FX Group Holdings Pty Ltd v Perpetual Trustee Company Ltd as trustee of the CPEC 8 Trust A (formerly the CHAMP IV Trust A)

Catchwords: CORORATIONS — whether primary judge erred in failing to find it would have been a breach of s 180 of the Corporations Act 2001 (Cth) (“Act”) to retain less risk capital than recommended in two reports — whether primary judge erred in treatment of issues relating to the relationship between s 254T of the Act and regulatory capital requirements
APPEALS — whether primary judge erred in the assessment of damages
APPEALS — procedural fairness — whether breach of procedural fairness as to certain findings at first instance — whether any such breach was material

Legislation Cited: - ASIC Class Order [CO 12/752]
- ASIC Corporations (Financial Requirements for Issuers of Retail OTC Derivatives) Instrument 2022/705
Corporations Act 2001 (Cth), ss 180, 254T
- Uniform Civil Procedure Rules 2005 (NSW), r 11.8AA

Cases Cited: - Australian Securities and Investments Commission v Adler (2002) 168 FLR 253; [2002] NSWSC 171
- Australian Securities and Investments Commission v Healey (2011) 196 FCR 291; [2011] FCA 717
- Australian Securities and Investments Commission v Rich (2009) 236 FLR 1; [2009] NSWSC 1229
- Belan v Liner Freight Services Pty Ltd (1994) 10 NSWCCR 357
- Berry v CCL Secure Pty Ltd (2020) 271 CLR 151; [2020] HCA 27
- Boral Besser Masonry Ltd v Jabarkhill (1999) 19 NSWCCR 227; [1999] NSWCA 476
- Construction, Forestry, Maritime, Mining and Energy Union v Quirk (2023) 300 FCR 170; [2023] FCAFC 163
- Darwin International Airport Pty Ltd v Diah (NT) Pty Ltd [2024] NTCA 4
- Dent v R [2025] NSWCCA 43
- DSHE Holdings (recs and mgrs apptd) (in liq) v Nicholas Abboud (No 3); National Australia Bank Ltd v Nicholas Abboud (No 4) (2021) 155 ACSR 1; [2021] NSWSC 673
- DSHE Holdings Ltd (recs and mgrs apptd) (in liq) v Potts (2022) 405 ALR 70; [2022] NSWCA 165
- FX Group Holdings Pty Ltd v Perpetual Trustee Co Ltd as trustee of the CPEC 8 Trust A (formerly the CHAMP IV Trust A) (No 3) (substantive) [2025] NSWSC 1055
- FX Group Holdings Pty Ltd v Perpetual Trustee Co Ltd as trustee of the CPEC 8 Trust A (formerly the CHAMP IV Trust A) (No 5) (quantum) [2026] NSWSC 128
- Harlowe’s Nominees Pty Ltd v Woodside (Lakes Entrance) Oil Co NL (1968) 121 CLR 483
- Howard Smith Ltd v Ampol Petroleum Ltd [1974] 1 NSWLR 68; [1974] AC 821
- J and K Clothing Pty Limited v Mahmoud [2004] NSWCA 207
- JLW (Vic) Pty Ltd v Tsiloglou [1994] 1 VR 237
- Jorgensen v Fair Work Ombudsman (2019) 271 FCR 461; [2019] FCAFC 113
- Kimberley Developments Pty Ltd v Bale [2023] NSWCA 25
- McCrohon v Harith [2010] NSWCA 67
- Murdoch v Mudgee Dolomite & Lime Pty Ltd (in liq) (2022) 398 ALR 658; [2022] NSWCA 12
- New South Wales v Moss (2000) 54 NSWLR 536; [2000] NSWCA 133
- Placer (Granny Smith) Pty Ltd v Thiess Contractors Pty Ltd (2003) 196 ALR 257; [2003] HCA 10
- Residues Treatment and Trading Co Ltd v Southern Resources Ltd (No 2) (1989) 15 ACLR 770; (1989) 7 ACLC 1130
- Rossiter v Core Mining Ltd [2015] NSWSC 360
- Schindler Lifts Australia Pty Ltd v Debelak (1989) 89 ALR 275; [1989] FCA 439
- Sydney Trains v Batshon [2021] NSWCA 143
- Troulis v Vamvoukakis [1998] NSWCA 237
- Viterra Malt Pty Ltd v Cargill Australia Ltd (2023) 74 VR 1; [2023] VSCA 157
- Whittington v Newman [2024] NSWCA 27
- Willmott v Adamo [2024] NSWSC 682
- Zurich Australian Insurance Ltd v CIMIC Group Ltd (2024) 115 NSWLR 297; [2024] NSWCA 229

Category: Principal judgment

Parties: FX Group Holdings Pty Ltd (Appellant)
Perpetual Trustee Company Ltd as trustee of the CPEC 8 Trust A (formerly the CHAMP IV Trust A) (First Respondent)
PT Ltd as trustee of the CPEC 8 Trust B (formerly the CHAMP IV Trust B) (Second Respondent)
Perpetual Corporate Trust Ltd as trustee of the CPEC 8 Trust C (formerly the CHAMP IV Trust C) (Third Respondent)
The Trust Company (Australia) Ltd as trustee of the CPEC 8 Trust D (formerly the CHAMP IV Trust D) (Fourth Respondent)
David Swinden (Fifth Respondent)
Georgina Gane (Sixth Respondent)
Natalie German (Seventh Respondent)
Sheldon Chapman (Eighth Respondent)
Toby Tan (Ninth Respondent)
Vincent Gross (Tenth Respondent)
Xiaohong Yan (Eleventh Respondent)
Xingjia Zhang (Twelfth Respondent)
Daniel Poon (Thirteenth Respondent)
CPEC 8 Management Pty Ltd (Fifteenth Respondent)

Representation: Counsel:
Mr M Izzo SC / Ms C Hamilton-Jewell (Appellant)
Mr P D Herzfeld SC / Mr A G Willoughby (First to Fourth and Fifteenth Respondents)
Submitting appearance (Fifth, Eighth to Tenth and Thirteenth Respondents)
No appearance (Sixth Respondent)
No appearance (Seventh Respondent)
No appearance (Eleventh Respondent)
No appearance (Twelfth Respondent)
Solicitors:
MinterEllison (Appellant)
Arnold Bloch Leibler (First to Fourth and Fifteenth Respondents)
Webb Henderson (Fifth, Eighth to Tenth and Thirteenth Respondents)

File Number(s): 2025/396449

HEADNOTE

[This headnote is not to be read as part of the judgment]

FX HoldCo Pty Ltd (“FX HoldCo”) is the holding company of a group of companies that operate the Pepperstone business, which offers an online trading platform trading in foreign exchange, commodities, indices and contracts for difference. On 29 February 2016, Perpetual Trustee Company Ltd as trustee of the CPEC 8 Trust A (formerly the CHAMP IV Trust A) and others (“CPEC Vendors”) acquired a controlling interest in FX HoldCo and Ms Fiona Lock, who then worked with them, was appointed as chair of FX HoldCo’s board. The CPEC Vendors subsequently decided to dispose of their interest in FX HoldCo and Ms Lock negotiated to purchase that interest with vendor funding provided by the CPEC Vendors.

The issues at first instance focused on, inter alia, the proper construction of a Share Sale Agreement (“SSA”) entered into on 11 September 2018 and a rectification claim in respect of the SSA, which are now unchallenged. FX Group Holdings Pty Ltd (“FXGH”) appeals on a narrower set of issues, challenging the primary judge’s reasoning in three areas: (1) whether the directors of FX HoldCo would have breached their duties by not implementing, or not fully implementing, external consultants’ recommendations as to the amount of risk capital to be retained, so that the payment of a higher dividend was not permitted by law (grounds 22-24); (2) the quantum of loss referable to the Intervening Period (as defined) (grounds 27-31); and (3) the relationship between s 254T of the Corporations Act 2001 (Cth) (“Act”) and regulatory capital requirements, for the purposes of the SSA and in the expert evidence led in the proceedings (grounds 32-34).

The particular issues in the appeal were therefore whether the primary judge erred in:

(i) denying FXGH procedural fairness in respect of observations as to two external consultants’ reports and the purposes for which FXGH obtained them (ground 23);

(ii) failing to find that it would have been a breach of s 180 of the Act for FX HoldCo’s directors to retain less risk capital than recommended in the consultants’ reports; that FXGH was not permitted by law to procure that FX HoldCo pay higher dividends; and, accordingly, that there was no breach of cl 2.6(a) of Schedule 3 of the SSA with respect to the dividends (ground 22);

(iii) finding that FXGH had not performed its contractual obligation under cl 2.6(a) of Schedule 3 of the SSA by reason of the matters raised in grounds 22-23 (ground 24);

(iv) the assessment of damages for breach of cl 2.6(a) of Schedule 3 of the SSA (if that breach was established) and in having regard to certain correspondence between the parties (grounds 27 and 28);

(v) not assessing damages on the basis that the CPEC Vendors had alleged breaches of cl 2.6 of Schedule 3 of the SSA on the Initial Dividend Payment Dates (as defined), and in respect of the Intervening Period, not assessing damages on the basis that FX HoldCo would have retained the amount of capital that it in fact retained on those dates (ground 29);

(vi) denying procedural fairness in the assessment of damages (ground 30);

(vii) accepting a counterfactual that FX HoldCo would have retained the greater of the amount of the Agreed Assets (as defined) or $20 million on each Trigger Time (as defined) in the Intervening Period, with the balance to be distributed as dividends (ground 31);

(viii) finding at FX Group Holdings Pty Ltd v Perpetual Trustee Co Ltd as trustee of the CPEC 8 Trust A (formerly the CHAMP IV Trust A) (No 5) (quantum) [2026] NSWSC 128 (“QJ”) [88] that the phrase “to the extent permitted by law” contained in the SSA required consideration only of the amounts necessary to satisfy the requirements of s 254T of the Act (ground 32);

(ix) not finding that the phrase “to the extent permitted by law” required consideration of both the amounts necessary to satisfy the requirements of s 254T of the Act and the amounts of regulatory capital required by law to be retained pursuant to relevant instruments, in the sense the two should be added together (ground 33); and

(x) finding at FX Group Holdings Pty Ltd v Perpetual Trustee Co Ltd as trustee of the CPEC 8 Trust A (formerly the CHAMP IV Trust A) (No 3) (substantive) [2025] NSWSC 1055 (“PJ”) [467] and [473] and QJ [66] that the risk capital range was inclusive of regulatory capital (ground 34).

The Court (Black J, Adamson and McHugh JJA agreeing) held, allowing the appeal in part:

As to issues (i*)-(iii) (per Black J, Adamson and McHugh JJA agreeing)*

(1) The alleged breach of procedural fairness was not material in the circumstances and the determination of the issues in contest between the parties on appeal is appropriate: [72]–[85].

Kimberley Developments Pty Ltd v Bale [2023] NSWCA 25; Sydney Trains v Batshon [2021] NSWCA 143; Murdoch v Mudgee Dolomite & Lime Pty Ltd (in liq) (2022) 398 ALR 658; [2022] NSWCA 12; Whittington v Newman [2024] NSWCA 27, applied

Construction, Forestry, Maritime, Mining and Energy Union v Quirk (2023) 300 FCR 170; [2023] FCAFC 163, considered.

(2) FXGH has not established that FX HoldCo’s directors could not have done anything other than adopt the recommendations made in the consultants’ reports as to the additional risk capital that Pepperstone should retain beyond that which was required to comply with the regulatory capital requirements, so as to have permitted a higher dividend lawfully to be paid. There were several alternatives properly available to FX HoldCo’s directors other than to implement those reports “as is” and more or less immediately after they were considered, which would have increased or potentially increased the dividends payable by FX HoldCo; and those steps would not have been in breach of s 180 of the Act: [87]–[111].

Australian Securities and Investments Commission v Rich (2009) 236 FLR 1; [2009] NSWSC 1229; Harlowe’s Nominees Pty Ltd v Woodside (Lakes Entrance) Oil Co NL (1968) 121 CLR 48; Howard Smith Ltd v Ampol Petroleum Ltd [1974] 1 NSWLR 68; [1974] AC 821; DSHE Holdings (r**ecs and m**grs apptd) (i**n liq) v Nicholas Abboud (No 3); National Australia Bank Lt**d v Nicholas Abboud (No 4) (2021) 155 ACSR 1; [2021] NSWSC 673, applied

Australian Securities and Investments Commission v Adler (2002) 168 FLR 253; [2002] NSWSC 171; Australian Securities and Investments Commission v Healey (2011) 196 FCR 291; [2011] FCA 717, considered

(3) The allegation in ground 24 is consequential upon grounds 22 and 23 of the appeal and cannot succeed where ground 22 has failed and ground 23 as to procedural fairness was not material: [112].

As to issues (iv)-(vii) (per Black J, Adamson and McHugh JJA agreeing)

(4) As to grounds 27 and 28, QJ [74] does not contain the error which FXGH attributes to the primary judge and is an orthodox account of the principles applicable to the assessment of damages. The primary judge’s wider reasoning also rightly sought to quantify the damages arising from the relevant breaches: [136]–[137].

(5) The primary judge rightly assessed damages on the basis that the CPEC Vendors had alleged breaches of cl 2.6(a) of Schedule 3 of the SSA as at the Initial Dividend Payment Dates. There was no basis for the primary judge to make the suggested assumption that FX HoldCo retained the amount of capital that it in fact retained in the Intervening Period: [138]–[139].

(6) There was no breach of procedural fairness in the assessment of damages. Any confusion as to whether the CPEC Vendors were alleging breaches of cl 2.6(a) of Schedule 3 of the SSA in respect of Trigger Dates in the Intervening Period was resolved before the quantum hearing and both parties had the opportunity to seek to lead evidence as to this issue if they wished: [140].

(7) As to ground 31, the Court could not assume that, notwithstanding evidence of changes in the scale of Pepperstone’s business and issues as to its performance in the Intervening Period, the amount of capital that would properly be retained by Pepperstone on Trigger Times in the Intervening Period would be the same as it was at the earlier Trigger Times. On this basis, FXGH’s appeal as to the second issue is allowed: [141]–[150].

As to issues (viii)-(x) (per Black J, Adamson and McHugh JJA agreeing)

(8) The primary judge did not err in her consideration of the phrase “to the extent permitted by law”. Her Honour had rightly recognised that that term might require reference to other obligations, including those imposed under s 912A of the Act and on FX HoldCo’s directors under s 180 of the Act: [160].

(9) Once it is found that the payment of a dividend, after FX HoldCo retains capital of $20 million, meets both the requirements of ASIC Corporations (Financial Requirements for Issuers of Retail OTC Derivatives) Instrument 2022 and notional s 912AB of the Act and the requirements of s 254T of the Act, ground 33 of the appeal must fail: [161]–[178].

(10) The primary judge did not err in her understanding of the evidence of the risk capital expert on whose evidence the CPEC Vendors relied. That evidence was directed to the total amount of capital that FX HoldCo should retain in order to comply with s 254T of the Act and necessarily included all forms of capital that should be retained for that purpose, whether characterised as regulatory capital, risk capital or any capital that was required to be retained for that purpose: [179]–[180].

JUDGMENT

1. ADAMSON JA: I agree with Black J.

2. MCHUGH JA: I agree with Black J.

3. BLACK J: By its Second Further Amended Notice of Appeal filed on 12 August 2026, the Appellant, FX Group Holdings Pty Ltd (“FXGH”) appeals from orders made in a Cross-Claim brought by Perpetual Trustee Company Ltd as trustee of the CPEC 8 Trust A (formerly the CHAMP IV Trust A) and others (“CPEC Vendors”) against, inter alia, FXGH. Those orders were made for the reasons set out in, relevantly, a primary judgment delivered on 18 September 2025 (FX Group Holdings Pty Ltd v Perpetual Trustee Co Ltd as trustee of the CPEC 8 Trust A (formerly the CHAMP IV Trust A) (No 3) (substantive) [2025] NSWSC 1055) (“Primary Judgment” or “PJ”) and a further judgment as to quantum delivered on 27 February 2026 (FX Group Holdings Pty Ltd v Perpetual Trustee Co Ltd as trustee of the CPEC 8 Trust A (formerly the CHAMP IV Trust A) (No 5) (quantum) [2026] NSWSC 128) (“Quantum Judgment” or “QJ”).

4. The issues at first instance included substantial issues as to the proper construction of a Share Sale Agreement (“SSA”) entered into on 11 September 2018 and a rectification claim in respect of the SSA. Those issues do not arise on appeal, and the issues on appeal were further narrowed when FXGH did not press several grounds of appeal which were raised by its Second Further Amended Notice of Appeal. The primary judge’s findings about the largest and most complex issues in the case before her are now unchallenged.

5. This appeal focusses on challenges to the primary judge’s reasoning in three areas:

6. whether the directors of FX HoldCo would have breached their duties by not implementing, or not fully implementing, external consultants’ recommendations as to the amount of risk capital to be retained, so that the payment of a higher dividend was not permitted by law (grounds 22-24);

7. the quantum of loss referable to the Intervening Period (grounds 27-31); and

8. the relationship between the regulatory capital requirements and s 254T of the Corporations Act 2001 (Cth) (“Act”), for the purposes of the SSA and in the expert evidence led in the proceedings (grounds 32-34).

Factual background

6. I first turn to the factual background to the proceedings. FX HoldCo Pty Ltd (“FX HoldCo”) is the holding company of a group of companies (including Pepperstone Group Ltd) that operate the Pepperstone business, which offers an online trading platform trading in foreign exchange, commodities, indices and contracts for difference. The parties conducted the proceedings at first instance and on appeal on the basis that there was no need to distinguish between regulatory and risk capital requirements of the Pepperstone business, Pepperstone Group Ltd and the Pepperstone group of companies (to which I will refer as “Pepperstone”), and of FX HoldCo.

7. On 29 February 2016, the CPEC Vendors acquired a controlling interest in FX HoldCo and Ms Fiona Lock, who then worked with them, was appointed as chair of FX HoldCo’s board. The CPEC Vendors subsequently decided to dispose of their interest in FX HoldCo and Ms Lock negotiated to purchase that interest with vendor funding provided by the CPEC Vendors. On 2 September 2018, Ms Lock signed a Heads of Agreement providing for her (or an entity nominated by her) to purchase the CPEC Vendors’ interest in FX HoldCo.

The SSA

8. On 11 September 2018, FXGH and the CPEC Vendors executed the SSA and an Amending Deed to the SSA was entered between FXGH and the CPEC Vendors on 20 November 2018. By cl 4.1 of the SSA, the CPEC Vendors agreed to sell the Sale Shares (as defined) to FXGH and FXGH agreed to buy those shares on the terms set out in the SSA. The term “Sale Shares” includes both ordinary shares and preference shares owned by the CPEC Vendors. Clause 5.1 provided that the amount payable by FXGH for the Sale Shares is the Purchase Price (as defined). The term “Purchase Price” is defined as the amount of $177,996,842 plus any “Uplift Payment” payable by FXGH in accordance with cl 10 of the SSA.

9. Broadly, the SSA provided for a profit-sharing arrangement between the CPEC Vendors and FXGH, after the amount of vendor finance for the purchase (which I address below) and interest had been repaid, and required FXGH to procure that FX HoldCo make quarterly distributions to shareholders including FXGH, when it held cash exceeding a specified amount and “to the extent permitted by law”. Specifically, cl 10.1 of the SSA provided that:

“Each time [FXGH] or any affiliate of [FXGH] receives Equity Proceeds … (each, a “Trigger Time”):

(a) [FXGH] must calculate the Uplift Amount and notify the [CPEC] Vendors of the Uplift Amount, in each case within 3 Business Days of the relevant Trigger Time, together with full details of the calculation of the Uplift Amount; and

(b) If the Uplift Amount is greater than zero, [FXGH] must pay to the [CPEC] Vendors (in their Respective Proportions) in cash, an amount equal to the Uplift Amount in respect of those Equity Proceeds (each, an “Uplift Payment”) less 100% of any Fee Amount within 5 Business Days of the relevant Trigger Time.”

10. Clause 10.2 in turn provided for the calculation of the “Uplift Amount”. The term “Equity Proceeds” was defined in broad terms as any amounts received (whether directly or indirectly) by FXGH, or any affiliate of it in connection with FX HoldCo, or any affiliate of FX HoldCo including by way of dividend or other distribution. There is no issue on appeal as to a construction question which received substantial attention at first instance, as to how Equity Proceeds were to be calculated for the purpose of that arrangement.

11. Schedule 3 of the SSA set out certain undertakings, and cl 2.6 of that Schedule relevantly required:

“2.6 Distributions

(a)… for each calendar quarter … [FXGH] must, to the extent permitted by law for that period, procure that the FX Holdco Group Members distribute to the shareholders of FX HoldCo … whether by dividend or other form of distribution, all cash … exceeding the Agreed Assets at the time of the distribution.”

12. The term “FX Holdco Group” is defined by reference to cl 1 of Schedule 1 of the Vendor Loan Note Deed Poll as FX HoldCo and its subsidiaries, and “FX Holdco Group Member” means any of such entities. The term “Agreed Assets” is defined in cl 1.1 of the SSA as the aggregate of the assets required to ensure that the Group complies with the Net Tangible Assets (NTA) Requirements and the Buffer Amount. The term “NTA Requirements” is defined in the SSA as the requirements set out in notional s 912AB(4)-(5) as declared in cl 4 of ASIC Class Order [CO 12/752], which was remade by ASIC in September 2022 as ASIC Corporations (Financial Requirements for Issuers of Retail OTC Derivatives) Instrument 2022/705 (“2022 Instrument”), without changing the amount of the NTA that was required to be held by a relevant licensee. It was common ground at the trial and on appeal that the reference to ASIC Class Order [CO 12/752] in the definition of “NTA Requirements” should now be read, under cl 1.2 of the SSA, as a reference to the 2022 Instrument. The “Buffer Amount” is $10 million, absent agreement to adjust that amount.

13. Completion under the SSA occurred on 28 November 2018 and FXGH then acquired the shares in FX HoldCo from the CPEC Vendors and also issued loan notes under a Vendor Loan Note Deed Poll. Broadly, the Vendor Loan Note provided for the vendor loan for FXGH’s purchase of the CPEC Vendors’ shares in FX HoldCo to be repaid from quarterly distributions which FXGH received from FX HoldCo. That loan was repaid by 5 May 2022 with interest.

14. On 10 May 2022, FXGH issued an Uplift Payment Notice under the SSA showing a negative figure of $117,436,537.67, based on a view of the construction of the SSA which was rejected by the primary judge and is not pressed on appeal. A dispute between the parties subsequently arose in respect of that matter.

Pepperstone’s determination of the amount of risk capital to be retained

Pepperstone’s internal review of the amount of risk capital to be retained

15. On 18 October 2022, FXGH commenced proceedings in respect of that dispute. As noted by the primary judge (PJ [376]), on 18 October 2022, the same day as the proceedings were commenced by FXGH, Ms Lock emailed others within the Pepperstone business suggesting an update of a risk capital paper to increase Pepperstone’s risk capital buffer to $50 million. Three days later, on 21 October 2022, Pepperstone management prepared an internal Risk Capital Review (Supp Blue 1/42) for the board of FX HoldCo which recommended an increase in the capital in the Pepperstone business, which would reduce the amount of the dividends payable to the CPEC Vendors and other shareholders in FX HoldCo.

16. As noted by the primary judge (PJ [377]), by email dated 25 October 2022, Mr Davenport, another director of FX HoldCo, recognised a possible connection between FXGH’s and Ms Lock’s commercial objectives in the proceedings commenced by FXGH and the recommendation to seek an additional cash buffer, observing that:

“I understand your desire to hold more capital in the business. However I feel that your timing and proposed solution is more related to your current dealings with CHAMP and this is not in the best interest of the shareholders or the company.

This has been an overhanging issue for some time. During this time the company proposed and agreed (with board approval) to huge spending increases, with sponsorship of the tennis and embarking on a technology infrastructure project. If the capital issue was a real matter of concern then it should have been addressed in relation to these projects and not now that you are on the verge of a personal battle with CHAMP which will be connected to distributions.

Generally I am in favour of an increase in capital held within the business, to withstand market shocks, however to suggest this now, having happily increased spend elsewhere, is contrived in my opinion.”

17. By email dated 1 November 2022, Ms Lock circulated a revised Risk Capital Review paper prepared by Pepperstone management, taking into account input and discussion at a meeting the previous week. The Risk Capital Review prepared by Pepperstone management which was attached to Ms Lock’s email referred, in its executive summary, to an increase in market volatility and changes in client and trading dynamics in the Pepperstone group, with a material increase in the frequency of high value at risk trading books that Pepperstone was tasked to manage and noted:

“… an internal review has been undertaken to assess what [Pepperstone] should hold as liquid assets relative to the current cash balances and quarterly distribution requirements.

Three methods have been used by management to provide a range of outcomes for considering the appropriate level of liquid assets, taking into account current internal and external factors.”

18. The executive summary also noted that:

“The internal methods are both at the bottom end of this range, while the external benchmark with listed peers is the high end of the range.”

19. The executive summary then quantified the suggested additional capital in a wide range between $16.4 and $62.8 million and identified three methods which had been adopted to determine that outcome, with the first (described as “maximum (actual) cumulative loss” with adjustments giving rise to an additional cash requirement between $16.4 and $28.9 million; the second (described as “competitive benchmarking”) giving rise to a much larger requirement of $62.8 million, and the third (described as “internal black swan analysis”) giving rise to an additional requirement of $26.8 million.

20. On 2 November 2022, Mr Davenport responded to Ms Lock, copied to others that:

“This reads much better to me. I think that most of us have a reasonable number in our heads for what the capital buffer should be (30-40m), this being based on our experience within the business and your below work. Given that we are on the same page on this, should we add our board proposed buffer and reasoning to the end of the report?

Personally I don’t really trust Rochford to come up with a sensible number. While they have done work on the business in the past I found that they didn’t really understand the true nature of the business and our client book. I would rather they reviewed the work, methods and commented on our proposed buffer number than giving them a blank slate.”

21. It appears from this response that at least Mr Davenport considered that FX HoldCo’s directors had the experience necessary to reach their own assessment of the risk capital required in the business. The reference to “Rochford” was to the first of the experts which Pepperstone or FX HoldCo retained to review its risk capital level. It appears that Mr Davenport must have later overcome his concern as to whether Rochford had the capacity to derive a “sensible number” from their work, since he later joined in accepting their recommendation. Plainly, Mr Davenport also believed that a “review” engagement was likely to have the practical effect of confining an expert’s analysis and avoiding the risk of a “blank slate”, and that was the basis on which experts were subsequently engaged.

Rochford’s review of Pepperstone’s internal review

22. Pepperstone initially engaged Rochford to undertake a review of the result of the Risk Capital Review performed by Pepperstone management. By a letter dated 10 November 2022, Rochford recorded its engagement and noted that Pepperstone had asked Rochford to evaluate specified matters, namely:

“• Integrity of Data and Calculations

• Appropriateness of the associated methodology

• Validation of the review conclusions

• Required liquidity buffer

• Composition of liquidity stack.

• Potential errors or omissions in the analysis

• Peer Group comparisons

• Risks of a liquidity squeeze

Consequences of liquidity squeeze, and compliance with regulatory capital requirements.”

That approach was consistent with Mr Davenport’s earlier preference that Rochford be asked to review Pepperstone management’s work rather than be allowed a “blank slate”.

23. On 1 December 2022, the CPEC Vendors brought a Cross-Claim against, inter alia, FXGH in the first instance proceedings, and matters arising from that Cross-Claim are now in issue in the appeal.

24. By its report titled “Pepperstone Capital Adequacy Review” dated January 2023, Rochford noted that it had been requested to evaluate Pepperstone management’s internal “Risk Capital Review” paper to determine Pepperstone’s “appropriate liquidity buffer” to ensure specified matters, including “compliance with regulatory capital requirements”, sufficient liquidity in Pepperstone’s two trading books and “warehoused liquidity for operating expenses and trapped cash at clearing brokers”. Rochford recommended that Pepperstone create a total liquidity requirement (“TLR”) stack, comprising a “Black Swan requirement” for its S trading book, a value at risk (“VaR”) buffer for its X trading book and a liquidity buffer for operating expenses in a range of $29.2 million to $64.5 million.

25. By way of explanation, the expert evidence at first instance was that Pepperstone’s S trading book and X trading book were two separate trading books which it managed in different ways. Pepperstone externally hedged the nett trading position in its S trading book in full. It did not externally hedge the trading position in its X trading book, and all trades in that book were “internalised” and matched against each other where possible; the residual net open position (“NOP”) in that book was managed within risk limits; and any excess above risk limits in that book was then moved into the S trading book, where it would then be hedged. The reference to a “VaR buffer” appears to have been to additional risk capital retained by Pepperstone against an adverse change in the X trading book’s VaR, which is a risk management measure reflecting the maximum potential loss of an investment or portfolio over a set time horizon under normal market conditions. The reference to a “Black Swan requirement” appears to be to a capital reserve maintained against the risk of a “Black Swan” event affecting that book, in the common usage of that term to refer to an event that was outside normal expectations and which had a large financial impact.

26. Rochford also observed that:

“Rochford recommends prompt adherence to the minimum TLR of $29.2m and aligning dividend/distribution/investment policies to the liquidity position of [Pepperstone] within the TLR range. For example, dividends only payable if compliant with the minimum level TLR post dividend payment.”

Rochford there preferred the third of the potential methodologies, the “internal book risk assessment”, to a historical cash requirement or competitive benchmarking methodology and noted that its preferred methodology calculates the liquidity requirement by “stress testing the two trading books … in Black Swan scenarios”.

27. Pepperstone management subsequently prepared a summary note for FX HoldCo’s board meeting for January 2023 which recorded that:

“Having regard to current market conditions and the continuing evolution of the business, Pepperstone prepared an internal Risk Capital Paper in November 2022. It was agreed at the Board to engage Rochford to review and prepare a report on the required level of risk capital for Pepperstone Group (the “Company”).

Rochford have provided advice to Pepperstone previously around market risk management and as such are familiar with Pepperstone’s business model. Further, Rochford are an advisory firm who specialise in assessing financial market risk, reducing the impact of market volatility with the objective of protecting earnings and increasing stakeholder value. Rochford are a niche advisory firm uniquely placed to understand, analyse and advise Pepperstone on its market risk and capital management requirements.

Rochford have completed their review and recommended a method to calculate the required risk capital, based on the liquidity requirement under Black Swan scenarios in Pepperstone’s two trading books (STP and X Books) plus an allowance for operating expenses. Based on modelling moderate to worse case assumptions, Rochford calculated the required risk capital to be between AUD26.2m to AUD64.5m, over and above regulatory capital.”

28. The summary note also referred to Rochford’s summary and highlighted variables involved in the calculation, including whether the VaR buffer for the X trading book was calculated to a minimum 95% VaR or a target/high end 99.95% VaR; a potential variation in the S trading book price gap buffer between USD100m and USD200m in the NOP (being average and high end respectively); and overhead coverage for 4 weeks and 12 weeks. It appears the lower end of Rochford’s recommendation, which was adopted by FX HoldCo’s board at its meeting, reflected the lower of these values.

29. The primary judge noted the preparation and delivery of the Rochford report (PJ [380]) and observed that:

“In January 2023, Ms Lock provided comments on a draft Rochford report, which was finalised on 27 January 2023, entitled “Pepperstone Capital Adequacy Review 2023.” Rochford had evaluated the internal Risk Capital Review paper and determined Pepperstone’s appropriate liquidity buffer to ensure compliance with regulatory capital requirements and sufficient liquidity to tolerate market losses and price gap risks, as well as liquidity for operating expenses and trapped cash at clearing brokers. Rochford recommended that Pepperstone create a Total Liquidity Requirement (TLR) Stack, in addition to regulatory capital, of between $29.2 million and $64.5 million.”

30. The minutes of a meeting of FX HoldCo’s board commencing on 31 January 2023 referred to Pepperstone’s previous review of the sufficiency of risk capital held by Pepperstone and observed that the Risk Review comprised:

“● internal analysis of internal and external risk factors that impact on the risk [Pepperstone] may not have adequate financial resources, and whether, going forward, there is a need for [Pepperstone] to maintain financial resources beyond its licensed entities’ minimum capital requirements to manage that risk;

● an independent third party review of that analysis conducted by external specialists at Rochford (Rochford Report); and

● [redacted item].”

31. The minutes then noted the Rochford report and observed that:

“● failure to hold additional recommended capital consistent with external professional advice could involve a breach of [Pepperstone’s] risk management requirements under the laws applicable to its licensed business;

● the directors must exercise reasonable care and diligence to ensure that the payment of a dividend by [FX HoldCo] does not cause, or fail to prevent, a contravention of regulatory and risk management requirements applicable to [Pepperstone] and the requirements of sections [sic] 254T of the Corporations Act [2001 (Cth) (“Act”)]; and

● if the decision of the Board is to adopt the Rochford Report recommendation for a minimum TLR of A$29.2m and only to distribute cash in excess of the recommended minimum TLR, the cash available to distribute to shareholders is A$848,407.98.

It was further noted by [Ms Lock] and [Mr Szabo] that [FX HoldCo’s] majority shareholder [FXGH] requires, to the extent [FX HoldCo] distribute to the shareholders of [FX HoldCo] all cash that does not form part of the agreed $10m regulatory capital buffer for the business.”

32. The board then resolved to engage a second external specialist firm, ultimately KPMG, to consider specified matters and, pending receipt of that firm’s report, to adhere to a minimum TLR of $29.2m. The board in turn resolved to pay a lesser interim dividend on that basis.

33. The primary judge addressed the review of the Rochford report at that board meeting (PJ [381]) and observed that:

“A report was prepared for the Pepperstone board meeting on 31 January 2023. The meeting was chaired by Ms Lock and attended by fellow directors Mr Szabo and Mr Davenport. [FX HoldCo] resolved to engage a second external specialist firm to consider the matter but, pending receipt of that report, to maintain a minimum total liquidity requirement (TLR) of $29.2 million. As a consequence, on 3 February 2023, the dividend declared by [FX HoldCo] was reduced to a mere $848,408. This was recorded in the Notice of Uplift Amount issued by Ms Lock on 8 February 2023 to Mr Stevenson, who was suitably unimpressed. Presumably, all of this was intended to bring pressure to bear on the Investor.”

34. FXGH contends on appeal that it was deprived of procedural fairness as to at least the last of those observations, and I will address that matter below.

35. The primary judge also addressed these matters in her subsequent judgment as to quantum (QJ [46]), observing that:

“Outside the contractual mechanism, on 31 January 2023, [FX HoldCo] resolved to maintain a minimum total liquidity requirement (TLR) of $29.2 million having regard to a report obtained from financial advisory firm, Rochford Capital. This increased [FX HoldCo’s] capital reserves substantially from $17,685,842. The dividend declared by [FX HoldCo] on 3 February 2023 was reduced accordingly, from $12,337,963 to $848,408. This dividend was recorded in a Notice of Uplift Amount issued on 8 February 2023.”

Pepperstone’s engagement of KPMG

36. On 1 March 2023, KPMG were engaged to provide a second report to “validate the models and the Total Liquidity Requirement (TLR) Stack (in addition to regulatory capital) recommended in the Rochford report”. By letter dated 14 March 2023, KPMG recorded the scope of its engagement by FX HoldCo as follows:

“Your board has reviewed the internal and external risk factors that contribute towards the risk that [Pepperstone] may not have adequate financial resources. You would like to validate whether there is a need for [Pepperstone] to maintain financial resources beyond its licensed entities minimum capital requirements to manage that risk, and if so, the recommended minimum total liquidity requirements for [Pepperstone].

You have already received advice on capital adequacy from Rochford Group (Rochford) but would like to validate the models and Total Liquidity Requirement (TLR) Stack (in addition to regulatory capital) recommended in the Rochford Report.

The scope of the Engagement is agreed as follows:

● Assess the validity of the models used by Rochford in their recommended TLR Stack, their underlying theories and assumptions;

● Assess the calibration of the VaR model by examining input data, length of data series and model assumptions. In addition, deploy advanced statistical techniques to determine the accuracy and robustness of VaR-based model forecasting using, if possible, supplementary estimation methods;

● Assess the calibration of the price gap model by examining input data, length of data series, and model assumptions;

● Review the level of liquidity required for operating expenses; and

● Assess veracity of capital adequacy and back testing.”

37. On 11 April 2023, the CPEC Vendors amended their Cross-Claim in the first instance proceedings to challenge FXGH’s failure to procure the payment of higher dividends by FX HoldCo, as a result of the increased capital that had now been retained by FX HoldCo.

38. On 3 May 2023, FX HoldCo’s board resolved that, pending receipt of KPMG’s report, Pepperstone continue to maintain a minimum TLR of $29.2 million and proposed dividends be declared on that basis and, on 5 May 2023, FX HoldCo declared dividends on that basis.

39. On 7 June 2023, KPMG delivered its report. A covering letter in that report recorded that:

“On the evidence available to us, the range of capital that Rochford has suggested to you seems reasonable. Our estimates indicate that levels of capital below this range would be inconsistent with the risk tolerances which you use and which are conventional in the financial industry. But we have found some limitations in the method of capital calculation. These limitations indicate that a true risk-based capital requirement would be nearer the upper end of the capital range which Rochford has recommended to you. The exact amount of capital that you require will depend partly on your board’s appetite for risk and the working capital requirements of your operations.” [emphasis added]

40. Mr Izzo SC, with whom Ms Hamilton-Jewell appeared for FXGH in this Court and in the Court below, sought to read down the italicised statement in submissions. However, it seems to me that KPMG there properly recognised that, where Pepperstone was already complying with the regulatory requirements under the 2022 Instrument and notional s 912AB of the Act, the amount of additional risk-based capital that it should retain beyond that which was required to comply with those requirements ultimately depended on FX HoldCo’s risk appetite, which was necessarily a commercial matter for FX HoldCo’s directors. While expert advice, such as that obtained by FX HoldCo from Rochford and KPMG, would likely assist the directors in reaching their view as to that question, it could not determine that question.

41. The executive summary to KPMG’s report in turn noted that ASIC’s capital requirements (implicitly under the 2022 Instrument) were generally “too simple and too insensitive” from a risk-based perspective and that KPMG:

“have therefore considered the capital that would be necessary to protect against tail risks arising from market movements, taking Rochford’s approach as a starting point. We have also considered your ability to control business expenses.”

42. KPMG expressed the view that, on that basis, the “appropriate” level of risk capital required for Pepperstone’s business was “toward the upper end of the range previously supplied to you by Rochford” and observed that:

“Rochford’s estimates of capital required to cover price gap risk and operating expenses both appear to be reasonable. Our estimates indicate that levels of capital below this range would be inconsistent with the risk tolerances which you use and which are conventional in the financial industry. We did not have access to models, positions, and data, but believe that the VaR component could be understated, if some allowance is made for the full range of potential outcomes that might have been observed. In addition, we have identified other limitations in the VaR model which, although not quantifiable, increase the risk of understatement of VaR. They include a lack of modelling of fat tails in price probability distributions and lack of testing and documentation.”

43. KPMG also addressed the manner in which Pepperstone measured price gap risk and observed that using “more conservative scenarios would raise your capital levels well beyond the current operating range”, although KPMG then observed that it did not regard those alternative scenarios as necessary. KPMG then went on to repeat the proposition, which Mr Izzo again sought to read down, that the amount of capital that was required was a matter for the board as to the level of risk to be carried by FXGH, observing that:

“The amount of capital that you require will ultimately depend, not only on these considerations, but on the board’s risk appetite and the growth of your business. To assist you in reaching a specific determination, we have tabled our estimates below. The results are presented as a range, and it would be reasonable to interpret them as suggesting that quantitative considerations direct you toward the upper end of the range previously suggested to you by Rochford. Put differently, the range suggested to you by Rochford is consistent with your risk tolerances and those that we commonly observe being used by other financial institutions. Given the confidence levels you apply, there are no reasons for lowering the level of capital below the range suggested by Rochford.” [emphasis added]

44. The balance of KPMG’s conclusions depend upon the inputs which were adopted, including the data which they used, as qualified by the models, positions and data to which they indicated they had not had access. That is a significant matter, so far as expert evidence led in the first instance proceedings and accepted by the primary judge reached a significantly different conclusion, in determining the amount of the dividend that could be paid in compliance with s 254T of the Act, by reference to a longer data period and other differences of approach.

45. KPMG then expressed the view that their recommended TLR stack was $32 million, by comparison with Rochford’s lower end figure of $29.2 million; and their upper end was $69.9 million, by comparison with Rochford’s upper end of $64.5 million. Their report provided a detailed exposition of those conclusions, referring, inter alia, to the way in which the total liquidity requirement stack was derived, the testing approach which KPMG had adopted, their analysis of the “price gap model” in Pepperstone’s S trading book and their analysis of the VaR model applied to Pepperstone’s X trading book and to operating expenses. For completeness, Mr Izzo drew attention to the qualifications of those at KPMG who prepared the KPMG report and there is no reason to doubt the adequacy of those qualifications.

The claim by the CPEC Vendors for alleged breach by FXGH of cl 2.6(a) of the SSA

46. By its Further Amended Commercial List Cross-Claim Statement subsequently filed on 20 June 2023, the CPEC Vendors pleaded a “capital retention” claim in reliance on cl 2.6(a) of Schedule 3 of the SSA (to which I referred above) and pleaded that FX HoldCo’s board resolved on or about 3 February 2023 to increase FX HoldCo’s capital reserves to $29,175,397 and to retain such part of the dividends that would otherwise be available for distribution by FX HoldCo to FXGH in the calendar quarter ending 31 December 2022 to fund that increased capital. The CPEC Vendors there pleaded that the increased amount of capital reserve that FX HoldCo had resolved to retain exceeded the sum of the Agreed Assets and the amount of cash in addition to the Agreed Assets that Pepperstone was “strictly obliged by law to retain”, for the purposes of cl 2.6(a) of Schedule 3 to the SSA, and that FXGH had breached cl 2.6(a) of Schedule 3 to the SSA in consequence. That pleading raised the question that was addressed at first instance, and now on appeal, as to whether the limitation relating to amounts that FX HoldCo was obliged by law to retain applied in the relevant circumstances.

47. FX HoldCo’s board considered KPMG’s report at a further board meeting on 4 July 2023, again noting that the growth in FX Group’s book and increasingly volatile market conditions had prompted an assessment of the Group’s risk exposure and referring to the Rochford report. The board minutes summarised KPMG’s conclusions as follows:

“In its report, KPMG determined that:

● the range of capital that Rochford suggested seems reasonable;

● qualitative considerations encourage [FX HoldCo] to set levels of capital nearer to the top of the range that Rochford has suggested; and

● levels of capital below the range recommended by Rochford would be inconsistent with risk tolerances which [FX HoldCo] use and which are conventional in the financial industry.

Nonetheless, KPMG identified some limitations in the method of capital calculation – some data inaccuracies in the S-Book price gap data, and a less accurate, out of date VaR approach being used which understates tail risk.

Correcting for these limitations, KPMG recommended an adjusted TLR in the range between $32.0M and $69.9M.”

48. The board also considered whether to adopt a “Monte Carlo” measurement of VaR as recommended by KPMG and tasked management to investigate that matter. Reflecting the terms of the SSA, the board noted that FXGH “requires, to the extent permitted by law, that [FX HoldCo] distribute to the shareholders of [FX HoldCo] all cash that does not form part of Reg Cap+ 10”. The board then noted a number of matters as to the level of capital retained by FX HoldCo and adopted similar reasoning to that adopted at the previous board meeting in respect of the Rochford report, observing that:

“● failure to hold additional recommended capital consistent with external professional advice could involve a breach of [Pepperstone’s] risk management and risk capital requirements under the laws applicable to its licensed business;

● the directors must exercise reasonable care and diligence to ensure that the payment of any dividend by [FX HoldCo] does not cause, or fail to prevent, a contravention of regulatory and risk management requirements applicable to [Pepperstone] and the requirements of sections [sic] 254T of the [Act].”

49. The board also noted that, obviously enough, distributions to shareholders would be (I interpolate, adversely) impacted if the board adopted KPMG’s recommendation. The board then determined to adopt a minimum TLR of $32 million and also considered additional buffers above that minimum TLR, and resolved that:

“the Group adhere to a minimum TLR of A$32.0M and align relevant policies (such as dividend, distribution and investment) according to the minimum TLR;

on receipt of the management accounts for June 2023, and taking into account the revised minimum TLR of A$32.0M, the Board consider and determine whether or not distributions may be available to be made to shareholders.”

50. On 3 August 2023, FX HoldCo declared lower dividends by reference to that increased total liquidity requirement adopted following the KPMG report.

51. The primary judge also addressed the engagement of KPMG, the next payment of dividends and the content of the KPMG report and subsequent events (PJ [382]–[383]), observing that:

“In March 2023, Ms Lock engaged KPMG to provide a second report for the Pepperstone group. KPMG was asked to validate the models and TLR Stack, in addition to regulatory capital, that had been recommended in the Rochford report. In May 2023, the Company declared reduced dividends for the same reasons. The meeting was chaired by Ms Lock and attended by fellow directors Mr Szabo and Mr Davenport. Ms Lock also issued a Notice of Uplift Amount to Mr Stevenson, based on her previous methodology.

By June 2023, KPMG had produced its Capital Adequacy Review, recommending that the buffer be increased to between $32 million and $69.9 million. On 4 July 2023, the Company resolved to increase the TLR to a minimum of $32 million, having regard to KPMG’s report. The meeting was chaired by Ms Lock and attended by Mr Davenport. On 2 August 2023, the Pepperstone board resolved to declare a dividend, which was accordingly modest.”

The first issue on the appeal – capital retention (grounds 22-24)

52. The first issue on appeal concerns the question whether FX HoldCo’s directors were obliged to implement the views expressed in the reports that they had received from Rochford and KPMG, to which I referred above. In submissions, Mr Izzo summarised grounds 22-24 as follows:

“[FXGH] contend[s] that the [primary] judge erred in holding that there had been breaches of clause 2.6(a) by FXGH. In particular, [FXGH] contend[s] that her Honour erred in failing to find that it would have been a breach of s 180 of the [Act] for the directors of FX Holdco to retain less capital than their professional advisers had recommended it retain. That is, FXGH was not permitted by law to procure a distribution by FX Holdco of amounts that would have led FX Holdco to retain less than its advisers had recommended (Ground 22). [FXGH] further contend[s] that her Honour denied procedural fairness to FXGH in deciding that issue on a basis that was not argued, pleaded or otherwise notified to it (Grounds 23 to 24).”

53. I have referred to the Rochford and KPMG reports which Pepperstone obtained above. Both parties also relied on expert evidence at the trial to seek to establish the amount of capital that Pepperstone and by extension FX HoldCo was required to maintain so as to comply with s 254T of the Act and (possibly) other applicable statutory requirements at the three Trigger Times (as defined) as to which the CPEC Vendors had alleged breach of cl 2.6 of Schedule 3 of the SSA.

Mr Brown’s evidence

54. By letter dated 28 August 2023, the CPEC Vendors’ solicitors instructed Mr Brown of Chatham Financial, an expert retained by the CPEC Vendors, and identified the scope of his engagement as follows:

“We request you prepare an expert report setting out your opinion as to the amount of capital or collateral that the Pepperstone business was required to hold on three dividend payment dates in order to pay the debts that may have arisen, by reason of Pepperstone’s trading book and activities and / or as a result of its clients’ closing out their positions. If, on future dividend distribution dates, FX HoldCo retains additional cash in reliance upon s 254T of the [Act], we will require your opinion to address the necessary amount of cash to be held by FX HoldCo at each such future time.”

55. In his expert report dated 8 December 2023, Mr Brown described the scope of his report as follows:

“The report contains my opinion on the amount of collateral that the Pepperstone business was required to hold on three dividend resolution dates in order to pay the debts that may have arisen, by reason of Pepperstone’s trading book and activities and/or as a result of its clients’ closing out of their positions. My expert opinion with respect to the amount of capital Pepperstone was required to hold is in accordance with the amount of cash required to be held under s 254T(1) of the [Act].”

56. Mr Brown explained the approach which he had adopted to calculate the amount of Pepperstone’s cash requirements by reference to a “risk-based framework”, which calculated the amount of capital required by reference to Pepperstone’s exposure as multiplied by its variation, which involved reference to the book price gap in respect of Pepperstone’s S trading book and a value at risk analysis in respect of Pepperstone’s X trading book. It was common ground, on the appeal, that Mr Brown’s approach was substantially consistent with the approach adopted by Rochford and KPMG in respect of these matters. Mr Brown concluded that the “appropriate” amount of cash to be retained by Pepperstone at each dividend resolution date was a minimum of approximately $16 million with an upper range of approximately $20 million.

Mr Sahin’s evidence

57. FXGH in turn relied on an expert report dated 3 May 2024 of Mr Sahin which reviewed the Rochford and KPMG reports and Mr Brown’s report. Mr Sahin observed that the three reports adopted similar methodologies to calculate capital and liquidity requirements, calculating a price gap risk for Pepperstone’s S trading book, and adopting a value at risk approach for the unhedged part of its X trading book and a liquidity buffer for operating expenses covering a minimum amount of time for which Pepperstone should reserve liquidity. He went on to observe that:

“Whilst the methodologies are broadly similar, each report reaches different conclusions. The majority of the differences are driven by different: (i) data sets applied in the calculations; (ii) assumptions and judgements applied in relation to key inputs for the S-book calculation; and (iii) approaches to the application of the VaR methodology for the X-book, including different confidence levels i.e. 95%, 99%, 99.5% or 99.95%.”

The joint expert report

58. By their joint expert report dated 7 April 2025, Messrs Sahin and Brown noted areas of agreement and disagreement, including their agreement as to aspects of the methodology to be adopted. They noted their disagreement as to the data period for identifying the appropriate exposure level and as to the overall level of capital and liquidity required given the risks to the Pepperstone business. They also identified aspects of agreement as to the analysis of Pepperstone’s S trading book, but their disagreement as to the amount of net open positions in respect of that book. They also similarly identified aspects of agreement as to the X trading book, including matters relating to the VaR calculation, but identified areas of disagreement as to the appropriate VaR confidence level and as to the net open positions for the X trading book. They also addressed their respective positions as to operating expenses. These issues were determined by the primary judge’s acceptance of Mr Brown’s evidence, with a modest adjustment to increase the amount of capital that was required to be retained at the three Trigger Times as to which breach was alleged.

The primary judge’s analysis

59. I now turn to the primary judge’s analysis of this issue. The primary judge identified this issue and noted its contractual basis (PJ [435]ff) as follows:

“A further question arose, however, as to whether [FXGH] had complied with its ‘dividend sweep’ obligations in cl 2.6(a) of Schedule 3 to the [SSA], given that [FX HoldCo] has withheld an additional cash buffer to reflect, initially, the Rochford report and then a further buffer to reflect the KPMG report. The [CPEC Vendors] contended that [FXGH] thereby failed to comply with this obligation. The [CPEC Vendors] sought contractual damages, being the difference between the amount payable to the [CPEC Vendors] in accordance with the [SSA] and the amount actually paid.

Three issues arose. First, what are the legal requirements that inform [FXGH’s] obligation to distribute dividends “to the extent permitted by law”? Second, what was an appropriate capital retention, when the dividends were declared? Third, in light of these matters, did [FXGH] breach its contractual obligation?”

60. The primary judge then referred (PJ [437]ff) to cl 2.6 of Schedule 3 to the SSA, which I have noted above. Her Honour observed that:

“The language of para 2.6(a) points to [FXGH] maximising Distributions. This is to be achieved indirectly. [FXGH] is obliged “to the extent permitted by law” to maximise dividends declared by another, being a company controlled by [FXGH]. [FXGH] is thereby obliged to ensure that [FX HoldCo] declares dividends “to the extent permitted by law”.” [emphasis in original]

61. The primary judge recognised that the legal requirements which may restrict the ability to declare dividends included s 254T of the Act (PJ [450]) and also recognised the possible application of s 180 of the Act (PJ [451]) which is in issue in this appeal. Her Honour rightly referred (PJ [455]) to the interaction between directors’ duties and s 254T of the Act noted in DSHE Holdings (recs and m**grs a**pptd) (in liq) v Nicholas Abboud (No 3); National Australia Bank Lt**d v Nicholas Abboud (No 4) (2021) 155 ACSR 1; [2021] NSWSC 673 (“DSHE”) and referred to Ball J’s observations at first instance (at [448]) that:

“Section 254T sets out fundamental principles relating to the payment of dividends and it is to be expected that a director acting with reasonable care and diligence would, before participating in a decision to pay or to declare a dividend, be familiar with those principles and take reasonable steps to satisfy himself or herself that the company, in paying a dividend, would comply with them.”

62. Her Honour also rightly noted the Court of Appeal’s observation in DSHE Holdings Ltd (recs and mgrs apptd) (in liq) v Potts (2022) 405 ALR 70; [2022] NSWCA 165 at [112]–[113] that:

“It is well-established that a contravention of directors’ duties may be made out by failing to take reasonable care to ensure that the company did not breach other legal norms …

Merely because an action of a company is likely to breach, will breach, or does in fact breach some other legal norm does not necessarily establish a breach of the duties owed by the directors to the company. Conversely, just because an apprehended breach did not in fact occur does not necessarily establish that there was no failure to comply with the duties of directors.”

63. Importantly, and consistent with previous authority, the Court of Appeal there recognised that the likelihood or fact of a breach of a legal norm does not necessarily establish a breach of directors’ duties, although it may do so in a proper case.

64. The primary judge in turn referred (PJ [458]ff) to the expert evidence of Mr Brown led by the CPEC Vendors and of Mr Sahin led by FXGH at first instance. Her Honour noted that Mr Brown’s evidence was directed to the amount of capital that Pepperstone was required to hold in order to comply with s 254T(1) of the Act at the time that a dividend was declared. Her Honour carefully reviewed Mr Brown’s evidence and observed (PJ [460]–[462]) that:

“Mr Brown explained that capital required equalled exposure multiplied by variation. Exposure represented the amount of money exposed to market risk. The Net Open Position (NOP) was usually used, being the sum of all open positions in one direction (for example, a “long” position) netted against all positions in the opposite direction bracket (for example, a “short” position). Variation, or movement, represented the amount that an index price may fluctuate for a given time period. A statistical analysis process called Value at Risk (“VaR”) quantified the extent of possible price movements for a given confidence level bracket (for example, 99%) and time period (for example, 10 days).

Using this approach, Mr Brown analysed Pepperstone’s two client trading books, being the “S-Book” and the “X-Book”. Pepperstone’s S-Book is immediately 100% externally hedged. Pepperstone’s X-Book is not externally hedged and 100% of trades are internalised, with trades matched against each other where possible. The residual NOP is managed within risk limits; any excess above risk limits moved into the S-Book. Whilst the accumulation and netting of client positions in the X-Book may permit Pepperstone to reduce the exposure to be hedged, the gap before that hedge is effected may present greater risk given volatility in the gap, being the VaR. Mr Brown noted that the portfolio appeared quite balanced, given the low VaR numbers on average historically.

In his first report, Mr Brown calculated a minimum capital requirement for both the S — Book and X — Book of between $13 million and $20 million when dividends were declared in February, May and August 2023. He did not include a cash buffer for operating expenses. Whilst $13 million had historically proven to be an adequate buffer against extreme price gap events for Pepperstone, Mr Brown considered that the same may not be true on a forward-looking basis, if the business underwent change. He concluded that an appropriate amount of cash was a minimum of $16 million with an upper range of $20 million.”

65. The primary judge also noted Mr Sahin’s review of the reports of Rochford, KPMG and Mr Brown, and observed (PJ [463]–[465]) that:

“Mr Sahin did not undertake his own calculations but reviewed the reports of Rochford, KPMG and Mr Brown, indicating which portions of each report he considered preferable. He noted that the authors adopted similar methodologies but reached different conclusions, driven by different data sets, assumptions and judgements in respect of the S-Book calculation, and applying different confidence levels to the VaR methodology for the X-Book.

So far as the S-Book was concerned, Mr Sahin considered it more reasonable and appropriate to use a maximum NOP of USD $200 million. For the X-Book, Mr Sahin opined that Pepperstone should hold capital closer to the top end of the confidence level range, at 99%. Mr Sahin also considered that it was appropriate to hold four weeks of ‘fixed’ operating expenses, being $8.3 million. In total, Mr Sahin considered that an appropriate risk capital buffer was between $23.4 million and $33.8 million, and it would be reasonable for Pepperstone to be closer to the high end of that range.

Mr Sahin was also asked to look at the performance of Pepperstone in the September 2023 quarter and noted that, if the Company had only held $10 million in risk capital, this would not have been enough. Mr Brown considered that Mr Sahin’s retrospective analysis did not assist as, when making a decision in respect of appropriate capital to hold, Pepperstone would not have the benefit of retrospection. The exercise undertaken by Mr Sahin also rearranged the financial performance of Pepperstone over a specific period in a scenario that did not occur, where Mr Sahin used a 30-day cumulative P&L position, not cash, to assess different risk capital amounts. I agree. This is no criticism of Mr Sahin; he simply did what he was instructed to do”

66. The primary judge then noted (PJ [466]) Mr Brown’s second report and recognised that Mr Brown had analysed the data over a longer period than was used by Rochford and KPMG, and Messrs Brown and Sahin disagreed as to whether a longer or shorter period of data set was more appropriate. The primary judge preferred Mr Brown’s evidence to Mr Sahin’s evidence and, in doing so, referred to the circumstances in which the Rochford and KPMG reports were prepared. I will address FXGH’s challenge as to procedural fairness in that respect below.

67. Her Honour noted (PJ [467]) that:

“Following a conclave, and allowing for Pepperstone’s operating expenses, Mr Brown considered that the appropriate risk capital requirement for Pepperstone at the dividend declaration dates was between $16.3 and $21.4 million. This figure was not in addition to the regulatory capital amount. Mr Sahin considered the appropriate risk capital requirement was $22.8 to $32.1 million. That was in addition to the regulatory capital amount.”

I will return below to FXGH’s challenge to an aspect of the treatment of Mr Brown’s conclusion here.

68. Her Honour in turn concluded (PJ [473]) that:

“In the result, I see no reason to depart from Mr Brown’s views, albeit making some allowance for the possibility that his calculations may be slightly low. The mid-point of Mr Brown’s range was $19 million, which includes the regulatory capital amount. I consider that a figure of $20 million is appropriate.”

69. The primary judge in turn recognised (PJ [474]) FXGH’s contention before her, which was pressed on appeal that:

“[FXGH] submitted that failing to hold the TLR as recommended by Rochford, and then KPMG, would have resulted in a contravention of … directors’ duties. [FXGH contended that w]hether or not, by reference to the expert evidence now before the Court, there would in fact have been a breach of s 254T was irrelevant. [FX HoldCo’s] directors would have been in breach of their duties if they had disregarded the conclusions reached by Rochford and KPMG without an obvious basis for doing so.”

70. Her Honour also noted (PJ [475]) the CPEC Vendors’ response, also pressed on appeal, that:

“… neither Rochford nor KPMG report provided independent advice on the appropriate amount of capital to retain. Rochford was simply engaged to review the board’s approach. KPMG was engaged to review and ‘sense check’ Rochford’s approach. Neither Rochford nor KPMG were considering the position where [FXGH] was under a contractual obligation to maximise dividends, as in fact was the case. Neither of their analyses provided a proper foundation for the directors to form a view about the appropriate level of capital to retain.”

71. Her Honour then observed (PJ [476]–[477]) that:

“This case is not about whether Pepperstone Group Ltd complied with its obligation under s 912A(1)(h), nor whether the directors of [FX HoldCo] performed their duties in accordance with s 180(1). The issue is whether [FXGH] performed its contractual obligation under cl 2.6(a) of Schedule 3 to the [SSA]. Whether a party’s performance fulfils its obligations is a mixed question of fact and law: Margaronis Navigation Agency Ltd v Henry W Peabody & Co of London Ltd [1965] 1 QB 300 at 318 (per Roskill J). The onus of proving breach is on the promisee: Hart v MacDonald (1910) 10 CLR 417 at 428. The parties must perform as and when promised, in precise compliance with the contract. An obligation is not discharged by ‘substantial performance’ unless the contract so provides: Nick Seddon and Rick Bigwood, Cheshire & Fifoot Law of Contract (11th Australian ed, 2022, LexisNexis) at [9.5].

As to the legal question, the language of cl 2.6(a) is mandatory — “must” — and points to [FXGH] maximising Distributions by ensuring that the Company declares dividends “to the extent permitted by law.” [emphasis in original]

72. Her Honour then considered (PJ [478]ff) FX HoldCo’s board meetings on 31 January 2023 and again on 3 May and 4 July 2023, noted the surrounding documentation which she rightly recognised was prepared when the proceedings were ongoing, and noted Ms Lock’s evidence at first instance and surrounding emails. She again expressed reservations as to the “independence” of the Rochford and KPMG reports, and I will return to FXGH’s procedural fairness challenge in that regard below. Her Honour concluded (PJ [485]) that:

“As a matter of fact, I am satisfied on the balance of probabilities that [FXGH] has not performed its contractual obligation under cl 2.6(a) of Schedule 3 to the [SSA]. Ms Lock’s proposal to increase the buffer to $50 million on the same day that these proceedings were commenced does, using Mr Davenport’s words, appear “contrived”. When subsequently resolving to increase the capital retention amount, Ms Lock had competing considerations: [FXGH’s] contractual obligation to maximise dividend distributions, on the one hand, and Pepperstone’s wish to retain more “headroom” on the other. In making that choice, I have no doubt that Ms Lock put the obligation to maximise dividends as the lowest priority.”

Consideration of the first issue (grounds 22-24)

Procedural fairness as to the capital retention issue (ground 23)

73. By ground 23, FXGH contends that the primary judge had not afforded it procedural fairness in respect of several observations she had made as to the “independence” of the Rochford and KPMG reports and the purposes for which FXGH obtained them. I should first recognise that her Honour had made clear that she did not make any criticism of the persons who prepared those reports and she did not find that they individually lacked independence. Both FXGH and the CPEC Vendors addressed this issue in written submissions and Counsel did not expand on it, at any length, in oral submissions.

74. I will, consistent with the case law, address this issue before turning to FXGH’s substantive grounds of appeal as to the capital retention issue: Kimberley Developments Pty Ltd v Bale [2023] NSWCA 25 at [36] (“Kimberley”); Darwin International Airport Pty Ltd v Diah (NT) Pty Ltd [2024] NTCA 4 at [8]–[10]; Zurich Australian Insurance Ltd v C**IMIC Group Ltd (2024) 115 NSWLR 297; [2024] NSWCA 229 at [27]. That course is ordinarily appropriate where, if a failure of procedural fairness was established, a common order would be for a retrial of the proceedings, and it may be inappropriate to address the substantive appeal as to the capital retention issue if a retrial is to be ordered. However, depending on the facts of the case, it may also be open to an appellate Court to determine the other grounds of appeal or determine the matter on its merits, and that is the position for which the parties contend here: Jorgensen v Fair Work Ombudsman (2019) 271 FCR 461; [2019] FCAFC 113 at [93], [162]–[163].

75. I also recognise that it will only be in “very unusual cases” where an allegation of breach of procedural fairness would not be determined, although I will find below that this case falls in that category. In Kimberley, Leeming JA (with whom Kirk JA and Griffiths AJA agreed) observed at [37] that:

“There may perhaps be cases where a ground based on bias or a denial of procedural fairness should not be determined at the outset; an example might be where the costs of a retrial are out of all proportion to the amount in issue, and it is clear that the appeal must be allowed on other grounds. Even so, it is no small thing for an appellant to contend that a judgment should be set aside on the basis of bias or procedural fairness, and perhaps save in very unusual cases, such a contention should not be left undetermined. In the present case, there is no reason to depart from the ordinary practice of dealing with grounds of this nature at the outset.”

76. I first address, briefly, the question whether there was a breach of procedural fairness, and then the question of materiality of the alleged breach. I recognise that difficult questions can arise as to whether procedural fairness requires a judge to raise matters that are already known to the parties or that obviously arise from the relevant facts, although it will generally be necessary to do so if the judge proposes to use circumstances which were addressed in the course of the hearing in a manner adverse to a party which could not reasonably have been anticipated, or to adopt a course which was not sought by either party and was not reasonably foreseeable: Belan v Liner Freight Services Pty Ltd (1994) 10 NSWCCR 357; Boral Besser Masonry Ltd v Jabarkhill (1999) 19 NSWCCR 227; [1999] NSWCA 476 at [12]–[18]; J and K Clothing Pty Limited v Mahmoud [2004] NSWCA 207 at [21]–[24]; Dent v R [2025] NSWCCA 43 at [7]–[8], [10] and [12].

77. Mr Izzo submitted that the CPEC Vendors did not contend for the findings that the primary judge made as to the lack of “independence” of the Rochford and KPMG reports. He recognised that, on the last day of the trial, in oral submissions in reply, Mr Herzfeld SC, who appeared with Mr Willoughby in this Court and in the Court below, had submitted that:

“Mr Izzo’s submissions were premised on Rochford and KPMG providing independent advice as to the appropriate level of risk capital to retain. In fact, Rochford was simply engaged to review the board’s approach, your Honour will see that in volume 24, tab 1073; and KPMG was simply engaged to review and sense-check Rochford’s approach. That’s volume 24, tab 1098. The factual premise for the kind of analysis Mr Izzo was putting doesn’t arise here.”

78. Mr Izzo submitted, with considerable force, that Mr Herzfeld’s submission had emphasised that Rochford and KMPG had been asked to review someone else’s (namely Pepperstone management’s) assessment rather than to conduct an assessment themselves. Mr Izzo submitted that Ms Lock had not addressed the matters relevant to her Honour’s findings as to any wider issue of lack of independence in her evidence in chief and was not cross-examined about them; submitted that the primary judge did not foreshadow the findings that she ultimately made; and submitted that:

“As a result, FXGH was never given any notice of, and in turn a chance to respond to, propositions of the kind that the judge ultimately found to be facts and relied on in rejecting FXGH’s s 180 argument.”

79. In addressing this issue briefly in written submissions, Mr Herzfeld submitted that:

“The factual and legal premises of FXGH’s contentions …, that FXGH did not breach the dividend sweep obligation, are not made out. As a result, the denial of procedural fairness asserted ... simply does not arise.”

Possibly in support of that submission, he then turned to the findings made by the primary judge as to the level of capital that FX HoldCo was required to retain in order to comply with s 254T of the Act.

80. I recognise that it may well have been apparent to FXGH and its sophisticated legal advisers that the circumstances in which these reports were obtained could potentially raise the issues noted by the primary judge, not least because Mr Davenport’s email had previously recognised the risk that the proposed increase in the risk capital maintained by FX HoldCo might seem “contrived”. I also recognise that FXGH had no reason to treat those matters as in issue until they were squarely raised in the proceedings. In any event, I do not consider it necessary or appropriate to reach a finding as to whether there was in fact a denial of procedural fairness in this respect, where it is plain that it is not material given the parties’ approach in the appeal.

81. I recognise that Mr Izzo contended to the contrary, referring to Construction, Forestry, Maritime, Mining and Energy Union v Quirk (2023) 300 FCR 170; [2023] FCAFC 163, and submitted that:

“This is not a case where it can be said that, even if procedural fairness had been afforded, the outcome could not realistically have been any different. Had FXGH been put on notice of, and been given an opportunity to respond to, propositions to the effect that the Rochford and KPMG Reports lacked independence and were essentially a contrivance directed to a particular forensic or other strategic end, there is a realistic possibility that it could have called evidence to resist such propositions.”

82. I do not accept that submission, where Mr Izzo also submitted that the proceedings should not be remitted for a new hearing and that the capital retention issue can be determined in this appeal where the parties have had a full opportunity to be heard. In particular, Mr Izzo submitted that:

“Where factual findings of the kind made by [the primary judge] were not contended for by the CPEC Vendors, it would be inappropriate to order a retrial so as to enable FXGH to meet those findings. Rather, the proper course is to determine the appeal, consistently with the way the trial was conducted, on the basis that findings of that kind were not in issue.”

83. The parties’ common position as to this issue has the consequence that the asserted breach of procedural fairness is not material. In Sydney Trains v Batshon [2021] NSWCA 143 at [35]–[36], the Court observed that:

“But even if there were a denial of procedural fairness, Sydney Trains’ appeal to this Court is by way of rehearing, and it can make and has made the same submissions here. As has repeatedly been said in this Court, attention needs to be given, when a complaint is advanced that there has been a denial of procedural fairness, to whether any such denial is material, given the parties’ rights of appeal. If the complaint concerning an absence of procedural fairness can be rectified on an appeal which is by way of rehearing, then it is unlikely to be material. See for recent examples Minister for Education and Early Childhood Learning v Zonnevylle (2020) 103 NSWLR 91; [2020] NSWCA 232at [55] and Hackett (a pseudonym) v Secretary, Dept of Communities and Justice [2020] NSWCA 83; 379 ALR 248 at [139] and [176].

Another way of putting this is that if this Court accepted there had been a denial of procedural fairness, it would only set aside the judgment and remit the proceeding to the Common Law Division if this Court were unable to resolve the substance of the complaint.”

84. This observation was cited with approval in Murdoch v Mudgee Dolomite & Lime Pty Ltd (in liq) (2022) 398 ALR 658; [2022] NSWCA 12 at [128]–[129], where Leeming JA (with whom Macfarlan and Gleeson JJA agreed) observed that:

“Either the primary judge made appellable error in finding that the Timboon Quarry was not within the scope of Robert’s and Stephen’s fiduciary duties or he did not. If his Honour did so in a way which was procedurally unfair, but nonetheless reached the correct conclusion in circumstances where (a) no further evidence is sought to be adduced, (b) it is not said that cross-examination would have differed and most importantly (c) no retrial is sought because this Court can determine the issue, then any denial of procedural fairness would be immaterial.” [emphasis added]

85. In Whittington v Newman [2024] NSWCA 27 at [14]–[15], albeit in the context of an appeal from an interlocutory decision, the Court similarly observed that:

“It was common ground that if any of the errors said to vitiate the exercise of discretion by the primary judge were made out, then this Court would re-exercise the discretion, and either refuse leave or grant it, perhaps on conditions. Neither party sought for the matter to be remitted to the Common Law Division to be redetermined, perhaps on different evidence. In those circumstances, which are not uncommon when leave is sought to appeal from an interlocutory decision of practice or procedure, complaints of a denial of procedural fairness ordinarily will not affect the outcome (although they may bear upon whether there should be a concurrent hearing).

That is because the litigant who asserts being denied of an opportunity of being heard by the primary judge will enjoy the right to be heard in this Court on that point. If the point is good, then the discretion will be re-exercised accordingly. If the point is bad, then the fact that the litigant was not, at first instance, heard fully on the point will amount to a breach of the obligation to accord procedural fairness that does not give rise to any substantive injustice.” [emphasis added]

Conclusion on ground 23

86. In the result, the course proposed by Mr Izzo, of determining the issues that are in contest between the parties on appeal, is plainly appropriate here. Neither party sought to agitate the matters of which the procedural fairness complaint was made on appeal, and a determination of the matters that the parties did agitate on appeal, having allowed full procedural fairness to both parties, will bring about the just resolution of the real issues in dispute in the proceedings. As I noted above, that has the consequence that the alleged breach of procedural fairness is not material in the circumstances.

Whether FX HoldCo’s directors were obliged to implement the Rochford and KPMG reports as is (grounds 22 and 24)

87. I have concluded that, given the position taken by the parties as noted above, any breach of procedural fairness as to this issue is not material and there is no reason to order a retrial (which FXGH does not seek) by reason of any such breach. I therefore turn to FXGH’s substantive grounds of appeal in respect of this issue.

Ground 22: alleged error in finding that cl 2.6(a) was breached

88. By ground 22, FXGH contends that the primary judge erred in failing to find that:

“(a) it would have been a breach of s 180 of the [Act] for the directors of FX HoldCo Pty Ltd (“FX HoldCo”) to retain less capital than its professional advisers, Rochford and KPMG had recommended that it retain;

(b) accordingly, [FXGH] was not permitted by law to procure that FX HoldCo distribute to its shareholders amounts that would have led to [FX HoldCo] retaining less capital than Rochford and KPMG had recommended that it retain; and

(c) accordingly, there was no breach of clause 2.6(a) of Schedule 3 of the [SSA] where, in February, May and August 2023, FX HoldCo resolved to distribute to its shareholders amounts not exceeding the capital which Rochford and KPMG had recommended that it retain.”

89. Mr Izzo summarised the position put by FXGH at first instance as follows:

“… in addition to s 254T [of the Act], FXGH had pointed, relevantly, to the obligations imposed by s 180 of the Act … FXGH’s argument was that, where Rochford and KPMG, as FX Holdco’s professional advisers, had recommended that FX Holdco hold a particular TLR above regulatory capital, the company’s directors would have contravened s 180 if they disregarded those conclusions and declared a dividend that resulted in FX Holdco not maintaining the recommended TLR above regulatory capital without an obvious basis for doing so … It is in dealing with this argument that it is submitted her Honour erred.

FXGH’s submission raised two main issues. The first was whether a distribution that would involve a contravention of s 180 by the directors of FX Holdco would be a distribution not “permitted by law” within the meaning of clause 2.6(a). That was a question of construing the SSA. If the “permitted by law” qualification was capable of being engaged on that basis, the second question arising was whether a contravention of s 180 would have occurred had the directors of FX Holdco caused FX Holdco to distribute more cash than it in fact did (and therefore to retain less cash than had been recommended by Rochford and KPMG). That question involved applying the facts to s 180.”

90. I first address the applicable legal principles in respect of this issue. First, in answering the question whether a director or officer has complied with the obligations imposed by s 180 of the Act, the Court must apply a standard of care and diligence that a reasonable person would exercise, taking into account the corporation’s circumstances, the offices occupied by the relevant persons and their responsibilities within the corporation: Australian Securities and Investments Commission v Rich (2009) 236 FLR 1; [2009] NSWSC 1229 at [7242] (“ASIC v Rich”).

91. Second, directors are generally obliged critically to assess expert advice which they receive in the light of their expertise and knowledge as to the relevant company; a director’s acting on advice that did not take account of or was not consistent with relevant matters known to the director may not be sufficient to discharge his or her duties under s 180 of the Act; and a director’s not acting on that advice, without taking into account those other inconsistent matters, may not breach that section: see the consideration of broadly similar questions in Australian Securities and Investments Commission v Adler (2002) 168 FLR 253; [2002] NSWSC 171 at [372]; Australian Securities and Investments Commission v Healey (2011) 196 FCR 291; [2011] FCA 717 at [576]ff.

92. Third, the FX HoldCo directors’ decision as to the level of capital to be retained in FX HoldCo plainly amounted to the making of a business judgment for the purposes of the general law and s 180 of the Act, and the question whether departing from the expert advice would have amounted to a breach of s 180 of the Act must be approached in that context.

93. The applicable principles in respect of business judgments made by company directors are well-established. The Court will exercise caution in overturning a business judgment of a company’s directors. In Harlowe’s Nominees Pty Ltd v Woodside (Lakes Entrance) Oil Co NL (1968) 121 CLR 483 at 493, in determining whether an allotment of shares had been made for an improper purpose contrary to the directors’ equitable obligations, the High Court (Barwick CJ, McTiernan and Kitto JJ) observed that:

“[d]irectors in whom are vested the right and the duty of deciding where the company’s interests lie and how they are to be served may be concerned with a wide range of practical considerations, and their judgment, if exercised in good faith and not for irrelevant purposes, is not open to review in the courts.”

94. Similarly, in Howard Smith Ltd v Ampol Petroleum Ltd [1974] 1 NSWLR 68 at 74; [1974] AC 821 at 832, Lord Wilberforce (speaking for the Judicial Committee of the Privy Council) observed that:

“… it would be wrong for the court to substitute its opinion for that of the management, or indeed to question the correctness of the management’s decision … if bona fide arrived at. There is no appeal on merits from management decisions to courts of law: nor will courts of law assume to act as a kind of supervisory board over decisions within the powers of management honestly arrived at.”

95. In Residues Treatment and Trading Co Ltd v Southern Resources Ltd (No 2) (1989) 15 ACLR 770; (1989) 7 ACLC 1130, Perry J similarly noted that the court will examine the “objective commercial justification” of a course of action, but only for the purpose of assessing the credibility of assertions by the directors as to their motives.

96. Section 180(2) of the Act in turn provides that a director or other officer of a corporation who makes a business judgment, as defined, will be taken to meet the requirements of the duty of care and diligence in s 180(1), and their equivalent duties at common law and in equity, in respect of that judgment in specified circumstances. The term “business judgment” is defined in s 180(3) of the Act as any decision to take or not take action in respect of a matter relevant to the business operations of the corporation. The operation of that section was considered by Austin J in ASIC v Rich at [7248]ff, where his Honour considered, inter alia, the nature of a “business judgment” and the content of the requirement that the director rationally believe that the judgment was in the corporation’s best interests. In DSHE at [461], Ball J observed that the payment of a dividend is relevant to the business operations of the corporation because it affects the funds available for use in the corporation’s business, and that is sufficient for the decision to pay the dividend to fall within s 180(2) of the Act. His Honour also observed (at [462]) that, consistent with the statutory requirements, directors would be taken to have discharged their obligations in relation to the declaration of the dividends if they made the judgment to declare the dividend in good faith for a proper purpose; and informed themselves about the subject matter of the judgment to the extent they reasonably believed to be appropriate; and rationally believed that the judgment was in the best interests of the corporation.

97. It is now common ground on appeal that a distribution which had involved a contravention of s 180 of the Act by the directors of FX HoldCo would be a distribution not “permitted by law” within the meaning of cl 2.6(a) of Schedule 3 to the SSA. Mr Izzo formulated the remaining question as to this issue as whether a contravention of s 180 would have occurred if FXGH (or FX HoldCo’s directors) had caused FX HoldCo to distribute more cash than it in fact did, and therefore to retain less cash that had been recommended by Rochford and KPMG. I do not accept that formulation, which implicitly assumes that only two alternatives were available to FX HoldCo’s directors. The real question is whether the directors of FX HoldCo would have breached s 180 of the Act had they done anything other than adopt at least the minimum risk capital recommendation in those reports, as is, shortly after those reports were received. If another properly available approach that would have allowed higher dividends to be paid and would not have contravened s 180 of the Act, then it cannot be said that FXGH was not permitted by law to procure those higher dividends to be paid, consistent with the directors taking that other available approach.

98. In oral submissions, Mr Izzo emphasised that he did not contend that directors were generally obliged to act in accordance with any expert report they received, but rather that FX HoldCo’s directors were here obliged to act in accordance with Rochford’s and KPMG’s recommendation when they were received, in the light of their complexity and absent “good reason” not to do so. The measured quality of that submission does not avoid two difficulties with it, in the relevant circumstances. It is common ground that each of Rochford and KPMG, and Mr Brown in his expert report relied on by the CPEC Vendors in the proceedings at first instance, adopted the same approach to determine the capital reserve that should be maintained by FX HoldCo, although Mr Brown’s evidence was directed to answering the more precise question as to the amount of the dividend that could be paid without contravention of s 254T of the Act. Rochford and KPMG on the one hand and Mr Brown on the other reached significantly different conclusions as to the amount of the capital reserve that Pepperstone should retain, in the case of the former reports, and the amount of capital that was required to be retained to avoid contravention of s 254T of the Act in respect of Mr Brown’s report. The evidence to which I have referred above highlights that this question was, unsurprisingly, highly sensitive to the inputs adopted and, in particular, to the data set that was adopted for the modelling that Rochford, KPMG and Mr Brown had undertaken. I must proceed on the basis that the capital retention allowed by Mr Brown, as marginally increased by the primary judge, was objectively correct, where there is no appeal against that aspect of her Honour’s decision, although I address a third ground of appeal as to an implication of that finding below.

99. FXGH nonetheless seeks to establish that FX HoldCo’s directors would have breached their duties by not acting in accordance with the Rochford and KPMG reports which, to the extent they answered the same question as Mr Brown, must now be taken to have significantly overstated the capital reserve required by Pepperstone, partly by reason of their choice of data set, because they were the reports that the directors had at the time. Second, in order to make good the proposition that the payment of a higher dividend by FX HoldCo was not permitted by law at the relevant Trigger Times, FXGH must establish that the directors could not, consistent with their directors’ duties, have done anything other than adopt the reports as is, which would have permitted a higher dividend lawfully to be paid. Mr Izzo was right to recognise that this submission might initially seem counterintuitive.

100. Mr Izzo pointed out that the primary judge recognised the obligation under cl 2.6(a) of Schedule 3 of the SSA, which was binding on FXGH, formed part of FX HoldCo’s “circumstances” for the purposes of s 180 of the Act. Mr Izzo also submitted that:

“It is difficult to see how a contractual obligation on the majority shareholder of FX Holdco, breach of which does not sound in any negative consequences for FX Holdco, bears on what a reasonable director of FX Holdco in FX Holdco’s circumstances would have done in response to the advice from Rochford and, later, KPMG.”

101. This proposition depends on an unproved assumption that a breach of cl 2.6(a) of the SSA would not or could not sound in negative consequences for FX HoldCo, where it expanded the scope of the litigation in which FX HoldCo’s majority shareholder, FXGH, and FX HoldCo’s chair, Ms Lock, were involved, and an adverse result in the proceedings for FXGH could at least potentially have an adverse impact on FX HoldCo as its subsidiary. It seems to me that the primary judge’s approach to this issue was correct, particularly where FX HoldCo’s directors (including Ms Lock) were considering the level of risk capital that it should retain and the level of dividends that it should pay at a time that litigation was on foot between the CPEC Vendors on the one hand and FXGH and Ms Lock on the other, and a substantial reduction in the dividends paid by FX HoldCo plainly had the potential to (and did) expand the scope of that litigation, potentially increasing the risks of that litigation for Pepperstone.

102. Mr Izzo also submitted that there is circularity in having regard to this matter in determining whether dividends paid by FX HoldCo would be “permitted by law”. I also do not accept that submission where, if this matter was properly taken into account as part of FX HoldCo’s circumstances, it would undermine the proposition that FX HoldCo’s directors would breach s 180 of the Act by not accepting Rochford’s or KPMG’s advice, at least “as is” and without delay, or that FX HoldCo’s holding lower risk capital or paying a higher dividend was not “permitted by law” for the purposes of cl 2.6 of Schedule 3 of the SSA.

103. Mr Izzo also criticised the primary judge’s adverse findings as to the “independence” of the Rochford and KPMG reports on the basis that they were obtained in order to support a substantial increase in FX HoldCo’s capital reserve after the litigation had commenced. (I again note that the primary judge had here made clear that she did not make any criticism of the persons who prepared those reports and did not find that they individually lacked independence.) This submission overlaps with FXGH’s submissions as to procedural fairness which I have noted above. I need not address this submission further where the controversy on appeal ultimately did not turn on the “independence” of the Rochford and KPMG reports, or the purpose for which they were obtained, but on the extent to which their receipt prevented FX HoldCo’s directors taking any course other than to adopt their recommendations.

104. Mr Izzo then submitted, uncontroversially, that:

“… the starting point of the analysis is the proposition that it may be a contravention of the duties of a director under s 180 to embark on a course which may expose the company to a risk of breaching the law: ASIC v Maxwell (2006) 59 ACSR 373; [2006] NSWSC 1052 at [104]. Specifically, it is clear that s 180 requires a director not to approve a dividend without properly considering the requirements of s 254T: DSHE Holdings v Abboud (2021) 155 ACSR 1; [2021] NSWSC 673 at [448]. The mere fact that (objectively speaking) the assets of the company are sufficient to meet the requirements of s 254T does not necessarily establish that there was no failure by the directors to comply with their duties in that regard: DSHE Holdings v Potts (2022) 405 ALR 70; [2022] NSWCA 165 at [112]– [113]. Section 180 does not require the relevant conduct to have caused loss in order for the section to have been contravened: Cassimatis v ASIC (2020) 275 FCR 533; [2020] FCAFC 52 at [449].”

105. Mr Izzo then submitted that:

“Here, the Court should find that the directors of FX Holdco would have been in breach of their obligations under s 180 if, following consideration of the Rochford report, and later following consideration of the KPMG report, they failed to consider the requirements of s 254T, and the group’s legal obligations to hold regulatory and risk capital, in light of those reports. That is so, at least, where there was not an evident basis for considering that any lower amount of risk capital than that suggested by Rochford and KPMG was appropriate. Indeed, here, the report of Mr Huseyin Sahin, a risk capital expert whom the [primary] judge accepted as a “solid and professional witness” (J1 [468]), specifically examined the reasoning and conclusions in the Rochford and KPMG reports and did not find any material flaw. Hence, there was not, and could not have been, any suggestion below that the advice in the Rochford and KPMG reports was flawed and could on that basis have been disregarded by the directors of FX Holdco in conformity with s 180.”

106. Mr Izzo also submitted that, following consideration of the Rochford and KPMG reports:

“… the directors of FX Holdco determined to hold an amount of risk capital reflecting the minimum level recommended by the firms. The relevant minutes record that they did so, explicitly, in the context of addressing the requirements of s 254T and the need to prevent a contravention of regulatory and risk management requirements applicable to the group. The minutes record discussion and consideration of the findings of both Rochford and KPMG, including as to whether their findings should be adopted. The minutes also record the directors’ understanding that the Rochford report was “an independent third party review of the [company’s] analysis conducted by external specialists” and, in the context of the KPMG report, that “failure to hold additional recommended capital consistent with external professional advice could involve a breach of the Group’s risk management and risk capital requirements under the laws applicable to its licensed business”. It was never suggested at trial that there was any reason for doubting that understanding, nor was there any evidence led that would have supported a director's decision to make a distribution that would bring the capital reserves below the minimum indicated by the experts.

In those circumstances, and bearing in mind the highly volatile foreign exchange and derivatives trading market in which Pepperstone operated, to determine to hold an amount of risk capital lower than the minimum which had been recommended by apparently competent and independent professional advisers would have exposed the company to a risk of contravening s 254T and the regulatory and risk capital requirements applicable to the group and led to a breach of s 180. The [primary] judge should have so held.” [emphasis in original]

107. I recognise, and it is common ground, that it was open to FX HoldCo’s directors, as one available option, to accept the Rochford and KPMG reports and there is no suggestion their doing so was in breach of duty. However, that does not assist FXGH, because the fact that one course which resulted in minimising the dividend payable by FX HoldCo was not in breach of duty does not mean that all other courses that would have increased the dividend payable were in breach of duty, so that a higher dividend was not permitted by law.

108. I turn now to the CPEC Vendors’ submissions. As I noted above, Mr Herzfeld accepted that, in principle, s 180 of the Act is a relevant “law” for the purposes of cl 2.6(a) of Schedule 3 of the SSA and may “in theory” limit the measure of dividends payable under cl 2.6(a) at any given time. However, Mr Herzfeld submitted that s 180 of the Act reduces the amount “permitted by law” to be distributed by FX HoldCo only so far as it would be a breach of that section to pay the dividend, having regard to the obligations of FXGH to maximise the dividends paid under cl 2.6(a) of Schedule 3 of the SSA, and that the factual premises for FXGH’s reliance on that section to displace the obligation to pay a larger dividend are not established here.

109. Mr Herzfeld referred to the scope of Pepperstone’s internal risk capital reviews and the Rochford review, to which I have referred above, and submitted that those reviews did not address the maximum amount of dividends that FX HoldCo was permitted to pay by law, as determined by the minimum amount of capital that it was obliged by law to retain, and those reviews are confined to recommendations of “prudent” or “suggested” capital levels without regard to the obligation of FXGH to procure FX HoldCo to maximise dividends in accordance with the SSA. Mr Herzfeld also submitted that the KPMG report had not addressed the question of how much capital is FX HoldCo permitted by law to distribute or obliged by law to retain. He then submitted:

“Thus, properly understood, neither the Rochford Report nor the KPMG Report purported to, or did in fact, opine on the measure of capital FX Holdco was obliged by law to retain in any respect. Rather, the reports are echoes of the internal reviews conducted by Pepperstone, which were also not addressed to the question of how much capital FX Holdco was obliged to retain; the evident purpose of all of that analysis was to ascertain a desirable or appropriate level of capital buffer assuming a continuity of business activity. The internal and external reviews did not, for example, consider any ways in which FX Holdco could maximise the dividends it pays or minimise its capital requirements, such as by altering its operations or taking on less risk. The FXGH Parties’ own capital retention expert accepted that Rochford and KPMG were not asked to quantify the amount of regulatory capital that FX Holdco should hold given the obligation in cl 2.6(a) …

The factual premise of Ground 22 therefore falls away. The premise of Ground 22 is that the advice given by Rochford and KPMG was required to be followed in order to comply with s 180 of the [Act] (AS [57]). The submission is that if the FX Holdco board had determined to hold less than the amount of capital recommended by Rochford and KPMG that “would have exposed the company to a risk of contravening s 254T and the regulatory and risk capital requirements applicable to the group and led to a breach of s 180”. As has been explained above, neither Rochford nor KPMG was engaged to opine on the minimum amount FX Holdco could retain in compliance with its legal obligations, including s 180 or s 254T of the [Act]. KPMG reviewed Rochford’s assessment, and considered it “reasonable”, but noted that the “appropriate” amount of capital depended on the board’s risk appetite; Rochford recommended a “liquidity stack” without reference to the practical requirement for FX Holdco to maximise quarterly dividends and based its analysis on internal analysis by Pepperstone, which was itself addressed to levels of capital that were “prudent” and “suggested”.” [emphasis in original]

Consideration of ground 22

110. I am not persuaded that FXGH has established that FX HoldCo’s directors could not, consistent with their directors’ duties, have done anything other than adopt the recommendations made in the Rochford and KPMG reports as to the additional risk capital that Pepperstone should retain beyond that which was required to comply with the requirements of notional s 912AB of the Act, so as to have permitted a higher dividend lawfully to be paid. First, FX HoldCo’s directors could properly have recognised that (as was the fact) Rochford’s and KPMG’s report had been prepared without taking into account FXGH’s obligations under cl 2.6 of Schedule 3 of the SSA; they could properly also recognise that a sudden and substantial increase in the level of risk capital retained by FX HoldCo, which was potentially adverse to FXGH’s compliance with its obligations under cl 2.6 of Schedule 3 of the SSA, would potentially (as it did) expand the scope of the issues in the existing litigation against its holding company; and they could properly have had regard to any potential adverse impact of those matters on the Pepperstone as a whole or on FX HoldCo specifically. It seems to me that those matters would, in Mr Izzo’s phrase, at least allow “good reason” for FX HoldCo’s directors to consider alternative approaches as to FX HoldCo’s risk appetite, and alternative courses such as maintaining the level of dividend that was to be paid in the short or possibly middle term or over a transitional period in light of those matters. It seems to me there would be no realistic prospect that the business judgment involved in their doing so would amount to a breach of s 180 of the Act.

111. Second, Mr Izzo recognised that the Rochford and KPMG reports were relatively complex and they plainly involved matters of judgment, including as to the data sets that Pepperstone or Rochford and KPMG had adopted to perform the relevant analysis. It seems to me that it would plainly also have been open to FX HoldCo’s directors to seek further information as to the effect of calculating this figure over alternative periods and to seek to identify the significant factors in Pepperstone’s business model or its trading books that were driving the recommendation for a substantial increase in their capital reserve, and the extent to which that recommendation was sensitive to the choice of the inputs to the analysis. As Mr Herzfeld submitted, analysis of that question would potentially have disclosed the position that later emerged from Mr Brown’s report, that Rochford’s and KPMG’s recommended risk capital level was (as we must assume given the primary judge’s unchallenged acceptance of Mr Brown’s approach) overstated by reason of, inter alia, the data set they had adopted. Even if further investigation would not have disclosed that matter, and again adopting Mr Izzo’s formulation, it seems to me that FX HoldCo’s directors had “good reason” at least to seek further information as to these matters before implementing a substantial increase in FX HoldCo’s risk capital and a substantial reduction in dividends while litigation was under way. It again seems to me inconceivable, in the context of the business judgment rule, that FX HoldCo’s directors’ further investigating these matters rather than implementing Rochford’s or KPMG’s reports “as is” and more or less immediately after they were considered, would have amounted to a breach of s 180 of the Act.

112. Third, I recognise that FX HoldCo’s directors adopted a risk capital figure reflecting the lower level of confidence adopted in the Rochford and KPMG reports (and later in Mr Brown’s report) of 95%. I recognise the Rochford report supported prompt implementation of risk capital of at least that amount, although KMPG took a significantly more qualified position in expressly recognising that the amount of risk capital to be retained by FX HoldCo depended upon its risk appetite. However, it is not self-evident and I am not persuaded that FX HoldCo’s directors would have breached s 180 of the Act by making a business judgment to cause FX HoldCo to, for example, adopt a lesser confidence level for risk capital than adopted in those reports or move to the 95% confidence level adopted in those reports on a staged basis over a period of time rather than immediately on the receipt of those reports. Had either course been taken, Pepperstone would have continued to comply with the regulatory requirements under the 2022 Instrument and notional s 912AB of the Act, as it appears that it did at all relevant times.

113. In summary, it seems to me that FXGH’s contention that payment of a higher dividend was not permitted by law, because the directors of FX HoldCo could not do anything other than adopt the Rochford and KPMG reports “as is” and more or less immediately, must fail, since:

114. there were several alternatives properly available to FX HoldCo’s directors other than to implement Rochford’s or KPMG’s reports “as is” and more or less immediately after they were considered; and

115. those steps would have increased or potentially increased the dividends payable by FX HoldCo; and (3) those steps would not have been in breach of s 180 of the Act*.*

116. This result does not require a finding (which the primary judge did not make and I would not make) that the course adopted by FX HoldCo’s directors was not an available alternative. Rather, that result follows because FXGH has not established that the course adopted by the FX HoldCo’s directors, of taking more or less immediate steps to substantially increase FX HoldCo’s risk reserve and reduce the dividends that it paid, was the only available alternative which would not breach s 180 of the Act*,* and has not established that FX HoldCo could not lawfully have paid higher dividends at least at the three relevant Trigger Times by taking one of the other available alternatives, or that FXGH could not lawfully have procured it to do so.

117. This analysis also does not require assessment of the extent to which higher dividends would properly have been payable, had FX HoldCo adopted a marginally higher risk profile as KPMG had left open or moved to the 95% confidence level over time, or had further analysis been undertaken as to the sensitivity of the recommendations to, for example, the data set adopted, because this ground of appeal has as its essential premise that it would have been unlawful for FX HoldCo’s directors to do anything other than that which they did, which would or would potentially have allowed a higher dividend to be paid by FX HoldCo. Once that premise is not established, this ground of appeal fails. I therefore reach the same result as the primary judge, although for different reasons than her Honour.

Whether the finding of breach was in error (ground 24)

116. By ground 24, FXGH alleges that, by reason of the matters raised by grounds 22–23, the primary judge erred in finding that it had not performed its contractual obligation under cl 2.6(a) of Schedule 3 of the SSA. That proposition is consequential upon those two grounds of appeal and cannot succeed where the first has failed and the suggested issue as to procedural fairness was not material to this issue for the reasons noted above.

Second issue on appeal – loss arising in the Intervening Period (grounds 27-31)

117. This issue concerns the assessment of the CPEC Vendors’ damages for the period (“Intervening Period”) from 3 August 2023, after the first three Trigger Times of 3 February 2023, 5 May 2023 and 3 August 2023 (“Initial Dividend Payment Dates”). The parties addressed the complex procedural history of this issue and I should first outline aspects of that history.

The conduct of the proceedings at first instance concerning the second issue

118. I should first recognise that the initial hearing before the primary judge was not a separate hearing of liability only. However, the primary judge noted (PJ [487]) that the parties had asked for an opportunity to recalculate the appropriate capital retention amount and monies payable to the CPEC Vendors in the light of her findings. That reasonable course then allowed additional issues as to quantum to be subsequently addressed and a separate quantum judgment was delivered.

119. In their initial instructions to Mr Brown on 28 August 2023, the CPEC Vendors’ solicitors had recognised the possibility that he may need to be instructed to make a further assessment of the capital that should be retained by FX HoldCo and the dividend that could be paid by it at later Trigger Times, as permitted by s 254T of the Act, observing that:

“If, on future dividend distribution dates, FX Holdco retains additional cash in reliance upon s 254T of the [Act], we will require your opinion to address the necessary amount of cash to be held by FX Holdco at each such future time.”

120. The parties also led expert accounting evidence which touched upon this issue, although it could not establish the factual basis of the assumptions that the accounting experts made as to the capital that was to be retained by FX HoldCo. The CPEC Vendors relied on an expert report dated 11 December 2023 of Ms Wright. In scenario 2 addressed in that report, Ms Wright addressed the position on the assumption that, on each of 3 February, 5 May and 3 August 2023, the three initial Trigger Times, FX HoldCo held a minimum amount of cash equal to the greater of $16 million or the Agreed Assets plus amounts referable to “UK Reg Cap” and “New Licence Reg Cap & Buffer”. Although Ms Wright was there asked to address those three Trigger Times, her analysis extended to November 2023. FXGH relied in response on the report of Mr Stone dated 10 May 2024 which also addressed the first three Trigger Times and an additional Trigger Time of 2 November 2023 on specified assumptions. The CPEC Vendors also relied on a supplementary report of Ms Wright dated 5 July 2024 which updated the earlier scenarios in her report for additional Trigger Times of 2 November 2023, 6 February 2024 and 3 May 2024, by reference to the scenarios adopted in her initial report. The experts in turn prepared a joint report dated 12 March 2025, where both experts calculated damages on two scenarios up to May 2024.

121. The parties’ agreed statement of the real issues between them dated 20 May 2025 then indicated that the question of breach was to be determined in respect of the calendar quarters ending 31 December 2022, 31 March 2023 and 30 June 2023, and did not raise any question of breach as at later dates.

122. By letter dated 26 May 2025, the solicitors for the CPEC Vendors advised the solicitors for FXGH that, for the avoidance of doubt, their debt claims extended to all Uplift Amounts (as defined) in respect of each Trigger Time since the commencement of the proceeding. There is a question, which it is not necessary to resolve, as to whether the reference to “debt claims” in this letter limited its scope to exclude damages claims in the Intervening Period.

123. By letter dated 20 October 2025, the solicitors for FXGH recognised the possibility that further evidence would be required as to the amount of capital that could properly be retained by FX HoldCo for Trigger Times between 4 August 2023 and 18 September 2025, observing that:

“… in accordance with his instructions, Mr Brown in his reports opined only on the amount of cash to be retained by FX HoldCo … in accordance with section 254T of the [Act] (Capital Retention Amount) on [the Initial Dividend Payment Dates], the amount differing for each date. Accordingly, the Capital Retention Amount at each Trigger Time in the period from 4 August 2023 to 18 September 2025 (the Intervening Period) will need to be determined. This will need to occur prior to the finalisation of any instructions to be provided to the Accounting Experts in respect of the Intervening Period.

As set out in Mr Brown’s reports, that analysis requires an assessment of the S-book capital requirements, X-Book value at risk analysis and capital requirements, and operating expenses liquidity requirements. We are instructed that there have been significant changes to the operations and operating environment, and consequently to the operating expenses for [FX] HoldCo over the Intervening Period. … if Mr Brown is unable to provide a further report, or to opine on operating expenses, our clients are willing to work with your clients to identify and brief an independent expert whom the parties agree is appropriately qualified to undertake that task.

Our clients also observe that the parties will need to confer with respect to and agree upon the instructions to be jointly provided to Mr Brown or any appropriately qualified expert, as well as the data required by Mr Brown in order to carry out the relevant calculations.”

124. By letter dated 27 October 2025 (Blue 7/3011), the solicitors for the CPEC Vendors rejected the suggestion that further evidence was required from Mr Brown or any other independent expert in relation to Capital Retention Amounts for Trigger Times in the Intervening Period and took, inter alia, a point as to onus, observing that:

“… [FXGH] did not plead that if they did not retain the capital the subject of our clients’ claims in 2003, then they would have retained additional capital during the Intervening Period in any event, nor did they lead evidence to that effect. It is not open to [FXGH] to litigate the issue through the process of instructing the Accounting Experts.”

125. Whatever the merit of that point, so far as it went, it did not address the difficulty that would arise if the primary judge was left without sufficient evidence led by either party to establish the amount of the dividend that could properly be paid, with reference to s 254T of the Act, by FX HoldCo for Trigger Times in the Intervening Period.

126. In written submissions dated 29 October 2025, for a directions hearing before the quantum hearing, Mr Izzo pointed to the disagreement which had by then developed between the parties as follows:

“… the parties disagree as to how the Accounting Experts should be required to calculate the Uplift Amount for subsequent dates i.e. each Trigger Time beyond the Initial Dividend Payment Dates. For this period (the Intervening Period), [FXGH] has contended that the Accounting Experts should calculate the Uplift Amount in the same way as will occur for the Initial Payment Dates. The [CPEC Vendors] contend that, as they have not alleged a breach of clause 2.6(a) of Sched[ule] 3 for the Intervening Period, there is no occasion to perform such a calculation and the Uplift Amount should be calculated only by reference to Equity Proceeds in fact received by [FXGH] at each Trigger Time in the Intervening Period.” [emphasis in original]

127. Mr Izzo there contended that the CPEC Vendors’ approach was contrary to the approach previously undertaken by the accounting experts, although I recognise that that would likely not be determinative of the position that was open to the parties in the proceedings. He also observed that:

“There must be consistency as to the manner in which the Uplift Amounts are calculated for all relevant dates, so as to avoid overcompensation. To achieve this, [FXGH] had earlier suggested instructing Mr Brown to derive a s 254T amount for the Trigger [Times] in the Intervening Period, so as to enable the accounting experts to calculate the Uplift Amounts for the Intervening Period in the same manner as they will do for the Initial Dividend Payment Dates. However, where the [CPEC Vendors] emphasise that they have alleged a breach of clause 2.6(a) of Sched[ule] 3 for the Initial Dividend Payment Dates alone, that is not necessary. The accountants can be instructed instead to calculate the Uplift Amount in the Intervening Period on the basis that FX Holdco was entitled to retain the capital amounts it in fact retained during this period.”

128. That submission implicitly recognised the issue which then arose in the Quantum Judgment and now arises on appeal. In effect, FXGH there contended that, where the CPEC Vendors did not contend that FXGH had breached cl 2.6(a) of Schedule 3 of the SSA at later Trigger Times in the Intervening Period, the higher level of risk capital that FX HoldCo had maintained at those later Trigger Times should be treated as correctly maintained. The CPEC Vendors conversely contended that, where FX HoldCo’s earlier increase of the amount of risk capital it maintained has been found to have breached FXGH’s obligation under cl 2.6(a) of Schedule 3 of the SSA, it should be assumed that the lower amount of risk capital that would have been retained, absent breach, at the earlier Trigger Times would also be maintained at later Trigger Times in the Intervening Period. In effect, each party also contended that the other had the onus to plead and lead evidence of the position for which it contended.

129. In oral submissions made by Mr Izzo at the directions hearing on 29 October 2025, FXGH no longer pressed the contention that further evidence was required from Mr Brown, provided that FXGH could put an alternative assumption to the accounting experts.

130. By further written submissions dated 18 December 2025 made for the quantum hearing, Mr Izzo recognised that the CPEC Vendors had confined their claim for breach of cl 2.6(a) of Schedule 3 of the SSA to the Initial Dividend Payment Dates (as defined) and contended that no question arose for determination in the proceedings as to the amount that FX HoldCo could, or was permitted by law to, retain as at later dates. Mr Izzo also there squarely raised the proposition that there was not sufficient evidence to determine the position in the Intervening Period, submitting that:

“Secondly, even if the issue does arise for determination, no finding has been made as to the amount permitted by law to be retained at the relevant Trigger Times in the Intervening Period, and there is no evidence from the capital retention experts, including Mr Brown, as to the amount permitted by law to be retained by FX Holdco on any dates in the Intervening Period.

Thirdly, there is no evidence on which findings could be made as to the amount permitted by law to be retained. Mr Brown only calculated the s 254T amount for the Initial Dividend Dates. The finding of $20 million based on those three calculations ([P]J [470]) could therefore be understood as a finding of the s 254T amount required at the three points in time with which Mr Brown’s calculations are concerned. On Mr Brown’s approach, the s 254T figure for a given point in time is a function of, among other things, Pepperstone’s net exposure (or net open position) and operating costs at that point in time.” [emphasis in original]

131. Mr Izzo then submitted that Pepperstone’s net exposure necessarily fluctuated over time, by matters such as the volumes traded and mix of trades at a point in time, and pointed to a significant increase in the volume traded by Pepperstone in later periods, between June 2023 and June 2025, and to increases in operating costs of the business over that time.

132. By their written submissions dated 18 December 2025 for the quantum hearing, the CPEC Vendors responded that:

“… to substantiate the assumption that on Trigger Times [in the Intervening Period] FX Holdco held the amount of capital it in fact retained, [FXGH is] required to establish that FX Holdco would have retained such an amount of capital by the Trigger Times occurring after 3 August 2023, even if it had not reserved additional capital earlier in 2023 (in breach of cl 2.6(a)). [FXGH has] not established that that would have occurred, ... More fundamentally, as a matter invoked to mitigate the amounts payable to the [CPEC Vendors], [FXGH was] required to plead and prove a counterfactual in which FX Holdco would have retained additional capital in any event.”

133. That submission, which was repeated by Mr Herzfeld on appeal, treats this issue as a question of mitigation. As Mr Izzo pointed out, this issue arose, not in respect of the CPEC Vendors’ claim for loss resulting from the breach at the earlier three Trigger Times, but in respect of their claim for loss when further distributions were made in the Intervening Period. In my view, it is not properly characterised as an issue of mitigation.

134. In oral submissions as to quantum on 9 February 2026, Mr Herzfeld in turn put the proposition that it was for FXGH to prove that, if the SSA had been properly performed in 2023 and a $20 million capital amount had been adopted, then a higher amount would have been adopted in 2024. In response, Mr Izzo again pointed to the absence of evidence as to that matter and again took a point as to the onus to establish that matter, and contended that FXGH had no onus to lead evidence to show any increase in the amount of retained capital in 2024, where the CPEC Vendors made no allegation of breach beyond the first three Trigger Times.

The primary judge’s assessment of damages with respect to the second issue

135. The primary judge recorded FXGH’s contentions as to this issue in her Quantum Judgment (QJ [68]ff) as follows:

“[FXGH] submitted that the $20 million capital retention amount only applied to the Trigger Times considered by Mr Brown, being February, May and August 2023. As for subsequent Trigger Times, the question was what assumption should be made as to how much capital was retained by [FX HoldCo]. One could assume that [FX HoldCo] retained only the amount of Agreed Assets plus regulatory capital or, alternatively, assume that [FX HoldCo] retained the amount which it in fact retained on those dates. [FXGH] favoured the latter. The [CPEC Vendors] were said to have confined their claim for breach of cl 2.6(a) of Sch 3 of the Share Sale Agreement to the February, May and August 2023, with the claim for subsequent Trigger Times being in debt alone. As there was no breach alleged beyond February, May and August 2023, there was no basis for the Court to determine the appropriate figure that [FX HoldCo] was permitted by law to retain thereafter as the issue did not arise on the pleadings. Alternatively, if the issue did arise for determination, then no finding had been made as to the amount permitted by law after August 2023. There was no evidence from the capital retention experts as to that amount. My conclusion (at [473]) should be understood as a finding of the amount required at the three points in time with which Mr Brown’s calculations were concerned.

[FXGH] further submitted that there was no evidence on which such findings could now be made. The appropriate amount to retain on any subsequent date depended on [FX HoldCo’s] exposure for that period and its operating costs. Things would be different on different dates. It would not be safe to determine the s 254T amount for points in time not considered by Mr Brown, who noted that the amount he assessed in his first report “may not be true on a forward basis, especially if the business undergoes changes”. But the onus was on the [CPEC Vendors], who only contended that there was a breach on February, May and August 2023. There was no onus on [FXGH] to plead and prove that there was no breach on any other relevant date.

136. Her Honour summarised the position that had arisen in the course of the trial to increases in capital retention (QJ [71]ff) and then summarised (QJ [74]) the principles applicable to an assessment of damages, uncontroversially, as follows:

“Turning then to the assessment of damages for subsequent quarters, 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 in if the contract had been performed: Koufos v C Czarnikow Ltd (Heron II) [1969] 1 AC 350; Wenham v Ella (1972) 127 CLR 454 at 460 (Barwick CJ); [1972] HCA 43; 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] (Matthews J).”

137. Her Honour also observed (QJ [75]):

“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 (Dixon and McTiernan JJ); [1946] HCA 54; McRae v Commonwealth Disposals Commission (1951) 84 CLR 377 at 411–412 (Dixon and Fullagar JJ); [1951] HCA 79; Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 83 (Mason CJ and Dawson J); [1991] HCA 54.”

138. It is important here to recognise that the principle has its limits, and the case law also recognises that damages must be proved with a degree of precision which reflects the proof that is reasonably available to the parties: New South Wales v Moss (2000) 54 NSWLR 536; [2000] NSWCA 133 at [72]; Placer (Granny Smith) Pty Ltd v Thiess Contractors Pty Ltd (2003) 196 ALR 257; [2003] HCA 10 at [38]. In Schindler Lifts Australia Pty Ltd v Debelak (1989) 89 ALR 275 at 319; [1989] FCA 439, Pincus J noted that “if the evidence called on behalf of [the plaintiff] fails to provide any rational foundation for a proper estimate of damages, the court should simply decline to make one”. That approach was approved by Brooking J in JLW (Vic) Pty Ltd v Tsiloglou [1994] 1 VR 237 at 245 and by the Court of Appeal in Troulis v Vamvoukakis [1998] NSWCA 237 where Gleeson CJ observed that, where damages were susceptible of evidentiary proof, but there was an absence of raw material to which good sense may be applied, “[j]ustice does not dictate that … a figure should be plucked out of the air”. In McCrohon v Harith [2010] NSWCA 67 at [128], McColl JA (with whom Campbell JA and Handley AJA agreed) similarly observed that an estimate of damages in the nature of a “guess” should not be made where precise evidence of the damages suffered could have been adduced but was not.

139. The primary judge then concluded (QJ [76]–[78]) that:

“In assessing damages for quarters post-dating the Trigger Times considered by Mr Brown, being February, May and August 2023, Ms Wright and Mr Stone have proceeded up to May 2024 on the basis that the capital retention amount in the counterfactual (where [FXGH] performed its ‘dividend sweep’ obligation) was the figure assessed by Mr Brown. I have increased that figure to $20 million. By my primary judgment, I have already awarded damages up to the end of Ms Wright’s calculations, with which Mr Stone agreed, that is, to May 2024.

Another year passed before the trial in May 2025. There was no suggestion that [FXGH] was contemplating increasing its capital retention. As earlier noted, the [CPEC Vendors] planned to ask Mr Brown to prepare a further report if that occurred …. But [FXGH] increased its capital retention after both parties had closed their case and judgment was reserved.

Doing the best I can on the basis of the evidence before the Court, I assess damages for the quarters post-May 2024 on the basis that, in the counterfactual, [FXGH] would have procured that [FX HoldCo] retain the greater of Agreed Assets or $20 million on each Trigger Time, with the balance to be distributed as dividends. On receipt of these dividends, [FXGH] would then have issued a Notice of Uplift Amount in accordance with cl 10 of the [SSA], as construed. The capital retention amount on which damages should be calculated for each quarter post-May 2024 is $20 million. …”

Alleged errors in assessment of damages (grounds 27-31)

Grounds 27 and 28

140. I now turn to FXGH’s grounds of appeal as to this issue. By ground 27, FXGH contends that the primary judge erred in assessing damages for breach of cl 2.6(a) of Schedule 3 of the SSA (if that breach was established) on the basis that the CPEC Vendors had alleged breaches of that clause at Trigger Times after 3 August 2023, and refers to [74] of the Quantum Judgment in that regard. By ground 28, FXGH contends that the primary judge also erred in having regard to certain correspondence between the parties.

141. I am not persuaded that these grounds of appeal have been made out. Paragraph 74 of the Quantum Judgment, to which FXGH refers, does not contain the error which FXGH attributes to the primary judge and is an orthodox account of the principles applicable to the assessment of damages, which is consistent with her Honour assessing damages on the basis that FXGH contended, at first instance, for breach at the Initial Dividend Payment Dates and not in the Intervening Period. Her Honour’s wider reasoning, as set out above, also did not proceed on the basis that the CPEC Vendors had alleged breaches of that clause in the Intervening Period, but instead rightly sought to quantify the damages arising from the breaches that she had found on the Initial Dividend Payment Dates.

Ground 29

142. By ground 29, FXGH contends that the primary judge should have assessed damages on the basis that the CPEC Vendors had alleged breaches of cl 2.6(a) of Schedule 3 of the SSA on the Initial Dividend Payment Dates and, critically, in respect of the Intervening Period:

“it should have been assumed that FX Holdco retained the amount of capital that it in fact retained on those dates.”

143. This ground of appeal has not been made out. The primary judge rightly assessed damages on the basis that the CPEC Vendors had alleged breaches of cl 2.6(a) of Schedule 3 of the SSA as at the Initial Dividend Payment Dates, as FXGH contends she should have done. Her Honour had also held that, at each of the Initial Dividend Payment Dates, the amount of risk capital that was properly retained by FX HoldCo was $20 million, and that finding has not been challenged in this appeal. FXGH did not plead that a higher amount would properly have been retained at any Trigger Times in the Intervening Period, although I will refer below to some evidence (which, it is common ground, was not drawn to the primary judge’s attention in submissions) that pointed to that possibility; and there was no basis for the primary judge to make the suggested assumption for those reasons.

Ground 30

144. FXGH then contends, in ground 30, that there was a breach of procedural fairness in this regard. Mr Izzo submitted that that denial of procedural fairness arose where the primary judge found that, during the Intervening Period, had FXGH complied with cl 2.6(a) of Schedule 3 of the SSA, the amount of capital that FX HoldCo would have retained is the greater of the Agreed Assets or $20 million. I do not accept this submission. It may be that there was a degree of confusion, at least on the part of FXGH’s legal representatives, until the directions hearing on 29 October 2025, as to whether the CPEC Vendors were alleging breaches of cl 2.6(a) of Schedule 3 to the SSA in respect of Trigger Dates in the Intervening Period. However, that confusion had been resolved before that directions hearing and the relevant issues were then clear to both parties. Plainly, there was also a substantial degree of strategic positioning by both parties in respect of this issue, in each advancing the position that the other had the onus of establishing its position. In these circumstances, both parties had opportunity to seek to lead evidence as to this issue, if they wished to do so, although both parties sought to advance their respective interests by relying on the evidence as it was. In these circumstances, it seems to me that no lack of procedural fairness is established.

Ground 31

145. Importantly, FXGH then contends, in ground 31, that the primary judge erred in accepting a counterfactual that FX HoldCo would have retained the greater of the amount of the Agreed Assets or $20 million on each Trigger Time in the Intervening Period, with the balance to be distributed as dividends, for several reasons, namely that:

“a. there was no expert evidence as to the amounts of capital that FX Holdco was entitled to retain on each of the Trigger Times beyond 3 August 2023;

b. the uncontested expert evidence was that the s 254T amount at any particular date depended on factors comprising the exposure of the S-Book and X-Book and the operating expenses of FX Holdco;

c. there was evidence that the abovementioned factors could not have remained constant after 3 August 2023, because after that time there were increases in operating expenses, monthly volumes traded and losses resulting from FX Holdco’s net exposure, such that the appropriate amounts of capital to be retained at each Trigger Time beyond 3 August 2023 would necessarily be higher than the amounts of capital which Mr Brown had opined were appropriate to be retained at the Trigger Times of 3 February 2023, 5 May 2023 and 3 August 2023.”

146. Mr Izzo submitted that:

“It is necessary to distinguish the Trigger Times of 3 February 2023, 5 May 2023 and 3 August 2023 (Initial Dividend Payment Dates) from Trigger Times after these dates and up to and excluding the 7 August 2025 Trigger Time (Intervening Period).

The distinction is important because the opinion of the CPEC Vendor's capital retention expert, Mr Brown as to the s 254T amount, on which the [primary] judge based her finding that FX Holdco was entitled to retain $20m, concerned the Trigger Times of February, May and August 2023 only ... That raised a question as to whether, in quantifying the amount payable to the [CPEC] Vendors, the experts should assume that, for each Trigger Time in the Intervening Period:

(a) FX Holdco retained the higher of the Agreed Assets (regulatory capital plus $10m) and $20m; or

(b) FX Holdco retained the amount it in fact retained ...

The first assumption was premised on the $20m figure derived from Mr Brown continuing to be the s 254T amount in the Intervening Period. The second assumption, by contrast, was premised on there being no breach of clause 2.6(a) in the Intervening Period, such that FX Holdco held the amount of capital that it in fact retained in that period.”

147. For completeness, as Mr Izzo also pointed out:

“…it is important to note that the $20m figure was not itself the amount used in the calculations for the Initial Dividend Payment Dates. As the Agreed Assets exceeded $20m at each of the Initial Dividend Payment Dates, the calculations proceeded by reference to Agreed Assets rather than $20m. The significance of the $20m figure was therefore not that it was used as the retained amount in those calculations, but that it was treated as the relevant s 254T benchmark which informed the “greater of” assumption.”

148. Mr Izzo also submitted that:

“There was no evidence capable of supporting a finding that in the counterfactual world FX Holdco would not have increased the capital it retained beyond $20m inclusive of regulatory capital in the Intervening Period. As already noted, neither Mr Brown nor the Joint Capital Retention Report had opined on the appropriate capital retention amounts after August 2023; and there was no other material which provided a basis for the [primary] judge to make a finding on that matter. While a court must do the best it can on the material before it, that does not authorise an award of damages lacking any evidentiary basis at all and does not excuse a failure by the party bearing the onus to adduce evidence providing at least some basis for the quantification of damages: Uszok v Henley Properties (NSW) Pty Ltd [2007] NSWCA 31 at [137].”

I have also referred to other authorities addressing that issue above.

149. Mr Herzfeld responded that:

“The CPEC [Vendors] having established that FXGH had breached the dividend sweep obligation on the three dividend dates the subject of the breach claim, the Vendors are entitled to be paid damages equal to the profit-sharing amounts which would have been paid but for the breach. That reflected the basic principle that a promisee should be placed in a position as if the breach of contract had not occurred. Reflecting that principle, damages are to be quantified on the assumption that cl 2.6(a) had not been breached. Thus, in the counterfactual where the breach had not occurred, FX Holdco would not have held the capital it had earlier retained in breach of the dividend sweep obligation. In consequence, the subsequent dividends in the Intervening Period were required to be assessed on the basis that FX Holdco did not hold so much of the capital which was retained in breach of the sweep obligation. The primary judge simply reasoned that there was no evidence supportive of a conclusion that, even if FX Holdco had prior to 3 August 2023 held less capital, after that date it would have made a decision to hold more ([QJ] [77]–[78]). That is all her Honour meant by “assessment of damages for subsequent quarters” ([QJ] [74]). Her Honour was not identifying separate and additional breaches of contract for those quarters. Another way of approaching the issue with the same outcome is to conceive of the amounts due to the Vendors in respect of the Intervening Period as debts due to them under the profit-sharing arrangement, calculated on the basis that the capital amount retained accorded with the contract.” [emphasis in original]

150. As I noted above, there was some evidence (which, it is common ground, was not drawn to the primary judge’s attention in submissions) that pointed to a possibility that a higher amount would properly have been retained by Pepperstone at Trigger Times in the Intervening Period. In Mr Sahin’s report dated 3 May 2024, he addressed the performance of Pepperstone’s business in the period July to September 2023 and observed that, on 20 September 2023, Pepperstone’s 30 day cumulative profit and loss (net of hedging) position had peaked at negative $8.8 million, reflecting market losses (net of hedging) in the 30 days to 20 September 2023, being partly offset by market revenue generated in the period. In his responsive report dated 6 July 2024, Mr Brown acknowledged that:

“…the performance of Pepperstone during July to September 2023, and some of the findings in the Sahin Report, may form part of an assessment with respect to quantifying the appropriate risk capital to be held post September 2023.”

151. These observations highlight the fact that additional information, including the market losses to which Mr Sahin had referred, might well be relevant to determining the amount of capital that Pepperstone and FX HoldCo would be required to retain in the Intervening Period. That proposition is inconsistent with any assumption that the amount of $20 million that her Honour had held would properly be retained for the purposes of s 254T of the Act as at the three earlier Trigger Times would continue to be applicable, in changed factual circumstances, in the Intervening Period.

152. It is understandable that the CPEC Vendors did not seek to lead evidence to show the amount of dividend that could properly be paid by FX HoldCo at Trigger Times in the Intervening Period, where it would likely have been costly and time-consuming to obtain further expert evidence as to that matter at quarterly intervals in the Intervening Period. It is also understandable that the primary judge sought to do the best she could with the evidence available, to avoid the risk that the position as to Trigger Times in the Intervening Period would have to be addressed in further proceedings between the parties or, possibly worse, that it could not be addressed in further proceedings because it ought to have been addressed in these proceedings.

153. However, recognising both of these matters, it still seems to me that the CPEC Vendors had the legal onus of proving that the loss or damage they claimed had been suffered by the breach of contract of which they complain and of establishing the amount of that loss or damage, including by inferences drawn from the whole of the evidence. That legal onus is constant, although “the practical burden of introducing evidence can and often does shift”, depending on “how the plaintiff chooses to formulate the loss or damage claimed” and on “how the parties thereafter choose to join issue on the questions of connection with the contravention and quantum that arise in respect of the chosen formulation”: Berry v CCL Secure Pty Ltd (2020) 271 CLR 151; [2020] HCA 27 at [28]–[29], [64]–[66]; Viterra Malt Pty Ltd v Cargill Australia Ltd (2023) 74 VR 1; [2023] VSCA 157 at [868]ff. The CPEC Vendors could here have alleged and sought to establish a breach of cl 2.6 of Schedule 3 to the SSA at later Trigger Times, but did not do so, and both parties could alternatively have established, by evidence, the amount of dividend that could be paid by FX HoldCo consistent with s 254T of the Act at later Trigger Times, but also did not do so. It seems to me that the Court could not properly assume that, notwithstanding evidence of changes in the scale of Pepperstone’s business and issues as to its performance in the Intervening Period, the amount of capital that would properly be retained by Pepperstone on Trigger Times in the Intervening Period would be the same as it was at the earlier Trigger Times. In any event, where neither party led sufficient evidence to establish that matter, the primary judge was left in a position that there was not sufficient evidence for determination of damages recoverable by the CPEC Vendors for Trigger Times in the Intervening Period.

154. Accordingly, ground 31 has been made out. On that basis, I would allow FXGH’s appeal as to this issue.

Third issue on appeal – interaction of s 254T of the Act and regulatory capital requirements (grounds 32-34)

155. The third issue relates to the interaction between FX HoldCo’s obligations under s 254T of the Act and the requirements of ASIC Class Order [12/752], now superseded by the 2022 Instrument.

156. I first address the background to this issue. By letter of instruction dated 28 August 2023 to Mr Brown, the CPEC Vendors’ solicitors advised that:

“In your report, you will only be required to undertake a financial analysis of the Pepperstone business. We do not require you to conduct any analysis of the legal or regulatory requirements to hold capital that are applicable to Pepperstone.”

157. In his report dated 8 December 2023, Mr Brown in turn observed that:

“I have undertaken … a financial analysis of the capital required to be held by the Pepperstone business under s254T(1) of the [Act]. Within this context I was not asked and did not undertake any legal analysis of the regulatory capital (or legislated amounts of capital) that are applicable to Pepperstone.”

158. Mr Brown there calculated the range of total capital required as at three Trigger Times, 3 February, 5 May and 3 August 2023, and, consistent with his instructions, did not classify the amount of capital that was required as either regulatory capital on the one hand or risk capital on the other. He concluded, again without such a differentiation, that:

“My conclusion is that the appropriate amount of cash was a minimum of approximately AUD 16,000,000, with the upper range of approximately AUD 20,000,000. Whilst the AUD ~13,000,000 minimum requirement, per my modelling, has historically proved to be an adequate buffer against extreme price gap events, the same may not be true on a forward looking basis, especially if the business undergoes changes.”

159. As the primary judge in turn noted in the Quantum Judgment (QJ [61]), Mr Brown was also cross-examined as to whether the total liquidity requirement he had calculated was in addition to regulatory capital and confirmed that he had made no assumption or conclusion as to that matter.

160. By submissions dated 18 December 2025 made for the quantum hearing, Mr Izzo submitted that the damages recoverable by the CPEC Vendors should be calculated on the basis that FX HoldCo was permitted to and retained an amount of cash equal to the greater of $20 million plus regulatory capital or Agreed Assets plus other regulatory capital. Mr Izzo there submitted, and now puts on appeal, that:

“… in addition to the assets required to comply with the various regulatory capital requirements (being the NTA Requirements (Australian regulatory capital) and Other Reg Cap), FX Holdco Group Members may retain, and FXGH is not obliged to procure a distribution of, the amount required by s 254T of the [Act].” [emphasis in original]

161. This approach would add the amount of regulatory capital required by, for example, the 2022 Instrument, to the amount of capital to be retained in order to comply with s 254T of the Act. Mr Izzo there submitted that, first, FX HoldCo Group Members (as defined) were required by law and permitted by law to maintain amounts required by regulatory capital requirements; that the SSA contemplated that FX HoldCo Group Members would comply with those requirements; and that:

“… this approach reduces the risk of the coming to pass of deleterious statutory consequences for the Pepperstone business that attach to the net tangible assets dropping below the required level, such as the conditional and total prohibitions on Pepperstone Group Ltd entering into transactions with customers found in s 912AB(9) and (10) of the [Act] (as declared by the [2022] Instrument).”

162. Her Honour addressed this issue in her Quantum Judgment (QJ [79]–[88]) as follows:

“[FXGH] has raised an issue as to what I meant by my primary judgment in respect of Mr Brown’s opinion. I note that [FXGH] has already suggested that this portion of my primary judgment contains an error or omission, with which I have not agreed. In any event, [FXGH] submitted that regulatory capital was added to the $20 million capital retention amount. Properly understood, Mr Brown made no assumption as to regulatory capital, while Mr Sahin said the figure he arrived at was in addition to regulatory capital.

[FXGH] further submitted that [FX HoldCo] was permitted to retain an amount of cash equal to the greater of $20 million plus regulatory capital or Agreed Assets plus regulatory capital. Regulatory capital requirements were amounts which [FX HoldCo] was required by law to maintain and are thus “permitted by law” within the meaning of cl 2.6(a) of Sch 3. Adding the amount required by s 254T of the [Act] to the assets required to comply with the regulatory capital requirements minimised the risk of a failure to hold adequate capital, consistently with the [SSA]’s contemplation that such compliance will be “ensured” …

[FXGH] has largely re-put a submission which I have already rejected at trial. But the argument that the proper construction of cl 2.6(a) is that regulatory capital is added to the appropriate capital retention or Agreed Assets is new.

As to the former, [FXGH] submitted at trial that the Rochford report, KPMG report and Mr Sahin had proceeded on the basis that the TLR amount was in addition to regulatory capital. This approach was said to correspond with the calculations in fact undertaken by Pepperstone in the ordinary course of its business. So much may be accepted. My focus was on whether [FXGH] had performed its obligation under cl 2.6(a) of Schedule 3 of the [SSA], which depended on the terms of that obligation rather than on what the Company, its consultants or expert witness did. [FXGH] then relied on Mr Stevenson’s email of 26 July 2023 to Mr Brown. Mr Stevenson’s outline of a different task — which does not seem to have been tied to the precise wording of the ‘dividend sweep’ obligation — is of no moment. Of more interest was the formal letter of instruction from the vendors’ solicitors. Mr Brown’s answers in cross-examination on this topic were consistent with the instructions he had been given by the vendors’ solicitors and his report.

As to the new point, cl 2.6 of Sch 3 provides that, for each calendar quarter, [FXGH] “must, to the extent permitted by law for that period, procure” that [FX HoldCo] distribute to its the shareholders all cash or cash equivalent amounts “exceeding the Agreed Assets at the time of the distribution”. As I noted in my primary judgment at [438], [FXGH] (as the majority shareholder) is thereby obliged to ensure that [FX HoldCo] declares dividends exceeding the Agreed Assets “to the extent permitted by law”.

Agreed Assets means the aggregate of the assets required to ensure that the Group complies with the Net Tangible Assets (NTA) Requirements and the Buffer Amount: cl 1.1. NTA Requirements are the requirements set out in ss (4) and (5) of s 912AB of the Corporations Act, as declared in cl 4 of the ASIC Class Order [CO 12/752]. These requirements are imposed by the Australian Securities and Investments Commission (ASIC) on participants in the market for derivatives, to ensure that [FX HoldCo] can satisfy its obligation to have adequate financial resources under s 912A(1)(d) of the [Act]: primary judgment at [32]. The Buffer Amount is $10 million.

As such, cl 2.6(a) requires the following tasks to be undertaken at the time of distribution:

(a) Ascertain what cash or cash equivalents [FX HoldCo] holds.

(b) Calculate Agreed Assets (NTA Requirements plus Buffer Amount).

(c) Deduct (b) from (a), with the result being the amount available for distribution as dividends.

(d) If the result is a positive amount, then consider whether there is any other legal restriction which would prevent some or all of this amount being distributed to shareholders.

Ms Wright undertook steps (a) to (c) for each quarter from February 2023 to May 2024 and calculated that there was a positive amount for each quarter: primary judgment at [441].

Mr Brown undertook step (d) for the three distribution dates which had passed at the time of his report. As is apparent from his letter of instruction, the only other legal restriction which [FXGH] had pointed to as justifying [FX HoldCo]’s increase in its capital retention was s 254T of the [Act]. Mr Brown considered whether [FX HoldCo] was required to keep more cash by reason of this legal constraint and concluded that [FX HoldCo] should keep $16 million on that account. Mr Brown was not instructed to, and did not, fix upon that figure as being in addition to NTA Requirements or the Buffer Amount or Agreed Assets but as a ‘standalone’ amount that [FX HoldCo] should retain in order to satisfy the requirements of s 254T.

Step (d) requires a comparison between the figure arrived at by Mr Brown, on the one hand, and Agreed Assets on the other hand. If the appropriate capital retention as assessed by Mr Brown, having regard to s 254T, was more than Agreed Assets, then [FX HoldCo] should retain the s 254T amount. If not, [FXGH] should procure that [FX HoldCo] distribute dividends as calculated by Ms Wright. In terms of the supplementary joint experts reports, Assumption One — Retained Amounts, I consider Alternative Assumption A to govern the position.” [emphasis in original]

163. I now turn to the grounds of appeal raised by FXGH in respect of this issue.

Ground 32

164. By ground 32, FXGH contends that the primary judge erred in finding (QJ [88]) that, on the proper construction of cl 2.6(a) of Schedule 3 of the SSA, the phrase “to the extent permitted by law” required consideration only of the amounts necessary to satisfy the requirements of s 254T of the Act. This ground of appeal is directed to the last paragraph of the primary judge’s analysis that I have quoted above. I do not consider that the primary judge here reached the suggested finding that the phrase “to the extent permitted by law” required consideration only of the amounts necessary to satisfy the requirements of s 254T of the Act, although she was here addressing the operation of that section in the relevant calculation. It is plain from her Honour’s judgments that she had rightly recognised that that term might require reference to other obligations, including those imposed on the holder of an Australian financial services licence (“AFSL”) under s 912A of the Act and (as is common ground between the parties on the appeal) those imposed on FX HoldCo’s directors by s 180 of the Act.

Ground 33

165. FXGH then contends, by ground 33, that the primary judge should have found that, on the proper construction of cl 2.6(a) of Schedule 3 of the SSA, the phrase “to the extent permitted by law” required consideration of both the amounts necessary to satisfy the requirements of s 254T of the Act and the amounts of regulatory capital required by law to be retained pursuant to instruments such as ASIC Class Order [CO 12/752], which I noted above was superseded by the 2022 Instrument, in the sense that the two should be added together. The CPEC Vendors contend for the contrary position.

166. Turning to the parties’ submissions as to this issue, Mr Izzo submitted, first, that the answer to the question whether the $20 million figure ought to include or exclude regulatory capital did not turn on Mr Brown’s evidence. I accept that Mr Brown’s evidence may not have been the only relevant matter, but it was plainly relevant that that evidence made clear that Mr Brown was assessing total capital which FX HoldCo needed to retain to comply with s 254T of the Act, at the three Trigger Times in issue, without regard to whether it was or was not characterised as regulatory capital.

167. Mr Izzo submitted, second, that the question whether the amount required to comply with s 254T of the Act should be added to regulatory capital required, inter alia, under the 2022 Instrument and notional s 912AB of the Act or the regulatory requirements of other jurisdictions, was a question of construction of cl 2.6(a) of Schedule 3 of the SSA and, possibly, also of the regulatory capital requirements. Mr Izzo then reviewed the regulatory capital requirements and advanced what appears to be an essential premise of his submission, namely that:

“while it is true that the regulatory capital amount required by the Class Order is part of the Agreed Assets, the significance of the law requiring particular amounts to be maintained as capital is that those amounts cannot be used for any other purpose – including to meet losses to clients.”

168. I do not accept that submission. The regulatory capital requirements are directed to ensuring that financial intermediaries hold at least some capital that is available to meet losses to clients, and that capital can and will be used to meet such losses when an intermediary is in difficulty, although an intermediary that needs to use that regulatory capital in that way will be exposed to the limits on its future business provided by notional s 912AB of the Act and to possible contravention of s 912A of the Act.

169. Mr Izzo then submitted, by way of example:

“To illustrate with an example, take 3 August 2023. If for this given point in time:

(a) the amount required by s 254T is $20 million; and

(b) the regulatory capital amounts required total $19,076,400

then on the approach whereby the s 254T amount is not added to the assets required to comply with the regulatory capital requirements, and only $20m is retained, there is only $923,600 protecting Pepperstone from ceasing to comply with its regulatory capital requirements. If, by contrast, the $20m is added to the assets required to be held to comply with the regulatory capital requirements, so that $39,076,400 may be retained, there is $20m protecting Pepperstone from ceasing to comply with its regulatory capital requirements. This is in a context where monthly market losses were $5.71 million in June 2023 and $8.4 million in February 2023 ...”

170. However, this example discloses the error in the premise of this submission. It shows, clearly enough, that it would be more advantageous to Pepperstone from a risk perspective (although possibly not from a cost perspective) to choose to hold a larger rather than a smaller amount of risk capital, which it is not required to hold, in excess of the regulatory capital which it is required to hold. However, whether Pepperstone met its statutory obligations under the 2022 Instrument and notional s 912AB of the Act would here be determined by reference to those obligations, not by whether Pepperstone would be in a more secure position by holding more capital than was required by those obligations. (I put aside any wider obligations under s 912A of the Act since FXGH did not seek to establish what they would require at trial, and did not rely on that section in the appeal.) On that basis, it appears that the specified regulatory requirements would be satisfied by Pepperstone holding the required regulatory capital of $19,076,400 in that example, and s 254T of the Act would also be satisfied if the payment of the relevant dividend would not materially prejudice Pepperstone’s ability to pay its creditors, which Mr Brown opined (and the primary judge accepted) would be the case if Pepperstone retained $20 million on each of the Trigger Times in issue. The same capital can properly be treated as meeting both the regulatory capital requirements and s 254T of the Act, since regulatory capital can be applied to meet client and counterparty claims as required. While I do not doubt that it would potentially have been prudent and desirable (again putting aside any question of the cost of capital) for Pepperstone to hold more than the required regulatory capital, it does not follow that the payment of a dividend that did not breach the regulatory capital requirements and did not breach s 254T of the Act (determined without adding the two together) was not permitted by law.

171. Mr Izzo then submitted:

“… adding the amount required by s 254T to the assets required to comply with the regulatory capital requirements minimises the risk of a failure to hold adequate capital, consistently with the SSA’s contemplation that such compliance will be “ensured”.

Secondly, the SSA itself contemplates that, at least so far as concerns Australian regulatory capital, FX Holdco and its subsidiaries will comply with the NTA requirements, being the amounts prescribed by s 912AB(4) and (5). This is apparent from the definition of Agreed Assets and the definition of NTA Requirements referred to in that definition.”

172. The proposition that adding these two amounts “minimises” the risk of failure is likely correct, since a company’s holding more rather than less capital would generally strengthen its position, up to the point that the cost of holding excess capital erodes its profitability. However, that also does not have the consequence that the payment of a dividend that does not bring about a breach of the regulatory capital requirements, does not bring about a breach of s 254T of the Act, and was not here alleged to bring about a breach of directors’ duties, was not permitted by law for the purposes of cl 2.6 of Schedule 3 of the SSA. The reference to “ensured” in this submission is to the definition of “Agreed Assets” in cl 1.1 of the SSA, which (as I have noted above) is defined as the aggregate of the assets required to “ensure” that the Group complies with the NTA Requirements and the Buffer Amount. That is a definitional provision and does not itself impose an obligation; and, in any event, compliance with the NTA Requirements required only that the amount required by the 2022 Instrument and notional s 912AB of the Act be held, not that much more than that amount be held. That is also the answer to the second submission noted above.

173. Mr Izzo then submitted:

“Thirdly, this approach [of adding the regulatory capital to the capital required to comply with s 254T] reduces the risk of the coming to pass of deleterious statutory consequences for the Pepperstone business that attach to the net tangible assets dropping below the required level, such as the conditional and total prohibitions on Pepperstone Group Ltd entering into transactions with customers found in s 912AB(9) and (10) of the Act (as inserted by the Class Order).”

174. That proposition is plainly correct. However, as I noted above, it does not follow that the payment of a dividend that did not breach the regulatory capital requirements and did not breach s 254T of the Act (determined without adding the two together) was not permitted by law.

175. Mr Izzo also submitted that:

“Fourthly, the addition of regulatory capital to the s 254T amount is consistent with the approach of every expert who turned their mind to the question. Both Rochford and KPMG prepared their analyses on the basis that the liquidity amount they were considering would be added to regulatory capital. Mr Sahin, FXGH’s expert, had assumed that the s 254T amount he derived would be added to regulatory capital: [PJ] [467]. That is also what Mr Brown had been instructed, when he was earlier engaged by the CPEC Vendors to prepare a report. It was only when Mr Brown produced a later and different report in the proceedings that he said he made no assumption one way or another as to whether his s 254T amount was to be added to regulatory capital: [QJ] [61].”

176. The difficulty with this proposition is that, first, it was plainly reasonable for an expert who is seeking to determine the amount of risk capital that was prudent or desirable for Pepperstone to hold in addition to regulatory capital to determine the total capital of Pepperstone by adding the two together, as the experts did; but that is a different question from the question how much capital Pepperstone was required to hold in order to have the result that a dividend was permitted by law for the purposes of cl 2.6 of Schedule 3 of the SSA. Second, the primary judge accepted, and FXGH does not challenge the acceptance of, Mr Brown’s report as to the amount of capital that Pepperstone was required to hold so that a dividend complied with s 254T of the Act; and her Honour held, and I have found that she was right to hold, that that report did not contemplate that the amount of regulatory capital would then be added to the amount that he had derived.

177. Mr Willoughby, who made submissions for the CPEC Vendors as to this issue, responded by identifying two suggested flaws in FXGH’s submissions as to this issue, as follows:

“First, it assumes that each capital retention obligation is cumulative, such that, for example, the amount required to be retained to comply with s 254T of the [Act] must be added to the amount required to be retained in order to comply with the [2022] Instrument …

Ostensibly, FXGH’s position is that the provision in the ASIC Instrument that an entity subject to the instrument (like FX Holdco) “must hold” a prescribed amount of capital means that the entity is never able to use that amount to meet its liabilities to customers. That is illogical. To the contrary, such requirements are imposed so that the relevant licensed entities have sufficient liquid assets with which to discharge their liabilities. …

Likewise, s 254T of the [Act] does no more than limit the amount of dividends that a company may pay. Indeed, s 254T(1)(c) … expressly recognises that amounts retained by a company and not distributed as dividends are to be used to pay the company’s creditors. Those creditors include the very customers whose liabilities are contemplated in the [2022] Instrument.

Accordingly, the essential premise of FXGH’s contention in respect of the $20 million Issue is wholly misconceived. The amounts which FX Holdco was obliged to hold pursuant to s 912AB(5) and s 254T were not cumulative. FXGH has not identified in its submissions any capital retention obligations which are cumulative upon one another. Rather, its submissions identify reasons why (at least for the purposes of this proceeding) it would be advantageous or prudent to treat the capital retention obligations cumulatively … Those submissions go nowhere, however, in the face of the obligation to maximise dividends to the extent permitted by law.

The second flaw concerns FXGH’s contention as to the construction of sch 3 cl 2.6(a) of the SSA. On FXGH’s approach, FX Holdco’s capital retention obligations should be treated cumulatively for the purposes of determining the amount of any distribution FX Holdco is “permitted by law” to make. That construction finds no support in the text of cl 2.6(a) or elsewhere in the SSA.

Clause 2.6(a) requires FXGH to procure FX Holdco to maximise the dividends it pays each quarter. That is subject to an express limitation: FX Holdco must retain the Agreed Assets, which comprises one identified capital retention obligation imposed by ASIC and a “Buffer Amount” of $10 million. It would be contrary to the evident purpose of the dividend sweep obligation – to maximise the dividends paid to FXGH and share with the Vendors – for the SSA to treat every regulatory capital (and any other capital) retention obligation cumulatively, especially where, as FXGH notes, FX Holdco’s subsidiaries held licences subject to regulatory capital requirements in various jurisdictions ... It is exceedingly improbable that the parties intended that the dividend sweep obligation could be substantially or even wholly curtailed to accommodate an unquantified and unspecified set of regulatory capital requirements merely by use of the words “to the extent permitted by law”, especially given that the parties identified ASIC’s capital requirements expressly.” [emphasis in original]

Consideration of ground 33

178. Without disrespect to the parties’ submissions as to this issue, it seems to me that it can be determined relatively briefly. In summary, I accept, as Mr Izzo submitted, that the 2022 Instrument and notional s 912AB of the Act requires that the holder of an AFSL that issues derivatives to retail clients must retain the specified minimum regulatory capital, even after an adverse market event; a failure to do so potentially gives rise to breach of a civil penalty provision and also to a risk of revocation or suspension of the AFSL; and the 2022 Instrument and notional s 912AB of the Act also identify specified consequences if the licensee falls below the requisite regulatory capital, in a manner that does not amount to a permission for it to do so. These matters have the consequence that FX HoldCo’s directors, acting properly and in accordance with their duties, might prefer to hold a higher rather than a lower amount of “risk” capital, in addition to the required regulatory capital under the 2022 Instrument, that would minimise the risk that an adverse market event would not be fully absorbed by the “risk” capital and would erode FX HoldCo’s regulatory capital, as required by the 2022 Instrument, and expose FX HoldCo to the adverse civil penalty and licensing consequences noted above. However, that proposition does not assist FXGH, because the question here was not whether it would be “better” or more prudent or more conservative to retain the amount determined by Mr Brown in addition to the amount of regulatory capital required under the 2022 Instrument, but whether payment of a dividend that did not do so contravened the 2022 Instrument or notional s 912AB of the Act or s 254T of the Act, so that it was not permitted by law for the purposes of cl 2.6(a) of Schedule 3 of the SSA.

179. It is here plain, at a factual level, that the payment of a dividend after retaining the amount contemplated by Mr Brown, or the increased amount found by the primary judge, did not contravene the 2022 Instrument or notional s 912AB of the Act. The evidence established the amount of regulatory capital required in respect of FX HoldCo as at each of the Trigger Times and, adopting either Mr Brown’s or the primary judge’s figure, FX HoldCo would have held significantly more than the amount of regulatory capital that was required after the dividend was paid. No doubt, its holding a greater amount would have reduced the risk that it might at some future point fall into contravention of the 2022 Instrument or notional s 912AB of the Act in the case of an adverse development in its position, but that does not give rise to a contravention of the 2022 Instrument or notional s 912AB of the Act at the time the dividend is paid.

180. Section 254T(1)(c) of the Act in turn prevents FX HoldCo paying a dividend unless the payment of the dividend does not materially prejudice the company’s ability to pay its creditors. Here, subject to FXGH’s contention as to the proper reading of Mr Brown’s report which I address below, the consequence of that report and the primary judge’s unchallenged finding is that retention of an amount of $20 million by FX HoldCo would be sufficient to comply with that section. There is no apparent reason to exclude “regulatory capital” that is held for the purposes of the 2022 Instrument and notional s 912AB of the Act in reaching that finding, because that capital is required to be retained for the purposes of meeting claims of FX HoldCo’s creditors, customers and counterparties and can be applied for that purpose, although I have recognised the adverse consequences for FX HoldCo’s continuing business of doing so in a way that might or did lead to breach of the minimum regulatory capital requirements under the 2022 Instrument and notional s 912AB of the Act.

181. Again, I recognise above that FX HoldCo and its directors may prefer to take a more conservative approach, so as to hold more capital than is required by the 2022 Instrument and notional s 912AB of the Act or distribute less by way of dividends than is permitted by s 254T of the Act, but that preference does not have the result that payment of a dividend that does not contravene either the 2022 Instrument and notional s 912AB of the Act or s 254T of the Act, is not permitted by law for the purposes of cl 2.6 of Schedule 3 of the SSA.

182. I also recognise that there were somewhat tentative references in the course of submissions to the duties of FX HoldCo’s directors in this context. However, that question does not arise, because it was not part of FXGH’s pleaded case at first instance, or the case run before the primary judge, that FXGH could not pay a dividend unless it satisfied s 254T of the Act, after excluding the amount of regulatory capital required under the 2022 Instrument and notional s 912AB of the Act, on the basis that to do so would be a breach of directors’ duties although it did not contravene either the 2022 Instrument and notional s 912AB of the Act or s 254T of the Act. Once it is found, for these reasons, that the payment of a dividend, after FX HoldCo retains capital of $20 million, meets both the requirements of the 2022 Instrument and notional s 912AB of the Act and the requirements of s 254T of the Act, then this ground of appeal must also fail.

Ground 34

183. By ground 34, FXGH contends that the primary judge erred in finding at PJ [467] and [473] and QJ [66] that the risk capital range arrived at by Mr Brown, the risk capital expert on whose evidence the CPEC Vendors relied, was inclusive of regulatory capital. Her Honour there relevantly observed that:

“[PJ [467]] Following a conclave, and allowing for Pepperstone’s operating expenses, Mr Brown considered that the appropriate risk capital requirement for Pepperstone at the dividend declaration dates was between $16.3 and $21.4 million. This figure was not in addition to the regulatory capital amount. Mr Sahin considered the appropriate risk capital requirement was $22.8 to $32.1 million. That was in addition to the regulatory capital amount.

[PJ [473]] In the result, I see no reason to depart from Mr Brown’s views, albeit making some allowance for the possibility that his calculations may be slightly low. The mid-point of Mr Brown’s range was $19 million, which includes the regulatory capital amount. I consider that a figure of $20 million is appropriate.

[QJ [66]] I also found that [FXGH] had breached its contractual obligation under cl 2.6(a) of Sch 3 to the [SSA]. As to the appropriate capital retention at the time when dividends were declared, I preferred Mr Brown to Mr Sahin but made some allowance for the possibility that Mr Brown’s calculations may be slightly low. I considered that a figure of $20 million was appropriate, where that figure was not in addition to the regulatory capital amount: at [467], [473].” [emphasis in original]

184. I do not consider that her Honour was in error in these findings. It may have been more precise for her Honour to have observed that Mr Brown’s evidence was directed to the question of the amount of capital that FX HoldCo was required to retain, in order to pay a dividend that complied with s 254T of the Act, and he did not consider (and, I would add, he did not need to consider) what part of that capital was “regulatory capital” required to be retained under the ASIC Class Order or 2022 Instrument and what part of it was “risk capital” beyond the amount required by that Class Order or Instrument to make that assessment. However, where the substance of Mr Brown’s finding was directed to the total amount of capital that FX HoldCo should retain in order to comply with s 254T of the Act, then it necessarily included all forms of capital that should be retained for that purpose, whether characterised as regulatory capital, risk capital or indeed any capital that was required to be retained for that purpose.

Conclusion

185. For these reasons, I would find that FXGH fails on the first issue (grounds 22-24) and third issue (grounds 32-34) but succeeds on the second issue on the basis that ground 31 (but not grounds 27-30) has been made out.

Leave to proceed against the Eleventh and Twelfth Respondents

186. For completeness, FXGH sought leave, under r 11.8AA of the Uniform Civil Procedure Rules 2005 (NSW) (“UCPR”), to proceed against the Eleventh and Twelfth Respondents, Ms Yan and Mr Zhang, who had been served with the appeal outside Australia and had not entered appearances in the appeal. Ms Yan and Mr Zhang, and some other respondents to the appeal which have entered submitting appearances, had become parties to the SSA by executing a deed of accession to it. The evidence led in support of the application for leave established that Ms Yan and Mr Zhang had been properly served with the appeal in China and have been notified of the hearing dates for the appeal. The claim in issue in the appeal is a claim for relief in respect of an alleged breach of the SSA, which was to be performed in Australia and was governed by Australian law. It was plain that FXGH had an arguable case on appeal, which has now succeeded in part. The primary judge had granted leave to proceed at first instance against Ms Yan and Mr Zhang and this Court is an appropriate forum for the appeal. There were no discretionary reasons not to grant the leave sought. For these reasons, I was satisfied that FXGH had established the matters relevant to a grant of leave to proceed under UCPR r 11.8AA, as noted in Rossiter v Core Mining Ltd [2015] NSWSC 360 and Willmott v Adamo [2024] NSWSC 682 at [17]-[18], and I joined in granting that leave at the commencement of the hearing.

Proposed orders

187. It was common ground between the parties that, in a mixed result of that kind, the parties would need to be given the opportunity to calculate the financial impact of the result and submit proposed orders.

188. I therefore propose the following orders:

189. Appeal allowed in part.

190. Order that, within 14 days, the parties submit agreed orders to give effect to this judgment and as to costs or, in the event of disagreement, their respective draft orders and submissions as to the differences between them not exceeding 10 pages in Arial font 12, one and a half spacing.

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