2.8
Please could you confirm whether we have received all details of loans currently outstanding between ITA and ITI group and ITA and Technotron. If not could you please provide this information. If relevant documentation is already in the data room, please could you indicate where.
153 Mr Lawrance sought instructions about this request. He received none. He thus did not answer the request. Despite some diary notes of 22 February 2001, which might appear to be a basis for a conclusion that Mr Lawrance knew there to be money owing from ITAL to TSC, (see [101] above) Mr Lawrance said he did not know that fact. I accept him. I find that if he had thought that there was a not immaterial debt from ITAL to TSC he would have taken steps of some kind (which he did not take) to seek to ensure that InterTAN did not deliberately mislead Woolworths.
154 Mr Gingerich, a highly experienced and intelligent businessman, who had responsibility for much of the carriage of the transaction for the InterTAN interests, said the following in cross-examination about the original request 2.8(c) and the reformulated request 2.8 on 11 March and the debt from ITAL to TSC.
Q. Do you agree that, if there was to be a fair and accurate answer to the question posed in 2.8(c), there would, to your mind, need to be disclosed the intercompany payable of $4.368m recorded in the balance sheet, being schedule D, volume 17, tab 589?
A. Yes, Sir.
Q. Could I take to volume 12, tabs 415 and 416, particularly the material headed at 416 "2.8", and just read that to yourself. You agreed with me that you more probably than not received and read the document at tab 416; do you agree?
A. Yes, probably.
Q. And also what's recorded under paragraph 2.8; do you agree?
A. Yes, probably
Q. And would you agree with me that if there was to be a fair and accurate answer to that question, there would need to be disclosed the existence of the intercompany payable of $4.368m recorded in the stand-alone balance sheet of InterTAN Australia Limited at Volume 17, tab 589, schedule D; do you agree?
A. Yes, looking backward now with the information I have.
155 By Monday, 12 March 2001, some six days after Allens had forwarded the first draft agreement to G+T, Mr Gingerich sent an email to Mr Dowsett (of Woolworths) expressing some dissatisfaction with the progress of the matter. Mr Gingerich and Mr Dowsett had apparently spoken either that morning or on the weekend. The terms of Mr Gingerich's email were, relevantly, as follows:
I expressed real concerns to you that, after my weekend conversation with Ron Stegall [the Chairman of the Board of InterTAN Inc], neither the draft agreement we sent you last Tuesday nor the reply from Gilbert and Tobin received Friday reflects the deal that Ron Stegall and Bill Wavish made over the phone.
According to Ron Stegall prior to a discussion on price, the following points were made:
the only major rep would be an Audited Balance Sheet
when the price dropped to $108 million there were to be no other reps the proceeds of sale will be paid on closing with only adjustments for the Balance Sheet (from the December 31, 2000). The Balance Sheet on closing will have no external debt and no cash.
at this price and because of other possible transactions in America, liabilities from this transaction cannot flow back to either InterTAN Inc or InterTAN Canada.
We are prepared to draft a document that reflects this deal but we await your response. Does this summary adequately describe the deal which Bill Wavish and Ron Steggal made? When we get your confirmation, we will draft accordingly.
156 Mr Dowsett understood the reference in Mr Gingerich's email to the "Balance Sheet (from the December 31, 2000)" to be the December Corporate Pack. That was plainly how it was intended to be understood.
157 Two hours later, on Monday, 12 March 2001, Mr Dowsett sent an email to Mr Gingerich in reply. In the meantime, Mr Dowsett had had a conversation with Mr Wavish. The email from Mr Dowsett to Mr Gingerich set out the essence of what Mr Dowsett understood from his discussion with Mr Wavish. The email in reply was as follows:
Thanks for you (sic) e-mail which I discussed with Bill. His responses were as follows:
(a) The agreement was that, Representations & Warranties ("R & W") would be kept to a minimum, not that there would be no other R & W.
(b) He understands that because of other transactions in USA, liabilities from R & W cannot flow back to ITA, or ITC. He therefore wishes to know whether you can now advise us who will warrant these liabilities. Until we can know, we will want some of the proceeds of the sale to be "set aside".
(c) We have now ascertained that a high proportion Nissan leases have a change of control provisions in them, requiring landlord consent prior to assigning them. Whilst we would generally be regarded more highly as a tenant, because of Woolworths standing in Australia, this does present another risk to us.
158 On the same day, Monday, 12 March 2001, Mr Sweetman, having received Mr Gingerich's email, considered the question of the purchase price. He sent an email to Mr Dowsett and Mr Wavish in the following terms:
As you are aware, the purchase price agreed for Nissan is $108m on an ungeared basis. This price should cover all assets used in the business and has been linked to the 31 December 2000 Balance Sheet for the purposes of a starting point from which completion account adjustments would be determined. Any debt and surplus cash will be to the account of InterTAN, with an adjustment to the purchase price as necessary.
As there was some $7m net cash on the balance sheet as at 31 December 2000 we need to ensure that any amount that is effectively working capital and necessary for the operation of Nissan is included in the $108m purchase price and is not considered surplus cash. We discussed this with Jeff Grover in you absence on Friday. Jeff indicated that we should follow up with you to make an estimate of the necessary cash balance in Nissan to conduct its operations. To the extent we can justify a higher number than may be required as part of DSE this should reflect an effective reduction in the purchase price.
Could you please call me to discuss further.
159 In his first affidavit, Mr Sweetman said that the references in this email to "31 December 2000 Balance Sheet" and the "Balance Sheet as at 31 December 2000" were intended by him as references to the December Corporate Pack. I accept this evidence.
160 On 15 March 2001, the Woolworth's board gave approval for the transaction to proceed. UBS had submitted a written presentation to the board on 13 March 2001. The "overview" at the commencement of this UBS presentation emphasised the low multiple of cost to earnings before interest and tax (EBIT) of 4 that was being paid (based on EBIT of $10 million per annum and synergies of $17 million per annum). The value to Woolworths was stated to be in the order of $175 million - $210 million "if identified synergies are achieved." Page 24 of the report recorded funds employed by Tandy as $53 million. Mr Wavish said that one of the factors he took into account in agreeing to a purchase price of $108 million was what he understood to be the net asset position of ITAL of $53 million. I accept that evidence.
161 Mr Wavish had his own views about the business. Plainly he saw Woolworths as not buying just assets, but an operating business with earning and "synergies". As he said in cross-examination:
Q. What did you understand to be the nature of this transaction, and I'm speaking here about the year 2000 and January and February 2001? Was it an asset purchase, a corporate purchase, or some other sort of transaction, as you saw it?
A. We were making an acquisition that the purchase price was primarily calculated on the basis of earnings, but with reference to the underlying assets of the business.
Q. What were you buying - assets, or a company or companies?
A. Both.
Q. Shares in companies?
A. No, a business - a going concern - a business.
Q. But you weren't simply buying the assets from the company or companies concerned, were you?
A. Yes, we were seeing it as buying a business that generated profit and had assets and trading liabilities relating to that business that were needed and would be needed in generation of that profit. That then formed the basis of the unleveraged business. We didn't see it as being buying shares, we saw it as buying the profit stream and the assets attached to that profit stream, and that, to my mind, constituted the $108m that we paid.
162 The asset position was not of primary importance to him, but it was not merely incidental. The earning were of primary importance.
163 Mr Wavish was of the view that $108 million was "good value". That is not to say that he would have paid substantially more, despite the advice of UBS, the officers of which, no doubt, wished Woolworths to go ahead and be happy in that decision. Mr Wavish had his conversation with Mr Stegall (having discussed the matter with Mr Corbett) on the basis of the December Corporate Pack embodied in Deloittes due diligence report. At the time of his discussion with Mr Stegall, Mr Wavish appreciated that the $108 million was the price for a business with net assets of $53 million and no debt. The due diligence report, which Mr Wavish no doubt read carefully (and I so find), apart from $91,000 in inter-company payables, identified all liabilities of $44,305,000 as trade or business liabilities: trade creditors, accounts payable, accrued expenses, store manager deposits, retirement and service contract liabilities.
164 Mr Wavish from the information before him understood that the $108 million ungeared on the 31 December 2000 balance sheet would translate into a contract price of about $115 million, with post completion adjustments based on "starting" net assets (that is, net assets as at the reference date) of $53 million. That was his understanding of what he had bargained for with Mr Stegall. It was what all the InterTAN officers and advisers including Mr Stegall (with the exception of Mr Gingerich after 4 April 2001) thought had been bargained for given the content of the words "unlevered" or "ungeared" or "unleveraged".
165 Whilst no doubt it is the case that the Woolworths' board was the decision making organ, the views of Mr Corbett, as CEO, and Mr Wavish, as CFO, were fundamental. Mr Wavish said that Mr Corbett generally followed his advice on financial questions of the kind here. I accept that. Mr Wavish said that he would not have supported the acquisition at $114 million had he known of the intercompany receivable of $4 million, of the necessity of paying it and of a lack of countervailing adjustment. I accept that evidence. Mr Corbett was not called. It was said by the respondents that that failure was important and led to a lacuna in the evidence. I disagree. I infer from the evidence that had Mr Wavish had a negative view as to the transaction, that would have been decisive. There was nothing in the evidence to lead to the inference that Mr Corbett had or was likely to have a different view of the transaction to that held by Mr Wavish. Further, if the CEO and CFO of Woolworths had negative views about the transaction, I see no basis on the evidence to infer that anyone at Woolworths would have wished to press on with the transaction or , if he or she wished to, would have had the influence to carry it forward.
166 Meanwhile, Mr Brewster (of G+T) continued to repeat his request of 11 March for legal due diligence information seen by him as not yet answered. Mr Brewster sent emails to Allens on 13, 14 and 20 March 2001. On 20 March 2001, Mr Lawrance sent Mr Brewster an email saying that there was no further responses to G+T's requests of 11 and 13 March 2001. Mr Brewster took Allens' reply of 20 March as indicating that there were no intercompany liabilities to TSC. His expectation was that he would have expected those liabilities to be expressly identified in response to G+T's enquiry. On the material before him, I find his conduct to have been reasonable. Significant support for this is to be found in Mr Gingerich's evidence referred to at [154] above.
167 On Wednesday, 14 and Thursday, 15 March 2001, the parties' representatives meet and had detailed discussions about the form of the sale and purchase agreement. On 14 March the discussions were held at the offices of G+T, and on 15 March at those of Allens. Consecutive drafts were prepared dealing with various clauses which were the subject of discussion at the meetings, the detail of which clauses it is unnecessary to consider.
168 The attendees at the 14 March 2001 meeting were Messrs Sweetman (of UBS), Dowsett (of Woolworths), Brewster (of G+T), Cox (of SSB), Gingerich (of InterTAN) and McCulloch and Lawrance (of Allens). One of the matters discussed at this meeting was the clause in the draft agreement dealing with the completion accounts for the purposes of the net asset adjustment. There was discussion as to whether the December Corporate Pack had been prepared on the basis of Australian or United States Generally Accepted Accounting Principles (GAAP) and of the fact that the December Corporate Pack contained accounts and a balance sheet that had not been audited. Mr Brewster recalled that the December Corporate Pack was on the table around which the parties were seated. I accept that evidence. He said no other document, accounts or balance sheet, other than the December Corporate Pack, was referred to as the December accounts at this meeting. I accept that evidence. I find that there was discussion at the meeting using the phrase "December accounts", which could be reasonably understood as referring to the December Corporate Pack as, or as containing, the reference accounts or the "Accounts" as they were called in the existing draft agreements.
169 At the meeting on 15 March 2001, at Allens' offices, Mr Breden, who was assisting Mr Brewster at G+T, and Ms Fox (of SSB) also attended. The participants at the previous day's meeting attended. Mr Brewster recalled that the December Corporate Pack was once again on the table during the discussion and that once again it was referred to by those present as the "December accounts". I accept that evidence. Once again there was a discussion of Australian and US GAAP.
170 Mr Breden had some recollection of the meeting. He was tested in cross-examination. Mr Breden said that he could not recall precisely what was said at the meeting, but he recalled a discussion about the difference between US GAAP and Australian GAAP and the impact that would have on the accounts required under the agreement. In his affidavit, he stated the following, which I admitted over objection:
In addition, I can recall a set of accounts being provided by representatives of Intertan or Intertan's advisers at the meeting although I cannot recall actually looking at the accounts.
171 In his cross-examination, Mr Breden said that the accounts were "tabled" by a single person and then reviewed by people representing Woolworths or DSE. By "tabled" he said that the accounts were "placed on the table for review by representatives of Woolworths". He recognised the document as a set of accounts. He did not pick the document up and review it. He recalled that the document was reviewed by, in particular, Mr Sweetman.
172 I accept Mr Breden's evidence.
173 Mr Gingerich agreed that it was obvious to him at the meetings of 14 and 15 March that those representing Woolworths were proceeding on the basis that the December Corporate Pack, which was physically present in the room, contained the balance sheet and accounts that would stand as the reference accounts or December accounts for the purpose of the agreement. It was plain at those meetings, and I so find, that the relevant representatives of the contracting parties charged with the responsibility of formulating the terms of the sale including a senior officer of InterTAN with responsibility for the sale (Mr Gingerich) had a common belief of this fact and by their words and conduct on 14 and 15 March mutually expressed to each other that the December Corporate Pack was, or contained, the December accounts, being the "Accounts" contemplated by the terms of the agreement, then in draft, to be the reference accounts against which the completion accounts would be compared to ascertain the movement in net assets for the purposes of the adjustment.
174 In the draft agreement sent by Mr Lawrance to Mr Brewster on the morning of 14 March 2001, in preparation for the meeting that day, the definition of "Purchase Price" was as follows:
Purchase Price means [$108 million plus Cash and Cash Equivalents minus External Debt minus Intra Group Debt, all figures as at December 2000]. $115,248,099.00
175 On the afternoon of 14 March 2001, after the meeting of that day and in preparation for the following day's discussion Mr Breden sent an annotated draft agreement to Allens which contained the following adjacent to "Purchase Price".
Purchase Price means $115,248, 099.00. [Purchaser requests explanation of the calculation of this amount]
176 To the extent that explanation was necessary, I have no doubt that it was given on 15 March 2001 as substantially being derived from the December Corporate Pack which was physically before the participants at the meeting. The sums referred to above reflect the $108 million plus the two sums in annexure A as "cash" and "short term investments" of $2,748,099 and $4,500,000, respectively: totalling $115,248,099. There was no deduction at this point for any intercompany payable or any other sum.
177 I will return in due course to the debate between the parties about the reduction to the eventual contract price of $114,139,649. There is no doubt, however, and I so find, that all parties were aware by what had been said and done between them - by the provision of the December Corporate Pack, by the words and conduct leading up to 14 and 15 March, by the words and conduct at the 14 and 15 March meetings, and by the common understanding of the nature of the transaction by both the commercial and legal people involved - that the December Corporate Pack had been used as the fundamental reference point to set the amount of the price in the contract document from the negotiated or enterprise value. This was not merely an aspect of pre-contractual negotiation, it was a mutually understood, and mutually recognised foundation of the operation and implementation of a commercial transaction of this kind.
178 Whilst the Woolworths' representatives no doubt obtained their view of the importance of the December Corporate Pack before 14 March 2001, indeed before 9 March 2001 in respect of some of them (for instance, Mr Brewster was initially told by Sweetman), the discussion and conduct, including what was not said, which took place at the meetings of 14 and 15 March embedded, reinforced and restated what no doubt had been understood previously. By their respective discussions and conduct at these meetings, each side represented to each other that the relevant December accounts for the anticipated agreement were, or were contained in, the December Corporate Pack. This was both a representation of present fact and a representation about a future matter.
179 Mr Gingerich recognised that Woolworths' representatives' understanding about the December Corporate Pack being or containing the reference accounts never changed prior to completion.
180 Mr Brewster did not appreciate that the December Corporate Pack was aggregated. He looked at it to see whether there were any intercompany liabilities. No doubt, and I so find, this was reinforced by the answers received to request 2.8, in particular 2.8(c) of his legal due diligence request.
181 The discussion and uncertainty as to the accounting standards continued after 15 March 2001. Eventually, the matter was dealt with by cl 9.1(b) which provided as follows:
(b) The Preliminary Completion Accounts must be prepared in accordance with:
· the accounting principles and practices that governed the preparation of the December Accounts; and
· the accounting principles and practices that governed the preparation of the June Accounts,
provided that in the case of any difference between the above principles and practices the accounting principles and practices which governed the preparation of the June accounts shall prevail.
182 Meanwhile, from early March, some further due diligence was continuing. Deloittes had presented their due diligence report to Woolworths on 16 February 2001. Within that report was, as appendix 10, a summary of the tax issues identified from preliminary tax due diligence. Mr Osborne, the direct tax partner at Deloittes, described this as a "high level review". After 16 February 2001, Mr Osborne and others at Deloittes undertook detailed investigations concerning the taxation aspects of the transaction. This can be described as the detailed tax due diligence. There was also consultation with an indirect tax adviser from another firm. The in-house tax manager at Woolworths was also involved. Mr Griffiths, who was the Deloittes' partner in charge of what might be called the financial due diligence and who was responsible for the preparation of the due diligence report of 16 February 2001, did not understand that he or his firm was retained for what might be termed continuing financial due diligence. Nevertheless, Mr Woosnam, his subordinate, who had done much of the work on the due diligence report (under Mr Griffiths' supervision) continued to do work on the matter. He was provided with various material including drafts of the agreement when they became available. Mr Brewster (of G+T) assumed Deloittes were still retained and was interested in Deloittes' views in particular in relation to certain warranties. Mr Wavish assumed that all relevant matters were being checked by those competent to do so.
183 In the course of performing the tax due diligence in early March 2001, probably around 7 March 2001, Mr Osborne, or those working with him, sent a five page request for information under the following heading:
PROJECT NISSAN
TAX DUE DILIGENCE REVIEW
INFORMATION REQUEST
184 There were various questions under six headings. The request under the second to fifth headings was said to be as follows:
The following information is required for all Australian companies within the target group.
185 The third heading was "DIRECT TAX". Question 15 under this heading was in the following terms:
15. Details of all liabilities including inter-company loans.
186 This request was part of 22 requests made about "Corporate Tax" under the heading "Direct Tax". Mr Osborne gave evidence that intercompany loans were relevant to taxation issues, especially where there was a foreign parent in respect of which there might be tax consequences of cross-border debt and transactions.
187 In exhibit V-1 placed in the data room, this question was answered in the following terms:
15. Previously supplied - refer general ledger reconciliations attached.
188 Attached to that response (and so also in the data room) was exhibit V-11 which was ten pages containing a listing of accounts, one page of which (the second page) listed an account as follows: "A/c 2006 ACCOUNT PAYABLE - TSC". Precisely what the document conveyed was a matter of dispute. Because of its importance to the respondent's arguments, I set out the page on which this account appears as annexure 3.
189 This information was probably seen by Mr Osborne, and I find that it was. His reconstructed view of it (which I accept) was that its contents would not have changed his views as to tax since whatever else was displayed, there appeared to be a domestic intercompany loan. Also, he would not necessarily have assumed it to be a loan. In any event, charged as he was with dealing with tax questions, Mr Osborne did not appreciate any significance in the entry.
190 No person brought to the attention of anyone acting on behalf of Woolworths at the levels of the persons considering or drafting relevant agreements that as at 31 December 2000 ITAL owed TSC a sum exceeding $4 million. None of the relevant actors in this category knew of the loan as at 31 December 2000. The December Corporate Pack, being the document that the parties had been treating as the reference accounts as at 31 December 2000 did not disclose it. To the extent that any of the Deloittes' employees or Mr Osborne read annexure 3, none had any inkling of the significance of the document and of its content adjacent to the number "28".
191 In the evening of 15 March 2001, Mr Lawrance (of Allens) sent a facsimile, the cover page of which was handwritten by him, to Mr Dowsett (of Woolworths), Mr Sweetman (of UBS), Mr Thorpe (of G+T) and Ms Fox (of SSB). The facsimile was said to have attached "draft February accounts". The enclosure was a set of accounts for the period ending and as at 28 February 2001, in similar form to the December Corporate Pack with the same headings and structure. In his affidavit, Mr Sweetman said that he took from the form and content of the February Corporate Pack as the "February accounts", that the December Corporate Pack was the December accounts for the purposes of the agreement. I accept this evidence.
192 A few minutes later, on the same evening of Thursday, 15 March 2001, Mr Lawrance (of Allens) sent an email to Mr Thorpe and Mr Brewster (of G+T), Mr Sweetman (of UBS), Mr Dowsett (of Woolworths), Ms Fox and Mr Cox (of SSB), Mr McCulloch (of Allens) and Mr Gingerich (of InterTAN). Attached to that email were a number of documents. The email also stated that:
Draft February accounts have been faxed to Brent Dowsett, Anthony Sweetman, Martin Thorpe and Karen Fox.
193 On Monday, 19 March 2001, Mr Sweetman sent an email to Mr Dowsett (of Woolworths) attached to which was an analysis of the profit and loss and balance sheet since December 1999. Figures in the document for December 2000 were obtained by Mr Sweetman from the December Corporate Pack.
194 By 5 April 2001, InterTAN's commercial position was under threat. On 5 April 2001, there was a board meeting of InterTAN Inc which Mr Gingerich attended by telephone. Mr Gingerich agreed that the commercial position at this time was as follows:
(a) Radio Shack was not going to buy the holding company shares in North America.
(b) Radio Shack was refusing to agree to Woolworths' terms in relation to the Radio Shack operational agreements affecting the Tandy business in Australia.
(c) Woolworths had attempted unsuccessfully to negotiate terms acceptable to it directly with Radio Shack.
(d) Woolworths was apparently so dissatisfied with the discussion with Radio Shack that Woolworths was proposing to terminate purchase discussions if the matters had not been satisfactorily resolved by 6 April.
(e) InterTAN Inc was in an unsatisfactory commercial position and was reluctantly forced to pay Radio Shack $6 million to secure its agreement to Woolworths' terms as to the licensing agreement.
195 Mr Gingerich was authorised by the InterTAN Inc board to negotiate whatever amendments and modifications were necessary to get the agreement done. That remained the position in the period from 5 to 10 April.
196 With these storm clouds appearing over the deal, and having lost a further $6 million off the deal by way of payment to Radio Shack, Mr Gingerich, it might be said, stumbled on the obvious. He, along with everyone else, knew from 9 March 2001 that TSC was to be external to the transaction. On 22 February 2001, he had discussed the question of a receivable between ITAL and TSC (see [101] above). However, like everyone else, until 4 April he had placed no significance on the removal from the transaction of the dormant shell, TSC; he had continued to view the December Corporate Pack (which he knew to be an aggregated set of accounts) as the reference accounts, recognising that the Woolworths' representatives were doing likewise.
197 On 4 April 2001, he received a settlement sheet for the completion of the transaction and realised that the receivable from ITAL to TSC had to be paid and was over $4 million. At this time he said, and I accept him, he realised the inappropriateness of the December Corporate Pack balance sheet as the December Accounts for the agreement. He decided that he would not tell Woolworths of his realisation about the inappropriateness of the December Corporate Pack as the December Accounts on this hypothesis. He knew that Woolworths were proceeding on the basis of the December Corporate Pack being, or containing, the reference accounts or the December Accounts referred to in the draft agreement then in existence. He knew that Woolworths did not appreciate the significance of removing TSC and the size of the loan. He knew this because he realised that if Woolworths had appreciated this, further concessions would have been requested of InterTAN by Woolworths by way of equivalent price reduction.
198 Mr Gingerich's knowledge can be summarised in the following findings which I make and which, in large part, derive from his evidence in cross-examination:
(a) On 4 April, Mr Gingerich formed the view that the appropriate balance sheet for the transaction would be the stand-alone accounts of ITAL and not the December Corporate Pack. He did not inform anyone for Woolworths of that fact.
(b) All times in the period up to 4 April 2001 from when the $115,248,099 purchase price was calculated by him and went into the draft of the purchase agreement which was communicated to G + T on 12 March, he understood, believed and intended that the December Corporate Pack would stand as the reference accounts, referred to in the various drafts as "Accounts" or "December Accounts".
(c) The decision not to inform Woolworths or DSE of his view in (a) above was a deliberate and conscious decision that he made.
(d) He made that decision because he thought Woolworths would require InterTAN to make further concessions affecting the price payable for ITAL on or after 4 April.
(e) He appreciated that if the stand-alone accounts stood as the December Accounts without any adjustment to the purchase price of about $115 million, the debt recorded in the stand-alone accounts would effectively increase the price of ITAL by over $4 million.
(f) He knew and intended that if Woolworths were not told that the stand-alone accounts were the December Accounts and the purchase price remained at $115 million, InterTAN would be able to argue that the Net Asset Correction should be calculated by reference to the stand-alone accounts compared to the Completion Accounts instead of the December Corporate Pack.
(g) He knew and believed that Woolworths were not proceeding on the basis that any stand-alone accounts should be the December Accounts for the purpose of the Agreement, but were proceeding on the basis that the December Corporate Pack was, or contained, the December Accounts.
(h) He knew that the understanding which he formed on 4 April, that the stand-alone accounts would stand as the December Accounts for the purpose of the agreement, was a fact material for Woolworths to know.
(i) He claimed that he believed that the balance sheet for ITAL and TSC was in the data room, but he agreed that he did not know whether the stand-alone accounts had or had not been put in the data room; he made no enquiries to determine whether they had been; he agreed that the only basis on which he assumed that they had been put into the data room was his knowledge that they existed; and he agreed that that knowledge was not a reasonable basis for concluding that they had been disclosed to Woolworths by putting them into the data room. I accept that Mr Gingerich believed that the stand-alone ITAL balance sheet was in the data room; but he had little, if any, basis for so thinking.
(j) He agreed that his purpose in not disclosing his intention that the stand-alone accounts recording the ITAL liability to TSC should stand as the December Accounts was to attempt to produce the result that when the Net Asset Correction was undertaken, InterTAN would be able to argue (as they have in these proceedings) that the December Accounts were not the December Corporate Pack but the stand-alone accounts and thereby seek to improve the financial position of InterTAN in any such calculation by over $4 million.
(k) He agreed that the reason he did not want to disclose the liability of over $4 million to Woolworths was because he appreciated that if that matter had been disclosed to Woolworths they would have required that the sum of over $4 million come off the purchase price, and that he had no basis for resisting that request.
199 This last finding (italicised above) was heavily contested by the respondents. It was said that Mr Gingerich was suffering from the stress of a bereavement, that after a torrid cross-examination he was less than clear, and that I should have permitted certain re-examination.
200 Mr Gingerich was an intelligent and highly experienced businessman.
201 When Mr Gingerich gave the evidence referred to at [198(k)] above, he was, to my observation, under no apparent stress or disability at all. Though the cross-examination of him was forceful, it was always fair and was conducted, mutually between counsel and witness, in a civilised, ordered and lucid way. At the time the evidence was given, at the time of considering and in significant part writing my reasons for judgment during and shortly after the hearing of the case, and in completing these reasons, I had and have no doubt whatsoever that his was a clear, measured and considered answer. This accords with the flow of events. I will not rehearse the commercial pressures and circumstances that I have outlined. There may have been many things that could conceivably have been put about the liability to TSC - it was the result of business operation and so would not be classed as debt for the purpose of an "unlevered" purchase, TSC might have tax difficulties and to leave it behind with InterTAN might be seen to come at a price to Woolworths. But the reality was (as Mr Gingerich fully appreciated) InterTAN was content to sell this business for $108 million (indeed $105 million, though this had not been communicated to Woolworths) without the benefit of the receivable. TSC had been viewed and discussed as dormant. The excision of TSC and the residual liability of ITAL to TSC had not been a relevant commercial consideration for anyone. The excision of TSC, on this hypothesis, effectively increased the price by over $4 million. Mr Gingerich knew Woolworths would, if they appreciated the existence of the liability (given that he knew Woolworths' representatives were working off the December Corporate Pack) have demanded a price reduction. He knew his bargaining position or leverage was such as to make resistance commercially indefensible. That was his view at the time. That was why he said nothing.
202 Before leaving this part of the facts, it should be noted that Mr Gingerich said that, in about September 2001, when he learnt that there were no stand-alone accounts of ITAL or TSC in the data room, he was "horrified". He was not taxed on this in cross-examination. I conclude, significantly because I think that Mr Gingerich was an honest man, that he then (in September 2001) appreciated how his conduct might be viewed. He was prepared to assume, without any real foundation, that the ITAL accounts were in the data room, in part, I find, because it justified a position he wished to take in the interests of InterTAN, which, by 4 April 2001, was coming under significant pressure in and about this transaction. If such stand-alone accounts were in the data room, he could rationalise his conduct by the obligation of Woolworths to do its own due diligence competently. In the circumstances that there were no stand-alone accounts of ITAL in the data room he knew that Woolworths had approached the matter (as he had up to 4 April) without an appreciation of the liability of over $4 million as at 31 December 2000 and without stand-alone accounts in the data room to reveal it in the relevant reference accounts. As a tough, but honest, businessman, in these circumstances, and given his own central involvement in events, he was horrified.
203 The position of the credit of Mr Gingerich is troubling. Whilst I am of the view that that he was an honest man and generally speaking during the course of his evidence he attempted to be truthful, it should be said that he was rarely forthcoming. He answered questions asked of him, and no more, though he cannot be criticised for that. He did not seek to hide behind non-recollection. The only occasion in which he sought to amplify or clarify in an important respect was his evidence about being horrified in September 2001 when he learnt that the stand-alone accounts were not in the data room. He was cross-examined, if I may so, thoughtfully, thoroughly and logically. Generally speaking, he answered questions truthfully. I think, however, to a degree, he was prepared in his affidavit material to go beyond what he, under the directness of cross-examination, was prepared to say. I do not agree that that reflects any lapse in concentration during the course of his oral evidence. Though, as I understand it from Mr Macfarlan QC, Mr Gingerich had suffered a personal loss not long before giving evidence, he was evidently an intelligent and thoughtful man of some capacity and personality. I saw no evidence whatsoever in looking at him in giving his evidence that he was ever in any way distracted or lacking in the most careful concentration.
204 The best example of the conflict between affidavit evidence and oral evidence was his statement that if Woolworths or DSE had come back to him about the TSC liability he said in his affidavit that he would have approached Mr Shepherd as to whether he and Mr Shepherd could see any objection to a reduction. In his oral evidence he agreed, after careful thought, that had Woolworths or DSE come back to him in that fashion he could not have resisted that request. It may be that others may have suggested something to him at the time. No one gave that evidence. Mr Gingerich was an experienced businessman well able to look after himself in negotiations. He appreciated in the witness box the nature of the question. He truthfully said that he did not think that he would have been able to resist that request. In all the circumstances of the transaction, I do not see any real alternative to that proposition. InterTAN had been prepared to sell both companies (with the embedded receivable) for $108 million ungeared. The hiving off of TSC (as an assumed dormant and irrelevant aspect of history) in fact gave the InterTAN a $4 million receivable. It is true that it had its origins in connection with trade, but it was a dormant intercompany receivable, a residue of a sales tax arrangement. I have no doubt on the evidence that Mr Gingerich's concession in this respect was deliberate, considered and founded in his intimate contemporaneous knowledge of the course of events and of the respective positions of InterTAN and Woolworths, including his knowledge of the human context of the negotiations.
205 To the extent that Mr Gingerich's oral evidence in cross-examination conflicts with his affidavit evidence, I prefer his oral evidence.
206 However, I should say one more thing about Mr Gingerich's evidence. He did concede in cross-examination that his affidavit evidence in part was untruthful. The question was not objected to. I considered rejecting it nevertheless. There was an element of ambiguity in it. That ambiguity was similar to a question often asked as to whether a statement is "false". Such a question can be taken to mean inaccurate or knowingly inaccurate. Mr Gingerich denied that he knew at the time he swore his affidavit that it was false. He indicated that he had gone through the affidavit carefully with his solicitors. Examining the whole of the relevant affidavit of Mr Gingerich, I do not think that he was, in swearing the affidavit, intending to be overly forthcoming; however, I do not accept that he was deliberately swearing a false affidavit.
207 The share sale agreement was executed on 10 April and completed on 30 April 2001.
208 When the agreement was executed Woolworths' representatives and its advisers believed that the December Corporate Pack was, or contained, the reference accounts being defined in the agreement as the "December Accounts" .
209 None of the Woolworths' representatives knew or believed that ITAL owed TSC over $4 million as at 31 December 2000.