Barnes v Forty Two International Pty Limited

Barnes v Forty Two International Pty Limited - [2014] FCAFC 152 - FCAFC 2014 case summary — Zoe

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SIOPIS j: 1 I have had the advantage of reading the reasons for decision of each of Flick J and Beach J. I join with Flick J in expressing gratitude to Beach J for his comprehensive analysis of the issues raised on this appeal. 2 For the reasons given by Beach J, I agree that the appeal should be allowed on the basis that the respondents' alternative "loss of opportunity" case was not pleaded. In those circumstances, as both Flick J and Beach J have observed, it is strictly speaking unnecessary to express a view in respect of the other grounds of appeal. 3 However, there are two matters arising from the other grounds of appeal upon which I wish to make specific comment. 4 The first is the challenge by the appellants to the primary judge's finding that the share purchase agreement included an implied term to the effect that Mr Barnes and Mr Hawksley would "disclose to BlueFreeway all information known to them which might become relevant to the calculation of the Forty Two EBIT07". I agree with Beach J that the primary judge erred in making that finding. I agree that in the face of the detailed contractual regime for the provision of financial and accounting information in the share purchase agreement and the other related agreements referred to by Beach J that the term found to be implied by the primary judge was not necessary to give the contract business efficacy. Secondly, I also agree with Beach J that the term found to be implied was in sufficiently vague terms as to mean that its implication did not satisfy the "so obvious" condition. 5 The second issue upon which I wish to comment arises out of ground four of the grounds of appeal. Beach J refers to this as the misleading or deceptive conduct pleading point. 6 The appellants' complaint is that the primary judge permitted the respondents to advance a misleading or deceptive conduct claim based on the alleged failure to disclose in circumstances where there was a reasonable expectation of disclosure, when the respondents had not pleaded such a case. Rather, said the appellants, the respondents had pleaded a case that the impugned conduct comprised the making of two specific representations. 7 I respectfully disagree with the conclusion reached by Beach J in relation to this ground of appeal, and had it been necessary to do so, I would have upheld this ground of appeal. 8 In this case, the respondents' claim for misleading or deceptive conduct was based solely on the fact that the appellants had made two specific false representations. It is recognised, of course, that a claim alleging misleading or deceptive conduct can be founded on conduct other than the making of a misrepresentation. However, where such a claim is made, it must be distinctly pleaded, and a party will not be able to rely on the claim alleging a false representation to run a wider misleading or deceptive conduct claim. 9 In Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592 (Butcher), the High Court (Gleeson CJ, Hayne and Heydon JJ) observed at [32]: In this Court, the purchasers emphasised the proposition that the expression "conduct" in s 52 extends beyond "representations". That proposition is sound. But the purchasers cannot claim any advantage out of an extension of "conduct" beyond "representation" in this case, since their case as pleaded was one based on representations to them by the agent. (Footnote omitted.) 10 Further, in the case of Miller and Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd (2010) 241 CLR 357 (Miller) at [5], French CJ and Kiefel J observed: The cause of action for contravention of statutory prohibitions against conduct in trade or commerce that is misleading or deceptive or is likely to mislead or deceive has become a staple of civil litigation in Australian courts at all levels. Its frequent invocation, in cases to which it is applicable, reflects its simplicity relative to the torts of negligence, deceit and passing off. Its pleading, however, requires consideration of the words of the relevant statute and their judicial exposition since the cause of action first entered Australian law in 1974. It requires a clear identification of the conduct said to be misleading or deceptive. Where silence or non-disclosure is relied upon, the pleading should identify whether it is alleged of itself to be, in the circumstances of the case, misleading or deceptive conduct or whether it is an element of conduct, including other acts or omissions, said to be misleading or deceptive. (Footnote omitted.) 11 The appellants contended that the respondents pleaded the appellants' silence as an element of the course of conduct comprising the making of the "second misrepresentation" - so falling into the latter of the two categories referred to by French CJ and Kiefel J; but that the primary judge had found for the respondents on the basis of an unpleaded case falling into the former of the two categories. 12 In my view, the respondents' pleading did not satisfy the strictures referred to in the observations in Butcher and Miller set out above. It follows that, in my view, the primary judge erred by permitting the respondents, over the objection of the appellants, to advance a misleading or deceptive conduct case which had not been properly pleaded. 13 Otherwise, I agree with the observations made by Beach J. I certify that the preceding thirteen (13) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Siopis.

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REASONS FOR JUDGMENT FLICK J: 14 The opportunity has been taken to read the reasons for decision of Siopis and Beach JJ. Gratitude is extended to Beach J for his exposition of the issues resolved by the primary Judge and the issues canvassed on appeal. There is no necessity to re-state those issues. 15 Concurrence is expressed with the principal conclusion of Beach J that the "alternative causation and damages case was not pleaded". That alternative case founded upon a claim for damages by reference to the "loss of opportunity" was neither pleaded nor raised for resolution before the primary Judge during the course of the hearing. It emerged for the first time in closing submissions. Concurrence is also expressed with Beach J's reasons for so concluding and with his conclusion that the primary Judge should have dismissed the proceeding before his Honour on that basis. 16 Some reservation, however, is expressed with the reasons for decision of Beach J as to their being no implied term, as found by the primary Judge, that Messrs Barnes and Hawksley "would disclose to BlueFreeway all information known to them which might become relevant to the calculation of the Forty Two EBIT 07": (2014) 97 ACSR 450; [2014] FCA 85 at [42]. 17 In the absence of any necessity to resolve this further challenge to the reasons of the primary Judge, it is preferable not to do so. It is equally unnecessary to consider whether there was a breach of any implied term and whether such damages as were found fell within either limb of Hadley v Baxendale (1854) 9 Exch 341. But it is, with respect to Beach J, not self-evident that the implied term as found by the primary Judge was not "necessary to give business efficacy to the contract" or not so obvious that "it goes without saying": BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 at 283. The express terms of the share purchase agreement to which Beach J refers unquestionably provide a reason to pause before concluding that a term such as that found by the primary Judge should be implied. But whether such express terms provide a sufficient reason to bar the implication of any further term may be questioned. And, contrary to the reasoning of Beach J at [139], there was indeed a "gap" in the information required to be provided by the express terms and that information which would be caught by the implied term. On one view of the facts, it may well have been considered necessary to give "business efficacy" to the agreement between the parties to imply a term which precluded one party from engaging in undisclosed conduct which prejudiced the commercial position of the other. 18 But such musings need not be considered further given the conclusion that the primary Judge erred, with great respect, in not concluding that the alternative case had not been pleaded or conducted on the alternative basis of a "loss of opportunity". 19 Subject to the reservations expressed, concurrence is otherwise expressed with the reasons of Beach J. 20 The orders proposed by Beach J should be made. I certify that the preceding seven (7) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Flick.

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REASONS FOR JUDGMENT BEACH J: 21 The appellants, Albert Kim Barnes (Barnes) and Lee Hawksley (Hawksley), have appealed the judgment and orders made by Griffiths J on 14 March 2014, wherein his Honour ordered that there be judgment entered against the appellants in favour of BlueFreeway Ltd (BlueFreeway) in the sum of $3,062,406.93 comprising damages of $2 million together with interest. Other consequential orders were made. Although the respondents to the present appeal are Forty Two International Pty Ltd (Forty Two), BlueFreeway and The Gang of 4 Pty Ltd (Gang of Four), it is only necessary to consider in detail the position of BlueFreeway and its claims. 22 In the proceedings before his Honour, BlueFreeway sought damages against Barnes and Hawksley arising out of transactions under a share purchase agreement executed on 24 October 2006 (share purchase agreement) and later dealings. Pursuant to the share purchase agreement, Barnes, Hawksley and others sold their shares in Forty Two to BlueFreeway. They received an initial payment of $10 million and a later amount of over $16 million under an exit agreement (exit agreement) in November 2007, after which they ceased to have dealings with BlueFreeway and Forty Two. 23 BlueFreeway made claims in the proceedings alleging breaches of various contracts, breaches of statutory and fiduciary duties and misleading or deceptive conduct. His Honour dismissed all such claims, save and except the claim for breach of an implied term of the share purchase agreement and a claim for misleading or deceptive conduct. The focus of the causation and damages issues before his Honour related to the negotiations and circumstances leading up to the entry into of the exit agreement and the payment of over $16 million thereunder. BlueFreeway contended that but for the conduct of Barnes and Hawksley, which was said to be in breach of an implied term of the share purchase agreement and also amounted to misleading or deceptive conduct, the over $16 million payment would not have been made. It claimed, inter alia, damages in such an amount. His Honour rejected that damages claim, and instead held that BlueFreeway had established an entitlement to damages in an amount of $2 million. His Honour described the $2 million as the "quantum of damages [which] reflects the loss of BlueFreeway's opportunity or chance to negotiate a termination payment with the respondents which [was] less than the $16 million which was actually paid" (at [3]). That damages head and method of calculation applied both to the cause of action based upon the breach of the implied term of the share purchase agreement and the cause of action based upon the misleading or deceptive conduct. It was the principal focus of the oral submissions on appeal. 24 The appellants have appealed that judgment. Their notice of appeal sets out fourteen grounds of appeal, some of which overlap. The grounds of appeal variously cover the following territory. 25 First, it is said that his Honour was in error in finding the implied term of the share purchase agreement contended for by BlueFreeway (ground 1). Further, it is asserted that he was in error for finding a breach thereof (ground 2) and in any event that the loss claimed did not fall within either limb of Hadley v Baxendale (1854) 9 Exch 341; 156 ER 145 (Hadley v Baxendale) (ground 3). Grounds 1-3 should be upheld. 26 Second, it is said that his Honour was in error in various respects in relation to his findings on liability on the misleading or deceptive conduct case (grounds 4-6). Each of those grounds should be rejected. 27 Third, it is said that his Honour erred in finding in favour of BlueFreeway on its claim for damages based upon the value of a lost opportunity or chance to negotiate, which the appellants assert had not been pleaded or opened or run during the calling of evidence (ground 7); further, that his Honour should have dismissed BlueFreeway's claim for damages (ground 8). Grounds 7 and 8 should be upheld. 28 Fourth, it is said that in any event his Honour erred in his valuation of the lost opportunity (grounds 9 and 10). These grounds should be rejected. 29 Finally, it is said that his Honour erred with respect to his construction and application of a release provision embodied in clause 10 of the exit agreement (grounds 11-14). Those grounds should also be rejected. 30 In summary, his Honour's judgment awarding damages of $3,062,406.93 to BlueFreeway should be set aside. The amount and basis for the damages award based on a lost opportunity, which was common to both the cause of action for breach of an implied term of the share purchase agreement and the cause of action for misleading or deceptive conduct, was neither pleaded nor opened. Further, the case was not conducted by BlueFreeway on that basis, and appears to have arisen as an afterthought during closing written submissions and oral closing addresses. As his Honour did not find in favour of BlueFreeway on its pleaded case on damages, in such circumstances, his Honour should have dismissed the proceedings, rather than finding for BlueFreeway on an alternative damages basis that was neither pleaded nor run at trial. Further, and in any event, to the extent that his Honour's damages award rested upon a finding of a breach of an implied term of the share purchase agreement, such a finding was not maintainable; no such implied term ought to have been found; in any event, there was no breach thereof; moreover, the finding of damages based upon a loss of opportunity did not fall within either limb of Hadley v Baxendale. 31 For completeness, the appellants had filed a cross-claim in the proceeding, but this was dismissed by his Honour. There has been no challenge to that dismissal.

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A: Factual Background 32 His Honour in a meticulous and lengthy judgment set out an analysis of the evidence and his detailed factual findings relevant to the claims. The vast majority of his Honour's careful evidentiary analysis and factual findings were not in issue on this appeal. Given that such analysis and findings have not been in issue on this appeal, I have gratefully and extensively drawn upon his Honour's recitation and findings (see [5]-[37] of his Honour's reasons) in what follows in this section of my reasons. 33 Forty Two developed and sold digital marketing products. In 2001, Barnes and Hawksley founded Forty Two and were its original directors and shareholders. Barnes, who was the managing director, had responsibility for product development and financial administration. Hawksley was the marketing director with responsibility for sales. Although both had an involvement in all aspects of Forty Two's operations, Barnes had primary responsibility for financial matters. Gang of Four was separately created by Barnes and Hawksley to hold intellectual property; they were also its directors and shareholders. By 2006, Barnes and Hawksley together owned 92% of the equity in Forty Two. Two associates held the remaining 8%. Apparently, a similar position applied concerning the ownership structure of Gang of Four. 34 Forty Two developed and supported several software programs, the most significant of which was Campaign Master. 35 Campaign Master was an email marketing software system with advanced functionalities that enabled commercial organisations to send out marketing material to their clients and to monitor responses. The product was sold to customers under contracts involving recurring monthly usage fees. 36 Initially, Forty Two operated only in Australia. But by early 2006, Forty Two had also established an affiliation with a UK company, Campaign Master (UK) Limited (CMUK) for the distribution of the Campaign Master product in the UK. CMUK was formed to act as a reseller of Campaign Master in the UK. Forty Two executed a reseller agreement with CMUK on 1 February 2006. The chief executive officer and major shareholder of CMUK was Mr Gurjeet Dhillon (Dhillon), with whom Barnes had previously had a business association. 37 Not later than early 2006, Barnes and Hawksley considered ways to leverage Forty Two's success by, inter alia, selling their shares in Forty Two and Gang of Four to a larger company. Barnes and Hawksley were approached by representatives of BlueFreeway, who expressed interest in acquiring all of the issued capital of Forty Two and Gang of Four. 38 BlueFreeway had been established with the aim of creating a publicly listed company with ten independent "portfolio companies" operating as its subsidiaries in different areas of digital and interactive marketing and communications. Mr Richard Webb (Webb) was BlueFreeway's chief executive officer. Mr Greg Daniel (Daniel) was its executive chairman. The other directors were Mr Ken McDonnell (McDonnell), the chief financial officer, Mr Nick Greiner (Greiner) and Mr Warwick Smith (Smith). 39 Webb and Daniel approached Barnes and Hawksley in May 2006 expressing an interest in acquiring both Forty Two and Gang of Four. Heads of agreement were executed in August 2006. On 24 October 2006, the share purchase agreement was executed under which, inter alia, Barnes and Hawksley agreed to sell their shares in Forty Two and Gang of Four to BlueFreeway. 40 The sale price under the share purchase agreement was calculated by reference to three amounts: the "Initial Payment", the "Additional Payment" and the "Earn Out Price". The Initial Payment involved BlueFreeway paying $10 million to Barnes and Hawksley (and their associates). It was paid in December 2006. The Additional Payment and the Earn Out Price were calculated by reference to earnings before interest and tax (EBIT) targets for Forty Two for the 2007-2009 financial years. 41 The Additional Payment was an amount to be paid to Barnes and Hawksley by the delivery of shares in BlueFreeway as soon as reasonably practicable after 31 October 2007. The number of shares was to be determined by reference to a formula which embodied various elements, in particular the Forty Two EBIT target for the 2007 year (the Forty Two EBIT 07). The Forty Two EBIT 07 threshold target was $2.5 million. Clause 3.1 of Schedule 2 of the share purchase agreement provided: 3.1 Calculation of Additional Payment (a) Where the Forty Two EBIT 07 is greater but not less than $2.5 million but equal to or less than $3.0m the Buyer must pay the Additional Payment to the Sellers in Accordance with this Clause (b) The Buyer must pay the Additional Payment to the Sellers by delivering the following number of Buyer Shares to the Sellers Number of Shares= (Forty Two EBIT 07 - Forty Two Forecast EBIT 07) x 4.0x Thirty Day VWAP 07… The reference to "Thirty Day VWAP 07" is to a thirty day volume weighted average price, the detail of which is not presently significant. 42 "EBIT" was defined as meaning, in respect of any financial year, the consolidated earnings of Forty Two and Gang of Four before interest income, interest expenses and income tax, but after amortisation and depreciation, as set out in the Earn Out Accounts. The "Earn Out Accounts" were defined as meaning accounts to be prepared by BlueFreeway in accordance with Schedule 4. Under Schedule 4, BlueFreeway was obliged to prepare and deliver to Barnes and Hawksley audited consolidated accounts of Forty Two and Gang of Four and a draft certificate stating the EBIT. The Earn Out Accounts were required to be prepared in accordance with accounting principles. Further, under clause 1.2 of Schedule 4, BlueFreeway was obliged to: not do or omit to do, and must procure that no member of the Buyer Group does or omits to do, any act or thing which adversely distorting (sic) the results of the Business or the ability of the Buyer to achieve the highest level of EBIT, except as agreed by the Sellers (acting reasonably and if such a thing does occur the EBIT will be adjusted to compensate (sic). 43 Pursuant to the Dictionary contained in Schedule 1 of the share purchase agreement and Schedule 3 of the share purchase agreement, the third element of consideration referred to earlier, the Earn Out Price was, in summary: (a) an amount to be paid to Barnes and Hawksley in either cash or shares in BlueFreeway (at the election of Barnes and Hawksley) as soon as reasonably practicable after 30 October 2008 (the Earn Out Price 2008); and (b) an amount to be paid to Barnes and Hawksley by delivery of shares as soon as reasonably practicable after 30 October 2009 (the Earn Out Price 2009). The Earn Out Price was subject to certain conditions relating to the 2008 and 2009 EBIT targets for Forty Two. 44 The share purchase agreement also provided for a "Clawback Amount" (clause 1.4 of Schedule 3). This was an amount to be paid by Barnes and Hawksley to BlueFreeway on or before 30 December 2009 in the event that the EBIT targets set out in the share purchase agreement for the 2008 and 2009 financial years were not achieved. 45 On 24 October 2006, in addition to the execution of the share purchase agreement, Barnes and Hawksley also entered into a management deed with each of Forty Two, BlueFreeway and Gang of Four (the management deed). The management deed was for a term to commence on the completion of the share purchase agreement (19 December 2006) and to end on completion of the "Earn Out Period" (30 October 2009). The management deed set out the terms and conditions of the operation and decision-making of Forty Two and Gang of Four at a board level during that term. Under clause 2, BlueFreeway was entitled to nominate three directors to the boards of both those companies. Barnes and Hawksley were entitled jointly to nominate two directors to both boards. Under clause 3.3, certain matters could only be determined by a board resolution that was supported by at least one director nominated by BlueFreeway and one director nominated by Barnes and Hawksley. 46 Barnes and Hawksley remained as directors of Forty Two following its acquisition by BlueFreeway. BlueFreeway appointed three additional directors of Forty Two, including Webb and McDonnell. The other was Mr Simon Spencer. I do not need to consider the position of Gang of Four further. 47 Also on 24 October 2006, each of Barnes and Hawksley entered into executive service agreements with, inter alia, Forty Two, under which both were employed to undertake all duties and responsibilities consistent with the role of joint general manager. 48 Prior to the sale of Forty Two to BlueFreeway, Barnes and Hawksley had commenced discussions with Dhillon of CMUK to change Forty Two's business model with CMUK from a reseller arrangement to one in which CMUK was to acquire a perpetual licence for the Campaign Master product for its own use and distribution in the territories of the UK, Ireland and India. From about January 2007, Dhillon showed renewed interest in negotiating for a perpetual licence of the Campaign Master product for the nominated territories. 49 Between February and May 2007, Barnes and Hawksley and later, McDonnell, were involved in detailed negotiations with Dhillon regarding a software licence to be granted to CMUK. 50 A software licence was approved by the board of BlueFreeway and signed on 22 May 2007 (the licence agreement). It provided for the payment by CMUK to Forty Two of a licence fee of ₤1.7 million (approximately $4.1 million) (licence fee). The licence fee was due to be paid on 30 June 2007. The receipt of the licence fee was anticipated to have a positive effect on the Forty Two EBIT 07. In turn, that would have an effect on the calculation of the Additional Payment under the share purchase agreement that might be then payable to Barnes and Hawksley. 51 On 22 May 2007, BlueFreeway made an announcement to the ASX that BlueFreeway anticipated that forecast earnings for the period ending 30 June 2007 would exceed its prospectus statutory forecast by 25% (from $3.6 million to $4.5 million). The consideration for the licence agreement i.e. the licence fee significantly contributed to that excess. BlueFreeway's share price rose on the back of that ASX announcement. 52 Prior to the licence agreement, in May 2007 Barnes and Hawksley believed that CMUK would be able to obtain funding for the licence fee from a Mr Terry Tully (Tully), who resided in the UK. But when Dhillon was unable to finalise funding with Tully in May 2007, he was reluctant to proceed with the licence agreement. But Dhillon then changed his mind on the basis of assurances given to him by Barnes and Hawksley over the weekend of the 19-20 May 2007 that, if necessary, they would provide the funding to CMUK to enable CMUK to pay the licence fee if Tully did not provide the finance. By 30 June 2007, which was the deadline for payment by CMUK of the licence fee to Forty Two, the arrangement with Tully for the funding of the licence fee had still not been finalised. Barnes and Hawksley then stepped in and procured the necessary finance by personally guaranteeing a loan to a company they had incorporated in Australia, CMUK (Aust) Pty Limited (CMUK (Aust)), which then forwarded the money to its UK parent, CMUK. CMUK (Aust) obtained the necessary finance from the National Australia Bank Ltd (NAB) after Barnes and Hawksley agreed to be guarantors of a bill facility to CMUK (Aust) with a limit of $4.3 million from NAB. To secure the NAB facility, Barnes and Hawksley deposited $4.3 million of their own money into a term deposit with NAB. In doing so, they used part of the $10 million which they had received from BlueFreeway as the Initial Payment for their shares that had been sold to BlueFreeway under the share purchase agreement. 53 The receipt by Forty Two of the licence fee made a substantial difference to the operating results of Forty Two for the 2007 financial year. As a result, the Forty Two EBIT 07 reached the target of $2.5 million as set out in the share purchase agreement, thereby securing Barnes' and Hawksley's entitlement under the share purchase agreement to an Additional Payment to the value of over $16 million. That payment was ultimately made in cash, not shares as contemplated by the share purchase agreement as we later explain. 54 Throughout 2007 Barnes and Hawksley became concerned about the implications for Forty Two and, in particular the future of Campaign Master, of Webb's vision and plans for BlueFreeway. Much of their concern related to their perception of his lack of support for Campaign Master, in contrast with his seemingly strong support for another product known as "Traction". In the period from August to October 2007, negotiations took place involving Barnes and Hawksley on the one hand and primarily Webb on the other hand (although McDonnell also had a lesser involvement), with a view to Barnes and Hawksley leaving the BlueFreeway group. The exit agreement was negotiated and executed in early November 2007 so as to bring about an early termination of the relevant contractual arrangements between BlueFreeway and Barnes and Hawksley (such as the share purchase agreement, the management deed and the executive service agreements). The exit agreement terminated the share purchase agreement and required the resignation of both Barnes and Hawksley as directors of Forty Two, as well as quantifying the final consideration that they would receive from BlueFreeway for their shares in Forty Two. 55 The final entitlements included the Additional Payment which was calculated by reference to the Forty Two EBIT 07. It was agreed that, for the purpose of the payment under the exit agreement, the Forty Two EBIT 07 would include the licence fee, which meant that the relevant target was reached. Under the exit agreement, the Additional Payment was to be made to Barnes and Hawksley in cash or shares on or before 1 November 2007. The provisions in the share purchase agreement relating to the Earn Out Price and the Clawback Amount were cancelled under the exit agreement. 56 On or about 1 November 2007, BlueFreeway paid $16,436,488 to Barnes and Hawksley and their associates pursuant to the exit agreement. This amount represented the Additional Payment as agreed under the exit agreement ($16,463,538) less certain deductions. Barnes and Hawksley resigned as directors of Forty Two and Gang of Four, and all other related agreements were terminated.

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B: The Proceedings Below 57 The essence of BlueFreeway's case below was that BlueFreeway claimed that it was not aware of Barnes' and Hawksley's role in funding the licence fee. It alleged that they deliberately concealed their involvement with a view to increasing the Additional Payment by boosting Forty Two's 2007 EBIT. BlueFreeway contended that if it had known of Barnes' and Hawksley's involvement in the financing, it would not have entered into the exit agreement. Under its pleaded case, and consistently with how the case was run, BlueFreeway claimed that, under that counterfactual, the share purchase agreement would have remained operable and Barnes and Hawksley would have continued to discharge their functions as directors and managers of Forty Two until 30 June 2009. And, in light of Forty Two's financial performance over the 2008 and 2009 financial years, BlueFreeway said that Barnes and Hawksley would not have received any further consideration for the sale of their shares in Forty Two under the share purchase agreement which would have remained on foot. Rather, they would have been obliged to repay to BlueFreeway part of the initial payment sum of $10 million under the Clawback provisions of the share purchase agreement. But in its closing written submissions (and for the first time), BlueFreeway advanced an alternative formulation of the counterfactual. It said that it was entitled to an award of damages in respect of Barnes' and Hawksley's misleading or deceptive conduct for the loss of the opportunity or chance to negotiate an alternative form of exit agreement with Barnes and Hawksley "with all cards on the table" and, in particular, with full knowledge of their involvement in financing the licence fee. BlueFreeway said that, in those circumstances, it would have negotiated and may have entered into an alternative form of exit agreement involving a payout amount which was substantially less than the over $16 million which it paid under the exit agreement. 58 Barnes and Hawksley denied BlueFreeway's allegations. They said that it was "no secret" that they provided finance to guarantee the loan because that fact was known to both Webb and McDonnell. They said that they were encouraged by Webb to become involved in the financing in order to finalise the transaction promptly. In particular, they relied on a meeting at the Aurora Place café, on 6 March 2007, during which they claim that, in McDonnell's presence and in the context of a discussion about whether Dhillon would be able to obtain the necessary funds, Webb urged them to "do whatever it takes" to ensure that the licence transaction was completed by 30 June 2007. Barnes and Hawksley claimed that this statement was made in the context of the discussion about the likelihood of CMUK obtaining the necessary finance to fund the licence fee and shortly after Hawksley had said at this stage of the meeting that Dhillon knew "two rich blokes in Australia" who had recently received $10 million. Barnes and Hawksley also said that they expected their financial support to be only a short-term arrangement pending completion of a funding agreement between CMUK and Mr Tully. 59 Webb was not called by BlueFreeway as a witness in the proceeding. 60 Although a multiplicity of causes of action were pleaded and run at trial by BlueFreeway, only two are now presently relevant, being BlueFreeway's claims for breach of an implied term of the share purchase agreement and for misleading or deceptive conduct. 61 His Honour found that Barnes' and Hawksley's conduct in failing to disclose their involvement in ultimately assisting to finance the licence fee amounted to a breach of an implied term of the share purchase agreement, which was to the effect that Barnes and Hawksley "would disclose to BlueFreeway all information known to them which might become relevant to the calculation of the Forty Two EBIT 07" (at [428]). 62 His Honour also found that such conduct amounted to misleading or deceptive conduct in contravention of the then s 42 of the Fair Trading Act 1987 (NSW). BlueFreeway's case for misleading or deceptive conduct alleged that Barnes and Hawksley falsely represented to Forty Two and BlueFreeway that CMUK itself had the capacity to pay the licence fee to Forty Two (the first representation). It was also alleged that the conduct that Barnes and Hawksley engaged in to procure and guarantee payment of the licence fee was misleading or deceptive because it represented to Forty Two and BlueFreeway that the licence fee had been paid to Forty Two by CMUK (the second representation). It was said that the representations were false. It was also said that the failure to disclose their involvement in light of the first representation and the second representation, which were continuing, amounted to misleading or deceptive conduct. BlueFreeway also claimed that it suffered loss or damage because, but for that conduct, it would not have entered into the exit agreement, no Additional Payment would have been made pursuant to the exit agreement and BlueFreeway would not have refrained from enforcing the Clawback provisions of the share purchase agreement. 63 His Honour found that such representations were made and that in context the concealment amounted to misleading or deceptive conduct. He also rejected the assertions of Barnes and Hawksley that BlueFreeway and Forty Two were aware or ought to have been aware of their financing involvement in the licence fee. Barnes and Hawksley also asserted that BlueFreeway did not rely upon either representation and that it would have approved the various transactions regardless, even if it had known. Such assertions were rejected by his Honour. 64 Other causes of action were asserted by BlueFreeway and the other applicants below relating to alleged breaches of fiduciary and statutory duties, but these were rejected by his Honour. There is no ground of appeal seeking to challenge his Honour's dismissal thereof. 65 Further, as said earlier, the present appellants made a cross-claim, but this was dismissed by his Honour with no challenge now made to that dismissal. 66 In terms of the causation and damages case, they had the same factual elements for both the cause of action based upon a breach of the implied term of the share purchase agreement and for the cause of action based upon misleading or deceptive conduct. The elements of the pleaded case run at trial was, in summary, that if Barnes and Hawksley had not concealed their involvement in providing financial assistance for the licence fee, then BlueFreeway would not have entered into the exit agreement, the share purchase agreement and the respective parties' obligations thereunder would have remained in place, and the sum of $16,436,488 would not have been paid; further, any entitlement of Barnes and Hawksley under the share purchase agreement would not have included the Additional Payment; further, Barnes and Hawksley would have been obliged to pay the "Clawback Amount" under the share purchase agreement. 67 It is important to note that his Honour rejected that causation and damages case (at [505]). The respondents to the present appeal have not filed any cross-appeal or notice of contention challenging that rejection. 68 But having rejected the primary and pleaded causation and damages case run at trial, his Honour found for BlueFreeway on an alternative causation and damages basis. His Honour found that BlueFreeway had lost the opportunity to negotiate an exit arrangement with Barnes and Hawksley in the full knowledge of Barnes' and Hawksley's role in procuring finance for the licence fee. On this hypothesis, so it was said for the first time in closing written addresses, there would have been some form of an exit agreement, but BlueFreeway would have negotiated a lower amount than the over $16 million if it had known of the nature and extent of Barnes' and Hawksley's role in financing the licence fee. On this alternative basis, it was said that BlueFreeway has lost the chance or opportunity to negotiate such a lower amount under an alternative form of exit agreement. 69 But this alternative case was not pleaded, it was not opened and nor was it forensically pursued during the course of the evidence in terms of any party leading evidence in chief to establish or controvert such a hypothesis or cross-examining any witness to establish or controvert such a hypothesis. As appears to have been accepted by BlueFreeway's counsel, this alternative case appears to have surfaced for the first time in BlueFreeway's written closing submissions, although BlueFreeway asserted before his Honour and still asserts that it was within the pleadings.

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(a) Breach of Implied Term 77 First, in terms of the pleading concerning the alleged breach of the implied term, paragraph 4A of the further amended statement of claim alleged the existence of an implied term of the share purchase agreement of the type referred to earlier. Paragraph 15G then pleaded the breach thereof. Paragraph 16C then pleaded the loss and damage said to flow from the breach thereof. It was expressed in these terms: 16C. In consequence of the matters pleaded above the second applicant has suffered loss and damage. Particulars (i) the second applicant made the Additional Payment of $16,436,488 under the Exit Agreement to the Sellers; (ii) the second applicant lost the use of monies and incurred costs on the funds paid to the Sellers as the Additional Payment under the Exit Agreement. (iii) the second applicant did not exercise the right to a Clawback Amount and therefore lost the use of the monies it was entitled to in the amount of $5,831,804 together with interest ($556,937.28 as at 3 March 2011) or alternatively loss of the amount of $6,298,904 together with interest ($601,545.33 as at 3 March 2011). 78 There are several features to note. First there is no reference to any "loss of opportunity" damages. Second, the particulars purport to be exhaustive rather than to envisage that there were other heads of damage claimed but not referred to in the particulars. Third, on its face, the claim by way of damages is identified as the actual Additional Payment made "under the Exit Agreement" with the loss of use thereof. It is, in sum, a claim for that total amount and, as explained below, consistent with other pleas that the causation case being run was that but for the breach, the exit agreement would not have been entered into, the Additional Payment would not have been made thereunder, and the share purchase agreement would have continued. That is, there is no suggestion that there would have been an alternative exit agreement, with the share purchase agreement terminating, and with a lower exit or termination payment. Indeed, the last element of the particulars, subparagraph (iii), is predicated on the basis that but for the breach, the share purchase agreement would have continued and BlueFreeway under that agreement would have been able to exercise and exercised the right to a Clawback Amount. If an alternative case based upon "loss of opportunity" was embraced by the plea in paragraph 16C, subparagraph (iii) was inconsistent therewith. 79 In my view, and fortified by the analysis below in relation to the misleading or deceptive conduct case which relied on the same damages plea in paragraph 16C, no "loss of opportunity" causation and damages case was embraced by paragraph 16C. The particulars do not refer it; indeed they are inconsistent with such a case. Moreover, it is not considered that generalised prefatory words "the second applicant has suffered loss and damage" are a sufficient plea to embrace such a case. First, the general statement is to be read in light of the particulars. Further, it is to be read by the pleas on liability and causation that precede it. Further, where the case was set down and heard by the learned trial judge on all issues, including loss and damage, it can hardly be right to say that such textual generality allowed a party to roam far and wide and to raise a new head of damages claim for the first time in closing address. The same point can be made in relation to the generality of the damages relief sought in the further amended application. Relevant authorities, which are discussed at [119] below, demonstrate that words of such generality are not sufficient. 80 His Honour at [527] said that "[t]here is nothing in the pleadings which is inconsistent with damages being assessed on the basis of a lost opportunity". That was said in the context of the misleading or deceptive conduct case, which will be dealt with shortly; moreover, I would disagree with his Honour's observation in that context in any event. But in the context of the damages pleas in relation to the implied term case, this test of "no inconsistency" is inapposite. A party is not permitted to run a case as it likes so long as there is no inconsistency with the expressly pleaded case. Rather, a party asserting a damages claim must properly plead and particularise its damages claim and the relevant heads of damage. 81 His Honour at [527] also said "there was no requirement for the applicants to specify in their pleadings the precise basis upon which the damages should be assessed". But here one is dealing with a situation where not even the head of damage of "loss of opportunity" is even identified. Moreover, the expression "the precise basis" is pregnant with possibilities. The relevant principle should rather be expressed in terms that are discussed below at [119] in addressing the relevant authorities. 82 His Honour at [527] also said that the particulars referred to in paragraph 16C "expressly identified the quantum of the Additional Payment as part of BlueFreeway's loss". That may be so, but two points arise. First, read in context, it was a claim for that total quantum (see subparagraphs (i) and (ii)) rather than a smaller amount constituted by the difference between the Additional Payment and the counterfactual world where a smaller amount had been negotiated and paid under a different form of exit agreement. I do not see how this subparagraph (i) embraces this alternative case, despite BlueFreeway's submission to his Honour and before us to that effect. BlueFreeway contended that implicitly it embraced a lesser amount payable under an alternative form of exit agreement. I do not see how that textually arises. But as said, the "loss of opportunity" claim is not a claim for repayment of a lower sum, but rather the delta between the actual sum and the counterfactual sum. Second, it was clear that the particulars did not envisage that counterfactual world where there was an alternative exit agreement, but with the share purchase agreement terminating in any event. Subparagraph (iii) was inconsistent with such a counterfactual world; there could only have been an exercise of the Clawback Amount if the share purchase agreement had been left in place. 83 There is a further fundamental problem with the pleading. There was no express allegation of causation. There was no pleading to the effect that if the breach of the implied term had not occurred, then BlueFreeway would have sought to negotiate an alternative form of exit agreement with a lower additional payment. Sometimes the causal link between a breach of contract and the particular head of damages may be obvious. In such a scenario, an expressly pleaded causal link may be unnecessary beyond a general plea such as "In consequence of…". But this was not such a case. There was nothing obvious about the causal "loss of opportunity" link in the present case. Indeed, it was only raised for the first time in written closing submissions. Further, there is even an issue as to whether it fits within either limb of Hadley v Baxendale, which is dealt with later. 84 In summary, the damages claim based upon the "loss of opportunity" scenario was not pleaded in relation to the breach of implied term case.

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(b) Misleading or Deceptive Conduct Case 85 Equally, such a damages claim was not pleaded in relation to the misleading or deceptive conduct case. 86 Much of the foregoing analysis and conclusions in addressing paragraph 16C apply with equal force when considering the misleading or deceptive conduct case. 87 It is nevertheless appropriate to address the specific allegations in the further amended statement of claim. 88 The specific allegations are set out in paragraphs 15A-15F which it is convenient to set out: 15A. In or about April - May 2007, the respondents represented to the applicants that CMUK itself had the capacity, to pay the Licence Fees to the first applicant ("First Representation"). Particulars (i) The First Representation was made by each of the respondents in discussions between them and Mr McDonnell who at the time was a director of each of the applicants. 15AB. In or about June 2007, the respondents took steps to: (a) procure the incorporation of a company ACN 126224100; and (b) ensure that the said company was named "CMUK (Aust) Pty Limited". 15AC. The respondents' conduct pleaded in paragraphs 12B, 12C, 15A and 15AB, was misleading or deceptive or likely to mislead or deceive because it represented to the applicants that the Licence Fees had been paid to the first applicant by CMUK ("Second Representation"). 15B. The First and Second Representations were made by the respondents in trade or commerce within the meaning of the Fair Trading Act 1987 (NSW) ("FT Act"). 15C. The First Representation was: (a) false in that the CMUK did not have the capacity to pay and did not itself pay the Licence Fees to the first applicant; and (b) partly as to a future matter within the meaning of s. 41 of the FT Act. Particulars (i) At all material times CMUK did not itself have the capacity to pay the Licence Fees to the first applicant rather, the respondents intended to procure the payments of the Licence Fees to the first applicant; (ii) further particulars may be provided after discovery. 15CA. The Second Representation was false because the Licence Fees were not paid to the first applicant by CMUK. Particulars (i) The respondents procured the payment of the Licence Fees to the first applicant. (ii) Further particulars may be provided after discovery. 15D. The making of the First Representation constituted conduct that was misleading or deceptive or likely to mislead or deceive within the meaning of S. 42 of the FT Act. 15DA. The making of the Second Representation constituted conduct that was misleading or deceptive or likely to mislead or deceive within the meaning of S. 42 of the FT Act. 15E. By virtue of the matters pleaded in paragraphs 15A to 15D above, each of the respondents contravened provisions of S. 42 of the FT Act. 15F. But for the conduct of the respondents referred to in paragraphs 15A to 15E above: (a) the applicants would not have entered into the Exit Agreement; and (b) the second applicant would not have made the Additional Payment to the Sellers pursuant to the Exit Agreement; and (c) the second applicant would not have refrained from asserting the right to a Clawback Amount from the Sellers pursuant to clause 4.1 of Schedule 3 to the SPA. 89 It will be appreciated that the causation plea is set out in paragraph 15F. Now a number of observations may be made. 90 First, it is not expressly pleaded as to what BlueFreeway (and the other applicants below) in fact did as a consequence of the misleading or deceptive conduct. No express plea of reliance is made. But even if reliance need not be expressly established, there is no other express plea stating what it is that they did which was causally linked to Barnes' and Hawksley's conduct. Perhaps it may be said by implication from the terms of paragraphs 15F(a) and (b) that the actual link was that the exit agreement was entered into and the Additional Payment made. But it would have been preferable to allege in positive terms the actual link rather than leave it to inference from the "[b]ut for" plea in paragraph 15F. 91 Second, and more fundamentally, there is no causal pleading at all that but for the conduct, BlueFreeway would have negotiated and sought to enter into an alternative exit agreement with a lower additional payment. There is no causal nexus pleaded at all between the contravening conduct and this alternative head of damages. Not only is damage as a consequence of the contravention an essential element of the cause of action, but it must be causally linked to the contravention. Yet paragraph 15F is silent on both aspects. Indeed, if one considers its text, it is a plea in the "but for" world of no exit agreement being entered into at all (subparagraph (a)), no additional payment of any kind being paid (subparagraph (b)) and the share purchase agreement staying in place so that a claim for the Clawback Amount could be made (subparagraph (c)). Moreover, these were expressed to be cumulative elements, with "and" at the end of each subparagraph. Moreover, the structure of paragraph 15F was consistent with the structure of paragraph 16C as analysed earlier. 92 BlueFreeway sought to step around the structure of paragraph 15F by asserting that each element could be read separately rather than cumulatively. A reading of the text would suggest otherwise. Moreover, until the written closing submissions, the case was not so run by BlueFreeway. Moreover, to so read it does not sit well with other parts of the pleading, for example, the breach of duty case and in particular paragraph 12F which provided as follows: 12F. But for the conduct and actions of the respondents referred to in paragraphs 12B to 12E above: (a) the applicants would not have entered into the Exit Agreement, and (b) the second applicant would not have made the Additional Payment to the Sellers pursuant to the Exit Agreement; and (c) the SPA would still have been in force and operation with consequence that: (i) had the respondents not engaged in any of the conduct or actions referred to in paragraph 12B above or, further or alternatively, had the respondents disclosed that they themselves had procured and guaranteed payment of the Licence Fees before the Licence Fees were paid, then, the applicants would not have included the Licence Fees as part of the Forty Two EBIT 07 such that A. the Forty Two EBIT 07 would have been in the order of $1,042,049; B. no Additional Payment would have been made under the SPA; and C. the second applicant would have exercised the right to a Clawback Amount from the respondents pursuant to clause 4.1 of Schedule 3 to the SPA in the order of $5,831,804; (ii) had the applicants become aware that the respondents had provided security to enable CMUK (Aust) Pty Limited to pay the Licence Fees after the payment of those fees to the first applicant such that it had already been included in the Forty Two EBIT 07 but before the parties had entered into the Exit Agreement, then, the applicants would not have entered into the Exit Agreement with the consequence that the SPA would have still be in force and operation such that: A. the Forty Two EBIT 07 would have been in the order of $5,157,026; B. the Additional Payment under the SPA would have entitled the Sellers to 9,213,559 shares; C. the total value of the said shares as at 30 April 2008, which was the date the Sellers were first permitted under the SPA to dispose of those shares, was $2,105,298; D. the second applicant would have exercised the right to a Clawback Amount from the respondents pursuant to clause 4.1 of Schedule 3 to the SPA in the order of $6,298,904 or, alternatively, there would have been no entitlement to a Clawback Amount. Particulars (i) Affidavit of Nicholas Frank Hugo Greiner sworn 21 December 2010, paras 25, 27; (ii) Affidavit of Nicholas Frank Hugo Greiner sworn 2 March 2011, paras 5-6; (iii) Affidavit of Gregory Daniel sworn 3 March 2011, paras 21, 26, 27; (iv) Affidavit of Kenneth Patrick McDonnell sworn on 4 March 2011, paras 69-74; (v) Affidavit of Ian Michael Puckrin sworn 11 March 2011, paras 28-49, 51-58. Of course, a party may make an alternative and inconsistent plea, but this was not such a case. The entire structure of the further amended statement of claim was only and consistently based upon a causation pleading that the exit agreement would not have been entered into, the Additional Payment not made and the share purchase agreement staying in place so that the Clawback Amount could be claimed, a causation case that the learned trial judge rejected. Indeed, the particulars to paragraph 12F highlight another point. BlueFreeway and the other applicants below only sought to and did lead evidence on the pleaded causation case as analysed above. No evidence was led by them on the "loss of opportunity" causation scenario. This will be addressed shortly. 93 But even accepting for the sake of argument BlueFreeway's attempted shift to a structural rewriting of paragraph 15F so that each element is dealt with separately, where does it go? To say, separately, that "the applicants would not have entered into the Exit Agreement" does not imply that they would have entered into a different form of exit agreement. None is referred to. To say, separately, as BlueFreeway does, that "the second applicant would not have made the Additional Payment" does not imply that it would have agreed to make a lower payment. But in any event, I do not agree with BlueFreeway's rewriting of its pleading. Finally, on this textual aspect of the further amended statement of claim, BlueFreeway sought to get around the cumulative elements of paragraph 15F, which used "and", by referring to other pleading aspects. First, reference was made to paragraph 15ZB which did not use "and". But that plea does not relate to the misleading or deceptive conduct claim or the breach of implied term claim. In any event it does not refer at all to the "loss of opportunity" scenario or an alternative form of exit agreement. Further, in the particulars, it refers back to the particulars to paragraph 12F. Paragraph 12F is expressed to be cumulative. Moreover, the evidence referred to in the particulars to paragraph 12F does not refer to this alternative scenario. Further, when one reads paragraph 15ZB it appears to be cumulative rather than disjunctive. There is nothing in BlueFreeway's point by reference to paragraph 15ZB. Second, reference was made by BlueFreeway to paragraph 12Fcii of the appellants' defence which referred to an aspect of potential renegotiation that might need to have occurred as a result of the escrow restraint in clause 3.2 of Schedule 2 to the share purchase agreement. There is nothing in that point either. To say that a mechanical provision may have required rethinking on one detail as to the mechanism of payment is to address a different area of discourse to BlueFreeway's "loss of opportunity" scenario envisaging a different exit agreement with a substantially lower additional payment.

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II: How the Case was Run - the Course of Evidence 94 Moreover, the case was not opened by BlueFreeway on this alternative basis. So much seems to be accepted. Further, in terms of the course of evidence, such an alternative basis was not directly the subject of any evidence in chief or cross-examination of any witness called by any party. 95 In terms of the evidence in chief led by BlueFreeway, it does not appear that any evidence was directly led on the basis of or to support this alternative scenario. The evidence in chief of its witnesses was in an affidavit form. None of it directly addresses this alternative basis. This was not in contest on the appeal. 96 Further, the appellants also contended that this alternative case had not been put to them in cross-examination. His Honour at [526] rejected that contention in the following terms: 526 Having regard to these principles and to the circumstances here, I do not accept the respondents' submission that it was incumbent upon the applicants to put to each of Mr Barnes and Mr Hawksley whether, in the counterfactual, they would agree to a payout figure other than $16 million and, if so, what amount they would accept. The absence of such evidence may well be relevant to the measurement of the value of the loss of the opportunity to negotiate a different figure but it is not fatal to that exercise. I should also add that I do not accept the respondents' related submission that they were not frightened or concerned about the prospect of their role being revealed. That submission is inconsistent with the findings made above concerning the steps taken by the respondents to keep the other directors of FTI and the BlueFreeway board in the dark on that matter because of the respondents' keen interest in not jeopardising their earn out payment. 97 What is noteworthy is that his Honour appears to have accepted that there was no such cross-examination. Rather, his Honour's position appears to have been that such cross-examination was not required. Assuming that the case had been properly pleaded and run on the alternative scenario, there may be some force in his Honour's point that the absence of cross-examination was "not fatal", although that is, of course, not to exclude the operation of the rule in Browne v Dunn (Browne v Dunn (1893) 6 R 67). But one is dealing with an anterior point. The course of the evidence before his Honour seems to have flowed not on the basis of the alternative scenario but the pleaded case which did not embrace it. The absence of such cross-examination is consistent with that characterisation. I am not addressing a Browne v Dunn issue at this point, but rather that the absence of cross-examination reinforces the point that the running of the trial simply did not embrace this alternative scenario. In other words, one is not in the "mere pleading point" territory. But of course the clear Browne v Dunn issue that also arises demonstrates or reflects the unfairness in permitting this alternative claim to be run at the last minute and with his Honour's judgment being then based thereon. BlueFreeway contended that if there had been such cross-examination of Barnes and Hawksley it would not have made a difference because his Honour had rejected their evidence on other issues. It is inappropriate to speculate; on any view, a valuable opportunity was lost by Barnes and Hawksley to address this matter in their evidence. Moreover, a rejection of their evidence on some aspects does not necessarily entail a rejection of their evidence on other aspects. BlueFreeway also contended that cross-examination on certain hypothetical aspects may not have been required; this may be potentially correct, but again one cannot generalise. 98 Related to this absence of cross-examination is the appellants' broader contention that there was no evidence to support the alternative basis. 99 His Honour rejected this at [528] and [529] in the following terms: 528 I also reject the respondents' claim that there is no evidence to support the applicants' claim for damages for the alleged lost opportunity and that all the relevant evidence assumed that the SPA would continue. In my view, this contention cannot be accepted having regard to the extensive evidence given by Messrs Daniel, Greiner and McDonnell, most of it in cross examination, regarding the counterfactual which is directed to what the board would have done if the true position had been revealed at the time the Exit Agreement was being negotiated. It includes Mr Daniel's evidence that he, as chairman of the company, would have sought to mediate a resolution with the respondents. I do not see that evidence as being incompatible with the claim for damages for loss of an opportunity to negotiate a payout substantially less than $16 million. In my opinion, there was evidence of what BlueFreeway would have done had it known the true position, including the possibility of achieving a different resolution with the respondents by way of the mediation. 529 To similar effect, Mr Greiner accepted that, if there had been disclosure, one of the options was the possibility of vendor finance, which is one of the options which he would have wished to explore for ever agreeing to the respondents being involved in the financing. 100 With respect to his Honour, in my view the evidence was tenuous at best; again this was symptomatic of how the trial was run, where the course of evidence simply did not explore this alternative hypothesis. 101 In terms of the appellants' evidence, it was not explored in either examination in chief or cross-examination. This seems to have been accepted by all parties, including his Honour who, at [528]-[529], only makes reference to the witnesses below who were called by BlueFreeway. Moreover, even his Honour was circumspect about such evidence in the context of the alternative case, describing it in terms "I do not see that evidence as being incompatible with the claim for damages for loss of an opportunity to negotiate a payout substantially less than $16 million" (emphasis added). Such language does not support any conclusion that the forensic contest between the parties covered this issue, even if the pleadings were silent. 102 Moreover, when one considers the detailed evidence of Messrs Daniel, Greiner and McDonnell relevant to the question of causation, the absence of evidence on the alternative hypothesis is apparent. To demonstrate this, it is sufficient to do no more than to consider his Honour's detailed analysis of each such witness. 103 In relation to Greiner, his Honour analysed his evidence at [86]-[100]. He only gave evidence to the effect that had he known of the full circumstances surrounding the funding of the licence fee, he would not have approved the licence agreement (see [87], [96]-[98]). Further, at [99], his Honour made reference to Greiner's evidence that "if there was no Exit Agreement… they would simply have had to work through the problems." No evidence was given of an alternative exit agreement with a lower payment. Rather, such vague evidence is consistent with the scenario of the parties working through their problems with the share purchase agreement staying in place rather than being terminated. 104 In relation to Daniel, his Honour analysed his evidence at [101]-[122]. Daniel said that if he had been aware of the circumstances, he would not have supported the licence agreement (at [102]). Further, he would have objected to the exit agreement (at [103] and [112]). His Honour at [114] did say: 114 Mr Daniel was also asked in cross examination whether he had taken into account in his answers to the counterfactual that the imperative at the time was to get rid of Messrs Barnes and Hawksley in order to enable Mr Webb to develop his vision. Mr Daniel said that that would not matter, even if refusal of the Exit Agreement meant that Messrs Barnes and Hawksley would remain and need to be treated in accordance with the SPA. Mr Daniel said that there were other options. He explained that based on his experience of dealing with volatile people in the marketing world, mediation can sometimes help resolve difficulties. He said that he would have tried to mediate a conciliation between Mr Webb and Messrs Barnes and Hawksley. Mr Daniel viewed Mr Webb as a strong and emphatic man and that he as chairman would try to get to the bottom of the issues and the personal conflicts which existed and try to find a way to resolve the difficulties. He said that a possible scenario was that Messrs Barnes and Hawksley would be retained as senior consultants to concentrate on new business. I found Mr Daniel's evidence on these matters to be logical and persuasive and I accept it. I understand his evidence to be to the effect that, if the Exit Agreement had not been signed, he would have explored various options by way of renegotiation with the respondents. Such evidence is vague and equivocal. The statement "he would have explored various options by way of renegotiation" encompassed options which included the share purchase agreement remaining on foot. The reference to "mediate a conciliation" was equally if not more consistent with the parties resolving their differences and moving on under the share purchase agreement. But in any event, such findings only fortify the point that the "loss of opportunity" scenario had not been forensically investigated or pursued in the course of the evidence. 105 Reference should now be made to the position of McDonnell who, given his role, had greater significance to the causation case than Greiner or Daniel. There were two BlueFreeway signatories to the exit agreement, Webb and McDonnell. BlueFreeway did not call Webb, but no doubt his evidence would have been probative on this alternative hypothesis. McDonnell was called, but he gave no evidence covering this alternative hypothesis. His Honour dealt with McDonnell's evidence at [123]-[188]. McDonnell only gave evidence to the effect that if he had known the full circumstances, there would have been no execution of the licence agreement or that the licence fee would not have been used for Forty Two's 2007 EBIT (see [128]) and/or that there would have been no execution of the exit agreement (see [128] and [187]). His Honour records at [187]: 187 Thirdly, in relation to the hypotheticals upon which he had been cross examined, Mr McDonnell was asked in re-examination what he would do if Mr Webb told him that the licence sale would be funded by Messrs Barnes and Hawksley and that there was no choice but to do that and sign the Exit Agreement. Mr McDonnell responded by saying that he would have rejected this proposition by Mr Webb. He was then asked what he would have done if these things had arisen in October 2007. He said he would have contacted the chairman and the other directors and sought a board meeting to discuss the matter and resolve it. I accept that evidence. Again, such a general statement made by McDonnell amounts to little evidence supporting the alternative scenario. It confirms that the alternative scenario was not pursued in the course of the evidence. 106 In summary, apart from a vague and equivocal statement from Daniel, there was no evidence from Greiner or the two signatories to the exit agreement on behalf of BlueFreeway (McDonnell and Webb) addressing this alternative scenario. This was confirmed, in my view, by the table handed to us by BlueFreeway's counsel during the course of argument headed "Respondents' references to findings concerning the 'counter-factual'"; apart from the references to Daniel's evidence that I have discussed earlier (see [104]) there is nothing in the references that BlueFreeway provided that addresses the counterfactual. In my view, this alternative scenario was not pursued during the course of the evidence. Moreover, to later try and backsolve, once the issue was raised in written closing submissions, by attempting after the trial was for all practical purposes over (with only the washing up of closing submissions to be attended to) to identify some evidence to support the alternative hypothesis, does not deny the force of the point that the case had not been pleaded or run such as to encompass this alternative scenario. 107 There is a further evidentiary problem with this alternative scenario concerning the negotiation of an alternative form of exit agreement. In addition to BlueFreeway, Forty Two, Gang of Four and Barnes and Hawksley being parties to the exit agreement, other vendors of shares in Forty Two were also parties, namely Adam Mills and Finlease Pty Ltd. Adam Mills and Finlease Pty Ltd did not give evidence at trial, yet their position would have had to have been taken into account in considering the chance of negotiating a different form of exit agreement. The calculation and payment of an alternative additional payment, if that had to be negotiated under an alternative exit agreement, would have required their consent (cf clause 6.1 of the exit agreement); likewise a renegotiation of the earn out provision, although it is likely that this would have remained the same (cf clause 7.1 of the exit agreement). Because the alternative scenario was not properly pleaded and run by Bluefreeway, the appellants lost the opportunity to call Adam Mills and any representative from Finlease Pty Ltd. Such evidence from them was unnecessary on the pleaded causation and damages case of "no exit agreement" as that was within the sole control of BlueFreeway to bring about. But in the scenario of an alternative form of exit agreement being executed and the chances of that, the evidence of Adam Mills and Finlease Pty Ltd would have been relevant.

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III: Counsels' Written and Oral Submissions 108 Until BlueFreeway's written closing submissions were filed, there was no reference to this alternative scenario during the opening or running of the case. First, BlueFreeway's written opening outline dated 22 November 2012 made no reference to it; its structure and text were consistent with the pleading on causation of no exit agreement and the share purchase agreement staying in place. Second, a written evidentiary submission by BlueFreeway dated 4 December 2012 referred to a new counterfactual if disclosure had been made, but confined itself to putting forward a scenario that the licence agreement would not have been entered into. It made no reference to a different type of exit agreement being entered into. This "no licence agreement" scenario was not then pressed by BlueFreeway. Third, BlueFreeway did not point us to where during the running of the trial this alternative scenario had ever been raised in submissions or argument prior to its written closing submissions. It accepted that it had not opened its case positing such an alternative scenario. It accepted that the alternative scenario was not clearly articulated at any time prior to its written closing submissions. 109 The alternative scenario was articulated for the first time in BlueFreeway's written closing submissions dated 19 December 2012 in the following terms (see [61] and [62]): 61. The second hypothesis is perhaps the more likely one. It is that there would have been an Exit Agreement but that BlueFreeway would never have paid Messrs Barnes and Hawksley $16 million under it. If during the negotiation for the Exit Agreement they had revealed the true position concerning their participation in the funding then there would have been some negotiation as to the terms of their departure with all the facts on the table. 62. If the Court adopts that approach, then it will have to assess damages as a loss of chance. On this footing, BlueFreeway lost the value of the chance of negotiating a lower licence fee, something substantially less than the $16 million which was paid out in ignorance of the true position. 110 This was then taken objection to by the appellants in the following terms in their outline of closing submissions dated 20 December 2012 in terms (see [216]-[218]): 216. The Applicants rely upon a new case based on a loss of an opportunity to negotiate some other kind of exit agreement with the Respondents. Indeed, it presents this as "the more likely" hypothesis (Applicants' Closing Submissions [61]). The loss allegation is at FASOC [16C]. No loss of opportunity case is pleaded and it does not arise in the proceedings. 217. What is more, no serious attempt has been made to actually establish the opportunity or measure the financial consequences of its loss for the purposes of damages. Rather, the Applicants just seem to seek to leave the hard work to the Court to pick a figure doing the best it can with what is a jury question (Applicants' Closing Submissions [64]). Under established principle, in order to pursue a loss of opportunity case, aside from the need to plead it, the outcome of the opportunity needs to be identified. The financial difference between that unrealised outcome and what has actually occurred then needs to be quantified. The Court, having formed a view about the evidence as to the matter, then applies a discount factor to reflect the likelihood of the opportunity eventuating (Malec v JC Hutton Pty Ltd (1990) 169 CLR 638; and Sellars v Adelaide Petroleum NL (1994) 179 CLR 332). 218. The Applicants have not even attempted any of those steps. They have not identified what is the outcome they suggest would have occurred from the opportunity, nor have they identified the likelihood of the eventuating. They did not even put what they say is the likely outcome to either of Barnes or Hawksley in cross-examination. Nor do they consider the potential differences concerning recoverability of loss of opportunity in respect of the different causes of action they rely upon. None of these matters are pursued further because the case does not arise on the pleading. 111 BlueFreeway in its outline of submissions in reply dated 21 December 2012 did not directly respond to these matters. All that was said, of any faint relevance, at [4], was the following: 4. On the respondents' approach, the Exit Agreement and the consequential payment to the respondents of over $16 million came about on the sole initiative of Mr Webb. That approach overlooks, as it must, that both Mr Webb and Mr McDonnell were signatories to the Exit Agreement on behalf of BlueFreeway and that both of them were involved closely in the negotiations which led up to it. If the Court accepts Mr McDonnell's evidence that if he had known the truth about the transaction then he would have reported the matter to the board and if one accepts Mr Greiner and Mr Daniel's evidence, then the position is inescapable for the respondents that the Exit Agreement would not have proceeded in a manner which yielded the respondents and their associates an additional payment of $16 million. 112 In terms of the oral closing addresses, the topic was only briefly touched upon with the appellants raising the pleading objection. BlueFreeway contended before us that if there was an issue, then the appellants should have applied to reopen their case. But if the case was not pleaded, why would the appellants have needed to do this? BlueFreeway should have applied to amend the further amended statement of claim, but it chose not to do so, for reasons that I could only speculate about.

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IV: A Further Symptom of the Problem 113 A further symptom of the problem that arose because this alternative scenario was not pleaded, opened or run during the course of evidence was that when his Honour came to valuing the lost opportunity or whether indeed, on the balance of probabilities, there was a lost opportunity, he was left with many imponderables. 114 In terms of his Honour's approach to valuing the lost chance or opportunity, he applied the correct principles (see [530]-[547]). I address this later in Section K below ([186]-[192]) when dealing with grounds 9 and 10 of the notice of appeal. But in the present context, the list of imponderables that his Honour faced has a different complexion. The difficulty with his Honour's approach is not with his exposition and application of the appropriate principles, but rather that many of the factual imponderables that he listed at [537]-[545] were much more uncertain and imponderable because they were not explored in the evidence, precisely because the case had not been pleaded and run on this alternative basis. 115 His Honour listed these uncertainties and imponderables in the following terms: 538 Secondly, there is some force in the submission that, if the true circumstances of the funding had been known to BlueFreeway, there would have been no proper foundation upon which the Additional Payment could have been calculated. That is because a majority of the directors gave evidence, which I have accepted, that they would not have sanctioned a payment in that amount if the full facts were known. On the other hand, that is the only figure which has been presented to the Court as representing the outcome of the parties' negotiations which resulted in the termination of their contractual relationships, albeit on a different basis to that which arises under the counterfactual. 539 Thirdly, I consider that it is also reasonable to accept the applicants' proposition that, in a hypothetical negotiation, Messrs Barnes and Hawksley would have been anxious to ensure that the amount that they had outlaid as part of their guarantee was properly recognised and protected 540 Fourthly, in my view it is reasonable to expect that the negotiations would probably involve the respondents claiming that they should be compensated for the early termination of the SPA and related agreements and the consequential loss of the likely benefits under those arrangements, including the possibility of earn out payments for 2008 and 2009. Presumably they would, if necessary, have relied upon the kind of analysis which Mr Barnes prepared for the purpose of the cross claim. By the same token, however, it can reasonably be expected that BlueFreeway would have argued strongly that there was very real doubt whether any earn out would have been paid in either of those years having regard to FTI's financial figures for the 2007 financial year (absent the licence sale). This would introduce some uncertainty. 541 Fifthly, I believe that it is also relevant to take into account other benefits which would accrue to BlueFreeway if a settlement could be reached with the respondents involving the termination of their existing contractual arrangements and the restrictions which they imposed on the group's business strategy including, but not necessarily limited to, Mr Webb's vision or plans. Termination of those agreements also meant that BlueFreeway could, if it wished, fully absorb FTI's technical and sales teams into its wider operations, as well as obviating its potential liability to make payments to the respondents under the Executive Service Agreements. Another benefit to be taken into account from BlueFreeway's perspective was that exit arrangements would release the company from the respondents' threats to bring legal action against it for breach of the SPA and would also involve non-compete obligations. 542 I do not suggest that any of these factors had an indisputable foundation in fact, rather I consider that these are the sorts of matters which are likely to have weighed on the parties' minds if they were negotiating exit arrangements with all cards on the table. 543 Sixthly, as I indicated above, because neither of the respondents was asked in cross examination whether under the relevant hypothesis they would have agreed to a payout figure other than $16 million, that is another relevant factor to take into account in assessing the value of the lost opportunity. It introduces a further degree of uncertainty which must diminish the value of that lost opportunity. Further uncertainty surrounds what the terms of the legal advice would have been regarding the appropriate steps to be taken in respect of ensuring that the respondent's funding role complied with all relevant legal and governance requirements. 544 Seventhly, further uncertainty is introduced by Mr McDonnell's evidence. He says that if he had known that the respondents had played a part in arranging payment of licence fee he would have recommended to the board that the Exit Agreement not be executed. He also says, however, that he would have discussed the matter with the other members of the board. On the counterfactual, it is unclear on his evidence whether he might have been persuaded by the other directors, including Mr Daniel and/or Mr Greiner, to agree to an exit arrangement involving the payment of a different and lesser amount to the respondents. In my view, there is a distinct possibility that he may have been so persuaded, but the position is uncertain, which again must diminish the value of the lost opportunity. 545 The same can be said in respect of the other directors of the board who were not called to give evidence and whose likely attitude is unknown. That too introduces an element of uncertainty. 116 But each one of these matters dealt with in [538]-[545] of his Honour's reasons could have been explored or further explored in examination in chief or cross-examination of the witnesses called or through additional witnesses. 117 As to [538], no other figure was explored. Moreover, if no alternative exit agreement had been made, BlueFreeway would have had to deliver the equivalent shares to the Additional Payment that had already accrued under the share purchase agreement (on one view). As to [539], no doubt if Barnes and Hawksley had been cross-examined on this aspect, their position or stance would have been further fortified; as they already, on their case, had an accrued entitlement under the share purchase agreement, they would not have accepted less (which was well above their financial outlay referred to by his Honour). As to [540], again this would have been fortified from Barnes' and Hawksley's perspective if they had been cross-examined. Moreover, his Honour refers to "(absent the licence sale)". But why would that have been justified? The licence fee had been received. All agreed that the Forty Two EBIT 07 properly included it as a matter of substance and formal accounting. As to [541], this is all in favour of the appellants; no doubt it would have been fortified if the matter had properly been pursued. As to [542], all of the matters that "are likely to have weighed on the parties' minds" should have been explored in the evidence if this alternative scenario was being run. As to [543]-[545], his Honour's description illustrates the incomplete and unsatisfactory evidentiary matrix, all due to the fact that the case had not been pleaded and run on the alternative scenario. 118 The appellants lost the opportunity to have all of these matters forensically pursued when the alternative hypothesis was put for the first time in closing written submissions.

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V: Conclusion 119 A fundamental requirement for the fair trial of allegations of contravention of law requires "the party making those allegations [in this case BlueFreeway] to identify the case which it seeks to make and to do that clearly and distinctly" (Forrest v Australian Securities and Investments Commission (2012) 247 CLR 486 at [25] per French CJ, Gummow, Hayne and Kiefel JJ). BlueFreeway failed to do this in relation to its alternative causation and damages case. 120 Further, it was necessary to plead the necessary material facts to establish the causal relationship between the misleading or deceptive conduct and the loss. BlueFreeway failed to do this in relation to its alternative scenario. As French J (as he then was) said in Bond Corporation Pty Ltd v Thiess Contractors Pty Ltd (1987) 14 FCR 215 at 222: …facts and circumstances should be set out leading to a reasonable inference that the conduct and the damage stood to each other in the relation of cause and effect. His Honour also referred to what Toohey J had said in James v Australia and New Zealand Banking Group Ltd (1985) ATPR 40-504 at 46,034, that the Bank was "entitled to know with some certainty what [was] being claimed and the basis of the claim". The necessity to plead a causal link between the contravention and the damage was also referred to by Goldberg J in Mitanis v Pioneer Concrete (Vic) Pty Ltd (1997) ATPR 41-591 at 44, 153-4. BlueFreeway did not comply with any such precepts. 121 Further, "if a plaintiff has suffered damage of a kind which is not the necessary and immediate consequence of the wrongful act, he must warn the defendant in the pleadings that the compensation claimed will extend to this damage" (Perestrello E Companhia Limitada v United Paint Co Ltd [1969] 1 WLR 570 at 579 per Lord Donovan delivering the judgment of the Court). This was not done by BlueFreeway. Moreover, "if the claim is one which cannot with justice be sprung upon the defendants at the trial it requires to be pleaded so that the nature of that claim is disclosed" (at 580). Again, this was not done by BlueFreeway. Further, as Lord Donovan went on to say: What amounts to a sufficient averment for this purpose will depend on the facts of the particular case, but a mere statement that the plaintiff claims "damages" is not sufficient to let in evidence of a particular kind of loss which is not a necessary consequence of the wrongful act and of which the defendant is entitled to fair warning. 122 Not only were the appellants "entitled" to a pleading by BlueFreeway identifying the head of loss as "loss of opportunity", but they were also entitled to have that head of damage properly particularised (see, for example, David Benson Nominees Pty Ltd v Dicksons Ltd [2005] SASC 97 at [39]-[40] per Besanko J). None of this was done by BlueFreeway. For his Honour to permit BlueFreeway late in the day to put its case based upon the alternative scenario produced an unsatisfactory and inherently unfair state of affairs so far as the appellants were concerned. Pleadings serve "to ensure the basic requirement of procedural fairness that a party should have the opportunity of meeting the case against him…" (Banque Commerciale SA (En Liqn) v Akhil Holdings Ltd (1990) 169 CLR 279 at 286 per Mason CJ and Gaudron J). BlueFreeway's further amended statement of claim did not ensure that basic requirement in relation to its alternative scenario. To ensure this basic requirement of procedural fairness, BlueFreeway should have been confined to its pleaded case that did not include this alternative scenario. This was not a case "in which the parties [had] deliberately chosen some different basis for the determination of their respective rights and liabilities" (at 287 per Mason CJ and Gaudron J). How the trial was conducted provides no support for such an inference. 123 In summary, once his Honour had found against BlueFreeway's pleaded causation and damages case, he should have dismissed the proceeding. The alternative scenario had not been pleaded, opened or run. Moreover, to allow it to be advanced for the first time in closing addresses produced inherent unfairness to the appellants. The course of evidence was not conducted on the basis of the alternative scenario. Moreover, the appellants lost the opportunity to call evidence and to appropriately cross-examine on such a scenario. Grounds 7 to 8 of the notice of appeal should be sustained, with the consequence that this appeal should be allowed and his Honour's judgment set aside. The proceeding before his Honour should, accordingly, have been dismissed. 124 Given these findings, it is strictly unnecessary to address any other ground of appeal. But in deference to the parties' submissions on the other grounds and just in case I turn out to be incorrect, it is proposed to address the other grounds argued.

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E: Implied Term of the Share Purchase Agreement 125 BlueFreeway contended that Barnes and Hawksley breached various implied terms of the share purchase agreement, the management deed and the exit agreement. 126 In respect of the share purchase agreement it was contended that there was an implied term that Barnes and Hawksley "would disclose to BlueFreeway all information known to them which might become relevant to the calculation of the Forty Two EBIT 07". His Honour found that there was such an implied term (at [405]) and that it had been breached. In relation to the asserted implied terms concerning the management deed and the exit agreement, his Honour found that there were no such implied terms (at [430]-[434]); that finding has not been challenged. 127 Ground 1 of the notice of appeal challenges his Honour's finding concerning the said implied term in the share purchase agreement. 128 BlueFreeway contended that such a term was to be applied in fact. There was no dispute below and nor on appeal as to the applicable principles. First, the implication of a term in fact was required to satisfy the five conditions identified by the Privy Council in BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 (BP Refinery) at 283, viz: …[F]or a term to be implied, the following conditions (which may overlap) must be satisfied: (1) it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that "it goes without saying"; (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract. Second, whether a term was to be implied was dependent upon the ascertained objective intention of the parties at the time of the agreement. Third, courts are generally slow to imply a term into an agreement (Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 346 per Mason J). Fourth, BlueFreeway carried the onus of proving that such a term should be implied. Fifth, in the case of detailed commercial contracts which were the product of extensive negotiations and in which legal advisers were heavily involved, such an onus is more difficult to discharge. 129 His Honour set out and sought to apply these well-known principles (at [408] and [409]). There is no difficulty with his Honour's exposition, save that it is to be noted that the test enunciated in Byrne v Australian Airlines Ltd (1995) 185 CLR 410 (Byrne) at 422 per Brennan CJ, Dawson and Toohey JJ (applying the observations of Deane J in Hawkins v Clayton (1988) 164 CLR 539 (Hawkins) at 573) deals with the different context where there is no formal contract complete on its face; that is not the present case. The test in BP Refinery, rather than that referred to in Byrne or Hawkins, is the applicable test. 130 In relation to the first "reasonable and equitable" condition, his Honour does not appear to have addressed this directly. It may perhaps be said that his Honour concluded that this condition had been satisfied by reason of or flowing from the fact that the other four conditions had been satisfied. 131 I do not need to address this first condition further in light of the position that I have reached on the second, third and fourth conditions. 132 In relation to the second "business efficacy" condition, his Honour said the following: 411 Under the SPA, both BlueFreeway and the respondents were obliged to exchange specified financial information so that an accurate EBIT could be determined for the purpose of then calculating any entitlement on the part of the respondents to receive the Additional Payment or subsequent earn outs. Given their senior management roles with FTI and Gang of 4 the respondents had considerably greater access to, and knowledge of, sales and related information bearing upon FTI's performance than BlueFreeway. Having regard to these and other matters which I will discuss immediately below, and to the purpose for which the respondents were to provide financial information to BlueFreeway, I consider that the SPA would lack business efficacy if the suggested term was not implied. 412 In my view, the officious bystander would have appreciated as at 24 October 2006 (being the date of execution of the SPA), that the EBIT performance of FTI over the next three years was a matter of central importance in the transaction because of its bearing upon the calculation of any Additional Payment to which Messrs Barnes and Hawksley and their associates were entitled. Furthermore, it is evident from the terms of the Management Agreement, a document which complemented the SPA and was executed at the same time, that Messrs Barnes and Hawksley would enjoy a large degree of independence in the running of FTI's business over that period and that they may become aware of information which might be relevant to the calculation of the FTI EBIT 07 and which was unknown to BlueFreeway or its representatives. For example, cl 3.5 of the Management Agreement provided that the business carried on by FTI shall be undertaken in accordance with an Operations Plan and the Budget (as defined therein) under the joint direction of Messrs Barnes and Hawksley (other than for decisions which, under cl 3.3, required what was described as a "Majority Decision of Directors", a concept which was also defined therein). 413 The independent and important roles performed by Messrs Barnes and Hawksley as senior executives of FTI is further underlined by the provisions of their respective Executive Service Agreements, which also formed part of the suite of agreements executed in conjunction with BlueFreeway's acquisition of all the shares in FTI under the SPA. Mr Barnes was engaged by FTI in the position of managing director, while Mr Hawksley was employed as sales and marketing director. Subject to the Management Deed and any directions by the board, both were required under cl 3.1 of their respective Executive Service Agreements to undertake all their duties and responsibilities consistent with the role of joint general manager of FTI (and Gang of 4). Moreover, under cl 3.4 of their respective Effective Service Agreements, each was obliged to report directly to the board and to give prompt and full information about their conduct of the business of the companies to the board. It is evident from these provisions that the parties plainly recognised that their ongoing relationship was based on mutual trust and close cooperation. 414 For what it is worth (noting that the issue is to be determined objectively and not by reference to the subjective intentions of the parties), both Messrs Barnes and Hawksley also recognised that their ongoing relationship with the other parties to the relevant agreements during the three financial years following the prospectus and BlueFreeway's acquisition of FTI, placed the parties in a position where considerations referable to Earn Out calculations were vital. Mr Hawksley acknowledged in cross examination that honesty between the parties as to matters affecting EBIT calculation was fundamental to their commercial relationship. 415 It seems to me that the matter may be tested this way. Would the officious bystander, knowing as at the date of the execution of the SPA that there was a possibility that Messrs Barnes and Hawksley would be involved in the financing of a licence sale in the manner which occurred, consider that they were obliged under the SPA to disclose their involvement to BlueFreeway in view of the implications of that involvement for the calculation of the EBIT and Additional Payment? In my view, there can be little or no doubt that the officious bystander would consider that there was such an obligation in those circumstances. Contrary to the respondents' submission, I do not consider that the SPA is capable of a sensible operation in the absence of such an implied term. In particular, for the reasons immediately given below I do not consider that the express terms in the SPA relating to the reporting of financial information to which the respondents drew attention are sufficient to give business efficacy and a sensible operation to that agreement. 133 His Honour then went on to say that the implied terms was supplementary to the share purchase agreement's express terms which obliged Barnes and Hawksley to provide BlueFreeway with financial information to enable an accurate calculation of EBIT (see for example clause 1.1 of Schedule 5 and the preamble thereto). But his Honour accepted that: 417 Although these express terms do not explicitly require the respondents to disclose information relating to their personal involvement in financing a transaction for inclusion in the calculation of FTI's EBIT, that is scarcely surprising because it is improbable that the parties ever turned their minds to that possibility. The suggested implied term fills that gap in the SPA. It provides further appropriate content to the respondents' express obligations to provide BlueFreeway with monthly reports detailing sales information, a requirement which is an "Operational Requirement" as defined in Schedule 5 and which must therefore (along with all other Operational Requirements as defined in that Schedule) be fulfilled and executed "in a proper, efficient and professional manner". The reference in that phrase to "proper" is important. It sits uncomfortably with the respondents' primary contention that they were under no contractual obligation to inform BlueFreeway that they personally had financed a sales transaction in the amount of approximately $4 million, which meant that they were entitled to receive an Additional Payment of approximately $16 million to which they would not otherwise have been entitled. 418 It is important to emphasise that the suggested implied term does not operate as a freestanding obligation but rather complements and attaches to express terms in the SPA. 134 His Honour then rejected the submission that the suggested implied term was not clearly necessary in order to make the share purchase agreement work or to avoid an unworkable situation, because the preparation of the Earn Out Accounts could readily take place on the basis of the information provided pursuant to the specified reporting regime. 135 Notwithstanding the careful consideration that his Honour gave to whether this second condition had been satisfied, in my view it had not been. 136 The term in question was to the effect that Barnes and Hawksley were bound to disclose to BlueFreeway all information known to them that might become relevant to the calculation of the Forty Two EBIT 07. Now the share purchase agreement contained various provisions. Clause 1.1 of Schedule 4 required BlueFreeway to prepare and deliver to, inter alia, Barnes and Hawksley the Earn Out Accounts during the Earn Out Period after the end of each financial year, with such accounts to be prepared in accordance with appropriate accounting principles. Schedule 5 required Barnes and Hawksley to "undertake and agree to… [f]ulfil and execute the Operational Requirements in a proper, efficient and professional manner…". Clause 1.1 of Schedule 5 specifically provided: 1.1 Financial Reporting The Sellers agree to provide the following to the Buyer: • a report detailing Sales segmented by activity, as defined by the Buyer, to be remitted on the first working day of each new month post Completion, in a form and template as provided by the Buyer; • Completion of the monthly financial reporting pack in the form and template as provided by the Buyer (to include a Profit & Loss, Balance Sheet and Cash Flow statement issued by the Buyer) and supplied to the Buyers finance department by close of business on the third working day of the new month o this will require adoption of a standard Chart of Accounts and until such time as this occurs, the utilisation of an interim account mapping will be utilised as implemented by the Buyer; • a report on a monthly basis in the form agreed by the Buyer detailing the status of all capital expenditure projects including detail of any capital expenditure during the month; • other financial and operational reports as reasonably requested by the Buyer (with the form and detail to be provided by the Buyer); • on Completion, ensure that all officers nominated by the Buyer are appointed as the authorised signatories and if requested remove officers of the Sellers; • provide access to online banking facility of the Company; • provide cash flow projections to the Buyer as requested but at least on a monthly basis; • provide assistance as requested by the Buyer in order to ensure the business being acquired is integrated into the Buyers group banking arrangements. This may involve a change to the Sellers banking service provider. The outcome of this process will be to maximise the cash utilisation of the group by the Buyer. In all cases the Sellers are to follow the accounting treatment direction provided by the Buyer so as to ensure the accounts of the Business are prepare on the same basis as those of the Buyer. This is to ensure compliance with accounting standards and ASX listing requirements. More generally, clause 6.3 of the share purchase agreement provided that: 6.3 Operations Agreement The Companies, the Buyer and the Sellers must each comply with, and ensure that the business of the Companies is conducted in accordance with, Schedule 5 (Operations Agreement), unless otherwise agreed by the parties in writing. Clause 15.9 of the share purchase agreement provided that: 15.9 Further assurances Each party must do all things necessary to give full effect to this agreement and the transactions contemplated by this agreement. 137 There were also detailed terms of the management deed setting out how Forty Two was to be managed, including clause 3.5 which provided: 3.5 Operations The Business of the Companies shall be undertaken in accordance with the Operations Plan and the Budget under the joint direction of Barnes and Hawksley (other than for decisions which need Majority Decisions of Directors). The initial Operations Plan and Budget shall be those in place at the Completion Date. 138 Further, there were terms of the executive services agreements to which each were a party with Forty Two, but not BlueFreeway, that contained terms including clauses 3.1 and 3.4 to the effect: 3.1 What are the obligations of the Executive? Subject to the Management Deed, the Executive must: (a) specific duties: undertake all duties and responsibilities, consistent with the role of Joint General Manager of the Companies' business, subject to any directions by the Board; (b) general duties: undertake the duties and exercise the powers which the Board assigns to the Executive or vests in the Executive; (c) comply with company policies: in performing duties and exercising powers under this agreement, adhere to management practices and procedures adopted by the Company from time to time. For the avoidance of doubt, the policies and practices do not form part of this agreement; (d) devote time and attention: devote the whole of the Executive's time and attention and skill during normal business hours, and at other times as is reasonably necessary, to the duties of the Executive's office. By entering into this agreement, the Executive acknowledges that his hours of work required by this clause are reasonable; (e) perform duties: perform the Executive's duties and exercise the Executive's powers faithfully and diligently; and (f) promote Company's interests: promote the interests of the Company and each Related Body Corporate of the Company … 3.4 What are the Executive's reporting obligations? The Executive must report directly to the Board and give prompt and full information about the Executive's conduct of the Business to the Board. 139 In such circumstances, it is difficult to see how there was a need to imply the requisite term to give business efficacy to the share purchase agreement. There were detailed and various provisions in the share purchase agreement that dealt with the provision of requisite information relating to the Forty Two EBIT 07. Moreover, any information relating thereto sought by BlueFreeway was required to be provided by Barnes and Hawksley. Clause 1.1 of Schedule 5 contained detailed reporting requirements. It is true, as his Honour stated at [411] that Barnes and Hawksley had greater access to information. It is also true that Barnes and Hawksley enjoyed a large degree of independence in running the business (at [412]). But that just explains the existence of the detailed provisions that I have set out above. Such information asymmetry, if it existed, did not justify in and of itself the need for yet further terms. There was no "gap". It may also be accepted that EBIT performance was of "central importance" (at [412]). But again, that explains the existence of the detailed express terms without justifying in and of itself additional implied terms. Further, his Honour makes a point concerning the terms of the executive service agreements (at [413]), but at best, that may suggest an implied term in favour of Forty Two, but not BlueFreeway; BlueFreeway was not a party thereto. His Honour at [415] also posed the question: 415 It seems to me that the matter may be tested this way. Would the officious bystander, knowing as at the date of the execution of the SPA that there was a possibility that Messrs Barnes and Hawksley would be involved in the financing of a licence sale in the manner which occurred, consider that they were obliged under the SPA to disclose their involvement to BlueFreeway in view of the implications of that involvement for the calculation of the EBIT and Additional Payment? In my view, there can be little or no doubt that the officious bystander would consider that there was such an obligation in those circumstances. Contrary to the respondents' submission, I do not consider that the SPA is capable of a sensible operation in the absence of such an implied term. In particular, for the reasons immediately given below I do not consider that the express terms in the SPA relating to the reporting of financial information to which the respondents drew attention are sufficient to give business efficacy and a sensible operation to that agreement. But that is, with respect, to blend different concepts. The implied term is concerned with "calculation" of EBIT and whether the licence fee was a genuine amount. The underlying financing did not change its genuineness, character or accounting treatment; no one suggested otherwise. The fact of involvement in financing did not speak to calculation, which was not in issue. Such a rhetorical question hardly satisfies the "business efficacy" condition. His Honour goes on to say at [416] that the implied term is "both supplementary to and not inconsistent with [the] express terms". But that is not sufficient to satisfy the "business efficacy" condition in terms of the necessity required to be demonstrated. 140 In terms of the necessity to give business efficacy, as Bowen LJ in The Moorcock (1889) 14 PD 64 at 68 made clear, one is seeking to identify "an implication from the presumed intention of the parties with the object of giving to the transaction such efficacy as both parties must have intended that at all events it should have". It must be "clearly necessary" in the context of the terms and circumstances of the particular contract and the particular relationship between the specific parties to the contract (Heimann v Commonwealth of Australia (1938) 38 SR (NSW) 691 at 695 per Jordan CJ); a broader context of necessity is applied when dealing with terms implied in or by law (see Commonwealth Bank of Australia v Barker (2014) 312 ALR 356; [2014] HCA 32 at [28]-[29] per French CJ, Bell and Keane JJ, [86] per Kiefel J and [113]-[114] per Gageler J). Moreover, this "business efficacy" condition overlaps with the "so obvious" condition. In Reigate v Union Manufacturing Co (Ramsbottom) Ltd [1918] 1 KB 592 at 605, Scrutton LJ said: A term can only be implied if it is necessary in the business sense to give efficacy to the contract; that is, if it is such a term that it can confidently be said that if at the time the contract was being negotiated some one had said to the parties, "What will happen in such a case," they would both have replied, "Of course, so and so will happen; we did not trouble to say that; it is too clear." 141 In summary, I do not see how it could be said that the second condition was satisfied. First, it cannot reasonably be said that BlueFreeway's rights were rendered nugatory, worthless or seriously undermined, absent the implied term. Second, it could not be said that any relevant transaction under the share purchase agreement would have been rendered futile, absent the implied term. Third, there was no "gap". Fourth, the share purchase agreement and the transactions contemplated and actually performed thereunder were clearly effective without this implied term. Judged in the result, the Forty Two EBIT 07 was properly ascertained and calculated without any necessity whatsoever for such a backsolved and confected implied term being necessary in either its conception or execution. Fifth, if there was in any event an implied term on the parties to cooperate, that also then diminished the necessity of the implied term contended for by BlueFreeway. Generally, it seems to me that his Honour did not take the correct view of what was necessary in the circumstances. True it is that the implied term might have given greater protection to BlueFreeway, but that does not demonstrate a sufficient reason for implying it (cf Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596 at 605 per Mason J). 142 In relation to the third "so obvious" condition, his Honour said at [420]: 420 Fourthly, and arising from the findings expressed above, I consider that the term is of such a character that it meets the requirement that it be "obvious" in the sense described by Mackinnon LJ in Shirlaw v Southern Foundries (1926) Ltd [1939] 2 KB 206 at 227. I reject the respondents' submission that it cannot be said that both parties would have consented to the inclusion of the suggested term if it had arisen for consideration. 143 That finding and reasoning of his Honour is not maintainable. 144 I do not see how it could be said that the implied term is so obvious that it goes without saying. Why would it be so obvious in light of the express terms? Given their scope and subject matter, it would not be obvious that any supplementation was necessary. Further, the actual expression of the implied term points against it being obvious. What is meant by "might become relevant"? What does "might" mean? Any possibility under any one or more, and if so what, contingencies? And during or over what timeframe? And what is the ambit of "become relevant"? And relevant to whom? Barnes and Hawksley? Forty Two? BlueFreeway? Each might have a different lens or perspective of relevance. And if it is "relevant to the calculation of EBIT", the ambit of that is effectively unlimited. All operating revenues and expenditures and transactions underpinning the same may be relevant to the calculation of EBIT. Surely, such an open ended implied term is not so obvious that it goes without saying. Its breadth and scope would be oppressively broad and unnecessary in light of the express provisions. Further, in light of the breadth and scope of the implied term, given the existence of the more detailed and express provisions, I do not agree with his Honour's position that "both parties would have consented to the inclusion of the suggested term if it had arisen for consideration" (at [420]) (Shirlaw v Southern Foundries (1926) Ltd [1939] 2 KB 206 at 227 per Mackinnon LJ). 145 In relation to the fourth "clear expression" condition, his Honour said the following: 421 Fifthly, in my view and contrary to the respondents' position, the applicants' formulation of the suggested implied term demonstrates that it is capable of clear expression and is reasonably certain in its operation. In particular, I do not accept the respondents' contention that the phrase "which might become relevant" in the suggested implied term is vague and creates an obligation of uncertain breadth because it is said that it would require a constant review of a mental state against a test involving a possibility of relevance. The suggested implied term is formulated by reference to an obligation to disclose all information which is known to the respondents which might become relevant to a particular matter, namely the calculation of the FTI EBIT 07. The methodology for calculating that figure is set out in some detail in the SPA. The calculation has to be made at a particular point in time and I consider that the reference in the suggested implied term to information which is known to Messrs Barnes and Hawksley and might become relevant to that calculation simply reflects that chronology. 146 That finding of his Honour is also not sustainable. 147 What I have said in relation to the third "so obvious" condition applies with equal, if not greater, force in relation to this fourth "clear expression" condition. 148 Finally, in relation to the fifth "no contradiction" condition, his Honour analysed this at [416], and in more detail at [422]-[425]. I agree with his Honour's analysis on this aspect. The implied term does not contradict any express term of the share purchase agreement. There is no inconsistency between the implied term and clauses 4.3(c) or (e) or 5.2(d) of the share purchase agreement or clause 1.1 of Schedule 5 thereto. Further, as his Honour noted at [425] in relation to clauses 15.11(a) and (c): 425 Insofar as the entire agreement clause is concerned, it is well settled that such a clause does not operate to exclude the implication of specific terms to give business efficacy to a contract unless implied terms are expressly referred to (see Hope v R.C.A Photophone of Australia Pty Ltd (1937) 59 CLR 348). The position is similar in respect of cl 15.11(c): see, for example, Hart v MacDonald (1910) 10 CLR 417. I agree with his Honour on this aspect. 149 In summary, the second, third and fourth conditions were not satisfied. Consequently, his Honour was in error in finding the existence of the said implied term.

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F: Breach of Implied Term 150 His Honour's finding of a breach of the implied term (at [426]-[428]) also cannot be sustained. 151 The implied term was expressed in terms of "all information known to [the appellants] which might become relevant to the calculation of Forty Two's EBIT 07". His Honour held that it was a breach of that implied term for Barnes and Hawksley not to have disclosed their financing role. But I do not see how that was relevant to the calculation of EBIT. First, the licence agreement and the licence fee transactions were real transactions; no one was suggesting that they were shams. Second, the licence fee was received by Forty Two and properly treated as revenue. It was real money and treated appropriately in an accounting sense. Third, an issue arose as to whether it was to be characterised as recurrent or non-recurrent, but that issue was resolved independently. Moreover, the financing aspect was irrelevant to that mere accounting question. Generally, I do not see how the failure to disclose the financing role of Barnes and Hawksley had anything to do with "calculation". No doubt, the market may have been concerned to know the breakdown of EBIT, how it arose and whether related parties of Forty Two or BlueFreeway through related transactions had produced an effect on EBIT, but that is a separate question to the calculation of EBIT per se, which is all that the implied term related to. 152 It is accepted that Barnes and Hawksley put up their own money to indirectly finance the licence fee. But his Honour accepted that the source of funding did not affect whether the revenue was counted towards EBIT (at [427]). That finding was not challenged. Further, the experts for both parties accepted that the source of financing would not have resulted in any different treatment to that which the auditor applied to it. His Honour went on to say "… but it fails to grapple with…". But what his Honour then addressed was a causation question, not a breach question. That impermissibly mixed concepts. True it is that BlueFreeway may have sought to pay less than the over $16 million later, but that had little to do with the EBIT calculation per se and whether there had been a breach, which was an anterior question. In my opinion, no breach was established.

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G: Hadley v Baxendale 153 His Honour's finding on damages flowing from a breach of the said implied term was not maintainable for another reason other than the pleading question. It did not fit within either limb of Hadley v Baxendale. 154 His Honour did not address this question in his reasons. In fairness to his Honour, this is perhaps a reflection of the little that was said below by the parties on the subject. It does not appear to have been addressed in any detail. Nevertheless, both parties addressed the point on the appeal. 155 It is worth articulating the head of damages which his Honour found. The head of damages was said to be the loss of an opportunity to negotiate a different form of exit agreement with a lower Additional Payment or termination amount. Moreover, it was said that this flowed from a breach of the said implied term of the share purchase agreement. So, the various causal links involved contemplating a breach of the implied term, a termination of the share purchase agreement, the entry into of an exit agreement but of a different type to that actually entered into, and the negotiation of a termination payment (or the opportunity to so negotiate one) of a different amount to the one actually agreed. Moreover, it is to be recalled that the entry into of the exit agreement in this case and the consequent termination of the share purchase agreement had nothing to do with the alleged breach of the implied term, but took place for other reasons. 156 It is worth setting out the two limbs of Hadley v Baxendale. Alderson B set this out in terms: Now we think the proper rule in such a case as the present is this: - Where two parties have made a contract which one of them has broken, the damages which the other party ought to receive in respect of such breach of contract should be such as may fairly and reasonably be considered either arising naturally, i.e., according to the usual course of things, from such breach of contract itself, or such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it. Now, if the special circumstances under which the contract was actually made were communicated by the plaintiffs to the defendants, and thus known to both parties, the damages resulting from the breach of such a contract, which they would reasonably contemplate, would be the amount of injury which would ordinarily follow from a breach of contract under these special circumstances so known and communicated. 157 As a preliminary matter it should be said that no special circumstances were known or communicated at the inception of the share purchase agreement. 158 Now as to the loss in question (that is, damages flowing from the loss of an opportunity to negotiate a different form of exit agreement and a different Additional Payment), was that loss "such as may fairly and reasonably be considered… [as] arising naturally" from the breach (the first limb)? Or "such as may reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach of it" (the second limb)? 159 As to the second limb, how it could be said that this was satisfied is not readily apparent. The exit agreement was not in contemplation, let alone an alternative form of exit agreement. Perhaps it may be said to have been reasonably contemplated that a breach of an implied term may have resulted in a termination of the share purchase agreement and the negotiation of a consequential exit agreement and payment thereunder. But that is not the present case. The exit agreement in the present case does not flow from any breach of the implied term. Rather that arose independently. What is said in the present case is that the breach of the implied term resulted in the loss of an opportunity to negotiate a different form of exit agreement and payment. I do not see how it could fit within the second limb. Moreover, in its arguments before us, BlueFreeway did not press its case under the second limb but rather asserted that its loss fell under the first limb. 160 But, a fortiori, there is even less of a basis to justify the loss as falling under the first limb. It is untenable to suggest that damages flowing from the loss of an opportunity to negotiate an alternative form of an exit agreement bringing the share purchase agreement to an end was a loss "arising naturally" from the asserted breach of the implied term. 161 In summary, BlueFreeway's case based upon a breach of an implied term fails at all levels. The existence of such an implied term was not established, breach was not established, and in any event the loss now claimed did not fall under either limb of Hadley v Baxendale. Grounds 1-3 of the appellants' notice of appeal have been made out.

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H: Misleading or Deceptive Conduct Case - Pleading Point 162 Ground 4 of the notice of appeal raises a pleading point in relation to the plea of misleading or deceptive conduct. It is expressed in terms: 4. The primary judge erred in finding that the final way in which the respondents put their misleading and deceptive conduct case - namely, that the appellants' conduct was misleading in not disclosing their involvement as guarantors when they had created the impression the licence fee would be paid by genuine third-party funding and the second respondent had a reasonable expectation that this would be disclosed - was within the scope of the applicants' pleaded case or otherwise open within the proceeding. 163 The pleaded case concerning misleading or deceptive conduct has been set out earlier. 164 True it is that paragraphs 15A and 15AC of the further amended statement of claim plead the two representations but do not in terms plead a failure to disclose. But it will be appreciated that paragraph 15AC incorporates by reference the pleas in paragraphs 12B and 12C. These paragraphs plead the following: 12B. Without the knowledge or consent of the applicants the respondents procured the following transactions to occur: (a) on 28 June 2007, NAB granted CMUK (Aust) Pty Limited a bill facility with a limit of $4.3 million ("Bill Facility"); (b) each of the respondents provided a guarantee and indemnity for $4.3 million to CMUK (Aust) Pty Limited which was supported by a term deposit letter of set off for $4.3 million by each of the respondents; (c) the Licence Fees were paid to the first applicant from CMUK (Aust) Pty Limited on 29 June 2007; (d) the Bill Facility expired on 31 December 2007; (e) account 85-390-5020 in the name of the respondents was opened on 29 June 2007 with the amount of $4.3 million and matured on 31 December 2007 with an amount of $4,441,446.44; (f) the funds of $4,441,446.44 remained in account 85-390-5020 until 3 January 2008; (g) on 3 January 2008, $4,441,446.44 was transferred from account 85-390-5020 to account 65-889-7686 in the name of AOC AMS Northern; (h) on 3 January 2008, the sums of $4,300,136.75 were transferred from account 65-889-7686 to CMUK (Aust) Pty Limited account 2140-853766585 and $142,929.27 to the first respondent's account; (i) on 3 January 2008, the sum of $4,441,446.44 was transferred from an account 85-390-5020 in full repayment of the Bill Facility. 12C. The respondents did not disclose to the first applicant the fact that they themselves had procured and guaranteed payment of the Licence Fees. 165 Paragraph 12C pleads the requisite failure to disclose, which was continuing through to the execution of the exit agreement (see for example paragraph 12F). From my reading of the pleading, and consistently with how the case was run, it seems apparent from the face of paragraph 15AC (and also paragraph 15A) that the case being run was that in the context of the first and second representations, which were continuing, that it was misleading or deceptive not to make disclosure of the appellants' financial involvement in relation to the licence fee. Such a case is also consistent with how BlueFreeway opened its case below (see [5], [22], [29], [32]-[34] and [42] of BlueFreeway's opening outline dated 22 November 2012). 166 There is nothing in this ground of appeal. This ground is rejected for the same reasons that the learned trial judge rejected this argument ([438]-[441]).

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i: Webb - Jones v Dunkel point 167 Ground 5 contains various criticisms of the learned trial judge's findings, based essentially on the asserted significance of the failure of BlueFreeway to call Webb. It is expressed as follows: 5. The primary judge erred in his findings and conclusions in respect of the failure to call Mr Richard Webb, the then chief executive officer of the second respondent, and his application of the principles in Jones v Dunkel, in the following respects: 5.1 the primary judge failed to address the appellants' submission that Mr Webb appreciated the real likelihood that the appellants would fund or guarantee the licence fee if the originally intended third party could not fund the transaction in the financial year end 2007 and that he would have been unconcerned by such an eventuality if it had been disclosed to him; 5.2 the primary judge ought to have found that the evidence supported the following as available or possible inferences in respect of Mr Webb: 5.2.1 that he appreciated and had within his contemplation (including at the time he executed the Exit Agreement) the real likelihood that the appellants would fund or guarantee the licence fee, including, in particular, if the originally intended third party could not fund the transaction in the financial year end 2007 which was a known possibility by 18 May 2007; 5.2.2 the he desired that if the originally intended third party could not fund the transaction in the financial year end 2007 that the appellants should take steps to ensure the transaction could still take place in that year, including by funding or guaranteeing the licence fee themselves; and 5.2.3 that, if the appellants' involvement in the transaction had been disclosed to Mr Webb: he would have been unconcerned by such an eventuality; he would not have been surprised; and he would have continued to support both the Licence Agreement and the Exit Agreement on the terms as executed; and 5.3 the primary judge should have invoked the principles in Jones v Dunkel to conclude that Mr Webb's evidence would not have assisted the second respondent and his absence from the witness box meant the inferences set out in grounds 5.2.1-5.2.3 should be drawn. 168 Before dealing with these criticisms, it is important to set out some context and more specifically his Honour's factual findings that have not been expressly challenged. The essence of ground 5 is that his Honour should have found that Webb appreciated the real likelihood that the appellants would fund or guarantee the licence fee and that it was his desire that they should assist to fund it, if necessary. Moreover, it is asserted that if Webb had known of their involvement, he would have been unconcerned. It is then said that in Webb's absence, a Jones v Dunkel inference (Jones v Dunkel (1959) 101 CLR 298) should have been drawn such as to, in effect, establish positively the propositions set out in grounds 5.2.1-5.2.3. 169 This ground also lacks substance, particularly in light of his Honour's detailed and methodical findings as to knowledge and causation, which have not been expressly challenged. 170 His Honour found the following: • McDonnell had no such knowledge (at [127], [129]-[130] and [165]); • The 6 March 2007 Aurora Place café meeting did not establish any such knowledge or such alleged encouragement or authorisation by Webb (at [129], [164], [225]-[226], [279]-[281], [295]); • Barnes' evidence concerning Webb's knowledge was tenuous if not speculative [249]-[250]; Barnes did not expressly tell Webb of his involvement in funding; • Barnes' evidence was not accepted by the judge unless it was "supported by contemporaneous and non self-serving documentation" (at [267]); there was no such documentation supporting Webb's alleged knowledge as asserted by the appellants; • Hawksley's evidence that Webb knew that Hawksley and Barnes were financing the licence fee was rejected by his Honour (at [308]); • Hawksley gave evidence that he never told Webb of his involvement (at [318]); • Hawksley's evidence was also not accepted by the judge unless it was "supported by contemporaneous and non self-serving documentation" (at [319]); • Barnes and Hawksley "deliberately concealed their role" (at [370]); • The financing arrangements "were orchestrated by [Barnes and Hawksley] in a manner which was calculated to suppress the truth" (at [393]); and • From Barnes' and Hawksley's viewpoint "it was essential during the period of the negotiations leading up to the Exit Agreement that their role as financiers be kept secret" (at [394]). 171 No ground of appeal expressly challenges any of these findings. 172 More specifically, at [460] his Honour carefully drew these threads together and concluded the following: • Barnes and Hawksley had not established that Webb or McDonnell were aware of their role as financiers; • The 6 March 2007 Aurora café meeting did not establish either knowledge or authorisation on the part of Webb or encouragement on the part of Webb; • As for the early May 2007 Barnes meeting with Webb and Hawksley, his Honour concluded that "Barnes' evidence and its reference to 'knowing glances' [did not provide] an adequate evidentiary basis to give rise to an inference which then attracts the principle in Jones v Dunkel"; • Barnes and Hawksley "secretly financed the transaction"; and • Neither Barnes nor Hawksley claimed that "they subsequently told either Mr Webb or Mr McDonnell that they had personally procured payment of the licence fee by CMUK in the way that they did. Indeed, their evidence is to the contrary. They both say that they did not disclose the fact or details of their involvement". 173 Again, no ground of appeal expressly challenges any such findings. 174 Given such express findings, including the rejection of much of Barnes' and Hawksley's evidence, it is difficult to see how this ground could be maintained. At best for the appellants, a Jones v Dunkel inference might have added to the evidentiary landscape for what it was worth. But it is not demonstrated at all how, in the totality of the evidence, his Honour was in error in not making the findings set out in grounds 5.2.1-5.2.3, particularly given his Honour's positive findings, including credit findings, that have not been challenged. 175 The statement in ground 5.3 seems to be divorced from the totality of the evidence and the findings made by his Honour, as set out above, that have not been challenged. Further, as for ground 5.1, it is apparently from the recitation of the findings set out earlier that his Honour carefully assessed the position of Webb as to his knowledge. It also has no substance. 176 It is worth restating what the plurality said in Australian Securities and Investments Commission v Hellicar (2012) 247 CLR 345 at [165]: Disputed questions of fact must be decided by a court according to the evidence that the parties adduce, not according to some speculation about what other evidence might possibly have been led… 177 Further, it is to be recalled that a Jones v Dunkel inference usually addresses the scenario of an absence of direct evidence on a topic, rather than being used to contradict direct evidence on that topic. 178 Generally, it may be queried how far the resort to the refuge of Jones v Dunkel takes the appellants. First, BlueFreeway was not simply relying upon inference as to lack of knowledge. It had adduced the direct evidence of McDonnell. Moreover, the appellants in evidence below accepted that they had not directly told Webb of their financing role. Second, on one view, Webb's absence was explained (see [217]-[219] of his Honour's reasons). It is to be recalled that BlueFreeway sought Webb's cooperation but by the time of trial, Webb was no longer involved with the BlueFreeway group and was uncooperative. Third, the absence of Webb and any inference to be drawn, at most, was only something for the learned trial judge to take into account with the matters referred to above (at [170]-[172]). Further, in light of such express findings referred to above ([170]-[172]), Webb's absence could not reasonably have been expected to have changed his Honour's findings. Indeed, given the evidence of McDonnell, the equally likely inference to have been drawn would have been that Webb, if called, would have given evidence consistent with that given by McDonnell. 179 His Honour addressed the absence of Webb as a witness and any potential Jones v Dunkel inference with some care (see [217]-[219], [460(f)] and [511]). There is no reason to disagree with his Honour's exposition of principle or its application. But in any event, even if a Jones v Dunkel inference had been drawn, it is not shown how that would or should have resulted in different factual findings when one considers the totality of the evidence, including his Honour's non-acceptance of Barnes' and Hawksley's evidence.

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J: Misleading or Deceptive Conduct and Reliance - Facts 180 Ground 6 contains a miscellany of complaints dealing with his Honour's factual findings on the misleading or deceptive conduct case and on reliance and causation. None of them have any substance. It is expressed as follows: 6. In the alternative to ground 4, the primary judge erred in finding the appellants' conduct to have been misleading or deceptive in not disclosing to the board of the second respondent the nature and extent of their involvement after they had created an impression that the licence fee would be paid by CMUK, with genuine third-party funding and that the second respondent had made out its case of reliance and causation in that: 6.1 the second respondent's cause of action for misleading and deceptive conduct was that it suffered loss and damage by reason of its execution of the Exit Agreement on or about 1 November 2007 when but for such conduct the Exit Agreement would not have been executed; 6.2 the decision to enter the Exit Agreement was made by Mr Webb as chief executive officer of the second respondent and/or it was within his authority to execute the Exit Agreement on behalf of the second respondent; 6.3 Mr Webb did not give evidence that he was misled or deceived by the alleged conduct or that he would not have executed the Exit Agreement but for the alleged conduct of the appellants; 6.4 there was no evidence that a majority of the board of the second respondent at the time of entry into the Exit Agreement was misled or deceived by the alleged conduct or that they would not have executed the Exit Agreement but for the alleged conduct of the appellants; 6.5 None of the respondents' witnesses gave evidence that they were misled by, or relied upon, the pleaded conduct of the appellants in forming the opinion or obtaining the impression that the licence fee would be paid by CMUK, with genuine third-party funding 6.6 the primary judge ought to have found that Mr Webb appreciated and had within his contemplation (including at the time he executed the Exit Agreement) the real likelihood that the appellants would fund or guarantee the licence fee, including, in particular, if the originally intended third party could not fund the transaction in the financial year end 2007 which was a known possibility by 18 May; 6.7 the appellants repeat the findings which they say should have been made as set out in ground 5.3 above; and 6.8 such findings were otherwise against the weight of the evidence. 181 As for ground 6.1, it only refers to the pleaded case and does not add anything. 182 As for grounds 6.2, 6.3 and 6.6, they deal with the position of Webb. For the reasons expressed earlier, ground 6.6 is rejected. As for grounds 6.2 and 6.3, they miss two points. First, McDonnell was a signatory to the exit agreement. If full disclosure had been made, McDonnell would not have executed the exit agreement. Second, McDonnell was not the "cat's paw" of Webb (at [178]). McDonnell would have drawn the relevant issue to the Board's attention; so too, perhaps, would have Webb. In that circumstance the exit agreement would not have been signed. Webb would not have been the sole decision maker in the scenario where full disclosure had been made. Grounds 6.2, 6.3 and 6.6 fail. 183 As for grounds 6.4 and 6.5, Greiner, Daniel and McDonnell gave evidence that they did not have the requisite knowledge. Moreover, his Honour's findings as to how they would have acted if they had known of the relevant matters have been set out earlier. Ground 6.5 is also carefully expressed in terms of the "pleaded conduct". I have, in dealing with ground 4, rejected that narrowness of lens. 184 Further, direct evidence of reliance was not necessary. As was said by this Court in Dominelli Ford (Hurstville) Pty Ltd v Karmot Auto Spares Pty Ltd (1992) 38 FCR 471 at 483 per Beaumont, Foster and Hill JJ, absence of direct evidence of reliance is not fatal. Absence of such direct evidence does not necessarily preclude a finding of reliance. Moreover, any question of what they would have done if the information had been disclosed would necessarily be hypothetical. As was said by this Court, "[a]s such, the answer, in itself, might well be regarded as carrying little weight and being essentially self-serving". The appellants referred to some observations in Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304 at [55] per French CJ and at [147] per Gummow, Hayne, Heydon and Kiefel JJ to suggest that his Honour could not "put forward his own assessment of what may have happened in the absence of any director saying what they in fact would have done". These passages do not stand for that proposition in such generality. First, in that case, only the evidence and state of mind of one person, Mr Weeks was being considered. That is not this case. Second, all that the Court said at [147] was that "…it was not open to the Court of Appeal to infer, from its own assessment of the materiality of the representation and its own assessment of whether the representation was calculated to induce entry into a contract, that Mr Weeks would not have proceeded with the share purchase". But in the present case, his Honour was not proceeding on the basis of such a limited foundation. 185 If one considers separately or cumulatively each element of ground 6, they have no substance.

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K: Valuation of Loss of Opportunity 186 Ground 9 criticises his Honour's valuation of the lost opportunity. 187 The pleading issue referred to in grounds 7 and 8 has been dealt with already and such grounds upheld (see earlier at [73]-[123]). 188 But if I am incorrect in my analysis of grounds 7 and 8, then there is otherwise no reason to disagree with his Honour's valuation approach either as to the principles that he applied or their application, even accepting the forensically challenged list of imponderables and uncertainties in his Honour's valuation. No doubt the number and scope of these imponderables and uncertainties could have been significantly reduced if the alternative scenario had been properly pleaded and run. But in terms of his Honour's findings based upon the material he had to work with, assuming for the sake of argument for the moment that the alternative case was properly within the pleadings, they do not bespeak any error in his Honour's approach. 189 Generally, this was a case where "a plaintiff cannot adduce precise evidence of what has been lost" (Placer (Granny Smith) Pty Ltd v Thiess Contractors Pty Ltd (2003) 77 ALJR 768 at [38] per Hayne J). In such a case, "estimation, if not guesswork, may be necessary in assessing the damages to be allowed". Moreover, as Callinan J pointed out at [68], where a "respondent was deceitful in respect of the very subject matter of the claim, no court should be too critical of imperfections in the proof of a claim by the party who has been deceived, and repeatedly so, in respect of its subject matter". Further, as his Honour also said at [72]: Fifthly, in assessing damages a court does the best it can. A judge relies on predictions and probabilities. More generally, as was said in Fink v Fink (1946) 74 CLR 127 at 143 per Dixon and McTiernan JJ, "[w]here there has been an actual loss of some sort, the common law does not permit difficulties of estimating the loss in money to defeat the only remedy it provided for breach of contract, an award of damages". 190 More specifically, where one is evaluating a head of damage based upon the loss of a chance or opportunity, there are two questions to consider. The first question is whether there has been such a lost opportunity. This is determined on the balance of probabilities (Rufo v Hosking (2004) 61 NSWLR 678 at [9] per Hodgson JA). The second question is what is the value of that lost opportunity. This is to be decided on the possibilities or probabilities of the case (see Daniels v Anderson (1995) 37 NSWLR 438 at 530-1 per Clarke and Sheller JJA; Sensis Pty Ltd v McMaster-Fay [2005] NSWCA 163 at [54]-[56] and Sellars v Adelaide Petroleum NL (1994) 179 CLR 332 at 365-8 per Brennan J). 191 His Honour properly applied these principles. Ground 9 lacks content. All that it does is to highlight the imponderables and uncertainties, but that does not bespeak any error. 192 As for ground 10, this raises a Browne v Dunn question. In one sense, the absence of cross-examination on the question of the loss of opportunity goes to the significance of the pleading question (and the absence of a claim for this head) that has been discussed earlier. But assuming that I am wrong on the pleading question, the absence of cross-examination on the topic was only one matter for his Honour to consider. It did not entail a rejection of this head of claim (if it was otherwise within the pleadings). The appellants put a submission that his Honour could not make a finding on the "loss of opportunity" case where Browne v Dunn had not been satisfied. They referred to Prepaid Services Pty Ltd v Atradius Credit Insurance NV [2013] NSWCA 252 at [55] per Meagher JA. But that was a different case where what was in issue was the state of mind of one individual only going to whether a finding of fraud based upon conscious indifference should be made based upon that state of mind. Such a singular and narrow focus, where fraud was alleged, is not an analogue for the present case. It is not useful to, first, decontextualise Meagher JA's observation and then, second, to apply it to an entirely different set of circumstances. Moreover, it may be considered that the rule in Browne v Dunn in any event may not have required the cross-examination of Barnes and Hawksley on some aspects of the hypothetical scenarios. His Honour in any event took this issue into account (at [526]).

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L: Releases - Clause 10 of The Exit Agreement 193 Grounds 11-14 of the notice of appeal deal with various criticisms relating to his Honour's treatment of the releases in the exit agreement. 194 Clause 10 of the exit agreement provided: 10. Releases 10.1 Release Except as set out in clause 10.2, in consideration of the Sellers agreeing to the earn out cancellation set out in clause 7 and Blue Freeway making the Additional Payment in accordance with clause 6 the parties agree that upon the Termination Date they irrevocably, fully and finally discharge and release each other from any claims, actions, proceedings or demands of any nature that party has or may have had against the other party under the Share Purchase Agreement, the Management Agreement, the Barnes ESA and the Hawksley ESA or howsoever arising from the purchase by Blue Freeway of the shares in the Companies, including, but not limited to, under or in relation to the early termination of the Hawksley ESA or the Barnes ESA. 10.2 Exceptions The release under clause 10.1 does not apply in relation to any claims, actions, proceedings or demands arising under: (a) this agreement; (b) the Non-Compete Agreement; (c) any agreement entered into by the parties in the future; or (d) clauses 6.2, 7 or 12, or warranties 8 or 20 in schedule 8, of the Share Purchase Agreement, in the period up to the date which is 6 months after the Termination Date. 195 The appellants asserted before his Honour that any claim for relief was released by clause 10, although query its operation and effect concerning the statutory misleading or deceptive conduct claim; I put that issue to one side. 196 His Honour at [489]-[491] rejected the appellants' assertion, stating: 489 For the following reasons, I reject the respondents' reliance on the release clause. First, I do not consider that the clause applies to defeat a claim such as that made here which arises out of matters which were not in the knowledge of the applicants at the time the Exit Agreement was executed. In his decision at first instance in United States Surgical Corporation v Hospital Products International Pty Ltd [1982] 2 NSWLR 766 at 818, and in his Honour's customary fashion, McClelland J carefully analysed the effect of a release clause in circumstances similar to here and made the following pertinent observations (omitting case citations): It is a principle of equity "that a releasee must not use the general words of a release as a means of escaping the fulfilment of obligations falling outside the true purpose of the transaction as ascertained from the nature of the instrument and the surrounding circumstances including the state of knowledge of the respective parties concerning the existence, character and extent of the liability in question and the actual intention of the releasor": Grant v John Grant & Sons Pty Ltd. Indeed the examination of the authorities undertaken by the High Court in that case indicates that a substantially similar rule operates at common law. In Grant v John Grant & Sons Pty Ltd, the High Court quotes with approval the following words of Lord Westbury in London and South Western Railway Co v Blackmore: "The general words in a release are limited always to that thing or those things which were specially in the contemplation of the parties at the time when the release was given." and the following words of Tunton J in Upton v Upton: "…the general words of a release may be limited by the particular matter out of which the release springs, and the particular intent of the parties by whom the release is executed…" It is abundantly clear that it was not contemplated by the parties that the release in question would extend to liability arising from Mr Blackman's and HPI's activities in Australia, or a fortiori, to activities of the kind the subject of these proceedings, which were concealed from USSC. (Footnotes omitted). 490 This analysis of the relevant principles was not challenged in the appeal to the High Court in that litigation and I respectfully adopt it. 491 Secondly, for the reasons I have given above, I have accepted the applicants' contention that BlueFreeway did not have knowledge of the true circumstances under which CMUK had financed the licence transaction. Its lack of knowledge was due in no small part to the steps taken by the respondents to hide those circumstances from BlueFreeway. I accept the applicants' contention that it would be unconscionable for the respondents to rely upon a general reading of the terms of cl 10.1 which would have the effect of defeating their claim for damages based on the respondents' misleading or deceptive conduct. 197 Ground 11 asserts that his Honour was in error, in terms: 11. The primary judge erred in concluding that clause 10 of the Exit Agreement, on its proper construction, did not operate to release the appellants from the second respondent's claim. 198 In my view his Honour was correct in reading down the generality of clause 10 such that it did not apply to "matters which were not in the knowledge of the applicants at the time the Exit Agreement was executed" (United States Surgical Corporation v Hospital Products International Pty Ltd [1982] 2 NSWLR 766 at 818 per McClelland J). I would prefer to express it in terms, however, that the release did not apply to matters not within "the contemplation of the parties" at the time the release was given. The appellants have pointed to the breadth of the language of clause 10, but that does not negate the force or operation of the said principle. 199 Ground 12 asserts that his Honour was in error, in terms: 12. The primary judge erred in finding that the second respondent at the relevant time did not have within its contemplation that the appellants may have financed or guaranteed the licence fee under the licence transaction in connection with his conclusion that clause 10 of the Exit Agreement did not operate to release the appellants from the second respondent's claims. Ground 13 is an elaboration on this notion. 200 But his Honour's factual findings do not display any such error. His Honour found that "BlueFreeway did not have knowledge of the true circumstances under which CMUK had financed the licence transaction" (at [491]). See also his findings at [87], [102], [127] and [130] in relation to Greiner, Daniel and McDonnell. None of them knew or suspected that the appellants had or may have financed or guaranteed the licence fee. Those factual findings have not specifically been challenged by the appellants. Further, his Honour found that the appellants "deliberately concealed" their role in the financing (at [370]), that "the financing arrangements were orchestrated by the respondents [the present appellants] in a manner which was calculated to suppress the truth" (at [393]). See also [460]. None of these specific findings have been the subject of any express challenge by the appellants. His Honour's finding at [491] as to lack of knowledge has not been impeached. 201 The appellants' factual assertion embedded within ground 12, that it was within BlueFreeway's contemplation that the appellants "may have financed or guaranteed the licence fee", is inconsistent with his Honour's factual findings. Moreover, in using the expression "may have", the appellants set the bar too low in terms of what was required to be in contemplation for the purposes of determining the application of the scope of the release. Ground 13 seeks to deal with the matter in another way through the position of Webb's state of mind. But not only do such matters involve a degree of speculation, because Webb was not called, but such matters do not controvert his Honour's express findings of lack of knowledge referred to above. The appellants assert that "[t]he Respondents bore the onus of establishing such lack of knowledge" (at [54] of the appellants' outline of submissions dated 7 July 2014). If they did, then they discharged it according to his Honour's findings. Further, it is untenable to assert that they could not discharge it in the absence of calling Webb. Neither ground 12 nor ground 13 are made out. 202 Given that grounds 11-13 are not made out, it is not necessary to deal with ground 14, although it is noted that BlueFreeway's reply pleaded the same (although there was apparently an unresolved objection thereto made by the appellants - see [57] of the appellants' outline of submissions dated 7 July 2014).

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Judgment (43 paragraphs)

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Legislation Cited (1)

Cases Cited (28)