Flynn v PPK Mining Equipment Pty Ltd - [2024] NSWSC 663 - NSWSC 2024 case summary — Zoe

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Flynn v PPK Mining Equipment Pty Ltd

[2024] NSWSC 663

Supreme Court of NSW|2024-03-28|Before: Rees J

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At a glance

Source facts

Court

Supreme Court of NSW

Decision date

2024-03-28

Before

Rees J

Catchwords

Tricon (Aust) Pty Ltd v Ruthol Pty Ltd (2004) 61 NSWLR 1
[2008] NSWSC 852 Walters v Northern Coal Mining Co (1855) 5 De G M & G 629 Warman International Ltd v Dwyer (1995) 182 CLR 544

Source

Original judgment source is linked above.

Catchwords

Tricon (Aust) Pty Ltd v Ruthol Pty Ltd (2004) 61 NSWLR 1[2008] NSWSC 852 Walters v Northern Coal Mining Co (1855) 5 De G M & G 629 Warman International Ltd v Dwyer (1995) 182 CLR 544

Judgment (18 paragraphs)

[1]

These proceedings

In January 2019, these proceedings were commenced. By Summons and Commercial List Statement, the plaintiffs contended that the Share Purchase Agreement had been varied from NPAT to revenue, and that the revenue threshold of $1 million had been met. Beyond referencing pre-litigation correspondence on the subject, the pleadings did not specify precisely how it was said that revenue exceeded $1 million.
From March to December 2019, PPK's issued share capital increased to 85,101,035 ordinary shares. In March 2019, PPK declared an interim dividend of $0.01. In October 2019, a final dividend was declared of $0.01. By the end of the year, PPK's share price had improved to $5.10 per share.
In 2020, some 3.7 million ordinary shares were issued. In March and October 2020, an interim and final dividend were declared of $0.01 respectively. In December 2020, an in-specie dividend was declared of Li-S Energy Ltd shares, being $0.025 payable by way of 0.3846 shares in Li-S Energy Ltd for every PPK share. By the end of the year, PPK's share price had improved to $5.78 per share.
In 2021, the issued share capital increased by some 500,000. The share price peaked in September 2021, reaching $21.04 a share. By the end of the year, PPK's share price had dropped back to $9.29 per share.
By May 2022, issued share capital stood at some 89.3 million ordinary shares. In June 2022, an in-specie dividend was issued for shares in PPK Mining Equipment Group Ltd (PPKMEG), being $0.0281 payable by way of 0.1569 shares in PPKMEG for every one share in PPK. An in-specie distribution of PPKMEG shares was also issued, being $0.1511 payable by way of distribution of 0.8431 shares in PPKMEG for every PPK share. By July 2022, PPK's share price had fallen to $2.19 per share.

[2]

Primary judgment

In December 2022, I concluded that the Share Purchase Agreement had been varied. PPK failed to provide an NPAT Statement which complied with cl 9.1 as varied. The defendants' breach of cl 9.1 had the consequence that the Dispute Resolution Procedure could not be completed in accordance with cl 9. The expert determination process could not begin where the defendants, in breach of contract, did not provide the starting point for that process, being an NPAT Statement that complied with the Share Purchase Agreement. Nor could the Dispute Resolution Procedure be deployed to resolve the issue as to whether the Share Purchase Agreement had been varied. An Independent Accountant could not determine this issue, which did not fall within cl 9.4. Nor should the plaintiffs be thereby precluded from any entitlement to further shares if, in fact, the Second Performance Conditions were satisfied.
I further concluded that the expert determination clause did not oust the jurisdiction of the Court to determine the matter: cl 19.5. In Flynn (No 2) at [123]: "Nor do I accept the defendants' submission that, in determining whether revenue exceeded $1 million, the Court is confined to resolve the issues identified by the NPAT Statement and Dispute Notices that were served. The Court is not standing in shoes of the Independent Accountant. The Court is determining whether the plaintiffs satisfied the Second Performance Conditions on the basis of the evidence before the Court, where the expert determination process could not, and now cannot, be undertaken due to the defendants' breach of contract."
PPK had made this submission where the issues raised by the plaintiffs at trial as to why the revenue threshold was met differed greatly from those canvassed in pre-litigation correspondence. At trial, the plaintiffs relied on four items as resulting in revenue exceeding $1 million: 1. The plaintiffs claimed revenue generated by the hydraulics business ($161,794) said to form part of Exlec's business on sale to PPK. I made no adjustment to revenue on this account, where I was not satisfied that Exlec had a hydraulics business. 2. The plaintiffs sought to have a customer deposit ($51,579) recognised as revenue on the basis that the contract had been cancelled. I made no adjustment on this account, where I was not satisfied that the job had been cancelled. 3. Internal jobs ($12,709), in particular, "FLP-1" components made by Exlec for other divisions of PPK to remedy a product defect in a "Coaltram" underground transport utility vehicle ($304,610), of which six were sold during the NPAT period (at a loss). I did not accept that any adjustment to revenue should be made on account of this item. 4. The plaintiffs claimed revenue generated by use of Exlec's Certificates of Recognition in other parts of PPK's business ($258,846). I concluded that revenue earned by another division of PPK was not revenue "of" the Business.
In the result, I concluded that the Second Performance Conditions were not satisfied. Of the revenue items advanced by the plaintiffs at trial, the "hydraulics business" item was clearly recognisable in pre-litigation correspondence. The "internal jobs" item was also referred to in pre-litigation correspondence, but not to the extent that it was pursued at trial given the claim then made in respect of "FLP-1" components.

[5]

Lay evidence

In affidavits sworn shortly before the commencement of the trial, Mr and Mrs Flynn said that, if Flynfam had received PPK shares in November 2016, then it was the couple's intention to transfer a portion of the shares to their self-managed superannuation fund (what portion is not specified) and to hold on to "all of the shares" for the long term. Whilst the affidavits are not entirely clear, I assume that the shares which the couple intended to hold were the portion of the Second Performance Shares transferred to their self-managed superannuation fund. Mrs Flynn said that she deferred to her husband on such matters. It would thus appear that any decision to hold or sell PPK shares would have been made by Mr Flynn.
I attach little weight to Mr and Mrs Flynn's evidence as to what they would have done with the Second Performance Shares, for three reasons. First, this is hindsight evidence. The inherent unreliability of hindsight evidence was described by Gleeson CJ in Rosenberg v Percival (2001) 205 CLR 434 at [16] and McHugh J in Chappel v Hart (1998) 195 CLR 232 at 246. Where the share price rose from $0.125, when the trading hold was lifted in August 2017, to $21.04 in September 2021, one might readily think that one might have retained such a share, but such evidence is infused with hindsight.
Second, the evidence points in the other direction. Mr Flynn was understandably worried about the performance of PPK's shares. By May 2015, Mr Flynn was concerned about the drop in PPK's share price. In September 2015, he was concerned about the suspension of PPK's shares on the ASX. As at November 2016 (and the months which followed), PPK shares had an unhappy share trading history of prolonged suspension. At the point at which it was said that Mr Flynn would have decided to hold the shares, he more likely viewed such a prospect with concern and circumspection.
Relevant to any decision as to whether to sell or hold PPK shares would have been Mr Flynn's assessment of the ability of PPK's senior management to turn the situation around. But Mr Flynn was critical and mistrustful of PPK's senior management, suggesting they had "questionable ethics" and were incompetent: see [38]. Nor would Mr Flynn had continued to hold PPK shares for a non-commercial reason, such as a sense of loyalty. Mr Flynn resigned at the earliest opportunity after completing the requirement of his continued employment in the Second Performance Conditions. He was suing PPK in the Industrial Magistrates Court. I expect that Mr Flynn wanted nothing more to do with PPK.
As far as can be told, Mr Flynn was also without a job. Whether (and when) Mr Flynn gained further employment, after resigning from PPK, is not known. Whether Mr and Mrs Flynn had the financial wherewithal to resist liquidating the Second Performance Shares is not known. Such evidence was within the power of the plaintiffs to adduce. I infer from the troubled financial history of Exlec, before it was acquired by PPK, that Mr Flynn was not wealthy: see [3]. What is known is that this was a time of widespread redundancies, scarce work and an industry downturn. The fact that the couple only intended to retain a portion of the Second Performance Shares indicates that they proposed to sell at least some of the shares.
Third, I note my adverse credit finding in respect of Mr Flynn, specifically, that I could not rely on Mr Flynn's evidence in the absence of corroboration from a contemporaneous document, a reliable witness, or where his evidence was against interest. As such, I am reluctant to attach much weight to what he has said, absent corroboration. Where the fate of the First Performance Shares is not known, and it would have been simple for the couple to put on evidence that they continued to hold those shares, there is no corroboration to hand. That is, I would have been more inclined to accept Mr Flynn's evidence that he would have held the Second Performance Shares for the long term if there was evidence that he had made the same investment choice with the First Performance Shares.
In the result, Mr Flynn's decision to sell or hold the Second Performance Shares - had he been issued with the shares in November 2016 or thereabouts - would have been based on whether it made commercial sense to sell or hold the shares at the time, rather than any 'blanket' decision to hold the shares for the long term. The performance of PPK shares to that point could hardly be described as 'blue chip' stock. Mr Flynn lacked confidence in PPK management to turn the situation around. Mr Flynn's financial position was also, likely, modest or difficult. It is more likely that Mr Flynn would have sold the Second Performance Shares and used some of the funds to live on (implicit in the couple's evidence that they would only have continued to hold a portion of the shares) and re-invested the balance (if any) in other assets thought more likely to increase in value.

[7]

Submissions

The plaintiffs submitted that the appropriate remedy was an order for specific performance of the defendants' obligation to issue the shares but as if the shares had been issued at the time of the breach, in November 2016 or February 2017, including the distribution of all dividends attached to the shares. The particular nature of the shares which the plaintiffs should have obtained, and the rights that subsequently attached to them, including the issue of dividends in the form of cash and shares in other companies, was said to be a matter that should incline the Court to grant specific performance: Dougan v Ley (1946) 71 CLR 142 at 151 (per Dixon J). While PPK and Li-S Energy Ltd shares were available on the ASX, PPKMEG's shares were unlisted and not readily available for purchase in the market: Lionsgate Australia Pty Ltd v Macquarie Private Portfolio Management Ltd [2007] NSWSC 371 at [64]-[65]. (There is no evidence of this beyond the plaintiffs' submissions. The name of the company as recorded in Mr Shackley's document suggests it was listed on the ASX. Perhaps he intended to refer to PPK Mining Equipment Group Pty Ltd. I do not know.)
Whilst Mr Shackley's calculations did not accord with the requirements of cl 7.2, I will set out the plaintiffs' submissions as to what followed from Mr Shackley's research, based on his re-calculations, that is, a VWAP of $0.311495. The plaintiffs submitted that Flynfam would have been issued with 1,605,162 PPK shares and would have held the shares. Flynfam would subsequently have received cash dividends and dividends payable in shares, being 617,345 shares in Li-S Energy Ltd and 1,605,162 shares in PPKMEG. These shares and dividends were said to be worth $4,456,720. Where PPKMEG are said to be unlisted, the plaintiffs used the 'payment rate' for the share / dividend distribution as a measure of damages (being a calculation which was not explained, nor was I able to reconcile it with Mr Shackley's figures).
The plaintiffs submitted that it made no difference whether contractual damages were awarded or specific performance ordered, as contractual damages should be assessed at the date of trial, not at the date of breach. This result was said to follow PNC Lifestyle Investments Pty Ltd v REW08 Projects Pty Ltd (No 2) [2017] NSWSC 993 at [32]-[42] (per Darke J). Flynfam missed the opportunity to sell the shares at the peak price of $21.80 (although I understood the plaintiffs' evidence was that they would have held the shares for the long term). The plaintiffs submitted that by taking the share price at the start of the hearing, the Court was already discounting for vicissitudes as such an approach steeply discounted the best possible outcome of obtaining the shares in 2016 or 2017 and selling them at the top of the market: Malec v JC Hutton Pty Ltd (No 2) (1990) 169 CLR 638. As for equitable compensation, the plaintiffs submitted that if they could not get the shares they should have got in October 2016, then they should obtain a money order that was appropriate given the value of the shares as at trial. That was what was necessary to put the plaintiffs in the position they would have been if the contract had been complied with.
The defendants submitted that contractual damages were adequate and there was no basis to grant equitable relief: Bankstown City Council v Alamdo Holdings Pty Ltd (2005) 223 CLR 660 at [11] (per Gleeson CJ, Gummow, Hayne & Callinan JJ); Inlon Pty Ltd v Celli SpA [2017] NSWSC 569 at [151] (per Parker J); Redland Bricks Ltd v Morris [1970] AC 652 at 665 (per Lord Upjohn). Further, if no injunction was ordered, there was no basis for any further relief under s 68 of the Supreme Court Act 1970 (NSW) (even if it was pleaded). Where damages are an adequate remedy, s 68 "is simply not available": PNC Lifestyle Investments v REW08 at [40] (per Darke J). The fact that the market price of the shares subsequently increased and then fell back was not a principled reason to assess damages other than at the date of breach. For all the Court knew, in the future, the market price may be lower than it was in 2015, 2016 or 2017. Contractual damages was the value of the shares as at the date on which they would have been issued had the defendant performed its contractual obligation: Brimaud v Boston Securities Entertainment Investments Pty Ltd (Federal Court of Australia, 9 September 1998, unrep) (per Emmett J); as explained in Ailakis v Olivero (No 2) (2014) 100 ACSR 524 at [138]-[141].
In the event that the Court was minded to grant an equitable remedy, the defendants contended that the plaintiffs were guilty of laches, where the proceedings were not commenced until 12 January 2019. Since 21 August 2017, PPK shares have regularly traded on the ASX and the VWAP has varied from day-to-day. A Court will decline to set aside an invalid allotment of shares if delay on the part of a plaintiff has led innocent third parties to act to their detriment on the state of the share register: Haas Timber & Trading Co Pty Ltd v Wade (1954) 94 CLR 593; J D Heydon, M J Leeming, P G Turner, Meagher, Gummow & Lehane's Equity: Doctrine & Remedies (5th ed, 2014, LexisNexis) at [38-030]; see generally, Nassif v Sun [2021] NSWSC 990 at [169]. The defendants submitted that the same should apply where a plaintiff has delayed in approaching the Court for an order for the issuance of shares in a publicly listed company. The impact of the equitable relief on third parties, who purchased shares without notice of the plaintiffs' claims, was said to be a compelling reason why relief ought to be refused.

[8]

Specific performance or contractual damages?

The plaintiffs seek not only the Second Performance Shares but to capture the uplift in the PPK share price since the second anniversary of Completion, by calling in aid various equitable and common law doctrines or a blend of same.
The plaintiffs put their primary claim as one for equitable relief - being declaratory relief and specific performance - with contractual damages relied on "in the alternative". The plaintiffs did not seek specific performance in the strict sense, being to compel the execution of a contract so that the transaction could complete. Rather, the plaintiffs sought the aid of the Court to compel the defendants to perform their obligations according to the terms of the contract: Waterways Authority of New South Wales v Coal & Allied (Operations) Pty Ltd [2007] NSWCA 276 at [62] (per Beazley JA); Paolucci v Makedyn Pty Ltd (2021) 20 BPR 41,749 at [10]-[11] (per Leeming JA, White and McCallum JJA agreeing).
As Leeming JA explained in Paolucci v Makedyn, in requiring the performance of a contractual term, equity is acting in aid of the plaintiff's legal rights: at [16]. However, "… equity will not intervene to grant the remedy unless there is some good ground for doing so …. It is thus necessary for the plaintiff to prove that damages are not an adequate remedy. … This is the major hurdle that a claimant seeking specific performance must overcome": at [17], quoting R E Megarry (1960) 76(302) The Law Quarterly Review. In Lucas Stuart Pty Ltd v Hemmes Hermitage Pty Ltd (2012) 28 BCL 226; [2010] NSWCA 283, Campbell JA observed, "The only justification for equity ever involving itself in providing a remedy for breach of a common law obligation is if the remedy provided by the common law is inadequate": at [5]; see likewise Bankstown City Council v Alamdo Holdings Pty Ltd (2005) 223 CLR 660 at [11] (per Gleeson CJ, Gummow, Hayne & Callinan JJ).
As to whether damages are an adequate remedy, the test is whether it is just in all the circumstances that the plaintiff should be confined to damages: Coulls v Bagot's Executor & Trustee Co Ltd (1967) 119 CLR 460 at 503 (per Windeyer J) ("the remedy, damages, cannot satisfy the demands of justice"); Tullett Prebon (Australia) Pty Ltd v Purcell (2008) 175 IR 424; [2008] NSWSC 852 at [97] (per Brereton J), quoting Evans Marshall & Co v Bertola SA [1973] 1 WLR 349 at 379 (per Sachs LJ), followed in Paolucci v Makedyn at [17].
Damages may not be an adequate remedy in contracts for the sale of shares, in the circumstances examined in ICF Spry, The Principles of Equitable Remedies: Specific Performance, Injunctions, Rectification and Equitable Damages (9th ed, 2014, Sweet & Maxwell) at 66-67: "If … there is no adequate market for the shares … to confine a purchaser to an award of damages would not be to leave him in the same position as if the contract had been carried out. So if shares are not listed for quotation, or the parcel in question is a controlling interest or is of such a size or nature that to acquire it elsewhere would involve undue difficulty or uncertain expenditure, damages may be regarded as inappropriate. If however the shares … are readily obtainable … damages may provide an appropriate remedy. Nonetheless even if there is an available market, the size of the relevant parcel, for example, or uncertainty in the amount that the plaintiff would be required to pay, or the risk that to seek to purchase it might prejudice or inconvenience unduly the plaintiff or third parties, may bring about a different position. Further, where the plaintiff … seeks specific performance of a contract to subscribe for shares different considerations arise, and hence each case must be examined separately to determine whether damages are appropriate."

[9]

Contractual damages

The first matter to consider is contractual damages, before turning to whether it is just in all the circumstances that the plaintiffs should be confined to this remedy or whether the court should exercise its discretion to grant specific performance. The general measure of damages is the amount, so far as money can provide, necessary to put the plaintiff in the position they would have been if the contract had been performed: Koufos v C Czarnikow Ltd (The Heron II) [1969] 1 AC 350; Wenham v Ella (1972) 127 CLR 454 at 460 (per Barwick CJ); Burns v MAN Automotive (Aust) Pty Ltd (1986) 161 CLR 653; [1986] HCA 81. This requires the Court to compare the actual position of the party who sustains a loss by reason of the breach to what that party's position would have likely been in a counterfactual scenario in which the contract was performed: Brighton Automotive Holdings Pty Ltd v Honda Australia Pty Ltd (No 2) [2024] VSC 262 at [74] (per Matthews J).
The "ruling principle" is that contractual damages are assessed at the date of the breach, "not as a matter of discretion, but as an integral aspect of the principle, which is concerned to [provide] the economic value of the performance of the contract at the time that performance was promised. In this way, the measure of damages captures … the benefit of the bargain and so compensates … for the loss of that benefit": Clark v Macourt (2013) 253 CLR 1 at [109] (per Keane J). Further, at [110]: "The application of the ruling principle to measure value lost at the date of breach of contract serves the important end of bringing finality and certainty to commercial dealings. It ensures that whatever might befall the [promisee] after the date of breach, for good or ill … and whatever movements may occur in the market, these developments have no bearing on the entitlement of the [promisee] and the liability of the [promisor]."
This rule, however, is not universal and "must give way in particular cases to solutions best adapted to give an injured plaintiff that amount in damages which will most fairly compensate him for the wrong he has suffered: Johnson v Perez (1988) 166 CLR 351 at 355-356 (per Mason CJ), following Johnson v Agnew [1979] 1 All ER 883 at 896 (per Lord Wilberforce) ("But this is not an absolute rule; if to follow it would give rise to injustice, the court has power to fix such other date as may be appropriate in the circumstances"). For example, for contracts for sale of goods where there is no market in which the injured party can buy replacement goods, the date of non-delivery may not be appropriate and a later date may be used: Johnson v Perez at 357.
If damages are assessed at the date of breach, subsequent events may be taken into account so that the damages awarded are as accurate as possible: Wenham v Ella; Smith New Court Securities Ltd v Citibank NA [1997] AC 254; Golden Strait Corp v Nippon Yusen Kubishika Kaisha [2007] 2 AC 353; [2007] UKHL 12. The Court must do the best it can in assessing damages notwithstanding the difficulties in doing so, where estimation, if not guesswork, may be necessary in assessing the damages to be allowed: Fink v Fink (1946) 74 CLR 127 at 143 (per Dixon and McTiernan JJ); McRae v Commonwealth Disposals Commission (1951) 84 CLR 377 at 411-412 (per Dixon and Fullagar JJ); The Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 83 (per Mason CJ and Dawson J).

[11]

The counterfactual

What would have happened if PPK had provided an NPAT Statement prepared on the basis of the Share Purchase Agreement as varied, calculating whether the Second Performance Conditions were satisfied having regard to revenue? This is easy to envisage, where the NPAT Statements which were provided included revenue, albeit as a line item rather than as the 'bottom line'. The figure was $924,505 in the initial NPAT Statement and $762,056 in the revised NPAT Statement.
As to what would have happened next in the counterfactual, it can be said with some confidence that Mr Flynn would not have accepted PPK's initial or revised revenue calculation. Mr Flynn would have proffered an alternate figure. There is no reason to think that Mr Flynn's calculation would have been different from that proffered by Mr Masters, being $1,002,914. That figure was provided two months after the revised NPAT Statement and after Mr Masters had had an opportunity to examine PPK's calculation, supporting spreadsheets and general ledger. Nor is there any reason to think that PPK would have accepted this calculation.
In the counterfactual, PPK accepted that the Share Purchase Agreement had been varied and, thus, that the cl 9 process could be followed. Where the plaintiffs did not accept the NPAT Statement, and PPK did not accept the plaintiffs' Dispute Notice, it is likely that the cl 9 process would have proceeded to an expert determination. Where the parties did not adhere to the timeframes specified in cl 9 in reality, it is reasonable to think that they would not have been more punctual in the counterfactual. It is likely that the process would have taken at least four months, and probably longer. Given the intervening Christmas period, I consider that the cl 9 process would likely have taken five months, ending in April 2017.
In the counterfactual, it cannot be assumed that the outcome of the expert determination process would have been that the Independent Accountant concluded that revenue exceeded $1 million. I say this for, essentially, three reasons.
First, the expert determination process was to be conducted within relatively short timeframes and determined by an accountant, not by a lawyer. It cannot be assumed that the Independent Accountant would have reached the view which I did after a three-week trial and with the benefit of extensive written submissions from senior and junior counsel, nor the views reached by the Court of Appeal on conclusion of a two-day appeal.
Second, by and large, the revenue adjustments for which the plaintiffs contended in these proceedings were not articulated until long after the correspondence exchanged between Mr Flynn and PPK in respect of the NPAT Statement and revised NPAT statement. The first mention of the FLP-1 enclosures was made by PPK ten months after the revised NPAT Statement: see [47]. The FLP-1 enclosures were not referred to in the pleadings. It was not until Mr Flynn's first affidavit of 9 October 2019 that reference was made to FLP-1 enclosures. The best indication of the revenue items which Mr Flynn would have raised during the 'counterfactual' expert determination process are the matters raised by Mr Masters on 31 January 2017: see [41]-[42]. Mr Masters allowed for additional revenue of $79,064 for goods and services provided by Exlec to other PPK companies and a further $161,794 for revenue said to be generated by a hydraulic business operated by Exlec before being purchased by PPK. Both of Mr Masters' adjustments to revenue had to be accepted by the Independent Accountant before the revenue threshold was exceeded.
Third, the conclusions reached by the Independent Accountant may have varied depending on the opinions or approach of the particular accountant who undertook the task. Accepting that accounting principles are well-settled, the range of possible outcomes may be seen from the widely differing and firmly held views of expert accountants on the revenue items at trial, being the plaintiffs' forensic accountant, Suzanne Delbridge of Delbridge Forensic Accounting of Hamilton East, and PPK's forensic accountant, Campbell Jackson, senior partner of Ernst & Young in Melbourne. Some of the experts' divergent views were explicable by their differing instructions, but far from all.
If the Independent Accountant had dealt with the revenue items which Mr Flynn would likely have proffered in the counterfactual expert determination process, being internal jobs and hydraulics business, in accordance with the conclusions reached in these proceedings, including on appeal, then he or she would have allowed $79,064 for "internal jobs" and disallowed $161,794 for the "hydraulics business", such that revenue would have been less than $1 million. Whether the Independent Accountant would have been a Ms Delbridge, a Mr Jackson or someone with a different view altogether, there is a chance that the Independent Accountant would have accepted the revenue items proffered by Mr Flynn and Mr Masters, and concluded that the revenue target was met, but this cannot be regarded as a foregone conclusion.
Of course, damages may be awarded for loss of a chance or opportunity that can be "causally linked to a breach of contract": N C Seddon and R A Bigwood, Cheshire and Fifoot Law of Contract (11th ed, 2017, LexisNexis) at [23.14]. Drawing on my judgment in About Life Pty Ltd v Maddocks Lawyers [2021] NSWSC 1370 at [505]-[511], the plaintiffs must establish that there was some prospect of success of a commercial gain, of which the plaintiffs would have availed themselves. (These elements are satisfied.) The Court must then value the lost opportunity by reference to the degree of probability that the events posited by the plaintiff would have occurred, taking a "broad brush" but nonetheless evidence-based approach; see more recently Lindsay-Owen v HWL Ebsworth Lawyers (No 2) [2024] NSWSC 541 at [203] (per Harrison CJ at CL).
Doing the best I can, I consider that there was a 50:50 chance that the Independent Accountant would have accepted Mr Flynn's arguments in the cl 9 process. That is, there was a 50% chance that the Independent Accountant would have determined that the Second Performance Conditions had been satisfied, such that the plaintiffs became entitled to the issue of $500,000 worth of PPK shares three business days after final determination under cl 9.4. At this point in the analysis, therefore, contractual damages are $250,000, reflecting a loss of the chance to become entitled to $500,000 worth of shares. To this would be added pre-judgment interest from 1 May 2017 to date. By my calculations, this is a total of some $350,000.

[12]

Inability to give effect to cl 7.2

Assuming that the expert determination process took five months, then the expert determination would have been issued in April 2017 in the counterfactual. However, PPK's shares remained suspended from trade and had then been suspended for 19 months. As earlier construed, the formula to calculate the required number of PPK shares proceeded on the mutual assumption of the contracting parties that PPK shares could be traded on the ASX in the period immediately preceding the Performance Shares Issue Date. This formula could not be applied for want of relevant data, where there are no trades in PPK shares on the ASX "immediately preceding" the Performance Shares Issue Date. The number of PPK shares to be issued could not be ascertained.
On one view of it, cl 7.2 was frustrated in the counterfactual. Part of a contract may be frustrated if that part of the contract is distinct from the remainder such that it is, for practical purposes, a separate contract: J W Carter, "Partial Termination of Contracts" (2008) 24 Journal of Contract Law 1 at 6; NSW Law Reform Commission, Frustrated Contracts (1976) at [2.6]. Here, the contractual provisions concerning the Second Performance Shares were clearly separable from the provisions concerning the sale of Exlec and Exlec Holdings on Completion and the First Performance Shares.
A contract, or part of a contract, is frustrated where, "without default of either party a contractual obligation has become incapable of being performed because the circumstances in which performance is called for would render it a thing radically different from that which was undertaken by the contract … It was not this that I promised to do": Davis Contractors Ltd v Fareham Urban District Council [1956] AC 696 at 729 (per Lord Radcliffe). As Mason J explained in Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337; [1982] HCA 24, "a contract will be frustrated when the parties enter into it on the common assumption that some particular thing or state of affairs essential to its performance will continue to exist or be available, neither party undertaking responsibility in that regard, and that common assumption proves to be mistaken": at 357; Woolworths Group Ltd v Gazcorp Pty Ltd [2022] NSWCA 19 at [212]-[221] (per Bell P).
Here, the last PPK share trade was in September 2015. After suspension from trade, the last price at which PPK shares traded was, obviously enough, no longer a good indication of the current market value of such shares, where the information in PPK's undisclosed financial results would be likely to have an impact on the share price: see [27]-[28]. Once that information was supplied to the market and share trading resumed, a correction to the share price could be expected, as indeed happened when the trading hold in PPK shares was lifted: see [46]. As Beach J explained in TPT Patrol Pty Ltd (as Trustee for Amies Superannuation Fund) v Myer Holdings Ltd (2019) 293 FCR 29 at [666]-[669], at any particular point in time, the price of an actively traded security reflects all publicly available information and represents the present discounted value of the future cashflows expected to be generated by the underlying asset. As new information becomes available, investors' perceptions as to the net present value of the company's future cashflows may change, resulting in a correction to the share price.
If PPK had said to Mr Flynn in April 2017 that it proposed to calculate the number of shares under cl 7.2 based on share trades from 2015, before a 19-month suspension in trade, Mr Flynn would have been within his rights to protest that those share prices did not reflect market value. If the number of PPK shares had been calculated using that formula, then Mr Flynn would have been short-changed and received too few shares, calculated on an out-of-date share price which likely far exceeded the share price if, and when, trading in PPK shares resumed. Mr Flynn could rightly exclaim that issuing the Second Performance Shares in such a manner would be radically or fundamentally different from what he had been promised.
Of course, the effect of frustration is not to avoid a contract from the beginning but to excuse the parties from performing future obligations. By close analogy to what follows on termination of a contract for breach, "an event of frustration will not remove, or negate, the existence or efficacy of what are already unconditionally accrued rights under the contract, from periods whilst the contract's performance was operative: Jamac Construction Group Pty Ltd v De Mol Investments Pty Ltd [2014] WASC 273 at [44] (per Martin J), applying McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 at 476-477 (per Dixon J). In the counterfactual, the plaintiffs became entitled to the Second Performance Shares but the number of shares could not be calculated as the operation of cl 7.2 was discharged by frustration. The plaintiffs remained entitled to damages for breach of the promise in cl 7.2. The amount of damages is obvious: the plaintiffs were entitled to $500,000 worth of PPK shares and, absent issue of the shares, to $500,000. Where the plaintiffs had a 50:50 chance of getting to this point, the damages relevantly remain $250,000 plus pre-judgment interest.
If I am wrong about this, and if by some means PPK had issued the Second Performance Shares to Mr Flynn in the counterfactual, such shares would have been held in escrow for 12 months, that is, until April 2018. By then, the trading halt of PPK shares would have been lifted. PPK shares were then trading around $0.27 per share. The share price was one-third of the share price at Completion. I have earlier considered Mr and Mrs Flynn's evidence that, in the counterfactual, they would have continued to hold an unspecified portion of the Second Performance Shares for the long term. I concluded that it was more likely that Mr Flynn would have sold the Second Performance Shares in the short term, using some of the proceeds to live on and re-invested the balance in other assets thought more likely to increase in value. That is, Flynfam would not have continued to hold the Second Performance Shares until almost three years later, in December 2020, when the first in-specie dividend was declared of Li-S Energy shares, nor five years later when the in-specie dividend was declared of PPKMEG shares in June 2022.
In the result, I assess damages for breach of contract at $250,000 plus pre-judgment interest from 1 May 2017 to date, together totalling some $350,000. It is not clear why assessment of contractual damages at the date of breach should give way in this case to assessment at the date of trial, in order to most fairly compensate the plaintiffs for the wrong suffered: Johnson v Perez at 355-356. Nor is it obvious whether there would be any relevant different in the result, where I am not satisfied on the balance of probabilities that the plaintiffs would have held the Second Performances Shares beyond the short term and thus enjoyed the uplift in value of those shares nor the Li-S Energy shares or PPKMEG shares acquired by in-specie dividends.

[13]

Specific performance

Looking then at the contractual obligation which equity may compel PPK to perform according to the terms of the contract, it can hardly be thought that the Court will compel the parties to now embark upon the cl 9 process on the basis that the Share Purchase Agreement was varied as the plaintiffs had contended. Rather, having satisfied the Court of Appeal that the Second Performance Conditions were satisfied, PPK is obliged to issue the number of ordinary shares equal to $500,000 divided by the (current) VWAP Price in accordance with cl 7.2 of the Share Purchase Agreement.
This is obviously worth more than contractual damages. The difference is explained by the contractual obligations to which each remedy is directed. Contractual damages were assessed in respect of PPK's breach of cl 9.1. Specific performance is directed to compel performance of the contractual obligation in cl 7.2, where satisfaction of the Second Performance Conditions has been determined by the Court, rather than by the cl 9 process.
Is it just in all the circumstances that the plaintiffs should be confined to contractual damages? I think not, where the plaintiffs have ultimately vindicated their position in the Court of Appeal such that they are entitled to compel PPK to perform the contractual obligation in cl 7.2 of the Share Purchase Agreement. While there is nothing unique about the PPK shares which will be issued, where the shares can readily be purchased on the ASX, I consider that the demands of justice require that the plaintiffs be issued the Second Performance Shares or receive the value of such shares, that is, $500,000.
A grant of specific performance does not, however, achieve the result for which the plaintiffs contend, being an order to issue PPK shares but as if the shares had been issued in November 2016 or February 2017. An order for specific performance generally obliges the defendant to do something now, in this case, to perform a contractual obligation. The rare instances in which decrees of specific performance have been "back-dated" involve leases before the Judicature Acts, as detailed by P Sparkes in "Back-dating Specific Performance" (1989) 10 The Journal of Legal History 29. The learned author concluded at 34: "In Chancery, specific performance normally operated prospectively. There is limited authority for back-dating specific performance to determine the validity of a forfeiture [of a lease]. … But these few hints scarcely add up to a general doctrine that specific performance operated retrospectively. Quite the reverse, … when back-dating did occur, it was anomalous."
In Chan v Cresdon Pty Ltd (1989) 168 CLR 242, Mr Sparke's analysis was endorsed: at 255 (per Mason CJ, Brennan, Deane and McHugh JJ). Their Honours observed that, before the Judicature Acts, the jurisdiction to backdate specific performance "was a jurisdiction to be exercised sparingly": at 255; following Walters v Northern Coal Mining Co (1855) 5 De G M & G 629 at 638-639 ("the circumstances of the case must be very special indeed").
The relevant obligation is to issue the Second Performance Shares on the basis that the Second Performance Conditions were satisfied, as determined by the Court of Appeal. An order for specific performance does not require or enable the defendants to perform that obligation retrospectively.

[14]

Lord Cairns' Act: equitable damages

In closing submissions, the plaintiffs sought damages either in substitution for, or in addition to, specific performance under the Lord Cairns' Act 1858. This was not pleaded, although it is not strictly necessary to do so: "damages under Lord Cairns' Act, or its modern statutory equivalent, need not be expressly claimed where specific performance is sought": Ailakis v Olivero at [173], [185]; Jaggard v Sawyer [1995] 1 WLR 269 at 285. In order for such damages to be awarded, it must first be established that the court has jurisdiction to grant specific performance: Ferguson v Wilson (1866) 2 Ch App 77 at 91-92 (per Cairns LJ). The plaintiffs have established this.
Where the Court has power to order specific performance of any contract, the Court may award damages either in addition to or in substitution for specific performance: s 68(b), Supreme Court Act 1970 (NSW). In Wentworth v Woollahra Municipal Council (1982) 149 CLR 672, the Court explained, "The main object of the Act was to enable the Court of Chancery to do "complete justice" between parties by awarding damages in those cases in which it had formerly refused equitable relief in respect of a legal right and left the plaintiff to sue for damages at common law": at 676. Damages so awarded are referred to as equitable damages.
Equitable damages are not the same as common law damages: Wentworth at 678. That said, the common law rules relating to the assessment of damages generally apply to the assessment of damages under the Lord Cairns' Act where that jurisdiction is employed in aid of legal, as opposed to equitable, rights: P Parkinson (ed), The Principles of Equity (2nd edition, 2003, Lawbook Co) at [2231]. In Colbeam Palmer Ltd v Stock Affiliates Pty Ltd (1968) 122 CLR 25, Windeyer J noted, "Not until Lord Cairns's Act in 1858 had the Chancery Court power to award damages. In assessing damages equity follows the law … ": at 33. In Wenham v Ella, the High Court was considering a claim for specific performance of a contract for the sale of land where, by the date of hearing, specific performance could no longer be ordered. As to the damages which could be awarded under the Lord Cairns' Act, Barwick CJ observed at 460: "… the measure of damages which could be awarded at common law for breach of the contract between these parties is, in my opinion, the same as a court of equity would employ in this case in ordering damages in lieu of specific performance. In some circumstances, damages in the latter case may exceed those which would be awarded at law: but circumstances which might justify a larger amount of damages in lieu of specific performance than would be given at law are not present in this case."
In ASA Constructions Pty Ltd v Iwanov [1975] 1 NSWLR 512, Needham J observed, "Where a court is exercising jurisdiction to award damages under s. 68 of the Act, it should not adopt a different standard, if the breach of the contract which caused the institution of proceedings for specific performance was a breach which would have sounded in damages at common law": at 516-517. In Madden v Kevereski [1983] 1 NSWLR 305, Helsham CJ in Eq explained at 306-307: (emphasis added) "In my view the law in this area is in such a mess that it is time some court gave an authoritative decision about s 68. I take the view that the damages which the Court has power to award under s 68 have nothing to do with common law damages. … The damages which the Court may award under section 68 are sui generis; the power to award them is a power to enable the Court to do complete justice so far as equity considers it ought to be done, by supplementing with money the equitable remedy, or a attempting with money to substitute a remedy. The section is simply not available when damages, in the common law sense, are an adequate remedy, or when a plaintiff has to rely on a common law right to damages for breach of contract. … there is no date which can be said to be the date at which damages under s 68 should be assessed. It will be assessed so as to do what is just as between the parties and the particular circumstances of each case …"
Likewise in Rosser v Maritime Services Board (No 2) (1998) 14 BCL 375, Young J stated the general rule is that if the defendant has committed a common law breach of contract, damages given by a court of equity should generally be the same as at common law. Further, at 381: "… whilst, generally, equity would apply the same principles of assessment of damages as applied at common law, it would not invariably do so. In appropriate cases, the court may apply what is sometimes described as "the user principle" to equitable damages. Thus, where damages are given in substitution for an injunction to protect a restrictive covenant, the damages may well be the sum which the plaintiff might reasonably have demanded for relaxation of the covenant, not the detriment he has actually suffered …"
Rosser v Maritime Services Board was followed in Mills v Ruthol Pty Ltd; Tricon (Aust) Pty Ltd v Ruthol Pty Ltd (2004) 61 NSWLR 1; [2004] NSWSC 547, where Palmer J observed, "this general rule is subject always to the broader considerations of justice which underlie Equity's discretionary remedies": at [67].
Equitable damages may produce a different result in some contractual contexts, for example, where there is a threatened or ongoing breach of contract: Barbagallo v J & F Catelan Pty Ltd (1986) 1 Qd R 245 at 252, 256 (per McPherson J). As mentioned, the appropriate date for the assessment of equitable damages depends on what is just between the parties and may be assessed at the date of judgment or the date of accrual of the cause of action: Madden v Kevereski at 307; ASA Constructions Pty Ltd v Iwanov at 519. This may have the result that equitable damages are assessed at the date of trial rather than the date of breach, which may produce a different result (albeit the common law may also assess contractual damages at the later day: see [89]).
In sum, equitable damages to be awarded in a claim based on a contract will usually be the same as common law damages. The learned author of Spry, The Principles of Equitable Remedies, summarised the position at 671: "… if there is a right to damages at law and it appears to a court of equitable jurisdiction that it is appropriate under a Lord Cairns' Act provision to award damages either in lieu of or in addition to specific performance or an injunction, the application of general equitable principles generally gives rise to the result that the measure of damages in equity is the same as the measure of damages at law; and again, generally the same tests of remoteness of damage are applied in equity as at law. … [I]f the most just course is to award damages on a different basis to that for legal damages, the better view is that the court will act accordingly, although it may be expected that this position will not arise often."
In the event that equitable damages should be assessed on a basis other than common law damages, the approach to the assessment of equitable compensation should be followed: Hamann v Taleb at [67]-[68]. In that event, common law considerations of remoteness and foreseeability are generally irrelevant; the courts apply common sense views as to what loss resulted from a breach and so falls to be compensated: Canson Enterprises Ltd v Boughton & Co (1991) 85 DLR (4th) 129 at 163, followed in Youyang Pty Ltd v Minter Ellison Morris Fletcher (2003) 212 CLR 484; [2003] HCA 15 at [35]. Just as with the assessment of common law damages, the Court may discount or adjust the amount of compensation akin to a Sellars discount: P Young, C Croft and M Smith, On Equity (1st ed, 2009, Thomson Reuters) at 1116, citing Dempster v Mallina Holdings Ltd (1994) 13 WAR 124. The cardinal principle is that the remedy must be fashioned to fit the nature of the case and the particular facts: Warman International Ltd v Dwyer (1995) 182 CLR 544; 128 ALR 201 at 210 (per Mason CJ, Brennan, Deane, Dawson and Gaudron JJ).
Looking, first, at what equitable damages might be awarded 'in substitution for' specific performance of PPK's obligation to issue the Second Performance Shares under cl 7.2, the approach was described in Fuller v Albert (No 3) [2021] NSWCA 226 at [23]: "Such damages are intended to put the plaintiff into a position equivalent to that in which it would have been had the contract been specifically performed. In those circumstances, the correct approach is to compare the plaintiff's position with that which would have obtained had specific performance been decreed and the contract performed. …"
Here, specific performance has had yet to ordered, where the plaintiffs have sought competing remedies and the matter was remitted for determination of the appropriate remedy. A comparison of the plaintiffs' position with that which would be obtained if specific performance is decreed and the contract performed is simple: equitable damages 'in substitution for' specific performance is $500,000.
There is no other contractual obligation which PPK may now be compelled to perform which gives a better result for the plaintiffs. As earlier mentioned, PPK did not breach the Share Purchase Agreement when it proffered a revenue calculation less than $1 million in November 2016, or did not accept Mr Flynn's competing figure of $1,002,914 in January 2017, during the flawed cl 9 process: see [93]. Mr Flynn did not even put forward the "FLP-1" revenue item, which ultimately got revenue 'over the line', until three years later: see [99]. It would have been open to PPK, at that point, to accept Mr Flynn's evidence in respect of "internal revenue" arising from the FLP-1 components, but PPK did not breach the contract by proceeding otherwise, where the cl 9 process had failed and the matter was now being determined by the Court under cl 19.5. It was not until the Court of Appeal's judgment in August 2023 that the issue was resolved in the plaintiffs' favour, giving rise to an obligation on the part of PPK to issue the Second Performance Shares, should that remedy be identified as appropriate on the remittal, of the various remedies sought.
It is not obvious what equitable compensation would be awarded in these circumstances either. The plaintiffs' submissions are based on the premise that PPK was obliged to issue the Second Performance Shares in November 2016 (having calculated revenue above $1 million) or January 2017 (having accepted Mr Flynn's calculation above $1 million). But there was no breach of obligation by PPK in either scenario. Applying commonsense views as to what loss resulted from a breach and so falls to be compensated cannot begin where there was no breach of obligation, contractual or otherwise.
Looking next at what equitable damages might be awarded 'in addition to' orders for specific performance, damages can be awarded, for example, for loss arising from the delay in performance: Ailakis v Olivero at [166]. Damages cannot be awarded for "mere delay", absent proof of damage: Hamann v Taleb [2021] NSWSC 1632 at [50]-[53] (per Lindsay J). As Darke J observed in PNC Lifestyle v REW08 Projects, "it is logical that damages in addition, for loss caused by performance occurring at a time later than that required by the contract, be assessed at the date of hearing": at [40].
There is no relevant delay in PPK's performance of its contractual obligation to issue the Second Performance Shares in accordance with cl 7.2, where the obligation to do so arises on the making of orders at the conclusion of this judgment. It is not obvious why the plaintiffs should be awarded damages 'in addition to' specific performance, or what those damages would be.

[16]

Laches

The defence of laches comprises three components: knowledge of the wrong, delay and unconscionable prejudice caused by the delay: Crawley v Short (2009) 262 ALR 654; [2009] NSWCA 410 at [163] (per Young JA, Allsop P and Macfarlan JA agreeing). In respect of the plaintiff's knowledge of the wrong, it is apparent from Mr Flynn's initial response to the NPAT Statement in November 2016, supplemented by correspondence from his accountant and solicitors in December 2016 and January 2017, that Mr Flynn was aware of facts giving rise to a cause of action against PPK at the time.
As to delay, Parker J considered a claim for the issue of shares in Nassif v Sun and observed, "the length of delay required to establish the defence of laches depends on the nature of the claim, and where the claim is to a speculative asset the margin for permissible delay is short": at [172]. There, a delay of four years was enough to bar the claim by laches.
In respect of the element of unconscionable prejudice, there must be substantial detriment, not merely a trivial inconvenience, caused by the plaintiff's delay: Duke Group Ltd (In liq) v Alamain Investments Ltd (2003) 232 LSJS 58; [2003] SASC 415 at [153] (per Doyle CJ); Bell Group Ltd (in liq) v Westpac Banking Corp (No 10) (2008) 39 WAR 1; (2008) 70 ACSR 1 at [9314] (per Owen J).
Here, the proceedings were commenced two years after the NPAT Statement was issued. The plaintiffs probably waited until PPK's share price rebounded before doing anything. The plaintiffs' hesitation is understandable; embarking on legal proceedings in the Commercial List to compel the issue of shares may not be advisable unless the shares are of sufficient value. In the meanwhile, PPK's issued share capital had expanded by share issues, contracted by buy-backs, and changed hands through numerous share trades involving third parties.
Accepting that the plaintiffs had knowledge of the wrong from an early stage, the question is whether, in all the circumstances, "it would be practically unjust to give a remedy" Crawley at [164]. As Young JA further stated at [175]: "…all three elements must be taken together and the ultimate question asked as to whether, in all the circumstances, the plaintiff has impliedly, in equity, released the defendant from his or her claim or has so acted as to make it unfair that the claim should now succeed."
I do not think that two years is sufficient delay to bar the plaintiffs' claim by laches in this case. Nor am I satisfied that there is unconscionable prejudice in the form of a substantial detriment. True it is that numerous third parties have traded in PPK shares on the basis of the issued share capital at the time of their trades. It was not suggested, however, that the issue of a further $500,000 in PPK shares to the plaintiffs would have a material effect on other shareholders, or PPK, presumably in light of the total issued share capital. Having regard to these elements, I do not think it can be said that the plaintiffs impliedly released PPK from their claim or acted so as to make it unfair that their claim should now succeed. The defence of laches is not established.

Parties

Applicant/Plaintiff:

Flynn

Respondent/Defendant:

PPK Mining Equipment Pty Ltd

Legislation Cited (2)

Supreme Court Act 1970(NSW)

Corporations Act 2001(Cth)

Cases Cited (54)

(1982) 149 CLR 337; [1982] HCA 24 Colbeam Palmer Ltd v Stock Affiliates Pty Ltd (1968) 122 CLR 25 Coulls v Bagot's Executor & Trustee Co Ltd (1967) 119 CLR 460 Crawley v Short (2009) 262 ALR 654; [2009] NSWCA 410 Davis Contractors Ltd v Fareham Urban District Council [1956] AC 696 Dempster v Mallina Holdings Ltd (1994) 13 WAR 124 Dougan v Ley (1946) 71 CLR 142 Duke Group Ltd (In liq) v Alamain Investments Ltd (2003) 232 LSJS 58; [2003] SASC 415 Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd (2017) 261 CLR 544 Evans Marshall & Co v Bertola SA [1973] 1 WLR 349 Ferguson v Wilson (1866) 2 Ch App 77 Fink v Fink (1946) 74 CLR 127 Flynn v PPK Mining Equipment Pty Ltd (No 2) [2022] NSWSC 1640 Flynn v PPK Mining Equipment Pty Ltd [2023] NSWCA 201 Fuller v Albert (No 3) [2021] NSWCA 226 Golden Strait Corp v Nippon Yusen Kubishika Kaisha [2007] 2 AC 353; [2007] UKHL 12 Haas Timber & Trading Co Pty Ltd v Wade (1954) 94 CLR 593 Hamann v Taleb [2021] NSWSC 1632 Inlon Pty Ltd v Celli SpA [2017] NSWSC 569 Jaggard v Sawyer [1995] 1 WLR 269 Jamac Construction Group Pty Ltd v De Mol Investments Pty Ltd [2014] WASC 273 Johnson v Agnew [1979] 1 All ER 883 Johnson v Perez (1988) 166 CLR 351 Koufos v C Czarnikow Ltd (The Heron II) [1969] 1 AC 350 Laundy Hotels (Quarry) Pty Ltd v Dyco Hotels Pty Ltd (2023) 407 ALR 613; [2023] HCA 6 Lindsay-Owen v HWL Ebsworth Lawyers (No 2) [2024] NSWSC 541 Lionsgate Australia Pty Ltd v Macquarie Private Portfolio Management Ltd [2007] NSWSC 371 Lucas Stuart Pty Ltd v Hemmes Hermitage Pty Ltd (2012) 28 BCL 226; [2010] NSWCA 283 Madden v Kevereski [1983] 1 NSWLR 305 Malec v JC Hutton Pty Ltd (No 2) (1990) 169 CLR 638 McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 McRae v Commonwealth Disposals Commission (1951) 84 CLR 377 Mills v Ruthol Pty Ltd; Tricon (Aust) Pty Ltd v Ruthol Pty Ltd (2004) 61 NSWLR 1; [2004] NSWSC 547 Nassif v Sun [2021] NSWSC 990 Nocton v Lord Ashburton [1914] AC 932 O'Halloran v RT Thomas & Family Pty Ltd (1998) 45 NSWLR 262 Paolucci v Makedyn Pty Ltd (2021) 20 BPR 41,749 PNC Lifestyle Investments Pty Ltd v REW08 Projects Pty Ltd (No 2) [2017] NSWSC 993 Redland Bricks Ltd v Morris [1970] AC 652 Rosenberg v Percival (2001) 205 CLR 434 Rosser v Maritime Services Board (No 2) (1998) 14 BCL 375 Smith New Court Securities Ltd v Citibank NA [1997] AC 254 The Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 TPT Patrol Pty Ltd (as Trustee for Amies Superannuation Fund) v Myer Holdings Ltd (2019) 293 FCR 29 Tullett Prebon (Australia) Pty Ltd v Purcell (2008) 175 IR 424; [2008] NSWSC 852 Walters v Northern Coal Mining Co (1855) 5 De G M & G 629 Warman International Ltd v Dwyer (1995) 182 CLR 544; 128 ALR 201 Waterways Authority of New South Wales v Coal & Allied (Operations) Pty Ltd [2007] NSWCA 276 Wenham v Ella (1972) 127 CLR 454 Wentworth v Woollahra Municipal Council (1982) 149 CLR 672 Woolworths Group Ltd v Gazcorp Pty Ltd [2022] NSWCA 19 Youyang Pty Ltd v Minter Ellison Morris Fletcher (2003) 212 CLR 484; [2003] HCA 15 Texts Cited: J W Carter, "Partial Termination of Contracts" (2008) 24 Journal of Contract Law 1 J D Heydon, M J Leeming, P G Turner, Meagher, Gummow & Lehane's Equity: Doctrine & Remedies (5th ed, 2014, LexisNexis) R E Megarry (1960) 76(302) The Law Quarterly Review P Parkinson (ed), The Principles of Equity (2nd, 2003, Lawbook Co) P Young, C Croft and M Smith, On Equity (1st ed, 2009, Thomson Reuters) N C Seddon and R A Bigwood, Cheshire and Fifoot Law of Contract (11th ed, 2017, LexisNexis) P Sparkes in "Back-dating Specific Performance" (1989) 10 The Journal of Legal History 29 ICF Spry, The Principles of Equitable Remedies: Specific Performance, Injunctions, Rectification and Equitable Damages (9th ed, 2014, Sweet & Maxwell) Category: Consequential orders Parties: Daniel Flynn (First Plaintiff) Flynfam Pty Ltd as trustee for Flynn Family Trust (Second Plaintiff) PPK Mining Equipment Pty Ltd (First Defendant) PPK Group Ltd (Second Defendant) Representation: Counsel: Mr CD Wood SC / Mr AD Justice (Plaintiffs) Mr TM Faulkner SC / Mr AJ Bulley (Defendants)

JUDGMENT

HER HONOUR: This matter has been remitted for the assessment of damages: Flynn v PPK Mining Equipment Pty Ltd [2023] NSWCA 201. In reprise, the plaintiffs, Daniel Flynn and Flynfam Pty Ltd, entered into a Share Purchase Agreement with the defendants, PPK Mining Equipment Pty Ltd and PPK Group Ltd (PPK), by which the plaintiffs sold their shares in Exlec Pty Ltd and Exlec Holdings Pty Ltd in return for cash, shares in PPK, and, subject to satisfaction of "Second Performance Conditions", further shares in PPK. The cash was paid. The first tranche of shares was transferred. It follows from the Court of Appeal's decision that the Second Performance Conditions were also fulfilled. The plaintiffs contend that they are entitled to a further 3,441,039 PPK shares, together with unpaid dividends on those shares, said to total between $4.4 million and $6.4 million.
The parties relied on their evidence and submissions at trial. The plaintiffs were content for me to assess damages notwithstanding an adverse credit finding against Mr Flynn at first instance: Flynn v PPK Mining Equipment Pty Ltd (No 2) [2022] NSWSC 1640 at [6].

Construction of cl 7.2

Turning then to the proper construction of cl 7.2 of the Share Purchase Agreement and "VWAP Price", the relevant principles are notorious, recently repeated in Laundy Hotels (Quarry) Pty Ltd v Dyco Hotels Pty Ltd (2023) 407 ALR 613; [2023] HCA 6 at [27], quoting Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd (2017) 261 CLR 544 at [16]: "It is well established that the terms of a commercial contract are to be understood objectively, by what a reasonable businessperson would have understood them to mean, rather than by reference to the subjectively stated intentions of the parties to the contract. In a practical sense, this requires that the reasonable businessperson be placed in the position of the parties. It is from that perspective that the court considers the circumstances surrounding the contract and the commercial purpose and objects to be achieved by it."
As mentioned, the circumstances surrounding the contract were industry decline and significant financial uncertainty. PPK was looking for bargains. Mr Flynn was desperate to sell. Certainty on price was, unremarkably, critical for both vendor and purchaser.
Both tranches of PPK shares were to equate to $500,000 of PPK shares. This result was achieved by different means in cl 7.1 and cl 7.2. The first tranche comprised $500,000 of PPK shares by issuing a set number of shares (666,667) at a set issue price ($0.75), where the issue price was that at which PPK shares had last traded before execution of the Share Purchase Agreement.
Clause 7.2 went about the task of ensuring that the second tranche of PPK shares equated $500,000 differently, ascertaining the number of shares by dividing $500,000 by the then share price for PPK shares. This no doubt reflected the fact the date at which the Second Performance Conditions may be fulfilled would be at least two years after Completion, to which could be added further time, ranging from days to months, to complete the cl 9 process. The price of PPK shares would likely go up or down in the meantime. The drafting protected both parties by ensuring that the vendors got their $500,000, regardless of how many PPK shares it may take to achieve that result, and the purchasers paid no more than $500,000. Applying this formula, the total value of the Second Performance Shares that PPK was obliged to issue would be worth $500,000, whether PPK's share price rose or fell after Completion and regardless of the time taken to complete the cl 9 process.
Turning to the formula more precisely, cl 7.2 and the definition of VWAP Price required PPK to issue the number of ordinary shares equal to $500,000 divided by the volume weighted average price (VWAP) of trading in PPK ordinary shares on the ASX "over the 30 days on which trading in PPK Shares took place immediately preceding (but not including) the Performance Shares Issue Date", excluding (largely) wholesale trades, and at an issue price equal to the VWAP of trading in such shares. The commercial purpose of the definition is obvious: the plaintiffs were entitled to receive, and PPK was obliged to issue, $500,000 worth of PPK shares as at the Performance Shares Issue Date. The number of shares required to achieve this result had to be based on the current share price for PPK shares, not a historical share price which provided little indication of current value.

[2024] VSC 262

[1986] HCA 81

[2003] SASC 415

[2014] WASC 273

(2005) 223 CLR 660

(1986) 1 Qd R 245

(2008) 39 WAR 1

(1986) 161 CLR 653

(1989) 168 CLR 242

(1998) 195 CLR 232

(2013) 253 CLR 1

(1982) 149 CLR 337