Attorney-General (NSW) (Ex rel Corporate Affairs Commission) v Australian Softwood Forests Pty Ltd

Plaintiffs' proposed orders 1-7: Declarations sought by the Plaintiffs

1. The Plaintiffs seek several declarations as to the findings that I reached in the Primary Judgment. With one exception, I should not make these declarations for several reasons. Generally, the Court should not make a declaration, even if it has jurisdiction to do so, unless it is satisfied that the declaration sought is appropriate and that it has sufficient practical utility; or where that declaration would merely be prefatory to other relief: Neeta (Epping) Pty Ltd v Phillips (1974) 131 CLR 286; [1974] HCA 18; Attorney-General (NSW) (Ex rel Corporate Affairs Commission) v Australian Softwood Forests Pty Ltd [1979] 2 NSWLR 73 at 76; E & J Gallo Winery v Lion Nathan Australia Pty Ltd (No 2) [2009] FCAFC 47; JR Consulting & Drafting Pty Ltd v Cummings [2014] NSWSC 1700 at [11]; Lukaszewicz v Polish Club Ltd [2019] NSWSC 595 at [12]; PW Young, C Croft and ML Smith, On Equity (Lawbook Co, 2009) at 1084.
2. The Plaintiffs' proposed orders 1-2 relate to findings of breach of fiduciary duty on the part of Mr Seymour and knowing concern on the part of Fletch. Mr Seymour and Fletch did not oppose those declarations. I will not make them although they are not opposed, both for the general reason noted above, and because the proposed declarations do not identify the conduct that amounted to the breach with any specificity and also would not have any utility for that reason.
3. The Plaintiffs' proposed order 3 is a declaration that Fletch holds on trust the whole of the business transferred to it under the Business Sale Agreement ("BSA"). I observed (Primary Judgment [246]) that: "I am satisfied that remedy [a constructive trust] is available and appropriate here given the findings that I have reached above. There may be a question, which may need to be subject of further submissions in respect of orders, as to whether a proprietary remedy by way of constructive trust is inconsistent with the Companies recovering further compensation for the loss of value of the business while it was in Fletch's hands. It may not be necessary to determine that issue, where it appears that the Court could order both the return of the business and compensation by way of statutory remedies for the contraventions of s 12CB of the [ASIC Act] or the corresponding provision in s 21 of the [ACL] which I address below."
4. Mr Seymour and Fletch accepted, in their proposed draft orders, that this order should be made. I will make that order where it is consistent with my findings in the Primary Judgment, has operative effect between the parties and is not opposed.
5. The Plaintiffs' proposed order 4 is a declaration relating to a contravention of s 420A of the Corporations Act and, broadly, to conduct in bad faith on the part of Fletch. The draft orders proposed by Fletch and Mr Seymour limited that order to a declaration of contravention of s 420A of the Corporations Act. I will not make this order, both for the general reason noted above and because the proposed declaration does not identify the conduct that amounted to the breach with any specificity and also would not have any utility for that reason.
6. The Plaintiffs' proposed order 5 is that: "It is declared that [Mr Seymour] and [Mr Birch] contravened ss 12CB of the Australian Securities and Investments Commission Act 2001 and s 21 of the Australian Consumer Law."
7. Mr Seymour and Fletch submit that this declaration is unnecessary where it is prefatory to the relief and damages sought by the Plaintiffs. They also submit and I accept that this declaration does not correctly record my findings and could not be made, where I did not find that Mr Seymour and Mr Birch breached both s 12CB of the Australian Securities & Investments Commission Act ("ASIC Act") and s 21 of the Australian Consumer Law ("ACL"), but rather that they breached one or other of those sections and that it was not necessary to decide which of them. Mr Birch also submits that: "Any declaration as to statutory contraventions would be prefatory to the Plaintiffs' claims for damages (and other related relief) and it would serve no practical utility. No declaration should therefore be made. Further, there is no finding to support the declaration sought, namely that the Third Defendant contravened the ASIC Act and the [ACL]. Rather, the finding is as to a contravention of either the ASIC Act or the ACL (at [288]). A declaration in the alternative is not sought and should not be made." I will not make this declaration for these reasons.
8. The Plaintiffs' proposed order 6 is that: "It is declared that the Business Sale Agreement of 3 October 2023 between the [1deful Companies] and [Fletch] was the result of unconscionable conduct."
9. Mr Seymour and Fletch also submit that this declaration is not appropriate, where I did not find unconscionable conduct under the general law. That submission highlights the uncertainty as to whether this declaration refers to statutory or general law unconscionability. I would not make that declaration by reason of that ambiguity, and because it also does not identify the conduct referred to with any specificity and also would also not have any utility for that reason.
10. The Plaintiffs' proposed order 7 is that: "It is declared that the First Defendant, Second Defendant and Third Defendant engaged in a conspiracy to unlawfully injure the Plaintiffs."
11. Fletch and Mr Seymour submit and I accept that this declaration should not be made where it is prefatory to relief by way of damages and only Fletch was found liable in conspiracy. Mr Birch similarly points out that I held (Primary Judgment [315]) that the Plaintiffs did not have an actionable claim for conspiracy against him and that the declaration sought could therefore not be made against him. He also submits that, since the claim in conspiracy was not available against him, I did not make the necessary factual findings to support a claim for conspiracy. It is not necessary to decide that matter. He submits that any claim in conspiracy is prefatory to the claim for damages and other related relief and any declaration in this regard would serve no practical utility and that provides a further reason why no declaration should be made. I accept that submission. I will not make that declaration for these reasons.
12. The Plaintiffs also submit that: "That declaratory relief sought by the Plaintiffs provides certainty, and provides a footing for the Plaintiffs to take further steps to protect their proprietary interests in the event the Orders made by this Court in these proceedings do not restore the [1derful Companies'] position."
13. It seems to me that there is no need for declaratory relief to achieve that result which, to the extent that it is properly available, arises from any res judicata or estoppel which arises from the findings that I have reached in the Primary Judgment, and operates at a level of specificity that is not reflected in the declarations sought by the Plaintiffs, other than the single declaration that I will make.

Plaintiffs' proposed orders 8-10: Business Sale Agreement and APL Lending

1. The Plaintiffs seek an order that the BSA between 1derful and Fletch is "void" (although it may properly be voidable) and is set aside. I observed (Primary Judgment [289], [291]) that: "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. … 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."
2. The Plaintiffs address the question of election and seek an order to set aside the BSA with the practical effect that the 1derful Companies' business is returned to them under s 12GD of the ASIC Act (or, I interpolate, the corresponding provisions in s 243 of the ACL) and that the shares be returned to the 1derful Companies. Fletch and Mr Seymour accept that this relief gives effect to the Plaintiffs' election to seek the return of the business, and it is consistent with my finding that relief is available under s 12GM of the ASIC Act or s 243 of the ACL declaring the BSA to be void. I will make the order sought.
3. The Plaintiffs also seek orders that APL Lending Pty Ltd ("APL Lending") (formerly known as 1derful Lending Pty Ltd) be joined as the Fifth Defendant to the proceedings and that Fletch and Mr Seymour do all things necessary to transfer the shares in APL Lending to 1derful. I observed (Primary Judgment [301]) that: "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."
4. Fletch and Mr Seymour accept that this proposed order is consistent with the course approved in the Primary Judgment at [301]. They also submit that: "Even though the court has contemplated APL being heard (Judgment at [301]), [Fletch and Mr Seymour] do not oppose proposed order 10 being made in circumstances where [Mr Seymour] is its sole director."
5. I accept the Plaintiffs' submission that that order can be effected by an in personam order against Fletch, and there is no need to join APL Lending as party to the proceedings where an order is no longer sought to transfer the credit licence as distinct from the shares in APL Lending. I will make the order sought that Fletch and Mr Seymour do all things necessary to transfer the shares in APL Lending to 1derful.

Plaintiffs' proposed orders 11-12: Restraint as to and destruction of software and computer code

1. I observed (at Primary Judgment [302]) that: "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."
2. The Plaintiffs proposed orders 11-12 would permanently restrain Fletch, Mr Seymour and Mr Birch from using or transferring any proprietary code developed for or by the 1derful Companies and require that they destroy and provide an affidavit establishing the destruction of such code.
3. Fletch and Mr Seymour submit that: "It is noted that in the [Primary] Judgment at [302] an order permanently restraining the use or transfer of 'any proprietary code developed for or by the Companies' is endorsed. However, the form of orders proposed by the plaintiffs does not provide sufficient clarity as to what is required of the defendants. The need for certainty as to what must be done to comply with an order is well established: Greetings Oxford Koala Hotel Pty Ltd v Oxford Square Investments Pty Ltd (1989) 18 NSWLR 33 at 41-42. There is no explanation in the [Plaintiffs' Submissions] of what proprietary code the order is intended to cover, or what code or codes were developed for or by the companies. No findings were made in the Judgment in that regard. Proposed orders 11 and 12 should not be made in their present form."
4. Mr Birch also submits that: "The orders sought are by reference to "any proprietary code developed for or by the [1derful Companies]. It was not alleged that [Mr Birch] had misused (or indeed used) any such proprietary code or that any such misuse (or indeed use) was apprehended. Where injunctions are to be made that have potentially serious consequences in the event of non-compliance, it should be clear to the recipient precisely what is required. Whilst reference was made to this at [Primary Judgment [302]], it was not explored in the evidence, the submissions, the judgment or the proposed orders: a. what proprietary code this is intended to encompass; b. what constitutes proprietary code as distinct from code; c. what code was developed for the companies; d. what code was developed by the companies; e. what is encompassed by code being developed "by" or "for" the companies, particularly when it may have utilised or built on code developed by others; f. why all such code should necessarily be protected when other entities may also have developed the same code (in part or in whole); g. how these orders might work if code contained parts developed by or for the companies and parts developed by or for others. These orders should not be made."
5. In the course of submissions as to orders, I sought submissions as to whether an alternative form of order should be made which did not use the term "proprietary code". The Plaintiffs did not fully adopt that possibility, and instead advanced a claim that had not previously been raised, that the Defendants should include in an affidavit the identity of any person or entity to which the code or software has been provided, whether a party to these proceedings or not. The Plaintiffs had not sought such an order in the pleadings or in the orders that they originally proposed and it seems to me too late to do so in submissions in reply as to orders, when the other parties will have no opportunity to respond to that proposition. The Defendants did not respond to my request for submissions as to that matter. In these circumstances, I should not make an alternative order that the Plaintiffs did not seek, but simply determine whether or not to make the orders that the Plaintiffs had sought in chief.
6. I am satisfied that the term "proprietary code" is well understood in the industry which was the subject of these proceedings; whether code falls within that concept and was developed by the 1derful Companies is capable of objective determination; and Fletch, Mr Seymour and Mr Birch will have no difficulty in identifying the proprietary code developed for or by the 1derful Companies which is in their possession. There can be no sensible suggestion that, for example, they would have difficulty in complying with this order because they did not know what proprietary code they obtained from the 1derful Companies, where there is no suggestion that any of them had developed such code for themselves; or that they should be entitled to retain that code which they acquired by the misconduct set out in my Primary Judgment, as against the 1derful Companies, even if others have also developed similar code. I will make the orders in chief sought by the Plaintiffs in this regard, including a date for compliance, but not expand them to include additional actions which the Defendants have had no opportunity to address.

Plaintiffs' proposed order 13: Removal of Mr Ball as receiver

1. As I noted above, I found (Primary Judgment [319]) that: "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."
2. The Plaintiffs seek an order that the appointment of the Fourth Defendant, Mr Ball, as receiver was void. It is not necessary to decide whether that appointment was void or was voidable, but it should now be set aside ab initio for the reasons noted below.
3. Fletch and Mr Seymour accept that the order for the discharge of Mr Ball as receiver can properly be made. Mr Ball, who was not required to take an active role at the hearing, made written submissions as to whether he should be removed as receiver. He pointed out, and I accept, that he was appointed as receiver over the assets of the 1derful Companies by Fletch and I recognise that the Court had no occasion to reach findings that were either favourable or adverse to him in the Primary Judgment. Mr Ball submits that: "In light of the Court's findings about the conduct of the other defendants, Mr Ball does not oppose an order that he be removed as receiver. [The Plaintiffs] appears to suggest that an order should be made invalidating Mr Ball's appointment ab initio. An order in those terms should not be made. The appropriate order is that Mr Ball be removed as receiver, with such removal to take effect as at the date the Court makes orders disposing of the proceedings. A prospective order is appropriate for a number of reasons. First, the claim for relief is not sought under s 418A of the Corporations Act 2001 (Cth), which confers upon the Court the power to declare whether a purported appointment of a person as a receiver was valid. Rather, the claim for relief against Mr Ball (and the Court's statement at J [319]) is expressed on the basis that removal of Mr Ball as receiver is necessary to restore the status quo ante and to undo the effect of the first to third defendants' statutory and other contraventions. A prospective order serves that purpose. Secondly, a prospective order is appropriate as it removes any risk that Mr Ball might be exposed to a future claim in trespass (or for damages for a like tort). Such an order also preserves Mr Ball's ability to contend (for instance, upon any assessment of his remuneration) that his appointment was regular to his knowledge and that his limited activities as receiver were carried out bona fide."
4. In submissions in reply, the Plaintiffs respond that an order should be made that the appointment of Mr Ball was void and invalid ab initio, given the findings that I had reached concerning the circumstances of Fletch's appointment of Mr Ball as receiver. The Plaintiffs also submit that an order that operated only from the point of judgment would conflict with my findings as to the circumstances in which Fletch appointed Mr Ball as receiver.
5. I do not accept that an order removing Mr Ball as receiver should only be made prospectively, from the date of judgment, where that would entrench Fletch's wrongdoing in respect of the appointment of the receiver by allowing Mr Ball to seek his remuneration and costs against the 1derful Companies, the victims of the wrongdoing, rather than against Mr Seymour or Fletch who appointed him as receiver. The basis for any appointment of Mr Ball as receiver by Fletch is also now undermined, ab initio, by the declaration that I have made, without opposition, that Fletch held the business on trust for the 1derful Companies when that appointment was made. It is not necessary for the Plaintiffs to rely on s 418A of the Corporations Act in order to remove Mr Ball as a receiver on that basis; where the Court has power to make appropriate orders consequent on the contraventions of the ASIC Act or ACL by Mr Seymour; and where Mr Ball did not lead evidence in respect of orders to support any claim that power should not be exercised. There is also no evidentiary basis for the Court to make orders only with future effect, so as to immunise Mr Ball, in advance, from any claims against him. His conduct was not the subject of positive or adverse findings in the proceedings and he may be properly left to defend any such claim on its merits, or to seek relief from liability in it if he can establish the evidentiary basis for such relief. I will therefore order that the appointment of Mr Ball as receiver to the assets of the 1derful Companies be set aside ab initio.

Plaintiffs' proposed orders 14 -15: Compensatory damages and interest

1. I observed (Primary Judgment [298], [322]-[325]) that: "… It seems to me that the then market value of the business was not less than Mr Seymour's contemporaneous assessment of that value as not less than $2 million, and a vendor would not have sold that business in a market transaction for a price that did not recognise its prospects, notwithstanding that the Companies were then in very difficult financial circumstances. I am reinforced in that view by the fact that the Defendants' witnesses, including Mr Dahan and Mr Seymour, themselves recognised the strong prospects of the Companies' underlying business. … 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]. I consider that I can properly take a robust approach as to damages where the Defendants' conduct took the business out of the Companies hands and had the result that its future performance in the Companies' hands, which would have underpinned its then value, cannot now be known with certainty. I have not neglected Mr Cheshire's submission that Mr Davies (whose evidence I addressed above) did not identify any difficulty in "working out damages" by identifying "records that ought to have been available but were not." That submission does give sufficient weight to the real difficulty that, obviously enough, a start up company could never have records of, or know as a fact, the future growth in the revenue of a business that it was prevented from conducting. For these reasons, I accept that Mr Seymour's contemporaneous assessment of the value of the business as at least $2 million as sufficiently reliable evidence of its then value and I adopt that figure in preference to the much higher value derived by Mr Davies and the lower values derived by Mr Kompos. I am left with a lingering unease that I should have been more robust and adopted a higher value to reflect the potential of that business, notwithstanding the then suspension of the Mastercard Agreement and the Companies' critical financial difficulties. An appellate court may have the opportunity to address that question, and possibly the wider difficulties in the valuation of start-up technology companies, if an appeal is brought from this judgment. For the reasons set out above, I would make the order sought by the Plaintiffs (depending on their election) that would bring about the return of the Companies business to the Companies, albeit in a degraded state where that business currently likely has no value and where the development of that business will likely be significantly delayed or may now be impossible. Fletch would then be reinstated as a lender to the Companies, where the transfer of the business to it was set aside, but the amount of damages (including any exemplary damages, to which I return below) awarded against it may well exceed the amount of that loan. That order would not be inconsistent with an order for damages or compensation in favour of the Companies calculated by reference to the loss suffered by the Companies on the transfer of business at an undervalue, where that loss is not reduced by the return of the business after its value is lost. On that basis, the amount recoverable by the Plaintiffs in addition to an order setting aside the BSA and providing for the return of the business, whether as equitable compensation for breach of fiduciary duty and knowing assistance against Mr Seymour and Fletch, or damages for contravention of s 12CB of the ASIC Act (or s 21 of the ACL) against Mr Seymour and Mr Birch, or as compensatory damages for conspiracy against Fletch, would be in each case $2 million derived from Mr Seymour's contemporaneous assessment of the value of the business. The Plaintiffs cannot recover damages for trespass since they did not bring or establish a claim for trespass. They have also not established a basis for damages under s 1317H of the Corporations Act, either by way of compensatory damages or any loss of profits."
2. I also observed (Primary Judgment [328]) that: "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. The Plaintiffs now seek an order that each of the Defendants pay, and are jointly and severally liable to pay, damages in the amount of $2 million "without set-off or reduction of any sum of money whatsoever" and interest on that amount under s 100 of the Civil Procedure Act 2005 (NSW) ("CPA") from 3 October 2023.
4. The amount claimed by the Plaintiffs by way of compensatory damages is consistent with the findings which I reached, where I found the business which was returned to them would have lost its value. The Plaintiffs also submitted that they have incurred loss and damage by virtue of accrued interest and fees on the Mastercard Agreement during the period from 3 October 2023 to date. I should not entertain that submission where no submissions were made to establish loss on that basis at the hearing. In any event, the orders proposed by the Plaintiffs did not address such a further claim.
5. Fletch and Mr Seymour respond that: "The sum of $2m represents what the court found to be the value of the business at the time the business was transferred: [Primary] Judgment at [298], [322]-[323]. In the Judgment at [324]-[325], the court also found that the business 'currently likely has no value', and in that case the sum recoverable in addition to the return of the business would be $2m. In those circumstances, a suitable order would simply be: Judgment for the [1derful Companies] against [Fletch, Mr Seymour and Mr Birch] in the sum of $2m plus interest under section 100 of the Civil Procedure Act 2005 (NSW)."
6. Mr Birch submits that: "The appropriate damages against [Mr Birch] depend upon the analysis adopted as to [Fletch's] loan, the assignment and the status of the consideration under the Business Sale Agreement. As the Court noted at [328], it was not suggested that a set-off was not available." That submission misstates the observation in my Primary Judgment at [328], which was not directed to Mr Birch and was instead that: "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." I otherwise do not accept that submission. Fletch does not submit that there should be any set-off as against the loan made by Fletch in the orders now made by the Court. Mr Birch did not explain any basis on which, and it is not apparent that, any set-off was or is available for his benefit.
7. As I noted above, the Plaintiffs also seek an order that damages be paid in the specified amount "without set-off or reduction of any sum of money whatsoever". They submit that the Defendants could only rely on an equitable set-off to reduce the damages that are awarded to the 1derful Companies, and that any complaint that Fletch has paid for the security it acquired from PIL should be disregarded, because it did so acting unconscionably and in bad faith. They submit, at length, that Fletch, Mr Seymour and Mr Birch acted improperly and that: "In circumstances where Fletch paid consideration to a third party for the opportunity to carry out the Scheme, it then bore the risk and any loss which was occasioned by it. The Court has found that there was a "Scheme", and 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 of the debt by Fletch from the party it intended to use the debt to wrongfully deprive of its property. The [BSA] is unenforceable by reason of the entry into a contract that was against conscience/was unlawfully conducted and 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. In the circumstances [Fletch] should not be permitted to obtain by way of set off the obligation it acquired that it used to perpetrate the very conduct that the Court has found reprehensible."
8. I cannot accept the Plaintiffs' submission or make the order sought to exclude set-off, for several reasons. First, the Plaintiffs' submission mischaracterises the issue, which is not whether Fletch can set-off the purchase price it paid to acquire the debt from PIL against a judgment in the 1derful Companies' favour, but (as I observed at Primary Judgment [328]) whether it can set off the debt that it acquired and, possibly, interest on it. Second, it is not apparent that there would be any unconscionability in Fletch recovering at least the principal of the loan made by PIL and any accrued interest to the point it acquired it where, irrespective of any amount that Fletch paid to acquire the loan, it now has the benefit of that loan; there was no allegation of impropriety as to the circumstances in which PIL made that loan to the 1derful Companies; and the 1derful Companies have had the use of the money that was lent to them. Third, the Plaintiffs have not established the premise of their submission that the only basis for set-off is equitable set-off. It is obviously possible that Fletch will not be able to meet a judgment of the amount awarded against it in these proceedings and will ultimately be placed in liquidation and the Plaintiffs did not address any potential application of statutory set-off under s 553C of the Corporations Act in that situation. I should not make an order which may be inconsistent with that statutory provision.
9. In submissions in reply, the Plaintiffs advance a further submission that no order should presently be made setting off the debt owed by the 1derful Companies to Fletch against the damages awarded to the 1derful Companies, for several reasons overlapping with their submissions in chief. It is not necessary to address that submission in reply where Fletch does not submit such a set-off should presently be made and Mr Birch, who addresses that question briefly and in general terms, had no interest in that question for the reasons that I have addressed above.
10. I will therefore make an order for damages consistent with the findings that I reached in the Primary Judgment. Neither the Plaintiffs nor Fletch submitted that any set-off of the amount of debt owed by 1derful to Fletch against the amount of the damages awarded to 1derful against Fletch should be implemented by the orders which I make. I will therefore not reflect any such set-off in the orders, and no basis for set-off was shown in respect of the damages ordered against Mr Seymour or Mr Birch. The order proposed by Fletch and Mr Seymour is appropriate for that purpose, with the addition of a reference to the fact that Fletch, Mr Seymour and Mr Birch are jointly and severally liable for that amount.

Plaintiffs' proposed order 16: Against whom can an order for exemplary damages be made?

1. I observed (at Primary Judgment [327]) that: "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 seek an order for exemplary damages against each of Fletch, Mr Seymour and Mr Birch, which they contend should be quantified in the amount of $2 million. Generally, exemplary damages are intended to punish a defendant for the behaviour that gave rise to a tort and may be awarded in circumstances involving a deliberate, intentional or reckless disregard for a plaintiff and its interests, or a contumelious disregard of a plaintiff's rights, where compensatory damages are insufficient to punish, deter or indicate the Court's disapproval of the defendant's conduct: Uren v John Fairfax & Sons Pty Ltd (1966) 117 CLR 118 at 149; Harris v Digital Pulse Pty Ltd (2003) 56 NSWLR 298; [2003] NSWCA 10 ("Digital Pulse") at [254]; State of NSW v Ibbett (2006) 229 CLR 638; [2006] HCA 57.
3. In response to the claim for exemplary damages against it, Fletch submits that: "The tort of conspiracy the first defendant was found to have been engaged in can attract exemplary damages against it, as noted in the [Primary] Judgment at [327]. The court in Sanders v Snell (1997) 73 FCR 569 at 596 onward discussed the principles relevant to exemplary damages. Even though the circumstances in which exemplary damages might be conferred are not limited, such damages are an exceptional remedy which is not lightly awarded due to its punitive nature. Circumstances in which exemplary damages might be appropriate include where the conduct was fraudulent, malicious, violent, cruel, or insolent. Not only are exemplary damages designed to punish, they are intended to deter a wrongdoer from committing like conduct again. [Fletch] was not incorporated until 22 September 2023. By that time, [Mr Seymour and Mr Birch] had been engaging in the conduct which has been found to have been unconscionable for some time. Whilst the first defendant was imparted with the knowledge of the second defendant upon its incorporation, its role from that point in time as a corporate vehicle through which the business was acquired does not warrant an award of exemplary damages against it in the circumstances. There is also no apparent reason to fear that [Fletch] might engage in the same conduct again."
4. I am satisfied that an order for exemplary damages should be made against Fletch to record the Court's condemnation of its conduct, which I have summarised in dealing with the claim for conspiracy against it in the Primary Judgment. In particular, I found in the Primary Judgment that Fletch's conduct, in combination with Mr Seymour, took advantage of the 1derful Companies' financial vulnerability and their commercial relationship with Mr Seymour, was calculated to and did cause substantial loss to the 1derful Companies, their other creditors (including FIFO Capital) and shareholders and Mr Bunbury, and Fletch was indifferent to those consequences in seeking to enrich itself at the 1derful Companies' (and FIFO Capital's and other creditors') expense. These matters warrant an order for substantial exemplary damages, and I will return to the question of quantum below.
5. The Plaintiffs also submit that exemplary damages should be ordered against Messrs Seymour and Birch, given the conduct which I found in my judgment, although I did not find that they were liable in conspiracy, where the Plaintiffs had separate actionable claims for statutory contraventions under s 12CB of the ASIC Act or s 21 of the ACL. They rely on Gray v Motor Accident Commission (1998) 196 CLR 1 to contend that exemplary damages are available in cases where a defendant's conduct involves conscious wrongdoing, but I do not understand that case to stand for the proposition that exemplary damages are available irrespective of the cause of action that founds the claim for damages. The Plaintiffs also submit that: "Although no conspiracy finding was made against Mr Seymour and Mr Birch, the Court's finding of unlawful conduct, including contraventions of the statutory prohibitions on unconscionable conduct under s 12CB of the ASIC Act and s 21 of the ACL, provides a sufficient basis for the award of exemplary damages. Both Mr Seymour and Mr Birch were involved in egregious conduct whereby the Defendants engaged in a scheme of statutory contravention, deliberately causing harm to the companies involved. This conduct, which intentionally seeks to undermine legal protections for the plaintiffs, demonstrates a high level of culpability."
6. The Plaintiffs draw attention to no authority that supports an order for exemplary damages in respect of a breach of fiduciary duty by Mr Seymour or contravention of s 12CB of the ASIC Act or s 21 of the ACL by Mr Seymour and Mr Birch.
7. Mr Seymour responds that: "Exemplary damages are sought from [Mr Seymour] in circumstances where his liability to pay compensation arises from a breach of fiduciary duty and statutory unconscionability. Neither of those grounds for compensation attract exemplary damages: [Digital Pulse] at [233], [470]; Miller's Australian Competition and Consumer Law, 45th edition at [ACL.243.140] and cases cited therein."
8. Mr Birch points out that I held that, although the claim based upon statutory unconscionability succeeded against him, the claim for breach of fiduciary duty failed since he did not owe a fiduciary duty to the Plaintiffs (Primary Judgment [238]) and the claim in conspiracy also failed against him (Primary Judgment [315]). Mr Birch also submits and I accept that exemplary or punitive damages are not available for breach of the statutory unconscionability provisions or for breaches of fiduciary duty. He submits that no exemplary damages can therefore be awarded against him and rightly recognises that I implicitly made this finding (at Primary Judgment [327]) in observing that exemplary damages might be awarded against Fletch.
9. In submissions in reply as to orders, the Plaintiffs refer to Haiye Developments Pty Ltd v The Commercial Business Centre Pty Ltd [2022] NSWSC 937, which I addressed in the Primary Judgment, and submit that that judgment does not: "exclude a remedy the common law grants for the type of contumelious disregard of rights for which exemplary damages are awarded." As I have observed in respect of the Plaintiffs' submissions in chief as to orders, I do not accept that the case law establishes a basis for the award of exemplary damages generally, and without regard to the cause of action which is said to found that award.
10. For these reasons, an order for exemplary damages should be made against Fletch but is not available against Mr Seymour or Mr Birch.

Quantum of exemplary damages against Fletch

1. The Plaintiffs submit that: "A high award of exemplary damages is appropriate in this matter, given the egregious nature of the Defendants' conduct and the clear need to deter similar wrongful acts in the future."
2. The Plaintiffs also submit that: "When determining the quantum of exemplary damages, the Court should consider the following conduct: a. The Plaintiffs allege that [Fletch], acting through its agent and director Mr Seymour, engaged in dishonest conduct with the sole purpose of unlawfully acquiring property that rightfully belonged to the Plaintiffs. [Fletch]'s agent and director Mr Seymour, conspired with Mr Seymour and Mr Birch in furtherance of [Fletch's] wrongful goals. b. The Plaintiffs' evidence shows that [Fletch] acted in concert with [Mr Seymour] and [Mr Birch] to procure property under false pretences, with full knowledge of the dishonest nature of their actions. c. The Defendants lacked credibility and Mr Seymour and Mr Birch gave dishonest, unreliable and evasive evidence on cross-examination which was largely inconsistent with the contemporaneous documentary evidence. To date, the Defendants have failed to acknowledge or address their wrongdoing or dishonest behaviour or made any attempt to rectify the damage and loss caused to the Companies reputationally and within the industry."
3. Fletch responds that: "If, contrary to [Fletch's] submissions, the court does decide to order [Fletch] to pay exemplary damages, a suitable quantum must be determined. The relevant principles in that regard were discussed recently in Elite Realty Development Pty Ltd v Sadek [2022] NSWSC 1333 at [215]-[220], including the need to approach the matter with moderation. In Elite, Peden J had regard to academic research showing that in cases decided since 2000, the amount of mean and median exemplary damages in NSW is $82,021.06 and $27,511.75, respectively. In that particular case, which concerned threats of violence, the exemplary damages awarded amounted to $20,000. The exemplary damages of $2m sought by the plaintiffs in this case amount to 100 times the sum awarded in Elite, and more than 20 times the NSW mean. They should not be awarded."
4. I recognise the date of Fletch's incorporation but that seems to me to have little weight where Fletch's incorporation, and Fletch's conduct from the point of its incorporation, was directed to its taking advantage of Mr Seymour's and Mr Birch's earlier conduct. I also do not think that there is any real utility, in the commercial setting of this case, in having regard to mean or median exemplary damages as determined by reference to all cases in New South Wales. This case has the particular features to which I referred in the Primary Judgment and above and should be determined on that basis, and by reference to the purpose of awarding such damages as recognised in the case law that I address below.
5. In Digital Pulse at [256], Heydon JA observed that "[i]f exemplary damages are to fulfil their threefold purpose, they must not merely irritate, they must sting"; that "[i]t is the gravity and character of the defendants' conduct which guides the Court's discretion as to the proper amount to award by way of exemplary damages"; and that this was why there was "no necessary proportionality" between the amount awarded as compensation for the damage suffered by the plaintiff and the amount of exemplary damages awarded against the defendant. His Honour also observed that "[a] minimal amount of damage inflicted on a plaintiff may, if the wrongdoing was outrageous, nevertheless require heavy exemplary damages to be visited upon the defendant" and that the need for the deterrence of exemplary damages was especially strong where the defendant's wrongdoing was calculated to profit. Those observations were followed by Ward CJ in Eq (as the President of the Court of Appeal then was) in Galati v Deans [2021] NSWSC 1094, and I also summarised the applicable principles in Re DCA Enterprises Pty Ltd [2023] NSWSC 11 at [187]ff which was not disturbed on appeal. The amount of an award of exemplary damages plainly involves an element of evaluation and is not a matter of mathematical certainty.
6. The Plaintiffs also refer to Directed Electronics OE Pty Ltd v OE Solutions Pty Ltd (No 8) [2022] FCA 1404 which concerned, inter alia, breach of fiduciary duty, dishonest conduct and misuse of confidential information and to Directed Electronics OE Pty Ltd v OE Solutions Pty Ltd (No 10) [2023] FCA 1656, where two defendants were held jointly and severally liable to pay $2,000,000 in exemplary damages, and one other defendant was ordered to pay $1,500,000 in exemplary damages. The Plaintiffs also refer to Beach J's observation (at [123]) that: "…there is no necessity for any proportionality between the assessment of exemplary damages on the one hand, and the assessment of compensatory damages on the other hand. Each such award serves a separate purpose". His Honour also observed (at [126]) that: "Having regard to the nature of the despoiling conduct and the need for an award to sting, in the circumstances of this case in my view an appropriate award of exemplary damages against Hanhwa Korea and Leemen Korea is $2,000,000. Such an award may seem large, but it is designed to significantly hurt. Moreover, I would reject the past practices of some judges who seem to have pussy-footed around and been parsimonious in their approach to such awards."
7. The amount of any exemplary damages ordered against Fletch should also take into account the nature of its conduct, as found in the Primary Judgment, and the fact that it is a corporate entity; it took and has sought to retain the benefits of the conspiracy; and its parent entity announced the benefits that it received from doing so to Australian Securities Exchange in the terms I noted in the Primary Judgment. There would be no utility in an order for exemplary damages against Fletch that was too low to have real deterrent or exemplary value for a subsidiary of a listed company. Such an order would not discourage parties in similar situations from wrongdoing, where the benefits of that wrongdoing would likely then exceed its risks and wronged parties (and especially financially distressed companies) would often not have the resources to bring or sustain complex proceedings and (as here) damages can be difficult to quantify.
8. I accept that there is a significant degree of commonality between the issues in this case in respect of Fletch and the issues arising in Directed Electronics and that Beach J's reasoning in that case provides significant assistance in assessing the amount of the exemplary damages to be ordered in this case. The conduct in this case was calculated and it was deliberately concealed so as to maximise its prospects of success, to the Plaintiffs' disadvantage. Although there is no necessity for proportionality between the amount of exemplary damages and the amount of compensatory damages, there is here a significant risk that the compensatory damages awarded to the 1derful Companies will have understated their loss, because of the intrinsic difficulties in proof of that loss in respect of a start-up company. I am satisfied that there is a proper basis for an order for exemplary damages against Fletch in the amount of $500,000, which is substantial although less than the amounts awarded in Directed Electronics.

Plaintiffs' proposed orders 18: Costs as against First, Second and Third Defendants

1. It will be convenient to address orders 17-18, dealing with costs as against Fletch, Mr Seymour and Mr Birch and then costs against Mr Ball, in reverse order.
2. The applicable principles are well established. The Court has power to make an order for costs under s 98(1) of the CPA and r 42.1 of the Uniform Civil Procedure Rules 2005 (NSW) ("UCPR"). A successful party in proceedings has a "reasonable expectation" of being awarded costs against an unsuccessful party, unless there is good reason for that presumption to be displaced: Oshlack v Richmond River Council (1998) 193 CLR 72; [1998] HCA 11 ("Oshlack") at [22], [134]. In Commonwealth v Gretton [2008] NSWCA 117 at [121], Hodgson JA (with whom Mason P agreed) observed that: "… underlying both the general rule that costs follow the event, and the qualifications to that rule, is the idea that costs should be paid in a way that is fair, having regard to what the court considers to be the responsibility of each party for the incurring of the costs."
3. Section 98(1)(c) of the CPA permits the Court to order costs on an ordinary or an indemnity basis. Rule 42.2 of the UCPR provides that, unless the Court orders otherwise or the rules otherwise provide, costs payable are to be assessed on an ordinary basis. Rule 42.5 deals with an order for costs on an indemnity basis. Costs are awarded on an ordinary basis unless there are exceptional circumstances: Leichhardt Municipal Council v Green [2004] NSWCA 341. An order for indemnity costs is not made to punish an unsuccessful plaintiff for persisting with a case that fails, but to compensate a successful defendant fully for costs incurred, when the Court takes the view that it was unreasonable for the plaintiff to have subjected that party to the expenditure of costs: Hamod v State of New South Wales (2002) 188 ALR 659; [2002] FCAFC 97 at [20]. In Ingot Capital Investments Pty Ltd v Macquarie Equity Capital Markets Ltd (No 7) (2008) 65 ACSR 324; [2008] NSWSC 199, McDougall J observed (at [24]) that there must usually be some special or unusual feature to justify departure from the ordinary rule as to costs, and that delinquency is not necessary for an order for indemnity costs, but is relevant to whether it should be made. The relevant principles were also considered by the Court of Appeal in Cabport Pty Ltd v Marinchek (No 2) [2013] NSWCA 131 at [6], where the Court observed that an order for indemnity costs may be made where a party's conduct in proceedings is plainly unreasonable or involves an element of delinquency, and by Bell CJ in Brown v Stables Perisher Management Pty Ltd (No 2) [2022] NSWSC 902.
4. The Plaintiffs seek an order that Fletch, Mr Seymour and Mr Birch pay and are jointly and severally liable to pay the Plaintiffs' costs on an indemnity basis as agreed or as assessed. They submit that: "An indemnity costs order may be considered if there is relevant delinquency by the unsuccessful party, though delinquency is not a necessity. Special or unusual circumstances typically justify such an order. It can be warranted if a party's conduct is plainly unreasonable or involves delinquency. [Fletch's, Mr Seymour's and Mr Birch's] conduct during these proceedings, including their actions in defending the claims despite the strength of the Plaintiffs' case, warrants the making of an indemnity costs order. … the precarious financial position of the [1derful Companies] were well known, the scheme which has been found had as its object the wrongful acquisition of the Business of the 1derful Companies and [Fletch, Mr Seymour and Mr Birch] persisted in the face of a documentary trail which contradicted their affidavit and oral evidence with an account found to be false and in circumstances where their lack of candour extended beyond just their evidence but to the lacunae's in their discovery. From the outset [Fletch, Mr Seymour and Mr Birch] pursued baseless defences … The Defendants' conduct throughout the proceedings did not deviate significantly from this attitude as outlined in their defences."
5. Mr Seymour responds that: "It is the conduct of a party as a litigant (i.e. in the proceedings themselves) which the court looks to when considering whether the circumstances warrant an indemnity costs order. In particular, whether such conduct is plainly unreasonable or involves delinquency … The [P]laintiffs assert that defending the proceedings was, of itself, plainly unreasonable because of the strength of the [P]laintiffs' case ... That submission does not appreciate that the [D]efendants were in fact successful in resisting a number of the actions brought against them. For example, the claim under section 37A of the Conveyancing Act, the claim for unconscionability under the general law, the claim against [Fletch] for statutory unconscionable conduct, and the conspiracy claim brought against [Mr Seymour and Mr Birch] all failed. The [D]efendants were justified in defending the proceedings. Further, the [P]laintiffs adduced evidence assessing the value of the business at $29.7m. The [D]efendants successfully avoided a finding that the business had such a value, which has had the result of significantly reducing the quantum of compensation available to the [P]laintiffs. That, too, warranted the [D]efendants defending these proceedings. An indemnity costs order is not justified in the circumstances."
6. Mr Birch also submits that: "The Plaintiffs' assertion that [Mr Birch] adopted an untenable position in defending the proceedings ignores the fact that he succeeded in defending the claims brought on the basis of breaches of fiduciary duty and a conspiracy. The fact that he failed on the statutory unconscionability claim (including an unpleaded part) does not take these proceedings out of the ordinary course so as to justify an award of indemnity costs …"
7. I do not accept Mr Birch's further submission that, where the First and Second Plaintiffs made claims for substantive relief (in particular damages) that were not ordered, the benefit of a costs order should be limited to the 1derful Companies. The First and Second Plaintiffs did not succeed in obtaining damages because they are, in substance, compensated for their loss through their economic interest in the damages awarded to the 1derful Companies.
8. An order for costs should be made in favour of the Plaintiffs against Fletch, Mr Seymour and Mr Birch on the ordinary basis, and on the basis that costs should follow the event. I am not satisfied that an order for indemnity costs should be made against Fletch, Mr Seymour and Mr Birch. Their defence of the proceedings was not untenable and has been successful in some parts and unsuccessful in other parts.

Plaintiffs' proposed order 17: Costs in respect of Mr Ball

1. The Plaintiffs seek an order that Mr Ball pay 25% of their costs on the ordinary basis as agreed or as assessed. Mr Ball responds that there is no basis for an order for costs against him, although he will be removed as receiver ab initio, where there have been no findings against him (or, I should add, made in his favour) and he did not actively participate in the proceedings. I do not accept that the Plaintiffs have any entitlement to costs against Mr Ball, where the fact that Messrs Seymour and Birch had breached s 12CB of the ASIC Act or the corresponding provision in s 21 of the ACL, and Fletch was liable for knowing involvement in a breach of fiduciary duty and for conspiracy in making his appointment, does not establish a basis for an order for costs against him where he took no active role in the latter part of the proceedings or the hearing.
2. I also do not accept Mr Ball's submission that he should be awarded costs on the ordinary basis until 13 May 2024, when the claim for damages against him was abandoned, where there has been no determination on the merits as between the Plaintiffs and Mr Ball and there is no basis for any assumption that Mr Ball would in fact have succeeded in a defence of the proceedings, had relief other than his removal ab initio (as to which the Plaintiffs have succeeded) been pursued against him. There should be no order as to costs of the proceedings as between the Plaintiffs and Mr Ball.

Orders

1. I therefore make the following orders: 1 Declare that the First Defendant has held on trust (and continues to hold on trust subject to compliance with Order 2 below) for the Third Plaintiff and Fourth Plaintiff the whole of the business purportedly transferred to it, pursuant to the Business Sale Agreement of 3 October 2023. 2 Order that the Business Sale Agreement of 3 October 2023 between the Third Plaintiff and Fourth Plaintiff and the First Defendant is void and is set aside. 3 Order that the First Defendant and Second Defendant do all things necessary to transfer the shares in APL Lending Pty Ltd to the Third Plaintiff. 4 Order that the First, Second, and Third Defendants be permanently restrained from using or transferring any proprietary code developed for or by the Third Plaintiff and Fourth Plaintiff. 5 Order that, by 4pm on 13 January 2024, the First, Second, and Third Defendants destroy and file and provide an affidavit to the Court and the Plaintiffs attesting to the destruction of any proprietary code developed for or by the Third Plaintiff and Fourth Plaintiff. 6 Order that the appointment of the Fourth Defendant as receiver to the assets of the Third and Fourth Plaintiffs be set aside ab initio.
2. Judgment for the Third Plaintiff and Fourth Plaintiff against the First Defendant, Second Defendant, and Third Defendant, jointly and severally, in the sum of $2 million plus interest under s 100 of the Civil Procedure Act 2005 (NSW).
3. The First Defendant also pay exemplary damages to the Third Plaintiff and Fourth Plaintiff in the sum of $500,000.
4. The First, Second and Third Defendants pay, and are jointly and severally liable to pay, the Plaintiffs' costs of the proceedings on the ordinary basis as agreed or assessed.
5. There be no order as to costs as between the Plaintiffs and the Fourth Defendant.

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: 23 December 2024