Mainstar One Holdings Pty Ltd v KMB Consultancy Pty Ltd

[2001] NSWCA 424

CITATION:	MAINSTAR ONE HOLDINGS PTY LTD v KMB CONSULTANCY PTY LTD & ANOR [2001] NSWCA 424
FILE NUMBER(S):	CA 40314/01
HEARING DATE(S):	31 October 2001
JUDGMENT DATE:	26 November 2001
PARTIES :	MAINSTAR ONE HOLDINGS PTY LTD v KMB CONSULTANCY PTY LTD & ANOR
JUDGMENT OF:	Mason P at 1; Stein JA at 70; Young CJ in Eq at 71

LOWER COURT JURISDICTION :	District Court
LOWER COURT FILE NUMBER(S) :	DC 7239/99
LOWER COURT JUDICIAL OFFICER :	Downes ADCJ

COUNSEL:	Appellant: B Sharpe 1/2 Respondent: M K Condon
SOLICITORS:	Appellant: Cordato Partners 1/2 Respondent: Michael Saunders & Assoc.
CATCHWORDS:	Contract - Consultancy agreement - variation of agreement - proper construction of ambiguous clause - whether comma broke clause into two discrete parts - whether termination premature - whether under agreement appellant entitled to terminate with 3 months' notice notwithstanding during initial period of Agreement - primary judge's conclusions correct - Cross-claim regarding whether bonus represented payment for improper purpose -open to shareholders at relevant time to assent to bonus. (ND)
DECISION:	Appeal dismissed with costs.

IN THE SUPREME COURT

CA 40314/01
DC 7239/99
MASON P
STEIN JA
YOUNG CJ in Eq


Monday 26 November 2001

MAINSTAR ONE HOLDINGS PTY LIMITED v

KMB CONSULTANCY PTY LIMITED & ANOR

JUDGMENT

1 MASON P: The second respondent (Mr Knox) was an employee of the first respondent (KMB) in June 1998 when he was appointed part time Chief Executive Officer of the appellant (Mainstar).

2 On 17 August 1998 a Consultancy Agreement was entered into between Mainstar (described therein as the “Company”), KMB (described therein as the “Consultant”) and Mr Knox (described therein as the “Employee”). In brief, Mainstar appointed KMB to provide the services of Mr Knox to Mainstar. The services were described as “on a non-exclusive and part-time basis, all those services assigned … by the Board or on its behalf and include the reorganisation of the business of [Mainstar] and its restructuring”. Mr Knox was in effect being engaged as managing director of Mainstar which was the holding company of a large group of companies involved in a broad range of business activities.

3 The Agreement was a formal one that had been prepared by lawyers. It contained detailed terms relating to confidentiality and protection of Mainstar’s interests, described in recital B as the interest “to ensure that after the termination of the Services of the Consultant with the Company, the Consultant and the Employee do not take advantage of acquired know-how and confidential information ….”.

4 The Agreement stipulated for a consultancy fee of $20,000 per month payable quarterly in advance to KMB. Expenses reasonably incurred were also to be re-imbursed.

5 The Commencement Date of the Agreement was 23 June 1998. The Term was stated as follows:

The engagement of the Consultant begins on the Commencement Date and continues for an initial period of 1 year and afterwards unless terminated by 3 months notice in writing by either party or in accordance with part 9.

6 Part 9 dealt with termination for breach, misconduct and the like. It stated (emphasis added):

PART 9

TERMINATION

9.1 Immediate Termination by the Company

(a) the Employee commits any serious or persistent breach of this agreement including but not limited to:
(i) intentional disobedience;
(ii) dishonesty;
(iii) serious or persistent breach of duty; or
(iv) wilful neglect in the discharge of his obligations;


(b) the Consultant or the Employee materially breaches this Agreement and does not remedy that breach within seven days after receiving written notice from the Company specifying the breach and requiring it to be remedied; or

(c) the Employee:
(i) is declared bankrupt or enters into any composition or arrangement with or makes any assignment of his property in favour of his creditors generally;
(ii) becomes of unsound mind or becomes a person whose person or estate is liable to be dealt with in any way under laws relating to mental health;
(iii) is convicted of a criminal offence which, in the Company’s reasonable opinion, will or might detrimentally affect the Company;
(iv) has conducted himself in a manner which, in the Company’s reasonable opinion, will detrimentally affect the Business.


9.2 Termination by Consultant

The Consultant may terminate this agreement by notice in writing served on the Company if at any time the Company materially breaches this Agreement and does not remedy that breach within seven days after receiving written notice from the Company specifying the breach and requiring it to be remedied.

7 On 25 February 1999 the three parties entered into an Amending Agreement. Its operative provisions were:

1. Amendment to Clause 2.2

Clause 2.2 is hereby removed and is replaced with the following:

“The engagement of the Consultant begins on the Commencement Date and continues for an initial period of 2 years and afterwards, unless terminated by three months notice in writing by either party or in accordance with Part 9.”

2. In all other respects, the parties hereby confirm the terms and conditions of the Principal Agreement.

(Note the addition of the comma after “afterwards” in cl 2.2.)

8 On 2 July 1999 BGR Corporation Pty Ltd, a company in which Mr John Bax had an interest, acquired the whole of the shares in Mainstar in circumstances set out below. Mr Knox resigned as a director on that day. Mr Bax and two associates, Mr Gulson and Mr Reece thereupon became directors of Mainstar. Shortly thereafter Mr Bax became an executive director and subsequently the full time chief executive officer of Mainstar.

9 On 5 July 1999 Mainstar served on Mr Knox and KMB a Notice of Termination of the Consultancy Agreement whose material terms were:

NOW NOTICE IS HEREBY GIVEN to you that the Consultancy Agreement is terminated effective from 5 October, 1999 in accordance with Clause 2.2 of the Consultancy Agreement.

The Company reserves its rights to terminate under Clause 9.1 of the Consultancy Agreement if it becomes entitled to do so prior to 5 October, 1999.

10 KMB and Mr Knox treated this Notice as a material breach of the Consultancy Agreement, contending that cl 2.2 gave it a fixed term until 23 June 2000. After giving due notice pursuant to cl 9.2, they terminated for breach on 31 August 1999.

11 KMB sued Mainstar in the District Court for damages stemming frm the premature termination of the Agreement. It was common ground that Mainstar had paid the consulting fee up to 23 September 1999 and not beyond.

12 The issue was whether the Consultancy Agreement was capable of termination without cause prior to 23 June 2000. KMB pleaded:

11. The effect of the amendment made on 25 February 1999 to clause 2.2 of the consulting [sic] agreement was that the term of the consulting agreement was for two years from 23 June 1998, and thereafter could be terminated by either the plaintiff or the defendant by three months’ written notice.

13 Mainstar pleaded:

11. The Defendant denies paragraph 11 in the Statement of Claim and says the effect of the amendment made on 25 February, 1999 to clause 2.2 of the Consulting [sic] Agreement was that even though the initial period was extended to 2 years that during that time and afterwards the Consulting Agreement could be terminated by either the Plaintiff or the Defendant giving 3 months written notice.

14 There was also a Cross Claim by Mainstar against KMB and Mr Knox. I give its details below.

15 Downs ADCJ found a verdict for the plaintiff in the action and verdicts for the cross defendants in the cross action. Mainstar challenges each conclusion in this appeal.

Interpretation of cl 2.2

16 His Honour held that the true interpretation of clause 2.2 was that the contracted services of Mr Knox were to commence on 23 June 1998 and continue for a period of two years; that after this period either party could terminate the Agreement on three months written notice; and that at any time Mr Knox’s services could have been terminated for cause pursuant to Part 9.

17 His Honour’s reasons were :

Clause 2.2 of the principal agreement was headed with the word “Term” and in its body it expressed a term of one year. If it had not been intended to run for a specific term it would only have needed to contain a commencement date and a right to terminate upon three months notice without any reference to a term. There would not be any need for a term to be specified in an agreement if it was the intention of the parties that it commence on a certain date and they have the right to terminate it at any time thereafter on three months notice. This clause does not merely state it was for a period of one or two years. It states that it will “continue” for an “initial” period for one and then subsequently two years. The words “continue” and “initial” would be meaningless if it was not intended that the agreement should be for a period or term of one or two years. In the principal agreement there was not any comma following the word “afterwards”. Indeed there was not any comma in the term at all. A principle of grammar is that a comma is never used with the word “and” because the word “and” has the effect of a comma. Hence the words “unless terminated by three months notice in writing” refer only to the word “afterwards” and not to the term of one or two years. In the amending agreement there was a comma following the word “afterwards”. This could lead to an interpretation that the right to terminate by three months notice could be exercised during the two years term. However, the amending agreement stated that the parties had agreed to extend the term of the principal agreement and that in all other respects the parties confirmed the terms and conditions of it.

This being so, in the absence of any explanation as to how or why the comma came to be inserted, and bearing in mind the words of his Honour Mr Justice Gibbs [in Australian Broadcasting Commission v Australasian Performing Rights Association Ltd (1973) 129 CLR 99 at 109-110] , the proper interpretation is that the right to give three months written notice of termination only commences after the expiration of the term.

It is clear that it was the intention of the parties that it should be for a term of one or subsequently two years because it was agreed between Mr Knox and Mr Stotter that a bonus would be paid after twelve months and the bonus was paid after twelve months. Certainly it was paid hastily but this was because the sale was imminent.

Finally if the words “termination in accordance with part 9” meant that termination for cause could not take place in the first two years, this would almost destroy any real purpose in having a termination for cause in the agreement.

18 The appellant Mainstar submits that it was entitled to give KMB three months written notice of termination notwithstanding that such notice was given in the initial two years of the Agreement. It submits cl 2.2 as amended is unambiguous and that the comma after “afterwards” breaks the clause into two parts. The first part is said to deal with the term of the consultancy and the second part with its termination which (at any time) may be by three months notice in writing by either party or in accordance with Part 9.

19 The last paragraph of the extract set out above was challenged by Mainstar (in its written outline and initially in oral submissions). Mainstar submitted that the clause would have been differently structured had it been intended that Part 9 (Termination for Cause) applied to the first two years and also to “afterwards” but that three months notice in writing only applied to “afterwards”.

20 In my view the primary judge’s conclusions as to the interpretation of cl 2.2 (par 16 above) were correct.

21 I shall endeavour to state the reasons in my own words.

22 It strikes me as unlikely to the point of absurdity that the parties would have intended that there would be no right to terminate for cause pursuant to Part 9 during the initial term of the Agreement (one year, subsequently amended to two years). That right is given to each party and is expressed in each case to be exercisable “at any time”. Any suggestion that the rights of termination given by Part 9 were not available during the “initial period” would lead to several absurd and unjust consequences, one of them being that KMB might be bound to continue providing Mr Knox’s services even if Mainstar stopped paying the consultancy fee.

23 At the end of the day I understand counsel for Mainstar to have accepted that the rights of termination given by Part 9 were exercisable according to the terms of Part 9 from the inception of the Agreement. In any event I would so hold.

24 Once this is accepted, cl 2.2 (with or without the comma) cannot be read as broken into two discrete parts as suggested by Mainstar. The whole of the clause is addressing the “Term” of the Agreement, as the heading to the clause itself indicates.

25 The clause remains ambiguous. Mainstair’s attempt to split it into two distinct parts and to treat all words after the comma as indicating rights that were always available has to grapple with the difficult task of explaining why the parties bothered with stating any “initial period” or with amending the clause from 1 to 2 years in early 1999. On the other hand KMB has to grapple with explaining the role of the concluding six words in the clause.

26 The clause is drawn inelegantly. But its inelegance does not give much clue as to the present issue. Each party’s attempted redrawing of the clause in oral submissions tended to engage in circularity of reasoning.

27 The statement that Mr Knox’s engagement “continues for an initial period of [x] years” was the means whereby the parties stipulated a fixed primary term, for their mutual benefit. Mainstar’s interpretation reduces those words to a statement of pious intent, which is most unlikely. On Mainstar’s approach there was simply no point in amending the Agreement in early 1999 if, as Mainstar contends, the Agreement was always terminable by three months written notice.

28 The thrust of the clause becomes clearer when it is appreciated that the words “and afterwards, unless terminated by three months notice in writing by either party” form a composite phrase in which the comma has an appropriate function of qualifying “and afterwards”. The intent is to indicate that the Agreement will continue beyond its initial period unless and until either party gives three months written notice of termination.

29 Ultimately the concluding words “or in accordance with Part 9” do not assist either party’s construction of the clause as a whole, in light of what is written above as to the absurdity of construing those words as limiting Part 9 termination rights to the period after the “initial period”. Strictly speaking words such as “unless terminated at any time” should have been added before the words “in accordance with Part 9”, but that in my view is the intended sense of the clause once it is accepted that Part 9 rights were to be unaffected by the statement concerning the term of the Agreement.

30 The reference to termination in accordance with Part 9 could as easily have been left out cl 2.2 entirely, as occurred in relation to an alternative right of termination given in clause 6.8 in circumstances where Mr Knox was unable or unwilling to perform his duties. Neither set of rights of termination are really part of defining or qualifying the term (ie duration) of the Agreement. The last six words serve as a cross reference to or reminder of the rights of termination for cause found in Part 9, as distinct from defining the duration of the Agreement.

31 I find it unnecessary to consider the extrinsic material relied upon by KMB. My inclination is that most of it is inadmissible in regard to the issue of interpretation.

32 The appeal against the verdict for the plaintiff (KMB) in the action therefore fails.

The cross claim referable to the $100,000 bonus

33 A portion of the Cross Claim fell away in light of the reasons sustaining the verdict for the plaintiff (see Red 28-9).

34 The remaining parts of the Cross Claim relate to a $100,000 bonus paid on about 24 June 1999 by Mainstar to KMB.

35 When read with the particulars (Red 13, 14; Blue 339, 346) the juridical bases of the Cross Claim appear to have been:

(1) a claim against KMB for “monies had and received” by KMB to the use of Mainstar (par 13);
(2) a claim against Mr Knox based upon allegations that, in arranging or helping to arrange the bonus payment, he was involved in the “payment not being made … for any proper purpose” (par 16), he acted “in breach of his duty of care” to Mainstar (par 17) and he acted in breach of s232(6) of the Corporations Law (par 18).

36 The form of the pleading and the nature of the claims raised in the cross claim show that Mainstar assumed the onus of establishing unjust enrichment by KMB and/or some impropriety by Mr Knox. Counsel for Mainstar acknowledged this in this Court (CA Tr pp35-6).

37 In light of the oral submissions I do not understand Mainstar to press that part of its Cross Claim against Mr Knox touching the bonus said to stem from cl 10.9 of the Agreement (par 14). If I am wrong about this, I regard such a claim as untenable in its own right if the payment of the bonus was duly authorised. And I understand Mainstar now to concede, properly so, that merely because the bonus was additional to money due under the Agreement does not establish that KMB’s receipt of the bonus was in breach of the Agreement.

38 In the Defence to Cross Claim, KMB and Mr Knox admitted KMB’s receipt of the $100,000 on 24 June 1999. They pleaded:

13.2 Payment of the $100,000 referred to in 13.1 was approved on 23 June 1999 by Mr G Stotter, who on that date was registered as owner of all but one of the shares in the cross claimant and who on that date was the beneficial owner of about 79.67% of the shares in the cross claimant.
13.3 The cross defendants say that the first cross defendant was entitled to receive and retain that amount. …

39 At trial counsel for the Cross Defendants summarised his clients’ defence of the propriety of the bonus as follows (Black 17):

So the simple answer is we ask the man who owned the company if he agreed and he did.

40 Between 1 March 1998 and 2 July 1999, Mr Glen Stotter’s family company, Millwheel Nominees Pty Ltd was the registered owner of all but one of the 422,296 shares in Mainstar: the remaining share was held by his wife Gail Stotter. The family company was the trustee of a discretionary trust for members of Glen Stotter’s family and Mr Stotter was one of its directors, the others being members of his family (Black 42-3). Mrs Stotter does not appear to have taken any active role in the affairs of the company. Mr Knox regarded Mr Stotter as the owner of the business and had several dealings with him on this basis (Black 25-6, 30-1).

41 In July 1998 Mr Knox and Glen Stotter were finalising the negotiations as to the terms of what became the Consultancy Agreement. Mr Knox told Mr Stotter that the $40,000 fee paid to Mr Knox’s predecessor was excessive. He agreed to accept a fee of $20,000 per month for a term of one year, leaving it to Mr Stotter to structure an appropriate bonus based on results. It was intended that this would occur at the end of the initial term of one year (Blue 86, Black 25).

42 In late 1998 there were proceedings in the Federal Court that ran for approximately six weeks. A company representing Messrs Gulson, Bax and Reece (Benchmark Essential Oils Pty Limited (In liq)) was seeking to wind up Mainstar. That company or some other company owned by Messrs Gulson, Bax and Reece had a beneficial interest in approximately 20% of the shares in Mainstar owned by Millwheel Nominees Pty Ltd. The beneficial interest stemmed from a constructive trust whose origin was not explored in the evidence (see Black 42).

43 In about December 1998 Mr Knox made a written offer on behalf of Mainstar to settle the Federal Court litigation. The Gulson/Bax/Reece interest responded in February 1999 offering to acquire the remaining Stotter interests in the Mainstar Group. Negotiations about the terms of the offer proceeded for about a month and terms were agreed in principle, subject to due diligence being satisfactorily completed.

44 On 25 February 1999 Mr Stotter resigned as a director of Mainstar due to ill health and on that day he was replaced as chairman by Mr Robin Gray. The other directors were Mr Knox, Mr McFarlane and Mr Jordan Stotter (son of Glen Stotter). Mr Stotter retained fairly active involvement in Mainstar’s affairs. In his words, “we [ie Mr Knox and myself] conjointly ran the place” (Black 46. See also Black 47).

45 The due diligence process continued until June 1999. On 2 July 1999 there was a contemporaneous exchange of contracts and settlement. The details of the settlement negotiations were not placed before the Court, but it would appear that no binding commitment occurred before 2 July 1999 (Black 24).

46 It was Mr Knox’s evidence that the bonus, which was paid pursuant to an invoice addressed to and approved by Mr Glen Stotter, had thereby been discussed and agreed to by those in control of Mainstar at the end of the 1998-1999 financial year, ie prior to the settlement effective on 2 July 1999 when the Stotter family transferred to the Gulson/Bax/Reece group its interest in Mainstar. There was written and oral evidence, which the trial judge accepted, to the effect that Mr Glen Stotter expressly approved the payment.

47 Evidence concerning the discussion leading up to the payment of the bonus was given by Mr Knox and Mr Glen Stotter.

48 Each witness said that the prospect of an appropriate bonus based on results had been first discussed and agreed between them in mid-1998 at the time when the terms of the Consultancy Agreement were being finalised (Blue 86, 145; Black 25, 43). The trial judge accepted this evidence (Red 27). Towards the end of the 1998-1999 financial year arrangements were being made to pay a number of staff bonuses.

49 The primary judge found that:

The evidence disclosed that the payment [of the bonus] was made for a proper purpose. It was made pursuant to a verbal agreement between Mr Knox on behalf of the plaintiff and Mr Stotter on behalf of the defendant, because the plaintiff had done ‘a terrific job’ or ‘excellent job’. The payment at the request of Mr Knox was made known to Mr Bax when he was a prospective purchaser. Mr Knox was not under any obligation to require the bonus to be brought as I have said to Mr Bax’s notice, but by doing so he acted in utmost good faith.

50 These findings were amply supported by the evidence of both Mr Knox and Mr Stotter. Mr Bax was not party to most of the relevant discussions and, to the extent that he was able to contradict the Knox/Stotter account, he did not impress the trial judge as a witness of truth (see Red 27, 28). Mainstar has demonstrated that one of the reasons given for rejecting the credibility of Mr Bax’s testimony (Red 28H-J) was without foundation in the evidence. The particular criticism is justified, but this was only one of several reasons which sustain the assessment of the competing testimony (see Red 27-8).

51 The findings also dispose of the suggestion that the bonus represented a payment for an improper purpose.

52 According to Mr Knox, discussion commenced on about 30 April 1999 when he met with Mr Bax whom he then knew to be one of the principals of the group offering to purchase the Stotter interests in Mainstar. The conversation was in the context of a common understanding that Mr Knox would resign as Managing Director and that Mr Bax would assume that position upon completion of the settlement.

53 Mr Knox said that in early June 1999 the chairman Robin Gray told him that he supported Mr Stotter’s views that payment of $100,000 bonus should be paid to KMB. He told Mr Gray that he would be delighted to accept this award, subject to the purchasers being made aware of the proposed payment and its not meeting with any disagreement from them. Judge Downs accepted this evidence.

54 A few days later Mr Gray told Mr Knox that he had just spoken with John Bax and that Mr Bax was in agreement with the payment of the proposed bonus.

55 Mr Glen Stotter also gave evidence supporting the Knox version of events referable to the bonus. He said that he had discussed with Mr Knox in June 1998 the possibility of rewarding Mr Knox by way of bonus on results after 12 months. He also said that the chairman Mr Gray agreed with him that Mr Knox had done “a terrific job” and said that he “would certainly support a bonus of $100,000”. Mr Stotter discussed the proposed bonus with Mr Bax who, according to Mr Stotter said:

Robin Gray spoke to me about a $100,000 bonus for John Knox. I told Robin I agreed with the payment.

56 According to Mr Stotter, Mr Bax spoke to him in late June 1999 (Blue 148). Mr Bax asked Mr Stotter to reassure Mr Knox that the $100,000 bonus would still be paid if the sale pursuant to the settlement negotiations went ahead before 30 June 1999.

57 The pleadings referable to the arrangement to pay the bonus and the critical findings set out above confirm that the case was fought on the basis that, if a concluded deal was made between Mr Knox and Mr Stotter, Mr Glen Stotter’s concurrence was sufficient authority to justify payment and receipt of the bonus on 24 June 1999. Mr Stotter evidenced that authority by writing his express authorisation “OK to pay” on the invoice for “Additional Fees as agreed” which KMB submitted to Mainstar on 23 June 1999. Mr Stotter gave evidence to similar effect and, as indicated, his evidence and that of Mr Knox were accepted by the primary judge. It had been Mr Stotter’s practice to authorise payment of KMB’s monthly claims under the Consultancy Agreement (Blue 145).

58 It was not suggested or established that the Bax/Gulson/Reece takeover occurred before 2 July 1999 or that it was a certainty before that date. Mr Bax agreed that the matter of paying a bonus had been discussed with him in late May 1999. According to him, he did not go further than telling Mr Knox that he would raise the matter at the next appropriate board meeting and that, if the bonus was approved, it would be paid at the end of three months (Blue 189). This evidence was effectively rejected by the trial judge.

59 Mr Knox did not suggest that the matter of paying a bonus was ever raised at a formal board meeting in 1998-1999. He did however state that the question of paying the bonus was discussed with and effectively approved by his fellow directors at the time (Black 26-7, 31). There was some evidence supporting this (Blue 88, 146-9. See also Blue 268 showing authorisation by Mr Gray’s alternative director, Mr Law). This evidence would have been relevant to the issue of good faith and the broader issue of breach of fiduciary duty raised on the pleadings upon which Mainstar assumed the onus.

60 As indicated above, the evidence revealed that, at all material times, 422,296 shares in Mainstar were held by the company that was trustee of the Stotter family discretionary trust and the remaining share was held by Mrs Gail Stotter. No point seems to have been taken at trial relating to proof of Mrs Stotter’s separate assent. There was unchallenged evidence that Mr Stotter represented the Stotter family in all of its manifestations in relation to Mainstar dealings and negotiations. In these circumstances it would be unjust now to approach the matter in any other way. The cross examination of Mr Knox at Black 36-7 is further confirmation that no one was concerning themselves at trial with the separate position of Mrs Stotter as legal owner of a single share in Mainstar.

61 It is also relevant to observe that the cause of action pleaded against KMB was a restitutionary one, for moneys had and received. It was common ground that Mainstar had paid the money to KMB without legal obligation, albeit in consummation of the arrangement made between Messrs Stotter and Knox 12 months earlier. The restitutionary issue as to whether it was unjust for KMB not to repay the money was fought and turned upon the question whether the members of Mainstar assented to the payment unconditionally during the time that 100% of those shares were registered in the names of the Stotter interests.

62 In the previous paragraph I emphasised the legal nature of the shareholding interest. It was always common ground that approximately 20% of the Stotter shares were held on a constructive trust for a company owned by Messrs Gulson, Bax and Reece (see Black 42). This equitable interest was not advanced as a reason why Mr Stotter (representing his family as the legal owners) was disabled from approving the bonus. In any event, there was the finding that Mr Bax had been told of the potential vendors’ intention to pay the bonus. To the extent that any of these issues were explored, it is clear that Mr Bax was the spokesman for his company and those in his interest, ie Messrs Gulson and Reece.

63 Mr Bax agreed that he had discussed with Mr Gray on about 20 May 1999 Glen Stotter’s proposal to pay a $100,000 bonus to Mr Knox “in recognition of his good work in restructuring the Group”.

64 Mr Bax also discussed this matter with Mr Knox in late May 1999. According to Mr Bax he did not go further than telling Mr Knox that he Bax would raise the matter at the next appropriate board meeting and that, if the bonus was approved it would be paid at the end of three months (Blue 189). However, the judge found that he went further (Red 30-1).

65 At pars 35-8 above I referred to the pleaded juridical bases for Mainstar’s claims against KMB and Mr Knox in relation to the $100,000 bonus.

66 This Court was informed that the restitutionary claim against the company was litigated on the basis that the payment was improper and/or unauthorised. At the end of the day it was not suggested that anything turned upon the fact that it had not previously been contracted for.

67 There was nothing improper in paying a bonus to the company employing an executive director whose service had been initially engaged on the basis that a bonus would be considered, and who performed excellent service. Evidence was given as to the fairly obvious proposition that bonuses engender loyalty and efficiency.

68 Mainstar submitted that the directors alone had the requisite authority to authorise payment, but the Memorandum and Articles of Association do not support this. I would further reject the submission that payment of the bonus to KMB contravened Mainstar’s constitution such that it had to be amended prior to the members being able to authorise or ratify the payment of a benefit to the managing director. It was open to the shareholders at the relevant time to assent. On my reading of the appeal papers, this was common ground at trial. Indeed, it provides a full answer to the alternative claims against Mr Knox personally alleging breaches of fiduciary common law and statutory obligations resting upon him as an officer of Mainstar.

69 The appeal should be dismissed with costs.

70 STEIN JA: I agree with Mason P.

I agree with Mason P.

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