Driver v Botanical water Technologies Pty Ltd - [2024] NSWSC 1409 - NSWSC 2024 case summary — Zoe

NSWNSWSC

Driver v Botanical water Technologies Pty Ltd

[2024] NSWSC 1409

Supreme Court of NSW|2024-08-22|Before: Ball J

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At a glance

Source facts

Court

Supreme Court of NSW

Decision date

2024-08-22

Before

Ball J

Catchwords

[2018] HCA 43 Anderson v Canaccord Genuity Financial Ltd (2023) 113 NSWLR 151
[2021] FCAFC 40 Australian Securities and Investments Commission (ASIC) v Kobelt (2019) 267 CLR 1
[2018] HCA 18 Australian Securities and Investments Commission (ASIC) v Westpac Banking Corporation (No 2) (2018) FCR 147
[2018] FCA 751 Beach Petroleum NL v Abbott Tout Russell Kennedy (1999) 48 NSWLR 1

Source

Original judgment source is linked above.

Catchwords

[2018] HCA 43 Anderson v Canaccord Genuity Financial Ltd (2023) 113 NSWLR 151[2021] FCAFC 40 Australian Securities and Investments Commission (ASIC) v Kobelt (2019) 267 CLR 1[2018] HCA 18 Australian Securities and Investments Commission (ASIC) v Westpac Banking Corporation (No 2) (2018) FCR 147[2018] FCA 751 Beach Petroleum NL v Abbott Tout Russell Kennedy (1999) 48 NSWLR 1[1996] HCA 57 Brunninghausen v Glavanics (1999) 46 NSWLR 538(2021) 391 ALR 157 Cessnock City Council v 123 259 932 Pty Ltd [2024] HCA 17 Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447[1983] HCA 14 Commonwealth v Amann Pty Ltd (1991) 174 CLR 64[2010] HCA 6 Friend v Brooker (2009) 239 CLR 129[2009] HCA 21 Garner v Central Innovation Pty Ltd [2022] FCAFC 64 Hadley v Baxendale (1854) 9 EXCH 341

Judgment (40 paragraphs)

[1]

inghausen v Glavanics (1999) 46 NSWLR 538; [1999] NSWCA 199 Burns v MAN Automotive (Aust) Pty Ltd (1986) 161 CLR 653 Central Coast Council v Norcross Pictorial Calendars Pty Ltd [2021] NSWCA 75; (2021) 391 ALR 157 Cessnock City Council v 123 259 932 Pty Ltd [2024] HCA 17 Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447; [1983] HCA 14 Commonwealth v Amann Pty Ltd (1991) 174 CLR 64; [1991] HCA 54 Crawley v Short [2009] NSWCA 410 Dewhirst v Edwards [1983] 1 NSWLR 34 Edwin Davey Pty Ltd v Boulos Holdings Pty Ltd [2022] NSWCA 65 European Bank Ltd v Robb Evans of Robb Evans and Associates (2010) 240 CLR 432; [2010] HCA 6 Friend v Brooker (2009) 239 CLR 129; [2009] HCA 21 Garner v Central Innovation Pty Ltd [2022] FCAFC 64 Hadley v Baxendale (1854) 9 EXCH 341; (1854) 156 ER 145 Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 Howard v Federal Commissioner of Taxation (2014) 253 CLR 83; [2014] HCA 21 In the matter of Aqua Botanical Beverages (Australia) Pty Ltd (receivers and managers appointed) [2021] NSWSC 1214 Ipstar Australia Pty Ltd v APS Satellite Pty Ltd [2018] NSWCA 15; (2018) 356 ALR 440 Jaken Properties Australia Pty Ltd v Naaman (2023) 112 NSWLR 318 John Alexander's Clubs Pty Ltd v White City Tennis Club Ltd (2010) 241 CLR 1 Johnson v Gore Wood & Co [2002] 2 AC 1 Jones v Dunkel (1959) 101 CLR 298; [1959] HCA 8 J & E Vella Pty Ltd v Hobson [2020] NSWCA 188 Koufos v Czarnikow Ltd [1969] 1 AC 350 Kuhl v Zurich Financial Services Australia Ltd (2011) 243 CLR 361; [2011] HCA 11 Maguire v Makaronis (1997) 188 CLR 449 McMillan v Coolah Home Base Pty Ltd [2024] NSWCA 138 Oates v Consolidated Capital Services Ltd [2009] NSWCA 183 O'Halloran v R T Thomas & Family Pty Ltd (1998) 45 NSWLR 262 Pilmer v Duke Group Limited (in liq) (2001) 207 CLR 165; [2001] HCA 31 Productivity Partners Pty Ltd (t/as Captain Cook College) v Australian Competition and Consumer Commission (ACCC) [2024] HCA 27 REW08 Projects Pty Ltd v PNC Lifestyle Investments Pty Ltd (2017) 95 NSWLR 458 Stuart Pty Ltd v Condor Commercial Insulation Pty Ltd [2006] NSWCA 334 Target Holdings Ltd v Redferns [1996] 1 AC 421 Union Dominions Corporation Ltd v Brian Pty Ltd (1985) 157 CLR 1 Warner Capital Pty Ltd v Shazbot Pty Ltd [2020] NSWCA 121 Wenham v Ella (1972) 127 CLR 454 Texts Cited: J D Heydon, M J Leeming and P G Turner, Meagher, Gummow and Lehane's Equity Doctrines and Remedies, 5th (2015), LexisNexis Butterworths Category: Principal judgment Parties: David Driver (First Plaintiff) Ambrosios Kambouris (Second Plaintiff) Kambouris Shares Pty Ltd (Third Plaintiff) DJD Trading Pty Ltd (Fourth Plaintiff) Botanical Water Technologies Pty Ltd (First Defendant) Botanical Water Technologies Ltd (Second Defendant) Botanical Water Technologies IP Ltd (Third Defendant) MyCo Pty Ltd (Fourth Defendant) Terry Paule (Fifth Defendant) Aqua Botanical Beverages (Australia) Pty Ltd (In Liquidation) (Sixth Defendant) Representation: Counsel: DFC Thomas SC with H Atkin (Plaintiffs) J Hynes with MR Davis (Third to Fifth Defendants)

[5]

The plaintiffs and the Patents

Dr Kambouris has several science-related qualifications including Bachelor of Science degrees majoring in microbiology and in immunology and pathology and a PhD focussing on the effect of diet upon lipoproteins and their consequent effect on the risk of heart disease. He also has a graduate certificate in metallurgy. He developed the process for extracting drinkable water from the wastewater in or about 2010. At that time, Dr Kambouris applied for and subsequently obtained, originally in his own name, a patent for the invention (the Recovering Water Patent). On 17 May 2013, Dr Kambouris transferred the patent to the third plaintiff, Kambouris Shares Pty Ltd (KSP), a company in which Dr Kambouris owns 80 percent of the shares and his now former wife, Ms Gillian Kambouris, 20 percent of the shares. The patent has since been granted in a number of jurisdictions.
Between 2010 and 2018, Dr Kambouris also applied for several related patents in Australia and a number of other jurisdictions (together with the Recovering Water Patent, the Patents).
On 11 October 2011, Dr Kambouris incorporated the sixth defendant, Aqua Botanical Beverages (Australia) Pty Ltd (ABBA), which is now in liquidation, with the intention of commercialising his invention through that company. Dr Kambouris was at the time the sole director and shareholder of ABBA.
In late 2013 or early 2014, Dr Kambouris met Mr Driver, who agreed to become the chief executive officer of ABBA. Mr Driver had previously been the chief executive officer of San Miguel Yamamura Know Pty Ltd, which operated a packaging business. He has a degree in accounting. According to both Mr Driver and Dr Kambouris, at about the time Mr Driver became the CEO of ABBA, he acquired a 27 percent interest in the Patents through the fourth plaintiff, DJD Trading Pty Ltd, although the assignment of that interest was not formalised until 2018. A company associated with Mr Driver, L & L Wood Pty Ltd, also acquired 5 percent of the shares in ABBA. Its shareholding was later increased to 15.25 percent. Mr Driver became a director of ABBA on 5 November 2015.
On 28 February 2014, Dr Kambouris registered the trademark "AQUABOTANICAL". Dr Kambouris has registered various versions of that trademark in Australia and a number of other jurisdictions (together, the Trademarks). It will be convenient in this judgment to refer to the Patents, associated knowhow and the Trademarks as the Intellectual Property or IP.
On 1 July 2014, KSP licensed the Recovering Water Patent to ABBA. On 13 September 2014, Mr Driver entered into a loan agreement with ABBA under which he agreed to lend ABBA an amount of $680,000 before 28 February 2016. There are two versions of the loan agreement in evidence. One provides that the loan is repayable after 15 years. The other leaves the repayment date blank. Mr Driver says that in all he advanced ABBA in excess of $2 million.
Over time, ABBA issued shares to several other entities in exchange for services those entities provided to it.

[7]

The parties sign a Heads of Agreement

Eventually, on 19 April 2017, ABBA and MyCo entered into a Heads of Agreement. The Heads of Agreement was expressed to be immediately binding.
By cl 3(a) of the Heads of Agreement, it was agreed that "all Aqua Botanical patent(s) and trademarks(s) [sic] relating to Australia will be exclusively licenced [sic] to ABBA". By cl 3(b), ABBA agreed immediately to "transfer 25% of its paid up share capital to MYCO and/or nominee". By cl 3(c), it was agreed that ABBA would have three directors including one "from MYCO being Spiro or Terry Paule". By cl 3(d), the parties agreed to establish a "Newco" as "JV partners to produce sell and brand develop a range of botanical water from fruit and vegetable or sugarcane sources and related products outside Australia and for global markets". It was agreed that the patents and trademarks outside of Australia would be licensed exclusively to Newco and that Newco would issue 25 percent of its share capital "to MYCO and/or nominee". It was also provided that "The remaining 75% shareholding shall be allocated to the originating founders". Clause 3(e) states that NewCo "shall consist of three (3) directors including (1) from MYCO being Spiro or Terry Paule".
On 27 November 2017, the first defendant, Botanical Water Technologies Pty Ltd (BWT), which was the Newco contemplated by the Heads of Agreement, was incorporated. Originally, Mr Paule and his brother were the directors of BWT. Mr Driver and Dr Kambouris were added as directors on 10 October 2018.
Following execution of the Heads of Agreement, the day-to-day management of ABBA's business remained with Mr Driver and Dr Kambouris with some administrative assistance from MyCo. Mr Driver continued to fund that company through loans that he made to it. ABBA held weekly management meetings that were often chaired by Mr Paule or, in his absence, Ms Pappas. Mr Paule's principal focus, however, was on developing the international side of the business. He instructed solicitors to prepare a shareholders agreement, although it appears that the drafting of that agreement was overtaken by events.

[9]

The first restructure

At about the time BWT was incorporated, Mr Driver, Dr Kambouris and Mr Paule agreed to instruct Findex to prepare advice on transferring the IP (to quote from a document prepared by Findex): … into a new vehicle / structure which would be: i. Located in the appropriate jurisdiction (i.e. Australia or overseas) from a business perspective; ii. Facilitate global commercialisation of IP; iii. Facilitate investment from both domestic and foreign investors; iv. Limit the current legal liability risk faced by Dr Bruce [Dr Kambouris], Mr Driver and the PFO.
That advice ultimately led to a series of transactions in April 2018 and agreements entered into on or about 30 June 2018 by which each party transferred their interest in the IP to special purpose companies in exchange for shares in those companies. Those shares were then transferred to a wholly owned subsidiary of BWT known as BWT IP 4 Pty Ltd (BWT IP 4) in exchange for shares in BWT. The result was that BWT owned 100 percent of the shares in BWT IP 4 which indirectly owned the IP. Dr Kambouris held 27.1 percent of the shares in BWT, Ms Kambouris held 17.8 percent of the shares, KSP held 5.1 percent of the shares, DJD held 25 percent of the shares and Mr S Paule held 25 percent of the shares.
By an agreement dated 29 June 2018, BWT licensed the IP to ABBA and appointed ABBA to conduct research and development on its behalf. It was intended that ABBA would continue to be responsible for developing the business in Australia and that Mr Driver would continue to have day-to-day responsibility for managing that company. The international side of the business would be developed through BWT and Mr Paule and other employees of MyCo would have day-to-day responsibility for managing that company.
The agreements executed in June 2018 included two referred to as the "BWT Implementation Deed" and the "ABBA Implementation Deed". The parties to both those agreements included MyCo, KSP, Mr Paule, Mr S Paule, Dr Kambouris, Ms Kambouris, Mr Driver and DJD.
Recital A to the BWT Implementation Deed relevantly provided: Commencing from early 2016, the Parties conducted negotiations relating to international opportunities for the Patents. Those negotiations resulted in a commercial agreement (reached orally) in around early February 2017 that MYCO and/or its nominee would obtain a 25% ownership in the Patents and the owners of the Patents to form a new company to focus on international opportunities … It was agreed that MYCO or its nominees would acquire an ownership in the Patents in return for MYCO providing or procuring assistance and services for BWT's benefit.
By cl 1.1(d) of the BWT Implementation Deed, the parties agreed that the directors of BWT would be Dr Kambouris, Mr Driver and Mr Paule. Consistently with that agreement, Mr S Paule ceased to be a director of BWT on 10 October 2018.
The issue of shares in ABBA to MyCo and the appointment of Mr Paule to the board of ABBA had not occurred in accordance with the Heads of Agreement. By cls 1.1 and 1.2 of the ABBA Implementation Deed, the parties agreed to take steps to issue or to transfer shares in ABBA to MyCo or its nominee to give it a 25 percent interest in ABBA and to procure the appointment of Mr Paule as a director.
Clause 1.3 of the ABBA Implementation Deed was in the following terms: (a) Within 30 days from completion of MYCO and/or its nominee being registered as the shareholder of the Shareholding, the parties agree to negotiate in good faith to adopt a shareholders' agreement for ABBA. (b) Pending the adoption of the ABBA Shareholders' Agreement, the parties shall ensure that none of the matters listed in Schedule 1 of this Deed are entered into or pursued by or on behalf of ABBA unless such matters have the unanimous consent of directors including the representative director of MYCO.
Schedule 1 relevantly provided: The following matters will require the approval of all Directors, including for the avoidance of doubt the Director appointed by MyCo Pty Limited if so appointed: (a) Issue, allot or grant any right to the issue of Shares in the Company. … (e) Effect a sale of all or a substantial part of the Company or the assets (including the Business) of the Company or a subsidiary … (g) Appoint or remove an executive or auditor of the Company. (h) Make a material change in the Business of the Company. … (k) Grant security over the assets of the company or factor or assign a book debt. … (t) Appoint or remove a Director.

[10]

The meeting in Ballina and subsequent events

On or about 28 May 2019, Mr Paule and Mr Driver were in Ballina to attend a meeting with a potential supplier of water. Following the conclusion of the meeting, they had lunch at a local cafe. Mr Driver gave a detailed account of a conversation they had during the lunch. According to him, he told Mr Paule that he was under enormous emotional and financial stress and that he did not have the funds to continue to fund ABBA and that he did not think Dr Kambouris would be able to do so either. By that stage, ABBA owed trade creditors in excess of $100,000, with debts ageing by several months.
Mr Driver says that Mr Paule agreed that MyCo would fund ABBA, including the payment of outstanding ABBA creditors, and that it would also take over the day-to-day management of ABBA, which could be done from MyCo's office in Melbourne. Mr Paule suggested that in return, his and his brother's shareholding in ABBA and BWT should be increased to 50 percent. Mr Driver replied that he thought that that would be unacceptable to Dr Kambouris and that it would be appropriate if Mr Paule and Dr Kambouris each had a 37.5 percent interest in both ABBA and BWT and that he (Mr Driver) retain his 25 percent interest in BWT and 17.25 percent interest in ABBA.
Following that lunch, Mr Paule asserted in emails that Mr Driver had agreed to continue to fund ABBA up until 30 June 2019 after which time MyCo would take over those responsibilities. That remained an issue between the parties and caused a substantial deterioration in the relationship between Mr Driver and Mr Paule.
MyCo took over the management of ABBA from about 1 July 2019. Following a somewhat acrimonious exchange of text messages between Mr Driver and Mr Paule, Mr Driver agreed to take responsibility for debts incurred by ABBA before that date, although there was a dispute between him and Mr Paule concerning the amount he was required to pay, which was never completely resolved.
On 5 April 2019, BWT (which was incorrectly named as "Aqua Botanical Beverages Australia Pty Ltd (ACN 623 093 103)" entered into an agreement with ABBA by which it granted an exclusive licence to use, among other rights, the IP in Australia.
On 19 October 2019, after Dr Kambouris had transferred 12.5 percent of the shares in ABBA and BWT to Mr Paule and his brother as trustees of the Paul Family Trust, Mr Driver sent Mr Paule an email in which he said: After reflection and reconsideration, I will not be making further payments towards the expenses of ABBA. To date, I have made substantial continuing loans to the company. In our meeting at Ballina it was proposed that you were to take over the payment of ABBA expenses effective straight away and continue with the payment of BWT expenses, in return, you would receive the benefit of 12.5% of further shares in ABBA and BWT from Dr. Bruce [that is, Dr Kambouris]. This was later discussed and accepted by Dr. Bruce and confirmed to you.
Mr Paule responded to that email in the following terms: I dont [sic] think so. I dont [sic] think you would want to embarrass yourself. Let's do what needs to be done. Payment is now overdue.
There were further exchanges of emails and text messages between Mr Driver and Mr Paule on the subject. Mr Driver paid some of the outstanding pre-July 2019 accounts, but not all of them, which continued to be a source of friction. Mr Driver accepted in cross-examination that by 18 November 2019, he and Mr Paule were no longer on speaking terms. By this stage, they had stopped communicating through SMS and WhatsApp. Dr Kambouris gave evidence that by early 2020, he "highly distrusted" Mr Paule.
MyCo also maintained that ABBA had been poorly managed by Mr Driver. On 17 December 2019, it appointed Mr Michael Landy of Eagle Financial Solutions Pty Ltd to undertake a review of the loan account between Mr Driver and ABBA and the past management of the company. Mr Landy ultimately produced what he described as a "Preliminary Review and Observations" on 16 November 2020.

[14]

Implementation of second restructure

On 4 and 5 February 2020, the second defendant, Botanical Water Technologies Ltd (BWT UK), and third defendant, Botanical Waters Technologies IP Ltd (BWT IP UK), respectively were incorporated in the United Kingdom with Mr Paule as their sole director and shareholder.
As part of the restructure, each of the shareholders in BWT including Dr Kambouris and DJD transferred their shares in BWT to BWT UK and received an equivalent number of shares in BWT UK in return, with the result that DJD owned 25 percent of the shares, Dr Kambouris owned 28.5 percent of the shares, Ms Kambouris owned 9 percent of the shares and Mr Paule and his brother owned 37.5 percent of the shares.
There is an issue concerning precisely when the relevant transactions occurred. The plaintiffs plead in para 77 of their Further Amended Commercial List Statement (FACLS) that "[o]n 19 February 2020, the shareholders of BWT transferred their shares to BWT UK in exchange for an equivalent number of shares in BWT UK". That paragraph of the FACLS is admitted by the defendants in their list response. However, according to evidence given by Dr Kambouris and Mr Driver, they did not sign the relevant documents until 21 February 2020, after they had received assurances that they would both be appointed as directors of BWT UK. That evidence is consistent with the contemporaneous documents and the uncontradicted evidence given by Dr Kambouris and Mr Driver, and I accept it.
In an email sent at 9.43 am on 20 February 2020 to Mr Priester, and copied to Dr Kambouris, Mr Driver said: We have received the below advise [sic] from our legal counsel, the main issue is that the Board of BWT(Eng) should reflect that of BWT(Aus).
In an email sent at 10.08 am, Mr Priester raised the issue with Mr Chris Richardson, an associate partner of Findex who was working on the transaction. According to Mr Driver, he spoke to Mr Richardson by telephone at approximately 1.30 pm. He told Mr Richardson that he and Dr Kambouris were on their way to meet with Mr Priester, who had the documents for them to sign but before they signed them the main issue was their directorships of BWT UK. Mr Richardson replied that he had spoken to Mr Paule and that he had confirmed that the boards and shareholdings of the UK companies would reflect the board and shareholdings of BWT. At 3.19 pm, Mr Richardson sent an email to Mr Simon Saitowitz, a solicitor with Fried Frank who had been engaged by MyCo or Mr Paule in relation to the setting up of BWT UK, instructing them to update the director and company secretary details for BWT UK to show the directors as Mr Kambouris, Mr Driver and Mr Paule, with Mr S Paule as the Secretary. That email was copied to Mr Paule, Mr Driver, Dr Kambouris, Mr Priester and Ms Pappas, among others. Mr Paule said nothing to suggest that the instructions to Fried Frank did not represent his position.
Mr Driver says in his affidavit evidence that he did not sign the documents until the following morning and that he then sent them to Ms Pappas. That evidence, however, seems to be mistaken. At 10.14 pm on 20 February 2020, Mr Priester sent Mr Saitowitz an email, which was copied to Mr Paule and Ms Pappas among others, saying "I'm pleased to advise that we have had all shareholders sign the documents and you will be receiving the electronic copy in the morning (Australia time)." The likelihood is that Mr Driver and Dr Kambouris signed the documents when they met with Mr Priester. However, that does not alter the fact that they only did so after receiving assurances that they would be appointed directors of BWT UK. At the same time, Dr Kambouris executed documents by which KSP transferred to BWT IP UK a number of international Aqua Botanical trademarks.
BWT UK issued share certificates in respect of the shares that had been issued to DJD and Dr Kambouris and Ms Kambouris. However, it appears that the share certificates were not provided to Mr Driver or Dr Kambouris and the issue of the shares was not recorded in the records held by Companies House in the United Kingdom.
On or about 26 February 2020, Dr Kambouris was provided with several documents to sign by which the international Aqua Botanical trademarks and the Patents and associated knowhow were to be transferred from Dr Kambouris and entities associated with him to BWT IP UK. Why it was thought to be necessary for Dr Kambouris to sign those documents is not properly explained by the evidence. The IP had already been assigned to various subsidiaries of BWT IP 4, the shares in which were owned by BWT. BWT became a subsidiary of BWT UK as a result of the transactions that occurred on 20 February 2020. It appears, however, that the earlier transactions had not picked up all the Patents or that some were still treated as belonging to Dr Kambouris, necessitating the additional assignments. In fact, Dr Kambouris was asked to sign additional documents as late as October 2020 which assigned some of the Patents to BWT IP UK, which he did.
Dr Kambouris was reluctant to sign any documents relating to the transfer of the Patents to BWT IP UK until he had confirmation that both he and Mr Driver would be appointed directors of BWT UK. On 27 February 2020, he sent an email to Mr Chris Richardson, who had asked Dr Kambouris to sign the documents, in which he said "I will sign these documents tomorrow but before I do, is it confirmed that both myself and Mr Driver are also directors jointly with Terry and Spiro?"
Mr Richardson replied the following day saying: On Terry's advice, you and David will be added in due course. The plan is to also expand the Board of Directors by the addition of new externals who can add value and a broader expertise and experience to help with the next stage of the businesses [sic] development and needs.
There was then a further exchange of emails between Dr Kambouris and Mr Richardson in which Mr Richardson said the following: It was practical to have one director (Terry) to sign the various set-up documentation for each jurisdiction (e.g. USA) and we confirm your directorship is being processed and will be completed in due course, with the addition of new investors to the Board to improve BWT's governance and capabilities.
At about the same time, Mr Paule sent the following email to Dr Kambouris: We this morning arrived in the USA to attend Expo West show and most importantly conduct meetings over the next 2 weeks to finalise the capital raise. Its [sic] important that we have all paperwork safely signed and transferred into our new structures before we can accept new monies from the outside. It's a long, expensive and complicated process which has to be 100% right so that there are no issues in the future. Let me confirm that the shareholding for you, David and PFO are transposed exactly the same to the new entities. The other area of apparent concern is directorship. This is also being attended to so that we are all directors. Please keep in mind we will most likely add new directors in the future to beef up our board. Finally, we cannot legally issue new investor subscription documents until all of the above is in place first. If we delay further we may lose our investors as we have kept them waiting a long time whilst we have restructured our business. Please help by doing what has been requested.
Dr Kambouris responded: Dear Chris and Terry, I accept this email and other texts today as a promise to be given my shareholdings (similar to BWT Australia) including those of Mr David Driver and Gillian Kambouris. Furthermore, I also accept this email as a promise to be offered directorship for myself and Mr David Driver in BWT Eng. and BWT IP and other relevant companies in this general business. With this understanding, I will now sign the transfer of my patents to BWT IP Pty Ltd.
Following that email, Dr Kambouris and Ms Kambouris executed the documents which had been sent to him on 26 February 2020 and sent them to MyCo.

[17]

Further attempts to obtain information about BWT UK and BWT IP UK

Steps were taken to appoint Mr S Paule as the chairman of BWT UK. However, Dr Kambouris and Mr Driver were not appointed to the boards of the UK companies and they were not given confirmation of their shareholding in BWT UK, which became a sore point and the subject of a number of emails between Dr Kambouris and Mr Paule during 2020. Following several unsuccessful enquiries from Dr Kambouris relating to his and Mr Driver's directorships and shareholding, on 26 June 2020, Mr Smith (Dr Kambouris and Mr Driver's legal advisor) sent an email to Mr Paule in which he said: Despite requests by Dr Bruce Kambouris and David Driver there has been no documentation confirming: 1 The company [that is, BWT IP UK] exists. 2 The shareholders and directors of the company are identical with BWT Australia. 3 The company is a subsidiary of BWT Eng. 4 There is any documentation between BWT Australia and BWT Eng to confirm the transfer of the patents from BWT Aust. 5 Both Ambrosios Kambouris and David Driver have been added as directors of BWT Eng.
Mr Paule responded on the same day saying: All parties have signed paperwork at the time of the restructure and setup and to effect shareholding as described by you etc. Our accountants at Findex and the UK lawyers are handling and will confirm same once completed.
There were further exchanges on the subject principally between Mr Smith and Dr Kambouris on the one hand and Mr Paule and Mr Richardson on the other in which Dr Kambouris and Mr Smith received largely non-responsive or evasive answers to their questions concerning shareholding and Dr Kambouris and Mr Driver's directorships. Dr Kambouris and Mr Paule also exchanged messages on the capital raising and the proposal that Dr Kambouris would receive a sum of money from it. In one text message sent by Mr Paule to Dr Kambouris on 2 September 2020, Mr Paule said: As I said taking money out is hard to negotiate at the best of times. COVID-19 had made it even harder. We have worked hard to cut a deal so suggest you take it as there will not be another opportunity for at least next 3 years. This only offered to you.
It was not until 12 October 2020 that Mr Paule asserted in a text message he sent to Dr Kambouris that "Directorship has not been agreed as covered in the contribution and exchange agreement that was signed by all parties including you and your family. This doesn't mean that you cannot be added at a later time if the board of directors decides it appropriate …".
Following that text message, the following exchange occurred between Dr Kambouris and Mr Paule: Kambouris: Leftheri [the diminutive Greek name for Terry], this is why I cant [sic] have you as sole director as you always threaten weak people. If no money, no money. I will try and pay my own rent so you don't keep threatening me. Paule: B, Yes please pay your own rent. We will still make you the richest guy in Mildura but it will be in a few years when it all comes together. In the meantime we will use the funds originally allocated to you to pay lawyers to preserve our IP etc. David Driver is the source of all your problems and continues to give you bad advice. I guess you are in his camp. He needs to do the things he had promised me. We have contributed millions of dollars to get the business to this point. He is a liar and needs to be held to account. That day is coming. You may end up being collateral damage based on your actions. You can decide differently. Time is running out. Its [sic] up to you. Kambouris: We both like you as a person Leftheri…We will support your plans. Make us directors as we are entitled to. As for capital raise and money for me, if you have sold or about to sell my shares, I am entitled to know how much for and is should be mine… Paule: You should be grateful that your shares are in a safe place and lots of upside in the future. I have tried to carve out some money for you but you frustrate things for a misguided loyalty…
After a further exchange of messages, Dr Kambouris sent Mr Paule the following message on 13 October 2020 in a context where he was still being asked to sign further documents relating to the transfer of the IP: Leftheri, I have thought about things and will assist complete [sic] going forward. I want absolute evidence of our shareholding and not just files. Promise me that when I text you for an update on the company, you will be obliging and provide me an update … We will not further insist in being directors but we can if the board wants us to. You will provide me with $1 million usd to buy house ASAP? Do we have a deal? Do we have a deal? Do we have a deal? Mr Paule replied saying "Confirmed and a deal as you say".
Ms Pappas ultimately sent Dr Kambouris on 6 November 2020 a copy of a letter from Fried Frank issued the previous day which attached a copy of the share register of BWT UK and which confirmed that the copy represented a true copy of the original.

[20]

Completion of the capital raising

The capital raising had been delayed by the Covid pandemic. It finally occurred on 31 December 2020 when BWT UK issued 25,482 shares pursuant to a number of subscription agreements. On 30 April 2021, Mr Paule and Mr S Paule as the directors of BWT UK signed a resolution relevantly in the following terms: … the allotment and issuance of New Shares in Annex 1, entry into the Subscription Agreements and any acts that have already been implemented or carried out by or on behalf of the Company in connection with the Capital Raise be ratified and approved in all respects; … Annex 1 was in the following terms: (1) (2) (3) New Investor Number of Shares Funding Price / Subscription ($) Lapana Global Partners Limited OÜ 12,500 $3,500,000 (of which $500,000 has been satisfied in kind by the performance of services) Simon Fischer 1,250 $350,000 Steven Swarzman 1,786 $500,000 Ryan Gold 179 $50,000 Oxford Mill Pty Ltd as trustee for The Halamandaris Family Trust 650 $191,950 Ersatz Water, LLC 893 $250,000 For and on behalf of Jonathan Mechanic Spiros Paule and Terry Paule as trustees for the S&T Paule Family Trust 6,912 Capitalization of a loan AJP Investments (VIC) Pty Ltd 830 Non cash consideration in the form of advisory services For and on behalf of Peter Abraam 482 Non cash consideration in the form of advisory services

[24]

Subsequent events

BWT UK and BWT continued to carry on business. As I have indicated, their business was focussed on developing a water trading platform. In around June 2022, BWT UK sought to raise additional capital. For that purpose, it prepared a further PowerPoint presentation seeking to raise USD15 million. That presentation made no reference to Dr Kambouris or Mr Driver. It described Mr Paule as "the Co-Founder". It appears that Mr Paule spent the rest of 2022 attempting to raise capital, but without success.
BWT's loan from MyCo fell due on or about 13 February 2023. MyCo agreed to extend the date for the repayment of the loan on the condition that each of BWT UK and BWT IP UK became co-obligors with BWT. On 8 August 2023, an Amended Loan Agreement together with a General Security Deed were entered into between MyCo and each of BWT, BWT UK and BWT IP UK. By cl 5(a) of the Amended Loan Agreement, each borrower "must repay and finally discharge that portion of the Loan advanced to it on the Repayment Date", which was defined to be six months from "the Original Repayment Date". The "Original Repayment Date" was defined as three years from the "Initial Drawdown Date", which in turn was defined as "[a]t a date as requested by the Borrower and accepted by the Lender at its discretion". Under cl 6A(a)(i), each "Guarantor" irrevocably and unconditionally jointly and severally "guarantees to the Lender punctual performance by each Obligor of all the Obligor's obligations under this Agreement and the Security". "Guarantor" included each Borrower, as did the expression "Obligor". The effect of these provisions was to give BWT an additional six months from 13 February 2023 in which to repay the debt it owed to MyCo and to make BWT UK and BWT IP UK liable for that debt. The total amount owing to MyCo as at 15 September 2023 was $4,438,770.15. It may be inferred that the amount owing to MyCo by BWT was close to that amount at the time the Amended Loan Agreement was executed.
On 15 September 2023, MyCo issued a notice of default and demand to each of BWT, BWT UK and BWT IP UK.
It appears from a document dated 2 November 2023 that at about that time Mr Paule and MyCo were contemplating a further restructure and capital raising in which a company known as Philo Holding Company Limited, which had been incorporated on 5 April 2023 with Mr Paule as its sole director and shareholder, would become the holding company of a group of companies which would include BWT IP UK and that Jissika Holdings Limited, a Cyprus based entity controlled by Mr Paule and Mr S Paule, would have a 52.8 percent interest in Philo Holding.
On 13 December 2023, MyCo entered into a subscription agreement with Sirius International Holding and Philo Holding (the Subscription Agreement) under which Sirius would subscribe for 31 percent of the shares in Philo Holding for a price of USD25 million. The subscription was conditional on a reorganisation by which all BWT UK's business and assets would be transferred to Philo Holding.
That capital raising did not proceed. Instead, on 17 January 2024, MyCo as buyer and BWT, BWT UK, BWT IP UK and Botanical Water Exchange Ltd (another UK subsidiary of BWT UK) as sellers entered into an Asset Sale Deed. By cl 3.1 of the Deed, the sellers agreed to sell, and the buyer agreed to buy "[t]he Business and the Assets free from all Encumbrances and otherwise on the terms set out in this document". The "Business" is defined to mean "the business carried out by the Sellers as at the Completion Date". The "Assets" are defined to include "all issued share capital in [BWT IP UK] …" and "all other rights, title, interests and assets of the Sellers used exclusively in the Business". The purchase price was stated to be cash consideration of AU$120,000 and a set-off amount of AU$2,900,000. The sale and purchase completed on 7 March 2024.
On 21 March 2024, MyCo served a notice of default and demand on BWT and BWT UK claiming an amount $2,516,622.61, which was the balance owing under the Amended Loan Agreement.
On 28 March 2024, Mr Paule resigned as a director of BWT and BWT UK and on the same day BWT UK resolved that BWT be wound up in voluntary liquidation.
On 4 April 2024, administrators were appointed to BWT UK.

[25]

The claims

A substantial number of claims are pleaded against the Paule Defendants. As finally put, the plaintiffs advance five claims or types of claim.
First, Mr Driver claims that he is entitled to recover from MyCo the amount he lent ABBA on the basis that MyCo breached the terms of the ABBA Implementation Deed by agreeing to a change in the business of ABBA without the unanimous agreement of the directors of ABBA (that is, without the unanimous agreement of Mr Driver, Dr Kambouris and Mr Paule). The relevant change in the business was the transfer of ABBA's business of selling bottled water to BWT that occurred as a result of Mr Paule's direction in the middle of 2020. It is Mr Driver's case that, had that instruction not been given, ABBA would have earned sufficient revenue to repay his debt.
Mr Driver also advances an alternative case that an agreement arose out of the discussion he had with Mr Paule over lunch in Ballina by which MyCo agreed to take over the day-to-day responsibility for ABBA's business and that it was a breach of that agreement for MyCo to transfer that business to BWT.
Second, Mr Driver and Dr Kambouris claim that between around December 2019 and February 2020 they reached an agreement with Mr Paule (the BWT UK Agreement) to proceed with the second restructure on the basis that (to quote from para 73 of the FACLS): (a) Mr Driver, Dr Kambouris, and Terry Paule would be the directors of the new entities [that is, BWT UK and BWT IP UK]; (b) the shareholdings in the new UK holding company would mirror that of BWT; and (c) no shares would be issued by the new entities without the consent of Mr Driver, Dr Kambouris and Terry Paule.
It is alleged that Mr Paule breached that agreement primarily by refusing to appoint Mr Driver and Dr Kambouris as directors of BWT UK and BWT IP UK. Mr Driver and Dr Kambouris claim that had they been appointed directors of those companies, the transactions by which BWT UK was deprived of its entire undertaking would not have occurred. They claim that their loss is the difference in the value of their shares in BWT UK now (which is zero) and the value they would have had if those transactions had not occurred. Relying on an expert report prepared by Mr Michael Potter, of Ernst & Young, they say that amount is approximately USD17.5 million. The figure of USD17.5 million represents 49.8 percent of Mr Potter's assessment of the value of BWT UK as at 12 October 2023 (the date of Mr Potter's report). More will be said about that valuation later in this Judgment.
Mr Driver and Dr Kambouris advance an alternative case based on estoppel.
Third, Mr Driver and Dr Kambouris submit that they and Mr Paule and Mr S Paule were parties to a joint venture and that Mr Paule and Mr S Paule owed fiduciary duties to Mr Driver and Dr Kambouris by reason of that relationship. Mr Paule is said to have breached his fiduciary duties by preferring his own interests or the interests of MyCo over those of the parties to the joint venture, which ultimately led to MyCo obtaining control of the business of BWT UK for a fraction of the value attributed to it by Mr Potter. Mr Driver and Dr Kambouris claim equitable compensation calculated by reference to the value of BWT UK prior to what was said to be the improper capitalisation of part of the loan owed by BWT to MyCo. Prior to that time, it is said that Mr Driver and Dr Kambouris had a controlling interest in BWT UK. According to Mr Potter, the value of that controlling interest was at least USD22.5 million, which means that the value of Dr Kambouris's interest was USD12 million and the value of DJD's interest was USD10.5 million. Alternatively, Mr Driver and Dr Kambouris claim an account of profits.
Fourth, Mr Driver and Dr Kambouris each claim that Mr Paule in connection with the supply or acquisition of financial services engaged in conduct that was in all the circumstances unconscionable in contravention of s 12CB of the Australian Securities and Investments Commission Act 2001 (Cth) (the ASIC Act) and that they are persons who suffered loss or damage by that conduct and are therefore entitled to recover the amount of that loss or damage under s 12GF(1). The financial services were the supply of shares in BWT by Mr Driver and Dr Kambouris and the acquisition by them of shares in BWT UK. The conduct that is said to be unconscionable was the failure to appoint Mr Driver and Dr Kambouris as directors of BWT UK, the structure of the capital raising, which resulted in Mr Driver and Dr Kambouris having a minority interest in BWT (UK), and the ultimate sale of BWT UK's undertaking to MyCo. The loss claimed is the same as the loss claimed for breach of the BWT UK Agreement.
An alternative case is advanced under s 12CA of the ASIC Act, which prohibits a person in trade or commerce from engaging in conduct "in relation to financial services if the conduct is unconscionable within the meaning of the unwritten law, from time to time, of the States and Territories". The same conduct is relied on and the same loss is claimed.
Fifth, Mr Driver and Dr Kambouris seek relief under ss 232 and 233 of the Corporations Act 2001 (Cth) (Corporations Act) against Mr Paule and MyCo on the basis that the affairs of BWT were conducted in a way that was either "contrary to the interests of the members as a whole" (s 232(d)) or "oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members whether in that capacity or in any other capacity" (s 232(e)). It is said that the conduct of the affairs of BWT satisfied those requirements largely for the reasons that are said to give rise to a breach by Mr Paule of his fiduciary duties. It is also said that the affairs of ABBA were conducted in a way that was contrary to the interest of the members as a whole or in a way that was oppressive to KSP (and each other member of ABBA other than Mr Paule and Mr S Paule). As finally put, they relied principally on the transfer of ABBA's business of selling bottled water to BWT. The plaintiffs submit that the Court should make findings as to the existence of the alleged oppression and entertain further submissions concerning relief.

[28]

Relevant legal principles

Although there are recognised categories of fiduciary relationship, such as trustee and beneficiary, solicitor and client, principal and agent and partners, the circumstances in which fiduciary obligations exist are not closed: see Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 (Hospital Products) at 68 (per Gibbs CJ) and at 96 (per Mason J in the minority, but not in relation to the statement of relevant principles); Jaken Properties Australia Pty Ltd v Naaman (2023) 112 NSWLR 318 (Jaken) at [8] (per Bell CJ (dissenting)) and at [140] (per Leeming JA (Kirk JA agreeing)).
In Hospital Products, Mason J explained, in a passage referred to with approval by the High Court in John Alexander's Clubs Pty Ltd v White City Tennis Club Ltd (2010) 241 CLR 1 at 86-7 and recently by the NSW Court of Appeal in Anderson v Canaccord Genuity Financial Ltd [2023] NSWCA 294 (Anderson) at [130]-[131] (per Gleeson, Leeming and White JJA), that: The critical feature of these relationships is that the fiduciary undertakes or agrees to act for or on behalf of or in the interests of another person in the exercise of a power or discretion which will affect the interests of that other person in a legal or practical sense. The relationship between the parties is therefore one which gives the fiduciary a special opportunity to exercise the power or discretion to the detriment of that other person who is accordingly vulnerable to abuse by the fiduciary of his position.
The relationship may be a reciprocal one, such as that between partners, but it often will not be. Where the relationship does not fall into any of the recognised categories, it is necessary to pay close attention to the precise relationship between the parties and the subject matter over which it is contended the fiduciary obligations extend to determine whether obligations of a fiduciary nature arise and, if so, their extent: see Birtchnell v Equity Trustees, Executors & Agency Co Ltd (1929) 42 CLR 384 at 407-9 per Dixon J (Rich J agreeing): cited with approval in Anderson at [152]-[154].
The matters that are relevant to the question whether a fiduciary duty exists include (to quote Gaudron and McHugh JJ in Breen v Williams (1996) 186 CLR 71 at 107): … the existence of a relation of confidence; inequality of bargaining power; an undertaking by one party to perform a task or fulfil a duty in the interests of another party; the scope for one party to unilaterally exercise a discretion or power which may affect the rights or interests of another; and a dependency or vulnerability on the part of one party that causes that party to rely on another (citations omitted). See also Jaken at [8].
The question is not whether the beneficiary of the fiduciary obligations actually placed trust and confidence in the fiduciary to act in the beneficiary's interest, but whether the beneficiary was entitled in the circumstances to expect the putative fiduciary to do so: Brunninghausen v Glavanics (1999) 46 NSWLR 538; [1999] NSWCA 199 (Brunninghausen) at [100]f (per Handley JA with whom Priestley and Stein JJA agreed); see also Hospital Products at 69 (per Gibbs CJ).
In the context of commercial relationships, the parties will often choose a legal framework to govern their relationship, such as a contract or incorporation of a company, that is largely incompatible with the existence of a fiduciary one. As Mason J explained in Hospital Products at 97-8 in the context of a commercial contract: The fiduciary relationship, if it is to exist at all, must accommodate itself to the terms of the contract so that it is consistent with, and conforms to, them. The fiduciary relationship cannot be superimposed upon the contract in such a way as to alter the operation which the contract was intended to have according to its true construction. … My conclusion that [the appellant] was at liberty to make some business decisions by reference to its own interests, subject to the obligations arising under the best efforts promise and the other terms of the contract express and implied, presents an overwhelming obstacle to the existence of the comprehensive fiduciary relationship found by the Court of Appeal. This is because [the appellant]'s capacity to make decisions and take action in some matters by reference to its own interests is inconsistent with the existence of a general fiduciary relationship. However, it does not exclude the existence of a more limited fiduciary relationship for it is well settled that a person may be a fiduciary in some activities but not in others (citations omitted).
As is apparent from what Mason J said, classification of a relationship as a commercial one does not necessarily preclude the possibility that the relationship, or aspects of it, has a fiduciary character. So, for example, when parties decide that the business they will undertake together shall be conducted through a company, their relationship may well be a fiduciary one until the structure through which this business is to operate has been established. As Mason, Brennan and Deane JJ (with whom Gibbs CJ and Dawson J agreed) explained in Union Dominions Corporation Ltd v Brian Pty Ltd (1985) 157 CLR 1 (Union Dominions) at 12: A fiduciary relationship can arise and fiduciary duties can exist between parties who have not reached, and who may never reach, agreement upon the consensual terms which are to govern the arrangement between them. In particular, a fiduciary relationship with attendant fiduciary obligations may, and ordinarily will, exist between prospective partners who have embarked upon the conduct of the partnership business or venture before the precise terms of any partnership agreement have been settled. Indeed, in such circumstances, the mutual confidence and trust which underlie most consensual fiduciary relationships are likely to be more readily apparent than in the case where mutual rights and obligations have been expressly defined in some formal agreement. Likewise, the relationship between prospective partners or participants in a proposed partnership to carry out a single joint undertaking or endeavour will ordinarily be fiduciary if the prospective partners have reached an informal arrangement to assume such a relationship and have proceeded to take steps involved in its establishment or implementation.
Similarly, one or more parties within a particular legal structure may take on specific responsibilities which give rise to fiduciary obligations owed by that party in relation to those responsibilities. As Young JA (with whom Allsop P and Macfarlan JA agreed regarding these principles) said in Crawley v Short [2009] NSWCA 410 at [119]-[122]: The primary judge acknowledged that there were cases where a director who was also a shareholder could owe a duty to another shareholder, but considered that Brunninghausen told against it when the same acts constituted a breach of the fiduciary duty to the company. With respect, this is too narrow a reading of Brunninghausen and is out of line with other authorities. There will be a variety of situations where a shareholder or director/shareholder holds a special position where he or she may owe duties to another shareholder. Without being an exhaustive list, this will occur where: one shareholder undertakes to act on behalf of another shareholder; where one shareholder is in a position to have special knowledge and knows that another shareholder is relying on her to use that knowledge for the advantage of another shareholder as well as herself; and where the company is in reality a partnership in corporate guise, nowadays termed a quasi partnership. See also Brunninghausen; Warner Capital Pty Ltd v Shazbot Pty Ltd [2020] NSWCA 121 at [94]-[99].
In Brunninghausen, the Court held that the sole effective director and majority shareholder in a company owed the minority shareholder, who was his brother-in-law, a fiduciary duty which was breached when he acquired his brother-in-law's shares for a low price following the breakdown of the relationship between them and at a time when he was negotiating for the sale of the company to third parties for a much greater price. In holding that the majority shareholder owed his brother-in-law a fiduciary duty, Handley JA (with whom Priestley and Stein JJA agreed) said (at [99]): The defendant, as the sole effective director, occupied a position of advantage in relation to the plaintiff. He could, if he saw fit, disclose information about the pending negotiations for the sale of the business but could not be compelled to do so. This gave him the capacity to affect the interests of the plaintiff "in a practical sense", and in the context of the negotiations with him "a special opportunity" to exercise that capacity to the detriment of the plaintiff who was "at the mercy" of the defendant and "vulnerable to abuse" by the defendant "of his position": Hospital Products ibid per Mason J at 96-7. And later at [105]: The sale of the plaintiff's shares to the defendant required a reconciliation of their competing interests in the transaction. A sale to outsiders in which both participated involved no such conflict. It would have enabled both plaintiff and defendant to receive full value for their shares without any conflict of interest necessarily arising between them.
In Australia, it is accepted that fiduciary obligations are proscriptive, not prescriptive. As Gaudron and McHugh JJ explained in Breen v Williams (1996) 186 CLR 71; [1996] HCA 57 at 113: In this country, fiduciary obligations arise because a person has come under an obligation to act in another's interests. As a result, equity imposes on the fiduciary proscriptive obligations - not to obtain any unauthorised benefit from the relationship and not to be in a position of conflict. If these obligations are breached, the fiduciary must account for any profits and make good any losses arising from the breach. But the law of this country does not otherwise impose positive legal duties on the fiduciary to act in the interests of the person to whom the duty is owed. [footnote omitted] See also Pilmer v Duke Group Limited (in liq) (2001) 207 CLR 165; [2001] HCA 31 (Duke Group) at 197- 8 per McHugh, Gummow, Hayne and Callinan JJ, Friend v Brooker (2009) 239 CLR 129; [2009] HCA 21 at [84] per French CJ, Gummow, Hayne and Bell JJ, and Howard v Federal Commissioner of Taxation (2014) 253 CLR 83; [2014] HCA 21 at 31 and 32 per French CJ and Keane J.

[29]

Did Mr Paule owe fiduciary duties to Mr Driver and Dr Kambouris

I am satisfied that Mr Paule owed fiduciary duties to Mr Driver and Dr Kambouris.
The plaintiffs seek to characterise the relationship between Mr Paule, Mr Driver and Dr Kambouris as joint venturers. In support of that submission, they point to the fact that the Heads of Agreement in Recital C expressly referred to MyCo as a "commercial partner who can bring extensive experience and track record with regards global [sic] business dealings in order to successfully help grow and further commercialise ABBA and its related entities". They also point to correspondence in which Mr Paule spoke of them as engaging in "teamwork" or as their relationship being a "partnership".
Whether that is a correct characterisation of their relationship is open to some doubt and ultimately does not matter. It is plain that in early 2017, Mr Paule and his brother agreed to invest in the botanical water business then carried on by Mr Driver and Dr Kambouris through corporate vehicles associated with them (in particular, ABBA, KSP and DJD). The initial agreement (the Heads of Agreement) was between ABBA and MyCo, a Paule family company. But as the terms of the Heads of Agreement made clear that was not the final structure chosen by the parties to carry on the business and much of the following three years or more was spent putting into place a legal and corporate structure which would permit the business to expand overseas and to attract new investors.
Mr Paule (and MyCo) took the principal responsibility for undertaking the work to achieve that result. Mr Paule was the principal point of contact with Findex, a company in which he had an interest and the company that was providing advice on the final structure that should be adopted. It is to be inferred that he was the person who was responsible for engaging other advisors, including Fried Frank, a firm of English solicitors who were involved in establishing BWT UK, and it appears that he or employees of MyCo were the persons who gave that firm instructions. Mr Paule was also the person responsible for meeting with potential investors and it is to be inferred that he selected Mr Priester to be the managing director and CEO of the new entity that was proposed to be established as the holding company for the business. When that entity (BWT UK) was established, Mr Paule initially became its sole director and shareholder and, in that position, had absolute control over the company.
Throughout the period, Mr Paule indicated particularly to Dr Kambouris that he was acting in the interests of Mr Driver and Dr Kambouris. Mr Paule's periodic reference to "teamwork" and that he, Mr Driver and Dr Kambouris were in partnership gave that impression. Mr Paule accepted that he was at least acting in the interests of Dr Kambouris. In response to a series of text messages from Dr Kambouris asking when he (Dr Kambouris) would be paid the amount he expected to receive for the shares he thought he was selling into the capital raising, Mr Paule said in a text message sent on 28 November 2020: Your payment will be made as promised and agreed. Unfortunately, you like me will need to suffer the headache of cleaning up what can at best be described as the mess called ABBA so that we can move forward. You should be thankful that we are here and looking after your best interests.
Mr Driver and Dr Kambouris were vulnerable to abuse by Mr Paule of his position. Although Dr Kambouris and Mr Driver were not unsophisticated, they did not have the necessary experience or connections to perform the work undertaken by Mr Paule, and as the Heads of Agreement recognised, MyCo was an attractive investor to them because Mr Paule did have that experience and those connections. Moreover, particularly after the shares in BWT were transferred to BWT UK and Mr Paule remained in control of BWT UK, Dr Kambouris and Mr Driver were completely dependent on Mr Paule.
The Paule Defendants point to three matters which they say count against the existence of a fiduciary relationship.
First, at least by the time the parties had executed the ABBA Implementation Deed and BWT Implementation Deed, they had formalised their relationship and had established in the ABBA Implementation Deed the matters that would require unanimous agreement between Dr Kambouris, Mr Driver and Mr Paule. Second, they submit that Dr Kambouris and Mr Driver were not vulnerable. They were sophisticated persons who voluntarily transferred their shares in BWT to BWT UK. They understood that that transaction occurred in conjunction with a proposal to raise capital which would dilute their shareholding to less than 50 percent. Dr Kambouris intended to sell a five percent stake into the capital raising and at one stage both Dr Kambouris and Mr Driver raised the possibility of selling their shares. Third, the relationship between Mr Paule on the one hand, and Dr Kambouris and Mr Driver on the other had broken down by late 2019, following the dispute between Mr Paule and Mr Driver concerning the funding of ABBA.
In my opinion, none of these matters negates the existence of a fiduciary relationship. The relationship between Dr Kambouris, Mr Driver and Mr Paule changed over time and that in turn may have affected the scope and content of any fiduciary duty. However, the formalisation of the relationship that was brought about by the transactions and agreements that formed the first restructure proved to be a temporary measure only. The second restructure involved a decision by the individuals effectively to abandon the first formal structure they had put in place and to replace it with a new one. Mr Paule personally played a critical role in implementing that decision and for the reasons I have identified he owed fiduciary duties in undertaking that role.
As to the Paule Defendants' second point, it is true that Dr Kambouris and Mr Driver may have been able to refuse to transfer their shares in BWT to BWT UK and Dr Kambouris may have been able to refuse to sign the various assignments that he was asked to sign. But that does not mean that they were not dependent on and vulnerable to Mr Paule. They were dependent on him to raise capital and to put in place a structure that would enable that to happen, which was desirable if not necessary for the future viability of the business. It was important to Dr Kambouris that he be able to sell some of his shares to raise money so that he could buy a house in Mildura. Mr Paule understood that to be the case and on 13 October 2020 appears to have undertaken to obtain USD1 million from the sale of a portion of Dr Kambouris's shares. Moreover, having in good faith transferred their shares, Dr Kambouris and Mr Driver were completely dependent on Mr Paule in circumstances where their shareholding in BWT UK was unclear to them and they were not directors of that company.
As to the Paule Defendants' third point, the question is not whether Dr Kambouris and Mr Driver actually trusted Mr Paule, but whether in the circumstances of the case, they were entitled to expect that he would act in their interests or in the joint interests of all of them. For the reasons I have given, in my opinion, they were.
The Paule Defendants submitted that even if there was a period during which Mr Paule owed Dr Kambouris and Mr Driver fiduciary duties, those duties came to an end at the latest on or about 6 November 2020, when Fried Frank sent Dr Kambouris and Mr Driver a copy of BWT UK's share register, which confirmed their shareholding. From then on, they were not dependent on Mr Paule because, until the capital raising, they held a majority of the shares and were in a position to control the company.
I do not accept that submission. An important part of the restructure was the raising of additional capital. As I have explained, that was particularly important to Dr Kambouris. Dr Kambouris and Mr Driver remained dependent on Mr Paule to put the capital raising in place. Although the expectation was that, as a result of the capital raising, Dr Kambouris and Mr Driver would no longer have majority control of BWT UK, Dr Kambouris and Mr Driver were not in a position to take over the capital raising themselves and were still entitled to expect that it would be conducted in a way that benefited both of them and Mr Paule. It may well be the case that any fiduciary relationship came to an end once the capital raising was completed. I return to that point below.
There is a question whether the fiduciary duties owed by Mr Paule were owed to Mr Driver or to DJD, since it was DJD that was the shareholder in BWT and BWT UK, and at least following its own capital raising DJD could not be regarded as a creature of Mr Driver, even if he continued to control it. The pleaded case is that the fiduciary duties were owed to Mr Driver, not DJD (consistently with the plaintiffs' claim that there was a joint venture between Mr Paule, Mr Driver and Dr Kambouris). However, in various parts of the plaintiffs written submissions they submit that Mr Paule breached his duties to DJD or to Mr Driver and DJD. No point was taken that those allegations went beyond the pleaded case. DJD is a plaintiff in the proceedings, and the facts relevant to Mr Paule's liability to it are the same as the facts relevant to his liability to Mr Driver. Consequently, nothing more needs to be said about the issue in this context. The issue may, however, be relevant to the question of relief, which is dealt with below.
Connected to the previous point is the fact that the plaintiffs put their case in terms of a joint venture between Mr Paule, Dr Kambouris and Mr Driver. As I have said, it is not clear that that is a proper characterisation of their relationship throughout the whole period. As a result of the first restructure, the parties did put in place a legal structure that does not sit easily with the continued existence of an unincorporated joint venture. However, it does not follow from that that the plaintiffs' case must fail. As I have sought to explain, the existence of fiduciary duties owed by Mr Paule does not depend on the existence of a joint venture. The case proceeded on a broader basis. The case was that, having regard to the particular relationship between the parties, Mr Paule owed fiduciary duties to Dr Kambouris and Mr Driver because, in essence, he undertook to act on behalf of all of them in relation to the restructure and capital raising. A case in those terms was raised during the hearing, and it was not suggested that such a case went beyond the pleadings.
The plaintiffs characterise the scope of Mr Paule's duties as having two elements. One was not to promote or pursue his personal interests (or those of a third party) in circumstances in which there was a conflict or a substantial possibility of a conflict between those interests and the joint interests of the shareholders. The other was not to use his position as a director of BWT UK to acquire an unauthorised benefit for himself or a third party. I accept that characterisation. In essence, in pursuing the restructure and capital raising Mr Paule had a duty not to put his own interests ahead of the interests of the shareholders of BWT as a whole.

[30]

Did Mr Paule breach his fiduciary duties?

The plaintiffs submit that Mr Paule breached his duty in two main ways. First, he preferred his own interests to those of Mr Driver (or DJD) and Dr Kambouris by causing MyCo's loan to BWT to be capitalised in exchange for shares in BWT UK. Second, he preferred his own interests or those of MyCo by causing the whole of BWT UK's undertaking to be sold at an undervalue to MyCo.
I accept the first of those submissions, but not the second.
As to the first, as Mr Paule knew, Mr Driver and Dr Kambouris transferred their shares in BWT in exchange for shares in BWT UK in the expectation that an amount of USD7 million would be raised by BWT UK issuing shares representing 20 percent of its capital and Dr Kambouris selling 5 percent of his shares. That was the proposal presented to both Dr Kambouris and Mr Driver, and they must be taken to have agreed to it. However, the capital raising that actually occurred was quite different. It involved raising approximately USD4.1 million in cash from external investors, none of which was paid to Dr Kambouris. At the same time, it involved Mr Paule and Mr S Paule obtaining an additional 6,912 shares in exchange for MyCo agreeing, in effect, to forgive part of its loan to BWT. That transaction was clearly to the benefit of Mr Paule and his brother and to the detriment of Mr Driver and Dr Kambouris. It was to the benefit of Mr Paule and his brother because they increased their shareholding in BWT UK without having to provide any obvious benefit to BWT UK. It is true that, as a result of the transaction, the debt owed by a subsidiary of BWT UK (that is, BWT) was reduced. But it is doubtful that that was a benefit to BWT UK and, even if it was, the transaction occurred at an imputed price which undervalued the shares they received when compared with the price paid by other investors. In short, Mr Paule and his brother increased their interest in BWT UK and the degree to which they could exercise control over it. On the other hand, Mr Driver and Dr Kambouris lost control of BWT UK. None of that was disclosed to Mr Driver and Dr Kambouris, let alone approved by them. On the contrary, it appears that Mr Paule went out of his way to keep what was happening from Dr Kambouris and Mr Driver. In acting in that way, Mr Paule clearly preferred his own interests to those of Dr Kambouris and Mr Driver (and DJD).
As to the sale of BWT UK's business to MyCo, that sale may have involved a breach by Mr Paule of his duties as a director. That is so for two reasons. The first is that it only became necessary for BWT UK to sell its business because it had become liable for the loan owed by BWT to MyCo in exchange for what was a very short extension of the loan. It is unclear what benefit that short extension gave to BWT UK. The second is that it is arguable that the sale occurred at an undervalue. A valuation report dated 22 December 2023 was obtained from Exit Value Advisors in connection with the sale that concluded that the value of BWT UK was AUD531,000 and that the value of the BWT group was AUD405,000, which included a value of AUD2,519,000 for BWT IP UK and a negative value of BWT of AUD2,605,000 (as a consequence of the loan it owed to MyCo). But two points should be made about that valuation. First, the valuation is not admissible in this case as evidence of the value of the company and it is difficult to reconcile with Mr Potter's valuation. Second, the only information that appears to have been given to the valuer concerned the capital raising at the end of December 2020. The valuer appears to have regarded what occurred then as irrelevant to the position as at 22 December 2023 and chose to value the company by reference to its net assets. The valuer was not given information relating to the more recent attempt to raise capital from Sirius.
But those points do not establish that Mr Paule breached his duties as a director of BWT UK. At most, they raise a suspicion that he did. Moreover, even accepting that Mr Paule breached his duties to BWT UK, I do not think that he breached any duties to Dr Kambouris and Mr Driver. By that stage, the reorganisation and capital raising that gave rise to Mr Paule's fiduciary duties to Mr Driver and Dr Kambouris were complete. There were other shareholders in BWT UK and it is difficult to see why Mr Driver and Dr Kambouris's position was any different from those shareholders. Whatever relationship had existed between Mr Driver, Dr Kambouris and Mr Paule had been replaced by one in which each was an investor in BWT UK along with other shareholders and Mr Paule as a director of BWT UK owed that company fiduciary obligations. The cases relied on by the plaintiffs to support this aspect of their case, such as Cook v Deeks [1916] 1 AC 554 and Australian Careers Institute Pty Ltd v Australian Institute of Fitness Pty Ltd [2016] NSWCA 347; (2016) 116 ACSR 566, were cases where the duty was held to be owed to the company, not specific shareholders. Nor is the decision in Brunninghausen relevantly analogous. In that case, the breach of duty arose in circumstances where the fiduciary sought to keep the benefit of the sale of the company by acquiring his brother-in-law's shares at an undervalue.
The plaintiffs rely on what are said to be several other breaches of duty. They are: 1. Causing MyCo to be paid regular service fees of $44,000; 2. Causing BWT to arrogate the Australian botanical water business of ABBA; 3. Causing BWT to cease funding to ABBA, notwithstanding the terms of the loan agreement; 4. Causing Mr Driver and Dr Kambouris to be removed as directors of BWT; and 5. Causing BWT to enforce the loan agreement and security as against ABBA.
The plaintiffs do not explain how any of this conduct amounted to a breach of fiduciary duty by Mr Paule or MyCo. As I have sought to explain, Mr Paule did not owe fiduciary duties at large. Rather, he owed fiduciary duties in relation to specific conduct he undertook for the benefit of Dr Kambouris and Mr Driver as well as himself and his brother as investors in BWT. It is possible that the identified conduct involved a breach by Mr Paule of his duties as a director of BWT or amounted to oppressive conduct giving rise to relief under s 233 of the Corporations Act. However, it is not conduct involving a breach of the fiduciary duties owed to Dr Kambouris and Mr Driver.

[31]

Relief

The plaintiffs are entitled to equitable compensation or an account of profits in respect of Mr Paule's breach of fiduciary duty, although not both. They indicated that they would make their election once they knew the outcome of their claim, as they are entitled to do.
The remedy of an account of profits was explained in these terms by Gageler J in Ancient Order of Foresters in Victoria Friendly Society Limited v Lifeplan Australia Friendly Society Limited (2018) 265 CLR 1; [2018] HCA 43 (Foresters) at 75: The equitable remedy of account is a personal order. The order operates to require that a defendant pay to a plaintiff the monetary value of a benefit or gain to the defendant. Although commonly referred to as an "account of profits", there is no reason why a benefit or gain to be made the subject of an account must answer the description of a "profit" in conventional accounting terms. Nor is there any reason why that benefit or gain must answer the description of "property" or must have sufficient certainty as to be capable of forming the subject matter of a trust. The benefit or gain can be expectant or contingent. Indeed, it is commonplace that a benefit or gain the subject of an account might encompass an ongoing business. And it is commonplace that the benefit or gain to be made the subject of an order to account might extend to the whole of the ongoing business or be limited to a part of the business identified by reference to both a specified scope of commercial activities and a specified period of commercial activities which need not be confined to a past period but may be a period which extends into the future. See also Foresters at [7] per Kiefel CJ, Keane and Edelman JJ.
The plaintiffs accept that there is inadequate material before the Court to determine the amount for which Mr Paule must account if the plaintiffs elect to pursue that remedy. Instead, the plaintiffs seek an order for an enquiry. For that reason, the focus of the submissions was on the claim for equitable compensation.
The Paule Defendants raised two defences to both claims for relief. One is that the claims for relief infringed the principle that a shareholder is not entitled to recover a reflective loss - that is, a loss arising from the diminution in the value of the shareholder's shares in a company because of a loss suffered by the company. The other defence was to the claim by Mr Driver. It is said that he is disentitled to equitable relief because he did not have clean hands as a result of his own capital raising through DJD.
As I have already indicated, in my opinion, the fiduciary duties owed by Mr Paule were to the other shareholders of BWT and BWT UK - that is, to Dr Kambouris, Ms Kambouris and DJD. They were the persons or entity on behalf of whom Mr Paule was acting in the restructure and capital raising, and it was the shares they held that became worthless.
Leaving the reflective loss principle aside for the moment, Dr Kambouris and DJD are entitled to recover the losses that they would not have sustained but for the breach of Mr Paule of his fiduciary duties: see Foresters at [88] per Gageler J. In the present case, Mr Paule's breach of duty arose from the way in which the capital raising that formed part of the second restructure was conducted, and, in particular, the fact that Mr Paule and his brother gained control of BWT UK as a result of the capitalisation of the loan owed by BWT to MyCo. But for that breach, they would not have gained control of BWT UK and been able to engage in the subsequent transactions that resulted in the shares in BWT UK becoming worthless.
It is no answer to the plaintiffs' claim that they would have lost control of BWT UK in any event. Whether they would have lost control and the circumstances in which they would have done so and the consequences if they had are matters for speculation. In the absence of evidence to the contrary, that speculation should be resolved in the plaintiffs' favour: see Maguire v Makaronis (1997) 188 CLR 449 at 470-2 per Brennan CJ, Gaudron, McHugh and Gummow JJ and the discussion of that passage in J D Heydon, M J Leeming and P G Turner, Meagher, Gummow and Lehane's Equity Doctrines and Remedies, 5th (2015), LexisNexis Butterworths, [23-260]ff.
But for the breach, MyCo's loan would not have been "capitalised" by the issue of 6,912 shares to Mr Paule and his brother as trustees of the S&T Paule Family Trust. There is no reason to think that the other shares would not have been issued. It is not suggested that the issue of those shares involved a breach of fiduciary duties on the part of Mr Paule, and there is no suggestion that the issue of those shares was dependent on the issue of shares to Mr Paule and his brother. On that basis, but for the breach 6,912 shares would not have been issued to Mr Paule and his brother and the shareholding in BWT UK would have been as follows: Dr Kambouris 28,500 Ms Kambouris 9,000 DJD 25,000 Mr Paule and Mr S Paule 37,500 Other parties 18,570 TOTAL 118,570

[32]

On that basis, but for the breach, Dr Kambouris would have had approximately 24.04 percent of the shares and DJD would have had 21.08 percent of the shares. Together with Ms Kambouris, they would have retained a majority of the shares.
Mr Potter gives evidence of the value of the shares in BWT UK as at about 30 April 2021 (immediately after BWT UK had raised capital) and the current value of the shares as at the date of his report (12 October 2023). He was not asked to update his valuation. However, he did give oral evidence in chief (which was objected to by the Paule Defendants) that the proposed capital raising involving Sirius suggested an implied value of Philo before the injection of additional capital (and inferentially of BWT UK) of USD55.6 million and that the current value of the shares in BWT UK following the sale of its business to MyCo is zero. No weight can be placed on the first of these opinions, since the capital raising did not proceed. The second opinion is uncontroversial.
In my opinion, it is appropriate to assess the plaintiffs' loss as at the date of judgment. In assessing equitable compensation, it is appropriate to compensate the plaintiffs for all the losses that flow from the breach of duty: Target Holdings Ltd v Redferns [1996] 1 AC 421; O'Halloran v R T Thomas & Family Pty Ltd (1998) 45 NSWLR 262; Beach Petroleum NL v Abbott Tout Russell Kennedy (1999) 48 NSWLR 1; [1999] NSWCA 408 at [431]-[432] per Spigelman CJ, Sheller and Stein JJA; J & E Vella Pty Ltd v Hobson [2020] NSWCA 188 at [40] per Bell P, Basten and White JJA. Those losses include the actions taken by Mr Paule after he obtained control of BWT UK, which includes the sale of its business. Consequently, Dr Kambouris and DJD's losses should be assessed by comparing the value of the shares in BWT UK now with the value of the shares they would have had but for the breach of duty. It is plain that the current value of the shares in BWT UK is zero. Mr Potter does not provide a value of the shares now assuming the breach of duty had not occurred. He does provide a value of the shares as at 30 April 2021 and 12 October 2023. Both valuations are based on the imputed value of the shares that is to be derived from the amount third parties were willing to pay to invest in BWT UK at the time of the first capital raising. The principal difference is that the valuation as at 12 October 2023 includes the amount of additional capital raised.
In my opinion, it is appropriate to use the valuation as at 12 October 2023. Mr Potter expresses the opinion that as at that date the value of the business as a whole (before any adjustment for funding risk, control and marketability) was USD35.1 million.
I accept the general approach adopted by Mr Potter. The defendants led no evidence to contradict it. I accept that the best evidence of value was the price that independent third parties were prepared to pay for the shares. Mr Potter was cross-examined on why he did not use a discounted cash-flow analysis in determining the value of the business. However, as he pointed out, there was inadequate information available about BWT UK's expected cashflows, and inevitably those cashflows would have depended on a range of assumptions that were never identified.
It is true that Mr Potter's valuation depended on information that is now several years old. However, the information before the Court suggests that the essential nature of the business has not changed and there is nothing before the Court to suggest that the value of the business has deteriorated substantially since April 2021. One subsequent attempt to raise capital failed and it appears that further attempts by BWT UK to raise capital were abandoned. But without knowing the circumstances, it cannot be inferred that that was because the value of the business had deteriorated.
Mr Potter refers to two possible adjustments. One is for funding risk. The other is an adjustment for control. He makes no adjustment for funding risk on the basis that BWT UK was successful in raising capital and any further funding risk would be reflected in the price that the new investors were willing to pay for the shares. I accept that conclusion. The relevant counterfactual is not one where the capital raising would not have proceeded at all. Rather, it is one where Mr Paule and his brother would not have obtained additional shares in BWT UK in the way that they did.
The plaintiffs submit that they are entitled to a premium for control, since they would have obtained control but for Mr Paule's breaches of duty. I do not accept that submission. In my opinion, DJD, Dr Kambouris and Ms Kambouris's shares should not be regarded as a single block. Ms Kambouris was not a party to the proceedings and consequently no claim can be made in respect of her shares. Although DJD may be controlled by Mr Driver, he is not the only shareholder in that company. In any event, it cannot be assumed that Dr Kambouris and Mr Driver's interests would also be the same. For example, Dr Kambouris wanted to sell part of his shareholding as part of any capital raising. Consequently, in my opinion, no premium for control should be added to the value of the shares. But for the breach, DJD would have held a 21.08 percent interest in BWT UK. Dr Kambouris would have held a 24.04 percent interest. On that basis, DJD would be entitled to equitable compensation in the amount 21.08 percent of USD35.1 million - that is, USD7,399,000. Dr Kambouris is entitled to 24.04 percent of USD35.1 million - that is, USD8,438,000.

[33]

Is the claim barred by the principles of reflective loss?

The law relating to the reflective loss principle is usefully set out by Bathurst CJ (with whom Macfarlan and Gleeson JJA agreed) in Central Coast Council v Norcross Pictorial Calendars Pty Ltd [2021] NSWCA 75; (2021) 391 ALR 157 at 103ff. There, the Chief Justice explained the principle in these terms: What has been described as the reflective loss principle articulated by the English Court of Appeal in Prudential Assurance Co Ltd v Newman Industries Ltd (No 2) [1982] Ch 204 ("Prudential Assurance") at 223-224 (the principle) is that where loss is suffered by a company as a result of wrongdoing in respect of which each of the company and the shareholder has a cause of action, a shareholder cannot sue to recover the diminution in the value of his or her shares (or loss of benefits associated with his or her shareholding) resulting from the loss suffered by the company. The rationale for the principle has been described as the prevention of double recovery (Prudential Assurance at 222; Johnson v Gore Wood & Co [2002] 2 AC 1 ("Johnson") at 62-63, 66-67 per Lord Millett, Lord Goff agreeing), or on the basis that the shareholder does not suffer a loss distinct from the company and the shareholder is barred from pursuing the claim by the principle in Foss v Harbottle (1843) 2 Hare 461 ("Foss v Harbottle") (Marex at [10] per Lord Reed PSC, Lady Black and Lord Lloyd-Jones JJSC agreeing), or perhaps because the shareholder has no legal or equitable interest in the company's assets (Marex at [80] per Lord Reed PSC). See also Garner v Central Innovation Pty Ltd [2022] FCAFC 64 at [123].
As Bathurst CJ pointed out, although the principle has been adopted in a number of cases, it is not uncontroversial, and its precise scope remains unclear: id at [106]. It appears, however, that the principle does apply to equitable remedies. In Oates v Consolidated Capital Services Ltd [2009] NSWCA 183 at [222] (in a passage not reported in the authorised reports: see (2009) 76 NSWLR 69) Campbell JA (with whom Spigelman CJ and Allsop P agreed) said: Mr Leeming submitted that, even if the reflective loss principle applied to any claim for common law damages, it would not be applicable to equitable remedies. I do not agree. The reflective loss principle applies to remedies in all areas of the law. When the law takes the step of conferring legal personality on a corporation, the artificiality of so doing brings with it a need to alter the way in which all remedies operate as between natural persons to take account of that artificiality. When the item of property concerning which a legal wrong has been done is a share in a corporation, the remedies available for that wrong must recognise the reality that the value of that share is derived from the assets of the corporation. The considerations of principle to which Lord Millet referred in Johnson v Gore Wood, in the passage quoted at para [214] above, are general ones that apply to all types of remedy.
The reference to Johnson v Gore Wood was a reference to the following passage from the decision of Lord Millett in Johnson v Gore Wood & Co [2002] 2 AC 1 at [62]: If the shareholder is allowed to recover in respect of such loss, then either there will be double recovery at the expense of the defendant or the shareholder will recover at the expense of the company and its creditors and other shareholders. Neither course can be permitted. This is a matter of principle; there is no discretion involved. Justice to the defendant requires the exclusion of one claim or the other; protection of the interests of the company's creditors requires that it is the company which is allowed to recover to the exclusion of the shareholder.
There are difficulties in applying the reflective loss principle in the present case. On the conclusions I have reached, the relevant breach was the "capitalisation" of part of the loan owed by BWT to MyCo in exchange for the issue of shares in BWT UK to Mr Paule and his brother. Dr Kambouris and DJD are entitled to the losses that flowed from that breach or the profit that Mr Paule (and entities controlled by him) earned from it. The immediate loss suffered by Dr Kambouris and DJD was that their interests in BWT UK were diluted, and they lost control of BWT UK. The immediate benefit that Mr Paule obtained was that he obtained additional shares for what might be regarded as less than their market value and obtained control of BWT UK (despite not having more than 50 percent of the shares). Neither that loss nor that profit is something that BWT UK could have sued for. Although a company may suffer a loss by issuing shares, that loss is not the market value of the shares: Duke Group at 56ff per McHugh, Gummow, Hayne and Callinan JJ. Indeed, from the point of view of the company, it is unclear that Mr Paule committed any breach of duty by causing it to issue shares in the circumstances that it did. As Handley JA (with whom Priestley and Stein JJA agreed) explained in Brunninghausen at [68]: The reality in most but perhaps not all of the cases dealing with the validity of an issue of shares is that the company as such was not concerned with the identity of its shareholders, or with the location of voting control, and had no interest in challenging the issue. The only persons with an interest in doing this were shareholders who have standing to sue "in their own names", as the High Court held in Ngurli Ltd v McCann [(1953) 90 CLR 425], to set aside the issue. Compare Winthrop Ltd v Winns Ltd [1975] 2 NSWLR 666 CA.
The difficulty that arises in this case is that Mr Paule, having obtained control of BWT UK, caused it to sell its whole business to MyCo at what, on the evidence before the Court, was an undervalue. The immediate losses they suffered as a consequence of the issue of the shares are subsumed in the losses arising from the sale of BWT UK's business. However, the claim for those losses does not depend on some further breach by Mr Paule. Dr Kambouris and DJD are entitled to recover those losses because they are losses that would not have occurred but for the original breach. Similarly, Mr Paule would be liable to account for any benefits he received because they are benefits flowing from the original breach of duty, not because Mr Paule engaged in some further breach of duty that he owed both to Dr Kambouris and DJD and to BWT UK.
It is unclear that BWT UK itself has any claim against Mr Paule arising out of the Amended Loan Agreement or the sale of its business to MyCo. As I have explained, there are matters that suggest that Mr Paule may have breached his duties to BWT UK. However, no case was advanced that he had, and any such case would depend on the precise circumstances in which those transactions occurred. In this context, it is relevant to observe that an independent valuation of BWT UK's business was obtained, and the defendants do not suggest that BWT UK and Mr Paule were not entitled to rely on that valuation. BWT UK is now in external administration, and it is a party to these proceedings. However, there has been no suggestion that those now in control of the company think that it has any claim against Mr Paule.
In those circumstances, it seems to me that the principle relating to reflective loss has no application in this case, since the evidence does not establish that the loss, or indeed any profit, claimed by Dr Kambouris and DJD could have been claimed by BWT UK.

[35]

The claim based on the BWT UK Agreement

Having regard to the conclusions I have reached, it is strictly not necessary to address this claim, since the relief sought adds nothing to the relief sought for breach by Mr Paule of his fiduciary duties. I should, however, say something about the claim in the event that I am wrong about the claim based on breach of fiduciary duties.
The claim based on breach of the BWT UK Agreement is essentially that Mr Paule breached the agreement by failing to appoint Dr Kambouris and Mr Driver as directors of BWT UK. It is alleged that had they been appointed as directors of BWT UK, Mr Paule would not have been able to obtain control of BWT UK and sell its assets at an undervalue.
It is also pleaded that it was a term of the BWT UK Agreement that no shares would be issued by BWT UK or BWT IP UK without the consent of Mr Driver, Dr Kambouris and Mr Paule. However, there is no evidence that such a term was discussed between the parties; and it is difficult to see how such a term could be implied. It is not so obvious that it goes without saying, and it is not necessary to give business efficacy to the contract, to take two of the requirements for the implication of terms set out by the Privy Council in BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 at 282-3.
I am satisfied that there was an agreement between Mr Paule on the one hand and Dr Kambouris and Mr Driver on the other that both Dr Kambouris and Mr Driver would be appointed directors of BWT UK as a result of the exchange of emails between Dr Kambouris and Mr Richardson and Mr Paule on 27 February 2020. Dr Kambouris made it clear that he was not prepared to sign the documents relating to the transfer of the IP until he had confirmation that he and Mr Driver would be appointed directors of BWT UK. Mr Paule gave that confirmation when he said in the email he sent on the following day: "The other area of apparent concern is directorship. This is also being attended to so that we are all directors. Please keep in mind we will most likely add new directors in the future to beef up our board." Dr Kambouris reasonably took that as a promise that he and Mr Driver would be appointed directors. The Paule Defendants do not explain why that exchange of emails did not amount to an enforceable agreement that Mr Paule would cause Dr Kambouris and Mr Driver to be appointed as directors of BWT UK in exchange for Dr Kambouris agreeing to sign the documents that he was asked to sign. It is plain that Dr Kambouris was acting as Mr Driver's agent in reaching that agreement.
The Paule Defendants submit that by 13 October 2020, Dr Kambouris and Mr Driver had waived the requirement that they become directors. That waiver is said to arise principally from Dr Kambouris's text message to Mr Paule sent on 13 October 2020 in which Dr Kambouris said: We will not further insist in being directors but we can if the board wants us to. You will provide me with $1 million usd to buy a house ASAP? Do we have a deal? … Mr Paule responded "Confirmed and a deal as you say".
In my opinion, this exchange does not have the character of a waiver. Rather, it was an offer to terminate the existing agreement in exchange for the payment of $1 million. Understood in context, Dr Kambouris must be taken as saying that if he received USD1 million out of the capital raising for a proportion of his shares, he would not insist on becoming a director. There is a question whether the "we" in Dr Kambouris's text message referred to both him and Mr Driver or whether it referred to him alone. In my opinion, it should be understood as referring to both of them. Dr Kambouris did not normally refer to himself in the first-person plural. By this stage, Dr Kambouris dealt with Mr Paule on behalf of both himself and Mr Driver, since Mr Driver and Mr Paule were no longer on speaking terms. However, little turns on this issue. The payment was not made and therefore the agreement never came into effect.
There are, however, two further problems with the claim based on a breach of the BWT UK Agreement. The agreement was that Dr Kambouris and Mr Driver be appointed to the board of BWT UK (and possibly BWT IP UK). There was no agreement that they and Mr Paule would be the only appointees. Mr S Paule was also on the board (and Chairman) of BWT UK and it was contemplated that there would be other directors as well. It is far from clear that had Dr Kambouris and Mr Driver been appointed to the board of BWT UK, their appointments would have had any effect on the capital raising. Their appointments would not have given them control of the board. The likelihood is that Dr Kambouris and Mr Driver would still have been prepared to leave the capital raising to Mr Paule. Dr Kambouris and Mr Driver became aware that they were the majority shareholders in BWT UK by 12 October 2020, but they took no steps to assert the control that that gave them. It is unclear why they would have acted differently if they had been directors.
Second, it is far from clear that Dr Kambouris and DJD would be entitled to recover all the losses they claim. In contrast to a claim for breach of fiduciary duties, in a claim for breach of contract they are only entitled to recover damages in accordance with the "rule" stated in Hadley v Baxendale (1854) 9 EXCH 341; (1854) 156 ER 145. Relevantly, that rule limits a claim for damages for breach of contract to those damages that were within the reasonable contemplation of the parties at the time the contract was entered into. Lord Reid, in a passage frequently cited with approval in Australia put the test in these terms in Koufos v Czarnikow Ltd [1969] 1 AC 350 (Koufos) at 385: … on the information available to the defendant when the contract was made, he should, or the reasonable man in his position would, have realised that such loss was sufficiently likely to result from the breach of contract to make it proper to hold that the loss flowed naturally from the breach or that loss of that kind should have been within his contemplation. See also Wenham v Ella (1972) 127 CLR 454 at 471-2 per Gibbs J; Burns v MAN Automotive (Aust) Pty Ltd (1986) 161 CLR 653 at 667 per Wilson, Deane and Dawson JJ; with Gibbs CJ citing Koufos as an authority more generally at 658; Commonwealth v Amann Pty Ltd (1991) 174 CLR 64 at 92 per Mason CJ and Dawson J; at 99 per Brennan J; European Bank Ltd v Robb Evans of Robb Evans and Associates (2010) 240 CLR 432; [2010] HCA 6 at 13; Stuart Pty Ltd v Condor Commercial Insulation Pty Ltd at [2006] NSWCA 334 at [42]-[45] and [88] per Beazley JA (Tobias JA agreeing) and at [115] per Ipp JA; Edwin Davey Pty Ltd v Boulos Holdings Pty Ltd [2022] NSWCA 65 at [102]-[104] per Gleeson JA (Macfarlan JA and Simpson AJA agreeing). See also Cessnock City Council v 123 259 932 Pty Ltd [2024] HCA 17 at 2-3 per Gageler CJ and at 113-114 per Edelman, Steward, Gleeson and Beech-Jones JJ.
In my opinion, it could not have been in the reasonable contemplation of the parties that the failure to appoint Dr Kambouris and Dr Driver as directors of BWT UK would lead to the series of events that ended with the sale of BWT UK's business and it being placed into liquidation. Those events arose as a result of decisions taken subsequently and resulted largely from the capital raising rather than the failure to appoint Dr Kambouris and Mr Driver as directors of BWT UK. For similar reasons, it could not be said that the kind or type of loss was within the reasonable contemplation of Mr Paule at the time parties entered the BWT UK Agreement.

[36]

Relevant legal principles

The plaintiffs claim that Mr Paule engaged in unconscionable conduct in contravention of ss 12CA and 12CB of the ASIC Act. A pleaded claim that Mr Paule also engaged in unconscionable conduct in contravention of the equivalent provisions of the Australian Consumer Law (ACL) (sections 20 and 21) was not pressed in final submissions.
Under s 12GF(1) of the ASIC Act: A person who suffers loss or damage by conduct of another person that contravenes [s 12CA or 12CB] may recover the amount of the loss or damage by action against that other person or against any person involved in the contravention. The plaintiffs claim the same loss as they claim for breach of fiduciary duties - that is, the loss of the value of their shares in BWT UK.
Having regard to the conclusions I have reached in relation to the claim based on breach of fiduciary duties, it is strictly speaking unnecessary to consider these claims, since it is not suggested that they add anything to the claim based on breach of fiduciary duties. Nonetheless, it is desirable that I say something about them in case I am wrong in the principal conclusions I have reached.
What distinguishes s 12CB of the ASIC Act from s 12CA is that s 12CB requires the conduct to be "in connection with" the supply or acquisition, or possible supply or acquisition, of "financial services" (in this case, the acquisition of shares relevantly by Dr Kambouris and DJD in BWT UK), whereas s 12CA requires that the conduct be "in relation to financial services". On the other hand, s 12CA is limited to conduct that is "unconscionable within the meaning of the unwritten law, from time to time, of the States and Territories", whereas s 12CB contains an express provision (s 12CB(4)(a)) that makes it clear that that section is not limited in that way. Section 12CA does not apply if s 12CB does: see s 12CA(2).
The phrase "in connection with" is generally given a broad interpretation, which is as true in this context as it is in others. It does not require a causal connection between the conduct and the supply or acquisition. Nor does it require that the conduct precede the supply or acquisition. All that is required is that there be some discernible relationship between the two: see Australian Securities and Investments Commission (ASIC) v Westpac Banking Corporation (No 2) (2018) FCR 147; [2018] FCA 751 at [2172] per Beach J; Australian Competition and Consumer Commission (ACCC) v Google LLC (No 2) [2021] FCA 367 at [340] per Thawley J.
In order for relief to be granted in equity (in accordance with the unwritten law, to use the language of s 12CA) in respect of unconscionable conduct, the innocent party must establish that the party against whom the relief is sought unconscientiously took advantage of some special disability or vulnerability of the innocent party, although there remains a question of what counts as a special disability or vulnerability for this purpose. Mason J, for example, explained the principle in these terms in Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 at 467: …if A, having actual knowledge that B occupies a situation of special disadvantage in relation to an intended transaction, so that B cannot make a judgment as to what is in his own interests, takes unfair advantage of his (A's) superior bargaining power or position by entering into that transaction, his conduct in so doing is unconscionable. And if, instead of having actual knowledge of that situation, A is aware of the possibility that that situation may exist or is aware of facts that would raise that possibility in the mind of any reasonable person, the result will be the same.
Similarly, in Australian Securities and Investments Commission (ACCC) v Kobelt (2019) 267 CLR 1; [2018] HCA 18 at 81, Gageler J described the principle in these terms: In Australia, the central concern of a court administering equity in identifying conduct as unconscionable has long been understood to be to relieve against a stronger party to a transaction exploiting some special disadvantage which has operated to impair the ability of a weaker party to form a judgment as to his or her interests. [footnote omitted] See also McMillan v Coolah Home Base Pty Ltd [2024] NSWCA 138 at [400]ff per Ward P (with whom Leeming and Stern JJA agreed).
Conduct is "unconscionable" within the meaning of s 12CB if, in all the circumstances of the case, the conduct falls sufficiently short of acceptable norms, standards or values that it warrants condemnation as conduct that is offensive to the conscience: see Ipstar Australia Pty Ltd v APS Satellite Pty Ltd [2018] NSWCA 15; (2018) 356 ALR 440 at 196 per Bathurst CJ (Beazley P and Leeming JA agreeing). As Gageler CJ and Jagot J explained in Productivity Partners Pty Ltd (t/as Captain Cook College) v Australian Competition and Consumer Commission (ACCC) [2024] HCA 27 at 60 in relation to the equivalent provision of the ACL (s 21): The normative standard set by s 21(1) is tethered to the statutory language of "unconscionability". While that term is not defined in the legislation and, in its statutory conception, is "more broad-ranging than the equitable principles", it expresses "a normative standard of conscience which is permeated with accepted and acceptable community standards", and conduct is not to be denounced by a court as unconscionable unless it is "outside societal norms of acceptable commercial behaviour [so] as to warrant condemnation as conduct that is offensive to conscience". The items listed in s 22(1)(a)-(l) are matters that the legislation requires to be considered, in the overall evaluation of the totality of the circumstances to be undertaken for the purpose of s 21(1), if and to the extent those matters are applicable. This is why both "close attention to the statute and the values derived from it, as well as from the unwritten law" and "close consideration of the facts" are necessary. [footnotes omitted] See also per Gordon J at 96- 105 and per Beech-Jones J at 340.
It is not an essential element of the claim under s 12CB that the innocent party have been under some special disadvantage, although the existence of such a disadvantage is highly relevant: see Australian Competition and Consumer Commission (ACCC) v Quantum Housing Group Pty Ltd (2021) 285 FCR 133; [2021] FCAFC 40 at [33]-[34] per Allsop CJ, Besanko and McKerracher JJ.
Section 12CC of the ASIC Act sets out a number of matters the Court may have regard to in determining whether conduct is unconscionable. They include the relative strength of the bargaining position of the parties, whether the "service recipient" was able to understand any document relating to the supply of the financial services, any undue influence exerted by or unfair tactics used by the supplier of the services, and the conduct of the supplier in complying with the terms and conditions of any relevant contract.

[37]

Application

I am satisfied that Mr Paule's conduct in connection with the second restructure was unconscionable within the meaning of s 12CB, but not s 12CA.
I do not think that it could be said that Mr Paule took advantage of some special disadvantage under which Mr Driver and Dr Kambouris were labouring which meant that they were incapable of looking after their own interests. Mr Driver and Dr Kambouris insisted that Mr Paule agree that they both be appointed directors of BWT UK before signing the documents which gave effect to the second restructure. On their case, it is the fact that they were not appointed directors that ultimately caused the loss about which they complain. It may have been imprudent for them to accept what Mr Richardson told them about his conversation with Mr Paule rather than to insist on the appointments occurring before signing the relevant documents. But I do not think that it could be said that that imprudence arose from any disability or weakness on their part. Rather, it simply reflected the fact that they were willing to accept Mr Paule's word on the matter, even if by that stage they had lost trust generally in him.
On the other hand, I think Mr Paule's conduct could be described as unconscionable in the broader sense. Mr Paule had taken no steps to appoint Mr Driver and Dr Kambouris as directors of BWT UK, even though he must have understood that that was their expectation based on the presentation that had been prepared for potential new shareholders, which had been shown to both Dr Kambouris and Mr Driver. It seems clear that Mr Paule told Mr Richardson to tell Dr Kambouris and Mr Driver that they would be appointed directors and he was on notice that they had in fact been told that from the email that Mr Richardson sent to Fried Frank that was copied to him. It is reasonable to infer, particularly in the absence of evidence from Mr Paule, that he had no intention of appointing Dr Kambouris and Mr Driver as directors despite the fact that he knew that is what they had been told. They were not appointed directors. There is no suggestion that circumstances subsequently changed which made their appointment inappropriate. The only reasonable inference is that Mr Paule made a deliberate decision to mislead them so that they would sign the relevant documents and then kept from them the fact that, until the capital raising, they were majority shareholders of BWT UK who could have brought about their own appointments. This is not a case where Mr Paule merely breached an agreement that had been reached in relation to directorships. The sharp practice that Mr Paule engaged in, in order that he could retain control of BWT UK was in my opinion unconscionable within the meaning of s 12CB.
It also seems to me that that conduct was in connection with the acquisition of shares in BWT UK. It was part of the arrangement by which DJD and Dr Kambouris would acquire those shares. However, I do not think that Mr Paule's subsequent conduct could be said to be in connection with the acquisition of those shares. DJD and Dr Kambouris acquired their shares in BWT UK. It was not suggested that the subsequent sale of BWT's undertaking to Mr Paule and his brother were part of an overall plan that existed at the time the shares in BWT UK were issued to Mr Driver and Dr Kambouris. Rather, it appears to be an independent transaction unrelated to the issue of the shares and unconnected to any unconscionable conduct that occurred at that time. Before BWT UK's business was sold, the shares had been issued to DJD and Dr Kambouris, and Mr Driver (through DJD) and Dr Kambouris knew that through their shareholding they were able to control BWT UK. Consequently, to their knowledge, they were able to remedy the consequences of any unconscionable conduct that had occurred. Accordingly, I do not think that it could be said that any subsequent conduct of Mr Paule that could be characterised as unconscionable was connected with the acquisition by DJD and Dr Kambouris of shares in BWT UK. It was conduct that was completely independent of that acquisition.
Nor do I think it could be said that the subsequent conduct was caused by Mr Paule's unconscionable conduct in connection with the acquisition of the shares. That conduct resulted from independent decisions taken by Mr Paule and the failure of DJD and Dr Kambouris to exercise their rights as shareholders of BWT UK.
It follows that the claims under ss 12CA and 12CB of the ASIC Act must fail.

[38]

Relief under ss 232 and 233 of the Corporations Act

The case for relief under ss 232 and 233 in relation to the affairs of ABBA relies principally on the transfer of its business of selling bottled water to BWT. It also appears that the plaintiffs rely on the loan agreement between ABBA and BWT. The case in relation to BWT relies principally on the series of transactions by which Dr Kambouris and Mr Driver were removed as directors of BWT and BWT was placed into administration. In their closing written submissions, the plaintiffs also assert that it was contrary to the interests of members of BWT as a whole for MyCo to charge the fees that it did. In addition, they assert that it appears from an analysis of BWT's loan ledger and bank accounts that $1 million of BWT's funds were expended on these proceedings, which was oppressive. As I have said, the plaintiffs did not identify in final submissions what relief they sought under s 233 of the Corporations Act. Instead, they submitted that the Court should make findings in relation to oppression and hear submissions on the question of relief subsequently.
In my opinion, the claim for relief under ss 232 and 233 of the Corporations Act must fail at least for the following reasons.
First, the plaintiffs have failed to establish that it was contrary to the interests of the members of ABBA as a whole for the loss-making business of ABBA to be transferred to BWT. The plaintiffs' case depends on their contention that the business was profitable. However, I have already rejected that contention. For the same reason, the conduct could not be described as unfairly prejudicial to, or unfairly discriminatory against, Dr Kambouris or Mr Driver.
Second, there is insufficient material before the Court from which it is possible to conclude that it was contrary to the interests of members as a whole for MyCo to charge the fees that it did, or that establishes that BWT unfairly paid the defendants' legal fees. It is not disputed that MyCo provided services to BWT. There is no material before the Court that establishes that the amount BWT paid for those services was excessive. Nor did the defendants provide the Court with the analysis that established that $1 million of BWT's funds were used to pay defence costs, and if it was the source of those funds and precisely how they were used.
Third, the plaintiffs' principal complaint in relation to BWT relates to the removal of Dr Kambouris and Mr Driver as directors and the appointment of receivers. So far as the appointment of receivers is concerned, the receivers were appointed by MyCo exercising its rights under the General Security Deed. Dr Kambouris and Mr Driver were provided with a draft of that deed and obtained legal advice in relation to it. Dr Kambouris executed the deed and relevant loan agreement after obtaining that advice. It does not appear to be disputed that MyCo advanced money to BWT under the loan agreement. The appointment of receivers was held to be valid by Rees J. The appointment of receivers could not amount to oppressive conduct in those circumstances.
So far as the removal of Dr Kambouris and Mr Driver as directors is concerned, at the time that they removed the sole shareholder of BWT was BWT UK. That had occurred as a consequence of transactions entered into with Dr Kambouris and Mr Driver's agreement. As a result of those transactions, they each obtained an equivalent number of shares in BWT UK. Consequently, they were not shareholders of BWT at the relevant time. It is difficult to see how the conduct complained of could be said to be contrary to the interests of the member of BWT as a whole when the only member of BWT at the time was BWT UK, which is the entity that took the relevant action. Although s 232(e) of the Corporations Act does not require the relevant conduct to be oppressive etc to members in their capacity as members, it does require the conduct to be oppressive etc against a member or members, which at the time Dr Kambouris and Mr Driver were not. Nor could it be said that the circumstances in which Dr Kambouris and Mr Driver ceased to be shareholders of BWT were part of the oppressive conduct. The circumstances in which they ceased to be shareholders were quite separate from the circumstances in which they were removed as directors.
Fourth, it is not appropriate to adopt the course proposed by the plaintiffs. The gist of a claim under ss 232 and 233 is the relief available under s 233. If the plaintiffs wanted relief under that section, they should have identified that relief and then sought to persuade the Court that the facts justify the granting of that relief. It is not appropriate in this case for the Court to decide the question whether the conditions set out in s 232 for the granting of relief under s 233 have been satisfied in the abstract and to have a separate hearing on the question of what relief should be granted. The position might have been different if the plaintiffs had identified the possible relief they sought and contended that the ultimate form of relief should be determined once the Court had made the necessary factual findings. But in this case, the plaintiffs have not attempted to identify any form of appropriate relief.
Moreover, both ABBA and BWT are in liquidation. There is a question whether relief is available under s 233 where the company in respect of which relief is sought is in liquidation: see Aqua Botanical Beverages (Australia) Pty Ltd v Botanical Water Technologies [2022] NSWSC 435. In principle, it is difficult to see why in an appropriate case relief should not be available. However, in practice, any relief would have to conform with the provisions of the Corporations Act relating to the winding-up of companies. So, for example, it may be possible to make an order requiring one shareholder or group of shareholders to buy the shares of those who had been oppressed at a price determined at a particular date (presumably a date immediately before the oppressive conduct occurred). An order of that type may be particularly appropriate where the liquidation of the company was brought about by the oppressive conduct. On the other hand, it would not be appropriate, and it may be that the Court does not have power, to make orders affecting the management of the company or the distribution of its assets, when those matters are governed by the provisions of the Corporations Act that apply in insolvency.
In this case, it would not be appropriate to order Mr Paule to buy the plaintiffs' shares in ABBA at a particular date when the evidence suggests that those shares had no value at the time the bottled water business it owned was transferred to BWT. It would not be appropriate to order Mr Paule to buy Dr Kambouris and Mr Driver's shares in BWT, when they no longer own those shares and received shares in BWT UK in exchange for them. It is difficult to see what other order could be made that would address the oppression relied on by the plaintiffs, assuming that they had otherwise made out their case.

Driver v Botanical water Technologies Pty Ltd

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