Claremont Petroleum NL v Cummings

110 ALR 239
9 ACSR 1

(Judgment by: Wilcox J) Court:
FEDERAL COURT OF AUSTRALIA - GENERAL DIVISION

Judge: WILCOX J

Judgment date: 11 September 1992

Judgment by:
Wilcox J

These two proceedings, heard together by consent, raise two questions regarding the administration of public companies: the constraints surrounding entry by directors into agreements conferring benefits on them or their associates and the circumstances under which a payment related to the termination of a consultancy agreement between the public company and a director's private company may be said to be a payment "connected with" the director's retirement, shortly afterwards, from the office of director.

In each proceeding the applicant is Claremont Petroleum NL (Claremont), a company listed on the Australian Stock Exchange. In one case the respondents are Joseph Patrick Cummings, a former Claremont director, and his private company, Jurisprudence Pty Ltd. In the other proceeding the respondents are another former Claremont director, Michael John Fuller, and his private company, M J Fuller Services Pty Ltd (Fuller Services). In each proceeding the applicant seeks recovery of an amount of money paid to the private company on 26 November 1990 - $370,000 in the case of Jurisprudence, $397,500 to Fuller Services. As against each private company, the claim is put on two bases: first, the payment contravened s 233 of the Companies (Qld) Code because it was paid in connection with the retirement of the director from that office; secondly, if the payment was made in respect of the termination of the private company's consultancy agreement rather than in connection with the director's retirement from office, it is recoverable because the deed of termination, pursuant to which the payment was made, was void. As against each director, the applicant argues that the transactions giving rise to the payment, including the initial consultancy agreement, breached the director's obligations under s 229 of the Companies Code to act honestly, and to exercise reasonable care and diligence, in the exercise of his powers and the discharge of his duties and not to make improper use of his position to gain an advantage. The applicant argues that, but for these breaches of s 229, the payments would not have been made; accordingly, they are recoverable under s 229(7) of the Code.

The respondents admit that the payments were made. But they deny they were made in connection with retirements from the office of director. They say the payments were made only because Claremont wished to terminate the consultancy agreements and that the amount of the payments was calculated by reference to those agreements. The respondents deny any invalidity, or breach of duty, regarding the agreements or payments.

These wide issues of fact caused the parties to tender considerable evidence regarding the relationship between the applicant and the respondents. Numerous sub-issues were argued. Not all of them need be resolved.

The claims are made under the Queensland Companies Code because the applicant was incorporated in that State. The Companies Code was repealed on 1 January 1991 when the Corporations Law came into effect.

But that repeal did not affect the operation of the Code in relation to matters arising before that date: see ss 85 and 87 of the Corporations (Qld) Act 1990. All material events in these cases occurred before the end of 1990. Accordingly, the Companies Code applies. The Corporations Law is irrelevant.

Before going to the facts, it is useful to note the terms of the statutory provisions invoked by the applicant. First, s 233. This section contains provisions extending the usual ambit of some words and phrases. Much of the section is immaterial to these cases. Relevantly, the section reads:

233(1)
It is unlawful

(a)
for a company... to give a prescribed benefit to a person in connection with the retirement of a person from a prescribed office in relation to the company;
(b)
...
(c)
...
unless-
(d)
particulars with respect to the proposed prescribed benefit, including-

(i)
in the case of a proposed prescribed benefit that is a payment - the amount of the payment; or
(ii)
in any other case - the money value of the proposed prescribed benefit; and

(e)
in a case where paragraph (a) or (b) applies - particulars of all other relevant benefits given or proposed to be given,
having been disclosed to the members of the company and the giving of the proposed prescribed benefit has been approved by the company in general meeting.

...
(2E)
Where the giving of a prescribed benefit by a person to another person is unlawful by virtue of sub-section (1), the receipt of the prescribed benefit by the other person is also unlawful.
...
(4)
Where the giving of a prescribed benefit to a person is unlawful by virtue of sub-section (1), then-

(a)
in a case where the prescribed benefit is a payment - the amount of the payment; or
(b)
in any other case - the money value of the prescribed benefit, shall be deemed to be received by the person in trust for the company concerned.

...
(6)
In this section-

(a)
a reference to a prescribed office, in relation to a company, is a reference to-

(i)
an office of director of the company or of a related corporation;
(ii)
the office of principal executive officer of the company or of a related corporation; and
(iii)
any other office in connection with the management of affairs of the company or of a related corporation that is held by a person who also holds, or who has, at any time within the period of 12 months immediately preceding the loss of, or retirement from, that office, held, an office mentioned in sub-paragraph (i) or (ii);

(b)
...
(c)
a reference to the giving of a prescribed benefit by a person includes a reference to the giving of a prescribed benefit that the person is obliged under a contract to give; a reference to the giving of a prescribed benefit, or to a pension or lump sum payment paid or payable, in connection with the retirement of a person from an office is a reference to the giving of a prescribed benefit, or to a pension or lump sum paid or payable, as the case may be-

(i)
by way of compensation for, or otherwise in connection with, the loss by the person of the office; or
(ii)
in connection with the retirement of the person from the office;

(d)
a reference to a payment includes a reference to a payment by way of damages for breach of contract; and
(e)
a reference to retirement of a person from an office includes a reference to-

(i)
loss by the person of the office;
(ii)
resignation by the person from the office; or
(iii)
death of the person at a time when the person holds the office.

...
(7)
In this section-
...
"exempt benefit' means a prescribed benefit given in connection with the retirement of a person from a prescribed office in relation to a company, being a prescribed benefit-

(a)
...
(b)
...
(c)
given under an agreement where particulars of the terms of that agreement have been disclosed to the members of the company and approved by the company in general meeting;
(d)
that is a bona fide payment by way of damages for breach of contract;
(e)
...
(f)
...;

" 'give', in relation to a prescribed benefit, includes-

(a)
in the case of a prescribed benefit that is a payment - make; and
(b)
in the case of a prescribed benefit that is an interest in property - transfer;

...
(8) The giving of approval by a company for the giving of a prescribed benefit as mentioned in paragraph (1)(c) does not relieve a director of the company of any duty to the company under section 299 or otherwise, and whether of a fiduciary nature or not, in connection with the giving of the prescribed benefit.
Penalty: $2,500 or imprisonment for 6 months, or both.

Despite the width of the definition of "prescribed office", it is common ground that subpara (iii) of subs (6)(a) does not assist the applicant's claims. The office of consultant falls within the description "any other office in connection with the management of affairs of the company". But, in the present cases, the consultants were Fuller Services and Jurisprudence; not the two individuals, Messrs Fuller and Cummings, who were Claremont directors. Subparagraph (iii) applies only where the "other office" was held by the same person as held one of the offices mentioned in subpara (i) or (ii). It operates in relation to a consultant's retirement only where the consultant is or was a director or principal executive officer of the company or of a related corporation. It is not sufficient that the consultant be a company controlled by such a person.

Section 229 of the Companies Code relevantly reads:

229(1)
An officer of a corporation shall at all times act honestly in the exercise of his powers and the discharge of the duties of his office.
Penalty-
...
(2)
An officer of a corporation shall at all times exercise a reasonable degree of care and diligence in the exercise of his powers and the discharge of his duties.
Penalty: $5,000.
(3)
...
(4)
An officer or employee of a corporation shall not make improper use of his position as such an officer or employee, to gain, directly or indirectly, an advantage for himself or for any other person or to cause detriment to the corporation.
Penalty: $20,000 or imprisonment for 5 years, or both.
(5)
For the purposes of this section, 'officer', in relation to a corporation, means-

(a)
a director, secretary or executive officer of the corporation;

(6)
...
(7)
Where a person contravenes or fails to comply with a provision of this section in relation to a corporation, the corporation may, whether or not the person has been convicted of an offence under this section in relation to that contravention or failure to comply, recover from the person as a debt due to the corporation by action in any court of competent jurisdiction-

(a)
if that person or any other person made a profit as a result of the contravention or failure - an amount equal to that profit; and
(b)
if the corporation has suffered loss or damage as a result of the contravention or failure - an amount equal to that loss or damage.

...
(10)
This section has effect in addition to, and not in derogation of, any rule of law relating to the duty or liability of a person by reason of his office or employment in relation to a corporation and does not prevent the institution of any civil proceedings in respect of a breach of such a duty or in respect of such a liability.

The background facts

At material times Claremont's operations were on a substantial scale. It was said in evidence that Claremont was then the seventh largest Australian mining company, taking into account its subsidiaries. The most notable subsidiary was Beach Petroleum NL (Beach). Claremont wholly owned Midland Exploration Pty Ltd, the holder of 65% of Beach's issued shares. Within Australia, Claremont's main activity was exploration, mainly in Queensland and New South Wales. Claremont owned interests in some overseas producing wells, primarily in the United States of America. Beach also had interests in producing wells. The scale of the group's activities is indicated by the Claremont annual reports for the financial years ending on 30 June in each of the years 1989, 1990 and 1991. In each of those years revenue (excluding abnormal items) was between $36m and $39m. None the less, in each year the group sustained substantial losses, mainly because of expenditures on tenement acquisitions and explorations and writing off, or making provision for, debts. The reports show group net assets of $91.4m on 30 June 1989, falling to $45.6m in 1990 and $9.3m in 1991.

Mr Fuller is a qualified solicitor. He was admitted to practice in 1964. After periods as a judge's associate and an employed solicitor, in 1966 he entered into partnership with another solicitor. In 1977 he left the partnership in order to practice on his own account. Thereafter, however, his legal practice diminished, to the point where he gave it up entirely in 1985.

The reason for Mr Fuller's withdrawal from legal practice was his increasing involvement in the commercial affairs of mining companies. At some stage he became associated with what he called "the IRL group of companies". This group took its name from Independent Resources Ltd, of which Mr Fuller became chairman in 1979. Originally, the group included only gold- mining companies, located mainly in Western Australia. Its activities were controlled from Perth. In September 1987 the group expanded its interests. Independent Resources purchased a substantial holding in Moage Ltd, a petroleum company managed from Sydney. One of Moage's assets was a 23% holding in Claremont. Through that holding, of course, Moage acquired an interest in Beach. Almost immediately the boards of Moage, Claremont and Beach were reconstituted. Some existing directors resigned. Two Independent Resources nominees were appointed to each board. One of them was Mr Fuller. The other was Sir Cecil Burney, a person who plays a role in the events with which these cases are concerned. However, on the applicant's case, his significance is like that of the Sherlock Holmes dog who failed to bark in the night; it lies in what he did not do rather than what he did. Sir Cecil was resident in England at all material times. At least until mid 1989, he was a director of Claremont Petroleum (UK), a company in which, until mid 1990, the Australian Claremont company had a 30% interest. Another director of the United Kingdom company was Paul Main, also an English resident. He became more actively involved in the subject events than Sir Cecil Burney, although the extent of his involvement is in issue. But, like Sir Cecil, he remained "off-stage". Neither man gave evidence at the trial.

At some time before the end of 1988, the IRL group acquired a further 25% interest in Claremont, taking its total stake to 48%. This was achieved through the acquisition of a 15% holding by Petrogulf Resources, a company 77% owned by an IRL company, Spargos Mining, and 10% by Independent Resources Asia Group Pty Ltd (Irag). Irag was wholly owned by members of the IRL group - predominantly by Independent Resources itself.

Fuller Services was incorporated in about 1977 to act as a service company for Mr Fuller's legal practice. Although the details were not spelled out in evidence, the case was conducted on the basis that Mr Fuller controls Fuller Services.

By the end of 1988 at least, Mr Fuller was also involved with a company called Cambridge Mining Services Pty Ltd. This company was the trustee of the Cambridge Mining Services Unit Trust. The trust managed the affairs of all eight IRL gold-mining and investment companies. It operated from offices at 174 Fullarton Road, Dulwich, an Adelaide suburb. Mr Fuller was involved in these operations and normally worked at Fullarton Road.

As at the end of 1988, Cambridge Mining had no responsibility for the management of either Claremont or Beach. The only office of these companies was at 345 George Street, Sydney. The companies' administrative staff was located there. They included Norman Hilton, managing director, Debbie Ryan, company secretary, John Worthington, Claremont/Beach administrative manager, and Patrick Sam Yue, financial controller. At that time there were four Claremont directors: Mr Fuller, Sir Cecil Burney, Mr Hilton and one John Woollett. Mr Geoffrey Bayly acted as alternate director for Sir Cecil. The directors of Beach were Mr Fuller, Sir Cecil Burney and Mr Hilton.

In December 1988 Mr Woollett resigned from the Claremont board, leaving only three directors. At about the same time Mr Hilton intimated his intention to retire from both boards at the end of the month. Mr Fuller spoke in turn to Mr Worthington and another senior employee about the possibility of their taking Mr Hilton's positions. But neither was willing. So he spoke to Mr Bayly, who was already a director of most of the IRL companies. According to Mr Fuller, Mr Bayly agreed to take Mr Hilton's positions and, for this purpose, to move his home from Perth to Sydney. But before doing so, on 16 December 1988, Mr Bayly was killed in an aircraft crash. Also killed were Max Greenham, the managing director of the IRL group, and several senior IRL executives.

Notwithstanding the loss of his replacement, Mr Hilton decided to proceed with his retirement. In anticipation of his departure, on 23 December, Mr Cummings was appointed as a director (but not managing director) of both Claremont and Beach. Mr Cummings is also a qualified solicitor. He was admitted in 1982. He practised in an Adelaide firm until April 1988 when he joined Mr Fuller in running Cambridge Mining Services. His vehicle for that activity was Jurisprudence, a company in which Mr Fuller has, or had, a small interest but which is substantially controlled by Mr Cummings.

After the departure of Mr Hilton - that is, from 1 January 1989 - the directors of both Claremont and Beach were Mr Fuller, Mr Cummings and Sir Cecil Burney. So far as the evidence reveals, Sir Cecil did not visit Australia after that date. After the death of Mr Bayly he had no alternate director until 3 May 1989, one day before the subject consultancy agreements were allegedly approved. In the meantime, in practical terms, Mr Fuller and Mr Cummings had unfettered control of both companies.

According to their evidence, after Mr Hilton's retirement, Mr Fuller and Mr Cummings together acted as managing directors of Clarement. The arrangement was not formalised until May. It is unclear when it commenced or what work it involved. When asked by Mr Lever, his counsel, who provided managing director's services "after January", Mr Cummings replied "Michael Fuller and I". I do not know whether this answer was intended to convey that the arrangement commenced from 1 January 1988 or from some later date. For present purposes it does not matter. It is also unclear whether their services were provided by the two men directly or through their private companies. Mr Cummings adopted a question from his counsel referring to payments of $8333 per month to each of "your companies"; but because of the form of the question it is not clear that Mr Cummings distinguished between payments to the companies and personal payments. I suspect that payments were made to the companies; once again it does not matter. What is clear is that, from a time early in 1989, a sum of $100,000 per annum was being paid to each of Mr Fuller and Mr Cummings or their private companies in return for their services to Claremont. The rate of the payment was explained. It was said in evidence that Mr Hilton had received a salary of $200,000 per annum. Mr Fuller and Mr Cummings divided between them (or their companies) the salary he had received. Whether they took on his workload, I do not know. The evidence does not disclose the extent, nature or value of their services. It does show that they were not full-time services. Through Cambridge Mining Services they continued, from Fullarton Road, to manage the affairs of the eight IRL group companies. The operations and finances of Claremont and Beach continued to be managed in Sydney; Mr Worthington having been appointed early in 1989 as group general manager.

The making of the consultancy and motor vehicle agreements

In February 1989 Mr Fuller and Mr Cummings decided that each of their companies should enter into a consultancy agreement with Clarement. On 8 March 1989 Gregory Bateman, a member of the Sydney firm of solicitors, Abbott Tout Russell Kennedy, sent to Mr Cummings a first draft of a consultancy agreement. Mr Bateman had acted as solicitor for Claremont in some matters in 1988. He had also done work for some other IRL companies. In the aftermath of the aeroplane crash of December 1988, he agreed to fill in temporarily as a director of some of the IRL companies. He was well known to, and apparently well regarded by, Mr Fuller and Mr Cummings. But he acted for Claremont, not Messrs Fuller and Cummings, in relation to the consultancy and motor vehicle agreements with which this case is concerned. Even so, according to Mr Bateman, his instructions came only from Mr Cummings or, possibly, Mr Fuller. No instructions were given by anybody concerned only with Claremont's position.

I need not quote the terms of the first draft agreement. It broadly followed the form adopted for the concluded agreements which I will summarise later. The term of the agreement was 5 years from an unstated date. The amount of monthly remuneration was left blank. The draft provided for a termination penalty calculated by multiplying the sum of $7650 by the number of unexpired months in the 5 year period. But Mr Bateman explained in evidence that the figure of $7650 was not inserted on instructions; it happened to be the figure shown on a precedent used in preparing the draft. The draft made no reference to a motor vehicle.

In his enclosing letter of 8 March, Mr Bateman commented on the draft. His comments included references to Jurisprudence's tax position. Although he was acting for Claremont, Mr Bateman was alive to Jurisprudence's interests. Paragraph 8 of the letter referred to the possibility of a "direct contractual arrangement by Jurisprudence with other public companies". He said: "Each other contract could be in a similar format."

The draft agreement sent by Mr Bateman to Mr Cummings was returned with blanks completed and alterations made. The remuneration was stated to be $8333 per month, the termination payment $9500 per month. It was not explained how the latter sum was calculated. By a combination of written notes and oral instructions, Mr Cummings also required the agreement to be modified to refer to a motor vehicle.

On the following day a second draft was prepared, in effect reproducing Mr Cummings's amendments. Mr Bateman inserted a clause whereby Claremont promised to supply to Jurisprudence "a current model air conditioned four door family sedan with automatic transmission costing not less than $-- on the road", to replace this from time to time and pay all expenses in connection therewith. The draft made no reference to the vehicle being retained by Jurisprudence on termination of the consultancy.

The vehicle description in the second draft came from one of Mr Bateman's standard precedents. It was not acceptable to Mr Cummings. He returned the draft with a handwritten amendment substituting the description "a current model imported motor vehicle of such manufacture and type as shall be mutually agreed between C and J". In the margin of the termination penalty clause he wrote: "take over lease - not have car paid out".

The evidence does not reveal when it was decided that the motor vehicle provision should go into a separate agreement. A file note of Mr Bateman shows that on 15 March he spoke to Mr Cummings about the car. His note includes the words "European motor vehicle agreement" and refers to the monthly termination figure as $10,750. The note includes the sentence "Do one for Michael but omit all ref to motor vehicle". The note also includes the words "pay out lease - transfer car - what about tax. They continue to pay lease but no running expenses".

According to a further file note, on 4 April 1989 Mr Bateman attended Mr Cummings and Mr Main in conference for 20 minutes. The only business discussed at the meeting, according to the note, was the provision of a car for Mr Cummings, the car to be transferred to him, unencumbered and without cost, on resignation. Mr Bateman had no independent recollection of this meeting.

It appears that, at 4 April, it was not proposed that Mr Fuller have a Claremont car. But it was proposed by then that Mr Cummings's right to a motor vehicle be the subject of a separate agreement. Accordingly, the documents that Mr Bateman sent to Mr Cummings on 5 April comprised consultancy agreements for each of Jurisprudence and Fuller Services and a motor vehicle agreement between Claremont and Mr Cummings. However, Mr Fuller changed his mind. A file note dated the following day, 6 April, reads "1 yellow sub for MJF". Mr Bateman interpreted this as a note of his instructions that Mr Fuller, also, was to have a car. A further file note of that day relates to an attendance for 8 minutes on Mr Cummings. It reads:
Advise re quorum problem
Plan is that once bid is announced, Sir Cecil will resign be replaced with John Worthington
At that point directors (1) resolve to lower quorum (2) resolve to (deal with) the contracts
He will discuss (contracts) with John W - we to do no minuting until Sir Cecil is replaced.

Mr Cummings testified that, at the time, there was a proposal for a consortium bid for all shares in Claremont. Mr Worthington was involved in the bid. It was proposed that, if the bid was successful, he would become a director. The evidence does not reveal whether the bid proceeded. If so, it was apparently unsuccessful.

In relation to the "quorum problem", art 84 of the Claremont articles provided as follows:

84. The directors may meet together for the discharge of business adjourn and otherwise regulate their meetings and proceedings as they think fit and may determine the quorum necessary for the transaction of business. Unless otherwise determined three directors shall be a quorum.

The directors had not exercised the right conferred in the last sentence of this article to substitute a different quorum figure. Article 72 permitted a director to contract with Claremont subject to disclosure of the director's interest when the contract was made. But it also included a prohibition on voting, in these terms:

No director shall as a director vote in respect of any contract or arrangement in which he has directly or indirectly a personal or material interest.

Mr Bateman's problem was that, although it was permissible for Claremont to contract with Fuller Services and Jurisprudence, with only three directors there was a difficulty in the board authorising an agreement with a director. According to a further file note, on 6 April Mr Bateman spent some time considering the problem. The solution suggested in his note is: "Must lower quorum to one. Do this by flying minute. Then follow up with meeting to approve the contracts." Mr Bateman explained that a "flying minute" is a circular resolution.

On 7 April Mr Bateman sent to Mr Cummings, at Claremont's Sydney office, a letter enclosing motor vehicle agreements for each director. The letter ended:

We confirm that for these contracts to be put in place it will be necessary for the then directors of Claremont to first resolve to reduce the quorum below 3 and thereafter the directors would resolve to deal with each of the contracts.
We note that this is not being proceeded with and you will contact me further as to when the directors propose to deal with these contracts.

Nothing further happened until May. The evidence includes a copy of a circular resolution dated 3 May 1989. Its provenance is obscure but it is accepted by all parties that the signatures are genuine. They are those of Mr Fuller, Mr Cummings and Sir Cecil. The resolution reads:

RESOLVED: That Christopher Paul MacDonald Main be and is hereby appointed as alternate director to Sir Cecil Dennison Burney. This appointment is to be effective from the 2 May 1989.

The evidence contains copies of the two consultancy agreements and two motor vehicle agreements. Each document is executed under the common seal of Claremont, the affixation of the seal being counter-signed by Mr Main as "alternate director" and by Mr Cummings, in the case of the Fuller/Fuller Services agreements, and Mr Fuller, in the case of the Cummings/Jurisprudence agreements.

The execution of the agreements purports to be authorised by a minute of a meeting of directors dated 4 May 1989. That minute reads:

"Claremont Petroleum NL
"Minutes of a meeting of directors of the company held at level 7, 345 George Street, Sydney on 4th day of May 1989 at ___ am
PRESENT
M L Fuller (chairman)
J P Cummings
C P M Main
"ALTERNATE DIRECTOR: it was noted that all of the directors had previously approved the appointment by Sir Cecil Burney of Mr C P M Main as his alternate.
"QUORUM FOR DIRECTORS MEETINGS: it was resolved that henceforth the quorum for directors meetings shall be 2.
"CONSULTANCY AGREEMENT WITH JURISPRUDENCE PTY LIMITED: Mr J P Cummings advised the meeting that he had an interest in the matter to be dealt with, that he was to be taken to have an interest in all contracts involving Jurisprudence Pty Ltd and that he would withdraw from the meeting during the discussion concerning this item of business and the next item (which was to deal with the provision of a motor vehicle for him).
" IT WAS RESOLVED that the company enter into a consultancy agreement with Jurisprudence Pty Ltd in the form tabled at the meeting and that the common seal of the company be affixed thereto.
"MOTOR VEHICLE FOR J P CUMMINGS: IT WAS RESOLVED that the company provide a motor vehicle for Mr J P Cummings on the terms set out in the agreement tabled at the meeting and that common seal of the company be affixed thereto.
Mr J P Cummings, having returned to the meeting took the chair.
"CONSULTANCY AGREEMENT: Mr M J Fuller advised the meeting that he had an interest in [the matter to be dealt with].
"M J FULLER SERVICES PTY LIMITED: was to be taken to have an interest in all contracts involving M J Fuller Services Pty Ltd and that he would withdraw from the meeting during the discussion concerning this item of business and the next item of business (which was to deal with the provision of a motor vehicle for him).
"IT WAS RESOLVED that the company enter into a consultancy agreement with M J Fuller Services Pty Ltd in the form tabled at the meeting and that the common seal of the company be affixed thereto.
"MOTOR VEHICLE FOR M J FULLER: IT WAS RESOLVED that the company provide a motor vehicle to Mr M J Fuller on the terms set out in the agreement tabled at the meeting and that the common seal of the company affixed thereto.
"CLOSURE: There being no further business the chairman declared the meeting closed."

The minute is endorsed "Signed as a correct record" and initialled by Mr Fuller as chairman.

The two consultancy agreements are in identical terms, save for the name of the consultant company. It is sufficient for me to refer to the Jurisprudence agreement. Recital A states that:

Jurisprudence has expertise in corporate planning, location of potential business opportunities, and is in the business of providing management for public companies.

Recital B states that Jurisprudence "has been providing these services to the group since 1 January 1989 on a non-exclusive basis"; "the group" being defined in cl 1.1 as "Claremont and its subsidiaries". After definitions in cl 1, cl 2 sets out the terms of Jurisprudence's engagement:

... to provide to the group advice on all aspects of corporate planning, to provide administrative personnel (over and above employees engaged by companies within the group) for the proper and efficient functioning of Claremont as a public listed company, and to undertake the location and investigation of potential business opportunities which might be suitable for the group to undertake.

Clause 3 provides that, subject to any rights of early termination, the engagement should extend for 5 years from 1 January 1989 and thereafter until the expiration of 6 months' notice in writing by either party. Clause 4 sets out something about Jurisprudence's duties: the provision of "administrative services to the group", the maintenance of various financial records and the provision of such reports as might be required by the board and the undertaking of such projects or tasks as the board might assign to it.

Clause 5 of the consultancy agreement deals with remuneration. Clause 5.1 provides for a fee of $8333.33 per calendar month calculated from 1 January 1989. In addition, cl 5.2 provides for payment to Jurisprudence of "all such further amounts for which Jurisprudence from time to time invoices Claremont" and which have regard to "the proportion of time and effort on the business of the group as compared to the average of such time for the 6 months preceding the date of this agreement", "the increase in the number of staff and salaries for same engaged by Jurisprudence in carrying out services... pursuant to this agreement" and "Jurisprudence's general overheads" relating to the services provided. Clause 5.3 provides for reimbursement to Jurisprudence of various expenses. To that end, cl 5.4 requires Claremont to provide Jurisprudence or its nominee with an American Express credit card. Clause 6 deals with consensual variation of remuneration; cl 7 with termination by Claremont, if Jurisprudence should go into liquidation or breach the agreement; and cl 8 with termination by Jurisprudence, also for winding up or breach. Clause 9 makes provision for a termination penalty. As the terms of this clause have attracted criticism, I set it out in full:

9.1
If the engagement is terminated:

(a)
by Claremont other than pursuant to cl 7; or
(b)
by Jurisprudence pursuant to cl 8;

then Claremont shall, as and by way of agreed and assessed damages for such termination pay to Jurisprudence an amount equal to $10,750 for each whole month of what would have been the unexpired term of the engagement.
9.2
The amount due in accordance with the previous clause shall be paid within 14 days of such termination and shall bear interest at the rate of 1.5 per month from the due date until payment in full has been effected.

I do not think it is necessary for me to refer to the remaining terms of the agreement; except, perhaps, to note that cl 11.1 contains an acknowledgment by Claremont that Jurisprudence's services were being provided to the group "on a non-exclusive basis and that Jurisprudence is in the business of supplying these services to other public companies". The evidence reveals that at material times Mr Cummings was the sole employee of Jurisprudence, just as Mr Fuller was the sole employee of Fuller Services.

The two motor vehicle agreements are in identical terms, except for the name of the relevant director and the date on which he commenced to hold office. Once again it is sufficient to note the Cummings agreement. This agreement recites that Mr Cummings had been a director since 23 December 1988 and the agreement of Clarement to make a motor vehicle available to him. Clause 1 provides for the provision of "a current-model imported motor vehicle of such manufacture as shall be mutually agreed upon between Claremont and Cummings" subject to certain conditions. The vehicle is to be replaced from time to time. Clause 2 provides that, in the event that Mr Cummings ceased to be a director of Claremont for any reason whatsoever (other than death), Claremont will, at his request, transfer to him the unencumbered title to the vehicle. There is no requirement of payment.

A May 4 meeting?

Although, in the view I take, it makes no difference to the final orders in either proceeding, I should deal with the issue between the parties as to whether a director's meeting was held on 4 May. I do so because the circumstances surrounding the making of the agreements dated 4 May are of cardinal importance in Claremont's claim against Mr Fuller and Mr Cummings under s 229 of the Companies Code. In evidence, Mr Fuller and Mr Cummings asserted that a meeting was held in the boardroom of the Claremont office in Sydney. The only people present were themselves and Mr Main. Mr Main was not called to give evidence. The only people who speak of the meeting are Mr Fuller and Mr Cummings.

Mr Bateman's file note shows that Mr Main was in Australia on 4 April. But there is nothing to corroborate the claim that he was still here in May. There is no evidence, other than that of Mr Fuller and Mr Cummings, of a visit by any of the three men to the Claremont offices on 4 May. On the other hand, there is no evidence that Mr Main was not in Australia on 4 May or that the men were not at the Claremont office on that day.

Mr Fuller was asked whether anybody made a contemporaneous record of the decisions of the meeting. He said Mr Cummings did so. He assented to the question: "Mr Cummings was making contemporaneous handwritten minutes?" Recalled to the witness box to deal with several matters, Mr Cummings was asked whether anyone made any contemporaneous note of the decisions at the meeting. He replied that he had "some notes as to the manner in which the meeting should proceed". He said that it was his practice, before going into a meeting, to "scribble out an outline of the procedure for that meeting and I would have had one of those in my own scribble which would chronologically order how the business of the meeting was to proceed".

Whitington, counsel for the applicant, puts several matters in support of his contention that the court ought to reject the respondents' claim that the meeting was held. The first of them is the discrepancy between the evidence of Mr Fuller and Mr Cummings concerning the taking of minutes. There is some difference between the two accounts but I attach little weight to that fact. Each witness was being asked to describe a detail of a meeting said to have occurred 3 years earlier.

More significant, in my opinion, is counsel's second point. This arises out of a letter from Mr Cummings to Mr Bateman dated 11 May. The letter was sent from Adelaide. Omitting formal parts, it reads:

Enclose consultancy agreement of Jurisprudence and directorship agreements for Michael and I.
The consultancy agreement of M J Fuller Services Pty Ltd will follow shortly.
I would ask that you attend to prepare appropriate circular resolutions having regard to the identity of the executing parties and the various conflicts involved. At all material times Paul Main was acting as alternate for Sir Cecil Burney. After the minutes have been prepared I would ask that you circulate them for execution and return to you at which time finalised documents and resolutions can be delivered with your account to Mr Worthington at Claremont Petroleum NL.

Apparently Mr Bateman did not implement this request. On 19 June Mr Cummings faxed to him a further letter, headed "Claremont contracts". Omitting formal parts, it read as follows:

Debbie mentioned to me late last week she still had not received contracts and resolutions. I explained that I had despatched them to you in order that draft minutes could be prepared reflecting the various conflicts.
When you have prepared same could you please despatch to Debbie Ryan at Claremont in order that we might complete the transactions and have them entered in the appropriate registers.

Mr Bateman responded next day:

I refer to your fax of 19 June 1989.
Enclosed is my draft of the relevant minutes.
Please advise:

(a)
The date on which the meeting took place.
(b)
Confirm those present and that these minutes record the events.

I will then forward the minutes to Debbie Ryan together with the documentation for execution under seal.
As previously advised there is sufficient doubt about the 3 directors signing a flying minute to cause us to advise that the appropriate procedure should be what took place namely, a meeting in person of the directors who were eligible to vote. The quorum had to be reduced so as to comply with the articles as the eligibility to vote denies that director the right to be forming part of a quorum.
Listing Rule 3L(5) requires Claremont to announce the entry by it into these contracts.
We look forward to hearing from you.

Apparently, Mr Cummings approved this draft and supplied the needed information. On 26 June he was able to forward to Ms Ryan what he called "original minute of directors meeting held in Sydney 4th May last". He added that Ms Ryan should now have received the service contracts for Fuller Services and Jurisprudence. He asked her to apply the seal to both of them, date them 4 May and return one copy to each of Mr Fuller and himself. It is accepted by all parties that Ms Ryan did this, and that the agreements tendered in evidence were those sealed about the end of June. It is also accepted that the minute tendered in evidence, quoted above, is that prepared by Mr Bateman in late June. The exhibit bears his initials and a word processing code date for 20 June 1989.

I asked Mr Cummings to account for the letter of 11 May, in the light of his evidence that the resolutions had been adopted at a face-to-face meeting one week earlier. He replied: "Your Honour, I think that I said in my evidence that the next day I was departing for overseas. As best I can recollect, it was an error on my part. There was, except for the fact that I would be absent from the country thereafter, no other reason that I can think of why I would ask for a circular resolution. I may have had a telephone call with Mr Bateman before that but if so I cannot recollect it but I wrote that letter obviously with an understanding between both he and I as to the meeting procedure."

Questioned further, he agreed that he had done commercial work for most of his 7 years as a solicitor. The evidence proceeded:

Q-And this was only 7 days after the date of the alleged meeting?
A-Yes.
Q-And where the meeting had transacted business of some significant personal importance to yourself?
A-That's correct, your Honour.
Q-Now, you couldn't have forgotten the meeting, could you?
A-I didn't forget the meeting, no.
Q-And nor could you be ignorant of the difference between a circular resolution and a meeting at which the directors were personally present?
A-No.
Q-Well, frankly, I don't understand how you could have made such a mistake?
A- Your Honour, the boards of directors of companies which I was involved with and preceding that time were invariably in different jurisdictions and a great deal of the business that was conducted between companies was invariably conducted over the telephone and ultimately enshrined in a circular resolution.
Q-Yes?
A-And I don't know what else I did on that day. I expect I was quite busy because I was preparing to leave and I expect that I gathered up the various contracts which the memo refers to and dispatched them off to Greg Bateman for completion. I presume stamping and so forth. I can give you no better explanation than that.

Mr Cummings was then asked about his handwritten note:

Q-...if you had a handwritten note prepared with Mr Bateman's prior advice setting out- which you set out in blank form-present and the various items and they'd been ticked off in some way, wouldn't the best way of recording all this have been to give your handwritten note to Mr Bateman or, indeed, the company secretary, and saying, please type this out in full minute form?
A-My notes wouldn't have-would have been complete to myself but may not have been necessarily legible to a third party and I may...
Q-And you couldn't have got them typed?
A-In the form that I would take them?
Q-Well, in any form?
A-It may have been possible, your Honour, but my view was that the brief was with Mr Bateman and my notes consistent with him completing that brief.

Reference was then made to Mr Bateman's letter of 20 June-in particular his comment about a flying minute:

Q-That rather reads as if that's an explanation by Mr Bateman of an item in the draft minutes, doesn't it?
A-Your Honour, that is entirely consistent with the advice that he had tendered before 4 May in his office.
Q-But why would it be necessary for him to tell you again if he told you before the meeting?
A-I can't say why he wrote the letter or what was in his mind but, presumably, he was trying to re-address to me the earlier advice that there was a sufficeint doubt about the flying minute as he called it.
Q-But it would have been almost insulting, wouldn't it, for him to have told you that on 20 June when he told you that before 4 May and you had implemented that advice by having the quorum reduced?
A-I don't think so, your Honour. Some passage of time had passed between what he had originally advised me in his office.

These explanations make no sense to me. It is extremely difficult to accept that, if the agreements had been approved at a face-to-face meeting just 7 days earlier, Mr Cummings would have asked Mr Bateman "to prepare appropriate circular resolutions". Mr Cummings knew the difference between a circular resolution and a resolution at a meeting. He had not forgotten that the meeting had taken place. He could hardly have done so. If it was held, apart from its recency, it was the first directors' meeting attended by Mr Main. Nor could he have forgotten that the agreements were approved. Apart from the related matter of quorum, the agreements were the sole business of the meeting. And they were of personal importance to Mr Cummings.

The letter to Ms Ryan of 26 June raises a further point, relied on by Mr Whitington. The evidence of Mr Fuller and Mr Cummings is that the meeting was held at the Claremont office. The common seal was held in that office. Ms Ryan worked there. There is no evidence that she was unavailable that day. Had she been, other senior staff would have had access to Claremont's common seal. According to Mr Cummings, the four agreements were tabled and signed at the meeting. As Mr Fuller and Mr Cummings knew, the agreements had to be executed under the common seal. The signatures were only to countersign the seal. If the meeting had taken place, it would have been natural for the directors to call for the seal and affix it as the signatures were made. They did not do so.

Respondents' counsel answer these submissions in two ways. First, they comment upon the fact that Mr Main was not called to support this aspect of the applicant's case. There is no evidence of his unavailability. Even though he lives in England, counsel say that arrangements could have been made to take his evidence by video-link. They contend that, as a former Claremont director, Mr Main falls naturally within the applicant's camp; it is reasonable to expect the applicant (rather than the respondents) to have called him. Counsel say that the fact that it did not do so suggests Mr Main would not have supported the contention that the meeting was not held.

Secondly, counsel point to the presumption contained in s 253 of the Companies Code. Section 253 relevantly provides:

253

(1)
A company shall-

(a)
cause minutes of all proceedings of general meetings and of meetings of its directors to be entered, within one month after the relevant meeting is held, in books kept for that purpose; and
(b)
... cause those minutes to be signed by the chairman of the meeting at which the proceedings took place or by the chairman of the next succeeding meeting.

(2)
Any minute that is so entered and... purports to be signed as provided by that paragraph is prima facie evidence of the proceedings to which it relates.
(3)
Where minutes have been so entered and... signed, then, unless the contrary is proved-

(a)
the meeting shall be deemed to have been duly held and convened;
(b)
all proceedings that are recorded in the minutes as having taken place at the meeting shall be deemed to have duly taken place; and
(c)
all appointments of officers or auditors that are recorded in the minutes as having been made at the meeting shall be deemed to have been validly made.

The 4 May minute was initialled by the chairman of the board, Mr Fuller, and eventually entered in the relevant minute book. If the entry had occurred before 4 June 1989, s 253 would apply to the minute, creating a presumption that the recorded proceedings took place. The presumption would be rebuttable by proof to the contrary; but unless I was affirmatively satisfied that the meeting did not take place, I would be obliged to proceed on the basis that it did. However, if one thing is clear about 4 May, it is that the minute of the meeting claimed to have been held that day was not entered into the company's books within one month. It was not prepared until some time after 20 June. The condition that a minute be entered within one month, if it is to be regarded as prima facie evidence of the proceedings at a meeting, should be strictly applied. A minute prepared and signed soon after a meeting is likely to be more reliable than one prepared long afterwards when memories have dimmed and, perhaps, other interests intruded. Section 253 does not assist the respondents.

There is force in counsel's comment regarding Mr Main. No explanation of his absence was offered. So far as I am aware he is alive and well. He might be living in England. It might have been inconvenient for him to come to Australia to give evidence. Certainly, that would have been expensive. But, if these were problems, the applicant could have explored alternative methods of taking his testimony. As it happens, at the beginning of the case, there was discussion about the possibility of taking evidence from someone in America (Mr Hebbard) by video-link. I understand that the solicitors investigated the feasibility of this step. It was found practical but not pursued because, in the end, no party wished to call Mr Hebbard. Even if the possibility of video-link evidence would not otherwise have occurred to the applicant's advisers, the Hebbard suggestion and investigation must have made them realise the possibility existed for Mr Main. Nor was there a problem of insufficient time. That the holding of the 4 May meeting was in issue became apparent during the first week's hearing. The case could not be completed that week and it was necessary to adjourn the further hearing to a date 5 weeks away. This provided ample time to contact Mr Main, if so desired. In the circumstances, I must conclude that the applicant's advisers made a deliberate decision not to call him. The proper inference is that they believed his evidence would not assist their client's case: see Jones v Dunkel (1959) 101 CLR 298 .

On the other hand, As Mr Whitington points out, the respondents also chose not to call Mr Main. I do not accept the respondents' argument that, as a former director, Mr Main should be regarded as within the applicant's camp. Whatever his previous position, there is no reason to believe that he feels any allegiance or goodwill towards the company or its present management. He ceased to be a director in April 1990. So far as the evidence shows, he has had no contact with members of the present board. He did have contact with Mr Fuller and Mr Cummings. On the information I have, there is no reason to treat Mr Main as less available to the respondents than to the applicant. Accordingly, the principle of Jones v Dunkel equally applies against the respondents, requiring me to hold that their failure to call Mr Main reflected their belief that his testimony would not support their assertion that the meeting was held.

It seems to me that, where a witness is independent of both sides and equally available to them, the Jones v Dunkel inferences cancel out. The court has to decide the relevant issue, not only without the evidence of the witness, but also without drawing any inference adverse to either party because of his absence. In my view, that is the present situation. I must put aside the absence of Mr Main and decide whether the balance of the evidence persuades me that the meeting was held.

A finding that the meeting was held would depend solely upon the evidence of Mr Fuller and Mr Cummings. The question of their general reliability immediately arises. Regrettably I have no confidence in either of them. No doubt most of the evidence they gave was true. Most of it was undisputed. But, as he gave his evidence, neither man induced in me a feeling of confidence in his integrity. In each case I felt the evidence was carefully constructed so as to put critical matters in their best light. I have reviewed those impressions in the light of the whole case. But I find them strengthened rather than weakened. In particular, I find several lame explanations, like those of Mr Cummings quoted above. I also find myself critical of the conduct of both men in relation to the making of the consultancy and motor vehicle agreements. I will expand on this later. For the moment it is enough to say that this conduct indicates a degree of unethical self-interest reflecting adversely upon them. Accordingly, I am not prepared to find that the meeting was held, simply because Mr Fuller and Mr Cummings say so. And, as I have indicated, there is no other evidence, oral or documentary, to support their claim. The only documentary evidence suggests the contrary, the explanations given by Mr Cummings in regard to it being unbelievable. I am not satisfied that the claimed meeting of 4 May was held.

In expressing that conclusion, I do not overlook that the agreements were signed by Mr Main. But this fact does not support the conclusion that the meeting was held. If Mr Main was in Australia in May, he may have signed them otherwise than in a meeting. If he had already returned to England, it must be remembered that Mr Cummings travelled to that country on 12 May. While in London he saw Sir Cecil Burney. He may also have seen Mr Main.

Quorum

Counsel for the applicant argues that, even if the meeting was held and transacted the business recorded in the minute, the various resolutions were ineffective for want of a quorum. He accepts that, if the accuracy of the minute is accepted, his argument must be considered on the basis that, as a matter of fact, the directors resolved to reduce the quorum to two. But counsel says any such resolution was ineffective in law because it was passed for the purpose of facilitating the execution of the consultancy and motor vehicle agreements; accordingly, both Mr Fuller and Mr Cummings had interests in the quorum resolution which disqualified them from voting upon it. The only competent voter on the quorum resolution, in counsel's submission, was Mr Main. The resolution to reduce the quorum itself lacked a quorum and was ineffective; the quorum remained at three.

There is no general principle of company law that a director is precluded from voting on a matter in which he or she has a financial interest. This course is impermissible only where, and to the extent that, the company's articles so provide: see A M Spicer & Son Pty Ltd (in liq) v Spicer (1931) 47 CLR 151 ; Anaray Pty Ltd v Sydney Futures Exchange Ltd (1988) 6 ACLC 271 . However, it is fundamental that a reference to a quorum of directors is a reference to a quorum competent to vote on the relevant item of business: see Re Greymouth Point Elizabeth Railway and Coal Co Ltd [1904] 1 Ch 32 at 34; The People's Prudential Assurance Co Ltd v The Australian Federal Life and General Assurance Co Ltd (1935) 35 SR (NSW) 253 and Wilson v Permasnow (Australasia) Ltd (1988) 14 ACLR 129 . It is not enough that a director be physically present. If the articles preclude a director voting on a resolution in which he has an interest, that director may not be counted in determining whether there was a quorum for its adoption.

In the present case there is no dispute about the principle just mentioned. The contest relates to the extent of Mr Fuller's and Mr Cummings' disqualification. Their counsel say that, although the timing of the resolution was dictated by the desire to adopt the agreements, the resolution was one of general application; it was framed in general terms and applies to all future business until superseded by another resolution.

Counsel for the applicant, on the other hand, emphasises the contemporaneity of the various resolutions and the evidence from Mr Bateman's file notes that the quorum issue arose because of the need to approve the consultancy and motor vehicle agreements. Mr Fuller admitted under cross-examination that these agreements were "the precipitating factor" of the quorum resolution.

The decision of Lawrence J in Re North Eastern Insurance Co Ltd [1919] 1 Ch 198 assists in the consideration of these submissions. One issue in that case was the validity of two resolutions for the issue of debentures. The company's articles included a quorum provision similar to that of Claremont. Until otherwise determined, three directors were to constitute a quorum at board meetings. At the relevant time there were four directors. They included men called Young and Dobbie. At a board meeting in June 1913 the directors resolved to issue a debenture to Young. Young abstained. The directors then resolved to issue a debenture to Dobbie. Dobbie abstained.

Notwithstanding the separation of the business, Lawrence J held neither resolution was valid. In applying the quorum provision to the resolutions, he said at 205 that "what was done at the meeting was, first, to state the arrangement, and then to sever the two resolutions, the director immediately interested in each case not voting". He went on: "The question is whether the resolutions so passed are valid resolutions. In my judgment they are not. The real point is whether the issue of the debentures ought to be regarded as part of one entire transaction in which both directors were jointly interested. I think it ought to be so regarded. If either of the resolutions in question had not been passed, or if the transfer of shares had not been executed, the transaction agreed upon would not have been carried out. In my judgment, therefore Mr Young was interested in the issue of the debenture to Mr Dobbie and Mr Dobbie was interested in the issue of the debenture to Mr Young. The real facts were that these two gentlemen had agreed to make advances to the company upon receiving certain debentures and shares as security, and they were both interested in seeing that the whole of the terms relating to the advances were carried out."

At a meeting in September 1913, from which Dobbie was absent, resolutions were passed authorising the payment of fees to Young and Dobbie in return for them guaranteeing certain debts. Young abstained and the question arose whether there was a quorum for this resolution. Evidence was given that, at the same meeting but before the questioned resolution, the directors resolved to lower the quorum to two. Lawrence J was sceptical about this evidence but he thought that it made no difference. He said at 207: "In my opinion a resolution passed simply to alter a quorum for the purpose of enabling a resolution to be passed conferring an interest in the property of the company upon a director - for that, and no other purpose - is to attempt to do, indirectly, that which cannot be done directly. It is part of the same arrangement for the purpose of conferring an interest upon a director, and is, therefore, just as invalid in my view as the resolution conferring the interest itself would have been if the three directors had voted upon it."

However, the judge went on to comment on the limited nature of the claimed resolution: "It is not suggested that the alteration of the quorum was one which was to apply generally for the future meetings of the board, or even for any subsequent resolution at the same meeting; moreover, there is no trace in the contemporaneous or subsequent minutes of the quorum of three having ever been reduced, nor is it suggested that Mr Dobbie had ever heard that there was any such alteration. It therefore comes to this, that at a board meeting at which an interest in the company's assets is intended to be conferred upon one of the directors a resolution is passed by means of the vote of that director whereby the quorum is altered for the sole purpose of enabling a single further resolution to be passed conferring an interest in the property of the company upon that director."

Both aspects of North Eastern Insurance Co are of present interest. So far as the question of quorum is concerned, the case illustrates the point that a quorum resolution may be infected by interest. However, Lawrence J held that this was only the case where the resolution was passed for the sole purpose of procuring a substantive resolution in which a director had a financial interest. Where the quorum resolution was one of general application, it was not rendered invalid by the mere circumstance that it would facilitate the adoption of a resolution in which a director was financially interested. It seems to me that this distinction is sound. While it is important to uphold the principle that what cannot be done directly may not be done indirectly, it is undesirable to apply that principle so widely as to invalidate resolutions in which no director has a financial interest. As counsel point out, that would be the result, in the present case, of holding the 4 May quorum resolution invalid. It appears that some subsequent resolutions, not involving the financial interests of any director, have been passed by two directors.

The quorum resolution of 4 May 1989 is in general terms, intended to apply to all future resolutions until changed. I hold, therefore, that it was valid, notwithstanding that its motivation and timing were linked to the proposed consultancy and motor vehicle agreements.

Validity of the agreements

However, again applying North Eastern Insurance Co , it seems to me that the substantive resolutions approving the agreements were invalid. It is true that the board took care to deal in separate resolutions with the agreements affecting Mr Fuller and the agreements affecting Mr Cummings. But the two sets of agreements were in identical terms. They were conceived together, during a discussion between Mr Fuller and Mr Cummings when it was decided that both directors should have consultancy contracts, through their private companies. Their terms were developed together, by Mr Cummings acting on behalf of both directors, in conjunction with Mr Bateman. To the extent that their terms were considered - by the directors themselves, Mr Main, Mr Bateman and Mr Worthington - they must have been considered together. The only distinction in their terms, from first to last, was that, at one stage, Mr Fuller did not seek a car. But not for long. Well before the drafting was finalised, he changed his mind and put in an order for a "yellow sub". The documentation relating to both directors therafter was identical. Upon the assumption that there was a meeting on 4 May, the agreements were presented together. They were signed together and sealed together at the end of June.

Perhaps more important than any of the above matters is the fact that non-approval of one set of agreements would, in a practical sense, have changed the incidence of the other. Mr Fuller and Mr Cummings had acted together in whatever functions they were carrying out, sharing between them the former managing director's salary. If the agreement of only one consultant had been approved, the other may have been required to take over the duties previously undertaken by the unapproved consultant, but without any entitlement to increased remuneration.

The test stated by Lawrence J, whether both directors were "interested in seeing that the whole of the terms relating to the (agreements) were carried out" is one for determination as a matter of fact, having regard to the circumstances of the case and commercial realities. It is not to be answered in technical legal terms. The debenture resolutions in North Eastern Insurance Co were separate resolutions capable, as a matter of law, of independent implementation. But Lawrence J applied a practical test, holding that neither would have been passed alone. Looking at the present facts in that way, and especially at the circumstances under which the agreements were created and the relationship between Mr Fuller and Mr Cummings, I think it should be said that each director was interested in the whole of the terms coming into effect. It is impossible to envisage that one director would have obtained his benefits without the other. It is difficult to imagine that either would have been prepared to continue as a consultant, at least on the agreed terms, without the other.

Some may think the approach of Lawrence J, or my application of it, unduly rigorous. I respond by saying that experience since 1919 has amply demonstrated the wisdom of a strict approach. As recent Australian examples demonstrate, nothing is more likely to bring corporate administration into disrepute, or to deter small investors from taking shares in public companies, than the spectacle of directors contracting with the board for personal benefits. Where there is a series of like contracts, entered into at one time, it would be a mockery for the law to emphasise the individuality of each contract and the technical possibility of it being separately implemented; in disregard of the fact that each contract was the product of a single scheme, whereby the directors agreed-expressly or tacitly-to support others' contracts in return for support for their own. Where it is truly justifiable for directors to enter into personally advantageous dealings with their company, there exists the option of placing the agreements before the shareholders for approval.

Two further matters should be noted in relation to validity. First, counsel for the respondents contend that, if the resolutions of 4 May lacked the necessary quorum of disinterested directors, their validity was none the less saved by s 539(2) of the Companies Code. Section 539 deals with irregularities. Subsection (2) provides:

(2) A proceeding under this Code is not invalidated by reason of any procedural irregularity unless the Court is of the opinion that the irregularity has caused or may cause substantial injustice that cannot be remedied by any order of the Court and by order declares the proceeding to be invalid.

Subsection (1)(b) indicates that a reference in the section to a procedural irregularity includes the absence of a quorum at a meeting of directors.

Subsection (4) sets out the powers of the court in relation to a procedural irregularity:

Subject to the following provisions of this section and without limiting the generality of any other provision of this Code, the Court may, on application by any interested person, make all or any of the following orders, either unconditionally or subject to such conditions as the Court imposes:

(a)
an order declaring that any act, matter or thing purporting to have been done, or any proceeding purporting to have been instituted or taken, under this Code or in relation to a corporation is not invalid by reason of any contravention of, or failure to comply with, a provision of this Code or a provision of any of the constituent documents of a corporation;
(b)
an order directing the rectification of any register kept by the Commission under this Code;
(c)
an order relieving a person in whole or in part from any civil liability in respect of a contravention or failure of a kind referred to in paragraph (a);
(d)
an order extending the period for doing any act, matter or thing or instituting or taking any proceeding under this Code or in relation to a corporation (including an order extending a period where the period concerned expired before the application for the order was made) or abridging the period for doing such an act, matter or thing or instituting or taking such a proceeding,...

However, subs (6) imposes preconditions on the making of an order under subs (4):

The Court shall not make an order under this section unless it is satisfied-

(a)
in the case of an order referred to in paragraph (4)(a)-

(i)
that the act, matter or thing, or the proceeding, referred to in that paragraph is essentially of a procedural nature;
(ii)
that the person or persons concerned in or party to the contravention or failure acted honestly; or
(iii)
that it is in the public interest that the order be made;

(b)
in the case of an order referred to in paragraph (4)(c) - that the person subject to the civil liability concerned acted honestly; and
(c)
in every case - that no substantial injustice has been or is likely to be caused to any person.

In the present case none of the requirements of para (a) is satisfied. The relevant matter is not, in my opinion, "essentially of a procedural nature". The purpose of requiring that a quorum be constituted only by financially disinterested directors is to ensure that decisions are made by a sufficient number of directors unaffected by any conflict of interest. Although this purpose is achieved by imposing a procedural rule, its essence is substantive. Secondly, for reasons I will develop later, I am not satisfied that two persons involved in the contravention - that is, Messrs Fuller and Cummings - acted honestly. Finally, because of the above matters, it is not in the public interest that an order be made. Accordingly, no order may be made under subs (4). The irregularity has caused injustice to the shareholders of Claremont in exposing their company to liabilities vis-à-vis Messrs Fuller and Cummings without the independent scrutiny to which they were entitled. Subsection (2) does not apply.

Secondly, unlike the agreements of 26 November 1990 discussed below, this is not a case where the common seal was validly affixed despite the absence of a valid supporting resolution. Unlike the position in 1990, each of the 1989 agreements was signed on behalf of Claremont by a director who was disqualified by interest.

It follows, in my opinion, that none of the agreements bearing date 4 May 1989 were binding on Claremont.

The making of the termination agreements

Following the execution of the consultancy and motor vehicle agreements, Claremont continued to operate under the direction of Mr Fuller and Mr Cummings. Their companies continued as consultants. Each received the agreed fee of $8333 per month and the other benefits prescribed by the consultancy agreements. New Mercedes-Benz motor cars were provided to Mr Fuller and Mr Cummings. At a date not disclosed by the evidence, but apparently before 30 June 1989, Sir Cecil Burney resigned as a director. Mr Main took his place.

About the end of February 1990 a Perth-based company, Western Rare Earth NL, announced a takeover bid for Independant Resources Ltd. The bid was not successful, or at least not fully successful. But it had the effect of reducing the IRL control of Claremont. A few days after the announcement, Geoffrey Towner, a director of Western Rare Earth, visited Mr Fuller in Adelaide. At some stage - perhaps on this visit, perhaps later - he and Mr Fuller discussed the possibility of his appointment to the boards of some companies in the IRL group. He was eventually appointed a director of four companies, including Claremont and Beach.

The appointment of Mr Towner to the Claremont board was announced in a letter to the Australian Stock Exchange dated 23 March 1990. The letter revealed that Mr Towner would be chairman of the board. It also announced that Richard Hebbard, a former oil industry executive resident in the United States of America, had been appointed to the board. This appointment was at Mr Towner's instigation. The letter to the Stock Exchange stated that Mr Fuller and Mr Cummings would continue in office as non-executive directors. It also announced Mr Main's resignation from the board. So there were now four directors: Messrs Towner, Hebbard, Fuller and Cummings. As chairman, pursuant to art 85 of the company's articles, Mr Towner had a casting vote at board meetings.

According to Mr Towner, when he became chairman he had in mind a reconstruction of the company. He intended the reconstruction to involve the recruitment of a new major shareholder and neither Mr Fuller nor Mr Cummings remaining directors. Mr Towner took no immediate action to effect these changes. But, soon after his appointment as chairman, he caused Claremont to invite Michael Atkins, a Perth chartered accountant, to provide consultancy services. Early in 1990 Mr Worthington had resigned as general manager. Mr Atkins was asked, in effect, to take his place. He agreed to do so, through his company, but on the basis that he would continue to reside in Perth and commute to Sydney. At a Beach directors' meeting (the Beach directors then being the same four persons as the Claremont directors) on 27 April 1990, Mr Atkins was designated "group manager" for Claremont and Beach.

Although there is conflict about the details, it is common ground that, between about June 1990 and late November, Mr Fuller participated in several conversations concerning reconstruction of the Claremont board. On 13 June 1990 Mr Atkins circulated to the four Claremont directors a memorandum dealing with several subjects. They included a report on a recent meeting with representatives of Westpac Bank, to which Claremont owed some $7m. One of the persons with whom Mr Atkins spoke was David Crommelin, then manager, National Accounts, Corporate Banking Division and later manager of the bank's loans management unit. Mr Crommelin was based at the bank's head office in Martin Place, Sydney. Mr Atkins reported that Westpac was in the course of obtaining registration in its name of the parcel of Claremont shares held by Moage. This parcel had been used by Moage as security for a Westpac loan, in respect of which Moage had defaulted. Further, Mr Atkins referred to a conversation with the Westpac representatives concerning the Claremont board. He said that he "gained the distinct impression that they would react most favourably to a restructuring of the board along the lines of the Spargos proposal". Mr Fuller said in evidence that he understood this proposal to be one which, if implemented, would result in him and Mr Cummings ceasing to be Claremont directors. (The "Spargos proposal" was a scheme, propounded by dissentient Spargos shareholders, to restructure their board so as to exclude directors associated with the IRL group. In September 1990 the proposal was endorsed, for Spargos, by the Supreme Court of Western Australia.)

Mr Towner was not able to give the dates of his conversations with Mr Fuller concerning the reconstruction of the Claremont board. He said that informal conversations occurred when the two of them were in Sydney on business; it was their practice to stay at the same hotel. Mr Towner was unable to recount the detail of these conversations. Mr Atkins was in a similar position. He said that he had several conservations with Mr Fuller, from about August onwards, concerning a reconstruction of the Claremont board involving his removal from office. But he could not remember the detail.

Mr Fuller agreed that both Mr Towner and Mr Atkins had board reconstruction conversations with him, although his evidence suggests the proposals were tentative. He informed Mr Cummings what was happening. Mr Cummings deposed that, as early as September, he understood that Mr Atkins wished to take over Claremont completely and that this would involve a total cessation of his connection with the company.

On 9 October 1990 there was served on Claremont a requisition under s 241 of the Companies Code for an extraordinary general meeting of the company. By force of that section the meeting was required to be held within 2 months, that is by 9 December 1990. The requisition set out the business to be considered by the meeting. There were eight proposed resolutions. The first four resolutions proposed the removal of each of the existing directors, one resolution relating to each director. The fifth resolution was for the removal of any other person holding office as a director at the date of the meeting. The last three resolutions were for the appointment of three new directors, David Jenkins, Nigel Burch and Stanley Hyman. These three men were members of a group of shareholders often referred to as "the Shareholders' Action Group". The members of that group held a comparatively small stake in the company; at the most, it would seem, 15. But their views were regarded with sympathy by at least one of the major shareholders, Australian Gas Light Company (AGL), which held about 20. The members of the Shareholders' Action Group were critical of the administration of the company by Messrs Fuller and Cummings. They were anxious that these men should leave the board and that a new board should investigate certain transactions to which they had committed the company.

Upon receipt of the shareholders' requisition, Mr Cummings obtained advice from Mr Bateman. On 24 October the directors (other than Mr Hebbard) met in Sydney to consider the advice. They resolved to convene an extraordinary general meeting in Sydney on Friday, 7 December. They also decided that the company's annual general meeting should be held during the preceding week, on Tuesday, 27 November, also in Sydney. (This was subsequently changed to Thursday, 29 November, the Beach annual general meeting being fixed for Tuesday, 27 November.) The directors unanimously determined an order of retirement of directors, for the purposes of the rotation provision (art 75) in the articles. The order was Cummings, Fuller, Hebbard and Towner. The advice then before the board was that only one director was required by art 75 to retire at the forthcoming annual general meeting. Subsequently, Mr Bateman amended this advice, saying that two directors had to retire. This was obviously correct. Article 75 called for the retirement at each annual general meeting of "one-third of the directors". Apparently because of the corrected advice, the directors dealt with the matter again. This time they did so by a circular resolution. It was dated 16 November and it determined that Mr Cummings and Mr Hebbard should retire at the annual general meeting.

In the meantime there were more discussions about reconstruction of the Claremont board. Mr Atkins recalled conversations with Mr Fuller in Adelaide, he thought about mid October. He told Mr Fuller of his desire to eliminate the IRL influence on the board. With that in mind, he proposed a board consisting of himself (Mr Atkins), Mr Towner, Gary Weiss of Turnbull and Partners, Peter Dunn, a person favoured by Westpac, and Geoffrey Dewar, a Melbourne businessman independent of all other parties. Mr Atkins said that Mr Fuller expressed hesitation about Dr Weiss, but was generally agreeable to this proposal. Mr Fuller's concerns, according to Mr Atkins, were to ensure that the new board did not include representatives of the Shareholders' Action Group, whom he regarded as "zealots", and to persuade Westpac to forgo any claim against Moage in connection with any shortfall between the value of Moage's Claremont shares and the debt owed by Moage to Westpac.

These matters were discussed at a meeting with Westpac at about the same time. Mr Towner recalled this meeting. He said it involved Mr Crommelin, another Westpac officer, Mr Fuller, Mr Atkins and himself. He said that Mr Atkins proposed a Claremont board consisting of himself (Mr Towner), Mr Atkins, Dr Weiss, Mr Dunn and Mr Dewar. It did not include Mr Fuller or Mr Cummings. According to Mr Towner, Mr Crommelin said this was acceptable and Mr Fuller said that he would feel comfortable if that board was in place upon his departure. Mr Towner said there was also discussion about the forthcoming Claremont annual general meeting, Mr Fuller saying that he would be keen to observe the voting trends of Westpac with respect to the Moage parcel of shares and telling Mr Crommelin "not to expect an easy run in going down to the AGM should they not carry out the discussions that were on foot on that day". Mr Towner said Mr Crommelin replied that he would "take that on board". Mr Atkins gave an account of this meeting consistent with that of Mr Towner except that he said that Mr Crommelin indicated that he could not commit the bank to the proposed board, although he personally thought it acceptable. Mr Crommelin said that he did not recall making any statement about Westpac's voting intentions. Mr Fuller did not dispute the account of the Westpac meeting given by Mr Towner and Mr Atkins, except that he thought that Mr Crommelin's only reaction to the proposed board was that he would take it to his superiors.

Mr Fuller also gave evidence of earlier conversations between himself and Mr Atkins about the board. It is not necessary to go to the detail. Mr Fuller agreed that Mr Atkins never suggested that he (Mr Fuller) would be part of a reconstituted board. On the contrary, according to Mr Fuller, Mr Atkins "... said that he regarded a reconstruction of the board of Claremont as necessarily involving a termination of my tenure as a director, and any involvement that I had in any way, shape or form with the company. That is Claremont." Mr Fuller indicated that he understood Mr Cummings to be in the same position.

On 21 November 1990, Mr Atkins faxed to each of the directors a copy of a memorandum prepared by him and dated 20 November. This memorandum dealt with a number of matters concerning the administration of Claremont. It opened in this way:

As you are aware, over the last few months, I have been having discussions with the company's major shareholders and its bankers with a view to securing an orderly restructure of the company's board of directors, together with various steps to remove the last remaining links with the so called IRL group. Broadly speaking, I have now gained general agreement from Westpac, who are also mortgagee in possession of approximately 22 of the company's shares, previously held by Moage Ltd, to effect a change in board composition free of influence from any one group of shareholders. In order to gain this agreement, it has been important to demonstrate that the company will have ongoing management of an extremely high calibre, with proven performance and demonstrable independence.
It is also considered important by Westpac as banker and shareholder and myself that the current management contracts held by companies associated with Messrs Michael Fuller and Joe Cummings are cancelled and that Messrs Fuller and Cummings retire from the board of directors, without causing any undue trauma to the company. Furthermore, there is potential as a part of these arrangements to secure some additional value to Claremont in respect of the debt currently owed to it by Cortaus Ltd,... and to gain an extension of time for payment to Jingellic Minerals NL for approximately 12 months.

Mr Atkins then discussed the content of the contracts involving Messrs Fuller and Cummings. He noted the termination payment of $10,750 per month in each of the consultancy contracts and said that this would involve payments of about $400,000 to each consultant company, if the agreements were terminated at the end of November 1990. Mr Atkins also noted the provision in the motor vehicle agreements for transfer of the cars. The combined cost to Claremont of the two cars would approximate another $400,000. However, Mr Atkins thought that Claremont could successfully claim that the transfer obligation breached the Companies Code. He had s 233 in mind. In relation to the consultancy agreements, while he canvassed the possibility of the company successfully contending that the consultants had breached the agreements, he thought this would involve litigation which would be difficult and costly and "would cause further damage to Claremont's reputation and public image". After dealing with other matters, Mr Atkins turned to board composition. He said he thought it would be possible to gain proxies to support a board consisting of Dr Weiss, himself, Mr Towner, Mr Dunn and Mr Dewar. He commented that Mr Hebbard had indicated his desire to resign from the Claremont board "and pursuant to the matters raised above, Messrs Fuller and Cummings would also resign from the board". Mr Atkins then dealt with other matters, including his own consultancy agreement. He concluded with a series of proposals. They included:

6. Agreement with companies associated with Messrs Fuller and Cummings, whereby Fuller and Cummings agree to relinquish their entitlements under the 'motor vehicle agreements' and to accept an amount of $250,000 each in respect of the termination of their consultancy agreements.

Mr Cummings gave evidence that he understood Mr Atkins' reference to removing IRL influence as including removal of that influence at board level. He said that, at the time of the memorandum, "I did not think that I had a brilliant chance of being re-elected" but there was a prospect of stopping Westpac voting the Moage shares at its discretion. As will appear, I do not think there was ever a real prospect of this, or even a genuine belief that this was possible. Mr Cummings' assessment is a considerable understatement of his likely fate.

There was no formal board meeting at which Mr Atkins' proposals were considered. But, 2 days after the memorandum was sent to the directors, on the morning of Friday, 23 November, a meeting was held at the Claremont office in Sydney. Those present were Mr Towner, Mr Fuller and Mr Cummings. Mr Hebbard's apology was noted but it seems unlikely that he was aware of the meeting. The minutes of the meeting deal with the motor vehicle and consultancy agreements and a proposed consultancy arrangement with a company controlled by Mr Atkins. It is not necessary to set out the resolution on the last-mentioned matter. The other two matters are important. In relation to them the minute read:

(A) resolved -To cancel the motor vehicle contracts between the company and Fuller and the company and Cummings respectively. Fuller and Cummings signified their acceptance.
The abstention from voting of Fuller and Cummings was noted.
(B)- resolved -To terminate the consulting arrangements between the company and Jurisprudence Pty Ltd in consideration of the sum of $370,000 and the company and M J Fuller Services Pty Ltd in consideration of the sum of $397,500 conditionally upon:

1.
The agreed sums respectively being paid, ie - Jurisprudence: $370,000, M J Fuller Services: $397,500;
2.
Cummings purchasing from the company a Mercedes Benz 300CE for the agreed price of $95,000;
3.
Fuller purchasing from the company a Mercedes Benz 560SEC for the agreed price of $150,000;
4.
Fuller, Cummings, M J Fuller Services Pty Ltd and Jurisprudence Pty Ltd respectively releasing the company from all claims to directors fees and other emoluments.

"Contracts implementing the resolution to be executed and take effect on Monday, 26 November 1990.
Contracts to contain, inter alia, the right of Fuller, Cummings, Jurisprudence Pty Ltd and M J Fuller Services Pty Ltd to:

1.
Notice of all or any documents or request served on the company or its subsidiaries by the NCSC and relating to any matter or transaction occurring heretofore or hereafter during the directorships of Fuller and Cummings respectively;
2.
A copy of the same;
3.
Reasonable access to company documents relating to same; and
4.
The company to maintain legal professional privilege in relation to any matter occurring heretofore or hereafter during the directorships of Fuller and Cummings respectively.
5.
The abstentions of Fuller and Cummings were noted."

All three participants gave oral evidence about this meeting. Mr Towner said he arranged the meeting by telephoning Mr Fuller. There was no formal agenda but he told Mr Fuller that the meeting "would be convened to discuss their departure from the companies and other matters which related to the appointment of Mr Atkins to the board of (Claremont) and his formal association with the company". Mr Towner said the meeting was "rather a short meeting". He did not take notes. He had received Mr Atkins' memorandum and he told the meeting that he thought $250,000 to be "a more than reasonable figure for the termination of their employment contracts" and that "they would have to buy their cars as they would not be part of their termination package". In advance of the meeting Mr Towner had obtained advice about the values of the cars.

At some stage of the meeting, according to Mr Towner, he said to Mr Fuller and Mr Cummings "that in the event of us reaching agreement on the amount of money to be paid, it would be conditional upon their resignations from the boards of Beach and Claremont and them paying for their own cars". Mr Towner said that, in response, Mr Fuller and Mr Cummings "agreed that they would resign if they were paid all their money". Asked to elaborate, later in his evidence, Mr Towner said:

I said to both Mr Fuller and Mr Cummings that I would not entertain payment of such a large amount of money to either of them in any form unless they resigned as directors of Claremont and Beach, they paid for their cars, they then received the money and they ceased to be involved with the company either as directors or as consultants.
Q-All right?
A-I wasn't interested in doing it on any other business.

Mr Towner testified that he said nothing more on that topic: "I was inflexible on that." When pressed about the response of Mr Fuller and Mr Cummings, Mr Towner simply repeated that they agreed to what he said. He could not remember how they manifested their agreement. Mr Towner said that Mr Fuller said he was not interested in $250,000, he wanted the full amount payable under the contract. Eventually, as the minutes show, it was agreed that Fuller Services would receive $397,500 and Jurisprudence $370,000. Mr Towner could not remember how these figures were calculated or why the difference between the two amounts but he thought it had something to do with the net amount which would be received by each of Mr Fuller and Mr Cummings after payment for their cars.

Mr Fuller denies Mr Towner's claim that the meeting was called to discuss his and Mr Cummings' departure from the company. He said in evidence that, on the telephone, Mr Towner mentioned two topics: the determination of the relevant consultancy agreements and the proposal for a management agreement with Mr Atkins' company.

It is common ground that Mr Cummings made a handwritten note of the resolutions of the meeting. At its conclusion he handed the note to Mr Towner who initialled it. Mr Towner then asked Mr Fuller and Mr Cummings to initial the document, apparently thinking thereby to bind them to its terms. The typed minute, set out above, is consistent with the handwritten note.

Neither Mr Fuller and Mr Cummings disputes the accuracy of the minute of this meeting; indeed they rely upon it. They say that nothing was said at the meeting about their resignations as directors and that the minute bears out that claim. The minute makes no reference to their positions as directors. Their evidence is that each abstained from voting in relation to the two resolutions set out above. Mr Towner does not dispute that claim. The resolutions were clearly invalid, for lack of a quorum.

On the following Monday, 26 November, all four directors met at the Cambridge Mining Services offices in Fullarton Road; Mr Hebbard having arrived from the United States. The Beach annual general meeting was to be held in Adelaide on the following day. Also present at Fullarton Road were Mr Atkins, Mr Sam Yue and Michael Bowen, a Perth solicitor who sometimes advised Mr Towner and Mr Atkins. Mr Bowen's primary reason for being in Adelaide was to attend the Beach meeting next day. At some stage Ms Ryan and Mr Bateman arrived from Sydney but they seem not to have participated in any discussions concerning Mr Fuller and Mr Cummings or their companies.

The evidence suggests that the Monday meeting extended over some hours, people coming and going from time to time. It seems that only part of the discussion was a formal board meeting. Mr Towner said in evidence that the formal meeting took about half an hour and that, during the course of that meeting, he informed Mr Hebbard of the agreement reached the previous Friday. According to him, his report included that "they also agreed to resign as directors from both Claremont and Beach". He said that neither Mr Fuller nor Mr Cummings said anything about this statement.

Mr Atkins' account of Mr Towner's report to the meeting accords with that of Mr Towner, although it should be noted that his initial summary did not include any reference to retirements as directors. However, when asked about this, Mr Atkins said he specifically recalled a discussion about that matter and that Mr Towner had tied the money to the departure of Messrs Fuller and Cummings from the board; he had called the money "departure tax". Mr Atkins said there was then discussion about "exactly how the departure would happen", that someone (he thought Mr Hebbard) said that the two directors should retire prior to the annual general meeting; but Mr Fuller said that he was not prepared to stand down until after the extraordinary general meeting "because he wanted to stay on the board to keep Westpac honest" and Mr Cummings said that he would retire before, or not stand for re-election at, the annual general meeting. Mr Atkins said that someone, he thought Mr Bowen, said that "he was nervous that large payments were being made without securing the resignations" but that "Mr Towner said that there was little choice in that matter, and that was the only basis on which agreement had been reached with Messrs Fuller and Cummings".

Mr Fuller and Mr Cummings gave a different account of this meeting. Both denied that Mr Towner said anything to Mr Hebbard about their retirement as directors. On their version of events, the only time this subject was mentioned was when the termination agreements were being executed. At that time, according to both Mr Fuller and Mr Cummings, Mr Atkins asked Mr Bowen, in a voice audible to all, "shouldn't we be getting resignations?" Mr Bowen replied; "No, Michael." Mr Fuller said that he (Mr Fuller) added: "The one thing that you're not getting today are resignations from me or Joe." Mr Cummings' version is that Mr Fuller said: "Michael that's the one thing that this is not about. That's the one thing you won't be getting"; and that Mr Bowen added: "Yes, that's right."

Six things are clear about the events of the Monday. First, there was a formal board meeting that day. A minute is in evidence. Its authenticity and accuracy are not in issue. Secondly, whatever may have been reported to Mr Hebbard during that meeting, the minute makes no reference to any arrangements for Mr Fuller's and Mr Cummings' departures from the board. Although the minute records the tabling by Mr Towner of Mr Atkins' memorandum of 20 November, the only recorded resolutions relate to the Atkins consultancy arrangements. Thirdly, by whatever authority, four agreements were executed that day. Two of the agreements related to the motor vehicles. They were made between Claremont and Jurisprudence and between Claremont and Fuller Services. But they put into effect the arrangements agreed on the Friday, Mr Fuller's vehicle being sold to Fuller Services for $150,000 and Mr Cummings' vehicle to Jurisprudence for $95,000. The other two agreements were deeds terminating the consultancy agreements. The parties to each deed included not only the particular consultant company but also the relevant director. The consideration for release of the consultancy agreement was stated in each case, it being consistent with the figure agreed the previous Friday. It is not necessary to set out all the terms but it is relevant to note that each deed contained a provision (cl 5) requiring Claremont forthwith upon receipt to deliver to each of the other parties a copy of any notice or written request for information received by it, or any of its subsidiaries, from the National Companies and Securities Commission, the Australian Securities Commission or any delegate or agent of either of those bodies: "in respect of any transaction negotiated or consummated or any other thing done or omitted to be done at any time between the date on which (the relevant director) was appointed as director of Claremont and the date of this deed." Clause 6.1 obliged Claremont to give access to its books and records in connection with any such investigation. Clause 6.2 contained a covenant of confidentiality by the consultant and director. Clause 6.3 required Claremont to claim legal professional privilege in respect of any document to which the privilege attached and which came into its power, possession or control between the date of the director's appointment and the date of the deed.

Fourthly, it is common ground that the termination deeds were amended during the course of Monday's discussions. It is not suggested that Mr Bowen became involved in the question whether payments ought to be made, or as to their amount. But it is agreed by all the witnesses to the meeting that, when the deeds were produced, Mr Bowen questioned the terms of some provisions - primarily, if not exclusively, cll 5 and 6. After discussion the deeds were sent away for amendment by Baker O'Loughlin, solicitors for Messrs Fuller and Cummings, by whom they had been prepared.

Fifthly, after the amendments were made, the four agreements were executed under the common seal of Claremont. The common seal was countersigned by Messrs Towner and Hebbard. Cheques were delivered and the motor vehicles transferred to the respective purchasers. On the same day Claremont executed an agreement with Mr Atkins whereby he was appointed its chief executive officer.

Finally, it is agreed that, at a fairly late stage of the proceedings, Mr Towner telephoned Mr Crommelin. Mr Towner's version of this incident was that he told Mr Fuller that he was not prepared to authorise the drawing of the pay-out cheques until he had spoken to Mr Crommelin. He said that, when he said this, Mr Fuller "appeared a little agitated". Mr Towner telephoned Mr Crommelin and, after a conversation with him, authorised the cheques. Mr Fuller and Mr Cummings agree that Mr Towner made the telephone call. They dispute the claim of agitation.

In his evidence Mr Crommelin confirmed that a telephone call was made to him by Mr Towner. He was asked without objection what Mr Towner said to him. He replied:

A-I can't remember the exact words but he said words to the effect that he had negotiated the pay out of the management contracts of Messrs Fuller and Cummings. A figure was mentioned which I cannot be precise on but I recollect a figure of about $800,000 was mentioned. I do recollect that figure included two motor vehicles.
Q-Right?
A-Mr Towner used words to the effect that this was seen as an exit price, or words similar and was the price that Claremont had to pay for Messrs Fuller and Cummings to depart the group.

The departures from the board

It will be realised that the board had decided on 16 November 1990 that Mr Cummings should be one of two directors to retire by rotation at the annual general meeting on 29 November. Mr Cummings did so. But he nominated for re-election. The evidence does not show when his nomination was lodged. It was probably before the 26 November meeting. I say this because there is no suggestion of Mr Cummings taking a positive step to remain on the board after that meeting. There is evidence of the lack of a negative step. According to Mr Atkins, between 26 November and 29 November, he spoke to Mr Cummings about his position. He said that "Mr Cummings told me that he was still considering how he would handle his exit. And that he may withdraw his nomination prior to voting, or he may prefer to simply leave it on the notice paper, knowing that he would not be elected". Mr Atkins said that, on the morning of the meeting, Mr Cummings told him he had chosen the latter course.

Mr Atkins' evidence is consistent with a draft letter of 28 November provided by Mr Bateman to Ms Ryan to send to the Stock Exchange. The draft referred to the fact that there were 13 candidates for two board vacancies. It described the proposed election procedure. It was intended that the elections would precede consideration of the annual accounts. The draft included this comment: "Of the 13 candidates seeking to be elected to the board, 11 are not directors and hence the receipt and consideration of the annual accounts should not have a great bearing on the suitability of such candidates for directorship. Of the remaining 2 candidates (Messrs Cummings and Hebberd) it is likely that even though each is a retiring director offering himself for re-election, when it comes to the time when the election process is begun each may well decide to withdraw his candidature."

Mr Bateman was unable to recall the source of his instructions for this paragraph. He gave his evidence by video-link and did not have the advantage of seeing the letter. He commented, without seeing it, "I would have to agree that that is a comment that I would be making on my own". Given the nature of the statement, this seems to me unlikely. Mr Bateman said that he did not recall any instructions from Mr Towner in relation to the letter. Mr Towner said he gave no instructions on the matter. Mr Bateman was in close contact with Mr Cummings at this time. The probability is that he obtained this information from Mr Cummings.

However, it would be a mistake to make much of the paragraph. It was deleted from the letter finally sent to the Stock Exchange. The evidence does not explain how this came about. But it is reasonable to assume that it was omitted by either Mr Bateman or Ms Ryan, probably on instructions from Mr Cummings or Mr Fuller.

In the event, Mr Cummings did not withdraw his nomination. At the annual general meeting he was one of 12 candidates (not 13, as Mr Bateman had expected) for the two vacancies. Mr Towner, as chairman of the meeting, followed the procedure recommended by Mr Bateman. The first step was to establish a voting order by drawing all the candidates' names from a receptacle. The candidates were then invited to address the meeting and answer questions; they being heard in the determined order. The chairman then invited motions for the election of a single candidate, the motions being taken in the determined order. As each motion was moved, Mr Towner demanded a poll. It was taken forthwith. Once two candidates achieved election the election process was terminated, even though there had been no opportunity to move motions in favour of the remaining candidates.

Mr Cummings' name was drawn second last. Most, if not all, of the other candidates addressed the meeting. Mr Cummings did not do so. In evidence he explained that the meeting was very rowdy and he knew he would be heckled. Upon motions being moved and polls taken, the second and third candidates (Messrs Dunn and Atkins) were elected. So the election process terminated without Mr Cummings' candidature being put to a vote. Mr Cummings voted his own shares in favour of each of the resolutions supporting Mr Dunn and Mr Atkins. Mr Fuller voted the Petrogulf and Irag shares in favour of each of them.

Mr Fuller resigned as a Claremont director on Thursday, 6 December, the day before the extraordinary general meeting. A good deal of evidence was given about the events leading up to Mr Fuller's resignation. It is common ground that, as early as mid October, Mr Fuller had discussions with Mr Crommelin about the future composition of the board. Mr Fuller proposed a five-man board which would not include himself; but also would exclude anyone associated with the Shareholders' Action Group. As he made clear in his evidence, this was a major concern. He regarded the members of the Shareholders' Action Group with contempt, considering that they were commercially naive people who would rake over the coals of past transactions. Mr Fuller was prepared to go quietly if satisfied about the composition of the new board. In that regard, as Mr Fuller saw the situation, the Moage shares were critical. In broad terms, the persons associated with the Shareholders' Action Group and AGL together held upwards of 35% of the company's shares. Petrogulf and Irag, both still controlled by the IRL group, together held 25%. The Moage shares constituted more than half the remaining 40%. It was obvious to Mr Fuller that a candidate favoured by the Shareholders' Action Group and AGL would be elected if supported by Westpac. Conversely, Westpac opposition would mean the candidate's defeat.

Mr Fuller had an additional objective. He hoped to persuade Westpac to waive its right to recover from Moage any shortfall of value of the shares in Claremont. Westpac never agreed to this.

Late in the trial, the applicant's solicitors found, among some other papers, a file note of Mr Bateman dated 23 November 1990. It records a 50 minute attendance on Mr Cummings and Mr Fuller on that day; although Mr Bateman explained that this did not necessarily mean that both men were present for the whole of that time. The note reads:

" •
Bank have agreed to support Atkins and Dunn
•
following AGM & before AGM, board to be reconstituted by:

(a)
MJF off
(b)
King on
(c)
Dewar on Board would then be

Towner
Atkins
Dewar
Dunn
King

•
*write to people who aren't qualified & warn them
•
agree with Ambrose Dunne on voting procedure (Westpac)
•
do not write to anyone
•
ballot paper first to indicate which of the candidates should be brought forward first. When that is determined he is first.

Recalled to the witness box to deal with this exhibit, Mr Fuller said it reminded him of a meeting with Mr Crommelin which he had not recalled when previously giving evidence. He said that, after the meeting earlier that day with Mr Towner and Mr Cummings at which the termination payments were agreed, he telephoned Mr Crommelin. Mr Crommelin agreed to see him, sometime about 1-2 pm. He said that, at this meeting, he reached agreement with Mr Crommelin about the composition of the board. It was agreed that, at the annual general meeting, Westpac would vote for Mr Atkins and Mr Dunn; eventually, the board would consist of Messrs Atkins, Dunn, Towner, King and Dewar. Mr Fuller said that he put his proposition for Westpac to release Moage from any residual liability and Mr Crommelin said he would discuss this with Ambrose Dunn of Allen Allen & Hemsley, the bank's legal advisers. Mr Fuller said he then walked down Martin Place to Mr Bateman's office, knowing that Mr Cummings would be with him, and informed both men of the agreement he had made.

When this version of events was put to him, Mr Bateman said it "rang a bell". He thought he recalled Mr Fuller coming to his office and announcing that he had just made an agreement with Westpac "to vote the Moage shares in favour of Atkins and Dunn" and that Mr Fuller then gave him the five names listed in his file note. Mr Bateman agreed with the suggestion of Mr Bleby QC, senior counsel for Mr Fuller and Fuller Services, that Mr Fuller was to resign between the annual general meeting and the extraordinary general meeting and that Messrs King and Dewar would then be appointed. He did not recall that the resignation was dependent upon the implementation of "the deal" regarding Moage's liability. Mr Bateman did, however, recall Mr Fuller saying to Mr Cummings in his presence: "I don't want you to withdraw your nomination because nothing is set in concrete till Westpac gets its advice and it's clear to me we have a deal."

Notwithstanding his claimed Friday conversation with Mr Crommelin, on the following Monday, 26 November - the day the termination agreements were executed - Mr Fuller sent Mr Crommelin a facsimile letter on Moage letterhead. It read:

As mortgagees in possession of this company's holding in Claremont Petroleum NL, we believe it is incumbent upon you not to act in a way which derogates from this company's interest in the shareholding and any ultimate return in the event of sale.
Having regard to the above we request and direct you to vote at the annual general meeting in respect of the election of directors by voting first in favour of the election of Messrs Atkins and Dunn and against the election of any other person or persons. You are requested and directed to vote in respect of any preliminary resolution in such manner as will give effect to the above.

It is interesting to note that this letter did not call for support for Mr Cummings, who would retire at the meeting. Indeed, the contrary was the case. The election of Mr Atkins and Mr Dunn would necessarily lead to the non-election of Mr Cummings.

Mr Crommelin was not impressed with Mr Fuller's demand. He responded immediately and briefly: "The bank has exercised its rights and will continue to exercise its rights under the share mortgage dated 29/12/89 between Moage and the bank."

Undeterred by this response, Mr Fuller arranged a meeting with Mr Crommelin for Thursday, 28 November, the day before the annual general meeting. He took to the meeting Brian Thomas of Abbott Tout Russell Kennedy. Mr Crommelin had with him Mr Ambrose Dunn. According to Mr Fuller, he told the others that he and Mr Crommelin had reached a point where it was appropriate to bring in solicitors for advice; that, subject to advice, Westpac would beneficially acquire the Moage shares and release Moage from any further liability. He went on to refer to the future composition of the Claremont board. But he said he thought this would be resolved between himself and Mr Crommelin. As he explained later in his evidence, that resolution did not involve either himself or Mr Cummings remaining on the board.

Mr Fuller said in evidence that in this discussion he referred to possible legal complications, mentioning the takeover code and Reserve Bank requirements. Mr Dunn commenced to take notes but, strangely to my mind, Mr Fuller stopped him doing so. According to Mr Fuller, Mr Crommelin told Mr Dunn that "what we require from you and Thomas is guidance and we would like you to document whatever is required to be documented".

Mr Fuller testified that, after the Westpac meeting, he told both Mr Atkins and Mr Towner "that I believed I had a deal with Westpac which would result in the appointment of Atkins and Dunn the next day". He said that he told Mr Cummings: "Joe, I think I have done a deal with Westpac and I have had to sacrifice you."

Mr Crommelin said that he had several November meetings with Mr Fuller at which there was discussion about the future Claremont board. He did not recall a discussion between 26 and 29 November or any meeting attended by Mr Ambrose Dunn and Mr Thomas. He said he never made any firm promise about the way in which Westpac would vote the Moage shares. He agreed that Mr Fuller proposed that Westpac should forgo any residual claim against Moage but he said there was never an agreement to that effect. In this connection, I note that there is no evidence of any activity by the solicitors to follow up and document the oral arrangement supposed to have been made on 28 November. I also note that, a few days later, Mr Fuller sent another letter of demand to Mr Crommelin requiring Westpac to vote the Moage shares at the extraordinary general meeting against all the resolutions contained in the notice of meeting, so that no existing director shall be removed and so that none of the Shareholders' Action Group nominees shall be appointed as a director. Mr Crommelin did not reply.

Because of Mr Bateman's evidence, I am prepared to accept that, on 23 November, Mr Crommelin led Mr Fuller to believe that Westpac would support the five people listed in Mr Bateman's note; although I suspect he used language falling short of a firm commitment. I see no reason to believe that Mr Crommelin ever agreed to Mr Fuller's request about Moage's residual liability. There was no advantage to the bank in such an agreement and there was no contemporaneous activity or document suggesting that one was made. However, it does not matter whether any such agreement was made. For present purposes the relevant part of the conversation is that concerning the future composition of the board.

According to Mr Fuller, he had two discussions with Mr Crommelin between the Claremont annual general meeting on 29 November and the extraordinary general meeting on 7 November. The first was on 5 December. He told Mr Crommelin that "we have not been able to complete our deal" and that he did not propose to resign before the extraordinary general meeting but to remain in office. Mr Crommelin is said to have replied that Westpac had "copped a colossal amount of criticism for the way we voted at the annual general meeting" and to have told Mr Fuller that, if he did not resign ahead of the extraordinary general meeting, Westpac would be unable to support him. Thereupon, according to Mr Fuller, he told Mr Crommelin he would resign at the board meeting due to be held on the following day.

Mr Crommelin denied this conversation. Mr Fuller's version is curious; first, in relation to not being able to "complete our deal", there being nothing to suggest any attempt to complete the alleged deal; secondly, in reference to criticism of Westpac's voting, Westpac having voted for reputable people and there being no evidence to suggest any protest by anybody; and, thirdly, because of Mr Fuller's immediate abandonment of his alleged determination to continue as a director. But, once again, it does not matter whether Mr Fuller's evidence is correct. The fact is that, upon the following day, Mr Fuller tendered his resignation to the board. Accordingly, he was not a director at the time of the extraordinary general meeting. Mr Dewar and a Dr David King were appointed directors at the 6 December board meeting.

Although it has little bearing on this case, save in relation to Mr Towner's present position, I note that he also resigned before the extraordinary general meeting. He did so immediately before the meeting and on learning that Westpac would not support him at the meeting. This led to the second Fuller-Crommelin conversation. On Mr Fuller's side, at least, it was an acrimonious one. Mr Peter Dunn, one of the new directors appointed at the annual general meeting, chaired the extraordinary general meeting. All the special resolutions were either withdrawn or defeated leaving, at the end of the meeting, a board consisting of Messrs Dunn, Atkins, Dewar and Dr King.

Neither Mr Fuller nor Mr Cummings resigned from the Beach board of directors immediately after the meetings of 23 and 26 November. This is a matter upon which the respondents place some weight. Mr Cummings had to retire by rotation at the annual general meeting on 27 November. He nominated for re-election, apparently prior to the meetings of 23 and 26 November. He was elected unopposed, Mr Fuller voting the Midland Exploration shares in his favour. However, Mr Cummings resigned about 23 or 24 December 1990. The circumstances, as he gave them in evidence, were that he was a director of Jingellic Minerals NL, another IRL company. Beach owed Jingellic some $5.4m. By the end of 1990, according to Mr Cummings, "the point arrived where it was a matter of having to put serious pressure on Beach". So it was decided to give a notice under s 460 of the Corporations Law, which was to commence on 1 January 1991. According to Mr Cummings, Mr Fuller said to him: "one of us has got to retire. There is going to be a conflict." So Mr Cummings resigned. The notice was served in early January. It led to discussions between Beach and Jingellic. An agreement was negotiated between the two companies but it was made conditional upon Mr Fuller resigning from the Beach board. He did so prior to 18 January, the day the agreement came into effect.

Mr Cummings' account of the departures from Beach, which was confirmed in substance by Mr Fuller, has to be considered against the further fact, revealed by Mr Atkins' evidence, that on 24 December Midland Exploration requisitioned for an extraordinary general meeting of Beach to remove the directors. The meeting was held in February, by which time both Mr Cummings and Mr Fuller had resigned.

The claim against the companies

Mr Whitington commences his s 233 argument with some propositions about the application of the section. First, for the purposes of the section, it does not matter whether or not Claremont was under a legally binding obligation to make termination payments to Fuller Services and Jurisprudence. Paragraph (c) of s 233(6) provides that "a reference to the giving of a prescribed benefit by a person includes a reference to the giving of a prescribed benefit that the person is obliged under a contract to give". Moreover, a payment includes a payment by way of damages for breach of contract: see para (d). So it does not matter whether the relevant payment was made to forestall an action for damages. Counsel also points out that a reference to retirement of a person from an office includes a reference to the person's loss of office, as well as resignation. Accordingly, it is no answer to a claim under the section that the person may have been removed from office, or have failed in a bid for re-election. Either of these events constitute "retirement" from office. Next, counsel submits that it is not essential to the operation of the section that the payment be received by the person who retired from office. Section 233(1)(a) speaks of a company giving a prescribed benefit "to a person in connection with the retirement of a person". The double use of the indefinite article is significant; as is the treatment of death as a form of retirement: see subs (6)(e)(iii).

Finally, counsel says it is not necessary that the payment was made in consideration of the retirement from office. The relevant phrase is "in connection with the retirement". Those are words of wide import. Mr Whitington adopts what was said by Hudson J of the Victorian Supreme Court in Lincoln Mills (Aust) Ltd v Gough [1964] VR 193 , a case concerning the then Victorian legislation, at 199: "The question whether the section applies in any particular case must, in my view, be determined by inquiry as to the true nature of the payment that has been made. Assuming it has been made to a person who has held and has ceased to hold office as a director by reason of removal or retirement it cannot be postulated in every such case that the payment falls into the category of those rendered unlawful by s 129(1)(a). The nature and circumstances of the payment must be looked at with a view to determining its true character. If as a result of investigation it becomes apparent that it is a compensation for loss of the office of director or a consideration for retirement therefrom it will be unlawful unless the sanctions of a general meeting has been obtained. If, on the other hand, the payment appears to have been made as a result of other considerations, then, even though it may be coincident with the loss of or retirement from office as a director, the payment will not fall within those prohibited by the section." This approach was approved by the Judicial Committee of the Privy Council in a New Zealand case, Taupo Totara Timber Co Ltd v Rowe [1978] AC 537 at 545-6.

As Lincoln Mills and Taupo Totara Timber illustrate, a payment will not fall foul of a provision such as s 233 simply because it is made to a person who is about to cease being, or has recently ceased to be, a director. In both those cases the payee was employed as the company's managing director. In each case it was held, as a matter of fact, that the payment was made by reason of retirement from that office, not his retirement as a director.

Of course, as with all decisions on other legislation, the holdings in Lincoln Mills and Taupo Totara Timber have to be considered in the light of the legislation governing the instant case. If those cases had occurred under s 233 of the Companies Code, they would have resulted differently; subpara (iii) of s 233(6)(a) would have applied. But, as already pointed out, that subparagraph does not affect the present cases. The two consultants, the two private companies, were different persons than the directors. The underlying principle of Lincoln Mills and Taupo Totara Timber remains; in any particular case it must be shown that the impugned payment was made "in connection with" the director's retirement from the office of director. Contemporaneity may support an inference of connection, but it is not enough that the payment was made at about the time of retirement.

The phrase "in connection with" is one of wide import, as I had occasion to observe in a different context in Our Town FM Pty Ltd v Australian Broadcasting Tribunal (1987) 16 FCR 465 at 479-80; 77 ALR 577 at 591-2:

The words 'in connexion with'...do not necessarily require a causal relationship between the two things: see Commissioner for Superannuation v Miller (1985) 8 FCR 153 at 154, 160, 163; 63 ALR 237 at 238, 244, 247. They may be used to describe a relationship with a contemplated future event: see Koppen v Commissioner for Community Relations (1986) 11 FCR 360 at 364, Johnson v Johnson [1952] P 47 at 50-1. In the latter case the United Kingdom Court of Appeal applied a decision of the British Columbia Court of Appeal, Re Nanaimo Community Hotel Ltd [1945] 3 DLR 225, in which the question was whether a particular court, which was given 'jurisdiction to hear and determine all questions that may arise in connection with any assessment made under this Act', had jurisdiction to deal with a matter which preceded the issue of an assessment. The trial judge held that it did, that the phrase 'in connection with' covered matters leading up to, or which might lead up to an assessment. He said...: 'One of the very generally accepted meanings of "connection" is "relation between things one of which is bound up with or involved in another"; or, again "having to do with". The words include matters occurring prior to as well as subsequent to or consequent upon so long as they are related to the principal thing. The phrase "having to do with" perhaps gives as good a suggestion of the meaning as could be had.' This statement was upheld on appeal.

The question, then, in the present cases is whether the payments made to Fuller Services and Jurisprudence on 26 November 1990 "had to do with" Mr Fuller and Mr Cummings ceasing to be directors or whether they were unconnected to those events, albeit preceding them by only a week or two.

The case put by the applicant is that the payments were made only because of the projected total dissociation of Mr Fuller and Mr Cummings from Claremont and Beach. Although, as a matter of form, the payments were made in consideration of the termination of the consultancy agreements and releases of Claremont from any further liability thereunder, the reality of the matter - says counsel - is that, absent an agreement or understanding that Mr Fuller and Mr Cummings would totally sever their relationships with the company, no payments would have been made.

The respondents dispute that the payments were linked to Mr Fuller and Mr Cummings ceasing to be directors. They say all the people involved with the payments were keenly aware of s 233 and anxious to ensure that the payments were related to the termination of the consultancy agreements and nothing else. They emphasise that Mr Fuller and Mr Cummings did not immediately resign from either board. Without reproach, Mr Cummings successfully stood for re-election to the Beach board on the very next day and remained on that board for a further 4 weeks. Without reproach, Mr Fuller remained on the Beach board for 7 weeks after the payments were made. Both men, say counsel, resigned from the Beach board only because of newly emerged conflicts of interest. Without reproach, counsel say, Mr Cummings submitted himself for re-election to the Claremont board on 29 November and Mr Fuller continued on that board until 6 December, when he resigned because of a recently negotiated agreement with Westpac.

At first sight, the points relied on by counsel for the respondents are impressive. But, for two reasons, I have come to the view that the applicant's case on the s 233 issue ought to be accepted. My first reason is the general strategic position as at 26 November, and the immediately preceding period. My second reason is that I accept Mr Towner's evidence (corroborated by Mr Atkins) of an express agreement to resign. Moreover, on analysis, I think the points made by the respondent's counsel not persuasive.

In his submissions on the first point, counsel for the applicant goes back as far as April 1990 when Mr Atkins was appointed group manager. No doubt it is possible to see this appointment as a step by Mr Towner to undermine the dominance of Mr Fuller and Mr Cummings. The appointments of himself and Mr Hebbard gave Mr Towner the opportunity, provided Mr Hebbard was in attendance and gave support, to use his casting vote to control the board. But because of their companies' consultancy agreements-and, no doubt, their personal links with senior executives of Claremont and Beach - Mr Fuller and Mr Cummings retained the capacity to influence day-to-day decisions. The appointment of Mr Atkins, a person close to Mr Towner, to a full-time position with responsibility for day-to-day management must have reduced that influence.

None the less, I do not think that the applicant gains assistance from the mere appointment of Mr Atkins as group manager. Whether or not that appointment weakened the influence of Messrs Fuller and Cummings, it was not inconsistent with their indefinite continuance on the board. Section 233 is concerned with loss of office, not loss of influence.

Counsel is on sounder ground in relation to the next stage in the story. Mr Atkins did not take long to question Mr Fuller's and Mr Cummings' continuance in office. He did this- diplomatically, it is true, but clearly enough to be understood - in his June 13 reference to Westpac favouring the "Spargos proposal". Although faintly at that stage, the writing was on the wall.

As Mr Fuller and Mr Cummings well understood, the extent of the threat to their positions was in direct proportion to the capacity and readiness of Westpac to vote the Moage shares against them. The registration of the shares in Westpac's name in July resolved the question of capacity. It is true that Mr Fuller never conceded Westpac's entitlement to vote the Moage shares as it wished and that he wrote two letters to Westpac purporting to direct its vote. But it is difficult to treat his position as more than bluster. Despite Mr Crommelin's contemptuous reaction to his letters, Mr Fuller did not test the matter in court. He never told Westpac the legal basis for his suggestion that it had to comply with Moage's wishes; and neither he nor his counsel explained that basis during the hearing of this case.

So far as Westpac's readiness is concerned, the evidence discloses a developing situation. As early as August Mr Atkins was discussing with Mr Fuller the prospect of his (and Mr Cummings') departure from the board. Mr Fuller knew that Mr Atkins had the ear of Westpac; that, no doubt, was why he himself had frequent contact with Mr Crommelin. By late September/mid October the conversations between Mr Atkins and Mr Fuller had become quite specific, Mr Atkins spelling out the detail of his proposal that his company, Alkali Exploration, would acquire the Moage shares from Westpac.

Mr Atkins testified that he asked Mr Fuller under what conditions he would leave voluntarily, that Mr Fuller mentioned "the termination of the consulting agreements and motor vehicle agreements on terms satisfactory to him" and an agreement with Westpac not to take action against Moage to recover any residue owing by Moage after sale of the Claremont shares. The discussed agreement clearly contemplated that neither Mr Fuller nor Mr Cummings would remain on the Claremont board. Mr Atkins named the prospective board; it did not include either man. Mr Fuller agreed in substance with Mr Atkins' account of these conversations. He quoted Mr Atkins as saying, about the end of September and in the context of Mr Atkins being able to negotiate an acquisition of the Moage/Westpac shares, "it would be in the best interests of Claremont if those consultancy arrangements were terminated, and there was no further link with you". Mr Fuller agreed in evidence that he understood the word "you" to include Mr Cummings and that Mr Atkins' plan would involve both their departures from the board.

At a later stage, it became clear that Westpac would not sell its shares to Alkali. None the less Westpac was interested in the matter of board composition and Mr Atkins was still proposing a board without Mr Fuller or Mr Cummings. Importantly, Mr Fuller was prepared to go. Under cross-examination he said:

Q-You indicated to Mr Atkins that you would accept a Claremont board composed of commercially minded people?
A-Yes.
Q-But you would not accept directors aligned with the shareholders action group?
A-I think I said that to him on a number of occasions.
Q-You told him you thought they were overly zealous?
A-Yes.
Q-And that they were liable to persecute you?
A-I don't recall saying "liable to persecute" me, I don't know. I just thought they were zealous.
Q-Did you not say to Mr Atkins that if the matters you'd discussed-that is, the satisfactory termination of consultancy agreements, the satisfactory composition of the board, and Westpac's agreement in respect of limited recourse. If those matters could be resolved to your satisfaction, you'd be prepared to retire from the board of Claremont?
A-Whether I said all of that to him at that time I'm not sure, but certainly I would accept that that would be a set of circumstances under which I probably would retire.
Q-So if you can't remember saying it, none the less it's consistent with...
A-It's consistent with my position.
Q-At the time?
A-Yes.

Although Mr Cummings did not participate in these discussions, he was aware of them. He said that the first time he thought "that Atkins was heading in a direction to take the company was in June when he presented a memo talking about his objectives". By September he understood that Mr Atkins "would put his team into Claremont, right through, top to bottom". He acknowledged that he meant "from the board down through management consultants and lower down, if necessary". Asked what he thought Mr Atkins had in mind for himself and Mr Fuller, he replied: "Not good things." Asked what he meant by this, Mr Cummings replied "I thought he wanted to take over Claremont".

As Mr Whitington points out, the evidence establishes that, as early as September 1990, Mr Fuller instructed Baker O'Loughlin to prepare draft agreements. Mr Cummings thought that the only agreements instructed at that stage were the consultancy termination agreements. They did not deal directly with termination of the directorships. However, Mr Cummings thought it probable that, even at this early stage, the drafts included provisions regarding access to information, maintenance of legal professional privilege etc; provisions which related to the roles of the two men as directors rather than consultants. Mr Fuller thought that the September instructions extended also to the motor vehicle agreements. He said in evidence that in late September Mr Atkins told him he had legal advice that the obligations to transfer the cars free of cost were unenforceable; so he sought advice on the same matter. I should add that, according to Mr Fuller, this conversation arose in the context of the possible termination of the consultancy agreements. But I agree with counsel for the applicant that it is difficult to accept that statement. In his evidence Mr Fuller acknowledged that he knew there was only a problem about the motor vehicle if he ceased to be a director.

All of the above goes to the threats building up against Mr Fuller and Mr Cummings. Until 9 October, these threats existed only as theoretical possibilities - threats which might be realised one day but were not imminent. That situation changed when the extraordinary general meeting was demanded. The effect of the notice was to require each director to face the shareholders within 2 months. Not surprisingly, the pace of discussions quickened. According to his own evidence, between 9 October and the end of November Mr Fuller had numerous discussions with Mr Crommelin. I have not recounted their detail. It does not matter. What is important is that at no time during the 8 weeks between the shareholders' requisition and his resignation from the board did Mr Fuller ask Westpac to support him or Mr Cummings. Mr Fuller realised that Westpac would not do so. So he directed his energies to the more achievable goal of obtaining a board, not including himself or Mr Cummings, but which would also not include any of the "zealots" he feared would harass him. Mr Fuller sought to achieve this goal with a mixture of persuasion, arguing the merits of individual candidates with Mr Crommelin, and pressure, asserting Westpac's obligation to follow Moage's directions. He was successful. Although Westpac, at the last minute, declined to support Mr Towner, this did not open the way to a "zealot".

On the basis of Mr Bateman's evidence, it is true that a final agreement with Westpac was made only after the meeting on 23 November when the pay-out figures were agreed. But this does not matter, for two reasons. First, whether or not, on the morning of 23 November, Mr Fuller had a firm agreement with Mr Crommelin as to the future directors, it was clear they would not include either himself or Mr Cummings. The whole of the Westpac discussions had been conducted on this basis. Mr Cummings knew this. Even if they did not know for certain all the people who would succeed them, on the morning of 23 November Mr Fuller and Mr Cummings knew their departure was imminent; not later than the extraordinary general meeting 2 weeks away. At least in a broad way, Mr Towner also knew this. He had read Mr Atkins' memo of 20 November with its reference to likely Westpac support for a board not including either Mr Fuller or Mr Cummings. This was consistent with what he himself had heard from Mr Crommelin. It was against that background that the three men discussed negotiated pay-out figures and the purchase by Mr Fuller and Mr Cummings of their cars; a subject which did not arise while they remained directors. It was against that background that Mr Fuller and Mr Cummings procured the consent of Mr Towner to the inclusion in the contracts of provisions regarding NCSC investigations and legal professional privileges - provisions which they did not need while they remained members of the board.

My second reason for thinking it immaterial that Mr Fuller reached final agreement with Mr Crommelin only after the 23 November meeting is that this meeting gave rise to no legal obligation or entitlement. There being only one vote cast, the relevant resolutions were ineffective for lack of a quorum. Even if there had been a quorum, the resolutions did no more than authorise Claremont to enter into particular agreements and make particular payments. No legal entitlement or obligation could arise until the agreements were made. Assuming in the respondents' favour, for the purpose of this point, that valid agreements were made on 26 November, before that time Mr Fuller reached agreement with Westpac as to the future board. It is true that Westpac's position was not irrevocable. Mr Fuller appreciated that Westpac might renege on its agreement, so he decided to "keep Westpac honest" by having Mr Cummings maintain his candidature at the annual general meeting and postponing his own resignation until just before the extraordinary general meeting. But, for present purposes, the significant point is that, before any binding agreement was made between Claremont and any of the present respondents, Mr Fuller and Mr Cummings not only knew that they would not be continuing as directors but the identity of their likely replacements. They had no expectation of continuance in office when they signed the agreements on Monday, 26 November.

The situation I have just outlined might be thought to cast doubt on Mr Towner's evidence that he expressly required a commitment to resign when negotiating the pay-out figures on 23 November. It might be asked whether it was likely, in a discussion between three people who believed that two of them were about to cease to be directors, that the third would stipulate resignations. I am not sure that such a question would help the respondents. If the discussion of 23 November had proceeded on the tacit understanding that Messrs Fuller and Cummings were about to lose office as directors and that the payments would be their compensation for severance of all their links with the company, those payments would be "connected with" their loss of office. There would be a problem of connection unless the court was satisfied of a positive agreement or understanding that the payments were related to retirements from the consultancies and not from the directorships. However, it is not necessary to pursue that question; the background circumstances to which I have referred do not cause me to reject Mr Towner's evidence of his express stipulation for resignation.

Mr Towner said that he would not have paid out the consultancy agreements unless Mr Fuller and Mr Cummings had agreed to resign as directors of both Claremont and Beach. He wanted finality. He said his advice from Mr Bowen was that the consultancy agreements "may stand up" in court. But he added: "An agreement is one thing, but to take it to completion could have developed into a legal battle which I wanted to avoid, because I think the company was better off without ongoing litigation, and it was my view and the view of others that in the interests of the company, it would be best to have the contracts terminated and an orderly settlement for the removal of Mr Fuller and Mr Cummings from the company, and that meant their resignations as directors, termination of their agreements, and the settlement of their cars. It was a package deal."

Mr Towner was emphatic that he made this position clear to both men on 23 November and that they indicated acceptance of it. Having seen him in the witness box, I think it would be in his nature to have done so. Mr Towner appears to be a straight-forward, even blunt, person. If it was on his mind that the two men must cease to be directors, I think he would have said so.

Counsel for the respondents put a number of reasons why I should reject Mr Towner's evidence on this matter. One of their points is that, for Mr Towner to have so acted, would have been to put himself into knowing breach of s 233. The point was put to Mr Towner in cross-examination by Mr Lever. Mr Towner's first answer was not logically satisfying: "It would be in breach if they sued and won. I'm not a lawyer. You must remember that I'm not a lawyer, so you'll have to forgive me for being perhaps a bit agricultural in my terminology but I do understand that there was no interest on my part for them to go to unless they went entirely." Not unnaturally, Mr Lever pressed the point, asking Mr Towner directly whether he was saying that he did not realise that for Claremont to pay Jurisprudence $370,000 would involve a breach of the Code. He responded:

I'm not a lawyer, sir, so I probably was more interested in having the deal that I was putting forward completed in its entirety, which was a peaceful removal of Mr Fuller and Mr Cummings. I'm not a lawyer so I don't get down to the fine detail, that's why Mr Bowen was involved.
Q-Yes. Now, let's come to Mr Bowen because he was advising you and Mr Atkins about this transaction, wasn't he?
A-Yes.
Q-And you know if this transaction had been proposed to Mr Bowen by either you or Atkins the first thing he would have said was, "That's a breach of the Companies Code"?
A-He said the contracts were possibly enforceable but the deal which was agreed, as I've said on numerous occasions earlier, was that they will get their money, they will retire as directors, the car matter will be fixed up as well. I'm sorry if I'm not a lawyer, I'm not- I'm just trying to explain in my own way the way it was at the time.
During the course of his cross-examination by Mr Bleby, Mr Towner said: "Any discussions I had with Mr Fuller or Mr Cummings with respect to their departure would have included resignations - I always called it a global settlement, and referred to their money that was going to be paid to them as departure tax. There was never any discussion other than a global settlement."

Another matter raised in relation to Mr Towner's evidence that resignations were integral to the 23 November agreements is the failure of the minutes to mention resignations. This is obviously a major objection to Mr Towner's evidence. Counsel for the applicant seeks to meet the argument by pointing to Mr Cummings' evidence that the minutes were prepared by him on his own initiative. Mr Cummings (and Mr Fuller) knew that it would be a fatal mistake to make reference in the minutes to their departure as directors. Counsel says that, although Mr Towner could not explain why there was no reference to Mr Fuller's and Mr Cummings' promises to retire as directors, the court should infer that they induced Mr Towner to trust them on the matter of retirement and that Mr Cummings deliberately excluded it from the minutes. Counsel also refers to the resolution's provision that implementing contracts were to be executed and take effect on the following Monday. As he says, this was an unusually short period for the preparation of the necessary documents and the completion of the transaction. Mr Fuller said in evidence that this requirement came from either himself or Mr Cummings. Mr Whitington submits that it should be inferred that the reason was a desire to consummate the agreements before the forthcoming annual general meetings or the other Claremont directors had a change of heart.

A further point made by counsel for the respondents, in support of their submission that Mr Towner ought not be accepted, is the failure of Mr Towner to remonstrate when Mr Cummings successfully stood for re-election at the Beach annual general meeting on 27 November, when he unsuccessfully stood for re-election at the Claremont annual general meeting and when Mr Fuller failed to resign from the Claremont board before 6 December.

The matters put on behalf of the respondents have great weight. I have given them considerable thought. But I have reached the view that, notwithstanding these matters, I should accept Mr Towner's evidence. Having regard to his personality and the overall situation, I think that Towner's conduct in respect of the matters raised by counsel is not inconsistent with his evidence of the agreement reached on 23 November. I will expand on that comment in a moment. First, I observe that it is inconceivable that Mr Towner would have been prepared to authorise payment of $767,500 to rid the company of two unwanted consultants if he had believed that the principals of those consultants would remain, in more influential positions, as directors. There would be no advantage in the payments. From Claremont's point of view it would be better to leave the consultancy agreements on foot; if desired, making no call on the consultants' services. If this course had been taken, Claremont would have been required to pay to each consultant only $8333 per month, payable without interest over a period exceeding 3 years, rather than to pay immediately a sum calculated at the rate of $10,750 for the same number of months, with only a minimal discount from the calculated total. As an experienced businessman, Mr Towner would have understood that. The fact that he was prepared to pay the greater sum is the best possible evidence that Mr Towner wanted more than termination of the consultancies. He was interested only in a complete break between Claremont and both men.

Mr Towner claims to have made this apparent to Mr Fuller and Mr Cummings on 23 November. He did not have a full recollection of the meeting and was unable to say how they manifested their acceptance of his stipulation. This is not surprising. Mr Towner was being asked to give evidence about a relatively short meeting held some 16 months earlier. The meeting was not one affecting his personal interests. He had no reason to retain its detail in his mind. He took no contemporaneous notes. It would be unreasonable to expect full recall. But Mr Towner did claim to remember the substance of the matter. Unless he is to be disbelieved, that is enough.

Despite the submissions of the respondents' counsel, I see no reason to disbelieve Mr Towner. He has no present association with Claremont or, so far as I am aware, anyone connected with the company. His past association terminated only 2 weeks after 23 November 1990 under circumstances which might be expected to engender resentment, rather than partiality, towards those in control of the company.

In an answer I quoted above, Mr Towner described himself as being "a bit agricultural in my terminology". Without necessarily endorsing that self-deprecation, I think Mr Towner is relatively unsophisticated. He is no match for Mr Fuller in the legal nuances of a situation. But I think he has the "agricultural" characteristic of calling a spade a spade. Mr Towner might be vague or incorrect in relation to some details of his evidence - the precise terms of conversations, dates etc. But I have no hesitation in accepting his essential honesty as a witness. I also accept his reliability on aspects not depending on detail - on matters of broad import such as whether he was prepared to deal with Mr Fuller and Mr Cummings in respect only of the termination of the consultancy agreements and whether they agreed to resign as directors.

In passing, I note that my assessment of Mr Towner is not far removed from that of Mr Fuller. In the context of his annoyance with Westpac for abandoning Mr Towner before the extraordinary general meeting, Mr Fuller said in evidence: "I had a high regard for Geoff Towner as a person and I thought he was a pragmatic, competent commercial person."

If Mr Towner had been a commercial lawyer, the point about breach of s 233 would be persuasive. An experienced commercial lawyer would know that to do what Mr Towner claimed to have done, to make resignations as directors part of the agreement, was to offend s 233. But Mr Towner is not a lawyer. He was aware of s 233 in a different context, but I do not think it crossed his mind that it would apply to what he was requiring. This is perhaps indicated by his last quoted reply to Mr Lever. Although s 233 was put to him in relation to the agreement to depart, he responded in terms of the consultancy agreements; as if s 233 had no other role to play. I think Mr Towner related s 233 only to the context raised by Mr Atkins. He did not think conceptually and perceive its wider application. Nor, as he said in evidence, did he ever receive legal advice about the implications of a link between the payments and resignations.

There is no doubt that Mr Fuller and Mr Cummings were aware of s 233. Mr Cummings took the notes which were adopted as the minutes of the 23 November meeting. He knew that it would be a serious mistake to record any reference to their departure as directors.

Of course, as counsel for the respondents emphasise, the minutes did not end with Mr Cummings. Mr Towner initialled Mr Cummings' notes, by way of adoption of their contents. On the following Monday, he signed a typescript version of these notes as a true record of the meeting of 23 November. The respondents submit that these actions give the lie to Mr Towner's claim that it was part of the agreement that Mr Fuller and Mr Cummings would retire as directors. It is inconceivable, they argue, that Mr Towner would have been prepared to adopt the accuracy of the minutes which omitted a term which he considered fundamental to the agreement. Counsel point out that, when taxed with this matter in cross-examination, Mr Towner was unable to offer any explanation.

This submission is powerful. In most cases, I think, I would find such a submission irresistible. The reason why I do not do so in this case is because of my assessment of Mr Towner. The evidence suggests that Mr Towner's approach to business matters is to concentrate on what might be called the "big picture". He appears to be capable of selecting a major objective and working towards it. But the history of his involvement with Claremont suggests that he has little appetite for detail. He seems to leave detail to others. I have in mind his prompt recruitment of Mr Atkins and his subsequent reliance on both him and Mr Bowen. More significantly, the evidence does not reveal a single document written or settled by Mr Towner in his 8 months' association with Claremont and Beach. I think it was consistent with his personality and practice for Mr Towner to have assumed that Mr Cummings had accurately recorded the agreement negotiated at the meeting of 23 November and to have initialled, and later signed, the notes without thinking about their accuracy; perhaps even without reading them carefully.

I acknowledge that this explanation does not account for Mr Bowen's failure to draw attention to the omission of any reference to retirements. Mr Bowen did not give evidence, so I had no opportunity of assessing him directly. But the evidence suggests that he is a person attentive to detail, as one would expect of an experienced commercial solicitor. It must be assumed that, by 26 November, Mr Towner told Mr Bowen what had transpired on the previous Friday and that, at some stage before the termination of the 26 November meeting, Mr Bowen read the minutes of the Friday meeting and noticed that they made no reference to retirements as directors. Why did he not speak up? I think the reason is obvious: he did not wish to destroy the agreement which Mr Towner had negotiated. Mr Bowen would have realised the significance of a reference in the minutes to retirements as directors. He would have known that Mr Fuller and Mr Cummings would share that realisation. Any attempt to insert in the minutes a reference to retirements would inevitably lead Mr Fuller and Mr Cummings to withdraw from the agreement Mr Towner had negotiated. The same would apply to any reference to retirement in the agreements executed on 26 November. Whatever the end result might have been, Mr Bowen would have frustrated Mr Towner's objective of arranging an amicable non-litigious termination.

In the absence of evidence from him, there is an element of speculation about Mr Bowen's thought processes. But I think that the suggestion just made is supported by the exchange which took place when Mr Atkins asked Mr Bowen: "shouldn't we be getting resignations?" It will be recalled that Mr Cummings quoted Mr Fuller as saying "Michael, that's the one thing this is not about. That's the one thing you won't be getting", and Mr Bowen agreeing with this. Mr Fuller's version of this incident is to substantially the same effect, except that he has himself saying "the one thing that you're not getting today". The incident is illuminating. It shows Mr Fuller's desire to distance the matter of resignations from the payments. If there had been no suggestion of resignations, it might have been expected that Mr Fuller would have responded to Mr Atkins by saying that there was no thought of their resignations, that the payments were related only to the consultancy agreements and that they intended to continue as directors. But, instead, Mr Fuller gave a lawyer's code response: "that's the one thing". The words underlined the point that trouble was being taken to ensure that there would be no evidence to link the payments to resignations. Mr Bowen got the message and stopped any further talk of resignations.

Similar considerations apply to the failure of Mr Towner, or anyone else, to remonstrate with Mr Fuller and Mr Cummings for persisting in office. At first sight, it seems inconsistent with Mr Towner's evidence that there was no protest at the candidature of Mr Cummings at the Beach annual general meeting. But it did not matter whether Mr Cummings was re-elected on 27 November. Through Midland Exploration, Claremont held 65 of the shares in Beach. Those who controlled Claremont controlled the composition of the Beach board. As Mr Atkins said in evidence, "the priority was always Claremont". If Mr Fuller and Mr Cummings failed to survive the forthcoming Claremont meetings, they would not long remain as Beach directors. And there was little doubt about the Claremont meetings. There was no need to make an issue of the Beach election. The same was true of Mr Cummings' nomination at the Claremont annual general meeting. Without Westpac support he had no chance of success. As to Mr Fuller's continuation in office until 6 December, he said at the meeting of 26 November that he wanted to continue until the extraordinary general meeting in order to "keep Westpac honest". Mr Atkins said in evidence that he accepted this explanation. It was in his interests (and Mr Towner's) to keep Westpac to its declared intentions.

In relation to the Beach resignations, it is inaccurate to say there was no remonstration. Mr Atkins, at least, was unhappy about the situation. When it seemed that early resignations would not be forthcoming, an extraordinary general meeting was requisitioned. And those controlling Beach made it a condition of the Jingellic agreement that Mr Fuller would immediately resign from the Beach board.

Before leaving the subject of the arrangement made by Mr Towner, I should mention that, towards the end of his evidence, Mr Fuller suggested that Mr Sam Yue might have been present at the meeting of 23 November. This was the first time that suggestion had been made. Both Mr Towner and Mr Cummings had dealt with the meeting on the basis that only the three directors were present. This had not been questioned by counsel for Mr Fuller. None the less, the suggestion having been made, counsel for the respondents now comment upon the failure of the applicant to call Mr Sam Yue in reply, arguing that this indicates a concession by Claremont that Mr Sam Yue's evidence would not support the company's case that Mr Towner stipulated for resignations.

I reject this submission. The principle underlying Jones v Dunkel depends upon there being a fair opportunity for a party affected by damaging evidence to call evidence in rebuttal. There was no real opportunity in this case. Mr Fuller's evidence was given in Adelaide towards the end of a lengthy hearing in which all parties were cooperating to complete the evidence by the end of the week. Mr Sam Yue was in Sydney. It would have been difficult for the applicant's advisers to take instructions from Mr Sam Yue on this matter and call him to give evidence within the projected hearing time. An additional hearing day would have been expensive and impossible to arrange at an early date. I draw no inference from the failure to call Mr Sam Yue.

Despite the actions taken to disguise the position, it seems to me apparent that the agreements and payments made on 26 November were part of a comprehensive scheme for the termination of all associations between Messrs Fuller and Cummings and Claremont. The payments were not made in direct consideration of their retirement from the directorships. They were made in return for a bundle of undertakings, one of which was an undertaking by each man to relinquish office as a Claremont director within the near future. The payments were also made, and received, pursuant to a common expectation that, in any event and having regard to the balance of power among the shareholders, Messrs Fuller and Cummings would not long remain as directors. For both of these reasons, the payments had to do with their retirement as directors; they were "connected with" those retirements within the meaning of s 233.

The respondents argue that, if the payments were connected with the directors' retirements, they were an exempt benefit.

The first contention is that they were disclosed: see para (c) in the definition of "exempt benefit" in s 233(7). In the 1989 annual report of Claremont there is a note under the heading "Contingent Liabilities and Capital Commitments" in the notes to the accounts:

(d) Service agreements exist with companies controlled by Directors, namely M J Fuller and J P Cummings, and with the executives under which termination benefits may, in appropriate circumstances, become payable. The maximum contingent liability at 30 June 1989 under these service agreements is $2,572,000 of which $1,541,000 is for the companies controlled by Directors. Since 30 June 1989 termination benefits totalling $868,000 have been paid to executives pursuant to these service agreements.

There is a similar note, in a similar context, in the 1990 annual report, the maximum contingent liability for companies controlled by directors being $1.325m.

An odd feature of the annual reports is that no mention of the service contracts is made in either report under the heading "Directors' Interests and Benefits". On the contrary, each director's report states that, since the end of the previous financial year: "no director of the holding company has received or become entitled to receive a benefit (other than a benefit included in the aggregate amount received or due and receivable by directors shown in the accounts) by reason of a contract made by the holding company or a related corporation with the director or with a firm in which he has a substantial financial interest with the exception of fees..." paid to Cambridge Mining Services. This statement is clearly false. Even if the words in parenthesis were intended to refer to the contingent liability quoted above, that liability was only for termination payments. In the meantime the two directors were receiving monthly payments, through companies in which they held substantial financial interests. It is difficult to understand why the statement was made in 1989 or repeated in 1990. Mr Fuller and Mr Cummings could hardly have forgotten their benefits under the consultancy and motor vehicle agreements. The disclosure of a contingent liability, deep in the notes to the accounts, could hardly offset the effect of these false statements in a prominent position in the director's reports.

In any event, the disclosure made in the annual reports does not nearly satisfy the requirements of s 233(7)(c). For a payment to qualify as an "exempt benefit" under that paragraph, and so fall outside the prohibition of s 233(1), "particulars of the terms" of the agreement must have been disclosed to, and approved by, the members in general meeting. The notes to the accounts contain no particulars of the terms of the agreements between Claremont and the consultants. Nor, as it seems to me, can it be said that a resolution which merely approves a set of accounts constitutes an approval of an agreement referred to in them. The evident purpose of s 233(7)(c) is to ameliorate the harshness of s 233(1) by providing a way in which directors may receive benefits connected with their retirement, but to condition this amelioration upon the shareholders making an informed, deliberate decision that the benefits are acceptable. For this objective to be satisfied, there needs to be a resolution specifically directed to the particular agreement.

Secondly, the respondents contend that the payments were bona fide payments by way of damages for breach of contract: see s 233(7)(d). It is sufficient to say that, until the hearing of this case, nobody characterised the payments in that way. Claremont was not in breach of the consultancy agreements. No claim for damages had been made. The parties negotiated a termination of the subsisting agreements as part of an overall arrangement for the severance of their relationship.

The applicant's s 233 claims against Fuller Services and Jurisprudence succeed. The moneys paid to Fuller Services and Jurisprudence are recoverable under that section. Accordingly, it is not strictly necessary to consider the applicant's alternative claim: that the deeds of termination were not authorised by a resolution of the Claremont board, so the payments made thereunder are recoverable. However, I make the observation that I do not think this alternative claim could succeed. As I have already observed, it is clear that the meeting of 23 November lacked a quorum. It is equally clear that there was no relevant resolution at the meeting of 26 November. Accordingly, there was no formal board resolution authorising the deeds of termination. But this does not mean that the deeds were ineffective. In J W Broomhead (Vic) Pty Ltd (in liq) v J W Broomhead Pty Ltd (1985) 9 ACLR 593 , McGarvie J was concerned with a trust deed executed under the common seal of the plaintiff company. The affixation was not authorised by an appropriate resolution. None the less he held it binding on the company. In so doing his Honour upheld a submission that it was enough if each of the directors had given authority for the affixation of the common seal otherwise than at a formal meeting. Applying the "business efficacy" approach adopted by Jenkins LJ in Holmes v Keyes [1959] 1 Ch 199, McGarvie J said at 616: "If all the directors authorise a particular use of the seal, business efficacy in the operation of the company would be impeded by a requirement that there must be a meeting of directors and a formal resolution before the seal can be used."

As in J W Broomhead , the Claremont article (art 98) dealing with the affixation of the common seal does not require a resolution of the board of directors. It provides that "the seal shall never be used except by the authority of the directors previously given and in the presence of one director at the least". The evidence shows that these requirements were fulfilled on 26 November. Although they did not do so in a formal meeting, all four directors authorised the affixation of the common seal to the relevant documents (including, importantly, two directors who had no interest under any of them). The documents were countersigned as required by art 98. I conclude therefore that these documents bind Claremont. The applicant would not be entitled to recover the payments on the basis of their formal invalidity. I need not deal with the respondents' further contention that the applicant is estopped from denying the validity of the documents.

The claims against the directors

The s 229 claims against the two directors are pleaded in respect of the November 1990 agreements as well as those dated 4 May 1989. I do not think this course is justified. The decision of 26 November to commit Claremont to the termination agreements was made by Messrs Towner and Hebbard, not Mr Fuller and Mr Cummings. On the other hand, it is clear that Messrs Fuller and Cummings were actively concerned in the making of the consultancy and motor vehicle agreements in May/June 1989. Section 229 potentially applies to those agreements.

As I have previously mentioned, the applicant alleges three contraventions of s 229: failure by the directors to act honestly in the exercise of their powers and the discharge of their duties (subs (1)); failure to exercise a reasonable degree of care and diligence in the exercise of their powers and duties (subs (2)); and improper use of their position as directors to gain, directly or indirectly, an advantage for themselves or their companies: subs (4). It is possible to deal with all these matters together.

The case made by the applicant in respect of s 229 has two aspects: the content of the agreements and the manner in which their execution was procured. The two aspects are connected. In relation to content, counsel particularly criticises two of the benefits conferred on the directors: the termination penalty and the motor vehicle transfer provision.

The agreements imposed a termination penalty on Claremont, but not on the consultants. The specified rate was $10,750 per month for the balance of the 5 year term. This sum was greater than the $8333 per month payable while the agreement was in force. It was payable immediately, without any discount for that fact. The figure of $7650 shown in the first draft, without instructions to that effect, was increased by Mr Cummings to $9500. It was further increased to $10,750, again without explanation.

There is no evidence of any independent consideration of these increases or the appropriate termination penalty. There is no evidence of the nature of the duties to be undertaken by Fuller Services and Jurisprudence, so as to show the justification for penalty payments. There is no evidence that either consultant company, or Mr Fuller or Mr Cummings personally, forewent any other employment or remunerative opportunities by reason of their commitments under the consultancy agreements. Indeed, the contrary is true. Clause 11 of the agreements specifically preserved the rights of the consultants to take other work. Mr Fuller and Mr Cummings did so, through Cambridge Mining Services. There is no evidence that the consultants incurred any capital or training costs to enable them to carry out their obligations to Claremont. They occupied suburban rented accommodation. They employed no staff.

So far as the motor vehicle agreements are concerned, once again the story is one of progressively greater benefits without either contemporaneous or subsequent explanation. The first draft made no provision for a motor vehicle. The second draft required Claremont to provide an air conditioned four-door family sedan with automatic transmission. That draft did not provide for the vehicle to be retained on termination of the consultancy. By the date of the next draft, when the motor vehicle benefits were in a separate agreement, the car was to be a current model imported car of a manufacture agreed between the director and the company. Given the dominance over the company of the two directors to whom these benefits were granted, this formula exposed Claremont to the prospect (which became the reality) of providing two extremely expensive motor cars. Moreover, the motor vehicle was to be retained by the director, free of cost, on his loss of office from any cause but death. This was to apply no matter how soon after taking the vehicle he lost office and regardless of the circumstances. The generosity of this provision is pointed up when it is remembered that it was to apply not only where the director chose to resign or was removed from office by the shareholders because he lost their confidence but also where he lost office because of one of the matters referred to in art 71: prohibition by an order of a court, bankruptcy, unsoundness of mind, disposal of qualifying shares, absence from meetings without leave of the directors, failure to pay calls on shares or conviction for an offence.

In an attempt to justify the termination penalty and motor vehicle provisions, Mr Lever tendered two reports by Christopher Hart. Mr Hart is a director of a company specialising in executive recruitment. He has a special interest in the mining and petroleum exploration industries. He referred to a 1988 survey of companies within these industries revealing that 63% of the respondents claimed to provide a formal contract between their organisation and its chief executive. The survey did not reveal the duration of these contracts but Mr Hart said that the work done by his company generally involved the negotiation of one, three or five-year contracts; the respective percentages being 40%, 33% and 20%. Mr Hart also gave some information on the level of remuneration payable to chief executives and the types of motor vehicles supplied. As might be expected, there was a substantial variation between companies. Mr Hart stated that "the average of the market was to reward chief executives with a package of $197,000 and a third quartile of $241,000". The third quartile is the 75 percentile, meaning that 25% of individuals received rewards exceeding $241,000.

It seems to me that Mr Hart's report has little value. It does not disclose the number of companies upon which its conclusions are based. It makes no distinctions between the companies it includes. It is not clear whether those companies are confined to mining and petroleum companies or whether they include "insurance, computer hardware suppliers and construction companies", as referred to by Mr Hart in the relevant section of his report. More importantly, it is not suggested that any of the positions included in the review involved the unusual arrangements existent in this case, where the functions of managing director of a petroleum group were said to be discharged by two people without geological or mining training working part-time in an office thousands of kilometres from all the company's staff and even further from its operating wells and prospecting activities. As I have said, it is not clear what Mr Fuller and Mr Cummings actually did for Claremont. The evidence does not suggest that their activities may fairly be compared to those of a managing director or chief executive of a substantial company, working full-time and based in the company's main office.

When Mr Hart's report was tendered, I inquired of counsel whether he was to be called to resolve the uncertainties in his report, to some of which I called attention. Counsel said this was not intended. I indicated that, without better elucidation of the contents of the report, I would not be prepared to give it any weight. Despite this comment, and ample subsequent opportunity for Mr Hart to give evidence, he was not called. Having reread the document, I adhere to the view I expressed to counsel. I do not regard this report as supporting the level of benefits appropriated for themselves by Mr Fuller and Mr Cummings.

In relation to the reasonableness of the termination penalty, the respondents pointed out that, within the 5 year period envisaged by the consultancy agreements, the sum of $10,750 would become less than the monthly payment if the latter increased by 10% per annum. It was said that in 1989 inflation was running at 10% and it was reasonable to expect it to continue indefinitely at that rate. Those last statements may be true - I have not investigated the matter - and, mathematically, the calculation is correct. But the argument has no relevance to a contract requiring an increase of the monthly payment only if there was an increase in the time and effort undertaken by the consultant. Of course, the parties might have agreed to increase the amount of the monthly payment because of inflation. But, if they did so, they could also have agreed to increase the termination penalty. The possibility of an agreement to increase the monthly payment because of inflation cannot justify the immediate subjection of the company to a termination penalty greater than the original monthly payment.

Mr Fuller made a vague suggestion that he discussed the terms of the agreement with Mr Worthington or Mr Sam Yue. Apparently, his purpose was to show that somebody else thought the benefits reasonable. He gave no details of the alleged discussions. There was nothing in writing. In that situation, I am not prepared to accept that there were discussions before the documents were signed. In any event, proof of the fact of discussions says nothing about the opinions of Mr Worthington or Mr Sam Yue. It is true that nobody resigned in disgust, but that fact does not indicate approval. Unless he was prepared to resign, neither man was likely to voice disapproval. Each was dependent on Mr Fuller and Mr Cummings; not only for any advancement, but even for the retention of his job.

Counsel contend that Mr Main thought the benefits reasonable. We know that Mr Main attended one meeting in Mr Bateman's office on 4 April 1989 at which the motor vehicle benefits were discussed. He was with Mr Cummings and, apparently, meeting Mr Bateman for the first time. The whole interview lasted 20 minutes. No doubt it is reasonable to infer that Mr Main did not voice opposition to the proposed motor vehicle benefits (whatever they were then) at that meeting. He could hardly do so; he was then not even an alternate director. But, in the absence of evidence on the matter, I cannot assume that Mr Main made any analysis in this short interview of the reasonableness of the benefits.

Of course, Mr Main was further involved. He signed all the agreements; although there is no evidence that he read them. According to Mr Fuller, on 4 May Mr Cummings described "the essential terms" of the agreement. Mr Fuller said the meeting lasted "half an hour to an hour" and that it included discussion of a number of other matters "including the question of Paul Main becoming a director in his own right". Whatever his level of understanding of the agreements, on 4 May Mr Main was not well placed to make a judgment as to the reasonableness of the benefits. He had just become an alternate director of the company. Although he was a director of Claremont (UK), Mr Main had had no previous association with the operations of the Australian group. There is no reason to believe that he knew much about its operations or the nature of the roles undertaken by Mr Fuller and Mr Cummings. Perhaps more importantly, Mr Main was not well placed to express any reservations he might have held. As Mr Cummings put the matter in his evidence, "Mr Main was foreshadowing that he wished to take over Sir Cecil's role as a director of Claremont and Beach", an endeavour in which he was successful before the end of June. He would have known that he needed the support of Mr Fuller and Mr Cummings.

Finally, the respondents rely on the attitude of Mr Bateman. As I have said, Mr Bateman took all his instructions in relation to the agreements from Mr Cummings or, possibly, Mr Fuller. Mr Bateman recognised the difficulty of his position. He said that, wherever a service agreement is involved, "one must always assume that the company is in a position to ensure that other people within the company are looking at the elements of the agreement and that other people will approve or disapprove or negotiate". For reasons which he did not state, he did not make that assumption in this case. Nor did he question Mr Cummings, or anyone else at Claremont, about the appropriateness of the proposed benefits. Mr Bateman did not explain why he did not take steps to ensure that the level of projected benefits was independently considered - perhaps by some independent consultant briefed by him with all the relevant facts, ideally by the shareholders in general meeting, at least by Sir Cecil Burney who had been a director of Claremont for nearly 2 years and knew something about its activities and method of operation. Mr Bateman said that, when a chief executive officer of a company gives instructions concerning consultancy or service agreements, "it's a difficult position for a lawyer to be in to start questioning his propriety in giving those instructions". However, it seems to me that, especially in a situation where he or she cannot assume that independent people in the company are looking at the elements of the agreement and approving them, a solicitor can only discharge his or her duty to the client, the company itself, by firmly - though, no doubt, politely - insisting upon some form of independent review of the level of projected benefits.

It is clear that Mr Bateman regarded his task as being merely to translate the instructions he received from Mr Cummings into appropriate legal documents. But there is one passage in his evidence where he offers a view about reasonableness, albeit in negative form. He was being cross-examined by Mr Lever:

Q-I think it's fair to say, from what you have just said, that the termination figure of $10,750 was, in those circumstances, in your view, a reasonable figure to choose?
A-I have no independent recollection whether I advised that so I - though I must say the circumstances of the file and the fact that I was acting for the company and drawing up agreement, I wouldn't have-I would have recorded a dissent from that view. If I had held that view, I would have noted it as being something that I didn't agree with was a fair and reasonable assessment of damages.
Q-What if there is no such dissent -?
A-I would have to conclude that I did agree with it that. I have no independent recollection of that.

This evidence immediately followed a long answer in which Mr Bateman expounded the desirability of agreeing in advance the amount of any termination payment and in which he argued that $10,750 per month could be justified by reference to a 10 inflation rate.

Mr Bateman said that he knew of other cases where directors retained motor vehicles upon retirement. He gave no details. Nor did he comment, one way or the other on the terms of the subject motor vehicle agreements. Neither did Mr Hart. Although he commented on the range of vehicles supplied by companies to their executives, Mr Hart did not cite any case in which retiring directors had been allowed to keep their cars without cost to themselves.

In the end, the reasonableness of the benefits conferred by the agreements is a matter for the court. Evidence of industry practice is helpful, providing that the practice relates to a like situation. In the present case, there is no worthwhile evidence of industry practice. Mr Bateman is an experienced solicitor and I accept that he has previously been involved in the drafting of executive service agreements. But the evidence does not demonstrate the extent of that involvement. He is not qualified as an expert on the subject of reasonable terms for executives, either generally or in relation to this particular, unusual situation. I put little weight on his failure to note a dissent in his files. What use that might have been, he did not explain. Moreover, in the particular context in which he made the comment, the termination payment, it appears that he overlooked the fact that the monthly payments were not indexed to inflation.

Mr Lever submitted that a s 229 claim would not be made out merely because the court thought the benefits provided under a service agreement were generous. I accept, as a general proposition, that it is not for the court to say what benefits a company may provide for its directors or executives. But generosity is one thing, unreasonableness is another. In the present case the termination payment is manifestly excessive, even when measured against the monthly payment of $8333. The present value of an entitlement to receive $8333 each month over the next 37 months must be much less than 37 times $10,750. It is no answer to say that there might have been inflation and a consequential agreement to increase the monthly payment. If that had been envisaged, the termination payment could have been made adjustable. Further, while I accept that there may be circumstances where it is reasonable to give a car to a retiring director - for example, where the director has served for a lengthy period and the car is of modest value - it seems to me manifestly unreasonable to provide for the gift of an expensive new car to a director who has served for only a short period, whatever the circumstances and timing of the director's loss of office.

The proposition that it is a breach of s 229 for a director to take unreasonable benefits at the company's expense is strongly arguable. The requirement of s 229(2) is that directors "exercise a reasonable degree of care and diligence" in the exercise of their powers and discharge of their duties. That means care for the company's interests: see Marchesi v Barnes [1970] VR 434 at 438. It is difficult to see how a director who demands unreasonable personal benefits can be said to exercise reasonable care for the company's interests. It seems apt to apply to that situation the words of King CJ in Australian Growth Resources Corporation Pty Ltd (recs and mgrs apptd) v Van Reesema (1988) 13 ACLR 261 at 272: "Improper purpose apart, no director, exercising reasonable care and diligence, could authorise an agreement such as the subject agreement."

However, in this case it is not necessary to reach a concluded view about a mere demand for unreasonable benefits. Here there is more. Despite the fact that Mr Fuller and Mr Cummings realised they were in a situation of conflict between their personal interests and their duty to Claremont, they took no steps to ensure an independent appraisal of the terms of the agreements. Mr Fuller said that he left this to Mr Bateman. But Mr Bateman made it clear that he was not asked to carry out that task. Worse, Mr Fuller and Mr Cummings undertook a course of conduct designed to prevent any independent assessment of the level of benefits. The directors taking the benefits kept them from the only person in the company who was not subordinate to them, their co-director, Sir Cecil Burney. Mr Cummings said in evidence that he was in frequent contact with Sir Cecil in the first few months of 1989; yet he told him nothing about the proposed agreements. He could have sent him the draft agreements and obtained his opinion before 4 May. If this course had been taken, the directors might have dealt with the matter by a circular resolution. The quorum problem would still have arisen, but they were unaware of that. If long distance consultation was thought inappropriate, the matter could have waited until Mr Cummings' visit to London in mid May. This would not have delayed the final execution of the agreements. It will be recalled that this did not occur, anyway, until after Mr Cummings' return to Australia.

At the end of his cross-examination I raised with Mr Fuller this aspect of the case. It seemed only fair to give him an opportunity to deal with it. I suggested that, as an experienced commercial solicitor, he would have recognised that the fixing of the benefits was an extemely delicate matter which had to be undertaken with considerable caution, to put everything beyond possible suspicion. Mr Fuller agreed, adding that "it was an occasion for some degree of care". Mr Fuller agreed that the third director, Sir Cecil Burney, was a man of commercial experience who had been a director for some time and had some idea of what was involved in running Claremont and the role of himself and Mr Cummings. I asked why, under those circumstances, Mr Fuller had not canvassed with Sir Cecil the details of the proposed benefits and asked him to make an independent review of them. Mr Fuller replied: "I didn't undertake that as an exercise in itself." I said to Mr Fuller that I did not understand why not. He replied: "Well, because Paul Main had been appointed his alternate and Paul Main was a director on the same board, that is, Claremont UK with Sir Cecil and from what I understood from conversations with Main, he was not only associated with Sir Cecil Burney by reason of that directorship but he was also a reasonably close friend of Sir Cecil's. I expected that what I conveyed to Paul Main and what Paul Main examined, without me necessarily having to talk to Sir Cecil personally, would be conveyed to Sir Cecil by Paul Main and my belief is that it was."

I find this reply unconvincing. Mr Main had been appointed Sir Cecil's alternate only the day before the alleged approval of the agreements. There is no evidence that Mr Main saw the agreements before 4 May. Whatever his relationship with Sir Cecil, Mr Main had no opportunity to obtain Sir Cecil's opinion about them. If Mr Fuller had wished Mr Main to have the benefit of Sir Cecil's opinion, it was incumbent upon him to inform Sir Cecil of the terms of the proposed agreements or give Mr Main an opportunity to do so. He did neither.

The circumstances of the approval of the agreements are suspicous in themselves. When they are considered in conjunction with Mr Bateman's file note of 6 April, the conclusion that Mr Fuller and Mr Cummings actively concealed the agreements from their co-director becomes irresistible. It will be recalled that Mr Bateman noted an attendance on Mr Cummings on that day. He referred to the "quorum problem" and the prospective bid and noted that then "Sir Cecil will resign" and be replaced by Mr Worthington. He went on: "At that point directors 1 resolve to lower quorum 2 resolve to (deal with) the contracts." Mr Bateman then noted that Mr Cummings would discuss the contracts with Mr Worthington: "we to do no minuting until Sir Cecil is replaced." It seems that Sir Cecil was seen as an obstacle to be removed before the agreements were approved. At that time, it was apparently thought the bid would accomplish Sir Cecil's removal. It did not. So he was circumvented, by having Mr Main appointed his alternate and having him approve the agreements without reference to Sir Cecil. It seems to me that Mr Fuller and Mr Cummings deliberately took advantage of Mr Main's unfamiliarity with the company and his desire to supplant Sir Cecil. This course of conduct was not the course of honourable men, anxious to ensure that contracts under which they took substantial financial benefits would be independently appraised and approved as being fair and reasonable. It was the course of men prepared to treat a public company as their private fiefdom, to be used for their personal advantage.

The conduct of Mr Fuller and Mr Cummings breached all three of the s 299 provisions relied on by the applicant. Because of that conduct, Claremont became committed to the agreements dated 4 May 1989. Absent those agreements, neither Mr Atkins nor Mr Towner would have thought it necessary to negotiate termination payments. They could have left Mr Fuller and Mr Cummings to their fates at the hands of the shareholders, knowing that this would terminate their connections with the company without litigation. Because of the existence of the agreements, they felt bound to offer payments, the amounts of which were determined by reference to the agreed termination penalties. The amounts paid to Fuller Services and Jurisprudence were, therefore, losses suffered by Claremont as a result of the contraventions of s 229 by Mr Fuller and Mr Cummings. Accordingly, they are recoverable from the directors personally.

Orders

In relation to the claims against the two companies, s 233(4) provides that a payment which is a prescribed benefit "shall be deemed to be received by the person in trust for the company concerned". Fuller Services and Jurisprudence therefore hold in trust for Claremont the payments each received on 26 November. It is appropriate to order each of them to repay that money. Further, the applicant seeks interest. I think that it is equitable that the companies pay interest. They have had the use use of the money since 26 November 1990. The rate of interest usually adopted, in recent years, in this court is 15% per annum. However, as interest rates have fallen in the last 12 months or so, I will not adopt this rate for the whole period. The relevant period is 21.5 months. I think it is reasonable to require a total interest payment of 25% to cover the whole period.

As against the two directors, s 229(7) makes the loss suffered by the corporation, as a result of the contravention of the section, money recoverable as a debt due to the corporation. Accordingly, Claremont should have judgment against each of the directors; in each case, in the same sum as is ordered to be paid by that director's company. Any payment by the director's company will reduce, to that extent, the amount of the loss. So the order should provide that any such payment will, to that extent, constitute a satisfaction of the judgment.

In each proceeding a cross-claim was brought by the respondents seeking declarations concerning the enforceability of the deeds of termination of 26 November 1990 and mandatory injunctions requiring Claremont to comply with the obligations set out in cll 5 and 6. The basis of the cross-claim was that Claremont was contending that the deeds of termination were void, so it might regard itself as free to disregard these provisions prohibiting the interests of the two former provisions.

The cross-claims were not the subject of evidence or developed submissions. So far as I am aware, the question whether Claremont will honour these provisions has not yet arisen. There is no live issue about the matter. On the view I take, the deeds are valid. Prima facie Mr Fuller and Mr Cummings are entitled to compel compliance with cll 5 and 6. But, in the absence of a real issue about the matter, it is undesirable to make any orders compelling compliance. Issues of public policy or discretion might arise if the court were asked to enforce compliance with cl 5 or cl 6. I express no view about that matter; much would depend upon the circumstances under which a dispute arose. But, because of that possibility, it is a better course to reserve liberty to the cross-claimants to apply to the court if and when a problem arises.

The respondents must pay the applicant's costs of the proceedings.

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