| JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA LOCATION : PERTH CITATION : SIMS -v- SUDA LTD [2014] WADC 7 CORAM : STONE DCJ HEARD : 22-25, 28-30 OCTOBER 2013 DELIVERED : 5 FEBRUARY 2014 FILE NO/S : CIV 2168 of 2011 BETWEEN : DOUGLAS ARTHUR SIMS Plaintiff
AND
SUDA LTD
Defendant
Catchwords: Employer - Employee - Contract of employment - Claim of constructive dismissal - Claim for damages - Anshun estoppel - Issue estoppel Legislation: Corporations Act 2001 (Cth)
Long Service Leave Act 1958 (WA) Result: Claim dismissed
Representation: Counsel:
Plaintiff : In person
Defendant : Mr M L Bennett
Solicitors:
Plaintiff : Not applicable
Defendant : Bennett & Co
Case(s) referred to in judgment(s):
Buzzle Operations Pty Ltd (in liq) v Apple Computer Australia Pty Ltd (2010) 238 FLR 384
Douglas Sims v Eastland Medical Systems Ltd [2012] FWAFB 10783
Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589
Russian v Woolworths (SA) Pty Ltd (1995) 64 IR 169
Secure Parking (WA) Pty Ltd v Wilson [2012] WASCA 230
Spencer v Dowling & KL Dowling & Co (a firm) [1997] 2 VR 127
Western Excavating (ECC) Ltd v Sharp [1978] QB 761
Introduction 1 The plaintiff, Mr Douglas Arthur Sims was an inventor and a developer of products. Mr Sims was the founder and major shareholder of the defendant, formerly Eastland Medical Systems Limited (EMS) and now Suda Limited. EMS, which was incorporated in 1999, manufactured and developed medical products and devices. 2 In 2002 EMS listed on the Australian Securities Exchange (ASX). At the time Mr Sims was subject to a charge of burglary and he stood down from EMS as a formal director or officer of the company. The burglary charge was subsequently the subject of a nolle prosequi and Mr Sims rejoined the EMS Board in 2004. 3 In late 2006, through the endeavour of Mr Sims which involved securing the promise of the support of the family of the late Mr Nelson Mandela, EMS acquired from companies associated with an inventor and a scientist, Dr Calvin Ross the rights to manufacture and distribute an anti-malaria treatment product in Africa. The anti-malaria treatment, via spray under the tongue was called ArTiMist. ArTiMist had the potential to be a more effective anti-malaria treatment, particularly for children. 4 In 2007 government funding became available in Europe for the development of pharmaceutical products. Mr Sims planned a corporate structure for EMS to take advantage of that funding by setting up in Germany a pharmaceutical company, HC Berlin Pharma AG (HcBPAG). HcBPAG was incorporated for the purpose of conducting clinical trials for the ArTiMist project. At that stage an EMS subsidiary, EMS (South Africa) Limited (EMS SA) had the license to manufacture in Africa and distribute the anti-malaria treatment product. Subsequently EMS SA sold the license to HcBPAG to manufacture the anti-malaria treatment product in Germany. 5 Between 2008 and June 2009 EMS's financial position was declining due to the global financial crisis and other factors. EMS conducted a number of capital raisings in that period to stay afloat and pursue the ArTiMist project. During that period the EMS Board comprised Mr Peter Jooste QC as Chairman, Mr Dermot Patterson as Chief Executive Officer, Mr Sims and two other executives, Mr Peter Tiede and Mr David Whitelaw. 6 From 1999 until his resignation on 9 June 2009, Mr Sims was engaged by EMS in various capacities. Mr Sims also supplied consultancy services to EMS by his company Freezone Pty Ltd (Freezone) pursuant to a Consultancy Agreement. At the time of his resignation Mr Sims was the International Business Director of EMS and he had been employed by EMS in that role under an Executive Employment Agreement (the Employment Contract) since 1 October 2007. 7 Mr Sims claimed that between July 2008 and June 2009, EMS, through its Non-Executive Director and Chairman Mr Jooste, engaged in a course of conduct towards him that forced him to resign. 8 Mr Sims claimed damages under the Employment Contract for failure to pay a base salary, annual leave entitlements, overtime, sick leave, pro rata long service leave and motor vehicle expenses and maintenance costs; failure to provide a motor vehicle; and failure to pay termination entitlements.
Reservation of rulings on preliminary issues 9 At the commencement of the trial, I heard argument from Mr Sims and counsel for EMS, Mr Bennett on issues related to prior proceedings between Mr Sims and EMS. At the time I reserved my rulings on the preliminary issues and allowed the trial to proceed on the substantive issues. My rulings on the preliminary issues follow.
Anshun estoppel 10 EMS contended in its Further Re-Amended Defence (FR-AD) that Mr Sims was estopped from proceeding with the claim for damages under the Employment Contract by virtue of Anshun estoppel, arising out of the failure of Mr Sims to litigate his claim of constructive dismissal and damages in related prior proceedings: Port of Melbourne Authority v Anshun Pty Ltd (1981) 147 CLR 589. 11 Mr Sims contended that the prior proceedings were concerned with claims by him against EMS for repayment of expenses incurred by him on behalf of EMS and loans he made to EMS. Mr Sims explained that after he commenced his action in the prior proceedings he had made an application to Fair Work Australia (FWA) for damages against EMS for termination of employment but the FWA application was dismissed because he was out of time. Mr Sims submitted that his action in the prior proceedings for repayment of expenses and loans was different in nature to the claim in the litigation in this case for constructive dismissal and damages (the further litigation). 12 Mr Sims had commenced proceedings against EMS on 18 November 2009 in District Court CIV 3447 of 2009 for monies owed to him by EMS during his employment with EMS for costs incurred on behalf of EMS or its associated companies as an officer or employee of EMS and loans made to EMS or its associated companies. EMS denied it was liable and counterclaimed against Mr Sims and his company Fee-Zone Pty Ltd (Fee-Zone), claiming against Mr Sims declarations, equitable compensation, compensation pursuant to the Corporations Act2001 (Cth) and other relief in connection with a payment to Fee-Zone of $60,000 for the issue of two million EMS shares; and claiming repayment of a debt of $30,000 owed by Mr Sims and/or Fee-Zone. Mr Sims and Fee-Zone denied they were liable to EMS. The claim and counterclaim in District Court CIV 3447 of 2009 were remitted to the Supreme Court in or about May 2010 and assigned case number Supreme Court CIV 1737 of 2010 (the prior proceedings). By Settlement Deed dated 22 December 2010 (the Settlement Deed) made between Mr Sims, Fee-Zone and EMS, it was agreed to resolve mutually their disputes in the claim and counterclaim in the prior proceedings. On or about 10 January 2011 by order of the Supreme Court the prior proceedings were dismissed. 13 In the meantime, Mr Sims had filed an application in FWA on 8 March 2010 against EMS for relief for termination of employment which required an extension of time for the matter to proceed. On 14 April 2010 Mr Sims' unfair dismissal application was dismissed by a Deputy President of FWA on the basis that it was not lodged within the required time as prescribed by the Workplace Relations Act 1996. On 21 December 2012 a full bench of FWA declined to extend the time for lodgement of the appeal by Mr Sims against the decision refusing to extend the time for the lodgement of his unfair dismissal application: Douglas Sims v Eastland Medical Systems Ltd [2012] FWAFB 10783. 14 Mr Sims had commenced the further litigation against EMS for constructive dismissal and damages under the Employment Contract on 30 June 2011. 15 In my view it would have been desirable for all parties concerned for all causes of action between Mr Sims and EMS arising out of his association with EMS as a director, employee and consultant to be dealt with in the prior proceedings. But that was not the test. 16 In Port of Melbourne Authority v Anshun Pty Ltd (602 – 603) Gibbs CJ, Mason and Aikin JJ said: In this situation we would prefer to say that there will be no estoppel unless it appears that the matter relied upon as a defence in the second action was so relevant to the subject matter of the first action that it would have been unreasonable not to rely on it. Generally speaking, it would be unreasonable to plead a defence if, having regard to the nature of the plaintiff's claim, and its subject matter it would be expected that the defendant would raise the defence and thereby enable the relevant issues to be determined in the one proceeding. In this respect, we need to recall that there are a variety of circumstances, some referred to in the earlier cases, why a party may justifiably refrain from litigating an issue in one proceeding yet wish to litigate the issue in other proceedings e.g. expense, importance of the particular issue, motives extraneous to the actual litigation, to mention but a few. 17 Their Honours went on to say (603 – 604): The likelihood that the omission to plead a defence will contribute to the existence of conflicting judgements is obviously an important factor to be taken into account in deciding whether the omission to plead can found an estoppel against the assertion of the same matter as a foundation for a cause of action in a second proceeding. By 'conflicting judgments' we include judgments which are contradictory, though they may not be pronounced on the same cause of action. It is enough that they appear to declare rights which are inconsistent in respect of the same transaction. 18 In Secure Parking (WA) Pty Ltd v Wilson [2012] WASCA 230 [58] - [60] Murphy JA stated that 'a finding of Anshun estoppel is not in the nature of a discretionary decision … [A]lthough evaluative, it involves the application of a legal standard and not the exercise of discretion'. 19 I am satisfied that it was not unreasonable for Mr Sims to not plead an action for constructive dismissal and damages in the prior proceedings for the following reasons: (a) Mr Sims held a belief at the time he commenced his action in the prior proceedings that his application for termination of employment, although out of time, would be dealt with by FWA. (b) A determination by FWA of Mr Sims' application for termination of employment, if it had proceeded, would not be inconsistent with the terms of the Settlement Deed and the subsequent order of dismissal of the prior proceedings by the Supreme Court. (c) The subject matter of the claim for constructive dismissal and damages under the Employment Contract in the further litigation was different from the claim for payment of expenses and repayment of loans in the prior proceedings. (d) The evidence upon which Mr Sims relied to support his claim for constructive dismissal and damages under the Employment Contract in the further litigation was not relevant to the terms of the Settlement Deed. (e) The evidence about the payment to Fee-Zone of $60,000 for the issue of two million EMS shares and the terms of the Settlement Deed in the prior proceedings only became an issue in and relevant to the further litigation because EMS claimed in its FR-AD that if Mr Sims was constructively dismissed, then his own conduct amounted to circumstances that entitled EMS to immediately terminate his employment on account of his alleged dishonesty and the misappropriation of $60,000 from EMS for the issue of two million EMS shares. (f) Save for findings with respect to the claim by Mr Sims for repayment of loans made to EMS or its associated companies and the counter-claim by EMS for the payment to Fee-Zone of $60,000 for the issue of two million EMS shares, for the reasons stated at [24] to [31] and [184.1] below, a finding with respect to Mr Sims' claim for constructive dismissal and damages under the Employment Contract in the further litigation would not be inconsistent with the terms of the Settlement Deed and the subsequent order of dismissal of the prior proceedings by the Supreme Court. 20 In the circumstances, I am satisfied that an estoppel did not operate so as to preclude Mr Sims from pursuing his claim for constructive dismissal and damages under the Employment Contract in the further litigation.
Claim of issue estoppel by EMS 21 EMS contended in its FR-AD that an issue estoppel arose by virtue of Mr Sims' pleading in the Substituted Statement of Claim in the prior proceedings that he 'resigned from his position as [EMS's] business director' on 9 June 2009. EMS's submission, that it was not pleaded in the prior proceedings that Mr Sims was constructively dismissed, ignored the reference to the particulars of that pleading in the prior proceedings that Mr Sims 'tendered his resignation in writing in a letter addressed to (EMS's) board of directors dated 9 June 2009'. In his letter of resignation Mr Sims wrote, 'Due to intense duress, abuse, unfounded slander and blackmail by [Mr Richardson] and [Mr Stewart] which has resulted in a serious deteriation [sic] in my health and reputation, I hereby submit my forced resignation as Director of (EMS) with effect from 12.00 Noon Tuesday 9th June 2009'. 22 It was not in dispute that Mr Sims had always claimed in his correspondence and dealings with EMS in the lead up to the events of 9 June 2009 that his resignation was forced, but that was not a relevant issue in the prior proceedings. In my view, the pleading in the prior proceedings that Mr Sims 'resigned from his position as (EMS's) business director' would not have lead EMS to conclude at any time that Mr Sims was claiming his resignation was not forced. 23 In the circumstances, I am satisfied that an estoppel did not operate so as to preclude Mr Sims from pursuing his claim for constructive dismissal and damages under the Employment Contract in the further litigation.
Claim of Deed of Settlement 'estoppel' by Mr Sims 24 Mr Sims contended in his Reply to Defendant's Further Re-Amended Defence that EMS was estopped by the terms of the Settlement Deed from the claim in its FR-AD that if Mr Sims was constructively dismissed, then his own conduct amounted to circumstances that entitled EMS to immediately terminate his employment on account of his alleged dishonesty and the misappropriation of $60,000 from EMS for the issue of two million EMS shares. Mr Sims submitted that the issue concerning the payment of $60,000 for the issue of two million EMS shares was resolved in the prior proceedings by the terms of the Settlement Deed. 25 EMS submitted there was no estoppel because EMS did not rely upon the payment to Fee-Zone of $60,000 for the issue of two million EMS shares as a claim for the $60,000 in the further litigation but as circumstances, discovered after the event, entitling EMS to summarily terminate Mr Sims' employment on account of his alleged dishonesty and the misappropriation of the $60,000 from EMS. 26 It was not in dispute that EMS became aware of the payment to Fee-Zone of $60,000 for the issue of two million EMS shares in the days following Mr Sims' resignation on 9 June 2009. 27 In my view it was unnecessary to trace in detail and delve into the disputed reasons for the arrangements between Mr Sims and Mr Jooste concerning the two million EMS shares held by Fee-Zone and another of Mr Sims' associated companies in favour of Mr Jooste's and his wife's company Zulu (WA) Pty. It was also unnecessary to detail and resolve the dispute as to how the $60,000 was allegedly obtained from EMS and used to effect the transfer of the two million shares in EMS. 28 There was no dispute between Mr Sims and EMS, that the $60,000 payment to Fee-Zone for the issue of two million EMS shares upon which EMS relied as alleged dishonest conduct by Mr Sims that entitled EMS to immediately terminate his employment that was in contention in the further litigation, was the same $60,000 payment to Fee-Zone for the same issue of two million EMS shares that was in contention between Mr Sims and EMS in the counterclaim by EMS in the prior proceedings, and the same $60,000 payment to Fee-Zone for the same issue of two million EMS shares that was in contention and resolved by the Settlement Deed. 29 The payment to Fee-Zone of the $60,000 for the issue of two million EMS shares, the subject matter of the counterclaim by EMS against Mr Sims and Fee-Zone in the prior proceedings, was dealt in par 3.3 of the Settlement Deed which provided: 'In the event that [Mr Jooste] elects to transfer 2 million shares in [EMS] into Fee-Zone's escrow account, Fee-Zone agrees to pay the sum of $60,000 to [EMS]'. By pars 5.1 (b) and (c) of the Settlement Deed EMS, Mr Sims and Fee-Zone 'release[d] and discharge[d] each other from all liability for any claim arising in respect of, or in connection with, …the counterclaim … and … the shares referred to in paragraph 3.3 …'. 30 In my view the clear words and express language of the terms of the Settlement Deed operated so as to prevent EMS from relying upon the payment to Fee-Zone of $60,000 for the issue of two million EMS shares, as circumstances discovered after the event, entitling EMS to summarily terminate Mr Sims' employment on account of his alleged dishonesty and the misappropriation of the $60,000 from EMS. 31 In the circumstances, I am satisfied that the terms of the Settlement Deed operated so as to preclude EMS from relying upon the payment to Fee-Zone of $60,000 for the issue of two million EMS shares as entitling EMS to summarily terminate Mr Sims' employment.
The issues at trial 32 The evidence at trial was complex. The evidence was made more complicated and difficult to follow by the way in which Mr Sims sought to present his case. 33 On the other hand, the issues at trial were fairly narrow: (a) Had Mr Sims established that he was constructively dismissed from his employment by EMS? (b) If so, had Mr Sims established that he was entitled to claims in respect of notice and two years' tax free salary plus superannuation upon termination (constructive dismissal) by EMS; claims in respect of unpaid accrued entitlements upon termination for sick leave, annual leave and pro rata long service leave; claims in respect of unpaid amounts allegedly due relating to his base salary and Consumer Price Index (CPI) increases prior to termination; and claims in respect of the provision and maintenance of a vehicle?
The evidence 34 Before I deal with Mr Sims' evidence, I will outline by reference to Mr Sims' written closing submissions, what appeared to be the common ground between the parties to the background to Mr Sims' resignation, as it will provide a brief chronology of events and some context to Mr Sims' evidence. 1. In the six months preceding Mr Sims' resignation EMS's financial position was poor. EMS was relying on funding from underwriters and stock brokers, Patersons Securities who were in turn relying on capital raising by RM Capital for the company's survival. EMS was also relying on funding from South African share contracts. 2. RM Capital's Mr James Richardson and the private investor Mr Michael Stewart, as potential investors in EMS, undertook due diligence of EMS and in particular the ArTiMist project. 3. Mr Richardson and Mr Stewart made their capital raising on behalf of EMS conditional upon Mr Sims' resignation from EMS. 4. Mr Sims offered to resign in early March 2009, however, that offer to resign was not accepted. He accepted a counter-offer whereby he remained with EMS and assumed a Non-Executive Board role until the completion of the clinical trial for the ArTiMist project. On 10 March 2009 EMS made an announcement to that effect through an ASX Release. 5. Between 10 March 2009 and the signing off on 27 May 2009 of the EMS Prospectus For A Non-Renounceable Rights Issue, the demand for Mr Sims to resign had changed and he was to resign after the successful completion of the capital raising on 1 July 2009, when the shares were issued to the shareholders. 6. On 8 June 2009 at the meeting of the EMS Board, Mr Sims tabled his resignation, effective noon on 9 June 2009.
Douglas Arthur Sims 35 Mr Sims was aged nearly 71 years. He specialised in patents and trademarks. He explained, as an inventor and a developer of products for the past 40 years, he would take other people's original inventions and by working with them sort out mass production techniques to make the products competitive. 36 Mr Sims detailed his involvement in the formation of EMS and HcBPAG, his association with Dr Ross and the ArTiMist project, his approach to and involvement with Mr Mandela's family to 'put their name' to the ArTiMist project and invest in it. 37 Mr Sims detailed his work history with EMS since 1999. He explained that between 2002 and 2004 he was not an EMS Director because of a pending criminal charge that was subsequently discontinued. During that period he worked as EMS's Product Development Manager. On 2 March 2004 he was appointed Executive Director Product Development. On 2 October 2007 his engagement with EMS as Executive Director Product Development was re-engaged as International Business Director under the Employment Contract. 38 Mr Sims explained that his fallout with EMS came about because of firstly, the 2008 global meltdown's financial impact upon EMS. EMS had sold the license to manufacture the anti-malaria treatment product to HcBPAG which had secured grants but finance was tied up until the finalisation of clinical trials. In late 2008 he and Mr Jooste travelled to South Africa to sell HcBPAG shares by contract to raise finance to overcome the short-term financial problem. Secondly, the conduct of Mr Patterson, the EMS CEO. Thirdly, the conduct of Mr Stewart, a potential EMS investor. On 24 April 2009 Mr Stewart had emailed Mr Jooste that his investment in EMS was conditional upon, inter alia, the immediate resignation of Mr Sims as Executive Director and Mr Stewart's immediate appointment to the EMS Board. Mr Sims understood the email meant 'You have to go or no money'. At that stage Mr Sims felt he was 'isolated' by Mr Jooste, Mr Patterson and Mr Stewart. Mr Sims did not know all the meetings that were taking place, Mr Stewart was communicating with the others on a one-on-one basis and he wanted Mr Stewart to address the EMS Board. 39 Mr Sims explained that a number of issues were discussed around the 10 March 2009 EMS ASX Release which announced the appointment of Mr Stewart: as a consultant to assist [EMS] in strategic planning for the commercialisation of the ArTiMist anti-malarial treatment, and to review the Board and management composition to ensure the Company has in place the necessary management and financial resources … Mr Stewart has recently completed an extensive review of the Company's activities including meetings in the UK and Germany with parties directly involved in the upcoming Clinical Trials, product manufacture and distribution … Based on a recommendation to downsize its Board, [EMS] announces the retirement of Mr David Whitelaw (Non-Executive) and Mr Peter Tiede (Executive) as Directors of [EMS] … Moving forward, the Company proposes to restructure around a four person Board with a Chief Executive Officer (CEO) reporting to it … Mr Douglas Sims, who has played a pivotal executive role in securing the rights to ArTiMist and NiCoSorb and has worked tirelessly to fast track commercialisation of ArTiMist, wishes to assume a non-executive Board role at the successful conclusion of the Clinical Trials which are scheduled to commence in the near term … 40 Around that time Mr Sims discussed with Mr Jooste, in his Chambers, an email Mr Jooste had received from Mr Stewart whilst Mr Stewart was in Berlin. The email referred to documentation that was 'absolutely confidential and sensitive' and demanded that Mr Jooste not involve Mr Sims or Mr Patterson. 41 On 10 March 2009 Mr Sims discussed with Mr Jooste, at the Crema Café in West Perth, a number of issues. The key issue concerned the listing of HcBPAG and whether HcBPAG had acquired all of EMS's interest in the ArTiMist project because of a certificate issued by Mr Patterson to (HcBPAG) in August 2008 'which was never supposed to happen'. Mr Sims suggested, overcoming the problem, by putting an Addendum to the Manufacturing License Contract which had become redundant because of a condition precedent. 42 In late April 2009 EMS and HcBPAG executed the Addendum. After Mr Sims had used his friendship with Mr Rudolph Schoetteldreier, the HcBPAG Board Chairman, to persuade HcBPAG to seal the Addendum, Mr Jooste changed his support from Mr Sims. On several occasions, around that time, Mr Jooste said to Mr Sims at EMS's office in Northbridge 'The company's going to go down'. Mr Patterson also told Mr Sims at EMS's office, 'they were going to force [Mr Sims] out' and Mr Patterson would 'be left on his own to fight the battle'. When Mr Sims attended a meeting with Mr Jooste in his Chambers, Mr Jooste was concerned about his reputation if EMS 'went down'. He and Mr Jooste discussed enforcing the South African contracts for HcBPAG's shares (to raise funds for EMS). However, Mr Jooste told him that Mr Mandela's son-in-law, Dr Kwame Amuah did not want Mr Jooste to pursue Mr Brian Nyezi, a contracted purchaser of HcBPAG's shares. 43 On another occasion in late April/early May 2009 Mr Sims met with Mr Stewart and Mr Jooste in Mr Jooste's Chambers. Mr Sims was 'just subject[ed] to abuse' by Mr Stewart. Mr Stewart accused Mr Sims of making a misleading announcement on the Berlin Stock Exchange concerning HcBPAG. Mr Sims responded that he had nothing to do with announcements. Mr Stewart said, 'Well, you have to go because you are reckless'. Mr Sims said, 'Well we have an agreement, it was announced on 10 March [2009]'. Mr Jooste said nothing at the meeting. However, when he left the Chambers, Mr Jooste walked out with him. Mr Sims asked Mr Jooste, 'Why didn't you say something?' Mr Jooste said, 'He wants you out. You know you're going to go - it's going to go down if you don't go'. At that stage Mr Sims took his mobile phone out of his pocket and he said, 'Mr Schoetteldreier, you heard that didn't you?' Mr Sims' mobile phone was connected to the HcBPAG Board. Mr Jooste 'blew his top' and Mr Sims left. 44 Mr Sims pointed out that although Mr Stewart had abused him for making (misleading) announcements concerning HcBPAG and EMS, the minutes of the meeting of EMS Directors on 20 April 2009 stated that in March 2009 HcBPAG released a media announcement that misquoted a previous ASX Announcement that EMS had secured trial funding. The minutes also confirmed that loans to Mr Sims were ratified so: that the loan liabilities to [Mr Sims] be transferred from the African subsidiaries, EMS SA and Star to [EMS's] Accounts to reflect those amounts owing in Aust $ of $54,990 to Mr Sims. The amount currently owing to the Doug Sims Superannuation Fund as per Loan Agreement is $76,818 with additional travel expenses of $59,009 also due. 45 By email dated 3 May 2009 addressed to Mr Jooste and Mr Patterson (which was also sent to Mr Trevor Strahan EMS's Company Secretary, Mr Tiede EMS's CFO and Ms Janet Baker the Personal Assistant to EMS's CEO) (the Third Letter of Resignation), Mr Sims advised: 1. As a consequence of the intense abuse, slander and blackmail of [Mr Stewart] and [Mr Richardson] and my forced resignation I am taking sick leave until doctor's clearance. 2. In support of the company and the project I am available to attend all meetings and presentation for the company at your request. I am also available to phone 24 Hrs a day in full support. 3. I will continue to work on the Ampack situation … I am arranging a meeting with … 4. On the bank accounts in Germany we will need a resolution to open the bank account … 5. Due to the problems associated with my company Fee-Zone Pty Ltd shares held by RM (Dexia) … I regret to inform you that I must call my Super Fund loan to EMS. I will assist in not damaging EMS and suggest that from the next traunch [sic] of funds EMS pay $35,000 to my Super Fund before 12 May. Another $35,000 before 12 June and the balance on the completion of the intended fund raising with Patersons. 6. We need to meet and discuss a formulae [sic] for a way forward with HcBPAG on distribution that enhances EMS and HcBPAG before this boofen [sic] is allowed to ruin our way forward. 7. I also request a letter of support from each of the team supporting my efforts and rejecting the accusations of causing conflict or dissention [sic] in EMS or the Group. 46 Around that time there was a move by EMS for a Non-Renounceable Rights Issue Prospectus to raise up to $3 million. A Due Diligence Committee was formed on the audit of the Prospectus. Director's Questionnaires and Disclosures were circulated and completed. When completing his Director's Questionnaire dated 26 May 2009, Mr Sims recorded that in connection with the issue he would receive settlement of (the) loan of $77,000 and payment of the outstanding loan to his Superannuation Fund. 47 By letter dated 8 June 2009 addressed to Mr Tiede, Mr Sims as Executive Director of EMS instructed Mr Tiede 'to immediately transfer by Telegraphic Transfer the balance of The Doug Sims Superannuation Fund loan' of $36,817.78 plus interest. Mr Sims concluded the letter by stating, 'If you refuse my instruction you are in breach of your engagement contract'. 48 On the evening of 8 June 2009 Mr Sims gave notice. Mr Sims was confronted by Mr Jooste and Mr Patterson and required to sign an Undertaking dated 8 June 2009 (the Undertaking) because he held substantial EMS shares and he ceased holding office as an EMS Director. The effect of the Undertaking was that Mr Sims would not do anything to adversely affect EMS and he would use his best endeavours to support the interests and activities of EMS. Mr Sims claimed he signed the Undertaking under duress but he commented, 'Why would I work against the company?' The Undertaking recorded that Mr Sims ceased holding the office as an EMS Director. After Mr Jooste directed Mr Patterson to sign the Undertaking, Mr Jooste said to Mr Sims, 'You should resign. You should go'. Mr Jooste went on to say that if Mr Sims did not go and EMS went down, Mr Sims would face a class action by the shareholders for damages in representing Mr Sims' own interests in front of shareholders …'and that would destroy [Mr Sims]'. 49 However, when Mr Sims went to leave the meeting (of the EMS Board), Mr Strahan said, 'You can't go, we've got to finish this meeting. We've got to have a meeting to get this stuff through and we haven't got a quorum'. Mr Sims responded, 'It's just bloody blackmail. All right. I'm out'. Mr Sims remained for the meeting but he did not say anything. Mr Sims then left. 50 Mr Sims later typed his official letter of resignation dated 9 June 2009 addressed to EMS's Board (the Sixth Letter of Resignation),as follows: Due to intense duress, abuse, unfounded slander and blackmail by [Mr Richardson] and [Mr Stewart] which has resulted in a serious deteriation [sic] in my health and reputation, I hereby submit my forced resignation as Director of EMS with effect from 12.00 Noon Tuesday 9th June 2009. 51 Subsequently Mr Sims gave Mr Patterson the Sixth Letter of Resignation together with a letter dated 9 June 2009 addressed to the EMS Board demanding payment of outstanding monies and another letter dated 9 June 2009 addressed to the EMS Board in which he stated the meeting in Mr Jooste's Chambers 'was accidentally broadcast to the Board of HcBPAG'. That letter concluded with the words 'If you sleep with dogs you get flees [sic]'. 52 In cross-examination Mr Sims agreed that in November 2008 EMS's financial position and in particular its cash-flow problem was dire. In an ASX Announcement dated 2 January 2009 EMS announced that it had lodged documents for its shareholders to participate in a Non-Renounceable Rights Issue to raise $2,490,000 but that money raising attempt did not succeed. Mr Sims did not accept that without the financial support of RM Capital, EMS would have failed. However, in an email dated 31 January 2009 addressed to Mr Jooste, Mr Sims wrote, 'On RM I think we know the game andwithout them we would have gone down, but we must fight the fight'. In an email dated 1 January 2009 addressed to Ms Baker, Mr Sims wrote, 'Just to let you know things went very well on Friday at RM … We are forced to do this deal but be assured [Mr Jooste] and I have the full intention of bringing in major funding for EMS and play these guys hard …'. Mr Sims agreed that in February 2009 EMS had no possibility of borrowing further funds from its bankers. He explained, however, that EMS had put in place a number of contracts that would obtain for EMS in excess of $3 million and EMS was making other arrangements to raise money. Mr Sims also agreed that at that time, Mr Stewart was conducting due diligence in Europe with HcBPAG and the UK operations to ascertain whether he wanted to invest in EMS. Mr Stewart had also suggested a downsizing of the EMS Board. Mr Sims went on to explain that sitting behind everything was suspicion as to how HcBPAG listed. 53 When Mr Stewart requested information from Mr Sims, by email dated 10 April 2009 addressed to Mr Stewart, Mr Sims stated amongst other things: … I would tread extremely careful with the German situation. I am working it through. To restrict the funds due to EMS would be an extremely dangerous move bearing in mind that the [due diligence] in Germany was on EMS, not [HcBPAG]. If it delayed trials and progress, this would be most damaging to the shareholders of EMS. To be quite frank, there has been enough damage done with Germany to date and [Mr Jooste] and I are working it back to a good working relationship which has been damaged no end as a result of statements in Germany, and in particular, by [Mr Richardson]. Statements such as EMS is a black hole, RM are not putting a single cent into EMS, EMS cannot even pay for their audit and will be suspended on Monday as the auditors will not will not sign off until they are paid (which they were) and why do we even need EMS as this could as we could do this through Geneva, etc. I have all the transcripts and the recordings of all [your] discussions from room 1307 Hyatt. That is as an officer of EMS … (emphasis added). 54 Mr Sims did not accept he was trying to convey to Mr Stewart that he 'had some clout on him'. In cross-examination Mr Sims admitted he did not have the transcripts and the recordings of Mr Stewart's hotel room in Berlin but claimed Mr Schoetteldreier read the transcripts over the phone to him. Mr Sims went on to explain, 'I told [Mr Stewart] straight, because I am a blunt guy when I see dishonesty … I'm not physically violent. If I was violent I would have fed these guys to the sharks. I'm not violent. I have a right to protect myself when I'm attacked …' By email dated 10 April 2009 addressed to Mr Sims, Mr Stewart responded, 'Your email's very disturbing and I am not sure I am prepared to continue as things stand …'. 55 In cross-examination Mr Sims agreed Mr Jooste gave him in April 2009 a copy of Mr Stewart's email dated 23 April 2009 addressed to Mr Jooste and copied to Mr Richardson. In the email Mr Stewart stated: I would like to table with you the following understandings for the avoidance of doubt … 1. I will make a level of funding available to EMS as generally discussed on the basis that you hold in trust the Undertaking provided to you by [Mr Sims] to be used as we have broadly agreed. The matters around funding have nothing whatsoever to do with the Undertaking given by [Mr Sims]. I would certainly encourage you to attach to the Undertaking given by Mr Sims a list of the key conditions which relate to responsibilities of a Director and employee of the Company for 'the avoidance of doubt'… 2. At the time when the funding becomes unconditional and reaches the minimum funding requirement of $5.2 million I will be appointed to the Board of EMS … 56 By email dated 24 April 2009 addressed to Mr Jooste and another and copied to Mr Richardson and another, Mr Stewart wrote that his investment in EMS was conditional upon, inter alia, the immediate resignation of Mr Sims as Executive Director and Mr Stewart's immediate appointment to the EMS Board. 57 By email dated 30 April 2009 addressed to Mr Jooste and copied to Mr Patterson (the First Letter of Resignation),Mr Sims wrote: In the interests of Shareholders who have become at risk, I hereby accept the proposal as conveyed by the Chairman at the demands of RM Capital to step down from my Directorship in EMS upon the completion of the successful capital raising, the subject of the draft mandate for such modified version as Patersons see fit.
58 By letter dated 30 April 2009 addressed to the EMS Board (the Second Letter of Resignation), Mr Sims wrote: … As of today, I've taken sick leave from my position … As a result and consequence of the unfounded abuse, slander and blackmail inflicted upon my by [Mr Richardson] and [Mr Stewart] together with the defamation and damage inflicted upon me and EMS in the United Kingdom and Germany on their recent visit … which conduct has also contributed to further deterioration of my health and well being … Please take note … It is the exposure by me of [Mr Richardson's] and [Mr Stewart's] unethical conduct that has sparked the unwarranted and unfounded vendetta against me by them and my forced resignation … In the interests of the Shareholders who's [sic] investment is now put at risk by the above abuse, slander and blackmail I am now being forced to tender my resignation as a Director in the interest of shareholders … I also bring to the notice of the company the unacceptable conflict situation of [Mr Stewart] as a consultant to EMS and the conduct of Mr Richardson … 59 In cross-examination Mr Sims accepted, that as at 30 April 2009, his complaint was directed solelyto Mr Richardson and Mr Stewart. Mr Sims went on to explain that his resignation was not accepted (by EMS) and a counter proposal was put to him. Around that time Mr Patterson said, 'If you resign today we're bankrupt'. 60 EMS's Prospectus dated 27 May 2009 recorded that '[Mr Sims] executive director for international business development proposes to retire following the capital raising. [Mr Stewart], currently a consultant is to be invited to join the board as a non-executive director following the capital raising …'. Mr Sims agreed that as a Director he was content for the Prospectus in these terms to go to the market. 61 On 28 May 2009 Mr Sims prepared a series of invoices for payment by EMS to him: Invoice no 00011 for repayment of HcBPAG shares paid on behalf of EMS by companies associated with Mr Sims; Invoice no 00013 for $160,940 for '6 months' notice period payment as a result of breach of agreement & forced resignation and forced termination … as a result of intense duress, abuse, fabricated slander and blackmail' (by Mr Richardson and Mr Stewart), and other benefits and entitlements under the Employment Contract; and Invoice no 00014 for $218,000 for two years salary as a result of forced termination' of the Employment Contract. 62 By letter dated 30 May 2009 addressed to the EMS Board (the Fourth Letter of Resignation),Mr Sims wrote: … Due to health problems caused by abuse slander and blackmail by [Mr Richardson] and [Mr Stewart] which has forced my sick leave and resignation I hereby submit my resignation as a Director of EMS with immediate effect. 63 Mr Sims said his resignation was not accepted. 64 By email dated 6 June 2009 addressed to Mr Patterson and copied to Mr Jooste (the Fifth Letter of Resignation), Mr Sims wrote: Please sign [the attached letter/acknowledgement of debt] and we can clearly move forward. In the event that EMS estoppel you from acknowledging all debt I intend to apply for an administrator on Tuesday morning. Enough is enough. 65 In the attached letter/acknowledgement of debt addressed to Mr Patterson, Mr Sims wrote: It appears the company has met an impasse in relation to its Capital Raising as a result of the terms being applied Mr Stewart and RM Capital … The terms of the Con Note Deed which is required to be signed by the present Directors of Eastland are suppressive and require Directors to basically guarantee the early redemption of the Co Note … While the Deed is aimed at myself it also places unacceptable burden upon yourselves … I have come to the conclusion, in the interest of the Company and its Shareholders that I will submit my forced resignation and retirement subject to Eastland acknowledging that all debt owed to me or my companies will be repaid at call including the Notice of Termination required six months' salary… I will not call the Notice period payment until after the completion of the present capital raising … The company and its shareholders has my complete support as the largest Shareholder in EMS it is neither in my interest, or fellow shareholders interest to obstruct the completion of the malaria project and to infer so is criminal slander … Please acknowledge this undertaking by latest 3 pm Monday 8th June 2009 and I will submit my forced resignation by latest 12 noon 9th June 2009. 66 In cross-examination Mr Sims denied he was trying to set up EMS for a claim by asking for letters of support from Mr Strahan, Mr Tiede and Ms Baker. Mr Sims explained that he needed some letters of support to show companies he was dealing with, what was going on and why he was going back into his own business transactions and leaving the anti-malaria project. 67 The minutes of the meeting of EMS Directors on 8 June 2009 recorded the resignation of Mr Sims: Following discussions between various third parties and the Chairman. The written resignation of Mr Sims was tendered as a Director and extended to his position as Manager for International Business effective 9th June 2009. A copy of this document was tabled ...
Trevor Preston Strahan 68 Mr Strahan was a Consultant with EMS from 1999 until February 2002 when the company listed and he became the CS. He left EMS on 1 September 2009. 69 Mr Strahan explained Mr Sims' role with and financial contribution to EMS. Mr Sims worked on the Prospectus and after the listing Mr Sims continued as the Product Development Manager. Mr Sims' company Freezone also consulted to EMS. When Mr Sims stepped down as an EMS Director between 2001 and 2004 he still acted as the Product Development Manager. Mr Sims made a significant financial contribution to secure the anti-malaria treatment project. Mr Sims provided support by contributing to the expenses of Mr Jooste. Mr Sims also incurred his own expenses that he had not claimed back. 70 The EMS Board meeting on 8 June 2009 was called at short notice. A number of matters needed to be discussed. EMS had only recently issued a Non-Renounceable Rights Issue Prospectus. There had been a number of shares issued. There had been discussions between Mr James Scott from Patersons Securities and Mr Strahan in relation to certain issue of shares. EMS had made a placement of 19.3 million shares which raised $585,000. There was some correspondence 'that came through' that caused Mr Strahan some concern. 71 Mr Strahan explained that it would be an unusual practice for the minutes of a meeting of EMS Directors held on 8 June 2009 to be signed by the Chairman on 3 December 2009. 72 In cross-examination Mr Strahan said that on the morning of the EMS Board meeting on 8 June 2009 he learnt Mr Sims had resigned. 73 Mr Strahan had seen Mr Sims' emails dated 3 May 2009 concerning his resignation, sick leave and 'request [for] a letter of support from each of the team'. Mr Strahan explained that at that time Mr Sims was to resign after the completion of the capital raising. Initially, however, Mr Sims was to resign after the completion of the clinical trial which was announced in the ASX Announcement dated 10 March 2009. Between 10 March 2009 and the signing off of the Prospectus For A Non-Renounceable Rights Issue on 27 May 2009, the demand for Mr Sims to resign had changed and he was to resign after the successful completion of the capital raising, which would have been 1 July 2009 when the shares were issued to the shareholders. It came as a surprise to Mr Strahan that Mr Sims (resigned) on 8 June 2009. 74 On 4 June 2009 Mr Strahan and Mr Tiede authorised the payment of $40,000 to Mr Sims' superannuation fund. Mr Strahan explained that the EMS Board was aware of the moneys owed to Mr Sims. 75 In cross-examination Mr Strahan explained that he called the EMS Board meeting on 8 June 2009 at short notice because he was concerned 'the entrance from Mr Stewart was that he was placing restrictive terms on shares that had been issued to a number of other participants not necessarily Mr Stewart's clients'. 76 On 8 June 2009 Mr Tiede showed Mr Strahan the letter dated 8 June 2009 from Mr Sims' to EMS instructing Mr Tiede to pay the balance of the superannuation money. 77 In cross-examination Mr Strahan was referred to the unsigned minutes of the meeting of EMS Directors held on 8 June 2009. Mr Strahan denied there was an argument with Mr Jooste because he wrote in the minutes: The Company cannot comply with [Mr Stewart's] demand for restrictive terms and conditions on the issue of Placement Shares. The only two alternatives are for the Company to (a) return the applications and subscription money paid by those parties, or (b) have [Mr Stewart] remove his demands for restrictive covenants on those quarantined applications as identified in Mr Strahan's memo. 78 Mr Strahan said if there was a change in the minutes it was after he left EMS. 79 After the EMS Board meeting on 8 June 2009 Mr Strahan wrote a letter of support dated 8 June 2009 for Mr Sims.
Peter Michael Tiede 80 Mr Tiede was a certified practising accountant. He was an EMS Director on and off and the CFO until 10 March 2009. He was the CFO from 10 March 2009 until 1 September 2009. 81 After Mr SimsgaveMr Tiede the letter dated 8 June 2009 of instructions concerning the payment of the balance of the superannuation money, he made the payment to The Doug Sims Superannuation Fund. 82 Mr Tiede confirmed that the two outstanding amounts referred to in the Investment Agreement dated 14 July 2008 between EMS and The Doug Sims Superannuation Fund were paid. 83 During the global financial crisis EMS was in 'a stressful state' and every endeavour was being made by the Board to stay afloat. 84 In cross-examination Mr Tiede explained that on 4 June 2009 part of the superannuation had been paid. Mr Tiede understood the balance of the loans for the superannuation was to be paid in full by 30 June 2009; however, it was paid on 9 June 2009. Mr Tiede and Mr Strahan authorised that payment. 85 Mr Tiede did not interpret as a threat, but an emotive statement, the words 'If you refuse my instruction, you are in breach of your engagement contract' at the conclusion of Mr Sims’ letter dated 8 June 2009 of instructions concerning the payment of the balance of the superannuation money. On 8 June 2009 Mr Tiede wrote a letter of support for Mr Sims.
Dermot Patrick Patterson 86 Mr Patterson was a self-employed business management consultant. 87 From September 2006 until October 2010 Mr Patterson was the EMS CEO. Between October 2006 and October 2010 he was an EMS Director. He left EMS in April 2011. 88 Mr Patterson explained his role as CEO and how EMS operated. He was responsible for managing EMS's operations day to day. EMS was the parent of a group of companies, each with their own particular business focus in the medical services industry. EMS's role was to manage the subsidiaries while attempting to commercialise its own medical products. EMS continually sought to obtain further capital to fund the development of its products by conducting capital raisings and restructuring its operations and those of its subsidiaries. 89 Mr Patterson also explained that Mr Sims was actively involved in EMS. Mr Sims was an Executive Director and significant shareholder in EMS. Mr Sims was very passionate about achieving EMS's goals and as such he was 'hands-on' in his management of EMS. Mr Sims was consulted in relation to most decisions concerning EMS's management. 90 In August 2008 Mr Patterson wrote to the subsidiaries of EMS at the request of the EMS Board and he advised that the EMS Group (including the parent, EMS) would introduce a freeze on all recruitment and new pay reviews, and any exception required EMS Board approval. Mr Patterson understood that did not apply to any contractual obligations. By late 2008 EMS was in serious financial trouble. The company required a large investment of capital to continue its operations and to finance the anti-malaria treatment project through to the completion of clinical trials. The clinical trials had to be completed prior to commercialisation of the anti-malaria treatment. 91 During 2008 and early 2009 EMS investigated a number of alternatives for capital raising. Discussions were held with Mr Richardson and Mr Guy Le Page of RM Capital and Mr James Scott of Patersons Securities. In early 2009 Mr Patterson met Mr Stewart. At that time, without the significant injection of capital, it was likely that EMS would be placed into administration as the operations of its subsidiaries were not providing the EMS Group with sufficient revenue to continue operating and developing products. 92 Mr Stewart became involved with EMS to assist the company raise capital. Mr Stewart was appointed as a consultant of EMS in March 2009. 93 Mr Patterson had observed disharmony between Mr Sims, Mr Stewart and Mr Richardson. 94 Mr Patterson was aware of the content of Mr Stewart's e-mail dated 24 April 2009 whereby he would personally contribute funds towards the capital raising on conditions which included the immediate resignation of Mr Sims as Executive Director of EMS. 95 On or about 30 April 2009 Mr Jooste asked Mr Patterson to accompany him to a meeting (in Wright Park) in Mosman Park which had been arranged with Mr Sims to discuss the situation of EMS and Mr Stewart's requirement for Mr Sims to resign from EMS (the Mosman Park meeting). 96 At the meeting, Mr Patterson told Mr Sims that it was his view, that it was unfortunate that Mr Sims was being asked to resign, but that if Mr Sims wanted EMS to continue its operations, EMS would need to receive immediate funding, and in his opinion, EMS had exhausted all of its funding operations. Mr Patterson told Mr Sims that it was his view, that Mr Sims had the option to remain with EMS in his present capacity, in which case it was relatively certain Mr Stewart would withdraw his offer of funding and his support, and without that, EMS would likely need to be placed into external administration. Mr Patterson told Mr Sims that it was his view, that alternatively, Mr Sims could resign and ensure EMS received its urgently required funding and then continue its operations. Mr Patterson said Mr Jooste expressed similar views at the meeting. As far as Mr Patterson was concerned, it remained for Mr Sims to consider whether to accept Mr Stewart's conditions. Ultimately that was a decision for Mr Sims to make. As an EMS Director, Mr Patterson was content to accept Mr Sims' decision either way. Mr Patterson could not recall what Mr Sims said at the meeting. 97 On or about 30 April 2009, shortly after the meeting, Mr Patterson received a copy of the First Letter of Resignation. Mr Sims continued to work at EMS until 9 June 2009. 98 Mr Patterson attended the EMS Board meeting on 8 June 2009. The minutes recorded that Mr Sims' resignation as a director was tendered and extended to his employment at the meeting. The EMS Board resolved to accept the resignation. The payment of Mr Sims' entitlements was discussed at the meeting. Mr Jooste said words to the effect that Mr Sims 'would be paid what he was owed'. After the meeting Mr Patterson witnessed Mr Sims' signature on the Undertaking. 99 After the meeting, by letter dated 9 June 2009, Mr Patterson advised Mr Sims that EMS would be paying Mr Sims $76,817.78 plus accrued interest to Mr Sims' superannuation fund. 100 On the evening of 12 June 2009 Mr Patterson found in Mr Tiede's office documentation that indicated that EMS had already paid to Mr Sims amounts on 4 June 2009 ($40,000) and 9 June 2009 ($39,664.02) totalling $79,664.02. 101 In cross-examination Mr Patterson could not explain why the minutes of the meeting of EMS Directors held on 8 June 2009 were signed by Mr Jooste on 3 December 2009, but he disputed as highly unlikely, Mr Sims' suggestion they were a forgery. 102 In cross-examination Mr Patterson said they were all being asked to provide information regarding EMS's activities as part of a due diligence initiated by Mr Stewart or RM Capital. Mr Patterson could not recall if he informed Mr Stewart of the Addendum to the Contract Manufacturing License Agreement he executed on 17 April 2009. 103 In cross-examination Mr Patterson said that at the Mosman Park meeting, the reality was that EMS was potentially facing going into administration without capital coming into the company. They met because Patersons Securities, the lead brokering firm looking to raise capital and support EMS, 'saw' there was a degree of discontent. Mr Patterson explained: We had no other option other to say that if Mr Stewart is the one supporting the capital raising, he is the one making demands. It's not the company. And the question is then, we're all in the same boat. It could have been [Mr Sims]; it could have been [me]. [Mr Stewart] was putting demands, but not the company. 104 At the Mosman Park meeting they were trying to resolve the situation regarding Mr Stewart's demands and where he sat. Mr Patterson went on to explain: The bottom line was that we had no, as I recall it, no other options to put on the table that potentially would bring money into the company in the time frame, and there was a consideration for [Mr Sims] to either accept Mr Stewart's conditions, or we would potentially have to face the administrator. 105 Mr Patterson rejected the suggestion by Mr Sims 'that [Mr Sims] had to go' and he maintained that Mr Sims had to make a decision himself as to whether he would stay or resign: I recall that we, as directors of a company, were faced with some stark choices. However, we could not and did not direct [Mr Sims] as to what [his] final decision would be. Other than to say, ‘this is what’s on the table’. 106 Mr Patterson agreed that EMS was exploring other avenues for (raising) money but he maintained: We were faced with the financial position and the only thing that we had was Patersons and [Mr Stewart] there and then, that's it. Anything else was hopeful at best … [given] the time frame. 107 Mr Patterson agreed that EMS was getting very close to being insolvent.
Peter Innes Jooste 108 Mr Jooste was a barrister and Queen's Counsel. 109 Mr Jooste met Mr Sims in 1998. Over the next seven years he acted for Mr Sims and his associated companies. They developed a business relationship and friendship. He placed a great trust in Mr Sims and felt a great sense of loyalty to him. 110 In May/June 2006 Mr Sims invited Mr Jooste to become an EMS Director. He was aware that Mr Sims was a founder, Executive Director and the largest shareholder of EMS. Due to his busy legal practice he could only commit to being a Non-Executive EMS Director. At that time EMS's core business was the development of its business in Europe and South Africa principally for its 'safe needle technology'. In June 2006 he was appointed a Non-Executive EMS Director and in December 2006 he was appointed Chairman of the EMS Board. 111 Mr Jooste explained the role of Mr Sims in the ArTiMisT project and how Mr Sims’ relationship with Dr Ross resulted in EMS acquiring the rights to manufacture and distribute the new anti-malaria treatment product. The ArTiMisT project showed potential but had to undergo clinical trials which required a significant outlay of capital by EMS. 112 Mr Jooste explained how the family of Mr Mandela became involved as investors in the ArTiMisT project. It was anticipated that by associating the Mandela name with the ArTiMisT project that would increase its chance of success in Africa. At that time EMS was also in negotiations worldwide to establish a base where ArTiMisT would be manufactured. The negotiations in Germany were between Mr Sims and Mr Schotteldreier of HcBPAG, a German pharmaceutical company they had established. Ultimately, HcBPAG acquired the manufacturing rights for ArTiMisT in exchange for EMS receiving shares in HcBPAG. The shareholding made EMS one of the largest shareholders in HcBPAG. 113 In July 2007 Mr Jooste and Mr Sims and others associated with ArTiMisT attended Mr Mandela's 90th birthday in South Africa. 114 In August 2008, at the height of the global financial crisis, EMS's financial position had declined. EMS had to conduct a capital raising exercise to fund its ongoing operations and the commercialisation of ArTiMisT. 115 At the EMS Board meeting on 14 August 2008 the Board decided to freeze all remuneration reviews and requests for increased payments by EMS employees indefinitely, which included Mr Sims, until the development of ArTiMisT was sufficiently advanced. The decision extended to EMS's subsidiaries. 116 At that meeting, the EMS Board also ratified a mandate letter of RM Capital to raise up to $1.2 million. At the time the EMS Group owed a significant amount of money to ANZ Bank. If ANZ called in their facilities EMS would have no choice but to go in to administration. Subsequently, Mr Tiede met with ANZ to try to persuade the bank to allow EMS to trade its way out of its financial position. 117 In late October 2008 Mr Jooste accompanied Mr Sims to South Africa where they met Mr Nyezi, a contact of Dr Amuah. Mr Jooste explained that after Mr Mandela's birthday party, Mr Sims and Dr Amuah had negotiated with Mr Nyezi to enter into a contract to purchase €800,000 worth of EMS's HcBPAG shares. Mr Jooste and Mr Sims had been made aware that HcBPAG was to be listed on the Frankfurt Stock Exchange which created liquidity shares in the shares EMS held in HcBPAG. 118 On 3 December 2008 at the EMS Board meeting, notices of default from the ANZ for two EMS subsidiaries' facilities were tabled. The bank required EMS to provide a plan of paying down facilities immediately otherwise it would foreclose. 119 In early January 2009 Mr Jooste became aware that Mr Nyezi was not intending to proceed with the contract to purchase the HcBPAG shares. Mr Jooste advised Mr Nyezi by email dated 8 January 2009 of Mr Nyezi's contractual obligations and he made reference to EMS taking legal action. Mr Jooste had a number of conversations with Dr Amuah in an attempt to have him assist in negotiations with Mr Nyezi to purchase the HcBPAG shares. At that time Mr Jooste was concerned that if EMS pursued legal action against Mr Nyezi that would be expensive and damage EMS's relationship with Mr Mandela's family. Mr Jooste considered the decision to take legal action against Mr Nyezi was a matter for the EMS Board. 120 On 30 January 2009 EMS released its quarterly activities report for the period ending 31 December 2008. The report indicated the company's cash reserves had been exhausted and the bank overdraft was over $800,000. 121 In late January 2009 RM Corporate Finance, a subsidiary of RM Capital and Patersons Securities were assisting with EMS's capital raising. 122 In February 2009 Mr Stewart also expressed interest in assisting with EMS's capital raising and investing personally in EMS. After that Mr Stewart and RM Capital were in the process of conducting detailed due diligence on EMS. Mr Stewart was dealing with Mr Sims directly in relation to the ArTiMisT project. In late February 2009, Mr Richardson and Mr Stewart travelled to the UK and Germany as part of a due diligence tour and they met with Dr Ross and HcBPAG representatives. 123 At the EMS Board meeting on 26 February 2009, the half yearly financial accounts for the six months to December 2008 were tabled. In the half yearly report EMS announced a net loss for the period of $979,000, down by 82% from the previous period. The report referred to a breach of the loan covenants on the ANZ bank facility and its termination, the issue of a notice of default and the negotiation of revised terms; and a notice of a $935,000 liability as guarantor of an EMS subsidiary. 124 Despite the financial issues, Mr Jooste was optimistic about EMS's future providing it could successfully raise capital in a short timeframe. Around that time Mr Stewart expressed an interest in procuring investment up to $2 million on behalf of EMS. EMS had also negotiated the terms of a draft mandate with Patersons Corporate Finance to raise a further $4 million subject to further discussions with Mr Richardson, Mr Le Page and Mr Stewart. After negotiations with ANZ there was a plan to reduce the facilities. There was also a short term funding arrangement with RM Capital to keep EMS operating until the capital raising was completed. 125 In late February 2009 Mr Stewart suggested a draft plan for EMS. It included a complete restructure of the Board with Mr Jooste remaining as Chairman. Mr Jooste considered, at that time, RM Capital and Mr Stewart were necessary to the survival of EMS because the rights issue to shareholders had failed; without the involvement of RM Capital and Mr Stewart, Patersons would not be involved and EMS would be insolvent and need to be placed into administration. 126 In early March 2009 Mr Jooste met with Mr Stewart and Mr Richardson. Mr Stewart and Mr Richardson recommended changes to EMS. A recommendation was that Mr Sims takes up a position as a Non-Executive EMS Director after the clinical trials of ArTiMisT were completed. It was clear to Mr Jooste that the issues needed to be resolved and as the issues directly concerned Mr Sims, they should meet with Mr Sims as soon as possible. 127 Shortly after that Mr Jooste and Mr Sims met with Mr Stewart. At the meeting Mr Stewart said he had a number of concerns following his trip to the UK and Germany. Mr Stewart claimed he had been told by HcBPAG representatives that EMS did not have the manufacturing and distribution rights to ArTiMisT as they had been contracted to HcBPAG by Mr Sims acting for EMS. Mr Stewart claimed Mr Sims told Dr Ross not to provide him with any information arising out of his due diligence trip and he felt Mr Sims had deliberately obstructed the trip. Mr Stewart said, to assist with EMS's capital raising, the EMS Board had to be downsized and restructured and Mr Sims should consider stepping down from his position as Executive Director. Mr Stewart said he wanted to assist EMS and as such EMS should consider appointing him as a consultant. Mr Sims said he would agree to be a Non-Executive Director after the next (clinical) trials were concluded. Mr Sims said the HcBPAG executives had attempted to steal ArTiMisT but that EMS still owned it. Mr Sims said that subject to Mr Patterson's agreement, the directors should work to obtain the resignations of (directors) Mr Whitelaw and Mr Tiede. Mr Sims said subject to Mr Patterson's agreement which Mr Sims would obtain, Mr Stewart would be appointed a consultant to assist EMS with its capital raising. Mr Sims said he agreed to assist Mr Stewart with any due diligence he was conducting on HcBPAG and obtain answers to any questions. 128 By emails dated 7 and 8 March 2009 addressed to Mr Jooste and Mr Sims, Mr Stewart provided a draft announcement giving effect to what had been agreed at their meeting and set out the terms of his consultancy and matters relating to the capital raising. 129 By email dated 9 March 2009 addressed to Mr Jooste, Mr Sims requested a meeting to discuss a number of issues. In that email Mr Sims wrote 'as the table has turned a circle, [Mr Tiede] resign and [Mr Stewart] removes [Mr Patterson] I am left as the only Executive Director. This cannot be …' 130 On 10 March 2009 by ASX Release, EMS announced its Board changes, Mr Stewart's appointment as a consultant and the intention of Mr Sims to assume a non-executive board role at the end of the clinical trials for ArTiMist. 131 By email dated 22 March 2009 addressed to Mr Sims and copied to Mr Jooste and others, Mr Stewart sought clarification on a number of issues which Mr Sims responded to the following day. Mr Jooste explained that around that time there were issues between Mr Sims and Mr Stewart concerning the due diligence with EMS. 132 At the EMS Board meeting on 20 April 2009 it was announced that changes were being made to the capital raising arrangements; RM Capital would sub-underwrite the Patersons mandate and continue to raise capital to fill the convertible note. The minutes record that $447,000 of the $750,000 had been raised at that time. At that meeting the Board accepted the terms of the Patersons mandate as it was essential for EMS to obtain the funding as it was in dire need of capital and no other options were available. Without the funds, EMS would not have been able to continue and it would need to be placed into administration. 133 After the 20 April 2009 EMS Board meeting EMS's efforts were focused on capital raising. On 23 April 2009 Mr Jooste was blind copied into an e-mail from Mr Stewart to Mr Sims raising issues with due diligence he was undertaking and finalising. After that Mr Jooste had a number of conversations and communications with Mr Stewart concerning Mr Sims. 134 In late April 2009 Mr Jooste and Mr Patterson met with Mr Sims at Wright Park in Mosman Park to discuss the position of Mr Stewart (that Mr Stewart had taken in recent conversations with Mr Jooste) and the future of EMS. Mr Jooste said to Mr Sims: Given the financial position of EMS, Mr Stewart and RM Capital's support was essential to EMS and that the company's survival depended on the success of the capital raising with RM Capital and Patersons … I thought if Mr Stewart pulled out I thought RM Capital would do the same, as would Patersons, and the capital raising would collapse … I had attempted to convince Mr Stewart to reconsider his requirement for Mr Sims to resign completely as Executive Director of EMS but that he would not change his mind … It was [Mr Sims'] decision whether or not to resign as Executive Director of EMS after the capital raising but that without Mr Stewart and RM Capital the company would have to be placed into administration and that there were no other options. 135 Mr Sims said to Mr Jooste 'He would do whatever [Mr Jooste] and Mr Patterson thought was in the best interests of EMS and its shareholders including himself'. Mr Jooste said to Mr Sims 'Saving the company and its shareholders including [Mr Sims] was the most sensible and important thing to do'.136 Following the Mosman Park meeting, Mr Jooste again spoke with Mr Sims but he could not recall if it was in person or on the telephone. Mr Jooste said to Mr Sims: In the view of myself and Mr Patterson the most important sensible thing was to ensure EMS didn't go into administration and that shareholders' interests were at stake … In my view EMS had no choice but to agree to the terms that Mr Stewart was imposing and that it certainly was not my preferred option to see [Mr Sims] leave. 137 Mr Jooste was aware Mr Sims was very upset by what he was telling Mr Sims because of the tone of Mr Sims' voice. Mr Jooste wanted Mr Sims to make his own decision. There was no pressure. 138 On or about 30 April 2009 Mr Patterson informed Mr Jooste that he had received by e-mail the First Letter of Resignation. Mr Jooste received a similar e-mail. 139 On 3 May 2009 Mr Jooste received by e-mail from Mr Sims the Third Letter of Resignation. The email was the first Mr Jooste had heard of any forced resignation. Mr Sims also made reference to going on sick leave. At that time Mr Jooste was aware there was tension between Mr Stewart and Mr Sims. 140 On 6 May 2009 Mr Jooste received an e-mail from Mr Stewart confirming, amongst other things, that the funds he was arranging would not be released until he had an irrevocable letter of resignation signed by Mr Sims or Mr Sims had resigned. Mr Stewart also requested confirmation that the funds provided under his convertible note were held in trust and would not be released until the entire $5.2 million was raised. 141 On 12 May 2009 Mr Jooste received an e-mail from Mr Sims. At that time Mr Jooste became very concerned about Mr Sims' state of mind given its contents. 142 On 25 May 2009 the rights issue was announced to the market. The Prospectus made reference to the intention of Mr Sims to retire from EMS after the capital raising. 143 On 6 June 2009 Mr Jooste was copied into an e-mail from Mr Sims to Mr Patterson. Mr Sims requested that EMS sign a letter otherwise he would apply to wind up the company. 144 Prior to the EMS Board meeting on 8 June 2009, Mr Jooste and Mr Patterson met with Mr Sims at a hotel in Hay Street at Mr Sims' invitation. At the hotel Mr Sims said he wanted EMS to agree to release all funds owed to him including his superannuation fund so he could participate in the rights issue/placement being undertaken. Their meeting was tense. Mr Sims spoke aggressively to Mr Jooste and Mr Patterson. Mr Jooste said to Mr Sims 'EMS would not pay anyone before the ANZ Bank and would not breach Mr Stewart's escrow conditions'. Subsequently, at the EMS Board meeting Mr Jooste gave Mr Sims the Undertaking to sign. The Undertaking sought to ensure the capital raising was not destabilised by Mr Sims' activities as a shareholder. Mr Sims tendered his resignation as an Executive Director of EMS and it was accepted by the Board, effective 9 June 2009. Mr Sims's resignation was announced to the market on 10 June 2009. 145 Mr Jooste explained that in December 2009 he signed the minutes of the EMS Board meeting held on 8 June 2009 because of a dispute with Mr Strahan as to the conditions that had been placed by the financiers on the capital raising. The dispute was whether part of the capital raising was free of the conditions or subject to the conditions. 146 In cross-examination Mr Jooste agreed he and Mr Sims worked well together and they had an excellent association. 147 By email dated 1 March 2009 Mr Jooste wrote to Mr Sims 'Lets [sic] discuss before anyone else sees this. Have had a long tele con with [Mr Stewart]'. At the time Mr Stewart was in Europe. Mr Jooste did not accept there was a lack of discussion with the whole Board to address issues that contributed to a lot of friction. 148 In cross-examination Mr Jooste agreed that at the meeting in his Chambers (late April 2009) attended by Mr Sims and Mr Stewart, Mr Stewart was concerned with announcements by HcBPAG (in March 2009). Mr Jooste did not accept that at the meeting Mr Stewart was intimidating and treating Mr Sims badly or that was a true reflection of Mr Stewart's attitude. Mr Jooste considered Mr Sims to be out of order by being very aggressive. They were discussing how matters could best be resolved going forward. Mr Jooste denied he made no effort to stop the verbal assault of Mr Sims by Mr Stewart or it was Mr Stewart's intention to intimidate Mr Sims and get rid of him. Mr Sims attempted to intimidate Mr Stewart. Mr Jooste accepted that he had little to say at the meeting. Mr Sims was aware Mr Jooste had gone to extreme lengths to retain Mr Sims' position to the point that the financing arrangements could have been placed in jeopardy. 149 In cross-examination Mr Jooste said he informed Mr Stewart of the Addendum and Mr Stewart was alerted to things as they arose in Germany. Mr Jooste explained that the Addendum: Arose out of a situation where a listed company had already announced to the exchange that it had a contract manufacturer but retained the distribution rights to a very valuable project. What Mr Stewart had uncovered apparently in his due diligence, was that there was a question mark posed by the Germans as to whether manufacturing was in fact also disposed of, and they alluded to the 7 June contract. It was that, that had to be fixed. 150 Mr Jooste agreed that amongst the EMS Board there was confusion about what had taken place in Germany. Mr Jooste did not call an EMS Board meeting with Mr Stewart and Mr Richardson to have them around a table and a proper documented outcome because he understood Mr Stewart was in communication with Mr Sims about it. Mr Jooste denied he had aligned himself with Mr Stewart or that Mr Sims was the problem. Mr Jooste explained: At that time a full effort was being put into by everybody to bed down the capital raising, to bed down a Prospectus that was to be underwritten and was to be the saviour of the company, and the financiers were or included Mr Stewart. 151 At the end of April 2009 Mr Jooste had done: everything that [he] possibly could to persuade the financiers that [Mr Sims] was an essential part of the company, that [he] believed that [Mr Sims'] relationship with the inventor and with Germany [was] [a] very worthwhile matter[s]. But [he] [thought] that the financiers were concerned at steps that had been taken which appeared to be obstructive to their due diligence. 152 In cross-examination Mr Jooste agreed that until the EMS Board meeting on 8 June 2009 Mr Sims was staying on until after the capital raising. Mr Sims' resignation came as a shock. Mr Jooste denied that he had no other option than to get rid of Mr Sims at the demand of Mr Richardson and Mr Stewart. Mr Jooste explained: It was never [his] intention to do anything other than the Prospectus - what the Prospectus said. This came at a very inopportune time, [Mr Sims'] resignation, namely on the 8th. It came out of the blue and it caused the company to have two directors, which it cannot exist on as a listed company, otherwise than with three. And according to the law, the Corporations Law, it has to, as a public company, have three. It was never intended that anything other than what was in the Prospectus would occur. 153 Mr Jooste agreed he said at the meeting, 'Mr Sims, whatever is due to you legally will be paid to you' because Mr Sims insisted on an answer to his question, 'When am I going to be paid all the money that is owed to me?' Mr Jooste understood that to be the loans Mr Sims had advanced from his superannuation fund to fund Mr Mandela's birthday party. Mr Jooste agreed that funding secured the anti-malaria treatment product deal. Mr Jooste explained that was why he argued so vociferously for Mr Sims' retention. Mr Jooste denied it was a façade: … [he] had [his] fiduciary duties to the shareholders of the company. [EMS] was either going to go into liquidation or it was going to do what was good for the shareholders, including [Mr Sims], and ensure that the capital was raised … [he] couldn't force [Mr Sims'] resignation, because it would be illegal.
Claim for Damages 154 At this stage it is convenient to deal with the evidence concerning the individual heads of damage which Mr Sims contends arise from a breach by EMS of the Employment Contract as many of the individual heads of damage were not the subject of any evidence at trial by Mr Sims, despite numerous invitations by the court for Mr Sims to deal with the issues, and accordingly must be dismissed.
Employment Contract 155 The relevant written terms of the Employment Contract include: (a) By cl 3, that the agreement takes effect from 1 October 2007; (b) By cl 4(b), either party may terminate the Employment Contract by giving the other party six (6) months prior notice in writing; (c) By cl 7.1, that Mr Sims would receive an annual base salary of $128,000 pro rata to 30 hours per week; (d) By cl 7.3, that Mr Sims' salary would be reviewed on the anniversary of the Employment Contract and that each salary review would result in an increase to Mr Sims' salary of not less than the CPI. (e) By cl 7.5, that Mr Sims would be provided with a fully maintained motor vehicle of up to $65,000 which would be replaced every two years and which would be transferred to Mr Sims free of encumbrances on termination of employment; (f) By cl 11.1, that Mr Sims was entitled to 20 days paid annual leave per year; (g) By cl 11.2, that Mr Sims was entitled to take up to five days personal leave per year of continuous service; (h) By cl 11.4, that Mr Sims was entitled to long service leave in accordance with the Long Service Leave Act 1958 (WA); (i) By cl 15(c) that in the event Mr Sims' employment was terminated by EMS, EMS would pay to Mr Sims two years tax free salary plus superannuation at Mr Sims' base salary at the time, within one month of the termination; and (j) By cl 16.1, EMS could terminate Mr Sims' employment immediately on the happening of certain events. 156 In addition, Mr Sims contended for the following implied terms of the Employment Contract: (a) That EMS would not engage in conduct likely to undermine the trust and confidence required for the employment relationship to continue in the manner in the Employment Contract explicitly envisaged; (b) That EMS would not terminate Mr Sims' employment immediately without justification under clause 16.1 of the Employment Contract; (c) That EMS would act with good faith in its dealings with Mr Sims as an employee; and (d) That EMS would not utilize its contractual right to dismiss Mr Sims so as to deprive him of his entitlement to long service leave under the Long Service Leave Act.
The Schedule of Damages 157 In the Schedule of Damages filed 16 September 2013 (the Schedule of Damages), Mr Sims claimed 11 separate heads of damage:
(i) Failure to pay base salary 158 Mr Sims failed to adduce any evidence on the failure of EMS to pay him his base salary. The Schedule of Damages set out a calculation of the amount Mr Sims claimed to be owed by EMS on account of its alleged failure to pay to him his base salary. The claim was not taken any further by Mr Sims at trial in order to establish an evidentiary basis on which a finding could be made that EMS failed to pay Mr Sims his base salary. Mr Sims gave no evidence himself about the claim nor sought to adduce any such evidence from the CFO, Mr Tiede who was his witness. In the circumstances, the claim for failure to pay base salary must fail. |