62 On 29 February 2000, Mitchell sent a letter to Imperial demanding the allotment an issue of 2.5 million 2003 options to Rupert (Ex A p 226). The letter threatened the commencement of legal proceedings within 10 days. Imperial did not respond to that letter and a follow up letter was sent by Mitchell to Imperial on 11 April 2000 (Ex A p 227). Imperial responded to that letter by a letter of 27 April 2000 (Ex A p 228). Further correspondence then passed between Mitchell and Imperial in relation to the take up of the options. Proceedings were commenced by Rupert on 12 February 2001.
63 At this stage, it is convenient to record my observations of the witnesses: Mitchell, Wardman, McLennan and McLeod. I carefully observed each of them while they gave evidence and during their cross-examination. I found Mr Mitchell to be a truthful witness. I have no hesitation in accepting his evidence. However, Mitchell was only privy to information in this matter occasionally. He was given certain tasks by McLennan to perform and he carried out these tasks. The exchange of information principally occurred between McLennan and Wardman.
64 I formed the view that Wardman was a most unimpressive witness. His manner of answering questions was obfuscatory and evasive. He either claimed to have no recollection of events where evidence ran contrary to his version or he referred the court to telephone or company records, which he did not provide, in an attempt to prove the veracity of his statements (t 130-131).
65 There were also irreconcilable inconsistencies in Wardman's electronic diary entries. For instance, it was clear from client transactions printed out by Hartley Poynton, Wardman's employer, that he had conducted a sale and buyback of Imperial options after he received clearance from the company's Perth office between 9 and 12 August 1999. However, Wardman's diary recorded this as occurring on 24 August 1999. When it was put to him that his diary was unreliable and that he had corrected it at some stage after the events in question Wardman had no satisfactory explanation (t 70.25-71.57). Other details had also either been deleted from (t 72.43-46) or added to Wardman's electronic diary entries (t 75, 78-79) and for these inconsistencies he either had no explanation or could only affirm that an alteration had in fact been made (t 74.14-34).
66 Importantly, when Wardman was asked why he had not registered the 30 September 1999 options prior to their expiry date when told to by Hughes at that time he said: " I am not sure, I don't have an answer for that. But the options as I say at that time at 30 September 1999 were worthless because you would not pay 20 cents to turn them into a share" (t 102.41-44). It is my view that Wardman therefore made a conscious commercial decision on the basis of apparent worthlessness of the options as of August and September 1999 not to register the options. Earlier, I made a finding that Wardman was aware of the issue of the prospectus. He would have known that this prospectus contained details of Imperial's proposal to issue July 2003 options and that the application form to obtain those options was attached to the prospectus.
67 The day before and the day after the offer closed through to January 2000, Wardman, eagerly sought out Hughes. As previously noted, Wardman alleges that he was told on 11 January 2000 to send a strong letter to Imperial. Despite being told this, he did not actually send the letter until 10 February 2000, approximately one month later. In the meantime, the value of the options in Imperial had increased markedly, such that at the time the letter was sent to Imperial on 10 February 2000 they had doubled in value. Wardman claims that at this point he was told by McLennan to sell all of Rupert's 2.5 million options in Imperial, which, if such a conversation had of taken place Wardman would have known they were non-existent as he had already made an abortive attempt to sell the them in August 1999 (t 143.11-144.54). As noted above, McLennan admitted that it was possible that he did not have that conversation with Wardman.
68 I also have reservations about the truthfulness of Mr McLennan's evidence. Mr McLennan insisted that leading up to the expiration of the 30 September 1999 options, he had regular conversations with Wardman in which he urged Wardman to register the options. As of 9 August 1999 both he and Wardman were both aware that they were unregistered and not tradeable (t19-). Wardman admitted that he did not in fact register the options and McLennan's evidence as to why the options were not registered was that it was due to "non cooperation" by Imperial, as that is what Wardman had told him. As noted earlier, according to McLennan, Wardman made repeated attempts as of August 1999 by daily phone calls to Hughes in relation to registering the 30 September 1999 options (t.20-24). As previously stated, I am satisfied that these daily phone calls did not in fact occur. Wardman flatly denied ever conversing with Hughes about the Imperial options at that time. Wardman also denied that he had ever told McLennan that he had done so (t 64.31-51).
69 McLeod was not an impressive witness but his evidence withstood cross-examination. During cross-examination, it became apparent that McLeod was wearing a number of hats in relation to the transfer and registration of Imperial options. While he is both director and chairman of the first defendant (t 160.6-20), in 1999 he was chairman of Fiji and at that time he was also chief executive officer of Hudson Investment Group Pty Ltd, of which the underwriter of the 2003 options, Hudson Securities Pty Ltd, was a wholly owned subsidiary. Hughes was also the company secretary of Hudson Securities Pty Ltd at that time. Underwriting Hudson in respect of the 2003 options were several other companies: Eastern & Pacific Capital Pty Ltd, Semeta Pty Ltd and Imperial Investments Pty Ltd.
70 Of the 51,322,511 2003 options that were placed by Imperial, 24,618,210 were taken up by the underwriter. One portion of 4,562,949 of the unallocated options was registered in the name of HTH Nominees Pty Ltd account of Eastern & Pacific Capital Pty Ltd. Another portion of 11,179,225 options was registered in the name of HTH Nominees Pty Ltd account of Michelle Wong, while a third portion of 6,388,129 options was taken up by Imperial Investments Pty Ltd care of Alfred Lai. McLeod is a principal shareholder of Eastern & Pacific (Ex A p 218-221). Michelle Wong, into whose name the second portion of unallocated options was registered, is the daughter of Clement Wong and the third company underwriting Hudson, Imperial Investments Pty Ltd, is clearly closely associated with Alfred Lai. Together with McLeod, Messrs Wong and Lai were directors on the board of Fiji in 1999 (t 169-172).
71 While the 2003 options themselves were initially offered in Imperial's prospectus at .2 of a cent, the trading price for Imperial options, between the time at which Imperial's prospectus was lodged with ASIC on 17 November 1999 and the close of the offer on 30 November 1999, fluctuated between 2 and 3 cents (t.168). Hence McLeod's corporate entities gained considerable financial benefit from being involved in underwriting the 2003 options.
72 Importantly, when Mr McLeod was asked in cross-examination how his colleagues, Messrs Lai, Hope, Wong and Northcote were offered options even though they were not registered either at 30 September 1999 or 30 November 1999, and were therefore in the same position as Rupert, he could not provide a satisfactory explanation (t 177, 183, 194, 222). His explanation, which was not discredited, was that Lai, Hope, Wong and Northcote approached him.
The Law
73 Under section 170 of the CL, companies are required to keep a register of options holders. Further, s 170 (4), provides that the company is obliged to change the register only if the transferor gives the company written notice, see: Ford's Principles of Corporations Law (1999), at 733. In order to exercise the 30 September 1999 options the obligation to register the transfer rested with the plaintiff. Wardman on Rupert's behalf made a conscious decision not to register the transfer prior to the expiry date of 30 September 1999 because, as noted, he considered the options to be "worthless" (t 102).
74 In Green v Crusader Oil NL & Anor (1986) 10 ACLR 120, Young J at 124-125, in addressing the question of when a person acquires options stated that:
"It may be that some equitable property is created by the option, but essentially an option is a claim in contract against a company. As such it is a legal chose in action and the way in which it can be transferred or acquired is pursuant to s12 of the Conveyancing Act 1919...it is put that there is a sufficient acquisition of the options if someone obtains the beneficial or equitable title in the option or an arrangement or an understanding that the options are to be dealt with at their behest. I do not think this is right. Indeed, I have great difficulty in conceptualising some beneficial title in a legal chose in action of this nature."
75 Options, without registration, convey no title and give their holder no claim against their issuer. This would be the end of the plaintiff's first, second and seventh claims were it not for the consideration that, although in a similar position to the plaintiff, in that they were not registered prior to 30 September 1999, Messrs Lai, Hope, Wong and Northcote all received options in Imperial.
76 Consequently, it is necessary to consider whether the failure on the part of the first defendant to send a prospectus and a serially numbered entitlement form to the plaintiff, following the general meeting of Imperial shareholders on 9 November 1999, was misleading and deceptive pursuant to s 52 of the TP Act and s 995 of the CL.
77 In respect to the claims under s 52 of the TP Act, the insertion of s 51AF(1) into the TP Act has meant that from 1 July 1998 Pt V of the TP Act (which includes s 52) ceased to apply to the "supply or possible supply, of services that are financial services". Subsection (2) of the same provision states further that s 52 does not apply to "conduct engaged in relation to financial services". As noted by Ford's Principles of Corporations Law (2000), at 995-996, "financial service" is given the same definition by the TP Act as it has in Pt 2 Div 2 of the Australian Securities and Investments Commission Act 2001. There a "financial service" is defined, for example, as consisting of the provision of "financial product advice" or, more relevantly as "a service that is otherwise supplied in relation to a financial product". A "financial product" is defined as a "facility through which, or through the acquisition of which, a person" makes a "financial investment", manages "a financial risk" or makes "non-cash payments". It is my view that the 30 September 1999 options fall within this definition of financial product. As the plaintiff's claim under s 52 concerns a financial service it cannot be brought under s 52 of TP Act and this claim fails. This leaves the plaintiff's claim under s 995 of the CL.
78 Section 995 relevantly states:
"Misleading or deceptive conduct