Seems Redstone is lucky to still have Tollu. As per RDS's latest announcement, all the details from the mentioned Olivero v Ailakis case can be found below (source austlii.edu.au).
1 SCHOOMBEE DCJ: Mr Carlos Olivero claims damages from Mr Anthony Ailakis and Mr Rodney Ailakis on the basis that they repudiated an agreement to transfer 1,000,000 shares to him.
2 Mr Olivero was a non-executive director of Redstone Resources Limited, a minerals exploration company. He had been involved with this company since 2001 when he had made a loan to Mr Anthony Ailakis and Mr Rodney Ailakis so that they could carry out a detailed aeromagnetic survey of a tenement in the West Musgraves in Western Australia known as Tollu. At that time Mr Olivero was working as a pilot and operated a charter flight business out of Perth. From 2005 onwards Mr Olivero assisted the Ailakis brothers to raise capital for the public listing of Redstone Resources in June 2006. He subsequently raised capital needed for exploration.
3 Redstone Resources was involved in the exploration of other mining tenements in addition to Tollu. However, Tollu was expected to yield high grade copper and the prospectus for Redstone Resources issued in June 2006 stated that the company intended to give priority to the exploration of Tollu. The quarterly report by Redstone Resources for the period ending March 2007 indicated that gridding was completed in preparation for drilling on the Tollu tenement.
4 On 30 April 2007 Mr Anthony Ailakis, who was one of three directors of Redstone Resources, telephoned Mr Olivero and told him that the company had lost Tollu as Mr Ailakis had omitted to lodge a renewal application for the tenement. Another company, Traka Resources Limited, had made application for the Tollu tenement. Mr Olivero immediately met with Mr Ailakis at Redstone Resources' offices. They discussed the potential ramifications of the loss of Tollu and the highly detrimental effect it would have on Redstone Resources' share price and its ability to raise capital for exploration.
5 Mr Ailakis was particularly concerned that the loss of Tollu might lead to the other director, Professor Groves, disassociating himself from the company. Professor Groves was the head of the Geology Department of the University of Western Australia and a leading and internationally known geologist. The involvement of someone of such high standing gave Redstone Resources considerable credibility and was very important for capital raising. Professor Groves had already resigned as chairman of Redstone Resources in March of that year and had threatened to resign as a director, because of disagreements between himself and Mr Ailakis.
6 Mr Ailakis did not want anyone to be told of the loss of Tollu. He acknowledged that the exploration team had to be advised to stop their work, but did not wish to tell them the reason for this.
7 Mr Ailakis and Mr Olivero discussed what could be done to persuade Traka Resources to withdraw their application for the tenement. Mr Olivero pointed out that the directors of Traka Resources were not likely to take payment in exchange for relinquishing the application, as the directors of Traka Resources were apparently wealthy.
8 Mr Olivero then raised the possibility of assisting Traka Resources in negotiating with the Ngaanyatjarra Aboriginal elders whose agreement was required by Traka Resources to start exploration on its tenement, which was situated close to Tollu. Mr Patrick Verbeek, the managing director of Traka Resources, had previously expressed his frustration to Mr Olivero about his inability to arrange a meeting with the Ngaanyatjarra elders and had stated his admiration for Mr Olivero's ability to negotiate with Aboriginal people. Mr Olivero had lived and worked in various remote Aboriginal communities in the past and had often negotiated charter flights and payments with them.
9 Mr Ailakis and Mr Olivero agreed that Mr Olivero would approach Mr Verbeek and propose an agreement under which Mr Olivero would assist Traka Resources to arrange a meeting with the Ngaanyatjarra elders in exchange for Traka Resources withdrawing its application for Tollu.
10 The next day Mr Ailakis and Mr Olivero met with a lawyer who advised them that there was no legal recourse open to Redstone Resources to recover the tenement. The same day Mr Olivero met with Mr Verbeek and offered to organise a meeting between Mr Verbeek and the Ngaanyatjarra elders and to assist Traka Resources to achieve its goal of an access meeting and negotiations with the traditional land owners. Mr Verbeek told Mr Olivero that if he assisted him in arranging a meeting and did everything possible in his power to get the negotiations with the Ngaanyatjarra elders on foot, Traka Resources would withdraw its application for the Tollu tenement.
11 When Mr Olivero reported the outcome of the meeting with Mr Verbeek to Mr Ailakis on the telephone, Mr Ailakis was very grateful and told Mr Olivero that he would be rewarded for his efforts.
12 The next day, on 2 May 2007, Mr Olivero and Mr Ailakis met at the offices of Redstone Resources. They discussed the steps to be taken to assist Traka Resources and Mr Ailakis again expressed his gratitude and relief about the outcome of the meeting with Mr Verbeek. He told Mr Olivero that he had spoken to his brother Rodney and that they had decided to give Mr Olivero 1 million shares in Redstone Resources in appreciation for the work that he was doing and to ensure that the obligations undertaken by Mr Olivero to Mr Verbeek would be met and the Tollu tenement recovered. Mr Olivero thanked Mr Ailakis, asked him to thank his brother and said that he would make sure all obligations to Traka Resources were met. Mr Ailakis, who had been a practising lawyer in the past, told Mr Olivero that he would draft a written agreement as soon as he had the opportunity.
13 Over the next few days Mr Olivero made preparations for a visit to the Blackstone community in the West Musgraves where the Ngaanyatjarra elders resided. He contacted Mr Rodney Ailakis who was stationed at Redstone Resources' bush camp nearby and asked him to try and locate the Ngaanyatjarra elders to whom Mr Olivero wished to speak. The following week Mr Olivero drove over three days to the remote bush camp. He was accompanied by Mr Edward Barrett who had done some work in the past for the Ailakis brothers on another mining tenement and had also invested in Redstone Resources by way of seed capital and shares.
14 After their arrival at the Blackstone community and while driving around with Mr Rodney Ailakis and Mr Barrett to find the Aboriginal elders to speak to, Mr Olivero raised the catastrophic effect that the loss of the Tollu tenement would have on the capital raising and share price of Redstone Resources, on employee morale and on Professor Groves' commitment to the company. Mr Olivero told Mr Rodney Ailakis that the whole matter had caused him a lot of anger, stress and embarrassment and had aged him by 10 years. Mr Rodney Ailakis replied that he and his brother understood Mr Olivero's position and appreciated his commitment. Mr Ailakis added that he and his brother were happy to give Mr Olivero the 1 million shares to ensure that Redstone Resources would get back the Tollu tenement. They both wanted the proposed steps to proceed without any problems.
15 Mr Olivero was assuaged by this and said 'thank you very much'. Mr Barrett confirmed the gist of this conversation during his evidence.
16 Mr Olivero met with an influential Ngaanyatjarra elder and arranged a future visit at which the elder and other council members would meet Mr Verbeek and discuss his proposals with him.
17 Approximately two weeks later Mr Olivero accompanied Mr Verbeek by plane to Alice Springs and from there by car to the Blackstone community. He introduced Mr Verbeek to the Ngaanyatjarra elder and other Aboriginal land owners. After some discussion Mr Verbeek obtained the assurance from the Ngaanyatjarra elder that he would speak to the council and arrange a further meeting with Mr Verbeek.
18 On the flight back to Perth on 26 May 2007 Mr Verbeek gave Mr Olivero a signed and undated withdrawal form for the Tollu tenement. Mr Verbeek gave evidence that he did not know and had not met the Ngaanyatjarra land owners before and did not have the contacts to do so. Traka Resources needed their approval to give it access to its tenements in the West Musgraves. Having met the Ngaanyatjarra elders with Mr Olivero made it possible for him to continue negotiations with the local landowners.
19 Mr Olivero handed the signed withdrawal form to Mr Ailakis on 28 May 2007. Mr Ailakis told Mr Olivero that he had not forgotten about his shares. Mr Ailakis said that he would organise a document to acknowledge their deal in the next few days and would transfer the shares as soon as he had sorted out the escrow.
20 In November that year Redstone Resources lodged a renewed application for Tollu and the undated withdrawal form from Mr Verbeek was submitted. Redstone Resources recovered its rights to the Tollu tenement.
21 From about July 2007 onwards Mr Olivero repeatedly asked Mr Tony Ailakis to sort out the paperwork for the shares to which he and other people who had been involved in capital share raising were entitled. Mr Ailakis always had an excuse, such that he would do it in the next week or would deal with all of the recipients of shares on one occasion. Mr Olivero told Mr Ailakis that he wanted to sell some of the shares to allow his children to put a deposit on a house and wished to place the rest of the shares in his self-managed superannuation fund.
22 On 27 July 2009 Mr Olivero sent an email to Mr Rodney Ailakis asking him to remind Mr Anthony Ailakis that he needed to transfer the shares to Mr Olivero.
23 In about October 2009 there was an irretrievable breakdown of the relationship between Mr Olivero and Mr Ailakis. Mr Olivero resigned from the board of Redstone Resources in November 2009. After that Mr Ailakis did not return Mr Olivero's telephone calls.
24 On 9 December 2009 Mr Olivero sent an email to Mr Rodney Ailakis stating that it was unfortunate that he and Mr Ailakis had chosen to go back on their word and that he was surprised that Mr Ailakis was denying the existence of such 'a deal'. Mr Olivero reminded Mr Rodney Ailakis that he and his brother had decided to give him 1 million shares in appreciation of his work and that no shares had been transferred.
25 Shortly after Mr Ailakis had promised Mr Olivero the transfer of the 1 million shares Mr Ailakis admitted the existence of such an undertaking to other people associated with Redstone Resources. Mr William Hayes had some business relations with the Ailakis brothers and had invested in Redstone Resources. He had raised capital for Redstone Resources at various stages. Shortly after Tollu was lost, Mr Hayes was told about this by Mr Olivero. At the end of May 2007 Mr Hayes attended a meeting with Mr Ailakis and Mr Olivero during which the Tollu problem was discussed. Mr Hayes gave evidence that Mr Ailakis appeared to be very nervous and embarrassed and expressed his relief that Mr Olivero was available to help rectify the problem. Mr Ailakis told Mr Hayes that he would make sure that Mr Olivero was rewarded for his efforts in trying to recover the Tollu tenement and that he would give Mr Olivero a million shares because Tollu was an essential part of the capital raising. Mr Ailakis asked Mr Hayes to keep their discussion confidential.
26 Mr Chilvers, an airline pilot, had also assisted Redstone Resources with capital raising since about mid-2005. He gave evidence that Mr Olivero told him in early May 2007 that Tollu had been lost. Mr Chilvers was angry about the fact that Mr Ailakis had not told him about this with the result that he had continued to promote Redstone Resources and its entitlement to a tenement which was no longer available.
27 At a later stage Mr Olivero told Mr Chilvers that he had managed to recover the Tollu tenement. Shortly after this, in early June 2007, Mr Chilvers attended a meeting with Mr Ailakis and Mr Olivero at the offices of Redstone Resources. Mr Chilvers expressed his anger and irritation at what had occurred and said he hoped that Mr Ailakis had looked after Mr Olivero because if it had not been for him the tenement would have been lost. Mr Ailakis said to Mr Chilvers 'we are going to give Carlos a million shares for getting Tollu back'.
28 Mr Ailakis had also promised to transfer shares to Mr Chilvers as payment of a commission for the total share capital that Mr Chilvers had raised. A similar promise had been made to Mr William Hayes. Both Mr Chilvers and Mr Hayes gave evidence that after some initial problems in getting a response from Mr Ailakis they received the promised transfer of shares. Mr Olivero submitted that this evidence was admissible as similar fact evidence and supported his contention that the agreement between him and Mr Ailakis was a legally binding agreement.
29 The Ailakis brothers did not give evidence, but their counsel made it clear that they do not deny that Mr Anthony Ailakis told Mr Olivero that he and his brother would give him 1 million shares in Redstone Resources or that Mr Rodney Ailakis subsequently ratified this promise to Mr Olivero. However, the Ailakis brothers submit that there was no contract constituted by an offer and acceptance, no intention on their part to create legal relations and no consideration passing from Mr Olivero to them. They say that subsequent references by Mr Olivero to the alleged agreement show that he regarded Mr Ailakis' offer to transfer the shares as a promise or a gift which is not legally enforceable.
30 The Ailakis brothers further allege that any work performed by Mr Olivero to recover Tollu was done as part of his duties as a non-executive director and that the performance of an existing legal duty cannot be good consideration.
31 Mr Olivero contends that the Ailakis brothers repudiated the agreement to transfer the shares in June 2007 by failing to do so within a reasonable time after the agreement was entered into and again on numerous other occasions between 2007 and 2009 when they failed to comply with requests by Mr Olivero to transfer the shares. Mr Olivero alleges that the Ailakis brothers again repudiated the agreement by denying its existence in the defence filed in April 2012.
32 The Ailakis brothers contend that should a valid contract have come into existence, Mr Olivero waived his right to terminate the contract when he initially sued for specific performance and was no longer able to terminate the contract and claim damages when he purported to do so.
33 Mr Olivero initially claimed specific performance of the transfer of the shares, but changed his mind and terminated the contract by written notice to the Ailakis brothers handed to their counsel on 11 May 2012. In his re-amended statement of claim filed on 18 May 2012 Mr Olivero relied on the earlier refusals to transfer the shares and on the repudiation set out in the defence as grounds for the termination. Mr Olivero now claims the value of the 1 million shares as at 8 June 2007, alternatively the amount that he would have recovered if he had sold the shares at the time that he intended to do so.
34 The Ailakis brothers submit that should the termination have been valid, the value of the shares are to be determined at the time of termination on 11 May 2012 at which time the share price had fallen to $0.16 in comparison to the price of $1.20 claimed by Mr Olivero.
35 Alternatively, the Ailakis brothers submit that in calculating the loss suffered by Mr Olivero the court needs to take into account what Mr Olivero intended to do with the shares and when he would have sold them based on his own evidence of this. This approach would result in a lesser return from the shares as Mr Olivero only intended to sell 200,000 shares in June 2007 and would have placed the remainder in his self-managed superannuation fund and only sold them in January 2011 by which time the share price had fallen to around $0.61.
36 The Ailakis brothers also contend that by reason of Mr Olivero's evidence that he would have asked Mr Ailakis to transfer 800,000 of the shares directly into his superannuation fund of which both he and his wife were members, Mr Olivero is at best only entitled to half the value of the 800,000 shares as at January 2011, which is the benefit he lost by reason of the superannuation fund not being able to sell the shares as intended.
Issues to be decided
37 This raises the following issues to be decided:
whether there was an offer and an acceptance and whether the parties intended to create a legally binding contract; whether the subsequent conduct by the parties indicated that no legally binding agreement had been entered into; whether the evidence of similar undertakings by Mr Ailakis to other people which resulted in a transfer of shares was admissible and indicative of an intention to enter into a legally binding agreement; whether there was valuable consideration; whether Mr Olivero had a duty in law as non-executive director to perform the work to recover Tollu; whether Mr Olivero lost his right to terminate the contract because he initially claimed specific performance; assessment of damages and whether it is relevant what Mr Olivero intended to do with the shares; whether the damages should be assessed at the time of the breach or at the time of trial; Mr Olivero's credibility. Whether there was an offer and an acceptance and whether the parties intended to create a legally binding contract
38 Counsel for the Ailakis brothers submitted that the alleged agreement between Mr Ailakis and Mr Olivero did not constitute a legally binding contract as it did not consist of an offer and acceptance, but was only a unilateral promise to make a gift. At best, counsel contended, it was a statement or representation of intention as to a future course of action, but no estoppel or reliance upon the representation had been pleaded. Counsel submitted that there had been no intention on behalf of the Ailakis brothers to create a legally binding contract.
39 It is trite law that a binding contract has to be constituted by an offer and acceptance: R v Clarke [1927] HCA 47; (1927) 40 CLR 227, 233. In order to qualify as a proper offer the statement made by the offeror must have been intended to give rise, on its acceptance, to legal relations. A useful test for determining whether there has been a true offer is to ask whether there has been a request, either express or implied, to do something. Another way of formulating the test is to ask whether the offer was made in order to induce the doing of an act by the offeree: Australian Woollen Mills Pty Ltd v Commonwealth [1954] HCA 20; (1954) 92 CLR 424, 457 - 459 (affirmed in Australian Woollen Mills Pty Ltd v Commonwealth [1955] UKPCHCA 3; (1955) 93 CLR 546).
40 The question whether the offer was intended to give rise, on its acceptance, to legal relations, has to be decided on an objective basis. The question is how a reasonable person in the position of the offeree would have interpreted the offer: Carlill v Carbolic Smoke Ball Co [1892] EWCA Civ 1; [1893] 1 QB 256, 266; Lee Gleeson Pty Ltd v Sterling Estates Pty Ltd (1991) 23 NSWLR 571, 578.
41 Mr Ailakis' statement to Mr Olivero was that he and his brother had decided to give Mr Olivero 1 million shares in Redstone Resources in appreciation for the work that Mr Olivero was doing and to ensure that the obligations undertaken by Mr Olivero to Mr Verbeek would be met and the Tollu tenement recovered. This statement conveyed three reasons why the shares were to be transferred. Firstly, in appreciation for the work that Mr Olivero was then doing, secondly, to ensure that he would take the steps that he had promised Mr Verbeek and thirdly, so that the Tollu tenement could be recovered.
42 The second stated reason for the offer was to induce Mr Olivero to ensure that he carried out the steps that he had promised Mr Verbeek. The statement by Mr Ailakis was not only an expression of his appreciation for work that Mr Olivero had already done, nor was it only an expression of a future intention to reward Mr Olivero should the Tollu tenement be recovered. The undertaking to transfer 1 million shares was given, at least partly, in order to induce Mr Olivero to perform the work he had undertaken vis-à-vis Mr Verbeek. The fact that Mr Olivero had come up with the idea of what he could offer Mr Verbeek and had already discussed this with Mr Ailakis does not detract from the fact that Mr Ailakis then offered Mr Olivero 1 million shares for carrying out the work he had promised Mr Verbeek.
43 The statement therefore contained a true offer which was intended to give rise, on acceptance by Mr Olivero, to a legally binding obligation to transfer the shares. The requirement that Mr Olivero comply with his undertaking to Mr Verbeek was an integral part of that offer. That is how a reasonable person in Mr Olivero's position would have understood Mr Ailakis' statement.
44 Counsel for the Ailakis brothers submitted that it was an absurd suggestion to say that after that conversation Mr Ailakis would have been able to sue Mr Olivero for damages, if he had gone back on his promise to assist Mr Verbeek in negotiating with the Ngaanyatjarra people. I do not agree. It is highly unlikely that Mr Ailakis would have sued Mr Olivero under those circumstances, but Mr Olivero would have been in breach of a contractual obligation that he had undertaken in relation to the Ailakis brothers.
45 In support of the submission that Mr Ailakis' statement was just a promise or a statement of a future intention and not a true offer, counsel for the Ailakis brothers relied on Wells v Matthews [1914] HCA 50; (1914) 18 CLR 440. In that case the High Court held that an undertaking by a father to give his daughter a definite share in his estate upon his death in exchange for her giving up some land during his lifetime, and her agreement to this, did not create a legally binding contract but merely constituted a mutual understanding of the father's intention which had been arrived at in light of the relationship of confidence and trust between a father and his daughter. It should be noted, however, that Isaacs J, although he agreed with the conclusion of the plurality, held that the evidence was capable of a construction either in favour of or against a legally binding agreement. In such a situation considerable value had to be placed upon the demeanour of the witnesses and as the trial judge had had the advantage of seeing the witnesses, the appeal should be dismissed.
46 Counsel for the Ailakis brothers also relied on Milne v Attorney-General (Tas) [1956] HCA 48; (1956) 95 CLR 460, 472 – 473. That case concerned a circular issued by a government authority which contained statements of the government's present intention and policy. The statements did not adequately define the terms of the proposed contract and allowed matters to be left to the discretion of the government authority. Accordingly, the statements were held to be too vague to constitute an intention to affect legal relations.
47 In my view there is no reason why the statements by Mr Ailakis did not constitute a true offer which invited acceptance or rejection. Although Mr Ailakis did not specifically say: 'if you perform your obligations vis-à-vis Mr Verbeek, we will give you a million shares', the statement clearly conveyed that the shares were to be transferred in order to ensure that Mr Olivero performed the work he had promised to Mr Verbeek. Mr Olivero understood it as a request to him which he could accept or reject, because he replied not only 'thank you', but also said he would make sure that all obligations were met in order to recover Tollu. If Mr Olivero had indicated at that stage that he thought it was too difficult to meet his undertaking to Mr Verbeek, this would have constituted a rejection of the offer.
48 Counsel for the Ailakis brothers relied on R v Clarke for the proposition that there had to be a proper acceptance. Clarke dealt with a situation where there was an offer for a reward in exchange for information which would lead to the arrest of the person who committed a murder. The issue was whether there was acceptance of that offer by way of performance, that is, the provision of the information. It was held that the informant did not provide the information in reliance on the reward, but to protect himself against a false charge of murder and to defend a charge of having been an accessory after the fact (see 234 – 235; 237 and 239 – 241).
49 In Mr Olivero's case he orally accepted the offer. The acceptance was not constituted by the performance of his obligations under the agreement. It is therefore not relevant whether the work done by him to comply with his undertakings to Mr Verbeek was done in response to the offer of shares or driven by some other motivation.
50 Mr Olivero's reply in saying 'thank you', asking Mr Ailakis to thank his brother, and also stating that he would make sure that all obligations to Traka Resources were met, constituted a proper acceptance.
51 In addition to proving an offer and acceptance, Mr Olivero carries the legal burden to show that both he and Mr Ailakis had the intention to create a legally binding contract. That intention is determined objectively by drawing inferences from what the relevant parties said and did in the course of their dealings: Pirt Biotechnologies Pty Ltd v Pirtferm Limited [2001] WASCA 96, [19] - [21]; Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540, 548 - 550.
52 Counsel for the Ailakis brothers submitted that the fact that Mr Ailakis had used the word 'give' indicated that he only intended to make a gift and did not intend to create a legally binding contract.
53 In Halsbury's Laws of Australia, vol 6, [110-590] the learned author points out that the form of the promise, although important, is not conclusive and that a promise in the form that the promisor will 'give' something to the promisee, if the promisee does an act, does not signify that the promisor has merely promised to make a gift, if the true intention is to make a bargain with the promisee.
54 The learned author relies on Re Casey's Patents; Stewart v Casey [1892] 1 Ch 104 in support of this statement. In that case the owners of certain patents wrote to their practical manager stating that in consideration of his services in working both patents they agreed to give him a one-third share of the patents. The letter was held to have constituted a legally binding document which created an immediate equitable interest (107, 112 and 115).
55 In my view an important indication that Mr Ailakis had intended to create a legally binding agreement is the fact that immediately after the discussion of the transfer of shares he told Mr Olivero that he would draft a written agreement as soon as he had the opportunity. This shows that Mr Ailakis understood that a legally binding agreement had been entered into and that this should be placed in writing for probative purposes.
56 Counsel for the Ailakis brothers submitted that Mr Ailakis' undertaking to produce a written document indicated that the parties had not yet reached the stage of having achieved agreement. But the salient point is that Mr Ailakis is unlikely to have suggested putting anything in writing if he did not have the intention of creating a legally binding agreement.
57 There is no indication that the parties did not intend to be bound until a formal contract had been drawn up and executed. There was no further detail to be discussed, the agreement was not particularly complex, and there was no need for legal advice as Mr Ailakis had been a practising lawyer. These circumstances point to the fact that the parties intended to be bound immediately, even though Mr Ailakis offered to draw up a written agreement at a later stage. This arrangement would fall into the first category of the various situations discussed in Masters v Cameron [1954] HCA 72; (1954) 91 CLR 353, 360.
58 Accordingly, the discussion between Mr Ailakis and Mr Olivero constituted a proper offer and acceptance and resulted in a legally binding agreement.
Whether the subsequent conduct by the parties indicated that no legally binding agreement had been entered into
59 Counsel for the Ailakis brothers submitted that the parties' conduct after the alleged agreement indicated that there had been no intention to create a legally binding agreement.
60 A court may have regard to all the relevant circumstances, including the subsequent conduct of the parties, in determining on an objective basis whether the parties intended to create legal relations: Barrier Wharfs Ltd v W Scott Fell & Co Ltd [1908] HCA 88; (1908) 5 CLR 647, 669 and 672; Anaconda Nickel Ltd v Tarmoola Australia Pty Ltd [2000] WASCA 27; (2000) 22 WAR 101, [26]. This also applies to an oral contract: Fazio v Fazio [2012] WASCA 72, [193], Air Great Lakes Pty Ltd v KS Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309, 332.
61 Counsel for the Ailakis brothers placed considerable emphasis on the fact that Mr Olivero did not take steps to ensure his newly acquired right to the 1 million shares under the agreement with the Ailakis brothers was disclosed to the Australian Stock Exchange (ASX).
62 Mr Olivero acknowledged that he had signed an undated Notification of Interests Deed pursuant to which he had to provide Redstone Resources with details of all securities registered in his name or in which he had a relevant interest. It was also put to Mr Olivero that he had a duty under a Deed of Indemnity, Insurance and Access signed by him to give to Redstone Resources information in respect of any 'notifiable interest', as this was defined in the listing rules of the ASX. Mr Olivero said he had never looked at the listing rules and that Mr Ailakis had promised him to arrange a seminar by a lawyer who would advise him of all his duties as a non-executive director. This seminar never eventuated.
63 Mr Olivero acknowledged that the short form prospectus issued by Redstone Resources in July 2007, which he had approved, did not disclose his interest in the 1 million shares, but only recorded that he had an indirect interest in 837,500 shares. These shares were held by his private company, Exclusive Air Charter Pty Ltd, which later changed its name to Olivero Consulting Group Pty Ltd. He also admitted that Redstone Resources had never filed a change of director's interest notice to advise the ASX of his acquisition of an interest in the 1 million shares.
64 When Mr Olivero was asked why he had not disclosed his interest in the shares to Redstone Resources so that it could disclose the information to the ASX, he answered that he did not understand that there was an obligation to disclose the agreement where he did not yet have the shares. He understood that he only had to disclose shares that had come into his possession. Mr Olivero said the true position was neither explained to him by Mr Ailakis nor did the planned seminar advising him of his obligations as a director take place. Mr Olivero further explained that Mr Ailakis was aware of the agreement to transfer shares to him and that he relied on Mr Ailakis and his knowledge as a former practising lawyer to make any requisite disclosure to the ASX.
65 In my view Mr Olivero's subsequent conduct in not formally advising the company of the agreement or insisting that his interest in the 1 million shares was disclosed to the ASX does not add much weight to the argument that the parties did not intend the agreement to be legally binding. I accept Mr Olivero's evidence that he did not understand that his right to the shares was an interest that had to be disclosed even prior to the actual transfer of the shares to him. Further, the documents put to him only required that he inform the company of any further acquisition of an interest in shares in Redstone Resources, and Mr Ailakis, who was the managing director of the company and a trained lawyer, already had knowledge of the agreement.
66 It was not put to Mr Olivero during cross-examination that the Corporations Act requires a director to advise the ASX of any contract that confers a right to call for shares in the company, although counsel relied on this Act in closing. In light of Mr Olivero's other evidence, he is likely to have said that he did not have knowledge of this requirement. It is not relevant whether Mr Olivero complied with the provisions of the Corporations Act. The fact that Mr Olivero did not formally advise Redstone Resources or the ASX of his right to shares flowing from the agreement with Mr Ailakis is merely relevant in so far as it shows whether he regarded the agreement as binding or not. If he was not aware of this obligation, his failure to comply with it does not indicate that he thought he had no enforceable right to the shares.
67 Mr Ailakis' failure, as the managing director, to disclose the agreement to the ASX also does not do much to support the argument that there was no legally binding agreement. Mr Olivero gave evidence that Mr Ailakis was very slack in carrying out his duties and that he often had to step in and do things that Mr Ailakis had omitted to do. Mr Ailakis not only allowed the company's rights to the Tollu tenement to lapse by reason of an administrative error, but also failed to make a renewal application for another tenement in 2009 which was consequently lost. It is therefore quite conceivable that Mr Ailakis initially did not bother to or did not get around to making disclosure to the ASX even if he believed that he had entered into a legally binding agreement with Mr Olivero. It seems that soon thereafter Mr Ailakis had second thoughts about following through on the agreement and this is a good reason for his failure to make disclosure.
68 Counsel for the Ailakis brothers also relied on the email sent by Mr Olivero to Mr Rodney Ailakis on 9 December 2009 threatening legal action to enforce the transfer of the shares. Counsel for the Ailakis brothers pointed out that Mr Olivero had used the words 'promise' and 'decided to give' when recounting the undertaking by the Ailakis brothers. Counsel argued that these words indicated that Mr Olivero only saw the undertaking as a promise to make a gift.
69 However, Mr Olivero started the email by saying that he was surprised that Mr Ailakis had denied that 'the deal' existed in the first place. Mr Olivero then referred to the promise that Mr Ailakis had made to him in front of several witnesses.
70 In my view, there is not much value in dissecting the language used by a layperson to describe the arrangements made between the parties. In any event, the fact that Mr Olivero threatened with legal action supports the opposite conclusion, namely, that he thought there was a legally binding agreement in place.
71 Accordingly, there is nothing in the parties' subsequent conduct which indicates that the Ailakis brothers and Mr Olivero were of the understanding that they had not entered into a legally binding contract.
Whether the evidence of similar undertakings by Mr Ailakis to other people which resulted in a transfer of shares was admissible and indicative of an intention to enter into a legally binding agreement
72 In further support of the argument that there had been an intention to enter into a legally binding contract Mr Olivero relied on other agreements to transfer shares which Mr Ailakis had made with other persons who had assisted with capital raising and the fact that these undertakings were performed.
73 I have already found that there was an intention by both parties, assessed objectively, to enter into a legally binding contract. Accordingly, it is not strictly speaking necessary to deal with this further evidence presented by Mr Olivero. However, because the admissibility of this evidence was in dispute and because it was provisionally allowed, I will deal with its admissibility and effect.
74 Mr Richard Chilvers gave evidence that over the course of several conversations with Mr Ailakis, Mr Ailakis had agreed to give him a 10% commission on all capital he raised and that the commission would be paid in the form of Redstone shares from his own portfolio of shares. Mr Ailakis promised Mr Chilvers to prepare a document describing the agreement, but although Mr Chilvers asked for this document repeatedly, this was never produced. However, in 2008 Mr Chilvers received a trust deed signed by Mr Rodney Ailakis as trustee in respect of the total number of shares that he was owed.
75 In January 2010 Mr Chilvers received a handwritten note from Mr Ailakis together with a share transfer form for 170,000 shares to be transferred from Mr Rodney Ailakis to Mr Chilvers' partner, as had been requested by Mr Chilvers. Mr Chilvers signed the share transfer form and the 170,000 shares were subsequently transferred into the name of his partner.
76 Mr William Hayes gave evidence that he and Mr Ailakis orally agreed in 2005 that Mr Hayes would be paid a 10% commission for any seed capital that he could raise for the initial public offering of shares in Redstone Resources. Mr Hayes said Mr Ailakis told him that he would personally pay the 10% commission from his own shares in Redstone Resources. Mr Hayes said that Mr Ailakis made a similar arrangement with him in 2006.
77 Mr Hayes had to remind Mr Ailakis on more than 10 occasions between 2007 and 2009 to pay him the 10% commission for the total sum of $171,500 which Mr Hayes had raised for Redstone Resources. In 2009 Mr Rodney Ailakis finally transferred the requisite shares to Mr Hayes.
78 Counsel for the Ailakis brothers submitted that this evidence was not admissible because it was not probative of the issue whether the Ailakis brothers had entered into a legally binding agreement with Mr Olivero.
79 In Martin v Osborne [1936] HCA 23; (1936) 55 CLR 367 the High Court dealt with the admissibility of similar fact evidence in quasi-criminal proceedings. The respondent had been charged with transporting passengers for reward without the vehicle having been licensed for that purpose. It was held that evidence that the respondent had on the two preceding days carried passengers between the same two places should have been admitted because this evidence impacted on the probability that the respondent had charged a fee for carrying passengers on the day in question.
80 Dixon J held at 375 that where an issue was to be proven by circumstantial evidence, facts had to be established from which the existence of the issue followed as a rational inference. As part of the circumstantial evidence any act or occurrence was admissible as long as it showed the probability or increased probability, judged rationally upon common experience, that the fact in issue existed. Evatt J explained at 385 that it would often be a question of degree whether the circumstantial evidence did have a bearing on the probability or improbability of the fact in issue.
81 In Grivas v Brooks (1997) 69 SASR 532 the plaintiff had brought a civil action for damages for malicious prosecution against a parking inspector and his employer. The issue was whether evidence by witnesses that the parking inspector had previously made false allegations against other motorists and had deliberately refrained from putting infringement notices on their motor vehicles was admissible. Matheson J (with whom Doyle CJ and Bleby J agreed) came to the conclusion that this evidence was admissible because it was logically relevant to whether the infringement had been issued to the plaintiff without cause and whether the parking inspector had acted maliciously.
82 Matheson J held at 547 – 549 that similar fact evidence was merely circumstantial evidence which should be admitted in a civil trial whenever it was logically probative of a fact in issue. The safeguards required in criminal proceedings in relation to similar fact evidence were not necessary in civil proceedings.
83 His Honour cited with approval a passage from Cross on Evidence (3rd Aust ed) 557, par 11.55, where, insofar as is relevant, the learned author stated the following:
In more recent times the true nature of similar fact evidence has been appreciated. It is merely circumstantial evidence from which the tribunal of fact is asked to infer the existence of the fact in issue. But it is circumstantial evidence of a particular kind because of the prejudice it carries. The law excludes it in criminal cases because of its concern for the interests of an accused person. When there is no question of prejudice to an accused person, as in the case of a civil proceeding, the rule has no place. Like any circumstantial evidence the court will admit it where it is logically probative of a fact in issue. 84 The passage in the most recent edition of Cross on Evidence (18th Aust ed) [21280] is still to the same effect, although the learned author points out that the courts in Australia have often demonstrated a remarkable reluctance to abandon the criminal rule of exclusion in civil cases.
85 Matheson J further quoted with approval a passage in Mood Music Publishing Co Ltd v De Wolfe Ltd [1976] Ch 119, 127 where Denning MR held that in civil cases evidence of similar facts was admissible if it was logically probative of the matter in issue provided that it was not oppressive or unfair to the other side and that the other side had fair notice of it and was able to deal with it. Matheson J preferred not to express a definite opinion as to whether the admissibility of similar fact evidence was subject to it not being oppressive or unfair to the other side and not presented without fair notice. His Honour indicated that perhaps the matters of oppression, unfairness or lack of notice were more properly dealt with as part of a court's discretion to exclude any admissible evidence.
86 Matheson J also made the point that the admission of the evidence was one thing; its use and weight another.
87 In Mister Figgins Pty Ltd v Centrepoint Freeholds Pty Ltd [1981] FCA 15; (1981) 36 ALR 23, 28 – 31 Northrop J held, in reliance on Martin v Osborne, that in a civil case evidence of similar facts was admissible if it was logically relevant to determining the matter in issue. His Honour expressed the view that in civil proceedings evidence which was logically probative of a fact in issue was not rendered inadmissible by reason of oppression or unfairness.
88 Northrop J also pointed out that the first step was to decide whether the evidence was admissible and that the question of the weight to be given to the evidence arose at a later stage.
89 In Mister Figgins the issue was whether the agent of the lessor of a shopping centre had made misleading representations to the plaintiff, a prospective tenant. Evidence by a number of other prospective tenants to the effect that similar representations had been made to them was held to be admissible. Northrop J held that because these were prospective tenants of shops in the same shopping centre there was a probability or increased probability, judged rational upon common experience, that similar representations had been made to the plaintiff. Northrop J was of the view that the representations to the other tenants could establish a pattern which could support proof of the fact in issue.
90 In Gates v City Mutual Life Assurance Society Ltd (1982) 43 ALR 313, 327 – 328 representations were made by an insurance salesman to the plaintiff regarding the extent of benefits payable under a disability insurance policy. Ellicott J held that the evidence of five witnesses who said that similar representations had been made to them was admissible as it showed the increased probability of the representations having also been made to the plaintiff.
91 In International Paper Company v Spicer [1906] HCA 75; (1906) 4 CLR 739, 748 - 750 the issue was whether a person who had contracted on behalf of paper manufacturers with a newspaper publisher had actual or ostensible authority to do so on behalf of the paper manufacturers. The High Court ruled that evidence that the person had contracted on behalf of the paper manufacturers on at least three earlier occasions and that the paper manufacturers knew that he was holding himself out as an agent and subsequently performed the obligations under the three contracts was admissible to prove the disputed agency in relation to the contract with the newspaper publishers.
92 In England, the House of Lords has accepted that in a civil case the only test for admissibility of similar fact evidence is whether it is logically probative of a fact in issue. In O'Brien v Chief Constable of South Wales Police [2005] EWCA Civ 1440; [2005] 2 AC 534 the House of Lords held that the first step in deciding whether similar fact evidence was relevant in civil proceedings was to decide whether it was probative, in the sense that it was logically probative of a fact in issue. It was not necessary that the evidence be substantially or strongly probative (at [4], [52] - [57], [72] – [75]). The second stage involved a discretionary decision by the trial judge to exclude probative evidence because it might focus the attention of the decision-maker on matters collateral to the issues to be decided, cause unfair prejudice or be unfairly burdensome on the other party by lengthening the trial or increasing the costs (at [5] – [6], [77] – [79]).
93 In Duke Group Ltd (in liq) v Pilmer (1994) 63 SASR 364, 377 - 378 Mullighan J held that there was only one, or potentially two, circumstances in which a court had a discretion to reject admissible evidence in civil proceedings. The first circumstance was where the admission of the evidence would result in procedural unfairness to the other party because it would unnecessarily complicate and prolong the trial. The second circumstance was possibly where the evidence had been illegally obtained.
94 On the basis of the authorities discussed it seems that it may nowadays be accepted that the only requirement for the admissibility of similar fact evidence in civil proceedings is that it is logically probative of a fact in issue. It does not seem to be necessary that the similar fact evidence be classified as tendency, repeated business practice or line of conduct evidence. Whatever type of circumstantial evidence it may be, the only requirement for admissibility is that it is logically probative of a fact in issue.
95 The court then has a discretion to exclude relevant evidence by reason of procedural unfairness, but such considerations do not arise in this case. The Ailakis brothers had ample notice of the evidence by Mr Chilvers and Mr Hayes and the evidence of these witnesses did not take up any substantial period of time during the trial.
96 Once similar fact evidence has been ruled admissible it is another issue what weight should be attached to that evidence.
97 It appears that Mazza J took a similar approach to the admissibility of similar fact evidence in Gutta v Ierino [2010] WASC 402 [121] - [126].
98 In the present case the evidence that Mr Ailakis had on two prior occasions entered into an agreement with persons in which he offered a reward of transferring shares held by him personally or by his brother in consideration for the persons performing a service to Redstone Resources and the fact that his undertakings were performed was admissible. The fact that Mr Ailakis had on previous occasions followed through on these agreements is logically probative of the issue whether he intended to enter into a legally binding agreement with Mr Olivero and intended to follow through on that.
99 This is a similar factual situation to that in International Paper Company v Spicer where the evidence of the paper manufacturers having previously performed their obligations under contracts entered into on their behalf by the same agent was held to have been admissible.
100 The next question, of course, is what weight this evidence should be given and whether it proves that there was an intention by both parties to enter into a legally binding contract. The intention has to be assessed objectively, but has to be inferred from the surrounding circumstances, including what the parties did and said at the time and also what they did on previous occasions insofar as this bears on the probability of the parties having had the requisite intention on this occasion.
101 I would not accord any material weight to the evidence of the earlier agreements. It seems that these two agreements were entered into at arms length, whereas Mr Anthony Ailakis and Mr Olivero were business partners and social friends to some extent. Further, the undertaking to transfer shares given by Mr Ailakis in relation to Mr Chilvers and Mr Hayes was in consideration of them raising capital, the amount of which could be measured, and the number of the shares to be transferred was tied to the level of capital raised. In Mr Olivero's case his undertaking was to ensure that the obligations that he had undertaken to Mr Verbeek would be met and the Tollu tenement recovered.
102 The similar fact evidence further only concerns two earlier agreements where Mr Ailakis promised to transfer shares. This evidence does not support a finding that he was in the habit of entering into agreements under which he promised shares to persons who rendered a service to Redstone Resources.
103 The similarities between the agreements entered into with Mr Chilvers and Mr Hayes on the one hand and that entered into with Mr Olivero were therefore not such as to make it significantly more probable that the parties intended to enter into a legally binding agreement. As I have already come to the conclusion, based on other circumstantial evidence, that there was an intention to enter into a legally binding agreement, it is not necessary to take into account the similar fact evidence. At best it provides some limited confirmation of the conclusion that I have already reached.
Whether there was valuable consideration
104 Counsel for the Ailakis brothers submitted that even if there had been an offer and acceptance, the contract could not be enforced by Mr Olivero because he never provided consideration in exchange for being promised the shares. It is trite law that before a contractual promise can be enforced there needs to have been consideration moving from the promisee: Trident General Insurance Company Ltd v McNiece Bros Pty Ltd [1988] HCA 44; (1988) 165 CLR 107, 113 (Mason CJ and Wilson J). However it is not necessary that the consideration move to the promisor. It is sufficient if the consideration was given by the promisee to some other person at the promisor's request: Dunlop Pneumatic Tyre Co Ltd v Selfridge & Co Ltd [1915] UKHL 1; [1915] AC 847, 853. The promisee bears the burden of proving the presence of consideration: McKay v National Australia Bank Ltd [1998] 1 VR 173, 177.
105 In order for there to be valuable consideration, there must be a connection between the promise made by the promisor and the consideration which is said to support the promise. The promise must have been a quid pro quo for the consideration. If this requisite relationship between the promise and the consideration is absent, the promise may simply constitute an undertaking to make a gift if the promisee does a particular act: Australian Woollen Mills Pty Ltd v The Commonwealth, 456 – 457. In such a case there would be no valid consideration.
106 Where the promisor requested the promisee to do the act which constitutes the consideration, the necessary relationship between the promise and the consideration has been established: Carlill v Carbolic Smoke Ball Co, 265, 271.
107 It is not necessary that the consideration provided was the only inducement for the promisor to make the promise. It is sufficient if the consideration was an inducement for the promise: Brikom Investments Ltd v Carr [1979] QB 467, 490.
108 Consideration may be executory, that is, still to be performed: Shadwell v Shadwell [1860] EngR 118; (1860) 9 CBNS 159; (1860) 142 ER 62, 68.
109 These requirements for valuable consideration are all met by Mr Olivero's undertaking to Mr Ailakis that he would perform the work he had promised to Mr Verbeek. Mr Ailakis' promise to transfer a million shares was a quid pro quo for this undertaking by Mr Olivero. The fact that Mr Ailakis' promise may have been partly given in respect of the past work done by Mr Olivero in negotiating with Mr Verbeek does not mean that the undertaking by Mr Olivero to perform the work promised to Mr Verbeek in the future was not good consideration.
110 Counsel for the Ailakis brothers relied on the generally accepted proposition that an agreement to perform a contractual duty already owed to a third party is illusionary consideration where the promisee does not obtain the benefit of a direct obligation which he or she can enforce.
111 In the first place, it is questionable whether Mr Olivero's offer, made on behalf of Redstone Resources, to assist Mr Verbeek and the acceptance of this by Traka Resources created a personal duty by Mr Olivero to Traka Resources. Secondly, even if this was so, the performance of that duty to Traka Resources had considerable benefits for Mr Ailakis personally. Recovering Tollu would not only have saved him severe embarrassment, it would also have prevented the erosion of his large personal and family investment in shares in Redstone Resources. Further, as I have found, Mr Olivero's undertaking to Mr Ailakis that he would perform the work promised to Mr Verbeek would have been enforceable by Mr Ailakis.
112 Moreover, Mr Olivero did perform his obligations to Mr Verbeek which in itself constituted consideration for Mr Ailakis' promise to transfer the shares. The actual performance of a pre-existing duty owed to a third party may also constitute good consideration: Shadwell v Shadwell (68).
113 It is not clear from the submissions filed by counsel for the Ailakis brothers whether they contend that there was a pre-existing contractual duty by Mr Olivero personally to Redstone Resources to perform the Tollu work. It was put to Mr Olivero in cross-examination that he was not told by Mr Ailakis at any time prior to him doing the work in relation to Tollu that the board had approved the payment of consultancy fees to him in that regard. Mr Olivero agreed with this. This seems to indicate that counsel for the Ailakis brothers did not rely on a pre-existing contract between Mr Olivero and Redstone Resources, although the written submissions in reply seem to be based on the opposite view.
114 The issue whether and when a contract between Redstone Resources and Olivero Consulting may have come into existence was not properly ventilated in submissions, but it seems doubtful that such a contract was entered into prior to the agreement between the Ailakis brothers and Mr Olivero regarding the 1 million shares. Mr Ailakis did not want anyone to know about the loss of Tollu and does not seem to have discussed this with Mr Fountain who replaced Professor Groves as chairman on the same day that Mr Ailakis announced the loss of Tollu to Mr Olivero. In any event, even if Mr Ailakis had ostensible authority to bind Redstone Resources in this regard, it is doubtful that the terms of any agreement entered into by him on behalf of Redstone Resources before Mr Olivero went to see Mr Verbeek contained the same obligations that Mr Olivero undertook with regard to the Ailakis brothers when he was promised the shares.
115 Mr Olivero only billed Redstone Resources through Olivero Consulting in August 2007 for the work done in relation to Tollu and it is more likely that Mr Ailakis authorised payment on behalf of Redstone Resources at that stage.
116 Further, even if there was a pre-existing contract with Redstone Resources, the performance by Mr Olivero of his obligations would have been to the personal benefit of the Ailakis brothers and, in any event, Mr Olivero provided consideration by performing the obligations in due course.
Whether Mr Olivero had a duty in law as non-executive director to perform the work to recover Tollu
117 Counsel for the Ailakis brothers further submitted that Mr Olivero had a duty in law as a non-executive director of Redstone Resources to perform the work he had done in relation to Mr Verbeek and Tollu and that this work could therefore not constitute good consideration.
118 Despite findings to the contrary by Lord Denning in Ward v Byham [1956] EWCA Civ 1; [1956] 2 All ER 318, 319, it is generally accepted that a promise to perform an existing duty in law is not sufficient consideration: Collins v Godefroy (1831) 1 B & Ad 950, 956 – 957; Westpac Banking Corporation v Australian Securities Commission (1997) 72 FCR 318, 331. This raises the question whether the work that Mr Olivero performed in order to regain Tollu was work which he was by law obliged to do because he was a non-executive director of Redstone Resources.
119 Mr Olivero was appointed in May 2006 as a non-executive director of Redstone Resources. His letter of appointment specified that he would be paid director's fees of $30,000 per year. The letter explained that there would normally be 10 – 11 board meetings per year and that strategic workshops for directors to discuss matters affecting the company would take place on board meeting days.
120 Mr Olivero gave evidence that he understood that the remuneration of $30,000 per year was to cover his attendance at the board meetings and strategic workshops on the same day only.
121 Prior to being appointed a non-executive director, Mr Olivero had done consultancy work for Redstone Resources which had involved Mr Olivero travelling to Argentina and consulting with government officials to whom his father had connections. Mr Ailakis, on behalf of Redstone Resources, and Mr Olivero had agreed that in respect of this consultancy work Mr Olivero would be paid $625 per day through his consultancy company, Olivero Consulting.
122 After the trip to Argentina Mr Olivero performed further work for Redstone Resources which he considered to be consultancy work and in respect of which Olivero Consulting issued invoices which were paid by Redstone Resources. Although the issue of an agreement with Olivero Consulting found its way onto the agenda for a board meeting in May 2007 and was discussed as being an outstanding item, no agreement was ever entered into between Olivero Consulting and Redstone Resources regarding the scope of consultancy services other than in relation to Argentina or the payment to be made for such services. Mr Olivero said he assumed that he was meant to continue charging for consultancy services at the rate of $625 per day, but sometimes charged $400 if he had only been engaged in half a day's work. Mr Olivero explained that he withheld the invoices for the first half of 2007 in anticipation of an agreement between Olivero Consulting and Redstone Resources eventuating, but subsequently submitted the invoices for the first six months in August 2007.
123 The invoice for May 2007 totalled $16,445. The attached timesheet indicated that amongst other consultancy work Mr Olivero had charged Redstone Resources at $625 per day for the work that he had done in negotiating with Mr Verbeek and in undertaking the two trips to introduce him to the Ngaanyatjarra people. This invoice was subsequently paid by Redstone Resources.
124 Clause 8.3(f) of the constitution of Redstone Resources provided that a director was entitled to be paid out of the funds of the company any special or additional remuneration that the directors decided upon as appropriate in respect of any extra services performed by a director or any special exertions made by him for the benefit of the company.
125 The annual financial report of Redstone Resources for the year ended 30 June 2007 advised that the company had entered into service agreements with non-executive directors pursuant to which non-executive directors were entitled to charge a consulting fee for technical or corporate services beyond their director's duties. The report noted that such an agreement had been entered into for a period of two years from 1 July 2006 with Olivero Consulting Group, which was an entity related to Mr Olivero, and that the fee was $625 per day.
126 Counsel for the Ailakis brothers did not submit that Mr Olivero should not have charged for any consultancy services other than those dealing with the potential Argentinean operations, but contended that Mr Olivero had in the past charged for work that had been part of his duties and responsibilities as a non-executive director and that the same applied with regard to the work he performed to regain Tollu.
127 Mr Olivero gave evidence that he did not regard his meetings with Mr Verbeek and the two trips to the West Musgraves as having been within the scope of his duties as a non-executive director. He understood that he had performed additional consulting work when he attended the two meetings with Mr Verbeek even though he was a director who represented Redstone Resources. He agreed that Mr Verbeek would have regarded him as a director representing Redstone Resources.
128 This raises the question of the scope of the duties and responsibilities of a non-executive director. Counsel for the Ailakis brothers submitted that the duties of a non-executive director were essentially to the effect that a non-executive director:
was not involved in the day to day running of the business, but only charged with monitoring the executive activity and contributing to the development of strategy; was not bound to give continuous attention to the company's affairs; performed his or her duties from time to time at board meetings and at meetings of committees of the board; did not have any executive function in the company's management; had a duty in common law and in equity to exercise reasonable care and skill in performing his or her duties and exercising his or her powers; had a similar duty to exercise reasonable care and skill pursuant to s 180(1) of the Corporations Act. 129 The corporate governance statement attached to the Redstone Resources annual financial report for the year ended 30 June 2007 described the duties of the board of directors in similar terms, stating, insofar as relevant, that the board was responsible for oversight of the company, appointing the chief executive officer, providing input into and approval of management's development of corporate strategy and performance objectives, monitoring senior management's performance and implementation of strategy and approving and monitoring the progress of major capital expenditure, capital management and financial and other reporting.
130 The Ailakis brothers relied largely on s 180(1) of the Corporations Act which relevantly provides as follows:
(1) A director or other officer of a corporation must exercise their powers and discharge their duties with the degree of care and diligence that a reasonable person would exercise if they: (a) were a director or officer of a corporation in the corporation's circumstances; and
(b) occupied the office held by, and had the same responsibilities within the corporation as, the director or officer.
131 Counsel submitted that the duties of care and diligence codified by s 180(1) applied equally to executive and non-executive directors. This is generally accepted: Australian Securities and Investments Commission v Healey [2011] FCA 717; (2011) 196 FCR 291, [172]. The more difficult issue in this case is exactly what duties Mr Olivero's role as non-executive director of Redstone Resources encompassed. The question whether he exercised them with the requisite degree of care and diligence can only be answered once it has been determined what the scope of his duties and responsibilities was.
132 In AWA Limited v Daniels t/as Deloitte Haskins & Sells (1992) 7 ACSR 759, 865 – 867 (upheld insofar as is relevant in Daniels v Anderson (1995) 37 NSWLR 438) Rogers CJ held that the responsibility of non-executive directors had to be examined in light of the proper division of functions between directors, management and auditors. Rogers CJ explained that a board's functions were generally to set goals for the corporation, appoint the corporation's chief executive, oversee the plans of managers for the acquisition and organisation of financial and human resources towards attainment of the corporation's goals and to review, at reasonable intervals, the corporation's progress towards obtaining its goals. His Honour noted that directors were entitled to rely on management to carry out the day to day control of the corporation's business affairs. Non-executive directors were not bound to give continuous attention to the affairs of the corporation. Their duties were of an intermittent nature to be performed at periodic board meetings and at meetings of any committee of the board upon which the director happened to be placed.
133 Counsel for the Ailakis brothers also relied on Australian Securities & Investments Commissions v Rich [2009] NSWSC 1229; (2009) 75 ACSR 1, [7201] where Austin J held that the reference in s 180(1)(a) to the 'corporation's circumstances' required that in determining the degree of care and diligence expected of a non-executive director consideration had to be given to the type of company involved, the size and nature of its business, the provisions of its constitution, the composition of the board and the distribution of the work between the board and other officers and whether the company was listed or unlisted.
134 Austin J further held at [7202] that the reference in 180(1)(b) to the 'same responsibilities within the corporation' was not limited to the specific tasks delegated to the particular director by formal means but included arrangements flowing from the experience and skills that the particular director brought to the office, from the way work was in fact distributed within the corporation and the expectations placed on the shoulders of the director by those arrangements.
135 However, Austin J also made the point at [7206] that the interpretation given to s 180(1) had somewhat different consequences for executive and non-executive directors.
136 Counsel for the Ailakis brothers further emphasised that a director is required to act with such care as may reasonably be expected of him having regard to his knowledge and experience. If a director has special skills or knowledge, he or she is expected to give the company the advantage of his knowledge in transacting the company's business: Re Brazilian Rubber Plantations and Estates Ltd [1911] 1 Ch 425, 437.
137 I accept all of the above, but it still begs the question what the scope of duties and responsibilities of Mr Olivero was in light of his position as a non-executive director of Redstone Resources. Mr Olivero was only tasked with devising goals and strategies and overseeing their implementation. He was not obliged to get involved in the day-to-day running of the affairs of Redstone Resources.
138 Mr Olivero's duties as a non-executive director may have required him to meet with the directors upon being informed of the loss of Tollu, to have discussed potential solutions and to have devised a strategy for trying to resolve the problem. But Mr Olivero's duties in law did not extend to him becoming involved in the operational part of the business of the company or to do the work on the ground.
139 Once he had devised the strategy of offering Mr Verbeek assistance in negotiating with the Ngaanyatjarra elders in exchange for him relinquishing Tollu, there is no reason why Mr Ailakis could not have made the offer to Mr Verbeek and why Mr Rodney Ailakis who was stationed in the West Musgraves could not have introduced Mr Verbeek to the Ngaanyatjarra elders. Mr Rodney Ailakis must previously have negotiated access by Redstone Resources to the Ngaanyatjarra elders' land, because Mr Olivero gave evidence that he had never previously dealt with the Ngaanyatjarra elders.
140 At best it might be said that Mr Olivero's duties as a non-executive director included him introducing Mr Ailakis to Mr Verbeek and perhaps also jointly making the offer, as Mr Olivero had had prior contact with Mr Verbeek when he had proposed a joint venture with Redstone Resources in the past. But to suggest that Mr Olivero was also duty bound to travel to the West Musgraves on two occasions and to undertake the negotiations with the Ngaanyatjarra elders himself goes too far and extends the duties of a non-executive director from an advisory and supervisory role to an operational role.
141 In my view the negotiations with Mr Verbeek, or at least the subsequent trips to the West Musgraves, were matters outside Mr Olivero's duties as a non-executive director and qualified as 'technical or corporate services beyond the director's duties' as envisaged in the constitution and the annual financial report for 2007. Mr Olivero negotiated with Mr Verbeek and the Ngaanyatjarra elders, because he had the necessary skills to do so and had prior contact with Mr Verbeek. Mr Olivero subsequently charged for this work through Olivero Consulting and was paid by Redstone Resources.
142 The mere fact that Mr Olivero happened to have the particular skills to resolve this matter on an operational level does not mean that he was under a duty to roll up his sleeves and do so. His advisory and supervisory role as a non-executive director did not suddenly change into a hands-on, operational role.
143 Considerable time was spent at trial to show that Mr Olivero had in the past charged through Olivero Consulting for work which was arguably part of his duties as a non-executive director. The timesheets attached to his invoices for consultancy work indicated that Mr Olivero had charged on two or three occasions in early 2007 for meetings with Mr Ailakis and Professor Groves during which fund raising and a possible joint venture with BHP Billiton were discussed. Mr Olivero had also charged consultancy fees for meetings with Mr Ailakis in April 2007 at which the board composition and the appointment of Mr Fountain as the new director were discussed. Counsel for the Ailakis brothers further relied on Mr Olivero charging for his earlier negotiations with Traka Resources in November 2006 which were aimed at establishing a joint venture between the two companies.
144 Mr Olivero said in evidence that he understood that his remuneration of $30,000 as non-executive director related to the days when board meetings took place and did not cover any consultancy work. Consultancy work done on any other day was charged out at $625 per day, or sometimes $400 for a half day, and he did not allow for any reduction in the daily consultancy fee if matters arose, such as the appointment of a new director, which may have fallen within his duties as a non-executive director of Redstone Resources. Mr Olivero said he expected Mr Ailakis to produce the promised agreement with Olivero Consulting to explain the manner in which he was to charge for his consultancy work and, in the absence of that, charged in the way he deemed fair and appropriate.
145 In December 2007 Mr Olivero asked Ms Miranda Conti, Redstone Resources' company secretary to pay him the outstanding director's fees for part of 2006 and for 2007. Ms Conti replied per email that her understanding was that the non-executive director's fees were included as part of the consulting fee arrangement with Olivero Consultancy, on the proviso that Mr Olivero would receive a minimum payment of $30,000 per year. Ms Conti noted that Mr Olivero had charged consultancy fees for work done on one occasion when a board meeting had taken place on the same day, but had not charged for other board meetings. She offered Mr Olivero his daily consulting rate for the 17 board meetings over the last 18 months which he had marked with the words 'no charge' in his timesheets attached to the invoices issued by Olivero Consultancy. Mr Olivero agreed to this arrangement and was subsequently paid a total sum of $10,625 by Redstone Resources for the additional 17 days, but not the round sum of $30,000 for director's fees.
146 In respect of the next two years, ie, 2008 and 2009 Mr Olivero was paid an annual sum of $30,000 in respect of director's fees.
147 It seems that all relevant parties were confused about the arrangements under which Mr Olivero and Olivero Consulting were entitled to charge and how much could be charged for what services. It may be so that some of the work that Olivero Consultancy charged for was done in performance of Mr Olivero's advisory and planning duties as a non-executive director. However, the fact that Mr Olivero may have charged Redstone Resources in the past for work which fell within the scope of his duties as a non-executive director does little to determine whether the work in relation to Tollu was part of his duties as a non-executive director or not. At best his manner of charging fees in the past can serve to support an argument that the fact that Olivero Consulting charged a consulting fee for the work done in relation to Tollu does not detract from the proposition that the Tollu work was in truth part of Mr Olivero's duties as a non-executive director.
148 Considerable time was also spent at trial putting to Mr Olivero that he had at times performed work in the nature of that of an executive director and had held himself out towards third parties as an executive director of Redstone Resources. Mr Olivero agreed that he had approached various individuals and companies in Australia for the purposes of fund raising and that he had travelled to China on one occasion to try and persuade a Chinese company to invest in Redstone Resources. Mr Olivero explained that when Mr Ailakis declined to travel to China at the last minute, Mr Olivero had business cards printed which indicated that he was an executive director. This was done in order to meet Chinese protocols pursuant to which a director of a Chinese company would not consider it appropriate to negotiate with anyone other than a director of the other company.
149 Counsel for the Ailakis brothers seemed to place great value on the fact that Mr Olivero had performed the duties of an executive director of Redstone Resources on that occasion. However, I am unable to see how this evidence supports the argument that the work done in relation to Tollu was part of Mr Olivero's duties as a non-executive director. The fact that Mr Olivero may at times have taken on the duties of an executive director in relation to fund raising (and charged for it as a consultant), does not mean that everything else he did on an operational level, including the negotiations regarding Tollu, therefore became part of his duties as a non-executive director.
150 Counsel for the Ailakis brothers also submitted that it was important that Mr Verbeek had regarded Mr Olivero as a director representing Redstone Resources when the offer in relation to the Ngaanyatjarra people was made to him. The fact that Mr Olivero indicated to third parties that he was acting as a director of Redstone Resources may have some relevance as to whether he could bind Redstone Resources, but does not mean that everything that he did in relation to the third parties was in law part of his duties as a non-executive director.
151 As indicated in the constitution of Redstone Resources and in the annual financial report for 2007 it was contemplated by the other directors of Redstone Resources that a non-executive director could perform duties which went beyond the scope of his normal duties and for which he should receive additional remuneration. This is what occurred in relation to Mr Olivero's negotiations with Mr Verbeek and the Ngaanyatjarra people. Whether Mr Olivero held himself out to Mr Verbeek as an executive or non-executive director of Redstone Resources does not change the fact that he performed work, at least that in the West Musgraves, which was outside the scope of his duties in law as a non-executive director and for which he eventually charged through Olivero Consulting, as he was entitled to do. Redstone Resources paid for this consultancy work without any issue being raised.
152 Counsel for the Ailakis brothers further submitted that once Mr Olivero had agreed with Mr Ailakis to put the offer to Mr Verbeek and to negotiate with the Ngaanyatjarra people, Mr Olivero had a duty in law to Redstone Resources to do so and s 180(1) to carry out that duty with reasonable skill and care.
153 As I said earlier, it is whether there was indeed a contract at that stage between Redstone Resources and Mr Olivero and it is not clear what its terms might have been. If there was such a contract, Mr Olivero would have had the duties imposed by section 180(1). However, this section pertains to existing duties; it does not create duties. The section proscribes that a director has to carry out any existing duty with reasonable care and skill. If Mr Olivero agreed with Mr Ailakis, on behalf of Redstone Resources, to carry out work which went beyond his normal duties as a non-executive director and, impliedly, that he would be paid extra for that work, this may mean that he had to carry out the additional work with due care and skill. But the additional work was contractually agreed to; it did not fall within the usual scope of the duties of a non-executive director.
154 Accordingly, the work performed by Mr Olivero in relation to Tollu (at the very least the two trips to the West Musgraves) was not part of his duties as a non-executive director and provided valuable consideration for Mr Ailakis' undertaking to transfer the 1 million shares.
Whether Mr Olivero lost his right to terminate the contract because he initially claimed specific performance
155 Mr Olivero initially claimed specific performance of the agreement as well as damages. The claim was based on a breach of the agreement in that the Ailakis brothers failed to transfer the 1 million shares to Mr Olivero within a reasonable period of time after the agreement was entered into on 2 May 2007. The amended statement of claim filed on 13 April 2011, shortly before the trial, still claimed specific performance. The particulars of damages filed at the same time indicated that in addition to a transfer of the shares Mr Olivero claimed the difference in the value of the shares if he had received them in early June 2007 and then sold them as he had planned, and the current value of the shares. The price of the shares had fallen considerably between 2007 and 2012.
156 In the submissions filed by Mr Olivero on 4 May 2012 he stated that an order for specific performance was no longer pursued and that the damages claim was based on the value of the shares if he had received them in early June 2007 and had sold them in the manner he had intended. Mr Olivero indicated that he would have sold 200,000 shares in small volume sales during June and July 2007 because he wanted to raise money to use for a deposit on houses for both of his children. Mr Olivero explained that the remaining 800,000 shares would have been placed in his self-managed superannuation fund and sold in February 2011, again in small parcels, in order to raise money to fund this litigation.
157 At the beginning of the trial, counsel for the Ailakis brothers raised that Mr Olivero could not claim loss of bargain damages unless he had terminated the contract and that no such termination had been pleaded. Mr Olivero was then given leave to amend his statement of claim to plead that the failure to transfer the shares as well as the denial of the existence of the agreement in the defence constituted a repudiation of the agreement. Mr Olivero also pleaded that he had accepted the repudiation by the Ailakis brothers (impliedly in his submissions as well as in a formal notice, dated 11 May 2012) and had notified them of the termination of the agreement. Mr Olivero then claimed loss of bargain damages on the basis of the value of the shares at the time of the breach and, in the alternative, on the basis of their value at the time that he intended to sell them.
158 Mr Olivero pleaded that the repudiation was constituted by the repeated failure to transfer the shares and by the statement by the Ailakis brothers in par 9 of their then existing defence which denied that there had been any offer made by one party to another, that there was any acceptance of an offer and that there was any intention to create legal relations.
159 The Ailakis brothers were given leave to amend their defence in response to the amendments made by Mr Olivero. They simply denied that repudiation had occurred by reason of the failure to transfer the shares or by what they had pleaded in par 9 of their defence. It was not pleaded in the amended defence that Mr Olivero was precluded from terminating the agreement as he had previously elected to claim specific performance. However, in closing submissions this point was raised by counsel for the Ailakis brothers and argued. No objection was taken that it had not been pleaded. Accordingly, I will deal with this point.
160 It is generally accepted that where one contracting party repudiates a contract the other can either accept the repudiation and treat the contract as terminated or can regard the contract as still alive and sue for specific performance. He cannot, however, insist on performance and at the same time adopt the remedies open to him on termination: Ogle v Comboyuro Investments Pty Ltd [1976] HCA 21; (1976) 136 CLR 444, 460. Further, once the innocent party elects to either keep the contract alive or to terminate it, he is bound by that election as soon as it has been communicated to the other party: Sargent v ASL Developments Ltd [1974] HCA 40; (1974) 131 CLR 634, 655 - 656. The commencement of an action for specific performance normally constitutes affirmation of the contract properly communicated to the other party: Park v Brothers [2005] HCA 73; (2005) 222 ALR 421 [40] and Ogle v Comboyuro Investments Pty Ltd (459).
161 By initially issuing a writ and claiming specific performance Mr Olivero made the election to keep the contract alive and demand the transfer of the shares. The question now is whether he is irreversibly bound by that election or whether he is still entitled to withdraw his claim for specific performance and claim loss of bargain damages after having terminated the agreement.
162 Mr Olivero initially claimed specific performance on the basis that the Ailakis brothers had breached the agreement by not transferring the shares. Subsequent to that the Ailakis brothers indicated in clear terms in their defence that they had no intention to be bound by what they alleged was a non-existing agreement. The allegation in par 9 of the defence constituted a repudiation of the agreement by the Ailakis brothers.
163 In Ogle v Comboyuro Investments Pty Ltd (458 – 460) the majority (Gibbs, Mason and Jacobs JJ) came to the conclusion that a party who elected not to rely on the breach of an essential term to rescind the contract may nevertheless do so at a later stage where the other party has repudiated the contract by further unreasonable delay or by a further act which expressly conveyed an intention no longer to be bound by the contract. In such a case there is more than the original breach in that the other contracting party repudiated the contract by evincing an intention never to complete it.
164 The majority relied on the judgment by Fullagar J in Carr v JA Berriman Pty Ltd [1953] HCA 31; (1953) 89 CLR 327 where his Honour explained that a right to rescind might arise which was not based on the breach of the original promise but on a repudiation constituted by the conveyance of a clear message that the other party was no longer intending to be bound by the contract. Fullagar J noted that a failure to remedy the original breach might continue so long and in such circumstances that this in itself evinced an intention no longer to be bound by the contract.
165 This is what occurred in the present case. Mr Olivero's claim for specific performance was initially based on the failure to transfer the shares within a reasonable time, but subsequently to that the Ailakis brothers evinced a clear intention that they did not consider themselves bound by any legally binding agreement and in response to that Mr Olivero was entitled to terminate the contract, relinquish his claim for specific performance and sue for loss of bargain damages.
166 Counsel for the Ailakis brothers relied on Larking v Great Western (Nepean) Gravel Ltd [1940] HCA 37; (1940) 64 CLR 221 and Sargent v ASL Developments Ltd for the proposition that a continuing failure to perform the promised act was not a new breach but merely a failure to remedy the past breach. The Ailakis brothers submitted that if there had been a breach by them, this was a once-and-for-all breach and not a continuing breach and once Mr Olivero had elected to claim specific performance in response to this breach, he was precluded from rescinding the agreement in the future.
167 It may be correct that the breach was a once-and-for-all breach, but the facts in both Larking and Sargent are to be distinguished from the facts in this case. In Larking and Sargent there was no subsequent repudiation of the contract. On the contrary, the party who had breached the contract was keen to continue the agreement. Further, in both instances, the innocent party had taken positive steps over a substantial period of time in affirmation of the contract. In Larking the innocent party had allowed the party in breach to continue to remove sand and gravel from its land for a period of approximately two years and had continued to accept royalties. In Sargent the innocent party had continued to receive quarterly interest payments over a period of some 32 months and had demanded and received other payments to which they were entitled to under the contract. Importantly, the party in breach in both Larking and Sargent did not evince a subsequent intention not to be bound by the contract.
168 It may be the case that the Ailakis brothers had already evinced an intention not to be bound by any agreement prior to filing their defence, because Mr Olivero sent an email to Mr Rodney Ailakis on 9 December 2009 stating that he was surprised that Mr Ailakis had denied that 'the deal' existed in the first place. The nature and extent of this denial was not canvassed in the evidence placed before the court. However, even if Mr Olivero had sued for specific performance at a time when the Ailakis brothers had already repudiated the agreement, this repudiation certainly continued and was repeated in no uncertain terms in the defence. In Sibbles v Highfern Pty Ltd [1987] HCA 66; (1987) 164 CLR 214, 227 the High Court held that a party who had elected to require a continued performance of the contract notwithstanding the repeated repudiation of it by the breaching party had not lost its right to ultimately terminate for the repudiation. In that case the breaching party continued to express its intention to be no longer bound by the contract.
169 Accordingly, I find that Mr Olivero was entitled to terminate the agreement and claim loss of bargain damages on the basis of the ongoing failure to remedy the breach and the repeated repudiation of the agreement by the Ailakis brothers. The termination was communicated to the Ailakis brothers in Mr Olivero's submissions filed shortly prior to the trial and subsequently in a letter handed to their counsel. It is not necessary for a party to expressly state that they are accepting a defaulting party's repudiation, as long as it is clear from their conduct that this is what is intended: Downing v Newsflash Nominees Pty Ltd [No 2] [2012] WASCA 211 [30].
Assessment of damages and whether it is relevant what Mr Olivero intended to do with the shares
170 The next question is how the damages that Mr Olivero is entitled to as a result of the breach of the agreement and its termination should be assessed and whether it is relevant what Mr Olivero planned to do with the shares once he had received them.
171 The general rule at common law is that where a party sustains a loss by reason of a breach of contract, he is, so far as money can do it, to be placed in the same situation as if the contract had been performed: Wenham v Ella [1972] HCA 43; (1972) 127 CLR 454, 471. These damages are often described as 'expectation damages' or 'loss of bargain damages' (see Treitel, The Law of Contract, 13th ed, 20-022). The plaintiff must prove, on a balance of probabilities, that his expectation of a certain outcome, as a result of the performance of the contract, was likely to have been attained. On the other hand, a plaintiff is not entitled, by the award of damages, to be placed in a superior position to that which he would have been in had the contract been performed: The Commonwealth v Amann Aviation Pty Ltd [1991] HCA 54; (1991) 174 CLR 64, 80 – 82, 98, 117, 134, 148, 161.
172 It is accepted law that the assessment of damages in contract is a pragmatic subject which does not lend itself to hard and fast rules: The Commonwealth v Amann Aviation Pty Ltd (119). The principles for assessing damages for repudiation or breach of contract should not be treated as rigid rules of universal application, but as prima facie rules which may be displaced and modified whenever it is necessary to do so in order to achieve a result which provides reasonable compensation for breach of contract without imposing a liability upon the other party exceeding that which he could fairly be regarded as having contemplated and been willing to accept: Wenham v Ella (466).
173 Mr Olivero pleaded that it was an implied term of his agreement with Mr Ailakis (as ratified by Mr Rodney Ailakis) that the Ailakis brothers would transfer the shares within a reasonable period of time after Mr Olivero had fulfilled his undertakings to Mr Verbeek. Mr Olivero pleaded that a reasonable time would have been 10 days after 28 May 2007, the day on which Mr Olivero gave Mr Ailakis the undated withdrawal form for the Tollu tenement signed by Mr Verbeek. Although the agreement and any implied term was denied in the defence, the Ailakis brothers did not take issue at trial with such an implied term being found if a binding legal agreement was held to have existed.
174 The expectation raised by the agreement was therefore that Mr Olivero would receive 1 million shares on or about 8 June 2007. Mr Olivero submitted that the market value of the Redstone Resources shares on that day was at least $1.20 per share.
175 The market value of $1.20 per share was based on evidence that the opening and closing prices of the Redstone Resources shares on 8 June 2007 were $1.45 and $1.39 respectively. The highest price was $1.50 and the lowest $1.39. This gives an average price of $1.43 per share on 8 June 2007. There were 81,469 shares traded on that day. Trading over the previous 10 days had been in the range of $1.42 - $1.75 per share and in the 10 trading days following 8 June 2007 the price was in the range of $1.32 - $1.67.
176 However, approximately one month later, on 12 July 2007, the board resolved to apply a discount of about 20% to the share trading price achieved over the previous 10 days and fixed a price of $1.20 per share for the purposes of raising funds under a short form prospectus issued on 12 July 2007. The share price over the 10 days prior to 12 July 2007 had ranged between $1.17 and $1.69.
177 Accordingly, Mr Olivero's claim that the Redstone Resources shares had a market value of $1.20 per share on 8 June 2007 is more than reasonable and should be accepted. This means that Mr Olivero had bargained for and expected to receive 1 million shares at a market value of $1.20.
178 The long-established rule for the assessment of loss of bargain damages for non-delivery of goods is that the buyer is entitled to the market price of acquiring the goods at the time of breach minus the price the buyer had agreed to pay for them under the contract: William Brothers v Ed T Agius [1914] AC 510, 530. This rule has now been adopted in s 50(3) of the Sale of Goods Act 1895 (WA). This section provides that where there is an available market for the goods in question, the measure of damages is, prima facie, to be ascertained by the difference between the contract price and the market or current price of the goods at the time when they ought to have been delivered.
179 McGregor on Damages, 18th ed, 24-001 states that although the Sale of Goods Act does not apply to contracts for the sale of shares, the principles relating to damages in respect of non-delivery of goods have been applied to contracts for the sale of shares. In Oxus Gold Plc v Templeton Insurance Ltd [2007] EWHC 770 (Comm) [83] and Bear Stearns Bank Plc v Forum Global Equity Ltd [2007] EWHC 1576 (Comm) [197], [208] – [209] it was held that the prima facie rule that the measure of damages is the difference between the market value and the agreed price also applies to a case of non-delivery of shares.
180 This has also been accepted in the Federal Court of Australia in Brimaud v Boston Securities Entertainment Investments Pty Ltd [1998] FCA 1392, 66. Emmett J held that the proper measure of damages for breach by a seller of fungible property is the difference between the contract price and market value at the date of breach or within such time thereafter as would be sufficient to enable the buyer to go into the market and buy the property which should have been delivered.
181 In this case the shares were not sold to Mr Olivero, but the Ailakis brothers promised to deliver shares in exchange for Mr Olivero performing his undertakings to Mr Verbeek. Nevertheless, I can see no reason why the prima facie rule entitling Mr Olivero to the market value of the shares as at the date of due performance should not apply.
182 Counsel for the Ailakis brothers submitted that as Mr Olivero had given evidence that he intended to sell 200,000 shares in June 2007 in order to use the proceeds for deposits for houses for his two children, but intended to retain the remaining 800,000 in his self-managed superannuation fund to be sold at a later stage, Mr Olivero should only be entitled to the market value of 200,000 shares in June 2007 and that the assessment of the damages in respect of the remaining 800,000 should be at the time that Mr Olivero intended to sell those shares.
183 Mr Olivero gave evidence that he initially planned to keep the remaining 800,000 shares in his self-managed superannuation fund to take advantage of the tax benefits, and to sell them later in a strong market. He said it was his intention to hold onto the 800,000 shares as part of his longer term retirement plan and that he would not have sold them when Olivero Consulting sold the 837,500 shares in Redstone Resources it owned in the period between January and August 2010. At that time these shares only fetched prices of 6.5 cents to 25.65 cents per share. Mr Olivero said he had to sell the shares held by Olivero Consulting in order to fund the litigation. However, Mr Olivero stated that if he had been in receipt of the 800,000 shares, they would have been placed in his superannuation fund and he would not have sold them at the same time, but only in February 2011 when the Redstone Resources shares had climbed to 60 cents per share.
184 Counsel for the Ailakis brothers submitted that the court should assess any damages payable to Mr Olivero on the basis of the market value of the shares at the time that Mr Olivero said he would have sold the shares. At the same time counsel for the Ailakis brothers contended that the court should not accept what he described as the 'self-serving' evidence, that Mr Olivero would only have sold the 800,000 shares in February 2011 when the price had climbed back to 60 cents. This argument seems to be somewhat contradictory, but I assume that the submission by the Ailakis brothers is that the court should assess the value of the 800,000 shares at the time that Mr Olivero was likely to have sold them (not when he said he would have done so). No specific time was nominated, but I assume the submission is that Mr Olivero was likely to have sold the 800,000 shares at the same time that he sold the shares held by Olivero Consulting.
185 The law is not in favour of taking into account a buyer's intention regarding the ultimate sale of goods or shares when an assessment is made of the damages payable to the buyer. In Rodocanachi v Milburn (1887) 18 QBD 67, 76 - 77, Smith J held that where shipowners failed to deliver a cargo, because it was lost, the appropriate measure of damages was the market value of the cargo at the time when delivery had been due, and it was not to be taken into account that the charterer had agreed to sell the cargo to a third party at a price less than the market value. Smith J stated that it was well settled law that in an action for non-delivery of goods under a contract of sale, the law did not take into account in assessing damages anything peculiar to the plaintiff or accidental as between the plaintiff and the defendant.
186 Smith J also made the point that if the buyer had sold the cargo at more than the market price, he would not have been entitled to the higher value and it would be unjust to confine him to a lower value because he sold the cargo at less than the market price.
187 In Williams v Agius (530 - 531) the House of Lords confirmed that in assessing damages for non-delivery of goods under a contract of sale, it was immaterial what the buyer intended to do with the purchased goods.
188 In Bear Stearns Bank Plc [208] – [209] the buyer of shares entered into an agreement to re-sell the shares shortly after concluding the agreement with the seller who subsequently failed to deliver the shares. Under the re-sale agreement the buyer would have obtained a lesser price than the prevailing market price at the time of the seller's failure to deliver the shares. Relying on Williams v Agius and Rodocanachi v Milburn Smith J came to the conclusion that damages had to be assessed on the basis of the market price of the shares prevailing at the time of non-delivery and not on the basis of the price that the buyer would have obtained on re-selling the shares.
189 The same approach was taken by Langley J in Oxus Gold Plc v Templeton Insurance Ltd [77] – [83] on the basis that the law was clear and settled in Williams v Agius and Rodocanachi v Milburn. However, Langley J [80] expressed the view that he would have preferred the law of damages to be less 'absolutist' and thought that on principles of causation the prices obtained in the re-sale should have been taken into account.
190 In Brimaud v Boston Securities Entertainment Investments Pty Ltd (36 – 37) Emmett J took into account that the shares to which the plaintiff was entitled after exercising an option would have been subject to compulsory retention and essentially assessed the damages on the likely market value at the end of the period of retention which would have occurred approximately three months after the end of the trial. On this basis Emmett J took the value of the shares at the time of the trial and allowed a discount for any uncertainty in the market between the date of the judgment and the end of the period of compulsory retention.
191 It makes sense that Emmett J took into account that the shares could only have been sold at the end of the compulsory retention period, as this was a matter inherent in the value of the shares and not dependant on what the buyer intended to do with the shares.
192 Counsel for Mr Olivero referred the court, in reliance on Mr Olivero's alternative claim for the assessment of damages, based on when he intended to sell the shares, to White v Shortall [2006] NSWSC 1379. In that case the purchaser of shares gave evidence that she would have sold most of them immediately after the agreed date of transfer and the remainder approximately five months later when an article appeared in a newspaper regarding the relevant company. Campbell J proceeded to assess the damages on the basis of the market price of the shares at the times when the purchaser said she would have sold them. His Honour did not refer to any authorities regarding the assessment of damages for non-delivery of shares, but only referred to cases which establish that a court may rely on evidence by a witness as to what he or she would have done if some matter in the past had occurred differently to the way it had in fact occurred.
193 In support of the submission that the court should assess the damages at the dates when Mr Olivero intended to sell the shares, counsel for the Ailakis brothers also relied on cases such as Kizbeau Pty Ltd v WG & B Pty Ltd [1995] HCA 4; (1995) 184 CLR 281, 291 and HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd [2004] HCA 54; (2004) 217 CLR 640 [39] – [40] where the High Court held that in assessing the real value of an asset, such as a business purchased, the court could take into account events that had occurred subsequent to the purchase and which shed light on the value of the asset at the time of the purchase. However, in both Kizbeau (291) and HTW Valuers [40] the court emphasised that only subsequent events which shed light on the inherent value of the asset at the time of purchase were to be taken into account (such as subsequent low takings by the business unaffected by any ineptitude of the new owner or the opening of a shopping centre nearby which was known at the time of purchase). If the subsequent events affecting the value are independent, extrinsic, supervening or accidental, they are not to be taken into account in assessing the real value of the asset. (See also Morellini v Adams [2011] WASCA 84 [40] – [44]). These cases all dealt with the assessment of the real value of an asset where the seller had been found to have engaged in misleading and deceptive conduct in relation to the value of the asset prior to the purchase of it.
194 In Wenham v Ella (473 – 474), Gibbs J also held that in assessing damages for the failure to transfer a part interest in land events that occurred subsequent to the date of breach could be taken into account in the assessment of the profit lost by the buyer as a result of the breach.
195 In the present case there was no subsequent event which shed light on the market value of the shares at the time of their non-delivery. The submission by counsel for the Ailakis brothers, and Mr Olivero's alternative case, were based on the proposition that damages payable to Mr Olivero should not be assessed on the basis of their market value at the time of non-delivery but their market value at the time that Mr Olivero intended to sell them. The difficulty with this is that Mr Olivero intended to sell 200,000 as soon as possible after transfer of them and the other 800,000 at a later stage 'in a strong market'. The market never became as strong again as it was when the shares should have been transferred and Mr Olivero never sold these shares, because he did not have them. No 'subsequent event' ever occurred.
196 This case is more on par with the decisions in Bear Stearns Bank Plc and Oxus Gold Plc in which it was held that the purchaser's agreement to on-sell the shares and the purchaser's intention to on-sell were not relevant in assessing the damages to which the respective buyer was entitled.
197 It cannot even be said that it was within the contemplation of the parties when they entered into the agreement that Mr Olivero intended to keep some of the shares in his superannuation fund and to only sell them at a later stage. He only told Mr Ailakis about his intention to sell some of the shares to raise money for a deposit for houses for his children and to retain the rest in his superannuation fund after the agreement had been entered into.
198 Accordingly, in my view, it is irrelevant what Mr Olivero intended to do with the shares. He should be entitled to the usual measure of damages which is the market value of the shares at the time of non-delivery.
199 There is one aspect pertaining to these shares which could perhaps be said to be, an intrinsic matter affecting the value of the shares and that is Mr Olivero's inability to sell the shares for some time after the due date for delivery, because Redstone Resources was involved in capital raising by way of a short form prospectus soon after that date.
200 The minutes of a meeting of the directors on 30 May 2007, attended by Mr Olivero, indicate that the directors had decided that documentation for a short form prospectus should be completed as soon as possible to enable receipt of the required funds by mid-July. At the same meeting it was also agreed that shares would not be traded by directors at a time when they were in possession of price sensitive information and that in any event the agreement of the board of directors had to be obtained to any sale.
201 The short form prospectus was issued on 12 July 2007. Mr Olivero gave evidence that by 16 August 2007 Redstone Resources had raised approximately $3.1 million.
202 This means that between 30 May 2007 and 12 July 2007 Mr Olivero was in possession of price sensitive information which was not public knowledge and it is unlikely that the other directors would have agreed to him selling any shares that he might have received from the Ailakis brothers.
203 There were also two announcements made by the ASX in that period, one on 5 June and one on 15 June. Mr Olivero was also likely to have had price sensitive information just prior to the two announcements.
204 In addition Mr Olivero was aware that the Tollu tenement had not yet been recovered, which would also have been price sensitive information. On the other hand, Mr Ailakis was in possession of a signed and undated withdrawal form by Traka Resources. This form was only lodged by Redstone Resources with the Department of Industry and Resources, Mineral and Title Services Division, on 30 November 2007, but in light of the fact that it was in Mr Ailakis' possession since 28 May 2007, it is likely that the other directors would have agreed to Mr Olivero selling his shares once the capital raising had been made public.
205 Counsel for the Ailakis brothers submitted that Mr Olivero would only have been able to sell his shares after 12 July 2007. However, if this is accepted, the average share price during the next four weeks, from 13 July to 10 August 2008 (calculated on the average of the lowest and highest share price on each of the days during that period) was still $1.27.
206 I accept that the planning for and eventual capital raising by Redstone Resources shortly after Mr Olivero would have received the shares is a factor that affects the inherent value of the shares as far as he, a director, was concerned. In my view this is similar to the compulsory retention restriction that was taken into account in the assessment of the market value of the shares in Brimaud v Boston Securities Entertainment Investments Pty Ltd. However, as indicated, the practical effect of taking this into account is nil, as the shares retained their value after the capital raising.
207 Accordingly, Mr Olivero should be awarded the market value of the 1 million shares as at late July/early August 2007. As he has claimed a value of $1.20 per share, which is less than the market value during that period, he is entitled to $1.2 million in damages.
208 If I am wrong in having assessed the value of the shares as at the date of non-delivery and should have taken into account when Mr Olivero intended to sell them, I would have calculated the market value of the 200,000 shares by taking their average price over the period 13 July to 10 August 2007 and the market value of the 800,000 shares as at February 2011.
209 As part of his particulars of damages Mr Olivero provided a schedule of 14 potential share sales in small quantities (ranging from 5,000 to 80,000 shares) over the period 15 June to 4 July 2007 at the then prevailing share price (an average price of $1.50 per share). Mr Olivero suggested that a 10% deduction be made to allow for the contingency that the shares would not have been able to be sold in this manner. This would have entitled him to a total of $271,665 in respect of the 200,000 shares.
210 However, I accept that Mr Olivero's knowledge of price sensitive information during this period would have prevented him from selling the shares until after 12 July 2007. I have not been provided with a similar schedule of potential sales over a period of about four weeks after 12 July 2007, but would have calculated the market price of the 200,000 shares on the basis of the average of the lowest and highest share price on each day over the four weeks which was $1.27. This would have entitled Mr Olivero to 200,000 x $1.27 = $254,000.
211 I cannot see why a deduction of 10% needs to be made from this amount, because even if the assessment is made with regard to the date on which Mr Olivero intended to sell the shares, he is entitled to the market value of the shares at that time. Taking the average between the lowest and highest share price on each day over a period of four weeks seems to be a fair indication of the achievable market price.
212 Mr Olivero claimed that he would have sold the 800,000 shares on four individual occasions during the period 11 – 18 February 2011 at which time the average share price was $0.612. He suggested a 10% deduction to allow for the contingency that the sales would not have achieved the market price on those days. This would have entitled Mr Olivero to $440,550 in respect of the 800,000 shares.
213 Counsel for the Ailakis brothers submitted that it was self-serving for Mr Olivero to say that he would have sold the 800,000 shares in February 2011 as the share prices in February represented a spike which had not occurred since April 2008 and did not occur again after February 2011. However, Mr Olivero was a share trader, either personally or through Olivero Consulting, as evidenced by the accounts he held with various share brokers. He was not under pressure to sell the shares that he would have placed into his superannuation fund. He denied that he would have sold the 800,000 shares at the same time as he sold the shares held by Olivero Consulting or at a later time when the share prices were lower.
214 Taking into account what Mr Olivero said as to when he intended to sell the shares is clearly part of the problem of assessing damages on the basis of what a plaintiff says he would have done with the shares. I accept that evidence of what a plaintiff would have done in the past if a particular warning had been given is admissible, although the weight to be accorded to it is a matter for the court. Such evidence is often not given much value on the basis that it is prone to being hypothetical, self-serving and speculative: Hoyts Pty Ltd v Burns [2003] HCA 61; (2003) 77 ALJR 1934 [40] and [41].
215 However, if I had to determine the value of the 800,000 shares on this basis, I would have accepted Mr Olivero's calculation of the sales prices he was likely to have achieved and in this instance I would have made the 10% deduction as Mr Olivero's claim was based on four sales on specific days and not on a monthly average. On this basis Mr Olivero would have been entitled to $440,550 for the 800,000 shares.
216 This means that if the damages were to be assessed on the basis of when Mr Olivero intended to sell the shares, he would have been entitled to $694,550.
217 Counsel for the Ailakis brothers submitted that as Mr Olivero had intended to place the 800,000 in his self-managed superannuation fund of which both he and his wife were beneficiaries, he only lost the right as a beneficiary to half the value of the 800,000 shares as at the time when he intended to sell them.
218 Mr Olivero gave evidence that in about July 2007 he told Mr Ailakis that he wanted to sell some of the shares to raise a deposit for a house for both of his children and that he intended to place the rest into his self-managed superannuation fund. Mr Ailakis replied that he was happy to transfer the shares to whichever entity Mr Olivero chose.
219 In my view, as indicated before, it is irrelevant what Mr Olivero intended to do with the 800,000 shares. Even if it is assumed that the Ailakis brothers would have transferred 800,000 shares straight into Mr Olivero's self-managed superannuation fund, this still does not mean that he did not suffer the loss of the value of all 800,000 shares. No evidence was placed before the court regarding the entitlement of the beneficiaries to assets in the superannuation fund. Mr Olivero may have had an entitlement to all the assets which he brought into the superannuation fund.
220 Further, the loss suffered by Mr Olivero is the failure to provide him with what he was entitled to under the agreement. He, personally, was entitled to 1 million shares. The fact that he may have chosen to have distributed some of his entitlement between himself and his wife (assuming that each beneficiary of the superannuation fund was entitled to half of its assets), does not mean that he has only suffered half that loss.
221 In my view this situation is similar to cases such as Husher v Husher [1999] HCA 47; (1999) 197 CLR 138 [18] – [22] and [53] – [54] where it was held in the context of assessing damages for negligence arising from a motor vehicle accident that the plaintiff's capacity to have earned income was determinative rather than the income that was in fact attributed to him in the accounts of the partnership that he had entered into with his wife in relation to his business as a block layer. Similarly, in Jason v Batten (1930) Ltd; British Traders Insurance Company Ltd [1969] 1 Lloyd's Rep 281, 289, it was held that a plaintiff injured in a motor vehicle accident had lost the full reduction in the net profit experienced by his company, even though half the shares in the company were held in trust for his children.
222 Accordingly, there is no reason why Mr Olivero should not be entitled to the market value of the full 800,000 shares.
Whether the damages should be assessed at the time of the breach or at the time of trial
223 Counsel for the Ailakis brothers further submitted that if the court was minded to calculate the damages by reference to the market value of the shares, the relevant time for calculating Mr Olivero's loss was at the time of trial and not at the time of non-delivery of the shares.
224 The usual measure of damages for non-delivery of goods or shares which can be replaced on the market is the difference between the contract price and the market value at the date of non-delivery or the first subsequent date on which the buyer would have been able to go into the market and buy the goods or shares which should have been delivered: Shaw v Holland [1846] EngR 401; (1846) 15 M & W 136, 145 – 146; Johnson v Perez [1988] HCA 64; (1988) 166 CLR 351, 355 – 356; Brimaud v Boston Securities Entertainments Investments Pty Ltd (36). However, where the calculation of the damages as at the time of breach would give rise to an injustice, the court has the power to fix such other date as may be appropriate in the circumstances: Johnson v Agnew [1980] AC 367, 400 – 401; Johnson v Perez (355 - 357).
225 The cases in which damages were calculated as at the date of trial deal in general with a situation where the market was rising or inflation had taken place and where the calculation of damages at the time of the breach would not have adequately compensated the plaintiff who initially behaved reasonably in attempting to keep the contract open for a certain period of time. See, for example, Johnson v Agnew (401), Bear Stearns Bank Plc v Forum Global Equity Ltd [215] – [216]; Millstream Pty Ltd v Schultz [1980] 1 NSWLR 547, 556.
226 The court may also take into account that the calculation of the damages should not work an injustice to the party in breach. Accordingly, the innocent party is expected to act reasonably and mitigate its losses by purchasing the goods or shares that were not delivered on the open market: Johnson v Perez (357 – 358).
227 Counsel for Mr Olivero referred the court to Ronnoc Finance v Spectrum Network Systems (1997) 45 NSWLR 624, 636 where the value of shares was assessed at the date of acceptance by the buyer of the seller's repudiation, rather than at the date of breach, on the basis that it would otherwise result in an injustice to the party in breach as the market had fallen and the plaintiff did not act sooner in accepting the repudiation. Santow J accepted the general principle that in assessing damages for loss of bargain in sale of shares cases the calculation should be made at the time of breach by reference to the then prevailing market price. However, his Honour suggested that this was only a prima facie rule and that in a case of termination the damages for loss of bargain might be more appropriately calculated at the time of termination, because loss of bargain damages were only available once the contract was terminated and it was at that stage that the bargain was lost. Further, mitigation of damage principles required the plaintiff to act reasonably and, depending on the circumstances of each particular case, it might not be reasonable for the plaintiff to delay the acceptance of repudiation in a falling market. His Honour also held that it would generally offend the requirement of acting reasonably and in mitigation if a plaintiff attempted to speculate at the expense of the defendant in a fluctuating market.
228 I do not understand Santow J to have proposed an inflexible rule that in every case where loss of bargain damages are claimed following termination of a contract, the damages are only to be calculated at the time of acceptance of the repudiation. This would be contrary to the well-established principle that damages for loss of bargain in sale of share cases are to be assessed at the time that the shares should have been transferred. A plaintiff is after all to be placed in the position in which he would have been if the agreement had been performed and this generally requires that he recover the value of the goods or shares as at the time of non-delivery.
229 In Mr Olivero's case mitigation did not have a role to play. It may be that a plaintiff should mitigate his loss by buying shares in a falling market where the defendant failed to deliver them. However, in this case, Mr Olivero never offered to purchase the shares and there was no evidence that he had the funds to do so. On the contrary, Mr Olivero gave evidence that he had to sell shares held by Olivero Consulting in order to fund the litigation. Accordingly, Mr Olivero could not have been expected to buy in the shares to arrest the effect of the falling market.
230 Chitty on Contracts, 30th ed, vol 1, 26-121 states that the rules of mitigation do not apply to the innocent party's choice between different remedies open to him following the other party's breach of contract. It would not make sense if the Ailakis brothers were allowed to complain that Mr Olivero did not accept their repudiation and terminate the agreement earlier, where it was always open to them to deliver the shares.
231 There was also no evidence that Mr Olivero tried to speculate in a fluctuating market at the expense of the Ailakis brothers. He had always asked to be placed in the position that he would have been if the shares had been delivered to him when due, although he initially claimed specific performance plus damages for the late delivery, as he was entitled to do (see Johnson v Agnew (392)). The fact that he changed his claim to loss of bargain damages after having terminated the contract shortly prior to trial does not mean that he should now be deprived of a substantial part of his expectation loss.
232 Accordingly, in all the circumstances there seems to be no reason to divert from the usual rule that the damages should be calculated on the basis of the market value at the time that performance was due. This is subject to the finding that I have made that there was a restriction inherent in the shares as far as Mr Olivero was concerned and that he could only sell them after the capital raising by way of the short form prospectus had been announced to the public. But even if Mr Olivero had sold the shares over the four weeks after 12 July 2007 their price was still on average more than $1.20 per share.
233 Accordingly, Mr Olivero is entitled to the price of $1.20 per share which he claimed in his main claim for damages. In respect of 1 million shares this equates to $1.2 million. However, as Mr Olivero has instituted his claim in the District Court he is subject to the monetary jurisdiction of this court which is $750,000. Accordingly, Mr Olivero is entitled to a damages award of $750,000.
Credibility
234 I should make a finding about Mr Olivero's credibility because substantial parts of the written and oral submissions concentrated on this.
235 Mr Olivero had great difficulty confining himself to the questions asked during both examination in chief and cross-examination and kept on trying to give lengthy answers that went beyond what he was asked about. However, it did not seem to me that he did so because he was evasive or reluctant to answer what he was asked. He just had a habit of having to start with the background to a particular situation and expressed his concern that his evidence would be misrepresented if he was limited to a concise answer in respect of a carefully chosen question.
236 Putting his talkativeness aside, there is no reason why his evidence should not be accepted. Overall I am of the view that Mr Olivero gave his evidence in a forthright, honest and thoughtful manner. It must have been difficult for him to understand what could and could not be said when half of his witness statement had been struck out for irrelevancy, but he considered those matters of some importance.
237 Counsel for the Ailakis brothers submitted that Mr Olivero was not truthful because he tried to distance himself from the proposition that he had performed the fund raising work in China as a director of the company, whereas he had admitted that he had business cards printed for his trip to China showing that he was an executive director of Redstone Resources. In my view there is nothing in Mr Olivero's evidence which indicates that he was untruthful. He readily admitted that he had the business cards printed when Mr Anthony Ailakis pulled out at the last moment from travelling to China, but tried to bring across that he did not consider his fund raising work in China to be part of his duties as a non-executive director. This is why he charged consultancy fees for it.
238 Counsel for the Ailakis brothers emphasised that Mr Olivero would not concede that he had charged Redstone Resources consultancy fees for board meetings or strategic meetings. However, Mr Olivero explained that he did not ask for director's fees for a board meeting if he had already charged a daily consultancy fee for other matters that had occurred on the same day. This is an acceptable explanation, particularly in light of the fact that the fee arrangements were not properly documented and all parties seemed to be confused about what these were. Mr Olivero's approach of first deciding whether a consulting fee should be charged for a particular day and then noting a 'no charge' in respect of his entitlement to director's fees, rather than doing it the other way around, was supported by Ms Conti's understanding of what fees Mr Olivero was entitled to. I cannot see how Mr Olivero's confusion about what he was entitled to charge for shows that he was not truthful in giving his evidence.
239 Mr Olivero was prepared to make concessions in relation to other matters such as that to his knowledge the other director of Redstone Resources had not agreed with Mr Ailakis that Mr Olivero should be paid consultancy fees for his work in relation to Tollu and that this was not discussed at a board meeting. Mr Olivero is likely to have perceived this issue as being detrimental to his case, but was nevertheless prepared to concede it.
240 Counsel for the Ailakis brothers contended that the fact that Mr Olivero denied having had any duty to take steps to regain Tollu was wholly unbelievable. However, Mr Olivero explained that he did not see it as part of his duties as a non-executive director to 'fix the problem'. He said he did so because he was concerned as a shareholder and also for his friends who had bought shares in the company, but he did not regard himself under a legal obligation to do 'everything in his power to regain Tollu'. The problem is that the questions put to Mr Olivero were based on him having had a duty to 'fix the problem' and 'regain Tollu' and not formulated with regard to an obligation to consult with the other directors and devise a plan of action. In my view there is nothing remarkable about Mr Olivero not wanting to agree that he had a duty as a non-executive director to 'fix the problem', which included negotiating with Mr Verbeek and the Ngaanyatjarra elders.
241 The submission by counsel for the Ailakis brothers that Mr Olivero had initially agreed to having read the Deed of Indemnity, Insurance and Access and later resiled from this, is without foundation. Mr Olivero said from the beginning that he had read the document but perhaps not as thoroughly as he should have. It was put to Mr Olivero that cl 9 of the deed required him to disclose to the company any 'notifiable interest'. The definitions clause of the deed stated that 'notifiable interest' had the meaning given to it in the ASX listing rules. Mr Olivero replied that his understanding was that he only had to inform Redstone Resources when he actually came into possession of the shares. When he was pressed about the fact that he must have properly understood his obligations after reading the deed, Mr Olivero replied that he did not remember reading the specific clause and had depended on the promised seminar by a lawyer to explain his duties to him.
242 This evidence does not show that Mr Olivero was not a truthful witness. As I said earlier, it is understandable that a person unfamiliar with legal and corporate governance requirements would not know that he might have a duty to disclose a right under a contract to obtain shares in contrast to actual receipt of the shares. There was no evidence that Mr Olivero had been a director of a listed company before or was accustomed to the requirements put in place by the Corporations Act or the ASX.
243 Counsel for the Ailakis brothers further submitted that Mr Olivero had first agreed that he had been friends with Mr Anthony Ailakis and got on well with him and his brother and then later resiled from that position. I do not agree that this was the case. Mr Olivero always qualified his evidence regarding his friendship with Mr Anthony Ailakis by saying it was mainly a business relationship, although he and his wife were invited for important social occasions such as a christening in the Ailakis family. Mr Olivero also gave evidence that he often got very annoyed about Mr Ailakis' lack of action, procrastination and inattention to the affairs of the company.
244 Counsel for the Ailakis brothers also relied on Mr Olivero initially saying that the only other directorship that he had was in relation to Olivero Consulting and previously to that, in relation to Exclusive Air Charter Pty Ltd. It was then put to Mr Olivero that he had been a director of other companies as well. Mr Olivero readily admitted this and explained that these other companies were vehicles for other ventures that he had entered into together with Mr Anthony Ailakis and for another small private enterprise to develop an oil additive. He was also a director of a company which acted as trustee of his self-managed superannuation fund. It does not appear that Mr Olivero deliberately kept quiet about his other directorships. The fact that he had been a director of small private companies does not mean that he knew about all the requirements of corporate reporting.
245 Lastly, it was submitted that Mr Olivero had been dishonest in disclosing his director's fees in the financial statements for Olivero Consulting, rather than in his own personal tax returns. However, the initial arrangement with Ms Conti appears to have been that Mr Olivero would only be paid consulting fees via Olivero Consulting and no director's fees, unless the consultancy fees amounted to less than $30,000 per year. This arrangement seems to have applied to the 2007 calendar year. After Mr Olivero had resigned as a director of Redstone Resources in November 2009 he sent an invoice for director's fees of $30,000 per annum for the 2008 and 2009 financial years. The amount of $60,000 was paid by the company in December 2009. Of these fees $15,000 was recorded in the financial statements for Olivero Consulting for the year ending 2010 and $15,000 in his personal tax return for the same financial year. The financial statements for Olivero Consulting for the 2008 and 2009 financial years were not tendered.
246 Mr Olivero agreed that he was aware that a company paid a lesser maximum tax rate than an individual and that profits could be shared by way of distributions to the shareholders. However, he said that this had not occurred and explained that he had relied on his accountant to properly reflect his personal income and that of Olivero Consulting.
247 It was not specifically put to Mr Olivero that he had acted contrary to the law and it was not properly explored whether he was guilty of some misconduct in relation to his tax returns. In these circumstances I am not prepared to make a finding that Mr Olivero's evidence during the trial was not truthful just because there may be a concern that he may possibly not have made proper disclosure to the tax department.
248 In summary, I do not agree with counsel for the Ailakis brothers that a credibility finding should be made against Mr Olivero.
RDS Price at posting:
14.0¢ Sentiment: ST Sell Disclosure: Not Held
(20min delay)