Tree v Roadships Logistics Pty Ltd
[2009] FMCA 882
•11 September 2009
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| TREE v ROADSHIPS LOGISTICS PTY LTD | [2009] FMCA 882 |
| BANKRUPTCY – Application to set aside Bankruptcy Notice – cross claim, counter claim or set off equal to or greater than the amount claimed in the Bankruptcy Notice – notice to be set aside. |
| Bankruptcy Act 1996 (Cth), ss.30, 40(1)(g) Corporations Act 2001 (Cth), ss.459G, 709(3), 710-715, 719, 724, 728, 728(1)(c), 729 Trade Practices Act 1974 (Cth) Australian Securities & Investment Commission Act 2001(Cth) |
| Blair & Perpetual Trustee Co Ltd v Curran (Adams' Will) [1939] 62 CLR 464 Brink, Re; Ex parte Commercial Banking Co of Sydney Ltd (1980) 44 FLR 135 Cadence Asset Management Pty Ltd v Concept Sports Ltd [2005] FCAFC 265 Cameron v Cole [1944] 68 CLR 571 Glew v Harrowell [2003] FCA 373 Pollnow v Queensbro Pty Ltd (1988) 217 ALR 49 Roadships Logistics Ltd v Tree [2007] NSWSC 1084 Trecomax Pty Ltd v Prentice [2004] FCA 1057 |
| Applicant: | BRIAN TREE |
| Respondent: | ROADSHIPS LOGISTICS PTY LTD |
| File Number: | SYG 2770 of 2008 |
| Judgment of: | Lloyd-Jones FM |
| Hearing dates: | 9 April & 7 May 2009 |
| Delivered at: | Sydney |
| Delivered on: | 11 September 2009 |
REPRESENTATION
| Counsel for the Applicant: | Mr Cassimatis |
| Solicitors for the Applicant: | Stephen McNamee of Slater & Gordon |
| Counsel for the Respondent: | Mr A Ivantsoff |
| Solicitors for the Respondent: | Mr C Martin of Piper Alderman |
ORDERS
The Bankruptcy Notice NN3625 of 2008 be set aside.
The applicant is to pay the respondent’s costs, on an indemnity basis, for costs thrown away on 9 April 2009 when the final hearing of the matter was adjourned on the application of the applicant. Costs to be agreed, or in the absence of agreement, as assessed.
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYG 2770 of 2008
| BRIAN TREE |
Applicant
And
| ROADSHIPS LOGISTICS PTY LTD |
Respondent
REASONS FOR JUDGMENT
The proceedings
Mr Ivanstoff advised the Court that Roadships Logistics Pty Ltd, the respondent to the proceedings, was placed into voluntary administration on 21 April 2009 but he has received instructions from the administrator to proceed on behalf of the company in defending the application.
I have before me an application to set aside a Bankruptcy Notice (NN 3625 of 2008) issued at the request of Roadships Logistics Pty Ltd (ACN 094 640 712) on 25 September 2008. The Bankruptcy Notice was served on Mr Tree on 7 October 2008. The Bankruptcy Notice was based on a costs order made by His Honour Barrett J in an
ex-tempore judgment given on 28 September 2007 in the Supreme Court of New South Wales. In the Supreme Court proceedings Roadships brought an application pursuant to s.459G of the Corporations Act 2001(Cth) to set aside a statutory demand served on Roadships by Mr Tree who was acting in his capacity as trustee for the Tree Superannuation Fund.
The statutory demand relates to a sum of $200,000 which Mr Tree paid to Roadships for shares after relying on an Offer Information Statement dated 6 December 2005 issued by Roadships. On about 24 January 2006 after relying on the Offer Information Statement, Mr Tree applied for 200,000 shares at $1 in Roadships and paid $200,000 shares on behalf of the fund. On about 27 March 2006 Roadships issued 200,000 shares to Mr Tree. Also on that day the Board of Roadships removed the Chairman and Chief Executive Officer, Mr Michael Nugent from those positions he held at Roadships. Mr Tree claims that the immediate effect of the removal of Mr Michael Nugent as Chief Executive Officer had the immediate effect that the $200,000 worth of shares became immediately worthless.
Mr Tree served a statutory demand on Roadships Pty Ltd because he wanted to recover the $200,000 on the basis that the representations in the Offer Information Statement were misleading. Mr Tree relied on s.719 and s.724 of the Corporations Act to create a statutory right to recover a debt. The statutory demand was set aside on the basis that there was a genuine dispute and His Honour Barrett J ordered Mr Tree to pay Roadships’ costs of the Supreme Court proceedings. On or about 20 January 2008 Roadships filed an application for assessment of the costs of the Supreme Court proceedings and on 3 June 2008 the costs assessor assessed Roadships’ costs to be $47,812. On 15 August 2008 Roadships registered the costs assessment in the Local Court of New South Wales for the sum of $47,956.
On 13 November 2008 Roadships filed a Notice of Motion for a writ of levy of property to the value of the local court costs judgment plus interests and costs in the Local Court of New South Wales. On 12 December 2008 Mr Tree filed a Notice of Motion in the Local Court of New South Wales seeking a stay of the writ until further order. A stay has been ordered on an interim basis of consent.
On 27 October 2008 Mr Tree filed an application in the Federal Magistrates Court of Australia seeking the order:
1. That Bankruptcy Notice NN3625 of 2008, which was served on me on 7 October 2008, be set aside.
Evidence
Mr Tree’s application filed on 27 October 2008 is supported by the following material:
a)affidavit of Brian Tree, retired telecommunications technical officer, sworn 27 October 2008 and filed on that date (paragraphs 9,11,12,14,16 and part of 19);
b)
affidavit of Brian Tree sworn 20 November 2008 and filed
21 November 2008 except paragraphs 11 and 16;
c)affidavit of Brian Tree sworn 12 December 2008 and filed in Court on 9 April 2009 except paragraph 9; and
d)affidavit of Michael Nugent, Company Director, sworn 9 April 2009 and filed in Court on that date.
Roadships Logistics in resisting the application relies on the affidavit of Johnathon Peter Macarthur, former director of Roadships sworn on 28 November 2008. Mr Ivanstoff tendered a letter dated 30 April 2009 from Anthony Hages Douglas-Brown to Chris Martin of Piper Alderman being a letter indicating the administrator’s consent to Piper Alderman continuing to represent the company in these proceedings. Further an ASIC search dated 7 May 2009 indicating that Mr Anthony Hayes Douglas-Brown and Mr Giovanni Maurizio Carrello were appointed administrators of the respondent on 21 April 2009.
Notice stating grounds of opposition to application
On 28 November 2008 Roadship Logistics filed a Notice Stating Grounds of Opposition indicating that it intended to oppose Mr Tree’s application to set aside the Bankruptcy Notice on the following grounds:
1. Each counter claim, set off or cross demand, claimed by the applicant is a counter claim, set off or cross claim that could have been set up in the proceedings in the judgment or orders on which the Bankruptcy Notice is based was obtained
2. The claims made in paragraphs [14]-[16] of the applicant’s affidavit sworn 27 October 2008 (Mr Tree’s first affidavit) were dealt with by Barrett J in the proceedings which the judgment or orders was obtained and there is an issue of estoppel in relation to those claims.
3. There is no, or alternatively no sufficient evidence to support the claim made in paragraph 9 of the applicant’s affidavit on 21 November 2008 (Mr Tree’s second affidavit).
4. No appeal has been filed from the orders made by Barrett J on 28 September 2007.
5. No stay of execution or judgment of the orders on which the bankruptcy notice is based has been ordered and the judgment debt remains entirely unsatisfied.
Applicant’s submissions
Mr Cassimatis appearing for Mr Tree, submits that whilst there is no express power in the Bankruptcy Act 1966 (Cth) (“the Act”) to set aside a Bankruptcy Notice there is a power by necessary implication within the powers of the Court conferred by s.30 of the Act. Mr Tree contends that upon necessity is where the applicant has a basis for a cross claim demand or in accordance with s.40(1)(g) of the Act which could not have been brought relevantly. Section 40(1)(g) of the Act provides that a “debtor commits an act of bankruptcy in each of the following cases” and relevantly in s.40(1)(g):
(g) if a creditor who has obtained against the debtor a final judgment or final order, being a judgment or order the execution of which has not been stayed, has served on the debtor in Australia or, by leave of the Court, elsewhere, a bankruptcy notice under this Act and the debtor does not:
(i) where the notice was served in Australia--within the time specified in the notice; or
(ii) where the notice was served elsewhere--within the time fixed for the purpose by the order giving leave to effect the service;
comply with the requirements of the notice or satisfy the Court that he or she has a counter‑claim, set‑off or cross demand equal to or exceeding the amount of the judgment debt or sum payable under the final order, as the case may be, being a counter‑claim, set‑off or cross demand that he or she could not have set up in the action or proceeding in which the judgment or order was obtained;
Mr Cassimatis notes that Roadships opposes the application on five bases and that he will address the Court on each of these bases by reference to Mr Tree’s position. The first basis is that each counter-claim, set-off or cross demand claimed by Mr Tree is a counter claim, set off or cross demand that could have been set up in the proceedings in which the judgment or order on which the Bankruptcy Notice was obtained. The Bankruptcy Notice is based on the local court costs judgment.
It is submitted that it was not possible for Mr Tree to bring a counter-claim, set off or cross demand in the Supreme Court proceedings (1818 of 2008) given he was the issuer of the statutory demand and the proceedings were based on an application brought by Roadships pursuant to s.459(g) of the Corporations Act to set aside the statutory demand on the basis that there was a genuine dispute.
Mr Cassimatis advised the Court that Mr Tree’s statutory demand was set aside by His Honour Barrett J because he was of the view there was a genuine dispute. Given that the proceedings were merely an application to set aside the statutory demand His Honour indicated that all that was required was a cursory investigation. It was not a forum for a cross claim, set off or cross demand. Mr Cassimatis referred the Court to the decision in Trecomax Pty Ltd v Prentice [2004] FCA 1057 per Sackville J where His Honour held that the procedure established via Division 3, Part 5.4 of the Corporations Act is not ordinarily the occasion for final resolution of a dispute even if a matter is in contest rests on a question of law. The question for the Court is whether there is a genuine dispute about the existence of or the amount of the debt. It is submitted that even if Mr Tree could have brought a cross-claim, set off or demand in the Supreme Court proceedings, that Court could not have decided the issue with any finality because that was not the forum for that to be decided.
The second basis for the opposition to this application by the respondent was that the claim made in Mr Tree’s affidavit sworn
27 October 2008, paragraph [4] was dealt with by His Honour Barrett J in the proceedings in which a judgment / order was obtained then there is an issue estoppel in relation to those claims. Mr Cassimatis argues that an issue estoppel is only relevant in circumstances where there has been a final judgment on the merits of the cause of action. Whereas the entirety of His Honour Barrett J’s judgment of 28 September 2008 is based on s.719 and s.724 of the Corporations Act 2001 in the context of an application to set aside a statutory demand on the basis that there is a genuine dispute. In the reported judgment Roadships Logistics Ltd v Tree [2007] NSWSC 1084 at [10] His Honour stated:
…In short, a factual inquiry would be necessary to decide whether the event of Mr Nugent's dismissal and departure was an event triggering s 724(1).
These comments in the judgment are indicative that His Honour was dealing with the matter in a cursory way to ascertain whether or not a genuine dispute existed. His Honour continued at [11] by stating:
[11] The defendant says that the event was of that quality and that I should so find. That is not the correct approach. The cases make it very plain that anything beyond fairly cursory factual investigation of the underlying merits is foreign to applications of this kind. The only question before me is whether there exists a genuine dispute as to the existence of the debt referred to in the statutory demand. To the extent that answer to the question of the existence of the debt goes to factual matters of any complexity, an application of this kind is not the occasion for those depths to be plumbed.
Mr Cassimatis submits that issue estoppel is only relevant in circumstances where there has been a final judgment on the merits of a cause of action: Blair & Perpetual Trustee Co Ltd v Curran (Adams' Will) [1939] 62 CLR 464 per Dixon J at 532 where His Honour stated:
…In matters of fact the issue-estoppel is confined to those ultimate facts which form the ingredients in the cause in action, that is, the title to the right established. …
His Honour continued
But matters of law or fact which are subsidiary or collateral are not covered by the estoppel. Findings, however deliberate and formal, which concern only evidentiary facts and not ultimate facts forming the very title to rights give rise to no preclusion. Decisions upon matters of law which amount to no more than steps in a process of reasoning tendering to establish or support the proposition upon which the rights depend do not estop the parties if the same matters of law arise in subsequent litigation.
In circumstances where Roadships was only seeking an order setting aside the statutory demand and the order was not based on any finality the applicant should not be estopped from bringing his claim.
The third basis upon which the respondent opposes the application is that there is insufficient evidence to support the claim in Mr Tree’s affidavit sworn 21 November 2000, paragraph [9]. In his letter dated 27 November 2008 Mr Tree demanded repayment in the sum of $200,000 from Roadships (affidavit of Johnathon Peter Macarthur, Annexure JPN-1at p.77, 78). In addition Mr Tree has shown occasions where Roadships has breached s.728(1)(c) of the Corporations Act which has not been the basis of any prior proceedings brought by
Mr Tree against Roadships Logistics in the following ways:
a)Roadships indicated in its Offer Information Statement that Mr Nugent would be the Chairman and Chief Executive Officer of Roadships;
b)Mr Nugent was Chairman and Chief Executive Officer at the time he made his application for shares but was subsequently moved from those positions immediately before Roadships resolved to accept Mr Tree’s application for 200,000 shares.
c)Roadships at no time provided Mr Tree with the supplementary or replacement Offer Information Statement revealing the removal of Mr Nugent.
d)Roadships used funds in a manner otherwise than that which he represented in his Offer Information Statement. This is supported by the affidavit of Michael Nugent sworn 6 May 2009 at paragraphs 15,16,17 and 19.
In Cadence Asset Management Pty Ltd v Concept Sports Ltd [2005] FCAFC 265 per Merkel, Weinberg and Kenny JJ at [36] their Honours stated:
…One of the objects of conferring an entitlement on investors to recover the loss they suffered from the company that issued the prospectus is to ensure full disclosure in offer documents or prospectuses.
In that case the Court held that s.729 of the Corporations Act confers a general right to recover losses from the company that issues the prospectus. Mr Tree has indicated he relied on the representations in the Offer Information Statement in all of his three affidavits that have been filed in these proceedings and read. He has also indicated clearly that as a result of Roadship’s misleading and deceptive conduct in breach of s.728 of the Corporations Act he suffered loss and damage in excess of $200,000. Mr Cassimatis submits that the merits of
Mr Tree’s claim had not been considered before because the application or the proceedings had never been brought.
In the decision Pollnow v Queensbro Pty Ltd (1988) 217 ALR 49 His Honour stated held that in satisfying the Court that there is a bona fide cross claim, cross demand or set off the applicant debtor must show that he has a prima facie case or in other words that there is a real possibility that the debtor’s claim will ultimately be established.
In Glew v Harrowell [2003] FCA 373 per Lindgren J stated:
[10] In Brink Lockhart J said (at 141) that the Court is not required to "undertake a preliminary trial of the counter-claim, set-off or cross demand". But, clearly, the application of the criteria above requires the Court to make some kind of preliminary assessment, though obviously not to determine the counter-claim, set-off or cross demand finally. And in Guss v Johnstone (2000) 171 ALR 598, Gleeson CJ, Gaudron, McHugh, Kirby and Callinan JJ stated (at 606):
"[40] The state of satisfaction referred to in s40(1)(g), and s41(7), involves weighing up considerations as to the legal and factual merit of the claim relied upon by the debtor, and the justice of allowing the bankruptcy proceedings to go ahead or requiring them to await the determination of the claim."
[11] Plainly, in order to "satisfy" the Court for the purposes of para40(1)(g), the debtor is not required to prove, as on a final hearing, the asserted entitlement to recover from the creditor. Accordingly, evidence tendered on an application to set aside is to be tested for admissibility, not as if the proceeding were one in which the debtor's claim was being finally determined, but by reference to the question whether the Court should be satisfied that the debtor has a claim deserving to be finally determined.
Mr Cassimatis submits that given that Mr Tree has identified various clear examples where Roadships and its directors has breached s.728 and s.729 amongst other obligations which has caused Mr Tree to have lost in excess of $200,000 the Court should be satisfied that Mr Tree has a prima facie case.
In the decision of Cameron v Cole [1944] 68 CLR 571 the Court held it was not necessary for a debtor to establish that his set off was valid or was likely to be successful but it was only necessary for him to establish he was entitled to litigate.
The fourth basis of opposition was that there was no appeal filed from the orders of His Honour Barrett J decision of 28 September 2007. The reason for that is that there is no obligation for Mr Tree to have done so under the provisions of the Bankruptcy Act. Any appeal would have been whether His Honour properly reached a conclusion that there was not a genuine dispute and accordingly Mr Tree would not brought an appeal.
The fifth basis of opposition is that there was no stay of execution of the judgment order on which the Bankruptcy Notice is based and that the judgment debt remains entirely unsatisfied. Mr Cassimatis submits that Mr Tree filed an application for a stay of execution of the Local Court cost judgment on 12 December 2008 and is waiting for the outcome of that application. The failure to obtain a stay of judgment ought to fail to satisfy the judgment debtor does not create a bar to an application pursuant to s.40(1)(g) of the Act. In circumstances where Mr Tree has a prima facie claim or cross demand in excess of $200,000 that he could have set up in the Supreme Court proceedings or the Local Court proceedings, the Bankruptcy Notice should be set aside.
Respondent’s submissions
Mr Ivantsoff submits that the respondent’s position is that Mr Tree has failed to make out a prima facie case on the evidence before the Court and in reaching that decision the Court should make two enquiries.
a)The use of the evidence that has been file and read on behalf of the applicant; and
b)An analysis of s.728 of the Corporations Act under which the cross-claim is alleged to exist.
In respect to the first issue the first affidavit filed by Mr Tree sworn
27 October 2008 reveals that he relied on the Statement in the Offer Document and that statement did not come true. In paragraph four
Mr Tree says in about 2006 he obtained a copy of an Offer Information Statement and that he completed an application for, subscribed and drew a bank cheque for $200,000 on the account of Tree Superannuation Funds made payable to Roadship Logistics and that the cheque was sent. Mr Tree states that he was never provided with a supplementary Offer Information Statement setting out the fact that
Mr Nugent was removed. Had it not been for the fact was intended to be the Chairman and CEO of Roadships Mr Tree would not have applied for the issue of any shares in Roadships.
Mr Ivantsoff submits that it was claimed that there was an Offer Information Statement that was relied upon and that the relevant reliance is said to have been Mr Nugent’s existence of Chairman and Chief Executive Officer which led to the payment of $200,000.
Mr Ivanstoff submits that these items did not disclose a cause of action although it is claimed on behalf of the applicant that the cause of action arose because of four particulars being:
a)the Roadships indicated that Mr Nugent was the Director and Chairman and CEO;
b)that he was removed;
c)that no Supplementary Information Statement was offered; and
d)the funds were used otherwise in accordance with the Offer Information Statement.
Mr Ivanstoff submits that in relation to the reliance of Mr Nugent’s proposed appointment as Chief Executive and Chairman it is instructive to consider s.728 of the Corporations Act which is relied upon by the applicant. Section 728 states:
Misstatement in, or omission from, disclosure document
Misleading or deceptive statements, omissions and new matters
(1) A person must not offer securities under a disclosure document if there is:
(a) a misleading or deceptive statement in:
(i) the disclosure document; or
(ii) any application form that accompanies the disclosure document; or
(iii) any document that contains the offer if the offer is not in the disclosure document or the application form; or
(b) an omission from the disclosure document of material required by section 710, 711, 712, 713, 714 or 715; or
(c) a new circumstance that:
(i) has arisen since the disclosure document was lodged; and
(ii) would have been required by section 710, 711, 712, 713, 714 or 715 to be included in the disclosure document if it had arisen before the disclosure document was lodged.
Note 1: The person may make further offers after making up the deficiency in the current disclosure document by lodging a supplementary or replacement document.
Note 2: See sections 731, 732 and 733 for defences.
Note 3: Section 995 imposes liabilities in respect of other conduct related to the offering of the securities.
Forecasts and other forward‑looking statements
(2) A person is taken to make a misleading statement about a future matter (including the doing of, or refusing to do, an act) if they do not have reasonable grounds for making the statement. This subsection does not limit the meaning of a reference to a misleading statement or a statement that is misleading in a material particular.
Offence if statement, omission or new matter materially adverse
(3) A person commits an offence if they contravene subsection (1) and:
(a) the misleading or deceptive statement; or
(b) the omission or new circumstance;
is materially adverse from the point of view of an investor.
Mr Ivanstoff argues that s.728 demonstrates that a party needs to take a number of additional steps to establish a prima facie case on the basis that they read a statement, they relied on it and as a consequence suffered a loss. It is argued that Mr Tree’s first affidavit does not provide full details to establish his claim and that is where s.728 of the Corporations Act comes into play. Mr Ivanstoff argues that the only relevant provision that could be applied in this case based on the way Mr Cassimatis has developed his argument are sub-paragraphs (b) and (c). Plainly the statement that Mr Nugent would be the Chairman and Chief Executive Officer when they were made in the disclosure statement were not misleading and deceptive and the parties acknowledge that common ground. So the fact that Mr Nugent’s name is recorded as CEO in the disclosure document is not of itself misleading and cannot be misleading under any circumstances. What happened on the facts thereafter was that Mr Nugent was removed. Consequently the only relevant provision under s.728 that is applicable is s.728(1)(b) being an omission. Therefore, once Roadships became aware that Mr Nugent would no longer be the Chief Executive Officer, Roadships should have rectified that alleged omission and failed to do so. Section 728(1)(b) deals with the admission.
Mr Ivanstoff submits that s.728(1)(c) deals with a new circumstance that has developed since the disclosure document was lodged and would have required rectification under ss.710-715 of the Corporations Act. Section 710 sets out the contents that is required to be included in a disclosure document. It states that a prospectus for a body of securities must contain all the information that investors and their professional advisors would reasonably require to make an informed assessment of the matters set out in the table. However, the content of the statement only extends to items which it is reasonable for investors and their professional advisors to expect to find and only if a person whose knowledge is relevant actually knows the information or reasonably expected to obtain the information.
Significantly in the table in s.710 there is no requirement to disclose the name of the Chief Executive Officer or Chairperson. Sub-section 2 goes on to say that in citing what information should be included in sub-section 1 it is necessary to have regard to the nature of the securities and the matters that likely investors may reasonably be expected to know. That wording clearly establishes an objective test for what should be put in a prospectus.
Mr Ivanstoff submits that Mr Tree’s evidence is entirely subjective. He claims that because Mr Nugent was going to be CEO he decided to invest. However, there is no evidence that a reasonable investor or a likely reasonable investor may be likely to expect notification of a name change or a change of personnel at the level of CEO and Chairman. On the basis of s.710 it is plain that the omission or the rectification was not required or necessary and there can be no breach of s.728 as a result. In respect to s.711 which sets out the specific disclosures required in the contents of a prospectus again there is no requirement to include the name of the CEO or Chairperson. Section 711 merely deals with related party interests. Similarly, ss.712, 713, 714, 715 there is no relevant omission on which Mr Tree can rely to establish a misleading or deceptive conduct claim under s.728. There is no obligation to rectify or inform potential investors in a change of personnel.
In support of this argument Mr Ivanstoff referred the Court to the decision in Roadships Logistics Ltd v Tree (supra) at p.671 where His Honour Barrett J dealt with the relevant test when it comes to disclosure in the context of s.724 of the Corporations Act which deals with misleading and deceptive conduct. At [8] His Honour stated:
[8] The defendant says that the newly arising misleading or deceptive statement or the new circumstance represented by the removal of Mr Nugent on 27 March 2006 “was materially adverse from the point of view of an investor”, that being a form of words appearing in both s 724(1)(c) and s 724(1)(d). The defendant also says that the plaintiff knew of the materially adverse change or event. These contentions depend upon objective assessment in two areas, and I emphasise that in my view the "investor" referred to in the expression "is materially adverse from the point of view of an investor" is, if you like, a hypothetical reasonable investor, not a particular idiosyncratic investor. In other words, the test is an objective test: see, in a comparable context, the reference by Bryson J in ICAL Ltd v County Natwest Securities Australia Ltd (1988) 39 NSWLR 214 to “[t]he shareholder whom I should hypothesise for the purpose of materiality”.
Then His Honour goes on in paragraph [10] to deal with the sort of evidence that would be required for a person in Mr Tree’s position to discharge the onus set by that test. His Honour says:
[10] It is obvious that an assessment of this kind could not be made in a factual vacuum. To put the matter simply, there would be a difference between the case of dismissal and departure of a wise, enlightened and skilful officer and the case of dismissal and departure of a bumbling, inept and unskilful officer. In short, a factual inquiry would be necessary to decide whether the event of Mr Nugent's dismissal and departure was an event triggering s 724(1).
Mr Ivanstoff submits that there is no evidence before the Court as to Mr Nugent’s particular skills or whether he would be a good CEO or otherwise. There is no evidence as to what a reasonable investor in the circumstances of Mr Tree might have been interested in. It is submitted that the way this case has been presented, the Court is being invited to accept that Mr Tree’s subjective state of mind is sufficient to give rise to a cause of action under s.728 of the Corporation Act.
Mr Ivanstoff submits that there is no need for the Court to go further than the first affidavit sworn by Mr Tree as the second and third affidavits do not take Mr Tree’s case any further. Those subsequent affidavits do no more than repeat the assertions that Mr Tree relied on. In respect to the argument that the funds being raised from the offer being used in a manner different from the way in which the Offer Information Statement said they would be used cannot be misleading or deceptive in any context. Under the provisions of s.728 it is only whether there is permission to notify that gives rise to a potential cause of action. Within the relevant provisions of s.710 through to s.715 there is nothing that would require a notification of this nature to be made nor is there any genuine cross claim set off or cross demand arise.
Mr Ivanstoff referred the Court to the decision in Brink, Re; Ex parte Commercial Banking Co of Sydney Ltd (1980) 44 FLR 135 per Lockhart J where His Honour made some comments about circumstances in which a Bankruptcy Notice can be set aside and importantly notes that it can be set aside provided that the debtor is acting bona fide and with due diligence. The circumstances in the matter before this Court is that Mr Tree filed his statutory demand on 28 August 2007. His Honour Barrett J set aside that statutory demand of 28 September 2007: Roadship Logistics v Tree (supra). In the second affidavit of Mr Tree sworn 20 November 2008 he deposes to his intention to commence an action forthwith to recover the $200,000. As at the date of this hearing no evidence has been tendered to indicate any action to recover that money has been taken. It is argued that Mr Tree is not acting bona fide or with due diligence.
Consideration
The argument advanced on behalf of Mr Tree was that after reading the Offer Information Statement dated 6 December 2005 issued by Roadships Logistics Ltd he applied for 200,000 shares.
The coversheet on the statement contains the following information:
THIS OFFER IS NOT UNDER WRITTEN.
This Offer Information Statement is not a Prospectus within the meaning of the Corporations Act 2001 and has a lower level of disclosure requirements than a Prospectus.
It is important that prospective investors and Shareholders read this Offer Information Statement in its entirety and seek professional investment advice before accepting the Offer.
(Affidavit of Brian Tree sworn 12 December 2008, page 4)
The use of an Offer Information Statement of Roadships Logistics Ltd complies with s.709(3) of the Corporations Act in that the amount sought to be raised is less than $5 million.
In section four of the Offer Information Statement headed “The Company and its Business” the introduction states:
…Roadships combines the latest in high speed vessel design, technology, docking systems, cargo logistics and systems management to deliver the most effective freight delivery system developed in decades.
This section then describes a ‘Nestable Trailer Patent’ in the following terms:
This patent relates to a trailer for use with a prime mover, in particular, the patent concerns trailers that are nestable and may be moved with a single prime mover.
In section 6 of the Offer Information Statement headed ‘Investment Risks’ it states:
The shares offered under this OIS should be considered speculative because of the nature of the company’s business. Whilst the directors recommend the offer, there are however numerous risk factors involved. The following is a summary of the more material matters to be considered.
At 6.4 – ‘Management Performance / Reliance on Key Personnel’ states:
The ultimate success of the Company will depend on the performance of its management team. The loss of key personnel could have an adverse effect on the Company’s business operating results and financial performance.
In section eight of the Offer Information Statement headed ‘Additional Information’ at 8.2 ‘Additional Disclosure’ the following note appears:
On 8 November 2002, the ASIC obtained final orders in the Supreme Court of Queensland against Roadships Ltd in relation to the fundraising conducted by it in contravention of the Corporations Act of approximately $1.57 million to an offer of shares. Roadships Ltd is a different entity to Roadships Logistics Ltd. Michael Nugent was a director of Roadship Ltd during the period that the fundraising was conducted. Michael Nugent appointed administrators to Roadships Ltd on 6 May 2002 and retired as director of Roadships Ltd on 21 August 2002.
On 10 June 1994 and 21 January 1995, the Perth Court of Petty Sessions found Oliver Douglas contravened s.229(2) of the Company’s (WA) Code in relation to Sun Sovereign Ltd..
The Director’s Report indicates that Roadships Logistics Ltd has acquired the original patent for Nestable Trailers. The provisional patent claims the ability to compact three full scale road transport trailers into one for shipment back to base or loading facility. Three directors namely Michael Peter Nugent, Johnathon Peter Macarthur and Oliver George Douglas are identified as the directors. The information in respect of Michael Peter Nugent, Chairman / Chief Executive Officer are:
Qualification / Member of Corporate Lawyers Association of Australian Institute of Company Directors Member of the Short Sea Shipping (USA)
Experience – Executive Director since October 2000 – Chief Executive Officer since 2002 completed a discipline with Cummings Diesel Sales and Services. Currently a director of Roadships Australia Pty Ltd.
Mr Macarthur is a Chartered Accountant and Mr Douglas is a merchant banker. No further information in respect of experience or skills in relation to Mr Nugent is contained in the Offer Information Statement.
I am satisfied that there is nothing in the Offer Information Statement that would establish for a reasonable investor or a likely reasonable investor that only one of the directors either:
a)possessed particular experience and skill in the area of the establishment and development of an infant structure associated with an emerging technology specifically related to Road Haulage Techniques; or
b)that any single director possessed management or financial expertise not possessed by the other two directors.
The Offer Information Statement does not identify Mr Nugent or the other two directors as having performed a particular professional or advisory function. Consequently, a reasonable investor would not be operating on the assumption that any director possessed some specialised knowledge or skill relevant to the development of this company.
I acknowledge the submissions by Mr Ivanstoff that the position of the Chairman and Chief Executive Officer are not referred to in ss.710-715 and the consequences of those sections on 728. However, Mr Nugent is also a director and this is confirmed in the Offer Information Statement, section 2 Corporate Directory under the sub-heading Directors. In Annexure “A” being the director’s report which states:
The directors present their report on the company and its controlling entities for the financial year ending June 2005.
Directors
The name of the directors in office at the time during or since the year are:
Michael Peter Nugent (Chairman / Chief Executive Officer)
Jonathan Peter Macarthur (Chief Financial Officer)
Oliver George Douglas (Non-executive Director)
Directors have been in office since the start of the financial year until the date of this report unless otherwise stated. Further information concerning the directors contained in the report under the sub-heading “Information on Directors” and again under “Meeting on Directors”.
Nowhere in the Offer Information Statement or Directors Report is there any notation indicating that Mr Nugent was other than a full director with full voting rights.
Pursuant to s.711(4) of Division 4 of the Corporations Act [in relation to whom disclosures are to be made] disclosures need to be made under sub-sections (2) and (3) in relation to:
a)Any director or and proposed director of the body (section 728 states:
Misstatement in, or omission from, disclosure document
Misleading or deceptive statements, omissions and new matters
(1) A person must not offer securities under a disclosure document if there is:
(a) …
(b) …
(c) a new circumstance that:
(i) has arisen since the disclosure document was lodged; and
(ii) would have been required by section 710, 711, 712, 713, 714 or 715 to be included in the disclosure document if it had arisen before the disclosure document was lodged.
Note 1: The person may make further offers after making up the deficiency in the current disclosure document by lodging a supplementary or replacement document.
Note 2: See sections 731, 732 and 733 for defences.
Note 3: Section 995 imposes liabilities in respect of other conduct related to the offering of the securities.
Forecasts and other forward‑looking statements
(2) A person is taken to make a misleading statement about a future matter (including the doing of, or refusing to do, an act) if they do not have reasonable grounds for making the statement. This subsection does not limit the meaning of a reference to a misleading statement or a statement that is misleading in a material particular.
Offence if statement, omission or new matter materially adverse
(3) A person commits an offence if they contravene subsection (1) and:
(a) the misleading or deceptive statement; or
(b) the omission or new circumstance;
is materially adverse from the point of view of an investor.
The Offer Information Statement dated 6 December 2005 was made available to potential investors at about that time. On about 24 January 2006 Mr Tree applied for the 200,000 shares which were issued on
27 March 2006. On the same date Mr Nugent was removed as a director of the company and there is no evidence before the Court that Roadships Logistics Ltd issued with a supplementary or replacement Offer Information Statement.
On this information alone, Roadships Logistics Ltd is in breach. I note that a person or body may make further offers after making up the deficiency in the current disclosure statement by lodging a supplementary or replacement document. There is no evidence that this has occurred. I am satisfied that Mr Tree has a right to recover for loss or damage resulting from the contravention.
I note there are five bases on which Roadships oppose Mr Tree’s application being:
a)the action was not available in the Supreme Court proceedings (1818 of 2008);
b)the issue of estoppel is only relevant in circumstances where there has been a final judgment on the merits of the cause of action;
c)
that there is insufficient evidence to support the claim in
Mr Tree’s affidavit sworn 21 November 2000;
d)no appeal filed from the orders of His Honour Barrett J decision of 28 December 2007;and
e)no stay of execution of the local judgment order on which the bankruptcy notice is based.
I am satisfied that none of the above bases of objection can be sustained and I accept the arguments submitted by Mr Cassimatis in his submissions.
I acknowledge the submissions made by Mr Ivanstoff that Mr Tree has deposed his intention to commence an action for the recovery of the $200,000 by commencing proceedings against Roadships Logistics Ltd for damages pursuant to the Trade Practices Act 1974 (Cth) and / or Part 2 of the Australian Securities & Investment Commission Act 2001(Cth) and / or ss.728, 729 of the Corporation Act 2001. It is not in dispute that this has not occurred. However, I understand the position that Mr Tree now finds himself in and because of his impuniousity may not be able to commence further proceedings at this time.
On the information before this Court I am satisfied that Mr Tree has a cross claim, counter claim or set off equal to or greater than the amount contained in the Bankruptcy Notice (NN 365 of 2008) and that notice should be set aside.
I certify that the preceding fifty-four (54) paragraphs are a true copy of the reasons for judgment of Lloyd-Jones FM.
Associate:
11 September 2009
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