Dalkeith Resources Pty Ltd v Regis Resources Limited
[2012] VSC 288
•29 June 2012
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
No. 10323 of 2009
BETWEEN
| DALKEITH RESOURCES PTY LTD (ACN 061 721 453) | Plaintiff |
| v | |
| REGIS RESOURCES LIMITED (ACN 009 174 761) | Defendant |
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JUDGE: | MACAULAY J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 22 – 25 May 2012 | |
DATE OF JUDGMENT: | 29 June 2012 | |
CASE MAY BE CITED AS: | Dalkeith Resources Pty Ltd v Regis Resources Limited | |
MEDIUM NEUTRAL CITATION: | [2012] VSC 288 | |
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CONTRACT — Whether contract for services validly terminated — Contract for services as managing director — Provisions in constitution and in Corporations Act for removal of director concurrent and alternative — Director removed from office under s 203D Corporations Act — Valid termination under contractual right where managing director ‘vacated office’ by ceasing to be a director under the Corporations Act.
CONTRACT — Contractual entitlement to “earn a contract bonus” — Whether terms of bonus orally agreed — No oral agreement — No authority to contract.
CONTRACT — Contractual obligation to grant share options — Whether implied term that the obligation to grant options was subject to shareholders’ approval — No breach of contract for failure to grant options — No damages resulting.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr Stewart Anderson SC with Mr David Morgan | Holding Redlich |
| For the Defendant | Mr Matthew Connock SC with Mr Richard Attiwill | Freehills |
TABLE OF CONTENTS
Introduction......................................................................................................................................... 1
Arguments and issues....................................................................................................................... 2
Summary of conclusions................................................................................................................... 4
Did Regis breach an obligation to give Dalkeith nine months’ notice of termination?....... 5
The termination provisions in the services contract................................................................ 6
Vacating office under the constitution....................................................................................... 8
Removal under a provision of the constitution........................................................................... 9
Otherwise ceases to be a director............................................................................................... 12
No breach..................................................................................................................................... 13
Damages if there was a breach?................................................................................................ 14
Conclusion on termination........................................................................................................ 14
Did Regis breach an obligation to pay Dalkeith a $100,000 bonus?...................................... 14
Was an agreement made as alleged?....................................................................................... 15
Events preceding 7 May 2008.................................................................................................. 16
The conversation with Dr Folie................................................................................................ 18
Events after the conversation.................................................................................................... 18
Authority.................................................................................................................................. 20
Other arguments......................................................................................................................... 21
Conclusion on bonus.................................................................................................................. 22
Is Regis liable to pay Dalkeith damages for failure to issue it options?................................ 22
Was the promise to grant options subject to shareholder approval?................................. 23
The 650,000 options.................................................................................................................... 25
2007/2008 year............................................................................................................................ 26
2008/2009 year............................................................................................................................ 28
Conclusion on options............................................................................................................... 30
Conclusion......................................................................................................................................... 30
HIS HONOUR:
Introduction
In August 2004, David Walker became managing director of Regis Resources Ltd (the defendant), a publicly listed, start-up mining company. From 1 July 2005 onwards, his services as managing director of Regis were supplied by his family company, Dalkeith Resources Pty Ltd (the plaintiff). Those services were supplied under a services contract made between Regis and Dalkeith, initially for a term of two years until 30 June 2007 but then, by an amendment to the agreement, extended until 30 June 2009 (‘the services contract’).[1]
[1]Exhibit A, tab 47, pp 974-996 and tab 84, pp 1270-1271.
On 4 May 2009, shortly before the expiry of the extended term, Mr Walker was removed as a director of Regis by resolution of the company in extraordinary general meeting. The then current directors were replaced in a coup, effective immediately.
As a consequence of Mr Walker’s removal as director, and thus as managing director, Dalkeith claims that Regis breached the services contract and wrongfully terminated it. It claims to be entitled to damages for the failure of Regis to make good a number of benefits allegedly due to Dalkeith under the agreement or as a consequence of its termination.
Damages are claimed under three heads: [2]
(a)First, the failure to give nine months’ notice of termination of the services contract or to pay nine months of the service fee in lieu of such notice;
(b)Secondly, the failure to make a bonus payment of $100,000 consequent upon the board of Regis, on 10 April 2009, accepting a Definitive Feasibility Study (‘DFS’) for a proposed gold mine known as the Duketon Gold Project; and
(c)Thirdly, the value of two tranches of share options in Regis alleged to be due under the services contract: that is, at least 520,000 options for the 2007/2008 year and at least another 520,000 options for the 2008/2009 year.
[2]A fourth pleaded head of damage, for the loss of the opportunity to negotiate a higher service fee, was abandoned at trial.
Arguments and issues
Regis denies that it was obliged to pay to or confer upon Dalkeith any of those benefits, or that it should pay damages for its failure to do so.
Concerning the first head of damage, it denies that the events surrounding the termination of Mr Walker as director of Regis triggered any obligation to give Dalkeith notice of termination or to make any payment in lieu of giving that notice. Further, it says that, in any event, Dalkeith would not be entitled to any damages for any failure to give notice calculated beyond 30 June 2009 when the services contract would have expired by effluxion of time.
Concerning the second head of damage, Regis denies that the DFS was ‘accepted’ by the board so as to enliven any obligation to pay the bonus. In any event, it denies there was an agreement to pay the bonus in the terms alleged or, if there was, it says that the agreement was later terminated. It also argues that any such agreement to pay the bonus (if there was one) contravened the related party transaction provisions of the Corporations Act 2001 (Cth),[3] making it unenforceable.
[3]Sections 208–211.
In relation to the third head of damage, Regis says a number of things. First it says that in November 2007 it provided Dalkeith with 650,000 share options for the 2007/2008 year, thus satisfying its obligation to provide no less than 520,000 options for that period.
There is no question those options were provided. But there is a dispute between the parties as to whether that parcel of 650,000 options was issued under the services contract obligation to grant options for the 2007/2008 year or (as Dalkeith contends) under a separate agreement to provide options in the preceding financial year. If the latter, Dalkeith argues that the grant of the 650,000 options cannot be ‘counted’ as compliance with the ‘additional’ obligation under the services contract.
Regis further argues that any obligation to grant options under the services contract was conditional upon shareholder approval – a condition that was met for the grant of the 650,000 options. But, because there was no shareholder approval to grant options for the 2008/2009 year it says that no obligation arose upon it to grant them at all.
Similarly, if it is wrong about the character of the 650,000 options granted in November 2007, Regis says that there was no shareholder approval to grant any further options in the 2007/2008 year. Alternatively, if shareholders had been asked for approval to grant Dalkeith more options in or for the 2007/2008 year, Regis says they would not have given it.
Regis next argues that if, as Dalkeith contends, an obligation was cast upon Regis to grant the options (or, more accurately, to pay damages if the options were not granted) regardless of shareholder approval, such an agreement also contravenes the related party transaction provisions of the Corporations Act and cannot be enforced.
Next, it argues that, in any event, Dalkeith’s (or Mr Walker’s) entitlement to the options lapsed in accordance with the governing rules of Regis’ Employment Shareholder Option Plan (‘ESOP’). They did so because Mr. Walker ceased to be an ‘eligible person’, when removed as a director, and then failed to exercise his options within one month of that event as required by the rules. There is a dispute about the applicability of the lapsing provisions.
Next, Regis says that Dalkeith itself was not entitled to the options – only Mr Walker was – so Dalkeith has suffered no loss even if there has been a breach.
Finally, if there is any entitlement to damages for the non-issue of the options there then arises a question as to the value of any exercisable options for the purpose of calculating damages.
Accordingly, the questions to be resolved are these:
(1)In the events that happened, did Regis breach an obligation to give Dalkeith nine months’ notice of the termination of the services contract. If so, what is the quantum of damage payable due for failing to do so?
(2)Did Regis agree (and remain bound) to pay Dalkeith a bonus of $100,000 upon acceptance by the board of a DFS? If so, did the board ‘accept’ the DFS such that the bonus became payable?
(3)In relation to any promise to grant 520,000 options per annum for 2007/2008 and 2008/2009:
(a)Was that obligation, and any liability to pay damages if in breach of it, subject to shareholder approval?
(b)Did Regis breach the obligation to grant options for the 2007/2008 and 2008/2009 years?
(c)If Regis breached the obligation, did Dalkeith itself suffer loss and damage? If it did, then:
(i)did Mr Walker cease to be an ‘eligible person’ under the ESOP and, if so, what follows from that?
(ii)what is the quantum of loss and damage?
(4)Did the obligation to pay the bonus or to grant the options (assuming either obligation existed) contravene the related party transaction provisions of the Corporations Act? If so, what follows from that?
Summary of conclusions
In my view, the answer to each of those questions is as follows:
(1)Regis did not breach any obligation to give 9 months’ notice of termination of the services contract. Rather, it terminated the services contract as it was permitted to do in accordance with its terms. No question of assessing damages arises.
(2)Although the board did accept the DFS before 30 June 2009, Regis did not agree and was not bound to pay Dalkeith a bonus of $100,000 upon that event. No breach is established.
(3)Regis did not breach its obligation to grant Mr Walker not less than 520,000 options per annum during the extended term of the services contract. Its obligation was conditional upon the shareholders’ approval of any grant. Regis met its obligation in the first of the two years by the grant of 650,000 options in November 2007. Because shareholder approval was neither sought nor obtained for any further grant of options, it did not breach the services contract by not granting any further options in the subsequent year. No need arises in those circumstances to consider quantum of damage.
(4)The issue of contravention of the related party transaction provisions in the Corporations Act does not arise for decision.
I explain my reasons below.
Did Regis breach an obligation to give Dalkeith nine months’ notice of termination?
Dalkeith pleaded that because of the removal of Mr Walker as managing director, by resolution made 4 May 2009 removing him as director, Regis repudiated the services contract. The removal amounted to a repudiation, so Dalkeith alleged, because by doing so Regis terminated the services contract without giving Dalkeith nine months’ written notice of termination, or payment in lieu thereof, as the contract required it to do.
Under the services contract Regis agreed to appoint Dalkeith’s representative (Mr Walker) as managing director for the term (ie until 30 June 2009).[4] Further, Regis agreed to pay Dalkeith $350,000 per annum during the term in consideration of Dalkeith providing the services of a person suitable to be managing director of the company.[5]
[4]Clause 2.2 of the services contract.
[5]Clause 4.1(a) of the services contract.
The services contract set out the means by which either party could terminate the contract. I will return to those in more detail shortly but, in brief, there were provisions governing the means by which Regis could terminate the contract, and others by which Dalkeith could terminate the contract. The agreement also provided that, upon the expiry of the term, Dalkeith’s representative’s appointment as managing director automatically terminated. It also stipulated that the representative must resign as a director at the end of the term.[6]
[6]Clauses 12 and 13 of the services contract.
On 14 May 2009, Mr Walker, as director of Dalkeith, wrote to Regis asserting that the resolution removing him as director of Regis, and subsequently appointing a new managing director, repudiated Regis’ contractual obligations to Dalkeith. He advised that Dalkeith accepted the repudiation.[7]
[7]Exhibit A, tab 115, p 1519.
In response, Regis wrote to Dalkeith on 20 May 2009 rejecting the assertion that it had repudiated its contractual obligations. Instead it asserted that because Mr Walker had ceased to be a director of the company following the resolution of the company in general meeting, the company was entitled to terminate the services contract in accordance with its terms. It purported to give notice of such termination with immediate effect.
So the question is whether the removal of Mr Walker as managing director, as a result of the company’s resolution in general meeting to remove him as a director, constituted a repudiation of the services contract. If so, how are the damages for such breach to be measured?
The termination provisions in the services contract
The relevant terms of the services contract were:
9 TERMINATING ASSIGNMENT – COMPANY
9.1Nine months notice or payment in lieu
(a)the Company may terminate this contract at any time by giving Dalkeith not less than nine months’ written notice.
(b)the Company may instead of continuing the assignment for part or all of the period of notice required by paragraph 9(a) terminate the assignment as from an earlier date notified by the Company by paying Dalkeith the Fees for such period.
…
9.3Immediate Termination
The Company may terminate this contract immediately if:
(a)Dalkeith or any of its shareholders:
(i)(bankrupt) becomes bankrupt or makes an arrangement or composition with creditors;
(ii)(breaches document) wilfully commits any breach of a provision of this document;
(iii)(fraud) in the opinion of the Board, commits any act of fraud, dishonesty or other serious misconduct;
(iv)(vacates office) vacates office as a director of the Company under a provision of the Company’s constitution;
(v)(misconduct) is guilty of any misconduct or wilful neglect in the discharge of his duties; or
(vi)(unsound mind) becomes of unsound mind or is placed under the control of any committee or office under any law relating to mental health; or
(b)an Insolvency Event occurs to Dalkeith … .
It is plain that Regis did not purport to terminate a services contract by the method prescribed in clause 9.1 – that is, by giving nine months’ notice of termination or by electing to pay out all or part of the notice period.
Regis contends that the termination was effected immediately by the means permitted under clause 9.3(a)(iv). That is, it says that Dalkeith (more specifically, Mr Walker) vacated office as director of the company under a provision of the company’s constitution. In those circumstances, so Regis argues, the termination cannot have amounted to a repudiation or breach which gives rise to any obligation on its part to pay damages. Nor, logically, was any obligation to pay money in lieu of notice under clause 9.1(b) engaged.
Dalkeith’s argument was that the termination was not one which the company was permitted to effect immediately under clause 9.3. As there was no other relevant clause in the contract permitting termination, it argued that the termination was effected in breach of the obligation to give not less than nine months’ written notice or to pay the fee in lieu.
I turn to the question whether the removal of Mr Walker as director on 4 May 2009 amounted to him vacating office as director within the meaning of that expression in clause 9.3(a)(iv) of the services contract.
Because that clause refers expressly to vacating office ‘under a provision of the company’s constitution’ one turns to the constitution to ascertain the circumstances in which a director might vacate office. As a matter of construction, it seems irresistible that the meaning of ‘vacates office’ in the services contract was intended (ascertained objectively) to be aligned with the meaning of the same (or cognate) expression in the constitution because the contractual provision expressly links the two. The fact that the contract uses the active voice (‘vacates’) and the constitution, in Article 16.9(b) (see below), uses the passive voice (‘is vacated’) is, in my view, of no consequence.
Vacating office under the constitution
Article 16.9(b) of the constitution[8] provides:
[8]Exhibit A, tab 11, pp 539-610 (‘the constitution’).
(b) The office of a Director is vacated if that Director:
(i)becomes of unsound mind or a person whose person or estate is liable to be dealt with in any way under the law relating to mental health;
(ii)is absent without the consent of the Directors from all meetings of the Directors held during a period of six months and the Directors resolve that his or her office be vacated;
(iii)resigns the office of Director in accordance with Article 16.6 or 18.3;
(iv)is removed under the provisions of Article 16.7 or 18.2;
(v)ceases to be a Director by virtue of Article 18.4;
(vi)becomes an insolvent under administration (within the meaning of the Corporations Act); or
(vii)otherwise ceases to be, or becomes prohibited from being, a Director by virtue of the Corporations Act.
The two methods of vacating office which are pertinent in this instance are those set out in Articles 16.9(b)(iv) and (vii).
Removal under a provision of the constitution
Taking Article 16.9(b)(iv) first, Regis argued that Mr Walker was removed as director under Article 16.7 and therefore vacated office of Director within the meaning of Article 16.9(b). Dalkeith denied that Mr Walker was removed under Article 16.7.
Article 16.7 provided:
Subject to the Corporations Act, the Company in general meeting convened on Prescribed Notice made by ordinary resolution:
(a)remove any director; and
(b)if thought fit, appoint another qualified person in place of that Director.
The constitution defined “Prescribed Notice” as being 28 days or such shorter period of notice allowed under the Corporations Act.
At the relevant time, the Corporations Act provided a means of removing a director of a public company by resolution of members. Section 203D(1) provided:
A public company may by resolution remove a director from office despite anything in:
(a)the company’s constitution (if any); or
(b)an agreement between the company and the director; or
(c)an agreement between any or all members of the company and the director.
The section required that at least two months’ notice of the motion for the resolution be given, and that the company must give the director a copy of the notice as soon as practicable. It also provided a regime permitting the director to put their case to members by means of a written statement and set out the method by which it was to be circulated to the company’s members.
On 4 March 2009, Mr Mark Clark advised the board of Regis, by letter, of his intention to requisition a meeting of shareholders to remove the current board and replace it with three new directors (including himself).[9] Soon after, a notice of general meeting was sent to members foreshadowing resolutions by ordinary resolution, including:
That, pursuant to section 203D of the Corporations Act, Mr David Anthony Walker be and is hereby removed as a director of the Company (effective immediately on the passing of this resolution).[10]
[9]Exhibit A, tab 106, pp 1471-1473.
[10]Exhibit A, tab 108, pp 1482-1506.
It was in accordance with that notice of resolution that the members resolved on 4 May 2009 to remove Mr Walker as a director (and, as a necessary consequence, as managing director).[11] Nobody suggested that the procedure in s 203D had not been followed. I therefore conclude that Mr Walker was removed by the company in general meeting pursuant to a resolution authorised by s 203D of the Corporations Act.
[11]Exhibit A, tab 114, pp 1517-1518.
This conclusion has significance. Dalkeith contended that a removal under s 203D did not amount to removal under Article 16.7 of the constitution. Therefore, it argued, Mr Walker’s removal as director did not constitute vacation of office under Article 16.9(b)(iv).
Regis, on the other hand, argued that the fact that the requisitioning shareholders used the procedure in s 203D was of no relevant consequence. One simply had to ask whether the term in the services contract had been engaged by reason of Mr Walker’s vacation of office in accordance with the constitution. Because he had been removed by ordinary resolution in general meeting that fact sufficed to engage Article 16.7, therefore Article 16.9(b)(iv) and, therefore, clause 9.3(a)(iv) of the services contract.
I disagree with Regis’ contention. The authorities cited by Dalkeith[12] demonstrate that Article 16.7 in the constitution and s 203D in the Corporations Act constitute concurrent alternative sources of authority for Regis to remove a director.
[12]Link Agricultural Pty Ltd v Shanahan [1999] 1 VR 466; Howard v Mechtler (1999) 30 ACSR 434.
The Victorian Court of Appeal’s decision in Link Agricultural Pty Ltd v Shanahan[13] is, in my view, relevantly indistinguishable from the present case. Although the then s 227 of the Corporations Law was not identical to s 203D, it was relevantly the same. Like s 203D, it provided a permissive power for the company in general meeting to remove a director “notwithstanding anything in its articles or in any agreement between it and the director”. Kenny JA (with whom Batt and Buchanan JJA agreed) observed that, in that case, the statutory provision and the article in the constitution stipulated different requirements for the exercise of the rights they each conferred and that neither provision prevented recourse to the other.[14]
[13][1999] 1 VR 466.
[14]Ibid [52].
Article 16.7 of the constitution in the current case is prefaced with the words “[s]ubject to the Corporations Act”. Those words indicate that the permissive authority in Article 16.7 is subordinate to any provision in the Corporations Act to the contrary. However, there is no provision in the Corporations Act which says that a company may not, by ordinary resolution in general meeting on 28 days’ notice, remove a director.
What the Corporations Act does is to provide an alternative source of authority and procedure for shareholders to remove a director. Again, as Kenny JA said in Link Agricultural:
Section 227 and Article 95 create concurrent and alternative procedures pursuant to which the company in general meeting may remove a director and appoint another in his place. The members have a choice whether to proceed under section 227 or to proceed under Article 95 …
…
Where the members choose to proceed under section 227, not Article 95, the requirements of Article 95 are not relevant. … Likewise, of course, if the members choose to proceed under Article 95, then the requirements of section 227 have no application … .[15]
[15]Ibid [52] and [53].
The same reasoning applies to the facts of this case. The plain corollary of this reasoning, is that each procedure for the removal of a director of a public company is different from the other, and the exercise of one is not the exercise of the other.
I therefore find that Mr Walker did not vacate office as director as provided in Article 16.9(b)(iv) of the constitution. However that is not the end of the matter.
Otherwise ceases to be a director
Regis also relied upon Article 16.9(b)(vii), namely that Mr Walker vacated the office of director because he otherwise ceased to be a director by virtue of the Corporations Act. In my view, this provision of the constitution was engaged by his removal as director by the procedure provided in s 203D of the Corporations Act.
Article 16.9 falls within a section of the constitution headed “Directors: Appointments and Removal”. That section deals, amongst other things, with appointment (16.5), resignation (16.6), removal by general meeting (16.7), and suspension for prejudicial behaviour (16.8).
Article 16.9(a) makes the unremarkable proposition that:
Subject to Article 17 [resignation], each Director will remain in office until his or her office is vacated pursuant to Article 16.9(b).
Read in context with sub-paragraph (a), there is no reason to give sub-paragraph (b) any restrictive meaning. Sub-paragraph (a) almost states the obvious. A director will remain a director until he or she is no longer a director or eligible to be a director. Sub-paragraph (b) merely lists the logical ways in which that circumstance might come about. So understood, the list in Article 16.9(b) is meant to contain a comprehensive list of the means by which the office of director may be vacated.
In my opinion, the final provision, ‘otherwise ceases to be …’, should be construed broadly as intending to pick up the diverse ways by which, under the Corporations Act, a director may cease being a director. Those words imply that each of the preceding sub-paragraphs, including removal under the constitution, also concern instances of a person ‘ceasing’ to be (or be eligible to be) a director.[16]
[16]Article 16.9(b)(v) appears to be anomalous because Article 18.4 (to which it refers) does not deal with ceasing to be a director at all.
Accordingly, I see no reason why a removal under s 203D should not be embraced by those words, and every reason why it should. Removal by that procedure has exactly the same result as removal under Article 16.7: namely, that a director ceases to be one. It would be odd if the proposition in sub-paragraph (a) did not apply when a director had in fact been removed from office, albeit under a provision of the Corporations Act rather than the constitution itself.
No breach
It follows that, because Mr Walker vacated the office of director under clause 16.9 of the constitution, he also vacated office as a director for the purposes of clause 9.3(a)(iv) of the services contract. That being the case, the company was entitled to terminate the services contract with immediate effect once Mr Walker’s removal as director had occurred. This the company did on 20 May 2009.
Further, it follows that because Regis terminated the services contract in a manner permitted by the contract, it did not breach or repudiate the contract in doing so. No need arises to consider whether Regis should have paid Dalkeith nine months of the services contract fee or be liable for any damages measured by that sum.
Damages if there was a breach?
Although it is strictly unnecessary for me to go further, if I am wrong on the question of whether Regis breached or repudiated the services contract with Dalkeith by removing Mr Walker as director in the manner in which it did, I would not have awarded Dalkeith damages by reference to the obligation in clause 9.1(b) of the services contract to pay nine months fees in lieu of notice.
As I have stated, clause 9.1 provides only one method for terminating the contract which, on any view, Regis did not choose to employ. It is not appropriate to measure the loss sustained by Dalkeith when its term was foreshortened by two months, by having regard to an alternative mode of termination available to Regis which Regis did not seek to use. Dalkeith’s primary contractual right was to be engaged for the whole of its term. If it was wrongfully deprived of that entitlement, it could sue for its loss. But, its loss was the loss of its right to serve out the term and be paid for doing so.
Furthermore, I have serious doubts whether, by 4 May 2009, with less than two months of the term to go, clause 9.1 had any application at all. Regis could not give ‘not less than 9 months’ notice’ of termination at that stage because there was not 9 months left in the term. It may mean that Regis was simply not able to terminate the contract under clause 9.1 once there was less than nine months of the term to go. If so, the right to pay nine months’ service fee would never arise, still less any obligation to do so.
Conclusion on termination
In conclusion, I find that Dalkeith is not entitled to damages for the breach it alleged under the first head.
I then move to the second head of damage claimed.
Did Regis breach an obligation to pay Dalkeith a $100,000 bonus?
Dalkeith alleged that in or around March 2008, Regis agreed to pay it $100,000 upon the acceptance, by the board, of a DFS. In its pleadings, Dalkeith said the agreement was oral, made between Mr Walker, for Dalkeith, and Dr Folie and Mr Cowan (both directors) for Regis. Dalkeith alleged that Regis accepted the DFS on 11 April 2009 and failed, in breach of the bonus agreement, to pay the $100,000.
Regis denied any such obligation or, if it existed, that it was breached. It ran a series of cascading arguments: there was no agreement in fact; any ‘agreement’ was not made with the authority of Regis; there was no separate consideration to support the alleged promise; if it was made, it was terminated upon the amendment to the services contract when it was extended; the DFS was never ‘accepted’ anyway; and, finally, any such agreement is unenforceable for contravening the related party provisions of the Corporations Act.
The starting point is to consider whether Dalkeith has established that the asserted agreement was made. In my view it fails at this first hurdle.
Was an agreement made as alleged?
Under the company’s constitution, the remuneration of executive directors (which included Mr Walker) was, subject to any agreement between them and Regis, to be fixed by the directors.[17] When the services contract was first made, for the term of 1 July 2005 to 30 June 2007, no reference was made to any entitlement to a contract bonus. However, when it was amended by a deed executed between the parties on 7 May 2008,[18] a new clause 4.1(c) was introduced as follows:
Dalkeith shall be entitled to earn a contract bonus to be agreed between the Parties by meeting performance hurdles agreed between the Parties.
[17]Clause 20.2 of the constitution.
[18]Exhibit A, tab 84, pp 1270-1271.
Dalkeith claims that, pursuant to this clause, it was entitled to the bonus of $100,000 upon the acceptance of the DFS. Two things are immediately obvious: first, the clause does not say, expressly, what Dalkeith says the agreement was; and, secondly, it post-dates the date of the alleged oral agreement between Mr Walker and the other two Regis directors.
Dalkeith concedes that there is no record of the specific terms of the bonus agreement upon which it relies. But it is necessary to examine the events preceding 7 May 2008 to consider the significance of there being no record of the precise terms.
Events preceding 7 May 2008
In June 2007, Mr Walker presented a paper to the board of Regis concerning staff benefits and incentives.[19] There does not seem to be any dispute that, at that time, Regis was worried about the retention of staff in the face of competition in the market place for geologists and other professionals required for a mining company.
[19]Exhibit A, tab 53, pp 1026-1032 (‘the June 2007 discussion paper’).
The discussion paper recommended, amongst other things, a short-term incentive plan for staff. The proposed plan was to comprise cash rewards of up to 30% of salary for general managers and above, and 20% of salary for other staff. The rewards were to be payable based on meeting key performance indicators or manager performance assessments.
Mr Walker said the board accepted the recommendation but he was unable to recall precisely when. Mr Cowan, a director at the time, agreed that the paper had been discussed at the board and that it had been developed by taking into account the comments and views of all board members. He was unable to recall, however, whether the board had decided to adopt its recommendations.
The 2007 Annual Report for Regis, published with a letter dated 1 October 2007 from the Chairman, Dr Folie, reported that the Dalkeith services contract had been extended by two years to 30 June 2009.[20] It also stated that the contract allowed Dalkeith an increased annual fee of $350,000 per annum, and that it provided ‘for Dalkeith to earn a contract bonus fee of 20% per annum if key performance indicators [were] met’. (It also referred to the issue of share options to which I will return in due course.)
[20]Exhibit A, tab 62, pp 1072-1159 at p 1108.
Both Mr Walker and Mr Cowan agreed that this entry correctly recorded matters as they stood at that time.
Before that report was published, the Regis board met on 31 August 2007, immediately following a meeting of its remuneration committee. Dr Folie, chair of that committee as well as of the board, reported to the board the recommendations of the committee regarding Dalkeith’s service contract. The board minutes, which reflected the committee’s recommendation and consideration, record the following:
IT WAS RESOLVED THAT the Company enter into the contract with Dalkeith for the provision of the services of a Managing Director for a two year period commencing 1 July 2007 with a contract fee of $350,000 per annum, the fee to be reviewed after 12 months and on the completion of the feasibility study for the Duketon Gold Project, that Dalkeith could earn a contract bonus on the basis of meeting certain key performance indicators, and that Dalkeith be issued no less than 5,200,000 options per annum (or equivalent if the capital of the Company is restructured).
...
The Board discussed an appropriate key performance indicator for Dalkeith and agreed that communication between Melbourne and Perth should be improved. It was agreed that monthly meetings between the Managing Director and Perth staff should be the key performance indicator. It was further agreed that the Managing Director should send a letter to Perth staff to assist with communications.
The quality of communication between Mr Walker and Regis’ staff, particularly those in Perth, was an issue of some importance. Mr Cowan, who I believe gave his evidence in a frank and forthright manner, made it clear that Mr Walker’s communication skills, or lack thereof, remained such an issue for him that in March 2008, it was one of the reasons for him resigning as director of the company.[21] He did not recall any other board discussion concerning Dalkeith’s bonus other than at the August 2007 meeting.
[21]See email Mr Cowan to Dr Folie 10 March 2008: Exhibit A, tab 79, pp 1237-1238.
On 29 November 2007 Mr Peter Lee, company secretary, sent Mr Walker an email attaching a proposed amended services contract. It was in the form ultimately executed on 7 May 2008. The email sought Mr Walker’s comments. Mr Walker did not respond until April 2008 when he responded saying that he was happy with it.
The conversation with Dr Folie
Mr Walker gave evidence that, in the meantime, there was a further conversation between himself and Dr Folie on the subject of the bonus. In evidence in chief, Mr Walker referred to it as a “subsequent conversation” with Dr Folie. It was not entirely clear what the conversation was subsequent to; perhaps, a board meeting (unidentified) at which the board decided to pay a cash bonus of 30% to two senior managers.
Nevertheless, his evidence was that Dr Folie suggested the bonus for Dalkeith should be a cash amount of $100,000, rather than a percentage figure, with a required performance hurdle that Mr Walker was to produce a DFS acceptable to the board before 30 June 2009. Mr Walker told Dr Folie he agreed to that arrangement.
In re-examination, Mr Walker was a little more specific about when and where the conversation occurred. He said the discussion with Dr Folie occurred outside the board meeting held in Perth, which he thought was in February 2008.
Although, in its pleadings Dalkeith had alleged that Mr Cowan had also participated in the bonus agreement discussion, Mr Walker did not give evidence to that effect. Rather, he said:
I also recall a conversation with Mr Dowd [another director] about the Bonus Agreement where we discussed the payment of $100,000 to Dalkeith when the definitive feasibility study was accepted, but I do not recall where or when this took place.
Mr Dowd was not called to give evidence by either party, nor was Dr Folie. Mr Cowan, who was called by Regis, denied participating in the agreement alleged by Mr Walker or having any knowledge of it.
Events after the conversation
When Mr Walker responded, on 7 April 2008, to Mr Lee’s November 2007 email concerning the wording of the amended agreement he did not refer to the particular bonus agreement he says he had reached with Dr Folie in the preceding February. Instead, he left the agreement in the generic terms of new clause 4.1(c) referred to above.[22] It is possible that it was deliberately left in a form that reflected the position as at 1 July 2007, although that explanation was not volunteered.
[22]See [64] above.
Moreover, the 2008 Annual Report, which Mr Walker said that he had helped prepare, continued to describe the bonus entitlement as the ability to earn a contract bonus fee of 20% if key performance indicators were met.[23] If the bonus agreement had been changed in the way Mr Walker contends, that description of it was wrong. Of that Mr Walker said that he could not recall why he did not notice the error ‘that appears to have been made by KPMG [the auditors who assisted in the preparation]’.
[23]Exhibit A, tab 90, pp 1304-1370 at p 1317.
One plausible explanation for such ‘error’ by the auditors is that there was no document recording the detail of the bonus arrangement any differently from what had been included, accurately at the time, in the 2007 Annual Report. What is not explained, however, is, if the agreement was made as Mr Walker says it was, why neither he, Dr Folie, or Mr Dowd told KPMG of the changed arrangement or (assuming they each read the report before publication) picked up the error.
Regis also pointed to the curious absence of any reference to a claim for the $100,000 bonus in Dalkeith’s letter of demand before action. The letter, dated 30 June 2009,[24] was drawn by its solicitors after Mr Walker had a number of discussions to give them instructions. It was expressed to be concerned with Dalkeith’s entitlements under the services contract. In it Dalkeith claimed damages for loss of service fee and demanded the issue of options, but made no claim for non-payment of the asserted bonus.
[24]Exhibit A, tab 121, pp 1527-1531.
Each party relied upon a Jones v Dunkel[25] inference against the other. It is not immediately obvious into whose ‘camp’ Dr Folie or Mr Dowd might fall. I am not prepared to draw an inference either way on this matter.
[25](1959) 101 CLR 298.
However, it is for Dalkeith to satisfy me on the balance of probabilities that an agreement of the kind Mr Walker asserted, was in fact made. On the evidence set out above, I am not so persuaded. The detail as to the alleged agreement lacks precision. There were inconsistent versions as to which director other than Dr Folie was involved. The alleged agreement does not enjoy clear support from contemporaneous documents; in fact, some appear to contradict it.
I did not form any adverse view of Mr Walker’s honesty in the manner he gave evidence. Nevertheless, in the light of other objective facts, I am not satisfied that whatever conversation he may have had with Dr Folie, it was of such a nature that it lead either man to believe at the time they had reached an agreement which bound Dalkeith and Regis.
Authority
Before 2008, and in relation to all other matters regarding Dalkeith’s remuneration, matters of remuneration were dealt with formally: first through consideration by the remuneration committee and then by the board. Ultimately, any remuneration term was reduced to writing between the parties. True it is that the services contract contemplated that the parties would later agree the detail of the bonus, and the performance hurdles. But, I do not construe that to mean it might be agreed in an informal conversation between the Chairman and Mr Walker outside a board meeting, and never documented.
Regis had a clearly established structure and process for deciding matters of remuneration for senior staff, particularly of directors. Mr Walker himself was keenly aware of the need to distance himself from decisions of the board which concerned his personal interests. The company had a committee dedicated to the consideration of remuneration and making proposals to the board. That committee had made a recommendation to the board about Dalkeith’s bonus entitlement, demonstrating that the detail of such an agreement was a matter understood by all to be within its remit. The board had documented its resolution on that issue.
In those circumstances it seems unthinkable that it was considered to be within the authority of Dr Folie himself, and Mr Walker, outside a board meeting to conclude a binding agreement that varied the board’s resolution on the matter.
Whether one approaches the question from the perspective of whether such an agreement was made in fact, or whether Dr Folie had authority to make such an agreement for the company, the answer is the same. I am not persuaded that the two men considered that an agreement was made, or if there was a conversation of the kind Mr Walker says occurred, that it constituted an agreement between the company and Dalkeith.
Other arguments
I am less persuaded by the argument raised by Regis that there was insufficient consideration to support an agreement if it was made. Although Mr Walker was obliged, as Managing Director, to pursue the objectives of Regis with diligence, including obtaining a DFS, the imposition of a deadline of 30 June 2009 for that achievement was a sufficient additional requirement to amount to consideration to support the promise of a bonus had it been made.
Further, I do not accept Regis’ argument that the DFS was not, relevantly, ‘accepted’ by the board on 10 April 2009. I do not see how the minutes of the resolution made that day can sensibly be read any other way. The DFS was intended to enable the board to approach financial and equity markets to obtain funding to proceed with the gold mining project. Self-evidently, accepting the DFS did not imply that funding was already obtained.
The resolution made on 10 April 2009 was:
After consideration of the DFS, review of the recommendations made by Directors, and technical discussion, it was RESOLVED to proceed with the development of the Duketon Gold Project, subject to access to appropriate funding which the Board believed to be obtainable.
The Directors noted that they were impressed with the preparation and timeliness of the completion of the DFS and requested the Managing Director to prepare a letter of acknowledgment and thanks to those involved in the preparation.
In my opinion, the minuted resolution amounted to the board accepting the DFS.
Conclusion on bonus
Nevertheless, in view of my conclusion that no agreement was made in the terms alleged by Dalkeith, the failure by Regis to pay Dalkeith $100,000 upon acceptance of the DFS before 30 June 2009 did not amount to a breach of the services contract. Dalkeith therefore fails on this head of its claim.
I then move to the third head of damage claimed.
Is Regis liable to pay Dalkeith damages for failure to issue it options?
Clause 4.4 of the services contract, when executed for the initial term 1 July 2005 to 30 June 2007, stated that the board may, but was not obliged to, grant share options to Dalkeith’s representative on such terms as the board directs. The amendment to the services contract, made 7 May 2008, replaced that clause with the following:
The Board shall grant no less than 5,200,000 options per annum (adjusted for any re-organisation of Regis’s shares and options) to Dalkeith’s representative.
The amended services contract re-defined the ‘term’ of the contract to the period 1 July 2007 to 30 June 2009, so the years to which clause 4.4 then applied were the 2007/2008 and 2008/2009 financial years.
It was common ground that the company’s shares and options were re-organised on 16 November 2007 on a 1 for 10 basis. As a result, the obligation in clause 4.4 was to grant no less than 520,000 options in each of the 2007/2008 and 2008/2009 financial years.
Furthermore, it was also common ground that Regis invited Mr Walker (as Dalkeith’s representative) to apply for 650,000 options on 16 November 2007, and that Mr Walker accepted that invitation and was issued those options. Finally, it is agreed that no other options were issued to Mr Walker in either that financial year, or the following financial year.
Dalkeith’s case was that Regis did not allocate at least 520,000 options to Dalkeith at any time between 1 July 2007 and 30 June 2008, or 1 July 2008 and 30 June 2009, pursuant to its clause 4.4 obligation. The competing arguments, broadly framed, are set out above.[26]
[26]See [7] to [15] above.
Was the promise to grant options subject to shareholder approval?
Regis had employee share options plans (referred to by the acronym ‘ESOP’) in place during the terms covered by the service contract between Dalkeith and Regis. Rules governing those plans were in writing.[27] It was pleaded by Dalkeith, and admitted by Regis, that it was an implied term of the (amended) services contract that the options to be granted by Regis to Dalkeith pursuant to clause 4.4 were to be granted in accordance with the rules of the Regis 2005 ESOP.
[27]2005 ESOP: Exhibit A, tab 30A, pp 875-891; 2008 ESOP: Exhibit A, tab 77, pp 1211-1229.
Clause 3.2 of the ESOP, in force from time to time, required that any invitation to a director to apply for an option in the company should comply with the applicable Listing Rules of the Australian Stock Exchange Limited. The Listing Rules at all relevant times prohibited a company permitting a director to acquire securities under an employee incentive scheme without the approval of the holders of ordinary shares in the company.[28]
[28]ASX Listing Rule 10.14.1.
Regis therefore alleged that it was also an implied term of the service contract that the obligation to grant options to Dalkeith’s representative was subject to the approval of Regis’ shareholders. It did so by marrying together the agreed implied term that the rules of the ESOP applied (particularly, clause 3.2) with the Listing Rule prohibition referred to above.
Dalkeith denied such an implied term. It was not clear why it did so.
If (as accepted) it was an implied term that the grant of options must comply with the ESOP, and the ESOP said the grant of options to a director must comply with the Listing Rules, it seems to follow, logically, that it must also be an implied term that the grant of options to a director must comply with the Listing Rules. That, in turn, means such a grant must not be made without shareholder approval.
In any event, I accept Regis’ argument that the objective framework of facts[29] against which the services contract was made, compels such a conclusion.
[29]See Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337, 352 (‘Codelfa Construction’); Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451, 461; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165, 179.
Those facts include, that: (1) Regis was a public company listed on the Australian Stock Exchange; (2) Mr Walker was its managing director; (3) the company’s constitution permitted options to be granted ‘subject to…the Listing Rules’;[30] (4) Mr Walker and Regis were aware at all relevant times that the company’s constitution prohibited the issue of options to directors without compliance with the Listing Rules,[31] and (5) Mr Walker and Regis were also aware that the Listing Rules required shareholder approval for the issuing of options to directors.[32]
[30]Clause 2.1 of the Constitution.
[31]T 139, 142.
[32]T 140.
In my view, in those circumstances it would have been so obvious it would go without saying that Regis’ promise to issue options to Mr Walker, as managing director, was subject to the condition of first obtaining shareholders’ approval. Additionally, in view of the prohibition in the Listing Rules against issuing options to a director without shareholders’ approval, a condition of first obtaining shareholders’ approval was necessary to give the agreement business efficacy.
Having regard to the criteria for the implication of a contractual term outlined in Codelfa Construction,[33] I find that the promise in clause 4.4 of the services contract was subject to an implied term that any grant of options to Dalkeith’s representative (by definition, a managing director) was subject to Regis obtaining shareholders’ approval.
[33](1989) 149 CLR 337, 347.
I will return to the significance of this conclusion in due course.
The 650,000 options
To properly understand the character of the 650,000 options granted to Mr Walker in November 2007 it is necessary to understand the background leading up to that grant.
By letter dated 25 November 2005,[34] Regis invited Mr Walker to participate in the 2005 Share Option Plan by applying for 5,200,000 options in two tranches: 2,600,000 options under ‘Tranche 1’, and 2,600,000 options under ‘Tranche 2’. Each tranche had different exercise conditions. Minutes of the remuneration committee and of the board, preceding that letter, made it clear that the options were granted for the two year period 2005/2006 and 2006/2007. Shareholders of Regis approved the grant. Mr Walker accepted the offer and he received the 5,200,000 options.[35]
[34]Exhibit A, tab 33, pp 900-901.
[35]An option certificate recording the 5,200,000 options was issued by Regis on 13 June 2006: Exhibit A, tab 43, p 941.
It was explained in the June 2007 discussion paper on staff benefits that the recipients of the tranche 1 options were unintentionally disadvantaged because of the condition for the exercise of those options. A ‘make-up’ grant of options was proposed for the holders of those options. The paper recommended the issue of ‘tranche 3’ options and that ‘tranche 1’ option holders should, in addition to receiving any new 2007 ‘tranche 3’ options, also receive some ‘make-up’ options in that issue.
For Mr Walker it was recommended that he receive 1,300,000 tranche 3 options as the make-up options (calculated at 25% of the 5,200,000 options received in 2006).[36] The paper also recommended that he receive a new issue of 5,200,000 2007 tranche 3 options. The combined total was 6,500,000 options. On 15 June 2007 the board signed a resolution approving the grant of 6,500,000 options to Mr Walker. The resolution explicitly noted that the issue was subject to shareholder’s approval.
[36]See the table appended to the June 2007 discussion paper: Exhibit A, tab 53, p 1031.
Those 6,500,000 options were the options which, after reorganisation of the company’s shares and options in October 2007, became the 650,000 options that were offered to and accepted by Mr Walker on 16 November 2007, following shareholder’s approval for their grant.
2007/2008 year
It is really the character of the 5,200,000 additional tranche 3 options (or, 520,000 after the reorganisation) in that parcel that is in issue. Were they issued pursuant to the company’s obligation under clause 4.4 to grant 520,000 share options in each of the two years 2007/2008 and 2008/2009, or were they issued independently and in addition to that contractual obligation?
In my view, the evidence shows that those options did form part of the grant of options under clause 4.4 of the services contract (as amended) for the two years of the extended term. It was not an additional grant to Mr Walker made independently of the new services contract that was then in contemplation.
In his evidence Mr Walker described the conversations he held with Dr Folie leading up to 1 July 2007 in which the essential terms of the agreement for Dalkeith’s renewed services contract were, subject to approval by the remuneration committee, settled. The key elements of that discussion were an increased service fee (from $260,000 to $350,000), and the grant of options.
Mr Walker then described the consummation of the agreement to extend the services contract in these terms:
In a subsequent conversation, Dr Folie informed me that the Remuneration Committee of the Board had agreed that Regis would agree to a new contract for Dalkeith at a fee of $350,000 per annum, including the requested review clause at the end of the term, and adopt the recommendation in the 7 June 2007 paper and grant Dalkeith 5,200,000 tranche 3 options in the first year of the amended contract, plus a further 5,200,000 options in the second year. As a result of this conversation, I considered that Dalkeith and Regis had reached agreement on the amendment to the Services Contract that would operate from 1 July 2007 until 30 June 2009…..this agreement was later formalised in an amendment to the Services Contract [ie the deed executed on 7 May 2008].[37]
[37]Affidavit of David Walker, [36]: Exhibit A, tab 8, pp 123-410 (underlining added).
This statement implies that the 5,200,000 options, being part of the parcel of 6,500,000 options to be granted to Mr Walker as recommended in the June 2007 discussion paper, were characterised as the first instalment under the obligation to grant 5,200,000 options per annum. That is, under the obligation that was ultimately expressed in clause 4.4 of the amended services contract.
Mr Walker did not identify the particular remuneration committee meeting to which he referred, but presumably it was the meeting of 31 August 2007 which records a recommendation to the effect stated in his evidence.[38] That recommendation was accepted by the board on the same day and minuted.[39] As already mentioned above,[40] when discussing the bonus agreement, the board’s resolution ultimately lead to the execution of the deed that amended the services contract on 7 May 2008.
[38]Exhibit A, tab 60, pp 1066-1067.
[39]Exhibit A, tab 61, pp 1068-1070.
[40]Above [72] and [74].
In his related party disclosure statement for the year ended 30 June 2008,[41] Mr Walker declared that he held 520,000 options at 30 June 2007 (ie the 5,200,000 options issued under tranche 1 and tranche 2, calculated after the reorganisation of options), and 1,170,000 at 30 June 2008 (ie. with the addition of the 650,000 options he accepted in November 2007). He declared the 650,000 options to be ‘options granted as remuneration 1 July 2007 to 30 June 2008’.
[41]Exhibit A, tab 87, pp 1277-1282.
In my view, the totality of the evidence reveals, at the very least, that a component of 520,000 options of the parcel of 650,000 options granted in November 2007, were options granted in furtherance of Regis’ obligation under clause 4.4 of the services contract (as amended) to issue not less than 520,000 options in each of the 2007/2008 and 2008/2009 years.
Accordingly, Dalkeith fails in making out a breach of the services contract in relation to the issue of options for the first year of the extended term.
It remains for me to consider the allegation that Regis breached the services contract by not granting a further 520,000 options for the second year in the extended term.
2008/2009 year
Here, the facts are not in issue: only the legal consequence of those facts.
The undisputed facts are these:
(a)on 18 September 2008, Regis gave notice of an annual general meeting on 23 October 2008 at which, amongst others, a resolution would be put that approval be given to the issue of up to 1,500,000 options to Mr Walker;
(b)when Regis received proxies to vote against that motion from shareholders representing 28.6% of Regis’s shares, including Newmont Capital Pty Ltd, the board considered it would be ‘disastrous’ for the company to proceed to inevitable defeat.[42] Mr Walker himself formed the view the motion should be withdrawn. The board decided to withdraw the motion, advised the ASX accordingly, and the motion was never put;
(c) Newmont Capital Pty Ltd, Regis’ largest shareholder, would not have approved the issue of any further options to Mr Walker at any time after 16 November 2007.[43]
[42]Affidavit of David Walker, [59]: Exhibit A, tab 8, pp 123-410.
[43]Exhibit B: Statement of Agreed Facts.
Dalkeith’s first argument was that Regis was obliged to grant options regardless of the lack of shareholder agreement to do so. It relied upon the unqualified nature of the promise as expressly stated in clause 4.4.
It is at this point that the question of whether the obligation in clause 4.4 of the services contract was subject to shareholders’ approval becomes important. For reasons I have already expressed above,[44] in my view it was an implied term of the services contract that the obligation to issue options in clause 4.4 was subject to shareholders’ approval.
[44]See [106] - [110] above.
That conclusion is sufficient to dispose of Dalkeith’s first argument in respect of the options for the second year of the services contract. That is, if the obligation to grant the options for 2008/2009 was conditional upon shareholders approving the grant, then the obligation was not breached because shareholders’ approval was not obtained. In fact, it was not even sought.
But Dalkeith had a second argument. As I understood the argument, Dalkeith contended that the absence of shareholders’ approval did not diminish the liability of Regis to pay damages to Dalkeith for its failure to issue 520,000 options for the 2008/2009 year. Initially, I thought that this argument was premised on the contention that the obligation in clause 4.4 was not subject to any implied condition of first obtaining shareholder approval. But, as it was developed in oral submissions, I understood this argument to be an alternative argument to the submission concerning the unconditional nature of the obligation to grant.
Dalkeith sought to distinguish the situation that would apply if it was seeking specific performance of the obligation to grant the options, from the situation (as here) where it was ‘only’ seeking damages for non performance of the promise. Lack of shareholder approval, it conceded, would be fatal to any application for specific performance. But, it was not fatal to a claim for damages, so the argument went, because Dalkeith was only seeking damages for the value of the promise, not the performance of the promise itself.
No authority was cited in support of this argument. I reject it. Generally speaking, if specific performance would fail because the promise was contingent upon some event (e.g. shareholder approval) and the contingency had not been fulfilled, then neither could damages be obtained for non-performance of the promise. If the obligation to perform the promise had not arisen, it could not have been a breach not to perform it.[45] I see no reason not to apply that reasoning to the current circumstance.
[45]See JW Carter, Carter’s Breach of Contract, (LexisNexis Butterworths, 2011), [4-31].
No case was put by Dalkeith that Regis had breached any obligation to seek shareholders’ approval. The reason for that might be obvious. Mr Walker himself recommended that it not be sought.
Conclusion on options
It follows that Dalkeith fails to establish that Regis breached the services contract by failing to issue options, as alleged.
That being the case, it is not necessary to consider the questions that might have arisen had I decided that the contract had been breached, namely the quantum of damage (if any) that flowed from the breach. Nor is it necessary to consider the question of whether the grant of options (without shareholder approval) might have infringed the related party provisions of the Corporations Act.
Conclusion
Dalkeith has not established any of the components of its claim against Regis and I propose to dismiss its claim with costs.
Regis had pleaded a counterclaim to obtain relief, if necessary, had I determined that either the bonus agreement or the agreement to grant options contravened the related party provisions of the Corporations Act. It was, in substance, the logical extension of its defence to those claims. As events have transpired I did not need to consider the issue. The counterclaim will also be dismissed.
I will hear the parties on the precise form of the orders.
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