Discovery Africa Ltd v Nichol

Discovery Africa Ltd v Nichol - [2015] FCA 1497 - FCA 2015 case summary — Zoe

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REASONS FOR JUDGMENT 1 The applicant (Discovery Africa) applies for summary judgment in respect of part of its claims as against each of the first respondent (Nichol) and the second and third respondents (Van Den Bergh) and (Sindise) respectively. Nichol was paid $274,005.78 and Van Den Bergh was paid $185,338.50 by Discovery Africa on 9 April 2014, the same day they retired from their offices with the company. Discovery Africa contends that it made these payments in contravention of s 200B(1) of the Corporations Act 2001 (Cth) (the Act) because the payments constituted benefits given in connection with their respective retirements from a managerial or executive office but where no member approval under s 200E for the giving of those benefits was obtained. 2 I am satisfied, for the reasons which follow, that Discovery Africa is entitled to the summary relief it claims against Nichol and Van Den Bergh as set out in the interlocutory application. 3 The catalyst for the retirement of Nichol and Van Den Bergh from their positions with Discovery Africa was a looming boardroom spill the likely result of which was that each of them would be removed from office. This circumstance arose in the following way. 4 In July 2013, Discovery Africa announced a friendly off-market takeover of Argosy Minerals Limited (Argosy Minerals). That bid closed on 12 December 2013 and Discovery Africa acquired nearly 90 per cent of Argosy Minerals' shares. 5 On 13 February 2014, Mr Peter Lloyd requisitioned a shareholders meeting of Discovery Africa seeking resolutions to remove Van Den Bergh, Nichol and the fourth respondent, Mr Ian Lovett, as directors and to have them replaced by Lloyd himself, Mr Graham Walker and Mr Frank Knezovic. On 6 March 2014, Discovery Africa provided shareholders with a notice of meeting with respect to the requisitioned shareholders meeting. 6 On 21 March 2014, Discovery Africa commenced proceedings seeking orders to preclude the holding of the Discovery Africa shareholders meeting at a time when, relevantly, Van Den Bergh and Nichol were still directors of Discovery Africa. This application came on for hearing before Gordon J (as her Honour then was) in the Victorian Registry of this Court and on 2 April 2014 her Honour dismissed the application for injunctive relief. 7 Seven days later, on 9 April 2014, Van Den Bergh and Nichol, as well as Lovett, resigned as directors of Discovery Africa and the following day, 10 April, Lloyd, Walker and Knezovic were appointed as directors to the company.

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Nichol 8 The facts are not controversial. 9 Nichol was a director of Discovery Africa from 23 November 2010 to 9 April 2014. From in or about March 2011, he was an executive director of Discovery Africa. 10 Baru Resources Pte Ltd (Baru Singapore) is a wholly owned subsidiary of Discovery Africa and incorporated in Singapore. Nichol was a director of Baru Singapore. 11 In November 2012, Nichol was appointed as the managing director of Discovery Africa. It was a condition of Nichol's appointment as managing director that Baru Singapore enter into a consultancy agreement with Discovery Africa (then known as Baru Resources Limited) The Baru Consultancy Agreement was executed on 22 January 2013. 12 Around that time, Nichol also entered into an employment agreement with Baru Singapore (Nichol Employment Agreement). 13 Under the terms of the Baru Consultancy Agreement, Baru Singapore agreed to perform the services specified in item 3 of the Schedule and any other services the parties agreed to from time to time in writing. Those services were to be provided through Nichol as the representative under that agreement. Nichol was also required to sign a deed of acknowledgment in the form of Annexure A of that agreement. 14 By cl.12.1 of the Baru Consultancy Agreement, Discovery Africa or Baru Singapore could terminate the agreement by giving not less than one months' written notice any time after the date which was the second anniversary of the "Effective Date", that is, 1 December 2012. Termination by Discovery Africa, without notice, is provided for under cl 12.3. This provision has no relevant application to this case. 15 By cl 12.2, except where the Baru Consultancy Agreement was terminated due to cl 12.3, on termination by Discovery Africa: (a) Discovery Africa had to pay to Baru Singapore an amount equivalent to 12 months' services fees; (b) Baru Singapore had to cause the resignation of Nichol from the board of Discovery Africa unless agreed otherwise in writing between Discovery Africa, Baru Singapore and Nichol. 16 By cl 7.3(c), upon termination of the Baru Consultancy Agreement, Discovery Africa was obliged to pay Baru Singapore a pro-rata amount for unclaimed "Break Days" (as defined in the agreement). 17 By cl 5.3 of the Nichol Employment Agreement, Baru Singapore was liable to Nichol for any employee entitlements in relation to the provision of the services under the agreement and indemnified Discovery Africa in respect of those entitlements. 18 By cll 2.2 and 7.1 of the Nichol Employment Agreement, that agreement could be terminated by either party giving one month's notice and, if Baru Singapore terminated the agreement it could pay Nichol salary in lieu of notice. 19 By cl 7.5, if the agreement was terminated because the Baru Consultancy Agreement was terminated, and Baru Singapore was entitled to be paid and was paid an amount equal to 12 months' service fees payable under that agreement, Baru Singapore was obliged to pay Nichol an amount equivalent to 12 months' salary. 20 Termination of the Baru Consultancy Agreement would have triggered Discovery Africa's obligations to make certain payments to Baru Singapore and for Baru Singapore to cause Nichol's resignation. Termination of the Nichol Employment Agreement would have triggered Baru Singapore's obligations to make certain payments to Nichol. 21 On 8 April 2014, the directors of Discovery Africa (Nichol not voting) resolved that, subject to receiving a signed resignation letter from Nichol, he be paid the following amounts in line with the draft deed of release tabled at that meeting: $198,814.00 (12 months' service fees); $18,333.33 (one month's notice); and $56,858.45 (accrued annual leave). It was also noted that the draft deed of release, subject to final review, would be executed by Discovery Africa. 22 On 9 April 2014, the directors of Discovery Africa (Nichol not voting) resolved to execute a deed of release between Discovery Africa, Baru Singapore and Nichol (Nichol Deed of Release). 23 The Nichol Deed of Release was executed during the course of the directors' meeting on 9 April 2014. 24 By the terms of the Nichol Deed of Release: (a) Discovery Africa terminated the Baru Consultancy Agreement with immediate effect (cl 4.1(a)); (b) Baru Singapore terminated the Nichol Employment Agreement with immediate effect (cl 4.1(b)); (c) Baru Singapore directed Discovery Africa to pay to Nichol the Termination Payment (as defined) in discharge of Discovery Africa's obligations under the Baru Consultancy Agreement and, thereby, Baru Singapore discharged its obligations under the Nichol Employment Agreement (cl 4.2). (d) The Termination Payment was defined to mean the payment to Nichol by or on behalf of Baru Singapore on, in effect, termination of the Nichol Employment Agreement as set out in the Schedule (cl 1.1). (e) The Schedule set out the Termination Payment as the amount of $274,005.78 comprised of: (i) $198,814.00 for termination; (ii) $56,858.45 for leave entitlements; and (iii) $18,333.33 in lieu of notice; (f) Discovery Africa and Baru Singapore represented and warranted to Nichol, amongst other things, that: (i) they had capacity unconditionally to sign and deliver and comply with its obligations under the Nichol Deed of Release (cl 8.1(b)); (ii) they had taken all necessary action to authorise the unconditional signing and delivery of and compliance with its obligations under the Nichol Deed of Release (cl 8.1(c)); (iii) the Nichol Deed of Release was enforceable against Discovery Africa in accordance with its terms and was not void or voidable (cl 8.1 (d)); (iv) any information that it had given to Nichol in connection with the Nichol Deed of Release was true and accurate in all material respects and not misleading in any material respect (including by omission) as at the date of the document (cl 8.1(g)); (v) the Termination Payment correctly reflected the amount for which Baru Singapore was liable to pay Nichol under the Nichol Employment Agreement, including the amount payable under cl 7.5 of that agreement (cl 4.2 of the Nichol Deed of Release); (g) Discovery Africa and Baru Singapore acknowledged that Nichol had entered into the Nichol Deed of Release in reliance upon the representations and warranties made by Discovery Africa and Baru Singapore in clause 8. 25 On 9 April 2014, after the Nichol Deed of Release was executed, Nichol provided his letter of resignation and thereby retired from office or position of employment with Discovery Africa and its wholly owned subsidiary Baru Singapore. Discovery Africa, under cl 4.2 of the deed, then transferred the sum of $274,005.78 to Nichol. 26 Nichol's resignation letter stated that he was resigning as Managing Director of Discovery Africa.

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The statutory framework 35 Justice Perry explained the statutory framework in Queensland Mining Corporation Ltd v Renshaw (2014) 229 FCR 13 at [12]-[17]: 1.3 Overview of the statutory framework within which the issues arise . . . 13 Section 200B(1) of the Act provides that: 200B(1) Benefits in connection with retirement if person has held a managerial or executive office (1) An entity mentioned in subsection (1AA) must not give a person a benefit in connection with a person's (the retiree's) retirement from an office, or position of employment, in a company or a related body corporate if: (a) the office or position is a managerial or executive office; or (b) the retiree has, at any time during the last 3 years before his or her retirement, held a managerial or executive office in the company or a related body corporate; unless there is member approval under section 200E for the giving of the benefit. Note 1: This subsection extends to benefits given by way of compensation for, or otherwise in connection with, a person's loss of an office or position (see subsections 200A(1) and (3)). Note 2: Sections 200F, 200G and 200H provide for exceptions to this subsection. Note 3: The recipient of the benefit need not be the retiree. 14 The seriousness with which the Parliament views such breaches is apparent from the fact that a breach of s 200B(1) constitutes an offence of strict liability: s 200B(1A) of the Act. 15 The term "benefit" and the circumstances in which "a benefit is given in connection with a person's retirement" are broadly defined in ss 200AB and 200A respectively of the Act, while s 200 requires that a broad interpretation be adopted of when a benefit is given, affording priority to substance over form. The Corporations Regulations 2001 (Cth) also specify that certain things are, and are not, benefits pursuant to s 200AB(1)(e) and (2) of the Act respectively, and when a benefit is given in connection with a person's retirement pursuant to s 200A(1A). Those things which are specified in the Corporations Regulations as not constituting a benefit for the purposes of the Division include, relevantly, a genuine superannuation contribution paid by an employer or employee: see reg 2D.2.02(2)(c) of the Corporations Regulations made pursuant to [s 200AB(2)]. The Act also provides that certain benefits and benefits given in certain circumstances are exempt from s 200B(1), namely, (a) a payment for leave of absence to which a person is entitled under an industrial instrument (s 200F(1)(a)); (b) a benefit given under an order of a court (s 200F(1)(aa)); (c) a genuine payment by way of damages for breach of contract or for past services where the value of the benefit is less than the person's average annual base salary (ss 200F(2) and 200G respectively); (d) a benefit given in prescribed circumstances (s 200F(1)(b)); or (e) a benefit given where the failure to do so would contravene a law in force in Australia (otherwise than because of breach of contract or trust) (s 200H). 16 In effect, the statutory scheme can be summarised as casting a broad net so as to ensure that all payments or other things given in connection with retirement are caught by the statutory requirement for shareholder approval save where the Act or regulations creates an exemption. 17 Where a contravention of s 200B(1) occurs, the benefit is held on trust by force of s 200J(1) and must be immediately repaid. Specifically, s 200J provides that: (1) If an entity (the giver) contravenes section 200B by giving a benefit to a person (the recipient), then the amount of the benefit, or the money value of the benefit if it is not a payment: (a) is taken to be received by the recipient on trust for the giver; and (b) must be immediately repaid by the recipient to the giver. (1A) An amount repayable under subsection (1) to the giver: (a) is a debt due to the giver; and (b) may be recovered by the giver in a court of competent jurisdiction. (2) Subsection (1) applies to the whole of the amount of a payment or of the money value of the benefit even though giving the benefit would not have contravened section 200B if that amount or value of the benefit had been less. 36 Discovery Africa requires, in order to succeed, to establish that Nichol and Van Den Bergh have no reasonable prospect of defending the claim that the payments made to each of them were made in contravention of s 200B(1) of the Act. The following matters must be established: (a) Discovery Africa is an "entity" within the meaning of s 200B(1AA); (b) Discovery Africa must have given a "benefit" within the meaning of s 200AB(1); (c) The benefit must have been given "in connection with a person's retirement from an office, or position of employment"; (d) The "retirement" must have been from Discovery Africa itself or a related body corporate; (e) The "retirement" must be in respect of an office or position which is "managerial or executive office" within the meaning of ss 200AA and 200A(1)(f); (f) The "benefit" was not approved by members of Discovery Africa under s 200E; (g) The "benefit" was not exempt, relevantly, pursuant to s 200F(2)(a)(ii) in that: (i) it was not a genuine payment by way of damages for breach of contract; or (ii) it was not made pursuant to an agreement made between the company and the person before the person became the holder of the office or position as a consideration, or part of the consideration, for the person agreeing to hold the office position; and (iii) the value of the "benefit" exceeds the prescribed minimum calculated under either subs 200F(3) or subs 200F(4), whichever is applicable. 37 As to these matters, Nichol accepts that Discovery Africa is an 'entity' and that by his resignation as director he retired from a managerial or executive office within the meaning of s 200B(1) but puts the balance of them in issue. He also submits that he has an arguable defence to the claim by reason of estoppel, damages he alleges he has suffered as a result of contraventions by Discovery Africa of s 18 of the Australian Consumer Law (Competition and Consumer Act 2010 (Cth) Sch 2) and/or breaches of warranties and other terms of the Nichol Deed of Release. Van Den Bergh, in his written outline, advances three submissions. First, that his Deed of Release may be pleaded as a bar to the claim against him. Second, that Discovery Africa has not established, nor can it, that he held a managerial or executive office. Third, that the Termination Payment was not made "in connection with" his retirement from Discovery Africa. Counsel for Van Den Bergh in the hearing sought leave to rely upon the affidavit of Van Den Bergh, sworn in Senegal on 6 August 2015. The applicant does not object to the use of the affidavit and accordingly, to the extent that it is relied upon, I grant leave for the affidavit to be used: r 29.07 of the Rules. 38 Additionally, he adopted in oral argument some of the submissions put by Nichol. 39 I will now deal with these issues in turn.

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"Benefits" 41 The meaning of "benefit" is defined under s 200AB(1) of the Act. The definition is inclusive; it expressly includes a payment. 42 The Termination Payment under the Nichol Deed of Release was expressly defined to mean the payment to Nichol by or on behalf of Baru Singapore, and was to be in full and final satisfaction of Baru Singapore's obligations under the Nichol Employment Agreement. Baru Singapore and Discovery Africa agreed that the amount payable by Discovery Africa to Baru Singapore for termination of the Baru Consultancy Agreement was the amount of the Termination Payment. Baru Singapore directed Discovery Africa to pay the amount to which it was entitled to Nichol in satisfaction of Baru Singapore's obligations to Nichol. 43 Nichol submits that those circumstances demonstrate that the economic and commercial substance of the parties' conduct was that Discovery Africa paid Baru Singapore the Termination Payment and Baru Singapore paid Nichol the Termination Payment. Put another way, Baru Singapore gave Nichol the benefit of Discovery Africa's obligation to Baru Singapore in discharge of Baru Singapore's obligations to Nichol. Nichol received valuable consideration from Baru Singapore in the form of a transfer (assignment) of the amount Discovery Africa owed Baru Singapore. Thus, he submits that it was Baru Singapore, not Discovery Africa, which gave him a benefit for the purposes of s 200B(1). 44 He further submits that the transfer of $274,005.78 to him was in connection with the termination of the Nichol Employment Agreement and his loss of position of employment under that agreement: the transfer did not "flow from" his resignation as a director of Discovery Africa but rather from the termination of the Nichol Employment Agreement. This conclusion he contends is consistent with the Court's reasoning in Renshaw at [71]-[74]. 45 Nichol then contends that, while Baru Singapore may have a claim against him as an entity (an associate of Discovery Africa that is not a company) that gave a benefit to him in connection with his retirement from a position of employment in Baru Singapore (a related body corporate of Discovery Africa), Discovery Africa does not have such a claim against him. 46 Section 200 of the Act provides that in determining whether a benefit is given: (a) there is to be given a broad interpretation to benefits being given, even if criminal or civil penalties may be involved; and (b) the economic and commercial substance of conduct is to prevail over its legal form. 47 The first and second defendants in Renshaw contended that the payments made by Queensland Mining Corporation Ltd to them pursuant to a settlement deed did not constitute a benefit for the purposes of s 200B of the Act on the ground that the settlement deed provided the means by which the company paid out its pre-existing obligations under the services agreement with them, pursuant to which the first defendant had been engaged as managing director of the company and the second defendant had agreed to provide certain services to the company. 48 As to that Perry J stated at [80] that: A "benefit" as defined in s 200AB is not limited to payments aside from those which were the subject of pre-existing contractual obligations. To the contrary, s 200A(1)(c) expressly provides that "a person gives a benefit even if the person is obliged to give the benefit under a contract", while s 200H provides that s 200B(1) "does not apply to a benefit given by a person if failure to give the benefit would constitute a contravention of a law in force in Australia or elsewhere (otherwise than because of breach of contract or breach of trust)." … There is no distinction drawn in these provisions between payments under a contract entered into prior to or after the person's retirement, even though that distinction may be relevant when determining whether a statutory exemption applies. As I have earlier explained, Div 2 of Part 2D.2 has been framed so as to cast the net widely in terms of what constitutes a "benefit" from which exemptions are then expressly "carved-out", rather than by starting with a narrow concept of "benefit" such as that urged by the Renshaw defendants. (Emphasis in original). 49 The payment in the case of Nichol was given directly to him and constituted a "benefit" for the purposes of s 200B. The legal form, in this case the contractual route by which those monies travelled, is subsidiary to the "economic and commercial substance of the conduct". That substance reflected benefits given to Nichol by Discovery Africa. It is this enquiry which ss 200B(1) and 200 require. This reflects the policy objectives of those provisions to protect shareholders and creditors from unapproved golden-handshakes. That these provisions could be avoided by interposing other entities and a chain of interwoven agreements would be antithetical to those objectives. I find that the payment to Nichol constituted a "benefit" for the purposes of s 200B(1). 50 Van Den Bergh contends that the payments constituted a benefit given not to him but rather to his company Sindise by Discovery Africa. I find, mutatis mutandis for the same reasons as in the case of Nichol that the payments were a benefit to Van Den Bergh for the purposes of s 200B(1).

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"In connection with" 51 Section 200A(1)(a) of the Act provides that a benefit is given in connection with a person's retirement from an office or position if the benefit is given by way of compensation for, or otherwise in connection with, the loss by the person of the office or position. 52 Relevantly, s 200A(1)(e) provides that retirement from an office or position includes resignation from the office or position. 53 Justice Besanko in White v Norman (2012) 199 FCR 488 held that the words "in connection with" in s 200B "are words of wide import and there is no need for a direct link" between the retirement and the benefit: at [67]. This was adopted in Renshaw at [73]. 54 The Full Court of the Federal Court in Renshaw v Queensland Mining Corporation Ltd (2014) 229 FCR 56, on appeal, affirmed the breadth of the meaning of this expression: 29 The expression "in connection with" appears repeatedly in Div 2 of Pt 2D.2 of the Act. It is used in Div 2 in circumstances where s 200 requires attention to be given to the economic and commercial realities of conduct in evaluating whether a company has given particular benefits to one or more of its senior personnel that its shareholders are entitled to examine. The purpose of Div 2 is to bring transparency to, and shine daylight onto, transactions commonly called "golden handshakes" that involve significant expenditure of the company's money in connection with the cessation of an employment or services relationship with a senior office holder or employee. 30 By using the expression "in connection with", the Parliament intended to create a broad nexus between the benefit concerned and the cessation of the person's relationship with the company so as to protect the rights and interests of its shareholders to know of, and approve, the expenditure of the company's money. The context of Div 2 thus informs and suggests a broad construction of the reach of the expression "in connection with" when used in that Division: see Minister for Immigration and Multicultural Affairs v Singh (2000) 98 FCR 469 at [28]-[29] per Black CJ, Sundberg, Katz and Hely JJ.

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Nichol 55 The approach adopted on behalf of Nichol has been to engage in a detailed analysis of the contractual relationships and the respective obligations emerging as between himself, Baru Singapore and Discovery Africa. The consequence, he submits, is that none of the payments to him were made "in connection with" his retirement as Managing Director of Discovery Africa. 56 Thus, he submits that the minutes of the directors' meetings on 8 and 9 April 2014, the communications with Discovery Africa's solicitors and the terms of the Nichol Deed of Release reflect: (a) a decision of Discovery Africa to terminate the Baru Consultancy Agreement and Baru Singapore to terminate the Nichol Employment Agreement on 9 April 2014; (b) Baru Singapore causing him to resign (as required by cl 12.2 of the Baru Consultancy Agreement); and (c) agreement between Discovery Africa, Baru Singapore and Mr Nichol as to the amount Discovery Africa was required to pay Baru Singapore and the amount Baru Singapore was required to pay Nichol on termination of the agreements. 57 Nichol then submits that the proper characterisation of the economic and commercial substance of the transfer of $274,005.78 after the execution of the Nichol Deed of Release is that it was a "payment" made by Baru Singapore to him in discharge of Baru Singapore's obligations to him for termination of the Nichol Employment Agreement without notice. The sum of $274,005.78 was "given" to him by Baru Singapore in connection with the termination of his employment with Baru Singapore. 58 He contends that his resignation as a director of Discovery Africa was an obligation he was required to perform as a term of the Nichol Deed of Release after the Baru Consultancy Agreement was terminated: it was a term that was for the benefit of Baru Singapore in that Baru Singapore was obliged to cause him to resign upon the termination of the Baru Consultancy Agreement. 59 Accordingly, he submits that Discovery Africa transferred $274,005.78 to him in consideration for Discovery Africa's obligations to pay Baru Singapore that amount upon termination of the Baru Consultancy Agreement and that Discovery Africa gave Baru Singapore that "valuable consideration" in connection with the termination of the Baru Consultancy Agreement; it was not consideration given in connection with Nichol's resignation. Nichol submits that because termination of the Baru Consultancy Agreement did not have the effect of terminating his position as a director of Discovery Africa, his resignation was incidental to the termination of the Baru Consultancy Agreement and in conformity with Baru Singapore's obligation to cause his resignation upon termination of that agreement. 60 It follows, he contends, that the payment required on termination of the Baru Consultancy Agreement is manifestly for Baru Singapore's loss of the right to perform the services under that agreement: not for the loss of the right to provide his services, as such; and this is because the services could be performed by a person other than him, referring to the definition of "Representative" in cl 22.8 of that agreement. Thus, the payment to Baru Singapore is not connected to the loss of an office by any particular person. It is connected to the loss of the right to perform the services and be paid for them. 61 Nichol's submissions put form, namely the particular interrelated agreements involved and their contractual legal effect, above the substance of what occurred, which was that the payment to him was, within the broad meaning of the phrase, one made "in connection" with his retirement as Managing Director. The catalyst for the execution of the Deed of Release, his resignation and the payment made to him was his likely soon removal as Managing Director at a members meeting. 62 The execution of the Nichol Deed of Release and the subsequent implementation of its terms, including the payment to Nichol of $274,005.78 were entirely conditioned by Discovery Africa receiving Nichol's signed letter of resignation, as Managing Director. The directors' resolutions of 8 April 2014 are to that effect. 63 It is clear that, absent his resignation, the Nichol Deed of Release would not have been executed by Discovery Africa and none of its terms, including payment of the Termination Payment, would have been performed.

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Van Den Bergh 64 Van Den Bergh follows the same path of reasoning as Nichol and I reject his submissions for essentially the same reasons as I did in the case of Nichol. 65 He submits that part of the Termination Payment amounting to $150,000 was not "in connection with his retirement" as a director of Discovery Africa. The background to his submission is as follows. 66 The Sindise Consultancy Agreement was terminated by Discovery Africa, not by Sindise: cl 4.1(a) of the Van Den Bergh Deed of Release. The termination gave rise to a contractual entitlement on the part of Sindise to be paid a termination payment: cl 4.2(a) of $150,000 being "an amount equivalent to twelve (12) months' Service Fees": cl 11.2(a) and item 4 of the Schedule to Sindise Consultancy Agreement. 67 Van Den Bergh undertook to resign as a director of Discovery Africa: cl 4.2(c) of the Van Den Bergh Deed of Release. 68 Sindise's contractual entitlement to be paid a termination payment arose whether or not Van Den Bergh honoured his contractual undertaking to resign. 69 Accordingly, Van Den Bergh submits, that the payment of $150,000, being the termination payment entitlement of Sindise, was a "benefit" paid to Sindise (as defined in s 200AB(1) of the Act), but not "in connection with" his retirement as a director of Discovery Africa in that: (a) it was payable to Sindise; (b) its payment to him was in discharge of the obligation upon Discovery Africa to make payment to Sindise; (c) he received $150,000 of the payment made to him pursuant to the Deed of Release on trust for Sindise as the entity entitled to that amount: (d) the payment to him of monies belonging to Sindise does not amount to the giving of a benefit to him, as the recipient of those funds, on trust, for Sindise. 70 Van Den Bergh submits that Silver v Dome Resources NL (2007) 62 ACSR 539 is distinguishable on its facts. That case involved a single agreement between a services company and another company by which the services company purported to provide the services of an individual as a director of the other company. The Sindise Consultancy Agreement, by contrast, was additional to the agreement by which he was employed to occupy the office of director as executive chairman of Discovery Africa. The Sindise Consultancy Agreement related to his field of expertise which was as a mining engineer. 71 He further submits that Renshaw is also distinguishable on its facts because the service agreement in that case contained no termination clause giving rise to a contractual entitlement to payment on termination of the agreement by the company to whom the services were provided. 72 I reject these submissions. As with Nichol the introduction of a corporate vehicle into the arrangement between Van Den Bergh and Discovery Africa no doubt had its rationale in relation to the lawful minimisation of his personal income tax. Sindise was obliged to perform services to Discovery Africa through Van Den Bergh and no-one else without the prior written consent of Discovery Africa. The substance, as opposed to the form, of the contractual relationship was that Van Den Bergh was providing personal services to Discovery Africa. 73 Moreover, the payment made was conditional upon Van Den Bergh tendering his written resignation as a Director of Discovery Africa. It was a payment made in connection with his retirement as a Director. 74 The submissions of Nichol and Van Den Bergh are but an echo of arguments rejected by the Full Court in Renshaw: at [32]-[35]. Here, as in Renshaw at first instance (at [95]), in the way that I have explained and as Discovery Africa submits correctly, there is a "direct link" between the payment to each of Nichol and Van Den Bergh, and their respective retirements: the payments were made under the purported Deeds of Release, which each required the respective retirements of Nichol and Mr Van Den Bergh.

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"Managerial or executive office" 75 Nichol does not put in issue that, as Managing Director, he held a "managerial or executive office" for the purposes of s 200B(1) of the Act. 76 Van Den Bergh submits that Discovery Africa has not established, nor can it be established, that he held a managerial or executive office with Discovery Africa. 77 Section 200AA(1) provides that, for a company to which s 300A applies for the previous financial year, "a person holds a managerial or executive office in the company during the current financial year if the person's details were included in the directors' report for that previous financial year for the company in accordance with paragraph 300A(1)(c)". 78 A company to which s 300A of the Act applies means a listed company. Discovery Africa is a listed company. 79 Van Den Bergh's details were not included in the directors' report for Discovery Africa for the financial year prior to payment of the Termination Payment, that is, the 2012/13 financial year although they were included in the following financial year. 80 He accordingly submits that, at least arguably, this point is determinative of the question and particularly so when regard is had to the fact that s 200AA(3) provides that, for a body corporate not covered by sub-s (1), a managerial or executive office for the body corporate is an office of director of the body corporate, or any other office or position in connection with the management of the body corporate's affairs that is held by a person who also holds an office of director of the body corporate or a related body corporate. Thus, there is a distinction he submits, between a public listed company and a non-public listed company (I take this to be a reference to an unlisted public company) and different definitions for when a person will be held to have held a "managerial or executive officer" in the company. 81 His construction of the provision would lead to the absurd result that someone who held a managerial or executive office would not be regarded as holding such office during their first year in the position and until such time as their details were included in the Director's report for that year. 82 I do not accept that s 200AA(1) is determinative of the question. The question is one of fact. I do not regard s 200AA(1) as an exhaustive and exclusive provision for establishing whether a person in a publicly listed company holds a managerial or executive office. It is but one means of establishing the fact. 83 As Discovery Africa submits, ss 200B and 200J are intended to apply to officers who hold their position within a company for only part of a year. Section 200F, as outlined below, exempts benefits from s 200B where, under certain conditions, the value of the benefit does not exceed amounts calculated under the relevant formulae. These formulae expressly contemplate periods of holding office of less than one year: s 200F(3). This is also supported by reg 2D.2.01 of the Corporations Regulations 2001 (Cth), which contemplates a period of office of less than one year for the purposes of calculating a person's base salary for the purposes of the Act. 84 The Van Den Bergh Employment Agreement expressly provided that Van Den Bergh would perform the duties and responsibilities of the Executive Chairman of Discovery Africa and would, subject to the direction of the Board of Discovery Africa, have day to day control of the responsibility for managing Discovery Africa's affairs (cl 6(a)). Van Den Bergh, for obvious reasons, does not argue that his role was not of a managerial or executive function. 85 I am satisfied that at the time of his retirement Van Den Bergh held a managerial or executive office with Discovery Africa, for the purposes of s 200B.

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Exempt benefits: s 200F(2) 86 Nichol submits that the Termination Payments were exempt under s 200F(2) of the Act, which relevantly provides that in order for a "benefit" to be exempt it must be: (a)(ii) given to the person under an agreement made between the company and the person before the person became the holder of the office or position as consideration, or part of the consideration, for the person agreeing to hold the office or position; and (b) the value of the benefit, when added to the value of all other benefits (if any) already given in connection with the person's retirement from offices or positions in the company and related bodies corporate, does not exceed the amounts worked out under whichever of subsections (3) and (4) is applicable. 87 Nichol submits that the payment to him was a benefit given under an agreement made between Discovery Africa and himself before he became employed by Baru Singapore. He then submits that if Discovery Africa made any payment to him it was manifestly on behalf of Baru Singapore and for the purpose of discharging Baru Singapore's obligations under the Nichol Employment Agreement. 88 He asserts that in late 2012 he agreed with Discovery Africa to assume the office of Managing Director and continue as a director of Discovery Africa in consideration for Discovery Africa entering into the Baru Consultancy Agreement. Part of that consideration was that Baru Singapore would, in turn, enter into the Nichol Employment Agreement with him. Thus, he submits that the Nichol Employment Agreement and, in particular, the obligation to pay him under cl 7.5 was part of the consideration for him agreeing with Discovery Africa to be employed by Baru Singapore on and from 1 December 2012. 89 Discovery Africa submits as follows. Properly construed, s 200F(2)(a)(ii) of the Act provides an exemption to benefits given by a company to a person under agreement in connection with or as part of that person assuming office or position, and not retirement. Therefore, the Termination Payments in these circumstances do not apply. Section 200F(2)(a)(ii) of the Act is not engaged because the Termination Payments were not made as part of Nichol agreeing to assume his role as Managing Director or any other role with Discovery Africa. 90 Neither the submissions by Nichol or Discovery Africa are persuasive. Section 200F(2)(a)(ii), in this case, contemplates that the benefit given to Nichol was under an agreement made between Discovery Africa and Nichol before he became Managing Director in 2012 as consideration, or part consideration, for his agreeing to hold that office. 91 There is no such agreement. Nichol was not employed by Discovery Africa. He was employed by Baru Singapore under a written employment agreement dated 22 January 2013. His entitlement to receive payments was as an employee of Baru Singapore under cl 7.5 of his employment agreement. His entitlement was to receive an amount equivalent to 12 months' salary. The entitlement was conditioned by two prior events: the termination by Discovery Africa of the Baru Consultancy Agreement and the payment by Discovery Africa to Baru Singapore of an amount equal to 12 months' service fees. 92 Discovery Africa assumed no obligation to pay Nichol any monies, whether as Director fees or salary. 93 Accordingly, no exemption arises under s 200F(2)(a)(ii) in respect of the benefit given to Nichol.

[23]

Were the benefits "approved" under s 200E? 94 The question then arises as to whether the benefit, which I have found were given to each of Nichol and Van Den Bergh, were approved by the members of Discovery Africa. 95 Section 200B(1) does not apply if there is member approval under s 200E for the giving of the benefit. For the purposes of s 200B the three conditions set out in ss 200E(1B), (2) and (2A) must be satisfied for there to be member approval under s 200E, for the giving of the benefit to the person in connection with the retiree's retirement from the office or position. 96 The first condition, under s 200E(1B), relevantly, is that the giving of the benefit be approved by a resolution passed at a general meeting of the company, in this case, Discovery Africa. 97 The second condition, under s 200E(2), is that details of the proposed benefit must be set out in the notice of the general meeting that is to consider the resolution and those details, if the proposed benefit is a payment, must include the amount of the payment, or if that amount cannot be ascertained at the time of the disclosure, the manner in which that amount is to be calculated and any matter, event or circumstance that will, or is likely to, affect the calculation of that amount. 98 The third condition, under s 200E(2A), is that at the general meeting the retiree or an associate of the retiree must not cast a vote on the resolution. 99 Nichol makes the following submissions. First, he submits that s 200E, in its operation, is not restricted to a proposed benefit to be given after a person has retired from an office or position of employment. Similarly, s 200E does not preclude a general meeting of a company's members from approving the payment of a benefit to a person, to be calculated in a particular manner, at or shortly after the appointment of that person. Put another way, the members of a company may approve in a general meeting the payment of a benefit that exceeds the amount that would be permitted under ss 200F(2)(a)(ii) and 200F(2)(b). Thus, he submits, provided that the conditions under ss 200E(1A), (2) and (2A) are met, there is nothing to preclude a meeting of the members of a company from pre-approving the payment of a benefit the exact amount of which cannot be ascertained at that time, by approving the manner in which the amount is to be calculated upon the retirement of the person from the relevant office or position of employment. 100 Second, he submits that s 200E does not require the resolution by which approval is obtained to be a specific resolution that deals only with the subject matter of the person's benefit. Rather, s 200E requires only that a resolution is passed by which the benefit is approved, there is proper disclosure of the amount or manner in which the amount is to be calculated and the person who would be entitled to the benefit or his or her associate does not vote on the resolution. 101 Against that background, Nichol relies upon the following facts. 102 On 22 November 2013, at an AGM of Discovery Africa, the members passed a resolution: "That for the purposes of s 250R(2) of the Corporations Act and for all other purposes, the Remuneration Report (included in the Directors' report) for the financial year ended 30 June 2013 be adopted" (emphasis added). 103 Section C of the Directors' report contained the following details of the manner in which Nichol's remuneration was to be calculated: Remuneration and other terms of employment for key management personnel are formalised in service agreements. Details of these agreements are as follows: Name: Kevin Nichol Title: Executive Director Agreement commenced: 1 December 2012 Term of agreement: No fixed term Details: Mr Nichol may resign from his position and thus terminate his contract by giving one months [sic] written notice. The Company may terminate the agreement by giving one month's notice in writing. On termination of the agreement, unless terminated due to misconduct, the Company must pay an amount equivalent to 12 [months'] Service Fees. The contract may be terminated with immediate effect in the event of serious misconduct. Upon termination of Mr Nichol's contract, the Company may pay salary in lieu of the notice period. 104 Section B of the Directors' report indicated that Nichol was paid $212,500 in cash, salary and fees for the financial year ended 30 June 2013. 105 Section 250R(2) provides that at a list company's AGM, a resolution that the remuneration report be adopted must be put to the vote. Section 250R(3) provides that the vote on the resolution is advisory only and does not bind the directors or the company. 106 Third, he submits that s 200E does not require that the company be bound by a resolution approving the giving of a benefit, in that it does not require that the company be bound to give the retiree the benefit so approved. Section 200E is permissive. It permits a company to give a benefit approved; it does not compel it to do so. 107 He contends that the remuneration report Discovery Africa's members adopted by resolution on 22 November 2013 was adopted not only for the purposes of s 250R(2), but for all purposes under the Act. Accordingly, he submits that the resolution was also a resolution for the purposes of s 200E(1B), in that the giving of a benefit to him on his retirement was a term of the conditions of his remuneration adopted by resolution passed at a general meeting of Discovery Africa. Thus, he submits the giving of the benefit to him was approved. 108 Fourth, he submits that his case is to be distinguished from the facts in Nair v Arturus Capital Ltd (2010) 78 ACSR 43 (at 52-56; [27]-[46]) in that, in his case, the resolution was passed for all purposes under the Act and not merely for the purposes of s 250R(2). Nichol also makes the formal submission that to the extent that the Nair case stands for the proposition that an advisory resolution for the purposes of s 250R(2) could not be "approval" for the purposes of s 200E(1B) (referring to [40] of that decision) or that approval of the terms of an agreement that include details of the manner in which the amount (or value) of a benefit is to be calculated could not be "approval" of a benefit for the purposes of s 200E(2) (referring to [38]-[39]), it was wrongly decided. 109 Van Den Bergh adopted these submissions 110 I reject these submissions. They fail at the threshold. The second condition under s 200E(2) was not met. The Notice of General Meeting, as I have set out above, merely set out the relevant proposed resolution. It did not set out the details of the proposed benefits to either Nichol or Van Den Bergh. Nor did the Explanatory Statement which accompanied the Notice of General Meeting. It merely, in respect to the proposed resolution made reference to the Remuneration Report. As was explained in the first paragraph of the Explanatory Statement, the Remuneration Report, amongst other documents, was not provided. 111 Section 200E(1) required that the second condition must be satisfied for there to be member approval. It was not satisfied and therefore there was no member approval in the case of either Nichol or Van Den Bergh.

[25]

Did the termination payments exceed the threshold? 117 It is unnecessary, in light of my conclusion that s 200F(2)(a)(ii) is not engaged, to consider whether payments made to Nichol did or did not exceed the threshold. 118 However, it is necessary, in the case of Van Den Bergh, to consider the application of s 200F(2)(b). As he served for less than one year as Executive Chairman of Discovery Africa, the appropriate formula to be used in calculating the statutory threshold applicable to him is set out in s 200F(3) of the Act. 119 The benefit given is exempt for the purposes of s 200B(1) of the Act if it does not exceed the amount calculated with that formula: estimated annual base salary multiplied by the number of days in the relevant period divided by 365. 120 The estimated annual base salary is calculated by reference to a reasonable estimate of the base salary that the person would have received from the company and related bodies corporate during the relevant period, if that period had been one year. 121 Assuming, in Van Den Bergh's favour, that his estimated base salary includes both his salary under his employment agreement with Discovery Africa and the amounts paid to Sindise Mining Consultants, then his estimated annual base salary was $180,000 in that: (a) The Van Den Bergh Employment Agreement provided for an annual salary of $30,000; (b) The Sindise Consultancy Agreement provided for a monthly payment of $12,500, which over a year would amount to $150,000. 122 Discovery Africa submitted that Van Den Bergh was the Executive Chairman of Discovery Africa for 188 days, which is not correct. He commenced in this position under the employment agreement on the date of its execution, that is, 22 November 2013, and resigned on 9 April 2014 - a period of 139 days. 123 Applying the formula set out in s 200F(3) of the Act, the exempt ceiling for the purposes of Van Den Bergh would have been a payment of $68,547.95. The non-exempt benefits of $162,666 paid to Van Den Bergh exceeded the statutory threshold.

[26]

Section 200J estoppel and set-off 124 Nichol then submits that the effect of the correspondence with Discovery Africa's solicitors before the 8 and 9 April 2014 directors' meetings and the terms of the Nichol Deed of Release drafted by those solicitors, was to represent to him for and on behalf of Discovery Africa that he was lawfully entitled to receive $274,005.78 upon Discovery Africa terminating the Baru Consultancy Agreement and Baru Singapore terminating the Nichol Employment Contract. Nichol asserts that he relied on that representation to enter into the Nichol Deed of Release and to resign as a director of both Discovery Africa and Baru Singapore on 9 April 2014. 125 He then submits that if he is not lawfully entitled to all or part of the sum of $274,005.78 because all or part of that sum is a benefit Discovery Africa gave to Nichol in contravention of s 200B(1), the representation made to Nichol would be self-evidently false, misleading or deceptive or likely to mislead or deceive. Discovery Africa would, he contends, be in breach of the warranties in the Nichol Deed of Release in cll 8.1(b) (concerning its unconditional capacity to comply with its obligations), 8.1(c) (the taking of all necessary steps to comply with its obligations), 8.1(d) (the document being enforceable in accordance with its terms) and 8.1(g) (information it has given is true and accurate and not misleading). 126 He then submits that underpinning the representations was an assumption that s 200B(1) did not apply to all or part of the sum of $274,005.78. Put another way, it was implicit that Discovery Africa represented that it accepted that amounts payable for accrued annual leave and in lieu of notice were not benefits by operation of s 200H. Further, it was implicit that Discovery Africa represented and accepted that s 200B(1) did not apply to any amount not excluded by operation of s 200H because: (a) it was paid under an agreement as part of the consideration for Nichol accepting his office or position employment, for the purposes of s 200F(2)(a)(ii), and it did not exceed the amount worked out under s 200F(4)(e), for the purposes of s 200F(2)(b); and/or (b) there was member approval for the purposes of s 200E, by the resolution on 22 November 2013 adopting the remuneration report. 127 Nichol contends that he relied on the representations to enter into the Nichol Deed of Release and to resign and he would not have entered into that deed on the terms upon which he did if he had known that he was not entitled to all or part of the sum of $274,005.78. Thus, he submits, he has lost the opportunity to enter into a deed with Discovery Africa on terms that required Discovery Africa to pay him the amount to which he was entitled under ss 200F(2)(a)(ii) and 200F(2)(b). He further submits that he lost the opportunity to enter into a deed with Discovery Africa on terms that specifically required Discovery Africa to do all things reasonably necessary to obtain member approval for such of the amount of $274,005.78 as was a benefit. 128 Nichol submits that he has a reasonably arguable defence that Discovery Africa is estopped from asserting in the proceedings that Nichol is not lawfully entitled to the amount of $274,005.78. He also submits that it would be unconscionable for Discovery Africa to resile from the assumed state of affairs, rely on ss 200B(1) and s 200J and assert that the conditions of ss 200H, 200F(2) and 200E were not satisfied rendering s 200B(1) inapplicable to the amount. 129 He submits further or as an alternative to estoppel that it is reasonably arguable that to the extent that he was not entitled to be paid all or part of the sum of $274,005.78, Discovery Africa is required, by an implied term of the Nichol Deed of Release, to do all things reasonably necessary to permit him to have the benefit of the Nichol Deed of Release, citing Secured Income Real Estate (Australia) Limited v St Martins Investments Pty Ltd (1979) 144 CLR 596 at 607. 130 He submits that if he was not lawfully entitled to receive all or part of the sum of $274,005.78, then he has a reasonably arguable cross-claim against Discovery Africa for damages for breach of the implied term of the Nichol Deed of Release in that Discovery Africa has refused or failed to transfer that part of the sum of $274,005.78 that it could lawfully transfer to Nichol and, or alternatively, take any steps to obtain member approval for the remaining amount. 131 Nichol's damages, he contends, would be measured as the amount to which he would be entitled if Discovery Africa performed its obligations under the implied term. At a minimum, those damages would be that amount to which Nichol would be entitled under s 200F(2) if Discovery Africa were to pay him the maximum amount worked out under s 200F(4)(e). In addition, Nichol would be entitled to damages for the loss of the opportunity to obtain member approval. 132 He submits that his cross-claims give rise to the defence of equitable set-off because his claims impeach Discovery Africa's title to sue under s 200J. That is, he would not have received any amount in contravention of s 200B(1), if Discovery Africa had not engaged in misleading conduct, breached the warranties and (or) breached of the implied term, citing James v Commonwealth Bank of Australia (1992) 37 FCR 445 at 457-462. 133 I will accept, for present purposes only that Nichol has arguable claims for damages upon the several bases alleged. Nonetheless, the provisions of s 200B(1) cannot, in my opinion, be met with a plea of estoppel or set-off. 134 The receipt of a benefit in contravention of s 200B(1) is a strict liability offence: s 200D(2). Such a recipient is taken to hold the payments received on trust for the giver: s 200J(1)(a). Thus, Nichol holds the payments made to him on trust for Discovery Africa. Moreover, the recipient must "immediately" repay the amount of the benefit to the giver. 135 The amount is a statutory debt due to the giver and may be recovered in a court of competent jurisdiction. 136 These provisions collectively underscore the policy objective of the legislature to protect members of companies from unapproved benefits being given to officers of companies in connection with their retirement. The creation of contraventions as strict liability offences and the statutory requirement that the benefit be held on trust and be immediately repayable are telling: see also Commonwealth 'Parliamentary Debates', House of Representatives, 24 June 2009, 6969-6970 (Chris Bowen). 137 Nichol has no arguable basis to be able to set-off claims for damages against a statutory obligation upon him to repay immediately the monies which are taken to be held by him on trust for Discovery Africa. 138 The statutory obligation to repay immediately the monies taken to be held on trust by him, implicitly, in my opinion, excludes any equitable set-off upon the statutory debt: see e.g. James v Commonwealth Bank of Australia at 459. 139 Nichol's argument that Discovery Africa was contractually required to put the benefit to members in the general meeting for approval in order to give Nichol the benefit of the Nichol Deed of Release, was rejected at first instance in Renshaw at [178(b)-(c)] and [179]-[182].

[28]

Is the claim against Van Den Bergh barred? 142 Van Den Bergh submits that the application by Discovery Africa to reclaim the benefit paid to him in contravention of s 200B (although the contravention is denied) constitutes a "Claim" as defined in clause 1.1 of the Van Den Bergh Deed of Release; "Claim" is defined to mean "any claim, demand, suit, proceeding, action" and the like including, by paragraph (c), "arising under statute". 143 He relies upon the following further provisions: (1) By cl 2.1 of the deed, Discovery Africa released, discharged and forever held Van Den Bergh harmless from, relevantly, "all Claims … or Liabilities arising out of, incidental to or in any way directly or indirectly related, connected with or based on": (a) the termination of his employment agreement; and (b) the Termination Payment. (2) By cl 2.2 of the deed, Discovery Africa, relevantly, covenanted not to "make any Claim or institute any proceedings or actions whatsoever against" Van Den Bergh "in direct or indirect relation to any matter the subject of the releases and discharges under clause 2.1". 144 By cl 5.2, the parties agreed relevantly that the deed may be pleaded by, Van Den Bergh "as a bar to any Claim, action, suit or proceeding that relates to a matter the subject of the releases and discharges contained in clause 2.1". 145 Thus, he submits that it is reasonably arguable that Discovery Africa's claim for the repayment of the Termination Payment is a claim (and this action is an "action, suit or proceeding") which it has released and in respect of which he is entitled to rely upon the deed as a complete bar in his defence to the claim. 146 These are a reprise of arguments put and rejected in Renshaw at [160]-161]. I respectfully adopt her Honour's reasoning, which is apt to this case. 147 These arguments, as Discovery Africa correctly submits, also ignore the effect of s 199A(1) of the Act, which prohibits a company from "exempt[ing] a person…from a liability to a company incurred as an officer … of the company". Similarly, s 199A(2) prohibits a company from indemnifying a person in respect of such liability. By s 199C, the Act renders void anything that purports to give such an exemption or indemnification. 148 Clause 2.1 of the Van Den Bergh Deed of Release attempts to release (exempt) Van Den Bergh from various claims and liabilities, including in relation to "the Termination Payment and other payments" to Van Den Bergh. The liability of Van Den Bergh to repay the Termination Payment to Discovery Africa arises from ss 200B and 200J of the Act, being a payment in connection with his retirement from office, and was thus incurred as an officer of Discovery Africa. The 'no claims' and 'bar to future actions' cll 2.2 and 5.2 expressly depend on cl 2.1. 149 Clauses 2.1, 2.2 and 5.2, to the extent that they purport to release Van Den Bergh from any claim or liability to Discovery Africa in respect of the Termination payments or to indemnify Van Den Bergh in respect of those liabilities, are void by operation of s 199C of the Act. 150 I consider that neither Nichol or Van Den Bergh have any reasonable prospect of successfully defending Discovery Africa's claims under ss 200B and 200J of the Act.

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Judgment (29 paragraphs)

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