42 As at 2005, Mr Lofts was the majority shareholder (holding about 75% of the shares) and a director, of AIIB. His fellow director, Mr John Brindle, held the remaining 25% of the shares of AIIB.
43 At some time in early 2005, Mr Brindle decided that he wished to retire from AIIB in about 2006. Mr Brindle gave evidence that, as part of the retirement process, he wanted to sell his shareholding in AIIB and to retire as a director. Mr Lofts did not wish to acquire Mr Brindle's parcel of shares. Mr Brindle gave evidence that he had negotiations with various parties in relation to the sale of his shares. He said that he first offered his parcel of shares to another insurance broker, Mr Stephen McGrath, but that Mr McGrath was not able to acquire the whole parcel. In about April 2005 he had discussions with Mr Beard (T 54), who was then employed as an insurance broker by Driessen, as to the possibility that Mr Beard would take up a position with AIIB and would acquire part (but not all - T 68) of Mr Brindle's shareholding in AIIB.
44 Mr Brindle says, in general terms, that he offered Mr Beard a position with the company and with the opportunity of purchasing a portion of his shareholding in that company at an agreed value and that Mr Beard accepted that offer (T 55). Mr Brindle nominated a price of $216,000 for 900 of his shares (about 9% of the company's capital). He says that Mr Beard requested a complete list of finances for two years to make a judgment (T 55) (although Mr Beard's evidence suggests that he simply accepted the figure put to him by Mr Brindle).
45 Mr Brindle says he calculated the value of his shareholding as a percentage of the value of the total shares, valuing the business at 1.5 times earnings (that being the way he said shares are valued in "insurance practices" - T 56/57). Mr Brindle says that Mr Beard had agreed (presumably only in principle since there was not a formal agreement till May 2006) to purchase 900 of his shares in October 2005, before he gave Mr Beard the client list, which has assumed some significance in these proceedings, identifying particular clients (T 55).
46 Mr Lofts agrees that he was privy to some of the initial discussions between Mr Brindle and Mr Beard. Mr Beard says it was represented to him that, on acquisition of the shares, he would be made a director of AIIB. According to Mr Lofts, the discussion about a directorship was in the context of someone taking up the whole of Mr Brindle's 25% shareholding. Mr Lofts said that prior to November 2005 he had had a conversation with Mr Beard in relation to the proposed sale of Mr Brindle's 25% shareholding in which he says that he had indicated that the person who purchased a 25% holding would be made a director of the company (T 27). Mr Lofts apparently did not wish to enlarge the board by appointing more than one director in place of Mr Brindle. The fact that Mr Beard was ultimately not made a director of the company was a source of some contention on Mr Beard's part (as evidenced by the complaints contained in his notice of termination).
· Offer of Employment - October 2005
47 On 11 October 2005, Mr Beard signed a document titled Offer of Employment ("Offer of Employment"), accepting the offer by AIIB of a position as an account manager of AIIB commencing on 28 November 2005 on a salary of $85,000. It is not disputed that under this offer, Mr Beard's overall monetary package was in the vicinity of $100,000 per annum (slightly less than Mr Beard's salary package had been at Driessen).
48 Shortly afterwards, Hamtuan was incorporated by Mr Beard on 14 October 2005 (as disclosed in the ASIC search a copy of which is Annexure D to Mr Lofts' affidavit).
49 Mr Beard commenced work with AIIB on 28 November 2005. At least on the face of the pleadings, there is a dispute as to whether, when he did so, he remained bound by the terms of the Offer of Employment he had signed. Mr Beard says that the "offer" contained in the Offer of Employment was superseded by a verbal agreement between AIIB and Hamtuan pursuant to which the latter was to be appointed as an authorised representative of AIIB. Mr Lofts, for his part, seems broadly to have accepted in the witness box that the only "agreement" in place when Mr Beard started with AIIB was that Hamtuan would be an authorised representative and would receive the agreed monthly commission (T 29).
· Authorised Representative Agreement - November 2005
50 On about 28 November 2005, Mr Lofts provided Mr Beard with a document titled "Authorised Representative Agreement" and dated 28 November 2005 ("Authorised Representative Agreement"), in which the Licensee was expressed to be "AIIB Pty Limited" and the Authorised Representative was expressed to be "Hamtuan P/L". The basis on which this document was provided by AIIB is disputed. Mr Beard suggested that this document was in some way foisted upon him (and Hamtuan); he says he was told to "rip up" the Offer of Employment and that a corporate authorised representative had to be appointed. Mr Lofts says, to the contrary, that it was Mr Beard who requested that his corporate entity be the authorised representative and Mr Lofts denies that he told Mr Beard his company would have to be an authorised representative (T 28).
51 There was no reason put forward as to why Mr Lofts would have insisted upon the contractual arrangements being structured with Hamtuan and Mr Beard (rather than simply with Mr Beard himself) as an authorised representative rather than an employee, in circumstances where he had already provided to Mr Beard, and Mr Beard had already signed, an employment agreement. The reason for the change cannot logically be linked to the purchase by Hamtuan of Mr Brindle's shares, since this had been the basis on which Mr Brindle was "offering" Mr Beard a position with AIIB in the first place. There is no suggestion that an authorised representative arrangement (as opposed to an employment relationship) was necessary if what was contemplated was the sale of a client portfolio (as opposed to a sale of shares), although Mr Beard seemed to think the portability of a client base was facilitated by his appointment as an authorised representative. Nor was it suggested that there was a particular need on the part of AIIB for Mr Beard or his company formally to be appointed as an authorised representative, as such, rather than Mr Beard simply operating as an employed insurance broker (as Mr Beard says he had been at Driessen).
52 Any difference between the two roles (as described by the two men) seems at most to turn on the kind of financial services advice which can be given under an AFSL but neither Mr Beard nor Mr Lofts placed any emphasis on this. After (rather uninstructively) saying (at T 132) "An insurance broker is an insurance broker. An authorised representative is an authorised representative. They fulfil many of the same jobs - risk analysis - both do", Mr Beard later contradicted this (T 140) by saying that an authorised representative had totally different responsibilities and characteristics. Mr Beard described the difference by reference to the level of perceived autonomy an authorised representative would have had and whether his computer system would be under another's control. He said that an authorised representative has more duties and responsibilities and basically sets his or its own business plan and agenda, operating as an individual company under the umbrella of a licensed broker. Mr Lofts seems to have accepted that Mr Beard/Hamtuan's role was or would have been the same whether Mr Beard was employed under the employment agreement or whether Hamtuan was appointed AIIB's authorised representative operating under AIIB's licence as an employee or as an authorised representative (T 10).
53 There are two factors which seem to me to point to Mr Lofts' version of events being correct (ie that the change in the working arrangements from that of an employment relationship to the appointment of a corporate authorised representative was made at Mr Beard's request or at least with his knowledge prior to the commencement of the working relationship). First, it seems there was no requirement that Mr Brindle (whose position Mr Beard was in part assuming) operated through a corporate entity. Secondly, Hamtuan was incorporated after the employment agreement was signed by Mr Beard, some two weeks before Mr Beard says the Authorised Representative Agreement was thrust upon him. There must have been some discussion leading up to the production of that first corporate authorised representative agreement for Mr Lofts to have known the name of the company to be appointed. It is unlikely that such a document was magically brought into existence without Mr Beard's prior knowledge and foisted upon him on the first day of what had hitherto been proposed as an employment relationship.
54 Mr Beard says that he told Mr Lofts he would give the Authorised Representative Agreement to his accountant to give to his lawyer, and that he did so. Neither he nor Hamtuan signed the Authorised Representative Agreement. To the extent that Mr Lofts' affidavit deposed to Mr Beard having said he was "happy" with the agreement, Mr Lofts conceded in the witness box that Mr Beard had never indicated one way or the other whether the terms were acceptable to him. Rather, he said that what Mr Beard had said to him was that he was happy with the arrangement whereby he was appointed an authorised representative (T 31).
55 I will come back in due course to the reason why Mr Beard says he (and Hamtuan) did not sign the Authorised Representative Agreement. Suffice it to note that there seems no suggestion that Mr Beard was in any way unhappy with its terms (assuming he had paid any or any more than scant regard to its terms, a matter which is itself in issue). I find it difficult to accept that Mr Beard (who seems at various stages throughout this matter, including at the time he signed the October 2005 agreement, to have been prepared to rely upon his own counsel in making decisions) would not at least cursorily have read the document before passing it on to his advisers.
· Registration of Hamtuan as AIIB authorised representative
56 Hamtuan was registered with ASIC as the authorised representative of AIIB on 28 November 2005, the date on which it and Mr Beard commenced their business relationship with AIIB. At that stage, no agreement for the sale to Mr Beard of any portion of Mr Brindle's shares had been completed, although it was in principle agreed that Hamtuan would acquire 900 of Mr Brindle's shares for a price of $216,000. Mr Brindle says that at this stage Mr McGrath, through his company Blue Ocean Two Pty Limited, had agreed to purchase an equivalent of 60% of his shareholding and what Mr Beard had agreed to purchase was an equivalent of 36% of his total shareholding.
· Client list
57 In about November 2005, Mr Brindle handed to Mr Beard a handwritten list of clients, a copy of which is Annexure "A" to Mr Brindle's affidavit sworn 1 April 2008. The list contains two columns, the left hand headed "SMcG" and the right hand "PB". What this list represents is a matter in dispute between the parties.
58 Mr Brindle says that this document listed the various clients whom he then managed (and that the numbers adjacent to each client referred to the earnings or revenue to AIIB from each client). Mr Brindle says that he attempted to distribute the clients he managed fairly between Mr McGrath and Mr Beard. (Mr Brindle did not allocate any clients to Mr Anthony Bourke (a broker in AIIB's Newcastle office) who bought the balance of his shares and was also a party to the ultimate Share Sale Agreement.) Mr Brindle denies that he had any proprietary right or interest in a "client portfolio" and denies that any purchase by Mr Beard of his client portfolio was discussed.
59 Mr Beard, on the other hand, asserts that the list reflects the portion of Mr Brindle's "client portfolio" that he "purchased". Mr Beard said that at least three or four draft client lists were provided to him. He denied that a client list was only given to him after he walked through AIIB's door: "No, because we were in discussions and I wanted to know his client portfolio. I didn't want to spend a lot of money on something that I didn't know what was - what was there, so I had run through with him - with him - the potential clients prior to my joining, prior to my leaving my previous employer". (That in itself seems inconsistent with Mr Beard's understanding that he was purchasing a "client portfolio" rather than being given an opportunity to earn remuneration based on commissions from a client portfolio he was being given to manage. Had the position been the former, Mr Beard's willingness to leave his former employment prior to finalising the acquisition of the client portfolio seems to me to be, at best, remarkably trusting. More likely, this is indicative of an understanding that Mr Beard was purchasing company shares, not clients.)
60 Mr Brindle, who says he continued working for AIIB until late February 2006 to ensure the smooth handover of client management, accepts that he visited each of the clients he managed with either Mr McGrath or Mr Beard as the case may be (and some clients on two or three occasions) but denies that this was more than a handover in an administrative sense. I think nothing can be drawn from the fact that Mr Brindle took Mr Beard to introduce him to the clients on the list. It is what might have been expected on either version of events.
· Share Sale Agreement - May 2006
61 Mr Lofts recalled that in about February/March (I assume, 2006) Mr Beard had asked for information as to declared dividends over the years and financial trading information. Mr Lofts said, "I gave an undertaking in relation to the dividends which would be paid which the company later honoured even though profits were smaller because of that transaction with John [Brindle]" (T 12). Nevertheless, he says what he gave to Mr Beard prior to the latter becoming a shareholder were projections as to the payment of dividends (T 14; T 15) not historical financial information (T 12; T 14).
62 It was not until May 2006 that the sale of Mr Brindle's shares was completed. (Mr Brindle's evidence is that he was advised by his accountant to postpone signing the Share Sale Agreement until some time after he left AIIB for tax reasons. Mr Beard seemed to suggest the reason for the delay was a financing issue. Nothing seems to turn on this, other than that the lapse of time between the commencement of Mr Beard/Hamtuan at AIIB and the documentation of arrangements in relation to the share sale, including the preparation of a proposed shareholders agreement, makes it difficult for me to accept that the reason Mr Beard did not sign the Authorised Representative Agreement, at least initially, was due to any difficulty in securing Mr Lofts' agreement to the later documentation.)
63 For completeness (though I have placed no weight on this) I note that Mr McGrath gave evidence (by affidavit sworn 12 April 2008) confirming his understanding that what was purchased by Blue Ocean Two Pty Limited was the equivalent of 60% of Mr Brindle's shares (or 15% of the total shareholding in AIIB) and not a client portfolio.