Pacific Current Group Limited v Fitzpatrick - [2024] FCA 1480

FEDERAL COURT OF AUSTRALIA
Pacific Current Group Limited v Fitzpatrick [2024] FCA 1480

File number: VID 116 of 2020

Judgment of: BEACH J

Date of judgment: 18 December 2024

Catchwords: CORPORATIONS — merger of assets between Australian company and US company – Australian and US funds management boutiques – creation of unit trust – whether proper due diligence carried out by directors of Australian company – whether proper asset valuations undertaken – necessity for shareholders’ approval – whether disposal of main undertaking – listing rule 11.2 of ASX listing rules – whether merger transaction in breach of the Australian company’s constitution – whether transaction ultra-vires – nature of interest in the WHV dividend and appreciation rights agreement – whether proper due diligence carried out concerning the WHV agreement – duties of chief executive officer – duties of chairman of the board – duties of non-executive directors – whether breaches of s 180(1) of the Corporations Act 2001 (Cth) – business judgment rule – questions of causation

Legislation: Corporations Act 2001 (Cth) ss 180, 185, 189, 191, 195, 236, 237, 674, 1041, 1317H, 1317S, 1318

Cases cited:
Agricultural Land Management Ltd v Jackson (No 2) (2014) 48 WAR 1

Australian Securities and Investments Commission v Avestra Asset Management Ltd (in liq) (2017) 348 ALR 525

Australian Securities and Investments Commission v Cassimatis (No 8) (2016) 336 ALR 209

Australian Securities and Investments Commission v Fortescue Metals Group Ltd (2011) 190 FCR 364

Australian Securities and Investments Commission v Lindberg (2012) 91 ACSR 640

Australian Securities and Investments Commission v Mariner Corporation Ltd (2015) 241 FCR 502

Australian Securities and Investments Commission v Mitchell (No 2) (2020) 382 ALR 425

Australian Securities and Investments Commission v Rich (2009) 75 ACSR 1

Australian Securities Commission v Cracow Resources Ltd, unreported, NSWSC, 12 August 1993 BC9305041

Aveo Group Ltd v State Street Australia Ltd [2015] FCA 1019

AWA Ltd v Daniels (t/as Deloitte Haskins & Sells) (1992) 7 ACSR 759

Bishopsgate Investment Management Ltd (in liq) v Maxwell (No 2) [1994] All ER 261

BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266

Cassimatis v Australian Securities and Investments Commission (2020) 275 FCR 533

Daniels (formerly practising as Deloitte Haskins & Sells) v Anderson (1995) 37 NSWLR 438

Donaldson v Natural Springs Australia Ltd [2015] FCA 498

DSHE Holdings Ltd (Receivers and Managers) (in liq) v Potts (2022) 163 ACSR 23

Expectation Pty Ltd v Pinnacle VRB Ltd [2001] WASC 144

Hancock v Rinehart [2015] NSWSC 646

Hillig v Darkinjung Pty Ltd (2006) 57 ACSR 733

Jones v Dunkel (1959) 101 CLR 298

Re International Vending Machines Pty Ltd and the Companies Act [1962] NSWR 1408

TPT Patrol Pty Ltd v Myer Holdings Ltd (2019) 293 FCR 29

Woolworths Ltd v Kelly (1991) 22 NSWLR 189

Zytan Nominees Pty Ltd v Laverton Gold NL (1988) 1 WAR 227

Division: General Division

Registry: Victoria

National Practice Area: Commercial and Corporations

Sub-area: Corporations and Corporate Insolvency

Number of paragraphs:
2455

Date of hearing: 6 to 10, 13 to 16, 20 to 24, 28 February 2023, 1 to 3, 6 to 7 March 2023, 27 July 2023, 25 to 27, 30 to 31 October 2023

Counsel for the Applicant: Mr I Waller KC (until 27 July 2023), Ms R. Doyle SC (after 27 July 2023), Mr P Annabell, Mr A Cameron and Ms S Hogan

Solicitor for the Applicant: Keypoint Law

Counsel for the 1^st, 3^rd, 4^th, and 5^th Respondents: Mr P Santamaria KC and Mr R Peters

Solicitor for the 1^st, 3^rd, 4^th, and 5^th Respondents: Colin Biggers & Paisley

Counsel for the 2^nd Respondent: Mr C Caleo KC and Mr N Walter

Solicitor for the 2^nd Respondent: SBA Law

Counsel for Pacific Current Group Limited (current management — confidentiality only) Mr P Solomon KC and Ms A Martyn

Solicitor for Pacific Current Group Limited (current management — confidentiality only) Herbert Smith Freehills

ORDERS

VID 116 of 2020

BETWEEN:
PACIFIC CURRENT GROUP LIMITED (ACN 006 708 792)

Applicant

AND:
MICHAEL CLIFFORD FITZPATRICK

First Respondent

ANDREW STUART MCGILL

Second Respondent

PETER ROBERT KENNEDY (and others named in the schedule)

Third Respondent

ORDER MADE BY:

BEACH J

DATE OF ORDER:

18 DECEMBER 2024

THE COURT ORDERS THAT:
1.The applicant’s proceeding against the first and third to fifth respondents be dismissed.
2.The applicant pay the first and third to fifth respondents’ costs of and incidental to this proceeding concerning the applicant’s claims against those parties.
3.There be a stay on the operation of order 2 until further order.
4.Any period stipulated under the Federal Court Rules 2011 (Cth) for the filing and service of any notice of appeal from orders 1 and 2 be suspended until further order.
5.A case management hearing be fixed at 9.30 am on 7 February 2025 to determine the procedure under which any outstanding issues concerning, inter-alia, any of these orders, the case against the second respondent, any cross-claim between the respondents or any other costs question are to be resolved.
6.To the extent necessary, any prior confidentiality orders made in this proceeding or proceeding VID 608 of 2019 are varied so as to allow public access to and public dissemination of the reasons of the Court published today.
7.Liberty to apply.

Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT
BEACH J:

This proceeding concerns a merger that was completed on 25 November 2014 between Pacific Current Group Ltd (PAC) and Northern Lights Capital Partners LLC (Northern Lights). As part of the merger, each of PAC and Northern Lights transferred substantially all of their assets to a unit trust known as the Aurora Trust in exchange for units.
PAC has brought the present proceeding against the then directors of PAC who approved the merger asserting that those directors breached their various statutory and other duties as directors.
Now by way of background, in the decade leading up to 2014, the business of PAC involved making investments by taking minority shareholdings in fund managers who were not aligned with major institutions. In these reasons I will refer to these fund managers as boutiques.
By 2012, PAC’s boutiques were regarded as too Australian-centric as most were located in Australia and specialised in Australian asset classes. Further, PAC’s income and consequently its ability to pay dividends to its own shareholders largely depended on two mature boutiques. The board of directors recognised that PAC needed to diversify its boutiques including by geography and by asset class.
From 2012 to late 2013, PAC endeavoured to diversify, including by merging with or taking over one of its competitors being Pinnacle Investment Management Ltd. This was without success as I will detail later when I discuss the sequence of discussions with representatives of its holding company, Wilson HTM Investment Group Limited (WIG).
Now Northern Lights and its related entities had for several years prior to 2014 conducted a similar business to PAC’s business but predominantly in the United States.
It was perceived to be advantageous to both PAC and Northern Lights to merge their businesses. And as I have identified, in November 2014 PAC and Northern Lights merged their businesses. PAC and Northern Lights transferred their respective interests in various boutique fund managers to a new, unlisted Australian company, being Aurora Investment Management Pty Limited (the Aurora trustee) in exchange for units in the Aurora Trust.
As part of the merger, PAC held approximately 61% of the units in the Aurora Trust and Northern Lights including the interest of BNP Paribas Asset Management Inc held approximately 39% of the units in the Aurora Trust.
Now in the proceeding before me PAC asserts that the then directors of PAC who approved the merger breached s 180 of the Corporations Act 2001 (Cth) and various other cognate duties at four key decision points. The relevant directors at the time are respondents to the present proceeding.
The four key decision points identified by PAC are the following. First, on 24 February 2014 the board of directors resolved that it execute a terms sheet to formalise negotiations for the merger. Second, on 16 April 2014 the board resolved that PAC sign a revised terms sheet. Third, on 23 July 2014 the board resolved that the merger be approved. And fourth, on 16 November 2014 the board signed a circular resolution to proceed with completion of the merger.
PAC says that at each of these four key decision points, and particularly on 23 July 2014 when the board resolved that the merger be approved, the directors failed to exercise their powers and discharge their duties with the degree of care and diligence required under the general law and s 180 of the Act.
Further, it is said that the directors failed to seek and obtain the approval of PAC’s shareholders to the merger as required by PAC’s constitution and listing rule 11.2 of the ASX listing rules.
Let me at this point say something more about the respondents to the proceeding.
Mr Michael Fitzpatrick was a director of PAC between 5 October 2004 and 1 March 2019, and the chairman of PAC’s board and a member of PAC’s audit committee at the relevant time.
Mr Andrew McGill was the managing director and chief executive officer of PAC between 30 August 2013 and 28 August 2015.
Mr Peter Kennedy at the time of trial was a director of PAC and had been from 4 June 2003. He was also the chairman of PAC’s audit committee during the relevant period.
Ms Melda Donnelly was a non-executive director and member of PAC’s audit committee from 28 March 2012 to the time of trial.
Mr Reubert Hayes was a director of PAC between 22 February 2007 and 31 March 2015, and a member of PAC’s audit committee at the relevant time.
Now generally speaking, Mr McGill and Mr Fitzpatrick were largely responsible for effecting the merger. The other non-executive directors, Mr Kennedy, Ms Donnelly and Mr Hayes, were less involved in the proposed merger. I should also note that Mr Hayes was overseas for some of the period in which the key decisions concerning the merger occurred.
Before proceeding further and given the wholesale attack made by PAC against the then directors, let me make various observations concerning how the board of PAC operated around the time of the merger and its management practices based upon the voluminous witness and documentary evidence led before me.
First, members of the board had both the necessary and sufficient complementary commercial backgrounds, motivations, personalities and skill sets. The productive yield of this was an operative and direct intellectual diversity as between the individuals, which by several orders of magnitude trumped any superficial ex facie diversity or irrelevant self-referential identification. This advantageously reflected itself in the decision-making processes of the board and the debates which took place.
Second, given that the time frame of the decision-making processes under consideration was over ten years ago, there was little in the way of meretricious mission statements and correlative performative processes that one normally associates with public companies these days.
Third, the board operated a relatively lean management structure where shareholders’ funds were efficiently managed and spent for proper purposes. This was all quite refreshing when one compares this to many boards of public companies today that even go so far as to pride themselves on allocating shareholders’ funds to social causes of the directors for which they have an affinity or affection, with such expenditure or donation of others’ money purportedly justified by little more than humbug and adding no real economic value to the company and its shareholders.
Fourth, meta-themes concerning social licence theory can be put to one side. They are a superfluous add-on to the legislative regime applying to directors and companies. It is not necessary to cite Milton Friedman to state the obvious. Any so-called social licence granted on incorporation has its boundaries and content provided by the company’s constitution and the detailed legislative regime, albeit ultimately built upon social policy. Nothing more, nothing less.
In summary, and notwithstanding the litany of complaints made by PAC against the then directors, in my view the board of PAC and the management of PAC appears to have been well run, generally speaking.
Now each of the directors gave evidence and was cross-examined at trial. Further, I directed that Mr Fitzpatrick be recalled for further cross-examination to address some matters that arose during Mr McGill’s cross-examination. I will say something more about their evidence later.
Now in its third further amended statement of claim, PAC alleges that by voting in favour of specific resolutions in relation to the merger in 2014, each of the directors breached his or her statutory duty under s 180 of the Act and their common law and equitable duties to PAC to exercise reasonable care, thereby causing it loss. For the moment I will not distinguish these duties by characterisation but merely refer to their characterisation in the singular. The directors have denied such breaches.
The first claim of breach of duty concerns the decision to vote in favour of the resolution passed at the board meeting on 24 February 2014 that PAC enter into a non-binding terms sheet with Northern Lights in the form contained in the board papers for that meeting.
The second claim of breach of duty concerns the decision to vote in favour of the resolution passed at the board meeting on 16 April 2014 that PAC sign a revised terms sheet with Northern Lights in the form put before the board.
The third claim of breach of duty concerns the decision to vote in favour of the resolution passed at the board meeting on 23 July 2014 that approved the merger subject to various conditions being satisfied or waived. I will refer to this as the transaction documents execution resolution.
The fourth claim of breach of duty concerns the signing by each of the directors on or prior to 16 November 2014 of the circular resolution to proceed to complete the merger and to authorise execution of the documents necessary to achieve completion.
The fifth claim of breach of duty concerns the decision to vote in favour of the transaction documents execution resolution and the signing of the circular resolution without first causing PAC to seek or obtain approval of the merger from PAC’s shareholders in an extraordinary general meeting as allegedly required by PAC’s constitution and rule 11.2 of the listing rules of the ASX. A related claim involves PAC seeking restitution of the value of PAC’s assets allegedly dissipated as a result of the contraventions. PAC alleges that by failing to obtain shareholder approval, the transaction documents execution resolution and the circular resolution were ultra vires. Further, it is alleged that by failing to obtain shareholder approval, the directors breached their duty in equity to exercise care and diligence to ensure that PAC’s assets were applied in accordance with PAC’s constitution.
Now I should at this point note various allegations which are no longer pressed by PAC.
First, it is no longer pressed that the directors breached their duties of care and diligence by voting in favour of the merger in the absence of any analysis of the broader US funds management market including regulatory risk.
Second, it is no longer said that the directors breached their duties in failing to seek shareholder approval, even in circumstances where, on an alternative scenario to PAC’s principal case, such approval may not have been required by the listing rules or PAC’s constitution.
Now in addition to the claims against all directors, PAC has made separate allegations against Mr McGill claiming that he breached his duties in the following respects. First, it is said that he failed to give the non-executive directors the Deloitte due diligence report. Second, it is said that he failed to bring to the non-executive directors’ attention two versions of the financial model prepared by Gresham Advisory Partners Limited (Gresham) and information concerning risks as to whether WHV Investment Management Inc (WHV) would make a distribution to Northern Lights. WHV was formerly known as Wentworth, Hauser and Violich, Inc.
Mr McGill has also filed a cross-claim against Mr Fitzpatrick in respect of the alleged failures concerning WHV and the financial modelling of WHV’s value in the merged business and the alleged failures to bring matters to the attention of the other board members prior to them resolving to enter into the merger.
Now the present trial has focused on the principal liability issues, with issues such as relief and specific statutory questions including potentially under s 1317S or s 1318 postponed to a second stage to the extent necessary.
In summary and for the reasons that follow, in my view PAC’s claims against Mr Fitzpatrick, Mr Kennedy, Ms Donnelly and Mr Hayes have not been made out. PAC’s case against them will be dismissed.
And as to PAC’s case against Mr McGill, in my view the only part of its case that it has made out against Mr McGill concerns various issues relating to the WHV dividend and appreciation rights agreement and the question of the potential dividends and distributions. I will hear further from Mr McGill and PAC concerning any outstanding questions including as to relief.
Now before proceeding further, I should deal with one other matter by way of background. On 20 February 2020, orders were made by Moshinsky J in proceeding VID 608/2019 pursuant to s 237 of the Act granting leave to Mr Michael de Tocqueville and ASI Mutual Pty Ltd, two shareholders of PAC, to bring proceedings on behalf of PAC against certain of its directors and former directors. Pursuant to those orders, those shareholders commenced the present proceeding before me on behalf of PAC.
Now in terms of my detailed reasons, it has been convenient to divide my discussion into the following topics:
(a)Some relevant background – ([43] to [148]).
(b)Relevant witnesses and evidentiary questions – ([149] to [222]).
(c)General principles: directors’ duties – ([223] to [302]).
(d)The sequence of events – ([303] to [754]).
(e)The alleged breaches of directors’ duties – ([755] to [1253]).
(f)The question of shareholder approval — listing rule 11.2 – ([1254] to [1422]).
(g)General principles concerning listing rule 11 – ([1423] to [1509]).
(h)The ultra vires question – ([1510] to [1628]).
(i)Relevant facts concerning WHV – ([1629] to [1858]).
(j)The various issues concerning WHV – ([1859] to [2193]).
(k)The terms of the implementation deed – ([2194] to [2257]).
(l)Voting in favour of the circular resolution – ([2258] to [2265]).
(m)Causation – ([2266] to [2304]).
(n)Some aspects of potential loss and damage — Pinnacle and WIG – ([2305] to [2446]).
(o)Sections 1317S and 1318 potential application – ([2447] to [2453]).
(p)Conclusion – ([2454] to [2455]).
Some relevant background
Prior to the merger, PAC was an ASX-listed investment and financial services business based in Australia.
PAC, which was until 18 October 2015 known as Treasury Group Limited, was at all material times engaged in the business of investing in fund managers. Its business model involved investing capital in and providing support services to fund managers or boutiques. In these reasons and for convenience I will simply refer to PAC.

As at 12 November 2013, PAC’s business insofar as it involved investing in fund managers comprised holding interests in the following boutique fund managers being Investors Mutual Ltd (IML), Orion Asset Management Ltd, RARE Infrastructure Ltd (RARE), Celeste Funds Management Ltd, Aubrey Capital Management Ltd, Evergreen Capital Partners Ltd, Octis Asset Management Pte Ltd, Treasury Asia Asset Management Ltd, Global Value Investors Limited and AR Capital Management Pty Ltd.
As at 21 February 2014, approximately 60 per cent of PAC’s forecast financial year 2014 earnings were generated from its 40 per cent ownership of RARE, and approximately 30 per cent of PAC’s forecast financial year 2014 earnings were generated from its ownership of IML.
If the owners of the remaining 60 per cent of RARE put it up for sale, PAC had a right of first refusal to purchase the 60 per cent it did not own. If it did not exercise its right to purchase the remaining 60 per cent, it could be obliged to sell its 40 per cent interest to the purchasers of the 60 per cent interest.
At around this time, there was an increasing possibility of RARE being divested within the next 12 months. If RARE was divested, PAC’s earnings before interest, taxes, depreciation and amortisation (EBITDA) would fall by approximately 85 per cent. PAC’s net profits after tax (NPAT) might fall by a lesser amount depending upon whether or not the RARE divestment proceeds were returned to shareholders. If the divestment proceeds were retained, interest income would have become the largest component of NPAT until there were significant new investments completed.
Now I note that there was an inherent risk in investing in boutiques and of PAC’s own expertise in selecting investments in boutiques. So, between 2003 and 2014, PAC made 10 investments that failed or meandered until being sold for no profit, during which period PAC made 3 investments which were successful. This experience of investing in boutiques in a volatile industry is significant to some of my later discussion. What PAC alleges were “red flags” were regarded by the directors for the most part as matters which needed to be considered when making a decision to merge.
PAC before the merger
In early 2014 PAC was a small but profitable company in ASX terms. It had a small paid-up capital, a small number of shareholders, a five-member board including the CEO, a small number of executives, a small number of employees and an office which was part of one floor of a building in Martin Place, Sydney.
In the financial year (FY) ended 30 June 2014, PAC had issued capital of 23,697,498 $0.50 shares. PAC’s top 20 shareholders consistently held over 50% of PAC’s shares. PAC’s NPAT for FY14 was $13.06 million.
In 2014 PAC had a workforce of 16, being 3 executives, 6 managers and 7 other employees.
In 2014, board meetings usually occurred in PAC’s Sydney office, but the board regularly held meetings where some or all directors participated by telephone.
Mr Fitzpatrick ran board meetings in a collegiate manner. The board papers were delivered a few days ahead of a board meeting. Mr Fitzpatrick would take agenda items in the order that suited the board or executives or advisers attending the meeting. On any given agenda item he asked each of the other directors what he or she thought and he encouraged dialogue. After every director, including him, had had a say, he would summarise what the board decision was to ensure it reflected the discussion. He was careful about formal board resolutions and often discussed the wording with the directors slowly until they all agreed upon it.
There were various board committees. In 2014, and as I have said, each of the non-executive directors was a member of PAC’s audit committee.
A little about boutiques
A boutique obtains funds from sources including institutional investors such as industry superannuation funds and life insurance companies, employers on behalf of employees and retail investors including high wealth individuals and people who manage their own superannuation funds.
A boutique typically invests the funds in a particular asset class or classes such as Australian or international equities, bonds and infrastructure assets according to the boutique’s investment strategy.
The boutique makes its money by charging the investors a fee for managing the funds. Ordinarily, a substantial part of the fee is calculated as a percentage of the funds under management. In addition, performance fees may be charged if the boutique outperforms industry benchmarks.
A boutique is usually founded by one or two people with investment or industry experience. Most founders have worked for some years as an investment manager or merchant banker for an institutional investor and have an established record and reputation as an investor or advisor.
When a boutique commences, one of the challenges to its business is finding the money to pay expenses until the boutique generates sufficient income to break even. PAC provided to boutiques those funds by investment or loan.
Further, back-office management issues such as regulatory compliance needed to be solved. Until a boutique became mature and able to employ the necessary staff, a boutique would solve these issues by outsourcing them to a service provider which was paid for performing the back-office functions. PAC provided such services for a fee to boutiques in which it invested.
Now another aspect of the varying skills of the founders of a boutique was their ability to attract funds under management.
In the funds management industry the process of obtaining institutional or retail funds to manage is called distribution or sales. A start-up boutique would need assistance with distribution and it usually did this by hiring a distribution team or by paying third parties for distribution services.
Now once a boutique started to generate income it took time for it to break even. For each boutique there is a funds under management figure at which it breaks even and covers its expenses.
It can take up to 3 years for boutiques to break even. The challenge facing the boutique is financing its operations up to the break-even point. So, it can take a long time for a start-up boutique to impact on PAC’s profitability.
Once the boutique starts operating and is receiving investment funds, performance is very important. Institutional investors will move their money from one fund manager to another if the manager’s investment strategy is not producing returns at the level predicted, and will move it even quicker if performance is below the average return of fund managers generally.
The problem of funds under management outflows is not so great with retail funds because retail investors tend not to change investments so often and so quickly, which is why money from retail investors is termed sticky money by fund managers.
Poor performance comes about either because the boutique is invested in the wrong market sector, for example, in Australian equites at a time when equities in the United States outperformed Australian equities, or the boutique simply makes poor choices.
Poor performance ultimately leads to more distribution problems. As the funds under management shrinks, it is harder for a distributor to persuade an institutional investor to invest funds in what the market may perceive as a sinking ship.
Boutiques do not have shareholders with the resources of institutional fund managers and so stagnating or outflowing funds under management for a few years often leads to closure.
On the other hand, if the boutique exceeds estimated returns or the market average rates of return or wins an industry award, funds under management inflows occur and can do so rapidly. This can make the boutique very profitable relatively quickly because once the boutique reaches a level of funds under management that allows it to break even or reach the funds under management threshold for performance fees to be payable, the expenses do not proportionally increase. Rather, the same investment team just makes larger investments without the boutique employing extra investment personnel.
After a boutique reaches a break-even, it takes about a further 1 or 2 years before it can be said with confidence that the boutique will be successful, bounce along breaking even or fail. It can take longer. Events like the global financial crisis make it more difficult to determine whether a boutique will fail because funds under management disappear for all fund managers.
By FY14 PAC’s business had been investing in boutiques and providing distribution, regulatory compliance and other services to boutiques for a fee via PAC’s subsidiary Treasury Group Investment Services Ltd.
PAC usually invested by taking a minority shareholding in a boutique, but PAC also provided seed capital by making loans to boutiques until they broke even. PAC was not itself a fund manager. It did not receive funds from institutions or others to invest on their behalf.
PAC monitored the boutique by usually having one of PAC’s directors or executives sit on the board of the boutique. The boutiques reported to PAC regularly about their performance.
Because PAC was not taking a controlling interest in a boutique in which it invested, there was always a shareholders’ agreement which provided a mechanism for PAC to buy out the founders and vice versa if certain events occurred. A typical triggering event was a proposed sale by either the founders or by PAC of their shareholding in a boutique. If either wanted to sell, the other could acquire the shareholding. If founders wanted to sell their shareholding, PAC’s policy has always been to sell its shareholding to the purchaser.
Now valuing a boutique, particularly in its start-up phase, is difficult for several reasons.
First, most of the market sectors in which boutiques operate are volatile, which means funds under management can move to or from a boutique quickly if the market changes or changes relative to other sectors. So an investor in a boutique is making assumptions about the sustainability or viability of the boutiques’ chosen investment sector.
Second, the value of the boutique depends on its ability to attract and retain funds under management. This largely depends on the founders’ skills. They have to obtain mandates and have a good investment performance. This in turn depends upon the founders staying with the business and keeping the investment team together. Boutiques are really about the founders. An investor is making a judgment about the founders’ ability to do these things. A lot depends on experience and reputation of the founders prior to them wanting to start a boutique, and the only way to assess these sorts of matters is to meet the founders and discuss strategies, performance and expectations.
Until the merger, the role of the CEO and his executive team was to identify and evaluate a potential boutique investment. Sometimes the founders would approach PAC because of PAC’s model, but usually PAC’s management learned that a well-known institutional investment executive was thinking of starting a boutique and PAC approached the executive. After due diligence, PAC management would advise the board about an investment if one was potentially advantageous to PAC. PAC’s executives and some of its employees were skilled at providing an assessment of the calibre and potential of founders and their boutiques.
The progress with respect to potential investments was reported on regularly by the CEO. By 2013 a regular document in the papers for a board meeting was a deal pipeline memorandum which listed management’s progress with potential investments in boutiques.
A recommendation to invest in a boutique was usually contained in a separate paper to the board. PAC had a rigorous approach to assessing potential boutiques and PAC ended up investing in very few of them. The papers took different forms but contained much the same detail.
Now investing in boutiques is inherently risky as I have indicated. From 2003 to 2014 PAC’s investments showed mixed results.
PAC’s investment in IML in 2003 was very successful. PAC’s stake in IML varied to up to 50% over the years. IML specialised in long only investing in Australian equities. IML was based in Sydney.
IML’s funds under management at 30 June 2014 were $4.9 billion.
PAC sold its 40% stake in IML in FY18 for $120 million. PAC made more than 30 times the value of its original investment in IML.
PAC acquired 40% of RARE in 2007. After a slow start RARE’s funds under management increased extremely rapidly from 2009 and it became one of PAC’s best investments.
RARE specialised in the investment and management of securities in the global listed infrastructure sector, including airports, gas, electricity, water and roads. RARE had product offerings in Europe, North America and Australia.
RARE’s funds under management at 30 June 2014 were $9.1 billion.
In FY16, PAC sold 75% of its interest in RARE, retaining 25%. So after the sale, PAC held 10% of RARE. PAC received $112 million up front with the right to further payments up to $42 million depending on RARE’s performance. Coupled with the dividends and trust distributions from RARE, the return on the sale of the 30% stake in RARE meant a cash return of 33 times PAC’s investment. PAC sold its remaining 10% stake in FY19 for $21.5 million plus dividends.
ROC Partners Pty Ltd was based in Sydney and specialised in investing in Asia Pacific markets. PAC invested in ROC in FY14 and had an initial holding in ROC of 15% which it increased to 30%. ROC’s funds under management at 30 June 2015 were $5.3 billion.
Let me say something about investments that succeeded at first and then failed.
Orion Asset Management Ltd was an example of a boutique which had been very successful for about 10 years and paid good returns to PAC, which fell out of favour with institutions very quickly after poor investment returns and reputational damage as a result of one of its employees being charged with and being later convicted of insider trading.
PAC originally invested in Orion in FY02 and increased its holding in Orion from the original 19% to 42% by FY06. Orion specialised in investing in Australian equities. Orion was based in Sydney. Orion closed its fund management operations in FY14.
Further, many of PAC’s investments failed or were not successful usually due to a failure to attract sufficient funds under management.
Confluence Asset Management Ltd, in which PAC invested in FY04, specialised in investing in ASX listed companies that had a small capitalisation. Confluence was based in Melbourne. By FY06 Confluence’s funds under management were $233m and in FY07 they were $376m. Confluence was not sustainable at those levels of funds under management and its operations were wound down in FY08. PAC lost its investment.
Global Value Investors Ltd, in which PAC invested in FY05, was a Melbourne based boutique. GVI specialised in investing in global equities.
Treasury Asia Asset Management Ltd, in which PAC invested in FY06, was based in Sydney and also had offices in Singapore. TAAM specialised in investing in Asian and Pacific equities. TAAM failed because of deteriorating investment performance. PAC sold its stake in TAAM in FY14 at a price that recovered PAC’s capital outlays without any profit.
Cannae Capital Partners Ltd, in which PAC invested in FY08, was based in Sydney. Cannae failed and was merged with IML in FY10. Mr Hugh Giddy, Cannae’s founder, went to work for IML. PAC wrote off its investment in Cannae in FY10.
AR Capital Management Ltd, in which PAC invested in FY10, was Melbourne based and specialised in investing in Australian equities. AR Capital never attracted sufficient funds under management to survive and once its founders left in FY12 it was doomed. AR Capital ceased trading in FY14 and was wound up in FY15.
Celeste Funds Management Ltd, in which PAC invested in FY10, was based in Sydney and invested in Australian equities. PAC sold its investment in Celeste in 2018 for $1.6 million.
Aubrey Capital Management Ltd, in which PAC invested in FY10, was based in Edinburgh and specialised in investing in global equities. Aubrey never attracted sufficient funds under management to break even.
Evergreen Capital Partners Ltd, in which PAC invested in FY12, was based in Melbourne and specialised in investing in Australian equities. Evergreen was another boutique that did not attract enough funds under management to survive. In FY14 Evergreen merged with a property fund manager, Freehold Investment Management Ltd, and PAC obtained an interest in Freehold. PAC sold its interest in Freehold in October 2019 for book value.
Octis Asset Management Pty Ltd, in which PAC invested in FY13, specialised in investing in Asian equities. Octis was based in Singapore. Octis was not able to attract sufficient funds under management to continue. PAC’s 20% interest in Octis was sold in FY16 with PAC’s outlaid capital being recovered but with no profit.
General
PAC’s share price and its ability to pay dividends to PAC’s shareholders depended on the dividends, distributions and interest that it received from its boutiques and to a lesser extent on the fees it received for PAC’s services.
PAC’s dividends paid for FY13 and FY14 were $0.40 and $0.50 per share respectively.
There was a significant increase in the dividends paid by PAC over the period from FY09 to FY14 due to the performance of IML and RARE and the dividends and distributions they paid PAC.
The challenge with PAC’s investment model was that PAC had to continue to find and make boutique investments with the aim that one of them would succeed and replace the income that would be lost if one of PAC’s mature successful boutiques was sold or collapsed like Orion.
If PAC could not make a series of new boutique investments, PAC risked a mature boutique like IML or RARE being sold. Whilst such a sale might produce a one-off significant taxable capital gain for PAC in one FY, as it ultimately did with IML and RARE, going forward PAC would lose the revenue it had been receiving from that boutique. Consequently PAC’s share price would suffer as its ability to pay dividends would diminish.
Now in July 2011 the board had recognised that PAC’s investments were too Australian focused, both in terms of the locations of its boutiques and in terms of investment sectors. Because the majority of PAC’s boutiques specialised in Australian equities, PAC risked funds under management stagnating or shrinking if other sectors outperformed Australian equities.
The board had already started to address the problem of PAC being too focused on Australia before Mr McGill became CEO in July 2011 with the acquisition of Aubrey in FY10. However, being located in Australia made it difficult for PAC to form the relationships with northern hemisphere founders that might lead to an investment in a boutique.
Let me at this point say something about Northern Lights and its boutiques.
Northern Lights
Northern Lights was founded in 2006 and headquartered in Seattle, USA. At all material times, Northern Lights was a private limited liability company incorporated under the laws of Delaware, and carried on the business of funds management and investing in fund managers, including in the USA and UK until 25 November 2014. Its assets which were illiquid were investments in private boutique fund managers.
First, prior to the merger there were holdings in several boutique fund managers, including Seizert Capital Partners LLC (Seizert), Alphashares LLC (Alpha), del Rey Global Investors LLC, Elessar Investment Management LLC, Tamro Capital Partners LLC (Tamro), and Aether Investment Partners LLC (Aether).
Second, there were a number of investments in immature and alternative boutique fund managers including Blackcrane Capital LLC (Blackcrane), EAM Global Investors LLC (EAM), Goodhart Partners LLP (Goodhart), Nereus Holdings LP (Nereus), Northern Lights Alternative Advisors LLP, and Raven Capital Management LLC (Raven).

Third, I should say something about WHV. Northern Lights had no equity interest in WHV, only certain contractual rights pursuant to a dividend and appreciation rights agreement. I will return to discuss this in more detail later.
Implementation of the merger
Between July and November 2014, PAC and Northern Lights and the Aurora trustee entered into a series of agreements to implement the merger. Those agreements included the following: a deed of amendment to the Aurora Trust; a replacement constitution of the Trustee; an implementation deed between PAC and Northern Lights and an implementation agreement and restatement deed between PAC and Northern Lights; PAC’s implementation deed – disclosure letter and Northern Lights’ implementation disclosure letter; a securities sale agreement between PAC and the Trustee; a PAC other assets contribution deed and PAC other assets services deed; an exchange deed between PAC, Northern Lights and Class B parties; a unitholders deed between PAC, Northern Lights, NL Sub Y LLC (NL Sub Y), BNP Paribas Asset Management Inc (BNP Paribas), various key employees and the Trustee; a partnership allocation deed between PAC, Northern Lights, NL Sub Y, BNP Paribas and the Trustee; a securities sale deed between PAC and Treasury RARE Holdings Pty Ltd; a contribution agreement between Northern Lights and Northern Lights Midco LLC (Northern Lights Midco) and first amendment to contribution agreement; an amended and restated limited liability company agreement of Northern Lights Midco; a subscription agreement between NL Sub Y, LLC and the Trustee; a contribution and assignment agreement between Northern Lights, NL Sub Y and NL Sub LLC (NL Sub); a first amendment to dividend and appreciation rights agreement; a securities sale agreement between Northern Lights and the Trustee; a Medley committed loan notice; an Aether purchase agreement; an Aether securities purchase agreement; an Aether third amended and restated limited liability company arrangement; and a Seizert promissory note.
The key agreements and deeds were executed on or around 4 August 2014 and between 21 and 24 November 2014. I will analyse aspects of these instruments later.
As part of the merger, PAC and Northern Lights created the Aurora Trust and the Aurora trustee. And PAC and Northern Lights transferred substantially all of their boutiques to the Aurora Trust in exchange for units. Let me set out some of the detail concerning the merger.
PAC was given consideration in the form of units in the Aurora Trust of $255,624,260 for the transfer of its net assets to the Aurora Trust.
Northern Lights was given consideration in the form of units in the Aurora Trust of $161,925,984 for the transfer of its net assets to Northern Lights Midco which became a wholly owned subsidiary of the Aurora Trust.
Northern Lights and BNP Paribas were issued 32,771,555 and 9,228,445 class X redeemable preference units respectively in the Aurora Trust with an aggregate issue price of USD 42 million (XRPUs).
NL Sub Y, a company owned 99% by Northern Lights and 1% by NL Sub, and BNP Paribas were issued 11,704,127 and 3,295,873 class Y redeemable preference units respectively in the Aurora Trust with an aggregate issue price of USD 15 million (YRPUs).
A debt of USD 45.6 million was drawn down by Northern Lights Midco to fund cash payable in relation to additional equity in Seizert and Aether.
The Aurora Trust issued debt notes with an aggregate value of USD 17.5 million on completion of the acquisition of Seizert.
Now at the completion of the merger the following was the position.
PAC was issued 23,837,479 class A units in the Aurora Trust representing 61.22% of all the units in the Aurora Trust and 2,065,000 class A-1 units in the Aurora Trust.
Northern Lights and BNP Paribas were issued 11,782,095 and 3,317,830 class B units in the Aurora Trust, representing 38.78% of all the units in the Aurora Trust, and 2,140,503 and 235,194 Class B-1 units in the Aurora Trust.
Further, as part of the merger, the following transactions also took place.
First, let me say something about the Aether transaction. Northern Lights Midco and a further Northern Lights subsidiary, Northern Lights Earn Out Co LLC (Earn-Out Co) acquired the remaining equity in Aether for consideration of USD 40 million plus additional earn-out payments and further cash consideration of USD 3.7 million. And the Aether company management agreement was amended so that Northern Lights Midco, which was the manager of Aether, and Earn-Out Co had rights to certain income distributions.
Second, let me say something about the Seizert transaction. Northern Lights Midco acquired the remaining equity in Seizert in exchange for Seizert debt notes, being notes with an aggregate value of USD 17.5 million, and upfront cash consideration of USD 21 million, and deferred cash consideration of USD 7 million (USD 6 million to be paid by PAC and USD 1 million by Northern Lights). Further units were issued to the Seizert employees.
Now as part of the merger, the Aurora trustee assumed debts of approximately AUD 131,191,729, comprising the following.
First, on 24 November 2014, Northern Lights entered into a debt facility of USD 47 million with Medley Capital Corporation (the Medley loan). The facility was entered into to fund the acquisition of additional equity in Seizert and Aether. The Medley loan was repaid by the Aurora Trust on 4 January 2016 for USD 45.85 million.
Second, the Aurora Trust issued debt notes amounting to USD 17.5 million to the former owners of Seizert as part of the consideration for the acquisition by Northern Lights Midco of the equity interest in Seizert. The Seizert debt notes were paid in 2018 and 2020.
Third, as I have indicated, 42 million XRPUs were issued to Northern Lights and BNP Paribas. The repayment obligations were contingent on the performance of certain boutiques contributed to the Aurora Trust. At the merger date, the XRPUs had a value of USD 35 million.
Fourth, as I have indicated, 15 million YRPUs were issued to NL Sub Y and BNP Paribas with a total redemption price of USD 15 million.
Events subsequent to the merger
The first meeting of the Aurora trustee’s board saw a report from Mr McGill, who was its CEO, dated 3 December 2014 which indicated, inter-alia, the following matters.
First, following the merger, group liquidity was very low.
Second, critical cash inflow assumptions for December and January included, as a top priority, the WHV dividend of USD 2 million in December 2014.
Third, if actual cash receipts were lower than the inflow assumptions then this could potentially have significant liquidity consequences for Aurora.
No WHV dividend was declared or distribution paid in 2014.
By 30 June 2015, the Aurora Trust’s interest in WHV was written off.
Following the merger, PAC’s interest in the Aurora Trust was increased. On or around 13 April 2015, PAC’s interest in the Aurora Trust increased to 64.03%. And on or around 7 September 2015, PAC’s interest in the Aurora Trust increased to 65.15%.
On 13 April 2017, the Aurora Trust became wholly owned by PAC.
In the period between the merger closing on 24 November 2014 to 30 June 2017, the Trustee wrote down the carrying value of the former Northern Lights boutiques by approximately AUD 218,340,159.
This is reflected in the following table:

Impairments (AUD)

Boutique Period to 30.6.15 Year to 30.6.16 Year to 30.6.17

Nereus 8,878,967 11,212,884 7,647,988

WHV 16,806,616

Raven 9,659,917 417,705

Alpha 3,030,325

TAMRO 1,713,430

Seizert 85,307,202 15,860,138

Aether 51,318,027

Blackcrane 3,699,459

Goodhart 14,564

NL Alternative 368,815 2,404,122

Annual Total 25,685,583 111,292,573 81,362,003

Total to 30 June 2017 218,340,159

In the year ending 30 June 2016, PAC reported a net loss of AUD 48.2 million.
I will return later to discuss the specific and relevant sequence of events.
Relevant witnesses and evidentiary questions
Let me say something about the respondent directors.
Evidence of the directors
As at 2014 Mr Kennedy had been the longest serving of the directors having been appointed a director on 4 June 2003. At the time of trial he still remained a director. He had extensive experience in commercial law and had been a director of other public and private companies.
Mr Kennedy was careful in his evidence during cross-examination. He answered questions directly, although he was a little feisty at times in response to some of my gentle queries. Nevertheless he was an impressive and reliable witness.
Mr Fitzpatrick was a director of PAC from 5 October 2004 until 1 March 2019 and its chairman for most of that period. Through his companies in 2014 he owned about 11.45% of PAC’s shares. Mr Fitzpatrick had had extensive experience in the funds management sector. He had also had considerable experience as a company director.
Mr Fitzpatrick made numerous concessions in cross-examination, particularly where he accepted his inability to recall discussions and events from 2013 and 2014. Mr Fitzpatrick’s evidence was thoughtful and reliable.
Mr Hayes was a director from 22 February 2007 to 26 November 2012. He had been the founder of Ausbil Dexia Ltd, a boutique, and part of Barclays Bank’s Australian investment operations. Mr Hayes had an extensive knowledge and understanding of boutiques and investment operations generally.
Mr Hayes was the first to acknowledge that there were limitations on his ability to give detailed evidence due to his failing memory. Mr Hayes was 80 at the time of giving evidence. Despite these difficulties, Mr Hayes’ high level evidence on factors that caused him to vote in favour of the merger was generally reliable.
Ms Donnelly joined the board on 28 March 2012. Her background was in accounting and tax and then funds management. She held management positions at Australia New Zealand Banking Group Limited and Queensland Investment Corporation.
Since finishing as CEO at QIC, she had established, and then sold, her own company which educated investment executives in the superannuation and funds management industry world-wide.
She has held numerous directorships on the boards of public and private fund managers and has held positions on the investment committees of government and private investment bodies and industry superannuation funds.
Ms Donnelly, although she was prepared to make concessions, was firm in what she recalled. She gave short and sharp reliable answers. I accept Ms Donnelly’s evidence unequivocally.
Mr McGill was PAC’s chief executive officer. He had been employed as CEO by PAC in July 2011. He was appointed as a director of PAC in August 2013. He ceased to be a director on 28 August 2015.
Mr McGill had an impressive employment history with decades of experience in investment banking before coming to PAC. His experience included being a strategy consultant at LEK Partnership, holding senior roles in Macquarie Bank’s corporate finance and direct investments teams and then being the founding partner at Crescent Capital, which was an independent specific purpose private equity firm, and where he worked from 2000 to 2010.
Most of Mr McGill’s evidence was honestly given, although there were some problematic aspects which I will discuss in more detail later concerning the reliability of his evidence on the WHV question.
It is necessary at this point to identify some other individuals and entities who are relevant to the events.
PAC executives and employees
Mr Joe Ferragina was PAC’s chief financial officer and had extensive business qualifications. By 2014 Mr Ferragina had been PAC’s CFO for about 10 years. Before that he had extensive experience in finance roles at large organisations.
Mr Ferragina’s responsibilities included all of the financial aspects of PAC’s business such as the preparation of financial statements. He was also involved in analysing potential investments that PAC may make in a boutique.
Mr Ferragina’s regular reports to the board included reports about PAC’s finances. His reports were incorporated into Mr McGill’s CEO reports to the board.
Based on his work the board considered Mr Ferragina to be a very capable financial officer with a good knowledge of funds management. He sat on the boards of some of PAC’s boutiques.
Mr Andrew Howard was PAC’s chief investment officer. He started at PAC in August 2013.
Mr Howard had qualifications in business and in finance before working for PAC. Mr Howard was chief investment officer for the Asia Pacific region at Mercer (Australia) Pty Ltd, part of an international firm specialising in investment consulting, wealth management and associated professional financial services. He had 15 years’ experience in assessing fund managers’ performance.
Mr Howard’s role at PAC was to assist in identifying and assessing boutiques which PAC might invest in. Mr Howard developed PAC’s portfolio of investment products and identified and reported on new boutique investment opportunities.
Ms Ramswarup was PAC’s company secretary before and during 2014. Her involvement in the merger was peripheral in that she took board minutes, circulated some emails about board meetings and undertook general administrative functions for, and at the request of, the board.
Ms Batoon had an accounting qualification. In 2014 she was PAC’s finance manager. She reported to Mr Ferragina. She had previously worked and had experience in accounting for, and integrating finance activities relating to, mergers and acquisitions, minority interests and various types of financial instruments.
Northern Lights’ executives
Mr Paul Greenwood was a managing director of Northern Lights.
Mr Jack Swift was a managing director of Northern Lights and the sales and distribution manager of WHV.
Mr Timothy Carver was an executive director and co-founder of Northern Lights and a director of WHV from around the beginning of 2013.
Mr Trent Erickson was the chief financial officer of Northern Lights.
Mr David Griswold was the general counsel and chief compliance officer of Northern Lights.
Mr Jeff Vincent was a non-executive director of Northern Lights. He was also the CEO of Laird Norton Investment Management, Inc., which was a major shareholder in Northern Lights and the sole shareholder of WHV. Mr Vincent was also a director of WHV.
Mr Andy Turner was a non-executive director of Northern Lights and one of the original founding partners of Northern Lights. He was a significant shareholder, owning approximately 25% at about May 2014. However his direct involvement with Northern Lights was relevantly through the running of WHV as CEO since the beginning of 2013 and as a board member of Northern Lights.
Gresham
Gresham was a typical merchant bank type advisor and was highly regarded in its field.
PAC had retained Gresham between 2011 and 2013 with respect to the proposed acquisition of Pinnacle Investment Management Ltd and so the directors were familiar with the quality of Gresham’s analysis and work product. In particular, Gresham had valued both Pinnacle and WIG, which owned about 83% of Pinnacle, in 2012 and 2013, respectively.
The project name given to the merger and which was used by Gresham and others was Project Bondi. The Gresham executives advising PAC with respect to Project Bondi were Mr Charles Graham (managing director), Mr Alistair Pollock (associate director), Mr Darren MacGregor (executive director) and Mr Timothee Moulin (executive).
Herbert Smith Freehills
HSF was PAC’s legal advisor in respect of the merger. Like Gresham, HSF had advised PAC with respect to Pinnacle and WIG in 2012 and 2013.
The responsible partner at HSF was Mr Peter Dunne and the senior associate assisting Mr Dunne was Ms Shing Lo.
Deloitte
There are several entities with the name “Deloitte” involved in the merger to various extents and for different parties.
First, Deloitte Touche Tohmatsu (Deloitte Australia) were PAC’s auditor and assisted PAC in accounting aspects of the merger. Mr Stuart Alexander, Mr Stephen Connors and Mr Jack Lee were responsible for coordinating with their US counterpart and advising PAC management on accounting issues with the merger.
Second, Mr Mark Goldsmith of Deloitte Tax Services Pty Ltd (Deloitte Tax Australia) advised PAC on the tax aspects of the merger. Deloitte Tax Australia’s role is of marginal relevance to the proceeding.
Third, Deloitte Tax Australia co-ordinated tax issues with its US counterpart (Deloitte Tax USA) which was acting for Northern Lights. Deloitte Tax USA’s involvement is of no relevance.
Fourth, Deloitte & Touche LLP (Deloitte USA) was also involved. The role of Deloitte USA developed into a significant part of PAC’s case as the trial proceeded. Deloitte USA provided the following.
It provided a quality of earnings (QoE) data book to Northern Lights which was subsequently provided to PAC management and Gresham on 14 May 2014.
Further, it provided the Deloitte due diligence report provided to PAC management on 18 June 2014.
Mr Alan Warner, Mr Bruce Gibbens, Mr Masaki Noda and Ms Erika Mitchell of Deloitte USA were primarily responsible for advising Northern Lights. They were also in frequent contact with PAC management.
William Blair
William Blair were the financial advisors to Northern Lights, providing Northern Lights with valuations of boutiques, assistance with the due diligence and managing the debt raising aspects of the merger, for example, obtaining loans to acquire majority interests in Seizert and Aether.
Expert witnesses
I should say something briefly at this point concerning the expert witnesses.
Mr Graham Bradley was an expert called by PAC. As a professional company director and chairman since 2003, he was called to give an expert view as to how reasonable directors in the position of PAC’s directors ought to have acted concerning various aspect of the merger.
Now according to the respondents, Mr Bradley allowed himself to become effectively an adviser on how PAC’s claim should be formulated which tainted his evidence.
The respondents point to the fact that on at least four occasions Mr Bradley’s report used words strikingly similar to PAC’s particulars. Apparently Mr Bradley had assisted to formulate those particulars. According to the respondents, Mr Bradley’s evidence understandably adopted pleadings which he assisted in formulating.
Further, the respondents say that on numerous occasions where Mr Bradley selected quotes from the Howard assessment, which I will discuss later, he did so in a manner that distorted the original text of document. Mr Bradley agreed that he had used incomplete sentences and accepted that he should have quoted full sentences.
Further, the respondents say that Mr Bradley was prepared to rely upon supposedly damaging examples of accounting outcomes from the Deloitte due diligence report which, when explained to him, he accepted were incorrect.
But I agree with PAC that these criticisms are somewhat over-stated.
Mr Bradley’s evidence was that he had a discussion with PAC’s solicitors, where he communicated his views about the documents he had reviewed. PAC then subsequently drafted its particulars in a way that was consistent with the views communicated by Mr Bradley. Mr Bradley otherwise did not have any involvement in drafting the particulars. There is nothing untoward about this approach.
First, in some cases where the reverse occurs, namely if the documentary trail reveals that an expert has revised and tailored their expert opinion so as to match the pleadings on which the party retaining that expert relies, it may be possible to impugn the independence of the expert. The sequence of events here was the other way around.
Second, there is nothing unusual about discussing issues with an expert, including the questions to be formulated for their report to address.
As to the criticism concerning whether Mr Bradley distorted the original text of the Howard assessment, Mr Bradley explained in his evidence that the purpose of the passages that he identified was to highlight red flags that the directors should have taken seriously. Although counsel for Mr McGill may have put to Mr Bradley other aspects of the text that provided a favourable picture of certain boutiques, Mr Bradley’s purpose was to identify statements that he considered should have put the directors on further enquiry. Now I accept that explanation. But of course there were many parts of the Howard assessment that supported the respondent directors’ case.

In my view, Mr Bradley was a competent and straight-forward expert, but his evidence did have its limitations. He seemed not to be clear about PAC’s business. PAC was not a funds manager but rather an investor in funds managers, usually with a minority interest. Further, he had little if any experience in running or investing in boutique managers. More generally he collapsed the distinction from time to time between the business of investing in boutiques and the business of funds management. Further, he was not aware of documents dealing with weekly meetings between PAC, Gresham personnel and others.
In my view, on the substance, there were significant limitations in the use and therefore the weight that I could place on his evidence.
I will address aspects of his evidence in more detail later.
Mr Barry Lewin was an expert relied upon by the respondents. He had a background as a lawyer and professional director. He covered the same topics as Mr Bradley.
In my view Mr Lewin was also a competent and straight-forward expert. But like Mr Bradley, his evidence also had its limitations. Moreover, he did not have direct expertise in the type of business PAC was conducting, with perhaps one exception.
I will discuss some aspects of his evidence in more detail later.
The quantum/valuation experts
There were two such experts which I will say something more about later concerning valuation questions dealing with WHV.
Jones v Dunkel, adverse inferences and other matters
The unexplained failure by a party to call a witness or tender a document may, in appropriate circumstances, support an inference that the uncalled evidence would not have assisted that party’s case. The principle in Jones v Dunkel (1959) 101 CLR 298 is one of common sense. But by itself the inference is frequently somewhat barren, for knowing that the evidence of a witness would not have assisted tells one nothing about what the witness’s evidence affirmatively would have been.
Now PAC has largely conducted a documentary case, which is explicable partly because this is a derivative proceeding. That context justifies me in not drawing the usual Jones v Dunkel inferences because there is not the same control or capacity to adduce evidence from former PAC executives or consultants in a co-operative fashion.
Let me address one specific matter. Now the directors assert that I am entitled to draw an inference that evidence given by Mr Dunne, a partner of HSF, would not have assisted PAC’s case. But no Jones v Dunkel inference of the type adverted to by the directors is available in the circumstances of this case.
Three conditions must be satisfied for the principle in Jones v Dunkel to apply, namely, that the missing witness would be expected to be called by one party rather than the other, the witness’ evidence would elucidate a particular matter, and the witness’ absence is unexplained. But even if all three conditions are satisfied, I am not required to conclude that the uncalled evidence would not have assisted the party’s case
Now care is required in assessing the degree to which any particular witness can be said to be in the camp of a party. In the present case there can be no realistic suggestion that PAC was the party expected to call Mr Dunne or that Mr Dunne’s knowledge is to be regarded as the knowledge of PAC or that Mr Dunne is in PAC’s “camp”.
The directors’ submission ignores the reality of this proceeding. The proceeding is a derivative one, brought with leave of the Court, which was resisted by PAC, and where PAC acting in a different capacity instructed Mr Dunne’s firm to represent PAC separately in the proceeding. The directors include current directors of PAC.
As I observed during the trial, PAC has largely had to reconstruct events from the documentary record, whilst the relevant corporate knowledge was within the heads of the directors. And as I also observed, there is no reason why the directors could not have approached HSF directly. A common sense assessment of the circumstances of the case does not suggest that PAC could be regarded as the party expected to call Mr Dunne.
Let me deal with one other matter concerning the question of the content of board minutes.
The requirements for the content of minutes include that a minute of a directors’ meeting is not meant to be a report. They must be as concise as circumstances permit. Further, speeches, disagreements and reasons for resolutions are not normally to be recorded.
I reject PAC’s assertion that to the extent that the non-executive directors say that they considered matters not recorded in the board minutes, their contention should not succeed because the absence of any record of any discussion of important matters tends to show that they were not, or at the best scantly, discussed.
Such an assertion misconceives the purpose of minutes being to concisely record key outcomes of discussions. Moreover, the absence of reference to a specific matter being discussed is little if any positive evidence in and of itself that the matter was not discussed. One must consider the omission in its proper context.
General principles: directors’ duties
Section 180 of the Act provides:
Care and diligence—directors and other officers
(1)      A director or other officer of a corporation must exercise their powers and         discharge their duties with the degree of care and diligence that a reasonable         person would exercise if they:
(a)were a director or officer of a corporation in the corporation’s circumstances; and
(b)occupied the office held by, and had the same responsibilities within the corporation as, the director or officer.
Business judgment rule
(2)      A director or other officer of a corporation who makes a business judgment is      taken to meet the requirements of subsection (1), and their equivalent duties at common law and in equity, in respect of the judgment if they:
(a)       make the judgment in good faith for a proper purpose; and
(b)       do not have a material personal interest in the subject matter of the         judgment; and
(c)       inform themselves about the subject matter of the judgment to the         extent they reasonably believe to be appropriate; and
(d) rationally believe that the judgment is in the best interests of the corporation.
The director’s or officer’s belief that the judgment is in the best interests of the corporation is a rational one unless the belief is one that no reasonable person in their position would hold.
(3)      In this section:
business judgment means any decision to take or not take action in respect of      a matter relevant to the business operations of the corporation.
Section 180(1) is normative and cast in mandatory terms. The section imposes an obligation to meet a statutory standard of care and diligence applicable to the exercise of all of the powers and the discharge of all of the duties of a director or officer, whatever the source. If the required degree of care and diligence is not met, then the section will have been contravened.
Section 180(1) creates an objective test, as I said in Australian Securities and Investments Commission v Mitchell (No 2) (2020) 382 ALR 425 at [1397]. The “reasonable person” is an ordinary person who possesses the knowledge and experience of the relevant director.
The core duty of the director is to take reasonable steps to place themselves in a position to guide and monitor the management of the company. The directors must become familiar with the fundamentals of the business in which the corporation is engaged and are under a continuing obligation to keep informed about the activities of the corporation. Directorial management requires a general monitoring of corporate affairs and policies. The directors should maintain familiarity with the financial position of the corporation.
The duty mandates, at its core, that a director’s involvement in the company’s management requires ordinary competence or reasonable ability. Equivalently, the duty of diligence requires directors to take reasonable steps to place themselves in a position to guide and monitor the company’s management.
The purpose of s 180(1) is not to punish the making of mistakes or errors of judgment. Directors and officers are expected to take calculated commercial risks. However, they must exercise care and diligence in the assessment of risk and reward.
As stated by Robson J in Australian Securities and Investments Commission v Lindberg (2012) 91 ACSR 640 at [72]:
Section 180(1) does not seek to punish the mere making of mistakes or errors of judgment. Making mistakes does not by itself demonstrate lack of due care and diligence. The business judgment rule in s 180(2) also recognises that business judgments made in good faith and on a proper basis do not fall within s 180(1). Directors and officers of corporations are expected to take calculated commercial risks. A company run on [the] basis that no risks were ever taken would be unlikely to be successful. The proper taking of risk in making business decisions is entirely consistent with exercising care and diligence. The proper assessment of the risks and potential rewards is a matter that demands the exercise of care and diligence. The two concepts complement each other in the management of corporations.
Now in order for an act or omission of the director to be capable of constituting a contravention of s 180(1) there must be reasonably foreseeable harm to the interests of the company caused thereby.
In Australian Securities and Investments Commission v Mariner Corporation Ltd (2015) 241 FCR 502, I said (at [447] to [452]):
It is wrong to assert that if a director causes a company to contravene a provision of the Act, then necessarily the director has contravened s 180.
No contravention of s 180 would flow from such circumstances unless there was actual damage caused to the company by reason of that other contravention or it was reasonably foreseeable that the relevant conduct might harm the interests of the company, its shareholders and its creditors (if the company was in a precarious financial position) (see ASIC v Maxwell at [99]-[110] and Australian Securities and Investments Commission v Macdonald (No 11) (2009) 230 FLR 1; 256 ALR 199 at [236]).
In order for an act or omission of the director to be capable of constituting a contravention of s 180 there must be reasonably foreseeable harm to the interests of the company caused thereby.
Further, relevant to the question of breach of duty is the balance between, on the one hand, the foreseeable risk of harm to the company flowing from the contravention and, on the other hand, the potential benefits that could reasonably be expected to have accrued to the company from that conduct.
Not only must the Court consider the nature and magnitude of the foreseeable risk of harm and degree of probability of its occurrence, along with the expense, difficulty and inconvenience of taking alleviating action, but the Court must balance the foreseeable risk of harm against the potential benefits that could reasonably be expected to accrue from the conduct in question.
After all, one expects management including the directors to take calculated risks. The very nature of commercial activity necessarily involves uncertainty and risk taking. The pursuit of an activity that might entail a foreseeable risk of harm does not of itself establish a contravention of s 180. Moreover, a failed activity pursued by the directors which causes loss to the company does not of itself establish a contravention of s 180.
Observations resonating with these themes were made by Edelman J in Australian Securities and Investments Commission v Cassimatis (No 8) (2016) 336 ALR 209 at [675] where he said that the Court must balance “the foreseeable risk of harm to any of the interests” of the company against “the magnitude of that harm, together with the potential benefits that could reasonably have been expected to accrue to the company from the conduct in question, and any burdens of further alleviating action”.
Further, as Thawley J observed, the balancing exercise is not confined to balancing competing commercial considerations or their varying financial consequences, but extends to considering “all of the interests of the corporation, including its continued existence and its interest in pursuing lawful activity” (Cassimatis v Australian Securities and Investments Commission (2020) 275 FCR 533 at [459]). I should say for completeness that State intermediate appellate courts have applied Cassimatis; see DSHE Holdings Ltd (Receivers and Managers) (in liq) v Potts (2022) 163 ACSR 23 at [112] to [115] per Leeming and Kirk JJA and Basten AJA.
In Mariner Corporation I also said (at [440] and [441]):
It is not in doubt that the circumstances of the particular company concerned inform the content of the duty. These include the size and type of the company, the size and nature of the business it carries on, the terms of its constitution, and the composition of the board of directors.
It is also not in doubt that in considering the acts or omissions of a particular director, one looks at factors including the director’s position and responsibilities, the director’s experience and skills, the terms and conditions on which he has undertaken to act as a director, how the responsibility for the company’s business has been distributed between the directors and the company’s employees, the informational ﬂows and systems in place and the reporting systems and requirements within the company.
Further, it may be necessary, when examining the corporation’s circumstances for the purposes of s 180(1)(a), to have regard to whether the company is listed or unlisted (Australian Securities and Investments Commission v Rich (2009) 75 ACSR 1 at [7201] per Austin J).
Now the responsibilities referred to in 180(1)(b) include the responsibilities that the director has within the corporation, regardless of how those responsibilities came to be imposed on that director. As such, it is not the case that “responsibilities” refer only to specific tasks delegated to the relevant director.
Let me say something about the position of chairman as it is relevant to Mr Fitzpatrick’s position.
I outlined the specific role and responsibilities of the chairman in Australian Securities and Investments Commission v Mitchell (No 2) at [1398] to [1426] in which I identified the usual powers and responsibilities, including having the power, authority and responsibility where relevant to manage board meetings, to ensure that the board has before it sufficient information, to ensure that sufficient time is allowed for the discussion of complex or contentious matters and to ensure that there is appropriate communication with and taking into account the interests of members of the company. It is worth setting out again with necessary modification what I said at [1398] to [1426].
The Act does not make any express reference to the roles or functions of a chairman of the board, although there are legislative rules able to be displaced or modified by a company’s constitution (s 135 and also Chapter 2G) concerning formalities or procedural matters involving the chairing of directors’ meetings or shareholders’ meetings.
Further, there was regulatory guidance around the relevant time in the form of the ASX’s Corporate Governance Principles and Recommendations. Recommendation 2.5 (3rd edition, 2014) provided that the chairman of a listed entity should be an independent director, and should not be the same person as the CEO. The commentary to Recommendation 2.5 (3rd edition, 2014) described the responsibilities of the chairman:
The chair of the board is responsible for leading the board, facilitating the effective contribution of all directors and promoting constructive and respectful relations between directors and between the board and management. The chair is also responsible for setting the board’s agenda and ensuring that adequate time is available for discussion of all agenda items, in particular strategic issues.
The prior version (2nd edition, 2007 with 2010 amendments) had a similarly worded but differently numbered Recommendation 2.2. The commentary to it provided:
The chair is responsible for leadership of the board and for the efficient organisation and conduct of the board’s functioning.
The chair should facilitate the effective contribution of all directors and promote constructive and respectful relations between directors and between board and management.
Where the chair is not an independent director, it may be beneficial to consider the appointment of a lead independent director.
The role of chair is demanding, requiring a significant time commitment. The chair’s other positions should not be such that they are likely to hinder effective performance in the role.
In AWA Ltd v Daniels (t/as Deloitte Haskins & Sells) (1992) 7 ACSR 759, Rogers J said at 867:
The chairman is responsible to a greater extent than any other director for the performance of the board as a whole and each member of it. The chairman has the primary responsibility of selecting matters and documents to be brought to the board’s attention, for formulating the policy of the board and promoting the position of the company. In discharging his or her responsibilities the chairman will cooperate with the managing director if the two positions are separate or otherwise with senior management.
This judgment was appealed, but the Court of Appeal did not question these observations (see Daniels (formerly practising as Deloitte Haskins & Sells) v Anderson (1995) 37 NSWLR 438).
In Woolworths Ltd v Kelly (1991) 22 NSWLR 189 at 225, Mahoney JA said:
…a person who is a chairman of the board of directors has additional rights and duties and additional opportunities. Ordinarily it is the function of a chairman to settle the agenda of the meetings of the board: at least he exercises a significant influence upon it. He is in a position, in the sense here relevant, to ensure that proposals are brought forward for consideration by the directors at their meetings. And this, in a particular case, may affect the content of fiduciary duties which he owes to his company.
Let me delve a little deeper into the position of the chairman of the board.
Clearly, he has no power or authority to manage the corporation. His primary function is to preside at board meetings and accordingly to exercise procedural control. But save for that, and his power to exercise a casting vote (if applicable), he has no greater authority than an ordinary director. He is not some sort of directorial overlord. But he does have the power and authority to manage board meetings and to that extent he may have greater responsibility for the performance of the board as a whole.
But the chairman does have the power, authority and responsibility for setting the agenda items for board meetings, although these may be added to by the agreement of other directors. He can also discharge that responsibility in consultation with the CEO.
He also has the power, authority and responsibility to ensure that the board has before it sufficient information, whether presented in written or oral form, such as to be able to meaningfully consider, discuss and decide on the agenda items before the board at the relevant meeting taking into account the context of the decision required or consideration necessary by the board at that meeting. Of course, he may discharge such a responsibility in consultation with the CEO.
The chairman also has the power, authority and responsibility to manage the board to ensure that sufficient time is allowed for the discussion of complex or contentious matters; for this purpose it may be necessary to arrange meetings outside board meetings so that board members are thoroughly prepared.
Further, the chairman is there to ensure that the board members work effectively together and to ensure that their skill sets and personalities complement each other. Moreover, he should endeavour to facilitate the effective contribution of each director.

Gresham provided its “Project Everest – Due Diligence Update” report dated 18 July 2012. By then Gresham only had Pinnacle head office forecasts and little boutique level information. Gresham’s report included an indicative timetable to completion of about three months therefore concluding in October or early November 2012. Gresham noted that PAC’s revised offer was in the range of $38 to 43 million, depending on assumptions about PAC’s share price. Gresham valued Pinnacle to PAC at $36 million, but noted that anticipated funds under management inflows could produce an extra $7 million of value. Gresham also noted that the acquisition would not occur without Macoun’s approval and that three of Pinnacle’s boutiques had pre-emptive rights.
The minutes of the 18 July 2012 board meeting record that Mr McGill provided a verbal report that Pinnacle due diligence was progressing and that meetings had been held with some Pinnacle boutiques. They also record that Gresham spoke to the board about various aspects of their report, including valuation.
On 10 August 2012, Gresham provided a further update of its due diligence analysis. Gresham noted that initial due diligence had identified significant downwards revisions to Pinnacle’s business plan. Using a DCF method only, Gresham valued Pinnacle at $37.5 million but noted about $20 million of synergies existed.
On 14 August 2012 PAC made a further non-binding cash, scrip and debt offer to acquire 100% of Pinnacle for a cash equivalent of $44.5 million. The offer was heavily conditioned. One condition was that WIG confirm that “all Pinnacle shareholders have agreed to waive potential frustrating rights within the Pinnacle Shareholders Agreement or that such rights have been otherwise dealt with”. So, WIG had to obtain the co-operation of Mr Macoun and the other minority shareholders.
Mr McGill’s CEO report for the 22 August 2012 board meeting in Sydney summarised the negotiations Mr McGill and Mr Fitzpatrick had undertaken with WIG and Pinnacle since the July board meeting. Mr McGill reported on the revised offer consideration. Mr McGill also described the pivotal role that Mr Macoun would play in the consideration of PAC’s offer by reason of Mr Macoun’s pre-emptive veto and other rights conferred on him by the Pinnacle shareholders agreement and because of his being a member of the WIG board. The board resolved to enter into the terms sheet to acquire Pinnacle.
The PAC board met on 3 October 2012. Mr McGill’s CEO report said that a highly conditional terms sheet had been agreed with WIG. Mr McGill sought board ratification of the terms sheet. Mr McGill set out the principal terms and noted that with Gresham’s assistance the acquisition had been modelled and would be earnings per share accretive by FY14. Mr McGill noted that the deal could be thwarted by Mr Macoun and the other minority Pinnacle shareholders and by two of Pinnacle’s boutiques, Resolution Capital and Solaris, which might be excluded from the deal. Mr McGill also noted that Mr Macoun had become increasingly demanding about the acquisition.
The board resolved to enter into the terms sheet to acquire Pinnacle.
PAC’s AGM was held on 2 November 2012. Mr Fitzpatrick and Mr McGill addressed the meeting and showed slides to shareholders during their addresses. In his address to shareholders at the AGM, which he read, Mr Fitzpatrick reported to shareholders on the steps taken following Mr McGill’s review of PAC’s business, including on the then recent acquisition of interests in Evergreen and Octis and on the significant effort expended on assessment of merger and acquisition opportunities.
The PAC board met on 2 November 2012 after the AGM. Mr McGill’s CEO report included an explanation from Mr McGill about why the deal was taking so long to consummate. First, WIG was not confident it could obtain the consent of Pinnacle’s boutiques to a change of ownership of Pinnacle or deliver Mr Macoun’s minority’s shares. Second, the negotiations were being driven by Mr Darvall, a non-executive director who was not focused on the deal full time. Third, the drafting of heads of agreement was being impeded by the positioning of both parties with respect to the ASX announcements that would have to be made.
On 16 November 2012, PAC forwarded to WIG a further non-binding offer for only a selection of Pinnacle’s boutiques. This offer was designed to work around the relevant two Pinnacle boutiques frustrating the merger and to offer incentives to Mr Macoun to merge.
On 20 November 2012, WIG wrote to PAC rejecting PAC’s 16 November 2012 offer but proposing alternative terms. On 21 November 2012, PAC made a final offer which was to expire at 5pm on 23 November 2012. WIG did not accept PAC’s final offer and it lapsed.
The PAC board met on 12 December 2012. Mr McGill’s CEO report informed the board that the opportunity to acquire Pinnacle appeared to have gone. Mr McGill explained that the primary reasons why the acquisition had gone were that WIG could not obtain the necessary consents from its boutiques and Mr Macoun. Further, with the passage of time there was pressure on that agreement because PAC shares became more valuable, Pinnacle performance diverged from forecasts, some Pinnacle boutiques won additional funds under management and those matters gave both sides scope to argue for a different price.
Mr McGill concluded that if the opportunity arose again in 2013 and before PAC risked further waste of management time and costs, PAC should not get involved unless WIG provided guarantees about its ability to deliver the boutiques it was selling.
So, by the end of 2012, PAC had spent over a year of management time and considerable money on experts in respect of a drawn-out Pinnacle acquisition process only to find that WIG could not convince Pinnacle’s minority shareholders and its boutiques to agree to the acquisition. The ability of Pinnacle’s minority shareholders and its boutiques to frustrate the acquisition meant that an acquisition by PAC of Pinnacle was, at the least, problematic. So, by the end of 2012, PAC had decided not to proceed with its attempt at acquiring Pinnacle.
Now prior to the January 2013 board meeting Mr Fitzpatrick and Mr Skala discussed Pinnacle. As a result, Mr Fitzpatrick asked Mr McGill to revisit Pinnacle.
The PAC board met remotely on 30 January 2013. The board requested a report on Pinnacle if WIG was willing to re-engage on the basis that the sale of Pinnacle would not be conditional on WIG obtaining consents from Pinnacle’s boutiques and management.
The PAC board met on 20 February 2013. Mr McGill’s CEO report informed the directors of recent discussions with WIG. The minutes record that:
Pinnacle - Mr McGill advised that he has not, at this stage, reapproached Wilson HTM (WIG), Pinnacle’s parent company, to ascertain whether it is willing to re-engage in relation to the sale of Pinnacle. WIG released its half yearly results last week and it does not contain a lot of detail about Pinnacle. Mr McGill is looking at different proposals of how to structure a deal between [PAC] and WIG if WIG is interested in recommencing discussions …
At some point in March 2013, Mr Fitzpatrick contacted Mr Skala and said that he thought that WIG and PAC should revisit the discussions which the parties had been conducting during 2012. Mr Fitzpatrick said to Mr Skala that PAC had in mind an options-based purchase model with a price in the order of $48 to $49m. Mr Skala said he would discuss that approach with other WIG board members. Sometime later, Mr Skala told Mr Fitzpatrick that he had discussed the idea of an options based purchase model within WIG, but that WIG was no longer a seller.
Mr McGill’s CEO report for the 27 March 2013 board meeting said that PAC had currently very few prospective new boutique opportunities. He also summarised the course of Fitzpatrick’s recent discussions with Mr Skala to the effect that WIG was no longer interested in selling Pinnacle.
Now at lunch after the 5 June 2013 board meeting, Mr McGill presented a SWOT (i.e. strengths, weaknesses, opportunities and threats) analysis of PAC.
Mr Kennedy’s evidence is that the June 2013 meeting was that year’s meeting to review strategy. He learned from the discussion at the board lunch that despite attempts to diversify with the acquisition of Pinnacle and from some deals that were in the pipeline, not much had been achieved in the previous 12 months. Mr Fitzpatrick or Mr McGill said that the best way to diversify in the short term still remained acquiring Pinnacle.
Mr Kennedy’s recollection is that Mr Fitzpatrick and Mr McGill said that a lot of the problems with Mr Macoun and Pinnacle’s boutiques needing to agree to an acquisition of Pinnacle could be avoided if the acquisition took place at the WIG level rather than the Pinnacle level.
A takeover of WIG would avoid the issues that had arisen in 2012 with obtaining consents from Pinnacle’s boutiques, but it would not deliver 100% of Pinnacle’s shares unless Mr Macoun and the rest of the majority agreed. A takeover would also leave PAC to deal with Pinnacle’s non-boutique businesses.
Mr Kennedy’s recollection is that this was the first time the board contemplated a takeover of WIG itself. Mr Fitzpatrick said that PAC should look at Pinnacle again and perhaps through a takeover of WIG. The board agreed. Mr Fitzpatrick asked Mr McGill to have another look at a deal involving WIG as a way of acquiring Pinnacle.
PAC retained Gresham to advise it about a takeover of WIG. The name of the project was “Project Waltz”.
Mr McGill’s CEO report for the 21 August 2013 board meeting informed the board that management was seeking approval to make a takeover bid for WIG at a price to be approved by the board.
At this meeting, Gresham produced its document entitled “Project Waltz – Board Presentation” which stated a number of matters. Let me identify four matters.
First, if the takeover was successful, WIG’s non-boutique businesses would be sold to a group put together by WIG’s most recent former managing director, Mr Andrew Coppin.
Second, PAC had already made an agreement with Mr Coppin about WIG’s non-boutique businesses.
Third, Mr Coppin had said to Mr McGill that he believed he could deliver acceptances for about 19% of WIG shares and he agreed to use his best endeavours to facilitate PAC’s acquisition of 19.9% of WIG’s shares.
Fourth, Gresham valued WIG shares in the range from $0.45 to $0.65 and recommended that PAC bid $0.37 per WIG share and that PAC build up a 19.9% pre-bid holding in WIG.
According to Mr Kennedy, the board discussed the pros and cons of making a takeover bid. Reference was made to the risk of Mr Coppin not delivering the 19% acceptances resulting in PAC therefore wasting its time and money again or being stuck with WIG’s non-boutique businesses as well as the risk of being caught in a bidding war. He remembers that the positive case for the takeover made in the “Project Waltz” paper was discussed.
The minutes of the meeting relevantly record:
The board noted the Project Waltz report prepared by Gresham Partners that was circulated separately. Mr Graham spoke to the report advising of the opportunity for Treasury Group ([PAC]) to acquire Pinnacle via a takeover of Wilson HTM Investment Group (WIG).
The Board noted that:
•purchasing WIG in its entirety would allow [PAC] to go directly to WIG shareholders and circumvent the WIG Board, use [PAC] scrip in its offer to shareholders, avoid change of control triggers at the Pinnacle boutique level and acquire WIG at an attractive valuation; and
•[PAC] has entered into an agreement with Andrew Coppin under which if [PAC] were to acquire WIG then [PAC] would sell the HTM broking business to Mr Coppin.
The Board discussed the tactics, offer structure, timeline and valuation in detail asking questions of Gresham Partners and the CEO.
IT WAS RESOLVED to move ahead with the Project Waltz proposal with the CEO requested to put together a pre-bid agreement. It was AGREED that the Board would meet at 10.30pm on Sunday 1 September 2013 via teleconference for an update on progress on this matter.
The board anticipated that it would next be updated on 1 September 2013 by Mr McGill concerning the implementation of the above strategy. However, as circumstances quickly evolved, it became necessary for the board to meet by teleconference on 30 August 2013. The minutes record that:
Andrew McGill, CEO addressed the Board regarding strategy for the bid on Wilson HTM Investment Group (WIG) advising that WIG is now trading at 38.5 cents so the bid price discussed at the Board meeting of 21 August 2013 will need to be increased.
The Board discussed the matter and IT WAS RESOLVED that the bid price be increased to $0.42 cents per share and that Treasury Group acquire a minimum of 12% of WIG shares/shareholder support in order to move forward with this deal, with the CEO delegated to hold the necessary discussions with WIG shareholders commencing this afternoon.
Mr McGill commenced canvassing WIG shareholders over the weekend. He spoke on an unsolicited basis with WIG’s smaller shareholders, including some WIG employees. Mr Coppin had told Mr McGill that he was close to that group and several employees were likely to be positively disposed to an approach to sell on the basis that there was frustration within employee shareholders as to the performance of WIG and the share price not reflecting its full value.
Mr McGill had earlier updated the non-executive directors by email on 31 August 2013.
On 1 September 2013 he circulated a table summarising his expectation of the attitude of approximately 25% of WIG shareholders recommended by Mr Coppin to be approached. Mr McGill observed that Mr Coppin did not have the support at WIG that Mr Coppin thought he had because Mr Coppin could not deliver the 15% he said he could. Mr McGill had told the advisers that PAC should pull back.
Shortly after Mr McGill had canvassed key WIG shareholders, word leaked to the market that PAC was on the hunt for WIG shares. On 1 September 2013, WIG’s shares were trading at $0.52 per share. PAC made an ASX announcement on 2 September 2013 which said that PAC held no interest in WIG and was having no further discussions about WIG.
After further canvassing of WIG shareholders, Mr Fitzpatrick and Mr McGill spoke with some members of the WIG board. The WIG share price had materially increased in August and September 2013 to such an extent that the discussions with WIG directors suggested that a bid price per share below $0.80 per share would be unattractive to WIG shareholders.
For PAC, a share price of anything like $0.80 was out of the question, not only because that price was way over Gresham’s value but also because PAC’s appetite for debt did not go that far.
Mr McGill’s CEO report for the 2 October 2013 board meeting informed the non-executive directors that PAC had been unable to achieve the 12% acceptance threshold which the board had set, WIG would not support a bid below $0.80, and the Pinnacle opportunity had probably now gone for PAC as there appeared to be insufficient upside for PAC shareholders at the prices required.
On 2 October 2013, PAC’s annual report was published. The report restated the key elements of PAC’s business strategy, including the expansion and diversification of its investment portfolio. The report noted that, in spite of the investment of significant time and effort throughout the FY13, PAC had not completed any new investments, but noted that PAC was continuing to review several opportunities currently before it.
Let me move forward into 2014.
Shortly prior to the Northern Lights merger resolution being considered by the board on 23 July 2014, Mr Fitzpatrick happened to speak with Mr Macoun at a conference that took place in Noosa.
Mr Fitzpatrick’s discussion with Mr Macoun concerned the parameters of a possible acquisition of Pinnacle by PAC. The substance of their discussion was WIG’s asking price for Pinnacle.
Mr Fitzpatrick had a different perception of the true value of WIG/Pinnacle. Further, he perceived that the problem with securing a deal with Pinnacle was that one could not be certain that if PAC acquired WIG, Pinnacle would come with it. Pinnacle’s managers could buy themselves out of Pinnacle and, immediately, PAC would lose one third of the full value it had paid.
Mr Macoun said that his colleagues wanted to sound out PAC about whether it was interested in having another go at acquiring the Pinnacle business. He said that WIG wanted to sell Pinnacle off for its own commercial reasons. He mooted prices for the Pinnacle shares.
Mr Fitzpatrick said that he would not rule out considering a fresh attempt at acquiring Pinnacle, but that on this occasion Mr Macoun would need to come back to Mr Fitzpatrick to tell him what numbers WIG would be looking at.
Mr Fitzpatrick reported the substance of his discussion with Mr Macoun to Mr McGill by email sent on 17 July 2014.
Several days later Mr Macoun told Mr Fitzpatrick that he had consulted with WIG’s owners and he could not deliver on Pinnacle. He said that the board of WIG had a view about Pinnacle’s value which was significantly in excess of WIG’s current share price.
WIG’s share price on 1 July 2014 was $0.59, on 1 August 2014 it was $0.55 and by 14 August 2014 it was trading at $0.70.
Now Mr Fitzpatrick’s attitude at the time towards Pinnacle was that he would have been pleased if PAC could acquire it on reasonable commercial terms because Pinnacle would have been good for PAC at the right price. It had a property boutique which PAC lacked. It also had a distribution network overseas and it offered positive synergies with PAC’s business.
But his attitude at the time was that PAC’s negotiations with WIG / Pinnacle indicated to him that WIG and Pinnacle were elusive and had an inflated idea of their own worth, added to which were the compounding issues of how to deal with WIG’s non-boutique businesses and Pinnacle’s management's first right of refusal for Pinnacle. Mr Fitzpatrick did not believe in July 2014 that it was in PAC’s interests to acquire WIG / Pinnacle for the numbers they wanted.
Having addressed the relevant evidence, let me now turn to the relevant hypothetical investment options.
Hypothetical acquisition of WIG in October 2013
Now PAC alleges that had PAC not merged with Northern Lights, then PAC would have made a successful takeover of WIG in about October 2013 for $43.5 million, $60.1 million or $82.8 million, being $0.42, $0.60 or $0.80 per share, respectively.
But each of Mr Kennedy, Mr Fitzpatrick, Ms Donnelly and Mr McGill denied those allegations and provided their reasons, which in my view were commercial, clear and cogent.
Mr Kennedy gave six reasons.
First, he said that once PAC made any takeover bid, WIG would be in play, and from his general business experience when the bid is not negotiated in advance with the target, the target seeks out a competing bid or one often occurs. The ultimate price to be paid where there are competing bids is never certain. The PAC and WIG boards were not in agreement. A takeover at that time would have been hostile.
Ms Donnelly made the same point. She said that because WIG had been hostile during the prior 18 months, unless the WIG board, which included Deutsche’s representative, Mr Skala, as its chair and Mr Wilson, supported a takeover, she would not have voted to pursue WIG again.
Second, Mr Kennedy said there was no way that PAC could fund such an acquisition other than with PAC shares which may not have been attractive to WIG shareholders, especially if a competing cash offer emerged.
The evidence was, and I accept, that PAC had difficulty borrowing money because it had no real estate or property it could offer as security. It had minority interests in boutiques. Indeed, access to the US debt market was one attraction of the merger with Northern Lights. Now when it was suggested to Mr Kennedy that PAC could have funded the takeover with cash and PAC shares, he repeated the difficulties PAC had with borrowing and pointed out that using PAC’s cash reserves inhibited PAC’s ability to pay dividends.

Third, Mr Kennedy said the message from the WIG board in August 2013 was that it wanted $0.80 per share. Now leaving to one side that $0.80 per share was significantly in excess of the price advice from Gresham, when considered in the context of almost two years of negotiations, offering $0.42 or $0.60 was a waste of PAC’s time and money. He was challenged in cross-examination about $0.80 per share, but fruitlessly.
Ms Donnelly gave the same evidence about a bid at $0.42 and $0.60 being a waste of PAC shareholders’ money on a bid that was bound to fail.
Fourth, Mr Kennedy said PAC could not get 12% acceptances with a price of $0.42 per WIG share in August 2013 and that was based on PAC having negotiated to dispose of WIG’s non-boutique businesses, in which PAC had no interest, to Mr Coppin.
He said that as far as he was aware, nothing changed between August and October 2013 except that Mr Coppin had proven that his ability to assist in obtaining 20% acceptances had been overstated by him. Mr Kennedy doubted Mr Coppin’s ability to put together a syndicate to acquire WIG’s non-boutique businesses. Mr Kennedy said he would not have voted in favour of a takeover of WIG in October 2013 unless there was a secure mechanism for the disposal of WIG’s non-boutique businesses.
Fifth, Mr Kennedy said an offer at $0.60 had to have a secure mechanism for the disposal of WIG’s non-boutique businesses and had to have everything go well because that price was close to Gresham’s $0.65 per WIG share “best case” valuation, which assumed that all synergies were delivered on time.
He said that he would not have voted in favour of a takeover of WIG in October 2013 at $0.60 per share even with a secure mechanism for the disposal of WIG’s non-boutique businesses because there was too much depending on the merger of the businesses occurring perfectly.
Ms Donnelly gave similar evidence. She said that she would not have voted for a takeover of WIG unless there was a clear way to simultaneously dispose of WIG’s non-boutiques businesses, which were loss-making and which did not gel with PAC’s exiting business. She said she was not aware of any other person who wanted WIG’s non-boutiques businesses at the time.
Sixth, Mr Kennedy said $0.80 was significantly higher than the top of Gresham’s range allowing for synergies (being $0.65). Based on Gresham’s advice, he would not have voted in favour of a resolution to bid $0.80. He said that he might have considered increasing the bid outside of Gresham’s advice if everything was perfectly in order, but the history over two years had shown him that there was no ready way to dispose of WIG’s non-boutique businesses, Mr Macoun would be difficult to deal with in respect of this. Further, there was his staff’s minority interest in Pinnacle. Further, some of the Pinnacle boutiques did not want PAC as their partner.
Now Mr Kennedy was cross-examined about Gresham’s range. It was put to Mr Kennedy that the top of Gresham’s range was $67.3 million and that a bid at $0.80 for WIG equated to $82.8 million, and that the $15 million difference was not material. Mr Kennedy said it was material.
Ms Donnelly gave unchallenged evidence that based on Gresham’s valuation a bid at $0.80 would have been earnings dilutive and she would not have voted in favour of such a bid. Mr McGill made the same point.
Mr Fitzpatrick also made similar points to Mr Kennedy and the other directors.
Further, as Mr McGill said, the demise of the takeover of WIG was independent of the advent of the merger opportunity with Northern Lights.
In my view, on the balance of probabilities PAC would not have acquired WIG in about October 2013 for $43.5 million, $60.1 million or $82.8 million, being $0.42, $0.60 or $0.80 per share, respectively, even if WIG were still keen to receive an offer from PAC around that time; indeed Mr Fitzpatrick recorded in an email in November 2013 that he was being “harassed … by a WIG man”.
Hypothetical acquisition of Pinnacle in July 2014
Let me deal with the next possibility raised by PAC.
PAC alleges that had PAC not merged with Northern Lights, then in about July 2014 PAC would have acquired 100 per cent of the shares in Pinnacle in or about July 2014 for approximately $43 million.
Each of Mr Kennedy, Mr Fitzpatrick, Ms Donnelly, and Mr McGill denied those allegations and provided reasons which again were clear, commercial and compelling.
Mr Kennedy repeated his evidence about October 2013 with respect to July 2014, saying that because of PAC’s 2012 experience with attempting to acquire Pinnacle and its associated problems of dealing with Mr Macoun’s minority shareholding and with obtaining the consents of PAC’s boutiques, he did not think PAC would have bothered trying to acquire 100% of Pinnacle again in 2014.
Mr Kennedy was asked whether he knew of any reason why WIG could not have sold its non-boutique businesses in 2014, to which he answered that those businesses were losing money and he did not know who would want them.
Mr Kennedy was also asked whether he knew of any reason why in 2014 WIG could not have purchased the minority interests in Pinnacle held by Mr Macoun and Pinnacle’s other executives. He said that he did not.
Mr Fitzpatrick said:
The allegation now put by PAC in this proceeding that [PAC] could have acquired 100% of WIG for about $43 million is, with respect, nonsense. There were upwards of 100,000,000 shares issued in WIG in July 2014. At $0.55 per share, this would cost [PAC] upwards of $56 million. Acquiring WIG shareholding on 14 August 2014 would have cost [PAC] approximately $72 million. However, my view at the time was that [PAC] would have had difficulty acquiring WIG for under $100 million. On the basis of my personal involvement with Macoun, Skala and others, I do not believe that there was any way that [PAC] could have acquired WIG for $43 million.
Ms Donnelly made much the same point. Her unchallenged evidence was that after wasting significant sums of money pursuing Pinnacle in 2012 and 2013, she would not have voted to acquire Pinnacle unless the following were first in place. First, PAC had the support of WIG's two largest shareholders. Second, WIG had the consents of both Mr Macoun and other minority shareholders in Pinnacle and of Pinnacle's boutiques.
Further, the contemporaneous evidence suggests that by July 2014 the asking price for Pinnacle was $100 million. Mr Fitzpatrick had a conversation with Mr Macoun and, according to an email in mid July 2014, Mr Macoun said “They want 100, half stock”; this appeared to be $50 million cash and $50 million in PAC shares.
Mr Fitzpatrick later confirmed this in the email when he commented on Pinnacle having expected FY15 revenue of $9 million. He said “[i]f they do 9, 3 of interest on the 50 of debt leaves 6 of earnings over 50 of new shares”.
Mr Fitzpatrick’s email described the $100 million price as “not out of line with the 40 we offered when our shares were 4, but is still high”. Mr Fitzpatrick was clearly referring to the offer made on 14 August 2012, the offer being $44 million and the 20-day VWAP for PAC shares then being $4.39288. Mr Fitzpatrick’s “in line” comment is clearly referring to Mr Macoun’s current proportion of cash to shares being not out of line with the 2012 proportion of cash to PAC shares, not to Pinnacle being for sale at $40 million.
Now the fact that Mr Macoun said the price wanted for Pinnacle was $100 million was not put to Mr Fitzpatrick or Mr McGill. Rather, it was put to each of them that “Mr Macoun was indicating, wasn’t he, that a purchase price could be around $40 million in July 2014”.
In any event, although Mr Macoun may have suggested the $100 million price, he himself told Mr Fitzpatrick that he (Mr Macoun) could not deliver on it.
The non-executive directors’ and Mr McGill’s evidence should be accepted. The non-boutique businesses were making losses, so WIG’s share price was a proxy for Pinnacle’s share price.
In October 2013 WIG had indicated that it wanted about $0.80 a WIG share, or $82.8 million. There was no prospect that 9 months later in July 2014 the owners of Pinnacle, which included a sizeable minority led by Mr Macoun, would have accepted $43 million.
Further, unless Mr Macoun was satisfied about his employment and other matters, and unless all of Pinnacle’s boutiques agreed in advance, the non-executive directors were right to believe another bid was likely to be fruitless as not to warrant wasting time and money in making the bid.
Further, I can be more confident in accepting the non-executive directors’ and Mr McGill’s evidence because PAC called no evidence of its own concerning the market price of Pinnacle which WIG and Mr Macoun were willing to accept.
Finally, in an email from Mr Fitzpatrick to Mr McGill dated 17 July 2014 it was stated:
Spoke to Ian. They are slowly moving to a deal with an international party which will give them overseas distribution, and I think a partial or total exit from WIG. Wanted to have one more go at dealing with us, for scale and fit. WIG are apparently close to deal on the broker, but for some reason it stays in WIG (tax losses)? So they want to sell Pinnacle…
…
Price is not out of line with the 40 we offered when our shares were 4, but is still high.
…
In his evidence Mr Fitzpatrick said that the acquisition of Pinnacle in July 2014 was a “super long shot” but if Northern Lights had walked PAC might have tried again.
October 2015 — the proceeds of the sale of RARE
The third scenario pleaded by PAC is that had PAC not merged with Northern Lights, then in about late 2015 PAC would have acquired and continued to hold an investment or investments in seven specific companies listed on the ASX which were comparable to PAC. The relevant investments, so it is said, were to be made with the proceeds of the sale of PAC’s interest in RARE.
Now in my view, on the evidence it is well apparent that the feature that distinguished PAC from other listed companies was that it bought and held minority interests in boutiques which were not listed and did not have any other major business activity. In my view PAC would not have changed its course to become a company that invested in other ASX listed companies. But I do accept that given the possible sale of RARE, PAC was conscious of not becoming a “cash box”.
Summary
In my view, none of the hypothetical investment options posited by PAC have been established on the balance of probabilities or even as a loss of a chance in the “no transaction” scenario. In summary, the evidence from the directors was consistent with the proposition that the alternative investments suggested by PAC would not have been made.
Further, all of this fortifies what I have said earlier as to PAC’s “no transaction” scenario. There were few if any alternatives open to PAC other than the merger.
Sections 1317S and 1318 potential application
Given my other findings, it is only necessary to deal with Mr McGill on this aspect.
Mr McGill says that he should be excused under ss 1317S and 1318 having regard to the circumstances of the case.
In considering whether to exercise my discretion to relieve a wrongdoer from liability, I should consider not only subjective honesty but also the degree to which the relevant conduct fell short of the required standard, the seriousness of the contravention and its actual or potential consequences, any element of impropriety such as deception and personal gain and any contrition of the wrongdoer. The need for general deterrence is also relevant.
Now PAC does not contend that Mr McGill acted dishonestly. But it is said that he is a sophisticated individual, who occupied an important position on the board of a publicly listed company, and so shareholders were entitled to expect that he would exercise his duties with appropriate care and diligence in respect of a transaction of this significance.
PAC contends that Mr McGill’s conduct fell significantly short of the requisite standard. It is said that his failure exposed PAC and its shareholders to significant risk of commercial harm, including by agreeing to the merger without proper consideration of the concerns surrounding whether WHV would make or was required to make a distribution.
In the circumstances, PAC says that Mr McGill should not be excused for his contraventions of the Act.
Now it is appropriate at this stage to defer my consideration of this question until after the parties have had an opportunity to consider these reasons. It may be that further evidence may be sought to be adduced on this question. And at the least more focused submissions can be made in the light of my specific findings.
Conclusion
For all these reasons, PAC’s case against all of the non-executive directors including Mr Fitzpatrick will be dismissed.
As I say, I have found against Mr McGill on the WHV question. I will hear further from the parties concerning the position of Mr McGill and the future conduct of these proceedings including on the cross-claim, any proportionate liability defence, outstanding questions of causation, loss and damage and any application that Mr McGill be excused from liability.

I certify that the preceding two thousand, four hundred and fifty-five (2455) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Beach.
Associate:
Dated: 18 December 2024
SCHEDULE OF PARTIES

VID 116 of 2020

Respondents

Fourth Respondent
MELDA KAY DONNELLY

Fifth Respondent
REUBERT EDWARD HAYES

File number:	VID 116 of 2020
Judgment of:	BEACH J
Date of judgment:	18 December 2024
Catchwords:	CORPORATIONS — merger of assets between Australian company and US company – Australian and US funds management boutiques – creation of unit trust – whether proper due diligence carried out by directors of Australian company – whether proper asset valuations undertaken – necessity for shareholders’ approval – whether disposal of main undertaking – listing rule 11.2 of ASX listing rules – whether merger transaction in breach of the Australian company’s constitution – whether transaction ultra-vires – nature of interest in the WHV dividend and appreciation rights agreement – whether proper due diligence carried out concerning the WHV agreement – duties of chief executive officer – duties of chairman of the board – duties of non-executive directors – whether breaches of s 180(1) of the Corporations Act 2001 (Cth) – business judgment rule – questions of causation
Legislation:	Corporations Act 2001 (Cth) ss 180, 185, 189, 191, 195, 236, 237, 674, 1041, 1317H, 1317S, 1318
Cases cited:	Agricultural Land Management Ltd v Jackson (No 2) (2014) 48 WAR 1 Australian Securities and Investments Commission v Avestra Asset Management Ltd (in liq) (2017) 348 ALR 525 Australian Securities and Investments Commission v Cassimatis (No 8) (2016) 336 ALR 209 Australian Securities and Investments Commission v Fortescue Metals Group Ltd (2011) 190 FCR 364 Australian Securities and Investments Commission v Lindberg (2012) 91 ACSR 640 Australian Securities and Investments Commission v Mariner Corporation Ltd (2015) 241 FCR 502 Australian Securities and Investments Commission v Mitchell (No 2) (2020) 382 ALR 425 Australian Securities and Investments Commission v Rich (2009) 75 ACSR 1 Australian Securities Commission v Cracow Resources Ltd, unreported, NSWSC, 12 August 1993 BC9305041 Aveo Group Ltd v State Street Australia Ltd [2015] FCA 1019 AWA Ltd v Daniels (t/as Deloitte Haskins & Sells) (1992) 7 ACSR 759 Bishopsgate Investment Management Ltd (in liq) v Maxwell (No 2) [1994] All ER 261 BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 Cassimatis v Australian Securities and Investments Commission (2020) 275 FCR 533 Daniels (formerly practising as Deloitte Haskins & Sells) v Anderson (1995) 37 NSWLR 438 Donaldson v Natural Springs Australia Ltd [2015] FCA 498 DSHE Holdings Ltd (Receivers and Managers) (in liq) v Potts (2022) 163 ACSR 23 Expectation Pty Ltd v Pinnacle VRB Ltd [2001] WASC 144 Hancock v Rinehart [2015] NSWSC 646 Hillig v Darkinjung Pty Ltd (2006) 57 ACSR 733 Jones v Dunkel (1959) 101 CLR 298 Re International Vending Machines Pty Ltd and the Companies Act [1962] NSWR 1408 TPT Patrol Pty Ltd v Myer Holdings Ltd (2019) 293 FCR 29 Woolworths Ltd v Kelly (1991) 22 NSWLR 189 Zytan Nominees Pty Ltd v Laverton Gold NL (1988) 1 WAR 227
Division:	General Division
Registry:	Victoria
National Practice Area:	Commercial and Corporations
Sub-area:	Corporations and Corporate Insolvency
Number of paragraphs:	2455
Date of hearing:	6 to 10, 13 to 16, 20 to 24, 28 February 2023, 1 to 3, 6 to 7 March 2023, 27 July 2023, 25 to 27, 30 to 31 October 2023
Counsel for the Applicant:	Mr I Waller KC (until 27 July 2023), Ms R. Doyle SC (after 27 July 2023), Mr P Annabell, Mr A Cameron and Ms S Hogan
Solicitor for the Applicant:	Keypoint Law
Counsel for the 1^st, 3^rd, 4^th, and 5^th Respondents:	Mr P Santamaria KC and Mr R Peters
Solicitor for the 1^st, 3^rd, 4^th, and 5^th Respondents:	Colin Biggers & Paisley
Counsel for the 2^nd Respondent:	Mr C Caleo KC and Mr N Walter
Solicitor for the 2^nd Respondent:	SBA Law
Counsel for Pacific Current Group Limited (current management — confidentiality only)	Mr P Solomon KC and Ms A Martyn
Solicitor for Pacific Current Group Limited (current management — confidentiality only)	Herbert Smith Freehills

ORDER MADE BY:	BEACH J
DATE OF ORDER:	18 DECEMBER 2024

Impairments (AUD)
*Boutique*	*Period to 30.6.15*	*Year to 30.6.16*	*Year to 30.6.17*
Nereus	8,878,967	11,212,884	7,647,988
WHV	16,806,616
Raven	9,659,917	417,705
Alpha	3,030,325
TAMRO	1,713,430
Seizert	85,307,202	15,860,138
Aether	51,318,027
Blackcrane	3,699,459
Goodhart	14,564
NL Alternative	368,815	2,404,122
Annual Total	25,685,583	111,292,573	81,362,003
Total to 30 June 2017	218,340,159

VID 116 of 2020
Respondents
Fourth Respondent	MELDA KAY DONNELLY
Fifth Respondent	REUBERT EDWARD HAYES