Factual findings on the acquisition of the options and related rights in this case
63 The evidence was that Nexus granted the 742,500 options to Mr Fowler on 30 November 2006. Pursuant to s 176 of the Corporations Act, in the absence of evidence to the contrary, the register of option-holders is proof of the matters in the register. The register of option-holders for Nexus was not, however, in evidence. As Young J said, however, in Green v Crusader Oil at 122-123, as a general rule, where the only evidence before the court is evidence that is inherently probable and not contradicted by other evidence, then the court is bound to accept it. Applying this principle, 30 November 2006 must be accepted as the date of the grant of the options. The Appendix 3Y form submitted by Nexus to the ASX on 8 December 2006, in accordance with the ASX Listing Rules, advised that Mr Fowler had acquired the options on 30 November 2006. The 2007 annual directors' report, required by the Corporations Act, also stated that Mr Fowler's options were granted on 30 November 2006.
64 Further, the unequivocal statements in these documents are entirely consistent with the conduct and other statements of the company on 30 November 2006 and preceding this date. The ordinary resolution passed by the company's shareholders on 30 November 2006 gave approval for the grant of the options to Mr Fowler "with a vesting date of 30 November 2006". This accorded with the Notice and the Explanatory Memorandum sent to shareholders for the 30 November 2006 annual general meeting. As noted above, the Explanatory Memorandum had advised the shareholders that the "proposed grant … requires prior Shareholder approval".
65 The company's announcement to the ASX on 29 September 2006 advised not only that the company had issued options to its eligible employees but also that "subject to shareholder approval at the next Annual General Meeting" the company "intended" to issue options to the non-executive directors and managing director. The evidence was that the company considered that this announcement was important: in the words of Mr Boyson, "it was essential that the market was informed that these options were in play"; and, although drafted by the company secretary, Mr Munks, the announcement was reviewed by the chair, Mr Philip, and the managing director, Mr Tchacos, before being sent to the ASX. Mr Munks gave evidence that he included the reference to shareholders' approval, "based on [his] understanding that shareholders were required to approve the options".
66 The applicant's argument that, notwithstanding this evidence, for the purposes of ss 139G(c), (d) or (e), he acquired the options on either 14 September 2006 or 29 September 2006 depended on two separate propositions.
67 The submission that 29 September 2006 was the appropriate date depended on the proposition that the non-executive directors' options were granted under the ESOP. This proposition was contrary to the evidence, and the applicant's submission as to 29 September 2006 must be rejected. Mr Fowler did not receive a letter like that sent to employees. He was not required to accept any offer of options by returning the requisite ESOP acceptance form in the same way as employees and did not do so. Further, Mr Tchacos stated (and I accept) that it was not intended that the directors' rights be governed directly by the ESOP, but that the terms as to exercise price and expiry date be the same for both the company's directors and employees.
68 The submission that 14 September 2006 was the relevant date depended on the proposition that there was a contract created on 14 September 2006 and that this contract gave rise to a right, or beneficial or legal interest, satisfying ss 139G(c), (d) or (e). The contract was said to be evidenced in part by the board's resolution of 14 September 2006.
69 Whether or not a contract was formed on 14 September 2006 or thereabouts depends on the evidence about intention to contract. The nature of the evidence that may be considered on this issue is perhaps wider than that available to construe the meaning and effect of contractual terms, although today the difference is much less than in the past. This is because nowadays, under Australian law, the rights and liabilities of parties to a contract are determined according to "the principle of objectivity", that is, by reference to the words and conduct of the parties, the text, the surrounding circumstances known to the parties, and the purpose and object of the transaction: see Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at 176 [40]. See also, for example, Wilkie v Gordian Runoff Ltd (2005) 221 CLR 522 at 528-529, citing McCann v Switzerland Insurance Australia Ltd (2000) 203 CLR 579 at 589 [22]; and Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 at 461-462 [22]. These factors also bear on the issue of contractual intention: see the earlier discussion in Air Great Lakes Pty Ltd v KS Easter (Holdings) Pty Ltd [1985] 2 NSWLR 309 ("Air Great Lakes") at 334 (Mahoney JA) and 337-338 (McHugh JA).
70 The evidence as to the parties' words and conduct, the surrounding circumstances, and the purpose and object of the transaction considered as a whole, supports the finding that a contract was in fact made between the company and Mr Fowler with respect to the grant of options on 14 September 2006.
71 The surrounding circumstances known to the parties include the fact that, in 2006, the company was engaged in oil and gas exploration rather than commercial production; and the conservation of its cash reserves were critical for its continued daily operations. Mr Haydock, a non-executive director and a member of the company's remuneration committee in 2006, gave unchallenged evidence that, with this in mind, the committee discussed the remuneration packages for the company's employees and directors around May/June that year, including the suitability of options as part of these packages. For the same reason, around this time too, Mr Tchacos made a recommendation to the remuneration committee to utilise options as part of the company's remuneration packages.
72 The company's directors - at that time, Mr Philip (chair), Mr Haydock, Mr Boyson, Mr Fowler and Mr Tchacos (managing director) - discussed the company's cash resources at board meetings. All were present at the board meeting on 26 July 2006, when the board discussed increasing the quantum of the directors' remuneration and remunerating them with the issue of options in lieu of cash. As a result of this discussion, the board passed the resolution (see [16] above) that "directors would be entitled to take part or all of their remuneration in the form of options priced on the same basis as under the ESOP scheme and subject to any shareholder and other approvals required". Directors were to let Mr Philip know of their "preferred mix of remuneration". The evidence established that, in effect, at the 26 July 2006 meeting, the directors agreed in principle to forego the payment of part or all of their fees in cash, in return for options in unissued Nexus shares. This in-principle agreement was subject to a report to be made by Mr Tchacos about the terms and pricing of the options.
73 In conformity with the resolution of 26 July 2006, between that date and the following board meeting on 14 September 2006, Mr Fowler informed Mr Philip that he would forego 100% of his cash remuneration in exchange for options.
74 As noted earlier (at [17]), the paper subsequently prepared by Mr Tchacos and circulated to board members prior to 14 September 2006 recommended both the issue of options to employees under the ESOP and the issue of options to members of the board in lieu of cash remuneration. There was also a recommendation concerning the managing director's option package. The paper observed:
Several of the directors of the Company have requested the opportunity to sacrifice board fees in exchange for options. Providing the opportunity for board members to be remunerated via options is recommended because it aligns the board with the interest of the shareholders.
75 As to value, the paper stated that:
The equivalent cash value of the options being discussed in this recommendation is shown in Appendix 1. The value of options is based on a 40% premium to the June and July 2006 Volume Weighted Average Price and a 13 month option term. It is proposed that the same basis is used for the calculation of the option value in the case of employees, management and board.
76 In relation to the process to be adopted to grant the options, the paper distinguished between options for the employees and options for the board. The paper stated that options issued to "the staff and management team" could be issued immediately after board approval. In the case of the board and the managing director, however, the paper noted that:
[T]he issue of options is subject to shareholder approval hence issue of options can only occur after the AGM. It is imperative however that the options package is announced as soon as practically possible to avoid shareholder dissention in the event that the share price escalates substantially prior to the AGM. (Emphasis added.)
77 There was evidence of discussions between board members prior to the following 14 September board meeting. For example, between 9 and 14 September 2006, Mr Fowler had a discussion with Mr Philip about the proposed issue of options to Mr Philip.
78 All directors attended the board meeting on 14 September 2006, at which matters addressed in Mr Tchacos' paper were discussed and the board resolved that "options be issued to the directors of the company [on] the same terms and conditions as the company's employees share option plan and that shareholder approval be obtained prior to being issued". These options included the 742,500 options to Mr Fowler, with an exercise price of 87 cents and an expiry date of 31 October 2007: see [19] above.
79 The directors' salary sacrifice came into effect immediately after the 14 September 2006 meeting. I accept that, as the applicant submitted, this is indicative of the fact that a contract was made at that meeting, pursuant to which Mr Fowler (and each director) agreed to forego payment of fees in cash in return for the 742,500 options in unissued shares on the terms recorded in the minutes for that meeting. The resolution recorded in the minutes set out the essential terms of the options, namely, the grantee, the number of options, the time within which the options might be exercised (in this case, prior to 31 October 2007) and the exercise price (87 cents per option).
80 Mr Philip explained that the exercise price was fixed as at 14 September 2006, rather than as at the date the options were to be granted, in order to expose the directors to the same risks that the shareholders faced from this date and to ensure that there was a premium between the exercise price of the options and the then market value of the company's shares. Mr Philip's evidence (which I accept) was corroborated by the evidence of Mr Tchacos and that of the other non-executive directors at that time. The position of Mr Philip was probably a little different from the other non-executive directors but this difference is not relevant here.
81 The fact that the company entered into such a contract with Mr Fowler on 14 September 2006 is corroborated by the explanatory memorandum that accompanied the Notice to shareholders regarding the November 2006 annual general meeting. As set out above, the explanatory memorandum in fact stated that "[t]he purpose of the proposed grant of Options is to honour remuneration agreements and to provide Michael Fowler with added incentive in lieu of salary whilst enabling the Company to preserve its cash reserves for expenditure on its existing business".
82 Further, whilst I would treat the directors' evidence as to their state of mind most cautiously, in so far as this evidence had any relevance (see, for example, Air Great Lakes at 319, 330-331, 333-334, 337) it was supportive of the fact that each director entered into a binding agreement with the company with respect to the grant of the options at the meeting of 14 September 2006.
83 Having regard to the text of the board's resolution of 14 September 2006, it is plain enough that the issue of the options to Mr Fowler was subject to the shareholders' approval being obtained. The inclusion of this condition was consistent with the distinction between employees' options and directors' options made in the board paper prepared by Mr Tchacos, which was the basis of the board's discussion and resolutions. Indeed, the need for the shareholders' approval had been foreshadowed in the earlier resolution of 26 July 2006.
84 Furthermore, the existence of the condition as to shareholder approval was entirely consistent with the company's subsequent conduct in seeking such approval on 30 November 2006. It was also consistent with the terms of the company's announcement to the ASX on 29 September 2006, and the Notice and the explanatory memorandum provided to shareholders in anticipation of the 30 November 2006 annual general meeting. Finally, it was borne out by the terms of the shareholders' resolution at that meeting; and the fact that the company's documents did not record the grant until after the shareholders had given their approval.
85 In so far as it is relevant, the existence of the shareholders' approval condition is also corroborated by the evidence of Mr Philip, Mr Tchacos and Mr Munks that they believed that the law required that the shareholders' approval be obtained before the options could lawfully issue. As well, the evidence of some other members of the board indicated that they shared this assumption.
86 At various points in his submissions, the applicant challenged the accuracy of the board minutes in so far as they referred to the need for the shareholders' approval. For the following reasons, I would reject that challenge.
87 First, it must be borne in mind that minutes of directors' meetings recorded in accordance with s 251A(1) of the Corporations Act and signed as required by s 251A(2) are evidence of the resolution to which it relates unless the contrary is proved: see s 251A(6). Broadly, the evidence established that the company's board meeting minutes were recorded and signed in accordance with s 251A(1) and (2).
88 Mr Munks, as the company secretary from 16 July 2002 until 13 October 2006, attended the board meetings on 26 July 2006 and 14 September 2006 and subsequently prepared the minutes. His evidence was that at the relevant time his practice was to type the notes of the board meeting on his laptop whilst the meeting was in progress and, after the meeting, to review the notes and turn them into draft minutes to be sent to Mr Philip and Mr Tchacos for review and comment. In the case of the 14 September 2006 board meeting, Mr Munks said that he reviewed his notes "soon after" that meeting and "made alterations and amendments where I thought necessary to give effect to the discussion and resolutions".
89 Mr Philip and Mr Tchacos said that, once they received the draft minutes from Mr Munks, they would review them and propose any change they thought necessary to reflect the meeting. Thereafter, according to Mr Philip, the draft minutes were circulated to the other board members for review and comment. The draft minutes, as amended, would be considered by the board at the following board meeting when, after any further correction, the minutes would be adopted as correct, signed by the chair, and entered into the company's books.
90 Unsurprisingly, none of the relevant witnesses could recall any specific discussion at the relevant board meetings. None of them could recall whether or not the board had in fact discussed the issue of shareholders' approval. Mr Philip's evidence was that the minutes of 26 July 2006 and 14 September 2006 "matched" or were "consistent with" his recollection of board discussions of directors' remuneration and options. Mr Tchacos also stated that, whilst he could not specifically recall the discussions at the board meetings of 26 July 2006 and 14 September 2006, the minutes were consistent with his recollection.
91 Since the witnesses' recollections of the meetings were poor, I would attach little, if any, weight to the claims of Mr Haydock and Mr Fowler that the matter of shareholders' approval was not discussed at the board meetings on 26 July 2006 or 14 September 2006. Indeed, in cross-examination, Mr Fowler ultimately agreed that it was "certainly possible" that the need for shareholder approval was discussed at the 14 September 2006 board meeting.
92 Having regard to the numerous opportunities afforded board members to review and correct the minutes before they were approved, there is little reason to suppose that the minutes, as approved and signed, were other than accurate. The evidence at the hearing was insufficient to establish that the minutes were inaccurate with respect to the issue of the shareholders' approval and, assuming it was applicable, to overcome the presumption in s 251A(6) of the Corporations Act. I do not consider the absence of a reference to shareholder approval in the 14 September 2006 resolution concerning Mr Tchacos justifies a different conclusion.
93 In any event, in so far as it was relevant to the terms of the contract with Mr Fowler as recorded in the minutes of 26 September 2006, Mr Philip's evidence was that, whether or not the issue was discussed, he believed in 2006 that, by law, Nexus was required to obtain the shareholders' approval before the company could issue the options to the directors. Mr Tchacos and Mr Munks gave evidence to the same effect. There was also some evidence that this was the understanding of most, if not all, the non-executive directors. In re-examination, Mr Fowler agreed that he was "always aware of any transactions ultimately having to be sanctioned by shareholders relating to specifically related parties like options".
94 The condition as to the shareholders' approval was not a condition precedent to the formation of the contract between the company and Mr Fowler, as the Commissioner at one point argued. This possibility is not supported by the evidence to which I have referred, including that the directors commenced to "salary sacrifice" from 14 September 2006. Rather, the performance of the contract on the company's part by the grant of the options required the fulfilment of a contingency, namely, the obtaining of the shareholders' approval. This conclusion is supported by the observations of Mason J in a much-quoted passage in Perri v Coolangatta at 552. Describing the prevailing position with respect to conditions of this kind, his Honour said as follows:
Generally speaking the court will tend to favour that construction which leads to the conclusion that a particular stipulation is a condition precedent to performance as against that which leads to the conclusion that the stipulation is a condition precedent to the formation or existence of a contract. In most cases it is artificial to say, in the face of the details settled upon by the parties, that there is no binding contract unless the event in question happens. Instead, it is appropriate in conformity with the mutual intention of the parties to say that there is a binding contract which makes the stipulated event a condition precedent to the duty of one party, or perhaps of both parties, to perform. Furthermore, it gives the courts greater scope in determining and adjusting the rights of the parties. For these reasons the condition will not be construed as a condition precedent to the formation of a contract unless the contract read as a whole plainly compels this conclusion.
See also Perri v Coolangatta at 541, 545 (Gibbs CJ).
95 In summary, the company granted the 742,500 options to Mr Fowler on 30 November 2006, pursuant to a contract made by the company with him on 14 September 2006. This contract was subject to a condition precedent to performance - that the shareholders' approval first be obtained before the options were granted. Mr Fowler was unable to exercise any right to acquire the shares the subject of the option prior to 30 November 2006; and he did not have an immediate equitable interest in the shares prior to that date. Pursuant to the contract, however, the company was obliged to take all reasonable steps to obtain the shareholders' approval; and Mr Fowler had such equitable rights as equity would afford, by way of specific performance or injunction, to ensure that the company took these steps.