BSA Limited v Bradshaw, in the matter of BSA Limited

Legal Principles 8 In Star Entertainment Group Limited v Chubb Insurance Australia Ltd [2022] FCAFC 16; (2022) 400 ALR 25, Moshinsky, Derrington and Colvin JJ at [8]-[11] provided the following conspectus of principles applicable to the construction of commercial contracts: 8. The principles to be applied in construing commercial instruments are well established. They require the language used by the parties to be interpreted objectively by considering what the language adopted by them would mean to a reasonable businessperson in the position of the parties. The language used by them is to be considered in the context of the surrounding circumstances known to them at the time of the transaction and the purpose or object of the transaction evident from those matters: Pacific Carriers Ltd v BNP Paribas [2004] HCA 35; (2004) 218 CLR 451 at [22]; Electricity Generation Corporation v Woodside Energy Ltd [2014] HCA 7; (2014) 251 CLR 640 at [35] (French CJ, Hayne, Crennan and Kiefel JJ) ; Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37; (2015) 256 CLR 104 at [46]-[47] (French CJ, Nettle and Gordon JJ) and Rinehart v Hancock Prospecting Pty Ltd [2019] HCA 13; (2019) 267 CLR 514 at [44] (Kiefel CJ, Gageler, Nettle and Gordon JJ). 9. Issues may arise as to the extent to which there may be regard to surrounding circumstances in the absence of any real ambiguity in the text or for the purpose of demonstrating ambiguity: see, Mount Bruce at [48]-[49], [52] (French CJ, Nettle and Gordon JJ) and [111] (Kiefel and Keane JJ) and the most recent reference to the relevant debate in Liberty Mutual Insurance Company Australian Branch trading as Liberty Specialty Markets v Icon Co (NSW) Pty Ltd [2021] FCAFC 126 at [45] (Allsop CJ, Besanko and Middleton JJ). However, no such matters were raised in the present case. 10. The question for consideration is not what each of the parties meant to say, but rather what is the objective meaning to be attributed to the words they have used to express what they have agreed: Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165 at [40] (Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ), Byrnes v Kendle [2011] HCA 26; (2011) 243 CLR 253 at [17] (French CJ), [59] (Gummow and Hayne JJ) and [98] (Heydon and Crennan JJ) and HDI Global Specialty SE v Wonkana No. 3 Pty Ltd [2020] NSWCA 296; (2020) 104 NSWLR 634 at [18]-[19] (Meagher JA and Ball J). 11. In the absence of a contrary intention, the construction of a commercial instrument will be approached on the basis that the parties intended to produce a commercial result and constructions that make for commercial nonsense or would work commercial inconvenience should be avoided: Zhu v Treasurer (NSW) [2004] HCA 56; (2004) 218 CLR 530 at [82], Electricity Generation Corporation v Woodside Energy Ltd at [35] (French CJ, Hayne, Crennan and Kiefel JJ) applied in Mount Bruce at [51], Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd [2017] HCA 12; (2017) 261 CLR 544 at [17] (Kiefel, Bell and Gordon JJ) and Liberty Mutual Insurance Company Australian Branch trading as Liberty Specialty Markets v Icon Co (NSW) Pty Ltd at [152] where such an approach was expressed as applying in the context of an insurance policy. However, care must be taken to ensure that it is the evident commercial object that is being given effect recognising that minds may differ as to the commerciality of a particular outcome: Maggbury Pty Ltd v Hafele Australia Pty Ltd [2001] HCA 70; (2001) 210 CLR 181 at [43] (Gleeson, Gummow and Hayne JJ). Therefore, reasoning by reference to commerciality has its limits. 9 At paragraph [9] of Star Entertainment Group, their Honours referred to paragraph [45] of Liberty Mutual Insurance Company Australian Branch trading as Liberty Specialty Markets v Icon (NSW) Pty Ltd [2021] FCAFC 126; (2021) 396 ALR 193 in which another Full Court (Allsop CJ, Besanko and Middleton JJ) stated: 45. The primary judge commenced with a discussion of relevant principles of construction and interpretation. In that discussion, the primary judge (in particular at J[57]-[60]) involved himself in the debate that has taken place in intermediate courts of appeal as to "ambiguity" for the purposes of the expression of the "true rule" stated by Mason J in Codelfa at 352. His Honour expressed it (at J[57]) as "whether the requirement for ambiguity expressed by the 'true rule' remains good law". Whether that was an accurate encapsulation of the debate can be left to one side. The Full Court of this Court in Stratton Finance Pty Ltd v Webb [2014] FCAFC 110; 314 ALR 166 at 173-174 [36]-[41] expressed the view that the question of ambiguity was not to be assessed by reading the words of the contract disembodied and removed from their context. See also the later Full Courts in Chubb Insurance Company of Australia Ltd v Robinson [2016] FCAFC 17; 239 FCR 300 at 326 [103(b)] plainly referring to [73] of the judgment of Beach J in Todd v Alterra at Lloyds Ltd [2016] FCAFC 15; 239 FCR 12 at 28 [73], explicated at [74]-[75], and Federal Commissioner of Taxation v The Trustee for the Michael Hayes Family Trust [2019] FCAFC 226; 273 FCR 567 at 580-582 [28]-[31]. The effect of what the primary judge stated at J[60] was that as a single judge sitting in the original jurisdiction he was entitled to ignore any apparent binding precedent of the Full Court and make up his own mind as to the content of the High Court authority and, if he disagreed with the Full Court's view of that, not follow the Full Court. With respect, his Honour erred in that regard….

Consideration 10 The definition of Capital Raise has the following parts. 11 First, a principal clause: "BSA having raised funding from existing or new shareholders, debt or any other source of finance or other injection of capital …". 12 Secondly, a carve out clause: "… but save for and excluding any debt or finance which is raised for the purposes of addressing a delay between the receipt of payment from BSA's client(s) and BSA's needs or obligations to pay its workforce (including both independent contractors and employees) or to meet other operational costs …". 13 Thirdly, a requirement that the funding: have been raised in the financial year ending 30 June 2022 or 30 June 2023; have been available to BSA in readily available funds prior to 30 June 2022 or 30 June 2023 as the case may be; and have exceeded: (1) $8 million in the case of the year ended 30 June 2022; or (2) $12 million, in the case of the year ended 30 June 2023. 14 It is common ground, as a matter of construction, that the principal clause applies to funding raised from existing and new shareholders; and that, as a matter of fact, the funds raised were raised in this way. It is also common ground, as a matter of fact, that the funds raised exceeded $8 million of funds raised in the financial year ending on 30 June 2022 and that such funds were readily available to BSA prior to 30 June 2022. 15 The sole area of contention in terms of construction is whether a raising of funds from shareholders falls within the carve out clause. 16 The carve out clause has two criteria. The first is that the funding raised is "debt or finance". The second is that the funding raised was raised "… for the purposes of addressing a delay between the receipt of payment from BSA's client(s) and BSA's needs or obligations to pay its workforce (including both independent contractors and employees) or to meet other operational costs …". These criteria are considered in turn below.

The "debt or finance" criterion of the carve out clause 17 As noted above, the funds raised were raised by a share offering. The applicant contends, and the first to fourth respondents deny, that the expression "debt or finance" in the carve out clause includes funds raised in that manner. It is common ground that the word "debt" does not include funds raised by a share offering. Thus, the issue reduces to whether the word "finance" includes such funds.

Text of the Deed 18 The text of the Deed suggests that the parties intended that "finance" includes funds raised by a share offering for the following reasons. 19 First, as a matter of ordinary parlance, "finance" is sufficiently broad to include funds raised by a share offering. The Macquarie Dictionary definitions of "finance" as a noun include "2. (plural) pecuniary resources, as of a sovereign, state, company, or an individual; revenue". The Oxford English Dictionary definitions of "finance" as a noun include: "A supply of money or goods; a fund or store of money; wealth, riches"; "In plural. Monetary resources or affairs … (b) of an individual or company"; and "As a mass noun - (a) Monetary resources; money used or intended for a particular purpose; financing, funding". 20 Secondly, the word "finance" is used elsewhere in the definition in a way which clearly encompasses funds raised by a share offering. The principal clause refers to funds raised from "…existing or new shareholders, debt or any other source of finance or other injection of capital…". The expression "other source of finance" suggests that the preceding expressions "existing or new shareholders" and "debt" are each a source of "finance" (and that there are additional sources of finance other than these). 21 Whilst the principal clause uses the expression "source of finance" and the carve out clause uses the word "finance" I discern no difference for present purposes between these terms and none was suggested. As "finance" is used more than once within the definition it should be presumed that the parties to the Deed intended to use it consistently: Victoria v Tatts Group Limited [2016] HCA 5; (2016) 90 ALJR 392 at [55]. 22 It follows that the text of the definition invites the conclusion that the word "finance" encompasses funds raised from new or existing shareholders. 23 The first to fourth respondents submitted that within the principal clause "debt" and "any other source of finance" are not to be read separately, but instead as a compound expression - "debt or any other source of finance" - in which "any other source of finance" should be read down as being a source similar to debt. 24 The first step in this argument is that the punctuation used in the principal clause is such that the principal clause identifies three potential sources of funds: (1) shareholders (existing or new); (2) debt or any other source of finance; and (3) other injection of capital. 25 The first to fourth respondents submitted that such a construction follows from the use of a comma between "from existing or new shareholders" and the remainder of the principal clause; and from the absence of commas after "debt" and after "any other source of finance". They also submitted that if "any other source of finance" were a stand-alone expression, the word "debt" would be followed by a comma instead of "or". 26 I do not accept these submissions. Whilst punctuation can be important in the construction of a contract, care must be exercised, and a pre-requisite to relying on punctuation is satisfaction that it has been used consciously and not haphazardly: see Chalmers Leask Underwriting Agencies v Mayne Nickless Limited [1983] HCA 20; (1983) 155 CLR 279 at 285-286 per Brennan and Deane JJ (Gibbs CJ, Wilson and Dawson JJ agreeing); Mainteck Services Pty Ltd v Stein Heurtey SA [2014] NSWCA 184; (2014) 89 NSWLR 633 at 659-660 [105]-[106] per Leeming JA (Ward and Emmett JJA agreeing); and Zhang v ROC Services (NSW) Pty Ltd; National Transport Insurance by its Manager NTI Ltd v Zhang [2016] NSWCA 370; (2016) 93 NSWLR 561 at 579 [72]-[73] per Leeming JA (Sackville AJA agreeing). I am not satisfied that the use of only one comma in the principal phrase was deliberate in the sense that it was intended that only the comma and not the word "or" was to be used to separate the sources of funding in that clause. 27 If commas were the only valid separators of sources of funding in the principal clause, then that clause would comprise two parts: "existing or new shareholders"; and "debt or any other source of finance or other injection of capital". 28 Similarly, if the word "or" were the only valid separator, then the principal clause would comprise four parts: "existing"; "new shareholders, debt"; "other source of finance" and "other injection of capital"; or perhaps three: "existing or new shareholders, debt"; "other source of finance" and "other injection of capital". 29 Each of the above constructions is considerably less likely to have been intended than a construction in which both the comma and the word "or" are used as separators. Such a construction results in the principal clause having the following four parts: "…existing or new shareholders" (followed by a comma); "debt" (followed by "or"); "any other source of finance" (followed by "or"); and "other injection of capital". 30 For the above reasons, I do not accept as valid the first step in the argument. Thus it is not necessary to consider the second step in this argument, namely that in the compound expression - "debt or any other source of finance" - the phrase "any other source of finance" would be limited to sources which are "of a similar nature as debt", or "of a nature more akin to loan facilities", as the first to fourth respondents submitted. In any event, I am not satisfied that the phrase "any other source of finance" should be read down given the width of the ordinary meaning of the term "finance". 31 There is also a tension in this step of the argument. If "any other source of finance" is the same as "debt", then the former expression is otiose, and the Court would not readily conclude that the parties intended to include an otiose expression. On the other hand, to the extent that there is a difference in the two expressions, the former expression is, on this argument, to be read as being "of a similar nature as debt", or "of a nature more akin to loan facilities". The lack of clarity is obvious. In my view, a reasonable business person would have intended "any other source of finance" to have its ordinary meaning, rather than to be confined by a vague relationship to the concept of "debt". 32 The first to fourth respondents also submitted that the principal clause - "existing or new shareholders, debt or any other source of finance or other injection of capital" - was wider than the first part of the carve out clause - "debt or finance" - and it should be inferred that the parties intended to exclude some of the sources of finance in the principal clause from the carve out clause and in particular the expression "existing or new shareholders". In other words, if the same sources of funds were intended to populate both the principal clause and the first part of the carve out clause, then the same words would have been used, and as different words were used it follows that there was no intention that the same sources populate both the principal clause and the carve out clause. 33 I do not accept this submission for the following reasons. First, as discussed above, the structure of the principal clause is such that it is clear that the raising of funds from shareholders is an "other source of finance", with the result that "existing or new shareholders" is within the carve out clause in any event. Secondly, the submission loses much of its force when the carve out clause has two criteria - a "debt or finance" criterion; and a purpose criterion. The existence of the purpose criterion allows the clause to have meaning even if there were complete congruence between "existing or new shareholders, debt or any other source of finance or other injection of capital" in the principal clause and "debt or finance" in the carve out clause. 34 The first to fourth respondents also submitted that the inclusion of a purpose criterion in the carve out clause supports a construction of "debt or finance" which excludes funds raised by a share offering, because where funds are raised by a share offering, there is no restriction on their use, whereas facilities such as a facility held by BSA with the Commonwealth Bank of Australia (CBA Facility) can be restricted by the lender as to a particular use. I do not accept this submission. There is no basis from which to assume that funds raised by a share offering, or any other particular form of finance, are not raised for a particular purpose or that the carrying out of such a purpose is more likely to occur on one scenario than on others. There is also no basis for a conclusion that a particular lender will insist that funds advanced be applied to a particular use.

Context and surrounding circumstances 35 BSA submitted that I should not have regard to surrounding circumstances unless I was satisfied that there was an ambiguity in the text of the definition. In this regard, BSA called in aid the "true rule" referred to by Mason J in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [1982] HCA 24; (1982) 149 CLR 337 at 352, where his Honour said: The true rule is that evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning. But it is not admissible to contradict the language of the contract when it has a plain meaning. Generally speaking facts existing when the contract was made will not be receivable as part of the surrounding circumstances as an aid to construction, unless they were known to both parties, although, as we have seen, if the facts are notorious knowledge of them will be presumed. 36 I do not accept that submission. As the Full Court emphasised in Liberty Mutual, the approach taken in this Court and which is binding upon me is that the question of ambiguity is not to be assessed by reading the words of the contract disembodied and removed from their context. In any event, I am satisfied that the language used in the definition of "Capital Raise" is capable of more than one meaning. 37 The first to fourth respondents referred to the following matters as providing relevant context. 38 First, the CBA Facility. This is a matter that was known to BSA and the respondents. The first to fourth respondents rely upon the knowledge of the parties of this agreement, which the first to fourth respondents describe as a facility not necessarily easily characterised as "debt", as providing support for the proposition that "finance" was intended to capture facilities of this type but not funds raised by way of equity from new or existing shareholders. I accept that the parties were aware of the availability of this facility to BSA, however I do not accept that its presence is sufficient to suggest that a narrower construction of the word "finance" should be adopted particularly when the principal clause used finance in a way which included other sources of funds including funds raised by way of equity from new or existing shareholders. 39 Secondly, an email sent on 4 February 2022 by the solicitors for BSA to the solicitors for the respondents, during the [REDACTED] [REDACTED] [REDACTED]. [REDACTED] [REDACTED] [REDACTED] [REDACTED] 40 The proposed wording of [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] 41 The first to fourth respondents rely upon this email and its attachment for the proposition that the following facts were known to all parties: (1) BSA was [REDACTED]; (2) that [REDACTED]; (3) BSA needed [REDACTED] and (4) the carve out [REDACTED] 42 I do not accept that these were objective facts. Objective facts do not include the parties' statements and actions reflecting their actual intentions and expectations: Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37; (2015) 256 CLR 104 at 117 [50] (French CJ, Nettle and Gordon JJ). The email and its attachment are an expression of BSA's intentions, expectations and negotiating position, rather than objective facts known to all parties which may be used to determine the objective intention of all parties. In this regard, I note that the prohibition concerning actual intentions and expectations is not limited to uncommunicated intentions and includes communicated intentions. However, the communication of an intention does not thereby convert it to a surrounding circumstance or objective fact known to both parties: see Cherry v Steele-Park [2017] NSWCA 295; (2017) 96 NSWLR 548 at 579 [132] and [137] per White JA; see also Herzfeld and Prince, Interpretation (Lawbook Co, 2nd ed, 2020) at [29.110].

Commercial purpose of the Deed 43 The commercial purpose of the Deed falls to be considered by reference to the Deed as a whole. 44 The overriding commercial purpose of the Deed is to provide an end to the class action proceeding by way of payment of $20 million by BSA to the members of the class and others, by way of payments in instalments. One subsidiary purpose of the Deed is to provide that if BSA raises funds in excess of the specified thresholds then there is to be an acceleration of the payment of the settlement funds, save to the extent that the carve out clause applies. The carve out reflects that there is to be an exception where (at least) the prescribed purposes are satisfied. Thus, when the Deed is considered as a whole, its commercial purpose is to provide for the settlement to occur by payment in instalments but with the interests of the parties (respectively, in being in a position to make the payments; and in being paid) being balanced by providing for acceleration where funds are raised, save where those funds are raised for particular purposes. 45 The preferred constructions advanced by BSA and the first to fourth respondents simply reflect their particular sides of the balance struck by the Deed. Neither construction can be said to be reflective of, nor inconsistent with, the purpose of the Deed as a whole. 46 For the reasons set out at [10] to [45] above, the proper construction of the word "finance" in the carve out clause is that it includes funds raised from existing or new shareholders. It follows that the funds raised pursuant to the share offering are "finance" within that clause.

The purpose criterion of the carve out clause 47 The second aspect of the carve out clause is that the funds are raised "… for the purposes of addressing a delay between the receipt of payment from BSA's client(s) and BSA's needs or obligations to pay its workforce (including both independent contractors and employees) or to meet other operational costs …". 48 Again the use of the word "other" suggests that the costs of addressing a delay between the receipt of payment from BSA's client(s) and BSA's needs or obligations to pay its workforce formed part of a larger set of operational costs. Thus, it is sufficient for the funds raised to be raised for the purpose of meeting "operational costs". 49 The phrase "operational costs" is not defined in the Deed. I agree with the submission of the first to fourth respondents that this expression refers to costs incurred in the ordinary operations of BSA's business.

WERE THE FUNDS RAISED FOR THE PRESCRIBED PURPOSES? 50 I turn now to the second issue, namely whether the funds were raised for the purposes prescribed in the carve out clause. 51 On 5 April 2022, the directors of BSA met. At that meeting, [REDACTED] The minutes of that meeting recorded that [REDACTED] (a) [REDACTED]; and (b) [REDACTED] 52 On 6 April 2022, BSA announced a capital raising and lodged the prospectus with Australian Securities Exchange Ltd. The announcement included "Proceeds of the offer (after expenses) will be used to provide for general working capital expenses". 53 The prospectus included the following statements: "The funds raised pursuant to the Entitlement Offer and Placement (after expenses) are planned to be used for general working capital purposes"; "The purpose of the Entitlement Offer is to provide the Company funds for general working capital purposes"; and "As noted in section 3 of this Prospectus, the funds raised pursuant to the Capital Raising are planned to be used for general working capital purposes". 54 Mr Becker, the Chief Financial Officer and interim Chief Executive Officer of BSA, who was a member of the due diligence committee for the offering and who was in attendance at the 5 April 2022 board meeting [REDACTED], deposed that: 86. On 5 April 2022, [REDACTED] stated, in summary, [REDACTED] … 101. As correctly stated in the confidential 3 June 2022 letter from JWS to Shine Lawyers, the purpose of the capital raise the subject of the Prospectus (and the Completion Announcement) was to [REDACTED] ... In this regard, the 3 June 2022 letter correctly states: (a) [REDACTED]; (b) [REDACTED]; (c) [REDACTED]; [REDACTED] (d) [REDACTED]. 55 The first to fourth respondents expressly disclaimed any suggestion that the prospectus contained any false or misleading statements. I am satisfied, on the basis of the prospectus, the minutes of the 5 April 2022 board meeting and the evidence of Mr Becker set out above that the purpose of the fund raising was to meet operational costs. 56 The first to fourth respondents submitted that part of the purpose of the fund raising was to ensure that BSA had sufficient funds to [REDACTED] that such costs are not operational; and that the existence of one purpose which is not to meet operational costs is sufficient to produce the result that the fund raising was not for the prescribed purposes. 57 I do not accept this submission. It is contrary to the evidence described above. Further, the suggestion that the statements in the prospectus set out above were an incomplete picture of the purpose of the fundraising was not put to Mr Becker, in circumstances where Mr Becker's evidence included that he was a member of the due diligence committee established in connection with the fundraising and he had [REDACTED] after satisfying himself that the statements in the prospectus were true and complete and that the prospectus contained no false or misleading statements or material omissions. 58 In any event, payment of [REDACTED] falls within [REDACTED]; and the fact that the funds raised might [REDACTED] does not falsify the proposition that the funds were obtained for the purpose of meeting operational costs. 59 The first to fourth respondents also sought to draw a distinction between the phrase "general working capital purposes" used in the prospectus and the phrase "operational costs" used in the carve out clause. They submitted that the concept of "general working capital" is different to the concept of "operational costs". It may be accepted that these concepts are different. However, it does not follow that the purpose of the fund raising was not for operational costs, particularly when, in ordinary parlance, working capital is available to pay for operational costs. 60 For the above reasons, I accept that the purpose of the fund raising was to enable BSA to meet its operational costs. Thus, I am satisfied that the funds raised were raised for the purposes prescribed in the carve out clause.

CONCLUSION 61 Declarations should be made to give effect to these reasons. As the parties have not yet addressed the form of the declarations to be made, and as I have some concerns that the declarations sought in the Originating Application and in particular, the second of these declarations, are wider than is necessary to resolve the issues in this proceeding, I will allow the parties an opportunity to address the Court as to the form of the declarations to be made. 62 My preliminary view is that costs should follow the event. The parties should also address the form of any costs order to be made. I certify that the preceding sixty-two (62) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Goodman.

SCHEDULE OF PARTIES NSD 417 of 2022 Respondents Fourth Respondent: ESCOM COMMUNICATIONS PTY LTD Fifth Respondent: MARCOMM COMMUNICATIONS PTY LTD Sixth Respondent: LLS FUND SERVICES PTY LTD AS TRUSTEE FOR LITIGATION LENDING FUND 1 Seventh Respondent: SHINE JUSTICE LTD Eighth Respondent: SHINE LAWYERS PTY LTD