McCrohan Super Investments Pty Ltd v Ashdown
[2018] VSC 422
•3 August 2018
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
COMMERCIAL LIST
S ECI 2016 01212
| MCCROHAN SUPER INVESTMENTS PTY LTD (ACN 162 030 168) & ORS | Plaintiffs |
| and | |
| MARIA LUISA ASHDOWN & ORS | Defendants |
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JUDGE: | SIFRIS J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 15 May 2018 to 17 May 2018, 22 May 2018 to 23 May 2018, 28 May 2018 to 31 May 2018 and 4 June 2018 |
DATE OF JUDGMENT: | 3 August 2018 |
CASE MAY BE CITED AS: | McCrohan Super Investments Pty Ltd & Ors v Ashdown & Ors |
MEDIUM NEUTRAL CITATION: | [2018] VSC 422 |
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CONSUMER LAW – Misleading or deceptive conduct – Agreement to purchase shares – Representation that creditors of the Company were only those set out in Subscription Agreement – Representation that there was no action or proposed litigation by any person against the Company – Representation as to voting – Representations were made other than by the fourth defendant – Representations were not false – Defendants had no duty to qualify the representations – Conduct was not in all of the circumstances misleading or deceptive – Competition and Consumer Act 2010 (Cth), Sch 2, Australian Consumer Law, s 18 – Corporations Act 2010 (Cth) s 1041H, Australian Securities and Investments Commission Act 2001 (Cth) s 12DA.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | B F Quinn QC and R Kruse | Slater + Gordon Lawyers |
| For the First and Third Defendant | J P Slattery and I Cowen | Wotton + Kearney |
| For the Fourth Defendant | S R Horgan QC and P G Quinn | Nick Xenophon & Co Lawyers |
TABLE OF CONTENTS
A.. Introduction................................................................................................................................... 1
B.. Relevant Background.................................................................................................................. 2
C.. The Subscription Agreement..................................................................................................... 5
D.. Dr Coventry................................................................................................................................... 7
E... The Signing Meeting................................................................................................................... 9
F... The Rights Issue and Events in 2016...................................................................................... 10
G.. The Financial Representations................................................................................................ 12
The Pleading...................................................................................................................... 12
The Representations.......................................................................................................... 13
Were the Financial Representations False?................................................................... 17
The alleged Consultancy Services Agreement................................................ 17
Services provided by Dr Coventry.................................................................... 26
Reliance............................................................................................................................... 31
Loss...................................................................................................................................... 31
H.. The Member Voting Representations.................................................................................... 31
I.... Claims Between Defendants – Proportionate Liability...................................................... 32
J.... Disposition.................................................................................................................................. 32
HIS HONOUR:
A. Introduction
On 18 December 2014, the plaintiffs executed a subscription agreement (‘Subscription Agreement’) with ImmunAid Limited (‘the Company’). Pursuant to the Subscription Agreement the plaintiffs were allotted shares in the Company in consideration for payment of the sum of $3 million.[1]
[1]The subscription price was 50 cents per share which gave the plaintiffs 6 million shares. The shares were $1 shares and were allotted at a discount.
The shares are worthless or of little value. The Company went into voluntary administration on 26 September 2016, and into liquidation on 2 November 2016.
In general terms, the plaintiffs allege that between October 2014 and 18 December 2014, during the negotiations, and prior to execution of the Subscription Agreement, the defendants each engaged in misleading or deceptive conduct by making false or misleading representations to the plaintiffs of two kinds:
(a) Representations made by each of the defendants about the extent of liabilities (including contingent liabilities) of the Company to creditors and any proposed litigation against the Company (‘the Financial Representations’).
(b) A representation made by the first and third defendants that the first and third defendants would vote collectively with the plaintiffs in general meetings of members for the appointment of directors to the board of the Company (‘the Member Voting Representation’).
The plaintiffs seek damages in the sum of $3 million, comprising the subscription amount, because of the alleged misleading or deceptive conduct of each of the defendants upon which the plaintiffs relied in entering into the Subscription Agreement. The plaintiffs allege that but for the representations they would not have entered into the Subscription Agreement.
B. Relevant Background
From around 2001, the Company and Mr Martin Ashdown conducted research and development of methods of leveraging a patient’s immune system to potentially improve the efficacy of treatment of various diseases, including cancer (‘the ImmunAid treatment’).
At the time relevant to the plaintiffs’ claims (from around October 2014):
(a) the first defendant (Maria Ashdown) was a director and shareholder of the Company;
(b) the second defendant (Tom Bonvino) was a director and Chief Executive Officer of the Company;[2]
(c) the third defendant (Martin Ashdown) (a medical researcher) was Chief Scientific Officer and a shareholder of the Company; and
(d) the fourth defendant (Brendon Coventry) (an oncologist, immunologist and medical researcher) was a provider of consultancy services to the Company.[3] The third and fourth defendants together conducted and published research about the ImmunAid treatment.
[2]Mr Bonvino passed away on 30 May 2018.
[3]The nature and extent of such services and the basis on which such services were provided are key issues in the case.
Kevin McCrohan is a businessman and investor and is the majority shareholder and a director of the first plaintiff, McCrohan Super Investments Pty Ltd. In 2013, Mr McCrohan’s wife was diagnosed with cancer and Mr McCrohan began searching for cancer treatments.
The second plaintiff (Tony Ottobre) is a businessman and associate of Mr McCrohan. In 2011, Mr Ottobre’s daughter was diagnosed with cancer and Mr Ottobre also began searching for treatments. Mr McCrohan and Mr Ottobre shared information.
The third and fourth plaintiffs (Ann and Harry Hatch) have a personal and business relationship with Mr McCrohan. Mr Hatch is an experienced businessman and investor.
In October 2014, Mr McCrohan met Mr Ashdown. Mr Ashdown explained to Mr McCrohan the science behind the Company’s research and the ImmunAid treatment. He also told Mr McCrohan that the Company was looking for investors. As a result of what Mr Ashdown told him, Mr McCrohan believed that an investment in the Company would support its research and the development of the ImmunAid treatment and, at the same time, potentially secure access to that treatment for his wife.
Mr McCrohan told Mr Ottobre and Mr and Mrs Hatch about the Company and the investment opportunity, and invited them to join him in investing. Mr McCrohan engaged Jack Di Natale, an advisor and consultant, to assist him in negotiating the investment. Mr Di Natale is a solicitor but does not hold a practising certificate.
A number of meetings occurred between the plaintiffs (or some of them) and the defendants (or some of them) between late October and mid-December 2014, including:
(a) a dinner at Il Cantuccio restaurant on Lygon Street in Carlton around 31 October 2014 attended by Mr McCrohan, Mr Ottobre and Mr and Mrs Ashdown;
(b) a dinner at Silks restaurant at Crown Casino in early November 2014 attended by Mr McCrohan, Mr and Mrs Ashdown, Mr Bonvino and Mr Di Natale;
(c) a dinner at Bamboo House on Little Bourke Street in Melbourne in early November 2014 attended by Mr McCrohan, Mr Ottobre, Mr Hatch, Mr and Mrs Ashdown, Mr Bonvino and Dr Coventry;
(d) a meeting at Mr McCrohan’s house on 18 December 2014 attended by Mr McCrohan, Mr Ottobre, Mr and Mrs Hatch, Mr Ashdown, Mr Bonvino, Dr Coventry and Mr Di Natale, and at which the Subscription Agreement was signed.
Although there is some dispute as to who attended and what was said at the various meetings, it is not necessary to resolve these minor differences, other than the critical meeting on 18 December 2014 when the Subscription Agreement was executed. It is common ground that at the other meetings the nature and extent of the research was discussed and the financial position of the Company was discussed in a general way. It was close to insolvency and badly needed an injection of funds if it was to continue.
It was also common ground, and discussed at the meetings, that the Company’s fund raising efforts were being hindered by its association with Dr Mervyn Jacobson who had been charged with market manipulation-type offences. On 5 November 2014 Dr Jacobson was found guilty and convicted. On 1 November 2014 Dr Jacobson was replaced as CEO by Mr Bonvino.
Following the meeting at Silks restaurant, Mr Bonvino and Mr Gaffney of K&L Gates, solicitor for the Company, liaised with Mr Di Natale on behalf of the plaintiffs in relation to the terms of the investment, and the provision of further information for a due diligence process. In that process, Mr Bonvino primarily dealt with the plaintiffs. Mr and Mrs Ashdown had little or no involvement.
On 26 November 2014, Mr Gaffney forwarded an email to Mr Di Natale containing various financial and other documents compiled by the Company Secretary and Chief Financial Officer. Those documents included information that as at 14 November 2014, the Company owed a debt for retainer payments to Dr Coventry in the amount of $34,400, comprising $26,000 (for April 2012 to March 2014) and $8,000 (accrued to October 2014 but not yet invoiced).
Toward the end of November 2014, Mr Di Natale corresponded with Mr Gaffney by email in relation to a draft Subscription Agreement for the proposed investment. Mr McCrohan, Mr Ottobre and Mr Hatch were copied in to these emails, and their comments were invited.
On 18 December 2014, Mr Ashdown, Mr Bonvino, Mr McCrohan, Mr Ottobre, Mr Hatch and Mrs Hatch met at Mr McCrohan’s house for the purpose of further discussion with a view to executing the Subscription Agreement (‘the Signing Meeting’). Others present included Mr Di Natale and Dr Coventry. Mrs Ashdown was not present.
The Signing Meeting is of some importance and is dealt with below.
After executing the Subscription Agreement, the $3 million was paid and representatives of the plaintiffs were appointed directors of the Company. Having attracted fresh funds the Company was no longer close to insolvency. However, from April 2015 Dr Coventry rendered numerous invoices for services provided well before the Subscription Agreement and well in excess of the $34,400 referred to in paragraph 16 above. The plaintiffs, believing the indebtedness to Dr Coventry to be $34,400, were extremely upset and this ultimately led to a failed rights issue, a falling out, voluntary administration, liquidation and this proceeding for misleading or deceptive conduct, essentially in relation to the false representations relating to the alleged indebtedness of the Company to Dr Coventry. As pointed out, other representations are also pleaded. These matters are discussed in more detail below where relevant.
C. The Subscription Agreement
The Subscription Agreement was negotiated in November and early December 2014 and executed on 18 December 2014. Drafts of the Subscription Agreement and financial information about the Company were, as noted, sent by the Company’s solicitors, K&L Gates, to Mr Di Natale, who then forwarded that information to the plaintiffs.
Clause 2.2 of the Subscription Agreement provided that, subject to extinguishment or waiver of Related Debts pursuant to cl 2.4, each of the plaintiffs (a Subscriber) agreed to subscribe to the Company for shares in three tranches of $1 million: on 21 December 2014 (by Mr Ottobre), 8 January 2015 (by Mr and Mrs Hatch) and 23 January 2015 (by McCrohan Super Investments Pty Ltd) (‘the Funding Dates’). The issue price was $0.50 per share, for a total of 6 million shares.
Clause 2.3 provided that the Company agreed to:
apply the Subscription Amount [of $3 million] for general working capital purposes and the continued development of the Company’s technology including the conduct of further studies to demonstrate the efficiency of the Company’s technology.
Clause 2.4 provided that it was a condition precedent to the Company issuing shares that, unless waived by the Subscriber, it would by 21 December 2014 procure the release or discharge of all Related Debts to the satisfaction of the Subscribers.
The Related Debts were detailed in item 2 of Annexure A, and included:
(a) $400,008 to Transmedia Inc, a company associated with Dr Jacobson;
(b) $286,000 to Mr Ashdown; and
(c) $75,000 to Mueller Media KG, a company associated with Dr Andrea Tobisch, a shareholder and then director of the Company.
Clause 2.6 provided that the Company would:
(a) issue the shares on the Funding Dates: cl 2.6(a);
(b) within 60 days of the Subscription Agreement, convene a meeting of shareholders for voting upon the election of directors of the Company: cl 2.6(b); and
(c) in the meantime, treat itself as in caretaker mode and not undertake any material decision or take any material action (including by paying any Related Debts): cl 2.6(c).
Clause 4 set out the Company’s warranties to the Subscribers, including that:
(a) Annexure B provided ‘a true and fair view of each of the financial position and the performance of the Company’ for the relevant financial period;
(b) Annexure C provided ‘[o]ther than the Related Debts, full details of all other creditors of the Company, as at the date of [the Subscription] Agreement’;
(c) the Company was not a party to, and was not aware of, any action or proposed litigation against the Company other than a disclosed action by the Mayo Clinic.
Annexure C listed the current creditors of the Company, including:
(a) the abovementioned Related Debtors for the amounts listed in Annexure A; and
(b) the fourth defendant Dr Coventry for an amount of $26,400.
In accordance with cl 2.6(b), on 6 February 2015, at a meeting of shareholders, Mr Hatch, Mr McCrohan’s son Jeremy McCrohan, Mrs Ashdown, Mr Bonvino and Robert Brunelli were appointed directors. Mr Ottobre was appointed a director on 7 May 2015.
D. Dr Coventry
During the period between 2006 and October 2015, Dr Coventry engaged in work that was for the benefit of the Company. The work performed and services rendered is referred to in more detail below. Dr Coventry issued the following invoices to the Company:
(a) an invoice on 3 October 2013 for $22,000, for the monthly retainer of $1000 per month over the period of April 2012 to December 2013;
(b) an invoice on 1 April 2014 for $26,400, which included the previous invoiced amount of $22,000 and for the additional monthly retainer (in the sum of $1000 per month) for December 2013 to April 2014. These two invoices were the only invoices issued before execution of the Subscription Agreement. No other invoice, letter or email asserting an amount owing was sent to the Company, save as referred to below;
(c) an invoice on 9 April 2015 for $42,900, including the previous amount of $26,400 and for the additional monthly retainer for April 2014 to July 2015;
(d) an invoice on 9 April 2015 for $168,861 for consultancy services supplied over the period of 27 August 2010 to 3 June 2015;
(e) an invoice on 9 April 2015 for $6,939.17 for travel costs and expenses;
(f) an invoice on 14 June 2015 for $680,350 for the monthly retainer and for consultancy services supplied over the period of 24 July 2007 to 1 April 2012. This was the first invoice that related to the period from July 2007;
(g) an invoice on 18 June 2015 for $1,361,250 for consultancy services supplied over the period of 1 January 2010 to 30 July 2015.
However, and as noted, by 18 December 2014, when the plaintiffs executed the Subscription Agreement, Dr Coventry had only issued invoices totalling $26,400 for the period of April 2012 to April 2014. Dr Coventry had not yet invoiced the Company for any services rendered, or for his alleged retainer, for the periods of July 2007 to March 2012 and May 2014 to December 2014.
At the time that they signed the Subscription Agreement, none of the plaintiffs were aware of the terms of any agreement between the Company and Dr Coventry or that any services had been rendered by Dr Coventry to the Company other than those to the value of $26,400 for which he had invoiced the Company and the accrued amount of $8000 (being $1000 per month to October 2014), which had not been billed.
In June 2015, as noted above, Dr Coventry issued further invoices, bringing the total amount alleged to be owing to $2,260,300.17. The Company refused to pay. Negotiations between the Company and Dr Coventry to secure a release or settlement were unsuccessful. On 30 June 2016, the Company commenced proceedings in the Supreme Court of Victoria seeking a declaration that the Company was not liable to pay Dr Coventry. In July 2016, having given one month’s notice, Dr Coventry commenced separate proceedings in the Supreme Court of South Australia to recover the alleged debt from the Company. Neither proceeding was resolved prior to the Company entering into voluntary administration and then liquidation.
Dr Coventry alleges that the amounts owing to him are pursuant to an oral Consultancy Services Agreement with the Company entered into on or about 24 July 2007 at the home of Mr and Mrs Ashdown, on the following terms:
(a) Dr Coventry would provide scientific advisory services to the Company and act as Chair of the Company’s Scientific Advisory Board (‘SAB’);
(b) the Company would pay Dr Coventry:
(i) a retainer of $1,000 per month;
(ii) $625 per hour for services supplied by him to the Company; and
(iii) amounts to reimburse travel expenses incurred in supplying his services;
upon Dr Coventry issuing an invoice to the Company; and
(c) the Company would direct Dr Coventry to issue invoices when it had funds to pay.
Both Mr and Mrs Ashdown deny any such agreement (whether at their home on or about 24 July 2007 or otherwise) and so far as they were aware Dr Coventry was only entitled to his retainer fee of $1000 per month (plus pre-approved expenditure) as agreed between Dr Jacobson and Dr Coventry in 2012 at Adelaide airport, and later in Lucerne, Switzerland where Mr Ashdown was present. It was at this stage that he was appointed to head the SAB. Mr Bonvino indicated in a note that he could find no evidence supporting Dr Coventry’s claim and that the auditors of the Company had indicated the alleged claims were not ‘probable and measurable’ and did not need to be reported as a contingent liability in the financial statements of the Company.
This agreement, as alleged by Dr Coventry, is a central feature of this proceeding and is considered in detail below.
E. The Signing Meeting
Although there was much evidence about the meeting, a number of critical relevant matters clearly emerged from the evidence and I make findings to such effect.
First, Mrs Ashdown was not at the meeting. Secondly, there was discussion about matters scientific. Thirdly, it was clear to all, with the possible exception of Dr Coventry to whom I shall return, that the plaintiffs were concerned that their investment of $3 million was, save for some identified exceptions, directed to future expenditure primarily in the form of research. It was tolerably clear that they did not wish their funds to be used to discharge past indebtedness, other than to the extent identified and permitted, which of course included Dr Coventry in the sum of $26,400 and a further accrued amount of $8000. To this end, Related Debts (as defined to include those debts in Annexure A) were forgiven.
Mr Di Natale made a file note of the meeting. It is the only contemporaneous note. With reference to his file note Mr Di Natale gave evidence to the effect that Annexure C was referred to and that the creditors were fixed as at 18 December 2014. He said that Mr Hatch used expressions such as that a ‘line in the sand’ be drawn and that they would take over the Company with a ‘clean slate’ and that nobody present objected. He also gave evidence that nothing was said at the meeting about Dr Coventry’s past services to the Company or that he believed he was entitled to be reimbursed for such services (over and above the amount stated in Annexure C) and would in due course assert such entitlement.
The only real issue in dispute in relation to the meeting is whether Dr Coventry left the table while the financial and business aspects of the agreement were discussed and, critically, if he did not, whether he remained silent about his claim well knowing of the plaintiffs’ desire not to apply their investment to the discharge of such prior long outstanding debts or claims. This aspect is discussed below.
F. The Rights Issue and Events in 2016
By June 2016 the Company was nearing insolvency. At a meeting of the board of directors on 16 June 2016, the board discussed options to raise money. The prospect of the Company attracting further investors was effectively foreclosed by Dr Coventry’s claim for unpaid services. The board resolved to undertake a Rights Issue to raise $1.7 million by way of issuing shares to existing shareholders. At or about this time the relationship between the Ashdowns and Mr Hatch was strained. The Ashdowns took issue with Mr Hatch’s restrictions on their working conditions, wages and funding. They lost all confidence in the board and ultimately circulated a memorandum to such effect to shareholders on or about 5 September 2016. Mrs Ashdown also discussed her dissatisfaction with the board with Dr Jacobson.
Mr and Mrs Ashdown did not have the funds to participate in the Rights Issue. However, on 22 July 2016, Dr Jacobson attended the Company’s office and handed Mr Bonvino bank cheques on behalf of Mr and Mrs Ashdown, as well as other shareholders, to subscribe for shares. Dr Jacobson had offered the money to Mr and Mrs Ashdown by way of a ‘loan’ without specifying when or even if they need repay it. Mr Di Natale subsequently reminded Mrs Ashdown that she and Mr Ashdown had agreed to vote together with the plaintiffs for the election of directors. However, when Mr Di Natale instructed solicitors to prepare a Shareholder Voting Deed, formalising the Member Voting Representation, Mr and Mrs Ashdown refused to sign it. They contend that the Shareholder Voting Deed went much further than the original agreement.
On 9 September 2016 the board resolved to cancel the Rights Issue. The board’s reasons for doing so included the fact that Dr Coventry’s alleged claim against the Company exceeded the funds that could be raised by the Rights Issue. The board was also concerned that, by Dr Jacobson paying for Mr and Mrs Ashdown and other shareholders to participate in the Rights Issue, Dr Jacobson would effectively secure control over their shares or could influence how they voted in shareholder meetings. In addition, Dr Jacobson had also made a claim against the Company to the effect that the release of the indebtedness of the company to him and his entities was executed under duress and otherwise of no effect.
On 26 September 2016, the board resolved to place the Company into voluntary administration. Liquidators were appointed on 2 November 2016.
G. The Financial Representations
The Pleading
The Financial Representations are pleaded as follows:
7On or about November 2014 and until and including 18 December 2014, in the course of the negotiations referred to above at paragraph 5 and prior to the execution of the Subscription Agreement, the defendants, or each of them, represented to the plaintiffs that:
(a)the creditors of the Company, and the liabilities (including contingent liabilities) of the Company to those creditors, were only those set out in Annexure C to the Subscription Agreement;
Particulars
On 26 November 2014, the first to third defendants provided to the plaintiffs the list of Company creditors in the form set out in Annexure C to the Subscription Agreement in an email from Andrew Gaffney to Jack Di Natale, who at all material times was acting on behalf of the plaintiffs.
On 28 November 2016, the list of Company creditors in the form set out in Annexure C to the Subscription Agreement was provided by the first to third defendants to the plaintiff as part of various draft Subscription Agreements sent by email by Mr Gaffney to Mr Di Natale and by email by Neil Miller to Mr Di Natale.
Annexure C to the Subscription Agreement listed the fourth defendant as a creditor to the Company for an amount of $26,400.
On 18 December 2014 the defendants, the plaintiffs, Mr Di Natale and Ann McCrohan were present at the residence of the first plaintiff in order to finalise the negotiations and to execute the Subscription Agreement. Prior to the signing of the Subscription Agreement, the first to third defendants said to the plaintiffs words to the effect that the list of Company creditors in Annexure C to the Subscription Agreement were the only creditors of the Company and that there were no other liabilities owing by the Company. The first to third defendants did not say to the plaintiffs that the Company had any undisclosed liabilities, including any liability or contingent liability to the fourth defendant for uninvoiced consultancy services performed by the fourth defendant in accordance with any contract. The fourth defendant, who was present, did not say to the plaintiffs that there was an error in Annexure C to the Subscription Agreement or that he was, alternatively would be on the issuing of an invoice for consultancy work already performed, a creditor of the Company for any amount greater than $26,400.
(b)the Company’s Financial Report for the year ended 30 June 2013 accurately listed the company’s creditors and financial position generally, including the Company’s liabilities and any contingent liabilities.
Particulars
The plaintiffs refer to and repeat the particulars to paragraph 7(a) above.
(c)there was no action or proposed litigation by any person against or with respect to the Company or its assets other than a claim made against the Company by the Mayo Clinic.
Particulars
On 28 November 2014, the first to third defendants provided to the plaintiffs:
(i)a letter from Sheridan Ross, a lawyer acting for the Company, to Jonathan Oviatt, chief legal officer of the Mayo Clinic, in which the Company disputed a patent application made by the Mayo Clinic over intellectual property alleged to belong to the Company (the Mayo Clinic Claim); and
(ii)an email from Mr Gaffney to Mr Di Natale, attaching the letter referred to above in these particulars, and forwarding an email from Rob Brunelli, a lawyer acting for the Company to the first and second defendants, amongst others, discussing the negotiations with the Mayo Clinic and proposing a settlement of the Mayo Clinic Claim.
At the meeting of 18 December 2014, particularised above at subparagraph 7(a), and prior to the signing of the Subscription Agreement, the second and third defendants said to the plaintiffs words to the effect that there was no action or proposed litigation by any person against or with respect to the Company or its assets other than the Mayo Clinic Claim. The fourth defendant, who was present, did not say to the plaintiffs that he proposed to commence litigation against the Company or that he had any grounds or basis upon which he could do so.
(The representations set out above collectively referred to herein as the ‘Financial Representations’).
Further paragraphs plead falsity, reliance, causation and loss.
The Representations
The plaintiffs submitted that Mr Ashdown and Mr Bonvino made the representations at the meeting on 18 December 2014.[4] It was submitted that they specifically confirmed Annexure C. Mr Ashdown admits perusing Annexure C, but otherwise has no specific recollection of any discussion in relation thereto. Mr Bonvino did not give evidence and, as noted, has passed away. Further and alternatively, it was submitted that they remained silent when the liabilities of the Company were discussed. That is, in circumstances where there was a reasonable expectation that they would speak, in the event that the liabilities were not as presented, by reference to Annexure C, which Mr Ashdown and Mr Bonvino knew was a snapshot of the liabilities of the Company.
[4]The pleading also refers to the prior provision (by Mr Gaffney to Mr Di Natale presumably on instructions) of information including a list of creditors and importantly Annexure C.
In my opinion, Mr Ashdown and Mr Bonvino did represent that ‘the creditors of the Company, and the liabilities (including contingent liabilities) of the Company to those creditors, were only those as set out in Annexure C to the Subscription Agreement’.[5] They did so both expressly and by silence as contended.[6] There is absolutely no question that they knew the investors wanted to ‘draw a line in the sand’, or ‘take over a company with a clean slate’.[7] They knew that the investors did not want their funds to be used to discharge related debts (and to this extent releases were executed) or debts other than those necessary to keep the Company and its research afloat, such as patent fees, utilities and the like. Of course the Subscription Agreement specifically provided for this in cl 2.3 referred to above. This condition of investment was also achieved (to the knowledge of Mr Ashdown and Mr Bonvino), by permitting and recording the Annexure C liabilities, so that going forward everyone knew what the financial position was in relation to the creditors of the Company. This was critical to the investors and was specifically discussed and agreed to at the Signing Meeting, in the presence and with the participation of Mr Ashdown and Mr Bonvino. They did not say anything about the stated liabilities and their silence clearly amounts to an acceptance thereof. Accordingly, I reject the submission that Mr Ashdown did not make the Financial Representations. Of course he did.[8]
[5]Paragraph 7(a) of the Further Amended Statement of Claim.
[6]Remaining silent as to Dr Coventry’s belief that he was owed substantial sums and any consequent obligation to qualify any representation, matters which were not pleaded, is dealt with below.
[7]Whether or not these words were used by Mr Ashdown, as contended by Mr Hatch, matters not. The words, or words to similar effect, were used in a discussion that he was a party to and participated in and which related to the liabilities of the Company and Annexure C, which Mr Ashdown (and Mr Bonvino) was well aware of. In fact Mr Ashdown recalls Mr Hatch using the words to the effect of ‘line in the sand going forward’. Further, in cross-examination Mr Ashdown agreed that he would have looked at the financial information.
[8]See also footnote 12.
I also reject the submission that the representations were not representations of fact, but merely the opinion of the representor. I reject absolutely the contention that the representations made by Mr Ashdown would reasonably have been understood to be merely the opinion of a scientist and not a statement of fact. They were clearly in the circumstances intended to be statements of fact and were without any doubt received by the plaintiffs and Mr Di Natale as such. The evidence of the investors is clear and unequivocal.
Although not at the Signing Meeting, the same may be said of Mrs Ashdown. She was a director of the Company and specifically approved Annexure C at a board meeting on 3 December 2014 and knew of its purpose. She read Annexure C and permitted it to go forward on the basis that it would form part of the Subscription Agreement and that its contents would be communicated to the plaintiffs. Her absence from the Signing Meeting does not change the position.[9]
[9]Miller and Associates Insurance Broking Pty Ltd v BMW Aust Finance Ltd (2010) 241 CLR 357 at 371 (French CJ and Kiefel J).
The claim against Dr Coventry is that he remained silent. The particulars to paragraph 7(a) of the claim are in the following terms:
The fourth defendant, who was present, did not say to the plaintiffs that there was an error in Annexure C to the Subscription Agreement or that he was, alternatively would be on the issuing of an invoice for consultancy work already performed, a creditor of the Company for any amount greater than $26,400.
Dr Coventry denies having made any such representation. He submits that he was not part of any business discussion at the Signing Meeting and was in the kitchen with Mrs McCrohan whilst such matters were discussed. He did not receive or see Annexure C or the Subscription Agreement and was not aware of what had been discussed and represented to the plaintiffs in relation to creditors generally or specifically to his position. Simply put, he was not in a position to correct, nor did he have the opportunity to say anything about, a position that he was unaware of. Further, he was not asked by anyone at any stage about what the Company owed him and was not asked to be included in any release.
The evidence of the other parties, save perhaps for Mr McCrohan, was to the effect that Dr Coventry was present for the entire duration of the Signing Meeting and did not leave when business matters were discussed, or when Mr Di Natale went through the Subscription Agreement.
I am not satisfied that the plaintiffs have established that Dr Coventry made the representations, as alleged. Even if present throughout the meeting, I accept his evidence that he had not been given and was unaware of the terms of the Subscription Agreement and Annexure C. There is no evidence that the particular figures referred to in Annexure C were discussed, and in particular the amount recorded as owing to Dr Coventry. Accordingly, it has not been established that Dr Coventry was aware of the financial position and consequences contemplated by any ‘line in the sand.’ There was simply no discussion as to what this meant for him and how his position was to be assessed. In the circumstances and given the nature of the meeting, and his particular and peculiar involvement in the meeting, there was, in my view, no reasonable expectation that he not remain silent but say something or qualify any figure, particularly in circumstances where he was unaware of what was stated in the documents and, in particular, Annexure C. On balance, he was entitled to take the view that (on his evidence) the Company and the directors knew his position – whether they agreed or not – and it was for them to deal with the matter as he was, in effect, a stranger to the transaction, unaware of its terms or effect, other than in the most general way.
Further, given his asserted belief (as discussed below) that he was owed substantial sums, it is unlikely that had he known of the figure allocated to him as a creditor, he would have remained silent. There was no evidence that he was instructed to remain silent. In the circumstances I find that he was not required to respond to or qualify the representations, and in particular Annexure C. I am not prepared to find that he deliberately remained silent because this was the only way he was going to be paid. Such a finding is not supported by the evidence and is entirely unwarranted.
Accordingly, I find that Dr Coventry did not make any representation by his silence as alleged.
Were the Financial Representations False?
The critical factual matter underpinning this claim and the element of falsity, is whether there was indeed a Consultancy Services Agreement and, if so, whether the defendants, other than Dr Coventry, had knowledge of this agreement. If they were unaware of any indebtedness or accrued liability as alleged or, more particularly, if there was in fact no such liability (so that they believed – as was the fact - that the representations were true) they will not be liable.
The alleged Consultancy Services Agreement
In his defence, Dr Coventry pleads the agreement referred to in paragraph 34 above.
The plaintiffs did not challenge the alleged agreement as pleaded. In fact the agreement was part of the plaintiff’s case, and pleaded as such. That is, that the accrued amount owing to Dr Coventry which arises out of this agreement was not disclosed. No other basis of indebtedness was pleaded either by Dr Coventry or the plaintiffs.
However, as noted earlier, the Ashdowns disagree. They deny any such agreement and contend that the only agreement between the Company and Dr Coventry was that reached between Dr Coventry and Dr Jacobson (on behalf of the Company) at the Qantas Lounge at Adelaide airport in April 2012 and later confirmed in Lucerne, Switzerland in October of that year (‘the 2012 Agreement’) in the presence of Mr Ashdown. Dr Coventry does not dispute the 2012 Agreement, but contends that it merely re-confirms the 2007 Consultancy Services Agreement.
The 2012 Agreement provided for a retainer of $1000 per month to Dr Coventry as head of the SAB together with pre-approved expenditure. No other remuneration, compensation or expenditure was agreed.
In my opinion, and after a thorough consideration of the evidence, including the matters set out below, it is more probable than not that the 2012 Agreement was the only agreement entered into by the parties in relation to the engagement of Dr Coventry. The only other agreement pleaded is the alleged 2007 Consultancy Services Agreement.
Correspondence and discussions at or about the time of the 2012 Agreement and thereafter (both before and after the Subscription Agreement), and indeed the lack of correspondence and discussions during the period 2007 to 2012, establish, rather convincingly in my view, that there was no such agreement as contended prior to the 2012 Agreement and certainly not the agreement as alleged, that is, the 2007 Consultancy Services Agreement. I will first deal with this correspondence and discussions and then return to the suggested 2007 Consultancy Services Agreement.
On 3 April 2012 Dr Jacobson emailed Dr Coventry an agenda for the forthcoming meeting at the Qantas Lounge at Adelaide airport. The email records:
In addition, I would like to address what role you see for yourself in our future expansion, including:
- Better understanding your own preferred future role in relation to ImmunAid.
- Maybe spearheading an ImmunAid Scientific Advisory Committee.
It was subsequently resolved at various meetings of the board of directors:
(a) on 4 May 2012 that the board supported establishing the SAB, and that Dr Jacobson would prepare a list of potential candidates;
(b) on 30 June 2012 that Dr Coventry’s curriculum vitae be provided to the board; and
(c) on 27 September 2012 that Dr Coventry be offered the position of Convener of the Company’s proposed SAB.
On 29 September 2013 Dr Coventry emailed Dr Jacobson an itemised request for funding. Amongst reimbursements for travel, conference and presentation expenditure, there was a request for:
(2) Retainer fees for advice and support to ImmunAid as promised in 2012 at the Adelaide Airport meeting April 2012 with you at the rate of $1000/month and confirmed again at Lucerne in 2012.
In this regard it is relevant to note that Dr Coventry made no reference to the fact that the amount had previously been agreed to as part of the 2007 Consultancy Services Agreement.
Dr Jacobson replied on 1 October 2013, and in response to this item, said:
Item (2) - is definitely something we agreed to, but like all other fees and retainers - including to Martin [Ashdown], Luisa [Ashdown], Andrea [Tobisch] and myself - these accruals will all be paid and brought current, once ImmunAid has received sufficient funds from its current Round 2 funding.
In his email of 29 September 2013, Dr Coventry also recorded the following note:
I am a busy clinician and researcher with a range of different research commitments who has spent considerable time 'out of hours' tirelessly investigating the concept and have already provided compelling evidence for the immune regulation concept/oscillatory behaviour and its relation to clinical efficacy, at a number of influential levels. My commitment so far to you and ImmunAid has been obvious.
Responding to the note, Dr Jacobson said:
May I just say, in relation to your "Note" half way down your page, that everyone in ImmunAid – myself included - fully recognises your valuable multi-year efforts for the benefit of ImmunAid, and its exciting new technology, and your knowledge and your commitment have never been questioned.
On 3 October 2013 Dr Coventry issued an invoice for $22,000 for monthly ‘Consulting Services Retention Payments’ for the period of 1 April 2012 to 1 December 2013
On 1 April 2014 Dr Coventry issued his second invoice for the sum of $26,400, comprising of the previously invoiced $22,000, as well as $4,400 for the monthly retainer of $1,000 for the period of 1 December 2013 to 1 April 2014.
The Subscription Agreement was signed on 18 December 2014. At this time the amount owing to Dr Coventry was accurately recorded having regard to the 2012 Agreement.
On 28 February 2015 Dr Coventry emailed Mr Bonvino in relation to the composition proposed for the Company’s SAB:
MAIN SAB STRUCTURE
Chair: Brendon Coventry
Chief Advisor: Martin Ashdown
Overseas Advisor: UK Member
Overseas Advisor: USA Member
Australian Members [1-2]
Usual Expected Retainer
~$15,000 per annum
+ Expenses for advisory investigators meeting (1-2 per year)
+ Consultants fees as required
Under the heading ‘My Commitment’, Dr Coventry further noted:[10]
Pending further discussions, I would be prepared to work approximately 2 days
If I had facilities sufficient to run my Private Practice out of the BioTempus facilities I could effectively make this almost 1/2 time (also pending University approvals which should follow).
[10]By which time the Company had changed its name to Biotempus Limited.
At a meeting held 28 February 2015 Mr Ashdown proposed that he and Dr Coventry co-chair the SAB.[11]
[11]Mr and Mrs Ashdown gave evidence that there was no SAB in 2007. The SAB, with about five or six scientists, operated from inception in 2005. This is corroborated by the Company’s board minutes of 4 May 2012, which record a discussion about ‘re-establish[ing] its Scientific Advisory Committee’, and approximately coincides with the time of the Adelaide airport meeting. Despite this evidence, Dr Coventry said that he understood a SAB to have existed in 2007, comprising only two people, namely himself and Mr Ashdown, over whom he acted as ‘Chair’. He said that ‘meetings’ were not recorded in minutes and occurred informally ‘many times when we travelled, at conferences’, and in ‘some’ skype calls. The size of the board did not strike him as improbable, despite admitting that he was aware by December 2006 that the Company had previously had a SAB with multiple advisers. However, he admitted some difficulty in distinguishing between his collaboration with Mr Ashdown and his alleged role as Chair, given the circumstances. He gave evidence in answer to a question from the Court that he considered ‘any collaboration with Martin was in a sense an informal way of acting as part of the Scientific Advisory Board’.
On 22 March 2015 Dr Coventry emailed Mr Ashdown stating that:
You asked me (and Tom [Bonvino] did too) to think about reimbursement levels. I'm not exactly sure where to start on this process- but I do not want to either 'under-value', nor ‘over-value', my contribution towards where we have got so far.
You and I have been working on this whole massive project for nearly 10 years now- I think 2016 will I be the 10 year mark together. Moreover, both you and I have been working on this individually from our own perspectives for at least 10 years longer than that, in order to get the depth of collective understanding we have reached as of today.
It is only roughly possible to estimate any 'price' for this. However, in real terms - it IS what we are collectively and individually bringing to the table that will ultimately lead to the success of Biotempus Ltd.
I'd like to discuss between us (you & I) what we reason this is actually 'worth' in real & fair terms without being either greedy or spartan about it - How about we both give this some more thought and chat about it in the next day or so?
On 9 April 2015 Dr Coventry issued two further invoices. The first, for $42,900, encompassed the $26,400 previously invoiced, in addition to the $16,500 referable to the monthly retainer for the period of 1 April 2014 to 1 July 2015. The second, for $168,891, was said to be referable to:
Consulting Services Payments - Reimbursement for Services Supplied
In-Lieu of Private Practice Income losses that would otherwise been received during Overseas Trips making presentations, talking, negotiating and contacts regarding synchronised timing of therapies and underpinning Biotempus commercialisation position. Rate of $5000 per week ($714/day).
On 4 May 2015, Dr Coventry emailed Mr Ashdown in relation to Company business cards that were to be provided to him:
I'd appreciate a formal arrangement to be in place before handing out too many of these cards (maybe this is close now?? - certainly it's been promised for years amongst all of the problems and turmoil - as you are also painfully aware)! Getting very long in the tooth now. I've been losing major income for years from the time taken out of my private practice work etc. Email is out to Gus Dalgleish for a meeting with us - so it would be important to have the formal arrangement bedded down properly very soon.
This request was reflected in CEO Report dated 7 May 2015, recording that the board ‘need[ed] to discuss and approve an offer for Dr Coventry.’
By email to Mr Bonvino dated 17 June 2015 Dr Coventry issued a further invoice (dated 14 June 2015), covering two separate accounts:
(a) the first, for $61,600, covered the monthly retainer for the period of 24 July 2007 to 1 April 2012; and
(b) the second, for $618,750, covered ‘service payments’ for the period of 24 July 2007 to 1 January 2010 (calculated at 1 day per week for 2.5 years at $625 per hour).
By reply email of 17 June 2015, Mr Bonvino said to Dr Coventry, ‘[r]egarding the outstanding consulting services I have not been able to find any documentation or agreement which I can rely on nor does anyone have any memory of this.’ The following day Mr Bonvino emailed the board circulating proposals to settle the invoices by way of payment in shares and/or cash:
As background, Brendon has been on a retainer of $1000 per month for his services since late 2013. This agreement has been confirmed by Martin who was present during the conversation with Mervyn [Jacobson] in Switzerland. Also confirmed by Bronwyn [Christie]. There are no other agreements/discussions relating to his second invoice for consulting services. I have held off from paying him for his retainer services as it was my intention to include these in the discussions to resolve his past and ongoing contributions.
The proposal that we think might be appropriate is a combination of shares (estimated to be appropriately valued at $1) and cash. We believe that Brendon may have a preference for cash at this time. Options include:
1. Payment in shares only to cover past contributions including his retainer (300,000); or
2. Payment of his retainer in cash ($42,000) plus 250,000 shares; or
3. Payment of his retainer in cash ($42,000) and a combination of some cash and shares for past contributions. Need to determine upper limit to cash.
On 18 June 2015, Dr Coventry issued a further invoice for services provided ‘at least at the rate of one day per week as agreed to by the former CEO [Dr Jacobson] and Martin Ashdown.’ The invoice for $1,361,250 covered the period of January 2010 to 30 July 2015 (calculated at 1 day per week for 5.5 years at $625 per hour).
On the same date, Dr Coventry sent an email to Mr Bonvino which set out the basis upon which each invoice had been claimed:
(1) Retainer Invoice
This arose when the previous CEO [Dr Jacobson] formally met me in Adelaide on a flight to Perth where he agreed on the initial retainer of $1000 per month, stating it would of course increase soon after. This was for Scientific Advisory Board retention.
(2) Loss of Income
This has been raised multiple times over the years with the previous CEO and Martin Ashdown - and also again when I was in London and Rome with you on the recent trip. There was agreement that compensation for my loss of income in doing the trips and work performed each year (and sometimes several per year) was required. No dissent from this proposal has ever been issued to me. I would not have visited many of the locations, nor present those talks or be available for meetings for non-Biotempus work.
…
(3) Work for Biotempus throughout the year
Each week, in excess of one day per week has been performed by me, to further important developmental aspects of Biotempus and this requires payment.
(4) Reimbursement for Expenses on the Recent Trips
These are Itemised on the Biotempus form as discussed.
Again, it should be noted that Dr Coventry does not refer to the retainer of $1000 per month having been agreed as part of the 2007 Consultancy Services Agreement, but rather, as part of the 2012 Agreement.
On 19 June 2015 Mr Bonvino emailed Dr Coventry, reiterating that he was unaware of any arrangement, agreement or daily rate upon which Dr Coventry would be compensated for his lost income. Mr Bonvino maintained this position in his email to Dr Coventry of 29 June 2015:
Currently you have sent Biotempus "invoices" in aggregate in excess of $1.5 million - where there is no agreement and which frankly came as a complete surprise.
For the record and to avoid any uncertainty - the invoices are denied.
From the discussions and correspondence referred to it is clear that there is no reference whatsoever to the 2007 Consultancy Services Agreement in circumstances where such reference would have been expected and absolutely called for. There is simply nothing in writing to confirm it or even infer that such an agreement was reached. In fact the contrary is the position. The correspondence and discussions clearly point to the 2012 Agreement expressly and implicitly. Of course Dr Coventry does not deny this agreement. But in my opinion it was the only agreement.
I am not satisfied that the evidence establishes that it is more probable than not that an agreement was reached at the dinner in July 2007 as alleged. The evidence clearly does not permit such a conclusion. Mrs Ashdown denies that any discussion about employment or engagement issues and remuneration was discussed. Mr Ashdown does not recall any such discussion. Dr Coventry’s evidence in this respect is entirely vague and unconvincing. There is no contemporaneous note or document evidencing this. In fact there is no note or document at any stage until the last invoice in 2015. Further, Dr Coventry’s memory of a dinner meeting 11 years ago is simply, in light of the other circumstances referred to, an insufficient basis to conclude that there was any such agreement. It is most unlikely and implausible that such an agreement as contended, with such precise terms, was agreed in July 2007. I find that there was no such agreement. This conclusion is further supported by the matters referred to below.
A term of Dr Coventry’s alleged Consultancy Services Agreement is a payment of $625 per hour (exclusive of GST) for work performed by him on behalf of the Company. His first invoice reflecting this amount was issued on 18 June 2015, almost eight and a half years after the alleged commencement date. Curiously, it only includes charges dating from January 2010. When he was questioned about this start date, he responded that ‘I was trying to be fair and reasonable and that’s why I said it was a discounted rate, because I didn’t go right back to where I felt that it really should go back to 2007. So I started in January 2010. I thought that was a fair period that would be a reasonable period to start it from.’ He gave a similar ‘discount’ justification for his calculation of one day per week.
There is not a single documentary reference to Dr Coventry’s allegedly agreed hourly rate of $625 in evidence before the 18 June 2015 invoice, including in his four invoices rendered to the Company between October 2013 and April 2015. Indeed, in response to a late 2013 invitation by Dr Jacobson to provide an ‘itemised request for funding’ by email, Dr Coventry only asked for travel reimbursement and the $1000 monthly amount which he described as ‘retainer fees for advice and support to ImmunAid’.
In March 2015, as noted above, Dr Coventry sent an email to Mr Ashdown in which he responded to a request by Messrs Ashdown and Bonvino to think about ‘reimbursement levels’. His response was that ‘I’m not exactly sure where to start’ and ‘It is only roughly possible to estimate any “price” for this.’ He made no mention of the $625 hourly rate, which had allegedly been agreed upon by this point, and which at the time of that email would have amounted to almost $1.8 million. The existence, nature and content of this email is plainly and entirely inconsistent with the proposition that an agreement (and specifically, that a rate of $625 per hour) had been reached in relation to Dr Coventry’s consulting services. Were such an agreement (or rate) in existence, it is expected that it would have been referred to here.
On the same date as his 18 June invoice, Dr Coventry sent an email to Mr Bonvino outlining the basis for his invoices. Unlike his explanation of the origins and agreed amount for the $1000 monthly payment, he does not explain any coherent basis or origin for the alleged hourly rate.
Further, Dr Coventry’s second invoice dated 9 April 2015, which charges a rate of $714 per day, was not part of his alleged agreement at all. Not only is it not referred to in his defence, but there is no mention of it elsewhere in the contemporaneous documentary evidence. It is noted that if this were to form part of the agreement, it would result in the unusual and arguably uncommercial circumstance (as indeed it did, on the invoices rendered) wherein Dr Coventry was simultaneously entitled to all three of travel expenses, a $625 hourly rate, and a $714 daily rate. In the course of Dr Coventry’s evidence, it became apparent that there was no basis for this alleged entitlement to $714 a day.
Having regard to my finding in relation to the 2007 Consultancy Services Agreement, there is no suggestion, and it was not argued, that the amount owing to Dr Coventry, on the basis of the 2012 Agreement, was higher than the amount disclosed in Annexure C.
Accordingly, I do not consider that the Financial Representations as pleaded were false.[12] Unless Dr Coventry had some legal basis for a claim, known to the defendants, it cannot be said that the Financial Representations were false. Further, and absent any such agreement, they were entirely accurate. I have rejected the only agreement pleaded, being the 2007 Consultancy Services Agreement.
Services provided by Dr Coventry
[12]Further, Mr Ashdown gave evidence that he believed that the Subscription Agreement and its annexures were accurate. He based his belief on his understanding that qualified people had been involved in the preparation of the Subscription Agreement including Ms Bronwyn Christie, in her role as Chief Financial Officer, Mr Gaffney, as solicitor, and Mr Di Natale. He said that he ‘had confidence that the people who had prepared [the financial information annexed to the Subscription Agreement] had done an accurate job’. He also gave evidence that he thought the amount was as stated and calculated according to what was agreed in Lucerne.
There is no dispute, and the evidence clearly establishes, that Dr Coventry did substantial work in relation to the ImmunAid treatment or the immune cycle theory advanced by Mr Ashdown. He collaborated extensively with Mr Ashdown. They wrote papers together. They attended conferences together. They spoke often. For many years they had a close working relationship. They were both passionate and committed to the science.
The Company clearly benefited (albeit not exclusively)[13] from this work and collaboration. There is a question, however, as to whether, and if so, on what terms and when the Company engaged Dr Coventry to do the work. Having regard to that question, what, if anything, was agreed in relation to his remuneration or compensation. I have rejected the 2007 Consultancy Services Agreement and the terms of the 2012 Agreement are not in dispute as far as they go. What then governed the period 2006 to 2012, before the 2012 Agreement was entered into?
[13]Dr Coventry was examined and cross-examined extensively on work (comprising papers, presentations and the like) conducted in relation to the immune cycle theory. It was clear that some of this work was attributed to, or bore the name of Immunaid/Biotempus, while other work did not. Dr Coventry accepted, however, that he benefitted from this work apart from the Company, both financially and through opportunities and standing which the work provided to him. Further, it was clear that it was to Dr Coventry, at least an ancillary benefit that work on the immune cycle theory would assist in the development and potential commercialisation of a melanoma vaccine that he was developing.
No agreement covering this period, other than the 2007 Agreement, which I have rejected, has been suggested. No other basis of liability has been suggested, not even a quantum meruit claim, which was only faintly suggested in passing. In the end the argument is this: there must be ‘some’ basis of remuneration and compensation because he has done all this work and provided all these services for the benefit, albeit not the exclusive benefit, of the Company. Of course this was used to support the 2007 Consultancy Services Agreement, which I have rejected. The simple and perhaps unfortunate point is that there is no other basis or legal framework from which the Company’s contended financial obligations arise. None are pleaded and none have been suggested. Consequently and importantly, whatever the moral position and whatever the belief of Dr Coventry, no legal basis for recovery has been suggested, so as to render the figure in Annexure C false or incorrect.
Perhaps it is not surprising that Dr Coventry failed to negotiate or secure a formal binding agreement with the Company along the lines of the 2007 Agreement. He was passionate about the science and agreed that the collaboration and joint endeavour would be of some benefit to his melanoma vaccine and its investment potential. Mr Ashdown certainly believed this. Whatever the reason, the Court cannot write a contract for the parties. In any event, and most importantly, this case is not a claim by Dr Coventry against the Company where these issues would need to be determined. I am only concerned about the way in which the issue arises in the context of this case (as pleaded) and the suggested falsity of the Financial Representations.
Did Dr Coventry’s belief of a claim give rise to a duty to qualify?
The remaining question, although not specifically pleaded, relates to the belief held by Dr Coventry to the effect that he had a valid claim based on the 2007 Consulting Services Agreement or otherwise and was owed hundreds of thousands of dollars. This suggested belief was communicated to, and known by the other defendants. Accordingly, the question arises whether in such circumstances there was a reasonable expectation that the other defendants would qualify the Financial Representations accordingly.
The defendants however were not aware of any agreement (or any basis for a claim) apart from the 2012 Agreement. Having rejected the 2007 Consultancy Services Agreement, I accept their evidence in this regard. The fact that they knew that Dr Coventry had performed valuable services for the Company, and that he believed he had a claim for compensation (if indeed he had this belief)[14] and would pursue it does not render the representation, as pleaded, false. Dr Coventry’s belief (where the legal position is to the contrary) does not mean that the amount stated in Annexure C is incorrect.
[14]Having rejected the 2007 Consultancy Services Agreement for the reasons given, it is more probable than not that Dr Coventry did not believe there was any binding legal agreement other than the 2012 Agreement. No doubt, Dr Coventry felt aggrieved that he had not been properly compensated for all the work done and believed that it was fair that he be compensated.
The duty to qualify the amount stated in Annexure C in respect of Dr Coventry does not arise in relation to the positon of each of the defendants. Knowledge of the assertion and belief of Dr Coventry is not enough to suggest any reasonable expectation that the amount required qualification. What were they supposed to say by way of qualification, and when? Further, given their own belief, why would they presume to speak for and relate Dr Coventry’s belief? I am not satisfied that this conduct was relevantly misleading or deceptive.[15]
[15]As it transpired Mr Bonvino could find no supporting evidence for the claims the subject of Dr Coventry’s belief. In any event, there is evidence that others within the Company, including CEO Mr Bonvino, denied that the Company owed Dr Coventry the amounts claimed in the invoices he submitted in 2015 and 2016. In fact, the board was in receipt of a report from auditors of the Company’s financial accounts who advised that Dr Coventry’s disputed claims were not ‘probable and measurable’ and therefore did not need to be reported in the financial statements as a contingent liability.
In Taylor v Lederman,[16] Ferguson J (as her Honour then was) said at [25] that:
[i]f a plaintiff intends to argue that in the circumstances it was reasonable to expect the defendant to have made the disclosure, then it should plead this as a fact – that is that a person in the plaintiffs’ position would be entitled to expect or infer in the circumstances that a particular matter would be disclosed. If a plaintiff intends to run a misleading or deceptive conduct non-disclosure case on a different basis, then any additional facts relevant to that other case should be pleaded.
[16][2013] VSC 99.
Her Honour observed that, in that case, since the plaintiffs made clear, through their written and oral submissions that they want to rely on a case based on reasonable expectation,[17] the failure to plead ‘reasonable expectation’ was fatal to their claim. Her Honour stated at [27]:
…the difficulty is that the pleading as presently drafted does not include this last allegation, that is that in the circumstances a person in the plaintiffs’ position would have a reasonable expectation of disclosure. It misses that step and jumps straight to an allegation that the non-disclosure constitutes misleading or deceptive conduct in contravention of the statutory provisions. The pleading of reasonable expectation is a material factual link in the chain leading to the conclusion which is alleged by the plaintiffs that the Omissions constitute misleading or deceptive conduct. If reasonable expectation was not intended to be part of the plaintiffs’ case, then that would be another matter, but in light of the submissions made and with no other basis put for why any non-disclosure is allegedly misleading or deceptive, the pleading in paragraphs 59 and 60 against Bentleys should be struck out. (Emphasis added.)
[17]Taylor & Anor v Lederman & Ors [2013] VSC 99 at [26].
Further, the circumstances said to give rise to an expectation of disclosure must be specifically pleaded. In Johnstone v HIH Insurance Ltd[18] at [76], Tamberlin J stated:
The ASC does not formulate the terms of the representation said to have arisen by silence as a consequence of media releases, the reports or the website. The precise terms of the representation said to have arisen from the silence should be formulated so that the pleading spells out the representations that were allegedly conveyed by the silence. Nor does the ASC plead the material facts from which it is said that Arthur Anderson was aware, or ought to have been aware of the existence or falsity of any specific statements in the media releases. No times, dates, circumstances or persons involved on the part of Arthur Anderson are identified. Nor are any material facts alleged which give rise to any requirement to make what is said to be the true position known to any particular person, or to draw the matter to the attention of anyone in particular: see Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31 at [39]-[41]. The circumstances pleaded must be such as to justify a conclusion that to remain silent would amount to misleading or deceptive conduct. It is necessary, therefore, to describe those circumstances with precision, in order to ground the non-disclosure or the misrepresentation by silence allegation. (Emphasis added.)
[18][2004] FCA 190.
The duty to qualify and not remain silent, and the suggested relevant circumstances surrounding any reasonable expectation of such disclosure in this regard was not pleaded or developed in evidence or final submissions.
In any event, for the reasons given, I am not satisfied that this conduct was misleading or deceptive.
In General Newspapers Pty Ltd v Telstra Corp[19], Davies and Einfeld JJ stated that s 52 does ‘not require arm’s length negotiations to be completely open or require full disclosure at all times’ and allegations of its contravention are to ‘be considered in the light of the ordinary incidents of commercial life’. Accordingly, ‘as a general proposition, [the prohibition of misleading conduct] does not require a party to commercial negotiations to volunteer information which will be of assistance to the decision making of the other party’. (Emphasis added.) In the circumstances (which were not pleaded) there was no obligation for the other defendants to volunteer information, to the effect that Dr Coventry had provided extensive services since 2007, but for which there was no agreement (other than the 2012 Agreement) governing his remuneration.
[19](1993) 45 FCR 164 at [178].
Accordingly, I find that Mr and Mrs Ashdown and Mr Bonvino made the Financial Representations but that they were not false or misleading and, in the circumstances, did not require clarification or qualification. It cannot be said that their conduct was misleading or deceptive.
Further, I find that Dr Coventry did not make the Financial Representations as alleged, but, if he did, they were not false or misleading because he has not established that any other amount was owing to him at the time, and as such, there was nothing that required clarification or qualification. Further, in the circumstances, it cannot be said that his conduct was misleading or deceptive.
Reliance
I accept the evidence of each of the investors to the effect that prior to execution of the Shareholders Deed they believed that the only creditors of the Company were those specifically set out in Annexure C. Further, their evidence is clear that they would not have executed the Subscription Agreement had they been told that the amount owing to Dr Coventry was much higher, unless of course Dr Coventry was prepared to sign a release like the related parties. I am also satisfied that their belief and consequent action was based on representations made to them.
However, what remains unclear is what they would have done if they had been told of Dr Coventry’s unfounded, unsubstantiated, fanciful and uncorroborated belief, and in particular in the event that Dr Coventry refused to sign any release. Given the findings made and the pleadings, these matters were not squarely put and do not arise. I should say, however, that in my opinion it is highly unlikely that the investors would not have proceeded with the investment, whether on the same or different terms. They are all experienced investors and would have undoubtedly engaged in further negotiations with the defendants and the Company.
Loss
Dr Coventry submitted that there was no loss and that indeed it was always the intention of the investors to buy the intellectual property back from the liquidator, which they did. Given the findings above, I do not consider that it is necessary, relevant or desirable to consider this aspect beyond what is stated above.
H. The Member Voting Representations
In my opinion this representation is not made out. It should be rejected out of hand and in a summary way. The defendants did what they said they would do. The investors or their representatives were appointed to the board of the Company and remained directors until the appointment of Voluntary Administrators. They retained control throughout the period and Mr and Mrs Ashdown never voted in favour of their removal. The fact that they may have done so as a favour to Dr Jacobson for providing a loan to enable them to take up the Rights Issue and because of their dissatisfaction with the board is speculative, hypothetical and does not even arise. I reject the contention that the representation was to the effect that the first and third defendants would ensure that the investors would have control, in effect, forever. Rather, the representation related to the more immediate position of removing Dr Jacobson and ensuring the investors had control of the board. This was achieved. That, to my mind, is the end of the matter.
Even if the representation as alleged was made, which I do not accept, the representation was not false and so far as it related to future matters it cannot be said, and the evidence does not support the contention, that they did not in the circumstances have reasonable grounds for making the representation. They did have reasonable grounds and did what they said they would do. It is simply not open to suggest that in a retrospective sense they did not have reasonable grounds because of the possibility of a change of allegiance, an event that clearly was not contemplated at the time.
Claims Between Defendants – Proportionate Liability
The issue does not arise.
J. Disposition
The plaintiffs’ claim will be dismissed. I will hear from the parties as to the appropriate form of order, the position of the late Mr Bonvino and his estate, and costs.
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