FEDERAL COURT OF AUSTRALIA
Discovery Africa Ltd v Nichol [2015] FCA 1497
Citation: Discovery Africa Ltd v Nichol [2015] FCA 1497 Parties: DISCOVERY AFRICA LIMITED (ACN 147 324 847) v KEVIN WILLIAM NICHOL, DANIE VAN DEN BERGH, SINDISE MINING CC, IAN BERT LOVETT, PHILLIP ANDREW THICK, PETER JAMES AVERY and CBP PTY LTD (ACN 166 080 682) File number: WAD 87 of 2014 Judge: GILMOUR J Date of judgment: 23 December 2015 Catchwords: CORPORATIONS – whether the relevant payments constituted Termination payments for the purposes of Part 2D.2 of the Corporations Act 2001 (Cth) –whether the payments constituted a “benefit” paid to the respondents – resignation as directors of the applicant company – execution of deeds of release – whether the payments were made “in connection with” retirement as a director of the company – whether the “benefits” are exempt under s 200F – whether the “benefits” were approved pursuant to s 200E – whether the applicant is estopped from asserting that the first respondent is not entitled to the termination payment – whether deed of release acts as a bar to the claim.
PRACTICE AND PROCEDURE – application for summary judgment – whether the respondents have a reasonable prospect of success of defending the claim.
Legislation: Corporations Act 2001 (Cth) ss s 200AA, 200AB(1), 200B, 200D, 200E, s 200F(2), 200J(1)(a)
Fair Work Act 2009 (Cth) ss 87, 90 and 117
Federal Court of Australia Act 1976 (Cth) s 31A
Federal Court Rules 2011 (Cth) r 26.01, 29.07Cases cited: General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125
James v Commonwealth Bank of Australia (1992) 37 FCR 445
Jefferson Ford Pty Ltd v Ford Motor Company of Australia Ltd (2008) 167 FCR 362
Nair v Arturus Capital Ltd (2010) 78 ACSR 43
Queensland Mining Corporation Ltd v Renshaw (2014) 229 FCR 13
Renshaw v Queensland Mining Corporation Ltd (2014) 229 FCR 56
Secured Income Real Estate (Australia) Limited v St Martins Investments Pty Ltd (1979) 144 CLR 596
Silver v Dome Resources NL (2007) 62 ACSR 539
White v Norman (2012) 199 FCR 488
Zippo Manufacturing Co v Jaxlawn Pty Ltd [2011] FCA 1125Date of hearing: 18 August 2015 Place: Perth Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 151 Counsel for the Applicant: Mr M L Bennett Solicitor for the Applicant: Bennett & Co Counsel for the First Respondent: Mr M J Feutrill Solicitor for the First Respondent: Hotchkin Hanly Counsel for the Second Respondent: Mr S Penglis Solicitor for the Second Respondent: Fletcher Law
IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION
WAD 87 of 2014
BETWEEN: DISCOVERY AFRICA LIMITED (ACN 147 324 847)
ApplicantAND: KEVIN WILLIAM NICHOL
First RespondentDANIE VAN DEN BERGH
Second RespondentSINDISE MINING CC
Third RespondentIAN BERT LOVETT
Fourth RespondentPHILLIP ANDREW THICK
Fifth RespondentPETER JAMES AVERY
Sixth RespondentCBP PTY LTD (ACN 166 080 682)
Seventh Respondent
JUDGE:
GILMOUR J
DATE OF ORDER:
23 DECEMBER 2015
WHERE MADE:
PERTH
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Details
- Case
- [2015] FCA 1497
- Decision Date
CaseChat Overview and Summary
The case of Discovery Africa Ltd v Nichol involved the applicant, Discovery Africa Ltd, seeking summary judgment against two respondents. The dispute centred around whether certain payments made to Nichol constituted termination payments under Part 2D.2 of the Corporations Act 2001 (Cth) and if these payments were exempt from the requirement of shareholder approval. Nichol had resigned as a director of Discovery Africa and subsequently executed a deed of release. The central issue was whether these payments were benefits paid in connection with Nichol's retirement as a director, and whether they were exempt under section 200F of the Corporations Act. The court had to determine if the applicant was estopped from asserting that Nichol was not entitled to the termination payment, and if the deed of release acted as a bar to the claim.
The court addressed several legal issues, including whether the payments made to Nichol constituted a benefit and if they were exempt under section 200F of the Corporations Act. The court also considered whether the applicant was estopped from asserting that Nichol was not entitled to the termination payment and if the deed of release acted as a bar to the claim. Justice Perry detailed the statutory framework and the broad interpretation required by the Act, particularly under sections 200A, 200B, and 200F. The court concluded that the payments were indeed benefits given in connection with Nichol's retirement and that these benefits were not exempt from the requirement of shareholder approval under the Act. The deed of release did not act as a bar to the claim, and the applicant was not estopped from asserting that Nichol was not entitled to the termination payment.
The court granted summary judgment in favour of the applicant against both respondents, ordering the first respondent to pay $274,005.78 and the second respondent to pay $162,666. The court also ordered each respondent to pay the applicant's costs and granted liberty to the parties on the question of interest. The decision underscored the importance of shareholder approval for benefits given in connection with retirement from managerial or executive offices, highlighting the strict liability nature of breaches under the Corporations Act.
The court addressed several legal issues, including whether the payments made to Nichol constituted a benefit and if they were exempt under section 200F of the Corporations Act. The court also considered whether the applicant was estopped from asserting that Nichol was not entitled to the termination payment and if the deed of release acted as a bar to the claim. Justice Perry detailed the statutory framework and the broad interpretation required by the Act, particularly under sections 200A, 200B, and 200F. The court concluded that the payments were indeed benefits given in connection with Nichol's retirement and that these benefits were not exempt from the requirement of shareholder approval under the Act. The deed of release did not act as a bar to the claim, and the applicant was not estopped from asserting that Nichol was not entitled to the termination payment.
The court granted summary judgment in favour of the applicant against both respondents, ordering the first respondent to pay $274,005.78 and the second respondent to pay $162,666. The court also ordered each respondent to pay the applicant's costs and granted liberty to the parties on the question of interest. The decision underscored the importance of shareholder approval for benefits given in connection with retirement from managerial or executive offices, highlighting the strict liability nature of breaches under the Corporations Act.
Orders
Orders of the court
1. Judgment be entered against the first respondent in favour of the applicant in the amount of $274,005.78.
2. Judgment be entered against the second respondent in favour of the applicant in the amount of $162,666.
3. The first respondent pay the costs of the applicant in relation to the claim against the first respondent.
4. The second respondent pay the costs of the applicant in relation to the claim against the second respondent.
5. Liberty be granted to the parties on the question of interest.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
Background
Background to the litigation
Seven days later, on 9 April 2014, Van Den Bergh and Nichol, as well as Lovett, resigned as directors of Discovery Africa and the following day, 10 April, Lloyd, Walker and Knezovic were appointed as directors to the company. FactsNichol The facts are not controversial. Nichol was a director of Discovery Africa from 23 November 2010 to 9 April 2014. From in or about March 2011, he was an executive director of Discovery Africa. Baru Resources Pte Ltd (Baru Singapore) is a wholly owned subsidiary of Discovery Africa and incorporated in Singapore. Nichol was a director of Baru Singapore. In November 2012, Nichol was appointed as the managing director of Discovery Africa. It was a condition of Nichol’s appointment as managing director that Baru Singapore enter into a consultancy agreement with Discovery Africa (then known as Baru Resources Limited) The Baru Consultancy Agreement was executed on 22 January 2013. Around that time, Nichol also entered into an employment agreement with Baru Singapore (Nichol Employment Agreement). Under the terms of the Baru Consultancy Agreement, Baru Singapore agreed to perform the services specified in item 3 of the Schedule and any other services the parties agreed to from time to time in writing. Those services were to be provided through Nichol as the representative under that agreement. Nichol was also required to sign a deed of acknowledgment in the form of Annexure A of that agreement. By cl.12.1 of the Baru Consultancy Agreement, Discovery Africa or Baru Singapore could terminate the agreement by giving not less than one months’ written notice any time after the date which was the second anniversary of the “Effective Date”, that is, 1 December 2012. Termination by Discovery Africa, without notice, is provided for under cl 12.3. This provision has no relevant application to this case. By cl 12.2, except where the Baru Consultancy Agreement was terminated due to cl 12.3, on termination by Discovery Africa: (a)Discovery Africa had to pay to Baru Singapore an amount equivalent to 12 months’ services fees; (b)Baru Singapore had to cause the resignation of Nichol from the board of Discovery Africa unless agreed otherwise in writing between Discovery Africa, Baru Singapore and Nichol. By cl 7.3(c), upon termination of the Baru Consultancy Agreement, Discovery Africa was obliged to pay Baru Singapore a pro-rata amount for unclaimed “Break Days” (as defined in the agreement). By cl 5.3 of the Nichol Employment Agreement, Baru Singapore was liable to Nichol for any employee entitlements in relation to the provision of the services under the agreement and indemnified Discovery Africa in respect of those entitlements. By cll 2.2 and 7.1 of the Nichol Employment Agreement, that agreement could be terminated by either party giving one month’s notice and, if Baru Singapore terminated the agreement it could pay Nichol salary in lieu of notice. By cl 7.5, if the agreement was terminated because the Baru Consultancy Agreement was terminated, and Baru Singapore was entitled to be paid and was paid an amount equal to 12 months’ service fees payable under that agreement, Baru Singapore was obliged to pay Nichol an amount equivalent to 12 months’ salary.
Evidence
Evidence Before The Court
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Decision
Reasons for decision
Van Den Bergh's resignation letter stated that he was resigning as a director of Discovery Africa and therefore his position as Executive Chairman of Discovery Africa.The principle of summary judgment The principles generally applicable to applications for summary judgment are well established: s 31A of the FederalCourt of Australia Act 1976 (Cth) is a summary procedure enabling the Court to enter judgment where a proceeding or part of a proceeding has no reasonable prospects of success. By its terms this provision imposes a different and less stringent test than that which is described in General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 at 129-130: Jefferson Ford Pty Ltd v Ford Motor Company of Australia Ltd (2008) 167 FCR 372 at [123]-[132] per Gordon J, where her Honour outlined six principles concerning s 31A. As her Honour said in the separate decision of Zippo Manufacturing Co v Jaxlawn Pty Ltd [2011] FCA 1125 at [20], r 26.01 of the Federal Court Rules 2011 (Cth) (the Rules), apart from any provision similar to s 31A(3), contains an identical test to that of s 31A, though it is the language of the Rules that must be addressed. However, as paras (a) and (c) under r 26.01(1) concern the question of whether a party has no reasonable prospect of successfully prosecuting, or defending, the proceeding, the principles outlined in Jefferson Ford Pty Ltd are apt to those paragraphs. The existence of a real issue of law does not necessarily preclude summary judgment and that is so in this case where the facts relevant to the pleaded case under consideration on their interlocutory application are not contentious: Jefferson Ford Pty Ltd at [23], [131]. The statutory framework Justice Perry explained the statutory framework in Queensland Mining Corporation Ltd v Renshaw (2014) 229 FCR 13 at [12]-[17]: 1.3 Overview of the statutory framework within which the issues arise. . .13 Section 200B(1) of the Act provides that:200B(1) Benefits in connection with retirement if person has held a managerial or executive office(1) An entity mentioned in subsection (1AA) must not give a person a benefit in connection with a person’s (the retiree’s) retirement from an office, or position of employment, in a company or a related body corporate if:(a) the office or position is a managerial or executive office; or(b) the retiree has, at any time during the last 3 years before his or her retirement, held a managerial or executive office in the company or a related body corporate;unless there is member approval under section 200E for the giving of the benefit.Note 1: This subsection extends to benefits given by way of compensation for, or otherwise in connection with, a person’s loss of an office or position (see subsections 200A(1) and (3)).Note 2: Sections 200F, 200G and 200H provide for exceptions to this subsection.Note 3: The recipient of the benefit need not be the retiree.14The seriousness with which the Parliament views such breaches is apparent from the fact that a breach of s 200B(1) constitutes an offence of strict liability: s 200B(1A) of the Act.15The term “benefit” and the circumstances in which “a benefit is given in connection with a person’s retirement” are broadly defined in ss 200AB and 200A respectively of the Act, while s 200 requires that a broad interpretation be adopted of when a benefit is given, affording priority to substance over form. The Corporations Regulations 2001 (Cth) also specify that certain things are, and are not, benefits pursuant to s 200AB(1)(e) and (2) of the Act respectively, and when a benefit is given in connection with a person’s retirement pursuant to s 200A(1A). Those things which are specified in the Corporations Regulations as not constituting a benefit for the purposes of the Division include, relevantly, a genuine superannuation contribution paid by an employer or employee: see reg 2D.2.02(2)(c) of the Corporations Regulations made pursuant to [s 200AB(2)]. The Act also provides that certain benefits and benefits given in certain circumstances are exempt from s 200B(1), namely, (a) a payment for leave of absence to which a person is entitled under an industrial instrument (s 200F(1)(a));(b)a benefit given under an order of a court (s 200F(1)(aa));(c)a genuine payment by way of damages for breach of contract or for past services where the value of the benefit is less than the person’s average annual base salary (ss 200F(2) and 200G respectively);(d) a benefit given in prescribed circumstances (s 200F(1)(b)); or(e) a benefit given where the failure to do so would contravene a law in force in Australia (otherwise than because of breach of contract or trust) (s 200H).16In effect, the statutory scheme can be summarised as casting a broad net so as to ensure that all payments or other things given in connection with retirement are caught by the statutory requirement for shareholder approval save where the Act or regulations creates an exemption.17Where a contravention of s 200B(1) occurs, the benefit is held on trust by force of s 200J(1) and must be immediately repaid. Specifically, s 200J provides that:(1) If an entity (the giver) contravenes section 200B by giving a benefit to a person (the recipient), then the amount of the benefit, or the money value of the benefit if it is not a payment:(a)is taken to be received by the recipient on trust for the giver; and(b) must be immediately repaid by the recipient to the giver.(1A) An amount repayable under subsection (1) to the giver:(a) is a debt due to the giver; and(b) may be recovered by the giver in a court of competent jurisdiction.(2) Subsection (1) applies to the whole of the amount of a payment or of the money value of the benefit even though giving the benefit would not have contravened section 200B if that amount or value of the benefit had been less.
Ratio Decidendi
Legal Principle Established
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