
I am satisfied that at all material times it was the applicant who was the principal in the transaction. I accept Mr Leighton’s evidence in that regard. The documentary evidence confirms the position. I refer in particular to the applicant’s fax dated 19 May 1994 to Westpac Custodian Nominees Ltd and the latter company’s fax dated 25 May 1994 to the applicant (pp 250 and 263 respectively of Exhibit CLC1). I accept also the evidence which Mr Leighton gave concerning his authority to bind the applicant.
I turn now to consider the capacity in which Mr Conway contracted and what authority, if any, he had to bind either Holdings or Penale or both.
THE CAPACITY, OR CAPACITIES, IN WHICH MR CONWAY CONTRACTED AND THE EXTENT OF HIS AUTHORITY
A. Holdings
In my view, the evidence establishes that, on the balance of probabilities, when Mr Pittorino and Mr Conway reached their agreement, each of those men intended that the Shares would be provided by Holdings. But, as Mr McCusker submitted, that is not a complete answer to the first of the two critical questions which arise so far as Holdings is concerned. That question is whether Holdings bound itself to deliver the Shares i.e. was Mr Conway representing Holdings when he reached agreement with Mr Pittorino for the delivery of the Shares or was he undertaking personally or on behalf of Penale to cause the Shares to be transferred to Mr Pittorino’s principal? In my view Mr Conway represented Holdings in that transaction. That is not a finding that he represented only Holdings. Mr McCusker referred to Mr Pittorino’s evidence to the effect that when Mr Conway referred to the Shares, he (Mr Conway) referred to them as “his vendor parcel” or “my parcel”. There was, so it was submitted on behalf of Holdings, an undertaking given by Mr Conway orally that he would deliver the Shares and subsequently (in writing) by Penale that it would deliver the Shares. The submission was that:
“There is a crucial distinction between an undertaking given by or on behalf of [Holdings] (on which [Holdings] might be sued if given with authority express or implied) and an undertaking given by [Mr Conway and/or Penale] to cause 10 million of the shares held by [Holdings] to be transferred to [the applicant] at a future date. The latter is an undertaking on which [Mr Conway or Penale] might be sued but not [Holdings].”
I do not think that too much should be made of the use by Mr Conway during the course of his dealings with Mr Pittorino of the words “my vendor parcel” or “my parcel”. It is common ground that the reference was to shares in Exploration. Mr Conway personally held no shares in Exploration, so he must have been referring to shares held by some other entity. On the objective facts, was Mr Conway purporting to bind Holdings in a direct contractual relationship with Mr Pittorino’s principal and was this what Mr Pittorino was seeking to achieve and did achieve? In my view the evidence requires that such a conclusion be drawn and I so conclude. I shall state my reasons for reaching that conclusion as briefly as possible.
Both Mr Pittorino and Mr Conway knew that the Shares could not be made available immediately because they were in escrow until July 1995. Mr Pittorino knew that Holdings held 32 million fully paid shares (and 28 million partly-paid shares) in Exploration. Those shares were in escrow until July 1995. Holdings was the only shareholder in Exploration which had any substantial number of escrow shares. No other holder had anywhere near 10 million shares in Exploration. The Bennett & Co Facsimile confirms that the Shares were escrow shares. In my view the fact that the (10 million) Shares would not be available until July 1995 points strongly to the Shares being those held by Holdings in May 1994 in escrow. Mr Conway was of course well aware of these circumstances. There was some evidence belatedly adduced by Holdings to support a suggestion that Mr Conway may have contemplated that Penale would provide the Shares following a winding-up of Holdings and an in specie distribution of its assets to its shareholders.
On the fourth day of the hearing, Holdings, through its legal representatives, produced a copy deed dated 1 July 1993 (“the Shareholders’ Agreement”). The Shareholders’ Agreement was made between all of the then shareholders in Holdings. It recited the fact that Holdings had agreed to sell to Exploration certain mining tenements, that those mining tenements were the “major undertaking” of Holdings, that the consideration for the sale of the tenements was the issue to Holdings of 32 million fully-paid ordinary shares in the capital of Exploration and 28 million partly-paid shares in that capital. The Shareholders’ Agreement also recited that the parties believed that the Australian Stock Exchange would impose a period of escrow in respect of those shares. In summary, the Holdings shareholders covenanted that at the end of that escrow period they would do all on their part (required) to be done to achieve a members’ voluntary winding up of Holdings and the distribution of Holdings’ assets in specie to the Holdings shareholders in proportion to their respective shareholding. Not surprisingly, and with considerable justification, counsel for the applicant complained vigorously that the Shareholders’ Agreement had not been the subject of discovery by Holdings and he objected to it being admitted into evidence. There were strong grounds for such objection, including the fact that at that stage of the hearing the applicant’s case had been closed and the first respondent’s principal witnesses had been cross-examined. I decided to admit the document into evidence but on terms which were designed to prevent, so far as possible, prejudice to the applicant. The Shareholders’ Agreement had been prepared by Holdings’ solicitor (who was made available for cross-examination and was in fact cross-examined by the applicant’s counsel) in draft form in about April 1993. When Exploration was floated on the Australian Stock Exchange that solicitor ceased to be Holdings’ exclusive solicitor. Other solicitors (including the in-house solicitor Mr McNamara) were engaged from time to time to represent Holdings and Exploration. The solicitor’s evidence was that he did not even know that the Shareholders’ Agreement had been executed. He believed that he had forwarded it to the Company Secretary of Holdings and was almost certain that he had never seen an executed copy of it until 25 June 1997 (i.e. at a stage when there had been three days of hearing and the trial stood adjourned for a period of about two weeks). The then Company Secretary of Holdings and Exploration had brought the Shareholders’ Agreement to his attention. In its written submissions Holdings relied on the Shareholders’ Agreement. It is convenient to set out Holdings’ submission on this particular point (which is really a sub-point of the overall submission that there was insufficient evidence to find that Mr Conway was purporting to bind Holdings). It reads as follows:
“The Applicant places much emphasis on the fact that CGH was the only shareholder that actually had an entitlement to 10 million shares, then held in escrow. It argues that, this being so, the undertaking must have been given, or intended to be given, on CGH’s behalf (even if not expressed to be so). But that does not follow. Conway could give his undertaking, that that number of shares would be transferred, in the belief that he would be able to procure CGH to do so, in the future; or he may have believed that Penale would have that number of shares within its control, by reason of the proposed CGH winding up and in specie distribution under the “Shareholders Agreement”, Ex 4.”
Mr McCusker, in oral submissions, said that Mr Conway could have satisfied the undertaking by using shares bought on the stock market. He submitted that there was “clearly more than one way of carrying out the undertaking”.
First, the issue is not whether Mr Conway could have satisfied the undertaking by using shares acquired on the stock market. The Shares were identified as being escrow shares and for the reasons which I have outlined above both parties were well aware of that circumstance. The fact that they were escrow shares identifies them (by reason of their number) as being shares at that time held by Holdings. I have regard to the possibility that Mr Conway may have contemplated that when the time arrived for delivery of the Shares, any contractual obligation may have been satisfied by providing them to Mr Pittorino’s principal out of shares becoming available pursuant to the Shareholders’ Agreement. However, there was no evidence to that effect. Furthermore, the obligation to transfer the Shares free of charge had to be satisfied on 8 July 1995. The rights and obligations of the parties under the Shareholders’ Agreement were expressed in terms that did not require any steps to be taken until the end of the escrow period. The steps which were to be taken included the passing of a special resolution, the appointment of a liquidator and then distribution in specie. Even with the co-operation of all of the parties and a commitment to expedition, those formal steps would probably have required a period of some weeks before the Shares became available.
I take into account the fact that there was no evidence from any of the parties to this litigation that any of the parties to the Shareholders’ Agreement remained committed, as at May 1994, to the carrying out of its terms. There was no evidence that any steps were taken, once Holdings’ shares in Exploration came out of escrow condition, to implement the terms of the Shareholders’ Agreement. The terms of that agreement were never carried out.
Given the obvious importance of the reference to escrow shares in the Bennett & Co Facsimile as pointing to the Shares being those held by Holdings and thereby at least assisting to identify Holdings as a contracting party, I think I am entitled to have some regard (and I do) to the fact that the Shareholders’ Agreement was not mentioned, discovered or tendered as evidence until the fourth day of a hearing which had extended over a period of approximately three weeks. If, as at 16 May 1994, there was still a real probability that the proposed distribution in specie would proceed, I think it is likely that evidence would have been called to that effect.
There is another piece of evidence which also points to Holdings as the contracting party which Mr Conway had in mind. I refer to the Conway Facsimile of 14 May 1994 (Exhibit CLC12). In that document, after referring to two alternative options of providing either 2.5 million escrow shares to the Yang consortium or 5 million such shares to “... a separate party that Peter, Bobby or yourself come up with ...” Mr Conway wrote “I am sure as a majority shareholder CGH will approve either of the above.” I think the reference to “a majority shareholder” is intended to be a reference by Mr Conway to himself as being (in his perception) the majority shareholder of CGH and thus being certain that Holdings would approve either of the above alternatives. The point is that at that stage (two days before reaching eventual agreement) Mr Conway was putting forward what he described in evidence as an “offer” in express contemplation of Holdings’ approval of and direct participation in the proposed transactions. He communicated that as a matter of some certainty (“I am sure”) to Mr Pittorino (who received the Conway Facsimile from Mr Thomas). The fact that Mr Conway, at least three days after making the contract, chose to give an undertaking expressed as being on behalf of Penale does not in my view justify an inference that Mr Conway had not been representing Holdings when he entered into the agreement on 15 or 16 May 1994. My impression of Mr Conway is that, believing by then that the Australian Securities Commission had become interested in matters relating to the Placement, he would have been keen not to have any documentation about the “sweetener” at all. But he knew that Mr Pittorino’s principal would not come up with the money without something in writing. Rather than provide written confirmation from Holdings, my assessment is that he sought and obtained legal advice (that much is quite clear) and as a result of that legal advice decided to make the written commitment as one being made solely by Penale. Mr Shaw, who was instructed to send the Bennett & Co Facsimile was subpoenaed (at the instance of Mr Conway) to attend the hearing, did of course do so. However, when the hearing commenced Mr Conway announced that he would not, after all, be calling Mr Shaw to give evidence. In those circumstances I consider that the principle explained in Jones v. Dunkel (1958) 101 CLR 298 enables me more readily to draw the inference (as I do) that Mr Shaw’s evidence would not have supported Mr Conway’s evidence concerning how it came about that he instructed Mr Shaw to send the Bennett & Co Facsimile, i.e. that on his case there was no agreement at all to provide the 10 million share sweetener and that County Natwest were blackmailing him (see p 11 of his proof of evidence). I appreciate that the Jones v Dunkel principle would not take the matter any further than that. It does not form the basis for a positive inference otherwise unsupported by evidence. However, there is other evidence surrounding the Conway Facsimile which, in my view, warrants a finding that Mr Conway was contracting with Mr Pittorino on behalf of Holdings. First, I refer to the evidence which was elicited in the cross-examination of Mr I M Prosin, a director of Holdings. On the third day of the trial, Mr Prosin produced a further copy of the Conway Facsimile which he said Mr Conway had handed to him on 17 or 18 May 1994. That document refers to Mr Prosin’s then current efforts to secure $4 million in Melbourne as an alternative to the other “solutions” mentioned earlier in the Conway Facsimile. In relation to the alternative being pursued by Mr Prosin, Mr Conway said in the fax “this only involves CGH adding 1 million shares as a sweetner (sic).” [Mr Prosin first said that he was aware of the contents of the Conway Facsimile shortly after 14 May 1994 (see T476). Later in his evidence, when he produced CLC12, he said that the document was given to him by Mr Conway on 17 or 18 May 1997]. At T476 Mr Prosin confirmed that he had intended to offer a “sweetener” to people in Melbourne if they subscribed funds to Exploration. I infer that Mr Prosin at that stage, as a director of Holdings, was prepared to commit Holdings to give one million shares in Exploration as a sweetener to a subscriber for $4 million worth of shares in the Placement. There were thus two at least of the Holdings board of directors (there were only two other directors, one of whom was Mr Conway’s 24 year old son) who, over the weekend 14-15 May 1994 were prepared to commit Holdings to provide a “sweetener” of free shares in Exploration to persons who were prepared to subscribe for shares in the Placement. I do not accept Mr Prosin’s evidence (at T488 for example) that he did not discuss the contents of the Conway Facsimile with Mr Conway. For reasons which I develop below, I decided not to place reliance upon Mr Prosin’s evidence. Mr Prosin did not remonstrate with Mr Conway about the matters referred to in the Conway Facsimile. I consider that I am justified in finding, and I so find, that the strategy of Holdings giving away millions of shares (ranging from one million to five million) out of its holding of Exploration shares in order to fill the Placement was discussed between Mr Conway, Mr Prosin, Mr McNamara and Mr Freeman. Mr Freeman was the Company Secretary of Holdings and (at T598) he confirmed that Mr Conway had told him, at the time when it was known that the Placement would be completed, that Holdings was to provide to a subscriber an inducement of 10 million escrow shares in Exploration. At this stage I refer to these pieces of evidence, not on the question of Mr Conway’s authority, but on the question whether it was more likely than not that Mr Conway was contracting on behalf of Holdings.
It was, as Mr Stone submitted, self-evident that no investor would subscribe for shares to take up the shortfall in the Placement unless offered an incentive to do so. The current suspension of Exploration’s shares and their recent trading history made that clear. As Mr Freeman deposed “... we were all out there trying to get funds in for the company”. A reading of the Conway Facsimile confirms that to have been the situation as early as 14 May 1994. At the latest, by 17 or 18 May 1994 Mr Prosin had a copy of that facsimile and was thus aware of negotiations for millions of Exploration shares held in escrow by Holdings to be transferred to subscribers for the shortfall in the Placement. By 17 May 1994, Exploration had informed Australian Stock Exchange Ltd that the Placement had successfully been completed. That was the situation when the board of Holdings met on 19 May 1994. Of course, the minutes of that meeting do not record the fact that Mr Conway had quantified the amount of shares to be transferred to Mr Pittorino’s principal at ten million such shares. The fact that nobody at that meeting contested Mr Conway’s authority to offer any such shares on behalf of the company provides me with an additional basis for my conclusion that Mr Conway already had the implied authority of the board to reach agreement with Mr Pittorino. In my view the evidence, when taken as a whole, justifies the inference (which I make) that Mr Conway had the implied actual authority of Holdings when he made the agreement with Mr Pittorino on 15 or 16 May 1994. In those circumstances it is not necessary for me to decide whether Mr Conway also had ostensible authority from Holdings to enter into that agreement. However, I think that the evidence shows that he did. I refer to the matters which I have set out above. There was also a considerable amount of evidence of documentation in the public domain which confirmed the impression that at the relevant time Mr Conway effectively conducted the affairs of Holdings. Much of that documentation was in the possession of Mr Oxenham and Mr Leighton before the agreement was made.
B. Penale
Mr Conway conceded that he managed Penale (see Exhibit CLC5). He confirmed at the hearing that he acted for Penale on 15 and 16 May 1994 but said that he was not a director of the company at that time. Penale was the trustee of the Conway family trust of which Mr Conway was both appointor and guardian. Such evidence as there was, points to the fact that Mr Conway was the person in accordance with whose directions or instructions Penale was accustomed to act. In short, he occupied the position of director and controller of Penale. There was no evidence to contradict this. Mr Prosin saw Mr Conway as being Penale (see T557-558) for his claim to an indirect interest of 40% of the shares in Holdings on the basis of a contract or contracts made by Mr Conway on behalf of Penale.
I infer from the evidence that Mr Conway had actual authority to bind Penale to what has been pleaded as the Penale Agreement. I find that when Mr Pittorino and Mr Conway reached agreement by telephone on 15 or 16 May 1994, Mr Conway, in addition to representing Holdings, also represented Penale. Neither person may have referred specifically to Penale or have given precise thought to exactly who they contemplated were the contracting parties. However, my assessment is that Mr Conway was entering into the commitment on behalf of every entity whose participation might prove necessary to transfer the Shares to Mr Pittorino’s principal when they came out of escrow. If business efficacy is an appropriate touchstone in making this assessment (and I think it is) then such a commitment gave the deal business efficacy. If an officious bystander (listener) had cut in on the telephone call and asked the parties whether they intended to bind every entity on the Cambridge Gulf side whose participation might be required to transfer the Shares when they came out of escrow (and in particular Penale), my impression is that they would have responded: “Of course we do, how else would the deal work otherwise?” There was nothing inconsistent in a transaction which bound Holdings to deliver the Shares and Penale to do what was in its power to cause Holdings to honour that commitment. I find also that Mr Conway had Penale’s authority to instruct Messrs Bennett & Co to send the Bennett & Co Facsimile of 19 May 1994. In my view, on its proper construction, the Bennett & Co Facsimile evidences Penale’s earlier agreement to cause Holdings to transfer ten million fully-paid shares in Exploration to Mr Pittorino’s principal on 8 July 1995 when those shares came out of escrow. The evidence establishes that upon receipt of the Bennett & Co Facsimile, and in reliance upon the confirmation which it contained, the applicant subscribed for two million shares in Exploration and paid the subscription monies of $4 million. I find that there was one agreement struck between the three parties on 15 or 16 May 1994. The contractual relationships were pleaded in a manner (“Further or alternatively, on or about 15th or 16th May 1994 ...”) which, in my view, permits such a conclusion. I considered whether there might have been two, separate, agreements but I do not think that happened. First, I refer to my reasoning for finding that Penale was a party to the agreement struck during the telephone conversation between Mr Pittorino and Mr Conway. Then there is the use of the word “confirm” in the Bennett & Co Facsimile. I would not have so found solely in reliance upon the use of that word. “Confirm” is sometimes used to express an initial commitment, by which I mean a commitment not previously expressed. But its more normal use is to make firm or ratify that which has previously been expressed. That is the sense in which I think the word was used in the Bennett & Co Facsimile. I appreciate that Penale had probably not been referred to by name in the previous oral expression of that commitment, but I have dealt with that matter above.
In their defence Mr Conway and Penale plead that in his discussions with Mr Pittorino on or about 15 or 16 May 1994 Mr Conway was acting on behalf of Exploration and speaking in his capacity as chairman of Exploration. I do not accept that. Exploration did not bind itself to do anything at that stage. In particular, it did not bind itself to allot any shares for which the applicant might subscribe, though it was highly likely to accept such a subscription, given the then prevailing financial circumstances and the price at which its shares had recently been traded. That, potentially, was the main (if not the only) relevant obligation which Exploration might have undertaken had it been a party to the contract. If I am wrong, and Exploration was a party, then the situation, as I see it, is that Mr Conway represented one more party. The obligations of the other three parties inter se remain the same.
BREACH OF CONTRACT
It was common ground that if the agreements pleaded in the statement of claim (i.e. the Cambridge Gulf Agreement and the Penale Agreement, which I have held to be really one agreement) had come into existence, then neither Holdings nor Penale had carried out its terms.
Accordingly, subject to the other matters to which I refer below, each of Holdings and Penale is in breach of the contract made with the applicant. The evidence establishes that as at 8 July 1995 Exploration shares were quoted on the Australian Stock Exchange (on the previous day, a Friday) at 62 cents each. It is clear that the applicant has suffered very substantial loss and damage as a consequence of the breach by Holdings and Penale of their contract.
WAS THE AGREEMENT AFFECTED BY ILLEGALITY?
Holdings did not plead illegality. Penale and Mr Conway pleaded that the Penale Agreement was “void and unenforceable by reason of it being illegal, alternatively, unlawful”. With the consent of the parties, I invited the Australian Securities Commission to intervene on this question. The Commission declined to do so, but provided some helpful written submissions shortly before the trial started. Copies of those submissions were, of course, provided to the parties. Mr Conway and Penale’s plea of illegality was put on various bases. First, it was said that County Natwest owed the duties of a fiduciary to the subscribers who, in March 1994, subscribed for 6.5 million shares in the Placement (“the third party subscribers”), that County Natwest was a knowing party to the payment of a “secret commission” to the applicant and failed to inform the third party subscribers that the applicant “was about to procure 12 million shares” in Exploration for $4 million (representing 33 cents per share paid by the applicant compared to $2.00 per share paid by the third party subscribers). Then it was pleaded that the Penale Agreement was a fraud upon the third party subscribers and that by entering into the Penale Agreement, the applicant knowingly acted in aid of a breach of County Natwest’s duties as a fiduciary, owed to the third party subscribers. The specific breaches by County Natwest are narrowed down to the following allegations:
.that it was a knowing party to the payment of “a secret commission” to the applicant; and
.it failed to disclose the terms of the agreements made by the applicant.
In my view, there was no payment of a “secret commission”, in the generally accepted sense of that term. What the applicant bargained for was to have the Shares transferred to it when they came out of escrow, in consideration for an immediate subscription for two million shares in the Placement and payment of $4 million. There is no suggestion that the applicant was an agent of either Penale or Mr Conway. I was not taken to any authority which would otherwise characterise this element of the transaction as a “secret commission”, nor have I found any.
Assuming, for the moment, that County Natwest owed a fiduciary duty to the third party subscribers and assuming (as would appear to be the case) that County Natwest failed to disclose to those persons the terms of the above agreements, the question then arises whether that amounted to a breach of trust and if so whether the applicant was a knowing participant in that breach of trust. The further question would then arise, namely, whether in those circumstances the agreement was invalidated. In my opinion, the submission fails at the outset because there is no evidence that the applicant gave “knowing assistance” to any such alleged breach. In particular, there is no evidence that the applicant in any way played a role in County Natwest’s alleged failure to disclose the Penale contract to the third party subscribers. The applicant simply made its bargain, through Mr Conway with Holdings and Penale. I accept the applicant’s submission that the better view is that a necessary element of liability under the second limb of Barnes v Addy (1874) 9 L.R. Ch App 244 is that dishonesty be shown. That is, (usually) conscious impropriety judged by objective standards - see Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378 at pp 387-9. In my view, the applicant did not act dishonestly; it made a commercial bargain with Holdings and Penale. In particular, it did not knowingly appropriate another’s property.
Even if all the foregoing were wrong, this would not, in my opinion, invalidate the agreement. I was not cited any case to support that conclusion. On the contrary, decisions of the High Court of Australia such as Nelson v Nelson (1995) 184 CLR 538 and Fitzgerald v F J Leonhardt Pty Ltd (1997) 143 ALR 569 point the other way. I do not consider that the second and third respondents have made out any case for illegality along the above lines.
Next it was pleaded that the Penale Agreement was in breach of the Corporations Law in that it created, or alternatively was likely to create a false or misleading appearance with respect to the market for, or the price of, securities. The second and third respondents appear to rely on s 998(1) of the Corporations Law. In respect of a predecessor to this section (s 70 of the Securities Industry Act 1970) Mason J (as his Honour then was) observed in North v Marra Developments Ltd (1981) 148 CLR 42 at p 58:
“In terms the statutory prohibition is directed against activity which is designed to give the market for securities or the price of securities a false or misleading appearance. In this setting, “calculated” means “designed” or “intended” rather than “adapted” or “suited”.”
In my view, the evidence does not establish that the applicant had any such intention as would contravene s 998 of the Corporations Law when it entered into the agreement which it made with Holdings and Penale. Furthermore, there was no evidence that these agreements were likely to create a false or misleading appearance with respect to the market for any securities. The second and third respondents have not made out their case in that regard.
Next, the second and third respondents plead that by virtue of its knowledge of the matters described by reference in paragraph 11.6.3 of their amended defence and its knowledge that it might obtain a secret commission or a material advantage not enjoyed by the third party subscribers, the applicant’s entry into the agreement constituted insider trading. I was not referred to any authority to the effect that the insider trading provisions of the Corporations Law would invalidate a contract made between two parties both of which were fully appraised of the very information said to be the “inside information”. Nor have I found any such authority. Penale and Holdings, through Mr Conway, knew everything known to the applicant. Even the civil remedy of damages provided by s 1013 of the Corporations Law, is premised on a contract made between an insider and an innocent third party. I do not consider that the case based on insider trading has been made out.
Finally, Mr Conway made a submission (not reflected in any pleading) that the Court should not entertain the applicant’s claim because, as I understood his submission, Mr Hugh McLernon (a witness called by Mr Conway to give evidence under subpoena) or a company associated with him, The McLernon Group Ltd (“the McLernon Group”), had acted as what Mr Conway described a “barrator” and had incited this application. Mr Conway relied upon evidence given by Mr McLernon that the McLernon Group had provided services to the applicant by way of investigation of the facts, gathering documentation and communicating with the applicant’s former and present solicitors. Mr McLernon acknowledged that the McLernon Group’s fee for those services was contingent upon the success of the present proceedings. The applicant, by its counsel objected to this evidence being adduced, on the basis that it was not relevant to any issue raised on the pleadings. I should stress that these matters were not pleaded in the second and third respondent’s defence. Assuming, but without deciding, that the Court is under a duty to consider allegations of champerty and maintenance even if they are not pleaded (which I very much doubt), I do not consider that the second and third respondents have made out a case for denying relief to the applicant. Mr Conway relied on the decision of the Full Court of the Supreme Court of Western Australia in Newton v Gapes (1910) 12 WAR 86. In that case a married woman signed a transfer in favour of her solicitor of four shares in a mining tenement at a price much below their true value. The arrangement was to fund proceedings instituted by her against her husband for a declaration that certain mining shares (of which the four shares were part), standing in his name, were held by him as trustee for her. The husband and wife having settled their differences, the solicitor sued the wife seeking to have the transfer of the four shares to him completed. The Full Court ordered that that relief be refused. In my view, that case is a very different one to the present matter. These are not proceedings to enforce whatever rights The McLernon Group may have against the applicant. These proceedings are to establish whether the applicant has any enforceable rights. Mr Conway (at T926) may have overstated the position when he submitted that Mr McLernon had said that the McLernon Group had a share of the proceeds if the applicant were successful in this case. The relevant exchanges were as follows (at T870);
“Would it be true to say the McLernon Group usually makes its fee by taking a share in the success of the litigation of the plaintiffs they assist? --- It’s almost correct.
. . .
Would it be true that the McLernon Group’s fee as the Australian agent for CLC Corporation is contingent upon the success of this action. I think you have already answered that? --- Yes, it is.
Thank you. Would it be true that a portion of the subject matter in dispute will be the fee collected by McLernon Group Limited out of this action provided, of course, that there is a success for the applicant in this action? ----- Yes.”
However, for the purpose of considering Mr Conway’s submission, I will assume that this evidence makes it more probable than not that payment of the McLernon Group’s fee is contingent upon the applicant’s success in this application and that it takes the form of a percentage of whatever the applicant recovers.
The tort (and in some jurisdictions the crime) of champerty essentially involves maintenance of proceedings on the basis that the subject matter of the suit will be divided between the plaintiff or applicant and the maintainor. A contract to that effect may be void for being champertous, although I should not be taken as so holding, given fairly recent developments in this area of the law. But it is one thing for a champertous agreement to be void; it is a very different thing to avoid a contract or refuse to enforce a contract because the applicant has subsequently made an agreement which might be champertous. I do not think that is the law. The subject of maintenance and champerty has received quite extensive consideration in some recent Australian cases - see Re Movitor Pty Ltd v Sims (1995) 19 ACSR 440 - which the English Court of Appeal recently distinguished on the basis of different legislative provisions in Re Oasis Merchandising Services Ltd (in liq); Ward v Aitken (1997) 1 All E.R. 1009 at p 1020-1022; Magic Menu Systems Pty Ltd v AFA Facilitation Pty Ltd (1996) 137 ALR 260 and on appeal (1997) 142 ALR 198; Re Tosich Construction Pty Ltd (1997) 15 ACLC 637; Re Moage Ltd (unreported, Mansfield J 1 August 1997 No.719 of 1997) and Roux v Australian Broadcasting Commission [1992] 2 VR 577. However, it is not necessary, for the purposes of deciding this application to explore and apply the principles discussed in those decisions. I note that the general tenor of those cases appears to be contrary to Mr Conway’s proposition that the underlying agreement relied upon by the applicant is unenforceable. In Roux, Byrne J, after a comprehensive review of the authorities (between pp 605-609) observed (at p 609) that there was no modern case in which the relief which the defendant sought in that case, refusal to countenance the proceedings (which is the same as the relief sought by Mr Conway and Penale), has been granted.
STAMP DUTY
Tacked on to paragraph 10.7 (a fairly lengthy narration of factual matters) of the second and third respondents’ amended defence is the following sentence:
“The letter is not stamped.”
The letter referred to is the Bennett & Co Facsimile. No arguments were advanced or submissions made at the hearing by any party on the question of the significance of the Bennett & Co Facsimile not being stamped, although this issue did surface as part of the second and third respondent’s resistance to an (earlier) application for summary judgment. As the second and third respondents were unrepresented and as it is a matter which the Court, in my view, is obliged to consider [see Davis v Federal Commissioner of Taxation (1989) 86 ALR 195 and the cases therein cited] I shall deal with the point. In May 1994, s 27 of the Stamp Act 1921 (WA) relevantly provided:
“27(1) Except as otherwise provided by this Act no instrument chargeable with duty and executed in Western Australia, or relating, wheresoever executed, to any property situate or deemed to be situate or to any matter or thing done or to be done in Western Australia, shall, except in criminal proceedings, be pleaded or given in evidence or admitted to be good, useful, or available in law or equity, unless it is duly stamped in accordance with the law in force at the time when it was first executed.
(2) Any document executed in Western Australia, or relating, wheresoever executed, to any property situate or to any matter or thing done or to be done in Western Australia, which -
(a)affords any evidence of a transaction to which section 31B(1)(a) or (aa) applies ...
but
(b)is not itself chargeable with duty,
shall not, excepting (sic) criminal proceedings, be pleaded or given in evidence or admitted to be good, useful, or available in law or equity, unless a statement has been prepared and lodged under section 31B(1) in respect of the transaction to which that document relates and the duty has been paid.
“Instrument” is defined in the Act as including every document in writing or duplicate or counterpart thereof and every matter or thing enumerated or set forth in the Second Schedule.
Section 31B then relevantly provided:
“31B (1) Subject to this section, a person who becomes a party to a transaction -
(a) -(aa)which causes a change in the beneficial ownership of a marketable security or a right in respect of shares;
... but which transaction is not effected or evidenced by an instrument chargeable with ad valorem duty, shall, if he would have been liable to pay duty in respect of that transaction had such an instrument been executed, within a period of 3 months after entering into that transaction, prepare and lodge with the Commissioner a statement in the prescribed form in respect of that transaction.
(1a) In subsection (1) “instrument chargeable with ad valorem duty” means - ...
(aa)in the case of a transaction which causes the change referred to in subsection 1(aa) an instrument chargeable with such duty at the rate which would be applicable to an instrument of transfer of the beneficial ownership of a marketable security or right in respect of shares.”
Item 3 of the Second Schedule to the Stamp Act provided at the relevant time for duty to be payable in respect of a conveyance or transfer of any marketable security or right in respect of shares of a corporation at the rate (so far as might be relevant in this matter) of 60 cents per $100 of the consideration.
If Penale and Mr Conway had been legally represented they might have argued that the Bennett & Co Facsimile should not have been pleaded or given in evidence on two bases. First, that it was an instrument chargeable with duty within the meaning of that expression in s 27(1) of the Stamp Act. Secondly, that the applicant had become a party to a transaction (the agreement which I have found was entered into orally by Mr Pittorino and Mr Conway) which caused a change in the beneficial ownership of the Shares, being marketable securities, and that s 31B(1) applied.
In my view, the Bennett & Co Facsimile cannot be characterised as a conveyance or transfer of a marketable security or right in respect of shares. I adhere to the view which I expressed when giving an interlocutory judgment in respect of the motion for summary judgment in this matter, namely, that the Bennett & Co Facsimile does not “effect” the agreement pleaded but is rather evidence that there was such an oral agreement - see Metro Taxi Management Pty Ltd v Commissioner of State Taxation (WA) (1995) 95 ATC 4671 at 4673 and the authorities there cited. Nor do I consider that by entering into that oral agreement the applicant can be said to have become a party to a transaction which caused a change in the beneficial ownership of a marketable security or a right in respect of shares within the meaning of s 31B(1)(aa). The oral agreement, in my view, simply created contractual rights to call for a transfer of an unspecified parcel of ten million Exploration shares when those shares became free of the escrow condition on 8 July 1994. Apart from anything else, the property in respect of which beneficial ownership might be argued to have been changed by the transaction cannot be identified. I should add that no argument based on the Stamp Act was put forward on behalf of Holdings although the Bennett & Co Facsimile was pleaded and relied upon as evidencing the Cambridge Gulf Agreement.
For those reasons I do not consider that the Bennett & Co Facsimile was an instrument chargeable with duty. Nor do I consider that the applicant had become a party to a transaction of the type described in s 31B(1) in the terms in which it was then expressed. In my view the Bennett & Co Facsimile was properly admitted as evidence of the earlier oral agreement.
OTHER MATTERS
Many other matters were raised in Mr Conway’s written outline of final submissions which were not pleaded in the second and third respondent’s defence or raised in evidence at the hearing or both. For those reasons I shall not deal with them.
THE CLAIM UNDER S 52 OF THE TRADE PRACTICES ACT AND ITS STATE EQUIVALENT
As I have found in favour of the applicant in respect of its contractual claims, it is not necessary to consider the claims which were based on conduct which was said to be misleading or deceptive.
THE CLAIMS AGAINST MR CONWAY
The contractual claims against Mr Conway were only advanced in case I found that he did not have authority to bind either Holdings or Penale. In view of the above findings, it is not necessary to consider those claims. Nor is it necessary to consider the remainder of the claims against Mr Conway. Those claims were based on the contention that he was knowingly concerned in the allegedly misleading conduct of Holdings and Penale. All of the claims against Mr Conway thus either fall away or do not need to be considered.
CONCLUSIONS
For the foregoing reasons, I consider that the applicant is entitled to relief against Holdings and Penale for breach of contract.
WHETHER THE APPLICANT SHOULD BE GRANTED AN ORDER FOR SPECIFIC PERFORMANCE
The applicant seeks specific performance. It also seeks damages in addition to specific performance or in lieu of specific performance. In its written submissions the applicant contends (rightly in my view) that a contract to purchase shares which are not to be had in the market may be specifically enforced: see Re Schwabacher (1908) 98 LT 127 and ANZ Executors and Trustees Ltd v Humes Ltd [1990] VR 615 at p 629. The applicant says that the contract was to transfer specific shares held by Holdings when they came out of escrow and that the escrow shares were not available in the market. I think that this submission misconstrues the test. In my view, the time to test whether the shares are “to be had in the market” is not when the contract was made, but the time when the relief (specific performance or damages) is to be granted. In Jones & Goodhart “Specific Performance” (2 Ed) at p 162, the learned authors state:
“A contract to transfer shares in a publicly quoted company will generally not be specifically enforced. Such contracts will only be specifically enforced in exceptional circumstances, for example, if the shares ‘are not always to be had in the market’ or are not ‘dealt in largely on the market’ or if the contract is for the sale of a controlling shareholding in the company.”
On the other hand, there is the following passage in Spry “Equitable Remedies” (4 Ed) at p 63:
“So if shares are not listed for quotation, or the parcel in question is a controlling interest or is of such a size or nature that to acquire it elsewhere would involve undue difficulty or uncertain expenditure, damages may be regarded as inappropriate. If however the shares or stock are readily obtainable (whether at a premium or not), the observations of Parker J should be borne in mind, who said that “although I have no doubt that it is within the power of a court of equity to decree specific performance of a contract for the sale and purchase of shares, yet when shares are dealt in largely on the market, and anyone can go and buy them as appears to be the fact in this case - there is no reason why they should not be in the same position as Government Stock” [citing Re Schwarbacher at p 128] as to which damages may provide an appropriate remedy. Nonetheless even if there is an available market, the size of the relevant parcel, for example, or the risk that to seek to purchase it might bring prejudice or inconvenience unduly the defendant or third parties, may bring about a different position.”
There was very little evidence on these matters. Exhibit CLC1 pp 2-9 shows the prices and volume of trading of shares in Exploration for the period February 1994 to August 1995. That shows that during the last ten days of that period average turnover of shares in Exploration was about 250,000 shares per day. Exhibit CLC8 gives a share price history for shares in Exploration for the period 7 April 1997 to 6 June 1997, but gives no indication of the volume of sales.
I think it was the for applicant to lead evidence to show whether or not there is an available market for the Shares or whether other circumstances existed which would justify the conclusion that damages would not provide the applicant with an appropriate remedy. I do not think that sufficient evidence has been adduced for me to reach the conclusion that specific performance should be ordered against Holdings. I consider that damages would be an adequate remedy in the circumstances. For the same reason I do not think it would be appropriate to make an order for specific performance requiring Penale to cause Holdings to transfer ten million shares in Exploration to the applicant.
DAMAGES
I consider that Holdings and Penale should be ordered to pay damages to the applicant in an amount which would place it in the position it would have been had the contract been performed. If the contract had been performed then the applicant would, on 8 July 1995, have received ten million shares in Exploration which it could have sold on the Australian Stock Exchange. 8 July 1995 was a Saturday. The evidence shows that on 10 July 1995 those shares were selling in the range 60-62 cents with the last sale being at 62 cents. For the rest of July 1995 the shares traded at as low as 55 cents but also as high as 77 cents. Just over two million Exploration shares were sold between 10 July 1995 and 31 July 1995. The purpose of looking at these figures is to assess the fair market value of the Shares which should have been transferred to the applicant on 8 July 1995. I think I should take into account the fact that even if the Shares had not been offered for sale at once, a steady realisation of them would be likely to have a depressing effect on the market. No expert evidence was adduced on this question and I must make an assessment as best I can on the evidence. Having observed Mr Leighton and his advisor Mr Oxenham in the witness box, I consider that the Shares would have been skilfully disposed of so as to maximise the price obtained. [I note that the applicant sold the shares for which it subscribed in Exploration within about two months of allotment.] All in all, I consider that a discount of 10% should be applied to the closing price on 10 July 1995 of 62 cents and (rounding off the figures) the value of each of the Shares should be taken as having been 56 cents and the total parcel having a value of $5,600,000. There will be an order that the first and second respondents pay to the applicant damages quantified at $5,600,000. The applicant reserved its position on the question of interest. In my provisional view, the applicant is entitled to interest under s 51A of the Federal Court of Australia Act 1976 (Cth). But there were no submissions on the matter of interest and I will hear counsel on that point. If interest is to be awarded I consider that the appropriate rate should be the rate from time to time payable in respect of judgments of this Court. The first and second respondents should pay the applicant’s costs. I am aware that Mr Conway has died since judgment was reserved in this matter. Ordinarily I would have ordered that the claims against him be dismissed, but I will, at a later date, hear counsel on the question whether any orders should be made in respect of the claims against Mr Conway (see for example Order 6 rule 10 of the Federal Court Rules) and, if so, what those orders should be.
I certify that this and the preceding fifty-six (56) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Carr
A/g Associate:
Dated: 24 October 1997
Counsel for the Applicant: Mr D M Stone Solicitors for the Applicant: Messrs Williams & Hughes Counsel for the First Respondent: Mr M J McCusker QC, with him
Mr M J HayterSolicitors for the First Respondent: Messrs M J Hayter & Co The Third Respondent, Mr B Conway appeared in person and for the Second Respondent Dates of Hearing: 11, 12, 13, June, 30 June,
18-19 August 1997Date of Judgment: 24 October 1997
0
11
1