Phoenix Eagle Company Pty Ltd v Ardrey [No 3]
[2019] WASC 437
•29 NOVEMBER 2019
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CIVIL
CITATION: PHOENIX EAGLE COMPANY PTY LTD -v- ARDREY [No 3] [2019] WASC 437
CORAM: KENNETH MARTIN J
HEARD: 14 OCTOBER 2019 AND BY DEFENDANT'S WRITTEN SUBMISSIONS OF 14, 24 AND 27 OCTOBER 2019
DELIVERED : 29 NOVEMBER 2019
FILE NO/S: CIV 3072 of 2011
BETWEEN: PHOENIX EAGLE COMPANY PTY LTD
Plaintiff
AND
WILLIAM JAMES ARDREY
Defendant
Catchwords:
Corporations - Assessment of damages trial - Fraud and breach of fiduciary duty established by consent judgment - Part payment - Assessment of drawings hearing on affidavit evidence - Defendant self represented and partial attendance by telephone link from Canada - Start up corporation - Wound healing developmental product - Plans to market to Big Phama by licence agreements - Causation and qualification of damage of plaintiff proven - Paw paw extract - Directors' duties - Breaches - Violation of duties of honesty and fidelity - Equitable compensation - Compound interest awarded with monthly rests
Legislation:
Corporations Act 2001 (Cth)
Rules of the Supreme Court 1971 (WA)
Result:
Damages assessed
Category: B
Representation:
Counsel:
| Plaintiff | : | Mr P Ward |
| Defendant | : | In person (by telephone for part) |
Solicitors:
| Plaintiff | : | Williams + Hughes |
| Defendant | : | In person |
Case(s) referred to in decision(s):
Ardrey v State of Western Australia [2016] WASCA 154
Bennett v State of Western Australia [2012] WASCA 70
Hadley v Baxendale [1854] EWHC J70
Hollington v F Hewthorn [1943] KB 587
Hungerfords v Walker [1989] HCA 8; (1989) 171 CLR 125
Mickelberg v Director of Perth Mint (1986) WAR 365
Phoenix Eagle Company Pty Ltd v Ardrey [No 2] [2016] WASC 417
Phoenix Eagle Company Pty Ltd v Tom McArthur Pty Ltd [2017] WASC 130
Westpac Banking Corporation v Bell Group Ltd (in liq) [No 3] [2012] WASCA 157; (2012) 44 WAR 1
KENNETH MARTIN J:
This is an assessment of damages exercise by a contested trial as to the quantum of damages suffered by the plaintiff, conducted on affidavit evidence.
The action was commenced by writ of summons issued on 31 October 2011. After a period of hibernation while crime related proceedings unfolded concerning the defendant (Dr Ardrey), it reawakened in August 2015. That was when the plaintiff, Phoenix Eagle (PE), made an application for freezing orders against Dr Ardrey - and which I ultimately issued on 6 August 2015. I have case managed the civil action since then in the CMC List. Some history of the dispute can be found related within my earlier reasons in Phoenix Eagle Company Pty Ltd v Ardrey [No 2] [2016] WASC 417 (Phoenix Eagle [No 2]).
Background - Dr Ardrey's fraud charges
In 2015, Dr Ardrey, a former director of PE, was tried and found guilty by a jury on multiple fraud charges relating to conduct committed against PE in the District Court of Western Australia. In 2016, the Court of Appeal set aside the convictions and ordered a retrial: see Ardrey v State of Western Australia [2016] WASCA 154.
After my reasons in Phoenix Eagle [No 2] were published in December 2016, there followed a subsequent retrial of Dr Ardrey conducted again in the District Court of Western Australia, where on 22 June 2017 he was convicted again of 18 counts of fraud. On 21 December 2017 Dr Ardrey was sentenced to 4 years imprisonment by Sweeney DCJ. However, Dr Ardrey has appealed his reconvictions. That appeal (being CACR 96 of 2018) was argued over 22 March and 1 April 2019 before the Court of Appeal of Western Australia and at the time of the publication of these reasons, a decision by the Court of Appeal is pending.
Loosely described, the criminal charges upon which Dr Ardrey was convicted concerned his conduct while a director of PE, relating to causing bogus invoices to be issued by Franklin Chen (Dr Ardrey's then brother‑in-law) and as well to an entity, Silicon Valley Pharmaceutical Partners (SVPP), to PE claiming large amounts of money for services to PE over the period between January 2006 to October 2006 ('the fraud charges'). PE paid out on these bogus invoices with the funds mostly remitted to the claimants in the USA. However, it was proven that remitted PE money paid out was eventually channelled back to the benefit of Dr Ardrey in Australia.
PE's claims
Intersection with fraud charges
The fraud charges, which were all counts on the indictment put against Dr Ardrey, are closely aligned factually to civil pleas seen in PE's present amended statement of claim (ASOC) of 20 July 2016, under pars 22 - 40. They are the subject of a culminating plea at par 41 of the ASOC, in terms:
In respect of each of the payments pleaded in paragraphs 22 to 40 above, the funds paid by the plaintiff were substantially or entirely paid by the recipients of those payments to the plaintiff in furtherance of his fraud and breaches of his duties as a director, as pleaded herein.
An exception to the broad observations above is the plea made under the ASOC par 22, concerning an amount of $8,665.94, the subject of an invoice issued by Franklin Chen to PE for work done in assisting the preparation of a so-called licensing package for PE, which amount was paid by PE by bank transfer to meet Mr Chen's invoice on 1 February 2006. The contention made under par 22 (as indeed is similarly made in respect of pars 23 ‑ 40) is that:
But for the defendant's fraud and breach of duties to the plaintiff as set out above, the plaintiff would not have incurred that expense.
I was advised by counsel that, at his criminal retrial, Dr Ardrey was convicted in respect of counts aligning to the subject matter of the civil claims under pars 23 - 40 of the ASOC. However, I was also told Dr Ardrey was not convicted in respect of the abovementioned payment to Mr Chen, the subject of par 22. Nevertheless that amount is claimed by PE as part of its damages within this trial.
It can be seen, therefore, that the present civil proceedings intersect and overlap, to a substantial extent, with the fraud trial and the criminal charges against Dr Ardrey.
Further loss and damage claimed
However, the scope of the present civil action extends beyond PE merely claiming the loss and damage sustained by it in reference to the repercussions of the actions of Dr Ardrey, the subject of the fraud charges or breaches of Dr Ardrey's fiduciary duties owed by him as a director to PE by reason of his (backdated) appointment to the board of PE in late 2005. Within these reasons I will at times globally refer to all of PE's civil causes of action against Dr Ardrey as his 'Misconduct'.
Under par 5 of its ASOC, PE pleads that Dr Ardrey owed orthodox directors fiduciary duties or the related statutory duties to it, either on and from November 2005 or, alternatively, 15 January 2006, pursuant to the Corporations Act 2001 (Cth).
At the outset, I need to explain that the present assessment of damages hearing pursues not merely a claim to recoup as damages PE's wasted consultancy fees that PE says it would not otherwise have paid out and lost but for the Misconduct (ASOC pars 22 - 40). But certain further aspects of claimed financial loss and damage by PE are identified and claimed as well under its ASOC.
Categories of loss and damage
In short summary, the claimed loss and damage as is now sought to be recovered by PE against Dr Ardrey falls into the following nine (9) categories. First, are the ASOC pars 23 - 40 claimed losses seeking to recover as damages from Dr Ardrey the amounts of the consultant invoices which, apart from the $8,665.94 the subject of par 22 of the ASOC aggregate to $394,759.38. Beyond that, however, there are the further categories of loss.
Secondly, are the PE claims to recover back from Dr Ardrey as the amounts of the quarterly director's fees paid out by PE over time to him, together with PAYG tax instalments paid by PE to the Australian Taxation Office (ATO) thereon, in respect of Dr Ardrey's agreed director's remuneration of $40,000 per annum. The amount is claimed back as loss and damage by PE under par 14A of its ASOC by which PE says (and which I accept as almost self‑evident) that PE would otherwise never have paid, but for Dr Ardrey's Misconduct, amounting to $46,666.00. (The additional 67 cents claimed under the ASOC was not pressed by PE at trial - see ts 469.)
The third category of loss claimed by PE is pursuant to par 17A of its ASOC. This is in respect of further advisory fees paid directly to Dr Ardrey by PE, as remuneration for his 'work' as secretary of PE's then medical and scientific advisory committee. That internal PE appointment had seen Dr Ardrey paid by PE the additional stipend of a further $30,000 per annum on top of his base level director's fees. Again, the plea is, but for Dr Ardrey's Misconduct, that he would never have been so engaged or appointed and so, such expenses would not have been incurred by PE. Again, I accept that proposition as almost self‑evident. To that end, together with a claim in respect of more PAYG tax paid out by PE to the ATO in respect of these advisory fees, there is a claim against Dr Ardrey for $25,000 the subject of par 17A of the ASOC.
The fourth further category of loss is seen as the subject of par 18A of the ASOC. It is a related loss to the earlier mentioned director's fees and advisory fees. It is claimed by PE on the basis that compulsory statutory superannuation contribution amounts were paid on behalf of PE and thereby lost by it, in respect of the director's fees and committee stipend amounts over the period between 26 June and 1 November 2006. To that end, PE claims back these sums as loss and damage from Dr Ardrey, being $4,875 outlaid as the statutory superannuation contribution expense PE says it lost and which it would not otherwise have incurred, once again but for Dr Ardrey's Misconduct. Again I would accept that causation of loss submission as almost self‑evident.
The fifth category of PE's claimed financial loss is seen as the subject of pleas under pars 42 and 44 - 49 of the ASOC. These claims are advanced by PE on the basis it asserts Dr Ardrey submitted a number of work related expense claims to PE for reimbursement sums over time, whilst a director of PE, in the period between January 2006 and June 2006. These were a series of expense claims by Dr Ardrey including for travel, hotel, airfare, taxi and other per diem amounts which were all claimed and reimbursed back to Dr Ardrey by PE in that period. Again PE pleads that but for the Misconduct of Dr Ardrey, that he would never have been engaged by PE as a director, or to provide any advice to it, or then to ever be able to incur any reimbursable expenses on PE's behalf, either personally, or to third parties. All mentioned amounts received by Dr Ardrey are claimed back by PE as its loss. I list these claims severally below:
(i)par 42 ASOC - $667.61 reimbursed to Dr Ardrey by the plaintiff on or about 27 January 2006;
(ii)par 44 ASOC - $1,171.51 reimbursed to Dr Ardrey on or about 6 February 2006;
(iii)par 45 ASOC - $2,127.59 reimbursed to Dr Ardrey by PE on or about 28 February 2006;
(iv)par 46 ASOC - $1,810.20 reimbursed to Dr Ardrey by PE on or about 21 March 2006;
(v)par 47 ASOC - $7,081.15 reimbursed to Dr Ardrey by PE on or about 20 June 2006;
(vi)par 48 ASOC - $2,071.01 reimbursed to Dr Ardrey by PE on or about 25 June 2006; and
(vii)par 49 ASOC - $776.46 reimbursed to Dr Ardrey by PE on or about 4 July 2006.
As I will explain in the reasons to follow, I am completely satisfied that, upon what is the essentially uncontested evidence of PE adduced at the present trial, all those reimbursement amounts it claims back as financial loss in respect of reimbursement amounts paid out to Dr Ardrey or payments made on his behalf or to him as fees or payments, are PE's financial loss. They were losses caused directly by Dr Ardrey's Misconduct and should be reimbursed as damages to PE.
Such amounts should also bear an award of interest (calculated from the time(s) of each sum outlaid by PE) to additionally compensate PE for the loss of the money from then. The award of interest should be at a commercial rate basis by reference to PE's out of pocket loss and then, compounded on the basis of monthly rests, as I explain later.
Next, there are three somewhat conceptually distinct further categories of loss in respect of which compensatory damages are also sought by PE, which I briefly outline.
Sixthly, under pars 54 and 55 of the ASOC, PE seeks damages by way of a reimbursement of the consultancy fee invoiced payments which were paid out by it to Mr Michael Hillmeyer, a USA‑based consultant that Dr Ardrey caused to be engaged by PE. Mr Hillmeyer was engaged to assist PE in preparation of its proposed licensing package for PE's developmental paw paw derived wound healing product that it was seeking to interest USA pharmaceutical companies in acquiring under a (profitable to PE) licensing agreement hopefully entered with PE - none of which ever came to fruition. Unlike the earlier USA‑based consultants mentioned, Mr Hillmeyer was a genuine expert. Subsequently he (Mr Hillmeyer) issued PE with a series of invoices, the subject of ASOC pars 54 and 55. The amounts sought in the invoices were $4,406.37, paid out by PE on 22 February 2006 (par 54 ASOC), and (globally across multiple invoices) $20,973.84, on 5 July 2006 (par 55).
But as mentioned, in strong contradistinction to the fees paid out to the bogus consultants the subject of the pleas under pars 22 - 40 of the ASOC (and the subject of the fraud charges), the amounts paid out by PE to meet Mr Hillmeyer's invoices, did not wend their way back 'into the pocket' of Dr Ardrey. Mr Hillmeyer was a genuine consultant. There was an issue raised over whether or not Mr Hillmeyer had provided valuable services to PE as the subject of those invoices, which PE does not accept. But it is important to note that the basis of PE's claim for recoupment of lost sums as damages against Dr Ardrey is that, but for Dr Ardrey's Misconduct and his breach of duties, PE would not have incurred that outgoing. In the end I am not persuaded on that issue by PE and I will have more to say about this claim in a later part of these reasons.
Seventhly, via pars 56 and 57 of its ASOC, PE seeks as compensatory damages from Dr Ardrey, the amounts it paid over to American and Australian law firms and to investigators that it engaged, essentially to gather information about Dr Ardrey's activities, at a time when the directors of PE (particularly its managing director, Mr Richardson) had become suspicious about Dr Ardrey's conduct and overseas activities, and later, when PE was trying to track down precisely where its money had gone and the full extent of Dr Ardrey's fraud as regards the bogus invoices to overseas persons that PE had paid at Dr Ardrey's instigation.
To that enquiry and recovery end, PE had engaged an American law firm Fox Rothschild LLP (Limited Liability Partnership) to pursue those ends. PE incurred expense in engaging those services and claims those sums paid out as damages attributable to Dr Ardrey.
ASOC pleas as seen under par 56(a) contend Fox Rothschild LLP was engaged by PE
... to provide legal advice and associated legal services to [PE] with regard to investigating the pleaded payments by [PE] which were made to persons or bank accounts associated with the United States ...
As regards Fox Rothschild LLP, recovery from Dr Ardrey as damages is essentially sought in respect of the outgoing payments by PE for Fox Rothschild's invoices rendered to it across a period of 5 August 2007 to 4 March 2015, in the aggregate amount (converted to Australian dollars) of $66,006.82.
Locally, in Australia, PE engaged a national law firm now known as Ashurst Australia, previously known as Blake Dawson and, before that, Blake Dawson Waldron.
In respect of Ashurst's fees paid by PE and claimed back as damages from Dr Ardrey, the ASOC plea under par 56(b) is to the effect that Ashurst was engaged
... to provide legal advice and associated legal services to [PE] with regard to [Dr Ardrey's] fraud and breach of duty as they concerned Western Australia and the laws of Western Australia, including reporting details of [Dr Ardrey's] fraud to the Western Australian Police and assisting the Police and the Western Australian Department of Public Prosecutions to conduct their own investigations and prepare and prosecute criminal proceedings against the defendant for fraud.
Particulars to ASOC par 56 seek as damages from Dr Ardrey a reimbursement of the Ashurst invoices PE met as rendered by Ashurst from time to time across the period 29 January 2007 to 30 April 2015, in the aggregate amount of $99,502.61.
Eighth, beyond all those Fox Rothschild LLP and Ashurst invoice amounts, is a further claim in respect of another invoice issued by Fox Rothschild LLP in respect of expenses incurred by it in responding to queries submitted to it by the Office of the Director of Public Prosecutions of Western Australia (ODPP). This amounted to $10,500, but which the ODPP ultimately declined to pay, and so towards which PE believed that it was obligated to meet and did ultimately meet (particulars to par 56 ASOC).
Ninthly, there are the three further invoice amounts respectively paid out by PE to JB Silverstein in the amount $4,055.93, to PharmaVentures in the amount of $3,024.00, and to McCloskey & Associates in the amount of $4,400.66. Damages are sought against Dr Ardrey by way of reimbursement for those incurred outgoings by PE in respect of paid invoices.
Consent orders of 24 July 2017
I shall return to discuss all those categories of damages claims by PE against Dr Ardrey in due course.
For orientation purposes, however, it is necessary to see the terms of the consent orders which I issued by way of declarations and judgment for damages to be assessed and the part payment orders made against Dr Ardrey, in this court on 24 July 2017. The court had received a submitted signed minute of consent orders in such terms from the parties requesting these orders be made shortly after Dr Ardrey's reconviction in the District Court of Western Australia. Before making such consent orders I took the precaution (see Rules of the Supreme Court 1971 (WA) O 42 r 8) of conducting a live video‑link hearing to see and hear Dr Ardrey in person (then incarcerated at Hakea prison) about these orders, and to confirm for myself that as a self‑represented defendant litigant he was then freely and genuinely agreeing to such orders and declarations then being made. He was and I was.
As regards consent declarations, I was also then satisfied, as case manager of the action, after having conducted regular CMC List directions hearings since August 2015, many in the context of the freezing orders I had issued and had then revised from time to time (and addressing various other interlocutory issues), that the consent declarations and judgment orders as were then sought were juridically appropriate (see ts 416 - 419, 24 July 2017). On that premise the consent declarations and judgment orders were then issued in the following terms:
UPON RECEIPT of the memorandum of consent orders, signed by the defendant on 10 July 2017, and UPON HEARING Mr P Ward of counsel for the Plaintiff and the Defendant by video link on his own behalf, IT IS NOW DECLARED AND ORDERED that:
1.The Court declares that the Appointment Agreement made between the Plaintiff and the Defendant on or about 20 January 2005, in terms set out at paragraph 12(c) of the Plaintiff's amended statement of claim dated 20 July 2016, is void ab initio.
2.The 6 ordinary shares in the Plaintiff which were issued to the Defendant on or about 8 March 2006 pursuant to the Appointment Agreement referred to in paragraph 1 above are forfeited.
3.The Plaintiff is to have judgment for, and the Defendant is hereby ordered to pay the Plaintiff forthwith towards a partial satisfaction of the Plaintiff's damages to be assessed against the Defendant under paragraph 4 of these orders, the sum of $394,759.38, being the sum of amounts claimed under paragraphs 23 - 41 inclusive of the Plaintiff's amended statement of claim dated 20 July 2016.
4.Further, judgment is hereby entered for the Plaintiff against the Defendant for damages to be assessed, including (without limiting the heads of damages to be assessed) for the Plaintiff's claim for interest on amounts the subject of order 3 above.
5.The Defendant is to pay the Plaintiff's costs of this action, including reserved costs, to be taxed on an indemnity basis if not agreed.
6.Upon the Plaintiff providing the Court with a Request for Payment out of Court with the trust account details of the Plaintiff's solicitors, the Principal Registrar is hereby authorised to pay the sum of $394,759.38 to the Plaintiff out of the funds held by the Court.
Subsequent developments to July 2017
After the abovementioned consent declarations and orders for judgment and a part payment to PE under order 6 of the 24 July 2017 orders was received, further case management directions issued from time to time. Directions were made with a view to programming and conducting the envisaged assessment of damages hearing (see order 4 of the 24 July 2017 orders), albeit in circumstances that could align with Dr Ardrey's availability and, in particular, his commitments to pursuing another appeal against his reconviction. As noted, that appeal was heard before the Court of Appeal (Buss P, Mazza and Pritchard JJA) on 22 March and 1 April 2019.
For the entirety of this subsequent period, including for the hearing of the assessment of damages on 14 October 2019, Dr Ardrey has been self represented.
From July 2017 (when he was reconvicted, then resentenced in December 2017 to 4 years imprisonment) Dr Ardrey was incarcerated in Western Australia. That was until he was granted parole in March 2018 (see ts 421, 21 August 2018). Following his parole, it would appear Dr Ardrey was deported from Australia by the Commonwealth. He currently resides in Canada.
A number of directions hearings were then conducted by audio‑link with Dr Ardrey participating from Canada, since 21 August 2018. Dr Ardrey has also been in regular email contact with the court during this period. He provided, in accord with my orders, a physical address in Canada at which hard copy court documents could be served upon him.
Although there have been a series of directions hearings since August 2018, I only refer to the following significant case management events leading up to an ultimate convening of the present assessment of damages trial hearing. I further observe that across all this period the freezing orders of August 2015 (as varied) have remained in force and have not yet been discharged.
Directions hearings prior to assessment of damages hearing
21 August 2018
On 21 August 2018, with PE represented by Mr Ward of counsel and Dr Ardrey appearing over an audio-link on his own behalf from Canada, I issued a number of directions, including a refusal of Dr Ardrey's application for a stay in these civil proceedings (order 1 of the 21 August 2018 orders).
I also issued orders permitting service of further documents upon Dr Ardrey outside of Australia by email to his gmail email address, or by ordinary post to an address in Vancouver, British Columbia.
I also ordered that for the purposes of the unresolved assessment of damages issues:
6.The plaintiff is to file and serve affidavit evidence as to the quantum of the plaintiff's claims against the defendant in respect of which judgment has been entered for damages to be assessed by 28 September 2018.
7.[Dr Ardrey] is to file and serve any responsive affidavit evidence by 26 October 2018.
9 October 2018
On 9 October 2018 there was a further directions hearing. PE was again represented by Mr Ward of counsel. Dr Ardrey participated in person by audio-link (again from Canada). On this occasion I made some variations to the 21 August 2018 orders, extending time for PE to file and serve affidavit evidence on the quantum of its damages claims, out to Tuesday, 9 October 2018. Correspondingly, the time for Dr Ardrey to file and serve his responsive materials was extended to 15 November 2018.
28 November 2018
At a further directions hearing on 28 November 2018 PE was represented by Mr Ward of counsel. Again, Dr Ardrey participated by an audio‑link from Canada. I made some directions concerning a need for Dr Ardrey to state a complete address for service of hard copy documents by no later than 10.00 pm (AWST) the following day. That order was issued in light of difficulties which had been encountered in effecting service of hard copy documents on Dr Ardrey at a previously given address in Canada.
I also issued directions concerning the re‑service of Dr Ardrey by international courier of materials already served by PE, by no later than 1 December 2018.
By order 3 of the 28 November 2018 orders, I again varied the time for Dr Ardrey to file any responsive affidavit evidence that he wished to submit and rely upon in the assessment of damages hearing, to 16 January 2019. I had extended that time limit in light of expressed difficulties related to PE effecting service upon Dr Ardrey in Canada of hard copy materials.
Allied to that direction, I also ordered:
4.If [Dr Ardrey] does not file any responsive affidavit evidence in accordance with order 3, [Dr Ardrey] will not, in the absence of exceptional circumstances warranting review of this order, be permitted to rely on any affidavit evidence on assessment of the plaintiff's claim for damages at trial.
Further events prior to the assessment of damages hearing
At a point after January 2019, PE's lawyers requested trial dates for the assessment of damages hearing. Initially, I fixed three hearing days, at between 16 and 18 September 2019. However, correspondence received from Dr Ardrey then indicated more than the three days would be required, given a large number of witnesses asserted that he proposed to call in his foreshadowed resistance to the PE assessment of damages arguments. Given consequential availability issues of counsel for PE, I reluctantly vacated those September 2019 dates and I refixed the assessment hearing for five days (implicitly rejecting Dr Ardrey's request for an even longer period of trial days) for between 14 - 18 October 2019. Notification of those October 2019 trial dates issued to the parties on 15 March 2019.
After that, there was no substantive interlocutory activity in the matter from between January 2019 to early October 2019 - as the time for trial of the assessment of damages loomed closer.
Material before the court for the assessment of damages hearing
At this point, I must interrupt the procedural history narrative concerning this action to record a list of the affidavit evidence which was filed to be relied upon by PE and then by Dr Ardrey.
Affidavits of PE
PE relied upon an affidavit of its managing director, Mr Mark Richardson sworn 8 October 2018 (Mr Richardson's 2018 October affidavit). Mr Richardson's October affidavit extends over 476 pages, comprising annexure attachments MR1 through MR25. Much of that affidavit contains the invoice materials as were received by PE, receipts or bank payment statements as obtained from PE's ANZ bank account evidencing PE's payment of all Dr Ardrey's director's fees and claimed expenses. The materials also verify the payments by PE of all the independent consultant invoices as received. The attachments include copies of each of the invoices as rendered to PE by Ashurst, Fox Rothschild LLP, or the other independent consultants in respect of which PE outlaid its funds to meet those expenses or invoices - and which it now seeks to claim back from Dr Ardrey as its loss and damages.
Mr Richardson's October 2018 affidavit contained materials relied upon by PE in support of its claim for an award of compound interest on its damages assessed at monthly rests in respect of all outlays from the time they were paid. A claim for compound interest is pursued on a basis that Dr Ardrey's Misconduct warrants orders for compound interest with monthly rests, obtainable either at common law, or in equity. Given Dr Ardrey's admitted breach of fiduciary duty contentions constituting his Misconduct, it is argued that PE was by reason of that Misconduct forced, in effect, to borrow more funds but under adverse economic circumstances where, but for Dr Ardrey's Misconduct, PE would not have needed to borrow, or borrow on adverse terms. Such borrowing by PE was in circumstances where PE needed to pay a higher than market rate of interest to obtain the extra funds it needed as a result of the adverse position PE found itself due to Dr Ardrey's Misconduct.
Further to that, PE's circumstances, essentially, were as a 'start-up' corporate vehicle seeking to develop and market a medicinal scientific patent as a corporate opportunity and to then license a 'paw paw' derived product to large multi-national pharmaceutical corporations. That corporate objective was, of course, something fully known to Dr Ardrey when he joined PE as a director. He also knew from his first contact with PE that it only had limited start up capital. Dr Ardrey consequently knew or should have known that in the event of PE's limited capital being lost by being wrongly diverted away, or quashed by reason of Dr Ardrey's Misconduct (or, alternatively, needing to be outlaid in order to unravel, track down or prosecute Dr Ardrey's Misconduct by the incurring of legal expenses both in Australia and overseas), that PE would suffer foreseeable loss. That merits a compound interest award, says PE.
Mr Richardson's October 2018 affidavit provides evidence of the available commercial interest terms upon which some of its sympathetic shareholders were prepared to advance the extra funds needed by PE, on a basis of interest payment arrangements reflecting a higher risk perceived in such loans made to a start-up vehicle, such as PE. All that resulted in loans only being obtained by PE from shareholders on a basis of interest being paid at 18% per annum, with monthly rests (or 1.5% per month). This is both a direct and foreseeable loss caused by Dr Ardrey's Misconduct, says PE (see par 107 - 118 of Mr Richardson's October 2018 affidavit).
Annexures MR22 and MR23 to Mr Richardson's 2018 October affidavit provide copies of PE's subsequent loan agreements for the extra funds raised and entered between PE and various lender entities. These loan agreements display the elevated interest repayment arrangements under the terms of those commercial borrowing arrangements. See as an example, a loan agreement between PE and Tang Holdings Pty Ltd of 31 March 2017 at MR23 (at pages 427 - 429 of Mr Richardson's October 2018 affidavit).
PE also read and relies on at trial a further affidavit of Mr Richardson of 29 November 2018 (Mr Richardson's November 2018 affidavit) correcting an error in his earlier affidavit as regards the loan obtained from Tang Holdings - with that loan only being in the amount of $197,000 rather than the $394,000 figure which he had earlier said. However, Mr Richardson then identifies a further PE loan agreement from a Mr Baumanis via the Baumanis Superannuation Fund in a further amount of $197,000. This agreement is attached as MR26 to Mr Richardson's November 2018 affidavit.
In his November 2018 affidavit, Mr Richardson deposes that some extra replacement loan agreements were entered by PE on 25 October 2018, then at an interest rate of 18% per annum, compounded monthly (or 1.5% per month) (see pars 11 and 12 and MR27 and MR28). Mr Baumanis made a further loan of $50,000 to PE on 16 October 2018, again at the interest rate of 18% per annum, compounded monthly (see par 15 and attachment MR29).
At the assessment of damages hearing, PE also sought to rely upon some limited materials from within an earlier affidavit of Mr Richardson that was sworn 4 August 2015 (Mr Richardson's August 2015 affidavit). Reliance was placed on that affidavit by PE for the purpose of proving limited matters by reference to par 6 and annexure MR1 therein (formally proving Dr Ardrey's appointment as a director of PE at that date) and further, as regards the issue of compound interest, by reading pars 17 - 27 and the annexures therein. I allowed that limited extra material from Mr Richardson's August 2015 affidavit to be read by PE - assessing no forensic prejudice to Dr Ardrey from that course.
Dr Ardrey's affidavits
Turning to Dr Ardrey, purportedly in compliance with my directions for the exchange of affidavit material in order to conduct the assessment of damages hearing, the court has only received Dr Ardrey's affidavit of 16 January 2019. This is a 12‑page document. But only very limited aspects might be seen as potentially relevant.
Dr Ardrey's affidavit looks to be sworn by him at Montreal, Canada, on 15 January 2019, before a 'notary/justice of the peace/experienced lawyer'.
Part of Dr Ardrey's affidavit foreshadowed an application seeking that I recuse myself from continuing to case manage this action and to hear this assessment of damages hearing, on the basis of my alleged bias. Dr Ardrey's bias submission commences at par 9, with the paragraph running from pages 4 - 7.
The basis of the bias submission looks to be predicated on an embedded assumption reached by Dr Ardrey to the effect that I made a public comment to the media at some stage regarding this matter. With respect to Dr Ardrey, his reference at par 9 to a report in the Biotech Daily newspaper of 22 December 2016 is misconceived, as regards me making any media statement at all either about him or this litigation. That simply never happened. The Biotech Daily newspaper would merely appear to have published an article reporting what I had said in my published reasons for decision that issued as Phoenix Eagle [No 2], to which I have already referred. My reasons for decision were published and were therefore publicly available, including over the court's website, as from 21 December 2016. This court's published reasons for decision are not in the nature of a media statement. The Biotech Daily looks to have accessed those publicly available reasons for its story. But there never was any statement to the media by me, either then or ever for that matter.
At the assessment of damages hearing the full content of Dr Ardrey's affidavit was objected to by counsel for PE. Nevertheless, I received Dr Ardrey's affidavit as an exhibit - essentially for identification purposes, but subject to PE's relevance objections.
Given Dr Ardrey's civil liability is fully admitted by reason of the consent orders made on 24 July 2017, much of what Dr Ardrey put in his affidavit other than the recusal application towards me (which is rejected as misconceived) is, indeed, irrelevant. Hence, I formally rule that the content of the following paragraphs in his affidavit are irrelevant: namely, par 1, which contains a gratuitous negative comment against PE, but no substantive factual content; par 2, again a gratuitous adverse comment by Dr Ardrey, including:
... [PE's] allegations are contrary to law, as produced for CIV 3072 of 2011, documents showing illegal testing on animals, plans to test on Koalas, exports of mouldy cream to the USA contrary to US Food and Drug Administration laws and medical ethics and guidelines of the World Medical Association (WMA) who has developed the Declaration of Helsinki as a statement of ethical principles for medical research involving human subjects, including research on identifiable human material and data ...
I also uphold PE's relevance objection to Dr Ardrey's par 3, as being not material; likewise to par 4, as immaterial observations concerning the listing of Dr Ardrey's appeal against his reconviction; likewise to par 5, being an irrelevant submission by Dr Ardrey concerning his appeal and to the amount of $394,000 he asserts PE will need to repay.
In rejecting all those paragraphs as irrelevant, I refer back generally to the consent declarations and judgment for damages and part payment orders of 24 July 2017, especially to order 3. Allied to that is the ensuing order 6 concerning the amount of $394,759.38 that was then consensually agreed to be paid over by Dr Ardrey to PE out of funds held by the court and the authorisation to the Principal Registrar to pay those funds to PE.
It is unnecessary to revisit at any length the circumstances under which Dr Ardrey, when first convicted of multiple counts of fraud in the District Court of Western Australia by a jury, was made then subject of a reparation order to PE issued then by the trial judge, Levy DCJ, consequent upon Dr Ardrey's fraud convictions (see s 111 of the Sentencing Act 1991 (WA)). Reparation orders issued by reference to Dr Ardrey's then convictions on fraud counts for the amounts as had been paid over by PE to Dr Ardrey's so-called consultants (see pars 23 - 40 of the ASOC) upon their bogus invoices to PE.
When the Court of Appeal allowed Dr Ardrey's first appeal and ordered a retrial (see Ardrey v The State of Western Australia [2016] WASCA 154), the reparation moneys which had then been received by PE were, as a result of that appeal's success, duly repaid by PE, but were then held in court, pending Dr Ardrey's retrial.
When Dr Ardrey was convicted again in the District Court in July 2017, orders 3 and 6 of the 24 July 2017 orders had then consensually dealt with the payment out of all those funds as then held in court to PE - as a part payment towards a pending damages assessment in these proceedings.
Dr Ardrey's submissions at par 5 of his affidavit as to a high likelihood of PE needing to again repay that amount very shortly (presumably, to him) is simply not consistent with the consent declarations, judgment for damages and part payment orders all made under his full concurrence on 24 July 2017.
Paragraph 6 of Dr Ardrey's affidavit sees a submission predicated on the assumed success of his future appeal. But this is not relevant. Order 4 of the consent orders of 24 July 2017 expressly envisaged an assessment of damages hearing proceeding against Dr Ardrey. Read with order 3, it is clear that the $394,759.38 amount that was then agreed to be paid out to PE, was only a part payment towards some of PE's damages claimed against Dr Ardrey (namely, towards those claims under ASOC pars 23 ‑ 40).
Again, the submission and argument found at par 7 of Dr Ardrey's affidavit, presents as legally irrelevant. It does not engage against present issues which concern civil liability in this action, which is now fully established at 24 July 2017 against Dr Ardrey.
Paragraph 8 of his affidavit presents to be another inadmissible submission by Dr Ardrey reflecting his attempted late attack against the validity of the 24 July 2017 orders. However, the content of par 8 is an argumentative assertion by Dr Ardrey. It does not affect the validity of those orders.
Paragraph 9 of Dr Ardrey's affidavit sees his misconceived assertions of bias against me - on the basis of his 'surprise' about reading a statement that he assumed that I had made to the Biotech Daily newspaper. As I have said, and with respect to Dr Ardrey, this is misconceived.
Paragraph 10 displays more irrelevant argument made by Dr Ardrey regarding his receiving of served documents. Dr Ardrey has had multiple ongoing opportunities to request any missing pages in PE's materials as sent to him in Canada, either electronically, or by courier.
Paragraph 11 seems to contain a generally expressed grievance by Dr Ardrey, but no substantive factual contention bearing upon the present quantification of damages exercise. Likewise for par 12, which I take to be an objection by Dr Ardrey to PE's claim seeking compound interest at 18% per annum with monthly rests on the damages awarded to PE. Likewise, as regards par 13. Likewise, as regards par 14. Likewise, as regards par 15. Likewise, as regards par 16.
As regards par 17, I read Dr Ardrey's observations to be a generalised objection to Mr Richardson's calculations ‑ but again with no substantive content, other than the disagreement as expressed. Paragraphs 17 and 18 also seem to display what is, in essence, an objection against PE's claim for compound interest at monthly rests.
Nothing much else factually relevant is to be ascertained, on my assessment, from pars 13 - 30 of Dr Ardrey's affidavit.
More procedural history – events of 9 October 2019
I need to mention a few more matters that arose during October 2019, at a time just before the 14 October 2019 commencement date fixed for the hearing of the assessment of damages trial.
On 7 October 2019 at 12.45 am my Associate received an email communication from Dr Ardrey. This email, in effect, now sought an adjournment of the assessment of damages hearing for various reasons, including a suggested non‑availability of many of the witnesses Dr Ardrey had said he proposed to call.
In light of that email, I convened an urgent directions hearing on Wednesday, 9 October at 3.00 pm AWST. Counsel for the plaintiff attended. There was an attempt made to reach Dr Ardrey by an audio‑link (which was unsuccessful).
PE, by counsel, indicated its opposition to any deferment of the assessment of damages hearing. As I have said, efforts were made to make telephone contact with Dr Ardrey, using previous telephone numbers which the court held. Several attempts were made to establish contact with Dr Ardrey that afternoon. All such efforts were unsuccessful.
In any event, given the directions I had previously made concerning the materials allowed to be used at the looming hearing and, beyond that, the considerable time which had elapsed from between March 2019, when hearing dates had been fixed, then revised, to accommodate Dr Ardrey's requests, I was not, in the interests of justice, amenable to his late application under his email to adjourn the trial of the assessment of damages.
Consequently, I decided then, that the trial of the assessment of damages would proceed as scheduled, on Monday, 14 October 2019 at 10.15 am (AWST).
A direction was made for my Associate to forward a copy of the transcript of the 9 October 2019 directions hearing to Dr Ardrey so he would be appraised of the court's position. That was done.
At my behest Dr Ardrey was also emailed at his contact email address, advising him that the assessment of damages hearing would be proceeding as scheduled. Dr Ardrey was also told that if he provided a (viable) telephone number that could be used to reach him in Canada, that would facilitate his participation in the damages assessment hearing.
There now ensued some further email contact from Dr Ardrey to my Associate, all received prior to the commencement of the hearing on Monday, 14 October 2019. Dr Ardrey now provided a telephone number upon which he said he could be reached in Canada.
The assessment of damages hearing duly commenced on 14 October 2019. At that time, counsel for PE indicated that he was content, in effect, for an attempt to be made to reach Dr Ardrey on the telephone number since provided.
At that point, the court then received, at 10.37 am (AWST), an email from Dr Ardrey from his email address asking:
Was there a problem ringing my Skype? I have been standing by as per normal. Thanks.
Attempts to link Dr Ardrey to the proceedings via Skype were then made, without success. Nevertheless, an audio telephone contact at the number Dr Ardrey had provided was finally established, shortly thereafter and the assessment of damages hearing got underway at last with Dr Ardrey participating by that audio‑link.
The audio‑link to Dr Ardrey needed to be broken at a lunch interval at around 12.40 pm (AWST). Before the link was broken Dr Ardrey was advised the court would seek to re‑establish audio contact with him at 2.00 pm (AWST). Unfortunately, when attempts were made at or around 2.00 pm, there was a complete inability to re-establish the audio‑link with Dr Ardrey.
Consequently, the afternoon session of the assessment of damages hearing proceeded without Dr Ardrey's audio‑linked participation. I had resolved upon that course essentially because the hearing to that point had already reached the closing stage of counsel for PE's oral submissions.
During the morning session, Dr Ardrey had been able to hear over audio‑link the opening of counsel for PE and the adducing of all the affidavit evidence relied upon for PE (being the affidavits of Mr Richardson as already identified). And Dr Ardrey's own affidavit was admitted subject to the relevance allegations made against it by PE.
The reading of all evidentiary affidavits was duly concluded in the morning session. Counsel for PE's closing submissions had commenced prior to the lunch break. The only parts of the proceeding still to be resolved after lunch was the completion of PE's counsel's closing submissions and then, to hear any closing verbal submissions from Dr Ardrey.
Given such circumstances, in the afternoon, I decided to proceed in the afternoon session on the basis that Dr Ardrey would in due course be provided a copy of the full transcript of proceedings at no cost, including of course that afternoon's proceedings. Further, I determined that Dr Ardrey would be given an opportunity of seven days after his receipt of the trial transcript to provide my Associate and the lawyers for PE with any relevant written submissions, in effect, by way of any resisting arguments against PE on assessment of damages issues.
In due course, a transcript of the day's proceedings for all of the 14 October 2019 hearing was prepared. The transcript was dispatched to Dr Ardrey by my Associate on 17 October 2019.
Dr Ardrey's email of 15 October 2019 at 8.42 am
On Tuesday, 15 October 2019, before the despatch to him of the trial transcript, Dr Ardrey sent an email in the terms set out below:
To the Associate to the Honourable Justice Kenneth Martin, kindly bring to attention if appropriate.
I believe I understand that the Hon Justice gave me leave to submit a few documents directly relevant to the matter at hand or any closing arguments I'm permitted to give. These documents were un disputed [sic] in other courts, they relate to the Michael Hillmeyer claims.
They include to be cited in any closing argument I am given leave to provide.
·Biotechnology, see P4459 of this eminent medical journal article, acknowledgements, Michael is thanked personally in leading Peer Reviewed medical journal articles for his work at Columbia Presbyterian Hospital, see Maxfield et all [sic], acknowledgements in leading articles, this is one of many, there are few better biotechnology research and teaching hospitals better globally than Columbia's Ivy League center which employed Mr Hillmeyer and thanked him in their various publications.
·International Investor Ranking, Michael Hillmeyer, this is the Leading ranking in the whole world, in this document (from the material times) he's PC hardware technology. He's in P7 of 8 pages Technology. This is a major honor.
·Merrill Lynch published analyst report by Mr Hillmeyer from material times, he was a vice president and technology analyst at one of the world's biggest investment bank, and it was capital raising introductions and supprot [sic] in part which were his duties.
·Recent consultancy case studies and Burger King MBA case studies from Columbia University in the City of New York and Ivy League university.
Messrs Baumanis and Richardson met Michael separately and often, and Michael traveled [sic] to give presentations - and circulated PPTs and reports directly to Directors s recorded in Board meetings.
In closing arguments, I would say there is no evidence that His advice was anything other than simply truthful, the Phoenix product had problems and could not be proven up for human health nor 'biotechnology, and recommended a natural product or veterinary product approach. Mr Richardson was trying to test on Koalas, and in early directions hearings the various emails of mould in cream, contamination and other problems; it's simply illegal to test (or sell or distribute as they did in the USA) contaminated products, it's contrary to all health and safety laws in WA, and against commonly accepted medical and scientific ethics.
This is - narrowly - relevant to Phoenix's Mr Hillmeyer: claims, as getting angry about the truth - even an inconvenient truth supported by all medical research and ethics - does not make consultancy advice less valuable. Tom Mcarthur (Phoenix Eagle v Tom Mcarthur WASC 130, 2017) did precisely that, my family uses that paw paw product for a soothing lotion, it's sold at major chemists throughout Australia.
Authorities:
I have in my affidavit relied on US authority, which is Phoenix Eagle v Ardrey (2016) which I won, see the underlying document.
I have in my affidavit relied on Phoenix Eagle v Tom Mcarthur of 2017, (WASC 130) Mr Richardson made precisely the same claims in his affidavit, and this Decision shows that at no time was a commercial product available by Phoenix eagle [sic].
[Out of respect for Dr Ardrey as a self represented party, I have examined the decision of Allanson J delivered in this court on 12 May 2017 as Phoenix Eagle Company Pty Ltd v Tom McArthur Pty Ltd [2017] WASC 130. The decision concerns an interlocutory application relating to pleadings and confidential information. From its catchwords, the decision turns on its own facts. There were some issues resolved concerning subpoenas. The content of that decision does not bear materially in Dr Ardrey's favour upon any issue in the present assessment of damages exercise.]
On 24 October 2019, at 10.42 am and at 10.53 am respectively, my Associate (and the plaintiff's lawyers) received further email communications from Dr Ardrey. In essence, Dr Ardrey was seeking then to put further materials before the court. I have duly considered that material.
A further email was received from Dr Ardrey on 27 October 2019 at 10.53 pm. This written communication only traversed old ground.
Of course, Dr Ardrey is self‑represented and his written communications, as already seen, display a basal difficulty in distinguishing as between (impermissibly) putting more evidence before the court, in contradistinction to putting a submission about the evidence already adduced before the court. Much of the materials found in Dr Ardrey's 24 October emails falls into the former category. In addition, there is a considerable level of pejorative rhetoric directed by Dr Ardrey at PE, and its developmental 'paw paw' extra product, all of which is not to the point and should be ignored.
Dr Ardrey did make some causation (of damage) submissions about the consultancy invoices of Mr Hillmeyer, which I have noted. The Hillmeyer invoices, as I do explain later, have not in the end been allowed as damages against Dr Ardrey. Save for that, there is no need to discuss this material from Dr Ardrey any further. In addition Allanson J's reasons in Phoenix Eagle v Tom McArthur are, with respect to Dr Ardrey, simply irrelevant to the present exercise.
Assessment of damages - discussion and evaluation
As observed earlier, all the evidence of Mr Richardson, PE's managing director, adduced under his affidavits in the present proceeding, stands as essentially uncontradicted. Mr Richardson attended as a witness at the hearing to formally prove into evidence his three affidavits. At that point of the hearing, Dr Ardrey was still connected to the hearing by an audio-link. At the time, Dr Ardrey was offered the opportunity to cross-examine Mr Richardson on any of his affidavit material. Dr Ardrey did not take up that opportunity notwithstanding it was then offered (see ts 486 ‑ 487).
Consequently, I am essentially concerned only with two main issues of principle on the current exercise - under circumstances where the civil liability of Dr Ardrey is established under the consent judgment and my orders of 24 July 2017.
The first issue that needs to be established is one of causation of financial loss by PE. In other words, having established civil liability against Dr Ardrey for relevantly fraudulent misrepresentations (the tort of deceit) as pleaded by PE's ASOC and also for breach of Dr Ardrey's statutory and fiduciary duties as a director, being duties owed by him to PE (see ASOC par 5). See also ASOC par 57 as regards relief and a plea by PE as to it suffering loss and damage by reason of Dr Ardrey's fraud and breach of duties, contended in the respects as identified under pars 57(a) – (f). I further note prayer 4(a) of the prayer for relief, under which PE seeks against Dr Ardrey
... damages for equitable compensation, or a statutory compensation order, in respect of the loss and damage suffered by [PE] by reason of [Dr Ardrey's] fraud or breach of duty.
The second issue to be established is for PE to prove as a matter of quantification the numerical amount(s) for each loss as claimed under each head of damage that it establishes to have been caused by reason of Dr Ardrey's Misconduct.
It is established, as a matter of liability, that Dr Ardrey used his position as a director of PE to cause it to make unnecessary payments, in effect, to bogus consultant entities in the United States, and elsewhere. That is the subject of the pleas under pars 22 - 41 of the ASOC. By par 41 of the ASOC, Dr Ardrey is said to have benefited by the channelling of those funds back to himself. Clearly, by such conduct Dr Ardrey committed an egregious breach of his director's duties as owed to PE. Such misconduct seriously violated his director's equitable duty of fidelity and loyalty owed to their corporation. A director must not act in their own interests to the detriment of their corporation. They must not act to facilitate an acquisition of a gain for themselves at the expense of the corporation in whose interest they should be acting. These equitable and statutory obligations of directors are both fundamental and basic. In the end, they reduce to a basic requirement of honesty and fidelity to their corporation by its board members. None of this is novel or new. It has been the law for directors for as long as corporations have conducted commerce.
For the proven breach of an equitable duty, the equitable remedy of equitable compensation is available.
PE has established that it suffered financial harm by Dr Ardrey's Misconduct and should be compensated by orders for equitable compensation made against him in respect of the following amounts:
(a)(by ASOC par 14A) the amount of the director's fees and PAYG tax instalments paid by PE in respect of director's fees to Dr Ardrey, in the amount of $46,666;
(b)(by ASOC par 17A) further fees paid by PE to Dr Ardrey resulting from his appointment to PE's medical and scientific advisory committee, including PAYG tax instalments thereon and amounting to $25,000;
(c)(by par 18A ASOC) the amount of the compulsory superannuation contributions paid out by PE towards Dr Ardrey upon the director's fees and advisory fees as identified above, in the amount of $4,875;
(d)(by ASOC par 22) an amount of $8,665.94 paid out in February 2006, on the invoice of Franklin Chen. Although Dr Ardrey was not convicted at retrial of an offence in respect of this count, the PE plea under ASOC par 22 as a matter of civil liability stands as fully established under the consent judgment and orders and, as regards further issues of causation of loss and quantification of damage, is now proven at the civil standard within this proceeding by PE;
(e)(by ASOC pars 42 and 44 - 49) the expenses amounts paid out by PE as reimbursements to Dr Ardrey, aggregating to $15,705.53.
The Hillmeyer payments
As regards two PE claimed damages amounts of $4,406.37 and $20,973.84 respectively paid out on the invoices of Michael Hillmeyer issued and paid out in due course by PE, I am not, as I explain, satisfied that these amounts are proven as losses caused to PE - resulting either from Dr Ardrey's fraud or from his breach of fiduciary duty.
Unlike the earlier invoice amounts which money ultimately found their way back to Dr Ardrey, there is no evidence that Mr Hillmeyer's invoices were other than genuine for work genuinely done for PE. Broadly speaking, the invoices seem to be issued for genuine work done by Mr Hillmeyer in the USA for PE, in the furtherance of the efforts at the time by PE to put together a licensing package round its developmental 'paw paw' extract wound healing treatment product ‑ that would be attractive to a big pharmaceutical company in the USA (see Mr Richardson's October 2018 affidavit, MR14 and MR15). True, Mr Hillmeyer's introduction to PE may have been instituted by Dr Ardrey and in furtherance of Dr Ardrey's then advice to PE to suspend its Project Sinisha to which PE's focus had been directed. At the time PE's work was aimed at obtaining investigational new drug status (IND) in the USA for PE's developmental product Opal A, as the first step in the regulatory approval process for a new drug in the USA.
Mr Richardson relates under his October 2018 affidavit, that following Dr Ardrey's appointment to PE's board (from 1 November 2005), Dr Ardrey had convinced the board to pursue a revised project, then called Project Big Pharma, to take precedence over PE's earlier Project Sinisha.
Project Big Pharma, as explained by Mr Richardson at pars 9 and 15 of his October 2018 affidavit, had resulted from Dr Ardrey convincing the board of PE that it could pursue the preparation of a licensing package for engaging with big pharmaceutical companies and, importantly, that this objective could be achieved without PE completing a full capital raising. It would, in effect, see a commencement by PE to a serious dialogue with major pharmaceutical companies, prior to PE obtaining a grant of IND status in the USA for its lead therapeutic paw paw extract product under development.
A Big Pharma licensing package was to be prepared with the inputs of US‑based consultants, with whom Dr Ardrey had established contact. This was the 'first step' in attracting the interest of big pharmaceutical companies in the USA.
However, in some contradistinction to valueless documents prepared by Franklin Chen and by SVPP, the trial evidence concerning the work of Michael Hillmeyer in the USA by way of his contributions towards providing materials for input into an ultimate licensing package to be prepared under Project Big Pharma by PE - is less convincing than the evidence adduced concerning the bogus US‑based consultants ‑ which is essentially that their materials were valueless.
I did not get the impression from Mr Richardson's October 2018 affidavit that it was the responsibility of Mr Hillmeyer to provide PE with a complete or viable licensing package. Rather, I inferred that Mr Hillmeyer was engaged to provide discrete input components to be used by PE to that end. He would appear to have done that and charged accordingly. No evidence before me suggests that his rate of charging was, on its face, outrageously excessive or that the work that he claimed for under his invoices was not done by him for PE.
In the end, I am not persuaded (by what is said between pars 94 and 96 of Mr Richardson's October 2018 affidavit) that it has been shown that Dr Ardrey's fraud, or breaches of fiduciary duty as established caused Mr Hillmeyer's invoices to be suffered as a compensable loss by PE. I would add that there is no suggestion that there is a total failure of consideration in respect of the work product provided to PE by Mr Hillmeyer. Nor do I discern anything in the Hillmeyer invoices (MR14 or MR15 to Mr Richardson's October 2018 affidavit) to support the present damages claim by PE. On their face, Mr Hillmeyer's invoices appear to be entirely regular - mundane almost. Dr Ardrey had the authority to engage Mr Hillmeyer for PE and to commit PE to be liable for his invoices as issued for work legitimately carried out for PE within the scope of what Mr Hillmeyer was asked to do for PE and duly did.
Mr Richardson asserts at par 96 of his October 2018 affidavit that '[PE] derived no ultimate benefit from the work allegedly done by Michael Hillmeyer'. But that, on my assessment, is not enough. It is not a problem to be laid at Mr Hillmeyer's doorstep.
The Silverstein invoice
The next claim is made in respect of an invoice received from JB Silverstein and paid by PE on 2 April 2007, in the Australian dollar conversion amount of $4,055.93.
Towards this claim, Mr Richardson's October 2018 affidavit, merely says at par 103:
[PE] also engaged Joseph B Silverstein (JB Silverstein), a United States-based attorney, to assist with investigations in the United States. JB Silverstein issued to [PE] an invoice in the amount of USD3,219.50 which, when paid by [PE] by international transfer on or about 2 April 2007, amounted to AUD4,055.93. As Managing Director, I satisfied myself that the costs charged by JB Silverstein were genuinely incurred in carrying out work as a consequence of Mr Ardrey's fraud. Annexed hereto and marked 'MR18' is a true copy of the invoice issued to [PE] by JB Silverstein and an ANZ Statement of Account for [redacted].
(see page 389 of Mr Richardson's October 2018 affidavit which shows the $4,055.93 amount debited against PE's account on 2 April 2007 as he says).
Whilst I am satisfied that the amount claimed was certainly paid out by PE to Mr Silverstein, the bare content of par 103 of Mr Richardson's October 2018 affidavit is insufficient to persuade me that this invoice for Mr Silverstein's assistance to PE with its investigations in the USA is a sufficient basis in a causative loss sense as regards ensuing damage to PE to allow the claim.
The invoice itself at page 388 of Mr Richardson's October 2018 affidavit merely shows the invoice for professional services for the period 1 January to 28 February 2007 issued out of what appears to be Mr Silverstein's Philadelphia law office. The nature of his services is wholly unspecified.
The invoice presents essentially as a flat fee claim for $US3,000 plus the expenses referred to as a US search of $US219.85. No more detail is provided. Not even an hourly rate or hours expended is seen. Nor can any description of the actual work in respect of the charge be detected.
In the end, I am not satisfied as regards the causation of this loss claim by reason of the Misconduct.
PharmaVentures invoice
In respect of a claim of PE's payment of $3,024 to PharmaVentures, this claim was the subject of par 104 of Mr Richardson's October 2018 affidavit. Mr Richardson says at par 104:
[PE] also engaged PharmaVentures, a United Kingdom-based pharmaceutical and biotechnology advisory firm, to carry out a background check on Mr Ardrey.
PharmaVentures issued an invoice to PE in the amount of $3,000, which rose to $3,024 when paid by PE's international transfer inclusive of bank fees, on 2 April 2007.
Mr Richardson says that as managing director he satisfied himself that the costs charged by PharmaVentures were genuinely incurred in carrying out work as a consequence 'of Mr Ardrey's fraud'. But further detail can be derived from MR19, the invoice rendered to PE by PharmaVentures seen at page 390 of Mr Richardson's October 2018 affidavit. A covering letter to PE of 5 March 2007 for the invoice only says, under a heading 'Due Diligence Project', that:
It has been a pleasure working with you on the due diligence project on William Ardrey, further to which please find attached their invoice for the agreed sum of AUD $3,000 ...
No copy of any background check report as regards a service or product ever provided by PharmaVentures to PE concerning Dr Ardrey, is discernible from the communication at pages 390 - 391 of Mr Richardson's October 2018 affidavit. A description 'Project 1193: Professional fees for due diligence' with a net amount fee of $3,000 does not sufficiently explain or describe how this incurred expense is related to or was caused by Dr Ardrey's Misconduct. The claim is simply too vague and ill‑particularised to be allowed.
The McCloskey & Associates invoice
The final sundry claim is for an invoice amount in respect of McCloskey & Associates LLC, in the amount of $4,400.66 which, it is asserted, was paid by PE on 13 December 2014. Mr Richardson deals with this payment at par 105 of his October 2018 affidavit. There he says:
[PE] also engaged McCloskey & Associates LLC, a United States-based private investigations and security consultancy firm, to investigate the affairs of Mr Ardrey, Susan Ardrey, Franklin Chen, Simon and Lillian Chen, and Michael Hillmeyer ...
In due course, PE received McCloskey &Associates' invoice and it was duly paid. Mr Richardson continues at par 105:
As Managing Director, I satisfied myself that the costs charged by McCloskey & Associates were genuinely incurred in carrying out work as a consequence of Mr Ardrey's fraud ...
The invoice from McCloskey & Associates is MR20, is found at page 393 of Mr Richardson's October 2018 affidavit. Part of that invoice identifies an asset identification research and an investigation pertaining to the persons identified above.
Unlike for the Hillmeyer, Silverstein and PharmaVentures invoices, amounts which I have now rejected as damages, I would allow this damages claim. This sum, on my assessment, is proven more directly to be connected to PE incurring a legitimate expenditure in seeking to recoup amounts paid out by it on consulting invoices received from US‑based bogus consultants the underlying subject matter of the fraud counts on the indictment presented against Dr Ardrey in the District Court of Western Australia. That, together with Mr Richardson's description concerning these persons in his October 2018 affidavit, satisfies me that this amount was a legitimately related expenditure that was a loss to PE and sufficiently caused by the Misconduct of Dr Ardrey. Consequently, I allow it in full in the claimed amount of $4,400.66, and which I am satisfied was paid out by PE on 13 December 2014 (see Mr Richardson's October 2018 affidavit page 396).
PE's pursuit of loss monies paid out to bogus consultants as an attempted recovery exercise meets the parameters of an expense, directly and legitimately tied to PE taking steps to recoup the funds lost by PE as a result of Dr Ardrey's fraudulent engagement of bogus independent US‑based consultants, under circumstances where PE's money was actually being funnelled back to Dr Ardrey from the USA. The cost of PE of its enquiries and investigations conducted in the USA in undertaking that recovery exercise, are a causative result of Dr Ardrey's civil wrongs against PE.
Claims for fees paid out to Fox Rothschild LLP and Ashurst for legal expense invoices
Next are the claims for legal fees all paid out by PE to US lawyers Fox Rothschild LLP in the aggregate amount of $66,006.82, the subject matter of Mr Richardson's October 2018 affidavit under pars 97 - 101, 106 and MR16. Added to that sum was a claim for a further Fox Rothschild LLP invoice in the amount of $10,500, which is also claimed (ts 473 ‑ 474 and 512 ‑ 513). However, this claim for $10,500 has not been proved by PE. Following the trial for the assessment of damages, PE, by email from its lawyers dated 15 November 2019 (copied to Dr Ardrey), withdrew that part of the claim. Otherwise, I allow the Fox Rothschild LLP claim and also, as I explain next, the legal expenses claimed by reason of PE's payments out to Ashurst and its predecessor law firm entities Blake Dawson Waldron, or Blake Dawson.
The Ashurst amounts are aggregated as claims for reimbursement of multiple invoices paid by PE across the period 29 January 2007 to 14 May 2015 in the total amount of $99,502.61.
The PE Fox Rothschild LLP expenses claimed damages (but without the extra sum of $10,500) pursues a reimbursement as damages of $66,006.82.
The nature of these claims made against Dr Ardrey for outlays by PE to lawyers must be assessed in a context of the knowledge that - although the criminal charges ultimately brought against Dr Ardrey on indictment in the District Court of Western Australia, essentially by reason of the bogus invoice claims the subject of pars 22 - 40 of the ASOC, was a criminal action - from a monetary perspective there were clearly significant forensic advantages for PE arising from a prosecution being supported by PE and being concluded by a verdict of guilt against Dr Ardrey.
First, and most obviously, was the advantage from the potential for the criminal court in the event of conviction (as ensued) issuing a monetary reparation order against Dr Ardrey as a part of the criminal sentencing process. At the first trial, Levy DCJ's orders as issued post‑conviction, did just that to the advantage of PE. After Dr Ardrey's second trial and reconviction, the repaid restitution amount then held in court, was consensually paid out under this court's consent orders of July 2017, to which I have referred. Receipt of that amount by PE would, of course, provide a mitigatory sentencing consideration to be weighed bearing upon any resentencing penalty that would ultimately be imposed upon Dr Ardrey following his reconvictions.
A second important consideration arising out of a successful prosecution and conviction of Dr Ardrey arises from the carryover forensic benefits to a subsequent civil pursuit of Dr Ardrey, given the higher standard of proof already met by the State in the criminal prosecution – being proof beyond reasonable doubt. By reason of the seminal decision of the Full Court of the Supreme Court of Western Australia in Mickelberg v Director of Perth Mint (1986) WAR 365, what had been a former common law approach as a result of the English decision in Hollington v F Hewthorn [1943] KB 587, was reversed. See also the explanation in Bennett v State of Western Australia [2012] WASCA 70 [63] and [66]. In other words, after Mickelberg in WA, the fact of a criminal conviction standing against Dr Ardrey for his conduct would, effectively, provide prima facie evidence admissible at a civil trial in respect of the same conduct issues when pursued at the civil standard on the balance of probabilities by PE seeking civil redress by damages against Dr Ardrey.
From a strategic perspective then, in terms of a future prosecution of the present civil action, PE's expenditures upon the engagement of lawyers to act for PE both in Australia and in the USA who would, effectively, investigate, piece together and report upon elements of Dr Ardrey's conduct as regards his engagement of bogus consultants and then, as to the funnelling of funds received by those persons in the USA back to Dr Ardrey in Australia was a reasonable, logical and legitimate course of expenditure action for PE to follow in reference to an ultimate goal of recouping its financial losses caused by Dr Ardey's Misconduct. That expenditure outlaid by PE is legitimately recoverable from Dr Ardrey as damages. So also recoverable for PE as damages against Dr Ardrey is its reasonable financial outlays to local and overseas lawyers incurred to locate the proceeds of PE's funds as were received by bogus consultants and money spent on recovering, tracing and pursuing (successful) recovery action towards those funds. PE's recovery objectives pursued through Ashurst, or via Fox Rothschild LLP in the USA, in my assessment, were legal expenses proximately, reasonably and legitimately pursued on a basis of being reasonable outlaid expenditures by PE, all ultimately caused by and as an ensuing result of Dr Ardrey's Misconduct. I will allow all those invoice expenses outlays to the law firms as well.
I will add for completeness that I am left satisfied that none of the invoice amounts claimed as regards Ashurst overlap against the legal costs that PE may otherwise claim on a taxation of costs exercise conducted by PE in this action, pursuant to the terms of its entitlement to indemnity legal costs under the consent declarations, judgment for damages and part payment orders of 24 July 2017 (see order 5 thereof which provided for Dr Ardrey to pay PE's costs of the action 'including reserved costs to be paid on an indemnity basis if not agreed').
The 24 July 2017 orders in respect of the legal costs of the action extend, as a matter of proper interpretation, to the legal costs of the present assessment of damages exercise. For the avoidance of any doubt, however, in the event there be any uncertainty over that, at the end of these reasons I will mention a further order effectively confirming that to be the case as regards an indemnity cost order for PE on the present assessment exercise.
Conclusions as to damages
In the end result, therefore, PE has established the damages as being caused and then has proved and quantified the amounts it seeks, save for the invoice amounts it paid out to the USA consultant Michael Hillmeyer and the amounts it paid to the USA attorney JB Silverstein and to the investigative corporation in the United Kingdom, PharmaVentures. Save for those three amounts (and the withdrawn claim for $10,500 as regard Fox Rothschild LLP) which have not been proven from a causation perspective - the balance of PE's remaining damages claims are allowed.
A residual question then is the issue as to what orders should be made as regards PE's claim for interest. I address that issue next.
Interest issues
As indicated earlier, I accept the basic contention of PE that, by reason of the Misconduct of Dr Ardrey, it has as a result been forced to borrow extra funds from lenders, under circumstances where, but for Dr Ardrey's Misconduct, it would not have been necessary to borrow those funds.
Had PE under such circumstances approached a major bank or lending institution and obtained a secured borrowing at a commercial interest rate calculated on a daily basis with monthly rests, the principles established in Australia by the High Court in Hungerfords v Walker [1989] HCA 8; (1989) 171 CLR 125 are such that the actual interest expenses that PE would be charged upon such a loan would be recoverable as a proven foreseeable loss, in an ensuing product of Dr Ardrey's wrongs. Such interest as a loss would be recoverable at minimum under the second limb of the rule in Hadley v Baxendale [1854] EWHC J70, which principle I conclude is engaged here. As mentioned, Dr Ardrey joined PE as a director in late 2005 and held from then full insight and knowledge towards PE's constrained capital position as a start up corporation, essentially as a small scientific development product venture and seeking to raise more capital to fund, its research, experimentation, and development of a paw paw extract wound healing product - with a view to ultimately entering into a successful licensing agreement with a big pharmaceutical corporation on a profitable basis for PE as the discoverer, in effect, of a valuable new wound care product to be marketed globally.
Dr Ardrey must have known, as a new director, at an early stage, that PE's funds were limited. He would have or should have known that if the funds of PE were wastefully frittered or, indeed, plundered through his engagement of bogus consultants overseas (with a view to funnelling PE's outlaid money back to himself) that this must inevitably deliver financial harm to PE.
Unsurprisingly then, given the financial plundering it suffered at the hands of Dr Ardrey, PE needed later to borrow extra funds to redress the fiscal harm it had suffered. But then, the only avenues of borrowing for PE were on an unsecured basis and from shareholder lenders only prepared to lend - on terms which saw PE needing to repay its loans at relatively high rates of 1.5% per month or, expressed another way, at 18% per annum by compound interest payable at monthly rests.
So, it was as a direct result of the Misconduct of Dr Ardrey that PE has been forced to replace its squandered funds from such lenders on such terms as to interest. In my view, PE's interest exposure is a foreseeable and recoverable loss under Hungerfords principles at common law upon the sums replaced by borrowings on such terms.
Alternatively, Dr Ardrey's Misconduct could also be characterised as a breach of his director's fiduciary duties and, thus, as an equitable cause of action. Hence is the scope for equitable relief against Dr Ardrey under such circumstances, where appropriate, will extend to the grant of interest as relief and requiring the payment of compound interest on lost sums as part of PE's proper level of equitable compensation for breaches of director's fiduciary duty as regards PE's losses resulting from his breaches: see Westpac Banking Corporation v Bell Group Ltd (in liq) [No 3] [2012] WASCA 157; (2012) 44 WAR 1 [1237] ‑ [1239] and [1246].
Consequently, I am left satisfied, at the end, that compound interest as compensatory relief to PE is fully appropriate here, as regards all amounts that I have earlier identified as established losses incurred by PE – and which interest amounts are recoverable as damages, or as equitable compensation against Dr Ardrey.
An award to PE of compound interest at 18% per annum with monthly rests should be made for those amounts, and calculated in accord with a table to be prepared and presented by PE's lawyers - rendering calculations of interest on damages amounts as allowed, incurred from the respective times at which such amounts were paid out by and so lost to PE, all by reason of Dr Ardrey's Misconduct. The evidence before me establishes those precise dates of payment by PE by reference, in almost all cases, to ANZ bank statements of PE and found appended to Mr Richardson's October 2018 affidavit.
Conclusion - orders
Ultimately, I have come to the conclusion that the following claims of PE should be allowed:
Director's fees paid by PE to Dr Ardrey
$46,666
Fees resulting from Dr Ardrey's appointment to PE's medical and scientific advisory committee
$25,000
Compulsory superannuation contributions paid by PE upon Dr Ardrey's director's and advisory fees
$4,875
Invoice paid out by PE to Franklin Chen
$8,665.94
Work related expenses claimed by Dr Ardrey and reimbursed by PE
$15,705.53
McCloskey & Associates invoice
$4,400.66
Fox Rothschild LLP expenses
$55,506.82
Ashurst Australia expenses
$99,502.61
These reasons shall now issue to the parties.
PE as the successful plaintiff now has 14 days to submit a minute of orders, including the compound interest calculations in respect of each amount as allowed above, as envisioned by counsel for PE.
Further, my assessment is that order 5 of the consent orders of 24 July 2017 awards PE its costs of this assessment of damages hearing on an indemnity basis. But lest there be any level of doubt over that, the final orders (as should be reflected in PE's minute of proposed orders) should reiterate that such a special costs order should issue as fully appropriate under the present assessment of damages exercise.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
DW
Associate to the Honourable Justice Martin29 NOVEMBER 2019
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