"REASONABLENESS"
13 In approaching the question of whether Mr Ralph breached his duties as a director, the primary judge accepted that Mr Ralph honestly believed that the bonus was payable by Diakyne to Colorado.
14 It is true, as senior counsel for Diakyne, Mr Stevenson SC, conceded, that the primary judge did not make a finding in express terms that Mr Ralph had no reasonable basis for his belief. However, we accept Mr Stevenson's submission that this was plainly the effect of her Honour's findings.
15 In our view, the findings made by the primary judge provide a complete answer to Dr Birch's submissions. Most of the findings were not challenged on the appeal. To the extent that they were, the challenge cannot be supported.
16 There are four critical findings. The first was that the bonus provision on which Mr Ralph relied was ambiguous. Her Honour found at [111] that any person acting in Diakyne's interests would have seen the ambiguities.
17 In making this finding, her Honour gave, as an example, Mr Ralph's acknowledgment that the first limb of the bonus provision which stated one of the essential pre-conditions for an entitlement "could have been better worded".
18 That concession, made by Mr Ralph under cross-examination, as well as other evidence given at AB1923, makes it plain that her Honour's finding was correct. Indeed, what it demonstrates is not merely an ambiguity in the clause but that the clause was, to Mr Ralph's knowledge, not sufficiently certain to give rise to his claimed entitlement.
19 Second, her Honour found that on the afternoon of 30 November 2007, when he authorised the payment, Mr Ralph knew it was likely that he would be removed as a director of Diakyne in the immediate future.
20 Third, her Honour was satisfied that Mr Ralph was aware on 30 November, and for some months before that date, that the directors of Diakyne's parent company, which owned all the shares in Diakyne, would take steps to dispute Colorado's invoice for the bonus if and when it was presented to Diakyne.
21 As her Honour went on to say at [116], the inescapable inference was that Mr Ralph was aware that if Colorado presented an invoice to Diakyne for the bonus, and the directors of the parent company controlled Diakyne's decision-making, rather than Mr Ralph, those directors would be likely to "argue the toss" about Colorado's entitlement. This was because those directors, to Mr Ralph's knowledge, were concerned about the validity and enforceability of the bonus provision, including the amount of the remuneration said to be payable to Colorado when the bonus was added to the $240,000 management fee.
22 Her Honour was satisfied, in those circumstances, that Mr Ralph's desire to ensure that Colorado was paid in full without any opportunity for dispute by Diakyne was Mr Ralph's "actuating motive": see Re HIH at [735(3)].
23 Her Honour observed at [117] that any analogy to the payment by a company of an invoice in the ordinary course of business was immaterial to the circumstances that existed on 30 November 2007. This was because Mr Ralph had a personal interest in the payment of the invoice and he took steps to authorise payment when he knew his control of Diakyne would be short-lived:
" …and knowing that there was a real chance those likely to succeed him would debate or dispute the making of the payment."
24 Fourth, her Honour found at [119] that Mr Ralph intended to benefit Colorado by the making of the immediate payment, and to cause harm to Diakyne.
25 In coming to that view, her Honour took into account the "ambiguities" or uncertainties as to Colorado's entitlement to the bonus, and Diakyne's parlous financial position at the time when the payment was made.
26 The primary judge took into account each of these findings in setting out her ultimate conclusions which appear at [125] - [128].
27 We do not need to set out those paragraphs in full. It is sufficient to record that her Honour concluded that no reasonable person in Mr Ralph's position would have authorised the payment even if he held the honest belief that payment was due.
28 As her Honour concluded at [126], Mr Ralph intended to achieve the consequence that Colorado received payment without Diakyne having the opportunity to dispute the making of the payment. This was a finding that Mr Ralph was aware of the full significance of the commercial circumstances relating to the presentation of the invoice, including doubts that had been expressed by the persons who were about to assume control of Diakyne, as to Colorado's contractual entitlement.
29 Her Honour said at [126] that this alone was sufficient to amount to a breach by Mr Ralph of s 180(1) of the Act. She went on to say that the same findings resulted in contraventions of s 181(1) and s 182(1). Her Honour made express findings at [127] that Mr Ralph did not act in good faith and in the best interests of Diakyne and that he improperly used his position to gain an advantage for Colorado, and thereby, for himself.
30 There can be no doubt that these findings were sufficient to satisfy the tests for contravention of ss 180, 181 and 182 stated in Re HIH.
31 Dr Birch sought to overcome the obvious effect of the findings by resort to analogy. In his submission a director who honestly believes that the company owes a debt to a third party cannot be in breach of his or her duties to the company by causing the company to make immediate payment without seeking to delay the payment or without endeavouring to negotiate payment of an amount less than the sum he or she honestly believes to be due.
32 That proposition was acknowledged by the primary judge at [117]. However, as her Honour observed, it fails to take into account the actual circumstances of the case which were the subject of the findings we have set out above. At the risk of repetition, it is abundantly clear that those findings give rise to a breach of Mr Ralph's duties under ss 180(1), 181(1) and 182(1).