ABN Amro Bank NV v Bathurst Regional Council & Others

Giumelli v Giumelli (1999) 196 CLR 101; [1999] HCA 10 - Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296; [2012] FCAFC 6 - Haiye Developments Pty Ltd v Commercial Business Centre Pty Ltd [2022] NSWSC 937 - Hall v Poolman (2007) 215 FLR 243; [2007] NSWSC 1330 - HBK Master Fund LP v Pivotal Software Inc, Delaware Court of Chancery, 14 August 2023 - Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41; [1984] HCA 64 - John Alexander's Clubs Pty Ltd v White City Tennis Club Ltd (2010) 241 CLR 1; [2010] HCA 19 - JR Consulting & Drafting Pty Ltd v Cummings (2016) 329 ALR 625; [2016] FCAFC 20 - K&A Laird (N.S.W.) Pty Ltd (in liq) v Aidzan Pty Ltd (in liq) [2023] NSWSC 603 - Karzi v Toll Pty Ltd [2024] NSWCA 120 - Krakowski v Eurolynx Properties Ltd (1995) 183 CLR 563 at 582; [1995] HCA 68 - Mackinnon as Plaintiff representative of 153 Plaintiff group members v Partnership of Larter, Jones, Miraleste Pty Ltd t/as USG Partner and Johnson, t/as "STC Sports Trading Club" (No 8) [2019] NSWSC 1658 - Marcolongo v Chen (2011) 242 CLR 546; [2011] HCA 3 - McCrohan v Harith [2010] NSWCA 67 - MMAL Rentals Pty Ltd v Bruning (2004) 63 NSWLR 167; [2004] NSWCA 451 - Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 110 ALR 449; [1992] HCA 66 - News Ltd v Australian Rugby Football League Ltd (1996) 64 FCR 410; [1996] FCA 870 - OBG v Allan [2008] 1 AC 1 - Pascoe v Voukidis Holdings Pty Ltd [2024] FCA 915 - Patel v Lal [2011] NSWSC 603 - Porter v Mulcahy & Co Accounting Services Pty Ltd [2021] VSC 572 - Re Alora Davies Developments 104 Pty Ltd (in liq) & Ors v Raphael & Anor [2024] NSWSC 547 - Re Colorado Products Pty Ltd (in prov liq) (2014) 101 ACSR 233; [2014] NSWSC 789 - Re Sirrah Pty Ltd (In Prov Liq) (2021) 152 ACSR 212; [2021] NSWSC 413 - Ridge Estate Pty Ltd v Fairfield Pastoral Holdings Pty Ltd (2024) 302 FCR 375; [2024] FCAFC 17 - Sangha v Baxter [2009] NSWCA 78 - Spencer v Commonwealth of Australia (1907) 5 CLR 418; [1907] HCA 82 - Talacko v Talacko (2021) 272 CLR 478; [2021] HCA 15 - Troulis v Vamvoukakis [1998] NSWCA 237 - Vanguard Financial Planners Pty Ltd v Ale (2018) 354 ALR 711; [2018] NSWSC 314 - Varma v Varma [2010] NSWSC 786 - Watson v Foxman (1995) 49 NSWLR 315 - Wingecarribee Shire Council v Lehman Bros Australia Ltd (in liq) (2012) 301 ALR 1; [2012] FCA 1028 - Zreika v Royal (2019) 271 FCR 65; [2019] FCAFC 82 Texts Cited: - W Bratton, "Fair Value as Process: A Retrospective Reconsideration of Delaware Appraisal" (2023) Del J Corp L 497 - A Damoradan, "Valuing Young, Start-up and Growth Companies: Estimation Issues and Valuation Challenges" (June 12, 2009; SSRN: https://ssrn.com/abstract=1418687) - E Dubiansky, "An Analysis for the Valuation of Venture Capital-Funded Startup Firm Patents" (2006) 12 BU J Sci and Tech L 170 - P D Finn, "The Fiduciary Principle" in T G Youdan (ed) Equity, Fiduciaries and Trusts (1989) - BK Krumm, "Fostering Innovation and Entrepreneurship: Shark Tank shouldn't be a Model (2017) 70 Ark L Rev 553 - A Lynch, "Believing in Unicorns: How to Value Unicorn Companies and Intellectual Property while Encouraging Continuing Innovations and Public Disclosure" (2021) 72 Case Wes L Rev 421 - AF Tuch, "Fairness Opinions and SPAC Reform" (2023) 100 Wash UL Rev 1793 - E Mantell & E Shea, "Development and Application of Business Valuation Methods by the Delaware Courts" (2021) 17 Hastings Business LJ 335 - C Sappideen & Ors, Fleming's The Law of Torts, 11th ed, Lawbook Co 2024 Category: Principal judgment Parties: Luke Bunbury (First Plaintiff) St. Jean CF Pty Ltd (Second Plaintiff) 1derful Pty Ltd (receiver appointed) (Third Plaintiff) The 1derful Group Pty Ltd (receiver appointed) (Fourth Plaintiff) Fletch Capital Pty Ltd (First Defendant) Craig Seymour (Second Defendant) Michael Birch (Third Defendant) Mitchell Warren Ball (Fourth Defendant) Representation: Counsel: B DeBuse (Plaintiff) E A Walker/A H Schatz (First and Second Defendants) A P Cheshire SC (Third Defendant)

Solicitors: Vobis Law (Plaintiff) Teneo Commercial Lawyers (First and Second Defendants) SM Law (Third Defendant) File Number(s): 2023/353008

Nature of the proceedings and background

1. By Originating Process filed on 7 November 2023 ("OP"), the Plaintiffs, Mr Bunbury and others, seek a wide range of relief against the Defendants, Fletch Capital Pty Ltd ("Fletch"), Mr Craig Seymour and Mr Michael Birch.
2. The First Plaintiff, Mr Bunbury, is a director of each of the Third Plaintiff ("1derful") and Fourth Plaintiff ("1derful Group") (together, "Companies") since 15 June 2021 and owns, with his wife, 17,500 shares each in 1derful Group. He also claims (Statement of Claim ("SOC") [4]) that the Companies are indebted to him for, inter alia, deferred wages in an amount not less than $437,500.05 (gross) and other loaned monies. He brings these proceedings, by leave, as a derivative action. The Second Plaintiff ("St Jean") owns 10,000,000 of the 13,130,540 shares issued in 1derful Group, representing approximately 76.16% of its total shares.
3. The Plaintiffs allege (SOC [9]) and I find that business operated by the Companies involved proprietary technology and a licensing arrangement with Mastercard and other partners which, subject to regulatory approval, would permit the provision of branded debit and credit products for particular businesses that allowed clients to use branded debit and credit cards to provide instalment and hybrid payment options. Importantly, an agreement dated 25 January 2023 with Mastercard ("Mastercard Agreement") provided for the payment of performance-based incentives by Mastercard to 1derful, although I will recognise the suspension of that agreement and its significance for the value of the Companies' business below. A wholly-owned subsidiary of 1derful, 1derful Lending Pty Ltd ("1derful Lending) held an Australian credit licence from the Australian Securities and Investments Commission ("ASIC") (SOC [10]). The Defendants claim not to know what business the Companies operated and do not admit these paragraphs; those pleadings are plainly improper, where the Defendants had detailed knowledge of the Companies' business by reason of the conduct to which I refer below and procured the transfer of that credit licence to an entity associated with Fletch.
4. The Second Defendant, Mr Seymour, is the sole director of Fletch and a director of Jigsaw Works Pty Ltd ("Jigsaw Works") which is a shareholder in Fletch. The Third Defendant, Mr Birch, is a director of Midialel Pty Ltd ("Midialel") which is also a shareholder in Fletch. The Fourth Defendant, Mr Ball, was at one point purportedly appointed as receiver to the assets of the Companies. The Plaintiffs do not press a claim for relief against Mr Ball who was excused from attendance at the hearing.

Affidavit evidence

1. I now turn to the affidavit evidence and cross-examination. In addressing that evidence, I have regard to the fallibility of human memory which increases with the passage of time, particularly where disputes or litigation intervene: Watson v Foxman (1995) 49 NSWLR 315 at 318-319; Varma v Varma [2010] NSWSC 786 at [424]-[425]. I also have regard to the fact that objective evidence, where available, is likely to be the most reliable basis for determining matters of credit that arise as to the affidavit evidence: Armagas Ltd v Mundogas SA [1985] 1 Ll R 1 at 57; Re Colorado Products Pty Ltd (in prov liq) (2014) 101 ACSR 233; [2014] NSWSC 789 ("Colorado") at [10].
2. I also bear in mind the observations of Bell P (as the Chief Justice then was, with whom Bathurst CJ agreed) in ET-China.com International Holdings Ltd v Cheung (2021) 388 ALR 128; [2021] NSWCA 24 at [27]-[28]: "Whilst the quality and accuracy of oral recollection of actual conversations should be treated with care and caution given the fallibility of human memory (of which there has been a growing appreciation within the judiciary in recent decades), oral testimony may still be of value and importance, as was recognised in the nuanced observations of Leggatt J (as his Lordship then was) in Gestmin SGPS SA v Credit Suisse (UK) Ltd [2013] EWHC (Comm) 3560 at [22] (Gestmin): "the best approach for a judge to adopt in the trial of a commercial case is, in my view, to place little if any reliance at all on witnesses' recollections of what was said in meetings and conversations, and to base factual findings on inferences drawn from the documentary evidence and known or probable facts. This does not mean that oral testimony serves no useful purpose - though its utility is often disproportionate to its length. But its value lies largely, as I see it, in the opportunity which cross-examination affords to subject the documentary record to critical scrutiny and to gauge the personality, motivations and working practices of a witness, rather than in testimony of what the witness recalls of particular conversations and events. Above all, it is important to avoid the fallacy of supposing that, because a witness has confidence in his or her recollection and is honest, evidence based on that recollection provides any reliable guide to the truth." [emphasis added] Documents and events have to be understood in their context, and evidence of context will often be furnished by witnesses in their oral evidence. Documents, moreover, will not always present a complete picture of events. Indeed it would be rare that they do. Nor do contemporaneous documents necessarily or invariably convey or record the background or context in which events took place. That background or context will be familiar to the actors at the time of those events but may not always emerge from documents."

Expert and other valuation evidence

1. I now turn to the expert valuation evidence led by the parties and other valuation evidence, which is relevant both to the Plaintiffs' causes of action and to their claim for damages or compensation. The Plaintiffs read an affidavit dated 17 March 2024 of Mr Davies and relied on his report dated 17 March 2024. Mr Davies had used revenue per customer figures and identified the number of customers falling within particular cohorts, based upon a third party's contemporaneous projection, to derive an implied enterprise valuation by reference to the Companies' H1 2024 projected revenues. He reached an unadjusted enterprise value of in excess of $33.7 million by that method, which he then increased by applying a control premium of 27.5% and discounted for a lack of marketability by 19.1%, and applied a further discount factor to take account of, inter alia, the risks attached to the Companies' business to achieve present value of the adjusted enterprise value of the Companies of in excess of $29.7 million. Mr Davies alternatively assessed the current value of the Companies, on the basis the revenues were not evident and the relationship with Mastercard had "stalled", as nil.
2. By a second affidavit dated 23 September 2024, Mr Davies expanded on his qualifications and experience and provided a limited explanation of the basis on which the comparable companies to which he had referred were selected, referring to their "similar profit margin expectations". An immediate difficulty with that approach is that any profit margin expectations of the Companies depended, critically, on their ability to survive their significant financial difficulties By a third affidavit dated 26 September 2024 and a further report attached to that affidavit, Mr Davies expanded on the process which had derived the H1 2024 revenues used in his report, by a method described as "cohort modelling". It is not necessary to address that method at any length, where the assumptions which underlay it were plainly not established for the reasons noted below. Mr Davies also explained the approach to growth adopted in that report, but the basis of that approach was also not established, where it assumed the Companies' ability to acquire further customers which also depended on their capacity to fund their ongoing business. Mr Davies also explained the approach which he had adopted to a control premium and to a discount for lack of marketability, at least to some extent, and the role of a chartered accountant, Mr Tan, who had assisted him with the financial modelling undertaken for the purposes of his report.

Chronology

1. I now set out the chronology of events, for which I have drawn upon the pleadings, the parties chronologies, the affidavit evidence and cross-examination and documents tendered. This chronology incorporates my findings as to contested matters as necessary.
2. The Companies were both incorporated on 3 October 2019 (Ex P1, CB 109-130) and, on 15 June 2021, Mr Bunbury was appointed as the director of each of the Companies. The Companies received both client revenue and refundable R&D tax offset payments over the relevant period. In the financial year ending 30 June 2020, 1derful received a refundable R&D tax offset in the sum of $307,032.57 (Ex P2, CB 640, 646). In the financial year ending 30 June 2021, 1derful received a refundable R&D tax offset in the sum of $977,584.64 (Ex P2, CB 642-643, 646). In the financial year ending 30 June 2022, 1derful received a refundable R&D tax offset in the sum of $1,515,132.41 (Ex P2, CB 645). In the financial year ending 30 June 2023, a Research and Development Tax Incentive Schedule was prepared, estimating the sum of 1derful's 'Refundable R&D tax offset' to be $573,586.22 (Ex P2, CB 647-649).
3. Mr Birch's evidence (Birch [12]) is that he had a conversation with Mr Bunbury in early February 2020 in which Mr Bunbury requested "help with finding short term capital for my new business 1derful", which he described as a "new fintech business", and Mr Bunbury then outlined the services which 1derful was to provide. Mr Bunbury denies (Bunbury 21.6.24 [34]) aspects of that paragraph of Mr Birch's affidavit. Mr Birch's evidence is that he then introduced Mr Bunbury to several of his contacts, including Mr Dahan from HCP and that Mr Dahan helped Mr Bunbury raise capital for 1derful and also for Mr Bunbury's personal purposes. His evidence (Birch [16]) is that, from 2020 to mid-2022, he introduced Mr Bunbury to business contacts, but he was not involved in discussions between Mr Bunbury and those other contacts and that (Birch [17]): "At no time did Mr Bunbury keep me informed as to where his discussions were at with regard to any potential members or investors."
4. In December 2020, Mr Birch and Mr Bunbury had an inconsequential exchange as to the form of Mr Bunbury's business card which referenced other entities, including a company associated with Mr Birch, Handy Payments (Ex P4, CB 1035) and they then had subsequent dealings in respect of Handy Payments (Ex P4, CB 1037, 1115).

Claim for breach of fiduciary duty by Mr Seymour

1. The Plaintiffs seek (OP [8], SOC [1]) a declaration that, relevantly, Mr Seymour breached fiduciary obligations owed to the Companies. The Plaintiffs plead that Mr Seymour was engaged for reward by the Companies and possibly Mr Bunbury from in or around July 2023 to provide advice and assistance in relation to solvency refinancing and capital raising for the Companies (SOC [17]). Mr Seymour and Fletch deny this claim and plead that Green Jigsaw was engaged jointly by MDC and HCP from 20 June 2023 to 17 July 2023, and Jigsaw Works was then engaged by FIFO Capital (D1/2 Defence [17]).
2. This first step of the Plaintiffs' claim for breach of fiduciary duty against Mr Seymour is somewhat narrowly pleaded, with the claim that Mr Seymour was engaged "for reward" by the Companies. Mr Walker submits, in closing, that the Plaintiffs have departed from their pleaded case in closing submissions by contending that, between April and September 2023, Mr Seymour was engaged by the Companies to act for them in relation to corporate advice, raising funds, and other issues and that the sale of the Companies' business to Fletch was at a known undervalue and in breach of Mr Seymour's fiduciary duties. Mr Walker submits that the Plaintiffs have not sought to amend their case, and no departure from the pleaded case has been "agreed to or permitted".
3. It is therefore necessary to addresses the function of pleadings here. I proceed on the basis that the role of the pleadings is to promote the just resolution of the proceedings. That proposition emerges clearly enough from the judgment of the Full Court of the Federal Court in Betfair Pty Ltd v Racing New South Wales (2010) 189 FCR 356; (2010) 273 ALR 664; [2010] FCAFC 133 at [49]ff ("Betfair"), as follows: "The basic function of pleadings is to identify the issues which require a court's attention and determination (see Banque Commerciale SA (in liq) v Akhil Holdings Ltd (1990) 169 CLR 279 (Banque Commerciale) per Brennan J quoting Jessel MR in Thorp v Holdsworth (1876) 3 Ch D 637 at 639). In Kernel Holdings Pty Ltd v Rothmans of Pall Mall (Australia) Pty Ltd (1991) 217 ALR 171 French J, when a member of this Court, said (at 173): "A material fact is one which is necessary to formulate a complete cause of action. It is to be distinguished from particulars which are not part of the pleading. Material facts must be pleaded with the degree of specificity necessary to define the issues and inform the parties in advance of the case they have to meet. There are certain levels of generality in pleading which while they may bring in all facts necessary to establish a cause of action, are insufficient for that purpose: Bruce v Odhams Press Ltd [1936] 1 KB 697 at 705, 712; [1936] 1 All ER 282 at 289, 294; Ratcliffe v Evans [1892] 2 QB 524 at 532; [1891-4] All ER Rep 699 at 704; Farrell (formerly McLaughlin) v Secretary of State for Defence [1980] 1 WLR 172 at 179-80; Charlie Carter Pty Ltd v SDAEA (WA) (1987) 13 FCR 413." … Pleadings provide a structure for a proceeding for the purpose of the attainment of justice. The pleadings identify the material facts upon which the parties rely and the issues the parties seek to have determined. Because the pleadings require the parties to identify all material facts and issues, the pleadings provide the benchmark for discovery before trial and the admissibility of evidence at trial. Parties are required to plead the material facts upon which the party relies and the issues which that party seeks to have resolved for the further purpose of giving the opposing party fair notice of the case to be met at trial thereby minimising any risk of injustice by taking the opposing party by surprise. Pleadings incidentally are the record of the proceeding for the purpose of any subsequent arguments relating to res judicata or issue estoppel or any like issue. At trial a party is entitled to have the opposing party confined to that party's pleadings because the first party is entitled to come to trial to meet only the issues raised on the pleadings. However, if the first party does not seek to so confine the opposing party but allows the other party to raise other material facts and issues for the determination of the Court, then in our opinion the Court is permitted and possibly obliged to decide the proceeding on the further material facts and issues raised and addressed at trial: Banque Commerciale at 296-297; Gould v Mount Oxide Mines Ltd (in liq) (1916) 22 CLR 490 at 517. If it were otherwise, the party who has failed to plead all of the material facts or issues upon which the party's case relies, but has brought those material facts or issues to the attention of his or her opponent at trial, would be denied natural justice if at the end of the trial the Court decided the proceeding on the pleadings without notice to that party. The first party in those circumstances would have been denied the opportunity to apply to amend those pleadings so as to formalise what was in fact addressed at the trial. Pleadings are a means to an end and not an end in themselves (Banque Commerciale per Dawson J at 292-293). As early as 1916 Isaacs and Rich JJ said, in Gould (at 517): "Undoubtedly, as a general rule of fair play, and one resting on the fundamental principle that no man ought to be put to loss without having a proper opportunity of meeting the case against him, pleadings should state with sufficient clearness the case of the party whose averments they are. That is their function. Their function is discharged when the case is presented with reasonable clearness. Any want of clearness can be cured by amendment or particulars. But pleadings are only a means to an end, and if the parties in fighting their legal battles choose to restrict them, or to enlarge them, or to disregard them and meet each other on issues fairly fought out, it is impossible for either of them to hark back to the pleadings and treat them as governing the area of contest.""

The applicable principles

1. I now address the applicable principles in respect of the claims for breach of fiduciary duty. In Hospital Products Ltd v United States Surgical Corp (1984) 156 CLR 41; [1984] HCA 64 ("Hospital Products"), Mason J observed (at 96-97) that "the critical feature" of the traditional fiduciary relationship was the undertaking or agreement by the fiduciary to "act for or on behalf of or in the interests of another person in the exercise of a power or discretion which will affect the interests of that other person in a legal or practical sense" and that: "The relationship between the parties is therefore one which gives the fiduciary a special opportunity to exercise the power or discretion to the detriment of that other person who is accordingly vulnerable to abuse by the fiduciary of his position … It is partly because the fiduciary's exercise of the power or discretion can adversely affect the interests of the person to whom the duty is owed and because the latter is at the mercy of the former that the fiduciary comes under a duty to exercise his power or discretion in the interests of the person to whom it is owed …" Deane J similarly there observed (at 141-142) that, although no single test would identify a fiduciary relationship: "There is, however, the notion underlying all the cases of fiduciary obligation that inherent in the nature of the relationship itself is a position of disadvantage or vulnerability on the part of one of the parties which causes him to place reliance upon the other and requires the protection of equity acting upon the conscience of that other ..."
2. Professor Finn subsequently observed in his essay, "The Fiduciary Principle" in T G Youdan (ed) Equity, Fiduciaries and Trusts (1989) at 46, in a passage cited with approval by the Full Court of the Federal Court in News Ltd v Australian Rugby Football League Ltd (1996) 64 FCR 410 at 541; [1996] FCA 870, and by Ball J in DIF III - Global Co-Investment Fund LP v Babcock & Brown International Pty Limited [2019] NSWSC 527 ("DIF III") at [145], that fiduciary duties can arise where: "[T]he actual circumstances of a relationship are such that one party is entitled to expect that the other will act in his interests in and for the purposes of the relationship. Ascendancy, influence, vulnerability, trust, confidence or dependence doubtless will be of importance in making this out, but they will be important only to the extent that they evidence a relationship suggesting that entitlement."

Submissions as to the claim for breach of fiduciary duty against Mr Seymour

1. Mr DeBuse recognises that the existence of a retainer is disputed by, relevantly, Mr Seymour, notwithstanding references to payment and invoices rendered to the Companies in his affidavit evidence. As I noted above, the existence of a retainer is not necessary to the existence of fiduciary obligations owed by Mr Seymour to the Plaintiffs, and I have found that Mr Seymour was not caught by surprise by the wider case that was brought against him. Mr DeBuse submits that there is evidence that the Plaintiffs reposed trust and confidence in Mr Seymour, of which he knew, and that trust and confidence was sufficient to require him to act in a manner which did not permit him to take advantage for his personal profit of the confidential information of the Companies of which he was aware; prefer his personal interests to that of Mr Bunbury and the Companies; and let his duty as agent and confidant of Mr Bunbury and the Companies conflict with his obligations to other third parties.
2. As I noted above, Mr Walker responds that the Plaintiffs' breach of fiduciary duty case is brought against Mr Seymour on the basis that he was "engaged" by the Companies "for reward" in or around July 2023 to advise and assist them in relation to solvency, refinancing and capital raising (SOC [17]) and the Plaintiffs contend that Mr Seymour became aware of the nature of the Companies' business and its financial circumstances in that way (SOC [18]) and I have addressed that pleading point above. Mr Walker also submits that there is no contract or other contemporaneous record of the terms of the alleged engagement or the reward said to have been offered to Mr Seymour on his engagement, although he acknowledges that, as I noted above, on 10 July 2023, Mr Bunbury advised Mr Seymour that he "would welcome an opportunity to compensate you for your help" (Ex D1/2, CB 2050) and, I should add, Mr Seymour invoiced the Companies for the work he had done in respect of the winding up. Mr Walker also submits that Mr Seymour's involvement with the Companies, and the information he discovered about the Companies, came about through the appointment of Green Jigsaw by HCP in June-July 2023 and Jigsaw Works by FIFO Capital from 18 July 2023 until 27 September 2023. I have addressed the evidence concerning those matters above.
3. Mr Walker also submits that Mr Seymour informed Mr Bunbury of his engagement by HCP on 20 June 2023, and reiterated that again on 6 July 2023 and also advised third parties of his engagement by HCP. Mr Walker also points to the email drafted by Mr Seymour then sent by Mr Kopp for FIFO Capital to Mr Seymour on 18 July 2023. Mr Walker also draws attention to an email from Mr Seymour to Mr Bunbury on 1 September 2023 attaching a letter sent by Mr Seymour to a third party, Techwondoe, which advised that "Jigsaw Works is engaged by FIFO Capital" and to other communications referring to FIFO Capital and sent to FIFO Capital. I have addressed these engagements above.

Claim for breach of fiduciary duty by Mr Birch

1. The Plaintiffs seek (OP [8], SOC [1]) a declaration that, relevantly, Mr Birch breached fiduciary obligations owed to the Companies. The Plaintiffs plead (SOC [13]-[14], denied D3 Defence [13]-[14]) that, between April and May 2023, the Companies and Mr Bunbury in his personal capacity engaged Mr Birch for reward to provide advice and assistance in the raising of debt and equity and to develop business for the Companies and that Mr Birch was engaged to negotiate with PIL and to find alternative finance for the Companies, until August 2023 when Mr Birch failed to respond to communications from the Companies. I accept that Mr Birch's engagement, although in informal terms, contemplated that he would be paid for his services and he was, at least once, paid for those services. The Plaintiffs also plead (SOC [15]) that Mr Birch did not inform them that he had ceased working to achieve a capital or debt raising or negotiating with PIL for the benefit of the Companies. I have not accepted Mr Birch's evidence that he did tell Mr Bunbury of that matter above and I have found that, at least by mid-August 2023, Mr Birch was advancing his own and the other Defendants' interest in achieving a forced acquisition of the Companies' assets, rather than any refinancing proposal in any usual sense.
2. The Plaintiffs also allege (SOC [16], largely denied D3 Defence [16]) that Mr Birch only became aware of the details of the existence of the Companies' debts, the nature and financial circumstances of its business and the opportunity that it involved, by reason of his engagement to provide assistance to them. It is not necessary to determine that question, given the findings that I reach on other grounds, although I accept that he plainly obtained information about the Companies in dealing with them.
3. The Plaintiffs plead (SOC [20]; denied D3 Defence [20]) that, by reason of the circumstances of their retainer and the trust and confidence reposed in, relevantly, Mr Birch of which he was aware or should have been aware, he owed a fiduciary obligation to Mr Bunbury and the Companies. They plead (SOC [21]; denied D3 Defence [21]) that those fiduciary obligations included obligations not to take advantage for their personal profit of the confidential information of the Companies of which they were allegedly aware; not to prefer their personal interests to that of Mr Bunbury and the Companies; and not to let their duty as agents and confidants of Mr Bunbury and the Companies conflict with their obligations to other third parties. They also plead (SOC [33], denied D3 Defence [33]) that, relevantly, Mr Birch aided and abetted, procured and counselled or was knowingly involved in the Scheme in breach of, inter alia, his fiduciary obligations. While this pleading is oddly phrased, I understand it to be an allegation of breach of fiduciary duties owed by him, not an allegation of knowing assistance in a breach of fiduciary duty owed by a third party.

Claim against Fletch for knowing assistance or knowing receipt

1. The Plaintiffs also seek a declaration (OP [2]), SOC [2]) that Fletch was knowingly concerned or has knowingly benefitted from breach of fiduciary obligations owed by Messrs Seymour and Birch to the Companies. They plead (SOC [37(b)], partly not admitted and partly denied D1/2 Defence [37], D3 Defence [37]) that Fletch's acquisition of the Companies' business was obtained by it in circumstances where it knew that it had acquired the business through the breach by Messrs Seymour and Birch of their fiduciary duties. I have held above that Mr Seymour had assumed and breached such duties.
2. In Ancient Order of Foresters at [71], Gageler J observed that liability for knowing assistance will arise under the second limb of Barnes v Addy (1874) LR 9 Ch App 244 where the conduct which constitutes the breach transgresses ordinary standards of honest behaviour, and the participant has knowledge of circumstances which would indicate the fact of the dishonesty on behalf of the fiduciary to an honest and reasonable person. I also summarised the applicable principles in Re Sirrah Pty Ltd (In Prov Liq) (2021) 152 ACSR 212; [2021] NSWSC 413 at [151]-[152] as follows: "There is, of course, a considerable body of authority as to the circumstances in which liability for knowing receipt may arise ... Broadly, under the first limb of the rule in Barnes v Addy (1874) LR 9 Ch App 244 (Barnes), a person who receives company property from a director will hold it on trust for the company if he or she knows, or the circumstances are such that he or she ought to know, that the director is acting in breach of duty in respect of the relevant transaction. In Kalls Enterprises (NSWCA) above at [152]-[159], the Court of Appeal examined the case law in which the first limb of Barnes above had been applied to breach of fiduciary duty by a company director. In order to succeed in a claim for knowing receipt, the Plaintiffs must establish the relevant breach of fiduciary duty by WH and that HHC received the relevant property by reason of the breach of duty and, at the time of receiving that property, knew of the relevant duty and of the misapplication of the relevant property: Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89; 236 ALR 209; [2007] HCA 22 (Farah Constructions); Westpac Banking Corporation v Bell Group Ltd (in liq) (No 3) (2012) 44 WAR 1; 89 ACSR 1; [2012] WASCA 157; Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296; 287 ALR 22; 87 ACSR 260; [2012] FCAFC 6 (Grimaldi). I have drawn on my summary of the relevant principles in Gordon (in his capacity as liquidator of Lyon Form Pty Ltd (in liq) v Leon Plant Hire Pty Ltd (in liq) [2015] NSWSC 397 at [61] in this respect. A third party may be held liable under the second limb of the rule in Barnes above if he or she knowingly assists a director in a transaction which is in breach of duty to the company. In Farah Constructions above, the High Court emphasised (at [179], [183]) that its earlier decision in Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373; 5 ALR 231 (Consul Development) established a requirement that any breach of trust or breach of fiduciary duty relied on to establish liability for knowing assistance must be dishonest and fraudulent, so that the impugned conduct must involve circumstances attracting a degree of opprobrium beyond an innocent breach of trust or duty. In Ramsay v BigTinCan Pty Ltd (2014) 101 ACSR 415; [2014] NSWCA 324 at [30], Macfarlan JA (with whom McColl and Gleeson JJA generally agreed) referred, without disapproval, to the trial judge's treatment of Farah Constructions above as authority that the elements of a knowing assistance claim were (1) a dishonest and fraudulent breach of duty by the fiduciary; (2) knowledge of that dishonest and fraudulent breach by a third party; and (3) assistance in that breach by that third party, and also referred to Consul Development above as authority that conduct may be "dishonest and fraudulent" for the purposes of liability for knowing assistance where it can be described, in ordinary language, as morally reprehensible. In Hasler v Singtel Optus Pty Ltd (2014) 87 NSWLR 609; 311 ALR 494; 101 ACSR 167; [2014] NSWCA 266 at [124], Leeming JA held (Barrett and Gleeson JJA agreeing) that, in order to establish knowing assistance, a breach of trust must be dishonest as well as fraudulent, with dishonesty amounting to "a transgression of ordinary standards of honest behaviour", although it is not necessary to demonstrate that the relevant individual "thought about what those standards were". I have drawn on my summary of the relevant principles in Australian Worldwide Pty Ltd (in liq) v AW Exports Pty Ltd [2019] NSWSC 1475 at [87] for this summary."

Claim under s 37A of the Conveyancing Act

1. The Plaintiffs also seek (OP [4(a), SOC [4(a)]) an order that the transfer of the business of the Companies to Fletch is void or voidable pursuant to s 37A of the Conveyancing Act 1919 (NSW) ("Conveyancing Act"). The Plaintiffs plead (SOC [31], denied D1/2 Defence [31], D3 Defence [31]), inter alia, that the Scheme was in breach of s 37A of the Conveyancing Act.
2. Section 37A of the Conveyancing Act relevantly provides that: "(1) Save as provided in this section, every alienation of property, made whether before or after the commencement of the Conveyancing (Amendment) Act 1930, with intent to defraud creditors, shall be voidable at the instance of any person thereby prejudiced. (2) This section does not affect the law of bankruptcy for the time being in force. (3) This section does not extend to any estate or interest in property alienated to a purchaser in good faith not having, at the time of the alienation, notice of the intent to defraud creditors."
3. In Marcolongo v Chen (2011) 242 CLR 546; [2011] HCA 3, the High Court observed (at [20], [31]-[32]) that the section is to be accorded a "liberal construction" and extends to prohibit conduct which may "delay, hinder or defraud" a creditor or potential creditor, and the Court may infer an intention by the transferor of property to defeat or delay creditors, even in the absence of direct evidence of that intention where that outcome was the necessary consequence of a voluntary settlement.
4. In Patel v Lal [2011] NSWSC 603 at [6], Biscoe AJ similarly observed that: "Section 37A should receive a liberal construction in effecting its purpose of suppressing fraud. The term "defraud" in s 37A means to delay, hinder or otherwise defraud: Marcolongo v Chen [above] at [19], [20], [58]. It is unnecessary to show that the debtor wanted creditors to suffer a loss or that the debtor had a purpose of causing loss. It is necessary to show the existence of an intention to hinder, delay or defeat creditors and in that sense to show that accordingly the debtor had acted dishonestly. If the debtor disposes of an asset which would be available to creditors with the intention of prejudicing them by putting it, or its worth, beyond their reach, he is in the ordinary case acting in a fashion not honest in the context of the relationship of debtor and creditor. In cases of voluntary disposition that intention may be inferred: at [32]. A person may have acted dishonestly, judged by the standards of ordinary, decent people, without appreciating that the act in question was dishonest: at [33]. The party seeking to avoid the disposition bears the onus of proving an intent to defraud. While the existence of the intent may be inferred from the evidence, it is to be found as a fact: at [34]. Sections [sic] 37A does not require the intent to defraud to be the sole or predominant intent: at [57]."

The statutory unconscionability claim in respect of Mr Seymour

1. The Plaintiffs also seek (OP [5]-[6], SOC [5]-[6]) an order setting aside the BSA. and an order (or possibly more precisely a declaration) that the BSA between the Companies and Fletch was the result of unconscionable conduct either at general law or under the ASIC Act. The Plaintiffs relevantly plead (SOC [19]) that Mr Seymour did not inform them that, relevantly, he had ceased working to achieve a capital or debt raising for the Companies; and that (SOC [31], denied D1/2 Defence [31], D3 Defence [31]) the Scheme was unconscionable (within the meaning in the ASIC Act) both at general law and by virtue of s 12CC of the ASIC Act. The latter reference plainly should have been to s 12CB of the ASIC Act, as Mr Walker rightly recognised.
2. Mr DeBuse submits that: "in all the circumstances the transfer was unconscionable. In respect of this contention all of the earlier grounds are relied upon but additionally the fact that the [S]cheme until implemented was conducted in secret by [Fletch, Mr Seymour and Mr Birch] is an additional factor with respect to its unconscionability."
3. Mr Walker submits, for Mr Seymour and Fletch, that the Plaintiffs make a bare assertion in the SOC that the Scheme was unconscionable within the meaning of s 12CC of the ASIC Act (SOC [31(b)]) and rightly points out that the relevant section is in fact s 12CB of the ASIC Act. He submits the Plaintiffs have not identified whether the impugned conduct relates to the supply or possible supply of "financial services" to a person, the acquisition or possible acquisition of "financial services" from a person, who the relevant parties to the relationship of supplier and acquirer are said to be, or what the "financial service" is said to be having regard to the variety of forms of "financial service" contained in s 12BAB of the ASIC Act. Mr Walker rightly anticipated in his opening submissions that the Court would also have regard to the corresponding provisions contained in s 21 of the ACL, although he retreated from that recognition in closing submissions. He submits that any assessment of unconscionable conduct under the ASIC Act will involve a wide-ranging inquiry because the section stipulates that the conduct must be unconscionable in all the circumstances. Mr Walker also submits that that necessitates a person alleging unconscionable conduct to plead, with clarity, the factual basis on which section 12CB of the ASIC Act is said to apply and, it is suggested, that requires that the unconscionable conduct claim under s 12CB of the ASIC Act must be dismissed.

The statutory unconscionability claim against Fletch

1. Turning now to the position in respect of Fletch, it knew, from the date of its incorporation on 22 September 2023 with Mr Seymour as its sole director and company secretary, the matters then known to Mr Seymour. However, it seems to me clear that Fletch did not provide financial services or services to the Company, where it was established to acquire the Companies' business and had no other relationship with the Companies or Mr Bunbury. The claim under s 12CB of the ASIC Act (or s 21 of the ACL) against Fletch must fail on that basis.

The statutory unconscionability claim in respect of Mr Birch

1. Turning now to the position in respect of Mr Birch, I have referred above to the Plaintiffs' pleading (SOC [15]) that Mr Birch did not inform the Plaintiffs that, relevantly, he had ceased working to achieve a capital or debt raising for the Companies and their pleading (SOC [31], denied D1/2 Defence [31], D3 Defence [31]) that the Scheme was unconscionable (within the meaning in the ASIC Act) both at general law and by virtue of s 12CC of the ASIC Act. The Plaintiffs plead (SOC [33], denied D3 Defence [33]) (in the same form as the corresponding allegation against Mr Seymour) that Mr Birch aided and abetted, procured and counselled or was knowingly involved in the Scheme "so as through [his] unconscientious conduct result in injury to the Plaintiffs." While this pleading is again oddly phrased, I understand this to be an allegation of unconscionable conduct on Mr Birch's part arising from his involvement with the Scheme.
2. I have referred to Mr DeBuse's submissions above. Mr Cheshire submits that the Plaintiffs' case is no more than a pleading of unconscionability without identifying the relevant material facts and particulars; as to unconscionability under the general law, there is no pleading (with the necessary material facts and particulars) of a special disadvantage under which any of the Plaintiffs were suffering or of any of the Defendants having unconscientiously taken advantage of it; and, as to unconscionability under the ASIC Act, there is no pleading (with the necessary material facts and particulars) of each of the ingredients of s 12CB of the ASIC Act. He also submits that Mr Bunbury would have no actionable remedy to found this cause of action, because his position is no more than an impermissible claim for reflective loss.
3. Mr Cheshire also submits that: "Insofar as [Mr Birch] maintains an objection based upon a lack of pleading, he is entitled to do so, not having been put on notice of the case he has to meet and not having consented to any expansion of the case against him (T31) (Karzi v Toll Pty Ltd [2024] NSWCA 120 [("Karzi")]; Harris v Harris [2021] NSWCA 329; Stefanovski v Digital Central Australia (Assets) Pty Ltd (2018) 368 ALR 607, [2018] FCAFC 31)."
4. I understand the decisions to which Mr Cheshire refers to reflect familiar and well-established principles as to the function of pleadings; for example, in Karzi, Leeming JA observed (at [7]) that an issue was plainly not pleaded; Adamson JA (at [130]) defined the role of pleadings in uncontroversial terms by reference to well-established case law; and Basten J accepted (at [176]) that a matter was not pleaded. Here, by contrast, the relief sought in the Originating Process identified a claim for unconscionability under the ASIC Act; relevant facts including non-disclosures by Mr Birch and the elements of the alleged Scheme were pleaded, albeit briefly; a claim that the Scheme was unconscionable under s 12CC of the ASIC Act was pleaded, and it was not hard to recognise (as Mr Walker did) that this was intended to be a reference to s 12CB of the ASIC Act; it was also not hard to recognise (as Mr Walker also did in opening submissions) that there were corresponding provisions in the ACL; and the real question is whether the claim was sufficiently pleaded to give fair notice of the case that Mr Birch had to meet. However, that question turns upon the matters addressed in the case law to which I have referred above and depends upon questions of procedural fairness and practical injustice identified by the Court of Appeal in Gerrard Toltz to which I also referred above. Mr Birch cannot establish that he lacked fair notice of the case against him, or a lack of procedural fairness or practical injustice, by merely asserting his intent to hold the Plaintiffs to their pleading at the commencement of the hearing, for the reasons I have also noted above. It does not seem to me that there was ever any real doubt as to the scope of the unconscionability case against Mr Birch or the conduct which underpinned it.

Applicable relief for statutory unconscionability

1. The Court may grant an injunction in respect of conduct which would contravene ASIC Act s 12CB (or the corresponding provision in s 21 of the ACL) under s 12GD of the ASIC Act (or the corresponding provision in s 232 of the ACL), against a person who contravened the sections or a person who was knowingly involved in the contravention. A person who suffers loss or damage by conduct of another person that contravenes s 12CB of the ASIC Act (or the corresponding provisions in s 21 of the ACL) may recover the amount of the loss or damage by action against that other person or any other person involved in the contravention under s 12GF of the ASIC Act (or the corresponding provisions in s 236 of the ACL). The Court may also order relief under s 12GM of the ASIC Act (or the corresponding provisions in s 243 of the ACL) in respect of a contravention of ss 12CB of the ASIC Act (or the corresponding provisions in s 21 of the ACL) including, importantly, making an order declaring a contract void or varied. An order may also be made against a person who was involved in the contravention.
2. Mr DeBuse submits that: "The consequence of setting aside of the transfer of the business to Fletch is that a severely damaged business will be returned to the control of the 1derful Companies. … Any complaint that Fletch has paid for the security should be disregarded because it did so in the circumstances, which if established, show that [Fletch] was prepared to act unconscionably, mala fide and for an improper purpose. If it has paid consideration to third parties for the opportunity to carry out the [S]cheme, then it bore the risk and any loss which was occasioned by it. Additionally, if the ultimate conclusion is that there was a [S]cheme as alleged the Court is entitled to treat this as a situation where the court would not lend its assistance to the recovery of the purchase price by Fletch. If the ultimate conclusion is that the sale agreement is unenforceable by reason of the entry into a contract that was against conscience/was unlawfully conducted/had as its object unlawful economic harm or was the use of a power of sale for an object other than satisfying a security but for another purpose then the First Defendant should be enjoined from pursuing its alleged debt."
3. I accept that the assignment of the loan from PIL to Fletch cannot be set aside, where PIL has not been joined as party to the proceedings, and the Plaintiffs no longer pursue that relief. However, an order could be made under s 12GM of the ASIC Act (or the corresponding provision in s 243 of the ACL) setting aside the BSA so that the Companies regain control of their business and Fletch is reinstated as a lender to the Companies and any consequential orders necessary to bring about the retransfer of assets from Fletch to 1derful could be made, although that order would potentially be inconsistent with the equitable relief by way of constructive trust that is also sought by the Plaintiffs. I address the question of the Companies' claim for damages against the Defendants below.

Alleged contravention of s 420A of the Corporations Act

1. The Plaintiffs also seek (OP [7]) a declaration that, in exercising a purported power of sale as a controller of the Companies' business and the transfer of credit licenses held by 1derful Lending, Fletch breached its obligations to the Companies as a controller pursuant to s 420A of the Corporations Act and acted mala fide and against good faith and without a proper purpose. They plead (SOC [27], not admitted D1/2 Defence [27], D3 Defence [27]) that the Scheme has resulted in the business of the Companies being transferred to Fletch at less than its market value and (SOC [28], denied D1/2 Defence [28]) that the Scheme had, as its object, the defrauding of the other creditors and members of the Companies; the acquisition of the business of the Companies at an undervalue; and the breach of the obligations of a controller pursuant to s 420A of the Corporations Act.
2. The Plaintiffs also plead (SOC [34], denied D1/2 Defence [34]) that the sale of the business was undertaken by Fletch as a controller in breach of the duty of care imposed by s 420A of the Corporations Act. They particularise that allegation on the basis that: "The sale occurred without any marketing campaign, attempts at sale to other potential purchasers, or seeking advice or inquiry of [Mr Bunbury or the Companies] as to potential buyers."
3. Mr DeBuse also draws attention to the observations of the Court of Appeal in Boz One Pty Ltd v McLellan (2015) 105 ACSR 325; [2015] VSCA 68 at [167] that: "In deciding whether there has been a breach of s 420A, a court assesses the process that a controller has undertaken in selling the property. The inquiry is whether, in the course of that process, the controller has taken all reasonable care to sell the property for not less than its market value. However, it is not necessary for the court to decide what actually was the market value of the property in order to find that s 420A(1)(a) has been breached - all that the court needs to decide is that the process that was followed was not one where all reasonable care was taken to sell the property for its market value, whatever that market value might be." The Court also there noted (at [168]) that a breach of s 420A(1)(a) of the Corporations Act is not established merely because a receiver fails to realise the property for its market value; but, if it is proved that the price obtained at sale was substantially below the market value of the property, this may be evidence that proper steps were not taken. Obviously enough, this section also invokes the concept of market value and I have regard to the well-established case law as to that concept, including Spencer v Commonwealth of Australia (1907) 5 CLR 418 at 432; [1907] HCA 82 and MMAL Rentals Pty Ltd v Bruning (2004) 63 NSWLR 167; [2004] NSWCA 451 at [55], where Spigelman CJ (with whom Mason P and Hodgson JA agreed) described the nature of a "market value" test as follows: "A test of a "market value", whether in a statutory or contractual context, usually invokes the test long established and frequently applied in Spencer v The Commonwealth of Australia (1907) 5 CLR 418 esp at 432 and 440-441 of a willing but not anxious purchaser and vendor, bargaining with each other. This approach was most recently expressed in a joint judgment of three judges of the High Court in Marks v GIO Australia Holdings Ltd [1988] HCA 69; (1998) 196 CLR 494 at 514: "… The value … is to be identified according to what price freely contracting, fully informed parties would have offered and accepted for it.""

Claim in respect of APL Lending

1. The Plaintiffs also seek an order (OP [9], SOC [9]) that the Australian credit licence now held by APL Lending be transferred to the Companies and (SOC [10]) an order that Mr Seymour and Fletch do all things necessary to transfer the shares in APL Lending to 1derful. I would make that order against Mr Seymour and Fletch under s 12GF of the ASIC Act or the corresponding provision of the ACL given the findings I have reached above, but for the fact that APL Lending is not party to the proceedings. The proper course in these circumstances will be now to make an order joining APL Lending as party to the proceedings and relist the matter to allow it to lead evidence and make submissions if it resists such an order.

Claim for further injunctive relief

1. The Plaintiffs seek (OP [10]-[11], SOC [11]-[12]) an order that Fletch and Messrs Seymour and Birch be permanently restrained from using or transferring any proprietary code developed for or by the Companies and that they destroy and provide an affidavit to the Court attesting to the destruction of any proprietary code developed for or by the Companies. That order should be made under s 12GD of the ASIC Act or the corresponding provision of the ACL in order to support the return of the Companies' business to the Companies, if the Plaintiffs elect for that remedy.

Claim in conspiracy

1. The Plaintiffs seek (OP [12], SOC [8]) a declaration that Fletch and Messrs Seymour and Birch engaged in a conspiracy to unlawfully injure the Plaintiffs. The Plaintiffs plead (SOC [31], denied D1/2 Defence [31], D3 Defence [31]) that the Scheme was unlawful and was in breach of s 37A of the Conveyancing Act and was carried out to defraud creditors and was unconscionable within the meaning in the ASIC Act both at general law and by virtue of s 12CC of the ASIC Act. The Plaintiffs then plead (SOC [32], denied D1/2 Defence [32], D3 Defence [32]) that the Scheme was a conspiracy between Fletch, Mr Seymour and Mr Birch to injure the Plaintiffs by unlawful means. In oral closing submissions, Mr DeBuse pressed this claim (T498) although recognised a possible overlap of damages awarded for conspiracy with compensation that may be order for breach of fiduciary duty.
2. Mr Walker submits, in opening, that the elements of such a conspiracy are summarised in Haiye at [510] as the entry into an agreement or combination to perform unlawful acts; by the agreement or combination, an intention to injure the plaintiff; that the agreement or combination be executed in whole or in part; and by their execution of the agreement or combination the defendants have caused loss or damage to the plaintiff. Mr Cheshire also refers to the observations of the High Court in Talacko v Talacko (2021) 272 CLR 478 at [25]; [2021] HCA 15 (omitting citations) as follows: "[i]f two or more persons agree to effect an unlawful purpose, whether as an end or a means to an end, and in the carrying out of that agreement damage is caused to another, then those who have agreed are parties to a tortious conspiracy". The agreement or common design between the parties is necessary for them to be jointly liable for the unlawful means. ... The agreement which is carried out must be "aimed or directed" at the plaintiff."
3. Mr Cheshire also submits that the relevant acts must be unlawful towards, and therefore actionable by, the plaintiff and the plaintiff must establish that the defendant knew both that the conduct in question was unlawful and that it was the unlawful part of it that would cause loss to the plaintiff: OBG v Allan [2008] 1 AC 1 at 32; C Sappideen & Ors, Fleming's The Law of Torts, 11th ed, Lawbook Co 2024 at [28.230] and the cases there cited.
4. Mr Walker submits that conspiracy, like fraud, is an allegation which should not be lightly made, and ought to be pleaded with precision. I bear in mind that, in Haiye at [495], Kunc J observed that: "Conspiracy, much like fraud, is not an allegation that should lightly be made and ought to be pleaded with precision and particularity: Hughes v Western Australian Cricket Association Inc (1986) 19 FCR 10 at 54; [1986] FCA 465 per Toohey J; Australian Wool Innovation Ltd v Newkirk [2005] FCA 290 at [59] per Hely J ("Australian Wool Innovation"); Andrianakis v Uber Technologies (Ruling No 1) [2019] VSC 850 at [39] per Macaulay J; see also Uber Australia Pty Ltd v Andrianakis (2020) 61 VR 580 at [51]-[52]; [2020] VSCA 186 per Niall, Hargrave and Emerton JJA ("Uber"). …"

Claim for invalidity of appointment of receiver to 1derful

1. The Plaintiffs also sought (OP [13], SOC [13]) an order that the appointment of Mr Ball as receiver is void or voidable and invalid. The Plaintiffs plead (SOC [43], denied D1/2 Defence [43], D3 Defence [43]) that the power to appoint a receiver contained in the general security documents purportedly assigned by PIL to Fletch was to be used in good faith and for a proper purpose and, in appointing Mr Ball as receiver, Fletch did not act in good faith or for a proper purpose. The appointment of Mr Ball as receiver was part of the course of conduct that I have found contravened s 12CB of the ASIC Act or the corresponding provision in s 21 of the ACL. My preliminary view is that that appointment should be set aside to give effective relief against that conduct, but I should allow Mr Ball a further opportunity to be heard prior to making that order, where he has not actively participated in this hearing.

The Plaintiffs' claim for damages

1. The Plaintiffs claim (OP [14]-[16], SOC [14]-[16]) damages against each of the Defendants, including for trespass and exemplary damages; compensation pursuant to s 1317H of the Corporations Act and equitable compensation, or alternatively, an account of profits. The Plaintiffs plead (SOC [39]-[40], denied D1/2 Defence [39]-[40], D3 Defence [39]-[40]) that, by reason of the Scheme, the alleged breach of fiduciary obligations or the unlawful conspiracy, they have suffered loss and damage and they are entitled to damages or account or equitable compensation from the Defendants. I assume this claim extends to a claim for damages arising from the alleged breach of s 12CB of the ASIC Act (and, by extension, the corresponding provision in s 21 of the ACL) by way of statutory unconscionability. The Plaintiffs also plead (SOC [41], denied D1/2 Defence [41], D3 Defence [41]) that there should be an inquiry as to such amount as is due as damages or equitable compensation following the reconveyance of the business from Fletch to the Companies. The parties ultimately accepted that there would be no need for a separate inquiry as to loss so long as the loss following from a sale of the business at undervalue could be readily calculated.
2. Mr DeBuse draws attention to the observations of Mason CJ and Dawson J in Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 at [83]; [1991] HCA 54 that: "The settled rule, both here and in England, is that mere difficulty in estimating damages does not relieve a court from the responsibility of estimating them as best it can: Fink v Fink (1946) 74 CLR 127, at p 143; McRae v Commonwealth Disposals Commission (1951) 84 CLR 377, at pp 411-412; Chaplin v Hicks (1911) 2 KB 786 , at p 792. Indeed, in Jones v Schiffmann (1971) 124 CLR 303, Menzies J. went so far as to say that the assessment of damages … does sometimes, of necessity involve what is guess work rather than estimation": at p 308. Where precise evidence is not available the court must do the best it can: Biggin and Co Ltd v Permanite Ltd (1951) 1 KB 422, per Devlin J. at p 438. And uncertainty as to the profits to be derived from a business by reason of contingencies is not a reason for a court refusing to assess damages: see McGregor on Damages, 15th ed. (1988), pars 357-359."
3. I accept that this is not a case where an assessment of the amount of damages recoverable by the Companies has no rational basis or would be a mere guess, although that assessment will be made on incomplete or imperfect evidence where, for the reasons noted above, I do not accept the valuations of the Companies' business made by Mr Davies or Mr Kompos and prefer Mr Seymour's contemporaneous assessment of its value as not less than $2 million: contrast the position where no rational basis for an assessment of damages is available, recognised in Troulis v Vamvoukakis [1998] NSWCA 237 and McCrohan v Harith [2010] NSWCA 67 at [128].

Exemplary damages, set-off and other matters

1. The Plaintiffs have established their claim for conspiracy against Fletch and exemplary damages may be ordered against Fletch on that basis, as sought by the Plaintiffs. However, I should allow submissions as an award of exemplary damages and its quantum, prior to making orders, where that issue was not sufficiently addressed by the parties in closing submissions.
2. The Plaintiffs also plead (SOC [42], denied D1/2 Defence [42], D3 Defence [42]) a set-off of such damages or equitable compensation as are due from Fletch in equity against any amount that may be found by this Court to be due in respect of the debt assigned to Fletch by PIL. No submission was put that set-off would not be available and the amount of damages awarded to the Companies substantially exceed the amount of that loan.
3. Mr Bunbury also claims (SOC [44], not admitted D1/2 Defence [44], D3 Defence [44]) a lien on all of the information and knowledge he has acquired by reason of his employment with the Companies, as against Mr Ball as receiver who it is alleged continues to seek such information, where Mr Bunbury has not been paid his deferred wages and other loaned monies and the disclosure of further information to the receiver will assist in the Scheme. It is not necessary to determine this claim, at least if Mr Ball's appointment as receiver will be set aside in any event.

Whether the matter should be referred to ASIC

1. It appears that Messrs Seymour and Birch are active participants in the Australian financial services or Australian credit industries. I raised with each of them, at the close of their cross-examination, the possibility that findings might be made, inter alia, that they had not acted honestly or in accordance with their moral obligations. Findings of that kind would be relevant to the question whether a banning order could or should be made by ASIC in respect of either of them. I have considered the question whether this judgment should be referred to ASIC and allowed the parties an opportunity to be heard in that regard. I have ultimately concluded that it is not necessary to do where the judgment, the affidavits that were read and the evidence that was tendered are now all matters of public record. It is open to the Plaintiffs to draw this judgment to ASIC's attention if they wish to do so and then open to ASIC to take such steps as it considers appropriate in respect of the matters addressed in this judgment. There is no need for the Court to take any further steps in that regard.

Orders

1. The Companies will need to elect between potentially inconsistent remedies, for example, a constructive trust or an injunction requiring return of the business and compensation for the loss of value of the business while it has been in Fletch's hands, or an account arising from a breach of s 420A of the Corporations Act as quantified above. I understand it to be common ground that, where the Companies recover their loss, it will not be necessary to determine Mr Bunbury's claims since he would have no recoverable loss other than that deriving from the Companies' loss.
2. I direct the parties to submit to my Associate agreed short minutes of order to give effect to this judgment (including as to any election between remedies, any consequential steps and exemplary damages) and as to costs or, if there is no agreement between them, their respective short minutes of order and submissions not exceeding 15 pages (in Arial font 12, one and a half spacing) by 4pm on 22 November 2024, and their respective submissions in reply not exceeding 8 pages (in Arial font 12, one and a half spacing) by 4pm on 29 November 2024.

Endnotes

1. A Damoradan, "Valuing Young, Start-up and Growth Companies: Estimation Issues and Valuation Challenges" (June 12, 2009; SSRN: https://ssrn.com/abstract=1418687).
2. E Mantell & E Shea, "Development and Application of Business Valuation Methods by the Delaware Courts" (2021) 17 Hastings Business LJ 335; HBK Master Fund LP v Pivotal Software Inc, Delaware Court of Chancery, 14 August 2023.
3. For example, E Dubiansky, "An Analysis for the Valuation of Venture Capital-Funded Startup Firm Patents" (2006) 12 BU J Sci and Tech L 170; BK Krumm, "Fostering Innovation and Entrepreneurship: Shark Tank shouldn't be a Model (2017) 70 Ark L Rev 553 at 573; A Lynch, "Believing in Unicorns: How to Value Unicorn Companies and Intellectual Property while Encouraging Continuing Innovations and Public Disclosure" (2021) 72 Case Wes L Rev 421 at 430-431; AF Tuch, "Fairness Opinions and SPAC Reform" (2023) 100 Wash UL Rev 1793 at 1817-1819 and note the valuation commentary cited at footnote 92.
4. 1 For example, in Pascoe v Voukidis Holdings Pty Ltd [2024] FCA 915 at [170], Button J permitted a plaintiff who sought relief under 12CA of the ASIC Act, on an oral application, to rely on the equivalent provisions of the ACL, if the respondents in that case were correct in their contention that the ASIC Act provisions did not apply because the company did not provide a "financial service" pursuant to s 12BAB of the ASIC Act. Counsel in that case rightly did not resist that approach. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 12 November 2024