Plaintiff v Defendant

DAMAGES - Assessing the value of a lost opportunity - Contrasting hypothetical counterfactual scenarios - Defendant claims plaintiff 'better off' as a result of the breach of contract - Sellars v Adelaide Petroleum NL (1994) 179 CLR 332 - Malec v JC Hutton Pty Ltd (1990) 169 CLR 638.

1 In 2006, four vendors of point of sale ('POS') software to pharmacies formed a joint venture company known as PharmX Pty Ltd ('PharmX'). The four POS vendors were the plaintiff, Corum Systems Pty Ltd ('Corum'), PCA NU Systems Pty Ltd (which later became Fred IT Group Pty Ltd) ('Fred'), Mountaintop Systems Pty Ltd ('Mountaintop') and Simple Retail Pty Ltd ('Simple Retail'). PharmX operates a gateway which serves as a portal for the electronic ordering of pharmacy products. The gateway operates as an electronic data interchange ('EDI'), which processes electronic ordering and invoicing communications between retail community pharmacies and their suppliers.[1] The suppliers include Symbion Health Limited ('Symbion'), Sigma Pharmaceuticals (Australia) Pty Ltd ('Sigma') and Australian Pharmaceutical Industries Ltd ('API'), among others.

2 Each supplier uses its own ordering, invoicing and inventory management system and as such has its own requirements for the data (and data formatting) needed to process electronic orders and invoices. The benefit of the gateway is that it removes the need for each POS vendor to build custom software for each supplier so as to allow its POS system to communicate with the supplier, with the resultant need to update that software each time the supplier makes a change to its system. The gateway avoids this problem by providing a single portal to connect to POS systems. When an order is sent by a pharmacy through the POS software, the gateway converts the data into the format required by the relevant supplier. PharmX works with the suppliers to update the gateway to interface with the supplier's systems. In return for this, PharmX charges suppliers a monthly subscription fee for each account a pharmacy holds with that supplier that is connected to the gateway.

3 To enable a pharmacy to order from suppliers using the PharmX gateway, the pharmacy's POS vendor needs to build support for the gateway into its POS software. Accordingly, PharmX and the various non-shareholder POS vendors enter into third party access agreements, which provide the POS vendor with access to the gateway. PharmX provides the third party POS vendors with training and technical support, and pays a monthly 'rebate' to the POS vendor, which is calculated by a formula reflecting the amount PharmX earns from each supplier according to purchaser order lines transmitted to that supplier from the particular POS vendor's software. The POS vendor is required to promote the gateway to its customers and convert them to users of the gateway. Corum, Fred, Mountaintop and Simple Retail entered into shareholder access agreements with PharmX on similar terms, save that the vendor rebate mechanism is different.

4 Each of Corum, Fred, Mountaintop and Simple Retail acquired units in the PharmX Unit Trust (the 'Trust') established by a deed of trust (the 'Deed') on 27 February 2006. The initial unitholders were Corum and Fred as to 30 units each and Mountaintop and Simple Retail as to 20 units each. Relatedly, each unitholder acquired a corresponding shareholding in the trustee of the Trust, PharmX, and entered into a stapled securities agreement with PharmX (the 'SSA') and each of the other holders (together being the 'Stapled Security Holders' and individually, the 'Stapled Security Holder') on the same date.

5 The SSA contains a formula for determining the proportions in which the net income of the Trust is to be distributed to unitholders.

6 An integer in the formula is the number of product lines registered to the PharmX gateway by each supplier. This has the consequence that Stapled Security Holders receive a greater share of the income of the Trust if users of its POS software generate more product order lines. The net income is then distributed, not by reference to the proportion of units in the trust but rather, in broad terms, to the number of products ordered by the pharmacies using the particular holder's POS software.

7 The SSA contains a provision which, in substance, requires any Stapled Security Holder who has been subject to a change of control (as defined in the SSA) to give notice to the trustee, PharmX, of the change. In the event of a change of control, the other Stapled Security Holders under the SSA may acquire the holdings held by the party that underwent the change of control, at a cash price determined by a formula under the SSA. For this to occur, however, the remaining Stapled Security Holders, holding 40% or more of the stapled securities not owned by the party the subject of the change of control, must agree. In essence, the cash price formula provides for the units to be acquired at a price calculated as a multiple of four times the proportion of trust distributions paid to the seller as a proportion of the total trust distributions paid to all holders over the last two completed financial years.

8 It is now common ground that Fred underwent a change of control on 30 September 2013. The change of control arose as a consequence of the acquisition by Telstra Corporation Ltd ('Telstra') of a 50% shareholding in Fred. Fred notified the other holders about the Telstra acquisition at that time. No case is advanced to the effect that Fred knew that the effect of the Telstra acquisition was to give rise to a change of control within the meaning of the SSA, until 21 November 2019, when this Court handed down reasons in PharmX Pty Ltd (in its capacity as trustee of the PharmX Unit Trust) v Fred IT Group Pty Ltd (No 3).[2]

9 Following that judgment and the related orders, on 13 December 2019, Fred gave notice of the change of control by reason of the Telstra acquisition back in 30 September 2013 (the 'December 2019 Notice').

10 On 2 March 2020, each of Daleflag Pty Ltd ('Daleflag'),[3] Mountaintop and Corum gave notices of election under the SSA to the effect that Fred was taken to have given an irrevocable transfer notice in respect of its securities in PharmX.

11 Fred thereafter transferred its shares and units in PharmX to Corum, Mountaintop and Daleflag in their respective proportions, effective from 2 April 2020, in exchange for payment of $1,831,397.58.

12 Before this occurred, a dispute arose as to whether the price was to be calculated by reference to the last two financial years which preceded the giving of the December 2019 Notice, as Fred contended, or whether the relevant two year period prefaced the date of the change of control of 30 September 2013, as Corum, Mountaintop and Daleflag contended.

13 Ultimately, Corum, Mountaintop and Daleflag acquired Fred's interest for a price referable to the 2 years which preceded the giving of the December 2019 Notice, on the basis that they reserved their rights to argue that the price was wrongly calculated.

14 It is not in dispute that had the earlier time period been applicable, the price would have been $637,444.

15 Corum later acquired all of Daleflag's and Mountaintop's interests in the Trust, including all rights relevant to this proceeding. Corum now seeks to recover the alleged overpayment of $1,193,953 (the 'Overpayment Claim').[4] Corum advances its claim on various bases, alleging:

(a) that the proper construction of the SSA requires the price to be calculated by reference to the 2 years preceding the change of control, and not the giving of the notice;

(b) alternatively, that Fred's failure to give notice in a timely fashion constituted a breach of the SSA;

(c) alternatively, that the giving of the notice late, in December 2019, constitutes a separate breach of the SSA;

(d) further, that Fred's failure to provide it with relevant documentation with respect to the Telstra acquisition constitutes a breach of implied terms of the SSA obliging Fred to cooperate and act in good faith; and

(e) separately, that Fred's conduct at various times during the period from the change of control to the giving of the December 2019 Notice constitutes misleading or deceptive conduct within the meaning of s 18 of the Australian Consumer Law, forming sch 2 to the Competition and Consumer Act 2010 (Cth) ('ACL').

16 The resolution of Corum's claims for breach of contract largely turn on the proper construction of the SSA, the content of the implied terms of cooperation and good faith and the related question of whether any of the contract claims are barred on limitation grounds and, if they are, whether the limitation period should be postponed in the circumstances contemplated by s 27(b) of the Limitation of Actions Act 1958 (Vic) (the 'Limitations Act'), as the relevant right of action has been concealed by fraud. The latter issue, along with the question of whether Fred's conduct in the period after 30 September 2013 was misleading or deceptive, requires analysis of the dealings between the Stapled Security Holders in the period from 30 September 2013 to 13 December 2019. That analysis is somewhat fact-intense, but is, for the most part, evidenced by correspondence passing between the parties or reliable contemporaneous documents in the form of board minutes and the like. The fact-finding exercise involved therefore is not complex.

17 In order for any breach of contract or misleading and deceptive conduct to amount to more than nominal damages, however, Corum must establish that unitholders holding 40% or more of the stapled securities would have elected to acquire Fred's holding in PharmX. Corum accepts that its preference, all other things being equal, was for Fred to remain part of PharmX, notwithstanding the change of control. Simple Retail and Mountaintop, however, say that had they been aware of the change of control, they would have acquired Fred's holding. In that event, Corum says that it too would have joined in the acquisition.

18 Accordingly, for the Overpayment Claim to succeed, Corum must establish that in the hypothetical event that Fred had given notice soon after 30 September 2013, Mountaintop and Simple Retail would have wished to acquire Fred's holding in PharmX and that each of them had the capacity to fund their proportionate share of the acquisition. The question of whether each would have so chosen is in issue, as is Mountaintop's capacity to fund its share of the acquisition price (but not that of Simple Retail). Corum's conduct in that respect is not in issue; it is common ground that if Mountaintop and Simple Retail chose to exercise their rights then Corum would have joined in. Nor is Corum's capacity to fund its proportionate share of the price in dispute.

19 Thus, the first hypothetical that needs to be resolved is whether Mountaintop and Simple Retail would promptly have 'agreed' that Fred was taken to have given an irrevocable transfer notice after undergoing a change of control on 30 September 2013 and whether as a result Corum, Mountaintop and Simple Retail would have exercised the rights of pre-emption that would thereby have been enlivened and acquired Fred's interest in PharmX (the 'Corum Counterfactual').

20 Fred in fact remained a unitholder until 2 April 2020. Over that time, it received distributions from the Trust totalling $6,586,999.20. In addition to the Overpayment Claim, Corum also seeks damages in respect of these distributions, which it says were wrongfully paid to Fred, as such distributions would otherwise have been available to the other unitholders.[5] As such, Corum claims damages for Fred's breach of contract of an amount referable to the distributions wrongly declared and paid to Fred in the period in respect of which Fred remained a unitholder but would not have, if its own breach of contract and/or misleading and deceptive conduct did not occur, as the case may be (the 'Wrongful Distributions Claim').

21 Fred meets this part of Corum's case by alleging that had Fred exited the Trust, it would have established a rival gateway to the PharmX gateway, which gateway would have so reduced the profits of PharmX that Corum, Simple Retail and Mountaintop would have received less distributions than they actually received over the period during which Fred remained a unitholder.

22 Thus, Fred's case is that Corum, Mountaintop and Simple Retail were better off as a result of Fred remaining a unitholder from 30 September 2013 onwards, as a consequence of which the unitholders suffered no loss. This aspect of the case requires consideration of another hypothesis, namely, if Fred had exited shortly after 30 September 2013, would it have established a rival gateway and what effect would the rival gateway have had on PharmX's profits, and hence the distributions that would have been received by the remaining Stapled Security Holders (the 'Fred Counterfactual'). The Fred Counterfactual is both fact-intense and very much in issue.

23 At the outset, it is convenient to identify the witnesses called in the proceeding and outline, in brief terms, the substance of their evidence.

24 Corum called six lay witnesses and two expert witnesses. Corum's first lay witness was David Clarke, the chief financial officer of Corum Group Limited ('Corum Group'), the parent company of Corum, from 2013 and its CEO from January 2017 until August 2020. Mr Clarke was the company secretary of Corum from 18 February 2015 until 31 August 2020 and was an alternate director of PharmX from March 2018 and its company secretary from 10 January 2018 until 31 August 2020. Mr Clarke gave largely formal and uncontroversial evidence as to the timing of relevant events.

25 Corum also called David Wenham. Mr Wenham, along with his wife, was a director and owner of Mountaintop. Mr Wenham gave evidence as to the events between 2013 and 2020 and in particular the interactions between the unitholders over that period. The most contentious part of Mr Wenham's evidence was whether Mountaintop would have wanted to exercise its pre-emptive rights to take a transfer of Fred's unitholding in the Trust and its capacity to fund its proportionate share of the acquisition price. Although Fred accepted that Mr Wenham was a generally straightforward witness, it submitted that his evidence should be treated with some caution, as it was impacted by the passage of time and events. More importantly, Fred submitted that on the key point as to whether Mountaintop could afford to fund its acquisition of the Fred unitholding, Mr Wenham's oral evidence in cross examination directly contradicted his evidence in chief given by witness statement.

26 Corum's third witness was Kevin James-New. Mr James-New was the owner and controller of Simple Retail until February 2016. Effective from 23 October 2015, the PharmX stapled securities formerly held by Simple Retail were transferred to Daleflag, another company solely owned and controlled by Mr James-New. Mr James-New's evidence covered much of the same ground as that given by Mr Wenham, albeit at greater length. Whilst Corum accepted that Mr James-New was a loquacious witness whose memory of the detail of certain names and events was imperfect, it nevertheless submitted that Mr James-New was an honest witness whose evidence should be accepted. Fred submitted that Mr James-New was an obtuse witness prone to giving speeches and submitted that his evidence was confused and evasive, and further, where there is a conflict between the oral testimony of Mr James-New and a document, the document should be preferred.

27 Philip Nicholas England, Corum Group's current executive chairman and interim CEO, also gave evidence. Mr England's evidence largely related to matters relevant to the quantification of Corum's loss and damages claim and as to the sequence of relevant events not in dispute. Fred rightly characterises Mr England's evidence as largely unremarkable, but submits that insofar as his evidence related to what would have occurred in the period from 2013 to 2020, it was speculative and should carry no weight.

28 Corum also called Glenn Bond. Mr Bond is a software development consultant who had performed work for PharmX from late 2007. Mr Bond and his company were also engaged by Fred in 2020 and 2021 as a contractor in connection with Fred's rival gateway project known as MedViewX, which is described in more detail below. Mr Bond was also chosen by Fred to interrogate PharmX's database during the discovery phase in the proceeding. Fred does not make any challenge to Mr Bond's evidence and submits that there are no significant inconsistencies between his evidence and the witnesses called by Fred.

29 The last of Corum's lay witnesses was Andrew Stratigos, who has been Corum Group's enterprise architect since August 2020. Mr Stratigos gave evidence as to the reliability, stability, functionality and security of the PharmX gateway. In addition, he formulated an estimate of the cost and time that it would take to build a rival gateway. Fred submitted that Mr Stratigos's estimate as to the cost of establishing a rival gateway was grossly inflated and should not be accepted.

30 Corum also called two expert witnesses; Tom Hird, a competition economist and Owain Stone, a forensic accountant and a partner of KordaMentha.

31 Dr Hird gave evidence as to the nature of the market in which the PharmX gateway operated and in particular as to matters relevant to the Fred Counterfactual, namely the viability of the establishment of the rival gateway and its effect on the PharmX gateway.

32 Dr Hird's evidence was responsive to that of Philip Williams, an economist called as an expert witness by Fred. Fred submitted that Dr Hird was reluctant to answer questions directly put to him and was ultimately shown to be partial to Corum's case, making uninstructed assumptions that were not identified in his report and engaging in unbecoming speculation.

33 Mr Stone's evidence was responsive to the evidence of Tony Samuel, a forensic accountant called as an expert witness by Fred. In the end, Mr Stone and Mr Samuel agreed on all matters of substance, with the utility of their evidence dependent upon acceptance or otherwise of the instructions they were given, which were referable to various aspects of the Fred Counterfactual.

34 Fred's principal lay witnesses were Paul Naismith, Fred's CEO since its incorporation in June 2004, and Anthony Johnston, Fred's financial controller or CFO since June 2004. Mr Naismith was Fred's appointed director of PharmX from the date of its incorporation until 2 April 2020 and Mr Johnston was also PharmX's company secretary between 13 January 2006 and 19 December 2017. Mr Naismith's evidence covered the history of the development of the PharmX gateway, as well as the relevant interactions between key participants from 30 September 2013 to April 2020. Importantly, Mr Naismith also gave evidence about the Fred Counterfactual and specifically the establishment of the rival gateway and its viability. Whilst Corum made no submission that Mr Naismith gave deliberately false evidence, it submitted that Mr Naismith's evidence was infected by a level of overconfidence, hindsight bias and was devoid of any meaningful recollection of relevant events, particularly insofar as it related to the Fred Counterfactual.

35 Mr Johnston's evidence was largely uncontroversial and covered both the establishment of the PharmX gateway, its operation from 2006 to 2013, distributions made over that period, the Telstra acquisition, relevant events at PharmX from 2014 to 2020 and distributions made over that later period. Mr Johnston also gave more contestable evidence-in-chief briefly as to the viability of the establishment of a rival gateway and the progress of MedViewX. In relation to Mr Johnston's evidence which concerned MedViewX and its significance to the Fred Counterfactual, Corum made a similar submission as to the reliability of Mr Johnston's evidence that it did in relation to Mr Naismith's evidence, namely, that it was affected by hindsight bias and overconfidence as to the ability to establish a rival gateway.

36 Fred also called Richard Vincent, the former CEO of API who was subpoenaed to give evidence. Mr Vincent was a senior executive of API at the time that it first entered into an agreement with PharmX. Mr Vincent gave evidence of API's willingness to participate in a rival gateway over the period 2013 to 2020. Corum accepted that Mr Vincent was an honest witness and agreed that his evidence that API would have been open to participating in any rival gateway built by Fred from October 2013 onwards should be accepted. However, it submitted that whether in fact API would have pursued such a course is a matter of considerable doubt and is impacted by the alleged difficulties that Fred has faced in its pursuit of MedViewX.

37 Fred also tendered, without objection, a witness statement of Brad Lumb, the former managing director of PharmX, who now works for Fred on MedViewX. Mr Lumb's evidence went solely to the making of distributions from the Trust and was relevant only to the legal action commenced by Fred against PharmX in proceeding number S ECI 2021 01394 for unpaid distributions alleged to be owing by PharmX in its capacity as trustee (the 'Fred Proceeding'). The Fred Proceeding was heard and decided at the same time as this proceeding.

38 Fred called expert evidence from Dr Williams and Mr Samuels. Dr Williams' evidence was relevant to the establishment of a rival gateway and as such, the Fred Counterfactual. Mr Samuels' evidence sought to quantify the effect of the successful establishment of a rival gateway on the profits of PharmX. As noted above, the mathematical calculations undertaken by Mr Samuels were in the end uncontroversial. What remains controversial is the viability of the assumptions relating to the Fred Counterfactual, which underpinned Mr Samuels' calculations.

39 PharmX's revenue is derived from payments made by suppliers based on a fixed fee per pharmacy per month. When PharmX commenced operations in 2007, it entered into 'use agreements' with three major pharmaceutical wholesale suppliers, API, Sigma and Symbion. The use agreements provided for the suppliers to use the PharmX gateway on payment of a fixed fee of $12 per month per approved business (pharmacy) using the gateway. The suppliers negotiated different fee structures, including differing upfront payments and differing numbers of pharmacies in respect of which fees were paid. Agreements were entered into with most suppliers and most pharmacies. Over time, the $12 fee increased, either pursuant to consumer price index clauses or renegotiation. The use agreements do not bind the suppliers to use the PharmX gateway exclusively and there are no minimum usage requirements.

40 PharmX has no direct relationship with the pharmacies; instead, PharmX facilitates access for pharmacies to the gateway via the POS vendor used by that pharmacy. Each pharmacy uses POS software supplied by one of Corum, Fred, Simple Retail or Mountaintop, or by a third party POS vendor.

41 Third party POS vendors enter into rebate agreements with PharmX, the terms of which provide for the payment to the third party POS vendor of a percentage (25%) of the revenue generated from wholesalers supplying to pharmacies using the third party POS software. The payment is made in exchange for the third party POS vendor adding, maintaining and supporting PharmX connectivity, within its software application, of the pharmacy customer base.

42 PharmX also entered into access agreements with each of its four holders. Pursuant to the shareholder access agreements, the shareholder is entitled to a proportion of the trust income based on the relative proportions of purchase volume by supplier calculated and paid pursuant to the Deed.

43 The PharmX profits are distributed to unitholders according to an agreed formula set out in Schedule 2 of the Deed, which is broadly to the following effect:

(a) an analysis is undertaken by the PharmX general manager of the purchase order lines ordered via the systems associated with each unitholder and the relative percentage of the total orders per joint venture partner is determined;

(b) the proposed distribution is put to the PharmX board for approval; and

(c) once the board approves the distribution, money is distributed on that basis.

44 As a result of the distribution formula, the unitholders are incentivised to increase the usage and therefore grow the exchange to increase their percentage distribution.

45 In the early period of PharmX's operation, Corum had the largest market share in providing POS software to pharmacies, followed by Fred, and then by the two smaller companies, Mountaintop and Simple Retail, who received significantly smaller distributions. The early distribution percentages largely reflected the market share of the four holders. In the financial years ending 30 June 2011 to 30 June 2013, the dollar value and approximate percentage of distributions made to each holder was as follows:

46 Each holder was entitled to representation on the PharmX board. Throughout, Mr Naismith was Fred's nominee, Mr Wenham was Mountaintop's nominee and Mr James-New was Simple Retail's nominee. Corum's nominee director changed regularly. Graham Cunningham was appointed by the directors as chair.

47 In around 2011, Fred approached Telstra to see whether Telstra wanted to acquire part of Fred's business. Fred's shareholders at the time comprised the Pharmacy Guild (an association of community pharmacy owners) which owned 50% of the shares, along with Mr Naismith who held a 25% share and another Fred executive, Rod Unmack, who also held 25%. Telstra showed an interest in buying the entirety of the Fred business and as a consequence entered into a confidentiality agreement. Telstra's investment case analysis prepared in November 2011 described Fred as Australia's leading pharmacy software developer, deriving annual revenue of $25 million. Telstra regarded acquisition of a majority interest in Fred as a 'strong strategic fit' which would create a 'pharmacy anchor tenant' for Telstra's proposed health portal.

48 According to the Telstra investment case analysis, Fred had a 52% market share in the dispensing software market, a 34% share of the pharmacy broadband market and 16% of the pharmacy POS software market. Its major competitors included Corum, which at the time generated $14 million in revenue from pharmacy and had the number one market share in the POS market. Telstra's analysis described Corum as the industry leader before Fred entered the market in 1992.

49 Fred's then competitors in the POS space also included Minfos, a subsidiary of Symbion, along with Simple Retail and Mountaintop. The latter two were described respectively as 'a low price low functionality privately held competitor with ageing management' and 'a privately held competitor with negligible [market] share'.

50 In the intervening period and in addition to its other involvement in the dispensing software, POS software and pharmacy broadband markets, Fred also operated an electronic online script exchange known as eRx. Fred's distributions from PharmX accounted in the 2010 financial year for $240,000 of Fred's earnings before interest, tax depreciation and amortisation ('EBITDA') of $5.2 million.

51 In December 2011, Telstra made a non-binding indicative offer to Fred's shareholders to acquire a 51% shareholding in Fred, based on a valuation for Fred of $50 million. Ultimately, the acquisition of a 51% shareholding in Fred did not proceed.

52 In November 2012, PharmX engaged Deloitte Corporate Finance ('Deloitte') to prepare an analysis in order to, among other things, assist unitholders to decide whether or not they wished to pursue a divestment of the business ('Project Accord'). Deloitte assessed an indicative enterprise value in the range of $8.5 to 12 million, based on a variety of pricing methodologies. The valuation reflected an implied EBITDA multiple of between 6.7 and 9.5. At the time, the divestment was supported by Fred, Mountaintop and Simple Retail, but not Corum.

53 By June 2013, there were approximately 4,570 pharmacies using the PharmX gateway. PharmX's most significant customer was DHL, which had a little under 4,000 pharmacy accounts connected to the gateway. Additionally, by April 2013, revenue from suppliers, other than DHL and the three major wholesalers, exceeded revenue from those customers for the first time. There were now 26 suppliers connected to the PharmX gateway. Suppliers were increasingly passing through the PharmX fee to their pharmacy customers.

54 In 2013, Telstra revisited its proposal to acquire an interest in Fred, and on 6 August 2013, Telstra and Fred's shareholders exchanged an executed term sheet where Telstra was to acquire a 50% shareholding in Fred by acquiring the entirety of Mr Unmack's shares and a proportion of the shareholding held by Mr Naismith and the Pharmacy Guild. The purchase consideration was $32.5 million, of which $25 million was payable on completion, with the balance of up to $7.5 million conditional upon certain performance hurdles being achieved, relating to the eRx income derived by Fred achieving certain volumes in the financial year ending 30 June 2014. The term sheet contemplated a board of six directors, with Telstra being entitled to appoint three, including the chairman who would have a casting vote.

55 On 14 August 2013, Simon Jay, a solicitor from Riordans, emailed Mr Cunningham, copying Mr Johnston and Mr Naismith, advising that he had reviewed an unsigned copy of the share sale agreement between Telstra and the Fred vendors and concluded that an agreement to sell Telstra 50% of Fred's voting shares would not result in a change of control within the meaning of the SSA and that Telstra may acquire 50% (but no more) of Fred's voting shares without enlivening clause 15.5 of the SSA. Mr Jay subsequently provided a letter of advice to Fred to substantially similar effect on 15 August 2013.

56 On 23 September 2013, Telstra entered into a share sale agreement (the 'Telstra Sale Agreement') with Fred, on broadly the terms set out in the term sheet. The deferred consideration was dependent on the number of prescription dispenses performed using the eRx prescription exchange service.

57 Clause 14.2 of the Telstra Sale Agreement partly provides:[6]

Each party (recipient) must keep secret and confidential, and must not divulge or disclose any information relating to another party or its business (which is disclosed to the recipient by the other party, its representatives or advisers), this agreement or any Transaction Agreement or the terms of the Sale other than to the extent of the [stated exceptions].

58 Fred notified the other PharmX unitholders of the Telstra acquisition before it was formally announced to the market. Mr Naismith telephoned Mr Wenham, Mr James-New and Corum's then-nominee on the PharmX board. Mr Naismith described the reaction of other unitholders as 'surprised and positive' when learning of the news.

59 On 30 September 2013, Telstra, the Pharmacy Guild, Mr Naismith and Fred entered into a shareholders' agreement (the 'Fred Shareholders' Agreement'). Clauses 5 and 6 of the Fred Shareholders' Agreement relate to Fred's board. Clause 5.1 provides that, while Telstra retains a minimum of 45% of the shares in Fred, it is entitled to appoint three of Fred's six directors. Clause 5.3 provides, in summary, that the chairman of the board will:

(1) be a Director appointed by Telstra whilst it retains 45% or more of the shares...; and

(2) If there is an equality of votes at a meeting of the board of Directors, have a casting vote (except in relation to decisions specified in clause 7.1)...

60 Clause 6.3(a) provides that each shareholder's appointee on the board is entitled to exercise one vote. However, clause 6.3(b)(i) provides that each Telstra director can exercise the 'number of votes equal to the number votes that would have been exercisable by the Telstra directors if all of the Telstra directors had been present, divided by the number of Telstra directors actually present'.

61 There was a meeting of the PharmX board on 16 October 2013. The minutes record:

KJ raised the question of whether the recent acquisition of a 50% stake in Fred by Telstra would affect the ongoing governance or operations of PharmX. GC noted this would not affect PharmX as the relevant clause in the Stapled Securities Agreement (clause 15) requires a shareholder change in ownership greater than 50%.

PN indicated that the involvement of Telstra in Fred made no difference to Fred's support for PharmX.

62 In its annual report for the 2014 financial year dated 14 August 2014, Telstra disclosed its acquisition of the 50% shareholding in Fred, stating: 'We consolidate the results of [Fred] as we have control through our decision making ability on the board.'

Various restructuring discussions; sale of Simple Retail

63 In mid-2015, there were discussions between the PharmX directors about potentially selling PharmX. Deloitte once again was retained to undertake an analysis, referring to the project as Project Accord 2. Deloitte assessed PharmX's indicative enterprise value in the range of $12.5 million to 14.5 million, based on an implied multiple of 6.1-7.1x PharmX's budgeted EBITDA for the 2016 financial year.

64 At the same time, discussions took place between the unitholders of PharmX with a view to Corum and Fred buying out the units held by Simple Retail and Mountaintop, with the result that Corum and Fred would become 50/50 owners of PharmX. The minutes of the board meeting held 17 September 2015 record that it was agreed that Corum and Fred would progress their discussions and clarify their position by the end of October 2015.

65 At the same board meeting, Mr James-New advised of his intention to transfer Simple Retail's unit holding to Daleflag. The minutes of the meeting record, under the subheading '7 Simple Retail Unit Holding':

GC informed the Board of the intention for Simple Retail to transfer their PharmX unit holding to a related entity Daleflag Pty Ltd (Daleflag) noting that doing so would transfer units to an entity which would not create transactions used to calculate unit holder distributions. KJ confirmed both Simple Retail and Daleflag were Australian domiciled entities wholly owned by KJ.

The Board agreed in principle to the transfer as well as the recognition that distributions subsequently paid to Daleflag will be determined based on the transactions relating to Simple Retail systems. Final agreement to the transfer will be pending a review of the relevant PharmX documentation by lawyers at Norton Gledhill. Simple Retail has agreed to cover all legal expenses related to this review.

66 At the next meeting of the board of PharmX held 23 October 2015, the board received advice from Norton Gledhill to the effect that a transfer of interests by Mr James-New from one entity owned 100% by him to another entity also owned 100% by him would be regarded as a permitted transfer under the SSA. In light of that advice, the directors resolved that Daleflag execute a deed poll of accession deeming it as the holder of the interest in the Trust and that the share transfer from Simple Retail to Daleflag would be approved along with the unit transfer. Further, the board resolved that for the purposes of determining Daleflag's entitlement to income distributions under the Trust Deed, Daleflag's purchase order lines would be taken to be those of Simple Retail.

67 On 16 November 2015, Mr Cunningham prepared a memorandum addressed to the PharmX board which recommended the price formula in Schedule 6 of the SSA be changed to a multiple of 7.5x, from the current 4x. Mr Cunningham's memorandum referenced that the formula contained in the SSA was based upon an agreement at the time to set a low value for three reasons. First, it provided a disincentive for interest holders to consider selling in the early stages of establishing PharmX; secondly, should there be a change in control, it provided an opportunity for other shareholders to acquire that shareholder's interest at a low value and, thirdly, because at the time, they did not know what sort of valuation may be placed on PharmX in the future.

68 In his memorandum, Mr Cunningham referenced the indicative enterprise valuations assessed by Deloitte in Project Accord 1 and 2, which were in the range of multiples of 6.5 to 7.6x the average EBITDA. Mr Cunningham's memorandum also noted Deloitte's reference to a 'Strategic Value', which suggested that a higher value might be paid by a buyer who could realise synergistic benefits in acquiring PharmX at a multiple of 6.8 to 8.5x the average of the last 2 years' EBITDA.

69 In the result, Mr Cunningham expressed the opinion that a 4x multiple was out of date, potentially punitive and recommended that the company's lawyers draft a simple deed of amendment to record the change.

70 On 1 February 2016, Mr James-New sold Simple Retail to MediSecure, a third party and operator of a prescription exchange that was in competition with Fred's eRx. Mr James-New had not told the other PharmX directors about the proposed sale of Simple Retail to MediSecure before it was finalised in February 2016. The approval by the board of PharmX on 23 October 2015 to the transfer of Simple Retail's units and shares to Daleflag and the associated resolution for the purposes of Schedule 2 of the SSA, that Simple Retail's purchase order lines would be taken to be those of Daleflag, occurred without Mr James-New referring to any future sale of Simple Retail.

71 The fact that the transfer had been approved in October 2015 and was soon followed by the sale of Simple Retail to a competitor of Fred's eRx caused Fred significant angst. Fred considered that Mr James-New had been less than forthcoming in relation to the circumstances behind his wish to transfer his unit holding from Simple Retail to Daleflag.

72 On 2 March 2016, Fred's Mr Johnston wrote to the directors of PharmX and said that Fred had received advice that the transfer of units and shares from Simple Retail to Daleflag in fact was not a permitted transfer under the SSA and that a breach of the SSA would occur if the PharmX board registered the transfer.

73 On 14 March 2016, K&L Gates, solicitors for Mr James-New and Daleflag, wrote to the PharmX board demanding that it take all steps necessary to finalise the registration of the transfers to Daleflag. On 6 April 2016, K&L Gates wrote a further letter to substantially the same effect to PharmX and its holders.

74 This dispute took place against the background of two other events of some relevance. First, on 22 March 2016, Mr Johnston sent a paper to one of the Telstra appointed directors of Fred, observing that Fred had the opportunity to exercise (along with at least one other vendor) pre-emptive rights to acquire Simple Retail's holding in PharmX, and recommended that Fred exercise such pre-emptive rights together with Corum. The board paper was placed before the Fred board at its meeting on 30 March 2016. This opportunity to exercise the pre-emptive rights to acquire Simple Retail's holding presumably occurred in the context of the belief that the change in the shareholding of Simple Retail constituted a change of control, entitling Fred and Corum to acquire Simple's holding in PharmX at a multiple of 4x its EBITDA. In his paper, Mr Johnston recommended that Fred exercise its pre-emptive rights so as to acquire an additional 10% of PharmX at the price of $750,000, in the context of a wider strategy which included firstly moving to a 50/50 interest with Corum by later acquiring Mountaintop's interest and then in the medium term, selling down its interest in PharmX to strategic partners, so as to facilitate Fred's competition against MediSecure in the context of the eRx business line.

75 A short time later on 1 April 2016, Mr Johnston wrote to the Telstra appointed directors advising that Fred no longer wished to proceed with that option, having further progressed its analysis of the option to exercise its pre-emptive rights. Mr Johnston concluded that buying more equity would not generate a material change in Fred's cashflow, noting that any increase in the share of distributions resulting from the redistribution of Simple Retail's 9% share of distributions would largely be offset by the reduction in the surplus of the Trust, assuming that Simple Retail instead received a rebate as a third party vendor.

76 The second relevant matter which arose during this period occurred against the backdrop of the agitation resulting from the transfer of the Simple Retail holding to Daleflag.

77 On 13 April 2016, K&L Gates sent a letter on behalf of Mr James-New and Daleflag to the directors of PharmX referring to the Telstra acquisition and the reference in Telstra's 2015 annual report to Telstra having control over Fred 'through our decision making ability on the board'. The solicitors referred to the relevant provisions of the SSA and submitted that it was likely that a shareholders' agreement or equivalent document existed for Fred that gave Telstra the decision making ability on the board and/or various rights of pre-emption, and that in conjunction with Telstra's 50% shareholding in Fred, Telstra acquired a relevant interest in Fred for the purposes of the SSA, with the consequence that there was a change of control of Fred on or about 30 September 2013. The solicitors requested that PharmX conduct a proper investigation as to whether a change of control had occurred, including requiring Fred to confirm if a shareholders' agreement existed and then to notify all parties as to the result of that investigation and advise them if they are able to exercise their rights under clause 15.5 of the SSA.

78 On 18 April 2016, Mr Johnston responded, on behalf of Fred, to the K&L Gates letter in an email sent to the directors of PharmX (among others). An abridged version of Mr Johnston's email reads:

... [point 2] of the Gates letter is correct in that Telstra did acquire 50% of Fred on 30 September 2013. Point 5 of the Gates letter is also correct in that clause 15.1 of the SSA is enlivened if '... more than 50% of the voting shares ...' etc. ie it is self-evident that clause 15.1 is not enlivened.

I can advise that the statement in the Telstra annual accounts re 'control over Fred' is also correct as the control referred to is the ability or requirement to consolidate the financial results of another entity which is determined under Australian GAAP by the definition of 'control' in the accounting standard AASB10 'Consolidated Financial Statements'. This definition has a completely different approach to change of control in the PharmX stapled securities agreement.

... in summary, Fred's position is that,

(1) the Telstra transaction doesn't enliven clause 15 of the stapled securities agreement, for the reasons very clearly set out by K&L Gates, and

(2) Fred was proactive [in bringing] the transaction to the attention of the PharmX shareholders in September 2013, and the matter was considered and put to rest in October 2013.

79 Mr Wenham said that upon receiving this email, he 'became convinced' that Fred had undergone a change of control, notwithstanding Mr Johnston's response. Mr James-New said he considered that Mr Johnston's interpretation took an unduly narrow view of the change of control provisions.

80 In the end, the dispute between Mr James-New and Fred relating to Simple Retail's transfer of units to Daleflag went away with Daleflag entering into a deed poll of accession to the SSA on 24 May 2016. At around the same time, PharmX entered into a deed of variation of the Deed, which had the effect that as from 23 October 2015, the amounts to be distributed to Daleflag would be based upon the number of purchase order lines registered by PharmX's gateway from Simple Retail, not Daleflag, and the formula in Schedule 2 to the Deed was amended accordingly. Relatedly, by a deed of instruction, release and indemnity, PharmX undertook to register the transfers from Simple Retail to Daleflag in consideration for certain releases and undertakings given by Mr James-New, Simple Retail and Daleflag.

Further board discussions regarding Fred's potential change of control

81 On 28 September 2016, Mr Wenham emailed Mr Johnston referring to the Telstra acquisition and the K&L Gates letter dated 13 April 2016, writing:

Irrespective of what you may have stated in [the response email],[7] on behalf of [Mountaintop], I ask that you provide me with complete and accurate copies of the documentation that effected the [sale of Fred]. Clearly, if as suggested in the K&L Gates email,[8] Telstra acquired a Relevant Interest (as defined in the SSA) in more than 50% of the Voting Shares (as defined in the SSA) of Fred IT, then a Change of Control (for the purposes of clause 15 of the SSA) has occurred, without the consequential need for compliance with the mandatory requirements of clause 15.5 of the SSA.

I want to be clear about what I am seeking to achieve by this request, that being:

1. an opportunity for Mountaintop to consider definitive evidence as to whether or not a Change of Control has occurred;
2. if Mountaintop can be satisfied that a Change of Control has not occurred as a result of the Fred IT sale, then this particular line of inquiry need not be pursued further by myself;
3. if Mountaintop is satisfied that a Change of Control has occurred as a result of the Fred IT sale, then Mountaintop will insist on compliance with the provisions of clause 15.5 of the SSA, which subject to the 40% consent threshold in the first paragraph in clause 15.5(b) being satisfied, will in turn trigger a requirement for:

(a) the cancellation of the Fred IT sale;

(b) the application of the pre-emptive rights provisions under clause 14 of the SSA;

(c) either the retransfer for no consideration of those shares back to Fred IT, or subject to the application of the pre-emptive provisions in clause 14 of the SSA, the transfer on a proportionate basis, of the Fred IT shares held by Telstra to the stapled security holders who have exercised their pre-emptive rights under clause 14 (each a participating stapled security holder); and

(d) the return to each participating stapled security holder, on the appropriate proportionate basis, of all unit distributions that have been made by PharmX, in its capacity as the trustee of the trust, to Telstra or Fred IT during the period commencing on the date on which the application of the pre-emptive provisions of clause 14 should have been completed, as if the provisions of clause 15.5 had been properly complied with in accordance with the timing requirements stated in the SSA, and ending upon completion of the transfer of stapled securities arising as a result of the abovementioned application of the pre-emptive provisions of the SSA.

My view is that the Telstra transaction was properly notified to the PharmX vendors in September 2013 in accordance with both the spirit and the technical requirements of the unit holders agreement, and that the window to exercise rights in this matter is well and truly closed.

However, if you want to formally revisit the transaction that is your right and we will respond to your request.

I would suggest we discuss this informally with Paul before we engage the lawyers on this as the costs are prohibitive and the outcomes uncertain.

83 Mr Wenham responded that he was happy to meet informally. Mr Wenham's response (and the earlier communications between Mr Wenham and Mr Johnston) were onforwarded by Mr Naismith to Mr Cunningham 'FYI for discussion'.

84 On 21 October 2016, Mr Johnston wrote to Mr Wenham, saying:

I've reviewed my email of the 18th of April ... I believe that my email ... was abundantly clear in setting out the facts which I believe to remain correct and undisputed and clearly show the Fred proactively, accurately, and in good faith brought the transaction to the attention of the PharmX board in 2013.

I have some difficulty with the idea that you should now, after more than three years seek to enquire about a transaction of which you were properly notified of in 2013, and which was minuted in the PharmX Board meeting of 16 October 2013.

If you are addressing this request to me in my capacity as company secretary of PharmX and still wish me to proceed, I believe I would need to redirect your request to the trustee via PharmX board and let the PharmX board take advice and proceed from there.

If you are addressing this request to me as an officer of Fred, then I believe your request is [misdirected]. In any event and by whatever path, if we end up with a demand to release the documents related to the Telstra/Fred transaction you must appreciate that this could not be done without the involvement and instruction of all our shareholders, i.e. Telstra, The Pharmacy Guild and Paul Naismith. I cannot predict how a Telstra lead action would play out, but given the nature of your threatened actions, I would expect that Telstra in house legal and the Pharmacy Guild would jointly engage a tier 1 legal firm and oppose your request. This would likely be the same firm that drafted the deal documentation and structured the transaction in the knowledge that Fred was subject to a change of control clause.

Further, regardless of the legal result, there is substantial risk of damaging PharmX which taken with the certainty of significant legal expenses leaves me wondering if I should not give you the opportunity to reconsider and/or discuss with Paul prior to lighting the fuse.

85 Also around this time, Mr Johnston had a telephone conversation with Corum's Mr Clarke about Mr Wenham's request for the Telstra documentation. Mr Clarke's evidence was to the effect that Mr Johnston said that Fred would not hand over the Telstra documentation and that 'we did the best we could to structure the transaction so as not to breach the change of control provisions'. Mr Johnston did not recall the specifics, but did not dispute Mr Clarke's account.

86 On 16 November 2016, Mr Wenham wrote to Mr Cunningham referencing the earlier communications following on from the K&L Gates letter of 13 April 2016. Mr Wenham insisted on PharmX providing Mountaintop with a complete and accurate copy of all the documentation that effected the Fred sale and asserted that under the SSA, Mountaintop had clear contractual rights to the information and would ensure that Mountaintop pursued the matter until it received the relevant information. Mr Wenham's email concluded with him expressing his perception that Mr Johnston and Mr Cunningham's:

failure to perform [their] respective duties to the stapled security holders of PharmX and the PharmX Trust [made] [Mr Wenham] even more suspicious that [they] [were] hiding the truth regarding the Telstra/Fred IT transaction from all stapled security holders.

87 On the same day, Mr Cunningham responded, among other things, by saying that the request was more properly regarded as a request from one shareholder to the other and that Mr Cunningham as chairman did not need to do anything on behalf of PharmX.

88 On 17 November 2016, Mr Johnston wrote to Mr Wenham clarifying that Telstra acquired 12.5 million shares in Fred which amounted to 50% of its share capital and that it held no other options that would enable Telstra to acquire more shares in Fred. Mr Johnston's email to Mr Wenham concluded as follows:

As I noted earlier, if you want to pursue this to the point of revealing confidential sale share related documents [sic] I can't do that without engaging all the parties, which effectively means handing over the issue to the Guild, Telstra and their lawyers. This would limit our ability to work on a PharmX deal which requires clear air and cooperation.

89 On 22 November 2016, Mr Wenham wrote to Mr Cunningham pointing out that Mr Johnston's reference to the fact that Telstra had no options was not relevant and stated that it was critical to know whether Telstra's purchase of 50% of the shares in Fred was accompanied by a shareholders agreement with the other remaining shareholders. Mr Wenham's letter concluded:

... if there is such a shareholders agreement, I want to see a copy of it. I am quite willing to give any sensible undertaking required to maintain the confidentiality of that shareholders agreement, as may be requested.

Mr Wenham's email was forwarded on by Mr Cunningham to Mr Johnston and Mr Naismith the next day.

Potential exit of Simple Retail and Mountaintop

90 Mr Johnston's reference in his 17 November 2016 email to the nexus between a request for confidential documents relating to the Telstra sale complicating the ability of the holders to work on a 'PharmX deal' was a reference to a proposal known as 'Project Mutual', which contemplated the proposed sale by Simple Retail and Mountaintop of their interests in PharmX.

91 By 2016, the distributable profit of the Trust had increased substantially but the benefit of the increase had largely accrued to the benefit of Fred, and to a lesser extent, Corum. Mountaintop and Simple Retail's distributions remained constant or increased slightly, respectively. The reasons for that outcome do not matter much, save that they involved, in part, a growing market share of POS software sales by Fred and declines by the smaller operators, Simple Retail and Mountaintop.

92 In addition, the differential effect of PharmX's increased distributable profits was exacerbated by the entering into of an agreement between PharmX and the Commonwealth Department of Health in or around mid-2016 by which diabetic products were distributed by the National Diabetes Services Scheme ('NDSS') from Diabetes Australia to pharmacies and then to diabetic patients. In effect, the distribution of such products occurred via the use of the PharmX gateway which was accessible by all pharmacies and utilised by them to facilitate the provision of a new national supply service for diabetic products. PharmX's distributable income, enhanced by this additional revenue stream, continued to be distributed in accordance with the distribution formula contained in the Deed, which was in turn based on the use of each holder's POS software for the purposes of generating product lines registered to PharmX by each of its suppliers. The income derived from the new NDSS arrangement, however, whilst distributed in accordance with that mechanism, was not referable to the use of the individual holder's POS software and related to product lines registered to the PharmX gateway by suppliers, but was nevertheless distributed on the same basis as if it was. The smaller holders, Simple Retail and Mountaintop, regarded this as unfair and not consistent with the contemplation at the time of entering the SSA.

93 The approximate respective holders' amount and share of distributable profit in the period which preceded the discussions in relation to Project Mutual is set out below:

94 Project Mutual contemplated various means by which Simple Retail and Mountaintop could exit, the most straightforward of which involved each of Corum and Fred acquiring the 20% stapled security holdings of Mountaintop and Daleflag such that each of Corum and Fred would become 50% shareholders and unitholders in PharmX.

95 Negotiations proved difficult; there were a range of complicating factors which primarily resulted from the fact that distributions were, in broad terms, based on the amount of business introduced to PharmX by the unitholder, whereas the capital value in a sale of the PharmX business as a whole was to be based on the level of shareholding. Given that Daleflag and Mountaintop received levels of distribution at a level substantially below the percentage level of their unitholding, they favoured a price referable to the value that could be achieved on a sale of the business as a whole. Corum and Fred favoured an acquisition of Mountaintop and Daleflag's interest, with the value of that interest referable to the distribution levels being received by those entities and not by reference to their proportionate shareholding in the Trust. Daleflag and Mountaintop's price expectations were derived from the Project Accord estimates based on the enterprise value of the business on divestment, not the price payable by other holders under the SSA. The position was further complicated by the fact that the end result of a buyout of the interests by Corum and Fred would result in each of them holding 50% of the units in the Trust but their resulting holdings would not be reflective of distribution entitlements. Thus, whilst they would be required to pay the same price to acquire the interests of Mountaintop and Simple Retail, the benefit of the increase in unitholding would not necessarily be shared equally. Nevertheless, it is clear that at least from late 2016 onwards, both Simple Retail and Mountaintop were keen to exit PharmX.

96 On 18 January 2017, Mr Cunningham reported to Fred and Corum that he had been asked to communicate a proposal from Mr Wenham and Mr James-New that their respective companies would sell their interests in PharmX for $4.8 million and Mountaintop would enter into a third party access agreement on standard terms (Simple Retail had earlier entered into such an agreement following Mr James-New's sale of the Simple Retail business to MediSecure).

97 By 22 March 2017, discussions regarding the purchase of the Simple Retail and Mountaintop holdings in PharmX had stalled.

98 On 4 May 2017, Mr Wenham wrote to Mr Naismith observing that the negotiations had stalled and that Mountaintop and Corum in particular appeared to be 'a long way apart'. Mr Wenham's email observed that Mr Naismith appeared to suggest at times that Fred was a seller and at other times implied that a sale by Fred would be too hard without Corum also exiting at the same time. Mr Wenham expressed a preference to wind up the Trust with the resultant sale of its assets, the discharge of its liabilities and the distribution of its net proceeds, or alternatively a trade sale. As a further alternative, Mr Wenham proposed that some of the Stapled Security Holders may wish to acquire a larger percentage of the Stapled Security Holder interests and the potential use of a 'special majority approval' (which required votes in favour of those holding 70% or more of the units) could facilitate such an exit. Mr Wenham's email concluded:

For some considerable time - and as previously expressed to you and the other PharmX directors - I have been very uncomfortable in my role as a director of PharmX, carrying on business as usual, knowing that the officers of PharmX have failed to properly investigate or disclose details surrounding the Telstra purchase of Fred IT shares and what I suspect were breaches of the "Change of Control" provisions in the Stapled Securities Agreement. Accordingly, you will understand that Mountaintop would like to find out what [Fred's] position will be in the shortest possible timeframe. I understand but am not persuaded by any difficulties of working with Telstra - they knew or should have been aware of the legal obligations of acquiring the 50% in [Fred] when they did so and will have to live with the consequences.

99 On 9 May 2017, Mr Wenham wrote to Mr Naismith expressing his appreciation for Mr Naismith's efforts in progressing Mountaintop's exit, albeit expressing his hope that it could have happened more quickly. Mr Wenham then wrote:

I also want you to be aware of a deadline that I believe all the PharmX directors should be mindful of. We will need to sign off on the annual distributions in respect of the 2016/17 year by the end of September 2017. As things stand it is not clear to whom the distributions should be made because of the unresolved issues surrounding the Telstra/Fred IT acquisition. I feel that issue puts all PharmX directors in a difficult situation. Accordingly, just so no-one is blindsided, I want you to know that if I am not satisfied by the time that I am required to vote, that the sale of shares in Fred IT to Telstra was complied with the stapled securities agreement, I for one do not feel we can then resolve to whom any of those distributions should be made, and that that decision should be delayed until the matter has been properly sorted.

100 Mr Wenham sent a further email in substantially the same terms to all directors of PharmX on 11 July 2017.

101 On the same day, Mr Johnston sent a final version of the PharmX business plan for FY17/18 to PharmX's accountants and advisers, PricewaterhouseCoopers. Among other things, the business plan noted a 16% increase in sales compared to the previous year, but noted that margins and profitability remained satisfactory and that the business maintained a near 100% representation within the retail pharmacy market. The near 100% coverage meant that future growth had to come from driving a greater variety of services and connectivity from the current network, and the plan noted that the revenue derived by the company from pharmaceutical suppliers based on a fixed fee per pharmacy per month was increasingly derived indirectly from pharmacies, as suppliers pass through the PharmX fee.

102 The business plan further noted that research and customer feedback indicated that the margins PharmX was currently experiencing were not typical of other EDI providers and that the market would therefore be viewed as an attractive opportunity for investors. As such, it observed that whilst the risk of a competing gateway entering the space was still low, it was higher than it had been for several years due to an increasing demand for electronically connected suppliers to major pharmacy groups. It further observed that the risk was mitigated by 'several existing factors including overall high level of customer satisfaction, strong support from our partners and a high network complexity requiring significant investment for any new entrant to replicate'.

Impact of Telstra acquisition on PharmX distributions

103 The PharmX board met on 15 August 2017. In relation to the concerns raised by Mr Wenham, the minutes record:

In relation to the Telstra/Fred matter, PN explained that Fred had responded to the concerns raised by DW when they were previously raised by DW. They saw no reason to respond again.

The minutes also record that Mr Cunningham was asked to investigate whether the issue between Fred and Mr Wenham would impact the directors' ability to vote on final annual distributions and the annual financial statements for PharmX.

104 The PharmX board met again on 27 September 2017. The board was referred to the earlier emails from Mr Wenham regarding the alleged failure of PharmX to properly investigate or disclose details surrounding Telstra's acquisition of its interest in Fred and Mr Wenham's earlier requests for access to the Telstra documents back in 2016. Mr James-New and Mr Wenham (as nominees of Daleflag and Mountaintop) voted against a resolution to approve the final distribution for the year ended 30 June 2017 in accordance with the auditor's report and the PharmX FY16/17 year end distribution summary that had been previously circulated to directors.

105 On 4 October 2017, Mr Cunningham circulated to each director of PharmX and Mr Johnston a summary of tax advice obtained from Grant Thornton. Grant Thornton's advice was to the effect that if the Trust failed to distribute 100% of its profits, the undistributed profits would be taxed at the highest marginal personal tax rate and that the financial statements for the Trust had been prepared on the basis that the distributable profits would be 100% distributed to unitholders, although the board had not approved when the final payment of the distributions would be made. The timing of the payment did not have any tax consequences for PharmX (because its accounts were prepared on the basis that the profits had been distributed), but the timing of the payment would impact on each holder, which would have to declare distributions made (but not yet paid).

106 On 4 October 2017, Mr Johnston sent a memorandum to various internal Telstra recipients headed 'Fred IT - PharmX Matter'. In the memorandum, Mr Johnston sought Telstra's mergers and acquisitions involvement in respect of strategy funding for Fred and/or Telstra to acquire the holdings of Mountaintop and Corum. The desire to purchase Corum's interest apparently arose due to a perception that Corum had blocked previous initiatives to grow PharmX and had blocked a decision to dispose of 100% of PharmX, having previously supported the Deloitte engagement and the Project Accord strategy. As an alternative, Fred proposed engaging Corum in discussions with a view to moving to a 50/50 arrangement with it on the PharmX register, ahead of the subsequent introduction of new shareholders to PharmX to facilitate sales growth.

107 On 17 October 2017, Mr Cunningham circulated advice provided by Kardos Scanlan to the board, advising that whilst the Deed established a present entitlement for each holder to the income for that trust year calculated under Schedule 2 of the Deed, a special majority approval of directors was required to approve a distribution of the income. The advice raised the possibility that the failure of the trustee to resolve to distribute the income may cause the trustee to be in breach of the Deed and that directors should consider their duties when deciding how to vote on a resolution in relation to paying distributions.

108 On 23 October 2017, Corum's nominee on the PharmX board, Matthew Bottrell,[9] emailed other Corum board members about Mountaintop and Simple Retail's vote against further distributions from PharmX. Mr Bottrell believed they had taken that course because they believed that Fred was controlled by Telstra, with the consequence being that the pre-emption provisions in the SSA applied. His email observed that Mountaintop and Simple Retail would hold this view 'until Fred/Telstra produces information to the contrary'. Mr Bottrell believed Mountaintop and Simple Retail's objective was to force a sale of PharmX or the acquisition of their interests by Fred and Corum, at a likely price of $2.2 million each.

109 Mr Bottrell's email then referred to his discussions with Mr Naismith as follows:

I have spoken with Paul Naismith this morning about the former. Paul informed me that Fred/Telstra is a seller - Telstra do not see PharmX as being core to Fred.

One of the outcomes Telstra/Fred are considering is where Fred & Corum each by (sic) out the minorities, on the basis that we (Corum and Fred) agree to exit the PharmX business in the near future to a pre-agreed party (a back-to-back deal). Telstra does not wish for Fred to be in a 50:50 JV with Corum.

I have undertaken to sit with Paul and draw some options/ways forward for us to consider (although Paul agreed to this, he will have already done this with Telstra.)

Paul's considerations are as follows:

• Agree that confidential information of PharmX can be shared with potential buyers, in order to find a sale for PharmX

• Buy PharmX from the minorities and then exit the business in the near term

• Potentially buyers that Paul wants to contact are the wholesalers

• Perhaps restructure the distribution model in PharmX to make it more saleable.

110 On 23 October 2017, Mr Cunningham circulated further legal advice from Kardos Scanlan to the board which, in summary, concluded that there was no obligation on the board to take any action if a holder failed to comply with clause 15.5(a) of the SSA or to investigate a possible change of control. Kardos Scanlan also advised that as Fred remained the registered holder of the stapled securities, it was clear that it was entitled to the relevant share of distributable income (subject to the requirement of a resolution).

111 On 24 October 2017, Mr Wenham requested that PharmX instruct Kardos Scanlan to advise whether the Telstra purchase of Fred constituted a change of control within the meaning of the SSA.

112 On the same day, the PharmX board met. Mr Wenham requested more time to discuss the Kardos Scanlan advice of 23 October 2017, and as a consequence the meeting was adjourned to 26 October 2017.

113 At the resumed meeting, Mr Wenham and Mr James-New advised that they still intended to vote against resolutions to distribute income. Thereafter, the two consistently voted against resolutions to distribute the income of the Trust until distributions were made of all outstanding amounts on 1 December 2020.

114 The minutes of the 26 October 2017 meeting record Mr Bottrell asking Mr Wenham whether Mountaintop was a buyer of the Fred stake. That enquiry was made apparently in the context of Mr Wenham's statement that the Telstra acquisition of its 50% interest in Fred was the central issue. The minutes record that 'DW indicated that he could be a buyer'. In Mr Wenham's typed notes of the meeting, he records himself saying that he 'would seriously contemplate' buying Fred's PharmX stake and that he 'would sell PharmX soon after'. Mr Wenham's notes also record Mr Naismith as saying that 'Fred would not be releasing those document[s] so stop wasting our time'.

115 On 7 November 2017, Mr Cunningham wrote to the PharmX board and proposed that the holders agree to a sale process (involving either the sale of the business or the entirety of the stapled securities) with the sale proceeds to be split at the mid-point between each holder's holding and its 2017 share of distributions.

116 On 14 November 2017, Mr Cunningham reported further on the sale proposal and expressed the belief that an independent adviser might value the business at between 8 to 10x the current EBITDA (prior to any rebates payable to the exiting IT vendor shareholders). Further, based on current levels of business, Mr Cunningham estimated that if outgoing IT vendor shareholders were to enter into vendor agreements with PharmX, they would receive approximate annual rebates of $139,000 in the case of Corum, $212,000 in the case of Fred and $15,000 in the case of Mountaintop.

117 At the meeting of the Fred board on 25 October 2017, Mr Naismith's report referenced the fact that the blocking of trust distributions was causing associated cashflow risks to Fred. The report stated:

Meetings separately held with Telstra M&A and Grant Thornton (20th October) re Fred facilitating a transaction to resolve the PharmX impasse. Preferred outcomes being to remain/enhance ties to the major wholesalers with retention of equity in PharmX and full exit acceptable outcomes ... [if] unsuccessful in negotiations with the 3 wholesalers then Fred would sell its stake in PharmX.

118 On 15 November 2017, Mr Johnston and a Telstra Health finance employee wrote to Telstra Treasury seeking shareholder approval for additional funding as an interim measure, to meet a projected cashflow shortfall for December and March 2018, arising from the withholding of distributions.

119 In November 2017, Corum first became aware, so it said, that Mr Cunningham had provided advice to Fred in connection with the Telstra acquisition. Accordingly, on 27 November 2017, Mr Bottrell wrote to Mr Cunningham and asked whether he had disclosed this role in connection with the Telstra acquisition and asked for advice as to other activities he had performed for any shareholders in PharmX including Fred, Telstra and/or Telstra Health. Mr Cunningham's alleged lack of independence was raised at a meeting of the PharmX board the following day. At that meeting, each of Mr Bottrell (as Corum's nominee), Mr Wenham and Mr James-New indicated they had concerns about Mr Cunningham's independence and they would vote in favour of a resolution removing him as chairman. At a later meeting, Messrs Bottrell, Wenham and James-New agreed that a resolution should be drafted providing for Mr Cunningham's removal.

Potential wholesaler consortium to acquire PharmX; general divestment discussions

120 On 6 December 2017, Grant Thornton, which had apparently been retained by Fred to provide advice in connection with a possible acquisition of PharmX by a Fred-led consortium, wrote to representatives of the three major wholesalers, API, Sigma and Symbion (copied to Mr Johnston and Mr Naismith), inviting them to a discussion to outline a strategy whereby the three wholesalers and Fred would acquire the 70% interest in PharmX not currently owned by Fred, for $8.4 million.

121 On 19 December 2017, Fred's solicitors, Riordans, wrote a letter of demand to PharmX seeking payment of the outstanding amount of the 2017 financial year distribution that had not been paid to Fred, in the amount of $224,001.

122 Mr Wenham responded to the letter from Riordans by an email dated 20 December 2017, sent by him to the other PharmX directors. In his email, Mr Wenham denied that PharmX was under a duty to pay dividends to Fred and proposed that PharmX should respond to the letter of demand by stating that if any litigation were commenced against Mountaintop or Daleflag, then each of them would ensure that all the circumstances surrounding the Telstra acquisition would be subject to discovery and that Mountaintop and Daleflag would seek orders requiring Fred to disgorge all dividends and distributions received since the Telstra acquisition.

123 The Fred board met on 13 December 2017. Mr Naismith's report given to that meeting noted that the three wholesalers had agreed to a non-binding bid of $8.4 million for the 70% of PharmX owned by Corum, Mountaintop and Daleflag, with Fred getting to a future position of 40%, with the intent being to stabilise and support PharmX. Mr Johnston's report reiterated Fred's strategy of entering into a deal linking Fred to the wholesalers or alternatively Fred making a full exit from PharmX.

124 On 18 December 2017, Mr Johnston resigned as company secretary and as an alternate director of PharmX.

125 On 8 February 2018, Mr Wenham conveyed an offer on behalf of Daleflag and Mountaintop to Fred and Corum to sell their combined holdings for $6 million, plus a potential uplift in 2 years' time, depending on the terms of any later sale of PharmX. Mr Wenham and Mr James-New observed that the offer was made against the background of Fred's refusal to be transparent regarding its dealings with Telstra and Mountaintop and Daleflag's belief that this effected a change of control in Fred for the purposes of the SSA, and the standoff that had arisen with respect to the making of distributions.

126 Although the proposed consortium partners continued to progress discussions in March and April 2018, Mr Wenham's February 2018 offer never attracted serious attention.

127 On 9 July 2018, Corum's Mr Clarke wrote to the directors of PharmX giving notice of a proposed resolution in relation to a meeting to take place the following day, to the effect that PharmX should issue a notice to Fred stating that it believed that Fred had undergone a change of control in connection with the Telstra acquisition and requiring Fred to provide copies of the transaction documents. The successful passage of that resolution required a special majority, which required each of Corum, Daleflag and Mountaintop to vote in favour (assuming that Fred would not). In an email from Mr Cunningham to Mr Naismith sent 10 July 2018, Mr Cunningham observed that if Corum supported the initiative, this would end any participation by Corum in a wholesaler offer for PharmX. Mr Cunningham recommended that if Corum voted for the resolution, Mr Naismith should 'pull out the case that Corum may have breached the change in control provisions and hit them hard as a shareholder with that'.

128 At the PharmX board meeting on 10 July 2018, the resolution was put and Corum's Mr Bottrell voted against it. Mr Naismith abstained and accordingly the resolution was not passed.

129 In August 2018, Odyssey Capital Partners ('Odyssey') provided PharmX's directors with an earnings-based valuation of PharmX,[10] against this background of disharmony at board level and Mountaintop and Daleflag's desire to exit. Odyssey had obtained information from each unitholder as to their preferred outcomes. In relation to whether each unitholder would be a seller at a particular price, Mountaintop and Daleflag advised that they were sellers and would prefer to conduct a process to seek a market valuation. Both Fred and Corum advised that they would exit for the right price, but neither would exit if the other retained some level of ownership in the business. In relation to the question as to whether each would participate in a buyout of other units, Mountaintop and Daleflag answered no; Corum said that it had limited capacity or appetite to purchase other units but would do so dependent on value, whilst Fred advised that it was not likely to buy out the units as it had limited capacity. The Odyssey assessment valued the company on an earnings basis at a multiple of 5.5 to 6.5 (which translated to an enterprise value of between $12.55 to $14.83 million) but observed that the question of value was largely academic and depended on what the market would pay. It nevertheless expressed the view that the consortium offer was close to the bottom of the range and that as such it may be too low.[11] Odyssey noted that Fred and Corum's primary focus was not on an exit, so the option of Fred and Corum buying out existing unitholders should be properly explored and meanwhile the consortium should be told that their offer is too low and that the board had decided to explore other options that would keep it independent from suppliers.

130 On 7 September 2018, Fred's solicitors sent a letter of demand to PharmX for distributions now said to be due and owing totalling $1,620,872, which represented the sum of the $224,001 earlier demanded and a further distribution for the financial year ending 30 June 2018 alleged to be due totalling $1,396,871. The letter demanded payment within 14 days.

131 In September 2018, Mr Cunningham wrote to the proposed consortium members, Symbion, Sigma, API and Fred and suggested that an offer be made based on PharmX being valued at $13 million which represented an increase of $1 million on the earlier consortium bid. Mr Vincent, API's CEO, responded that a multiple of 5x the EBITDA was at the top end of what the business was worth, that API would not entertain an enterprise value above $12 million and that in any event such a number was subject to completing due diligence. API considered that the retention of Corum was a big negative.

132 On 4 October 2018, Odyssey reported to Mr Naismith and Mr Cunningham on a meeting that it had held with Corum. Odyssey conveyed that Corum viewed PharmX as a material contributor to its income stream and would require compensation for the loss of that 'annuity' going forward. On that basis, Odyssey proposed a deal version that included a higher headline valuation ($15 million, or 7.5x EBITDA) for acquiring the Corum interest and less consideration for Daleflag and Mountaintop ($1.5 million each).

133 At the meeting of the board of PharmX on 23 October 2018, Mr Wenham said that had a change of control been notified by Fred in 2013, one or more of the holders may have initiated a transfer of Fred's securities and as a result, the distributions paid would not have been paid to Fred. Accordingly, he said that past distributions had been made incorrectly and that holders other than Fred may have a right to claim distributions from PharmX. In those circumstances, he said it was unclear who should receive current distributions and it was irresponsible not to ensure that funds remained with PharmX until the matters were resolved.

134 On 19 November 2018, Mr Naismith wrote to the wholesaler consortium members seeking that the consortium decide whether to proceed or walk away. Mr Naismith proposed a best and final offer with terms including that the consortium acquire 50% of PharmX, leaving Fred and Corum with 25% each and that the acquisition price would be $6 million.

135 In November 2018, Fred instituted a proceeding in this Court against PharmX for payment of its distributions for financial years 2017 and 2018 (the 'Fred 2018 Proceeding'). In that proceeding, PharmX obtained orders requiring the provision of documents pertaining to the acquisition by Telstra of shares in Fred. Documents were subsequently provided to PharmX under cover of a letter dated 18 January 2019.

136 Following provision of the documents, on 20 February 2019, Daleflag gave notice to each other holder and to PharmX stating that it believed that a change of control had occurred in Fred in September 2013 and gave notice to PharmX that it accepted the sale of securities offered by Fred, pursuant to a transfer notice and that if Stapled Security Holders with 40% or more of the stapled securities on issue not owned by Fred agreed, there would be a mandatory transfer. Mountaintop gave a notice in substantially similar terms on 21 February 2019.

137 On 21 February 2019, PharmX, as trustee of the Trust, commenced a separate proceeding seeking judicial advice, including as to whether there had been a change of control in Fred and whether a special majority approval was required for the making or payment of a distribution of income from the Trust, and as to whether PharmX was justified in defending the Fred 2018 Proceeding ('Judicial Advice Proceeding').

138 On 25 February 2019, Mountaintop gave a further notice, addressed to Fred and copied to PharmX and each other holder, asserting that Fred had breached the SSA by failing to give notice of the change of control it underwent in September 2013. Mountaintop alleged that by reason of the breach, Fred was taken to have given an irrevocable transfer notice under clause 14.3 of the SSA and gave notice of its election that Fred was taken to have given the irrevocable transfer notice. Daleflag gave a similar notice on the same day. Mountaintop gave a further notice on 28 February 2019.

139 On 1 March 2019, Cornwall Stodart, solicitors for Fred, wrote to Mountaintop and Daleflag seeking clarification of the notices, and on 6 March 2019, wrote to Mountaintop's solicitors asserting that the notices were invalid and invited Mr Wenham to provide written confirmation that he had not breached undertakings by using the documentation provided pursuant to orders in the Fred 2018 Proceeding for the purposes of Mountaintop's notice.[12] An equivalent letter was sent to Daleflag.

140 On 13 March 2019, Corum gave notice to Fred to the effect that it accepted any sale securities to which it was entitled under an irrevocable transfer notice and that it wanted to buy any sales securities not taken up by other offerees. Corum's notice was given on the basis that Corum '[did] not know whether there [had] been a change of control in [Fred]'.

141 On 28 March 2019, Mountaintop and Daleflag withdrew their notices.

142 On 24 July 2019, this Court made orders, inter alia, that leave be given for Mountaintop and Daleflag to use the Fred Shareholders' Agreement to pursue their contractual rights under the SSA in the event that the purchase of shares by Telstra gave rise to a change of control within the meaning of the SSA.

143 Meanwhile, the holders continued to negotiate. On 15 August 2019, K&L Gates, on behalf of Mountaintop and Daleflag, offered to sell their interests in PharmX for $8 million, plus an amount of $200,000 on account of legal costs. The offer was made to Fred alone or together with Corum, as may be agreed between Fred and Corum. The offer was not accepted.

144 On 21 November 2019, this Court handed down judgment in the Judicial Advice Proceeding, relevantly, that:

(a) on a proper construction of the SSA, there had been a change of control in Fred following the Telstra acquisition, having regard to the terms of the Fred Shareholders' Agreement between (among others) Telstra and Fred. The Court concluded that whilst Telstra had not purchased 'more than' 50% of the shares in Fred, it had, by reason of the provisions in the Fred Shareholders' agreement, triggered the change of control provision in clause 15 of the SSA; and

(b) PharmX did not require a special majority approval of directors to pay holders amounts to which they were presently entitled by operation of clause 27.3 of the Deed.

145 On 13 December 2019, the Court made declarations in the Judicial Advice Proceeding that Fred had undergone a change of control for the purposes of the SSA by reason of the acquisition by Telstra on 30 September 2013 of 50% of the shares in Fred.

146 On the same day, Fred gave the December 2019 Notice.

147 In December 2019, Fred, Corum, Daleflag and Mountaintop entered into a standstill agreement which enabled them to negotiate without the time running as specified in the SSA.

148 On 2 March 2020, each of Daleflag, Mountaintop and Corum gave notices of election under clause 15.5(b) of the SSA to the effect that Fred was taken to have given an irrevocable transfer notice in respect of its interests in PharmX.

149 Each notice calculated the value of the sale securities purportedly in accordance with Schedule 6 of the SSA and arrived at a value for Fred's interest in the amount of $656,234.15. The calculation was derived by reference to trust distributions to Fred and to all holders in the two financial years (2012 and 2013), which preceded the date of the change of control.

150 By letter dated 3 March 2020, Fred wrote to PharmX, Corum, Mountaintop and Daleflag asserting that the calculation of the price specified in the notices was incorrect and instead that the price was required to be calculated by reference to the distributions made for the two most recent financial years prior to the date of the giving of notice of the change of control (2018 and 2019).

151 Subsequently, on 23 March 2020, Corum, Daleflag and Mountaintop gave notices to Fred calculating the price for Fred's securities based on PharmX's accounts for the 2018 and 2019 years but stating that each holder did so on a without admission basis and that they each specifically disputed the basis of Fred's calculations.

152 In the result, Fred transferred its shares and units in PharmX to Corum, Mountaintop and Daleflag in their respective proportions effective from 2 April 2020 for a price of $1,831,397.58.

153 It is now agreed that the price payable by Corum, Mountaintop and Simple Retail to Fred for Fred's interests would have been $637,444 and not $1,831,397.58, if the proper construction of the SSA requires the price to be calculated by reference to the two years preceding the change of control, rather than the giving of notice.

154 Therefore, if Corum's construction of the SSA is accepted, it will be entitled to recover the sum of $1,193,953,[13] by way of an overpayment of the price for Fred's interests.

155 This claim turns on the proper construction of Schedule 6 of the SSA. Schedule 6 reads:

Schedule 6 - Calculation of value of Stapled Securities (clauses 14.3, 15.5 and 18.2)[14]

Unless all the Directors resolve otherwise the cash price per Stapled Security is an amount equal to:

(a) where the Transfer occurs prior to 30 June 2008, the net tangible assets of the Trust (as disclosed in the most recent audited balance sheet of the Trust) multiplied by the proportion of the total issued Stapled Securities held by the Seller; and

(b) where the Transfer occurs after 30 June 2008, the higher of:

(i) the net tangible assets of the Trust (as disclosed in the most recent audited balance sheet of the Trust) multiplied by the proportion of the total issued Stapled Securities held by the Seller; or

(ii) the value of the Stapled Securities calculated in accordance with the following formula:

A + X - Y - Z x C

B D

where:

A is equal to four times the average audited earnings shown in the accounts of the Trust before interest, tax, depreciation and amortisation, normalised for non-recurring items over the last two completed Financial Years;

X is the book value, as disclosed in the most recent audited balance sheet for the Trust of all assets of the Trust which do not form part of the operating assets of the Trust;

Y is the amount, as disclosed in the most recent audited balance sheet for the Trust of all liabilities of the Trust which do not form part of the operating liabilities of the Trust;

Z is the amount, as disclosed in the most recent audited balance sheet of the Trust of all external interest bearing liabilities of the Trust less cash balances of the Trust;

B is the total amount of issued Stapled Securities in the Trust as at the date of the most recent audited financial statements for the Trust;

C is the total amount of the Trust distributions paid to the Seller in relation to the last two completed Financial Years;

D is the total amount of Trust distributions paid to all Stapled Security Holders in relation to the last two completed Financial Years.

Transfer is defined as meaning to 'sell, assign, transfer, convey or otherwise dispose of a legal or beneficial interest'.

156 Corum submits that the context of the SSA, including clauses 14 and 15, indicates that the parties intended that the calculation of the purchase price pursuant to Schedule 6 was to take place at the time that the pre-emptive rights became enlivened and involve inputs determined at such time. It draws attention to the requirement in clause 15.5(a) of the SSA to give notice of a change of control 'immediately'.

157 In those circumstances, Corum submits that it is a perverse reading of clause 15.5 to require that the Schedule 6 amount be calculated as at the date of a notice given six years late, rather than as at the date of the change of control.

15.5 Mandatory Transfer

If there is a Change of Control in a Stapled Security Holder, the Stapled Security Holder (Seller):

(a) must immediately give notice to the Trustee of the Change of Control; and

(b) if the Stapled Security Holders holding 40% or more of the Stapled Securities on issue that are not owned by the Seller agree, the Seller is taken to have given an irrevocable Transfer Notice to each other Stapled Security Holder under clause 14.3 on the earlier of:

(i) the date it gives notice of the Change of Control to the Trustee; or

(ii) the date the Trustee becomes aware that the Change of Control has occurred,

for all Stapled Securities held by it (Sale Securities) at a cash price per Stapled Security determined in accordance with Schedule 6.

Clauses 14.1(b), 14.2 and 14.4 to 14.13 apply with necessary changes to any Transfer under this clause 15.5.

159 The Schedule 6 calculation is not unique to the mandatory transfer provisions and the change of control provisions in clause 15.5. It also operates in respect of clauses 14.3 and 18.2, which address voluntary exit and any unremedied or irremediable default.

160 Looking at Schedule 6 alone, it draws attention in the first instance to the date on which the transfer occurs. Here the relevant event, whether it be the change of control or the giving of the notice, occurred after 30 June 2008, and in that respect, subparagraph (a) of Schedule 6 can be put to one side. However, subparagraph (a) is of importance to the proper construction of Schedule 6, in that it focuses on the date of transfer as the relevant event.

161 Clause 15.5(b) of the SSA deems the holder, being the subject of the change of control event, to be taken to have given an irrevocable transfer notice, provided that the remaining Stapled Security Holders holding 40% or more of the stapled securities on issue agree, with such notice taken to be given on the earlier of the date by which the seller gives notice of the change of control to the trustee or the date on which the trustee becomes aware that the change of control has occurred for the securities, at a cash price determined in accordance with Schedule 6.

162 Here, there is no dispute that a group of holders with 40% or more of the stapled securities did not reach agreement until on or about 2 March 2020, when they gave notice to Fred under clause 15.5(b) of the SSA. Nor is it disputed that Fred gave the December 2019 Notice within the meaning of clause 15.5(b)(i) of the SSA to PharmX (as trustee) on 13 December 2019. As noted above, there is no suggestion that PharmX became aware that the change of control had occurred any earlier than November 2019, when the Court published reasons in the Judicial Advice Proceeding.

163 Thus, all of the relevant events contemplated by clause 15.5(b) of the SSA occurred in late 2019 and early March 2020, with the transfer itself occurring on 2 April 2020.

164 In those circumstances, it is clear that for the purposes of the calculation required to be carried out under Schedule 6 of the SSA, the reference to the 'last two completed Financial Years' is a reference to the last two completed financial years prior to the transfer. In the event of a mandatory transfer, self-evidently that cannot be a date before the Stapled Security Holders holding 40% or more of the stapled securities agree that the seller is taken to have given an irrevocable transfer notice within the meaning of clause 15.5(b) of the SSA.

165 A transfer arising pursuant to clause 15.5(b) results in the calculation of a different price than a transfer arising as a result of unremedied or irremediable defaults pursuant to clause 18.2(b) of the SSA. In the case of a transfer arising in the clause 18.2(b) circumstance, the transfer notice is deemed to have been given as at the date of the default, with the price determined accordingly by reference to the last two completed financial years prior to the date of default.

166 Corum's argument conflates the obligation imposed on the party the subject of the change of control to immediately give notice to the trustee of the change of control as required by clause 15.5(a) with the separate question of the contractual mechanism contained in the SSA by which the sale price is to be determined upon the giving of notice by the seller.

167 Of course, the fact that the sale price may be higher than it otherwise would have been but for a breach by a party of clause 15.5(a) is a separate question and may sound in damages. In that event, the amount of the damages will equal the additional amount payable under the SSA as a result of the breach by the seller of clause 15.5(a).

168 Clause 15.5 of the SSA requires a stapled security holder to 'immediately' give notice to the trustee if there is a 'Change of Control' in the stapled security holder.

169 'Change of Control' is defined in clause 15.1 as meaning, in relation to a stapled security holder, a change in the holding of voting shares:

... by a Relevant Person so that:

(a) the Relevant Person acquires a Relevant Interest in more than 50% of the Voting Shares of the Stapled Securities Holder; and

(b) by reason of that acquisition, the Relevant Person also acquires a Relevant Interest in the Voting Shares of the Trustee or Units in the Trust held by the Stapled Security Holder.

170 Clause 15.2 is headed 'Relevant Interest' and partially reads:

A person has a relevant interest in shares or units if they:

(a) are the holder of the shares or units; or

(b) have power to exercise, or control the exercise of, a right to vote attached to the shares or units; or

(c) have power to dispose of, or control the exercise of a power to dispose of, the shares or units.

171 Further, clause 15.3 provides that for the purposes of clause 15.2, power or control includes:

(a) power or control that is indirect;

(b) power or control that is, or can be, exercised as a result of or by means of a body corporate;

(c) power or control that is, or can be, exercised as a result of, by means of or by the revocation or breach of:

(i) a trust; or

(ii) an agreement; or

(iii) a practice; or

(iv) any combination of them,

whether or not they are enforceable; and

(d) power or control that is, or can be made, subject to restraint or restriction.

172 Further, clause 15.4 deems a relevant interest to have arisen if, at a particular time, all of the following conditions are satisfied:

(a) a person has a Relevant Interest in issued shares or units;

(b) the person (whether before or after acquiring the Relevant Interest):

(i) has entered or enters into an agreement with another person with respect to the shares or units; or

(ii) has given or gives another person an enforceable right, or has been or is given an enforceable right by another person, in relation to the shares or units (whether the right is enforceable presently or in the future and wether [sic] or not on the fulfilment of a condition); or

(iii) has granted or grants an option to, or has been or is granted an option by, another person with respect to the shares or units;

(c) the other person would have a Relevant Interest in the shares if the agreement were performed, the right enforced or the option exercised.

The clause continues, providing that in the event that all the conditions were satisfied:

... the other person is taken to have a Relevant Interest in the shares or units from the date the agreement is entered into, the right is given or the option is granted.

173 It was common ground that Telstra acquired a relevant interest in 50% of the voting shares in Fred. The point of contention was whether it acquired a relevant interest in more than 50% and whether by virtue of that acquisition it acquired a relevant interest in the voting shares of PharmX. Foundational to the trial judge's conclusion in the Judicial Advice Proceeding that a change of control in Fred had occurred was that the Fred Shareholders' Agreement had the effect that Telstra had a deemed relevant interest in more than 50% of the shares in Fred because of the rights that the Fred Shareholders' Agreement gave it over the shares of the other shareholders of Fred.[15]

174 Lyons J concluded that Telstra acquired a relevant interest in the shares of Fred from the time the Fred Shareholders' Agreement was entered into, by reason of the 'drag along provision' in clause 18 of the SSA. Accordingly, at that time Telstra acquired a relevant interest in more than 50% of the voting shares of Fred for the purposes of clause 15.1(a) of the SSA.

175 All parties now accept the correctness of that conclusion and accordingly accept that Fred was the subject of a change of control on 30 September 2013.

176 Corum did not seek to advance a case to the effect that Fred was aware that a change of control had arisen prior to the publication of the reasons on 7 November 2019. Corum's case is that both Fred's failure to 'immediately' give notice to the trustee of the change of control and separately its late giving of notice by the December 2019 Notice give rise to a breach of clause 15.5(a) of the SSA.

177 Fred submits that as a matter of construction, clause 15.5 of the SSA is not breached because a Stapled Security Holder cannot be in breach of an obligation to give notice of a change of control where the Stapled Security Holder is unaware of the change of control.

178 There was no dispute between the parties as to the applicable approach in determining the rights and liabilities of parties to a contract. These were reaffirmed by the High Court in Electricity Generation Corporation v Woodside Energy Ltd as follows:[16]

The meaning of the terms of a commercial contract is to be determined by what a reasonable business person would have understood those terms to mean. That approach is not unfamiliar. As reaffirmed, it will require consideration of the language used by the parties, the surrounding circumstances known to them and the commercial purpose or objects to be secured by the contract. Appreciation of the commercial purpose or objects is facilitated by an understanding 'of the genesis of the transaction, the background, the context [and] the market in which the parties are operating'. As Arden LJ observed in Re Golden Key Ltd, unless a contrary intention is indicated, a court is entitled to approach the task of giving a commercial contract a businesslike interpretation on the assumption 'that the parties ... intended to produce a commercial result'. A commercial contract is to be construed so as to avoid it 'making commercial nonsense or working commercial convenience'.

179 I reject Fred's submission. Fred's posited construction is not supported by the plain language of clause 15.5. Clause 15.5 is not expressed as imposing an obligation dependent upon a state of knowledge or belief. The construction for which Fred contends would require a rewrite of clause 15.5 so as to read 'if a Stapled Security Holder becomes aware that there is a Change of Control ...'.

180 This would involve a substantial alteration to the plain meaning of clause 15.5(a) of the SSA, which applies not upon the Stapled Security Holder becoming aware of the change of control, but 'immediately' upon the change of control event occurring. Nor do I accept that it is open to imply any term to the effect alleged. Such an implied term is neither reasonable nor equitable, and is not necessary to give business efficacy to the contract. It is not so obvious as to go without saying and it is incompatible with the words selected by the parties in their contract.

181 It follows therefore that the obligation imposed on Fred by clause 15.5 of the SSA arose 'immediately' upon the occurrence of the change of control.

182 Insofar as Corum's case is based upon the failure to give notice 'immediately' following the change of control on 30 September 2013, Fred pleads that such a cause of action first accrued on or about 30 September 2013, and as such, is statute barred.[17] Putting aside the separate question of whether Corum can rely upon s 27(b) of the Limitations Act which is addressed below, Corum otherwise submits that on the proper construction of clause 15.5 of the SSA, Fred's notice obligation was a continuing obligation in respect of which a cause of action accrued to Corum each day that Fred failed to give notice following the change of control.

183 The distinction between a once and for all breach of contract and a continuing breach is addressed in Larking v Great Western (Nepean) Gravel Ltd (in liq) ('Larking'),[18] where Dixon J articulated the distinction as follows:

If a covenantor undertakes that he will do a definite act and omits to do it within the time allowed for the purpose, he has broken his covenant finally and his continued failure to do the act is nothing but a failure to remedy his past breach and not the commission of any further breach of his covenant. His duty is not considered as persisting and, so to speak, being for ever renewed until he actually does that which he promised. On the other hand, if his covenant is to maintain a state or condition of affairs, as, for instance, maintaining a building in repair, keeping the insurance of a life on foot, or affording a particular kind of lateral or vertical support to a tenement, then a further breach arises in every successive moment of time during which the state or condition is not as promised, during which, to pursue the examples, the building is out of repair, the life uninsured, or the particular support unprovided.

184 His Honour observed that a breach is a 'once [and] for all' breach, even if there is no time specified for performance:[19]

If the covenant names a time for the doing or completion of a definite act, it is clear that failure to do the act within the time involves a breach once for all, and ... the same conclusion will follow where no time is limited but a specified thing is to be done and a reasonable time elapses for the performance of the covenant.

185 In Hammond v Minister for Works, Ipp J (sitting in the Full Court of the Supreme Court of Western Australia) said:[20]

... what is a continuing duty to act? This is not capable of being answered by a ready definition. It all depends on the nature of the duty. In the case of a contractual duty, the parties' intention will be inferred from the nature and terms of the duty; relevant factors are whether it is to be performed within a time capable of determination, and whether it is capable of being performed over a continuous period.

186 Clause 15.5 of the SSA imposes a requirement for Fred to perform a definitive, binary act (ie, to give notice of a change of control) within a time that is capable of determination (ie, immediately). These factors support a construction of Fred's obligation as being 'once [and] for all', rather than continuous.

187 Corum argues, however, that the obligation imposed on Fred is to give notice of a failure to maintain a state or condition of affairs (ie, the absence of a change of control) and that the obligation relates to matters likely to be solely within the knowledge of the affected holder and relates to a matter that is essential for other holders to exercise their rights under the SSA. Corum otherwise submits that where a party has an immediate duty to disclose information peculiarly within its knowledge that is likely to disqualify it from continuing to enjoy contractual or other rights or benefits, the disclosure obligation is to be construed as a continuing one. Corum did not point to any relevant authority for this proposition. The various cases cited by Corum as being relevantly analogous largely involve instances of fiduciary obligations or contractual or statutory obligations of the utmost good faith. None of those have application in the present case.

188 As noted above, Corum characterises the obligation as being one to give notice of a failure to maintain a state or condition of affairs. In doing so, it seeks to bring the present case within the ambit of those circumstances articulated by Dixon J in Larking as indicative of a continuing obligation. Those instances referred to by his Honour in Larking, however, expressly made clear that the relevant covenant was one which required the covenantor to maintain a state or condition of affairs. That is not this case. There is no obligation in the SSA requiring any Stapled Security Holder to maintain any state of affairs relating to its voting shares. In cases where a party is required by a specific covenant to maintain a state or condition of affairs, the breach arises from the point at which that state or condition of affairs is no longer maintained and continues throughout the subsistence of that contrary state of affairs. That is not this case. There was no obligation to maintain the current state of control. As such, there is no correlative breach arising from the failure to maintain the current state.

189 Rather, the effect of a change of control event is that it gives rise to an obligation to give notice of that event; see clause 15.5(a) of the SSA. Corum's submission that clause 15.5(a) gives rise to a continuing obligation is therefore rejected. Fred became obligated to give notice 'immediately' of the change of control upon its occurrence. Insofar as its breached the SSA by reason of its failure to give such notice, the cause of action accrued when the change of control occurred and instantaneously, or 'immediately', when Fred failed to give notice, that is, on or sometime after 30 September 2013. The claim for damages therefore in respect of that breach is statute barred, pursuant to s 5(1)(a) of the Limitations Act.

190 However, Corum's claim that clause 15.5 of the SSA is breached not merely from 30 September 2013 by reason of Fred's failure to immediately give notice, but additionally by Fred's giving of late notice by the December 2019 Notice is far more persuasive. Fred argues, for example, that if X contracts to deliver 200 kilograms of oranges to Y immediately upon receipt of the oranges by X and X receives the oranges on Tuesday, but only delivers them on Friday, X breaches the contract on Tuesday. That may be accepted; the relevant breach arising on the Tuesday is the failure to deliver and a cause of action accrues in Y's favour on the Tuesday, entitling it to damages for non-delivery of goods. But this does not gainsay that a separate cause of action may accrue from the late delivery of goods (on the Friday). Whether the quantification of the damage arising from the different 'breaches' is the same or not is a different and ultimately irrelevant question.

191 The law of contract recognises three types of breach of contract by a failure to perform; breach by non-performance, breach by defective performance and breach by late performance.[21] A failure to perform will give rise to a breach of contract by non-performance, if the promisor either makes no attempt to perform (or renders entirely worthless performance) or the promisee rejects any performance rendered and validly terminates the contract. A failure to perform will give rise to a breach of contract by defective performance if the performance provided by the promisor is not of the quality, quantity or description required by the contract but the promisee nevertheless accepts the performance. A failure to perform will give rise to a breach of contract by late performance if the promisee accepts performance after the latest date for performance of the obligation by the promisor.

192 In the present case, Fred committed a breach of contract by late performance when it tendered performance on 13 December 2019 by the giving of the December 2019 Notice, after the time due for performance. The late performance was subsequently accepted by Corum and the other holders. At that point a cause of action accrued in favour of Corum and the other holders for breach occasioned by late performance; the earlier cause of action for non-performance having accrued immediately after 30 September 2013 when Fred failed to give notice of the change of control. Fred itself relied on its late performance as a discharge of its contractual duty, which in turn entitled it to payment of an amount due under the SSA pursuant to clause 15.5(b). The distinction between non-performance and late performance reflects the need to ensure that a contracting party in Fred's position cannot take the benefit of its performance of its contractual duty (albeit late) whilst escaping the concomitant liabilities associated with late performance.

193 Of course, had Fred not given notice at all, it would have been susceptible to the remaining stapled security holders giving notice pursuant to clause 18.2 of the SSA, which would have resulted in Fred's subsisting rights being suspended and the price being calculated by reference to the distributions received by Fred in the two years which preceded the change of control.

194 In the circumstances, Corum is entitled to damages by reason of Fred's breach of clause 15.5 of the SSA by reason of its late performance of the obligation imposed upon it to immediately give notice of the change of control.

195 Whether that breach sounds in damages of the amount sought or is confined to nominal damages is dealt with below.

196 That conclusion means that it is not necessary to deal with Corum's alternative claims to the effect that Fred breached implied duties of cooperation and good faith under the SSA or whether Fred engaged in misleading or deceptive conduct. Nor is it necessary to determine whether Corum is entitled to rely upon s 27(b) of the Limitations Act in respect of its claim for damages for breach of clause 15.5(a) of the SSA by reason of Fred's failure to give notice, as an answer to Fred's reliance on the Limitations Act in respect of the claim for damages for that breach.

197 Nevertheless, as those matters were the subject of comprehensive submissions, and in case I am wrong as to my conclusion that the claim for breach of clause 15.5(a) of the SSA is made out by reason of the giving of the late notice, I will determine those matters.

Fred's alleged breach of the implied duty of cooperation and good faith

198 Corum relies upon the duty implied in all contracts 'to co-operate in the doing of acts which are necessary to the performance by the parties or by one of the parties of fundamental obligations under the contract',[22] and separately on an implied term that each Stapled Security Holder will act in good faith towards the other.

199 Corum submits that performance of this obligation required Fred, when requested, to provide the information necessary to enable each other holder to determine whether Fred had undergone a change of control. It submitted that the implied duty of cooperation in those terms was enlivened by calls for production of the Telstra documentation on the following dates:

(a) 13 April 2016, when K&L Gates wrote to PharmX on behalf of Daleflag;[23]

(b) 28 September 2016, when Mr Wenham wrote to Mr Johnston;[24]

(c) 16 November 2016, when Mr Wenham wrote to Mr Cunningham;[25]

(d) 22 November 2016, when Mr Wenham sent an email to Mr Cunningham;[26]

(e) 4 May 2017, when Mr Wenham wrote to Mr Naismith;[27]

(f) 9 May 2017, when Mr Wenham wrote to Mr Naismith;[28]

(g) 11 July 2017, when Mr Wenham wrote to each other director of PharmX saying that without resolution of the issues surrounding the Telstra acquisition it was not clear to whom distributions should be made and he did not feel that the board could resolve to whom distributions should be made;[29]

(h) 15 August 2017, when the PharmX board met and discussed the concerns raised by Mr Wenham;[30]

(i) 27 September 2017, when the PharmX board met again and recorded Mr Wenham's ongoing concern;[31] and

(j) 24 October 2017 and 26 October 2017, when the PharmX board met and Mr Wenham again reiterated his unwillingness to support resolutions to distributing income of the Trust until such time as his concerns regarding the ownership of Fred were satisfied.[32]

200 The performance of a cooperation duty requiring the undertaking of certain acts is not difficult to establish when those acts are necessary for the performance by the parties, or by one of the parties, of fundamental obligations under the contract.[33] There is no question here though of the provision of the Telstra documentation by Fred being necessary for the performance by any of Corum, Mountaintop or Simple Retail of any of their obligations under the contract, fundamental or otherwise.

201 It is much more difficult to establish where performance of the acts is said to be necessary to confer a benefit on one of the other parties, but not essential to the performance of that party's obligations or are fundamental to the contract. The ambit of the cooperation obligation requires performance of acts that are necessary to preserve the benefit of the contract, not to confer a benefit on the other party to the contract. This dichotomy requires analysis of the contract in question so as to discern what has been promised under the contract.[34]

202 Moreover, its ambit is affected by commercial context and limited by what can reasonably be required in the circumstances.[35]

203 Fred does not accept the implication of a term of good faith. It submits that such terms are not implied as a necessary incident into all commercial contracts,[36] arguing that such a term can only be implied ad hoc in a specific contract,[37] and the basis for an implication of a term ad hoc does not arise in the present context. Alternatively, it submits that any implied term of good faith was not breached.

204 Regardless of whether the obligation is relied upon as a necessary incident of performance of the cooperation duty or as a component of the performance of any implied term of good faith, compliance with such obligations did not require Fred to provide Corum in the circumstances with the Telstra documentation.

205 For the most part, the requests were made by Stapled Security Holder nominee directors to PharmX. Requests made by various shareholders (or directors) of PharmX for it to conduct an investigation (which PharmX in fact chose not to do) does not enliven any obligation on the part of Fred to provide the requesting party with copies of the documentation sought. Of the various matters relied upon, only two, being the requests made by Mr Wenham to Mr Naismith on 4 May 2017 and 9 May 2017, were arguably addressed to Mr Naismith in his capacity as an officer of Fred (as opposed to his capacity as a director of PharmX).

206 Relatedly, many of the matters relied upon by Corum, including the 9 May 2017 letter, are matters which arose as a result of Mr Wenham's reluctance as a director of PharmX to vote in favour of distributions to unitholders until such time as his concerns about the change of control issue of Fred had been satisfied. The basis of Mr Wenham's concern appeared to be as set out in his letter of 11 July 2017 to the effect that until those matters were clarified, 'it [was] not clear to whom the distribution[s] should be made'.

207 Whilst I accept that Mr Wenham had an honest belief that the question of the change of control was relevant in the sense he articulated, in fact he was mistaken, as Fred consistently maintained. The Deed requires distributions to be made to unitholders; there is no suggestion that Fred was not the unitholder at the relevant time. Whether Fred had been the subject of a change of control event or not was irrelevant to the question. Mr Wenham, perhaps understandably for a non-lawyer, conflated the question as to the party that had an entitlement to distributions with the possible loss and damage that might be suffered by other unitholders arising from the inability to rely on the pre-emptive provision buying out the interest of the party the subject of the change of control.

208 Either way, it is not reasonable to impose on Fred an obligation to provide the Telstra documentation to assuage a misplaced albeit genuine concern on the part of Mr Wenham in his capacity as a director of PharmX.

209 Even in respect of the requests made more generally, there was no case advanced to the effect that Fred knew that a change of control event had occurred. On 14 and 15 August 2013, Mr Johnston and Mr Naismith had received legal advice to the effect that an agreement to sell Telstra 50% of Fred's voting shares would not result in a change of control within the meaning of the SSA. The legal advice did not consider the terms or effect of the Fred Shareholders' Agreement which was to be entered into by the new shareholders of Fred upon completion of the Telstra acquisition. It was that agreement which was foundational to the conclusion that a change of control event had occurred. However, there was no suggestion nor any evidence to the effect that Mr Naismith or Mr Johnston considered that the fact that the solicitor had not been provided with the Fred Shareholders' Agreement was significant or in some way undermined the legal advice provided in August 2013.

210 Moreover, whilst the Fred Shareholders' Agreement was an agreement to which Fred was party, the obligations imposed on it extended, and the correlative benefits were enjoyed by, Telstra, the Pharmacy Guild, Naismith Consulting Pty Ltd and Mr Naismith. Those obligations required each party to keep relevant information, which expressly included the shareholders agreement, confidential, and not to disclose same to any other person without the prior written approval of the other parties.[38] The Telstra Sale Agreement contained similar provisions.[39]

211 Therefore compliance by Fred of the obligations in the manner asserted by Corum would have placed Fred in breach of the Telstra Sale Agreement and in breach of the Fred Shareholders' Agreement. Neither the performance of an implied duty of cooperation nor adherence to any obligation of good faith implied in the SSA operates such as to require Fred to undertake acts or omissions which would place it in breach of obligations owed to other persons.

212 In oral closing submissions, Corum argued that the burden placed on Fred to secure compliance with its implied obligations was one which required it to procure the consent of the counterparties to the Fred Shareholders' Agreement. Of course, none of the shareholders of Fred owed any obligation to the Stapled Security Holders to provide the information, nor relatedly to consent to its provision by an officer acting in Fred's name.

213 Whether proper performance is viewed through the prism of the duty to cooperate or of good faith, it is not reasonable to require as an incidence of performance that Fred (or more accurately Mr Naismith or Mr Johnston) procure the consent of third parties (albeit that they were its shareholders) to the provision of the information sought.

214 Recognising that the ambit of the obligation will be constrained by what is reasonable in the circumstances,[40] due performance of the obligation however cast, could go no higher than requiring Fred to seek the consent of each of its shareholders to the provision of the information to the other Stapled Security Holders. This is a quite different and qualitatively less onerous obligation. It was not pleaded and, in any event, its non-performance has different causative effects which were not addressed in the evidence or submissions.

215 Nor in fact was performance of the kind alleged necessary to enable the other Stapled Security Holders to enjoy the benefit conferred on them to exercise their rights of pre-emption under the SSA; both Mr Wenham and Mr James-New had the belief that a change of control event had occurred; any non-enjoyment of those rights was a product of them not giving the relevant notices or to the extent they retained some doubt, by not commencing a proceeding seeking such documentation. Whilst provision of the information may have made the enjoyment of the benefit easier, this is some way short of provision being necessary for the benefit to be enjoyed.

216 Fred informed the other Stapled Security Holders of the Telstra acquisition back in September 2013. It had obtained legal advice in August 2013 that the acquisition did not give rise to a change of control, and there is nothing to suggest that Fred later came to believe otherwise. About three years after disclosing the Telstra acquisition, various demands were made by the Stapled Security Holders, or more accurately, their nominee directors at PharmX, for the provision of the Telstra documentation, ostensibly so as to satisfy honestly held but mistaken concerns as to whether Fred, as a unitholder, was entitled to its share of distributions from the Trust.

217 In the circumstances above, Fred was not required as an incident of its performance of the duty to cooperate or as an incident of good faith performance of the SSA to provide the documentation.

218 Accordingly, I would not have upheld Corum's claim based on any breach of an implied term of the SSA.

219 Corum also alleges that between 30 September 2013 and 12 December 2019, Fred engaged in misleading and deceptive conduct in contravention of s 18 of the ACL by making certain statements and engaging in conduct (including failing to correct statements made by others) which constituted a representation to the other holders that Fred had not undergone a change of control within the meaning of clause 15.1 of the SSA.

220 The relevant representation is alleged to have been made in various ways:

(a) by Fred's conduct in continuing to participate in the PharmX business as a holder and continuing to hold 30% of PharmX securities, appointing Mr Naismith to the board, demanding and accepting distributions;

(b) by failing to give notice of a change of control; and

(c) failing to provide information in response to requests about the Telstra acquisition in circumstances where from about 13 April 2016 onward, Fred knew that Daleflag and Mountaintop had specifically alleged that change of control of Fred may have arisen.

Further, Fred is said to have made the representation by the silence of Mr Naismith and Mr Johnston in circumstances where Mr Cunningham made a statement to the effect that the Telstra acquisition did not constitute a change of control at a board meeting of Fred held 16 October 2013.

221 Corum otherwise points to Mr Johnston's email dated 18 April 2016 to the effect that clause 15.1 of the SSA had not been enlivened and Mr Naismith's refusal at the meeting of the PharmX board held 15 August 2017 to address concerns regarding the Telstra acquisition.[41]

222 Even if I were to assume in Corum's favour that the conduct relied upon gave rise to the making of a representation in the relevant sense and in that respect, arguably only Mr Johnston's email of 18 April 2016 is sufficient to give rise to an representation in the terms alleged, Corum's claim can only succeed if Fred's conduct can be construed as a representation as to fact and not opinion.

223 Given my conclusion that Fred believed that no change of control event had occurred, its conduct cannot be misleading if it in fact held the opinion at the time that it made the statements alleged even if the opinion was later held to be mistaken.

224 As French J observed in Pyrotek Pty Ltd v Ausco Industries Pty Ltd:[42]

A statement which has the character of a statement of fact when read by an ordinary person may to another, who has relevant knowledge, be seen as an opinion involving interpretation of other data. If in the circumstances in which it is communicated, including the nature or resources of the recipient, a statement presents as a statement of opinion then it is not necessarily to be characterised as anything other than a representation that the maker of the statement holds the opinion or interpretation offered.

225 The proper characterisation as to the statements (or more precisely the conduct) as to one of belief or opinion or as to a matter of fact must be viewed from the perspective of the person to whom the statement or representation is directed.[43] However, the necessary judgment as to whether the conduct gives rise to a representation as to fact or opinion must be undertaken in the context in which the relevant statements were made.[44] The relative knowledge of the speaker and the audience regarding the subject matter of the impugned conduct is relevant to the question of characterisation. The more informed the recipient is regarding the subject matter of the impugned remarks, the more willing the Court will be to construe the statement as opinions.[45]

226 In the context of statements of opinion, statements of fact or statements of mixed and indivisible law and fact, in Australian Competition and Consumer Commission v Valve Corporation (No 3), Edelman J said:[46]

... an incorrect statement of the law can constitute misleading and deceptive conduct. In Forrest v Australian Securities and Investments Commission [2012] HCA 39; (2012) 247 CLR 486 ... the High Court considered the effect of representations by letters to the Australian Stock Exchange Ltd and media releases, including that a company 'has entered into a binding contract'. In the joint judgment of French CJ, Gummow, Hayne and Kiefel JJ, their Honours considered, as one possibility, that the representations 'conveyed some message about "legal enforceability"' (at [32]). Their Honours said that although it was to be doubted whether the statements were statements of 'fact', (at [33]):

it is ultimately unprofitable to attempt to classify the statement according to some taxonomy, no matter whether that taxonomy adopts as its relevant classes fact and opinion, fact and law, or some mixture of these classes. It is necessary instead to examine more closely and identify more precisely what it is that the impugned statements conveyed to their audience.

227 The relevant controversy here was whether or not the Telstra acquisition in the circumstances gave rise to a change of control, as that term was defined in clause 15.1 of the SSA. Change of control, for the purposes of clause 15.1, required consideration of not merely the easily understood factual question as to whether Telstra had acquired 50% or some greater percentage of the voting shares, but the more nuanced question of whether Telstra had acquired a relevant interest in greater than 50% of the voting shares. Relevant interest is itself a defined term which extends to having the power to dispose of or 'control the exercise of' a power to dispose of the shares or units,[47] and additionally requires consideration of the definition of 'Deemed Relevant Interest'.[48]

228 Relevant to the question of the proper characterisation of the impugned conduct is whether the subject matter of the statement is something that can be measured against objective criterion. If it cannot, the statement is more likely to be a matter of judgment or opinion.[49]

229 The recipient parties (here Corum, Mountaintop and Simple Retail) well understood that the question as to whether a change of control had occurred involved consideration of the suite of agreements entered into to give effect to or as a consequence of the Telstra acquisition. That was why they wanted to see the agreements. The matter at issue required both knowledge of the content but also the effect of the underlying agreements, and their application to the SSA. The recipients also knew that Mr Naismith and Mr Johnston were not lawyers.

230 As such, the audience would have appreciated that what was being conveyed was a statement as to a belief by non-lawyers that in the circumstances then known to them, the change of control provision in the SSA had not been enlivened. The audience well appreciated that this involved at least in part questions of the interpretation of the relevant agreements; Mr James-New noting that Mr Johnston's email of 18 April 2016 involved an 'unduly narrow reading'[50] of the change of control provision. The 'audience' also appreciated the need to obtain legal advice as to the scope of the provision,[51] which is entirely consistent with the relevant conduct being conduct in respect of matters of judgment and opinion. The resolution of the competing opinions did not take place until the handing down of judgment in the Judicial Advice Proceeding.

231 In the circumstances, the conduct of Mr Naismith and Mr Johnston is properly characterised as statements by them as to a state of mind about a subject matter that was appreciated as calling for legal opinion or advice. As there is no suggestion they did not hold that state of mind, the claim that Fred engaged in misleading or deceptive conduct must fail.

232 Fred raises another impediment to Corum's claim based on contravention of the ACL. It says that neither Corum, Mountaintop or Simple Retail were in any event, misled by any conduct by Fred. It is not necessary to deal with this argument, given my conclusion that the conduct was not misleading, but in case I am wrong I will deal with it briefly.

233 Where the misleading conduct is constituted by misrepresentations, as is alleged here, the representee must be able to point to acts done by the representee in reliance upon the misrepresentations in order to establish a sufficient connection to satisfy the concept of causation.[52] In that context, Fred submits that there is no evidence from any of Corum's witnesses to the effect that Corum did or did not do anything as a consequence of the statements being made (or not made as the case may be) giving rise to the alleged contravention. This must be accepted. Corum was largely unconcerned by the change of control issue. This does not matter much though, as there is no contest that Corum would have acted if Mountaintop and Simple Retail did. Any reliance by Corum is a case of indirect reliance. It did not do anything as a result of the alleged misrepresentations of Fred. More pertinently, Fred notes that there is no evidence from Mr Wenham or Mr James-New to the effect that they did or did not do anything as a result of Corum's contravening conduct. Rather, Mr Wenham's evidence was that after he had received Mr Johnston's email on 18 April 2016, he became convinced that Fred had undergone a change of control. As noted above, Mr James-New said that he considered Mr Johnston's interpretation as set out in that email took an unduly narrow view of the change of control provisions.

234 Fred therefore submits that neither Mr James-New nor Mr Wenham were misled by Fred's conduct and that this is fatal to the misleading or deceptive conduct claim.

235 Corum submits the necessary causative element is found in the fact that it had not engaged in the misleading or deceptive conduct and instead had told the other Stapled Security Holders the truth, namely that Fred had been the subject of a change of control event and the other holders would have given the necessary notices so as to acquire Fred's shareholding.

236 I accept Fred's submission. The representee(s), here Corum, Mountaintop and Simple Retail (or any of them) must be led into error.[53] In the context of conduct directed to particular individuals, no conduct can mislead or deceive unless the representee labours under some erroneous assumption. This did not happen here; one of the representees (Corum) was disinterested and the other two did not believe what they were told. Corum's analysis conflates the question of what Mountaintop and Simple Retail would have done had the true position been conveyed to them with the relevant question, which is what they did or did not do in response to the allegedly incorrect information being provided to them.

Postponement of the limitation period - s 27(b) of the Limitations Act

237 Given my conclusion that Corum's breach of contract claim is made out by reason of the late giving of notice by Fred, it is not necessary for me to consider whether Corum is entitled to rely upon s 27(b) of the Limitations Act with respect to that part of its cause of action which is statute barred, namely the claim for damages for breach based on Fred's failure to immediately give notice as required by clause 15.5 of the SSA. Again, in case I am wrong in that conclusion, I will consider Corum's postponement submission.

238 Corum relies upon s 27(b) of the Limitations Act and submits that the limitation period did not begin to run until 18 January 2019, when Fred's lawyers provided the Telstra documents.

239 The relevant part of s 27(b) of the Limitations Act provides:

Where, in the case of any action for which a period of limitation is prescribed by this Act -

[...]

(b) the right of action is concealed by the fraud of any such person as aforesaid; ...[54]

[...]

the period of limitation shall not begin to run until the plaintiff has discovered the fraud ... or could with reasonable diligence have discovered it ...

240 Although s 27(b) refers to 'concealed by the fraud', it is sufficient if the essential elements of the cause of action are concealed by conduct that is unconscionable, having regard to the relationship between the parties.[55] Unconscionability in this context involves a consciousness that what is being done is wrong or that to take advantage of the situation involves wrongdoing.[56]

241 Corum's reply focuses on Fred's conduct between 13 April 2016 and 16 January 2019 in refusing to provide the Telstra documentation in circumstances where requests were made by or on behalf of Simple Retail and Mountaintop for copies and in the context of assertions having first been made from 13 April 2016 onward.

242 The cause of action for breach of clause 15.5 of the SSA in respect of the failure to 'immediately' notify the change of control of event, arose on or about 30 September 2013. The concealment however relied upon by Corum is not said to have arisen until 13 April 2016.

243 In effect, Corum therefore seeks not a postponement of the commencement of the relative limitation period but its suspension once the limitation period has already commenced. The question as to whether s 27(b) of the Limitations Act permits the suspension of the time once it has commenced running rather than postponement of its commencement is controversial.

244 In academic texts the issue is referred to as 'subsequent concealment' and the texts identify the issue as being whether subsequent fraudulent concealment can function to suspend the running of time or whether only initial fraudulent concealment can produce this effect.[57]

245 Professor Handford states that once a limitation period has commenced, it cannot be stopped save for when 'moratorium legislation' suspends the running of a limitation period.[58] Handford cites, as an example of moratorium legislation, s 28LV of the Wrongs Act 1958 (Vic), which, in the case of personal injury claims for damages for non-economic loss, suspends the relevant limitation period following service of a copy of a certificate of assessment until three months after acceptance of assessment of the degree of impairment.

246 In contrast, Professor Handford observes that '[f]raud after the [limitation] period has begun ... does not suspend the running of time', citing as authority Tito v Waddell (No 2) ('Tito v Waddell')[59] and Sheldon v RHM Outhwaite (Underwriting Agencies) Ltd ('Sheldon').[60] In Tito v Waddell, Megarry VC construed legislation in identical terms to s 27(b) of the Limitations Act and held that if time had already began to run, a supervening fraudulent concealment will not start time running again.

247 Sheldon concerned a newer and different limitation provision (s 32(1)(b) of the Limitation Act 1980 (UK)), which provided for a postponement of the limitation period where 'any fact relevant to the plaintiff's right of action has been deliberately concealed from him by the defendant'.[61] In Sheldon, the English Court of Appeal held that where the deliberate concealment occurred after the cause of action arose, it will not start time running again.[62] The House of Lords allowed an appeal against the English Court of Appeal's decision, holding that on its true construction, s 32(1)(b) operated to postpone the running of time in every case where there was deliberate concealment by the defendant of facts relevant to the plaintiff's cause of action, regardless of whether such concealment was contemporaneous with or subsequent to the accrual of the cause of action. The House of Lords distinguished Tito v Waddell, focussing instead on the particular and different construction of s 32(1)(b).[63]

248 Professor Dal Pont, in his textbook 'Law of Limitation', argues that as a matter of statutory construction, it is difficult to envisage concealment subsequent to the accrual of the cause of action as capable of triggering another suspension of the time bar. Further, Professor Dal Pont notes the tension between the wording of the statutory scheme in Victoria and the proposition that a subsequent concealment can suspend time running.[64]

249 Nevertheless, in at least two Victorian cases, judges have endorsed the House of Lords approach in Sheldon as representative of Victorian law. In CE Heath Underwriting and Insurance (Australia) Pty Ltd v Daraway Constructions Pty Ltd ('CE Heath'),[65] Batt J preferred the views of the House of Lords in Sheldon and applied those views to the Victorian provision, 'despite the differences in legislation'.[66] His Honour made no reference to Tito v Waddell.

250 In Skrijel v Mengler ('Skrijel'),[67] Eames J considered that Lord Nichols' expression of the purpose of s 32(1)(b) of the United Kingdom act appropriately identified the purpose of s 27(b) of the Limitations Act,[68] namely that if a plaintiff is not aware of all the facts relevant to their right of action, and the defendant takes steps deliberately aimed at keeping the plaintiff 'in the dark', there is as much need to prevent that defendant from gaining a limitation advantage as the defendant who conceals the position from the outset.

251 Fred submits that I should not follow CE Heath and Skrijel, noting that Tito v Waddell was not considered in CE Heath and otherwise that the different purpose identified in Sheldon and applied by Eames J in Skrijel is simply not available on the wording of s 27(b) of the Limitations Act.

252 It is not necessary to determine whether CE Heath and Skrijel should be followed, because even if I consider that s 27(b) of the Limitations Act permits time to be suspended once it has commenced to run, which is the interpretation favoured by Corum, I am not satisfied that Fred unconscionably concealed matters relevant to the ascertainment of any cause of action on the part of the other holders.

253 I do not accept that Fred's failure to provide the documentation took place in circumstances where Fred had a consciousness that what it was doing was wrong or that it consciously sought to take advantage of a situation involving wrongdoing.

254 First, as noted above, Fred had received advice from solicitors in August 2013 that no change of control event arose as a consequence of the Telstra acquisition; secondly, Mr Naismith informed the other holders of the fact of the Telstra acquisition at the time that it occurred, which disclosure was met with equanimity if not approval from those holders; thirdly, it was never put to any of Fred's witnesses and nor do I accept, that Fred later came to the view that a change of control event had occurred at any time prior to the determination made in the Judicial Advice Proceeding; fourthly, the request for provision of the Telstra documentation took place in circumstances where the disclosure of the fact of the transaction had been made by Fred some 3 years earlier, and against the background of a deteriorating relationship between Fred, Simple Retail/Daleflag and Mountaintop, prompted initially by Fred's unhappiness that Mr James-New had sold Simple Retail to MediSecure, one of Fred's competitors in another business line without full disclosure of the circumstances accompanying the request to approve the correlated transfer of units from Simple Retail to Daleflag. Additional relevant circumstances include the failure of Mr James-New and Mr Wenham as nominees of Daleflag and Mountaintop to vote in favour of distributions to Fred and Corum and a general lack of alignment between the interests of the smaller holders (Simple Retail and Mountaintop) who preferred a sale of PharmX as a whole and the larger holders Fred and Corum.

255 In that context, Fred's failure to provide the Telstra documentation amounted to nothing more than an unwillingness to provide documentation that it was contractually precluded (by the Fred Shareholders' Agreement) from providing, about a matter which Fred honestly considered did not give rise to a change of control within the meaning of clause 15.5 of the SSA, in respect of an event which had occurred 3 years earlier and been disclosed at the time and met with apparent assent. It also took place in a context where Fred believed, rightly or not, that Mr James-New had not been entirely transparent in his dealings with the rest of the PharmX board and where Mr James-New and Mr Wenham were refusing to vote in favour of distributions made from the Trust to its unitholders, which included Fred.

256 In that context, Fred's unwillingness to provide copies of the documentation falls well short of conduct of the character necessary to enliven the operation of s 27(b) of the Limitations Act.

257 Accordingly, I do not accept that Corum is entitled to rely upon any postponement of the limitation period.

258 Overall, Fred breached clause 15.5 of the SSA by failing to notify Corum and the other Stapled Security Holders immediately of the change of control event which occurred on 30 September 2013. In respect of that breach, Corum's cause of action is statute barred and it cannot rely upon s 27(b) of the Limitations Act.

259 However, I accept that Fred also breached clause 15.5 of the SSA by reason of its late provision of notice. That cause of action is not statute barred.

260 I do not accept that Fred's failure to provide the documentation breached any implied term of the SSA or that Fred engaged in conduct contrary to s 18 of the ACL.

261 Because Corum has succeeded in one of its breach of contract claims, it is necessary to consider whether Corum is entitled to recover damages for that breach beyond nominal damages and if so, to quantify those damages.

262 There are two components to Corum's damages claim; the Overpayment Claim of $1,193,953 and the Wrongful Distributions Claim of $5,002,527.97.

263 Implicit in each component of damages claimed is the Corum Counterfactual, namely, that had Fred complied with its contractual duty to give notice under clause 15.5(a) of the SSA immediately after undergoing a change of control on 30 September 2013, Simple Retail and Mountaintop would promptly have 'agreed' within the meaning of clause 15.5(b) of the SSA that Fred was taken to have given an irrevocable transfer notice and thereafter that Corum, Simple Retail and Mountaintop would have exercised the rights of pre-emption in clause 15.4 of the SSA that would thereby have arisen.

264 Fred denies that Simple Retail and Mountaintop would have so acted and additionally asserts that Mountaintop did not have the financial capacity to exercise the right of pre-emption in clause 15.4 of the SSA.

265 Although the statement of claim did not in terms characterise the damages as lost opportunity damages, Corum's opening and closing submissions proceeded on that basis. As a consequence, it reduced the quantum of the Wrongful Distributions Claim to $5,002,527.97, in a manner explored in more detailed below. When this amount is added to the Overpayment Claim, it gives rise to total damages sought of $6,196,480.97.[69]

266 The recovery of damages for the loss of an opportunity and the principles which inform the assessment of the value of the lost opportunity have been essayed on numerous occasions.[70] A claimant must first prove on the balance of probabilities that the defendant's conduct has caused the loss of a commercial opportunity of some value which is 'not in the realms of the merely theoretical or negligible'.[71]

267 Once this is established, the Court must then assess the value or extent of the loss. The task of assessment of the value or extent of the loss is measured by reference to the degree of its probability.

268 Thus, in Sellars v Adelaide Petroleum NL, the majority of the High Court stated:[72]

The distinction between proof of causation and damages was emphasized in Hotson v East Berkshire Area Health Authority. There Lord Ackner stated that the first issue that fell to be determined was that of causation. This was to be determined on the balance of probabilities. Once liability was established, the assessment of the plaintiff's loss could proceed, taking into account any reductions arising from the uncertainty of future events. When the issue of causation turns on what the plaintiff would have done, there is no particular reason for departing from proof on the balance of probabilities notwithstanding that the question is hypothetical ...

[t]he general standard of proof in civil actions will ordinarily govern the issue of causation and the issue [of] whether the applicant has sustained loss or damage. Hence the applicant must prove on the balance of probabilities that he or she has sustained some loss or damage. However, in a case such as the present, the applicant shows some loss or damage was sustained by demonstrating that the contravening conduct caused the loss of a commercial opportunity which had some value (not being a negligible value), the value being ascertained by reference to the degree of probabilities or possibilities.

269 As to the value of the lost opportunity in Malec v JC Hutton Pty Ltd ('Malec'),[73] Deane, Gaudron and McHugh JJ said:

... A common law court determines on the balance of probabilities whether an event has occurred. If the probability of the event having occurred is greater than it not having occurred, the occurrence of the event is treated as certain; if the probability of it having occurred is less than it not having occurred, it is treated as not having occurred. Hence, in respect of events which have or have not occurred, damages are assessed on an all or nothing approach. But in the case of an event which it is alleged would or would not have occurred, or might or might not yet occur, the approach of the court is different. The future may be predicted and the hypothetical may be conjectured. But questions as to the future or hypothetical effect of physical injury or degeneration are not commonly susceptible of scientific demonstration or proof. If the law is to take account of future or hypothetical events in assessing damages, it can only do so in terms of the degree of probability of those events occurring. The probability may be very high - 99.9 per cent - or very low - 0.1 per cent. But unless the chance is so low as to be regarded as speculative - say less than 1 per cent - or so high as to be practically certain - say over 99 per cent - the court will take that chance into account in assessing the damages. Where proof is necessarily unattainable, it would be unfair to treat as certain a prediction which has a 51 per cent probability of occurring, but to ignore altogether a prediction which has a 49 per cent probability of occurring. Thus, the court assesses the degree of probability that an event would have occurred, or might occur, and adjusts its award of damages to reflect the degree of probability. The adjustment may increase or decrease the amount of damages otherwise to be awarded.

Similarly in Malec, Brennan and Dawson JJ observed:[74]

Hypothetical situations of the past are analogous to future possibilities: in one case the court must form an estimate of the likelihood that the hypothetical situation would have occurred, in the other the court must form an estimate of the likelihood that the possibility will occur. Both are to be distinguished from events which are alleged to have actually occurred in the past.

270 In the present case, therefore, the task in assessing both causation and if established, the value of the lost opportunity, requires a judgement as to what would have occurred in the hypothetical circumstances of Fred giving notice immediately after the change of control on 30 September 2013.

271 Corum submitted that in such an event, the agreement of Simple Retail and Mountaintop that Fred would be taken to have given an irrevocable transfer notice and that Corum, Simple Retail and Mountaintop would have consequently exercised their rights of pre-emption 'would almost certainly have occurred'.

272 Some guidance can be obtained from what occurred when Fred gave the December 2019 Notice. However, care must be taken so as to not place excessive weight on what occurred over six years later. To put it another way, it is important to assess what later occurred, so as to exclude to the extent possible, factors that were present in 2019, which would not have been present back in 2013. To that end, I accept Fred's submission (which is also relied upon by Corum in a different context), that the disharmony which arose between Mountaintop and Simple Retail with Fred would not have been present in 2013.

Would Mountaintop and Simple Retail have sought to exercise their pre-emptive rights?

273 Both Mr James-New and Mr Wenham gave evidence that they would have agreed that Fred would have been taken to have given an irrevocable transfer notice and then sought to acquire their proportionate share of Fred's interest.

274 Fred submits that this evidence should be rejected and points to nine factors which make it improbable that Mr James-New and Mr Wenham would have so acted.[75] There is some overlap in the factors relied upon.

275 First, Fred says that to do so would have been a commercially unsound, 'indeed ... value-destroying' decision because had Fred exited from PharmX, Fred would have been able to launch a rival gateway in competition, eroding PharmX's profits and the resultant distributions to the holders.

276 Secondly, and in relation to the first factor, Fred notes that Corum's position was that it would not itself have initiated a buyout of Fred's interest, because Corum was of the view that PharmX would be more successful if Fred remained involved.

277 Thirdly, Fred says that Mr James-New and Mr Wenham would not have so acted, because the acquisition of the Fred interest would have disproportionately benefitted Corum.

278 Fourthly, it says that the removal of Fred would have exacerbated the disparity/disconnect between the minority security holders' percentage holding on the one hand and their percentage share of distributions on the other.

279 Fifthly, it says that eliminating Fred's holding would not have increased the value of Mountaintop's stapled securities, contrary to Mr Wenham's evidence given in cross-examination to that effect.

280 Sixthly, it says that contrary to Mr James-New and Mr Wenham's evidence, acquiring Fred's holding would not have put them in a better 'bargaining position' with respect to any restructure or sale of PharmX.

281 Seventhly, Fred submits that Mr Wenham and Mr James-New would only have sought to acquire Fred's PharmX interest if they could take that commercial step as part of a broader objective of having their own PharmX interest brought out.

282 Eighthly, they submit that Mr James-New's evidence that he would have taken steps to acquire Fred's interest to 'avoid Telstra having greater control of PharmX' ought be rejected, including because Mr James-New had known that Telstra had acquired a 50% interest in Fred in 2013 after which there was no change to the conduct of Fred with respect to PharmX and it was 'business as usual'.

283 Ninthly, Fred submits that Daleflag and Mountaintop's giving of notice in 2020 is not relevant, as circumstances had changed significantly by then and there was animosity which had developed between Fred and Mr James-New which had not existed previously, and that by that stage, Corum was under different management.

284 I accept the evidence of Mr James-New and Mr Wenham. It is extremely probable that Mountaintop and Simple Retail would have taken steps to acquire Fred's interest had Fred given notice of change of control immediately after 30 September 2013.

285 Both Mr James-New and Mr Wenham gave evidence that they considered that acquisition at the prices fixed under Schedule 6 of the SSA represented a bargain. This assessment is entirely consistent with Mr Cunningham's memorandum of 16 November 2015 above,[76] which notes that it had been agreed at PharmX's inception[77] that the buyout price contained in the SSA would be set at a low price, including because it gave initial interest holders the opportunity to acquire the interest of an outgoing initial interest holder at a low price. This opportunity to buy out Fred at the low 4x multiple would have fortuitously presented itself to Mountaintop and Simple Retail.

286 The purchase price that Corum, Simple Retail and Mountaintop collectively were required to pay Fred immediately after 30 September 2013 was $637,444. Mountaintop's and Daleflag's share of that sum was $182,126 each.

287 If Fred ceased as a unitholder, the potential increase in distributions to be received by Mountaintop and Daleflag was significant. An investment by Mountaintop of $182,126 had the potential to increase its distributions by $55,000 in the 2014 financial year alone. An investment by Simple Retail of $182,126 had the potential to increase its distributions for the 2014 financial year alone of around $85,000, with the potential for commensurate increases in the following years.

288 A rough calculation showing that impact in the years following Fred's exit is set out below:[78]

289 The above table only shows the increase in distributions that could have been derived in the 2014 financial year only, and does not take account of the possibility of commensurate increases in distributions in the 2015 financial year and following. Both Mr James-New and Mr Wenham anticipated the increases in distributions to continue.

290 Thus, for a relatively small investment, each of Mountaintop and Simple Retail could have expected to have earned significantly greater returns in dollar terms than they were currently receiving. The fact that Corum may also have benefited, and by a greater proportion and amount, was understandably rejected by Mr James-New and Mr Wenham as irrelevant. A rational and astute economic actor (and Mr James-New and Mr Wenham were certainly that) would be motivated by the anticipated additional dollar return to them, not the fact that another may have benefited by more.

291 Secondly, I accept that Mr James-New and Mr Wenham would have considered that their capacity to negotiate an exit on favourable terms would have been enhanced by only having to deal with Corum, not Corum and Fred. They both gave that evidence and it is consistent with commercial rationality. The fact that this is exactly what did happen in 2020 after Fred exited, is entirely consistent with that view being a reasonable one and hence likely to have been their state of mind in 2013.

292 By 2013, it had become clear that the structure of the PharmX arrangements as set out in the SSA and the Deed set up divergent incentives for holders. Mr James-New and Mr Wenham were the owners of their respective software businesses. Simple Retail and Mountaintop were much smaller businesses than Corum or Fred. The distribution model favoured those Stapled Security Holders who had the greater share of the POS software market, being Corum and Fred. A sale of the business as a whole or the winding up of the Trust favoured the interests of Mountaintop and Simple Retail, in particular because it gave them the opportunity of realising a greater value for their interest than selling out in accordance with the SSA, because it gave rise to the possibility of a sale at a higher price multiple than 4x, and the opportunity of a distribution of proceeds by reference to the proportion of units held, or by some negotiated midpoint between distribution on this basis and the SSA formula. Mountaintop and Simple Retail were keen to exit at least from the time of the receipt of Deloitte's Project Accord 1 in March 2012, with their price expectations influenced by the valuations contained in that report.

293 A re-organisation event such as amending PharmX's constituent documents or effecting a sale of the PharmX business required a special majority approval of at least 70% of the Stapled Security Holders. If Fred exited and Corum remained, it would still be open to Corum to block any such change. Similarly, the option of all directors resolving for the price to be paid for stapled securities to be calculated otherwise than by reference to Schedule 6 would also require the consent of Corum's nominee. However, if Fred was to exit, Mountaintop and Simple Retail would only have to reach agreement with one other stakeholder, Corum, not Corum and Fred. Commercial rationality suggests that Corum may well have been prepared to pay a higher price for Mountaintop and Simple Retail's interests than it would have, had it only been acquiring half their holdings with the other half acquired by Fred. Payment of a 'control premium' is well known and commonplace and is a concept that would have been well understood by Mr Wenham and Mr James-New.

294 Although less significant, Mr James-New also advanced a third reason as to why he would have elected to acquire Fred's interest, which was to avoid Telstra having greater control over PharmX. Whilst Mr James-New did not raise any contemporaneous concern with Mr Naismith about the Telstra acquisition when he was informed of it, it is significant that at the first PharmX board meeting after its acquisition, on 16 October 2013, Mr James-New specifically raised the question of whether the Telstra acquisition would affect the on-going governance and operations of PharmX.[79] The raising of this issue provides some support for Mr James-New's evidence given in this proceeding as to how he would have acted in October 2013.

295 Mr James-New's evidence was sharply criticised by Fred. I agree that Mr James-New's answers frequently meandered off in areas rather disconnected from the question and his recollection as to the timing of events lacked precision. I also accept that the technical issues which arose in the cross-examination were frustrating. But none of those matters undermined the reliability of his evidence on the only contested issue relevant to this proceeding, namely whether Mr James-New would have procured that Simple Retail exercise its pre-emptive rights in October 2013, had Fred given the required notice.

296 Mr James-New was cross-examined at some length about the circumstances relating to the transfer of the stapled securities held by Simple Retail to Daleflag and its coincidence in timing with the sale of the Simple Retail business to MediSecure.

297 The cross-examination sought to undermine Mr James-New's credibility by trying to establish that Mr James-New misled the PharmX board over the reasons for the transfer of the stapled securities held by Simple Retail to Daleflag. Whilst Fred's concern, based solely on the timing of relevant events, is perhaps understandable, whether Mr James-New misled the PharmX board in any way requires a close analysis as to the discussions and negotiations between MediSecure and Simple Retail at specific times.

298 These events occurred in the second half of 2015 and the early part of 2016, many years prior to Mr James-New giving evidence in this proceeding and concerned a subject matter quite collateral to this proceeding.

299 Given the time period that has elapsed since that transaction and the fact that neither the transfer of the units from Simple Retail to Daleflag or the sale by Mr James-New of the Simple Retail business to MediSecure is at issue in this proceeding, Mr James-New's imprecision in the giving of evidence concerning those topics is understandable. It is not altogether surprising then, that Mr James-New's recollection about the timing of matters relevant to the MediSecure transaction and the transfer of the units lacked specificity and was contradictory at times.

300 Further, even if Mr James-New did mislead the PharmX board about that transaction, which I expressly do not find, it does not follow that this undermines the reliability of his evidence as to what he would have done in 2013, had Fred given the relevant notice.

301 For the reasons adverted to above, the exercise by Simple Retail of its proportionate pre-emptive rights over Fred's stapled securities in PharmX made obvious commercial sense. Mr James-New's evidence to that effect is quite unaffected by the question as to the comprehensiveness or otherwise of his disclosures concerning the sale of Simple Retail to MediSecure in late 2015 to early 2016. If anything, if Fred's attack on Mr James-New has any merit (which I do not accept), then it shows that Mr James-New was disposed to act in a way which sought to advance his own commercial interests and that of his related corporate entities at all relevant times.

302 I have no hesitation in accepting Mr James-New's evidence (and that of Mr Wenham). The acquisition of the Fred interest by Mountaintop and Simple Retail in their proportionate shares made overwhelming commercial sense, assuming that PharmX's profits would have been relevantly unaffected by Fred's exit.

303 Fred submits that PharmX's profits would have been adversely affected as a result of Fred setting up a rival gateway, and it is for this reason that Mountaintop and Simple Retail would not sought to exercise their pre-emptive rights.

304 Whether Fred would have sought to compete is a contestable proposition and the likely effect of such competition is equally contestable. The likelihood of Fred competing and its effect is dealt with at length below, in the context of the determination of the value of the lost opportunity.

305 For present purposes, the relevant enquiry is not whether Fred would have competed and its effect on PharmX, but Mr Wenham and Mr James-New's likely state of mind as to that occurring and its effect, back in October 2013.

306 Both gave evidence that they did not believe that Fred would have competed with PharmX or at the very least competed in a manner which had any substantial impact on PharmX such as to undermine the commercial rationality in acquiring the Fred interest. The disclosed basis for that belief was that PharmX had been in operation since 2006 and that it made no sense for Fred to set up a rival exchange when PharmX was the incumbent and had been operating successfully since that time. In the context of the relevant enquiry here, Fred's assertion that it would have competed and would have done so in a manner that would have destroyed or so harmed the value of the stapled security interests held by Mountaintop and Simple Retail only has relevance if Mr Wenham and Mr James-New would have believed this in October 2013 and hence not sought to acquire the Fred interest. This is contrary to both their evidence as to what they would have done in 2013 and what they in fact did in 2020. The highly constable nature of the likelihood and effect of the competitive activity is such that it falls well short of establishing a legitimate basis to reject the evidence of Mr Wenham and Mr James-New.

307 Corum's evidence that it would have joined with Mountaintop and Simple Retail in the acquisition and taken its proportionate share was essentially unchallenged and, in any event, logically follows as a matter of course. Accordingly, I accept that had Fred given notice of the change of control event on or shortly after 30 September 2013 as it was required to do by reason of clause 15.5 of the SSA, Corum, Mountaintop and Simple Retail would have sought to acquire Fred's interest.

Did Mountaintop have the capacity to fund the acquisition of its proportionate share?

308 The remaining issue is whether Mountaintop had capacity to finance the acquisition of its share of the price. Noting the anticipated likely return associated with the acquisition, which is approximately 30% in the first year alone (acquisition price of $182,126, deriving an increase in income of $55,000 within 9 months),[80] one would have expected that Mountaintop would have been able to obtain ready external finance to facilitate such an acquisition had it been required.

309 As it happened, Mr Wenham gave unchallenged evidence as to substantial liquid assets which were available to facilitate such an acquisition. As at September 2013, Mountaintop had substantial reserves of cash and a portfolio of listed shares that it could have sold to buy Fred's interest. As at September 2013, Mountaintop had cash of $137,778.86 and listed shares of $352,618.46, giving total liquid assets of $490,397.32, more than 2½ times its share of the acquisition price.

310 Mr Wenham also adduced evidence of cash holdings held jointly by himself and his wife, which could have been lent to Mountaintop and totalled $237,547.09. In addition to the extremely healthy liquid asset position of both Mountaintop and Mr Wenham personally, Mr Wenham adduced evidence of personal interests in various properties owned by himself and his wife in respect of which they had varying shares.

311 Overall, Mountaintop had more than sufficient capacity to fund the acquisition of its share of the purchase price of $182,126.

312 The evidentiary basis for Fred's submission that Mr Wenham and Mountaintop lacked relevant capacity is in part that his assets were held jointly with others (including siblings and his wife) and as such, it would not be straightforward to liquidate the assets within the relevant timeframes. Fred also relies on an answer given by Mr Wenham in cross-examination. When asked why he did not commence legal proceedings in 2016 seeking orders for the production of the Telstra documentation by Fred, Mr Wenham said that he could not afford to do so.

313 As to the first point, the availability of cash and listed securities alone held by Mountaintop is such that those assets represented available funds of just under $500,000, which could have been available within days at most. Whilst Mr Wenham's wife was also a director of Mountaintop, Mr Wenham was its nominee director on the PharmX board and there is no basis to suggest that his wife would not have acquiesced in any decision to acquire the proportionate share of Fred's interest back in 2013 as she presumably did in 2020.

314 Mr Wenham's answer in cross-examination that he could not afford to bring legal action for the Telstra documentation was plainly a wry aside as to the notorious cost of litigation, illustrated in part by the several missives between solicitors representing the various holders of PharmX from about 2016 onwards and illustrated vividly by the many legal actions that later followed.

315 I therefore accept that Mountaintop could have funded its share of the acquisition price for $182,126 and that it would have done so, had Fred given notice.

316 There being no challenge to the capacity of Simple Retail and Corum to fund their respective proportionate shares, I accept that had Fred given notice as required, it is extremely probable that Simple Retail and Mountaintop would have agreed within the meaning of clause 15.5 of the SSA that Fred was taken to have given the irrevocable transfer notice and that Corum, Simple Retail and Mountaintop would have exercised the rights of pre-emption in clause 14.4 of the SSA that would have thereby enlivened.

317 In the result, it is extremely probable that Corum, Simple Retail and Mountaintop would have acquired Fred's stapled securities shortly after 30 September 2013 for $637,444, and then become the only Stapled Security Holders in PharmX.

318 Instead and by reason of the late giving of notice, they were required to pay $1,831,397.58 in 2020, and were deprived of the opportunity to derive a greater share of the distributions by reason of there being an additional unitholder (Fred) from late 2013 to early 2020.

319 For the purposes of the causation stage of the enquiry, I am satisfied, on the balance of probabilities, that Corum has established that Fred's breach of contract caused Corum to sustain a loss of a commercial opportunity which had some value, not being a negligible value, encompassing both the Overpayment Claim and the Wrongful Distributions Claim.

320 That being so, it is necessary to determine the value of that lost opportunity.

321 Corum submitted that its damages should be assessed at $6,196,480.97, which amount comprises the sum of the Overpayment Claim of $1,193,953 and a further amount of $5,002,527.97 referable to the Wrongful Distributions Claim.

322 Corum did not seek to recover the portion of the distributions paid to Fred that otherwise would have been received by Simple Retail. The distributions declared and paid to Fred over the relevant period and the amount net of that paid to Simple Retail comprises:

323 Corum's assessment assumes that the transactions effected by pharmacies using Fred POS software would continue to be transacted through the PharmX gateway after Fred's exit, but that additional expenses would have been incurred by PharmX, comprising the rebates that would have been paid to Fred, which would have entered into a standard third party POS vendor access agreement with PharmX. The amount of the rebates is $1,320,975.78, and the difference between the distributions sought to be recovered net of those received by Simple Retail of $6,323,503.75 and the additional rebate expenses of $1,320,975.78 is $5,002,527.97, and represents the Wrongful Distributions Claim, which forms part of Corum's total damages claim.

324 Corum also accepts that it is possible that Fred may have been able to negotiate a more favourable rebate, perhaps as high as 35%, rather than the 25% standard rebate. In that event, the additional expenses incurred by PharmX would have been $1,849,366.09 and not $1,320,975.78, reducing the damages claim by a further $528,390.31.

325 Corum emphasises that the 25% rebate deduction assumes that a standard third party agreement would have been concluded immediately upon Fred's exit, in contrast to a non-standard agreement which would have taken some time to negotiate.

326 Corum submits that during the period in which a non-standard access agreement was being negotiated, PharmX would have allowed pharmacies using Fred POS software to continue to access the gateway as it would have been in PharmX's interest (and that of the wholesalers) for PharmX to do so. During that period, Corum's expenses would not have increased because Fred would not have been entitled to any rebate at all until such time as a non-standard access agreement had been finalised.

327 In contrast, Fred submits that had Fred exited as a unitholder in October 2013, it would immediately have started a rival gateway in competition with PharmX, and the effect of such competition would have adversely affected the PharmX business and reduced its distributable profits accordingly. Fred's case is not simply that Fred's share of distributable profits would not have gone to the other Stapled Security Holders because business would have been lost to Fred but that the extent of the loss of business would have been so great that the remaining Stapled Security Holders would have received less distributions than they received whilst Fred remained a unitholder.

328 In other words, Fred's case is that the effect of the rival gateway would have been so adverse to PharmX that Corum and the other Stapled Security Holders did not suffer any loss or damage at all by reason of the late giving of the December 2019 Notice.

329 Although there is debate about whether Fred would have entered into an access agreement and on what terms, the calculations relied upon by Corum are not in issue. The most contestable component of the assessment is the Fred Counterfactual, being: If Fred exited in October 2013, would it have started a rival gateway and what would the effect of that competition be on the distributable profits of PharmX and the share of the distributions that would have been received by Corum.[81]

330 Mr Naismith gave evidence that if at any time from September 2013, Fred's interest in PharmX was acquired by one of the other Stapled Security Holders, Fred would have started a rival gateway in competition.

331 In particular, Mr Naismith emphasised that Fred operated within the pharmacy industry, offering a range of other products to pharmacy owners unlike Corum, Mountaintop and Daleflag. Mr Naismith gave evidence that the other Stapled Security Holders had no previous success in operating pharmacy infrastructure without Fred's involvement.

332 Mr Naismith said that, had Fred created a rival exchange at any point in time from September 2013, he would have expected that the three major wholesalers would have supported Fred. He emphasised that the support of two of the three major wholesalers had the potential to produce a bandwagon effect with other major wholesalers following shortly afterwards.

333 Mr Naismith believed that it would not have been difficult for Fred to start up in competition with PharmX because:

(a) building the technology for such a gateway was simpler after 2013 than it was in 2005, particularly because of cloud computing developments;

(b) Fred continued to have a key relationship with wholesalers that supported PharmX;

(c) Fred had the resources and technological capability to build a rival gateway;

(d) wholesale suppliers were already comfortable with the concept of using an ordering gateway;

(e) the other holders had a declining share of the POS software market compared with Fred, evidenced by Fred's growing share of unitholder distributions reflecting the increase in orders being placed with suppliers via Fred's POS software;

(f) Fred had proven success in running national scale infrastructure and successfully partnering with other IT competitors, such as with the eRx script exchange; and

(g) Fred could have redirected capital from its existing large annual development budget to a new exchange or asked its shareholders to provide additional capital.

334 Although according to Mr Naismith it took PharmX one year to build the initial gateway and have it ready for the market back in 2006, he considered that if Fred was to build a rival gateway at any time from 2013 onwards, it would have only taken six months to build and be ready to accept its first orders. This expedited timeline was due to various factors, such as internet ordering and web service development becoming standard information technology offerings in the period from 2006 to 2013.

335 Further, Mr Naismith said that any new gateway would have better functionality than the PharmX gateway, because it would have incorporated feedback from users that was not able to be acted upon in PharmX due to difficulties in obtaining investment approval from PharmX unitholders. Mr Naismith said that the Fred gateway would have better cybersecurity and redundancy features and overall that Fred would have been more receptive to and willing to fund requests by wholesalers to introduce additional functionality.

336 Mr Naismith said that the rival gateway would have launched with revenue models substantially similar to the PharmX revenue model, but that Fred would have been prepared to offer lower fixed monthly usage fees to wholesalers than those offered by PharmX. Mr Naismith said that the typical monthly fees for PharmX were $15 to $18 a month per wholesale account but that the new Fred exchange would have offered substantially the same service with better functionality and cybersecurity, at up to half of that rate. Mr Naismith said that the new Fred exchange would have reduced the monthly fees charged in order to win business from PharmX whilst covering Fred's costs and that it was possible in those circumstances to charge fees to wholesalers at between $7 to $9 per month 'in competitive situations'.

337 In 2022, Mr Naismith prepared a one page project plan which he described as the project plan that Fred would have adopted and executed if Fred had exited from PharmX in 2013 following the Telstra acquisition. The project plan illustrates the timelines which Fred would have achieved with the rollout of its rival gateway.

338 The project plan contemplated Fred's exit from PharmX on 1 October 2013, with the building of the exchange to commence between 1 November 2013 and be completed by 30 April 2014. Fred would have undertaken the work to build and launch the exchange at the same time as negotiating with and signing up wholesale suppliers and POS vendors.

339 Mr Naismith gave evidence that the timeframe to contract, build and connect the Fred exchange to the wholesalers ordering systems would have been as follows:[82]

(a) API - 6 months (December 2013 - May 2014);

(b) Sigma - 6 months (February 2014 - July 2014);

(c) Symbion - 6 months (April 2014 - September 2014); and

(d) DHL - 6 months (June 2014 - November 2014).

340 Thus, Mr Naismith said that the first phase of connecting the four key wholesalers would have been completed within 13 months of Fred's exit from PharmX. These four key suppliers were responsible for a substantial portion of PharmX's revenue as at November 2014.

341 Mr Naismith said the second phase of connecting additional wholesalers Terry White, Blackmores, CHS, Pharmacare and Sanofi would have been completed from August 2014 to September 2015, further increasing the share of wholesaler revenue available for competition by Fred's exchange, with the remaining smaller suppliers being activated and ready for competition over 3 months from June 2015 to June 2016.

342 Mr Naismith's plan contemplated that wholesalers who provided 99% of PharmX's revenue would be connected to the new Fred exchange over 34 months from Fred's exit from PharmX, with the four major wholesalers who contributed a substantial portion of the revenue to PharmX being connected and 'open for competition' within only 14 months of Fred's exit.

343 According to Mr Naismith, Fred would have engaged with the wholesalers to facilitate their placement of orders through Fred's new exchange as opposed to PharmX and would have liaised with both wholesalers and customers to facilitate the transition. According to Mr Naismith, the key relationship is with the wholesaler and it is the wholesaler who effectively decides which exchange would be used by the particular pharmacy.

344 Concurrent with the technical development of the rival gateway and Fred's negotiations with the major wholesalers, Mr Naismith said that Fred would also have negotiated with third party POS vendors for them to sign up to use its gateway (save for the holders who are POS vendors, Corum, Mountaintop and Simple Retail, at least prior to the transfer of the units to Daleflag).

345 If necessary, Fred would have offered increased third party vendor rebates above the standard PharmX rate of 25% payable to third party POS vendors to gain support.

346 Mr Naismith said that Fred would have offered rebates of up to 50% to key POS vendors, double those which PharmX had traditionally offered. He said that the effect of this competitive pressure would have been to increase PharmX's operating costs, as other POS vendors would have used the prospect of competition to increase the rebates they received from PharmX. It also would have resulted in reduced revenue to PharmX, as pharmacies transacted with Fred instead of PharmX.

347 Mr Naismith's project plan contemplated that Fred would contract, build and connect the software systems of POS vendors to the new exchange concurrently with the technical development of the gateway and the negotiation with major wholesalers. His project plan would have facilitated the contracting, building and connection to the Fred exchange of key POS vendors within these timeframes:[83]

(a) Fred POS - 4 months (December 2013 - March 2014);

(b) Chemist Warehouse POS (AM solutions) - 6 months (January 2014 - June 2014);

(c) Minfos POS - 6 months (February 2014 - July 2014);

(d) POS Works - 6 months (March 2014 - August 2014); and

(e) ZPOS - 6 months (April 2014 - September 2014).

348 Mr Naismith considered that Fred's capacity to enlist support from the POS vendors was enhanced because Fred had a history of working well with its POS competitors and as such the POS vendors would have been more inclined to facilitate a rival gateway, albeit not exclusively.

349 Although Mr Naismith accepted that POS vendors may have enabled both the PharmX exchange and the rival Fred exchange for their pharmacy customers, Fred would have been willing to offer more competitive terms to the POS vendor. In any event, according to Mr Naismith, if the wholesaler asked a customer to swap an account over from PharmX to the rival exchange, Fred would have asked the POS vendor to assist, which he was confident it would do, either because the vendor stood to receive a higher rebate from Fred than PharmX or otherwise because they would be motivated to comply with the wholesaler's request.

350 Once the Fred exchange was operational, Mr Naismith said that Fred may have decided to cease supporting the PharmX gateway for its Fred POS customers for wholesalers. Mr Naismith said that this would likely have resulted in all of Fred's POS pharmacy sites moving to the rival exchange.

351 The cheaper fees payable by wholesalers for access to the Fred exchange along with the strategic advantages for the wholesalers in using the Fred exchange would, according to Mr Naismith, have resulted in the wholesalers moving all their accounts for those pharmacies using the POS vendors listed in the project plan, in the timeframe outlined in his project plan.

352 Overall, Mr Naismith said that Fred's rival exchange would have had the effect of reducing PharmX's profits in three ways:

(a) loss of business to Fred's gateway;

(b) any business which PharmX retained would have been retained on a lower monthly fee payable by wholesalers; and

(c) PharmX would have had to pay third party POS vendors a higher rebate.

Accordingly, Mr Naismith believed its overall effect would have been to decimate PharmX's profits.

353 In summary, Mr Naismith identified seven factors which support the establishment of a rival gateway by Fred:

(a) Fred developed the PharmX concept and had the key relationships with wholesalers which underlay the successful operation of the PharmX exchange;

(b) PharmX was very profitable, indicating that Fred's rival gateway would also be;

(c) there is a need for a reliable and effective exchange as part of the successful operation of the pharmaceutical industry, and Fred plays a large role in that industry;

(d) the largest wholesalers, API, Sigma and Symbion all had pharmacy brands (eg, Priceline, Amcal and Terry White Chemmart) which used Fred's POS software;

(e) the wholesalers' requirement for a safe, secure and reliable exchange;

(f) the absence of any restraint on competition; and

(g) Fred would not have wanted to allow its competitors (particularly, Corum) to generate 'super profits' from PharmX.

354 Fred adduced expert evidence as to the quantifiable effect on PharmX's profits of the rollout and implementation of a rival gateway based on the assumptions explicit and implicit in Mr Naismith's project plan.

355 Mr Samuel, a Managing Director of Sapere Research Group Limited (and the head of Sapere's forensic accounting and valuation team) gave evidence calculating the effect on PharmX profits of a rollout of the Fred rival gateway on the basis set out in Mr Naismith's project plan. Corum adduced evidence from Mr Owain Stone from KordaMentha, who reviewed Mr Samuel's report.

356 After allowing for various minor calculation errors and some non-material differences in approach, in the end there was little difference between Mr Samuel and Mr Stone. Essentially, all the expert evidence did was calculate the financial effect on PharmX based on instructed assumptions which included that the competitor exchange would have taken 6 months to develop and be fully operational, Fred would have offered wholesalers a monthly fee per pharmacy as low as $7-$9, that Fred would have offered rebates to POS vendors as high as 50% and that the rival gateway would have diverted business from PharmX in the manner, order and timeframes set out in project plan.

357 The probative value of the evidence is derived entirely from the achievability or otherwise of the project plan.

358 Mr Samuel calculated the reduction in PharmX's profits for financial years 2014 to 2020 ('Counterfactual Scenario 1') as follows:

The reduction in supplier revenue comes about as a result of the loss of wholesalers to the rival gateway. The savings in POS revenue rebate come about as a result of a reduced POS vendor rebate having to be paid by PharmX, because of the loss of POS vendors.

359 Overall, on the assumptions implicit in the establishment of the gateway in accordance with Mr Naismith's project plan, PharmX's profits would have reduced from the 2014 financial year to the 2020 financial year, by $9,956,344.

360 The deleterious effect of Fred's competitor exchange on the PharmX profits based on the implementation of Mr Naismith's project plan is illustrated by the table below, which shows PharmX's actual profits over that period and those that would have been derived, according to Fred, in the event of the successful establishment of the rival exchange:

Reduction of PharmX profits due to Fred's rival exchange, as per the project plan

361 Mr Samuel also calculated the consequential and related reduction in distributions that would have been received by each of the unitholders, had Fred established the rival gateway in accordance with the project plan:

Thus, Mr Samuel calculates that the distributions received by Corum, Daleflag and Mountaintop for the period from financial year 2014 to financial year 2020 were $4,359,773 higher than they would have been, had Fred set up and established a rival gateway in accordance with Mr Naismith's project plan.

362 Mr Samuel was also asked to calculate the effect on PharmX profits on two further bases; the first contemplated that in response to the competitive pressure brought about by the rival gateway, PharmX in fact retained 100% of its market share by reducing the monthly fee charged to wholesalers to $9 per month and increased the rebate paid to its third party POS vendors from 25% to 45% ('Counterfactual Scenario 2').

363 On the basis of Counterfactual Scenario 2, PharmX's profit reduced by a total of $10,350,367 from financial year 2014 to financial year 2020, comprising a reduction for each of those respective years of $810,346; $1,119,593; $1,313,821; $1,599,007; $1,787,565; $1,743,302 and $1,976,734.

364 The third scenario the subject of Mr Samuel's calculations was something of a combination of Counterfactual Scenario 1 and Counterfactual Scenario 2. Mr Samuel contemplated the loss of business as modelled in Counterfactual Scenario 1 but additionally calculated the impact of a reduction by PharmX of its monthly fee to its suppliers to $9 per month and an increase in the rebates paid to third party POS vendors from 25% to 45% ('Counterfactual Scenario 3').

365 On the basis of Counterfactual Scenario 3, the total reduction in PharmX profits on that basis over the period financial year 2014 to financial year 2020 was $14,311,855 made up of reductions in profits from those years inclusively and respectively as follows: $748,965; $1,360,433; $1,787,294; $2,408,219; $2,606,078; $2,585,182 and $2,815,685, to a total of $14,311,855.

366 Mr Naismith's project plan, if implemented, amounted to a seamless and expeditious enfeeblement of the PharmX business. Mr Samuel's calculations of the financial effect of the loss of business was prepared accordingly.

367 A feature of Mr Naismith's evidence and the project plan is that it contains no assessment as to the costs estimated to be incurred by Fred in establishing the rival gateway nor the revenues that Fred anticipated achieving over the comparable period.

368 The ease with which PharmX would lose business to Fred and the associated lack of detail as to Fred's costs and revenues and their timing was the subject of intense criticism from Corum at trial.

369 Mr Samuel accepted, in cross-examination, that the detrimental effect of the rival gateway on PharmX's profits would be impacted by the timing at which Fred achieved the transition of business and by matters which had the potential to impact on that transition, such as whether Fred in fact chose to reduce wholesaler fees and increase the rebates payable to POS vendors, beyond those then being charged by PharmX.

370 Corum Group's enterprise architect Mr Stratigos gave evidence relevant to the Fred Counterfactual on three broad topics; first, the reliability and functionality of the PharmX gateway and the consequential likelihood of wholesalers and POS vendors moving to a rival gateway; secondly, the viability of the establishment of a rival gateway on the timeline set out in the project plan and thirdly, the estimated cost of achieving the milestones implicit in the project plan on the timeline set out.

371 Mr Stratigos considered that the timeline set out in the project plan was overly ambitious and that the milestones were so compressed that the project plan gave rise to an unacceptable risk of failure.

372 Mr Stratigos nevertheless accepted that a timeline of six months or less to develop an exchange at least to a level where the exchange was ready to go into production, and six months for the integration of a POS user and any of the three key suppliers was reasonable. He considered that the timelines in the project plan were nevertheless overly ambitious because the project plan contemplated that the key work streams, building the exchange, integrating the three wholesalers and integrating five POS vendors all took place at the same time and also assumed that all third parties (whether they be POS vendors or wholesalers) would have the willingness and capacity to facilitate integration with the rival gateway at the times chosen by Fred. Mr Stratigos said that in his experience, those third parties would determine when to make the resources available to enable the integration work to be carried out by reference to their own individual priorities and resourcing. He also noted that the project plan made no allowance for slow-downs in December or for suppliers' financial year end requirements between June and August each year. Mr Stratigos considered it was unlikely that suppliers would schedule important information technology works affecting their systems during these year-end periods. He also considered that carrying out simultaneous work streams gave rise to inefficiencies and added costs.

373 Mr Stratigos also formulated an estimate of the project costs based on his assessment as to the requirements necessary to achieve the timelines specified in the project plan. His assessment of the cost of establishing a rival platform on the basis set out in the project plan was in the order of $4.7 million.

374 Mr Stratigos's observations were largely backed by those of Mr Bond. In response to the suggestion that a rival gateway could have been built within six months and integrated 90% of suppliers within 32 months, Mr Bond said that he did not think that Fred or anyone could have achieved that outcome and that a competitor would have been years away from having a software product that rivalled the PharmX gateway.

375 Mr Bond expanded on that opinion by explaining that in 2013, it was unlikely that the API integration with the Fred rival platform could be tested until the core exchange code had been well advanced, that integration works sometimes required regression testing and adjustments to the core exchange, that some third party integrations could take closer to 12 months due to issues with the availability of third party resources, lack of internal capacity at those third parties and issues which might arise due to unanticipated compatibility issues.

376 Mr Bond also gave evidence that the 'project plan' lacked much of the detail that was needed to properly understand or analyse it, was very aggressive and its timelines were unlikely to be met. Mr Bond's evidence to this effect was barely if at all challenged. As noted above, Mr Bond's company was later engaged to assist Fred on the MedViewX rollout, considered in more detail below.

377 The contested impediments to the transition of business from the PharmX gateway to a rival gateway were also addressed by expert evidence called by both Fred and Corum.

378 Dr Williams was a Professor of Law and Economics at the Melbourne Business School until 2002. Since that time, Dr Williams has been the leader of the Competition Legal Group of Frontier Economics.

379 Dr Williams was asked to provide an opinion based on instructed assumptions that:

(a) as soon as Fred ceased to hold securities at PharmX, Fred would have established a competitive gateway for PharmX;

(b) the competitor gateway would have taken 6 months to develop and be fully operational;

(c) Fred's competitive gateway would have had the same or better functionality than the PharmX gateway;

(d) the revenue model for Fred's competitive gateway would have been substantially similar to the revenue model for the PharmX gateway;

(e) in order to encourage utilisation of Fred's rival gateway, Fred would have offered wholesalers a monthly fee per pharmacy site as low as $7-$9;

(f) in order to encourage POS vendors to make the necessary changes to their pharmacy POS software (to enable ordering through the rival gateway) and to provide technical support to pharmacies ordering through Fred's gateway, Fred would have offered a rebate to POS vendors as high as 50%; and

(g) Fred was not subject to any contractual non-compete clause or restraint and was free to set up a business in direct competition with PharmX.

380 Dr Williams was asked whether, in those circumstances, there would have been downward pressure on PharmX's pricing and if so, by what probable range and within what probable timeframe of Fred commencing competition. He was also asked whether there would have been upward pressure on the rebate percentages payable by PharmX to third party POS vendors and if so, within what probable range and within what probable timeframe of Fred commencing competition.

381 In his expert report, Dr Williams commenced by noting that PharmX had significant competitive advantages over any new entrant, because of what Dr Williams described as 'first mover advantage'.

382 Dr Williams considered that any new rival Fred platform would only have offered prices and rebates that were sustainable in the long term as it would generate ill-will to initially offer prices and rebates that were unsustainable and then subsequently to raise prices or reduce rebates.

383 Dr Williams considered that if Fred charged wholesalers a monthly fee as low as $7 per site and POS vendors a rebate as high as 50%, this was not likely to be sustainable.[84] Dr Williams therefore considered it probable that the new Fred platform would have decreased prices to something close to $9 and would have offered POS software vendors average rebates of 'around 40 to 50 per cent'. Whilst Dr Williams was undertaking an assessment of what Fred would have charged and spent in relation to its hypothetical rival platform, he based his analysis in part on PharmX's financial records and in part on the instructed assumptions provided to him. In Dr Williams' opinion, if this occurred, PharmX would have reacted by reducing its prices and increasing its rebates as needed to match the new platform's reduced prices and increased rebates, depending on the magnitude of PharmX's 'first mover advantage' and the extent to which Fred was able to offset that 'first mover advantage' through a better product and/or closer personal relationships. Dr Williams considered that it was likely that PharmX would wait until the new Fred platform was launched rather than acting pre-emptively before moving to offer lower prices and increase rebates.

384 Corum called expert evidence from Dr Hird. Dr Hird holds a PhD in Economics from Monash University and is a former employee of the Commonwealth Treasury. Since 2007, he has been the principal of his own firm, Competition Economists Group, where he provides expert advice in various regulatory, litigation and policy contexts.

385 Dr Hird considered that the nature of the instructions given to Dr Williams were such as to leave 'little scope for meaningful economic analysis'. He did not disagree with Dr Willams' ultimate conclusion, which Dr Hird described as one to the effect that if a new market entrant credibly commits to offering a product perceived by customers as the same or better quality product as that offered by the incumbent, but at a price less than one half of the pre-entry price, then the incumbent would need to lower prices to protect its market share until such time that the entrant's losses force it to leave the market or raise its prices.

386 Dr Hird noted that Dr Williams considered that had the fee offered by Fred been struck as low as $7 and a rebate as high as 50%, the new platform would not have been sustainable.

387 Otherwise, Dr Hird considered that the market was a 'natural monopoly'. He described a natural monopoly market as one where one supplier is more efficient than two. In a natural monopoly market, he said that the incumbent has a very significant advantage over any potential entrant. In the case of a natural monopoly market, entry is almost always value destroying, unless the incumbent can be completely displaced (with a superior quality product).

388 Dr Hird noted that customers bear switching costs to change to a new entrant and that in the case of a hypothetical Fred entrant, the switching costs would involve every customer Fred sought to win needing to take a risk on a new, unproven product. In addition, the customer would be required to invest in changing systems to become compatible with Fred's new gateway. Dr Hird considered that, other things being equal, the existence of such switching costs causes customers to prefer sticking to the incumbent, even if prices are similar. Accordingly, Dr Hird considered that the incumbent only needs to reduce prices to be similar to the new entrant in order to retain customers. This ability to retain customers by price matching tends to mean that any new entry is not successful and any such price reductions for the incumbent only need to be temporary (that is, until the entrant withdraws).

389 In those circumstances, Dr Hird considered that a potential new entrant is unlikely to enter in the first place.

390 The Fred Counterfactual obtained qualified support from Mr Vincent. Mr Vincent was formerly the CEO of API, but remains as a consultant to Wesfarmers, who acquired API. Mr Vincent gave evidence that had he still been CEO and Managing Director of API (which he was in 2013), he would have been disposed to switch from the PharmX gateway to a Fred gateway, provided that the new gateway was as technically robust as the PharmX gateway and the commercial considerations matched those being offered by PharmX. Mr Vincent explained his willingness to switch as due to his faith in Mr Naismith and the leading role Fred had played in the development of electronic solutions assisting the pharmacy industry.

391 Fred has in fact taken steps to establish a rival gateway, MedViewX, in the period subsequent to its exit from PharmX in 2020.

392 Mr Naismith gave evidence that the launch of MedViewX had taken longer than it would have taken had a comparable rival exchange been established shortly after exiting in September 2013.

393 Mr Naismith attributed the reasons for the slower rollout of MedViewX to four principal factors which would not have been present in 2013. First, due to the onset of the COVID-19 pandemic, Fred had competing priorities, including the need to fast track an electronic prescription exchange infrastructure so as to enable fully digital prescriptions to be sent via SMS; secondly, and relatedly, a lack of IT resources since 2020, due to a decline in immigration which deprived Fred of access to IT skills that would have been available back in 2013; thirdly, Fred is now a larger company encumbered by more processes and procedures, resulting in slower and more expensive software development and fourthly and most significantly, the biggest cause of delay in competing with PharmX is due to delays resulting from the need to conclude an agreement with the Commonwealth Department of Health and Diabetes Australia for MedViewX to have capability to support the NDSS.

394 As noted above, in mid-2016, PharmX entered into an agreement with the Commonwealth Department of Health to supply health products through the NDSS from Diabetes Australia to pharmacies and then to diabetic patients. As a result, the delivery of products from Diabetes Australia occurs solely through PharmX. According to Mr Naismith, if Fred had set up a competing exchange at any time before mid-2016, then the NDSS would have enabled both exchanges to access that system. In that event, the time limiting effect of the need to enter into an arrangement with NDSS would not have been present back in 2013.

395 It is important to examine the rollout of MedViewX in its proper context, and not to automatically transpose the circumstances of its rollout now to the hypothetical rollout that would have occurred back in 2013.

396 Nevertheless, with that caution in mind, the MedViewX rollout requires close examination in order to shed light on what conclusions may be drawn as to the likelihood of a successful rollout of the rival Fred gateway back in 2013. Corum's cross examination of Mr Naismith and Mr Johnston largely sought to highlight the inconsistences between the seamless establishment conveyed by the project plan and the real world MedViewX experience.

397 The minutes of the Fred board meeting held 12 March 2020 record that following the service of relevant notices, the exercise of pre-emptive rights was likely to proceed, subject to an argument on price which would result in Fred ceasing to be a shareholder in PharmX. The minutes note that in that event, Fred would be free to compete or support an alternative solution. As an alternative, it was noted that Fred could negotiate to use PharmX on a month by month basis as a third party vendor or alternatively use the exchange uncontracted, as it was considered unlikely that PharmX would disconnect Fred pharmacies from the supply chain. The minutes also record the deadlock which had arisen in relation to the 2019 financial year statements and an anticipated court appearance to take place the next day, where Fred intended to argue that its claim for debt recovery should be progressed quickly.

398 In anticipation of Fred's impending exit, on 27 March 2020, Mr Naismith emailed PharmX's Brad Lumb and asked him to provide an indication of the revenue that Fred would have received under a standard vendor access agreement. He asked for provision of a spreadsheet so that variables could be altered. Mr Lumb provided an Excel spreadsheet headed Vendor Rebate based on the months of December 2019 to February 2020. This showed that Fred would have received rebates of $19,192.21 for December 2019, $23,407.42 for January 2020 and $24,713.90 for February 2020, had it been party to a shared vendor access agreement which provided for payment of a 25% rebate.

399 On 30 March 2020, Mr Naismith sent a notice of termination of Fred's shareholder vendor access agreement to PharmX's Mr Lumb and to Corum and Mountaintop.

400 On 8 April 2020, Mr Johnston emailed Mr Naismith and Mr Cunningham, canvassing various options in relation to PharmX. Mr Johnston's email referenced an earlier bid made by the wholesaler consortium in December 2017 for $8.4 million for the 70% of PharmX not held by Fred, which equated to a value of $12 million for a 100% interest. Mr Johnston's email estimated PharmX's revenues on various bases, including the wholesalers making an offer to Corum, Daleflag and Mountaintop for the entirety of their interest, subject to Fred committing long term to a third party vendor access agreement and an associated entitlement to rebates.

401 In response to Fred's termination of the shareholder access agreement, Mr Lumb forwarded a third party access agreement with an anticipated commencement date of 30 April 2020. Mr Lumb later sent an email to Mr Naismith chasing up Fred's response to the provision of the third party access agreement.

402 Having received no response, on 29 April 2020, Mr Lumb sent an email to Mr Naismith. Mr Lumb's email advised that absent Fred entering into a third party access agreement, the 1,700 pharmacies using Fred POS software would not be able to access the PharmX gateway. As a result, Mr Lumb sought clarification as to whether Fred intended to enter into a new agreement after 30 April 2020 or if not, what Fred considered would happen to the pharmacies who would otherwise have no right to access the gateway.

403 In his response of 30 April 2020, Mr Naismith responded in the following terms:[85]

... as the leading vendor in the market and having driven PharmX volumes since the formation of PharmX since 2006 we find the thought that Fred would merely sign up to standard terms to be unacceptable, particularly in circumstances where the other issues remain unresolved ... We note that PharmX provides an important service within the industry. Fred's re engagement with PharmX as a third party vendor will necessitate a level of due diligence as to the ongoing governance and direction of the gateway and the commitment of the PharmX ongoing shareholders. As an industry leader, our participation is taken as endorsement and we cannot merely re-commit lacking clarity as to the direction of PharmX and who we [are dealing with] on an ongoing basis. It is very hard to do that while the current court actions are on foot.

Mr Naismith otherwise expressed his disappointment with the threat to discontinue service to those pharmacies using Fred POS software, particularly in light of the COVID-19 crisis.

404 Mr Lumb replied on the same day, observing that Fred apparently wished to resolve all matters with PharmX and the shareholders at the same time as resolving the question of third party access and additionally that Fred considered the offer of standard third party terms to be unacceptable. Mr Lumb responded that third party access should not be linked to the resolution of other disputes. He otherwise said PharmX was willing to negotiate with Fred on the terms of the third party access. Mr Lumb's email concluded by advising that PharmX had elected to allow Fred's pharmacies to continue to have access to the gateway, but reserved its rights to remove that access at any point in time without further notice to Fred.

405 In the CFO's report for the board meeting on 21 April 2020, Mr Johnston noted that the acquisition of Fred's interest in PharmX had been completed on 2 April 2020 and observed that the 'forward basis for Fred to contract with PharmX' (usually a third party vendor access agreement inclusive of rebate) was a matter for negotiation in a broader context. Mr Johnston's report otherwise referred to Fred's claim for moneys had and received, which appears to relate to Fred's claimed entitlements for $4 million 'split across the original claim' relating to financial years 2017, 2018 and 2019 where the financial statements remained unsigned, as well as that for the 2020 financial year (confined to the period up to 2 April 2020).

406 Under the subheading 'Commercial Negotiations and Supply Chain Issues', Mr Johnston noted that the Pharmacy Guild (which remained a shareholder in Fred after the Telstra acquisition) had written to PharmX, seeking assurances as to the continued provision of services within the exchange, despite the change in ownership of PharmX. The Pharmacy Guild expressed its wish for the 'long running legal disputes' to be brought to an expedited conclusion, to provide certainty to community pharmacies. Mr Johnston observed that Corum was apparently talking to the wholesalers to revisit the concept of the wholesaler consortium acquiring PharmX and noted the wholesalers' general interest in ensuring that the gateway would continue to operate reliably. Mr Johnston recommended that Fred persist with its debt claim but otherwise take little action, so as to allow time for commercial and industry stakeholder pressure to build. Mr Johnston considered there was only a low risk that PharmX would disable Fred's POS software users from using the PharmX.

407 On 20 May 2020, Mr Naismith emailed Mr Cunningham and others conveying his understanding that the wholesalers were not proceeding with any acquisition of an interest in PharmX. Mr Naismith said that in those circumstances, Fred needed to be ready with an alternative for its POS customers. He advised that the wholesalers were worried about supporting an exchange and it falling over again in the future. Mr Naismith advised that he had indicated to the wholesalers that he did not require exclusive support, but would want support agreed up front, for at least those customers using Fred POS software.

408 Fred's Markus Windhofer was apparently assigned the task of working on the alternative gateway. Mr Windhofer appeared unenthusiastic, noting that he had been 'roped in' to what he considered was a 'non-core' part of the Fred business.

409 In any event, Mr Windhofer developed, on Fred's behalf, a 'Lean Business Case' for an alternative gateway to be known as MedViewX.

410 In the section of the 'Lean Business Case' headed 'Business Outcome Hypothesis', MedViewX's aims include eliminating the dependency on PharmX, guaranteeing business continuity for Fred customers and suppliers, recapturing the historical PharmX revenue stream of $1.5 million per year and establishing a viable competitive offering to PharmX for suppliers. In the section headed 'Leading Indicators', there is reference to the need to obtain a commitment from two of the three major wholesalers to support an alternative gateway, and obtaining board support. There is also reference to 'ROI' (presumably 'return on investment').

411 Mr Windhofer's 'Lean Business Case' identified various milestones and checkpoints, including relevantly obtaining in principle commitments from wholesalers to support the gateway by June 2020, with the proof of concept rollout to be completed by a non-identified date in 2020, the rollout of that was described as a 'minimum viable product' by a non-identified date in 2020 with the review of the minimum viable product to occur by a non-identified date in 2020/2021.

412 On 29 May 2020, Mr Johnston emailed Mr Windhofer, copying in Mr Naismith. In his email, Mr Johnston advised that in order to be competitive in the space with the major wholesalers, MedViewX would need to price its offering to wholesalers at around $15 per site per month.

413 Mr Windhofer responded by an Excel spreadsheet which modelled a charge of $15 per site. His calculations assumed that MedViewX would obtain 100% of the Fred sites (evidently those pharmacies using Fred POS software). Mr Windhofer's spreadsheet was prepared on the assumption that PharmX was charging $20 per month. Mr Windhofer's email concluded: 'Not looking too compelling a proposition for the wholesalers so far'. Based on the movement of Fred POS user sites to MedViewX, Mr Windhofer's calculations estimated savings for the major wholesalers of $150,000 per year, which equated to 4.2% of the amount currently spent by them on the PharmX gateway.

414 Mr Johnston's email in response suggested that if MedViewX charged the same prices as PharmX, then the switch would be cost neutral to wholesalers. He noted that the cost to wholesalers was trivial compared to the billions they transact through the system and the disruption to their logistics if the system fails. In Mr Johnston's view, the motivation for wholesalers to switch would arise if 'we can convince them that Med View X/Fred is/will be a better/more reliable solution'. Mr Johnston also noted that wholesalers did not want to be single point dependent on PharmX and its owners. As to the charges for wholesalers, Mr Johnston observed that although wholesalers absorbed the cost for certain key accounts, for many other accounts they passed the cost on to the pharmacies in any event.

415 The minutes of the Fred board meeting held 19 May 2020 record, under the subheading 'PharmX', the need for Fred to have a competitive option, that PharmX was not reliable because Corum had shown its hand and that it was important for Fred to have the threat of an alternative solution, albeit that it was open to negotiations with PharmX in parallel.

416 In Mr Johnston's CFO's report to the Fred board prior to its meeting on 23 June 2020, he noted that there was a court date on 1 July 2020 and otherwise that MedViewX's costings and timelines remained a work in progress.[86]

417 Mr Johnston emailed Mr Naismith on 29 June 2020, noting that as a consequence of the changes in PharmX's ownership and subsequent actions by PharmX shareholders, there was a need for the Fred board to receive a business case at the meeting on 28 July 2020 for an investment in MedViewX, which he described as an industry alternative to PharmX. Mr Johnston's email noted that a MedViewX 'EPIC' and 'Business Case' 'will be generated' but that there had been no decision yet to progress the build of MedViewX and nor was a decision likely before 28 July 2020.

418 The board pack for the Fred 28 July 2020 meeting included item 5.1 'PharmX', which referenced a hearing in relation to an application by the trustee of the Trust for judicial advice, which had taken place on 1 July 2020 and otherwise noted that Fred's claim was now for $3.195 million inclusive of the 2019 financial year. The item otherwise referred to a separate proceeding issued by K&L Gates on behalf of Daleflag and Mountaintop which had been issued but not served and which described in broad terms, a claim similar to that advanced by Corum in this proceeding.

419 There was otherwise no mention of MedViewX, save that the paper the subject of item 5.1 headed PharmX was listed on the agenda as 'for noting'.

420 The board pack for the Fred board 18 August 2020 meeting included, as an agenda item, the MedViewX proposal, as well as an outstanding action list which included an action item first raised on 19 May 2020 headed 'MedViewX - Time and cost to build'. The proposal sought board approval to progress MedViewX to stage 1 by seeking an approved investment of $[REDACTED] to build the gateway to the extent of establishing a 'minimum viable solution'. The requested investment was sought, subject to wholesaler commitment, which contemplated offering the service to wholesalers such as API, Sigma and EBOS and entering into 2 to 3 year service contracts with them.

421 A 'minimum viable solution' apparently amounts to establishing a pilot gateway that would be able to receive orders from a small number of Fred customers to wholesalers. The costs associated with this were estimated to be between $[REDACTED] to $[REDACTED] and the anticipated timeframe was [REDACTED]. The paper noted that a further decision to build additional capacity to achieve what was described as 'functional parity' with PharmX may be sought in the new calendar year, but that the effort to create this further capacity had not yet been considered in detail.

422 The strategy was further explained as follows:[87]

The legal dispute involving the PharmX joint venture has caused a risk to emerge to the reliable transmission of purchase orders from pharmacies to the wholesaler providers. The risk arises from a combination of:

• The ongoing legal dispute and associated tactics employed by PharmX i.e. threatening to disable services required by Fred's customers, and

• A general lack of certainty and confidence in the ongoing governance and management of PharmX.

The risk to supply has led the major wholesalers to seek a viable alternative to PharmX. Similarly, Fred needs a reliable ordering service for Fred's customers. This stage 1 will enable a small number of Fred sites to pass orders to multiple wholesalers, proving the solution and provides risk mitigation via the ability to rapidly move to stage 2, being limited rollout.

Stage 2 will involve a rollout of MedViewX to all Fred sites for orders to all the major wholesaler's.

Stage 3 will have MedViewX in direct competition with PharmX i.e. seeking to onboard other pharmaceutical providers and third-party POS vendors and in full direct competition with PharmX.

423 Under the heading 'PharmX Dispute Context', the paper records that the ongoing legal dispute with PharmX and its shareholders impacted the MedViewX initiative. The section is thereafter redacted on the grounds of legal professional privilege.

424 The subheading 'Financial Analysis' references the estimated financial impact[88] of stage 1 at $[REDACTED] to $[REDACTED]. Stage 2 introduces a revenue forecast anticipated to 'max out' at $[REDACTED] per month, involving the 1,200 Fred sites, at $[REDACTED] per site per month, deriving revenue from two wholesalers with increased operating costs of $10,000 per month, resulting in an annualised EBITDA impact of $[REDACTED] and providing an investment payback in the range of [REDACTED] months from full rollout. Stage 3 involved the targeting of PharmX's existing business, which in the 2019 financial year reported a profit of $2.5 million on revenue of $4 million. The paper concluded as follows:

Conclusion

An attempt at a settlement of the PharmX matter ... [balance redacted for privilege].

Commitment of Stage 1 is then required for risk mitigation and sought by the major wholesalers.

Progression to stage 2 will likely be required in 2021. [balance redacted for privilege].

Stage 3, if successful is comparable to the acquisition of PharmX. PharmX has previously been valued in the range of $12m to $15m. Fred's effective acquisition cost would be:

(1) The $[REDACTED] now sought for MedViewX, plus

(2) Any potential write-down on the $4.0m PharmX receivable and/or damages payout net of the $1.8m proceeds on sale of Fred's share of PharmX in April.

i.e. the business case for MedViewX is sound, mitigates risks, and aligns with the requirements of major customers.

425 In an email to another Fred staff member Ms Diane Wickremasinghe on 24 September 2020, Mr Windhofer sought to formulate more updated granular revenue and cost projections. His email noted that the forecasts and estimates that he had been party to so far and those that had been taken to the board were 'pretty rubbery'. Mr Windhofer's email noted that Fred was now targeting a minimum viable product based on initially connecting to only one wholesaler, which it was aiming to achieve by June or July 2021.

426 The board pack for Fred's 20 October 2020 meeting includes the minutes of the Fred board meeting of 18 August 2020, which record the board unanimously resolving to progress to MedViewX stage 1, with the associated commitment to resources so as to prioritise the development launch of a 'minimum viable product'.

427 The board had apparently been provided with a MedViewX board proposal paper which, among other things, contemplated foundational customers (those wholesalers initially committing) being offered a price of $[REDACTED] per site per month for a [REDACTED] pre-commitment and thereafter being offered a discounted rate during the second term. The paper refers to various other elements including wholesaler support and commitment, comprising, among other things, letters of intent supporting the concept, possible up-front money, a commitment that if PharmX was acquired by the wholesalers it would be vended into MedViewX and a commitment to keep PharmX in a steady state while transitioning, with the wholesalers playing their part in resolving the current ownership disputes, freeing Fred up to focus on other unspecified matters. The proposal also contemplates the possibility of the wholesalers acquiring an interest in MedViewX.

428 On 23 November 2020, Ms Wickremasinghe emailed Mr Johnston, setting out MedViewX's resource requirements for the component team. She estimated capital expenditure for the 2021 financial year of $[REDACTED], giving rise to a total overall expected cost of $[REDACTED], covering the period from October 2020 to July 2021.

429 In February 2021, Mr Windhofer emailed a representative from Symbion seeking to elicit Symbion's interest in signing up as an initial partner of MedViewX; apparently because of a belief set out in another email that Fred could no longer rely solely on API. Mr Windhofer's email was sent as a follow up to an earlier contact made by Mr Naismith, in which he advised Symbion of a new project that Fred was undertaking to establish a new industry EDI gateway. Apparently, Symbion had earlier conveyed a wish to understand more about the project.

430 In February 2021, Fred prepared a further Excel spreadsheet identifying the relevant costs (among other things) of the rollout project. In relation to the stage 1 costs for the development of the minimum viable product, the project costs had now increased to $[REDACTED], some $[REDACTED] above the original forecast. The minimum viable product was described as one able to facilitate orders for one wholesaler, with phase 2 estimated to take an additional four months and allow for the integration of three additional wholesalers.

431 By February 2021, the project costs had increased to $[REDACTED], double the original forecast. A net present value analysis records a payback period of seven years (with revenue first being received in July 2022). In the board pack prepared for Fred's meeting on 16 February 2021, the minutes of the previous meeting on 20 October 2020 record that MedViewX was 'running as a free trial' until the end of November 2020, and that the highest priority was ensuring a positive initial user experience.

432 Following Mr Windhofer's approach to Symbion in early February 2021, on 26 February 2021, Symbion's Andrew Hall emailed another Symbion representative in relation to the necessary requirements to integrate the Symbion POS software 'Minfos' with Fred's new MedViewX. Mr Hall noted that integration would be required on both the POS vendor and supplier sides. Mr Windhofer later met with the Symbion representatives on 10 March 2021, enclosing a proposed supplier agreement for Symbion's review and expressing his wish to progress to design discussions, once Symbion had considered the requirements internally.

433 A draft supplier agreement was prepared by Fred for API on 5 March 2021. Although not executed, the agreement provided for payment of a fee by API to Fred per active account per month.[89]

434 On about 31 March 2021, Fred became aware of a complication which arose in relation to the integration of Symbion into the new MedViewX portal, apparently resulting from the need to simultaneously integrate with the NDSS. This complication resulted in Mr Windhofer and those working on the integration for the exchange deciding that minimum viable product requirements could be met in the first instance by taking orders from pharmacies using Fred POS software in respect of supplies from Barretts, another supplier. In some way, not explained in the email or the evidence more generally, this would enable the sidestepping of those pharmacies who distributed for the NDSS.

435 The Fred board pack for the 12 May 2021 board meeting nevertheless noted that the business case for MedViewX remained compelling, depending on the commitment of anchor customers such as Symbion and API, and that there was no intent to review Fred's commitment to MedViewX at that stage.

436 On 20 May 2021, two enterprise architects from Fred exchanged emails with the subject line 'Delivery concerns - MVX', observing that the task of integrating Symbion into MedViewX had assumed 'mammoth' proportions, owing to a series of missed requirements, oversights and inefficiencies at Fred.

437 Notwithstanding the hiccups, progress was made with the Symbion integration, although Mr Windhofer was advised on 5 August 2021 of internal frustration at Fred's end with delays at Symbion on integration testing which was holding matters up.

438 At a Fred strategy session held in September 2021, the attendees examined Fred's growth trajectory. With committed probable revenues of $[REDACTED] in financial year 2021 and $[REDACTED] in financial year 2022, the group anticipated growth in revenues increasing to $[REDACTED] in financial year 2023, $[REDACTED] in financial year 2024, $[REDACTED] in financial year 2025 and $[REDACTED] in financial year 2026. The components of the additional anticipated revenue were set out in a table and included $[REDACTED] from MedViewX in financial year 2022, $[REDACTED] in financial year 2023, $[REDACTED] in financial year 2024, $[REDACTED] in financial year 2025 and $[REDACTED] again in financial year 2026.

439 In April 2021, Mr Windhofer met with representatives of Symbion in an effort to secure its commitment to MedViewX. Mr Windhofer reported to another Fred employee on 13 October 2021 about the meeting, advising that Symbion considered that it lacked a business case for them, as Fred was simply offering 'same, same' (that is, the same as what was already being offered with PharmX). Mr Windhofer's email noted that Symbion '[w]ere very keen to know what [Fred's] drivers & motivation was' and he thought that Symbion 'were pretty suspicious'. His takeaway from the meeting was that Symbion was keen for Fred to come back to them when Fred had something more competitive.

440 In what appear to be notes of the April 2021 Fred meeting, there is reference to the fact that the build was 'almost complete' and that July/August 2021 were being targeted as 'go live' dates.

441 On 23 November 2021, Mr Windhofer emailed another enterprise architect at Fred with the subject line 'work required for API to onboard to MVX'. The response was to the effect that it would be necessary to ascertain first how API wanted to integrate with MedViewX so that Fred could then work out a design for their specific integration and determine the level of effort required.

442 The response to Mr Windhofer concluded by noting that Barretts was expected to go live in February 2022 and that the integration to API could potentially occur soon after.

443 On 30 November 2021, Symbion and API wrote to the Commonwealth Department of Health, requesting the Department facilitate the enablement of the NDSS for MedViewX, so as to achieve the same access as PharmX. The letter requested that the Department engage with Fred at the earliest opportunity, citing the risk caused by PharmX being the sole ordering gateway and the significant ramifications which would arise if the PharmX gateway was to become non-operational. This request did not meet with much alacrity from the Department. Mr Windhofer and Mr Lumb (now providing consultancy services to Fred in connection with MedViewX) met with the Department, but not until September 2022. The Department advised that it was willing to facilitate the necessary modifications to the NDSS gateway at Fred's cost, but not before February 2023.

444 By an email sent 7 December 2021, a member of the Fred enterprise architect team advised under the heading 'MVX - Pilot update - Anglesea and what's next' that Fred had just recommenced the pilot with a pharmacy in Anglesea, involving supply by Symbion on that day, with the current plan being to move to further stores in New South Wales and try to get transactions 'flowing' before the Christmas break. The email noted that initial Anglesea orders had made it through the gateway and were awaiting the associated production of an invoice. The email also referenced progress with the integration involving Barretts, which was to come on as a second supplier, with a scheduled pilot to take place in early February 2022.

445 By February 2022, six sites were live. The Fred enterprise architect described the pilot as 'going ok', but advised that Barretts and Symbion had stopped engaging with Fred, apparently due to resourcing issues at Barretts at the time.

446 On 13 May 2022, Mr Windhofer sent an email to Mr Naismith with various attachments under the subject 'Privileged and Confidential to the Recipient - MVX - Key Dates'. Mr Windhofer's email set out a timeline as follows:

20 May 2020

• First correspondence I have - email from you re API and Sig not progressing with PharmX deal and need for us to have an alternative ready

• Received the draft slide deck from Graham via Tony which reflected Graham's initial thinking and provided the foundation for MVX's value proposition and subsequent business case

23 June 2020

• First copied on draft MVX SaaS agreement that Tony appeared to have briefed SBA Law team on

Jul 2020

• Draft Med View X Lean Business case presented to LPM

Mid-Aug 2020

• MVX business case formally presented to the Board (MedViewX proposal) and decision to green light the project received

12 Aug 2020

• Glenn Bond - Orbis Technologies first contacted

• Contractors agreement signed 11 September

8 Sept 2020

• Formally sent detailed personnel request to HR for MVX development team aka Falcor to initiate recruitment and begin ramp-up

22 Sept 2020

• Officially approached first supplier (API) to pitch MVX

12 Oct 2020

• Applied for trademark registration

1 Feb 2021

• Officially approached second supplier (Symbion) to pitch MVX

28 April 2021

• Original MVX product road map - attached

7 December 2021

• Pilot commenced with Anglesea and Symbion.

447 On 20 July 2022, Fred entered into a third party access agreement with Symbion, entitling Symbion to access MedViewX for the purposes of its Minfos POS product provided to certain pharmacies for an initial term of two years, in return for the payment to Symbion of a monthly fee.[90] The July 2022 agreement with Symbion was varied in non-material respects in October 2022.

448 Also in October 2022, Fred entered into an agreement with Barretts, for an initial term at an agreed monthly fee,[91] save that no fee was payable for the pilot period.[92]

449 In the result, MedViewX remains in its early stages. Fred has not received any revenue from its operations to date.

How does the Project Plan compare to the MedViewX rollout?

450 Fred's lived experience of the rollout of MedViewX from 2022 to date is difficult to reconcile with the speed and ease of the rollout of the alternative gateway that Fred says would have been achieved (which is set out in the project plan), had it established that rival gateway in October 2013.

451 First, the project plan contemplated the establishment of a sufficiently operational and robust platform servicing the four major wholesalers within 14 months of Fred's exit and a fully operational gateway supporting 99% of the wholesalers within 34 months of Fred exiting PharmX. The MedViewX 'Lean Business Case' was created in May 2020; as at May 2022, some two years later, MedViewX remained in the pilot phase started in December 2021. Although not entirely clear, it appears that MedViewX is still in the stage 1 phase referred to in the MedViewX proposal of 18 August 2020.[93]

452 Secondly, the project plan and the assumptions which underpinned Mr Samuel's quantification of the effect on PharmX of the rival Fred gateway were predicated on Fred increasing the amount of rebates paid to POS vendors by as high as 50%, compared with the standard PharmX rebate of 25%. None of the analyses prepared by Mr Windhofer on Fred's behalf and put before the Fred board were prepared on that basis. The only POS vendor access agreement entered into by Fred is to the contrary. Relatedly, Mr Samuel's calculations proceed on the basis that the PharmX business would be impacted by the competitive pressures resulting from Fred charging wholesalers as low as $7-$9 per active account, which was about half the price PharmX were charging at the same time. In contrast, Mr Windhofer's estimates were prepared on the basis that Fred would charge wholesalers a fee assumed to be 75% of the fee then being charged by PharmX, and Dr Williams considered that fees as low as $7 were not sustainable. Moreover, Mr Windhofer considered that the 75% discount was unlikely to be persuasive to wholesalers offering minimal savings in the context of the wholesaler's total spend. Mr Johnston also noted that many of the wholesalers passed on the charge to pharmacy customers in any event.[94] Overall, the MedViewX documentary evidence suggests a price inelastic market, contrary to assumptions which underpin the project plan, at least in part.

453 Thirdly, Mr Stratigos's evidence and that of Mr Bond as to the potentially complicated technology issues arising from simultaneous integration of suppliers/wholesalers and POS vendors in contrast to the assumptions inherent in the project plan that the third parties would act at the time of Fred's choosing, has also been borne out by the MedViewX rollout.[95]

454 Fourthly, whilst there is some evidence suggestive of wholesaler support for MedViewX, such as the letter written to the Commonwealth Department of Health in late November 2021 and the entering into of the agreement by one supplier Barretts and a POS vendor access agreement by Symbion, the overall thrust of the evidence is reflective of considerably lesser enthusiasm from wholesalers than that suggested by Mr Naismith. Most notably, Symbion believed that the rival platform amounted only to 'same, same' and as a result, lacked a business case for it. In any event, those concerns of wholesalers referred to in the documentary evidence are attributed, at least in part, to the perceived threat that PharmX would choose to deny pharmacy customers using Fred POS software access to the PharmX gateway. Although PharmX's Mr Lumb adverted to that possibility in early communications with Mr Naismith, Fred in fact considered that such a course was unlikely. Shutting off Fred POS customers from placing orders on the PharmX gateway could only harm PharmX's revenue because it would reduce the revenue which it stood to derive from wholesalers. On the other hand, the absence of any concluded third party access agreement with Fred as a POS vendor would in fact amount to be a financial benefit because it would delay the incurring of third party access fees. In any event, such a risk was capable of mitigation in the event that Fred entered into a third party access agreement. The likelihood of there being a threat to cut off Fred's pharmacy customers in 2013 is addressed below.

455 Further, Mr Johnston, in his communications with Mr Windhofer in May 2020, spoke of the wholesalers' enthusiasm for a rival platform in cautious terms, stating that maybe 'we can convince them that Med View X/Fred is/will be a better/more reliable solution'.[96] The wholesalers with whom Fred engaged during the course of the MedViewX rollout certainly had an interest in finding out more, but otherwise appeared content with the existing PharmX system. So much was clear from Symbion's correspondence with Mr Windhofer of April 2021.[97]

456 Whilst API might have been more motivated to pursue the rival gateway back in 2013 when Mr Vincent was its CEO, even Mr Vincent's evidence was that any movement to a rival Fred exchange would have been subject to the establishment of a robust exchange, with sufficient technical capacity and commercial terms which matched that of PharmX.

457 Fifthly, there is a degree of rigour in the analysis undertaken by Fred and submitted for the board's approval of the establishment of a rival exchange (albeit, and importantly, only to the 'proof of concept' or stage 1 phase) which well exceeds the high level and broad nature of the one page project plan. The board was provided with cost estimates and had the benefit of a net present value analysis, which enabled a comparison of estimated costs and likely revenue. This was not the case with the project plan, which is unaccompanied by any cost estimates or revenue projections. Whilst Fred's criticism of the excessive nature of Mr Stratigos's $4.7 million estimate for the rollout of a fully complete operational exchange had merit, Mr Windhofer's email does indicate that Fred has incurred costs for stage 1 only of $[REDACTED]. When this was put to Mr Johnston in cross examination, he said that the figure was incorrect, as he knew that the costs had not exceeded $[REDACTED]. I do not accept Mr Johnston's evidence over that derived from Mr Windhofer's email; Mr Johnston only addressed the matter in cross examination, despite the email from Mr Windhofer being a document discovered by Fred and sent to Mr Johnston; there is no evidence that Mr Johnston responded to the email casting doubt on the figure identified by Mr Windhofer. Although Mr Johnston's evidence was generally reliable and he was for the most part a credible witness, he appeared uncomfortable when confronted with this email and I found his evidence that the figure was incorrect unconvincing. Of course, this figure relates to the 2020 costs of the MedViewX rollout, not the estimated costs of a hypothetical 2013 roll out, but the absence of cost and revenue estimates of the hypothetical roll out is entirely consistent with the high level nature of the project plan and does not engender confidence in the cogency and weight that should be attributed to such evidence, notwithstanding Mr Naismith's confidence. The inferences which arise from Mr Windhofer not being called as a witness are considered below.

458 The lived experience of the MedViewX rollout is largely consistent with the 'stickiness' of customers to the first established exchange, referred to by Dr Hird in his evidence and the presence of PharmX's 'first mover advantage', as noted by Dr Williams.

459 I do not accept that the criticism of Dr Hird's evidence is justified. It was put to Dr Hird in cross-examination that the fact that Fred had entered into the market by way of MedViewX undermined his opinion that the relevant market was a natural monopoly market. In responding to that challenge, Dr Hird said that the entry into the market of MedViewX could not be divorced from the fact that there was an external incentive present in that Fred was defending a claim by Corum for damages in excess of $6 million with a critical aspect of its defence being that it would have established a competitive business. Dr Hird maintained that the entry by Fred into the market in those circumstances did not undermine his opinion that the relevant market was a natural monopoly. In closing submissions, Fred submitted that Dr Hird had engaged in unbecoming speculation and acted on an uninstructed assumption that the presence of the damages claim and an available defence was a motivator for the establishment of a rival platform. The criticism is unfair; Dr Hird was briefed with the pleadings which included Corum's defence, part of which refers to the hypothetical establishment of a rival exchange, as well as Mr Naismith's witness statements which set out the establishment of the hypothetical competitive exchange. To note the existence of such an extraneous factor is to do no more than state the obvious. In any event, and more particularly, although Dr Hird and Dr Williams did not agree on the question of whether the relevant market was a natural monopoly, there was otherwise little difference in substance between their evidence. Importantly, both agreed that the market was one where the incumbent had considerable advantages over a new entrant.

460 There is also little documentary evidence which supports Mr Naismith's assertion that the longer and more complicated rollout of MedViewX was due to resourcing issues associated with COVID-19, the complexities resulting from the need to integrate with the NDSS and from an insufficiency of resources at Fred in 2020.

461 There is nothing in Mr Windhofer's emails or in the material provided to Fred's board which identify any difficulty in obtaining resources. Fred, in supplementary submissions, referred to two specific documents which were said to refer to these resourcing constraints.

462 The first is the reference in the minutes of Fred's board meeting on 19 May 2020 under the heading 'PharmX'; '[c]apacity available, no, would require some resources within current and then take asset into separate structure downstream if required'.

463 The second is an email from Mr Windhofer to Mr Johnston dated 15 April 2021, with the subject line 'Request to make Ashley Hollis - Dev Ops Engineer a permanent asap'. This email refers to the current status of the 'Kaizen Systems team' as undergoing recent attrition. Against that background, Mr Windhofer noted the need to continue work on MedViewX with a core (albeit cut down) team, 'beyond the current fixed term contract period of mid-July, to enable us to properly commercialise it'. The email continues:

This is not news of course as at the time of budgeting the need for MVX Phase 2 work had already been flagged & projected to be circa 200 points (additional $400k resourcing) and unfortunately this has only increased most recently c/o deeper engagement & feedback from Symbion and addition of NDSS as a mandatory day 1 requirement for the major wholesalers.

464 This email does not provide any support for the proposition that COVID-19 and the reduced immigration which occurred over that period caused delays in the MedViewX rollout. Nor does it provide support for the proposition that competing resources at Fred during that period were productive of delay. Its essence is that phase 2 of MedViewX would require less work and thus consume less costs than phase 1, as had been anticipated.

465 The first document does not help much either. It does suggest that the proposed introduction of the MedViewX project required a reconfiguring of resources, but it does not go as far as suggesting either that the necessary resources were not obtained or available, or that they were made available but at a later stage, which caused delays.

466 There is documentary evidence of the need to integrate with the NDSS and the complication that this added to the complexity of the rollout. Given that the NDSS was not introduced until about mid-2016, I accept that those complications would not have been present had a rival exchange been established in 2013.

467 However, the significance of that delay and its precise timing and effect is less clear. It would appear that work first started on MedViewX at Fred in about May 2020, when Mr Windhofer prepared his 'Lean Business Case'. The first indication of any difficulty with the need to integrate with the NDSS appears to have arisen on 31 March 2021, some 10 months or so after Mr Windhofer had created the 'Lean Business Case'. The project plan assumed that within the first 10 months, the rival exchange would be built, with wholesalers API and Sigma already integrated along with key POS vendors, Fred POS, Chemist Warehouse POS and Minfos. MedViewX had not even moved to pilot phase within that time period.

468 The evidence relied upon by Fred as to the effect of the NDSS delay does not descend to any level of particularity as to the effect of the delays, beyond Mr Naismith's assertion that the rollout was delayed due to that complication. Mr Windhofer's email of 31 March 2021 suggests a workaround,[98] and at that stage, the project was still very much in the development phase. Further, it would appear that despite the NDSS issue, the integration of Symbion was still proceeding on 20 May 2021, in any event.[99]

469 Mr Naismith's evidence as to the certainty which would have attached to Fred's pursuit of a rival gateway, supported to some extent by Mr Johnston's evidence, needs to be assessed in light of the documentary evidence.

470 There is evidence of Fred in fact contemplating the entry into a third party access agreement in 2020.[100] Mr Naismith asked for a calculation of the rebates that would have been paid, calculated by reference to the standard 25% rebate on 27 March 2020. At Fred's board meeting on 12 March 2020, the board contemplated the entering into of a third party access agreement as one alternative, albeit on a month-to-month basis, and Mr Johnston referred to a third party access agreement as a negotiable option in his CFO's report prepared for the board meeting of 21 April 2020.

471 Secondly, Mr Naismith gave evidence that part of the motivation for establishing a financial gateway was to support the pharmaceutical industry as part of Fred's broader support and involvement in that industry, and in particular to ensure that those pharmacies using Fred POS systems would have access to an operational gateway. The need for support arising from the perceived threat that access would be cut off to pharmacies using Fred POS software has been noted above. To the extent to which Fred was motivated by more altruistic concerns, such evidence has to be evaluated in a context which includes prior consideration by Fred from time to time of the divestment of the PharmX business as a whole.[101]

472 Thirdly, insofar as Mr Naismith and Mr Johnston gave evidence of their motivation being in part due to a concern that Fred's competitor, Corum, would otherwise derive 'super profits' that could be deployed by Corum in competitive activity with Fred, such evidence needs to be evaluated in context. Phrases such as 'super profits' or that PharmX was, as Mr Johnston said in evidence, 'ridiculously profitable' and the associated advantage to the party in receipt of those profits to compete with Fred lack sufficient specificity and quantification as to merit uncritical acceptance. That which might be perceived as 'super profits' for one entity may amount to little more than an asterisk in the financial records of another. In Telstra's analysis of Fred, which it carried out 2011 and which underpinned its decision in 2013 to pay $32.5 million for a 50% share in Fred, the $500,000 or thereabouts that Fred was receiving from PharmX rated little analysis or consideration. In Telstra's accompanying standalone valuation, it noted that Fred's then $500,000 distribution from PharmX in the 2012 financial year was expected to grow to $700,000 in 2014, but would thereafter remain constant, growing to $800,000 in 2017, at which level it would remain until 2020. Mr Naismith accepted that Telstra saw PharmX as a non-core part of Fred's business. Mr Windhofer's email of May 2020 is reflective of his perception of PharmX's somewhat humble status within the context of Fred's broader operations.

473 Mr Johnston's statement as to PharmX being 'ridiculously profitable' also warrants some further consideration. Whilst PharmX had a very high gross margin, that status was a result of its establishment back in 2006 and would not necessarily be achieved by a rival platform or, if achieved, not for some time. Further, as noted above, Fred did not adduce any evidence in respect of the 2013 rival gateway which estimated revenues or costs and the timing at which those would be achieved, although these so existed for the MedViewX rollout. The net present value analysis carried out by Fred in the context of the 2020 rollout fell well short of establishing that the rival platform would have been 'ridiculously profitable' or indeed profitable at all, at least for some years. Moreover, the growth prospects of PharmX itself appeared somewhat minimal. The absence of growth potential was reflected in the various assessments carried out by PharmX's advisors exploring a potential sale. The limited growth potential of MedViewX was also apparent from the internal consideration given by Fred to its anticipated revenues going forward, which was undertaken by Fred in 2021.[102]

474 Assessment of the value to be attributed to the loss of opportunity of Corum, deriving the distributions that were received by Fred over the period when it should not have been a unitholder, involves a number of steps. The measure of the loss cannot exceed the actual distributions paid to Fred from the 2014 financial year onwards. That amount, which totals $6,586,999.20, nor the amount net of those paid to Simple Retail of $6,323,503.75, are not in issue, and represent the theoretical upper limit of any assessment.

475 The upper limit assumes that PharmX's revenue and costs would have been exactly the same as they were whilst Fred remained a unitholder and hence the profits available for distribution would have been exactly the same. Not even Corum submits that this would have been the case.

476 The critical element in the quantification of the value of the lost opportunity requires an assessment as to the likelihood of the revenue being at the same level and an assessment of the likely costs that would have had to have been incurred by PharmX in deriving those revenues.

477 This involves, firstly, an assessment as to the likelihood of Fred entering into a third party access agreement with PharmX, which would have ensured near constant revenue but an increase in costs equivalent to the amount of the third party access rebate paid to Fred, as against the likelihood of Fred establishing a rival competitive gateway and an assessment of the effect of that rival gateway on PharmX's profits.

478 In closing submissions, I asked the parties how damages should be assessed if I considered that there was some uncertainty as to whether a rival gateway would have been established and its effect on PharmX in that event. Corum submitted that the Court must do its best on the evidence adduced, conceding that there is a necessary element of uncertainty and broad judgment involved. Fred submitted that if I determined that it was likely that Fred would establish a rival gateway, but was uncertain as to its effect, I should find that Corum had not proved its damages claim.

479 Questions as to the adequacy of evidence required to establish loss commonly arise in cases where the wrongdoer has prevented the victim from pursuing an opportunity because the wrongdoer 'has thrust the victim into a difficult task of proving a past hypothetical'.[103]

480 In such a case, the task of the Court is to adopt a robust approach, 'relying on the presumption against wrongdoers'. Questions involving the application of the onus of proof and the resolution of doubtful questions should be resolved against the interests of the party 'whose actions have made an accurate determination so problematic'.[104]

481 Given that Corum has established matters of causation on the balance of probabilities, the assessment of the value of its lost opportunity must be carried out 'by reference to the degree of probabilities and possibilities of factual hypotheses may require a process of estimation extending even to a degree of guesswork and may lie at any point within a broad range'.[105] As Brooking J observed in JLW (Vic) Pty Ltd v Tsiloglou:[106]

It is often said that the amount of the damage must be proved with certainty, but this only means as much 'certainty' as is reasonable in the circumstances ... Where precise evidence is obtainable, the court naturally expects to have it; where it is not, the court must do the best it can ... The nature of the damage may be such that the assessment of damages will really be a matter of guesswork, as in the well-known case of Chaplin v Hicks [1911] UKLawRpKQB 104; [1911] 2 KB 786, where the plaintiff had lost a chance of winning an engagement as an actress as a prize.

482 The degree of precision with which damages are to be proved is proportionate to the proof reasonably available.[107] The relationship between the degree of precision required and the availability of evidence was explained by Hayne J in Placer (Granny Smith) Pty Ltd v Thiess Contractors Pty Ltd as follows:[108]

It may be that, in at least some cases, it is necessary or desirable to distinguish between a case where a plaintiff cannot adduce precise evidence of what has been lost and a case where, although apparently able to do so, the plaintiff has not adduced such evidence. In the former kind of case it may be that estimation, if not guesswork, may be necessary in assessing the damages to be allowed. References to mere difficulty in estimating damages not relieving a court from the responsibility of estimating them as best it can may find their most apt application in cases of the former rather than the latter kind.

483 Corum adduced evidence as to the distributions paid to Fred. It has also adduced evidence as to the increased costs that would have been incurred by PharmX, had Fred entered into a third party access agreement at a rebate of 25%.

484 Further, there is sufficient evidence available for me to undertake such further calculations as may be necessary to reflect any higher rebate paid to Fred.

485 The likelihood of Fred entering into a third party access agreement and on what terms is a matter that can be estimated by reference to the degree of probabilities and possibilities of that factual hypothesis, albeit by a process involving a fairly broad brush assessment. So too, can the likelihood of Fred establishing a rival gateway.

486 Where the assessment is more difficult is in relation to the effect on PharmX's profits of the establishment of the rival gateway. Mr Samuel's evidence, which quantified the effect of the rival gateway on PharmX's profits, was formulated on the basis of the seamless evisceration of the PharmX business implicit in the project plan. The real difficulty which arises on the evidence is in assessing the effect of a rival gateway established in a far slower and less effective manner than that set out in the project plan.

487 In any assessment, it is appropriate to have regard to the fact that it is Fred which had the capacity to adduce evidence of greater specificity and cogency as to the establishment of a rival gateway and estimate its effect on the known PharmX profits. It did seek to do this, but only on the hypothesis of the very successful rollout identified in the one page project plan, entirely unaccompanied by much of the detail and specificity prepared for its 2020 rollout of MedViewX. Therefore, in the evaluation of the weight of the evidence adduced relating to the effect of a rival gateway on PharmX, it is appropriate to resolve doubtful questions against Fred; it is Fred's actions which have made an accurate determination problematic and further, given that it is Fred's rival gateway that Fred says it would have established, it is Fred that is in the best position to project the revenues, formulate the costs and undertake a more detailed and arguably less ambitious analysis as to a hypothetical rollout of a rival platform in 2013.

488 Before taking account of the above and applying those broad principles to the evidence, it is important, first, to make some observations about the evidence of Mr Naismith and Mr Johnston in light of the evidence identified above particularly that relating to the rollout of MedViewX.

489 Mr Naismith, Fred's CEO, is a very successful businessman. His achievements in driving Fred's growth explain the high acclaim in which he appears to be held in the pharmaceutical industry. He presented as an articulate and highly confident individual. Corum did not make any submission that Mr Naismith's evidence as to the certainty and predicted ease of a rollout of a competitive platform in 2013 was dishonest. Rather, Corum submitted that Mr Naismith's evidence, although reflective of a genuine belief, was affected by both hindsight bias and an overconfidence, possibly influenced unwittingly by the fact that acceptance of his evidence is critical to Fred's rebuttal of the quantum of Corum's claim. Corum submitted that in such circumstances, it is not uncommon for individuals to genuinely believe that events occurred in a particular way, notwithstanding that objectively this is not so. The risk of this is necessarily increased in the context of the evaluation of a past hypothetical which, by its very nature, lends itself to speculation and uncertainty. Corum made a similar submission in relation to Mr Johnston's evidence.

490 In the context of an evaluation of Mr Naismith's evidence concerning the MedViewX rollout, it is pertinent to note that Fred did not call evidence from Mr Windhofer, nor any other executive, such as Ms Wickremasinghe, with a more hands-on involvement in the MedViewX rollout. Nor did it seek to adduce any evidence from Mr Bond relevant to the rollout of MedViewX, notwithstanding that Mr Bond was called as a witness by Corum and could have been questioned about these matters by Fred.[109] Nor did Fred seek to lead any evidence from PharmX's former managing director Mr Lumb, who Fred called as a witness in the Fred Proceeding.

491 Corum submitted that it was appropriate to draw an adverse inference against Fred with respect to the failure to call Mr Windhofer, and the other executives directly involved.

492 A Jones v Dunkel inference in respect of the failure to call Mr Windhofer and others permits the drawing of an inference that the evidence of the person not called would not have helped Fred's case. It also enables the Court to more readily draw any inference fairly drawn from other evidence, by reason of Fred having the opportunity to prove to the contrary.[110]

493 In the present case, there is a significant body of evidence which supports a conclusion that any rollout of a rival platform would have been more complicated, taken longer and been less effective in bringing about a loss of business from PharmX and a movement to the rival platform than Mr Naismith's evidence suggests.

494 The evidence of Mr Stratigos, Mr Bond, Dr Hird and Dr Williams, as well as the documentary evidence relating to the rollout of MedViewX, falls into that category. Having regard to the significant body of evidence which casts doubt on Mr Naismith's evidence, whether a Jones v Dunkel inference is drawn to the effect that his evidence would not have helped Fred's case does not add much. The weight of Mr Naismith's evidence must be assessed in light of the volume of evidence to the contrary.

495 Where the failure to call Mr Windhofer is particularly significant however, is with respect to the evidence given by Mr Naismith as to the particular reason why the MedViewX 2020 rollout has not proceeded with the alacrity that Mr Naismith says would have taken place in 2013. In relation to that aspect of the evidence, there is only documentary evidence which is supportive of inferences, including by reason of the absence of references to the problems asserted by Mr Naismith, which cast doubt on Mr Naismith's account. In that context, the failure to call Mr Windhofer as a witness permits an inference that his evidence would not have assisted Fred's case that delays caused by COVID-19, associated lack of available employees, complications with the NDSS and the general lack of availability of resources each are causes of the slower than expected rollout of MedViewX. It also permits inferences which arise from the documents to contrary effect to be drawn more readily. The evidence as to the cost of the rollout of MedViewX falls into the same category.

496 As Mr Naismith is Fred's CEO, it would not be expected that he would have a detailed knowledge of the circumstances which related to the rollout. Indeed, it appears clear enough on the evidence that he did not have such knowledge. His name rarely appears on any of the relevant emails passing between those directly involved in the rollout and it is also clear, and Mr Naismith accepted that, Mr Windhofer's email of the timeline sent in May 2022 was sent so that Mr Naismith was able to ascertain when relevant events occurred.

497 Overall, the evidence of Mr Naismith and Mr Johnston is of much diminished weight; Mr Naismith had little direct involvement in the MedViewX rollout; the documentary evidence relating to the MedViewX rollout is reflective of a far more complicated exercise than that attested to by Mr Naismith and Fred chose to call only Mr Naismith (and to a lesser extent, Mr Johnston) in respect of the viability of the alternative platform.

498 Evidence must be weighed according to the proof which was in the power of one side to have produced and the other to have contradicted.[111] It was open to Fred to call more granular evidence as to the hypothetical rollout including from those who were more hands on in the MedViewX rollout with such adjustments as may be appropriate to reflect the earlier time period. Fred did not call those who had more hands on involvement in the MedViewX rollout such as Mr Windhofer, Ms Wickremasinghe or those who had been at the coalface at PharmX such as Mr Lumb. Nor did its evidence seek to explain the incongruity between the establishment of a rival business by reference only to the very high level one page project plan on the one hand and the level of detail and robustness which attached to the creation of MedViewX in 2020.

499 In my view, Mr Naismith's evidence concerning the effectiveness of the rollout of an alternative platform lacks weight when measured against the evidence of Mr Stratigos, Mr Bond, both Dr Hird and Dr Williams (as to the 'stickiness' of customers and the 'first mover advantage', respectively) and as to the real world experience showed in documentation discovered by Fred, which occurred with the rollout of MedViewX, which showed a rigour of analysis and a significantly more complicated technological rollout and a far less easily penetrated market than shown in the project plan and reflected in Mr Naismith's evidence more generally.

Assessing the value of Corum's lost opportunity claim and conclusion

500 Against the background of those observations, it is necessary to assess the value of Corum's loss of opportunity claim.

501 First, had Fred given notice as it was required to do immediately after 30 September 2013, it is extremely probable that Mountaintop and Simple Retail would have sought to exercise their pre-emptive rights and, in such event, Corum would have joined with them. If Mountaintop and Simple Retail did not do so, then Corum has suffered no loss at all. Corum submitted that it was near certain that Mountaintop and Simple Retail would have acted. I accept that that is extremely probable for the reasons adverted to above. Given this, only the smallest of discounts should be applied to reflect the risk of that not occurring. In those circumstances, Fred would have exited PharmX in about October 2013. The circumstances of its exit would not have been attended by the angst and distrust which preceded its exit in April 2020. The disputes which arose in relation to Mr James-New's desire to transfer the stapled securities held by Simple Retail to Daleflag, its coincidence in timing with the sale by Simple Retail of its business to MediSecure, the issues concerning the alleged control at Fred arising from the Telstra acquisition and its non-disclosure to the other Stapled Security Holders and the resultant disharmony caused by Mr James-New and Mr Wenham refusing to vote in favour of distributions to the unitholders of PharmX as distributable profit would not have been present, in that event.

502 Moreover, Fred's exit from PharmX would have occurred in the deserving but happy circumstance of the successful completion of its transaction with Telstra, self-evidently resulting in significant capital return to Fred's shareholders reflective of Fred's success and innovation along with the payment of an acquisition price by the Stapled Security Holders for Fred's interest in PharmX, albeit at the discounted multiple of 4x. Whilst Fred may have preferred to remain a Stapled Security Holder in PharmX, I consider it most unlikely that Fred's exit would have been accompanied by any substantial disharmony. Moreover and in any event, the exit would not have been accompanied by satellite legal proceedings, such as the claims for unpaid distributions and the claims by the parties that the purchase payable on the buyout of Fred's interest had been wrongly calculated. These matters would have enhanced the prospect of a harmonious consensus.

503 Secondly, the likelihood of Fred establishing a rival exchange in late 2013 would have been significantly less than Fred submitted, and more particularly I consider that its adverse effect on PharmX would have borne little relation to that contained in the project plan and reflected in Mr Samuel's calculations.

504 The challenges which faced a new entrant such as Fred in establishing a rival exchange in 2013 would not have been significantly different than those faced in 2020. PharmX had been operating for about seven years and was well entrenched. I am not satisfied that the difficulties from a technical perspective would have been materially different in 2013 than they were in fact in 2020, when the MedViewX rollout occurred. The only evidence that they would have been is from Mr Naismith. Mr Stratigos and Mr Bond's evidence is to the contrary. More specifically, I do not accept that it would have been possible in 2013 to set up and establish a fully operational rival exchange on the timelines and with the weakening effect on PharmX as set out in the project plan. Nor do I accept that Fred would have regarded that to be the case. Certainly, I do not accept that it would have committed to the establishment of a rival platform on the basis of anything as high level and limited as the one page project plan.

505 The more likely course is that Fred would have entered into a third party access agreement. Had it done so in 2013 on the standard terms, it would have derived an annual rebate of somewhere in the order of $154,000 in its first 12 months after exit. This sum compares with its distributions of $293,232 in the 2011 financial year and $494,375 in 2012. Thus, at no cost, Fred could have derived an income from PharmX of about 30% of the largest amount that it had received as a unitholder. This would have been derived without the cost, inconvenience and uncertainty of setting up a rival exchange. Although by foregoing a rival exchange, Fred forewent the prospect of deriving a capital return from a divestment (in respect of which, had it occurred, was estimated to a sale of somewhere in the order of $11 million),[112] the desirability of establishing a rival platform would have had to have been measured against the certainty of the receipt of rebates in the magnitude set out above, the costs likely to be incurred in establishing the rival platform and the likelihood of successfully establishing a rival platform.

506 Fred did not adduce evidence as to the likely costs of establishing a rival gateway in 2013, notwithstanding that it undertook those calculations in 2020 for MedViewX. This diminishes the weight of the evidence that it did adduce to the effect that it would have established a rival exchange, and permits the conclusion to be more readily drawn that Fred would not have established such a rival platform.

507 The terms upon which a third party access agreement would have been negotiated are less certain. The calculations relied upon by Corum proceed on the basis that Fred would have entered into a standard third party access agreement in respect of which it would receive a 25% rebate. Mountaintop did this when it exited upon Corum's recent buyout. So too did Simple Retail in 2016. I have some doubts as to whether Fred would have been prepared to enter into an agreement on the standard terms. Mr Naismith's disclosed reluctance in 2020 to enter into a third party access agreement was based, in part, on his wish to resolve the question of third party access, only as part of a resolution of all matters in dispute. The complicating factor of the need to resolve other disputes would not have been present in 2013. The remaining matter cited by Mr Naismith in 2020 as an impediment to the conclusion of a third party access agreement was his distaste for doing so on the basis of a standard 25% rebate. Although the complication arising from the need to resolve wider disputes would not have been present in 2013, I could well understand that Mr Naismith would have been unimpressed with an offer of a standard 25% rebate, even allowing for an exit in 2013 on a consensual basis. As someone who not unreasonably considered that he had been at the forefront of the establishment of PharmX, there is every chance that Mr Naismith would have pressed for Fred to have received a higher rebate than that being paid to standard POS vendors, who had played no role whatsoever in the establishment of PharmX.

508 Notwithstanding the likely harmony that would have attended any negotiation, there is every chance that Fred would have sought to obtain a rebate on a special basis calculated at a higher level which reflected both its contribution to PharmX's successful establishment, as well as a latent capacity to compete or at least advert to the possibility of it doing so at least as a negotiating tool to facilitate the payment of higher rebates.

509 As such, I consider that there is every chance that a third party access agreement would have been entered into by Fred with PharmX, but on a basis which provided for a fee some way in excess of the standard 25% payable to standard third party vendors. Mr Lumb's email to Mr Naismith of 30 June 2020 foreshadowed a willingness to negotiate on terms. There is no reason why a similar willingness to negotiate on terms would not have been present back in 2013. In contrast, the absence of the later disharmony would have enhanced the prospect of a successful negotiation.

510 Whilst the possibility of Fred establishing a rival exchange cannot be discounted entirely, I consider that such a course would have been far less likely than Fred entering into a third party access agreement. Had a rival exchange been undertaken in 2013, it would have required the support of a robust business case presented to the Fred board, which would have been required to justify the costs associated with the establishment of such a rival exchange in light of the anticipated revenues balanced against the comparative benefit that could have been derived by entering into a third party access agreement providing for rebates on a variety of bases.

511 In the event that such a rival exchange was established, real difficulties arise in assessing the effect of the rival exchange on PharmX, and derivatively, Corum's claim. To be sure, however, I do not accept that there is any realistic prospect that it could have been established on the timelines and with the ease implicit in the project plan. The evidence of Mr Stratigos and Mr Bond, along with the lived experienced of the MedViewX rollout, even discounting for some complications arising from the presence in 2022 of the NDSS issue which would not have been present in 2013, point in a very different direction.

512 Any establishment of the rival exchange would have been far more technologically fraught, more time consuming in terms of the resources demanded at PharmX, taken longer and been far less effective in transitioning business away from PharmX than that set out in the project plan. Further, whilst the question of the establishment of the rival platform and its effect on PharmX are distinct, the more costly, time consuming and less effective the competitive business was anticipated to be, the less likely that Fred would have established such a rival endeavour. The rollout of MedViewX required the preparation of a business case with supporting information incorporating a net present value calculation and generally required the preparation of materials at a sufficient level of rigour as would ordinarily be expected of a subsidiary of a public company. Had a like-level of rigour and comparable assumptions been applied to the 2013 project plan as those that attached to the 2020 MedViewX, it may well be the case that the resultant financial analysis that would have been undertaken at that time would have resulted in a decision not to proceed, all the more so in circumstances where there was an alternative on the table in relation to the receipt of third party access fees of the magnitude set out above.

513 As noted above, I do, however, consider that Fred would likely have sought to negotiate a significantly higher rate by way of rebate than the standard third party rebate paid to other POS vendors. Mr Naismith was justifiably conscious of the critical role which he had played in PharmX's development and it is clear enough that Mr Naismith was a person who was astute at all times to seek to advance Fred's interest. Therefore, there was a real prospect of Fred negotiating a third party rebate arrangement with PharmX on terms some way in excess of the 25% rebate payable to third party POS vendors. The precise level at which agreement could have been reached requires a considerable degree of estimation; doing the best I can, I consider it likely to be between 30-40%. Fred's 40% unitholding in the Trust is not directly relevant to the question of the quantum of its rebate, but does at least represent some benchmark against which negotiations could have been carried out. The reference to unitholding as a reference point is also consistent with the approach taken by Mr James-New and Mr Wenham to the separate question as to how proceeds of a trade sale should be split up and shows that it was an integer that the parties took account of from time to time when it suited. In my view, it is likely that the third party access agreement would have been entered into, involving payment to Fred of a third party rebate of somewhere between 30% and 40%.

514 Whilst there are an overwhelming number of factors which are in favour of the entering into of a third party access agreement, I cannot exclude entirely the prospect that Fred may have, for whatever reason, chosen to establish a rival gateway. Given the evidence of Dr Hird who referred to the 'stickiness' of customers and Dr Williams who noted the significant 'first mover advantage' in markets of the kind operated by PharmX, the lived experience of the MedViewX rollout and with the evidence of Mr Stratigos and Mr Bond, I have very real doubt as to how successful the rival gateway would have been and, relatedly, its effect on PharmX's profits in the unlikely event of it being established.

515 Had I concluded that there was, say, an 80% possibility of Fred entering into a third party access agreement with PharmX involving the payment to Fred of a rebate of somewhere between 30 and 40%, any assessment of Corum's loss and damage would involve a calculation derived by multiplying 0.80 by the distributions that Fred received that would otherwise have been received by the Corum and the remaining unitholders whose rights it has acquired, on the basis that they otherwise would have been available to the other unitholders, less the extra expenses incurred by PharmX in the form of the third party access rebate paid to Fred calculated at a rate between 30 and 40% from the time the third party access agreement would have been entered into.

516 It would also be necessary to take into account the effect on Corum (and the other unitholders) of the operation of the rival gateway, even if there was only say a 20% chance that such a gateway would have been established. If its effect could have been to denude PharmX of the business transacted through Fred POS systems but otherwise leave the PharmX business intact, a broad brush assessment could be undertaken which simply assumed that in that event, no additional distributions would have been received by Corum and other Stapled Security Holders. If that occurred, the application of the 80% integer would adequately compensate Corum for the Wrongful Distributions Claim. If however, the effect of the rival gateway would have been productive of loss to Corum of the magnitude set out in Mr Samuel's calculations, it would be necessary to then subtract from the damages, calculated by reference to the 80% possibility of PharmX entering into a third party access agreement with Fred, the reduction in distributions that would have been suffered by Corum compared to those it actually received whilst Fred remained a unitholder by reference to the 20% possibility of such losses arising.

517 The difficulty with doing so here is that Mr Samuel's calculations are of little assistance, even if I were to accept that Fred may have established a rival gateway in 2013. Mr Samuel's calculations establish the effect on PharmX of the establishment of a rival gateway at the timing and effectiveness of the project plan. Moreover, Mr Samuel's calculations proceed on the assumption that Fred's rival gateway would have sought to entice POS vendors across by paying them rebates as high as 50% and by charging wholesalers about half of that which PharmX at the time was charging wholesalers. Neither of those two instructed assumptions are of any real evidentiary value. Among other things, such a course was completely disconnected to the approach taken in the MedViewX rollout and as such, was unlikely to have been followed. Moreover, the speed of the rollout itself in the project plan also is so unlikely that it needs to be put to one side.

518 Overall, there is an absence of evidence establishing the effect of a rival gateway on PharmX had it been established but on a more credible timeline and with a more credible impact on PharmX.

519 The speed of the rollout and the enthusiasm of wholesalers to sign up to MedViewX at all, even on a non-exclusive basis, much less to transition business away from PharmX is markedly at odds with the speed implicit in the project plan and which underlie Mr Samuel's calculations. His calculations assume a 29.4% reduction in the profits of PharmX in the 2015 financial year (which is within 21 months of Fred's hypothetical exit), a 60.9% reduction in PharmX's profits in the 2016 financial year (33 months after Fred's hypothetical exit) and a 79.7% reduction in the 2017 financial year (45 months after the hypothetical exit). The reduction in profits results largely on PharmX's declining revenues due to the loss of wholesalers who are assumed to have moved to the rival Fred exchange. The loss of revenue embodied in Mr Samuel's calculations is $774,678 in the 2015 financial year (equivalent to 26.8% of PharmX revenue); $1,545,818 in the 2016 financial year (equivalent to 47.33% of PharmX revenue) and $2,695,260 in the 2017 financial year (equivalent to 82.53% of PharmX revenue).

520 The asserted impact on PharmX profits is intrinsically tied to the speed of the rollout and the extent of any transition of business and associated loss of revenue from PharmX to its rival. If the loss of business was only, say half as effective as the project plan assumed, the reduction in PharmX profits over the loss period from the 2014 financial year to the 2019 financial year would reduce to $4,978,172 (which is 50% of the PharmX reduction in profits in Counterfactual Scenario 1).

521 But if the whole transition of business took, say 1.5 times as long, nine years instead of six, as well as being only half as effective, then the reduction of profits has to be apportioned over a longer period of time than the loss period. Nor is the reduction of the PharmX profits linear; Mr Samuel's calculations show a graduated approach with the reduction of profits occurring over time and increasing exponentially. This longer and less effective competitive option is far more consistent with the lived experience of the MedViewX rollout, the evidence of Mr Bond and Mr Stratigos and the 'stickiness' of customers and related 'first mover advantage' referred to by Dr Hird and Dr Williams.

522 If a lesser reduction in PharmX profits results and it occurs over a longer time period, the adverse effect on PharmX and hence the amount of the distributions that would otherwise have been received by the remaining unitholders in the event of competition from the Fred rival exchange does not differ markedly from the reduction in PharmX profits resulting from a maintenance of revenues at an increased cost in the form of payments of third party access fees to Fred, particularly if Fred has been able to negotiate a rate higher than the 25% standard. As noted above, the amount of the rebate payable to Fred over the loss period calculated at the rate of 25% and the associated reduction in PharmX profits is $1,320,975.78. The corresponding figures at rebates of 35% and 40% are $1,849,366.09 and $2,113,561.25 respectively.

523 If the majority of the business transition and loss of profits at PharmX occurred in the second half of a nine year period (instead of the second half of a six year period which is the predicate of Mr Samuel's calculations), then the PharmX profits will not be materially affected for the first 4.5 years of the six year loss period. If for the sake of analysis, it is assumed that 40% of the PharmX profit reduction of $4,978,172 takes place in the first six years, then the PharmX profits reduce by $1,991,269 in the six year loss period, which is equivalent to the reduction that arises where Fred does not compete but instead enters into a third party access agreement struck at between 35% and 40%.

524 One approach to assessing the loss is to ascribe percentages to the various alternatives and calculate the loss under each scenario. Such an approach however injects too much complexity into an analysis which is necessarily imprecise. The complexity extends not just to the various rebate possibilities, but the timing of any rebate agreement being concluded, as well as various hypotheses as to the detriment on the PharmX business, both as to amount and timing.

525 The better approach is to take account of the possibility of a detriment to PharmX's business, in the unlikely event of a rival gateway being established and the more unlikely event of it being established in a way which had much impact on PharmX from the 2014 financial year to the 2019 financial year, by assuming in Fred's favour that the terms of the third party access agreement would have been negotiated on a basis which gave it a third party rebate calculated promptly and at the higher end, say at 40%.

526 Further, whilst I accept that it is extremely probable that Mountaintop and Simple Retail would have sought to exercise their pre-emptive rights, a slight discount is appropriate to reflect the slim chance that Mountaintop and Simple Retail would not have sought to exercise their pre-emptive rights. The chance of them not doing so would have been as little as 1% but no more than 5%. In the same way I have taken account of the risk of Fred setting up a rival gateway, damages will be assessed on the basis there is a 5% chance that Mountaintop and Simple Retail would not have so acted.

527 Overall, I discount that part of Corum's claim for loss and damage which represents the Overpayment Claim by 5%, so as to reflect the slim possibility that Mountaintop and Simple Retail would not have sought to exercise their pre-emptive rights. Had they not exercised their pre-emptive rights, Corum would have suffered no loss and damage. A discount of 5% applied against the Overpayment Claim results in damages in respect of the Overpayment Claim component of $1,134,255 (0.95 x $1,193,953).

528 Under the Wrongful Distributions Claim, the dividends paid to Fred from PharmX which otherwise would have been received by Corum, net of those paid to Simple Retail total $6,323,503.75.[113] Had Fred entered into a third party access agreement with PharmX providing for the payment of a rebate of 40%, PharmX's distributable profits would have been reduced by $2,113,561.25.[114] The $2,113,561 (rounded) will be deducted from the wrongful distributions paid to Fred that Corum seeks to recover of $6,323,504 (rounded), which gives a total of $4,209,943. This figure too needs to be discounted by 5%, reflecting the slight possibility that Mountaintop and Simple Retail would not have sought to exercise their rights at all, which results in a figure of $3,999,446 (rounded).

529 Corum's loss of opportunity therefore, being the sum of the Overpayment Claim and Wrongful Distributions Claim, is assessed as the sum of $1,134,255 and $3,999,446.

530 In the result, there will be judgment for Corum in the sum of $5,133,701. I will hear the parties as to interest and costs.

[1] In these reasons and at trial, the term 'wholesaler' is used interchangeably with 'supplier'.

[2] [2019] VSC 748.

[3] Which, in circumstances referred to in more detail below, had in substance taken over the interest of Simple Retail Pty Ltd.

[4] The amount of the overpayment is in fact $1,193,953.58. The 0.58 is de minimis and was put to one side by Corum for the purposes of its damages claim.

[5] Because Corum has now acquired the interest of Daleflag and Mountaintop, including their respective right to recover their share of distributions wrongfully paid to Fred, the claim is brought by Corum alone.

[6] Where terms are capitalised in excerpts of text, they refer to defined terms of that text.

[7] Being Mr Johnston's email of 18 April 2016.

[8] Being the email dated 13 April 2016.

[9] Mr Bottrell was Corum's nominee on the PharmX board from March 2016 to February 2020.

[10] Having been appointed on 18 July 2018.

[11] See above [123].

[12] As the documents had been provided pursuant to orders made in the Fred 2018 Proceeding (defined in paragraph [135] above), an issue arose as to whether their use constituted a breach of undertakings of the kind recognised in Harman v Secretary of State for the Home Department [1983] 1 AC 280; Hearne v Street [2008] HCA 36; (2008) 235 CLR 125 at [107]‑‑‑-[108].

[14] Clause 1.3 of the agreement provides that headings are 'for ease of reference only and do not affect interpretation' of the agreement.

[15] PharmX Pty Ltd (in its capacity as trustee of the PharmX Unit Trust) v Fred IT Group Pty Ltd (No 3) [2019] VSC 748, [145]-[147].

[16] [2014] HCA 7; (2014) 251 CLR 640, 656-7 [35] (French CJ, Hayne, Crennan and Kiefel JJ) (citations omitted).

[17] Limitation of Actions Act 1958 (Vic) s 5(1)(a) (the 'Limitations Act').

[18] [1940] HCA 37; (1940) 64 CLR 221, 236.

[20] Hammond v Minister for Works (1992) 8 WAR 505, 511.

[21] JW Carter, LexisNexis, Carter on Contract (online at 22 March 2023) [30-030].

[22] Secured Income Real Estate (Australia) Ltd v St Martins Investments Pty Ltd [1979] HCA 51; (1979) 144 CLR 596, 607 ('Secured Income').

[23] See above [77].

[24] See above [81].

[25] See above [86].

[26] See above [89].

[27] See above [98].

[28] See above [99].

[29] See above [100].

[30] See above [103].

[31] See above [104].

[32] See above [112].

[33] Secured Income (n 22).

[34] Wolfe v Permanent Custodians Ltd [2013] VSCA 331 [28].

[35] Secured Income (n 22) 610.

[36] Esso Australia Resources Pty Ltd v Southern Pacific Petroleum NL [2005] VSCA 228.

[37] N Seddon and R Bigwood, Cheshire & Fifoot Law of Contract (LexisNexis Butterworths, 11th ed, 2017) 487 [10.43].

[40] Secured Income (n 22) 610.

[41] See above [103].

[42] (1992) ATPR (Digest) 46-085 at [53323].

[43] Campomar Sociedad Limitada v Nike International Ltd [2000] HCA 12; (2000) 202 CLR 45, 85 ('Nike').

[44] Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; (2009) 238 CLR 304, 319 [25] ('Campbell v Backoffice').

[45] C Lockhart, The Law of Misleading or Deceptive Conduct (LexisNexis Butterworths, 5th ed, 2019) 172-3 [4.43].

[46] [2016] FCA 196; (2016) 337 ALR 647, 691 [220].

[49] Tobacco Institute of Australia Ltd v Australian Federation of Consumer Organisations Inc (1992) 38 FCR 1, 46-7.

[51] See above [111].

[52] Sellars v Adelaide Petroleum NL (1994) 179 CLR 332, 348 ('Sellars').

[53] Nike (n 43); Campbell v Backoffice (n 44).

[55] Levy v Watt [2014] VSCA 60; (2014) 308 ALR 748, 771-2 [85].

[56] Skrijel v Mengler [1998] VSC 71, [46] ('Skrijel').

[57] G E Dal Pont, Law of Limitation (LexisNexis, 2nd ed, 2020) 334 [15.41]. See also P Handford, Limitation of Actions (Thomson Reuters, 4th ed, 2017) 70 [5.10.480].

[58] Handford (n 57) [5.10.480].

[59] [1977] Ch 106, 245.

[60] [1994] 4 All ER 481.

[63] Sheldon v RHM Outhwaite (Underwriting Agencies) Ltd [1995] 2 All ER 558.

[64] Dal Pont (n 57) [15.41]-[15.46].

[65] CE Heath Underwriting & Insurance (Australia) Pty Ltd v Daraway Constructions Pty Ltd (Supreme Court of Victoria, Batt J, 3 August 1995) 76-77 ('CE Heath').

[67] Skrijel (n 56) [68].

[69] Corum's claim for damages based on the breaches of implied terms and its misleading and deceptive conduct claim, if accepted, would have necessitated an assessment of the value of the lost opportunity at later times and necessarily a revised assessment of the loss. Given my rejection of those claims, it is not necessary to assess damages at those later points in time.

[70] Sellars (n 52); La Trobe Capital and Mortgage Corporation Ltd v Hay Property Consultants Pty Ltd [2011] FCAFC 4; (2011) 190 FCR 299, 318 [89].

[71] Sellars (n 52) 355; Mal Owen Consulting Pty Ltd v Ashcroft [2018] NSWCA 135; (2018) 97 NSWLR 1163, 1184 [101] ('Ashcroft').

[72] Sellars (n 52) 353, 355 (citations omitted).

[73] Malec v JC Hutton Pty Ltd (1990) 169 CLR 638, 642-3.

[75] The below factors are adapted from Fred's closing submissions, and as such, may not directly align.

[76] See above [67].

[77] Given that Mountaintop and Simple Retail Pty Ltd had held stapled securities since inception, this would have been known to Mr Wenham and Mr James-New.

[78] The calculation is somewhat overstated, as it assumes that the distributable profits of PharmX remain the same as they did while Fred was a stapled securities holder. For that to occur, it is probable that Fred would have entered into a third party access agreement, the effect of which is that PharmX's expenses would have increased and its distributable profit would have decreased. Nevertheless, in the broad sense, what is conveyed in the table holds true.

[79] See above [61].

[80] See above [287].

[81] For convenience and save where necessary, only Corum is referred to, although it is recognised that Corum's damages claim seeks to recover a component of the loss suffered by Mountaintop and Daleflag.

[82] The dates in brackets represent the start and end date of each step.

[83] The dates in brackets represent the start and end date of each step.

[84] These were part of the instructed assumptions on which Mr Samuel prepared his calculations; see above [356].

[86] The particular matter that was the subject of the court date is not clear on the evidence.

[92] Said to be four months, which was to start on 24 October 2022. Thereafter, the fee was set at an agreed monthly fee per active account, [REDACTED].

[93] See above [420].

[94] See above [414].

[95] See above [370]-[376].

[96] See above [414].

[97] See above [439].

[98] See above [434].

[99] See above [436].

[100] See above [397].

[101] See above [63], [74], [109], [115].

[102] See above [438].

[103] Tyco Australia Pty Ltd v Optus Networks Pty Ltd [2004] NSWCA 333, [246] (citations omitted).

[104] Houghton v Immer (No 155) Pty Ltd [1997] NSWSC 608; (1997) 44 NSWLR 46, 58 (Handley JA, with whom Mason P and Beazley JA agreed), citing LJP Investments Pty Ltd v Howard Chia Investments Pty Ltd (No 3) (1990) 24 NSWLR 499, 508; Pitcher Partners Consulting Pty Ltd v Neville's Bus Service Pty Ltd [2019] FCAFC 119; (2019) 271 FCR 392, 417 [109], 419-20 [124] (Allsop CJ, Yates and O'Bryan JJ) and discussed in Berry v CCL Secure Pty Ltd [2020] HCA 27; (2020) 271 CLR 151, 172-4 [34] (Bell, Keane and Nettle JJ).

[105] Ashcroft (n 71) 1184 [101] (citations omitted).

[106] [1994] VicRp 16; [1994] 1 VR 237, 241 (citations omitted).

[107] Nilon v Bezzina [1988] 2 Qd R 420, 424 (McPherson J), quoted with approval in New South Wales v Moss [2000] NSWCA 133; (2000) 54 NSWLR 536, 553-4 [72] (Heydon JA).

[108] (2003) 77 ALJR 768, 774 [38] (citations omitted).

[109] As noted above, Mr Bond has subsequently provided services to Fred in connection with MedViewX.

[111] Blatch v Archer [1774] EngR 2; (1774) 1 Cowp 63, 65.

[112] See above [52].

[113] See above [322].

[114] Fred provided a calculation at a rate of 25% which came to $1,320,975. The 40% is based on that calculation.