Slater v Ecosol Pty Ltd

[2023] SASC 99

SUPREME COURT OF SOUTH AUSTRALIA

(Civil)

SLATER v ECOSOL PTY LTD

[2023] SASC 99

Judgment of the Honourable Justice Blue  

DEFAMATION - STATEMENTS AMOUNTING TO DEFAMATION - PARTICULAR STATEMENTS - IMPUTATION - OTHER CASES

DEFAMATION - PRIVILEGE - QUALIFIED PRIVILEGE

DEFAMATION - PRIVILEGE - QUALIFIED PRIVILEGE - REBUTTAL OF PRIVILEGE BY MALICE - GENERALLY

DEFAMATION - OTHER DEFENCES - TRIVIALITY

The respondent Ecosol Pty Ltd formerly carried on business manufacturing stormwater treatment products. The applicant Mr Slater and the cross applicant on the cross claim Mr Smith are shareholders (amongst others) of Ecosol. Mr Smith is also the chairman of directors of Ecosol.

In 2018 Ecosol entered into a contract with Urban Asset Solutions Pty Ltd to sell its stormwater treatment business. The contract was subject to shareholder approval. Mr Slater sent a number of letters to shareholders of Ecosol opposing the proposed sale. Mr Smith on behalf of Ecosol sent a number of letters to shareholders of Ecosol supporting the proposed sale.

Mr Slater claims against Ecosol for defamation in respect of various imputations said to arise from five letters sent by Mr Smith on behalf of Ecosol to shareholders. Mr Smith cross claims against Mr Slater for defamation in respect of various imputations said to arise from three letters sent by Mr Slater to shareholders.

Ecosol denies that the imputations alleged by Mr Slater arise or are defamatory. It relies on defences of justification, qualified privilege and triviality. It also contends that the action is an abuse of process.

Mr Slater denies that the imputations alleged by Mr Smith arise or are defamatory. He relies on defences of justification, qualified privilege and triviality.

Held (dismissing Mr Slater’s claim):

1Most but not all of the imputations alleged by Mr Slater arise from Ecosol’s impugned publications (at [327]-[331], [334]-[339], [342]-[345], [348]-[352], [355]-[357]).

2       All but two of the imputations arising are defamatory (at [363], [368], [370]-[372], [375]).

3Ecosol’s justification defences are not established (at [389], [394], [403], [416], [422], [427], [428]-[429], [447], [459], [476], [482], [486], [490], [495], [499], [500]).

4Ecosol’s common law qualified privilege defences are prima facie established (at [511], [516]).

5       Mr Slater’s malice response is not established (at [563]).

6It is not necessary to decide whether Ecosol’s statutory qualified privilege defences are established (at [565]).

7       Ecosol’s triviality defences are not established (at [573]).

8       Ecosol’s abuse of process contention is not established (at [605]).

9       Action dismissed (at [606]).

Held (dismissing Mr Smith’s claim):

1Most but not all of the imputations alleged by Mr Smith arise from Mr Slater’s impugned publications (at [616], [621]-[629], [636]-[639], [643]-[649], [655]-[659], [664]-[668], [674]-[678], [681], [687]).

2All but one of the imputations arising are defamatory (at [691]-[692], [693], [694], [696]-[697]).

3Mr Slater’s justification defences are not established (at [709], [713], [715], [720], [724], [726], [728], [731], [819], [838], [843], [848], [849]).

4Mr Slater’s common law qualified privilege defences are prima facie established (at [855]-[856]).

5       Mr Smith’s malice response is not established (at [923]).

6It is not necessary to decide whether Mr Slater’s statutory qualified privilege defences are established (at [926]).

7       Mr Slater’s triviality defences are not established (at [933]).

8       Action dismissed (at [941]).

Corporations Act 2001 (Cth) s 260A(1)(b), s 247A, s 247; Defamation Act 2005 (SA) s 8, s 23, s 28, s 28(3), s 31; Magistrates Court Act 1991 (SA) s 39, referred to.
Atkas v Westpac Banking Corporation (2010) 241 CLR 79 ; Barbaro v Amalgamated Television Services Pty Ltd (1985) 1 NSWLR 30; Bashford v Information Australia (Newsletters) Pty Ltd [2004] HCA 5, (2004) 218 CLR 366 ; Briginshaw v Briginshaw (1938) 60 CLR 336; Cassidy v Daily Mirror Ltd [1929] 2 KB 331 ; Dow Jones & Company Inc v Gutnick [2002] HCA 56; (2002) 210 CLR 575; Echo Publications Pty Ltd v Tucker; Fast Buck$ v Tucker (No 3) [2007] NSWCA 320; E Hulton & Co v Jones [1910] AC 20; Griffith v Australian Broadcasting Corporation [2010] NSWCA 257; Guise v Kouvelis (1947) 74 CLR 102 ; Howe & McColough v Lees (1910) 11 CLR 361 ; Hunt v Great Northern Railway Co (No 2) [1891] 2 QB 189; John Fairfax Publications Pty Ltd v Obeid [2005] NSWCA 60, (2005) 64 NSWLR 485 ; Lee v Wilson & MacKinnon (1934) 51 CLR 276; Lewis v Daily Telegraph Ltd [1964] AC 234 ; Mirror Newspapers Ltd v Harrison (1982) 149 CLR 293; Radio 2UE Sydney Pty Ltd v Chesterton [2009] HCA 16 (2009); (2009) 238 CLR 460; Roberts v Bass [2002] HCA 57, (2002) 212 CLR 1; Slatyer v The Daily Telegraph Newspaper Co Ltd (1908) 6 CLR 1 ; Tolley v Fry [1930] 1 KB 467 ; Toogood v Spyring (1834) 1 Cr M & R 181; Truth (NZ) Ltd v Holloway [1960] 1 WLR 997; Wake v John Fairfax & Sons Ltd [1973] 1 NSWLR 43, considered.

SLATER v ECOSOL PTY LTD
[2023] SASC 99

Civil

1. BLUE J:   The respondent Ecosol Pty Ltd (Ecosol) formerly carried on business manufacturing stormwater treatment products. The applicant Mathew Slater and the cross applicant on the cross claim Jeffrey Smith are shareholders (amongst others) of Ecosol.  Mr Smith is also the chairman of directors of Ecosol.

2. In 2018 Ecosol entered into a contract with Urban Asset Solutions Pty Ltd (UAS) to sell its stormwater treatment business to UAS. The contract was subject to shareholder approval. Mr Slater sent a number of letters to shareholders of Ecosol opposing the proposed sale. Mr Smith on behalf of Ecosol sent a number of letters to shareholders of Ecosol supporting the proposed sale.

3. Mr Slater claims against Ecosol for defamation in respect of various imputations said to arise from five letters sent by Mr Smith on behalf of Ecosol to shareholders. Mr Smith cross claims against Mr Slater for defamation in respect of various imputations said to arise from three letters sent by Mr Slater to shareholders.

4. The issues include whether the pleaded imputations arise and whether they are defamatory. Each respondent relies on defences of justification, qualified privilege and triviality. Each applicant alleges malice in answer to the qualified privilege defences. In addition Ecosol contends that Mr Slater’s action is an abuse of process.

   A GENERAL

   Background

   Establishment of Ecosol

5. Ecosol was incorporated (under the name Asahi Glass Pty Ltd) in 1993. In August 1994 Ian Charlton was appointed a director of the company. Mr Charlton’s background was in accounting.

6. In February 1996 Asahi Glass Pty Ltd changed its name to Ecosol Pty Ltd.

7. By November 1995 Scott Roy had designed and built a prototype of a stormwater filtration system comprising a concrete outer case with stainless steel, aluminium and plastic filters. He and his friend Richard Versteegh approached David Bishop, whose background was in the construction and fabrication industry, to manufacture the device. Mr Bishop in turn approached Mr Charlton with a view to investing in a company to manufacture and install the stormwater filtration system.

8. It was agreed that a company would be acquired; the directors would be Jodie Roy (Mr Roy’s wife), Mr Versteegh, Mr Charlton and Mr Bishop; and Mrs Roy and Mr Versteegh or their nominees would between them hold 50 per cent of the issued shares and Mr Charlton and Mr Bishop or their nominees would between them hold 50 per cent of the issued shares.

9. In February 1996 the company Asahi Glass Pty Ltd was acquired for this purpose, its name was changed to Ecosol Pty Ltd and Mrs Roy, Mr Versteegh, Mr Charlton and Mr Bishop became its directors. Mr Charlton was chairman of directors.

10. The shareholders became:

    ·Mrs Roy (three $1 shares being 25 per cent);

    ·Mr Versteegh (three $1 shares being 25 per cent);

    ·Mr Charlton (two $1 shares being 16.7 per cent);

    ·Mr Bishop (two $1 shares being 16.7 per cent); and

    ·Mrs Evans (Mr Bishop’s mother) (two $1 shares being 16.7 per cent).

11. Subsequently, upon the death of Mrs Evans, her shares passed to Mr Bishop.

12. Ecosol commenced carrying on business. Mr Roy was employed full time as Technical Research Director. Mr Charlton was employed full time. It is not clear whether Mr Versteegh and Mr Bishop were employed by Ecosol but if so they ceased to be employees by the time they resigned as directors.

13. Ecosol maintained a running loan account with Mr Charlton. From time to time, commencing in January 1996, Mr Charlton advanced money to Ecosol, resulting in credits to the loan account. From time to time, Ecosol made partial repayments of the loan or issued shares to Mr Charlton, resulting in debits to the loan account. The running balance of the loan account was generally in credit but on occasions it was in debit.

    Further share issues

14. In April 1997 additional shares in Ecosol were allotted, bringing total issued share capital to $546 comprising 546 shares, allocated as follows:

    ·Mrs Roy (45 per cent);

    ·Mr Versteegh (five per cent);

    ·Mr Charlton (28 per cent);

    ·Mr Bishop (11 per cent); and

    ·Mrs Evans (11 per cent).

15. At about the same time approximately 36 shares were issued to new shareholders at a premium (perhaps of the order of $1,000 per share). This included nine shares issued to Mr Smith, who is a cousin of Mr Charlton.

16. Mr Smith’s background is as an investigator.

17. Between about 1997 and 1999 further shares were allotted at a premium. In addition, some of the existing shareholders sold their shares to new or other shareholders.

18. In March 1998 Mr Bishop resigned as a director of Ecosol. In May 1998 Richard Gapper was appointed as a director.

19. In March 1998 Andrew Macklin was employed by Ecosol as a sales and marketing person. In about 2000 he became general manager.

    Slater interests

20. Mr Slater’s background is as an accountant, tax agent, real estate agent and property conveyancer. He has a Bachelor of Economics (majoring in Accounting) from the University of Adelaide, a Masters in Property from the University of South Australia and a Bachelor of Laws from Charles Darwin University. In 1989 he became an associate member of CPA Australia and in 1992 he became a certified practising accountant. In April 2017 he ceased membership of CPA Australia and in May 2000 he became a member of the Institute of Public Accountants.

21. In 1998 Mr Smith suggested to Mr Slater that he invest in Ecosol, which was being run by Mr Charlton.

22. In October 1998 seven shares in Ecosol were allotted to Mr Slater and six shares were allotted to his friends (including Mathias Mielke) or family members, each at an issue price of $4,615.[1] Mr Slater, his friends and family members then and subsequently also purchased shares at varying prices from existing shareholders (primarily Mr Bishop and Mr Charlton). In June 2005 each existing Ecosol share was divided into 1,000 shares. Additional shares were then issued by Ecosol to Mr Slater, his friends and family members. By that stage Mr Slater, his friends and family members held a total of 34,042 shares at purchase prices totalling $168,100.

    [1]    All dollar figures rounded down to the nearest whole dollar unless otherwise indicated.

23. In October 1999 Ecosol International Pty Ltd (Ecosol International) was incorporated to develop a combined stormwater and sewerage filtration system for sale in Europe. Its initial shareholders were Ecosol (800,000 shares), Mr Gapper (75,000 shares), Mr Charlton (60,000 shares) and Mr Roy (60,000 shares).

24. In December 1999 a total of 18,533 shares were issued by Ecosol International to Mr Slater, his friends and family members at an issue price of $3.00 per share. Mr Slater, his friends and family members subsequently also purchased $12,498 shares at $3.00 per share from Mr Charlton. In June 2001 a total of 21,999 shares were issued by Ecosol International to Mr Slater, his friends and family members at an issue price of $3.00 per share. By that stage Mr Slater, his friends and family members held a total of 63,030 shares in Ecosol International at purchase prices totalling $189,090.

    The 2000 decade

25. In April 2000 Mr Versteegh and Mrs Roy resigned as directors of Ecosol.

26. In July 2000 Adrian Fair commenced employment by Ecosol.

27. In June 2001 Mr Gapper resigned as a director of Ecosol and Mr Smith was appointed as a director in his place. The directors were then Mr Charlton (chairman) and Mr Smith.

28. In 2001 Mr Roy resigned as an employee of Ecosol.

29. In 2004 Ecosol engaged BDO and Taylor Collison to advise in relation to the possibility of listing its shares on the Australian Stock Exchange (ASX). Taylor Collison suggested that Ecosol could be backed into an ASX-listed shell company. This did not eventuate.

30. In November 2004 Mr Charlton reported to a board meeting that he had undertaken further research into a potential listing on the ASX  and concluded that Ecosol would not qualify for listing until its financials improved significantly and that the cost of $200,000 was prohibitive.

31. In 2004 a company called Ecological Filtration Systems Sdn Bhd (Ecosol Malaysia) was incorporated in Malaysia. It was a subsidiary of Ecosol.

32. In May 2005 Mr Charlton reported to a board meeting that he had investigated the possibility of listing shares on the National Stock Exchange (NSX). Ecosol met the criteria for such a listing but would need to change its articles to meet the NSX requirements. Changing the articles would require a special resolution of shareholders (75 per cent). Mr Charlton reported that he had spoken to Mr Roy who said that the Roys would consider agreeing if it was likely to lead to some of their shares being able to be sold. It was resolved that Cowell Clarke be engaged to amend the articles.

33. In 2005 Mr Roy instituted an action against Ecosol in the Supreme Court for unpaid royalties. In 2007 the action proceeded to trial and in July 2007 it was dismissed.

34. In August 2005 Mr Charlton tabled a new constitution. He reported that he had spoken to Mr Roy who said that he would not now approve it as he did not want to list on the NSX and wanted the company to buy the Roys out.

35. Mr Roy gave evidence in chief that he would have been happy for Ecosol to pursue listing on a stock exchange. He was asked whether from 2013 onwards he would you be happy to change the constitution of the company if that was required to list the company and he said yes. He was not asked specifically about a conversation with Mr Charlton in 2005 on this topic.

36. It is likely that there was a discussion between Mr Charlton and Mr Roy on the topic and Mr Charlton mistakenly understood that Mr Roy was saying that he opposed the change but in fact Mr Roy was not opposing it. Whatever be the case, I find that Mr Smith (mistakenly) believed that Mr Roy had refused to agree to a change in the constitution.

37. In October 2005 Ecosol International was deregistered as a company.

38. In March 2006 it was agreed that Mr Charlton would advance $150,000 or $250,000 to Ecosol repayable on demand and would pay interest on the balance, secured by a charge over Ecosol’s assets. Ecosol and Mr Charlton executed a loan agreement in relation to the loan.[2] Ecosol and Mr Charlton also executed a deed under which Ecosol granted a fixed and floating charge over all of its assets in favour of Mr Charlton to secure all moneys owing by Ecosol to Mr Charlton.

    [2]    The copy of the loan agreement tendered is missing pages, including definition of the principal amount and of the interest rate.

39. In March 2006 and May 2006 Mr Charlton advanced $150,000 and $100,000 respectively to Ecosol.

40. In July 2007 a deed between Ecosol and Mr Charlton was prepared acknowledging that the amount of salary and superannuation due but unpaid to Mr Charlton to 30 June 2007 was $327,349 together with interest of $39,378. The deed was not apparently executed.

41. At some point Ecosol acquired an office unit in O’Riordan Street Alexandria (the Sydney property).

    Macklin expression of interest

42. In July 2009 Mr Macklin produced a “Strategy Document” which he presented to the board of directors of Ecosol. It referred to an outstanding loan by Mr Charlton to Ecosol of $350,000 and unpaid salary of $300,000. It referred to a proposal by Mr Macklin that Ecosol repay the loan within three years and the unpaid salary be converted to shares. Mr Macklin said that he was prepared to agree to buy the converted shares from Mr Charlton immediately and also to make a loan to the company convertible to equity at a later stage (implicitly to enable Ecosol to repay the $350,000 loan from Mr Charlton). He proposed that, once Mr Charlton’s situation was resolved, Ecosol could make a selective buyback of shares from shareholders over a period of years.

43. Mr Macklin had discussions with Mr Charlton and Mr Smith about the proposal. Mr Charlton flew to Sydney to meet with Mr Macklin and Mr Fair and others. Mr Charlton estimated the value of Ecosol at $2.30 to $2.50 per share and said that the board was supportive of an offer by way of management buyout and would look to engage its accountants to provide an indicative value for the company. Mr Macklin made a proposal for a management buyout involving selective buybacks of shares over a three to five-year period. It is not clear whether the proposal involved management acquiring the company’s business from Ecosol or shares from shareholders but it may well have been the latter.

44. In October 2009 Mr Charlton and Mr Smith attended a meeting of directors of Ecosol. They discussed the proposed management buyout. They decided to advise Mr Macklin that only a cash offer in the range $2.30 to $2.50 per share would be acceptable. Again, it is not clear whether this referred to sale of the company’s business or sale by shareholders of the issues in the company. On being informed of this, Mr Macklin said that he did not wish to proceed.

45. In November 2009 Ecosol leased premises at Pooraka and established a manufacturing plant at the premises.

46. At some point (the evidence does not establish when) Ecosol leased premises at Pinkenba in Brisbane.

47. In December 2009 Rebecca Li commence commenced employment by Ecosol as an accountant. She was also subsequently appointed as company secretary.

    The early 2010 decade

48. On 10 June 2011 Mr Charlton resigned as a director of Ecosol. Mr Macklin was appointed as a director in his place. Mr Smith was appointed as chairman of directors. Mr Macklin became managing director.

49. On 30 June 2011 Mr Charlton retired as an employee of Ecosol. However, at the request of Mr Macklin, he worked part-time for Ecosol from home, primarily in relation to promotional literature, information technology and research and development tax concession submissions. He worked on average between eight and ten hours per week for approximately two years and then his hours progressively reduced over the next two years, ceasing altogether in June 2015.

50. At some point Mr Fair became general manager. It is likely that this was in June 2011 on Mr Macklin’s appointment as managing director.

51. Between July 2011 and September 2013 Ecosol made repayments against Mr Charlton’s loan account, fully repaying the balance by September 2013.

52. Mr Charlton was a director and employee of his family-owned company Janic Consulting Pty Ltd (Janic). Janic carried on business providing consulting and training services to a limited number of clients. At some point Janic was engaged by Ecosol to provide advice to it at an hourly rate. All advice provided by Janic to Ecosol was provided by Mr Charlton.

1. In January 2013 there was a general meeting of shareholders of Ecosol to consider, amongst other things, a resolution proposed by Mrs Roy that Mr and Mrs Roy be elected as directors and Mr Smith and Mr Macklin be removed as directors. The resolutions were not passed.

   Macklin 2013 indicative discussions

2. In February 2013 Mr Macklin had a discussion with Mr Charlton about a management buyout involving the acquisition of selected assets and liabilities of Ecosol. He asked whether Mr Bishop and Mr Charlton would be interested in financing the buyout and, if they agreed, he planned to present it to Mr Smith.

3. Mr Macklin produced a document referring to a proposed offer of $1,200,000 to acquire selected assets and liabilities of Ecosol. The assets comprised all assets except cash at bank, future income tax benefit and some investments, loans and intangibles. The liabilities comprised trade creditors and leave liabilities. The book value of the net assets (assets minus liabilities) to be acquired, as at 31 December 2012, was shown as $1,446,790. The purchase price would be payable by an initial instalment of $400,000 and the balance by half yearly instalments paid over three years.

4. On 21 February 2013 Mr Macklin met with Mr Bishop and Mr Charlton. Mr Bishop and Mr Charlton had discussions over the next six months about the proposal and Mr Charlton had discussions with Mr Macklin over that period about the proposal.

5. At the same time Mr Macklin also had a discussion with Mr Smith about the contemplated management buyout. At some stage, Mr Macklin said that he was unable to secure sufficient third party financing. Mr Smith told Mr Macklin that he did not believe that there was enough security available to offer vendor finance. Mr Smith thought that the offer was below market value because it left Ecosol with liabilities.

   Exploration of listing on stock exchange

6. At the same time Mr Macklin on behalf of Ecosol engaged DMCA Chartered Accountants to explore the costs and benefits of Ecosol listing on the “Small Business Stock Exchange”.

7. On 22 February 2013 DMCA sent a letter to Mr Macklin saying that there was not a Small Business Stock Exchange in Australia but other mechanisms were listing on the ASX or converting to a public unlisted company. They said that Ecosol did not have the necessary net tangible assets, market capitalisation or net profit to qualify for listing on the ASX and in any event the likely cost of listing was $250,000 to $300,000. They said that converting to a public unlisted company was relatively straightforward and inexpensive. It required a special resolution of shareholders. It allowed a company to have more than 50 shareholders but otherwise did not provide significant benefits.

8. On 25 February 2013 Mr Macklin sent an email to Mr Slater saying that, as requested, he had obtained some preliminary professional advice on various listing options for Ecosol. It appears that he attached the DMCA letter dated 22 February. He said that converting to a public unlisted company required two special resolutions and other major shareholders (who he did not identify) had told him that that would not consent to the change.  He said that he would continue to explore this option along with others and then outline each option in detail in the next shareholder newsletter requesting all shareholders to vote formally on their preferred option going forward.

9. In March 2013, at the request of the board, Mr Macklin contacted the NSX and received a Guide to Listing. Mr Smith gave evidence that Mrs Roy refused to support a listing on the NSX. Mr Smith did not identify his source of this knowledge. Mrs Roy gave evidence that she had no recollection of ever having a conversation with anyone about listing on a stock exchange. She was not challenged on this evidence in cross-examination. I find that Mrs Roy did not say to anyone at Ecosol that she refused to support a listing on the NSX. I find that Mr Smith was mistaken in his evidence (perhaps confusing 2013 with what Mr Charlton reported to the board in 2005 referred to above).

10. In August 2013 Mr Charlton and Mr Bishop decided not to finance Mr Macklin’s proposal.

11. In October 2013 Ecosol issued a shareholder newsletter which said amongst other things that one shareholder had requested that the company explore the possibility of listing. It said that management had consulted with the company’s accountants who identified listing on the ASX or NSX or converting to a public unlisted company. It said that the company did not satisfy the criteria for an ASX listing and the other two options would require a special resolution, which would be difficult to implement. It said that the costs of listing would be prohibitive, likely in excess of $200,000. It said that the most likely exit strategy was for an investor to buy the company and management was looking at several options at the moment. It said that the most recent independent valuation was $1.31 per share.

12. In May 2014 Perrier Ryan issued a valuation which valued the company at $3.36 per share.[3]

    [3]    The valuation was not tendered but a shareholder newsletter referring to it was tendered.

13. In May 2015 Perrier Ryan issued a valuation which valued the company at $3.14 per share.[4]

    [4]    The valuation was not tendered but shareholder newsletters referring to it were tendered.

14. In June 2016 Mr Smith told Mr Charlton that Ecosol wished to engage Janic to provide business consultancy services to Ecosol. On 1 July 2016 Janic and Ecosol executed a confidential non-disclosure agreement for the purpose of the provision of such services.

15. On 27 June 2016 Paul Ryan of Perrier Ryan, chartered accountants, provided to the Ecosol board a limited scope valuation of Ecosol’s business (the Ryan valuation).[5]  He valued the business (including surplus assets and liabilities) at $1,764,394. He said that Ecosol had 712,753 shares on issue and that the value of the business divided by the number of shares was $2.48 per share.

    [5]    This was apparently not the only valuation undertaken by Perrier Ryan but it was the only one tendered and was the last one undertaken by Perrier Ryan.

    Macklin September 2016 indicative offer

16. On 20 September 2016 there was a meeting of directors of Ecosol (Mr Smith and Mr Macklin). Mr Charlton also attended by invitation of Mr Smith. At the meeting, Mr Macklin made or foreshadowed an indicative offer of $1.90 per share (or $1,355,000) plus $0.28 per share (or $200,000) cash at bank. The indicative offer was detailed in a spreadsheet, but the spreadsheet was not tendered. It is not clear from the minutes or the evidence what the reference to $0.28 per share in respect of cash at bank meant. It is not clear from the minutes whether the indicative offer was to purchase shares from shareholders or the company’s business (including surplus assets and liabilities) from the company. The general effect of Mr Smith’s evidence was that indicative offers made or referred to by Mr Macklin before 2018 were for shares.

17. On 21 September 2016 Mr Smith on behalf of Ecosol sent a letter to Mr Charlton on behalf of Janic. By the letter, Ecosol engaged Janic to have detailed communications with Mr Macklin concerning the indicative offer, review Mr Macklin’s model and supporting financial data and assumptions and review the accuracy of the company’s share register. Mr Smith said that he had advised Mr Macklin that Mr Macklin could not be involved with any Ecosol discussions or strategies as far as any potential offer was concerned. Although not mentioned in the letter, Janic was paid an hourly rate for work undertaken by Mr Charlton.

18. On 21 September 2016 Mr Macklin made contact with Mr Charlton or Mr Smith asking if a three-year vendor finance deal rather than cash would be acceptable. It is not clear what, if any, response was given. However, Mr Charlton in his 30 November 2016 memorandum expressed the opinion that it would likely be acceptable but only if at market value plus premium, adequate security, a reasonable interest rate and, possibly, compensation for lost dividends were provided. Mr Charlton also said that it would need the acceptance of all shareholders and all shareholders to be treated equally.

19. On 26 October 2016 Mr Macklin sent to Mr Charlton the spreadsheet to which he had referred on 21 September 2016. Mr Charlton observed that there was an error in one of the figures in the spreadsheet. Mr Macklin told Mr Charlton that, based on advice from Edwards Marshall, the likely offer would be $1.98 per share ($1,410,000) with vendor finance over three years and interest around 6.5 to 7.0 per cent. On the next day, Mr Macklin told Mr Charlton that there would be no amount in respect of cash at bank added (as had been foreshadowed on 20 September 2016).

20. On 30 September 2016 Mr Smith met with Mr Charlton to discuss Mr Charlton’s communications with Mr Macklin. Mr Charlton tabled a memorandum summarising the communications. In the memorandum, he expressed the opinion that the problems he identified could be overcome by a market value offer even with vendor finance over four years. He said that Mr Macklin’s offer did not reflect the value of the business but rather what he could afford to pay. He recommended against taking the offer to shareholders.

21. At the meeting, Mr Charlton expressed frustration with Mr Macklin and the way he kept changing the details of any potential offer. Mr Charlton recommended that Mr Smith invite Mr Macklin to make a formal, stable offer and that Mr Smith not take any offer to shareholders unless it was at least market value, had adequate security and treated all shareholders the same.

    2017

22. In May 2017 Mr Macklin on behalf of Ecosol engaged Deloitte Financial Advisory Pty Ltd (Deloitte) to indicatively value a single ordinary share in Ecosol on a control basis as at 31 March 2017.

23. On 28 June 2017 Stephen Adams of Deloitte sent to Mr Macklin on behalf of Ecosol an indicative valuation report (the Deloitte valuation). Deloitte assessed the indicative fair market value of an Ecosol share on a control basis in the range of $1.67 and $1.93, with an implied midpoint value of $1.80.

24. Upon receipt of the Deloitte valuation, both Mr Charlton and Mr Smith believed that it was low and erroneous having regard to the Perrier Ryan valuation of the previous year and the fact that the financial year ended 30 June 2017 had been profitable for Ecosol (the previous year having involved a loss). Mr Charlton subsequently identified numerous errors in the Deloitte valuation and it was effectively ignored.

25. In June 2017 Ecosol issued a shareholder newsletter which said amongst other things that in the valuation report dated 26 June 2017, after giving careful consideration, Deloitte had valued Ecosol at a midpoint value of $1.80 per share.

26. On 10 July 2017 Mr Slater sent to Mr Macklin two confirming his request in a telephone conversation that morning for Ecosol to revisit listing on the secondary stock market.

27. On 17 August 2017 Mr Smith on behalf of Ecosol engaged James Popovic of Knight Frank to value the Sydney property. Mr Popovic inspected the property on 18 August 2017 and on an undisclosed date provided to Ecosol a valuation report dated 18 August 2017 valuing the property at $830,000.

    Macklin/Fair August 2017 indicative offer

28. On 21 August 2017 Mr Macklin and Mr Fair sent a letter to Mr Smith making what they described as a non-binding, indicative offer to acquire all of the issued shares in Ecosol. It said that the indicative offer valued Ecosol at $1.97 per share but Mr Macklin and Mr Fair did not have the financial capacity to pay that amount. It proposed the following sequential transactions:

    1Ecosol sell the Sydney property to the self-managed superannuation funds of Mr Macklin and Mr Fair for fair market value (estimated at $700,000);

    2Ecosol lease back the Sydney property at market rental (estimated at $55,000 per annum);

    3net proceeds of the sale after repaying the existing property loan ($270,000) would be approximately $430,000;

    4Ecosol borrow approximately $970,000 from a bank (probably ANZ Bank);

    5Ecosol pay a fully franked dividend to shareholders of approximately $634,000 and return of capital of approximately $762,000 (total approximately $1,396,000 or $1.96 per share);

    6the dividend and return of capital be funded out of the net sale proceeds and new loan proceeds;

    7the family trusts of Mr Macklin and Mr Fair purchase all existing shares for one cent per share.

29. The offer was expressed to be non-binding and the indicative offer would be subject to conditions of obtaining finance, due diligence and legal documentation.

30. On 30 August 2017 Mr Smith on behalf of Ecosol instructed Mr Charlton on behalf of Janic to undertake a limited review of the Deloitte valuation and forecasts provided by Mr Macklin and Xero reports.

31. On 1 September 2017 Mark Furneaux of Furneaux Property sent an email to Mr Smith. He said that he had sold five units in the unit complex in question over the years and recommended an asking price of $945,000 if Ecosol’s unit was to be offered for sale.

32. On 14 September 2017 Mr Charlton met with Mr Smith and gave him a draft report (the first September 2017 draft report). Mr Charlton observed in the draft report that the indicative offer was outdated, the Sydney property having increased in value above $700,000, the mortgage having increased to $270,000 and the share value having increased. He queried whether Ecosol could generate sufficient cashflow given the estimated annual rent of $55,000 plus annual loan repayments of at least $100,000. He queried whether a bank would lend $1,000,000 to Ecosol as proposed.

33. Mr Charlton said in the draft report that the Deloitte valuation was incorrect, perhaps as a result of poor data (management forecasts), inappropriate assumptions and a less than rigorous process. In a separate document, he had earlier identified eight errors. Mr Charlton attached to his draft report a second draft report in relation to the Deloitte valuation identifying various errors (the second September 2017 draft report). He concluded in the second draft report that, if all of the errors identified were corrected, the valuation would be around $2.50 to $2.60 per share.

34. Mr Charlton concluded the first report by suggesting that another valuation be undertaken as soon as possible, perhaps by Gardiner Hall & Co (Gardiner Hall), and that Mr Macklin not be involved in relation to that valuation.

35. I infer that in September 2017 Mr Macklin informed Mr Smith that he might be prepared to increase his offer to $2.60 per share. Mr Smith did not give evidence of this communication but in his 26 September 2017 letter Mr Smith referred to an offer of $2.60 per share. Mr Charlton gave evidence that he believed that Mr Macklin indicated that he could increase his offer to $2.60 per share if Mr Charlton would accept delayed payment without security.

36. On 26 September 2017 Mr Smith sent a letter to Gardiner Hall attaching the Deloitte valuation and the second September 2017 draft report. He said that Janic had found numerous issues with the Deloitte valuation and arrived at a significantly different value. He said that he would like to engage Gardiner Hall to review both reports with a view to establishing which better reflected the true value of the company and whether the MBO offer of $2.60 per share was reasonable.

37. On 18 October 2017 Mr Slater sent an email to Mr Macklin with the subject “Crowd Funding”. He referred to a telephone conversation with Mr Macklin that morning in which he said that Mr Macklin agreed that Ecosol was undercapitalised and had no exit strategy. He said that it was a dereliction of directors’ duty that a proper case study in terms of a secondary listing, retail investor funding or some crowdfunding-based mechanism had not been obtained. He said that the accountant should have sought feedback from listing advisors and stockbrokers. He requested that a listing agent be asked to provide a trading range for Ecosol shares and that there be discussions with individual shareholders concerning their exit strategies. He gave Mr Macklin until the end of January 2018 to properly address and have these matters discussed at a general meeting. He said that he proposed to contact shareholders direct to make his position clear.

38. On 18 October 2017 Mr Slater sent a second email to Mr Macklin with the subject “Listing Ecosol on the Stock Exchange”. He said that he had no confidence that the board would adequately address his concerns and did not now wish to wait until the end of January 2018 for that in all likelihood to be confirmed. He asked for a current listing of shareholder contact details. He also asked for the last two years of financial statements to provide to listing agents/stockbrokers or the like.

39. On 19 October 2017 Mr Slater sent three further emails to Mr Macklin with the subject “Listing Ecosol on the Stock Exchange”. He took issue with the use of a valuation by an accountant using discounted cash flow modelling (DCF). He said that the directors had a duty to act in the best interests of all shareholders and to do a proper informed analysis contacting experts in the area. He said that the directors should have sought retail investors, making the necessary changes to facilitate it.

40. On 26 October 2017 Mr Slater attended at Ecosol’s office at Pooraka and viewed the share register.

41. On 26 October 2017 Mr Smith as chairman of Ecosol sent a letter to shareholders. He said that on 21 August 2017 he had received notice from Mr Macklin and Mr Fair that they intend to make a formal offer to buy the company. The offer was subject to finance and not legally binding. The offer, if formalised, would be significantly above the $1.80 per share market value determined recently by Deloitte. He said that, if an offer were formalised, he would write again with more details and advise shareholders of the timing for a shareholder meeting to discuss the offer and ensure that shareholders were fully informed in deciding whether to accept it.

42. Mr Smith said that he had been advised by a shareholder, Mr Slater, that he would like shareholders to be aware of an alternative proposal to refinance the company by way of a possible stock market listing. He expected Mr Slater to write to shareholders separately with details. If successful, it would have the benefit of making the shares more easily traded, although there may be some dilution in the shareholding. Mr Slater would be invited to present his proposal at the upcoming shareholder meeting.

43. On 26 October 2017 Mr Slater sent an email to Mr Macklin (which he forwarded to Mr Smith) saying that he was disappointed that as late as that afternoon Mr Macklin had given him a long list of reasons why it was impossible for Ecosol to list, which Mr Slater now did not accept.

44. On 26 October 2017 Mr Slater sent an email to Mr Smith saying that Mr Macklin was conflicted to give any commentary on the matter of listing.

45. On 28 October 2017 Mr Charlton provided to Mr Smith a final version of his draft September 2017 report, which was largely in the same terms as the draft report.

46. On 30 October 2017 Mr Smith sent a letter to Mr Slater stating that the board had looked at listing the company on several occasions over the years and on each occasion decided that it was not a viable action. However, the board was open to any new ideas. He said that he was happy for Mr Slater to present his proposal to shareholders at the upcoming meeting.

47. On 14 November 2017 Mr Smith sent an email to Mr Slater saying that Mr Charlton had confirmed that he, along with his family, would not support a resolution that would facilitate listing on the NSX.

48. On 15 November 2017 Gardiner Hall sent a letter to Mr Smith. They stated that they had reviewed the historical trading results of the company, valuations previously prepared by Perrier Ryan and Deloitte and other relevant (unspecified) information. They expressed the opinion that a reasonable valuation for the company was $2.60 per share.

    Macklin/Fair first January 2018 indicative offer

1. On 22 January 2018 Mr Macklin and Mr Fair sent a letter to Mr Smith. They said that they wished to make an indicative and non-binding offer to buy a majority stakehold in the company with the intention long term to acquire all of the issued shares (712,753 shares). They had determined that the current fair market value of the company was $1,895,922.98 equating to a share value of $2.66. They proposed the following sequential transactions:

   1shareholders resolve by special resolution pursuant to section 260A(1)(b) of the Corporations Act 2001 (Cth) to approve the company providing assistance to the acquirers of company shares by providing security over the assets of the company to secure borrowing by the acquirers;

   2Ecosol sell the Sydney property to the self-managed superannuation funds of Mr Macklin and Mr Fair for fair market value being $830,000 per the Knight Frank valuation;

   3Ecosol lease back the Sydney property at the market rental being $47,450 per annum inclusive of outgoings;

   4net proceeds of the sale after repaying the existing property loan ($246,000) would be approximately $584,000;

   5Ecosol make a return of capital to shareholders of approximately $584,000 being approximately $0.82 per share;

   6the acquirers borrow $685,000 from a bank, secured in part by security granted by Ecosol approved at step 1 above;

   7the acquirers negotiate with individual shareholders to acquire 52 per cent of the shares in the company, being 372,282 shares, from 39 members at $1.84 per share (total $685,000), financed by the facility referred to at step 1 above;

   8Ecosol pay dividends of $143,310 per annum to the remaining (48 per cent) shareholders (total $449,955);

   9after three years, the acquirers negotiate with the remaining individual shareholders to acquire the issued shares in the company, financed by the facility referred to at step 1 above.

2. On 22 January 2018 Mr Smith on behalf of Ecosol requested Mr Charlton on behalf of Janic to advise in relation to the offer.

3. On 23 January 2018 Mr Charlton sent a letter to Mr Smith saying that all shareholders would sell proportionately their shares at step 7. I interpolate that it is not clear where Mr Charlton obtained this understanding given that the indicative offer was expressed to involve acquiring shares from only 39 of the 48 shareholders. Mr Charlton said that there was no guarantee that the remaining 48 per cent of shares would be purchased and further he believed that the offer would need a 75 per cent special resolution. Mr and Mrs Roy had also made it clear that they would only sell their shares if they exited completely and immediately. Mr Charlton therefore recommended that he not further review the offer. He advised Mr Smith to return to Mr Macklin and argue for a market offer that enabled all shareholders to exit immediately.

4. Mr Smith informed Mrs Roy of the offer. She said that she wanted to exit completely at the first stage and hence the terms of the offer were unacceptable to her. Mr Smith believed that acceptance of any offer by Ecosol would require a special resolution and, because Mrs Roy held 29 per cent of the shares, she had the power to veto any offer.

5. On 25 January 2018 Mr Smith decided not to take the offer to all shareholders.

   Macklin/Fair second January 2018 indicative offer

6. On 29 January 2018 Mr Macklin and Mr Fair sent a letter to Mr Smith. The letter was a recasting of the 22 January 2018 letter. They said that they wished to make an indicative and non-binding offer to buy a majority stakehold in the company with the intention long-term to acquire all of the issued shares (712,753 shares). They said that they had determined that the current fair market value of the company was in the range between $1,600,000 and $1,800,000 equating to a share value in the range between $2.31 and $2.66. They proposed the following sequential transactions:

   1shareholders resolve by special resolution pursuant to section 260A(1)(b) of the Corporations Act 2001 (Cth) to approve the company providing assistance to the acquirers of company shares by providing security over the assets of the company to secure borrowing by the acquirers;

   2the acquirers borrow from the Commonwealth Bank $1,300,000, secured in part by security granted by Ecosol approved at step 1 above;

   3the acquirers negotiate with individual shareholders to acquire 561,697 shares, being approximately 79 per cent of the shares in the company, from select members at $2.31 per share (implicit total $1,297,520), financed by the borrowing referred to at step 2 above;

   4over five years Ecosol make a selective buyback of the remaining shares in the company (21 per cent) at a premium above fair market value.

7. They attached a spreadsheet which they said detailed the proposed model but the spreadsheet was not tendered.

8. On 2 February 2018 Mr Slater sent an email to Mr Smith asking for an update in relation to the MBO. He did not receive a reply.

9. On 4 February 2018 Mr Charlton sent a letter to Mr Smith saying that the offer was significantly below market value. He said that it required one shareholder, namely himself, to remain without any security for five years. The Macklin/Fair letter did not identify how the 79 per cent of shares would be determined. However, Mr Macklin gave evidence that the offer enabled all shareholders, except Mr Charlton, to exit immediately and I infer that he conveyed this to Mr Smith or Mr Charlton.

10. Mr Charlton said that he would consider remaining without full payment for five years if he were adequately compensated. However, the offer failed because it was less than market value. He recommended against reviewing the offer any further. He advised Mr Smith to return to Mr Macklin again to see if some model could be made to work that met all interested parties’ needs and otherwise they stop spending so much time on a model that Mr Macklin could not make work.

11. On 4 February 2018 Mr Smith decided not to take the offer to the shareholders. He instructed Mr Charlton to negotiate with Mr Macklin.

    Macklin/Fair February 2018 indicative offer

12. On 13 February 2018 Mr Macklin provided to Ecosol a revised version of the spreadsheet that had been attached to the 29 January 2018 letter. It is not clear whether it was provided first to Mr Charlton or directly to Mr Smith. The spreadsheet involved recasting of the 29 January 2018 offer. It involved the following modifications to that offer:

    1the same section 260A(1)(b) special resolution (step 1 above);

    2the same borrowing by the acquirers from the Commonwealth Bank of $1,300,000 (step 2 above);

    3the acquirers acquire 309,740 shares, being approximately 43 per cent of the shares in the company, from select members at $2.42 per share (total $749,570), with those select members being Mrs Roy (207,000 shares) and the 33 shareholders holding less than 10,000 shares each;

    4the acquirers acquire 142,200 shares from select members at $2.42 per share (total $344,123), with those select members being the 13 shareholders holding more than 10,000 shares other than Mrs Roy and Mr Charlton, leaving those 13 shareholders still holding in total 109,757 shares [that is still holding approximately 44 per cent of their previous holdings];

    5the acquirers acquire 151,056 shares, being approximately 21 per cent of the shares in the company, from Mr Charlton, Mr Charlton exercise a put option and Mr Charlton receive $206,279 [the evidence does not explain what this means or how it would adequately compensate Mr Charlton];

    6Ecosol pay a dividend of $150,000 to the remaining shareholders after these transactions, that is $126,901 to the acquirer (which would then hold 84.6 per cent of the shares) and a total of $23,099 to the remaining 13 shareholders referred to at step 4.

13. Mr Charlton on behalf of Janic undertook a review of the offer. This review was recorded in a letter that he sent to Mr Smith dated 15 April 2018. In the letter, Mr Charlton said that Mr Smith had requested Janic to review the latest offer made on 13 February 2018. He said that the offer was again below market value, it did not treat all shareholders equally and it provided no security for those remaining. It therefore suffered from the same issues as previous offers and was unlikely to be accepted by the shareholders. There was an additional issue of the financial capability of the acquirer to service the $1.3 million loan. Mr Charlton said that he understood that Mr Smith had been discussing an alternative asset sale which had potential merit and suggested that he continue negotiations with Mr Macklin.

14. Mr Macklin requested Mr Smith to contact key shareholders to determine their views on the offer. Mr Smith agreed to do so. Mr Smith telephoned Mr Charlton, gave him a list of shareholders comprising mainly family and friends, and asked him to telephone them to see if they would consider Mr Macklin’s indicative offer. Mr Charlton telephoned those shareholders and received a mixed reaction. Those shareholders belonging to the class of shareholders referred to at step 4 above were less than enthusiastic about the offer. Mr Smith also telephoned some shareholders.

15. On 5 March 2018 Mr Smith telephoned Mr Slater and informed him of Mr Macklin’s offer. Mr Slater telephoned Mr Smith on the following day. Mr Slater said that he did not agree to the proposal. He said that Ecosol should look at a trade sale and contact competitors. Mr Smith said that he was not inclined to contact competitors.

16. Mr Charlton gave evidence that in about late February 2018 Mr Smith telephoned him and asked him to explore the possibility that an assets and liabilities sale (with certain exclusions, such as the Sydney property) might be preferable to a sale of Ecosol shares.

    Interest by Spel

17. Spel Environmental Pty Ltd (Spel) manufactures stormwater filtration systems. It was a competitor of Ecosol.

18. On 7 March 2018 Andy Hornbuckle, a manager at Spel, telephoned Mr Macklin, saying that Spel was interested in acquiring Ecosol.

19. On 7 March 2018 Mr Macklin telephoned Mr Smith, and also sent an email to Mr Smith, informing him of the expression of interest by Mr Hornbuckle.

20. On 7 March 2018 Mr Macklin sent a letter to Mr Smith confirming the recent discussion that he was withdrawing the proposed management buyout. He said that this was required to ensure that management fulfilled their fiduciary duties as directors and officers of the company regarding the recent enquiry by Spel to purchase the company.

21. On 7 March 2018 Mr Smith telephoned Mr Slater. Mr Smith said that a competitor had approached Ecosol saying that Ecosol was on the market and the MBO had been called off. Mr Slater criticised the assumptions in the DCF model.

22. On 7 March 2018 Mr Smith telephoned Mr Slater. He asked if Mr Slater had contacted Spel. Mr Slater refused to answer the question.

23. On 8 March 2018 Mr Slater telephoned Mr Macklin. He raised models that the directors should consider and explore to the fullest extent for sale of the company, including listing on the ASX or NSX, taking it to market or the proposed MBO.

24. On 8 March 2018 Mr Smith on behalf of Ecosol sent a letter to Mr Charlton on behalf of Janic. He confirmed discussions that Janic was requested to provide advice to the company on an ongoing basis in relation to several areas. The areas included issues surrounding Mr Slater, including the Spel approach. They also included liaising with regard to the Gardiner Hall company valuation likely in April/May 2018 including reviewing Mr Macklin’s forecasts and providing Gardiner Hall with all information required to complete the valuation.

25. Mr Smith asked Mr Macklin to seek a written letter of intent from Spel within seven days. On the same day Mr Macklin telephoned Mr Hornbuckle to relay that request.

26. On 12 March 2018 Mr Smith sent an email to Mr Macklin instructing him to advise Mr Hornbuckle that the board did not wish to engage in any discussions with Spel about the sale of Ecosol. At that stage, Mr Hornbuckle had not yet responded to Mr Macklin’s request.

27. On 13 March 2018 Mr Macklin sent an email to Mr Smith informing him that he had advised Mr Hornbuckle that the board did not wish to engage in any discussions with Spel about the sale of Ecosol.

    March to June 2018

28. On 13 March 2018 Mr Slater sent an email to Mr Smith and Mr Macklin onforwarding an extract from the website of Whittens & McKeough. He said that they had handled listing on all the different exchanges.

29. On 14 March 2018 Mr Slater sent an email to Mr Smith saying that he had not received a response to his recent emails or phone call. He said that, in Mr Smith’s letter to shareholders, he stated that he would provide assistance to Mr Slater to progress the listing proposals, which was now widened to all feasible options including confidential approaches to competitors.

30. On 14 March 2018 Mr Smith sent an email to Mr Slater in response. He said that he was not sure where in his letter he had said that Ecosol would provide assistance to Mr Slater to progress listing proposals. Mr Slater was not authorised to speak to any outside third parties about such matters, especially competitors, and if he continued to do so he would be in serious legal jeopardy for any loss caused by his actions. Already it had resulted in the MBO offer being withdrawn. He requested Mr Slater’s agreement by return email not to discuss confidential matters with outside parties.

31. On 15 March 2018 Mr Macklin sent an email to Mr Smith saying that he had made preliminary contact with Andrew Whitten of Whittens & McKeough regarding the steps, processes and likely costs of listing Ecosol on the ASX or NSX. He said that Whitten could provide a letter of advice and presentation for a fee of $5,000.

32. On 16 March 2018 Mr Macklin sent an email to Mr Smith saying that he had spoken to Ashley Hunter at Deloitte, who quoted $9,000 to provide advice concerning a potential trade sale including the role of a financial adviser and costs.

33. On 16 March 2018 Mr Slater sent an email to Mr Smith seeking withdrawal of his statement [of 14 March] that Mr Slater was responsible for the MBO offer being withdrawn and foreshadowing launching legal proceedings.

34. On 16 March 2018 Peter Leech at Cowell Clarke sent by email a letter to Mr Slater. The letter said that, after discussions with Mr Slater, Ecosol had become aware that Mr Mielke had made contact with one of Ecosol’s main competitors, Spel, and passed on information that Ecosol was on the market. It said that Ecosol was concerned that, through actions such as those of Mr Mielke and Mr Slater, it may already have suffered reputational damage in the eyes of customers and suppliers. He requested that Mr Slater immediately cease and desist from all communications with any third party concerning Ecosol.

35. On 16 March 2018 Mr Leech sent by email a letter to Mr Mielke in similar terms.

36. On 19 March 2018 Mr Slater sent an email to Mr Leech seeking an apology in respect of Mr Leech’s letter dated 16 March.

37. On 22 March 2018 Mr Slater sent an email to Mr Smith saying that there were no confidentiality requirements in the constitution binding on shareholders and he could speak to whoever he wished about his shareholding.

38. On 27 March 2018 Mr Macklin sent an email to Mr Smith attaching general notes on the various company sale or listing options discussed in recent weeks. He said that any comprehensive investigation of these options should be in consultation with key advisors such as contacts identified at Deloitte or Whittens & McKeogh. In the attached notes, the matters addressed were preparing the company for sale, selling to a competitor, NSX listing and ASX listing.

39. On 15 April 2018 Mr Smith sent a letter to Gardiner Hall requesting an independent valuation of the shares in Ecosol similar to those conducted in recent years by Perrier Ryan and Deloitte. He said that, due to management’s conflict of interest, he had asked Mr Charlton to be Gardiner Hall’s main point of contact.

40. On 4 June 2018 Mr Smith and Mr Macklin attended a board meeting. Mr Bishop also attended. It was resolved to appoint Mr Bishop as a director. Mr Macklin declared a potential conflict of interest and offered to recuse himself from all matters relating to the potential management buyout offer.

41. On 5 June 2018 Gardiner Hall sent a letter to Mr Smith attaching a limited scope valuation.

    Macklin/Fair June 2018 indicative offer and subsequent negotiations

42. On 8 June 2018 Mr Smith on behalf of Ecosol sent a letter to Mr Charlton on behalf of Janic saying that he expected to receive shortly a heads of agreement from Mr Macklin. He engaged Janic to oversee all aspects of negotiations with Mr Macklin and drawing the necessary agreements using Ecosol’s solicitors Cowell Clarke with a view to finalising the documentation by mid-August; drafting a shareholder notice for a meeting in mid-September; preparing a presentation for Mr Smith to give to shareholders at the meeting; and managing shareholder responses to the notice of meeting.

43. On 15 June 2018 Mr Charlton on behalf of Janic sent a letter to Mr Smith identifying four non-MBO options that were worth consideration by the board. They were listing on the ASX, listing on the NSX, a trade sale and retail investment. In relation to listing on the NSX, he said that Ecosol would meet the listing criteria and the cost would be around $60,000 to $80,000. He said there was no guarantee of success with the listing. In relation to a trade sale, he said that he understood from discussions with Deloitte and Whittens & McKeough that the likely costs would exceed $150,000.

44. On 18 June 2018 Mr Macklin provided to Mr Smith a Term Sheet containing a non-binding offer to acquire the business and assets of Ecosol (the Term Sheet). The Term Sheet included the following terms:

    1Ecosol transfer to a new entity to be established by Mr Macklin and Mr Fair all of its assets subject to the terms summarised at 2 and 3 below;

    2there be excluded from the assets to be transferred:

    (a)the Sydney property;

    (b)all receivables owing up to the date of completion; and

    (c)any cash at bank as at the date of completion exceeding $185,000 with Ecosol effectively to make up any shortfall of cash at bank below $150,000.

    3liabilities of Ecosol not be transferred to the acquiring entity and in particular:

    (a)Ecosol retain sole responsibility for all debts, liabilities and trade payables up to the completion date;

    (b)Ecosol be responsible for all tax liabilities incurred before completion;

    (c)Ecosol retain responsibility for, and pay by completion, all salaries, wages, commissions and bonuses of employees, would be responsible for all leave entitlements of non-transferring employees and reimburse the acquiring entity for the value of all accrued leave entitlements as at completion of transferring employees; and

    (d)Ecosol pay out the finance on hire purchase motor vehicles totalling $144,191.

    4the purchase price of the assets be $758,091;

    5the acquiring entity offer employment to all of Ecosol’s employees on equivalent terms;

    6Ecosol grant to the acquiring entity a lease of the Sydney property for one year with four options to renew for one year each and a right of first refusal to purchase it over the leased period;

    7Ecosol assign to the acquiring entity its leases in respect of the Pooraka and Pinkenba premises;

    8completion occur on 31 July 2018;

    9Ecosol provide vendor finance for up to $1,000,000 repayable over five years at an interest rate of 6.45 per cent per annum;

    10the acquiring entity give to Ecosol a fixed and floating charge over its assets supplemented by personal guarantees from Mr Macklin and Mr Fair to operate for one year after completion.

1. Over the next two months, Mr Charlton negotiated with Mr Macklin; liaised with Cowell Clarke in relation to documentation; and reported to and received instructions from Mr Smith.

2. On 6 July 2018 Mr Slater instituted a minor civil action in the Magistrates Court for defamation against Ecosol, Cowell Clarke and Mr Leech in respect of the email sent by Cowell Clarke to Mr Mielke on 16 March 2018 (the first action).

3. On 15 and 16 July 2018 Mr Slater sent emails to Mr Smith and Cowell Clarke calling for the removal of Mr Smith as a director and foreshadowing that he would be contacting his fellow shareholders.

   Agreements and shareholder meeting

4. On 23 August 2018 Mr Smith and Mr Bishop on behalf of Ecosol and Mr Macklin and Mr Fair on behalf of UAS executed a Business Sale and Purchase Agreement (the Sale Agreement). Its terms were broadly in line with the terms contained in the Term Sheet with some significant alterations. Its provisions included:

   1sale of all assets of Ecosol, except the Sydney property and cash of $50,000, to UAS for $900,855;

   2completion on 30 September 2018 or five business days after satisfaction of the conditions precedent if later;

   3completion subject to satisfaction of conditions precedent, namely Ecosol shareholder approval and Ecosol certifying no material adverse change, by five business days before the date for completion;

   4Ecosol provide 100 per cent vendor finance under the terms of the Loan Agreement;

   5Ecosol grant to UAS a lease of the Sydney property for one year with four options to renew for one year each and a right of first refusal to purchase it over the leased period;

   6Ecosol assign to UAS its leases in respect of the Pooraka and Pinkenba premises;

   7UAS offer employment to all of Ecosol’s employees on equivalent terms;

   8Ecosol assign all existing liabilities at completion to UAS;

   9Ecosol indemnify UAS in respect of all salaries, wages, commissions and bonuses and leave entitlements of non-transferring and transferring employees.

5. The Sale Agreement contemplated the parties entering into a Share Sale Agreement for the sale by Ecosol to UAS of its shares in Ecosol Malaysia for $214,656. The Sale Agreement provided for the advance of the purchase price of $214,656 by Ecosol to UAS but no Share Sale Agreement was executed in August 2018.

6. On 23 August 2018 Mr Smith and Mr Bishop on behalf of Ecosol and Mr Macklin and Mr Fair on behalf of UAS and as guarantors executed a Vendor Finance Loan Agreement (the Loan Agreement). Its provisions included:

   1Ecosol make loan advances to UAS up to $1,115,511 being the combined purchase price of the business and the shares in Ecosol Malaysia;

   2interest accrue at the rate of 6.45 per cent per annum calculated daily;

   3repayment of the loan amount by equal monthly instalments over 60 months commencing on 30 October 2018;

   4a requirement that UAS execute a General Security Agreement in favour of Ecosol in terms of Annexure A;

   5a requirement that Mr Macklin and Mr Fair execute a Deed of Guarantee and Indemnity in favour of Ecosol in terms of Annexure B.

7. On 28 August 2018 Ecosol sent by email to all shareholders a Notice of Meeting and Explanatory Memorandum (collectively the first notice of meeting). The Notice gave notice of a general meeting to be held on 26 September 2018 to receive and consider the financial statements for the 2017/2018 financial year and consider a resolution that the directors’ decision to sell the company’s assets and liabilities to UAS is approved.

8. The Explanatory Memorandum incorporated a two-page letter relating to the UAS transaction expressed to be by Mr Smith but signed by both Mr Smith and Mr Bishop. It included the following passages:

   I have called this general meeting because, on 6 July 2018, after due consideration, Board accepted an offer from Herbert and asset solutions Pty Ltd to buy Ecosol’s assets and liabilities. This agreement, signed on 23 August 2018, is subject to your approval at this meeting.

   …

   The offer values Ecosol at $1.81M, or $$2.54 per share, inclusive of a small premium of $0.03 per share. Accountants, Gardiner Hall had previously updated its 2017 valuation and in May 2018 found that the market value was $2.51 per share.

   Previously, Andrew and Adrian had made share offers of $1.97, $2.31, and $2.42. As chairman, and on your behalf, I did not believe that these offers were acceptable because they were below market value, they did not treat all shareholders equally, and they did not provide adequate security of payment.

   I believe that the current offer addresses my concerns about market value Andy treatment of shareholders and is financially more attractive to shareholders. It also enables Ecosol to finance the transaction itself over five years and ensure that all shareholders receive full payment for their shares by way of a General Security Agreement (GSA) charge over Urban Asset Solutions’ assets.

   To potentially enhance the shareholder return the Sydney property was excluded from the sale. Currently worth $850K, it has already increased by 55% since it was purchased in July 2015. This upward trend is expected to continue, albeit not at the same pace, primarily because of its proximity to the soon to be built Sydney Gateway that will enable transport access to the west connects underground motorway system leading to the M5 away to Melbourne and the M4 to Sydney’s western suburb.

   I believe that the interest earned from the loan, the potential capital gain from the sale of the property, along with the rental income from Urban Asset Solutions, which has agreed to lease the property, will enhance the shareholder exit return.

   Ecosol will receive rent and loan repayments for five years out of which it pay an annual, and significantly-enhanced, dividend to shareholders. In the loan is repaid, and the property sold – I will be monitoring the Sydney property market to ensure that this is done at the most advantageous time – shareholders will receive one final dividend and Ecosol will then be wound Up [sic]. You should be aware that the dividends include a return of your capital i.e. payment for your shares.

   …

   The Board, as part of its due diligence, has considered other options. Over the past ten years or so it has been proactive in seeking a viable shareholder exit strategy but always without success, largely because our industry is not particularly attractive to investors, especially in the current economic environment…

   You may remember that at the January 2013 AGM we discussed various shareholder exit strategies, none of which were considered suitable so the board committed to annual dividends to at least unlock some shareholder return. This has worked reasonably well but future dividends are not assured – last year the dividend was reduced and there is no certainty that this will not happen in future years.

   The Board considered listing on the Australian Stock Exchange (ASX) but advice from several professional advisers confirmed that Ecosol was too small to qualify for the ASX. We also considered listing on the smaller National Stock Exchange but found this to be very expensive and without any guarantee of a satisfactory shareholder exit. Another option considered was engaging professional advisers to find a suitable investor(s) willing to buy Ecosol, effectively a trade sale. Again, there was no certainty that this would be successful and, moreover, any such sale, were it to happen, would be at market value anyway and so the costs involved, likely exceeding $175K.[6]

   [6]    Emphasis in original.

9. On 28 August 2018 Mr Slater prepared a five and half-page document entitled “explantory [sic] memorandum from the board and my comments” addressed, “Dear shareholder” (the Slater August detailed document). It extracted passages from the explanatory memorandum and made comments in relation to them.

10. On 31 August 2018 Mr Slater prepared a two and a half-page document entitled in upper case “Commercial in confidence to fellow Ecosol shareholders” (the Slater August summary document).  The section entitled “Executive Summary” expressed serious concerns with the way the board had managed Ecosol’s exit strategy.

11. On 31 August 2018 Mr Slater sent by post to shareholders a nine-page document comprising the Slater August summary document and the Slater August detailed document (the Slater August integrated document).

12. On 6 September 2018 Mr Slater sent an email to Mr Macklin, Mr Smith and Mr Bishop, attaching the documents referred to at [153] and [154] above.

13. On 10 September 2018 Gavin Beard of Brighthill Lawyers, acting for Mrs Roy, sent a letter to Ecosol. He said that Mr Macklin and Mr Fair had a conflict of interest. He required that documents falling within seven categories, relating variously to the proposed sale to UAS, be made available for inspection within seven days. He requested that the general meeting be adjourned for 60 days.

14. On 10 September 2018 Mr Beard sent a letter to shareholders. He said that Mr Macklin and Mr Fair had a conflict of interest.  He set out concerns in relation to Ecosol’s dealings with Mr Macklin, Mr Fair and UAS. He invited shareholders to join a shareholder committee.

15. On 11 September 2018 Mr Smith on behalf of Ecosol sent a letter to Mr Charlton on behalf of Janic engaging Janic to provide assistance in relation to the request made on behalf of Mrs Roy.

16. On about 12 September 2018 Mr Roy telephoned Mr Smith asking if he would agree to Mr Roy contacting a Spel executive to ask if Spel might be interested in reactivating its interest in Ecosol. Mr Smith agreed.

17. On 17 September 2018 Cowell Clarke on behalf of Ecosol sent a letter to Brighthill Lawyers declining to provide the documents requested, and stating that a shareholder’s right to documents was confined to the constitution and the company’s registers (presumably the shareholder register).

18. On 18 September 2018 Mr Smith on behalf of Ecosol sent a letter to Cameron Hales of Spel. Mr Smith said that he had been told by an Ecosol shareholder that he had had discussions with Spel and Spel was interested in buying Ecosol. Mr Smith said that a general meeting of Ecosol was due to occur on 26 September 2018 and it was therefore important that Mr Hales inform him as a matter of urgency whether Spel was interested and if so what its indicative offer would be. He requested a response by close of business on 20 September 2018 at the latest and said that, if an indicative offer was made by that time, the general meeting may need to be adjourned.

19. On 18 September 2018 Mr Hales spoke by telephone to Mr Smith. He confirmed the conversation in a letter dated 19 September 2018. He said that Spel needed information in order to consider whether to make an offer and set out the topics of that information.

20. On 19 September 2018 Mr Smith engaged Janic to prepare due diligence information for Spel, under instructions from Mr Bishop.

21. On 19 September 2018 Mr Beard sent a second letter to all shareholders. He said that Ecosol refused to make any disclosure and Mrs Roy was now required to make a Supreme Court application. He said that after 10 September 2018 it was discovered that Spel had approached Mr Macklin earlier in 2018 with an interest in purchasing Ecosol’s primary business assets, who told them that the shareholders were not interested in selling. He invited shareholders to join a shareholder committee.

22. On 21 September 2018 Mr Smith sent a letter to shareholders referring to Mr Beard’s letter to shareholders and Spel’s potential interest and saying that the shareholder meeting would be adjourned for 60 days.

23. On 21 September 2018 Mrs Roy instituted a proceeding in the Supreme Court of Queensland seeking production of the documents requested and consequential adjournment of the general meeting.

24. On 22 September 2018 Mr Slater sent an email to Mr Bishop requesting him to call a general meeting of Ecosol to remove Mr Macklin and Mr Smith as directors and appoint Mrs Roy and Mr Slater as directors.

25. On 23 September 2018 Mr Slater sent an email to Mr Bishop saying, amongst other things, that he asked Mr Bishop to indicate by close of business on 25 September 2018 why he should not approach other Ecosol competitors on a commercial in confidence basis to inform them that an option for Ecosol’s business assets was now in progress.

26. On 26 September 2018 Mr Hornbuckle sent an email to Mr Slater saying, amongst other things, that the reason that Spel did not follow through in writing in March 2018 was that they simply did not have a chance before Mr Macklin called back and said that Ecosol had a change of mind and would no longer be interested.

27. On 26 September 2018 the general meeting of shareholders was adjourned for 60 days at a time and place to be advised.

    October/November 2018

28. On 2 October 2018 the Queensland Supreme Court made an order pursuant to sections 247A and 247B of the Corporations Act 2001 (Cth) that Ecosol produce for inspection by Mrs Roy by no later than 9 October 2018 documents falling within 11 categories set out in the schedule to the order. Mrs Roy was permitted to show the documents to another shareholder who had executed a confidentiality deed.

29. On 3 October 2018 Mr Smith on behalf of Ecosol engaged Janic to prepare the list of documents pursuant to the order.

30. On 8 October 2018 Mr Charlton provided to Cowell Clarke a bundle of documents for collection by Mrs Roy or her solicitor.

31. On 8 October 2018 Cowell Clarke sent an email to Mr Beard saying that they had six lever arch folders at their office which could be collected by Mrs Roy.

32. Between 5 and 15 October 2018 Mr Charlton, with assistance from Mr Macklin, assembled a due diligence pack. This was approved by Ecosol’s directors on 16 October 2018.

33. On 16 October 2018 Cowell Clarke sent an email to Mr Hales foreshadowing the provision of due diligence information and requesting a binding offer to purchase the assets listed in the email by midday on 24 October 2018. Those assets were effectively all of Ecosol’s assets, including the Sydney property and the shares in Ecosol Malaysia. Ecosol and required offers to be made to Ecosol’s employees to employ them on no less favourable terms than Ecosol.

34. On 17 October 2018 Mr Charlton sent by email to Mr Hales the due diligence pack.

35. On 17 October 2018 Mrs Roy sent an email to Mr Slater and others attaching the confidentiality deed and saying that, if they signed it and returned it, the Roys would be able to provide them with the scanned company books that the Roys picked up last week. Mr Slater signed and returned the confidentiality deed.

36. On 18 October 2018 Mrs Roy sent an email to Mr Slater attaching a link to a folder entitled “Ecosol books Oct 2018” and suggested that he read the summary and index located within the main folder.

37. On 21 October 2018 Mr Beard sent a letter to shareholders. He referred to Mrs Roy’s request of Ecosol for production of documents, the order made by the Queensland Supreme Court and the documents provided. He offered to make the documents available to shareholders who signed a confidentiality agreement. The letter included the following passage:

    Despite the Supreme Court issuing orders, Ecosol continues to refuse access to the shareholders and has provided a limited amount of the documents subject of the orders.

38. On 22 and 26 October 2018 Mr Beard sent emails to Cowell Clarke requesting the current email contact list for shareholders urgently.

39. On 25 October 2018 Mr Hales visited Ecosol’s facility at Pooraka. He was accompanied by Mr Bishop and Mr Macklin.

40. On about 25 October 2018 Mr Roy told Mr Slater that Spel would not be putting in a bid and Ecosol was aware of that from around 24 October 2018.

41. On 30 October 2018 Mr Hales sent an email to Cowell Clarke saying that, after considerable deliberations, Spel had decided not to make an offer for Ecosol or its assets, there being a number of reasons for the decision but the principal one being out of respect to Mr Macklin and his plans for the future.

    Second shareholder meeting

42. On 2 November 2018 Ecosol sent by email to all shareholders a Notice of Meeting and Explanatory Memorandum (collectively the second notice of meeting). The Notice gave notice of a general meeting to be held on 23 November 2018 to consider the same business as the first notice of meeting.

43. The Explanatory Memorandum comprised a one and a half-page letter relating to the UAS transaction signed by Mr Smith and a four and a half-page Supplementary Explanatory Memorandum. It referred to Spel’s expression of interest previously communicated to shareholders, said that Spel had conducted due diligence and said that on 30 October 2018 Ecosol received correspondence from Spel advising that it would not be making an offer to purchase. It summarised the terms of the transaction documents, including terms of the Share Sale Agreement, which it said had by then been executed. An executed version of the Share Sale Agreement itself was not tendered and evidence was not adduced as to when it was executed. An unexecuted version was tendered.

44. On 5 November 2018 Mr Beard sent by email two letters to Cowell Clarke. The letters said that, subject to conducting a satisfactory due diligence, Flow Defence Pty Ltd (Flow Defence) would make an offer to purchase the business (excluding the Sydney property) for a price in the vicinity of $3.00 per share under a vendor finance arrangement spanning five years. He requested the necessary documents to enable his client to conduct its due diligence by 9 November 2018. He said that due diligence could be completed within 60 days. He attached proposed resolutions signed by Mrs Roy adjourning the general meeting to enable the due diligence to be completed; a professional broker be appointed to advertise the business for sale; any offer must be at or over $3.00 per share and the Sydney property be immediately listed for sale with a commercial real estate agent.

45. On 5 November 2018 Mr Slater sent an email to at least Biofilta and IES Stormwater Pty Ltd trading as Stormwater 360 (SW 360) enquiring whether it would like an opportunity to undertake due diligence in respect of Ecosol’s business.

46. On 5 November 2018 Jeremy Brown, managing director of SW 360, sent an email to Mr Slater confirming his interest in Ecosol's business and asking how he could move forward in obtaining information for due diligence.

47. On 8 November 2018 Ecosol sent an email to all shareholders attaching a letter from Mr Smith on behalf of Ecosol to shareholders dated 6 November 2018 referring to Mr Beard’s letters, saying that the directors did not consider that the foreshadowed offer was credible and saying that the general meeting would proceed on 23 November 2018. The email also attached copies of Mr Beard’s letters dated 5 November 2018.

48. On 9 November 2018 Mrs Roy sent an email to some Ecosol shareholders effectively responding to Mr Smith’s 6 November 2018 letter.

49. On 9 November 2018 Macpherson Kelley, acting for SW 360, sent a letter to Cowell Clarke saying that their client had become aware that Ecosol’s business was potentially available for purchase, was a credible buyer with serious interest in investigating a potential acquisition and sought information concerning the business, being willing to enter into a confidentiality agreement.

50. On 11 November 2018, on the instructions of Mr Smith, Mr Charlton sent a due diligence pack to Macpherson Kelley.

51. On 11 November 2018 Mr Slater sent an email addressed to [email protected]. It attached an eight-page document addressed to the Ecosol directors, copied to Ecosol shareholders. The email said that it set out Mr Slater’s key concerns to which the directors should respond immediately in writing so that shareholders could cast a fully informed vote on the tabled resolution.

52. This email comprises the first impugned publication by Mr Slater that Mr Smith contends contains defamatory imputations.

53. On 12 November 2018 SW 360’s management was to have visited Ecosol’s Pooraka facility but visited Mr Slater instead.

1. The definitions contained in the Macquarie Dictionary include the following:

   1a keen, ill-natured desire to humiliate, annoy, or injure another; venomous ill will[55]

   [55] Macquarie Dictionary 2 ed (2017) page 1443.

2. If Mr Smith means that Mr Slater felt or displayed hostile feeling, hatred or ill-will, for the reasons given above I am not satisfied that any such feelings motivated the impugned publications. On the contrary, I am affirmatively satisfied that they did not.

3. If Mr Smith means that Mr Slater had a desire to hurt, harm or injure Mr Smith (or Mr Macklin) and this was the motivation for the impugned publications, it is encompassed in Mr Smith’s contentions addressed in the next section.

4. Whatever be the meaning of spite, I am not satisfied that Mr Slater’s feelings or desires, if characterised as spite, motivated the impugned publications. On the contrary, I am affirmatively satisfied that they did not.

   Improper purpose to cause hurt and harm

5. Mr Smith contends that Mr Slater published each of the matters complained of for an improper purpose, namely to hurt and harm Mr Smith and Mr Macklin, damage their reputations and discredit them.

6. Mr Smith refers to emails sent by Mr Slater on 31 August 2018 to Mr Macklin and Mr Smith in each of which he referred to his forthcoming letter to shareholders and indicated that he was willing to “cut a deal”. Mr Smith contends that Mr Slater wanted to obtain a private deal that financially benefited him at the expense of the shareholders. This was not put to Mr Slater in cross-examination. I reject that construction of the email. Even if it were correct, it would not evidence the alleged improper purpose.

7. Mr Smith contends that the fact that Mr Slater received no response to his 31 August 2018 emails angered Mr Slater and fortified his resolve to denigrate Mr Smith and Mr Macklin. Again, this was not put to Mr Slater in cross-examination. I reject the contention, for which there is no basis.

8. Mr Smith refers to emails sent by Mr Slater to Mr Smith (and in one or two cases to the shareholders) that Mr Smith characterises as taunting, intimidating and mocking him. Those emails are better characterised as Mr Slater overconfidently predicting, with glee, that he would prevail in his opposition to the sale to UAS and in other matters where he was in dispute with Mr Smith. In any event, they do not evidence the alleged improper purpose.

9. Mr Smith refers to emails sent to Mr Smith (usually post-dating the impugned November 2018 publications) threatening further legal action, to report Mr Smith to the Australian Securities and Investments Commission and foreshadowing that Mr Smith’s insurer would seize his personal assets as a result of his having committed a fraud. These emails do not evidence the alleged improper purpose.

10. Mr Smith makes various other submissions in support of his contention. I have considered all of his submissions.

11. I am not satisfied that Mr Slater’s purpose in sending the impugned publications to shareholders was to hurt or harm Mr Smith or Mr Macklin or damage their reputations. On the contrary, I am affirmatively satisfied that his purpose was to provide information to shareholders relevant to their decision how to vote at the forthcoming general meeting and seek to persuade them (legitimately) to vote against the proposal. If this happened to have the by-product of hurting or harming Mr Smith or Mr Macklin or damaging their reputations so much the better but this was not his purpose.

12. In one sense, it might be said that discrediting Mr Smith was part and parcel of Mr Slater’s purpose of seeking to persuade shareholders to vote against the proposal (given that Mr Smith was advocating the proposal) but to characterise discrediting Mr Smith as Mr Slater’s purpose would be to regard the tail as wagging the dog.

13. As observed above, my assessment is that Mr Slater was an honest witness. He denied on oath that his purpose in sending the impugned letters to shareholders was the purpose suggested by Mr Smith. I accept that evidence.

    Campaign to stop sale to UAS and denigrate its supporters

14. Mr Smith contends that Mr Slater embarked on a campaign to stop the sale to UAS and wished to denigrate anybody he believed was supporting it.

15. I accept that Mr Slater embarked on a campaign to stop the sale to UAS. However, this does not amount to an improper or ulterior purpose. Mr Slater as a shareholder was entitled to form his own view about whether it was in his own interests and the interests of his fellow shareholders for the sale to UAS to proceed. It is this very interest of Mr Slater and his fellow shareholders that prima facie gives rise to the common law defence of qualified privilege. Mr Slater was entitled to embark on a campaign opposing the sale, at least in circumstances in which he genuinely believed (as I have found) that it was contrary to the interests of the shareholders of Ecosol for the sale to proceed.

16. I do not accept that Mr Slater wished to denigrate anybody he believed was supporting the MBO in that unqualified sense. I accept that he denigrated Mr Smith who was supporting the MBO but I am not satisfied that this was his purpose in sending the impugned publications to shareholders. On the contrary, I am affirmatively satisfied that he genuinely believed (rightly or wrongly) that the sale to UAS was not in the best interests of the shareholders and that Mr Smith was not acting in the best interests of Ecosol in supporting it. His denigration of Mr Smith was merely incidental to his opposition to the sale.

    Implied malice: knowledge of falsity, recklessness

17. Mr Smith contends that the allegations in the matters complained of giving rise to the imputations were knowingly false, were recklessly indifferent as to their falsity to the point of wilful blindness or were recklessly indifferent simpliciter.

    Knowingly false

18. Mr Smith contends that Mr Slater’s statement in the first impugned publication as follows was false to Mr Slater’s knowledge:

    My understanding is that Spel informed Ecosol that it would not put in a bid on 24 October.

19. It is clear from the evidence adduced at trial that Spel did not inform Ecosol that it would not put in a bid until 30 October 2018 when Mr Hales sent an email to Cowell Clarke saying that. Therefore Mr Slater’s statement was objectively false. The issue is whether it was false to the knowledge of Mr Slater.

20. Mr Slater gave evidence that on about 25 October 2018 Mr Roy told Mr Slater that Spel would not be putting in a bid and Ecosol was aware of that from around 24 October 2018. Mr Slater said that at this time Mr Roy was in contact with Mr Bishop and Mr Slater believed that Mr Roy had received this information from Mr Bishop.

21. Mr Roy was cross-examined as to whether he was told by anyone that Spel told Ecosol on 24 October 2018 that it would not be putting in a bid for Ecosol. He said that it was all a bit vague to him now, the specifics of how it all went. He said that he did not have a great memory of a lot of the specifics. The cross examiner accepted that that was not surprising given that this was four years ago. Mr Roy said that, if he had been told that, he would have told Mr Slater and, if he had not been told that, he would not have told Mr Slater.

22. Mr Bishop did not give evidence one way or the other on this topic.

23. I accept Mr Slater’s evidence of what he believed at the time and what he was told by Mr Roy. Spel had been given until midday on 24 October 2018 to put in a bid by Cowell Clarke’s email dated 16 October 2018 and it did not do so by that date. Further, Mr Bishop accompanied Mr Hales on inspection of the Pooraka facility on 26 October 2018 and he may well have formed an impression as to Mr Hales’ attitude (subsequently communicated). If Mr Roy spoke to Mr Bishop at that time, it would be perfectly understandable if Mr Bishop had said that he understood that Spel was not putting in an offer.

24. Mr Smith contends that Mr Slater’s statement in the first impugned publication as follows was false to Mr Slater’s knowledge:

    Ecosol sat on this for close to two weeks …

25. It is true, as Mr Smith submits, that before he sent the impugned communication to shareholders Mr Slater had received the 2 November 2018 notice of meeting which included a statement that Spel advised Ecosol that it would not be making an offer on 30 November 2018. However, I accept Mr Slater’s evidence that his belief was nevertheless based on what Mr Roy had told him and that he did not trust anything said by Mr Smith.

26. Although Mr Slater was critical in the communication to shareholders of Ecosol not communicating Spel’s decision promptly, it did not advance his opposition to the sale to UAS because it may be expected that it was in the interests of the Ecosol directors who were promoting the sale to inform shareholders of Spel’s lack of interest as soon as possible.

27. I do not accept an alternative contention that might be made that Mr Slater was reckless to the point of being wilfully blind. It may be that he was negligent in making the statement in the circumstances but that is incapable of constituting and does not evidence malice.

28. Mr Smith contends that Mr Slater’s statement in the first impugned publication as follows was false to Mr Slater’s knowledge:

    Ecosol Directors refusal to even countenance the higher counter offer to the MBO which is on the table is outrageous and a clear breach of their fiduciary duties.

29. Mr Smith draws attention to the fact that the only “higher offer” to which Mr Slater could have been referring was the offer foreshadowed by Mr Beard on behalf of Flow Defence referred to in Mr Beard’s email to shareholders sent on 5 November 2018 which foreshadowed an offer of $3.00 per share excluding the Sydney property.

30. Mr Smith contends that there is nothing in his 6 November 2018 letter to shareholders that indicated that the directors refused to countenance the Flow Defence offer.

31. Mr Smith’s letter to shareholders referred in the first paragraph to Mr Beard’s letter to shareholders dated 5 November 2018. In the second paragraph, he said:

    In the opinion of the directors dealing with the sale process (David Bishop and I,), the offer proposed by Flow Defence is not credible and appears to be an attempt to further delay the new UAS deal from being finalised.

32. Mr Smith went on in the letter to criticise extensively Mr Beard’s letter and the Roys. He expressed the belief that it was unrealistic for Flow Defence to obtain the necessary vendor finance; referred to Mr Roy’s failure to pay monies owing to Ecosol and said that Mr Beard’s letters contained significant omissions and errors. Although it is true, as Mr Smith submits, that the letter does not explicitly state that the directors would not countenance the offer, it was entirely open to Mr Slater to read the letter as having that effect.

33. I reject the contention that Mr Slater’s statement was knowingly false or even reckless.

    Reckless to the point of wilful blindness

34. Mr Smith contends that Mr Slater’s statement in the first impugned publication as follows was reckless to the point of wilful blindness:

    Jodie’s Roy solicitor has stated and it is my opinion as well that Ecosol has not complied with the Supreme Court orders in a substantial way and not just minor technicalities.

    Ecosol directors have provided no justification as to why they think they can flout Supreme Court orders

35. Mr Smith points out the fact that Mr Slater had no role in compiling the documents given to Mrs Roy pursuant to the Queensland Supreme Court order and did not seek the documents at Cowell Clarke’s offices and therefore had no first-hand knowledge whatsoever about the documents before they were picked up by Ms Roy on 8 August 2018. He submits that without any first-hand knowledge whatsoever, Mr Slater recklessly accused Ecosol’s directors of not complying with the Court order.

36. However, Mr Beard had in his letter to shareholders dated 21 October 2018 said that Ecosol had only provided a limited amount of the documents subject of the orders. In addition, Mr Slater had obtained access to the documents after giving the requisite undertaking. In his defence (paragraph 12.14) to Mr Smith’s cross claim, he identifies various categories of documents that he believed were in existence and Ecosol were required by the order to produce but did not do so. He confines his contentions in the context of his qualification defence to a subset of the 34 documents or categories of documents in his pleading.

37. I am not satisfied that Mr Slater was reckless in making the statement and I am affirmatively satisfied that he was not reckless to the point of wilful blindness. It is true, as Mr Smith points out, that Mr Slater did not verify his comments with Mr Smith or with Mr Beard before publication. However, he had no reason to believe that Mr Beard had changed his view since 21 October 2018 and it is evident that (rightly or wrongly) he had no trust in anything said by Mr Smith at that point.

    Reckless

38. Mr Smith contends that Mr Slater’s imputation in the first impugned publication that Mr Smith was biased towards the MBO was reckless. This imputation arises from the following passage of Mr Slater’s impugned publication:

    Ecosol Directors refusal to even countenance the higher counter offer to the MBO which is on the table is outrageous and a clear breach of their fiduciary duties. This is just the latest instalment of their egregious campaign to force the MBO on shareholders.

39. For the reasons given at [522] and following above, Mr Slater had reasonable grounds to believe that the directors were biased towards the sale to UAS. Although I have found on the basis of all of the evidence adduced at trial that objectively the directors believed that they were acting in the best interests of the company and were not consciously biased, Mr Slater was not reckless in making that statement that gave rise to that imputation.

40. Mr Smith contends that Mr Slater’s imputation in the first impugned publication that Mr Smith critically failed to exercise the fiduciary duties he owed to shareholders was reckless. This imputation arises from the same passage of Mr Slater’s impugned publication reproduced at [913] above.

41. For the same reasons as in respect of the “bias” imputation, Mr Slater had reasonable grounds to believe that the directors were in breach of their fiduciary duties. Although I have found on the basis of all of the evidence adduced at trial that objectively the directors believed that they were acting in the best interests of the company, Mr Slater was not reckless in making that statement that gave rise to that imputation.

    Statements not the subject of imputations found

42. Mr Smith contends that Mr Slater knowingly, recklessly to the point of wilful blindness or recklessly simpliciter made other statements that are not the subject of imputations that I find arise on Mr Slater’s impugned publications. These are alleged imputations F1, F2, F3, F19 and H6. These matters are therefore incapable of being knowingly false or reckless.

43. Mr Smith contends that Mr Slater knowingly, recklessly to the point of wilful blindness or recklessly simpliciter made other statements that are not the subject of any pleaded imputation and in general are also outside the three impugned publications. These matters are incapable of giving rise to a finding of malice. In any event, I have carefully considered each of them and am not satisfied that they were knowingly false or reckless to the point of wilful blindness.

    Implied malice: Failure to put allegations to Mr Smith and failure to apologise

44. Mr Smith submits that Mr Slater made no attempt to obtain and publish a response from him.

45. A failure to put allegations to a person defamed does not amount to, or comprise evidence of, malice. At most, it might be a relevant circumstance in relation to a finding of improper purpose or knowledge of falsity or recklessness to the point of wilfulness.

46. It is clear that Mr Slater had no trust whatsoever in anything said by Mr Smith. Further, the impugned publications were part of a series of communications to shareholders by each of Mr Slater and Mr Smith referring to statements made by the other. Mr Smith himself did not put to Mr Slater his allegations before publishing them. The fact that Mr Slater did not put to Mr Smith in advance his allegations is of virtually no significance in the circumstances.

47. Mr Smith submits that Mr Slater refused to apologise. A refusal to apologise is incapable of amounting to malice or evidence of malice. It would be circular reasoning as a refusal to apologise would be justified if the publisher is entitled to rely on the qualified privilege defence.

    Holistic consideration

48. As observed above, there is a high degree of overlap and interrelationship between Mr Smith’s various contentions in relation to malice. Considering all of his contentions and the relevant facts holistically, he has failed to prove malice.

    Conclusion

49. Mr Smith has failed to establish malice. It follows that Mr Slater’s common law qualified privilege defence is established. For the sake of completeness, even if I had found that all of the imputations pleaded by Mr Smith arose and all of them were defamatory, I would still have found that Mr Slater had established his common law qualified privilege defence and Mr Smith had failed to prove malice.

50. It follows that Mr Smith’s defamation claim must be dismissed.

    Defence of statutory qualified privilege

51. Given my conclusion in relation to common law qualified privilege, it is not necessary to decide whether the defence of statutory qualified privilege is established and I do not do so.

52. Mr Smith does not appear to dispute that the first two elements are established. In any event I would have found that they are established for essentially the same reasons as the traditional common law qualified privilege category addressed above.

53. The third element of statutory qualified privilege is that the conduct of the publisher in publishing must be reasonable in the circumstances. It is necessary to assess reasonableness in relation to each passage, and each defamatory imputation arising from each passage, in respect of each impugned publication. This is a substantial task upon which it is not necessary to embark. If I had embarked on the task, I doubt that I would have been satisfied that Mr Slater’s conduct in respect of at least some passages giving rise to the imputations was reasonable in the circumstances but I do not decide that question.

    Defence of triviality

54. Given my conclusion in relation to common law qualified privilege, it is not strictly necessary to decide whether the defence of triviality is established but I do so because it can be addressed briefly.

55. In order to establish the defence, Mr Slater must prove that the circumstances of publication were such that, assessed prospectively, Mr Smith was unlikely to sustain any harm.

56. In respect of the first impugned publication, Mr Slater pleads the defence only in respect of imputations F1, F4, F13 and F18. I have not found imputation F1 or F18 established. I reject Mr Slater’s contention in respect of imputations F4 and F13. In any event, as there is a single cause of action in respect of the first impugned publication, all established defamatory imputations must be considered. That impugned publication contained grave imputations that Mr Smith had breached his fiduciary duties, was biased towards the MBO and wilfully permitted Ecosol to refuse to abide by the Queensland Supreme Court orders. The impugned publication was made to all shareholders of Ecosol, comprising just under 50 persons. The circumstances were such that Mr Smith was likely to suffer harm by way of injury to his feelings. He was also likely (judged contemporaneously) to suffer harm by way of damage to his reputation amongst the shareholders. The defence of triviality fails in respect of the first impugned publication.

57. In respect of the second impugned publication, it contained the grave imputation that Mr Smith was unfit to be a director of Ecosol because of his arrogantly dismissive attitude to the shareholders right to know about important company financial information. The circumstances were such that Mr Smith was likely to suffer harm by way of injury to his feelings and damage to his reputation amongst the shareholders. The defence of triviality fails in respect of the second impugned publication.

1. The defence of triviality is not established.

   Assessment of damages

2. Given that Mr Smith’s action is to be dismissed, it is unnecessary to assess damages and I do not do so.

3. I observe that, in accordance with the rules applicable to actions in the Magistrates Court relevant to costs, Mr Smith formulated his damages claim as being for $45,000.

4. As observed above, Mr Slater called seven Ecosol shareholders to give evidence. The general effect of their evidence was that their opinion of Mr Smith and his reputation was not affected by the impugned Slater publications. Either they already held a positive opinion of Mr Smith which was not affected by the impugned publications or they already held a negative opinion of Mr Smith which was not affected by the impugned publications and/or they viewed the communications to shareholders emanating from both Mr Smith and Mr Slater as reflecting a genuine debate without adversely affecting their view of Mr Smith.

5. Mr Slater’s impugned publications were sent only to Ecosol shareholders, being a limited class of recipients. I accept that Mr Smith’s reputation might have been damaged in the eyes of other shareholders who were not witnesses and I accept that, if he had succeeded on liability, he would be entitled to an award of damages on this account. However, the award would necessarily be modest.

6. I accept that the impugned Slater publications caused Mr Smith to suffer injury to his feelings. If he had succeeded on liability, he would be entitled to a modest award of damages on this account.

7. Mr Smith does not claim to have suffered economic loss.

8. In summary, if Mr Smith had succeeded on liability, damages awarded would have been relatively modest.

   Conclusion

9. Mr Smith’s action must be dismissed.

   D CONCLUSION

10. Mr Slater’s action and Mr Smith’s cross action must be dismissed. I will hear the parties concerning the orders to be made, including as to costs.