This is an interlocutory strike out application by the defendants under their application of 16 May 2018.
The application challenges paragraphs within the plaintiff's statement of claim of 26 March 2018 as failing to disclose an arguable cause of action or as embarrassing. Alternatively, the defendants seek better particulars in respect of some answers given by the plaintiff on 3 May 2018 (but contended to be inadequate).
[2]
The plaintiff, Mr Frank Cullity Wilson (Mr Wilson), is the former managing director of Quintis Ltd (Quintis). He held that position and, by reason of it, his membership on the board of Quintis until March 2017.
As plaintiff, Mr Wilson now sues for defamation over two 2017 publications that were issued by Quintis and which then appeared on an Australian Stock Exchange (ASX) electronic media broadcasting service. Essentially, Mr Wilson relies on true innuendo meanings argued by him to be pejorative against him and arising, he argues, from the two publications.
Mr Wilson's grievances are essentially based on true innuendo meanings grounded upon the asserted knowledge likely to be held by readers of financial publications or by persons who are followers of the financial media in Australia.
By this defamation action, Mr Wilson pursues not Quintis but, rather, the residual directors of that corporation. These are the persons who as directors constituted its board following his departure. Mr Wilson sues in respect of alleged republications of what was first published by the ASX.
The heart of Mr Wilson's defamation grievances uniformly rest upon a contention of fact by him and which he founds all his imputations upon.
The negative fact premise contended by Mr Wilson is that he says he, as managing director of Quintis at the time, did not know of certain events which happened overseas in December 2016. These were events concerning a wholly owned subsidiary corporation of Quintis in the United States of America and concerning the consensual termination of a subsisting supply contract as between the Quintis subsidiary and another overseas corporation. The premise of all his defamation grievances against the two publications is that he says they suggest (falsely, as he would have it) that he did know of those contract termination events around the time they happened.
Hence, the negative fact for which Mr Wilson implicitly contends is his asserted benign lack of any knowledge about such contract termination events of December 2016.
Mr Wilson's asserted lack of knowledge is, on the face of it, somewhat surprising. If anyone in the Quintis organisation should have known about a consensual termination of a supply contract held by a wholly owned Quintis subsidiary, then surely Mr Wilson, as managing director of Quintis at the time, would be expected to have known. Mr Wilson was also at that time one of two Quintis directors who also sat as appointed directors of that Quintis (USA) subsidiary corporation, namely, Santalis Pharmaceuticals ('Santalis'). Mr Gooding was also a director of Santalis. Yet Mr Wilson's whole case is built on his declared stance that he knew nothing of these contract termination events with Santalis and that not to accept his denial assertion at face value defames him.
But even making the assumption that the two publications complained of could be read to say (or infer) that Mr Wilson held knowledge at the relevant time about such consensual termination events concerning Santalis and its supply contract to deliver pharmaceutical grade East Indian sandalwood to a subsidiary of Nestlé Corporation (namely, Galderma) - is not enough to be defamatory of Mr Wilson. More is needed to deliver some arguable damage against Mr Wilson's reputation. Whether Mr Wilson knew about such matters or not by itself is only the starting point before more ingredients.
Sometimes a publication of a mere fact, by itself, will be enough to constitute something that is defamatory of someone's reputation or character; for instance, to write that X murdered Y, or that X stole from Y, or that X suffers from some sort of communicable disease. That would be enough to defame given the nature of the underlying fact. But here, the fact contended for by Mr Wilson (ie, his asserted personal lack of any knowledge about the supply contract termination events and his position that the publications can be read to suggest the opposite) needs more to render them defamatory of him. His knowing or not knowing of such events only poses the question: so what? That seems to be accepted as a matter of principle, once the imputations Mr Wilson complains of are examined.
Consequently, there emerges here a correlative importance in showing an existence of some further knowledge in some readers of the financial media, holding the extra knowledge, as is contended for by Mr Wilson. That 'something more' presents as an essential further ingredient of Mr Wilson showing something arguably pejorative about him arising out of both publications and potentially impacting against his reputation (in the alternative, Mr Wilson does contend for the natural and ordinary meanings arising out of the pure text of the second publication read alone - however, these contended false innuendo meanings are wholly untenable, without the extra facts held by a reader as the alternate plea of true innuendos on the second publication essentially reflects).
So, merely suggesting a contrary position against Mr Wilson's benign fact premise (his absence of any knowledge) in the first and second publications, as a meaning, is not enough, by itself, to be pejorative. Even if his absence of any such knowledge is assumed in his favour, more is still needed to potentially damage his reputaton. The missing ingredient, alleges Mr Wilson by his pleading, is found in the alleged further knowledge held by some readers of the financial media. This extra alleged knowledge is contended to be to the effect that Mr Wilson, as managing director of Quintis at the time, in effect, failed in his duties and responsibilities to Quintis, to the market and to Quintis shareholders or others - by his not causing Quintis to timeously disclose this (known to him) information to the ASX and the market. His (alleged) lack of disclosure (mis)conduct is the further key to the alleged wounds Mr Wilson says he suffered from these two publications.
To summarise then in what is an unusual series of defamation grievances, Mr Wilson starts at his factual premise that he did not know anything about these overseas events. He then suggests the two challenged publications will be read to contend to the contrary - namely, that he did know of the supply contract termination events. Even that position, by itself, is not enough to harm his reputation. More is needed. It is found in the extra knowledge, he argues, of sophisticated readers of the financial media - who he says would know of ASX market disclosure obligations incumbent upon directors of publicly listed companies, particularly upon managing directors. Hence, it is, in the end, the combination of the published text conveying or suggesting his affirmative knowledge of such events plus the extra knowledge held by some readers, that together generates true innuendo pejorative meanings which impacted against his reputation, or so he argues.
Putting aside for a moment the knowledge of the contended extra facts said to be held by or known to readers of the financial media, the starting premise of these defamation grievances is always that the publications suggest (wrongly, he says) that Mr Wilson did know about the termination events. The second ingredient is then added, which is that he did not cause Quintis to make these matters widely known to the market at the time he knew of them.
The wider public revelation to the ASX of the supply contract termination events only happened much later - when the residual board member of Quintis caused it to issue what are the first and second publications of 10 May and 6 June 2017 - and about which Mr Wilson complains. But the foundational cornerstone of all his defamation complaints is always that the two publications suggest (falsely, Mr Wilson says) that he did know about the termination events and knew at or about the time that they occurred in December 2016.
[3]
The two publications read by persons with financial insight
[4]
As I have said, concerning a person holding a position of managing director of a publicly listed corporation like Quintis and also as a board member of the USA subsidiary, Santalis, a sophisticated reader of the financial media would likely have some questions. Would not a managing director be appraised of significant events such as a consensual termination of a potentially valuable supply contract held by a subsidiary?
The outsider's expectation as to insight of significant events might be rebuttable. But the initial questions would surely present to be addressed in the mind of an informed financial media reader.
So the first question is, may the two publications be fairly and reasonably read as carrying the meaning that Mr Wilson did know of the termination events, whilst he was still managing director of Quintis (then, correlatively, that he took no steps to timeously cause Quintis to disclose this information to the market)? So that base enquiry is called for as the outset as to whether, fairly read, the two publications can be understood at the objective defamation standard of a reasonable reader, not avid for scandal, to convey or suggest or infer that Mr Wilson knew of the termination events proximate to when they happened in December 2016?
By my assessment, the answer to that basal question is a firm 'No'. The two publications released by Quintis are carefully worded. The publications both speak only of the lack of knowledge in the 'current' board of Quintis about the termination events - until May 2017, when the first ASX publication was issued (recalling that the current board of Quintis at the time of the first publication and thereafter was the same as the former Quintis board, minus Mr Wilson, who was removed in March 2017). The Quintis subsidiary consensual supply contract termination events happened as regards the Quintis subsidiary, Santalis, and the Nestlé subsidiary, Galderma, in December 2016.
The Quintis releases made to the ASX in May and June 2017 are the first and second publications complained of by Mr Wilson vis-à-vis the residual individual directors of Quintis. They said only that the then current board members did not know of such (December 2016) supply contract termination events - until May 2017. At that time the statement to the ASX only spoke about the state of their negative knowledge of these events. They said nothing at all about the state of Mr Wilson's knowledge - as the former managing director of Quintis. An adverse level of meaning against Mr Wilson on the issue of his knowledge can only be reached by reading between the lines, if it is fair and reasonable to do so.
Mr Wilson can speak for himself as to the state of his knowledge about the termination events. It is made explicit by his pleading that he contends that he also did not know of those events at the time they happened - thereby it would seem equating himself to the other Quintis board members in terms of a position that, in effect, none of the directors of Quintis knew of such events at the time they transpired, curious as that position of total ignorance might all seem at first blush.
But just as Mr Wilson relies on the extra knowledge of financial media readers to know of a listed corporation's disclosure obligations, he must also expect that the very same sophisticated financial media readers would hold some initial level of curiosity or expectation concerning what a managing director of a publicly listed corporation should know about the day to day affairs and of the activities of that corporation and of its subsidiaries. That would include the affairs of wholly owned overseas subsidiaries (of which Mr Wilson was also a director) as regards possibly valuable supply contract rights held by that subsidiary and especially about any consensual termination agreement entered by the subsidiary with the entity to whom it had formerly contracted to supply its product.
On my assessment, for a hypothetically reasonable reader of the financial media to reach a view that Mr Wilson did know about the contract termination events whilst managing director, the reader would need to leap to a pejorative conclusion against Mr Wilson going well beyond the text of the two publications. They would need to read them as inferring a state of Mr Wilson's affirmative knowledge about such termination events. In my view, they do not carry that meaning, read reasonably, either expressly or implicitly.
The two publications merely leave the state of Mr Wilson's knowledge about the termination events at the time they happened, open as regards Mr Wilson, ie, there is no view one way or the other expressed about Mr Wilson's knowledge by the residual board members of Quintis within these two publications.
That position of neutrality as regards the state of Mr Wilson's knowledge, on my assessment, is the objective and reasonable reading of those publications. No view is expressed about it one way or the other, in either publication. Any extrinsic knowledge held by readers of the financial media about the disclosure obligations of directors of publicly listed corporations would not add to or detract from that assessment. They, because of their sophistication and business insights, may have questions and be curious about Mr Wilson's knowledge. But knowledge about disclosure obligations concerning material events will only become relevant once it is assumed that such knowledge was relevantly held by someone under a disclosure obligation.
The analysis invariably reverts to the starting enquiry about what the two publications say, when fairly read, about Mr Wilson's knowledge on this issue. They say nothing about it at all. That textual assessment is inconsistent with Mr Wilson's founding premise underlying all his defamation grievances.
[5]
As mentioned, Mr Wilson's statement of claim alleging defamation against the defendants, is directed at two Quintis publications to the Australian Stock Exchange (ASX). Each is then pleaded to have been republished.
The first publication was made to the Market Announcements Office (MAO) of the ASX via an electronic lodgement facility with ASX online, on 10 May 2017. This was released to the (Australian) stock market by Quintis that day. I set out the full content of this electronic publication at Schedule A to these reasons (taken from par 8 of Mr Wilson's statement of claim).
The first publication is referred to as the '10 May 2017 Announcement'. By par 9 of the statement of claim it is next pleaded to have been republished after release from the MAO.
From the MAO it is said the announcement was released onto an 'ASX Market Announcements Platform (MAP)'. From there, it is pleaded (at par 9) the 10 May 2017 Announcement:
[6]
... thereby became, and at all material times since has been, accessible and capable of being downloaded and read, inter alia, via:
9.1 the website of the ASX, under the URL www.asx.com.au (ASX Website);
9.2 websites operated by subscribers to ASX datafeed services displaying ASX announcements;
9.3 equity market trading platforms including IRESS, ThompsonReuters, Bloomberg and Morningstar;
[7]
Hence, it is pleaded that the 10 May 2017 Announcement was widely 'republished to persons who accessed it on, and downloaded it from, the MAP or otherwise'. Mr Wilson pleads that particulars of the extent of republication will be provided following the issue of third party subpoenas.
Six preliminary observations can be made regarding Mr Wilson's statement of claim concerning the first publication (and republication):
[8]
(a) the publication grievance pleaded against each of the five defendants, as current directors of Quintis Ltd, is that they 'authorised and approved' the 10 May 2017 Announcement to the ASX and therefore authorised, approved and intended its republication on the MAP (see par 11 statement of claim). In fact, it was Quintis the corporation that actually published this announcement. The defendants, as Quintis directors, are challenged essentially for their secondary involvements in what was published by their corporation: see Smith v Marshall [2014] WASC 185 [47(c)], [48];
[9]
(b) the ASX website informed persons accessing and reading the 10 May 2017 Announcement that its content was designated 'price sensitive' (see pars 10 and 12.4 of statement of claim). The issue of price sensitivity of the information is of contextual importance;
[10]
(c) Mr Wilson says it was a natural and probable consequence of the first publication that it would be republished by ASX on the MAP, with a designation that its content was 'price sensitive'. The basis for that contention as regards a designation of 'price sensitivity' is set out under the four subparagraphs of par 12;
[11]
(d) four defamatory imputations are argued to arise from the 10 May 2017 Announcement and its republication which are found in par 19 of the statement of claim - under subparagraphs 19.1 through 19.4. But the imputation under par 19.3 is no longer pressed, it, having been conceded by Mr Wilson, to be indefensible against the strike out application prior to the hearing;
[12]
(e) the 10 May 2017 Announcement is only contended to be defamatory of the plaintiff by way of true innuendo meanings. In other words, the natural and ordinary meaning of its words read alone is not contended to carry any pejorative defamatory meaning against Mr Wilson. In fact, the 10 May 2017 Announcement does not even render any overt reference whatsoever to Mr Wilson as a matter of his identification within its text. Hence, some further extrinsic facts are relied upon, both as to the alleged identification of Mr Wilson and as to the three allegedly pejorative defamatory meanings still contended for under par 19.1, par 19.2 and par 19.4;
[13]
(f) as regards Mr Wilson's alleged identification, par 17 contends that persons reading the 10 May 2017 Announcement on the ASX MAP were aware of matters as identified under pars 17.1 and 17.2. It is necessary to closely examine all these extrinsic facts relied upon to support Mr Wilson's alleged identification. I would observe however, and it is one of the defendants' complaints, that no particulars are given of any persons said to be possessors of knowledge of those identification extrinsic facts as contended for under par 17.
[14]
It is convenient at this point to divert to set out the content of pars 17.1 and 17.2, dealing with the contentious issue of Mr Wilson's alleged identification in the first publication.
[15]
The plea of extrinsic facts relied upon going both to support the argued identification of Mr Wilson and to support the argued defamatory (true innuendo) pejorative meanings under par 19, presents in these terms:
Persons reading the 10 May 2017 Announcement on the ASX market announcement platform [MAP] were aware:
[16]
17.1 that the plaintiff was managing director of Quintis at the time of the purported termination of the licensing and supply agreements between Quintis's wholly owned subsidiary Santalis Pharmaceuticals (Santalis) and Galderma, a subsidiary of Nestlé (Galderma) (Galderma Licensing and Supply Agreements) on 16 December 2016;
17.2 that as at 9 May 2017 the plaintiff was no longer a director of Quintis, and was not a current member of either the Board or a member of the senior management of Quintis;
....
[17]
The defendants contend that a close review of pars 8, 17 and 19 in the statement of claim show that the pleading fails to properly allege that the first publication was a publication made 'of and concerning' Mr Wilson. Mr Wilson is certainly not expressly mentioned within the publication: see schedule A.
However, I am of the view that whilst not identifying Mr Wilson under any natural and ordinary meaning, if there were proved to be a person or persons holding knowledge of the extra extrinsic facts under par 17.1 and/or par 17.2, they may well be justified in drawing an identification inference towards Mr Wilson. That is my interlocutory assessment predicated only upon showing respectable arguability. Whether it is a conclusion as to Mr Wilson's identification capable of being established by him on the balance of probabilities at a trial, is a distinct and later question.
I reach that conclusion on identification largely from the textual double use of the word 'current' - found in the penultimate and antepenultimate paragraphs of the first publication (highlighted in bold in schedule A). The antepenultimate paragraph reads:
[18]
Prior to yesterday's advice [at 9 May 2017], the fact and details of the contract termination had not been provided to current members of both the Board of Quintis and its senior management (outside of Santalis).
[19]
The distinction as between the current members of the Quintis board, from an earlier and differently constituted Quintis board, again manifests in the following paragraph, which reads:
[20]
'It is unacceptable that the current Board was not made aware of the contract termination when it took place. We are taking immediate and appropriate measures to ensure that this type of communication breakdown is not repeated.'
[21]
By my interlocutory assessment, the chosen differentiation as between differently constituted boards of Quintis at different times, effected by a double use of the word 'current' in these two paragraphs, is arguably significant to a meaning that carries the identification of Mr Wilson -but only to persons with extra historical knowledge about the affairs of Quintis. Persons (readers) knowing the only substantive compositional difference in the constitution of the Quintis board between December 2016 and at 10 May 2017, was that Mr Wilson was gone may identify him. Mr Wilson, as former managing director of Quintis, had been a member of the board of Quintis at relevant times up until 27 March 2017. Knowledgeable readers may be in a position to make the connection to Mr Wilson in that overall context. The five named defendants (see pars 2 6 of the statement of claim) were all Quintis directors over the entire period (as alleged). They remain so. The only relevant non-current member of the board of Quintis at 10 May 2017, was Mr Wilson. On that basis, he was arguably identified by implication only to persons holding that historic board composition knowledge.
The current Quintis director defendants would be read from the text of the first publication to be saying that prior to 9 May 2017 they had not been provided with any facts and details about a consensual supply contract termination (effected as between Santalis and Galderma with which Santalis had entered into a sandalwood oil supply contract).
With the current/non-current identification link made by differentiation back to Mr Wilson by the extra knowledge held in some readers, a vital next question then presents. Can it then be argued that the 10 May 2017 Announcement by Quintis, read by persons with that knowledge about the compositional make-up of the Quintis board over time, might also reasonably infer that the first publication was also implying that Mr Wilson, as the noncurrent director and former managing director of Quintis, did know of the 16 December 2016 consensual termination of the supply agreement between Santalis and Galderma, effective from 1 January 2017 (when Mr Wilson was still then the managing director and thus a member of the board of Quintis). In short, I consider that meaning goes a step too far.
The May 2017 Announcement only speaks explicitly as to the state of knowledge of such matters by the current Quintis board. Those persons could not reliably speak then to the ASX then as to Mr Wilson's level of knowledge on this issue back around December 2016. Only Mr Wilson could do that. Only he could reliably say what the state of his mind was at that particular time. The text differentiates, I accept, the position of Mr Wilson as a former director from the position of the other members of the current Quintis board. But in so differentiating, it does not go any further to affirmatively say, or even suggest to the ASX, that Mr Wilson, unlike them, did know of the December 2016 termination events. The more neutral and more reasonable middle position is that the current Quintis board simply did not know one way or the other, the position as regards Mr Wilson, and were only speaking for themselves at that time. What Mr Wilson knew back in December 2016 only Mr Wilson could reliably say, if asked by the ASX. However, very properly the current board of Quintis in May 2017 did not then purport to speak for Mr Wilson as a former board member on the issue of his knowledge in communicating to the ASX on that topic.
I now turn to look at some other challenges more closely.
[22]
The true innuendo meanings as seen under par 19 of Mr Wilson's statement of claim are pleaded to be supported by the further extrinsic facts given under pars 17.3 and 17.4.
The further subcomponents to par 17 of the statement of claim are in the following terms (ie, going beyond the mere alleged identification of Mr Wilson):
Persons reading the 10 May 2017 Announcement on the ASX market announcement platform [MAP] were aware:
[23]
....
17.3 of the matters pleaded in paragraph 7 of the statement of claim;
17.4 that Quintis had a legal obligation to inform the ASX and the market of matters that may be price sensitive as soon as it became aware of them, and therefore (in the premises of paragraph 10 hereof) had a legal obligation to inform the ASX and the market of the matters the subject of the 10 May 2017 Announcement, as soon as it became aware of them.
[24]
Since they are incorporated by reference I need to mention par 7 and, beyond that, par 10 of the statement of claim.
Mr Wilson's plea via par 10 argues that persons accessing and reading the 10 May 2017 Announcement on the ASX site were informed its content was designated 'price sensitive'. That price sensitivity designation is then linked to his following assertion concerning Quintis' legal obligations to disclose such price sensitive information to the marketplace, as soon as Quintis became aware of that information.
The par 17.3 incorporated by reference plea from par 7 raises the legal disclosure obligation of Quintis as a public corporation whose securities were listed for quotation on the ASX and which was bound by ASX listing rules. Relevantly, par 7.3 pleaded that Quintis was:
[25]
7.3 obliged, pursuant to the ASX Listing Rules and the Corporations Act, once it was or became aware of any information concerning it that a reasonable person would expect to have a material effect on the price or value of its securities, immediately to inform the ASX of that information.
[26]
More extrinsic facts relied upon to support the true innuendo pejorative meanings argued for by Mr Wilson via par 19 are pleaded. The meanings are said to be supported by a specific reader's likely knowledge about the par 7.3 disclosure obligations of Quintis, concerning price sensitive information to the market.
The text of the 10 May 2017 Announcement assessed along with such assumed knowledge residing in a person or persons about the asserted extrinsic facts as to Mr Wilson's identification and Quintis' market disclosure obligations concerning price sensitive information, is said to support the pressed pejorative imputations against Mr Wilson, seen under pars 19.1, 19.2 and 19.4.
The defendants launched their strike out challenges against all those meanings by two main levels of attacks. First was on the basis of the 10 May 2017 Announcement: it was argued that even if assessed (hypothetically), accepting that some readers had extra knowledge of the extrinsic facts as contended for under par 17 (if proved), it was still not capable of carrying any arguable defamatory meaning against the character or reputation of Mr Wilson. Hence, there is no reasonable cause of action, it is put, and the pleas should be struck out.
As I have said earlier, I would accept in the end that the plenary defective plea challenge is made out, largely by reason of the embedded premise of Mr Wilson in each implication as to the positive state of his knowledge - which I find is simply not there to extract - when read reasonably. This is the premise that the two publications arguably can be read to say that Mr Wilson knew of the termination contract events with Santalis, when he says he did not. I consider a reasonable reader, even holding the extra knowledge, would only read the 10 May Announcement to say that the current board spoke only for themselves and did not express a view one way or another about the state of Mr Wilson's knowledge of such events at the time. Mr Wilson would be the person to reliably address an issue as to the state of his own knowledge at a particular time when he was still the managing director of Quintis.
The second (lesser) tier of legal challenges was put against the formulation of each of the true innuendo pleas, by reason of various asserted formative deficiencies including their asserted multifaceted complexity, unintelligibility, internal inconsistency and their general failures overall to crisply capture an essential sting out of the publications against Mr Wilson.
As I explain, the second tier of form criticisms directed against the three surviving par 19 imputations must be accepted. The consequence is that they must be struck out, but with leave to amend. The greater problem, however, is at the higher level - namely, the failure in the text to carry, even assuming the alleged extra knowledge in some readers, the arguable meaning that Mr Wilson did know of the consensual supply contract termination events, at the time they had happened. The publications are simply not open to being reasonably read that way, other than to a reader 'avid for scandal', in my assessment.
The assessed par 19 imputations as a matter of form also do not capture with requisite clarity (or sufficient differentiation) a pejorative sting or stings which arguably manifest vis-à-vis Mr Wilson.
I turn to more closely examine the three imputations from that perspective.
[27]
First publication: three true innuendos under the 10 May 2017 Announcement: bad in form
[28]
Relevantly, par 19 of the statement of claim reads:
[29]
The 10 May 2017 Announcement by reason the extrinsic facts known to its readers pleaded in paragraph 17, meant and was understood to mean that the plaintiff;
19.1 despite knowing of the purported termination of the Galderma Licensing and Supply Agreements, failed to disclose such information to the Board of Quintis or the ASX when he should have disclosed such information;
19.2 by his failure to ensure Quintis promptly announced to the ASX and the securities market the information which he possessed whilst he was its managing director about the purported termination of the Galderma Licensing and Supply Agreements, had caused Quintis to breach its legal obligations as a public listed company;
19.3 ... (not pressed)
19.4 by his failure to inform the board and senior management of Quintis or to ensure they were informed whilst he was its managing director about the purported termination of the Galderma Licensing and Supply Agreements, had failed in his responsibilities to the public listed company of which he was managing director, its directors and senior management.
[30]
I essentially accept the submissions of the defendants concerning what are multiple difficulties of form with pars 19.1, 19.2 and 19.4. First, there is no crisp pejorative imputation that is discernible. What presents above is wordy and prolix. Attempting to explain in simple terms the 'stings' against Mr Wilson's reputation that he is complaining about to a civil jury would, I assess, pose a near on impossible task. Likewise, distinguishing as between the finest of fine nuances between all the different grievances assembled and lumped together under pars 19.1, 19.2 and 19.4, would be too challenging. And as I observed during the oral argument, an unhelpful use of the word 'purported', deployed against the asserted termination of the Galderma Licensing and Supply Agreements, only injects even further levels of uncertainty of meaning, irrespective of motivations that underlay that word's use.
I add some more general observations.
First, it is, in effect, accepted by Mr Wilson that some extrinsic facts he has identified, need to be injected into what is an arguable equation - as regards his identification and then a finding of pejorative meanings against him from the 10 May 2017 Announcement. That starting position is implicitly recognised by the fact that all his argued meanings in the first publication are not contended to arise on the natural and ordinary meaning of the words of the text of this publication assessed alone.
Second, the foundational premise in each of the three par 19 imputations, is that Mr Wilson, as former managing director of Quintis (until his removal on 27 March 2017), did not know about any of these contractual formation events. Hence, the defamation wrong against his reputation, as he would have it, is to (falsely) say first that he did know about these events at the time, but then, that he also wrongly did not disclose to any of his other fellow board members or others. These were events concerning the consensual termination of licensing and supply agreements under an agreement entered as between Santalis and Galderma on 16 December 2016, taking effect from 1 January 2017.
The same foundational premise towards his lack of any knowledge about those events at the time (effectively equating his no knowledge position to that asserted by the other Quintis current board members at 10 May 2017) is also explicit under Mr Wilson's particulars of aggravated damages at par 21. That plea addresses, albeit in that different context, what Mr Wilson says he allegedly told the first defendant, Mr Matthys, in a telephone conversation on 9 May 2017: see particulars A, B and C. But the fact Mr Wilson said that to someone at that time does not make it so as a reliably established fact.
The position for Mr Wilson under all his argued imputations appears to be one by which he says factually that because the current and former board members were then uniformly saying that they know nothing at the time about a consensual termination of the Santalis/Galderma agreement of 16 December 2016, they accordingly knew of nothing they might have relevantly disclosed. On its face, that presents as a somewhat curious premise, given that it also emerges elsewhere that the directors of the Quintis USA subsidiary, Santalis, at the time of the termination events in December 2015 were Mr Wilson and Mr Gooding (see aggravated damages particulars [21F(i) (iii)].
Mr Wilson's associated next premise is that the May 2017 Announcement reads or suggests to the contrary. But without more, even if it is assumed the text could be read as suggesting Mr Wilson did have knowledge of the December 2016 termination events around that time, even that affirmative knowledge would not go far enough as regards Mr Wilson being arguably defamed by the May 2017 Announcement.
The extra ingredient lies in the alleged failure of Quintis (then under the stewardship of Mr Wilson) to make a timeous public disclosure about the termination events, in the face of Mr Wilson's (hypothesised) affirmative knowledge of them.
Currently, the par 19 imputations present as convoluted and muddled. They do not engage at a sufficient level of analysis against what is required in terms of them ultimately distilling in clear terms the 'wound(s)' said to be inflicted upon Mr Wilson's character or reputation.
[31]
I now turn to the second publication which is addressed under par 14 of the statement of claim. For convenience, I have set it out in schedule B to these reasons.
This is a long communication. In the end, only very few parts are raised as potentially relevant to the argument that it might be read to be defamatory against Mr Wilson. Again the defamation plea suffers from the same plenary structural deficiency - as to its embedded assumption that is saying or suggesting something affirmative about the state of Mr Wilson's knowledge about the consensual supply contract termination events - when it does not do that either explicitly or impliedly. Fairly read, the second publication is silent on the issue of Mr Wilson's knowledge, and understandably so, since the board of Quintis was then (June 2017) in no position to reliably speak to the ASX about the state of mind of Mr Wilson at the earlier time.
[32]
Publication to ASX of 6 June 2017 - par 14 of the statement of claim
[33]
The overall structure of Mr Wilson's second defamation publication grievances presents as similar in structure to the May 2017 Announcement - namely by a plea of publication by Quintis to the ASX (but in response to the ASX's 10 May 2017 Query Letter to Quintis, as referred to par 13 of the statement of claim).
Again, the defamation challenge is not directed at Quintis the corporation but rather, at the conduct of its directors in authorising this publication.
Having pleaded the publication to the ASX under par 14, the ensuing par 15 of the statement of claim pleads that the MAO released the 6 June 2017 Announcement onto the MAP - with associated accessibility and capability outcomes of such an electronic publication as are identified under pars 9.1 through 9.3.
Subparagraphs 15.1 through 15.3 replicate, in effect, pars 9.1 through 9.3 of the statement of claim. Similarly, it is contended the 6 June Announcement was 'thereby republished to persons who accessed it on, and downloaded it from the MAP'.
Again, the 6 June 2017 Announcement was made by Quintis (signed by its then chief executive officer, Mr Matthys). The alleged responsibility of the defendants under par 16 of the statement of claim is that they authorised and approved its publication and its republication: see particulars under pars 16A and 16B. That authorisation legal responsibility contention does not appear to be challenged on this application by the defendants.
More extrinsic facts held by readers are then pleaded under par 18, as regards the 6 June 2017 publication. In addition to some new facts, there is incorporated by reference (see par 18.2) the earlier seen four extrinsic facts - identified under par 17. These facts are alleged once again for the second publication.
The first of the extrinsic facts that is specific to the second publication is said to be known by 'persons reading the 6 June 2017 Announcement'. This is simply their alleged knowledge of the making and content of the (earlier) 10 May 2017 Announcement.
Next, and of a greater significance, however, are new extrinsic fact pleas seen under pars 18.3 and 18.4, contending:
[34]
Persons reading the 6 June 2017 Announcement were aware:
18.3 that on the day of publication of the 10 May 2017 Announcement on the ASX market announcement platform, [ie the MAP it is assumed,] and on the trading days that immediately followed its publication, the price of Quintis shares fell significantly, on large volumes of shares traded;
18.4 because the share price of Quintis on the day of and the days immediately following the publication of the 10 May 2017 Announcement until trading in Quintis securities was halted on 15 May 2017 fell significantly, the making of the 10 May 2017 Announcement had apparently caused the significant falls in the share price of Quintis;
[35]
There follow some particulars about trading in Quintis shares for par 18.4 over the period 10 May through 15 May 2017 - when trading was halted.
A last (fresh) extrinsic fact relied upon towards the second publication reads:
[36]
18.5 that at the time of the 6 June (2017) ASX Announcement, trading in Quintis shares remained suspended.
[37]
There is little difficulty discerning a respectable level of arguability in the aspects of knowledge contended for - in a relatively dedicated or sophisticated reader of the financial media at 6 June 2017, in relation to the Quintis related matters as contended for under par 18.1, par 18.2, (possibly par 18.3) and par 18.5.
However, what is essentially a causation consequences plea seen under par 18.4 is far too extravagant, on my assessment. That plea extends well beyond merely asserting a bare extrinsic fact known to a person or persons. It argues for a contention about apparent causation for the events of the falls in the share price of Quintis between 10 and 15 May 2017. That appears to be a matter of a speculative causation opinion or argument, rather than a true (innuendo) extrinsic fact known to someone. It is an illogical plea and should be struck out.
Turning to the actual alleged imputations pleaded under par 20 of the statement of claim as arising out of the second publication, there are five: see pars 20.1 through to 20.5. But imputation 20.4 was, in the end, not defended.
Of the four pressed imputations alleged to arise from the second publication, all are challenged - on a similar basis to the imputations seen earlier from the first publication. It may immediately be discerned that imputation 20.1 in its structure is almost equivalent to imputation 19.1, concerning the first publication (10 May 2017 Announcement). It is similarly flawed as a matter of form.
Likewise for 20.2, it is almost equivalently structured to 19.2. It suffers from the same deficiencies in form.
Imputation 20.5 can be seen to be similarly constructed to 19.4, with a few end variations. It also is inherently flawed as a matter of form.
There is a further second publication imputation presenting as 20.3. This is unique. It reads:
The 6 June 2017 Announcement in its natural and ordinary meaning, alternatively by reason of the extrinsic facts known to its readers pleaded in paragraph 18, meant and was understood to mean that the plaintiff:
[38]
...
20.3 [by his failure] to ensure Quintis promptly announced to the ASX and the securities market the information which he possessed whilst he was its managing director about the purported termination of the Galderma Licensing and Supply Agreements, had caused serious damage to the interests of Quintis and its shareholders;
[39]
Again, this presents as a multifaceted and unduly obscure plea, which is embarrassing. It must also be struck out as a matter of form. A civil jury pondering over it would be left to guess without guidance about what is really being argued as allegedly pejorative against Mr Wilson's character or reputation.
Furthermore, in theoretically evaluating whether a plea of justification might be put to answer this imputation, the defendants would need, theoretically, to grapple first with its implied assertion as to Mr Wilson's lack of any knowledge concerning the termination events of December 2016, as regards Santalis and Galderma, along with multiple extra ingredients.
[40]
An unacceptable obscurity emanating from the contended 'purported' termination, as opposed to an actual contractual termination of the supply agreements, is once again an evident problem.
[41]
The alleged so-called serious damage supposedly caused to the interest of Quintis is also unclear - possibly by an alleged drop in its share price. But why would a drop in the share price of Quintis deliver any relevant damage to Quintis as a public corporation (unless it owned shares in itself) as opposed to damaging the distinct interests of persons who owned the shares in Quintis?
[42]
The causation premise as regards the plunge in the Quintis share price in May 2017 prior to its trading halt and causative reasons for that plunge, is also highly problematic.
[43]
The nature of the so-called serious damage to Quintis shareholders and Mr Wilson's duties to them in May 2017, given Mr Wilson's departure from the board of Quintis in March 2017, is also imponderable at present.
[44]
These are all form problems, potentially capable of being corrected longer term under an amended pleading that clarifies these obscurities.
[45]
The more challenging residual question is whether the more fundamental and plenary challenge by the defendants must succeed. This argues, in effect, that read as a whole the second publication must be evaluated as being benign or, indeed, even exculpatory of all the Quintis board as a whole, in terms of the provided explanations that communication had been given to the ASX, particularly an explanation regarding the earlier lack of disclosure by Quintis not even being a material nondisclosure.
The second publication's text provides at what seems, at excruciating length (see Schedule B), to be an exculpatory response by Quintis to the earlier query posed by the ASX to Quintis.
Unlike for the May 2017 first publication, the contention by par 20 is that the 6 June 2017 publication is defamatory of Mr Wilson in the natural and ordinary meaning of just the bare words of this publication. However, that (alternative) plea, in effect, of a popular or false series of innuendos arising against Mr Wilson without any reliance upon extra extrinsic facts, is wholly fanciful. If there is to be any pejorative meaning(s) winkled out against Mr Wilson within what is a closely typed 5 1/2 pages of the 6 June 2017 Announcement (see schedule B) such pejorative defamatory meaning(s) need to be winkled by inference. They would necessarily be reliant upon more than what is read or inferred from the mere text of the second publication.
I have set out the body of this second publication as schedule B. There are only a few passages that counsel for Mr Wilson told me about, or which I might speculate about, to potentially be capable of being used to fashion a commencing argument as to how this explanatory response to the ASX was possibly directed at, let alone was possibly defamatory of, Mr Wilson. Those textual areas are few.
The overall tenor of the communication to the ASX seeks to explain and exculpate Quintis' potential disclosure obligation infringement position with the ASX, by suggesting Quintis had in place some very rigorous and reliable reporting structures at the time - to put Quintis in the best position possible to know whatever was important and was happening from time to time with Santalis, its USA subsidiary. The list of organisational structures reads as extensive and impressive, at least on paper, within this response to the ASX.
[46]
The 6 June 2017 second publication - does it arguably impugn Mr Wilson's reputation?
[47]
As read, the second publication is a long responsive and exculpatory answer provided by Quintis to the ASX (it would appear somewhat late) on 6 June 2017. It was a reply by response to the earlier series of queries as raised by the ASX under a 10 May 2017 ASX Aware Query Letter referred to in par 13 (said in the particulars to be annexed to the statement of claim -but that not being the case).
Unlike for the first (the earlier May) publication, there is found here buried later in this text an explicit, late reference in this publication, identifying Mr Wilson: see item 6, under a heading 'Reporting Lines' in the paragraph commencing, 'These reporting processes are supplemented'. See:
[48]
For example, the former Managing Director of Quintis, Frank Wilson, was directly involved in discussions with Galderma throughout 2014, 2015 and 2016, including in a number of meetings in the US.
[49]
But that reference to him was presented as a positive feature, not a negative. The overall tenor of this second publication communication, broadly read from just its text alone, presents as being structured to excuse the board of Quintis to the ASX by this response to the ASX queries rather than being constructed as any sort of subsilentio attack against Mr Wilson's reputation. For instance, see the paragraph under s 4, under a heading 'Termination of Supply Agreement' and the long sentence:
[50]
This is not because the Company considers that the information represented by that Termination Agreement was information that a reasonable person would expect to have a material effect on the price or value of Quintis' securities, but instead to inform the market about the status of a contract that, whilst economically immaterial, had previously been the subject of direct announcement by, and media commentary on, Quintis.
[51]
A lengthy 'Reporting Lines' section of this communication (s 6), if anything, also looks to be saying to the ASX that the structured reporting regime laid down as between Quintis' USA (100%) subsidiary corporation Santalis up to Quintis were rigorous and elaborate, thereby suggesting that no structural reporting or organisational deficiencies had contributed to an absence of any knowledge in the current board of directors of Quintis as regards the consensual termination agreement events of December 2016.
By my assessment, there are only a very few parts of this second publication text potentially presenting as arguable areas (at s 9 and s 10) that could possibly be used to fashion an argument that what was being said by way of this long response to the ASX at the time by Quintis, (somehow) reflected adversely upon the reputation of Mr Wilson as its former managing director. See, first, under item 9(a):
[52]
The processes included the former Managing Partner receiving direct updates from Santalis, Santalis providing reporting direct to the Quintis Board and the former Managing Director updating the Quintis Board at Quintis Board meetings. This reporting to the Quintis Board referred to the fact that Galderma had not ordered any oil since 2015 but at no stage prior to 9 May 2017 were the current Quintis Board provided with an update to indicate the Galderma contract was in the process of being terminated or the existence of the Termination Agreement.
[53]
At no stage prior to 9 May 2017 were the current senior management of Quintis Board provided with an update to indicate the Galderma contract was in the process of being terminated or the existence of the Termination Agreement.
[54]
The Board relied on the processes outlined and the representations of senior management of Quintis in preparation of the 27 March 2017 response. The former Managing Director was directly involved in the preparation of the response.
[55]
What the 27 March 2017 Quintis response said is not elaborated upon. That would appear to raise a distinct issue. But it certainly does not appear to be directed to the 10 May 2017 Announcement. It presently goes nowhere.
From the few passages I have set out above, buried as they were within 5 1/2 pages of dense material, relies upon similar arguments that his differentiation from the current Quintis board (and from the current senior management of Quintis prior to 9 May 2017) was, of itself, suggesting something sinister.
Mr Wilson appears to argue (for his true innuendo meanings) that, reading between the lines, the financial media reader, knowing most of the extrinsic facts under par 17 and par 18.4, could draw those pejorative adverse inferences against him. That view would again begin from his plenary assumption that the full text of the second publication can be fairly and reasonably read to imply that Mr Wilson did have knowledge of the December 2016 termination events. It might then be further read to suggest that as the then managing director of Quintis, Mr Wilson took no steps to cause Quintis to timeously comply with various disclosure obligations about such termination events to the ASX to others.
Once again, on my analysis, that view can only be reached by taking a jaundiced and unreasonable reading towards what is not said in this publication, responding to the ASX. I conclude that such a meaning is simply not open, even adding and assuming a reader with all the extra facts. The reasonable reading is that the current board of Quintis did not speak as to the state of Mr Wilson's knowledge about the termination event matters at the time. Only Mr Wilson could respond reliably on the issue as to his own state of knowledge at that time. Properly, the current board of directors did not speak for Mr Wilson to the ASX in its response.
The balance of the defendants' challenges complain about a lack of response to a request for some further and better particulars as issued by the defendants.
Essentially, beyond the matters now already addressed, the grievance distils to whether or not Mr Wilson should at this point be required to provide some better details concerning the special damages claimed that he seeks for financial loss said to arise from these two publications. Certainly, there must be proper details of his alleged financial losses provided well prior to a trial. However, for the present, I am prepared to accept that the foreshadowed interlocutory processes of discovery and subpoenas to be issued to third parties should be allowed to unfold - before Mr Wilson is required to provide further details about his alleged financial losses.
The financial details would be expected to be given well before any trial. But for the moment, there are bigger problems to address and I would not require Mr Wilson to provide any further information until the foreshadowed interlocutory processes are fully complete.
However, the present statement of claim as currently constructed is deficient. All its imputation pleas must be struck out.
There were some further questions raised concerning whether Mr Wilson's pleas of publication by reference to persons electronically accessing or having potential to download information posted or republished on the ASX's MAP could satisfy the arguable description of a publication to a third person other than the plaintiff - for the purposes of meeting the requirement of a publication in that sense, as was discussed by Martin CJ in Sims v Jooste [No 2] [2016] WASCA 83.
On my assessment, particularly applying recent observations by the High Court in the Trkulja v Google LLC [2018] HCA 25, that issue is more a matter for a trial, rather than one amenable to a summary under dismissal by way of a strike out application prior to trial. I accept that for the particular circumstances of market disclosures under a sophisticated market information regime of providing electronic access to the ASX material disclosures - that it is arguable that the publications were likely to be read by some third parties. Each particular electronic publication situation needs to be carefully evaluated in order to reach a conclusion about electronic or internet publications of this character as actually being read by someone, other than a plaintiff.
Likewise, it will be a matter for a trial to establish the extent of the other persons (if any) who, with the benefit of them holding the requisite extra extrinsic fact knowledge, fall within a range of being persons who were exposed to and were affected by this material vis-à-vis Mr Wilson's reputation.
[56]
In summary, the defendants' strike out application succeeds. Mr Wilson's present statement of claim pleading is defective at a plenary level of substance as regards the state of his knowledge, and also by reason of the multiple form defects with the meanings (innuendos) he seeks to argue for and find with both publications. There should be an opportunity to replead - but any amendment would need to squarely confront the problematic plenary issue about the state of Mr Wilson's knowledge. On the face of it that looks to be a confronting hurdle to overcome. Nevertheless, there will be the opportunity to attempt to address it under a repleaded statement of claim.
Mr Wilson, prima facie, must pay the defendants' taxed costs of the present application, given this adverse outcome.
[57]
On or about 9 May 2017 Quintis published the following to the Market Announcements Office of the ASX (MAO) via the electronic lodgement facility with ASX Online, as a document for release to the market:
QUINTIS
Sandalwood Album
Quintis Ltd
ABN 97 092 200 854
10 May 2017
Update on Galderma contracts
Quintis (ASX:QIN, 'the Company'), the world's largest owner and manager of commercial Indian sandalwood plantations, today provides an update on its contracts with Galderma.
In February 2014, Santalis Pharmaceuticals, which has been a whollyowned subsidiary of Quintis since August 2015, signed contracts with Galderma, a subsidiary of Nestlé. These contracts covered the licensing of acne products created by Santalis and the supply of pharmaceuticalgrade East Indian sandalwood oil ('EISO') to be used as a key ingredient in the products. Galderma launched its new overthecounter antiacne product formulation, Benzac® Acne Solutions ('Benzac') containing EISO, in the USA in January 2015.
Quintis has supplied over 1,200 kg of EISO to Galderma under the supply contract, with all supplies occurring in the 2014 and 2015 calendar years. In March 2016 Nestlé entered into an agreement to acquire a majority stake in Proactiv, the world's leading nonprescription antiacne brand. Quintis has not supplied any EISO to Galderma in FY2017 and EISO sales to Galderma have not been factored into the Company's sales forecasts for FY2017.
The board of Quintis was advised late yesterday that on 16 December 2016, Santalis and Galderma entered into an agreement that terminated Galderma's licensing and supply arrangements with Santalis with the termination to take effect from 1 January 2017. Under the termination agreement, Galderma retained an option to reinstate the license and supply arrangements on or prior to 1 July 2017.
Prior to yesterday's advice, the fact and details of the contract termination had not been provided to current members of both the Board of Quintis and its senior management (outside of Santalis).
Quintis Chairman, Dalton Gooding, said: 'It is unacceptable that the current Board was not made aware of the contract termination when it took place. We are taking immediate and appropriate measures to ensure that this type of communication breakdown is not repeated.'
The overthecounter acne products form only one part of Santalis' business. Santalis currently has four products, containing pharmaceuticalgrade EISO, in FDAapproved Phase 2 trials to treat psoriasis, molluscum contagiosum, eczema, and oral mucositis and expects to initiate Phase 3 trials for a product to treat HPV skin warts within twelve months. (my emphasis in bold)
(10 May 2017 Announcement)
ENDS
[58]
On or about 6 June 2017, Quintis published to the ASX its response to the 10 May 2017 ASX Aware Query letter, together with a copy of the 10 May 2017 ASX Aware Query Letter, as follows;
QUINTIS
Sandalwood Album
ASX Compliance Pty Limited
Level 40, Central Park
152158 St Georges Terrace
Perth WA 6000
6 June 2017
Dear Sir
Response to ASX Query
In response to your queries in a letter dated 10 May 2017, Quintis Ltd (ASX:QIN, 'Quintis' or 'the Company') provide the following information:
Cessation of Supply
[59]
Does the Entity consider the information that it has not supplied EISO to Galderma since 2015 ('Cessation of Supply to Galderma') to be information that a reasonable person would expect to have a material effect on the price or value of its securities?
[60]
If the answer to question 1 is 'no', please advise the basis for that view.
[61]
As advised on 10 May 2017, Quintis, through its now wholly owned, USbased pharmaceutical subsidiary Santalis Pharmaceuticals ('Santalis'), supplied over 1,200 kg of EISO (the Company's East Indian Sandalwood Oil) to Galderma under the supply contract signed in February 2014. All supplies occurred in the 2014 and 2015 calendar years.
Oil sales to Galderma contributed 1.5% of total sales revenue in FY14 and 2.5% of total sales revenue in FY15.
Quintis supplies sandalwood (Spicatum and Album) oil and wood products under multiyear contracts to a variety of buyers across a range of both markets and countries. The volumes and monetary value of the sale of EISO to Galderma were not in themselves material to the Group's results in those years and therefore not receiving subsequent orders was not in itself considered to be price sensitive information.
The supply agreement with Galderma did not contain fixed or minimum quantities of supply and therefore Galderma had no obligation to acquire Quintis' oil.
Galderma continued marketing the Benzac® product range (an antiacne product containing Quintis' EISO distributed within the US) and paying royalties to Santalis on a quarterly basis. The last royalty payment was received in January 2017 by Santalis.
See further discussion in Answer 3 below.
[62]
When did the Entity first become aware of the Cessation of Supply to Galderma? In answering this question, please specify the date and time the Entity first became aware of the Cessation of Supply to Galderma.
[63]
The last shipment of EISO to Galderma occurred in June 2015.
Since June 2015, there have been ongoing discussions between Quintis' former Managing Director, Santalis' management and Galderma regarding the sales performance of the Benzac® products and the marketing and distribution strategy of Galderma.
While nearly 2.0 million units of Benzac® were shipped in the year to 30 June 2016 (ASX announcement from 26 August 2016), the Company understood that these volumes were below Galderma's own sales projections.
The Company made several inquiries of Galderma as to the impact of its parent company Nestle's acquisition of ProActiv® (one of the world's largest over-thecounter acne treatment products and a competitor to Benzac®) in March 2016. For a number of months after the acquisition, Santalis' management and Quintis were aware that Galderma was assessing its strategy in light of this acquisition. Santalis' management was informed in August 2016 that Galderma's planning meetings for 2017 would take place in or around October 2016.
In September 2016, Santalis and Quintis were aware that the packaging of the Benzac® product had been changed by Galderma as part of a repositioning of the Benzac® product range. The changes included the addition of the Company's logo ('TFS' at the time) to the Benzac® packaging. The Company understands these units were manufactured by Galderma earlier in 2016.
The current Board and current senior management of Quintis now understand that Santalis' management became aware of Galderma's intention to terminate the supply contract on or around 30 November 2016. This termination agreement was signed on 16 December 2016. The current Board and current senior management team of Quintis were not aware of either this intention or the finalisation of the agreement until 9 May 2017.
On 9 May 2017 at 12:24pm Perth time, Quintis' senior management team received an enquiry from its media advisors asking for a response to a comment from Nestle that the contracts had been terminated. This was confirmed in subsequent telephone calls with the CEO of Santalis, who then provided current Quintis management with a copy of the 'Termination of Licence Fee and Supply Agreements' ('Termination Agreement').
The Termination Agreement was signed on 16 December 2016 and the termination took effect from 1 January 2017.
Termination of Supply Agreement
[64]
Does the Entity consider that the agreement that terminated Galderma's licensing and supply arrangements with Santalis to be information that a reasonable person would expect to have a material effect on the price or value of its securities?
[65]
Quintis considers that if the current Board and current senior management had been aware of the Termination Agreement at the time it was signed, it is likely that the Company would have made an ASX announcement to that effect. This is not because the Company considers that the information represented by that Termination Agreement was information that a reasonable person would expect to have a material effect on the price or value of Quintis' securities, but instead to inform the market about the status of a contract that, whilst economically immaterial, had previously been the subject of direct announcement by, and media commentary on, Quintis.
[66]
If the answer to question 4 is 'no', please advise the basis for that view.
[67]
Quintis does not consider that the agreement that terminated Galderma's licensing and supply arrangements with Santalis to be information that a reasonable person would expect to have a material effect on the price or value of its securities for the following reasons:
[68]
Oil sales to Galderma under the contract contributed 1.5% of total sales revenue in FY14, 2.5% of total sales revenue in FY15 and 0% of total sales revenue in FY16 and, as a result, these sales are not considered material to the financial position of Quintis;
Quintis supplies sandalwood (Spicatum and Album) oil and wood products under multi-year contracts to a variety of buyers across a range of both markets and countries. The volumes and monetary value of the sale of oil to Galderma were not in themselves material to the Group's results; and
Santalis' management is in ongoing discussions with Galderma regarding the development of Santalis Rx (prescription) indications. Galderma has indicated potential interest, subject to the on-going FDA clinical trials, to be a future commercial partner of Santalis on these dermatology products.
[69]
Please advise of the reporting and escalation processes that the Entity has in place with Santalis and comment as to whether the Entity considers that these processes are appropriate to ensure that information which is potentially market sensitive is promptly brought to the attention of the Entity's officers.
[70]
Quintis has a written policy that applies across its corporate group on information disclosure and relevant procedures to ensure that senior management are aware of its continuous disclosure requirements. This policy requires all staff to report information that a reasonable person would expect to have a material effect on the price or value of the Company's security to the appropriate officers of the Company. The policies are available on both Quintis' website and intranet.
The reporting structure for Santalis includes the following:
[71]
Santalis' CEO reports directly to the Managing Director (now CEO) of Quintis;
Quarterly Santalis Board meetings, with the Santalis Board comprising Quintis' Managing Director (now CEO) and Chairman, and attended by senior management of Santalis;
Reporting from the management team of Santalis to the Quintis Board of Directors comprising a (generally) monthly report from the Santalis CEO;
Reporting from the senior management team of Quintis to the Quintis Board of Directors including a report from the Managing Director of Quintis (now CEO) for each board meeting, which encompasses updates on material matters across the Group's operations, including Santalis; and
Periodic attendance by the Santalis CEO at Quintis Board meetings to provide business updates. The Santalis CEO attended Board meetings in Perth, Australia, in June 2016 and February 2017.
[72]
These reporting processes are supplemented by communication between the senior management teams of Santalis and Quintis. Santalis' CEO reports to the Managing Director (now CEO) of Quintis and there is regular interaction between the two officers. For example, the former Managing Director of Quintis, Frank Wilson, was directly involved in discussions with Galderma throughout 2014, 2015 and 2016, including in a number of meetings in the US.
Furthermore, there are regular meetings (via tele-conference) between the Santalis management team and members of the Quintis senior management team. These have been generally held on a weekly basis throughout 2017.
Separately, Executive Risk Committee meetings are held monthly, attended by Quintis' senior management, to monitor, manage and review significant business risks. The minutes of this Executive Risk Committee are included in the papers for the monthly Quintis Board meeting.
The Company considers that these processes are appropriate to ensure that information which is potentially market sensitive is promptly brought to the attention of the Company's directors and officers.
Sales Forecast and Earnings Guidance
[73]
The Entity has set out that the sales to Galderma under its agreement with Galderma ('Galderma Contract') have not been factored into the Entity's sales forecasts for the financial year ending 2017 ('FY2017'). Please answer the following.
[74]
When did the Entity first consider its sales forecast for FY2017?
[75]
The Budget for the year ended 30 June 2017 was approved by the Quintis Board on 26 May 2016.
[76]
When did the Entity first disclose to the market its sales forecast for FY2017?
[77]
In the ASX lodgments relating to the Company's FY2016 results on 26 August 2016, the Company provided earnings guidance for FY17, being that Cash EBITDA was expected to increase by at least 25% on FY16.
In the ASX lodgments relating to the Company's H1FY2017 results on 27 February 2017, Quintis provided additional guidance that total product sales were expected to be in the range of $45 million to $55 million for FY17.
[78]
On which dates (including its Response to Price Query announcement dated 23 March 2017) did the Entity confirm or revise its sales forecast for FY2017?
[79]
The Company also reaffirmed its guidance on 23 March 2017 that FY17 cash EBITDA was expected to increase by at least 25% on FY16.
As noted in the Company's trading update released to ASX on 6 June 2017, market conditions are currently volatile given the recent sharp decline in the Company's share price, the suspension of trading of the Company's shares, the resignation of the Company's former Managing Director and the potential corporate transaction, which could include a change of control. In this environment, the Company is unable to accurately predict the outcome of the coming sales season and so the Company has withdrawn its Cash EBITDA guidance for the year to 30 June 2017.
[80]
In each of the above circumstances, what information did the Entity consider in determining not to include the sales to Galderma in the sales forecast for FY2017?
[81]
The supply agreement with Galderma did not contained [sic] fixed or minimum quantities of supply and therefore Galderma had no obligation to acquire the Company's oil.
As set out in the Company's ASX release on 10 May 2017, Galderma has not acquired any oil since 2015.
In March 2016, Galderma's parent company, Nestle, acquired a majority stake in ProActive®, the world's leading non-prescription anti-acne brand.
Discussions with Galderma regarding their plans for the marketing and distribution of Benzac® continued throughout 2016 (refer to response to Question 3 above).
Due to this uncertainty, the Company did not include any oil sales to Galderma in the FY17 forecasts.
[82]
Please advise whether the Earnings Guidance continues to apply?
[83]
The Entity has set out that all supplies pursuant to the Galderma Contract occurred in the 2014 and 2015 calendar years. Since 1 January 2016, the Entity has prepared, amongst other things, its annual report for the period ending 30 June 2016 and its financial statements for the half year ending 31 December 2016. In preparing these financial statements, please advise whether:
[84]
the Entity's board of directors ('Board') made any queries to Santalis in respect of the Galderma Contract and whether further orders were likely to be made pursuant to the Galderma Contract; and
[85]
The Quintis Board continued to periodically monitor the status of Galderma's plans for Benzac® following Nestle's acquisition of Pro Activ® with regular dialogue between the current Quintis Board and Santalis and between the current Quintis Board and the former Managing Director. The processes included the former Managing Partner receiving direct updates from Santalis, Santalis providing reporting direct to the Quintis Board and the former Managing Director updating the Quintis Board at Quintis Board meetings. This reporting to the Quintis Board referred to the fact that Galderma had not ordered any oil since 2015 but at no stage prior to 9 May 2017 were the current Quintis Board provided with an update to indicate the Galderma contract was in the process of being terminated or the existence of the Termination Agreement.
[86]
the Entity's senior management ('Senior Management') made any queries to Santalis in respect of the Galderma Contract and whether further orders were likely to be made pursuant to the Galderma Contract.
[87]
Current senior management of Quintis requested updates from Santalis of the status of Galderma's product sales throughout 2016 and 2017 as part of the regular reporting and communication between the two entities.
At no stage prior to 9 May 2017 were current senior management of Quintis provided with an update to indicate the Galderma contract was in the process of being terminated or the existence of the Termination Agreement.
[88]
On 27 March 2017, the Board authorised and approved a response to ASX queries disclosing that the Galderma Contract had a 20 year term from 2014 and confirming that the Entity was in compliance with Listing Rule 3.1. Please advise what diligence the Board undertook in:
[89]
disclosing that the Galderma Contract had a 20 year term from 2014; and
[90]
Refer to response to Question 6 above.
The Board relied on the processes outlined and the representations of senior management of Quintis in preparation of the 27 March 2017 response. The former Managing Director was directly involved in the preparation of the response.
[91]
confirming compliance with Listing Rule 3.1 at that point in time.
[92]
Based on the responses to Questions 6 and 10(a) above, the Board had no reason to believe that it was not in compliance with Listing Rule 3.1.
[93]
Please confirm that the Entity is in compliance with the Listing Rules and, in particular, Listing Rule 3.1. In making the confirmation, please set out whether the Entity has reporting procedures that the Board considers to be appropriate for a listed entity.
[94]
Quintis confirms it remains in Compliance with the Listing Rules, including Listing Rule 3.1.
Quintis is currently suspended from official quotation pending on-going discussions regarding a potential corporate transaction, the release of an announcement of the impact of market and trading conditions on the Company's expected financial results and strategic outlook and the finalisation of this response.
The Company considers its reporting procedures to be appropriate for a listed entity. Further to the Company's response to Question 6 above, the Board formally considers its continuous disclosure reporting obligations at each Board meeting.
[95]
Please confirm that the Entity's responses to the questions above have been authorised and approved in accordance with its published continuous disclosure policy or otherwise by the Board or an officer of Entity with delegated authority from the Board to respond to ASX on disclosure matters.
[96]
Quintis confirms the above responses have been authorised and approved by its Board of Directors.
Yours faithfully
Julius Matthys
Chief Executive Officer
[Copy of 10 May 2017 ASX Aware Query Letter attached]
(6 June 2017 Announcement)
[97]
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
[98]
ASSOCIATE TO THE HONOURABLE JUSTICES K MARTIN AND CORBOY