The inherent plausibility of the witnesses' competing versions of events
577 Mr Wilson's version of events is inherently implausible. It requires the Court to believe that Dr Castella embarked on a plan to conceal the termination of the Galderma Agreements from Mr Wilson. That is unlikely. For one thing, the evidence does not establish any reason as to why Dr Castella would want to do that. Mr Wilson sought to advance four reasons.
578 The first was that Dr Castella was concerned that if the Board became aware of the termination of the Galderma Agreements, he might not get a bonus to which he was entitled under his employment agreement. But on 4 November 2016, the Board had already approved that Dr Castella receive a bonus of $125,000, which was 25% of his base annual salary. He was eligible for an annual short term incentive bonus within a range of 0% to 30% of his annual salary, evaluated based on the KPIs found in the merger agreement between Quintis and Santalis. One of the KPIs listed is 'Launch Acne Product line extension #1', a related activity of which is said to be 'Galderma support for pilot mfr, stability, validation'. This is said to be a core activity for '0-2 yrs'. Reports from Santalis that were tendered into evidence showed that Santalis was performing well against the merger KPIs. Dr Castella's evidence was that since the bonus had already been approved he assumed that it would be paid and that he did not link it to the termination of the Galderma Agreements. That is plausible and consistent with the documents just described. The suggestion that Dr Castella would embark on a plan to conceal the termination of the Galderma Agreements from Mr Wilson because of concern about the bonus that had already been approved is pure conjecture.
579 The second reason Mr Wilson postulated as to why Dr Castella would want to conceal the termination from him concerned a margin loan that Dr Castella had. In April 2016 he had borrowed AU$1.1 million secured against approximately 1.3 million shares in Quintis. A margin call could be made if the share price dropped from the price at the outset of the loan, $1.63, by 25% to $1.23. But as at 1 December 2016, the share price was $1.57 and by 16 December 2016, when the Termination Agreement was executed, it was $1.68. It was, then, tracking satisfactorily against the initial price. In those circumstances, Dr Castella's evidence given in cross examination that he did not give it much thought until the events that precipitated Quintis's decline (that is, the Glaucus Report) is plausible and rings true. If it was in his mind that disclosure of the Termination Agreement would precipitate a 25% drop in the share price, that was not explored or otherwise apparent from the evidence. Although senior counsel for Mr Wilson put to Dr Castella that it was 'plainly of great relevance and importance to you that the share price of TFS stayed above $1.23' (ts 144), it was not put squarely to Dr Castella that he was concerned that disclosure of the Termination Agreement would have caused the share price to drop below that level, or more broadly that the margin loan was the cause of his intent to conceal, so it would not be fair to make a finding that it was. This second explanation for Dr Castella's alleged course of concealment is, again, conjectural.
580 The third explanation advanced was that Dr Castella had an interest in Quintis shares and was selling them in February 2017 and so was concerned not to have their price drop. But this too is conjecture. The shares in question were received as consideration for the sale of 50% of Santalis to Quintis and were thus held in escrow for defined periods. The shares were held by a fund which had a charter obligation not to hold securities and so it needed to sell them down as soon as possible, that is, as soon as the escrow period expired. Again, if Dr Castella was concerned that disclosure of the termination of the Galderma Agreements would cause a large drop in the value of the shares, this was not explored in, or apparent from, the evidence.
581 The fourth reason advanced by Mr Wilson in submissions was that Quintis and Santalis were pursuing the possibility of an IPO for Santalis which would probably involve the conversion of 'earn out' arrangements into shares in the IPO vehicle. But this was not put to Dr Castella and any connection between that and a concern about a fall in Quintis's share price resulting from disclosure of the termination of the Galderma Agreements was not even articulated. I do not accept this as a possible reason why Dr Castella would have sought to conceal the true position from Mr Wilson.
582 It is worth interpolating here that if the motivations for deception linked to Quintis's share price were compelling in the case of Dr Castella, they were all the more so in the case of Mr Wilson, who had substantially more shares in Quintis than Dr Castella and a substantially larger margin loan. But it is not necessary to make findings about the reasons for Mr Wilson's concern about disclosure of the termination; that concern is evident on the face of the emails he sent in May, July, August and September 2016 described at [255]-[269] above.
583 In any event, I do not accept that any of the posited motives for Dr Castella to have concealed the termination from Mr Wilson are sound. Those preparing Mr Wilson's closing submissions seem to have accepted that the evidence as to these motives was not strong, as their primary submission on the point was that it does not matter, that the Court could and should make findings that Dr Castella concealed the truth without making findings about why, and that '[m]ost likely … Dr Castella is simply a person who disregards the truth as and when he chooses' (closing submissions para 318). Be that as it may, the lack of any apparent reason why Dr Castella would want to embark on a course of deception does not enhance the plausibility of Mr Wilson's case.
584 Further, even if, for some unknown reason, Dr Castella did wish to conceal the termination of the Galderma Agreements from Mr Wilson, it is unlikely that Dr Castella would have thought that he had any real hope of succeeding in that. Mr Wilson was keenly interested in the status of those agreements. The existence of agreements to supply EISO to Galderma, a subsidiary of a major multinational company, had featured prominently in Quintis's announcements to the market from February 2014 right up until at least October 2016 (see [270]). That is so even if one disregards the standard wording that appeared at the end of all of Quintis's market announcements from August 2014 to March 2017.
585 Dr Castella knew of Mr Wilson's interest in the status of the Galderma Agreements directly from, at least, Mr Wilson's emails in 2016 just mentioned. The interest expressed in those emails was not limited to the question of whether Benzac was going to be discontinued. It was interest in the relationship as a whole, including its contractual aspects. Mr Wilson's interest in the relationship was informed, to a substantial extent, by concern about whether news of a significant change in the relationship would need to be disclosed to the market, in particular in the absence of 'good news' to counterbalance it. It was not informed solely by a desire to preserve or enhance Quintis's negotiating position with Galderma.
586 These findings are inferences based on the wording of the emails. Mr Wilson's email of 13 May 2016 said it was 'too early to be going negative on Galderma', that is, releasing negative news about the relationship with Galderma, 'as nothing yet in place to replace them', that is, nothing that can be presented as positive news to counterbalance negative news about Galderma. The email was counselling care in 'how we present this' and about the 'line' that should be presented. Mr Wilson's email of 18 July 2016 was about extending 'the relationship duration', which plainly encompassed the contractual relationship, although it did speak of how the launch of another OTC product would allow Quintis to 'drive the agenda with them more aggressively ourselves'. Mr Wilson's email of 10 August 2016 spoke of not being able to afford 'bad surprises in the next few months until other contracts kick in' which was, again, about market perceptions. His email of 21 August 2016 spoke of being able to 'absorb bad news' and the need to have until the end of the year to 'do this smoothly'. His email of 31 August 2016 spoke of 'buying time' by negotiating on an acquisition of the Benzac brand, and it spoke of this in a way which made it appear that buying time, not acquiring the brand, would be a major purpose of the discussions (as well as using it to 'sow seeds for further RX deals').
587 As well as this level of interest, Mr Wilson had direct relationships with Mr McCrea, Mr Kenney (Director of Acne, Galderma) and Mr Wang (brand director of Benzac). He attended the briefing with Mr Harrison in August 2015 and met him again in October 2015. Mr Wilson accepted that at the time of the draft Discount Letter in November 2015 he was in constant contact with Mr McCrea and Mr Kenney. He had the 'long and cordial call' with Galderma representatives in February 2016. He emailed and spoke to them on other occasions, sometimes with Dr Castella participating or being copied in, sometimes without.
588 Further, the Termination Agreement was known, at least, to Mr Clements, with whom Mr Wilson also communicated directly. There is no suggestion that Mr Clements was somehow involved in any alleged course of concealment. Mr Wilson could easily have discovered the truth about the termination from him.
589 In all that context of Mr Wilson's level of interest, the nature of that interest, the motivations behind it and his direct communications with Galderma personnel and Mr Clements, it is unlikely that Dr Castella could have concealed something as significant as the termination of the Galderma Agreements from Mr Wilson for any length of time, or that Dr Castella thought he would have been able to do so.
590 To the contrary, the behaviour most consistent with Dr Castella's previous conduct would have been to tell Mr Wilson about the termination of the Galderma agreements, or any intention to do so. The clear impression that emerges from the course of correspondence and discussions detailed above is that Mr Wilson and Dr Castella worked together to manage the relationship with Galderma. They both had contact with Galderma staff from time to time, sometimes separately, sometimes together. The text messages described above at [370]-[372] show that they were on good terms even after Mr Wilson left Quintis and even after the issue about market disclosure of the termination of the Galderma Agreements came to a head.
591 Given the inconclusive nature of the evidence about Mr Wilson's knowledge of the final Discount Letter, there is no basis to think that Dr Castella concealed information about Galderma from Mr Wilson at any time before December 2016, and every reason to think that they shared information in the course of a normal working relationship. No doubt, the fact that Dr Castella and Galderma were both based in Texas meant that he was the point of contact for matters where Mr Wilson was not, but Mr Wilson was by no means reliant on Dr Castella to keep informed about relations and developments with Galderma; he kept abreast of them himself.
592 It follows that the absence of any plausible reason why Dr Castella would have wanted to conceal the termination of the Galderma Agreements from Mr Wilson is material. While the onus was always on ASIC to prove its case, Mr Wilson's inability to point to a motive (in the sense of a goal to be achieved) on Dr Castella's part does not decrease the inherent likelihood that when informed of the impending termination of the Galderma Agreements, Dr Castella did what he had done in the past - he told Mr Wilson about it. For those reasons, it is implausible that Dr Castella sought to conceal the termination from Mr Wilson.
593 In contrast, Dr Castella's version of events is quite plausible. The evidence shows that Quintis, under Mr Wilson's leadership as Managing Director, was concerned to make positive announcements to the market at every opportunity, and many of those positive announcements concerned its contractual relationship with Galderma. Then, as the emails just summarised show, when the relationship began to look shaky, Mr Wilson became concerned, including a high level of concern about what any significant bad news about the relationship would do to market perceptions.
594 There is nothing inherently wrong with any of this. Mr Wilson was the founder and Managing Director of Quintis and he owned a substantial number of its issued shares. It is only natural that he would have been concerned about the possibility that the company might need to announce bad news to the market without, at least, having good news to counterbalance it. He accepted as much in cross examination (ts 599). But that concern makes it entirely plausible that, if he were to be faced with such bad news, he would be concerned to look for ways to delay its release to the market, until it could be offset with good news.
595 And, while Dr Castella could hardly have kept such bad news about Galderma from Mr Wilson, Mr Wilson was much more likely to be able to keep it from the Board and so from the market. No member of the Board had direct dealings with Galderma. Mr Wilson informed the Board about such dealings through his Managing Director's reports in the board packs. It is true that Dr Castella and Mr Clements also prepared reports to the Board on behalf of ViroXis and Santalis, but Mr Wilson had the opportunity to read those reports before the rest of the Board did, and to modify their contents if necessary. The point is not to speculate that this ever did happen in relation to Galderma - there is no evidence that it did. The point is that it is entirely plausible that Mr Wilson both had the ability to control the flow of information about the Galderma Agreements to the Board, and that he knew that he had that ability.
596 The evidence also shows that he had exercised that ability in the past. The clearest example of this is the Managing Director's report of August 2015 (see [208]-[210] above). This was prepared at a time when, on Mr Wilson's own evidence, a senior Galderma executive, Mr Harrison, had told him that unless there was a reduction in the COGS for Benzac as a result of a reduction of the cost or concentration of EISO in the product, the product faced a 'bleak uncertain future'. That was because Benzac was 50% more expensive than its competitors.
597 To be sure, Mr Wilson did not entirely omit this bad news from this report to the Board. But it would have taken an astute reader to have identified it. For it was obscured by talk of 'the huge potential market for us in pharmaceutical and cosmeceutical markets' and the 'wonderful opportunity we have to expand our OTC product range both within and outside Galderma'. A vague mention of the 'potentially enormous' OTC market as cost driven and crowded, particularly in relation to acne, was quickly offset by talk of how 'one breakthrough RX product would be a game changer'. While Galderma's desire to reduce COGS through price or concentration reductions in relation to EISO was mentioned, it was then couched in terms of helping Galderma achieve their 'aggressive growth targets', not in terms of a risk of discontinuance. The meeting being reported on was described as 'very productive' and Mr Wilson was reportedly left with the view that if Quintis adopted a commercial attitude, 'the opportunity to penetrate much further within Galderma was readily available'. After discussion of Galderma's plans to boost marketing of and awareness of EISO, 'some element of price reduction' is mentioned, but it is presented as part of 'tremendous free advertising' by 'an industry leader like Galderma' and as a reasonable trade for 'volume and royalty tradeoffs'. The idea that Benzac was facing a 'bleak uncertain future' without a significant reduction in the price or concentration of EISO used in the product simply does not emerge from the report.
598 In this way Mr Wilson had, and used, the ability to control the flow of information about Galderma and Benzac to the Board. Other examples include his regular reporting of positive news on Benzac to the Board, including the digital marketing campaign for Benzac that was to be launched by Galderma, the new packaging with TFS's logo, and positive sales results. He presented the acquisition of Proactiv by Nestlé as both a 'threat' and an 'opportunity' (see [254] above). He did not report that Galderma had (at least) proposed cutting the price of EISO nearly in half, sought to cancel purchase orders and was seriously considering the future of the relationship with Quintis and Santalis in relation to Benzac. It is plausible that in December 2016, Mr Wilson decided to prevent or delay communication of the termination of the Galderma Agreements to the Board.
599 It could be said against this that it is a serious thing to allege that a Managing Director would make a decision of that kind. There are two answers to that. The first is that it is, equally, a serious thing to allege, as Mr Wilson does, that the CEO of a subsidiary of Quintis would conceal the termination of the Galderma Agreements from the Managing Director of Quintis. This is why I said earlier in this judgment that the conventional perception described in Neat Holdings, that members of our society do not ordinarily engage in fraudulent or criminal conduct, does not take one very far in this situation, even if it is conceived of in terms of dishonest or improper rather than fraudulent or criminal conduct. On the parties' respective cases, one or the other of Dr Castella and Mr Wilson has deliberately concealed the termination of the Galderma Agreements from people who were entitled to know it.
600 The other answer is that, on Mr Wilson's own case, by December 2016 the Galderma Agreements were just not that important to Quintis. If that is really what he thought, that makes it more likely that he decided not to communicate their termination to the Board. This exposes a logical tension inherent in Mr Wilson's case: on the one hand, he is saying that the Galderma Agreements were not material; on the other hand he seeks to attack Dr Castella's honesty by pointing to his lack of disclosure of the termination to Mr Gooding, Mr Stevens, Mr Coetzer and the Board.
601 Another logical tension is also apparent in another attack Mr Wilson made on Dr Castella's conduct. He pointed out that Santalis had agreed to terminate the Galderma Agreements as at 31 December 2016 apparently, according to Dr Castella, so that Galderma would not have to make further royalty payments. As Mr Wilson says, that required Santalis's agreement, because the licence agreement between Santalis and Galderma required a two year notice period for Galderma to terminate, with the annual minimum royalties payable in the meantime. Mr Wilson submits that it is significant that Dr Castella has not explained why Santalis rushed to reach a Termination Agreement which dispensed with that negotiated disincentive to drop Benzac as a product (see Mr Wilson's evidence at [318] above).
602 But Dr Castella was not asked to explain why this was agreed. An explanation emerges from the evidence, however: Dr Castella (at least) believed that Galderma had a genuine interest in Santalis's Rx program, so it would make sense for Santalis to forego the relatively small minimum royalties payable for the calendar years 2017 and 2018 (US$150,000 and US$175,000 respectively) to keep Galderma's good will. The tension in Mr Wilson's submissions arises because they acknowledge this, in that they say that Galderma was showing interest in Santalis's Rx program, and that this is one reason why 'there was a broader negotiation or discussion than just Benzac' (closing submissions para 217).
603 I make no finding that this was why Santalis agreed to dispense with the two year notice period; I do not need to make a finding about why. It is simply that the presence of this possible alternative explanation means that Mr Wilson has not succeeded in impugning Dr Castella's conduct, and perhaps by extension his credibility, on the basis that the agreement to dispense with two years of minimum royalty payments was unexplained.