Supreme Court of WA|2001-07-20|Before: Smith J

Australian Securities & Investments Commission v Doyle & Anor [2001] WASC 187 (20 July 2001)

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA

CITATION : AUSTRALIAN SECURITIES & INVESTMENTS COMMISSION -v- DOYLE & ANOR [2001] WASC 187

BETWEEN : AUSTRALIAN SECURITIES & INVESTMENTS COMMISSION

Corporations - Companies - Alternate director - Material personal interest - Attendance and voting at board meeting

Corporations - Companies - Directors - Director with material personal interest - Whether quorum for meeting of board

Companies - Director - Placement of shares - ASX directs shares cannot be voted nor traded - Return of placement monies to placement shareholders - Director acting for allottees - Whether improper use of position contrary to s 232(6) of the Corporations Law - Whether purpose to cause detriment to company or advantage to other persons

Companies - Directors - Whether knowingly concerned with contravention of s 232(6) of the Corporations Law by another director

Companies - Directors - Return of placement monies to agent of shareholders under threat of legal action - Monies to be held in trust pending resolution of legal questions - Whether failure to exercise reasonable care and diligence - Whether breach of s 232(4) of the Corporations Law

First respondent contravened s 232(6) of the Corporations Law

Second respondent was knowingly concerned in the contravention by the first respondent

First Respondent : Mr M J McCusker QC & Mr K L Christensen

Second Respondent : Mr M J McCusker QC & Mr K L Christensen

All Risks Insurance Co Ltd v Pioneer Concrete Services Ltd (1986) 10 ACLR 760

ASC v Donovan (1998) 28 ACSR 583

ASC v Forem Freeway Enterprises Pty Ltd [1999] FCA 179; (1999) 30 ACSR 339

ASC v Mathews (1995) 16 ACSR 313

ASC v Spencer (1997) 25 ACSR 143

Australian Innovation Ltd v Petrovsky (1996) 21 ACSR 218

AWA v Daniels (1992) 10 ACLC 933

Dixon v Evans (1872) LR 5 HL 606

Duke Group Ltd (In Liquidation) v Pilmer & Ors [1998] SASC 6529; (1998) 27 ACSR 1

FAI Traders Insurance Co Ltd v ANZ and McCaughan Securities Ltd (1990) 3 ACSR 279

Giorgianni v The Queen [1985] HCA 29; (1985) 156 CLR 473

Mistmorn Pty Ltd (In Liq) v Yasseen (1996) 21 ACSR 173

Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd [1992] HCA 66; (1992) 110 ALR 449

Peter Williamson Pty Ltd v Capitol Motors Ltd (1982) 61 FLR 257

Re Armvent Ltd [1975] 3 All ER 441

Tasmanian Spastics Association; Australian Securities Commission v Nandan (1987) 23 ACSR 743

Trade Practices Commission v Nicholas Enterprises Ltd (No 2) [1979] FCA 51; (1979) 26 ALR 609

Trevor v Whitworth (1887) 12 App Cas 409

Von Lieven v Stewart (1990) 21 NSWLR 52

Whitehouse v Carlton Hotel Pty Ltd [1987] HCA 11; (1987) 162 CLR 285

1 ROBERTS-SMITH J: By statement of claim dated 27 August 1998 and re-amended to 30 March 2000, the applicant ("ASIC") asserts that the respondents have committed "serious" contraventions of a civil penalty provision of the Corporations Law, sought declarations that the first respondent ("Doyle") contravened s 232A(1) of the Corporations Law ("s 232A(1) CL") and s 232(6) CL, and that the second respondent ("Satterthwaite") was knowingly concerned in one of those contraventions by Doyle (or alternatively, that Satterthwaite himself contravened s 232(4) CL) and claimed orders that Doyle and Satterthwaite be prohibited from managing a corporation for such period as the court thinks fit and that each pay to the Commonwealth a pecuniary penalty in an amount fixed by the court.

2 The applicant's prayer for a declaration that Doyle contravened s 232A(1) CL was abandoned at the hearing, Mr Martin QC, senior counsel for the applicant, indicating that the need to resolve a dispute between the parties as to whether such a declaration would be appropriate would be a distraction from what the applicant saw as more central issues.

3 The proceedings were initially instituted in the Federal Court of Australia but because of the judgment of the High Court in Re Wakim; Ex parte McNally [1999] HCA 27; (1999) 198 CLR 511 they were subsequently transferred to and continued in this Court. No issue arises out of that circumstance.

4 Much of the applicant's case as pleaded was not in dispute and it is convenient to set out the course of events and then identify the issues in contention.

5 Ascot Mining NL was incorporated in Perth on 8 February 1985. On 9 August 1985 the name of that company was changed to Merlin Mining NL, on 2 December 1991 to InterChrome NL ("InterChrome") and on 4 November 1996 to Chile Minera NL ("Chile Minera"). The name at any particular time does not matter for present purposes and so to avoid confusion I shall refer to the entity, under whichever name operating, as "the Company". The relevant Articles of Association for the period concerned in these proceedings were those adopted at an extraordinary general meeting of the Company on 18 October 1996.

6 Article 2 deals with share capital and variation of rights. Article 2.1 is in a common form and provides that the shares of the Company shall be under the control of the directors who may allot or otherwise dispose of them on such terms and conditions and with such special rights or restrictions as the directors think fit from time to time subject to certain constraints. Under art 2.2 the directors may from time to time issue share options on such terms and conditions as they determine in their absolute discretion.

7 Changes to the capital structure of the Company are covered by art 10. Article 10.2 gives power to the Company by special resolution to reduce its share capital. This power is expressed to be subject to the Corporations Law and the Listing Rules. Article 10.3 gives the Company power to buy back its own ordinary shares by any of the means authorised by the Corporations Law and the Listing Rules.

8 Article 12 deals with proceedings at general meetings.

9 Article 12.8 deals with voting rights. Article 12.8(a) is expressed to be subject to par B and to Listing Rules. So subject, each shareholder entitled to vote may vote in person or by proxy, attorney or representative; on a show of hands, every person so present has one vote and on a poll, every person so present has one vote per share, but a proportionate vote on partly paid shares.

"In the event of a breach of any provisions of the listing rules relating to restricted securities ... the member holding the shares in question shall cease to be entitled to any voting rights in respect of those shares for so long as the breach subsists."

11 Article 13 deals with directors. It provides that the Company shall at all times have at least three directors but the number shall not exceed nine. The directors may at any time appoint a person to be a director, either to fill a casual vacancy or as an additional director. Any director so appointed holds office only until the next general meeting (art 13.5).

12 By art 14 the directors are (inter alia) made responsible for the management of the Company. Article 15 contains the provisions regulating their proceedings. In the circumstances of this case, art 15.3 (which prescribes the quorum) is important:

"No business shall be transacted at any directors meeting unless a quorum is present, comprising two (2) directors present in person who are entitled to vote at the meeting. Provided a quorum is present at the place where the meeting is called, other directors unable to attend in person may participate in the proceedings of the meeting in accordance with Article 16."

13 That latter Article authorises a director to participate in a meeting of directors by means of a contemporaneous linking by instantaneous communication device and any meeting in which a number of directors being not less than the quorum is participating either by that means or is physically present shall be deemed to constitute a directors' meeting. This is subject to certain conditions such as the consent of the director participating in the meeting in that way, confirmation that all of the directors participating can hear each other and acknowledgment of the presence of all participating.

14 It was common ground that the effect of these Articles is that for a quorum there must be two directors physically present in person and each of them must be entitled to vote at that meeting; directors participating by instantaneous communication in accordance with Article 16 cannot comprise part of the quorum.

15 Another provision of importance to the present case is that contained in art 15.6 which has to do with alternate directors. It provides that a director may appoint any person to be an alternative director in his place during such period as he thinks fit. The appointment or termination of appointment of an alternative director must be effected by written notice signed by the director making the appointment given to the Company. In addition:

(a) He is entitled to notice of directors' meetings, and if his appointor director is not present at such a directors' meeting, he is entitled to attend and vote in the place of the absent director;

(b) He may exercise any powers that his appointor director may exercise, and the exercise of any such power by the alternate director shall be deemed to be the exercise of the power by his appointor director...."

16 Article 15.10 has a bearing on this case. It provides that a resolution in writing signed by all directors for the time being (or their respective alternate directors) except those who expressly indicate their abstention in writing, shall be as valid and effectual as if it had been passed at a directors' meeting.

17 The disclosure of interests of directors is covered by art 15.15 in the following terms:

"Subject to the Listing Rules, no Director shall be disqualified by his office from contracting with the Company whether as vendor, purchaser or otherwise, nor shall any such contract or any contract or arrangement entered into by or on behalf of the company in which any Director shall be in any way interested be avoided or prejudiced on that account, nor shall any Director be liable to account to the Company for any profit arising from any such contract or agreement by reason only of such Director holding that office or of the fiduciary relationship thereby established, but the nature of his interest must be disclosed by him at the Directors' meeting as soon as practicable after the relevant facts have come to his knowledge and such Director shall not vote on any resolution relating to a contract or arrangement in which he has directly or indirectly a material interest."

18 It should be noted that art 15.15 is in quite similar terms to s 232A CL as it stood at the relevant time, although an important point of distinction is that s 232A stipulates not only that the person with the material personal interest as a director cannot vote on the matter in which they have an interest but further, shall not be present when it is discussed.

19 There is the usual requirement that minutes be kept (art 21.1) and art 30 stipulates that while the Company remains on the Official List and notwithstanding any other provision to the contrary contained in the Articles, the Listing Rules must be complied with and the Articles are deemed not to contain any provision inconsistent with them.

20 At all relevant times the Company's registered office was Level 1, 210 St George's Terrace, Perth, that being the office of the Company's solicitors, Fiocco Hopkins Nash.

21 The Company was admitted to the Official List of the Australian Stock Exchange ("ASX") and its ordinary shares were listed for official quotation with a par value of 50 cents. The Company was accordingly at all times under an obligation to comply with the ASX Listing Rules. Those rules govern the admission of entities to the Official List, the quotation of securities, suspension of securities from quotation and removal of entities from the official list. They also govern disclosure and some aspects of a listed company's conduct. Although the Listing Rules are in part contractual, they are enforceable against listed entities and their associates under the Corporations Law. Significantly, LR 7.1 prohibited a company from issuing more than 10 per cent of its capital in one class in any 12 month period without the approval of holders of ordinary securities.

22 Bernard Roland Mountford was a director and Chairman of the Board from 8 February 1995 until 7 February 1997. He was in Chile from 20 September to 24 December 1996. Satterthwaite was a director from 1 May 1995 until 7 February 1997. Doyle was an alternate director for Mountford on 21 November 1996 and a director in his own right following the resignation of John Hopkins from 22 November until 28 November 1996. Hopkins was director from 27 September until 15 November 1996.

23 At all relevant times Doyle was a director of Doyle Partners Pty Ltd ("DCP") and owned and was beneficially entitled to 50 per cent of the issued shares in DCP.

24 In June 1996 the Company entered into an agreement with a New Zealand company, International Mining Holdings Ltd ("IMHL"), to purchase a 75 per cent interest in a prospective copper, cobalt and gold mining concern in Chile known as Carrizal Alto.

25 In August 1996 DCP was engaged as a consultant to the company in relation to potential Chilean interests, to provide professional independent advice on technical and financial issues and to assist the Company with respect to capital raisings. It was agreed that DCP would be paid a fee of 6 per cent of new capital raised. The agreement was entered into by Doyle on behalf of DCP.

26 On 25 September 1996 Satterthwaite wrote to the Company shareholders advising that the board had resolved to concentrate all of the Company's future exploration efforts in Chile and that an integral part of the endeavour was the acquisition of a 75 per cent interest in the Carrizal Alto mining project and the implementation of a number of resolutions set out in a Notice of Extraordinary Meeting attached to his letter. The Extraordinary General Meeting ("EGM") was scheduled for 18 October 1996. There were five resolutions proposed. They had to do with the following matters:

1. To change the name of the Company from InterChrome NL to Chile Minera NL.

3. Allotment of shares to creditors (directors and a former director).

5. Acquisition of the Carrizal Alto Prospect and allotment of shares.

"That approval be given to the acquisition by the Company of a 75% equity interest in the Carrizal Alto Prospect in Chile by the payment of US$165,000 and the issue of 35 million ordinary fully paid shares at an issue price of 4 cents to the Vendor, such issue is intended to be made forthwith upon passing of this resolution and in any event not later than 3 months after the passing of this Ordinary Resolution. The shares will be issued on the same terms as all shares currently listed for quotation on the ASX. No funds will be raised from this issue."

28 Following DCP's engagement there were discussions between Doyle and Satterthwaite regarding the placement of shares and options with DCP to raise working capital for the Company. On 9 October 1996 Doyle wrote to Satterthwaite on behalf of DCP advising the Company that DCP would place 8,000,000 shares at 50 cents each to raise an amount of $400,000 for the Company to utilise as working capital ("the placement"). As agreed, the fee would be 6 per cent of the total money raised, namely $24,000. Settlement was to be Friday 18 October 1996.

29 On 16 October 1996 the Company issued 8,000,000 partly paid ordinary 50 cent shares and 8,000,000 attached options at a discount of 45 cents to raise $400,000 for working capital requirements. The ASX was advised of this by letter of the same date.

30 By letter dated 17 October 1996, Christopher Murphy, the Company secretary, wrote to KPMG Share Registry advising that the shares and options were to be issued to Banque Privee Edmund de Rothschild SA ("Rothschild Bank"), Cramm Nominees Pty Ltd and DCP. Rothschild Bank was to receive 1,000,000 shares and 1,000,000 options; Cramm Nominees was to receive 3,000,000 shares and 3,000,000 options and DCP was to receive 4,000,000 shares and 4,000,000 options. On 23 October 1996 ANZ Nominees advised they were acting on behalf of Rothschild Bank and their client's shares and options were to be registered under ANZ Nominees Pty Ltd.

31 But the ASX had concerns about the placement. On 17 October 1996 the ASX wrote to the Company, referring to the announcement of the placement and advising that the number of securities included in it appeared to be in excess of the limit described in LR 7.1. The Company was asked to comment on that. The ASX further queried that in the event the placement was in excess of the prescribed limit, how the Company intended to rectify the breach.

32 Murphy conceded that there had been a breach. In a letter dated 18 October 1996 he wrote that the Company had on issue 84,887,584 shares prior to the placement, but of those the Company now believed only 79,487,584 had received the necessary shareholder approval. Therefore the placement of 8,000,000 shares had exceeded the entitlement based on 10 per cent by 51,242 shares. He advised that the Company would seek shareholder approval to remedy this situation at the Annual General Meeting ("AGM"). That had been scheduled for 22 November 1996. As later appeared, there was a difference of opinion about the extent of the breach of LR 7.1. The ASX records revealed the 10 per cent limit had been exceeded by a much more significant figure.

33 The EGM of which notice had earlier been given was held on 18 October 1996 at the offices of Fiocco Hopkins Nash. All five resolutions were passed on a show of hands. It is apparent from the minutes (A 11 in the ASIC Report tendered as ex P1) that there was some strong minority shareholder discontent with the Carrizal Alto proposal and the general conduct of the business of the Company.

34 On 21 October 1996 the ASX wrote to the Company noting that its record of shares and options issued by the Company did not agree with the Company's letter of 18 October and asking for an explanation. The ASX also requested advice as to whether the shares and options the subject of the announcement of 16 October had been allotted and issued and pointed out that LR 7.1 prohibited a Company from issuing more than 10 per cent of the Company's capital in one class without the approval of holders of ordinary securities. The ASX advised that in the event that the securities had not been allotted and issued, the Company would be permitted only to issue up to 10 per cent of any existing class, with the balance to be allotted following shareholder approval.

35 On 24 October 1996 a meeting was held at the offices of the ASX between three ASX representatives, Satterthwaite and Murphy representing the Company and Leith Ayres (a solicitor with Fiocco Hopkins Nash), to discuss the proposed acquisition of Carrizal Alto and the share placement. As to the latter, the ASX file note of the meeting records that the Company representatives confirmed that the shares and options had already been allotted and that it did seem that they were in breach of the LR 7.1 restriction. It was also noted that the Company representatives confirmed that some of the shares issued had been voted on at the meeting held the previous Friday, specifically those held by Doyle. The ASX representatives advised that they would do a complete review of the Company's LR 7.1 history and confirm the extent of the breach. The Company provided a draft Notice of Annual General Meeting by which they hoped to correct the breach by way of ratification. (In his submissions to the ASX in January 1998 (F 2) Doyle conceded that he was aware of the meeting of 24 October 1996 but denied that at the EGM he voted any shares the subject of the placement).

36 On 24 October 1996 Fiocco Hopkins Nash wrote to the ASX, forwarding a number of documents including a draft Notice of General Meeting, requesting the ASX to review them and advise whether or not they were contrary to any Listing Rule requirements. On the same date the ASX wrote advising that with one minor change the draft Notice of General Meeting was not inconsistent with the Listing Rules. The letter then turned to the situation relating to LR 7.1 and confirmed that ratification by the Company's shareholders of the placement of 8,000,000 shares and 8,000,000 options would not have the effect of reinstating the Company's 10 per cent placement facility pursuant to that Listing Rule. It was pointed out that following passage of the resolutions proposed for the forthcoming meeting, those securities would be deducted from the Company's 10 per cent placement facility pursuant to LR 7.1 for a period of 12 months after their issue. The letter reiterated that by the placement the Company had breached LR 7.1. With respect to the 8,000,000 shares placed, the ASX required the Company to provide certain information, specifically whether holders of the 8,000,000 shares had voted at the meeting on 18 October and if so, how many, whether those persons had been shareholders prior to receiving shares pursuant to the placement and in relation to resolution 5, approximately how many persons voted on and in favour of that resolution.

37 The Company's 1996 Annual Report, together with the Notice of General Meeting to be held on 22 November 1996, was distributed to shareholders on 25 October. The covering letter from Murphy noted the previous approval of the change of name of the Company and of the acquisition of the option to acquire 75 per cent of the Carrizal Alto properties in Chile. It also stated that as a result of the recent share and option placement the Company had sufficient working capital to continue its exploration activities in Chile.

38 On 5 November 1996, Brendon O'Hara, the Perth Companies' Manager for the ASX wrote to Satterthwaite confirming that a written response to previous correspondence from the ASX was still required and raising further matters to be addressed. These were first, to provide an account of Doyle's involvement in the proposed acquisition of the Carrizal Alto project and an enquiry about the shares voted at the Extraordinary General Meeting on 18 October. About the latter, O'Hara wrote:

"2. We have been informed by Mr Derek Clauson of Metalsearch NL that, at the Company's general meeting held on 18 October 1996, you (in your capacity as Chairman) advised members that you held certain proxies in favour of resolution 5 and Mr Doyle advised that he held certain proxies in favour of resolution 5.

As previously advised, ASX is of the view that the 1,000,000 shares allotted to Fiocco Hopkins Nash on 24 September 1996 and the 8,000,000 shares allotted to clients of Doyle Capital Partners on 16 October 1996 were issued in breach of the Company's 10% placement facility pursuant to listing rule 7.1.

Of the proxy votes held by you and Mr Doyle, how many related to these two share issues?"

39 The response was provided by letter from Fiocco Hopkins Nash dated 6 November 1996. That was concerned primarily with the background to the Carrizal Alto project, however it also dealt briefly with Doyle's role. It was explained that Doyle's involvement was through DCP and the nature of that firm's dealings with the Company had been the provision of professional independent advice on technical and financial issues and assistance with respect to capital raisings. The Company took issue with the content of par 2 of the ASX letter date 5 November. The solicitors advised that at the general meeting on 18 October, Doyle held authorities to act as the representative of various corporations but did not hold any proxies. They further stated that Satterthwaite did inform the meeting at its commencement that he held certain proxies on behalf of members and that the number of shares in favour and against all resolutions were read to the meeting by Murphy, the Company secretary. Resolution 5 was put to the meeting and passed on a show of hands; no poll was requested nor taken. The solicitors confirmed that they had been instructed by the Company that it would not, without further notice to the ASX and confirmation of the status of the transaction, effect settlement (including the allotment of shares) of the transaction the subject of the meeting of 18 October, without prior approval of the ASX.

40 On 13 November 1996 the ASC commenced proceedings in the Federal Court against the Company, Satterthwaite and Doyle seeking orders setting aside the resolution passed at the EGM to approve the acquisition and restraining the Company from proceeding with it. Carr J made interim orders to that effect on 22 November 1996. The litigation was finalised by consent orders on 2 December 1996. They included an injunction restraining the Company from proceeding with the acquisition until approved by its shareholders pursuant to s 623 of the Corporations Law and LR 7.1.

41 As well, on 13 November 1996 the ASX had written to the Company seeking clarification of the roles of Satterthwaite and Doyle in the proposed acquisition of the Carrizal Alto project. It is clear the suspicion (which appears to have had its genesis with, and was certainly shared by, the disaffected shareholders of the Company at the 18 October meeting) was that Satterthwaite had an interest in, or association with the proposed vendor and stood to gain in some undisclosed way from the transaction. So far as compliance with LR 7.1 was concerned, the ASX reiterated that the Company had issued securities in breach of the rule. It was pointed out that on 24 September 1996 the Company issued 1,000,000 ordinary shares to advisers in breach of the rule and on 16 October 1996 (two days before the shareholders' meeting) the Company placed 8,000,000 shares with clients of DCP in breach of the rule. The letter continued:

"Listing rule 7.1 provides that certain types of issues, including the issue of 35,000,000 ordinary shares proposed by resolution 5 at the meeting of 18 October 1996, cannot be made without the approval of holders of ordinary securities.

In our view the Company has not obtained the approval of holders for a number of reasons.

First, listing rule 7.3 requires that the notice of meeting include details of the names of the allottees (if known) or the basis upon which allottees would be determined.

If the term 'allottees' only extended to 'registered holders', the requirement would be all but meaningless in a case such as this, where the identity of the beneficial holder is crucial to shareholders making an informed decision.

Further, there has been no mention in any of the documentation of possible subsequent transfers to Chilean tenement holders (in fact, no mention of their rights over Carrizal).

Second, as 1,000,000 shares held by advisers and 8,000,000 shares held by clients of Doyle Capital Partners have been allotted in breach of listing rule 7.1, we are of the view that these shares could not be voted at the shareholders' meeting. We understand that Mr Satterthwaite held proxies from the advisers for 1,000,000 of these shares in favour of the resolution.

Despite first writing to you on 5 November 1996 about the shares issued to clients of Doyle Capital Partners, we still do not know how many of the 15,508,000 shares, for which we have been informed that Mr Doyle claimed representative status, are made up of the 8,000,000 shares issued to clients of Doyle Capital Partners in breach of listing rule 7.1. We therefore assume this to be a relevant issue.

On this basis we are of the view that the resolution, which was passed on a show of hands, was passed on a false assumption as to the likely result and is therefore invalid.

Third, we consider the Explanatory Memorandum to be defective in that it is stated that the directors (including Mr Satterthwaite) have no direct or indirect interest in the proposed acquisition and do not have any interest or association, directly or indirectly with IMHL or any associate of IMHL. Further, Mr Satterthwaite made a recommendation in favour of the resolution.

It appears to us that, based on the information available, Mr Satterthwaite is an associate of the vendors, including Minera Stamford SA."

42 The letter went on to require an account of the court documents and an undertaking from the Company that it would not proceed to issue any of the 35,000,000 shares referred to in resolution 5 of the meeting of 18 October as the ASX considered the Company had not obtained the approval of shareholders. The ASX stated that whether a response was received or not, a copy of the letter would be released to the market. The securities of the Company would remain suspended in any event until the ASX received an adequate response.

43 In a note to the market of the same date, the ASX advised that the Company's securities had been suspended forthwith pending clarification of proceedings commenced by the ASC in the Federal Court and clarification of certain aspects of the proposed acquisition of the Carrizal Alto Prospect.

44 There were continuing discussions between the Company's solicitors and representatives of the ASX. As a result of those, Fiocco Hopkins Nash wrote again to the ASX on 8 November 1996 responding to a number of queries about the meeting on 18 October. They wrote that Doyle held authorities to act as representative for various corporate entities of which only some held shares issued under the placement. They said they had requested Doyle to give written confirmation of the details. They advised that objection had been made by Mr Derek Clauson of Metalsearch NL (a substantial but minority shareholder) prior to the passing of resolution 4, to Doyle voting on behalf of entities in any way related or associated with him and that Doyle advised the meeting that because of that objection he would not use his authority as representative to vote on behalf of DCP but would vote the remainder. Satterthwaite had voted as Chairman and holder of the proxies in relation to resolution 5 but none of those proxies related to the placement. They said their previous advice that Doyle did not hold any proxies was incorrect; in fact he did hold a proxy for a named individual who was not the holder of any shares the subject of the placement.

45 This did not satisfy the ASX, which continued to request further details of the shares voted at that meeting and the allocation of shares in the placement.

46 Cole & Co, solicitors for Metalsearch NL, wrote to the ASX on 18 November 1996, expressing concern about the Notice of Forthcoming Annual General Meeting and complaining that the explanatory notes were sadly deficient. They specifically sought confirmation that until proposed resolution 2 in that Notice (intended to ratify the placement) was passed, the shares referred to may not be voted at the AGM.

47 By letter dated 20 November 1996, the ASX wrote to the Company referring to the placement in breach of LR 7.1 and pointing out that the Notice of Meeting for 22 November 1996 contained four proposed resolutions which related to compliance with the Listing Rules and advised that votes cast on them (namely resolutions 1, 4, 6 and 7) by the holders of the placement shares and any associates must be disregarded. Furthermore, the Company was advised that it should be aware that the passing of resolutions 2 and 3 relating to the issues of securities made in breach of LR 7.1 would not rectify the breach nor have any effect for the purposes of LR 7.1 or 7.4.

48 On 20 November 1996 the Company announced the resignation of Hopkins as a director and the subsequent appointment of Doyle as an alternative director for Mountford. Also on that date, Metalsearch NL wrote to the Company requesting that an Extraordinary General Meeting be convened for the specific reason of removing the board of directors and replacing them by Clauson and other nominated associates.

49 It was at that point that Doyle wrote to the directors of the Company a letter dated 21 November 1996 (the "letter of demand") which was in the following terms:

"I refer to the Australian Stock Exchange (ASX) letter dated 20th November, 1996 in relation to the ability to vote on the 8 million shares placed by Doyle Capital Partners Pty Ltd on 16th October 1996 raising a total amount of $400,000. A copy of the ASX letter is attached. As a result of being informed that the placement breeched (sic) listing rule 7.1 we formally demand the repayment of this $400,000 dollars immediately.

The shareholders who took these shares believed they were ranked pari pasu (sic) with existing shares in the company, as the company has been instructed by the ASX that this is not the case and these shareholders have been disenfranchised in relation to voting these shares at the Annual General Meeting to be held on Friday 22nd, November 1996 (sic).

We require settlement today by way of bank cheque, otherwise we will be forced to take legal action against the company to settle this transaction. Should you have any queries regarding the above please contact the undersigned."

50 That letter was handed to Satterthwaite by Doyle in Perth that day at a meeting of the directors of the Company. Those present were Doyle, Satterthwaite and Murphy. Doyle was present in his capacity as an alternate director for Mountford. According to the minutes (A 35), Satterthwaite took the chair. The minutes then recorded:

"IT WAS ADVISED Mr Satterthwaite has received a letter of demand from Doyle Capital Partners this morning. The demand is for the return of $400,000 paid by clients of Doyle Capital Partners for a placement of 8 million shares and options. Mr Satterthwaite advised that the Stock Exchange has ruled that in view of a breech (sic) of listing rule 7.1 these shares are not validly allotted.

Therefore it is proposed to cancel the allotment.

Discussion on the possibilities of a further placement took place.

IT WAS RESOLVED that the $400,000 be returned to the Trust account of Doyle Capital Partners. Release of these funds will only be made upon the return to the Company of the 8 million shares and options.

IT WAS FURTHER RESOLVED that the placement fee paid to Doyle Capital Partners be returned to the company."

52 These minutes were signed and dated by Satterthwaite on 22 November 1996 as a correct record. There is a manuscript amendment to the end of the first paragraph, the typed portion of which read "... these shares are validly allotted": the word "not" has been inserted before the word "validly". There is no mention in the minutes of Doyle having either declared a conflict of interest or not voting.

53 On the same day, Satterthwaite and Doyle signed a document headed "CIRCULAR RESOLUTION OF THE DIRECTORS ON THURSDAY 21st NOVEMBER, 1996" ("the Circular Resolution"), which read:

"Mr Derek Satterthwaite advised that he has received at 8.00 am today from Doyle Capital Partners a demand for return of $400,000 which was recently sent to the company for a placement of 8,000,000 shares. The reason for the demand is that Doyle Capital Partners have received advice that they or their clients possibly may not be able to vote their shares at the forthcoming Annual General Meeting.

It was therefore RESOLVED that the Company Secretary be instructed to draw a bank cheque for $4000,000 payable to Doyle Capital Partners Pty Ltd which is to be held pending advice from the Australian Stock Exchange (ASX) as to their ruling on the ability of these new shareholders to exercise their vote."

54 Doyle's signature appears over the words "B.R. Mountford by his alternate Alan Doyle".

55 Also on the same date, Satterthwaite and Murphy signed a letter to the ANZ Bank requesting it to organise a bank cheque for $400,000 made payable to DCP and to be debited against the Company's New Issue Trust Account. The bank cheque was issued and the Company account was debited that day.

56 At 7.30 am on 22 November 1996, a meeting of directors of the Company was held at the Hyatt Regency Hotel. Those present were Satterthwaite and Doyle. The minute of meeting (A 39) shows Doyle was there in his capacity as alternate director for Mountford. The only business done was a resolution that Doyle be appointed a director. This of course was an appointment of him as a director in his own right.

57 The Company AGM was held at the office of Fiocco Hopkins Nash at 9.09 am on 22 November 1996.

58 Satterthwaite opened the meeting and passed the chair to Doyle, who explained that Hopkins had resigned. Notice had been given of seven resolutions. Doyle noted that the second, third and sixth proposed resolutions were being withdrawn and advised that resolution 4 had no relationship to the Carrizal Alto deal.

59 The first proposed resolution was to ratify the placement of 5,400,000 shares and options made on 13 February 1996. The motion failed because of a successful motion from the floor that it not be put.

60 Proposed resolution 2 was to ratify the placement of 1,000,000 shares and options on 24 September 1996 and proposed resolution 3 was to ratify the placement of the 8,000,000 shares and options made on 16 October 1996. As foreshadowed by Doyle, neither was put to the meeting.

61 Proposed resolution 4 was also withdrawn. That had called for the Company in accordance with LR 7.1 to approve the directors at their discretion issuing up to 30,000,000 fully paid shares and 30,000,000 free options.

62 Motions to reappoint Hopkins and Mountford as directors were also stymied on the carrying of a procedural motion that they not be put in light of the requisition by Metalsearch NL calling for an EGM to spill the board.

63 Following the AGM a further meeting of directors was held at 10.50 am the same day. That meeting was attended by Satterthwaite, Doyle and Murphy; Mountford participated by telephone by prior arrangement. Doyle chaired the meeting. The minutes of the previous directors' meeting were confirmed. Doyle proposed that Mountford be re-elected. A resolution was passed that he be appointed to fill a casual vacancy until the next general meeting of shareholders. The minutes of this meeting (A 43) then record that:

"IT WAS EXPLAINED by Alan that as a result of the letter of demand for the return of $4000,000 was received from Doyle Capital Partners yesterday a board meeting had been convened yesterday morning. Alan explained that he would give an undertaking that the shares and option will be returned.

Alan explained to Roly the consequences of the breach of listing rule 7.1 and the fact that the ASX has decided to disallow these shares to vote.

After discussions at that meeting and advise (sic) from the company's solicitors a resolution was passed agreeing to cancel the allotment of those 8 million shares and options placed recently.

IT WAS RESOLVED to confirm yesterdays decision for the return of funds provided the company receives a refund of the placement fee of $24,000."

65 The minutes also reveal Doyle told the meeting that the Federal Court had upheld the ASC application for an injunction and further legal advice had been taken. The directors resolved that as a result of that advice the Company should be exploring settlement options. There was also discussion about the wording of an announcement needed for the Stock Exchange in relation to the results of settlement discussions.

66 The meeting closed at 11.05 am. Doyle has signed and dated these minutes as correct on 22 November 1996. There is no mention in the minutes of Doyle declaring any conflict of interest or not voting on any resolution.

67 It appears that there must have been a meeting of directors with a representative of Fiocco Hopkins Nash prior to the directors' meeting at 10.50 am, because of the reference in the minutes of that meeting to legal advice having been taken and the decision to make an announcement to the ASX in the terms of a document attached to the minutes. That document itself purports to be minutes of a directors' meeting of the Company held on 22 November 1996, although no time is indicated. These earlier minutes note that consideration had been given to the judgment of Carr J that day and that the directors had resolved to settle the court proceedings on legal advice on the following basis:

"(a) That the Company agrees to declarations by the Court that Resolution No. 5 of the Company's Extra-ordinary General Meeting held on 18 October 1996 ('the Resolution') is invalid and of no effect.

(b) That the Company agrees not to proceed with the allotment of shares and transaction contemplated by the Resolution.

(c) That the Australian Securities Commission ('ASC') would not seek declarations in the Proceedings that the Company or Mr Satterthwaite contravened the Listing Rules or the Corporations Law.

(d) That the Company make a payment to the ASC of $8,000 by way of costs,"

68 On 27 November 1996, Doyle wrote to the Company on behalf of DCP advising that the latter had placed monies received as a result of the cancellation of the 8,000,000 share and options placement into the DCP trust account. He wrote :

"We have placed in our Trust account monies received as a result of the cancellation of the placement of 8 million shares and 8 million options. We have advised clients that this placement technically breeched (sic) ASX listing rule 7.1 and the shares were invalidly issued. We have also advised our clients that funds would be returned to them upon advise (sic) from Chile Minera NL that they had received the share and options certificates.

Some of our clients have indicated that they have an interest in applying for stock in a new placement, we do however understand that this cannot be completed till after the Extraordinary General Meeting had been held to replace Directors."

69 The next development was a letter dated 29 November 1996 from Fiocco Hopkins Nash to the ASX referring to the latter's still outstanding queries. The solicitors informed the ASX that as set out in the Company's release dated 22 November 1996 and subject to the approval of the Federal Court, resolution 5 passed at the EGM on 18 October authorising the Company to allot 35,000,000 shares to IMHL, was invalid and of no effect. Accordingly the Company considered the ASX queries no longer relevant and requested the ASX to lift the suspension. They also queried in relation to the 9,000,000 shares issued whether, in the event that the Company sought and obtained a validation in respect of that allotment from the court, the ASX would continue to maintain its opinion that votes cast (or to be cast) by those shareholders should be disregarded.

70 The solicitors wrote a further letter to the ASX the same day responding to queries about the composition of the Company's board.

71 There was continuing correspondence and discussion between the Company, the Company's solicitors and the ASX about a range of issues, but I shall confine myself for present purposes to only those which have a bearing on the placement and the respective roles of Doyle and Satterthwaite.

72 On 5 December 1996 the ASX wrote to Fiocco Hopkins Nash requesting information about a number of matters, including what was referred to as the Company's breach of LR 7.1. The letter added that the ASX had received information to the effect that the Company proposed to cancel the placement of 8,000,000 shares announced on 16 October 1996 and return the funds received from that placement to the allottees, and sought confirmation whether or not that was in fact the Company's intention and if so, confirmation that the requirements of s 195 of the Corporations Law would be complied with.

73 Section 195 of the Corporations Law permitted a reduction of share capital only by special resolution of the shareholders and confirmation by the court.

74 The EGM requisitioned by Metalsearch NL to spill the board and appoint new directors was called for 17 January 1997 by Notice of General Meeting dated 10 December 1996.

75 On 13 December 1996 Fiocco Hopkins Nash briefed counsel to advise whether the placement could be viewed as void ab initio and the placement money lawfully returned to DCP without first obtaining court approval to that end (that is, as a reduction of share capital under s 195 of the Corporations Law). In their briefing letter, Fiocco Hopkins Nash informed counsel that the ASX had insisted the Company disregard any votes made by the issue holders in respect of certain resolutions at the Company's AGM and that as a result, those issue holders were denied the basic right of voting in accordance with the ordinary shares held and that their right to vote at the next general meeting of the Company remained in issue. They stated that DCP had demanded the Company repay the money paid for the issue since in the view of DCP the shares were worthless on a selective basis to them and therefore invalid. The solicitors stated that against their advice, the Company had placed the $400,000 issue price into the DCP trust account.

76 Counsel's opinion, sent by facsimile to Fiocco Hopkins Nash on 17 December 1996, was that there was no basis for setting aside the issue as void ab initio, there was no basis for the payment of $400,000 being made to DCP by the Company, and that Doyle's role in the transactions was of some concern given that the interests of his clients were clearly in conflict with those of the Company.

77 In light of that advice, Fiocco Hopkins Nash sent a facsimile message to Murphy the same day, advising that counsel's opinion had been received and counsel had confirmed their preliminary advice that there was no basis for setting aside the issue as void from its inception and that any return of monies would be by way of reduction of capital. Accordingly the Company should seek to ensure that the $400,000 held in the DCP trust account was not disbursed and further suggested that as a matter of urgency the monies be removed from that account and placed into a trust account in the name of Chile Minera NL.

78 The subsequent course of events can be dealt with briefly.

79 On 19 December 1996 Murphy sent a copy of counsel's advice to Doyle at DCP and requested arrangements be made for the $400,000 to be deposited to the Company's new issue trust account at the ANZ Bank.

80 Following further correspondence between Fiocco Hopkins Nash and the ASX, the latter advised on 15 January 1997 that it would hold no voting restrictions on the shareholders of the 8,000,000 shares.

81 On 16 January 1997 the Supreme Court ordered that the proposed EGM of 17 January 1997 be adjourned to 7 February 1997; however on the same day an Administrator was appointed by the directors as a result of their opinion that the Company was insolvent. Doyle participated in that meeting by telephone. The minutes of the meeting record that:

"The $400,000 held in Doyle Partners trust account from a recent placement of 8,000,000 shares which the Stock Exchange ruled are invalid appears now to be not available to the company.

Alan Doyle advised the directors that in view of the present uncertainty surrounding this issue he would not make these funds available to the company, but would return these funds to his clients."

82 On 21 January 1997 the ASX informed the Company that the 8,000,000 shares and options placed on 16 October 1996 would be officially quoted, effective as of that date.

83 In late January 1997 Fiocco Hopkins Nash wrote to DCP requesting payment of the placement money.

84 On 7 February 1997 the EGM was finally held, the current directors were removed and Clauson and the other nominated persons were appointed.

85 On 4 February 1997 the Company instituted proceedings in the Supreme Court against DCP seeking (inter alia) repayment of the replacement money. On 7 March similar proceedings were taken against Doyle, Satterthwaite and Mountford.

86 Both sets of proceedings were eventually settled with the payment by DCP to the Company of $400,000 less the placement fee of $24,000.

87 Against the above narrative of the course of events, it is now possible to turn to the particular issues the subject of these proceedings.

88 Notwithstanding the applicant has abandoned its prayer for relief for a declaration that Doyle contravened s 232A of the Corporations Law it is still necessary to consider Doyle's situation in light of that provision in the context of whether his use of his position was improper. That section relevantly provided:

"232A(1) A director of a public company who has a material personal interest in a matter that is being considered at a meeting of the board, or of directors, of the company:

(a) must not vote on the matter ...; and

(b) must not be present while the matter (or a proposed resolution of that kind) is being considered at the meeting."

89 It is not disputed that at all relevant times Doyle was director (or alternate director) and that he had a material personal interest in the matter of whether or not the placement money should be returned to DCP,.

90 It is pleaded that he contravened s 232A(1)(a) and (b) by reason of those circumstances and by his presence at the 21 and 22 November 1996 board meetings and by voting on the matter at those meetings and in the Circular Resolution dated 21 November 1996.

91 For his part, Doyle pleads that any resolutions made at the 21 November meeting were invalidly made as there was no quorum of directors present and that he did not vote on them in any event. He pleads that the 21 November Circular Resolution was of no force or effect, in not having been resolved by a sufficient number of directors. He further pleads that he did not vote on the matter at the 22 November meeting.

92 On 21 November 1996 Doyle was an alternate director for Mountford, who was in Chile. Doyle had flown from Sydney to attend the board meeting and he brought the letter of demand with him. He gave it to Satterthwaite on arrival at the offices of Fiocco Hopkins Nash. The minutes record that Satterthwaite and Doyle were the only directors present. Mountford did not have a conflict but Doyle did. When acting as Mountford's alternate (as he was) Doyle had all the rights, powers, duties and responsibilities of a director. He was in the same legal position as any other director (Androvin Pty Ltd v Figliomeni (1994) 14 WAR 11 per Steytler J at 25). A disqualifying interest personal to a director will not disqualify that director's alternate although it seems it may do so if the alternate director is acting as the appointor's agent. In Anaray Pty Ltd v Sydney Futures Exchange Ltd (1988) 6 ACLC 271 a board meeting attended by seven directors passed a resolution in which five of them had a disqualifying interest. Those five did not vote. One of the two directors who did vote for the resolution was an alternate for a director who also had a disqualifying interest, although the alternate did not. Foster J held the alternate director was not disqualified from voting since the articles of the Company did not make the alternate the agent of the appointor. By parity of reasoning it follows that the converse must also apply - namely that an alternate director who has a personal material interest in a matter being considered at a board meeting will be disqualified from being present and from voting notwithstanding that the appointor director has no disqualifying interest.

93 Furthermore, in my view that must be so whether or not the Articles make the alternate an agent of the appointor. There is an obvious reason why an alternate who is not an agent of the appointor director should not be disqualified where the alternate does not have a disqualifying interest but the appointor does; that situation does not give rise to the mischief to which the provision is directed. On the other hand, a situation in which the alternate director actually voting has a personal disqualifying interest (whether or not the agent of the appointor), does give rise to that mischief - which is that the decision-making process may be influenced (or perceived to be influenced) by a material personal interest rather than the best interests of the company. In this case it is arguable whether art 15.6 made Doyle Mountford's agent; the fact that any exercise of any power that Mountford may have exercised was deemed to be an exercise of the power by Mountford, would suggest he was Mountford's agent. But for the reasons set out above, where the disqualifying interest was that of Doyle, not Mountford, I consider it would make no difference here. Either way, Doyle was disqualified for the purposes of s 232A(1) CL.

94 Under art 15.3 of the Company's Articles, a quorum required the physical presence of two directors who could vote. Doyle was prohibited from being present and from voting by s 232A(1)CL. There was, accordingly, no quorum and any resolution passed would have been invalid.

95 That finding does not assist Doyle for the purposes of s 232A(1)CL. The coming together of Satterthwaite and Doyle on 21 November as directors of the Company and ostensibly as a meeting of the board and for the purpose of conducting Company business, was a "meeting" within the meaning of s 232A(1) even though for lack of a quorum no business could be transacted (Byng v London Life Association Ltd [1989] 1 All ER 560, 566). A construction of the section which led to the conclusion that a director could not be in breach of s 232A because there was no "meeting" by reason of the very circumstance which would constitute the breach, would defeat the purpose of this provision of the legislation. The construction that says "meeting" includes an inquorate meeting would advance the legislative purpose and so is to be preferred (Interpretation Act 1984 (WA), s 18). Furthermore, the terms of art 15.3 recognise that there may be a meeting of directors at which no business can be conducted for want of a quorum.

96 So far as Doyle, Satterthwaite and the Company were concerned, the meeting of those two directors on 21 November was a meeting of the Board of Directors. The minutes of that meeting reflect that understanding. In the circumstances, Doyle was in breach of s 232A(2) by his presence whilst the DCP letter of demand was being considered. The bigger question is whether or not he voted on the matter.

97 I pause at this point to note that although the burden of proof upon the applicant is the balance of probabilities, given the "civil penalty" nature of these proceedings that is to be applied in the manner described by Dixon J in Briginshaw v Briginshaw [1938] HCA 34; (1938) 60 CLR 336, 368 (and see Rejfek v McElroy [1965] HCA 46; (1965) 112 CLR 517).

98 The evidence before me in this case comprised statements of witnesses tendered by consent, the oral evidence of a number of witnesses, documentary exhibits and an ASIC Report dated 10 April 2001 ("the ASIC Report"). The investigation which produced the ASIC Report was conducted by an ASIC investigator, Mr Bernard Rassool, pursuant to s 13(1) of the ASC Law and subsequently under the ASIC Law and the Report itself was provided pursuant to s 17 of the ASIC Law. The ASIC Report is prima facie evidence of the opinion of ASIC therein expressed and any facts or matters that the report states ASIC has found to exist (ASIC Law, s 81 and see Meadow Gem Pty Ltd v ANZ Executor and Trustee Company Ltd [1996] VicRp 53; [1996] 2 VR 26 and ASC v Solomon (1996) 19 ACSR 73). As required by the legislation, the ASIC Report contains not only the report of the investigator and the findings and opinions of ASIC, but the documents and statements upon which it is based, including the expert report of an accountant, Mr Alden Halse of Ferrier Hodgson. All of this is incorporated in six volumes of material.

99 I return to the question whether Doyle voted at the meeting on 21 November 1996.

100 ASIC concluded that he voted at both meetings (ASIC Report, [7.17], [7.20], [10.9], [10.13], [11.2]). That is prima facie evidence that he did. ASIC reached that conclusion because the minutes did not record him declaring an interest and/or not voting. I agree that would ordinarily be a reasonable inference to draw. Whether it should be drawn here depends upon all the circumstances. For this reason it is now necessary to examine more closely the evidence concerning the events of 21 and 22 November 1996.

101 In his testimony Doyle confirmed the agreement that DCP would provide consultancy and other services to the Company. He briefly explained the arrangements for the placement. He and Satterthwaite had discussed the nature and other details of the shares to be placed. They included the price, that there would be an attached option and that the shares would rank pari passu with those already issued. He explained that by this was meant shares that were tradeable and could be voted on. Doyle's evidence was that this was the basis upon which he placed the shares with the purchasers. However after the placement but before the EGM on 18 October 1996, Satterthwaite told him he had received a letter from the ASX informing that the placement shares could not be traded or voted. Doyle saw that action by the ASX as unusual, but there was uncertainty as to how long the suspension would last.

102 Doyle testified that he did attend the EGM on 18 October 1996, and did vote. Voting was by show of hands. He thought he had voted his one personal share. There was no requirement for a poll. He did not think Satterthwaite would have allowed the stock to be voted anyway, but there was no need. He said that over the next few weeks he spoke to Satterthwaite about complaints he was receiving from placement shareholders that they had shares which could neither be traded nor voted.

103 According to Doyle, in early November 1996 Satterthwaite told him there was a need to appoint another director of the Company because Hopkins had resigned, leaving only Satterthwaite and Mountford - who was in Chile. Doyle agreed to become an alternate director for Mountford. In the course of that same conversation there was more discussion about the placement shares, Satterthwaite saying the ASX position still was that they could not be traded nor voted.

104 Doyle was appointed alternate director to Mountford on 20 November.

105 Doyle had thus been aware since just before the 18 October EGM that the placement shares were not going to have voting rights. As the date of the AGM became imminent it was apparent that there was no obvious prospect the situation would change before that meeting. This was a concern because as Doyle explained it (t 162):

"... The intention of the transaction, if I may call it that, was a several-staged transaction. Firstly, we would put a smaller amount of money in to get the situation started and moneys available to commence work in Chile. The next stage would be that we would put a larger amount in where we could provide working capital for drilling, etcetera. What had effectively happened as a result of this inability to vote or trade the stock, particularly the inability to vote, was that that transaction was not going to get voted.

Why did you see foresee that; that it wouldn't get shareholder approval?---Well, we raised enough money to get enough shares, we believed, that would allow the transaction to be voted through.

Was there opposition to that, to your knowledge?---There was opposition with other shareholders who perhaps wanted to do other things with the company.

Were there funds in the company to do other things without the 400,000?---No."

106 As a consequence of this realisation and concern, Doyle said, he spoke to Satterthwaite on 20 November from Sydney and told him he was going to demand the return of the $400,000 because the shares could not be voted. Satterthwaite asked him to attend a board meeting the following day at the offices of Fiocco Hopkins Nash, as alternate director to Mountford. Doyle's testimony was that when he agreed to do so both he and Satterthwaite were aware he had "an intolerable conflict" (t 163) and that he therefore could not vote on the matter. He said he thought there may have been some discussion about him being able to vote as an alternate, but he saw that he had a conflict and was not going to vote in any instance.

107 Doyle wrote the letter of demand in Sydney and brought it with him to Perth on the morning of 21 November. Satterthwaite picked him up at the airport. On the way to the offices of Fiocco Hopkins Nash Doyle told Satterthwaite that he had the letter with him. Murphy was there when they arrived. According to Doyle, Mr Chris Nash of Fiocco Hopkins Nash was there. Doyle testified that Satterthwaite sought advice from him about the letter of demand, Doyle's position of conflict and whether the placement money could be returned to the allottees, amongst other things. It was a "rolling" situation - there were probably three meetings with Nash during the morning. The AGM was to be held the following day and advice was being sought about potentially difficult issues likely to arise there too.

108 It was Doyle's evidence that not much was said about his position. There was no need, because it was clear there was a conflict and he was not going to vote. The only person who could vote was Satterthwaite; Doyle's understanding was that he was there to provide the quorum.

109 As to return of the placement money, he said Nash's advice was that the situation was confused and rather than pay the money back to the allottees, it should be put into a trust account and he would seek advice on what to do with it subsequently.

110 (I note in passing that the money was at that stage being held in the Company's own New Issue Trust Account; it was not in the Company's general funds - although Murphy did say that as the shares had been allotted the money therefore had become that of the Company: ex P 3, pg 8).

111 Doyle acknowledged that the minutes did not record whether or not he voted on the first resolution, but he was adamant in his evidence that he did not.

112 He recalled signing the Circular Resolution but could not recall whether that was on 21 or 22 November. He said Murphy presented it to him and told him he was required to sign it. He read through it and it did not appear to be anything other than an administrative matter. He agreed the Circular Resolution made no mention that the money was to be held in trust pending advice from a barrister, but reiterated that was in fact the case.

113 The AGM was scheduled for 22 November. Because Mountford was in Chile and Hopkins had resigned, leaving Satterthwaite as the only director able to attend, Doyle agreed to temporarily become a director in his own right. The minutes (A 39) show that was done at the board meeting at the Hyatt Regency Hotel, Perth, at 7.30 am on 22 November 1996 attended by Satterthwaite and Doyle (in his capacity as alternate director for Mountford). Murphy was not present.

114 As already noted above, the AGM was held at the offices of Fiocco Hopkins Nash at 9.09 am that morning. I have already recounted the outcome of that.

115 That was followed at 10.50 am by the further meeting of directors in which Mountford took part by telephone from Chile.

116 According to Doyle, Satterthwaite explained the situation and what needed to be done. He asked if Mountford agreed with what was proposed. Mountford asked if legal advice had been obtained and Satterthwaite told him it had. Both Mountford and Satterthwaite then voted in favour of the third resolution. Doyle testified that he did not vote.

117 Doyle's recollection was that he was handed a cheque for $400,000 some time after that meeting and took it back with him to Sydney where he banked it in the DCP Trust Account.

118 He resigned as director of the Company on 28 November 1996.

119 In cross-examination Doyle agreed that prior to the letter of demand of 21 November he had been aware that on 13 October 1996 the ASX had suspended trading in the Company's shares because of the action brought against it by the ASC in the Federal Court and that the validity of the resolution of 18 October to acquire the 75 per cent interest in Carrizal Alto was the subject of challenge in those proceedings.

120 As to the board meeting on 21 November, he reiterated that it was his understanding that he was there to make up the quorum although the only person who could (and did) vote was Satterthwaite. He could not recall how that was actually done. He was asked about his own position of conflict (at t 184):

"You never said during the course of this directors' meeting, 'I have a conflict. I'm abstaining from voting on these two issues'?---Quite the contrary.

You did say that?---At the outset of when we walked in, I said - I made everybody aware. They were all aware of what the situation was.

Everyone knew self-evidently that you were the author of the demand threatening to sue the company that afternoon if you didn't get a bank cheque - self-evidently, because you had handed that letter of demand to Mr Satterthwaite, but having said that, you were still prepared to participate in a meeting of the board of directors, weren't you?---That's correct."

121 He was content to sign the minutes the following day as an accurate record of what had occurred at the meeting on 21 November.

122 Concerning the basis upon which the money was paid to DCP, Doyle said in cross-examination that Nash's advice had been that the money could and should be put into the DCP Trust Account and he would seek additional advice from a barrister to make sure he had done the correct thing. Asked upon what basis the money was to be held by DCP Doyle said it was to be held "pending resolution of the matter", but beyond that he would not venture. Thus (at t 187):

"The arrangement with Doyle Capital Partners. What was the basis upon which Doyle Capital Partners was holding those $400,000?---It was being held in trust pending a resolution of the matter.

Let's just pursue that a little more closely. It was held in trust pending a resolution of the matter, so if the advice that was going to come in due course from a barrister was that it couldn't be returned, then was it the arrangement to your knowledge that Doyle Capital Partners would then return the money to Chile Minera?---Not entirely.

What is the money pending?---Resolution.

Pending what?---Resolution of the matter.

What does that mean?---Sorting the situation out."

and he conceded it to be the fact that when counsel's advice was obtained and it was to the effect that what had been done should not have been and the money should be returned by DCP to the Company, it was not.

123 Doyle's answers in cross-examination to questions about the claimed dissatisfaction of DCP clients with the placement shares not ranking pari passu, the basis upon which the placement money was returned to DCP and how it was there dealt with were evasive and unsatisfactory. Having agreed that by the letter of demand he had demanded the return of the whole of the placement money for all the allottees, he was referred to a letter dated 17 April 1997 from Mr R Cameron, a director of Cramm Nominees, which had been put in evidence in the Federal Court proceedings and in which Cameron advised that Cramm Nominees had never sought to avoid, cancel or otherwise challenge the placement. He was further referred to his own letter to Cramm Nominees dated 18 April 1997 and his affidavit sworn 8 May 1997, disputing that. His explanations of these matters were unconvincing. He had earlier conceded (t 195) that the Circular Resolution stipulated that the monies were to be held in trust pending advice from the ASX and that he had become aware by 15 January 1997 that the ASX had abandoned its imposed restraint on voting the shares. Despite that, it is clear on the evidence that on and after 16 January 1997 he was maintaining the position on behalf of DCP that the money would be returned to the allottees. And even in his letter to Cramm Nominees dated 18 April 1997 (Annexure AD 15 to E 6) he asked them to confirm they wished to accept the placement issue "notwithstanding the disenfranchisement". I make these observations because to my mind they give rise to concerns about the frankness and credibility of Doyle's evidence generally. I shall say more about that later.

124 Satterthwaite's evidence-in-chief was that Doyle had informed him before he came to Perth on 21 November that he was dissatisfied with the placement and intended to demand the return of the money. As a result he made arrangements for the meeting on the 21st and to obtain advice from Fiocco Hopkins Nash. He was dealing with Nash, whose advice to him was that the Company had not delivered what had been offered and so the money should go into a trust account. Doyle said he did have a trust account "and on that basis it was suggested that that trust account be used" (t 228). Nash said that in the meantime he wanted to get counsel's opinion.

125 Satterthwaite testified he tried to contact Mountford in Chile later that day (about midday) but was unable to.

126 As to whether Doyle voted, Satterthwaite said he was in no doubt Doyle had no right to vote because he had a conflict and he was sure that matter was raised with Nash. Doyle did not in fact vote, although Satterthwaite could not recall what procedure was actually followed to pass the resolution. His evidence was that he felt very uncomfortable about it and that everything that happened there was invalid. He kept trying to contact Mountford and later in the day finally managed to contact him. They arranged a meeting (in which Mountford would take part by telephone) for the following morning.

127 The meeting took place as arranged on 22 November after the AGM. Doyle attended as a director in his own right. Nash may have been present. According to Satterthwaite he told Mountford that he had taken legal advice about the placement because the allottees had not been given what they had paid for and so they as directors had a problem in that they had taken money under false pretences. He said he had taken legal advice from Nash which was that they could return the money to Doyle's trust account.

128 Asked whether he had told Mountford why his participation in the meeting was necessary, Satterthwaite said he explained that Doyle could not vote and he needed Mountford's approval - and he would have told Mountford anyway because as a director he was entitled to know.

129 He said Doyle did not vote at the meeting on 22 November.

130 So far as the Circular Resolution was concerned he was not certain when that was signed but it was prepared by Murphy on his own initiative. He left it to Murphy to draw the cheque for $400,000.

131 Cross-examined, Satterthwaite said he knew a quorum required the physical presence of two directors who could vote and that was not something he had overlooked, but he had no recollection of why he did not cause any note of that to be made in the minutes. He reiterated that everything that took place at the meeting of 21 November was invalid - as was the Circular Resolution - because of Doyle's position of conflict. However he acknowledged that on 21 November he had co-signed (with Murphy) the instruction to the ANZ Bank to draw the $400,000 cheque payable to DCP.

132 Satterthwaite also conceded in cross-examination that the first advice he was given by Fiocco Hopkins Nash had been from Mr Leith Ayres - and his view was that the $400,000 could not be repaid otherwise than as a reduction of capital, which would require court approval. Further questioned, Satterthwaite said he had been surprised that Ayres had not been invited in to the meeting, but Nash was the partner and so he acted on Nash's advice on the day. He was adamant that Nash's advice was that the money could be put in the DCP trust account. He expected Doyle to act honourably and return the money to the Company if the barrister's opinion said that should be done.

133 When pressed further about the meeting on 21 November, Satterthwaite said he could not recall details of the discussion but after due consideration and in light of the legal advice he concluded the money should be paid into the DCP trust account; Doyle did not vote, Satterthwaite said (t 240) he realised after the meeting that one director could not do what he did and he sought to speak to Mountford to correct the situation.

134 In his statement dated 12 April 1999 (ex P3) Murphy said his practice of taking minutes as Company Secretary was to make handwritten notes from which a typed document would be prepared later. He prepared the minutes of the meeting on 21 November. His secretary was not available on that occasion so after the meeting he sent his notes of the minutes by facsimile to Doyle's office for his secretary to type. Concerning voting, he said he would have recorded any abstentions or dissenting votes.

135 In his evidence on oath to the ASIC investigator on 17 February 1998, Murphy was not asked whether Doyle had voted at the 21 and 22 November meetings.

136 In cross-examination at trial Murphy said he was aware Doyle had an interest in the money being returned to DCP because he had sent the letter of demand and consequently he did not look for Doyle to be voting either for or against it (t 133). Murphy said he would have thought Doyle might have left the room, but the fact is he could not recall him doing that. The cross-examination then continued:

"No, but you don't recall him voting either?---No, I don't particularly recall him putting up his hand. I don't think anyone - we did it like that.

You would have expected him not to vote either for it or against it since he had an interest in it?---Personally I would have, yes.

Yes. And you would have taken note, therefore, if contrary to your expectation he had voted for it, because it would have been in your view something he shouldn't have done?---Frankly, I expected him to vote for it because he had demanded the money anyway. I didn't note take (sic) of any abstention.

No. Can I just put it this way: you as an accountant and a company secretary were aware, were you not, that a person why has an interest, a director who has an interest in a particular resolution is not entitled to vote. You knew that, did you not?---I expect I did, yes."

"Right. Therefore, if someone who had an interest in a resolution had sought to vote or had in fact voted on it you would have made note of that, wouldn't you?---I believe I would have. I didn't expect him to vote.

Could I suggest to you that the fact that you made no note of Mr Doyle's voting leads to the inference that he didn't vote or you'd have noted it?---That's a reasonable inference you can put on it, yes."

137 Mountford had been examined on oath by Rassool pursuant to a requirement under s 19(2) of the ASC Law and the transcript of that examination on 18 February 1998 (E 9) was part of the ASIC Report.

138 In relation to the meeting of 22 November Mountford said he understood Satterthwaite and Doyle had discussed the matter with Nash and the decision was made based on that legal advice. The telephone discussion was very brief. He asked Satterthwaite whether they had obtained legal advice and when the latter said they had and that this was the way to go, he voted for it. Although it was a large amount of money he thought it was all fairly obvious; at the time he thought it was a matter of natural justice because the shares were not allowed to vote. And given the assurance that legal advice had been taken he did not see there was any alternative to doing what they did. Other than saying hello to Doyle he did not believe anything else passed between them: he really thought he spoke only to Satterthwaite.

139 He gave the same account, albeit in rather more detail, in cross-examination. He said he could not say that Doyle did not speak but he did not particularly recall him doing so. Satterthwaite was the one he was talking to. When it was put to him that the explanation given to him on 21 November for the need to have a meeting on 22 November was that Doyle had a conflict and could not vote, he said he believed that was part of the call. During the meeting on 22 November he did not hear Doyle say anything in support of the proposal and in particular did not hear him say he was voting for it; in fact he did not recall Doyle saying anything.

140 Nash's statement to the ASC (E 2 of the ASIC Report) was tendered as his evidence-in-chief. He joined Fiocco Hopkins Nash as a partner in 1994. Ayres (a senior associate) looked after the Company account from about April 1996.

141 Nash became involved about the end of November 1996. He attended the AGM on 22 November when requested to do so. Nash said it was he who recommended to Ayres and others present at the time that counsel be asked for an opinion in relation to the placement.

"In essence the Opinion supports and reflects FHN's assessment of the position regarding the issue of the 8 million shares by Chile (Minera) in October 1996."

"I can not recall attending any of the Chile formal board meetings of 21 and 22 November 1996 of which I had been given notice and provide advice ...

I did not give advice referred to in the last paragraph on page 1 of the Chile Board Meeting Minutes of 22 November 1996.

I expressed the view to a meeting of the 22 November 1996 that the cancellation of the shares improperly or invalidly issued and a refund would prima facie, amount to a Reduction of Capital.

I had limited attendance at the meeting and only attended for the periods as and when required.

I was not made aware as to the purposes of the meeting.

As there was the possibility of legal action being taken against the directors of Chile, I also stated to the meeting that the directors of Chile may consider seeking separate professional advice on the matter, in particular, as they had also informed me that the same shares had already been traded in the Market.

As well I made statements in relation to the business of the Trust Account and that the money should not be disbursed until the matter is fully resolved.

Allotees (sic) who had paid money to receive a share and option attaching with all other rights and were not getting them was of grave concern to the directors.

The fact that the shares and options had no voting rights, could result in legal implications for both Chile and its directors.

There was no approach to me by Chile or its Officers before the repayment of the $400,000 was made to DCP."

Australian Securities & Investments Commission v Doyle & Anor [2001] WASC 187

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Judgment (335 paragraphs)

Australian Securities & Investments Commission v Doyle & Anor [2001] WASC 187 (20 July 2001)

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Legislation Cited (1)

Cases Cited (22)