Discovery Africa Limited v Nichol
[2014] FCA 482
•16 April 2014
FEDERAL COURT OF AUSTRALIA
Discovery Africa Limited v Nichol [2014] FCA 482
Citation: Discovery Africa Limited v Nichol [2014] FCA 482 Parties: DISCOVERY AFRICA LIMITED v KEVIN WILLIAM NICHOL, DANIE VAN DEN BERGH and SINDISE MINING LTD File number: WAD 87 of 2014 Judge: GILMOUR J Date of judgment: 16 April 2014 Catchwords: PRACTICE AND PROCEDURE – freezing orders – whether or not prima facie case sufficiently made out – whether or not the balance of convenience favours the making of orders – service out of the jurisdiction – proceedings claim damages with respect to contravention of the Corporations Act 2001 (Cth) which occurred in Australia Legislation: Corporations Act 2001 (Cth) ss 181, 182
Federal Court Rules 2011 (Cth) rr 10.42, 10.43Date of hearing: 16 April 2014 Place: Perth Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 25 Counsel for the Applicant: Mr J M Healy Solicitor for the Applicant: Nova Legal
IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION
WAD 87 of 2014
BETWEEN: DISCOVERY AFRICA LIMITED
ApplicantAND: KEVIN WILLIAM NICHOL
First RespondentDANIE VAN DEN BERGH
Second RespondentSINDISE MINING LTD
Third Respondent
JUDGE:
GILMOUR J
DATE OF ORDER:
16 APRIL 2014
WHERE MADE:
PERTH
THE COURT ORDERS THAT:
1.Pursuant to r 10.43 of the Federal Court Rules 2011 (Cth), leave be granted to serve the originating application and the respective freezing order:
(a)on the first respondent in Singapore, in accordance with the Supreme Court of Judicature Act (Singapore) and Order 65 of the Rules of Court prescribed thereunder; and
(b)on the second respondent in South Africa, in accordance with Rule 4 of the Uniform Rules of Court.
Note:Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
PENAL NOTICE
TO: KEVIN WILLIAM NICHOL
IF YOU:
(A) REFUSE OR NEGLECT TO DO ANY ACT WITHIN THE TIME SPECIFIED IN THIS ORDER FOR THE DOING OF THE ACT; OR
(B) DISOBEY THE ORDER BY DOING AN ACT WHICH THE ORDER REQUIRES YOU TO ABSTAIN FROM DOING,
YOU WILL BE LIABLE TO IMPRISONMENT, SEQUESTRATION OF PROPERTY OR OTHER PUNISHMENT.
ANY OTHER PERSON WHO KNOWS OF THIS ORDER AND DOES ANYTHING WHICH HELPS OR PERMITS YOU TO BREACH THE TERMS OF THIS ORDER MAY BE SIMILARLY PUNISHED.
TO: Kevin William Nichol
This is a ʹfreezing orderʹ made against you on 16 April 2014 by Justice Gilmour at a hearing without notice to you after the Court was given the undertakings set out in Part A to this order and after the Court read the affidavits listed in Part B to this order.
THE COURT ORDERS:
INTRODUCTION
1.The application for this order is made returnable immediately.
2.Subject to the next paragraph, this order has effect up to and including 4:00 pm on 1 May 2014 (the Return Date). On the Return Date at 2:15 pm there will be a further hearing in respect of this order before Justice Gilmour.
3.Anyone served with or notified of this order, including you, may apply to the Court at any time to vary or discharge this order or so much of it as affects the person served or notified.
4.In this order:
(a)ʹapplicantʹ, if there is more than one applicant, includes all the applicants;
(b)ʹyouʹ, where there is more than one of you, includes all of you and includes you if you are a corporation;
(c)ʹthird partyʹ means a person other than you and the applicant;
(d)ʹunencumbered valueʹ means value free of mortgages, charges, liens or other encumbrances.
5.In this order:
(a)If you are ordered to do something, you must do it by yourself or through directors, officers, partners, employees, agents or others acting on your behalf or on your instructions.
(b)If you are ordered not to do something, you must not do it yourself or through directors, officers, partners, employees, agents or others acting on your behalf or on your instructions or with your encouragement or in any other way.
FREEZING OF ASSETS
6.For the purposes of this order:
(a)You must not remove from Australia or in any way dispose of, deal with or diminish the value of any of your assets in Australia (Australian assets) up to the unencumbered value of AUD $300,000 (the Relevant Amount).
(b)If the unencumbered value of your Australian assets exceeds the Relevant Amount, you may remove any of those assets from Australia or dispose of or deal with them or diminish their value, so long as the total unencumbered value of your Australian assets still exceeds the Relevant Amount.
(c)If the unencumbered value of your Australian assets is less than the Relevant Amount:
(i)You must not dispose of, deal with or diminish the value of any of your Australian assets and ex-Australian assets up to the unencumbered value of your Australian and ex-Australian assets of the Relevant Amount; and
(ii)You may dispose of, deal with or diminish the value of any of your ex-Australian assets, so long as the unencumbered value of your Australian assets and ex-Australian assets still exceeds the Relevant Amount.
7.For the purposes of this order,
(a)your assets include:
(i)all your assets, whether or not they are in your name and whether they are solely or co‐owned;
(ii)any asset which you have the power, directly or indirectly, to dispose of or deal with as if it were your own (you are to be regarded as having such power if a third party holds or controls the asset in accordance with your direct or indirect instructions); and
(iii)the following assets in particular:
(A)your shares held in Australian Securities Exchange Limited listed company Discovery Africa Limited; and
(B)any shares you hold in Australian Securities Exchange Limited listed company Argosy Minerals Limited.
(b)the value of your assets is the value of the interest you have individually in your assets.
PROVISION OF INFORMATION
8.Subject to paragraph 9, you must:
(a)at or before the further hearing on the Return Date (or within such further time as the Court may allow) to the best of your ability inform the applicant in writing of all your assets world-wide, giving their value, location and details (including any mortgages, charges or other encumbrances to which they are subject) and the extent of your interest in the assets;
(b)within 15 working days after being served with this order, swear and serve on the applicant an affidavit setting out the above information.
9.For the purposes of this order:
(a)This paragraph 9 applies if you are not a corporation and you wish to object that compliance with paragraph 8 on the ground that some or all of the information may tend to prove that you:
(i)have committed an offence against or arising under an Australian law or a law of a foreign country; or
(ii)are liable to a civil penalty.
(b)This paragraph 9 also applies if you are a corporation and all of the persons who are able to comply with paragraph 8 on your behalf and with whom you have been able to communicate, wish to object to your complying with paragraph 8 on the grounds that some or all of the information required to be disclosed may tend to prove that they respectively:
(i)have committed an offence against or arising under an Australian law or a law of a foreign country; or
(ii)are liable to a civil penalty.
(c)You must, at or before the further hearing on the Return Date (or within such further time as the Court may allow), notify the applicant in writing that you or all the persons referred to in 9(b) wish to take such objection and identify the extent of the objection.
(d)If you give such notice, you need comply with paragraph 8 only to the extent, if any, that it is possible to do so without disclosure of the material in respect of which the objection is taken, and deliver it to the Court in a sealed envelope.
(e)If you give such notice, the Court may give directions as to the filing and service of affidavits setting out such matters as you or the persons referred to in 9(b) wish to place before the Court in support of the objection.
EXCEPTIONS TO THIS ORDER
10.This order does not prohibit you from:
(a)paying $20,000 of your reasonable legal expenses;
(b)dealing with or disposing of any of your assets in the ordinary and proper course of your business, including paying business expenses bona fide and properly incurred; and
(c)in relation to matters not falling within 10(a) or 10(b), dealing with or disposing of any of your assets in discharging obligations bona fide and properly incurred under a contract entered into before this order was made, provided that before doing so you give the applicant, if possible, at least two working days written notice of the particulars of the obligation.
11.You and the applicant may agree in writing that the exceptions in the preceding paragraph are to be varied. In that case the applicant or you must as soon as practicable file with the Court and serve on the other a minute of a proposed consent order recording the variation signed by or on behalf of the applicant and you, and the Court may order that the exceptions are varied accordingly.
12.For the purposes of this order:
(a) This order will cease to have effect if you:
(i)pay the sum of AUD $300,000 into Court; or
(ii)pay that sum into a joint bank account in the name of your solicitor and the solicitor for the applicant as agreed in writing between them; or
(iii)provide security in that sum by a method agreed in writing with the applicant to be held subject to the order of the Court.
(b)Any such payment and any such security will not provide the applicant with any priority over your other creditors in the event of your insolvency.
(c)If this order ceases to have effect pursuant 12(a), you must as soon as practicable file with the Court and serve on the applicant notice of that fact.
COSTS
13.The costs of this application are reserved to the Judge hearing the application on the Return Date.
PERSONS OTHER THAN THE APPLICANT AND RESPONDENT
14.Set off by banks
This order does not prevent any bank from exercising any right of set off it has in respect of any facility which it gave you before it was notified of this order.
15.Persons outside Australia
(a)Except as provided in paragraph 15(b) below, the terms of this order do not affect or concern anyone outside Australia.
(b)The terms of this order will affect the following persons outside Australia:
(i)you and your directors, officers, employees and agents (except banks and financial institutions);
(ii)any person (including a bank or financial institution) who:
(A)is subject to the jurisdiction of this Court; and
(B)has been given written notice of this order, or has actual knowledge of the substance of the order and of its requirements; and
(C)is able to prevent or impede acts or omissions outside Australia which constitute or assist in a disobedience breach of the terms of this order; and
(iii)any other person (including a bank or financial institution), only to the extent that this order is declared enforceable by or is enforced by a court in a country or state that has jurisdiction over that person or over any of that personʹs assets.
16.Assets located outside Australia
Nothing in this order shall, in respect of assets located outside Australia, prevent any third party from complying or acting in conformity with what it reasonably believes to be its bona fide and properly incurred legal obligations, whether contractual or pursuant to a court order or otherwise, under the law of the country or state in which those assets are situated or under the proper law of any contract between a third party and you, provided that in the case of any future order of a court of that country or state made on your or the third party’s application, reasonable written notice of the making of the application is given to the applicant.
PART A
UNDERTAKINGS GIVEN TO THE COURT BY THE APPLICANT
1.The applicant undertakes to submit to such order (if any) as the Court may consider to be just for the payment of compensation (to be assessed by the Court or as it may direct) to any person (whether or not a party) affected by the operation of the order.
2.As soon as practicable, the applicant will file and serve upon the respondent copies of:
(a)this order;
(b)the application for this order for hearing on the Return Date;
(c)the following material in so far as it was relied on by the applicant at the hearing when the order was made:
(i) affidavits (or draft affidavits);
(ii) exhibits capable of being copied;
(iii) any written submission; and
(iv) any other document that was provided to the Court.
(d)a transcript, or, if none is available, a note, of any exclusively oral allegation of fact that was made and of any exclusively oral submission that was put, to the Court;
(e)the originating process, or, if none was filed, any draft originating process produced to the Court.
3.As soon as practicable, the applicant will cause anyone notified of this order to be given a copy of it.
4.The applicant will pay the reasonable costs of anyone other than the respondent which have been incurred as a result of this order, including the costs of finding out whether that person holds any of the respondent’s assets.
5.If this order ceases to have effect the applicant will promptly take all reasonable steps to inform in writing anyone who has been notified of this order, or who he has reasonable grounds for supposing may act upon this order, that it has ceased to have effect.
6.The applicant will not, without leave of the Court, use any information obtained as a result of this order for the purpose of any civil or criminal proceedings, either in or outside Australia, other than this proceeding.
7.The applicant will not, without leave of the Court, seek to enforce this order in any country outside Australia or seek in any country outside Australia an order of a similar nature or an order conferring a charge or other security against the respondent or the respondent’s assets.
PART B
AFFIDAVITS RELIED ON
Document number
Details
Pages
1 Affidavit of Peter Hugh Lloyd sworn on 15 April 2014 10
PENAL NOTICE
TO: DANIE VAN DEN BERGH
IF YOU:
(A) REFUSE OR NEGLECT TO DO ANY ACT WITHIN THE TIME SPECIFIED IN THIS ORDER FOR THE DOING OF THE ACT; OR
(B) DISOBEY THE ORDER BY DOING AN ACT WHICH THE ORDER REQUIRES YOU TO ABSTAIN FROM DOING,
YOU WILL BE LIABLE TO IMPRISONMENT, SEQUESTRATION OF PROPERTY OR OTHER PUNISHMENT.
ANY OTHER PERSON WHO KNOWS OF THIS ORDER AND DOES ANYTHING WHICH HELPS OR PERMITS YOU TO BREACH THE TERMS OF THIS ORDER MAY BE SIMILARLY PUNISHED.
TO: Danie van den Bergh
This is a ʹfreezing orderʹ made against you on 16 April 2014 by Justice Gilmour at a hearing without notice to you after the Court was given the undertakings set out in Part A to this order and after the Court read the affidavits listed in Part B to this order.
THE COURT ORDERS:
INTRODUCTION
1.The application for this order is made returnable immediately.
2.Subject to the next paragraph, this order has effect up to and including 4:00 pm on 1 May 2014 (the Return Date). On the Return Date at 2:15 pm there will be a further hearing in respect of this order before Justice Gilmour.
3.Anyone served with or notified of this order, including you, may apply to the Court at any time to vary or discharge this order or so much of it as affects the person served or notified.
4.In this order:
(a)ʹapplicantʹ, if there is more than one applicant, includes all the applicants;
(b)ʹyouʹ, where there is more than one of you, includes all of you and includes you if you are a corporation;
(c)ʹthird partyʹ means a person other than you and the applicant;
(d)ʹunencumbered valueʹ means value free of mortgages, charges, liens or other encumbrances.
5.In this order:
(a)If you are ordered to do something, you must do it by yourself or through directors, officers, partners, employees, agents or others acting on your behalf or on your instructions.
(b)If you are ordered not to do something, you must not do it yourself or through directors, officers, partners, employees, agents or others acting on your behalf or on your instructions or with your encouragement or in any other way.
FREEZING OF ASSETS
6.For the purposes of this order:
(a)You must not remove from Australia or in any way dispose of, deal with or diminish the value of any of your assets in Australia (Australian assets) up to the unencumbered value of AUD $200,000 (the Relevant Amount).
(b)If the unencumbered value of your Australian assets exceeds the Relevant Amount, you may remove any of those assets from Australia or dispose of or deal with them or diminish their value, so long as the total unencumbered value of your Australian assets still exceeds the Relevant Amount.
(c)If the unencumbered value of your Australian assets is less than the Relevant Amount:
(i)You must not dispose of, deal with or diminish the value of any of your Australian assets and ex-Australian assets up to the unencumbered value of your Australian and ex-Australian assets of the Relevant Amount; and
(ii)You may dispose of, deal with or diminish the value of any of your ex-Australian assets, so long as the unencumbered value of your Australian assets and ex-Australian assets still exceeds the Relevant Amount.
7.For the purposes of this order,
(a)your assets include:
(i)all your assets, whether or not they are in your name and whether they are solely or co‐owned;
(ii)any asset which you have the power, directly or indirectly, to dispose of or deal with as if it were your own (you are to be regarded as having such power if a third party holds or controls the asset in accordance with your direct or indirect instructions); and
(iii)the following assets in particular:
(A)your shares held in Australian Securities Exchange Limited listed company Discovery Africa Limited; and
(B)any shares you hold in Australian Securities Exchange Limited listed company Argosy Minerals Limited; and
(C)any money in account in the name of Danie van den Bergh BSB 063 050 Account Number 10079901 at Commonwealth Bank of Australia, Shop 27, The Gateway Shopping Village, 230 Frankston Cranbourne Road, Langwarrin, Victoria.
(b)the value of your assets is the value of the interest you have individually in your assets.
PROVISION OF INFORMATION
8.Subject to paragraph 9, you must:
(a)at or before the further hearing on the Return Date (or within such further time as the Court may allow) to the best of your ability inform the applicant in writing of all your assets world-wide, giving their value, location and details (including any mortgages, charges or other encumbrances to which they are subject) and the extent of your interest in the assets;
(b)within 15 working days after being served with this order, swear and serve on the applicant an affidavit setting out the above information.
9.For the purposes of this order:
(a)This paragraph 9 applies if you are not a corporation and you wish to object that compliance with paragraph 8 on the ground that some or all of the information may tend to prove that you:
(i)have committed an offence against or arising under an Australian law or a law of a foreign country; or
(ii)are liable to a civil penalty.
(b)This paragraph 9 also applies if you are a corporation and all of the persons who are able to comply with paragraph 8 on your behalf and with whom you have been able to communicate, wish to object to your complying with paragraph 8 on the grounds that some or all of the information required to be disclosed may tend to prove that they respectively:
(i)have committed an offence against or arising under an Australian law or a law of a foreign country; or
(ii)are liable to a civil penalty.
(c)You must, at or before the further hearing on the Return Date (or within such further time as the Court may allow), notify the applicant in writing that you or all the persons referred to in 9(b) wish to take such objection and identify the extent of the objection.
(d)If you give such notice, you need comply with paragraph 8 only to the extent, if any, that it is possible to do so without disclosure of the material in respect of which the objection is taken, and deliver it to the Court in a sealed envelope.
(e)If you give such notice, the Court may give directions as to the filing and service of affidavits setting out such matters as you or the persons referred to in 9(b) wish to place before the Court in support of the objection.
EXCEPTIONS TO THIS ORDER
10.This order does not prohibit you from:
(a)paying $20,000 of your reasonable legal expenses;
(b)dealing with or disposing of any of your assets in the ordinary and proper course of your business, including paying business expenses bona fide and properly incurred; and
(c)in relation to matters not falling within 10(a) or 10(b), dealing with or disposing of any of your assets in discharging obligations bona fide and properly incurred under a contract entered into before this order was made, provided that before doing so you give the applicant, if possible, at least two working days written notice of the particulars of the obligation.
11.You and the applicant may agree in writing that the exceptions in the preceding paragraph are to be varied. In that case the applicant or you must as soon as practicable file with the Court and serve on the other a minute of a proposed consent order recording the variation signed by or on behalf of the applicant and you, and the Court may order that the exceptions are varied accordingly.
12.For the purposes of this order:
(a) This order will cease to have effect if you:
(i)pay the sum of AUD $200,000 into Court; or
(ii)pay that sum into a joint bank account in the name of your solicitor and the solicitor for the applicant as agreed in writing between them; or
(iii)provide security in that sum by a method agreed in writing with the applicant to be held subject to the order of the Court.
(b)Any such payment and any such security will not provide the applicant with any priority over your other creditors in the event of your insolvency.
(c)If this order ceases to have effect pursuant 12(a), you must as soon as practicable file with the Court and serve on the applicant notice of that fact.
COSTS
13.The costs of this application are reserved to the Judge hearing the application on the Return Date.
PERSONS OTHER THAN THE APPLICANT AND RESPONDENT
14.Set off by banks
This order does not prevent any bank from exercising any right of set off it has in respect of any facility which it gave you before it was notified of this order.
15.Bank withdrawals by the respondent
(a)No bank need inquire as to the application or proposed application of any money withdrawn by you if the withdrawal appears to be permitted by this order.
(b)The Commonwealth Bank of Australia shall ensure that the account identified in paragraph 7(a)(iii)C, has a holding lock placed over it such that funds in that account are not reduced below $200,000 less $20,000 for reasonable legal costs, or if that account contains less than $200,000 a holding lock placed over such funds so that only $20,000 can be removed for reasonable legal costs.
16.Persons outside Australia
(a)Except as provided in paragraph 15(b) below, the terms of this order do not affect or concern anyone outside Australia.
(b)The terms of this order will affect the following persons outside Australia:
(i)you and your directors, officers, employees and agents (except banks and financial institutions);
(ii)any person (including a bank or financial institution) who:
(A)is subject to the jurisdiction of this Court; and
(B)has been given written notice of this order, or has actual knowledge of the substance of the order and of its requirements; and
(C)is able to prevent or impede acts or omissions outside Australia which constitute or assist in a disobedience breach of the terms of this order; and
(iii)any other person (including a bank or financial institution), only to the extent that this order is declared enforceable by or is enforced by a court in a country or state that has jurisdiction over that person or over any of that personʹs assets.
17.Assets located outside Australia
Nothing in this order shall, in respect of assets located outside Australia, prevent any third party from complying or acting in conformity with what it reasonably believes to be its bona fide and properly incurred legal obligations, whether contractual or pursuant to a court order or otherwise, under the law of the country or state in which those assets are situated or under the proper law of any contract between a third party and you, provided that in the case of any future order of a court of that country or state made on your or the third party’s application, reasonable written notice of the making of the application is given to the applicant.
PART A
UNDERTAKINGS GIVEN TO THE COURT BY THE APPLICANT
1.The applicant undertakes to submit to such order (if any) as the Court may consider to be just for the payment of compensation (to be assessed by the Court or as it may direct) to any person (whether or not a party) affected by the operation of the order.
2.As soon as practicable, the applicant will file and serve upon the respondent copies of:
(a) this order;
(b)the application for this order for hearing on the Return Date;
(c)the following material in so far as it was relied on by the applicant at the hearing when the order was made:
(i)affidavits (or draft affidavits);
(ii)exhibits capable of being copied;
(iii)any written submission; and
(iv)any other document that was provided to the Court.
(d)a transcript, or, if none is available, a note, of any exclusively oral allegation of fact that was made and of any exclusively oral submission that was put, to the Court;
(e)the originating process, or, if none was filed, any draft originating process produced to the Court.
3.As soon as practicable, the applicant will cause anyone notified of this order to be given a copy of it.
4.The applicant will pay the reasonable costs of anyone other than the respondent which have been incurred as a result of this order, including the costs of finding out whether that person holds any of the respondent’s assets.
5.If this order ceases to have effect the applicant will promptly take all reasonable steps to inform in writing anyone who has been notified of this order, or who he has reasonable grounds for supposing may act upon this order, that it has ceased to have effect.
6.The applicant will not, without leave of the Court, use any information obtained as a result of this order for the purpose of any civil or criminal proceedings, either in or outside Australia, other than this proceeding.
7.The applicant will not, without leave of the Court, seek to enforce this order in any country outside Australia or seek in any country outside Australia an order of a similar nature or an order conferring a charge or other security against the respondent or the respondent’s assets.
PART B
AFFIDAVITS RELIED ON
Document number
Details
Pages
1 Affidavit of Peter Hugh Lloyd sworn on 15 April 2014 10
IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION
WAD 87 of 2014
BETWEEN: DISCOVERY AFRICA LIMITED
ApplicantAND: KEVIN WILLIAM NICHOL
First RespondentDANIE VAN DEN BERGH
Second RespondentSINDISE MINING LTD
Third Respondent
JUDGE:
GILMOUR J
DATE:
16 APRIL 2014
PLACE:
PERTH
REASONS FOR JUDGMENT
I made freezing orders in this matter on 16 April 2014 and at that time gave ex tempore reasons. These are those reasons, edited, but not so as to alter the substance.
This is an application by Discovery Africa Limited (Discovery Africa) as against Kevin William Nichol, the first respondent, and Danie van den Bergh as the second respondent. The application is for interim interlocutory relief in the form of a freezing order together with orders for service of the papers out of the jurisdiction. A minute of proposed freezing orders has been provided with the papers.
The application is supported by affidavits of Peter Hugh Lloyd, sworn 15 April 2014, and Raffaele Carmine Di Renzo, sworn 16 April 2014.
The applicant requires to establish an arguable case that judgment against the respondents would be obtained as well as putting before the Court real evidence that, should the Court decline to make the order sought, there will be a real risk that judgment, should it be given in Discovery Africa’s favour, would be unsatisfied. Additionally, the Court requires to consider whether the balance of convenience favours the making of such an order.
The object of Discovery Africa in seeking the protection of this order is, for that purpose, to ensure that any final judgment is not stultified in the sense that the assets, such as they may be, of the respondents respectively, are not dissipated.
The background to this dispute is as follows, although I will not, for present purposes, go into every last relevant matter but only sufficiently to dispose of the interim application.
In July of last year Discovery Africa announced a friendly off-market takeover of Argosy Minerals Limited (Argosy Minerals). That bid closed on 12 December 2013 and Discovery Africa acquired nearly 90 per cent of Argosy Minerals’ shares. Mr Peter Lloyd had been a director of Argosy Minerals although, on 3 October 2013, he retired from that office.
On 13 February this year Mr Lloyd requisitioned a shareholders meeting of Discovery Africa seeking resolutions to remove Mr van den Bergh, Mr Nichol and Mr Ian Lovett as directors and to have them replaced by Mr Lloyd himself, Mr Graham Walker and Mr Frank Knezovic. On 6 March 2014 Discovery Africa provided shareholders with a notice of meeting with respect to the requisitioned shareholders meeting.
On 20 March 2014 Discovery Africa commenced proceedings seeking orders to preclude the holding of the Discovery Africa shareholders meeting. It requires to be understood that, relevantly, Mr van den Bergh and Mr Nichol were then amongst the board of directors which had the oversight of the affairs of Discovery Africa. This application came on for hearing before Gordon J in the Victorian Registry of this Court and on 2 April her Honour dismissed the application for injunctive relief.
Seven days later, on 9 April, Mr van den Bergh and Mr Nichol, as well as Mr Lovett, resigned as directors of Discovery Africa and the following day, 10 April 2014, Mr Lloyd, Mr Walker and Mr Knezovic were appointed as directors to the company.
In the period between the requisitioning of the shareholders meeting and 9 April 2014, two significant purchase transactions were entered into by Discovery Africa. It is not presently necessary to describe these in detail. They are merely part of the overall factual matrix concerning financial transactions to which the then board of Discovery Africa committed the company.
Over the weekend of 12 and 13 April 2014, the new directors made investigations with respect to certain amounts of money which had been expended by Discovery Africa in the period between 1 and 9 April, including payments to the following:
1. Mr Nichol - $319,746.73;
2. Mr van den Bergh - $203,120.18;
3. Westoria Capital Pty Ltd - $51,736.65; and
4. Geotech Airborne Limited - $127,766.06.
In January 2013, Mr Nichol had entered into an employment agreement with Baru Resources Pte Ltd, which is a wholly owned subsidiary of Discovery Africa. He also concluded a consultancy agreement with Discovery Africa, although under its former name Baru Resources Limited, and Baru Resources Pte Ltd. By that agreement, Baru Resources Pte Ltd agreed to provide the services of Mr Nichol to Discovery Africa. He also entered into a deed of release with Discovery Africa and Baru Resources Pte Ltd on 9 April 2014 providing full release with respect to all claims against him by Discovery Africa. Mr van den Bergh, over the same period, entered into similar agreements including, significantly, a deed of release which he executed with Discovery Africa and Baru Resources Pte Ltd, again on 9 April 2014, providing a full release to him with respect to all claims as against him by Discovery Africa.
The applicant has, in its originating application, alleged breaches of fiduciary and statutory duties on the part of Mr Nichol and also Mr van den Bergh in their capacity as then directors of Discovery Africa. Apart from duties which arise in equity or at common law, they assert breaches of the statutory obligations found in ss 181 and 182 of the Corporations Act 2001 (Cth).
A number of matters may be observed concerning the transactions to which I have referred, particularly those which occurred in the week prior to the resignation of Mr Nichol and Mr van den Bergh as directors of the company. The first is that resignation by each of them as directors was a pre-condition to any entitlement to them receiving termination payments. Accordingly, at the time that the termination payments were made neither, on the face of it, were authorised or entitled to cause the company to make payments to them in that respect.
Moreover, by virtue of cl 2.2 of Mr Nichol’s employment agreement and cl 12.2 of Mr van den Bergh’s employment agreement, one month’s notice was required prior to the termination of their services. If that had occurred in each case, then the now board of Discovery Africa could have, in an orderly way, determined what entitlements, if any, were owed to the resigning executive employees. By their conduct, which is supported on the evidence, those contractual obligations were not complied with and the company now finds itself in a position where most of its cash assets have been removed from its control.
Furthermore, the directors Mr Nichol and Mr van den Bergh, as they were, failed to make disclosure to shareholders as to the reduction of that cash position from in excess of $1 million to less than $150,000 in the period 1 to 9 April 2014. Nor were the substantial commitments of expenditure to which I referred in relation to Westoria Capital Pty Ltd and Geotech Airborne Limited disclosed. The non-disclosure which goes to the question of the cash position of the company requires to be understood in the context of statements made on behalf of the board by Mr van den Bergh, in a letter to shareholders which accompanied the notice of meeting dated 6 March 2014.
In this letter Mr van den Bergh stated, amongst other things, that Discovery Africa would need to be able to forecast and run a tight budget if shareholders were to be rewarded with great results on more than one front. The letter also added that it was essential that the cash requirements be managed efficiently if a positive outcome was to be achieved. These statements were made to shareholders with a view to opposing and defeating the resolution proposed by Mr Lloyd calling for the resignation of the then board. To that extent the announcement was self-preserving in relation to those two directors. Yet the company’s cash, the management of which was described as critical to the wellbeing of the company and the interests of its shareholders, was, between the time that the injunction was refused and the resignation of the directors on 9 April, largely dissipated and largely dissipated into the directors’ hands.
There are other allegations of breach of directors duties, but, as I foreshadowed, it is unnecessary in the context of this interim application to consider all of these. Having said that, I have considered the very detailed and careful submissions made on behalf of the company together with the affidavits to which I have referred, and I am satisfied that the prima facie case has been sufficiently made out in this case.
I am also satisfied that the balance of convenience favours the making of these orders. I say that for a number of reasons. Discovery Africa’s trading halt expired on Wednesday, 16 April 2014. The grant of these freezing orders will ensure that Mr Nichol and Mr van den Bergh will be unable to dispose of their shares in Discovery Africa.
The terms of the freezing orders proposed in each case are of a very limited duration and only confined to assets in amounts less than the amounts which were paid at the behest of the then directors to Mr Nichols and Mr van den Bergh. The amounts are $300,000 and $200,000 respectively.
I am satisfied that the period between the making of orders today and the return of the application at 2.15 pm on 1 May 2014 will enable the present board to complete its investigations into the transactions which I have described. It is not apparent from the matters which have been placed before the Court that any third parties will be affected by the making of these orders, and an undertaking as to damages in appropriate terms dated 15 April 2014 has been filed with the Court.
I am also satisfied on the evidence before me that both Mr Nichol and Mr van den Bergh reside outside of Australia and that, pursuant to r 10.43(2) of the Federal Court Rules2011 (Cth), there should be orders for service of this application out of the jurisdiction. I do so on the basis that the proceedings claim damages with respect to contravention, or contraventions, of the Corporations Act which occurred in Australia. This satisfies the provisions in r 10.42, item 12. Discovery Africa in that respect proposes to serve the originating application, freezing order and other relevant documents in Singapore in the case of Mr Nichol in accordance with the Supreme Court of Judicature Act (Singapore) and Order 65 of the Rules of Court prescribed thereunder, and in the case of Mr van den Bergh, in South Africa in accordance with r 4 of the Uniform Rules of Court.
I also accept as written undertakings given to the Court by the applicant the undertakings which are set out in Part A of the minute of proposed freezing orders in each case. Although not formally referred to by Mr Healy, I say in his presence that those are the undertakings which I will receive through him on behalf of the applicant. For these reasons and upon that evidence, I will make orders dealing, first, with Mr Nichol in terms of the minute of proposed freezing order provided to the Court. Paragraph 2 will provide that the order has effect up to and including 4:00 pm on 1 May 2014, and on the return date at 2:15 pm there will be a further hearing. In paragraph 6, the figure $200,000 will be deleted. In paragraph 12(a)(i), likewise, the figure of $200,000 will be deleted. Paragraph 15 will be deleted in its entirety. Paragraphs 16 and 17 will be renumbered 15 and 16.
In the case of Mr van den Bergh, by reference to the minute of proposed freezing order referable to him, I will make orders in terms of that minute subject to the following amendments. In the heading, the words “and Sindise Mining Ltd” will be deleted from the first respondent reference. Likewise, at the top of page 2, the orders are addressed only to Danie van den Bergh, so “and Sindise Mining Ltd” will be deleted. The date and times at the top of page 2 will be as per what I have described in relation to Mr Nichol. In paragraph 7(a)(iii)(C), after the last word, the name “Langwarrin”, there will be a comma and the word “Victoria” will be inserted. In paragraph 12(a)(i), the sum of $300,000 will be deleted. Going back to proposed order 6, that same amendment should be made; the figure of $300,000 is to be deleted.
I certify that the preceding twenty-five (25) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gilmour. Associate:
Dated: 13 May 2014
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