Jones v Invion Ltd

Case [2015] QCA 100

SUPREME COURT OF QUEENSLAND

CITATION:

Jones & Ors v Invion Ltd & Anor [2015] QCA 100

PARTIES:

STEPHEN GEORGE BURCH JONES
(first appellant)
JASON RICHARD YEATES
(second appellant)
JAMES GREIG
(third appellant)
v
INVION LIMITED (FORMERLY CBIO LIMITED)
ACN 094 730 417
(first respondent)
CHARTIS AUSTRALIA INSURANCE LIMITED
ACN 004 727 753
(second respondent)

FILE NO/S:

Appeal No 6136 of 2014
SC No 1671 of 2012

DIVISION:

Court of Appeal

PROCEEDING:

General Civil Appeal

ORIGINATING COURT:


Supreme Court at Brisbane – [2014] QSC 97

DELIVERED ON:

12 June 2015

DELIVERED AT:

Brisbane

HEARING DATE:

23 February 2015

JUDGES:

Margaret McMurdo P and Philippides JA and Peter Lyons J
Separate reasons for judgment of each member of the Court, each concurring as to the orders made

ORDERS:

1.  The application to adduce further evidence is dismissed.

2.  The appeal is dismissed with costs.

CATCHWORDS:

CORPORATIONS – MANAGEMENT AND ADMINISTRATION – DUTIES AND LIABILITIES OF OFFICERS OF CORPORATION – FIDUCIARY AND RELATED STATUTORY DUTIES – GENERALLY – the appellants were directors of the first respondent – the first appellant was executive Chairman, the second appellant Chief Executive Officer and the third appellant Chief Financial Officer – the Board of the first respondent resolved to amend the contracts with the appellants to extend the termination notice period to be provided by the first respondent to the appellants to 12 months – the appellants, among themselves, amended their contracts with the first respondent so as to provide that each appellant or the first respondent could terminate the respective contracts for any cause and each appellant could unilaterally elect to either be paid out 12 months’ salary/retainer or work 12 months – the appellants did not request approval from the Board or notify the Board of the amendments they had made to the contracts – where the trial judge found the appellants had each breached their fiduciary duties as directors and had breached ss 180, 181 and 182 of the Corporations Act 2001 (Cth) (the Act) and the respondent corporation was entitled to equitable compensation and compensation under s 1317H of the Act – whether the trial judge erred in finding that the appellants acted dishonestly in dereliction of their duties as directors in varying their contracts and not notifying the Board – whether, if there was no error as to the dishonesty finding, the trial judge erred in failing to find that the appellants’ conduct was not causative of the respondent’s loss – whether the trial judge erred in failing to conclude that the Board did not believe that the company was bound to make payments to the appellants, but acquiesced to making them in any event

CORPORATIONS – MANAGEMENT AND ADMINISTRATION – DUTIES AND LIABILITIES OF OFFICERS OF CORPORATION – FIDUCIARY AND RELATED STATUTORY DUTIES – DEFENCES TO BREACH OF DUTY – the appellants were directors of the first respondent – the first appellant was executive Chairman, the second appellant Chief Executive Officer and the third appellant Chief Financial Officer – the Board…

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AGLC
Jones v Invion Ltd [2015] QCA 100
Case
[2015] QCA 100
Decision Date

CaseChat Overview and Summary

In the case of Jones v Invion Ltd, the appellants, who were directors of the first respondent, appealed against findings of breach of their fiduciary duties and statutory duties under the Corporations Act 2001 (Cth). The appellants, comprising the executive Chairman, the Chief Executive Officer, and the Chief Financial Officer, had amended their contracts without seeking approval from the Board, and had acted in concert to secure enhanced benefits for themselves. The trial judge found that the appellants had breached their fiduciary duties and statutory duties, and that they had acted dishonestly in doing so. The respondent corporation sought equitable compensation and statutory compensation under s 1317H of the Act.

The legal issues before the court were whether the trial judge erred in finding the appellants had acted dishonestly, whether their conduct was causative of the respondent’s loss, and whether the trial judge erred in failing to find that the Board had acquiesced to making payments to the appellants. The court also considered whether the trial judge erred in failing to find that the appellants had an honest explanation for their breaches of duties, and that they ought to be excused from liability.

The court held that the trial judge did not err in finding the appellants had acted dishonestly in amending their contracts without Board approval, and in failing to disclose this to their fellow directors. The court found that the appellants had deliberately bypassed the Board, knowing that it would not approve the changes. The court also held that the appellants’ conduct was causative of the respondent’s loss, as the Board was not aware of the changes made to the contracts, and therefore could not be bound by them. The court found that the Board did not believe that the company was bound to make payments to the appellants, but had acquiesced to doing so in any event.

The court held that the trial judge did not err in finding that the appellants’ conduct was knowingly discreditable, and that there was no honest explanation for their breaches of duties. The court found that the appellants had not sought to excuse their conduct on the basis of a misunderstanding, but had asserted an express entitlement to do what they did. The court held that the appellants’ reliance on documentary evidence alone to challenge the trial judge’s conclusions was misconceived, as the trial judge had considered and traversed the documentary evidence in the context of the appellants’ evidence.

The court dismissed the appeal with costs, and rejected the appellants’ application to adduce further evidence.

Orders

Orders of the court

1. The application to adduce further evidence is dismissed.

2. The appeal is dismissed with costs.

Background

Background to the litigation

The trial judge summarised the pertinent facts and his critical findings as follows:[14][14]Reasons at [136]–[146].“The [appellant] directors were concerned about their security should a major pharmaceutical company become involved with the [first respondent]. The Board responded by extending to 12 months the notice period for termination by the [first respondent] of their contracts [at the Board meeting on 25 March 2011].The [appellants] also sought performance rights, but because the shareholders would not countenance that, the [appellants] took that matter to the Board.Dissatisfied with the level of security being achieved, the [appellant] directors arranged for new contracts giving them the right to resign whereupon they would be paid 12 months’ remuneration. … that greatly enhanced their position: they could resign at once and take 12 months’ remuneration, whereas under a company termination, they would have to work out the notice period.Those who purportedly bound the [first respondent] to those contracts had no authority to do so. In purporting to do so, they breached their duty as directors and their fiduciary duty.Inferentially, the [appellant] directors by-passed the Board because they surmised the Board would not agree. Consistently, they did not disclose to the Board what they had done.After six months, they resigned and sought payment of the sums allegedly due to them. That payment was made does not bind the [first respondent], because the full Board was not aware of what the [appellants] had done in April: the [appellants] had kept that information from their fellow Board members.The [appellant] directors were patently obliged to inform their fellow directors of those matters, especially where the solvency of the [first respondent] was in doubt, the contingent liability was so substantial, and the [appellants] were themselves the potential beneficiaries.I draw the inference, which I say is clear and reasonable, that they wanted to establish this “entitlement” and realize upon it with no notice to the full Board. Knowing this matter should have gone to the Board, the [appellant] directors should be seen as having acted dishonestly, in dereliction of their duties as directors.I conclude that the [appellants] (obviously) knew of the Board resolution of 25 March 2011, and must have appreciated that the April changes greatly enhanced their potential benefit. They also appreciated that the authority of a director was subject to any Board direction (para 52B further amended statement of claim, which was admitted). By its March resolution the Board was “occupying the field” of termination. (Even if Mr Yeates as Managing Director had the implied authority he claims he had, it could not have survived this assertion of full Board authority.) I conclude also that the [appellants] were acting in concert in April, and that they knew this matter should have gone to the Board, so that ipso facto, they knew they lacked actual authority to effectuate this alone.The [appellants] owed fiduciary duties to the [first respondent], to avoid conflict of duty and interest and not take advantage of their position to secure a personal benefit (Chan v Zacharia (1984) 154 CLR 178, 198–9). Also, in relation to s 180 (director exercising reasonable care and diligence), see Shafron v Australian Securities and Investments Commission (2012) 247 CLR 465, 476 and for s 181 (good faith in the interests of the company) of the Corporations Act 2001 (Cth), see Permanent Building Society (in liq) v Wheeler & Ors (1994) 14 ACSR 109, 137. As to s 182 (prohibition on using position to gain personal advantage “for themselves or someone else”), see R v Byrnes (1995) 183 CLR 501, 514–5 and Australian Securities and Investments Commission v Adler & Ors (2002) 168 FLR 253, 365.For reasons already developed, the [appellants] breached these common law and statutory duties: the fiduciary duty, by taking advantage of the position of director to obtain a personal benefit; as to s 180, because a reasonable person would not have made such a contract or accepted payment pursuant to it; under s 181, because of the absence of good faith and proper purpose; and as to s 182, because they used their position to gain an advantage for themselves (or their co-defendants).”Factual background

Evidence

Evidence Before The Court

Having set out the “uncontroversial facts” outlined above, his Honour observed that the real controversy in the case arose from the appellants’ evidence and how it should be assessed. His Honour dealt separately with the position of each appellant.The evidence of Mr Jones Mr Jones’ justification for the respective appellants committing the first respondent to the varied contracts without Board approval centred on his evidence of an unminuted oral agreement reached between him and the other directors in the year 2000 (Dr Hanisch and Mr Goodall), that any of them, acting alone, could exercise the authority of the Board, subject only to the first respondent’s constitution and to their acting lawfully and properly. Mr Jones’ evidence about the asserted agreement was rejected by his Honour, who noted that Mr Jones conceded he did not tell anyone else about it, including the auditors and McCullough Robertson, who conducted the due diligence process prior to the public listing of the first respondent.[43] His Honour observed the arrangement “would ordinarily be considered unusual” and that Mr Jones’ evidence about it was vague and unconvincing.[44] Mr Jones’ claim was inconsistent with the only other evidence on the matter, given by Dr Hanisch (that the overriding principle was that everything had to be agreed to by the Board) and Mr Goodall (that anything financial had to be agreed to at Board level). Their evidence was accepted by his Honour. They denied there was a meeting in 2000 at which any such delegation was agreed.[45] Furthermore, Ms Farris (who became Company Secretary in April 2012) confirmed there was, at no material time, a “delegations manual” in existence, which tended to support the first respondent’s constitutional position, that all directors needed to join in decisions, at least those instrumental to the first respondent’s operations (as were those in issue).[46][43]Reasons at [94].[44]Reasons at [95].[45]Reasons at [96]–[98].[46]Reasons at [99]. His Honour also observed that the documentary evidence sat uncomfortably with Mr Jones’ claim.[47] In that regard, the minutes of Board meetings tendered contained numerous instances where the Board, rather than a single director, concerned itself in authorising employment contracts, including for executives.[48] Significantly, the minutes of 2 February 2006 showed the Board approving (“accepting”) the Managing Director’s recommendations as to “executive salaries” and those for the meeting of 8 November 2004 showed the Board “adopting” the tabled “managing director’s employment contract”.[49] Furthermore, inconsistently with Mr Jones’ claim of devolution of authority, the financial reports for 2005 and 2008 (signed as correct by Mr Jones) included the statement, under the heading “corporate governance”, that “the Board determines the remuneration packages for executive directors and senior employees”,[50] and the 2010 report contained a statement that, “All matters relating to the nomination of new directors and remuneration of directors and managers are dealt with by the Board as a whole”.[51] Similarly, the prospectus for the public float specified, as to matters which would otherwise be dealt with by a Remuneration Committee, that they were “being dealt with by the full Board”.[52][47]Reasons at [100].[48]Reasons at [101].[49]Reasons at [102].[50]Reasons at [103].[51]Reasons at [104].[52]Reasons at [104].

Decision

Reasons for decision

Full text does not contain this section.

Ratio Decidendi

Legal Principle Established

The second respondent made similar submissions, arguing also that the appellants’ concession that the findings as to credit were not disputed was fatal to the appeal; the appellants, in accepting those findings, could not challenge the conclusions which necessarily flowed from them. While the appellants might have wished for their actions to be seen in an evidentiary vacuum, it remained that they ran a case as to their authority which was found to be untenable in terms both of the discharge of their duties as directors and of their honesty. None sought to explain their conduct on the basis of some misunderstanding. They strongly asserted an express entitlement to do what they did and that they, at all times, acted appropriately. Their explanation was also inconsistent with their admission of the allegations in paras 52B and 52C(b) of the Statement of Claim (that the appellants’ authority remained subject to any direction or decision of the Board) and that the amended termination provisions conferred a greater benefit than determined as appropriate by the Board. Moreover, the appellants’ reliance on “documents” alone to challenge his Honour’s conclusions was misconceived; his Honour expressly considered, and traversed at length, the documentary evidence in the context of the appellants’ evidence, particularly the first respondent’s constitution and annual reports.Consideration The respondent’s submissions are clearly correct. While the appellants urged an approach which disregarded their evidence, it cannot be overlooked that each sought in his evidence to justify his actions on the basis that he acted with authority and none gave evidence of being mistaken as to his authority. In those circumstances and, given the rejection of the evidence of each appellant, considered against a detailed analysis of the documentary evidence and the credibility findings his Honour made, there was no room for an inferential finding that any appellant acted mistakenly as to his authority. That was particularly the case, when one bears in mind the seven cogent matters concerning the character of the appellants’ actions in effecting the amended contracts to which his Honour had regard, in concluding that the appellants’ conduct was knowingly discreditable. The first matter referred to by his Honour concerned the issue of what led the appellants to take the impugned course. His Honour stated:[81]“Mr Jones would as necessary have relied on the so-called “Hanisch precedent” to circumvent the prospect of the shareholders dooming, in relation to them, the performance rights proposal. It was the actions of the shareholders which prompted (but did not cause) the contract revisions. The [appellants] secured and agreed in these changes to their contracts at a time when there had been vocal expression of shareholder concern about the existing level of directors’ remuneration. Yet they did so without taking the matter to the Board, in the context of the Board’s having only recently directed a change to the notice period to be given by the company upon termination under the preceding contracts.”[81]Reasons at [134].