Flinders Diamonds Ltd v Tiger International Resources Inc and Ors No. Scciv-02-1281
[2003] SASC 158
•29 May 2003
FLINDERS DIAMONDS LIMITED v TIGER
INTERNATIONAL RESOURCES INC and ORS
[2003] SASC 158Civil
WILLIAMS J.
Summary of Reasons for Judgment
The defendants Mr Barry and Mr Campbell (who are shareholders in Flinders Diamonds Ltd (“Flinders”), the plaintiff, in breach of s 606 of the Corporations Act 2001 (Cth) reached an arrangement or understanding (relevant agreement) between themselves in mid-2002 to vote their respective shares and the shares of the defendant companies to remove incumbent directors of Flinders and to replace them with their own nominees as part of a plan for Mr Anthony Campbell to become managing director. For this purpose Mr Barry, by agreement with Mr Campbell in August 2002, requisitioned a general meeting of Flinders’ shareholders.
The defendants acted and proposed to act in concert by virtue of the relevant agreement in relation to the affairs of Flinders and the agreement was made for the purpose of controlling or influencing the composition of the Flinders’ board and the conduct of its affairs. The defendants thereby became “associates” in terms of s 12(2) of the Corporations Act. As a person’s voting power includes that of one’s associates (see s 610(1)) the effect of the agreement was that the voting power of each defendant (as regards the shares of the other defendants) gave rise to the acquisition of a “relevant interest” (see s 608). By virtue of that acquisition the voting power of each defendant increased in contravention of s 606 and contrary to the Eggleston principles (see s 602). By reason of their agreement and association the defendants have acquired a “relevant interest” in more than 20% of the voting shares in Flinders contrary to the prohibition in s 606.
Mr Barry made this arrangement on his own behalf and on behalf of Tiger International Resources Inc (“Tiger”) of which he is the president and chief executive officer. Mr Campbell made the arrangement on his own behalf and on behalf of Campbell Corporation and Balance Tax of which in each case he is the sole director and shareholder.
Individual shareholdings of the defendants in Flinders Diamonds in relation to the total of voting shares is as follows:
Tiger International 29.74%
Mr Barry 6.89%
Mr Campbell 1.72%
Campbell Corporation 0.39%
Balance Tax 0.17%The defendants have failed to file a substantial shareholder notice (see s 671B) and they have failed (under s 672B) to disclose the interests arising from the relevant agreement upon being served with a direction under s 672A.
There will be a remedial order (under s 1325A) vesting the shares of the defendants in ASIC. This order is made as being the appropriate way of breaking up an illegal voting syndicate by persons who are deliberately flouting the law.
INDEX
Para No
Part 1 An outline of the claim....................................................................... 9
Part 2 The identification of a relevant interest.......................................... 26
Part 3 The history of the dispute................................................................ 36
Part 4 A move to replace the board gathers steam.................................... 45
Part 5 Mr Campbell’s approach to Mr Cornelius...................................... 73
Part 6 Other witnesses................................................................................. 87
Part 7 Statutory directions and disclosure................................................. 93
Part 8 A subterfuge.................................................................................... 103
Part 9 The case for the defendants........................................................... 111
Part 10 Primary finding and the consequence thereof............................. 123
Part 11 The authority of Mr Barry.............................................................. 132
Part 12 Relief............................................................................................... 145The plaintiff (a company incorporated in South Australia and listed on the Australian Stock Exchange) seeks remedial orders under s 1325A of the Corporations Act with respect to the actions of the five defendants who as shareholders in the plaintiff are alleged to have collectively agreed and attempted to take control of the plaintiff’s board in breach of the takeover and disclosure requirements of the Act. In particular by virtue of their “relevant agreement” breaches are alleged of s 606, s 671B, 672A and 672B of the Act in relation to the formation and operation of a voting syndicate with respect to the voting shares in the plaintiff which belong to the defendants.
Part 1 An outline of the claim
It is alleged that two of the defendants (Mr Patric Barry and Mr Anthony Campbell) made an arrangement between themselves to vote their respective shares and the shares of the defendant companies to remove incumbent directors of Flinders and replace them with their own nominees and to then exercise control so as to cause Mr Anthony Campbell to be installed as Managing Director of Flinders Diamonds. The informal agreement or understanding was modified in matters of detail between June 2002 (when it first emerged) and August 2002 but at all times the agreement (upon the plaintiff’s case) as proposed and entered into and carried into effect was for the purpose of controlling or influencing the composition of the board of Flinders and the conduct of the company’s affairs. For the purpose of giving effect to this agreement it is alleged that on 12 August 2002 Barry requisitioned a meeting of Flinders shareholders but amended his requisition on 15 August 2002.
Although the original arrangement or understanding between Mr Barry and Mr Campbell was that Anthony Campbell would be supported by Mr Barry and Tiger in seeking a board position for himself, it soon became evident that Anthony Campbell would not be generally regarded as a suitable candidate for election to the board of a public company. Anthony Campbell was banned by ASIC from acting as a representative of a security dealer and investment adviser for a period of two years from 18 March 1999; the decision of ASIC was upheld by the Administrative Appeals Tribunal on 16 March 2001. When this fact became known to Mr Barry and to those who were advising Mr Campbell, a decision was made that Mr John Campbell (the father of the defendant Campbell) should be put forward for election along with other nominees in anticipation of appointment of the defendant Campbell to be managing director (and to take Flinders in a new direction) after control of the board had been obtained.
Tiger International holds more than 20% of the voting shares in Flinders and Mr Barry himself holds more than 5%. It is the plaintiff’s case that the abovementioned arrangement or understanding (constituting a “relevant agreement” (see s 9)) created an association between the defendants leading to the acquisition of “relevant interests” (within s 608) and with the following consequences:
(a) The defendants by virtue of the transaction giving rise to the relevant interest have increased voting power of the respective defendants as associates from below 20% to more than 20% and increased voting power from a starting point that is above 20% [and below 90%]; this is prohibited by s 606(1). (Voting power is defined and calculated in accordance with s 610(1).)
(b) The defendants have not filed substantial shareholder notices in accordance with s 671B and have not each made disclosure of their relevant interest in accordance with s 672B upon a direction by Flinders being given to them under s 672A.
The plaintiff contends that the defendants have consciously and deliberately sought to conceal the making of this improper agreement, they have not given substantial shareholder notices and in their responses to a statutory direction from Flinders have disclosed nothing more than their own individual shareholdings.
The plaintiff’s case is that the defendants reached an understanding for the purposes of controlling or influencing the composition of the Flinders’ board or the conduct of the affairs of Flinders (see s 12(2)) and that the defendants thereby became associates, each of whom by virtue of that status conferring voting power is to be treated as having acquired a “relevant interest” in the voting shares of each other.
The plaintiff asserts that the conduct of the defendants is in flagrant disregard of the “Eggleston principles”. These are set out in s 602 as being the purposes of Chapter 6 (Takeovers) which include the following:
“... to ensure that the acquisition of control over voting shares in a listed company takes place in an efficient competitive and informed market ...”
and
“... to ensure that the holder of the shares and the directors of the company know the identity of any person who proposes to acquire a substantial interest in the company ….and are given enough information to enable them to assess the merits of the proposal ...”
and
“... to ensure that as far as practicable the holders of the relevant class of voting shares ... all have a reasonable and equal opportunity to participate in any benefits accruing ... though any proposal under which a person would acquire a substantial interest ...”
(see s 602(a), (b) and (c). See also per Merkel J in Australian Securities and Investment Commission and Ors v Yandal Gold Pty Ltd (1999) 32 ACSR 317 at pars 90 and 92).
The plaintiff (although it also seeks other orders) submits that an order should be made vesting the Flinders Diamonds shares (which belong to the defendants) in Australian Securities and Investment Commission for sale; the plaintiff contends that this is the appropriate way of breaking up an illegal voting syndicate.
Although the plaintiff’s case is partly circumstantial there is evidence of written communications directly between Messrs Barry and Campbell as to the actual agreement. During the course of the trial I ordered the inspection of a bundle of documents for which legal professional privilege was claimed by Mr Campbell. This bundle (exhibit PP in the action) included an exchange of emails between Mr Campbell and Mr Barry between 28 and 30 June 2002 whereby Mr Barry on his own behalf and on behalf of Tiger gave Mr Campbell what is described as an “irrevocable proxy”. When this bundle came to light there was not much else needed to prove the case for the plaintiff if I accepted that which was patent upon the face of the documents. However, I have reviewed the evidence generally so as to provide an appreciation of the continuing default of the defendants and the reason why the order sought by the plaintiff may be justified. It is the plaintiff’s case that the whole of the evidence shows that the agreement of Mr Barry and Mr Campbell was to use the combined voting power of all defendants to take control of the Flinders’ board and then to install Mr Campbell as managing director to run the company in a different way from the current management.
It is alleged by the plaintiff that it complied with a requisition by Mr Barry to call a shareholders’ meeting but an interlocutory injunction prevents the defendants from voting. The plaintiff contends that in breach of s 249Q the meeting was requisitioned otherwise than for a proper purpose (namely in furtherance of the illegal arrangement between the defendants).
The defendants (who were not represented professionally at trial) put up a spirited defence through Messrs Barry and Campbell, but Mr Barry and Tiger International then made extensive written submissions by way of a closing address prepared by Messrs Talbot and Olivier, solicitors of Perth. The defence on behalf of all defendants was filed by Cowell Clarke solicitors of Adelaide (as agents for Talbot and Olivier) but the closing submissions by Talbot and Olivier were made only on behalf of Mr Barry and Tiger International. I allowed Mr Brendan Taylor of Talbot & Olivier to address orally in support of the written submissions, although at this stage there continued to be no solicitor on file as acting for any of the defendants. Counsel retained on behalf of the defendants withdrew shortly before trial and the solicitors also ceased to act. The legal representatives in Adelaide and Perth whom I have mentioned were not involved in giving advice to the defendants with regard to the calling of the shareholders’ meeting or responding to the statutory requisitions by Flinders for disclosure of information.
Messrs Steinepreis Paganin, solicitors of Perth, took instructions from Mr Anthony Campbell to arrange for the calling of a meeting to change the Flinders’ board, and they corresponded with Mr Barry. Legal professional privilege was claimed in these proceedings for documents in their possession. As the case developed I reached the conclusion (as I have already observed) that this claim of privilege in a limited respect should not be upheld. My consequential order for inspection (when I overruled the claim for privilege) produced documents which were an embarrassment to the case for the defendants and disclosed communications between Mr Campbell and Mr Barry which ought to have been made available within the routine process of discovery.
I was asked by the plaintiff on 29 November 2002 during cross-examination of the defendants to overrule Mr Campbell’s claim of privilege as abovementioned upon the footing that sufficient had emerged for a conclusion to be reached that the claim for privilege should fail by an application of the principles set out in Southern Equities Corporation (In Liquidation) v Arthur Anderson & Co (1997) 70 SASR 166. In that case at 174 Doyle CJ said:
“... the claim of privilege will fail only if there is material raising an arguable case that the relevant communications were made for the purpose of furthering or assisting a crime or fraud, and that fraud in this context embraces a range of legal wrongs that have deception, deliberate abuse of or misuse of legal powers, or deliberate breach of a legal duty at their heart. It is not enough, I consider, that one could simply say that a transaction constituted sharp practice, or fell below the normal standard of commercial probity. It is not enough, I consider, that one would regard a transaction on which advice was sought as artificial, or as deliberately structured to take advantage of the law on a topic. In light of the authorities, one cannot be more precise than that.
It is not necessary to show that the solicitor in question is implicated. What is in issue is the purpose of the client. .....”
It then appeared to me that applying the test as propounded by Brennan CJ in Commissioner of Australian Federal Police v Propend Finance Pty Ltd and Ors (1997) 188 CLR 501 at 514 there were then “reasonable grounds” to conclude that Mr Campbell was involved in wrongful conduct in flagrant breach of the Corporations Act (so as to constitute a deliberate breach of his legal duty). The basis upon which I reached this provisional view can readily be seen by reference to the documents emanating from Mr Campbell himself, particularly during July 2002 and August 2002 and considered in the light of cross-examination. I gave short written reasons for my decision which should be read in light of this present judgment and what it reveals.
The plaintiff’s business is that of diamond explorer of tenements in South Australia, the Northern Territory and Western Australia. The plaintiff listed on the Australian Stock Exchange on 20 February 2002 following an initial public offering in terms of a prospectus dated 12 July 2001 (supplemented on 22 August 2001 and 21 November 2001). Flinders has 58,000,000 ordinary shares on issue. The Directors of Flinders are:
Mr Robert Kennedy, Chairman;
Dr Kevin Wills, Managing Director;
Mr Ewan Vickery, Non-Executive Director.
Tiger is a company incorporated in Canada and is the registered holder of 17,269,292 ordinary shares in the capital of Flinders (29.74 per cent of Flinders voting shares). Mr Barry is and at all relevant times has been the president and chief executive officer of Tiger and one of its directors. Mr Barry is the registered holder of 4,000,000 ordinary shares in Flinders (being 6.89 per cent of its voting shares). Mr Anthony Campbell is the registered holder of 1,000,000 ordinary shares in the capital of Flinders (being 1.72 per cent of its voting shares). Mr Campbell is the sole director and shareholder of Campbell Corporation Pty Ltd which is the registered holder of 225,000 ordinary shares in the issued capital of Flinders (being 0.39 per cent of its voting shares). Mr Anthony Campbell is also the sole director and shareholder of Balance Tax Pty Ltd which is the registered holder of 100,000 shares in the capital of Flinders (being 0.17 per cent of its voting shares). The shareholdings are those at the commencement of the trial. An interlocutory injunction generally prevents the defendants from dealing with their shares, although I have allowed Mr Campbell (upon his application) to dispose of some shares on the open market.
By letter dated 12 August 2002 solicitors (using the name of Mr Barry) made a request pursuant to s 249D of the Act that Flinders convene a general meeting for the purpose of considering and passing resolutions to remove Messrs Kennedy and Vickery as directors and to appoint Mr Lindsay Hay, Mr Joe Cornelius and Mr John Campbell (the father of the defendant Anthony Campbell) as directors. This request was superseded by a further request by letter dated 15 August 2002 in which the name of Mr Adrian Lungen was put forward in place of Mr Cornelius (who withdrew his consent to nomination). On 5 September 2002 the Board of Flinders gave notice to its shareholders of a meeting to be convened in accordance with the last-mentioned request. The holding of this meeting was injuncted by order of this court pending the hearing of this action.
In the previous paragraph I have described Steinepreis Paganin as “using the name of Mr Barry”. However, the evidence suggests that they were retained and paid by Mr Campbell who made the claim for privilege in respect of documents held by them. Mr Barry claims that Mr Campbell was his “gofer”. It is unnecessary to decide the precise relationship between Mr Campbell and Mr Barry and the firm of solicitors. A letter written by the solicitors on 15 August 2002 to Mr Cornelius (see Part 5 of the reasons) suggests to me that the solicitors were protecting the position of both Mr Campbell and Mr Barry, albeit upon instructions given by Mr Campbell.
Part 2 The identification of a relevant interest
Part 6.1 of the Corporations Act prohibits the acquisition of relevant interests in voting shares. The basic rule is set out at s 608(1):
“A person has a relevant interest in securities if they:
(a)........
(b)have power to exercise, or control the exercise of, a right to vote attached to the securities; or
(c).......”
Section 608(2)(b) provides:
“In this section, power or control includes:
(a)power or control that is indirect; and
(b)power or control that is, or can be, exercised as a result of, by means of or by the revocation or breach of:
(i) ......
(ii) an agreement; ........”
It does not matter whether the power or control is express or implied, formal or informal, exercisable alone or jointly with someone else. It does not matter that the power or control cannot be related to a particular security.”
Section 606(1) provides that with respect to a listed company:
“A person must not acquire a relevant interest in issued voting shares in a company if:
(a)......
(b)the person acquiring the interest does so through a transaction in relation to securities entered into by or on behalf of the person; and
(c)because of the transaction, that person’s or someone else’s voting power in the company increases:
(i) from 20% or below to more than 20%; or
(ii) from a starting point that is above 20% and below 90%.”
An agreement is defined in s 9 as a “relevant agreement” which in turn means an “agreement, arrangement or understanding ... whether or not having legal or equitable force ...”.
“Voting power” is defined in s 610 and includes the voting power attaching to a person’s associates.
“Associate” is defined in s 10 to s 17. By s 12(2) a person is an associate of another if one of the following applies:
“(a)......
(b)the second person is a person with whom the primary person has, or proposes to enter into, a relevant agreement for the purpose of controlling or influencing the composition of the designated body’s board or the conduct of the designated body’s affairs;
(c)the second person is a person with whom the primary person is acting, or proposing to act, in concert in relation to the designated body’s affairs.”
There are certain situations which do not give rise to a relevant interest, including that set out in s 609(5):
“A person does not have a relevant interest in securities merely because the person has been appointed to vote as a proxy or representative at a meeting of members, or of a class of members, of the company, body or managed investment scheme if:
(a)the appointment is for one meeting only; and
(b)neither the person nor any associate gives valuable consideration for the appointment.”
It is not in dispute that from about June 2002 onwards Barry and Campbell were both active in their common endeavours to secure replacements for Messrs Kennedy and Vickery as members of the board of Flinders Diamonds as a step towards the fulfilment of Mr Campbell’s ambition to become the managing director.
The plaintiff’s case is that the relevant agreement can be seen upon the face of the communications between Mr Barry and Mr Campbell and that the agreement extends far beyond s 609(5); the plaintiff contends that this direct evidence of an agreement is reinforced by the inference that the two men acted in concert based upon the concurrence of time, character, direction and result in their conduct. Upon the plaintiff’s case the agreement of the defendants which is evident as at 30 June 2002 was modified in terms of detail as to the manner of its implementation as the matter progressed but the essentials of the original arrangement were not changed. Thus, although the plan as at 30 June 2002 was for Mr Anthony Campbell to submit himself for election, this detail was later altered when it became clear that he would be “crucified” (to adopt Mr Barry’s comment) by virtue of the “skeleton in his cupboard” if his name were initially submitted to a meeting of shareholders as a candidate for election as a director.
The constitution of Flinders Diamonds is silent as to the appointment of an additional director by the existing directors. It will appear that in accordance with s 201H of the Act such an appointment may be made subject (in the case of a public company) to confirmation of the appointment at the company’s next annual general meeting. The power of directors to appoint a managing director is contained in s 201J of the Act. Rule 6.15 of the company’s constitution contains wide powers for the directors to confer authority upon a managing director and to vary or withdraw such authority. Although it did not become an issue at trial there appears to be a basis in law for implementing a scheme for the appointment of Mr Anthony Campbell as managing director without him being required to face election by shareholders in the first instance.
Upon the defendants’ case Mr Barry was providing a rallying point for disenchanted shareholders who were dissatisfied with the administration of the company and Mr Campbell was acting as his “gofer” (ie a person running errands and giving general assistance). The defendants rely upon s 609(5) of the Corporations Act which I have quoted and contend that although Barry and Campbell each had an interest in securing changes to the board of Flinders Diamonds, their common objectives did not lead them to make any agreement beyond that which is permitted by s 609(5). In any event Mr Barry contends that there is no evidence that Tiger International is bound by Mr Barry’s activities and statements.
Part 3 The history of the dispute
Flinders Diamonds was incorporated on 11 January 2000 with a view to its establishment as a public company to prospect for diamonds using funds to be raised from public subscription. In early 2000 Flinders Diamonds acquired from Tiger International its mineral rights to an exploration project in the southern Flinders Ranges known as the Springfield Project (and also some other land in the Adelaide Hills). This project (as described in the prospectus later issued by Flinders) is an area to the north-east of Port Augusta and bounded generally by Quorn on the south-west and Hawker on the north-east; the area of particular interest is centred on the Boolander Basin and the Springfield Basin each of which lies generally in the centre of the region. The company identified a “weak trail of subtle clues” to identify in geological terms a corridor running in a line from the Adelaide Hills near Mylor to Alice Springs. This corridor is intersected near Port Augusta by another corridor running through Port Pirie and Port Augusta towards Leigh Creek. The Springfield Project lies at about this intersection. The company has also acquired various interests along these corridors with a view to tracing the kimberlite which may contain diamonds. It also acquired an interest in the Kimberley area (near Hall’s Creek and the Argyle diamond mine).
In 1998 Tiger International commenced an aggressive search of the Springfield area through a joint venture with Amity International. This activity has been overtaken by the exploration programme outlined in the prospectus of Flinders Diamonds. It is of some importance to this case to appreciate the proposal which Flinders Diamonds took to the market. It is also important to appreciate the way in which Mr Barry subsequently seemed more interested in creating a climate in which he could pursue market opportunities than in supporting the judgment of Dr Wills and his management team as to expenditure on field drilling. This drilling took place in the course of unlocking the secrets of Springfield by pursuit of the systematic and detailed work described in the prospectus. By mid-2002 it is clear that Mr Barry’s dissatisfaction with the performance of the Flinders’ board was directly related to the sagging market price of Flinders shares. There is evidence that during 2002 Mr Barry and Mr Campbell developed a common interest in implementing a plan for management of Flinders Diamonds which would cause the market to view the company’s prospects in a different light. Amity International (whose principals are Geoff Moore and Linda Frewer) is now a shareholder in Flinders and it is relevant to this case to understand Amity’s longstanding interest in the project and Mr Moore’s personal acquaintance with Mr Barry.
Mr Patric Barry has been the president and CEO of Tiger International since January 1991. He grew up in Sydney but later moved to the USA in 1974. He manages his interests from Laguna Hills, California. He holds an MBA and is experienced in asset management. Tiger International is listed on the Canadian Venture Exchange. Mr Barry became a director and chairman of Flinders Diamonds on 11 January 2000 but somewhat reluctantly resigned from these positions on about 1 December 2001 due to concerns which had been expressed as to a perceived conflict of interest. He also then resigned as an employee of Flinders Diamonds where he had been retained under a consulting agreement.
Dr Kevin Wills is managing director and chief executive of Flinders Diamonds; he was appointed as a director of the company on 11 January 2000. He is an experienced geologist who was involved in the discovery of the Argyle diamond mine in Western Australia.
Mr Ewan Vickery, a director of Flinders Diamonds as from 16 June 2001, is an Adelaide solicitor with experience in the mining section.
Mr R.M. Kennedy is an Adelaide chartered accountant and was appointed a director of the plaintiff on 14 December 2001 to replace Mr Barry. He is chairman of a number of enterprises. The personal background of the directors is set out in the prospectus abovementioned.
Mr P.R. Taylor was a director from 26 April 2000 until 22 October 2001.
Mr Anthony Campbell is a Perth businessman who (as I have already observed) was banned from acting as a representative of a securities dealer and investment adviser for two years as from 18 March 1999. In June 2002 Mr Campbell harboured a desire to become the managing director of Flinders Diamonds. It is clear that as early as November 2001, when Dr Wills and Mr Barry were in Perth to discuss the intended float with stockholders, Mr Campbell was displaying his interest. Mr Anthony Campbell met Dr Wills and others at a hotel; Mr Campbell later discussed with company officers the possibility of him raising funds and obtaining a seat on the board. The officers of Flinders were wary of dealing with Mr Campbell, and significantly Mr Barry was unimpressed with Mr Campbell, regarding him as “a bit of a loose cannon”.
A principal concern of Mr Barry is and has been the implementation of a scheme to distribute amongst the shareholders of Tiger, in reduction of share capital, the Flinders shares held by Tiger. From the time of the public float Mr Barry was keen that this distribution should occur at a time when there was a market of sufficient strength to absorb the potential selling pressure. Mr Barry’s position is clearly explained in a letter dated 4 March 2002 to Dr Kevin Wills. These shares were issued to Tiger in April or May 2000 and upon the listing of Flinders on the Australian Stock Exchange in February 2002 (along with some other shares) they became the subject of an escrow agreement which (subject to the distribution in specie) prevented trading for two years. The distribution is seen by Mr Barry as having tax advantages for the Tiger interests when the Canadian system is compared with the Australian tax regime as regards the assessment of capital gains.
Part 4 A move to replace the board gathers steam
On 22 May 2002 Flinders Diamonds issued a public statement giving notice that drilling in the Springfield Basin was about to commence with a target at a depth of about 480 metres. Mr Barry immediately wrote to Mr Vickery on 23 May 2002 expressing his concerns, suggesting that Mr Barry be invited to rejoin the board and pointing out that he speaks for 21.3 million shares in general meeting. Mr Barry was obviously then referring to the total of his own and Tiger’s shares; contrary to the plaintiff’s submission I would not regard this observation, standing alone, as evidence of an arrangement between Mr Barry and Tiger in breach of s 606. The plaintiff has pleaded such an agreement but I do not consider that the evidence justifies that conclusion as at 23 May 2002.
On 27 June 2002 Mr Barry sent an email to Dr Wills with copies to Mr Vickery and to Mr Anthony Campbell in the following terms:
“Dear Kevin
Flinders is trading now at ten cents a share.
I’ve asked you three times to give me a timetable for a period during which there may be a period when I can distribute the Flinders shares to the Tiger shareholders as I committed to do. Yet the share price keeps declining, and I see no effort - absolutely no effort - on your part to repair the trend to lower prices with abysmal trading volume.
While you are a genius of a geologist, you clearly have no clue as to what it takes to run a public company, and it is time for a change.
In the short run, I’m going to indicate to Anthony Campbell that he has my support to come in and do whatever he can to repair the condition of the company and the Flinders market. Clearly, he couldn’t do as poorly as the existing management has done - which is absolutely nothing.
I’ll copy this email to Anthony Campbell - at least he’s interested in coming in ......
Anthony - good luck to you, sir ...... I hope that you have better success with running Flinders for the benefit of the shareholders.”
A copy of this email was sent to Mr Campbell with the following covering memorandum:
“You asked my position a couple of days ago ... read the other e-mail I just sent to Kevin, and this should explain it all.
I suggest that you call Kevin now and tell him that you wish to be invited to join the board of directors of Flinders Diamonds - if not, call a shareholders meeting and I’ll vote you on.
All I can say is good luck - and let me know what you are doing please on a daily basis if need be. Flinders today is ten cents - and this is absolutely unforgivable - I’d like to see this repaired as soon as possible, and I hope that you can do it.”
Later on 28 June 2002 Mr Barry sent an email to Mr Campbell after talking to Mr Peter Taylor, a former director of Flinders:
“Had a nice chat with Peter ... and I let him know that you have my irrevocable proxy. Good Luck - I’ll wait for the proxy to come for a) Tiger and b) my own shares.”
On 28 June 2002 Dr Wills (who gave oral evidence) had a phone call from Anthony Campbell. His file note speaks for itself. An extract reads as follows:
“Anthony Campbell phoned and, although I did not know which parts of his call to believe, he did have some interesting things to say.
Anthony said he was phoning to try to resolve things amicably rather than have a public bunfight. Anthony told me that Patric Barry does not want to be directly involved with Flinders, but he (PB) would put Anthony on the Board.
Anthony said that he had been offered another board position in Perth. He also said that he (AC) and Patric had done their sums and could speak for over 50% of the shares. I said that I did not believe him because of the number of small shareholders who have a total of over 28% of the vote. Anthony’s reply was ‘they won’t bother to vote’.
Anthony also said that he now had $10 million in the bank and could buy 50% of Flinders if he wanted to. I said that I thought most shareholders would appreciate the rise in the share price if he did this.
Anthony said that Patric is currently very frustrated because he does not know enough about what is going on and he is being pestered by Tiger Shareholders. Anthony continued by saying that Patric might calm down if I (KW) sent him more communications.”
On 28 June 2002 Mr Barry sent an email to Mr Campbell:
“I control 21.27 million. You have yours, Peter Taylor has his - they can’t assemble more votes than that to prevent a change.
..........
... but my guess is that we’ll have to call a shareholders meeting and vote you on.”
On 29 June 2002 Mr Barry wrote to Dr Kevin Wills:
“With regard to your group declining to invite me back on the board - well, you’ll have Anthony Campbell to deal with if he wants on the board and he’ll have the Tiger and my vote to support him. The management of the company (not the geology) is apparently not up to the task, and if a share price of ten cents (and heading lower by all appearances) is the best that you can do, then having someone else there that cares cannot hurt.
With regard to your choosing to not respond to Tiger’s commitment to distribute the Flinders shares, you’ll recall that you extracted that distribution commitment from me some time ago - and I agreed to do it so that you wouldn’t have a sizable block which could risk a takeover. The result of the distribution will be that 17 million shares will be free trading and able to hit the market, and it is certainly the directors’ responsibility to recognise this and deal with it for the sake of the present and future shareholders in the company, and in the interests of maintaining a balanced market. Your denial, and that of your board, of this obligation is a dereliction, Kevin - to deny the obligation just tells me that you and they deny their responsibility.
Remember that the board serves to represent the shareholders - and here is one shareholder that collectively speaks for a large block of shares in the Flinders who is clearly unhappy with the status that I have seen - a low share price and a board which (in this letter today) seems to be content to not share information with the market and the shareholders.”
On 30 June 2002 Campbell told Barry by e-mail:
“Hi Pat, we need 5% to call a meeting so I will require a letter from you from Tiger because I don’t have 5% with Peter or your own ...”
On 30 June 2002 Barry replied stating:
“I think what you need is named an irrevocable proxy let me know and I’ll be glad to help.”
On 30 June 2002 Campbell replied requesting the irrevocable proxy “on letter head”.
On 30 June 2002 Barry responded stating:
“Ah, is there a format that’s used in Australia? I know that in Canada one director can sign over seal, or two directors without a seal ... so I can sign over seal and fax it to you.
.... but what I’m asking is if there is a format you want followed, or do I just write a letter granting Anthony Campbell the irrevocable proxy over the (exact number) shares held in Flinders Diamonds by Tiger International Resources until (date).
There has to be a final date on the proxy since if I do the distribution then the proxy would lose its validity - and I won’t do the distribution until a) your effort has worked ....”
These lastmentioned four documents were not made available by the defendants until I overruled the claim for privilege in respect of documents held by Steinepreis Paganin.
On 1 July 2002 Mr A.W. Mackie, a geologist, was telephoned by Mr Campbell to solicit his proxy for a proposed meeting to change the Flinders’ board. Mr Campbell intimated that he held proxies from Mr Barry and his company and that he had 43% of the votes. (On 23 July 2002 Mr Mackie questioned Mr Barry by telephone, who confirmed that he had given his proxies (or support) to Mr Campbell because “the performance of the current management is such that Campbell couldn’t do worse”. There is an issue as to how exactly Barry may have expressed himself.)
On 11 July 2002 Mr Campbell sent an email to Mr Barry:
“No matter what happens when we get control and when, it would be wise not to distribute the shares till after the AGM just in case they mount a counter-attack after we get rid of them. If you know what I mean. Maybe you should distribute half after AGM and the balance in 6 months time, give us time to get going without a share price drop of magnitude.”
On the same day Mr Barry replied:
“Be confident of my full co-operation - the half and half I don’t think will work since there is an escrow requirement and a lo [sic] of expense involved in the distribution. I register your point about voting power and a possible retry, and I won’t forget it.”
On 16 July 2002 Mr Campbell faxed to Mr Mackie a “position paper” bearing that date; it set out:
Current Proposal
“Given the support of Mr Patric Barry and Tiger Resources as well as other major shareholders who have give (sic) irrevocable proxies there is support from about 43% of the shareholding to take some form of action.
It is proposed therefore
1.That a letter be sent to the Board of Flinders Diamonds Ltd advising of the calling of a shareholder’s meeting (need only 5% of capital for this).
2.At that meeting to remove the existing Board and replace them with
a. Mr A.J. Campbell as Managing Director
b. Mr J.K. Campbell as Executive Chairman
c. Mr Alister (sic) Mackie as Technical Director
3.Mr Wills’s ability as a geologist is well known and consideration is to be given to employing him in this capacity.
Request for Support
The group proposing these changes already has a commitment of 43% of the shareholding. Your collective 4 million shares would give the group about 48% of the vote and on a poll should win support for the proposal at a special general meeting. The group would also like to request the services of Mr Alister (sic) Mackie as Technical Director.
Your support for the proposal is requested.
ANTHONY J. CAMPBELL
Co-ordinator”
Another letter signed by Mr Campbell as “Group Co-ordinator” and dated 15 July 2002 was addressed to Mr and Mrs Lillis, Mr Mackie and others connected with Tennant Creek Gold Pty Ltd (which is a shareholder in Flinders Diamonds). The letter said:
“I have been approached by Tiger Resources and Pat Barry to take control of the board and management of Flinders Diamonds Ltd.
I currently have support from other shareholders who have the same concerns as the above. In total about 43% of the issued capital I have been promised irrevocably the proxies for.
On discussions with the current board, Mr Kevin Wills has said that the whole board do not wish me to join it and assist them. Mr Wills has said to me the whole board would leave if I was voted on. Our group would like to keep Mr Wills as a geologist and replace the whole board.
I propose to send a letter to the Flinders board calling a shareholder meeting (requirements are 5% of issued capital) and call a general meeting to dismiss the board and replace with myself Managing Director, a Mr John Campbell, Chairman and propose Mr Alister Mackie to be the other required Director to advise on geology and Technical matters.
...........
Our group proposes to manage the company better and address the above problems more effectively and efficiently. We would like to see an income producing business of some description owned by the company and an improved business outlook. We have in mind some admin cost cutting ideas which would free up additional capital waisted (sic) on admin for for exploration and drilling . We would like to raise further capital in the future to explore other new tenements to establish a mine. Additionally joint venturing some of the existing tenements instead of pursuing the drilling program ourself is an alternative we are considering.
Our group needs support from your consortium. Your collective 4 million shares would give us about 48% of the vote and on a poll should win the above proposal at a general meeting. This meeting however cannot take place for 2 months (rule 203d) as there are time restraints by the rules of replacing Directors. I ask that you join us with your support and supply Mr Mackie as a Director.
I also ask maybe Flinders after could acquire Tenant (sic) Creek Gold Pty Ltd which would provide the necessary business and cash flow required to give fresh impotence (sic) to the company.”
(On about 19 July 2002 Mr Campbell sent an email to Terry Lillis saying that “in hindsight ... it would probably be prudent to leave ‘Wills on the board if he wants to stay’.)
On 18 July 2002 Dr Wills made a file note of a phone call that day from Mr Campbell:
“Anthony phoned me to ask if I would be prepared to stay on the Board with him and his father. I said I would not. He said that was unfortunate and that he would like me to reconsider. I said I was not likely to change my mind.
Anthony said he knew we had a copy of the Position Paper he sent to Terry Lillis yesterday.
Anthony said that Patric had given him his proxies but that Patric did not want to be involved himself anymore. He said Patric wanted him (Anthony) to run the company.
Anthony told me that he had Tigers, Patric’s and his own shares and about 1.5 million other shares but he declined to say who the 1.5 million was from.
Anthony agreed he did not have 50% of the votes yet but said if he needed any more he would go and buy them in the market. He also said that he had not phoned the other shareholders yet and had only been talking to the Terry Lillis Group.
Anthony said he was drawing up an agenda for an extraordinary shareholders meeting and was seeing his lawyers to discuss the procedures today.”
On about 23 July 2002 there was a frank exchange of views by email between Dr Wills and Mr Barry. Dr Wills had warned Mr Barry of a point of view that there would be a “share price and market credibility disaster” if Anthony Campbell became involved in “turning this thing around” (ie the project). Mr Barry repeated his complaints as to the three occasions when he had been rebuffed (or to use his term “pissed off”) by the current Flinders board. He identified the three matters of difference as follows:
1. The board’s insistence that distribution of shares to Tiger shareholders was a matter for Tiger rather than being a matter of concern to Flinders in the interests of maintaining a stable market.
2. The refusal of Flinders’ board to accept Barry’s request for re-admission to the board.
3. The insistence of the board that Barry should be treated like any other shareholder and not be granted privileged information.
He then added:
“I see my position as being one of capitulation - the share price is down, and I don’t see my shares and those under my control receiving adequate representation. I don’t know if Anthony Campbell is the answer or the saviour, but at this point I think that anyone can do an equally poor job as the current administration and possibly better - and this includes Anthony Campbell. Anthony Campbell is an interested shareholder who believes that he can do a better job of generating a return for the shareholders than the present administration - and since the present administration has recently given me triple ‘piss of, Pat’ then I’m inclined to agree with him.
As you said in your letter, Kevin - the board felt that I should be treated like any other shareholder - well, that cuts both ways. The only choice that you left me was to support an alternative management group, which I have indicated to you and to that group (Anthony Campbell) that I will do. In reflection, you might ask yourself what other possible response your letter might have generated - piss of, piss off again, and then a third rebuff - all this to the guy who has more time, money and worry invested in this challenge than anyone, and he’s told to go away!! I won’t call Terry Smith - he was the one who placed me in the position of conflict which required my resignation, and while I didn’t agree with his position at the time, I’m not inclined to revisit the relationship.
Last year you were exceptionally insistent that the Flinders shares in Tiger be distributed because while I controlled Tiger the shares would be in safe custody but that if Tiger’s control should change then the large block might be detrimental to Flinders, and I agreed to effect the distribution. Four times since then I asked you for a plan - and while the first three requests were ignored the fourth brought a rebuff, and I am left with no choice but to support any management group that may generate a stronger public market which can better cope with the agreed upon distribution out of Tiger and better represent the shareholder interests.
.........
I’m going to let your board work out whatever it wants to work out with Anthony Campbell - with my evaluation of the overall situation having led to my sense of despair and frustration with the administration I feel that modification is the least, and change is the most, that may help. I previously made my decision known to both you and Anthony Campbell, and I’m not about to change it after the clear rebuffs that I have had from your board as a group.”
On 4 August 2002 Mr Campbell sent an email to Mr Barry in which he described himself as “your hard working on a Sunday business partner”. Standing alone I would be prepared to make allowance for the possibility that this description and the contents of the document were intended to be read “tongue in cheek”. However, the contents of that document (which I have reproduced in Part 9 of the judgment), if intended seriously, reflect to the discredit of Mr Campbell. Mr Campbell’s reference to the “takeover (sorry, management alteration papers - he ha he ha)” were an embarrassment to both Mr Campbell and Mr Barry in cross-examination. I compare this use of language with Mr Barry’s email (next mentioned below) where he refers to “some management adjustments at Flinders”.
On 7 August 2002 by email Mr Barry wrote to Anthony Campbell:
“It seems that Tiger may have made a decision regarding a merger / acquisition candidate which is outside the resource are a - I’ve told everyone that I am co-operating with a group in Perth which is working toward some management adjustments at Flinders, and that this will take sixty days from this Friday - so everyone has been told, and there will be no problem.
There is no agreement struck yet - the Tiger directors made a decision today to put an offer together - since one of them works in corporate finance at a large brokerage house then I’m leaving it to him to draft an agreement - the sixty day period that you need we’ll use as ‘due diligence’ time. However I can guess there will be pressure at some point in time from somewhere to get the Flinders share disposition resolved, so I wanted to fill you in so you know what is going on.
Until an agreement is signed (assuming it ultimately is) I won’t make any kind of announcement - and when I do I’ll copy you in any case - however when you are able I’d appreciate a timetable so I know (and can anticipate) the events chronologically so I can deal with deferring the distribution from this end. You can be confident that nothing will change at this end relating to the vote etc. However please do move forward with the meeting announcement as soon as possible.
Cheers
Pat”
In an email dated 3 August 2002 Mr Campbell wrote to Mr Barry:
“.... Kevin wants to see me while he is in Perth for diggers and dealers ... rude shock coming ... and Lillis is a bloody idiot for giving him our position paper as it is the cause of our pain (672 A etc ... you and me).
Kevin said its his lawyer responding and not him, nothing personal ... mine will be the same response when we take over the management ...”
[Diggers and dealers is a reference to a mining trade fair.]
In an email dated 7 August 2002 Mr Barry explained to Mr Campbell the difference between a form of proxy and the requisition of a meeting:
“That’s a separate instrument to the calling of the meeting - the proxies are sent out to the shareholders for the vote - and that is the time that I do the proxies for me and for Tiger ... however as I read your email, are asking for a proxy now ...? That’ll give us exposure under that Section 672A rule - I’d rather, unless there is some pressing reason, to simply vote the meeting in favour of the candidate that you put forward, including yourself.”
In an email dated 8 August 2002 Mr Campbell wrote to Mr Barry:
“Expected timetable will be given soon ... rough idea ... AGM around end November so after that dispurse (sic) as it will give us time to get in and then approach the market just after we have control but still allow us the value of your vote it (sic) anything happens.
FDL has to call meeting within 28 days of receiving letter which I hope to give Kevin on Friday ... You will need to sign Letter calling General Meeting then 28 days from there ... (so 60 days all up) so we need to call meeting asap (28 days notice but not before 60 days are up for outgoing Directors etc ... checking all details today and whether email of faxed signature ok.”
In an email dated 8 August 2002 Mr Barry wrote to Mr and Mrs Moore of Amity International (holding 1.55% of the voting shares):
“Anthony Campbell is a Perth shareholder, and has wanted to be appointed to the Flinders board from soon after it floated. I’ve decided, and made my intentions clear, that I am supporting Anthony Campbell to the full extent of my vote for my personal shares and those of Tiger totalling some 21.3 million shares. Other supporters have elected to join to support Anthony, and so there will be a special meeting called in the near future for the shareholders to consider electing new management.
Anthony will contact you and I’d suggest that you meet him and decide on whatever position you and Linda may choose to take. I’m not playing favourites here - while I have the greatest respect for Kevin as a professional and a friend, I am clear in my mind that he lacks the ability to lead Flinders to the heights we expect and demand. Consequently the alternative is the management team chosen by Anthony, and I’m prepared to support that team with the hope that they will make a success of Flinders, generate buying support and liquidity which will lead to financing support, and hopefully make a success of the company.”
Between 25 and 30 August 2002 there was a flurry of correspondence between Mr Barry, Mr Campbell and Steinepreis Paganin regarding information to go to shareholders. From 2 September to 13 September 2002 Mr Barry and Mr Campbell continued to exchange emails (at least thirteen) in the course of which Mr Barry explained what he thought his nominated candidates for election should be doing to promote themselves and how Mr Barry considered that public relations should be handled regarding the forthcoming meeting.
Part 5 Mr Campbell’s approach to Mr Cornelius
Mr Joe Cornelius is a Perth geologist. He has undertaken academic studies with respect to the operation of the Corporations Act so that after he had been approached by Mr Anthony Campbell to submit his name for election to the board of Flinders, he was eventually able to detect (as he saw it) the possibility of an unlawful element in the proposal and he then withdrew. However, he met Mr Campbell on 25 July 2002 and allowed his name to go forward as a candidate for election. He withdrew his consent on 14 August 2002.
Mr Cornelius was an impressive witness and I accept his evidence as being both reliable and truthful. The defendants made unsuccessful attempts to damage his credit in the witness box.
Mr Cornelius gave evidence of the meeting of 25 July 2002 and an extract from his written statement is as follows:
“8.... Campbell said words to the effect I want to turf the current Board of Flinders out. They are doing a horrible job and I can do it far better. I want to be appointed as a director and to be the managing director. I can do a better job of it than the current managing director, Kevin Wills. I am looking for other directors to join the Board with me. I’ve got about 43% of the votes at the moment. He said I have the votes of Tiger and they have 17.269 million shares. I have the votes of Pat Barry and he has 1 million shares. I have my votes of course and that’s 1 million shares. I have Peter Taylor’s votes and he has 1 million shares. I have the votes of Alistair Mackie and he has 500,000 shares. I have the votes of John Towie and Les Field and they have 200,000 shares.
...............
12.Campbell asked me after the explanation of what he wanted to do and whose votes he had whether I would be interested in assisting him to spill the current Flinders Board and to replace the current Board members as a director on the Board myself.
13.I said to Campbell that I did not know any of the people who were currently on the Flinders Board. I said to him that I would look into it and also consider whether I or someone else who I knew would be interested in assisting him. I said that we should meet again in the near future after I had considered things.
14.I also asked Campbell at this first meeting as to whether there were any skeletons in the closet that he or anyone associated with his group had. Campbell said that he had some. He said that he had faced 58 charges from ASIC regarding investment fraud and that he had only been found guilty of 5 of the charges.
15.During the meeting Campbell said he was not sure whether he could get the votes of Amity International Pty Ltd. I said I know Amity, that’s Jeff Moore and Linda Frewer. Campbell said, ‘will you contact him and get his votes, take him out to lunch maybe’. I said I would give Jeff a call.”
On 2 August 2002 Mr Campbell again met Mr Cornelius and provided a copy of the position paper. Mr Campbell disclosed that Flinders had obtained a copy through an employee, Alistair Mackie. During the meeting Mr Campbell disclosed that “he had Flinders on his back in relation to notices under the Corporations Act”. Mr Cornelius suggested that it would be better that Anthony Campbell should not stand for board membership in view of his unsatisfactory history as previously disclosed in terms of a “skeleton in his cupboard”.
Mr Campbell then agreed that his father would stand in his place. There was a discussion that Mr Lindsay Hay should also stand. Mr Cornelius asked to meet the other nominees and he later received a copy of their CVs.
On 15 August 2002 Mr Cornelius, Mr Hay and Anthony Campbell met at Mr Cornelius’ office. John Campbell was out of town. Later they all met up with John Campbell over lunch. Arrangements were made for Anthony Campbell to instruct Grange Consulting to provide corporate advice.
On 8 August 2002 a meeting was held at the office of Grange Consulting. Mr Edwards of that firm was present, together with Mr Foster, a solicitor of Steinepreis Paganin, Messrs Anthony and John Campbell and Mr Cornelius. Mr Foster ran the meeting and discussed a document called a “steps paper” which he had prepared in advance. Anthony Campbell said that Mr Barry had agreed that his personal shareholding of 4 million shares could be used to requisition the Flinders meeting and that he had agreed to send this request. Mr Campbell said that he had 46% of the votes, including those of Mr Barry. Anthony Campbell described the role to be fulfilled after a successful election - John Campbell to be chairman, Mr Hay to be company secretary, Anthony Campbell to be managing director and Mr Cornelius to be an executive/technical director. At an earlier meeting it had been agreed that Anthony would rely upon the other directors to appoint him rather than Anthony facing direct election by the shareholders. The meeting proceeded on the basis that Grange Consulting and Mr Foster were acting for Anthony Campbell, who was responsible for their fees.
Mr Cornelius also said in his written statement:
“58.During the meeting the topic of the requests for shareholding information from Flinders to Barry, Tiger and Campbell was raised. In relation to this issue I remember Foster said that for the purposes of the Corporations Act an associate would be anyone that Campbell had been in touch with in relation to getting their votes and as a consequence of Campbell having 46% of the votes, he may be a substantial shareholder. Foster said that Flinders could deem that Campbell was a substantial holder because he was representing a group of people and the term associate was very broadly defined.
59.During the meeting I stated that my research had indicated that nobody had any real dirt on Kevin Wills the current managing director. I said that I did not think it was a good idea (for shareholder support) to be seen to be trying to remove Kevin Wills given his knowledge of the projects in the company. I said that I thought it would [be] a better tactic to try to remove the other two directors and not to be seen to be trying to remove Kevin. I said that I thought it would be better to remove the other two directors and that Kevin Wills would probably resign if they were removed anyway. Edwards and Foster agreed with this course as did the others at the meeting for the purpose of getting brokers and shareholders support.
60.At the conclusion of the meeting it was agreed by all that Foster would prepare a letter to be sent by Barry to Flinders requesting a general meeting.”
After the meeting Anthony Campbell informed Mr Cornelius that he was not proposing to use Grange Consulting further in order to avoid paying two sets of fees to Mr Edwards and to Mr Foster.
On 9 August 2002 Mr Foster sent to Mr Barry via Mr Campbell the requisition for Flinders “board spill” under s 249D of the Corporations Act; the document recited the consent of Mr Cornelius to act. The written consent of Joe Cornelius is dated 12 August 2002. (The form of Mr Foster’s correspondence would suggest that he regards himself as acting for Mr Campbell; he wrote direct to Mr Barry on 12 August 2002 “As you are probably aware I am acting for Anthony Campbell ...”.)
After discussing the situation with Mr Jeff Moore (of Amity International) on 12 and 13 August 2002, Mr Cornelius notified Anthony Campbell of Mr Cornelius’s withdrawal of his consent to act.
On 15 August 2002 Steinepreis Paganin wrote to Mr Cornelius:
“As you are aware, certain information has been disclosed to you with regards to Mr Barry, Mr Anthony Campbell and their respective intentions in respect of the Company which is not public knowledge (Information). This Information has been communicated to you in circumstances giving rise to an obligation of confidence. We wish to advise you that you have an equitable duty to preserve the confidential character of the Information which involves the duty of not making unauthorised use of the Information.”
Although the evidence of Mr Cornelius was primarily tendered as against Anthony Campbell, an email dated 14 August 2002 from Mr Cornelius to Mr Campbell explaining his reasons for withdrawal were forwarded immediately by Mr Campbell to Mr Barry (see exhibits P79A and P80). This is submitted as evidence against Mr Barry, together with other communications with Mr Barry by the solicitors and Mr Campbell. This correspondence must be read in the light of exhibit 71 where Mr Barry sends an email dated 10 August 2002 to Mr Campbell saying, “OK. The die is cast, as they say”. That is a document noting that Mr Barry has just then secured a witness (Hans Newbert) to the original document containing his nomination of the proposed directors and in particular Mr Cornelius (see exhibit 78).
At this point the plaintiff’s counsel observed that the pieces of a jigsaw were starting to fall into place [see transcript 87]. I consider that the plaintiff’s counsel fairly adopted the practice of explaining the significance of the evidence as it developed. There was no room for the defendants in person to be caught by surprise in terms of the final submissions. They were properly on notice of the case against them (including the inferences which the plaintiff sought to draw) before they were invited to consider their own evidence and the matters to be raised in cross-examination.
Part 6 Other witnesses
Mr Alistair Mackie gave oral evidence; he is a shareholder in Flinders Diamonds and he is a director of Tennant Creek Gold. He and others interested in Tennant Creek Gold were responsible for raising about 50% of the seed capital of Flinders.
Mr Campbell told Mr Mackie on 1 July 2002 that together with shares which he and his companies held in Flinders and proxies received from Tiger and Mr Barry he had 43% of the votes in Flinders. From that point onwards Mr Campbell made a number of attempts to solicit votes of Mr Mackie and indirectly Mr Lillis. Mr Mackie received a copy of Mr Campbell’s position paper on 16 July 2002 and made it available to Mr Lillis and indirectly to Dr Wills. (It appears that it was receipt of this position paper which led to the issue of notices by the plaintiff under s 672A.)
According to Mr Mackie’s witness statement Mr Barry confirmed to Mr Mackie on 23 July 2002 that he had given his proxies to Mr Campbell “because the performance of the current management is such that Campbell couldn’t do worse”. Mr Campbell subsequently told Mr Mackie of alterations to his proposal whereby he would not be submitting his name as director but that Mr Campbell Senior and Mr Hay, when elected, would put him on the board. Mr Mackie’s evidence was supported by appropriate diary notes. I accept his evidence as being reliable and truthful. However, in cross-examination by Mr Barry, Mr Mackie conceded that Mr Barry may not have used the word “proxies” but may have only referred to his “support” for Mr Campbell.
Dr Wills gave evidence of formal matters and of the steps which were put forward as justification for notices under s 672A of the Corporations Act being sent to the defendants. He sets out the matters which in summary have given rise to his concerns as managing director of the plaintiff. I accept his evidence as being reliable and truthful. I consider that his concerns were genuine and reasonable; I reject the claim of the defendants that the issue of the notices was vexatious.
Mr A.D.W. Barker was called as an expert witness based upon his qualification as an information technology engineer who was given access by my leave to Mr Anthony Campbell’s laptop computer which was produced in court. Mr Barker’s observations as to the material which he was able to retrieve from the computer raised inferences as to slabs of information which had been deleted from the system. A gap in email dates was observed between July 2000 and 27 November 2002; Mr Barker gave his evidence on 28 November 2002.
I must consider this evidence along with the documentary evidence in this case which establishes that between 14 May 2002 and 23 November 2002 there were 233 communications between Mr Campbell and Mr Barry by telephone or email. The Telstra records show that some phone calls could be classed as “long” calls lasting sometimes in the vicinity of thirty minutes and sometimes in the vicinity of ten to fifteen minutes. There were also some short calls only lasting about one minute (see exhibit PH).
Part 7 Statutory directions and disclosure
On about 19 July 2002 Flinders served on Tiger, Mr Barry and Anthony Campbell a direction under s 672A of the Corporations Act. Tiger and Mr Barry responded on 22 July 2002 and Anthony Campbell responded on 24 July 2002. The responses were defective in that they disclosed the respective shareholdings of the individual defendants and nothing more; they did not satisfy s 672B. In further correspondence Dr Wills sought to persuade the three shareholders that their responses were defective, but without avail.
The common form of direction given to each of the three shareholders was expressed as follows:
“Direction pursuant to section 672A Corporations Act
Pursuant to section 672A(1) of the Corporations Act 2001 (“the Act”) Flinders Diamonds Ltd (“the company”) hereby directs you as a member of the company to make the disclosure required by section 672B of the Act.
Section 672B of the Act provides that as a person given a direction under section 672A you must disclose to the company:
1.full details of your own relevant interest in shares in the company and of the circumstances that give rise to that interest; and
2.the name and address of each other person who has a relevant interest in any of the shares in the company together with full details of:
2.1 the nature and extent of the interest; and
2.2 the circumstances that give rise to that other person’s interest; and
3.the name and address of each person who has given you instructions about:
3.1 the acquisition or disposal of the shares; or
3.2 the exercise of any voting or other rights attached to the shares; or
3.3 any other matter relating to the shares;
together with full details of those instructions (including the date or dates on which they were given).
Your disclosure must be made within two business days after this direction is given to you and the fee prescribed by the regulations is paid.
Pursuant to Corporations Regulation 1.1.01 we enclose with the hard copy of this letter $5.00 in payment of the prescribed fee for complying with this direction.
Yours sincerely
FLINDERS DIAMONDS LTDDr K. Wills
Managing Director”On behalf of Tiger Mr Barry replied by letter dated 22 July 2002 on the letterhead of Tiger International (from Mr Barry’s address at Laguna Hills, California):
“Gentlemen:
In response to your letter dated 19 July 2002 we respond as follows:
1.Tiger International owns approximately 17.3 million common shares of Flinders Diamonds Limited, acquired through the sale to the company of assets in return for the issuance of shares.
2.There is no other party that holds a relevant interest in the shares, other than the indirect interest of shareholders of Tiger, the names and addresses which are unknown to Tiger.
3.There is no other person who has given Tiger instructions outlined in your letter under part 3.1, 3.2 or 3.3.
Candidly, your letter is frivolous in the extreme and is a waste of our time. Due to the frivolity of your communication we will not respond to future 672A requests from you or your company.
In the meantime we see that your company has not included the printing of a post code on your letterhead, so this response is sent without a postcode in the address.
Very truly yours
Tiger International Resources IncPatric Barry
President”Patric Barry also sent an identical letter of the same date on his own behalf on his own letterhead but disclosing “approximately 4 million shares”.
Mr Campbell’s response to the abovementioned direction disclosed the shareholding of Mr Campbell, Campbell Corporation and Balance Tax. In further correspondence undated but received by Flinders on 31 July 2002 he added:
“... I would advise that I have disclosed my ‘relevant interest’ in the securities of Flinders Diamonds Ltd as required by s 672B of the Corporations Act. This is in accord with the opinion I have received and I would further advise that in the event of a meeting being held to consider the reconstituting of the board of directors of Flinders Diamonds Ltd that the proxy undertakings I have garnered by way of support from other shareholders do not constitute a ‘relevant interest’ under the Corporations Act as:
(i)I do not have control over the voting intentions of those proxies as they will be directed proxies;
(ii)The appointment will be for one meeting only;
(iii)No valuable consideration has been received for my appointment as a proxy.
...........”
A file note made on 2 August 2002 by Dr Kevin Wills of a telephone conversation that day with Anthony Campbell reads as follows:
“I phoned Anthony to try to arrange to see him while I am in Perth next week. We arranged a meeting for 11.00 am at his home office (61B Weaponess Rd, Scarborough) on Friday 9.
We talked about our exchange of letters on the Corporations Act Section 672B situation.
Anthony said he had taken legal advice and this was that section 672B was very ambiguous and that he had given us the required information.
He said he was very annoyed that Flinders had received a copy of his 16 July Position Paper as it was only meant to be a discussion paper and had not been widely circulated at this stage.
Anthony said he had various options at present and had been offered a board seat on a new junior minor IPO. He did not seem sure what he was going to do. He said he had plenty of contacts in business, politicians and union leaders which would enable him to take short cuts with the Springfield people and on Aboriginal and other matters to get things moving with drilling.
He was aware there is a problem in starting a new business that was not in Flinders Prospectus and that a shareholder vote would be needed for.
He claimed that Patric Barry had 41-42% of the vote tied up and that I would be surprised at some of his supporters.
He realises that he will need an exploration manager type to run the exploration programs. He said he wanted me to reconsider joining him, but if I did not then he knew several people who could do the job. He admitted that Alistair Mackie was not a suitable candidate and was no longer under consideration by him.
He wants to reduce the admin costs by $100,000 per year and said he could do most of this by ‘getting rid’ of Bob Kennedy.
We agreed to discuss the situation on 9 August.”
I treat this as being an accurate record by Dr Wills.
Nothing has been put before me to suggest that there was anything equivocal in the arrangements disclosed in email exchanges between Mr Barry and Mr Campbell on 28 and 30 June 2002. Mr Barry’s irrevocable proxy was granted to Mr Campbell. The arrangement to obtain “control” and exercise “voting power” is evidence upon the email exchanges between Mr Barry and Mr Campbell on 11 July 2002. The possibility of a “counter attack” at the annual general meeting is mentioned. The agreement obviously extended to a vote upon the counter attack. The obligation to make disclosure is clear but was not satisfied.
On 7 August 2002 Dr Wills wrote to Mr Campbell referring to Mr Campbell’s earlier response to the s 672A direction; he drew attention to the contents of the position paper dated 16 July 2002. Mr Campbell referred the correspondence to Mr Barry who by email dated 6 August 2002, 7.16 pm, (but 7 August 2002 in Australia) responded:
“Well, it gets more interesting.
As I recall, what I sent to you was a shareholder request for a meeting for you or your lawyer to convey to Flinders on my behalf. This didn’t convey and [sic] interest in my shares, so you have no interest to disclose other than those of your own shares.
I responded as per the attachment. I tried to fax it but their fax machine would answer but not handshake, so I emailed it instead.”
It appears that Mr Barry was attempting to explain away a difficult situation.
Part 8 A subterfuge
The position paper prepared by Mr Anthony Campbell and dated 16 July 2002 is amongst the documents which provide particular embarrassment to the defendants’ case. The way in which Mr Barry and Mr Campbell were subsequently prepared to resolve their difficulties in relation to the distribution of this document reflects poorly upon their integrity. I include this section in the judgment to demonstrate the contempt of these two men for the proper administration of the Corporations Act.
In an email dated 3 August 2002 Mr Campbell explained to Mr Barry that Mr Lillis was “bloody idiot” for giving Dr Wills “our position paper as it is the cause of our pain (672A etc ... you and me”. Upon all the evidence I am satisfied that Mr Barry was then in possession of the position paper and much earlier than Friday 13 September 2002 when he claimed to have first seen it. I consider that the evidence establishes that on 11 September 2002 Mr Barry by email to Mr Campbell criticised the position paper and on 12 September 2002 asked for a copy with a new dispatch date on it so that Mr Barry (in anticipation of some action by Dr Wills) could pass it on to ASIC with a “lame excuse”. Mr Barry usually had a quick (if not true) answer to most questions in cross-examination but there was an area where even he stumbled. I am satisfied that Mr Barry was party to a subterfuge by his emails of 11 and 12 September 2002.
The subterfuge to which I refer is apparent on the face of the following exchanges:
1. By email dated 11 September 2002 Mr Barry wrote to Mr Campbell:
“Having just filed a six page letter with ASIC saying I had no knowledge of where the Flinders folk learned that you would be going on the board, I’d say a couple of things at this stage:
(a)obviously the position paper was poorly thought out. Send me a copy, I’ll pass it on to ASIC with a lame excuse, and try to put it behind me.
(b)I’d say that now you’ve told me that you have a securities violation, minor as it is, that you should decide to not become a director of the company - the ex directors will crucify you and the company if you do. With your father on there you’ll still have the input and control, just not the formal identity of the directorship.”
2. Mr Campbell replied:
“You have a copy and when I get on the board, if Kevin resigns they will be all gone and will have no avenue to winge (sic) ... my lawyers said my banning was caused by my dealer and there lawyers (admin blunder) at my expenses and of no significance ... don’t worry all is well ... I have more up my sleeve to sort them out.”
3. Mr Barry replied on 12 September 2002:
“I want one with a new dispatch date on it ... I’m going to send a copy of to ASIC, since Kevin will forward it to them now as support for his getting your ambition into the mailing materials, and I will submit it first with a mark that it was not an ‘official’ document but merely a plan and that, as such, any reference to it did not belong in the mailings and was unethical etc. Please send me a copy.
Thanks
Pat”
Mr Barry in his evidence admitted receiving the position paper on 13 September 2002 but this was not the first time that the document had come to his attention. Mr Barry was asking for a fresh copy with a recent transmission date on it so that he could make up a story (“lame excuse”) by way of explanation to ASIC. However, it seems that Mr Campbell’s response - “you have a copy” - shows that at that point he was not sufficiently quick-witted to pick up the drift of Mr Barry’s request, who then repeated his request with an explanation.
This subterfuge is only important in that it is an example of why I consider Mr Barry to be dishonest. It is consistent with the standards displayed in Mr Campbell’s email of 4 August 2002 (mentioned below) where Mr Campbell muses upon the announcement which he was planning within “one week of being made managing director of fdl”.
I conclude that much of Mr Barry’s evidence is a gloss on the truth. Mr Campbell’s evidence was untruthful when it suited him. The evidence of each of these men is unreliable. Mr Barry (who is more quick-witted than Mr Campbell) was evasive throughout his cross-examination.
The present defendants have had the opportunity in their evidence to rebut the inferences which are available based upon a strong case against them. I disbelieve Mr Barry and Mr Campbell to the extent that they deny the allegation that they made an express arrangement for the purpose of taking control of the Flinders’ board and with a view to installing Mr Campbell as managing director.
The problem for the present defendants is that they set themselves the task of attempting to explain away documents which spoke for themselves and reflect poorly on Mr Campbell and Mr Barry.
Part 9 The case for the defendants
The defendants provided a joint written opening of their case and Mr Anthony Campbell and Mr Barry each provided a written witness statement. For the purpose of the closing addresses the case of Mr Barry and Tiger International was markedly different from the case put forward for Mr Campbell, Campbell Corporation and Balance Tax. Whereas Mr Campbell continued to represent himself for the purpose of the closing submissions, Mr Brendan Taylor of Talbot & Olivier, Perth, appeared by my leave on 26 March 2003 to speak to comprehensive written submissions which he had prepared (including argument in support of an application to adduce additional evidence).
It is clear that at the point of the final submissions Mr Barry and Tiger did not seek to support the position of Mr Campbell. Mr Taylor’s submissions recognise the obvious criticisms which can be made of Mr Campbell and he seeks to distance Mr Barry from Mr Campbell and his “diatribe” and “wild assertions”. I am grateful to Mr Taylor for his work.
The common case presented by the defendants is that Mr Campbell and Mr Barry had parallel interests in securing changes to the Flinders’ board, the former to promote his own career as the intended managing director of a public company, and the latter to protect the interests of Tiger shareholders in terms of a share distribution and general management as affecting the market for Flinders’ shares. This does not mean that the two men were acting in concert which required knowing conduct the result of communication between the parties (see Bank of Western Australia Ltd v Ocean Trawlers Pty Ltd and Ors (1995) 16 ACSR 501 at 524-525). Upon the defendants’ case (so it is submitted) Mr Campbell is prone to overstate facts in his enthusiasm for promoting his interests, but in terms of circumstantial evidence Mr Barry should not be penalised by these verbal excesses to which he was not a party. The defendants contend that Mr Campbell overstated the position by anticipating the voting support of others because he was confident in his expectations as to how various interests would express their dissatisfaction with the current board. Mr Campbell acknowledges having told Dr Wills that he had the “support” of shares held by Tiger, Mr Barry and Mr Campbell’s associated companies and other dissatisfied investors, but (according to the defendants) this is wrong in fact.
The defendants’ common case is that any discussion or commitment was in such broad and general terms that no understanding can be identified. The use of “we” in the email exchanges is a loose use of language and refers to the proposed new board of Flinders rather than the present defendants. The role of Mr Campbell was only that of “gofer” in Australia for Mr Barry in California.
The case presented by both personal defendants requires that allowance should be made for the peculiar brand of humour commonly enjoyed by Mr Campbell and Mr Barry; some communications (so they contend) ought not therefore to be read literally when they reasonably might have been said “tongue in cheek”. In anticipation of a meeting between Mr Campbell and Dr Wills, Mr Barry sent an email to Mr Campbell on 3 August 2002 providing a thumbnail sketch of Dr Wills as seen through Mr Barry’s eyes and warning him of Dr Wills’ likely strategy at the proposed meeting. On 4 August 2002 Mr Campbell’s email in response read:
“Hi Pat ... you will just be getting up soon. Yes I know all about Kevin and his games or strategy ... I will not tell him much at the meeting just hand him the takeover (sorry management alteration papers ... he ha he ha). Yes there are a couple of other good targets at Springfield ... Alister Mackie has said so .. A lucky break ... a drunken friend of a friend has run out of money because his mates are robbing his gold mine blind and living in 5 star hotels, spending $1,000 a night and he doesn’t know it ... he needs $ and I can buy his gold mine (a lot of alluvial and I mean tripping over it ... let alone digging a toilet and pissing on it ... we are taking samples at depth but you can see the gold in your hands (they had no water before) and the re is 1 million tonnes of stockpile with .6 gm per tonne easily coming out from a new plant (forgot the name ... ?? falcon ?? ... will investigate Monday ... same guy who brought this to me has the rights to a diamond mine ... proven and production could start 12 months ... 3rdly a rock collector found a green stone years ago and couldn’t remember where in the Kimberley ... they have just worked out where and it is unpegged, the rock is being tested Monday but sure it is kimberlyte ... well what a weekend if I could bring this all to Flinders ... announcing it all 1 week after being made managing director ... of fdl. OK ... business tomorrow to get all relevant documents ready to give to lawyers the Kevin ... Regards your hard working on a Sunday business partner.”
How much of this document is “tongue in cheek” is difficult to assess with confidence. Mr Barry was unable to explain what it meant to him but it appears to justify Dr Wills’ comment that there would be a share price and market credibility disaster if Anthony Campbell became involved in the company administration.
Mr Campbell explains his email reference to “your hard working business partner” (on 3 August 2002) as being a reference to two men who were “partners in Flinders by both being shareholders who wanted to improve Flinders”. Mr Campbell’s reference to “we” and “us” (“give us time ... after we have control”) in his email of 8 August 2002 to Mr Barry is again explained as being loose use of language. In Mr Barry’s email to Mr Campbell of 9 August 2002 he likewise uses the plural:
“I keep looking at these names and wondering why we are chucking Vickery and Kennedy off when you understand they’ll walk anyway ....”
Mr Barry explained this use of language as being a “general expression” and that he was tired at 12.35 am when he wrote it.
In his closing submissions Mr Taylor contends that Flinder’s case against Mr Barry (and Tiger) is largely dependent upon material which unfairly paints a misleading impression of Mr Barry’s involvement with his “gofer” Mr Campbell.
Points made by Mr Taylor include the following:
“9.Barry communicated by e-mail in late 2001 to Flinders saying that Campbell has been ‘hammering’ him with e-mails and that Campbell is ‘talking out of both sides of his mouth’ (Exhibit DM, PB3). Barry also says that Campbell ‘seems to have it in his mind that he’ll run it (ie being managing director) and yet I don’t see ability there’ (Exhibit DM, PB3) - underlined submission in brackets added.
10.Barry later describes to Flinders an e-mail received from Campbell as Campbell’s ‘latest diatribe’ (Exhibit DM, PB4).
11.What is clear from the e-mail communications of Campbell and the evidence generally is that:
(a) Campbell’s communications are the communications of someone who fervently wishes to be appointed to the board of Flinders and be its managing director;
(b) Campbell’s disqualifications by ASIC (a matter he concealed from Barry - Exhibits 105, 106 and 108) make it entirely unlikely, and perhaps almost impossible, for Campbell to be elected to the board of Flinders or any other listed public company;
(c) Campbell makes more of his involvement or support, than his actual involvement or support properly allows him;
(d) Campbell says things that are not true (T362, T263 L32-35, T444 L13-16) or an exaggeration;
(e) Campbell ‘hammers’ Barry, Wills and others with e-mail and telephone communications;
(f) it is readily apparent from the volume and content of those communications that Campbell ‘lives and breathes’ the trials and tribulation of Flinders;
(g) those that received communications from Campbell thought:
(i)he was ‘a bit of a loose cannon’ (Barry - Exhibit DM, paragraph 20);
(ii)that they should take whatever Campbell told them with a ‘pinch of salt’ (Wills - T274 L20);
(iii)they ‘did not know which parts of his call to believe’ (Wills - Exhibit 10).
..................
20.By e-mail dated 29 June 2002 from Barry to Wills (Exhibit 11), and in the context of past disputes between Barry and Wills over the performance of the company and the acrimonious attempts by Wills to have Tiger reduce its entitlement to shares in Flinders in the course of the listing process, Barry said that:
‘With regard to your group declining to invite me back on the board - well you’ll have Anthony Campbell to deal with if he wants on the board’.
21.At that time Barry was minded to support Campbell’s election to the board.
33.Buoyed by Barry’s e-mail support, Campbell called Wills and said that:
(a) on a vote to replace the board Campbell could get 50% of the votes - that was not true (Exhibit DN, paragraph 57);
(b) Campbell had $10m in the bank which could buy 50% of Flinders if he wanted to - this also was not true (Exhibit DN, paragraph 60).
..............
35.In early August 2002 Barry decided that he was prepared to call a special general meeting himself and communicated that fact to Campbell.
36.In or about early August 2002 Barry had Campbell (his gofer) locate people, and forward to him information concerning those people, that might be put up by Barry as directors of Flinders (T350 L10-13, T359 L32-36, T363 L36, T364 L1, T403 L19-23). Those people were John Campbell (his father), Lindsay Hay and Joe Cornelius.
37.Barry, who was in the United States, considered those nominations and believed the people identified by Campbell, who was in Australia, were appropriate.
38.The fact that Tiger had not provided its support for the directors proposed by Barry to take control of the board of Flinders is supported not only by the evidence of Barry and the absence of reference to discussions between Barry and the other directors of Tiger in the extensive e-mail communications but also the fact that the meeting was requisitioned by Barry and not Tiger.
.............
40.Mark Foster of Steinepreis Paganin, on Campbell’s instructions, subsequently forwarded by e-mail to Barry attaching a draft letter to be signed and returned by Barry convening a meeting under s 249D of the Act (Exhibit p77).
41.Barry subsequently signed the notice and returned it to Steinepreis Paganin. By letter dated 12 August 2002 Steinepreis Paganin forwarded the requisition to Flinders (Exhibit 78).
.............
43.Subsequently, Adrian Lungan was identified by Campbell, and chosen by Barry, to replace Cornelius as a nomination to the board of Flinders.”
In making submissions on his own behalf and on behalf of Campbell Corporation and Balance Tax, Mr Anthony Campbell adopted the submissions made on behalf of Mr Barry and Tiger.
In my opinion the submissions made by Mr Taylor, helpful as they are, do not address the real difficulties which are apparent upon the face of the documents.
Part 10 Primary finding and the consequence thereof
In my opinion the criticisms made of Mr Anthony Campbell in the closing written submissions of Mr Barry and Tiger International are justified. I consider that the case against Mr Barry should be assessed (at least in the first instance) by reference to Mr Barry’s own statements. There will then be a further question (which I separately address in Part 11 of this judgment) as to whether Tiger is bound by the actions and statements of its president and chief executive officer.
In their defence neither Mr Barry nor Mr Campbell was able to provide a satisfactory explanation for the documents which emanated from them respectively. I am satisfied that the two men reached an understanding and that they are both untruthful in their attempts to explain away that which appears obvious upon the face of their own documents. Mr Whitington QC put the principal documents to each of the personal defendants and sought their explanations. They were each discredited to the point where I treat the documentary evidence as providing a basis for getting at the truth and I reject the attempts of Mr Barry and Mr Campbell to explain away what they have written. Nevertheless it is easier to accept that which seems plain upon the face of the documents after the personal defendants have been given the opportunity to put them in context and to make explanation.
On 28 June 2002 by email Mr Barry told Mr Campbell that “you have my irrevocable proxy ... I’ll wait for the proxy to come for (a) Tiger and (b) my own shares”.
On 30 June 2002 (following a phone call the previous day of 27 minutes between Mr Barry in the USA and Mr Campbell in Australia) Mr Campbell told Mr Barry by email:
“I will require a letter from you from Tiger ...”
Mr Barry replied:
“I think what you need is named an irrevocable proxy. Let me know and I’ll be glad to help.”
Mr Campbell replied requesting the irrevocable proxy on letter head. Mr Barry replied:
“Is there a format you want followed or do I just write a letter granting Anthony Campbell the irrevocable proxy over the ... shares ... held by Tiger International.”
In my opinion the evidence establishes that from about 30 June 2002 (if not earlier) Mr Barry and Mr Campbell had an understanding that they would vote collectively the shares of at least Mr Barry, Tiger and Mr Campbell; I infer that the arrangement extended to the shares in Campbell Corporation and Balance Tax. I am able to reach this conclusion primarily by reference to the statements and conduct of Mr Barry himself, and notwithstanding the perceived shortcomings of Mr Campbell which Mr Barry (via Mr Taylor) has pointed in the course of final submissions. My conclusion as to the existence of an understanding between Mr Barry and Mr Campbell is reinforced by their later email exchanges and in particular the email exchanges of 11 July 2002. Mr Campbell’s position is clear from his position paper. Mr Barry’s position appears from his email of 23 July 2002. The implementation of the understanding and their collective attempts to take control of the Flinders’ board is apparent from the part played by Steinepreis Paganin in their dealings with Mr Barry and Mr Campbell (his so-called “gofer”) leading to the requisition of a meeting of Flinders’ shareholders.
I can reach the same conclusion as regards Mr Campbell by reference to his own statements and conduct and by reference to his exchanges with Mr Barry.
I find that the understanding alleged by the plaintiff has been proved.
I do not see this case as giving rise to difficult questions as to the extent to which evidence adduced against one defendant might be used as against others.
The consequences of my findings are:
1. The defendants became associates:
(a) by virtue of their understanding (see s 12(2)(b)); and
(b) by virtue of the fact that they were acting in concert (see s 12(2)(c)).
2. There should be an aggregation of votes of all defendants in Flinders:
(a) in order to calculate the voting power of each of them (see s 610); and
(b) in order to calculate whether there has been a movement in shareholding greater than 1% for the purposes of s 671B.
3. There has been an increase in the relevant interest of each defendant by the operation of s 608 outside the permitted terms of s 606.
4. There has been a failure by each defendant to give a substantial shareholder notice under s 671B(3).
5. There was an obligation on Tiger and the two personal defendants as a result of the s 672A notice to make disclosure under s 672B but each of those defendants in responding to the statutory direction failed to disclose the crucial information.
Part 11 The authority of Mr Barry
An issue has been raised by the defendants (in a supplementary submission) as to the authority of Mr Barry to bind Tiger International in terms of his understanding or arrangement with Mr Campbell. Although the point was not raised on the pleadings, I allowed the matter to be pursued after the parties agreed upon some additional evidence to be placed before me. This agreement was reached in the course of a hearing on 26 March 2003 when Mr Barry sought to adduce further evidence.
By agreement I received the articles of association of Tiger, together with the transcript of an extract from cross-examination of Mr Barry on 21 March 2003 in the course of the application to re-open evidence. It was agreed that the excerpt of evidence should stand as evidence at the trial. In this extract Mr Barry was cross-examined as to the source of his authority to swear an affidavit in these proceedings on behalf of Tiger. (The affidavit of Mr Barry was sworn on 24 September 2002 and a copy is on file as an exhibit to an affidavit of a solicitor sworn on 26 September 2002.) Mr Barry in that affidavit says:
“1.I am the president, a director and the Chief Executive Officer of the first defendant (‘Tiger’). I am the second defendant in this action. I am duly authorised to swear this affidavit on behalf of Tiger in opposition to the plaintiff’s application for interlocutory relief.”
The cross-examination was as follows:
“Q.Did you obtain that authority by way of admitted resolution.
A.Yes, there was a director’s resolution done several years ago authorising me to sign documents between Flinders and Tiger.
Q.And it was on that basis that you deposed to the matter in the third sentence in paragraph one.
A.I felt in that particular case that I was authorised by a specific director’s resolution to sign that document, yes.
Q.We have not seen that document in these proceedings have we.
A.That director’s resolution?
Q.Yes.
A.I imagine not. I would point out it has been provided previously to the plaintiff. The plaintiff would have a copy.”
It is also agreed:
(i) that Mr Barry is not the managing director of Tiger;
(ii) that there is no managing director of Tiger; and
(iii) that Tiger has no executive committee.
However, there is evidence that Mr Barry is the chief executive officer of Tiger and is the president of the company and a director.
The defendant Tiger relies upon articles 10.5, 10.6, 16.1, 17.1, 17.2, 17.3, 18.1, 18.2, 18.3, 24.1 and 24.2. Clause 10 provides for “Proceedings at General Meetings” and authorises the chairman of the board, or in its absence the president to preside. Clause 16 deals with “Proceedings of Directors” and provides that in the absence of the chairman the president shall preside. Clause 17 deals with “Executive and Other Committees” and extracts read as follows:
“17.1The Directors may be resolution appoint an Executive Committee to consist of such member or members of their body as they think fit, which Committee shall have, and may exercise during the intervals between the meetings of the Board, all the powers vested in the Board except the power to fill vacancies in the Board, the power to change the membership of, or fill vacancies in, said Committee or any other committee of the Board and such other powers, if any, as may be specified in the resolution. The said committee shall keep regular minutes of its transaction. ........
17.2The Directors may by resolution appoint one or more committees consisting of such member or members of their body as they think fit and may delegate to any such committee between meetings of the Board such powers of the Board (except the power to fill vacancies in the Board and the power to change the membership of or fill vacancies in any committee of the Board and the power to appoint or remove officers appointed by the Board) subject to such conditions as may be prescribed in such resolution, .........”
Clause 18 deals with “officers” and I reproduce it in full:
“18.1The Directors shall, from time to time, appoint a President, and a Secretary and such other officers, if any, as the Directors shall determine and the Directors may, at any time, terminate any such appointment. No officer shall be appointed unless he is qualified in accordance with the provisions of the Company Act.
18.2One person may hold more than one of such offices except that the offices of President and Secretary must be held by different persons unless the Company has only one member. Any person appointed as the Chairman of the Board, the President or the Managing Director shall be a Director. The other officers need not be Directors. The remuneration of the officers of the Company as such and the terms and conditions of their tenure of office or employment shall from time to time be determined by the Directors; such remuneration may be by way of salary, fees, wages, commission or participation in profits or any other means or all of these modes and an officer may in addition to such remuneration be entitled to receive after he ceases to hold such office or leaves the employment of the Company a pension or gratuity. The Directors may decide what functions and duties each officer shall perform and may entrust to and confer upon him any of the powers exercisable by them upon such terms and conditions and with such restrictions as they think fit and may from time to time revoke, withdraw, alter or vary all or any of such functions, duties and powers. The Secretary shall, inter alia, perform the functions of the Secretary specified in the Company Act.
18.3Every officer of the Company who holds any office or possesses any property whereby, whether directly or indirectly, duties or interests might be created in conflict with his duties or interests as an officer of the Company shall, in writing, disclose to the President the fact and the nature, character and extent of the conflict.”
Clause 24 deals with the seal of the company and the authority for affixing it.
It is of the essence of the case for Tiger that evidence of appropriate actual authority on the part of Mr Barry within the terms of the articles must be established; Tiger contends that this evidence is lacking.
In my opinion the liability of Tiger for the acts of Mr Barry in the case arise out of the operation of the indoor management rule with respect to corporations as discussed by Brennan J in Northside Developments Pty Ltd v Registrar-General and Ors (1990) 170 CLR 146 at 176-177:
“The indoor management rule is really a presumption of regularity. To use the Latin maxim, omnia praesumuntur rite esse acta: Morris v Kanssen [1946] AC at 475. The presumption is no more than a presumption of fact. Whence does it arise? It arises from the likelihood that a company has given to its officers and agents the authority needed to carry on its business and to act for its benefit within the limits of the authority which officers and agents in their respective positions would ordinarily possess. The presumption might reasonably be made when the officers or agents of a company engage in a transaction for the purpose of a company’s business or otherwise for the benefit of the company and the transaction is one that officers or agents in their respective positions would ordinarily be expected to have the company’s authority to undertake. In that situation, a party dealing with the company in good faith is entitled to presume that the officers and agents had that authority: cf Uxbridge Permanent Benefit Building Society v Pickard [1939] 2 KB at 258. Being a presumption of fact, the indoor management rule is displaced when the circumstances put on inquiry the party seeking to rely on the rule.”
And at 178:
“To found an estoppel as to the authority of an officer or agent who is engaged in a transaction for the purposes of the company’s business or otherwise for the company’s benefit and who is purporting to exercise an authority which an officer or agent in that position would ordinarily be expected to have, the mere carrying on of the company’s business with officers and agents performing particular functions on its behalf and in its interest is a sufficient representation by the company. Although such representations by the company seem a slender foundation on which to build an estoppel, the indoor management rule treats them as sufficient unless the party relying on the rule is put on notice to inquire into the authority of the officers or agents to do what they did in the transaction. The slenderness of the foundation enhances the importance of the qualification. In transactions other than those engaged in for the purposes of a company’s business or otherwise for the benefit of the company, and in transactions where the officer or agent has purported to exercise an authority over and beyond the authority which an officer or agent in that position would ordinarily be expected to possess, a party seeking to bind the company by estoppel must rely on particular representations of authority made by the company - that is, by officers or agents of the company having actual or ostensible authority to make those representations.”
In Egyptian International Foreign Trade Co v Soplex Wholesale Supplies Ltd and P.S. Refson & Co Ltd (The Raffaella) [1985] 2 Lloyds Rep 36 Browne-Wilkinson LJ said at 41:
“It is important to bear in mind that the doctrine of holding out is a form of estoppel. As such, the starting point is that the principal must be shown to have made a representation, which the third party could and did reasonably rely on, that the agent had the necessary authority. The relevant inquiry, therefore, in all cases is whether the acts of the principal constitute a representation that the agent had a particular authority and were reasonably so understood by the third party. This requires the court to consider the principal’s conduct as a whole. In many cases, the holding out or representation by the company consists solely of the fact that the company has invested the agent with a particular office, ... in such a case, the only representation which the third party can reasonably rely upon is the representation that that person has the powers normally or usually enjoyed by a branch manager. Therefore, in such a case, the only relevant inquiry is as to the powers normally enjoyed by branch managers in general. But where, as in the present case, the holding out is alleged to consist of a course of conduct wider than merely describing the agent as holding a particular office, although the authority normally found in the holder of such an office is very material, it must be looked at as part and parcel of the whole course of the principal’s conduct in order to decide whether the totality of the principal’s actions constitute a holding out of the agent as possessing the necessary authority.”
The plaintiff’s case against Tiger rests upon the appointment of Mr Barry as chief executive officer of Tiger, who, by virtue of that position, is to be treated as having the powers and authority which Mr Barry in fact exercised. However, the case against Tiger does not stop there because there is evidence that there was a longstanding resolution of the board authorising Mr Barry to deal with the affairs of Flinders.
In my opinion the articles of association do not contain any exhaustive and exclusive statement of the powers and duties of the various company officers. It is consistent with article 18.2 that the board should be at liberty to confer upon the president the relevant plenary powers as chief executive officer which Mr Barry appears to have exercised in this case.
In its final submission the plaintiff says:
122.“.... In all the correspondence from Tiger in evidence Barry signs on its behalf. The address, e-mail address, telephone number and facsimile number for Tiger and Barry are the same (see for example Ex P22 and Ex P23). At all times over several years all dealings by Flinders with Tiger were through Barry alone: Wills TR p202. In the plaintiff’s submission Barry is clearly the agent of Tiger and his conduct binds Tiger. In the plaintiff’s submission all e-mail communications to [email protected] are communications to and received by Barry and Tiger and all communications from [email protected] are communications from and made by Barry and Tiger.”
These facts add force to the conclusion which I would otherwise have reached.
It appears to me upon the evidence that Mr Barry has the task of dealing with the daily running of Tiger and of being in charge of its business ie the powers of day-to-day management which are exercisable without reference to the board (cf Pennington Company Law (5th ed) at 657 cited by Ipp J in Entwells Pty Ltd v National and General Insurance Co Ltd 5 ACSR 424 at 427).
I find that (as now relevant) Tiger is bound by the acts of Mr Barry.
Part 12 Relief
The defendants have each acquired a relevant interest in breach of s 606 and they have done so covertly. They have failed to make disclosure of the true position.
The general meeting of the plaintiff requisitioned by Mr Barry is not for a proper purpose.
I have treated the plaintiff’s allegations as very serious and in reaching my conclusions I have had regard to the principle in Briginshaw (1938) 60 CLR 336. I have had regard to the presumption of innocence. Although the standard of proof required is upon the balance of probabilities I consider that the case for the plaintiff has in fact been established beyond reasonable doubt.
This is an extreme case which requires an extreme remedy. Having regard to the way in which the defendants have been prepared to flout the requirements of the Corporations Act and bearing in mind my findings that Mr Campbell and Mr Barry lack integrity, I consider that the appropriate way of protecting the market is by vesting the present shareholdings of the defendants in ASIC. Mr Barry has predicted dire consequences for the Tiger shareholders from such a step. I disagree with that submission to the extent that I am concerned that any other remedial order would not necessarily be effective and may be difficult to supervise. This is not a case in which the giving of undertakings by the defendants would suffice. The circumstances disclosed by the evidence do not suggest that the conduct of the defendants could be excused.
The provisions of Ch 6 and Ch 6C of the Corporations Act having been contravened as abovementioned, I consider it to be appropriate in accordance with s 1325A to make the undermentioned remedial order. I will hear the parties as to the form of order which should then be made in order to satisfy the formalities of s 1336.
I order that the shares in the plaintiff registered in the name of each of the defendants respectively vest in the Australian Securities and Investments Commission.
I will hear the parties (and ASIC) as to consequential or other orders which may be sought.
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