Doyle v Australian Securities and Investments Commission
[2005] WASCA 17
•11 FEBRUARY 2005
DOYLE & ANOR -v- AUSTRALIAN SECURITIES & INVESTMENTS COMMISSION [2005] WASCA 17
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2005] WASCA 17 | |
| THE FULL COURT (WA) | |||
| Case No: | FUL:144/2002 | 18 OCTOBER 2004 | |
| Coram: | WHEELER J MCLURE J JENKINS J | 11/02/05 | |
| 41 | Judgment Part: | 1 of 1 | |
| Result: | First-named appellant's appeal on liability dismissed and his appeal on penalty allowed Second-named appellant's appeal on liability allowed | ||
| A | |||
| PDF Version |
| Parties: | ALAN DAVID DOYLE DEREK WILLIAM SATTERTHWAITE AUSTRALIAN SECURITIES & INVESTMENTS COMMISSION |
Catchwords: | Corporations Whether unlawful reduction of capital Whether placement of shares void or voidable Whether transaction a bona fide compromise of claim that placement void or voidable Whether improper use of position contrary to s 232(6) of the Corporations Law Whether transaction must be substantively wrongful Whether failure to exercise reasonable care and diligence Whether penalty manifestly excessive Adequacy of reasons on penalty |
Legislation: | ASX Listing Rules Companies (Western Australia) Code Corporations Law 1990 (Cth) |
Case References: | Australian Securities and Investments Commission v Plymin (No 2) (2003) 21 ACLC 1237 Australian Securities Commission v Donovan (1998) 28 ACSR 583 Chew v The Queen (1992) 173 CLR 626 Clamp v Fairway Investments Pty Ltd [1973] CLC 40-077 Commonwealth Homes & Investment Co Ltd v MacKellar (1939) 63 CLR 351 Elliott v Australian Securities and Investments Commission (2004) 205 ALR 594 Garrett v Nicholson (1999) 21 WAR 226 House v The Queen (1936) 55 CLR 499 McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 Mount Lawley Pty Ltd v Western Australian Planning Commission [2004] WASCA 149 R v Byrnes (1995) 183 CLR 501 R v Donald, Ex parte Attorney-General (1993) 2 Qd R 680 Re Compania de Electricidad de la Provincia de Buenos Aires Ltd [1980] 1 Ch 146 Rich v Australian Securities and Investments Commission [2004] HCA 42 Zytan Nominees Pty Ltd v Laverton Gold NL (1988) 1 WAR 227 Androvin Pty Ltd v Figliomeni (1994) 14 WAR 11 Australian Securities and Investments Commission (ASIC) v Loiterton & Ors (2004) 50 ACSR 693 Australian Securities and Investments Commission v Adler (2002) 42 ACSR 80 Commissioner for Corporate Affairs (WA) v Ekamper (1987) 12 ACLR 519 Fire & All Risks Insurance Co Ltd v Pioneer Concrete Services Ltd (1986) 10 ACLR 760 Fitzsimmons v The Queen (1997) 23 ACSR 355 Fox v Percy (2003) 214 CLR 118 Markwell Bros Pty Ltd v CPN Diesels (Qld) Pty Ltd (1983) 7 ACLR 425 Playcorp Pty Ltd v Shaw (1993) 10 ACSR 212 Re Associated Tool Industries (1963) 5 FLR 55 Re One Tel Ltd (in liq); Australian Securities and Investments Commission v Rich (2003) 44 ACSR 80 Redweaver Investments Ltd v Lawrence Field Ltd (1991) 5 ACSR 438 Reinvestment (Australia) Ltd v Murray Securities Ltd (1974) CLC 40105 Strathmore Group Ltd v Fraser (1991) 9 ACLC 3140 Uranerz (Australia) Pty Ltd v Hale (1980) 30 ALR 193 Walker v Nicolay (1991) ACSR 309 Whitlam v Australian Securities and Investments Commission (2003) 57 NSWLR 559 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA TITLE OF COURT : THE FULL COURT (WA) CITATION : DOYLE & ANOR -v- AUSTRALIAN SECURITIES & INVESTMENTS COMMISSION [2005] WASCA 17 CORAM : WHEELER J
- MCLURE J
JENKINS J
- DEREK WILLIAM SATTERTHWAITE
Appellants
AND
AUSTRALIAN SECURITIES & INVESTMENTS COMMISSION
Respondent
(Page 2)
ON APPEAL FROM:
Jurisdiction : SUPREME COURT OF WESTERN AUSTRALIA
Coram : ROBERTS-SMITH J
Citation : AUSTRALIAN SECURITIES & INVESTMENTS COMMISSION -v- DOYLE & ANOR [2001] WASC 187
File No : CIV 2320 of 1999
Jurisdiction : SUPREME COURT OF WESTERN AUSTRALIA
Coram : ROBERTS-SMITH J
Citation : AUSTRALIAN SECURITIES & INVESTMENTS COMMISSION -v- DOYLE & ANOR [2002] WASC 223
File No : CIV 2320 of 1999
Catchwords:
Corporations - Whether unlawful reduction of capital - Whether placement of shares void or voidable - Whether transaction a bona fide compromise of claim that placement void or voidable - Whether improper use of position contrary to s 232(6) of the Corporations Law - Whether transaction must be substantively wrongful - Whether failure to exercise reasonable care and diligence - Whether penalty manifestly excessive - Adequacy of reasons on penalty
Legislation:
ASX Listing Rules
Companies (Western Australia) Code
Corporations Law 1990 (Cth)
Result:
First-named appellant's appeal on liability dismissed and his appeal on penalty allowed
Second-named appellant's appeal on liability allowed
(Page 3)
Category: A
Representation:
Counsel:
Appellants : Mr M J McCusker QC & Mr K L Christensen
Respondent : Mr K J Martin QC & Mr T A Staples
Solicitors:
Appellants : Christensen Vaughan
Respondent : Australian Securities & Investments Commission
Case(s) referred to in judgment(s):
Australian Securities and Investments Commission v Plymin (No 2) (2003) 21 ACLC 1237
Australian Securities Commission v Donovan (1998) 28 ACSR 583
Chew v The Queen (1992) 173 CLR 626
Clamp v Fairway Investments Pty Ltd [1973] CLC 40-077
Commonwealth Homes & Investment Co Ltd v MacKellar (1939) 63 CLR 351
Elliott v Australian Securities and Investments Commission (2004) 205 ALR 594
Garrett v Nicholson (1999) 21 WAR 226
House v The Queen (1936) 55 CLR 499
McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457
Mount Lawley Pty Ltd v Western Australian Planning Commission [2004] WASCA 149
R v Byrnes (1995) 183 CLR 501
R v Donald, Ex parte Attorney-General (1993) 2 Qd R 680
Re Compania de Electricidad de la Provincia de Buenos Aires Ltd [1980] 1 Ch 146
Rich v Australian Securities and Investments Commission [2004] HCA 42
Zytan Nominees Pty Ltd v Laverton Gold NL (1988) 1 WAR 227
(Page 4)
Case(s) also cited:
Androvin Pty Ltd v Figliomeni (1994) 14 WAR 11
Australian Securities and Investments Commission (ASIC) v Loiterton & Ors (2004) 50 ACSR 693
Australian Securities and Investments Commission v Adler (2002) 42 ACSR 80
Commissioner for Corporate Affairs (WA) v Ekamper (1987) 12 ACLR 519
Fire & All Risks Insurance Co Ltd v Pioneer Concrete Services Ltd (1986) 10 ACLR 760
Fitzsimmons v The Queen (1997) 23 ACSR 355
Fox v Percy (2003) 214 CLR 118
Markwell Bros Pty Ltd v CPN Diesels (Qld) Pty Ltd (1983) 7 ACLR 425
Playcorp Pty Ltd v Shaw (1993) 10 ACSR 212
Re Associated Tool Industries (1963) 5 FLR 55
Re One Tel Ltd (in liq); Australian Securities and Investments Commission v Rich (2003) 44 ACSR 80
Redweaver Investments Ltd v Lawrence Field Ltd (1991) 5 ACSR 438
Reinvestment (Australia) Ltd v Murray Securities Ltd (1974) CLC 40105
Strathmore Group Ltd v Fraser (1991) 9 ACLC 3140
Uranerz (Australia) Pty Ltd v Hale (1980) 30 ALR 193
Walker v Nicolay (1991) ACSR 309
Whitlam v Australian Securities and Investments Commission (2003) 57 NSWLR 559
(Page 5)
1 WHEELER J: I have had the advantage of reading in draft the reasons for decision of McLure J. I agree with those reasons and have nothing to add.
2 MCLURE J: After a trial in this Court before Roberts-Smith J the first-named appellant (first respondent) ("Doyle") was declared to have contravened s 232(6) of the Corporations Law 1990 (Cth) ("CL"), being that he made improper use of his position as a director to gain an advantage for an associated entity. An order banning him from acting as a director for two years and a pecuniary penalty of $30,000 was imposed.
3 The second-named appellant (second respondent) ("Satterthwaite") was declared to have contravened s 232(4) CL, being that he failed to exercise the degree of care and diligence that a reasonable person in a like position in a corporation would exercise in the circumstances of the Company at the time. An order banning him from acting as a director for two years and a pecuniary penalty of $5000 was imposed. Although he was also found at trial to have contravened s 232(6) by being knowingly concerned with Doyle's breach of s 232(6), no declaration was made in that respect and no penalty imposed as a result of that additional finding.
4 The appellants challenge the findings of breach and the penalties imposed.
5 The impugned conduct relates to the return of money paid for the issue of shares and options in Chile Minera NL ("Company"). On October 1996 the Company issued shares and options to Doyle Capital Partners Pty Ltd ("DCP") and its clients for a subscription price of $400,000 ("the placement"). Doyle was a director and shareholder of DCP. DCP paid the Company the sum of $400,000 on 16 or 17 October 1996. The placement money was paid on the basis that the shares would rank pari passu with existing shares.
6 The placement breached the ASX Listing Rules. The ASX informed the Company that the shares could not be voted at the forthcoming annual general meeting of the Company on 22 November 1996 ("AGM").
7 On 21 November 1996 Doyle on behalf of DCP wrote to the directors of the Company requesting the return of the placement money. Satterthwaite and Bernard Mountford were the then directors of the Company. On the same day a directors meeting of the Company was held. Present were Doyle as an alternate director (for Mountford), Satterthwaite and the company secretary, Christopher Murphy. The
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- meeting purported to resolve to cancel the allotment of shares and return the $400,000 to the trust account of DCP on terms, the scope of which are contentious ("first resolution"). On the same day, 21 November 1996, Doyle and Satterthwaite signed a circular resolution concerning the payment ("Circular Resolution").
8 Also on 21 November 1996 Satterthwaite and Murphy arranged for a bank cheque of $400,000 payable to DCP to be drawn and debited to the Company account. On 22 November at 7.30 am Doyle was appointed a temporary director of the Company so he could attend the AGM, which was to be held later that day, as a director. The remaining director of the Company, Mountford, was in Chile.
9 On 22 November at 10.50 am a further directors meeting was held. Mountford (in Chile) took part in that meeting by telephone. A resolution was passed in relation to the return of the subscription money ("third resolution"). Thereafter, Doyle was handed the $400,000 cheque which was banked in the DCP trust account on 27 November 1996.
10 Section 232(6) CL relevantly provided:
"An officer or employee of a corporation must not, in relevant circumstances, make improper use of his or her position as such an officer or employee, to gain, directly or indirectly, an advantage for himself or herself or for any other person or to cause detriment to the corporation."
11 Section 232(4) provided that:
"In the exercise of his or her powers and the discharge of his or her duties, an officer of a corporation must exercise the degree of care and diligence that a reasonable person in a like position in a corporation would exercise in the corporation's circumstances."
12 It is also relevant to note the terms of s 232A(1) CL which relevantly provided:
"A director of a public company who has a material personal interest in a matter that is being considered at a meeting of the board, or of directors, of the company:
(a) must not vote on the matter …; and
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- (b) must not be present while the matter (or a proposed resolution of that kind) is being considered at the meeting."
13 It was not in dispute that at all relevant times Doyle was a director of the Company and that he had a material personal interest in the matter of whether or not the subscription money should be returned to DCP.
14 The learned trial Judge found that: Doyle voted in favour of the first resolution at the directors meeting on 21 November 1996 and did not declare a conflict of interest; the Circular Resolution was signed by Satterthwaite and Doyle in their capacities as director and alternative director respectively; Doyle exercised his vote as a director in favour of the third resolution at the directors meeting on 22 November 1996; the return of the money to DCP and Doyle's control when the allottees had no established lawful entitlement to it, or when any such entitlement was in question, was an advantage to the allottees; and that Doyle's use of his position as a director for that purpose was improper because he put the interest of the allottees ahead of those of the Company.
15 Different findings were made in relation to Satterthwaite. The trial Judge found that Satterthwaite owed a duty to the Company to see that its assets were not dissipated or exploited to its prejudice and that included a duty to ensure the Company's capital was not reduced otherwise than in accordance with its articles and CL; the payment of the moneys to Doyle constituted an unauthorised reduction of capital which gave rise to a breach of duty; alternatively, if there was no return of capital, Satterthwaite failed to exercise reasonable care and diligence in failing to take any measures to ensure the money would be recovered by the Company if that became necessary.
16 Doyle relies on three grounds of appeal on liability. One ground (ground 3) was abandoned. Doyle contends in substance that:
(a) in order to constitute a breach of s 232(6) CL the transaction giving rise to the relevant advantage or detriment must be improper; the trial Judge erred in concluding that there had been an unlawful reduction of capital; alternatively there is no breach if Doyle bona fide reasonably believed the transaction was not wrongful or otherwise improper (ground 1);
(b) the trial Judge should have found that the third resolution was the only valid and effective resolution for the return
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- of the placement money and he erred in finding that Doyle voted in favour of any relevant resolution relating to the return of the placement money (ground 2); and
- (c) the trial Judge erred in failing to provide any, or any sufficient, reasons for finding that the breach was a "serious breach" as required by s 1317EA CL and there was no reasonable basis for that finding (ground 4).
17 Satterthwaite contends that:
(a) on the factual findings made by the trial Judge it was not open to conclude that Satterthwaite had breached either s 232(4) or s 232(6) CL (ground 5); and
(b) the trial Judge erred in failing to provide any, or any sufficient, reasons for finding that the breach was a serious breach and there was no reasonable basis for that finding (ground 6).
18 In relation to penalty, both appellants contend that it is manifestly excessive.
Background Facts
19 On this subject, I rely on the unchallenged findings of the trial Judge. At all relevant times Doyle was a director of DCP and owned, and was beneficially entitled to, 50 per cent of its issued shares.
20 In June 1996 the Company entered into an agreement to purchase a 75 per cent interest in a mining concern in Chile known as the Carrizal Alto Prospect. In August 1996 DCP was engaged as a consultant to the Company to provide advice on technical and financial issues and to assist the Company with respect to capital raisings.
21 In September 1996 Company shareholders were informed of an extraordinary general meeting ("EGM") scheduled for 18 October 1996. Five resolutions were proposed, including a change of company name, the adoption of new articles, an allotment of shares and the acquisition of the Carrizal Alto Prospect. On the latter matter the resolution was to the effect that approval be given to the acquisition by the Company of a 75 per cent equity interest in the Carrizal Alto Prospect by the payment of cash and the issue of 35,000,000 ordinary fully paid issues in the Company at an issue price of four cents to the vendor.
(Page 9)
22 On 9 October 1996 Doyle wrote to Satterthwaite advising the Company that DCP would place 8,000,000 shares at 50 cents each to raise an amount of $400,000 for the Company to use as working capital. The agreed fee to DCP was $24,000.
23 On 16 October 1996 the Company issued 8,000,000 partly paid ordinary 50 cent shares and 8,000,000 attached options. The shares were issued and registered in the names of three companies, one of which was DCP. It received 4,000,000 shares and 4,000,000 options. DCP paid the subscription money of $400,000 to the Company on 16 or 17 October 1996. The shares were issued in breach of Listing Rule 7.1 which prohibits a company from issuing more than 10 per cent of its capital in one class without the approval of holders of ordinary securities. By letter of 17 October 1996, ASX advised the Company of the possible breach of LR 7.1 and sought its comment. The Company admitted the breach by letter dated 18 October 1996 and informed ASX that it intended to seek shareholder approval at its AGM scheduled for 22 November 1996 to remedy the situation.
24 At the EGM held on 18 October 1996 the five resolutions were passed on a show of hands. However, there was strong minority shareholder discontent with the Carrizal Alto Prospect proposal.
25 The Company and ASX continued to exchange correspondence concerning the breach of LR 7.1. One matter of concern to ASX was whether the allottees of the placement shares organised by DCP had voted those shares at the EGM.
26 On 13 November 1996 the Australian Securities Commission ("ASC") commenced proceedings in the Federal Court against the Company, Satterthwaite and Doyle seeking orders setting aside the resolution passed at the EGM to approve the acquisition of the Carrizal Alto Prospect and restraining the Company from proceeding with it. Carr J made interim orders to that effect on 22 November 1996. The litigation was finalised by consent orders on 2 December 1996. That included an injunction restraining the Company from proceeding with the acquisition until approved by its shareholders. It appears a number of matters were the subject of the ASC claim in the Federal Court. One allegation was that, contrary to a no conflict declaration in the Explanatory Memorandum, Satterthwaite was an associate of the vendors.
27 On 20 November 1996 the Company announced the resignation of Mr John Hopkins as a director and the appointment of Doyle as an
(Page 10)
- alternate director for Mountford. Also on that date a disaffected minority shareholder, Metalsearch NL, wrote to the Company requesting an Extraordinary General Meeting be convened for the purpose of removing the board of directors.
28 By letter dated 20 November 1996 to the Company, ASX referred to the placement in breach of LR 7.1 and pointed out that the Notice of Meeting for 22 November 1996 contained four proposed resolutions which related to compliance with the Listing Rules and advised that votes cast on them by the holders of the placement shares and any associates must be disregarded. The four resolutions (numbered 1, 4, 6 and 7) were to ratify a share placement made in February 1996, to authorise the directors to approve issuing 30,000,000 shares, to elect Mr Hopkins as a director and to elect Mountford as a director respectively. ASX had exercised its discretion under LR 14.11.2 which provides that "ASX may identify a person whose votes, in its opinion, should be disregarded".
29 The ASX letter notes that the voting restriction imposed by it was in addition to the voting restrictions set out in the Notice of Meeting, being a reference to allottees not being able to vote on resolutions 2 and 3 relating to share placements made in September 1996 and October 1996 in breach of LR 7.1 (in accordance with LR 14.11.1). Furthermore, ASX advised the Company that the passing of resolutions 2 and 3 would not rectify the breach nor have any effect for the purposes of LR 7.1 or 7.4.
30 At this point Doyle wrote a letter dated 21 November 1996 to the directors of the Company ("letter of demand") in the following terms:
"I refer to the Australian Stock Exchange (ASX) letter dated 20th November, 1996 in relation to the ability to vote on the 8 million shares placed by Doyle Capital Partners Pty Ltd on 16th October, 1996 raising a total amount of $400,000. A copy of the ASX letter is attached. As a result of being informed that the placement breeched (sic) listing rule 7.1 we formally demand the repayment of this $400,000 dollars immediately.
The shareholders who took these shares believed they were ranked pari pasu (sic) with existing shares in the company, as the company has been instructed by the ASX that this is not the case and these shareholders have been disenfranchised in relation to voting these shares at the Annual General Meeting to be held on Friday 22nd, November 1996 (sic).
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- We require settlement today by way of a bank cheque, otherwise we will be forced to take legal action against the company to settle this transaction. Should you have any queries regarding the above please contact the undersigned."
31 Doyle handed the letter of demand to Satterthwaite in Perth at the directors meeting on 21 November 1996. Those present at the meeting were Doyle, Satterthwaite and Murphy. Doyle was present in his capacity as an alternate director for Mountford. According to the minutes, Satterthwaite took the chair. The minutes then recorded:
"IT WAS ADVISED Mr Satterthwaite has received a letter of demand from Doyle Capital Partners this morning. The demand is for the return of $400,000 paid by clients of Doyle Capital Partners for a placement of 8 million shares and options. Mr Satterthwaite advised that the Stock Exchange has ruled that in view of a breech (sic) of listing rule 7.1 these shares are not validly allotted.
Therefore it is proposed to cancel the allotment.
Discussion on the possibilities of a further placement took place.
IT WAS RESOLVED that the $400,000 be returned to the Trust account of Doyle Capital Partners. Release of these funds will only be made upon the return to the Company of the 8 million shares and options.
IT WAS FURTHER RESOLVED that the placement fee paid to Doyle Capital Partners be returned to the company."
32 These minutes were signed and dated by Satterthwaite on 22 November 1996 as a correct record. There is a manuscript amendment to the end of the first paragraph, the typed portion of which read "… these shares are validly allotted": the word "not" has been inserted before the word "validly". There is no mention in the minutes of Doyle having either declared a conflict of interest or not voted.
33 On the same day, Satterthwaite and Doyle signed the Circular Resolution, which read:
"Mr Derek Satterthwaite advised that he has received at 8.00 am today from Doyle Capital Partners a demand for return of $400,000 which was recently sent to the company for a
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- placement of 8,000,000 shares. The reason for the demand is that Doyle Capital Partners have received advice that they or their clients possibly may not be able to vote their shares at the forthcoming Annual General Meeting.
It was therefore RESOLVED that the Company Secretary be instructed to draw a bank cheque for $4000,000 payable to Doyle Capital Partners Pty Ltd which is to be held pending advice from the Australian Stock Exchange (ASX) as to their ruling on the ability of these new shareholders to exercise their vote."
34 Doyle's signature appears over the words "B.R. Mountford by his alternate Alan Doyle". Also on the same date, Satterthwaite and Murphy signed a letter to the ANZ Bank requesting it to organise a bank cheque for $400,000 made payable to DCP and to be debited against the Company's New Issue Trust Account. The bank cheque was issued and the Company account was debited that day.
35 At 7.30 am on 22 November 1996, a meeting of directors of the Company was held. Those present were Satterthwaite and Doyle. The minutes of the meeting show Doyle was there in his capacity as alternate director for Mountford. The only business done was a resolution that Doyle be appointed a director. This was an appointment of him as a director in his own right.
36 The Company AGM was held at the office of the Company's solicitors, Fiocco Hopkins Nash, at 9.09 am on 22 November 1996. Satterthwaite opened the meeting and passed the chair to Doyle, who explained that Hopkins had resigned. Notice had been given of seven resolutions. Proposed resolutions 2, 3 (to ratify the September and October 1996 placements respectively), 4 and 6 were withdrawn.
37 The first proposed resolution was to ratify a placement of 5,400,000 shares and options made on 13 February 1996. The motion failed because of a successful motion from the floor that it not be put.
38 Motions to reappoint Hopkins and Mountford as directors were also not proceeded with on the carrying of a procedural motion that they not be put in light of the requisition by Metalsearch NL for an EGM to spill the board.
39 Following the AGM a further meeting of directors was held at 10.50 am the same day. That meeting was attended by Satterthwaite, Doyle and
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- Murphy. Mountford participated by telephone by prior arrangement. Doyle chaired the meeting. The minutes of the previous directors meeting were confirmed. Doyle proposed that Mountford be re-elected. A resolution was passed that he be appointed to fill a casual vacancy until the next general meeting of shareholders. The minutes of this meeting then record that:
"IT WAS EXPLAINED by [Doyle] that as a result of the letter of demand for the return of $400,000 was received from Doyle Capital Partners yesterday a board meeting had been convened yesterday morning. [Doyle] explained that he would give an undertaking that the shares and option will be returned.
[Doyle] explained to [Mountford] the consequences of the breach of listing rule 7.1 and the fact that the ASX has decided to disallow these shares to vote.
After discussions at that meeting and advise (sic) from the company's solicitors a resolution was passed agreeing to cancel the allotment of those 8 million shares and options placed recently.
IT WAS RESOLVED to confirm yesterdays decision for the return of funds provided the company receives a refund of the placement fee of $24,000."
41 On 27 November 1996, Doyle wrote to the Company on behalf of DCP advising that the latter had placed monies received as a result of the cancellation of the 8,000,000 share and options placement into the DCP trust account. He wrote :
"We have placed in our Trust account monies received as a result of the cancellation of the placement of 8 million shares and 8 millions (sic) options. We have advised clients that this placement technically breeched (sic) ASX listing rule 7.1 and the shares were invalidly issued. We have also advised our clients that funds would be returned to them upon advise (sic) from Chile Minera NL that they had received the share and options certificates.
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- Some of our clients have indicated that they have an interest in applying for stock in a new placement, we do however understand that this cannot be completed till after the Extraordinary General Meeting had been held to replace Directors."
42 On 17 December 1996 the Company received counsel's opinion that the payment of $400,000 was a reduction in share capital to which s 195 CL applied, thus requiring a special resolution of shareholders and confirmation by the Court. It was common cause that s 195 CL had not been complied with. However, counsel's opinion is based in part on a misapprehension that proposed resolution 3 (to ratify the placement) was put and/or passed at the AGM on 22 November 1996. On 19 December 1996 the Company requested DCP to return the subscription money.
43 The EGM for the board spill was scheduled for 17 January 1997. On 16 January 1997 the Supreme Court ordered that the meeting be adjourned to 7 February 1997. On 16 January 1997 Doyle informed the directors of the Company that he would not return the placement money to the Company. The Company then resolved to appoint administrators, Gary Trevor and Alden Halse.
44 After letters of demand from the administrators, the Company commenced a Supreme Court action against DCP for the return of the placement money.
45 At the EGM on 7 February 1997 the existing board was replaced by a new board of directors. The Supreme Court action was settled in July 1997 by payment to the Company of $400,000 (for the shares the subject of the dispute).
46 One issue common to both appeals on liability and penalty is whether the payment of $400,000 to DCP was an unlawful reduction of capital. I deal with that issue first.
Whether Unlawful Reduction of Capital
47 The trial Judge did not address the question whether there had been an unlawful reduction of capital in his analysis leading to the conclusion that Doyle had breached s 232(6) CL. The trial Judge addressed that issue in the claim against Satterthwaite and it was a factor he took into account in sentencing both men.
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48 The trial Judge found (and the finding is not challenged in the appeal) that the allottees had purchased shares "which it had been represented would rank pari passu with existing shares" and that "whatever else that may have meant, it meant that the shares could be traded and voted". There is no finding as to the reason for, or the likely extent of, the delay in the grant of official quotation, or the basis for or extent of the voting restriction. However, the unchallenged evidence is that on 21 January 1997 ASX granted official quotation for the placement shares and options. Further, by letter dated 15 January 1997 the Company's solicitors, Fiocco Hopkins Nash, informed ASX that the holders of the 8,000,000 shares intended to exercise their right to vote at the EGM on 17 January 1997. I am unclear as to how this is to be reconciled with the purported cancellation of the allotment. However, I put that to one side as it is not referred to by the trial Judge or relied on by the parties. In any event, by letter of the same date (15 January 1997), ASX advised the solicitors that no voting restrictions were imposed on the holders of the placement shares.
49 The trial Judge found that what occurred did not "vitiate the placement" and, although making no finding on whether the placement was voidable, accepted that such a claim was arguable. It appears this approach was taken because the trial Judge understood the appellants' argument to be that the payment was not an unauthorised reduction of capital because it was the compromise of an arguable claim that the placement was void or voidable, an exception to the statutory prohibition recognised by the High Court in Commonwealth Homes & Investment Co Ltd v MacKellar (1939) 63 CLR 351. In that case MacKellar, a Sydney architect, was approached by representatives of a South Australian company with a proposal that he join a local board of directors which it was intended to establish in Sydney. MacKellar was told that the qualification for a director of the Sydney board was holding 1000 shares in the company, and he was invited to apply for shares. MacKellar, on the faith of an undertaking in express terms that he was to be the only architect on the Sydney board, agreed to become a director and take shares in the company. He applied for, and was allotted, 1000 shares. MacKellar, having learnt that another architect had been appointed to the Sydney board, wrote to the company complaining of a breach of contract, notifying it that he ceased to have any connection with it and requesting a refund of moneys paid by him and cancellation of his application form. The company denied MacKellar's allegation of breach of contract, but a compromise was arrived at under which the company refunded a portion of the moneys paid by MacKellar in full satisfaction and termination of
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- his contract with the company, as embodied in his proposal for shares and the allotment notice. Some time later, after the company went into liquidation, the liquidator claimed rectification of the register of members by entering MacKellar's name thereon as the holder of 1000 shares. The liquidator was unsuccessful.
50 The Court held that a bona fide dispute between a company and a person whose name appears in its share register, arising out of a claim by that person that the allotment of the shares, or the agreement to take the shares, is void or is voidable by him, may, consistently with the provisions of the companies legislation as it then stood, be the subject of a compromise resulting in the cancellation of the allotment of the shares and the removal of his name from the share register. Dixon J said (at 375):
"… it seems to me that a valid compromise was made of MacKellar's claim that he was entitled to treat his membership of the company as avoided or brought to an end. It is, no doubt, true that a company cannot validly include in an agreement of compromise an ultra-vires term or condition. It is also true that an attempt to rescind an allotment of shares once effectively made is, generally speaking, ultra-vires and void. But it is clearly settled that, if a claim is made that an allotment of shares or an agreement of membership is void or voidable, at all events if the grounds of the claim are not in law clearly untenable and insufficient, then it is open to the company as part of a compromise to treat the purported allotment of all or some of the shares as cancelled and to remove the name of the allottee from the share register."
51 In summary, a company can reduce its share capital without recourse to s 195 CL if the contract and associated allotment is void, voidable and has been avoided or if there is a bona fide compromise of a claim that the allotment or contract is void or has been (lawfully) avoided.
52 The trial Judge concluded the appellants' claim was arguable but that on the facts there was no bona fide compromise. He said (at [252] - [253]):
"I accept here that Satterthwaite believed the allottees had a legitimate claim against the Company and that he was acting bona fide. His advice from Nash was to that effect. They had purchased shares which it had been represented would rank pari passu with existing shares. I accept that whatever else that may
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- have meant, it meant the shares could be traded and voted. It was important that they be able to vote the shares at the AGM and generally. DCP was threatening immediate legal action, claiming the allotment was invalid. Nash's advice was that the Company and the directors personally could be liable. The claim was at the very least reasonably arguable. It seems to me the question here is whether what was done was compromise of the claim. I have already found that for all practical purposes, that is to say, objectively, the payment amounted to a reduction of capital. But the stated intention of all the directors (albeit not reflected in the minutes) was that the money was to be held in the DCP trust account pending counsel's opinion; and it was Satterthwaite's intention (or at least expectation) that it would then be dealt with in accordance with counsel's opinion. That could have required that it be returned to the Company.
In my opinion, in these circumstances, there was no compromise of the claim. Had the money been returned to the Company in accordance with counsel's opinion the claim of the allottees would have remained entirely unsatisfied. That this was so is confirmed by subsequent events. The Company did demand return of the money; DCP (ie Doyle) refused; the Company instituted legal proceedings to recover it and the dispute was ultimately compromised by repayment of a portion of the money."
53 Doyle contends (in grounds of appeal 1.1 and 1.2) that the allottees were entitled to have the allotment cancelled and their allotment moneys returned to them as requested or alternatively, and in any event, that Doyle bona fide and reasonably believed that the allottees were entitled to the return of their allotment moneys. The latter is relied on as a separate ground unrelated to the question of whether the reduction was authorised.
54 It was part of the appellants' pleaded case that the placement was void or voidable. The trial Judge found that the placement was not void, but made no finding on whether it was voidable. On these issues, the parties in their written submissions in the appeal relied on bare, undeveloped assertions of a conclusion. The appellants simply asserted that the allotment "was void or voidable for breach of a fundamental condition of the offer to take up shares", being that the shares were to rank pari passu. The respondent countered with the assertion that the exceptions did not apply. Their oral submissions did not materially advance the position. Unassisted by the parties, my analysis is as follows.
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- A person can only become a shareholder of a company as a result of a contract between that person and the company: Re Compania de Electricidad de la Provincia de Buenos Aires Ltd [1980] 1 Ch 146 at 180; Fords Principles of Corporations Law 11th ed at [6-410], [17-170]. Whether the contract (and the resulting allotment) is void or voidable depends on ordinary contractual principles. A contract will be void ab initio in limited circumstances, including illegality and mistake. The appellant does not identify and I do not see any evidentiary foundation to support a finding that the allotment contract is void. The circumstances in which a contract is voidable (so that when avoided the contract is taken not to have existed) are also limited. Whether a contract is voidable is linked with the availability of rescission for matters affecting the formation of a contract such as misrepresentation. Rescission is not a remedy for breach of contract. The remedy for breach of a fundamental or essential contractual term is termination of the contract. However, termination only operates prospectively: McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 at 476 - 477.
55 The trial Judge found that the Company had represented to Doyle that the shares would rank pari passu with existing shareholders and I infer that is a finding of a representation for which rescission is theoretically available. He also found that the representation meant that the shares "could be traded and voted". As formulated, the proposition is on its face too wide. DCP was, to its knowledge, purchasing shares in a listed company. It is an implied term of the contract between a shareholder and a listed company that the company will comply with ASX listing rules: Zytan Nominees Pty Ltd v Laverton Gold NL (1988) 1 WAR 227. The listing rules empower ASX to act in ways that result in differential treatment of shareholders. LR 14.11.2, relied on by ASX in this case, is an example. Further, ASX has a discretion in relation to the quotation of securities after admission. If the reason for the ASX action in relation to the placement resulted only from the Company's breach of LR 7.1 (and I am unclear on this), the representation may be read down in that light. If the trial Judge had gone beyond a consideration of whether the placement was arguably voidable, he would have had to turn his mind to these issues as well as the availability of rescission. I am not satisfied that this Court can or should make a finding on whether the placement was voidable.
56 The next question is whether there was a bona fide compromise of an arguable claim that the placement was voidable. On that issue, the first matter to address is the precise terms of the arrangement relied on as the alleged compromise.
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57 It is not clear to me that the trial Judge actually made a finding as to the terms of the arrangement. The trial Judge separately analyses whether there was a reduction of capital and then whether there was a compromise of an arguable claim. However, he uses a different factual basis for his analysis of the two issues. This results in some difficulty for this Court in identifying and reconciling the findings relevant to the alleged compromise. It will be noted from the extract of the reasons cited above that the trial Judge referred to his finding that "objectively, the payment amounted to a reduction of capital". This finding was made in response to the appellants' contention that there was no capital reduction because the money was to be held in trust in accordance with the advice of the Company's legal adviser, Christopher Nash, a partner of Fiocco Hopkins Nash. Before going to the basis for the objective finding, it is necessary to refer to the evidence and findings concerning the legal advice received by the Company.
58 Prior to 21 November 1996 Satterthwaite had received legal advice from Leith Ayres, a solicitor employed by Fiocco Hopkins Nash, that the $400,000 could not be repaid otherwise than in accordance with s 195 CL. Nash gave different advice. There was a conflict of evidence as to the substance of the advice actually given by Nash. However, the trial Judge accepted Murphy's evidence on that subject. Murphy's evidence was itself vague and it is unclear whether he was giving evidence of what Nash said or the inferences Murphy drew from what Nash said. The trial Judge's summary of the relevant evidence is at as follows [172] - [174]:
"Murphy said (E 8, pg 52) that Nash said he would have to check up on it. Later on (Murphy could not recall if it was the same day or another meeting perhaps the next day - I am satisfied it was the same day, ie 21 November) he advised that the money could be paid back. It was an 'off-the-cuff' verbal opinion. Murphy said (ibid):
'… I remember thinking, "That's probably off-the-cuff".'
and Nash then said he would consult a barrister on the Company's behalf and get a written opinion. Murphy's impression was that this was a 'gut response'. Asked whether the matter was left open at that stage as far as Nash was concerned, Murphy's response was (E 8, pg 53):
'Mr MURPHY: I don't know what he thought.
Mr READING: As far as you were concerned?
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- Mr MURPHY: As far as I was concerned, it wasn't quite clear.
Mr READING: Whether what? The company had an obligation or whether the company could or couldn't do this?
Mr MURPHY: What the company could or couldn't do.
Mr READING: All right. In relation to this demand by Doyle?
Mr MURPHY: That's right.'
- Later Murphy explained that he recalled gaining some comfort from Nash's 'gut reaction' that it would be okay to pay the money back to DCP as long as the Company got the shares back. Then (at E 8, pg 57):
'Mr READING: It was made quite clear, was it, to yourself as well that the - and the company, as you understood it, that that was still subject to an opinion coming through on the matter?
Mr MURPHY: Yes. Even had the money gone to Doyle Capital Partners trust account, my understanding was that it wouldn't be released from the trust until such time as the correct opinion had been received.
Mr READING: So at that stage it was still very much up in the air whether in fact -
Mr MURPHY: Yes.
Mr READING: - that was - that was something the company could do?
Mr MURPHY: Yeah. It was something Mr Doyle was pushing for but the company was unsure about.'
The matter was specifically raised with him in cross-examination at the trial (E 132):
'Do you recall the advice that he gave?---Yes, he said the money could be returned provided it went to a trust account.
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- Provided it went to a trust account?---Yes.
Was anything more specific said about what trust account?
---To the trust account of Doyle Capital Partners.'"
59 The trial Judge's finding was in these terms:
"I accept Murphy's evidence that Nash's 'off-the-cuff' advice was that the money could be returned to DCP provided it went into a trust account pending counsel's advice."
60 The trial Judge found that Nash's advice was given on the morning of 21 November 1996, before the directors meeting held on that day. Later in his reasons the trial Judge provided a slightly different formulation of the finding. He said (at [226]):
"I have accepted Murphy's evidence that Nash advised that the money could be shifted to the DCP trust account. I am satisfied he advised that it should be held in a trust account pending counsel's opinion and resolution of the legal issues."
61 Either way, the finding is not reflected in the terms of the first, third and Circular Resolutions. I now return to the "objective" finding that the payment amounted to a reduction of capital. The trial Judge's reasons for the finding are as follows:
"It was submitted first that there was no capital reduction because the money was to be held in trust in accordance with Nash's advice. Although that was how the exercise was sought to be justified, that is not what actually happened.
According to the minutes of the meeting of 21 November it was proposed to cancel the allotment. The terms of the first resolution were that the money be returned to DCP for payment into that firm's trust account to be released on two conditions. Those conditions were the return to the Company of the share and option certificates and repayment of the $24,000 placement fee.
The Circular Resolution instructed Murphy to draw the bank cheque payable to DCP to be held pending advice from the ASX as to its ruling on the ability of the placement shareholders to vote their shares.
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- The minutes relating to the third resolution recorded that by the first resolution the previous day the directors had agreed to cancel the allotment. By the third resolution the board then confirmed that earlier decision on the proviso the Company received a refund of the $24,000 placement fee.
Doyle's position on what had been done and the conditions upon which the money was to be held in the DCP trust account was expressed in his letter to the Company dated 27 November 1996 (A 45), that being that the funds had been received by DCP as the result of the cancellation of the placements because the shares had been invalidly issued and would be returned to the allottees once the Company received the share and option certificates.
However Satterthwaite may have sought to maintain the money had been put into trust with DCP on condition that it would be either repaid to the allottees or returned to the company in accordance with counsel's opinion, that was simply not the reality. Even Doyle admitted he had not agreed necessarily to deal with the money in accordance with counsel's opinion.
I am satisfied the payment in these circumstances did constitute a return of capital."
62 It is tolerably clear from these passages that the trial Judge does not accept Satterthwaite's understanding as representing the objectively determined arrangement. Doyle's oral evidence was that the money was to be held on trust pending receipt of counsel's advice (albeit without the parties being bound to accept it as determinative) and resolution of the matter. In substance, what the trial Judge has done is to rely on the contemporaneous documents, being the minutes and Doyle's letter of 27 November, to make a finding that there had been a reduction in capital, but on Satterthwaite's (subjective) understanding of what had been agreed to make his finding that the repayment arrangement was not a compromise in accordance with the MacKellar principles. In my respectful opinion what the trial Judge failed to do but should have done is make a finding as to what the Company had actually resolved and agreed with DCP. However, it is open to this Court on the basis of the contemporaneous documents and the trial Judge's unchallenged findings to determine these matters.
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63 By its letter of demand dated 21 November 1996 to the Company, DCP purported to avoid (rescind) the placement. As appears most clearly from the minutes of the board meeting on 22 November 1996, the board at its meetings resolved to cancel the placement. There is no indication in the contemporaneous documents that the cancellation was pursuant to a compromise agreement. The board minutes also show that the Company resolved to release the placement money to DCP as trustee until such time as the Company received the relevant share and option certificates.
64 A minute of a directors meeting which is entered in the minute book and signed by the chair is prima facie evidence of the resolution to which it relates: s 258(2) CL. However, not all aspects of the board resolutions are supported by the oral evidence. Indeed, the trial Judge found that the common intention of Doyle and Satterthwaite (and later Mountford) was that DCP was to hold the placement moneys on trust pending counsel's opinion and resolution of the legal issues. As an aside, it is appropriate to record that the trial Judge made a number of statements in relation to Doyle that are difficult to reconcile with his finding of common intention (compare par 152 of the reasons on liability and par 60 of the reasons on penalty with pars 179 (on liability), 59 (on penalty)). However, all of the evidence supports the trial Judge's finding of the common intention to which I have referred. Where the participants differed, and on which there was no common intention, was whether counsel's opinion would be accepted by DCP and the Company as determinative of their legal entitlement. Having made the finding that the board minutes did not reflect what was actually resolved insofar as the terms of the trust were concerned, the trial Judge should have considered whether there was a reduction in capital and a compromise by reference to what had actually been resolved and agreed (if anything) with DCP. For it is the existence and terms of any agreement with DCP that is central to determining whether there was a MacKellar compromise. The evidence establishes that what was actually resolved by the Company also reflects what was agreed with DCP. Doyle was clearly acting in a dual capacity at the board meetings.
65 Thus, it was known to both parties that DCP had purported to avoid the placement, but there was a question as to the validity of any purported cancellation of the allotment by the Company. In light of that, the board resolved to cancel the allotment. However, the evidence establishes that Doyle on behalf of DCP agreed with the Company that DCP would hold the placement money on trust until the resolution of the uncertainty as to the legal position. Although the witnesses differed in their understanding as to whether or not counsel's opinion would be accepted by the parties as
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- determinative, the compelling inference is that in the event the cancellation of the allotment was accepted by both parties as valid or was established to be valid, the moneys would be paid to the allottees and if the cancellation was invalid, the money would be returned to the Company.
66 On those facts, DCP purported to avoid the placement and the Company purported to cancel the allotment, the result of which is to effect a reduction in the capital of the Company. The fact the Company had a contingent interest in the trust fund pending determination of the legal position and a right to the return of the moneys in the event the cancellation was invalid does not alter the position.
67 The next question is whether there has been a compromise of an arguable claim. In MacKellar there was a dispute as to the facts giving rise to MacKellar's right to avoid the allotment and the dispute was settled by the parties making mutual concessions. However, compromises can come in many forms. In this case DCP had purported to avoid the placement. The Company did not dispute DCP's claim that it did not get what it bargained for, but Nash provided legal advice that left room for doubt as to the Company's power to cancel the allotment otherwise than in accordance with s 195 CL. Notwithstanding that doubt, the Company acted to cancel the allotment in return for the placement money being held on trust pending resolution of the legal issues. DCP agreed to the arrangement, thereby foregoing its claimed right to the immediate return of the placement money. This is a compromise of an arguable claim that the placement was voidable and remains so even though the Company would be entitled to the return of the placement money in the event the cancellation was accepted or established to be ultra vires.
68 It remains to be considered whether the compromise was made bona fide. Although the trial Judge ruled that Satterthwaite believed the allottees had a legitimate claim against the Company and that he was acting bona fide, no finding on that issue was made in respect of Doyle. Doyle contends the same conclusions must follow as exactly the same facts relied on by the trial Judge were known to Doyle and to Satterthwaite. That appears so. It supports a finding, which I would make, that the compromise was bona fide. Accordingly, there was no unauthorised reduction of capital.
Whether Doyle in Breach of Section 232(6) CL
69 Ground 1 is formulated in terms of what the trial Judge should have held. It does not identify with the required clarity and precision the
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- alleged errors complained of. It appears to be contended on behalf of Doyle that, assuming he voted on the board resolutions in question, he did not breach s 232(6) for one or more of the following reasons:
(a) the Company had no entitlement to the placement money (I infer because the placement was void or voidable and had been avoided);
(b) the transaction did not involve an unauthorised reduction of capital (this ground covers (a) but is wider because it encompasses a bona fide compromise); and
(c) regardless of the lawfulness of the transaction, Doyle and the board acted in good faith on the basis of legal advice.
71 The High Court in Chew held that the connection between improper use and gaining an advantage or causing a detriment was purposive, not causal. The High Court said (at 633 - 634):
"Once one concludes that there is a purposive element in the offence, it is necessary to establish not merely that the accused intended that a result should ensue, but also that the accused believed that the intended result would be an advantage for himself or herself or for some other person or a detriment to the corporation.
The accused's state of mind is relevant not only to the requirement of purpose but also to the element of improper use of his or her position. If for example, an accused person reasonably but mistakenly believed that a particular transaction which he or she authorised was genuinely for the benefit of the corporation, that belief may, in an appropriate case, be material in determining whether the accused person can be held
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- criminally responsible for using his or her position in a manner which would objectively be seen to be improper."
72 Thus, in order to breach s 232(6) CL the following elements have to be established: (1) the defendant was at the relevant time an officer or employee of a corporation; (2) he used his position as such officer or employee; (3) his use of his position was improper; (4) he made that improper use for the purpose of gaining, directly or indirectly, an advantage, alternatively he made that improper use for the purpose of causing detriment; (5) the advantage was either for himself or for another person, alternatively, the detriment was to the corporation.
73 The accrual of an advantage or the suffering of a detriment is not an element of the prohibition: Chew at 633. Impropriety may result from an abuse of power (analogous to the administrative law doctrine of improper purpose) where the improper use and proscribed purpose are established by a single act or alternatively from conduct which is independently improper: R v Byrnes (1995) 183 CLR 501 at 512. Where, as in this case, the conduct is independently improper, it is a short step from there to the conclusion that a person made improper use of his position for a proscribed purpose: R v Donald, Ex parte Attorney-General (1993) 2 Qd R 680 at 684.
74 Receipt of a payment to which a third party is entitled at law can be an advantage for the purposes of the section: R v Donald (supra) at 685. In any event, the Court has to ascertain whether a person had a proscribed purpose at the time of the conduct in question and in that context, it is relevant to consider his appreciation of the circumstances at the relevant time: R v Byrnes (supra) at 512.
75 The trial Judge, in my respectful opinion, correctly identified and applied the relevant legal principles. The relevant improper conduct was, as found by the trial Judge, Doyle's presence at the board meetings on 21 and 22 November and his voting on the first, third and Circular Resolution. Such conduct was itself improper as it breached s 232A(1) CL. Doyle's purpose and intention in attending and voting at the board meetings has to be garnered from the surrounding circumstances at the time of the conduct in question, including his then state of knowledge. The trial Judge found that Doyle was aware of Nash's advice and concluded that his purpose in engaging in the conduct (objectively determined to be improper) was to advantage the allottees, including DCP, that advantage being the return of the money to DCP and Doyle's control when the allottees had no established lawful entitlement to it or
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- when any such entitlement was in question. That finding was clearly open and consistent with the weight of the evidence. It is not negatived or undermined by what in due course is found to be the correct legal position or that the course of action was consistent with legal advice given to the Company. For these reasons I would dismiss ground of appeal 1.
Voting Issues (Ground 2)
76 The first aspect of this challenge is that the trial Judge should have held that the only valid and effective resolution for the return of the placement money, and the only one treated as valid and acted on, was that of 22 November 1996.
77 Article 15.3 of the Companies Articles of Association provides that no business shall be transacted at any directors meeting unless a quorum is present, comprising two directors present in person who are entitled to vote at the meeting. Satterthwaite and Doyle were present at the directors meeting on 21 November. However, Doyle was not entitled to vote, as a result of which any resolution passed at the directors meeting is invalid (see also Clamp v Fairway Investments Pty Ltd [1973] CLC 40-077). Further, it follows that Doyle was not entitled to vote by, in effect, signing the Circular Resolution which is also of no force or effect. However, the validity or otherwise of the first and Circular Resolution is irrelevant as it is not an element of the prohibition in s 232A(6) CL that the intended advantage materialise.
78 The remaining contention is that the trial Judge wrongly inferred that Doyle voted at the meetings on 21 and 22 November 1996 from the fact that the minutes did not record who voted and who abstained; when there was no evidence that, had he abstained, the minutes would have recorded his abstention; and a finding that he did vote was against the uncontradicted evidence of Doyle, Satterthwaite, Mountford and Murphy.
79 Doyle's evidence was as follows. He spoke to Satterthwaite on 20 November and told Satterthwaite he was going to demand the return of the placement money. Satterthwaite asked him to attend a board meeting the following day as alternate director to Mountford. Doyle said when he agreed to do so, both he and Satterthwaite were aware that he had an intolerable conflict and therefore he could not vote on the matter. He thought there may have been some discussion about him being able to vote as an alternate, but he saw that he had a conflict and was not going to vote. Doyle's understanding was that he was present at the 21 November meeting to provide a quorum and was adamant he did not vote at the meeting. He recalled signing the Circular Resolution and said that
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- Murphy presented it to him and told him he was required to sign it. Although he read it, it did not appear to be anything other than an administrative matter. As to the meeting on 22 November 1996 at which Mountford took part by telephone from Chile, Doyle said Satterthwaite explained the situation and what needed to be done. Satterthwaite asked if Mountford agreed with what was proposed and Mountford asked if legal advice had been obtained and Satterthwaite told him it had. Both Satterthwaite and Mountford then voted in favour of the third resolution. Doyle testified that he did not vote. The trial Judge had concerns about the frankness and credibility of Doyle's evidence generally, for reasons which he detailed.
80 Satterthwaite's evidence was consistent with Doyle's. He said he was in no doubt that Doyle had no right to vote and did not in fact vote, although he could not recall what procedure was actually followed to pass the resolution on 21 November. He felt very uncomfortable about the position and was of the view that everything that happened at the 21 November meeting was invalid so he contacted Mountford and arranged a directors meeting for the following morning. According to Satterthwaite, he told Mountford at that meeting that he had obtained legal advice about the placement and Nash's advice was that they could return the money to Doyle's trust account. Satterthwaite also said he explained that Doyle could not vote and he needed Mountford's approval. Satterthwaite said Doyle did not vote at the meeting on 22 November.
81 Murphy was not asked whether Doyle had voted at the meetings on 21 and 22 November. Murphy prepared the minutes and said he would have recorded any abstentions or dissenting votes. It was put to him in cross-examination that he would have made a note if Doyle had voted. However, his evidence was equivocal as the following exchange shows:
"No, but you don't recall him voting either?---No, I don't particularly recall him putting up his hand. I don't think anyone - we did it like that.
You would have expected him not to vote either for it or against it since he had an interest in it?---Personally I would have, yes.
Yes. And you would have taken note, therefore, if contrary to your expectation he had voted for it, because it would have been in your view something he shouldn't have done?---Frankly, I expected him to vote for it because he had demanded the money anyway. I didn't note take (sic) of any abstention.
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- No. Can I just put it this way: you as an accountant and a company secretary were aware, were you not, that a person why [sic] has an interest, a director who has an interest in a particular resolution is not entitled to vote. You knew that, did you not?---I expect I did, yes.
…
Right. Therefore, if someone who had an interest in a resolution had sought to vote or had in fact voted on it you would have made note of that, wouldn't you?---I believe I would have. I didn't expect him to vote.
Could I suggest to you that the fact that you made no note of Mr Doyle voting leads to the inference that he didn't vote or you'd have noted it?---That's a reasonable inference you can put on it, yes."
82 Mountford's evidence was that he did not recall Doyle speaking at the meeting on 22 November and, in particular, did not hear Doyle say he was voting for the resolution. Mountford's recollection was that Satterthwaite was the person who spoke on the proposal.
83 The appellants did not challenge the trial Judge's statement of principle that a resolution made at a board meeting is an agreement which binds the Company and may be proved in the same way as any other agreement and that a vote is no more than an indication of a person present, by whatever means, and so understood by the others present, that they join or do not join in the making of the agreement and may be attended with strict or little formality.
84 The trial Judge's finding concerning the meeting of 21 November is as follows (at [181]):
"I find there was no actual vote taken in any formal sense. There was a discussion between Doyle and Satterthwaite in the course of which Doyle demanded the money be paid over. He was there in his capacity as alternate director of the Company. That was the understanding of all concerned and that understanding is reflected in the minutes. By maintaining the demand, by persuading Satterthwaite to agree to it and by proposing Nash's advice could be accommodated by putting the money in the DCP trust account, Doyle was an active participant in the decision made at the meeting. I consider that amounted to Doyle voting in favour of the resolution (as indeed
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- did Satterthwaite's mere agreement with what was proposed) in circumstances in which no formal vote was taken. I am further satisfied Murphy's minutes do not record Doyle as declaring a conflict of interest nor as abstaining, because nothing was said about either. Notwithstanding Murphy's concession in cross-examination that it would be reasonable to conclude he would have recorded Doyle voting if he had done so, I am satisfied he did not do so in these circumstances and that he would certainly have recorded Doyle as having expressly declared a conflict of interest and his abstention had Doyle done that. It was not recorded because Doyle said nothing to that effect. Those present certainly would have realised Doyle had a conflict of interest, but he nonetheless took part in the meeting and indeed, I am satisfied, he took the primary role."
85 It was clearly open to the trial Judge to find that, as Murphy said in his statement to the respondent, he would have recorded any abstentions. Murphy's answers in cross-examination are of little assistance to Doyle's case. As to the Circular Resolution, the trial Judge said (at [183] and [184]):
"… the Circular Resolution was also signed on 21 November as was the letter of authority to the ANZ Bank (A 37). Doyle signed the Circular Resolution as alternative director to Mountford. If the view had been taken by Satterthwaite, Doyle and Mountford that the decision at the board meeting had been made solely by Satterthwaite and that Doyle could not vote because of his position of conflict, it might be expected that the Circular Resolution would reflect that. I am satisfied it was signed by both Satterthwaite and Doyle in their capacities as directors and alternative director respectively, because that reflected the way the decision had in fact been made - and pending typing and confirmation of the minutes, it was the only formal record of the decision.
Satterthwaite's assertions that his view at the time was that everything done at the meeting on 21 November and the Circular Resolution itself were invalid, is unsustainable. If that had been his view at the time, he would not have done what he did - and nor would he have authorised the drawing of the bank cheque for payment to DCP, which he also did on 21 November 1996."
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86 In relation to the meeting on 22 November 1996, the trial Judge said (at [188] and [189]):
"Mountford's recollection of what was said, and by whom, was poor. He said he did not recall Doyle speaking but it was possible he did. The minutes record that it was not Satterthwaite but Doyle who explained the letter of demand and that a board meeting had been convened the previous day at which it had been decided to return the placement money to DCP. They record further that Doyle said he would give an undertaking that the shares and options would be returned, and that he explained to Mountford the consequences of the breach of LR 7.1 and the fact that the ASX had disallowed voting rights of the shares. Mountford was told what had been decided the previous day and was asked if he agreed with it. He did agree because he was told what was proposed was in accordance with the legal advice they had been given. I am satisfied that the discussion was between Mountford and Doyle, not Satterthwaite, and that it was Satterthwaite who said very little, if anything. The conversation was very brief, lasting only a few minutes. Satterthwaite had passed the chair to Doyle. The minutes record Doyle as explaining the matter to Mountford. Those minutes were confirmed and signed as correct by Doyle the following day.
No vote as such was taken. It was simply a matter of Mountford being asked if he agreed. When he said he did, those present considered the matter decided, the decision being to confirm the decision made the previous day, on condition that DCP returned the $24,000 placement fee. In these circumstances, I find that by his participation in the manner I have described, Doyle did effectively exercise his vote as a director of the company."
87 The contemporaneous documentary records provide strong support for the findings made by the trial Judge. The clear inference is that Doyle and the participants in the meetings were unmindful of Doyle's duty not to attend, or participate in the meetings or to vote on the first, third or Circular resolutions. Doyle's execution of the Circular Resolution is particularly compelling positive support for that view. Further, if the participants were conscious of, and acting in accordance with, the constraints on Doyle, it is to be expected that the minutes would expressly acknowledge the fact. They do not. I am not persuaded the trial Judge
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- erred in finding that Doyle voted on the first, third and Circular resolutions. In any event, even if Doyle did not vote, his presence at the meetings which gave him the opportunity to put DCP's case would constitute improper use of his position for a relevantly improper purpose. I would dismiss this ground of appeal.
Serious Breach - Adequacy of Reasons (Ground 3)
88 It is contended on behalf of Doyle that the trial Judge failed to give adequate reasons for finding the breach was serious and that there was no reasonable basis for the finding.
89 The question whether or not a breach is serious affects the penalty that can be imposed. Division 2 of Pt 9.4B CL deals with civil penalty orders for contravening civil penalty provisions. Firstly, the Court must declare that the person has, by a specified act or omission, contravened a civil penalty provision (s 1317EA(2)). That being done, the Court may under s 1317EA(3) also make, either or both, an order:
(a) prohibiting a person, for such period as is specified in the order, from managing a corporation;
(b) that the person pay to the Commonwealth a pecuniary penalty.
90 However, the Court is not to make an order prohibiting a person from managing a corporation if it is satisfied that, despite the contravention, the person is a fit and proper person to manage a corporation: s 1317EA(4). Further, the Court is not entitled to impose a pecuniary penalty unless it is satisfied that the contravention is a serious one: s 1317EA(5).
91 After a detailed survey of all of the evidence and after making relevant factual findings the trial Judge concluded that Doyle, by his presence and by voting at the board meetings on 21 and 22 November 1996 and by signing the Circular Resolution made improper use of his position as director to gain directly an advantage for other persons and thereby contravened s 232(6) CL. Without further elaboration the trial Judge recorded his satisfaction that Doyle's breach was a serious one for the purposes of s 1317EA CL.
92 The principles relating to the requirement to give reasons were recently considered by this Court in Mount Lawley Pty Ltd v Western Australian Planning Commission [2004] WASCA 149 at [26] - [29]. It
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- is unnecessary to repeat them here. It is not in dispute that the trial Judge had a duty to state his reasons for the conclusion that the breach was a serious one. In determining the sufficiency of reasons, it is necessary to look at the reasons as a whole: Garrett v Nicholson (1999) 21 WAR 226 at 248, per Owen J. Further, the degree of elaboration that is required will vary from case to case. A finding that a contravention is serious is a conclusion which is based on and often plainly apparent from the factual findings themselves without elaboration. I see little practical benefit in identifying alternative formulations of the statutory criteria such as, for example, that the breach of duty "must be grave or significant": Australian Securities Commission v Donovan (1998) 28 ACSR 583 at 608, per Cooper J; Australian Securities and Investments Commission v Plymin (No 2) (2003) 21 ACLC 1237 at [27]. It is clear from the trial Judge's reasons on liability and penalty that his conclusion that the contravention was serious was based on the findings which supported and led to his ultimate finding as expressed in his declaration. I am not satisfied there is appealable error.
93 In any event, an appealable error arising from inadequate reasons will not result in a new trial if the appeal court is entitled to consider and decide the matter itself: Mount Lawley Pty Ltd v Western Australian Planning Commission (supra) at [29]. That raises the second aspect of the challenge, namely that there was no reasonable basis for the finding. I disagree. The nature and circumstances of the contravention in question are the primary factors. To be present and actively participate at board meetings and to vote on resolutions on a matter in which Doyle had a material personal interest for (and in combination with) the purpose of benefiting a third party compels the conclusion that the contravention was serious. I would dismiss this ground.
Whether Satterthwaite in Breach (Ground 5)
94 Ground of appeal 5 does not identify any specific errors other than to contend in essence that the finding of breach was not open on the evidence. It is in the following terms:
"The learned trial judge erred in law in finding that the second appellant had breached either s 232(4) or s 232(6) of the Corporations Law, when:
5.1 The learned trial judge found … that the second appellant acted upon the advice of Mr Nash, an experienced lawyer.
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- 5.2 It was not found, and there was no evidence, that the second appellant either knew or ought to have anticipated that the first appellant would not hold the allotment moneys in the DCP trust account, pending receipt by the Company of further legal opinion and a resolution of the question of whether the allottees were entitled to return of the allotment moneys.
5.3 The learned trial judge found … that the second appellant acted bona fide in the belief that the allottees had a legitimate claim against the company, and on the evidence, that belief was reasonable.
5.4 The learned trial judge found … that it was likely that the second appellant was 'overwhelmed by it all'; 'very concerned about everything'; and had agreed to the return of the allotment moneys into the DCP trust account out of concern about the threat of legal action by the allottees, and in reliance on the advice of …".
95 The trial Judge found that Satterthwaite was knowingly concerned in Doyle's breach of s 232(6) CL. However, as no declaration was made in that respect and no penalty imposed, nothing turns on the outcome to the second appellant's challenge to this finding. Nevertheless, I propose to deal with it. As far as I am able to tell, the challenge is entirely dependent on the success of Doyle's challenge to the trial Judge's finding that he (Doyle) breached s 232(6) CL. I have dismissed that ground of appeal with the consequence that the second appellant's challenge to the trial Judge's finding that he was knowingly concerned in the contravention must also be dismissed.
96 The second issue is whether it was open to conclude that Satterthwaite breached s 232(4) CL. The trial Judge identified the relevant duty as follows:
"Satterthwaite owed a duty … to the Company and to its creditors, present and future, to see that its assets were not dissipated or exploited to their prejudice: … That included a duty to ensure the Company's capital was not reduced otherwise than in accordance with its Articles and the Corporations Law."
97 The trial Judge then considered whether there had been a reduction in capital and, if so, whether it was authorised. He found there was an
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- unauthorised reduction of capital for the reasons canvassed earlier. Based on that finding, the trial Judge stated his conclusion that:
"In my view it has been shown that Satterthwaite failed to exercise the degree of care and diligence that a reasonable person in a like position in a corporation would exercise in the circumstances of the Company at the time."
99 However, the trial Judge also made a finding of breach on an alternative basis. After rejecting the contention that there was no capital reduction because the money was to be held in trust in accordance with Nash's advice, he proceeded as follows:
"If I am wrong about that, and the money was being held in trust, I would find Satterthwaite had failed to exercise reasonable care and diligence. I would make that finding because on the situation as he knew it there was at the very least a real question whether the money could be returned to the allottees otherwise than by way of a reduction of capital (that was why Nash wanted counsel's opinion) and Satterthwaite failed to take any measures to ensure the money would be recovered by the Company if that became necessary. If his understanding of the terms on which DCP were holding the money on trust was as he stated in evidence, he singularly failed to have that reflected in the minutes, the terms of the resolutions, in correspondence or in any other appropriate way. He agreed to the course taken notwithstanding these deficiencies and as a result the money passed completely out of the Company's control, and in circumstances in which its interests with respect to the money were entirely unprotected."
100 This was the breach for which Satterthwaite was penalised, as clearly emerges from the trial Judge's reasons on penalty. He said at [85] of those reasons:
"… but [Satterthwaite] was acting bona fide and under considerable conflicting pressures. He acted on legal advice insofar as he was advised by Nash that the moneys should be held in a trust account pending counsel's advice and resolution
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- of the legal issues, the principal one being whether payment to the allottees would constitute an unauthorised reduction of capital. Satterthwaite's fault was in succumbing to the pressure from Doyle without ensuring that the funds would be held in trust strictly on condition that they would be dealt with in accordance with counsel's advice and specifically, that they would be returned to the Company if the legal opinion was that they should be. The resolutions which were passed did not reflect that condition at all and no other measures were put in place to do so. Satterthwaite simply passed the funds over to Doyle's absolute control. He failed to take any measures to ensure they would be returned if the payment was found to be an unauthorised return of capital. As a consequence of Satterthwaite's failure to exercise the degree of care and diligence that a reasonable person in a like position in a corporation would exercise in the circumstances of the company at the time, a substantial part of the capital of the Company passed completely out of its control in circumstances in which its interests in the moneys were entirely unprotected and where the lack of that capital subsequently resulted in the Company's insolvency. In my opinion this was a serious contravention of CL s 232(4)."
101 As already noted, the trial Judge found it was Satterthwaite's intention or at least his expectation that the placement money would be dealt with in accordance with counsel's opinion so that if counsel's opinion was that DCP had no right to retain the money, Doyle would repay it to the Company. The trial Judge found Satterthwaite's trust in Doyle was misplaced, as shown by subsequent events.
102 Having regard to the trial Judge's reasons on liability and penalty, there are arguably two findings of breach. The first and primary finding is that Satterthwaite permitted the money to pass completely out of the Company's control in circumstances in which its interests with respect to the money were entirely unprotected. Specifically it was said his fault was in failing to ensure the funds would be held in trust strictly on condition that they be dealt with in accordance with counsel's advice and, in particular, that they would be returned to the Company if the legal opinion was that they should be.
103 The evidence does not support a finding that the Company's interest in the placement money was entirely unprotected and that Satterthwaite failed to take any measures to ensure the money would be recovered by
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- the Company if that became necessary. On any view, the moneys were to be held in trust pending the resolution of the legal issue. The Company at all times had a proprietary interest (albeit contingent) in, and remedy against, the trust fund until resolution of the legal issue. There is no finding (or evidence to support it) that DCP would or might abuse its position as trustee. Indeed, the evidence is that the placement money remained in the DCP trust account until the dispute was settled by agreement.
104 Further, the findings of breach were made in the absence of any finding by the trial Judge as to whether there was a compromise agreement and, if so, on what terms. When looked at from that perspective, regard would be had to what is commercially and reasonably appropriate rather than what can be unilaterally imposed. As to what is commercial and reasonable, there would be serious doubts as to whether a party in the position of DCP would agree to have its legal entitlement to the funds determined by an unnamed counsel on a brief prepared by the Company's solicitors. In any event, there is no evidence that DCP would have compromised its claim on that basis. What may be reasonably achievable is that the funds be held jointly by the parties pending resolution or determination of the legal issue, thereby preventing misuse of the trust fund. However, in my view it is not open to find that Satterthwaite breached his duty by agreeing to a compromise that did not require DCP to return the money if counsel advised that the capital reduction was unauthorised.
105 There having been a bona fide compromise of DCP's claim, I am not satisfied that a breach of duty is established simply by virtue of the Company ceasing to have unilateral control over the placement money or by failing to secure DCP's agreement to repay the money if counsel advised that the capital reduction was unauthorised.
106 It may also be inferred from the trial Judge's reasons that a further breach was Satterthwaite's failure to have the compromise arrangement reflected in the terms of the board resolutions or other contemporaneous documents. It is unnecessary to deal with this possibility because it is outside the scope of the respondent's pleaded claim. The respondent pleads that at the time Doyle engaged in the relevant conduct he was aware, or should have been aware, that by paying the Placement Money to DCP's trust account that "funds in the sum of $400,000 would be thereby rendered inaccessible to [the Company] and would become funds under the complete control of DCP". Although the pleading seems more apt to cover the documented arrangement rather than the compromise
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- arrangement, it is sufficiently general to encompass both. However, it is not wide enough to cover a claim of inadequate documentation.
107 I would uphold ground of appeal 5 and set aside the declaration of breach.
Serious Breach - Adequacy of Reasons (Ground 6) and Penalty
108 Although it is unnecessary to deal with this ground of appeal, I propose to deal with an aspect of it. As appears from par 85 of the trial Judge's reasons on penalty, he identifies his relevant factual findings and then states his conclusion of a serious contravention. For the reasons given in relation to ground 3, the reasons are sufficient and do not give rise to an appealable error. However, in view of my conclusion on ground 5, I do not propose to deal with whether the finding of serious contravention was open or with Satterthwaite's appeal against penalty.
Doyle - Penalty
109 An appellate court is not entitled to intervene on penalty merely because it would have exercised the discretion in a manner different from the trial Judge. However, it is entitled to intervene if a material error of fact or law is discerned in the trial Judge's reasoning. Alternatively, error may be inferred if the result is unreasonable or unjust either because it is manifestly excessive or manifestly inadequate (Elliott v Australian Securities and Investments Commission (2004) 205 ALR 594 at [123], [147] - [152], [187] and [189]).
110 Doyle was banned from acting as a director for two years and a pecuniary penalty of $30,000 was imposed. The trial Judge stayed the penalty pending this appeal. It is pleaded that the penalty is manifestly excessive. I infer from oral submissions that it is contended on behalf of Doyle that a banning order should not have been made. It is not suggested the trial Judge misdirected himself on the law. He did not. He said (at [14] - [17]):
"There are two preconditions for the making of a prohibition order under CL s 1317EA(3)(a). The first is that the court has made a declaration of contravention under CL s 1317EA(2); the second is that the court is not satisfied that, despite the contravention, the person is a 'fit and proper person to manage a corporation' (CL s 1317EA(4)).
The principles of law relevant to the second precondition were stated by Merkel J in Re Tasmanian Spastics Association;
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- Australian Securities Commission v Nandan (1997) 23 ACSR 743 at 741 [sic]:
'Traditionally such a prohibition has been viewed by the courts as being primarily protective of the public rather than penal or punitive; CCA v Bracht [1989] VR 821 at 827; (1988) 14 ACLR 728; Friend v CAC (1988) 7 ACLC 106 at 115 and Nicholas v CCA (1986) 10 ACLR 792: 5 ACLC 258 at 265-6. The object of s 1317EA(3)(a) is to protect the public by preventing a corporation's structure from being able to be misused to the detriment of the company, its shareholders, creditors, investors and others dealing with the company. That objective is confirmed by s 1317EA(4) which provides that a court is not to make a prohibition order under s 1317EA(3)(a) if it is satisfied that despite the contravention, the person is a fit and proper person to manage a corporation. The objective is achieved by the court being conferred with power to prohibit persons who have contravened a civil penalty provision from managing a corporation for a specified period unless the court is satisfied that the person is a fit and proper person to manage a corporation.'
In Australian Securities Commission v Donovan (1998) 28 ACSR 583, Cooper J said at [35]:
'Because the power under s 1317EA(3)(a) is predominantly protective, it is relevant to have regard to the officer's prior corporate conduct, to the present activities of the officer, to the likelihood that the officer will repeat or engage in conduct of the type which constituted the contravention of s 232(4) which gives rise to the application, including whether or not the officer shows contrition or accepts responsibility for his or her conduct and the extent to which the officer benefited from the conduct personally or tried to conceal it.'
The wording of CL s 1317EA(4) makes it clear the court will not thereby be precluded from making a prohibition order unless affirmatively satisfied that, despite the contravention, the person is nonetheless a fit and proper person to manage a corporation."
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111 After detailing the nature and extent of Doyle's conduct the subject of the contravention the trial Judge concluded:
"Looking at the circumstances and the evidence as a whole, I am not satisfied that despite the contravention, Doyle is a fit and proper person to manage a corporation. To the contrary, the contravention indicates that he is not and the evidence before me has not satisfied me otherwise."
112 The primary submission for Doyle was that the trial Judge's approach to penalty was coloured by his finding that there was an unlawful reduction of capital. I accept that submission. The trial Judge stated in his reasons on penalty that the consequence of Doyle's improper use of his position was the unauthorised return of the placement money which, in turn, was a contributing factor to the Company's subsequent insolvency. As previously noted, the trial Judge did not rule on the appellants' claim that the placement was voidable and had been avoided. However, I have concluded that there was a bona fide compromise and therefore an authorised reduction of capital. Further, the weight to be given to the financial effect of the transaction on the Company depends largely on whether the transaction was wrongful.
113 It was also contended the trial Judge erred in concluding that it was Doyle who by his pressure effectively caused the payment to be made. It is said the trial Judge failed to differentiate between lawful pressure and any pressure imposed as a result of Doyle's presence, participation and voting at the relevant meetings. It is not suggested that Doyle acted improperly in his capacity as a director of DCP in writing and delivering the letter of demand. That was said to be the source of the pressure, alternatively, that there was no evidence to conclude that the placement money would not have been paid but for Doyle's presence and participation at the board meetings in question. There is merit in this submission. However, it is unnecessary to rule on it because I am satisfied that the erroneous finding that there was an unauthorised reduction of capital enlivens this Court's supervisory jurisdiction. It is open to this Court to exercise its own discretion as it has all the necessary materials (House v The Queen (1936) 55 CLR 499 at 505).
114 If this Court is affirmatively satisfied that, despite the contravention, Doyle is a fit and proper person to manage a corporation, it cannot make a prohibition order under s 1317EA(3)(a) CL. It is appropriate to start with the salient features of the contravention. The nature and circumstances of the contravention are serious. For a director to misuse his or her position
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- for a proscribed purpose is a serious departure from the standards of conduct required of corporate officers. The seriousness is compounded when, as in this case, the conduct engaged in to facilitate the purpose is itself wrongful. There was a clear and obvious conflict of interest to Doyle's knowledge. This was not a difficult, borderline case in which people acting in good faith might differ. It was a fundamental intentional breach of a basic and well-known standard of corporate behaviour by a very experienced director who is involved in the business of providing, inter alia, corporate advice to others. To be weighed against these factors is Doyle's reputation amongst his business associates and friends for a high degree of business acumen and expertise as well as personal honesty and integrity together with his prior good record of corporate behaviour.
115 However, in light of the nature and circumstances of the contravention and his background, there remains proper cause for concern that there is an unacceptable risk of repetition of corporate misconduct. For these reasons, I am not affirmatively satisfied that Doyle is a fit and proper person to manage a corporation. Thus, this Court has the discretion to make a prohibition order. I agree with Roberts-Smith J's conclusion for the reasons he gives that the impact of a prohibition order on Doyle's subsequent involvement in a new business venture and its employees is not a factor to which appreciable weight ought be given in the circumstances. The factors I referred to that activate the discretion justify the imposition of a prohibition order. However, having regard to Doyle's previous good character and reputation and the fact that there was no unauthorised reduction of capital, I am satisfied that a relatively short period of prohibition is appropriate. I would set aside the prohibition order of two years and in its place make a prohibition order of six months. I would not interfere with the pecuniary penalty of $30,000.
Conclusion
116 I would dismiss Doyle's appeal on liability and uphold his appeal against penalty. I would set aside the prohibition order of two years and impose a prohibition order of six months. I would uphold Satterthwaite's appeal on liability and set aside the declaration of breach of s 232(4) CL.
117 JENKINS J: I have read the reasons to be published by McLure J. I agree with those reasons and have nothing further to add.
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