Plaintiff v Defendant [2025] VSC 307 | Case summary

Plaintiff v Defendant [2025] VSC 307 | Case summary | Zoe

[98]

Strachan was not an impressive witness. Even allowing for the fact that giving evidence is often an unfamiliar and challenging experience, Strachan was very ill at ease in the witness box. Over many years practising law, I have not seen a witness who was slower to answer questions. MAM sought to argue that Strachan's approach to giving evidence was thoughtful and measured and the lengthy pauses bespoke a careful consideration of the question and a conscientious attempt to answer it. To me, he looked evasive and gave the appearance of someone who was calculating how best to answer in such a way that he reduced his potential exposure (and that of MAM) while still providing a sufficiently plausible answer to be credible.
There was a significant difference between the speed with which Strachan answered most questions and the speed with which he answered questions about the 2015 Transfer Deed. With the latter, there were no long silent pauses but a prompt rejection of the proposition that he was told about or received a copy of the 2015 Transfer Deed.
Apart from his frequent lengthy pauses, I found Strachan was evasive and unwilling to give direct answers to questions which were simple and dealt with matters which seemed uncontroversial.
First, he had a problem agreeing that MAM advertised in its information memorandum that he was the person responsible for the IFF even though that is precisely what the document said. Strachan denied he was the person responsible for the fund in 2017. He said he was not part of the trustee or a signatory to any documents. He ultimately said his work was managing the fund and there were four other people on the investment committee.
Next, he at first denied that his remuneration at MAM was dependent upon the performance of the IFF. However, he again conceded that he perceived the performance of the IFF was a contributory factor to the payment of his discretionary bonus.
Finally, it was put to Strachan that, in May 2018, he was still advising Di Pasquale and Cashtivity. This was based on an email dated 4 May 2018 which Di Pasquale sent to her advisory panel, including Strachan. Strachan said the email was addressed "Hi Team", so he was not sure that all recipients of the email were on the advisory panel. He said that he was not advising Di Pasquale at that time. But he agreed that after he resigned as a director of TCPL in July 2016, he continued to act in an advisory capacity to Cashtivity even though he had no formal role. Strachan said that he put together some financial models for the company but not the information in those models.
Strachan also only reluctantly agreed that, after resigning from TCPL, he continued to effect introductions for Cashtivity by making Cashtivity aware of potential investors and vice versa. This work was consistent with Strachan's prior professional experience in funds management and placement.
Strachan agreed that after receiving Di Pasquale's witness statement, he made another witness statement in response. Strachan said that he felt some things raised by Di Pasquale were worth clarifying.
First, Di Pasquale said that she had a meeting with Strachan around September 2015. Strachan said he made no response to that part of her witness statement because he could not recall such a meeting. He said that, although he and Di Pasquale caught up for coffee occasionally, he could not recall the meeting. He acknowledged that the meeting may have happened as Di Pasquale said.
Secondly, Di Pasquale said that she had a phone call with Strachan on 26 November 2015, the day after her meeting with an Innovation Manager at NAB. The NAB meeting followed discussions and dealings between Di Pasquale and the Cashtivity accountant Hislop, Alex Glovsky, an American lawyer recommended by Jean Hammond of LearnLaunch,[13] and Gary Twomey, an Australian R&D advisor who had prepared the Cashtivity RDTI applications for the 2013 to 2016 financial years. The topic under consideration by these people was the best structure to adopt for the corporate move to America and the potential consequences on the RDTI rebate. Di Pasquale was concerned that, although Glovsky and Hammond said that American investors would prefer to invest in an American company which owned the assets of the business, including the intellectual property, this might affect Cashtivity's ability to receive the RDTI rebate. However, Twomey satisfied Di Pasquale that the ownership of the intellectual property in America would not affect the RDTI application by Cashtivity.[14] What was important in the context of the RDTI rebate was that Cashtivity made the application, conducted the research and development on its own account and complied with the rules.
Di Pasquale did not expand on the detail of her discussions with NAB. However, I infer from the context that it concerned the Cashtivity business and the impending move to America. It was in this context that Di Pasquale said that she discussed with Strachan or told him about:
- the requirements of American investors;
- the incorporation of Cashtivity Inc;
- the change of research focus from financial literacy to applied mathematics;
- the adoption of the parent/subsidiary model; and
- the transfer of Cashtivity's intellectual property to the new American company.
In his second witness statement, Strachan referred to Di Pasquale's evidence on these matters and said that he was never:
- told of the 2015 Transfer Deed; or
- given a copy of the 2015 Transfer Deed.

[102]

This view is strengthened by other evidence which Di Pasquale gave and Strachan did not explicitly challenge. The failure to challenge is especially important in this case. The sequence of events was that Mitchell produced his initial witness statement on 20 October 2023 as did Strachan on 24 November 2023. The defendant produced her witness statement on 24 April 2024. Subsequently, Mitchell filed a second witness statement on 9 September 2024 and Strachan filed a supplementary witness statement on 7 June 2024. In that second statement, Strachan contested various aspects of Di Pasquale's evidence. Di Pasquale put the plaintiff on notice as to the case she was advancing and the detail of her evidence. This was clear from a statement which ran to 235 paragraphs, together with three schedules comprising another 41 pages.
First, Di Pasquale said that, in the conversation with Strachan on 26 November 2015, she told Strachan about the following matters: the status of the incorporation of Cashtivity Inc; the requirements of American investors; the need to change the software focus to mathematics education; the need to incorporate Cashtivity Inc in America and to adopt a parent/subsidiary model; and the consequential transfer of Cashtivity's intellectual property to Cashtivity Inc.
Secondly, Di Pasquale decided upon the parent/subsidiary model for a number of reasons, including:
- investors in America wanted the assets of the business to be located in that country. Government customers wanted the assets owned in America due to fears of foreign interference;
- in a parallel structure, it was impermissible to consolidate the accounting of the two entities. Losses in one entity could not be directly absorbed by the other entity; and
- if the American entity were to generate its own intellectual property as part of its operations, then a situation would develop where some intellectual property was owned in America and some was owned in Australia. That was unnecessarily complicated.

[104]

Thirdly, after getting Twomey's advice in October 2015 about the ownership of the intellectual property not being a disqualifying factor in the context of the RDTI rebate, Di Pasquale told Strachan about the new structure and its relevance to the rebate.
Fourthly, in a discussion with Strachan in early 2016, Di Pasquale told Strachan about the incorporation of Cashtivity Inc in November 2015 and the assignment of the intellectual property which followed in December 2015. She also told him that Cashtivity would continue to conduct eligible research and development and seek reimbursement of its expenditure through the RDTI rebate.
Apart from Strachan denying in his evidence that Di Pasquale told him of the 2015 Transfer Deed, MAM and Strachan did not challenge the other aspects of these four matters in the cross-examination of Di Pasquale.
I find that Di Pasquale told Strachan about the 2015 Transfer Deed around 2016. Di Pasquale said that in November 2015 she spoke to Strachan and told him about:
- the requirements of investors in America; and
- the need to change the software focus to mathematics education.
I accept that, on balance, this conversation occurred as did others in which Di Pasquale and Strachan discussed the mechanism of the corporate reorganisation.
While Di Pasquale said that she provided Strachan with a copy of the 2015 Transfer Deed, she gave no details of when or where this occurred. On this point, I am less confident in accepting her evidence.
However, I reject Strachan's claims that he had no knowledge of the intellectual property transfer before the parties entered the 2018 Facility Agreement. I say this for two reasons.
First, Strachan was a trusted adviser to Di Pasquale and acted as such for a number of years. His expertise and experience included funds placement. This was of crucial importance to Cashtivity because it needed investors to safeguard its future and to relieve the heavy financial burden on Di Pasquale. For this reason, it is likely, especially in the early days after Strachan became involved with Cashtivity, that he and Di Pasquale would have spoken and/or been in frequent contact. Di Pasquale's decision to reorganise the corporate structure and create a parent company in America was a significant decision with major consequences. The reorganisation was forced by a combination of the bleak prospects for the Cashtivity product in Australia, the potentially brighter future and deeper pool of venture capital and investors which America offered and the requirements of those American investors and advisors. Di Pasquale sought advice from a collection of people, including Strachan, about the shift to America and the consequences of such a change.
In discussing the reorganisation and the move to establish a company in America, it is virtually inevitable that Di Pasquale explained the competing models and the consequences which flowed from adopting the parent/subsidiary structure or the parallel structure. One would expect that in providing information to Strachan as an advisor to Cashtivity, Di Pasquale would explain the situation fully, including the factors which influenced her and the consequences of the move to America. The latter were important because of their ongoing future effect. One such consequence was the transfer of the intellectual property from Cashtivity to Cashtivity Inc.
Second, Strachan acknowledged that he was aware in 2016 that:
- Cashtivity was to expand to America;
- this expansion involved the incorporation of a company in America; and
- the new company would become the parent of Cashtivity.

[299]

silence is to be included as a relevant factor in assessing conduct just like any other factor;[54]
there is no such concept as mere silence because the significance of silence always depends upon the context in which it occurs;[55]
the context might include facts which give rise to a reasonable expectation that, in the circumstances, if particular matters existed, they would be disclosed;[56]
if such an expectation arises, then the failure to disclose a fact could give rise to an inference that the fact does not exist;[57]
unless the circumstances give rise to a reasonable expectation that if a relevant fact existed it would be disclosed, it is hard to see how mere silence could support the inference that the fact does not exist;[58]
in examining the context, the Court can consider factors such as the knowledge of the person to whom the conduct is directed, the existence of common assumptions and practices established between the parties or prevailing in the profession, trade or industry in which they do business, how commercially sophisticated the parties are, their level of experience in the field, their shared knowledge and assumptions engendered by a course of dealing or commercial practice;[59]
a failure to make enquiries can be a relevant consideration in assessing conduct although it will not automatically defeat a plaintiff's claim;[60]
generally, s 18 of the ACL does not require a party to commercial negotiations to volunteer information which will be of assistance to the decision making of the other party. It does not impose on a party an obligation to volunteer information in order to avoid the consequences of the careless disregard for its own interests of another party of equal bargaining power and competence;[61] and
reasonable expectation is irrelevant when the undisclosed fact is the falsity of a representation made. Thus, a party who makes a false representation in pre-contractual negotiations and fails to reveal the truth will, in all likelihood, be found to contravene the ACL.[62] A similar outcome is likely when a party makes a representation which was true at the time it was made but then fails to advise the other party when, due to changed circumstances, it becomes untrue. Again the same result is likely if, either originally or due to new developments, an unqualified representation is only partially true. A statement which is literally true can be misleading where it is incomplete in a material respect or subject to an unexpressed qualification.[63]

[305]

On 1 December 2016, Strachan provided Di Pasquale with draft facility documents being a facility agreement, a general security deed and a bank account control deed. The last mentioned document was designed to secure the bank account into which the RDTI rebate would be paid.
On the following day, Strachan asked Di Pasquale for further information and documents. Although the information sought was detailed, no part of it involved a reference to the scope or substance of Cashtivity's intellectual property or its value.
On 5 December 2016, Strachan wrote to MAM's investment committee and attached a screen document regarding the proposed loan to Cashtivity. Neither Strachan's screening document nor his email made reference to any aspect of Cashtivity's intellectual property. Similarly, no member of the investment committee responded to the documents by making any query or comment about Cashtivity's intellectual property.
On 6 December 2016, MAM's investment committee met. Later the same day, Strachan emailed Di Pasquale to tell her that the committee had met and discussed her loan. He advised that the discussion centred around the security of the loan and the use of the company accountant's bank account to receive the RDTI rebate. Strachan said that for MAM, the security of the loan was more important than the interest rate charged. Strachan asked Di Pasquale to effect an introduction for him to Cashtivity's contact at its accountants, Chambers & Partners.
On 7 December 2016, Strachan met with Hislop of Chambers & Partners. It was decided that they would set up a bank account to which MAM and Di Pasquale were joint signatories and into which the RDTI rebate payment would be made.
On 14 December 2016, Strachan presented Di Pasquale with the final loan documentation. Included in the documents was a further due diligence document headed "Borrower information to be provided". The document provided a checklist of information and documents which MAM required on the topics of corporate information and research and development information. Included in the list of requirements were:
- correspondence with the ATO or AusIndustry about Cashtivity's eligibility for the RDTI rebate including evidence that Cashtivity was an eligible business for the rebate within the meaning of the tax legislation;
- a letter from Cashtivity's RDTI agent providing an opinion as to the appropriateness of Cashtivity's current year RDTI claim; and
- evidence of earlier RDTI applications made by Cashtivity.
As will appear later, Strachan confirmed that MAM received all the information and documentation which it required in deciding whether to make the 2016 loan to Cashtivity. On that basis, I infer that MAM was satisfied from the evidence provided that Cashtivity was an eligible business within the meaning of the RDTI legislation. I similarly infer that:
- Cashtivity's RDTI agent provided a positive opinion regarding the appropriateness of Cashtivity's current year RDTI claim; and
- MAM received copies of the RDTI applications made in respect of earlier years.
On 16 December 2016, Strachan wrote to Di Pasquale asking her to arrange the removal of an existing PPSR registration granted by Cashtivity to a third party.
On 21 December 2016, Di Pasquale wrote to Strachan attaching further documents and information sought by MAM.
Also on 21 December, Strachan sought additional material from Di Pasquale and she responded the same day.
On about 22 December 2016, Strachan prepared an approval document for consideration by the investment committee.
On 23 December 2016, Cashtivity and MAM entered into a facility agreement ("the 2016 Facility Agreement") and general security deed. MAM's current formulation of its case stresses the importance of the general security deed for a couple of reasons. First, it gives security over the payment of the RDTI rebate. Secondly, it enables MAM "to put a foot" on the assets of the borrower. In other words, it enables MAM to leverage its control over whatever assets fall within the scope of the general security deed. Thus, a borrower cannot, in practical terms, use or deal with its assets, including the research and development work in respect of which it sought the RDTI rebate, unless it repays the debt owed to MAM. Again, this attitude reflects MAM's approach of focusing on the RDTI rebate and its control of the borrower's assets, rather than being concerned about the detail of the security. It assumed that the borrower would want to continue with the research and development work which it was undertaking and would pay MAM whatever was owed to retain that access and control over its work.
Additionally, Schedule 1 of the general security deed made express reference to "Intellectual Property". Typed in this section of the document were the words "Not applicable". Di Pasquale sought to argue that this reflected MAM's lack of interest in Cashtivity's intellectual property. While I accept the submission that MAM showed no interest in the substance or value of Cashtivity's intellectual property, Di Pasquale's contention on this point is incorrect. Taken in context, where the document provided space to include specific reference to designs, patents, plant breeders rights and trademarks, the words "Not applicable" should not be read as meaning any more than that none of these categories was applicable to the intellectual property in question.
The essential conclusion to be drawn from MAM's due diligence process in relation to the 2016 loan was that, notwithstanding the demanding process whereby MAM sought extensive information and documents, neither Strachan nor any member of the investment committee sought information about the substance or value of Cashtivity's intellectual property. There was no evidence that Cashtivity's intellectual property was a matter of relevance or concern to MAM in relation to the granting of the loan.

[306]

On 18 December 2017, Di Pasquale wrote to Strachan asking whether MAM would make another loan to Cashtivity for the 2018 financial year.
On 10 and 11 January 2018, Strachan provided the MAM investment committee with information about the proposed loan.
On 11 January 2018, Di Pasquale provided Strachan with Cashtivity's latest information pack. On 12 January 2018, Strachan wrote to Di Pasquale indicating the investment committee's preliminary approval of the loan but noted that further information was required and that certain conditions precedent would need to be satisfied. None of the information requests nor conditions precedent related to Cashtivity's intellectual property. Di Pasquale promptly provided the documents and information sought including a letter from the company's accountants confirming Cashtivity's prior successful RDTI applications.
On 29 January 2018, Strachan wrote to Di Pasquale requesting further financial information and evidence of Cashtivity's compliance with its taxation obligations.
On 2 February 2018, Strachan provided the investment committee with an approval document for the loan.
On 6 February 2018, Strachan wrote to Di Pasquale informing her of additional conditions precedent required by the MAM investment committee. This included the monthly provision of certain information and an executed contract by which PwC became Cashtivity's RDTI agent.
On 15 February 2018, Di Pasquale executed on behalf of Cashtivity the 2018 Facility Agreement with MAM and the associated general security deed. Even after the execution of these documents, MAM sought further documents and information from Di Pasquale.
As with the 2016 loan, none of the information sought or documents MAM requested from Cashtivity related to the content or value of Cashtivity's intellectual property. Similarly, Strachan agreed that everything which he or the management committee sought from Cashtivity was provided. He said that he had requested everything he considered material to the proposed loan and that the investment committee had been satisfied with the material provided to it. There was no evidence that the content or value of Cashtivity's intellectual property had any relevance to MAM's consideration of the grant or otherwise of the loan in 2018.
In short, on the evidence before me, I find that during the period of negotiation and due diligence leading up to the entry by MAM into the 2016 Facility Agreement and the 2018 Facility Agreement:
- MAM did not raise with Cashtivity any issue about the existence, content or value of Cashtivity's intellectual property;
- MAM obtained from Cashtivity all the documents and information which it sought and considered necessary in deciding whether to enter the 2018 Facility Agreement with Cashtivity;
- when deliberating internally about whether to enter the 2018 Facility Agreement with Cashtivity, no one at MAM, including the members of the investment committee, gave any consideration to the existence, content or value of Cashtivity's intellectual property; and
- the conduct of MAM indicated that, although it was a sophisticated lender in a specialised market, it was not interested to enquire about the existence, content or value of Cashtivity's intellectual property or the existence, content or value of any other property which might fall inside the scope of the general security deed. In making the latter observation, I accept that MAM ascertained that Di Pasquale owned no real property. However, there was no evidence of any enquiries made about property or assets owned, for example, by a spouse, relatives or a trust in which she had an interest.

Plaintiff v Defendant

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Judgment (416 paragraphs)

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Cases Cited (20)

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