Reported Decision : (2003) 45 ASCR 18 New South Wales Supreme Court CITATION : Rupert Company v Imperial One [2003] NSWSC 217 HEARING DATE(S) : 9, 10, 11 & 12 December 2002 JUDGMENT DATE : 28 March 2003 JURISDICTION: Common Law JUDGMENT OF : Master Harrison DECISION : (1) The statement of claim is dismissed; (2) The plaintiff is to pay the defendants' costs as agreed or assessed. CATCHWORDS : Option issue - TPA - Damages Corporations Law - ss 170, 762(1), 995, 1005 Corporations Act 2001 - s 1041I LEGISLATION CITED : Trade Practices Act - s 52 Australian Securities and Investments Commission Act 2001 - Pt 2 Div 2 Ford's Principles of Corporations Law (2000) Green v Crusader Oil NL & Anor (1986) 10 ACLR 120 CASES CITED : Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd [No 1] (1988) 39 FCR 546 Global Sportsman Pty Ltd v Mirror Newspapers Pty Ltd (1984) s FCR 82 Rupert Company Limited (Plaintiff) PARTIES : Imperial One Limited (Defendant) FILE NUMBER(S) : SC 20098/2001 Mr Graham QC with Mr S Bell COUNSEL : (Plaintiff) Mr T D Castle (Defendant) Ian B Mitchell (Plaintiff) SOLICITORS : Mr P C Silver of Atanaskovic Hartnell - 26 - IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION MASTER HARRISON FRIDAY, 28 MARCH 2003 20098/2001 - RUPERT COMPANY LIMITED v IMPERIAL ONE LIMITED ACN 002 148 361 JUDGMENT (Option issue, TPA, damages) 1 MASTER: The plaintiff seeks damages pursuant to s 1005 of the Corporations Law (CL) (s 1041I Corporations Act 2001) or s 82 of the Trade Practices Act (TP Act). The plaintiff relied on the affidavits of Robert Marshall McLennan sworn 30 January 2002 and 23 July 2002, Ian Burnham Mitchell sworn 17 July 2002 and John Wardman sworn 30 January 2002 and 23 July 2002. The first defendant relied upon the affidavits of Bruce William McLeod sworn 12 June 2002 and 9 December 2002 and Angela Jerenko sworn 10 December 2002. 2 The plaintiff company ("Rupert") is a company incorporated in Fiji. Ian Mitchell (Mitchell), a Sydney solicitor, is one of its directors. The two shareholders, one of whom is also the other director of Rupert, are residents of Fiji. The two shareholders hold their shares in trust for Robert McLennan (McLennan), a resident of Sydney. In acting as a director of Rupert, Mitchell at all times acted in accordance with the instructions of McLennan. Mitchell did not make independent decisions in relation to the management of Rupert. 3 The first defendant ("Imperial") is a listed Australian company with interests in the period from 1996 to date in both mineral exploration and technology development. On 4 August 1996, the first defendant changed its name from Jason Mining NL ("Jason") to Imperial Mining NL. On 29 March 2000, the first defendant changed its name from Imperial Mining NL to Imperial One International Ltd. On 22 May 2000, the first defendant changed its name from Imperial One International Ltd to Imperial One Limited. The directors of Imperial at the relevant times were Bruce McLeod (McLeod), David Sutton (Sutton), Kevin Torpey (Torpey) and Anthony Hope (Hope). The second defendant, David Laurence Hughes (Hughes), was at all times during the period the company secretary of Imperial. Though it is not directly involved in these proceedings, an important related party is Imperial Mining (Fiji) NL ("Fiji"). As at 8 July 1996, the directors of Fiji are recorded as being Geoff Northcote (Northcote), Clement Wong (Wong), Alfred Lai (Lai), Tony Hope (Hope), McLeod, McLennan and Project General Finance Ltd. 4 Imperial had not only had shares listed on the Australian Stock Exchange ("ASX"), but from time to time has issued options to acquire shares, some of which have been listed on the ASX as well as unlisted options which expired on 30 September 1999 ("September 1999 options"). By a prospectus (the "prospectus") dated 17 November 1999, Imperial announced an offer to issue one new option, exercisable until 31 July 2003 (the "July 2003 options"), for options which included those held as at 30 September 1999. It is this offer which gives rise to the plaintiff's claim. The pleadings 5 The plaintiff pleaded that pursuant to paragraph 3 of Appendix "A" to Chapter 7 of the ASX listing rules, firstly, that the first defendant did not send the prospectus or a serially numbered entitlement form to the plaintiff; Failure to send the prospectus and serially numbered entitlement form to the plaintiff was misleading and deceptive within the meaning of s 995 of the CL; secondly, the failure to send the prospectus and serially numbered entitlement form to the plaintiff was misleading and deceptive within the meaning of s 52 of the TP Act; thirdly, the plaintiff relied on the first defendant to send a prospectus and serially numbered entitlement form in order to apply for the issue of options; fourthly, the plaintiff was ready, willing and able to accept the offer of options to be issued under the prospectus within the time period specified in the prospectus; fifthly, on or about 10 February 2000 an application by the plaintiff for the issue of options was lodged with the first defendant. The first defendant did not issue options to the plaintiff; sixthly, from 17 November 1999 to 30 November 1999 inclusive the first and second defendant knew or ought reasonably to have known that (a) the plaintiff was a person entitled to be issued with the prospectus and serially numbered entitlement form; (b) the plaintiff would or might act upon receiving the prospectus and serially numbered entitlement form; (c) if the plaintiff was deprived of the opportunity to accept the offer of options then the plaintiff would or might suffer loss or damages; and seventhly, the second defendant was a person knowingly concerned in the contravention by the first defendant of s 52 of the TP Act and/or s 995 of the CL. 6 The defendants in their defence to these claims pleaded firstly that the plaintiff delivered the instrument of transfer to the first defendant after 30 September 1999 on which date all rights under the options expired, and accordingly the plaintiff did not become a registered holder of the options; and secondly, a proper instrument of transfer of the options was not delivered to the first defendant as it did not show the jurisdiction of registration of the first defendant which is required pursuant to s 1091(1A)(b) of the CL and accordingly, the first defendant was not required to register a transfer of the options pursuant to s 1091(1) of the CL. 7 Most of the facts are not in dispute. The contentious issues are, firstly, Rupert's failure to register the transfers of the options, secondly, whether Rupert received a copy of the prospectus and serially numbered entitlement form in respect of Imperial's offer to issue the July 2003 options and, thirdly, the manner in which the unregistered option holders of the 30 September options were dealt with. A convenient starting point is the 19 April 1996 agreement between Rupert, New Golden Trade & Investments Limited ("NGTI") and Imperial. The 19 April 1996 agreement 8 On 19 April 1996, NGTI (of the first part), Alfred Lai, Clement Wong and Bruce McLeod (of the second part) and Imperial Mining (Aust) NL ACN 062 193 266 (of the third part) and Robert Marshall McLennan, Robert McLennan Mineral Consultants Pty Limited ("RMMC") and Rupert (of the fourth part) entered into an agreement. 9 Paragraphs 2 and 3 of the this agreement provide: "3. Imperial Options 3.1 In further consideration of the releases herein provided by the parties of the Fourth Part, the parties of the Second Part shall at settlement cause Imperial Mining N.L. ACN 066 707 908 to transfer to RMMC or its nominee three hundred thousand (300,000) options to subscribe for three hundred thousand (300,000) fully paid ordinary shares of Twenty Cents ($0.20) each in the capital of Jason at any time up to and including 31st October, 1999, being part of the Options to be issued to Imperial Mining N.L. under the Jason Agreement (the "Imperial Options"). 4. Escrow 4.1 The parties of the Fourth Part acknowledge and agree that the Jason Securities allotted and issued to NGT pursuant to the Jason Agreement, will be required to be held in escrow in accordance with the Listing Rules of the Australian Stock Exchange Limited ("ASX") for such period as the ASX shall require and the party of the First Part agrees that it shall do all necessary things, complete all steps and execute all agreements and documents required to cause Jason to apply for release of the Jason Securities from escrow after the period stipulated by the ASX for escrow. 4.2 The parties of the Fourth Part acknowledge and agree that the Imperial Options will be required to be held in escrow in accordance with the Listing Rules of the ASX for such period as the ASX shall require and the parties of the First and Second Parts further agree that they shall do all necessary things, complete all steps and execute all agreements and documents required to cause Jason to apply for release of the Imperial Options from escrow after the period stipulated by the ASX for escrow." 10 Pursuant to the above agreement, NGTI agreed to transfer 2.2 million shares and 2.2 million options in Imperial to Rupert and Fiji agreed to transfer 300,000 options in Imperial to McLennan or his nominee. McLennan decided that these options should be transferred to Rupert. These transfers could not take effect immediately because the shares and the options were required to be held in escrow for two years pursuant to the ASX Listing Rules. 11 On 21 May 1996, Imperial issued share and option certificates to NGTI and Fiji, which included a certificate for the 2.2 million options to be transferred from NGTI to Rupert and a certificate for the options to be transferred from Fiji to Rupert. Each of these options were unlisted September 1999 options. These option and share certificates were held in escrow by the ANZ bank from mid 1996 until mid 1998. On 28 May 1996, NGTI became the registered holder of 2.2 million options expiring on 30 September 1999 in Jason, option certificate No 012. On 28 May 1996, Imperial became the registered holder of 300,000 options expiring on 30 September 1999 in Jason, option certificate No 017. 12 On 16 October 1996, by letter (Ex A p 82) McLennan on behalf of Rupert acknowledged receipt of memorandum of transfer of 2.2 million shares and attaching options in Jason; notarised copy of minute agreeing to transfer of shares and options; and memorandum of transfer of 300,000 options in Jason. 13 On 12 June 1998, the options and share certificates were released from escrow. The ANZ Bank incorrectly forwarded them to Imperial. On 9 July 1998 (Ex A p 140), Imperial forwarded share certificate No 13609 for 2.2 million shares registered in the name of New Golden Trade & Investments Limited; options certificate No 17 for 2.2 million options expiring on 30 September 1999 and registered in the name of New Golden Trade & Investments Limited; and option certificate No 21 for 300,000 options expiring on 30 September 1999 and registered in the name of Imperial to the solicitors, Casula and Kelso. 14 On 6 August 1999, stamp duty was paid on the options and transfers (Ex A pp 13, 14). McLennan gave evidence that there was no specific reason for not taking steps to transfer ownership of the shares and options between July 1998 and August 1999 (t 11 21-26). An extract of Imperial's share register reveals that on 10 August 1999 the registration of transfers of the shares was effected. However, Rupert never produced the share certificates and transfers to Imperial. 15 On 6 August 1999, the stamped transfers and option certificates were forwarded to the broker, Mr John Wardman (Wardman). On 6 August 1999, Mitchell requested Wardman to arrange sale of the 700,000 shares and 2.5 million September 1999 options as instructed by McLennan. 16 On 9 August 1999, Wardman sold a parcel of 300,000 Imperial shares for Rupert on ASX as per his instructions. On 9 August, however, Wardman also sold 220,393 listed Imperial options, in the erroneous belief that the options held by Rupert were listed options. On 11 August 1999, the same number of options were purchased by Wardman to cancel the trade. 17 Around 10 or 11 August 1999, Wardman telephoned the second defendant, Hughes, and said words to the effect "I am enquiring about the procedure for transferring off market options to Rupert Company Limited which have come out of escrow." The second defendant said "Send the transfers and certificates to me and the transfers will be registered." It is convenient at this point to record that Hughes could have been called to provide his account of conversations between himself and Wardman and Mitchell but he has not chosen to do so. Nor has he provided any reasonable explanation as to why he was not able to do so. Hence, I draw the inference that his evidence would not add anything to Wardman's and Mitchell's versions of the conversations that they had with him. 18 Wardman admitted that after receipt of Hughes's advice he did not take any steps to register the transfer of the options between 11 August 1999 and 9 November 1999. Wardman held the view that these options were valueless and they were only brought to life after resolution 6 at the general meeting of Imperial on 9 November 1999 was passed. When the court asked Wardman for an explanation as to why he did not cause the options to be registered he was unable to provide one, except to repeat that the company meeting in November put life into the options and enabled the registration of their transfer (t 103.20-25). 19 At about this same time in mid-August, Wardman contacted both McLennan and Mitchell to advise them that the options held by Rupert were not tradeable. Mitchell then rang Hughes to enquire about the options. Hughes told Mitchell that he should wait because "something" was about to happen to the options. Hughes did not tell Mitchell what that "something" was to be. While it is difficult to say, the "something" that was foreshadowed may have been resolution 6. 20 In mid-August, Wardman also sold two further parcels of Imperial shares on behalf of Rupert. On 13 August 1999, he sold 134,405 Imperial shares and then on 16 August 1999, he sold an additional 65,595 Imperial shares on behalf of Rupert. 21 Following Mitchell's conversation with Hughes prior to 24 August 1999, Mitchell played no further role in relation to the Rupert shares or options until 6 December 1999 (other than to send a letter to Imperial on 6 October 1999). Mitchell was not instructed by McLennan to do anything further in relation to registration of the shares or options. Mitchell understood all matters associated with the shares and the options were being arranged directly by McLennan with Wardman during this time. Mitchell received no information about Imperial during this period, nor did he seek to inform himself about any of those matters . Hence, it is necessary to focus upon the conduct of McLennan and Wardman for the period 24 August 1999 onwards. 22 On 24 August 1999 at 10.33 am, Imperial issued an announcement to the market about a proposed placement and option issue to existing 1999 option holders. The Events Following 24 August 23 On 27 August 1999, Wardman sold a further 200,000 Imperial shares for Rupert. 24 Of critical importance in this case is the fact that on 30 September 1999, the September 1999 options expired and as at 30 September 1999, the Option Register in respect of the September 1999 options showed only two entities registered as holders of those options, namely, NGTI and Fiji. 25 On 6 October 1999, Mitchell sent a letter to Imperial on behalf of Rupert authorising Wardman to collect any re-issued certificates and notices in relation to Rupert's holding of shares and options in Imperial. Mitchell was asked by McLennan to send that letter to Imperial, but they had no discussion about the registration of the transfers for the September 1999 options, nor concerning the expiry of these options. Mitchell was given no role to play in the registering of these options. 26 On 8 October 1999, Imperial issued an announcement to ASX enclosing a Notice of General Meeting for 9 November 1999 and Explanatory Note (Ex A p 152, 170). One of the resolutions to be proposed at that meeting was for the issue of the 2003 options to the holders of the September 1999 options. Also on 8 October 1999, Imperial sent to ASX and released to the market an Appendix 3B Announcement in relation to the 2003 options. That announcement included details of the issue of the 2003 options to existing 1999 option holders. Item 13 of that announcement included the statement that the "record dated to determine entitlements" was the "1999 Option expiry date". 27 On 13 October 1999, Imperial sent to ASX and released to the market a letter which stated that: "none of the 17,900,000 unquoted options exercisable at 20 cents prior to 30 September 1999 were exercised by their expiry date and as a consequence have lapsed." 28 It is important to remember that none of the 30 September 1999 option-holders had exercised those options before they lapsed. 29 On 22 October 1999, 18 days prior to the scheduled Imperial general meeting, Wardman requested and received a copy of Notice of Meeting (Ex E). It contained details of the resolutions that were to be voted upon. These included the resolution to issue 2003 options to existing 30 September 1999 option holders. Wardman probably sent this document to McLennan (t 111.5). Wardman does not know whether he read it or not (t 118.5, 120.45) but he presumed that he knew that the meeting was on when he delivered the letter (t 121.25). 30 On 8 November 1999, Imperial entered into an underwriting agreement with Hudson Securities Pty Limited, pursuant to which Hudson Securities agreed to acquire any shortfall in the offer of the 2003 Options. The general meeting of Imperial on 9 November 1999 31 On 9 November 1999, at the general meeting eight resolutions were passed. Under resolution 1, the company name was changed from "Imperial" to "Imperial One Limited" (Ex A 154). This name change was not registered until May 2000. 32 A further resolution, entitled resolution 6 was also carried. The terms of this resolution were: "That the allotment and issue by the Company of 45,997,511 Options at an issue price of $0.002 each exercisable at 20 cents prior to 31 July 2003 to the non-related holders of existing Options expiring 30 September 1999 and 31 October 1999 on a one for one basis be and is hereby approved." 33 On this same day, namely 9 November 1999, Wardman, whom I find knew the meeting was on, wrote to Imperial and attached the Jason options certificate #021 for 300,00 options together with the transfer documents, Jason option certificate #017 for 2.2 million options together with transfer documents and a letter from Jason requesting all documentation to be forwarded to him. 34 McLennan asserted during cross-examination (t 21-27) that Wardman told him that between 6 August 1999 and the close of September of 1999 he had daily conversations by phone with Mr Hughes. When asked about this, Wardman said that apart from the three conversations mentioned in his affidavit "it would be quite wrong" to suggest that he was ringing Hughes on a daily basis and having discussions with him (t 64 31-51). The letter dated 9 November 1999, makes no reference to alleged daily conversations between Wardman and Hughes. Nor is there any mention of the purported ongoing difficulty effecting the transfer. Additionally, Wardman's own documentary evidence is to the contrary. His electronic diary printouts, although inconsistent, do not show any daily contact with Hughes. There were no daily phone calls by Wardman to Hughes. 35 Wardman gave evidence that the letter of 9 November 1999 reflected an attempt to rectify the register although he does not refer to "rectification" in this letter. When it was suggested to Wardman that he paid very close attention in November 1999 to the progress of the general meeting, and to the issue of 2003 options consequent upon that general meeting he answered "I don't think I paid very close attention." (t 128.35). This statement is at odds with his subsequent attempt on 9 November 1999, the day of the meeting, to have the options registered and his presumption that the meeting was on. 36 McLeod, when asked whether he knew Wardman's correspondence had been received by Imperial on or about 9 November 1999, said: "I can assume on or about that – well after that date" (t 225.37- 40). When pressed as to whether he had notice of it before 17 November 1999 he said: " I may have. I can't recall exactly, but that's a standard letter from a broker" (t 225 53 – 56). He gave no further evidence as to how Imperial dealt with Wardman's correspondence, but at this time, as they were only exercisable up until 30 September 1999, Rupert's options had already expired. 37 It is my view that on 9 November 1999 Wardman knew that resolution 6 was carried. After his belated attempt to register the options, Wardman did not contact Imperial until 29 November 1999. Wardman concedes that it was possible that he had a conversation with either McLennan or Mitchell prior to sending the letter on 9 November 1999 but he cannot recall any of the details. (t 128.5). The events from 9 to 30 November 1999 38 McLeod deposed that after the meeting of 9 November 1999 he was contacted by a number of the people, notably, Lai, Hope, Wong and Northcote. They all spoke to him in words to the following effect: "I hold 500,000 options in Imperial Fiji that expired on 30 September 1999. However, they are still in the name of Imperial Fiji as I have not lodged the transfer of option form and Option Certificates with Imperial One Limited. I want to take up the forthcoming offer to issue 2003 options on a one for one basis to those holders of 30 September 1999 options. As my options are in Imperial Fiji's name I won't be getting a copy of the prospectus or the application form. How can I take up the options?" At that time, McLeod was the chairman of Fiji (t 171.49-50). 39 In respect of Lai, Hope, Wong and Northcote, McLeod informed them in words to the following effect: "You will need to send to me, care of Imperial Fiji, a cheque in the sum of your entitlement. The cheque should be in the name of Imperial One Limited and be with me no later than 30 November 1999. Imperial Fiji will then complete the application forms on your behalf and request that the options be issued in your name." 40 On 17 November 1999, the first defendant issued the prospectus for the issue of 2003 options. On page two of the prospectus it was stated: "Pursuant to the prospectus the Company is offering one new 2003 Option for every Unquoted Option and 1999 Option held as at 30 September 1999 and 31 October 1999 respectively at an issue price of $ 0.002 per new 2003 Option, payable in full on application…" 41 Eligible parties to take up the offer contained in the prospectus included holders of options or parties who had lodged a valid transfer of options or being otherwise as at that time to be registered as an option holder in the first defendant. The "Unquoted Option" was a reference to the options expiring on 30 September 1999 (Ex A p 195). An entitlement and acceptance form was attached to the prospectus (t 185.1-36). That form contains the following statement of acceptance (Ex A p 203): "I/We, being registered as the holder of Unquoted Options and/or 1999 Options as at 30 September 1999 and 31 October 1999 respectively or having lodged a valid transfer or otherwise being entitled as at that time to be registered as Option holder in the Company HEREBY ACCEPT the undermentioned new IMP Options at $0.002 per share" 42 In cross-examination, McLeod stated (t191.39 – 192.27) that after his conversation with Lai, Hope, Wong and Northcote on 9 November 1999 he then gave instructions to Hughes that 500,000 options were to be registered in each of their names. It was unclear from cross-examination whether McLeod did this on their behalf or in fact issued them with a prospectus and entitlement and acceptance forms for them to effect the transfer and registration themselves. In cross-examination, McLeod denied that entitlement and acceptance forms were sent to them (t188.29-57), but it is possible that, as Lai and Wong were his fellow directors on the board of Fiji, they, at least, had an opportunity to obtain the forms from McLeod and also view the prospectus. 43 Both Wardman and McLennan claim not to have received the Imperial prospectus. Yet during cross-examination, it was put to Wardman that he was aware of the prospectus on 17 November 1999 or thereafter in November 1999 to which he replied: "that could be the case, yes" (t 129.24-27). Additionally, Wardman was unable to rule out the possibility that the prospectus was available to him to retrieve from the ASX information system and that he could of reviewed it by that means (t 128.53-57). Failing that, he admitted that, at the least, the existence of the prospectus was disclosed through the ASX information system. 44 McLennan stated that he may have first seen the prospectus early in 2000 (t 40.31-34) and that he believed Wardman had not seen it prior to 30 November 1999. In cross-examination, McLennan gave the impression that he was almost disinterested in the affairs of Imperial (t 37-42) but this was not the case. Wardman, acting at McLennan's behest, conducted significant trade in Imperial through August of 1999 to February 2000. McLennan must have watched Imperial's stock prices closely. For example, the purchase of 80,000 shares at 8.8 cents each on 19 November 1999 by McLennan on behalf of Rupert was the first time he actually bought Imperial stock (t41.33-36). Prior to that date, McLennan had only sold Imperial stock. It is significant that this occurred soon after the Imperial general meeting on 9 November 1999 and the issue of the prospectus on 17 November 1999. On 1 December 2000, McLennan sold the parcel of 80,000 shares for 9.5 cents each (Ex A p 336). By buying shares at the time of the Imperial general meeting and the issue of the prospectus, and then selling immediately after the close of the prospectus on November 30 1999, McLennan was able to make a small but tidy profit (t 42.50-52). This activity is consistent with him being aware of the options offer. 45 I find, on the balance of probabilities, that Wardman knew about the prospectus and its contents and probably informed McLennan of it. He may well have obtained a copy of it. If Wardman did not obtain a copy of the prospectus, he had the knowledge of its existence and the means to act to secure a copy of it. A copy of the entitlement and acceptance form which was attached and Wardman with his experience would have expected to find such a document attached to the prospectus. 46 On 29 November 1999 and 1 December 1999, Wardman telephoned Imperial to speak to Hughes. Hughes was not available. Wardman left a message for Hughes in words to the effect "Please ring John Wardman re: registration of Rupert Company's options." 47 On 30 November 1999, namely, the day that the offer closed, options were issued to Lai, Wong, Hope and Northcote in the number according to the Fiji minutes (Ex A p 71). 48 On 6 December 1999, Hughes had a discussion with Wardman about the 2003 options. Wardman deposed that he spoke to Hughes and said words to the effect "My client Rupert Company wishes to take up the 2003 options. What is happening to the registration of the 1999 options? What do you want me to do?" Hughes replied "Í don't see a problem with getting the 2003 options for Rupert Company. I will get back to you." Wardman said "Í will send a cheque for the application money when required." Hughes did not get back in touch with him. In cross-examination, Wardman admitted that he did not have independent recollection of the conversation and that his memory of it was based solely upon what was recorded in his electronic diary (t 134.24-30). 49 Mitchell deposed that on about 6 December 1999 he also had a telephone conversation with Hughes. Mitchell said "I am acting for Rupert Company Limited. I believe that it has an entitlement to some of Imperial's 30 September 1999 options which were exercisable by New Golden Trade and Investments. My client has not received any notice to exercise its options." Hughes said "The offers for those options closed on 30 November 1999." Mitchell said "My client did not receive any notice." Hughes said "The notice would have gone to New Golden Trade." Mitchell said "But you know my client is the beneficial owner. New Golden Trade is a BV1 Company. My client got no notice from it either." Hughes said "Well, the options not exercised have been taken up by the underwriter. If your client has a complaint you should send a strong letter to the Company and I will get the matter taken up with the underwriter. The Company (meaning the first defendant) does not mind but the underwriter is claiming an entitlement to those options." Thus, I accept that Hughes told Mitchell that the offers for the options closed on 30 November 1999 and that the underwriter was claiming an entitlement to the options which were not exercised. 50 The two conversations recorded between Wardman and Hughes and Mitchell and Hughes clearly conflict. Yet, as noted, Wardman does not have an independent recollection of his conversation with Hughes and relied solely upon his electronic diary to substantiate that it took place. I have referred to the unreliability of his electronic diary later in this judgment. 51 From his conversation with Mitchell on 6 December 1999, however, Hughes was aware on that day that Rupert did not receive a notice to exercise its options. Although Hughes told Mitchell that the unexercised options had been taken up by the underwriter, he wrote a letter to Hudson Securities Pty Limited, giving notice of the shortfall and seeking payment of that shortfall for the issue of options from Hudson Securities Pty Limited (Ex A p 210). Hudson Securities in turn gave notice of the shortfall to its sub-underwriters: Semeta Pty Limited, Eastern and Pacific Capital Pty Limited and Imperial Investments Pty Limited (Ex A p 218, 219, 220). 52 On 8 December 1999, Imperial wrote to National Registry Services Pty Limited about the registration of the options to be taken up under the underwriting arrangements (Ex A p 221). 53 On 9 December 1999, Imperial sent a letter to ASX for release to the market giving details of the placement of the 2003 Options (Ex A p 223). That letter recorded that Imperial had received valid acceptances for 52.03% of the total placement, and that the underwriter had taken up all of the shortfall of the issue. 54 Wardman's electronic diary records that he made a series of telephone calls to Imperial on 17, 20, 22 and 30 December 1999 and 5 January 2000 and left messages for Hughes to call him (Ex A p 349). 55 On 11 January 2000, Wardman spoke to Hughes. Wardman said "What is going on. I have not heard from you regarding the 2003 options for my client Rupert Company." Hughes replied "You will have to send a strong letter to the Company (meaning the first defendant) re: the entitlement and the matter can be resolved. The Company is aware of the situation." 56 About one month later, on 10 February 2000, Wardman wrote to Imperial and stated: "Reference is made to our discussions in relation to the above options and your communication that you saw no problem getting the options and our confirmation of forwarding a cheque when required to take up the options in the beneficial owner name in 1734844. Resolution of this matter is now urgent to void action being taken by Rupert Company of whick (sic) you know they are capable. Please issue the 2,500,000 options to Rupert Company under hin 1734844 without further delay and confirm the issuance of said options by fax to the writer on 93382700." 57 Wardman also enclosed a personal cheque addressed to Imperial in the sum of $12,500. McLennan says he was overseas and instructed Mitchell to instruct Wardman to write a letter to Imperial. McLennan was informed that the cheque was not cashed and the options were not issued. 58 About the middle of February 2000, McLennan deposed (aff 30 January 2002 para 19) that he again requested Wardman to commence selling the 2.5 million options to which the plaintiff was entitled. He instructed Wardman to sell the lot at the best price he could achieve over a couple of weeks as the market would absorb. Wardman replied that he could not sell them until he had a holder identification number for them. McLennan gave evidence that it was possible that he did not have that conversation with Wardman (t 50. 7-9). Obviously, Wardman was aware that Rupert did not hold those options because on 11 August 1999 he had been obliged to purchase them to cancel trade. 59 On 18 February 2000, Wardman sold 30,000 Imperial shares (Ex A p 337). 60 On 19 February 2000, McLennan sent a facsimile authorising Wardman to "sell enough Imperial shares" to cover certain bills which he had (Ex A p 352). On 20 February 2000, McLennan countermanded that instruction and instructed Wardman not to sell any Imperial shares until discussing it him because there was a recommendation to buy Imperial by "Rivkin" on the coming Friday and McLennan wanted to wait and see if there was further increase (Ex A p 353). 61 It is clear that at this time McLennan continued to pay close attention to the trade in respect of Imperial. On 23 February 2000, Wardman sold 100,000 Imperial shares on behalf of Rupert. At that time Imperial share prices were steadily improving in value (Ex A p 337). 62 On 29 February 2000, Mitchell sent a letter to Imperial demanding the allotment an issue of 2.5 million 2003 options to Rupert (Ex A p 226). The letter threatened the commencement of legal proceedings within 10 days. Imperial did not respond to that letter and a follow up letter was sent by Mitchell to Imperial on 11 April 2000 (Ex A p 227). Imperial responded to that letter by a letter of 27 April 2000 (Ex A p 228). Further correspondence then passed between Mitchell and Imperial in relation to the take up of the options. Proceedings were commenced by Rupert on 12 February 2001. 63 At this stage, it is convenient to record my observations of the witnesses: Mitchell, Wardman, McLennan and McLeod. I carefully observed each of them while they gave evidence and during their cross-examination. I found Mr Mitchell to be a truthful witness. I have no hesitation in accepting his evidence. However, Mitchell was only privy to information in this matter occasionally. He was given certain tasks by McLennan to perform and he carried out these tasks. The exchange of information principally occurred between McLennan and Wardman. 64 I formed the view that Wardman was a most unimpressive witness. His manner of answering questions was obfuscatory and evasive. He either claimed to have no recollection of events where evidence ran contrary to his version or he referred the court to telephone or company records, which he did not provide, in an attempt to prove the veracity of his statements (t 130-131). 65 There were also irreconcilable inconsistencies in Wardman's electronic diary entries. For instance, it was clear from client transactions printed out by Hartley Poynton, Wardman's employer, that he had conducted a sale and buyback of Imperial options after he received clearance from the company's Perth office between 9 and 12 August 1999. However, Wardman's diary recorded this as occurring on 24 August 1999. When it was put to him that his diary was unreliable and that he had corrected it at some stage after the events in question Wardman had no satisfactory explanation (t 70.25-71.57). Other details had also either been deleted from (t 72.43-46) or added to Wardman's electronic diary entries (t 75, 78-79) and for these inconsistencies he either had no explanation or could only affirm that an alteration had in fact been made (t 74.14-34). 66 Importantly, when Wardman was asked why he had not registered the 30 September 1999 options prior to their expiry date when told to by Hughes at that time he said: " I am not sure, I don't have an answer for that. But the options as I say at that time at 30 September 1999 were worthless because you would not pay 20 cents to turn them into a share" (t 102.41-44). It is my view that Wardman therefore made a conscious commercial decision on the basis of apparent worthlessness of the options as of August and September 1999 not to register the options. Earlier, I made a finding that Wardman was aware of the issue of the prospectus. He would have known that this prospectus contained details of Imperial's proposal to issue July 2003 options and that the application form to obtain those options was attached to the prospectus. 67 The day before and the day after the offer closed through to January 2000, Wardman, eagerly sought out Hughes. As previously noted, Wardman alleges that he was told on 11 January 2000 to send a strong letter to Imperial. Despite being told this, he did not actually send the letter until 10 February 2000, approximately one month later. In the meantime, the value of the options in Imperial had increased markedly, such that at the time the letter was sent to Imperial on 10 February 2000 they had doubled in value. Wardman claims that at this point he was told by McLennan to sell all of Rupert's 2.5 million options in Imperial, which, if such a conversation had of taken place Wardman would have known they were non-existent as he had already made an abortive attempt to sell the them in August 1999 (t 143.11-144.54). As noted above, McLennan admitted that it was possible that he did not have that conversation with Wardman. 68 I also have reservations about the truthfulness of Mr McLennan's evidence. Mr McLennan insisted that leading up to the expiration of the 30 September 1999 options, he had regular conversations with Wardman in which he urged Wardman to register the options. As of 9 August 1999 both he and Wardman were both aware that they were unregistered and not tradeable (t19-). Wardman admitted that he did not in fact register the options and McLennan's evidence as to why the options were not registered was that it was due to "non cooperation" by Imperial, as that is what Wardman had told him. As noted earlier, according to McLennan, Wardman made repeated attempts as of August 1999 by daily phone calls to Hughes in relation to registering the 30 September 1999 options (t.20-24). As previously stated, I am satisfied that these daily phone calls did not in fact occur. Wardman flatly denied ever conversing with Hughes about the Imperial options at that time. Wardman also denied that he had ever told McLennan that he had done so (t 64.31-51). 69 McLeod was not an impressive witness but his evidence withstood cross-examination. During cross-examination, it became apparent that McLeod was wearing a number of hats in relation to the transfer and registration of Imperial options. While he is both director and chairman of the first defendant (t 160.6-20), in 1999 he was chairman of Fiji and at that time he was also chief executive officer of Hudson Investment Group Pty Ltd, of which the underwriter of the 2003 options, Hudson Securities Pty Ltd, was a wholly owned subsidiary. Hughes was also the company secretary of Hudson Securities Pty Ltd at that time. Underwriting Hudson in respect of the 2003 options were several other companies: Eastern & Pacific Capital Pty Ltd, Semeta Pty Ltd and Imperial Investments Pty Ltd. 70 Of the 51,322,511 2003 options that were placed by Imperial, 24,618,210 were taken up by the underwriter. One portion of 4,562,949 of the unallocated options was registered in the name of HTH Nominees Pty Ltd account of Eastern & Pacific Capital Pty Ltd. Another portion of 11,179,225 options was registered in the name of HTH Nominees Pty Ltd account of Michelle Wong, while a third portion of 6,388,129 options was taken up by Imperial Investments Pty Ltd care of Alfred Lai. McLeod is a principal shareholder of Eastern & Pacific (Ex A p 218-221). Michelle Wong, into whose name the second portion of unallocated options was registered, is the daughter of Clement Wong and the third company underwriting Hudson, Imperial Investments Pty Ltd, is clearly closely associated with Alfred Lai. Together with McLeod, Messrs Wong and Lai were directors on the board of Fiji in 1999 (t 169-172). 71 While the 2003 options themselves were initially offered in Imperial's prospectus at .2 of a cent, the trading price for Imperial options, between the time at which Imperial's prospectus was lodged with ASIC on 17 November 1999 and the close of the offer on 30 November 1999, fluctuated between 2 and 3 cents (t.168). Hence McLeod's corporate entities gained considerable financial benefit from being involved in underwriting the 2003 options. 72 Importantly, when Mr McLeod was asked in cross-examination how his colleagues, Messrs Lai, Hope, Wong and Northcote were offered options even though they were not registered either at 30 September 1999 or 30 November 1999, and were therefore in the same position as Rupert, he could not provide a satisfactory explanation (t 177, 183, 194, 222). His explanation, which was not discredited, was that Lai, Hope, Wong and Northcote approached him. The Law 73 Under section 170 of the CL, companies are required to keep a register of options holders. Further, s 170 (4), provides that the company is obliged to change the register only if the transferor gives the company written notice, see: Ford's Principles of Corporations Law (1999), at 733. In order to exercise the 30 September 1999 options the obligation to register the transfer rested with the plaintiff. Wardman on Rupert's behalf made a conscious decision not to register the transfer prior to the expiry date of 30 September 1999 because, as noted, he considered the options to be "worthless" (t 102). 74 In Green v Crusader Oil NL & Anor (1986) 10 ACLR 120, Young J at 124-125, in addressing the question of when a person acquires options stated that: "It may be that some equitable property is created by the option, but essentially an option is a claim in contract against a company. As such it is a legal chose in action and the way in which it can be transferred or acquired is pursuant to s12 of the Conveyancing Act 1919...it is put that there is a sufficient acquisition of the options if someone obtains the beneficial or equitable title in the option or an arrangement or an understanding that the options are to be dealt with at their behest. I do not think this is right. Indeed, I have great difficulty in conceptualising some beneficial title in a legal chose in action of this nature." 75 Options, without registration, convey no title and give their holder no claim against their issuer. This would be the end of the plaintiff's first, second and seventh claims were it not for the consideration that, although in a similar position to the plaintiff, in that they were not registered prior to 30 September 1999, Messrs Lai, Hope, Wong and Northcote all received options in Imperial. 76 Consequently, it is necessary to consider whether the failure on the part of the first defendant to send a prospectus and a serially numbered entitlement form to the plaintiff, following the general meeting of Imperial shareholders on 9 November 1999, was misleading and deceptive pursuant to s 52 of the TP Act and s 995 of the CL. 77 In respect to the claims under s 52 of the TP Act, the insertion of s 51AF(1) into the TP Act has meant that from 1 July 1998 Pt V of the TP Act (which includes s 52) ceased to apply to the "supply or possible supply, of services that are financial services". Subsection (2) of the same provision states further that s 52 does not apply to "conduct engaged in relation to financial services". As noted by Ford's Principles of Corporations Law (2000), at 995-996, "financial service" is given the same definition by the TP Act as it has in Pt 2 Div 2 of the Australian Securities and Investments Commission Act 2001. There a "financial service" is defined, for example, as consisting of the provision of "financial product advice" or, more relevantly as "a service that is otherwise supplied in relation to a financial product". A "financial product" is defined as a "facility through which, or through the acquisition of which, a person" makes a "financial investment", manages "a financial risk" or makes "non-cash payments". It is my view that the 30 September 1999 options fall within this definition of financial product. As the plaintiff's claim under s 52 concerns a financial service it cannot be brought under s 52 of TP Act and this claim fails. This leaves the plaintiff's claim under s 995 of the CL. 78 Section 995 relevantly states: "Misleading or deceptive conduct (2) A person shall not, in or in connection with: (a) any dealing in securities; or (b) without limiting the generality of paragraph (a): (i) the allotment or issue of securities; (ii) ... (iii) ... (iv) the carrying on of any negotiations, the making of any arrangements or the doing of any other act preparatory to or in any other way related to any matter referred to in subparagraph (i), (ii) or (iii); engage in conduct that is misleading or deceptive or is likely to mislead or deceive." 79 As defined by s 762(1) of the CL, the reference to conduct under s 995 is: "a reference to doing or refusing to do any act, including the making of, or the giving effect to a provision of, an agreement." 80 Section 995 of the CL requires that conduct must be objectively assessed in determining whether or not it is misleading or likely to mislead. It is therefore, no defence for a defendant to argue that it believed its conduct was not so. Under s 995 the plaintiff must show that it suffered loss by the contravening conduct. Section 995 is expressed in similar terms to s 52 of the TP Act. Therefore, while s 52 may not apply to these proceedings, previous case law on that section is of assistance. 81 In Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd [No 1] (1988) 39 FCR 546, Lockhart J at 555 said of s 52: "Misleading or deceptive conduct generally consists of representations, whether express or by silence; but it is erroneous to approach s 52 on the assumption that its application is confined exclusively to circumstances which constitute some form of representation. The section is expressed briefly, indeed tersely, in plain and simple words…[t]here is no need or warrant to search for other words to replace those used in the section itself. Dictionaries, one's own knowledge of the developing English language and ordinary experience are useful touchstones, but ultimately in each case it is necessary to examine the conduct, whether representational in character or not, and ask the question whether the impugned conduct of its nature constitutes misleading or deceptive conduct. This will often, but not always, be the same question, as whether the conduct is likely to mislead or deceive." 82 As Lockhart J noted in leading up to this passage, in regard to its ordinary meaning in English (which is a 'useful touchstone' as he put it), "mislead" can encompass leading astray or causing another to err. Conduct is "likely to mislead or deceive" if there is, as the Full Court of the Federal Court stated in Global Sportsman Pty Ltd v Mirror Newspapers Pty Ltd (1984) 2 FCR 82 at 87, a "real or not remote chance" that it will do so. It is sufficient if the conduct is prone or has a propensity, or is liable to mislead or deceive even though there is less than a 50% chance that this will in fact happen. 83 As previously stated, it is my view that Wardman and McLennan paid close attention to Imperial's affairs at this time and that on the balance of probabilities Wardman had seen Imperial's prospectus, and was aware of its contents. McLennan knew of the offer either by means of his regular contact with Wardman or by his own research. McLennan's trading in Imperial is consistent with his being appraised of the options offer. Given this information, either Wardman or McLennan could have taken steps to obtain the prospectus with attached entitlement form and press ahead with efforts to ensure their interests were protected. Instead, between 17 November 1999 and the expiration of the offer on 30 November 1999 they did nothing. At the same time, Messrs Lai, Hope, Wong and Northcote, took active steps to transfer and register their options, albeit that they were ably assisted in this endeavour by McLeod. 84 In the plaintiff's camp, and prior to the expiry date of the offer, Mitchell knew that Rupert had entitlements that were exercisable by NGTI but thought that because Imperial knew Rupert was the beneficial owner it should have received the notice to exercise its options. I am not satisfied that Imperial's obligation extended to forwarding a notice to a beneficial owner of unexercised options. After all, without registration those options convey no title and give their holder no claim against the issuer. 85 From the telephone conversations that the second defendant, Hughes, had with Mitchell on 6 December 1999, it is apparent that Hughes was aware of the plaintiff's interest, but the offer to take up the 2003 options had already expired as of 30 November 1999. As of 9 November 1999, Wardman on behalf of the plaintiff had lodged options certificates and standard transfers with stamp duty paid. However, almost 3 months earlier Hughes had told Wardman what he had to do to register the options prior to the expiry date. After that he did not make any further contact with Hughes until he left messages for him on 29 November 1999 and 1 December 1999; the day before and the day after the offer closed. His actions on behalf of Rupert were too little and too late. 86 Silence or non-disclosure will not, without more, amount to misleading or deceptive conduct. The plaintiff had notice of the necessary documentation and its contents to act decisively and the impugned conduct of the defendants was inconsequential. It is my view that it was only when the value of options recognisably increased as of February 2000 that Wardman and McLennan focused their attention on securing the registration of the options by threatening legal action. There is no causal connection between the plaintiff's failure to obtain the 2003 options and the conduct of the defendants. The possibility that the plaintiff might have been misled by the defendants' conduct is remote. I find, accordingly, that first, second and seventh claims have not been made out and that the defendants have not breached s 995 CL and are not liable to the plaintiff for damages under s1005 CL. 87 I also dismiss the plaintiff's third, fourth, fifth and sixth claims. Briefly, in relation to the third and fourth claims, the plaintiff's conduct reveals that it did not rely upon the first defendant to send a prospectus and entitlement form. Rupert did not act in time or with any resolution to register the 30 September 1999 options, so it was not ready, willing and able to accept the offer of the July 2003 options to be issued under the prospectus. 88 The plaintiff's claims fail. The statement of claim is dismissed. Costs normally follow the event. The plaintiff is to pay the defendants' costs as agreed or assessed. 89 The Court orders that: (1) The statement of claim is dismissed; (2) The plaintiff is to pay the defendants' costs as agreed or assessed. ********** Last Modified: 04/01/2003 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.