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Corporations law – evidence

In Australian Securities and Investments Commission v Wilson (No 3) [2023] FCA 1009 (28 August 2023), a company named TPF Corporation Limited (later renamed Quintis Limited) (“Quintis”) was engaged in the cultivation, sale, distribution, management and ownership of plantations of sandalwood trees and sandalwood oil.

Mr Wilson was a director of Quintis and, at all relevant times, was also its managing director and largest shareholder.

Between about 2011 and 2014, two subsidiaries of Quintis entered into licence and supply agreements (for sandalwood oil) with a global dermatology company owned by Nestle (“Galderma”) which Galderma ultimately used in a product marketed as an acne solution.

Quintis referred to those supply agreements and the acne solution in numerous ASX releases between 2014 and 2017.

In about December 2016, Galderma indicated an intention to terminate, and then terminated, the supply agreements.

At all relevant times, Quintis did not disclose that termination to the ASX.

From about March 2017, various broker and media reports were published suggesting the supply agreements had been terminated.

Also, in response to an enquiry from ASX in March 2017, Quintis referred to Galderma in its list of “customers Quintis has supplied wood or oil to under multi-year contracts” (“27 March ASX Response”). Mr Wilson resigned from Quintis that same day.

Eventually, in June 2017, Quintis wrote-off an intangible asset of A$7.6 million in its half-year results (as at December 2016) relating to the Galderma agreements (at [6]-[20]).

The allegations and the issues

The Australian Securities and Investments Commission (“ASIC”) alleged that Mr Wilson contravened his statutory duty of care and diligence as a director and officer of Quintis – pursuant to s180 of the Corporations Act 2001 (Cth) – in multiple ways:

  • first, Mr Wilson failed to tell the board of directors of Quintis (“Board”) that the Galderma agreements were potentially going to be terminated (at [32])
  • second, Mr Wilson failed to tell the Board about the execution of the Termination Agreement in February 2017 or at all (at [38])
  • third and fourth, in relation to the 27 March ASX Response, Mr Wilson failed to ensure that Quintis did not mislead the market about the termination of the agreements. These alleged failures are said to have exposed Quintis to various adverse consequences, including a risk of breaching the continuous disclosure requirements (s674) and the prohibition on misleading or deceptive conduct (s1041H) (at [51])
  • fifth, in the alternative, Mr Wilson failed to make inquiries about the status of the Galderma agreements before approving the 27 March ASX Response (thereby exposing Quintis to the same risks as above) (at [52]).

ASIC sought declarations of contravention, a pecuniary penalty order in respect of all but one of the alleged contraventions, and a banning order (at [2]).

Mr Wilson denied all of the alleged breaches.

Decision

Ultimately, none of ASIC’s alleged breaches of duty of care and diligence was established (at [747]). As with all such ASIC litigation, the decision is factually complex, and its resolution rests heavily on factual findings made by the Court – holding ASIC strictly to its pleaded case. In summary:

  • in relation to the first alleged breach, the Court did not consider the hypothetical reasonable director (occupying Mr Wilson’s position) would have told the Board that Galderma wanted to, and was taking steps to, terminate the Galderma agreements, because ASIC had not established there was anything the Board could have done to prevent that termination or to minimise the harm it would cause to Quintis’s interests
  • in relation to the second, third and fourth alleged breaches, the Court held that ASIC had not discharged its burden of proving that Mr Wilson was given a copy of the termination agreement (and was therefore aware the termination had in fact occurred, as opposed to the possibility of it occurring) before a board meeting in February 2017. Naturally, a hypothetical reasonable director (occupying Mr Wilson’s position) could not be expected to disclose something he did not know
  • in respect of the fifth alleged, alternative, breach, essentially the Court did not accept that the hypothetical reasonable director (occupying Mr Wilson’s position) would have made inquiries about the status of the Galderma agreements before approving the 27 March ASX Response. The Court considered s/he would have been acting reasonably by proceeding on the basis (in the particular circumstances of this case) that if Galderma had terminated the agreements or told the Quintis subsidiary that it wished to do so, Mr Wilson would have been informed. This rested largely on the narrow way ASIC had pleaded that alternative allegation (at [747]-[750]).

Denes Blazer is a barrister at 12 Wentworth Selborne Chambers, Sydney.

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