Barrett v Maradaca Pty Ltd

THE CONSTITUTION AND CONDUCT OF THE PROCEEDINGS

1. The constitution and conduct of the proceedings are marked by procedural irregularities which do not affect the validity of the proceedings, but require notice.
2. The plaintiffs are three in number. They do not share a common representation. The first and second plaintiffs (the first and second cross defendants), both shareholders of BRS before its acquisition by the cross claimants, appear in person as self-represented litigants. The third plaintiff (the third cross defendant), the majority shareholder of BRS before its acquisition by the cross claimants, appears by a solicitor and counsel.
3. The leave granted to the defendant to file a cross claim included leave for the joinder of the defendant's assignee as a second cross claimant, and leave to join, as a fourth cross defendant, the principal of the corporation designated as the third plaintiff/third cross defendant.
4. The fourth cross defendant was sued, inter alia, as a principal, in his personal capacity.
5. At the final hearing of the proceedings the first and second plaintiffs (the first and second cross defendants) gave evidence in the case of the third plaintiff (the third cross defendant), and largely adopted the submissions of the third plaintiff (the third cross defendant), after an acknowledgement that they understood that, in some respects, their interests and those of the third plaintiff (the third cross defendant) and the fourth cross defendant diverge.
6. As the director of the majority shareholder of BRS, with a personal stake in a sale of BRS, and a person with practical experience in most facets of information technology and with mergers and acquisitions, the fourth cross defendant (on his own evidence) "took on the responsibility for the negotiation process" with parties interested in acquisition of BRS.
7. The first plaintiff/cross defendant and the second plaintiff/cross defendant worked for the cross claimants on a consultancy basis.
8. All three men were personally known to Ms Marie Kaliviotis (formerly known as Ms Marie Bolton), the principal of the cross claimants.
9. The defendant/cross claimants were represented by the same solicitor and counsel. It is common ground that the principal of both those parties (corporations), and their controlling mind, was, at all material times, their main witness, Ms Kaliviotis.
10. At the hearing of the proceedings the cross claimants, without objection on the part of the cross defendants, withdrew some allegations and abandoned some claims for relief.
11. By agreement, modifications of the cross claimants' case, and the response of the third and fourth cross defendants to that modified case, were recorded in documents marked for identification (respectively MFI D4 and MFI P10) without any necessity for a formal amendment of the pleadings. The documents marked for identification were treated by all parties as aids to their respective submissions.
12. In final submissions, the cross claimants formally recorded that: 1. they did not press claims for breach of section 21 of the Australian Consumer Law or for breaches of the Australian Securities and Investments Commission Act 2001 Cth or the Corporations Act 2001 Cth other than their claim for misleading and deceptive conduct, articulated primarily by reference to sections 18 and 236 of the Australian Consumer Law; and 2. they did not pursue any damages claim on behalf of the defendant/first cross claimant on its own behalf.
13. The proceedings were conducted on the basis that, although the defendant/first cross claimant was a necessary party (as a buyer of shares from the plaintiffs and assignor of rights to the second cross claimant), any damages recoverable on the cross claim are recoverable by the second cross claimant, commercially the intended purchaser of BRS, not the defendant/first cross claimant.
14. The nature of the real issues for determination in the proceedings was such as to commend to the parties, and to the Court, that the cross claimants have carriage of the hearing. As a practical matter, counsel for the cross claimants opened their case and adduced evidence on their behalf, followed by presentation of the case for the third plaintiff/third cross defendant and the fourth cross defendant by their counsel, with intervention by the first plaintiff/first cross defendant and the second plaintiff/second cross defendant as they deemed appropriate.

THE QUESTIONS IN DISPUTE

1. In summary terms, the primary questions for determination in the proceedings are: 1. whether the cross claimants (respectively, as buyer of the shares in BRS and assignee of the buyer) were induced to acquire the shares by conduct of the cross defendants which was "misleading or deceptive" within the meaning of section 18 of the Australian Consumer Law, applicable to corporations pursuant to section 131 of the Competition and Consumer Act 2010 Cth, and to individuals pursuant to sections 28 and 32 of the Fair Trading Act 1987 NSW; and 2. if so, whether the second cross claimant (which funded the first cross claimant's acquisition of the shares and took an assignment of the first cross claimant's rights under the share sale agreement) is entitled to an award of damages under section 236(1), or an award of compensation under section 237, of the Australian Consumer Law.
2. A determination of those questions (with the parties' focus on sections 18 and 236 of the Australian Consumer Law) is likely, in substance, to determine or render otiose the following subsidiary questions: 1. whether the plaintiffs are liable to the second cross claimant for damages for: (i) a contravention of legislative equivalents of sections 18 and 236 of the Australian Consumer Law; (ii) a breach of warranties given by the plaintiffs in the Share Sale Agreement; or (ii) negligent misstatements which induced the second cross claimant, upon an expectation of taking an assignment of the first cross claimant's rights under the Share Sale Agreement, to acquire the shares; and 2. whether the second cross claimant is entitled (as the first cross claimant's assignee), by way of cross-claim or set off, to the security fund held in escrow as security for any claim for damages for breach of the warranties given by the plaintiffs to the first cross claimant in the Share Sale Agreement.
3. For practical purposes, if the second cross claimant is held entitled to an award of damages for conduct of the cross defendants in contravention of the Australian Consumer Law, these subsidiary questions may fall away because of the compensatory character of each type of claim made by the second cross claimant and the availability of the security fund for execution of any judgment for damages in favour of the second cross claimant.
4. If the cross defendants or any of them are held liable to pay damages to the second cross claimant for misleading or deceptive conduct, ancillary questions are: 1. whether any award of damages in favour of the second cross claimant under section 236(1) of the Australian Consumer Law should be reduced (pursuant to section 137B of the Competition and Consumer Act 2010 Cth) "to the extent to which [the Court] thinks just and equitable having regard to [the second cross claimant's] share in the responsibility for the loss or damage" suffered by it as a result of the cross defendants' contravention of section 18 of the Australian Consumer Law. 2. whether (pursuant to sections 87CB and 87CD of the Competition and Consumer Act 2010 NSW) the liability of the cross defendants, as concurrent wrongdoers, should be "limited to an amount reflecting that proportion of the damage or loss claimed [by the second cross claimant] that the Court considers just having regard to the extent of the [cross defendants'] responsibility for the damage or loss".
5. It is at this point, if no other, that the interests of the first plaintiff/first cross defendant and the second plaintiff/second cross defendant are in conflict with the interests of the third plaintiff/third cross defendant and the fourth cross defendant.
6. Upon a review of the contractual documentation underlying the proceedings, notice should be taken that not all parties to the Share Sale Agreement are parties to these proceedings. The contest is between the plaintiffs (with the fourth cross defendant) and the defendant (with the second cross claimant) in circumstances in which the plaintiffs (the first, second and third cross defendants) were, the "major shareholders" of BRS and the parties which agreed to the security fund being withheld from proceeds of sale otherwise due to them.

COMMERCIAL CONTEXT

1. At times material to the sale of its shares to the defendant (between May 2014 and April 2015 or thereabouts) BRS was in the business of providing specialist Enterprise Video and Digital Media Managed Services to a clientele which included a number of large corporate clients.
2. Its major customer, by far, was the telecommunications group generally known as "Optus", a subsidiary of Singapore Telecommunications Ltd.
3. In formal terms, its business relationship with Optus was governed by a "Master Services Agreement" with Alphawest Services Pty Ltd (a company related to Optus Administration Pty Ltd) expressed to operate for a particular term, from time to time renewed, but subject to an express right of termination.
4. The term of the Master Services Agreement ("MSA") in operation in 2014/2015 was expressed to have commenced 19 July 2013 and to have been for three years. It provided the "terms of trade" governing a purchase of services by an Optus-related company from BRS as supplier. By clause 29, it also provided an orderly process for "disengagement" of Optus and BRS upon termination of the Agreement.
5. The MSA included, as clause 23.2, an "employee non-solicitation" covenant in the following terms: "23.2 Employee non-solicitation. During the term of this Agreement and for 12 months after the expiry or termination of any relevant Supply Contract (whichever is longer), neither party may solicit for employment directly or indirectly through a related company or otherwise employ, or engage any person who is or was employed or contracted by the other during the term of this Agreement or any relevant Supply Contract, unless: (a) written approval has been obtained from the other party; or (b) the person in question has ceased to be employed or contracted by the other for a period of not less than six (6) months; or (c) the person in question has responded to a published advertisement of employment with the other party (or with any of its related parties)".
6. The ongoing viability of BRS was dependent upon maintenance of competent, skilled staff and its commercial relationship with Optus. Without the continued support of Optus BRS was, at all material times, at risk of insolvency.
7. Ms Kaliviotis' interest in acquisition of BRS (despite its weak financial position) was the product of a hope that she could obtain the services of BRS' skilled staff and use the close commercial relationship between Optus and BRS to develop a commercial relationship which her group of companies already had with Optus and which she, if not Optus, regarded as a good, mutually beneficial relationship. Because of that hope she was prepared, in December 2014, to acquire BRS despite current and projected losses and a requirement that the company be financially supported by her group until at least March 2015. She had such confidence in her ability to work constructively with Optus that, in December 2014, she accepted a risk that, if her group acquired BRS, Optus might terminate the MSA and entice BRS employees to join its staff.
8. The dispute between the parties in these proceedings is brought into sharp focus by the facts that: 1. in the period before 5 December 2014 Ms Kaliviotis' group and Optus were both, in competition with each other, prospective purchasers of the shares in BRS; 2. on 5 December 2014 the shareholders of BRS agreed, on terms to be the subject of ongoing negotiations, to sell their shares to Optus, thereby rejecting the competing offer of Ms Kaliviotis; 3. between 5 December 2014 and 19 January 2015 Ms Kaliviotis' companies proceeded upon an assumption that BRS would be acquired by Optus, without any prospect of their acquiring an interest in the company; 4. by 19 January 2015 the cross defendants had formed a view (not communicated to, or shared by, Optus) that Optus had disclaimed its intention to acquire BRS; 5. concerned by a prospect that (in the absence of external support such as might be available on a takeover of BRS) the company would become insolvent on 28 January 2015, the Board of Directors of BRS, in concert with the cross defendants, on19 January 2015 invited Ms Kaliviotis to acquire BRS on substantially the same terms as the offer of her group which was rejected on 5 December 2014; 6. Ms Kaliviotis was persuaded to accept that invitation on terms that included (as suggested by the cross defendants) provision of a $200,000 security fund against the possibility of claims being made on warranties given by the plaintiffs as the sellers of BRS shares; and 7. in accepting that invitation, Ms Kaliviotis was not told of developments in the legal and commercial relationship between BRS and Optus (consequent upon the decision made by BRS' shareholders on 5 December 2014 to sell their shares to Optus) which changed the nature of (and increased) the risk, that if Optus did not acquire BRS, it would terminate its contractual arrangements for the supply of services by BRS and "poach" BRS' skilled employees, thereby frustrating Ms Kaliviotis' commercial objectives in causing the cross claimants to acquire BRS.
9. The urgency which attended the making (between 19 and 28 January 2015) of arrangements for the cross claimants to acquire BRS did not enable them to pursue any due diligence inquiries beyond inquiries made before 5 December 2014.
10. The cross defendants collectively took the view that it was neither necessary nor appropriate for them to disclose to Ms Kaliviotis the course of BRS's dealings with Optus after 5 December 2014, including: (a) the terms of Optus' offer to acquire the company, embodied in a document dated 4 December 2014 styled "Term Sheet" and a related agreement dated 4 - 5 December 2014 styled "Memorandum of Understanding (MOU)".
11. The cross claimants complain that the cross defendants engaged in misleading and deceptive conduct by allowing them to acquire BRS on substantially the terms contemplated before 5 December 2014 without disclosing to them developments in the conduct of the affairs of BRS (including, especially, developments in the relationship between BRS and Optus) after that date.
12. They complain that they were, by the cross defendants' failure to disclose material facts, induced in late January 2015 to acquire BRS in circumstances in which Optus regarded BRS as being in breach of its obligations to Optus, and liable to have the MSA terminated by Optus and its key employees recruited by Optus, thereby defeating the substantial commercial purpose of the cross claimants in their acquisition of BRS.
13. The cross claimants contend that, by reason of this misleading and deceptive conduct on the part of the cross defendants, they were induced to acquire BRS in circumstances in which (because of prejudice to BRS' commercial relationship with Optus and a heightened risk of loss of skilled staff) the shares in BRS they acquired had no value. At core, they seek to recover damages in an amount equal to what was paid as the purchase price for the shares.
14. The cross defendants contend that the cross claimants have failed to make out the elements required to be proved for an award of damages or compensation for misleading and deceptive conduct. In particular, they contend that (in the person of Ms Kaliviotis) the cross claimants were sophisticated commercial players, experienced in the industry in which BRS operated, who voluntarily accepted commercial risks associated with their acquisition of BRS, including a disclosed risk that, if they acquired BRS, Optus would terminate the MSA.

THE SHAREHOLDERS OF BRS

1. At the time of the sale of shares in BRS to the cross claimants, it had six shareholders (not all of whom are parties to the present proceedings): 1. Mr JL Barrett (the first plaintiff/cross defendant) was beneficial owner of 13.48 % of the issued share capital of the company. 2. Mr S Moran (the second plaintiff/cross defendant) was beneficial owner of 24.5% of the issued capital. 3. Wirra Wirra Investments Pty Ltd (the plaintiff/third cross defendant) was the registered owner of 51 % of the issued capital as trustee for the Wormald Trust. 4. Mr MP Reddie was beneficial owner of 3.68 % of the issued capital. 5. Mr AJ Allsopp was also beneficial owner of 3.68 % of the issued capital. 6. Adsam Investments Pty Ltd was the registered owner of 3.68 % of the issued capital as trustee for the Trayer Family Trust.
2. The three plaintiffs (Mr Barrett, Mr Moran and Wirra Wirra Investments Pty Ltd) were described in the evidence as "the Major Shareholders", an expression at times loosely taken to include Mr Wormald (the fourth cross defendant) as beneficial owner of one half of the shares of Wirra Wirra Investments Pty Ltd (that is, 25.5% of the issued capital of BRS).
3. The first plaintiff/cross defendant (Mr Barrett) was the founder of BRS, and a shareholder of the company from its foundation in 2001 until its acquisition by the cross claimants on 28 January 2015. Although he had earlier served as a director of the company, he was not a director of BRS in 2014 or 2015. Between February 2014 and November 2015 or thereabouts he worked as a consultant for the cross claimants.
4. The second plaintiff/cross defendant (Mr Moran) was also a shareholder of BRS from its foundation until its sale to the cross claimants. Although he too had earlier served as a director of the company, he was not a director of BRS in 2014 or 2015. Like the first plaintiff/cross defendant, he worked as a consultant for the cross claimants between June 2014 and December 2015 or thereabouts.
5. The fourth cross defendant (Mr Wormald) was a shareholder and director of BRS from its foundation until its sale. Unlike the first plaintiff/cross defendant and the second plaintiff/cross defendant, he did not work for the cross claimants as a consultant. On his own account, he was active in management of the affairs of BRS and in negotiations with Optus and the cross claimants. He is to be viewed as a player in his own right, not merely as an agent of the third plaintiff/cross defendant or BRS.
6. It was Mr Wormald who prepared a "Discussion Points" paper dated 17 October 2014 which he personally used as a sales pitch to Ms Kaliviotis to encourage her to maintain her interest in acquisition of BRS. He it was who marshalled the cross defendants in their endeavours to sell the company (the whole of the shareholding of the company, not merely a limited number of shares) during the critical days of 4-5 December 2014 (when the major shareholders opted for Optus as buyer over the defendant/first cross claimant) and 16-28 January 2015 (when the major shareholders decided to pursue a sale of BRS to the cross claimants instead of Optus).
7. Via his personal email, he was an active correspondent in a flurry of emails on 16 January 2015 which put in train the approach of Mr Barrett (on behalf of the major shareholders) to Ms Kaliviotis on 19 January 2015 to persuade her to have the cross claimants acquire BRS. He participated in meetings of BRS officers and shareholders that culminated in the documentation that evidenced a sale of BRS' shareholding to the defendant/first cross claimant upon the basis that, via an assignment by the defendant/first cross claimant to the second cross claimant, the effective purchaser of BRS would be the second cross claimant.
8. He personally joined with Messrs. Barrett Moran and others in deciding upon, and giving effect to, this arrangement. He did so with personal knowledge of BRS' (and the third plaintiff/cross defendant's) contractual arrangements for Optus to acquire BRS, and Optus' engagement with BRS staff in anticipation of Optus' acquisition of BRS.
9. Despite his personal encouragement of Ms Kaliviotis as a prospective purchaser of BRS on or about 17 October 2014, he took no steps, directly or indirectly, to warn Ms Kaliviotis, during the critical period of 19-28 January 2015, that there had been a fundamental change in the legal and commercial relationship between BRS and Optus following the BRS shareholders' acceptance on 5 December 2014 of Optus' offer to acquire the company.
10. As the sole director of the major shareholder of BRS, nothing could be done to effect a sale of the whole of the shares in BRS without his approval.
11. In one guise or another, each of "the Major Shareholders" is named as a party in the proceedings. Messrs Barrett, Moran and Wormald all gave evidence and were cross examined.
12. The "minor shareholders" (Mr Reddie, Mr Allsopp and Adsam Investments Pty Ltd) are not named as parties in the proceedings. Nobody gave evidence on their behalf.
13. Only Mr Reddie, in absentia, was mentioned prominently in the evidence. This was by virtue, particularly, of attribution to him of a threat (ostensibly on behalf of Optus) to poach BRS staff, irrespective of the "Employee non-solicitation" covenant in the MSA, if the cross claimants acquired BRS. At the time of the Share Sale Agreement, he was a former employee of BRS; a current employee of Optus; and, it seems, a dissident shareholder in BRS.

THE SHARE SALE AGREEMENT AND ANCILLARY DOCUMENTS

1. The Share Sale Agreement the subject of the proceedings took the form of a written contract dated 23 January 2015 styled "Share Sale and Purchase Agreement".
2. The parties to the contract were the defendant/first cross claimant (named as "Buyer") and all six shareholders of BRS (named as "the Sellers").
3. The contract provided for the defendant/first cross claimant to purchase the whole of the issued capital of BRS for a total price of $1.35 million , subject to adjustments, payable on completion of the contract.
4. The Share Sale Agreement provided for the proceeds of sale to be allocated to the Sellers in proportion to the number of shares in BRS held by them: clause 5.2. Its terms also included, inter alia, warranties given by the Sellers to the Buyer (clause 8); limitations on the liability of the Sellers (clause 9) arising, inter alia, from disclosures made by the Sellers; a "non-reliance" Clause (clause 9.3) ; an "entire agreement" clause (clause 16.8); and a qualified covenant against assignments of rights and interests under the agreement (clause 16.3).
5. Clause 8 of the Share Sale Agreement was in terms to the following effect: "8. Warranties and Indemnities 8.1 Warranties The Sellers give the Warranties [defined by clause 1.1 as "the representations and warranties set out in schedule 2" of the Agreement] in favour of the buyer, and represent and warrant that each of the Warranties given is accurate, complete and not misleading: (a) in respect of each Warranty that is expressed to be given on a particular date, on that date; and (b) in respect of each other Warranty, on the date of this agreement, and on each day between the date of this agreement and the Completion Date [28 January 2015] (including at completion) 8.2 Reliance The Sellers acknowledge that the Buyer enters into this agreement and completes this agreement in reliance on the accuracy and completeness of the Warranties. 8.3 Application of Warranties Each Warranty remains in full force after Completion and is separate and independent and not limited or restricted by any other Warranty or provision of this agreement."
6. Of the "representations and warranties set out in schedule 2", the cross claimants rely specifically on those contained in paragraph 15.2, which reads as follows: "The Due Diligence Materials are accurate and complete in all material respects and not misleading, and there is no information of which any Seller is aware, which would, by its own admission, render any information in the Due Diligence Materials to be inaccurate in any material respect or misleading."
7. The expression "Due Diligence Materials" is defined by clause 1.1 of the Share Sale Agreement to mean: "(a) all documents and information made available to the Buyer, its representatives or advisers from 1 October 2014, an index of which is attached as Schedule 6; (b) all written answers given to written questions submitted by the Buyer, its representatives or advisers in connection with the Buyer's due diligence investigations prior to the date of this agreement in respect of the sale and purchase of the Sale Shares; and (c) the information set out in the dropbox data room established by the Sellers in relation to the sale and purchase of the Sale Shares and referred to as '15.0 Transaction Documentation-Electroboard '".
8. The Share Sale Agreement as entered on 23 January 2015 took the form of a document which was prepared, and executed by the Sellers, in anticipation of the first cross claimant's offer (as Buyer) to acquire BRS being accepted on 5 December 2014. The "Due Diligence Materials" did not extend to documentation relating to events following the shareholders' acceptance of Optus' offer on 5 December 2014. Critically, it did not extend to disclosure of the terms of Optus' offer (the "Term Sheet" dated 4 December 2014, accepted on 5 December 2014) or the MOU dated 4 - 5 December 2014 between Optus and BRS.

Side Letter

1. At the time the Share Sale Agreement was entered, there was also made a written contract (collateral to the Share Sale Agreement), dated 23 January 2015 and styled "Side Letter", made between the first cross claimant (as "Buyer") and the plaintiffs (as "Majority Shareholders") .
2. The Side Letter included terms to the following effect: (a) If there is any inconsistency between the (then proposed) Share Sale Agreement and the provisions of the Side Letter, the provisions of the Side Letter are to prevail to the extent of the inconsistency and the Share Sale Agreement must be read accordingly: clause 2.1. (b) Upon completion of the Share Sale Agreement $200,000 of the prospective sale proceeds were "to be held in escrow by the Buyers' lawyers until the date that is 90 days after the date of "the Share Sale Agreement": clause 3.1. (c) The Buyer is "entitled to set off against the Escrow funds, any amount that is finally determined to be due and owing to the Buyer as a result of any Claim relating to a breach of Warranty under" the Share Sale Agreement: clause 3 .2. (d) The parties acknowledge that any warranty claim by the Buyer to effect a set off as contemplated by the Side Letter will be deemed to have been finally determined where the Majority Shareholders and the Buyer have agreed to the substance of such warranty claim or the warranty claim is determined by a court: clause 3.3. (e) If the Buyer has not made a warranty claim on or before the date that is 90 days after the date of the Share Sale Agreement, the Buyer's lawyers will release the escrow funds back to the majority shareholders in the proportions equal to their proportion of the majority sale shares as part of the purchase price due to the majority shareholders: clause 3.4. (f) The Buyer acknowledged that certain disclosures qualifying the Share Sale Agreement (and in particular the warranties) were disclosed in the form of an email dated 25 November 2014 addressed by BRS's solicitors to Buyer's solicitor, and that those matters fall within clause 9.1(a)(iv) of the Share Sale Agreement: clause 5.1. (g) The majority shareholders agreed to reimburse the Buyer, by way of set off pro rata against their respective proportions of the sale proceeds, for the amount of stamp duty payable by the Buyer for the transfer of the Sale Shares from the Buyer (the defendant/first cross claimant) to Electroboard Solutions Pty Ltd (second cross claimant) for an amount equivalent to the Completion Amount, provided such transfer occurs within 90 days of the date of the Side Letter: clause 7.
3. Clause 9.1(a)(iv) of the Share Sale Agreement is in the following terms: "The Buyer acknowledges and agrees that the Sellers have disclosed or are deemed to have disclosed against the Warranties, and the Buyer is aware of and will be treated as having actual knowledge of, all facts, matters and circumstances that… are within the actual knowledge of a Buyer Group Member [an expression defined by clause 1.1 to mean the Buyer and any of its Related Bodies Corporate]".
4. The reference in clause 5.1 of the Side Letter to an email dated 25 November 2014 is a reference to an email in the following terms (with emphasis added): "As discussed this morning, I [a solicitor acting on behalf of BRS and, implicitly, its shareholders] have chased for instructions from Broadreach Services (BRS) regarding the status of approval by the shareholders of the proposed sale and purchase agreement. Information has come to light on which my clients have sought our advice today regarding the impact of that information under the proposed agreement. We have advised our clients that the new information has raised significant issues under the seller warranties contemplated by the proposed agreement, such that proceeding with the proposed transaction on the basis of the current warranties would create significant material liability for the shareholders. I am instructed to disclose the matters that have come to light as follows: 1. Optus has indicated that it would not provide its consent to any change of control of BRS and therefore would terminate its Master Services Agreement with BRS upon any such change of control transaction occurring. 2. There is a risk that a number of current BRS employees would not continue their employment if the proposed transaction proceeds and, in light of the likely termination of the Optus agreement, it is consequently very likely that a significant number of employees would be lost upon the proposed transaction proceeding. 3. BRS has entered into a tax payment plan with the ATO. 4. Although perhaps not a material issue, for total transparency our clients would also like to disclose an incomplete schedule in the data room for contractual commitments. The error identified has the impact of adding $75k to the total contractual amounts outstanding (contracts generally greater than 12 months). I am instructed that this update will be added to the data room and schedule sent direct from BRS under separate cover. In light of the above, I understand from my clients that it is not possible to achieve confirmation from the shareholders that they will approve and execute the proposed sale agreement in its current form. I am therefore instructed to request that your client [the defendant/first cross claimant] will accept these disclosures against the warranties (such that the Sellers will not have any liability for any loss to BRS resulting from the matters described in the disclosures), so that this revised proposal can be submitted to the BRS shareholders. I am further instructed to request whether we can have your client's response as quickly as possible, as BRS is now in a position of needing to urgently consider its options."
5. To that email the solicitor for the first cross claimant responded (by an email dated 27 November 2014) in the following terms: "I confirm my earlier telephone advice that my client understands and accepts the disclosures made in your email of the 25th and wishes to proceed. Accordingly, subject to instructions could you kindly submit a revised Agreement."
6. The email dated 25 November 2014 is central to the cross defendants' defence to the cross claim.
7. The cross claimants acknowledge that, had their offer to acquire BRS been accepted on 5 December 2014, the first and second disclosures made in the email would have precluded any claim for relief of the type they now seek to make by reference to the Share Sale Agreement.
8. Ms Kaliviotis did not shrink from an acknowledgement that she was prepared to accept the disclosed risks in December 2014. On what she then knew, she discounted any risk upon the basis of an assumption that she would be able to persuade Optus to maintain its commercial relationship with BRS.
9. In her evidence, Ms Kaliviotis confirmed that she discounted Optus' threats because: (a) she was confident that, based upon her then commercial relationship with Optus, she could persuade Optus to continue its relationship with BRS if she acquired BRS; (b) she assumed that Optus' threats were a function of its competing offer to acquire BRS, a tactic designed to persuade the shareholders of BRS to favour Optus' offer; and (c) comforted by the "Discussion Points" document of the third plaintiff/fourth cross defendant communicated to her on or about 17 October 2014, she did not believe that Optus would, or could, quickly withdraw its business from BRS.
10. Ms Kaliviotis' complaint with what subsequently happened in late January 2015 is that the nature and magnitude of the risk to which BRS's relationship with Optus was subject, if the cross claimants acquired BRS, was materially different following acceptance by the BRS shareholders on 5 December 2014 of Optus's offer, and she was not (as she submits she ought to have been) informed of the change in circumstances before, at the invitation of the cross defendants and with their encouragement, the cross claimants entered the Share Sale Agreement and associated documentation.
11. The majority shareholders agreed (in terms of clause 7 of the Side Letter) to bear the burden of stamp duty on a transfer of shares in BRS from the defendant/first cross claimant ("the Buyer") to the second cross claimant (its assignee) because: 1. Ms Kaliviotis intended that BRS be acquired by the second cross claimant; 2. the shareholders of BRS had, in December 2014, executed a form of Share Sale Agreement predicated upon the Buyer being the first cross claimant; 3. the majority shareholders of BRS, and its Board of Directors, were keen in January 2015 to effect a sale of the BRS shares on or before 28 January 2015; 4. logistically, the shareholders of BRS were unable, in a timely manner, to execute a freshly drafted form of Share Sale Agreement showing the second cross claimant as Buyer; and 5. to facilitate a timely sale of the BRS shares, the parties agreed that the sale would be effected by the Share Sale Agreement recording the first cross claimant as Buyer, and the majority shareholders would bear the burden of any liability for stamp duty upon a transfer of shares from the first to the second cross claimants following completion of the Share Sale Agreement.

Deed of Assignment

1. On the day of completion of the Share Sale Agreement (28 January 2015) and, according to the terms of the Deed, after the fact of completion, the first cross claimant (as assignor) and the second cross claimant (as assignee) executed a "Deed of Assignment" bearing that date. Although executed five days after the Share Sale Agreement and the Side Letter, the Deed of Assignment was an integral part of a single commercial agreement intended, by the cross claimants and the cross defendants alike, to implement an agreement for the second cross claimant to acquire BRS.
2. The Deed of Assignment recited that the money required by the first cross claimant to pay the purchase price for the BRS shares acquired by it under the Share Sale Agreement was made available to it by the second cross claimant by way of a loan which, upon execution of the deed, was taken to have been extinguished. The deed provided expressly for the first cross claimant to assign to the second cross claimant all of its "right, title and interest in the Share Sale and Purchase Agreement and the Shares purchased by [the first cross claimant] from the shareholders of [BRS] to the effect that [BRS] shall as from the date [of the deed] be a wholly owned subsidiary of [the second cross claimant] as if [the second cross claimant] had acquired the Shares in [BRS]from the Shareholders thereof."

POST- 4 DECEMBER 2014 DEVELOPMENTS : OPTUS SECURES NEGOTIATION RIGHTS AND EXERCISES THEM

Dealings between BRS and Optus

1. A necessary starting point for consideration of developments in management of the affairs of BRS between 4 December 2014 (allowing for the events of 5 December 2014) and 28 January 2015 (when the Share Sale Agreement with the first cross claimant was completed and the Deed of Assignment between the cross claimants was executed) is an examination of dealings between BRS and Optus following acceptance by BRS' shareholders on 5 December 2014 of Optus' offer to buy their shares.
2. Read in the context of the MSA, two documents are of particular note: 1. a Term Sheet dated 4 December 2014 (in which Optus offered to pay $1.6 million for the issued share capital of BRS) which was accepted by BRS and its shareholders on 5 December 2014; and 2. a "Memorandum of Understanding (MOU)", expressed to be between Optus and BRS, executed by Optus on 4 December 2014 and by BRS on 5 December 2014.

Optus' Term Sheet dated 4 December 2014, accepted 5 December 2014

1. The Term Sheet was expressed to be between the third plaintiff/third cross defendant (Wirra Wirra Investments Pty Ltd), BRS and Optus or its nominee. The ostensible object of the document was to provide a legally binding regime within which the parties would negotiate one or more "Definitive Agreements" to give effect to an intention that Optus or its nominee would acquire 100 % of the issued share capital of BRS.
2. The particular "sections" of the Term Sheet expressed to be legally binding on the parties comprised the following: 1. Section 4 provided for an undertaking by BRS that "all expenses or incurrence of any commitment or liability of BRS shall require the prior written approval" of Optus. 2. Section 5 bound the parties to negotiate the terms of a "Definitive Agreement", reserving an entitlement on the part of Optus not to enter into any Definitive Agreement unless satisfied, in its absolute discretion, with the results of due diligence on BRS and key employee interviews. 3. Section 6 provided a confirmation by BRS that: (i) no third party had rights of refusal to bid for the assets, undertakings, or issued shares of BRS; and (ii) "no supplier of BRS [had] any first or last right of refusal that could impact the ability of Optus to complete [its proposed acquisition of the share capital of BRS], and no material customer or supplier contracts contained change of ownership clauses which would impede [that acquisition] in any way." 4. Section 10 provided for Optus to have "the right to speak directly with any BRS employees but only where such negotiations are essential to retain such employees in the event of [Optus' acquisition of BRS] completing." It also provided by way of a corollary, that BRS could refuse access to any BRS employee if BRS had "a reasonable concern that the purpose of such a discussion [was]not an element of due diligence". BRS, for its part, acknowledged that "access to key personnel [was] essential to allow Optus to complete its due diligence process." 5. Section 11 recorded an agreement by the third plaintiff/cross defendant "that, for a period of 75 days from the date of this Term Sheet, it [would] not (i) commence or continue discussions in relation to any proposal, negotiation or offer, or (ii) take any action to solicit, initiate, knowingly encourage or assist the submission from any person or entity other than Optus relating to the sale, merger, consolidation, business combination, stock exchange, recapitalisation or similar transaction involving BRS or the sale, licence or disposition of any of the substantial assets of BRS, or any other transaction incompatible with any transaction contemplated in the Term Sheet, and shall not authorise any of its directors, officers, employees, advisers or representatives to do any of the foregoing." 6. By the same section: (i) BRS agreed that it would "notify Optus promptly, and in any event within three business days, of any inquiries or proposals by any third party for any such [incompatible] transaction that are known to any executive officer of BRS, including the identity of such third party, and all the material terms of any transaction proposed by such third party, and any modification, thereto" and (ii) the third plaintiff/third cross defendant undertook "to procure the necessary consents from other [shareholders] to effect this Term Sheet and [Optus' proposed acquisition of the share capital of BRS]". 7. Section 15 provided that "the Parties will not at any time disclose the contents of this Term Sheet and the fact that negotiations are taking place between the Parties in relation to [the proposed acquisition of BRS by Optus] without the consent of the other Party, unless such disclosure is required by law or any regulatory body or the rules of a recognised stock exchange" and that "[the] terms of this provision shall survive the completion or termination of [the proposed acquisition] for a period of 12 months from completion or termination, whichever is the later. 8. Section 16 provided for termination of the Term Sheet "on the earliest of: (i) written notice by [Optus] to BRS that [Optus] does not wish to proceed with [its proposed acquisition of BRS]"; or (ii) "the date on which the Definitive Agreements are executed". 9. Section 18 provided that the governing law of the Term Sheet was to be that of New South Wales. It also recorded that "[because] a breach of the binding provisions hereof would cause irreparable injury, in addition to other available remedies, the Parties agree that this Term Sheet may be enforced by injunctive relief and specific performance." 10. Sections 13, 14, 17 and 19 contained formal machinery provisions.
3. Appendix "A" to the Term Sheet (incorporated by reference in section 5): 1. made entry into a Definitive Agreement conditional upon named "critical" or "key" employees remaining employed by BRS and entering into "new employment agreements (with retention and restraint terms)", 2. provided for Optus and its advisers to have "full access to… employees of [BRS] for the purpose of planning" the integration of BRS' affairs with those of Optus. 3. provided that Optus could terminate the Term Sheet in particular circumstances which included non-satisfaction by 15 January 2015 of "any CP" [an undefined term which I infer means "condition precedent"] and any change in material circumstances.
4. The Term Sheet provided that save for particular sections identified as legally binding, the Term Sheet did "not create legally binding obligations upon the Parties and [would] only be binding upon the Parties if they [entered] into definitive agreements with respect to [Optus' proposed acquisition of BRS], in which case the Parties will be bound according to the terms and conditions of those Definitive Agreements".
5. Three sections of the Term Sheet within this qualified "non-binding" category comprised the following: 1. Section 7 made provision for Optus to be satisfied that BRS would retain "key employees" on terms agreed by Optus, contemplating discussions between Optus, BRS and BRS employees before completion of Optus' proposed acquisition of BRS. 2. Section 8 contemplated that execution of the proposed MOU was conditional upon execution of the Term Sheet, thus making an Optus pre-payment of up to A$236,000 to BRS conditional upon execution of the Term Sheet. 3. Section 2 contemplated that (subject to Optus' "completion of due diligence") Definitive Agreements and Optus' acquisition of BRS "free from encumbrances" would occur within 14 days from the date of the Term Sheet. 4. Section 12 provided that completion of Optus' proposed acquisition of BRS would take place within two business days of "satisfaction of all conditions precedents [sic] specified in the Definitive Agreements". It provided, further, that "[if] Completion of [the proposed acquisition of BRS] does not take place by 15 January 2015, [Optus] shall provide a pre-payment of A$400k to [BRS] on substantially the same terms as" the MOU.
6. The Term Sheet was expressed to contain "the entire agreement … with respect to its subject matter". Perhaps for that reason, a copy of the MOU was (as expressly contemplated by section 8) appended to the Term Sheet.

The Optus/BRS MOU dated 4-5 December 2014

1. Each page of the MOU was headed "Strictly Confidential". Clause 6 contained an express acknowledgement of a need for "strict confidence" about the terms of the MOU and "the current financial condition" of BRS.
2. Clause 4(b) of the MOU recorded that BRS had indicated to Optus "that in the short term the cash balance of [BRS] will be negative and without an injection of funds continuity of service operation for all video conferencing and digital media services provided to Optus could be detrimentally affected". Clause 4(c) recorded a request by the management of BRS for "the expedition of the purchase orders for existing contracts that are due for renewal ahead of the normal payment times of Optus and the processing payments to a value of $236,000 AUD by the close of business of one business day after the execution of the Term Sheet dated 4 December 2014".
3. Clause 5 of the MOU provided that Optus had approved BRS' request for early payment, in consideration of which BRS had agreed to give an undertaking in terms set out in clause 7: "7. Commercial Terms. (a). Optus will pay [BRS] the pre-payment amount in consideration for the following undertakings: i. for a period of 75 days of execution of this MOU, [BRS] and its shareholders will not engage any other party in discussion or negotiation of terms of acquisition, share transfer or ownership of [BRS]; ii. for a period of 180 days from the receipt of the pre-payment amount [BRS] will make available to Optus financial management its current financial performance including balance sheet, current flow receipts. Further, a nominated person from the Optus finance team will meet with their counterpart at [BRS] to review [BRS's] financial position; (b) The parties agree that if, in the reasonable opinion of either [BRS] or Optus, at any time there is a significant likelihood that an Insolvency Event may occur [BRS] will act in good faith to negotiate (at fair market value) the transfer of the assets and employment agreements of the Broadreach Video Network Operating Centre to Optus".
4. Clause 9 of the MOU recorded that the MOU was legally binding and that nothing in it would prejudice any rights and remedies of Optus, including "any right of damages or termination of the Services (or any part of them) under the MSA".
5. Clause 8 of the MOU provided as follows: "8. Termination (a) This MOU will terminate on the earliest of: (i) notice in writing by Optus; (ii) the completion of the Share Sale Purchase Agreement for the acquisition of 100% shares in [BRS] by an affiliate of Optus; or (iii) 180 days from the date of execution of this MOU. (b) Upon termination of this MOU, the pre-payment amount shall immediately become due and repayable to Optus, except to the extent that the pre-payment amount relates to services already performed by [BRS]".

CHRONOLOGY OF EVENTS LEADING TO SALE OF BRS SHARES

1. The Master Services Agreement between Optus (more particularly, an Optus-related company, Alphawest Services Pty Ltd) and BRS at the time of the Share Sale Agreement dated 23 January 2015 commenced its three year term on 19 July 2013. The Agreement did not itself provide for the delivery of services. Rather, it set out the standard terms on which BRS "offered" to supply services to Optus companies. Each time such a company sought to acquire services from BRS it issued a purchase order which gave rise to a separate contract. In commercial terms, the Agreement evidenced a preparedness on the part of Optus to acquire services from BRS.
2. On 30 May 2014 the second cross claimant executed a document entitled "Memorandum of Understanding (MOU) and Option", expressed to be made between it and BRS, which all parties took, in substance, to be an offer by the second cross claimant to purchase all the issued share capital of BRS for $1.25 million subject to due diligence inquiries. It is not necessary, beyond that, to characterise the legal effect (if any) of the document.
3. By an email dated 11 September 2014 the Chief Executive Officer of BRS (Matthew Griffiths) reported to various people within the BRS camp (including the fourth cross defendant) recent developments regarding attempts to effect a sale of BRS. Of note: first, the email reported that a potential deal to sell the company to a prospective Indian purchaser ("Tata") was "dead". Secondly, it reported the following: "At the same time, Mike Reddie [then an Optus employee] has pretty much confirmed that he would look to recruit our team [that is, BRS staff members], as and when, regardless of our MSA [Master Services Agreement] banning poaching".
4. On 18 September 2014 the second cross claimant and BRS signed another document styled "Memorandum of Understanding (MOU) and Option" which (despite its irregular form) was taken by all parties to be an offer by the second cross claimant to acquire the issued capital of BRS for a total price of $1.5 million, subject to due diligence inquiries.
5. On or about 17 October 2014 the fourth cross defendant prepared a document entitled "Marie and Shaun Discussion Points" (referring to Ms Kaliviotis and himself by first names) which he provided to Ms Kaliviotis in aid of a "sales pitch" designed to persuade her that she (in a corporate guise) should not reduce her $1.5 million offer.
6. That document, in addition to its provision of financial information, provided a narrative statement under the heading "What are you buying and summary?"
7. That statement included the following observations: "Marie I have knocked this document together (somewhat rushed so apologies if there are any errors) to give you some answers to your key question re what you are buying. The key elements are people, intellectual property (Software - Karora used by CBA, systems, processes and expertise/certifications) , VNOC used by the biggest organisations in Australia, great customer base, good partnerships plus a fantastic growth opportunity that can be unleashed by you just providing facilities (no direct cash investment required outside the purchase price). This can be further accelerated by Electroboard's existing customer base been [sic] offered some of Broadreach's unique solutions offerings and skills which will drive more critical mass/scale and even higher profitability plus Broadreach having a formidable Electroboard sales engine to work behind to build on its $12.5m sales pipeline it has today. It should also be noted that while no-one is irreplaceable that the Broadreach customer base is very sticky and will be very difficult to move to another independent party in Australia (a stated requirement from companies like ANZ) as very few organisations that have the certifications, experience and can deliver the service and service currently scoped for these contracts that are inside long term 'all of business' deals for Optus. A move would create issues for customers and massively increase Optus risk profile on its biggest customers. The staff with required skills are very scarce in Australia (and, in fact [Australia/Asia/Pacific]) which is a further inhibiter for these contracts moving as it makes it very difficult for a capability to be built from scratch. All equipment leases are necessary to support certifications and VNOC support requirements of the business and should be maintained. The business has two office leases one of which is expiring early next year, and one that has a 12 month notice which I am sure you could negotiate out of (contracts provided to Rodger via the Dropbox). Outside the CEO all staff entitlements are normal for any business and should have no surprises here. All staff are on a standard contract template that are [sic] the same for everyone except the CEO who has a standard three months' notice period. Based on feedback from potential buyers we put in place a retention mechanism (additional three months) for the CEO so that he can be retained to manage the transition project post any acquisition for six months ensuring that it is smooth and also lowering the risk integration. As can be seen from the Cash flow statement also attached to the email the company is cash positive and actually very nicely positive if one removes one off payments not part of business as usual. The cash position does fluctuate quite a bit as can be seen over the last two years and is very cyclical which does reflect the current position. The limited overdraft facility (three months of working capital currently) has limited Broadreach's ability to grow aggressively and with your additional facilities would allow a much more aggressive growth strategy to be implemented. The Optus channel is very challenging due to Optus size and inability to deliver PO (Optus SingTel internal process ) in a timely manner and long payment terms which does add pressure to the working capital requirements (and hence the overdraft). It is expected that the facility will not be required at all within a 6 -12 month period at most based on new contracts coming on line in the next 4-5 months that we have worked with Optus in scoping, pricing that will also nearly double the on-going annuity managed services revenue from the Optus channel plus all the synergy benefits from the tie-up with Electroboard. Post the first six months of integration and the migration of finance function to Electroboard a further +/- $500,000pa saving can be realised (CEO and Finance function integration) if required again adding even more value to your investment. Another synergy area that could be considered is the internal IT function which Broadreach outsources at a cost of $180,000pa. To summarise I think we need to keep the big picture in focus and execute on what is written when all things are weighed up a great deal for Electroboard ($1.5M Net to shareholders) and an acceptable deal for Broadreach shareholders. I hope I have gone some way to try and give you what you need to make a decision and I will send you a draft Share Sale Agreement for you to review early next week. I am available any time next week to chat, just give me a call if you want me work through any items further. The rest of this document is some supporting information for you to have a read through. …"
8. The "supporting information" (under the heading "Capability Statement") included a statement that included the following: "The Broadreach capability stems from a number of key areas, all of which can be addressed in more detail as required, namely:… (1.) Great highly certified people. These are loyal, scarce and highly skilled individuals who have a strong customer and team orientation.…"
9. That statement was reinforced (under the heading "Electroboard-Broadreach Value Discussion Points") by statements which pointed to the importance of the "Availability of suitably qualified staff".
10. By an email dated 30 October 2014 Roger Tiller (an officer of the cross claimants working under the supervision of Ms Kaliviotis) communicated to the Chairman and Board of BRS an offer by the first cross claimant (as Ms Kaliviotis' purchasing entity) to buy the issued capital of BRS for the total price of $1.25 million.
11. By a "Term Sheet" dated 31 October 2014 Optus (by Optus Networks Pty Ltd) communicated to BRS an offer to buy the issued capital of BRS for a total price of $1.7 million, subject to due diligence inquiries.
12. By a solicitors' letter dated 11 November 2014 addressed to BRS' solicitors (and, through them, to the shareholders of BRS) the defendant/first cross claimant made an offer to purchase the issued capital of BRS for $1.35 million and to assume liability for BRS' overdraft.
13. On 19 November 2014 the BRS shareholders held an extraordinary general meeting at which, in substance, the shareholders voted to approve the first cross claimant's offer to acquire the company.
14. On 25 November 2014 the first plaintiff, the second plaintiff and the fourth cross defendant participated in a telephone conference with John Paitaridis (a senior Optus executive) in which, in substance, he threatened that Optus would cancel BRS's Master Services Agreement if the BRS shares were sold to Ms Kaliviotis.
15. That telephone conference gave rise to two developments.
16. First, the first plaintiff called Ms Kaliviotis and told her that Mr Paitaridis of Optus had said that: (a) Optus would cancel the MSA if the BRS shares were sold to her; (b) Optus had said that they would set up a capability internally; (c) Optus had said that they intended to poach BRS staff; and (d) Optus did not acknowledge Ms Kaliviotis' worth as an existing client of Optus.
17. Each of the first plaintiff, the second plaintiff and the fourth cross defendant had a slightly different, and imperfect, memory of precisely what was said by Mr Paitaridis (particularly in relation to a stated intention to "poach" staff) but they were in broad agreement that what was said did not bode well for a sale of BRS to Ms Kaliviotis or any interest associated with her.
18. Secondly, the plaintiffs/cross defendants caused BRS's solicitors to send to Ms Kaliviotis' solicitor the "disclosure" email dated 25 November 2014 referred to in clause 5.1 of the Side Letter, to which the solicitor responded on 27 November 2014 with an acknowledgement.
19. On 28 November 2014 the BRS board of directors gave notice of an extraordinary general meeting of the company to permit the company's shareholders to reconsider their approval of the first cross claimant's offer to acquire the company, in light of a fresh offer from Optus. The meeting was called for 5 December 2014.
20. By the "Term Sheet" dated 4 December 2014 Optus withdrew its offer of $1.7 million for the issued capital of BRS and substituted for that offer an offer of $1.6 million , subject to due diligence.
21. By an email sent on the afternoon of 4 December 2014 to the fourth cross defendant, John Paitaridis (Managing Director, Optus Business) wrote as follows: "As discussed, keen to get on and close this transaction. SingTel, Optus has submitted a compelling offer to acquire Broadreach, we are committed to concluding the acquisition as soon as possible. In our recent experience with similar acquisitions, FIRB approval has been quick - no reason to expect delays on this one. I do however need to remind you, Broadreach and the other shareholders that if another party acquires Broadreach we will be in a position to exercise our right to terminate the MSA due to there being a material change in control of the supplier, as it is our clear right. I reiterate my commitment to getting this deal done, as I believe it is in the best interests of Broadreach employees, shareholders and customers. I need your support to get this done please. We will await advice from you following the shareholders meeting."
22. All BRS shareholders were present at the Extraordinary General Meeting of 5 December 2014 by teleconference, telephone or proxy.
23. The minutes of the meeting record that, with one dissentient (the first plaintiff) the shareholders rejected a motion for reconfirmation of the proposed sale of shares to the first cross claimant and, instead, agreed to accept Optus' offer. The first plaintiff's dissent was influenced by the historical fact that, at a much earlier time, Optus had made, and withdrawn, an offer to acquire BRS.
24. The minutes record that, in discussion leading to the meeting's resolutions, the second plaintiff stated that in his opinion, if the shareholders voted against confirmation of the first cross claimant's offer, Ms Kaliviotis "will not see this as a favourable outcome to pursue any further proceedings under the current terms."
25. In light of the shareholders' decision: (a) Optus' Term Sheet dated 4 December 2014 was signed by the fourth cross defendant on behalf of BRS and as a representative of the third plaintiff/cross defendant, as well as by Mr Paitaridis on behalf of Optus; (b) the MOU between Optus and BRS was signed and dated 5 December 2014 on behalf of BRS, with Mr Paitaridis' execution of the document having been dated 4 December 2014; (c) the solicitor for the first cross claimant was advised by email on 5 December 2014 by the solicitor for BRS that the BRS shareholders "have not approved or accepted the revised offer from your client"; and (d) late on the afternoon of 5 December 2014 an Optus officer (based at the Group's Singapore Telecommunications Limited "Head Office" in Singapore) emailed officers of BRS (including the fourth cross defendant) to start the process of Optus interviewing BRS's "critical and K employees" in consultation with BRS management.
26. Interviews with employees occurred as early as 9 December 2014.
27. At about the same time, BRS management announced to staff of the company that steps were in train for Optus to acquire the company.
28. The first cross claimant's offer to acquire BRS having been rejected on 5 December 2014 in favour of an offer from Optus, Ms Kaliviotis took no further steps towards an acquisition of BRS until, (from her perspective) unexpectedly, at a time she was on a holiday in the United States, on 19 January 2015 she received a telephone call from the first plaintiff (as a go-between for the cross defendants) inquiring whether she might still be interested in acquiring the company.
29. In the nature of things, she and her staff pursued no due diligence inquiries relating to BRS in the period between 5 December 2014 and 19 December 2015.
30. In that period: 1. Optus' Head Office sought to renegotiate the Optus offer to acquire BRS in terms more detrimental to the BRS shareholders; 2. although Optus honoured its commitment under the MOU to make to BRS a pre-payment of $236,000 for services to be rendered, the directors and managers of BRS were increasingly concerned about the solvency of the company absent further financial support from Optus; 3. on or about 15 January 2015, the management of BRS was made aware that Optus would not be making to the company the voluntary payment of $400,000 which the Term Sheet dated 4-5 December 2014 contemplated Optus would make on that date if its proposed acquisition of the company had not taken place by then; and 4. with BRS' financial circumstances rapidly deteriorating, the company's management (including the fourth cross defendant) on 16 January 2015 began exchanging emails about the possibility of abandoning the proposed sale of the company to Optus in favour of the earlier proposed sale to the cross claimants.
31. In the course of 16 January 2015, the emails exchanged within BRS' management included the following exchange between Mr Griffiths (BRS' Chief Executive Officer) and the fourth cross defendant, amongst others: 1. the fourth cross defendant sent the following email: "Questions: 1. What are the obligations of the board to shareholders re any changes to whom the business is sold ie switching back to the EB [Electroboard] deal that it is? 2. Are there any other board obligations or corporate governance matters in this regard that we need to execute on? Please advise ASAP if any exist that you can see". 1. Mr Griffiths responded in the following terms: "I believe that once an EGM has taken place, the sale of the company becomes a shareholder matter. Of course, at any time, the shareholders can ask the Board to work on their behalf. Specifically with your point 1: I'm not sure of the status of switching back to the EB deal. From a shareholder perspective, didn't the shareholders vote to reject that deal at the last a EGM? Also, there is no drag along for Mike's shares [that is, the shares of Mr Reddie]. From a Board perspective, the company has two binding exclusivity contracts with Optus (the Term Sheet and the MOU) that last until mid Feb? Notwithstanding the above, the primary focus of the Board has to be: 1. Solvency. 2. Corporate Governance - acting on behalf of all of the shareholders and understanding the implications of our contractual obligations as a company. At this point, solvency should be our main concern (as a Board), as getting through payroll at the end of next week was guaranteed by the Optus $400K pre-payment, which now looks like it won't happen. Based on the last forecast from Joe [Boyd, the BRS Finance Officer] (14th Jan), we are approx. $50K short of making payroll on 23 Jan (end of next week). This morning, I requested that the payment of approx. $121,000 of Optus invoices outside the Optus AP monthly cycle. Will know by Monday if these have been paid. I would suggest an urgent Board meeting on Monday to discuss our solvency at that point. Corporate Governance is covered in part by having regular Board meetings. However, related to the current M & A activity, I'd suggest we have an obligation to inform the shareholders once we become formally aware that the terms of the Optus acquisition have materially changed. I'd also be concerned about potential repression of minority shareholder rights - unanimity amongst the shareholders is highly desirable if we are going to switch horses again. As a side point, it is worth noting that switching back to the EB deal could have catastrophic consequences for the business on an on-going business, given that we have announced the Optus deal internally, all our key staff are currently negotiating retention agreements with Optus, we are fundamentally dependent on Optus for short term cash flow, and Optus have threatened to cancel the MSA, poach all our staff, and cancel our major contracts if we don't close with them. I think we need a Board meeting on Monday." 1. the third cross defendant replied as follows: 'Lets tee up the meeting, but suggest we invite the major shareholders as guests to the meeting for the part on M & A. I also think your views as the CEO should be shared with the major shareholders outside the Board so that there is a full understanding of any actions and the consequences'.
32. On 19 January 2015 the plaintiffs (with the fourth cross defendant representing the third plaintiff) met, as the major shareholders of BRS, with BRS managers and the company's solicitor.
33. The agenda for the meeting was distributed by Matthew Griffiths (the Chief Executive Officer of BRS), by email, the same day.
34. The emailed agenda was circulated by the CEO as a draft. In the event, it was followed. In substance, it provided as follows: "1. Current BRS Financial Position. [Joe Boyd,…] 2. Optus Deal - Current Status [Anthony Harris,…] ■ Expected Shareholder value vs Term Sheet. ■ Potential upside/downside (Inc. warranty claims). ■ $400K pre-payment. 3. EB Deal [John Barrett, the first plaintiff] ■ Expected shareholder value. ■ Time frame for deal plus mechanics (takeover overdraft, etc) ■ Potential fallout (cancel MSA, poaching staff, etc). 4. Legal Issues [Kristy Dixon, solicitor] ■ Optus Exclusivity - SW [Shaun Wormald, fourth cross defendant] /Shareholders/Broadreach implications. ■ MOU pre-payment of $236K (repayment?) ■ Drag along of MR [Mr Reddie] with EB deal. ■ Injunctions, legal recourse, etc."
35. In the absence of formal minutes of the meeting, the recollection of the first plaintiff, the second plaintiff and the fourth cross defendant as to what, precisely, was discussed at the meeting was in some respects vague, and based upon a reconstruction of events, accepting that each of the agenda items was discussed.
36. In the context of the evidence as a whole, those agenda items plainly allude to BRS's principal contracts with Optus (that is, the MSA, the Term Sheet dated 4-5 December 2014 and the MOU dated 5 December 2014) and the first cross claimant's offer dated 11 November 2014 to acquire BRS.
37. There is a consensus that the meeting also discussed BRS's dire financial circumstances, including the probability that (if BRS was not taken over, with external financial support, on or before 28 January 2015) it would, upon that date, become, insolvent.
38. The strong probability is that, at the meeting, the first plaintiff was requested to sound out Ms Kaliviotis as to whether she remained interested in acquiring BRS, with discussion of a proposal that the major shareholders contribute to a $200,000 "escrow" account" as an incentive to Ms Kaliviotis to effect a quick takeover of BRS. It is equally probable that, after the meeting, the first plaintiff had a further discussion with Anthony Harris about what the first plaintiff might say to Ms Kaliviotis.
39. The major shareholders were agreed about moving towards abandonment of the "Optus Deal" and exploration of Ms Kaliviotis' continued interest.
40. From the perspective of the Board and major shareholders of BRS the commercial context in which decisions had to be made about a sale of BRS' share capital is accurately illustrated by an email dated 20 January 2015 addressed by Joe Boyd (Chief Financial Officer of BRS) to the fourth cross defendant and others: "Can you please confirm back to me, that as a BRS Board Member, you are in agreement with this latest solvency position for Broadreach. 'As stated in previous reports, the position is that as long as we can pay all our bills when they fall due for payment, the company is deemed solvent. In doing this we can exercise our bank overdraft facility of $1m and/or we can negotiate in advance (before they become due for payment) with key suppliers to move out payment dates. Therefore for the purpose of the board members, Broadreach as at 19th January 2015, is solvent and is not trading whilst insolvent. Our latest Cash Flow forecast is showing without any external intervention, we run the risk of breaching our $1m bank facility around the 28th January and again my [sic] mid February. We would require certain customer payments to be made by the 28th January or defer certain payments to stay within our limit at that point but we would require further funds again by mid February. In the light of this, BRS share holders have agreed to proceed with the Electro Board offer immediately to acquire the company. As long as the sale can be completed and Electro Board takes over control of BRS banking facilities by the 28th January, then remaining with our current $1m facility with CBA ceases to be a solvency issue. On this basis, the company would not be trading whilst insolvent for the period to end February and beyond.'"
41. Shortly after this email was sent Matthew Griffiths (Chief Executive Officer of BRS) responded, with a reply copied to the fourth cross defendant: "Agreed".
42. The commercial context in which the BRS Board, management and major shareholders were wrestling with decision-making about a takeover of BRS is also illustrated by an email dated 22 January 2015 addressed by Anthony Harris to the second plaintiff, copied to the first plaintiff, the fourth cross defendant, Matthew Griffiths and Kristie Dixon. It reads as follows. "Dear Steve, I have been reflecting on our telephone conversation just now. One line of thought … As discussed there is now intense levels of inquiry coming from Optus asking what is going on. In the context of our discussion, and the likelihood you have presented that Marie [Ms Kaliviotis] will not proceed if Mike Reddie doesn't sign, it might be timely to consider an approach to Optus to take some heat out of their current efforts to make contact. Just a thought developing out of the back of our conversation. If what you believe is correct, and closing with Optus simply needs a change in the negotiation approach to get Optus to fall into line with what we agreed in the Terms Sheet, maybe it's one of you and/or Matthew contacting Optus and try and get that done. You are backing your ability to close a better deal with Optus as being a more effective negotiator. Maybe a fresh approach is warranted. This approach might also have the effect of softening any aggravation Optus currently has with no substantive communication, and if as you suggest your negotiation style will be more effective, this course of action may have some success. So as I see it the plan if implemented would be for either you, JB [the first plaintiff) or Matthew, or a combination of, to contact Optus and seek to renegotiate the terms of the SSA, [the Share Sale Agreement]. You have suggested the person targeted is the one putting the agreement together - that would be Seowhui. I can make the introduction to Seowhui if that is your preference as targeting the person putting the deal together. You are dismissive of JP [John Paitaridis?] but I would encourage another rethink of his role in this. He may be more influential now than you give him credit for. Anyway, something that can be further discuss [sic] if necessary. At the very least the explanation in reaching out to Optus at this time could be that there has not been that the opportunity to have any communication with Optus up until now while the majority shareholders consider an alternative strategy to try and get through the impasse that is the Optus SSA. Last point, as discussed by phone, Optus already have the view that BRS has re-engaged with EB [ElectroBoard]. There is some obvious risk which we have discussed in going back to Optus. I expect that once contact is made again they will form the view that any efforts to re-engage with EB have been unsuccessful and then I would expect Optus to take a very hard line. The corporate ego will be too much for it to be any other way - in my humble opinion. Whatever the major shareholders decide in terms of next steps, I would encourage a conference call to debate the merits and risks of all options that should be considered. The next step is critical, without stating the obvious. My thoughts. Happy to take a call and discuss."
43. As it happened, the major shareholders proceeded to formalise their Share Sale Agreement with Ms Kaliviotis on 23 January 2015 (using the form of Share Sale Agreement, with the first cross claimant as Buyer, executed by the shareholders on or about 5 December 2014 in anticipation that the first cross claimant's offer would on that date be accepted) without formal notice to Optus.
44. This was done in circumstances in which Optus evidently believed that BRS and its shareholders (or, at least, the third plaintiff as the major shareholder) were contractually bound to deal exclusively with it.
45. The Share Sale Agreement of 23 January 2015 came about as a result of a short telephone conversation between the first plaintiff and Ms Kaliviotis on 19 January 2020 when he rang her on her mobile phone as she holidayed overseas. According to her account of the conversation (which I accept as, in substance, correct) the conversation proceeded as follows: First plaintiff: the sale to Optus is falling through. They were meant to pay us money but are mucking us around and haven't done so. Are you still interested? Ms Kaliviotis: Yes, I am. First plaintiff: We need to finalise it quickly. Ms Kaliviotis: We will need to do more due diligence. First plaintiff: We don't really have the time. I don't want Optus to know that the sale is going through. Ms Kaliviotis: I don't know what the current financial position is and I don't know what the current debts are. First plaintiff: You have done due diligence up to November. [The third cross defendant, the second plaintiff] and I will set aside $200,000 from the sale price to deal with any problems. Ms Kaliviotis: That sounds all right. I will tell Roger and John [Roger Tiller and her solicitor, John Diacopoulos]."
46. The first plaintiff and Ms Kaliviotis had a follow-up telephone conversation on or about 20 January 2015 which, according to her evidence (which I accept as substantially correct) was in the following terms: Ms Kaliviotis: ELB [the second cross claimant] is going to be the purchaser, not Maradaca [the first cross claimant]. First plaintiff: The shareholders have already executed the Share Sale Agreement, which was with Maradaca. If we change purchasers at this stage, this would delay the purchase and might prevent the transaction from occurring. Ms Kaliviotis: I will need to transfer the shares to ELB after the sale then. If you are happy to cover any stamp duty on the transfer, I am happy to go ahead with Maradaca making the initial purchase. First plaintiff: That's fine."
47. This conversation explains how the Share Sale Agreement dated 23 January 2015; the Side Letter of the same date; and the Deed of Assignment dated 28 January 2015 came about.
48. In the absence of Ms Kaliviotis overseas, the paperwork was organised by the respective solicitors for the parties, commencing with an email dated 20 January 2015 addressed by the solicitors for the Sellers to the solicitors for the cross claimants in the following terms (omitting pleasantries): "… I am instructed to request, on a confidential basis, whether your client Maradaca would agree to the exchange of the Share Sale Agreement between it and the shareholders of Broadreach Services in the form previously negotiated, with the addition of the attached Side Letter between you [sic] client and the major shareholders. We would appreciate your prompt review and response."
49. At about the same time (that is, on or about 20 January 2015) Ms Kaliviotis' Executive Advisor, Roger Tiller, had a telephone conversation with her about whether further due diligence should be conducted. It was in terms to the following effect: Mr Tiller said: "Should we be doing further due diligence?" Ms Kaliviotis said: "[The first plaintiff/cross defendant] said there was no time and we have to move quickly. [He, the second plaintiff/cross defendant and the fourth cross defendant] have agreed to put $200,000 in escrow to cover us in the event that we find anything untoward after the purchase goes through. I want [the second cross claimant] to purchase the BRS shares, but [the first plaintiff/cross defendant] tells me that because of the short timeframe, the shareholders want to use the previous version of the Share Sale Agreement which has [the first cross claimant's] name on it. I said that was fine given the urgency, but that [the first cross claimant] would assign the shares in BRS to [the second cross claimant] after the sale went through, that the vendors needed to pay any stamp duty associated with that transfer. [The first plaintiff/cross defendant] agreed with that. This all needs to be documented."

THE AFTERMATH OF THE CROSS CLAIMANTS' ACQUISITION OF BRS

1. As contemplated by the Share Sale Agreement (clause 6.3(d), read with clauses 2.1(a) and 3.2), on completion of the Agreement on 28 January 2015 the first cross claimant funded BRS to pay out its overdraft. This was done by a loan of $886,067.45 made to BRS by the second cross claimant, recorded as a credit entry into BRS' bank statement on 28 January 2015.
2. On 30 January 2015 Mr Tiller had a telephone conversation with Mr Reddie (in Mr Reddie's capacity as a representative of Optus) in which Mr Tiller endeavoured to assure Optus that, under the second cross claimant's management, BRS' capabilities would be maintained. Mr Reddie expressed concern that BRS would not be able to maintain its skilled staff.
3. In that telephone conversation and in subsequent correspondence on 1 February 2015, Mr Tiller endeavoured to assure Optus that the second cross claimant would use its best endeavours to ensure that BRS would maintain the continuity of services previously provided by the company, and that towards that end, BRS would endeavour to retain its skilled employees.
4. Over the next little while, BRS (under the ownership and management of the second cross claimant) endeavoured to confirm employment arrangements of its skilled staff who, in common with Optus, were evidently reassessing their own positions.
5. By two separate letters dated 4 March 2015 (signed by Mr Pallaridis as Managing Director, Optus Business) addressed to BRS, Optus terminated the Term Sheet and the MOU (dated 4-5 December 2014) and, upon termination of the MOU, demanded that BRS repay the pre-paid $236,000. The letters were in substantially similar terms.
6. By way of illustration, the text of the letter (headed "Termination of Memorandum of Understanding") was in the following terms: "Broadreach Services Pty Ltd ('Company') and Optus Administration Pty Ltd ('Optus') are parties to a 'Memorandum of Understanding dated 5 December 2014 ('MOU') pursuant to which, among other things, Optus pre-paid $236,000 to the Company to offset against future invoices billed to Optus and the Company agreed to exclusive negotiations with Optus on the acquisition of shares in the Company. In this letter, a reference to a clause is a reference to a clause of the MOU. TAKE NOTICE that pursuant to clause 8(a), Optus hereby terminates the MOU, effective immediately. TAKE FURTHER NOTICE that this termination notice is without prejudice to any and all rights that may have accrued to Optus to date. All rights reserved."
7. On or about 17 March 2015 three BRS employees simultaneously resigned from BRS and commenced employment with Optus. BRS advertised to replace those employees but there were no suitable candidates from Australia with the requisite skills, expertise and accreditation.
8. On 19 April 2015 Optus issued to BRS an invoice for repayment of the sum of $236,000, plus GST ($259,600 in total), under cover of an email marked "without prejudice".
9. On 20 April 2015 the solicitors for the cross claimants delivered to the solicitors for the cross defendants a letter (entitled "Maradaca Pty Ltd purchase of the shares in Broadreach Services Pty Ltd"), the text of which was in the following terms: "You will recall that as part of the completion arrangements of the above matter an amount of $200,000 that would otherwise have been available to three (3) of the shareholders was escrowed in the terms set out in a 'side letter' and in particular, paragraph 3.2 of the side letter together with paragraph 7. It has come to the notice of the purchaser that Broadreach Services Pty Ltd (the 'Company') had entered into a Term Sheet and MOU with Optus on or about 4 December 2014, setting out arrangements that if breached by the Company could result in the Company being liable to Optus for $236,000 plus GST. I am instructed that the 'Optus arrangements' of the 4th December 2014 were not disclosed to my client and accordingly my client is of the view that there is a breach of warranty on the part of the vendors of the shares in that there is at least a breach of warranty given under paragraph 7.2 of Schedule 2 of the Share Sale Agreement dated the 23rd January 2015. Optus terminated the Term Sheet and indicated that it intended to make a claim. Optus has now made a claim for the return of all funds paid namely the sum of $259,600. I am also advised to put the vendors on notice that there may be other warranty breaches. Accordingly the relevant vendors of the shares in Broadreach Services Pty Ltd are hereby put on notice that the escrow amount will be held in trust by [the cross claimants' solicitors] on behalf of Maradaca Pty Ltd and its assignee Electroboard Solutions Pty Ltd for the purpose of it being applied to meet the liability of the Company in favour of Optus. I have attached the following for your clients' records: 1. Letter from Optus dated 4th March 2015 terminating the Term Sheet associated with the MOU. 2. Tax Invoice received from Optus issued on the 19th April 2015."
10. In subsequent correspondence between the respective solicitors of the cross claimants and the cross defendants, the cross defendants (without precise elaboration of any ground of objection) objected to BRS repaying the "$236,000 plus GST" demanded by Optus. In those circumstances, Optus' Tax Invoice remained unpaid at the time of the hearing of these proceedings.
11. In the course of that correspondence (by a letter dated 4 May 2015), the solicitor for the cross claimants articulated the first cross claimant's core complaint about the plaintiffs' sale of the BRS shareholding to the cross claimants: "the fact is there was no disclosure to the purchaser on the part of the vendors of the existence of the Term Sheet and MOU. Your client [sic] would have been aware that the Term Sheet and MOU were not disclosed to the purchaser and that those documents could impact on the purchaser."
12. In late June 2015 Optus terminated its MSA with BRS. An email dated 26 June 2015 addressed by an officer of Optus to Ms Kaliviotis refers to contact between them the previous day and records Optus' determination to work with her in a "staged dis-engagement approach" to "negotiations of outstanding issues" over "coming months".
13. On or about 29 June 2015 a further five BRS employees simultaneously resigned to go to Optus. It took BRS about two months to replace them.
14. On a date not recorded in the evidence, two other BRS employees resigned and went to work for Optus in the months following the second cross claimant's acquisition of the company, bringing to a total of 10 the number of BRS employees who defected to Optus.

QUESTIONS OF CREDIT

1. The questions whether the cross defendants engaged in conduct which was misleading or deceptive in contravention of section 18 of the Australian Consumer Law; whether the cross claimants relied upon such conduct, and were thus materially misled into entry into agreements for acquisition of BRS; and whether there was a causal connection between the cross defendants' conduct in contravention of section 18 and damage or loss suffered by the second cross claimant ("because of" the cross defendants' conduct) are questions to be determined objectively.
2. The witnesses who gave evidence in these proceedings all presented as persons conscious of that fact. In my assessment, they each endeavoured, according to their lights, to assist the Court to view the factual matrix of the case through an objective lens. That said, the evidence of the main witnesses was coloured, understandably, by their personal perspectives.
3. Ms Kaliviotis was forthright in her acknowledgement that, in causing the first cross claimant to make an offer to buy BRS' shareholding for $1.35 million in November - December 2014, she (based upon what she then knew) was prepared to take risks (formally disclosed to her in the email dated 25 November 2014) that, if the cross claimants acquired BRS, Optus would terminate its MSA with BRS and a number of BRS employees would discontinue their employment. She was criticised by the cross defendants for elaboration of her affidavit evidence in supplementary oral evidence given in chief, and for her addressing in that supplementary evidence the question whether, had a timely full disclosure been made to her by the cross defendants in late January 2015, she might have been prepared to acquire BRS for a price less than $1.35 million. In my assessment, she gave that evidence honestly and with a view to addressing questions which required the Court's consideration.
4. The credit of Ms Kaliviotis' Executive Adviser, Mr Tiller, was not the subject of adverse comment, appropriately so.
5. The evidence of the first plaintiff/cross defendant, the second plaintiff/cross defendant and the fourth cross defendant was affected by what they saw, and what they did not see, in the factual setting in which they made decisions about negotiations with Ms Kaliviotis in January 2015.
6. What they saw was a literal reading of the disclosures in the email of 25 November 2014. What they did not see was that developments in the relationship between BRS and Optus after 4 December 2014 (consequentially upon acceptance on 5 December 2014 of Optus' offer to acquire BRS) were material to an assessment by Ms Kaliviotis, between 19-28 January 2015, of those risks.
7. In that period (19-28 January 2015) they did not sufficiently turn their minds to the need for a disclosure to Ms Kaliviotis of the currency, terms and implementation of the Optus Term Sheet and the MOU of 4-5 December 2014.
8. In cross examination, it appears to have been a revelation to them that Optus' suspicions about what was happening after 15 January 2015 were likely to have reflected a view, within Optus, that the Term Sheet and the MOU remained on foot and that Optus was entitled to exclusivity in negotiations for the acquisition of BRS.
9. The cross defendants' failure, in January 2015, to be open to the objective importance to the cross claimants of post-4 December 2014 developments in the relationship between "BRS" and Optus was heavily influenced by their anxiety about the impending insolvency of BRS, and their desire to offload their BRS shares to an entity able to provide external funding on or before 28 January 2015. Ms Kaliviotis controlled such an entity, and they were anxious to entice her into an acquisition of BRS.

MISLEADING AND DECEPTIVE CONDUCT : Australian Consumer Law, sections 18, 236 and 237

Legislation

1. By the amended statement of cross claim, the second cross claimant claims an award of damages under section 236(1), or (in the alternative) an order for compensation under section 237, of the Australian Consumer Law against each of the cross defendants for loss or damage suffered by the second cross claimant because of conduct of the cross defendants that was engaged in a contravention of section 18 of the Australian Consumer Law.
2. Section 18 of the Australian Consumer Law provides that "[a] person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive".

Competing Narratives

1. On the cross claimants' "misleading and deceptive conduct claim", the parties' respective cases revolve around competing perspectives of the factual matrix.
2. The cross claimants' case is that the cross defendants engaged in misleading and deceptive conduct by silence. They rely particularly upon the judgment of the Full Court of the Federal Court of Australia (principally Gummow J's leading judgment) in Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31 at 32 and 41 and the following broader elaboration of the law in the judgment of the NSW Court of Appeal (principally, the leading judgment of Sackville JA) in Fabcot Pty Ltd v Port Macquarie-Hastings Council [2011] NSWCA 167 at 209: "(i) For conduct to be misleading or deceptive it is not necessary that it convey an express or implied representation: Butcher v Lachlan Elder Realty Pty Ltd [2004] HCA 60; 218 CLR 592, at [32 n 35], per Gleeson CJ, Hayne and Heydon JJ; Miller v BMW [(2010) 241 CLR 257], at [15], per French CJ and Kiefel J. It is sufficient that the conduct leads or is likely to lead another party into error: Johnson Tiles Pty Ltd v Esso Australia Ltd [2000] FCA 1572; 104 FCR 564, at [63], per French J (with whom Beaumont and Finkelstein JJ agreed); Miller v BMW, at [15]. (ii) In a case of alleged misleading or deceptive conduct as a result of non-disclosure, it is not necessary to show that the alleged contravenor knew of the facts not disclosed: Fraser v NRMA Holdings Ltd (1995) 55 FCR 452, at 467, per curiam; Johnson Tiles, at [66]. However, knowledge may be relevant, for example, where disclosure of a fact would reasonably be expected if the fact were known to the alleged contravenor: Johnson Tiles , at [66]. (iii) The question in a case of alleged misleading or deceptive conduct as a result of non-disclosure is whether in the light of all relevant circumstances, there has been conduct which is misleading or deceptive: Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31, at 41, per Gummow J (with whom Black CJ and Cooper J agreed). While the circumstances in which silence can be characterised as misleading or deceptive cannot be exhaustively defined, unless they give rise to a reasonable expectation that if some relevant fact exists it will be disclosed, mere silence will not support the inference that the fact does exist: Kimberley NZI Finance Ltd v Torero Pty Ltd [1989] ATPR (Digest) 46-054, at 53,195, per French J, approved in Demagogue v Ramensky , at 41; Miller v BMW, at [18]. (iv) In commercial dealings between individual entities, the characterisation of conduct must be undertaken by reference to circumstances and context; Miller v BMW, at [20]. The relevant circumstances include the knowledge of the person who claims to have been misled and any common assumptions or practices established between the parties or in the particular activity or business in which they are engaged: Miller v BMW, at [20]. (v) The language of reasonable expectation is not statutory but is an aid to characterising non-disclosure as misleading or deceptive. The judgment as to whether there is such a reasonable expectation is objective: Miller v BMW, at [19]-[20]. (vi) The invocation of a reasonable expectation that if a fact exists it will be disclosed, directs attention to the effect or likely effect of non-disclosure unmediated by antecedent erroneous assumptions or beliefs, or high moral expectations that exceed the requirements of the general law or of the prohibition imposed by s 42 of the FT Act : Miller v BMW , at [21]. (vi) In general, s 42 of the FT Act does not require a party to commercial negotiations to volunteer information which will assist the decision-making of the other party. A fortiori , s 42 does not require a party to volunteer information in order to avoid the careless disregard of its own interests of a party of equal bargaining power and competence: Miller v BMW, at [22]".
3. The cross defendants accepted this statement of the law, but emphasised authoritative statements about the need to take into account the commercial sophistication of Ms Kaliviotis (as the personification of the cross claimants) and, as they contend, her preparedness to take a risk in acquisition of BRS in light of the disclosures made in the centrally important email of 25 November 2014.
4. In elaboration of their case they relied particularly upon the judgment of French CJ and Kiefel J in Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd (2010) 241 CLR 257 at [20] and [22]; the judgment of Hayden, Crennan and Bell JJ in the same case at [91] and [96]; and the following observations of Gleeson CJ in Lam v Ausintel Investments Australia Pty Ltd (1989) 97 FLR 458 at 457: "Where parties are dealing at arm's length in a commercial situation in which they have conflicting interests it will often be the case that one party will be aware of information which, if known to the other, would or might cause that other party to take a different negotiating stance. This does not of itself impose any obligation on the first party to bring the information to the attention of the other party, and failure to do so would not, without more, ordinarily be regarded as dishonesty or even sharp practice. It would normally only be if there were an obligation of full disclosure that a different result would follow. That would occur, for example, by reason of some feature of the relationship between the parties, or because previous communications between them gave rise to a duty to add to or correct earlier information."
5. The cross claimants' case focuses attention on whether, in all the circumstances, the communications between the cross claimants and the cross defendants in the lead up to 5 December 2014 gave rise to a reasonable expectation on the part of the cross claimants that the cross defendants would, before entry into and completion of the share sale agreement in late January 2015, add to or correct earlier information provided to the cross claimants. This goes hand in hand with a focus on the nature and scope of risks accepted by the cross claimants.

Consideration

1. A Contravention of ACL s. 18. The cross claimants' complaint of non-disclosure on the part of the cross defendants focusses largely (but not only) upon the absence (as I find) of any disclosure by the cross defendants to the cross claimants (in the period between 19-28 January 2015) of: 1. the terms of Optus' Term Sheet and the MOU between Optus and BRS (that is, in substance, the cross defendants' agreement with Optus), both dated 4-5 December 2014, including: 1. Optus' entitlement to have exclusivity, and confidentiality, in its ongoing negotiations for acquisition of BRS; 2. Optus' entitlement to speak directly with BRS employees; 3. Optus' agreement to provide a pre-payment of up to $236,000 to BRS conditional upon Optus having exclusivity in negotiations and an entitlement to access to information about BRS' financial circumstances; 4. Optus' "non-binding" agreement to provide funding of $400,000 to BRS if completion of its acquisition of BRS did not take place by 15 January 2015. 1. the steps taken (following the cross defendants' acceptance on 5 December 2014 of Optus' offer to acquire BRS) in implementation of the cross defendants' agreement with Optus, including: 1. the internal announcement of BRS to its staff that there had been an agreement for Optus to acquire BRS; and 2. Optus' interviews with BRS' employees between 9 December 2014 and 16 January 2015 or thereabouts, designed to have employees retained by BRS, in the interests of Optus. 1. the probability that, notwithstanding any contrary belief on the part of the cross defendants, their agreement with Optus remained current during the period between 19-28 January 2015 inclusive in the absence of any express termination of it by Optus or themselves. 2. the fact (which was known, or ought to have been known, to the cross defendants) that, throughout that period, Optus believed that the agreement (including, particularly, its entitlement to exclusivity in negotiations) remained current.
2. That the cross claimants' complaint of non-disclosure of information to them in the period between 19-28 January 2015 is not limited to non-disclosure of the terms and operation of the agreement between "BRS" and Optus of 4-5 December 2014 is illustrated by the complaints of the cross claimants that (as I find) they were not told that: 1. between mid-October 2014 (when the cross claimants were engaged in their due diligence processes) and 23 January 2015 (when the Share Sale Agreement was made) the overdraft of BRS increased by nearly $200,000 from $690,000 to $886,000 or thereabouts. 2. without external financial assistance no later than 28 January 2015, there were reasonable grounds for an expectation that BRS would on that date be insolvent. 3. BRS' financial difficulties were such that: 1. it was $50,000 short of making payroll in January 2015; and 2. it had requested that invoices be paid outside the billing cycle. 3. the Chief Executive Officer of BRS (Mr Griffiths) held a view that a sale of BRS to the cross claimants could have "catastrophic consequences" for the business of BRS vis a vis Optus. 1. in late 2014 a representative of Optus had (according to Mr Griffiths' internal BRS email of 16 January 2015) specifically threatened to poach employees away from BRS regardless of the terms of the MSA between Optus and BRS.
3. In my assessment, the cross claimants' allegations of non-disclosure are factually correct, but, before the cross defendants can be found to have engaged in misleading or deceptive conduct grounding a grant of relief to the cross claimants, findings of non-disclosure need to be assessed in the broader context of the cross claimants' commercial character; the risks they (in the person of Ms Kaliviotis) were prepared voluntarily to assume; their (her) knowledge of the industry in which they were operating; and the course of their dealings with the cross defendants (particularly, but not only, before rejection of the first cross claimant's offer by the cross defendants on 5 December 2014).
4. The cross claimants must be taken, at all material times, to have been a sophisticated commercial operation, headed by Ms Kaliviotis as an astute business woman; experienced in the type of business operated by themselves, BRS and Optus; and possessed of knowledge about the commercial environment in which such business was conducted.
5. That Ms Kaliviotis was a person who was willing, and able, to take calculated risks in the conduct of business cuts both ways. On the one hand, she was prepared to take a risk on the purchase of BRS as a marginal commercial operation in order to secure a platform for dealings with Optus, notwithstanding a warning that Optus might undermine BRS' commercial operations should the company be acquired by the cross claimants. On the other hand, her preparedness to take such a risk was calculated by reference to due diligence inquiries conducted under her supervision; assurances given to her by or on behalf of the cross defendants (particularly the first and second cross defendants as members of her staff and the fourth cross defendant in connection with his "Discussion Points"); and her perception that she had a good commercial relationship with Optus which would survive commercial rivalry with Optus intrinsic to the competing offers made by the cross claimants and Optus in 2014 for acquisition of BRS.
6. She was a business woman prepared to take a calculated risk, but she was not foolhardy or irresponsible. As the cross defendants anticipated when, on 19 January 2015, they deputised the first plaintiff/cross defendant (as a person trusted by Ms Kaliviotis) to speak to her on their behalf, she relied upon his implicit assurance that (with the benefit of a $200,000 security fund) there was no need to do "due diligence" beyond that done in November 2015.
7. Had the first cross claimant's offer to acquire BRS been accepted on 5 December 2014 (in lieu of Optus' offer) the disclosures made in paragraphs 1 and 2 of the email dated 25 November 2014 (referred to in clause 5.1 of the Side Letter dated 23 January 2015), and the first cross claimant's acknowledgement of those disclosures on 27 November 2014, would have been fatal to any claim that the first cross claimant's acquisition of BRS was tainted by misleading or deceptive conduct on the part of the cross defendants. The cross claimants do not contend otherwise.
8. An appreciation of the full force of the disclosures made on 25 November 2014 requires that they be here repeated: "1. Optus has indicated that it would not provide its consent to any change of control of BRS and therefore would terminate its Master Services Agreement with BRS upon any such change of control transaction occurring. 2. There is a risk that a number of current BRS employees would not continue their employment if the proposed transaction proceeds and, in light of the likely termination of the Optus agreement, it is consequently very likely that a significant number of employees would be lost upon the proposed transaction proceeding."
9. Although Ms Kaliviotis was entitled to take some comfort from the fourth cross defendant's "Discussion Points" of 17 October 2014 (both as to the viability of BRS and the availability of staff), she was aware of the company's weak financial position (requiring her support until at least March 2015) and she was independently aware of the importance to BRS of its skilled employees and its economic dependence upon Optus work.
10. The cross defendants contend that the cross claimants' commercial sophistication, knowledge and preparedness to take a risk operate decisively against their claim for relief as (the cross defendants contend) those factors continued to operate after 5 December 2014, up to and including 28 January 2015.
11. The terms of the conversation between the first plaintiff/cross defendant and Ms Kaliviotis on 19 January 2020 cut both ways.
12. On the one hand, Ms Kaliviotis was told that "the sale to Optus is falling through" and the first plaintiff/first cross defendant did not "want Optus to know" that a sale with the cross claimants "is going through", signalling perhaps that Optus may have remained a competitive rival of the cross claimants. Ms Kaliviotis' willingness to proceed with an acquisition of BRS, without more due diligence, on the basis of a $200,000 security fund might also demonstrate a voluntary assumption of an element of risk on the part of the cross claimants.
13. Against that, Ms Kaliviotis did not have disclosed to her the terms, or currency, of the arrangements between "BRS" and Optus, and she was implicitly assured that a security fund of $200,000 was sufficient to address any want of updated due diligence. She was, implicitly, given comfort that not much had changed since her (the first cross claimant's) offer was rejected by "BRS" on 5 December 2014.
14. If Ms Kaliviotis approached her decision-making in a calculated way, so did the cross defendants. Batting on a losing wicket, BRS' financial imperatives bearing down upon them, they took a risk that they could sign up the cross claimants (Ms Kaliviotis) to an old deal, in new circumstances, assuring her that not much had changed, without disclosure of things that had changed in the interim and without disclosure, more particularly, of their ongoing contractual commitments to Optus (BRS' largest customer), inconsistent though such commitments were with the sale of BRS to the cross claimants.
15. They trod a fine line in serving their own interests in pursuit of the sale of their shares; accommodating Optus' continuing interests in the operation of BRS; avoiding insolvent trading by transferring control of BRS to an entity able and willing to provide external funding; and enticing Ms Kaliviotis as a purchaser. They obtained legal advice to the effect that BRS was entitled to terminate the Optus Term Sheet (for Optus' insistence upon a re-negotiated transaction and its failure to provide the additional funding of $400,000 which BRS expected to receive from Optus after 15 January 2015); but they refrained from communicating to Optus any intention to terminate the Term Sheet and from making inquiries about Optus' intentions. They encouraged Ms Kaliviotis to enter the Share Sale Agreement, and related documentation, conscious that Optus was suspicious (and not, as it was ostensibly entitled to be, fully informed) about what was happening.
16. A dilemma for the cross defendants (not in any way attributable to the cross claimants) was that: 1. the agreement made by "BRS" for ongoing negotiations with Optus included, not only exclusivity provisions in favour of Optus, but a requirement that the terms of the agreement with Optus, and ongoing negotiations, remain confidential; 2. although the cross defendants were inclined to doubt whether they would ultimately reach a "Definitive Agreement" with Optus (in light of the unfavourable negotiating stance of Optus' Head Office and the failure of Optus to provide the foreshadowed extra funding of $400,000 after 15 January 2015), they did not communicate any such belief to Optus or invite Optus to clarify the status of their agreement; 3. they did not want to jeopardise BRS' ongoing commercial relationship with Optus, under their management, by disclosing to Optus their re-engagement of negotiations with the cross claimants; and 4. anticipating that Optus might not come to the aid of BRS in overcoming their immediate concerns about BRS' solvency, they perceived a need to come to an agreement for the acquisition of BRS by the cross claimants no later than 28 January 2015 so that they could be relieved of any exposure to liability arising from insolvent trading on the part of BRS, and the cross claimants could provide funding to BRS to avoid insolvent trading.
17. The cross defendants' need to effect a quick sale to the cross claimants, in order to avoid slipping into insolvent trading on 28 January 2015, caused them to invite, and encourage, Ms Kaliviotis to acquire BRS via the form of Share Sale Agreement settled in December 2014 (naming the first cross claimant as Buyer), together with an assignment in favour of the second cross claimant (Ms Kaliviotis' preferred purchaser) on terms that the cross defendants bear stamp duty liability on the assignment.
18. An incident of that form of documentation was that the cross defendants gave a warranty (referable to clause 8 of the Share Sale Agreement and paragraph 15.2 of Schedule 2 to the Agreement) that the "Due Diligence Materials" provided to the first cross claimant in or about October 2014 were "accurate and complete in all material respects and not misleading".
19. That warranty, in the Share Sale Agreement as entered, spoke as at 23-28 January 2015, not December 2014. The "Due Diligence Materials" did not extend to documentation relating to events following acceptance of Optus' offer on 5 December 2014.
20. Having made specific disclosures on 25 November 2014 about risks associated with a sale of "BRS" to the first cross claimant, and the first plaintiff/cross defendant having told Ms Kaliviotis that "the sale to Optus is falling through", the cross claimants had a reasonable expectation that, before contracting to acquire BRS, they would be informed of: (a) any legal impediment to their acquisition of BRS in the contractual arrangements between "BRS" and Optus; and (b) any development post-4 December 2014 which would materially change the nature of, or increase, the risks disclosed in paragraphs 1 and 2 of the email dated 25 November 2014.
21. By way of illustration, Ms Kaliviotis was not told that there was a risk (consistent with item 18 of the Optus Term Sheet dated 4 December 2014) that Optus might seek to enforce by injunctive relief its contractual entitlement to exclusivity in ongoing negotiations for acquisition of BRS.
22. Expressed commercially, despite their invitation to Ms Kaliviotis (as the moving mind of the cross claimants) to acquire BRS (and their encouragement of that acquisition) the cross defendants did not disclose to the cross claimants that, upon their acquisition of BRS, they would, by virtue of that acquisition, be confronted by: (a) a legal dispute with Optus as BRS' major customer, upon the custom of which BRS' ongoing economic viability was dependent; and (b) a heightened prospect that, having been engaged in direct negotiations with Optus about their future employment terms, skilled employees of BRS (upon whom a successful conduct of its business also depended) would migrate to Optus.
23. The cross claimants were not told that Optus' acquisition of BRS had been announced to BRS staff; that Optus had interviewed BRS employees with a view to ensuring their availability to work in the interests of Optus; or that Optus had "pre-paid" BRS $236,000 in return for exclusivity in negotiations and access to financial information.
24. These non-disclosures, taken together, were of a type which materially changed the nature of, and increased, the risks disclosed in paragraphs 1 and 2 of the email dated 25 November 2014. By the terms of the Term Sheet and the MOU dated 4-5 December 2014, Optus had acquired legal rights affecting the disposition of shares in BRS and the conduct of BRS' business which, if the cross claimants were to acquire BRS, would expose BRS (and, indirectly at least, the cross claimants) to adversarial claims by Optus, the very entity from which BRS and the cross claimants hoped to solicit business so as to secure the economic viability of BRS.
25. For these reasons, I find that in the lead-up to the sale of BRS to the cross claimants on 23-28 January 2015, and in allowing that sale to be effected without disclosure of the changed circumstances affecting the first cross claimant's earlier offer to acquire BRS, the cross defendants (in contravention of section 18 of the Australian Consumer Law) engaged in conduct that was misleading and deceptive.
26. ACL s 236 : Causal Connection between Conduct and Loss or Damage. Had the cross defendants disclosed to the cross claimants (Ms Kaliviotis) the post-4 December 2014 developments in the relationship between BRS and Optus which, as I have found, were not disclosed, the cross claimants would not have entered into the contractual arrangements documented on 23 and 28 January 2015. They would not have contracted to acquire the shares in BRS.
27. I do not accept, as the cross defendants contend, that the cross claimants (Ms Kaliviotis) did not rely upon conduct of the cross defendants in deciding whether to enter the contractual arrangements documented on 23 and 28 January 2015. Nor do I accept (as the cross defendants contend) that the cross claimants (Ms Kaliviotis) were negligent in their entry into those arrangements such that any causal link between the conduct of the cross defendants and the cross claimants' entry into the arrangements was broken.
28. The cross defendants not only invited, but encouraged, the cross claimants to enter those arrangements (without further due diligence) upon an assurance that a security fund of $200,000 would be sufficient to accommodate any change of circumstances that occurred after 4 December 2014. The cross claimants did not, and could not, know that "BRS" was still contracted to deal exclusively with Optus (as appears to have been the case) or that (if that was not the case) Optus nevertheless believed, and had reasonable grounds to believe, that "BRS" remained tied to negotiations with it.
29. Even if Ms Kaliviotis, informed of BRS' contractual commitment to Optus, remained open to the possibility of further negotiations in the future (time permitting), she would not have been prepared to do so without further due diligence inquiries and, given her commercial object of building her ongoing relationship with Optus, satisfying herself that she was not simply buying a fight with Optus. It is highly doubtful that she would ever have agreed to acquire BRS without a reduction in the purchase price of $1.35 million. For their part, the cross defendants (particularly the second plaintiff/cross defendant) had no appetite to accept less than that price. No alternative, renegotiated deal was on the cards.
30. The time constraints inherent in BRS' descent into insolvency militated against any re-negotiated deal, in any event. Had the cross claimants not entered the contractual arrangements documented on 23 and 28 January 2015, the strong probability is that (as the cross defendants themselves anticipated) BRS would have become insolvent on 28 January 2015 and bound to stop trading.
31. In his cross examination the fourth cross defendant expressed optimism that, had the cross claimants not acquired BRS on that date, something would have turned up to defer a lapse into insolvency; but, in the absence of any concrete proposal for that to happen, no weight can be given to his expression of optimism. "BRS" was on a steady path to acquisition or insolvency.
32. The time constraints on "BRS" and the cross defendants were so tight that the cross defendants invited the cross claimants to stick with the contractual documentation of December 2014 (so that the Buyer was the first cross claimant) and, at the expense of the cross defendants themselves as regards stamp duty, to effect an assignment of the Buyer's rights to the intended purchaser of shares, the second cross claimant.
33. The time constraints alone militated against any form of alternative deal. Had the cross defendants (in breach of ongoing obligations to Optus) disclosed to the cross claimants the terms, currency and steps taken in implementation of their agreement with Optus, within the time constraints affecting BRS, the contractual arrangements documented on 23 and 28 January 2015 would not have materialised and any prospect of an alternative deal would have evaporated. Mr Kaliviotis was not so keen on her companies acquiring BRS that she was prepared for them to acquire it without an assurance that there had been no material change in circumstances since 4 December 2014.
34. Without a reasonable foundation for using the company as a base for building up their commercial relationship with Optus, including the availability of BRS' skilled employees, acquisition of BRS by the cross claimants was commercially unattractive.
35. At the time of acquisition, BRS was on the verge of insolvency without external financial support (which the cross claimants provided upon acquisition); its ongoing business depended upon retention of "suitably qualified staff" (engaged in discussions with Optus about their future employment); and, without any assurance of ongoing business with Optus, it had at best an uncertain future income stream.
36. The evidence of the fourth cross defendant provides a perspective of this. In his affidavit sworn 26 May 2017 he wrote the following: "[6] At the time of commencing [the process of selling BRS] (around 2014), some of the positives of the business [of BRS] included: a) The knowledge of the directors and employees; b) Developed intellectual property (video managed services knowhow together with Broadreach developed proprietary software Karora and the managed service business and technology systems); c) A high standard client base including Optus, ANZ Bank and Commonwealth Bank; d) The staging, testing and support laboratory. [7] The negatives of the business were its continued undercapitalisation, an overdraft, and the high degree of reliance upon Optus for cash flow and the cyclical nature of cash flow revolving around some large accounts."
37. The "intellectual property" claimed here for BRS was reflected in the company's balance sheet as an "intangible asset". To the extent that it was, in truth, an asset of the company, it depended on the availability of skilled staff for its deployment.
38. BRS' undercapitalisation; borderline solvency; reliance on Optus for income; and dependency on the availability of skilled employees highlight two features of the company's business (and, accordingly, the value of its shareholding) which, both objectively and subjectively, were of critical importance to any decision made by the cross claimants to acquire BRS. One was the company's economic dependency upon Optus. The other was its dependency on the continued availability of its skilled employees.
39. At the hearing of the proceedings the plaintiff adduced opinion evidence from an expert forensic accountant (Tony Samuel) to the effect that the market value, and the "true value", of the shares in BRS was $nil. If that opinion be correct, there was a causal connection between the cross defendants' contravention of section 236(1) of the Australian Consumer Law and a loss or damage suffered by the second cross claimant. The second cross claimant suffered loss or damage "because of" the cross defendants' conduct in contravention of the Law.
40. The value of BRS' Shareholding. Paragraphs 21-27 of Mr Samuel's Report (with editorial adaptation) summarise his evidence: "MARKET VALUE OF THE SHARES [21] As 'market value' requires consideration of the price at which a hypothetical, knowledgeable, willing but not anxious buyer and seller would conclude a transaction…, I have assumed that a knowledgeable willing buyer would have been aware of the advice from Optus to Broadreach [BRS] that Optus would cancel the MSA with Broadreach, seek to employ the staff of Broadreach and cancel the major contracts between Broadreach and Optus if the shares in Broadreach were not sold to Optus. … [22] In my opinion: a) the market value of the shares in Broadreach was reliant on the existence of the master contract with Optus and the retention of key employees, without which Broadreach would find it difficult to fulfil any purchase orders subject to that contract or to win new contracts; b) a hypothetical willing buyer would not ascribe any material value to Broadreach as a going concern given: i) the high risk of the key employees being employed by Optus. The loss of key employees to Optus would both reduce Broadreach's capability for servicing its customers and enable Optus to compete with Broadreach, thereby reducing Broadreach's ability to generate revenue from Optus' customers; ii) the losses suffered by Broadreach historically …; and iii) the projected short-term negative cash flows …. which would result in Broadreach exceeding its available credit facilities; and c) therefore, market value of the shares as at the Valuation Date [23 January 2015] should be assessed on a liquidation premise of value. [23] I have therefore assessed the market value of the shares by reference to its most recent balance sheet. On this basis, it is apparent that Broadreach's liabilities exceeded its assets. I conclude that, as at the Valuation Date, the market value of the [business of Broadreach], and therefore the shares in Broadreach, was $nil. TRUE VALUE OF THE SHARES [24] In my opinion, the True Value of the shares was reliant on the retention of key employees in the Business, as the loss of those employees would make it difficult for the company to fulfil its existing contracts or win new contracts. I am instructed that: a) Optus had advised Broadreach that it would cancel the MSA with Broadreach, seek to employ the staff of Broadreach and cancel the major contracts between Broadreach and Optus if the shares in Broadreach were not sold to Optus…; and b) Optus in fact employed eight staff of Broadreach in the months following Electroboard's acquisition of Broadreach. [25] I conclude that, in the absence of those key employees, Broadreach's ability to fulfil its existing contracts or win new contracts would be materially diminished. [26] I have also concluded that the company was, in the absence of a sale of its shares or business, most likely insolvent, as it was projecting negative cash flows that exceeded its financing limits. I therefore consider that the True Value of the shares as at the Valuation Date should be determined: a) on a liquidation premise of value; and b) by reference to its most recent balance sheet. [27] On this basis, it is apparent that Broadreach's liabilities exceeded its assets. I conclude that, as at the Valuation Date, the True Value of the Business and therefore the shares in Broadreach, was $nil."
41. The concept of "True Value" employed by Mr Samuels has a meaning derived from HTW Valuers (Central Queensland) Pty Ltd v Astonland Pty Ltd (2004) 217 CLR 640 at [36]-[38]. The expression "true value" there used was taken from McAllister v Richmond Brewing Co. (NSW) Pty Ltd (1942) 42 SR (NSW) 187 at 192, which harks back to Potts v Miller (1940) 64 CLR 282. This requires that the value of what the second cross claimant got must be ascertained in the light of the events which afterwards happened, because those events may show that what the shares sold for was not their true value or that the company was worthless.
42. The cross claimants bear the onus of proving that the true value of the shares was less than what was paid for them, an onus sought to be discharged by reference to BRS' balance sheet (dependent upon an entry for "intangible assets" to record a positive net worth); its impending insolvency; Optus' termination of the Term Sheet and MOU, and its demand for repayment of the $236,000 "prepayment", on 4 March 2015; the fact that on or about 17 March 2015 three BRS employees simultaneously resigned their employment with BRS and commenced employment with Optus and, on or about 29 June 2015, a further five BRS employees simultaneously resigned to go to Optus, with two other BRS employees' departure on a date not identified in the evidence; and the fact that on or about 25 June 2015 Optus terminated the MSA and sought a staged disengagement of business with BRS.
43. The cross defendants sought to qualify Mr Samuel's evidence by submissions to the effect that: 1. particular assets of BRS (reflected in its balance sheet as "intangibles") were of value, generally, or, at least, to the cross claimants. [This was a proposition which Ms Kaliviotis resisted by reference to the cross claimants' pre-existing resources and by disputing BRS' alleged entitlements to intellectual property. Mr Samuel disputed it as unrealistic on a valuation of the BRS business on a liquidation basis, and absent a reliable projection of income arising from the particular assets]. 2. shares in the company had a special value to the cross claimants. [This proposition does not sit well with the facts of the case viewed through the prism of Optus' hostility to an acquisition of BRS by the cross claimants. Mr Samuel conceded that BRS might have had special value to Optus because of its interest in contracts with the company, but disclaimed attribution of any special value to the cross claimants]. 3. BRS had accumulated tax losses. [This proposition assumes, inter alia, availability of future income against which to claim the benefit of such losses. Mr Samuel correctly declined to attribute value to the company's tax losses in valuation of its shareholding]. 4. under the second cross claimant's ownership and management the business of BRS improved beyond expectations. [This proposition does not allow for the increased funding, and different management, available to BRS after it was taken over by the second cross claimant].
44. An attribution of any value to BRS shares in late January 2015 ultimately runs into insurmountable problems with the company's balance sheet, its income projections, its fractured relationship with Optus and its tenuous relationship with skilled staff. In real terms, but for a balance sheet entry for "intangible" assets (largely attributable to capitalisation of research and development expenditure and without realisable value on a liquidation basis) it had a negative net worth. It had substantial debt, cash flow problems, no reliable income projection, a hostile major customer and skilled employees liable to migrate to that customer.
45. By the time the cross claimants acquired BRS, the risk of the company losing its "Optus contract" and the risk of its losing its key employees (in each case, fundamentally affecting the company's prospects of generating income in the future) were so great as to militate against attribution of any value to the company's shareholding.
46. Mr Samuel's analysis of BRS' net asset position was based upon the company's balance sheet as at 30 June 2014, the last prepared before 23-28 January 2015. Nothing in the evidence suggests that there was a material improvement in the company's net asset position in the intervening seven months. To the contrary, the company was trending towards insolvency, with mounting concerns about cash flow and profitability.
47. In cross examination (by reference to three cash flow forecasts prepared between 21 October and 12 November 2014 or thereabouts) Mr Samuel agreed that it was obvious to a reader of those forecasts that: 1. BRS was not generating sufficient cash or profits to meet its debt obligations for cash flow purposes; 2. BRS would require a capital injection or funding from another source in order to meet its debt obligations; 3. BRS would only continue as a going concern if its shares were acquired or its business was sold; and
48. He also agreed, in that cross examination, that it was his view as a valuer that, if Optus terminated its agreement with BRS, it was certain that BRS would not continue as a going concern.
49. The fragility of BRS' financial position in the days leading up to 5 December 2014 (when the BRS shareholders agreed to sell their shares to Optus, on terms requiring further negotiation, rather than to the defendant/first cross claimant) was not, in itself, the subject of great controversy in these proceedings. The prime focus of controversy was on what happened after acceptance of Optus' offer of 4-5 December 2014, and what Ms Kaliviotis was not told about what had happened when she was invited in late January 2015 to have the cross claimants acquire BRS on the basis that there was no need for her to undertake further due diligence inquiries.
50. Mr Samuel concluded that the key assets in the business of BRS were its key employees. This is consistent with the fourth cross defendant's emphasis on the importance of "suitably qualified staff" in the "Discussion Points" document he prepared for Ms Kaliviotis on or about 17 October 2014. It is equally consistent with Ms Kaliviotis' particular interest in acquisition of BRS: to secure the company's skilled staff, in order to provide a foundation for a closer engagement with Optus.
51. Recurrent features of this case, in each phase of its analysis, are the critical importance of BRS' skilled staff; the company's indebtedness, cash flow problems and borderline solvency; and its dependency on Optus, in an uncertain world, for ongoing business.
52. I accept as correct Mr Samuel's opinion that, at the time it was acquired by the cross claimants, the BRS shareholding had "nil" value.
53. Accordingly, the second cross claimant (which funded the cross claimants' acquisition of BRS and, as contemplated by all parties, acquired the company's shareholding) suffered loss or damage upon purchase of the company by a suite of contractual documents (dated 23 and 28 January 2015) completed on 28 January 2015.
54. Within the meaning of section 236(1) of the Australian Consumer Law, that loss or damage was suffered by the second cross claimant "because of" the conduct of the cross defendants found to have been in contravention of section 18 of the Australian Consumer Law.
55. Measure of loss or damage. The second cross claimant claims an award of damages totalling $2,236,067.45, calculated as the sum of: (a) the difference between an adjusted calculation of the price paid for BRS' shareholding ($1.35 million plus an allowance of $20,570 for BRS' negative net asset position) on 28 January 2015 and the market, or true, value of the shares ($nil) at that time, that is $1,370,570; and (b) the loan of $886,067.45 made by the second cross claimant to BRS to pay out BRS' overdraft: Potts v Miller (1940) 64 CLR 282; HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd (2004) 217 CLR 640 at [35]-[40].
56. An assessment of damages under section 236(1) of the Australian Consumer Law is compensatory. In these proceedings, that requires a comparison between the position in which the second cross claimant was in (having acquired the shares in BRS) and the position it would have been in had there been no contravention of section 18 of the Australian Consumer Law. Accepting that the "true value" of the shareholding as at 28 January 2015 was "nil", the second cross claimant's acquisition of BRS left it, in a sense, "out of pocket", first, for what it had paid in funding the purchase of BRS shares by the first cross claimant and, secondly, for what it lent BRS for the purpose of payment out of the company's overdraft.
57. The first limb of this damages claim relates squarely to the transaction between the cross claimants and the cross defendants; namely, the cross claimants' acquisition of BRS' shareholding. A comparison between the second cross claimant's different positions highlights the causal connection between its loss or damage and the cross defendants' contravention of section 236(1) of the Australian Consumer Law.
58. That loss (assessed by reference to the so-called "rule in Potts v Miller") focusses, not on the difference between price and "market value", but on the difference between price and "real value": HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd (2004) 21 CLR 640 at [36].
59. The opinion of Mr Samuel, here accepted, was that, on the facts of this case, the "market value" and the "real value" of the BRS shares acquired by the cross claimants were, at the time of acquisition, one and the same: that is, $nil.
60. The allowance of $20,570 claimed by the second cross claimant, in addition to the price of $1.35 million paid for the BRS shares, reflects the second cross claimant's attribution of a particular net asset value to BRS in its post-acquisition accounts.
61. Having accepted the opinion of Mr Samuel as correct, I decline to allow to the second cross claimant an additional $20,500 based, not on Mr Samuel's analysis, but upon its internal accounting records.
62. The second limb of the damages claim is in a different category. I am not satisfied that the funds lent to BRS by the second cross claimant have been lost. BRS continued to trade after 28 January 2015. It remained solvent. The precise terms upon which the second cross claimant on 28 January 2015 lent money to it (then a wholly owned subsidiary of the second cross claimant) are not the subject of evidence.
63. Subject to consideration of submissions about apportionment under the Competition and Consumer Act 2010 Cth, and an allowance for a "set off" of the $200,000 security fund held in escrow, judgment, in substance, should be entered for the second cross claimant against the cross defendants in the sum of $1.35 million, together with interest at the rate prescribed by section 100 of the Civil Procedure Act 2005 NSW from 28 January 2015.
64. The form of the Court's judgment might require further consideration because of a disparity in the identity of the parties who provided the security fund (the plaintiffs, in unequal shares) and the identity of the parties found liable to pay damages under section 236(1) of the Australian Consumer Law (the plaintiffs, as cross defendants, together with the fourth cross defendant).
65. Apportionment. The third plaintiff/cross defendant and the fourth cross defendant contend that: 1. any award of damages in favour of the second cross claimant under section 236(1) of the Australian Consumer Law should be reduced (under section 137B of the Competition and Consumer Act 2010 Cth) to nil because of a failure on the part of the cross claimants to take reasonable care to protect their own interests; and 2. the cross defendants being "concurrent wrongdoers" within the meaning of section 87CB of the Competition and Consumer Act 2010 Cth, upon an exercise of the power for which section 87CD(1) of the Act provides the Court should find that the responsibility for any loss or damage suffered by the cross claimants is to be borne by the first plaintiff/cross defendant and the second plaintiff/cross defendant (who had a history of working with Ms Kaliviotis as consultants and who were trusted by her), they having taken a more active role in negotiations with the cross claimants than the fourth cross defendant: Kayteal Pty Ltd v John Joseph Dignan [2011] NSWSC 197 at [71].
66. In my opinion, neither of the cross claimants can fairly be said to bear responsibility for the loss or damage by the second cross claimant, and no reduction in the award of damages to the second cross claimant on a contrary assumption would be just and equitable within the meaning of section 137B of the Competition and Consumer Act 2010 Cth.
67. This is not a case in which a claimant for relief under section 236(1) of the Australian Consumer Law acted negligently. The cross claimants admittedly took a risk in deciding to enter the agreement to acquire BRS documented on 23 and 28 January 2015; but they did so upon an assurance of the cross defendants (through the first cross defendant) that there had been no material change in circumstances since the first cross claimant's offer of November/December 2014. The first cross claimant had undertaken due diligence inquiries leading to the making of the offer in November/December 2014. The cross defendants not only invited, but encouraged, the cross claimants to adhere to their earlier offer to acquire BRS upon an assurance that a security fund of $200,000 would be sufficient to accommodate a change of circumstances. The misleading and deceptive conduct of the cross defendants undermined that assurance in circumstances in which the cross defendants knew that "BRS" had undisclosed contractual commitments to Optus, and Optus had enjoyed direct contact with BRS staff, which knowledge they did not share with the cross claimants.
68. Accepting that the cross defendants are "concurrent wrongdoers" within the meaning of section 87CB of the Competition and Consumer Act 2010 Cth, I do not accept (as the third plaintiff/cross defendant and the fourth cross defendant submit) that the first plaintiff/cross defendant and the second plaintiff/cross defendant bear greater responsibility for the second cross claimant's damage or loss than the third plaintiff/cross defendant and the fourth cross defendant.
69. As the "major shareholders" in BRS, the cross defendants worked collectively towards effecting a sale of 100% of the shares in BRS, either to Optus or to the cross claimants. Their decision on 5 December 2014 to reject the first cross claimant's offer, and to accept Optus' offer, was a collective one; the first plaintiff/cross defendant subordinated his personal dissent to the will of the majority. The decision to re-open negotiations with Mr Kaliviotis on 19 January 2015 was, likewise, a collective decision. It was no less a collective decision because the cross defendants delegated the task of approaching Ms Kaliviotis to the first plaintiff/cross defendant as a person she trusted.
70. They each knew the terms of the agreement of 5 December 2014 to sell BRS to Optus, and that steps (commercially unsatisfactory as they may have seemed) had been taken by Optus and BRS to implement that agreement. They each knew or ought to have known that Optus had not released "BRS" from any ongoing contractual commitment to confidential negotiations.
71. The fourth cross defendant was, at all stages of the negotiation processes of 2014 and 2015, actively involved. His "Discussion Points" document of 17 October 2014 was calculated to entice Ms Kaliviotis to acquire BRS. He was actively involved in the decision making of the "major shareholders" at all stages. In January 2015 he was actively involved in weighing up the options for the "major shareholders" in effecting a sale of BRS before the company, on 28 January 2015, was expected to become insolvent.
72. Any one of the cross defendants could have warned Ms Kaliviotis of the terms, currency and state of implementation of the Optus agreement. She was personally known to each of the first plaintiff/cross defendant, the second plaintiff/cross defendant and the fourth cross defendant. Any one of them could have prevented the cross claimants' loss by a timely disclosure to Ms Kaliviotis, an insistence upon a collective disclosure or a refusal to sell their shareholding without disclosure.

ANCILLARY QUESTIONS

1. The determination in this judgment that the second cross claimant is entitled to an award of damages (under section 236(1) of the Australian Consumer Law) in the full amount of the purchase price paid for BRS' shareholding renders unnecessary consideration of its alternative claims.
2. For completeness, bearing in mind questions raised in the statement of claim, I nevertheless make the following formal findings about the cross claimants' warranty claim: 1. Each of the Share Sale Agreement dated 23 January 2015, the Side Letter of the same date and the Deed of Assignment dated 28 January 2015 is to be construed in the commercial context that their common object, in the contemplation of the parties to each agreement, was to provide a contractual arrangement in which BRS' shareholding would be sold by the Sellers (including the plaintiffs) on terms that the shares would be acquired by the second cross claimant as assignee of the named Buyer, the first cross claimant. 2. The warranties formally given by the Sellers to the first cross claimant as Buyer in clause 8 of the Share Sale Agreement (including the warranty recorded in paragraph 15.2 of Schedule 2 to the Agreement) were given in the knowledge that, in commercial terms, the true purchaser of BRS' shareholding was the second cross claimant (via an assignment of rights to it by the first cross claimant). 3. The agreement of the plaintiffs as "Majority Shareholders" to bear the cost of stamp duty upon a transfer of BRS' shareholding by the first cross claimant to the second cross claimant (recorded in clause 7 of the Side Letter) was interdependent with their agreement (recorded in clause 3 of the Side Letter) to provide a security fund in escrow, for a limited time, against the possibility that the first cross claimant would make a claim relating to a breach of warranty under the Share Sale Agreement. 4. The 90 day time limit for notification of a claim on the security fund (for which clauses 3.1 and 3.4 of the Side Letter provided) was matched by a similar 90 day time limit (for which clause 7 of the Side Letter provided) for an assignment to be effected. 5. The Deed of Assignment recorded in its preamble that (as was the fact) the second cross claimant had funded the first cross claimant's purchase of BRS' shareholding and that, between the date of the Share Sale Agreement and completion of the Agreement, it was agreed between the cross claimants that the shares should have been purchased by the second cross claimant. The fact that that had not occurred was a product of a request by the plaintiffs that the Share Sale Agreement be signed, for their convenience, in a form that recorded the first cross claimant as the Buyer, the plaintiffs agreeing to pay stamp duty on a transfer of the BRS shares from the first cross claimant to the second cross claimant. 6. By clause 1 of the Deed of Assignment, the first cross claimant assigned to the second cross claimant "all of [the first cross claimant's] right title and interest in the [Share Sale Agreement] and to the shares purchased by [the first cross claimant] from the shareholders of [BRS]", to the intent that BRS "shall as from the date hereof be a wholly owned subsidiary of the [second cross claimant] as if the [second cross claimant] had acquired the Shares in the Company from the Shareholders thereof". 7. The Deed of Assignment was prepared and given effect as an integral part of arrangements between the Sellers and the cross claimants for settlement of the Share Sale Agreement on 28 January 2015, upon which date the second cross claimant funded the first cross claimant's completion of the Share Sale Agreement. 8. An inference to be drawn from the contractual documentation and the course of settlement of the Share Sale Agreement is that the Sellers (including the plaintiffs) had notice of the assignment of the first cross claimant's rights to the second cross claimant no later than 28 January 2015 at or about the time the Share Sale Agreement was completed, with written notice (sufficient to engage section 12 of the Conveyancing Act 1919 NSW) given to the plaintiffs no later than service of a copy of the Deed of Assignment on the plaintiffs in the course of these proceedings. 9. Notice of a warranty claim was given to the Sellers by the first cross claimant on 20 April 2015: 1. in accordance with clause 10.1, and within a one year limitation period prescribed by clause 9(vi) of the Share Sale Agreement; and 2. within the 90 day limitation period for which clauses 3.1 and 3.4 of the Side Letter provided. 1. The limitation period of 18 months (for which clause 9.6(b)(ii)) of the Share Sale Agreement provided), for the first cross claimant to assert a warranty claim in legal proceedings does not operate as a bar on the cross claimants' warranty claim because what was required within the 18 month period was that the first cross claimant "issue and serve legal proceedings against the Sellers in respect of the Claim", an expression sufficiently broad to encompass the first cross claimant's assertion of its claim by way of a claim of set off in the Defence it filed on 22 March 2016 in response to the plaintiff's statement of claim filed on 22 February 2016. 2. The warranty claim made by the first cross claimant and sought to be enforced by the second cross claimant (as assignee of the first cross claimant) is a claim made (by reference to paragraph 15.2 of Schedule 2 and clause 8.1 of the Share Sale Agreement) to the effect that the Due Diligence Materials provided to the first cross claimant were "accurate and complete in all material respects and not misleading" and that there was "no information of which any Seller [was] aware which would, by its omission, render any information in the Due Diligence Materials to be inaccurate in any material respect or misleading". 3. The Due Diligence Materials did not include any information relating to the existence, terms, implementation or currency of the Optus Term Sheet or the MOU dated 4-5 December 2014. 4. The omission of any reference to the Term Sheet and the MOU rendered the Due Diligence Materials misleading, with the consequence that the Sellers were in breach of their warranty. 5. As a result of that breach of warranty, the second cross claimant (as assignee of the first cross claimant) has an entitlement to be indemnified from the security fund.
3. It is not necessary to go further than this in elaboration of the merits of the warranty claim because the merits of that claim find a close parallel in consideration of the factual matrix underlying the second cross claimant's claim under sections 18 and 236 of the Australian Consumer Law.
4. The essential point is that the plaintiffs' failure to disclose the existence, terms, implementation and currency of the Optus Term Sheet and MOU rendered information in the Due Diligence Material inaccurate in material respects, and misleading, in the context of the Share Sale Agreement entered on 23 January 2015.

CONCLUSION

1. Subject to allowing the parties an opportunity to make submissions about the form of the Court's judgment, and the costs orders to be made, I propose to make orders to the following effect: 1. JUDGMENT in favour of the second cross claimant against the cross defendants in the sum of $1,350,000.00. 2. ORDER that the solicitors for the defendant/cross claimants be authorised and directed to apply the security fund held by them in escrow (pursuant to clause 3.1 of the Side Letter dated 23 January 2015), together with any interest accrued on the fund, in reduction of the judgment debt awarded against the cross defendants. 3. ORDER that the second cross claimant be awarded interest (at the rate prescribed by section 100 of the Civil Procedure Act 2005 NSW) on the sum of $1,150,000.00 calculated from 28 January 2015 until the date of judgment. 4. ORDER that the statement of claim and the amended statement of cross claim otherwise be dismissed. 5. ORDER that the plaintiffs pay the defendant's costs of the statement of claim. 6. ORDER that the cross defendants pay the cross claimants' costs of the amended statement of cross claim.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 24 April 2020