De Kauwe v Cohen [No 4]
[2022] WASC 35
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL
CITATION: DE KAUWE -v- COHEN [No 4] [2022] WASC 35
CORAM: LE MIERE J
HEARD: 28‑29 JANUARY, 8‑13 FEBRUARY, 12‑16 JULY, 2‑13 AUGUST, 19 AUGUST ‑ 3 SEPTEMBER, 14‑16 OCTOBER, 4‑5 NOVEMBER 2021 & 17 JANUARY 2022
DELIVERED : 9 FEBRUARY 2022
FILE NO/S: CIV 1512 of 2018
BETWEEN: BRENDAN JAMES DE KAUWE
Plaintiff
AND
HAIM COHEN
First Defendant
ILAN SAAD
Second Defendant
GALIT ASSAF SHENHAR
Third Defendant
ERAN GILBOA
Fourth Defendant
BENJAMIN KARASIK
Fifth Defendant
IAN CRAIG PAMENSKY
Sixth Defendant
MATTHEW WRIGHT
Seventh Defendant
Catchwords:
Defamation - Meaning - Publication of imputations in private and public company correspondence - Whether national and ordinary meaning of imputations defamatory of plaintiff
Defamation - Publication - Liability - Whether defendants authorised and intended publication - Whether defendants participated in publication and republication - Fairfax Media Publications Pty Ltd v Voller [2021] HCA 27; (2021) 392 ALR 540
Defences - Qualified privilege - Common law qualified privilege - Whether publication pursuant to duty or interest to provide information to directors and officers of company who had corresponding duty to receive information - Whether publications constituted reply to attack - Statutory qualified privilege - s 30(3) Defamation Act 2005 (WA)
Defences - Qualified privilege - Malice - Whether publications actuated by improper motive or purpose - Whether privileged occasion exceeded
Damages - Assessment - Special damages - Whether plaintiff lost opportunity to remain director of companies - Whether plaintiff lost opportunity to acquire options as director of company - Whether plaintiff lost opportunity to become director of company
Damages - Assessment - General damages - Damage to reputation and professional standing - Aggravated compensatory damages - Whether conduct of defendants improper, unjustifiable, or lacking in bona fides - Whether damage amplified via 'grapevine effect'
Damages - Tort - Injurious falsehood - Whether imputations in certain publications were false - Whether exemplary damages necessary
Legislation:
Corporations Act 2001 (Cth)
Defamation Act 2005 (WA)
Rules of the Supreme Court 1971 (WA)
Result:
Plaintiff's claim partially successful
Category: B
Representation:
Counsel:
| Plaintiff | : | Mr M L Bennett & Mr A Tharby |
| First Defendant | : | Mr J MacLaurin SC & Ms J Moore |
| Second Defendant | : | Mr J MacLaurin SC & Ms J Moore |
| Third Defendant | : | Mr J MacLaurin SC & Ms J Moore |
| Fourth Defendant | : | Mr J MacLaurin SC & Ms J Moore |
| Fifth Defendant | : | Mr J MacLaurin SC & Ms J Moore |
| Sixth Defendant | : | Mr S M Davies SC & Mr F Merenda |
| Seventh Defendant | : | Mr C P K Russell |
Solicitors:
| Plaintiff | : | Bennett + Co |
| First Defendant | : | DLA Piper Australia - Perth |
| Second Defendant | : | DLA Piper Australia - Perth |
| Third Defendant | : | DLA Piper Australia - Perth |
| Fourth Defendant | : | DLA Piper Australia - Perth |
| Fifth Defendant | : | DLA Piper Australia - Perth |
| Sixth Defendant | : | Jackson McDonald |
| Seventh Defendant | : | Wotton + Kearney Lawyers (Perth) |
Cases referred to in decision:
Adam v Ward [1917] AC 309
Ahmed v John Fairfax Publications Pty Ltd [2006] NSWSC 11
Al Almoudi v Brisard [2006] EWHC 1062 (QB); (2007) 1 WLR 113
Amalgamated Television Services Pty Ltd v Marsden [1998] NSWSC 4; (1998) 43 NSWLR 158
AMI Australia Holdings Pty Ltd v Fairfax Media Publications Pty Ltd [2010] NSWSC 1395
Australand Holdings Ltd v Transparency & Accountability Council Inc [2008] NSWSC 669
Australian Broadcasting Corp v Chau Chak Wing [2019] FCAFC 125; (2019) 271 FCR 632
Australian Broadcasting Corp v Comalco Ltd (1986) 12 FCR 510
Badenach v Calvert (2016) 257 CLR 440
Bashford v Information Australia [2004] HCA 5; (2004) 218 CLR 366
Bauer Media Pty Ltd v Wilson [2018] VSCA 154; (2018) 56 VR 674
Bellino v Australian Broadcasting Corp [1996] HCA 47; (1996) 185 CLR 183
Bennette v Cohen [2009] NSWCA 60
Brown v New South Wales Trustee and Guardian [2012] NSWCA 431; (2012) 10 ASTLR 164
Bryanston Finance Ltd v De Vries [1975] 1 QB 703
C Evans & Sons Ltd v Spritebrand Ltd [1985] 1 WLR 317
Calwell v Ipec Australia Pty Ltd [1975] HCA 47; (1975) 135 CLR 321
Carney v Newton [2006] TASSC 4
Carson v John Fairfax & Sons Ltd [1993] HCA 31; (1993) 178 CLR 44
Cassell & Co Ltd v Broome [1972] AC 1027
Chase v News Group Newspapers Ltd [2002] EWCA Civ 1772; [2003] EMLR 11
Chau v Fairfax Media Publications Pty Ltd [2019] FCA 185
Cohen v Bennette [2009] HCATrans 291
Cummings v Fairfax Digital Australia & New Zealand Pty Ltd [2018] NSWCA 325; (2018) 99 NSWLR 173
Cush v Dillon [2011] HCA 30; (2011) 243 CLR 298
De Buse v McCarthy [1942] 1 KB 156
Dods v McDonald (No 1) [2016] VSC 200
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Doyle v Smith [2018] EWHC 2935 (QB)
Drummoyne Municipal Council v Australian Broadcasting Corporation (1990) 21 NSWLR 135
Fairfax Media Publications Pty Ltd v Voller [2021] HCA 27; (2021) 392 ALR 540
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Howe & Co v Burden [2004] EWHC 196 (QB)
Jackson v Lithgow City Council [2008] NSWCA 312
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Table of Contents
Summary
Introduction
The plaintiff
The defendants
Otsana
eSense
Overview of facts
eSense in 2016
eSense engages Otsana as corporate advisor
eSense roadshow held in October 2017
Annual general meeting rescheduled
Pamensky replaces Wood as company secretary
eSense executes IC Access agreement
eSense engages NWR Communications
19 January board meeting
Attempted amendment of signatory rights
Resolution to remove Dr de Kauwe as chairman
5 February Letter
5 February Notice
8 February board meeting
Israel court proceedings
First draft of position statement
Qantas debit card purchase
15 February Letter
23 February Email
Creation of eSense position statement continues
Mr Rozenblum is appointed as investigator
Creation of the First ASX Announcement begins
9 March Email
Position statement progresses
First ASX Announcement
Position Letter
Letter to ASX
SBA Law amend position statement
Second ASX Announcement
29 March 2018 AGM
de Kauwe resigns from Race Oncology
ASX refuses to list Identitii Limited
Third Stockhead article
Evidence
Plaintiff's testamentary evidence
Dr de Kauwe
Ms Thida Lach
Mr Martin Rogers
Dr Bill Garner
Defendants' testamentary evidence
The first to fifth defendants as witnesses
Witnesses not called
The defendants' campaign against Dr de Kauwe
Dr de Kauwe's pleading
Dr de Kauwe's allegation of improper purpose
The defendants' response
Conflict begins
War begins
Cohen considers de Kauwe and Otsana declare war
Cohen, Gilboa, Pamensky develop a plan of attack
Cohen, Gilboa become more aggressive
Cohen, Gilboa, Saad, Shenhar remove de Kauwe as chairman
Cohen, Gilboa, Saad continue to attack de Kauwe
Cohen, Gilboa, Saad, Shenhar, Karasik cause announcement of investigation of de Kauwe
All defendants joined campaign against de Kauwe
5 February Letter
The letter
Publication
What a plaintiff must prove
Republication and authorisation
The plaintiff's case
Saad published 5 February Letter
Identification
Meaning
Content of the letter
Imputations pleaded
Legal principles
Context of 5 February Letter
Imputations 17.1 and 17.2 - Dr De Kauwe was a blackmailer and extortionist
Imputation 17.3 - Dr de Kauwe acted unprofessionally against the interests of eSense
Imputation 17.4 - Dr de Kauwe acted unprofessionally by failing to disclose his conflicts of interest
Imputation 17.5 - Dr de Kauwe falsified company records
Are imputations 17.1 - 17.4 defamatory of Dr de Kauwe?
Common law qualified privilege
Legal principles
Defendants plead reciprocal duty and interest
Plea 18.1 - Publication only to the plaintiff and directors and officers
Plea 18.2 - Occasion was seeking information from de Kauwe for discussion at board meeting
Plea 18.3 - Directors and officers had an interest in information in the letter
Plea 18.4 - Letter published in providing information to directors and officers regarding management
5 February Letter is not protected by qualified privilege
Malice
Publication actuated by malice
Legal principles
Pleading malice
Malice evidence
Statutory qualified privilege
Legal principles
Mr Saad has not proved statutory qualified privilege
Malice
Liability
5 February Notice
The notice
The pleadings
Publication
Identification
Meaning
Common law qualified privilege
Statutory qualified privilege
Malice
Liability
15 February Letter
The letter
Publication
Identification
Meaning
Common law qualified privilege
Statutory qualified privilege
Malice
Liability
23 February Email
The email
Publication
Identification
Meaning
Common law qualified privilege
Statutory qualified privilege
Malice
Liability
8 March Email
The email
Publication
Identification
Meaning
Common law qualified privilege
Defendants' case
Legal principles
The occasion was privileged
Statutory qualified privilege
Malice
Liability
9 March Email
The email
Publication
Identification
Meaning
Common law qualified privilege
Statutory qualified privilege
Malice
Liability
First ASX Announcement
The announcement
Publication
ASX Announcements
Pleadings
Publication issues
Legal principles
The First ASX Announcement was published on the ASX website
The First ASX Announcement was published on the eSense website
The First ASX Announcement was published on data-feed websites
Publication by the first to fifth defendants
Publication by Mr Pamensky
Publication by Mr Wright
Identification
Meaning
Common law qualified privilege- first to fifth defendants
Publication to shareholders is privileged
Publication to persons other than shareholders not privileged
Malice – first to fifth defendants
Statutory qualified privilege – first to fifth defendants
Common law qualified privilege - Mr Pamensky
Statutory qualified privilege - Mr Pamensky
Malice - Mr Pamensky
Liability
Position Letter
Publication
Identification
Meaning
Imputation 45.1 - not a fit and proper person to be a director, acts in conflict with company's interests
Imputation 45.2 - incompetent as a director of eSense;
Imputations 45.3 and 45.4 - Dr de Kauwe was a blackmailer, an extortionist
Imputation 45.5 - by refusing to transfer company funds, exposed eSense to suit from third parties
Imputation 45.6 - a person whose conduct was so lacking in propriety as to warrant an examination into his conduct by an independent company auditor
Imputation 45.7 - a person so lacking in propriety as to warrant his removal as chairman
Common law qualified privilege
Malice
Statutory qualified privilege
Liability
Letter to ASX
The Letter
Publication
Identification
Meaning
Common law qualified privilege
Malice
Statutory qualified privilege
Liability
Second ASX Announcement
The announcement
Publication
Pleadings
Publication issues
Legal principles
The Second ASX Announcement was published on the ASX website
The First ASX Announcement was published on the eSense website
The Second ASX Announcement was published on data‑feed websites
Publication by the first to fifth defendants
Publication by Mr Pamensky
Publication by Mr Wright
Meaning
Statutory qualified privilege– first to fifth defendants
Common law privilege – first to fifth defendants
Malice – first to fifth defendants
Statutory qualified privilege – Mr Pamensky
Common law qualified privilege - Mr Pamensky
Malice - Mr Pamensky
Qualified privilege – Mr Wright
Liability
Special damages
Principles
eSense director fees
Race Oncology
Race Oncology director’s fees
Race Oncology options
Identitii Ltd
Calculation of special damages
Contingencies
Income tax
General, non-economic damages
General damages legal principles
Aggravated damages principles
5 February Letter
15 February Letter
ASX Announcements
Injurious falsehood
Elements of the tort
Dr de Kauwe's pleaded case
First ASX Announcement
Publication
The statements
Pleading issue
Falsity not proved
Letter to ASX
Publication
Falsity
Damage
Second ASX Announcement
Publication
Falsity
Malice
Damage
Exemplary damages
LE MIERE J:
Summary
The plaintiff, Dr de Kauwe, and the first to fifth defendants, Mr Cohen, Mr Saad, Ms Shenhar, Mr Gilboa and Mr Karasik, were directors of eSense Lab Ltd (eSense). The sixth defendant, Mr Pamensky, was the company secretary. The seventh defendant, Mr Wright, was an advisor to a company that provided media and investor relations services to eSense.
eSense is a life sciences research and development company established in Israel and listed on the ASX.
Between 5 February and 21 March 2018, several letters, notices, emails and ASX announcements were published which Dr de Kauwe alleges defame him. Dr de Kauwe alleges that each of the defendants published at least one of the publications. The first to fifth defendants admit that they published some but not all the publications. Mr Pamensky and Mr Wright deny that they published any of the publications.
Each of the defendants deny that each of the publications conveys the meanings alleged by Dr de Kauwe, and in some instances do not admit that the publications are of and concerning Dr de Kauwe.
The first to fifth defendants plead that each of the publications was on an occasion of common law qualified privilege in that the defendants had a duty or interest in making the communication and the recipients had an interest in receiving the communication, that two of the publications are privileged as replies to an attack and the defence of qualified privilege under s 30 of the Defamation Act 2005 (WA) applies to all the publications. Mr Pamensky and Mr Wright say that if they published any of the publications, they published the matters complained of on an occasion of qualified privilege.
Dr de Kauwe claims he has suffered loss and damage because of the defamatory publications and claims damages, aggravated damages and special damages.
Dr de Kauwe also claims that two of the publications were false statements of and concerning his business as a director of a listed public company and a corporate advisor and claims damages, including exemplary damages, for the tort of injurious falsehood. The defendants deny each allegation pleaded by Dr de Kauwe in support of his claim for damages for injurious falsehood.
For the reasons which follow:
1.5 February Letter: Mr Saad is liable to Dr de Kauwe in defamation for publishing the 5 February Letter. I assess damages of $10,000.
2.5 February Notice: Dr de Kauwe has not established that any of the defendants are liable to him in defamation for publishing the 5 February Notice.
3.15 February Letter: Mr Cohen is liable to Dr de Kauwe in defamation for publishing the 15 February Letter. I assess damages of $20,000.
4.23 February Email: Dr de Kauwe has not established that any of the defendants are liable to him in defamation for publishing the 23 February Email.
5.8 March Email: Dr de Kauwe has not established that any of the defendants are liable to him in defamation for publishing the 8 March Email.
6.9 March Email: Dr de Kauwe has not established that any of the defendants are liable to him in defamation for publishing the 9 March Email.
7.First ASX Announcement: All the defendants, except Mr Wright, are liable to Dr de Kauwe for publishing the First ASX Announcement. I assess ordinary compensatory damages of $40,000 against the first to fifth defendants and Mr Pamensky jointly.
8.Position Letter: Dr de Kauwe has not established that any of the defendants are liable to him in defamation for publishing the Position Letter.
9.Letter to ASX: Dr de Kauwe has not established that any of the defendants are liable to him in defamation in respect of the Letter to ASX.
10.Second ASX Announcement: All the defendants are liable to Dr de Kauwe for publishing the Second ASX Announcement. I assess ordinary compensatory damages of $120,000 against all the defendants jointly.
11.I assess aggravated damages of $30,000 against the first to fifth defendants jointly in respect of the First ASX Announcement and the Second ASX Announcement.
12.I award Dr de Kauwe damages for economic loss of $31,500 in respect of loss of fees as a director of eSense for which all of the defendants are jointly liable.
13.I award Dr de Kauwe damages for economic loss of $79,380 in respect of loss of fees as a director of Race Oncology Ltd for which all of the defendants are jointly liable.
14.I award Dr de Kauwe damages for economic loss of $200,000 in respect of loss of the opportunity to receive options to acquire shares in Race Oncology Ltd and to realise the shares for which all of the defendants are jointly liable.
15.Dr de Kauwe has made out the tort of injurious falsehood against each of the defendants but I decline to award any damages in respect of that tort.
Introduction
The plaintiff
Dr de Kauwe was born in Sydney on 6 March 1977. He was 43 years old at the time of the trial. He has lived in Perth since 1987.
At the time of the trial, he had been with his partner, Ms Lach, for seven years.
Dr de Kauwe studied physiology and pharmacology as part of a Bachelor of Science course at the University of Western Australia, but did not complete the degree and graduate. He then studied and graduated with a degree of Bachelor of Dental Surgery from the University of Western Australia.
Dr de Kauwe practised as a dental surgeon. Soon after graduation as a dental surgeon, he undertook further education in oral maxillofacial surgery and implantology and practiced principally in surgical aspects of dental practice. He was a consultant for several private practices.
About three or four years after graduating and practising as a dentist, Dr de Kauwe pursued his interest in the music industry. He obtained a diploma as a sound engineer. He then established a music publishing company. His career in the music industry was successful. Dr de Kauwe spent some time in the United States before returning to Western Australia for family reasons.
Dr de Kauwe then decided to pursue a career in business. Dr de Kauwe completed compliance training for financial product advisors in accordance with ASIC Regulatory Guide 146 at Kaplan University, a Perth business school. He obtained a Graduate Diploma in Applied Finance/Corporate Finance from Kaplan University.
In 2012, Dr de Kauwe joined Otsana Pty Ltd, a corporate advisory firm which trades as Otsana Capital, as an advisor. The principal of Otsana was Faldi Ismail who was an old school friend. Initially, Dr de Kauwe worked partly as a dental surgeon and partly as a corporate adviser. As a corporate adviser, he provided an array of services including advice in relation to capital raising, corporate re‑capitalisations, corporate structuring and restructuring, mergers and acquisitions, investor relations and public relations and preparing company documents such as prospectuses and company announcements.
Between February 2012 and March 2018, Dr de Kauwe was a director of several companies that were listed on the ASX. The companies were involved in the biotechnology area.
Dr de Kauwe became a director of Otsana Capital in November 2015.
Dr de Kauwe was a director of eSense from 1 October 2016 to 29 March 2018.
Dr de Kauwe was a founding director for the IPO of Race Oncology Ltd, an ASX listed company that produces innovative cancer drugs, from 21 April 2016 and he resigned at the request of the board on 4 April 2018.
Dr de Kauwe is, and has been since 5 June 2015, a director of an ASX listed public company, Ookami Ltd, and has been a director of G Medical Innovations Holdings Ltd, a public company listed on the ASX, since 24 February 2017.
The defendants
The first defendant, Mr Cohen, is domiciled and resident in Israel. He was a director and chief executive officer of eSense from 1 October 2016 to 31 March 2020.
The second defendant, Mr Saad, is domiciled and resident in Israel. He was a director of eSense from 1 October 2016 to 10 May 2018, and chairman from 8 February 2018 until 10 May 2018.
The third defendant, Ms Shenhar, is domiciled and resident in Israel. From 28 November 2016 to 5 November 2019, she was a director of eSense and a member of its audit committee.
The fourth defendant, Mr Gilboa, is domiciled and resident in Israel. He was a director and chief financial officer of eSense from 19 September 2016 to 10 May 2018. Prior to his appointment to eSense, Mr Gilboa was the chief financial officer of Dotz Nano Ltd, a public company listed on the ASX. Mr Gilboa introduced eSense's board of directors to Otsana in 2016.
The fifth defendant, Mr Karasik, is domiciled and resident in Israel. He was a founding shareholder in eSense and has been a director since 8 February 2018.
The sixth defendant, Mr Pamensky, is a chartered accountant and is resident in Victoria. In 2018, he operated a business called CFO2Grow which provided financial and company secretarial services. In January 2018, eSense engaged CFO2Grow to provide external company secretarial services. On 9 January 2018, eSense made an ASX announcement that Mr Pamensky was appointed as company secretary. He and eSense executed an engagement agreement on or about 20 March 2018.
The seventh defendant, Mr Wright, is resident in Victoria. He was employed as a public relations coordinator before commencing employment with NWR Communications Pty Ltd in 2015 as an account manager for ASX listed companies. On 14 January 2018, eSense engaged NWR to provide media and investor relations services to eSense. Mr Wright was the advisor who principally provided those services to eSense.
Otsana
Otsana Capital ('Otsana') is the trading name of Otsana Pty Ltd, a business established and directed by the brothers Mr Faldi Ismail and Mr Zaakir Ismail. At material times, Otsana was a corporate advisory firm which provided services in corporate restructuring and recapitalisations of ASX listed companies, including assisting companies with IPOs. Otsana focused on the small and micro‑cap end of the capital market.
Dr de Kauwe became a director of Otsana in 2015.
eSense
eSense-Lab Limited (formerly named Interplabs Limited) ('eSense') is a technology, research and development company incorporated in Israel in April 2016 with the purpose of reverse engineering rare or high‑value plants and reconstructing the terpene profile of those plants, using alternative natural sources, in a cost‑effective and sustainable way. Terpenes are naturally occurring compounds which account for the flavour and fragrance of plants. eSense's technology creates a reconstructed terpene profile that replicates the flavour, fragrance, and other desired characteristics of the targeted plant. eSense's initial focus was on the cannabis plant.[1] eSense was registered in Australia as a foreign company. On 14 February 2017, eSense was admitted to the official list of the Australian Securities Exchange (ASX).
[1] eSense 2018 Annual Report.
Overview of facts
eSense in 2016
At the end of 2016, the directors of eSense were:
·Dr de Kauwe;
·Mr Quentin Megson;
·Mr Cohen;
·Mr Saad;
·Ms Shenhar; and
·Mr Gilboa.
Mr Megson, like Dr de Kauwe, was resident in Perth. The other directors were all resident in Israel. Mr Karasik was not a director. He joined the board on 8 February 2018. The company secretary was Stephen Wood, who was resident in Perth. Mr Wood's services were provided on a part‑time basis as an external service provider. He was identified for the role by Dr de Kauwe.
eSense engages Otsana as corporate advisor
On 16 October 2016, eSense engaged Otsana to provide corporate advisory services, including to assist eSense with an IPO and listing on the ASX. eSense engaged Otsana on an exclusive basis as a corporate advisor for six months and, in the events which happened, for 12 months from the date of ASX listing for the purpose of providing post‑listing corporate advisory and compliance service and other ongoing duties defined in the agreement (the mandate agreement). It was a term of the mandate agreement that Otsana will have at least one board representative.
Otsana assisted eSense in conducting an IPO. Otsana acted as corporate adviser and lead manager.
On 6 December 2016, eSense, with Otsana as its corporate advisor, released a prospectus for its IPO seeking to raise $3.5 million in working capital by the issue of 17.5 million CHESS Depository Interests (CDIs). A CDI effectively represents a unit of beneficial ownership in an underlying security that is held on trust for the CDI holder by a depository nominee. A person who holds CDIs in relation to underlying securities is entitled to all the direct economic and other benefits attaching to those securities. A CDI holder effectively votes the securities underlying their CDIs through the depository nominee by mechanisms set out in the ASX listing rules. The practical effect is that a CDI holder may vote their CDIs at shareholder meetings.
By 23 January 2017, Otsana raised $3.5 million in working capital by way of investor subscriptions to eSense's IPO. This was primarily contributed to by investors from Dr de Kauwe's and Otsana's client and investor network.
On 14 February 2017, eSense was listed on the ASX. 22,500,000 CDIs were listed for quotation at $0.20 per CDI. Dr de Kauwe was appointed chairman of eSense.
On 17 February, eSense established a bank account with National Australia Bank (NAB) for the purpose of depositing the funds raised in Australia. Mr Cohen, Mr Wood and Dr de Kauwe were the account signatories.
eSense roadshow held in October 2017
eSense conducted a secondary capital raising in November 2017. Prior to that, Mr Cohen and the chief financial officer, Mr Gilboa, came to Australia for a roadshow to meet potential investors from whom eSense sought to raise further capital. Dr de Kauwe and Mr Ismail also participated in the roadshow. Dr de Kauwe says that they relied on Mr Cohen to present but he 'couldn't even articulate the very basics of the company or its opportunity' and Dr de Kauwe took over the presentations.
At some point during the Sydney roadshow, Mr Ismail and Dr de Kauwe met with Mr Gilboa and Mr Cohen at the Radisson Blu hotel in Sydney. There was discussion about increasing Otsana's fees in recognition of Dr de Kauwe's greater time commitment, as well as the potential appointment of Dr de Kauwe as an executive chairman. The defendants allege that Mr Ismail and Dr de Kauwe wanted to increase Otsana's fees from $10,000 per month to $12,000 per month. No agreement was made at this meeting.
On 25 October, after the completion of the roadshow, Mr Ismail sent Mr Cohen and Mr Gilboa a revised mandate agreement for their approval, along with a new services agreement drafted by Bellanhouse Lawyers. The revised terms of the mandate agreement increased Otsana's advisory fees to $20,000 per month.
On 1 November 2017, Mr Ismail sent to Mr Cohen a revised mandate agreement by which, among other things, eSense agreed to extend the term of the existing mandate agreement and to add additional services to the scope of Otsana's engagement, subject to and conditional upon eSense completing a further capital raising using eSense's available placement capacity.
The revised mandate agreement increased Otsana's advisory fees to $20,000 per month as well as the issue to Otsana of 5,000,000 options in eSense.
On 3 November, Mr Cohen emailed Mr Ismail. Mr Cohen stated that eSense did not have the revenue to increase the salaries of its directors or officers and requested that the issue of wage increases not be discussed further. Mr Ismail responded to this email and maintained Otsana's position, stating that Otsana would postpone the next round of capital raising until the issues concerning the services agreement, increase in salaries and Dr de Kauwe's executive appointment had been resolved.
Mr Cohen signed the revised mandate agreement on behalf of eSense. The pages of the revised mandate agreement bear the dates 1 November and 4 November. The document states that the terms were accepted pursuant to a resolution of the board of directors of eSense on 2 November 2017. The executed agreement provided for a monthly fee of $15,000 and 300,000 fully paid ordinary shares in the company.
In November 2017, Otsana carried out another round of capital raising.
On 14 November, eSense announced to the ASX that it had received binding commitments from professional and sophisticated investors for a placement of $1,619,500 to be completed by way of the issue of 6,478,000 CDIs over fully paid ordinary shares at $0.25 per CDI, each CDI representing one underlying share. The company further announced that it had received a binding commitment from MMJ Phytotech for a strategic investment of $500,000 to be completed by the issue of 2,500,000 CDIs at $0.20 per CDI and that MMJ would receive one free option for every two CDIs issued at a $0.30 exercise price and expiry date of three years from the date of issue, subject to shareholder approval.
Annual general meeting rescheduled
eSense's annual general meeting for 2017 was scheduled to be held on 29 November 2017. On 24 November 2017, the company rescheduled the AGM to 29 December 2017. In its ASX announcement, the company said that it wished to submit the issue of the Strategic Investor Options and the Lead Manager Options for shareholder approval, and to avoid the burden and expense of holding two shareholder meetings within a short time, the board had resolved to submit the approvals at the AGM and reschedule the AGM to provide shareholders and CDI holders with sufficient notice of the proposals as required under the Israel Companies Law.
On 12 December 2017, Mr Gilboa emailed Mr Antony Sormann. Mr Sormann was a director at Henslow Pty Ltd, an independent advisory firm, at the time, and a friend and business associate of Mr Gilboa. Mr Gilboa stated that eSense was 'looking for a PR company' and asked for a recommendation. After further enquiry, Mr Sormann sent the contact details of Mr Matthew Wright and suggested he 'might be worth talking to'.
On 27 December, Mr Cohen received an email from an eSense shareholder called Dr Moti Gross. Dr Gross stated that he had not received any notice of the impending AGM, nor the proxy voting form, and threatened legal action should he be prevented from casting his vote in the shareholders' meeting. Mr Cohen gave evidence that he received emails from several shareholders regarding missing proxy forms for the 29 December AGM, including Mr Saad, Mr Karasik and Mr Efraim Malik. I do not accept this evidence. The first to fifth defendants produced no such emails and provided no further proof of any such contact with Mr Cohen.
Between 26 and 28 December, the board and eSense's legal advisors subsequently corresponded by email about the need to postpone the AGM. The central issue discussed was whether the AGM would be unlawful under Israeli law if shareholders had not received their proxy voting forms. Dr de Kauwe stated his view that the procedure for providing notice of the AGM had been duly satisfied, and that it was not affected by the absence of some shareholders' proxy forms. Mr Cohen received advice from eSense's Israeli legal advisors, Goldfarb Seligman Lawyers, that, if those missing shareholders held enough shares as to likely affect the outcome of the AGM, then an adjournment should be considered.
On the morning of 27 December, Mr Wood emailed Mr Ephraim Friedman of Goldfarb Seligman. He asserted that all voting cards had been sent to shareholders, and attached documents showing the breakdown of each shareholder and their CDIs. This resulted in a board meeting being convened to consider the potential proposed postponement of the AGM.
On the evening of 27 December in Israeli, which was 12.22 am the next morning in Perth, Mr Cohen emailed Mr Wood and asked him to 'issue an immediate board invitation for tomorrow … in the next hour' otherwise he would 'ask [eSense's] legal advisors to do it'.
The board met on 28 December. This meeting was attended by the directors, as well as Mr Wood as secretary and Mr Gabi Hake and Mr Friedman of Goldfarb Seligman. Mr Cohen informed the directors that several major shareholders in Israel had not received their proxy voting cards, and that he had been receiving written communication and threats of litigation from multiple shareholders to that effect. Mr Saad noted that he had not received his proxy voting form until 27 December. Dr de Kauwe and Mr Megson continued to oppose the adjournment. However, a majority of the board - Mr Cohen, Mr Saad and Ms Shenhar, with Mr Gilboa abstaining - voted to adjourn the meeting. The 29 December 2017 AGM was postponed initially until 15 February 2018, and then again until 29 March 2018.
Pamensky replaces Wood as company secretary
On 3 January 2018, Mr Sormann asked Mr Pamensky whether he would be interested in a role as company secretary. Mr Sormann had worked with Mr Pamensky previously, and introduced Mr Pamensky to Mr Gilboa over email. This led to Mr Pamensky having a phone call with Mr Cohen and Mr Gilboa, after which Mr Pamensky wrote to Mr Sormann:
I will send them through a proposal, Resume and a letter of consent to act as Co Sec. They [are] planning a Board meeting next week and hoping to vote off the current co sec.
The next day, Mr Pamensky emailed Mr Cohen and Mr Gilboa setting out his proposed terms for a three-month retainer, as well as what he envisaged the predominant company secretarial functions would be. Mr Gilboa replied to this email the same day, saying that eSense 'intends to terminate the current company secretary services tomorrow or on Monday'.
On 7 January, Mr Pamensky sent a draft ASX announcement to Mr Gilboa regarding his appointment and Mr Wood's removal as company secretary. Mr Pamensky sent a copy of the email to Mr Sormann, as well as Mr Casper and Mr Cohen. Mr Gilboa emailed back and forth about the wording of the announcement, as well as its legality in both Australia and Israel.
On 8 January, Mr Cohen terminated Mr Wood's position as company secretary of eSense effectively immediately. On 9 January, Mr Cohen advised the board that eSense had terminated Mr Wood as company secretary and appointed Mr Pamensky instead. This change was reflected in eSense's subsequent ASX announcement.
eSense executes IC Access agreement
On 10 January 2018, Mr Cohen told the board that eSense was to sign a binding agreement with IC Access, a marketing company in the United Arab Emirates.
This agreement was announced by an ASX announcement on 15 January, which reflected that eSense had signed a $1.1 million distribution and sales agreement with IC Access. The binding agreement signed by IC Access was for a period of three years, with a commitment by IC Access to purchase terpene strains from eSense totalling $1.1 million with a minimum commitment in the first year (commencing before 30 September 2018) of $366,000.
eSense engages NWR Communications
On 14 January 2018, eSense engaged NWR Communications to provide media and investor relations services. Mr Wright and Mr Warwick Lace were specifically referred to in the engagement agreement as 'NWR Communications consultants' who would lead eSense's investor and media relations.
The key capabilities and responsibilities of NWR Communications outlined in the engagement proposal included development, editing and distribution of company communications, developing media strategy and creating on‑going investor relations strategy. This included providing 'editing/feedback on ASX announcements, releases, investor presentations and speeches (i.e. AGM)'.
19 January board meeting
On 15 January 2018, Mr Pamensky gave notice of a meeting of eSense's board to be held on 16 January. Mr Pamensky provided an agenda for the meeting which included consideration of resolutions for the approval of the conversion of C class performance rights then held by the directors to CDIs on the basis that the company had achieved the milestones which conditioned the conversion (Performance Rights Resolution) by entering into the IC Access agreement. Mr Pamensky circulated a resolution to adopt the signature rights document (Signature Resolution), a proposed resolution to change the signature rights for eSense's bank accounts by removing Dr de Kauwe and adding Mr Cohen, Mr Gilboa and Mr Pamensky as general signatories to eSense's NAB Australian bank account.
The board meeting was held on 19 January. Dr de Kauwe says that, as chairman, he deferred voting on the Performance Rights Resolution and the Signature Resolution. Mr Cohen, Mr Gilboa and Mr Saad say that they voted in favour of those resolutions which were passed.
Attempted amendment of signatory rights
On 22 January, Mr Pamensky instructed NAB to change the signatories to eSense's account. However, NAB advised him that NAB required confirmation or authorisation from Dr de Kauwe to alter the signature rights on the account.
On 23 January, three shareholders of eSense, including Attollo Investments Pty Ltd, of which Dr de Kauwe was the sole director, requested that eSense's board hold an extraordinary general meeting of members (EGM) to consider resolutions for, amongst other things, the removal of Mr Cohen, Mr Gilboa and Mr Saad as directors, and to replace them with Mr Faldi Ismail and Mr Andreas Gedeon, a representative from MMJ Phytotech.
On 24 January, a representative of NAB contacted Mr Pamensky about adding signatories to NAB bank accounts. Mr Pamensky asked about what could be done to close a visa debit or credit card. The representative responded on 29 January, saying they needed a signed letter from the card holder to close it. Mr Pamensky asked what would happen 'if the person is misappropriating funds or has left the company?'.
On 25 January, Mr Pamensky circulated to the directors draft minutes of the 19 January board meeting (Pamensky minutes) which stated that the Performance Rights Resolution and the Signature Resolution had been passed. Dr de Kauwe disputed the accuracy of the Pamensky minutes and subsequently circulated draft minutes which recorded that Dr de Kauwe as chairman had deferred voting on the Performance Rights Resolution and the Signature Resolution (de Kauwe minutes).
The same day, 25 January, Dr de Kauwe sent Mr Pamensky, and copied to Mr Megson, an email in which he said he was:
rather surprise[d] to see the mail out today… this was NOT resolved by the Board.
Dr de Kauwe sets out what his version of the minutes will reflect, and notes that:
In light of the above, and given the gross inaccuracy to the content of the sent documents (to undisclosed recipients), and furthermore that I personally am a significant beneficiary to the issue of these performance shares, you give me little choice but to take this matter amongst others, directly to the ASX.
Mr Pamensky forwarded Dr de Kauwe's email to Mr Wright, Mr Cohen, Mr Gilboa and Mr Casper of SBA Law, noting that he was happy to respond and 'share the necessary legal opinions obtained'. This was followed by a summary email directed to Mr Cohen, who had expressed confusion as to why the board resolution to convert performance shares had not been actioned. This summary email included the statement:
Brendan's query regarding the passing of the resolution is not valid based on the advice from the Israeli lawyers.
On 26 January, Mr Cohen emailed Mr Wright and attached a version of the Otsana mandate. He noted that he 'hope[d] it will be helpful for your strategy', and wrote:
As we spoke before Shaul, Aviram and me would like to have a conference call with you in order to deal together about PR strategy. As I said we need to be more aggressive and that's exactly what we are going to do.
Shaul Schneider and Aviram Malik were part of the eSense management team. They reported to Mr Cohen.
The same day, Business News published an article entitled 'eSense Spill Move'. This article concerned the requisitioning of a general meeting by Otsana shareholders to remove Mr Cohen from the board.
Mr Gilboa emailed a link to this article to Mr Wright, copying Mr Cohen, Mr Malik, Mr Schneider and Mr Sormann and wrote:
I think we need to get into tactical steps.
On 28 January, Mr Pamensky sent an email to Mr Cohen entitled 'ESE ‑ Strategy'. Mr Gilboa was copied into this email, which summarises the outcome of a 'strategy conference call' that was held on 26 January. It starts:
I am really hoping Friday's strategy conference call and the Company now has a way forward.
Once the 'battle' with Otsana commences, the Board needs to make sure that they can say that they are doing the best job for the Company. The Otsana team are going to look for gaps to take fire at the Board.
The rest of the email contains 'a few points that [Mr Pamensky has] picked up from [his] observations over the last few weeks (board Meetings, emails, correspondence etc)'. There are five dot points: 'Corporate Governance', 'Budget + Cashflow', 'Samples + Sales Leads', 'Director Communication' and 'Shareholders'.
Resolution to remove Dr de Kauwe as chairman
On 28 January, Mr Casper emailed Mr Cohen regarding his thoughts about the next steps for the board of eSense. This email detailed when and how the next board meeting should be convened, recommending that 'only [one] board meeting should be held to deal with all matters', and that 'the less meetings proposed, the better'.
Mr Casper set out two resolutions to be proposed at the next meeting. The first was to replace Dr de Kauwe as chairman, upon which Mr Casper recommended Mr Cohen 'seek clear advice from Gabi [Hake] re the steps required'. He recommended that Mr Cohen 'seek guidance from Goldfarb Seligman in terms of whether … an independent investigation should be initiated against Brendan for a possible breach of his duties', and that he obtain a stronger legal view as to whether Dr de Kauwe had breached his duty of loyalty. The second was to approve a draft notice of shareholder meeting, and the subsequent resolutions which should be included in that draft.
Mr Casper also provided advice regarding the so‑called 'proxy war', writing that:
Ultimately this will come down to a determination by shareholders so getting support from shareholders is ultimately the main issue you need to focus on. For that reason, you must liaise with Matt and an Investor Relations/proxy solicitation company.
Mr Cohen responded to this email with no further queries.
On 29 January, Dr de Kauwe sent a second email to Mr Pamensky about the conflicting minutes. This was prompted by eSense issuing CDIs and converting the C class performance rights, in accordance with the performance rights resolution. Dr de Kauwe wrote that the minutes forwarded were grossly incomplete and inaccurate and that the board
will receive a copy of the corrected and complete minutes of the Meeting from me in due course. Until such time, the matters remain outstanding.
Dr de Kauwe noted that eSense had
obtained a legal opinion by legal counsel, which conveniently supports the vested interests of select Directors of the Company as well as selected solely by the said Directors …
and that the independence of this advice 'must be questioned', which
left [him] little choice but to make our regulators aware of the above in light of your actions.
Dr de Kauwe subsequently circulated his version of the draft minutes on 2 February. This version also recorded Dr de Kauwe as chairman but was additionally signed by Dr de Kauwe at the end of the document. It was noted that both the signatory rights and the performance rights resolution had been deferred. Dr de Kauwe gave evidence that he acknowledged that a majority of the board had voted in favour of each resolution but contended that their votes were invalid due to there being no proper basis or sufficient supporting information about the resolutions provided before or at the meeting.
The competing minutes of Dr de Kauwe and Mr Pamensky are not altogether inconsistent in recounting what happened at the board meeting. Both agree that the meeting occurred, and that the two resolutions were discussed and voted upon by the board. However, Dr de Kauwe and Mr Pamensky disagree about the outcome of the meeting. Dr de Kauwe believes that the resolution votes were invalid; Mr Pamensky believes that the votes were validly received, and the resolutions passed.
In my view, it is unnecessary to make a finding about these differing perspectives. Irrespective of what Mr Pamensky and Dr de Kauwe individually believed the outcome of the meeting was, it did not change how the resolutions were dealt with and acted upon by the board members in the aftermath.
On 29 January, Mr Casper forwarded this email chain to Mr Sormann. He explained that Mr Cohen had sought his thoughts after 'the meeting on Friday'.
On 29 January, Mr Cohen emailed Mr Wright, as well as Mr Schneider and Mr Malik, wanting to
'discuss… the acts and steps that you think we should take on PR & IR', so to 'understand what strategy should be taken in this crisis situation regarding the articles that took place on weekend'.
Mr Wright responded, suggesting an 8.00 am call on Monday morning (Israel time).
On 29 January, eSense issued, or purported to issue, CDIs on the conversion, or purported conversion, of C class performance rights in reliance on the vote, or purported vote, of the board on the Performance Rights Resolution.
The requisitioning shareholders compiled a position statement about these resolutions, which was sent directly to shareholders on or about 29 January.
On 31 January, eSense lodged its quarterly report. This contained a note about the conversion of CDI rights, in accordance the resolution passed on 19 January. This note resulted in a same-day query from the ASX, where it was requested that eSense provide details about the conversion.
5 February Letter
On 31 January 2018, Mr Pamensky emailed Dr de Kauwe and requested that he sign an application to amend the signature rights to the NAB account.
On 1 February, Mr Cohen asked Mr Pamensky by Whatsapp message for a copy of the email he sent to Dr de Kauwe regarding the signature rights to the NAB account. This was quickly followed by another message that he had in fact found the email, and that Mr Pamensky should send Dr de Kauwe a similar Whatsapp message to remind him that eSense needed 'to pay salaries and contractors today'.
Mr Pamensky did not send a Whatsapp message to Dr de Kauwe as requested.
On the morning of 2 February, Mr Cohen sent an email to Dr de Kauwe with the subject line 'Your repeated refusal'. The email requested that Dr de Kauwe respond to an attached letter dated 1 February 2018, in which Mr Cohen asserted that Dr de Kauwe's refusal to authorise the transfer of funds from eSense's Australian bank account to its Israeli bank account was impacting eSense's ability to pay its employees and suppliers, was contrary to the signatory rights resolution passed by the board on 19 January, was in violation of Israel Companies Law and exposed eSense to lawsuits and possible judicial action. The letter also asserted that Dr de Kauwe was in violation of his fiduciary duties to eSense and its shareholders.
However, as Mr Pamensky had not actioned the Whatsapp request of Mr Cohen, there had only been one request made of Dr de Kauwe. There had been no 'repeated refusal' by Dr de Kauwe.
Later that morning, Mr Cohen, Mr Saad and Mr Gilboa convened a board meeting to be held on 8 February 2021. A notice convening a meeting of directors, signed by Mr Cohen, Mr Saad and Mr Gilboa, was emailed to the directors by Mr Pamensky. This notice outlined the proposed resolutions to be discussed at the meeting, including the removal of Dr de Kauwe and appointment of Mr Saad as chairman (as suggested by Mr Caspar), the cancellation of the scheduled 15 February 2018 AGM, the appointment of Mr Karasik as a director, the cancellation or annulment of the Otsana mandate, and the outcome of Mr Cohen's reply to the ASX's query.
On the afternoon of 2 February, Dr de Kauwe sent an email to Mr Ben Secrett and Mr James Rowe, both members of the ASX's listing compliance team. He copied Mr Megson into this email and asserted that a number of eSense's recent corporate actions had not been properly authorised by the board, that the board was incapable of acting in an orderly manner and that the ASX should consider suspending the company's securities from trading.
The same day, an unidentified user called 'OSMO' posted a link to the requisitioning parties' position paper of 29 January on the public internet forum, HotCopper. The full text of the paper was subsequently posted to the forum. The identity of OSMO remains unknown.
Several things happened on 5 February 2018.
First, Mr Cohen sent a second email with the subject line 'Refusal to authorize bank transfer … 2' to Dr de Kauwe. Attached to this email was a letter dated 4 February 2018, which referred to Dr de Kauwe's refusal to authorise the transfer of funds and amend the signature rights. It asserted that eSense's cash situation had become increasingly dire since the 1 February 2018 letter, and that if Dr de Kauwe did not remember his fiduciary duties and transfer funds between eSense's bank accounts, eSense would breach various agreements resulting in damages, reputational harm and possible judicial action.
Secondly, Dr de Kauwe responded to Mr Cohen's 4 February letter. He maintained that the signatory rights issue had not been resolved at the meeting, and that he considered himself to be acting in the best interests of eSense. He requested financial information to justify the company's expenditure and asserted that, in the absence of those documents being provided, he would not authorise the transfer of any money from the NAB account. However, Dr de Kauwe agreed that eSense 'has creditors and needs to continue to pay its debts as and when they fall due' and was prepared to 'authorise the transfer of 1‑month operational costs to pay these debts'.
Thirdly, Mr Cohen, Mr Gilboa and Mr Saad wrote a letter to Dr de Kauwe (5 February Letter) which requested answers to questions concerning conduct of Dr de Kauwe and stated that his answers would be the subject of discussion at the coming board meeting. Mr Saad sent the letter to Dr de Kauwe by an email which was copied to Mr Pamensky, Mr Megson, Ms Shenhar, Mr Cohen, Mr Gilboa and to Mr Hake and Mr Friedman of Goldfarb Seligman.
The 5 February Letter is the first matter Dr de Kauwe sues on in this action. Dr de Kauwe says that it conveyed the meanings that he was a blackmailer, was an extortionist, acted unprofessionally against the interests of the company by asserting to the ASX that the conversion of performance rights was unlawful and by failing to disclose his material conflicts of interest to the board, and that he falsified company records.
5 February Notice
Also on 5 February, Mr Pamensky circulated a revised notice dated 5 February 2018 signed by Mr Cohen, Mr Saad and Mr Gilboa convening a board meeting to be held on 8 February (5 February Notice). The notice was sent by Mr Pamensky by email to the members of the board - Mr Cohen, Ms Shenhar, Mr Gilboa, Dr de Kauwe, Mr Saad and Mr Megson ‑ and to the lawyers Mr Hake and Mr Friedman. The notice stated that the agenda contained 10 items, including to terminate the service of Dr de Kauwe as chairman of the board, review Dr de Kauwe's responses to the list of questions provided by certain members of the board on 5 February 2018, appoint Mr Saad as chairman of the board and to cancel the AGM scheduled for 15 February 2018.
The 5 February Notice is the second matter sued on by Dr de Kauwe in this action. Dr de Kauwe says that it conveyed the meanings that Dr de Kauwe was disloyal, not a fit and proper person to hold the position of chairman, and a person whose conduct as a director was so lacking in propriety as to warrant an examination into his conduct by an independent company auditor.
On 5 February, Dr de Kauwe and Mr Megson requested the board to permit them to be personally advised by Israeli and Australian legal advisers in respect of matters presented to the board and for those advisers to attend board meetings. That request was denied by a letter of 7 February signed by Mr Cohen, Mr Saad and Mr Gilboa.
On 5 February, Dr de Kauwe and Mr Megson sent a letter to the other board members stating that the actions and omissions of the other board members breached the Israeli Companies Law, the company's articles of association and their duty of care and fiduciary duties.
Mr Brownstein, a Melbourne lawyer with SBA Law advising the company on instructions from Mr Pamensky, drafted a letter to the ASX responding to queries raised regarding the company's AGM. The draft letter was circulated to eSense's directors, Mr Pamensky, Mr Hake, Mr Friedman and another SBA lawyer, Mr Casper. Mr Cohen replied that the draft was 'fine with [him]', to which Mr Brownstein responded:
Thanks Haim. Once Gabi [Hake]/Ephraim [Friedman] have inserted the response to point #2 into the letter as requested below, please obtain the approval of a majority of directors to the letter being sent to ASX, then insert eSense letterhead, sign it and send it to Ian who can submit to ASX tomorrow morning.
There was further correspondence between Mr Cohen, Mr Pamensky, Mr Friedman and Mr Brownstein, by which the draft response was progressively edited. These emails were not copied to Dr de Kauwe or Mr Megson.
On 6 February, Mr Cohen forwarded the correspondence regarding the ASX's 31 January query to the entire eSense board. Mr Cohen copied the email to Mr Pamensky, as well as eSense's Australian and Israeli legal representatives. The email requested that the recipients 'please approve the response to the ASX ASAP' and attached a final version of the draft response.
Mr Megson replied, disapproving of the contents of the draft response 'for the same reasons that I disagreed with the postponement of the AGM at our previous Board meeting'.
Dr de Kauwe replied by an email to Mr Cohen and the other board members and copied it to Mr Pamensky, the SBA lawyers, the Goldfarb Seligman lawyers and Dr Shenhav, an Israeli lawyer advising Dr de Kauwe. Dr de Kauwe said that he did not approve of the draft letter and asked Mr Cohen and 'the Board' to explain several matters relating to the AGM.
The same day, Dr de Kauwe separately emailed a letter to Mr Saad, Mr Gilboa, Mr Cohen and Ms Shenhar entitled 'Re: Notice of Breaches of Israeli Law, Fiduciary Duty and Duty of Care'. The letter was purportedly sent on behalf of Dr de Kauwe and Mr Megson, but was only signed by Dr de Kauwe, and identifies their concerns with their fellow directors' conduct and corporate governance. This letter was not substantively responded to.
8 February board meeting
On 7 February, approximately 99.94% of the proxy votes lodged for the AGM to be held on 15 February were in favour of the re‑election of Dr de Kauwe as a director, and approximately 73.38% were against the re‑election of Mr Cohen, Mr Saad and Mr Gilboa as directors.
In the early morning of 8 February, Mr Pamensky sent an email to Dr de Kauwe. Mr Pamensky noted that Dr de Kauwe had said he would authorise a transfer of funds to meet one-month operational costs to pay outstanding obligations and requested that Dr de Kauwe arrange a funds transfer in respect of a list of payments to be made by eSense. Mr Pamensky said that the company could not remove Mr Wood as a signatory on the NAB account until the company has two signatories to the required documentation. Mr Pamensky requested that Dr de Kauwe, as the security officer on the NAB account, remove Mr Wood and add Mr Pamensky as a signatory/authoriser. Dr de Kauwe responded that he would do so upon receipt of supporting information and documentation confirming the payments which he requested.
Later on 8 February, the board held a teleconference meeting at which the following resolutions (the 8 February Resolutions) were passed:
1.Dr de Kauwe be removed as chairman;
2.an audit committee be established to consider appointing an independent investigator to investigate Dr de Kauwe's conduct;
3.Mr Saad be appointed chairman;
4.the Pamensky minutes be approved;
5.the conversion of the class C performance rights be cancelled;
6.the AGM scheduled for 15 February be cancelled and be held on 29 March 2018 with a record date of 1 March 2018;
7.the EGM requested by Romfal Sifat Pty Ltd, Buzz Capital Pty Ltd and Attollo Investments Ptd Ltd be held immediately after the AGM on 29 March 2018;
8.Mr Karasik be appointed as a director; and
9.the company's budget for 2018 be approved.
On 9 February, eSense announced to the ASX the rescheduling of its 2017 AGM to 29 March 2018 and convening the extraordinary general meeting thereafter, with a record date for both meetings of 1 March 2018.
Also on 9 February, Dr de Kauwe incurred $1,759 on his eSense company debit card. Both Mr Cohen and Dr de Kauwe were authorised to use their debit cards for company business, without seeking prior board approval. As of 14 February, the accounts transaction history attributed this payment to Qantas Airways.
Also on 9 February, Stockhead, an ASX news site, published an article entitled 'No sweet highs at eSense as boardroom stoush gets serious' (the First Stockhead article). This was written by Ms Rachel Williamson, a senior journalist at Stockhead.
On 8 February, Mr Cohen had emailed Mr Wright and urged him to 'have a call with Shaul and Aviram so we can understand the steps that should be taken as a result of the board meeting regarding the media'. On 9 February, Mr Cohen emailed Mr Wright, Mr Lace, Mr Malik and Mr Schneider about the 'steps that should be taken as a result of the [8 February] board meeting regarding the media'. Mr Wright responded, explaining that he has spoken to Mr Casper and Mr Pamensky about 'the situation and next steps'. Importantly, he notes that:
Most urgent priority is compiling the notice of meetings document to be lodged with the ASX, the messaging and arguments of yourself and the current directions will be outlined as part of this document and will form the basis of our PR efforts with media and shareholders.
Mr Malik then responded that:
Otsana publishing information that's harming the company. Some not even true… We have to do something and publish the real info.
Mr Malik attached a link to the First Stockhead article. This prompted a series of emails between Mr Cohen, Mr Lace, Mr Malik and Mr Wright, where it was agreed that a group phone call would be held to 'review ASAP the announcement on Brendan' on 11 February. Mr Cohen did not attend this call and was replaced by Mr Schneider.
Israel court proceedings
On 11 February 2018, Dr de Kauwe and Mr Megson commenced court proceedings in Israel against eSense, Mr Cohen, Mr Saad, Ms Shenhar and Mr Gilboa to restrain the cancellation of the AGM on the basis that the directors acted in a position of conflict of interest in passing the 8 February 2018 resolutions.
The next day, the Israeli court refused Dr de Kauwe's and Mr Megson's application. The court did not determine whether the directors were or had acted in a position of conflict of interest in passing the 8 February 2018 resolutions.
First draft of position statement
On 12 February 2018, Mr Lace emailed a first draft of a position statement to Mr Wright. This position statement was intended to be in response to the 23 January requisition of meeting notice lodged partly by Dr de Kauwe. This draft of the position statement stated in part that
eSense-Lab Ltd (ASX: ESE), a life sciences company specialising in the commercialisation of the phytochemical profiling of plants, is under attack from its corporate adviser and broker, Otsana Capital.
As shareholders are aware, Perth‑based Otsana, through its director and former eSense-Lab Chairman Brendan de Kauwe, has lodged a requisition of meeting notice and is attempting to take control of the company by forcing Haim Cohen, Eran Gilboa and Ilan Saad from the board and replacing them with Otsana employees and directors.
Mr Lace, in this email to Mr Wright, described the statement as follows:
It's a bit random and lacks hard facts and dates, etc, but it's a start. I've included comments with the full expectation that the lawyer will rip it out. But at least the management team will clearly see what they can and can't say as a result.
Later that afternoon, Mr Wright forwarded this draft position statement to Mr Cohen, Mr Malik, Mr Schneider and Mr Lace. In this email, he requested more 'hard facts, figures and dates associated with the sequence of events' and recommended that it be run by the 'wider team/lawyers for discussion/approval'.
That same day, Mr Cohen sent to Dr de Kauwe a letter in response to Dr de Kauwe's letter of 5 February 2018. Mr Cohen said:
·the Signature Resolution had been validly passed;
·the majority of the board approved the Pamensky minutes;
·Dr de Kauwe's claims were an attempt to undermine the Signature Resolution;
·the documents requested by Dr de Kauwe were not within the scope of documents that a reasonable director normally requires to fulfil their duties as a director;
·Dr de Kauwe was not justified in abstaining from transferring funds;
·Dr de Kauwe was not authorised to transfer only one-twelfth of eSense's annual budget; and
·Dr de Kauwe was exploiting his status as sole signatory to eSense's NAB bank account, thereby endangering eSense.
After sending this letter, Mr Cohen sent two emails to Mr Wright, copying Mr Schneider and Mr Malik. Both emails advise Mr Wright that he 'can move forward to attack' and 'let's start to attack'. The latter email also asked Mr Wright to 'please find the way to inform the media'.
The following day, 13 February, eSense released an announcement to the ASX entitled 'eSense wins court proceedings'. The announcement correctly stated that the Israeli court had rejected all the motions brought by Dr de Kauwe and Mr Megson and incorrectly stated that the court had found that the board acted properly in passing the resolutions of 8 February 2018.
Also on 13 February, Mr Lace contacted Ms Williamson of Stockhead, to
alert [her] to the fact that eSense put out an ASX [announcement] today on an Israeli court decision that found in their favour and upheld the decision to remove Brendan de Kauwe (from Otsana) as chairman and keep the AGM date for 29 March.
Ms Williamson responded, asking to 'keep her in the loop' to which Mr Lace responded that he will
give the heads up on the notice of meetings release that will have a lot more (juicy) context to add to the mix.
The same day, a second Business News article reporting on the Israeli court proceedings, entitled 'Court dismisses eSense case', was published online. Mr Wright emailed a copy of this article to Mr Cohen, Mr Malik, Mr Schneider and Mr Lace. Mr Cohen responded, calling for a conference call to 'understand what's the plan if there is any'.
After this conference call, Mr Wright re‑forwarded to Mr Cohen, Mr Malik and Mr Schneider the same draft position statement he had sent on 12 February. Mr Lace was copied. Mr Wright asked in part that they
… please come back to us regarding the attached document and what we requested in addition:
- More hard facts, figures and dates associated with the sequence of events
- The positive messages/progress etc regarding Esense achievements that we can include
I also suggest working with Steven [Caspar] & Ian [Pamensky] to get the AGM Notice of Meeting completed and lodged on the ASX as soon as possible.
Mr Schneider indicated by reply email that two different items were to be worked on - a report based on the board resolutions regarding the removal of Dr de Kauwe as chairman, and an article that will 'give the full story'. He emphasised that
it was agreed that item number 1 will be done immediately… this is what we need from you guys.
Mr Wright agreed, and asked for further details about the dispute 'so [NWR Communications] can provide the best arguments possible'.
On the evening of 13 February, Mr Malik sent an amended and marked up version of the draft position statement to Mr Wright, copied to Mr Cohen, Mr Schneider and Mr Lace. Mr Wright responded to this email, asking for further information and the 'sequence of events that has led to this situation'.
Early in the morning of 14 February, Mr Wright and Mr Lace received a copy of the 5 February 2018 letter from Mr Malik, together with an instruction from Mr Schneider to use the letter for PR.
In the afternoon of 14 February, Mr Lace emailed an updated version of the draft position statement to Mr Cohen, Mr Malik, Mr Schneider and Mr Wright. This version of the draft adds Mr Lace's amendments to Mr Malik's mark‑up. Mr Lace writes that
the document needs to be read very closely and each point should be confirmed to make sure it is as accurate and detailed as possible.
Mr Malik sent an amended version of Mr Lace's updated version to the same recipients three hours later.
Qantas debit card purchase
Meanwhile, on 14 February 2018, Mr Gilboa noticed the expense of $1,759 on the NAB account and sent an email to Mr Saad, Mr Pamensky, Mr Brownstein, Mr Hake, Mr Friedman and Mr Casper, as well as an additional group of representatives from Goldfarb Seligman. Mr Gilboa attached a bank transaction statement, and wrote:
On February 9, 2018 (last Friday) [Dr de Kauwe] bought a flight ticket in Qantas airlines in value of 1,759 AUD - It is crazy ... He steals money from the company ...! I think that enough is enough ...
The following day, Mr Gilboa forwarded this email to Mr Sormann. Mr Sormann responded almost immediately: 'Wow! Not good'.
On 14 February, Mr Cohen sent Dr de Kauwe an email with the subject 'Your Continuous Unlawful Refusal', which was copied to the other eSense directors, Mr Pamensky and Australian and Israeli lawyers. Mr Cohen attached a letter with the subject heading 'Your Continuous Unlawful Refusal to Provide Instructions to NAB Bank in Accordance with the Resolutions of the Board of Directors of the Company', by which Mr Cohen demanded that Dr de Kauwe sign documents relating to eSense's bank accounts and said amongst other things:
·it is the company's position that Dr de Kauwe is prohibited from exploiting his capacity as a (former) authorized signatory for the NAB bank account to make unilateral decisions regarding the company's finances, and a de‑facto 'veto' of the company's instructions regarding the transfer of funds;
·it is the company's position that Dr de Kauwe's continuing disregard of the company's lawful decisions, and his exploitation of the current situation with the NAB bank account which the company is not able to manage due to Dr de Kauwe's unlawful acts and omissions, constitute a violation of his fiduciary duty and duty of care owed to the company as an office holder, and unlawfully obstructing the company's business, and unlawfully withholding the company's assets - breaches that have civil and penal implications; and
·threatened that, if Dr de Kauwe did not sign the documents immediately, the company would exercise all legal means available to reclaim control and possession of the NAB bank account, including seeking relevant judicial orders, and turning to the relevant enforcement authorities in Israel and Australia (including the Australian Securities and Investments Commission and the Police).
On 15 February, eSense's lawyers, SBA Law, sent a letter to NAB which stated, among other things:
1.The company has resolved to add new signatories to the NAB bank account; that Mr Saad and Mr Pamensky be added as authorised users and that Mr Wood be removed.
2. NAB has refused to make this change because it requires Mr Wood (who is no longer with the company) or Dr de Kauwe (who is refusing to sign the form in deliberate disregard for his duties as a director and without regard for the best interests of the company) to sign a form recording the change.
3.As a result of NAB's refusal to follow the lawful direction of the company, the company's bank account is being held hostage by Dr de Kauwe who is using it as a weapon in relation to unrelated issues.
Dr de Kauwe says that Mr Cohen, Mr Gilboa and Mr Pamensky instructed or authorised SBA to send the letter.
NAB replied, stating that it would put a stop to future transactions as it had received conflicting instructions for the account.
On 15 February, Mr Lace sent a further draft of the position statement to Mr Malik, copied to Mr Wright, Mr Schneider and Mr Cohen. This version built upon the amendments made by Mr Malik the previous night. Mr Lace includes in this email:
I think this should now be shared with the lawyers and company secretary in order to prepare the notice of meetings release to align with our messages and as quickly as possible.
Taking this advice, Mr Wright forwarded this version of the statement to Mr Casper and Mr Pamensky, seeking their comments on this version. Mr Casper replied with his concern that 'the concerns are not made/set out in the notice', to which Mr Wright responded:
I'd still want to check what you think is permissible for them to communicate with shareholders/media from a legal perspective. Happy to have a chat on the phone about it tomorrow.
15 February Letter
On 15 February 2018, Mr Cohen wrote to Dr de Kauwe a letter headed 'Your Unlawful Use of the Company's Credit Card' (15 February Letter). Mr Cohen sent the letter to Dr de Kauwe by email sent on 16 February 2018 with the subject line 'Your Unlawful Use of the Company's Credit Card' and copied the email to eSense's directors, Mr Pamensky, and others. The 15 February Letter is the third matter Dr de Kauwe sues on in this action.
In the letter Mr Cohen said, amongst other things, that Dr de Kauwe had made unauthorised and unlawful use of the company's credit card, apparently for personal purposes unrelated to the company or its interests, including an airline ticket to the value of $1,759, which constituted a prima facie violation of his fiduciary duties and of criminal law, including theft of the company's funds. Mr Cohen demanded that Dr de Kauwe immediately return the credit card and all the company's funds that he took in his use of the credit card; and instruct NAB to amend the company's signature rights for the company's NAB account in accordance with the resolution of the board of directors of 19 January 2018.
Dr de Kauwe says that the 15 February Letter conveys the meanings that Dr de Kauwe stole company funds and intentionally concealed his theft of company funds.
On 16 February, Dr de Kauwe wrote to Mr Cohen and others in response to the 15 February Letter. Dr de Kauwe explained that he had used the company debit card to renew his Qantas club membership and offered to justify each expense incurred on the card.
Also on 16 February, Mr Malik sent a further draft of the position statement to Mr Lace, Mr Wright, Mr Schneider, Mr Cohen and now Mr Karasik. This version was a marked‑up version of the attachment sent to Mr Caspar and Mr Pamensky and is accompanied by a note that eSense 'would like to make some changes to the strategy'.
On 18 February, Mr Pamensky emailed Mr Cohen, Mr Casper, Mr Saad, and Mr Wright and asked how Mr Cohen wanted to proceed with the ASX announcement. Mr Wright replied, stating that he had not heard from Mr Casper on Friday regarding 'advice on what [eSense] can legally have in the document' and that Mr Wright would try him again tomorrow.
On 19 February, Mr Cohen forwarded a letter from NAB by email to the eSense directors and Mr Pamensky and requested them to sign a draft letter from eSense to NAB to authorise the transfer of funds to eSense's Israeli bank account and to amend eSense's authorised signatories to its NAB bank account. This was forwarded to Mr Megson by Mr Pamensky the next morning, as Mr Megson had not yet signed. Mr Megson refused to sign the letter, which prompted a phone conversation between Mr Pamensky and Mr Megson. Dr de Kauwe was travelling to Sydney at the time and could not participate.
After this meeting, Mr Pamensky emailed Mr Cohen and Mr Saad. He outlined a proposal that funds from the NAB bank account would be released monthly until the confirmation of the board composition at the upcoming AGM and EGM. This email was forwarded to and acknowledged by Mr Megson.
On 20 February, Dr de Kauwe responded to Mr Cohen's 12 February letter and 19 February email. He again disputed that the signature rights resolution had been passed and noted that Mr Cohen was also a signatory to the NAB bank account should funds need to be withdrawn. Dr de Kauwe advised that he had requested information to ensure he would be properly discharging his duties as a director of eSense if he were to transfer funds and confirmed that he had agreed to authorise the transfer of funds to meet one month's liabilities. Finally, he confirmed that he would change the authorised signatories to the NAB account subject to being satisfied that eSense's funds were to be applied for a proper purpose.
On 21 February, Mr Cohen responded to Dr de Kauwe's email by letter. Mr Cohen rejected the contents of Dr de Kauwe's email in their entirety, disputed the genuineness of Dr de Kauwe's position with respect to eSense's bank account signatories and the transfer of funds between eSense's bank accounts, rejected in its entirety Dr de Kauwe's letter of 16 February, reasserted that Dr de Kauwe had used his eSense credit card in an unauthorised manner and demanded the return of funds and that Dr de Kauwe sign the draft letter from eSense to NAB.
23 February Email
On 23 February 2018, Mr Saad sent an email to Dr de Kauwe and Mr Megson and copied it to the other directors of eSense and Mr Pamensky (23 February Email) which said, amongst other things, that Dr de Kauwe was still refusing to act in accordance with the board of directors' decision and was practically holding the company as a hostage in his attempt to overrule board decisions. Mr Cohen requested Dr de Kauwe to instruct NAB bank to transfer the funds to the company's bank account in Israel and said that Dr de Kauwe's continuing failure to give the necessary instructions to NAB bank causes the company great damage, exposes the company to great risks and was causing irreversible damage. Mr Cohen said that Dr de Kauwe was acting in breach of his duties to the company, which leaves the company with no other choice but to take legal actions against him.
The 23 February Email is the fourth matter Dr de Kauwe sues on in this action. Dr de Kauwe says it conveys the meanings that Dr de Kauwe extorted the company to get his own way and caused the company to breach its commitments to third parties and employees, thereby exposing the company to risk of insolvency.
Also on 23 February, Dr de Kauwe responded to Mr Saad's email with an email to Mr Saad and others. Dr de Kauwe said amongst other things that he had spoken to Mr Pamensky about providing interim funding as necessary for eSense's expenses, raised questions about information provided to him, requested a response to his letter of 16 February and the documents he had previously requested.
Sometime after the last draft of the position statement had been circulated, on 26 February, Mr Lace emailed Mr Brownstein of SBA Law the most recent draft of the eSense position statement. Mr Wright was copied to this email, which indicates that this draft
included some comments from the management team, such as positioning it as an open letter from a shareholder that NWR did not necessarily agree with.
Mr Brownstein responded within the hour, copying Mr Cohen, Mr Pamensky and Mr Casper, attaching his further draft and providing legal perspective to the phrasing of the statement. In this email, he emphasises that 'it is important that all statements set out in this document are true and not misleading (including by omission)'.
On 27 February, Dr de Kauwe sent a follow up email to Mr Pamensky regarding his earlier request for documents to support the IC Access fee. Mr Pamensky replied that he would try get an answer from the directors in Israel overnight, expressed that he had told them the IC Access payment 'MUST not be made and this has been communicated to the third party', and reminded him that month end payments and payroll were due.
Dr de Kauwe replied that the process may be delayed as he was travelling, and that 'Haim [Cohen] has had more than sufficient notice and including such from our lawyers'. Mr Pamensky responded that the funds were desperately required to pay wages and to move forward and set out several logistical matters to affect the transfer. This was followed by another email from Mr Pamensky, who attached a revised payment list and advised that he 'would personally like to be paid, I have busted my guts trying to assist the Company in the last month!'
I award aggravated damages of $30,000 against the first to fifth defendants jointly in respect of both ASX announcements.
Injurious falsehood
Elements of the tort
The elements of the tort of injurious falsehood are:[181]
1.the defendant published a false statement about the plaintiff, his property or business;
2.the defendant published the statement to a third person;
3.the defendant published the false statement maliciously; and
4.the plaintiff suffered actual damage as a result of the statement.
[181] Palmer Bruyn & Parker Pty Ltd v Parsons [2001] HCA 69; (2001) 208 CLR 388 [1] (Gleeson CJ), [52] (Gummow J), [104] (Kirby J), [154] (Hayne J), [192] (Callinan J).
The burden of proof of each of these elements of the cause of action lies on the plaintiff.
Dr de Kauwe's pleaded case
Dr de Kauwe's case is that the ASX Announcements and the Letter to ASX were false statements of and concerning Dr de Kauwe's business, that is his conduct as a director of a listed public company and as a corporate advisor.
Dr de Kauwe pleads as follows. First, the defendants published the ASX Announcements and the Letter to ASX. Secondly, the defendants published the ASX Announcements and the Letter to ASX with malice in the circumstances pleaded and particularised in TASOC [56.10]. Thirdly, by reason of those publications, he has suffered economic loss as pleaded in his plea that he has suffered special damages in his defamation claim. Fourthly, that Dr de Kauwe would suffer economic loss was intended, alternatively the natural and ordinary consequence of publishing the ASX Announcements and the Letter to ASX. Fifthly, the defendants' conduct in publishing the ASX Announcements and the Letter to ASX was in contumelious disregard of Dr de Kauwe's rights and warrants an award of exemplary damages.
First ASX Announcement
Publication
In Australand Holdings Ltd v Transparency & Accountability Council Inc,[182] McCallum J observed that there does not seem to be any relevant distinction between the concept of publication for the purpose of defamation and for the purpose of injurious falsehood. Her Honour accepted that the proper approach is to consider whether the defendant participated in the publication of the matters complained of according to the test in Webb v Bloch. I will do the same.
[182] Australand Holdings Ltd v Transparency & Accountability Council Inc [2008] NSWSC 669 [98].
For the reasons I have stated, the First ASX Announcement was published on the ASX website and eSense website by all the defendants except Mr Wright.
The statements
Dr de Kauwe pleads that the First ASX Announcement was a false statement of and concerning Dr de Kauwe's business as a director of a listed public company and a corporate advisor. Dr de Kauwe pleads that the First ASX Announcement was false in that the imputation conveyed by the First ASX Announcement, as pleaded in TASOC [42], was false. The imputation pleaded is that Dr de Kauwe was a person whose conduct as a director of eSense was so lacking in propriety as to warrant an examination into his conduct by an independent company auditor.
Pleading issue
Counsel for Mr Pamensky submit that the TASOC does not identify statements in the matters complained of which are of and concerning Dr de Kauwe's business, but pleads instead that the matters complained of themselves were false statements. Counsel submit that Dr de Kauwe does not identify any statement in the matters complained of which is said to be false.
Dr de Kauwe has pleaded that the matters complained of are false statements in that the imputation, or meaning, conveyed by the First ASX Announcement is a false statement. I accept the submission in the written closing submissions of counsel for Mr Pamensky that a plaintiff must identify the statements alleged to be false; it is not sufficient to identify the publication containing the false statement. On a fair and proper reading, Dr de Kauwe's pleaded case is that the false statement in the First ASX Announcement is that Dr de Kauwe was a person whose conduct as a director of eSense was so lacking in propriety as to warrant an examination into his conduct by an independent company auditor.
Counsel for Mr Pamensky referred to Gacic v John Fairfax Publications Pty Ltd.[183] I agree with the statement in that case by James J that it might be possible to bring a claim in injurious falsehood, where the 'statement' relied on was not express but should be implied or inferred from what was said. Justice James further said that a statement can be the subject of a claim for injurious falsehood, only if it is capable of being true or false. That is a logical consequence of the requirement that a plaintiff prove the statement complained of to be false.
[183] Gacic v John Fairfax Publications Pty Ltd [2005] NSWSC 1210 [65].
Having chosen to plead his case that way, Dr de Kauwe must prove that the imputation pleaded at TASOC [42] is false. Where an imputation arises as a matter of inference from statements in the matter complained of, it may or may not be sufficient to prove the falsity of the statements from which the inference is drawn.
In an action for defamation, an imputation is not to be considered in a way that is divorced from its subject matter; an imputation must be understood in the context of the material alleged to give rise to the imputation, and the matter complained of may inform the meaning of the pleaded imputation.[184] Similarly, the statement alleged to be false in an action for injurious falsehood must be understood in the context of the publication said to convey the statement.
[184] Greek Herald Pty Ltd v Nikolopoulos [2002] NSWCA 41; (2001) 54 NSWLR165, 173.
Reference to the text of the First ASX Announcement does not give any more specificity to the imputation. The imputation arises from five statements in the announcement. First, the headline is that the company has appointed an independent examiner to investigate the conduct of Dr de Kauwe. Secondly, the announcement states that Dr de Kauwe was removed as chairman at a board meeting. Thirdly, the announcement states that at the board meeting, the board instigated an independent third‑party examiner to investigate 'the conduct of Dr de Kauwe in relation to the Company'. Fourthly, the announcement states that at the board meeting, directors raised 'concerns' about 'certain actions of Dr de Kauwe'. Fifthly, the announcement states that the investigation is expected to cover 'various aspects of Dr de Kauwe's conduct in relation to the Company'. It is the lack of specificity of the allegations against Dr de Kauwe in the announcement that gives rise to the imputation which attributes to Dr de Kauwe a condition at a high level of generality.
Having pleaded a false statement which attributes to Dr de Kauwe a condition at a high level of generality, Dr de Kauwe must prove the falsity of that generalised statement.
Falsity not proved
The defendants did not plead truth to that imputation in Dr de Kauwe's defamation claim. Dr de Kauwe did not need to prove the falsity of that imputation in his defamation claim. In Dr de Kauwe's claim in defamation, the imputation is assumed to be false. However, no such assumption applies for the purposes of injurious falsehood. Dr de Kauwe must prove, on the balance of probabilities, that that he was not a person whose conduct as a director of eSense was so lacking in propriety as to warrant an examination into his conduct by an independent company auditor.
The evidence does not establish that Dr de Kauwe was a person whose conduct as a director of eSense was so lacking in propriety as to warrant an examination into his conduct by an independent company auditor; but that does it establish that Dr de Kauwe was not such a person. The absence of proof of a matter does not prove the contrary.
Dr de Kauwe gave evidence about aspects of his conduct as a director of eSense in rebuttal of allegations against him. However, Dr de Kauwe did not take on the task of proving that the generalised statement - that his conduct as a director of eSense was so lacking in propriety as to warrant an examination into his conduct by an independent company auditor - was false. He simply did not lead evidence to prove the falsity of that generalised statement. Dr de Kauwe's claim fails.
Letter to ASX
Publication
For the reasons I have stated, the Letter to ASX was published by Mr Cohen to Mr Secrett, Mr Lewis and Mr Stevens.
Falsity
Dr de Kauwe pleads that the Letter to ASX was a false statement in that the imputations conveyed by the letter as pleaded in TASOC [46B] were false. The imputations pleaded are as follows:
(1)Dr de Kauwe, as a director of eSense, provided false and misleading information to a market regulator in order to obtain control of the company; and
(2)Dr de Kauwe, as a director of eSense, provided false and misleading information to a market regulator in order to cause harm to the company.
Dr de Kauwe has proved the falsity of those statements. As I have said, the statement alleged to be false in an action for injurious falsehood must be understood in the context of the publication said to convey the statement. The ASX Letter refers to 'a party related to the Company', which I have found is a reference to, and would have been understood by Mr Secrett to be, a reference to Dr de Kauwe, providing information about a position statement that the company plans on lodging with the ASX for publication. The letter further says that that party has given the ASX 'false and misleading information about such position statement'.
Dr de Kauwe did not give the ASX false and misleading information about the eSense position statement. On 18 March 2018, Dr de Kauwe's lawyers, Bennett + Co, sent an email to Mr Secrett and another ASX officer which attached a copy of a letter from Bennett + Co, on behalf of Dr de Kauwe, to the eSense board of directors. Neither the email, nor the attached letter, contains false and misleading information about the position statement.
Damage
The plaintiff must prove actual damage. The damage must be actual financial loss. Damage to reputation or injury to feelings is insufficient to support a cause of action for injurious falsehood.[185] Dr de Kauwe has not proved that he suffered any actual financial loss as a result of the publication of the ASX Letter to Mr Secrett, Mr Lewis, Mr Stevens or any officer or employee of the ASX.
[185] National Roads and Motorists Association Ltd v Construction, Forestry, Maritime, Mining and Energy Union [2019] FCA 1491; (2019) 291 IR 28 [206].
In support of his claim for economic loss for defamation, Dr de Kauwe claimed that he was not allowed by the ASX to be a director of Identitii Ltd and the court should infer that the ASX decision was a result of the defamatory publications made by the defendants of and concerning Dr de Kauwe. In the absence of any evidence from an officer or employee of the ASX of the reasons for not allowing Dr de Kauwe to be a director of Identitii Ltd, I declined to draw the inference.
There is no other evidence from which it is open to infer that Dr de Kauwe suffered any actual financial loss as a result of the publication of the ASX Letter or any publication defamatory of Dr de Kauwe to the ASX. Dr de Kauwe's claim for injurious falsehood in relation to the Letter to ASX fails.
Second ASX Announcement
Publication
The Second ASX Announcement was published on the ASX website and eSense website by all the defendants.
Falsity
Dr de Kauwe pleads that the false statements were contained in the Second ASX Announcement and that each of the imputations conveyed by the Second ASX Announcement as pleaded in TASOC [54], which reproduced TASOC [45], was false. The imputations pleaded are as follows:
(1)Dr de Kauwe was not a fit and proper person to hold office as a director of eSense as he acts in conflict with the company's interests;
(2)Dr de Kauwe was incompetent as a director of eSense;
(3)Dr de Kauwe was a blackmailer;
(4)Dr de Kauwe was an extortionist;
(5)by refusing to transfer company funds, exposed eSense to suit from third parties;
(6)Dr de Kauwe was a person whose conduct as a director of eSense was so lacking in propriety as to warrant an examination into his conduct by an independent company auditor; and
(7)Dr de Kauwe was a person whose conduct as a director of eSense was so lacking in propriety as to warrant his removal as chairman of eSense's board of directors.
In considering Dr de Kauwe's defamation claim, I found that the Second ASX Announcement conveys each of those imputations except imputation (2).
Imputations (1), (6), and (7) are general imputations. Dr de Kauwe has not proved the falsity of those statements for the same reasons he has not proved the imputation he pleads is conveyed by the First ASX Announcement to be a false statement for the purposes of the tort of injurious falsehood.
The defendants did not prove the truth of imputation (5). They did not seek to do so. The evidence does not establish that the imputation is true. However, an absence of evidence does not prove the contrary. The standard of proof on the balance of probabilities requires the court to reach a state of 'actual persuasion of the occurrence or existence of the fact in issue before it can be found'.[186] A mere mechanical comparison of probabilities independent of a reasonable satisfaction will not justify a finding of fact.[187] The plaintiff will not succeed merely by establishing that his or her case is more likely than the defendant's. The plaintiff must show that his or her case is more likely than not.[188]
[186] NOM v DPP [2012] VSCA 198; (2012) 38 VR 618 [124]; Seltsam Pty Ltd v McGuiness [2000] NSWCA 29; (2000) 49 NSWLR 262 [136] (Spigelman CJ).
[187] NOM v DPP [2012] VSCA 198; (2012) 38 VR 61 [124]; see also Brown v New South Wales Trustee and Guardian [2012] NSWCA 431; (2012) 10 ASTLR 164.
[188] Jackson v Lithgow City Council [2008] NSWCA 312 [9] - [10] (Allsop P); Carney v Newton [2006] TASSC 4 [52].
The issue was not explored sufficiently at trial for me to be satisfied that the imputation has been proved to be false on the balance of probabilities.
Imputations (3) and (4) are more specific. The text of the Second ASX Announcement states the primary allegations which convey the meaning that Dr de Kauwe is a blackmailer and an extortionist. First, he demanded unreasonable and disproportionate remuneration as chairman and for Otsana as brokers, and when the board declined his unreasonable demands, he refused to act in accordance with legally binding instructions from the board and refused to transfer funds from eSense's Australian bank account to enable it to conduct its ongoing business activities. Dr de Kauwe has proved that allegation is false. The falsity is proved by the following matters.
First, the question of Dr de Kauwe's remuneration as chairman and fees for Otsana had been resolved, or at least were no longer the subject of dispute, before Dr de Kauwe refused to change the authorised signatories to the NAB bank account in accordance with the signatory rights resolution. Secondly, Dr de Kauwe's stated reason for refusing to comply with the signatory rights resolution was because he considered the resolution had not been validly passed at the board meeting. Thirdly, Dr de Kauwe did not expressly or impliedly condition complying with the signatory rights resolution on receiving increased remuneration as chairman or increased fees for Otsana.
The second allegation of blackmail and extortion by Dr de Kauwe alleged in the Second ASX Announcement is that Dr de Kauwe exerted great pressure to postpone the AGM because the company did not agree to the remuneration that he demanded. Dr de Kauwe has proved that allegation is false. The evidence is that Dr de Kauwe did not exert any pressure to postpone any AGM.
The AGM scheduled to be held on 29 November 2017 was rescheduled to 29 December 2017 so that shareholder approval of the strategic investor options and lead manager options could be considered at the AGM, to avoid the burden and expense of holding two shareholder meetings within a short time. That decision was made unanimously by the board. There is no evidence that it had anything to do with remuneration to Dr de Kauwe or fees to Otsana; Dr de Kauwe did not exert any pressure to postpone the subsequently scheduled AGM dates. To the contrary, the board resolved to postpone the AGM against opposition from Dr de Kauwe.
The third allegation of blackmail and extortion by Dr de Kauwe alleged in the Second ASX Announcement is that, after realising that the company would not be pressured into its unreasonable demands, Otsana and Dr de Kauwe set the company an ultimatum, threatening to cancel the planned capital raising activities and forcing the company to agree to their terms. The evidence is that the demands were made by Mr Ismail, not by Dr de Kauwe. The demands were made by Mr Ismail sending to Mr Cohen a revised mandate agreement; after Mr Cohen emailed Mr Ismail that eSense did not have the revenue to increase the salaries or fees, Mr Ismail replied maintaining Otsana's position and saying that Otsana would postpone the next round of capital raising until the issues had been resolved. Mr Cohen then signed a mandate agreement which provided for a compromise consideration. That is not blackmail or extortion.
Malice
Impropriety of purpose is the essence of malice.[189] However, care must be taken when drawing comparisons with the principles applicable in the law of defamation. Where malice is alleged to defeat a defence of qualified privilege in a defamation case, the propriety of the defendant's purpose in publishing the matter complained of is measured by reference to its relevance to the privileged occasion. The existence of a sole or dominant purpose irrelevant to the occasion amounts to malice. The parameters of impropriety of purpose in the context of the tort of injurious falsehood are more elusive.[190]
[189] Australand Holdings Ltd v Transparency & Accountability Council Inc [2008] NSWSC 669 [156] (McCallum J).
[190] Australand Holdings Ltd v Transparency & Accountability Council Inc [2008] NSWSC 669 [156] (McCallum J).
Nevertheless, it is often difficult to distinguish malice for the purposes of defamation from malice for the purposes of the tort of injurious falsehood. In AMI Australia Holdings Pty Ltd v Fairfax Media Publications Pty Ltd, Brereton J referred to malice in relation to the two torts:[191]
Again unlike in defamation, in injurious falsehood malice is also an essential element of the cause of action, to be proved by the plaintiff. While the notion of 'malice' in the context of this tort is not easy to define, it is a question of motive, intention or state of mind and it involves the use of an occasion for some indirect purpose or indirect motive such as to cause injury to another person. The English Court of Appeal has said that the criteria for malice in injurious falsehood are the same as at common law for libel and slander. Its content has been variously described as 'an intent to injure another without just cause or excuse' or 'some indirect, dishonest or improper motive', or 'a purpose or motive that is foreign to the occasion and actuates the making of the statement'. It involves that the statement was made mala fide or with a lack of good faith. In this context, while a person who acts in good faith is not liable, malice may exist without an actual intention to injure.
As motive must often be inferred from what the defendant did or said or knew, malice is commonly proved by inference. Malice may be inferred from the 'grossness and falsity of the assertions and the cavalier way in which they were expressed'. Proof that the defendant knew that a statement was untrue is ordinarily conclusive evidence that its publication was actuated by an improper motive. On the other hand, mere lack of affirmative belief in truth is insufficient of itself to establish malice. But malice can be inferred not only where the false publication was made with knowledge of its falsity, but also where it was made with reckless indifference as to whether it was true or false [31] - [32].
[191] AMI Australia Holdings Pty Ltd v Fairfax Media Publications Pty Ltd [2010] NSWSC 1395.
For the reasons I stated in finding, for the purposes of Dr de Kauwe's defamation claim, that the defendants published of the Second ASX Announcement with malice, I find, for the purpose of Dr de Kauwe's injurious falsehood claim, that they published the Second ASX Announcement maliciously.
Damage
I find that the defendants' publication of the Second ASX Announcement caused or materially contributed to actual damage to pecuniary loss suffered by Dr de Kauwe in the form of loss of director's fees as a director of eSense and Race Oncology, for the reasons I have stated when considering Dr de Kauwe's defamation claim.
It is unnecessary to consider the quantum of those damages because Dr de Kauwe accepts that he cannot recover twice the amount of those damages. However, Dr de Kauwe submits that he is entitled to recover exemplary damages for injurious falsehood.
Exemplary damages
Exemplary damages are a discretionary remedy. In Gray v Motor Accident Commission, the plurality of the High Court said that it is a remedy rarely awarded:[192]
Exemplary damages are awarded rarely. They recognise and punish fault, but not every finding of fault warrants their award. Something more must be found. Although they are awarded rarely, they have been awarded in very different kinds of cases: ranging from abuse of governmental power exemplified by Wilkes v Wood and its associated cases, through defamation cases of the kind considered in Uren, to assault cases such as Fontin v Katapodis.
[192] Gray v Motor Accident Commission [1998] HCA 70; (1998) 196 CLR 1 [10] (Gleeson CJ, McHugh, Gummow & Hayne JJ).
Exemplary damages are unrelated to the plaintiff's loss. In Gray v Motor Accident Commission, Kirby J said that exemplary damages provide a means for the court to express its disapproval, not only to the tortfeasor, but to the world. It is available, according to the plurality, where an employer persisted in using an unsafe system of work when the employer knew the system posed 'extreme danger' and thus it acts as a deterrence to all and sundry and gives the plaintiff a few more dollars as appeasement. However, exemplary damages are an exceptional remedy, imposed for conduct which shocks the court representing the community.
In Lamb v Cotogno,[193] a case involving trespass to the person, the High Court held that damages may be awarded where the defendant's conduct is malicious, contumelious, or insolent.
[193] Lamb v Cotogno [1987] HCA 47; (1987) 164 CLR 1.
The expression adopted by Knox CJ in Whitfield v De'Lauret & Co Ltd[194] was that exemplary damages may be awarded when there is a 'conscious wrongdoing and contumelious disregard of another's rights'. The plurality in Gray v Motor Accident Commission also used the expression 'contumelious disregard'. That reflects that an element of conscious wrongdoing is required; as such, the court looks to the subjective state of mind of the defendant.
[194] Whitfield v De'Lauret & Co Ltd [1920] HCA 78; (1920) 29 CLR 71.
The purpose of exemplary damages is punishment and deterrence; it is not to compensate the plaintiff for the loss he has suffered. Exemplary damages punish fault, but as the plurality explained in Gray v Motor Accident Commission, not every finding of fault warrants exemplary damages. Something more must be found.
Before exemplary damages in defamation were abolished by statute, exemplary damages may have been awarded against a publisher who knowingly or recklessly published defamatory material in the hope or expectation of material gain.
In Lamb v Cotogno, the driver of a car caused serious injury to the plaintiff after an argument during which the plaintiff provocatively threw himself onto the bonnet of the car. His injuries were sustained when the car was so driven as to cause him to be thrown to the ground. The plaintiff recovered exemplary damages. In a joint judgement, the members of the High Court referred to the finding of the Master that the defendant had behaved in a humiliating manner and in wanton disregard of the plaintiff's welfare and had described the whole incident as 'horrendous'.
I do not find in the defendants' conduct something more warranting punishment. I do not find that an award of exemplary damages is necessary as a deterrent. I decline to award exemplary damages.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
BR
Associate to the Honourable Justice Le Miere
9 FEBRUARY 2022
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