Infocus Tax and Business Advisory Pty Ltd v Andrews

Solicitors: Reuben George Lawyers (first plaintiff / second plaintiff / first respondent / second respondent) MillerPrince (first defendant / third defendant / first applicant / second applicant) JHK Legal (second defendant / third respondent) File Number(s): 2019 / 301427

Judgment

1. This is the third interlocutory judgment in these proceedings on an application by two of the defendants for an order that certain questions be dealt with separately and before the balance of the issues in the proceedings, and an application by all of the defendants for orders that the plaintiffs provide security for their costs of the proceedings.
2. Not only have these applications raised difficult questions but, as I will explain below, the parties have, at the most recent hearing, changed their positions fundamentally in a way that has dissipated much of the Court's time and effort in preparing the first two interlocutory judgments as well as much of the draft of this judgment.
3. In these reasons, I will refer to the plaintiffs as Infocus and Announcer and the defendants as Ben Andrews, Kim Andrews and VVV. Otherwise, the terms used will be the same as in the earlier judgments.

Outline of plaintiffs' claims

1. Broadly, the plaintiffs' claims arise out of the business activities of Infocus and a share sale agreement dated 1 July 2019, by which VVV sold its 50% shareholding in Infocus to Announcer, which also held the other 50% of the shares. Ben Andrews and Kim Andrews occupied directorial and management roles in Infocus at certain times up to the date of the share sale agreement.
2. The plaintiffs make claims against the defendants based on allegations that Ben Andrews and Kim Andrews were party to clients of Infocus being transferred to a business controlled by Ben Andrews, breaches by VVV of warranties in the share sale agreement relating to Infocus' clients and income, misleading or deceptive conduct on that subject, and solicitation of Infocus' clients after the date of the sale of agreement contrary to its terms.

First interlocutory judgment

1. The first of my interlocutory judgments is Infocus Tax and Business Advisory Pty Ltd v Andrews [2020] NSWSC 168, which was published on 3 March 2020.
2. The judgment dealt with two issues, as outlined above. The first was an application by Ben Andrews and VVV (supported by Kim Andrews) for an order that the Court deal with a question raised by the statement of claim separately and before the determination of the other issues raised by the proceedings pursuant to Uniform Civil Procedure Act 2005 (NSW) r 28.2. That question concerned the validity of clause 12 of the share sale agreement (clause 12) which, speaking broadly consisted of an agreement by the plaintiffs not to institute proceedings against Ben Andrews and Kim Andrews, as well as being a bar to such proceedings. The question was raised by the statement of claim because the plaintiffs anticipated the defendants' reliance upon clause 12 by pleading grounds for the Court to treat clause 12 as being void or unenforceable.
3. As mentioned, the second issue concerned the application by all three defendants for orders that the plaintiffs provide security for their costs of the proceedings.
4. The defendants filed their notices of motion seeking the interlocutory orders referred to above after the filing of the statement of claim and before the completion of the parties' pleadings.
5. As appears from my first judgment, I formed the view during the course of the hearing that it was not appropriate for the Court to decide whether to order the determination of the separate question until the pleadings had closed. I deferred finally dealing with the issue until that had occurred.
6. In respect of the issue of security for costs, the plaintiffs conceded that their financial circumstances were such that the Court would find that they would not be able to meet any costs orders made against them if they failed in their proceedings.
7. The holding company for both plaintiffs, which I called Infocus Wealth in the first judgment, offered to enter into a deed with the defendants by which it would guarantee the payment to the defendants of any amounts ordered by the Court to be paid by the plaintiffs for the defendants' costs of the proceedings. Infocus Wealth offered to enter into the deed because its financial circumstances did not allow it to provide security on behalf of the plaintiffs for the defendants' costs on the conventional basis, being by payment into court or the provision of a bank guarantee. That was because Infocus Wealth was in breach of a covenant owed to its bank under finance facilities that had the practical effect of preventing Infocus Wealth from paying the necessary amount into court or obtaining a bank guarantee from its bank.
8. The uncertainty of Infocus Wealth's position led to difficulty, because it was not feasible for the Court to determine reliably Infocus Wealth's financial strength on the evidence available on the interlocutory application, and it was not practicable for the Court to forecast Infocus Wealth's future financial security. Consequently, the acceptance by the Court of the provision of security for costs by the deed proposed by Infocus Wealth would necessarily impose a degree of financial uncertainty on the availability of the security for costs for the defendants.
9. In the end, after the delivery of the first judgment, I ordered that it would be acceptable for the amounts of security for the defendants' costs agreed between the parties to be provided by a combination of the deed offered by Infocus Wealth and personal undertakings given to the Court by the directors of that company that they would cause Infocus Wealth to honour its obligations to the defendants in the deed.
10. That, however, was a short term arrangement to bridge the period between the making of the order and the determination by the Court of the application for the making of the order for the determination of the separate question. That course appeared to me to be expedient in the short term given the relatively low risk to the defendants. I reserved the right of the defendants to apply for additional security for costs, and that such security be provided on a conventional basis, when it was determined whether the separate question should be ordered to be determined. The continuing suitability of makeshift security for costs would necessarily be sensitive to whether or not the separate question would be decided before the balance of the issues in the proceedings, and also the relative forensic complexity of the issues to be decided.
11. The parties were then left to complete their pleadings and ultimately a full suite of pleadings was filed, including defences and replies and cross claims by the defendants together with defences and replies in respect of the cross claims. The focus of the cross claims was the enforcement of the terms of clause 12, particularly in respect of the positive promise made by the plaintiffs not to sue Ben Andrews and Kim Andrews.
12. On 22 July 2020, the plaintiffs filed a notice of motion in which they sought leave to file an amended statement of claim and amended defences to the cross claims filed by the defendants. In fact, the plaintiffs also sought leave to amend their replies to the defendants' defences.

Second interlocutory judgment

1. For the reasons explained in my second judgment, which was published on 14 August 2020, I gave the plaintiffs the leave that they sought: Infocus Tax and Business Advisory Pty Ltd v Andrews (No 2) [2020] NSWSC 1072. I also dealt with other matters in that judgment to which reference need not now be made. I required the plaintiffs to procure that Infocus Wealth increase the amount of the security for costs that it had provided, but by the same short term arrangement as the security for costs was originally provided. That was to cover the defendants' increased costs of the new round of pleadings.
2. On 17 November 2020, following my second interlocutory judgment, I made case management orders substantially in the form agreed between the parties. The orders extended some of the dates by which the parties were required to serve the new round of pleadings. The proceedings were listed for further hearing at 9 AM on 19 February 2021 for the purpose of making further directions. Ben Andrews and VVV were ordered to serve draft short minutes of order specifying the questions that they proposed for separate determination, and also a list of the issues that would then be left over for determination at the final hearing if the order for the determination of separate questions was made.
3. The parties then repeated the filing of pleadings, which is a process that ended on 5 February 2021, when Ben Andrews and VVV filed a reply to the plaintiffs' defence to their cross claim.
4. Ben Andrews and VVV complied with the direction for the service of draft short minutes of order and the list of issues on 5 February 2021 and filed further written submissions in support of both of their applications on 12 February 2021. Infocus and Announcer also filed further written submissions on 12 February 2021.
5. By these submissions, the parties maintained their positions that the issues were whether or not the Court should make an order for the determination of separate questions, and also whether or not the Court should order Infocus and Announcer to provide security in the form of money paid into court or a bank guarantee.
6. The substance of the separate questions proposed by Ben Andrews and VVV was: (a) Is [Infocus] a party to and/or otherwise bound by the Share Sale Agreement dated 1 July 2019 (SSA)? (b) Are the Plaintiffs' obligations in clause 12 of the SSA capable of being specifically performed (whether by [Ben Andrews] and [Kim Andrews] directly or by [VVV] for and on their behalf), including with respect to: (i) causes of action against [Ben Andrews] for breach of contract; (ii) causes of action against [Ben and Kim Andrews] for breaches of duty under sections 180-183 of the Corporations Act 2001 (Cth); and/or (iii) causes of action against [Ben and Kim Andrews] for breach of fiduciary duty, such that the Plaintiffs are barred from bringing, or otherwise not permitted to bring, these claims against [Ben and Kim Andrews]? (c) In the alternative to (b), are the Plaintiffs estopped from bringing the claims in (i) to (iii) against [Ben and Kim Andrews]?
7. It may be that the word "by" in the parenthesis in the chapeau to question (b) was intended to read "at the suit of".
8. Be that as it may, the proposed separate questions dealt with two subjects; first, whether Infocus was a party to the share sale agreement; and secondly whether clause 12 of the share sale agreement was enforceable by any of the defendants. I will explain the significance of these questions more fully below.

Hearing on 19 February 2021

1. A further brief hearing occurred on 19 February 2021, and on 25 February 2021, I made further case management orders. Those orders included a requirement that the defendants serve an estimate of the amount of further security that they sought for their costs for the balance of the proceedings, as well as the milestones for provision of that security, on the assumption that the Court determined not to make an order for the separate determination of the questions sought by Ben Andrews and VVV. I ordered the plaintiffs to respond on the issue of the quantum of the security sought by the defendants, together with advice as to whether the plaintiffs would be able and prepared to provide the security for costs in a conventional form if there were to be no separate question. Finally, I ordered the defendants to provide brief written submissions concerning the prejudice that Ben Andrews and Kim Andrews would suffer if they were required to continue to participate in the whole of the proceedings, given the circumstance that VVV would remain a party to the plaintiffs' claim regardless of whether the separate questions were ordered to be determined separately.
2. I will deal with the parties' responses to these directions when I consider the application for security for costs below.

Draft reasons for judgment

1. In the expectation that the Court would have to decide the disputed question of whether an order should be made for the determination of separate questions, I commenced the preparation of draft reasons for judgment that required a close analysis of the issues raised by the parties' pleadings.
2. On 16 March 2021, in order to facilitate the hearing fixed for the following day, I caused my Associate to send an email to the parties' solicitors that posed a number of questions including the following: 9. How does Infocus justify its claim that it is not a party to the share sale agreement at the same time as it seeks to prosecute a claim for damages against VVV for breaching the share sale agreement?
3. I will explain the significance of this question in more detail below in the context of my analysis of the parties' pleadings. For the present, it is sufficient to note that in the amended statement of claim Infocus pleaded that it was not a party to the share sale agreement but also pleaded a claim against VVV for breach of a term of that agreement.
4. This claim was the reason why Ben Andrews and VVV included question (a) in the separate questions. The answer to that question would have decided whether Infocus was a party to the share sale agreement. If the answer to the question was found to be no, then VVV would be spared the need to defend Infocus' claim against it for breach of the share sale agreement.

Hearing on 17 March 2021

1. The purpose of the hearing on 17 March 2021 was to give the parties an opportunity to make final oral submissions in elaboration of the written submissions and other material that they had provided to the Court.
2. However, the hearing was something of a revelation in that both parties changed their position in fundamental ways.
3. First, counsel for the plaintiffs advised the Court that a mistake had been made in the drafting of the amended statement of claim in that a claim had been included by Infocus that VVV had breached the share sale agreement by its conduct after the date of settlement of that agreement, when it was Announcer that proposed to make that claim against VVV. The plaintiffs made an oral application for further leave to amend their amended statement of claim to make this change.
4. The effect of this change would be to remove the difficulty that Infocus claimed that, at the one time, it was not a party to the share sale agreement, but also that it was entitled to sue VVV for breach of that agreement. This problem did not arise for Announcer because it pleaded that it was a party to the share sale agreement.
5. It is reasonable for the Court to assume that this application for leave to amend was a response to question 9 in the email sent to the parties' solicitors on 16 March 2021 that is set out above.
6. The effect of this further amendment to the amended statement of claim will be to obviate the need for proposed separate question (a).
7. Secondly, counsel for Ben Andrews and VVV advised the Court that, subject to final confirmation by those parties, they no longer pressed the Court for any order that questions be decided separately and before the balance of the issues in the proceedings. Counsel informed the Court that his clients had changed their position because, notwithstanding their belief that they had a right to enforce clause 12 of the share sale agreement and that Ben Andrews should not be a party to these proceedings, they accepted that their attempt to enforce their rights only had the effect of prolonging the proceedings and increasing its costs. They submitted that, in the circumstances, they were entitled to a proper amount of security for costs provided in the conventional manner, and the parties should then get on with the proceedings if the security for costs was provided.
8. On 19 March 2021, the solicitor for the plaintiffs sent to my Associate a draft further amended statement of claim that made the one change foreshadowed by the plaintiffs.
9. On 23 March 2021, the solicitor for Ben Andrews and VVV sent an email to my Associate that confirmed that those defendants did not press their application for an order for the determination of separate questions, although they left it open to the Court to make such an order if it thought fit, provided that they were protected by a conventional order for security for costs.
10. The consequence of these changes of position by the parties was that it is no longer necessary for the Court to decide whether any questions in the proceedings should be answered separately and if so what those questions should be.
11. That should have made the Court's task easier, but as I have explained above, the Court had substantially completed its reasons for judgment save only for allowing for the effect of the parties' final oral submissions.
12. In particular, the draft judgment contained an analysis of the parties' pleadings that is substantially more detailed than would have been necessary if the Court had been informed that the only issue in contest between the parties was the question of the amount of security for costs and how that security should be provided.
13. The analysis of the pleadings has some residual relevance to the security for costs question, and may also be material to the determination of any dispute between the parties as to the proper costs order to be made in respect of the notice of motion filed by Ben Andrews and VVV.
14. It is not warranted, given the parties' changes of position, that the Court entirely rewrite its draft reasons for judgment for no better reason than to shorten them to match the residual issues that remain in contest.
15. However, it is only fair to warn the reader that the analysis of the plaintiffs' pleadings in response to the manner in which the plaintiffs seek to sue on the share sale agreement at the same time as they avoid the operation of clause 12 is so convoluted as to be almost entirely impenetrable.

Exclusionary provisions in share sale agreement

1. Clause 12 of the share sale agreement provides: 12. NO LEGAL ACTION 12.1 The Buyer, and the Buyer's Affiliates and the Company agree to undertake no legal action or make any demands in relation to Benjamin William John Andrews and the Retiring Director in relation to their actions and the decisions made by them in their roles as Directors of the Company unless the actions involve fraud or criminal activities. 12.2 For the avoidance of doubt, the Buyer, the Buyer's Affiliates and the Company release and forever discharge Benjamin William John Andrews and the Retiring Director from all Claims which they have, could, would or might at any time have, or have had, including (but not limited to) any Claim arising directly or indirectly out of or in connection with the Company unless the actions involve fraud or criminal activities. 12.3 This clause 12 may be pleaded as a full and complete defence by Benjamin William John Andrews and the Retiring Director in respect of all Claims made by the Buyer, the Buyer's Affiliates or the Company (as referred to in this clause 12).
2. The share sale agreement defined Kim Andrews as the Retiring Director.
3. The wording of the separate sub-clauses does not appear to fit neatly together. That may be because (as appears from the parties' pleadings) the source of clause 12.1 was a term sheet provisionally agreed between the parties and clauses 12.2 and 12.3 were apparently subsequently added by Ben Andrews.
4. Clause 12.1 is the only provision that contains an express promise by both plaintiffs not to take legal action against either Ben or Kim Andrews. The restriction is limited to the consequences of "their actions and the decisions made by them in their roles as Directors of [Infocus]". The provision will therefore only apply to the claims made by the plaintiffs that arise out of Ben and Kim Andrews' duties as directors of Infocus. The exclusion from the restriction of actions that involve fraud or criminal activities is not relevant in the present case.
5. Clause 12.2 is not a restriction against commencing proceedings. Rather, it contains a release and discharge of all claims that the plaintiffs may have had against them, including (but not limited to) claims "arising directly or indirectly out of or in connection with [Infocus]". It may be an open question of construction whether clause 12 had both retrospective and prospective effect. On its face, clause 12.2 is a comprehensive release and discharge, given that the proviso for actions involving fraud or criminal activities is not applicable. Clause 12.2 therefore appears to be much more extensive than clause 12.1, which is confined to actions arising out of Ben and Kim Andrews' conduct as directors of Infocus.
6. The opening words of clause 12.2, being "For the avoidance of doubt", are arguably infelicitous as they suggest that the purpose of clause 12.2 was to elaborate the meaning of clause 12.1, whereas it may be thought that the two sub-clauses deal with separate although overlapping bases for excluding liability.
7. Clause 12.3, in so far as it expressly creates a bar against action that can be pleaded by Ben and Kim Andrews as a defence covers "all Claims" and may possibly be more extensive than clause 12.2.
8. To the extent that the defendants seek an order specifically enforcing clause 12, such an order could only apply to clause 12.1, in so far as it contains an agreement by the plaintiffs not to undertake legal action. Clause 12.2 and 12.3 only create a defence. They do not prevent suit, although if effective they will cause the suit to fail. Consequently, any application by the defendants for an order that the plaintiffs specifically perform their agreement in clause 12.1 will require an analysis of the plaintiffs' claims and a determination of which of those claims relate to actions and decisions in the capacity of directors of Infocus.
9. VVV also relies on terms of the share sale agreement that limit its liability. Those terms are: 7. SELLER'S WARRANTIES/INDEMNITIES … 7.5 Maximum aggregate liability for Claims The maximum aggregate liability of the Seller (including legal costs and expenses incurred in defending a Claim from the Buyer) including, but not limited to, breach of a Warranty is limited to the Purchase Price (only). 7.6 Consequential loss Notwithstanding any other provision in this agreement, the Seller will not, in any circumstances, be liable to the Buyer or any other person for any consequential loss in relation to this agreement or any transaction contemplated by this agreement.
10. The Purchase Price is defined in clause 1.1 of the share sale agreement as being "Fifty Thousand dollars ($30,000.00)". I understand that in fact the Purchase Price was $30,000 and that the reference to "fifty thousand dollars" is an error.
11. Of the defendants, only VVV is entitled to rely on these provisions, as it was defined by the share sale agreement as the Seller.
12. Consequently, if the plaintiffs are permitted to sue Ben and Kim Andrews notwithstanding clause 12, and that clause does not operate as an effective bar to such suit, then the plaintiffs may be entitled to recover unlimited damages against those defendants, even if clauses 7.5 and 7.6 are effective to limit the damages that may be recovered from VVV.
13. Terms in agreements that govern the sale of businesses under which the individuals who own or manage the seller company are released by the purchaser from any liability, or which limit the liability of the seller for damages for wrongs arising out of the transaction in some arbitrary way, such as by making the price the amount of the limit, are perhaps unusual but by no means unknown or commercially unacceptable. Where they are present, they usually signify that the agreement for sale is one where the seller takes no responsibility, or a defined limited responsibility, for providing information to the buyer. The buyer is required to rely upon its own due diligence investigation. The buyer agrees to accept what it ultimately gets. Usually the risk that this type of negotiation imposes on the buyer is reflected in a price that is reduced from market value. It is not necessarily unfair if the risk manifests in loss to the buyer as the buyer has freely bargained for the outcome. These considerations will necessarily be subject to the precise terms of the agreement in so far as they apportion risk in relation to price.
14. These observations may have some relevance in the present case, as the price payable by Announcer for VVV's 50% shareholding in Infocus was $30,000. It may also be noted that the plaintiffs plead in par 4 of their reply to the defence to the amended statement of claim filed by Ben Andrews and VVV that they received a draft valuation of Infocus at between $422,951 and $476,973 on certain assumptions as to the gross client revenue income and estimated net maintainable earnings of Infocus.
15. At the hearing on 17 March 2021, counsel for Ben Andrews and VVV advised the Court that it was not those defendants' case that they had specifically negotiated a price of $30,000 in the manner considered in the preceding paragraphs. Their case raised related considerations in that the agreement of VVV to sell its shares in Infocus to Announcer for a minimal price of $30,000 was effectively an agreement to give the company to Announcer on the basis that VVV, Ben and Kim Andrews would simply walk away from it for no real consideration. It was in this context that the defendants bargained for clause 12 to be included in the share sale agreement. The result would be that Announcer would become the sole owner of Infocus for a trivial price but Ben and Kim Andrews would be released from any liability in respect of the affairs of Infocus.

Claims in amended statement of claim

1. The plaintiffs made the following claims in the amended statement of claim, which I have summarised, as it is only necessary to explain the general nature of the claims: 1. Infocus claimed that it suffered loss and damage because Ben Andrews breached his employment contract with Infocus: pars 38 and 39. Infocus alleged in par 16 that, in his capacity as an employee of Infocus, Ben Andrews was bound by contractual obligations implied at law to exercise reasonable care in carrying out his employment and by a duty of good faith and fidelity. Notwithstanding that Infocus pleaded in par 11 that Ben Andrews resigned his employment with effect from 30 April 2019, it alleged that he remained an employee of Infocus by reason of providing consulting services to Infocus and by reason of maintaining in fact the same role and responsibilities held prior to 30 April 2019. Infocus alleged in par 26 that, between 1 May 2019 and July 2019, including post 1 July 2019, Ben Andrews solicited clients of Infocus for his own benefit in breach of his employment contract. 2. Infocus also claimed that it suffered loss and damage in that the same conduct that constituted a breach of contract also constituted breaches by Ben Andrews of fiduciary duties owed to Infocus and breaches of ss 180 to 183 of the Corporations Act 2001 (Cth): pars 40 and 41. 3. Infocus claimed that Kim Andrews caused it to suffer loss and damage by breaches of fiduciary duties and breaches of ss 180 to 183 of the Corporations Act: pars 42 and 43. This claim was based on Kim Andrews being a director and officer of Infocus from 24 April 2019 to after the completion of the share sale agreement on 1 July 2019. Infocus alleged that Kim Andrews was involved in the termination of certain clients of Infocus between 1 May and 1 July 2019: par 27. 4. Infocus also claimed that Kim Andrews was a person involved in the contravention of Ben Andrews's breaches of fiduciary and statutory duties: pars 44 and 45. 5. Announcer claimed that VVV caused it to suffer loss and damage by breaching sale warranties in clause 7.1 of the share sale agreement: pars 50 and 51. 6. Both plaintiffs pleaded anticipatory responses to the defendants' reliance upon clause 12 as follows: 52. Both Ben Andrews and Kim Andrews were not, in their personal capacity, parties to the Sale Agreement. 53. Neither Ben Andrews nor Kim Andrews provided consideration in relation to the promises made in clause 12 of the Sale Agreement. 54. In the premises, neither Ben Andrews nor Kim Andrews can rely on clause 12 of the Sale Agreement in respect of any claim made against them. 55. Infocus did not validly execute, as (sic) is not a party to, the Sale Agreement in that: a. At the time Kim Andrews executed the Sale Agreement as director of Infocus Rajesh Daji was the company secretary of Infocus: [Particulars omitted] b. Execution of the Sale Agreement required both the company director and the company secretary to execute the Sale Agreement: [Particulars omitted] c. Rajesh Daji did not execute the Sale Agreement; d. Kim Andrews caused Rajesh Daji to be removed as company secretary shortly after Kim Andrews executed the Sale Agreement; and [Particulars omitted] e. Kim Andrews did not subsequently re-execute the Sale Agreement as sole director of Infocus. [Particulars omitted]. 56. In the premises, Infocus is not bound by the Sale Agreement, including clause 12. 57. Further or in the alternative, clause 12 of the Sale Agreement does not incorporate within its scope: a. A release for Ben Andrews in relation to breach of Ben's Employment Duties and/or Ben's Fiduciary Duties including those arising from his position as an officer of Infocus between 1 May 2019 and 1 July 2019; and b. A release for Kim Andrews in relation to breach of Kim's Fiduciary Duties including those arising from his position as an officer of Infocus between 24 April 2019 and 1 July 2019. 1. Announcer claimed that it suffered loss and damage by reason of Ben Andrews engaging in conduct that was misleading or deceptive in contravention of the Competition and Consumer Act 2000 (Cth) Schedule 2 (Australian Consumer Law) s 18: pars 62 and 63. That claim was based upon the allegation that, prior to the share sale agreement, Ben Andrews represented to Announcer that the sale warranties in the share sale agreement were true and correct when those sale warranties were not true and correct. 2. Announcer also claimed that it suffered loss and damage as a result of misleading or deceptive conduct by VVV in contravention of s 18 of the Australian Consumer Law, by reason of Announcer executing the share sale agreement based upon the representation by Ben Andrews on behalf of VVV that the sale warranties were true and correct: pars 64 and 65. 3. Announcer claimed that both Ben Andrews and Kim Andrews were persons involved in the contraventions of the Australian Consumer Law by VVV: pars 66 to 69. 4. Announcer claimed a declaration pursuant to s 237 and s 243(a) of the Australian Consumer Law that clause 12 is void or unenforceable by the defendants: par 70. 5. Announcer also claimed under the same provisions of the Australian Consumer Law declarations that clauses 7.5 and 7.6 of the share sale agreement are void or unenforceable: par 71. 6. Finally, Infocus claimed that it suffered loss and damage by reason of a breach by VVV of clause 10 of the share sale agreement: pars 72 to 75. This claim was first introduced by the amended statement of claim. Clause 10 of the share sale agreement has the effect that VVV would not, and would ensure that its affiliates such as Ben Andrews would not, for a period up to 12 months after the share sale agreement was entered into, solicit, canvas or secure the custom of Infocus clients. Infocus alleged that Ben Andrews solicited, canvassed and secured the custom of clients of Infocus after 1 July 2019.
2. Claims (1) to (4) were general law and statutory claims by Infocus against Ben and Kim Andrews for breach of employment duties. If clause 12 is enforceable, and Infocus was a party to the share sale agreement, clause 12 would defeat these claims if that clause on its proper construction applies to them.
3. By claim (5), Announcer sought damages against VVV for enforcement of the sale warranties in clause 7.1 of the share sale agreement and assumed that agreement is valid. VVV does not benefit from clause 12, but if the share sale agreement is valid, any damages payable by VVV would be limited by clauses 7.5 and 7.6.
4. By claims (7), (8) and (9), Announcer sought damages against Ben and Kim Andrews and VVV for causing it to enter into the share sale agreement on the faith of Ben Andrews' misleading and deceptive representations that the sale warranties were true and correct. Announcer did not seek an order setting aside the share sale agreement. Clause 12 may protect Ben Andrews and clauses 7.5 and 7.6 will limit damages payable by VVV unless those provisions are ineffective defences to the claims under the Australian Consumer Law.
5. Although Announcer sought to enforce the share sale agreement, by claims (10) and (11), Announcer sought declarations that clause 12 and clauses 7.5 and 7.6 are void and unenforceable under the Australian Consumer Law. It appears from prayer 3.a. of the amended statement of claim that Infocus claimed that clause 12 is not enforceable against Infocus if it was a party to the share sale agreement. Infocus claimed the benefit of a declaration of invalidity of clause 12 even though Kim Andrews was its sole director when it entered into the share sale agreement.
6. By claim (12), Infocus sought damages against VVV for breach of clause 10 of the share sale agreement even though part of claim (6) was that Infocus was not bound by the share sale agreement.

Defences to amended statement of claim

1. Ben Andrews and VVV on the one hand and Kim Andrews on the other filed separate defences to the amended statement of claim. The defences are consistent although the former is more detailed. The defences join issue with the plaintiffs' claims in detail, but it is not necessary for present purposes to focus on the factual contentions that are raised. The defendants denied the plaintiff's claims.
2. Ben Andrews' and VVV's response to the plaintiffs' claim that Ben Andrews is not able to rely upon clause 12 was to plead that clause 12 was held by VVV on trust for or as agent for Ben Andrews (par 52), that he did not admit that he did not provide consideration (par 53), that VVV is entitled to enforce clause 12 for Ben Andrews' benefit (par 54) and that, by reason of the inclusion of clause 12 in the share sale agreement, Ben Andrews was induced to cause VVV to enter into that agreement, so that the plaintiffs are estopped from denying that Ben Andrews is entitled to rely upon clause 12 (par 54).
3. In response to Infocus' claim in par 55 of the amended statement of claim, whereby Infocus asserted it was not bound by the share sale agreement because of a constitutional defect in the manner in which that agreement had been executed on behalf of Infocus, Ben Andrews and VVV pleaded in par 55 of their defence specific facts that they claim had the effect that Infocus authorised Kim Andrews to execute the share sale agreement on its behalf. They also claimed that the defendants were entitled to assume, by reason of ss 128 and 129(3) of the Corporations Act, that Kim Andrews had authority to execute the share sale agreement on behalf of Infocus.
4. Ben Andrews and VVV also pleaded in par 56 that Infocus is estopped from denying that it is a party to the share sale agreement because it has acted as if it was a party to the agreement and has brought a claim for damages for breach of the agreement.
5. By par 58(a) of their defence, Ben Andrews and VVV relied upon clause 16.6 of the share sale agreement, which is an 'entire agreement' clause to the effect that the share sale agreement contains the entire agreement and understanding between the parties and supersedes all prior discussions and agreements.
6. Ben Andrews and VVV denied that Announcer is entitled to declarations that clauses 12, 7.5 and 7.6 of the share sale agreement are void or unenforceable: pars 70 and 71.
7. Kim Andrews' defence contained substantially the same responses as the defence filed by Ben Andrews and VVV, although they were expressed in somewhat different terms. Kim Andrews' response to Infocus' claim that it is not a party to the share sale agreement raised the same essentially narrow factual questions as did the defence of Ben Andrews and VVV on the same issue: par 55.
8. It appears that Kim Andrews did not rely upon the 'entire agreement' term in the share sale agreement.
9. Kim Andrews' response to Announcers' claim in par 70 of the amended statement of claim for a declaration that clause 12 is void or unenforceable because of the contravention of the Australian Consumer Law included a claim that the Court does not have power to make the orders sought on the basis of the alleged accessorial liability of Kim Andrews.

Plaintiffs' replies to defences

1. The reply filed by the plaintiffs to the defence of Ben Andrews and VVV pleaded facts that arguably were required to be pleaded in the plaintiffs' claim. Be this as it may, by par 12, the plaintiffs pleaded in detail the steps taken by the parties in the negotiation of the terms of the share sale agreement that led to the incorporation of clause 12 in its final form.
2. By clause 13 of their reply, the plaintiffs claimed: (a) their claims arise on the basis that Ben Andrews was a director or agent of VVV, and not in his capacity as a director of Infocus; (b) clause 12.2 of the share sale agreement is limited in scope by clause 12.1; (c) clause 12.2 does not on its proper construction preclude the claims brought by Announcer; (d) the claims of Infocus against Ben Andrews arise in his capacity as a director, de facto or shadow director, officer, or employee, and by virtue of fiduciary and post-contractual obligations to Infocus; (e) Ben Andrews was not a party to the share sale agreement; (f) Infocus is not a party to the share sale agreement; and (g) clause 12 does not preclude claims outside the scope of Ben Andrews' conduct as a director of Infocus.
3. The plaintiffs pleaded in pars 13.h., 14 and 15 of their reply the following additional responses to the reliance by Ben Andrews and VVV on clause 12 of the share sale agreement: 13 … h. Further or in the alternative, i. VVV Co and or Ben Andrews by making the Representations referred to above at paragraphs 2 and 3.a to 3.l and 3.o, agreeing by virtue of clause 6.6 of the [share sale agreement] to hand over the Infocus clients as contained in annexure B to the [share sale agreement], and making the warranties contained at clause 7 of the [share sale agreement] induced Announcer, to enter into the [share sale agreement]; ii. Announcer, acting on the faith of the aforementioned inducements entered into the [share sale agreement]; iii. At or prior to the commencement of proceedings on 26 September 2019 Announcer had complied with its obligations under the [share sale agreement]; iv. VVV Co and/or Ben Andrews were in breach of the [share sale agreement] in that Ben Andrews had not handed over the clients contained in annexure B to the [share sale agreement] and further had procured some of these clients away from Infocus; Particulars Provided in the Plaintiffs' Amended Statement of Claim at [26], [35]. v. In the premises, it would be inequitable to allow [Ben Andrews] or [VVV] to rely on clause 12 of the [share sale agreement] as against Announcer, or alternatively the Plaintiffs; vi. Further or in the alternative, in the premises [Ben Andrews] and/or [VVV] are estopped from relying on clause 12 of the [share sale agreement] as against Announcer, or alternatively the Plaintiffs; and vii. Further or in the alternative, clause 12 of the [share sale agreement] or to be declared void, void ab initio or unenforceable pursuant to section 243 of the Australian Consumer Law (NSW) (sic). 14 Insofar as the causes of action pleaded by the Plaintiffs relate to the Australian Consumer Law, clause 12 of the [share sale agreement] is ineffective as a plea in bar or otherwise act to preclude the cause of action being pleaded as a prayer for relief. Particulars Arises as a matter of law 15. The Plaintiffs' further say in relation to Announcer's entry into the [share sale agreement]: a. at all material times Announcer was bargaining to obtain an accounting business whose primary asset was the goodwill associated with the clients of Infocus from which Infocus derived its income through the provision of accounting services; b. Announcer did not accept the changes proposed by Ben Andrews to clause 12 as set out above at paragraph 12.f.iii; c. Announcer accepted the changes proposed by Ben Andrews to clause 12 of the draft share sale agreement (as set out at paragraph 12.f.ii above) in circumstances where it relied on the representations and conduct of the Defendants surrounding the listing of clients included as annexure "B" to the [share sale agreement] and the willingness of VVV Co to promise that Ben Andrews would personally hand over these clients to Infocus in circumstances where it was understood he was the primary contact with the clients, as set out in paragraphs 2, 3 and 12 above.
4. The plaintiffs' reply to Kim Andrews' defence to the amended statement of claim pleaded many of the issues raised in the reply to the defence filed by Ben Andrews and VVV. I do not think it is necessary to consider the reply to Kim Andrews' defence separately in detail. That is because the replies substantially overlap, and because the procedural and forensic consequences of the replies are likely to be governed by the terms of the more complex pleading.
5. The reply pleaded in par 14 set out above raised the reliance by the plaintiffs on the principle commonly attributed to Lockhart J in Henjo Investments Pty Limited v Collins-Marrickville Pty Limited (No 1) (1988) 39 FCR 546 (Henjo) where his Honour said, at 561, that clauses in agreements that have the effect that upon entering the agreement, a party has not relied upon any statement, representation or warranty by the other, or that confine applicable statements, representations and warranties to those expressly set out in the agreement, should not be given effect as they purport to oust by private agreement the effect of a public policy statute passed to stamp out unfair or improper conduct in trade or in commerce, which would be contrary to public policy.
6. Paragraph 14 of the reply raised the application of an established defence, although whether or not the defence is effective in the present case will be a matter for argument.
7. The responses raised by the plaintiffs in pars 13.h. and 15 of their reply require further analysis.
8. Paragraph 13.h. was predicated on the allegation in par 13.h.i. that VVV made the representations pleaded in pars 2, 3.a. to l. and 3.o. Those paragraphs of the reply contained a substantial number of factual allegations in about six pages. It will be necessary to simplify the allegations pleaded in the response in order to make these reasons intelligible.
9. Importantly, in so far as pars 2, 3.a. to l. and 3.o. of the reply contained allegations of representations made by the defendants, those representations were made to Announcer and caused it to enter into the share sale agreement. There were no allegations that Infocus was separately misled or deceived.
10. In substance, the plaintiffs alleged in par 2 of their reply that Announcer proposed to Ben Andrews an ongoing management structure for Infocus from 30 April 2019, Ben Andrews said that the only other director of Infocus that he was able to appoint was Kim Andrews, and that this would facilitate an appropriate ongoing management structure. Announcer presumed Ben Andrews was fulfilling his duties owed to Infocus between 27 March 2019 and 30 April 2019, and, between 30 April 2019 and 1 July 2019, Announcer relied on Ben Andrews' representations and presumed Kim Andrews was fulfilling his duties and obligations owed to Infocus.
11. Paragraph 3 of the reply contained a complicated series of factual allegations concerning the due diligence process engaged in by Announcer, in order to decide whether to acquire VVV's 50% shareholding in Infocus. In substance, sub-pars a. to l. alleged that Announcer asked for a listing of clients for the last 12 months, and Kim Andrews provided the listing that became Annexure B to the share sale agreement. It is then alleged that Ben and Kim Andrews knew or ought to have known that various clients were no longer clients of Infocus. Ben Andrews was instructed by those clients to transfer their business to his company. Announcer requested draft financial statements for Infocus as at 30 June 2019, and confirmation that the clients contained within the revenue summary were active clients of Infocus as at 30 June 2019. Ben Andrews represented to Announcer that the listing of clients was confidential information and its use by Announcer was a cause for VVV to reconsider the sale of its shares in Infocus. As at 30 June 2019, Ben and Kim Andrews knew or ought to have known that further clients recorded on the listing of clients were no longer clients of Infocus. Ben Andrews and VVV represented to Announcer that Ben Andrews would facilitate the handover to Announcer of the clients of Infocus recorded in the listing of clients, including terminated clients. Within hours of the share sale agreement being signed, Ben Andrews caused the transfer of a number of clients to his company. Ben and Kim Andrews did not inform Announcer that a number of clients had decided to take their business to Ben Andrews' company. The silence of Ben and Kim Andrews occurred in the circumstances relevant to the due diligence process (as elaborated in sub-par k.). The defendants had actual or constructive knowledge that Announcer believed that the clients listed in the listing of clients were clients of Infocus that would be handed over to Announcer.
12. The plaintiffs then pleaded in par 3.o. of the reply: o. as a result of its reliance upon each and/or all the representations and conduct referred to at paragraphs 2 and 3.a. to 3.l. above and at paragraphs 51 to 71 of the Plaintiffs' Amended Statement of Claim (the Representations), Announcer: - i. agreed to the terms and entered into the [share sale agreement]; ii. lost the opportunity to re-negotiate the terms of the [share sale agreement]; and iii. lost the opportunity to not enter into the [share sale agreement] and otherwise enforce its rights as an existing 50% shareholder in Infocus.
13. The thrust of the plaintiffs' allegations in the relevant parts of pars 2 and 3 was that Announcer relied upon representations by Ben Andrews concerning the appropriateness of Kim Andrews to be appointed in lieu of Ben Andrews to manage Infocus and representations by Kim Andrews concerning the active clients of Infocus, when Ben and Kim Andrews knew or ought to have known that, both before and after the provision of the listing of clients to Announcer, certain clients had left Infocus, some of which transferred to Ben Andrews' company. The plaintiffs said that, as a result of this reliance, Announcer agreed to the terms of and entered into the share sale agreement, and lost the opportunity to renegotiate the terms, or to simply remain a 50% shareholder in Infocus.
14. The reliance by the plaintiffs, in par 13 of their reply, on these allegations has the effect that, as Ben Andrews and VVV were in breach of the share sale agreement in not handing over all of the clients listed in Annexure B to the share sale agreement, then: (a) it would be inequitable to allow Ben Andrews or VVV to rely upon clause 12 of the share sale agreement; (b) Ben Andrews and VVV are estopped from relying upon clause 12; and (c) clause 12 of the share sale agreement ought to be declared void or unenforceable pursuant to s 243 of the Australian Consumer Law. Note that par 13 does not refer to Kim Andrews because his defence is the subject of a separate reply.
15. By making all of these allegations in order to nullify the effect of clause 12, the plaintiffs sought to make substantially all of the evidence relevant to the events in the due diligence process identified in pars 2 and 3 of the reply relevant to the plaintiffs' claim based upon asserted inequitable reliance upon clause 12, estoppel, and the avoidance of clause 12 under the Australian Consumer Law.
16. Paragraph 13 of the plaintiffs' reply went much further than par 14. The latter paragraph was limited to a claim that clause 12 provides no defence to the plaintiffs' claims under the Australian Consumer Law because it is against public policy to permit such a clause to defeat the statutory claim. In Henjo itself, Lockhart J appears to have accepted, at 560, that the contractual exclusions would be effective against a claim for contractual damages arising from the misrepresentation, and would exclude an action based on common law misrepresentation in the absence of fraud. The plaintiffs sought to establish by par 13 that the defendants cannot rely upon clause 12 to negate any of the claims made, irrespective of whether the claims individually raise any statutory right protected by public policy.
17. The wording of the reply is problematic in so far as the expression "as against Announcer, or alternatively the Plaintiffs" was used in sub-pars 13.h.v. and vi. It was one thing for Announcer to claim that clause 12 should be ineffective as a defence against its claims because it was misled or deceived by the defendants. As I have observed above, it does not follow that clause 12 will be ineffective against all claims made by Announcer including claims not based on alleged misleading or deceptive conduct by the defendants. The same consideration will apply to Infocus if it is found to be a party to the share sale agreement.
18. It does not appear from par 13 of the reply why reliance by the defendants on clause 12 of the share sale agreement is precluded by some general notion that such reliance would be inequitable. The basis of the equity was not identified.
19. Further, it is not clear how the facts alleged in par 13 support any form of estoppel known to the common law or equity. Although reference was made to the course of negotiation of the terms of clause 12 that are set out in par 12 of the reply, no basis appeared for estopping the defendants from relying on clause 12.
20. Finally, given that Announcer sought to enforce the share sale agreement in these proceedings by means of its claim for breach of warranty by VVV, it is not clear how even proved reliance by Announcer on the alleged representations and conduct of the defendants provides a proper basis for a declaration that clause 12 of the share sale agreement is void or unenforceable, which would have the result that clause 12 would not protect Ben and Kim Andrews from common law and equitable claims as well as claims made for contravention of the Australian Consumer Law.
21. I will now turn to a consideration of the response pleaded by the plaintiffs in par 15 of their reply to the defence filed by Ben Andrews and VVV.
22. That paragraph relied on allegations made by the plaintiffs in par 12 of their reply. First, the plaintiffs pleaded in par 15.b. that Announcer did not accept the change proposed by Ben Andrews set out at par 12.f.iii. That sub-par alleged that, on 30 June 2019, Ben Andrews caused additional wording to be inserted into draft clause 12.2 that sought to expressly include within the scope of clause 12 any potential claim that might be brought against Ben or Kim Andrews relating to entry into the share sale agreement by Announcer. The plaintiffs then pleaded in par 15.c. that Announcer accepted the change proposed by Ben Andrews set out in par 12.f.ii. That change was the removal by Ben Andrews from clause 12 of the wording inserted by Announcer that is set out in par 12.e. of the reply. That wording was provided by Announcer to Ben Andrews on 28 June 2019, and expressly incorporated an exclusion to clause 12 relating to breach of the share sale agreement or any of the warranties in that agreement.
23. There appear to be fine distinctions being made here. The upshot appears to be that the plaintiffs said that Announcer did not accept an amendment to clause 12 that excluded Ben and Kim Andrews' liability for any claim relating to Announcer's entry into the share sale agreement, but instead Announcer itself inserted into the draft clause 12 an exclusion of liability on the part of Ben and Kim Andrews for breach of the share sale agreement or any of the warranties in it.
24. The plaintiffs said at the beginning of par 15.c. that Announcer accepted the changes proposed by Ben Andrews to clause 12 as set out in par 12.f.ii. in reliance on the representations and conduct of the defendants concerning the listing of clients included as Annexure B to the share sale agreement and the willingness of VVV to promise that Ben Andrews would personally hand over those clients to Infocus.
25. Thus, the plaintiffs appeared to plead that the representations and conduct of the defendants caused them to accept a wording for clause 12 (that was inserted by Announcer) that excluded the liability of Ben and Kim Andrews for breach of the share sale agreement or of any warranties, while the plaintiffs rejected wording in clause 12 that would have excluded liability in respect of Announcer's entering into the share sale agreement.
26. I think that I have carefully followed the circumlocutions in the manner in which the reply was pleaded. The result does not make much sense. As will be seen from the terms of clause 12 that are set out above, it does not appear that there is any wording in the provision that explicitly protects Ben and Kim Andrews from liability for breach of the share sale agreement or of any warranties made in it. That is, the actual wording of the final form of clause 12 does not in any transparent way reflect either limited form of exclusion referred to in the plaintiffs' reply.
27. The plaintiffs' assertion that they accepted one version of the wording of clause 12 rather than another, because they relied upon the representations and conduct of the defendants concerning the listing and handing over of clients was not explained clearly in the reply, in the sense that a rational basis was disclosed for why the particular representations and conduct made one form of words acceptable rather than another.
28. In my view, the wording of the plaintiffs' reply is problematic in a number of serious respects. It is embarrassing on the issue of whether clause 12 is ineffective against both plaintiffs in respect of common law and equitable claims not based upon alleged contraventions of the Australian Consumer Law by the defendants. There is no allegation that Infocus entered into the share sale agreement on the faith of misleading or deceptive conduct by the defendants. Even Announcer's claim that clause 12 should be declared to be void or unenforceable in respect of all claims made by Announcer is unsatisfactory. As Announcer sought to enforce the share sale agreement, it should only be entitled to a separate declaration that clause 12 is void or unenforceable if it can plead and establish that it separately agreed to the inclusion of clause 12 because of some misleading or deceptive conduct by the defendants. As will appear from my attempt to explain the effect of the reply above, I do not understand it and consider it to be incomprehensible.

Defendants' cross claims

1. Ben Andrews and VVV on the one hand and Kim Andrews on the other filed cross claims against the plaintiffs.
2. The primary objective of the first of these cross claims was VVV's application by prayer 2 for an order that the plaintiffs specifically perform clause 12. VVV sought an order that the proceedings be dismissed or permanently stayed as against Ben and Kim Andrews. It also sought damages for breach of clause 12 by the plaintiffs.
3. Ben Andrews claimed to be entitled to enforce clause 12, notwithstanding that he is not a party to that agreement, on the basis that VVV holds the benefit of clause 12 for Ben Andrews either as trustee or agent: par 25A. Ben Andrews claimed alternatively that, by reason of the circumstances pleaded in par 26 concerning Ben Andrews' reliance upon clause 12 being inserted in the share sale agreement, the plaintiffs are estopped from denying that Ben Andrews is entitled to rely upon clause 12 personally.
4. Although Ben Andrews and VVV pleaded the facts that constituted the negotiation of the share sale agreement and the inclusion of clause 12 in pars 9 to 17, the meaning and effect of that aspect of the cross claim is not transparent, because it relies upon 21 emails referred to in the particulars to par 16, without disclosing the content of those emails.
5. Kim Andrews' cross claim sought substantially the same relief as did Ben Andrews in his cross claim on the same basis, although Kim Andrews also joined VVV as a cross defendant in order to seek an order against VVV that it enforce clause 12 against the plaintiffs, as a trustee or agent for Kim Andrews in holding the benefit of clause 12. [1]

Defences to cross claims

1. The plaintiffs' defences to the cross claims filed by the defendants appear to repeat allegations made by the plaintiffs elsewhere in their pleadings (although the structure and complexity of the defences makes the process of comparison between the plaintiffs' pleadings difficult).

Reply to defence to cross claim

1. For present purposes, it is not necessary to consider in detail the complex response by Ben Andrews and VVV in their reply to the plaintiffs' defence to their cross claim. [2] However, in response to the plaintiffs' claim that Annexure B to the share sale agreement was the source of a breach of warranty by VVV and misleading or deceptive conduct by the defendants, Ben Andrews and VVV pleaded that there was no discussion or consideration concerning the goodwill of the business of Infocus based on its clients or otherwise when the purchase price of $30,000 was computed and agreed: par 4.a.iv. They pleaded that no representation was made that Annexure B of the share sale agreement listed current or active clients of Infocus (as opposed to providing a revenue summary): par 3.b.ii.1. They pleaded that Announcer was advised that not all clients listed in Annexure B were current or active clients of Infocus (par 3.b.ii.3.b) and that on 1 July 2019, Announcer agreed to the deletion of clause (o) that had been in the schedule of the Seller's Warranties that had provided: "The Company Clients are all current and active clients of the Company" (par 3.b.ii.3.c).
2. I mention these aspects of the reply filed by Ben Andrews and VVV to the plaintiffs' defence to their cross claim in order to note that Ben Andrews and VVV appear to contend that Announcer was responsible for its own due diligence process and the defendants abstained from giving any warranty or making any representation concerning the currency of clients for whom Infocus had provided services.

Draft further amended statement of claim

1. The only change introduced by the draft further amended statement of claim is found in par 75, which is as follows: 75. By reason of the breach of the Sale Agreement clause 10 Infocus Announcer suffered loss and damage.
2. This amendment cured the difficulty that Infocus claimed that it was not a party to the share sale agreement whilst suing VVV for breach of that agreement.
3. It is possible that the amendment masks a further difficulty. The plaintiffs only provided the following particulars: "To be provided following discovery". If Infocus had remained the claimant, its damages may have been the profit lost as a result of VVV and its associates soliciting Infocus' clients. Any damages suffered by Announcer will be measured differently. There will be a reduction in the value of Infocus, or a reduction in the net profit from the business of Infocus, available for distribution to Announcer. Announcer has not yet propounded any case that it suffered such damage.

Legal principles

1. As Ben Andrews and VVV no longer press their application for an order for the determination of separate questions, it will not be necessary to consider in detail the principles that the Court would have been required to apply.
2. Uniform Civil Procedure Rules r 28.2 provides: The court may make orders for the decision of any question separately from any other question, whether before, at or after any trial or further trial in the proceedings.
3. The basis upon which the Court exercises the discretion to order that a question be determined separately was considered by Ward JA (as her Honour then was) in Allandale Blue Metal Pty Ltd v Roads and Maritime Services (2013) 195 LGERA 182; [2013] NSWCA 103 in the following terms: [87] In Idoport Pty Ltd v National Australia Bank Ltd [2000] NSWSC 1215, Einstein J (at [7]) summarised the applicable principles when considering an application for the separate determination of an issue made under the former Pt 31, r 2, of the Supreme Court Rules 1970 (NSW) (those principles being equally applicable to the exercise of discretion under r 28.2 of the Uniform Civil Procedure Rules 2005 (NSW): Pioneer Park Pty Ltd v ANZ Banking Group Ltd [2005] NSWSC 832; Matrix Film Investment One Pty Ltd v Alameda Films LLC [2007] NSWSC 523). In so doing, his Honour noted, among other things, that the court is enjoined to give effect to the overriding statutory purpose provided for under the applicable court rules and that the court begins with the proposition that it is ordinarily appropriate that all issues in the proceedings should be disposed of at the one time (Tallglen Pty Ltd v Pay TV Holdings Pty Ltd (1996) 22 ACSR 130). [88] One set of circumstances in which his Honour noted that the separate determination of an issue might prove to be an appropriate procedure was "where the resolution of that separate issue will have the effect of resolving the entirety of the litigious controversies or of substantially narrowing the field of litigious controversy" (his Honour there citing CBS Productions Pty Ltd v O'Neill (1985) 1 NSWLR 601 at 606 per Kirby P and Dunstan v Simmie & Co Pty Ltd [1978] VR 669 at 671 per Young CJ and Jenkinson J). [89] Pausing there, it was not suggested in the above cases that it is necessary (for the power to state a separate question to be exercised) that the determination of the separate question be finally dispositive of the litigation or of one or more issues in the litigation; rather, it was contemplated that it might be sufficient if it would substantially narrow the field of litigious controversy (requiring a quantitative assessment to be made). Disposition of a step necessary for the determination of one or more issues in the proceedings might well have the effect in a particular case of substantially narrowing the field of litigious controversy. Thus, while it is submitted for Allandale that, at most, the separate question would resolve a potential step in the determination of the relevant issue in the compensation proceedings, that of itself does not preclude the exercise of the power under r 28.2. [90] Einstein J also set out various circumstances in which he considered that the separate determination of an issue would rarely be seen to be an appropriate procedure (to some of which reference was made by Mr Lancaster SC, Senior Counsel for Allandale), those including where there are intertwined issues of fact or law (such that the determination of the separate question would not have any substantial effect on the width of the field of litigious controversy or the prospect of the settlement of the balance of the litigation) and where there is a possibility that the resolution of the separate issue will not finally determine the issue but merely result in an appeal from that decision in relation to that separate issue creating what his Honour referred to as a multiplicity of proceedings, interruptions to the court and undesirable fragmentation of the proceedings. [91] In various authorities, caution has been advocated in the exercise of such a power (such as Perre v Apand Pty Ltd (1999) 198 CLR 180 at [436] per Callinan J; Allstate Explorations NL v Beaconsfield Gold NL [1999] NSWSC 832 at [24] per Santow J, as his Honour then was; Tepko Pty Ltd v Water Board (2001) 206 CLR 1 at [168] per Kirby and Callinan JJ; Strathfield Municipal Council v Poynting (2001) 116 LGERA 319 at [112]-[113] per Young CJ in Eq, as his Honour then was). In Idoport, Einstein J noted the reason for such caution in the following passage: The experience of courts suggests that the separation of proceedings often does not result in the quicker and cheaper resolution of proceedings as anticipated, but often has the reverse effect, merely causing added delay and expense to the resolution of the litigation. Thus, before an issue is to be separately determined, it must be possible to clearly see that it will facilitate the quicker and cheaper resolution of the proceedings [his Honour there citing Tallglen Pty Ltd v Pay TV Holdings Pty Ltd; Parramatta Stadium Trust v Civil and Civic (unreported, Supreme Court, NSW, Hunter J, No 55043/95, 27 August 1996) and Century Medical Inc v THLD [2000] NSWSC 5]. (Emphasis added) [92] However, it has also been recognised that if the separate determination of particular discrete issues may achieve economies in time and expense in the resolution of the proceedings or obviate the necessity for a trial on all issues then it may be both appropriate and desirable for there to be such an order (Flore v NSW Department of Education and Training [2006] NSWSC 1227 at [32]; Street v Luna Park Sydney Pty Ltd [2007] NSWSC 697 at [6]; Stewart v Ronalds [2009] NSWSC 455; Hubertus Schuetzenverein Liverpool Rifle Club Ltd v Commonwealth (1994) 51 FCR 213; 85 LGERA 37 - though in the last case the order for separate determination was by consent).

Consideration

1. I had decided that the Court should at least order that the question of whether Infocus was a party to the share sale agreement should be determined as a separate question, before the plaintiffs sought leave to further amend the amended statement of claim in the manner explained above. That was because the question was a narrow, technical one, and I considered that Infocus was not entitled to approbate and reprobate on the issue of whether it was a party to the share sale agreement. The parties and the Court should not have been required to deal with the issue of whether VVV had breached clause 10 of the share sale agreement and the quantification of damages if there was a possibility that the forensic effort would be wasted if Infocus succeeded on its claim that it was not a party to the share sale agreement.
2. Although there is no longer any need for this question to be decided, separately or otherwise, it remains relevant because the making of an order that this question be determined separately would probably have affected my decision as to whether any other questions should be determined separately. If I had made the order that this question be determined separately, that may well have influenced the balance of the judgment as to whether other separate questions should be added to it.
3. There were, in my view, a number of other serious prospective subjects for the making of orders for separate determination. If it had been decided that Infocus was a party to the share sale agreement, then clause 12 would potentially apply to bar its claims (1) to (4) against Ben and Kim Andrews for breach of employment duties. Notwithstanding the existence of the claims for contraventions of the Australian Consumer Law in these proceedings, clause 12 would be an effective defence if: (a) the wider Henjo principle did not, as a matter of law, preclude clause 12 being effective against general law and statutory claims that do not arise out of the Australian Consumer Law; or (b) as Infocus has not pleaded that it was induced to enter into the share sale agreement by any misleading or deceptive conduct, clause 12 is effective against Infocus even if it is not effective against Announcer, as Announcer is the only plaintiff who has pleaded a misleading or deceptive conduct claim. These additional questions would have been relatively narrow, and if they lead to a finding that clause 12 was effective against Infocus that would lead to the dismissal of claims (1) to (4).
4. It would have been difficult for the Court to justify ordering that a question be determined separately if the answer to the question required the Court to determine Announcer's claims of contraventions of the Australian Consumer Law directly. While I am sceptical about whether Announcer is entitled to sue to enforce the share sale agreement and to claim at the same time an order setting aside clause 12 and clauses 7.5 and 7.6, without being able to demonstrate that those clauses were included in the share sale agreement as a consequence of distinct contraventions of the Australian Consumer Law, the issues raised by the plaintiffs in the further amended statement of claim and their replies to the defences are so complex that the Court probably could not be satisfied that the determination of additional separate questions would yield economies in time and expense with the degree of confidence required to justify orders to that effect.
5. Whether or not the Court would have taken that course is now a hypothetical one, and it is neither necessary nor appropriate that the Court state definitively what it would have done if the plaintiffs had not sought leave to file the further amended statement of claim.
6. Notwithstanding that Ben Andrews and VVV left the ultimate decision to the Court, I am satisfied that the Court should not make an order for the determination of any separate questions if no party presses for such an order to be made.

Security for costs

1. It remains necessary for the Court to determine the defendants' applications that the plaintiffs provide security for their costs.
2. As mentioned above, all defendants provided to the Court schedules setting out their claims for security for costs in accordance with order 1 made on 25 February 2021, on the assumption that the Court did not order that any question be determined separately. Ben Andrews and VVV specifically made allowances where the legal work required for those defendants' defences overlapped.
3. To date, the Court has on 20 April 2020 ordered the plaintiffs to provide $40,000 security to each of Ben Andrews and VVV and $60,000 to Kim Andrews. On 15 October 2020, the Court ordered the plaintiffs to provide additional security of $14,000 to each of Ben Andrews and VVV and $10,000 to Kim Andrews. That security was provided on a temporary basis by the deed and the personal undertakings referred to above.
4. Ben Andrews and VVV have provided substantiation for further security for costs of $123,288 and $101,788 respectively. The additional amount sought by Kim Andrews is $115,604.70.
5. As the defendants seek orders that the full amount of the security for costs be provided by payment of cash into court or by unconditional guarantee from an Australian authorised deposit-taking institution, then the full amounts claimed as security for costs on the conventional basis by the three defendants are $177,288, $155,788 and $185,604.70 respectively.
6. The defendants seek orders that these amounts be paid in three equal tranches no later than seven days after the Court's determination not to hear any questions separately, no later than seven days after the plaintiffs have filed and served their affidavit evidence in chief, and no later than 28 days before the date fixed for hearing.
7. In their 12 March 2021 further submissions, the plaintiffs continued, as I understand it, their admission that the plaintiffs are impecunious.
8. The plaintiffs have not suggested that their impecuniosity was caused by the wrongful conduct of the defendants as alleged in the further amended statement of claim.
9. However, the plaintiffs resist the making of an order that they provide any security for costs and challenge the quantum of the security sought by the defendants.
10. The plaintiffs submitted that they are part of a consolidated group under Infocus Wealth, which only prepares financial statements for the consolidated group. They say that any adverse costs order will be paid by Infocus Wealth. Consequently, the issue is the capacity of Infocus Wealth to meet any costs order made against the plaintiffs.
11. The plaintiffs submitted that the breach of Infocus Wealth's banking covenant that related to earnings coverage ratios over interest expense and total net bank debt had now been rectified. That fact was demonstrated by pars 9 to 11 of the affidavit of Michael Keith Laffoley, the Chief Financial Officer of Infocus Wealth, made on 12 March 2021. The breach of Infocus Wealth's banking covenant was the reason why the Court accepted the deed made by Infocus Wealth as part of the means by which security for costs was provided to the defendants, as explained in my first interlocutory judgment.
12. The existence of the breach of the banking covenant has since ceased to be a reason why Infocus Wealth cannot provide security for the plaintiffs' costs in the conventional way.
13. The plaintiffs relied upon the annual report for Infocus Wealth for the year ended 30 June 2020. They submitted that the annual report shows that the parent entity had a gross revenue of $66,220,000 for the financial year, with an operating profit of $3,454,000. The total assets of Infocus Wealth are $37,561,000, with total shareholder equity of $14,340,000. The plaintiffs submitted that the risk to the defendants of not being paid their costs if successful was de minimis.
14. The defendants responded to these submissions by directing the Court's attention to specific parts of Infocus Wealth's annual report. Note 2 to that report stated the following concerning the issue of whether Infocus Wealth was a going concern: … The Group's bankers have confirmed that based on the results for the year ended 30 June 2020 they no longer consider the Group to be in breach of its loan covenants. However, with the Convertible Notes due for redemption or conversion within 12 months from balance date the Group has an excess of current liabilities overcurrent assets at balance date of $3,893k (2019: $1,797k). The ability of the Company to continue as a going concern including meeting operating cash requirements and paying debts as and when they fall due is dependent on: achieving profitability and generating sufficient operating cash inflows; continued financial support from its financiers; and securing additional capital investment where required. These conditions give rise to a material uncertainty over the Group's ability to continue as a going concern. The directors believe that the going concern basis of preparation is appropriate due to the following reasons: the Group is generating profits and positive cash flow from operations; the Group continues to enjoy the support of its financiers; the Group is successfully achieving its growth strategies to increase profitability and increase cash inflows in future years in alignment with its forecasts; and the Group's cash flow projections show that it will continue to pay all of its debts as and when they fall due, including all interest and capital repayments to the Group financiers, over its projection period. The directors are of the opinion the company will continue normal business activities and be able to realise its assets and settle its liabilities in the ordinary course of business. The Group has taken appropriate action and steps to manage its cash flows and bank covenants. [Emphasis made by defendants]
15. The defendants noted that the amount of the convertible notes that may, at the election of the holders, be required to be repaid on 30 June 2021 was $3,015,000 as at 30 June 2020.
16. The defendants also noted that, of Infocus Wealth's total assets of $37,561,000 as at 30 June 2020, $21,292,000 was represented by "Intangibles", which was explained in Note 9 as being goodwill valued at $17,103,000, client portfolios valued at $2,596,000 and IT development & software valued at $1,593,000. The defendants submitted that the Court could not safely infer that all of these assets could be realised at their nominal values. Balanced against this consideration, most of Infocus Wealth's liabilities of $23,221,000 were real and enforceable.
17. The plaintiffs submitted that it was relevant to the question of whether they should be ordered to provide security for the defendants' costs that the defendants have now filed cross claims in the proceedings in which they seek relief against the plaintiffs that raise common issues of fact with the claims made by the plaintiffs. However, the plaintiffs properly conceded in their written submissions and in oral submissions on 19 February 2021 that the cross claims filed by the defendants are defensive in nature. As I have explained above, when analysing the defences filed by the defendants, they have largely relied upon the terms of the share sale agreement and they primarily seek to enforce clause 12 and clauses 7.5 and 7.6. The defendants do not in any significant way propound separate claims against the plaintiffs.
18. The plaintiffs submitted that, if an order is made against them that they provide security for the defendants' costs, whatever form that order may take, it should be in an amount that is significantly discounted from the amount sought by the defendants. They rely upon the decision of Fullagar J in Brundza v Robbie & Co (No 2) (1952) 88 CLR 171 at 175 for the proposition that it is not the purpose of security for costs to give a full indemnity to the defendants, but rather to give security for a reasonable amount. The defendants also submit that, on the authority of Quad Consulting Pty Ltd v David R Bleakley and Associates Pty Ltd (unreported, Federal Court of Australia 28 June 1991; BC9103265 per Burchett J) generally, though not rigidly, a discount of one third of the estimated costs is considered to be an appropriate amount to order by way of security for costs. Materially, his Honour said: … Beaumont J referred to an English convention of fixing security at about two-thirds of the party and party costs of the defendant up to the stage in proceedings in respect of which security is ordered. But he also accepted that the matter is ultimately one of discretion. As Fullagar J said in Brundza at 174: "It is a matter of discretion, involving the weighing of various considerations one against another." As far as concerns the matter of the conventional fixing of security at about two-thirds of the expected party and party costs, I have been referred to some authorities which do not appear to have been cited to Beaumont J. In Procon (GB) Ltd v Provincial Building Co Ltd (1984) 2 All ER 368, the Court of Appeal considered a note in the English Supreme Court Practice, 1982 Vol 1 p 440 suggesting such a conventional approach. Cumming-Bruce LJ concluded (at 375-376) that the court has "an unfettered discretion" and that "there is no solid reason for a general and arbitrary practice whereby, after estimating party and party costs up to the date of the proceedings for which security is ordered, an arbitrary fraction of one-third is knocked off before the order for security is made … On the contrary, … the principle is this: the security should be such as the court thinks in all the circumstances of the case is just. If security is sought, as it often is, at a very early stage in the proceedings, the court ordering security will be faced with a situation in which a solicitor or his clerk has made an estimate of the costs likely in the future to be incurred; and probably the costs already incurred, or paid, will be a very small fraction of the security that the applicant is seeking. At that stage one of the features of the future of the action which is relevant is the possibility that the action may be settled, perhaps quite soon. In such a situation it may well be sensible to make an arbitrary discount of costs estimated as the probable future costs, but whether one-third is likely in any given case to be a sensible discount, and whether any discount at all should be made, will depend on the view of the court on consideration of all the circumstances." He went on to say that the note in the Practice was "expressed in too dogmatic and inflexible terms". Griffiths LJ (at 379) said: "In the normal course of things it is to be expected that the court will, to some extent, discount the figure it is asked to award." He contemplated, in some cases, "discount by as much as one-third", and commented: … The breadth of the discretion of a judge dealing with an application for security for costs has, of course, been repeatedly emphasised: Bell Wholesale Co Ltd v Gates Export Corporation (1984) 2 FCR 1; Cameron's Unit Services Pty Ltd v Kevin R Whelpton and Associates (Australia) Pty Ltd (1986) 13 FCR 46; Bryan E. Fencott and Associates Pty Ltd v Eretta Pty Ltd (1987) 16 FCR 497 at 515. Consistently with these authorities, I think it remains open to the court to apply a discount of about two-thirds, not because it is a conventional figure to deduct, but because in all the circumstances of the particular case such a discount seems appropriate…
19. The plaintiffs have not suggested that if they are required to provide the security for costs in the amount and form sought by the defendants that these proceedings will be stultified.
20. As the plaintiffs have not yet provided any particulars of the damages that they claim, even by describing in principle the nature of the damage they claim to have suffered, the defendants' estimates of their likely legal costs can only be based upon assumptions that may prove not to be correct.
21. The final word on the plaintiffs' attitude to the provision of security for the defendants' costs may be found in the following final paragraphs of Mr Laffoley's affidavit: 15. The Plaintiffs and [Infocus Wealth] are willing to vary the terms of the deeds of indemnity entered into with the Defendants so that the total amount of costs secured by the respective deeds is $300,000. 16. The Plaintiffs are not willing to provide security for the Defendants' costs in the form of cash paid into Court or an unconditional bank guarantee from an Australian deposit taking institution.
22. The defendants referred the Court to the judgment of Tate and Kyrou JJA in Trailer Trash Franchise Systems Pty Ltd v GM Fascia and Gutter Pty Ltd [2017] VSCA 293 (Trailer Trash), where their Honours said: [58] In the present case, in deciding that an undertaking by Mr Maher was an appropriate form of security, the judge sought to balance the applicants' entitlement to security against the desirability of minimising the financial inconvenience to Mr Maher who was not a party to the County Court proceeding. The judge was not swayed by the submission made by the applicants that security in the form of an undertaking involved a risk that the undertaking would not be honoured and that proceedings for contempt may be required in order to enforce the undertaking. As set out at [32] and [37] above, the judge said that Mr Maher had ready access to funds and that it was unlikely that he would refuse to pay $10,580 if it became due and thus risk contempt proceedings. [59] The authorities do not preclude an order that security for costs be in the form of a personal undertaking by a third party other than a financial institution. However, where the court has a choice between security in that form and security in a liquid form that enables funds to be accessed with minimum risk that litigation may be required to enforce the security, ordinarily the court should prefer the liquid form. The need to prefer the liquid form where a choice is available has become more acute since the commencement of the CPA because: (a) section 8(1) requires a court to seek to give effect to the overarching purpose in the exercise of any of its powers; (b) section 7(1) provides that the overarching purpose is 'to facilitate the just, efficient, timely and cost-effective resolution of the real issues in dispute'; (c) section 9(1) provides that in making an order in a civil proceeding, a court must further the overarching purpose by having regard to a number of objects, including: the efficient conduct of the business of the court (s 9(1)(c)); the efficient use of judicial resources (s 9(1)(d)); and the timely determination of the civil proceeding (s 9(1)(f)); and (d) a form of security for costs which does not provide a fund which can be accessed without the cooperation of the opposing party or a person who is connected to that party - and may require the commencement of proceedings to enforce it - has the potential to undermine the overarching purpose. This is because that form of security can give rise to satellite proceedings and additional delay and costs. Such satellite proceedings are contrary to the principle of finality in litigation. [60] In the present case, the course adopted to establish Mr Maher's capacity to meet a costs order for an amount up to $10,580 was unorthodox and undesirable. Mr Maher did not produce any documents to support his oral evidence regarding his assets and ability to pay an amount of $10,580. The bank balance that he displayed on his mobile phone reflected a line of credit which could be substantially reduced or even exhausted over time in the light of other financial commitments. There was no assurance that $35,837.20 or any other amount would be available at any future time. It follows that Mr Maher's undertaking was susceptible to too many contingencies to be an appropriate form of security for costs. [Emphasis made by the defendants]
23. The defendants submitted that their Honours' reasoning should be applied in this state because of the existence of an equivalent overarching purpose in Pt 6 Div 1 of the Civil Procedure Act 2005 (NSW).
24. The first question that I will address is whether the plaintiffs should be required to provide security for the defendants' costs.
25. It is clear, in my view, that this question should be answered in the affirmative. The defendants' application for security for costs has at all times been dealt with on the basis that the plaintiffs conceded that they were impecunious. That was an absolute concession and the Court has been given no information concerning the financial circumstances of the plaintiffs. It is therefore clear that the defendants will not recover any of their legal costs that may be ordered to be paid by the plaintiffs unless Infocus Wealth considers it to be in its interests and within its capacity to pay the defendants' legal costs on behalf of the plaintiffs.
26. The next question is the form in which security for costs should be provided. I am satisfied that the plaintiffs should be required to provide security in the conventional manner by the payment of cash into court or by the provision of irrevocable guarantees by an appropriate Australian authorised deposit-taking institution.
27. The principle considered by the Victorian Court of Appeal in Trailer Trash should be applied in the present case. The defendants should not be required to sue Infocus Wealth on any deed to recover costs ordered to be paid to them by the plaintiffs. The defendants are entitled to security for their costs and I am satisfied that the qualifications expressed in Infocus Wealth's annual report create a sufficient doubt as to whether it will perform its obligations under any deed to undermine a conclusion that the deed will provide true security. Undertakings to the Court by the directors of Infocus Wealth that they will cause that company to perform its obligations under the deed will not cure the problem of the inadequacy of the security, as nothing is known of the directors' individual financial positions, and their undertakings may be worthless to the defendants if Infocus Wealth does not at the relevant time have the financial ability to perform the deed.
28. Furthermore, as the plaintiffs no longer suggest that Infocus Wealth is not able to provide security for costs in the conventional manner because that would exacerbate its breach of a banking covenant, no reason is suggested as to why conventional security for costs cannot be provided save for Infocus Wealth's choice that it does not want to have to do so.
29. The final issue is the quantum of the security for costs that should be provided. I have decided that in the special circumstances of this case security should be provided in the sum of 90% of the amounts claimed by the defendants. A larger discount to those claims is not warranted in this case.
30. First, there has been no challenge to the defendants' estimates and I consider that those estimates are probably conservative as I have mentioned above.
31. Secondly, Announcer paid $30,000 as the price for the transfer of 50% of the shares in Infocus to Announcer, and Announcer now makes an unspecified claim for damages against the defendants for what I infer is likely to be an amount substantially in excess of the limits on VVV's liability for damages to which Announcer contractually agreed in clauses 7.5 and 7.6 of the share sale agreement, and in the face of the undertaking in clause 12.1 not to sue Ben and Kim Andrews, as well as the absolute bar to those defendants' liability in the balance of clause 12. Even accepting the possibility that the Henjo principle may ultimately defeat those defences, the Court is entitled to proceed upon the assumption that the contractual restraints to which Announcer freely agreed may be found to be enforceable. That is most likely to be the case in respect of Announcer's breach of contract claim against VVV. The course that Announcer has followed in resisting the validity of the defences being dealt with as a separate question is likely to deprive the defendants of much of the benefit of the bargain into which they entered with Announcer.
32. Infocus may be regarded as a putative party to the share sale agreement as that agreement was executed on its behalf. Its claim that it is not a party is a technical one. If Infocus is found to be a party to the share sale agreement, there is a substantial probability that Infocus will be found to have prosecuted its breach of employment duties claims against Ben and Kim Andrews in direct breach of clause 12 of the share sale agreement into which it freely entered. Infocus has not pleaded a claim that it was misled or deceived by any of the defendants in contravention of the Australian Consumer Law, and it has not pleaded any clear case as to why it should not be bound by clause 12 of the share sale agreement, even if Announcer is not so bound.
33. In my view, it is a proper matter relevant to the exercise of the Court's discretion that the plaintiffs are prosecuting their claims in the face of the restraints in the share sale agreement to which they freely agreed, which has created a substantial risk that the plaintiffs are wilfully subjecting the defendants to futile litigation.
34. As to the timing of the provision of security for costs, it would be usual for the Court to give the plaintiffs 28 days to provide the first tranche, rather than the seven days suggested by the defendants.
35. The orders that are made should include the usual term that the proceedings will be stayed against the plaintiffs if the security for costs is not provided by the due dates.
36. The Court will give the plaintiffs leave to file the proposed further amended statement of claim and directions will have to be made for the filing and service of subsequent pleadings. Conventional costs orders should be made in respect of the amendment.
37. The defendants should prepare short minutes of order to give effect to these reasons for judgment and send those short minutes to my Associate after consultation with the plaintiffs.
38. It will be necessary for the Court to hear the parties on the issue of the costs of the defendants' applications. The short minutes of order should provide for the exchange of written submissions on that subject.

Endnotes

1. Prayer 6 incorrectly seeks an order against Infocus rather than VVV.
2. Kim Andrews has apparently not filed a reply to the plaintiffs' defence to his cross claim. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 07 May 2021