Greig v Commissioner of Taxation
[2018] FCA 1084
•20 July 2018
FEDERAL COURT OF AUSTRALIA
Greig v Commissioner of Taxation [2018] FCA 1084
File number: NSD 1134 of 2017 Judge: THAWLEY J Date of judgment: 20 July 2018 Catchwords: TAXATION – appeal from an objection decision of the Commissioner of Taxation – whether certain outgoings were incurred in gaining or producing assessable income and therefore deductible under s 8-1(1)(a) of the Income Tax Assessment Act 1997 (Cth) – whether taxpayer incurred share losses and legal fees in a “business operation or commercial transaction” entered into for the purpose of making a profit – application of principle in Federal Commissioner of Taxation v The Myer Emporium Ltd (1987) 163 CLR 199
TAXATION – whether share losses and legal fees were necessarily incurred in carrying on a business and therefore deductible under s 8-1(1)(b) of the Income Tax Assessment Act 1997 (Cth) – whether taxpayer carried on a business of dealing in shares in a particular company
Legislation: Corporations Act 2001 (Cth) s 444GA
Income Tax Assessment Act 1936 (Cth) ss 25(1)(a) (repealed), 26(a) (repealed)
Income Tax Assessment Act 1997 (Cth) ss 8-1(1)(a), 8‑1(1)(b), 8-1(2)
Taxation Administration Act 1953 (Cth) ss 14ZZ
Cases cited: AAT Case 12,258 (1997) 37 ATR 1045
August v Commissioner of Taxation (2013) 94 ATR 376
Blank v Federal Commissioner of Taxation (2014) 95 ATR 1
Blank v Federal Commissioner of Taxation (2015) 242 FCR 96
Blank v Federal Commissioner of Taxation (2016) 258 CLR 439
Californian Copper Syndicate (Limited and Reduced) v Harris (Surveyor of Taxes) (1904) 5 TC 159
Colonial Mutual Life Assurance Society Ltd v Federal Commissioner of Taxation (1946) 73 CLR 604
Commissioner of Taxation v Haass (1999) 91 FCR 132
Commissioner of Taxation v Whitfords Beach Pty Ltd (1982) 150 CLR 355
Edwards (Inspector of Taxes) v Bairstow [1956] AC 14
Evans v Federal Commissioner of Taxation (1989) 20 ATR 922
Federal Commissioner of Taxation v Murry (1998) 193 CLR 605
Federal Commissioner of Taxation v Radnor Pty Ltd (1991) 22 ATR 344
Federal Commissioner of Taxation v The Myer Emporium Ltd (1987) 163 CLR 199
Ferguson v Federal Commissioner of Taxation (1979) 9 ATR 873
London Australia Investment Company Limited v Federal Commissioner of Taxation (1977) 138 CLR 106
Martin v Federal Commissioner of Taxation (1953) 90 CLR 470
McCurry v Federal Commissioner of Taxation (1998) 39 ATR 121
Moana Sands Pty Ltd v Federal Commissioner of Taxation (1988) 19 ATR 1853
Spriggs v Federal Commissioner of Taxation (2009) 239 CLR 1
Visy Industries USA Pty Ltd v Federal commissioner of Taxation (2011) 85 ATR 232
Visy Packaging Holdings Pty Ltd v Commissioner of Taxation (2012) 91 ATR 810
Westfield Limited v Federal Commissioner of Taxation (1991) 28 FCR 333
Date of hearing: 16 and 17 April 2018 Registry: New South Wales Division: General Division National Practice Area: Taxation Category: Catchwords Number of paragraphs: 189 Counsel for the Applicant: Mr B J Sullivan SC and Mr R A Jedrzejczyk Solicitor for the Applicant: PricewaterhouseCoopers Counsel for the Respondent: Mr D F C Thomas and Ms K Phan Solicitor for the Respondent: ATO Review and Dispute Resolution ORDERS
NSD 1134 of 2017 BETWEEN: ANDREW CARLYLE GREIG
Applicant
AND: COMMISSIONER OF TAXATION OF THE COMMONWEALTH OF AUSTRALIA
Respondent
JUDGE:
THAWLEY J
DATE OF ORDER:
20 JULY 2018
THE COURT ORDERS THAT:
1.The appeal is dismissed.
2.Unless either party applies within 7 days for a different order with respect to costs, the applicant pay the respondent’s costs as agreed or assessed.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
THAWLEY J:
This is an appeal under s 14ZZ of the Taxation Administration Act 1953 (Cth) against a decision made by the Commissioner of Taxation on 9 May 2017 to disallow in full the applicant’s objection to a notice of assessment issued in respect of the income year ended 30 June 2015.
The appeal concerns the deductibility under s 8-1 of the Income Tax Assessment Act 1997 (Cth) (ITAA 1997) of the following amounts incurred by the applicant in the 2015 income year:
(1)a loss of $11,851,762 ($11.85m) incurred by reason of the compulsory transfer and cancellation of the applicant’s entire shareholding in Nexus Energy Limited in December 2014 (share losses); and
(2)expenditure of $507,198 in legal fees incurred in connection with litigation arising out of Nexus’s voluntary administration in June 2014.
The applicant, Mr Greig, claimed that the share losses and legal fees (totalling $12,358,960) were deductible under s 8-1 of the ITAA 1997 on one of two bases:
(1)First, the share losses and legal fees were “incurred in gaining or producing” assessable income and were therefore deductible under s 8-1(1)(a) of the ITAA 1997. He said the losses were revenue losses because they were incurred in a “business operation or commercial transaction” entered into for the purpose of making a profit, attracting the operation of the principle enunciated by the High Court of Australia in Federal Commissioner of Taxation v The Myer Emporium Ltd (1987) 163 CLR 199.
(2)Secondly, Mr Greig submitted that the relevant amounts were losses or outgoings “necessarily incurred in carrying on a business” for the purposes of s 8-1(1)(b). The asserted business was a business of “dealing” in the shares of Nexus, for profit. He did not contend that he was carrying on a business of share trading generally.
In relation to both bases for deductibility, it was submitted that the amounts were not losses or outgoings of capital, or of a capital nature, so as to be prevented from being deductible by s 8‑1(2)(a) of the ITAA 1997.
The Commissioner contended:
(1)First, the losses sustained by Mr Greig did not fall within s 8-1(1)(a) on the basis of the reasoning in Myer because: (a) the relevant transactions giving rise to those losses were not incurred in a “business operation or commercial transaction” of a kind contemplated by the Myer principle; and (b) the necessary profit-making purpose was absent.
(2)Secondly, the objective circumstances did not support a finding that Mr Greig carried on a business of dealing in Nexus shares capable of engaging s 8-1(1)(b).
(3)Finally, even if the losses fell within either or both of s 8-1(1)(a) or (b), those losses were on capital account and should be dealt with under the capital gains tax regime in Parts 3-1 and 3-3 of the ITAA 1997.
In closing submissions, both parties accepted that, in the particular circumstances of this case:
(1)If the applicant was successful in relation to deductibility under either paragraph (a) or paragraph (b) of s 8-1(1), he would also be successful under s 8-1(2), and if he was unsuccessful under both, he would fail under s 8-1(2).
(2)The result in relation to whether the legal fees were deductible would follow the result in relation to the share losses.
OVERVIEW
Between April 1981 and May 2015, Mr Greig held various managerial and senior executive roles within the Bechtel Group of companies. Those companies provided construction, project management and engineering services to a global network of clients, including companies in the mining and resources industries. Mr Greig was employed, at varying times, as Executive Director of the Bechtel Group, Managing Director of Bechtel Australia Pty Limited and President of the Brechtel Group’s Mining and Metals Global Business Unit. His earnings and financial position were such that he could afford to make substantial purchases of shares. He retired from the Bechtel Group in May 2015.
In around May 2006, Mr Greig engaged Mr Kretschmer of Unity Partners to be his financial planner and adviser. Mr Kretschmer provided advice concerning superannuation, salary sacrificing, structuring of personal and family asset holdings and long-term financial planning. Although Mr Kretschmer attended meetings in 2012 at which the purchase of Nexus shares was discussed, Mr Kretschmer did not provide advice in relation to the acquisition of those shares.
In January 2008, Mr Greig retained Mr Foot of FSS Advisory, a firm of stockbrokers and financial advisors, to provide advice and to buy and sell shares on his behalf. Mr Greig transferred at least $1.2 million to FSS Advisory a short time after his conversation with Mr Foot in January 2008. An amount of $1.6 million was transferred into a “Macquarie Investment Manager” account for Mr Greig with Macquarie Bank in respect of which Mr Kretschmer was nominated as adviser and which had been opened at least in 2006. This account was used for share purchases. Before FSS Advisory was retained, Mr Greig had made certain purchases of shares without the assistance of FSS Advisory.
From 29 January 2008 until, relevantly, the end of the 2015 income year, Mr Foot recommended various stocks for Mr Greig to buy and sell on the Australian Stock Exchange (ASX). Throughout that period, Mr Greig instructed Mr Foot (typically following Mr Foot’s recommendations) to buy and sell ASX-listed stock, mostly in companies operating in the mining, energy and resources sectors. According to Annexure ACG-3 to the affidavit of Mr Greig sworn 10 April 2018 (second affidavit), Mr Greig expended many millions of dollars on share purchases (other than shares in Nexus) over the period 29 January 2008 to 23 April 2014. The shares which were acquired were held for various periods of time from a number of days to a number of years. Mr Greig gave evidence, by his second affidavit, that all of the losses and gains on these transactions were returned on capital account in his income tax returns for the relevant years.
In addition to those shares (and other shares which, it transpired, were not included in Annexure ACG-3), Mr Greig purchased shares in Nexus on the recommendation of Mr Foot. He purchased 1 million Nexus shares in February 2011. He disposed of those shares in May 2011 at a loss. He treated that loss as a capital loss in his 2011 tax return. Notwithstanding that, Mr Greig stated in his affidavit sworn 24 October 2017 (first affidavit) that the purchase of those shares was in accordance with a strategy which, it was submitted, constituted a “business operation or commercial transaction” which fell within the Myer principle. That strategy was referred to as his “Profit Target Strategy”.
After that purchase and sale of Nexus shares in 2011, Mr Greig again purchased Nexus shares over the period March 2012 to May 2014. He contended that these shares were purchased in accordance with the same “Profit Target Strategy” and “business operation or commercial transaction” pursuant to which the 2011 shares had been purchased.
Nexus ultimately failed and was placed into administration. Nexus’s creditors approved a Deed of Company Administration (DOCA) which was executed on 22 August 2014. On 17 October 2014, Nexus’s administrators filed proceedings in the Supreme Court of New South Wales seeking leave to transfer all of the existing shares in Nexus for nil consideration. Mr Greig spent a total of $507,198 on legal fees in unsuccessfully opposing the proceedings. His shares were transferred for nil consideration resulting in a loss of $11,851,762 in the 2015 financial year.
Mr Greig then sought advice in relation to these losses from the advisers who had prepared his earlier tax returns. After receiving that advice, Mr Greig took the position that the Nexus shares were held on revenue account such that the loss was deductible in the 2015 financial year. He took the position that the loss was incurred in carrying on a business of dealing in Nexus shares or, alternatively, in accordance with the principle in Myer. By the time of the hearing of this appeal, his primary case was based on Myer and his alternative case was that he carried on a business of dealing in Nexus shares.
Mr Greig did not put a case that he was engaged in the business of share trading generally. Rather, his “business” for the purposes of s 8‑1(1)(b) was characterised as a business of dealing in Nexus shares. Likewise, the only shares he alleged were purchased pursuant to a Myer “business operation or commercial transaction” were the Nexus shares. Mr Greig treated all of the other shares he acquired with the assistance of Mr Foot and FSS Advisory (from approximately January 2008) as being held on capital account.
Although Mr Greig contended that all of the Nexus shares, including those purchased and disposed of in 2011, were purchased pursuant to either a Myer “business operation or commercial transaction” or a business of dealing in Nexus shares, he nevertheless claimed a capital loss of $113,571.91 in respect of the one million Nexus shares he disposed of in the income year ended 30 June 2011. The treatment of his Nexus shares as being held on capital account in the 2011 income year was consistent with the treatment of all of his other shares.
If Mr Greig is correct in his contentions so far as concerns the Nexus shares, he would be able to deduct the loss of approximately $11.85m in the financial year ended 30 June 2015 rather than treating the shares as being held on capital account and giving rise to a capital loss on their disposal. On the other hand, he has maintained the treatment of all of his other share acquisitions and disposals as being on capital account.
It was submitted that the only relevant question in these proceedings was whether: (a) the Myer principle applied with respect to the acquisition and disposal of the Nexus shares; or (b) there was a business of trading in the Nexus shares (but not a share trading business more generally), such that either paragraph (a) or (b) of subsection 8-1(1) of the ITAA 1997 applied. It was submitted that the facts concerning the many other share purchases (and disposals) were a “red herring” – that is, in substance, that they were not relevant to the Court’s assessment of the facts in relation to the Nexus shares.
I accept that the critical issue is the correct treatment of the Nexus shares. This does not mean that the facts concerning his shareholdings more generally are necessarily irrelevant to the determination of the correct treatment of the acquisition and disposal of the Nexus shares, in particular whether Mr Greig was in the business of “dealing” in Nexus shares. The Nexus shares were administered or managed by Mr Greig’s advisors in the same “portfolio” as his other shares.
BACKGROUND FACTS
Initial retaining of FSS Advisory: 2006 to 2008
Mr Greig met Mr Foot at Mr Greig’s wedding in 2006. Mr Greig had “moderate cash resources” at that time which he wanted to use to generate substantial cash profits in the short term. He considered the stock-market a suitable vehicle for achieving that objective. His schedule as a senior executive at Bechtel Australia was such that he considered he should engage a stockbroker who could monitor the market and find stocks for him, which he could buy to sell at a profit in a short time frame.
Mr Greig’s first affidavit set out his initial conversation with Mr Foot in January 2008, where he said:
I want to purchase stocks that are undervalued and which are likely to go up in the short-term. I’m not looking for blue-chip companies. I’m more interested in smaller companies that are going to outperform over the next 12 months or so. The mining sector is booming at the moment and there are a lot of opportunities in that space.
I want you to have a look at what’s out there and tell me which stocks you like. I’ll give you $1,200,000 to begin with and we can see how things go.
Mr Foot’s account of the conversation was that Mr Greig stated he wanted to “find undervalued stocks that [he could] buy at decent volumes and then sell quickly in order to make a profit”. He claimed Mr Greig had stated: “I’m not looking for shares to hold in the long term”. Mr Greig stated to Mr Foot that he knew quite a bit about mining and thought there were lots of opportunities.
Mr Greig said that, by early 2011, he adopted a specific strategy pursuant to which the Nexus shares, but no other shares, were purchased. At that time, he had substantial cash available and could afford to take risks to increase his short-term wealth. He thought he would retire from Bechtel in around 2015. He stated that his overall objective was to maximise the amount of cash that would be available to him upon his retirement. He could then use that cash to invest in managed funds and superannuation to secure his long-term financial wellbeing as well as to provide start-up capital for any business ventures that he might wish to pursue. He considered the most suitable means of achieving that objective was to buy and sell equities on the stock market. He believed he could make substantial profits in a short space of time by buying and selling the right stocks at relatively large volumes. He was familiar with how the stock market functioned because he had purchased shares in the past.
He described his strategy in the following terms (at [23]-[25] of his first affidavit):
23.My strategy for making a profit from buying and selling shares was to select stocks whose market value was likely to increase in a short space of time – whether due to the relevant company being undervalued by the market, the potential for that company’s business to experience rapid growth, the company becoming a target for a corporate takeover, investors taking a favourable view of the performance or potential of a particular industry or sector of the market, or some combination of all of those factors.
24.I did not set out to purchase shares in a particular industry, but I intended to draw upon my professional experience, skills and expertise gained in the course of working for Bechtel Group Inc. to identify suitable socks in the mining, energy and resources sector, which at that time in early 2011 was generally performing very strongly.
25.In selecting shares to purchase, my aim was to find stock that I could acquire and then sell at a profit within [a] period of several months, or [an] even shorter period, depending on the circumstances of the individual company. I wanted to be able to purchase shares, sell them quickly at a profit upon the happening of a liquidity event (such as the announcement of a takeover bid), and then use the proceeds to make other trades. The high degree of liquidity in the stock market appealed to me, because it meant that I could react quickly to changing circumstances and sell out of positions if it appeared to me that more money could be made by purchasing different stock.
For the purposes of his evidence, this strategy was given the label “Profit Target Strategy”.
Mr Greig stated that, although his intention in early 2011 was to execute his Profit Target Strategy by acquiring shares in different companies, as events ultimately transpired, the only stocks he purchased in line with that strategy were the Nexus shares.
Nexus Phase 1: purchase and sale of Nexus shares in 2011
Mr Foot called Mr Greig on around 31 January 2011 stating that he, Mr Foot, had found a stock he thought Mr Greig would be interested in. The stock was Nexus. Mr Greig was familiar with Nexus because of his knowledge of the mining and resources sector. He was aware that Nexus held interests in a number of natural gas fields located near Western Australia, the most valuable of which was the Crux resource in the Browse Basin. He was aware that Nexus held its interest in the Crux resource jointly with Royal Dutch Shell and Osaka Gas.
During their telephone call on around 31 January 2011, Mr Foot told Mr Greig that Nexus had recently acquired an option from Shell which would give Nexus time to extract liquids from the Crux resource. Mr Foot stated that Nexus shares were trading at $0.46 but that he had research reports which valued those shares at $0.67. Mr Foot sent a research note to Mr Greig.
Mr Greig read the research note and expressed to Mr Foot the view that there was value in the company that was not reflected in the then-current share price. He stated that he decided to purchase Nexus stock in line with his Profit Target Strategy. He stated that this decision reflected his view that (at [33]):
(a)there was underlying value in the Crux asset and correspondingly Nexus’ economic interest in that asset;
(b)in negotiating the option with Shell, Nexus had removed an important impediment to realising a greater portion of the underlying value in the Crux asset, and the market had reacted positively to that development;
(c)additional developments were likely to take place in the following 12- to 18-month period, such as a potential sell-down by Nexus of its equity stake in the Crux project, which would cause Nexus’ share price to increase; and
(d)there was a reasonable prospect of making a profit (and potentially a substantial profit) by selling Nexus shares upon the announcement or happening of a positive event in the months ahead.
On about 8 February 2011, Mr Greig telephoned Mr Foot noting again that he considered the Nexus share price did not reflect the true value of its assets and instructing Mr Foot to purchase one million shares. Mr Greig stated in his first affidavit (at [36]):
At the time I acquired the Nexus shares on 8 February 2011, my intention was to make a profit by selling those shares within a period of several months, upon a material increase in the shares’ market value.
Mr Greig stated that he monitored the share price between February and May 2011 and observed that the share price declined steadily. He stated that he also reviewed articles in the financial press and Nexus’s public announcements.
In around mid-May 2011, Mr Greig received a telephone call from Mr Foot who stated that Nexus was not panning out the way they had wanted and the share price was continuing to fall. Mr Foot said he thought there was value in the company but it would probably take longer than they had thought before that value would be reflected in the share price. Mr Foot stated: “I think your best bet would be to take the loss and sell your shares”.
Mr Greig stated that he sold the shares because he considered there was no longer a sufficient prospect of making a profit upon the sale of his Nexus shares in the short term in accordance with his Profit Target Strategy. As noted above, Mr Greig sustained a loss as a result of the sale of Nexus shares.
FSS Advisory sent to Mr Greig a document which included a “Tax Summary” in respect of the income year ended 30 June 2011. This document related to Mr Greig’s “portfolio”. The “Tax Summary” was divided into an “Income Summary” and a “CGT Summary”. The “Income Summary” recorded income such as dividends. The “CGT Summary” recorded share sales in three ASX-listed corporations: Lynas Corporation Limited, Nexus and Pryme Energy Limited. The sales of shares in Lynas resulted in a taxable capital gain of $1,074,144.22. The sales of shares in Nexus resulted in a capital loss of $113,571.91. The sales of shares in Pryme resulted in a capital loss of $172,219.75.
The fact that the Nexus shares were treated as being held on capital account in the 2011 year (and that this was inconsistent with Mr Greig’s position that those shares were purchased in accordance with a Myer “business operation or commercial transaction”) was the subject of submissions filed and served by the Commissioner and dated 3 April 2018. At the hearing, Mr Greig was granted leave to file in Court and read his second affidavit which had been sworn on 10 April 2018. In this second affidavit, Mr Greig confirmed that he had read the submissions served by the respondent and stated (at [9]):
The FSS Report was provided to me by Warwick Foot in around July 2011. I did not read the document at that time because, first, I was extremely busy with my work at Bechtel, and secondly, I knew that the Report would be provided to PwC by FSS Advisory, and I was content to leave it to PwC to review the Report and to prepare my tax return. To the extent that the FSS Report contained information about “capital gains tax” in relation to share transactions listed in the Report, the provision of that information was not based on any discussion with me, or at my request.
At the hearing, Mr Greig stated that he believed he did look at the document but that he would have done so quickly and then sent it to his tax advisors, PricewaterhouseCoopers (PwC).
In his second affidavit, Mr Greig stated that he thought he met with PwC to review the draft tax return prepared by them for the 2011 financial year (prepared, inter alia, on the basis of the FSS Advisory “Tax Summary”) but that no discussion occurred regarding the tax treatment of the losses on the sale of the Nexus shares. He stated that he relied upon his advisers at PwC to prepare and lodge the tax return on his behalf and that it did not occur to him in 2011 or 2012 that the losses incurred on the sale of his Nexus shares might be treated differently for tax purposes from the other share transactions that he had undertaken in that year. He stated (at [12]):
It was only after I incurred the loss on the compulsory transfer and cancellation of my Nexus shares in December 2014 that I turned my mind to the question of whether that loss should be treated as a CGT transaction for tax purposes. I consulted PwC. By that stage I was out of time to seek to amend my tax return for the 2011 financial year, or to apply for a private ruling in respect of the tax treatment of the losses that I incurred on the sale of Nexus shares in that year.
As a matter of convenience, this initial purchase and sale of Nexus shares was referred to during the hearing (and is referred to in these reasons) as “phase 1”.
Nexus Phase 2: purchase of Nexus shares from 2012 to 2014 and disposal in 2014
Between 28 March 2012 and 9 May 2014, Mr Greig made 64 separate acquisitions of a total of 134,893,686 shares in Nexus for $11,851,762, as set out in Annexure A to these reasons.
The circumstances of those acquisitions are dealt with in further detail below. Mr Greig did not sell any Nexus shares during this period.
In his first affidavit, Mr Greig stated that he undertook the following activities during the period from March 2012 to May 2014 to inform himself in relation to Nexus’s ongoing financial circumstances (at [54]):
(a)I monitored the price of Nexus’ shares on the [ASX] on a daily basis, and sometimes two or three times a day;
(b) I read all announcements made by Nexus to the ASX and to the media;
(c)I reviewed each day the financial press, including publications such as the Australian Financial Review, The Australian newspaper and Bloomberg, for articles about Nexus;
(d)I read research reports about Nexus published by investment banks, stockbroking firms and other stock market analysts;
(e) I communicated with Mr Foot, either in person at my offices in Brisbane or by email or telephone, every couple of weeks, or shortly following any public announcement by Nexus, to discuss developments regarding Nexus’ share price and to obtain Mr Foot’s advice in relation to whether I should purchase or sell Nexus shares in line with my Profit Target Strategy.
On 23 January 2012, Mr Greig met with Mr Foot and Mr Kretschmer. Mr Greig had recently received a substantial cash bonus from Bechtel and anticipated that he would continue to receive substantial cash payments in subsequent years. He considered this would provide him with substantial means to advance his Profit Target Strategy. He stated that he said to them:
I want to use all that cash to buy shares that I can sell at a profit in the short term. This is about generating high profits in the next few years before I retire. I’ll then give a chunk of that money to David [Kretschmer] to put away in my super and managed investments.
In early March 2012, Mr Greig received a phone call from Mr Foot in which Mr Foot advised Mr Greig that Nexus had entered into a non-binding heads of agreement with Shell and Osaka Gas on 19 January 2012 to develop the Crux resource. Mr Greig said he met with Mr Foot a few days later and Mr Foot gave him a copy of the announcement by Nexus regarding the heads of agreement and an article from the Australian Financial Review (AFR) concerning Nexus. Mr Greig said that Mr Foot said to him: “There is potentially a very good profit to be made by buying and selling the shares”.
After his meeting with Mr Foot, Mr Greig read the Nexus announcement and the AFR article and considered the following information contained in those documents to be significant (at [48]):
(a)under the terms of the Heads of Agreement, Nexus, Shell and Osaka Gas were to form a new joint venture to develop the Crux field, in which the equity interests would be held in the following proportion: Shell 80%, Nexus 17% and Osaka Gas 3%.
(b)as part of the arrangements concerning the new joint venture, Nexus had acquired a 12-month option to sell 2% of its participating interest in the project to Shell for $75 million;
(c)the parties had agreed upon a development option, whereby Crux would become part of Shell’s Prelude Floating LNG project. I was familiar with the concept of using floating platform technology from my time at Bechtel, and I regarded it as a very efficient and profitable new method of extracting and processing natural gas resources.
(d)the AFR described the Heads of Agreement as a “turning point for Nexus”, and quoted and analyst from Goldman Sachs as saying that the deal was an “excellent outcome for Nexus”;
(e)Nexus’ share price had jumped 14.6% to 27.5 cents per share following the announcement; and
(f)Goldman Sachs had increased its 12-month price target for Nexus shares by 40% to 35 cents per share in the wake of the announcement.
Mr Greig said that, based on the information he had been given and the various discussions he had with Mr Foot, he decided to purchase Nexus stock in line with his Profit Target Strategy. In his first affidavit he stated (at [50]) that this decision reflected his view that:
(a)Nexus’ shares were undervalued relative to the underlying value of the company’s assets;
(b)the agreement between Nexus, Shell and Osaka Gas to develop jointly the Crux resource represented a material change in Nexus’ circumstances, and presented a tangible scenario for realising the value of Nexus’ stock in the immediate future;
(c)the joint venture would be formalised within a matter of months, which would enable the parties to begin immediately the process of extracting maximum value from the Crux resource;
(d)there was a reasonable likelihood that Nexus would be the subject of a takeover bid by an interested buyer;
(e)Nexus’ share price, which at that time was approximately 22 cents per share, was likely to increase substantially over the coming months; and
(f)by purchasing shares in Nexus, there was a reasonable prospect that I would be able to make a profit by selling those shares upon a material increase in market value in the following months.
On 28 March 2012, Mr Greig instructed Mr Foot to purchase five million shares in Nexus. Mr Greig stated in his first affidavit that, at the time he acquired the shares between 28 and 29 March 2012, his intention was “to make a profit by selling those shares within a period of several months, upon a material increase in the shares’ market value”. He stated he was prepared to sell the Nexus shares even earlier if the share price increased as a result of Nexus announcing that it had become the subject of a takeover bid.
In early April 2012, Mr Greig became aware that Nexus had appointed a new Chief Executive Officer, Mr Lucio Della Martina. He read an article in The Australian concerning Mr Della Martina’s appointment and considered it significant that Mr Della Martina “believed Nexus was in a strong position to take its key assets towards development and had the opportunity to capture substantial shareholder value”. He decided to purchase more Nexus shares. Mr Greig said that decision reflected his view that:
(a)Mr Della Martina would not have accepted the appointment as Nexus’ new CEO unless he believed that the company had the potential to be successful;
(b)with a skilled and experienced executive such as Mr Della Martina now at the helm, there was a greater likelihood that Nexus would be able to monetise its assets (particularly the Crux asset) more effectively and efficiently, which would likely cause Nexus’ share price to increase in the short term; and
(c)by purchasing additional shares in Nexus, there was an excellent prospect that I would be able to make a profit by selling those shares upon a material increase in their market value in the following months.
Mr Greig said that, at the time he purchased the shares between 2 and 4 May 2012, his intention was to make a profit by selling those shares within a period of several months, upon a material increase in the shares’ market value. As can be seen from Annexure A, approximately $2 million was spent on the purchase of Nexus shares during that period.
Mr Foot sent Mr Greig an email on 9 May 2012, attaching an article about Nexus from the AFR. Mr Greig read the article, noting in particular the statement that the joint venture to be formalised under the heads of agreement between Nexus, Shell and Osaka gas was “worth about $3.75 billion, valuing Nexus’s 17 per cent stake at a massive $637 million, about double Nexus’s market capitalisation”. Mr Greig said that this statement reinforced his view that the Nexus shares were undervalued and that its share price was likely to increase within the following 12 month period. Mr Greig stated that, on 11 May 2012, he met with Mr Foot and Mr Kretschmer and said:
I’ve purchased a sizeable number of Nexus shares because I think the company is significantly undervalued and the share price is likely to go up in the next couple of months. When that happens, I’ll sell, which will hopefully provide me with a decent stockpile of cash when I leave Bechtel.
On 18 May 2012, Mr Greig sent an email to Mr Foot in which he asked Mr Foot whether he thought he (Mr Greig) should “tough it out” by continuing to hold his Nexus shares despite the fact that the share price had dropped by 20% since his purchases in early May 2012. In fact, the email Mr Greig sent to Mr Foot asked: “Are you [Mr Foot] happy to tough it out?” As was explained in cross examination and in Mr Greig’s second affidavit, the reason Mr Greig asked Mr Foot this question was that Mr Foot had an “economic stake” in Mr Greig’s portfolio of shareholdings, which included the Nexus shares. FSS Advisory was entitled to charge a “quarterly portfolio management fee” of approximately 0.12% of the value of Mr Greig’s overall share portfolio. In addition, if the total value of the shares in the portfolio increased by 10% or more in any given quarter, FSS advisory was entitled to charge a performance fee of 20% of the amount of the uplift. Mr Foot responded to Mr Greig’s email, stating he was “more than happy to tough it out”.
Mr Greig decided to purchase further shares in Nexus in light of these discussions. He stated that the further shares purchased between 22 and 28 May 2012 were undertaken “in line with my Profit Target Strategy” and that his intention was “to make a profit by selling those shares within a period of several months, upon a material increase in the shares market value”.
On 26 June 2012, Mr Greig sent an email to Mr Foot in which he noted that the Nexus share price was continuing to decline and asking whether Mr Foot was still confident. In his first affidavit he said (at [73]):
I also stated [in the email to Mr Foot] that the alternative would be to sell my Nexus shares and claim a deduction for the 2012 financial year. I wrote those words because, given the ongoing decline in Nexus’ share price, if Mr Foot advised me that he no longer believed there was a reasonable prospect of making a profit on the shares, I was prepared to sell them immediately and to find different stock that would enable me to advance my Profit Target Strategy.
In fact, there was no reference to claiming a “deduction”. The email he sent stated: “Alternative is sell and take loss before 30 June – not that I need it this year”. Mr Foot responded in an email on 27 June 2012 stating that he was “very confident” but suggested not buying more Nexus shares for the time being. Mr Greig decided not to sell his shares in Nexus and to wait and see whether the joint venture agreement between Nexus, Shell and Osaka Gas would be finalised.
On 3 July 2012, Mr Greig received an email from Mr Foot informing him that the Nexus shares had been placed in a trading halt. This email included an article from The Australian which stated: “Nexus Energy is set to announce it has finally signed a deal with Shell to combine the gas and liquids in the Crux petroleum field in the Browse Basin off the coast of Western Australia”. On 6 July 2012, Mr Foot reported to Mr Greig that he had met with Mr Della Martina and other members of the Nexus board and that they were expecting to announce soon that the joint venture agreement had been completed. On 9 July 2012, Mr Foot sent to Mr Greig an email attaching a copy of an article from Energy News Premium. Mr Greig stated that he read the article and considered the following information significant (at [81]):
(a)Nexus had announced that it had successfully finalised the terms and documentation pertaining to the Crux joint venture;
(b)the expanded scope of the Crux project (in terms of the objective to develop a separate floating LNG facility at Crux to process gas from the joint venture) provided Nexus with an opportunity “to be part of a project with the potential to create much greater value” than previous deals with Shell; and
(c)Mr Della Martina was quoted in the article as saying that the joint venture was “transformational for Nexus” and that the Crux asset would be “very attractive to strategic investors”.
Mr Greig’s first affidavit stated that the contents of the articles he had been provided on 3, 6 and 9 July 2012 confirmed his view that the Nexus share price would likely increase in the following weeks and months “as the market came to terms with the news that the joint venture agreement had finally been concluded”.
In around mid-August 2012, Mr Greig received an email from Nexus informing him that the company was planning to host a presentation for shareholders. Mr Greig telephoned Mr Foot to ask him to attend the presentation for him.
In around August 2012, Mr Foot provided to Mr Greig a copy of the slide presentation which had been provided to attendees at the Nexus presentation which had been held on 30 August 2012. Mr Greig read the slide deck and stated in his first affidavit that he “considered that the presentation demonstrated that Nexus management had a clear plan to deliver better value to shareholders, which [he] believed would make Nexus more attractive to potential investors and buyers”.
On 26 September 2012, Mr Greig read an announcement from Nexus that it had appointed Mr Don Voelte as its new Chairman. Mr Greig was familiar with Mr Voelte, having spoken with him in his roles at Bechtel on several occasions when Mr Voelte was the Chief Executive Officer of Woodside Petroleum. Mr Greig regarded him as a strong leader and an experienced businessman. Mr Greig stated that Mr Voelte’s appointment “gave [him] confidence that Nexus was heading in the right direction and would soon be delivering better results that would translate into a higher share price”.
Mr Greig received a telephone call from Mr Della Martina in early October 2012 in which Mr Della Martina stated to him:
Andy, since you are a large shareholder, I’m letting you know that [PTT Exploration and Production Public Company Limited (PTTEP)] from Thailand has been approaching a number of shareholders about buying a substantial stake in the company. I’m told that they’ve been offering people 25 cents a share. I would urge you not to accept that offer because Nexus’ assets are worth a lot more than that. You’ll end up getting a better price if you leave it to me and the Board to engage directly with PTTEP about a potential sale. We’ve had to put you behind a Chinese wall, which means you’re not allowed to trade in Nexus stock until further notice. I’d also like to speak to Warwick Foot about this, can you ask him to get in touch with me?
Mr Greig stated that “my conversation with Mr Della Martina was very positive, because it suggested to me that there was a very real prospect of a sale of the whole of Nexus, which would immediately cause Nexus’s share price to increase, perhaps substantially so”.
Mr Foot reported to Mr Greig on about 4 October 2012 that he had met with representatives of PTTEP. Mr Greig stated he regarded this as “positive news, because if a company such as PTTEP was interested in buying a substantial stake in Nexus (or indeed the whole company) and the market became aware of that fact, it would very likely cause Nexus’s share price to increase”.
Mr Greig met with Mr Foot and Mr Kretschmer on 16 October 2012 and stated that he might be getting an offer from PTTEP to purchase his shares but that Mr Della Martina had said to him not to accept any offer around 25 cents because he would likely get a better price “if the shares were all sold in one go”. Having regard to conversations with Mr Foot and Mr Kretschmer, Mr Greig decided to hold onto his Nexus shares pending a sale of the whole company. He said he did so “because [he] believed it provided the best chance of receiving the highest possible price per share, thereby maximising the amount of any profit that [he] would make upon the sale of those shares in the short term”.
Mr Greig requested Mr Foot to attend the Annual General Meeting of Nexus on 22 November 2012. Mr Foot sent Mr Greig an email on 23 November 2012 attaching an article about Nexus in The Australian, which quoted Mr Della Martina as saying that Nexus had “received expressions of interest” and was “formally engaged with” a number of leading oil and gas companies regarding a potential sale of Nexus’s interest in the Crux resource. Mr Greig considered that this news was significant and that a sale of that nature would likely be viewed positively by the market and cause Nexus’s share price to increase in the immediate future.
Later on 23 November 2012, Mr Greig telephoned Mr Foot and had a discussion in which Mr Foot told him that Mr Della Martina had confirmed that Nexus was in discussions with a number of potential bidders regarding a sale of the whole company. Mr Greig stated that he gave instructions to purchase another $1 million worth of Nexus shares. Mr Greig stated that he “continued to believe that there was substantial value in Nexus assets, which would translate into the price of Nexus’s shares if a method of realising the value of the company’s assets could be found in the following months”.
Mr Foot purchased on Mr Greig’s behalf approximately $1 million worth of Nexus shares between 23 and 28 November 2012.
On 19 December 2012, Mr Greig sent an email to Mr Foot asking Mr Foot to confirm the total average price for which the Nexus shares had been acquired. Mr Foot responded by stating that he then owned 28,151,435 shares at an average price of 17.85 cents. Mr Greig responded to this email on 2 January 2013 noting that the share price was then 16.5 cents and stating “we’re homing in on being back to break even”. Mr Foot in turn responded to this email on 3 January 2013 noting that the share price was then 17.5 cents.
On 7 March 2013, Mr Greig instructed Mr Foot to purchase further Nexus shares in the order of $2 million. Mr Greig stated that this reflected his view that “the market was finally starting to appreciate that Nexus stock was undervalued, and that the share price would continue to increase in the following weeks and months”.
Mr Greig instructed Mr Foot to purchase a further $100,000 worth of nexus shares in April 2013. In April and May 2013 Mr Greig read various research reports and announcements and formed the view that he should purchase additional shares because he considered that they remained undervalued and were likely to increase over the following 12 month period. On Mr Greig’s instructions, Mr Foot purchased a further $1.5 million of Nexus shares in the second half of May 2013. Mr Greig stated that his purpose in acquiring these shares “was to make a profit by selling those shares within a period of several months upon a material increase in the shares’ market value, in line with my Profit Target Strategy”.
In his first affidavit, Mr Greig gave an account of a conversation with Mr Foot on 7 June 2013 (at [125]):
Greig:“I’m still feeling positive about Nexus, but the share price keeps falling. I’m thinking that it may be worth buying more shares and becoming a substantial shareholder, so that I can have a greater say in how the sale process is being conducted. Can you tell me how many more shares I would need to buy in order to become a substantial shareholder?”
Foot: “No problem, I’ll find out and get back to you.”
On 12 June 2013, Mr Foot informed Mr Greig of the number of shares he would need to acquire to become a substantial shareholder in Nexus; he required 66,491,060 shares in total, being an additional 11,681,571 shares. Mr Greig instructed Mr Foot to purchase additional shares sufficient to make Mr Greig a substantial shareholder. In his first affidavit he stated that his decision to become a substantial shareholder was not to exercise influence over the long-term strategic direction of the company but that his “sole focus was on bringing about quickly a sale of the company or its assets that would cause Nexus’s share price to go up and enable [him] to make a profit upon the sale of [his] shares, in line with [his] Profit Target Strategy”. Mr Foot purchased on Mr Greig’s behalf almost 14 million shares in June 2013.
From late July 2013, Mr Greig met with Mr Foot every 3 to 4 weeks in connection with his Nexus shareholding. He continued to monitor Nexus’s share price and read research. He remained of the view that Nexus’s assets remained undervalued.
On about 22 August 2013, Mr Foot reported to Mr Greig that he, Mr Foot, had spoken with Mr Della Martina who had said that the sale process was continuing and he was confident that a deal would be reached. Mr Greig instructed Mr Foot to purchase an additional 500,000 shares. A total of 495,050 Nexus shares were purchased on 22 August 2013.
On 26 September 2013, Mr Greig met with Mr Foot and was provided with research by Macquarie Private Wealth. Mr Foot said that Macquarie was still valuing Nexus at 22 cents per share.
On 12 November 2013, Mr Greig saw that Nexus’s share price had dropped to 6 cents. He considered that Nexus shares remained undervalued and that its share price was likely to increase in coming months. He considered there was still a reasonable prospect of making a profit on the sale of his Nexus shares in the short term.
On 9 December 2013, Mr Greig instructed Mr Foot to purchase another $1 million worth of Nexus shares. These were purchased between 9 and 30 December 2013.
In January 2014, Mr Greig asked Mr Foot to speak to Mr Della Martina regarding the status of the sale process. Mr Foot reported that Mr Della Martina had said that the sale process was continuing and would be completed.
On 13 February 2014, Mr Greig received an email from Mr Foot attaching an article about Nexus from The Australian. The information in that article caused Mr Greig to feel optimistic and he believed that the information in that article would be viewed positively by the market such that the share price in Nexus would “jump in the short term”.
On 18 February 2014, Mr Greig was informed by Mr Foot that Mr Voelte had resigned from Nexus, effective immediately. Later, Mr Greig read an announcement by Nexus that it had halted production at its Longtom gas processing facility and was investigating the cause of the problem. Nexus made a second announcement on 21 February 2014 that it had requested an immediate trading halt to consider the implications arising from the stoppage at its Longtom plant.
By March 2014, Mr Greig believed that an announcement regarding a takeover for Nexus was imminent and he was concerned that, with the trading halt remaining in place, he would not be able to purchase additional shares before any announcement was made. He wanted to purchase more shares because he believed that Nexus’s share price would increase upon the announcement of a takeover bid. On 31 March 2014, Mr Greig read an announcement by Nexus that Seven Group Holdings (SGH) had made an offer to purchase all of the shares in Nexus for two cents per share. That announcement included:
NXS [Nexus] faces an April 3 deadline to satisfy asset sale requirements, which it does not have a means of satisfying without the SGH proposal. Failure to do so could trigger the lenders to call for cash collateralisation of certain letters of credit and repayment of the Longtom Senior Debt Facility.
On 16 April 2014, Mr Foot emailed Mr Greig an article from The Australian entitled “Investors hammer Nexus board over debt crisis”. This included:
NEXUS Energy shareholders have expressed anger at the board’s handling of a debt crisis that has seen the company accept a takeover from Seven Group Holdings, run by recently departed chairman Don Voelte, which will deliver investors just one-third the price the shares last traded at.
Two groups purporting to represent 20 per cent of Nexus shares, including top 10 holders, have separately blasted the board’s inability to restructure the company as debt deadlines loomed and called for suspended shares to trade again to test the value of the stock and encourage potential rival bidders. …
At the same time, the Australian Shareholders Association has declared Mr Voelte’s decision to step down as chairman, only to return with a 2c per share bid, was “not a good look”. Broker Warwick Foot, whose clients include top 10 holders that make up more than 15 per cent of Nexus’s shareholding, said shareholders had been dismayed by the outcome of a strategic review process.
He said it was unbelievable that late last year the board said it was willing to consider acquisition proposals only to turn around this month and endorse a proposal 80 per cent below December 31 book value.
Mr Foot said statements from Nexus, which on March 14 said discussions with financiers were a priority over asset sales, indicated the board was too late in turning its focus from asset sales to recapitalisation and refinancing, given April 2 debt deadlines.
Nexus said Mr Voelte had excused himself from corporate sale discussions because [Seven Group Holdings] might have been interested. …
Nexus’s two biggest shareholders, Bechtel Australia chief Andrew Greig and Dimensional Fund Advisors, both declined to comment. …
An ASX spokesman would not comment on why Nexus shares were not being traded but said there were other requirements beyond disclosure, mainly concerning a company’s financial condition, that needed to be fulfilled for trading to occur.
Nexus has said shares should remain suspended until more information is known about an electrical outage at the Longtom gas operation in Bass Strait.
On 4 May 2014, Mr Greig gave Mr Foot instructions to buy more Nexus shares once trading resumed, which he then perceived to be likely. Mr Greig stated that he considered that the SGH bid significantly undervalued Nexus and its assets, that rival bidders would emerge and that, once the trading halt was lifted, those bidders would purchase substantial stakes in Nexus, causing the share price to rise. Mr Greig gave instructions on 4 May 2014 to purchase more Nexus shares on the basis that he considered there was still a “reasonable prospect of making a profit by selling his shares in line with his Profit Target Strategy”.
On 7 May 2014, Nexus announced that a scheme of arrangement under which SGH would acquire all of the shares in Nexus would go to a vote on 12 June 2014 and that it had registered the Scheme Booklet. The Scheme Booklet indicated that the Nexus board believed the scheme was in the best interests of the shareholders and unanimously recommended that shareholders vote in favour of the scheme. Mr Greig stated that he was “very disappointed” to read that the scheme had received unanimous support and this strengthened his resolve to vote against the scheme. He read the Scheme Booklet which indicated that, if the scheme was not approved and absent an alternative proposal that provided adequate funding, Nexus would need to be placed into voluntary administration. It noted that SGH as secured creditor would likely enforce its security, which might include the appointment of receivers and managers to Nexus and that SGH “may seek to acquire all of the shares in Nexus or its assets through these enforcement or administration processes”. The directors indicated that they expected shareholders were “unlikely to receive any return on their equity on an administration or receivership scenario”. The Scheme Booklet contained an extensive identification of risks relating to the holding of the shares in Nexus. It was supported by an independent expert’s report.
On 8 May 2014, Mr Foot sent an email to Mr Greig indicating that he had managed to buy around 20 million shares. He also reported that SGH had made a statement saying they would not increase their offer in the absence of an alternative offer. Mr Foot purchased almost 50 million shares at two cents per share over the course of 8 and 9 May 2014. Mr Greig considered that blocking the SGH bid represented the best chance of enabling Nexus to find an alternative buyer and negotiate a sale of the company that would provide a much better return to shareholders.
Mr Greig wrote a letter to Mr Voelte care of SGH on 9 May 2014, indicating his view that the proposed scheme materially undervalued the Nexus shares. Mr Greig spoke to a journalist from The Australian on about 12 May 2014 and, later that day, was provided with an article in which he was quoted and which referred to the letter Mr Greig had sent to Mr Voelte.
On 12 June 2014, a meeting of Nexus shareholders took place and the scheme was voted down. Mr Foot attended as proxy for Mr Greig (and certain other shareholders). Nexus issued an ASX announcement indicating that the scheme had been voted down and noting that the board of directors had consequently resolved to appoint voluntary administrators.
After an approach from Piper Alderman in early July 2014, Mr Greig decided to appoint that firm to act on his behalf in relation to claims against Nexus and SGH.
Involuntary disposal of Nexus shares in 2014
On 11 August 2014, Nexus’s creditors approved a Deed of Company Arrangement (DOCA) which provided for the compulsory transfer of all Nexus shares to a third party for nil consideration to shareholders. Nexus’s creditors commenced proceedings in the Supreme Court of New South Wales to effect the share transfer. Mr Greig was one of 17 defendants who contested the DOCA and resisted the involuntary disposal of Nexus shares.
On 24 December 2014, the Supreme Court approved the proposed DOCA pursuant to s 444GA of the Corporations Act 2001 (Cth), requiring the shareholders of Nexus to dispose of their shares in the company involuntarily for nil consideration. As a result, Mr Greig incurred a loss of $11,851,762 in the year ended 30 June 2015. In addition, he incurred legal fees of $507,198 in connection with his involvement in the proceedings.
As noted above, after these events, Mr Greig consulted his advisers, PwC, in relation to the treatment of the Nexus shares.
On 12 April 2016, Mr Greig requested a private ruling in relation to the deductibility of the share losses. The Commissioner issued a private ruling decision on 24 May 2016 to the effect that the share losses were not deductible under s 8-1 of the ITAA 1997.
Mr Greig subsequently lodged an income tax return for the year ended 30 June 2015, which did not include deductions in respect of the share losses or the legal fees. The Commissioner issued a notice of assessment on 23 June 2016.
On 20 October 2016, Mr Greig lodged an objection to the Commissioner’s notice of assessment, claiming that the amount assessed was excessive on the basis that he was entitled to claim deductions for the share losses and legal fees. The Commissioner issued his objection decision on 9 May 2017, disallowing the objections in full.
Mr Greig appealed to this Court on 7 July 2017.
CROSS-EXAMINATION
Mr Greig was cross-examined. As noted earlier, the Commissioner filed written submissions shortly before the hearing stating there was little to distinguish Mr Greig’s purchase of Nexus shares (contended to be held on revenue account) from his other shares (treated as held on capital account). After the Commissioner’s written submissions were filed, Mr Greig swore a second affidavit seeking to distinguish the Nexus shares from the other shares in his portfolio. In that affidavit, Mr Greig referred to becoming a substantial shareholder in Nexus. He stated in cross-examination that he could not recall being a substantial shareholder in any other ASX-listed company.
In fact, he had become a substantial shareholder in MacPherson Resources Limited in April 2013, with 5.58% of the votes. As noted at [70] above, Mr Greig had become substantial shareholder in Nexus in June 2013. MacPherson Resources was also in the mining, energy and resources sector.
Having acknowledged that substantial shareholding, Mr Greig then stated he could not recall being a substantial shareholder in any other ASX-listed company. However, he then accepted he was the Chairman and a non-executive director of Elementos Limited, an ASX-listed company in the mining, energy and resources sector. He had become a substantial shareholder on 7 August 2013, with a voting power of 8.8%. His shareholding increased in 2014 to 19.32%. He was able to recall that his current shareholding was around 22%. The shares in Elementos did not appear in Annexure ACG-3 (see paragraph [10] above), which Mr Greig said in cross-examination was intended to set out all share acquisitions and disposals in the relevant period.
Mr Greig then also agreed that he was a substantial shareholder in certain overseas companies.
Mr Greig stated in his first affidavit that the Nexus shares were the only shares to fall within his claimed “business operation or commercial transaction” and, in his second affidavit, he sought to convey that the circumstances of his dealings in the Nexus shares were distinguishable from all of his other share purchases. However, that statement and those circumstances were not based on a clear recollection of all of the events, and omitted significant events relevant to the position he sought to convey.
In addition to his failure to recollect his other substantial shareholdings, Mr Greig explained in his second affidavit that he was personally involved in researching and monitoring the Nexus shares, which was stated to be “unlike the other stocks” recommended to him by Mr Foot. However, this statement in his affidavit was not a reliable basis for distinguishing his Nexus shares from the remainder of his portfolio. For example, he read research given to him by Mr Foot in relation to other significant investments he had, including Marengo Mining Limited. He agreed that he took time to read and understand research reports sent to him by Mr Foot in relation to other shares in his share portfolio.
It is also relevant to note that Mr Greig agreed in cross-examination that he had never sold any shares in any company in which he held a substantial interest, namely MacPherson Resources, Elementos, Nexus or his substantial shareholdings in overseas companies. He stated that the main reason for not selling these shares was that he saw value in the stock and wanted to “hang on” to that stock. Mr Greig agreed that he hoped or expected that the stock in respect of which he had acquired a substantial interest (including the Nexus shares) would rise, including in the long term or any term. He agreed he had the same hope or expectation with respect to the smaller shareholdings in his portfolio.
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