Mr Boucousis' activities - December 2008 to February 2009
41There is little evidence of any activity in December 2008 in relation to the NTA contract, although it appears that Mr Boucousis had a discussion with Mr Burke of HWL on 8 December 2008 concerning industrial relations issues.
42On 19 December 2008, Mr Boucousis sent some draft cash flow spreadsheets to Mr Madden. The spreadsheets were said to have been compiled by Investec, apparently as the basis of a valuation of HSA. On 24 December 2008, Mr Boucousis sent an email to Lord Westbury and others in Cyprus in which he provided some information about his efforts to obtain an investor. The email included the following:
"The upshot of these discussions have been that yes they are interested in Hart Australia, however not at $1.5 million (what a surprise). Their justification is as follows:
1 Hart is involved in Iraq [...]
2 They are effectively "backing me" and another Aussie guy who is running the transaction from their side, not the [sic] so much the NTAPL contract, their opinion is that a one contract company carries a lot of risk. As such they have offered me a position in their M&A department for a $500,000 AUD sign-on bonus and equal pay, which to be honest is an attractive proposition as it is not in the security space and spans their emerging markets arms.
[...]
4 The Australian business still requires AUD $850,000 in Cashflow funding and $330,000 to acquire a new X-ray machine and 5 x explosive trace detection machines. [...]
5 They own a manpower company with all the requisite agreements for staff and the NT Security licences we are still waiting for. This is the biggest risk to the whole contract and something we do not have yet and to be honest I don't think we'll have in time as NTAPL just had their agreement rejected by the WPA (Workplace Authority) which we were basing ours on.
As I stated in Cyp either way with Hart or Investec I am happy.
[...]
I can only convince them to part with so much cash. I would recommend taking the offer of $1.2 million USD as that is the maximum they are able to get from the credit committee, on top of cash flow and $330,000 for the extra machines."
43Although the evidence on this matter was most unclear, it seems that Mr Boucousis sent a second email at about the same time on 24 December 2008 which attached some form of offer from Investec. That offer does not seem to have found its way into evidence. In any event Mr Madden, in an email to Mr Boucousis on 7 January 2009, indicated that Hart might be interested in an arrangement whereby it received $1.2 million and retained a 10% interest.
44By early January 2009, Mr Jonathan Jackson, who had recently been employed by HSA, was working on the NTA contract matter. On 7 January 2009 he provided a memorandum to Mr Boucousis and Ms Stone concerning a progress meeting that had been held. On 8 January 2009 Mr Boucousis and Ms Stone (and others) attended a conference with Mr Burke of HWL concerning various issues in relation to the NTA contract.
45On about 16 January 2009, a question arose concerning the terms of a Letter of Support which the Hart Group had given in relation to CTG and HSA. Letters of Support had been provided by the Hart Group on 8 September 2008 and 20 November 2008 and it seems that at least one of those letters had been provided by HSA to NTA for due diligence purposes. These letters indicated that Hart Security Holdings Limited would continue to support CTG and HSA "financially and operationally" for a period of at least 12 months from the date of the signing by KPMG of the accounts of CTG and the accounts of each of its controlled entities for the year ended 31 December 2007. Those accounts were in fact signed by KPMG in about late November 2008. On that basis, the letters provide for continuing support until about late November 2009. Notwithstanding the terms of the letters, Mr Boucousis sent an email to Mr Madden on 16 January 2009 requesting him to "update" the Letter of Support for due diligence purposes on the basis that, as it stood, the letter expired on 31 December 2008. In his email response later on that day, Mr Madden himself appears to have been of the view that the letter expired on 31 December 2008. Mr Madden appeared amenable to issuing a revised letter for a new timeframe, and agreed with Mr Boucousis' suggestion that a separate agreement would need to be signed to deal with the terms of the agreements reached in Cyprus in 2008 insofar as they concerned funding. Mr Boucousis, in his email reply later on 16 January 2009, requested that a Letter of Support be issued with a revised date of 31 December 2009, and undertook to draft a letter to deal with the effect of the agreements reached in December 2008. It seems that no further Letter of Support was issued. According to Mr Madden, this was because it was realised that the existing letters had not in fact expired.
46On 16 January 2009, Ms Selina Pollard, the Legal Counsel of NTA, sent an email to Ms Stone and Mr Boucousis concerning a list of issues to be addressed. The first of those issues was described as "form of security". Ms Pollard mentioned "bank guarantee/parent company guarantee/director's guarantee" and stated that she was awaiting instructions on the issue.
47On 23 January 2009, Mr Ainslie of NTA sent an email to Mr Boucousis together with an email sent earlier that day to Mr Ainslie by Ms Pollard. Ms Pollard's email attached a draft of the Security Service Contract. It is apparent from the terms of her email that she was aware that there was some form of relationship between HSA and ATMAAC. Specifically, her email included the following:
"I further note that Hart's relationship to ATMAAC may need to be addressed in the contract - once that relationship is known. And that the Equipment Lease will be prepared separately and may attach to the Contract, if considered appropriate."
48Mr Ainslie's email to Mr Boucousis also refers to a relationship between HSA and ATMAAC. Specifically, his email includes the following:
"We also discussed your relationship to ATMAAC on 21st Jan which we will need to understand given this is instrumental at this stage in executing a successful contractual arrangement and for us to assess risk to NT Airports.
A quick response on this issue would be appreciated."
49Shortly after the receipt of Mr Ainslie's email, Mr Boucousis sent an email to Messrs Sundberg, Madden and Heycock in Cyprus attaching the draft NTA contract. Mr Boucousis' email also included the emails from Mr Ainslie and Ms Pollard which he had received earlier that morning. However, Mr Boucousis had deleted from those emails the parts of them which concerned the relationship between HSA and ATMAAC and its importance to the NTA contract.
50In his cross-examination, Mr Boucousis initially denied that he intentionally withheld information from Hart Cyprus concerning the relationship with ATMAAC, but when confronted with the amended emails, he eventually accepted that he intentionally altered the emails, and did so in order that Hart Cyprus did not see the material concerning the relationship with ATMAAC. This evidence, which was plainly unsatisfactory, was heavily relied upon by HSA in contending that Mr Boucousis was behaving dishonestly.
51The draft contract which was attached to Mr Boucousis' email of 23 January 2009 named HSA as the Service Provider, had a term of 3 years from 1 April 2009 (subject to extension), and provided for guarantees to be provided by Mr Boucousis and Hart Security Holdings Limited, as well as a bank guarantee of an unspecified amount.
52Later on 23 January 2009, Mr Boucousis sent an email to Mr Madden which was in the following terms:
"NT have asked us to guarantee the contract up to $5 million and to carry insurance for damage to their business as a result of contract breach up to $50 million.
Any ideas what type of insurance this would be??"
53Also on 23 January 2009, Mr Boucousis sent an email to Lord Westbury and Messrs Madden and Sundberg headed "Update on Investec Acquisition". In the body of the email, it was stated that "the situation with Investec/ATMAAC is progressing". Reference was also made to the signing of the NTA contract, and that it was now "slated" to occur on 20 February 2009. Lord Westbury, in his email response on 26 January 2009, asked why the contract signing date was slipping. He also stated that the likelihood was that Hart would say no to Investec. Mr Boucousis sent an email in response later on 26 January 2009. His email included the following:
"The delay in signing the contract doesn't affect the implementation of the contract and is an administrative issue only, we have a side contract that covers us in the interim. We will all be up in NTAPL on the 18th in preparation for the signing in order to commence the transition immediately.
There are some strange last minute requests we are sorting through, including a $5 million AUD performance bond. [...] The scuttlebutt is given Hart has no track record, this would provide "comfort" to the NTAPL team. I am confident I can sort this out next week."
54On 28 January 2009, Mr Ainslie of NTA sent an email to Mr Boucousis headed "Outstanding Requirements". The email included the following:
"I refer to previous correspondence regarding the Hart Group structure and guarantees required to be provided to Northern Territory Airports Pty Ltd ("NTAPL") to give NTAPL comfort that Hart Security Australia Pty Ltd ("Hart") can perform and carry out its obligations under the proposed Security Service Contract.
NTAPL has the following concerns -
(a) contracting with a relatively new company which has not yet provided aviation security services in Australia;
(b) contracting with a company with only $1,000 issued capital and which operated at a loss for the past financial year;
(c) contracting with a company which is ultimately held by an overseas company (Hart Security Holdings Limited (Cyprus) (49.9%)) and family trust (Boucousis Family Trust (50.1%));
(d) the contracting party's ability to provide -
(1) indemnity up to $50 million [...]
(2) insurances [...]
Given NTAPL's legislative obligations under the Aviation Transport Security Act and Regulations, and the concerns outlined above - NTAPL requires some level of comfort that the Darwin international airport and Alice Springs airport at all times remain operational and that any risk of termination of security services prior to the expiry of the proposed term of the Security Service Contract are appropriately mitigated. I am advised that NTAPL requires the following from Hart to mitigate such risks -
(1) An unconditional and irrevocable bank guarantee from an Australian trading bank in the value of $5 million (five million dollars).
(2) The following to execute the Security Service Contract as Executors - Christian Patrick Boucousis and Hart Security Holdings (Cyprus).
Can you please advise of your willingness to enter the Security Service Contract with the abovementioned guarantees.
[...]
As you are aware, it is proposed that the Security Service Contract be presented to the NTAPL Board meeting on 19 February 2009 - Board Papers must be submitted on or before 9 February 2009. As guarantees will be a significant issue on the Board approval process, I request your speedy response to this request."
55The above email was forwarded by Mr Boucousis to Mr Madden, and a number of emails passed between Messrs Boucousis and Madden shortly thereafter. In one such email Mr Madden stated:
"The need to supply a $5m bond should have been determined by NTAPL, long before now - given the fact that they have known all about the group, the Australian subs and the lack of Aus experience in aviation, for many months."
56Mr Madden also posed the question whether the request for the guarantee was a polite way for NTAPL saying "thank you but no thank you". In response, Mr Boucousis wrote:
"Not sure, it all seems a bit over the top and to be honest they all seem a bit cagey right now. [...]
If we don't provide a definitive answer by Friday the existing contract will be extended another six months until the terms are met.
Stuart [Ainslie] said very simply that as the oz company has no asset base, the bank guarantee will provide the level of comfort required to demonstrate commitment to the contract."
57On 29 January 2009 arrangements were made between Mr Boucousis and Mr Burke of HWL for a conference call to take place on the following day to go through the draft NTA contract. It was envisaged that Mr Jackson and Ms Stone would also participate in that conference. It appears that by 29 January 2009 Mr Boucousis had become aware that the Hart Group was unwilling to enter into a bank guarantee. He sent an email on that day to Lord Westbury and Mr Madden seeking detailed instructions on the matter.
58On 30 January 2009 Mr Madden sent an email to Mr Boucousis in the following terms:
"Having been instrumental - in fact an integral part of all that has occurred with NTAPL - we trust that you as a 50% equity partner in Hart Australia and thereby having to assume 50% of these conditions and obligations, agrees with our/your partners decision on this matter as outlined below:
Following the receipt and review of the draft services contract with NTAPL together with your confirmation of the need for an AUD $5 million bank guarantee, we have some concerns with respect to the interpretation and nature of certain clauses and have serious reservations with respect to the need to include the provision of the bank guarantee - for such a quantum, for such a period and with language required that will basically preclude it from being a "bankable transaction".
Furthermore given the fact that the contract also stipulates:
the need to place wide-ranging and significant upper limits on "cover" within various insurance policies,
indemnity clauses that further bind the contractor without any form of reciprocation,
a series of Key Performance Indicators, many of which can be construed as subjective and could therefore result in vastly reduced billings and income
we have no option than to oppose the inclusion of the bank guarantee clause in its' entirety.
Whilst we have had every desire and intention to finalise the contractual arrangement with NTAPL and in recognition of your tireless efforts, we were somewhat shocked and disappointed by the inclusion of such a requirement - given the 15 months relationship with NTAPL, the provision of management services to the client - and the very sudden "unannounced" appearance of such an onerous condition."
59Mr Boucousis forwarded that email to Mr Ainslie on the morning of 30 January 2009 and requested NTA's position "based on this email". Mr Ainslie, in his email in reply, suggested that they could talk on Tuesday morning (3 February 2009) "if we are going to talk through the alternate scenario".
60The teleconference that had been arranged with Mr Burke took place between about 11am and 12:45pm on 30 January 2009. The draft NTA contract was reviewed during the conference. Later that day Mr Boucousis telephoned Mr Burke and, as appears from Mr Burke's note of the conversation, told him, in effect, that HSA's head office had said that the $5 million bank guarantee would not be provided, and that NTA had said that in that case HSA can't have the contract. Mr Boucousis also sent an email to Mr Madden which included the following:
"My desire is to proceed as agreed on 04 December, however I must highlight issues that have arisen since that time.
I have been advised by our (Hart) lawyers to outline the issues below, all of which were discussed this evening. All information is predicated on the non-award of the NTAPL contract to Hart Security Australia and are statements of fact.
I was advised by Stuart Ainslie that the basis of the bank guarantee requirement was as a result of a balance sheet comparison between HSA and the three other aviation security companies, ISS, Chubb and SNP during the due diligence process.
Without this contract we will be unable to remain solvent beyond April, as you are aware I have knowledge of this and I have a legal obligation to declare the situation to ASIC (Company's House) in due course (and prior to insolvency).
[...]
Additionally I have been seeking other options for funding/offers or a reduction in the capital related obligations required of Hart by NTAPL.
As discussed we currently have no letter of support from HSL.
Stuart Ainslie and Kew confirmed today that in Hart's case as an offshore company that the Bank Guarantee is essential and as such with no bank guarantee there can be no contract.
Stuart Ainslie indicated that the bank guarantee would only apply to an offshore entity and probably not an Australian entity (although other guarantees will be required). I have approached ATMAAC and Investec again to commit on the offer of $1.2 million USD and "refunding" the $5 million Bank Guarantee to ensure contract award. Mark Joffa, Investec, advised that without a signed contract it cannot get approval from the credit committee.
Investec confirmed its earlier offer of $500,000 AUD or an earn out of $750,000 AUD to acquire the contract and bring the contract to a close, the transaction needs to occur by Friday 7th Feb (NTAPL deadline for the board submission).
The fact is that NTAPL requires a strong balance sheet to execute the contract and other investors are baulking at the Bank Guarantee and subsequently will not invest.
This is the best I have been able to do (to date) to resolve the situation. [...]
My formal recommendation is that Hart Security Australia accept this offer, HSL accept the $500,000 and retains Paul and Sallie and their business (Timor, NHK, IFK, Media etc).
Could you please record your position on this issue and how you wish to proceed prior to 01 February 09? [...]
Based on our discussions tonight you indicated an intent to discuss the contract with Ian Kew which I will arrange. As this conversation is beyond the current deadline could you please provide a written letter of comfort or support underwriting all liabilities, including outstanding tax, superannuation, leave entitlements and creditors to cover the eventually [sic] that NTAPL doesn't award the contract to any of the abovementioned parties, prior to 2nd Feb.
As there is currently no legal instrument in place assuring solvency, I have no option but to execute an agreement with ATMAAC and Investec to guarantee the solvency of the company. Can you please provide this ASAP to ensure we can "buy time"."
61Mr Burke says that he had a further telephone conversation with Mr Boucousis on 30 January 2009, during which Mr Boucousis said that he needed to get advice from an insolvency lawyer about his duties as a director of a company that is near insolvency. By the end of the day, arrangements had been made for Mr Mark Webeck, a partner of HWL, to provide such advice. Mr Hummel sent an email to Mr Webeck which contained some background information, including that Mr Boucousis was the sole director of HSA. Mr Hummel had obtained a company search of HSA which indicated that that was the position. Mr Hummel's email also referred to the refusal to provide the $5 million bank guarantee as well as to an offer from "Admac" to assign the NTA contract to it for $500,000. It was stated that head office had advised rejection of the offer on the grounds that it assisted a competitor. The email further noted that Mr Boucousis "agreed with our suggestion" that, in the absence of the NTA contract, "Hart is in a state of near insolvency".
62On 31 January 2009, Mr Madden responded to Mr Boucousis' email of the previous day. This response was in the following terms:
"It is preferable, indeed wise, to have the discussion with Ian Kew before responding to the points outlined below.
In the meantime I would draw your attention to the agreement we made on 4th December with respect to undertakings agreed upon.
In order to assimilate all the facts and possible options, would you kindly request Investec provide a letter formally outlining their position especially with respect to the NTAPL contract."
63On 2 February 2009, Lord Westbury also sent a response to Mr Boucousis' email of 30 January 2009. Lord Westbury requested a time and a number for a telephone call with Ian Kew. It seems that no telephone number was provided by Mr Boucousis, but in cross-examination he maintained that he made efforts to co-ordinate a telephone conversation between Lord Westbury and Mr Kew. HSA called Mr Kew in its case, but Mr Kew gave no evidence, nor was he asked questions, about this matter.
64Mr Webeck provided a letter of advice to Mr Boucousis in the evening of 2 February 2009. The letter included a description of the duties owed by directors, both at common law and under statute. It was stated that there was a duty to "avoid conflicts of interest, i.e. not enter into any engagements in which a director has a personal interest conflicting, or which may possibly conflict, with the interests of the company".
65There was further discussion around this time concerning the bank guarantee issue. It appears from an email sent by Mr Boucousis to Lord Westbury and Mr Sundberg on 3 February 2009 that NTA had mentioned a figure of $3.8 million but had yet to commit to anything on paper.
66It is apparent that by this time discussions had taken place between Mr Boucousis, Mr Kelly and lawyers retained by ATMAAC (Middletons) about the draft NTA contract. Middletons produced a revised draft of the contract on 4 February 2009. This draft named ATMAAC as the service provider. It provided for a ten year term commencing on 1 April 2009, and further indicated that there would be a bank guarantee for $400,000. It is clear from the email sent by Mr Landis of Middletons to Mr Kelly on 4 February 2009 (which attached the draft and was copied to Mr Boucousis) that Investec had advised that they were prepared to provide a bank guarantee of only $400,000, not $1 million. A draft of the contract circulated by Ms Pollard on 18 February 2009 (in which HSA was reinstated as the service provider and $1 million was reinstated as the amount of the bank guarantee) indicates that at some stage Mr Landis' draft contract was provided to NTA.
67On 4 February 2009, Mr Boucousis sent an email to Mr Madden which attached an offer from ATMAAC for the purchase of all of the shares in CTG. The offer was for $500,000, and was based upon various "key assumptions" including the satisfactory execution of the NTA and Jacksons Airport contracts, and a three year employment contract with Mr Boucousis. His email also stated that NTA had advised "that the bank guarantee requirement stands".
68On 5 February 2009 Mr Madden sent an email to Mr Boucousis headed "NTAPL and ATMAAC" in which he referred to recent telecommunications and emails and stated that it was impossible for Hart to "negotiate" the contract in this manner. Mr Madden gave various reasons including "the substantial U-turn re the quantum and terms attached to the bank guarantee". As for ATMAAC, Mr Madden stated that Hart had no interest in its offer. Mr Boucousis, in his email response of the same day, stated that NTA had made their final position clear on the question of the bank guarantee. He also indicated that there were two deadlines to make decisions, namely, a "soft deadline" of 9 February 2009 for board submissions including "in principle" support of the bank guarantee, and the 19 February 2009 board meeting "whereby details of guarantee and guarantor have firmed up". The email also included the following:
"I have sent you a copy of the contract which has been through two sets of lawyers - ours and ATMAAC's.
[...]
NTAPL has stipulated full transparency on the comings and goings with this transaction, including any offers/ interaction with ATMAAC, acceptance of guarantees etc."
69Mr Boucousis also inserted various comments on the points raised by Mr Madden in his earlier email. In relation to the bank guarantee Mr Boucousis noted that it applied to "any/all parties domestic or international" and that the intent was $1 million AUD "ratcheted down over 5 years." As for ATMAAC, Mr Boucousis attached a word document for Mr Madden "to amend the terms as you desire for a counter offer".
70On the same day Ms Pollard of NTA sent an email to Mr Boucousis concerning the bank guarantee issue. Her email included the following:
"NTAPL's concerns outlined in Stuart's email of 28 January remain. However, after further consideration NTAPL advises that it is prepared to reduce the amount of the bank guarantee to be provided by Hart. NTAPL requires the following:
1. An unconditional and irrevocable bank guarantee from an Australian trading bank in the amount of $1 million (one million dollars).
2. The following to execute the Security Service Contract as Executors - Christian Patrick Boucousis and Hart Security Holdings Limited (Cyprus).
Can you please advise of your willingness to enter the Security Service Contract with the abovementioned guarantees. [...]"
71Later on 5 February 2009 Mr Madden sent an email to Mr Boucousis which included the following:
"Further to the various telecoms and emails, concerning the contract for security services with NTAPL we would consider moving forward on the following basis:
The bank guarantee, capped at AUD 1m will be valid for a period of 12 months (only) from commencement of services and is subject to our review and acceptance that terms and conditions are "now" satisfactory.
In light of the considerable amount of time, effort, consultancy work (and considerable travel) expended by you and your team during the last 15 month period, wherein you (and your team) have focused almost solely on this project (to the point of being totally "distracted" from many other business opportunities) - and are about to deliver a considerably creative cost - saving solution to NTAPL's security needs - we request an advance payment based on 2 months estimated billings, repayable in 12 equal monthly instalments, by way of deduction from monthly invoices submitted to the client."
72On 6 February 2009 Mr Boucousis responded to Mr Madden in the following terms:
"I have had a teleconference with Stuart and Selena today.
NTAPL does not agree with these terms.
The final position is a $1 million bank guarantee ratcheted down over 5 years.
No advance payment will be entertained.
Investec has agreed to meet the terms stipulated above, providing full bank guarantees and guarantor over the contract. HSL must be guarantor for the contract.
It is important for their meeting Monday morning that Hart agree to guarantor the contract and the bank guarantee as stipulated above.
I will be available from 1200GMT to discuss. It is important that we discuss this before Monday."
73Mr Madden sought clarification about who was proposed to be giving guarantees. Mr Boucousis responded saying, in effect, that a guarantor was required for the contract, either HSL or Investec "should you accept ATMAAC offer".
74Later on 6 February 2009, Mr Madden sent a further email to Mr Boucousis which included the following:
"Just to clarify where we are:
We do not accept NTAPL's stipulations or requirements and have to reiterate that in order to move forward we would need confirmation that NTAPL accept our terms as outlined in yesterday's email - reproduced below. [...]
We have no interest in accepting the ATMAAC offer as currently outlined and if we were to find a suitably workable arrangement, it would have to be completed on an immediate basis."
75On 9 February 2009, Mr Boucousis informed Ms Stone that he was going to organise a meeting between Ms Stone and Mr Kelly on 13 February 2009 "to discuss options for moving forward with ATMAAC".
76On 10 February 2009, Mr Boucousis sent an email to Mr Madden attaching a board paper that was said to have been submitted to the NTA board. The email contained the following:
"As discussed, this is the board paper as submitted to NTAPL board today. I tried to call you a couple of times yesterday to clarify and resolve this ongoing issue. I am progressing "in the dark" somewhat pending more feedback from HSL. I would like to confirm, based on existing formal correspondence HSL's position it [sic] that is not willing to proceed with the contract. On this basis I need to inform that Hart Security Australia is unable to proceed.
I need to know Hart's [HSL] formal position on either:
Proceeding as per the board paper
Accepting Offer or providing formal feedback on a revised offer for ATMAAC to acquire Hart Australia. The bank guarantee issue has shifted the goalposts on this somewhat.
Advising an alternate course of action which can be implemented by Monday 16th February
Not executing this contract is not an option on the basis of:
Forcing the company into an insolvent position
Limited employment opportunities for existing Hart Australia Staff
I am back in Australia on Wednesday and NTAPL are expecting some sort of answer as to how we are going to proceed. NTAPL are aware of the HSL position.
NTAPL are doing the right thing by me at the moment by allowing us some leeway on timing. I am cashing in a lot of "personal favours" to get this extension and give everyone some breathing space.
The deadline for HSL's final position is Monday 16th. If HSL is unwilling to support the contract or things remain "unclear" (no resolution either way) I will have to advise NTAPL, in order for them to withdraw the board paper and proceed in a different path.
I look forward to your urgent response."
77The board paper contained a recommendation that the NTA board approve a contract with HSA for a term of five years from 1 April 2009 (with the possibility of a further five years). Under the heading "Risk Mitigation" it was stated:
"The main risk identified during the consultation period and in the current economic conditions was the ultimate 49.1% shareholding of Hart held by Hart Security Holdings Limited located in Cyprus. This was exacerbated with Hart's untested service reliability in the Australian marketplace and more particularly the Australian aviation security market.
The risk will be mitigated through the provision of:
(a) an unconditional and irrevocable bank guarantee from an Australian trading bank in the amount of $1M; and
(b) the execution of the security services contract by Christian Patrick Boucousis (Sole Director and ultimate 50.1% shareholder of Hart) and Hart Security Holdings Limited as guarantor."
78The board paper was considered by Lord Westbury and Mr Madden. On 11 February 2009 Mr Boucousis received an email from Mr Madden in which Hart reconfirmed its position as follows:
"Thank you for sharing the draft proposal being put forward to the NTAPL board. In light of this we would like to (re)confirm our "position" as per below:
With reference to the current terms and conditions proposed by NTAPL with respect to our taking over the security services contract, Hart will not entertain such terms and conditions as outlined and you are therefore unequivocally disallowed from binding Hart Australia Pte [sic] Ltd or any Hart group company. You are therefore not allowed to sign such document and will inform NTAPL management accordingly.
As previously stated and to reiterate - "we have no interest in accepting the ATMAAC offer as currently outlined and if we were to find a suitably workable arrangement, it would have to be completed on an immediate basis".
In recognition that time is of the essence, acknowledging the timing of the NTAPL board meeting and the fact that your option lapses at the end of this month, we await feedback from you."
79The terms of this email were formulated by Lord Westbury and Messrs Sundberg and Madden. Mr Boucousis gave evidence that he believed, due to the expressed attitude of Hart Cyprus, that the NTA contract was lost "unless it could be done some other way".
80Later on 11 February 2009, Mr Boucousis attended a conference at HWL with Messrs Burke and Hummel. It appears from Mr Burke's notes that there was discussion about the possibility of Mr Boucousis, as the sole director of HSA, issuing shares and appointing a director. The notes reveal that Mr Boucousis appreciated that such a course would be against the express wishes of Hart Cyprus. HWL was requested to advise as to whether the proposed course was permissible, and whether there was a positive duty to disclose it to "an indirect shareholder".
81On the morning of 12 February 2009, Ms Stone sent an email to Mr Heycock upon her return from Darwin working with NTA. She reported that a communications strategy workshop was well received and that everyone seemed very happy about Hart "yet Investec are walking around and ATMAAC are openly talking to NTA staff". Her email concluded with the following:
"Any idea what Hart corporate are doing? It'd be such a shame to walk away from this contract. Why can we not grab it and run with it ... with or without Christian."
82In the afternoon of 12 February 2009, Mr Boucousis requested HWL to "hold fire" until 1pm on the following day as he had a meeting with ATMAAC and Investec to go through details. Later on 12 February 2009, Ms Pollard sent an email to Mr Boucousis in which she stated that she was expecting a revised contract from NTA's external lawyers (Cridlands MB) in response to comments from both Hart and ATMAAC lawyers, and that the revised contract would tighten up the assignment/change of ownership clause. Her email included the following:
"The proposal we have put up to the Board proposes Hart Security Australia Pty Ltd as the contracting party and we have also addressed our risk assessment re Hart Cyprus ultimate 49.9% shareholding and risk mitigation - $1M bank guarantee and you guaranteeing and signing the contract personally as ultimate 50.1% shareholder. Obviously, if the proposed acquisition (ATMAAC acquisition of the Hart Cyprus shares) takes place after Board Approval but before contract execution - it puts us in a difficult position and perhaps leaves Ian without the appropriate authority to sign the contract for NTAPL.
I am not sure how you are travelling with the ATMAAC and Hart Cyprus transaction, please advise:
A Whether an offer has been accepted by Hart Cyprus?
B Contracts exchanged between ATMAAC and Hart Cyprus?
C Anticipated settlement date?"
83It is clear that at about this time Mr Boucousis was involved in further discussions with ATMAAC and Investec. On about 14 February 2009, a representative of Investec, likely to be Mr Peter Ferizis, sent an email to Mr Boucousis referring to a discussion in which indicative key terms had been agreed in principle. These terms were described as:
"1 NTAPL contract to be within a 100% subsidiary of ATMAAC International Pty Ltd. PNG contract to be finalised in due course.
2 Initial Shareholding within the Group at 19%, with a ratchet to 25% (+ 6%), subject to achieving performance hurdles within 12 months of settlement (kpi's pertaining to NTAPL contract). As agreed, this level will change in the event the contract is/will be lost within the 12 months.
3 Salary of $313,000 inclusive super.
4 $200k "bonus" payment subject to achieving performance hurdles within 6 months of settlement.
5 You will be offered a Directorship of ATMAAC International and a role of Business Development Manager (title to be confirmed), reporting to the CEO."
84Mr Boucousis forwarded the email to Mr Hummel on the morning of 14 February 2009.
85On the previous afternoon, Mr Boucousis sent an email to Mr Ainslie which included the following:
"I thought I would drop you a quick note reassuring you of Hart Security Australia's ability to deliver the contract - despite recent information from Hart Security Limited (Cyprus).
I, as the sole director of the company and in line with our company's constitution, will outline to you on Monday exactly how we can execute the contract and provide any/all guarantees as stipulated within the board paper and the latest draft of the contract."
86Mr Ainslie, in his email in reply, stated that he had spoken to Mr Kew who was "comfortable regarding the situation".
87By 16 February 2009, a proposal to the following effect had been formulated. ATMAAC Aviation Pty Ltd ("ATMAAC Aviation") would be incorporated and would be issued a majority shareholding in HSA. HSA would then enter into the contract with NTA. ATMAAC Aviation would be wholly owned by ATMAAC which, in turn, is wholly owned by AMC Security Services Pty Ltd ("AMC"). As part of the proposal, Mr Boucousis would become a director of each of those companies, would be employed within the ATMAAC group, and would also be issued shares in AMC. It does not seem to have been contemplated that Mr Boucousis would be employed by HSA itself.
88It is clear that from at least this time, strenuous efforts were made by Mr Boucousis, and others, to advance this proposal.
89On 16 February 2009, Mr Landis of Middletons made contact with Ms Pollard of NTA in relation to the proposal. She stated that until NTA was comfortable with the ATMAAC structure and acquisition, NTA would be retaining the requirement for the $1 million bank guarantee, as well as the personal guarantee from Mr Boucousis. On the same day, ATMAAC Aviation was incorporated, with Messrs Boucousis and Kelly as directors.
90Late in the evening of 16 February 2009, Mr Hummel sent an email to Mr Boucousis which was evidently intended to clarify HWL's role in the matter. That role, as stated, included giving advice as to whether it was permissible for Mr Bocuousis, as the sole director of HSA, to issue shares and appoint another director, and whether there was a positive duty of disclosure to HSA's shareholder. HWL was also to provide draft board minutes concerning the share issue, and review a draft share subscription agreement once it was prepared by Middletons. Mr Hummel emphasised in his email that HWL was acting for HSA (not for Mr Boucousis personally) and stated that "where your interests are not the same as HSA, we recommend that you seek separate legal advice from another law firm". The email also included the following:
"I understand from you that NTAPL has a board meeting on Thursday [19/02/09] and that you will need to show NTAPL sufficient progress in your dealings with Atmaac to win NTAPL's confidence that they should proceed with the agreement with HSA."
91On 17 February 2009, Middletons prepared a draft share subscription agreement which provided for ATMAAC Aviation to subscribe for and be issued an unspecified number of shares in HSA. (Middletons later advised that the subscription would be for 99,000 shares so that ATMAAC Aviation would end up with 99% of the issued shares.) The draft also provided that ATMAAC Aviation was to procure that its financier deliver the bank guarantee to NTA in accordance with the contract NTA was to enter into with HSA.
92On 18 February 2009, Ms Pollard sent an email to Mr Landis of Middletons (copied to Mr Boucousis) concerning the progress of a revised version of the contract being prepared by Cridlands MB. The email stated that it was not necessary that the contract be in final form prior to the NTA board meeting, which was to be held the following day, but that NTA would require some comfort that HSA "has authority to enter the contract and how the share issue to ATMAAC etc would work."
93Ms Pollard provided the further draft of the contract to Mr Landis early in the afternoon of 18 February 2009. As noted earlier, the draft named HSA as the service provider. The term was expressed to be five years from 1 April 2009, with the possibility of a further five years depending upon satisfactory performance. Provision was made for an unconditional and irrevocable bank guarantee of $1 million and for Mr Boucousis to give a guarantee of the performance of HSA. It should be noted, however, that it appears that Mr Boucousis informed Mr Kelly that NTA would be happy to further negotiate the bank guarantee after their board meeting, and that a $500,000 guarantee for a six month period may be possible.
94Work proceeded throughout the day in relation to the proposal. That work included the preparation of board minutes for HSA in relation to the resolutions to be made by Mr Boucousis as the sole director.
95It is clear that NTA and its lawyers were keen to understand exactly what was proposed. It is also clear that they had concerns that the share issue might be subject to challenge by Hart Cyprus. In order to alleviate such concerns, NTA was given various items of information, including a copy of the HSA constitution. A letter was also sent by Mr Kelly (as managing director of ATMAAC) to NTA which contained details of the proposal, including of the proposed corporate structure. Mr Kelly's letter stated that ATMAAC's financier, Investec, was in the process of obtaining credit approval for the bank guarantee.
96In the evening of 18 February 2009, Mr Martel of Cridlands MB sent an email to Mr Landis which included the following:
"I have attached the email from Mike Madden (Finance Director of Hart in Cyprus) to Christian of 10 Feb 09. That email and the late notification to our client of the ATMAAC's involvement has caused our client to seek further information about the Service Provider, its shareholders, the proposed restructure of the various entities, etc than it would normally require.
Given your acknowledgement that Hart Security Australia Pty Ltd has sought legal advice about whether or not it can issue shares in the manner it proposes to do so, the nature of the proposed services contract and my client's statutory obligations, it is not unreasonable for my client to investigate any relevant matters (including the validity of the proposed share issue) to its satisfaction."
97The reference to Mr Madden's email of 10 February 2009 is evidently a reference to the email received by Mr Boucousis on 11 February 2009.
98Mr Martel spoke to Mr Hummel later on 18 February 2009 and requested that further information be provided, including the text of the resolutions authorising the issue of shares in HSA. Mr Hummel sent an extract from draft HSA board minutes to Mr Martel the following morning.
99Earlier in the evening of 18 February 2009, Mr Hummel sent a draft letter of advice to Mr Boucousis. In brief, Mr Hummel advised, based on the instructions provided by Mr Boucousis, that subject to acting in accordance with his paramount duties as a director of HSA (including a duty to act in the best interests of the company as a whole), Mr Boucousis, as the sole director of HSA, had the power to appoint another director and had the power to issue shares. The advice noted that such powers must be exercised in good faith and for a proper purpose, and that if the director was motivated by self-interest, the exercise of power was liable to be set aside. On the question whether there was a positive duty to disclose those matters to CTG (or Hart Cyprus), Mr Hummel advised Mr Boucousis that there was a risk that he owed a fiduciary duty to CTG and "disclosure may ameliorate this risk to some extent". After midnight Mr Hummel sent an email to Mr Boucousis containing his comments on the share subscription agreement which he had reviewed that night.
100Also on the evening of 18 February 2009, Mr Boucousis received an email from Mr Madden in which the latter asked about any developments in relation to the NTA board meeting and any further feedback from Investec/ATMAAC. Mr Boucousis' email response included the following:
"1 NTAPL's position has not changed with respect to the $1 million dollar bank guarantee. It is fundamental to the award of the contract.
2 ATMAAC have made their offer which, as per your email on the 06th Feb, Hart Cyprus deemed as unacceptable providing no other options to pursue the offer.
3 Without the contract we will become insolvent and as the sole director of Hart Security Australia remaining solvent in the long term and keeping staff paid is my primary concern at the moment as per my email on the 30th."
101Mr Madden, in his response, posed a number of questions for Mr Boucousis. As far as the bank guarantee was concerned, Mr Madden asked whether a direct response to Hart's alternative proposal of 5 February 2009 would be forthcoming from NTA, as was said to be anticipated by Mr Madden. As far as ATMAAC was concerned, Mr Madden asked whether there would be a formal response directly from ATMAAC to "our counter proposal". It is not clear what "counter proposal" was there being referred to by Mr Madden. Mr Madden also asked why ATMAAC management had been to NTA "when they are not supposedly interested in responding to us or interested in the NTAPL contract".
102Mr Boucousis responded by email on the following day. His specific responses to the three questions were:
"NTAPL's non-acceptance of these terms was advised to you by me via phone on the evening of the 6th. I have requested NTAPL provide a direct response and they have indicated that they will forward a signed record of this conversation, this is being actioned by Selena Pollard.
Could you please forward documentation pertaining to the counter-proposal? I did try to help with this by providing a word file to you to make amendments to the offer on the 5th articulating the terms of any counter-offer. All your correspondence has been passed to them over the preceding 6 weeks.
No representatives of Investec or ATMAAC have, to my knowledge, been to NTAPL in the last week. Could you advise who and when and I will make some inquiries and revert.
No-one was disputing ATMAAC's interest in NTAPL or Hart Australia which had been clearly articulated. In fact, it is clear from recent correspondence between Hart Australia and Hart Cyprus [...] that it is Hart Cyprus who is not interested in the NTAPL contract."
103The NTA board met on the morning of 19 February 2009. The recommendation made by management to the board was that the company approve the contract with HSA and delegate authority to Mr Kew to enter into the associated documents. A presentation was made to the board in respect of the proposed contract.
104However, the board did not accept the recommendation made to it. Rather, the board resolved to consider the matter by circular resolution once six matters had been attended to. One of those matters was described as:- "Preferred contracting entity had been resolved by ADG (Atmac/Hart)". ADG is Airport Development Group Pty Ltd, the parent company of NTA.
105Mr Kew gave evidence that this was the major issue at the time. He stated that there was a lot of confusion and uncertainty surrounding who the counterparty for the security services contract was going to be. He further stated that:
"The uncertainty caused by the involvement of ATMAAC caused significant concern for both myself and the board in terms of not knowing the entity NTAPL was dealing with, particularly given that ATMAAC was introduced into the mix at such a late stage."
106On 20 February 2009, Mr Boucousis (and Mr Hummel) were involved in discussions with Mr Kelly and lawyers from Middletons about the position that had been reached. It appears from Mr Hummel's note of a meeting held on that day that Mr Kelly stated, in effect, that NTA might award the contract to ATMAAC. It further appears that during the discussion which followed, mention was made of a possible transaction whereby HSA would assign certain relevant information to ATMAAC in return for a fee.
107Later on 20 February 2009, Mr Ainslie sent a letter to Mr Boucousis, the terms of which confirmed, in effect, that on 6 February 2009 Mr Ainslie and Ms Pollard had told Mr Boucousis in a telephone conversation that the terms advanced by Hart Cyprus for the provision of a bank guarantee were not acceptable to NTA.
108It further appears that on 20 February 2009 Mr Ainslie declined an invitation from Mr Jordan of HSA to arrange a meeting to take place in the following week with representatives of Hart Cyprus. Mr Boucousis was informed of that matter by Mr Ainslie. Mr Boucousis responded by suggesting to Mr Landis, Mr Hummel and others that "we expedite our aspects of the deal to ensure a speedy closure". Mr Hummel, for his part, drafted a Deed of Assignment between HSA and ATMAAC Aviation during the course of the following day. Mr Boucousis suggested some changes to that draft, notably an increase in the assignment fee from $100,000 to $125,000.
109By the end of 20 February 2009, following discussions involving Messrs Kew, Ganley and Ainslie and Ms Pollard, the NTA management had apparently decided to recommend to the board that the contract be entered into directly with ATMAAC Aviation.
110On 23 February 2009, Mr Ainslie sent a further letter to Mr Boucousis. This letter was relevantly in the following terms:
"I advise given Hart Cyprus's opposition to the provision of a $1M (AUD) bank guarantee (unless it was provided 2 months advanced billings) and in light of subsequent discussions and correspondence from Hart Cyprus indicating it is opposed to meeting the core terms of the contract, NTAPL is concerned about Hart's ability to provide services under the terms of the contract. On this basis NTAPL does not wish to contract for the provision of security services with Hart Security Australia Pty Ltd and therefore our recommendation to the board has changed."
111This letter appears to have been the subject of some discussion, including between Mr Boucousis and Ms Pollard. Later on 23 February 2009, Ms Pollard sent an email to Mr Boucousis in which she proposed an amendment to Mr Ainslie's letter. Ms Pollard's email contained the following:
"The difficulty for NTAPL is that while your business partner, Hart Cyprus, disagreed to meet the contract terms, we were advised by you of the ATMAAC acquisition which would ensure that the contract terms could be met and we could still enter into the contract with Hart Security Australia Pty Ltd. Those arrangements i.e. the share issue and ATMAAC Group of Companies acquisition of Hart Security Australia Pty Ltd (and therefore ATMAAC's financier putting up the $1M Bank Guarantee requested by NTAPL) created another set of risks and NTAPL's approach to mitigate those risks was to contract directly with ATMAAC Aviation Pty Ltd.
It is therefore inappropriate to say that NTAPL is not prepared to enter into a contract with Hart Security Australia Pty Ltd without qualifying why - the problem is not with Hart Security Australia Pty Ltd but with the way Hart Security Australia Pty Ltd is to be acquired in order to give it the ability to provide the bank guarantee, which makes the choice of contracting with Hart Security Australia Pty Ltd less desirable.
If you were putting up the bank guarantee personally or Hart Security Australia Pty Ltd had some way of providing the bank guarantee in its own right without relying on its shareholders, we would not be sending these emails because the contracting party would be Hart Security Australia Pty Ltd. If either option is not commercially viable - then Hart Security Australia Pty Ltd is not able to enter the contract. It would rule itself out of the race and we would not have recommended contracting with Hart Security Australia Pty Ltd to the Board. Instead, we have been advised Hart can give the bank guarantee but the way it can is not desirable to NTAPL. Therefore contracting with Hart Security Australia Pty Ltd is not desirable.
Please see below whether this addition to the letter meets your objectives -
Given Hart Cyprus's opposition to the provision of a $1M (AUD) bank guarantee (unless it was provided 2 months advanced billings) and in light of subsequent discussions and correspondence from Hart Cyprus indicating it is opposed to meeting the core terms of the contract, NTAPL is concerned about Hart's ability to provide services under the terms of the contract. On this basis, NTAPL does not wish to contract for the provision of security services with Hart Security Australia Pty Ltd and has therefore changed its recommendation to the Board to reflect this."
112Mr Kew gave evidence that the contents of Ms Pollard's email reflect his general understanding of the position at that time.
113Mr Boucousis continued to promote the assignment transaction between HSA and ATMAAC Aviation. That transaction involved ATMAAC Aviation making an offer of employment to Mr Boucousis.
114Arrangements were made for the Deed of Assignment to be executed by Ms Stone and Mr Boucousis at the offices of HWL on the morning of 25 February 2009. Ms Stone, who was clearly uneasy about the proposed transaction, and who had been requested by Lord Westbury not to sign anything without the agreement of Hart Cyprus, declined to execute the Deed of Assignment. The transaction did not proceed.
115On 26 February 2009, Mr Boucousis resigned as a director of HSA, and Ms Stone and Mr Jordan were appointed as directors of the company.
116NTA ultimately did not proceed to enter into the Security Services Contract with HSA, or ATMAAC Aviation.