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Catchwords: CONTRACTS — Construction — Interpretation — Where sale contract entered into in respect of shares in a company — Where buyer and selling shareholders were uncertain as to rate of withholding tax applicable to company in respect of its capitalisation of interest — Where sale contract provided for a portion of purchase price to be placed in escrow which was to be released if Australian Taxation Office (ATO) ‘determined’ that additional withholding tax was payable by company — Where ATO accepted company’s position conveyed in a voluntary disclosure that additional withholding tax was payable — Where buyer seeks release of escrow funds to pay additional withholding tax — Whether contractual condition for release of escrow funds was satisfied
CONTRACTS — Implied terms — Terms implied in law — Duty to cooperate — Whether duty to cooperate was implied into sale contract — Whether buyer breached implied duty to cooperate by causing company to make voluntary disclosure to ATO of failure to withhold additional amount — Whether any breach of an implied duty to cooperate caused loss to the defendants

Legislation Cited: Convention Between the Government of Australia and the Government of the United States of America for the Avoidance of Double Taxation and Prevention of Fiscal Evasion with Respect to Taxes on Income [1983] ATS 16, Arts 10 and 16
Income Tax Assessment Act 1936 (Cth), ss 6, 128B(1) and 128B(4)
Income Tax Assessment Act 1997 (Cth), ss 974-115 and 974-120
Income Tax (Dividends, Interest and Withholding Tax) Act 1974 (Cth), s 7(a)
International Tax Agreements Act 1953 (Cth), ss 4 and 5
Protocol Amending the Convention Between the Government of Australia and the Government of the United States of America for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income of 6 August 1982 [2003] ATS 14
Taxation Administration Act 1953 (Cth), Sch 1, ss 12-210, 12-280, 12-285, 16-30, 16-70, 18-30, 298-10, 298-15, 298-20 and 298-25
Taxation Administration Regulations 2017 (Cth), regs 40(1), 40(3) and 42

Cases Cited: Adaz Nominees Pty Ltd v Castleway Pty Ltd [2020] VSCA 201
Bournemouth and Boscombe Athletic Football Club v Manchester United Football Club Ltd (Court of Appeal (Civil Division), 21 May 1980, unrep)
EW Blanch Pty Ltd v Cooper [2004] NSWSC 631
Les & Zelda Investments Pty Ltd v Whitehaven Coal Ltd (No 4) [2026] NSWSC 107
RDJ International Pty Ltd v Preformed Line Products (Aust) Pty Ltd (1996) 39 NSWLR 417
Resource Capital Fund III LP v Federal Commissioner of Taxation [2013] FCA 363; (2013) 95 ATR 504
Wellington v Huaxin Energy (Aust) Pty Ltd [2020] QCA 114

Category: Principal judgment

Parties: Nuvei (Australia) Holdings II Pty Ltd (Plaintiff/Cross-Defendant)
Arrap Investments Pty Ltd (First Defendant/First Cross-Claimant)
Hamiloch Pty Ltd (ACN 166 988 325) atf Miles Family Trust (Second Defendant)
Ashish Tirthankar t/as Ashish Tirthankar, Preeta Tirthankar atf Tirthankar Super Fund (Third Defendant/Second Cross-Claimant)
Jeccem Management Pty Ltd (ACN 142 407 896) atf Jeccem Management Trust (Fourth Defendant)
Kolar Capital Pty Ltd (ACN 140 835 418) atf Kolar Capital Trust (Fifth Defendant)
Marrakai Capital Pty Ltd (ACN 124 320 501) (Sixth Defendant)
Miles Family Superannuation Pty Ltd (ACN 644 723 311) atf Miles Family Superannuation Fund (Seventh Defendant)
N G P Investments (No 2) Pty Ltd (ACN 001 495 343) (Eighth Defendant/Third Cross-Claimant)
A.C.N. 160 612 260 Pty Ltd (ACN 160 612 260) atf XCIX Investment Trust (Ninth Defendant)
Akuna Investments LLC (Tenth Defendant)
Covo Positano Pty Ltd atf Tre Sorelle Investment Trust (Eleventh Defendant)
Dracena Group Pty Ltd (ACN 143 381 408) atf Olive Tree Family Trust (Twelfth Defendant)
Jangeo Pty Ltd (ACN 080 061 203) atf Jangeo Pension Fund (Thirteenth Defendant/Fourth Cross-Claimant)
Jed Boxall (Fourteenth Defendant)
Jojebra Pty Ltd (ACN 651 016 992) atf Greg Miles Super Fund (ABN 16 196 706 232) (Fifteenth Defendant)
SJT Capital Pty Limited (ACN 640 311 799) atf SJT Family Trust (Sixteenth Defendant)
Tyler Boxall (Seventeenth Defendant)
Silva Fortune Pty Ltd ACN 161 983 213 atf Silva Fortune Unit Trust (Eighteenth Defendant/Fifth Cross-Claimant)
Talarra Holdings Pty Ltd (ACN 645 160 854) atf The Boxall Family Trust (Nineteenth Defendant)
Theodore Pty Limited (ACN 008 461 005) atf T&D Pension Fund (Twentieth Defendant/Sixth Cross-Claimant)
Jochen Bonitz (Twenty-First Defendant/Seventh Cross-Claimant)

Representation: Counsel:
M E Hall (Plaintiff/Cross-Defendant)
A de Wijn KC / N Condylis (First, Third, Eighth, Thirteenth, Eighteenth, Twentieth and Twenty-First Defendants/Cross-Claimants)
Solicitors:
Mallesons (Plaintiff/Cross-Defendant)
Madison Marcus Law Firm (First, Third, Eighth, Thirteenth, Eighteenth, Twentieth and Twenty-First Defendants/Cross-Claimants)

File Number(s): 2025/00337123

Publication restriction: Nil

JUDGMENT

1. These proceedings concern the fate of some funds placed into escrow in connection with the sale of Till Payments Global Pty Ltd (the Company). The general background to the dispute is as follows.

General background

2. Between August 2021 and January 2022, the Company issued certain Series C Convertible Notes (the Notes) to a total of 39 investors, including six US entities: three limited liability partnerships and three limited liability companies. I will refer to these six entities as the US Noteholders.

3. On 30 June 2023, the Notes were converted to shares. Immediately prior to conversion, the interest coupon was capitalised, an event which was taken to be a payment of interest for tax purposes. For consistency, I will simply call the capitalisation a payment of interest.

4. Because the Notes were taken to be equity interests for Australian tax purposes and because the US Noteholders were not Australian residents, the Company was required to make a withholding for tax on the basis that the payment of interest was a non-share dividend. On advice, it withheld 15% of the amount so paid.

5. Not long afterwards, the shareholders of the Company entered into a Share Sale Deed with Nuvei Technologies Corp (the Buyer or Nuvei) pursuant to which the Buyer agreed to acquire the Company for the sum of US$30 million. Due diligence had however exposed a potential issue concerning the 15% withholding on the 30 June 2023 interest payments. The parties received advice that the 15% rate of withholding was only available in respect of payments to the US Noteholders if those noteholders were actually entitled to the protections of Art 10 of the Convention Between the Government of Australia and the Government of the United States of America for the Avoidance of Double Taxation and Prevention of Fiscal Evasion with Respect to Taxes on Income [1983] ATS 16 (the US Treaty). The parties were further advised that if those noteholders were not so entitled, or if the Company could not establish that they were, then the correct rate of withholding should have been 30%, not 15%. If that were the case, the Company would be liable to a penalty equal to the difference, together with the general interest charge, as well as potential administrative penalties.

6. To accommodate this contingency, the Share Sale Deed provided that a portion of the purchase price would be placed in escrow. The escrow was for a limited period of 18 months and the escrow amount could only be released to the Buyer if and to the extent that the Australian Taxation Office (ATO) determined during the 18-month escrow period that the correct withholding amount was more than the 15% that had been paid. If this did not occur within the 18-month escrow period, the amount would be released to the selling shareholders. Clauses 6.4(a) and (b) provided:

“(a) If the actual Additional Withholding Tax Amount (if any, as determined by the Australian Taxation Office and notified to the Company in writing during the Escrow Period) (Actual Additional Withholding Tax Amount) is equal to or greater than the Escrow Amount, the Sellers’ Representative and the Buyer must procure that the Escrow Amount is released to the Buyer from the Escrow Account in accordance with the Escrow Agreement.

(b) If the Actual Additional Withholding Tax Amount is less than the Escrow Amount, the Sellers’ Representative and the Buyer must procure that in accordance with the Escrow Agreement:

(i) the Actual Additional Withholding Tax Amount (if any) is released to the Buyer from the Escrow Account; and

(ii) the difference between the Escrow Amount and the Actual Additional Withholding Tax Amount is released as directed by the Sellers’ Representative from the Escrow Account.”

7. Because the parties had been advised that the correct rate of withholding depended on the treaty entitlements of the investors and because this turned out to be a very difficult matter for the Company to verify, the Buyer eventually decided to cause the Company to make a voluntary disclosure to the ATO and to offer to pay an additional amount of withholding tax equal to 15%, provided the ATO would agree to waive interest and any penalties.

8. The ATO agreed with this proposal. On 23 June 2025, shortly prior to the end of the 18-month escrow period, the ATO notified the Company that it had correctly calculated its additional withholding tax liability and that the Commissioner of Taxation (Commissioner) would waive interest and penalties provided the additional amount was paid by 4 July 2025. The Company duly paid the additional amount of withholding tax.

The dispute

9. The plaintiff is the assignee of the Buyer’s rights under the Share Sale Deed and is a wholly owned subsidiary of the Buyer. The first twenty defendants are the selling shareholders under the Share Sale Deed who will be entitled to receive the escrow amount if the Buyer is not entitled to it. Of these twenty defendants, only six actually participated in the proceedings. The twenty-first defendant, Mr Jochen Bonitz, was the ‘Selling Shareholders’ Representative’ under the Share Sale Deed. The six active shareholder defendants and Mr Bonitz were jointly represented. For simplicity, when I refer to the defendants I mean the active shareholder defendants and Mr Bonitz collectively, although I recognise that not all of the selling shareholder defendants actually participated in the proceedings.

10. The plaintiff’s case is simple. It says that the ATO determined that an additional amount of withholding tax was payable and that the funds in escrow should therefore be released to it pursuant to clause 6.4 of the Share Sale Deed.

11. The defendants deny that the plaintiff is entitled to the funds. They contend that the obviously correct rate of withholding tax was 15% and that, properly understood, the ATO never ‘determined’ otherwise. They say that the key condition under clause 6.4 for release of the escrow to the plaintiff, namely that there be a determination by the ATO of an additional amount of withholding tax, has therefore not been met. They characterise the Company as having made an unjustified, voluntary payment to the ATO.

12. The defendants further contend by way of cross-claim that even if the condition for release of the escrow funds has been met, the ATO’s determination was procured by the plaintiff in breach of an implied duty of cooperation under the Share Sale Deed. They say that if the plaintiff had cooperated with them in dealing with the ATO and if they had been given an opportunity to comment on the Company’s proposed voluntary disclosure, the ATO would not have decided that the correct rate of withholding was 30%. They say that the plaintiff should not now be entitled to benefit from its breach of contract and that the Court should make orders allowing the escrow amount to be released to the defendants instead.

13. For reasons I will explain, I consider that the condition in clause 6.4 was satisfied and that, subject to the cross-claim, the plaintiff is entitled to the release of the additional withholding tax amount from the escrow account. In relation to the cross-claim, I accept that the correct rate of withholding tax was 15%, as the defendants contend. However, I am not persuaded that the plaintiff breached its implied obligation to cooperate. I do not agree that the ATO’s determination was procured in breach of any term of the Share Sale Deed, whether express or implied. I have also found that even if the plaintiff did breach its duty to cooperate, and despite my conclusion that the correct rate of withholding tax was 15%, the defendants have not shown that the result would have been any different if they had been given an opportunity to comment on the Company’s proposed voluntary disclosure during the escrow period.

The facts in more detail

The convertible notes

14. The Company was a financial technology company that processed digital payments for a variety of retailers, e-commerce groups and hospitality operators. It was an Australian resident for tax purposes.

15. Between August 2021 and January 2022, the Company raised approximately AU$130 million through the issue of the Notes. The interest coupon was 10%.

16. The Notes were required to be treated as equity interests under Div 974 of the Income Tax Assessment Act 1997 (Cth). Interest payments were taken to be non-share dividends within the meaning of Div 974: see ss 974-115 and 974-120.

17. On 30 June 2023, in anticipation of the sale of the Company to the Buyer, the Notes were converted into ordinary shares. Immediately prior to conversion, the interest coupon was capitalised. The capitalisation was taken to be a payment of interest for tax purposes: see the definition of ‘paid’ in s 6 of the Income Tax Assessment Act 1936 (Cth) (ITAA 1936).

The tax consequences of the interest payment

18. The interest payment gave rise to distinct tax consequences for the payer and the payees.

19. So far as the US Noteholders were concerned, their constructive receipt of non-share dividends gave rise to a liability to tax under Div 11A of the ITAA 1936: ss 128B(1) and (4). The default rate of tax in respect of a dividend paid to a non-resident is 30%: s 7(a) of the Income Tax (Dividends, Interest and Withholding Tax) Act 1974 (Cth). However, this rate may be reduced in accordance with the terms of an applicable international tax agreement: ss 4 and 5 of the International Tax Agreements Act 1953 (Cth).

20. In the case of a payee entitled to the benefits of Art 10 of the US Treaty, the rate is reduced to either 5% or 15%, depending on the circumstances: see paragraph [24] below. Those benefits are, in turn, subject to the potential application of Art 16, which is a limitation on benefits provision. Whether or not a payee is entitled to the benefit of Art 10 of the US Treaty depends on a number of things, including whether it is a ‘resident’ of the US within the meaning of the treaty.

21. So far as the Company was concerned, the interest payment gave rise to an obligation to withhold under the ‘Pay as you go’ (PAYG) withholding provisions in Pt 2-5 of Sch 1 to the Taxation Administration Act 1953 (Cth) (TAA). Section 12-210 of Sch 1 provides as follows:

12**‑**210 Dividend payment to overseas person

A company that is an Australian resident must withhold an amount from a *dividend it pays if:

(a) according to the register of the company’s members, the entity, or any of the entities, holding the *shares on which the dividend is paid has an address outside Australia; or

(b) that entity, or any of those entities, has authorised or directed the company to pay the dividend to an entity or entities at a place outside Australia.

22. The rate of withholding is dealt with in the Taxation Administration Regulations 2017 (Cth) (TAR). Regulation 40(1) is as follows:

(1) The amount to be withheld from a dividend to which section 12‑210 in Schedule 1 to the Act applies is:

(a) if an address mentioned in paragraph 12‑210(a), or a place mentioned in paragraph 12‑210(b), in Schedule 1 to the Act is in a tax sharing country and the relevant international tax sharing treaty applies to the dividend—an amount calculated at the rate provided for in the treaty; and

(b) if paragraph (a) does not apply, but that address or place is in a double tax country—an amount calculated at the rate provided for in the relevant double tax agreement; and

(c) if paragraphs (a) and (b) do not apply—an amount equal to 30% of the amount of the dividend.

23. I also note reg 40(3), which is as follows:

(3) However, paragraphs (1)(b) and (2)(b) do not apply in relation to a dividend that is:

(a) paid to a resident of the United States of America; and

(b) included in a class of dividends that is exempt from tax under the law of that country.

24. The US is a double tax country, not a tax sharing country, so the rate of withholding under reg 40(1) is required to be calculated ‘at the rate provided for’ in the US Treaty in accordance with paragraph (b). Article 10 of the US Treaty, as modified by the 2003 Protocol (Protocol Amending the Convention Between the Government of Australia and the Government of the United States of America for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income of 6 August 1982 [2003] ATS 14), relevantly provides as follows:

(1) Dividends paid by a company which is a resident of one of the Contracting States for the purposes of its tax, being dividends to which a resident of the other Contracting State is beneficially entitled, may be taxed in that other State.

(2) However, those dividends may also be taxed in the Contracting State of which the company paying the dividends is a resident for the purposes of its tax, and according to the law of that State, but:

(a) the tax charged shall not exceed 5 percent of the gross amount of the dividends, if the person beneficially entitled to those dividends is a company which holds directly at least 10 percent of the voting power in the company paying the dividends; and

(b) the tax charged shall not exceed 15 percent of the gross amount of the dividends to the extent to which those dividends are not within sub-paragraph (a),

provided that if the relevant law in either Contracting State is varied after the effective date of this provision otherwise than in minor respects so as not to affect its general character, the Contracting States shall consult each other with a view to agreeing to any amendment of this paragraph that may be appropriate.

25. In the present case, none of the US Noteholders could have been entitled to the benefit of Art 10(2)(a) of the US Treaty. The defendants submit that it necessarily follows that the reference in reg 40(1) of the TAR to the ‘rate provided for’ in the case of the 30 June 2023 interest payments was 15%, pursuant to Art 10(2)(b). I will deal with this submission below.

26. Tax withheld pursuant to s 12-210 of the TAA gives rise to a credit for the recipient of the dividend against its liability under Div 11A of the ITAA 1936: s 18-30 of Sch 1 to the TAA. Here, the amount of tax actually withheld was AU$1,946,482. It was eventually paid to the Commissioner on 7 December 2023. There was no explanation as to why it was not remitted in accordance with s 16-70 of Sch 1 to the TAA, which provides:

16**‑70** Entity to pay amounts to Commissioner

(1) An entity that withholds an amount under Division 12 must pay the amount to the Commissioner in accordance with this Subdivision.

(2) An entity that must pay an amount to the Commissioner under Division 13 or Subdivision 14‑A must do so in accordance with section 16‑85.

(3) An entity that must pay an amount to the Commissioner under Subdivision 14‑B, 14‑C, 14‑D or 14‑E must do so in accordance with sections 16‑80 and 16‑85.

Note: For provisions about the collection and recovery of amounts payable to the Commissioner under this Part, see Part 4‑15.

27. Where an entity fails to withhold, the entity is liable to a penalty equal to the amount that should have been withheld: s 16-30 of Sch 1 to the TAA. Division 298 of Sch 1 to the TAA contains machinery provisions in relation to the penalty imposed by s 16-30. Section 298-10 states that the Commissioner ‘must give written notice’ of the entity’s liability and of the reasons why the entity is liable to pay the penalty. Section 298-15 provides that the penalty ‘becomes due for payment on the day specified in the notice, which must be at least 14 days after the notice is given’. The general interest charge accrues from that date if and to the extent the penalty is not paid: s 298-25. The Commissioner has a power to remit the penalty, either in whole or in part: s 298-20.

The potential withholding tax issue

28. On Friday 3 November 2023, Mr Scott Calliham of Nuvei wrote to Mr Bonitz, who was advising the selling shareholders in relation to the proposed transaction. Mr Calliham had by this point received advice from KPMG about a potential withholding tax issue, which he summarised in his email as follows:

“The withholding tax rate [the Company] assumed for the conversion of the … US note holders on June 30, 2023 was 15%.

[The Company] did not complete the analysis to validate if this was the correct rate under US/Australian tax treaty vs a 30% Australian rate.

The withholding tax amount under the 15% rate is roughly AUD$2.0 million, which [the Company] has accounted for on its balance sheet and has the cash to pay.

Although [the Company] received advice from Alliance that the 15% is correct, that was based on the assumption that the US note holders would qualify for the 15% (though no analysis was completed to substantiate this).

In the event the Australian Tax Office disagrees with the 15% tax rate used and requires some or all of the amounts from the US related note holders to be subject to the 30% rate, there will be up to another AUD$2.0 million (excluding any penalties/taxes) payable – which Nuvei would be on the hook for under the current SPA.”

29. Mr Calliham suggested that the issue be dealt with in the following way:

“We will therefore need to escrow up to the AUD$2.0 million from the purchase price. Here is our suggested approach:

- We hire a 3rd party to complete the analysis required to determine the correct effective withholding tax rate prior to Closing. It is unclear if a 3rd party will be able to complete the analysis required prior to Closing – though they may be able to do some sampling vs. a fullblown analysis to determine direction.

- In the event the 3rd party concludes the withholding tax rate of 15% is correct, then no escrow will be required.

- In the event the 3rd party concludes the withholding tax rate is higher than 15%, we escrow the appropriate amount from the purchase price based on the 3rd party analysis (e.g., pro rata, though not sure if this is how the analysis would play out).

- If after 18 months from Close (need a full audit cycle), Nuvei does not have to pay the incremental tax and the Australian Tax Office does not question the validity of the 15% tax rate, we release the escrow to [the selling shareholders].”

30. This prompted further discussion and at least two revised drafts of the Share Sale Deed. Mr Bonitz replied to Mr Calliham by email on Sunday 5 November as follows:

“Could we deal with it in this manner:

Nuvei and [the Company] commit to collaboratively investigate this matter as soon as practicable after execution. If uncertainty of the WHT [withholding tax] associated with convertible loan notes from June 30, 2023 remains at closing, the parties agree to a simple escrow arrangement as per your suggestion (KWM can be the escrow agent) for an amount set to the lower of $1,946,483 and the WHT still undetermined at closing.

We propose to implement this as a pre-completion obligation.

Let me know what you think.”

The Share Sale Deed

31. The Share Sale Deed was finally executed on 9 November 2023. Clauses 6.3 and 6.4 provided as follows:

“6.3 Payment plan for withholding tax

(a) The Buyer acknowledges that:

(i) an amount of withholding tax is or will be payable by the Company with respect to the conversion of convertible notes which occurred on or about 30 June 2023 (Withholding Tax Amount); and

(ii) the Company has determined its liability for the Withholding Tax Amount based on a withholding tax rate of 15% in respect of the conversion of all of the convertible notes.

(b) The Selling Shareholders and the Buyer acknowledge and agree that a higher withholding tax rate of 30% may be applicable in respect of the conversion of some of the convertible notes, and if that is the case additional withholding tax (including any interest and penalties) will apply (Additional Withholding Tax Amount).

(c) During the period from the date of this Deed until Completion, the Buyer and the Selling Shareholders agree to work together in good faith to determine the quantum of maximum exposure the Company has to pay towards the Additional Withholding Tax Amount.

(d) Unless the parties agree in writing prior to Completion that the Escrow Amount is zero:

(i) the parties agree to act reasonably and in good faith to appoint an Escrow Agent and agree the terms of the Escrow Agreement; and

(ii) the Escrow Amount is deducted from the Purchase Price and the Buyer shall pay the Escrow Amount to the Escrow Agent into the Escrow Account in accordance with clause 7.4.

6.4 Release from the Escrow Account

(a) If the actual Additional Withholding Tax Amount (if any, as determined by the Australian Taxation Office and notified to the Company in writing during the Escrow Period) (Actual Additional Withholding Tax Amount) is equal to or greater than the Escrow Amount, the Sellers’ Representative and the Buyer must procure that the Escrow Amount is released to the Buyer from the Escrow Account in accordance with the Escrow Agreement.

(b) If the Actual Additional Withholding Tax Amount is less than the Escrow Amount, the Sellers’ Representative and the Buyer must procure that in accordance with the Escrow Agreement:

(i) the Actual Additional Withholding Tax Amount (if any) is released to the Buyer from the Escrow Account; and

(ii) the difference between the Escrow Amount and the Actual Additional Withholding Tax Amount is released as directed by the Sellers’ Representative from the Escrow Account.

(c) The Escrow Amount is to be released within 5 Business Days after the earlier of:

(i) the date on which the Buyer provides the Sellers' Representative written notice of the Actual Additional Withholding Tax Amount (and copies of any relevant correspondence from the Australian Taxation Office); or

(ii) the expiry of the Escrow Period, in which event the entire Escrow Amount is released as directed by the Sellers’ Representative.”

The HSF Advice and KPMG’s response to it

32. Following execution of the Share Sale Deed, the Company obtained advice from HSF (the HSF Advice) in relation to the withholding tax issue. The HSF Advice was dated 19 December 2023. It recorded that HSF had been asked to advise on the Company’s Australian withholding tax obligations in relation to interest on the Notes, including ‘advising on the implications of the Residency and Limitation on Benefits article in the [US Treaty]’. The HSF Advice addressed the question of the US Noteholders’ liability under Div 11A of the ITAA 1936 in much the same way as I described it at paragraph [19] above. In relation to the Company’s withholding obligation, HSF advised:

“Where the [US Treaty] applies, the rate of withholding tax can be reduced, in which case the amount required to be withheld and remitted under section 12-210 of Schedule 1 to the TAA 1953 will be the amount calculated at the rate provided for in the treaty.”

33. HSF then dealt with the question of whether the US Noteholders were actually entitled to the benefits of Art 10 of the US Treaty. They advised:

“(a) Entitlement to treaty benefits

The [US Treaty] applies to persons who are residents of one or both of the Contracting States (ie US or Australia), provided they qualify for benefits under the [US Treaty] and are not excluded under the ‘limitation on benefits’ rules in Article 16.

Article 16 was implemented to ensure the [US Treaty] eliminates double taxation without creating opportunities for non-taxation of [sic] reduced taxation through tax evasion or avoidance, including through treaty-shopping arrangements. Broadly Article 16 provides that the benefits of the [US Treaty] (ie reduced withholding tax rate on dividends) will only be available if a resident of a Contracting State that derives income from the other Contracting State (ie the [US] Noteholder) satisfies one of a number of listed tests.

We have prepared a questionnaire (a copy is included as Attachment 1) which asks [US] Noteholders to provide information which should establish whether or not they are entitled to benefits under the [US Treaty], and which essentially lists the relevant tests. In our view, by sending the questionnaire, [the Company] is taking reasonable steps to verify treaty benefit entitlement, and it is reasonable for [the Company] to rely on responses to the US treaty benefits questionnaire in determining the applicable withholding tax rate. We can assist with this process once completed questionnaires are returned.” (footnotes omitted)

34. It is apparent from the advice generally and from this section in particular that HSF considered the correct rate of withholding for the Company under reg 40(1)(b) of the TAR to depend upon each payee’s actual entitlement to the benefits of Art 10 of the US Treaty. They further advised:

“… [T]he rate of withholding for [US] Noteholders who are entitled to the benefit of the [US Treaty] should be 15%, unless [the Company] is aware that the Noteholder is not entitled to benefits under the [US Treaty] (in which case the rate of withholding for such Noteholders should be 30%).”

35. HSF also referred to the potential for the Commissioner to impose administrative penalties in the event that the Company failed to withhold the correct amount. The advice concluded by noting that:

“As outlined above, we think it is reasonable for [the Company] to rely on responses to the US treaty benefits questionnaire in determining the applicable withholding tax rate.”

36. The advice attached a form of questionnaire (the HSF questionnaire) concerning a range of matters relevant to determining US residency for US Treaty purposes and the possible application of Art 16.

37. On 21 December 2023, the plaintiff and the selling shareholders executed an Escrow Deed whereby they appointed Perpetual Corporate Trust Limited to act as escrow agent for the purposes of clauses 6.3 and 6.4 of the Share Sale Deed.

38. The following day, on 22 December, the selling shareholders, the Buyer and the plaintiff entered into a deed entitled ‘Deed of Amendments to the Share Sale Deed’. By clause 2.1 of that deed, the Buyer ‘assigned all of its rights and delegated all of its obligations under the Share Sale Deed’ to the plaintiff. It is not in dispute that the effect of this clause was to make the plaintiff liable for the Buyer’s obligations under the Share Sale Deed.

39. The HSF Advice was shared among the parties to the Share Sale Deed, including their representatives and advisers. On 22 December, KPMG, who were advising the Buyer, wrote that they agreed generally with the analysis in the HSF Advice but raised two specific concerns. Their first concern was that the analysis to determine the availability of treaty benefits had not yet been undertaken and that, until this was done on a case-by-case basis, they (KPMG) ‘cannot justify the 15% withholding tax rate at this point of the process based on the [HSF Advice]’.

40. Secondly, KPMG questioned the correctness of what they termed the ‘general assumption [in the HSF Advice] that the [US Noteholders] are resident in the U.S. for treaty purposes’ because, as they pointed out, ‘most of the funds are potentially transparent entities and not liable to tax therein (such as limited liability companies)’. As they pointed out, it was therefore necessary to determine the availability of treaty benefits for the underlying investors and not the fiscally transparent LLCs and partnerships: see Resource Capital Fund III LP v Federal Commissioner of Taxation [2013] FCA 363; (2013) 95 ATR 504.

41. KPMG’s email prompted the Company and the selling shareholders’ representative, Mr Bonitz, to revert to HSF. On 22 December, HSF wrote an email to Mr Bonitz (the 22 December HSF email) to:

“… confirm that in the event of having sent the [HSF] questionnaire but not receiving a reply, the company has reasonable grounds to assume that US/Australian double tax treaty relief applies (on the basis of the note holders’ address) that [sic] only 15% WHT is required to be applied.”

42. The Company’s general counsel promptly advised the Buyer and KPMG of this further advice. However, KPMG pushed back. On Saturday 23 December, KPMG wrote:

“Given the fact pattern, that the funds (noteholders) are likely structured with tax transparent entities and the uncertainty on the limitation of benefit (LOB) provision, we cannot at this point find reasonable basis for applying the 15% rate in the absence of responses to the [HSF] questionnaire. Given the [HSF] questionnaire effectively seeks confirmation that the recipients are eligible for treaty benefit, we do not understand on what ground we could accept the premise that not receiving a response would enable reliance on the treaty. The address of a non-resident is not conclusive in and of itself.

On this basis, we have advised Nuvei that the escrow is the appropriate remedy pending resolution of this issue.”

43. Completion under the Share Sale Deed occurred on 5 January 2024. Since that date, the escrow amount of AU$2,529,214 has been held in a bank account controlled by the escrow agent (the escrow account). The escrow period was set to run until 5 July 2026, being the date 18 months after completion.

Attempts to resolve the residency issue

44. Attempts by the Company and KPMG to obtain meaningful responses to the HSF questionnaire were only partially successful. By June 2024, only four of the six US Noteholders had responded. This did not include Avenir Till Investors LLC (Avenir), which was by far the biggest noteholder. For its part, Avenir was willing only to say that as a transparent entity it was not entitled to treaty benefits.

45. The parties cooperated at length in an effort to verify that the investors were entitled to treaty benefits. Mr Bonitz himself was actively involved in attempts to obtain answers to the HSF questionnaire. For example, he wrote to KPMG on 25 June 2024 to say that he was ‘pursuing’ the issue with Avenir and that he was ‘following them up regularly’. His attempts to obtain answers to the questionnaire no doubt reflected his understanding of what was required in order to substantiate the 15% rate of withholding based on the HSF Advice. As he put it, ‘a response to the questionnaire (even if somewhat caveated) has a good chance to secure the necessary clearance – or otherwise provide sufficient comfort that additional WHT does not apply’.

46. In any event, that is where matters remained for about nine months following June 2024. The Company had been advised, rightly or wrongly, that the correct rate of withholding for the 30 June 2023 interest payment depended upon determining the entitlement of all underlying investors to US Treaty benefits; serious attempts had been made by the Company, its advisers and Mr Bonitz (on behalf of the selling shareholders) to obtain what it had been advised was the relevant information from the US Noteholders to allow it to make that determination; and none of the Company, its advisers nor Mr Bonitz had been successful in doing so, at least to any meaningful extent.

47. These were the circumstances in which the plaintiff found itself in early 2025 with the escrow period fast coming to a close.

Nuvei seeks to revisit the terms of the escrow

48. On 1 April 2025, the general counsel of Nuvei wrote to Mr Bonitz seeking the selling shareholders’ consent to extend the escrow period. The letter referred to clauses 6.3 and 6.4 of the Share Sale Deed and noted that the amount of funds held in escrow would be released on 10 July 2025 at the latest. The letter continued:

“Nuvei is intending on filing a voluntary disclosure pursuant to section 284-225 of the Taxation Administration Act 1953 with the Australian Tax Office (‘ATO’) on 7 April 2025, which would prompt the ATO to provide written confirmation of the Actual Additional Withholding Tax Amount. This written confirmation will then be provided to you pursuant to [clause] 6.4 (c)(i). This action would result in the funds that are currently held in-escrow being released to Nuvei, which Nuvei would then use to pay the ATO to settle the Company’s liability in relation to the Actual Additional Withholding Tax Amount*.*

Nuvei is seeking the consent of the Selling Shareholders to amend the definition of Escrow Period to ‘mean 1 February 2028’. This would have the effect of extending the release date for the funds held in-escrow from 10 July 2025 to 1 February 2028, which would be enough time for Nuvei to be reasonably comfortable that this exposure may not actually materialise.

As a gesture of goodwill, if the Selling Shareholders agree to this amendment to the Deed, Nuvei will not proceed with the filing of a voluntary disclosure with the ATO on 7 April 2025 nor any time before 1 February 2028. If the ATO determines the amount of the Actual Additional Withholding Tax Amount at any time from the present date to 1 February 2028, then [clauses] 6.4 (a) and (b) will operate as intended, with the likely outcome being that the funds held in-escrow would be paid to Nuvei, which Nuvei would then use to pay the ATO to settle the Company’s liability in relation to Actual Additional Withholding Tax Amount accordingly.

This extension would mean that there is some possibility that the Selling Shareholders would receive back some or all funds held in-escrow on 1 February 2028. However, if you do not agree to this amendment on or before 3 April 2025 at 11:59 pm Eastern Daylight Time, which is 4 April 2025 at 2:59 pm Australian Eastern Daylight Time, Nuvei will proceed with the filing of the voluntary disclosure on the next business day, which would almost certainly result in the payment of all funds held in-escrow, ultimately, to the ATO.” (emphasis in original)

49. The selling shareholders were not willing to agree to this proposal. On 3 April, Mr Bonitz wrote on their behalf to say that after careful consideration, they did not consider that an extension was in their own best interests. Mr Bonitz said that the existing escrow provisions already provided a ‘fair and balanced mechanism’ in that the selling shareholders would receive the whole of the escrow funds on 10 July 2025 provided only that the ATO did not determine in writing prior to that date that an additional amount was payable. Mr Bonitz asserted that the selling shareholders ‘have always maintained that [the Company] has paid the correct amount of tax’. His support for this proposition was the 22 December HSF email in which HSF said that the Company was entitled to proceed on the basis that the correct withholding rate was 15% even if, having sent out the HSF questionnaires, it had received no response: see paragraph [41] above. Mr Bonitz attached the 22 December HSF email (which by this point had been specifically contradicted by the KPMG advice). He continued:

“Given the obligations under the tax legislation to provide all the relevant information to the ATO as part of any voluntary disclosure, we would expect this point to be put to the ATO as part of any voluntary disclosure.”

50. Mr Bonitz concluded by asserting that the Company had received advice from HSF that ‘the correct approach was taken’. He specifically requested that any proposed voluntary disclosure be provided for his review and comment prior to lodgement ‘so that we [the selling shareholders] can confirm that it accurately reflects the facts and circumstances surrounding the lodgements’.

Nuvei approaches the ATO

51. Nuvei and KPMG then proceeded to deal with the ATO in relation to the issue. At first, KPMG did so informally on a ‘no-names’ basis in early May 2025. Consistently with the HSF Advice, they sought clarification of what, exactly, the ATO would need to see ‘for withholding tax purposes’ to be satisfied that an investor was entitled to the benefit of the US Treaty. KPMG specifically sought the ATO’s confirmation that a declaration by an LLC (by which it meant a completed response to the HSF questionnaire such as had been completed by at least some of the US Noteholders) would be ‘sufficient documentation to support a noteholder’s US tax residency status’. The ATO’s response was, not unreasonably, that a ‘declaration’ in that form by an LLC as to the residency of underlying investors would be insufficient. The ATO advised:

“In relation to the evidence required for US residency, we do not accept a declaration as being appropriate evidence. Where US partners are involved, we would require (at the least) that the LPs and LLCs obtain Form 6166 Certification of U.S. tax residency (and each interposed LP/LLC will also need to obtain that form) to demonstrate US residency of the partner/s.”

52. Pausing here, the Company and the Buyer were now in a very clear position, at least when reckoned by the standards of the advice they had received from both HSF and KPMG. That advice was that the Company had been obliged to withhold at 30% unless it could somehow substantiate that the underlying investors were entitled to the benefit of Art 10 of the US Treaty. This it had been unable to do, much less to the evidentiary standard required by the ATO. In relation to the biggest US Noteholders, it had been unable to secure any significant response to the HSF questionnaire at all. It followed that the Company was exposed to the very real prospect (again, when judged by reference to the HSF and KPMG advice) of having to pay not only a penalty for failing to withhold, but also general interest charge as well as potential administrative penalties.

The Voluntary Disclosure

53. So it was that on 11 June 2025, KPMG made a voluntary disclosure (the Voluntary Disclosure) on behalf of the Company of its apparent failure to withhold, together with a request for remission of penalties and interest. KPMG stated in the executive summary that the Company was ‘under a legal obligation to resolve this matter by 4 July 2025’ and that it was unlikely that it would be able to obtain Form 6166 from each of the US Noteholders as required by the ATO (see paragraph [51] above) by this deadline. The executive summary continued:

“Despite the difference in opinion regarding the [HSF questionnaires], [the Company] has made a commercial decision to satisfy its legal obligation to provide this voluntary disclosure, and to withhold and remit an additional 15% of dividend withholding tax (i.e. an incremental AUD$1,946,483) to the Commissioner by 4 July 2025, provided that the Commissioner can issue a written confirmation in response to this voluntary disclosure by 24 June 2025 confirming that the payment of AUD$1,946,483 by [the Company] shall constitute full and final settlement of all withholding tax obligations arising from the Transaction.”

54. The body of the disclosure set out KPMG’s understanding of how the correct amount of withholding was to be arrived at, which was basically consistent with the HSF Advice. Consistently with that advice, KPMG recorded that the effect of reg 40(1) of the TAR was that ‘where the [US Treaty] applies, the rate of withholding tax which needs to be withheld and remitted to the ATO can be reduced to the rate provided for in the treaty’ (my emphasis). The Voluntary Disclosure then said:

“44 Broadly, Article 10 of the [US Treaty] provides a reduced withholding tax rate of 15% for dividends that are paid by a country [sic] in one contracting state (for example, Australia) to a resident of the other contracting state (for example, the US). On this basis, at the time of payment of the Coupon, [the Company] relied on the [HSF questionnaire] (per its Legal Advice) and was of the view that the [US Treaty] applied. As such, [the Company] had withheld and remitted 15% of the Coupon paid to the US Noteholders.

45. As [the Company] has become aware that there is a difference of opinion between itself and the ATO regarding the appropriateness of the [HSF questionnaire], i.e. that the ATO holds the view that the [HSF questionnaire] is not accepted as appropriate evidence for the purposes of claiming treaty relief under the [US Treaty], [the Company] has decided to proceed with this voluntary disclosure and thereby revert to the domestic requirement to withhold and remit at 30% of the Coupon for the US Noteholders.”

55. On this basis, the Voluntary Disclosure concluded that the Company:

“… accepts that it currently has an amount of AUD$1,946,483 of dividend withholding tax outstanding, which was due to be remitted to the ATO by 6 July 2023. [The Company] submits that on issuance of the relevant assessment by the Commissioner by 24 June 2025, it will remit the additional withholding tax by 4 July 2025.”

56. The Voluntary Disclosure also sought the remission of general interest charge arising from the Company’s failure to withhold.

The ATO ‘decision’

57. On 23 June 2025, a Deputy Commissioner of Taxation (the Deputy Commissioner) wrote a letter to the Company with the heading ‘We have finished our review of your withholding tax obligations’ (the ATO Letter). The body of the letter stated that the ATO had completed its review of the Company’s Voluntary Disclosure dated 11 June 2025 and, under the subheading ‘Our decision’, stated:

“We confirm that you have correctly calculated your withholding tax liability. As a result of your voluntary disclosure, you have an additional dividend withholding tax liability of $1,946,483.”

58. Under the subheading ‘Failure to withhold penalties’, the ATO Letter stated:

“You have advised that you are committed to pay the additional withholding tax liability of $1,946,483 by 4 July 2025. On this basis, we will not apply the failure to withhold penalties as the withholding tax liability will be met upon payment.

We will monitor the payment of the additional withholding tax liability of $1,946,483. In the event that the payment is not made by 4 July 2025, a penalty equal to $1,946,483 may be imposed.”

59. Under the subheading ‘What you need to do’, the ATO Letter stated:

“You have an obligation to pay $1,946,483.”

60. The Company paid this amount to the ATO on 14 July 2025.

61. The selling shareholders and their representative, Mr Bonitz, were unhappy with this outcome and the way in which it had come about. On 14 July 2025, having been provided with the Voluntary Disclosure and the ATO Letter, Thomson Geer (solicitors for the selling shareholders) wrote a letter to KWM (solicitors for Nuvei) to assert that in the events which had happened, the condition for release of the escrow amount in clause 6.4 of the Share Sale Deed had not been met (the Thomson Geer Letter). The Thomson Geer Letter argued that the Voluntary Disclosure contained two key deficiencies, as follows:

“2.15 First, the Company did not point out to the ATO that there was, absent a penalty notification, no obligation to pay any amounts that should have been withheld but weren’t to the ATO. Rather the Voluntary Disclosure appears to have simply accepted that the Company had such an obligation without any explanation or reference to relevant provisions (unless s 16-70 is thought to be such a provision, which as we said above would be clearly wrong).

2.16 Second, the Voluntary Disclosure did not put any argument to the ATO that the appropriate withholding rate was 15%, despite a clear and straightforward argument to that effect being available. While the Voluntary Disclosure identified reg 40(1) of the Taxation Administration Regulations 2017 (Cth) as being relevant it did not explicitly disclose to the ATO that, according to the Company’s register of members (or noteholders in this case) each relevant noteholder had an address in the US, being a double tax country, so that reg 40(1)(b) applied. The only ‘rate provided for in the [US] double tax agreement’ is 15% or 5%: see Article 10. Given that reg 40(1)(b) applies, there is no basis for a conclusion, or the Company’s concession, that the appropriate withholding rate was 30% – that rate is not ‘provided for in the [US] double tax agreement’. In any event, that argument was not put and should have been.

2.17 Instead, the Voluntary Disclosure appears to have proceeded on the basis that (at [43]) the withholding rate is only reduced from 30% ‘where the US-Australia DTA applies’ and then concerns itself with the question of whether each noteholder is entitled to claim treaty relief (see [45]). The basis for that approach is entirely unclear. It is simply not what reg 40(1)(b) requires. The regulation refers only to whether each noteholder’s address is in the US, not whether the ‘US-Australia DTA applies’. The obvious reason for making reg 40(1) and s 12-210 turn on the address of the recipient of a payment is to ensure that the payer does not need to enquire into the recipient’s residence status and whether the relevant DTA actually applies. Those are quite complicated questions which require an analysis of significant factual material which would not normally be known to, for example, a company paying dividends to its shareholders.”

62. It is the analysis in paragraphs 2.16 and 2.17 that the defendants now submit is the obviously correct way of determining the amount of withholding tax that was required to be withheld. I will deal with this argument below.

63. It is finally relevant to note Thomson Geer’s proposal to resolve the issue. Its proposal was (a) for the selling shareholders to agree to the release of the escrow amount in order for it to be paid to the ATO, provided the Company would first make clear to the ATO that it was paying the amount of $1,946,483 under protest pending an objection against the Commissioner’s decision, (b) for the plaintiff to agree to a regime whereby the selling shareholders could object to the decision in the name of the Company and (c) for the parties to agree that to the extent the objection succeeded and the $1,946,483 could be recouped from the ATO, the selling shareholders would be entitled to the funds. In this way, the selling shareholders could have the benefit of the escrow funds notwithstanding that the ATO had first determined the issue adversely to the Company during the escrow period.

64. This would indeed have been a very sensible way forward. However, not only was it made after the end of the escrow period but it would have required the parties to reach an entirely new agreement as to the use of the escrow funds beyond anything contemplated by clause 6.4 of the Share Sale Deed, the rigour, apparent good sense and finality of which had been insisted upon by Mr Bonitz in his 3 April letter (see paragraph [49] above).

The issues in dispute

65. The principal relief claimed by the plaintiff is a declaration that it was entitled to the release of the sum of $1,946,483 from the escrow account pursuant to clause 6.4 of the Share Sale Deed, together with consequential relief to facilitate the release of the funds. The issue raised by that claim for relief is, in substance, whether the condition for the release of the funds was satisfied.

66. The defendants’ primary position is that the condition for the release of the funds was not satisfied. They have also brought a cross-claim in the alternative. By their cross-claim, they seek a declaration that the ATO Letter of 23 June 2025 ‘was procured by the Buyer in breach of its implied duty to cooperate arising under the Share Sale Deed … and as such, to the extent it satisfied clause 6.4 of the Share Sale Deed, any obligation of the Sellers’ Representative arising under sub-clause (b) or (c)(i) is dispensed with or otherwise waived by reason of that breach’. The defendants seek an order that the funds therefore be released to Mr Bonitz on behalf of the selling shareholders. They also seek damages in the alternative, including damages for loss of a chance.

67. The issues raised by the cross-claim are therefore (a) whether the plaintiff was subject to an implied duty to cooperate, (b) whether the plaintiff breached any such duty and (c) whether the defendants have proved that they suffered any loss by reason of such a breach.

Was the condition for release of the funds satisfied?

68. Under clause 6.4 of the Share Sale Deed, the release of all or part of the escrow funds to the plaintiff is conditioned on there being an ‘Actual Additional Withholding Tax Amount’. That expression is defined in clause 6.4(a) to refer to ‘the actual Additional Withholding Tax Amount (if any, as determined by the [ATO] and notified to the Company in writing during the Escrow Period)’.

69. The plaintiff submitted that, properly construed, clause 6.4:

“… simply require[s] the ATO to have determined (in the sense of decided) an actual additional withholding amount to be ‘applicable’ (picking up the words in cl 6.3(b)) and for that to have been communicated in writing to the Company during the Escrow Period.”

70. The plaintiff submitted that the ATO Letter was a determination by the ATO of an actual Additional Withholding Tax Amount within the meaning of clause 6.4(a) and that the condition for the release of the funds was therefore satisfied.

71. The defendants submitted that on its proper construction, the reference in clause 6.4(a) to the ATO ‘determin[ing]’ an amount of Additional Withholding Tax could only have been satisfied by the Commissioner giving written notice under s 298-10 of Sch 1 to the TAA of a penalty under s 16-30: see paragraph [27] above.

72. The starting point for the defendants’ argument was that the expression ‘Tax’ was relevantly defined in clause 1.1 of the Share Sale Deed as follows:

“Tax means:

(a) any and all tax, levy, fee, excise, premiums, assessments, charge, contribution, impost, fee, deduction, compulsory loan or withholding, that is assessed, levied, imposed or collected by any Government Agency pursuant to any law (including the payment of any amount relating to a tax offset refund) …

…

(c) any interest, penalty, charge, fine or fee or other amount of any kind assessed, charged or imposed by a Government Agency, including in respect of any of the above”

73. As the defendants submitted, ‘Tax’ was thereby defined so as to include only actual liabilities, not contingent or prospective liabilities. The defendants submitted that when this definition was read into the word ‘tax’ where it appears in clauses 6.3 and 6.4, the result was that the reference in clause 6.4(a) to an ‘Actual Additional Withholding Tax Amount’ could only be to a liability to the amount of a ‘Tax’ within the clause 1.1 meaning of that expression. They submitted that the reference in clause 6.4(a) to an amount of actual Additional Withholding Tax being ‘determined’ by the ATO was to be understood in the same light, namely as a reference to a determination giving rise to an actual liability to ‘Tax’, as defined. Thus, the defendants submitted that until such time as the Commissioner exercised his power to notify the Company that a penalty was due on the date specified in a written notice, it could not be said that he had ‘determined’ an Actual Additional Withholding Tax Amount within the meaning of clause 6.4(a).

74. I am unable to accept the defendants’ argument. When clauses 6.3 and 6.4 are read as a whole it is fairly clear that the basic contingency against which the escrow was created was that the Withholding Tax Amount referred to in clause 6.3(a)(i) – which was the amount that ‘is or will be payable’ (my emphasis) in relation to the 30 June 2023 conversion of the Notes – may turn out to be an amount greater than had already been determined by the Company: clauses 6.3(a)(ii) and 6.3(b). By clause 6.3(b), the parties acknowledged that a higher rate of withholding ‘may be’ applicable and that, if so, ‘additional withholding tax (including any interest and penalties) will apply’. This amount, being essentially the escrow amount, was defined as the ‘Additional Withholding Tax Amount’. I note that this expression necessarily refers only to a prospective liability.

75. The provisions in clause 6.4 contain a mechanism for determining, essentially, to whom and in what amounts the escrow funds will be released. They do so by reference to a determination by the Commissioner of an ‘actual Additional Withholding Tax Amount’: clause 6.4(a). In other words, it was for the Commissioner to determine what the true (or ‘actual’) ‘Additional Withholding Tax Amount’, if any, really was. Given that the Additional Withholding Tax Amount was defined as an amount that may become payable in the future, I have great difficulty in reading the reference to an actual Additional Withholding Tax Amount as being only to a liability that has already arisen, which is how the defendants put their case.

76. In my view, the reference in clause 6.4(a) to the ATO ‘determin[ing]’ an amount of actual Additional Withholding Tax is to the ATO making a decision or determination that resolves the issue of whether the correct amount of withholding tax payable in relation to the conversion of the Notes ‘is or will be’ (clause 6.3(a)(i)) more than the amount that had actually been withheld. I see no reason to give the word ‘determined’ in clause 6.4(a) anything other than its ordinary meaning. It is not confined to a decision creating or notifying a liability to ‘Tax’, as defined. I note that clauses 6.3 and 6.4 do not use that defined expression in any event.

77. Although I do not place much weight on this observation, I note that the construction for which the defendants contend would mean that the Company was unable to volunteer the amount of any additional withholding tax in order to minimise interest and penalties. This would be an unusual thing for the parties to have agreed to, since it would be potentially contrary to the interests of both the plaintiff and the selling shareholders.

78. The defendants next submitted that the ATO Letter was not one by which the ATO ‘determined’ anything because it was the mere acceptance of an offer made by the plaintiff on a without admission basis. They submitted that the letter made clear that the Deputy Commissioner had not yet considered whether the Company was actually liable to a penalty, saying only that the ATO would consider the issue in the event that payment was not made, in which case it ‘may’ impose a penalty. They submitted that the Deputy Commissioner thereby ‘refrained from considering and determining the only basis on which the Company might have been liable to pay anything to the ATO’. This, they submit, is why the ATO did not consider remitting the penalty.

79. I do not agree with that characterisation of the ATO Letter. The letter records that the Deputy Commissioner did consider the facts laid out in the Voluntary Disclosure as well as the law applicable to those facts and that she came to the view that the correct withholding amount was as proposed by the Company.

80. It is entirely consistent with such a decision having been made that the ATO would take no steps to issue a penalty notice nor to impose interest and administrative penalties provided the amount was paid by 4 July 2025. I note that the Company had not asked the ATO to remit the penalty, which is the far more likely explanation for why the letter did not mention this issue.

81. In my view, the ATO Letter was one that determined an Actual Additional Withholding Tax Amount within the meaning of clause 6.4 of the Share Sale Deed. Subject to the issues raised in the cross-claim, the plaintiff is entitled to have the sum of $1,946,483 released to it from the escrow account in accordance with clause 6.4(b)(i), with the balance to be released as directed by Mr Bonitz in accordance with clause 6.4(b)(ii).

Was there an ‘implied duty to cooperate’?

82. In Les & Zelda Investments Pty Ltd v Whitehaven Coal Ltd (No 4) [2026] NSWSC 107 (‘Les & Zelda Investments’), McGrath J surveyed the law in relation to the implication of a duty of cooperation in contract law. His Honour summarised the position as follows:

“[1148] In summary, the duty to cooperate implied by law into contracts generally consists of two aspects: a positive aspect and a negative aspect, broadly formulated as follows:

(1) It is a general rule applicable to all contracts that each party agrees, by implication, to do all things reasonably necessary on their part to enable the other party to have the benefit of the contract (positive aspect): Secured Income at 607; Australis at 123; Barker at [25], [29] and [37]; Adaz Nominees at [117].

(2) The law also implies a negative covenant into contracts not to hinder or prevent the fulfilment of the purpose of the express promises made in the contract (negative aspect): Peters at [36]; Australis at 123; Adaz Nominees at [117]; Bensons at [127]–[128].

[1149] In all of these variously expressed principles, it should not be forgotten that what is ‘necessary’ to be done by the party under the implied duty to cooperate in contracts generally must depend on the circumstances (to adopt the words used in Mackay v Dick) and the intention of the parties as manifested by the contract itself (to adopt the words used in Secured Income).”

83. His Honour saw the duty as one capable of implication in all classes of contract: see [1246]. I agree with that conclusion.

84. The plaintiff submitted that the particular duty identified by the defendants in their Commercial List Statement of Cross-Claim was a duty to do ‘all such things as were necessary on [the plaintiff’s] part to enable the Selling Shareholders to receive the Escrow Amount and the full Purchase Price’. It submitted that such a duty could not be implied in this case in light of the terms of the Share Sale Deed as a whole.

85. The plaintiff’s submissions were, I think, really directed at the content of the implied duty and the question of whether it was breached. I will deal with those issues next. However, I agree with the defendants’ starting point, namely that there was a duty to cooperate of the kind identified by McGrath J implied by law in relation to the Share Sale Deed.

The defendants’ submissions as to the content of the duty

86. Having regard to what was said by McGrath J in Les & Zelda Investments at [1148] and [1149], the defendants submitted that the implied duty to cooperate in this case included both positive and negative aspects. They submitted that the positive aspects were as follows:

“(a) If the [plaintiff] caused the Company to contact the ATO seeking a determination before the expiry of the Escrow Period, sufficient time would be provided so the ATO would determine the issue according to law and on a correct factual foundation (noting that the Escrow Period was 18 months, which gave ample time for that to happen).

(b) The [plaintiff] would ensure that any representation or submission made by the Company to the ATO in connection with any determination by the ATO of the Additional Withholding Tax Amount:

(i) was true and accurate, and fairly and objectively made;

(ii) would include any reasonably available, and/or alternatively any correct, legal argument as to why there was no additional amount of tax payable.

(c) The [plaintiff] would consult with and permit the Selling Shareholders, through the Sellers’ Representative, to review and comment upon any substantive communication by the Company to the ATO in connection with any determination of any Additional Withholding Tax Amount.”

87. They submitted that the negative aspects were as follows:

“(a) The [plaintiff] would not (through the Company) procure a ‘determination’ by the ATO of any Additional Withholding Tax Amount by:

(i) conceding and/or offering to pay an additional amount to the ATO as a compromise where there was no such liability; and/or

(ii) requesting that the ATO not consider the ‘actual’ amount of any Additional Withholding Tax (including according to law).

(b) The [plaintiff] would not (through the Company) engage in any voluntary act which had the effect of:

(i) preventing a proper determination by the ATO (including according to law); and/or

(ii) procuring a written determination by the ATO otherwise than on a correct legal and factual foundation.”

88. The defendants submitted that these aspects of the implied duty were necessary to prevent the benefit for which the selling shareholders had contracted, namely the purchase price, being seriously undermined or drastically devalued. They submitted that the foundation of the mechanism in clauses 6.3 and 6.4 was that the selling shareholders ‘agreed to bear the cost if there was actually an Additional Withholding Tax Amount, being an amount assessed, levied, imposed or collected pursuant to law’. In their submission, these aspects of the duty were necessary to prevent that foundation – and an associated assumption that the ATO would properly consider the matter and determine the issue according to law – being undermined. If, they submitted, the plaintiff could procure a determination by ‘simply offering to pay an additional amount without any liability to do so’, the very footing of clauses 6.3 and 6.4 would be seriously undermined.

89. The defendants’ case in relation to the content of the implied duty drew on authorities such as Adaz Nominees Pty Ltd v Castleway Pty Ltd [2020] VSCA 201 (‘Adaz Nominees’), E**W Blanch Pty Ltd v Cooper [2004] NSWSC 631 (‘EW Blanch’) and RDJ International Pty Ltd v Preformed Line Products (Aust) Pty Ltd (1996) 39 NSWLR 417 (‘RDJ International’), all of which were cases in which parties to sale contracts had taken steps calculated to reduce the purchase price. In Adaz Nominees, a fee under a property development and services agreement was calculated by reference to ‘TPC Group Profit’, which was based on taxable income. The applicants made a $20 million donation to charity that reduced taxable income and therefore the fee payable. A majority of the Victorian Court of Appeal (Whelan JA and Riordan AJA) held that this amounted to a breach of the implied duty to cooperate. Their Honours said at [141]:

“The $20 million donation was an action which necessarily had the effect of substantially reducing the TPC Group Profit, thereby preventing Castleway from having the benefit of the PDSA, and hindering or preventing the fulfilment of the purpose of the express promises in the PDSA, by depriving Castleway of a substantial part of its remuneration. Absent the implied term, this donation ‘seriously undermined’ and ‘drastically devalued’ the benefit for which Castleway had contracted. The capacity to make such a donation, absent the implied term, would potentially render ‘nugatory’ or ‘worthless’ Castleway’s entitlement to remuneration under the PDSA and ‘deprive it of substance’, for the profit could be given away to charity.”

90. In EW Blanch, the purchase price under a share sale agreement was payable in three instalments, the second and third of which were subject to adjustment based on the performance of the business. Bergin J found that the purchaser breached the implied duty to cooperate by taking steps to reduce the metric used to measure performance. Her Honour said at [203]:

“I am satisfied that the relevant bystander would say, ‘of course’, Blanch could not voluntarily sell the business very soon after purchase, procure the creation of Specified Accounts and then claim that because there was no income for the relevant periods it was entitled to receive the amount of the ICBI for both periods. The fact that [it] was actually later in time but still within the relevant two year period does not change the analysis. I am satisfied that having regard to the significant and fundamental advantages and risks provided for in clause 3.4, that for Blanch to take advantage of the formula within it and for Cooper to be exposed to the risks within it, there is the implication of the term that Blanch would operate the business for the period to 25 October 2001, or put another way would not voluntarily abandon or sell the business in that period.”

91. In RDJ International, the consideration for a business sale was $300,000 plus a royalty of 5% of sale proceeds for a particular product over three years. The purchaser stopped making that product which, according to Young J, amounted to a breach of the implied duty to cooperate. His Honour said at 423:

“It seems to me that both parties, or an innocent but alert bystander, if asked at the time would have said that there was an obligation on the defendant not voluntarily to do anything which would make it materially more difficult for the royalty stream to flow.” (emphasis added)

92. The defendants also relied on Bournemouth and Boscombe Athletic Football Club v Manchester United Football Club Ltd (Court of Appeal (Civil Division), 21 May 1980, unrep), where the Scottish striker Ted MacDougall was transferred to Manchester United on the proviso that £25,000 of the fee was conditional on him scoring 20 goals for his new club. However, after only two appearances for Manchester United (in which he somehow failed to score 20 goals), Mr MacDougall was transferred to West Ham United. Lord Denning MR and Donaldson LJ held that the plaintiff was entitled to the £25,000 portion of the fee by reason of the breach by Manchester United of the implied duty to cooperate. In the course of his reasons, Donaldson LJ said:

“… I have on occasion found it a useful test notionally to write into the contract under consideration a declaratory clause expressing the fact that the parties are not subject to the obligations which would flow from the clause which it is urged should be implied. I think it is useful in this case. We then get a contract reading: ‘It is further agreed that Manchester United Football Club will pay a further sum of £27,770 to Bournemouth & Boscombe Football Club when Edward MacDougall has scored 20 goals in first team competitive football for Manchester United … provided always that Manchester United shall be under no obligation to afford MacDougall any reasonable opportunity of scoring 20 goals’. It at once becomes clear that the inclusion of the proviso renders this part of the contract ‘inefficacious, futile and absurd’, to use the words that Lord Salmon used in Liverpool City Council v Irwin … . The reason is that an implied term such as the learned judge held to be applicable is indeed necessary to give business efficacy to the contract.” (emphasis added)

93. The defendants summed their case up by reference to a similar hypothesis to that proposed by Donaldson LJ. They submitted that it could not seriously be suggested that the parties intended clause 6.4 of the Share Sale Deed to read as if it also said ‘provided that the Company may offer the additional amount to the ATO, and if accepted, the ATO will be taken to have determined an Actual Additional Withholding Tax Amount whether or not it has properly (or at all) considered whether any additional tax is legally payable’.

What was the content of the duty to cooperate?

94. The starting point of the defendants’ case is that clauses 6.3 and 6.4 of the Share Sale Deed should be characterised as a mechanism designed to ensure that the ‘real amount of the purchase-money may be ascertained’. They submitted that the escrow mechanism was one designed to ensure that they received the full purchase price subject only to an actual determination of additional withholding tax.

95. I do not however agree that clauses 6.3 and 6.4 can be characterised in that simplistic way. If they could, the analogy with the cases referred to at paragraphs [88]-[92] above would be more compelling. Here, however, and unlike the arrangements considered in those cases, the Share Sale Deed dealt with an acknowledged risk in a way that quite deliberately skewed the parties’ interests. It did so because clauses 6.3 and 6.4 had the potential to allot the risk to either party, depending on when (if ever) the risk crystallised. Far from being a mechanism to ensure that the sellers received the correct purchase price, it had the potential to operate in a way that gave the sellers the whole purchase price without deduction even if the true position was that the Company had an additional withholding tax liability, provided that liability crystallised after the end of the escrow period. Or, to put that same proposition from the point of view of the Buyer, the mechanism meant that the Buyer may have to bear the burden of additional withholding tax notwithstanding that it had paid the full purchase price. These circumstances meant that the parties had legitimate but competing commercial interests in relation to how and when the withholding tax issue was resolved.

96. The divergence between the parties’ contractual rights – and hence their commercial interests in disclosure to the ATO – can be seen quite clearly by Mr Bonitz’s own 3 April letter. Mr Bonitz said that the defendants’ decision not to agree to any change to the escrow provisions was one that was based on their assessment of their own commercial position. This can only have been a reference to the fact that the selling shareholders knew that they would receive the whole of the escrow amount without deduction so long as the ATO did not make a decision prior to the end of the escrow period, regardless of whether the correct amount had been withheld.

97. These considerations mean that it would be unsafe to draw too close an analogy with the ‘purchase price’ cases on which the defendants rely. This is not a case where the parties agreed on a price, subject only to a mechanism to ensure the purchaser paid and the vendor received the ‘correct’ price. In fact, the regime they chose had the potential to lead to the opposite result.

98. The parties’ potentially divergent interests under clauses 6.3 and 6.4 mean that the content of the implied duty to cooperate in this case was far more attenuated than the defendants submit. Although I accept that the plaintiff was broadly obliged to cooperate with the defendants in the respects submitted by the defendants, this duty was subject to the important qualification that the plaintiff was first entitled to take its own legitimate commercial interests under the Share Sale Deed into account in deciding whether and on what terms to cooperate. The plaintiff’s duty to cooperate did not require it to ignore the risks to which the contract exposed it in order to mitigate the risks to which the contract exposed the defendants.

99. I recognise that in describing it in this way, the duty is one that had no work to do until the plaintiff had first taken its own contractual interests into account. But that does not rob the duty of all utility. It simply recognises, as I have sought to emphasise, that the contract was one where the particular issue on which the defendants say there should have been selfless cooperation was one in relation to which the parties had distinct and unaligned contractual interests that they were entitled to take into account.

Did the plaintiff breach its implied duty of cooperation?

100. The central premise of the defendants’ case is that, properly construed, reg 40(1)(b) of the TAR only required the Company to withhold 15% of the amount of the 30 June 2023 dividend and that the question of whether the foreign investors were entitled to the benefits of Art 10 of the US Treaty was irrelevant. They say that if the argument in support of this conclusion had been put to the ATO, it would have been accepted and no additional withholding tax would have been payable. They say that the plaintiff breached its duty to cooperate by failing to put this argument to the ATO and by failing to give the defendants an opportunity to include this argument in the Voluntary Disclosure.

What was the correct rate of withholding?

101. The amount to be withheld pursuant to s 12-210 of Sch 1 to the TAA must be determined in accordance with reg 40 of the TAR, the relevant text of which is set out at paragraphs [22] and [23] above. As the defendants emphasise, reg 40(1)(b) makes the discrimen of its application the address of the payee of the dividend, not its residence and much less its entitlement to benefits under any particular treaty. In this respect, reg 40 may be contrasted with reg 42, which specifies the rate of withholding in relation to royalties. Regulation 42 provides as follows:

The amount to be withheld under section 12‑280 or 12‑285 in Schedule 1 to the Act from a royalty is:

(a) if the person to whom the royalty is paid, or a foreign resident mentioned in paragraph 12‑285(1)(b) in that Schedule, is a resident of the other party to an international tax sharing treaty that applies to the royalty—the amount calculated at the rate provided for in the treaty; and

(b) if paragraph (a) does not apply, but the person to whom the royalty is paid, or a foreign resident mentioned in paragraph 12‑285(1)(b) in Schedule 1 to the Act, is a resident of the other party to a double tax agreement—the amount calculated at the rate provided for in the agreement; and

(c) if paragraphs (a) and (b) do not apply, but the person to whom the royalty is paid, or a foreign resident mentioned in paragraph 12‑285(1)(b) in that Schedule, is a resident of a country other than Australia—30% of the amount of the royalty; and

(d) if the person to whom the royalty is paid is a resident of Australia—30% of the amount of the royalty.

(emphasis added)

102. As the defendants submitted, reg 42 provides that the amount to be withheld from a royalty pursuant to ss 12-280 or 12-285 of Sch 1 to the TAA specifically depends on the residence of the payee and not its address.

103. Where the payee of a dividend has an address in a double tax country, the amount of tax to be withheld is then calculated at the ‘rate provided for in the relevant double tax agreement’: reg 40(1)(b). The defendants submitted that the task for the payer of a dividend is therefore to withhold an amount based only on the rate provided for, not based on its own assessment of the payee’s actual entitlement to treaty benefits.

104. The defendants submitted that this construction was one that was supported by the textual considerations to which I have referred (particularly the reference to the address of the recipient, not its residency) and to considerations of context and statutory purpose. They submitted that in making the rate dependent on the address of the recipient, the legislation was pursuing a clear purpose of ensuring that there was certainty in the payer’s obligation.

105. Thus, the defendants submitted that the HSF Advice was wrong and that there was never any question that the correct rate of withholding was 15%. They say that the focus on the tax residency of the investors – being a concept relevant to the investors’ liability under Div 11A of the ITAA 1936, but wholly irrelevant to the Company’s withholding obligation under s 12-210 of Sch 1 to the TAA – was misguided.

106. It is however appropriate to recognise that there is an available alternative construction of reg 40, namely that in referring to the ‘rate provided for in the relevant double tax agreement’ the regulation requires the amount of withholding to be the amount that is operative under the treaty in the particular circumstances of the case. On this view of the legislation, the fact that the recipient of the dividend has an address in a treaty country is not determinative. This construction gains support from the fact that the basic purpose of the withholding regime is to provide for the collection from Australian-resident payers of tax due by foreign payees. It also recognises that the scheme of the legislation otherwise seeks to align the withholding obligation of the payer with the obligation of the payee under Div 11A of the ITAA 1936 by the mechanism in s 18-30 of Sch 1 to the TAA. That provision provides that amounts withheld by the payer are credited towards the payee’s liability. It also gains support from the fact that in the US Treaty (as in certain other double tax treaties), Art 10 refers to more than one rate of tax, depending on the overall nature of the payee’s shareholding. It is therefore always necessary to take account of a payee’s circumstances and not just their address in working out the correct rate of withholding.

107. Be that as it may, I am unable to accept that reg 40 of the TAR pursues this objective at all costs, including at the expense of the need for certainty in the payer’s obligations. In my view, the overall scheme of the withholding provisions shows that the legislation is seeking to balance these broad objectives. The choices of language in reg 40 show that in the case of dividends, the withholding obligation turns on the ‘address’ of the payee and not its tax residence. The language also shows that the rate is to be worked out by reference to the ‘rate provided for’ in the relevant treaty and not by reference to the treaty benefit to which the payee is actually entitled. It is true that double tax treaties to which Australia is a party almost uniformly refer to two rates of withholding for dividends, but the question of which of those rates applies only turns on the extent of the payee’s voting power in the payer itself: see Art 10(2)(a) of the US Treaty.

108. I therefore accept that the defendants’ construction of reg 40 is correct. In my view, the scheme of the legislation recognises that there is a need for certainty in a payer’s obligations. This is particularly so in circumstances where the payer of a dividend becomes liable for a penalty for failure to withhold and where there is no time limit on the ability of the Commissioner to give notice of such a penalty. Certainty is achieved by making the amount of withholding dependent on the address (not the residence) of the payee and by calculating the withholding amount at the rate provided for in the treaty, not on the basis of the actual operation of the treaty in relation to the payee. In the context of payments of dividends by Australian-resident companies to foreign investors, whose individual circumstances will very often be quite unknown to the payer, the promotion of certainty in this way is a statutory purpose that bears significantly on the task of construction.

Did the plaintiff breach its duty to cooperate?

109. It does not however follow that the plaintiff breached its implied duty to cooperate by failing to put this argument to the ATO, or by failing to permit Mr Bonitz to review the proposed Voluntary Disclosure on behalf of the other defendants. In determining this issue, it is important to recognise that the implied duty to cooperate is conditioned by the concept of reasonableness: Wellington v Huaxin Energy (Aust) Pty Ltd [2020] QCA 114 at [78] (Philippides JA, Morrison JA and Ryan J agreeing).

110. The plaintiff’s conduct in seeking to resolve the withholding tax issue must be judged in the context of the advice it actually received. That advice was given by eminent and highly experienced practitioners who advised, wrongly in my respectful view, that the amount of withholding should have been 30% unless the Company was able to substantiate the investors’ entitlement to treaty benefits.

111. Several things flow from this. First, I do not accept that the plaintiff breached any implied duty by failing to put the argument to the ATO. No-one ever suggested to it during the escrow period that it should. Neither HSF, KPMG nor anyone else – including Mr Bonitz and the solicitors who acted for the selling shareholders and who were closely focused on this issue – ever expressed any different view about how the withholding tax issue should be resolved prior to the end of the escrow period. When the HSF analysis was put to the ATO during the escrow period, the ATO agreed with it.

112. In fact, it was only on 14 July 2025, well after the end of the escrow period, that anyone articulated what I consider to be the better construction of reg 40.

113. Secondly, I do not accept the defendants’ characterisation of the plaintiff’s conduct generally, which was that it simply decided to ‘procure’ an adverse determination and to pay the additional withholding tax regardless of the true position. The defendants especially emphasised that the plaintiff told the ATO that it had made a ‘commercial decision’ to make the Voluntary Disclosure. This, it submitted, shows that the plaintiff made the disclosure and paid the additional withholding tax not because of any genuine view about the correctness of the 15% withholding, but because it judged payment to be in its own commercial interests. Implicit in this is that the plaintiff chose to sacrifice the defendants’ legitimate contractual entitlements in favour of its own commercial interests.

114. As I have explained, the plaintiff had a legitimate commercial interest under the Share Sale Deed in ensuring that the issue was resolved during the escrow period. Given this fact and given the advice it had received, how could it not take its own commercial interests into account in deciding to make the disclosure? I do not consider that there was anything wrong with the plaintiff doing so. It is probably true of all voluntary disclosures to the ATO that they are made in what the taxpayer considers to be its commercial interests.

115. Thirdly, I do not accept that the plaintiff breached any implied duty by failing to give the defendants an opportunity to comment on the specific wording of the Voluntary Disclosure. The plaintiff had told Mr Bonitz the gravamen of what it was proposing to tell the ATO and Mr Bonitz understood the implications. He made clear in his response (see paragraph [49] above) that he understood what was going to be disclosed but that he disagreed with it. The defendants were not denied any opportunity to enlighten the plaintiff as to the correct construction of reg 40.

116. Furthermore, Mr Bonitz’s response showed that the contribution he had in mind was very likely to be distinctly unhelpful. Although he asserted that the selling shareholders had ‘always maintained’ that the Company had paid the correct amount of tax, this was not a reference to the argument now put forward by the defendants. Rather, his assertion took as its premise that the HSF Advice was correct but that the ATO would somehow accept a lower rate of withholding provided only that the Company had made some token attempt to determine what the payees’ treaty entitlements were by sending them the HSF questionnaire. I do not consider that there was ever any prospect of the ATO agreeing that that was how the provisions operated. It was a proposition that had already been specifically doubted by KPMG. The ATO’s response to the ‘no-names’ approach put this issue beyond doubt. Mr Bonitz’s suggestion that the 22 December HSF email should be provided to the ATO was not constructive. If that was what cooperation looked like (and I do not accept that it was), the plaintiff was wise to avoid it.

117. Fourthly, I do not accept the submission that the plaintiff’s commercial need to resolve the issue quickly towards the end of the escrow period can be attributed to any failure on its part to cooperate with the defendants during the earlier period. The plaintiff had been cooperating with the defendants to resolve the issue by reference to the advice that had been received, which was to verify the investors’ treaty entitlements. This cooperation had taken place over many months. There can be no criticism of the plaintiff for having acted in accordance with the advice it received in relation to this issue.

118. In my view, the plaintiff did not breach its implied duty to cooperate with the defendants.

Damages

119. If I am wrong in my analysis and if the defendants were wrongly denied the chance to put the correct argument to the ATO, the evidence does not allow me to make an informed assessment of what their loss is. There is no evidence of what a cooperative voluntary disclosure would actually have looked like. There is certainly no evidence that the correct construction of reg 40 had occurred to any of the defendants or their advisers during the escrow period.

120. Nor is there any evidence as to the ATO’s practice in relation to this issue or the likelihood of the ATO immediately accepting an argument that the 15% rate of withholding was correct. Even if what I consider to be the more favourable construction of reg 40(1)(b) of the TAR was explained to the ATO during the escrow period, it is not at all obvious that the ATO would have accepted it immediately. The defendants submitted that theirs is the legally correct construction and that I should assume the ATO would have acted according to law and accepted it.

121. I readily accept that the ATO would act according to law but that is hardly the issue. The proper construction of reg 40(1)(b) is a matter that, so far as I can tell, has never been the subject of judicial decision. Nor, so I was informed, is it a matter about which the ATO has published any guidance, either in the form of a public ruling under Div 358 of Sch 1 to the TAA or otherwise. The Deputy Commissioner who signed the ATO Letter expressed the view, which I take to be honestly held, that KPMG had correctly calculated the amount of additional withholding tax that should have been withheld.

122. Given the absence of any judicial decision dealing with the topic and given that there is a respectable argument that the KPMG position set out in the Voluntary Disclosure was correct, I have no sound basis to conclude that the ATO would simply have agreed with the analysis that the defendants now put to me if it had been put to the ATO. Even if it had been put, the ATO would have been entitled to form its own contrary view and, if necessary, have that view tested in court.

123. Had I found that the plaintiff breached its duty of cooperation, I would have awarded only nominal damages for the loss of a chance.

124. In my view, the cross-claim should be dismissed.

125. The conclusion I have reached may seem unfair to the selling shareholders because they have effectively borne the cost of a withholding tax liability that, in my view, the Company did not have. However, that is ultimately a consequence of the rather idiosyncratic mechanism chosen by the parties to allot the risk associated with the potential liability. It must be remembered that if the Company had not made the Voluntary Disclosure which it did, then on the advice it had received it was facing an equally unfair outcome, namely one in which it would bear the cost of additional withholding tax together with interest and administrative penalties notwithstanding that it had paid the full purchase price under the Share Sale Deed. Had the parties instead chosen a mechanism such as was thoughtfully but belatedly suggested by Thomson Geer on 14 July 2025, namely one that allotted the potential risk to the selling shareholders but which also gave them the ability to mitigate that risk in their own interests, the risk could have been managed in a way that caused no unfairness to either party, whatever the outcome.

ORDERS

126. The orders of the Court will be as follows:

127. A declaration that pursuant to clause 6.4(b) and (c) of the Share Sale Deed dated 9 November 2023, the amount of $1,946,483 was to be released by 1 July 2025 from the designated escrow account held by the escrow agent, Perpetual Corporate Trust Limited, (the Escrow Account) to the plaintiff, and that the defendants must procure the amount of $1,946,483, held in the Escrow Account, be released to the plaintiff together with any pro-rated Accrued Interest pursuant to clause 7 of the Escrow Deed dated 21 December 2023 and the balance be released as directed by the twenty-first defendant.

128. An order that the defendants provide to the plaintiff within 24 hours a signed direction in the form set out in Schedule 3 to the Escrow Deed for the amount of $1,946,483, held in the Escrow Account, to be released to the plaintiff together with any pro-rated Accrued Interest to the date of this order, and the balance to be released as directed by the twenty-first defendant.

129. The cross-claim is dismissed with costs.

130. The defendants are to pay the plaintiff’s costs of the proceedings.

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