FEDERAL COURT OF AUSTRALIA

Otto Energy (Tanzania) Pty Ltd v Swala Energy Ltd [2016] FCA 1266

ORDERS

THE COURT ORDERS THAT:

1.    The Applicant has leave to serve the originating application and statement of claim, each filed 9 May 2016, on the Second Respondent in the United Republic of Tanzania in accordance with the law of the United Republic of Tanzania.

2.    The Applicant has leave to serve the originating application and statement of claim, each dated 9 May 2016, on the Fifth Respondent in Kenya in accordance with the law of Kenya.

3.    Each party has liberty to apply.

4.    The costs of the application relating to the Second Respondent and the Fifth Respondent be costs in the proceedings.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

MCKERRACHER J:

1    Otto Energy (Tanzania) Pty Ltd seeks orders for service out of the jurisdiction of the originating application and statement of claim in this proceeding. Otto originally sought service out on the second respondent as well as the fourth, fifth, eighth and ninth respondents, being at relevant times directors of the first and/or second respondents. On being requested to file supplementary submissions on the specific actions of each director said to constitute prima facie evidence of knowing assistance, Otto advised the Court that it no longer pressed its application in respect of the fourth, eighth and ninth respondents.

2    On the material before me, including the supplementary material, I am satisfied that orders should be made permitting service out on the second respondent, Swala Oil and Gas (Tanzania) Public Limited Company Registered Number 115280066 (SOGT), and the fifth respondent, Mr Neil Taylor. These are my reasons for so doing.

THE PARTIES

3    Otto and Swala Energy Ltd (the first respondent) are Australian companies. SOGT is a Tanzanian company and a subsidiary of Swala.

4    As at 31 December 2015, according to the financial reports:

(a)    Mr David Alexandre Mestres Ridge (the third respondent) was:

(i)    from about 17 January 2013 until 5 September 2016 a director and the chief executive officer of Swala; and

(ii)    from 29 July 2011 and at all material times thereafter the director and the chief executive officer of SOGT.

(b)    Mr Ernest Saronga Massawe (the fourth respondent) was:

(i)    from 29 July 2011 and at all material times thereafter non-executive chairman of the board of SOGT; and

(ii)    from 17 January 2013 to 20 April 2016 a director of Swala.

(c)    Mr Neil Taylor (the fifth respondent) was:

(i)    from 5 July 2013 and at all material times thereafter a non-executive director of SOGT; and

(ii)    from 17 January 2013 to 14 March 2015 a director of Swala.

(d)    Mr Kenneth John Russell (the sixth respondent) is and since 17 January 2013 has been a director of Swala.

(e)    Mr Peter Grant (the seventh respondent) is and since 6 June 2013 has been a director of Swala.

(f)    Mr Mohammed lshtiaq (the eighth respondent) is and since 8 August 2014 has been a director of Swala.

(g)    Mr Frank Hoyt Moxon (the ninth respondent) is and since 22 June 2015 has been a director of Swala.

5    Messrs Mestres Ridge, Massawe, Taylor, Russell, Grant, lshtiaq and Moxon are hereinafter referred to collectively as the Directors. Notably, Messrs Mestres Ridge, Russell and Grant have entered an appearance in these proceedings.

COMMERCIAL BACKGROUND

6    The evidence on affidavit by Otto’s solicitor reveals the following transactions and events.

7    On or about 20 February 2012, SOGT entered into a Production Sharing Agreement with Tanzania Petroleum Development Corporation and the Government of the United Republic of Tanzania in respect of the Pangani area in Tanzania (PSA). On or about 21 February 2012, by a deed of assignment, SOGT assigned and transferred to Otto a 50% interest in the PSA (Deed of Assignment).

8    At the same time:

(a)    on or about 21 February 2012, pursuant to and by reason of the Deed of Assignment, Otto became a party to the PSA; and

(b)    on or about 21 February 2012, Otto and SOGT became parties to a Joint Operating Agreement governing the conduct of petroleum operations in relation to the PSA (JOA).

9    Subsequently, on or about 23 June 2014, Otto and SOGT agreed jointly to sell portions of their interests in the PSA (2014 Sell-Down Agreement). Last year, on or about 23 March 2015, SOGT and Otto entered into a further agreement that varied the 2014 Sell-Down Agreement (Varied Sell-Down Agreement):

(a)    The Varied Sell-Down Agreement, Otto contends, was partly written, partly oral and is partly to be inferred.

(b)    Insofar as it was written, Otto says that it was constituted by:

(i)    the 2014 Sell-Down Agreement;

(ii)    an email from Mr Mestres Ridge, for and on behalf of SOGT, to Mr Matthew Allen and Mr Paul Senycia (copying Mr Taylor), for and on behalf of Otto, dated 20 March 2015; and

(iii)    an email from Mr Senycia to, inter alia, Mr Mestres Ridge and Mr Taylor dated 23 March 2015.

(c)    Insofar as it was oral, Otto says it was constituted by a discussion on 20 March 2015 between Mr Mestres Ridge and Mr Taylor, for and on behalf of SOGT on the one hand, and Mr Allen, Mr Senycia and Mr Matthew Worner, for and on behalf of Otto on the other hand. The discussion took place by telephone and its substance was to the effect alleged.

(d)    Insofar as it is to be inferred, Otto says that is to be inferred from the following facts:

(i)    On or about 31 March 2015, Otto paid to Swala AU$19,339.90, representing 25% of the fees charged to Swala by consultants working on the 2014 Sell-Down Agreement, including FirstEnergy Capital LLP for marketing interests to be sold pursuant to the Varied Sell-Down Agreement.

(ii)    SOGT informed Otto in writing that it intended to document formally and perform the Varied Sell-Down Agreement.

(iii)    SOGT provided to Otto draft transaction documents relating to the proposed sale of an interest in the PSA to Tata Petrodyne Ltd (TPL) for Otto's review and comment.

(iv)    Otto did not engage in any direct negotiations with TPL pursuant to cl 5.6 of the 2014 Sell-Down Agreement, notwithstanding that it intended to sell part of its interest in the PSA pursuant to the 2014 Sell-Down Agreement (as subsequently varied), and did not otherwise enforce the 2014 Sell-Down Agreement.

(v)    To facilitate the performance of the Varied Sell-Down Agreement and not otherwise, on or about 26 June 2015, Otto waived certain rights of pre-emption under the JOA.

(vi)    On or about 23 July 2015, terms of the Varied Sell-Down Agreement were reduced to writing in the form of a letter from SOGT to Otto.

(vii)    On or about 16 October 2015, Otto, SOGT and TPL executed a written deed of novation amending the JOA to include TPL as a party holding a 25% interest in the PSA.

(viii)    On or before 10 November 2015 Swala's solicitors prepared a draft agreement to effect the acquisition by SOGT of a 12.5% interest in the PSA from Otto.

(ix)    On or about 16 November 2015 Otto provided comments to Swala in respect of the draft agreement.

(x)    On or about 21 January 2015, SOGT issued to Otto an invoice for US$139,260.81, in respect of half of the costs incurred by SOGT in conducting the sale of the 25% interest in the PSA to TPL.

10    Otto says that the Varied Sell-Down Agreement was supported by consideration moving from Otto to SOGT in that amongst other things:

(a)    Otto agreed to enter into and perform its obligations under the Varied Sell-Down Agreement;

(b)    Otto agreed to pay a significant proportion of certain costs incurred by SOGT in conducting the sale of the 25% interest in the PSA to TPL and did pay those costs;

(c)    Otto agreed to assist SOGT to effect the orderly sale of part of SOGT's interest in the PSA;

(d)    Otto agreed to assist SOGT to obtain regulatory approval for the sale of part of SOGT’s interest in the PSA;

(e)    Otto agreed to waive its pre-emptive rights under the JOA to purchase SOGT's interest in the PSA to be sold; and

(f)    Otto agreed to the novation of the JOA to include TPL as a party holding a 25% interest in the PSA.

11    Otto contends that the Varied Sell-Down Agreement contains terms to the following effect:

(a)    each party was prohibited from attempting to circumvent, avoid, by-pass or obviate the interest of the other party by entry into any sell-down agreement except in accordance with the Varied Sell-Down Agreement (cl 4);

(b)    where SOGT and/or Otto proposed to sell any interest in the PSA to a third-party buyer, the parties would endeavour to ensure the interest to be sold to that buyer would be constituted (cl 5):

(i)    as to 50% by a part of SOGT's interest in the PSA; and

(ii)    as to the other 50% by a part of Otto's interest in the PSA;

(c)    arguably, at least, to achieve the object referred to in subpara 11(b) above it was a partly oral and partly written term that:

(i)    SOGT would sell to a third-party buyer an interest in the PSA (third party sale);

(ii)    immediately upon receipt by SOGT of proceeds of the sale of this interest (TP sale proceeds), SOGT would:

(A)    hold 50% of those proceeds on trust for Otto; and

(B)    pay all of the proceeds referred to in subpara 11(c)(ii)(A) above to or at the direction of Otto; and

(iii)    upon:

(A)    the completion of the third party sale; and

(B)    receipt by Otto of the TP sale proceeds,

Otto would transfer to SOGT an interest in the PSA equivalent to 50% of the interest sold by SOGT to the third-party buyer;

While I note that the Swala letter of 23 July 2015 to Otto is relied upon in part for those terms, I also note that letter expressly indicates that its ‘heads of terms’ are not legally binding and not intended to be legally binding.

(d)    each party would act reasonably so as to enable the other party to have the benefit of the agreement; and

(e)    each party would act in good faith towards the other.

I will return to the documentation in support of this contention below.

12    Otto says that the evidence, prima facie, is to the effect that from March 2015 until, at the latest, 16 October 2015 Otto and SOGT performed the Varied Sell-Down Agreement. Pursuant to the Varied Sell-Down Agreement, on or around 29 May 2015, SOGT and TPL entered into a written agreement to sell a 25% interest in the PSA by SOGT to TPL (TPL Agreement). It was a term of the TPL Agreement by (cl 4.1 of what is described as the Farmout Agreement forming part of the TPL Agreement) that TPL would pay to SOGT a sum or sums (TPL Consideration) comprising:

(a)    US$1,794,329; plus

(b)    US$101,320; plus

(c)    an amount in respect of certain costs incurred by SOGT between 28 February 2015 and the Effective Date (as defined in the TPL Agreement); plus

(d)    100% of SOGT's share of costs incurred by the parties to the JOA in connection with the First Well (as defined in the TPL Agreement), up to a maximum of US$2,125,000, such costs being payable by wire transfer into the Joint Account (as defined in the TPL Agreement).

13    On or before 16 October 2015, SOGT received from TPL a transfer of money that included the TPL Consideration, according to public announcements made by SOGT on or about 19 October 2016, and by SOGT's holding company, Swala, on or about 16 October 2015, both entitled ‘Receipt of funds from Tata for farm-out of licence interests’.

14    By virtue of the terms of the Varied Sell-Down Agreement set out above, by 16 October 2015, Otto contends that SOGT held 50% of the TPL Consideration that it had received on trust for Otto (Otto Trust Funds).

15    Otto’s case is that by reason of these matters:

(a)    Otto and SOGT were joint venturers; and

(b)    SOGT represented Otto in the marketing and sale of interests in the PSA.

16    Otto contends that having regard to this relationship, SOGT owed fiduciary duties to Otto, including a duty to avoid conflicts of interest, a duty to act in Otto's best interests with regard to the Otto Trust Funds, and a duty to hold and preserve the Otto Trust Funds for the benefit of Otto.

17    The evidence shows that on or about 25 November 2015, SOGT informed Otto that it considered that it was best to wait before executing a formal agreement because there was no clarity on the ‘way forward’ at the time and that ‘way forward’ would determine the best form of the documents. This was by email from Mr Mestres Ridge, for and on behalf of SOGT, to Mr Worner, for and on behalf of Otto, dated 25 November 2015.

18    As revealed in public announcements, between 16 October 2015 and 31 December 2015, SOGT paid to Swala money that included Otto Trust Funds. I do note that one of the announcements (at 569 of the first affidavit of Mr Murray) says that the funds paid under the Farmout Agreement ‘shall be available to the Swala Group under the terms of a loan agreement’ in place between Swala and SOGT (emphasis added). (Although in Swala’s announcement at 761 of the affidavit it does say that the Company has used the funds received from TPL as part of the farm-out transaction to repay all outstanding borrowings.)

19    Otto submits that:

(a)    this conduct by SOGT was, at a prima facie level, in breach of the Varied Sell-Down Agreement;

(b)    this conduct by SOGT breached:

(i)    its obligations to Otto as trustee of the Otto Trust Funds; and

(ii)    its fiduciary duties to Otto; and

(c)    by reason of the breaches of trust, duty and contract it has suffered loss and damage.

20    Otto asserts that:

(a)    when Swala received from SOGT the Otto Trust Funds, Swala knew that SOGT held the Otto Trust Funds on trust for Otto and that the payment was in breach of trust and SOGT's duties to Otto;

(b)    Mr Mestres Ridge (who has entered an appearance) had actual knowledge of the matters referred to because:

(i)    he participated in the discussion and was a participant in the making of the Varied Sell-Down Agreement;

(ii)    he was a sender and recipient of relevant emails; and

(iii)    was the Chief Executive Officer and a Director of both SOGT and Swala; and

(c)    Mr Mestres Ridge's knowledge is imputed to both SOGT and Swala.

21    Otto contends that SOGT's payment of the Otto Trust Funds to Swala was in breach of trust and duty and was made without the knowledge or consent of Otto. In the premises, Otto argues that Swala is liable to account to Otto for the Otto Trust Funds as constructive trustee.

22    Otto says that between 20 March 2015 and 24 November 2015, each of Swala and SOGT represented to Otto that:

(a)    SOGT would perform its obligations under the Varied Sell-Down Agreement; and

(b)    SOGT would pay to Otto the Otto Trust Funds,

(Representations).

23    In reliance on the Representations Otto:

(a)    agreed to enter into the Varied Sell-Down Agreement;

(b)    agreed to pay a significant portion of costs incurred by SOGT in conducting the sale of the 25% interest in the PSA to TPL, and did pay those costs;

(c)    agreed to assist SOGT to effect the orderly sale of part of SOGT's interest in the PSA;

(d)    agreed to assist SOGT to obtain regulatory approval for the sale of part of SOGT's interest in the PSA;

(e)    waived its pre-emptive rights under the JOA to purchase SOGT's interest in the PSA to be sold; and

(f)    agreed to the novation of the JOA to include TPL as a party holding a 25% interest in the PSA.

24    It is to be inferred, Otto contends, that SOGT and Swala knew and intended that Otto would act in the manner referred to in para 34 above. If SOGT and Swala were to depart from the obligations that were the subject of the Representations, Otto would suffer detriment. But for the Representations, Otto would have sold a 12.5% interest in the PSA directly to TPL concurrently with SOGT in accordance with cl 5.6 of the 2014 Sell-Down Agreement. Otto's detriment would include the difference between the value of the Otto Trust Funds and the current value of a 12.5% interest in the PSA.

25    Otto’s case is that, in the premises, SOGT and Swala are and each of them is estopped from denying that:

(a)    SOGT was and is obliged to perform its obligations under the Varied Sell-Down Agreement; and

(b)    SOGT was and Swala is obliged to pay to Otto the Otto Trust Funds; and

(c)    Otto has a beneficial interest in the Otto Trust Funds.

26    Each of the Representations was made in Australia in trade or commerce and Otto contends was a representation in respect of future matters and Otto relies on s 4 of the Australian Consumer Law in Sch 2 of the Competition and Consumer Act 2010 (Cth) (ACL).

27    Contrary to the Representations:

(a)    SOGT did not perform its obligations under the Varied Sell-Down Agreement; and

(b)    SOGT did not pay to Otto the Otto Trust Funds.

28    Otto contends that by making the Representations each of SOGT and Swala engaged in conduct that was misleading or deceptive or likely to mislead or deceive within the meaning of s 18 of the ACL. Otto has suffered loss and damage. But for the Representations, Otto would have sold a 12.5% interest in the PSA directly to TPL concurrently with SOGT in accordance with clause 5.6 of the 2014 Sell-Down Agreement. Otto's detriment would include the difference between the value of the Otto Trust Funds and the current value of a 12.5% interest in the PSA.

29    Otto originally asserted that when Swala received from SOGT the Otto Trust Funds, each of the Directors knew, or ought to have known, that SOGT held the Otto Trust Funds on trust for Otto and that the payment to Swala was in breach of trust and duty. The Directors’ knowledge (apart from Mr Mestres Ridge) was actual or constructive because each of them knew: that Otto and SOGT were joint venturers; of the existence and terms of the Varied Sell-Down Agreement; that SOGT represented Otto in the marketing and sale of interests in the PSA; that SOGT had received TPL Consideration; and that SOGT was obliged to pay the Otto Trust Funds to Otto. Otto broadly claimed that all of the Directors may be taken to have known of those matters as they were directors of one or both of SOGT and Swala at the time those matters occurred.

30    Otto initially argued that, therefore, each of the Directors was knowingly involved or concerned in SOGT's breach of trust and fiduciary duty. Otto argued that by reason of their roles, each of them may be taken to have caused, or permitted, SOGT to pay the Otto Trust Funds to Swala in breach of trust and duty and without the knowledge or consent of Otto. Otto’s case was, therefore, that each of the Directors is jointly and severally liable to account to Otto for the Otto Trust Funds as a constructive trustee. (It remains to be seen whether Otto will press these substantive claims against Messrs Massawe, Ishtiaq and Moxon in light of the supplementary submissions filed 28 September 2016.)

This application

31    Otto originally sought leave pursuant to r 10.43 of the Federal Court Rules 2011 (Cth) to serve the originating application and statement of claim in this matter, filed on 9 May 2016, on:

(a)    SOGT in the United Republic of Tanzania;

(b)    Mr Massawe in the United Republic of Tanzania;

(c)    Mr Taylor in Kenya;

(d)    Mr Ishtiaq in the United Kingdom; and

(e)    Mr Moxon in the United Kingdom.

As mentioned at the outset, Otto has subsequently narrowed its application and only seeks leave to serve the documents on SOGT and Mr Taylor.

Jurisdiction

32    Section 39B(1A)(c) of the Judiciary Act 1903 (Cth) confers original jurisdiction on the Federal Court in any matter arising under any laws made by the Commonwealth Parliament, other than criminal matters. As indicated above, Otto claims that Swala and SOGT made representations that were misleading or deceptive or likely to mislead or deceive within the meaning of s 18 of the ACL. Those claims are within the jurisdiction of this Court.

33    Otto's claims against SOGT, Messrs Massawe, Taylor, Ishtiaq and Moxon, whilst not claims made under the Act, are claims arising out of one set of events. As such, they are also claims within the jurisdiction of the Federal Court: Re Wakim (1999) 198 CLR 511 (at  [147]). This remains true, even if Otto does not pursue its substantive claims against Messrs Massawe, Ishtiaq and Moxon.

The Rules

34    Otto submits that the proceeding is of a kind mentioned in r 10.42 as:

(a)    the proceeding is based on a cause of action arising in Australia (item 1). The conduct constituting the cause of action is based on facts giving rise to contravention of the ACL. The cause of action ‘in substance’ arose in Australia as the relevant correspondence that gives rise to the cause of action (at least substantially) was directed to Australia, was expected to be received in Australia, and was in fact received in Australia: Rock Solid Surfaces Pty Ltd v Biesse Group (Australia) Pty Ltd [2011] FCA 42 (at [24]);

(b)    the proceeding is based on a contravention of an Act that is committed in Australia (item 12). Otto claims that Swala and SOGT made representations in contravention of the Act, which representations were directed to and received by Otto in Australia: Rock Solid Surfaces (at [24]);

(c)    the proceeding is based on a contravention of an Act (wherever occurring) seeking relief in relation to damage suffered wholly or partly in Australia (item 13). Otto claims that Swala and SOGT made representations in contravention of the Act, which representations Otto claims resulted in it suffering damage in Australia;

(d)    the proceeding relates to the construction and effect of an Act (item 14); and

(e)    Otto seeks a remedy under an Act (item 15), being the ACL. Although I note that Otto does not seek any remedy or relief under the ACL by way of its originating application.

35    It is unnecessary to descend into the detail of any of these submissions as I am satisfied that there exists at least one item that is satisfied.

Prima facie case

36    On the material before the Court, inferences are open which, if translated into findings of fact, would support the relief Otto claims in respect of SOGT and Mr Taylor: Perdaman Chemicals and Fertilisers Pty Ltd v ICICI Bank [2013] FCA 175 (at [58]). See also Ho v Akai (in liq) [2006] FCAFC 159 per Weinberg, Finn and Rares JJ (at [10]).

37    It must be said that the contractual or negotiation documents supplied in support of the application are fairly limited. The terms which Otto asserts do not in my view and as I read the documents ‘jump off the page’. Further, the fact that the terms referred to in the documents are expressly legally non-binding is another matter to be dealt with in due course. But what does appear certainly arguable at this stage and for this application is the contention that in spite of whatever arrangements were reached, Otto's funds were misused and misapplied in circumstances which might lead to an arguable case against SOGT.

38    I am satisfied that Otto has a prima facie case against SOGT by reason of the facts and matters set out above at [7]-[28].

39    As a company only acts through human hands and guiding minds, the particular individuals may also be exposed to liability depending on their knowledge and actions or lack of action.

40    In Barnes v Addy (1874) LR 9 Ch App 244 at 251–252 Lord Selborne LC said:

[The responsibility of a trustee] may no doubt be extended in equity to others who are not properly trustees, if they are found ... actually participating in any fraudulent conduct of the trustee to the injury of the cestui que trust. But ... strangers are not to be made constructive trustees merely because they act as the agents of trustees in transactions within their legal powers, transactions, perhaps of which a court of equity may disapprove, unless those agents receive and become chargeable with some part of the trust property, or unless they assist with knowledge in a dishonest and fraudulent design on the part of the trustees.

(emphasis added)

41    This passage was adopted by the High Court of Australia as a statement of the ‘rule in Barnes v Addy’ in Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89.

42    On this issue, I sought additional indications as to the Directors’ knowing assistance for the second limb of Barnes v Addy requiring a schedule from the filed evidence showing the extent of that involvement. Following this request, Otto abandoned its application for service out in respect of Messrs Massawe, Ishtiaq and Moxon.

43    In essence, in respect of the Directors upon whom Otto sought to effect service out of the jurisdiction, Otto now claims that when Swala received the Otto Trust Funds from SOGT, Mr Taylor knew or ought to have known that SOGT held the Otto Trust Funds on trust for Otto and that the payment to Swala was in breach of trust and duty. Otto submits that Mr Taylor breached obligations owed to it as a constructive trustee under the second limb of Barnes v Addy – namely, that Mr Taylor assisted a trustee or fiduciary with knowledge of a dishonest and fraudulent design on the part of the trustee or fiduciary.

44    In relation to the requisite knowledge of Mr Taylor, Otto is required to establish that:

(a)    Mr Taylor has actual knowledge of SOGT’s breach of trust and duty; or

(b)    Mr Taylor wilfully shut his eyes to the obvious; or

(c)    Mr Taylor wilfully and recklessly failed to make such enquiries as an honest and reasonable person would make; or

(d)    Mr Taylor has knowledge of circumstances which would put an honest and reasonable person on inquiry: Farah Constructions (at [171]-[178]).

45    Otto points to the following actions by Mr Taylor as constituting prima facie evidence of breach of constructive trust:

(a)    Mr Taylor was at relevant times a director of Swala and a non-executive director of SOGT (although I note that Mr Taylor was only a director of Swala until 14 March 2015, and relevant events post-date his directorship).

(b)    On 20 March 2015, Mr Taylor and Mr Mestres Ridge for and on behalf of SOGT participated in a discussion with representatives of Otto, during which discussion representations were made that SOGT would enter into the Varied Sell-Down Agreement. The discussion was conducted by telephone with Otto’s representatives in Australia.

(c)    On 20 March 2015, Mr Mestres Ridge copied Mr Taylor into an email to Otto’s representatives recording certain detail of the discussion referred to in the preceding paragraph.

(d)    On 23 March 2015, Mr Taylor was copied into an email to Mr Mestres Ridge from Otto’s representatives, which email re-affirmed Otto’s agreement to enter the Varied Sell-Down Agreement.

(e)    On 25 March 2015, Mr Taylor was copied into an email from Mr Mestres Ridge to Otto’s representatives, which email represented that SOGT was “closing out final issues” on the sale of certain interests the subject of the Varied Sell-Down Agreement with TPL, and further represented SOGT’s intention to document formally and perform the Varied Sell-Down Agreement.

(f)    On 28 March 2015, Mr Mestres Ridge copied Mr Taylor into an email to Otto’s representatives, which email further represented that SOGT was discussing final items with TPL and further represented SOGT’s intention to document and perform the Varied Sell-Down Agreement.

(g)    On 10 April 2015, Mr Mestres Ridge copied Mr Taylor into an email to Otto’s representatives, which email represented that SOGT would send to Otto the draft agreement with TPL, and further represented SOGT’s intention to document formally the Varied Sell-Down Agreement.

(h)    Between 16 October 2015 and 31 December 2015, TPL paid to SOGT money that included money SOGT was to hold on trust for Otto by reason of the Varied Sell-Down Agreement. The fact of payment was the subject of public announcement and referred to in Swala’s quarterly reports for the quarters ended 30 September 2015 and 31 December 2015.

(i)    Between 16 October 2015 and 31 December 2015, SOGT paid to Swala money that included money SOGT was to hold on trust for Otto by reason of the Varied Sell-Down Agreement. The fact of payment was the subject of public announcement and referred to in a press release to the ASX on 19 October 2015.

46    Otto submits that inferences are open from the facts and matter summarised in [45] that, if translated into findings of fact, would support the relief Otto claims against Mr Taylor. Such inferences include that Mr Taylor had either actual or constructive knowledge that:

(a)    TPL paid to SOGT the Otto Trust Funds; and

(b)    SOGT paid the Otto Trust Funds to Swala in breach of its obligations and duties.

47    Otto submits that for the purpose of establishing that Mr Taylor knowingly assisted SOGT in breaching the trust and duties owed to Otto it is sufficient to demonstrate that Mr Taylor stood by and did not prevent the breach of trust and duty from occurring.

48    The precise level of involvement necessary to attract liability as trustee under the second limb of Barnes v Addy was considered in Quince v McLaughlan [2008] QSC 61. At first instance, Lyons J observed (at [151]):

This aspect has not been comprehensively addressed in any of the cases, but it is generally taken to mean any action by the stranger taken with the intention of furthering the trustee or fiduciary’s fraudulent and dishonest purpose.

49    The applicant cites Quince v McLaughlan as ‘not unlike the present case.’ By way of brief overview, in Quince, Mr McLaughlan made certain representations that induced the plaintiff to deposit money into a family trust. The principal of the family trust was Mr McLaughlan’s wife and the trustee was their son. The funds were used for the family’s expenses, contrary to Mr McLaughlan’s representations. The close familial relationship between the respondents in Quince (for example, noted at first instance by Lyons J at [151]) is clearly different to the commercial context in the present case. Otto’s reliance upon this case does not further its application for service out to any significant extent, save as to serve as a reminder that the requisite level of involvement for the purpose of establishing liability under the second limb of Barnes v Addy is not comprehensively addressed in cases (at least those that have been considered to date).

50    Otto claims that Mr Taylor knowingly assisted SOGT in its alleged breaches of trust and duty, as they say that Mr Taylor:

(a)    was present (as a participant on the 20 March 2015 teleconference and as a recipient of relevant emails) when SOGT agreed to hold the Otto Trust Funds on trust for Otto; and

(b)    ‘stood by’ when he knew the Otto Trust Funds came in to SOGT’s possession and were transferred by SOGT to Swala.

Otto says that Mr Taylor is in a similar position to that of the wife in Quince in light of these key contentions. By reason of the significant differences between Quince and the alleged role of Mr Taylor in the present case, I do not consider that this analogy assists Otto.

51    Otto submits that the material presently before the Court is sufficient to support inferences that Mr Taylor was involved to the requisite extent in SOGT’s alleged breach of trust and/or duty, as the material presently before the Court establishes that:

(a)    SOGT is a publicly traded company with no operating revenue;

(b)    Mr Taylor was involved as a participant in the formation of Swala’s obligations of trust and duty (in that he was a participant in the telephone conference of 20 March 2015 and was a recipient of relevant emails in which Otto contends the Varied Sell Down Agreement was formed and affirmed);

(c)    on or before 16 October 2015, TPL paid to SOGT the TPL Consideration which included the Otto Trust Funds;

(d)    Mr Taylor was a non-executive director of SOGT at the time SOGT received the TPL Consideration. Receipt of the TPL consideration was the subject of public announcements and was noted in SOGT’s financial statements for the year ended 31 December 2015;

(e)    SOGT transferred money, including Otto Trust Funds, to its parent company, Swala;

(f)    Mr Taylor was a director of SOGT at the time SOGT transferred that money to Swala, and that transfer was the subject of public announcements;

(g)    Mr Taylor knew or ought to have known that in making that transfer SOGT was in breach of the obligations of trust and duty it owed to Otto; and

(h)    Mr Taylor remained a director of SOGT after SOGT transferred the fund of money including Otto Trust Funds to Swala.

52    As a non-executive director and member of the board of SOGT, Mr Taylor has certain non-delegable primary obligations. In Australian Securities and Investments Commission v Healey (2011) 196 FCR 291 Middleton J referred to such obligations as including:

(a)    the core, irreducible requirement of directors to be involved in the management of the company and to take all reasonable steps to be in a position to guide and monitor the company (at [16]);

(b)    an understanding and focus upon the content of financial statements, and, if necessary, to make further inquiries if the matters revealed in financial statements call for such inquiries (at [16]-[17] and [20]); and

(c)    that directors cannot substitute reliance upon the advice of management for their own attention and examination of an important matter that falls specifically within the board’s responsibilities, as with the reporting obligations (at [175]).

53    On the material before the Court in the present case it may reasonably be inferred that:

(a)    the transfer by SOGT to Swala of all or part of the TPL Consideration was the subject of board authorisation;

(b)    as a director of SOGT, Mr Taylor was in a position to guide and monitor SOGT, to understand the content of SOGT’s financial statements, and to apply his own mind to the important matter of what was done with the proceeds of SOGT’s farm-down of its interest in the PSA; and

(c)    Mr Taylor stood by whilst SOGT transferred the trust funds to Swala in breach of the obligations of trust and duty that he well knew it owed to Otto,

and that Mr Taylor thereby knowingly assisted SOGT in breaching its obligations of trust and duty owed to Otto in contravention of the second limb of Barnes v Addy.

54    Otto submits that, on the facts and matters referred to above, inferences are open which, if translated into findings of fact, would support the relief Otto claims against Mr Taylor. Such inferences include that Mr Taylor stood by and allowed SOGT to commit a breach of trust and duty, and/or authorised or approved the transfer by SOGT to Swala of the Otto Trust Funds.

55    Taking into account the prima facie evidence that Mr Taylor was directly involved in the earlier negotiations and was therefore aware of the alleged terms and later, as a director, their breach, then the case is that as a director who knew those things, he appeared (perhaps with others) to take no steps to prevent the breach which occurred. Clearly at this stage there are gaps in the evidence. Even if such a case were easily rebutted, that is not to say that there is not sufficient at present for the relatively low threshold of demonstrating a prima facie case. Such a case does not have to be a case which is indefensible. I consider that Otto has made out a prima facie case against Mr Taylor.

Proposed method of service

56    Otto has received advice from ATZ Law Chambers, a Tanzanian law firm, indicating that service upon corporations in Tanzania is governed by the provisions of the Civil Procedure Code [Cap 33 R.E. 2002] and Companies Act 2002 (Tanzania). In essence, section 470 of the Companies Act provides that a document may be served on a company by serving it personally on an officer of the company, by sending it by post to the registered address of the company in Tanzania, or by leaving it at the registered office address.

57    Otto has also received advice from Anjarwalla & Khanna, a Kenyan law firm, indicating that service upon corporations in Kenya is governed by the provisions of the Civil Procedure Act (Cap 21 of the Laws of Kenya), as well as the Companies Act 2015 (Kenya). Section 1010 of that Act provides that a document may be served on a company registered under that Act by sending it by post to the company's registered office. The law of Kenya is relevant to service upon Mr Taylor, as the affidavit evidence of Mr Murray suggests that Mr Taylor currently resides in Kenya.

58    Otto proposes to serve the originating application and statement of claim, filed on 9 May 2016, on:

(a)    SOGT and Mr Taylor by sending it by post to the registered address, or by leaving it at the registered office address; and

(b)    Mr Taylor by personally delivering or tendering a copy of the documents to him.

59    These methods are appropriate, having regard to the evidence as to methods of service.

CONCLUSION

60    There are two final matters. It appears from information provided on the ex parte hearing that since this proceeding commenced, Swala has been placed under administration. Thus, it may be that leave is required before Otto is able to take further steps against Swala in this proceeding. While this fact was disclosed, it does not appear to me to constitute an impediment to proceeding against SOGT and Mr Taylor, certainly as far as this interlocutory application is concerned. Secondly, my attention was drawn to the existence of an arbitration clause for dispute resolution of the Varied Sell-Down Agreement. I consider that it is at least arguable that this clause does not have application at this juncture both on construction of the relevant agreements and for reasons I explained recently in MOL Bulk Carriers Pte Ltd v Sin-Tang Development Pte Ltd [2016] FCA 619. As SOGT foreshadowed in correspondence with Otto, a stay application may be brought on the basis of any such dispute resolution in due course if appropriate.

61    Otherwise, for reasons discussed above, orders will be made permitting service out to be effected upon SOGT and Mr Taylor.

Associate:

Dated:    27 October 2016

SCHEDULE OF PARTIES