[2011] FCA 1123
Watson v Foxman (1995) 49 NSWLR 315
WIN Corporation Pty Ltd v Nine Network Australis Pty Ltd (2016) 341 ALR 467
Judgment (37 paragraphs)
[1]
CA 297
Texts Cited: J D Heydon, Heydon on Contract (2019)
P Herzfeld and T Prince, Interpretation (2nd ed, 2020)
R P Austin and I M Ramsay, Ford, Austin and Ramsay's Principles of Corporations Law (17th ed, 2018)
Category: Principal judgment
Parties: Maurtray Pty Limited (ACN 086 027 027) (Plaintiff)
Pillemer Pty Ltd (ACN 120 539 488) (First Defendant)
Pillemer Family Holdings Pty Ltd (ACN 130 257 680) as trustee for the Pillemer Family Trust (Second Defendant)
Mr Russel Craig Pillemer (Third Defendant)
Representation: Counsel:
Mr I Jackman SC with Mr T Marskell (Plaintiff)
Mr C R C Newlinds SC with Ms M E Hall (Defendants)
These proceedings arise out of a deed of settlement entered into on 15 February 2017 in relation to a loan from the plaintiff, Maurtray Pty Limited (ACN 086 027 927) (Maurtray), to the first two defendants Pillemer Pty Ltd (ACN 120 539 488) (PPL) and Pillemer Family Holdings Pty Ltd (ACN 130 257 680) (PFH). The loan was guaranteed by the third defendant, Mr Russel Pillemer, who was the sole shareholder and director of PPL and PFH at all relevant times.
The loan funded the acquisition by PPL of certain shares in Pengana Holdings Pty Ltd (Pengana, also sometimes referred to as PHL) in 2008.
Pengana had been established in 2003 by the Honourable Malcolm Turnbull AC and Mr Pillemer.
The loan was originally made by Turnbull & Partners Pty Ltd (TPPL) to PPL. The terms of the loan agreement were varied in June 2015 to include PFH as a borrower. TPPL assigned the loan to Maurtray in November 2015.
At all times relevant to these proceedings, Mr Alexander Turnbull was a director and shareholder of Maurtray and was solely responsible for the day to day management of Maurtray. Mr Alexander Turnbull was the principal witness for Maurtray in these proceedings. The Honourable Malcolm Turnbull AC was not a director or shareholder of Maurtray, but did give some brief evidence.
Maurtray claims that PPL and PFH breached a contractual obligation to disclose to Maurtray certain information about a potential merger of Pengana with an ASX listed company. Maurtray also claims that PPL, PFH and Mr Pillemer engaged in misleading or deceptive conduct by making certain alleged representations and by failing to disclose that information. Maurtray claims that the alleged breaches of contract and misleading or deceptive conduct caused it to enter into the deed of settlement rather than taking an alternative course that it claims was open to it and would have been financially more advantageous. Maurtray claims damages for its alleged losses in the amount of $8,697,624.12 or alternatively $5,866,211.84.
For the reasons that follow, Maurtay's claims fail.
For reasons of brevity and without intending any disrespect, I will refer to the Honourable Malcolm Turnbull AC as Mr M Turnbull. I will refer to Mr Alexander Turnbull as Mr A Turnbull.
The parties' claims and defences can be more readily understood with the benefit of an understanding of the events and communications giving rise to the plaintiffs' claims. It is therefore convenient to structure the balance of these reasons as follows:
1. summary of evidence: see [10]-[318] below;
2. claims and defences: see [319]-[341] below;
3. consideration and determination: see [342]-[546] below; and
4. conclusion: see [547] below.
[4]
Introductory observations
Maurtray read four affidavits sworn by Mr A Turnbull and two affidavits sworn by Mr M Turnbull. The defendants read two affidavits sworn by Mr Pillemer. Mr A Turnbull was cross-examined for the best part of two days, followed by a brief cross-examination of Mr M Turnbull. Mr Pillemer was cross-examined for part of the afternoon of the second day and most of the third day of the hearing. Between them, the parties tendered seven volumes of documents.
As will become apparent, there were many inconsistencies within the evidence of Mr A Turnbull and some inconsistencies within the evidence of Mr Pillemer. The following summary of the affidavit, oral and documentary evidence identifies, but does not endeavour to reconcile, those inconsistencies. The material inconsistencies are addressed in later sections of these reasons in which I set out my assessment of the credibility and reliability of evidence given by the witnesses and my findings of fact.
[5]
Uncontroversial background matters
Mr M Turnbull first met Mr Pillemer in about 1997 at Goldman Sachs Australia Pty Ltd (GSA).
In the period after Mr M Turnbull retired from GSA in 2001, he and Mr Pillemer established a private equity business and a number of other new businesses in the financial services sector.
In February 2003, TPPL, Mr Pillemer and others established Pengana to operate a funds management business. Mr M Turnbull and Mrs Lucy Turnbull, were (and remain) equal shareholders and the sole directors of TPPL.
Mr Pillemer was the CEO of Pengana from its inception in 2003 and retained that position at all times relevant to these proceedings.
On 9 October 2004, Mr M Turnbull became the Federal Member for Wentworth in the House of Representatives.
Elly Investments Pty Ltd, an entity related to National Australia Bank Ltd, became a substantial shareholder in Pengana in April 2008. At that time, Mr M Turnbull was the Federal Member for Wentworth in the House of Representatives and held the position of Shadow Treasurer. It was his understanding (through information conveyed to him by Mr Pillemer), that National Australia Bank Ltd did not wish to proceed with its investment in Pengana if TPPL also remained a shareholder. TPPL then sold all of its shares in Pengana. Some of those shares were sold to the first defendant, PPL.
[6]
The Loan Agreement
On 3 April 2008, TPPL (as "Lender") and PPL (as "Borrower") entered into a loan agreement that Mr M Turnbull describes as "vendor finance" for TPPL's shares in Pengana that were transferred to PPL (the Loan Agreement). On or about the same date, Mr Pillemer signed a Deed of Guarantee and Indemnity pursuant to which he guaranteed to TPPL (as "Lender") the repayment of all monies owing by PPL (as "Borrower") under the Loan Agreement (the Guarantee).
The Loan Agreement was subsequently varied by a Deed of Variation dated 26 April 2012 between TPPL (as "Lender"), PPL (as "Borrower") and Mr Pillemer (as "Guarantor") and a Deed of Variation and Accession dated 1 June 2015 between TPPL (as "Lender"), PPL (as "Borrower"), the second defendant PFH (as "Acceding Party") and Mr Pillemer (as "Guarantor").
Clause 9.1 of the Deed of Variation and Accession provided:
"(a) The Acceding Party acknowledges the existence and terms of the Loan Agreement (as varied by the First Variation and as set out in Schedule 1).
(b) The Acceding Party acknowledges that it owns the parcel of shares referred to in clause (a) of the definition of 'Shares' in clause 18 of the Loan Agreement (as amended by clause 4 of Schedule 1 of this Deed).
(c) From the date of this Deed:
(1) the Acceding Party agrees to become, and each other party to this document agrees that the Acceding Party will become a party to the Loan agreement as a Borrower;
(2) the Acceding Party covenants and agrees to comply with and be bound by all present and future obligations of the Borrower under the Loan Agreement as a party to those documents in that capacity;
(3) the Acceding Party agrees to do all things that a Borrower is required under the Loan Agreement to procure or ensure are done by the Borrower."
The parcel of shares referred to in clause 9.1(b) above were 42,840 shares in Pengana.
The Deed of Variation and Accession contained no provision releasing PPL from its obligations as "the Borrower" under the Loan Agreement.
Except where expressly indicated to the contrary, the following summary of the provisions of the Loan Agreement refers to those provisions as varied by the Deed of Variation dated 26 April 2012 (the First Variation) and as further varied by the Deed of Variation and Accession dated 1 June 2015 (the Second Variation). Where the Loan Agreement (as varied) refers to "the Borrower", that term is also used in the summary below.
[7]
Assignment
By Deed of Assignment of Loan Agreement and Guarantee dated 9 November 2015 between TPPL (as "Assignor"), PPL and PFH (as "Debtor"), Mr Pillemer (as "Guarantor") and Maurtray (as "Assignee"), TPPL assigned to Maurtray its right, title and interest in the moneys owed by PPL and PFH under the Loan Agreement (as varied) and its right, title and interest under the Guarantee (the Deed of Assignment).
Mr A Turnbull and his sister Ms Daisy Turnbull were the directors and shareholders of Maurtray at this time and at all subsequent times relevant to these proceedings. Their parents made a gift of money to them which they then applied to the consideration of $5,987,367.63 payable by Maurtray to TPPL under the Deed of Assignment for the assignment of the Loan. Mr A Turnbull gave evidence in cross-examination that the consideration was determined on the basis of Mr Pillemer's estimated value of the whole of Pengana at $79 million as at November 2015.
Mr A Turnbull gave evidence that Maurtray's only business during 2016 and 2017 was as lender under the Loan Agreement and that he was solely responsible for the day to day management of Maurtray during 2016 and 2017.
It is relevant to note that Mr A Turnbull initially gave a very different account about the financial arrangements pursuant to which the Loan was assigned to Maurtray. In his affidavit sworn on 15 May 2020, Mr A Turnbull deposed:
"The Deed of Assignment required payment of consideration of $5,987,387.63 by Maurtray to TPPL. This amount was paid by Maurtray through a loan it received from TPPL.
This loan was to be repaid by Maurtray by receiving what were called 'prepayments' under the Loan Agreement from PPL, being the dividends received by PPL from Pengana. These amounts were then paid on by Maurtray to TPPL."
On 3 March 2021, Mr M Turnbull swore his first affidavit for these proceedings in which he deposed that he and his wife and given their children approximately $6 million which they then used to enable Maurtray to pay for the assignment of the Loan from TPPL. Mr A Turnbull then corrected his evidence referred to above in his third affidavit sworn on 12 March 2021, confirming that his parents had gifted a sum of approximately $6 million to him and his sister which Maurtray had then applied to acquire the Loan from TPPL. Mr A Turnbull deposed that the loan he had referred to in his 15 May 2020 affidavit "was a structure I had in mind but it never came about".
[8]
Relevant events in the period from 1 June 2016 to 15 February 2017
It is common ground that, after the Loan was assigned to Maurtray, Mr Pillemer kept in regular contact with Mr A Turnbull including by sending him information that Pengana sent to its shareholders and offering to meet with Mr A Turnbull and give him an overview of the Pengana business whenever Mr Pillemer was visiting Singapore where Mr A Turnbull was based. Mr A Turnbull told Mr Pillemer on several occasions during these discussions that: "We would really like a liquidity event so that we can sell out".
By mid-2016, NAB Asset Management Ltd (NAB) was the largest shareholder in Pengana and there was some discussion between Mr A Turnbull and Mr Pillemer about what NAB might intend to do with its shares in Pengana.
On 1 June 2016, Mr A Turnbull sent an email to Mr Pillemer in the following terms (emphasis added):
"Russ, hope all is well - are you in Aus? Will be down there from the 12th to the 6th for the general circus. Was wondering what you guys were thinking on divs for Pengana this year - also, if progress is a bit slow with the major shareholder would like to convert into stock to try to move that progress along if possible. Let me know when works to catch up."
In cross-examination, Mr Pillemer accepted that, in the email referred to above, Mr A Turnbull was conveying to him to he was willing and able to hold shares in Pengana and that Mr M Turnbull's position as prime minister did not appear to present any impediment to Mr A Turnbull holding shares in Pengana.
However, Mr Pillemer gave evidence in cross-examination that he had "numerous conversations" with Mr A Turnbull in the period up to 15 February 2017 in which Mr A Turnbull told Mr Pillemer that he was not willing or able to hold shares in Pengana. Mr Pillemer said that one such conversation occurred in the days following Mr A Turnbull's email sent on 1 June 2016 referred to at [53] above. According to Mr Pillemer:
"The conversation that we had was one where I called him and I said 'Alex, you realise that it's not as simple as, you know, just the - not as simple as converting into stock, we have to go through the whole tag along process, everybody would get to know who you are, full disclosure and they you'd come into Pengana and then if we're trying to have a liquidity event everybody would see that you're around, the whole disclosure would be blown and you know, really this isn't a good idea.' And he said 'Yes, yes I see what you mean and that conversation died from that point onwards.' That, this line or this offer, if you like, from Alex did not reoccur ever again."
[9]
The EBIT of $22.7 million attributed to Pengana (or "PHL") in that calculation reflects Pengana's EBIT for the 2018 financial year under the second of the four scenarios.
When asked about the "Merger Model" spreadsheet in cross-examination, Mr Pillemer said that the spreadsheet was a "scenario analysis", that multiple scenarios had been run, that "when I exited the spreadsheet" the scenario showing a value of $252 million for Pengana within the merged entity "happened to be the scenario that was on the spreadsheet" and "I don't think you could say that I valued it at the time. I reject that." In relation to the $252 million "valuation" for Pengana, Mr Pillemer continued:
"Did I - did it have a valuation, no, you play around with models, you put in different numbers, you exit for the day and maybe what was on the, you know, the final page you exited, the model after you'd been playing around with it happened to be these numbers but I don't think you can infer from that that I valued - that I put a valuation on the business of that. This is a - this is just a scenario analysis."
In relation to the $352 million "valuation" for the merged entity, Mr Pillemer said:
"… I do not accept that I had a valuation of the merged entity of that amount. All I - all I would say to that is the day when I logged out of that spreadsheet, that was the scenario which had been running."
Upon being shown the metadata for the spreadsheet, Mr Pillemer accepted that he last saved the scenarios referred to above on 30 January 2017. He maintained that he continued to run scenarios after that date, almost until the implementation of the merger. He said that the fact that no scenarios had been saved after 30 January 2017 did not mean that no further scenarios had been run after that date. The cross-examiner then put to Mr Pillemer that, if he had modified the spreadsheet after 30 January 2017, he had not regarded those modifications as worth saving. Mr Pillemer then gave the following evidence:
"That's not - that's not how scenario analysis works, sir. You use scenario analysis to run different scenarios and understand the picture of what's happening. You don't save different versions and create different versions. You analyse them, you have discussions and you think about it. It doesn't mean because it wasn't saved that any further scenarios that I ran weren't relevant or wouldn't have been contemplated.
…
Sorry, sir, 'last modified', that only captures the last time you saved the modification. If you went in and you played around with the analysis and didn't save it at the end, then it - then you go - then it wouldn't be - then it wouldn't come out as 'last modified'."
[10]
Relevant events after 15 February 2017
The bidding war for Hunter Hall referred to at [130]-[134] above continued after 15 February 2017. WHSP and Pinnacle announced to the ASX further competing bids for Hunter Hall during the period from 17 to 24 February 2017. On 17 February 2017, WHSP increased its bid to $2.20 per share to match the most recent bid from Pinnacle. Pinnacle then increased its bid to $2.40 per share on 20 February 20217, in response to which WHSP twice extended the offer period for its $2.20 per share bid but did not make any counter bid offering a higher price per share.
On 23 February 2017, Mr Pillemer and Mr A Turnbull met for lunch at the "Osteria" restaurant in Singapore.
According to Mr A Turnbull, he and Mr Pillemer had a conversation to the following effect during the course of that lunch:
"RP: 'Are you sure you don't want the shares?'
AT: 'Why would I want them now based on what you told me previously about Soul Patts and we have just settled the loan? Is there something you are not telling me?'
RP: 'No.'"
Mr Pillemer denied this and gave evidence that his conversation with Mr A Turnbull during the Osteria lunch was to the following effect:
"RP: 'Pinnacle have made life really difficult for us. But I think we will still win this. I think I have gotten Soul Patts very excited about the combination of Pengana and Hunter Hall and they are holding the cards. I also think the reverse takeover gives us a major advantage.
'It's disappointing for me that your family's involvement with Pengana and me has come to an end. This is effectively the end of my business relationship with your Dad as it was the last asset where we were invested together. I know you have said that it doesn't make sense for you guys to continue having an investment in Pengana but I really think you should. Even though we have already executed the sale, I would be happy to reverse this so that you can stay in. I would also be happy to keep the loan agreement structure in place - or alternatively, in the event that the family does want actual shares, then I would figure out mechanics that would work.'
AT: 'I think you are being way too optimistic about Hunter Hall. But in any event it's too risky for the family to convert to equity, and the loan structure is not attractive because it's still politically risky and it gives us no rights.'"
Mr A Turnbull denied Mr Pillemer's version of the conversation.
[11]
Alleged breaches of the Loan Agreement by PPL and PFH
The terms of clause 19 of the Loan Agreement are set out at [43] above. Maurtray contends that the following matters were information received or accessible by PPL and PFH that may relate to the value of the Shares or the sale or potential sale of the Shares within the meaning of clause 19:
1. Mr Pillemer's conversation with Mr Barlow of WHSP on 27 December 2016 in which Mr Pillemer urged WHSP to acquire a stake in Hunter Hall so that "[w]e can then figure out how to put Hunter Hall together with Pengana"; [21]
2. Mr Pillemer's discussion with Mr Eley of Hunter Hall on 17 January 2017 concerning Pengana's interest in exploring a merger with Hunter Hall; [22]
3. Mr Pillemer's meeting with Mr Biggins of Moelis & Co on 19 January 2017 in which Mr Pillemer was informed that Pengana would be included in the competitive bidding process for Hunter Hall that was being managed by Moelis & Co; [23]
4. the due diligence request prepared by Pengana's advisers, Pitt Capital Partners, and sent to Moelis & Co on 24 January 2017; [24]
5. the "Merger Model" as modified by Mr Pillemer on 30 January 2017; [25]
6. the proposed engagement letter sent by DLA Piper to Mr Pillemer on 30 January 2017 in respect of DLA Piper's proposed engagement to advise Pengana on its proposed merger with Hunter Hall; [26]
7. the email correspondence copied to Mr Pillemer on 31 January 2017 concerning the due diligence process in relation to the proposed merger; [27]
8. the draft vendor due diligence report prepared by DLA Piper and emailed to Mr Pillemer on 7 February 2017; [28]
9. the list prepared by Pengana's advisers on 8 February 2017 of the 16 items required to complete its due diligence in respect of Hunter Hall; [29]
10. Mr Pillemer's email of 11 February 2017 reporting on the 10 February 2017 meeting; [30]
11. the email correspondence concerning the management meeting between representatives of Pengana and Hunter Hall that was scheduled for 14 February 2017; [31]
12. the first draft of the merger agreement that DLA Piper emailed to Mr Pillemer on 15 February 2017; [32] and
13. the fact that, from about late December or early January 2017, Hunter Hall and Pengana were in negotiations with a view to executing a merger or similar transaction, that those negotiations were conducted by Mr Pillemer on behalf of Pengana as its CEO and that any merger or similar transaction between Hunter Hall and Pengana would offer Pengana shareholders the opportunity to sell their shares to Hunter Hall at a premium or to receive shares in Hunter Hall as consideration for the sale of their shares in Pengana, which would be liquid and could be disposed of on market through the ASX.
[12]
Alleged misleading or deceptive conduct by PPL, PFH and Mr Pillemer
Maurtray contends that PPL, PFH and Mr Pillemer:
1. expressly represented to Maurtray on 18 November 2016 that there was no prospect of Pengana having a public listing of its shares because NAB was opposed to a listing, and that this representation continued during the period to 14 December 2016; [39]
2. expressly represented to Maurtray during the period from 14 December 2016 onwards that PPL, PFH and Mr Pillemer did not know whether WHSPPPL had any intention of having an IPO of shares in Pengana on the ASX or whether WHSPPPL would pursue a regular dividend policy and that Maurtray's money was "as good as dead with the company"; [40]
3. expressly represented to Maurtray during the period from 4 January 2017 onwards that they had disclosed to Maurtray all they knew about the Shares and had not withheld any information about the possibility of an IPO involving the Shares; [41]
4. by failing to qualify, correct or retract the three express representations referred to above, impliedly represented to Maurtray during the period from 18 November 2016 to 14 February 2017 that there was no prospect of an IPO or similar transaction involving Pengana which meant that if Maurtray insisted on receiving a transfer of the Shares in repayment of the Loan and if Maurtray did not then sell the Shares as part of the NAB tag along process then Maurtray would be left with an illiquid investment in Pengana as a minority shareholder;
5. represented to Maurtray that the Shares would be sold to WHSPPPL as part of the NAB tag along process; and
6. impliedly represented to Maurtray that the sale of the Shares to WHSPPPL as part of the NAB tag along process represented the best available return for Maurtray on the repayment of the amounts owed to it under the Loan Agreement.
Maurtray contends that the alleged express and implied representations referred to above were made in trade or commerce and were misleading or deceptive in contravention of s 18 of the Australian Consumer Law (Schedule 2 to the Competition and Consumer Act 2010 (Cth)) in all the circumstances. The circumstances relied on by Maurtray include:
1. the substance of what Mr A Turnbull says Mr Pillemer disclosed to Maurtray (either on behalf of PPL and PFH or voluntarily on his own behalf) in their conversations on 18 November 2016, at the breakfast meeting on 14 December 2016 and on 4 January 2017; [42] and
2. the failure to inform Maurtray of the existence and status of the merger negotiations and the undisclosed matters in circumstances where PPL, PFH and Mr Pillemer knew, or ought reasonably to have known, that:
1. Maurtray was considering how to obtain the best financial outcome in respect of the repayment of the Loan, including whether to take delivery of the Shares or accept a cash payment;
2. that decision would be informed by whether there was any possibility of an IPO of Pengana shares or a similar transaction that would result in the Shares, if transferred to Maurtray, no longer being an illiquid investment;
3. in making that decision, Maurtray was reliant on the information provided to it from time to time by PPL and PFH in accordance with clause 19 of the Loan Agreement;
4. the undisclosed matters would be relevant to that decision because the proposed merger would result in the Shares becoming a liquid investment as they would be exchanged for shares in a listed entity which could then be realised on-market;
5. the undisclosed matters meant that the disclosures made on 18 November 2016, 14 December 2016 and 4 January 2017 were false, inaccurate or incomplete unless retracted, qualified or corrected as a proposed merger between Pengana and Hunter Hall was an increasingly realistic possibility throughout January 2017 and February 2017 and, by 15 February 2017, was likely to proceed;
1. the fact that the Shares were not to be sold, and were not sold, by PFH to WHSPPPL as part of the NAB tag along process and were instead retained by RCP as a result of its entry into the bridging finance arrangements with WHSPPPL; and
2. the undisclosed matters meant that the sale of the Shares to WHSPPPL as part of the NAB tag along process would not necessarily provide the best available return for Maurtray on the repayment of the Loan in circumstances where a proposed merger between Pengana and Hunter Hall was an increasingly realistic possibility throughout January 2017 and February 2017 and was likely to proceed by 15 February 2017.
[13]
Causation
Maurtray's case on causation involves two alternative scenarios that it contends would have occurred if PPL and/or PFH had not acted in breach of clause 19 of the Loan Agreement as alleged and if PPL, PFH and Mr Pillemer had not engaged in the alleged misleading or deceptive conduct.
The substance of the first counter-factual scenario on which Maurtray relies may be summarised as follows:
1. Maurtray would have been informed as events unfolded about the undisclosed matters, about the increasingly realistic prospect during January and February 2017 of a merger between Pengana and Hunter Hall and that by 15 February 2017 the proposed merger was likely to proceed and that Pengana shareholders were likely to be offered shares in the listed entity Hunter Hall (which became PCG) in exchange for their Pengana shares;
2. Maurtray would then have been on notice that the NAB tag along process would not necessarily provide the best available return for Maurtray on the Loan;
3. Maurtray would not have entered into the Settlement Deed but would have insisted on the Shares being transferred to it in repayment of the Loan under the Loan Agreement;
4. Maurtray would not have sold the Shares as part of the NAB tag along process and would have remained the legal and beneficial owner of the Shares at the time of completion of the Pengana/Hunter Hall merger; and
5. on completion of the merger, Maurtray would have become the legal and beneficial owner of shares in Hunter Hall which it could have sold on market.
The second counter-factual scenario on which Maurtray relies is as follows:
1. Maurtray would not have entered into the Settlement Deed and would have awaited the outcome of negotiations concerning the merger;
2. Maurtray would then have sought the Repayment Amount from PPL in accordance with clause 4(b)(i) of the Loan Agreement which would have been $17,255,428 and would have agreed to the Repayment Amount being no less than $12,000,000; and
3. PPL and PFH would have agreed to the payment of $12,000,000 under the Settlement Deed and would have funded that payment using funds drawn down under Mr Pillemer's loan facility with WHSP [46] or from some other source of funding procured by PPL, PFH or Mr Pillemer.
[14]
Loss
Maurtray claims to have suffered loss and damage by reason of the alleged breaches of clause 19 of the Loan Agreement and the alleged misleading or deceptive conduct in the sum of:
1. the amount of the difference between the sum of $6,133,788.36 that Maurtray received under the Settlement Deed and the proceeds that it would have received by selling the shares in Hunter Hall (or PCG) that it would have received on completion on the merger in the first scenario above; or
2. the amount of $5,866,211.84, being the difference between the sum of $6,133,788.36 received under the Settlement Deed and the sum of $12,000,000 that Maurtray contends it would have received in the second scenario above.
Alternatively, Maurtray claims to have suffered loss and damage in the form of a loss of opportunity to take the steps and achieve the returns under either the first scenario or the second scenario referred to above.
[15]
Alleged breaches of clause 19 of the Loan Agreement denied
As will be apparent from the summary of evidence, it is common ground that the first twelve of the thirteen undisclosed matters referred to above were not disclosed to Maurtray. [47]
In relation to the remaining undisclosed matter, Mr Pillemer gave evidence to the effect that his assessment of WHSP's good prospects of winning the public bidding war for Hunter Hall, and WHSP's interest in combining Pengana and Hunter Hall in that event, were disclosed to Maurtray in his discussions with Mr A Turnbull. Mr Pillemer's account of relevant communications does not include any claim that he told Mr A Turnbull about the merger negotiations between Pengana and Hunter Hall, as opposed to the possibility of a merger if WHSP succeeded in acquiring Hunter Hall. Mr Pillemer does not claim to have told Mr A Turnbull that any merger would give Pengana shareholders the opportunity to sell their shares to Hunter Hall at a premium or to receive shares in Hunter Hall which could then be realised on market, but Mr A Turnbull has given evidence that he recognised these possibilities himself when learned about WHSP's acquisition of its initial stake in Hunter Hall in January 2017. [48]
The defendants deny that PPL and PFH breached clause 19 of the Loan Agreement and contend that the documents and information required by that clause to be disclosed to Maurtray were limited to documents and information received or accessible by "the Borrower" in its capacity as a Pengana shareholder and did not extend to confidential information that Mr Pillemer received in his capacity as Chief Executive Officer of Pengana that was not otherwise available to all Pengana shareholders. The defendants further say that any disclosure obligation under clause 19 of the of the Loan Agreement terminated on or about 23 February 2017 pursuant to clause 10(b) of the Settlement Deed.
[16]
Alleged misleading or deceptive conduct denied
The defendants deny the express and implied representations alleged by Maurtray and further contend that no reasonable person in all the circumstances would have understood or relied on the cumulative effect of the alleged express representations (if made, which is denied) as giving rise to the alleged implied representations and nor would such a person rely on the alleged implied representations. [CLR paras 37-39]
The defendants deny engaging in misleading or deceptive conduct (including by silence or partial disclosure). In addition, the defendants say that the existence and status of the negotiations between Hunter Hall and Pengana did not in fact create an increasingly realistic possibility of a merger throughout January and February 2017 and it is not the case that the proposed merger was likely to proceed by 15 February 2017. Further or alternatively the defendants say that they did not hold the belief that the proposed merger was an increasingly realistic possibility throughout January and February 2017 or that the proposed merger was likely to proceed by 15 February 2017.
[17]
Causation
The defendants deny Maurtray's causation scenarios.
[18]
Loss and damage
The defendants deny that Maurtray has suffered the loss and damage claimed.
[19]
Introductory observations in relation witness testimony
Mr A Turnbull and Mr Pillemer have each given evidence of events and conversations that occurred approximately four and a half years before the final hearing of these proceedings. In assessing their evidence, it is necessary to be mindful of the following well-known observations of McLelland CJ in Eq in Watson v Foxman [49] in assessing the evidence:
"… human memory of what was said in a conversation is fallible for a variety of reasons, and ordinarily the degree of fallibility increases with the passage of time, particularly where disputes or litigation intervene, and the processes of memory are overlaid, often subconsciously, by perceptions or self-interest as well as conscious consideration of what should have been said or could have been said. All too often what is actually remembered is little more than an impression from which plausible details are then, again often subconsciously, constructed. All this is a matter of ordinary human experience."
The factors referred to by his Honour require primary emphasis on the objective surrounding facts that are either undisputed or established by contemporaneous documents, and the inherent probabilities and improbabilities: Fox v Percy; [50] Moubarak by his tutor Coorey v Holt. [51] In any commercial litigation, contemporaneous documents "generally furnish the most reliable source of evidence as to what occurred or, at the very least, provide a generally reliable reference point from which to assess the reliability of witness testimony". However, notwithstanding the fallibility of human memory, witness testimony may still be of value and importance, including by providing evidence of the context in which relevant documents and events must be understood: ET-China.com International Holdings Ltd v Cheung. [52]
In considering the evidence given by Mr A Turnbull and Mr Pillemer about disputed conversations in late 2016 and early 2017 for the purpose of determining whether Maurtray has established the alleged positive representations on which it relies for its misleading or deceptive conduct claim, I have had regard to the following observations of Hammerschlag J (as his Honour then was) in John Holland Pty Ltd v Kellogg Brown & Root Pty Ltd [53] :
"Where a party seeks to rely upon spoken words as a foundation for a cause of action, including a cause of action based on a contract, the conversation must be proved to the reasonable satisfaction of the court which means that the court must feel an actual persuasion of its occurrence or its existence. … Such reasonable satisfaction is not a state of mind that is obtained or established independently of the nature and consequences of the fact or facts to be proved. The seriousness of an allegation made, inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding are considerations which must affect the answer to the question of whether the issue has been proved to the reasonable satisfaction of the court. Reasonable satisfaction should not be produced by inexact proofs, indefinite testimony, or indirect inferences …
The sensation of feeling an actual persuasion, after a contest, that an event has happened or that something exists is one which is well known and recognised by experienced trial judges for what it is."
[20]
Introductory observations
In making the findings set out below, I have taken into account all of the evidence summarised earlier in these reasons and all of the parties' extensive submissions about the findings of fact that should or should not be made. I have not found it necessary to expressly refer to each and every submission in setting out my reasons below. That is because an assumption that all aspects of Mr A Turnbull's evidence would be accepted pervaded Maurtray's submissions to a significant extent. As will become apparent below, that has not proved to be the case. Many of Maurtray's submissions had limited relevance or utility because they were based on the assumed acceptance of earlier evidence given by Mr A Turnbull which has in fact been rejected. The defendants' submissions frequently departed from a meaningful analysis of the witnesses' competing evidence in light of undisputed or documented objective facts and the inherent probabilities and improbabilities, and detoured into a sentence by sentence analysis of Mr A Turnbull's long cross-examination in a zealous drive to identify inconsistencies that are of little consequence in comparison to those referred to at [352] above.
[21]
1 June 2016 email
As referred to at [51]-[54] above, Mr A Turnbull sent an email to Mr Pillemer on 1 June 2016 in which he suggested that Maurtray would like to "convert into stock to try to move progress along if possible". It is clear from the text of that email that the progress that Mr A Turnbull was hoping to move along was the progress "with the major shareholder". There had been previous discussions between Mr A Turnbull and Mr Pillemer about what NAB might be intending to do with its shares in Pengana, in circumstances where Mr A Turnbull and Maurtray "would really like a liquidity event so that we can sell out".
As referred to at [54] above, Mr Pillemer accepted in cross-examination that Mr A Turnbull was conveying in that email that he was willing and able to hold shares in Pengana and that Mr M Turnbull's position as prime minister did not present any impediment to that course of action.
Maurtray submitted that this this was highly significant. I respectfully disagree.
I accept that the email is one element of the evidence that is relevant to assessing what Maurtray would have done in the counterfactual in which PPL and PFH complied with their disclosure obligations under the Loan Agreement (assuming for the moment that they breached those obligations) and in which the alleged misleading or deceptive conduct did not occur (assuming for the moment that those allegations are proved).
However, the email was sent in very different circumstances than those which existed when the Settlement Deed was entered into.
Since November 2015, Maurtray and Mr A Turnbull had been wanting a Liquidity Event to occur "so that we can sell out", which must be understood as a reference to the Loan being paid through an event which facilitated a sale of the Shares. The 1 June 2016 email indicates either that there was no Liquidity Event on the horizon or that progress in bringing about a Liquidity Event was slow. Mr A Turnbull apparently thought that, if Maurtray were to "convert into stock" he may be able to lean on NAB in some way to "move that progress along if possible".
A willingness to hold shares as at 1 June 2016 as part of a strategy to bring about a Liquidity Event that would otherwise not occur in a timely way, so as to facilitate Maurtray's objective of "selling out", sheds little light on the question whether Mr A Turnbull would have been willing, in the theoretical counterfactual scenarios referred to above, for Maurtray to take shares in Pengana rather than "selling out" in the Liquidity Event that was set in train on 23 December 2016 and occurred on 1 March 2017.
[22]
18 November 2016 conversation
The evidence about this alleged conversation is set out at [57]-[70] above.
The contemporaneous email correspondence referred to at [59]-[63] above indicates that, at Mr Pillemer's suggestion, a telephone call was arranged for 18 November 2016. As referred to at [60]-[61] above, it is common ground that a conversation occurred at about that time in which Mr Pillemer told Mr A Turnbull that he would not be selling his shares in Pengana under the tag along process and Mr A Turnbull told Mr Pillemer to do whatever he needed to do in order to pay out the Loan.
Mr A Turnbull gave evidence that he had a further conversation with Mr Pillemer in the terms described above at [63], which Mr PiIlemer denies as I have referred to above at [70]. I do not feel actual persuasion that there was a further conversation on 18 November 2016 in the terms described by Mr A Turnbull. The only evidence of the alleged conversation is Mr A Turnbull's claimed recollection of it. As referred to at [350] above, his account of the conversation was initially expressly tethered to his evidence that he held a certain view in relation to the value of Pengana as at 18 November 2016. It was subsequently revealed that he did not in fact hold that view at that time. It is plain that Mr A Turnbull wrongly recalled his state of mind when he swore his affidavit on 15 May 2020. Having regard to that demonstrated unreliability of his recollection of the very matter that he identified as the foundation of his account of the 18 November 2016 conversation, I consider that his account of the conversation itself is unreliable and I am not persuaded on the balance of probabilities that it occurred in the terms that he described.
I am not persuaded to the contrary by Mr A Turnbull's evidence in his 20 July 2020 affidavit in which he divorced his account of the 18 November 2016 conversation from his 2017 spreadsheet valuation of Pengana and re-tethered it to a different view that he claimed to have held from November 2015 onwards that Pengana was worth between $120 million and $150 million. Mr A Turnbull's evidence about that different view was extremely vague and internally inconsistent. In his 20 July 2020 affidavit, Mr A Turnbull deposed that his claimed view was based on unspecified comparables sourced from unspecified publicly listed asset managers after applying an unspecified liquidity discount. [64] That evidence does not rise above the level of bare assertion and is very difficult to reconcile with his evidence that TPPL and Maurtray adopted Mr Pillemer's $79 million valuation of Maurtray when determining the consideration for the assignment of the Loan from TPPL to Maurtray in November 2015. [65] It also appears to be inconsistent with Mr A Turnbull's evidence in cross-examination which suggested that the view that he claimed to have about the value of Pengana as at 18 November 2016 was based on an earlier version of his 2017 spreadsheet prepared in about 2014 or modelling that he had done in 2013.
[23]
The breakfast meeting on 14 December 2016 and subsequent communications during December 2016
The evidence of the breakfast meeting between Mr A Turnbull and Mr Pillemer on 14 December 2016 is set out at [76]-[92] above.
The first relevant matter in dispute is whether Mr Pillemer said to Mr A Turnbull: "I don't know what Soul Patts are going to do or whether they have plans to list or pursue a regular dividend policy. Your money is as good as dead with the company."
I reject Mr A Turnbull's evidence that Mr Pillemer made a statement to that effect for the following reasons.
First, the obvious inconsistency within the statement means that it is inherently unlikely to have been made. As the defendants submitted, it is therefore implausible that Mr Pillemer made the statement. Whether or not Maurtray's "money is as good as dead with the company", in the sense that Mr A Turnbull claims to have understood that alleged statement, [71] would depend on the very matters that he claims Mr Pillemer said were unknown: whether WHSP had plans to list Pengana and/or pursue a regular dividend policy. As the defendants submitted, the internal inconsistency within the alleged statement also renders it implausible that Mr A Turnbull would have accepted the statement as he claims to have done without questioning why Mr Pillemer was saying that Maurtray's money was "as good as dead". I reject Maurtray's submission that it was consistent with Mr A Turnbull's evidence of WHSP having a track record as a long-term investor that he did not ask further questions because he drew his own inferences about what WHSP would be likely to do. That submission fails to grapple with inconsistencies within Mr A Turnbull's evidence about WHSP's track record. He did give evidence to the effect that WHSP tended to be a long-term shareholder, but he also gave evidence that there was "no playbook" for WHSP and that they sometimes listed things and sometimes did not. [72]
Second, it is implausible that Mr Pillemer would have described Maurtray's money as being "as good as dead" in circumstances where it is common ground that Mr Pillemer was keen for Maurtray to "stay in" Pengana. [73]
Third, when the cross-examiner put directly to Mr A Turnbull that Mr Pillemer did not say "your money is as good as dead", he did not answer by claiming to have an actual recollection of those words having been said. Rather, Mr A Turnbull answered by reference to an assumption that he claims to have made at the time, which is in fact directly contrary to the other words that he attributes to Mr Pillemer within the same statement ("I don't know what Soul Patts are going to do …) [74] and also contrary to some aspects of Mr A Turnbull's own (inconsistent) evidence about his knowledge of WHSP's behaviour as an investor at the time. [75] This strongly suggests that Mr A Turnbull's account of Mr Pillemer saying that "your money is as good as dead" was a reconstruction based on his claimed assumption, in circumstances where aspects of his own evidence are inconsistent with that claimed assumption.
[24]
Conversations in the period 4 - 10 January 2017
The evidence concerning conversations between Mr A Turnbull and Mr Pillemer during the period between about 4 January and 10 January 2017 and the context in which they occurred is set out at [105]-[124] above.
Their first conversation during this period occurred shortly after WHSP's announcement to the ASX on 30 December 2016 of its acquisition of a stake in Hunter Hall. The substance of WHSP's announcement has been referred to at [105] above, but it is convenient to set out the terms of the announcement here (emphasis added):
"WHSP announces proposal to acquire Hunter Hall International Limited
- WHSP has entered into an agreement to acquire 19.9% of the shares in Hunter Hall International Limited from Peter Hall
- Peter Hall is Hunter Hall International Limited's largest shareholder controlling 43.95% of the company
- Peter Hall has informed WHSP that he intends to accept WHSP's offer for his remaining shareholding of 24.05% in the absence of a superior proposal
- WHSP will provide a sound management solution and stability for investors in funds managed by Hunter Hall
- The proposal is to be effected by way of an off-market takeover offer and is subject only to limited conditions
Washington H. Soul Pattinson and Company Limited (WHSP, ASX: SOL) announces a proposal to acquire all of the outstanding Hunter Hall International Limited (Hunter Hall, ASXL HHL) shares not already owned by WHSP for $1.00/share (Offer).
The proposal is to be effected by way of an all cash off-market takeover bid. The cash consideration will be funded from WHSP's existing cash reserves. …
…
WHSP's bidder's statement is expected to be lodged with ASIC within two weeks and will be sent to Hunter Hall shareholders as soon as practicable after that time."
For the following reasons, I accept the evidence of Mr Pillemer and reject the evidence of Mr A Turnbull concerning their first conversation after WHSP's ASX announcement, which occurred on or about 4 January 2017.
First, according to Mr A Turnbull, he became aware of WHSP's announcement shortly before the conversation through an alert on the Bloomberg platform to which he subscribed. Mr A Turnbull's evidence is that the conversation opened with him saying words to the following effect to Mr Pillemer: "I see that Soul Patts has taken 5% of the Hunter Hall." [91] That is inconsistent with the objective evidence of what WHSP had in fact announced to the market. As referred to at [111] above, Mr A Turnbull gave evidence that he believed what he claims Mr Pillemer said to him during the conversation because he considered that it was "plausible as I knew that WHSP often took minority positions similar to that which it had taken in Hunter Hall". That state of mind is also fundamentally inconsistent with WHSP's announcement. Those material inconsistencies demonstrate the unreliability of Mr A Turnbull's recollection of the conversation.
[25]
Whether the merger was likely to proceed by 15 February 2017
Mr Pillemer's evidence about the likelihood at various times during January and February 2017 of the proposed merger proceeding has been referred to in the summary of evidence earlier in these reasons, particularly at [160], [164]-[166], [175]-[176] and [210]. Whilst Mr Pillemer did accept in cross-examination that the proposed merger was a "reasonable prospect" as at 15 February 2017, he did not resile from his evidence that he thought at that time that the merger was less likely than it had been early January 2017. Those two propositions are not inconsistent and I accept that evidence of Mr Pillemer, which is consistent with the objective facts about the timing of the commencement of the bidding war, the state of play between the two bidders as at 15 February 2017 and Hunter Hall's public announcements. [97] The evidence concerning the "Merger Model", the due diligence activities, the preparation of a draft merger agreement and the meetings between representatives of Pengana and Hunter Hall demonstrates that the proposed merger was being aggressively pursued by Pengana and entertained by Hunter Hall. However, considered in the context of the objective facts concerning the rival bidder and Hunter Hall's public announcements and the requirement for shareholder approval of the proposed merger even after the announcement made on 9 March 2017, the evidence does not establish on the balance of probabilities that the proposed merger was consistently increasingly likely throughout January 2017 and in February 2017 leading up to the execution of the Settlement Deed and was likely to proceed by 15 February 2017. Nor does the evidence establish that Mr Pillemer held that state of mind at those times. I accept the defendants' submissions to that effect and reject Maurtray's submissions to the contrary.
Mr Pillemer's assessment had become somewhat more optimistic by 23 February 2017, as referred to at [210] above. As the defendants submitted, Maurtray's submissions unhelpfully elide the distinction between Mr Pillemer's state of mind as at 15 February 2017 and as at 23 February 2017.
[26]
23 February 2017 lunch meeting
The competing evidence of Mr A Turnbull and Mr Pillemer concerning their conversation on 23 February 2017 is set out at [206]-[210] above.
I accept Mr Pillemer's evidence and reject Mr A Turnbull's evidence about that conversation for the following reasons.
First, Mr Pillemer's account of the conversation is consistent with the fact that Mr Pillemer did want Maurtray and the Turnbull family to continue their involvement with Pengana.
Second, Mr Pillemer's version of the conversation in which he expressly referred to the possibility of a "reverse takeover" is consistent with Mr A Turnbull's subsequent message to Mr Pillemer on 19 May 2017 which simply read: "congrats saw the deal closed", [98] as I have already referred to above at [421]. I accept the defendants' submission that the message is consistent with the potential merger having been the subject of discussion between them prior to 19 May 2017, as Mr A Turnbull himself agreed in the context of denying having said the same words to Mr Pillemer in a later telephone conversation. [99] It follows that, on the balance of probabilities, "the deal" was discussed between them at some time prior to Mr A Turnbull's message sent to Mr Pillemer on 19 May 2017. This must have occurred no later than 23 February 2017. There is no evidence of any other relevant conversation between 23 February and 9 March 2017 or (on Mr A Turnbull's version of events) between 23 February and 19 May 2017.
Third, Mr Pillemer's account of the conversation in which he offered to reverse the Settlement Deed to facilitate Maurtray continuing to have an investment in Pengana either through a loan structure or by owning shares, is consistent with his immediate willingness to make an additional payment to Maurtray when Mr A Turnbull contacted him on 5 June 2017 expressing for the first time his regret that "we haven't come out that well from this". [100] Contrary to Maurtray's submissions, I do not regard Mr Pillemer's willingness to make an additional payment as evidence of an acceptance that he had engaged in some wrongdoing.
Fourth, Mr Pillemer's account of Mr A Turnbull saying words to the effect that "it's too risky for the family to convert to equity" is entirely consistent with Mr A Turnbull's subsequent messages to Mr Pillemer explaining why he did not seek to have the Shares transferred to Maurtray in repayment of the Loan. For the reasons set out immediately below, I reject Mr A Turnbull's evidence attempting to explain away the natural meaning of the language in those messages.
[27]
Communications during the period after 19 May 2017
The evidence concerning these communications is set out in detail at [218]-[312] above.
As I have already said, [101] Mr A Turnbull initially gave false evidence that he had been engaged in discussions with Mr Pillemer "seeking to resolve my complaints" from 19 May 2017. It was not until he swore his affidavit on 12 March 2021 that Mr A Turnbull acknowledged that he did not make any complaint alleging that Mr Pillemer had misled him or done anything wrong until Maurtray's solicitors sent the letter of demand dated 21 February 2018.
As referred to in the detailed summary of the relevant evidence, Mr A Turnbull's own messages to Mr Pillemer on 5 June 2017 describe his reason for not taking a transfer of the Shares in repayment of the Loan as being that "AFR would have been onto who Maurtray is within 10 minutes". He described this as giving rise to a situation that had "been extremely frustrating dealing with all this stuff without being able to act in a 100% commercial way" and bemoaned that "opportunity costs of being PM aren't low that's for sure". In messages with Mr Pillemer the following day, Mr A Turnbull expressed a desire to avoid any disclosure of the arrangements they were then negotiating by which Mr Pillemer would "get additional value to you". In a subsequent message sent to Mr Pillemer in the context of those negotiations on 12 August 2017, Mr A Turnbull referred to "the fact that we could not take delivery the shares without likely blowing up the deal for you and in some capacity MT". On 22 August 2017, Mr A Turnbull sent a further message to Mr Pillemer describing the outcome as a "big PM tax to pay".
The terms of those messages are wholly inconsistent with Mr A Turnbull's evidence of the January 2017 conversations referred to above, with Maurtray's claims to have been misled and with Mr A Turnbull's evidence about what he says he would have done if he had been told in late 2016 or early 2017 "that there was even a slight prospect that the Shares could be realised on-market either directly through an IPO or by a merger with a listed entity". [102] They are also fundamentally inconsistent with Mr A Turnbull's evidence that he had only a "mild concern" about Maurtray's involvement with Pengana becoming known to other shareholders and known more widely, and with his evidence describing that concern as "secondary" to achieving any potential "upside" for Maurtray that may have resulted from a transfer of the Shares rather than a lump sum repayment of the Loan.
[28]
Proper construction of clause 19 of the Loan Agreement
The proper construction of clause 19 of the Loan Agreement is relevant to Maurtray's cause of action in contract. It is also relevant to Maurtray's claims for alleged misleading or deceptive conduct by silence, because its construction of clause 19 of the Loan Agreement as requiring disclosure of the undisclosed matters is the basis on which Maurtray contends that the non-disclosure was misleading or deceptive.
[29]
The parties' submissions
The terms of clause 19 together with other relevant provisions of the Loan Agreement have been set out at [18]-[40] above but it is convenient to reproduce the terms of clause 19 again here:
"Borrower's Disclosure Obligations
Until the Repayment Amount has been repaid in full, the Borrower must:
(a) give to the Lender within 5 Business Days of receipt, a copy of any financial report (including, without limitation, the annual financial report) and any shareholder correspondence or other document or information received or accessible by the Borrower in respect of the Shares or the Company [i.e. Pengana] which may relate in any way to:
(1) the value of the Shares;
(2) the sale or potential sale of any of the Shares; or
(3) the composition, profitability or performance of the Company.
(b) within 5 Business Days of any request by the Lender, provide such oral or written information as the Lender may reasonably require with respect to the Shares or the Company, of which the Borrower is or ought to be aware."
Maurtray submitted that the plain language of clause 19 does not permit any construction that restricts the disclosure obligation to documents and information received or accessible by PPL and PFH in their capacity as Pengana shareholders or excluding confidential information that Mr Pillemer received in his capacity as Chief Executive Officer of Pengana that was not otherwise available to all Pengana shareholders. Senior counsel for Maurtray acknowledged that the undisclosed matters are not "shareholder correspondence" within the meaning of clause 19, but submitted that "shareholder correspondence" is merely one of the categories of documents and information picked up by clause 19 and the terms "other document or information" are clearly not confined to material available to shareholders generally. That is to say, the ordinary and natural meaning of the word "other" is "other than shareholder correspondence".
Maurtray further submitted that the words "received or accessible by the Borrower" are not confined to material that the Borrower received or that were accessible to the Borrower in its capacity as a shareholder and that "the notion of accessibility is intended to capture what was accessible to [PPL], the borrower, by reason of all the circumstances affecting the borrower, including of course the fact that Mr Pillemer was the sole director and Mr Pillemer, of course, was the CEO of [Pengana]… So there's no attempt whatsoever in the language of cl 19 to exempt the borrower from providing documents that were received or accessible to it by reason of its sole director also being the CEO of [Pengana]".
[30]
The proper construction of clause 19
Clause 19 of the Loan Agreement falls to be construed in accordance with the established principles applicable to the construction of commercial contracts.
As the majority of the High Court said in Electricity Generation Corporation v Woodside Energy Ltd: [110]
"The meaning of the terms of a commercial contract is to be determined by what a reasonable businessperson would have understood those terms to mean. That approach is not unfamiliar. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding 'of the genesis of the transaction, the background, the context [and] the market in which the parties are operating'. As Arden LJ observed in Re Golden Key Ltd (in rec), unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption 'that the parties … intended to produce a commercial result'. A commercial contract is to be construed so as to avoid it 'making commercial nonsense or working commercial inconvenience'."
In Cherry v Steele-Park, [111] Leeming JA (with whom Gleeson and White JJA agreed) conducted an extensive review of relevant authority and concluded that it is not necessary to pass through an "ambiguity gateway" before regard may be had to surrounding circumstances when construing a contract. [112] However, "[t]he starting point and the ending point of the construction of a written commercial contract is the language chosen by the parties to record their bargain" and so there is "limited scope for evidence of surrounding circumstances to detract from the contractual text". [113]
By way of illustration, Leeming JA referred [114] to the following statement of Gleeson JA (with whom Basten and Meagher JJA agreed) in Newey v Westpac Banking Corporation: [115]
"… there is no licence for 'judicial rewriting' of an agreement… The ability of courts to give commercial agreements a commercial and business-like interpretation is constrained by the language used by the parties. If, after considering the contract as a whole and the background circumstances known to both parties, a court concludes that the language of a contract is unambiguous, the Court must give effect to that language unless to do so would give the contract an absurd operation…"
[31]
Alleged breach of clause 19 of the Loan Agreement
On the proper construction of clause 19 of the Loan Agreement, as determined above, Maurtray's claims based on alleged breaches of clause 19(a) and clause 19(b) fail. That is because, as the defendants submitted and as Maurtray accepted in its closing submissions, [126] the claim is founded on non‑disclosure of documents and information received by or known to Mr Pillemer in his capacity as CEO of Pengana. For the reasons explained above, such documents and information were not received or accessible by PPL and PFH and clause 19 therefore did not apply to those documents and information.
Maurtray's alternative claim for breach of clause 19 of the Loan Agreement on the basis of alleged partial disclosure also fails because clause 19, properly construed, did not require disclosure of the undisclosed matters (knowledge of which is not attributed to PPL and PFH) and also because the evidence does not establish on the balance of probabilities that the prospect of a merger between Pengana and Hunter Hall was increasingly realistic during January and February 2017 or that the potential merger was likely to proceed by 15 February 2017. [127]
[32]
Alleged express and implied representations
Maurtray's cause of action for alleged misleading or deceptive conduct is based on the six alleged representations referred to at [325] above.
For the reasons set out at [384]-[392] above, Maurtray has failed to discharge its onus of proof in relation to the first alleged representation referred to above at [325(1)].
For the reasons set out at [394]-[399] above, Maurtray has failed to discharge its onus of proof in relation to the second alleged representation referred to above at [325(2)].
For the reasons set out at [414]-[422] and [426]-[433] above, Maurtray has failed to discharge its onus of proof in relation to the third alleged representation referred to above at [325(3)].
The fourth alleged representation referred to above at [325(4)] is pleaded as a representation that is to be implied from the defendants' failure to retract the first three alleged express representations. As Maurtray has failed to prove the first three alleged express representations, it has also failed to prove the implied representation.
The fifth alleged representation referred to above at [325(5)] is to the effect that the Shares would be sold to WHSPPPL as part of the NAB tag along process. As referred to at [60] above, it is common ground that Mr Pillemer told Mr A Turnbull shortly after sending him the information memorandum on 17 November 2016 that Mr Pillemer would not be selling his shares in Pengana to a buyer. As referred to at [97] above, Mr A Turnbull gave evidence that he was aware as at 23 December 2016 that Mr Pillemer would not be selling shares in the NAB tag along process. For those reasons, Maurtray has failed to prove the fifth alleged representation.
The sixth alleged representation referred to above at [325(6)] is said to be implied from the cumulative effect of the first three representations and the defendants' failure to qualify, correct or retract those alleged representations at any time prior to 24 February 2017 when payment was made to Maurtray under the Settlement Deed. As Maurtray has failed to establish the first three representations, it has also failed to establish the alleged sixth representation.
[33]
Alleged misleading or deceptive conduct claim by non-disclosure
The parties adopted the following passage from the judgment of Walton J in Ryan Wealth Holdings Pty Ltd v Baumgartner [128] summarising the principles to be applied in determining whether silence or non-disclosure is misleading or deceptive in contravention of s 18 of the Australian Consumer Law:
"[574] Section 42 of the FTA (NSW) (like its TPA analogue) is contravened if the acts, omissions, statements and/or silence of the defendant, taken as a whole and considered in light of all relevant circumstances, are misleading or deceptive or are likely to mislead or deceive: Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304; [2009] HCA 25 (Campbell) at [102], Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592; [2004] HCA 60 (Butcher) at [104]. Conduct is misleading if it induces, or is capable of inducing, error (Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 at 198; Rhone-Poulenc Agrochomie SA v UIM Chemical Services Pty Ltd (1986) 12 FCR 477 at 490-491; Campbell at [25]; Butcher at [111]), and is likely to mislead or deceive where there is a real (or not remote) chance or possibility that the conduct will have that effect (Global Sportsman Pty Ltd v Mirror Newspapers Pty Ltd (1984) 2 FCR 82 at 87).
[575] Whether conduct has a tendency to lead into error is an objective question of fact to be determined on the basis of the conduct of the defendants as a whole viewed in the context of all relevant surrounding facts and circumstances: Campbell at [102], citing Butcher at [109]. The inquiry is an objective one, the focus being on the objective tendency of the conduct to induce an erroneous assumption on the part of a hypothetical individual, but taking into account the respective positions of the parties, including such matters as their knowledge of each other from previous dealings and their respective familiarity with the subject matter: Sutton v AJ Thompson Pty Ltd (In Liq) (1987) 73 ALR 233 at 240. The objective nature of this inquiry means that a finding that conduct is misleading or deceptive is not avoided merely because a plaintiff could, by proper inquiries, have discovered the misleading or deceptive conduct: Butcher at [111]; Henjo Investments Ply Ltd v Collins Marrickville Pty Ltd (No 1) (1988) 39 FCR 546.
[576] Where silence is relied upon as conduct giving rise to a contravention of the FTA (NSW) or TPA, the effect of the silence is considered in light of the relevant surrounding circumstances. An important question in this context is whether the plaintiff was reasonably entitled in all the circumstances to expect that the defendants would make a positive disclosure: OXS Pty Ltd v Sydney Harbour Foreshore Authority [2016] NSWCA 120 at [178] and the authorities there cited, see also Street v Luna Park Sydney Pty Ltd (2009) 223 FLR 245; [2009] NSWSC 1 at [180]; Perpetual Trustee Co Ltd v Ishak [2012] NSWSC 697 at [96].
[577] As Gummow J said in Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31 at 41 (quoting Kimberly NZI Finance Ltd v Torero Pty Ltd [1989] ATPR (Digest) 53,193 at 53,195):
'… unless the circumstances are such as to give rise to the reasonable expectation that if some relevant fact exists it would be disclosed, it is difficult to see how mere silence could support the inference that the fact does not exist.'"
[34]
Alleged misleading or deceptive conduct by partial disclosure
As referred to at [328] above, this alternative framing of Maurtray's claim for alleged misleading or deceptive conduct is premised on the assumption that Mr Pillemer made the disclosures that he claims to have made on 4 January 2017 and 23 February 2017 (as I have found). Maurtray contends that, in circumstances where there was an increasingly realistic prospect of a merger between Pengana and Hunter Hall and it was likely by 15 February 2017 that the proposed merger would proceed, those disclosures were misleading or deceptive without disclosure of the undisclosed matters.
That alternative claim fails for two reasons. First, there was no reasonable expectation of disclosure of the undisclosed matters for the reasons explained above. Second, for the reasons explained at [424]-[425] above, the evidence does not establish that the proposed merger was increasingly realistic and was likely to proceed by 15 February 2017.
[35]
Causation and loss
The issues of causation and loss do not arise in light of Maurtray's failure to establish the alleged breaches of the Loan Agreement and the alleged misleading or deceptive conduct. If those allegations had been proved, I would have concluded that Maurtray has failed to establish that it had suffered any loss because of the alleged conduct or breaches for the following reasons.
Mr A Turnbull's evidence about what he would have done, or caused Maurtray to do, if he had known about the undisclosed matters is summarised at [183]-[186], [188]-[195] above and is founded on:
1. his evidence that, without that disclosure, he was proceeding on the basis that "the Shares were an illiquid investment and [Pengana] was valued at $80 million … translating to a price as part of the Tag Along Process of $143.179 per share"; [131] and
2. his evidence that he would have acted differently if he had been told in late 2016 or early 2017 "that there was even a slight prospect that the Shares could be realised on-market either directly through an IPO or by a merger with a listed entity". [132]
I reject Mr A Turnbull's evidence that he was proceeding on the basis that the Shares were an illiquid investment for the same reasons as I have rejected his evidence concerning his conversations with Mr Pillemer on 14 December 2016 and during the period from 4 January 2017 and found that those conversations occurred in the terms described by Mr Pillemer. [133] Maurtray has failed to establish what it described as its primary case that the defendants represented to it at all relevant times up to 24 February 2017 that, if the Shares were transferred to Maurtray, it would end up with an illiquid investment as a minority shareholder in Pengana (as there was no prospect of an IPO), that the Shares were being sold in the tag along process triggered by the NAB transaction and that the best available return for Maurtray on the Loan was to accept an amount equivalent to that which would be paid for the Shares in that tag along process.
I also reject the notion that Mr A Turnbull did not know that there was even a slight prospect that the Shares could be realised on-market. On his own evidence, the 30 December 2016 announcement of WHSP's acquisition of a stake in Hunter Hall alerted Mr A Turnbull to the possibility of a reverse merger whereby Pengana shareholders would become shareholders in the listed entity Hunter Hall. WHSP's subsequent pursuit of Hunter Hall was the subject of the bidding war with Pinnacle that played out in a series of competing offers announced to the ASX. Mr A Turnbull's own evidence is that he was aware of events in the financial markets concerning WHSP and Hunter Hall. [134]
[36]
Conclusion and Orders
For the foregoing reasons, there will be an order dismissing the proceedings. I am not aware of any reason why costs should not follow the event but I will make directions to facilitate the parties being heard on the question of costs if they wish to be heard.
The orders and directions of the Court are:
1. Order that the proceedings are dismissed, save in relation to the question of costs which is reserved for determination on the papers.
2. Direct any party seeking a costs order other than an order that the plaintiff pay the defendants' costs of the proceedings on the ordinary basis as agreed or assessed to file and serve written submissions in relation to costs by 4pm on 9 September 2022, such submissions not to exceed 4 pages in length.
3. Direct the parties to file and serve any responsive submissions in relation to costs by 4pm on 16 September 2022.
4. Note that, if no submissions are filed and served in accordance with orders 2 and 3 above, an order will be made in chambers that the plaintiff pay the defendants' costs of the proceedings on the ordinary basis as agreed or assessed.
[37]
Endnotes
As corrected in paragraph 56 of Mr A Turnbull's affidavit sworn on 20 July 2020.
See [27] above.
See [105] above.
See [130]-[134] above.
See [124] above.
See [128]-[129] above.
See [145]-[155] above.
See [157] above.
See [159] above.
See [161] above.
See [142] and [162] above.
See [163] above.
See [167] above.
See [114] above.
See [124] above.
See [170] above.
See [161] above.
See [205] above.
T132.4-133.5.
See [269] above.
See [103] above.
See [128] above.
See [129] above.
See [143] above.
See [145] above.
See [157] above.
See [158] above.
See [161] above.
See [162] above.
See [163]-[164] above.
See [167] above
See [168] above.
T290.46-291.5.
See [109] above.
See [207] above.
See [114] above.
See [138] above.
See [208] above.
See [63] above.
See [77] above.
See [109] above.
See [63], [77] and [109] above.
See [114] above.
See [138] above.
See [208] above.
See [90] above.
See [124] and [181]-[183] above.
See Mr Pillemer's evidence at [114], [138], [170], [172] and [208] above; see Mr A Turnbull's evidence at [108] above.
(1995) 49 NSWLR 315 at 319.
(2003) 214 CLR 118; [2003] HCA 22 at [28]-[31] (Gleeson CJ, Gummow and Kirby JJ).
(2019) 100 NSWLR 218; [2019] NSWCA 102 at [77] (Bell P, Leeming JA and Emmett AJA agreeing).
(2021) 388 ALR 128; [2021] NSWCA 24 at [25]-[29] (Bell P, Bathurst CJ agreeing).
Clause 1 of the Loan Agreement provided for TPPL to make available a Facility of up to $8,044,640.86 (the Loan).
Pursuant to clause 4(a), the "Repayment Amount" was due and payable in full by the Borrower on the "Repayment Date".
The "Repayment Amount" was defined as the "Principal Outstanding plus an amount such that the Lenders [sic] IRR is equal to 15%". The "Lender's IRR" was defined as an internal rate of return calculated in accordance with a specified formula.
The definition of "Repayment Date" included the date which is five business days after a "Liquidity Event". The term "Liquidity Event" was defined as having the same meaning as in a shareholders' agreement between Elly Investments Pty Ltd, Pengana and others dated on or about 4 April 2008 (the Shareholders' Agreement). The Shareholders' Agreement was in fact dated 30 April 2008. It defined the term "Liquidity Event" as an initial public offering (IPO) of the shares of Pengana or a newly formed holding or subsidiary company of Pengana or any entity formed to acquire the business of Pengana (or a private sale of a minimum of 50% of the issued shares in Pengana to a person other than an existing shareholder of Pengana.
Clause 4(b) of the Loan Agreement provided that the Borrower must satisfy its obligation under clause 4(a) to pay the Repayment Amount in full on the Repayment Date by:
"The Borrower must satisfy its obligations under clause 4(a), either by:
(i) paying the Repayment Amount in full to the Lender on the Repayment Date;
(ii) on or before the Repayment Date, transferring, and procuring that each Pillemer Associate transfers, to the Lender (or its nominee) all of the Shares, provided that the Shares are transferred:
(A) free from all Encumbrances;
(B) together with all rights attached or accruing to them;
(c) free of any pre-emptive rights or rights of first refusal or any other restrictions on the Lender's ability to freely Dispose of all of the Shares; and
(D) prior to completion of a Liquidity Event of the type described in paragraph (b) of the definition of Liquidity Event (ignoring the exclusion),
which transfers will constitute a full discharge of the Borrower's obligation to pay the Repayment Amount; or
(iii) if, on or before the Repayment Date:
(A) there is a sale of all of the shares in the Company for cash to an unrelated third party on genuine arms length terms; and
(B) the sale proceeds received by, or on behalf of, the Pillemer Associates (less the reasonable transaction costs and taxes directly incurred in connection with the sale) ('Sale Proceeds') are immediately applied toward payment of the Repayment Amount,
then the payment of the Sale Proceeds to the Lender will constitute a full discharge of the Borrower's obligation to pay the Repayment Amount even if the amount of the Sale Proceeds is less than the Repayment Amount."
In the Loan Agreement executed on 3 April 2008, the "Shares" were defined as (emphasis in original):
"(a) 128,940 shares in the Company [referring to Pengana]; plus
(b) all of the shares or other securities in the Company legally or beneficially held by the Pillemer Associates (whether acquired before or after the date of this Facility Letter) other than the 128,940 shares referred to in paragraph (a) above"
The Loan Agreement defined "Pillemer Associates" as meaning Mr Pillemer and "associates" of Mr Pillemer or the Borrower (PPL as at the date of execution of the Loan Agreement) as defined in ss 11 and 12 of the Corporations Act 2001 (Cth), including any entity of which Mr Pillemer is one of the majority directors or the majority of the shares in which are held by Mr Pillemer.
Schedule 1 to the Shareholders' Agreement reveals that, as at the date of execution of the Shareholders' Agreement on 30 April 2008, the 128,940 shares referred to in paragraph (a) of the definition of "Shares" in the Loan Agreement comprised 75,600 shares owned by R C Pillemer Pty Ltd, 10,500 shares owned by Mr Pillemer and 42,840 shares owned by PFH. This suggests that, contrary to Mr M Turnbull's evidence referred to at [17] above, PPL was not the entity that acquired shares in Pengana from TPPL in April 2008.
The First Variation amended the definition of "Shares" in the Loan Agreement to read as follows (emphasis in original):
"(a) 64,470 shares in the Company;
less
(b) that number of shares referred to in paragraph (a) of this definition sold for cash in a Permitted Sale between the date of this Facility Letter and the Repayment Date."
The Loan Agreement defined a "Permitted Sale" as meaning:
"… a sale for cash to an unrelated third party of a Pillemer Associate on genuine arms length terms and for fair value and where the sale proceeds (less the reasonable transaction costs and taxes directly incurred in connection with the sale) are immediately applied toward payment of the Repayment Amount."
The Second Variation amended the definition of "Shares" again to read as follows (emphasis in original):
"(a) 42,840 shares in the Company;
less
(b) that number of shares referred to in paragraph (a) of this definition sold for cash in a Permitted Sale (first approved by the Lender) between the date of this Facility Letter and the Repayment Date, provided that the Sale Proceeds in respect of those shares had been paid to the Lender in accordance with clause 4(b)(iii)."
The 42,840 shares referred to in paragraph (a) of that definition were owned by PFH, as stated in Schedule 1 to the Shareholders' Agreement and confirmed in clause 9.1(b) of the Second Variation.
Thus, the only "Shares" to which the Loan Agreement applied from 1 June 2015 were the 42,840 shares held by PFH. There were no "Shares" owned by any other "Pillemer Associate" that clause 4(b)(ii) of the Loan Agreement would require PPL to procure the owner to transfer to the Lender if PPL elected to repay the Loan by a transfer of the "Shares".
In these reasons, I follow the convention adopted in the parties' submissions and use the term "Shares" to refer to the 42,840 shares in Pengana to which the Loan Agreement applied from 1 June 2015.
Clause 5 of the Loan Agreement, as varied by the Second Variation, provided:
"The Borrower may prepay all or part of the Repayment Amount at any time.
The Borrower is required to make prepayments to the Lender equal to the Net Dividends received on the Shares, which Net Dividends on payment will be deducted from the Principal Outstanding. These payments must be made by the Borrower to the Lender as follows:
(a) in respect of any dividends received on the Shares prior to the date of this Second Variation (being $464,625), the Borrower must pay the Net Dividends (being $338,512), to the Lender within 30 days of the date of this document;
(b) in respect of any dividends received by the Borrower on the Shares after the date of this document, the Borrower must pay the Net Dividends to the Lender within 10 days of the Borrower receiving dividends."
All but the first paragraph of clause 5 set out above was introduced into the Loan Agreement by the Second Variation.
The term "Net Dividends" was defined as dividends received net of the top marginal personal income tax rate after taking into account any franking credits. In respect of dividends of $464,625 that had been received prior to the date of the Deed of Variation and Accession, the Borrower was required to pay the Net Dividends of $338,512 to the Lender within 30 days after the date of that deed. Future Net Dividends were required to be paid to the Lender within 10 days after receipt by the Borrower.
Clause 7A of the Loan Agreement, which was introduced by the Second Variation, provided:
"As at the date of the Second Variation, the Borrower warrants and represents that:
(a) the total amount of dividends received to date in respect of the Shares is $464,625; and
(b) the Borrower is not aware of any fact or circumstance that are not known to the Lender that has, will or has the potential to give rise to a material dilution in the value of the Shares as compared to the date the Shares were purchased by the Borrower from the Lender."
The Loan Agreement did not expressly provide the Lender with a security interest in the Shares. However, clause 8 provided that it was an "Event of Default" if the Borrower created any encumbrance over any of the Shares or disposed of any of the Shares (other than in a Liquidity Event or Permitted Sale) without the Lender's prior written consent. The Repayment Amount was immediately due and payable (at the Lender's option) upon the occurrence of an Event of Default.
Clause 19 of the Loan Agreement, which was introduced by the Second Variation, provided:
"Borrower's Disclosure Obligations
Until the Repayment Amount has been repaid in full, the Borrower must:
(a) give to the Lender within 5 Business Days of receipt, a copy of any financial report (including, without limitation, the annual financial report) and any shareholder correspondence or other document or information received or accessible by the Borrower in respect of the Shares or the Company [i.e. Pengana] which may relate in any way to:
(1) the value of the Shares;
(2) the sale or potential sale of any of the Shares; or
(3) the composition, profitability or performance of the Company.
(b) within 5 Business Days of any request by the Lender, provide such oral or written information as the Lender may reasonably require with respect to the Shares or the Company, of which the Borrower is or ought to be aware."
As I have already mentioned above at [1], at all times relevant to these proceedings, Mr Pillemer was the sole director and sole shareholder of PPL and PFH.
In cross-examination, Mr A Turnbull confirmed that he had been labouring under the mistake that the $6 million had been a loan from TPPL to Maurtray, and that he had even had a recollection of the terms of that non-existent loan, at all times until about 3 March 2021 when his father spoke to him about it and provided him with accounting records of one of his related companies which record the $6 million payment as a gift. In cross-examination, Mr A Turnbull attributed his mistake in his first affidavit to confusion between the assignment transaction and another transaction which he described as "a Div 7A loan which required amortisation and other fixed terms". I note that this explanation differs from the explanation offered in Mr A Turnbull's 3 March 2021 affidavit referred to above.
Mr Pillemer swore two affidavits in these proceedings in which he agreed in cross-examination that he had included his account of all significant events and conversations to the best of his knowledge. As the plaintiffs submitted, Mr Pillemer's affidavits did not include any reference to a conversation along the lines that he described in cross‑examination as having occurred in the days following Mr A Turnbull's email sent on 1 June 2016. However, Mr Pillemer's affidavits were responsive to Mr A Turnbull's affidavits, and Mr A Turnbull confined himself to conversations in the period from 1 October 2016 and made no reference to his 1 June 2016 email.
In October 2016, NAB made a decision to sell its shareholding in Pengana and appointed Chase Corporate Advisory to identify a strategic buyer. It is common ground that Mr Pillemer informed Mr A Turnbull of this development.
On 9 November 2016, Mr Pillemer sent an email to Mr A Turnbull attaching an information memorandum prepared by Chase Corporate Advisory.
On 17 November 2016, Mr Pillemer sent a further email to Mr A Turnbull attaching what was described as a final version of the information memorandum which was again marked highly confidential. It is common ground that Mr Pillemer sent this material on both his own behalf and on behalf of PPL and PFH to Mr A Turnbull on behalf of Maurtray. Mr Pillemer's email to Mr A Turnbull suggested that they arrange a time to "chat".
It is common ground that Mr Pillemer told Mr A Turnbull at about the same time as he sent the emails referred to at [58]-[59] above that:
"I won't be selling my shares in Pengana to a buyer. This is purely a process for NAB to sell its stake. Due to the terms of the Shareholders Agreement, that will almost certainly give other shareholders the opportunity to sell alongside NAB"
According to Mr A Turnbull, he responded to this statement by Mr Pillemer by saying:
"OK Russell [sic], go ahead and do whatever you need to pay out the loan."
Mr Pillemer deposed that the terms of the Shareholders' Agreement to which he was referring in that conversation were clauses 10, 11 and 14. Clause 10 required any Pengana shareholder wishing to sell its shares to offer those shares to the other shareholders on the same terms that it was proposing to sell the shares to a third party (subject to certain exceptions that are not presently relevant). Clause 11 required any Pengana shareholder holding 25% or more of the shares in Pengana and wishing to sell its shares (having first complied with clause 10) to issue a notice to all other Pengana shareholders specifying the number of shares proposed to be transferred, the prospective transferee and the terms of the proposed transfer and stating that the other shareholders may transfer their own Pengana shares to the same transferee on the same terms as specified in the notice. It is convenient to refer to clause 11 as the tag along clause. It is not necessary to refer to clause 14 of the Shareholders' Agreement which is not relevant to these proceedings.
Emails exchanged between Mr A Turnbull and Mr Pillemer (or one of his staff) indicate that they arranged a telephone call for 18 November 2016. In paragraph 49 of his affidavit sworn on 15 May 2020, Mr A Turnbull deposed that the call took place and that he and Mr Pillemer had a conversation that included words to the following effect:
"RP: 'The valuation range of the company has moved down from around $100-$120 million. I cannot tell you who the bidder is as it is a public company.'
AT: 'That is a bad outcome and a poor quality price - an IPO would be much better. Has the board appraised any proposal for an IPO?'
RP: 'The NAB is opposed to a public listing so there is no chance of that happening.'
AT: 'You have failed in your obligations to the shareholders.'
RP: 'You don't know hard it is to deal with the NAB.'"
In paragraph 50 of his affidavit sworn on 15 May 2020, Mr A Turnbull deposed that he described NAB's sale of its shares as a "bad outcome" with a "poor quality price" because his own analysis had valued Pengana at $183 million. The analysis that Mr A Turnbull refers to was a two page spreadsheet entitled "Pengana Group Profit and loss For the year ended 30 June" which calculated a profit after tax of $18,029,483 and stated: "Valuation $183,000,000". Mr A Turnbull referred to that spreadsheet elsewhere in his affidavit sworn on 15 May 2020 as an analysis that he had prepared in 2014.
However, in his affidavit sworn on 20 July 2020, Mr A Turnbull corrected his evidence referred to immediately above. He deposed that he had prepared the spreadsheet containing the valuation of $183,000,000 on the basis of information contained in the Explanatory Memorandum issued by ASX listed company Hunter Hall International Limited (Hunter Hall) on 2 May 2017 in relation to the proposed merger between Hunter Hall and Pengana. As referred to in more detail later in these reasons, Pengana was pursuing that proposed merger during January and February 2017. In his affidavit sworn on 20 July 2020, Mr A Turnbull deposed that the numbers in the spreadsheet:
"… were based on me backing out what the implied value of Pengana was in the Hunter Hall transaction after accounting for some dilution that came with the NAB selldown and issue of more management shares.
It does contain information from my analysis in 2013 or 2014 but appears to have some further analysis from late 2016 and then 2017 added to it …
My recollection is that, from November 2015 onwards, I was proceeding on the basis that Pengana was worth between $120 million and $150 million. This was based upon market comparable levels using publicly listed asset managers in Australia.
I adhere to my evidence at paragraph 50 of my First Affidavit on the basis that I told Mr Pillemer the sale by NAB of its shares was a 'bad outcome' and 'poor quality price' on the basis I valued Pengana at about $120 million which was in line with comparables after applying a liquidity discount for an unlisted and smaller company."
In cross-examination, Mr A Turnbull refused to accept that, when he swore his 15 May 2020 affidavit, his recollection of his state of mind concerning the value of Pengana as at November 2016 referred to in paragraph 50 of that affidavit was incorrect. Mr A Turnbull maintained that his evidence referred to at [64] above was "a drafting error" attributable to "my lawyers not being terribly numerate" or the unreliable "ability of one to read spreadsheets late at night". Mr A Turnbull said that he thought he had sent the wrong version of the spreadsheet to his solicitors, as a result of which his affidavit erroneously referred to him having valued Pengana at $183,000,000 in 2014 and he failed to pick up that error.
I note that Mr A Turnbull's in cross-examination suggests that his opinion in November 2016 about the value of Pengana was based on a 2014 version of his profit and loss spreadsheet, which was not in evidence. Later in his cross‑examination, Mr A Turnbull referred to his opinion in November 2016 as being informed by modelling that he had done in 2013 and said that Pengana's assets had grown since then. That is inconsistent with Mr A Turnbull's 20 July 2020 affidavit referred to above, in which he deposed that his opinion about the value of Pengana as at November 2016 had an entirely different basis, namely unspecified "market comparable levels" sourced from publicly listed asset managers to which he had applied an unspecified liquidity discount.
Mr A Turnbull maintained in cross-examination that he told Mr Pillemer that a valuation range for Pengana that was "down from" between $100 million and $120 million was a "bad outcome and a poor quality price" notwithstanding that:
1. Mr Pillemer had not told him anything about what the valuation range had come down to; and
2. Mr A Turnbull's view of the value of Pengana in November 2016 was based (on one version of his evidence) on modelling that he had done in 2013 or 2014.
In his affidavit sworn on 15 May 2020 and in cross-examination, Mr A Turnbull deposed that he believed and relied on the statement that he says Mr Pillemer made to him during their telephone conversation on 18 November 2016 that there was no prospect of Pengana being listed on the ASX. It was put to Mr A Turnbull that, in circumstances where NAB was proposing to sell its shareholding in Pengana, NAB's view about a public listing would have no relevance in the future once NAB was no longer a shareholder of Pengana. It was put to Mr A Turnbull that he did not take from anything that he claims Mr Pillemer said to him on 18 November 2016 that there was no prospect of Pengana being publicly listed in the future. Mr A Turnbull maintained that he did understand that "because it [NAB's shareholding in Pengana] had been sold to a strategic buyer who is unlikely to want to flip it into an IPO in a hot minute". Mr A Turnbull accepted that Mr Pillemer did not tell him anything about the buyer's intentions, but said that it would be "a very unusual practice" for a strategic buyer of NAB's stake to then publicly list Pengana. However, Mr A Turnbull then gave the following evidence (emphasis added):
"Q. The conversation at paragraph 49 simply didn't happen did it?
A. No, it absolutely happened, Mr Newlinds.
Q. You're certain of that are you?
A. I'm absolutely certain. And I'm--
Q. Is that the totality of the conversation, may we take it, that you didn't ask any questions?
A. There wasn't anything else to ask, it was clear an IPO was not happening.
Q. Because NAB were opposed to it?
A. Yeah, they were going to sell out and then I'd have to work out what the next buyer or controlling shareholder of the company planned.
Q. That's my point. And so how could you take from that conversation that there was no prospect whatsoever of a public float in the future?
A. Well because there was no prospect under NAB as the controlling shareholder and they were in the process of selling out.
Q. Is that your explanation?
A. Yes.
Q. I should make it clear to you I'm going to make a submission to her Honour that that explanation is nonsense. Is there anything else you want to say in answer to that?
A. It makes a great deal of sense, Mr Newlinds."
Mr Pillemer denies having a conversation with Mr A Turnbull in the terms referred to at [63] above.
In his affidavit sworn on 19 June 2020, Mr Pillemer gave evidence he had numerous conversations with Mr A Turnbull during the period from October to December 2016 in which he said to Mr A Turnbull words to the following effect:
"It would be really great if your family would stay invested. If you don't want to transfer the loan into PHL [Pengana] equity, then maybe we can keep the loan structure or create another structure".
Mr Pillemer deposed that he was "very keen" to have "the Turnbull family" remain invested in Pengana after NAB's sale of its stake for reasons that included "my close relationship with Mr M Turnbull, and because I regarded them as very powerful people, including Mr M Turnbull being the Prime Minister of Australia." Mr Pillemer viewed the "continuing involvement" of the Turnbull family as "a major positive" for Pengana as well as for himself personally.
According to Mr Pillemer, Mr A Turnbull told him in their conversations that:
"We have no interest in an ongoing exposure to Pengana. We want out as soon as there is an opportunity to get out."
"The Maurtray loan arrangements are a major political risk for MBT I am also concerned about risks that my hedge fund activities would become a focus of my father's enemies. I don't want anybody to know what I am holding in my fund and who I am trying to raise money from. By living in Singapore, I have managed to avoid this publicity and I do not want to risk the exposure."
"We don't want the ATO digging into this".
In relation to that last mentioned statement that Mr Pillemer attributes to Mr A Turnbull, Mr Pillemer's evidence is that Mr A Turnbull was alluding to "potential tax issues connected with the loan".
Mr A Turnbull agreed that he told Mr Pillemer on several occasions during the period from October to December 2016 that he wanted the Loan to be repaid to Maurtray. However, Mr A Turnbull denied describing the Loan as a "major political risk" to his father and as a risk to his own hedge fund activities. Mr A Turnbull gave evidence that, at the time, he was "mildly concerned" about the financial media's interest in any transfer of shares in Pengana to Maurtray due to his father's position as prime minister, but that this consideration was secondary to achieving any potential "upside" for Maurtray that may result from a transfer of the Shares rather than a lump sum repayment of the Loan. Mr A Turnbull's role as the chief investment officer of his hedge fund, Keshik Capital, had already been the subject of publicity in July 2014. Mr A Turnbull also denied having expressed any concerns about the ATO "digging into this" and gave evidence that he never held any concerns about the ATO looking into the Loan Agreement.
It is common ground that Mr A Turnbull and Mr Pillemer discussed the transaction by which NAB proposed to sell its shares in Pengana at a breakfast meeting in Double Bay on 14 December 2016. There is no dispute that Mr Pillemer informed Mr A Turnbull that NAB would very likely sign a deal to sell its Pengana shareholding to ASX listed company WH Soul Pattinson & Company Limited (WHSP) (which Mr Pillemer referred to as "Soul Patts"), that he gave Mr A Turnbull the details of the major terms of the likely transaction including the price of $80 million and the structure of the transaction and that he mentioned to Mr A Turnbull that the $80 million price would equate to a value of about $6.1 million in respect of the Shares to which the Loan Agreement applied.
In his affidavit sworn on 15 May 2020, Mr A Turnbull deposed that he and Mr Pillemer had a conversation to the following effect during that breakfast meeting:
"RP: 'The bidder is Soul Patts. The pricing is $80 million.'
AT: 'I'm unhappy with that. The pricing is poor.'
RP: 'I don't know what Soul Patts are going to do or whether they have plans to list or pursue a regular dividend policy. Your money is as good as dead with the company.'
AT: 'This is a bad outcome but it seems I have little choice and the shares will have to be tendered along with everyone else's. How should we do this, should the shares be transferred to me and I will tender them to Soul Patts?'
RP: 'No.'"
In cross-examination, Mr A Turnbull maintained that he did say to Mr Pillemer that "[t]he pricing is poor" notwithstanding that Mr A Turnbull said (contrary to his 20 July 2020 affidavit) that his view of the value of Pengana was based on the "vague" valuation that he had prepared some years earlier in 2013 or 2014.
Mr A Turnbull also maintained that Mr Pillemer did say:
"I don't know what Soul Patts are going to do or whether they have plans to list or pursue a regular dividend course",
followed immediately by the seemingly inconsistent statement:
"Your money is as good as dead with the company."
Mr A Turnbull said that he understood the second statement - "[y]our money is as good as dead" - as meaning that "I would have no agency, no ability to exit, effectively dead and passive" and "I would be at the mercy of whatever the controlling shareholder and Russel wanted to do".
Mr A Turnbull also said in cross-examination that he did not ask Mr Pillemer to inquire of WHSP what their intentions were. He inferred that WHSP would not be listing Pengana imminently because: "… look I only went on inference of what Soul Patts tends to do, they tend to be very long-term shareholders. They keep things private for extremely long periods of time. They're essentially a permanent capital vehicle. You know, if Russel didn't know then I wasn't going to find out." Inconsistently, Mr A Turnbull said a short time later in his cross-examination that Mr Pillemer's uncertainty about WHSP's intentions "was consistent with them, sometimes listing things, sometimes not listings [sic] things. There was - there was no playbook for Soul Patts as a counterfactual." Mr A Turnbull then said in his very next answers that it "would have been quite unlikely" for WHSP to list Pengana in the future because "I just think it would be an unusual thing for a private equity fund to do". When asked about the reason for that view, Mr A Turnbull replied that it "just didn't seem particularly plausible to me" because "if WHSP was planning on listing it, then NAB would have just exited …". The balance of that answer was not transcribable and it is not clear how Mr A Turnbull claims to have contemplated at the time that NAB would have "just exited" Pengana without selling its shares to WHSP, or how WHSP could list Pengana without first acquiring NAB's shares in Pengana.
Mr A Turnbull's evidence about this subject changed again a short time later during the following exchange with the cross-examiner (emphasis added):
"Q. I want to put to you and ask you to consider that there is simply no way Mr Pillemer said to you something like 'Your money's as good as dead' is there?
A. Mr Pillemer made it very clear that the buyer, he had no intention of an IPO or any - he had no awareness of it and that they were long‑term holders so I would have--
Q. Or it's completely wrong to you - for you to say that he made it entirely clear that the buyer - that he - that the buyer had no intention of IPO. That is completely wrong isn't it?
A. Well I asked him and he said he was not aware of any, he didn't - didn't think it was likely.
Q. No. Let's just look at your own evidence.
A. Yes.
Q. It is completely inconsistent with your evidence.
A. Where is - where in my evidence is this inconsistent, Mr Newlinds.
Q. 'I don't know what Soul Pattinson are going to do'?
A. Yeah.
Q. 'Or whether they have plans to list'?
A. Yeah.
Q. He did not make it entirely clear that they did not want to list, did he?
A. No, he said that he had no idea and he would be in touch with Soul Patts--
Q. When you said a few moments ago that he made it entirely clear that Soul Patts did not want to list, that is but another example of you just throwing things into your evidence because you think it might help the case rather than trying to tell the truth, isn't it?
A. No, Mr Newlinds. It is because he would be aware of their intentions and he would know what they planned to do.
Q. Why did you say he made it entirely clear that Soul Patts did not want to sell when that is simply not true?
A. If he did not know he would probably know if there was a case to happen. If there was an IPO that was likely or listing or any other action.
Q. Why did you say that he made it entirely clear to you that Soul Pattinson had no interest in the public listing? Why did you say--
A. Because it's a logical inference of their - and also he said if he didn't know, he didn't of [sic] any plans.
Q. So the reason you said he made it entirely clear to you is because it's some logical inference that you drew is it?
A. Yes, because he was working with their management."
In cross-examination, Mr A Turnbull acknowledged that the Loan Agreement gave PFH the option of paying the Repayment Amount or transferring the Shares to Maurtray but said that it was obvious at this time that, for commercial reasons, PFH would not pay the Repayment Amount. The remaining option was for PFH to transfer the shares to Maurtray. However, he said that he asked Mr Pillemer "[h]ow should we do this?" because it would be simpler and involve a lot less paperwork for PFH to retain the Shares and pay Maurtray a sum equivalent to the amount that WHSP would pay for the Shares in the tag along process, rather than PFH transferring the Shares to Maurtray in accordance with the Loan Agreement and Maurtray then selling the Shares to WHSP in the tag along process. Ultimately, Mr A Turnbull agreed with the cross-examiner that neither of these two options was simpler than the other.
Mr A Turnbull's evidence is that the conversation about the Loan Agreement at the 14 December 2016 breakfast meeting ended on the following note:
"AT: '… How should we do this, should the shares be transferred to me and I will tender them to Soul Patts?'
RP: 'No.'"
In cross-examination, Mr A Turnbull maintained that this marked the end of the conversation about Pengana at the breakfast meeting and that he did not ask any follow up questions after Mr Pillemer's monosyllabic response to his question. According to Mr A Turnbull, there was no further communication about the issue until the exchange of emails between Mr A Turnbull and Mr Pillemer on 26 December 2016 referred to below. When challenged further about the implausibility of the conversation ending in such an abrupt manner with no resolution about what was to occur, Mr A Turnbull embellished his account of Mr Pillemer's response to his question "[h]ow should we do this …":
"Well, I think he said, 'No', and, 'We'll work out the details. I'll send you an email later."
Mr A Turnbull denied that Mr Pillemer said "No", followed by an explanation that transferring the Shares from PFH to Maurtray would result in Maurtray's involvement becoming known to other Pengana shareholders and then becoming public knowledge.
Whilst under cross-examination about his version of the conversation at the 14 December 2016 breakfast meeting, Mr A Turnbull endeavoured on several occasions to direct attention towards to the 26 December 2016 email referred to at [100] below.
In his affidavit sworn on 19 June 2020, Mr Pillemer denied that the breakfast meeting included a conversation to the effect set out at [77] above and gave the following very different account of his conversation with Mr A Turnbull at that meeting:
"RP: 'Your family should really stay in this deal. I think this is going to be great for Pengana'.
AT: 'We have no interest in continuing to be involved with Pengana. We want to cash out of this deal.'"
In his affidavit sworn on 20 July 2020 , Mr A Turnbull denied that Mr Pillemer urged him to "stay in this deal" or expressed the view that it was "going to be great for Pengana". However, Mr A Turnbull gave the following evidence in cross-examination:
"Q. Isn't this what really happened in this conversation: … Firstly, he said something like this, 'Your family really should stay in this deal. I think it's going to be great for Pengana.' You deny that, don't you?
A. Russel was keen to keep me in for some personal reasons, perhaps.
Q. It is true that repeatedly during these discussions Russel's position was he really wanted you to say [sic] in?
A. Sure.
Q. That's true, isn't it?
A. Yes.
Q. Let's just understand this: you got him saying, 'Your money is as good as dead', but you accept that, at the same time, he's saying, 'I'd really love you to stay in.'?
A. Well, he said that he couldn't guarantee anything and there was - you know, he couldn't offer me any reason to stay in, aside from him wanting to preserve a relationship.
Q. But he wanted you to stay in, didn't he?
A. Yeah. I don't know why.
Q. And you wanted to cash out?
A. Yes."
Mr Pillemer deposed that, during the breakfast meeting on 14 December 2016 and during the following days, he and Mr A Turnbull discussed "the best way for Maurtray to receive a payment from this transaction". According to Mr Pillemer, he said words to the following effect to Mr A Turnbull during those of those conversations:
"There are technical issues surrounding the sale process that make it problematic to proceed in accordance with the provisions of the Loan Agreement. They key issue is that the Shareholders Agreement contains complicated and lengthy pre-emptive clauses in the event that a shareholder is seeking to sell or transfer shares. As a result of these clauses, in the event that my entity attempts to sell shares to Maurtray, all the other shareholders would become aware of Maurtray's involvement, which could potentially lead to such details being publicly leaked."
"I have a potential solution that will enable us to maintain confidentiality. As part of my new employment agreement, I have negotiated with WHSP for Pengana to provide me with a large loan facility to acquire further equity in the company. Rather than using all this loan facility to acquire equity, I think they will agree for me to use a portion to repay the Maurtray loan. That way, we won't have to go through the shareholder's agreement process."
"I will also try to get WHSP to provide me with bridge financing so that Maurtray can be fully paid out before the completion of the deal, so that we can completely avoid any disclosure problems."
According to Mr Pillemer, Mr A Turnbull responded positively to his suggested potential solution referred to above, saying "[t]hat sounds like a good plan". Mr Pillemer deposed that he made that suggestion for the sole reason of protecting the confidentiality of the Turnbull family's involvement with Pengana through the Loan Agreement. Mr Pillemer deposed that he and his companies would derive no economic advantage from implementing his suggested solution. Mr Pillemer was not successfully challenged about this in cross-examination. Mr Pillemer gave evidence to the effect that WHSP was providing him with a loan of approximately $18 million to enable him to acquire additional shares in Pengana. It was a matter of no consequence to Mr Pillemer whether he spent the whole of the $18 million in acquiring additional shares simultaneously with or immediately after the NAB/WHSP transaction, or whether $6 million of the funds were made available to Mr Pillemer early under a bridging loan and he applied those funds to pay Maurtray on the basis that PFH would retain the Shares.
In his affidavit sworn on 20 July 2020, Mr A Turnbull denied that Mr Pillemer said to him words to the effect set out at [90] above, either at the breakfast meeting on 14 December 2016 or subsequently. Mr A Turnbull recalled that Mr Pillemer did say that he had a loan from "Soul Patts", but denied that this was mentioned in the context of discussing arrangements for the repayment of the Loan to Maurtray. Rather, Mr A Turnbull's evidence is that Mr Pillemer mentioned the loan from "Soul Patts" for the first time in January or February 2017 and told Mr A Turnbull that the loan was to facilitate Mr Pillemer maintaining a shareholding in Pengana as part of "management alignment". Mr A Turnbull denied ever asking Mr Pillemer to structure his affairs, or agreeing with Mr Pillemer that his affairs would be structured, in a manner designed to preserve confidentiality for Mr A Turnbull or his family.
At some time prior to 23 December 2016, WHSP Pengana Pty Ltd was incorporated as a wholly owned subsidiary of WHSP (WHSPPPL).
On 23 December 2016, WHSPPPL made a binding offer to NAB to acquire NAB's shares in Pengana. The terms of the offer included that WHSPPPL would make a full takeover bid for all shares in Pengana in accordance with the tag along clause of the Shareholders' Agreement.
On 23 December 2016, Mr Pillemer received the following documents from NAB that he forwarded by email to Mr A Turnbull on the same day:
1. a letter from NAB to Mr Pillemer entitled "Pengana Holdings Pty Ltd - Possible Liquidity Event" and marked "strictly confidential";
2. a transfer notice under clause 10 of the Shareholders' Agreement addressed to Mr Pillemer, also marked "strictly confidential"; and
3. a copy of a proposed sale agreement between WHSPPPL (as buyer) and NAB Asset Management Limited and any other sellers of Pengana shares.
The letter, transfer notice and proposed sale agreement disclosed that NAB intended to sell its shareholding in Pengana to WHSPPPL, and that WHSPPPL had agreed to acquire up to 73% of the shares in Pengana at a price of $143.179 per share.
In his affidavit sworn on 15 May 2020, Mr A Turnbull gave evidence that he read the documents received from Mr Pillemer on 23 December 2016 and that his understanding based on the documents and his previous discussions with Mr Pillemer was that:
"(a) NAB would be selling its shares in Pengana to [WHSPPPL] for $143.179 per share;
(b) the Tag Along Process would see every other shareholder in Pengana doing the same [with the exception of Mr Pillemer, who had already told Mr Turnbull that he intended to maintain a shareholding in Pengana]; [1]
(c) these sales would occur at what I considered an undervalue based on my valuation of Pengana;
(d) there was no prospect that [WHSPPPL] would list Pengana on the ASX; and
(e) there was no clarity on the dividend policy [WHSPPPL] would institute in respect of Pengana."
Mr A Turnbull further deposed that:
"My attitude from this point onwards was that, unless the terms of the Tag Along Process changed, there would be no point seeking to have the Shares transferred to Maurtray as it would face the same or even worse problems if Pengana was owned by [WHSPPPL] as it did in the current structure in that:
(a) the Shares represented a small, illiquid holding with no apparent exit strategy and the Loan Agreement continuing for the foreseeable future;
(b) the dividend policy would be controlled by [WHSPPPL] and that may adversely affect the dividend pass through … [referring to the provisions introduced into the Loan Agreement by the Second Variation for "the Borrowers" to pay to "the Lender" the "Net Dividends" received in respect of the Shares, as "prepayments" that would be deducted from the principal sum owing under the Loan Agreement];
(c) the best course would be to have the Shares sold as part of the Tag Along Process either by Maurtray or the Pillemer entity which held them with the proceeds used to repay the loan; and
(d) whilst not an optimal outcome based on my valuation of Pengana, this would bring to an end Maurtray's involvement on the best terms available."
Mr A Turnbull's evidence that he believed in December 2016 that there was "no prospect" of Pengana being listed on the ASX was challenged in cross-examination. Mr A Turnbull said that his understanding was that there was no prospect of that occurring in the foreseeable future, based on what he says Mr Pillemer had told him and based on his own characterisation of WHSP as a long-term investor (as to which Mr A Turnbull gave the inconsistent evidence referred to at [77]-[82] above).
On 26 December 2016, Mr A Turnbull sent an email to Mr Pillemer in the following terms:
"Thanks for all the docs … For our leg of the transaction, when are we likely to have the shares surrendered to us in order to tender them? Or are we going to get refinanced out by Soul Patts? I understand the tender dynamics but how will this interface with the loan and your requirements to maintain your shareholding? None of that is covered in the documents".
Mr A Turnbull gave evidence that he did not receive a response to that email. However, Mr Pillemer gave evidence that he telephoned Mr A Turnbull shortly after receiving the email and they had a conversation to the following effect:
"RP: 'I have indeed been able to get Soul Patts to agree to refinance you out. This will simplify things a lot for you and will enable Maurtray to avoid all the tender dynamics. As soon as we get back to work after the holidays, I will work on arranging the refinancing documents and I will try and get Maurtray its cash as soon as possible'.
AT: 'It would be very good to get the cash soon'."
Mr A Turnbull accepts that a conversation to this effect took place, but says that it occurred in January or February 2017 after the conversation referred to at [116] below.
On 26 December 2016, Mr Peter Hall announced his resignation as a director and Chief Information Officer of Hunter Hall. Mr Pillemer became aware of this announcement whilst on holidays. Mr Pillemer telephoned Mr Todd Barlow (the Chief Executive Officer of WHSP) on 27 December 2016 and urged him to contact Mr Hall and buy a stake in Hunter Hall so that "[w]e can then figure out how to put Hunter Hall together with Pengana. There would be great synergies in this." Mr Pillemer deposed that he was hopeful that, if WHSP acquired a stake in Hunter Hall as he had suggested, WHSP might then facilitate a merger of Hunter Hall and Pengana.
In addition to contacting Mr Barlow, Mr Pillemer also contacted Mr Warwick Negus, who was a director of WHSP and a close business confidant of Mr Pillemer. He told Mr Negus that there was an opportunity for Pengana to buy Mr Hall's stake in Hunter Hall and said to Mr Negus words to the effect that WHSP would need to front for Pengana in the deal.
On 30 December 2016, WHSP announced to the ASX that it had entered into an agreement to acquire 19.9% of the shares in Hunter Hall from Mr Peter Hall. The announcement stated that WHSP had offered to acquire Mr Hall's remaining 24.05% stake in Hunter Hall and Mr Hall had stated his intention to accept that offer in the absence of a superior offer. The announcement also disclosed WHSP's off-market takeover offer for all remaining Hunter Hall shares at $1.00 per share, with a bidder's statement expected to be lodged with ASIC within two weeks and sent to Hunter Hall shareholders as soon as practicable thereafter.
In cross-examination, Mr Pillemer gave evidence he regarded himself as having done all of the inside work on the deal that led to WHSP's acquisition of the 19.9% stake in Hunter Hall, and that he regarded that acquisition by WHSP as being for the benefit of Pengana and as the first step in what would ultimately be a merger of Pengana and Hunter Hall or some type of combination of those companies. Mr Pillemer thought that he had an understanding or "handshake agreement" with WHSP that the benefit of its acquisition of the 19.9% stake in Hunter Hall would accrue to Pengana.
On 4 January 2017, Mr A Turnbull became aware that WHSP had acquired a stake in Hunter Hall. Mr A Turnbull gave evidence that he became aware of that development "as a result of a market update of announcements made to the ASX which were the subject of alerts on the Bloomberg electronic platform which I subscribed to and which provided financial information across all the major markets in the world." For reasons that are not explained by the evidence, Mr A Turnbull refers to WHSP's acquisition as involving a 5% stake in Hunter Hall rather than the 19.9% stake referred to in the ASX announcement published on 30 December 2016. That announcement also referred to WHSP's intention to acquire the remaining shares in Hunter Hall. Mr A Turnbull was not cross-examined about this discrepancy between the information that was in fact published at the time and the information that Mr A Turnbull says he became aware of at the time.
In cross-examination, Mr A Turnbull readily agreed that, when he became aware of this news, he immediately knew that there would be common ownership of a significant shareholder of both Pengana and Hunter Hall and it was possible that there would be a reverse merger or "backdoor listing" whereby Pengana shareholders became shareholders in a listed entity. Mr A Turnbull also said that there were reasons to believe that this would not be a good step for Pengana and there were also reasons to believe that WHSP was not a good fit for Hunter Hall. Mr A Turnbull did not identify those reasons. They were plainly insufficient for him to dismiss the possibility of a reverse merger which, on any view of the evidence, was a subject of the conversation that he subsequently had with Mr Pillemer.
In his affidavit sworn on 15 May 2020, Mr A Turnbull gave evidence that he contacted Mr Pillemer on 4 January 2017 after reading that update and they had a telephone conversation to the following effect:
"AT: 'I see that Soul Patts has taken 5% of the Hunter Hall. Does this have anything to do with the Pengana transaction?'
RP: 'It has nothing to do with it.'
AT: 'Are you sure there is no possibility of an IPO involving the Pengana shares?'
RP: 'None that I am aware of.'
AT: 'If there is to be an IPO that would be commercially very relevant to me - I need to know.'
RP: 'I have no idea. I can't tell you anything.'"
In his further affidavit sworn on 20 July 2020, Mr A Turnbull added that Mr Pillemer said to him during the same conversation that knowledge of what "Soul Patts" and Hunter Hall were doing was "above my paygrade" (that is, above Mr Pillemer's paygrade).
Mr A Turnbull deposed that he believed what Mr Pillemer said to him in that conversation because he trusted him and because what he said was plausible because Mr A Turnbull was aware that WHSP often took minority positions similar to that which it had taken in Hunter Hall. Mr A Turnbull was not cross-examined about his characterisation of WHSP's acquisition of 19.9% of Hunter Hall and its publicly announced intention to acquire the remaining shares in Hunter Hall as taking a minority position. However, as referred to at [81] above, Mr A Turnbull did say in cross-examination that "there was no playbook for Soul Patts as a counterfactual".
In cross-examination, it was put to Mr A Turnbull that his account of his conversation with Mr Pillemer (which Mr Pillemer denies) gave him no basis for believing that there would not be "an IPO". Mr A Turnbull gave the following evidence:
"Q. … What Mr Pillemer actually says to you when you're asking these questions is 'Look I have no idea, I can't tell you anything'?
A. Mm-hmm.
Q. Let's just think about this. Hunter Hall was a publicly listed company?
A. Yes.
Q. Mr Pillemer was the CEO of Pengana?
A. Yes.
Q. What you were asking him directly is is there a prospect of there being some sort of merger between Hunter Hall and Pengana aren't you?
A. Yes.
Q. You knew full well that if there had been any negotiations along those lines that he had been involved in, it was close to inevitable that he would have been signed up on a confidentiality regime? Didn't you?
A. Yes, in those situations you are wall crossed and have to sign an upstream confi in order to receive that information. Customarily done in capital markets transactions, I've done it hundreds of times.
Q. And therefore he wouldn't be able to tell you, to answer these questions you were asking?
A. No, he would have signed an upstream confi to provide information to me as a lender to him and that that's [sic] how you do these things.
Q. What about the insider trading provisions, vis a vis the Hunter Hall shares? Wouldn't this be - wouldn't this be information not generally known to the market that might have a material effect on Hunter Hall shares?
A. Yes, and I would be signed to a confidentiality agreement in that situation, as I am with other transactions.
Q. But you were asking him outright about information that you knew was not generally available to the public because you didn't know it, right?
A. Yeah.
Q. And which you knew might well materially affect the valuation of Hunter Hall shares?
A. Yes.
Q. How can he possibly answer that question?
A. By signing me up to a confi and I don't trade the shares, it's quite simple.
Q. Where do you suggest that in any of your - this conversation?
A. Why would I suggest he sign up to a confi if he denied it outright?
Q. He actually said to you 'I have no idea, I can't tell you anything'?
A. In a normal situation like this, you would say you will need to sign a confidentiality agreement.
Q. So you made an assumption did you?
A. Yes, that he would act properly."
As I have mentioned above, Mr Pillemer denied Mr A Turnbull's account of the conversation referred to at [108]-[110] above.
In his affidavit sworn on 19 June 2020, Mr Pillemer gave evidence that he had a conversation with Mr A Turnbull a few days after WHSP's acquisition of shares in Hunter Hall had been publicly announced. According to Mr Pillemer, he disclosed to Mr A Turnbull during this conversation the possibility of Pengana doing a deal with Hunter Hall. He gave evidence that Mr A Turnbull was "quick to identify" that a merger between Pengana and Hunter Hall would be "a logical outcome due to WHSP's shareholdings in both companies as well as the obvious synergies between them". Mr Pillemer deposed that his conversation with Mr A Turnbull on this occasion included an exchange to the following effect:
"RP: 'Did you see the amazing deal with Soul Patts did with Peter Hall. Well I think the ultimate result here could be that Hunter Hall will be merged into Pengana. This is a great opportunity for us as Hunter Hall would be an excellent synergistic fit. Almost all of their funds are in international equities and ours are in Australian equities. Also, there would be huge cost savings as we won't need any of their cost base, so all their revenues could drop to our bottom line.'
AT: 'I thought you were going to say that. It would be good if you can pull that off. But I'm not sure you will be able to - sounds like you are maybe being too optimistic as usual.'
RP: 'It's not going to be easy but I really think that I can make this happen. I'm thinking that we could reverse Pengana into Hunter Hall, which would place an offer from us in an advantageous position. I don't really want to be public but I think it's worth it. I'm intent on making this happen and I think you guys should really consider staying in Pengana.'
AT: 'I know you want us in, but we need to get out.'"
Mr A Turnbull denied that that any such conversation occurred.
In his affidavit sworn on 15 May 2020, Mr A Turnbull gave evidence that he had a further conversation with Mr Pillemer to the following effect on a date that he cannot now recall between 4 January and 10 January 2017:
"AT: 'Russ, I will take delivery the shares and have Maurtray tender them.'
RP: 'This might cause issues with the NAB and it would be better if I tendered them directly and pay the loan out in cash.'
AT: 'I will go along with that provided Maurtray gets whatever you get in equity terms.'
RP: 'Ok. I will pay the loan off based on the sale of shares at the tag-along price. I am highly geared at the moment so can only afford to repay the amount I get for the shares from Soul Patts.'"
Mr A Turnbull continued in his 15 May 2020 affidavit:
"As a result of this conversation, I was content for the Shares to be sold by the Pillemer entity which held them and not to be tendered to Maurtray and then sold as part of the Tag Along Process as the same price would be achieved either way and a transfer of the Shares to Maurtray would involve an additional step for no purpose.
At that time and subsequently, I was also mildly concerned about the interest of the financial press in any transfer of shares to Maurtray as my father was prime minister at the time.
However, that was a secondary consideration and, on its own, would not have prevented me from seeking a transfer of the Shares if I considered this offered more potential upside for Maurtray than a simple lump sum cash repayment at a low return."
In his affidavit sworn on 22 September 2021, Mr A Turnbull deposed: "I was not concerned with public disclosure". However, in cross-examination, he clarified that he was mildly concerned but it was a secondary consideration. Throughout his cross-examination, Mr A Turnbull adhered to his evidence that he was "mildly concerned" or had "very limited concerns" about any media attention or political embarrassment of his father that might occur if the Loan were to be repaid by PFH transferring its shares in Pengana to Maurtray and if it then became public knowledge that he and his sister, through Maurtray, had a stake in Pengana.
Returning to Mr A Turnbull's account of his conversation with Mr Pillemer between 4 and 10 January 2017, there is no evidence of any reason why NAB, as the shareholder selling out of Pengana, would have any "issues" with PFH transferring the Shares to Maurtray in repayment of the Loan and Maurtray then tendering the shares in the tag along process for sale to WHSP. In cross-examination, Mr A Turnbull was unable to identify any reason why NAB would have any concern about the Loan Agreement if it was disclosed to them. Mr A Turnbull unsuccessfully endeavoured to deflect the line of questions relating to this issue by volunteering that he thought Mr Pillemer was concerned that he had not disclosed the Loan Agreement to NAB, but he was unable to explain why NAB would care about the existence of the Loan Agreement and he acknowledged that Mr Pillemer had never told him that the Loan Agreement had not been disclosed to NAB. Ultimately, Mr A Turnbull said that he himself had a "minor concern" about NAB or WHSP knowing that Maurtray had anything to do with the Shares.
As referred to at [101]-[102] above, it is after the alleged conversation referred to at [116] above that Mr A Turnbull says Mr Pillemer told him that he had "been able to get Soul Patts to agree to refinance you out" and promised to "work on arranging the refinancing documents" after the holidays and to "try and get Maurtray its cash as soon as possible".
In cross-examination, Mr A Turnbull was pressed on several occasions about the reasons why the settlement between Maurtray and PFH was structured by Mr Pillemer going to the trouble of obtaining bridging finance from WHSP and paying the Loan out early, rather than simply transferring the Shares to Maurtray in accordance with the Loan Agreement. Mr A Turnbull consistently denied that this was to preserve confidentiality for himself or his family and maintained that he did not question Mr Pillemer about the structure of the transaction and that he was indifferent to the structure once he was satisfied that Maurtray would receive a cash payment equivalent to the price for which the shares could be sold as part of the NAB/WHSP transaction.
In his affidavit sworn on 19 June 2020, Mr Pillemer denied the conversation referred to [116] above. = In cross-examination, Mr Pillemer consistently denied that Mr A Turnbull had suggested that he would "take delivery of" the Shares and that Maurtray would then tender the Shares to WHSP in the tag along process. Mr Pillemer also denied that he said to Mr A Turnbull that it "might cause issues for the NAB" if Maurtray were to take delivery of the Shares and that "it would be better if [Mr Pillemer] tendered them directly". Mr Pillemer was not pressed further on that denial and it was not put to him that it would in fact have "caused issues" with NAB if PFH had transferred the Shares to Maurtray and Maurtray had then sold them in the tag along process. Nor was it put to Mr Pillemer that he held any concern about that at the time. Mr Pillemer also denied saying to Mr A Turnbull that he would "pay the loan off based on the sale of shares at the tag along price" and that "I'm highly geared at the moment, so can only afford to repay the amount I get for the shares from Soul Patts".
Mr Pillemer gave inconsistent evidence about one aspect of the alleged conversation referred to [116] above. Mr Pillemer initially said that Mr A Turnbull had said words to the effect "I will go along with that provided Maurtray gets whatever you get in equity terms", but that this had been said earlier at their breakfast meeting on 14 December 2016 or in a conversation after that meeting in which Mr Pillemer had proposed using his WHSP loan and bridging finance to pay Maurtray out without PFH selling the Shares. A very short time later in his cross-examination, Mr Pillemer maintained that Mr A Turnbull had said words to the effect of "I'll go along with that" (in the context just described) but denied that Mr A Turnbull had said words to the effect "provided Maurtray gets whatever you get in equity terms". Mr Pillemer immediately acknowledged the inconsistency in his answers and said that, when giving the first answer he had been confused and had been focussing on the first part of the statement he was being asked about ("I'll go along with that") rather than the second part. Mr Pillemer did appear to me to have been flustered and confused at this stage during his cross-examination and it is plausible that he confused the words he was being asked about and was focussing on ("I'll go along with that") with the words that he attributes to in their conversation during or after the 14 December 2016 breakfast meeting referred to at [90]-[91] above ("[t]hat sounds like a good plan").
In cross-examination, Mr Pillemer acknowledged that he did not tell Mr A Turnbull that Pengana had communicated with WHSP about a potential merger between Pengana and Hunter Hall. Nor did Mr Pillemer tell Mr A Turnbull that WHSP's acquisition of the 19.9% stake in Hunter Hall was really for the benefit of Pengana. Mr Pillemer gave evidence that he did not consider that the "handshake agreement" referred to at [106] provided a basis for him to say that to Mr A Turnbull, even though Mr Pillemer regarded the "handshake agreement" as something from which WHSP would not renege.
On 11 January 2017, WHSP launched its full takeover bid for Hunter Hall by lodging its bidder's statement, as had been foreshadowed in its 30 December 2016 announcement to the ASX.
On 13 January 2017, NAB issued a tag along notice to PFH under the tag along clause of the Shareholders' Agreement. The tag along notice confirmed that no shareholder had accepted NAB's offer of its shares in Pengana made by the transfer notice issued on 23 December 2016. Accordingly, NAB intended to transfer all of its shares in Pengana to WHSPPPL on the terms of the proposed sale agreement that was circulated with the transfer notice. The tag along notice required any Pengana shareholder wishing to sell its shares under the tag along process to notify NAB accordingly by 23 January 2017. The tag along notice stated that the total purchase price offered by WHSPPPL for PFH's 42,840 shares in Pengana was $6,133,788.36 based on the price of $143.179 per share.
It is common ground that the sale of Pengana shares to WHSPPPL by NAB and other Pengana shareholders under the tag along process was a Liquidity Event under the Loan Agreement when completed on or about 1 March 2017. The tag along notice had foreshadowed 1 March 2017 as the likely date of the Liquidity Event. If the Loan Agreement had remained on foot as at 1 March 2017, the occurrence of the Liquidity Event would have triggered the Repayment Date under the Loan Agreement five days later. [2]
On 17 January 2017, Mr Barlow of WHSP introduced Mr Pillemer to Mr Kevin Eley, who was a director of Hunter Hall. Having been informed by Mr Barlow that Pengana was interested in exploring a merger with Hunter Hall, Mr Eley told Mr Pillemer that Hunter Hall had engaged an investment bank (Moelis & Co) to canvass the market for strategic solutions via a formal bidding process and that Hunter Hall was anticipating significant interest from "players in the market". Mr Eley told Mr Pillemer that he was happy to suggest to Moelis & Co that they include Pengana in the process.
On 19 January 2017, Mr Pillemer met with Mr Julian Biggins of Moelis & Co. Mr Biggins told him that Moelis & Co would include Pengana in the process and they were anticipating a highly competitive process including numerous other parties.
On 23 January 2017, Pinnacle Investment Management Limited (Pinnacle) announced to the ASIX a competing off-market takeover offer for Hunter Hall at $1.50 per share, representing a 50% premium of WHSP's offer that had been announced to the ASX on 30 December 2016. [3]
According to Mr Pillemer, Pengana had not engaged in any negotiations with the Hunter Hall board about a proposed merger before Pinnacle announced its bid. Pengana was still waiting for access to Hunter Hall's due diligence room, which it was granted on 31 January 2017.
Pinnacle's bid unleashed a bidding war for Hunter Hall between WHSP (through its wholly owned subsidiary WHSP Hunter Hall Pty Ltd) and Pinnacle. The bidding war commenced on 10 February 2017 with WHSP's bid at $1.60 per share and Pinnacle's counter-bid at $2.00 per share, both of which were announced to the ASX. Later that same day, Hunter Hall announced to the ASX that its independent directors recommended that Hunter Hall shareholders reject both bids and that the independent directors continued to explore strategic alternatives in the best interests of all Hunter Hall shareholders.
On 13 February 2017, WHSP announced to the ASX a further bid for Hunter Hall at $2.00 per share. Pinnacle responded on 14 February 2017 by announcing a counter-bid at $2.20 per share.
That was the state of play as at 15 February 2017 when Maurtray entered into the deed referred to at [172] below pursuant to which it agreed to accept the sum of $6,133,788.36 in full and final settlement of all monies owing under the Loan Agreement and Guarantee.
As will be seen below, the bidding process continued after 15 February 2017 and culminated in an agreement for a reverse takeover of Hunter Hall by Pengana that was announced to the ASX on 9 March 2017.
In his affidavit sworn on 19 June 2020, Mr Pillemer gave evidence that he had various telephone calls with Mr A Turnbull in the period after mid-January 2017 in which they discussed progress regarding the bridging loan. Mr Pillemer deposed that Mr A Turnbull told him during one of those conversations that: "The family is extremely appreciative of your efforts to obtain the Soul Patts refinancing."
Mr A Turnbull denied that those conversations occurred and denied asking Mr Pillemer at any time to structure his affairs in a particular way so as to preserve confidentiality for himself or his family.
In his affidavit sworn on 19 June 2020, Mr Pillemer deposed that developments regarding Hunter Hall were discussed in his conversations with Mr A Turnbull during the period after mid-January 2017. Mr Pillemer deposed that he observed during those conversations that Mr A Turnbull appeared to have been following those developments closely because he often referred to details that had been published in the extensive media coverage. Mr Pillemer deposed that it was his understanding that Mr A Turnbull was "very knowledgeable regarding all the issues involved in [Pengana's] attempts to secure a merger with [Hunter Hall] as well as the potential benefits of a merger for [Pengana]." According to Mr Pillemer, one of these conversations occurred shortly after Pinnacle launched its bid for Hunter Hall on 23 January 2017, and included an exchange to the following effect:
"RP: 'There's a lot of competition for Hunter Hall, with Pinnacle bidding and Soul Patts also considering all options. But I still think I can make this happen.'
AT: 'Pinnacle sounds like they are going to be tough to beat.'"
Mr A Turnbull denied the alleged conversation referred to immediately above and denied that he had any information about what was occurring between WHSP and Hunter Hall beyond a general awareness of events in the financial markets through market announcements that he received on his Bloomberg platform.
There is evidence that WHSP's bid for Hunter Hall and the subsequent bidding war between WHSP and Pinnacle was the subject of ASX announcements and media coverage in Australia and on financial wire services such as Bloomberg, including during the period prior to 15 February 2017.
In his affidavit sworn on 19 June 2020, Mr Pillemer gave the following evidence about his role in the bidding process for Hunter Hall prior to and after 15 February 2017:
"… I was the key person at [Pengana] dealing with [Hunter Hall], directly and through Moelis, as well as with WHSP. My key task was to persuade both [Hunter Hall] and WHSP that a merger of [Hunter Hall] into [Pengana] was the best outcome for the shareholders of both [Hunter Hall] and WHSP. [Hunter Hall] was evaluating several strategic alternatives and WHSP was also evaluating several opportunities to maximise value from its 19.9% shareholding in [Hunter Hall], including the potential merger with [Pengana]. This was a fluid and fast changing negotiation, especially due to the bidding war that had erupted between WHSP and [Pinnacle]."
Mr Pillemer carried out his role in the bidding process in his capacity as CEO of Pengana.
In the course of carrying out his role referred to above during the period prior to 15 February 2017, Mr Pillemer was copied in on emails on 23 and 24 January 2017 in relation to a due diligence request that had been prepared on behalf of Pengana in relation to Hunter Hall and sent to Moelis & Co by Pengana's advisers, Pitt Capital Partners. The email chain referred to Moelis & Co establishing a data room and Mr Pillemer gave evidence that due diligence was underway by 30 or 31 January 2017.
On 23 January 2017, Mr Negus of WHSP sent an email to Mr Pillemer setting out a timetable of events for WHSP's proposed acquisition of Hunter Hall, including "[a]greeing a merger valuation that reflects [Hunter Hall]'s limited prospects and Pengana's growing business".
In their Commercial List Response, the defendants admitted that, on 30 January 2017, Mr Pillemer modified a "Merger Model" spreadsheet with the result that the model valued Pengana at $252 million as part of a merged entity with Hunter Hall and valued the merged Pengana/Hunter Hall entity at $325 million.
The "Merger Model" page of that spreadsheet sets out four calculations described as "Valuation for Merged Business" ranging between $438 million and $451 million. The differences between the four calculations lie in two inputs. First, the forecast EBIT for Pengana for the 2018 financial year varies between $17 million and $28.4 million depending on which one of four different scenarios is applied. Second, the multiple applied to the combined EBIT forecast for Pengana and Hunter Hall varies between each of the four "Merger Model" calculations.
The "Valuation for Merged Business" section of the "Merger Model" page is followed by a section entitled: "Exchange Ratio Calculations at Various Levels of Dilution". That section appears to set out various alternative calculations of the exchange ratio for the prospective merger of Hunter Hall and Pengana.
Immediately beneath the last mentioned section of the "Merger Model", the following appears (emphasis added):
EBIT Multiple Cash Valuation
PHL 22.7 10 25 252 77.5%
HHL 6 8 25 73 22.5%
325
It was then put to Mr Pillemer that the "Merger Model" page referred to at [146]-[149] above set out his best estimate of the value of Pengana and the value of Hunter Hall in a merged entity as at 30 January 2017. Mr Pillemer answered: "Incorrect."
Mr Pillemer was then taken to the plaintiff's contention in paragraph 19C of its Second Further Amended Commercial List Statement that Mr Pillemer modified a "Merger Model" spreadsheet with the result that the model valued Pengana at $252 million as part of a merged entity with Hunter Hall and valued the merged Pengana/Hunter Hall entity at $325 million. Initially, Mr Pillemer confidently stated that the contention is incorrect. Moments later, Mr Pillemer said that, on reflection, the plaintiffs' contention "actually is a correct statement". I note that Mr Pillemer made that reversal after being asked to identify what was incorrect about the plaintiff's contention, and before he was taken to the defendants' Commercial List Response in which the contention is admitted.
Despite accepting the correctness of the plaintiff's pleaded contention, Mr Pillemer maintained that it was not his view as at 30 January 2017 that the value of Pengana in a merged entity with Hunter Hall was $252 million. Mr Pillemer was then asked why he maintained that it was incorrect to say that he held that view as at 30 January 2017. The following exchange occurred:
"Q. In what way is that incorrect, Mr Pillemer?
A. Sir, in order to calculate what a valuation of Pengana might be, you would have to know many different variables, including the most important one, are the exchange ratio. So, I could not say that - I don't know the terms of the deal. If I had terms for a deal, then I would be able to put - put out a valuation. I have no - absolutely not. It cannot be true, by definition.
Q. Mr Pillemer, the purpose of this merger model was to calculate what the exchange ratio ought to be in the merger with Hunter Hall; correct?
A. Incorrect, sir.
Q. Valuation figures of 252 and 325 appear under the subheading, 'Exchange ratio calculation at various levels of dilution', correct?
A. That is correct.
Q. What you were doing was calculating what you regarded the value of Pengana to be in a merged entity in order to negotiate the exchange ratio; correct?
A. Sorry, can you say that question - that question again, sir?
Q. What you were doing was calculating the value of Pengana in a merged entity with Hunter Hall for the purpose of negotiating the exchange ratio; correct?
A. That is incorrect.
Q. You hadn't agreed upon the exchange ratio at this time, had you?
A. That is correct.
Q. You knew that that was an outstanding item for negotiation with Hunter Hall; correct?
A. It's - it's an outstanding item in any prospective deal, of course.
Q. It had to be negotiated with WHSP as well, didn't it?
A. That's incorrect.
Q. This merger model is your best attempt, is it not, to value Pengana in that merged entity, in order to be able to negotiate the exchange ratio; correct?
A. Incorrect.
Q. You accept, don't you, that NAB's price of $143 per share, implied that the value of Pengana was $80 million?
A. Correct.
Q. You never provided the document at page 911, the merger model, to Alex Turnbull, did you?
A. That's correct.
Q. You accept, do you not, that it is a document relating to the value of Pengana shares?
A. I do not.
Q. Are you serious, Mr Pillemer?
A. Yes.
Q. Why do you not accept that page 911 is a document relating to the value of Pengana shares?
A. Because it is - it is not.
Q. It's do with Pengana shares, isn't it?
A. It is.
Q. It's to do with their value, isn't it?
A. It is - it is not to do with their value. It is to do with the exchange ratios.
Q. You disagreed with that proposition a moment [ago] that it was to do with exchange ratios, didn't you?
A. I did not."
Mr Pillemer maintained that "value" and "valuation" were not the right words to use to describe the process that was recorded in the "Merger Model" spreadsheet, but accepted that he had not changed those words when he modified the spreadsheet on 30 January 2017.
By the end of January 2017, Mr Pillemer was also involved in the process of engaging solicitors to advise Pengana in relation to its proposed merger with Hunter Hall. Mr David Ryan of DLA Piper sent Mr Pillemer an email on 30 January 2017 attaching a proposed engagement letter for DLA Piper to advise Pengana.
On 31 January 2017, Mr Pillemer was copied in on an email from Ms Johanna Moore of Pengana to representatives of Pitt Capital Partners forwarding DLA Piper's proposed engagement letter and stating that Pengana would like to discuss it with Pitt Capital Partners because "we would like to run the process as efficiently as possible and think there is room for more efficiencies particularly in respect of Phase II - [Hunter Hall] due diligence on Pengana and Phase III Pengana due diligence on [Hunter Hall]."
By early February 2017, negotiations about the proposed merger between Pengana and Hunter Hall were sufficiently advanced for Pengana to instruct its solicitors (DLA Piper) to draft a merger agreement.
Mr Pillemer gave evidence in cross-examination that he considered by early February 2017 that a merger between Pengana and Hunter Hall was a "realistic possibility" and that "we had … a very good chance of doing this" although he did not put it as highly as the proposed merger being more likely than not to succeed.
By 7 February 2017, DLA Piper had prepared a draft vendor due diligence report which they provided to Mr Pillemer and others at Pengana on that date. The draft due diligence report concerned WHSP and Pengana and was intended to be provided to Hunter Hall in connection with the proposed merger which would involve Hunter Hall acquiring all of the shares in Pengana (from WHSP and from other shareholders through a tag along process) in exchange for shares in Hunter Hall to be issued to WHSP and the other Pengana shareholders. Mr Horace Wu of DLA Piper sent the draft report to Mr Pillemer by email on 7 February 2017.
At the same time, Pengana was progressing its due diligence of Hunter Hall. By 8 February 2017, Pitt Capital Partners had identified 16 items as the key information required to complete Pengana's due diligence in respect of Hunter Hall. According to Mr Pillemer's evidence in cross-examination, nothing had emerged at that time to indicate that Pengana should not proceed with the proposed merger.
On 10 February 2017, Mr Pillemer attended a meeting with Mr Jim McDonald (Lead Portfolio Manager of Hunter Hall) together with Mr Jordan Cvetanovski (Chief Information Officer and Portfolio Manager of Pengana) and Mr Steven Glass (Head of Research and Portfolio Manager at Pengana). In his affidavit sworn on 14 September 2021, Mr Pillemer described the purpose of the meeting as being "to discuss how (if at all), the investment team in any merged entity could be integrated and rationalised, if a Pengana bid was to be successful." It is convenient to refer to this as the 10 February 2017 meeting.
In an email sent to Mr Negus of WHSP and representatives of Pitt Capital Partners on the morning of 11 February 2017, Mr Pillemer described the 10 February 2017 meeting as a "highly conciliatory meeting (on both sides)" involving a discussion and agreement about "all key aspects including: portfolio construction, stock concentrations, liquidity requirements, team composition and role for Jim (ie he will remain as the lead PM for [Hunter Hall])". In cross-examination, Mr Pillemer accepted that the 10 February 2017 meeting was indeed "highly conciliatory" and resulted in agreement about "[a]ll key aspects of the proposed merger with regards to the investment team" and represented "[e]xcellent progress with regards to the investments and working out the investments team and how that would work and the investment side" of the proposed merger.
It is relevant to note that, at the time of the 10 February 2017 meeting, WHSP's bid for Hunter Hall was $0.40 per share below Pinnacle's competing bid, as referred to at [132] above. As Mr Pillemer deposed in his 19 June 2020 affidavit, Hunter Hall were evaluating several strategic alternatives. That aspect of Mr Pillemer's evidence is consistent with Hunter Hall's contemporaneous announcements to the ASX and was not challenged in cross-examination.
Mr Pillemer gave evidence in cross-examination that he continued to regard a merger between Pengana and Hunter Hall as a "realistic possibility" as at 11 February 2017, although he did not regard it as likely to proceed or more likely than it had been in the first week of January 2017.
On 14 February 2017, Mr Pillemer sent an email to Pengana personnel assigning responsibility for leading discussion on topics that Pitt Capital Partners identified as needing to be addressed in a presentation to be made by Pengana personnel to Hunter Hall personnel at a "management meeting" later that day.
At 5.51pm on 15 February 2017, Mr Ryan of DLA Piper sent an email to Mr Pillemer and Ms Moore at Pengana attaching a first draft of the agreement to implement the merger of Pengana and Hunter Hall. Mr Ryan's email proposed that the draft agreement be circulated to Hunter Hall the following morning.
At the same time as working on the "Merger Model", engaging solicitors to advise Pengana in relation to its proposed merger with Hunter Hall, being kept apprised of the progress of Pengana's due diligence assessment of Hunter Hall and firming up his view that the proposed merger was a "realistic possibility" during the period from late January to mid-February 2017, Mr Pillemer was continuing to correspond with Mr A Turnbull about the payment and discharge of the Loan in conjunction with the NAB tag along process which would culminate in a Liquidity Event under the Loan Agreement.
On 30 January 2017, Mr Pillemer sent an email to Mr A Turnbull advising that "all the key outside shareholders" of Pengana had already opted to sell their shares to WHSP under the tag along process and that WHSP was therefore seeking to complete its acquisition of the Pengana shares sooner than the end date and "hopefully within the next 7-10 days". It will be recalled that an end date of 1 March 2017 had been foreshadowed in NAB's tag along notice issued on 13 January 2017. Mr Pillemer's email also asked Mr A Turnbull for any comments on "the letters" so that Mr Pillemer could prepare final versions. Mr Pillemer gave evidence in cross-examination he was referring to a draft letter that he had emailed to Mr A Turnbull on 18 January 2017 providing the amount owing under the Loan Agreement to be discharged by PPL and PFH (referred to collectively as "the Debtor") paying the sum of $6,133,788.36 to Maurtray in full and final settlement within two business days of WHSP's completion of its purchase of shares in Pengana from NAB.
It is common ground that, as at February 2017, the Repayment Amount under the Loan Agreement was $17,755,428.
On 10 February 2017, PPL, PFH and Mr Pillemer executed a letter addressed to Maurtray, styled as a deed, pursuant to which PPL and PFH (referred as "the Debtor") agreed to pay the sum of $6,133,788.36 to Maurtray within two business days after completion of NAB's sale of its shares in Pengana to WHSPPPL and Maurtray agreed to accept that sum in full and final settlement of all monies owing under the Loan Agreement and Guarantee, including interest (the Settlement Deed).
Mr Pillemer sent an email to Mr A Turnbull on 10 February 2017 attaching the Settlement Deed executed by him and by PPL and PFH. Maurtray then executed the Settlement Deed on 15 February 2017.
The sum of $6,133,788.36 that Maurtray agreed to accept under the Settlement Deed reflected the amount that would have been paid for the Shares under the tag along process at $143.179 per share. As referred to later in these reasons, the transfer of that settlement sum to Maurtray was initiated by Mr Pillemer on the afternoon of 23 February 2017.
In his affidavit sworn on 14 September 2021, Mr Pillemer deposed that he did not consider that the proposed merger between Pengana and Hunter Hall was an increasingly realistic possibility throughout January and February 2017 or that it was likely to proceed by 15 February 2017. On the contrary, Mr Pillemer deposed that he considered that the prospects of the merger proceeding were decreasing throughout January and February 2017. By 15 February 2017, he thought that "the chance of it occurring was unlikely and much less likely than what it had been in early January 2017". Mr Pillemer does not articulate reasons for his views and merely refers to his involvement in and knowledge of the negotiations with Hunter Hall, the "Merger Model", the due diligence process, the 10 February 2017 meeting and the 14 February 2017 meeting (which he describes as standard industry practice in the funds management industry where parties are involved in a competitive bidding process) and the preparation of a draft merger agreement. I note the evidence referred to above that Pinnacle first made a bid for Hunter Hall in competition with Pengana on 23 January 2017 and the bidding war between Pinnacle and Pengana was ongoing as at 15 February 2017, with the two bidders then offering the same price for each Hunter Hall share. [4] According to Mr Pillemer, it was only in the days leading up to the announcement of the merger agreement on 9 March 2017 that he thought the deal was more probable than not. Even then there was a substantial risk of the deal not proceeding because much depended on the purchaser to whom Mr Peter Hall sold his remaining 24% stake in Hunter Hall. If those shares were sold to Pinnacle, that would increase the risk of the merger not obtaining the required 50% Hunter Hall shareholder approval that was a condition of the merger, noting that WHSP were not entitled to vote.
Mr Pillemer gave the following evidence in cross-examination:
"Q. By 15 February 2017, there was a very real prospect of that merger proceeding; correct?
A. There was - there was a reasonable - a reasonable prospect, yes.
Q. You accept, don't you, that at that time, you regarded the merger as being likely to proceed?
A. I do not.
Q. You accept, don't you, that as at 15 February 2017, the merger between Hunter Hall and Pengana was a more realistic possibility than it had been on 1 January?
A. I do not.
….
Q. You accept, don't you, that to your understanding at the time, if Maurtray had taken some 42,000 shares in Pengana in repayment of the loan then that was likely to give Maurtray a much better outcome than selling its shares at $143 each and settling the loan at about $6 million, correct?
A. Sorry, can you repeat that question again?
Q. Your understanding, at the time, if Maurtray had received 42,000 odd shares in Pengana in repayment of the loan then that was likely to put Maurtray in a better position than if Maurtray settled the loan at $6.1 million?
A. I do not.
…
Q. On your own calculations, shares in Pengana were likely to triple in value immediately upon the merger between Pengana and Hunter Hall proceeding, correct?
A. In the - in the event I think I would say that, in the event that a merger did proceed that that was a - an indicative number. I don't know how much, I would say an indicative number.
Q. The $6.1 million in cash that you repaid to Maurtray reflected a share price at NAB's offer price of $143 a share, correct?
A. Correct.
Q. So Maurtray had, to use your language, a reasonable prospect of getting about three times that value if it held onto its share, if it received shares in repayment of the loan, correct?
A. In - in equity, sorry, can you restate the question, so I can get my head around it.
Q. Your understanding, Maurtray had a reasonable prospect of receiving about three times as much value if it received repayment by way of shares in Pengana rather than $6.1 million cash?
A. They had a reasonable - they had reasonable prospect of landing up with equity in Pengana that would be - have a - have a equity market value in that order, yes.
Q. You knew, didn't you, that Maurtray was reliant on you for information about Pengana, correct?
A. Incorrect.
Q. Apart from what was in the public domain, Maurtray, in January and February 2017 was reliant on what you told Maurtray from time to time about Pengana?
A. In my - in my capacity as a director of the borrower yes.
Q. You understood, didn't you, that Maurtray in January and February 2017 was considering how to get the best return it could from the repayment of the loan by Maurtray, correct?
A. Incorrect."
According to his own evidence referred to at [108]-[111] and [139] above, Mr A Turnbull was aware on 4 January 2017 that WHSP's acquisition of a stake in Hunter Hall (which he erroneously refers to as a 5% stake) gave rise to the possibility of a "backdoor listing" of Pengana through a merger with Hunter Hall. Mr A Turnbull's evidence is that he cast that possibility aside later that day because WHSP often took and held minority positions in companies and (on his version of events) Mr Pillemer told him that he was not aware of a possibility of "an IPO" and said to him "I have no idea. I can't tell you anything".
It is curious that Mr A Turnbull refers to WHSP as having taken a minority position in Hunter Hall notwithstanding that it had announced to the ASX on 30 December 2016 its intention to launch a full takeover bid for Hunter Hall. This was not explored with Mr A Turnbull in cross-examination. In any event, Mr A Turnbull's evidence is that he was aware of events in the financial markets concerning WHSP and Hunter Hall, as reported on Bloomberg. I understand this to be a reference to the bidding war between WHSP and Pinnacle for Hunter Hall during January and February 2017. It was obvious from that bidding war that WHSP sought more than a minority position in Hunter Hall.
Nevertheless, certain matters were not disclosed or otherwise known to Mr A Turnbull when he caused Maurtray to enter into the Settlement Deed on 15 February 2017.
Mr A Turnbull deposed that he was "entirely unaware" of the negotiations about a proposed merger between Pengana and Hunter Hall from December 2016 until the announcement of the merger agreement on 9 March 2017.
There is no dispute that Mr Pillemer had not told Mr A Turnbull that WHSP had acquired its 19.9% stake in Hunter Hall in December 2016 at the urging of Mr Pillemer and that Pengana had discussed with WHSP a potential merger between Pengana and Hunter Hall. [5]
It is also common ground that Mr Pillemer did not disclose to Mr A Turnbull that he had negotiated for Pengana to be included in the bidding process for Hunter Hall. Mr A Turnbull deposed that, if he had been aware of those communications with Pengana, WHSP and Moelis & Co: [6]
"… this would have indicated to me there was the prospect of an IPO, which was a defined liquidity event under clause 18 of the Loan Agreement. If there was an IPO, the Shares would have been worth more. I would have viewed the collateral securing the Loan Agreement as being potentially 6.4 million shares valued at $2.35 each. This would have afforded a stronger bargaining position for me to seek a higher repayment amount from Mr Pillemer. Alternatively, I would have insisted on a transfer of the Shares since they enjoyed strong prospects of publicly traded liquidity."
Mr A Turnbull gave evidence, and Mr Pillemer acknowledged in his 14 September 2021 affidavit and in cross-examination, that the following specific matters and documents were not disclosed to Mr A Turnbull in any of their discussions or correspondence prior to Maurtray's execution of the Settlement Deed on 15 February 2017:
1. the "Merger Model" that, as at 30 January 2017, recorded a "valuation" of Pengana at $252 million as part of a merged entity with Hunter Hall, being more than three times the $80 million valuation of Pengana based on the share price to be paid by WHSP to acquire the Pengana shares of NAB and other shareholders participating in the tag along process; [7] [
2. that Pengana had engaged solicitors at the end of January 2017 to advise it in relation to its proposed merger with Hunter Hall; [8]
3. that the merger negotiations were sufficiently advanced by early February 2017 for Pengana to instruct its solicitors to draft a merger agreement; [9]
4. that Pengana's solicitors had prepared a draft due diligence report on WHSP and Pengana to be provided to Hunter Hall for the purpose of the proposed merger by 7 February 2017; [10]
5. that Pengana had issued a due diligence request in relation to Hunter Hall and on 24 January 2017 and that it was progressing its due diligence on Hunter Hall as at 8 February 2017; [11]
6. Mr Pillemer's email sent to Mr Negus of WHSP and representatives of Pitt Capital Partners on 11 February 2017 reporting on his meeting with the Lead Portfolio Manager for Hunter Hall the previous day during which they had agreed on all key aspects of the proposed merger insofar as it would affect the investment teams; [12] and
7. Mr Pillemer's email sent to Pengana personnel on 14 February 2017 in relation to the Pengana / Hunter Hall management meeting arranged for that afternoon. [13]
In his affidavit sworn on 12 March 2021, Mr A Turnbull gave the following evidence in relation to the non-disclosure of the specific matters and documents referred to above:
1. if the "Merger Model" had been provided to him or if he had been informed at any time prior to the execution of the Settlement Deed that Mr Pillemer had valued the proposed merged entity at $325 million and Pengana within the merged entity at $252 million, then "this would have changed the basis on which I was proceeding, namely that the Shares were an illiquid investment and PHL was valued at $80 million, that translating to a price as part of the Tag Along Process of $143.179 per share";
2. if he had been informed at any time prior to the execution of the Settlement Deed that Pengana had engaged solicitors to advise it in relation to the proposed merger with Hunter Hall and that Pengana had instructed those solicitors to prepare a draft merger agreement, he would have considered this to be a significant development which indicated that the proposed merger was becoming increasingly likely;
3. if he had been informed at any time prior to the execution of the Settlement Deed that Pengana's solicitors were progressing Pengana's due diligence assessment of Hunter Hall and had prepared a vendor due diligence report to be provided to Hunter Hall, he would have considered that these were significant developments that demonstrated that a proposed merger had progressed beyond a mere concept or possibility and was being seriously pursued by the parties who were prepared to spend time and money on lawyers and due diligence;
4. if he had been shown Mr Pillemer's email to Mr Negus concerning the 10 February 2017 meeting at any time prior to the execution of the Settlement Deed, he would have understood that Pengana had secured the support of Hunter Hall's Lead Portfolio Manager for the proposed merger and he would have considered this to be a very significant development because retaining the Lead Portfolio Manager's services would be important to the future success of the proposed merged entity;
5. if he had been shown the emails concerning the 14 February 2017 management meeting between Pengana and Hunter Hall at any time prior to the execution of the Settlement Deed, he would have considered it to be a significant development that such a meeting was even being called and would have understood this as an indication that the negotiation of the proposed merger was progressing well.
In his 12 March 2021 affidavit, Mr A Turnbull deposed that, during January and February 2017, he had proceeded on the basis described at [97]-[98] above. That is to say, notwithstanding the obvious possibility of a merger that Mr A Turnbull says he had identified on 4 January 2017 and notwithstanding the subsequent public bidding war in which WHSP was fighting to acquire all of the shares in Hunter Hall, Mr A Turnbull deposed that he was proceeding on the basis that there was no prospect of Pengana becoming listed in the foreseeable future. Mr A Turnbull deposed that, if he had been informed of the substance of the matters referred to at [177]-[184] above, this would have changed his approach because he would have:
"(a) understood that there was a very real prospect that a merger between PHL and Hunter Hall might take place;
(b) based on my experience and understanding of capital markets, I would have understood this meant that:
(i) Hunter Hall may acquire all of the shares of PHL for cash;
(ii) Hunter Hall may acquire all of the Shares on [sic] PHL for 'scrip' or by issuing Hunter Hall shares to PHL shareholders to acquire their PHL shareholdings; and
(iii) alternative transactions may have occurred but the two I have just described would have seemed the most likely;
(c) considered these outcomes as superior to simply having the Shares sold as part of the Tag Along Process as:
(i) if the Shares were acquired for cash by Hunter Hall, this would likely involve some sort of premium to entice the PHL shareholders to sell and would see the price being greater than the $143.179 per share offered as part of the Tag Along Process; and
(ii) if the Shares were acquired for scrip, it would mean that PHL shareholders would become shareholders in Hunter Hall and with Hunter Hall being an entity listed on the ASX the Shares would no longer be illiquid and could be sold at any time. A shareholding in Hunter Hall also offered the prospect of a better return than $143.179 per share depending how the market valued the merged entity and the share price of Hunter Hall at the time Maurtray sold its shareholding."
In his affidavits sworn on 15 May 2020 and 12 March 2021, Mr A Turnbull gave the following evidence about what he would have done if he had been informed about the matters referred to at [177]-[184] above:
"If I had been told in late 2016 and into early 2017 that there was even a slight prospect that the Shares could be realised on-market either directly through an IPO or by a merger with a listed entity, I would not have allowed Maurtray to enter into the [Settlement Deed] and would have waited until it became clear as to whether or not such an opportunity would arise.
I would have been happy to do this because the rate of return on a lump sum repayment of the loan was so low I would have been risking very little by waiting and keeping open the possibility of repayment of the loan by transfer of the Shares.
I would also not have agreed with Mr Pillemer that the Shares be sold as part of the Tag Along Process and would have insisted that they be transferred to Maurtray as repayment of the loan under the Loan Agreement.
This means that once the Merger was completed, Maurtray would have become the owner of 5,149,796 shares in PCG [Pengana Capital Group, which the merged entity was renamed following the merger] which could be sold on the ASX.
I would have caused Maurtray to sell these shares at the earliest possible opportunity as I had no desire for Maurtray to maintain a small shareholding in Hunter Hall and I had always sought to bring Maurtray's involvement with Pengana to end as soon as possible and for the best return possible.
Located at tab 40 is a copy of the share price information for PCG obtained from the ASX website for June 2017 which is when I say Maurtray would have sold its shareholding in PCG.
As an alternative, I would also have accepted a cash payment but only one which took into account the value of the Shares under the Merger.
The amount I would have insisted upon would have been $17,755,428 …
If Mr Pillemer had not agreed for the Shares to be transferred to Maurtray, I would have sought repayment of the loan amount to be at least $12,000,000.00, taking into account a reasonable 20% liquidity discount on the market value of the Shares."
In paragraph 43 of his affidavit sworn on 14 September 2021, Mr Pillemer addressed Mr A Turnbull's evidence referred to above about what he says he would have done if he had been told in late 2016 or early 2017 about "even a slight prospect that the shares could be realised on-market". Mr Pillemer gave evidence that, if a proposed merger between Pengana and Hunter Hall had been an increasingly realistic possibility in January and early February 2017 (which Mr Pillemer denies), and if Mr A Turnbull had insisted on the Shares being transferred to Maurtray in repayment of the Loan, Mr Pillemer would have first expressed surprise because Mr A Turnbull had "been emphatic all the way about not wanting equity". Mr Pillemer deposed that, after expressing his surprise, he would have said to Mr A Turnbull:
"[43(b)]. 'Surely Malcolm would not want Maurtray to take the shares as this will result in the public disclosure of your family's involvement.' I would have said this because I would have known that as is usual practice in the Explanatory Memorandums required for mergers, and as in fact took place subsequently in the Explanatory Memorandum for this merger deal, the top 10 shareholders have to be disclosed in that memorandum as part of the details of the merger to be disclosed to the market and Maurtray would have been one of the top 10 shareholders. Additionally such shareholders need to be disclosed in the financials each year of publicly listed companies and so would need to be disclosed each year.
[43(c)]. 'If Malcolm and you are okay with this, then of course I will transfer the shares, but are you sure?'
[43(d)]. 'You know that I will have no option but to inform Hunter Hall that it is your intention to sell the shares as soon as possible and, particularly given: the Turnbull name; that Maurtray will be the third largest shareholder in the company and; that (as a potentially) greater than 5% shareholder, they are almost certainly going to insist on an escrow arrangement. So you realise if you want the shares to then quickly sell them, you are simply not going to be able to do that or at the very least the market will be informed that that is what you want to do, which will decimate the price you can get on sale for the sales'. …"
Mr A Turnbull replied to that evidence in his affidavit sworn on 22 September 2021:
"In reply to paragraph 43(b), Malcolm was not involved in the business decisions of Maurtray. I was not concerned with public disclosure. I would have accepted shares in Pengana or payment in the amount of the value of the shares which would have been an amount twice than the payment of just over $6,000,000 in accordance with the Settlement Agreement. Annexed and marked 'A' is a copy of a graph obtained from marketindex.com.au showing the value of the shares from February 2017 to the end of 2019. Even if I had significant concerns with public disclosures, which I did not, had I known that a potential merger with Hunter Hall was in negotiations no public disclosure would have been necessary. Maurtray and its beneficiaries, myself and my sister Daisy, would have each held less than 5% shares in the merged company. I am aware that shareholders are only required to disclose shareholdings of 5% or more to the Australian Securities Exchange.
In reply to paragraph 43(c), Malcolm would have not been involved in the transaction and I would have accepted the shares on behalf of Maurtray.
In response to paragraph 43(d), I would have held the shares in escrow if required. My understanding, however, is that I would have not been required to hold the shares in escrow considering escrow restrictions were only imposed on management. In any event if escrow conditions were imposed (which I very much doubt), I would have considered at the end of the escrow period what to do with the shares in 2017. I would have sold when the share price was above $2.50 representing fair value when compared with comparable companies like Pinnacle and would have held the shares until the share price was above that amount. …"
As referred to at [118] above, Mr A Turnbull clarified in cross-examination that he was in fact "mildly concerned" about public disclosure of Maurtray becoming a shareholder in Pengana if the Loan were to be repaid by PFH transferring the Shares to Maurtray, but those concerns were "secondary" to any potential upside that a transfer of the Shares might have presented for Maurtray compared to accepting a lump sum cash payment for the Loan at a low return.
It is relevant to note that Mr M Turnbull's unchallenged evidence was that he did not consider that the Loan Agreement or any connection between Maurtray and Pengana gave rise to "any political sensitivities", that he would have been "entirely unconcerned" if Maurtray had become a shareholder in Pengana, that he did not express any contrary view to his son, and that he "would have been quite untroubled by Maurtray accepting a transfer of shares in PHL in settlement of the loan". Mr M Turnbull also gave evidence denying that he wished to avoid possible publicity of the Loan Agreement.
Mr M Turnbull's interest in Pengana (held through TPPL) had been disclosed in the House of Representatives Register of Members' Interests until 2008 when TPPL sold all of its shares in Pengana. Thereafter, his interest in the Loan (again, held through TPPL) was disclosed in the Register of Members' Interests until November 2015 when the Loan was assigned to Maurtray as referred to.
Thus, Mr A Turnbull's "mild concern" referred to above reflected his own assessment of matters at the relevant times. There is no evidence that it was based on anything said or done by Mr M Turnbull.
In cross-examination, Mr A Turnbull acknowledged that, by Maurtray taking a transfer of the Shares from PFH in repayment of the Loan, Maurtray's involvement with Pengana would have become known to the other Pengana shareholders. Mr A Turnbull gave inconsistent evidence about his attitude to this. He said that he "wouldn't have been worried - bothered either way" about other Pengana shareholders learning of Maurtray's involvement. Almost immediately after giving that evidence, Mr A Turnbull said that "[o]n the margin" he would "generally prefer to be less public" than disclosing Maurtray's involvement to the other Pengana shareholders. He also acknowledged that this may have resulted in the Australian Financial Review becoming aware of Maurtray as a shareholder and working out "who Maurtray was".
Mr A Turnbull's evidence referred to at [188] above is consistent with his evidence in his earlier affidavits referred to at [186] above about what he would have done if Mr Pillemer had disclosed the merger negotiations to him. However, Mr A Turnbull's evidence at [188] above introduces an additional alternative counter-factual scenario in the event that Mr A Turnbull had "significant concerns with public disclosures" (which he denies). It emerged in cross-examination that this alternative scenario would have involved Mr A Turnbull choosing to defer repayment of the Loan until after completion of the Pengana/Hunter Hall merger, when he would have required PFH to transfer to Maurtray the shares in the merged entity that PFH had received in exchange for the 42,840 Pengana shares that were the subject of the Loan Agreement. Maurtray would then immediately transfer those shares to Mr A Turnbull and his sister and neither of them would own more than 5% of the merged entity. Mr A Turnbull acknowledged that this was not provided for in the Loan Agreement, which required repayment within five days of the "Liquidity Event" that occurred on completion of the NAB/WHSP transaction. However, Mr A Turnbull said that it "would have just involved an agreement with Russel who made many protestations at the time that he was a great friend of the Turnbulls." Mr A Turnbull then acknowledged that it would also have been dependent on the Hunter Hall directors agreeing that the relevant shares would not be subject to the escrow arrangements that applied to the other PCG shares held by Mr Pillemer and his entities. Mr A Turnbull said that, even though he intended to sell the whole parcel of shares immediately, the Hunter Hall directors could not reasonably have objected to the shares being excluded from the escrow arrangements because it was to give effect to what he described as "preexisting agreement". Mr A Turnbull denied that this proposed course of action was unworkable, either because the Hunter Hall directors would not have agreed or because it would have needed to be disclosed in the explanatory memorandum for the proposed merger if they had agreed and that disclosure would have foiled Mr A Turnbull's objective of keeping private Maurtray's and his involvement with Pengana.
During the course of his cross-examination, Mr A Turnbull described the alternative scenario as one which he would have adopted not only if he had significant concerns about public disclosure (which he denied) but also if he had "mild concerns":
"Q. So, in your first affidavit, you do say that you did have some concerns, they were secondary, but notwithstanding those concerns, you would have simply taken the shares and sold them on day one, that's what you say?
A. Yes. It's a lot of money, Mr Newlinds.
Q. Now, you say in your fourth affidavit that if you had significant concerns, here's a way you could have worked around to keep it secret?
A. No. I didn't have significant concerns. If I had mild concerns, I'd still preserve privacy.
Q. You still would?
A. Sure.
Q. Doesn't that mean this is a shift from your first affidavit?
A. Mr Newlinds, I'm sorry.
Q. What are you sorry about?
A. I don't see any shift whatsoever.
Q. Thank you. I'm suggesting to you that there is a significant shift?
A. We'll just have to disagree, Mr Newlinds."
In his affidavit sworn on 14 September 2021, Mr Pillemer made the following response to Mr A Turnbull's complaint about non-disclosure of the matters and documents referred to at [183]-[186] above:
"… I say as CEO and a Board member of Pengana, I am subject to confidentiality constraints and am not permitted to disclose certain confidential information to third parties. The documents referred to in Mr A Turnbull's Third Affidavit, were documents which at the time I considered were the subject of confidentiality obligations. They were documents constantly changing and developing and that I did not consider myself at liberty to disclose to third parties outside the due diligence process."
When cross-examined about this evidence, Mr Pillemer said that he did not consider that he had owed confidentiality obligations to WHSP and Hunter Hall in January 2017 (indeed, he could not even recall thinking about that at the time), maintained that he did have confidentiality obligations in respect of the documents referred to above but said that he was unable to answer "a blanket question" about whether he regarded himself as being unable to disclose those documents to Mr A Turnbull in January and February 2017.
Mr Pillemer maintained in cross-examination that he had disclosed to Mr A Turnbull that he believed that WHSP buying into Hunter Hall provided "a great opportunity to Pengana to get involved and - and try and put something together" [14] and that he did not believe that this breached any confidentiality obligation owed to WHSP or to Hunter Hall. In relation to his confidentiality obligations owed to Hunter Hall, Mr Pillemer drew a distinction between the position in early January 2017 when he first discussed WHSP's acquisition of a stake in Hunter Hall with Mr A Turnbull, and the position later in January and February 2017. As Mr Pillemer said, he had not even met Hunter Hall representatives at that time of his conversation with Mr A Turnbull in early January 2017. There is documentary evidence that Pengana executed a confidentiality agreement with Hunter Hall on 30 January 2017. As referred to at [143] above, there is also evidence that Pengana was first granted access to Hunter Hall's due diligence room on 31 January 2017.
Mr Pillemer gave the following evidence about why he did not disclose to Mr A Turnbull that WHSP's acquisition of 19.9% of Hunter Hall was for the benefit of Pengana: [15]
"Q. Why didn't you tell him that, Mr Pillemer?
A. That - that's - that would be - that would be a - that would be a confidentiality issue. That - that would be - that would be - that would be confidentiality owed to a third party, that specific piece of information. The piece of information that I did disclose to him I had no confidentiality obligations to any third parties.
Q. The third party you're referring to there is WHSP, correct?
A. That's correct.
Q. By the time that you claim to have told Mr Turnbull that you thought there was potential for a merger of Pengana and Hunter Hall, let's just date that, you claim that occurred in early January 2017, don't you?
A. Early January 2017, when I told him there was a possibility of a - are you, sorry, sir, you're talking about the January - the January - sorry, sir, ask the question again please?
Q. Mr Pillemer, when do you claim you told Alex Turnbull about a potential for a merger of Hunter Hall and Pengana?
A. In early January - in early January 2017.
Q. Thank you and you certainly didn't tell him that you'd already been negotiating with WHSP along those lines, correct?
A. That is - that is correct.
Q. That was the fact, wasn't it?
A. That I was negotiating with WHSP?
Q. Yeah?
A. That is correct, sir."
Mr Pillemer's evidence above that he had an obligation of confidence to WHSP which precluded him from telling Mr A Turnbull in early January 2017 that he was in negotiations with WHSP about a potential merger between Pengana and Hunter Hall is inconsistent with the following evidence that he had given a short time earlier in his cross-examination:
"Q. In January 2017, it's the position, isn't it, that you felt that you owed confidentiality obligations to Hunter Hall and WHSP in relation to a potential merger of Pengana and Hunter Hall; correct?
A. Sorry, are you asking me, sir, now to look back and - and say what my state of mind was in or are you - because I certainly haven't said this anywhere, sir?
Q. I am asking about your state of mind in January 2017 and sitting there in the witness box now and casting your mind back, you felt, in January 2017, that you owed WHSP and Hunter Hall confidentiality obligations in relation to a potential merger of Pengana and Hunter Hall; correct?
A. I can't - I don't - I don't recall thinking about - thinking about that at the time, sir.
…
Q. The fact is, in January and February 2017, you regarded yourself as bound to confidentiality obligations to WHSP and Hunter Hall not disclose to other parties the potential for a merger of Hunter Hall and Pengana; correct?
A. I - I don't believe that confidentiality obligations were owed to WHSP or Hunter Hall at that time."
Mr Pillemer was subsequently cross-examined about the non-disclosure of specific documents to Mr A Turnbull. He gave evidence that he did not disclose the "Merger Model" to Mr A Turnbull because he did not consider himself at liberty to disclose internal Pengana information to persons outside Pengana unless the disclosure was for the benefit of Pengana and "I couldn't imagine why that would be benefit to Pengana to disclose such information to [Mr A Turnbull]." Mr Pillemer gave the following evidence:
"Q. You were aware at the time, weren't you, that if you disclosed this to [Mr A Turnbull], then there was no realistic prospect that he would accept the figure of about $6.1 million in discharge of the Maurtray loan agreement, correct?
A. Incorrect.
Q. Thinking about it now, you'll agree, sitting there now, that if you disclosed it to Mr Turnbull there would have been no realistic possibility of him accepting the $6.1 million that you ended up paying him, correct?
A. Incorrect."
It will be recalled that, at the same time that Mr Pillemer was modifying the "Merger Model" spreadsheet on 30 January 2017, he was following up Mr A Turnbull for any comments on the draft settlement deed under which it was proposed that Maurtray would accept $6,133,788.36 in full and final settlement of the amount owing under the Loan Agreement. [16] Mr Pillemer gave the following evidence about this in cross-examination:
"Q. You were keen, weren't you, to settle that loan agreement before there was public disclosure of the merger between Pengana and Hunter Hall, correct?
A. Well, I was, I was keen to - to settle it before - well, if in the event that we did the Hunter Hall merger, the transaction with Hunter Hall, I was keen to settle it before but I was just keen to settle, this was in the ordinary course of the Pengana/Soul Patts transaction because the - yeah.
Q. You appreciated, didn't you, that if there was public disclosure of a merger between Pengana and Hunter Hall before you had agreed upon the discharge of the Maurtray loan agreement, then there was no realistic possibility that Maurtray would simply accept $6.1 million?
A. Incorrect.
Q. If you had disclosed to Mr Turnbull, and the document I took you to at page 911, the merger model, then if you had disclosed that to Mr Turnbull, there was no prospect of Mr Turnbull accepting $6.1 million, correct?
A. Incorrect.
Q. Will you accept now that that merger model document at page 911 is a document which relates to the value of Pengana Holdings' shares?
A. I do not - do not accept. That is a scenario analysis spreadsheet.
Q. Do you accept that it is a document which relates to a potential sale of Pengana Holdings' shares?
A. Yes, I would accept that.
Q. You would accept, wouldn't you, that you regarded yourself as duty bound under clause 19 of the varied loan agreement, to provide that to Maurtray, correct?
A. That is incorrect.
Q. Despite the fact that it was a document relating to a potential sale of Pengana Holdings' shares, is that your position?
A. To the best of my knowledge, at the time, I, you know, this was - this was - sorry, can you ask the question again, I'm sorry, I got lost.
Q. You accept that page 911 is a document relating to the potential sale of Pengana Holdings' shares, correct?
A. It - it's - no, I wouldn't - I wouldn't call it a document, it's a spreadsheet, sir. I wouldn't call it a document.
Q. You accept that it's information -
A. I - yeah, it's not a document, it's a - it's a spreadsheet, sir, sorry. I - I take that back.
Q. Right, so you don't regard this as a document at all, is that right?
A. I don't regard it as a document, no. I would regard it as a spreadsheet.
Q. You don't think a spreadsheet is a document, is that really your view, Mr Pillemer?
A. Yes, I - I - I don't think this is a - this is a document, this is a spreadsheet, a spreadsheet that is a live model on my - I - yeah, I don't think it's a document as such.
Q. In your view, does it contain information?
A. It does.
Q. Thank you, and it contains information which relates to the potential sale of shares in Pengana Holdings, correct?
A. It - it does, it does. It's - it relates to - yes, I can accept that, yes, sir.
Q. You accept, don't you, on your understanding of clause 19 of the loan agreement with Maurtray that you were duty bound to hand that over to Maurtray, correct?
A. I don't - I don't - I don't believe I was, sir."
Mr Pillemer also gave evidence in cross-examination that he believed he was precluded by an obligation of confidence from informing Mr A Turnbull about the draft due diligence report prepared by Pengana's solicitors for the purpose of the proposed merger with Hunter Hall: [17]
"Q. Did you think you were inhibited by some confidentiality obligation not to tell Mr Alex Turnbull about that document?
A. Yes.
Q. To whom was that confidentiality owed, in your understanding?
A. That - that would have been our own - to - you know, to ourselves. As I said, information which is internal to Pengana is, in general, you know, confidential to Pengana, and should not - you know, should not be disclosed outside of Pengana otherwise than within - with ..(not transcribable)..
Q. You never asked your fellow directors of Pengana Holdings whether you could disclose that document or the existence of it to Alex Turnbull, did you?
A. That's correct.
Q. You didn't do that because you would have appreciated that disclosure of a document of that kind would have conveyed to Alex Turnbull that merger negotiations were very well progressed between Hunter Hall and Pengana; correct?
A. That is incorrect.
Q. And you would then have had to pay a great deal more than you did in order to discharge the Maurtray loan; correct?
A. Incorrect."
During cross-examination concerning his email to Mr Negus of WHSP and representatives of Pitt Capital Partners reporting on his 10 February 2017 meeting with Lead Portfolio Manager for Hunter Hall, Mr Pillemer accepted that the email was a document relating to the potential sale of Pengana shares, although he did not accept that it related to the composition of Pengana or the value of Pengana shares. Mr Pillemer gave evidence that he regarded himself as precluded from disclosing his 11 February 2017 email to Mr A Turnbull by an obligation of confidence owed to Hunter Hall. Mr Pillemer said that he had not sought Hunter Hall's permission to disclose the email to Mr A Turnbull and he did not consider that clause 19 of the Loan Agreement required him to disclose the email to Mr A Turnbull.
Mr Pillemer gave evidence in cross-examination that, as at 23 February 2017, he thought that the merger between Pengana and Hunter Hall was a possibility and that Pengana would "win", that WHSP were very excited about a combination of those two companies and that WHSP were holding the cards. That differs from Mr Pillemer's evidence about his views as at 15 February 2017 referred to at [175] above, but I note that there had been further developments in the bidding war since 15 February 2017 as referred to at [205] above.
Later in the afternoon or evening of 23 February 2017, Mr Pillemer initiated the payment of $6,133,788.36 to Maurtray under the Settlement Deed. Maurtray received the payment on 24 February 2017.
At about the same time, or shortly thereafter, the Shares were transferred from PFH to RC Pillemer Pty Ltd (RCP) in consideration for $6,133,790, payment of which was funded by a loan from WHSPPPL to RCP. The Shares were not sold to WHSPPPL as part of NAB's tag along process.
On 27 February 2017, Hunter Hall announced to the ASX that its independent directors had recommended that Hunter Hall shareholders reject both bids (being WHSP's bid at $2.20 per share and Pinnacles' bid at $2.40 per share) [18] and that the independent directors should continue to explore strategic alternatives in the best interests of all Hunter Hall shareholders.
As referred to at [124]-[127] above, the tag along process that commenced with NAB's notice issued on 13 January 2017 was completed on or about 1 March 2017.
On 9 March 2017, Hunter Hall announced to the ASX that it had entered into an agreement to merge its business with Pengana, with the merger to be effected by Hunter Hall acquiring all of the shares in Pengana in return for approximately 74.1 million Hunter Hall shares being issued to Pengana shareholders. Mr Pillemer was named as one of the members of the proposed board of directors of the merged entity.
Under the terms of the proposed merger, shareholders in Pengana were to be issued with 120.21 Hunter Hall shares for each share they held in Pengana.
By 9 March 2017, RCP owned 207,640 shares in Pengana, including the 42,840 shares that PFH had transferred to RCP on or about 23 February 2017 as referred to above. As a result of the merger that subsequently proceeded, RCP went from owning 207,640 shares in Pengana to owning 24,960,404 shares in Hunter Hall (which was renamed Pengana Capital Group, or PCG), all of which were voluntarily placed into escrow for periods of between one and six years. Of the 24,960,404 PCG shares held by RCP following the merger, 5,149,796 were attributable to the 42,840 Pengana shares that were the subject of the Loan Agreement and Settlement Deed.
According to Mr Pillemer's evidence, Mr A Turnbull telephoned him on 9 March 2017 after Hunter Hall's announcement to the ASX and said: "Congratulations on the deal".
Mr Pillemer also gave evidence that he sent a WhatsApp message to Mr A Turnbull in about early May 2017 in which he said:
"the deal progressing slowly but I think it will get over the line - even though WS [WHSP] can't vote. If it does go ahead then I think this will be great for me personally. I feel bad that u guys not sharing in any of this upside - and would be very happy to get u back in. Let's discuss."
Mr Pillemer deposed that he no longer has a copy of that message because he deleted it due to confidentiality concerns that he had for Mr M Turnbull. According to Mr Pillemer, those concerns arose from litigation that was then on foot between Mr Pillemer, Pengana, and Mr Stuart Stuckey, and Mr Pillemer's understanding that everything in his phone would have to be copied and provided to Mr Stuckey's solicitors for the purpose of that litigation. Mr Stuckey was a former director and shareholder of Pengana who had sold his shares in the company to WHSP alongside NAB through the tag along process. Mr Pillemer deposed that he did not consider the deleted message to be relevant to the litigation with Mr Stuckey. Mr Pillemer exhibited a handwritten copy of the WhatsApp message referred to above to his affidavit sworn on 19 June 2020. Mr Pillemer's evidence does not explain when he deleted the WhatsApp message or when or why he created the handwritten note.
According to Mr Pillemer, Mr A Turnbull called him after he sent the (now deleted) WhatsApp message and said: "I would personally like to get back into the deal but with all the political considerations, I doubt my father will agree." Mr A Turnbull subsequently called him again and said: "My father has said no."
Mr A Turnbull gave evidence in his affidavit sworn on 20 July 2020 that he had no recollection of making a call to Mr Pillemer on 9 March 2017 and congratulating him on the deal. In cross-examination, Mr A Turnbull positively denied making any such call to Mr Pillemer. Under cross-examination about this change in his evidence, Mr A Turnbull said that he had been through his travel records and discovered that he was in China on 9 March 2017 and he would not make personal calls while travelling in China. The following exchange then occurred with the cross-examiner (emphasis added):
"Q. Are you saying that the reason you are now prepared to deny it is because you were in China?
A. Yeah.
Q. But are you prepared to deny it because it just doesn't fit with your story at all?
A. I'm sorry?
Q. If you rang up Mr Pillemer on 9 March and said 'Congratulations on the deal', it would have to be only consistent that you and he had already talked about that deal being a potential merger, correct?
A. Yes, and that's why it didn't occur."
Mr A Turnbull's evidence in his affidavit sworn on 15 May 2020 and in cross examination was that Hunter Hall's announcement made on 9 March 2017 had not come to his attention at the time it was made, and that he first became aware of the proposed merger during the first half of May 2017 as a result of a chance meeting with Mr Alex Vynkour in Double Bay. Mr Vynkour was also a former shareholder of Pengana and he told Mr A Turnbull that Pengana had merged with Hunter Hall following the closure of the NAB/WHSP transaction.
Mr A Turnbull also denied receiving the WhatsApp message that Mr Pillemer claims to have sent in early May 2017 and denies having conversations with Mr Pillemer to the effect referred to at [221] above.
In his affidavit sworn on 15 May 2020, Mr A Turnbull deposed that, after becoming aware of the proposed merger in the first half of May 2017, he obtained a copy of the explanatory memorandum that had been issued on 2 May 2017 and examined the details of the proposed merger. He had noted that Pengana shareholders would receive 120.1 Hunter Hall shares for each Pengana share, with each Hunter Hall share valued at between $3.00 and $3.50. He observed that this valued each Pengana share at between $360.63 and $420.735.
Mr A Turnbull then deposed in his affidavit sworn on 15 May 2020 (emphasis added):
"I contacted Mr Pillemer as a result of my consideration of the EM and we engaged in several discussions seeking to resolve my complaints.
These discussions lasted between 19 May 2017 until early 2018 and were ultimately unsuccessful."
Mr A Turnbull then referred to a letter that he instructed Coutts & Co Lawyers to send to Mr Pillemer, PPL and PFH on behalf of Maurtray on 21 February 2018. The letter alleged breach of the Loan Agreement and misleading or deceptive conduct and demanded payment of $10.3 million or the tender of 5,146,501 shares in PCG within 14 days.
It is plain from Mr A Turnbull's affidavit evidence referred to above that his review of the explanatory memorandum occurred prior to 19 May 2017, when he says that he commenced his discussions with Mr Pillemer "seeking to resolve my complaints". However, in cross-examination, he gave inconsistent evidence that it was not until early June 2017 that he reviewed the Explanatory Memorandum in detail.
Mr Pillemer swore an affidavit in these proceedings on 19 June 2020 in which he set out a detailed account of his communications with Mr A Turnbull during the period from 9 March 2017 to 21 February 2018. As will be seen below, Mr A Turnbull made no complaint or allegation in those communications that he had been misled by Mr Pillemer or that PPL and PFH had breached their disclosure obligations under clause 19 of the Loan Agreement. Rather, Mr A Turnbull complained about the frustration of being unable to take the shares and act in a "100% commercial way" because "AFR would have been onto who Maurtray is within 10 minutes". Mr A Turnbull described this as the "opportunity costs of being PM". Mr A Turnbull advocated for Mr Pillemer to make an additional payment to Maurtray on the basis that this would be a fair thing to do in circumstances where PPL and PFH had previously had the benefit of the loan from TPPL and Maurtray for a long period of time, had effectively paid no interest on the loan as a result of the terms of the settlement and were now enjoying the "upside" of the Pengana shares being exchanged for shares in PCG. There was no mention of the proposed additional payment being compensation for any alleged misleading conduct or breach of contractual disclosure obligations.
Mr A Turnbull swore an affidavit on 20 July 2020 in response to Mr Pillemer's 19 June 2020 affidavit. Mr A Turnbull agreed with Mr Pillemer's evidence that they had had friendly conversations during the period between 9 March 2017 and 1 June 2017 and that he had not once said to Mr Pillemer during those conversations that Mr Pillemer had misled him or done anything wrong in his dealings with Maurtray. Mr A Turnbull deposed that in the period prior to 1 June 2017:
"… it had not yet occurred to me that Mr Pillemer had failed to fully and properly inform me about the developments involving Pengana and Hunter Hall prior to the Settlement Deed being entered into."
At one point during his cross-examination, Mr A Turnbull said that he had no contact with Mr Pillemer at all during that period, adding that he was travelling a lot at that time. However, upon being taken to his affidavit evidence referred to above, Mr A Turnbull reverted back to his evidence that there were conversations and that they were friendly conversations because it had not yet occurred to him that Mr Pillemer had misled him.
It was then put to Mr A Turnbull that his evidence in his 15 May 2020 affidavit referred to at [226] above was false insofar as it suggested that he had been engaged in discussions with Mr Pillemer "seeking to resolve my complaints" from 19 May 2017. Mr A Turnbull offered several explanations about why he had not raised any complaint with Mr Pillemer during the period from 19 May 2017 to 1 June 2017, including that he (Mr A Turnbull) was still reviewing the materials and the inconsistent explanation that he had tried to engage with Mr Pillemer but Mr Pillemer was very busy at the time. Mr A Turnbull steadfastly avoided answering the question whether his evidence referred to at [226] above was false. [19]
The merger between Pengana and Hunter Hall was completed on 1 June 2017. As referred at [217] above, RCP went from owning 207,640 shares in Pengana (including the 42,840 shares that were previously the subject of the Loan Agreement) to owning 24,960,404 shares in PCG, all of which were voluntarily placed into escrow for periods of between one and six years. Of the 24,960,404 PCG shares held by RCP following the merger, 5,149,796 were attributable to the 42,840 Pengana shares that were the subject of the Loan Agreement and Settlement Deed. Those matters are common ground.
In relation to the period after 1 June 2017, Mr A Turnbull maintained in his affidavit sworn on 20 July 2020 that he "did raise my concerns with Mr Pillemer and we sought to negotiate a resolution over the following months" as he had sworn in his earlier affidavit. However, Mr A Turnbull objected to the substance and detail of those "settlement discussions" being disclosed in Mr Pillemer's affidavit or in the proceedings and stated that he would swear a further affidavit setting out his version of events if Mr Pillemer was permitted to disclose those communications.
Maurtray ultimately did not press its objection to the admissibility the communications between Mr A Turnbull and Mr Pillemer during the period from June 2017 to February 2018. At the hearing, Maurtray relied on a further affidavit sworn by Mr A Turnbull on 12 March 2021 in which he set out a detailed account of his communications with Mr Pillemer in the period from June 2017 to February 2018. Mr A Turnbull deposed:
"… I agree that I did not say to Mr Pillemer that he had misled me or done anything wrong in his dealings with Maurtray until I caused a letter of demand to be sent in February 2018.
I say that the reason for this was because by my exchange of text messages [referring to an exchange of messages on 5 June 2017 set out below at [246]] Mr Pillemer and I had, at an early stage, agreed in principle that some form of additional payment should be made to Maurtray. At that stage, I was also on good terms with Mr Pillemer and considered him a family friend so did not want to make any accusations against him if I could avoid doing so.
In those circumstances, I wanted to avoid litigation and made no accusation that Mr Pillemer had misled me or done anything wrong in his dealings with Maurtray between 1 June 2017 and 21 February 2018 as settlement negotiations were ongoing and such accusations would not assist these negotiations."
It is necessary to set out the evidence of the dealings between Mr A Turnbull and Mr Pillemer in the period between May 2017 and February 2018 in some detail.
As referred to at [225] above, Mr A Turnbull says that he became aware of the merger announcement in the first half of May 2017 and then examined the details in the explanatory memorandum, including the value that the terms of the transaction, the exchange ratio and the value that implied for Pengana shares.
On 19 May 2017, Mr A Turnbull sent Mr Pillemer a message via the WhatsApp platform stating: "congrats saw the deal closed". Mr Pillemer replied: "almost there - EGM on 1 June. How r things with you?" Mr A Turnbull responded: "All good can't complain".
In cross-examination, Mr A Turnbull gave the following evidence about his 19 May 2017 message:
"Q. So what it does is it congratulates him first off?
A. Yeah.
Q. Then it says that what you had seen was that the deal had closed?
A. Yes.
Q. It doesn't say, I just learnt about this deal, it says that the deal had been closed, that's what you tell him?
A. Yes.
Q. Right and that's consistent, of course, with Mr Pillemer having told you, at least at the lunch in Singapore, that there was a potential for this sort of deal to be happening, isn't it?
A. No, I'd often congratulate people on, if I see a deal on the news they'd been involved in.
Q. Yes, but the deal closing tends to suggest, does it not, that you already knew about the deal and what you were congratulating him on was closing?
A. Well, I assume it was the only deal he was working on at the time."
I note the inconsistency between Mr A Turnbull's evidence immediately above and his evidence referred to at [222] above that he would not have said to Mr Pillemer "congratulations on the deal" because that would only be consistent with he and Mr Pillemer having discussed the potential merger previously (contrary to all of Mr A Turnbull's evidence in these proceedings).
When cross-examined about his reply to Mr Pillemer - "All good can't complain" - Mr A Turnbull said that this was a "standard reply" and that he "didn't want to get to the sharp point" of his complaints with Mr Pillemer that quickly.
It was put to Mr A Turnbull that his evidence in his 15 May 2020 affidavit that he had engaged in correspondence with Mr Pillemer from 19 May 2017 was false. Mr A Turnbull did not directly answer that question, saying that his 19 May 2017 message was an attempt to engage Mr Pillemer in a conversation. He then offered two explanations for not raising any complaints with Mr Pillemer in the messages, saying that Mr Pillemer was very busy that time closing the transaction and that he (Mr A Turnbull) was "being very gentle initially until I was certain".
In cross-examination, Mr A Turnbull said that he was reasonably confident by June 2017 that Mr Pillemer had not disclosed to him information about the proposed merger that Mr A Turnbull considered must have been known to Mr Pillemer during their negotiations leading up to the Settlement Deed. Mr A Turnbull gave evidence that, by 2 June 2017, he was "[q]uite sure something was seriously off" and the "penny had dropped" that he might have some complaints against Mr Pillemer.
On 2 June 2017, Mr A Turnbull sent Mr Pillemer a WhatsApp message stating: "All done congrats". Mr Pillemer replied: "Thanks Al".
When reminded about his 2 June 2017 message in cross-examination, Mr A Turnbull then said that it was not until 5 June 2017 that the "penny had dropped". He gave the following evidence:
"Q. All right. So on 2 June, you are still happy and expressing happiness and congratulations to Mr Pillemer that he's pulled this deal off by himself?
A. Sure.
Q. You're certainly not seeking to resolve any complaints here, are you?
A. Well, whether it was - so long as I was delivered the same value, I didn't particularly care. When I'd worked out the value was radically different, I was quite moved.
Q. So, it is false in paragraph 106 of your second affidavit that discussions to resolve your complaints commenced on 19 May and continued to 2 June, isn't it?
A. Well, I think we'd had some telephone conversations, but I don't recall them in great detail.
Q. You didn't have any telephone conversations, did you?
A. Well, I don't have records of them, Mr Newlinds, so, I will just say I don't recall the particular details, but I do very much recall these text messages.
Q. Forget about records. You don't remember any telephone conversations, do you?
A. Not in detail, no.
Q. Not at all, do you?
A. Sure.
Q. Right. So, when you say, 'I think there were telephone conversations', that was a lie. You don't think there were telephone conversations, do you?
A. Well, I imagine we were communicating, but I don't have the details of them.
Q. You're guessing, aren't you?
A. Well, I don't have records, so, I would assume we were in touch as we were on text, most likely by telephone.
Q. We can assume that when you were in touch, the way your speaking to him was along the lines that we see in the contemporaneous text messages, can't we?
A. Well, until I'd gone through the materials in detail, yes.
Q. The answer is yes, isn't it?
A. Yeah, probably.
Q. So, you're writing these text messages and you think you're probably having telephone discussions with him where you're being friendly and effusively congratulating him about the deal?
A. Well, not effusively, just saying, 'I saw this in the news. Good for you.'"
On 5 June 2017, Mr A Turnbull and Mr Pillemer exchanged the following WhatsApp messages:
"[Mr A Turnbull]:
got to say russ
can't help but feel after a very long hold on a very low interest loan that we haven't come out that well from this.
[Mr Pillemer]:
Hi Al. I agree. As u know I didn't plan for this outcome - it's just played out this way. I would have loved for you guys to stay in but understand that was not the correct path. All that being said, I am forever grateful for MTs backing and friendship - and would be extremely upset for you guys to feel that it didn't play out well for you. The friendship of your family is infinitely more important to me than $s and I would be very happy to get additional value to you. Cheers Russ
[Mr A Turnbull]:
Yeah look would have taken the shares but given than AFR would have been onto who Mauturay [sic] is within 10 minutes its been extremely frustrating dealing with all this stuff without being able to act in a 100% commercial way. let me know what you think is fair.
thank god this is the last one. opportunity costs of being PM aren't low that's for sure."
In his affidavit sworn on 19 June 2020, Mr Pillemer referred to this message and deposed that he had deleted it for the same reasons referred to at [220] above. Mr Pillemer exhibited to his affidavit a handwritten copy of part of the part of that message in which he said "Hi Al. I agree. As u know … would be very happy to get additional value to you." The handwritten document is in precisely the same terms as the copy of the WhatsApp message that was subsequently exhibited to Mr A Turnbull's affidavit sworn on 12 March 2021. Again, Mr Pillemer's evidence did not explain when or in what circumstances he created the handwritten document.
In his affidavit sworn on 12 March 2021, Mr A Turnbull deposed that, in the 5 June 2017 messages:
"…. I was referring to the relationship between Maurtray and my father becoming known by the Australian Financial Review newspaper had the Shares been delivered and that this prevented me from acting in a '100% commercial way' by which I meant without regard for my father or my relationship with Mr Pillemer or my father's relationship with Mr Pillemer.
…
My reference to this being the 'last one' was a reference to the investments which my father had no time or interest in managing and asked me to deal with. By reference to 'opportunity costs' I meant the time and financial opportunity costs in managing these investments."
In relation to his state of mind at the time of the 5 June 2017 messages, Mr A Turnbull deposed:
"I would have preferred there to be no publicity about Maurtray and my father but I would not have let this stop me causing Maurtray to take delivery of the Shares if I had known the true position concerning the Merger and its potential benefits in the period up to the execution of the Loan Discharge Deed.
When I sent this message, I was also unaware of the true position concerning the status and progress of the Merger prior to Maurtray entering into the Loan Discharge Deed.
Based on my relationship with Mr Pillemer at the time, I gave him the benefit of the doubt in terms of the disclosures he had made to me prior to entering into the Loan Discharge Deed and I was seeking to be conciliatory and show that I had 'moved on' so that we could negotiate a settlement.
In my own mind, I was also seeking to post-rationalise what had occurred as it appeared that Maurtray had lost an opportunity to receive substantially more than it did under the Loan Discharge Deed in repayment of the loan."
Mr A Turnbull gave very different evidence in cross-examination about his state of mind at the time of the 5 June 2017 WhatsApp messages. Mr A Turnbull attributed his concern about the Australian Financial Review working out "who Maurtray is" primarily to avoiding media interest in himself and his own business activities, although he acknowledged that it had a "little bit" to do with the fact that his father was then the prime minister. Mr A Turnbull also said that his inability to act in what he considered to be a "100% commercial way" was an example of the "opportunity cost involved with being a relation of a famous Australian politician". In relation to his state of mind concerning Mr Pillemer's conduct as at 5 June 2017, Mr A Turnbull gave the following evidence:
"Q. … it was your instructions to your solicitors, as at February 2018, you said all you needed to know, to know that Mr Pillemer must have had knowledge of the proposed Hunter Hall transaction was simply that the NAB shares had been sold on 1 March and that by 9 March, the proposed merger was announced, that's all you needed to know?
A. It was - you could have a high degree - a very high degree of certainty.
…
Q. … by 5 June you knew to a high level of certainty that Mr Pillemer - and let's not beat around the bush, had lied directly to your face. Correct?
A. Yes, but I had to believe other things as well.
Q. Mr Pillemer was a longstanding friend and business associate of your father, correct?
A. Yes.
Q. And had been a longstanding friend of you?
A. Yes.
Q. That must have been an appalling thing for you to understand that this longstanding friend of you and your father's had directly lied to your face?
A. It was hard to believe and comprehend.
Q. Yet you kept your light very much under a bushel and you didn't say a word to him that you thought that's what he had done, did you?
A. It was a very strong allegation to make to his face without gathering further evidence.
Q. What further evidence precisely did you gather, say between 5 June and the date your solicitors wrote that letter in February, can you tell me?
…
A. So to believe that Russel had deceived me, I had to believe that the directors of Pengana had failed in their disclosure obligations to all of the minority shareholders. I had to believe Russel had done this to those of the minority shareholders who he worked with or had associated with for a long time, including Alex Vynokur and numerous former people who worked at Turnbull and Pillemer when it existed. So I had to believe in a very large sequence of breaches and bad conduct. I am not a conspiracy theorist, I had to dig a little bit deeper before expressing this view and over time, speaking to some of those former shareholders it became very clear what had happened. But that was not crystal clear to me until about October or November.
Q. Let's accept all of that -
A. Right.
Q. You've already agreed that as of 5 June you thought that that's what had happened to a high degree of certainty?
A. Yes.
Q. Wouldn't the fair thing to do to your longstanding friend, would be to give him an opportunity to explain himself at the first opportunity?
A. He has a very fragile ego, Mr Newlinds. He wouldn't take it well if I was wrong.
Q. I'm sure that's not uncommon amongst the players in this case, would that be fair?
A. Yes.
Q. But still it would be the fair thing to do regardless of whether it might upset him. Because he might have a perfectly innocent explanation?
A. I think he would be wildly insulted by the question.
Q. So instead you told him effectively a series of lies to string him along, is that what's going on?
A. Well no, not at all."
It is clear from the evidence referred to immediately above that Mr A Turnbull was not giving Mr Pillemer the benefit of the doubt by 5 June 2017, and possibly even earlier, contrary to his evidence in his affidavit sworn on 12 March 2021.
Mr A Turnbull gave the following further evidence later in his cross-examination suggesting that there was a greater degree of uncertainty in his mind in May and early June 2017 concerning Mr Pillemer's conduct:
"Q. [referring to Mr Turnbull's evidence about his conversation with Mr Pillemer on 4 January 2017 referred to above at [109]] It's this conversation, sir, that if you're telling the truth means that come May when you knew that the announcement had happened on 9 March, you must have known that Mr Pillemer was just telling you direct lies in this conversation?
A. No.
Q. That has to be -
A. That's - that's not true, Mr Newlinds. Because you can have different parts of a same holding company, for example a bank holding company, and different divisions can be doing different things and bump into each other. Because they're separated by Chinese walls or different activities. So in May it was possible that this had been done by a different part of Soul Patts. Russel might not have been informed fully at the time and that maybe he was telling me the truth.
Q. I think you said before lunch that you'd reached a higher degree of certainty that he hadn't been by May?
A. Improbable but it also seemed to be improbable that he would betray me this way so I had to consider, it was a strong set of beliefs to believe a board and management of Pengana had acted so poorly. But also a very strong belief set that something was not on foot in early January given how things panned out.
Q. Well as your solicitors wrote on your instructions the January following, you only had to see the timeline between when this conversation happens and when the deal is announced to know that he must have known about it?
A. Yes -
Q. Is that what you -
A. Well a very high degree of certainty.
Q. Is that what your [sic] instructed your solicitors to write the following January-
A. Yes.
Q. That all you needed to know was the dates to know that Mr Pillemer had lied to you?
A. Mr Newlinds, it was a lot to believe that an old business associate of my dad's had betrayed me in this way. And also his former colleagues.
Q. The reason you have to say that is because you know when we come to the chain of correspondence after the merger that one just reads it, it's blindingly obvious that you actually have no complaints at all. Isn't it?
A. No, I had many deep concerns but it's another thing to accuse someone to their face."
Later in his cross-examination, when confronted with his statement in the 5 June 2017 WhatsApp message that he "would have loved to have taken the shares but given that AFR would have been onto [Maurtray] is within 10 minutes …" referred to above at [246] , Mr A Turnbull said:
"… I had no idea what was happening and when and what Russel knew and when until I had commenced discovery."
That evidence contradicts:
1. Mr A Turnbull's evidence referred to at [250] and [252] above that, he had "a very high degree of certainty" from the time he learned about the merger announcement in May 2017 or at least 5 June 2017 that Mr Pillemer had known all about the potential merger that was announced on 9 March 2017 at the time that he and Mr Pillemer were negotiating the Settlement Deed; and
2. Mr A Turnbull's evidence referred to at [243] above that, by 2 June 2017, he was "[q]uite sure something was seriously off" and he thought that he had some complaints against Mr Pillemer; and
3. Mr A Turnbull's evidence referred to at [245] above that "the penny had dropped" by 5 June 2017.
Later again in his cross-examination, Mr A Turnbull sought to explain his 5 June 2017 message by emphasising that he did not have "absolute certainty" or "dead certainty" as at 5 June 2017 that Mr Pillemer had failed to disclose to him information about the potential merger that Mr A Turnbull claims should have been disclosed.
Mr A Turnbull maintained in cross-examination that his 5 June 2017 message was "a very gentle complaint" to Mr Pillemer. He was unable to offer any coherent explanation for leaving it up to Mr Pillemer to let him know what he (Mr Pillemer) thought was fair in terms of any additional payment. Mr A Turnbull said that he was trying to be very reasonable and was hoping that Mr Pillemer would offer to "unwind the transaction or something along those lines". However, as will be seen below, it was ultimately Mr A Turnbull who proposed to Mr Pillemer the manner in which his "complaint" might be settled. Mr A Turnbull did not propose that the transaction be unwound. Rather, Mr A Turnbull proposed that Mr Pillemer would pay approximately $3 million to Maurtray in order to reflect a more reasonable rate of return on the loan.
There was a further exchange of WhatsApp messages between Mr A Turnbull and Mr Pillemer on 6 June 2017: [Ex 1, p 1811]
"[Mr Pillemer]:
Hi Al. I'm on a traveling roadshow this week - so let's chat next week. We should discuss what could work from a structural perspective - especially because of public company disclosures etc. cheers Russ
[Mr A Turnbull]:
yup
[Mr A Turnbull]:
ideally would be in structure CVRs or similar which would be a) cash and thus not require disclosure and b) linked to conditions precedent wrt equity pricing and you getting liquidity
[Mr A Turnbull]:
maybe another solution"
As Mr A Turnbull acknowledged in cross-examination, the first issue that Mr Pillemer raised about the proposed additional payment or settlement was about how avoid any public disclosure and Mr A Turnbull agreed with him.
There was a further exchange of WhatsApp messages between Mr A Turnbull and Mr Pillemer on 19 June 2017: [Ex 1, p 1812]
"[Mr A Turnbull]:
Hi Russ are you back in Aus?
[Mr Pillemer]:
Hi Al - let's chat late tomorrow afternoon - say around 4.30?
[Mr A Turnbull]:
can do"
In his affidavit sworn on 19 June 2020, Mr Pillemer deposed that Mr A Turnbull telephoned him in about July 2017 and they had a conversation to the following effect:
"AT: I have been watching the PCG share price and considering how well you have done out of the deal, it's only fair that my family receives a reasonable interest rate for the loan, rather than the zero rate that was agreed to in the discharge of the loan agreement.
RP: As I have said previously, I would gladly give more value to your family - but you need to recognise that although I have done well on paper, I have not actually realised any cash value and am subject to an escrow that prohibits me from selling shares for 2 years. As I said before, I feel bad that you were unable to participate in the merger and would like to give you further value but this will only be possible once I am able to sell shares."
Mr Pillemer also deposed that he had a further conversation with Mr A Turnbull a few weeks after the conversation referred to immediately above, in which Mr A Turnbull said to him words to the following effect:
"You have had use of our money for many years and we have effectively received a zero interest rate. It would be fair for you to pay a reasonable rate of interest."
In his affidavit sworn on 12 March 2021, Mr A Turnbull denied that either of the conversations referred to immediately above occurred. In cross-examination, Mr A Turnbull acknowledged that text messages to the same effect had passed between himself and Mr Pillemer and suggested that Mr Pillemer may have been (wrongly) remembering these exchanges as telephone calls.
On 12 August 2017, Mr A Turnbull and Mr Pillemer exchanged the following messages on WhatsApp:
"[Mr A Turnbull]
Russ hope all is well. I had the chance to go through all the merger docs and all the history and so forth. So long story short our loan got a 1.2% IRR over a decade - not great. The shares covered by our loan are now worth (albeit in an illiquid stock with a vesting schedule out some way) are now worth $16.16mm. What we got does not seem like a great deal - if the business had failed we would have had no recourse and through some remarkable timing and the fact that we could not take delivery of the shares without likely blowing up the deal for you and in some capacity MT we've left ~$10mm on the table. Up to you but at a bare minimum we are talking an additional $2.3mm to get to a cumulative return equal to bank bills. Once again this is up to you but it seems that if you want to make a fuss over being great / old friends this current split of risk and reward is not right. When the biz was in rough shape MT was not doing a Kerry Stokes and trying to foreclose and screw you but it seems we've gotten a pretty awful turn on this deal.
[Mr Pillemer]:
Hi Al - I absolutely agree. I'm going to be in Sing week after next. Let's catch up and discuss. Cheers.
[Mr A Turnbull]:
Ok can do.
[Mr Pillemer]:
Great. I'll send u times that work. Cheers"
In his affidavit sworn on 12 March 2021, Mr A Turnbull deposed he sent the 12 August 2017 in the same state of mind that he had when he sent the 5 June 2017 messages as described in his 12 March 2021 affidavit referred to at [249] above. However, as referred to above, Mr A Turnbull agreed in cross-examination that he thought with a high level of certainty by 5 June 2017 that Mr Pillemer had lied to his face by not disclosing the merger negotiations to him. Mr A Turnbull also agreed in cross-examination that, by 12 August 2017, he had carefully gone through all the merger documents and "the penny has most definitely dropped". However, Mr A Turnbull said that he did not want to make an allegation "which would have blown up any negotiations of the settlement". Mr A Turnbull then gave inconsistent evidence in which he maintained that he could not have even gently suggested to Mr Pillemer that he (Mr A Turnbull) might have stayed in Pengana if he had known about the potential merger yet also speculated that he might indeed have made that very suggestion to Mr Pillemer in conversations at the time because that was consistent with his (Mr A Turnbull's) state of mind.
In his affidavit sworn on 12 March 2021, the only explanation advanced by Mr A Turnbull for his statement in the 12 August 2017 message that "we could not take delivery of the shares without likely blowing up the deal for you and in some capacity MT" was that at that time he was unaware of the true position concerning the status and progress of the proposed merger prior to Maurtray entering into the Settlement Deed and he was giving Mr Pillemer the benefit of the doubt. That is inconsistent with Mr A Turnbull's other evidence referred to immediately above that he had a high level of certainty that Mr Pillemer had lied to him and that the penny had most definitely dropped by 12 August 2017.
In cross-examination, Mr A Turnbull gave a different explanation for his statement that "we could not take delivery of the shares without likely blowing up the deal for you and in some capacity MT":
"That was my way of persuading him to come to a reasonable settlement without directly accusing him of wrongdoing at the time. If I had said 'Russel you've duded me' he would have said 'Take a walk, come sue me'."
When the cross-examiner drew Mr A Turnbull's attention to the fact that he had given a different explanation in his 12 March 2021 affidavit - namely, that he was still giving Mr Pillemer the benefit of the doubt as at 12 August 2017 - Mr A Turnbull said:
"Well I had not spoken to anyone who - I had a very strong suspicion but I had not for example commenced discovery. So I couldn't know these things for a certainty."
Mr A Turnbull maintained that he did not consider his explanation referred to at [266] above to be inconsistent with the explanation in his 12 March 2021 affidavit.
Further WhatsApp messages between Mr A Turnbull and Mr Pillemer record that they did meet in Singapore, as Mr Pillemer had proposed, on 22 August 2017. They exchanged the following messages during the afternoon of 22 August 2017after their meeting:
"[Mr A Turnbull]:
Thanks for lunch. Russ running the numbers gets me to about 9.1 - lets keep it simple and call it 9. Agreeable that this gets paid out of divs / disposals and given that's all publicly filed pretty easy to keep track of. I'll ask Christine about CVR documentation and any issue around that but if its a problem can keep this as a handshake deal. Will speak w MT but basically this is a big PM tax to pay in value transfer to an old friend otherwise.
[Mr A Turnbull]:
9 as in total residual is 9-proceeds received
[Mr Pillemer]:
Good to catch up. I haven't run the numbers - but no doubt u have it right. Let me know what Christine says. Sleeping well at night is paramount! Cheers.
[Mr A Turnbull]:
got it."
In cross-examination, Mr A Turnbull said that, at this point in time, it was Mr Pillemer rather than himself (Mr A Turnbull) who was concerned about any public disclosure.
Mr A Turnbull was asked in cross-examination about why he referred to "a big PM tax" in his 22 August 2017 message. He gave the following non-responsive answers:
"Q. Why do you say basically this is a big PM tax to pay in value transfer to an old friend otherwise?
A. Well, I'm giving up this value to Russel. I'm not accusing him of any wrongdoing but it's an extraordinary series of events, so it is as close to saying, you have taken money from me and taken advantage of me as one can get without winding up the negotiations.
Q. What's that got to do with it being a PM tax?
A. Well, the only reason or one of the reasons I sold out, I didn't want to take the shares that Russel kept on saying, take the shares, take the shares, take the shares, was when I said to him, I said, 'Look, it's a good price, we've been in this for a long time and I don't want the exposure.'"
Mr A Turnbull's evidence referred to immediately above in which he gives an account of him saying to Mr Pillemer that the price Maurtray would receive for the Shares based on the NAB/WHSP transaction was "a good price" is wholly inconsistent with his evidence referred to at [63]-[65] above in which he claims to have described the amount to be paid by WHSP for NAB's shares in Pengana in conversations with Mr Pillemer at the time as a "bad outcome" and a "poor quality price".
The following further messages were exchanged between Mr A Turnbull and Mr Pillemer on 23 August 2017:
"[Mr A Turnbull]:
Russ have spoken with Christine and the best way to do this is a private settlement - zero disclosure requirements. For that we'll need some kind of closing date / repayment date. When can you do this? Vesting schedule and likely dividend profile seems to accommodate this in a reasonable timeframe.
[Mr Pillemer]:
Hi Al. Just landed back in Syd. I've never heard of that structure - but happy to do it if it's clean. The company has a sweep on my divs because of loans - so will need to pay from capital - I reckon (all going well) that I should be able to offload stock in next 24 months.
[Mr A Turnbull]:
ok works for us. we'll get something drafted up.
[Mr Pillemer]:
I'd like to have a call with her so that I can understand how it works. Please ask her to call me tomorrow or next day. Cheers
[Mr A Turnbull]:
yeah i don't think there's any way to do a share transaction without a filing which would a) be disclosable and b) cause stuart to go mental. Better this looks like a receivable or settlement so there's no clear connection or disclosure requirement. Anyway can set something up."
In October and early November 2017 there was a series of WhatsApp messages between Mr A Turnbull and Mr Pillemer in which they were both trying to arrange a time for Mr Pillemer to speak or meet with "Christine" but were having trouble eliciting a response from her. The references to Christine are references to Ms Christine Coutts of Coutts & Co Lawyers who subsequently wrote to PPL, PFH and Mr Pillemer on behalf of Maurtray on 21 February 2018. Mr A Turnbull accepted in cross-examination that, at this stage of their discussions, there was no delay on Mr Pillemer's behalf in seeking to agree and implement a settlement.
Ms Coutts subsequently prepared a draft deed that Mr A Turnbull sent to Mr Pillemer on 29 November 2017. The draft deed provided for Mr Pillemer to pay the sum of $3,450,000 to Maurtray within two years. The parties acknowledged that Mr Pillemer intended to fund that payment through the sale of his or his related entities' shares in PCG. Clause 3 of the draft deed required Maurtray to consider in good faith any request made by Mr Pillemer to extend the payment date if he formed the opinion that the sale of shares in PCG would have a material adverse effect on the value of shares in PCG.
Mr A Turnbull said in cross-examination that he would mostly likely have been prepared to sign the draft deed in November 2017 "based on what I knew then". When asked to identify the difference between what he knew then and what he knows now, Mr A Turnbull said that after discovery in these proceedings there is now "absolutely no doubt" that "Russel deceived me". Mr A Turnbull agreed with the cross-examiner's proposition that he has "gone from a position of near certainty to one of certainty".
During the period from 29 November to 1 December 2017, Mr Pillemer and Mr A Turnbull exchanged a series of text messages about the draft deed. The substance of those communications was that Mr Pillemer queried the $3,450,000 payment provided for in the draft deed because "we agreed on $9m less payments. Payments were $6,811,088. So net amount is $2,188,912." Mr A Turnbull replied that his understanding was that "we would get an additional 3mm of proceeds" because "you have got 16mm from these shares" and "we should have some time value concept here. We agreed on an irr".
It is common ground between Mr A Turnbull and Mr Pillemer that they had a telephone conversation after exchanging the messages referred to immediately above in which Mr Pillemer protested that he was making a goodwill payment and Mr A Turnbull was pushing for more. On Mr Pillemer's version of that conversation, Mr A Turnbull said: "If you don't pay me the $3mm, my family will come after you". On Mr A Turnbull's version of that conversation, he said: "Russ, if you don't do this settlement, we can go to court and work out what the actual settlement amount is. If you don't settle this on the vine, we can go to court." On his own version of the conversation, Mr A Turnbull made no allegation of misleading conduct against Mr Pillemer even when foreshadowing court proceedings. It is difficult to reconcile Mr A Turnbull's threat of court proceedings with the gentle negotiating strategy that he claims to have been adopting.
In subsequent messages leading up to the end of 2017, Mr A Turnbull indicated that his mother had spoken to his father and would be in touch with Mr Pillemer. However, Mr A Turnbull continued to discuss the proposed additional payment directly with Mr Pillemer. He checked his internal rate of return calculations and shared with Mr Pillemer the spreadsheets that he generated in doing so. Mr A Turnbull acknowledged Mr Pillemer's point that PPL or PFH had paid the tax on the Pengana dividends that had been passed through to Maurtray under the Loan Agreement and that Maurtray had received those dividends tax free. Mr A Turnbull stated: "ultimately we can't eat tax paid to ATO but it does change your IRR which I appreciate changes whats reasonable irr wise. Anyway talk to LT or MT. MT is busy this week (obviously) but I am utterly done." Mr Pillemer replied early the following morning: "Yup - so much long and complicated history with all this. At end of day … the only truth that matters is that we both made huge returns. Please tell MT to give me a shout in holidays to catch up. Have a good weekend. Cheers". Mr A Turnbull replied: "you too and will do. Cheers, AT." That appears to have been the final communication between Mr A Turnbull and Mr Pillemer in 2017. [
The spreadsheets that Mr A Turnbull shared with Mr Pillemer in the series of messages referred to immediately above calculated an internal rate of return on the Loan of 5.56% (if Maurtray received $3,000,000 in addition to the amount received under the Settlement Deed) or 5.41% (if Maurtray received $2,866,000 in addition to what it had received under the Settlement Deed).
I do not find it necessary to canvass the evidence given by each of Mr A Turnbull and Mr Pillemer concerning the state of mind that they each claimed to have had during their exchange of messages in late 2017 referred to above. It suffices to note the tone of the messages is inconsistent with Mr Pillemer's interpretation of Mr A Turnbull's reference to his family and his parents as a threat or "standover tactic". At the same time, the frequency, content and tone of the messages is inconsistent with Mr A Turnbull's claim to have been in a state of frustration and exasperation with what he described as Mr Pillemer's slow responses in attempting to resolve the matter. Mr A Turnbull was given ample opportunity in cross-examination to identify the point at which he claimed Mr Pillemer had delayed or held up their negotiations. He was unable to do so, and resorted to suggesting to the cross-examiner that it might be left for re‑examination. That suggestion was dismissed by the cross-examiner, who repeated the open question inviting Mr A Turnbull to identify Mr Pillemer's delay. Mr A Turnbull ultimately responded that "we'll have to agree to disagree" and denied that he was lying when suggesting that Mr Pillemer had delayed their negotiations.
In re-examination, Mr A Turnbull was asked to refresh his memory by looking at the messages referred to at [277] and [279]-[280] above. Mr A Turnbull seized on Mr Pillemer's statement referred to at [277] above that "we agreed on $9m less payments. Payments were $6,811,088". Mr A Turnbull said that the payments were in fact the $6.133 million paid under the Settlement Deed "[s]o Russel seemed to be trying to pay me less than was agreed". However, it is plain from the spreadsheets attached to Mr A Turnbull's text messages to Mr Pillemer that the payments were in fact in the order of $6.8 million when dividends passed through to TPPL and Maurtray under the Loan agreement were added to the amount paid under the Settlement Deed. Mr A Turnbull's own spreadsheets took those dividends into account.
Senior counsel for the plaintiff then referred Mr A Turnbull to his message to Mr Pillemer in which he set out his calculation of a 5.56% internal rate of return based on the dividends passed through, the Settlement Deed payment and an additional payment of $3,000,000. Mr A Turnbull was then asked whether, having refreshed his memory by reading that message, he was able to say what the delay was that caused him to become frustrated with Mr Pillemer. Mr A Turnbull answered: "Well we couldn't even agree on the numbers. That was pretty frustrating and it seemed to be very difficult to deal with Mr Pillemer and aggressively more so over time." That answer is wholly inconsistent with the messages themselves, in which Mr A Turnbull asked Mr Pillemer to identify whether there was anything wrong with his calculations, Mr Pillemer did identify that Mr A Turnbull had failed to take into account that he (Mr Pillemer, or one of his entities) had paid tax on the dividends that had been passed through and Mr A Turnbull acknowledged that he would need to check this and "if so yeah numbers are wrong". Mr A Turnbull then prepared his revised calculation referred to at [280] above based on an additional payment of $2,866,000, which would result in a return of 5.41%. Shortly after sending Mr Pillemer that revised spreadsheet, Mr A Turnbull sent him a further message, stating that he appreciated that the payment of tax by Mr Pillemer (or his related entities) "changes whats reasonable irr wise". It was later that same afternoon that Mr A Turnbull told Mr Pillemer to "talk to LT or MT … I am utterly done". That was followed by the exchange of messages in friendly terms the following morning referred to at [279] above. I note that the dividends pass through, the payment made to Maurtray under the Settlement Deed plus the additional $2,866,000 payment proposed in Mr A Turnbull's revised spreadsheet amounted to approximately $9,773,007. Thus, at this point in the negotiations, Mr A Turnbull was in fact departing from his earlier proposal made on 22 August 2017, with which Mr Pillemer had agreed, that the additional payment should be calculated on the basis of "9 - proceeds received". [20]
It is common ground that Mr M Turnbull met with Mr Pillemer and Mr A Turnbull in mid-December 2017.
According to Mr Pillemer, he said words to the following effect to Mr A Turnbull in the presence of Mr M Turnbull at that meeting:
"Alex, you need to remember that I am willing to make a payment solely due to my relationship with Malcolm. I am under no obligation to make a payment. I had tried to persuade you to take the equity including by informing you of the upside that could eventuate in the event of a successful deal with Hunter Hall. But you said that Malcolm had told you to exit."
Mr Pillemer deposed that Mr M Turnbull then said to Mr A Turnbull in Mr Pillemer's presence:
"I did not tell you to exit."
Mr Pillemer deposed that Mr A Turnbull did not respond to his statement referred to above by denying that Mr Pillemer had told him about the Hunter Hall transaction or denying that he (Mr A Turnbull) had told Mr Pillemer that Mr M Turnbull had told him to exit.
In his affidavit sworn on 12 March 2021 and in cross-examination, Mr A Turnbull denied that Mr Pillemer made the statement referred to at [285] or that Mr M Turnbull reacted as referred to at [286] above. Mr A Turnbull deposed that:
"My recollection is that settlement between Mr Pillemer and myself was discussed and agreed to in the first 5 to 10 minutes of the conversation. For the next 30 minutes or so, Mr Pillemer discussed financial topics generally."
Mr A Turnbull does not state the substance of the agreement that he says was reached within the first ten minutes of the meeting but he did depose to having reached an agreement with Mr Pillemer on the sum of $3 million at some time during late November or early December 2017.
Mr M Turnbull's evidence about the mid-December 2017 meeting provides some corroboration for Mr Pillemer's account of it. In his affidavit sworn on 3 March 2021, Mr M Turnbull deposed that:
"During that meeting, I recall telling Mr Pillemer that I had not advised Alex to accept the cash payment in discharge of the loan as opposed to receiving a transfer of the security, being the shares in Pengana referred to in the Loan Agreement.
I said these words to Mr Pillemer to emphasise that Alex's decision to accept cash in settlement of the loan rather than a transfer of the underlying security, the shares, was a decision which Alex made without reference to me in any way."
In cross-examination, Mr M Turnbull maintained that he certainly did say those words to Mr Pillemer and acknowledged that it is likely that he did so in response to something said by Mr Pillemer suggesting that Mr Pillemer believed that he had directed or advised his son not to take the shares "but that was absolutely not the case and I was very clear about that".
Mr M Turnbull also deposed that:
"In the course of the meeting, Mr Pillemer acknowledged that Alex had received less in cash than the security under the loan was worth and did offer to pay Maurtray a sum of some $3 million as additional compensation. I listened to them both, did not express a view on the merits and encouraged Mr Pillemer and Alex to settle their dispute. At the end of the meeting Mr Pillemer said that he and Alex would proceed to do that."
It is not clear from the evidence whether the terms of the offer referred to by Mr M Turnbull are the same as the terms of the agreement that Mr A Turnbull says was reached within the first ten minutes of the meeting.
It is common ground between Mr Pillemer and Mr A Turnbull that the meeting concluded with Mr M Turnbull urging the two of them to "sort this out amicably and move on" and with them assuring him that they would do so. Mr M Turnbull's evidence is to similar effect, as referred to above.
In his affidavit sworn on 12 March 2021, Mr A Turnbull deposed that he could only recall one conversation with Mr Pillemer during December 2017 that was not amicable. He could not recall precisely when this conversation occurred, but deposed that he said to Mr Pillemer words to the following effect:
"My dad won't be in office forever, at which point you can assume I will go as hard as I like. You are delusional if you think my father and I will remain friends with you after this."
The messages between Mr A Turnbull and Mr Pillemer in January 2018 contain no hint of any such sentiment having been recently expressed, or at least continuing to linger, between them.
On 29 January 2018, Mr A Turnbull sent Mr Pillemer a message stating:
"Russ happy new year. let me know when you want to get what was agreed documented. Happy to let your guys take a crack at it…"
Mr Pillemer relied that he would speak with his lawyer about it and "have a crack".
In his affidavits sworn on 19 June 2020 and 14 September 2021, Mr Pillemer did not specifically refer to the draft deed or the messages referred to at [263]-[298] above. Mr Pillemer deposed that, during August and September 2017:
"… we discussed what would be a reasonable interest rate to provide the Turnbulls with additional upside. We reached a loose understanding that it would be appropriate to adopt an interest rate (I believe of 6% although I do not now precisely recall), calculated from the original time that T&P and PFH entered into the Loan Agreement in 2008. However, we differed on many of the other elements of a potential agreement."
In his affidavit sworn on 12 March 2021, Mr A Turnbull denied the conversations and the "loose understanding" referred to by Mr Pillemer immediately above. However, Mr Pillemer's evidence is broadly consistent with Mr A Turnbull's spreadsheets referred to above in which he calculated settlement amounts based on a rate of return of approximately 5.5%. Mr A Turnbull also deposed that: "One of the difficulties I had with Mr Pillemer was agreeing to the calculation of the additional amount to be paid by him." However, Mr A Turnbull's evidence that he could not get Mr Pillemer to agree on the additional amount is inconsistent with his evidence referred to at [289] above that they agreed upon $3 million in late November or early December 2017 and that they reached agreement at the meeting with Mr M Turnbull in mid-December 2017. I note that $3 million is the amount that Mr M Turnbull recalls from that meeting, as referred to at [292] above.
There was an exchange of messages between Mr A Turnbull and Mr Pillemer on 31 January 2018 about what information Pengana or Mr Pillemer had disclosed in the disclosure process for Mr Stuart Stuckey's litigation referred to at [220] above.
Mr A Turnbull asked: "just what has exchanged in discovery with Stuart? Do they know about Mauturay [sic] etc etc? Got called by a journo while out of the office which is never a good omen and in no hurry to follow up."
Mr Pillemer replied: "they don't have any info from me on Mautray [sic] - it has absolutely no relevance to their claim so nothing was given to them."
Mr A Turnbull pressed further: "my concern is that all our corro viz loan was on your work email, if they have searched that they probably know". Mr A Turnbull then immediately sent a further message referring, I infer, to the journalist: "will see if they piss off and drop it".
Mr A Turnbull and Mr Pillemer then exchanged further messages concerning what had or had not been disclosed to Mr Stuckey in those proceedings and speculating about what use Mr Stuckey might be able to make of such documents outside the proceedings. Mr Pillemer asked Mr A Turnbull to "keep me updated re press - and if u hear any talk about Mautray [sic] in deal". Mr A Turnbull replied: "will do. hoping i don't have to tell MT and his media team to buckle their seatbelts and assume brace position like with playup."
On 2 February 2018, Mr Pillemer sent a message to Mr A Turnbull stating that he was meeting with his lawyer on Tuesday to "get his help on the docs". Mr A Turnbull replied: "ok cool". Mr A Turnbull added (referring, I infer, to the journalist's call they had discussed in their 31 January 2018 messages): "no more random calls so hopefully all gone".
There is no evidence of any further communication between Mr A Turnbull and Mr Pillemer about the terms of the draft deed.
On 12 February 2018, Mr Pillemer sent the following message to Mr A Turnbull:
"Hi Al. We have an issue with SS. He is aware that part of the loan that I received from Pengana in the deal was used to pay back a loan that I had. He is now trying to subpoena the loan docs. My lawyers have responded that this loan has absolutely nothing to do with his case and that he is therefore not entitled to see them. What does he know about the loans?..."
Mr A Turnbull replied a few minutes later:
"He knows we had some kind of residual interest but exact nature terms etc no. But look - it is looking like you guys should settle this and seems my chances of keeping out of media are rapidly approaching zero.
mum bumped into him last year and said that I (AT) was 'not happy' with how this happened. and i wasn't and am still not happy."
In cross-examination, Mr A Turnbull said that he already knew form Mr Stuckey that he had received information concerning Maurtray's loan to PFH in the disclosure process. Mr A Turnbull said that he was lying to Mr Pillemer in the series of messages about Mr Stuckey's proceedings in order to work out whether Mr Pillemer would lie to him. However, when asked about each statement that Mr Pillemer made during those messages, Mr A Turnbull was unable to identify a statement that was untrue. When asked why he needed to lie to Mr Pillemer in order to test whether Mr Pillemer would lie to him, in circumstances where he says that he had already worked out by January 2018 that Mr Pillemer had misled him about the merger, Mr A Turnbull again reverted to saying that he did not know "for a dead certainty" that Mr Pillemer had misled him. It was put to Mr A Turnbull that he was in fact lying in claiming to have lied to Mr Pillemer in these messages. Mr A Turnbull denied that.
Mr A Turnbull did say in cross-examination that the one part of his January and February 2018 messages with Mr Pillemer that was true was that he would prefer not to have tell his father and his media team that Maurtray's involvement with Pengana had been disclosed. Mr A Turnbull said that disclosure and the ensuing media attention "would be annoying for a few days".
As I have referred to earlier in these reasons at [227], Maurtray's solicitors sent a letter of demand to PPL, PFH and Mr Pillemer on 21 February 2018.
In his affidavit sworn on 19 June 2020, Mr Pillemer suggested (at least implicitly) that the timing of Maurtray's letter of demand, and the making of allegations for the first time of breach of contractual disclosure obligations and misleading or deceptive conduct, was connected to Mr Stuckey issuing the subpoena for the Loan Agreement documentation in his proceedings.
According to Mr A Turnbull, he caused the letter to be sent because settlement negotiations had broken down, Mr Pillemer was not responsive to his communications and he had the impression that Mr Pillemer was not taking the process seriously. Although Mr A Turnbull's 12 March 2021 affidavit referred to numerous communications with Mr Pillemer during December 2017 and January 2018, he did not identify any specific communications that he made in January 2018 to which Mr Pillemer had not responded as at 21 February 2018. There appear to have been no communications between them during January 2018 prior to Mr A Turnbull's 29 January 2018 message referred to at [296] above. After Mr Pillemer indicated that he and his lawyer would endeavour to document what had been agreed, he and Mr A Turnbull appear to have become distracted about issues relating to disclosure in Mr Stuckey's proceedings. As referred to at [302]-[305] above, there is simply no evidence of any communications between Mr A Turnbull and Mr Pillemer after 2 February 2018 about the terms of the draft deed. The documentary evidence reveals no suggestion that either party was seeking to resile from the $3 million payment that Mr A Turnbull says they had agreed by mid-December 2017.
On 24 August 2018, Mr M Turnbull ceased to hold the office of prime minister of Australia.
On 31 August 2018, Mr M Turnbull ceased to be a member of the House of Representatives.
Mr A Turnbull then contacted Mr Pillemer advising that he had drafted preliminary proceedings in light of Mr M Turnbull leaving political office.
Mr A Turnbull's cross-examination concluded on the following note:
"Q. … the honest truth is, [Mr A Turnbull], that you were having a severe attack of buyer's remorse in relation to the deal you did recorded in the deed of settlement, that's what's going on, isn't it?
A. No, because [the] proviso was I would have to be fully informed at the time.
Q. Mr Pillemer not only told you that he thought there was a possibility he could pull off a merger with Hunter Hall, he invited you, indeed went close to begging you to stay in the company, didn't he?
A. He invited me to stay in the company, he did not provide any of the specific materials that I would need to make that kind of decision or tell me about any potential transaction.
Q. And the reason you chose not to was simply because you didn't want any of this to damage your father and become public?
A. Absolutely not, it was long held private investment and people in a similar position made the same decision.
Q. It was what you called the PM tax?
A. No.
Q. And the reason you didn't in any way, shape or form, complain until your solicitors wrote that letter in February is because even though by at least May you were fully aware of the timeline, you still didn't believe he'd done anything wrong to you, did you?
A. Well, it took me a while to put together all the pieces."
Maurtray contends that each of the above matters was information received or accessible by PPL and/or PFH on the basis that Mr Pillemer had actual knowledge of each of those matters and his knowledge is imputed or attributed to each of PPL and PFH because he was the sole director and shareholder of each of PPL and PFH and, further or alternatively, Mr Pillemer was under a duty to disclose or communicate those matters to PPL and PFH. In oral closing submissions, senior counsel for Maurtray confirmed that its claims in contract are advanced on the basis that the undisclosed matters were documents and information that were accessible to PPL and PFH because they were received by Mr Pillemer in his capacity as the CEO of Pengana and that Mr Pillemer's knowledge acquired in that capacity is attributed to PPL and PFH because he was also the sole director of PPL and PFH. [33]
It follows, according to Maurtray, that clause 19(a) of the Loan Agreement required PPL and/or PFH inform Maurtray of each of the matters referred to above within five business days of each of those matters.
Further or alternatively, Maurtray contends that the requests for information that Mr A Turnbull claims to have made on 4 January 2017 [34] and 23 February 2017 ("Is there something you're not telling me?") [35] were reasonable requests made by Maurtray to PPL and PFH for information with respect to the Shares or Pengana, within the meaning of clause 19(b) of the Loan Agreement.
Maurtray contends that PPL and/or PFH breached clauses 19(a) and (b) of the Loan Agreement by failing to inform Maurtray of any of the matters referred to at [319] above. It is convenient to refer to those matters as the undisclosed matters.
Further or alternatively, Maurtray contends that if PPL, PFH and Mr Pillemer made the disclosures that Mr Pillemer claims to have made on 4 January 2017, [36] in the period after mid-January 2017 [37] and 23 February 2017 [38] (which Maurtray denies), then those disclosures were in breach of clause 19 of the Loan Agreement because they failed to disclose or fully disclose the undisclosed matters, the increasingly realistic prospect of a merger during January and February 2017, and the likelihood by 15 February 2017 that the proposed merger would proceed with the resulting benefits for Pengana shareholders that they would receive shares in a listed entity that would be liquid and could be realised on-market.
Further or alternatively, Maurtray contends that PPL, PFH and Mr Pillemer engaged in misleading or deceptive conduct by silence in failing to inform Maurtray of the undisclosed matters in circumstances where (on Maurtray's case) they were contractually obliged to do so.
Further or alternatively, Maurtray contends that if PPL, PFH and Mr Pillemer made the disclosures that Mr Pillemer claims to have made in early January 2017, [43] in the period after mid-January 2017 [44] and 23 February 2017 [45] (which Maurtray denies), then those disclosures were misleading or deceptive because they failed to disclose or fully disclose the undisclosed matters, the increasingly realistic prospect of a merger during January and February 2017, and the likelihood by 15 February 2017 that the proposed merger would proceed with the resulting benefits for Pengana shareholders that they would receive shares in a listed entity that would be liquid and could be realised on‑market.
If Mr Pillemer is found not to have engaged in misleading or deceptive conduct in contravention of s 18 of the Australian Consumer Law, Maurtray contends that he was knowingly involved in the alleged misleading or deceptive conduct of PPL and PFH within the meaning of s 236(1) of the Australian Consumer Law.
Of course, the requirement for the Court to feel actual persuasion applies to all disputed facts and not merely to disputed conversations: Warner v Hung, in the matter of Bellpac Pty Ltd (recs and mgrs aptd) (in liq) (No.2). [54]
There is no issue concerning the credibility of the evidence of Mr M Turnbull. As Maurtray submitted, the substance of his evidence was not challenged in cross-examination. The defendants' submitted that Mr M Turnbull was an honest witness who made reasonable concessions and appropriately acknowledged the limitations of his memory given the passage of time since relevant events.
I have considered all of the parties' detailed submissions in relation to the credibility of Mr A Turnbull and Mr Pillemer. The submissions, and particularly Maurtray's submissions concerning Mr Pillemer, had an unrealistic tendency to seize on each and every misstep in cross-examination as a critical blow to the credibility of the witness, even if it was a mere failure of memory that the witness later acknowledged. After considering all of the submissions and considering the evidence of each witness as a whole, I formed the following views about the reliability and credibility of each witness.
Mr A Turnbull's recollection of relevant events was shown to be unreliable in several respects.
As the defendants submitted and as referred to at [48]-[50] above, Mr A Turnbull gave an account of the financial transactions associated with the assignment of the Loan to Maurtray that was later revealed to be fundamentally wrong. Maurtray had no business other than as the lender under the Loan Agreement. Mr A Turnbull was a director of Maurtray and was solely responsible for its day-to-day management at all times relevant to these proceedings. Yet when he swore his affidavits in 2020, Mr A Turnbull wrongly recalled that Maurtray had borrowed $6 million from TPPL to acquire the Loan in November 2015, and even claimed to recall the terms of a loan between Maurtray and TPPL which did not in fact exist. That casts serious doubt on the reliability of his recollection of the events and conversations that occurred shortly after those transactions and which are the subject of these proceedings.
As referred to at [63]-[67] above, Mr A Turnbull gave evidence in his affidavit sworn on 15 May 2020 about his state of mind concerning the value of Pengana at the time of the conversation that he says he had with Mr Pillemer on 18 November 2016. He relied on his state of mind as supporting his evidence about one statement that he claims to have made to Mr Pillemer during that conversation. However, it is plain from Mr A Turnbull's evidence in his affidavit sworn on 20 July 2020 that his evidence about his state of mind in his earlier affidavit was entirely reconstructed on the basis of a version of a spreadsheet that did not exist until some time after 2 May 2017. After acknowledging this, Mr A Turnbull then revised downwards by approximately $30 million to $60 million his claimed view about the value of Pengana as at 18 November 2016 and attributed that revised state of mind to "market comparable levels", making no mention of any spreadsheet in his 20 July 2020 affidavit. He then expressly relied on that entirely different state of mind as the basis for his account of the conversation. This casts further serious doubt on the reliability of Mr A Turnbull's recollection of the events and conversations that are the subject of these proceedings. Those doubts are compounded by the fact that, in cross-examination, Mr A Turnbull appeared to lean back in the direction of reliance on his own spreadsheets (albeit earlier versions of them) as the basis for his account of the 18 November 2016 conversation that he claims to recall.
As the defendants submitted, Mr A Turnbull refused to accept in cross-examination that, when he swore his first affidavit, his recollection of his view about the value of Pengana as at 18 November 2016 was wrong. Mr A Turnbull sought to explain it away as a mere "drafting error", blaming his lawyers. I accept the defendants' submission that this refusal to take responsibility for his own sworn evidence in which he gave an account of his state of mind about the value of Pengana as at 18 November 2016, accompanied by an explanation of the basis for that state of mind, demonstrates an unwillingness to acknowledge the objective truth. The objective truth is that his recollection of his state of mind was wrong when he swore his first affidavit. Mr A Turnbull's unwillingness to acknowledge that reflects poorly on his credit.
Mr A Turnbull gave inconsistent evidence about several important matters, including:
1. his inconsistent evidence about his understanding of WHSP's investment track record, which forms part of the basis on which he says that he inferred in December 2016 that there was no prospect of WHSP taking steps to list Pengana in the foreseeable future; [55]
2. his denial in his 20 July 2020 affidavit that Mr Pillemer urged him to "stay in this deal", which is inconsistent with his ready acknowledgment in cross-examination that Mr Pillemer was keen to keep him in Pengana and repeatedly told him during their discussions that he wanted him to stay in Pengana; [56]
3. the inconsistency between his evidence in his 15 May 2020 and 20 July 2020 affidavits that he had engaged in discussions with Mr Pillemer from 19 May 2017 "seeking to resolve my complaints" and his evidence in his 12 March 2021 affidavit that he had not alleged or complained in those discussions that Mr Pillemer had misled him or done anything wrong; [57]
4. his inconsistent explanations concerning the meaning of his own words in his own messages to Mr Pillemer in the period after 19 May 2017 in which he (Mr A Turnbull) expressly referred to disclosure concerns, "the opportunity costs of being PM", an inability to take delivery of the shares "without likely blowing up the deal for you and in some capacity MT" and to the outcome of Mr Pillemer and his related entities enjoying all of the upside of the merger between Pengana and Hunter Hall as "a big PM tax to pay"; [58]
5. his inconsistent evidence about his state of mind during the period after 19 May 2017 concerning the defendants' earlier conduct. On the one hand, Mr A Turnbull gave evidence that he was "[q]uite sure" by 2 June 2017 that "something was seriously off" and that he believed with a high degree of certainty by 5 June 2017 that Mr Pillemer had misled him. On the other hand, Mr A Turnbull gave evidence that he had "no idea what was happening and when and what Russel knew and when" until he commenced discovery in these proceedings; [59] and
6. his evidence that he was frustrated by his inability to extract an agreement from Mr Pillemer about the amount of an additional payment to Maurtray in late 2017, which is inconsistent with his evidence that he and Mr Pillemer did agree on an additional payment of $3 million. [60]
In addition to giving inconsistent evidence about whether his discussions with Mr Pillemer in the period after 19 May 2017 were an attempt to resolve "my complaints", Mr A Turnbull was persistently non-responsive in cross‑examination about whether he had given false evidence concerning the subject matter of those discussions in his first affidavit. [61] That aspect of his evidence was false because it wrongly conveyed that he had been engaged in discussions with Mr Pillemer from 19 May 2017 in which he had sought to resolve his "complaints" that are now the subject of Maurtray's claims in these proceedings. As the defendants submitted, Mr A Turnbull's persistent refusal to give responsive answers to questions about the falsity of his earlier evidence is a further instance of him seeking to avoid or refusing to acknowledge the objective truth where he perceived that it would be unhelpful to Maurtray's case to do so.
In the course of seeking to avoid that objective truth that he had given false evidence of discussions seeking to resolve his complaints during the period from 19 May to 2 June 2017, Mr A Turnbull proffered that "I think we had some telephone conversations, but I don't recall them in great detail". That evidence is set out at [245] above. Mr A Turnbull later conceded that he in fact had no recollection of having any telephone conversations with Mr Pillemer in which he sought to resolve any complaints that he had. As the cross-examiner put to him, the suggestion that such telephone conversations had occurred was a lie. That reflects very poorly on Mr A Turnbull's credit.
As referred to at [446] below, Mr A Turnbull also lied in his attempt to explain away other communications with Mr Pillemer in January and February 2018 in which he (Mr A Turnbull) expressed significant concerns about any disclosure of the Loan.
The demonstrated unreliability of Mr A Turnbull's recollection about important matters, his unwillingness to acknowledge matters of objective truth when it did not suit him to do so (including introducing a lie to try and avoid or obscure the objective truth as referred to above) and the many inconsistencies within his evidence underscore the importance of assessing each contentious aspect of his evidence against any undisputed surrounding facts, any relevant contemporaneous or near contemporaneous documents and the inherent probabilities and improbabilities.
The assessment referred to immediately above must be undertaken bearing in mind that Maurtray bears the onus of proof in relation to the critical conversations identified at [325]-[326] above on which it relies in support of its cause of action for alleged misleading or deceptive conduct. Maurtray submitted that, in order for it to succeed, it is only necessary for Mr A Turnbull to be believed on his evidence that he would have caused Maurtray to assume ownership of the Shares if it had been informed of the merger negotiations prior to 15 February 2017. As the defendants submitted, that is wrong.
Mr Pillemer frequently stammered or stuttered while answering questions under cross-examination. Contrary to Maurtray's submissions, I do not regard this as a basis for drawing any conclusions about his credibility generally or of the truthfulness of any particular answers that he gave in cross-examination. There is no evidence that Mr Pillemer suffers from a stutter, as the defendants' submissions assumed. Even assuming that he does not, I did not observe anything that would warrant attributing the stutter or stammer to anything other than nervousness or stress under cross-examination. The pressure that accompanies any robust cross‑examination in a hard-fought case is capable of affecting the presentation of witnesses in a variety of ways. Neither a high level of confidence nor a display of nerves are reliable indicators of whether a witness is telling the truth.
I do not accept Maurtray's general submission that it was a "feature" of Mr Pillemer's evidence that he claimed in cross-examination to recall conversations not mentioned in his affidavits. Maurtray identified only two examples of this.
The first example relates to Mr Pillemer's evidence given in cross-examination of a conversation that he says he had with Mr A Turnbull in about June 2016. I have referred to this evidence at [55]-[56] above and, for the reasons there explained, I do not consider that Mr Pillemer's failure to mention that conversation in his affidavit indicates that his claimed recollection of it in cross-examination was false. On the contrary, I have accepted Mr Pillemer's evidence of that conversation for the reasons explained at [382] below.
The second example relates to Mr Pillemer's evidence in cross-examination to the effect that during conversations on or shortly after 14 December 2016, Mr A Turnbull said to Mr Pillemer words to the effect that he was "not wanting potential disclosure problems". Those words were not included in Mr Pillemer's account of the relevant conversations in his affidavit. However, I consider this to be an instance of Mr Pillemer being confused or having an imperfect recollection of precisely what was said about disclosure and when, in circumstances where Mr Pillemer's evidence was to the effect that Mr A Turnbull had endorsed Mr Pillemer's plan to maintain confidentiality (saying that it "sounds like a good plan") and Mr A Turnbull's own messages to Mr Pillemer subsequently refer to the undesirability of disclosure. That is to say, it was a mistake rather than a lie. The mistake casts some doubt on the reliability of Mr Pillemer's recollection of conversations, but not on his truthfulness.
Maurtray's submissions in relation to Mr Pillemer's credibility relied on the discrepancy between his evidence in his 19 June 2020 affidavit that he negotiated with WHSP in December 2016 for his loan to be divided into two tranches, with the first tranche funding Mr Pillemer refinancing the Maurtray loan, and the contemporaneous documents which show that the WHSP loan was not split in precisely this way until February 2017. Whilst the December 2016 documents did provide for two tranches, the first tranche included but was not limited to funding for the refinance of the Maurtray loan. After being taken to those documents, Mr Pillemer readily acknowledged in cross-examination that his recollection of the time at which the first tranche became limited solely to paying out Maurtray was incorrect when he swore his affidavit. Again, this was a mistake as to timing, and not a lie. It casts some doubt on the reliability of Mr Pillemer's recollection of events, but does not support Maurtray's general submission that Mr Pillemer should not be regarded as a witness of truth.
I reject Maurtray's submission that Mr Pillemer's credibility is undermined by his acceptance in cross-examination that he has a very unreliable recollection of conversations that occurred 14 years ago. [62] As the defendants submitted, that was a reasonable concession and, it seems to me, an honest answer. The critical conversations in these proceedings occurred more recently, albeit still several years before the final hearing. Difficulties of recollection, without more, go to reliability rather than credibility.
To the extent that Maurtray submitted that Mr Pillemer's credibility was damaged by his acceptance in cross-examination that he did not inform Mr A Turnbull about the undisclosed matters, I reject that submission. Mr Pillemer had already accepted that in his second affidavit, as referred to at [183] above. Contrary to Maurtray's submissions, the allegations of non‑disclosure had not been denied on the pleadings. Rather, the defendants had denied Maurtray's rolled up allegations that PPL and PFH were obliged by clause 19 of the Loan Agreement to inform Maurtray about the undisclosed matters and that the non-disclosure constituted a breach of clause 19. [63]
Maurtray submitted that Mr Pillemer's failure to mention the 10 February 2017 meeting in his 19 June 2020 affidavit, and his failure to include details of the matters agreed at that meeting in his 14 September 2021 affidavit, is a further matter that reflects poorly on Mr Pillemer's credibility. I reject that submission for three reasons.
First, as the defendants submitted, it was not put to Mr Pillemer in cross-examination that he sought to conceal the 10 February 2017 meeting by not referring to it in his first affidavit. Unchallenged aspects of Mr Pillemer's evidence indicate that he is unlikely to have attached special significance to the meeting before it was specifically pleaded by Maurtray. As referred to at [165] above, the meeting occurred at a time when WHSP's offer for Hunter Hall was lower than Pinnacle's offer and Hunter Hall were exploring strategic alternatives as it had announced to the ASX that day. According to Mr Pillemer's 14 September 2021 affidavit and his evidence in cross‑examination, the meeting concerned the manner in which the investment teams of Pengana and Hunter Hall would be combined if the two entities were merged and this kind of meeting was standard industry practice in the funds management industry where parties are involved in a competitive bidding process. As referred to at [184] above, Mr A Turnbull characterises the 10 February 2017 meeting as significant because it indicated to him that, if the merger proceeded, the merged entity would be likely to retain the services of Hunter Hall's Lead Portfolio Manager. There is no evidence that the Lead Portfolio Manager was involved in Hunter Hall's decision making concerning the competitive bidding process, the potential merger and the exploration of other strategic alternatives.
Second, Mr Pillemer's 11 February 2017 email describing the matters agreed at the meeting was expressly pleaded by Maurtray. The defendants admitted that Mr Pillemer sent that email describing the meeting that had occurred the previous day. I do not consider that Mr Pillemer's general description of the meeting without repeating all of the details in the email that had been admitted on the pleadings reflects one way or the other on his credibility.
Third, for the same reasons, I do not accept Maurtray's submission in reply that the Court should infer that Mr Pillemer and those advising him feared to adduce evidence about the 10 February 2017 meeting in his first affidavit and feared to adduce evidence of the detail of that meeting in his second affidavit, and made a forensic choice not to do so, because it would expose facts unfavourable to the defendants. Those details were recorded in Mr Pillemer's contemporaneous description of the meeting that was contained in his 11 February 2017 email that he admitted sending. Contrary to Maurtray's submissions, I regard Mr Pillemer's acknowledgements in cross-examination that he did not mention the 10 February 2017 meeting in his first affidavit and that he "could have said more" about the meeting in his second affidavit as frank statements of objective facts rather than concessions that "exposed this fear". I consider those objective facts to be benign for the reasons already explained above.
However, Mr Pillemer's credibility was somewhat damaged by his evidence concerning the "Merger Model" spreadsheet referred to at [150]-[156] above. Mr Pillemer accepted (as had been admitted in the defendants' Commercial List Response) that he had modified the spreadsheet on 31 January 2017 with the result that the model valued Pengana at $252 million as part of a merged entity with Hunter Hall. At the same time, Mr Pillemer denied that this was a view that he held as at 31 January 2017 about the value of Pengana in a merged entity. He explained that denial on the basis that he would have required additional information to form a view about the value of Pengana in a merged entity, including most importantly the exchange ratio. He denied that the purpose of the "Merger Model" was to value Pengana within the merged entity so as to negotiate the exchange ratio, but then (inconsistently) characterised the subject matter of the "Merger Model" as the exchange ratio for Pengana shares in the potential merger. It appeared to me that these inconsistencies arose from Mr Pillemer's attempts in cross-examination to downplay the significance of the "Merger Model" against the possibility that Maurtray's construction of clause 19 of the Loan Agreement may be accepted. That does reflect poorly on his credibility, as I have said. However, I do not accept Maurtray's submission that the inconsistencies arise from a determination on the part of Mr Pillemer to disagree with anything put to him by the cross-examiner. There were many occasions during Mr Pillemer's cross-examination when he did agree with propositions put to him, including some occasions on which it was contrary to his interests to do so.
Maurtray's submissions also sought to make much of Mr Pillemer's evidence referred to at [202] above that the "Merger Model" was not a document. However, as the defendants submitted, Mr Pillemer appeared to be drawing a distinction between a spreadsheet that is a "live model" and can be manipulated and changed rather than a document with fixed content. Whilst that distinction is not reflected in the very wide definition of "document" in the Evidence Act 1995 (NSW), it was a reasonable distinction for a witness to make as the defendants submitted. I do not consider that Mr Pillemer damaged his credibility by drawing the distinction. In any event, the spreadsheet/document debate between Mr Pillemer and senior counsel for Maurtray arose during cross-examination that was directed to extracting concessions from Mr Pillemer to the effect that the spreadsheet was a document to which clause 19 of the Loan Agreement (as construed by Maurtray) applied. As the defendants submitted, Mr Pillemer's subjective views about that are not relevant.
As referred to at [196]-[200] above, Mr Pillemer gave inconsistent evidence about whether he believed that he owed obligations of confidentiality, and to whom, in relation to the undisclosed matters in late 2016 and early 2017. Contrary to the defendants' submissions, the distinction referred to at [198] between early January 2017 and later in January 2017 insofar as confidentiality obligations to Hunter Hall are concerned is not capable of explaining all of the inconsistencies between his evidence referred to at [199] and [200] above. Those inconsistencies raise questions about his credibility, but Mr Pillemer's subjective views about his confidentiality obligations are not otherwise relevant to any issue to be determined in these proceedings.
Mr Pillemer's evidence referred to at [369] and [371] above, together with the need to exercise caution in relation to evidence based on his recollection of conversations that occurred several years ago, leads me to the same conclusion that I reached in relation to Mr A Turnbull's evidence. That is to say, those matters underscore the importance of assessing each contentious aspect of Mr Pillemer's evidence against any undisputed surrounding facts, any relevant contemporaneous or near contemporaneous documents and the inherent probabilities and improbabilities. I reject Maurtray's more strident general submissions that Mr Pillemer's evidence should not be accepted unless it is against the defendants' interest or corroborated by a contemporaneous document and that Mr A Turnbull's evidence should be preferred to Mr Pillemer's evidence in each instance of dispute.
Each party's submissions about the credibility of each witness's evidence concerning the disputed critical conversations are addressed below where my findings concerning those conversations are set out.
Moreover, I find that Mr Pillemer and Mr A Turnbull had a conversation to the effect that Mr Pillemer described in cross-examination as referred to at [55] above following which Mr A Turnbull, due to disclosure concerns, abandoned the notion of "converting into equity" as a strategy to encourage a Liquidity Event to enable Maurtray to "sell out". Mr Pillemer's evidence of the conversation is consistent with two objective facts. First, the provisions of the Shareholders' Agreement did present complications for Mr A Turnbull's "convert into equity" plan, as Mr Pillemer says he explained to him. Second, consistently with Mr Pillemer's evidence, there is no documentary evidence and no evidence from Mr A Turnbull suggesting that he raised the "convert into equity" plan on any subsequent occasion after 1 June 2016. That, together with the inherent improbability that Mr A Turnbull would have let his email of 1 June 2016 languish without some substantive response from Mr Pillemer, renders it likely that they did have a conversation to the effect recounted by Mr Pillemer in cross-examination. Contrary to Maurtray's submissions, Mr A Turnbull's email sent to Mr Pillemer on 26 December 2016 is not a recurrence of the "convert into equity" plan that he proposed on 1 June 2016. In his 26 December 2016 email, Mr A Turnbull was asking a specific question in a different context, as explained at [411] below.
In any event, for the reasons addressed at [434]-[446] below, Mr A Turnbull's own statements in his documented communications with Mr Pillemer in the period from 19 May 2017 about his reasons for not causing Maurtray to take a transfer of the Shares provide more cogent evidence than the 1 June 2016 email of what he would have done in the theoretical counterfactual scenarios.
For the reasons already explained at [350]-[351] above, I reject Maurtray's submissions that the change in Mr A Turnbull's evidence concerning his state of mind about the value of Pengana at the time of the alleged conversation on 18 November 2016 was a mere error that was corrected by the later iterations of his evidence.
For those reasons, I am not persuaded on the balance of probabilities that the conversation, during which Mr A Turnbull claims Mr Pillemer told him that "the NAB is opposed to a public listing so there is no chance of that happening", occurred.
Even if I had reached the opposite conclusion, I would not have been persuaded that Mr A Turnbull relied on the alleged statement referred to immediately above as meaning that there was no prospect of Pengana being listed on the ASX in the foreseeable future after NAB's shares in the company were sold to the incoming strategic buyer. As Mr A Turnbull himself acknowledged in cross-examination, once NAB sold its shares "I'd have to work out what the next buyer or controlling shareholder of the company planned". [66] As the defendants submitted, it is inherently implausible that Mr A Turnbull would have relied on the statement in the manner that he now claims without asking Mr Pillemer whether he was able to share any information concerning the incoming purchaser and their likely intentions, noting that Mr Pillemer had not yet told him the identity of the incoming purchaser.
I reject Maurtray's submission that this implausibility "simply does not exist". Whilst earlier questions put by the cross-examination were based on the incorrect premise that the identity of the incoming buyer was known to Mr A Turnbull at the time of the alleged conversation, [67] the witness himself had corrected that premise [68] before acknowledging that the prospects of a future IPO for Pengana would depend on the intentions of the (unidentified) incoming controlling shareholder. [69]
Maurtray's submissions emphasised that Mr Pillemer does not offer a competing account of the 18 November 2016 conversation. That is inaccurate. As I have already mentioned, Mr Pillemer gives an account of an entirely different conversation that happened at about this time and Mr A Turnbull substantially agrees with that account. Mr Pillemer's denial that the further alleged conversation occurred at all does not lend weight or cogency to Mr A Turnbull's evidence about it, which I have rejected for the reasons explained above. Maurtray bears the onus of proving its allegation that PPL, PFH and Mr Pillemer represented on 18 November 2016 that there was no prospect of Pengana having a public listing of its shares because NAB was opposed to a listing, and that this representation continued during the period up to 14 December 2016. [70] For the reasons explained above, Maurtray has failed to discharge that onus.
Fourth, I prefer Mr Pillemer's account of the conversation at the 14 December 2016 breakfast meeting, with which Mr A Turnbull substantially agreed in cross-examination. [76]
The next relevant matter in dispute is whether Mr A Turnbull said words to the effect, referred to above at [77]: "… it seems I have little choice and the shares will have to be tendered along with everyone else's. How should we do this, should the shares be transferred to me and I will tender them to Soul Patts?" and the conversation ended with Mr Pillemer replying: "No".
For the following two reasons, I reject Mr A Turnbull's evidence that he made a statement to that effect.
First, the alleged statement follows on from Mr A Turnbull's account of the earlier part of the conversation, which I have rejected for the reasons above.
Second, as the defendants submitted, it is improbable that the conversation ended in the abrupt and inconclusive manner described in Mr A Turnbull's evidence. Such an ending to the conversation would have been inconclusive, given that it was then obvious for commercial reasons that PFH would not pay the Repayment Amount. As Mr A Turnbull acknowledged in cross-examination, the only remaining option under the Loan Agreement was for PFH to transfer the Shares to Maurtray. [77] It is therefore most improbable that Mr Pillemer categorically rejected that option ("No") and the matter was simply left there at the end of the meeting. I prefer Mr Pillemer's evidence that there was a discussion during the breakfast meeting and over the course of the following days about the best way for Maurtray to receive a payment from the transaction. [78]
Mr Pillemer's evidence of the substance of those discussions is extracted at [90] above. In summary, Mr Pillemer's evidence is that he explained to Mr A Turnbull that PFH would need to comply with the provisions of the Shareholders' Agreement if the Shares were to be transferred to Maurtray and that this would result in the other Pengana shareholders becoming aware of Maurtray's involvement which might then be "leaked" to the public. Mr Pillemer proposed that he would seek WHSP's permission to use some of the funds that WHSP was lending him to invest in Pengana for the purpose of paying out Maurtray, and that he would request WHSP to provide bridging finance so that this would occur before completion of the NAB/WHSP deal "so that we can completely avoid any disclosure problems". Mr Pillemer deposed that Mr A Turnbull responded positively to that proposal.
Mr A Turnbull denied Mr Pillemer's account of those discussions, as referred to at [92] above.
I accept Mr Pillemer's evidence for the following reasons.
First, it is clear from the tone and substance of the documented communications between Mr Pillemer and Mr A Turnbull in the period after May 2017 that the desirability of avoiding disclosure of Maurtray's involvement in Pengana had been a theme running through their previous discussions. Mr Pillemer's evidence of the discussions during and following the breakfast meeting on 14 December 2016 is consistent with that theme. I refer in particular to Mr A Turnbull's WhatsApp message of 5 June 2017 explaining that he had not accepted a transfer of the Shares because "AFR would have been onto who Maurtray is within 10 minutes" [79] and to the references to avoiding public disclosure in the messages between Mr Pillemer and Mr A Turnbull on 6 June 2017 concerning a potential structure for Mr Pillemer to "get additional value to you". [80] For reasons that are explained below, [81] Mr A Turnbull's evidence attempting to explain away the language used in those messages is not credible and is rejected.
Second, Mr Pillemer's account of the issues that he raised in those discussions is consistent with the provisions of the Shareholders' Agreement.
Third, Mr Pillemer's evidence is consistent with the objective fact that there is no evidence of any reason to depart from the position under the Shareholders' Agreement which provided for the transfer of the Shares to Maurtray, other than a desire on the part of Mr A Turnbull and Maurtray to avoid public disclosure of Maurtray's involvement in Pengana. As I have said earlier in these reasons, Mr Pillemer was not successfully challenged on his evidence that he and his companies derived no economic advantage from the solution that he proposed to Mr A Turnbull. [82] To the extent that Maurtray contended that the economic advantage was for Mr Pillemer to keep for himself and his controlled entities any upside of the potential merger at the expense of Maurtray, I reject that contention. It is highly implausible that Mr Pillemer would have been so motivated, knowing all the while how Maurtray and Mr A Turnbull would be likely to respond when his alleged deception was discovered as it would inevitably be if the proposed merger went ahead. When Mr A Turnbull expressed the view on 5 June 2017 that Maurtray had not "come out that well from this", without a hint of any complaint or accusation that the defendants had failed to disclose relevant information, [83] Mr Pillemer was immediately willing to make an additional payment to Maurtray and negotiations about the amount and structure of the payment followed. In my view, that response by Mr Pillemer is wholly inconsistent with Maurtray's contention that he was motivated to profit from the potential merger at Maurtray's expense.
Fourth, Mr A Turnbull's email sent to Mr Pillemer on 26 December 2016 asking whether (and when) the Shares would be "surrendered" to Maurtray or "are we going to get refinanced out by Soul Patts" [84] is consistent with Mr Pillemer's evidence that he discussed the WHSP bridging finance proposal with Mr A Turnbull prior to the email, during or shortly after the 14 December 2016 breakfast meeting. That email is inconsistent with Mr A Turnbull's evidence that Mr Pillemer did not mention any loan from WHSP until January or February 2017. [85]
Contrary to Maurtray's submissions, the 26 December 2016 email does not indicate that Mr A Turnbull was unconcerned about disclosure of Maurtray's involvement with Pengana if Maurtray were to take a transfer of the Shares. Mr A Turnbull sent that email in circumstances where it was obvious for commercial reasons that PFH would not pay the Repayment Amount, [86] the only other options were for Maurtray to take a transfer of the Shares or (potentially) for Mr Pillemer to draw on his loan from WHSP to "finance out" Maurtray and where Mr Pillemer had raised the WHSP finance option with Mr A Turnbull during their discussions referred to above [87] but had not yet reverted back to him about it. Understood in that context, the 26 December 2016 email simply asks the question: will the shares be tendered to Maurtray (and, if so, when) or will Mr Pillemer use the WHSP loan facility to pay Maurtray out?
I accept Mr Pillemer's evidence that he telephoned Mr A Turnbull shortly after receiving the 26 December 2016 email and informed him that WHSP had agreed to "refinance you out". [88] Mr A Turnbull agreed that this conversation occurred, but said that it occurred in January or February 2017. [89] It is inherently improbable that Mr A Turnbull waited until some time in January or February 2017 for a response to his email questioning the process by which Maurtray would "sell out" of Pengana, which he had been keen to do since November 2015. Mr Pillemer's evidence that the conversation occurred shortly after the 26 December 2016 email is consistent with the documentary evidence that the WHSP loan was structured in two tranches from December 2016, with the first tranche including funding to pay out Maurtray. [90]
In summary, for all of the reasons explained at [393]-[412] above, I find that Mr A Turnbull and Mr Pillemer had a conversation at the 14 December 2016 breakfast meeting in which Mr Pillemer urged Mr A Turnbull to "stay in this deal" and Mr A Turnbull replied that Maurtray had "no interest in continuing to be involved with Pengana" and that "[w]e want to cash out of this deal", as referred to at [88] above. I further find that Mr Pillemer did not say to Mr A Turnbull during that breakfast meeting that: "I don't know what Soul Patts are going to do or whether they have plans to list or pursue a regular dividend policy. Your money is as good as dead with the company." I further find that there were discussions between Mr Pillemer and Mr A Turnbull at the breakfast meeting and in the days following the breakfast meeting about the best way for Maurtray to "cash out", including a discussion to the effect referred to at [90] above in which Mr Pillemer proposed that, in order to maintain confidentiality, he would seek WHSP's agreement for him to use part of his loan from WHSP to pay Maurtray out. I find that Mr A Turnbull reacted positively to that proposal and followed Mr Pillemer up about it in his 26 December 2016 email. I find that Mr Pillemer and Mr A Turnbull had a conversation to the effect referred to at [101] above shortly after Mr Pillemer received the 26 December 2016 email. That is to say, Mr Pillemer told Mr A Turnbull on or shortly after 26 December 2016 that WHSP had agreed "to refinance you out" and that Mr Pillemer would work on arranging the refinancing documents after the holidays.
Second, given that WHSP had publicly announced that it would move to acquire the whole of Hunter Hall and given the possibility of a reverse merger that Mr A Turnbull says that he identified as soon as he became aware of WHSP's announcement, and having regard to Mr A Turnbull's claimed interest in the possibility of a reverse merger or IPO, it is highly implausible that he limited his inquiries about that possibility to the few questions that he claims to have asked Mr Pillemer in his version of the conversation on 4 January 2017 and took matters no further after Mr Pillemer told him (according to Mr A Turnbull): "I have no idea. I can't tell you anything" and that it was "above [Mr Pillemer's] paygrade". [92]
Third, Mr Pillemer's account of the conversation referred to at [114], insofar as he recalls that Mr A Turnbull was quick to identify that a merger between Pengana and Hunter Hall would be a logical outcome of WHSP's acquisition of Hunter Hall, is consistent with Mr A Turnbull's own evidence referred to at [108] that he identified the possibility of a reverse merger between the two companies when he became aware of WHSP's announcement.
Fourth, Mr Pillemer's account of the conversation, in which he discussedWHSP's transaction that had been publicly announced and the resulting potential opportunity to merge Pengana and Hunter Hall, and told Mr A Turnbull that "you guys should really consider staying in Pengana", is consistent with the undisputed fact that Mr Pillemer did want Maurtray and the Turnbull family to continue their involvement with Pengana. [93] That undisputed fact is irreconcilable with Mr A Turnbull's claim that Mr Pillemer lied to him during this conversation by saying that WHSP's acquisition of a stake in Hunter Hall had "nothing to do with" the Pengana transaction and that he was not aware of even a "possibility of an IPO involving the Pengana shares".
For completeness, I acknowledge the defendants' submission that Mr Pillemer's version of the conversation is consistent with Mr A Turnbull's subsequent message to Mr Pillemer on 19 May 2017 which simply read: "congrats saw the deal closed". [94] I accept that the message is consistent only with the potential merger having been the subject of discussion between them prior to 19 May 2017, as Mr A Turnbull himself agreed in the context of denying having said the same words to Mr Pillemer in a telephone conversation on 9 March 2017. [95] However, as Maurtray submitted, the message does not support a finding about the precise timing of those discussions.
For those reasons, I find that Mr Pillemer and Mr A Turnbull had a conversation on or about 4 January 2017 to the effect set out in Mr Pillemer's evidence referred to at [114] above.
I have found for the reasons explained above that Mr Pillemer and Mr A Turnbull had agreed by shortly after the 26 December 2016 email that Mr Pillemer would draw down on the WHSP loan facility to pay Maurtray out. It follows that Mr A Turnbull's evidence that he told Mr Pillemer in a conversation between 4 and 10 January 2017 that Maurtray would take delivery of the Shares and tender them to WHSP in the tag along process is highly implausible. I therefore reject Mr A Turnbull's evidence referred to at [116] concerning the further conversation that he says he had with Mr Pillemer during the period between 4 and 10 January 2017. Contrary to Maurtray's submissions, Mr Pillemer's momentary confusion during cross-examination about this conversation [96] is not a reason to accept Mr A Turnbull's evidence of the conversation. Mr Pillemer's confusion does not render Mr A Turnbull's evidence plausible, much less persuasive.
Fifth, Mr A Turnbull's evidence attempting to explain the terms of his later messages to Mr Pillemer included several lies, as referred to below. The resulting damage to Mr A Turnbull's credibility, and the demonstrated unreliability of his recollection of other matters that are relevant to these proceedings, are further reasons why I reject Mr A Turnbull's evidence of the 23 February 2017 conversation and prefer the evidence of Mr Pillemer.
For those reasons, I find that Mr Pillemer and Mr A Turnbull had a conversation on 23 February 2017 to the effect set out at [208] above.
As referred to in the detailed summary of evidence, Mr A Turnbull sought to explain away the inconsistencies by:
1. proffering interpretations of his own words in the messages that, if accepted, would reduce the inconsistencies referred to above;
2. saying that he had some level of uncertainty when he sent those messages about what had happened and whether he thought he had been misled and that he was therefore giving Mr Pillemer the benefit of the doubt; and
3. saying that he wished to avoid making accusations against Mr Pillemer if possible because he did not want to litigate and thought that any accusations would adversely affect the negotiations because Mr Pillemer has "a very fragile ego" and "[h]e wouldn't take it well if I was wrong".
Given Mr A Turnbull's false evidence about the subject matter of these communications in his first affidavit, and his willingness to lie about the communications in cross-examination where he thought that would assist Maurtray, [103] I was reluctant to accept his self-serving evidence seeking to rationalise the communications in a manner consistent with Maurtray's claims in these proceedings unless it was inherently plausible or consistent with other undisputed or reliable evidence . I have ultimately rejected his evidence for the following reasons.
First, as referred to at [352] above, Mr A Turnbull's evidence set out at [246]-[250] and [265]-[268] above about what he now says he meant by the words in his messages is not credible because it is both inconsistent with the ordinary and natural meaning of those words and internally inconsistent.
Second, as referred to at [352] above, Mr A Turnbull's evidence about his claimed uncertainty when he sent the messages is inconsistent with Maurtray's position communicated to the defendants by its solicitors, on Mr A Turnbull's instructions, in strident terms on 21 February 2018. It will be recalled that Maurtray's position was that it was "clear" from the timeline of the events that PPL, PFH and Mr Pillemer "must have had cogent knowledge of the proposed Hunter Hall Transaction" in the period leading up to the execution of the Settlement Deed on 15 February 2017.
Mr A Turnbull's claimed uncertainty is also inconsistent with his own evidence in cross-examination that he believed with a high degree of certainty from at least 5 June 2017 that Mr Pillemer had misled him. Mr A Turnbull was taken through the communications chronologically and asked about his state of mind at the time of each communication. Mr A Turnbull's repeated downgrading of the level of certainty that he had earlier described, when confronted with later messages in which he had made no complaint to Mr Pillemer and had made statements that cannot be reconciled with his evidence in these proceedings, was plainly self-interested and wholly unconvincing. In particular, in attempting during cross-examination to rationalise his 5 June 2017 statement that he "would have loved to have taken the shares but given that AFR would have been onto who Maurtray is within 10 minutes …", Mr A Turnbull said that he "had no idea what was happening and when and what Russel knew and when until I had commenced discovery". [104] That statement is not only inconsistent with his evidence given a short time earlier that he believed with a high degree of certainty by 5 June 2017 that he had been misled, and with Maurtray's solicitor's letter of 21 February 2018. It is also inconsistent with Mr A Turnbull's evidence referred to at [82] above to the effect that he believed that, if WHSP was planning any IPO or similar action, Mr Pillemer would know about it.
Third, Mr A Turnbull's claimed desire to avoid making accusations against Mr Pillemer is not a rational or plausible explanation for making the statements referred to at [436] above if those statements did not reflect the true reason why Mr A Turnbull did not cause Maurtray to take a transfer of the Shares in repayment of the Loan. It simply was not necessary to make those statements in order to avoid accusing Mr Pillemer of any wrongdoing. Contrary to Maurtray's submissions, it is irrelevant that Mr A Turnbull's sentiments expressed in those messages may not have aligned with Mr M Turnbull's views as at February 2017. Mr M Turnbull was not challenged about his evidence that the decision to accept the payment under the Settlement Deed rather than taking the Shares had been made by Mr A Turnbull "without reference to me in any way". [105]
For the same reason, I reject Maurtray's submission that Mr A Turnbull's statements referred to at [436] above were part of a clever negotiating strategy on his part. If the statements were not true (as Mr A Turnbull now claims) it would have been a most imprudent strategy to make them to Mr Pillemer, thereby arming him to deploy them against Maurtray in the litigation that Mr A Turnbull claims to have been contemplating but hoping to avoid at the time of the communications. It is highly implausible that Mr A Turnbull, with his commercial experience, would have adopted such an imprudent negotiating strategy.
For all of those reasons, I find that Mr A Turnbull had significant concerns about disclosure of Maurtray's involvement in Pengana at all times relevant to these proceedings, as expressed in his messages sent to Mr Pillemer during the period 5 June 2017 to 23 August 2017. As I have found at [413] above, [106] the genesis of the Settlement Deed was the discussion between Mr Pillemer and Mr A Turnbull in December 2016 about Mr Pillemer drawing on the WHSP loan facility to pay Maurtray out so as to avoid Maurtray's involvement becoming known to other Pengana shareholders and potentially becoming public knowledge. I reject Mr A Turnbull's evidence in these proceedings in which he sought to discard or downplay his confidentiality concerns in a self-serving way as "mild" or "secondary" concerns.
Indeed, Mr A Turnbull's messages to Mr Pillemer in January and February 2018 concerning the disclosure process in Mr Stuckey's litigation reveal that Mr A Turnbull was concerned about disclosure of the Loan Agreement to former Pengana shareholders even after the Loan had been discharged. [107] I reject Mr A Turnbull's evidence that he was lying to Mr Pillemer about his concerns in these messages in order to test whether Mr Pillemer would lie to him. That evidence is irreconcilable with the degree of certainty that Mr A Turnbull claims to have had well before January 2018 in his belief that Mr Pillemer had misled him. As the defendants submitted, on Mr A Turnbull's evidence, there was no need for him to be testing Mr Pillemer by January 2018. I find that Mr A Turnbull lied about these messages in an effort to reconcile them with his position in these proceedings that he had only a "mild concern" about disclosure of Maurtray's involvement in Pengana.
Maurtray submitted that the narrower construction of clause 19 for which the defendants contend would result in the clause operating in a way that is commercially implausible. That is because, it was submitted, clause 19 is "directed towards … ensuring that Maurtray had complete visibility in respect of any information which bore upon the value of the Shares and the composition, profitability or performance of Pengana". It was further submitted that: "The information received or accessible by Mr Pillemer is the very focus of the clause because, as the Chief Executive Officer of Pengana, he is best placed to either receive or have access to such information. To exclude such information from the operation of the clause would defeat its obvious commercial purpose."
As referred to at [320] above, Maurtray squarely put its claims in contract on the basis that the undisclosed matters were documents and information that were accessible to PPL and PFH because they were received or acquired by Mr Pillemer in his capacity as the CEO of Pengana and Mr Pillemer was also the sole director of PPL and PFH. [108]
The defendants submitted that the construction of clause 19 propounded by Maurtray would require every piece of information received by Mr Pillemer as CEO of Pengana to be provided to Maurtray on a continuous, "minute by minute" rolling basis within five business days after Mr Pillemer received it. It was submitted that this would be a nonsensical and uncommercial result because it would be "administratively impossible" and would require Mr Pillemer as CEO of Pengana to disclose information that was the subject of confidentiality obligations or the disclosure of which was precluded by the prohibition on insider trading. It was submitted the parties would have been aware at the time of the Second Variation (which inserted clause 19 into the Loan Agreement) of the likelihood that Mr Pillemer as CEO of Pengana would receive documents and information in respect of which he was bound by obligations of confidence and of the possibility that he may receive documents or information that he would be unable to disclose without breaching insider trading laws. The defendants submitted that the parties cannot be taken to have intended that clause 19 would apply to require PPL and PFH to give such documents or information to Maurtray.
The defendants submitted that, properly construed, clause 19 of the Loan Agreement does not apply to confidential information received by Mr Pillemer in his capacity as Chief Executive Officer of Pengana that was not otherwise available to all Pengana shareholders or the disclosure of which would involve Mr Pillemer breaching insider trading laws.
The defendants submitted that the text of clause 19 supports this construction for three reasons.
First, the defendants submitted the Borrower is the only party required to disclose documents or information under clause 19. Although Mr Pillemer was a party to the Second Variation by which the Loan Agreement was varied to include clause 19, the clause does not apply to him personally and the Borrower's obligations under the Loan Agreement that are guaranteed by Mr Pillemer do not include the Borrower's performance of clause 19. It was submitted that the choice made by the parties to limit the disclosure obligation under clause 19 to the Borrower (a company or companies controlled by Mr Pillemer) and not to extend that obligation to him personally reveals that their objective intention was to limit the obligation under clause 19 to information received or accessible by the Borrower. The defendants acknowledged that Mr Pillemer is the controlling mind of the Borrower but submitted that it does not follow that everything known to Mr Pillemer is information that is "received or accessible by" the Borrower.
Second, relying on the ejusdem generis maxim, the defendants submitted that, in the phrase "shareholders correspondence or other document or information" in clause 19, the word "shareholder" colours and limits the other types of documents and information that follows it (namely "shareholder documents" and "shareholder information") with the result that clause 19 only requires disclosure of documents or information received or accessible by the Borrower, and not all documents and information received by Mr Pillemer in his capacity as CEO and director of Pengana.
Third, the defendants submitted that the reference in clause 19(b) of the Loan Agreement to information "of which the Borrower is or ought to be aware" should not be construed as extending to information of which Mr Pillemer as CEO of Pengana is aware. The defendants submitted that it was wrong conceptually for Maurtray to seek to read clause 19(b) in this way by relying on general principles of attribution of knowledge to corporations in other contexts. Clause 19 does not apply to information merely because it might be attributed to PPL or PFH at law for other purposes on the basis that Mr Pillemer, the controlling mind of those companies, knows the information by reason of his position as Chief Executive Officer of Pengana. The defendants submitted that, to reason otherwise, would be to ignore the significance of the fact that the parties imposed the disclosure obligation on the Borrower and not on Mr Pillemer personally.
The defendants also identified two contextual matters which they submitted supports their construction of clause 19 of the Loan Agreement.
First, the defendants submitted that, at the time that the Second Variation introduced clause 19 into the Loan Agreement, and all contracting parties were sophisticated and well versed in the world of finance who must be taken to have known that Mr Pillemer would from time to time be subject to confidentiality obligations as part of his employment as the Chief Executive Officer of Pengana. It was submitted that "[i]t is hard to fathom how either in terms of context, or the words in fact used in clause 19, that an objective reasonable bystander would consider the obligation to then extend to information received by [Mr Pillemer] in his capacity as CEO that was confidential. Yet that is the effect of Maurtray's competing construction."
Second, the defendants submitted that the Second Variation amended the Loan Agreement by introducing clause 19 at the same time as introducing the requirements for the Borrower to pass on to Maurtray dividends received on the Shares. It was submitted that "a reasonable person would view the disclosure obligations as introduced to facilitate fulfilment of that arrangement and that arrangement alone". It was further submitted that there is no basis for any suggestion that the object of clause 19 was to allow Maurtray to make decisions about what to do in response to a Liquidity Event. The defendants emphasised that the Loan Agreement did not confer any such choice on Maurtray. There was therefore no commercial reason identified in the words of the Loan Agreement or the context of clause 19 for Maurtray to be given documents or information received or accessible by the Borrower other than to permit Maurtray to monitor the dividend payments made by Pengana.
In their written closing submissions, the defendants submitted that Maurtray's construction of clause 19 offends the presumption of legality because it would require disclosure of information concerning the status of Pengana's merger negotiations with a publicly listed company and such information is confidential and "inside information" within the meaning of the Corporations Act 2001 (Cth). However, in their oral closing submissions, the defendants placed greater emphasis on the possibility of Mr Pillemer as CEO of Pengana receiving "inside information" from time to time as a surrounding circumstance that must have been known to the parties at the time they entered into the Second Variation which introduced clause 19 into the Loan Agreement: see [453] above. As Maurtray submitted, the events that occurred in relation to Hunter Hall from the end of 2016 could not have been known to the parties as at 1 June 2015 when they executed the Second Variation.
In reply, Maurtray submitted that the defendants' construction of clause 19 "is defeated by two very simple propositions".
First, it was submitted that the limitations on disclosure under clause 19 suggested by the defendants represent a re-writing of the clause to accommodate Mr Pillemer's actions and the resulting breach of clause 19 by PPL and PFH. It was submitted that the language on which the defendants' case depends simply does not appear in clause 19 of the Loan Agreement, which is a commercial instrument between sophisticated commercial entities. Referring to McGrath v Stueresteps, [109] it was submitted on behalf of Maurtray that the Court is not permitted to depart from the ordinary meaning of the words used by the parties merely because it regards the result as inconvenient or unjust. It was further submitted that:
"The fact the obligation placed on PPL and PFH by clause 19 may conflict with some other obligation which Mr Pillemer may have assumed personally is no basis to read down clause 19. Such a problem was of Mr Pillemer's own making and for him to manage."
In oral closing submissions, senior counsel for Maurtray went further and submitted that:
"If there were inconsistent obligations, they were matters for Mr Pillemer to manage, in the case for example of confidential information of Pengana Holdings obtaining the consent of the Board of Pengana Holdings to Mr Pillemer complying with his contractual obligation in cl19, but even if Mr Pillemer can't successfully manage any inconsistent obligations owed to other parties, that doesn't affect the construction of cl 19 and he will simply be in breach of cl 19 if he prefers to comply with those other obligations rather than complying with his contractual promise."
Second, it was submitted on behalf of Maurtray that the defendants' construction of clause 19 overlooks that PPL was not, and had never been, a shareholder in Pengana at the time clause 19 was inserted into the Loan Agreement. If the obligation under clause 19 was confined to shareholders in Pengana and the information provided to them in that capacity, as the defendants contend, there would be no sensible explanation as to why PPL was also made subject to that obligation as it would receive no "shareholder correspondence" and would have nothing to disclose. It was submitted that such a construction would be commercially absurd.
It was submitted that there is a sensible explanation if Maurtray's construction of clause 19 is preferred, namely that the parties can reasonably be assumed to have understood at the time of the Second Variation that Mr Pillemer would be the repository of information on which clause 19 would operate and the obligation was therefore extended to both the borrower (PPL) and the shareholder (PFH) because Mr Pillemer was the controlling mind of both entities.
It was further submitted on behalf of Maurtray that Mr Pillemer's many roles, including as Chief Executive Officer of Pengana, may be taken to have been known to the parties at the time of the Second Variation. The fact that the parties did not "exempt Mr Pillemer from the disclosure obligations under clause 19" in respect of documents or information received by him in his capacity as Chief Executive Officer of Pengana "is telling in respect of the intended reach of the clause". It was submitted that "the suggestion that clause 19 did not operate on the knowledge of Mr Pillemer is plainly wrong - he was the sole director of PPL and PFH" and "his knowledge must be attributed to them".
Maurtray objected to the defendants relying on their submissions concerning inside information in circumstances where their Commercial List Response had not identified this as a matter affecting the construction of clause 19.
Without prejudice to that objection, it was submitted on behalf of Maurtray that the construction of clause 19 for which it contends would not offend the presumption of legality because the disclosure of the undisclosed matters concerning the potential merger of Pengana and Hunter Hall would not have offended s 1043A(2) of the Corporations Act unless PPL or PFH knew or ought reasonably to have known that Maurtray would, or would be likely to, deal in the publicly listed Hunter Hall shares. It was submitted that there was no evidence of Maurtray having any intention to trade in Hunter Hall shares at the time that it contends the disclosures should have been made under clause 19. That is a submission which is directed to the application of clause 19, if construed as the defendants contend, to the circumstances of this case.
Relevantly to the proper construction of clause 19 and as I have already noted at [462] above, Maurtray submitted that the events that occurred in relation to Hunter Hall from the end of 2016 had no bearing on the construction of clause 19 because those events could not have been known to or contemplated by the parties as at 1 June 2015 when they executed the Second Variation.
However, it was not submitted that the parties could not have known or contemplated the possibility that Mr Pillemer as CEO of Pengana may from time to time receive documents or information that may relate to the matters in clause 19(1)(a), the disclosure of which to the Lender may breach insider trading laws.
In response to Maurtray's submissions at [464]-[465] above, the defendants submitted in oral closing submissions that the term "the Borrower" has different meanings in different clauses of the Loan Agreement (as varied by the First Variation and by the Second Variation pursuant to which PPL remained a Borrower and PFH acceded to the Loan Agreement and took on the obligations of a Borrower). The defendants submitted that the meaning of "the Borrower" in any particular clause is informed by context. The defendants submitted that, in clause 19, "the Borrower" means PFH only because clause 19 imposes obligations on "the Borrower" to provide specific information of a kind that is highly likely to be received or be accessible by a shareholder, such as annual financial reports and shareholder correspondence. It was submitted that the words "accessible by the Borrower" connote some form of legal right to access the document or information.
Alternatively, the defendants submitted that "the Borrower" in clause 19 includes PPL and PFH and, on that construction, clause 19 applies to any "shareholder information" that PPL might receive. In oral closing submissions in reply, Maurtray embraced the construction of "the Borrower" in clause 19 as including PPL and PFH (not only PPL, as some of Maurtray's earlier submissions had assumed).
As to the meaning of "accessible", senior counsel for Maurtray submitted in oral closing submissions in reply that: [T331.34-331.46]
"The word 'accessible' was the subject of a submission by my learned friend to the effect that that only means a claim of legal right. That, in our submission, is a very artificial construction when one is considering information which is in the hands of the sole director of two entities that are the alter ego of that sole director. One simply doesn't talk about the enforcement of strict legal rights between a director and his alter ego. A more realistic and sensible construction, as well as a grammatically correct construction of accessible simply means able to be accessed, which is not purely a legal question, it's also a factual question. Was it able to be accessed? Well, yes it was able to be accessed by PPL and PFH because these are documents and information which are in the hands of their sole director, so there's absolutely no problem about access. In fact, the documents and information and knowledge from them is attributed to the companies."
In oral closing submissions in reply, senior counsel for Maurtray also addressed the defendants' submission referred to at [453] above that Maurtray's construction of clause 19 would produce the absurd and uncommercial outcome of requiring every piece of information received by Mr Pillemer as CEO of Pengana to be provided to Maurtray on a continuous, "minute by minute" rolling basis within five business days after Mr Pillemer received it. Senior counsel for Maurtray acknowledged that its construction of clause 19 would require any forecast, budget or management report for Pengana that might come into Mr Pillemer's hands as CEO to be given to the Lender on the grounds that it may relate to the profitability or performance of Pengana. Referring to McGrath v Sturesteps, supra, senior counsel submitted that if that has unjust or inconvenient outcomes then:
"… that is of no concern to the Court. That is the promise that was made. And the ordinary language of cl 19 has that effect. But if one - my learned friend put a very extreme proposition which is that there'd have to be a minute by minute disclosure of almost everything that comes into Mr Pillemer's hands. The clause probably doesn't go that far, but in any event provided that the salient material is disclosed by PPL and PFH then there wouldn't be any causative impact of any breach in not disclosing the far more granular or detailed information. So, to use your Honour's example of a budget or forecast, the underlying documents which went into the preparation of that budget or forecast wouldn't have to be produced, and even if one read the clause in a very literal way to catch those underlying documents, there couldn't be any causative impact of not disclosing the really granular material provided that the salient material had been disclosed."
By way of further illustration, Leeming JA referred [116] to the following statement of Bathurst CJ (with whom Macfarlan JA and Sackville AJA agreed) in McGrath v Sturesteps which was emphasised in Maurtray's submissions: [117]
"[17] … Whilst it is correct in my opinion that context and the surrounding circumstances known to both parties can be taken into account (see Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 at 350, 352) even in cases where there is an absence of apparent ambiguity (Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; (2004) 219 CLR 165 at [40]; International Air Transport Association v Ansett Australia Holdings Ltd [2008] HCA 3; (2008) 234 CLR 151 at [8]; Park v Brothers [2005] HCA 73; (2005) 80 ALJR 317 at [39]; Franklins Pty Ltd v Metcash Trading Ltd [2009] NSWCA 407; (2009) 76 NSWLR 603 at [14], [63], [305]) that does not permit the Court to depart from the ordinary meaning of the words used by the parties merely because it regards the result as inconvenient or unjust: Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99 at 109."
Leeming JA concluded (with the agreement of Gleeson and White JJA) that: "The ultimate question is whether the written language of the contract, when considered in light of legitimately relevant surrounding circumstances, permits a constructional choice to be made between two different legal meanings." [118] Considering relevant surrounding circumstances for the purpose of determining whether such a constructional choice is available is consistent with Mason J's "true rule" in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales [119] because "to state that a legal text is 'clear' does no more than recognise that 'there is nothing in the context which detracts from the ordinary literal meaning" and "[i]t therefore becomes clear that the notion that it may first be necessary to consider context when construing a contract is not inconsistent with Mason J's true rule". [120]
The analysis in Cherry v Steele-Park and the other authorities referred to above was principally concerned with the contextual relevance of the surrounding circumstances known to both parties in the construction of commercial contracts. It is uncontroversial that the language of the clause or part of a commercial contract that falls to be construed must be considered in the context of the surrounding words and the contract as a whole. The ejusdem generis maxim on which the defendants' submissions relied is essentially an application of the need to have regard to the context provided by surrounding words. [121]
At the time that TPPL, PPL, PFH and Mr Pillemer entered into the Second Variation by which clause 19 was introduced into the Loan Agreement, Mr Pillemer was the sole director and shareholder of PPL and PFH. [122] There is no dispute that Mr Pillemer was the directing mind and will of PPL and PFH. Maurtray's submissions were premised on this having been known to TPPL at the time, and I proceed on that basis.
Mr Pillemer was also the CEO of Pengana. [123] Again Maurtray's submissions were premised on this having been known to TPPL at the time of the Second Variation and I proceed on that basis. As referred to in Maurtray's submissions and in the Shareholders' Agreement, Mr Pillemer was one of several directors. There is no evidence that Mr Pillemer was the directing mind and will of Pengana at the time of the Second Variation. The available evidence suggests that this is most unlikely to have been the case. Pursuant to the Shareholders' Agreement dated 30 April 2008, NAB was entitled to appoint two directors (for so long as it held 25% or more of the ordinary shares in Pengana) and the "Non-NAB Shareholders" were entitled by majority vote amongst themselves to appoint two directors. As referred to earlier in these reasons, NAB acquired a substantial shareholding in Pengana in 2008 and was the largest shareholder by mid-2016. The Shareholders' Agreement provided that the management of Pengana was vested in the board of directors and not in any one or more of the directors. The board was responsible for appointing and determining the terms of the appointment of the CEO. In exercising any powers delegated to the CEO by the board, the CEO was required to comply with any regulations imposed by the Board.
It must have been obvious to TPPL, PPL, PFH and Mr Pillemer at the time they entered into the Second Variation that Mr Pillemer would have owed obligations of confidence to Pengana in respect of at least some of the information that he would obtain in the course of performing his role as CEO of Pengana relating to (inter alia) the profitability or performance of Pengana. Indeed, both parties' submissions assumed that such obligations existed and were known to all parties when they entered into the Second Variation.
TPPL, PPL, PFH and Mr Pillemer must be taken to have been familiar with the terms of the Loan Agreement as varied by the First Variation and therefore to have known that, as a result of the Second Variation, the 42,840 Pengana shares owned by PFH were the only shares to which the Loan Agreement would apply. They must also be taken to have known that:
1. the occurrence of a Liquidity Event (as defined) would oblige PPL and PFH (both whom were now "the Borrower") to repay the Loan five business days after that event either by paying the Repayment Amount or by PPL procuring PFH to transfer and PFH transferring the Shares to the Lender;
2. under clause 4(b)(i) and (ii) of the Loan Agreement, it was for PPL and PFH (as "the Borrower") to make the election between payment and transfer of the Shares;
3. alternatively, the obligations of PPL and PFH (as "the Borrower") would be discharged under clause 4(b)(iii) of the Loan Agreement if all of the shares in Pengana were sold to an unrelated third party on genuine arm's length terms and all of the sale proceeds received by PFH in that transaction (less reasonable transaction costs, etc) were paid to the Lender; and
4. in the meantime, whilst the Loan remained on foot, clause 5 of the Loan Agreement (as amended by the Second Variation) required that the "Net Dividends" (as defined) received by PFH in respect of the Shares be paid to the Lender as a prepayment, which would be deducted from the outstanding principal amount of the Loan.
The matters referred to at [487] above reveal that the commercial purpose of clause 19 was to entitle the Lender to be on the same information footing as PPL and PFH in relation to the value of the Shares, the sale or potential sale of any of the Shares or the composition, profitability or performance of the Company. That protected the Lender's legitimate commercial interests, including by:
1. ensuring that the Lender would be aware if and when a Liquidity Event occurred, enabling the Lender to take any necessary steps to enforce its right to repayment in accordance with clause 4(b)(i) or (ii) (at the Borrower's election);
2. ensuring that, in the event that the Loan were repaid by transfer of the Shares, the Lender would have the information required to ascertain whether the Shares were free of encumbrances, etc, as required by clause 4(b)(ii) and to thereby determine whether the transfer had in fact discharged the Borrower's obligation to pay the Repayment Amount;
3. alternatively, if the Borrower took steps to repay the Loan following the sale of all of the shares in Pengana to a third party, ensuring that the Lender would have the same information that was available to PFH and PPL to assess whether the sale to that third party had been on genuine arm's length terms, and to thereby determine whether the Borrower's payment of the sale proceeds to the Lender had discharged the Borrower's obligation to repay the Repayment Amount; and
4. enabling the Lender to monitor the Borrower's compliance with its obligations under clause 5 of the Loan Agreement (as amended by the Second Variation) to pay Net Dividends to the Lender whilst the Loan remained on foot.
For those reasons, I reject the defendants' submission that the commercial purpose or object of clause 19 was solely to facilitate the Lender's monitoring of the Borrower's compliance with its obligations to pay Net Dividends to the Lender. However, I also reject Maurtray's submission that the object of clause 19 was ensure that the Lender had "complete visibility in respect of any information which bore upon the value of the Shares and the composition, profitability or performance of Pengana", including any documents or information received by or available to Mr Pillemer in his capacity as CEO of Pengana. As I have said, the object of the clause was to entitle the Lender to be on the same information footing as PPL and PFH. Contrary to Maurtray's submissions, information and knowledge that Mr Pillemer obtained or developed in the course of his role as CEO of Pengana is not attributable to PPL and PFH. I will return to that issue below.
I also reject the defendants' submission that "Borrower" in clause 19 means only PFH. As a matter of language, the term "Borrower" includes both PPL and PFH by reason of clause 9.1 of the Second Variation which is set out at [20] above. It is clear from clause 9.1(c) of the Second Variation, which provides that PFH becomes "a Borrower", that there are two Borrowers from the date of the Second Variation. The disclosure obligations under clause 19 of the Loan Agreement are likely to apply to each Borrower in different ways in relation to particular documents or information. For example, it is likely that some documents to which clause 19 applies will be received by PFH as a shareholder of Pengana but will not be received by PPL. In those instances, clause 19 applies to require PFH to give the relevant document to the Lender. However, the object of clause 19 as referred to above would also be served by the Lender being given any documents to which clause 19 applies that are received or accessible by PPL. By way of example, clause 19 would apply to any valuation of the Shares or valuation of Pengana obtained by PPL for the purpose of considering whether PPL's repayment obligations as a Borrower under clause 4 of the Loan Agreement would be discharged by PFH paying to the Lender the proceeds of a potential sale of the Shares to an unrelated third party. For the reasons explained below, clause 19 is not limited to documents or information that was received by or available to all Pengana shareholders.
For those reasons, a reasonable businessperson in the parties' position at the time they executed the Second Variation would have understood "Borrower" in clause 19 of the Loan Agreement to mean PPL and PFH. That aligns with Maurtray's construction of the word "Borrower" as including PPL and PFH, but I do not accept the propositions advanced by Maurtray in support of that construction that the parties must be taken to have understood at the time they executed the Second Variation that Mr Pillemer personally (including in his capacity as CEO of Pengana) would be a repository of the information to which clause 19 would apply and that both PPL and PPH were included in clause 19 because Mr Pillemer was the controlling mind of both entities. I will return to those and other related propositions advanced by Maurtray below.
I reject the defendants' submission that the word "shareholder" in the phrase "any shareholder correspondence or other document or information" in clause 19 colours and limits the types of "other document or information" that the Borrower is required to give to the Lender. The language and grammatical structure of the clause supports Maurtray's submission that "shareholder correspondence" is but one of the categories to which clause 19 applies. The word "other" signifies that the "documents and information" referred to immediately after that word are documents and information the receipt or accessibility of which is not dependent upon the Borrower being a shareholder in Pengana. To put it a different way, there is not one "genus" but two: shareholder and other. The ejusdem generis maxim therefore does not apply.
Having regard to the language and grammatical structure of clause 19, the matters known to all parties when the Second Variation was executed and what those matters reveal about the object of clause 19, a reasonable businessperson would not have understood clause 19 as requiring the Borrower to give to the Lender only correspondence, documents or information received or accessible by the Borrower by reason of being a shareholder in Pengana. Nor would the reasonable businessperson have understood the Borrower's obligation under clause 19 as being limited to giving the Lender correspondence, documents or information that had been issued to or was accessible by all Pengana shareholders.
However, I reject Maurtray's submissions to the effect that the words "received or accessible by the Borrower" should be construed as obliging the Borrower to give to the Lender all documents or information available to Mr Pillemer in his capacity as CEO of Pengana that may relate in any way to the value of the Shares, the sale or potential sale of the Shares or the composition, profitability or performance of the Company. Those submissions are based on the incorrect premise that information and knowledge obtained by Mr Pillemer in his capacity as CEO of Pengana are attributed to PPL and PFH merely because Mr Pillemer is the controlling mind of PPL and PFH, and that such information and knowledge is therefore "received or accessible by" PPL and PFH, within the meaning of clause 19, immediately upon being received or acquired by Mr Pillemer in his capacity as CEO of Pengana.
As stated at [485] above, Mr Pillemer was one of several directors of Pengana but there is no evidence that he was the controlling director. It is therefore my opinion that the evidence does not establish Maurtray's premise that information and knowledge acquired by Mr Pillemer in the course of acting as CEO of Pengana is imputed or attributed to PPL or PFH merely because Mr Pillemer was the sole director of those companies. There is no evidence that Mr Pillemer had a duty to Pengana to disclose to PPL and PFH information and knowledge that he acquired in the course of acting as CEO of Pengana relating to the composition, profitability or performance of the Company or otherwise relating to the value of the Shares or any sale or potential sale of the Shares. Maurtray did not identify any other circumstance (that is, other than Mr Pillemer's directorship of Pengana, PPL and PFH) relied on in support of its contention that information and knowledge acquired by Mr Pillemer as CEO of Pengana was to be attributed to PPL and PFH.
For those reasons, information and knowledge that Mr Pillemer acquired as CEO of Pengana was not "received or accessible by the Borrower" within the meaning of clause 19(a) and was not information "of which the Borrower is or ought to be aware" within the meaning of clause 19(b) of the Loan Agreement. [124]
That conclusion disposes of Maurtray's submissions that relied on the absence of words in clause 19 expressly exempting the Borrower from giving the Lender information acquired by Mr Pillemer in the course of acting as CEO of Pengana. No such exemption or exclusionary words were necessary because that information was outside the scope of clause 19, properly construed.
If and to the extent that Maurtray submitted that clause 19 applied to information acquired by Mr Pillemer as CEO of Pengana that was not attributed to PPL or PFH but which PPL or PFH could potentially extract from Mr Pillemer as a matter of fact, [125] I reject that construction of clause 19 for two reasons.
First, as I have already noted, all parties to the Second Variation must be taken to have known that Mr Pillemer would have obligations of confidence to Pengana in respect of at least some of the information that he would obtain in the course of performing his role as CEO relating to (inter alia) the profitability or performance of Pengana. In addition, s 183 of the Corporations Act precluded Mr Pillemer from using such information to gain an advantage for someone else. In my opinion, a reasonable businessperson would not have understood clause 19 of the Loan Agreement to require the Borrower to extract from Mr Pillemer and pass on to the Lender information that they had no entitlement to access, particularly given the risk that this may constitute a contravention of s 183 of the Corporations Act and the risk that the Borrower and the Lender (by relying on or enforcing an asserted contractual right to the information) would be involved in any such contravention within the meaning of s 79 of the Corporations Act. Such a construction of clause 19 would not merely be inconvenient or unjust to Mr Pillemer as Maurtray submitted. It would involve attributing to the Borrower and the Lender an intention to take risks that would be commercially absurd because they are extraneous to the object of clause 19 referred to at [488] above. I do not find it relevant to extend the analysis further by considering the potential application of insider trading laws on the construction of clause 19 referred to at [498] above.
Second, because clause 19(a) applies to documents or information received or accessible by the Borrower in respect of the Shares or Pengana "which may in any way relate to … the composition, profitability or performance of the Company", the construction referred to at [498] above would catch a vast array of information arriving at the CEO's desk or inbox on a daily basis and would have the absurd consequences identified in the defendants' submissions referred to at [462] above. In an attempt to downplay or obscure the absurdity, senior counsel for Maurtray resorted in oral closing submissions to formulating some sub-categories of information that would not in reality need to be disclosed even though they would fall within the scope of clause 19 if construed in the manner referred to at [498] above. Those submissions, which are referred to at [476] above, merely serve to illustrate the absurdity of that construction.
For all of those reasons, clause 19(a) of the Loan Agreement did not require PPL and PFH to give Maurtray information acquired by Mr Pillemer as CEO of Pengana that may relate to the value of the Shares, the sale or potential sale of the Shares or the composition, profitability or performance of the Company. Clause 19(b) of the Loan Agreement did not require PPL and PFH to give Maurtray on request information acquired by Mr Pillemer as CEO of Pengana with respect to the Shares or Pengana. Contrary to Maurtray's submission, that construction of clause 19 is not "commercially implausible" but is entirely consistent with the object of the clause referred to at [488] above.
As referred to at [327] above, Maurtray relies on clause 19 of the Loan Agreement as giving rise to an obligation or reasonable expectation of disclosure and rendering the non-disclosure of the undisclosed matters misleading or deceptive. The claim fails because clause 19, properly construed, did not oblige PPL or PFH to disclose the undisclosed matters, which were not received or accessible by PPL and PFH for the reasons explained above. A further reason why the claim fails as against Mr Pillemer is that he was not "the Borrower" and therefore had no disclosure obligations under clause 19 of the Loan Agreement.
In closing submissions, Maurtray contended that it had a reasonable expectation that the defendants would disclose the undisclosed matters not only because they were obliged to do so by clause 19 of the Loan Agreement (on Maurtray's construction of that clause), but also because the defendants knew or ought reasonably to have known that:
1. Maurtray was considering its position in terms of the best return available from the repayment of the Loan;
2. in making that decision, Maurtray was reliant on what Mr A Turnbull was told by the defendants; and
3. the status and progress of the merger negotiations were relevant to such a decision as they related to whether the Shares would remain an illiquid investment in the event that Maurtray accepted a transfer of the Shares in repayment of the Loan.
The first two propositions are not established by the evidence. As I have found at [413] above, Maurtray was considering in December 2016 how best to "cash out" through the liquidity event triggered by NAB's sale of its Pengana shares to WHSP whilst keeping Maurtray's involvement with Pengana confidential. In that context, Mr A Turnbull embraced Mr Pillemer's suggestion that he seek the agreement of WHSP to use part of the WHSP loan facility to pay Maurtray out. From 4 January 2017, Mr A Turnbull was aware of WHSP's public announcement concerning its acquisition of a stake in Hunter Hall, its intention to seek to acquire the remaining shares in Hunter Hall and the bidding war between Pengana and Pinnacle for Hunter Hall. Mr A Turnbull was also aware of the possibility of a reverse merger, which he had identified himself and which I have found Mr Pillemer mentioned in their conversations on 4 January and 23 February 2017. [129]
As to the third proposition, I consider that Maurtray overstates the relevance of the merger negotiations, with the benefit of hindsight and erroneously assuming that the proposed merger was likely to proceed, [130] at the same time as ignoring the confidentiality concerns that I have found were significant concerns for Mr A Turnbull and Maurtray at the time. More importantly, as the defendants submitted, Maurtray had no reasonable expectation that the merger negotiations between WHSP and/or Pengana and Hunter Hall would be disclosed to Maurtray. That is because clause 19 of the Loan Agreement, properly construed, did not require such disclosure and, on any view, the status and progress of the negotiations were confidential to Hunter Hall and WHSP (both ASX listed companies) and also to Pengana. Mr Pillemer's knowledge of those negotiations was knowledge that he obtained in his capacity as CEO of Pengana and was not knowledge of PPL or PFH as explained at [494]-[496] above. Mr Pillemer was neither obliged nor at liberty to disclose that confidential information to Maurtray. The matters that I have found Mr Pillemer did discuss with Mr A Turnbull were WHSP's acquisition of the 19.9% stake in Hunter Hall and its bids to acquire the whole of Hunter Hall, which were public knowledge, together with Mr Pillemer's own views about the benefits of a merger in circumstances where the possibility of a merger was obvious to both him and to Mr A Turnbull from the publicly available information.
For those reasons, Maurtray has failed to establish that the circumstances were such as to give rise to a reasonable expectation during the period up to and including 23 February 2017 that the defendants would make positive disclosure to Maurtray of the undisclosed matters.
I have found that Mr Pillemer informed Mr A Turnbull on or about 4 January 2017 that he (Mr Pillemer) thought that the ultimate result of WHSP acquiring a stake in Hunter Hall "could be that Hunter Hall will be merged into Pengana" [135] and that there was a further discussion between them about the possibility of a "reverse takeover" on 23 February 2017, during which Mr Pillemer offered to "reverse" the Settlement Deed if Maurtray wanted to "stay in" Pengana. [136] However, even if I had accepted Mr A Turnbull's evidence about the 4 January 2017 conversation in which Mr A Turnbull says that Mr Pillemer told him that he (Mr Pillemer) was not aware of a possibility of an IPO, that "I can't tell you anything" and that information about what WHSP and Hunter Hall were doing was "above my paygrade", I would have rejected Mr A Turnbull's evidence that he "believed what Mr Pillemer told me" and proceeded on the understanding that there was no prospect of Pengana shares becoming listed. As the defendants submitted, the substance of what Mr A Turnbull says Mr Pillemer told him on 4 January 2017 provides no rational basis for him to believe that there was no prospect of Pengana shares becoming listed. His evidence that he held that state of mind as a result of the conversation that he claims to have had with Mr Pillemer on 4 January 2017 is not credible, particularly in light of his own evidence referred at [522] above.
With the knowledge of WHSP's announcement to the ASX on 30 December 2016 and the subsequent bidding war between WHSP and Pinnacle for Hunter Hall and (as I have found) after Mr Pillemer had discussed the possibility of a reverse merger with him, Mr A Turnbull continued on the path to implementing Mr Pillemer's December 2016 proposal to maintain confidentiality by drawing on his loan from WHSP to pay out Maurtray prior to completion of the NAB transaction at a price equivalent to that offered by WHSP to NAB. That path ultimately resulted in Maurtray entering into the Settlement Deed and accepting the sum of $6,133,788.36 in settlement of the Loan and Mr A Turnbull declining the opportunity offered by Mr Pillemer on 23 February 2017 for Maurtray to "reverse" the settlement and "stay in" Pengana. As I have found at [434]-[446] above, Mr A Turnbull had significant concerns about disclosure of Maurtray's involvement in Pengana. I find that those concerns were the reason why Mr A Turnbull did not seek to have the Shares transferred to Maurtray in repayment of the Loan, as stated in his message to Mr Pillemer on 5 June 2017.
I reject Mr A Turnbull's evidence that he would have sought to have the Shares transferred to Maurtray if he had been informed about the undisclosed matters. For the reasons explained at [424]-[425] above, the undisclosed matters did not render the proposed merger increasingly likely throughout January and February 2017 or likely to proceed by 15 February 2017. More importantly, the notion that Mr A Turnbull would have done so is irreconcilably inconsistent with his conduct after he was aware that the merger agreement had been announced and after that transaction was closed on terms that were known to him. Armed with that knowledge, Mr A Turnbull did not suggest to Mr Pillemer that he would have taken the Shares. On the contrary, he maintained that he could not have done so. Nor did Mr A Turnbull seek to negotiate an outcome whereby Maurtray would have shares in the merged listed entity PCG that it could then sell on-market so as to put it in the same position it would ultimately have been in if it had taken a transfer of the Shares in repayment of the Loan. Mr A Turnbull's negotiations were directed instead to an outcome that would avoid any disclosure requirements. I refer in particular to his message to Mr Pillemer on 6 June 2017 stating that "ideally" the structure would be "cash and thus not require disclosure" [137] and his messages to Mr Pillemer on 23 August 2017 in which Mr A Turnbull conveyed the advice of Maurtray's solicitor that "the best way to do this is a private settlement - zero disclosure" and his own view that "I don't think there's any way to do a share transaction without a filing which would be a) disclosable and b) cause Stuart to go mental". [138]
I also reject Mr A Turnbull's evidence that, as an alternative to having the Shares transferred to Maurtray, he would have negotiated for PFH, PPL or Mr Pillemer to make a cash payment of $17,755,428 (being the Repayment Amount calculated in accordance with the Loan Agreement as at 15 February 2017) rather than the $6,133,788.36 that Maurtray accepted under the Settlement Deed. Again, Mr A Turnbull did not seek to negotiate that outcome with Mr Pillemer in the period after the merger and its actual terms (as opposed to modelled values and exchange ratios) were known to him. The Repayment Amount under the Loan Agreement was calculated on the basis of a 15% internal rate of return for the lender. [139] Mr A Turnbull sought to negotiate for an additional payment to Maurtray that would have resulted in an internal rate of return of approximately 5.5% when added to the dividends that had been passed through during the term of the Loan Agreement and the $6,133,788.36 paid under the Settlement Deed. [140]
For the same reasons, I reject Mr A Turnbull's evidence that, as a further alternative, he would have negotiated for PFH, PPL or Mr Pillemer to make a cash payment of $12,000,000 in the alternative to the full Repayment Amount.
Even if I had not rejected Mr A Turnbull's evidence that he would have sought to negotiate a payment of either $17,755,428 or $12,000,000 for the Shares, the evidence does not establish on the balance of probabilities that he would have succeeded in that negotiation. In his affidavit sworn on 14 September 2021, Mr Pillemer gave evidence to the effect that he did not have access to that kind of money at the time and that he would have transferred the Shares to Maurtray rather than pay an amount in excess of the Settlement Deed sum to discharge the Loan. Mr Pillemer deposed that he understood at the time that he was entitled to choose under the Loan Agreement whether to pay an amount of money to Maurtray or transfer the Shares to Maurtray. That understanding was correct. He also understood at the time that he had a contractual right under the Pengana Share Loan Share Plan to a line of credit of up to $6,000,000 to purchase shares in Pengana at $143.179 per share. Mr Pillemer deposed that, while he was anxious to protect the Turnbull family from any public exposure, he would ultimately have acted in what he considered to be his own best financial interests. If he had transferred the Shares to Maurtray in repayment of the Loan and used the line of credit to acquire Pengana shares, he would have been in the same commercial position as if he had paid $6,000,000 to Maurtray and kept the shares. Accordingly, Mr Pillemer deposed that there is no prospect that he would have agreed with Mr A Turnbull to pay more than $6,000,000 for the Shares, regardless of what he (Mr Pillemer) might have thought about the value of the Shares at the time. As Maurtray submitted, that evidence is contradicted by Mr Pillemer's own conduct in offering in mid-December 2017 to pay an additional $3,000,000 to Maurtray over and above the $6,133,788.36 that had already been paid under the Settlement Deed. However, the payment of between approximately $6,000,000 and $11,000,000 over and above the Settlement Deed sum is a very different thing to the payment of an additional $3,000,000. Whilst it was put to Mr Pillemer in cross-examination that he could have paid a total sum of $17,000,000 or $12,000,000 to Maurtray over time by selling down his PCG shares as they were released from escrow, he was not challenged about his evidence that he would not have done so and that, if Mr A Turnbull had demanded or insisted upon such a sum, Mr Pillemer would have exercised the Borrower's right under the Loan Agreement to repay the Loan by causing PFH to transfer the Shares to Maurtray.
The evidence does not establish on the balance of probabilities that the unpleaded further alternative course of action that Mr A Turnbull introduced in his affidavit sworn on 22 September 2021 and in cross-examination was an available course of action. [141] As was put to Mr A Turnbull in cross-examination, that alternative would have required the agreement of the Hunter Hall directors for Mr Pillemer and his entities to transfer 5,149,796 shares in PCG (being the equivalent of 42,840 Pengana shares) [142] to Maurtray immediately after the merger on the basis that Maurtray would then sell those shares. I reject Mr A Turnbull's assertion that the Hunter Hall directors could not reasonably have objected to such an arrangement because it would be giving effect to a "pre-existing agreement". As he himself acknowledged, the arrangement in fact departed from the Loan Agreement. [143] Maurtray's submission that the Hunter Hall directors would not have objected because only shareholders associated with the investment management team were subject to escrow arrangements after completion of the merger misses the point. In this most recent iteration of Mr A Turnbull's counterfactual scenarios, the Shares would have been held by Mr Pillemer or one of his associated entities at the time of the merger and therefore would have been associated with the investment management team. The question is whether Mr Pillemer would nevertheless have been permitted to transfer them to Maurtray immediately after the merger. As Maurtray submitted, no evidence was adduced from any Hunter Hall witness about this. Maurtray bears the onus of proof and it has failed to discharge that onus.
However, the more fundamental problem with the unpleaded alternative counterfactual is that it is wholly inconsistent with Mr A Turnbull's conduct from June 2017 when he knew about the merger and its actual terms. By no later than 12 August 2017, he had formed the view that Maurtray had "left ~$10mm on the table". Yet he did not seek to negotiate for Mr Pillemer or one of his entities to provide the "additional value" that Mr Pillemer had agreed in principle to provide by seeking a partial release from his escrow arrangements to transfer some shares in PCG to Maurtray, or to agree to hold shares in PCG for the benefit of Maurtray, or to transfer them to Maurtray in the future after the expiry of the escrow arrangements. On the contrary, Mr A Turnbull told Mr Pillemer on 23 August 2017 that "the best way to do this is a private settlement - zero disclosure" and that "I don't think there's any way to do a share transaction without a filing which would be a) disclosable and b) cause stuart to go mental". [144] The "private settlement" that Mr A Turnbull was negotiating for was a payment of $9 million less moneys already received, [145] which was calculated by reference to an internal rate of return for Maurtray and not by reference to the value of the PCG shares that RCP had received in the merger in exchange for the Shares. There was some debate between Mr A Turnbull and Mr Pillemer about whether $9 million less moneys already received amounted to approximately $3.45 million, as Mr A Turnbull contended, or approximately $2.2 million, as Mr Pillemer contended. Mr M Turnbull's evidence is that Mr Pillemer offered "a sum of some $3 million" at the meeting in mid-December 2017. [146] Mr A Turnbull's evidence is that the sum of $3 million was agreed during late November or early December 2017. [147]
In short, Mr A Turnbull's evidence about the alternative courses of action that he now says he would have taken is not credible because it is irreconcilably inconsistent with his own words and conduct in the period after June 2017 when he knew about the merger and its actual terms and the actual outcome in terms of value for Pengana shareholders (as opposed to modelled values and exchange ratios).
Maurtray effectively submitted that causation was self-evident because it is "commercially implausible … that Mr A Turnbull would have been prepared to forego millions of dollars for the sake of what he wrongly perceived may be adverse publicity for his father".
I reject that submission.
As the defendants submitted, Maurtray's submission is made with the benefit of hindsight. When its decision fell to be made in February 2017, it was not known whether the proposed merger would proceed at all or what the outcome for Pengana shareholders would be if it did proceed. Critical terms such as the exchange ratio had not been agreed.
Maurtray's submission also fails to grapple with the evidence that I have accepted that Mr Pillemer and Mr A Turnbull did discuss confidentiality concerns prior to 15 February 2017 [148] and is irreconcilable with Mr A Turnbull's own statements about confidentiality and disclosure concerns in the period from June 2017. As the defendants submitted, it is not to the point that Mr A Turnbull's concerns did not align with the views of Mr M Turnbull. The evidence of Mr A Turnbull's words and conduct demonstrates that he did hold those concerns. In making that finding, I have not found it relevant or necessary to refer to the media articles published during Mr M Turnbull's prime ministership that the defendants tendered and from which they urged various inferences to be drawn. As I have noted earlier in these reasons, there is no evidence that confidentiality issues were the subject of any discussion between Mr A Turnbull and his father in which Mr M Turnbull might have said anything to allay his son's concerns. Mr M Turnbull was not challenged about his evidence that Mr A Turnbull did not consult him about his decision to accept the payment under the Settlement Deed rather than taking a transfer of the Shares. [149]
More importantly, as the defendants submitted and as described in detail above, Mr A Turnbull's own words and conduct in the period from June 2017 demonstrate that, with full knowledge of the terms of the merger and believing that he had left approximately $10 million on the table, he was prepared to do exactly that which Maurtray now submits is "commercially implausible". Mr A Turnbull was prepared to negotiate for an additional payment in the order of $3 million, foregoing several millions of the money that he considered he had left on the table. His own messages to Mr Pillemer reveal that he was prepared to do so because, at that time, he remained concerned to avoid any disclosure of Maurtray's connection with Pengana which had by then been merged with Hunter Hall to form PCG.
Notwithstanding my conclusions above, it is appropriate to record the following observations in case any issue concerning damages arises in the context of any appeal.
If Maurtray had proved the alleged breaches of clause 19 of the Loan Agreement and misleading or deceptive conduct and had proved that it would have taken a transfer of the Shares in repayment of the Loan if those alleged breaches and conduct had not occurred, I would have accepted Mr A Turnbull's evidence referred to at [186] that he would have then caused Maurtray to exchange the 42,840 Pengana shares for 5,149,796 shares in the merged entity PCG, [150] following which he would have caused Maurtray to sell those shares on the market in June 2017. That is consistent with the undisputed evidence that Mr A Turnbull wanted Maurtray to "cash out" and had been looking for a way for it to do so from the time that the Loan was assigned to Maurtray in November 2015.
I would have accepted Maurtray's submission that the difference between the sum of $6,133,788.36 paid to it under the Settlement Deed and the price that it would have received for the PCG shares by selling them on the market in June 2017 represented an appropriate measure of damages.
Insofar as the claim in contract is concerned, that measure of damages would represent a sum which, if breach and causation had been proved, would place Maurtray in the same situation as if the contract had been performed. [151] I accept Maurtray's submission that, whilst damages for breach of contract are generally assessed as at the date of the breach, that is not an absolute rule. In circumstances where the alleged breaches of contract concern non-disclosure of information about the merger, I would have held that it would be unjust to Maurtray to assess damages as at the date of each alleged breach or, as the defendants submitted, as at 15 February 2017. Such an approach would not reflect the nature of the claim, being that Maurtray would have taken a different course of action if the contract had been performed by taking the Shares and then selling them on market at the earliest opportunity after the merger. To assess damages at a point in time before Maurtray could have completed that course of action would be artificial and would not give effect to the compensatory principle in the circumstances of this case. [152]
If Maurtray had established that the alleged misleading or deceptive conduct induced it to enter into the Settlement Deed rather than taking that alternative course of action, I would have considered that measure of damages to appropriately reflect the remedial purpose of s 18 of the Australian Consumer Law for the same reasons referred to immediately above. [153]
In support of its claim for damages assessed as the difference between the Settlement Deed sum and the amount for which it could have sold 5,149,796 PCG shares on the market in June 2017, Maurtray relied on a chart extracted from the ASX website showing share price information for PCG for the month of June 2017. [154] Maurtray submitted that the average price for PCG shares during the week of 2 to 9 June 2017 was $2.88 per share and its damages should therefore be assessed on the basis that it would have sold all of the 5,149,796 PCG shares during that week at an average price of $2.88 each amounting to a total of $14,831,412.48. Maurtray submitted that, after deducting the Settlement Deed sum from that total, the quantum of its damages is $8,697,624.12.
However, as the defendants submitted, the share price chart also contains a graph that plots the volume of shares traded each day in the range between zero to 500,000 shares and in excess of 500,000 shares. That graph shows that the volume of PCG shares traded during the week of 2 to 9 June 2017 was zero on some days and negligible on other days. Indeed, that was the case for the whole of June 2017, with the exception of three days on which it appears that between about 250,000 and 500,000 shares were traded and one day on which slightly in excess of 500,000 shares were traded. There is no evidence that would provide a basis for the Court to infer or assume that the sale of 5,149,796 PCG shares on the market during the week of 2 to 9 June 2017, or even during the whole of June 2017, would not have exerted downwards pressure on the price of PCG shares. Any such inference or assumption would be speculative. At the same time, there is no evidence that would provide a basis for the Court to make an informed estimate of the likely price that would have been achieved for PCG shares during the week of 2 to 9 June 2017, or even during June 2017, if the volume of shares available for sale during that period had increased by 5,149,796 shares.
I accept that an estimate of that nature is inherently difficult and involves some element of imprecision, and that this nature of the exercise does not relieve the Court of the obligation to assess damages as best it can on the basis of the available evidence, provided that it has a rational foundation to make an estimate. It is for the plaintiff to adduce such evidence as is reasonably available that will provide that rational foundation. Although the Court is required to do its best, justice does not dictate that a figure be "plucked out of the air". [155] Maurtray has failed to adduce such evidence in this case. It did not call expert evidence that would have provided some basis for an estimate by opining as to the relationship between the volume and price of PCG shares at that time, having regard to the limited trading in PCG shares that did occur, any trading in shares of comparable companies at the same time, and the state of the market or relevant segments of the market at that time. There is no reason why Maurtray could not adduce such evidence. I reject its submission that these are matters in respect of which the defendants bore the onus of proof.
As the defendants submitted, this is a case in which the evidence adduced by Maurtray fails to provide a rational foundation for a proper estimate of damages and I would therefore have declined to make one.
For completeness, I note that Maurtray effectively abandoned its claim for damages for loss of opportunity as no submissions were directed to that question.
[2015] NSWSC 451 at [94]-[95] (citations omitted).
(2011) 297 ALR 56; [2011] FCA 1123 at [48].
See [81] and [99] above.
See [89] above.
See [225]-[235] above.
See [246]-[250] and [263]-[272] above.
See [242]-[272] and [310] above.
See [300] above.
See [232] above.
T202.10-203.3.
See [335]-[337] above.
See [65] above.
See [46] above.
See [69] above.
T65.19-66.15.
T66.20-66.29.
T66.30-67.40, relevant portions of which are extracted at [69] above.
See [325(1)] above.
See [80] above.
See [81] above.
See [71]-[72] and [89] above.
See [82] above.
See [81] above.
See [88]-[89] above.
See [83] above.
See [90] above.
See [246] above.
See [246] and [257] above.
See [438]-[443] below.
See [91] above.
See [246] above.
See [100] above.
See [92] above.
See [83] above.
See [90]-[91] above.
See [101] above.
See [102] above.
As referred to at [362] above.
See [107]-[109] above.
See [110]-[111] above.
See [89] above.
See [238] above.
See [222] above.
See [123] above.
See [125], [130]-[135], [175], [205] and [213] above.
See [238] above.
See [222] above.
See [246] above.
See [232]-[235] and [352]-[355] above.
See [185]-[195] above.
See [354] above.
See [253] above.
See [290] above.
See also [90] above.
See [301]-[311] above.
T290.46-291.5.
(2011) 81 NSWLR 690; [2011] NSWCA 315 at [17] (Bathurst CJ, Macfarlan JA and Sackville AJA agreeing).
(2014) 251 CLR 640; [2014] HCA 7 at [35] (French CJ, Hayne, Crennan and Kiefel JJ) (citations omitted). See also Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd (2017) 261 CLR 544; [2017] HCA 12 at [16]-[17] (Kiefel, Bell and Gordon JJ).
(2017) 96 NSWLR 548; [2017] NSWCA 295.
Ibid at [71] and [77]-[85] (Leeming JA, Gleeson JA agreeing) and the authorities there referred to.
Ibid at [72]-[73] and the authorities there referred to.
Ibid at [73].
[2014] NSWCA 319 at [91].
(2017) 96 NSWLR 548; [2017] NSWCA 295 at [74].
(2011) 81 NSWLR 690; [2011] NSWCA 315 at [17].
(2017) 96 NSWLR 548; [2017] NSWCA 295 at [75].
(1982) 149 CLR 337 at 352; [1982] HCA 24.
WIN Corporation Pty Ltd v Nine Network Australis Pty Ltd (2016) 341 ALR 467; [2016] NSWCA 297 at [59], cited by Leeming JA in Cherry v Steele-Park (2017) 96 NSWLR 548; [2017] NSWCA 295 at [84].
P Herzfeld and T Prince, Interpretation (2nd ed, 2020) at [24.30].
See [44] above.
See [15] above.
R P Austin and I M Ramsay, Ford, Austin and Ramsay's Principles of Corporations Law (17th ed, 2018) at [16.220] and the authorities there referred to; Sanpoint Pty Ltd v V8 Supercars Holdings Pty Ltd (2019) 134 ACSR 424; [2019] NSWCA 5 at [79], applying the principles set out at [58]-[60] (Beazley P, as her Excellency then was, Macfarlan and Leeming JJA).
This was not clear: see [475] above.
See [320] above.
See [424]-[425] above.
(2018) 131 ACSR 236; [2018] NSWSC 1502 at [574]-[577].
See the evidence and findings at [414]-[433] above.
See [424]-[425] above.
See [184] above.
See [186] above.
See [393]-[423] above.
See [108], [125], [130]-[134] and especially [139] above.
See [114] and [422] above.
See [208] and [426]-[433] above.
See [257] above.
See [273] above.
See [26] above.
See [300] above.
See [188]-[195] above.
See [217] above.
See [194] above.
See [273] above.
See [269] above.
See [274]-[314] above.
See [289] above.
See [55] and [382], [90] and [413] above.
See [443] above.
See [217] above.
Robinson v Harman (1848) 1 Ex 850 at 855; 154 ER 363 at 365.
J D Heydon, Heydon on Contract (2019) at [26-220].
Henville v Walker (2001) 206 CLR 459; (2001) 182 ALR 37; [2001] HCA 52, especially at [135] (McHugh J, Gummow J agreeing); I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109; (2002) 192 ALR 1; [2002] HCA 41 at [33] (Gleeson CJ).
Mr A Turnbull's evidence referred to at [186] above and Exhibit 1, pp 1801-1802.
Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 83; [1991] HCA 54 (Mason CJ and Dawson J); Placer (GrannySmith) Pty Ltd v Thiess Contractors Pty Ltd (2003) 196 ALR 257; (2003) 77 ALJR 768; [2003] HCA 10 at [38] (Hayne J, Gleeson CJ, McHugh and Kirby JJ agreeing); Troulis v Vamvoukakis [1998] NSWCA 237; Strategic Communications Management Pty Ltd v Techfront Australia Pty Ltd [2020] NSWSC 847 at [95]; J D Heydon, Heydon on Contract (2019) at [26-100].
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Decision last updated: 02 September 2022