Wright v De Kauwe
[2023] WASCA 42
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
TITLE OF COURT : THE COURT OF APPEAL (WA)
CITATION: WRIGHT -v- DE KAUWE [2023] WASCA 42
CORAM: MURPHY JA
MITCHELL JA
HEARD: 24 FEBRUARY 2023
DELIVERED : 13 MARCH 2023
FILE NO/S: CACV 25 of 2022
BETWEEN: MATTHEW WRIGHT
Appellant
AND
BRENDAN JAMES DE KAUWE
First Respondent
HAIM COHEN
Second Respondent
ILAN SAAD
Third Respondent
GALIT ASSAF SHENHAR
Fourth Respondent
ERAN GILBOA
Fifth Respondent
BENJAMIN KARASIK
Sixth Respondent
IAN CRAIG PAMENSKY
Seventh Respondent
ON APPEAL FROM:
Jurisdiction : SUPREME COURT OF WESTERN AUSTRALIA
Coram: LE MIERE J
Citation: DE KAUWE -v- COHEN [No 4] [2022] WASC 35
File Number : CIV 1512 of 2018
Jurisdiction : SUPREME COURT OF WESTERN AUSTRALIA
Coram: LE MIERE J
Citation: DE KAUWE -v- COHEN [No 4] [2022] WASC 35 (S)
File Number : CIV 1512 of 2018
Catchwords:
Appeal - Practice and procedure - Application for stay of enforcement of primary orders pending determination of an appeal from the primary decision - Civil Judgments Enforcement Act 2004 (WA) s 15 - Where appeal said to be rendered nugatory by reason of the prospect that money paid may not be recoverable from first respondent if appeals succeed - Whether special circumstances - Whether appeals have reasonable prospects of success - Whether balance of convenience favoured stay of enforcement - Turns on own facts
Legislation:
Civil Judgments Enforcement Act 2004 (WA), s 15
Result:
Applications for suspension orders granted in part
Applications to amend granted
Category: B
Representation:
Counsel:
| Appellant | : | C P K Russell |
| First Respondent | : | A J Tharby |
| Second Respondent | : | J D MacLaurin SC and S D Hubbard |
| Third Respondent | : | J D MacLaurin SC and S D Hubbard |
| Fourth Respondent | : | J D MacLaurin SC and S D Hubbard |
| Fifth Respondent | : | J D MacLaurin SC and S D Hubbard |
| Sixth Respondent | : | J D MacLaurin SC and S D Hubbard |
| Seventh Respondent | : | F P Merenda |
Solicitors:
| Appellant | : | Wotton + Kearney Lawyers (Perth) |
| First Respondent | : | Bennett |
| Second Respondent | : | DLA Piper Australia - Perth |
| Third Respondent | : | DLA Piper Australia - Perth |
| Fourth Respondent | : | DLA Piper Australia - Perth |
| Fifth Respondent | : | DLA Piper Australia - Perth |
| Sixth Respondent | : | DLA Piper Australia - Perth |
| Seventh Respondent | : | Jackson McDonald |
Case(s) referred to in decision(s):
Eastland Technology Australia Pty Ltd v Whisson [2003] WASCA 307; (2003) 28 WAR 308
Fairfax Media Publications Pty Ltd v Voller [2021] HCA 27; (2021) 392 ALR 540
Spiers Earthworks Pty Ltd v Landtec Projects Corporation Pty Ltd [2010] WASCA 226
Tradesman Technologies Pty Ltd v Ameduri [2012] WASCA 168
Washburn Pty Ltd v Cardaci [2022] WASCA 43
JUDGMENT OF THE COURT:
Summary
We are considering applications by the appellant and the second to seventh respondents, who were the defendants in the primary proceedings. We shall refer to them collectively as the defendants. The defendants have applied for suspension of the enforcement of final orders made by the trial judge, Le Miere J, in the primary proceedings pending determination of the appeal and cross-appeals. His Honour published his Primary decision (as to liability and damages) on 9 February 2022,[1] and a Supplementary decision (as to interest and costs) on 16 February 2022.[2] Final orders in the primary proceedings were made on 16 February 2022, awarding damages to the first respondent (Dr de Kauwe) for defamation and ordering the defendants to pay his costs of the primary proceedings (primary orders).
[1] De Kauwe v Cohen [No 4] [2022] WASC 35 (Primary decision).
[2] De Kauwe v Cohen [No 4] [2022] WASC 35 (S) (Supplementary decision).
For the following reasons we would make orders suspending the enforcement of the primary orders awarding damages to Dr de Kauwe pending the determination of the appeal and cross-appeals.
Background
The primary proceedings concerned defamatory statements made during a heated dispute between directors of eSense Lab Ltd (eSense) in relation to the management of that company.
Management of eSense
eSense, which was incorporated in Israel in April 2016, developed technology for the reconstruction of naturally occurring compounds which account for the flavour and fragrance of rare or high value plants. Its initial focus was on the cannabis plant. eSense is a registered foreign company in Australia which was listed on the Australian Securities Exchange (ASX) in February 2017.[3]
[3] Primary decision [30].
Dr de Kauwe was the plaintiff in the primary proceedings and is the first respondent to this appeal. He was a director of Otsana Pty Ltd, which operated a corporate advisory business that provided services in corporate restructuring and recapitalisations of ASX listed companies. Otsana was engaged by eSense to provide corporate advisory services in October 2016. Dr de Kauwe was a director of eSense from 1 October 2016 to 29 March 2018.[4]
[4] Primary decision [15], [17] - [18], [28] - [29], [33].
Dr de Kauwe was also a director of several ASX listed companies involved in the biotechnology area. One of those companies was Race Oncology Ltd, a company that produced innovative cancer drugs. Dr de Kauwe was a director of Race Oncology from 21 April 2016 until he resigned at the request of the board of that company on 4 April 2018.[5]
[5] Primary decision [16], [19].
Mr Cohen, Mr Saad, Ms Shenhar, Mr Gilboa and Mr Karasik were the first to fifth defendants in the primary proceedings and are the second to sixth respondents to the appeal. They were directors of eSense at relevant times, who were domiciled and resident in Israel.[6] We will refer to them collectively in these reasons as the director defendants.
[6] Primary decision [21] - [25].
Mr Pamensky was the sixth defendant in the primary proceedings and is the seventh respondent to this appeal. He is a chartered accountant resident in Victoria who was the company secretary for eSense.[7]
[7] Primary decision [26].
Mr Wright was the seventh defendant in the primary proceedings and is the appellant in this appeal. He is a resident of Victoria who was employed by NWR Communications Pty Ltd (NWR), which was engaged to provide media and investor relations services to eSense.[8]
Trial judge's findings as to actionable defamation
[8] Primary decision [27].
The trial judge found that Dr de Kauwe had been defamed by imputations contained in the following documents:
1.A letter from Mr Cohen, Mr Gilboa and Mr Saad to Dr de Kauwe on 5 February 2018 (5 February Letter),[9] which the trial judge found was published by Mr Saad to Mr Pamensky and Mr Megson (another eSense director) by email on the same day.[10]
2.A letter from Mr Cohen to Dr de Kauwe on 15 February 2018 (15 February Letter),[11] which the trial judge found was published by Mr Cohen to Mr Pamensky and Mr Megson.[12]
3.An announcement by eSense to the ASX published on 13 March 2018 (First ASX Announcement),[13] which the trial judge found was published by Mr Pamensky and all the director defendants but was not published by Mr Wright.[14]
4.An announcement by eSense to the ASX published on 21 March 2018 (Second ASX Announcement),[15] which the trial judge found was published by all defendants.[16]
[9] Primary decision [104] - [105].
[10] Primary decision [431].
[11] Primary decision [151].
[12] Primary decision [588].
[13] Primary decision [195] - [199].
[14] Primary decision [734] - [758].
[15] Primary decision [229] - [230].
[16] Primary decision [943] - [962].
In his appeal, Mr Wright challenges the trial judge's finding that he was party to the publication of the Second ASX Announcement.[17] Otherwise, no party challenges the trial judge's finding that the publication of the above documents constituted an actionable defamation by the defendants to which the defendants had no defence.
Assessment of damages
[17] Grounds 1 and 2 of the appellant's appeal.
The trial judge assessed Dr de Kauwe's general damages as follows:
1.$10,000 awarded against Mr Saad in respect of the publication of the 5 February Letter;[18]
2.$20,000 awarded against Mr Cohen in respect of the publication of the 15 February Letter;[19]
3.$40,000 awarded against the director defendants and Mr Pamensky in respect of the publication of the First ASX Announcement;[20]
4.$120,000 awarded against all defendants in respect of the publication of the Second ASX Announcement.[21]
[18] Primary decision [1156] - [1157].
[19] Primary decision [1158].
[20] Primary decision [1176].
[21] Primary decision [1176].
The trial judge also made an award of $30,000 in aggravated damages jointly against the director defendants.[22]
[22] Primary decision [1177].
The trial judge inferred that both the First and Second ASX Announcements materially contributed to Dr de Kauwe not being re‑elected as a director at eSense's 2018 annual general meeting (AGM).[23] The trial judge was unable to find that Dr de Kauwe would have remained a director beyond the 2019 AGM.[24] The judge awarded special damages of $31,500 against all defendants for Dr de Kauwe's after-tax loss of director's fees from eSense in the 12 months between the 2018 AGM and the 2019 AGM.[25]
[23] Primary decision [1069], [1072].
[24] Primary decision [1071].
[25] Primary decision [1070] - [1072], [1149].
The trial judge found that Dr de Kauwe would not have resigned as a director of Race Oncology if the board of that company had not requested him to do so, and the board would not have made the request but for the ASX Announcements.[26] The judge found that it was reasonable for Dr de Kauwe to resign as a director of Race Oncology when requested to do so. The judge found that the First and Second ASX Announcements caused Dr de Kauwe's loss of director's fees resulting from his removal as a director of Race Oncology.[27] His Honour could not be satisfied that Dr de Kauwe would have remained on the Race Oncology board beyond the 2020 AGM.[28] His Honour assessed Dr de Kauwe's after-tax loss of director's fees between 9 April 2018 and approximately 22 November 2020 to be $79,380.[29] Special damages in that amount was awarded against all defendants.
[26] Primary decision [1076], [1089], [1098].
[27] Primary decision [1098] - [1100].
[28] Primary decision [1103].
[29] Primary decision [1104], [1149].
The trial judge also found that the publication of the ASX Announcements caused Dr de Kauwe to lose the opportunity to acquire options to acquire shares in Race Oncology. Those options were issued to directors at the 2019 AGM.[30] The trial judge found that, if the defendants had not published the ASX Announcements, Dr de Kauwe would probably have remained a director of Race Oncology at that time.[31] If he had remained a director at that time, Dr de Kauwe would probably have received options to purchase 1 million shares at $0.25 a share expiring within two years from the date of issue.[32] Dr de Kauwe therefore proved that he had lost a valuable opportunity.[33]
[30] Primary decision [1106].
[31] Primary decision [1119].
[32] Primary decision [1106] - [1107], [1120].
[33] Primary decision [1122].
The trial judge found that, if Dr de Kauwe had exercised 1 million options at an exercise price of $0.25 and sold them at the price at which they were trading on 8 February 2021, $2.67, he would have made a profit of $2,420,000.[34] However, this amount needed to be reduced for contingencies by reference to six uncertainties which the judge identified.[35] The judge found that the probability that Dr de Kauwe would have received options with that value, or have received the options and realised that value, was low because of the many uncertainties, but was not so low to be regarded as speculative.[36] The judge valued the loss of opportunity at $200,000.[37]
[34] Primary decision [1126].
[35] Primary decision [1123].
[36] Primary decision [1128].
[37] Primary decision [1129].
In supplementary reasons, the trial judge held that interest should be awarded on general damages and aggravated damages at a rate of 4.5% per annum from the date of publication to the date of judgment.[38] The judge held that pre-judgment interest should be awarded on the damages for economic loss at the rate of 6% per annum from the midpoint between the period over which the loss occurred and the date of judgment.[39]
[38] Supplementary decision [6].
[39] Supplementary decision [8].
The judge accepted Dr de Kauwe's calculations of this interest and made awards of the following amounts in the primary orders:[40]
[40] Primary orders.
Order
Publication
Liable defendant(s)
Nature of award
Amount
1
15 February Letter
Mr Cohen
General damages ($20,000) and interest ($3,604.93)
$23,604.93
2
5 February Letter
Mr Saad
General damages ($10,000) and interest ($1,814.79)
$11,814.79
3
First ASX Announcement
Mr Pamensky and all director defendants
General damages ($40,000) and interest ($7,081.64)
$47,081.64
4(a)
Second ASX Announcement
All defendants
General damages ($120,000) and interest ($21,216.57)
$141,126.57
4(b)
First and Second ASX Announcements
All defendants
Special damages for loss of eSense director's fees ($31,500) and interest ($6,405.29)
$37,905.29
4(c)
First and Second ASX Announcements
All defendants
Special damages for loss of Race Oncology director's fees ($79,380) and interest ($12,135.35)
$91,515.35
4(d)
First and Second ASX Announcements
All defendants
Special damages for loss of opportunity to acquire Race Oncology shares ($200,000) and interest ($14,827.40)
$214,827.40
4
All defendants
Total of 4(a) - 4(d) above
$485,374.61
5
First and Second ASX Announcements
All director defendants
Aggravated damages ($30,000) and interest ($5,266.85)
$35,266.85
The only challenges to the trial judge's assessment of damages are:
1.Dr de Kauwe's cross-appeal against the decision to value the lost opportunity to obtain options in Race Oncology shares at only $200,000;[41]
2.The director defendants' cross-appeal against the trial judge's finding that the loss of director's fees from eSense was caused by the First and Second ASX Announcements;[42] and
3.The director defendants' and Mr Pamensky's cross-appeals against the trial judge's finding that Dr de Kauwe lost the valuable opportunity to obtain options to purchase Race Oncology shares and that loss of opportunity was caused by the First and Second ASX Announcements.[43]
Costs of trial
[41] Ground 1 of the first respondent's cross-appeal.
[42] Ground 1 of the second to sixth respondents' cross-appeal.
[43] Ground 2 of the second to sixth respondents' cross-appeal; ground 1 of the seventh respondent's cross‑appeal.
Order 6 of the primary orders in effect required the defendants to pay Dr de Kauwe's trial costs with scale limits removed. Orders 7 and 8 required certain defendants to pay Dr de Kauwe's costs of particular hearings where costs had been reserved.
In making those orders, the trial judge concluded that Dr de Kauwe was the successful party and should have the costs of the action. His Honour did not consider it appropriate to award costs against Dr de Kauwe on issues on which he had failed.[44] There is no challenge on appeal to that aspect of the trial judge's decision (although the question may need to be revisited if the challenges to the awards of special damages succeed).
[44] Supplementary decision [46] - [59].
The trial judge then considered whether Dr de Kauwe unreasonably refused to accept a series of Calderbank offers made up to and including the first day of trial on 28 January 2021. His Honour found that Dr de Kauwe did not act unreasonably in failing to accept any of the Calderbank offers despite the monetary value of some of the offers being greater than the damages awarded. In reaching that conclusion, the trial judge had regard to the value of the apologies which were proffered compared to the vindication Dr de Kauwe obtained from the court's judgment.[45]
[45] Supplementary decision [68] - [74], [87], [95], [117], [132].
In the appeal, all of the defendants challenge the trial judge's conclusion that Dr de Kauwe did not unreasonably fail to accept any of the Calderbank offers.
Mr Wright contends that the trial judge erred in refusing to accept into evidence a Calderbank offer made by Dr de Kauwe on 27 January 2021.[46] Mr Wright argues that this led the trial judge to fail to take into account a material consideration when determining whether Dr de Kauwe unreasonably failed to accept offers made to him on 27 and 28 January 2021.[47] By reason of these errors, the trial judge failed to exercise the court's discretion in determining whether Dr de Kauwe's failure to accept the offers of 27 and 28 January were unreasonable.[48] Mr Wright contends that the trial judge ought to have found Dr de Kauwe's rejection of the offers of 27 and 28 January was unreasonable,[49] and that those offers were more favourable to Dr de Kauwe than the judgment he obtained.[50] If he fails on his substantive grounds but succeeds on the costs grounds, Mr Wright seeks orders that the defendants pay Dr de Kauwe's costs of the action up to 27 January 2021 and that Dr de Kauwe pay the defendants' costs thereafter (in each case with scale limits removed).[51]
[46] Ground 3 of the appellant's appeal.
[47] Ground 4 of the appellant's appeal.
[48] Ground 5 of the appellant's appeal.
[49] Ground 5 of the appellant's appeal.
[50] Ground 6 of the appellant's appeal.
[51] Pars 6 and 7 of the appellant's orders wanted.
The director defendants contend that the trial judge erred in finding that Dr de Kauwe's failure to accept an offer made by the director defendants on 14 October 2020 was not unreasonable.[52] They contend that the judge ought to have found that the refusal to accept that offer was unreasonable. They say that the trial judge should have ordered Dr de Kauwe to pay the director defendants' costs from 14 October 2020 on an indemnity basis,[53] or alternatively on a party-party basis with scale limits removed.[54] Alternatively the director defendants contend that the trial judge ought to have found that Dr de Kauwe's failure to accept offers made on 26, 27 and 28 January 2021 was unreasonable and awarded them costs on a party-party basis from the date of those offers.[55]
[52] Grounds 3.1 and 4.1 of the second to sixth respondents' cross-appeal.
[53] Ground 3.2 of the second to sixth respondents' cross-appeal.
[54] Ground 4.2 of the second to sixth respondents' cross-appeal.
[55] Ground 5 of the second to sixth respondents' cross-appeal.
Mr Pamensky contends that the trial judge erred in finding that offers made on 17 August 2020, 14 October 2020 and 26 - 28 January 2021 were less favourable to Dr de Kauwe than the judgment he obtained. Mr Pamensky contends that indemnity costs, alternatively party-party costs, should be awarded to Mr Pamensky from those dates.[56]
[56] Ground 2 of the seventh respondent's cross-appeal.
Like Mr Wright, the director defendants and Mr Pamensky also contend that the trial judge erred in refusing to accept into evidence a Calderbank offer made by Dr de Kauwe on 27 January 2021.[57]
[57] Ground 6 of the second to sixth respondents' cross-appeal; ground 3 of the seventh respondent's cross‑appeal.
The suspension applications
The defendants all seek orders suspending the enforcement of the primary orders awarding damages and costs against them. Mr Wright's application was filed on 14 December 2022, the director defendants' application was filed on 22 December 2022 and Mr Pamensky's application was filed on 21 December 2022. We shall refer to these applications in an appeal collectively as the Applications.
In broad terms, the defendants contend that, if a suspension is not granted, then the appeal may be rendered nugatory as it is likely Dr de Kauwe does not have sufficient assets to repay amounts of the primary judgment, should the appeals be successful.[58] The defendants' concern stems from Dr de Kauwe's disposition of assets together with a lack of revenue generating activity. The defendants contend that there is a real risk that, if damages and costs awarded in the primary proceedings are paid to Dr de Kauwe, they will not be recoverable by the defendants if any of the appeals are successful.
[58] Appellant's submissions, pars 27 - 28; second to sixth respondents' submissions, pars 6.2, 26.3; seventh respondent's submissions, par 43.
On 19 January 2023, we made interim orders vacating means inquiries in relation to the defendants which had been listed for 30 January 2023. We also ordered that the means inquiries be adjourned pending the determination of the Applications.
General principles
This court has power to grant an interim order suspending the enforcement of a judgment under s 15 of the Civil Judgments Enforcement Act 2004 (WA) if there are 'special circumstances' that justify doing so. For that purpose, ordinarily the applicant will need to show, among other things, that a suspension order is reasonably necessary to prevent the appeal being rendered nugatory, or that refusal of a suspension order could create practical difficulties in respect of the relief which may be granted on appeal.
In Tradesman Technologies Pty Ltd v Ameduri,[59] Pullin JA summarised the general principles governing the grant of a stay or the grant of a suspension order under s 15 of the Act:
(a)The successful litigant is ordinarily entitled to enforce a judgment pending the determination of any appeal.
(b)It is for the applicant for a stay to move the court to a favourable exercise of its discretion. Under s 15(3) this court may only make a suspension order if there are 'special circumstances' that justify doing so and in an application for a stay under the rules this is also a usual requirement.
(c)The central issue will be whether the grant of a stay is perceived to be necessary to preserve the subject matter or the integrity of the litigation or whether a refusal of a stay could create practical difficulties in respect of the relief which may be granted on appeal. This may shortly be described as requiring the court to consider whether the right of appeal will be rendered nugatory if a stay is not granted.
(d)If it can be demonstrated that the right of appeal will be rendered nugatory if a stay is not granted, the stay will generally still be refused unless it can be established that the appeal has ultimately reasonable prospects of success.
(e)Finally, the stay may still be refused where it appears that the balance of convenience does not lie in favour of the applicant where, for example, the grant of a stay will occasion hardship to the respondent which may not be alleviated by the terms upon which the stay may be granted.
[59] Tradesman Technologies Pty Ltd v Ameduri [2012] WASCA 168 [22], adopting Eastland Technology Australia Pty Ltd v Whisson [2003] WASCA 307; (2003) 28 WAR 308 [9].
One common way in which an appeal might be rendered nugatory if a stay or suspension order is not granted is where it can be demonstrated that there is a real prospect that, if the judgment sum is paid and yet the appeal succeeds, the respondent will not have the capacity to comply, or for some other reason might not comply, with an order requiring repayment of the judgment sum paid by the appellant.[60]
[60] Tradesman Technologies [24] - [26].
While those principles provide guidance in the exercise of the discretion, they are not inflexible or exhaustive, and at all times the ultimate question must be whether there are special circumstances to justify the court to order a suspension.[61]
[61] Washburn Pty Ltd v Cardaci [2022] WASCA 43 [14].
Prospect that Dr de Kauwe may not comply with a repayment order
The evidence before the court as to Dr de Kauwe's financial position does satisfy us that, if the judgment sum is paid and the appeal and cross‑appeals succeed, there is a real prospect that Dr de Kauwe will not have the capacity to comply with an order requiring repayment of the judgment sum paid by the defendants.
The defendants have filed affidavits deposing as to the results of their inquiries as to Dr de Kauwe's current financial position.[62] Dr de Kauwe has not sought to adduce any evidence of his financial position indicating that he will have the capacity to repay the judgment sum if a suspension order is not granted and the appeal and cross-appeals succeed.
[62] Affidavit of Mr Trent Andrew McCartney O'Neill, sworn on 14 December 2022 (First O'Neill Affidavit); affidavit of Ms Eva Lin, sworn on 21 December 2022 (Lin Affidavit); affidavit of Mr Simon David Hubbard, sworn on 22 December 2022 (First Hubbard Affidavit).
The defendants' ASIC, personal property securities and land title searches indicate that Dr de Kauwe is a shareholder and/or officer in a number of companies but that his only significant asset appears to be a townhouse located in Leederville of which he is a sole registered proprietor.[63] The townhouse is encumbered with a mortgage in favour of ANZ Bank on which Dr de Kauwe had indicated $310,000 was owing as of 22 April 2022.[64]
[63] First O'Neill Affidavit, par 8; Lin Affidavit, pars 28, 30; First Hubbard Affidavit, par 19.
[64] First O'Neill Affidavit, par 8, annexure TAMO-6; Lin Affidavit, pars 29, 33; First Hubbard Affidavit, par 19; affidavit of Mr Alexander James Tharby, sworn on 17 January 2023 annexure AJT-2, pages 5 - 6.
The defendants sought to adduce evidence as to the value of the townhouse derived from the Domain property website.[65] We would uphold Dr de Kauwe's objection to the admissibility of this evidence (which the defendants accepted in oral submissions). There is nothing to indicate that the estimate is made by a qualified valuer or to indicate the factual basis for the expressed opinion as to the value of the townhouse. However, the position in which that leaves the court is that there is no evidence as to the value of the townhouse but evidence that it is subject to a mortgage securing a significant debt.
[65] Lin Affidavit, par 32; First Hubbard Affidavit, par 19.
The defendants point to evidence which Dr de Kauwe gave at trial to the effect that he:[66]
1.had relinquished several directorships;
2.was receiving a reduced income from the remaining directorships;
3.had taken steps to liquidate his portfolio of shares and property over the last three years;
4.was not in a financial position to exercise the options he had in Race Oncology; and
5.was living off his assets at the time of giving evidence.
[66] First Hubbard Affidavit, par 19; First O'Neill Affidavit, pars 11 - 15; First O'Neill Affidavit, annexure TAMO-17.
The defendants also ask the court to infer, and we do infer, that Dr de Kauwe has incurred a significant costs liability to his legal representatives in the primary proceedings and on appeal. There is no evidence as to whether Dr de Kauwe has paid his own legal fees.
In our view this evidence indicates a real prospect that Dr de Kauwe will not have the capacity to comply with an order requiring repayment of the judgment sum.
Dr de Kauwe notes that he gave discovery of financial documents in the primary proceedings and the defendants have not sought to tender these into evidence. However, he has also not adduced evidence of the contents of those documents, which appear likely to be mainly of historical significance. We do not speculate as to the contents of documents discovered but not adduced in evidence. Nor, in the circumstances, do we draw any adverse inference against the defendants for failing to adduce evidence of those discovered documents.
We do not accept Dr de Kauwe's other submissions that the defendants have not established that he would not be able to repay the judgment or costs if the appeal and cross-appeals succeed. He criticises the limits to the searches undertaken by the defendants.[67] However, as Newnes JA noted in Spiers Earthworks Pty Ltd v Landtec Projects Corporation Pty Ltd,[68] in rejecting a similar submission in that case:
It is the case, as counsel for the respondent submitted, that the appellant bears the onus of establishing that a stay should be granted. But beyond publicly available information, the financial position of the respondent is not a matter to which the appellant can be expected to be privy and, despite request, the respondent has refused to disclose any information as to its assets and liabilities. The respondent cannot defeat the application simply by relying upon the inaccessibility of its financial affairs. In circumstances where, as I am satisfied is the case here, the appellant has adduced evidence which indicates that the respondent does not have the capacity to repay the money, it falls to the respondent, if it wishes to resist the application, to show that in fact it does have that capacity.
[67] First respondent's submissions, pars 19 - 25.
[68] Spiers Earthworks Pty Ltd v Landtec Projects Corporation Pty Ltd [2010] WASCA 226 [22].
Here, Dr de Kauwe is in the best position to adduce evidence of his own financial affairs. The fact that he has exercised his right not to do so is not a substitute for proof, by the defendants, of his likely incapacity to repay. However, the absence of evidence from Dr de Kauwe as to his financial affairs enables this court to more readily draw the inference as to that likely incapacity from the evidence which has resulted from the defendants' searches of publicly available records.
Whether appeal and defendants' cross-appeals will be rendered nugatory
In light of the above conclusion as to Dr de Kauwe's current financial position, we turn to consider whether in the absence of a stay the appeal will be rendered nugatory.
We accept that, in the absence of a stay, Mr Wright's appeal against the orders finding him liable for the publication of the Second ASX Announcement would be rendered nugatory if enforcement of order 4 of the primary orders against Mr Wright is not suspended. Involvement in the publication of the Second ASX Announcement was the only basis on which Mr Wright was found liable to pay damages to Dr de Kauwe. If Mr Wright's grounds of appeal challenging that finding succeed, then he will not be liable to pay any amount to Dr de Kauwe. If, in the meantime, Mr Wright is to pay to Dr de Kauwe the $485,374.61 required by order 4, then there is a real prospect that he will be unable to effectively enforce an order for repayment of that amount.
The position of the director defendants and Mr Pamensky is different, in that (putting aside issues of costs for the moment) their substantive grounds of cross-appeal challenge only aspects of the trial judge's award of special damages. If the director defendants' cross‑appeal were successful it would lead only to the setting aside of order 4(b) and 4(d) of the primary orders. Mr Pamensky's cross-appeal challenges only the award of damages in order 4(d) of the primary orders. Determination of the grounds of appeal against orders awarding damages provide no basis for suspending enforcement of orders 1 ‑ 3, 4(a), 4(c) or 5 of the primary orders against the director defendants or Mr Pamensky.
We are not persuaded that the director defendants' and Mr Pamensky's cross-appeals against the costs orders will be rendered nugatory if enforcement of the primary costs orders are not suspended. The costs ordered by the primary judge are not payable until they are assessed or agreed. The evidence is that Dr de Kauwe has not taken any steps to have his trial costs assessed. Given the length and complexity of the trial, it may be inferred that the assessment process itself will take some time. It is unlikely to be concluded before the hearing and determination of the appeals. While a sensible approach may be to await the outcome of the appeal before beginning the process of assessing trial costs, we are not persuaded that Dr de Kauwe should be shut out from beginning the assessment process if he chooses to do so.
However, we are persuaded that the cross-appeals against the costs orders will be rendered nugatory if the enforcement of the damages orders against the director defendants and Mr Pamensky is not suspended.
Although they have not descended to provide draft bills of costs, the defendants say that their litigation funder, Berkshire Hathaway Specialty Insurance, has incurred legal costs of approximately $2.618 million from about 27 January 2021.[69] The defendants point to the prospect that, if their appeal and cross-appeals against the costs orders are successful, Dr de Kauwe will be ordered to pay the defendants' costs from the date of a Calderbank offer of the costs of the appeal and cross-appeals. The defendants refer to the prospect that the amount of assessed costs owed by Dr de Kauwe to the defendants will exceed the amount of the judgment sum plus assessed costs prior to the Calderbank offer owed by the defendants to Dr de Kauwe.
[69] See First Hubbard Affidavit, pars 12 - 15; First Hubbard Affidavit, annexure SDH2, par 10; Lin Affidavit, pars 18 - 23; Lin Affidavit, annexure EL-2, par 10.
If the appeal and cross-appeals against costs orders succeed, it is likely but not certain that the amounts owing by Dr de Kauwe to the defendants will exceed amounts owing from the defendants to Dr de Kauwe after determination of the appeal and cross-appeals. Whether, and the extent to which, that is so may depend on the extent to which the appeal and cross-appeals against the substantive primary orders (including Dr de Kauwe's cross-appeal against the assessment of special damages for loss of the opportunity to purchase shares in Race Oncology) are successful. It may also depend on the amount of the assessed costs incurred by Dr de Kauwe before the relevant Calderbank offer compared to the amount of assessed costs incurred by the defendants after the relevant Calderbank offer. In oral submissions before us, counsel for Dr de Kauwe also anticipated a submission (not advanced in writing in his answers) that costs for only one set of legal representatives should be allowed if costs are awarded to the defendants.
Having regard to the above matters, we accept that there is a real prospect that, if the cross-appeals against the costs orders succeed, then the amounts owing by Dr de Kauwe to the director defendants and Mr Pamensky will exceed amounts they owe to Dr de Kauwe.
At the hearing of the stay application, we noted that none of the defendants' orders wanted in the appeal and cross-appeals currently seek a stay of their liability to pay damages pending the assessment of costs or provide the defendants to set-off their liability to pay damages against Dr de Kauwe's net costs liability to the defendants. As the orders wanted currently stand, even if the director defendants' and Mr Pamensky's cross-appeals are wholly successful, the outcome sought would be orders:
1.for the payment of damages by the director defendants and Mr Pamensky to Dr de Kauwe;
2.for the director defendants and Mr Pamensky to pay Dr de Kauwe's trial costs up to the date of the relevant Calderbank offer; and
3.for Dr de Kauwe to pay the director defendants' and Mr Pamensky's trial costs after the date of the relevant Calderbank offer and the costs of the cross-appeals.
On those orders, the judgment sum would be payable immediately and Dr de Kauwe would not need to await the assessment of all costs before enforcing payment of that sum. In light of the orders wanted, it was difficult to see how the refusal of a suspension order could create practical difficulties in respect of the relief which may be granted on the cross-appeals against the primary costs orders.
However, it appeared at the hearing of the Applications that the omission of orders for a set-off was inadvertent and the defendants would seek those orders if they were successful in the appeal. The director defendants and Mr Pamensky have now filed applications to amend the orders wanted in their cases on the cross-appeals accordingly. In our view, the applications to amend the orders wanted should be granted. The orders were sought in the primary proceedings in the event that costs were ordered in the defendants' favour. There is no apparent prejudice to Dr de Kauwe, who will need to amend his answers in any event to include written submissions in support of the anticipated contention that any costs awarded to the defendants should be allowed for only one set of legal representatives. The appeal and cross-appeals have not yet been listed for hearing. By letter dated 2 March 2023, Dr de Kauwe's solicitors indicated that he did not oppose the amendment applications. We will grant leave to amend the relevant documents but require that the submissions also be amended to address the new contentions.
In light of the amendment of the orders wanted, it does appear that the director defendants' and Mr Pamensky's cross-appeals against the costs orders will be rendered nugatory (in the sense that practical difficulties would arise in respect of the relief which may be granted) if enforcement of the damages orders against them is not stayed.
For the above reasons, we are satisfied that Mr Wright's appeal against the substantive orders may be rendered nugatory if the enforcement of order 4 of the primary orders is not suspended pending the determination of the appeal. We are also satisfied that the cross‑appeals against the primary costs orders by the director defendants and Mr Pamensky may be rendered nugatory if the enforcement of orders 1 - 5 of the primary orders against those defendants is not suspended pending the determination of the appeal.
Reasonable prospects of success
We turn to consider whether the appeal grounds in relation to the appeal and the cross-appeals against the orders awarding damages have reasonable prospects of succeeding. In what follows, the views we express as to prospects are necessarily preliminary, having regard to the nature of the Applications and the limited scope for argument on all the relevant issues.
Mr Wright's appeal
We will first consider Mr Wright's challenge to the trial judge's finding that Mr Wright was a publisher of the Second ASX Announcement.
Trial judge's primary factual findings
The trial judge made the following findings of primary fact about Mr Wright's involvement in the development of a 'position statement' which became the Second ASX Announcement.
On 9 February 2018, Mr Cohen emailed Mr Wright asking him to call Mr Schneider and Mr Malik (who were part of the eSense management team)[70] to discuss steps that should be taken as a result of the board meeting regarding the media. Later that day, Mr Wright replied that he had spoken to Mr Pamensky and Mr Casper (of SBA Law)[71] and the urgent priority was to compile a notice of meeting and the messaging and arguments of the current directors that 'will form the basis of our PR efforts with media and shareholders'.[72]
[70] Primary decision [73].
[71] Primary decision [71].
[72] Primary decision [949].
On 11 February 2018, Mr Wright spoke with Mr Lace (a communications consultant with NWR[73]), Mr Malik and Mr Schneider. During the conference call, Mr Wright discussed with the others preparing a position statement in relation to the requisitioned extraordinary general meeting (EGM).[74]
[73] Primary decision [61].
[74] Primary decision [950].
On 12 February 2018, Mr Wright received from Mr Lace the first draft of the position statement that eventually became the Second ASX Announcement. Mr Wright immediately forwarded the draft to Mr Malik, Mr Schneider and Mr Cohen, stating that to complete the position statement NWR needed from them:[75]
-More hard facts, figures and dates associated with the sequence of events
-The positive messages/progress et cetera we can include as discussed with you on the call yesterday.
and:
Once we have these items and can complete the document we will need to run it by the wider team/lawyers for discussion/approval.
[75] Primary decision [951].
On 13 February 2018, Mr Wright emailed Mr Schneider asking for detailed information 'so we can provide the best arguments possible', and said 'we will update the information in the document tomorrow morning once you've provided this'. Later that day, Mr Malik emailed to Mr Wright a copy of the draft position statement with marked up additions.[76]
[76] Primary decision [952].
On 15 February 2018, Mr Lace emailed to Mr Malik, Mr Wright, Mr Schneider and Mr Cohen a revised position statement. On the same day, Mr Wright emailed Mr Casper asking for his thoughts on the draft position statement. There were further emails between Mr Wright and Mr Casper about what the draft position statement could contain. In the days that followed, Mr Wright was a party to emails which progressively amended the position statement and made comments about the revisions.[77]
[77] Primary decision [953].
By an email and letter both dated 19 March, eSense received legal advice from SBA Law regarding the potential defamatory nature of the position statement, and whether it should be published to the ASX.[78] To mitigate the risk, SBA Law suggested two options to eSense: a) not release the position statement at all, or b) make such amendments to the statement as would remove all possible arguable points from the statement, which will cause a further delay and lessen the impact.[79] Mr Saad then sent to Mr Cohen, Mr Gilboa, Mr Karasik and Ms Shenhar a version of the position statement containing amendments from SBA Law. Mr Cohen, acting as chairman, approved the letter after adding some additional details about eSense's achievements.[80]
[78] Primary decision [217].
[79] Primary decision [219].
[80] Primary decision [220].
On 20 March 2018, Mr Saad emailed Mr Pamensky and asked him to lodge a final version of the position statement with the ASX. As instructed, Mr Pamensky lodged this updated statement on ASX Online. However, this version was rejected by the ASX, which cited concerns in relation to the content regarding Dr de Kauwe.[81] The trial judge made findings as to discussions between persons other than Mr Wright in relation to amendments to the position statement.[82]
[81] Primary decision [221] - [222].
[82] Primary decision [223] - [224].
At 6.41 pm on 20 March 2018, Mr Schneider sent an email to persons including Mr Wright, informing Mr Wright that the company would be lodging the announcement on the ASX the following day and asking that it be published widely, as it 'would be the last PR until the AGM'.[83]
[83] Primary decision [225], [232]; green AB vol 2, 598.
At 9.53 pm on 20 March 2018, Mr Wright responded with an email that said:[84]
OK, we will push this out as best we can once lodged with the ASX. We need a copy of it as soon as possible please.
[84] Green AB vol 2, 599.
The trial judge also made a finding that Mr Wright responded to Mr Schneider's email, saying:[85]
Thanks, I assume if they are lodging this that they received legal approval to use all this material?
[85] Primary decision [225].
Mr Saad approved a revised draft of the position statement which was emailed to him at 7.01 pm on 20 March 2018 and instructed Mr Pamensky to lodge it with the ASX on behalf of eSense.[86]
[86] Primary decision [226]; green AB vol 2, 600.
At 9.57 pm on 20 March 2018, Mr Pamensky forwarded the draft to Mr Wright, noting that it was the latest version and that he will review changes and lodge it the following morning.[87]
[87] Primary decision [227].
Mr Wright responded, asking whether someone managed an email list of shareholders. Mr Pamensky indicated by reply that he had this list, and for Mr Wright to 'let him know [what he] need[s]'.[88]
[88] Primary decision [228].
On 21 March 2018, Mr Pamensky electronically lodged the Second ASX Announcement on ASX Online. Later on 21 March 2018, the ASX released the Second ASX Announcement on its website. On the same day, 21 March, eSense released the Second ASX Announcement on its own website.[89]
[89] Primary decision [229], [231].
Mr Malik provided Mr Wright with a link to the Second ASX Announcement by email sent at 10.44 am on 21 March 2018, with a note to 'please have it sent out to any news/online publishers you can'.[90]
[90] Primary decision [233]; green AB vol 2, 610.
At 8.35 am on 22 March 2018, Mr Wright emailed himself and Mr Lace a checklist of items to follow up on pursuant to an 'ESE call with AFR (the Australian Financial Review)'. This checklist includes requests for further information, such as 'get Israeli court documents' and 'proof re: Otsana demand on mandate/Brendan salary', as well as verifying background information, such as 'have ESE complained to ASX/ASIC?'.[91]
[91] Primary decision [236].
The AFR subsequently published an online article entitled 'Inside Otsana Capital's fight for eSense Lab' on 23 March 2018. Mr Wright emailed a link to this article to Mr Cohen, Mr Schneider and Mr Malik after its publication, saying that:[92]
This is an excellent result in terms of the way the journalist has framed the story, especially considering Brendan and Faldi from Otsana spoke to the journalist and the current board elected not to. It leads off with the Esense directors position statement then moves into the conflict of interest discussion, while pushing their argument deep into the article. Welcome your thoughts, but I consider this a significant win leading into the meetings next week.
Trial judge's finding that Mr Wright was a publisher
[92] Primary decision [238]; green AB vol 2, 629 - 630.
The trial judge's finding that Mr Wright was a publisher of the Second ASX Announcement was immediately preceded by the following statement of general principle:[93]
Liability depends upon whether the defendant, by facilitating and encouraging the relevant communication, actively and voluntarily 'participated' in the communication of the defamatory matter to a third person.[94] The degree of active and voluntary participation is irrelevant, so long as some involvement can be proved. The relevant intention is an intention to facilitate, or provide a platform for, the communication of the allegedly defamatory matter. This is distinct from knowledge or intention on the part of the participant as to the defamatory content itself or whether the content is defamatory.[95]
[93] Primary decision [956].
[94] Fairfax Media Publications Pty Ltd v Voller [2021] HCA 27; (2021) 392 ALR 540 [30].
[95] Voller [66] ‑ [68].
The judge then found that Mr Wright participated in the initial discussions that a statement that became the position statement (and ultimately the Second ASX Announcement) be prepared, and in general what it should contain. The judge found:[96]
The inference is open from the communications between Mr Wright, Mr Lace and eSense directors and staff that Mr Wright participated in the development of the position statement by seeking from the eSense directors and staff facts and information to be contained in the statement and liaising with Mr Lace about those matters.
[96] Primary decision [957].
The trial judge also inferred that Mr Wright knew that his name would be appended to the position statement as a person to contact for further information. The judge drew this inference from the fact that, from the time of NWR's appointment, Mr Wright's name was appended to all of eSense's ASX Announcements.[97]
[97] Primary decision [958].
The judge said that the inferences referred to at [80] - [81] above may be more readily drawn because Mr Wright did not give evidence.[98]
[98] Primary decision [958].
The trial judge found that:[99]
Mr Wright, having participated in the preparation of the position statement as I have stated, and with knowledge that his name would be appended to the statement as a person to contact for further information when the statement was lodged on the ASX website, and with knowledge of the defamatory content of the statement, permitted the statement to be lodged with the ASX. Having been provided with the version to be lodged and informed that it would be lodged the following morning, Mr Wright did not ask that it not be lodged or that his name be removed as a person to be contacted for further information. (footnote omitted)
[99] Primary decision [959].
The trial judge stated his ultimate conclusion in the following terms:[100]
Applying the principles referred to in Voller, I find that the Mr Wright actively and voluntarily participated in the publication of the Second ASX Announcement to a sufficient degree that he is a publisher of, and responsible for its publication on the ASX website. It was the natural and probable consequence of publication on the ASX website that it would be published on the data feed websites.
It is open to infer that, from his experience with announcements on the ASX and their republication on the eSense website, Mr Wright knew that on publication of the Second ASX Announcement on the ASX website it would be republished on the eSense website.
I find that Mr Wright is a publisher of, and responsible for the publication of, the Second ASX Announcement to the people who downloaded the announcement from the ASX, eSense and data feed websites.
Grounds of appeal
[100] Primary decision [960] - [962].
Ground 1 of Mr Wright's appeal challenges a finding at [423] of the Primary decision. At this point, the trial judge was making findings about all defendants joining in a campaign against Dr de Kauwe. In the course of doing so, the trial judge said:[101]
Mr Wright assisted Mr Cohen, Mr Gilboa, Mr Saad and Mr Pamensky in their attack on Dr de Kauwe by assisting in drafting their statement of position and getting publicity for their attacks on Dr de Kauwe.
[101] Primary decision [423].
Ground 1 contends that the trial judge erred in law in making this finding and ought to have found that there was no evidence that Mr Wright assisted in drafting the statement of position and getting publicity for the attacks on Dr de Kauwe.
Mr Wright's submissions in support of this ground begin by noting that it is not clear what conduct the trial judge is referring to at [423] of the Primary decision. Mr Wright says that if, when the reasons are read as a whole, [423] does not make a factual finding beyond those in later paragraphs then the ground may not be necessary to decide the appeal. Mr Wright's concern in challenging [423] appears to be that it constitutes a broad finding that Mr Wright drafted or amended a version of the Second ASX Announcement.[102]
[102] Appellant's submissions, pars 18 - 19 (White AB 15).
In our view, this concern is, prima facie, misplaced. Reading the judgment as a whole, it appears to us that the observations at [423] of the Primary decision were no more than a broad summary of the general effect of the detailed factual findings which followed. As the grounds do not challenge those later factual findings, and the trial judge did not indicate any reliance on the passage at [423] in finding Mr Wright was a publisher of the Second ASX Announcement, it does not appear that ground 1 could lead to setting aside the primary orders. We are not satisfied that ground 1 has sufficient prospects of success to justify the grant of a stay.
Ground 2 of Mr Wright's appeal contends that the trial judge erred in law in finding that Mr Wright actively and voluntarily participated in the publication of the Second ASX Announcement to a sufficient degree that he is a publisher of that document. Mr Wright contends that the trial judge should have found that the conduct of Mr Wright did not amount to participation in the publication of the Second ASX Announcement to a sufficient degree that he is a publisher of it.
Mr Wright's submissions in support of ground 2 refer to authorities, including Voller, and contend that the court must determine whether 'the acts of the defendant were in truth acts that assisted in the process of communicating the matter which contained the content conveying the defamatory imputation'.[103]
[103] Appellant's submissions, par 46.
Mr Wright contends that, on the trial judge's findings, he did not contribute to the text of the Second ASX Announcement in any way and there was no evidential basis for an inference that he did so.[104] Mr Wright says that the highest his involvement could be characterised was in seeking information to be contained in the statement and liaising with Mr Lace (who drafted the statement). Mr Wright knew his name would be included in the statement as a contact person and was on a call with Mr Lace and a reporter.[105]
[104] Appellant's submissions, par 50.
[105] Appellant's submissions, par 51.
Mr Wright contends that his involvement needs to be viewed in the context where, as the trial judge found, he encouraged and assisted the directors and staff of eSense to obtain legal advice as to what could be included in the statement.[106] Mr Wright said that he was not in a position to assent to the contents of the Second ASX Announcement and did not do so.[107]
[106] Appellant's submissions, par 52.
[107] Appellant's submissions, par 53.
For these reasons, Mr Wright contends that, where he was not responsible for any of the text of the Second ASX Announcement and did not assent to its contents, his assistance in obtaining information cannot be considered an act that was actively and voluntarily participating in the process of communicating the matter. Mr Wright therefore submits that he should not be liable as publisher of the Second ASX Announcement.[108]
[108] Appellant's submissions, par 54.
In our view, the present interlocutory application is not the occasion to undertake the close analysis which is required to determine whether Mr Wright is liable as publisher of the Second ASX Announcement. For present purposes, it is sufficient to indicate that we are satisfied that ground 2 of Mr Wright's appeal is reasonably arguable in the relevant sense.
Director defendants' cross-appeal re loss of eSense director's fees
Ground 1 of the director defendants' cross-appeal contends that the trial judge erred in drawing the inference that Dr de Kauwe's loss of eSense director's fees was caused by the publication of the First and Second ASX Announcements.
Trial judge's findings
The trial judge made the following findings in relation to Dr de Kauwe's loss of eSense director's fees.
Dr de Kauwe was not elected as a director of eSense at the AGM held on 29 March 2018. The trial judge observed that Dr de Kauwe adduced no direct evidence that shareholders withdrew their support from him because of the ASX Announcements. The trial judge recognised that this aspect of Dr de Kauwe's case depended upon inferential reasoning.[109]
[109] Primary decision [1058] - [1059].
The eSense articles of association provide that a director shall be elected at each AGM and shall serve in office until the close of the next AGM. A general meeting may remove a director from office.[110]
[110] Primary decision [1060].
Most of the funds raised by the IPO and subsequent capital raisings were raised from investors associated with, or introduced by, Dr de Kauwe or Otsana. Those investors held substantial, if not a majority of, votes at an AGM. Dr de Kauwe was appointed a director of eSense on 1 October 2016 and chairman on 14 February 2017 when eSense was listed on the ASX.[111]
[111] Primary decision [1061].
There was no evidence of any dissatisfaction with Dr de Kauwe's performance as a director of eSense, or opposition to Dr de Kauwe continuing as a director of eSense, from any of the shareholders prior to the conflict between Dr de Kauwe on the one hand and Mr Cohen, Mr Gilboa and Mr Saad in late 2017.[112]
[112] Primary decision [1062].
A snapshot of proxy votes cast on 27 December 2017, for the 2017 AGM, recorded that 99.91% had been cast in favour of, and 0.09% against, the re-election of Dr de Kauwe. The snapshot of proxy votes cast on 8 February 2018, for the AGM then scheduled to be held on 15 February 2018, recorded that 99.44% had been cast in favour of, and 0.56% against, the re-election of Dr de Kauwe.[113]
[113] Primary decision [1064].
The First ASX Announcement was posted on the ASX website and the eSense website on 13 March 2018.[114] It read:[115]
ESENSE-LAB APPOINTS INDEPENDENT EXAMINER TO INVESTIGATE CONDUCT OF DR. BRENDAN DE KAUWE
As previously disclosed by eSense-Lab Ltd. (ASX Code: ESE) ('eSense' or the 'Company'), on February 8, 2018 the Company's Board of Directors removed Dr. Brendan de Kauwe from the office of Chairman of the Board, and appointed Mr. Ilan Saad in his place.
As well as being a director of the Company, Dr. de Kauwe is also a director of the Company's corporate advisor, Otsana Capital, and is the sole director and shareholder of one of the three shareholders of the Company that have requisitioned the extraordinary general meeting to be held on March 29, 2018 (the 'Requisitioning Shareholders'). At the February 8 Board meeting, following concerns raised by other directors that certain actions of Dr. de Kauwe, the Board authorised its Audit Committee to appoint an independent third-party examiner to investigate the conduct of Dr. de Kauwe in relation to the Company.
On March 7, 2018, the Audit Committee appointed Mr. Doron Rozenblum (CPA), a Managing Partner of the Kreston IL Group, a member firm of Kreston International, to serve as the independent examiner. Mr. Rozenblum has over 25 years of experience as an internal auditor, and his firm provides services to major clients as listed companies in Israel. He is the Vice President of the Institute of Internal Auditors in Israel.
The investigation to be conducted by Mr. Rozenblum is expected to cover various aspects of Dr. de Kauwe's conduct in relation to the Company.
The Company will provide an update on the outcome of Mr. Rozenblum's investigation in due course.
[114] Primary decision [672] - [673].
[115] Primary decision [672].
Biotech Daily reported on eSense on 13 March 2018. That story reported the First ASX Announcement.[116]
[116] Primary decision [1067].
The Second ASX Announcement was published on the ASX website and the eSense website on 21 March 2018.[117]
[117] Primary decision [929] - [930]. The Second ASX Announcement appears at green AB vol 2, 601 - 603.
The Second ASX Announcement described an attempt by security holders connected to Otsana to take control of eSense, and that:[118]
Otsana, particularly Brendan de Kauwe, has since the Company's IPO and subsequent capital raising issued to the board various ultimatums which the Company considers unwarranted.
[118] Green AB vol 2, 601.
The Second ASX Announcement indicated that the board of eSense wanted to provide shareholders with information ahead of the upcoming AGM and EGM to be held on 29 March 2018, which included:[119]
4. The majority of the Board believe that Otsana director and former Chairman of the Board, Brendan De Kauwe, has been acting to advance the interests of Otsana, and not the Company's best interests. He has been removed from his position as Chairman of the Board.
5. The majority of the Board believe that De Kauwe has demanded unreasonable and disproportionate remuneration for himself as Chairman and for Otsana as brokers.
6. At a time when the Board declined De Kauwe's unreasonable demands, he refused to act in accordance with legally binding instructions from the board.
7. De Kauwe refused to transfer funds from eSense's Australian bank account to enable it to conduct its ongoing business activities, including pay staff salaries and ignored a board resolution to implement the amendment of the Company's signature rights with regards to the Australian bank account, whilst exposing the Company to lawsuits.
8. De Kauwe ignored, or refused to answer, certain inquiries posed by the Board regarding his potential conflicts of interest.
9. On March 7, 2018, the Company's Audit Committee appointed [Mr. Rozenblum] to serve as the independent examiner. The investigation to be conducted by Mr. Rozenblum is expected to cover various aspects of De Kauwe's conduct in relation to the Company, including: (i) whether De Kauwe disclosed all of his personal interests in regard to the Company's approval of its agreements with Otsana; (ii) De Kauwe's refusal to comply with the Board's resolution regarding the change of bank account signatories and the transfer of funds from the Company's Australian bank account; (iii) De Kauwe's use of the Company's credit card; and (iv) other potential conflicts of interest between De Kauwe and the Company. The results of the investigation will be reported to the security holders upon completion.
[119] Green AB vol 2, 602.
The Second ASX Announcement also included the statement:[120]
The Majority of the Board of Directors believes the information below to be true and important for shareholders and CDI holders to be aware of in advance of the upcoming AGM and EGM:
• De Kauwe, as then-Chairman of the Board, exerted pressure to postpone the AGM as originally scheduled for November 29, 2017, because the Company did not agree to the remuneration that he demanded.
• After realizing that the Company would not be pressured into its unreasonable demands, Otsana and De Kauwe acted in a manner that made it obvious to the management of the Company that if the Company were to decline to meet those demands, the planned capital raising activities in November 2017 would be cancelled.
[120] Green AB vol 2, 602.
Stockhead published an article 'eSense-Lab fires extraordinary shot at rebel group' on 21 March 2018. That story reported the Second ASX Announcement.[121]
[121] Primary decision [1067].
The AFR subsequently published an online article entitled 'Inside Otsana Capital's fight for eSense Lab' on 23 March 2018. It then published a print article entitled 'The wolves of the ASX and the fight over a pot stock' in the AFR Weekend edition, dated 24 ‑ 25 March 2018, which was substantially the same as the online article.[122]
[122] Primary decision [238] - [240].
The AGM and the EGM took place on 29 March 2018. Mr Cohen, Mr Gilboa, Mr Saad and Mr Karasik were re‑elected as directors. Dr de Kauwe was not re‑elected. Ms Shenhar continued as a director.[123]
[123] Primary decision [241].
The judge drew the challenged inference in the following terms:[124]
[T]he question is not whether the defamatory ASX announcements were the only causes of the fall in support for Dr de Kauwe. It is sufficient if they were a cause or materially contributed to that fall in support.
The inference is open, and I draw the inference, that the defamatory ASX announcements materially contributed to Dr de Kauwe not being re elected at the AGM and thereby being removed as a director.
Director defendants' submissions
[124] Primary decision [1068] - [1069].
The director defendants argue that there was no evidence from shareholders that they had seen the ASX Announcements or changed their voting intentions by reference to the ASX Announcements. They note that there was no evidence of publication of the ASX Announcements to any particular person. In those circumstances, they contend that the finding of causation was based on speculation and the inference was drawn without the necessary factual material to support it.[125]
[125] Particulars to ground 1 of the second to sixth respondents' cross-appeal (White AB 124).
The director defendants argue that there are many and variable considerations that might bear on why a shareholder may elect or not elect a director or change their votes. They submit that it is not self‑evident that the publication of defamatory matter about a director in an ASX announcement would be the, or even a, cause of loss of voting support as opposed to all manner of other possibilities.[126]
Whether ground is arguable
[126] Second to sixth respondents' submissions on cross-appeal, par 16 (White AB 130).
We are not persuaded that ground 1 of the director defendants' cross‑appeal is arguable in the relevant sense. It appears to us, for present purposes, that the trial judge did not engage in speculation but properly drew the inference, from findings of primary fact which are unchallenged on appeal, that the publication of the First and Second ASX Announcements materially contributed to Dr de Kauwe not being re‑elected as director of eSense at the AGM and EGM held on 29 March 2018. That inference is, prima facie, properly drawn from the content and timing of the ASX Announcements and the change at the AGM from the very high level of shareholder support (99.44%) which was indicated as late as 8 February 2018. It can, prima facie, be inferred that shareholders who voted at the AGM probably would have been sufficiently interested in the affairs of eSense to have accessed announcements on the ASX and eSense websites to gain information about the company before voting. The director defendants do not point to evidence or findings of an alternative cause of the loss of confidence in Dr de Kauwe.
Cross-appeals on loss of opportunity to purchase Race Oncology shares
We turn to the grounds of the director defendants' and Mr Pamensky's cross-appeals which challenge the trial judge's finding that Dr de Kauwe lost a valuable opportunity to acquire options to purchase Race Oncology shares and that this loss of opportunity was caused by the publication of the ASX Announcements.[127]
Trial judge's primary factual findings
[127] Ground 2 of the second to sixth respondents' cross-appeal; ground 1 of the seventh respondent's cross‑appeal.
There is no challenge to the trial judge's factual finding that the publication of the First and Second ASX Announcements were a cause of Dr de Kauwe being asked to resign, and resigning, as a director of Race Oncology. There is also no challenge to the finding that, if the defendants had not published the ASX Announcements, Dr de Kauwe would probably have remained a director of Race Oncology on 22 November 2019.[128]
[128] Primary decision [1119].
The trial judge found that Race Oncology held its 2018 AGM in November 2018 and its 2019 AGM on 22 November 2019. Dr Garner, the Chairman of Race Oncology, and the other directors were re‑elected with no significant opposition. The trial judge accepted the evidence of Dr Garner that Dr de Kauwe was held in high regard, was an active board member, had done a good job from the inception of the company and there were no problems apart from the eSense issue.[129] Again there is no challenge to these findings.
[129] Primary decision [1101].
It is uncontroversial in the appeal that, at the 2019 AGM on 22 November, the shareholders passed with no significant opposition resolutions to issue options as follows:[130]
Dr Daniel Tillett - 2,500,000
Dr William Garner - 1 million
Dr John Cullity - 1 million
Mr Chris Ntoumenopoulos - 1 million
The options were exercisable at $0.25 and were to expire two years from the date of issue. The options were subsequently issued. On 8 February 2021, Race Oncology ordinary shares were trading at $2.67.
[130] Primary decision [1106] - [1107].
The trial judge found that Dr Garner's evidence established that, if Dr de Kauwe had remained a director of Race Oncology on 22 November 2019, he would probably have received the same allocation of options as Mr Ntoumenopoulos. The judge relied on the following aspects of Dr Garner's evidence:[131]
Dr Garner gave evidence of the genesis of the resolution to issue options to the directors. He agreed that the CEO, Mr Molloy, and the company secretary, Mr Webse, drew up the remuneration report which was accepted by the shareholders but did not accept that there was likely to have been any basis for distinguishing between the issue of options to Mr Ntoumenopoulos and the issue of options to Dr de Kauwe if he had been a director at the time. Dr Garner's evidence was that there might have been one or a couple of shareholders in the meeting that voted against the resolutions to issue the shares, but apart from that, it might have been unanimous; the resolutions were highly supported.
Dr Garner said that if Dr de Kauwe had been a director on 22 November 2019, he would have been treated the same as the other non-executive directors and in particular Mr Ntoumenopoulos. Dr Garner volunteered:
[T]he crux of this is would Brendan have been treated like these - like other directors and the - I may be jumping the gun, but the answer is yes. And Chris [Ntoumenopoulos], as a - as a director, you know, received these - these options.
I don't believe it's any kind of a stretch to say that - that Chris [Ntoumenopoulos] and - and if Brendan would have been involved here, that they would have been compensated like this.
[131] Primary decision [1120] - [1121].
On this basis, the trial judge found that Dr de Kauwe had proved that he lost a valuable opportunity.[132]
Grounds of appeal
[132] Primary decision [1122].
Ground 2 of the director defendants' cross-appeal contends that there was no evidence to establish the inference that there was an existing valuable opportunity that was lost or that the loss of an existing valuable opportunity was caused by the ASX Announcements.
The director defendants submit that Dr Garner's evidence was that recommendations as to the issue of options to non-executive directors was a matter for Mr Molloy (the managing director and CEO of Race Oncology). The issue of options was not a right that attached to the mere continuation of directorship of Race Oncology. Rather, it depended on the recommendation of Mr Molloy and the approval of that recommendation by Race Oncology shareholders. The director defendants submit that Dr Garner's evidence did not establish the intention of those who would recommend or approve the offer of options to Dr de Kauwe. Dr Garner's evidence was no more than vague and speculative expressions of belief which could not form the basis for an inference as to what would have occurred if Dr de Kauwe had been a director at the time of the 2019 AGM.[133]
[133] Second to sixth respondents' submissions on cross-appeal, pars 28 - 38 (White AB 132 - 134).
We are not persuaded that this ground of the director defendants' cross-appeal has reasonable prospects of succeeding, sufficient to justify the grant of a suspension order. There were some aspects of Dr Garner's evidence quoted by the trial judge which do appear to have been inadmissible opinion. However, there is no challenge to the trial judge's findings that:
1.Dr de Kauwe would probably have remained a director of Race Oncology at the time of the 2019 AGM if the First and Second ASX Announcements had not been published.
2.Directors of Race Oncology at the time of the 2019 AGM were granted options to purchase not less than 1 million Race Oncology shares.
3.Apart from the issues arising from the publication of the First and Second ASX Announcements, Dr de Kauwe was in good standing with the company.
These findings were made in the context where Mr Molloy and the shareholders were not able to give direct evidence of their intention at the 2019 AGM. As Dr de Kauwe was not actually a director of Race Oncology at that time, they would have had no occasion to consider the issue of options to him in 2019. It appears to us, prima facie, that the proper inference to draw from the facts referred to at [123] in this context is that, if Dr de Kauwe had been a director of Race Oncology at the time of the 2019 AGM, he would probably have been offered options to purchase 1 million Race Oncology shares on the terms offered to those who were directors at that time. That appears to us, prima facie, to represent the loss of a valuable opportunity. It appears to us, prima facie, that the uncertainties about later events (such as whether the options would be exercised and when shares would be sold) go to the assessment of damages rather than proof that a valuable opportunity was lost.
Ground 1 of Mr Pamensky's cross-appeal raises the same issues as the above ground of the director defendants' cross-appeal. For present purposes, it also has no reasonable prospect of succeeding for the reasons explained above.
Cross-appeals against costs orders
Dr de Kauwe did not advance any submissions to the effect that the cross-appeals against the costs orders had no reasonable prospect of succeeding. We are satisfied that the appeal and cross-appeals against the costs orders have reasonable prospects of succeeding in the relevant sense.
Balance of convenience
We have concluded that Mr Wright's appeal against order 4 and the other defendants' cross-appeals against the costs orders may be rendered nugatory if enforcement of the primary damages orders is not suspended. We have also concluded that the appeal against order 4 and the cross‑appeals against the costs orders have reasonable prospects of succeeding in the relevant sense.
In our view, the balance of convenience favours suspending the enforcement of the primary damages orders against all defendants. While Dr de Kauwe would be kept out of enforcing his judgment, he has not adduced evidence of any particular prejudice he would suffer if he does have to await the determination of the appeal and cross-appeals before enforcing the damages orders. The prospect of general prejudice to Dr de Kauwe if damages are not paid immediately is outweighed by the prospect that the defendants will be forced to pay the damages awarded against them and be unable to recover that amount in the event that the appeal or cross-appeals are successful.
Significantly, the prejudice to Dr de Kauwe if a suspension order is granted is ameliorated by the defendants' preparedness to pay into court the judgment debt and the post-judgment interest payable on that amount to the date of payment into court.
We note that Dr de Kauwe also took issue with the defendants' delay in making the application for a suspension order. We are not satisfied that the timing, which is largely explicable by the application for a means inquiry, provides a discretionary basis for refusing a suspension order in the circumstances of this case.
Orders
For the above reasons, we would make orders having the following general effect:
1.Subject to order 2, enforcement of orders 1 - 5 of the primary orders against the defendants is suspended until the determination of the appeal and cross-appeals or other order.
2.The means inquiries issued by the first respondent in relation to the defendants is to be adjourned pending the determination of the appeal and cross-appeals or other order.
3.By 4.00 pm on a date to be specified in the orders, the defendants must pay into court the sum awarded by orders 1 - 5 of the primary orders plus post judgment interest on that sum to the date to payment into court.
4.The parties have liberty to apply to vary or discharge orders 1 - 3 of these orders on 72 hours' notice to the other parties.
5.By 4.00 pm on a date to be specified in the orders, the defendants shall file and serve an amended appellant's case and amended respondent's cases on the cross-appeals to add the new orders wanted and add submissions in support of the new orders wanted.
6.By 4.00 pm on a date to be specified in the orders, Dr de Kauwe shall file and serve an amended answer on the appeal and amended answers in the cross-appeals, which:
(a)add submissions in opposition to the new orders wanted; and
(b)add submissions in support of his contention that any costs awarded to the defendant should be allowed for only one set of legal representatives.
7.By 4.00 pm on a date to be specified in the orders, Mr Wright shall file and serve a substituted White Appeal Book containing the amended cases and answers.
We would hear from the parties in relation to:
1.the precise terms of the orders to give effect to our conclusions referred to at [131] above;
2.the dates by which the steps referred to at [131] above should be taken; and
3.the costs of the Applications, the costs reserved by order 5 of the orders made by this court on 19 January 2023 and the costs of the amendment applications.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
RL
Associate to the Honourable Justice Mitchell
13 MARCH 2023
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