Randall v Aristocrat Leisure Ltd - [2004] NSWSC 411

No judgment structure available for this case.

CITATION: Desmond Henry Randall v Aristocrat Leisure Limited (ACN 002 818 368) [2004] NSWSC 411

HEARING DATE(S): 03/05/04, 04/05/04, 05/05/04, 06/05/04, 07/05/04, 11/05/04, 12/05/04, 13/05/04

JUDGMENT DATE:
8 June 2004

JURISDICTION:
Equity Division
Commercial List

JUDGMENT OF: Einstein J

DECISION: Summary dismissal justified. Plaintiff entitled to bonus in respect of 2002 year [approximately $900,000] and to certain relocation out of pocket expenses.

CATCHWORDS: Contract - Master and servant - Summary dismissal - Appointment of plaintiff by written contract of employment as chief executive officer and director of defendant - Defendant listed company operates in Australia and worldwide through subsidiaries - Contract stipulates that chief executive officer to perform all normal duties associated with the position held by a chief executive officer of a public company, to faithfully serve defendant and to competently exercise all skills as would be normally expected of persons holding the position of chief executive officer and director of a public company - Clause giving defendant entitlement to terminate the contract and the services of plaintiff without prior notice in the event that he commits any act of dishonesty, fraud, wilful disobedience, misbehaviour or breach of duty which might detrimentally affect defendant or wilfully, persistently and materially breaches any of the provisions of the contract and if the breaches are remediable, does not remedy them within 14 days after receiving notice in writing - Summary dismissal of plaintiff pursuant to clause - Plaintiff asserts that termination of his employment constitutes a repudiation of the contract and purports to accept repudiation - Proceedings concern events before and aftermath of 7 February 2003 profit downgrade announcement resulting in a decrease in the defendant's share price from $4.22 being the last price immediately before announcement released to low of $2.25 after the release and closing price of $2.40 on the day - Clarification announcements issued on days following initial announcement - Defendant claims that post 7 February events involved plaintiff making [or causing to be made] a series of public statements - Effect of public statements said to be to assert that he had had no warning of the possibility of a profit downgrade before 4 or 5 February 2003 - that he had been confident of a strong US profit result at the end of 2002 - that it was not clear to him before 4 and 5 February 2003 that Aristocrat had a problem with its profit margins in its North American business - Claimed conduct said to justify summary dismissal under contract - Defendant contends that these statements were false and false to the knowledge of plaintiff - Defendant contends that plaintiff failed to make full disclosure of his knowledge to the board - Defendant relies upon ASX continuous disclosure requirements and statutory obligations including obligations to use reasonable care and diligence and to act in good faith and in the best interests of the company - Plaintiff contends that he and defendant had only become aware of particular material information in early February 2003 and that this information had then been promptly released to the market - Plaintiff contends that there was no failure of disclosure of his own knowledge to the board - Line of defences include defences raising technical issues, as for example whether contract provisions unenforceable by reason of particular sections of the Corporations Act requiring shareholder approval - Examination of performance/standard of performance of the duties of a director and chief executive officer - Duties of disclosure of chief executive officer to board - Principles concerning fraudulent representations, wilful disobedience, misbehaviour/misconduct justifying summary dismissal at common law - Content of statutory duties to use reasonable care and diligence (section 180), to act in good faith and in best interests of company (section 181) and not to use position improperly to gain an advantage to himself (section 182)

LEGISLATION CITED: Corporations Act 2001 (Cth)
Corporations Act 1989 (Cth)
Corporations Legal and Economic Reform Plan Act 1999 (Cth).

CASES CITED: Abeles v PA (Holdings) Pty Ltd (2000) 18 ACLC 867
Adami v Maison de Luxe Ltd (1924) 35 CLR 143
Ashton Mining Ltd v Commissioner of Taxation [2000] FCA 590
Atlantic Shipping and Trading Co. v Louis Dreyfus & Co [1922] 2 AC 250
Australian Colliery Staff Association v Queensland Mines Rescue Service [1999] FCA 395
Bettini v Gye (1876) 1 QBD 183
Blyth Chemicals Ltd v Bushnell (1933) 49 CLR 66
Boston Deep Sea Fishing & Ice Co v Ansell (1888) 39 Ch D 339
Brackenridge v Toyota Motor Corporation Australia Ltd (1996) 142 ALR 99
Bruce v AWB Ltd (2000) 100 IR 129
Clouston & Co Limited v Corry [1906] AC 122
Commissioner of Stamp Duties (NSW) v Bone and Others (1976) 135 CLR 223
Commonwealth v Verwayen (1990) 170 CLR 394
Courtaulds Northern Spinning Ltd v Sibson [1988] ICR 451
Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising & Addressing Company Pty Ltd (1975) 133 CLR 72
Daniels t/as Deloitte Haskins and Sells v Anderson (AWA case) (1995) 37 NSWLR 438
Derry v Peek (1889) 14 App Cas 337
Dovey & Metropolitan Bank (of England & Wales) Ltd v Cory [1901] AC 477
Elcom v Electrical Trades Union of Australia, New South Wales Branch (1983) 5 IR 267
Farley v Lums (1917) 19 WALR 117
Federal Commissioner of Taxation v Orica Limited (1998) 194 CLR 500
Fox v GIO Australia Limited [2002] NSWIRComm 318
Freeman & Lockyer (a firm) v Buckhurst Park Properties (Mangal) Ltd & Anor [1964] 2 QB 480
Galipienzo v Solution 6 Holdings Limited (1998) 28 ACSR 139
Gooley v Westpac Banking Corp (1995) 129 ALR 628
Grundt v Great Boulder Pty Gold Mines Ltd (1937) 59 CLR 641
Harmer v Cornelius (1858) 5 CBNS 236
Harold Holdsworth & Co (Wakefield) Ltd v Caddies [1955] 1 WLR 352
Hawker Pacific Pty Ltd v Helicopter Charter Pty Ltd (1991) 22 NSWLR 298
John McGrath Motors (Canberra) Pty Ltd v Applebee (1964) 110 CLR 656
Jones v Associated Tunnelling Co Limited [1981] IRLR 477
Jupiter General Insurance Co Ltd v Shroff [1937] 3 All ER 67
Krakowski v Eurolynx Properties Ltd (1995) 183 CLR 563
Larratt v Bankers & Traders Insurance Co Ltd (1941) 41 SR (NSW)
Laws v London Chronicle (Indicator Newspapers) Ltd [1959] 2 All ER 285
Legione v Hateley (1983) 152 CLR 406
Lewis v Cook (2000) 18 ACLC 490
Marchesi v Barnes [1970] VR 434
Meyrick v Stirling Bros Ltd (1899) 1 WALR 51
Mulcahy v Hoyne (1925) 36 CLR 41
Newbon v City Mutual Life Assurance Society Ltd (1935) 52 CLR 723
North v Television Corporation Ltd (1976) 11 ALR 599
O'Brien v Associate Fire Alarms Limited [1969] 1 All ER 93
Orr v University of Tasmania (1957) 100 CLR 526
Quinn v Jack Chia (Australia) Limited [1992] 1 VR 567
Rowbotham v Arthur Lee & Sons Ltd (1974) IRLR 377
Sheldrick v WT Partnership (Aust) Pty Ltd (1998) 89 IR 206
Shirlaw v Southern Foundries (1926) Ltd & Anor [1939] 2 All ER 113
Tallerman & Co Pty Ltd v Nathan's Merchandise (Vic) Pty Ltd (1957) 98 CLR 93
Thompson v Palmer (1933) 49 CLR 507
Turner v Mason (1845) 14 M & W 112
Vardy v Cuthbert (1872) 3 AJR 25
Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387

PARTIES :
Desmond Henry Randall (Plaintiff)
Aristocrat Leisure Limited (ACN 002 818 368) (Defendant)

FILE NUMBER(S): SC 50066/03

COUNSEL: Mr B Coles QC, Mr A Fernon (Plaintiff)
Mr G Lindsay SC, Mr A McGrath (Defendant)

SOLICITORS: Toomey Pegg Drevikovsky (Plaintiff)
Phillips Fox (Defendant)

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION
COMMERCIAL LIST

Einstein J

Tuesday 8 June 2004

50066/03 Desmond Henry Randall v Aristocrat Leisure Limited

JUDGMENT

Overview of the proceedings

1 These proceedings are brought by Mr Desmond Henry Randall for damages arising from the termination on 14 April 2003 of his employment as chief executive officer and director with the defendant, Aristocrat Leisure Limited ["Aristocrat"]. That employment was pursuant to a written contract of employment entered into on 19 June 1998 and entitled 'Agreement for Appointment of Chief Executive Officer and Director’ [later varied on 11 May 2001 and on 7 December 2002] [the “contract"].

Mr Randall purports to accept the termination as a repudiation

2 On or about 10 April 2003 by letter [from Mr Randall's solicitors to the solicitors of Aristocrat] Mr Randall asserted that the termination of his employment constituted a repudiation of the contract which he purported to accept as putting an end to the contract.

Aristocrat seeks to justify the summary dismissal

3 Aristocrat has sought to justify the summary dismissal of Mr Randall by two routes:

· alleged breaches of contract provisions which if breached entitled Aristocrat to summarily terminate the contract;

· sundry defences raising technical issues, as for example whether contract provisions are unenforceable by reason of particular sections of the Corporations Act 2001 (Cth) [the “Act”] requiring shareholder approval.

Clause 5.1 of the contract

4 Clause 5.1 of the contract is relied upon in terms of giving Aristocrat an entitlement to terminate the contract and the services of Mr Randall under the contract without prior notice in the event that he:

· committed any act of dishonesty, fraud, wilful disobedience, misbehaviour or breach of duty which might detrimentally affect Aristocrat [clause 5.1 (a)]; or

· wilfully, persistently and materially breached any of the provisions of the contract and, if the breaches were remediable, did not remedy them within 14 days after receiving notice in writing from Aristocrat [clause 5.1 (b)].

5 Aristocrat pleads particular contractual provisions by which Mr Randall is said to have been obliged inter alia:

· to use his best endeavours to be aware of, and to understand, all regulations applicable and relevant to directors of Aristocrat;

· to comply with such regulations;

· to serve Aristocrat well and faithfully;

· to exercise competently all skills as would be normally expected of persons holding the position of chief executive officer and director of a public company.

6 Whilst there are a number of allegations pleaded by Aristocrat, the heart of its breach of contract case concerns Mr Randall's conduct during the aftermath of an announcement made by Aristocrat to the Australian Stock Exchange [“ASX”] on Monday 7 February 2003. This announcement:

· referred to previous indications by Aristocrat that it was confident of meeting market consensus earnings forecasts of $109 million for the full year net profit after tax;

· gave detail with respect to a South American transaction said to have involved the sale of a significant number of electronic gaming machines, in relation to which contract the customer had failed to fulfil a number of obligations, in consequence of which it was said that the board and management of Aristocrat had decided that it was not prudent to recognise that revenue in the 2002 full year result;

· made clear that in consequence of this decision, net profit after tax for the full year to 31 December 2002 would not meet consensus market forecasts and was expected to be $80.2 million, subject to final audit.

7 A draft profit downgrade announcement referring to the failure to complete a major South American contract scheduled for completion prior to 31 December 2002 had been prepared in late December but was not released.

8 The immediate result of the announcement was a decrease in the company's share price from $4.22 at the close of trade on 5 February 2003, being the last trading price immediately before the announcement was released, to a low of $2.25 after the release and a closing price of $2.40 on the day.

9 Following the announcement there was a flurry of activity on the part of Aristocrat. Announcements were made on Monday 10 February and Tuesday 11 February 2003. Other February events included an apology by Mr Randall to the board of Aristocrat on 17 February 2003; a media briefing presentation on the morning of 18 February and a presentation to market analysts by Mr Randall on the afternoon of 18 February 2003. The 2002 annual report was issued.

10 The central propositions which have been litigated concern Aristocrat’s allegation that the post 7 February events involved Mr Randall making [or causing to be made] a series of public statements [as well as causing or permitting the annual report to be published]:

· the effect of which conduct is said, in general terms, to assert that:

- he had had no warning of the possibility of a profit downgrade before 4 or 5 February 2003; - he had been confident of a strong US profit result at the end of 2002;

- it was not clear to him before 4 or 5 February 2003 or thereabouts that Aristocrat had a problem with its profit margin in its North American business.

· without full disclosure of his knowledge to the board.

11 Aristocrat also seeks to rely upon what is said to be an allied assertion by Mr Randall [expressly reflected in the ASX 11 February 2003 announcement and in the annual report] that the results of an analysis conducted by the company on 8 - 9 February 2003 were "inconsistent with information previously provided by American management". This assertion is said to have been untrue and untrue to the knowledge of Mr Randall.

12 The position which Mr Randall took in relation to each of these events provides the central factual focus of these proceedings. His position was to deny the allegations as to matters said to have been known to him; to contend that Aristocrat had only become aware of particular material information in early February 2003 [on 5 February] and to assert that this information had then been promptly released to the market. Further that there was no failure of disclosure of his own knowledge to the board.

13 Mr Randall's position had been very carefully worked out in advance of the two presentations which he gave on 18 February 2003. In preparation for those presentations he had prepared a set of speaking notes. The notes included an answer to one of the main questions which Aristocrat had received from the market, namely why had there been no warning on the $109 million downgrade in profit after tax to $80 million. The answer was "We could not tell you what we did not know. We were confident of meeting the market expectation at year end".

14 This answer was effectively then communicated at each of the above described presentations:

· "We didn't know. Be assured, as soon as Aristocrat knew, the market knew… We could not tell you what we did not know. We were confident of meeting the market expectation at year's end" [10.35 am media presentation at page 5];

· the same answer was generally repeated in substance in the 2.48 pm analysts presentation (at page 6 [including at page 5, “We went to the market two days after we learned the problem"]).

15 A strong focus has been placed upon the precise words used by Mr Randall in the media briefing and in the analysts briefing. The focus is for the reason that the defendant contends, but the plaintiff denies, that the statements made in these briefing sessions properly construed amount to statements of the above-described characterisation ultimately pressed by the defendant in final address.

16 Aristocrat has contended in these proceedings that these statements were not only clearly made but further were false and were false to the knowledge of Mr Randall. The core contention is that Mr Randall had at some time earlier [generally in December 2002 as well as in early 2003] been put in possession of information from which it was, or ought to have been clear to him that:

· the company had a substantial problem with profit margins in its North American business;

· Aristocrat would not, or might not, report a strong US financial result, or exceed its profit expectations, for 2002;

17 During final address there was a shift from the allegation that Mr Randall at those times had been put in possession of information from which it was or ought to have been clear to him that Aristocrat's net profit after tax for the year ended 31 December 2002 would not, or might not, meet Aristocrat's September 2002 forecast of $109 million but would be of the order of $80million. The matter is dealt with below.

18 The subject statements are said to have amounted to the commission by Mr Randall of one or more of the acts identified in clause 5.1 (a) of the contract, being acts which might detrimentally affect Aristocrat.

19 Hence this segment of the matters which were litigated requires a close analysis of what constitutes the proper performance of the duties of a director and chief executive officer of a listed company. Submissions on this question and as to whether or not Mr Randall was in breach of the contractual provisions justifying summary termination of the contract and his services extended into:

· a consideration of the material ASX continuous disclosure requirements;

· an examination of the pleaded statutory obligations which include the obligations to use reasonable care and diligence and to act in good faith and in the best interests of the company.

20 A central contention of Mr Randall's counsel has been that it is necessary to look at the performance/standard of performance of the duties of a director and chief executive officer in the context of:

· the financial /commercial environment in which the activities were being undertaken;

· the particular position of the officer concerned [bearing in mind his overall responsibilities, here as the chief executive] going beyond the mere evaluation of financial data [the raw materials for which were being processed by others];

· the personal circumstances of the officer concerned [here the relocation to another country];

· not only the reactions of the particular chief executive officer to the financial data but also the reaction of all other persons whose access to, and comprehension of that same data are said to have mirrored that of the chief executive officer and in some cases to have been more focused. [Transcript 29].

21 A convenient course is to move from the above relatively general overview and to examine the background, the evidence and the submissions in order to be in a position to hand down findings on each of the disparate issues pleaded and litigated.

What was Aristocrat?

22 Aristocrat was a leading global provider of gaming machines and associated products [termed "gaming solutions" in its 2002 annual report.] It operated in Australia and through its subsidiary companies in many parts of the world including the United States, the United Kingdom, New Zealand, Japan, South Africa and elsewhere. It was publicly listed in 1996. During the period since the appointment of Mr Randall its market capitalisation had increased sixfold to $2.5 billion and the expansion of its business globally had resulted in over 33 percent of revenue being sourced outside Australia. In its 2001 annual report it was ranked fourth in one review of Australia's top 100 companies and it had been ranked fifth in another review of Australia's largest 50 companies.

23 It is common ground that the nature of the industry/business in which Aristocrat participated was heavily regulated by gaming authorities and their analogues in the various countries in which it operated. Strict compliance was of the essence. The company was administratively based in Sydney with a head office in Lane Cove and manufacturing facilities in Rosebery. Australia was plainly the nerve centre of the company and it is common ground that there was a very substantial flow of information from its overseas subsidiaries and associated entities into the Sydney head office.

24 The evidence bears out the proposition put forward by Mr Coles QC in his opening address to the effect that Aristocrat, blossoming under the attentions of Mr Randall, was the subject of accolades afforded to it by the marketplace from time to time, the result being that in general terms for each year under Mr Randall's stewardship, there was general confirmation that by reason of the operations of the company's business, the management, the directors and the marketplace entertained high expectations of the profitability of the company. Most particularly those expectations were that in each successive year the company would not only generate a profit after tax and other expenses but would generate a profit which was a considerable/appreciable one or one that stood out to proclaim the company an attractive industry yield.

Differentiation between contracts

25 From time to time it is necessary to differentiate between the versions of the contract although it is accepted by all parties that the subsequent agreements varied the original agreement. The convenient course is:

· to refer to the original contract as the “1998 Contract";

· to refer to the subsequent contracts as respectively the “2001 Contract" and the “2002 Contract";

· where it is not necessary to differentiate between the original contract and the contracts which varied it, to simply describe the varied contract as the “contract".

Broad terms statement of questions in dispute

26 In very broad terms, the main questions in dispute turn on:

· whether Aristocrat was justified in terminating Mr Randall’s employment;

· independently of that question, whether Mr Randall has an entitlement to a bonus payment for his employment in 2002, and to other entitlements;

· whether Aristocrat is entitled to recover from Mr and Mrs Randall (or at least Mr Randall) interest on moneys lent to them in connection with a house bought in their names (in Nevada, USA) in mid-2002.

Detail of particular claims to entitlements pursued

27 The particular claims to entitlements which are pursued, and the contractual provisions upon which the claims are based are identified below.

The defences

Defences raising sections of the Corporations Act 2001 (Cth)

28 Without being exhaustive it may be noted that these defences allege inter alia:

Retirement benefit

- that the 2002 Contract gave Mr Randall a benefit in connection with his retirement within the meaning and subject to the provisions of section 200B (1) of the Act requiring that they be approved by members of Aristocrat.

Financial benefit

- that the 1998 Contract gave Mr Randall financial benefits said to have constituted "financial benefits to a related party" within the meaning and subject to the provisions of sections 208 (1) (a) (i), 228 (2) and 228 (5) of the Act requiring that they be approved by the members of Aristocrat;

29 The sections relied upon are as follows:

Section 200 B

(1)

Section 208 which provides that:

(a) the public company or entity must:

(b) the giving of the benefit must fall within an exception set out in sections 210 to 216;

(a) the giving of the benefit is required by a contract; and

(b) the making of the contract was approved in accordance with sub paragraph (1) (a) (i) as a financial benefit given to the related party; and

Section 210 which provides that:

(a) would be reasonable in the circumstances if the public company or entity and the related party were dealing at arms length; or

Section 211 (1) which provides inter alia that:

(a) the benefit is remuneration to a related party as an officer or employee of…

30 An important parameter raised by the defendant's pleading in relation to financial benefits concerns the issue as to whether or not exceptions to the requirement for member approval were engaged by reference to sections 210 and 211 of the Act. The special focus here is upon whether or not the remuneration would be reasonable in terms of the parameters stipulated by the above-described provisions.

The plaintiff’s responses to the Corporations Act claims

31 The plaintiff's overview submissions put its responses to the suggested application of the Act as follows:

· “the payment of the 3 year severance payment pursuant to clause 5.5 of the Contract is exempt from the provisions of section 200B of the Act because of sections 200F(a)(iii) and 200G of the Act;

· the exemption under section 200F(a)(iii) of the Act (see paragraph 34 above) applies as the severance payment was agreed to by Aristocrat in consideration of Mr Randall agreeing to hold the office of CEO, based in the United States;

· by agreeing to relocate to the United States and assume supervisory responsibility for the United States operations, Mr Randall’s employment position changed substantially causing a new contract of employment to be entered into on 7 December 2002. (see O'Brien v Associate Fire Alarms Limited [1969] 1 All ER 93, Jones v Associated Tunnelling Co Limited [1981] IRLR 477, Australian Colliery Staff Association v Queensland Mines Rescue Service [1999] FCA 395, Quinn v Jack Chia (Australia) Limited [1992] 1 VR 567, Brackenridge v Toyota Motor Corporation Australia Ltd (1996) 142 ALR 99 at 106);

· the second relevant exemption, section 200G, requires two figures to be calculated for use in the stated formula (see paragraph 36 above), namely:

· Mr Randall was employed from 19 June 1998 to 4 April 2003. This is a period of 4.8 years;

· the last three years of his employment are therefore calculated from 4 April 2003. His remuneration during that period was as follows:

Period of employment	Total remuneration
5/4/00 - 31/12/00	$2,532,347.65	(being a pro rata 271 days of the full year emoluments disclosed in the 2000 annual report of $3,420,071)
1/1/01 - 31/12/01	$3,649,588	See 2001 annual report
1/1/02 - 31/12/02	$3,895,056	See 2002 annual report
1/1/03 - 4/4/03	$2,141,426	See 2003 annual report
TOTAL	$12,218,417.65

· on the application of these figures to the formula set out in section 200G, the severance payment claimed by Mr Randall is substantially less than that allowed by the section 200G and is therefore exempt from section 200B of the Act;

· moreover, clause 20 of the Contract (at page 1787 of the bundle) provides:

· section 208(1)(a)(i) of the Act does not apply to Mr Randall because:

(a) Section 209 of the Act provides that even if section 208 is applicable, a contravention of section 208 does not affect the validity of any contract or transaction connected with the giving of the benefit; and

· the terms of Mr Randall’s remuneration and relocation assistance were the subject of discussion and recommendations from Aristocrat’s internal board appointed Compensation Committee, including a written proposal and recommendation from Mr Tony Gibbs (Aristocrat’s human resources chief) in a memorandum of 12 November 2002 (at page 1503 of the agreed bundle). Mr Gibbs has not given a statement in these proceedings. The terms of Mr Randall’s remuneration and relocation assistance was approved by the board and his contract, prepared by external solicitors, was signed for the board by Mr Pascoe and Mr Bush. All negotiations with the company were at arms length;

· where parties have negotiated at arms length and enter into a contract following those negotiations, the conclusion is readily drawn that the terms of that contract are reasonable;

· moreover, given the seniority of Mr Randall’s position, the international nature of his duties, the ongoing success of Aristocrat under Mr Randall and the onerous obligation of relocating from Australia to the United States, the benefits provided are reasonable;

· as Aristocrat is asserting a statutory defence to an otherwise enforceable contract, it is for Aristocrat to establish that such defence is available and that none of the exemptions within the Act apply.”

Sundry defences dealing with detailed provisions of the contract

32 A suite of disparate defences deal with a number of particular clauses of the contract including the proper construction of certain clauses and the claim that Aristocrat was entitled to terminate the contract and the services of Mr Randall under the contract by virtue of particular provisions of the contract.

The estoppel defence to the year 2002 bonus claim

33 A number of particular defences are put forward in answer to Mr Randall's claim for the year 2002 bonus. One of these defences relies upon an estoppel said to have arisen by a letter from Mr Randall to Aristocrat of 12 February 2003 whereunder he is said to have represented that he had forever released the company from any entitlements he might otherwise have had to a performance bonus referable to 2002. The allegation is that acting on the face of that representation and encouraged by Mr Randall to assume that Aristocrat was and would be under no legal liability to him for such a performance bonus, Aristocrat, as Mr Randall knew or to have known, submitted its accounts for auditing, had its accounts audited and reported to the members of the company in its 2002 annual report, upon the basis that the company was and would be, under no legal liability to Mr Randall for a performance bonus for that year.

34 The defences also include claims that upon the proper construction of the contract and in the events which happened, Mr Randall never acquired a legal entitlement to a performance bonus for the year 2002.

Defendant’s answer to the plaintiff’s contentions generally

35 This suite of defences commences with the alleged consequences of what is said to have been non-compliance with the Act. One allegation pleaded is that the 1998 Contract as varied by the 2001 Contract was, in law, discharged upon the parties entry into the 2002 Contract. The proposition is that by virtue of the Act, the 2002 Contract could not bind Aristocrat unless and until it was approved by the members of the company, which approval never occurred. It is said to follow that Mr Randall was therefore employed by Aristocrat on and after 7 December 2002 under an implied contract of service said to have been:

· determinable by Aristocrat either at will or alternatively in the event of misconduct by him;

· an implied contract which did not confer upon Mr Randall any of the sundry entitlements which he claims to have had pursuant to the express terms of the contract.

36 An alternative pleading is that Mr Randall can have no entitlements against Aristocrat (if he has any entitlements at all against the company) more favourable to him than the provisions of the 1998 Contract as varied by the 2001 Contract.

Contractual provisions

37 There are then pleaded the particular contractual provisions earlier described.

38 In answer to the claims under clauses 5.4, 5.5 and 3A.8 of the contract, Aristocrat asserts that it was entitled, pursuant to clause 5.1(a) and (b) of the contract, to summarily terminate Mr Randall's employment.

39 In considering whether a right under either of clauses 5.1(a) or (b) arose, Aristocrat raises Mr Randall’s various duties and obligations imposed by the contract and otherwise at law by virtue of his position as chief executive officer and director of Aristocrat.

Statutory obligations

40 Statutory obligations under the Act are pleaded as imposing upon Mr Randall inter alia the following obligations:

· an obligation that he exercise his powers and discharge his duties with a degree of care and diligence that a reasonable person would exercise in the same circumstances;

· an obligation that he exercise his powers and discharge his duties:

- in good faith in the best interests of Aristocrat,

· an obligation not to use his position improperly to gain advantage for himself.

ASX Listing Rules

41 Aristocrat contends that it was, to the knowledge of Mr Randall, obliged to comply with the ASX Listing Rules including rule 3.1 (said to be enforced by section 674 of the Act) providing that once Aristocrat was, or became aware, of any information that a reasonable person would expect to have a material effect on the price or value of the company's securities, the company was required immediately to tell ASX of that information.

Aristocrat’s code of ethics

42 Aristocrat claims that at all material times to the knowledge of Mr Randall all directors, employees and consultants of the company, including Mr Randall, were obliged to comply with a code of ethics relevantly imposing duties upon Mr Randall:

· to act honestly, fairly and without prejudice in all commercial dealings;

· to conduct business with professional courtesy and integrity;

· to understand applicable laws and regulations and to treat compliance with them as essential;

· not knowingly to make any misleading statements to any person or to be a party to any improper practice in relation to dealings with or by Aristocrat or related companies of Aristocrat;

· to ensure that the resources and property of Aristocrat and its related companies were used properly.

43 In short the duties and obligations said to have been imposed upon Mr Randall under the contract and otherwise at law by virtue of his position as chief executive officer and director of Aristocrat as summarised by the plaintiff in overview submissions, are alleged to be:

“(a) To exercise care and diligence (section 180 of the Act);

(b) To act in good faith and for a proper purpose (section 181 of the Act);

(c) Not to use this position improperly to gain an advantage (section 182 of the Act);

(d) To comply with ASX listing Rule 3.1 and section 674 of the Act relating to the provision of information materially affecting the price of the company's shares;

44 These duties and obligations are said to have a relevant nexus with the contract for the reason that the contract stipulated [in clauses 2.5 and 2.6] that the chief executive officer would perform all normal duties associated with the position held by a chief executive officer of a public company, would faithfully serve Aristocrat and would competently exercise all skills as would be normally expected of persons holding the position of chief executive officer and director of a public company.

Breaches of contract

45 Reference has already been made to matters relied upon as constituting alleged breaches of the contract:

· claims were pleaded concerning a series of matters in relation to which the allegation is that Mr Randall failed to inform the board of directors of his personal knowledge. These claims allege that Mr Randall:

· knowingly caused or permitted particular announcements [and thereafter 'clarifying' announcements] to be released to the ASX;

· later made an apology to the Aristocrat board of directors;

· made particular statements to the public;

· was relevantly involved in the preparation and causing to be published of the 2002 annual report in a form including particular statements.

· in causing or permitting the ASX announcements to be released, making the apology to the board, making public statements and causing or permitting the annual report to be published, failed to make full disclosure of relevant parameters of his then knowledge to the board.

46 It is particularly important to bear in mind that by the time final addresses were taken, as opposed to a very wide-ranging set of pleaded allegations of conduct said to constitute breaches of the contract, Aristocrat had confined its case very considerably indeed. Whilst the overview opening submissions remained in place in part, the now focus and suggested wrongful conduct the subject of final address was limited to the following matters, extracted from the defendant’s final written submissions:

“ Mr Randall’s conduct of 7-18 February 2003

(a) he had had no warning of the possibility of a profit downgrade before 4 or 5 February 2003;

(b) he had been confident of a strong US profit result at the end of 2002.

See Aristocrat’s Case Outline paragraph 23.

47 As senior counsel for Aristocrat put the matter [transcript 552.42] "those four points … are the focus of conduct that we say was wrongful conduct on the part of Mr Randall".

48 It is an understatement to note that confining the final address to these matters meant that a great deal of what had been otherwise litigated fell away. Of course a deal of the evidence material to the now pressed parameters of suggested misconduct was submitted as still to be found in many of the facts said to have been proved during the course of the hearing.

49 Evidence adduced had sought to prove allegations that Mr Randall, who was said not to have informed the board of his state of personal knowledge or belief, had been guilty of:

· on or about 7 February 2003, knowingly causing or permitting an announcement to be released to ASX to the effect that:

· Aristocrat's profit after tax for the year ended 31 December 2002 would fall from a forecast of $109 million to $80.2 million subject to final audit;

· the profit downgrade was a consequence of the Board's decision not to recognise revenue after a Columbian customer had failed to fulfil a number of obligations under a contract; and

· Aristocrat's financial results of the 2002 year when released on 18 February 2003 would demonstrate strong growth in the USA. (paragraphs 59, 78 and 79 of the defence)

· On or about 10 February 2003, knowingly causing or permitting an announcement to be released to the ASX that included statements to the effect that as a result of analysis conducted after Aristocrat’s announcement of 7 February 2003:

· Aristocrat had discovered that the financial performance of its American business was ‘inconsistent with information previously provided by the Americas’ management’ in that the analysis, inter alia, spelt out the extent to which (profit) margins had deteriorated in the second half of 2002;

· while margin pressure was known to exist, the extent to which this had occurred was not known; and

· Aristocrat had initiated a full review of its American businesses which was to be led by Mr Randall (paragraphs 60, 78 and 79 of the Defence).

· On or about 11 February 2003, knowingly causing or permitting an announcement to be released to the ASX that included a statement to the effect that the full extent of the lower volumes of sales and profit margins in the North American business had only become apparent following analysis conducted on the weekend of 8 and 9 February 2003 (paragraphs 61, 78 and 79 of the defence).

· On or about 17 February 2003, Mr Randall (as CEO) made a statement to the Board that he had not seen coming a problem with the profit margins of Aristocrat's North American business and did not have sufficient controls in place to understand the situation in North America early enough to take action and inform the Board (paragraphs 62, 78 and 79 of the defence).

· On or about 18 February 2003, Mr Randall as CEO made statements to the public to the effect that:

· He had no warning before 5 February 2003 about the profit down grade;

· until 5 February 2003 he was confident that Aristocrat would report a strong US financial result; and

· it was not clear to him before 5 February 2003 that Aristocrat had a problem with its profit margins in its North American business (paragraphs 63, 78 and 79 of the defence)

· Between 18 February 2003 and 13 March 2003, preparing or causing the 2002 annual report of Aristocrat to be prepared and knowingly causing or permitting a statement to be made by the Chairman Mr Ducker) to the effect that the company became aware of information about problems in the United States and properly released it to the markets on 7,10 and 11 February 2003 (paragraphs 64, 65, 78 and 79 of the defence).

· On or about 11 December 2002, failing to inform the Board that he had received email messages concerning problems with the United States' profit margin (paragraphs 66, 68, 78 and 79 of the defence)…

· On or about 17 February 2002, delivering to Aristocrat a promissory note… to secure the sum of US$1.665 million lent by Aristocrat to Mr and Mrs Randall (paragraphs 73, 74, 75, 85 and 86 of the defence).

· On or before 9 January 2003, Mr Randall failed to disclose to the board his knowledge that Aristocrat had a substantial problem with profit margins in its North American business, that Aristocrat would not or might not report a strong US financial result or exceed its profit expectations and that the profit after tax would not or might not meet Aristocrat’s September 2002 forecast of $109 million but would or might be substantially less than that amount (paragraphs 68A to 68H, 78 and 79 of the defence). To substantiate the alleged knowledge that Mr Randall had or ought to have had, Aristocrat rely on:

· Mr Randall’s involvement in a video conference on 18 or 19 December 2002 in which Mr Randall was allegedly informed that gross margins for the North American business was low and that no recovery could reasonably be expected in December 2002.

· The preparation of a draft ASX announcement by Mr Alan Jury (the General Manager Global Communications) at the end of December 2002 announcing Aristocrat’s anticipated failure to meet the market’s profit after tax expectation of $109 million.

· An email message sent to Mr Randall by Mr Khin on or about 31 December 2002 that there had been a decline in the estimated total revenue, profit and gross margins of Aristocrat because of the results in the Americas and that upon favourable assumptions, Aristocrat’s profit after tax would be $91 million.

· An email message sent to Mr Randall by Mr Jeyaraj on or about 5 January 2003 concerning a number of “alarm bells” which Mr Newburg agreed with.

· On or about 9 January 2003 Mr Randall attended a meeting of the executives in the US when the issue of gross margins in the Americas was allegedly discussed.

[emphasis added]

50 All or some of these and certain other matters had been pleaded as constituting one or more of the following categories of conduct by Mr Randall:

· misbehaviour within the meaning of clause 5.1 (a) of the contract;

· a breach of duty which might detrimentally affect Aristocrat within the meaning of clause 5.1 (a) of the contract;

· acts of dishonesty within the meaning of clause 5.1 (a) of the contract;

· fraud within the meaning of clause 5.1 (a) of the contract;

· breaches of clause 2 of the contract;

· irremediable, wilful, persistent and material breaches of the contract [clause 5.1(b) of the contract].

Aristocrat's cross-claim

51 Aristocrat has cross claimed against Mr Randall and Mrs Randall seeking repayment of interest on a loan of US $1,665,000 plus interest paid to acquire a home in Nevada USA for Mr and Mrs Randall, following their relocation to the USA at the end of 2002.

52 Aristocrat has also sought payment of an unspecified amount of damages being the costs incurred by Aristocrat in respect of an Australian Securities and Investments Commission [“ASIC”] investigation into Aristocrat following the downgrading of Aristocrat's 2002 profit after tax.

The disputed questions of fact

53 The substantial contest at the level of primary fact was confined to the events leading up to and involving the announcement by Aristocrat released to the market on 7 February 2003 and the aftermath which followed that announcement.

54 Dealing with the factual issue concerning the deteriorations in profit margins and revenue shortfalls in the United States market which apparently affected the profit downgrade has required the adducing of detailed evidence:

· including many documents and reports providing projections of actual financial results during 2002 and early 2003, including forecasted profit after tax for 2002;

· including many e-mails passing between those responsible for preparation of these documents and reports and those to whom the documents and reports were provided.

55 As will appear from the detailed examination of the evidence, Mr Randall under cross-examination put forward a line of answers to the propositions that:

· he had become aware no later than December 2002 from information imparted to him that there was a substantial risk that the Aristocrat group would not make its market consensus profit figure of $109 million.

· it was not true for him to have asserted [as at the 18 February 2003 analysts presentation DX 141] that as at year's end "we believed we would report a strong US and strong South American result” and that "we couldn’t tell you what we did not know."

56 The answers were essentially:

· that he was aware as at December 2002 that there was a risk that the group would not make its market consensus profit figure of $109 million [transcript 158.39];

· that this awareness did not amount to knowledge;

· that where he had used the words "no warning on the $109 million down to $80 million" it was true that he was intending to convey that he had received no warning on the possibility of the reduction from $109 million down to $80 million but that this was neither false nor false to his knowledge [transcript 160.19];

· that it was true that he had received repeated warnings from Mr Khin that there was a possibility that there would be a profit markdown and that this could be a markdown to $80 million but that in fact Mr Khin had said to him that the company could make between $80 million and $140 million [transcript 160.22];

· that although he was aware that there had been erosion in the planned margin from the Americas, Aristocrat as he had understood it, had enough edge between the country numbers and the market numbers to mean that it was confident with the $109 million market consensus being achieved [transcript 156.45,157.12];

· that Aristocrat was assured by the United States organisation that the margin erosion in North America would be made up in the December month;

· that it was incorrect to say that he knew no later than 11 December 2002 that there was a margin problem in North America which could not be rectified by the end of the year because this had simply been a question put by Mr Jeyaraj to Mr Newburg and that Mr Jeyaraj had received no answer to that question [transcript 157.30];

· that whilst particular officers and employees within the Aristocrat group may have had particular opinions [instance for example Mr Khin], unless a formal meeting was held between the responsible persons which agreed to a position it was not possible to make a market announcement: to do so would amount to reporting no more than rumour;

· that he had been reliant upon the responses given to head office by Mr Newburg who had made the point that the Columbian deal had been obtained so that the numbers would change for the good which meant that Mr Randall was not concerned;

· that to the extent that Mr Jeyaraj had communicated in terms such as:

"The gross margin fallout in the Americas have had a very real impact to the whole group results. The miss in the America's gross margin for the month of November is over US $6 million and there is no catch up planned in December…

Given the above, in order for the group to meet expectation we now need:

more

· that he had telephoned Mr Jeyaraj and had asked whether Aristocrat had made the margin expectation to be told that they had as "Columbia got across the line" [transcript 187.17].

The way forward

57 The convenient course is to proceed:

· by first outlining some general matters concerning lines of authority, reporting practices and aspects of business patterns;

· then proceeding to chronicle [in a ‘timeline’ document] portions of the evidence;

· then dealing with the findings on the disparate claims.

The hierarchy and job responsibilities within head office

The board of directors

58 As chief executive officer, Mr Randall reported directly to the board of directors. At the time Mr Randall commenced employment, the board consisted of Mr Burke as chairman, Mr Stephen Cohn, Mr Mark Ainsworth, and Mr Les McAvinue. At the time of the termination of his employment, the members of the board of directors were:

· Mr John Ducker as chairman of the board

· Mr William Baker

· Mr Peter Draney

· Mr Alan Steelman

· Mr John Pascoe

59 The board had three committees to which it delegated certain functions to discharge the board’s obligations. The three committees were chaired by non-executive directors and reported directly to the board. As a consequence of his position as chairman, Mr Ducker was a member of each committee. The name and purpose of the committees were:

· The audit committee, chaired by Mr Draney, to assist the board in fulfilling its responsibilities relating to the accounting and reporting practices of the group;

· The compensation and nomination committee chaired by Mr Pascoe, to review the structure and operation of the board, and to make recommendations to the board about selection and appropriate levels of remuneration for work carried out by board members, the chief executive officer and his direct reports; and

· The regulatory compliance committee, chaired by Mr Baker, to oversee Aristocrat’s compliance programme and to proactively keep the board informed as to any business or personnel issues that might impact the company's reputation or licences.

60 To assist the board, its committees, and management in the delegation of roles and responsibilities, the board adopted a set of corporate governance principles.

Reporting financial results to the board of Aristocrat

61 Since the commencement of Mr Randall's employment in 1998, the board of Aristocrat had set an annual budget which sought to take into account region-specific market indicators and foreseeable risks to Aristocrat's financial performance during the upcoming year. This was the budget against which management's performance was measured, and bonuses were paid, including Mr Randall’s annual performance bonus. The board's budget for 2002 was as follows:

· revenue: $907.5 million

· profit before tax: $121 million

· profit after tax: $80.0 million

62 It was Mr Randall's usual practice to provide each member of the board of Aristocrat with a monthly chief executive officer report, which included information regarding:

· the previous month's financial results;

· the impact of the financial results on the board budget;

· outlooks against the board budget (by both country and product line); and

· operational highlights and any forward looking operational issues for board discussion.

63 In the months where a board meeting was scheduled, a chief executive officer report was provided to the directors of the board in advance of the meeting so that they would have time to study the material and formulate any questions prior to the meeting. Mr Jeyaraj, the chief financial officer, also attended all the board meetings to present the financial results. At each board meeting, Mr Jeyaraj and Mr Randall spoke to the CEO report and took questions from the board. In the months where a board meeting was not scheduled, a CEO report containing this information was still provided to each director of the board. All directors were invited to ask questions or seek clarification directly from either Mr Randall or Mr Jeyaraj about these CEO reports.

The manner in which information was received and processed by head office

64 The financial information contained in these monthly CEO reports was provided to Mr Randall by Mr Jeyaraj and/or Mr Khin, the group financial controller. Mr Khin reported to Mr Jeyaraj. Mr Jeyaraj and Mr Khin consolidated the group financial information received from each country and then provided Mr Randall with the consolidated result, which was also reported to the board of Aristocrat without any alteration.

65 Mr Jeyaraj had responsibilities for the Australian operations of Aristocrat. Those responsibilities included the management of accounts, quality, tax, treasury and business services.

66 As chief financial officer of Aristocrat, the following areas reported to him:

· Information Technology;

· Employee Services;

· Corporate Finance;

· the Controller's Department;

· Quality Assurance;

· Tax; and

· Treasury.

67 In his position as chief financial officer, Mr Jeyaraj also had responsibilities for the group operations of Aristocrat, including the following:

· consolidation of overseas reporting;

· global tax planning;

· global treasury planning; and

· board reporting.

68 As group financial controller Mr Khin had a team of approximately 30 employees reporting to him. This team was responsible for the consolidation of group financial results, the compilation of reports of consolidated financial results, the distribution of those reports to senior management, the analysis of those financial results, the preparation of board reports and overall group financial planning and budgeting functions.

69 Mr Khin gave the following evidence:

“Monthly Financial Reporting at Aristocrat

USA

9.2 Board Report: It was my responsibility to prepare a Board Report each month to be distributed to each member of Aristocrat’s Board. Each Board Report comprised the following sections:

9.3 Financial Results in CEO Report: It was my responsibility to prepare that part of a report entitled ‘CEO Report’ (which was provided by Mr Randall to the Board of Aristocrat) for each month which sets out the actual financial results for the Aristocrat Group for that month and the year to date. That part contains comparisons between those actual results and the budget for the month and the equivalent month in the prior year. Whenever I did not have the actual results available to me at the time, I drafted this part of the CEO Report with the use of the preliminary results which I had available to me in the form of the ‘flash’ reports, and expressly referred to the use of such ‘preliminary’ or ‘flash’ results.

[Paragraph 9 of Mr Khin's statement of 16 October 2003]

Aristocrat's global operations

70 Mr Jeyaraj gave evidence that:

· globally, Aristocrat is divided as follows:

· each region or country (as the case may be) has a chief financial officer or controller who reports to the country or region manager. Thereafter, the country or region manager reports directly to the chief executive officer in Sydney;

· each country or region is autonomous. It is responsible for preparing, having approved by the board of Aristocrat, and implementing a business plan for each financial year. Aristocrat's financial reporting year is the same as the calendar year;

· an annual field plan is also prepared by each country or regional manager based on the specific business environment. The field plans are based on stretched targets of each country or region and set the outer limits of the year's performance of Aristocrat;

· the annual budget for the financial year as approved by the board is extracted from the country business plans;

· each country or region provides monthly accounting reports to Aristocrat's head office in Sydney, through files and documents such as outlooks and flash reports. These reports are forwarded to the controller's department in Sydney which is responsible for monitoring Aristocrat's performance locally and internationally. The country or region's performance is monitored by the controller against the field plan, as well as against the budget approved by the board.

71 His further evidence was that the interpretation of monthly reporting from each region or country required to be seen in the context of Aristocrat's performance worldwide, the markets in which it was trading, and the idiosyncrasies of the markets. Without the inherent knowledge of the markets and Aristocrat's performance in those markets, the financial reporting was on his evidence, a limited tool for monitoring performance.

Aristocrat's sales patterns

72 Further evidence given by Mr Jeyaraj was:

· that in his experience, the business of Aristocrat and its performance against targets had its own idiosyncrasies. In particular, a high level of sales generally occurred in June prior to the close of the half yearly accounts. Sales in December were extremely high but in the months immediately preceding December, in particular September, sales were lower;

· that one reason for reduced sales in September and increased sales in December is that in September and October, each country or region prepares its financial plan for the following year. That plan is then submitted for approval by the board in late November. In preparing the plan, the countries and regions often hold back or do not ‘book in’ proposed sales. This lowers expectations for the following financial year. As sales are lower at the relevant time, the plan is also less onerous. Once the plan has been submitted and approved, sales are generally booked in for the last month of the year to ensure the year's targets are achieved as closely as possible;

· that in September each year in America, the annual gaming convention takes place. Sales in the months leading up to the convention are lower as customers wait for the convention to review new games prior to the peak season of New Year and Thanks Giving. The demand created as a result of the convention contributes to the high level sales in December;

· that these idiosyncrasies, particularly in the Americas, were further complicated by gaming legislation changes for each jurisdiction, new licences, new games hits, new alliances and acquisitions, and re-alignment of sales territories. These were a direct consequence of Aristocrat’s acquisition of Casino Data Systems ["CDS"] in Las Vegas (being a company which specialises in technology driven products for the gaming industry) with significant merger activity and cost reduction programs being implemented at the same time.

73 Accordingly, it was the evidence given by Mr Jeyaraj that Aristocrat's final performance for the year against the field plan and budget could not be determined until the accounts for December had been audited accurately.

Financial reporting by Aristocrat Technologies Inc.

74 Mr Jeyaraj gave evidence that throughout his employment as chief financial officer, the various functional departments at Aristocrat's head office experienced problems with the poor quality of information, including financial reporting, being received from Aristocrat's American subsidiary Aristocrat Technologies Inc. ["ATI"]. These problems included inconsistent reporting from CDS’ legacy systems and reports, and the need to continually question the accuracy of reporting provided by ATI. In due course and after months of discussions, this led to a change in the controller for Americas in December 2002.

75 His further evidence was that during the period from October 2002 to December 2002, head office continued to question the information being received from the American operations, with some help from himself as chief financial officer.

Timeline - the evidence

76 The convenient course is to treat with the sundry evidence which requires to be identified in timeline fashion.

77 In reciting portions of the evidence it should be made clear that all of the evidence has been taken into account in the findings to be found in this judgment. It is neither practicable nor possible to set out all of that evidence. The fundamental search and the critical findings concern the nature of the information received by Mr Randall [or of which he became aware], what he drew from that information and whether or not the pleaded breaches of contract have been proven [in terms of his suggested failure to take particular action in relation to that information and in terms of the allegation that he later played the or a central part in disseminating false or misleading or inaccurate information].

78 Initially a short reference to reliability of particular witnesses is in order.

Reliability of material witnesses

Mr Randall

79 Mr Randall cannot be regarded as a reliable witness save where his version of events is consistent with contemporaneous documents or with versions of events corroborated by witnesses who may be regarded as reliable. This is not to say that Mr Randall did not give a deal of evidence which was consistent with contemporaneous documents or with versions of events, or confirmed by other witnesses. The problem was that on many occasions Mr Randall clearly took the opportunity to press his own case: hence the extent to which an entirely partisan picture emerges from his evidence must always be kept in mind in weighing up the evidence. In certain areas his evidence is clearly rejected. The court's clear finding rejects his evidence that:

· he had not asked to see a copy of Mr Khin's draft e-mail prepared during the morning of 10 February 2003;

· that it was not until discovery that he had ever seen that e-mail or the draft announcement prepared by Mr Khin and Mr Jeyaraj.

80 These were important pieces of evidence. The significance of the unreliability of the evidence given by Mr Randall on these matters points up the need for very great care in assessing other evidence given by him.

81 There are a number of other examples of the unreliability of particular evidence given by Mr Randall. One only of those matters was Mr Randall's version of the boardroom meeting of 10 February 2003 where he asserts that he said to Mr Khin "You may have been aware of [particular information from the US] in part, but you did not report it to me." Mr Randall's contention before this court that it had not been his intent in this piece of evidence, to make the point that Mr Khin may have had information but Mr Randall did not have any information, is rejected.

82 As the judgment will make plain his further evidence as to his state of mind on certain matters in December 2002 and on some later dates is also rejected. One example is his evidence that he had not felt pressure before departing from Australia on 16 December 2002 believing that there were “no issues”.

83 There is no doubt but that Mr Randall for obvious reasons feels extremely strongly about what he regards as the unconscionable conduct of Aristocrat in relation particularly to his dismissal. These high emotions no doubt play a considerable part probably in leading to a tendency, perhaps sometimes subliminal, to overstate the positives in his own case and to put a slant upon events which may assist the case of Aristocrat. It is a common experience of the courts to find that with the passage of time, witnesses and particularly litigants, will come to unconsciously believe that particular events were otherwise than are in fact proven by contemporaneous documents and reliable evidence given by other witnesses. This may have been a cause of some of the more unreliable evidence given by Mr Randall. The simple fact is that the events in issue cover a relatively small period in the life of his position as chief executive officer. And for an important part of the critical days from about 16 December 2002 he was very involved in the United States with the relocation of his family and no doubt can justifiably claim a substantial degree of disruption from daily routine in that regard.

Mr Jeyaraj

84 Broadly speaking the degree to which and reasons for which certain of the evidence given by Mr Jeyaraj cannot be accepted as reliable is set out in the judgment. It is unnecessary to go further presently except perhaps to point out that there is a significance in paying close attention to the form of draft announcement prepared by both Mr Jeyaraj and Mr Khin on 9 February 2003 [later closely examined in the judgment]. The part played by Mr Jeyaraj in that exercise substantiates the proposition that both men were, for good reason, not prepared to go along with the formal announcement which had been prepared for release where it had referred to sections of information not having been available prior to the 7 February announcement and had referred to information only received on the Friday. They had not been content with the reference to information received on the Friday having been "inconsistent with information previously provided". Barring exceptional circumstances it is usually not possible to move away from a contemporaneous document. And even though this was not the subject of cross-examination of Mr Jeyaraj, it is an example of why it is that the court relies upon all of the evidence in reaching findings and here in assessing reliability.

Mr Khin

85 Mr Khin is accepted by the court as having given reliable evidence. His evidence was consistent with contemporaneous documents. He had no difficulty in recalling the events which occurred. He had previously given evidence during the ASIC inquiry. His evidence before the court was consistent with that other evidence. On one occasion referred to below when he was particularly disturbed by what he regarded as a proposed ASX announcement which he saw as failing to state the truth, he took the significant precaution of preparing a draft e-mail to record where he stood on the issue. Although it was never sent it survived to see the light of day in the courtroom and bespeaks the reliability of the witness. He gave his evidence carefully and quietly. On an important issue as to whether or not the evidence given by Mr Khin or by Mr Randall should be accepted [the tearing up by Mr Randall of the draft e-mail prepared by Mr Khin] the evidence of Mr Khin is accepted as reliable and that of Mr Randall is rejected.

Mr Newburg

86 Mr Newburg had some difficulty in recalling a number of the events which were put to him. In some areas he appeared confused, as for example when a conversation was put to him as having occurred where it was suggested that he had said to Mr Jeyaraj and Mr Khin that there was no need to worry about the December flash report for various reasons. He responded that this discussion would have taken place in the first part of December and not at the end of December. However as the evidence disclosed, the first of the two flash reports for December was sent on 23 December. Subject to some particular matters, his evidence can only be accepted where it is consistent with contemporaneous documents or corroborated by the evidence of another witness who may be taken as reliable. The findings make clear where his evidence is accepted.

87 His evidence is accepted as reliable in relation to the conversation which he had with Mr Randall of 7 February 2003 [referred to below] where he was told by Mr Randall that even if Aristocrat had made the profit numbers its share price would still have been crucified because it did not tell anyone how much it had depended upon South America. The findings otherwise make clear where on some matters his evidence is accepted.

Evidence given by other witnesses

88 Evidence was given by a number of other witnesses, many of whom were not cross-examined. It has been unnecessary to chronicle that evidence but it has been taken into account where appropriate. Some of the evidence went to issues such as experiences in the gaming industry and knowledge of and dealings with Mr Randall. The evidence clearly establishes that Mr Randall had a strong record of encouragement of employees engaging in regular networking and for example participating in industry golf days where funds were donated to charities and similar. He had been a director of the Australian Gaming Council.

89 Other evidence adduced went to the relevant exchange rates as between the US and Australia at particular times and to matters such as costs of travel to and from the United States. Mr Jury had been the general manager, global communications, reporting to Mr Randall and gave evidence in relation to some of the material events which has been taken into account as necessary. His role had included managing communications with the media as well as internal communications. The judgment refers to his involvement in the preparation of the draft announcement in late December which was never ultimately released. Other evidence which he had given is taken into account in the findings, as for example where his evidence is held to be more reliable than that of Mr Randall in relation to a conversation which they had on 8 February 2003.

90 Other evidence was given relating to communications with the ASX, where for example in September 2002 Mr Greenslade was asked by the ASX to halt trading in Aristocrat's shares pending release of a particular announcement. Mr Carr-Gregg was the commercial manager of Aristocrat with duties including the preparation of drafts of the company's annual report and half yearly report. His evidence covered the steps taken leading to the preparation and then release of the 2002 annual report.

91 Other evidence dealt with conveyancing figures, relevant dates and matters concerning relocation costs and detail.

92 Mr Bush was the company secretary of all of the Australian companies in the group and a director of ATI. His evidence covered a number of matters including events which had taken place at board meetings and the extent of his responsibilities. His evidence included some detail with respect to the relocation arrangements and discussions. The judgment deals with the promissory note issue and communications. His evidence covers the drafting of the draft profit downgrade announcement in relation to which he had first [in his statement and in his sworn evidence before the ASIC inquiry] said that he could not recall whether he had drafted the original version or whether Mr Jury had drafted it. Under cross-examination he contended that it had been himself who had drafted the document. The matter is ultimately of small moment as it is obvious that he and Mr Jury were in close communication about the matter. His version of events was that Mr Jeyaraj had told him that the draft announcement was no longer required after Christmas Eve as "the Americas were confident they would meet their targets". He did have particular difficulty in answering questions relating to some disconformity as between his handwritten notes and what precisely had occurred at the board meeting on 17th February 2003 as compared to what had occurred at the later board meeting of 14 April 2003. It was put to him that the board had determined that the earlier minutes should be doctored and that the board minutes were doctored. It is unnecessary for present purposes to reach findings on these issues but it has to be said that Mr Bush clearly had had difficulties in recalling the events surrounding the drafting of announcement which was never released. The evidence of Mr Jury is accepted as the more reliable where inconsistent with that given by Mr Bush on this matter. The two men did work closely together. Clearly Mr Jeyaraj was also in close communication with each of them. It is not inconsistent with Mr Jury's evidence to find that the draft announcement was on Mr Bush's computer. It could easily have been on the computers of both gentlemen. Mr Jury gave evidence that he had deleted the draft announcement from his own computer system.

November 2001

93 The market expectation (established independently of the defendant) of the defendant's performance during 2002 is determined to be as follows:

· Revenue: $934 million

· Profit Before Tax $257.9 million

· Profit After Tax: $109 million

[DR 3/12/03 p188]

December 2001

94 The defendant commences litigation against International Gaming Technology [the “IGT litigation"].

February 2002

13 February 2002

95 The defendant's audit committee holds a meeting to discuss, inter alia, the report prepared by PriceWaterhouseCoopers ["PwC"] dated 11 February 2002. During that meeting, PwC acknowledge that approximately 56% of the group pre-tax result arose in the last month of the year, and substantial profit had been booked in December 2001. This is observed as a regular trend.

96 PwC also recommend that the defendant review its revenue recognition policies to reflect that some business now being done in South America, for example in Peru, had a higher risk profile than in the past. [Doc 37, Doc 38]

Three or four months before June 2002

97 Mr Randall's evidence was not altogether consistent in terms of precisely when he first learned of various South American prospects. His evidence appears to be that some three or four months prior to June 2002, board approval was given to Mr Newburg to endeavour to access South American markets. Mr Newburg had stated that there were two zones in South America which operated basically as free trade zones within each other and that it was necessary to open up both markets. On the evidence of Mr Randall, presumably reflecting what he had been informed by Mr Newburg, the key to the southern market was Colombia. Mr Newburg wanted to open up that market. The key to the northern market was Brazil which would be a master dealer. [Transcript 124]

April 2002

15 April 2002

98 The defendant holds a board meeting, during which reports are given by the plaintiff and the chief financial officer, Mr Jeyaraj, regarding the defendant's performance for the month of March 2002, the year to date results, and operational highlights.

May 2002

99 Negotiations between Mr Carlos Quintero and ATI commence for the sale of 12,000 units and a master distributorship in Columbia (the “Columbia Transaction").

100 Mr Randall acknowledged that from May 2002 his personal belief was that the market considered the United States of America to be “the growth engine” of Aristocrat. [Transcript 112] [cf the 13 August 2002 presentation to analysts referred to below]

Extent of direct communications between Mr Randall and Mr Newburg

Grundt v Great Boulder Gold Mines Pty Ltd

656 Deane J in Verwayen (supra at 444) spoke of the need for a “significant disadvantage” on the part of the relying party, if the assumption or reliance founding the estoppel is departed from. Deane J further held (at 445):

657 Mason CJ in Verwayen (at 416) referred to the need for substantial and irreversible detriment flowing from the reliance on the representation.

658 Handley JA in Hawker Pacific Pty Ltd v Helicopter Charter Pty Ltd (1991) 22 NSWLR 298 at 307-8 held, after referring to the use of the phrases “material disadvantage”, “material detriment” and “significant disadvantage” by, respectively Dixon J in Thompson v Palmer (1933) 49 CLR 507 at 547, Rich, Dixon and Evatt JJ in Newbon v City Mutual Life Assurance Society Ltd (1935) 52 CLR 723 at 734, and by Deane J in Verwayen (supra) held:

659 In this case, even assuming Aristocrat’s case at its highest, namely that in signing the waiver letter, Mr Randall intended it to be relied upon and it was in fact relied upon for the purpose of finalising the 2002 accounts, it was clearly given in circumstances where Mr Randall assumed his employment to be ongoing with the company and the bonus would be considered later in good faith by the board. There is nothing unconscionable on Mr Randall’s behalf in seeking to recover the bonus consequent upon the termination of his employment shortly thereafter and in circumstances where no material disadvantage has been suffered by Aristocrat.

660 On the facts of this case, Aristocrat must be able to point to some material or significant disadvantage if Mr Randall is now entitled to claim his bonus. It cannot.

661 Aristocrat refers only to the preparation of the 2002 accounts without reference to Mr Randall’s bonus as the act of reliance or detriment to found an estoppel. One simple accounting entry in the consolidated entries of an international billion-dollar enterprise cannot constitute a material disadvantage. To include a further accounting entry in relation to the 2004 accounts would also not constitute a material disadvantage. Aristocrat has lead no evidence to substantiate a claim that the changing of an accounting entry in its books of account would cause it any disadvantage, let alone a material or significant disadvantage. No evidence was adduced to the effect that Aristocrat may suffer disadvantage at the hands of a shareholder or shareholder group who had acted upon the basis of the 2002 accounts as being misleading or deceptive or incomplete or inaccurate. Nor [despite the Court taking counsel for the defendant to the question of how detriment was pleaded -transcript 533] was the matter pleaded in this way in terms of suggested detriment.

662 Nor is it self evident that the non-recording of the bonus is a detriment. If Aristocrat did not in fact pay the bonus in 2002, there is no clear or proper evidence as to how the accounts may be differently prepared had the bonus been recorded. No payment could have been recorded as no payment was made. All that existed was a contingent liability to pay the amount in 2003.

663 The estoppel case fails.

The Promissory Note issue

The claim made

664 By its second further amended cross-claim, Aristocrat seeks from both Mr and Mrs Randall repayment of a loan in the sum of US$1,665,000, plus interest said to be US$50,821.23 calculated to 28 July 2003 (from an unspecified date) and continuing to accrue daily. The loan was used to acquire the Las Vegas home used by Mr and Mrs Randall on their relocation to that city.

665 Whilst the sum referred to in the cross-claim is the full amount of the original loan, Aristocrat admits that it has received at least US$1,411,098.90 from the sale of the Las Vegas home in reduction of the original loan.

666 By paragraph 4A of the cross-claim, Aristocrat bases the alleged estoppel on the delivery to it on 17 February 2003 by Mr Randall of the executed promissory note. By reason of that delivery it alleges (paragraph 4A.1) that Mr and Mrs Randall jointly and severally represented to Aristocrat and encouraged it to conduct its affairs upon such an assumption, that:

· the Promissory Note was jointly and severally binding on Mr and Mrs Randall;

· Mr Randall gave up his right to any entitlement to an interest free loan;

· Mr and Mrs Randall would repay to Aristocrat the loan amount plus interest in accordance with the terms of the Promissory Note.

(the “representations”)

667 It is further alleged (paragraph 4A.2) that Aristocrat acted on the faith of the representations, and was encouraged to assume the subject matter of the representations, and:

· submitted its accounts for auditing;

· had its accounts audited;

· reported to the members of the company in its 2002 Annual Report upon the basis that the Promissory Notice governed the loan.

668 It is further alleged (paragraph 4A.3) that Mr and Mrs Randall are estopped from asserting that:

· the Promissory Note is not binding on them jointly and severally;

· the loan was interest free; and

· Mr Randall was entitled to rely on clauses 3A.7 and 3A.8 of the contract.

The terms of the loan

669 On Sunday 17 February 2002, the Compensation and Nomination Committee considered the terms of Mr Randall’s relocation package (see minutes of meeting commencing at AB 1/333). The Committee comprised of Mr Pascoe (as Chairman), Mr Steelman, Mr Randall, Mr Ducker (as Chairman of Directors), Mr Gibbs (the General Manager of Human Resources) and Mr Bush as the Committee Secretary.

670 Paragraph 6 of the minutes of the meeting refers to the recommendations by Mr Gibbs for the terms of the relocation and it was resolved to recommend them to the board. There is no copy of any document in evidence that went before the Committee setting out such recommendations.

671 The Committee also recognised that issues may arise and require determination during the process and recommended that any issues requiring resolution be agreed with either the Chair of the Committee (Mr Pascoe) or the Chairman of the Board (Mr Ducker). It also recommended that Mr Gibbs and Mr Jeyaraj jointly should agree each step in the relocation in terms of detail.

672 In other words, the Committee recommended that further matters in relation to Mr Randall’s relocation be delegated to Mr Pascoe or Mr Ducker for approval and that final detail of the relocation package be delegated to both Mr Gibbs and Mr Jeyaraj.

673 The recommendations of the Committee were adopted as resolutions of the board on 18 February 2002 (see minutes of that meeting commencing at AB 2/368, in particular at AB 2/373).

674 The substance of Mr Randall’s relocation package as approved by the board was attached to Mr Ducker’s memorandum to Mr Randall dated 1 March 2002 (AB 2/382). Under the heading relocation assistance, is provision for “Interest free loan (up to US$2 million) for Las Vegas house purchase”.

675 The interest free loan was expressly included in clause 3A.7 of Mr Randall’s contract of 7 December 2002 (AB 5/1771).

676 By memorandum dated 30 April 2002 (AB 2/431) from Mr Randall to Mr Pascoe as Chairman of the Compensation Committee, Mr Randall set out various propositions in respect of the USA housing aspect of his relocation. In that memorandum Mr Randall sought to agree an approach for the subsequent sale of the Las Vegas house following the end of his career with Aristocrat that minimises the risk for both Aristocrat and his family. Mr Randall referred to the sale of the house being effected through a specialist housing sale company that apparently operate in the US and the “company would then receive the house sale proceeds as a full offset to the advance provided. The company’s overall exposure will therefore be limited to the carrying cost of the loan and any capital depreciation on sale” As the memorandum stated, it was considered more likely that the company would benefit from capital appreciation.

677 The Compensation Committee approved this proposal on 20 May 2002, as indicated by Mr Pascoe’s signature on the 30 April 2002 memorandum. Such approval was within the scope of Mr Pascoe’s delegated authority on relocation matters provided at the 18 February 2002 board meeting.

678 This approval was further confirmed in Mr Gibbs Memorandum of 6 September 2002 to Mr Randall (see AB 3/779).

679 Mr Gibbs further set out the detail of Mr Randall’s relocation assistance in his memorandum of 2 December 2002 to Mr Randall and Mr Jeyaraj (AB 5/1689). At AB 5/1691, the schedule concerning housing costs and payment responsibilities states that Aristocrat bore responsibility for the purchase and the loan both pre and post relocation and that Aristocrat was to sell the home on assignment end through a third party specialist firm, with the proceeds to go to Aristocrat.

680 By virtue of Mr Randall’s memorandum of 30 April 2002 (AB 2/431) which was approved by the Compensation Committee on 20 May 2002, and the 2002 Contract (AB 5/1771) it is a clear term that the housing loan was subject to the following terms:

· it was interest free; and

· it was to be satisfied (even assuming Aristocrat’s case at its highest with interest being payable) on receipt of the proceeds of sale from the Las Vegas home.

Mrs Randall

681 Subject to the promissory note (discussed below), there is no evidence that the loan was made to Mrs Randall. The fact that the Las Vegas home was acquired in the names of Mr and Mrs Randall does not mean the loan funds were paid to or on her behalf. Even if they were, that is not enough to make her liable for repayment of the loan. Rather reference must be had to the express terms of the agreement.

682 The relocation assistance documents referred to above, and in particular the 2002 Contract, provide that the loan was to be to Mr Randall. Mrs Randall was never a party to the contract or other negotiations or agreements involving the relocation package.

683 The 2002 Annual Report (commencing at AB 12/3845) referred to by Aristocrat in its Further Amended Cross Claim, clearly state that the loan was to Mr Randall only. Page 69 of the Annual Report (AB 12/3915) under Note 37 to the audited 2002 accounts states that the loan was to Mr Randall only. There is no reference to Mrs Randall.

684 It is not disputed that Mrs Randall signed the promissory note (AB 5/1643). It is disputed however that it has any effect to bind Mrs Randall.

The inconsistency between the documents

685 The particular problem concerns what appears to amount to a clear inconsistency between the two documents which were signed. The 2002 Contract clearly provided in clause 3A .7 that Aristocrat would arrange for the chief executive officer to have the benefit of an interest free loan of up to US$2 million "for the purpose of purchasing a home in Las Vegas, such loan to be secured by a first mortgage over such home". The secured promissory note however included a joint and several promise by Mr and Mrs Randall to pay to the order of Aristocrat the principal sum of US $1,665,000 together with interest on the unpaid principal balance "in accordance with the following terms and provisions and Desmond Randall's Service Agreement with Holder [DX 279]…"

686 Plainly enough a representation to ground an estoppel must be clear and unambiguous (Legione v Hatelely (1983) 152 CLR 406 at 435-7 and Foran v Wright (1989) 168 CLR 385 at 410-411, 435-6).

687 Here Aristocrat alleges that the representations derive from the act of delivery of the signed promissory note. No oral or written representation is alleged. Aristocrat relies on implied representations based on conduct. In those circumstances, the need for clarity and the lack of ambiguity is paramount. As Deane J held in Foran v Wight at 435-6, a “representation can found an estoppel by conduct only to the extent that it is clear.”

688 Accordingly, in considering the conduct, namely the delivery of the promissory note, consideration must be given to the circumstances in which delivery occurred.

689 An essential factual issue concerns whether or not, as Mr Randall contended, Mr Bush had represented to him that the loan was to remain interest free or that a particular change made to the promissory note was made in order to ensure that the loan remained interest free.

690 Mr Randall had given evidence [Statement 3 December 2003] as follows:

· in early December 2002, whilst in Sydney I received a telephone call from Mr Frank Bush, the Company Secretary of Aristocrat and we had a conversation in words to the following effect:

Mr Bush: “Des, the home loan has been given without any paper work. A loan agreement needs to be signed. This document will have no meaning. The current Board agreement with you will override this agreement and you will be protected.”

Myself: “Frank, I will consider doing this if the company needs it and provided it is legal and that I won’t have to pay anything against the loan in conformity with the original arrangement with the Board.”

· from between 9 December 2002 to 16 December 2002, I received from Mr Bush a document titled “Short Form Deed of Trust and Assignment of Rents" and a number of versions of a document titled “Secured Promissory Note” dated 29 July 2002. I would not sign the Promissory Note, as I had a board approved interest free loan of up to US$2 million for a property which had already been purchased, and the Promissory Note did not recognise the agreement that the loan be interest free, as referred to .. above.

· on or about 17 December 2002, whilst I was in Las Vegas I telephoned Mr Bush and we had a conversation in words to the following effect:

Myself: “Frank, as we previously discussed, its crazy for Vivienne and myself to sign this document. There's no protection for us. It commits us to paying interest when I have a Board approved interest free loan, and we already have the house. I want the interest terms removed, or a paragraph added that says that the Board approved agreement overrides the terms of the document."

· on 19 December 2002, I received an email from Mr Bush enclosing an amended version of the Promissory Note. The recital to the Promissory Note was amended to include a reference to my relocation agreement with Aristocrat.

· on receipt of the email, I telephoned Mr Bush and we had a conversation in words to the following effect:

Myself: "I'm still uncomfortable with the document as I don't understand the subtle differences compared to the earlier versions."

· on or about 16 February 2003, while in my Sydney offices I had a conversation with Mr Bush in words to the following effect:

Mr Bush: “Des, have you signed the loan agreement? The agreement has to be signed ASAP.”

Myself: “Frank, with everything that’s happening I haven’t had time to read it.”

691 At transcript 91.55-92.32, Mr Randall gave evidence as follows:

Q. Well, why did you think that you were signing this document?
A. It was stated to me in December by Mr Bush that I had 1.665 million US dollars of the company's money and I had bought a house in Las Vegas in my and my wife's name and the board had forgotten or overlooked getting even a letter from me, nothing, that there was no agreement to cover this large amount of money that had been - the company's money that had been given to Vivienne and I, and we had to get something done, and we needed a document on the file.

Q. And you were a member of the board throughout the period--
A. Yes.

Q. --between 29 July 2002 and 17 February 2003?
A. Yes.

Please don't worry about it, Des. It's the same deal. You're protected.

the explanation from Frank was that that would protect us for the interest free loan.

Frank also, in that period December to February, went to the lawyers in the United States and asked them to change the agreement to reflect my service agreement and they said it wouldn't be then a legal agreement in the United States, it has got to have this arms length interest business in it, "But Des, we put that in. You're protected." There were a couple of other changes made to the document and I then signed it.

692 At transcript 389.39 - 391.28, in particular commencing at TP 390.41, Mr Bush gave this evidence:

Q. I direct your attention to clause 3A.7, that says CEO has the benefit of the interest free loan up to USD 2 million. That was the purpose to secure as first mortgage over the home?
A. Yes.

Q. That clause reflected your understanding of what was intended to be recorded on the contract on that subject matter?
A. Yes.

Q. That, of course, was your understanding when in December 2002 you were giving consideration to drafts of various forms of documentation to reflect the transactions, is that right?
A. Yes, that's right.

Q. In your discussions in 2002 did Mr Randall make it clear to you that he regarded the operative obligation in regard to interest so far as the Nevada home loan was concerned as the employment contract record of it?
A. He regarded it as interest free, yes.

Q. He pointed that fact out to you?
A. Yes.

Q. …it was your belief that the promissory note document would be itself subject to whatever it was within Mr Randall's service agreement?
A. Yes.

Q. And you made that clear to Mr Randall that was your own belief, did you ?
A. Yes .

Q. I think you, in other words, you accepted, I suggest to you that the loan arrangements in connection with the Nevada property would be in conformity of the service agreement that Mr Randall and the company had maintained ?
A. Yes.

693 At transcript 392.10-. 58, Mr Bush also gave evidence as follows:

Q. The next document I would like to show you is the secured promissory note... The secured promissory note is the form of this document, the consequence of the input of the Nevada lawyers?

A. Yes, it is.

Q. Page volume 5, page 1643 and behind tab 51 in the first full paragraph there is a reference to the principal sum of $1,665,000 US. Do you see that by the words "together with interest from the date hereof on the unpaid principal balance". Then the word "In accordance with the following terms and provisions and Desmond Randall's service agreement with holder", holder being Aristocrat?
A. Yes.

make clear that the terms of the loan were subject to what is set out in the service agreement.

694 At transcript 389.21 - 390.8, Mr Bush gave evidence of his concern that the loan monies had been paid without paperwork and that he was anxious to have the documents recording the loan and Aristocrat’s interest in the Nevada property put in place. This also is consistent with Mr Randall’s evidence concerning the need for the promissory note.

695 Whilst Mr Randall did accept under cross-examination that he knew that it was important that the Nevada loan be an arms length transaction and accepted that he may have told Mr Bush that he did not want Aristocrat to have to obtain shareholder's approval, to my mind this does not mandate a finding different from that already indicated as to the conversations which preceded the execution of the promissory note.

696 That factual finding results in the defendants estoppel claim failing.

697 The finding amounts to accepting the evidence given by Mr Randall where inconsistent on this issue with the evidence given by Mr Bush.

698 The following matters are also noted:

· the terms of the memorandum from Mr Bush to Mr Randall of 9 December 2002 including:

"The documents provide for the payment of interest… I propose to ask the Chairman for a letter waiving the payment of interest."

· Mr Randall having given evidence that Mrs Randall had signed the promissory note in circumstances in which he had represented to her that the promissory note "has no meaning as my contract overrides it" [neither Mr nor Mrs Randall were challenged in relation to this evidence].

699 That the loan was intended to be interest free and that the promissory note was to be read subject to Mr Randall’s employment contract, is also evident from:

· Mr Bush’s email of 26 July 2002 to Mr Nakhoul, Mr Jeyaraj and Mr Rowan (AB 2/640) referring to the intention that the loan be interest free and that shareholder approval be obtained;

· Email of 31 August 2002 from the Nevada lawyer, Ms Otto to Mr Bush (AB 3/772) concerning the loan to Mr Randall being interest free. The email states, inter alia:

“whether or not the stockholder waives/forgives the payment of interest, we do not believe it needs to be set forth in the loan documents since Aristocrat has that right regardless of what the loan documents say.”

[Mr Bush’s evidence in relation to this document was given at tp 387-8 as follows:

Q. Was Angela Otto an American lawyer?
A. I understand so. I have never actually met her.

Q. Where you dealing with her in connection with the arrangement, financial arrangement for the acquisition of the Nevada residence?
A. I was dealing with her securing the company's loan on the property.

Q. Was one of the matters you raised with her the issue of how the American documentation might record the non-payment of interest?
A. Yes.

· Aristocrat was paying FBT in respect of the interest free aspect of Mr Randall’s loan (see email of 5 September 2002 from Mr Jeyaraj to Mr Bush, (AB 3/778), Mr Randall’s evidence at tp 103.4-.14 and Mr Bush’s evidence in cross examination at tp 388).

· Mr Randall’s 2002 Contract providing for the interest free loan was signed after the loan had already been provided and after Mr Bush had already commenced discussions with external lawyers for the recording of interest in the promissory note.

700 Given this evidence, the mere delivery of the promissory note to Aristocrat did not constitute conduct that gave rise to the representations alleged by Aristocrat. The clear weight of the evidence was that the interest terms of the promissory note were not intended to be relied upon by either Mr Bush (on behalf of Aristocrat) or Mr Randall and that the interest free provisions continued to apply as in accordance with Mr Randall’s 2002 Contract.

701 Nor was there any evidence adduced to the effect that Mr Bush had discussed the entry of the promissory note with any other Aristocrat officer or board member (other than Mr Randall). The interest free aspect of the loan was part of Mr Randall’s board approved package for his relocation to Las Vegas. That approval was first given by the board at its meeting in February 2002. There was no evidence to suggest that Mr Bush had any authority to revoke or to seek to revoke what the board had already approved and for which a signed contract had been entered into.

702 Even if the finding in relation to representations were incorrect, I accept that there are a number of difficulties with Aristocrat's case in terms of reliance upon the delivery of the promissory note for the purpose of the preparation of its annual accounts and 2002 annual report. The plaintiff has put forward the following propositions which seem to me to be of substance:

· The accounts that were considered and approved by the board had already been considered and approved by Aristocrat at its Audit Committee meeting on 10 February 2003 (see minutes of that meeting commencing at PX 8/2699). Mr Draney, Mr Ducker (both directors) and Mr Cohn (a former director) constituted the Committee. Mr Randall, Mr Jeyaraj, Mr Wiadrowski, Mr Dow (both of PWC), Mr Nakhoul, Mr Khin, Mr Abreu and Mr Bush were all present by invitation.

· As recorded in the minutes of that meeting (at AB 8/2701), the financial statements were recommended at that meeting for approval by the board, subject to “minor adjustments and corrections”. There is no evidence before the Court as to the form of the accounts considered by the Audit Committee or what the “minor adjustments and corrections” were.

· The “related party” transactions recorded on the same page as the minutes, do not include any reference to the loan to Mr Randall.

· On the evidence of Mr Bush, the promissory note was not provided to Mr Randall until 14 February 2003 (see paragraph 74 of Mr Bush’s 6 November 2003 statement).

· On the evidence of Mr Randall, the promissory note was signed the day before, being 16 February 2003 (see paragraphs 14-16 of Mr Randall’s statement of 3 December 2003).

· The promissory note was then delivered to Mr Bush on 17 February 2003, the same day as the board meeting at which the annual accounts were considered and approved.

· Accordingly, it seems highly improbable that the promissory note or its signing and delivery was or could have been the subject of discussion or consideration at the Audit Committee meeting on 10 February 2003.

· As:

- neither delivery nor signing of the promissory note had occurred,

- there is no evidence of the form of the accounts considered at the Audit Committee meeting; and

- no reference is made to the promissory note in the minutes,

· No witness from PWC or the audit committee was called to give evidence as to whether the promissory note was considered at the Audit Committee meeting or was included in the form of the accounts considered at that meeting.

· Further, it is apparent that the promissory note was not referred to by PWC as part of the audit process relied upon as part of the acts of reliance. As recorded in the Audit Committee minutes (at AB 8/2700-1), subject to 7 specified issues (none of which included the promissory note), PWC was “satisfied with the conduct of the audit and would be happy to sign an unqualified audit report on the basis of the figures present to the Committee.”

· Accordingly, the representations could not have been relied upon as part of the audit process or the finalisation of the accounts, at least as at 10 February 2003.

· Mr Bush gave no evidence as to what he did with the promissory note after he received it. It is highly improbable for the fact of its signing and delivery to have been included as an amendment to the financial accounts for consideration at the board meeting on 17 February 2003.

· The board meeting on 17 February 2003 commenced at 10.00 am that day (see minutes commencing at AB 9/2850). There is no evidence as to whether the promissory note was delivered before or after the board meeting occurred.

· Even if it was before, there was clearly insufficient time to have it included in the draft accounts before the meeting. The minutes record (at AB 9/2852) that Mr Bush presented to the board a “marked up version” of the accounts showing corrections since the version provided to the Audit Committee. It is unlikely that such a marked up version could have been prepared including the reference to the delivery of the promissory note prior to the board meeting if the promissory note had only been delivered that morning.

· There is no evidence of what accounts were before the board meeting on 17 February 2003 or whether it included a note relating to the promissory note. No member of the board or PWC has been called to give such evidence. Even Mr Bush gave no evidence on this issue.

· The auditor’s certificate that appears in the 2002 Annual Report (AB 12/3920) is dated 18 February 2003, the day after the board meeting and the day after the promissory note was provided.

· Aristocrat’s submission is that because the final accounts included a reference to the promissory note, it must have been included in the accounts approved by the board on 17 February 2003. That is not necessarily the case. Paragraph 17 of Mr Bush’s 26 March 2004 statement records that the Annual Report was not “in its final form at the time of the board meeting on 17 February 2003". This accords with the evidence of Mr Carr-Gregg in his statement of 5 November 2003 (see paragraphs 17-20). In none of the draft Annual Reports referred to and exhibited to his statement, were the financial accounts attached.

· Further, in paragraph 59 of Mr Bush’s 26 March 2004 statement, he refers to continuing discussions with Mr Khin on about 17 February 2003 concerning the notes to the accounts referring to the promissory note. The conversation with Mr Khin referred to in that paragraph was in the context of the promissory note having been signed by both Mr and Mrs Randall. Accordingly the conversation referred to could only have occurred on or after 17 February 2003 and therefore probably after the board meeting (Mr Khin was not present at the 17 February 2003 board meeting).

703 Ultimately these matters would in any event have occasioned very considerable difficulties to the defendant’s reliance case.

704 Insofar as the evidence discloses that the Las Vegas property was sold at a purchase price in excess of the principal of the loan [and Aristocrat received those proceeds], the finding is that the anterior obligation to repay the principal has been discharged. Insofar as the defendant alleged that by reason of certain ancillary costs [such as agents fees and similar], it was proper to subtract those costs from the proceeds, those submissions are not of substance and are rejected. It is of use to recall that clauses 3A .6 and 3A .8 of the 2002 Contract read together provide as follows:

705 There is plainly therefore no basis for deducting any such costs from the proceeds of sale in determining what funds go to the repayment of the principal of the loan.

Rulings as to admission of ASIC transcript

706 There was some dispute as to the entitlement of the plaintiff to tender all of the pages of ASIC transcript which it sought to have admitted into evidence. Only some of those pages were put to relevant witnesses. Ultimately I am persuaded that fairness dictates the admission into evidence of all of the materials sought to be admitted by the plaintiff subject to one matter. I refer hereto PX 13/4488. This page forms part of two preceding pages and is said to be admissible as it goes to the views of Mr Khin concerning discounting. So much may be accepted. But to allow 13/4488 beyond line 14 would be inappropriate for the reason that one cannot follow the references in the balance of that page unless 13/4489 also went into evidence and the plaintiff does not tender this page. In the result 13/4488 will be admitted only up to but not beyond line 14.

707 The remaining pages ASIC investigation pages which will go into evidence are PX 14/4441-4448,4456-4458,4459-4462,4464,4465-4472,4473-4475,4476-4477,4479,4480-4483,4486-4487,4505,4519-4522,4526-4530,4533-4535 and 4539-4541. Also admitted are PX 14/4781-4790,4797-4799,4805-4809,4814-4815,4816-4818.

Short Minutes of Order

708 It is appropriate by reason of the many issues raised on the pleadings to reserve leave to the parties to address submissions upon any claim which it is suggested has not been dealt with in the judgment. The judgment has also pointed up some limited areas in respect of which such leave has been granted. There may also be questions of mathematical calculations requiring to be updated, hopefully consensually.

709 Short Minutes of Order should be brought in by the parties and at the same time submissions as to costs will be taken.

I certify that paragraphs 1 -709
are a true copy of the reasons
for judgment herein of
the Hon. Justice Einstein
given on 8 June 2004

Susan Piggott

Associate

8 June 2004

Last Modified: 06/08/2004

Actions

Download as PDF Download as Word Document

Citations

Randall v Aristocrat Leisure Ltd [2004] NSWSC 411

Most Recent Citation

Knox Basketball Inc v Carroll [2014] VCC 1418

Cases Citing This Decision

14

In the matter of Cummings Engineering Holdings Pty Ltd ACN 001 794 743 [2014] NSWSC 250

Waddell v mathematics.com.au Pty Ltd [2013] NSWSC 142

Gillies v Downer EDI Ltd [2011] NSWSC 1055

Cases Cited

32

Statutory Material Cited

3

Australian Colliery Staff Association v Queensland Mines Rescue Service [1999] FCA 395

Whittaker v Unisys Australia Pty Ltd [2010] VSC 9

Brackenridge v Toyota Motor Corporation Australia Ltd [1996] IRCA 162

CITATION:	Desmond Henry Randall v Aristocrat Leisure Limited (ACN 002 818 368) [2004] NSWSC 411
HEARING DATE(S):	03/05/04, 04/05/04, 05/05/04, 06/05/04, 07/05/04, 11/05/04, 12/05/04, 13/05/04
JUDGMENT DATE:	8 June 2004
JURISDICTION:	Equity Division Commercial List
JUDGMENT OF:	Einstein J
DECISION:	Summary dismissal justified. Plaintiff entitled to bonus in respect of 2002 year [approximately $900,000] and to certain relocation out of pocket expenses.
CATCHWORDS:	Contract - Master and servant - Summary dismissal - Appointment of plaintiff by written contract of employment as chief executive officer and director of defendant - Defendant listed company operates in Australia and worldwide through subsidiaries - Contract stipulates that chief executive officer to perform all normal duties associated with the position held by a chief executive officer of a public company, to faithfully serve defendant and to competently exercise all skills as would be normally expected of persons holding the position of chief executive officer and director of a public company - Clause giving defendant entitlement to terminate the contract and the services of plaintiff without prior notice in the event that he commits any act of dishonesty, fraud, wilful disobedience, misbehaviour or breach of duty which might detrimentally affect defendant or wilfully, persistently and materially breaches any of the provisions of the contract and if the breaches are remediable, does not remedy them within 14 days after receiving notice in writing - Summary dismissal of plaintiff pursuant to clause - Plaintiff asserts that termination of his employment constitutes a repudiation of the contract and purports to accept repudiation - Proceedings concern events before and aftermath of 7 February 2003 profit downgrade announcement resulting in a decrease in the defendant's share price from $4.22 being the last price immediately before announcement released to low of $2.25 after the release and closing price of $2.40 on the day - Clarification announcements issued on days following initial announcement - Defendant claims that post 7 February events involved plaintiff making [or causing to be made] a series of public statements - Effect of public statements said to be to assert that he had had no warning of the possibility of a profit downgrade before 4 or 5 February 2003 - that he had been confident of a strong US profit result at the end of 2002 - that it was not clear to him before 4 and 5 February 2003 that Aristocrat had a problem with its profit margins in its North American business - Claimed conduct said to justify summary dismissal under contract - Defendant contends that these statements were false and false to the knowledge of plaintiff - Defendant contends that plaintiff failed to make full disclosure of his knowledge to the board - Defendant relies upon ASX continuous disclosure requirements and statutory obligations including obligations to use reasonable care and diligence and to act in good faith and in the best interests of the company - Plaintiff contends that he and defendant had only become aware of particular material information in early February 2003 and that this information had then been promptly released to the market - Plaintiff contends that there was no failure of disclosure of his own knowledge to the board - Line of defences include defences raising technical issues, as for example whether contract provisions unenforceable by reason of particular sections of the Corporations Act requiring shareholder approval - Examination of performance/standard of performance of the duties of a director and chief executive officer - Duties of disclosure of chief executive officer to board - Principles concerning fraudulent representations, wilful disobedience, misbehaviour/misconduct justifying summary dismissal at common law - Content of statutory duties to use reasonable care and diligence (section 180), to act in good faith and in best interests of company (section 181) and not to use position improperly to gain an advantage to himself (section 182)
LEGISLATION CITED:	Corporations Act 2001 (Cth) Corporations Act 1989 (Cth) Corporations Legal and Economic Reform Plan Act 1999 (Cth).
CASES CITED:	Abeles v PA (Holdings) Pty Ltd (2000) 18 ACLC 867 Adami v Maison de Luxe Ltd (1924) 35 CLR 143 Ashton Mining Ltd v Commissioner of Taxation [2000] FCA 590 Atlantic Shipping and Trading Co. v Louis Dreyfus & Co [1922] 2 AC 250 Australian Colliery Staff Association v Queensland Mines Rescue Service [1999] FCA 395 Bettini v Gye (1876) 1 QBD 183 Blyth Chemicals Ltd v Bushnell (1933) 49 CLR 66 Boston Deep Sea Fishing & Ice Co v Ansell (1888) 39 Ch D 339 Brackenridge v Toyota Motor Corporation Australia Ltd (1996) 142 ALR 99 Bruce v AWB Ltd (2000) 100 IR 129 Clouston & Co Limited v Corry [1906] AC 122 Commissioner of Stamp Duties (NSW) v Bone and Others (1976) 135 CLR 223 Commonwealth v Verwayen (1990) 170 CLR 394 Courtaulds Northern Spinning Ltd v Sibson [1988] ICR 451 Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising & Addressing Company Pty Ltd (1975) 133 CLR 72 Daniels t/as Deloitte Haskins and Sells v Anderson (AWA case) (1995) 37 NSWLR 438 Derry v Peek (1889) 14 App Cas 337 Dovey & Metropolitan Bank (of England & Wales) Ltd v Cory [1901] AC 477 Elcom v Electrical Trades Union of Australia, New South Wales Branch (1983) 5 IR 267 Farley v Lums (1917) 19 WALR 117 Federal Commissioner of Taxation v Orica Limited (1998) 194 CLR 500 Fox v GIO Australia Limited [2002] NSWIRComm 318 Freeman & Lockyer (a firm) v Buckhurst Park Properties (Mangal) Ltd & Anor [1964] 2 QB 480 Galipienzo v Solution 6 Holdings Limited (1998) 28 ACSR 139 Gooley v Westpac Banking Corp (1995) 129 ALR 628 Grundt v Great Boulder Pty Gold Mines Ltd (1937) 59 CLR 641 Harmer v Cornelius (1858) 5 CBNS 236 Harold Holdsworth & Co (Wakefield) Ltd v Caddies [1955] 1 WLR 352 Hawker Pacific Pty Ltd v Helicopter Charter Pty Ltd (1991) 22 NSWLR 298 John McGrath Motors (Canberra) Pty Ltd v Applebee (1964) 110 CLR 656 Jones v Associated Tunnelling Co Limited [1981] IRLR 477 Jupiter General Insurance Co Ltd v Shroff [1937] 3 All ER 67 Krakowski v Eurolynx Properties Ltd (1995) 183 CLR 563 Larratt v Bankers & Traders Insurance Co Ltd (1941) 41 SR (NSW) Laws v London Chronicle (Indicator Newspapers) Ltd [1959] 2 All ER 285 Legione v Hateley (1983) 152 CLR 406 Lewis v Cook (2000) 18 ACLC 490 Marchesi v Barnes [1970] VR 434 Meyrick v Stirling Bros Ltd (1899) 1 WALR 51 Mulcahy v Hoyne (1925) 36 CLR 41 Newbon v City Mutual Life Assurance Society Ltd (1935) 52 CLR 723 North v Television Corporation Ltd (1976) 11 ALR 599 O'Brien v Associate Fire Alarms Limited [1969] 1 All ER 93 Orr v University of Tasmania (1957) 100 CLR 526 Quinn v Jack Chia (Australia) Limited [1992] 1 VR 567 Rowbotham v Arthur Lee & Sons Ltd (1974) IRLR 377 Sheldrick v WT Partnership (Aust) Pty Ltd (1998) 89 IR 206 Shirlaw v Southern Foundries (1926) Ltd & Anor [1939] 2 All ER 113 Tallerman & Co Pty Ltd v Nathan's Merchandise (Vic) Pty Ltd (1957) 98 CLR 93 Thompson v Palmer (1933) 49 CLR 507 Turner v Mason (1845) 14 M & W 112 Vardy v Cuthbert (1872) 3 AJR 25 Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387
PARTIES :	Desmond Henry Randall (Plaintiff) Aristocrat Leisure Limited (ACN 002 818 368) (Defendant)
FILE NUMBER(S):	SC 50066/03
COUNSEL:	Mr B Coles QC, Mr A Fernon (Plaintiff) Mr G Lindsay SC, Mr A McGrath (Defendant)
SOLICITORS:	Toomey Pegg Drevikovsky (Plaintiff) Phillips Fox (Defendant)