Tamaya Resources Limited (in liq) v Claymore Capital Pty Ltd

Federal Court of Australia|2015-04-21|Before: Farrell J

REASONS FOR JUDGMENT 1 In these reasons, all legislative references are to the Corporations Act 2001 (Cth).

Background 2 The plaintiffs claim that four payments made by Tamaya Resources Limited ("Tamaya" or "TMR") to its corporate advisor Claymore Capital Pty Ltd ("Claymore") between 27 June and 23 September 2008 are voidable transactions within the meaning of s 588FE(2) by virtue of being unfair preferences and insolvent transactions within the meaning of ss 588FA(1) and 588FC. They seek an order under s 588FF(1)(a) requiring Claymore to pay an aggregate amount of $472,647.23 to Tamaya. There is no dispute that the application was brought within time. 3 Tamaya was a mid-tier mining company which (itself and through subsidiaries) produced copper at the Punitaqui operation in Chile and explored for minerals in Australia, Chile, Armenia and Portugal. Its shares were listed for quotation on the Australian Securities Exchange Ltd (ASX). 4 Messrs Keiran Hutchison and John Gibbons were appointed administrators of Tamaya on 27 October 2008 and as liquidators of Tamaya on 9 December 2008. The six months period before its "relation-back day" therefore commenced on 27 April 2008. 5 Messrs Simon Cathro and Philip Campbell-Wilson succeeded Messrs Hutchison and Gibbons as joint and several liquidators and as parties to these proceedings. Mr Cathro has since resigned. Mr Campbell-Wilson is now the sole liquidator of Tamaya. 6 Claymore is a boutique advisory firm based in Sydney which manages investment and capital raising projects for clients as well as providing investment advice to members of the public. Mr Anton Rosenberg was at all relevant times its sole director. I will refer to him as "Mr Rosenberg" and to his brothers as "Mr Justin Rosenberg" and "Mr Lance Rosenberg". 7 Claymore provided advisory services to Tamaya from 2003 until Tamaya went into administration. From 2006, Claymore dealt primarily with the Executive Chairman and the Financial Manager of Tamaya, Mr Hugh Callaghan and Mr Glenn Kondo respectively.

Impugned payments 8 Claymore admits that it received the four payments challenged by Tamaya. The first three payments were made between 27 June and 21 July 2008. Tamaya does not dispute that these payments relate to work done by Claymore. The fourth payment was on 23 September 2008.

First payment 9 Tamaya paid Claymore $115,147.23 on 27 June 2008. This related to four invoices issued on 24 April 2008. 10 One invoice (TMR055-607) related to a debt for $13,509.43 which had been outstanding since October 2006. On 11 October 2006, Claymore issued an invoice for $297,207.46 including goods and services tax ("GST"). The invoice was payable in cash and Tamaya shares. On 13 October 2006, Tamaya paid Claymore $148,603.73 (being half of the invoice GST inclusive). The payment was short $13,509.43 because all of the GST should have been paid in cash. 11 Another invoice (TMR077-839) related to an under-billing of $57,637.80 (including GST) in the account issued on 11 October 2006. This invoice was first issued on 25 February 2008. 12 The balance of the account related to invoices issued on 4 and 29 February 2008, each for $22,000 (GST inclusive) for general advisory services provided in January and February 2008 respectively.

Second payment and third payment 13 On 30 May 2008, Claymore issued an invoice to Tamaya for $550,000 (including GST) being 5% of $10 million (plus GST) which it underwrote in connection with the shareholder purchase plan ("SPP") announced by Tamaya on 1 May 2008. Mr Rosenberg followed up the invoice on 8 July 2008 and he met with Mr Kondo on 10 July 2008. Mr Rosenberg explained that Mr Kondo told him on 10 July that Tamaya thought a 3% fee was more appropriate on the SPP where the investor relations company did a lot of work. It was agreed that the amount previously invoiced would be reduced to $330,000 (including GST). Claymore issued an invoice for $330,000 (including GST) on 10 July 2008. Mr Kondo asked that it be split as to $110,000 (including GST) attributable to underwriting and marketing the SPP and $220,000 (including GST) for corporate advice in relation to the capital raising and SPP. 14 Claymore issued two invoices for those amounts on 11 July 2008 and in accordance with Mr Rosenberg's request, Mr Kondo said that the invoice for $110,000 would be paid on that day and the invoice for $220,000 the following Wednesday (16 July 2008). 15 Tamaya paid Claymore $110,000 on 11 July 2008. This is the second payment. This payment is not now challenged by Tamaya: see [18] below. 16 Tamaya paid Claymore $220,000 on 21 July 2008. This is the third payment.

Fourth payment 17 Tamaya paid $27,500 to Claymore on 23 September 2008. This is the amount of an "upfront" fee provided for under a mandate letter bearing the date 21 September 2008 on the front page but indicating that it was signed on behalf of Tamaya on 23 September 2008.

Defences 18 Claymore conceded that Tamaya was insolvent at the time of each of the four payments. The hearing proceeded on the basis that it was accepted that the requirements of s 588FA(1) were satisfied in relation to the first three payments and the issue in relation to those payments was whether Claymore could make out the "good faith" defence under s 588FG(2). On the final day of the hearing, Tamaya conceded that Claymore had made out this defence in relation to the second payment. 19 Claymore's argument in relation to the fourth payment was that no debtor-creditor relationship existed between Tamaya and Claymore at the time it was made so that the payment could not be characterised as being received in respect of "an unsecured debt that the company owes to the creditor" under s 588FA(1)(b). 20 For the sake of completeness, I note that Claymore sought to raise the argument that Tamaya had agreed to pay its fees for the work done in May 2008 from the capital raised and accordingly the second and third payments were secured by an equitable charge over the proceeds of the capital raising and that they therefore were outside the scope of s 588FA(1)(b) which relates to unsecured debts. This argument was first raised explicitly by Claymore in a conversation between the parties' lawyers 12 days before the hearing and it was first expressed in writing in Claymore's written submissions filed seven days before the hearing. It was based on [33] of Mr Rosenberg's affidavit sworn on 13 February 2012 in which he said: It was agreed that payment of Claymore's fees for its work on the capital raising would be paid out of capital raised. 21 Following oral argument, I was not satisfied that it was in the interests of justice that Claymore be permitted to pursue the equitable charge argument as Tamaya was unduly prejudiced by insufficient notice of it and I did not consider it appropriate to adjourn the hearing. Despite the fact that the matter proceeded without pleadings, it is incumbent on the parties to make clear the basis of the dispute in a timely way.

Evidence 22 As Claymore conceded Tamaya's insolvency at the time it received the impugned payments, Mr Newlinds SC, Counsel for the plaintiffs, did not read any affidavits included in the Court Book. 23 Mr Golledge, Counsel for Claymore, read the affidavits of Mr Rosenberg sworn on 13 February 2012, 21 January 2013 and 19 September 2013 and tendered exhibits AR-1 and AR-2. 24 The Court Book was not tendered and instead Mr Newlinds tendered the plaintiff's bundle of documents for cross-examination of Mr Rosenberg and Mr Golledge tendered exhibits D1 and D2.

Sections 588FA(1) and 588FG(2) 25 The provisions relevant to the defences raised by Claymore are ss 588FA(1) and 588FG(2) which provide: 588FA Unfair preferences (1) A transaction is an unfair preference given by a company to a creditor of the company if, and only if: (a) the company and the creditor are parties to the transaction (even if someone else is also a party); and (b) the transaction results in the creditor receiving from the company, in respect of an unsecured debt that the company owes to the creditor, more than the creditor would receive from the company in respect of the debt if the transaction were set aside and the creditor were to prove for the debt in a winding up of the company; even if the transaction is entered into, is given effect to, or is required to be given effect to, because of an order of an Australian court or a direction by an agency. … 588FG Transaction not voidable as against certain persons … (2) A court is not to make under section 588FF an order materially prejudicing a right or interest of a person if the transaction is not an unfair loan to the company, or an unreasonable director-related transaction of the company, and it is proved that: (a) the person became a party to the transaction in good faith; and (b) at the time when the person became such a party: (i) the person had no reasonable grounds for suspecting that the company was insolvent at that time or would become insolvent as mentioned in paragraph 588FC(b); and (ii) a reasonable person in the person's circumstances would have had no such grounds for so suspecting; … 26 Relevant to the interpretation of these provisions are ss 95A and 588FC: 95A Solvency and insolvency (1) A person is solvent if, and only if, the person is able to pay all the person's debts, as and when they become due and payable. (2) A person who is not solvent is insolvent. 588FC Insolvent transactions A transaction of a company is an insolvent transaction of the company if, and only if, it is an unfair preference given by the company, or an uncommercial transaction of the company, and: (a) any of the following happens at a time when the company is insolvent: (i) the transaction is entered into; or (ii) an act is done, or an omission is made, for the purpose of giving effect to the transaction; or (b) the company becomes insolvent because of, or because of matters including: (i) entering into the transaction; or (ii) a person doing an act, or making an omission, for the purpose of giving effect to the transaction.

Relevant case law 27 Claymore accepts that it bears the onus of establishing the defence under s 588FG: see Cook's Construction Pty Ltd v Brown (2004) 49 ACSR 62; [2004] NSWCA 105 ("Cook's Construction v Brown") at [19] per Young CJ in Eq, Santow and Hodgson JJA agreeing. 28 Claymore must establish that at the time it received each of the first three payments: (1) it received the payments in good faith; (2) it had no reasonable grounds for suspecting that Tamaya was insolvent or would become insolvent as a result of making the payment; and (3) a reasonable person in Claymore's circumstances would have no such grounds. 29 There was no challenge to the proposition that as Mr Rosenberg is the sole director of Claymore, it is his state of mind which is relevant: Cook's Construction v Brown at [20]. 30 A suspicion that something exists is more than a mere idle wondering whether it exists or not; it is a feeling of actual apprehension or mistrust, amounting to a slight opinion, but without sufficient evidence. Consequently, a reason to suspect that a fact exists is more than a reason to consider or look into the possibility of its existence: Queensland Bacon Pty Ltd v Rees (1966) 115 CLR 266 at 303 per Kitto J. 31 Mr Newlinds constructed something of a straw man by suggesting that the test of solvency is not a "day by day" proposition: that is, the fact that a company can pay its debts today does not resolve the question of its solvency if it knows or reasonably anticipates that it cannot pay its debts in the next week or the next month; the company would clearly be insolvent. Mr Golledge did not challenge that orthodoxy but relied on Barrett J's finding in Dean-Willcocks v Commissioner of Taxation [2008] NSWSC 1113 at [13] that what is relevant is any suspicion of "actual and existing insolvency, as distinct from impending or potential insolvency". 32 The question of how far one must look into the future in determining the capacity to meet liabilities as and when they fall due under s 95A is vexed. There must be "consideration … given to the immediate future" (Bank of Australasia v Hall (1907) 4 CLR 1514 at 1528 per Griffith CJ), and how far into the future will depend on the circumstances including the nature of the company's business and, if it is known, of the future liabilities: Lewis (as liquidator of Doran Constructions Pty Ltd) v Doran (2005) 219 ALR 555; [2005] NSWCA 243 at [103] per Giles JA, Hodgson and McColl JJA agreeing. 33 "Commercial reality" dictates that the assessment of the company's available funds is not confined to its own cash resources: Bell Group Ltd (in liq) v Westpac Banking Corporation (No 9) (2008) 39 WAR 1; (2008) 70 ACSR 1 at [1087]-[1090] per Owen J. Whether a company is able to pay its debts as and when they fall due and payable is a question of fact to be determined in all the circumstances, which include the nature of the company's assets and business, liabilities, cash, the money which it could obtain by sale or on the security of its assets and its ability to obtain financial assistance by loan or subscription for share capital: see LexisNexis, Austin & Black's Annotations to the Corporations Act (at September 2014) at [1.95A]. 34 It follows, then, that the existence of reasonable grounds for suspicion should be determined by reference to commercial reality derived from the particular industry as applied to the facts at the time of the transaction without using hindsight. There is no single factor whose presence invariably establishes that there was, or should have been, reasonable grounds for suspicion. It is necessary to identify the factors pointing towards insolvency of the debtor and which of those factors were apparent to the creditor and their cumulative impact. There may be countervailing factors and circumstances to be weighed in the balance which could tend to dispel suspicion at the time an impugned payment is made: see Sutherland (in his capacity as liquidator of Sydney Appliances Pty Ltd (in liq)) v Eurolinx Pty Ltd (2001) 37 ACSR 477; [2001] NSWSC 230 ("Sutherland v Eurolinx") at [43]-[47] per Santow J. 35 In this context, the "reasonable person" is a "reasonable business person" in the creditor's circumstances. That is, the test is assessed by reference to a "reasonable person" with the full range of information actually available to the creditor including knowledge of the fact that some things were not known because no request for additional information had been made but it does not encompass information which is not in fact available to the creditor but which a "reasonable person" would have sought and received: see Cussen as Liquidator of Akai Pty Ltd v Commissioner of Taxation (2004) 51 ACSR 530; [2004] NSWCA 383 at [30]-[31] and [114] per Spigelman CJ, Handley and Tobias JJA agreeing.

Factual Contentions 36 On the second day of the hearing Mr Golledge tendered a summary of Factual Contentions which he suggested the Court should find. Mr Newlinds accepted that those contentions which had been footnoted accurately summarised the documents which they purported to summarise in relation to the first to third payments but did not adopt the submissions contained in the document.

Mandate 37 Tamaya engaged Claymore under a letter dated 17 August 2006 headed "Mandate" to provide advice about a proposed merger and other services. It provided for (among other things): a monthly retainer of $10,000 for a 12 months period. Mr Rosenberg says that some time in early 2007 the monthly retainer increased to $20,000; in relation to capital raisings, a fee of "5% of capital raised. Where appropriate (particularly where the intention is to spread interest among brokers) a project management fee of 2% will be charged"; for placement of existing debt, the fee was to be "5% of total debt converted or placed" payable half in cash and half in Tamaya shares; Tamaya to pay Claymore's out of pocket expenses; fees would attract GST which would be payable by Tamaya; and amounts owing are payable to Claymore within seven days of invoice. 38 The retainer ceased in February 2008 but Mr Rosenberg continued to provide advice and assistance to Messrs Callaghan and Kondo.

Pattern of payment of invoices from October 2006 to January 2008 39 Between October 2006 and January 2008, Claymore issued 22 invoices. One (the first) was paid within seven days but left unpaid half of the GST component (see [10] above). Seven were paid between a week and a month after invoice. Six were paid between one and two months after invoice. Seven were paid later than two months after invoice. Six payments related to more than one invoice.

Mr Rosenberg's knowledge up to first and second payments 40 During 2007 and 2008, and notwithstanding the termination of the retainer, Mr Rosenberg says he received by email copies of Tamaya's company announcements and documents described as "Investor presentations" issued by Tamaya and he attended Tamaya's annual general meeting on 28 May 2008 and received a copy of the Chairman's statement at the meeting. Having regard to Claymore's role under the Mandate and the evidence of emails passing between Messrs Callaghan and Kondo and Mr Rosenberg after its termination, Mr Rosenberg's evidence supported by emails that he advised private clients who were shareholders of Tamaya, and his evidence that he attended investor presentations and roadshows with Mr Callaghan (including the annual general meeting on 28 May 2008), I accept Mr Rosenberg's evidence that he read those parts of the documents which dealt with Tamaya's financial position and the status of projects. 41 Some of the information which can be gleaned from those presentations up to March 2008 is: Copper production drives cashflow; The production from the Chile mine had gone from 1500 tonnes per day ("tpd") in June 2007 to 2,500 tpd in February 2008; Market capitalisation had gone from A$266.4 million and 27.5 cents per share in June 2007 to A$137 million and 13 cents per share in March 2008; In February 2008, Tamaya targeted A$250 million in cash per year at then current prices by 2010. For the second half of 2008, it predicted A$50 million per annum earnings before interest, tax, depreciation and amortisation ("EBITDA") from Cinabrio (Punitaqui) predicated on a price of US$3.20/lb for copper. For the first half of 2009, it predicted A$67 million per annum EBITDA from the Armenian gold (and other metals) mines at Lichkvaz. The Filipina Grande operations (copper and other metals) were to contribute A$170 million per annum EBITDA from 2010; On 20 March 2008 Tamaya announced the decision to defer commissioning of the gold project in Armenia (which Tamaya gained control of in a takeover conducted in May 2007) and US$45 million of related funding until completion of metallurgical studies. All non-core activities and investments were scaled back immediately. 42 As at 6 March 2008, Tamaya was seeking to raise $20 million and considered issuing convertible bonds. Mr Rosenberg told a potential investor by email that the opportunity to invest in the bonds was a "wonderful opportunity". 43 Before sending the email to the investor, Mr Rosenberg had obtained responses to specific questions from Mr Kondo. Mr Kondo indicated that Tamaya may need a A$10 million bridging loan to 31 March 2009 and the convertible bonds would cover drilling in Armenia and requirements in Chile with planned 3000 tpd to be achieved by the end of April 2008. Mr Rosenberg also received a copy of a financial model prepared by Meridian International Capital Limited based on information from Tamaya as at mid-February 2008 which indicated substantial increases in net profit rising to $60 million in the 2009 financial year, substantial monthly profits for the months from April to December 2008, and substantial cash surpluses and balance sheet surpluses in the period of the March, June and September 2008 quarters. 44 I accept Mr Rosenberg's evidence that he was not concerned by the announcement on 20 March 2008 because Tamaya's income was generated by the Chilean operations, no income was derived from the Armenian operations and Tamaya had planned to use profits from the Chilean operations to fund the expansion and operation of the Armenian operations. However, the announcement reduced any substantial basis for relying on the model produced by Meridian International Capital Limited which was based on assumptions concerning earnings and borrowing related to assets affected by the announcement. 45 On 5 April 2008, Mr Callaghan sent a despondent email to Mr Rosenberg. Among other things, he said: My meetings in Boston and NY have been quite sobering. Apart from lack of interest in junior stocks which seems to be widespread, I sense we have lost the support of key shareholders due to our lack of performance … We just don't seem able to get the grade and recovery story right and its [sic] reached the stage where I am too scared to give a guideline or deadline on production or costs as we never meet it I have to hold my hand up and say I have not delivered and brought in the wrong people. My thought is to stand down as Chairman and to make Mike go off with the gold company … I believe I should go altogether to account for this shambles and my backing the wrong people In the meantime I need to find some money so a SPP may have to be implemented 46 In late April 2008, Mr Rosenberg advised Mr Callaghan that it was known that Tamaya needed to raise funds and that it would be possible to do so quickly. 47 On 1 May 2008, Tamaya announced the SPP at 11.5 cents per share, a 12% discount to the closing share price on 30 April 2008. The SPP's stated purpose was to fund expansion of production capacity at the Punitaqui operation, accelerate development of other Chilean projects and provide working capital. 48 The SPP announcement also advised that Tamaya had reached the 3000 tpd production level at the Punitaqui operation and the focus now was to achieve sustainability and plan for a further increase in production to 4,000 tpd. An announcement concerning achievement of the 3000 tpd target was also separately made to the ASX on 1 May 2008. 49 I accept that Mr Rosenberg read the 1 May 2008 announcements to the ASX and that he: sent an email to Mr Peter Scully on 2 May 2008 in which he said: "I do think TMR is back on track now. Consequently I still think we'll do well." forwarded to Mr Scully on 2 May 2008 an email from Mr Callaghan, who was then in Chile, which indicated that: The 3000tpd operating rate has now been reached, and we are already into higher grade ores than we have been in for 7 months - the impact on daily production is already evident The case for a further expansion to 4000tpd is well advanced and will be a low capital expansion - we had deliberately, as part of Project 3000, bought slightly more equipment than we needed to enable a capital-efficient expansion. sent an email to Mr Lance Rosenberg on 5 May 2008 saying: I can grab the TMR SPP - 5% for $20m. I reckon it's a steal. They have turned - grades up, production up, costs up (only kidding - going down per lb now), revenues up, !!!! 50 I accept Mr Golledge's submission that Mr Rosenberg is unlikely to have deliberately misled his brother in a private communication and that there is no reason to doubt that Mr Rosenberg genuinely held the opinions expressed in these emails. 51 Mr Rosenberg and Mr Kondo exchanged emails on 6 May 2008 concerning whether Claymore would assist in a capital raising involving the SPP and offerings to sophisticated and institutional investors ("capital raising"). The correspondence indicates that Claymore was "very keen" to underwrite $20 million and was in a position to underwrite $10 million immediately. Mr Kondo indicated that he looked to do the SPP underwriting but "failing this [Mr Kondo] would consider a placement with warrants but this is not a preferred choice". This is because of the possibility that an investor would get discounted shares, sell the share and keep the cheap warrant which would "hurt" Tamaya's share price in the short and medium term. 52 Mr Rosenberg set out a list of 11 items for discussion which included: Claymore's suggested cap on the offering at $20 million; A maximum debt repayment by Tamaya of $10 million out of the proceeds. Mr Kondo agreed but indicated that Tamaya would "try to retain this cash"; Confirm the financial model and debt profile with Mr Kondo; Items 8 and 9 were: "All out of pockets reimbursed" and "Fee agreed". 53 By an email to Mr Kondo on 11 May 2008, Mr Rosenberg clarified that he wished to see cash flow and profit projections for two years. The email also indicates that although Mr Kondo agreed to pay Claymore's "out of pocket" expenses, the fee should be 4% to which Mr Rosenberg responded: "Must be 5% as have already sub underwritten some". 54 On 14 and 15 May 2008, Mr Kondo provided detailed financial information in relation to Tamaya. The Factual Contentions summarise this material as follows: Over the period to the end of 2009, the Tamaya Group would require approximately $22.8 million if it wished to complete the proposed capital expenditure at the Chilean mines (including repayment of a bridging loan for US$9.4 million in the 2009 financial year). Mr Golledge's submissions appear to have been on the basis that this amount was in Australian dollars, however, the materials provided by Mr Kondo are set out in American dollars. Nonetheless, I accept that cash inflows of more than A$30 million (but not A$22 million) would be sufficient to see Tamaya achieve the operational objectives on the basis of these projections; The Tamaya Group had projected cash balance surpluses for each month through to December 2008. This projection was before any allowance being made for the proposed capital raising; and The Tamaya Group projected a full year profit of US$26.4 million. This was on the assumption that in the 2008 year, the copper price per pound would be between US$3.60 and US$3.70. 55 On 15 May 2008, Mr Rosenberg confirmed to Mr Kondo that Claymore was in a position to underwrite $10 million and agreed to an increase in the total amount to be raised to $30 million. There is no evidence that Mr Kondo and Mr Rosenberg resolved the question of the amount of the fee at this time or that any formal underwriting arrangement was put in place. 56 Mr Rosenberg claims that he had a conversation with Mr Callaghan in which Mr Callaghan stated that the terms of the Mandate would apply to this new assignment. In response Mr Rosenberg attests that he said "And I will get paid from the funds raised as usual?" to which Mr Callaghan agreed. This element of Mr Rosenberg's evidence goes to the equitable charge argument referred to at [20]-[21] above. Little now turns on it but for the sake of completeness, I note that Mr Rosenberg was not a convincing witness on this issue. 57 Mr Rosenberg could not point to any previous instance in which Claymore had deducted moneys from funds raised even he thought Claymore had deducted fees from capital raisings in the past nor did he satisfactorily explain why he did not press the issue in correspondence about fees in June and July 2008 beyond a passing reference to Mr Callaghan's "surprise" at the claimed fee for underwriting the SPP in the 2 June 2008 email to Mr Kondo referred to at [64] below. Although a fee of "5% of capital raised" plus GST is consistent with the Mandate, it is not clear that the arrangement in the Mandate would authorise Claymore to deduct fees from moneys raised. I did not hear argument on the issue and it is not necessary for me to resolve this question. 58 As an indication of Mr Rosenberg's confidence in Tamaya, Mr Golledge relied on an email which appears to have been sent by Mr Rosenberg to "sophisticated investors" on 16 May 2008 which included the following statement: TMR's Chairman stated and we agree that this is an opportunity to take advantage of prevailing market conditions and the current undervaluation of the stock and to participate in the company's future growth, and follows the recent resource upgrade, increased production and exploration success in Chile. He might also have pointed to the statement: We have underwritten $10m of the SPP. $3m has already been committed. We are looking to increase our commitment to $20m and we do not expect to receive any stock at $10m. 59 Although Mr Rosenberg's affidavit sworn on 13 February 2012 indicated that he sent the 16 May 2008 email, he conceded in cross-examination that it was sent by his brother, Mr Justin Rosenberg, without Mr Rosenberg's authority. Without resiling from the opinions set out above, Mr Rosenberg accepted that the email was not a good example of the "full and frank" disclosure to investors which he claimed. The email referred and provided a link to a valuation of Tamaya undertaken in January 2008 which valued Tamaya shares at 46 cents each. I accept Mr Rosenberg's evidence that his characterisation of Mr Justin Rosenberg's action in sending this material out as "negligent, stupid and ridiculous" related to sending an email to investors (and not the list of investors Mr Rosenberg would have chosen) with an out of date report and without the consent of the person who wrote it. His criticism was fair. Having said that, I accept that Mr Rosenberg's opinion was consistent with the quoted passages and his email to a number of investors sent on 18 May 2008 which said: 1. Chile operation - at current copper price should produce 22 million pounds at current rate with potential to increase. Cost presently $2/lb reducing to $1.60-$1.70. That is worth approximately $200m as the mine is long life (12-15 years); 2. Debt is $70m so with an enterprise value of $200m at 11.5 cents, the rest is for free; 3. For free -Chile exploration (copper and iron ore), Armenian gold project, Portugal gold and tungsten. I think the pot pourri is worth at least $200m on a conservative basis; 4. Finally by spending approximately $20m I think they will double production capacity in Chile - that is worth at least an additional $100m. Assuming approximately 1.4 billion shares on issue after this issue, I believe the company is worth at least 25 cents with good upside. A quick post mortem on the past year: 1. Management dropped the ball by not having adequate daily, monthly management information in Chile; 2. Chilean mining - grade 0.8% instead of 1.3% as they worked through development ore. Now in higher grade. Production target of 3,000tpd delayed by 5 months - now at that level; 3. Share price forced down by selling of shares by margin lenders etc Almost a perfect storm which is now behind the company. Summary of the proposed deal: 1. Issue of shares at 11.5 cents; and 2. Additional half warrant per share exercisable at $0.15 per warrant at any time within 2 years 60 On 18 May 2008, Mr Callaghan told Mr Rosenberg that he would participate in the capital raising for an amount of $25,000. I accept Mr Golledge's submission that Mr Rosenberg was entitled to take Mr Callaghan's decision as a vote of confidence in Tamaya's prospects from someone in a position to know. I also accept that Claymore's willingness to underwrite the SPP to $10 million is evidence of Mr Rosenberg's confidence in Tamaya as a going concern although I note that (as pointed out by Mr Kondo in an email on 8 June 2008) no firm underwriting was put in place. 61 The SPP closed on 26 May 2008. Tamaya advised the ASX on 2 June 2008 that it raised $10,139,400 from 2,438 shareholders. 62 On 27 May 2008, Tamaya advised the ASX that the capital raising had raised $20 million. Of this amount $6,998,957.50 was placed by Claymore (which, for convenience, I will refer to as "Claymore placement"). Mr Rosenberg says that the capital raising had been "heavily oversubscribed" and gave the example of one investor whose $2 million proposed investment had been scaled back to $150,000. Shares subscribed for in the capital raising were issued in two tranches, one on 28 May 2008 for $11.3 million and the balance of $8.7 million in early June following the receipt of shareholder approval at the annual general meeting held on 28 May 2008. 63 The Chairman's statement to the annual general meeting held on 28 May 2008 provided the following statement of Tamaya's outlook for 2008-2009: However, Tamaya is confident that the delivery of Project 3000 and a better understanding of the assets acquired during 2007 as we start to commission our own drilling and related metallurgical testing, the Tamaya Group is well positioned to develop and build shareholder value. We believe that with increased copper concentrate production in Chile and the potential to grow cash flows during 2008, Tamaya's prospects remain good. The next 12 months will prove to be a period in which the Group delivers on the value creation strategies the board and executive team developed previously, and the operational platform in which we have invested during 2007.

Claims for payment by Claymore 64 On 2 June 2008, Mr Rosenberg wrote to Mr Kondo (copied to Mr Callaghan), noting that Claymore would need to settle on the Claymore placement the next day; that is, Claymore would remit moneys to Tamaya on the basis of which Tamaya shares would be issued to investors who subscribed through Claymore. Mr Rosenberg asked what outstanding fees might be deducted from the $6,998,957.50 before the money was remitted to Tamaya; he listed six issues for discussion "in order of 'complexity'": a. An invoice dated 30 May 2008 for $386,042.67 comprising a claim for 5% of the $6,998,957.50 raised by the Claymore placement ($349,947.88), $1,000 of out of pockets and GST. Mr Rosenberg suggested that this did not require discussion. b. An invoice dated 30 May 2008 for $550,000 comprising a claim for underwriting the SPP of 5% of the $10 million plus GST. Mr Rosenberg suggested that this did not require discussion, although he went on to say: "although Hugh was surprised when I mentioned this to him. I explained this was a clear arrangement between us." I note that this terminology is ambiguous as to whether Mr Rosenberg's reference to the "clear arrangement between us" meant an arrangement between Mr Rosenberg and Mr Kondo or between Mr Rosenberg and Mr Callaghan. c. The "outstanding balance on account". This is the aggregate amount of $115,147.23 claimed in the account issued by Claymore on 24 April 2008. Mr Rosenberg suggested that there was no discussion required for this amount. d. An invoice for an "override" fee for introducing an investor in the capital raising (Ingalls) comprising 1% of $6 million plus out of pockets ($1,000) and GST; an aggregate amount of $67,100. Mr Rosenberg made no comment in relation to this. It appears to accord with what Mr Rosenberg agreed to take as a fee for assisting BBY Ltd in obtaining commitments to the capital raising in his email to Mr Kondo, copied to Mr Callaghan on 15 May 2008. e. In connection with debt raised subsequently to the original borrowing managed by Meridian International Capital Ltd in 2007, Mr Rosenberg attached a copy of the Mandate and noted that it contained a non-circumvention clause. He thought the matter required discussion and on 3 June 2008 claimed $275,000 (GST inclusive) being 0.5% of facilities arranged by Meridian. f. Last, Mr Rosenberg raised the fact that in connection with a scrip takeover in 2007 of Iberian Resources Limited (which owned the Armenian mines), he had agreed with the chief executive officer, Mr Michael Fisher, that Mr Fisher would propose appropriate remuneration for Claymore but that had not happened. Mr Rosenberg concluded: "although I would have like[d] MF to have volunteered the appropriate remuneration, I appreciate the pressure all have been under, and propose to drop this." 65 On 4 June 2008, Claymore (by email and spreadsheet sent by Mr Shaul Schapiro) advised Tamaya that it proposed to deduct $1,278,142.67 from the $6,998,957.50 capital raising moneys before transferring them to Tamaya. The figure of $1,278,142.67 comprised the sum of the accounts referred to at [64] other than the invoice of 24 April 2008 for $115,147.23. 66 This proposal gave rise to heated correspondence. Tamaya's company secretary authorised deduction of the $386,042.67 fee for the Claymore placement only. The plaintiffs do not challenge this payment to Claymore. 67 When Claymore refused to transfer $892,500 to Tamaya, Mr Kirkland (from Tamaya) threatened to make a report to the Australian Securities & Investments Commission. Although Mr Rosenberg said that he regarded the fact that $892,500 was in dispute as "absurd", he authorised its remittance to Tamaya on 5 June 2008. Mr Callaghan suggested that he and Mr Rosenberg talk later about the dispute, saying that there were "clear issues" and "less clear issues", but he was firm that "[w]hat isn't in dispute is that you can't take monies from a capital raising into a trust account and withhold them. We will all be at risk." 68 Mr Newlinds submitted that Claymore sought to retain $892,500 because it suspected that Tamaya was not solvent. There is no evidence to support that submission and I am more inclined to accept that Claymore sought to retain the funds in order to avoid negotiating with management at Tamaya which was not inclined towards Claymore: see [76] below. 69 On 8 June 2008, Mr Kondo wrote to Mr Rosenberg: Based on our discussions internally we would like to conclude all remaining fees to date with a final A200k payment. This reflects that the final raising was in fact a placement and no firm underwrite was in place. It does reflect compensation above that paid to you for your amounts placed for the work done on Ingalls and the placement in general. Please revise your billing to reflect these changes. 70 It appears that both Mr Kondo and Mr Rosenberg understood that the 8 June 2008 email did not address the 24 April 2008 account for $115,147.23 which Claymore did not seek to recover out of the Claymore placement moneys. Mr Rosenberg followed up the 24 April 2008 account on 19 June 2008 by an email sent to Mr Kondo. Shortly after, Mr Kondo responded that he would "sort this immediately", having authorised its payment "a couple weeks ago" and that "I am working on the other outstanding and will come back shortly". This account was paid on 27 June 2008; the first payment. 71 On 24 and 28 June, Mr Rosenberg wrote to Mr Kondo chasing up his "final verdict" on the outstanding amount. 72 On 30 June 2008, Mr Rosenberg received an email from Tamaya containing a summary of an investor briefing published by Tamaya with a link to the full announcement. The essence of this publication was that Tamaya had reached the target grade of copper comfortably supporting 3000 tpd and the Punitaqui operations were focussed on optimisation and further expansion. On 2 July 2008, Mr Callaghan sent an email to Mr Rosenberg referring to the announcement and saying: We seem to now be firmly on track for a very good second half and Punitaqui has reached the operating state many thought it never would. With further expansions and a lot in the growth pipeline, there is a lot of hard work that lies ahead 73 On 8 July 2008, Mr Rosenberg sent an email to Mr Kondo as follows: Please advise when you will revert to me. I find it incredible that the company is unable to resolve a matter promptly where, without my input, the company would probably be in a very dire position. 74 Of the outstanding $892,500 which Claymore had sought unsuccessfully to retain from the Claymore placement moneys, the resolution reached on 10 July 2008 was that Tamaya would pay Claymore $330,000 (GST inclusive). On 10 July 2008 Mr Rosenberg sent an email to Mr Kondo as follows: As discussed, here is the invoice which replaces all other outstanding invoices. I would really appreciate your paying $110,000 today or tomorrow and the balance on Wednesday. Please advise how you propose dealing with the $50,000 in due course. 75 On 11 July 2008, Mr Kondo asked that the invoice for $330,000 be split into two invoices and this was done on the basis set out at [13]-[14] above. The second payment of $110,000 was made on 11 July 2008, as Mr Rosenberg had requested. The resolution concerning the $50,000 referred to in the 10 July 2008 email was not the subject of submissions.

Mr Rosenberg's view of reason for timing of first and second payments 76 Mr Rosenberg was cross-examined extensively in relation to his view of the reason for the timing of the first and second payments. Mr Rosenberg explained: Despite the terms of the Mandate, the requirement to pay invoices within seven days was 'never really applied". In relation to the account of 24 April 2008, except for those amounts which related to monthly retainer in January/February 2008 under the Mandate, he thought that there was a possibility that there would be some dispute about the claims, although he said he thought the amounts should not be disputed and conceded that there was never a dispute about that invoice. Mr Rosenberg denied that he thought that a reason it might not have been paid between 24 April and 2 June 2008 was because Tamaya could not pay but rather that it would be paid when Tamaya completed the capital raising and that was a basis with which he was happy. While he did not turn his mind to payment until early June, he wanted the issue of payment of his accounts agreed. Mr Rosenberg does not explain why he did not press for payment of the 24 April 2008 account from the proceeds of the Claymore placement. He says he sought payment of the accounts referred to in the 2 June 2008 email out of the proceeds of the Claymore placement not because he had concerns about Tamaya's capacity to pay; rather, having begun to get results for Tamaya, he wanted to make up for some amounts which had not been allowed or paid on previous transactions and he was concerned that a director of Tamaya who had previously been an employee of Claymore would seek to negotiate them down. In relation to the delay in payment of the 24 April 2008 account during June, he thought that there may have been an "element of bullying" in the manner of dealing, but his focus was less on this account than negotiating the payment of the other accounts related to the SPP and capital raising. He thought Tamaya had raised sufficient funds to meet its liabilities because its capital raising had been oversubscribed and Tamaya had limited itself to $30 million. He did not turn his mind to the possibility that Tamaya was juggling its cash position and paying creditors accordingly or that it might be insolvent. In relation to the resolution achieved on 11 July 2008, Mr Rosenberg wanted to maintain a good relationship with Tamaya and the amount agreed by Mr Kondo seemed a reasonable proposition. 77 I accept Mr Rosenberg's evidence in relation to his understanding of Tamaya's solvency in the period following the successful capital raising and SPP to 11 July 2008 and the reasons for the manner in which Tamaya's management dealt with his invoices.

Finding in relation to first payment and second payment 78 The evidence supports findings that, whatever the position might have been before Tamaya received more than A$30 million at the end of May/beginning of June 2008, both Mr Rosenberg and a reasonable business person in his position would be entitled to the view that Tamaya had successfully raised the funds necessary to support its business plan in accordance with projections provided by Tamaya on 15 May 2008 based on production at Putinaqui at the required 3000 tpd level with projected profits through 2008 on the basis of copper prices of US$3.60-$3.70. The capital raising had in fact been oversubscribed despite the concerns expressed by Mr Callaghan in his email of 5 April 2008 referred to at [45] and the mine appeared to be operating as projected based on the investor information release made on 30 June 2008. 79 While the plaintiffs conceded that Claymore made out its defence in relation to the second payment of $110,000 made on 11 July 2008, the same day on which the invoice was issued following resolution of the dispute between Claymore and Tamaya about what its fee should be, they did not concede that the defence was made out in relation to the first payment which was made on 27 June 2008. That position is difficult to reconcile; it appears to be solely on the basis that the second payment was made within the seven days period specified for payment in the Mandate and on Claymore's invoices while the first payment was not. I do not accept that reasoning. 80 It is well established that although dilatory payment by a debtor may be a factor which points towards insolvency, it is not always determinative as solvent companies do not always pay on time and some companies customarily pay their bills in a dilatory fashion: Sutherland v Eurolinx at [46]. It might also be added that insolvent companies do sometimes pay on time. 81 I accept Mr Rosenberg's evidence insofar as it relates to the period from the end of May to 11 July 2008 that he did not suspect that Tamaya was insolvent or managing its cash resources for that reason, but rather Tamaya's management was engaging in negotiation against a background of some hostility to Claymore by a member of the Tamaya board and the fact that the fee that Tamaya was to pay Claymore had been unresolved in mid-May 2008: see the email exchange referred to at [53] and [55] above. Mr Rosenberg could reasonably accept that Mr Kondo had authorised payment of the 24 April 2008 account in early June and the account was paid about a week after he said this on 19 June. It is also clear that it was Mr Rosenberg who set the timing for payment of the second and third payments against the difficulty of negotiating fees with Tamaya, that is, one payment on the day of agreement and one payment the following Wednesday. 82 Mr Newlinds conceded that there is no evidence that Tamaya was failing to pay other creditors in a timely way. 83 I am satisfied that, on reasonable grounds, Mr Rosenberg did not suspect that Tamaya was insolvent when Claymore received the first and second payments and that a reasonable business person, knowing what Mr Rosenberg then knew, would not have reasonable grounds to suspect that Tamaya was insolvent. Claymore has therefore established its defence under s 588FG(2) in relation to those payments.

Mr Rosenberg's knowledge up to the third payment 84 The third payment of $220,000 was paid on Monday 21 July 2008 instead of the requested Wednesday, 16 July. Mr Golledge points out that Friday, 18 July 2008 would have been seven days after the 11 July invoice, it was paid on the next business day and Mr Rosenberg was told that the reason it was not paid on 18 July was because the cheque needed two signatures. Absent other factors, in my view nothing would turn on this delay and Mr Rosenberg would also be entitled to the defence under s 588FG(2) in relation to the third payment. However, there are other factors requiring consideration. 85 Mr Rosenberg deposed that on 14 July 2008, Justin Rosenberg responded to an investor's request for his take on the fall in the price of Tamaya shares since the capital raising having regard to the "good" announcement in June. Having regard to a selection of quotes from the "Hot Copper" forum, he responded: …you've actually summed it up well … operations going well. more sellers than buyers. … In short - on top of the market downturn which has significantly affected the company, the company-specific downtrend was caused by: • a growth strategy during a [sic] rather than cashflow focus. The company changed with the times but as expected it's taking time … this took the share from 35c to 11.5c and has unfortunately continued post the placement. • fears the recent highs of the copper price will follow the same fate as the zinc price • and on the [copper] forum they are spreading conspiracy theories that people, related to the potential TSX listing, are manipulating the share price to keep it low! 86 Since Mr Rosenberg did not seek to qualify the view expressed in this email in any way and the plaintiffs did not challenge it, I accept this as a contemporaneous view of the market conditions and Tamaya's situation. 87 Included in the plaintiffs' bundle of documents for the cross-examination of Mr Rosenberg is an email sent by Mr Callaghan to Mr Rosenberg on 15 July 2008. The subject line read "being edited but worth reading" and there was no other message. The email indicates that there is an attachment: "Board Discussion Paper - Financing and development.doc". Mr Newlinds did not tender the attachment nor did he expressly refer to the email or attachment in his cross-examination of Mr Rosenberg or in submissions. In light of the email exchanges which occurred between 16-18 July (discussed below) ahead of the third payment on 21 July it might be inferred that its content was highly relevant to the state of Mr Rosenberg's knowledge of "financing and development" issues addressed in the Board paper which were not in the public domain. 88 Having said that, the onus is on Claymore to make out the good faith defence against the concession that Tamaya was insolvent at the time of the third payment which occurred within the relation back period. Mr Rosenberg's evidence did not contain reference to the email exchanges between himself and any of Messrs Callaghan, Kondo and Kirkland referred to at [87] and [89]-[97] so his only explanations in relation to it occurred in cross-examination. 89 On 16 July 2008, Mr Callaghan sent an email to Mr Rosenberg at 5.33 pm and Mr Rosenberg replied at 10.02 pm as follows (emphasis added): Callaghan: Should I fall on my sword given that Tamaya investors clearly have no faith in me? I expect the Board will ask Mike to stand down this week, and I think I should find a replacement for me and go Rosenberg: No I don't. This is still an opportunity for you, but you need to steady the ship and yourself. People want to back you, but they have been disappointed so far. You should work out exactly what the funding shortfall is for survival and go to see a very shortlist to plug the gap. As a matter of interest IAU was in the same position once. Now the picture is very rosy - talking dollars! 90 Before he responded to Mr Callaghan, Mr Rosenberg sent an email to Mr Kondo at 9.38 pm asking him to confirm whether "the deposit was made today?". 91 Mr Rosenberg said in relation to this exchange: I was responding to him wanting to fall on his sword generally, whether it was for non-delivery or production or whether he thought he needed more money. And I was just simply saying there's a solution, but at the same time you need to identify exactly what you're say[ing] because he was actually contradicting what I was being told by the finance director. … I remember also that here was someone … who was very irritated by the fact that he was running a smaller mining company as distinct from a bigger mining company. He came out of a big mining environment and he would occasionally, shoot from the hip with a statement … for example, where he said … "I should fall on my sword or should I?" I was just saying, "Look, steady the ship. If you've really got an issue with finances, then say what they are and solve the problem." … I was not hugely concerned because I was getting the picture from the finance director. 92 On 17 July, Mr Rosenberg sent an email in the chain with the subject line "being edited but worth reading" to Mr Callaghan at 6.27 am to which Mr Callaghan replied at 6.29 am (emphasis added): Rosenberg: I meant to say yesterday - one thing you omit in this is a summary of the profitability. The capex requirement is one thing, but being able to announce increasing profits is another. Callaghan: Profits are one thing, but negative cashflow is another. 93 Mr Rosenberg said he was not concerned that Tamaya was insolvent despite Mr Callaghan's response: Because it's quite common that one commits to capital expenditure which will generate profitability and that was the point I was also reminding Hugh Callaghan of but the reality is if there is a good finance director [he] will identify when there is negative cash flow irrespective of whether it's from capital or income outflows and he will plug that hole in a reasonable time. … the minute one sees a shortfall then one works out what one has to do whether it's an asset sale or … there are alternatives to just having a line of credit. … in this instance it's a negative forecast. … I was led to believe that there was $7 million in the bank at the end of July … on a consolidated basis. 94 Mr Rosenberg denied that he turned his mind to the possibility that Tamaya was insolvent at the time of these exchanges. He said: I simply believed that that shortfall needed to be plugged so that the company could continue on its - on its trajectory. 95 He has no explanation for why the email exchanges with Mr Callaghan were not included in his affidavit evidence. While acknowledging that they could paint a different picture from the more positive character of his affidavit evidence, Mr Rosenberg said that the email exchange with Mr Callaghan did not "materially impact" on his thinking. 96 On 17 July at 1 pm, Mr Rosenberg wrote to Mr Kirkland in the accounts department at Tamaya (cc to Mr Kondo) saying that he "[w]ould appreciate payment as agreed". At 1.06 pm, Mr Kirkland sent an email to Mr Kondo telling him that he "[t]ook a call" from Mr Rosenberg "who's getting a bit toey about his $220k" and enquiring what Mr Kondo wanted done. 97 Mr Rosenberg admitted to having some understanding of the law dealing with preferences but denied pressing for receipt of the third payment because he was concerned that Tamaya may be insolvent. He denied being concerned that the funding shortfall meant he would not receive the third payment because he did not know when it would present itself. He did not recall making a call to Mr Kirkland specifically to follow up the third payment, but said he had a conversation with him when he answered the phone to a call Mr Rosenberg made to Tamaya on 17 July. He was "toey" because Mr Kondo had made a representation about when he would be paid and it had not yet occurred. Mr Rosenberg described his relationship with Mr Kondo as "a developing relationship", and while he "expected him to honour his word, … he had previously renegotiated certain agreed points, so …". He denied any recollection of a conversation with Mr Kirkland about why payment might have been delayed. 98 On 18 July between 11.50 and 11.59 pm, Mr Rosenberg and Mr Kondo had a conversation by email as follows (emphasis added): Kondo: Anton Did you receive the payment? Rosenberg: Not yet. Second signatory needed. Has to be done on Monday. If I had I would have thanked you! How are you going? Kondo: Sorry Anton for the delay. Cutting and scraping cash were I can to plough into Chile. We'll get through it though Let's have a chat next week. I'm in Armenia next week with Hugh Have a good weekend Hope you're well. Rosenberg: Thanks. Good luck in Armenia. 99 Mr Rosenberg could not explain why he had not included the email exchange with Mr Kondo on 18 July 2008 in his affidavit evidence. He did not accept that he connected the failure to pay the third payment on Wednesday 16 July with the funding shortfall and Mr Kondo's comment that he was "[c]utting and scraping cash where I can to plough into Chile". Mr Rosenberg said that he did not think about it because Mr Kondo was following up to see if he had been paid that day; he took it as a statement relevant to Mr Kondo's embarrassment at not having honoured his obligation. Mr Rosenberg said he did not read anything untoward into Mr Kondo's comment because what the company was saying publicly was "much more powerful". He did not have insight into how Tamaya allocated funds, for instance, in relation to funding the expansion of the Chile mines and whether fixed deposits might have to be broken to make the payment.

Findings in relation to third payment 100 In the absence of the email conversations, the evidence would indicate that Mr Rosenberg was entitled to rely on the public position espoused in Tamaya's 30 June 2008 investor announcement and the financial information provided by Mr Kondo on 14 and 15 May 2008. Mr Rosenberg's pursuit of the balance of the agreed fee was explicable by reference to causes other than cash flow concerns. Mr Rosenberg had had difficulty getting the fee agreed, the work to which it related was successfully completed and he had reason to be concerned about further renegotiation by Tamaya management if he did not get timely payment. Although the share price had dropped significantly since the capital raising, it appeared that its operations were on track and consistent with information provided to Mr Rosenberg on 14 and 15 May. That is the picture which emerges from Mr Rosenberg's affidavit evidence, but it did not include these emails to which (with one exception) he was a party. 101 In my view Mr Rosenberg's efforts on 16-18 July to secure payment are consistent with his efforts during June to 11 July, recognising that 16 July was the date agreed for the third payment. Given the history, I do not consider that the manner of his pursuit of the third payment is evidence of his knowledge of Tamaya's possible insolvency, although I accept that they may have been given added impetus by Mr Callaghan's emails on 15-17 July. 102 I accept that Mr Rosenberg could rationally attribute Mr Callaghan's suggestion that he "fall on [his] sword" to Mr Callaghan's personality rather than as evidence of the immediate jeopardy of Tamaya's position; it echoed his reaction to concern by investors about management competence demonstrated in the email on 5 April 2008 (referred to at [45] above) after which Tamaya had raised more than $30 million and rejected oversubscriptions. I accept that no evidence was tendered or admission made that Mr Rosenberg knew the amount or timing of the funding shortfall when the third payment was made. I accept that Mr Rosenberg gave the advice to identify the shortfall and "plug the gap" in good faith. 103 Having said that, I do not accept that Mr Rosenberg has established that Claymore had no reasonable grounds for suspecting Tamaya's insolvency or that a reasonable business person in its position would not have had those grounds. 104 Mr Rosenberg minimised Mr Callaghan's concerns because "he was actually contradicting what I was being told by the finance director"; "I was not hugely concerned because I was getting the picture from the finance director". There are several problems with this proposition. First, Mr Callaghan was the chairman of the company; whether or not Mr Rosenberg thought Mr Callaghan tended to be overdramatic in his reactions, Mr Callaghan held the office and was privy to current information about Tamaya. Mr Rosenberg understood that Mr Callaghan's concerns were not just about market perceptions of management competence arising, for instance, from failure to meet production benchmarks according to timetable. Mr Rosenberg knew the concern was about a funding shortfall based on negative cash flow and Mr Rosenberg's response indicates that he understood that it threatened the company's survival. 105 Second, Mr Rosenberg does not say what picture he was getting from the finance director or when, so this evidence does not establish that Mr Rosenberg had no reasonable basis for suspecting that Tamaya was insolvent in view of a concern about negative cash flow expressed by Mr Callaghan which Mr Rosenberg understood to threaten Tamaya's survival. 106 If Mr Rosenberg was relying on the projections provided in mid-May, then Mr Callaghan's concerns should have given him cause to question their correctness and his reliance on them. Information given to Mr Rosenberg by the Chairman of Tamaya which caused Mr Rosenberg to recommend identifying funding shortfalls "for survival" so soon after the capital raising reasonably raises suspicions about the effectiveness of the company's management to achieve projected earnings and the soundness of its financial condition. This is especially so in a company whose financial projections depended significantly on the achievement of development goals for the Punitaqui operation for both mining and processing ore which founded its cash flow, and for a company with a history of not meeting performance targets according to timetable. 107 It is difficult to accept that Mr Rosenberg was relying on current financial information about Tamaya from Mr Kondo. On 26 July 2008 Mr Rosenberg was given a copy of a memorandum written by Mr Kondo dated 15 July in which he advised the Board that Tamaya was "cash positive" until December 2008 but would have close to zero cash by October 2008. The mid-May projections had suggested that Tamaya would be cash positive until December 2008 without the A$30 million raised in May. 108 Mr Rosenberg appears to have mischaracterised Mr Kondo's remark in his 18 July email that he is "[c]utting and scraping cash where I can to plough into Chile" as being merely occasioned by embarrassment for late payment of his fee. Mr Kondo's next statement "We'll get through it though" would make no sense if that was all it meant. I give little weight to Mr Kondo's doughty assertion of hope - he expresses no basis for it. It was not reasonable for Mr Rosenberg to regard as "more powerful" the public information published by Tamaya in light of Mr Callaghan's restatement of his concerns by his reply about negative cash flow and Mr Kondo's information that he was "cutting and scraping" cash to put into the Chile operation. Public information was last published on 30 June 2008 and this was new information from the ultimate insiders. 109 Further, if Mr Rosenberg did not know the amount or timing of the funding shortfall but he did know that it concerned negative cashflow and threatened Tamaya's survival, he could not expect with a reasonable level of assurance that there was a feasible way to "plug the gap" within a reasonable time frame so as to avoid an inability for Tamaya to pay its debts as they fell due. Although Mr Rosenberg's response to Mr Callaghan on 16 July was theoretically logical, having regard to the nature of Tamaya's business and history, I am not satisfied that Mr Rosenberg or a reasonable business person in his situation would have no reasonable grounds for suspecting that Tamaya was insolvent. 110 Claymore has not made out the defence under s 588FG(2) in relation to the third payment and I will order that it repay the amount of $220,000.

Fourth Payment 111 On 23 September 2008, Mr Callaghan executed a mandate letter on behalf of Tamaya which, for convenience, I will refer to as the "New Mandate". The New Mandate letter relevantly provides: Fees Claymore is committed to entering into long term relationships with its clients. Accordingly, it is important that the interests of all parties are aligned - in particular Claymore understands that it should seek to charge a nominal retainer and then be rewarded by success being TMR's successful capital raising and achievement of its stated goals. We have also attempted to align our success with the success of all stakeholders. Claymore proposes to receive its fees as follows: Transaction or service Fee Upfront fee $25,000 …

112 The total amount of the fourth payment made by Tamaya to Claymore on 23 September 2008 was $27,500 being the upfront fee plus GST. 113 Mr Rosenberg said that this was a "prepayment for work that Claymore would undertake", however, there is no provision in the New Mandate letter for Claymore to set off this fee against the provision of services. It is uncontentious that Claymore knew that Tamaya was having cash flow problems when it entered into the arrangement and that no services were provided by Claymore because Tamaya went into administration. The fourth payment was not impugned as an uncommercial transaction but as an unfair preference. 114 Claymore says that entry into the New Mandate letter and payment of the upfront fee should be analysed as the relevant transaction and that there was no creditor-debtor relationship between Claymore and Tamaya at that time so that s 588FA(1)(b) can have no operation. The plaintiffs bear the onus of proving that the fourth payment was in respect of an existing unsecured debt. Mr Golledge submitted that the transaction should be approached in the same way as a prepayment or cash on delivery transaction which the Courts have consistently held to be outside the regime of s 588FA(1)(b) because there is no existing debt and the whole transaction amounts to a contemporaneous exchange of goods or services the ultimate effect of which is that there is no net reduction in the company's assets available to creditors. 115 Mr Newlind's arguments on this issue have varied. His final position put in his submissions in reply is that the fourth payment should be impugned as a preference because the ultimate effect of the upfront payment was to reduce the assets of Tamaya available to creditors. 116 Mr Golledge submitted that by accepting the New Mandate from Tamaya, Claymore accepted the risks of committing resources to the assignment.

Consideration 117 Ultimately, the resolution of this argument is of very short compass. I reject the plaintiffs' contentions because Claymore was not a creditor of Tamaya in relation to the upfront fee at the time it entered into the New Mandate with Tamaya and that is a requirement of s 588FG(1) which must be satisfied before questions of ultimate effect arise in relation to whether the payment constitutes an unfair preference. 118 To establish a voidable preference under s 588FA(1), it is necessary for the plaintiff to prove that the party to the impugned transaction was a creditor of the insolvent company at the start of the transaction and that the creditor got an unfair preference as a result of the transaction. There is no preference where payment is made for services of equivalent value and it is the "quintessential pre-requisite" of a transaction to be avoided as a preference that it be in respect of an existing debt: see Mann v Sangria Pty Ltd (2001) 38 ACSR 307; [2001] NSWSC 172 per Bryson J at [31]-[32] and Re Employ (No 96) Pty Ltd (in liq) [2013] NSWSC 61 per Black J at [37] -[42] and the cases there cited. A prepayment to a person who is not a creditor is not an unfair preference: VR Dye & Co v Peninsula Hotels Pty Ltd (in liq) [1999] 3 VR 201; (1999) 150 FLR 307 at [25]-[26]. 119 I accept Mr Golledge's submission that the "transaction" under consideration comprises the execution by Tamaya of the New Mandate and the payment of the upfront fee of $27,500 (GST inclusive). I do not accept an argument put by Mr Newlinds that entry into the contract created a debtor-creditor relationship pursuant to which Tamaya made a payment to its creditor of the upfront fee. Although the New Mandate has been reduced to writing, I accept that the payment of the upfront fee is an exchange for Claymore's agreement to provide services so that the payment was not made in relation to a pre-existing debt. I also do not accept an alternative suggestion in the plaintiffs' outline of opening submissions in reply that the payment of the upfront fee "must have" been credited against outstanding amounts for services already rendered: the plaintiffs offered no evidence to support that proposition. 120 It is incontrovertible that, through no fault of Claymore's, Tamaya ultimately received nothing which it was able to turn to use or divide among its creditors for the payment of $27,500. Mr Newlinds accepted that there can be no preference in the case of genuine prepayments, for instance, where a barrister gets a fee in advance and does the work because the corporate client and its creditors have the benefit of the work. However, he submitted that it was artificial to apply that principle to this case because no service was actually provided by Claymore, and the ultimate effect was that the creditors were worse off. 121 Mr Newlinds suggests that this is fatal, relying on the High Court's decision in Airservices Australia v Ferrier (1996) 185 CLR 483 which dealt with a running account. At 502-503, Dawson, Gaudron and McHugh JJ said (footnotes removed): Thus, where the payment is a step in a wider transaction, "its actual business character must be seen and when it forms part of an entire transaction which if carried out to the intended conclusion will leave the creditor without any preference priority or advantage over other creditors the payment cannot be isolated and construed as a preference". If the purpose of a payment is to secure an asset or assets of equal or greater value, the payee receives no advantage over other creditors. The other creditors are no worse off and, where the value of the assets has increased, they are actually better off. Thus, a debtor does not prefer a creditor to the other creditors if he or she pays a debt, or part of it, to induce the creditor to supply goods of equal or greater value than the amount of the payment. In that situation, it is of no relevance that the debt that is discharged happens to be a stale one. If the present value of the goods supplied is equal to or greater than the payment, the other creditors are no worse off. They are in the same position that they would have been in if the parties had so structured the transaction that the debtor paid for the new supply of goods instead of discharging the old debt. Thus, a customer does not prefer his or her banker to other creditors where, pursuant to an antecedent arrangement between the banker and its customer, the customer deposits money to meet a liability already incurred in respect of specific cheques that the banker has met on the faith of the arrangement. 122 Before this quoted passage, Dawson, Gaudron and McHugh JJ said at 502: To have the effect of giving the creditor a preference, priority or advantage over other creditors, the payment must ultimately result in a decrease in the net value of the assets that are available to meet the competing demands of the other creditors. and footnoted Re Discovery Books Pty Ltd (1972) 20 FLR 470 at 475 per Fox J: "one must ultimately come back to considering whether by reason of the payment, or dealing, there is less money available for the general body of creditors." 123 Putting to one side the issue that Claymore was not Tamaya's creditor in relation to the payment of the upfront fee, I do not accept Tamaya's argument based on ultimate effect. It is true that the upfront fee is not a prepayment in the sense considered by Ormiston JA in VR Dye & Coy v Peninsula Hotels at [34]; it has no requirement to be accounted for against the delivery of a good or service; it is a fee for entering into the contract at all. 124 While such payments are undoubtedly potentially a drain on an insolvent company's resources, a genuine upfront fee performs the same function as a prepayment: it encourages the preservation of the business of the insolvent company by encouraging commercial dealings with it and thereby potentially the return to creditors generally when the business is sold. An uncommercial fee amounting to a simple gift might be impugned as an uncommercial transaction: the upfront fee in this case has not been impugned on that basis. In my view nothing turns on the fact that in this case no services were ultimately provided. There are many occasions on which a good or service acquired for fair value by an insolvent company may turn out to be of no value: the classic example is the purchase of an apple worth a dollar for a dollar. It is a wasting asset but its purchase by an insolvent catering company would not be impugned because the apple shrivelled and had to be thrown out before it was onsold. Insofar as the cases talk about the purchase of goods of "equivalent value", I accept the remarks of Ormiston JA in VR Dye & Coy v Peninsula Hotels at [36] as being applicable in this case: …a precise evaluation of services and goods provided can never be made satisfactorily and, unless there be some dishonest attempt to overvalue the particular goods or services, they ought for practical purposes to be taken as having been received at face value, that is, at the value at which the company agreed to acquire them.

Conclusion 125 I will order that Claymore repay the third payment to Tamaya. 126 I will hear the parties at a time convenient to them on the issue of costs, the time from which interest should be calculated (if any) and as to the form of the orders. 127 I otherwise dismiss the application. I certify that the preceding one hundred and twenty-seven (127) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Farrell.

Corporations Act 2001(Cth)ss 95A, 588FA, 588FC, 588FE, 588FF, 588FG

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