The events of 20 October 1998.
116 Mr Loiterton, in accordance with the arrangements made on the Monday, met Mr Biber the next morning, Tues 10 October 1998. He said they met at 7.00 am or thereabouts. Mr Biber said they met much later that morning. They discussed the Stock Purchase Agreement. The terms of that agreement included the following provisions, as set out in the agreed statement of facts: (para 22)
" Clause 2.1 and 2.2 : The new entity IBYO Holdings agreed to purchase from Clifford all issued and outstanding shares of Signature for a purchase price of USD16.58m.
Clause 2.3 : The purchase price was to be paid by the delivery to Clifford of 276,333 shares in the stock of IBYO Holdings; and
Clause 2.4 : Settlement was to take place on 28 February 1999 or such other time as the parties agreed, with either party able to extend the date for an additional 60 days."
117 The agreement also imposed, in clause 7.8, an obligation upon Clifford to secure a purchaser acceptable to IBYO International, for 50% of the shares in the company which was about to be established for a sum of US$30 million. That clause reflected the requirements of Mr Brettman, which he defined in his letter of 27 August 1998. Mr Biber said that he regarded such a provision as unfair. He suggested that it be deleted and replaced by a clause in these terms:
"2.7 Obligations of the Parties. The parties shall secure ready, willing and able purchaser(s) who will have entered into a legally binding acceptable obligation to acquire 50% of shares in Buyer from Buyer's then current shareholders at a total price of not less than USD30.0 million in cash. At closing 50% of the total outstanding common stock of the Buyer shall represent 500,000 shares after giving effect to the issuance of the Buyer's common stock to seller hereunder."
118 Mr Biber, when describing the meeting, said that their discussion did not include any reference to a side letter. Mr Loiterton disagreed. He said Mr Biber referred to a side letter as a means of varying the agreement.
119 In the course of the morning, Mr Biber sent Mr Loiterton a memorandum. The memorandum attached certain documents that were to be annexed to the Stock Purchase Agreement. Mr Biber then said this: (Ex 6)
"I think you will find it difficult to persuade IBYO to give you the flexibility you require to the transaction at this very late stage. You could either have a side letter at the time of exchange or amend the SPA in the following manner: ..."
120 There followed a suggested paragraph on a subject unrelated to the obligations under the former clause 7.8 or the suggested clause 2.7. Mr Biber concluded his memorandum with these words: (Ex 6)
"I cannot see how the change can be realistically incorporated without their being a completely revised asset sale agreement as against the existing share sale agreement."
121 After the meeting, Messrs Loiterton and Hall met Messrs Brettman, Sully and Myer in the boardroom. Mr Brettman examined the agreement and saw the revision made by Mr Biber, which had been incorporated into the document. He was, to put it mildly, displeased. According to the agreed statement of facts, the following exchange then took place:
"Brettman: This is not what we agreed upon. I want it changed to the original agreed version. The burden is on your shoulders, not ours.
Loiterton: Sure, let's do that. Let's go through the rest of the document first."
122 Mr Loiterton said that he later returned to his office. He met Mr Ellis. Together they saw Mr Biber giving instructions to Mr Loiterton's secretary, Ms Karen Mackey. He was standing alongside Ms Mackey, dictating as she typed. Mr Loiterton was then given the first draft of the side letter. As he returned to the boardroom, to resume his discussions with IBYO, he spoke to Mr Biber. It was a brief discussion in the corridor, lasting perhaps two or three minutes. He had amended the draft of the side letter and asked Mr Biber to check it.
123 The side letter dealt with the obligations of the parties arising from clause 2.7 which Mr Biber had inserted. Whereas that clause defined a shared obligation, the side letter made it clear that it was the obligation of Clifford and Clifford alone. The side letter effectively restored the terms of the previous clause 7.8 as Mr Brettman had directed. The final draft, composed late on 20 October 1998 but bearing a date 21 October 1998, was in the following form: (Ex 0)
"We refer to Stock Purchase Agreements which have yesterday been exchanged between our companies in respect of the sale of the shares in Signature Group Australia Limited.
We confirm the following contemporaneous understanding.
Notwithstanding the terms of clause 2.7 of the agreements, wherein these obligations are stated to be the obligations of the parties, it is clearly understood and agreed that with the consent of your company that the obligation to satisfy this clause shall be to our account as well as our obligation solely. Should we fail to fulfil these obligations prior to closing, you are authorised to terminate the abovementioned Stock Purchase Agreement with simple written notice, in accordance with Article 10.
We will advise you further."
124 Mr Biber, as mentioned, denied having anything to do with the side letter. He denied giving instructions to Ms Mackey. He had his own secretary. Although he had used Ms Mackey on occasions, they were rare and usually after hours, when his secretary was not available. He did not use her on 20 October 1998. He did not meet Mr Loiterton for a second time that day, even in the corridor. When reminded of evidence he had given earlier, he conceded the possibility of such a meeting, where he may have been asked to prepare the schedules which were ultimately annexed to the Stock Purchase Agreement. However, he insisted that he had not discussed with Mr Loiterton the side letter ultimately signed.
125 I have no doubt that Mr Loiterton's version is false. I accept Mr Biber's evidence. First, Mr Loiterton's account is inconsistent with the agreed statement of facts, which he read and agreed before they were tendered (T434/5). The statement included the following: (para 25)
"The offender proposed that the amendment to clause 2.7 be set out in a side letter to the SPA. Throughout 20 October the offender instructed his secretary Karen Mackey ('Mackey') to type various drafts of the side letter. Mackey prepared the final draft of the letter on 20 October 1998 and dated it 21 October 1998. Brettman and the offender signed the side letter in its final form on either 20 or 21 October 1998."
126 Secondly, the evidence of Ms Mackey, Mr Loiterton's secretary, was consistent with the agreed statement of facts, that is, that she received her instructions from Mr Loiterton.
127 Thirdly, Mr Loiterton's account was implausible. He said that he met Mr Biber twice that day, first at 7.00 am or thereabouts and later for a few minutes in the corridor. The first meeting was before the board meeting. By the time they met again in the corridor, Mr Loiterton had already been given the first draft of the side letter. Mr Loiterton had not asked him to prepare the letter. Somehow or other, Mr Biber knew that Mr Brettman had emphatically rejected the suggested clause 2.7, and there was a need for some form of variation, even though he was not at the meeting. Mr Loiterton imagined that perhaps Ms Mackey told him. There was no evidence that she had.
128 Fourthly, Mr Loiterton could not explain why the amendment was made by a side letter rather than to the contract. He said that time was short. Mr Brettman had to leave Australia by Wednesday midday. It was convenient to make the amendment by side letter. However, once clause 2.7 was rejected, the obligations effectively reverted to those under clause 7.8, which IBYO had originally proposed. The agreement existed in an electronic form. Other amendments were made that day, including by Mr Biber that morning.
129 Fifthly, the text of the draft side letters suggest the hand of Mr Loiterton, not Mr Biber. The first draft used the phrase "US Capital Consultants LLC and its Australian counterpart". Mr Biber said that he did not know what that phrase meant. He would not use that expression in a contractual document. The final draft made provision for the termination of the agreement "with simple written notice in accordance with Article 10". Mr Biber said that he would not use the phrase "simple written notice". Article 10 did not allow for the unilateral termination of the agreement. The agreement could be terminated, but not by "simple written notice". The provision relating to Article 10, which Mr Loiterton said was inserted by Mr Biber, was designed to protect IBYO International, not Clifford. I accept Mr Biber's evidence.
130 Sixthly, Mr Biber prepared a summary of the contractual arrangements with IBYO International on 21 October 1998 for Clifford's financier, Heller Financial Services. The summary made no reference to the side letter, which was consistent with Mr Biber not being aware of that arrangement.
131 Finally, the Crown attributed a motive to Mr Loiterton. It said this: (CS 63)
"It is submitted that when the Offender realised Mr Brettman was insisting on clause 7.8 being restored to its original terms (ie the financing obligation was to be solely Clifford's responsibility) he decided to use a side letter rather than amend the SPA so that the executed contract would reflect a joint financing obligation and the side letter would be kept from the market."
132 In examining that suggestion, it is relevant to look at the other issue of fact, namely, the instructions given to Ms Mackey. Ms Mackey made a statement on 2 April 2001 which included these words:
"25. ... I recall that shortly after completing a final draft of the letters, Loiterton returned the letters to me and said words to the effect of:
'Can you place these in an envelope and then put them in the safe.'
I then placed the two letters into a plain white standard size envelope before placing them into the safe. To the best of my recollection the letters Loiterton handed to me to place in the safe were signed originals."
133 Ms Mackey added:
"26. The safe in which I placed a copy of the signed SPA and the two letters dated 21 October 1998 had a combination lock that was known only by me. No one else had access to the safe. I do not recall any other occasion where I was requested to place business related documents into the safe. The usual contents of the safe included passports, cash, and share certificates. Clifford's computer back up tapes were also given to me on a weekly basis for safekeeping."
134 In cross examination, the following was put to Ms Mackey: (T548)
"Q. Coming back to the handing of the documents to you by Mr Loiterton, ... I suggest to you when he did that, he asked you to put them somewhere safe, words to that effect, rather than put them in the safe, what do you say to that?
A. I don't think so. I think it was clear that he wanted them in the safe."
135 Mr Loiterton, as part of his denial, said that he was not even conscious that the company had a safe. However, Ms Mackey said, and I accept, that when Mr Loiterton returned from overseas he would hand her his passport and ask that it be put in the safe.
136 I accept the motive suggested by the Crown. Indeed, I would go further. Mr Loiterton's purpose was not only to conceal this aspect of the arrangements with IBYO from the market, but from prospective financiers. Heller Financial Services, as mentioned, was not told of the side letter, nor was another financier, the Wyllie Group. The insistence by IBYO that Clifford pay the cost of finding a suitable equity partner and the float was unreasonable. But it was the price that Clifford had to pay for an agreement. And Mr Loiterton knew that he had to secure an agreement.
137 It is instructive that, during the negotiations on 20 October 1998, the solicitor for the company, Mr Biber, was not present. Indeed, on 9 February 1999, Mr Biber wrote to Mr Loiterton and Mr Hall in these terms:
"Notwithstanding I had spent many months negotiating with IBYO's San Diego attorneys on the form and content of the proposed sale agreement, on 20 October 1998, those negotiations were taken over by officers of all interested parties to the exclusion of their legal representatives which culminated in the parties entering into the Stock Purchase Agreement dated 20 October 1998."
138 Mr Loiterton, I believe, preferred the flexibility which Mr Biber's absence gave him. No-one else on the board, apart from Mr Hall, knew of the side letter. Indeed, when the company went into Administration, the side letter was not amongst the documents which were provided to the Administrator. The Administrator only became aware of the side letter when he travelled to the United States and interviewed the directors of IBYO.
139 The Administrator later sought an explanation for the failure to provide the side letter. A letter was drafted by Mr Biber. It was sent by Mr Hall and Mr Loiterton. The letter contained falsehoods and specious arguments by way of justification. It did little credit to Mr Loiterton or Mr Hall, or for that matter, Mr Biber.