Plaintiff v Defendants

1 Sleeping Duck Pty Ltd ('Sleeping Duck') was founded in 2014 by Selvam Sinnappan and Winston Wijeyeratne ('the Founders'). The Founders are university graduates who have been friends for a number of years. Mr Sinnappan graduated in 2009 with degrees in commerce and engineering. Mr Wijeyeratne undertook a double degree in aerospace engineering and commerce between 2006 and 2010. The Founders combined at Sleeping Duck to apply their qualifications in engineering and commerce to mattress design and manufacture. Mr Wijeyeratne adopted primary responsibility for product and Mr Sinnappan filled the role of CEO.

1. After a somewhat rocky start, including a failed expansion into the United Kingdom, in more recent times the Sleeping Duck business has been very successful. In December 2018, the Sleeping Duck mattress was announced as Choice's top-rated mattress. Sleeping Duck took out the same award in 2019 and 2020. The Sleeping Duck product offering has since expanded to include beds.
2. By March 2020 when the first COVID-19 lockdown began in Victoria, Sleeping Duck was a successful business, manufacturing and selling mattresses online. During the period of COVID‑19 restrictions, the business enjoyed rapid growth.
3. The Founders are the sole directors of Sleeping Duck. The second defendant, Energon Shield Pty Ltd, a company associated with Mr Wijeyeratne, and the third defendant S2 Ulysses Pty Ltd, a company associated with Mr Sinnappan, held 50% of the shares in Sleeping Duck from its incorporation ('the Companies'). Through the Companies, each of the Founders currently hold 42.5% of the issued shares in Sleeping Duck.
4. The plaintiff, BBHF Pty Ltd ('BBHF'), is a company associated with Dr Adir Shiffman. Dr Shiffman first came in contact with the Founders in late 2017. Dr Shiffman is a qualified medical doctor. He completed his degree in medicine in 1999. He has not practised medicine since mid-2001. Dr Shiffman describes himself as a 'serial entrepreneur' and an active investor with a track record of investing in start-up businesses and helping them grow. In 2017, after conducting research into online mattress businesses, Dr Shiffman sought out the Founders.
5. BBHF's case is that while by 2017 the Founders had developed a good product, Sleeping Duck was struggling to gain market traction and to grow revenue. It was unable to generate $5m in revenue. It had gone through a dozen marketing agencies with no success. Staff had been retrenched. The Founders were trying to raise finance but could not interest investors. BBHF alleges the Founders had relatively little experience in running a business. They were looking not only for investors, they were looking for a mentor to guide them and the business. Enter Dr Shiffman. BBHF alleges from the outset, Dr Shiffman was clear he was 'never a passive investor, not my style'.
6. BBFH does not contend Dr Shiffman was to ever be given ultimate control. It does not submit that Dr Shiffman was an equal partner whether in terms of equity promised or the extent of management influence and control.
7. BBHF alleges a common understanding between the Founders and Dr Shiffman, reached on 1 February 2018, affirmed in June/July 2019, that Dr Shiffman would have active involvement in management. It alleges by reason of the Understanding on shareholders agreement reached in July 2020, that Dr Shiffman held a legitimate expectation that any shareholder agreement ('SHA') entered into by Sleeping Duck would provide BBHF with the right to appoint a director to the board and that director would have an effective veto on any resolution concerning the business of Sleeping Duck.
8. It is common ground that in early 2018 Dr Shiffman reached an agreement with the Founders that in return for 10 months work he would receive 5% of the Founders' shares in Sleeping Duck, shares held via the Companies, together with an option to acquire a further 5%. In June 2020, the Companies agreed to grant additional options over certain of their shares to BBHF, beyond the initial 5% with 5% options. That agreement was later documented in a call option deed between BBHF, the Companies and Sleeping Duck dated 14 April 2021 ('Call Option Deed').
9. From July 2019 until the end of September 2021, a company nominated by Dr Shiffman, Alia Group Pty Ltd, was paid $10,000 per month for his services.
10. There were other agreements or understandings between Dr Shiffman and the Founders concerning his involvement with Sleeping Duck. Some of those agreements or understandings and their terms are contentious.
11. BBHF currently holds 9.4% of the shares in Sleeping Duck. In addition, pursuant to clause 2.1 of the Call Option Deed, BBHF holds options to acquire a further 10,000 shares from the Companies.
12. Opening its case, BBHF submitted Dr Shiffman helped turn a struggling business into a successful one and that he did so via an active involvement in its management. Sleeping Duck grew from a loss-making 'amateurish' outfit to become profitable. After Dr Shiffman became involved, the business became successful with revenue close to $50m, valued at $462m and paying more than $20m in dividends between July 2020 and September 2021, all in a little under three years. Between June 2020 and October 2021 BBHF received approximately $2,143,311 in dividends.
13. BBHF alleges that despite Dr Shiffman's role at Sleeping Duck and his contribution to the turnaround of its fortunes, from October 2020, the Founders began to exclude him from management. BBHF alleges that from about that time, Sleeping Duck's success began to wane.
14. At a meeting in May 2021 with the Founders ('5 May 2021 meeting'), Dr Shiffman put forward three alternatives for the future. The first alternative was agreed, although what that alternative entailed was very much in issue at the trial.
15. BBHF alleges that at the 5 May 2021 meeting Dr Shiffman told the Founders they had shut him out of the decision-making process at Sleeping Duck, and their recent initiatives, implemented without his input, had put the business on a course of decline. It alleges the Founders agreed they would take steps to enable BBHF to sell down at least part of its stake and Dr Shiffman would 'go passive' (defined by BBHF as 'the Exit Agreement'). While the Exit Agreement involved Dr Shiffman 'going passive', BBHF alleges that was only to occur if there was a 'transaction', a substantial sell-down of equity.
16. Between late 2020 and late 2021 there were various proposals from third parties for the purchase of shares in Sleeping Duck. The proposals received in the early part of that time period implied a market value of Sleeping Duck at between $325m and $400m.
17. BBHF alleges Dr Shiffman worked with others to secure a 'transaction'. However, none of the transactions presented were taken up by the Founders. That is so even though Dr Shiffman considered at least some of the proposals favourable, in particular, and a CPE Capital Offer in October 2021, the rejection of which by the Founders BBHF contends to have been unreasonable.
18. None of BBHF's shares or options have been sold down. BBHF alleges that from October 2021 the Founders insisted Dr Shiffman take a passive role without allowing him to sell down any of BBHF's shares or options and that the Founders and the Companies have refused to buy out BBHF's interest.
19. The relationship between Dr Shiffman and the Founders has deteriorated. While the timing of the deterioration in the relationship is difficult to pinpoint, on 19 November 2021, Dr Shiffman initiated this proceeding through BBHF, against Sleeping Duck, the Companies and the fourth defendant, Prateek Bandopadhayay.
20. Of critical importance to BBHF's oppression case is the allegation that the Founders diluted BBHF's shares by issuing new shares to Mr Bandopadhayay pursuant to an employee share option plan ('ESOP') dated 30 June 2020. BBHF alleges matters came to a head in May 2021. While the Companies agreed to grant options to BBHF over their shares, the ESOP provided for the issue of shares by Sleeping Duck. By May 2021, BBHF's shareholding had been reduced from 10% to 9.09% as a result of the exercise by Mr Bandopadhayay of 3,000 of his options under the ESOP.
21. Like Dr Shiffman, Mr Bandopadhayay trained and worked as a medical doctor. In 2003 he completed his initial degree, a combined Bachelor of Medicine/Bachelor of Surgery and Bachelor of Laws. Later he completed a Master of Laws and a Fellowship of the Royal Australian College of General Practitioners. Mr Bandopadhayay maintains his medical registration by 'working alongside other medical practitioners, and assisting surgical colleagues'.[1]
22. Mr Bandopadhayay has been a hobbyist writer since his high school years and from around 2009 worked as a screenwriter and trainee director, including on the latest 'Mad Max' movie. From early 2019 Mr Bandopadhayay took on a substantive role at Sleeping Duck, a role he variously described as head of narrative, head of creative and head of marketing. He provides his services through a company, PTB Services Pty Ltd. Since 1 July 2022 Mr Bandopadhayay has provided his services in return for remuneration of $1.2m per year.
23. Mr Bandopadhayay holds 5.6% of the issued shares in Sleeping Duck. He acquired 6,000 shares in total pursuant to the 30 June 2020 ESOP. When Mr Bandopadhayay exercised his options, 3,000 in April 2021 and 3,000 in September 2021, funding to enable him to do so was provided via entities controlled by the Founders and their families in the form of long term interest free loans. $1.35m was lent in April 2021 and $1.35m was lent in September 2021. Mr Bandopadhayay also received dividends. In April 2021 he received dividends of $436,892.20 and on 9 September 2021 he received dividends of $360,000. Mr Bandopadhayay holds a further 4,000 options which vested under the ESOP on 30 June 2022. He has not exercised those options.
24. The exercise of options given to Mr Bandopadhayay pursuant to the ESOP has the effect of diluting BBHF's interest in Sleeping Duck. BBHF allege the ESOP was entered into without Dr Shiffman's knowledge and that its terms were commercially unreasonable. BBHF alleges the Founders acted in concert with Mr Bandopadhayay in April and September 2021 to enable him to exercise the options, making him a shareholder unbeknownst to Dr Shiffman and that the Founders did so for the purposes of prejudicing BBHF's rights and entitlements under the Call Option Deed.
25. BBHF alleges the timing of arrangements in favour of Mr Bandopadhayay was significant because while the Call Option Deed imposes a duty of good faith in relation to a SHA, Mr Bandopadhayay, who is a shareholder, is not a party to the Call Option Deed. Dr Shiffman understood that shareholder agreement would be a condition to exercise of the options granted in BBHF's favour by the Companies, but what was kept secret from him was that there was a third shareholder, Mr Bandopadhayay. He did not know that Mr Bandopadhayay's agreement would also be required in order for BBHF to be able to exercise its options.
26. Mr Bandopadhayay was separately represented throughout the trial. In closing submissions it became clear BBHF no longer seeks any relief against him.
27. Through BBHF, Dr Shiffman contends he has been shut out from active participation in the business. No SHA has been agreed. BBHF alleges the draft SHA provided in December 2021, if signed, would mean it would not have an entitlement to appoint a director and Dr Shiffman would be excluded from playing any role in the management or strategic direction of Sleeping Duck, BBHF would have its rights under the Call Option Deed extinguished. BBHF alleges the Companies refused to mediate to resolve the dispute concerning the SHA and that it has been locked in as a minority shareholder.
28. In its capacity as a minority shareholder BBHF alleges the conduct of the affairs of Sleeping Duck has been oppressive, unfairly prejudicial and/or unfairly discriminatory to it within the meaning of s 232 of the Corporations Act 2001 (Cth) ('the Act').
29. The allegedly oppressive conduct is pleaded at paragraph 75 of the 18 February 2022 statement of claim. The matters complained of are cross-referenced to other paragraphs in the pleading. Inserting dates and brief descriptions in lieu of those cross-references, the conduct relied on by BBHF in support of its oppression claim is pleaded as follows:
    1. Entering into the ESOP and/or granting the Bandopadhayay Options on uncommercial terms [on 29 June 2020 the value of an ordinary share was substantially more than $450. The options were granted to an independent consultant to subscribe for 10% of the issued capital which was itself uncommercial and unreasonable. The retrospective vesting of shareholdings was contrary to the terms of other share plans Sleeping Duck had entered into with other employees]; and/or
    2. Acting in concert with the Founders and Bandopadhayay to the detriment of BBHF in respect to the exercise of the Bandopadhayay Options and entry into the Call Option Deed [dated 14 April 2021 at around the same date [on around 14 April 2021, the Founders provided a loan of $1.35 million for the purposes of Mr Bandopadhayay exercising 3000 options, and Sleeping Duck paid a dividend to shareholders including in respect of the 3000 shares of $145.63 for each share at the same time the options were being exercised]; and/or
    3. Excluding Dr Shiffman from his role in the management of the Company contrary to the terms of the Second Understanding on Participation [reached on or around 19 June 2019], alternatively the Understanding on Sell Down [arrived at in around early 2020] and/or
    4. Breaching the terms of the Exit Agreement [made in or around late May 2021]; and/or
    5. Acting in concert with the Founders and Bandopadhayay to the detriment of BBHF in respect to the exercise of the Bandopadhayay Options [in September 2021, the Founders provided a loan of $1.35 million for the purposes of Mr Bandopadhayay exercising 3000 options, and Sleeping Duck paid a dividend to shareholders including in respect of the 3000 shares of $60 for each share at the same time the options were being exercised]; and/or
    6. Refusing to participate in a mediation to negotiate the dispute concerning the draft Shareholders Agreement [dated 2 December 2021]; and/or
    7. Breaching the terms of the Call Option Deed [dated 14 April 2021] in respect to the Shareholders Agreement [by failing to act in good faith when negotiating the terms of the Shareholders Agreement first provided by the company in draft on 2 December 2021 in purported compliance with the Call Option Deed].
30. In its opening, BBHF grouped the seven pleaded matters under three topic headings:

(a) the exclusion of Dr Shiffman from involvement in management;

(b) the issue of options and shares to Mr Bandopadhayay;

(c) breaches of the Call Option Deed.

1. In light of the way issues developed at trial, to these topics may be added a fourth, the alleged breaches of the May 2021 Exit Agreement, pleaded at paragraph 75(d) of the statement of claim.
2. In the course of the trial and in closing submissions, additional issues were raised and contended for by BBHF some of which do not form part of the pleaded case. At no time was there an application by any party to amend the pleadings. The disputed issues and whether or not there has been oppression are to be determined on the pleadings.
3. Concerning the first of the three key topics grouped together by BBHF, while not alleged to be a director, the first topic of concern is Dr Shiffman's exclusion from 'involvement in management'. BBHF submits Dr Shiffman's contribution to management and to Sleeping Duck was valuable. Contemporaneous documents evidence his involvement in the business across a range of spheres - commercial strategy work, introducing financial controls and performance management, recruitment of new staff to key management roles, the introduction of commercial partners, sale and website performance analysis, organising and attending de facto board meetings (referred to as board meetings). It submitted Dr Shiffman's value to the business went beyond those specific tasks. The Founders went looking for someone like Dr Shiffman to join them because they recognised they lacked extensive experience. They benefitted from Dr Shiffman's guidance and work, and from leveraging his brand and reputation to give the business a mark of professionalism.
4. Although referred to in external investor presentations from late 2020 through to late 2021 as the 'Chairman', Dr Shiffman is not and never has been a director of Sleeping Duck. At times it suited both the Founders and Dr Shiffman to portray him as 'the Chairman' or non-executive Chairman to potential investors.
5. However Dr Shiffman might have been portrayed, including as one of the Sleeping Duck 'core team', it would not take a potential investor more than a few minutes and a company search to appreciate that Dr Shiffman was not, and had never been, a director.
6. In a 2017 post on his LinkedIn account Dr Shiffman described a reference to him acting as 'chair' of another company not as a reference to acting as a chair of a board of directors in a formal or traditional sense. Instead, 'chair' was a reference to him associating his name with a start-up, setting the overall strategy of the business in a holistic and sophisticated way, and being involved at an operational level, for example, identifying unit economics and margins for scaling and profitability.
7. BBHF alleges despite the success of the business, from late 2020 the Founders began to exclude Dr Shiffman from management. At the same time as they were excluding Dr Shiffman the Founders were not allowing him to realise his investment. BBHF submits that following Dr Shiffman's exclusion and the frustration of his ability to realise the value of that investment the performance and value of business declined markedly.
8. Concerning the second topic as grouped together by BBHF, three of the seven matters pleaded in paragraph 75 concern the options granted in favour of Mr Bandopadhayay.
9. BBHF submits Dr Shiffman's value to the business was recognised by the Founders who made agreements that led to the issue of shares and option rights to a 20% equity or to 20,000 shares in Sleeping Duck from the Companies in favour of BBHF. Some of the work Dr Shiffman did from late 2018 to mid-2019 was on trust that the Founders would 'do the right thing' and look after him. Dr Shiffman's performance of that work without an agreed basis for remuneration until late June/early July 2019 is relied on by BBHF as confirmation that Dr Shiffman was effectively acting as a minority partner, prepared to do what was needed on trust.
10. BBHF submits Dr Shiffman was materially prejudiced by what it alleges was the secret arrangement for Mr Bandopadhayay to acquire shares. The documentary evidence shows the substance and commercial reality of the arrangement was that funds from Sleeping Duck were used to assist Mr Bandopadhayay to acquire shares. There were a series of loan agreements and what was described by Mr Curry, the Sleeping Duck CFO, as a 'merry go round' of funds. Although no contravention of s 260A of the Act was pleaded, BBHF submits what occurred involved Sleeping Duck's funds being deployed to assist Mr Bandopadhayay to acquire shares.
11. Concerning the third topic as grouped together by BBHF**,** it alleges the Companies controlled by the Founders failed to act in good faith when negotiating the terms of the SHA and, because of that, breached the terms of the 14 April 2021 Call Option Deed. Clause 2.12(b) of the Call Option Deed provided that if a 'Partial Sell Down' or a 'Qualifying Exit Event' had not occurred by 31 July 2021, and none had occurred, the parties would negotiate a SHA in good faith which addressed among other things, customary transfer restrictions, pre‑emptive rights provisions, and drag and tag provisions.
12. Concerning the fourth topic, the 5 May 2021 meeting, the critical issues that separate the parties are:

(a) what was to occur regarding Dr Shiffman's involvement in management if there was no sell-down of BBHF's shares; and

(b) was it part of the Exit Agreement that the Founders and Sleeping Duck would provide reasonable assistance to BBHF to allow it to sell down its shares and options and not interfere with or frustrate any sell-down of BBHF's shares or options as BBHF alleges occurred.

1. It is common ground that from its value highpoint in late 2020/early 2021 the value of Sleeping Duck has declined significantly. The causes of that decline are not common ground. BBHF alleges under, and as a result of the Founders' poor management, the performance and value of Sleeping Duck plummeted.
2. The expert accounting witnesses agree that as at 30 June 2023 the value of Sleeping Duck had fallen to $43.6m (including $20m in cash) from a level of value of $121m - $196m, depending on whose expert opinion is preferred as at October 2021.
3. BBHF submits:

From his position of forced passivity, Dr Shiffman has been unable to stop the Founders making a series of bad decisions, such as dismissing key executives and managers and leaving their roles vacant, launching an overseas expansion without a budget and almost no planning; and increasing Mr Bandopadhayay's retainer five-fold, such that he is paid more than a million dollars a year.

(a) orders restoring BBHF to its position before Sleeping Duck entered the ESOP and the grant, and subsequent exercise, of options to Mr Bandopadhayay - specifically, orders that:

(i) Sleeping Duck issue, alternatively the Companies transfer to BBHF such number of shares in Sleeping Duck as necessary to make BBHF the holder of 10% of all the issued shares in Sleeping Duck; and

(ii) Sleeping Duck issue to BBHF sufficient such number of options to acquire shares in Sleeping Duck as necessary to make BBHF the holder of options to acquire a further 10% of all the issued shares in Sleeping Duck; and

(b) Sleeping Duck, alternatively the Companies purchase all BBHF's shares and options in Sleeping Duck (including those issued or transferred under (a) above) at their 'fair value' as at October 2021, alternatively 19 November 2021, or such other date as the Court considers just.

1. BBHF submits that as relief from oppression is compensatory and seeks to put the oppressed plaintiff in position as if there had been no oppression, it is appropriate to value BBHF's undiluted 20% interest at the time Dr Shiffman was prevented from realising it, 8 October 2021.
2. BBHF submits that to value its interest at 30 June 2023 would have the effect of 'visiting the cost of the oppression on the oppressed...Dr Shiffman would be left to bear the costs of the decline in value, which he was made powerless to prevent, by reason of the very oppressive conduct itself', including by his being prevented from realising the value of his investment in 2021.[2]
3. The Companies deny the allegations of oppression. They deny each of the allegations in paragraph 75 of the statement of claim. They contend the proceeding should be dismissed.
4. The Companies contend BBHF's claims of oppression confront three fundamental problems. First, the understandings alleged by BBHF are not consistent with the contemporaneous documentary evidence or the commercial probabilities. Secondly, Dr Shiffman typically demanded ongoing payment in return for carrying out work. There was not an understanding that he was to perform work on an open-ended basis. Thirdly, and in any case, Dr Shiffman's work did not amount to involvement in management. Dr Shiffman eschewed becoming a director of Sleeping Duck. His role was more limited. The Founders were the decision-makers.
5. The Companies deny the existence of the 'common understandings' which Dr Shiffman asserts gave rise to a legitimate expectation on his part to be involved in the management of Sleeping Duck. They dispute the nature and extent of the work Dr Shiffman performed. They allege the claims made by BBHF arise as part of Dr Shiffman's repeated attempts to renegotiate the terms of his involvement and obtain a larger (and yet larger again) equity interest in Sleeping Duck.
6. In BBHF's closing submissions the following conduct was relied on as oppressive:

(a) The grant of options to Mr Bandopadhayay under ESOP (June 2020);

(b) The provision of financial assistance to Mr Bandopadhayay to exercise his options and the prejudicial effect on BBHF (April 2021);

(c) Exclusion of Dr Shiffman from active involvement in Sleeping Duck's business from around late 2020 and the prejudicial effect on BBHF;

(d) Preventing BBHF from realising the value of its investment (from 2020 to date);

(e) Preventing BBHF's ability to exercise its options in Sleeping Duck; and

(f) The Founders' failure to discuss Dr Shiffman's buy-out proposal as recently as late 2023.

1. The conduct relied on by BBHF in support of the allegations in paragraph 75 of the statement of claim spans a number of years. The evidence relied on commences with events in late 2017 - early 2018. It continues through to the institution of the proceeding on 19 November 2021 and conduct after that, up to and including 2023. A number of the pleaded grounds relied on are interrelated. Some span across extended periods. I determined the appropriate manner in which to proceed was as far as practicable, to do so chronologically. I did so noting the importance of context when assessing whether particular conduct is commercially unfair, appreciating that expectations, once formed are not immutable, that mismanagement or poor management does not, of itself, constitute oppressive conduct, and that when assessing commercial unfairness, it is appropriate to consider the conduct of the alleged oppressor, as well as the conduct of the person alleging oppression.
2. I accept that because some of the issues on the pleadings overlap chronologically, to approach the contested issues in this way is a little cumbersome, on occasions bordering on repetitive. However, I consider to approach the issues and the evidence chronologically is the only practical way of doing justice to the cases advanced by the parties.
3. Section E of my reasons proceeds generally in a chronological manner, but by reference to the list of issues filed by the parties prior to trial, reproduced in section C. When introducing discussion of each of the issues, I have sought to anchor the issues in the pleadings and to identify the disputed matters by reference to the pleadings.
4. Having regard to my factual findings concerning contested events and issues, for the reasons discussed in section E and briefly stated in section F, I have found that none of the pleaded acts of oppression relied on by BBHF has been made out. For that reason, the oppression claim in the proceeding is dismissed.
5. In those circumstances, it is unnecessary for me to determine the date at which the value of BBHF's shares should be valued for the purpose of a buy-out order. BBHF has no entitlement to a buy-out order. While unnecessary to determine the buy-out date, in case the matter should go on appeal and in case it becomes necessary to determine the buy-out date, I have made findings in relation to those aspects of the expert evidence where there was disagreement between the experts.
6. In addition to its oppression claims, BBHF separately alleges breaches of the 14 April 2021 Call Option Deed. For the reasons discussed in section E12.4, the separate allegation of breach of the April 2021 Call Option Deed is not made out. That aspect of BBHF's claim is also dismissed.

B. Oppression: the legislation and the principles

1. Section 232 of the Act sets out the circumstances in which the Court has jurisdiction to grant relief pursuant to s 233, including if:

(a) the conduct of a company's affairs; or

(b) ....

(d) ...

(e) oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members whether in that capacity or in any other capacity.

1. Section 233(1) sets out the orders the Court may make, including:

The Court can make any order under this section that it considers appropriate in relation to the company, including an order:

(a) ....

(d) for the purchase of any shares by any member or person to whom a share in the company has been transmitted by will or by operation of law;

(e) for the purchase of shares with an appropriate reduction of the company's share capital;

1. In Campbell v Backoffice Investments Pty Ltd,[3] French CJ warned:[4]

ss 232 and 233 are to be read broadly. The imposition of judge-made limitation on their scope is to be approached with caution.

1. Accepting the sections are to be read broadly, in Skytraders Pty Ltd,[5] Button J set out the principles to be applied to determine whether conduct falls within s 232 of the Act, including reproducing the discussion of the concept of 'fairness' by Robson J in Re SRW Nominees.[6] A number of the matters to which her Honour and to which Robson J referred in Re SRW Nominees are important to note. They are relevant to the disputed issues in this case and I have had regard to them when determining those issues.
2. First, the expression 'oppressive to, unfairly prejudicial to, or unfairly discriminatory against' in s 232(e) of the Act is a compound expression, concerned with commercial unfairness.[7] As is the manner in which BBHF has framed its case, a plaintiff may make its case by reference both to individual items of conduct and by reference to the cumulative effect of that conduct.[8]
3. Second, the test under s 232(e) is objective. It 'focuses on the impact of the conduct on the victim. There is no mental element required on the part of the fiduciary'.[9] It is not necessary for a plaintiff to demonstrate a lack of probity, want of good faith, or breach of contract.[10] The offending party's motive is irrelevant.[11] It is the effect of the relevant acts that is material.[12] The presence, or absence, of a reasonable commercial justification for actions or behaviour is relevant in assessing commercial fairness.[13]
4. Third, fairness is not to be assessed in a vacuum. It is to be assessed in the context in which the conduct occurred and in relation to what is known at the time of the conduct and not in relation to what subsequently transpires.[14]
5. Fourth, in assessing commercial unfairness, it is also appropriate to consider the behaviour of the person making the allegation of oppression.[15] The Court will balance competing interests rather than assessing the matter solely from one member's point of view.[16]
6. Fifth, conduct relied on need not have occurred during the time the person was a member to be oppressive.[17] Section 234(a) provides that a member, in this case BBHF, can bring an application for an order under s 233. As is relied on by BBHF, pre-membership conduct may be taken into account in determining whether there has been oppressive conduct.[18]
7. Sixth, oppression may arise as a result of the exclusion or removal of a person from management of the company where that person has a legitimate expectation of being involved in management.[19] In the majority of such cases, exclusion or removal has been from a 'salaried position' with the company, or a directorship. However, to be involved in 'management' does not require a person to be a director.[20]
8. As Black J explained in Re AJ Roberts Removals & Storage Pty Ltd,[21] involvement in 'management' of a company or its business involves 'an element of decision-making as to the company's direction, which distinguishes managerial tasks from those of non-managerial staff'.[22]
9. The parties did not identify any case of oppression where the services of a 'consultant' were no longer considered required by the company. Only in Foody v Horewood[23] does a finding of oppression by reason of 'exclusion from management' appear to have been made on the application of a non-officeholder.[24] However, just because no case directly comparable to the present has previously been decided does not mean the alleged conduct relied on by BBHF, if established, does not constitute oppressive conduct contrary to the Act.
10. Seventh, the exclusion or removal of a person from a 'management role' may constitute oppression where the exclusion or removal takes place otherwise than in accordance with 'agreed processes by which minority shareholders were to participate in management'[25] and/or:

where it is inconsistent with a common understanding between members outside the company's constitution which gave rise to a member's legitimate expectation of participating in management.[26]

1. Following the decision of the House of Lords in Ebrahimi v Westbourne Galleries Ltd,[27] it has been held that the failure to meet the 'legitimate expectations' of a member or shareholder of a company formed as a 'quasi-partnership' could amount to oppression. That is so in circumstances where the corporation was formed based upon such an understanding and where it would be inequitable to permit departure from the mutual understanding.
2. BBHF's statement of claim alleges four instances where by reason of different 'understandings' Dr Shiffman held 'legitimate expectations'.[28]
3. There is some controversy concerning the use of 'legitimate expectations' in the oppression context.[29] In Tomanovic v Global Mortgage Equity Corporation Pty Ltd,[30] Campbell JA said: [31]

Using the language of "legitimate expectations" might suggest, contrary to that proposition, that it is the subjective expectations of a party that are of importance for the oppression remedy. It should not be thought that by using the term I am doing any other than referring to the benefits or practices concerning the operation of a company that fail to materialise when there is conduct that meets the description in s 232(e) of the Corporations Act.

1. Earlier, in Mopeke Pty Ltd v Airport Fine Foods Pty Ltd,[32] Brereton J considered that an applicant under s 232 does not have to show a breach of promise or unlawful conduct by the company or its directors; the denial of a legitimate expectation arising from the parties' dealings may suffice.[33]
2. In Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd,[34] Spigelman CJ said 'it may be that the longevity of a particular mode of decision-making will, of itself, create something in the nature of an expectation, the frustration of which may constitute oppression or unfair prejudice'. In Fexuto,[35] Priestley JA explained the way in which legitimate expectations will be assessed:[36]

1, the court looks at the constitution of the company to see if it founds a legitimate expectation claimed by a plaintiff;

2, even if nothing in the constitution supports the claimed legitimate expectation, the court will, in appropriate cases, look to the understandings of the parties when they entered into the corporate quasi-partnership;

3, the court looks at the question by considering the impact on the oppressed, not on the intention of the alleged oppressor;

4, the mere fact that a company is a quasi-partnership is not enough to raise a legitimate expectation that each partner will be able to take part in management;

5, mere failure to agree between the majority and the minority is not usually of itself sufficient to demonstrate oppression;

6, a legitimate expectation may be lost if it is no longer practicable for the right to the expectation to continue.

1. Understandings and legitimate expectations may change over time:[37]

[E]xpectations, once formed, are not immutable. ... The most frequently cited statement of principle is the following statement of Austin J Tomanovic v Argyle HQ Pty Ltd:

[W]hile it is recognised that conduct may be oppressive if inconsistent with the "legitimate expectations" of shareholders, expectations are not immutable. The non-fulfilment of expectations will not establish oppression, if there has been some good reason for the extinguishment of the expectation

1. Eighth, dilutive share issues[38] or the payment of excessive remuneration[39] can be oppressive.
2. Ninth, noting BBHF's allegations that, as the result of the Founders' poor management the performance and value of Sleeping Duck has plummeted, the courts are cautious to conclude that business judgments amount to oppression.[40]

C. The trial, the pleadings and the list of issues

1. The oppression claim and BBHF's claim for damages for breaches of the Call Option Deed are to be determined on the pleadings. The statement of claim is dated 18 February 2022. BBHF provided further and better particulars by letters dated 18 February 2022 and 14 April 2022. The Companies' defence is dated 21 March 2022. The amended defence of Mr Bandopadhayay is dated 11 April 2022. The replies to those defences are dated 11 April 2022.
2. On 30 August 2023, the parties filed a joint list of issues pursuant to s 50 of the Civil Procedure Act 2010 (Vic) ('CPA'). While the list of issues does not displace the pleadings, it provides both a convenient check list and framework for the consideration and determination of the many disputes that separate the parties. The issues listed are discussed chronologically in section E.
3. The list of issues is in the following terms:[41]

Initial negotiations (October 2017 to January 2018)

1. During discussions and negotiations that took place between Dr Adir Shiffman (Dr Shiffman), Selvam Sinnappan (Mr Sinnappan) and Winston Wijeyeratne (Mr Wijeyeratne) between October 2017 and 1 February 2018, what was discussed about Dr Shiffman's investment, role and participation in the Company?

Alleged common understanding reached on or about 1 February 2018

2. Was there a common understanding of the kind referred to in:

(a) paragraphs 18 to 20 of the Statement of claim; or

(b) paragraph 18 of the Founders' defence?

3. If there was a common understanding of the kind referred to in paragraph 2(a) or 2(b) above:

(a) What were the terms of the common understanding?

(b) Having regard to the common understanding, did Dr Shiffman hold a legitimate expectation that he would participate in the management and strategic direction of Sleeping Duck Pty Ltd (Company)?

(c) What role did Dr Shiffman perform in the Company between 1 February 2018 and the end of June 2019?

Alleged common understanding reached in June or July 2019

4. Was there a common understanding of the kind referred to in:

(a) paragraphs 23 and 24 of the Statement of claim; or

(b) paragraph 23 of the Founders' defence?

5. If there was a common understanding of the kind referred to in paragraph 4(a) or 4(b) above:

(a) When was the common understanding reached?

(b) What were the terms of the common understanding?

(c) Having regard to the common understanding, did Dr Shiffman hold a legitimate expectation that he would participate in the management and strategic direction of the Company?

(d) What role did Dr Shiffman perform in the Company between June or July 2019 and April 2021?

Alleged understanding on selling down reached in early 2020

6. Was there a common understanding of the kind referred to in:

(a) paragraphs 27 and 28 of the Statement of claim; or

(b) paragraph 27 of the Founders' defence?

7. If there was a common understanding of the kind referred to in paragraph 6(a) or 6(b) above:

(a) What were the terms of the common understanding?

(b) Having regard to the common understanding and the terms of the Call Option Deed, did Dr Shiffman hold a legitimate expectation that:

(i) he would be involved in the management of the Company in respect to the identification and assessment of "sell down" opportunities?

(ii) the Company would take all commercially reasonable steps to pursue and advance the "sell down" opportunities?

The issuing of share options to Prateek Bandopadhayay

8. When was it agreed (and by whom) that Prateek Bandopadhayay (Mr Bandopadhayay) would be given an interest in the Company?

9. When did Mr Bandopadhayay enter an Employee Share Option Plan (the ESOP) with the Company?

10. Were the terms of the ESOP commercially unreasonable to the Company and to its existing shareholders?

11. What knowledge of the ESOP, including about its terms, did Dr Shiffman have before Mr Bandopadhayay and the Company entered the ESOP?

12. When did Dr Shiffman become aware of the existence and terms of the ESOP and the share options granted to Mr Bandopadhayay under it?

13. Did Dr Shiffman consent or acquiesce to:

(a) the granting of options to Mr Bandopadhayay and/or the ESOP?

(b) Mr Bandopadhayay's exercise of options granted to him?

(c) the dilutive effect of Mr Bandopadhayay's exercise of the options?

Alleged common understanding concerning a shareholders agreement, reached on or around 2 July 2020

14. Did Dr Shiffman, Mr Sinnappan and Mr Wijeyeratne (on behalf of BBHF, S2 Ulysses, Energon Shield and the Company) reach a common understanding on or around 2 July 2020 about the essential terms of a shareholders' agreement between the shareholders and the Company?

15. If so:

(a) What were the terms of that common understanding?

(b) By reason of that common understanding, did Dr Shiffman hold a legitimate expectation that any shareholders' agreement would give him a right to appoint a director to the Company's board and that that director would have an effective veto over any resolution concerning the Company's business?

16. Given the terms of the Call Option Deed, is Dr Shiffman entitled to rely on any such common understanding or legitimate expectation?

The first exercise of Mr Bandopadhayay's options in April 2021

17. Did Mr Sinnappan, Mr Wijeyeratne and/or Mr Bandopadhayay act in concert and for the purpose of prejudicing BBHF's rights and entitlements under the Call Option Deed when authorising, approving, entering or taking part in (as the case may be) the following transactions, which occurred in or around April 2021:

(a) the Company's payment of a dividend to shareholders;

(b) the loan transaction by which entities associated with Mr Sinnappan and Mr Wijeyeratne agreed to loan $1,350,000 to Mr Bandopadhayay; and

(c) Mr Bandopadhayay's exercise of 3,000 options granted to him under the ESOP?

The alleged exclusion of Dr Shiffman

18. From around November 2020, was Dr Shiffman excluded from a role in the Company's management?

19. If so, was that exclusion contrary to the common understandings the subject of paragraphs 3 and 5 above?

Alleged oral agreement reached in May 2021

20. Was there an oral agreement reached of the kind referred to in:

(a) paragraph 56 of the Statement of claim; or

(b) paragraph 56 of the Founders' defence?

21. If there was an agreement of the kind referred to in paragraph 20(a) or 20(b) above:

(a) Precisely when was the agreement reached?

(b) Was the Company a party to the agreement?

(c) What were the terms of the agreement?

(d) Have Mr Sinnappan, Mr Wijeyeratne or the Company breached the terms of the oral agreement by:

(i) failing to provide any assistance to BBHF to allow it to sell down its shareholdings or options in the Company?

(ii) taking steps to interfere with or frustrate any sell down of BBHF's shareholdings or options in the Company?

The second exercise of Mr Bandopadhayay's options in September 2021

22. Did Mr Sinnappan, Mr Wijeyeratne and Mr Bandopadhayay act in concert and for the purpose of prejudicing BBHF's rights and entitlements under the Call Option Deed when authorising, approving, entering or taking (as the case may be) the following transactions, which occurred in or around September 2021:

(a) the Company's payment of a dividend to shareholders;

(b) the loan transaction by which entities associated with Mr Sinnappan and Mr Wijeyeratne agreed to loan $1,350,000 to Mr Bandopadhayay; and

(c) Mr Bandopadhayay's exercise of a further 3,000 options granted to him under the ESOP?

The Call Option Deed and the draft Shareholders' Agreement

23. Were there implied terms of the Call Option Deed made on 14 April 2021 between BBHF, the Company, Energon Shield and S2 Ulysses that:

(a) BBHF, the Company, Energon Shield and S2 Ulysses would do all things necessary to enable each other to secure the benefit of the Call Option Deed?

(b) neither BBHF, the Company, Energon Shield nor S2 Ulysses would hinder or prevent the fulfilment of the purpose of the express promises made in the Call Option Deed?

24. What is the effect of the draft Shareholders' Agreement proposed by the Company to BBHF on 2 December 2021?

25. By:

(a) proposing a draft shareholders agreement in the form given to BBHF on 2 December 2021; and

(b) refusing to participate in a meeting of nominees, or any mediation,

did any of the Company, Energon Shield and Ulysses:

(i) fail to act in good faith when negotiating the terms of the Shareholders' Agreement?

(ii) thereby breach cl.2.12(b) of the Call Option Deed?

(iii) alternatively, breach the implied terms of the Call Option Deed?

26. If so, has BBHF suffered loss and damage and if so, in what amount?

Oppression

27. Has the conduct of the Company's affairs been oppressive to, unfairly prejudicial to and/or unfairly discriminatory to BBHF within the meaning of s.232 of the Corporations Act 2001?

28. If so, should the Court exercise its discretion to grant relief to BBHF and, if so, what relief should follow?

Valuation

29. What was the value of the Company, and BBHF's interest in it, as at:

(a) 16 August 2022?

(b) 8 October and 19 November 2021?

30. Supplementation of expert evidence concerning valuation at an alternative valuation date (e.g. the date of trial or judgment, as the Court determines) may be required, but only if liability is found.

1. The evidence relied on by the main protagonists, BBHF and Dr Shiffman on the one hand, and the Companies and the Founders on the other in support of their pleaded cases, is extremely detailed. The 4 volume Court Book comprises 11,606 pages. The documents that formed part of the evidence were less extensive. Following the completion of the trial the parties provided an agreed tender list comprising 971 separate documents.
2. BBHF called Dr Shiffman; Sean Curry (Sleeping Duck's former CFO) and Yoni Paluch (Sleeping Duck's director of Customer Experience between January 2020 and February 2022). Each of those persons was cross-examined. BBHF filed a witness outline from William Broughton. Mr Broughton was subpoenaed to give evidence. He declined to meet with or to otherwise cooperate with BBHF's legal advisers. He was not called.
3. Mr Sinnappan, Mr Wijeyeratne and Mr Bandopadhayay filed witness statements. Each of them were cross-examined.
4. After the lay evidence had concluded a revised agreed chronology, signed by the practitioners for all parties, was filed ('Agreed Chronology'). The Agreed Chronology comprises a statement of agreed facts for the purposes of the proceeding pursuant to s 191 of the Evidence Act 2008 (Vic) ('Evidence Act').
5. Consistent with the usual practice in oppression cases, early in the proceeding the Court ordered a current market valuation of Sleeping Duck. That valuation, prepared by Mr Meredith, valued Sleeping Duck at $45.32m at the date of his report, 16 August 2022. Mr Meredith's valuation formed part of the evidence.
6. Prior to trial, BBHF filed an expert valuation report dated 11 November 2022, prepared by Owain Stone, assessing the equity value of Sleeping Duck on two dates; on 8 October 2021 at between $170m and $196m; and on 19 November 2021 at between $158.9m and $182.9m. The Companies filed a responsive expert report dated 16 December 2022 prepared by Michael Potter. He valued Sleeping Duck at between $121.8m and $126m on 8 October 2021; and at between $98.1m and $101.3m on 19 November 2021.
7. Mr Stone and Mr Potter ('the Experts') prepared a joint expert report dated 15 September 2023 ('Joint Report'). The Experts were instructed to provide their opinion as to the value of the shares in Sleeping Duck as at each of:

(i) 8 October 2021 ('First Valuation Date'); and

(ii) 19 November 2021 ('Second Valuation Date');

(iii) the date of the Joint Report (30 June 2023).

1. Reproduced below is an extract from the Joint Report summarising the views of the Experts at each of the valuation dates in contention:

1. After completion of the Joint Report there were revisions to the 30 June 2023 accounts. In light of those revisions and other matters the Experts prepared a supplementary joint report dated 30 October 2023 ('Supplementary Joint Report'). In the Supplementary Joint Report, the Experts agreed the EBITDA estimate for FY23 remain unchanged from the Joint Report. Their assessment of the value of 100% of the equity in Sleeping Duck as at 30 June 2023 remained unchanged.
2. The Experts gave concurrent expert evidence concerning the value of Sleeping Duck. Cross-examination was both targeted and confined.

1. When giving evidence, Dr Shiffman presented as a highly intelligent and articulate person. He was careful and particular in his responses. He said, and I accept, that he was 'trying to be completely precise in being truthful'.[42] In communications with the Founders and others concerning Sleeping Duck over the period of his involvement, Dr Shiffman did not shy away from expressing his views and feelings. At times, he was very effusive and enthusiastic, on other occasions he expressed concern for his mental health.
2. Mr Curry accepted that Dr Shiffman was not 'backward in coming forward' or expressing his displeasure at things that were of concern to him.[43]
3. In cross-examination, Dr Shiffman said from late 2020 there was a gradual process of him being shut out from decision-making. While different people will have a different perception of whether or not they are being shut out, I have no doubt Dr Shiffman genuinely believes that is what occurred to him. He believes he has been unfairly treated by the Founders.
4. While that is his belief, for the purposes of an oppression proceeding, commercial unfairness has an objective standard. It requires an assessment of whether objectively, in the eyes of a commercial bystander, there has been commercial unfairness.[44]

1. Mr Curry is a qualified chartered accountant. He was the CFO of Sleeping Duck between March 2019 and February 2022.
2. Mr Curry presented as a confident and experienced CFO who diligently carried out his role at Sleeping Duck. He was involved in financial analysis and in the further development of Sleeping Duck's financial reporting systems. He worked closely with the external accountants, RSM Australia ('RSM'), from whom on occasions he obtained advice. He was involved in the preparation of presentations to proposed external investors and was involved in preparing the revenue and other financial projections which were included in those presentations.
3. Mr Curry enjoys a very close business relationship with Dr Shiffman. At the time of trial he was providing CFO services to a number of companies with which Dr Shiffman is associated including Daily Blooms, Qualie, Global Reviews and Emma.
4. Although Mr Curry gave evidence on subpoena, there is no reason why his evidence could not have been presented via a witness statement. Before giving evidence he conferred with the solicitors and counsel for BBHF. He is a witness firmly in BBHF's camp.

102 Mr Paluch was employed as Sleeping Duck's director of customer experience from the beginning of 2020 to the beginning of 2022. He graduated with a Bachelor of Business Systems from Monash University in 2003. Mr Paluch is an experienced business analyst.

1. Mr Paluch was offered his role at Sleeping Duck after being introduced to the Founders by Dr Shiffman. Mr Paluch and Dr Shiffman were acquaintances.
2. When Mr Paluch commenced his role he initially reported to Mr Wijeyeratne but then reported to Mr Sinnappan. He said he felt like he had a 'very good working relationship' with Mr Sinnappan but that Mr Sinnappan was 'learning his way through' and sought guidance from Dr Shiffman, especially in the early stages of the business.[45]
3. Mr Paluch gave evidence he discussed the operations of the business with Mr Curry on most days, if not every day and would attend meetings with the core management team. He gave evidence he would see Dr Shiffman at Sleeping Duck's offices once or twice a month.
4. Since November 2022, Mr Paluch has been advising the customer service team at Eva, one of Sleeping Duck's competitors. Just as Dr Shiffman introduced Mr Paluch to the Founders of Sleeping Duck, Dr Shiffman introduced Mr Paluch to the founders of Eva where Dr Shiffman has an involvement.

1. Mr Sinnappan presented as an agreeable and non-confrontational witness, becoming a little less accepting of propositions as his lengthy cross-examination continued.
2. I found Mr Sinnappan to be a credible witness. He was careful not to speculate if he could not recall. When giving evidence he did not seek to frame his responses in a manner that might assist his own case or harm that of BBHF. He was not assertive.
3. Mr Sinnappan readily accepted Dr Shiffman made a very valuable contribution to the Sleeping Duck business from 2018 through to 2021. As he put it, there were ebbs and flows in the relationship, Dr Shiffman was involved in the 'journey' that helped Sleeping Duck get to a value, first of more than $100m and then, during the COVID-19 era, of more than $300m.
4. Mr Sinnappan acknowledged that during the period of Dr Shiffman's involvement, Sleeping Duck enjoyed tremendous success. Revenue went from approximately $3.3m - $3.5m in 2018 to over $9m in FY19 and to approximately $45m in 2020. At the same time, profitability improved very substantially. In FY18, Sleeping Duck recorded a modest loss on an EBIT basis, in FY19 EBIT was more than $1m, in FY20, net profit was in the order of $12.6m.
5. In his witness statement Mr Sinnappan described Dr Shiffman's work as an adviser to the Founders. He never considered Dr Shiffman had any right to manage or control Sleeping Duck. I accept that evidence.
6. In cross-examination Mr Sinnappan agreed that after the first few months of the 2021 calendar year Dr Shiffman's views were given less weight. He rejected the proposition that he and Mr Wijeyeratne actively set out to reduce Dr Shiffman's influence. I accept his evidence in that regard.
7. Mr Sinnappan was cross‑examined about profit margins and the part played by the COVID-19 pandemic and lockdowns on the turnover and profitability of the business.
8. In 2019, the business had a profit margin of around 20%. In the 2021 financial year, the overall margin was 27% on a month-to-month basis. Mr Sinnappan acknowledged the rate of 27% reflected extraordinary acceleration in the performance of the business in the months of March to June 2020. When asked to explain the reasons behind the rapid increase in profit margin, Mr Sinnappan gave the following evidence:[46]

[referring to the 27% increase] Does that mean that there was - if you like - a disproportionate increase to margin in those following months because you were at 21 per cent for the year to date as at the end of February and it ended up being 27 percent? --- yes, correct...

His Honour: so the COVID sort of sales period seemed to have a, was a more profitable period in terms of its contribution. Is that fair or am I wrong about that? - No that's right. So COVID, overnight sales just went vertical...and therefore...by extension of that...the...margin benefitted as well.

115 While criticism was made by BBHF of the management of Sleeping Duck after Mr Curry's departure, market conditions for the business in the 2022 and 2023 calendar years were markedly different to the heady days of late 2020/early 2021.

1. Mr Wijeyeratne was the second of the Founders to give evidence. He was not present when Mr Sinnappan gave his evidence.
2. While I have accepted and acted on parts of Mr Wijeyeratne's evidence, overall his evidence was not always reliable. That is so first, because his evidence was based on a combination of his recollection and reference to contemporaneous notes and documents which he re-read in preparation for the trial. Second, because when responding to questions Mr Wijeyeratne had a tendency to answer before thinking through the question, later responding in a more considered way. This meant that on some occasions he gave a different answer, not always a satisfactory one, when pressed about his initial response. Third, at times during his evidence Mr Wijeyeratne did not readily agree with propositions which by reference to contemporaneous documents or other objective evidence, seemed uncontroversial.
3. An example of the first matter, Mr Wijeyeratne's recollection of events, was his evidence concerning a May 2020 video call. Rather than responding directly to a question in cross-examination, he referred to having 'that in my witness statement'.[47] Separately, Mr Wijeyeratne sought to check his witness statement when asked whether it was in February 2020 that, for the first time, the idea of an ESOP for Mr Bandopadhayay was raised by Dr Shiffman.
4. As to the second matter, answering before thinking carefully about the question, one example involved Mr Wijeyeratne giving evidence about Dr Shiffman's knowledge of transactions relating to the ESOP and his knowledge of those matters up to 14 April 2021. Initially, Mr Wijeyeratne said he was 'not sure' what Dr Shiffman knew. When told Mr Sinnappan had accepted the accuracy of Dr Shiffman's evidence, he responded, 'Ah, if - yeah, I mean, yeah, if Selvam accepted it, I'll accept it'.[48] On another occasion when referred in general terms to evidence Mr Sinnappan had given on the subject of how the Founders would respond if an acceptable sell down opportunity was presented, Mr Wijeyeratne said he agreed with Mr Sinnappan's evidence. He gave that answer even though he had not been present in Court when Mr Sinnappan gave evidence, and even though he had not read Mr Sinnappan's witness statement. Another example concerned Mr Wijeyeratne's evidence about the 2020 agreement for Dr Shiffman to identify a sell down opportunity. Asked whether if a favourable opportunity or commercially reasonable opportunity was presented he would proceed with it, Mr Wijeyeratne's original response was 'Ah, no. Like, I don't know what reasonable means. Um, reasonable ...'.[49] Pressed on his answer it was clear Mr Wijeyeratne had not properly focussed on the question when providing his initial response.

1. Generally, I found Mr Bandopadhayay to present as an honest and open witness. He was inclined to volunteer, rather than to seek to give answers that might be thought to assist his case or that of the Companies.
2. Mr Bandopadhayay was the 'creative director' and 'head of marketing' at Sleeping Duck. As Dr Shiffman wrote in an email to the Founders on 12 November 2020 'we all agree Prateek is very good'. I have no doubt Mr Bandopadhayay is very talented in his role. The Founders genuinely value the contribution he has made and continues to make to the marketing of Sleeping Duck's products.
3. Mr Bandopadhayay has been and continues to be well remunerated for his work. He was initially engaged on an hourly rate, soon followed by an agreement in February/March 2019 that he be given a 10% interest in the business. I accept his evidence that from 2019 he was employed full-time in the Sleeping Duck business, working after hours and at night on other pursuits.
4. A consultancy agreement with Sleeping Duck dated 23 November 2020, prepared by Arnold Bloch Leibler ('ABL'), solicitors acting on behalf of Sleeping Duck, is the only formal agreement relating to Mr Bandopadhayay's engagement. That agreement was prepared for the purposes of legal due diligence. Prior to that date there was no written agreement.
5. The chronology of Mr Bandopadhayay's remuneration and his requests for increases in his remuneration reveals a similar quest for remuneration and additional shares to the quest which Dr Shiffman pursued.
6. Mr Bandopadhayay gave evidence that following emails he sent to the Founders in November/December 2022, he receives remuneration of $100,000 per month through his company.

E1 The first issue: Initial negotiations (October 2017 to January 2018)

126 BBHF alleges that between October 2017 and January 2018 discussions and negotiations took place between Dr Shiffman and the Founders concerning the basis and terms of Dr Shiffman's investment, role and participation in Sleeping Duck. It alleges both parties proceeded on the basis Dr Shiffman would only be willing to invest in Sleeping Duck if he was able to play an active strategic 'hands on' role in its management.

1. The Companies deny those allegations. They allege discussions between Dr Shiffman and Mr Sinnappan during this period concerned potential services Dr Shiffman could offer. Discussions were on the basis Dr Shiffman would have no role in the management of Sleeping Duck and the Founders would retain control of management.

1. Although the statement of claim refers to discussions and negotiations, during this period, apart from a meeting on 21 November 2017, communications between the parties were by email. Consistent with the defence, only Mr Sinnappan participated in those communications on behalf of the Founders.
2. Dr Shiffman was introduced to Mr Sinnappan on 4 October 2017. The introduction came via an email from one of Dr Shiffman's associates who informed him the Founders were looking to raise funds for the business which they had previously self-funded or 'bootstrapped'.
3. On 21 November 2017 Mr Sinnappan and Dr Shiffman had an initial meeting. Mr Sinnappan provided an overall introduction to Sleeping Duck. He said he was meeting to see if there were fundraising opportunities available and to try to obtain mentorship and advice. Dr Shiffman said Mr Sinnappan told him the business was basically running on a break even basis. When cross-examined, Mr Sinnappan initially disagreed such a statement was made. Later he said he could not recall using the specific term 'break even basis' but agreed the business needed to raise funds.
4. While he was not present at the 21 November 2017 meeting, he did not meet Dr Shiffman until February 2018, Mr Wijeyeratne accepted that before Dr Shiffman became involved, he and Mr Sinnappan were struggling to grow the business past $5m. He said based on the profit and loss statement, Sleeping Duck was not profitable, but that was because the business was trying to grow. Both of these statements were correct.
5. I accept Dr Shiffman's evidence that at the time of his initial contact with Mr Sinnappan the business was running on a break even basis. The Founders were seeking funding to provide a buffer to enable Sleeping Duck to scale up marketing, hiring and sales.
6. On 22 November 2017, Mr Sinnappan emailed Dr Shiffman:

[f]undraising is one of our major focuses at the moment...I think it would be best to laser in on this first to and chat further about how [Dr Shiffman] can assist [on that issue].

1. On 23 November 2017 Dr Shiffman responded. He took a view of his potential involvement that was broader than funding:

I agree and disagree.

You definitely need funding, but also we need to make sure the machine is ready to scale.

But let me focus on the funding side in this email. Realistically I think I can provide the most value by:

• Help you clearly articulate what you need to go to market - strategy, market sizing, uses, KPIs, modelling, etc. This is fundamental. You need clarity, and the right people to assist (eg: modelling).The above will all feed into a deck which we need to get right
• Intros to the right VCs and investors. This is a massive job, but obviously easy for me. So I get a huge unfair advantage here - known them, friends with them, instant access and credibility.
• On cap raising activity itself I do intros, talk about my involvement and why I love it, obviously am heavily involved in getting it done, but I don't go to the presentations. You guys need to sell it.
• Guidance with negotiation of terms, getting the deal closed, valuation, etc. You will still need a lawyer here obviously, I'll make sure costs are kept down.

Let me be crystal clear about this - I am not a banker or capital advisor. I don't want any of the money raised. I don't do this for a living.

I'm interested in getting involved in a number of high-growth startups with NICE AND SMART FOUNDERS, and helping them grow very big, fast. It's after the funds are raised that I can add way more value, as can Rohit.

Let me know your thoughts.

1. On 28 November 2017 Mr Sinnappan emailed Dr Shiffman. He suggested Dr Shiffman be involved in mentoring and advising in addition to fundraising. Noting that Dr Shiffman would not be seeking any part of money raised, he enquired about the type of 'engagement model' Dr Shiffman had in mind.
2. There was no reference in the 2017 emails and no discussion at the 21 November 2017 meeting to Dr Shiffman only being willing to 'invest' if he was to have a 'hands on' role in management as alleged by BBHF. The Founders were looking for mentors/advisers to help them through the next phase of growth of the business. Dr Shiffman expressed interest in advising the Founders and articulating what he considered Sleeping Duck needed to do to 'go to market'. Regarding capital raising, 'I don't go to the presentations. You guys need to sell it'.
3. On 3 January 2018, Dr Shiffman emailed Mr Sinnappan describing himself as 'the master of deals':

I really believe you have tremendous potential with Sleeping Duck, I've been thinking about it a lot. However, I think there are some very significant risks.

What you have achieved is really impressive, and excites me. I believe what you need falls into 4 categories:

- Big picture strategic planning: what do the next 3 years look like, who, how, etc. This is the best thing I did for Catapult.

- Capital. Lots of possibilities and structure. Want to minimise dilution.

- Deals. Frankly I'm the master of deals. Acquisition. Partnership. Etc. I think 2 or 3 GREAT DEALS can transform SD into an unstoppable business, again like I did with CAT.

I'd like to discuss getting involved and helping with these...

1. On 15 January 2018, Dr Shiffman sent a follow-up email setting out 'how' he might get involved and what he would require in return. Reproduced in its entirety because of the significance it assumed at trial, the email states:

Ok would now love to discuss if/how I might get involved.

I really like the product, am very positive on you, and think there is huge potential here.

Clearly before we get involved a key step is spending more time with you, and meeting and engaging with other people who are involved.

I should also say this involvement is separate to anything you might do with Playbook Media. Regardless of us, I'd STRONGLY encourage you to engage them for acquisition. The reason I'm involved with them is because if [sic] think they are great and add real value to their clients.

What I generally look for when getting involved is the ability to leave the founder/s in total control, but to get enough upside to make this worth my mindspace basically. My limit isn't just time it's actually thinking about stuff because even with a minor stake I tend to be as emotionally invested as the founders. This is my "thinking in the shower" test - I am never a passive investor, not my style. So I can't get actively involved in a huge number of things, and therefore I need to make sure that I'm picking the right things. But I always leave my destiny in the hands of the founders, because my role is all about supporting founders and helping grow fast and big. If I pick the wrong founders then I'm going to suffer. Hasn't happened so far, and I think one reason is that my lack of demands for control/protection make me very cautious on who I select to work with.

• 5% of current equity, vesting over 10 months, 0.5% a month. Basically you can cut me without any notice, without any reason, anytime in that 10 months. I have no recourse and my vesting stops. I might also stop helping at that point, of course. ��
• An option to buy 5% of current equity from the two founders, for $100k, anytime in the next 3 years. If you ditch me within 3 months I don't get this option. This is a $2m val. It rounds out my exposure and puts a bit of money in your pocket.
• If I play a key role in a capital raising for you, you'll pay me $50k or 2% when it closes, whichever is larger, as a consulting fee. So if we do a $1m raise I will get $50k. If it's $3m, I will get $60k. If you think I didn't earn it, you can just not pay it. Your call. Your power. No recourse.
• No Board Seat. No special treatment.
• Common shares, plus options dilute same as everyone else.

• Fortnightly catch up to work through issues. Realistically this is going to be 60-90 min depending on need. Longer is overload for your brain.
• Call me whenever you like with issues. I will help you think about how to think, not give you an answer. Better for you. This is a HUGE way I think companies get value from me. I'm super available.
• Intros, networks, partnerships, staff, etc. I have some specific ideas already for Sleeping Duck.
• Cap raising prep, intros, advisory on negotiations and terms.
• Thinking about this in the shower!

• Enough equity to be worthwhile for me to assign mindshare and say no to something else. I say yes to maybe 2 things a year. You are experiencing me interested in you, but I can also show you the dozens of emails each year where I say no - regardless of what they're offering me (including $60-100k a year salaries to be a non-exec director of public companies, I declined 3 of these in 2017).
• Full power in your hands. No risk for you, and a clear signal for me (ie: if you're a guy who will fuck me, better early than late).
• Some financial compensation if I'm actually doing some ops work to help you raise.

I've already outlined this to you in a previous email.

1. Firstly, Fix some existing processes and experience.

2. Get the word out there (you are being killed by Koala, but market is still tiny so no issue and actually is a great sign).

3. Work together to build a model for accelerated growth

4. Review staff, right team and structure for growth, and hire 1 or 2 great people

5. Prepare an investor deck and raise a seed round (which will probably include a chunk of debt).

6. Then start preparing for the next round, series A. Keep looking to build a team with better people. Marketing. Expand footprint. Accelerate growth.

Basically, grow fucking fast with better people and whilst stopping the wheels falling off. That's what I do. My skills are strategy, structure, finance, M&A, overseas and growth hacking.

I'd really love to get involved. It feels a lot like some of what I did with Institchu. If you want to speak to some references of guys I'm working with just let me know. I think there is a chance to do something very special here and actually create some GLOBALLY UNIQUE models that could potentially make us the world leader in growth and business structure - that's what I did with Catapult. Catapult was your size when I first got involved (on same terms, and actually they paid me $6k/mo cash). Now it's $300m company and its going to be WAY WAY bigger. Institchu is a similar trajectory although my involvement in them is less now to be honest. Qualie is smaller but I pre-seeded that, then raised $750k seed at $3.2m post and now they will do a next round probably at close to $10m val. A year later. Once you've thought about it then give me some feedback, and following that let's catch up again. Would be great to knock this off by end of Feb either way.

1. On 16 January 2018, Mr Sinnappan responded, saying he had no objection to the structure proposed, 'it doesn't lock us in so we don't lose a lot if things don't work out', noting that Dr Shiffman and Mr Wijeyeratne had not yet met.
2. BBHF opened its case on the basis this email exchange shows what was always contemplated was an active involvement from Dr Shiffman in the nature of a quasi-partnership. The email exchanges do not support such a finding. What is contemplated is the provision of advisory services to the Founders in return for shares and options, up to 10% of Sleeping Duck.
3. While a partnership will not always involve partners whose interests are equal, what was proposed by Dr Shiffman and joined in by the Founders bore none of the hallmarks of a partnership. The Partnership Acts provide that every partner may take part in the management of the partnership business and that no change may be made in the nature of the business without the consent of all of the partners. Those features were not part of the email exchange.
4. Contrary to the BBHF's pleaded case, the emails of 15 and 16 January 2018, like the communications in 2017, do not support a finding that negotiations were conducted on the 'mutual basis' that Dr Shiffman would only be willing to invest if he was able to play a strategic hands on role in the management of Sleeping Duck. It was no part of the communications that Dr Shiffman was to take part in the management of the business. That is, as opposed to advising the Founders about the business 'my role is all about supporting the Founders'. It was no part of the communications that Dr Shiffman should in any way control Sleeping Duck or have a say in its control. His 15 January 2018 email was clear, 'full power' and control was to remain with the Founders, 'no board seat, no special treatment'.
5. While the 15 January 2018 email says 'I am never a passive investor, not my style', what Mr Dr Shiffman was proposing was not an investment in the traditional sense. He was not proposing to invest cash. He was proposing to invest his time and skills, to provide his services in return for equity. The services to be provided were specified; fortnightly catch ups with the Founders to work through issues, introductions and the provision of some specific ideas for the business, advice on negotiations and terms, and 'thinking about the company in the shower'. In return, an allocation of 5% of 'current equity' in his favour together with an option to purchase 5% of current equity, any time in the next three years based on an assumed business value of $2m.
6. In its opening, BBHF submitted the email contemplated a capital raising and a later dilution of Dr Shiffman's interest in the business, but not dilution by the introduction of another shareholder prior to a capital raising, as later occurred by reason of Mr Bandopadhayay's ESOP. I do not agree.
7. The 15 January 2018 email contemplated a capital raising, it contemplated dilution 'same as everyone else'. It did not refer to and was not limited to a dilution of the interests of the Founders, or the interests of Dr Shiffman and the Founders on a capital raising. The reference to being diluted the same as 'everyone else' is consistent with the prospect that by the time of the capital raising there may be other shareholders. Obvious candidates include key employees who may be hired and may be shareholders as the result of an ESOP prior to a capital raising. If that were to occur the Founders and Dr Shiffman, and any such employees, together with other persons who held shares, 'everyone', would be diluted on a capital raising.
8. Item 4 in the email involved getting the 'right team and structure for growth, and hire 1 or 2 great people'. Item 5 was to 'prepare an investor deck and raise seed round'. Whether the hire process referred to in item 4 might involve the grant of shares or options in favour of persons to be hired was not mentioned, it was not ruled out, rather the topic was not addressed.
9. As was put to Dr Shiffman in cross-examination, with his experience in start-ups, he would have known that to recruit high calibre staff it might be necessary to offer an ESOP.

E2 Issues 2 and 3(a)-(b): the common understanding reached on 1 February 2018

1. The Agreed Chronology records that on 1 February 2018, a common understanding (the terms of which are in issue) was reached between Dr Shiffman and the Founders about Dr Shiffman's involvement in Sleeping Duck.

1. BBHF alleges a common understanding was reached at a meeting on 1 February 2018 concerning Dr Shiffman's investment, role and participation in Sleeping Duck ('First Understanding on Participation'). Based on discussions between October 2017 and January 2018 and at the 1 February 2018 meeting, it was understood that Dr Shiffman's role would be to:

ii Develop the corporate and commercial strategy of Sleeping Duck;

1. Provide operational and strategic guidance to the Founders and the management team of Sleeping Duck; and
2. Identify and make recommendations concerning capital raising opportunities, pursuits and activities, including the sell down of existing shareholdings.

1. BBHF alleges that in return, the Founders would each provide Dr Shiffman with:
   1. 2.5% of the issued capital in Sleeping Duck held by the Founders (being a total of 5% of the issued capital, or 5,000 fully paid ordinary shares), the entitlement to which would vest monthly on a pro rata basis over 10 months; and
   2. Options to acquire a further 2.5% of the issued capital in Sleeping Duck held by the Founders (being a total of 5% of the issued capital, or 5,000 fully paid ordinary shares).
2. BBHF further pleads that by reason of the First Understanding on Participation, and the basis on which it was reached, including the alleged mutual premise on which discussions took place between October 2017 and January 2018, that from 1 February 2018 Dr Shiffman 'held a legitimate expectation that he would participate in the management and strategic direction' of Sleeping Duck.
3. The Companies deny those allegations. They agree a common understanding was reached at the 1 February 2018 meeting, but it was not the First Understanding on Participation alleged by BBHF. The Companies deny the pleaded allegations concerning Dr Shiffman's intended role. They allege the common understanding reached ('First Services Understanding') was that Dr Shiffman would:

(i) act as an ad-hoc advisor to the Founders and Sleeping Duck to work through issues identified by the Founders;

(ii) provide introductions to third parties such as financial services providers, logistics companies and other entrepreneurs;

(iii) make suggestions to the Founders concerning the growth of Sleeping Duck;

(v) not have any management functions or responsibilities;

(vi) 5% of the then-issued capital in Sleeping Duck, the entitlement to which would vest monthly on a pro rata basis over 10 months; and

(vii) options to purchase an additional 2.5% of the then-issued capital in Sleeping Duck from each of the Founders for $50,000.

1. There are some common themes on the pleadings concerning Dr Shiffman's intended role:

(a) First, that Dr Shiffman would advise the Founders and mentor them.

(b) Second, that the subject matter of advice and mentoring would include:

(i) The corporate and commercial strategy of the business;

(ii) The growth of Sleeping Duck;

(iii) Capital raising opportunities; and

(iv) Introductions to third parties such as financial service providers, logistics companies and other entrepreneurs.

154 The critical differences on the pleadings concern:

(a) Whether Dr Shiffman would 'provide operational and strategic guidance to the management team', or whether he would have no management functions or responsibilities;

(b) Whether Dr Shiffman was to identify and make recommendations concerning the sell-down of existing shareholdings; and

(c) Dr Shiffman's equity entitlement.

1. So far as the First Understanding on Participation and the legitimate expectation' that Dr Shiffman would participate in management rely on communications between October 2017 and January 2018, in section E1.2 I have found that those communications did not include reference to Dr Shiffman playing a hands on role in the management of Sleeping Duck. Those communications do not support a finding that he would 'participate in the management and strategic direction of the company', except as an adviser and mentor to the Founders, with 'full power' and control to remain with the Founders. If there was the First Understanding on Participation and the legitimate expectation alleged it can only have arisen by reason of the 1 February 2018 meeting.
2. Dr Shiffman gave evidence he attended a meeting with the Founders in Prahran on about 2 February 2018. He could not recall precisely what was discussed but recalled discussion was around the six points in his 15 January 2018 email.
3. The language of Dr Shiffman's witness statement concerning what he said at the meeting that he would do lines up very closely with the statement of claim. However it does not line up with his 15 January 2018 email that all agree was discussed at the meeting. The relevant parts of Dr Shiffman's witness statement are set out and read like a pleading and are conclusionary. Dr Shiffman did not give evidence about what was actually said at the February meeting concerning the contested issues, his role in management, and the sell down of existing shareholdings.
4. In his witness statement, Mr Sinnappan disputed Dr Shiffman's account of what was discussed or that agreement was reached about Dr Shiffman's involvement on the basis asserted by Dr Shiffman. Mr Sinnappan disputed that following the meeting, as a result of what was discussed Dr Shiffman could have expected he would 'play an active role in the management of the business'. He gave evidence 'at no point did I understand that Dr Shiffman would be entitled to play an active role in management. I understood that his involvement was to be governed by the terms set out in his email of 15 January 2018'.
5. Mr Sinnappan said the meeting took place on 1 February 2018, the date referenced in an email sent by Mr Wijeyeratne after the meeting. He said that at the meeting Dr Shiffman said his 15 January 2018 email set out what he would do and what he wanted in return. Mr Sinnappan told him the Founders were happy to proceed on that basis.
6. Mr Wijeyeratne also attended the meeting. He said Dr Shiffman talked about how he could provide the Founders with 'advice' and 'coaching', help [us] grow the business' based on his experience, and that agreement was reached on Dr Shiffman's involvement as per his 15 January 2018 email. Mr Wijeyeratne said 'at no point during our conversation on 1 February 2018 did Dr Shiffman say that he was expecting to play an active role in the management of the business'. Mr Wijeyeratne denied an agreement was reached in the terms described by Dr Shiffman.
7. The February 2018 meeting was a long time ago. Dr Shiffman no longer recalls precisely what was discussed at the meeting. All of the meeting participants agree the topics in the 15 January 2018 email were discussed. To the extent of inconsistency I prefer the evidence of Mr Sinnappan and Mr Wijeyeratne. To the extent what Dr Shiffman said in his statement was agreed is inconsistent with or does not reflect the contents of his 15 January 2018 email I do not accept the matters referred to were either discussed or agreed. I reject the proposition, put as such in Dr Shiffman's witness statement that the matters he says he 'also recall(s)' were discussed.
8. Specifically, I do not accept the third topic BBHF pleads was agreed upon at the meeting, the provision of 'operational and strategic guidance [not only] to the Founders', but also 'to the management team' was discussed and agreed. Earlier emails did not refer to Dr Shiffman interacting with any member of the management team.
9. I do not accept the fourth topic pleaded by BBHF, discussion and an agreement upon the identification and the making of recommendations for the sell down of existing shareholdings 'through exit opportunities', took place at the 1 February 2018 meeting. As noted by Dr Shiffman in his 3 January 2018 email, the Founders 'want to minimise dilution'.
10. For those reasons, I reject the proposition there was the First Understanding on Participation alleged by BBHF. I find there was the First Services Understanding alleged by the Companies.
11. I do not accept that following 1 February 2018 Dr Shiffman held a legitimate expectation he would participate in the management and strategic direction of Sleeping Duck as is BBHF's pleaded case. I do not accept as asserted by Dr Shiffman in his witness statement that from 1 February 2018 he expected he would play an active role in the management of the business based on the four matters referred to in his witness statement. Objectively what he was legitimately entitled to expect was that he would mentor and advise the Founders and he would provide the services described in the 15 January 2018 email, in exchange for the equity and on the terms referred to in that email.
12. To recap, Dr Shiffman would commit to a fortnightly catch up to work through issues relating to the business, would be available to discuss issues as and when they arose, would provide introductions but would leave the Founders 'in total control', 'full power in your hands'. There was no ambiguity concerning a directorship. Dr Shiffman was not to be a director, as his email said, 'no board seat. No special treatment'.
13. The remaining difference between the parties concerning the 1 February 2018 meeting concerns Dr Shiffman's equity entitlement. The issue is relevant to BBHF's allegations concerning Mr Bandopadhayay's ESOP.
14. When setting out what he says he was to be given in exchange for his work as agreed at the February 2018 meeting, Dr Shiffman's witness statement says:

in exchange, the Founders would each provide me with:

(i) options to acquire 2.5% of the issued shares in Sleeping Duck held by the Founders (being a total of 5%), which would vest monthly on a pro rata basis over 10 months; and

(ii) options to acquire a further 2.5% of the issued shares in Sleeping Duck held by the Founders at a price of $50,000.00 (being a further 5% at $100,000.00).

169 The witness statement does not refer to '5% of current equity' which appears in the 15 January 2018 email. Nor does it refer to 5,000 shares as does BBHF's pleading. The witness statement contains no reference to the number 5,000 being 5% of the 'current equity'.

1. The defence refers to 5% of the 'then issued capital'.
2. In cross-examination Dr Shiffman said he regarded the references to 5% and 5,000 shares as 'interchangeable'. When it was put to him the agreement was one to purchase 5% of the current capital in the business and that once that capital had been purchased, those shares could be diluted, Dr Shiffman disagreed.
3. Concerning what was agreed on 1 February 2018, I prefer to proceed on the basis of the 15 January 2018 email and to disregard asserted agreements inconsistent with or not reflected in that email. That includes proceeding on the basis that at that time, Dr Shiffman's agreed entitlement to shares and options was to 5,000 of the current shares together with options to purchase a further 5,000 of the current shares, Dr Shiffman's own language as per his 15 January 2018 email, consistent with the reference in the defence to 5% of the 'then issued capital'.
4. Three different remuneration components were referred to in the 15 January 2018 email. The first, should Dr Shiffman's involvement continue for 10 months he would receive current equity in Sleeping Duck at a rate of 0.5% per month. The second, if his involvement continued for three months, he would receive an option to purchase 5% current equity from the Founders at any time within the next three years for $100,000. The third, if during that 10 month period Dr Shiffman was to play a key role in capital raising, he may receive an additional fee in the discretion of the Founders. The third remuneration component did not feature in the pleadings or at the trial.

E3 Issue 3(c): the role of Dr Shiffman between 1 February 2018 - 19 June 2019

1. BBHF alleges that between 1 February 2018 and 19 June 2019 Dr Shiffman participated in management of Sleeping Duck and performed the roles the subject of the First Understanding on Participation, namely:

ii. Develop the corporate and commercial strategy of Sleeping Duck;

iii. Provide operational and strategic guidance to the Founders and the management team of Sleeping Duck; and

iv. Identify and make recommendations concerning capital raising opportunities, pursuits and activities, including the sell down of existing shareholdings;

1. BBHF's further and better particulars assert that during the period 1 February 2018 to 19 June 2019, Dr Shiffman was involved in making decisions and setting policies concerning Sleeping Duck's operational activities, financial reporting, objectives and performance and strategic direction.
2. The Companies deny the allegations relating to Dr Shiffman's role between 1 February 2018 and 19 June 2019.
3. For the reasons discussed in section E2.2 I have rejected the existence of the First Understanding on Participation, and of the legitimate expectation that Dr Shiffman would 'participate in the management and strategic direction of Sleeping Duck'. It remains necessary to consider what Dr Shiffman in fact did during the lengthy period between 1 February 2018 and 19 June 2019 to which these allegations relate.

E3.2 The evidence and findings: 1 February 2018 - 30 June 2018

1. When considering what Dr Shiffman did during this period, it is convenient to also consider chronologically evidence of communications and events during the same period that bear on other issues in dispute.
2. Dr Shiffman commenced working for Sleeping Duck in February 2018.
3. The first factual contest that arose chronologically concerns the state of the Sleeping Duck business when Dr Shiffman joined.
4. In its opening BBHF asserted the Founders were running a 'loss‑making "amateurish" outfit'. In his witness statement, Dr Shiffman said after reviewing information provided to him by Mr Wijeyeratne on 6 February 2018, it appeared to him the financial management of Sleeping Duck was 'amateurish and unreliable'.
5. Dr Shiffman's description of the financial management of Sleeping Duck and what was said in BBHF's opening is to be contrasted with the glowing manner in which Dr Shiffman described the Founders, those responsible for the financial management of Sleeping Duck to third parties during the early months of his involvement. As an example, on 27 March 2018, Dr Shiffman sent an email to the co-founders of Institchu lauding the work of the Founders in building Sleeping Duck into a 'great business'. In May 2018 Dr Shiffman described the Founders as 'F..ing good'.
6. In cross-examination, Dr Shiffman accepted the Founders were not generally 'amateurish or unreliable'. While he persisted with the view he did not have confidence in the way the Founders were recording their financials, the contemporaneous communications do not support that view.
7. Dr Shiffman gave evidence about his lack of confidence in existing financial records in the context of an email he sent to the Founders on 2 March 2018. The email enclosed what Dr Shiffman described as 'an extremely basic' financial reporting template. Mr Sinnappan responded immediately, noting the Founders already used similar reporting templates. On 4 April 2018, Dr Shiffman provided a proposed (basic) format for financial reporting to the Founders with data populated for March and April. The Founders were already using financial reporting templates similar to those for which Dr Shiffman was advocating. The lack of confidence Dr Shiffman expressed in the Founders' financial reporting was not well placed.
8. Having regard to the concession made by Dr Shiffman in cross-examination that the Founders were not generally amateurish or unreliable and the email exchanges to which I have referred, BBHF and Dr Shiffman's references to the Founders as 'amateurish and unreliable' were both intemperate and inaccurate.
9. In his witness statement, Dr Shiffman said the work undertaken by him between February 2018 and June 2018 included:

(a) reviewing and analysing Sleeping Duck's finances and commercial relationships;

(b) meeting with the Founders to discuss finances, marketing and strategic direction for Sleeping Duck;

(c) making recommendations to the Founders as to the precise roles that they should take in the business, with Selvam to act as CEO and Winston to act as Chief Product and Growth Officer, with a direct responsibility for marketing;

(d) preparing a financial reporting template to record relevant financial data for discussion at meetings with the Founders and meeting with accounts staff;

(e) making recommendations to the Founders on the commercial arrangements between Sleeping Duck and its advertising agency;

(f) obtaining quotes from law firms for work to be performed for Sleeping Duck;

(g) obtaining access to Sleeping Duck systems including GA, Adwords and Facebook ads;

(h) introducing the Founders to a range of potential commercial partners and contacts, including Qualie, CCIG Capital, and others;

(i) setting up and attending meetings with potential corporate partners, such as Qantas Loyalty;

(j) providing advice and making recommendations to the Founders on marketing, public relations and product;

(k) providing advice and making recommendations to the Founders on business strategy; and

(l) discussing valuation points, comparative businesses, marketing ideas and exit opportunities.

1. Mr Sinnappan described Dr Shiffman's work and involvement in the period to June 2018 as an advisor to the Founders. Of the 12 activities listed by Dr Shiffman in his witness statement, with the exception of the work described in (f) and (g) the activities described either involved or were associated with Dr Shiffman interacting with the Founders. The activities listed are consistent with Dr Shiffman performing an advisory/mentoring role. The activities described in (f) and (g) are not 'management activities'. None of the activities listed involve the provision of 'operational and strategic guidance to the management team' as alleged by BBHF.
2. Dr Shiffman's own description of the work performed by him to 30 June 2018 does not support a finding that during this period he 'participated in the management of the company' as BBHF alleges was the case. Nor does Dr Shiffman's own description of what he did support a finding that he was involved in making decisions and setting policies as referred to in BBHF's further and better particulars. That is, other than in his agreed capacity as an adviser and mentor to the Founders.
3. An email sent in February 2018 by Mr Wijeyeratne to Dr Shiffman is indicative of the type of assistance the Founders sought from Dr Shiffman during this period:

The way we look at our problem is that no matter what we do with our spend we can't seem to pass the $5m revenue barrier. ... My question would be ...

1. I accept Mr Sinnappan's evidence that with the exception of work on financial matters, Dr Shiffman did not have any substantive role in areas of the business, such as product, supply chain, customer service operations. His role was an advisory one. There was evidence that at Dr Shiffman's suggestion in June 2018 Mr Wijeyeratne took over the marketing function. While this was on the recommendation of Dr Shiffman, the decision was made by the Founders. Dr Shiffman's role and involvement was as an adviser.
2. On 6 June 2018, although only having been actively engaged in the business for between four and five months, Dr Shiffman proposed to the Founders that he would become 'more of a partner' and a 33% shareholder:

As I alluded to, I [am] spending a heap of time here which is exciting for me and it's what I want to do.

I think we can build something great here. However, I can't allocate this time without being more of a partner.

Realistically if we make it through then [sic] next few months it may make sense for me to become a Chairman (your call), which means I'll need to clear other stuff.

Right now my deal is basically 10% for $50k, deferred payment option, and no payment.

I want to be an equal partner so I can keep doing this. I'll also bring money and make sure we don't run out. I want us to build a $100m valuation company.

So I'd like to propose this, which I think is very fair:

2. When we get to $10m in revenue I get to buy another 13.33% from FOUNDERS (to make us equal) for another $100k. This goes to you.

3. From July you pay me $3k/mo for my services. I will explain why over the phone.

I feel like you've done a very good job to here but for us to nail this it's going to take a three way partnership. By way of comparison CAT gave me 20% effectively for free, before I know what I know now.

I don't want us using a heap of our mindshare on this, because we need to focus. I don't think I need to pitch myself. If you're not convinced by now you never will be.

1. In cross-examination Dr Shiffman rejected the proposition the Founders did not agree to his 6 June 2018 proposal to become a one third owner: 'I think we were renegotiating' all the way through to early 2019.[50]
2. Given the timing of the proposal, so early into the business relationship, objectively the bid to own 33% of Sleeping Duck, to become an equal shareholder with the Founders was an audacious one.
3. The Founders did not agree to Dr Shiffman's proposal. They never agreed to give him or BBHF a 33% share in Sleeping Duck, and it is no part of BBHF's case to say they did.
4. For the financial year ended June 2018, revenue was approximately $3.3m with a trading loss of approximately $100,000.

E3.3 The evidence and findings: 30 June 2018 - February 2019

1. In support of its case that in the period to June 2019 Dr Shiffman was more than a mentor and adviser, BBHF referred to Dr Shiffman's participation in management, attending meetings where financial performance, financial reporting, marketing, recruitment and policies were discussed. BBHF particularised two informal 'board meetings' on which it relied to support this allegation. The first was on 27 June 2018, the second was approximately six months later, on 5 January 2019. Both were before the appointment of Mr Curry as CFO on 25 March 2019.

197 In his witness statement Dr Shiffman referred to meetings on other dates of which there was some form of documentary record. On reviewing the records referred to, with the exception of an email following a meeting between Dr Shiffman and the Founders on 3 June 2018 which referred to some action items, the evidence rose no higher than calendar invites from Dr Shiffman, accepted by one or both of the Founders. That evidence does not assist to determine what Dr Shiffman in fact did during this period.

1. Turning to the first of the particularised meetings, the evidence falls short of establishing that in fact a meeting took place on 27 June 2018 or, if it did, what was discussed, what decisions were made, and by whom.
2. On 26 June 2018, Mr Sinnappan sent an agenda for a meeting between the Founders and Dr Shiffman with the goal of creating a 'budgeted plan of action for the next two months', to identify priority actions and to decide which activities to prioritise.
3. The particulars described the 26 June 2018 email as 'discussions and decisions to be made in that meeting'. The email was referred to by BBHF in opening as demonstrating that Dr Shiffman was 'plainly involved in management and strategic direction of the business'.[51] While the proposed agenda was referred to by Dr Shiffman in his witness statement, there was no description of the meeting itself in his witness statement or otherwise in the evidence. No minutes were tendered. No witness was questioned about the meeting or about any decision-making process that took place at it. The evidence shows an agenda was sent. It goes no further, it does not even establish that a meeting took place on 27 June 2018.
4. The second meeting relied on is in a different category. The 5 January 2019 meeting is referred to by Dr Shiffman in his witness statement. An email sent by him records discussions at the meeting he attended with the Founders that day. The email records discussion of HR and policies, culture, basic financial summary and staffing and marketing. The email is consistent with an exchange of ideas with the Founders and proposals for action arising from that exchange, including Dr Shiffman to look into a financial controller. The email does not constitute a record of decisions taken or what might fairly be described as the setting of policies concerning operational activities, financial reporting, objectives performance and strategic direction as stated in BBHF's particulars.
5. What is recorded by Dr Shiffman in his email is consistent with him acting as an advisor and mentor to the Founders. It is not consistent with him acting as a decision maker or a person setting policies or being involved in management of Sleeping Duck as alleged by BBHF.
6. In his witness statement Dr Shiffman said the work he undertook in the period to June 2019 included:

Initiating, preparing agendas for, calling and participating in informal 'board meetings', where decisions were made concerning financial reporting and performance, marketing, recruitment and policies were discussed and made, this includes initiating regular fortnightly meetings.

1. This description is consistent with evidence given by Mr Sinnappan. He described Dr Shiffman's work during the period to June 2019 as providing advice to the Founders about Sleeping Duck's finances, performing work on financial matters and participating in meetings, particularly where financial matters marketing and recruitment were discussed. He said Dr Shiffman provided advice and assistance, 'as an advisor who made suggestions which we considered. He was not a decision maker'. I accept that as an accurate description of Dr Shiffman's role at that time.
2. In his witness statement, Mr Sinnappan drew attention to three separate communications between the Founders and third parties where Dr Shiffman was referred to by the Founders as an 'advisor to Sleeping Duck' and our 'mentor'.

206 There was no capital raising during the first 10 months of Dr Shiffman's involvement. Dr Shiffman performed the role described his 15 January 2018 email. He mentored the Founders. They appreciated the work he performed in that role.

207 Between April and June 2018, Sleeping Duck achieved average sales of $254,866.53 per month. Between August and October 2018, average sales were $343,962.37 per month, a 35% increase.

1. In November 2018, Dr Shiffman renewed his quest for increased equity. This time he flagged his desire to become a 20% shareholder in lieu of the 5% of shares and 5% of options agreed upon in early 2018.
2. On 12 November 2018, with the initial ten month period of his involvement in exchange for 10% equity coming to a close, Dr Shiffman emailed the Founders:

At the moment I give you $50k and I get 10% basically.

I want to be as involved as I am or perhaps escalate it over time, and raising capital is going to take a shitload of my time and contacts.

I want to figure out how I get to 20% in a way that recognises my past and ongoing contribution. Basically you want me to be that exposed as I'll be more engaged and involved making you rich.

So...please think about how that can happen, let me know some thoughts, and lets chat.

I love this business, love being involved with you, please let me get proper exposure in a fair way.

1. Contrary to his email, Dr Shiffman owed $100,000, not $50,000 as the exercise price for his agreed options. On 18 November 2018, Mr Sinnappan replied. He corrected Dr Shiffman concerning the exercise price, and reproduced the relevant portion of Dr Shiffman's 15 January 2018 email. Later that day, Dr Shiffman responded. He acknowledged his $50,000 error. His response continued:

I want to get to 20% and I don't think just participating in a raise is good because:

1. It feels unfair and too high a Val considering I help you get to that val.

2. It gives me a counter-incentive - to keep the valuation low.

1. Although on 30 November 2018, Dr Shiffman's entitlement to exercise his options fully vested subject to payment of the $100,000 option fee, Dr Shiffman did not take any action to exercise his options at that time. When cross-examined, he said he did not pay for the shares at that time or have them transferred to him (or to BBHF) because he wanted to finalise the terms of his equity with the Founders. I accept the truth of that evidence. It is consistent with Dr Shiffman's 6 June 2018 and 12 and 18 November 2018 emails. His objective was to secure a greater equity interest in Sleeping Duck for himself. The Founders did not agree to his overtures.
2. On 2 December 2018, Dr Shiffman prepared a budget for Sleeping Duck for 2019-2021.
3. In December 2018, Sleeping Duck was announced as the winner of the 'CHOICE' award for the top-rated mattress in Australia. The award provided a very significant boost for the business. However, it is also the case, as demonstrated by the sales in the period August to October 2018 to which I have referred, that, prior to the announcement, the business had already began to grow.
4. On 16 January 2019 the revenue report for the first half of FY 2019 issued; revenue was $2.2m. If 3,000 mattresses were sold in the first six months of 2019, the business was anticipated to achieve revenue of $5.7m for the 2019 financial year.
5. On 2 February 2019, Dr Shiffman renewed his request to be allocated additional equity. He put forward a detailed proposal to the Founders to achieve a 20% interest in Sleeping Duck:

I wanted to put in writing some of the stuff I've proposed previously as a way for me to get to 20% of SD, which I think we all agree is the right and fair number.

I also think I have a solution that doesn't make you give me a low-ball equity, but gives me some optionality.

• 5% equity (assuming we got to the end of that period which ended in October 2018 I think)

• Option for 5% equity for $100k (so $2m valuation) expiring sometime (I need to check)

Could I propose the following as a way to deliver what I need to keep being this involved and more, and acceptable to you.

• 5% for $100k purchase from you guys (so secondary stock), with expiry 1/2/2020. Valuation $1m.

• 10% for $1m purchase from you guys (so secondary stock), with expiry 1/2/2023. Valuation $10m.

This means you'll personally be $1.1m richer from my investment.

• If I play a key role in a capital raising for you, you'll pay me $50k or 2% when it closes, whichever is larger, as a consulting fee. So if we do a $1m raise I will get $50k. If it's a $3m, I will get $60k. If you think I didn't earn it, you can just not pay it. Your call. Your power. No recourse.

The other discussion to have is whether I step in as Chairman more formally, which will let me commit more time but probably I'll want some cash payment for that.

Anyhow can we speak about this and lock down whatever we decide ASAP as I want to ramp up involvement here but I want to get to 20%.

1. The 2 February 2019 proposal put a value on Sleeping Duck of $10m in lieu of the $2m value in the 15 January 2018 email. If agreed to by the Founders, Dr Shiffman's proposal allowed him until 1 February 2032 to exercise the further 10% options based on an underlying value of $10m upon payment of $1m.
2. In cross-examination Dr Shiffman said he did not consider his email to be an attempt to value the company as at February 2019. I do not agree. His proposal represented an implied valuation of $10m. He wanted to secure an option to purchase a 10% interest in the future based on that value.
3. Mr Wijeyeratne responded to Dr Shiffman's 2 February 2019 proposal later that day:

Thanks Adir - Sel and I will obviously have to chat about this.

So once he gets clear of his family stuff and is back in the right mind set we will chat and come back to you.

1. Mr Sinnappan gave unchallenged evidence he never agreed with Dr Shiffman that it would be 'right and fair', Dr Shiffman's language in his 2 February 2019 email, for Dr Shiffman to have a 20% interest in Sleeping Duck on the terms proposed. Mr Sinnappan did not engage with Dr Shiffman in response to this latest request for more equity, and apart from his 'holding response', neither did Mr Wijeyeratne.

E3.4 February/ March 2019 agreement for Mr Bandopadhayay to receive 10% of Sleeping Duck

1. Following meetings between Mr Bandopadhayay and Mr Wijeyeratne, in early 2019 Mr Bandopadhayay commenced work at Sleeping Duck.
2. On 7 February 2019 Mr Wijeyeratne emailed Mr Bandopadhayay proposing that he commit to a day or so a week as creative director and reassess 'as we go' with an hourly rate of $100. A few days later Mr Bandopadhayay responded agreeing to begin work. In the period March-September 2019, Mr Bandopadhayay charged $100 per hour for his work. In around September 2019 the arrangement changed to a fee of $10,000 per month.
3. At the same time Mr Bandopadhayay was invoicing and being paid for his work, Mr Bandopadhayay and Mr Wijeyeratne came to an agreement that Mr Bandopadhayay was to get 10% of Sleeping Duck. Asked why he kept invoicing in those circumstances, Mr Bandopadhayay said that at the time he did not think Sleeping Duck was 'worth anything'.
4. Mr Wijeyeratne gave evidence that in March 2019 he had a discussion with Mr Bandopadhayay in which he told him the Founders intended to give him 10% of the shares in Sleeping Duck in return for his work.
5. Mr Bandopadhayay was cross-examined concerning his description of the agreement he said he made with Mr Wijeyeratne in February/March 2019 that he would receive 10% of the shares in Sleeping Duck in return for his work over three years.
6. It was not put to either Mr Wijeyeratne or to Mr Bandopadhayay that no such agreement was made at that time and I accept there was the agreement for the grant of a 10% interest in Sleeping Duck of which both men gave evidence.
7. What was put in cross-examination, which Mr Bandopadhayay accepted, and which I also find, is that at that time there was no agreement for an ESOP as the mechanism by which Mr Bandopadhayay was to receive his 10% interest. There was no evidence the mechanism for delivery of the 10% interest was discussed in February/March 2019.
8. Asked why the agreement was for three years, Mr Bandopadhayay said Mr Wijeyeratne had told him that at some point he, Mr Wijeyeratne, was going to exit Sleeping Duck. He said he needed Mr Bandopadhayay to be by his side to get to that point. It was like 'a partnership - not a legal partnership, but a partnership of working together and I was trying to work out what the bounds of that is to get to the point he needed to go in exchange for the 10 per cent'.[52]
9. In cross-examination, Mr Bandopadhayay said Mr Wijeyeratne did not use the term 'sweat equity' to which reference was made by Mr Bandopadhayay in his witness statement, but that was his interpretation of the conversation. Asked about the exact words used, Mr Bandopadhayay said Mr Wijeyeratne told him 'the right amount that we can give you, the right figure that I can give you is about 10 per cent'.[53] He said that in an earlier conversation, Mr Wijeyeratne had told him 'for the work you're doing, I can reward you with some equity'.[54]

229 Mr Bandopadhayay gave evidence, which I accept, that there was no discussion between the two men about what would happen if Sleeping Duck made a decision he was no longer required.

1. Mr Bandopadhayay was cross-examined about the work he did for Sleeping Duck for the next three years. He said that he was doing the same kind of work as before but the time involved depended on the outputs Mr Wijeyeratne needed. In 2019 he was working two to three days a week but by the time of trial was working 'six days a week, more than 10 hours a day'.[55] Mr Bandopadhayay said he did not commit to that level of work in 2019, but the work has grown to that point.

E3.5 March 2019 meeting Dr Shiffman and the Founders

1. It is part of BBHF's case to allege that by March 2019, Sleeping Duck already had a minority shareholder, so the Founders were not able to simply issue shares to Mr Bandopadhayay ignoring the interests of that minority shareholder. I do not accept there was a fetter on the ability of Sleeping Duck to issues shares, although whether the agreement to issue the shares was oppressive is a separate matter.
2. Turning to that issue, it is correct that as at March 2019 BBHF was a 5% minority shareholder. It was also the holder of 5% in options. However, as recently as 18 November 2018 Mr Sinnappan had reminded Dr Shiffman that the existing arrangement as per Dr Shiffman's 15 January 2018 email, was 'common shares, plus options dilute like everyone else'. On 2 February 2019, Dr Shiffman had put a proposal to the Founders to increase his equity to 20%. That proposal had not been agreed to, but even if it had, that proposal by Dr Shiffman was silent about non-dilution as a consequence of a share issue. It was no feature of any agreement or understanding with Dr Shiffman arrived at prior to March 2019 that he would not be diluted.
3. As at March 2019, it was no secret so far as Dr Shiffman was concerned that Mr Bandopadhayay was to be given a 10% interest in Sleeping Duck. What is in contest is what Dr Shiffman knew about how that interest was to be documented, and whether he agreed to or acquiesced in those arrangements.
4. Dr Shiffman gave evidence in his witness statement that in March 2019 he attended a meeting with the Founders and Mr Curry. He said that at the meeting the Founders said they were intending to give Mr Bandopadhayay options to acquire 10% of their shares, based on a $100m valuation with an ongoing contribution. He said he told the Founders he 'thought they were crazy to be offering up 10% of their own shares to Prateek, but it was their money'.
5. The reference by Dr Shiffman to Mr Curry being present at the March 2019 meeting at which Mr Bandopadhayay's options were discussed is incorrect. When Dr Shiffman adopted his witness statement he deleted the reference to Mr Curry being in attendance. Mr Curry did not commence his engagement as CFO until 25 March 2019.
6. In cross-examination, Dr Shiffman accepted Mr Sinnappan's evidence that during the March 2019 meeting he said 'there must be a light shining down on us because of the growth we are experiencing' and that in response Mr Wijeyeratne said 'this is the result of the work that Prateek is doing. I want Prateek to be part owner too. I think the right number is 10 per cent...'.[56]
7. Dr Shiffman said he felt it was 'very unusual' that the Founders would give that share of Sleeping Duck to Mr Bandopadhayay at that point in time, when it had already begun succeeding due to Mr Bandopadhayay's efforts and that he communicated this sentiment to the Founders 'in no uncertain terms'.
8. When it was put to Dr Shiffman that the Founders did not mention the mechanism by which Mr Bandopadhayay was to be given 10% of the shares at the March 2019 meeting, Dr Shiffman disagreed. In cross-examination, Dr Shiffman said he could not recall suggesting a strike price during the meeting, but his recollection was that there was a remark of 'something like a $100m'.
9. Mr Sinnappan gave evidence in his witness statement about the March 2019 meeting. He denied discussion took place about whether Mr Bandopadhayay's equity would be provided by way of share transfer or options, whether the shares would be newly issued or transferred by the Founders or the price at which the equity would be provided. Mr Bandopadhayay gave evidence to similar effect in his witness statement. Both of the Founders gave evidence a strike price of $100m was not discussed.
10. Mr Wijeyeratne was cross-examined about the meeting. He denied Dr Shiffman said he thought the Founders would be crazy to be offering Mr Bandopadhayay 10% or that Dr Shiffman used the words 'but it's your shares and it's your money'.[57] In cross-examination Mr Sinnappan also denied Dr Shiffman's response to the Founders was as stated by Dr Shiffman.
11. I accept the Companies' submission that while in cross-examination Dr Shiffman said he had a 'fairly good recollection' of the March 2019 meeting given he was mistaken about who was at the meeting, there is a real question over the reliability of his memory of what was discussed.
12. The discussion Dr Shiffman alleges took place about granting options in favour of Mr Bandopadhayay to acquire 10% based on a valuation of $100m took place approximately one month after Dr Shiffman requested options to acquire 10% with a 1 February 2023 expiry date based on a total value of Sleeping Duck of $10m. I do not accept that details of matters such as the option exercise price were discussed at the March 2019 meeting, or, if the exercise price was discussed, that it was on the basis of a $100m exercise price, ten times what Dr Shiffman had only recently requested as the exercise price for the options he was seeking.
13. I also do not accept Dr Shiffman's evidence that the source of the options - whether to be issued as new shares by Sleeping Duck or via transfers of shares from the Companies was discussed. I do not accept Dr Shiffman said, or that at the time of trial he had a recollection of saying that he 'thought the Founders were crazy to be offering up 10% of their own shares to Prateek, but it was their money' as was his evidence.
14. Where there is contest about what was discussed at the March 2019 meeting, I prefer the evidence given by the Founders.

1. Mr Curry began his role at Sleeping Duck on 25 March 2019. Dr Shiffman was involved in hiring Mr Curry and negotiating his terms and conditions as a contractor.
2. Mr Curry said that after he began as the CFO there were formal meetings generally at the request of Dr Shiffman but the day to day management team comprised him, the Founders, and later, Mr Paluch. When he wanted information about the financials in the first instance, if it was an operational matter, he would speak to Mr Sinnappan. While given the opportunity to do so in his evidence in chief, Mr Curry gave no evidence of discussing such matters with Dr Shiffman. Dr Shiffman's involvement of which Mr Curry gave evidence as time went on was in strategy days and setting agendas, and chairing 'board meetings' and investor presentations.
3. On 15 May 2019, Dr Shiffman organised a strategy meeting with the Founders and Mr Curry. Mr Sinnappan gave evidence that he was not impressed by Dr Shiffman's presentation at the meeting. He felt he already knew all of the information that Dr Shiffman provided. Mr Wijeyeratne recalled telling Dr Shiffman at the meeting 'we do not need this type of advice', 'we have things under control'. The Founders agreed they would discuss Dr Shiffman's ongoing role by the end of the month.
4. When cross-examined about Dr Shiffman's involvement in the May 2019 strategy day, Mr Curry accepted the advice being given to Sleeping Duck then was the same sort of advice and concerned the same sorts of matters now being given by Dr Shiffman to Eva, a company Mr Curry accepted to be a competitor of Sleeping Duck in which both Mr Curry and Dr Shiffman were involved at the time of trial.
5. On 28 May 2019, Dr Shiffman sent an email to the Founders concerning his ongoing involvement. The description by Dr Shiffman of his role and activities is a description of a person acting as a mentor and an adviser, it is not a description of a person who has been 'participating in management'. In the email, Dr Shiffman referred to the 31 May 2019 deadline for determining his ongoing involvement in Sleeping Duck, if any. He listed what he felt he had added to the business. He said he could not sustain a continuing involvement for 'love'.
6. By this time, about six months had passed since the expiration of the earlier agreement for Dr Shiffman's remuneration. Nearly four months had passed since he had sought an option to acquire a further 10% based on a $10m valuation. That request, and the basis of Dr Shiffman's ongoing involvement remained unresolved. In the meantime, his involvement had continued.
7. In his 28 May 2019 email, Dr Shiffman wrote:

My interpretation of Winston's comments two weeks ago was that you believe the two of you have the ability to do it yourselves from here ... If that is the right interpretation then I'm 10% hurt (as I feel under-appreciated!) ... we are here today on the edge of opportunity instead of bankrupt because of the relative skills and contribution of each of us over the last 18 months or so (and the work you did before that). Of course this is all totally your call, but let me know. I'd like to keep doing what I'm doing and help take the next step together. But you need to let me know candidly (a) whether you want me to, and (b) whether you can make it worthwhile for me.

If not, there are no hard feelings. I'm comfortable being a passive minority investor, have a coffee every few months for an update, collect dividends as they are issued, and one day hopefully collect and equity check.

252 In cross-examination, asked if it was true he was comfortable being a 'passive minority investor' Dr Shiffman responded: 'Well, that was part of a negotiation that I never thought would come to transpire and so I knew there was no chance of me becoming a passive minority investor'.[58]

1. On 28 May 2019 Mr Wijeyeratne replied. He expressly recognised Dr Shiffman's contribution to Sleeping Duck and his aggressive 'get shit done fast' attitude which had accelerated growth in the business. He expressed his gratitude to Dr Shiffman for his contribution and said if the business was to 'go for a number like $100m it will be difficult to do without you'.
2. Mr Sinnappan responded in the same email chain. He referred to the business being on track for a $2m - $3m profit for the current year, to the business having no initiatives requiring capital and the Founders not having a need for cash, whether for the business or personally. He concluded:

Your ability to help guide us in our goal to get to 100m+ is real but selling equity for it is difficult given there is no need for cash right now. We are struggling to reconcile these points and come up with a suggested way forward.

1. On 3 June 2019, Dr Shiffman responded with a new proposal. He changed tack. He introduced the idea of payment of $10,000 per month for his services, together with options to acquire an additional 10%. Unlike the February 2018 agreement, where the strike price was based on a value of $2m and Dr Shiffman's 2 February 2019 email which proposed a strike price based on a value of $10m, and inconsistent with his evidence that a strike price of $100m was discussed only two months earlier concerning Mr Bandopadhayay's options, Dr Shiffman proposed an average strike price based on a value of $25m.
2. On 11 June 2019, Mr Sinnappan responded on behalf of the Founders. They agreed to the $10,000 per month consulting fee which Mr Sinnappan described as a fair way for the 'three of us to move forward from here'. The email was silent about any further options. However, on 18 June 2019, Mr Sinnappan sent another email to Dr Shiffman. He said the Founders thought the business was already worth at least $25m and that its value was only likely to increase. The Founders did not agree to further options in return for Dr Shiffman's ongoing involvement. They were happy to start the $10,000 per month consulting fee on 1 July 2019.
3. On 18 June 2019, Dr Shiffman persisted with his requirement for additional options. He told the Founders:

In terms of options, I don't think we need an external valuation event as I'm effectively paying you $2.5m for the 10% of the company which doesn't need an external valuation.

1. As part of his proposal to acquire options based on a value of $25m, Dr Shiffman increased the earlier agreed discretionary fee to be paid to him for capital raising from 2% to 5%. The evidence does not record a response by the Founders regarding that proposed increase.
2. It seems the Founders were correct in their assessment of the value of Sleeping Duck at that time as being at least $25m. On 16 June 2020 RSM valued the business as at 1 July 2019 at $51.6m on a 100% basis, or at $34.6m for a minority interest.
3. The 18 June 2019 email from Dr Shiffman said he was happy to start the $10,000 consulting fee on 1 July and, in terms of activity on his part, he saw no material change.
4. The evidence of Mr Curry and the other evidence to which I have referred concerning Dr Shiffman's involvement in the period to June 2019 does not provide support for a finding of 'participation in management' by Dr Shiffman as is alleged by BBHF to have been the case. The evidence supports a finding that the work performed by Dr Shiffman was the provision of mentoring and advice to the Founders, as is the Companies' defence.
5. There was a difference between the witnesses about how much time Dr Shiffman spent working in relation to the business in the period to 30 June 2019.
6. Mr Sinnappan estimated Dr Shiffman spent around two to four hours per week on work for Sleeping Duck, noting 'there were weeks where [Dr Shiffman] did more work and others when [Mr Sinnappan] did not hear from [Dr Shiffman] at all'. This was at a time when each of the Founders was working 60-80 hours per week.
7. Dr Shiffman did not agree with that assessment of the time spent by him in the business during this period. He said he was working on Sleeping Duck business most days and was spending substantially more time than he had originally anticipated. Cross-examined about that evidence, including concerning competing demands on his time due to his involvement in and commitment to other start-ups, in substance it was Dr Shiffman's evidence that his 'time commitment with Sleeping Duck would have become competitive with [his] time commitment towards Catapult'. Catapult being another business in which he was involved. Dr Shiffman said he was working on the business 'most days...almost every day'.[59]
8. The dispute about the number of hours worked by Dr Shiffman is not critical, but to the extent it matters, communications in evidence during this period are consistent with Dr Shiffman spending more than 2-4 hours per week on Sleeping Duck business on average, but much less than the time commitment of which he gave evidence.

1. In his witness statement Dr Shiffman said that on around 19 June 2019 he attended a meeting with the Founders at Sleeping Duck's office in Abbotsford. During the course of that meeting he reached an agreement about his equity in Sleeping Duck and his involvement in the business including that he would mentor and advise the management team. In exchange he was to be paid $10,000 per month from 1 July and the Founders would each provide him with options to purchase 5% of the total issued capital of Sleeping Duck from them for a total interest of 10% exercisable at four different levels of value. Those levels of value are referred to by BBHF in its statement of claim and are discussed in relation to issues 4 and 5 below.
2. It was Dr Shiffman's evidence that from the meeting on 19 June 2019 he 'expected that [he] would have an even deeper level of involvement in the management of the Sleeping Duck business than before and [he] would have an ability to secure additional 10% equity'.
3. The contemporaneous documents do not support Dr Shiffman's account of what he said was agreed at a meeting 'on around 19 June 2019'. First, his witness statement does not contain an account of what he says was actually said by anyone at a meeting on 19 June 2019. Second, no email shortly after 19 June 2019 reporting on what was said and/or agreed at a meeting that day is in evidence. Third, his email sent the day before, on 18 June 2019, referred to him continuing doing what he had been doing. It did not refer to him having a 'deeper' or different level of 'involvement in the management' of the Sleeping Duck business. Fourth, the impasse in relation to BBHF being granted additional options was not resolved until 1 July 2019.
4. For those reasons I do not accept what is said by Dr Shiffman in his witness statement about what was agreed upon or about the expectation that he had following a meeting on or around 19 June 2019 is accurate.

1. On 21 June 2019 Dr Shiffman sent a further email referring to the value of Sleeping Duck as $25m. On 29 June 2019, the Founders emailed Dr Shiffman saying the valuation of $25m did not seem to reflect a fair value for the business. In the same email the Founders told Dr Shiffman they had reversed their earlier agreement to pay him $10,000 per month:

A $10k/month consulting feels like it should be 1 full day per week at our office. We don't think there is 1 day a week of work for you to do in order for us to achieve the plan. ...

As we've said in the past, we really do value your skillset but we think it will make more sense for you to be more involved when we're at a higher revenue number, our team is bigger, and we have a senior management team in place.

We realise this isn't a good look given that we're backtracking on what we previously said, but we've only been able to clarify our thinking over the past week. We hope you can understand our position.

1. A short time later Dr Shiffman responded. He said the earlier email was:

...probably the worst email I've ever received from a business partner.

...

When I got involved you were close to broke. When my first agreement expired I kept working because you had no money and barely paid yourselves, and were still only a part way through a turnaround.

Then you started paying yourself properly. I still asked for no cash. ...

Now you say you're not going to honour what we explicitly agreed, and instead shaft me.

Aside from being really commercially dumb, it's unbelievably unethical and probably more.

1. Five minutes later Dr Shiffman sent a text message to the Founders giving formal notice of the exercise of his options:

Also I want to tell you formally that as of today (June 29, 2019) i [sic] am exercising my 5% option so please tell me where to send the $50k funds to each of you and Winston and we need to issue the share certificates for 10% equity to me ASAP please.

273 Mr Sinnappan sent a text message about 30 minutes later telling Dr Shiffman 'we're not trying to shaft you ... it's clear you have the first 10% (initial 5% from last year plus 5% option for $100k), that's not in question. Please call ...'.

1. Text messages were exchanged later that day between Mr Sinnappan and Dr Shiffman. Mr Sinnappan gave evidence, which I accept, that he telephoned Dr Shiffman during the afternoon of 29 June 2019, a Saturday. He said he remembers saying to Dr Shiffman 'let's meet on Monday and try and fix these issues'. On Sunday 30 June 2019, Mr Sinnappan and Dr Shiffman exchanged text messages on WhatsApp, agreeing to meet at a café at 2:00 pm on Monday, 1 July 2019.
2. Dr Shiffman gave evidence there was a telephone discussion during which Mr Sinnappan said words to the effect that he apologised for the 29 June 2019 email and confirmed the Founders would honour what had been agreed per the 19 June 2019 meeting. In light of the arrangements to meet and the contents of emails and texts exchanged between 29 June 2019 and 1 July 2019, I find that Dr Shiffman was in error when he said that on 29 or 30 June 2019 Mr Sinnappan telephoned and apologised for the earlier email and confirmed what had been agreed on 19 June. While as Mr Sinnappan said, there was a call on 29 June 2019 there was no apology or confirmation of an agreement on that call. There was no substantive discussion until the meeting on 1 July 2019.

E4 Issues 4 and 5: the June/July 2019 common understanding

1. The Agreed Chronology records that in late June/early July 2019, a common understanding (the terms of which are in issue) was reached between Dr Shiffman, Mr Sinnappan and Mr Wijeyeratne about Dr Shiffman's involvement in Sleeping Duck.

277 What is in dispute is when such an understanding was reached and, more importantly, what was 'understood'.

1. BBHF alleges at a meeting on 19 June 2019 between Dr Shiffman and the Founders the 'Second Understanding on Participation' was agreed, the elements of which were:
   1. Dr Shiffman would participate in the management of Sleeping Duck and perform the following roles:

i. Mentor and advise the Founders;

ii. Mentor and advise the management team;

1. Develop and implement the corporate and commercial strategy and plan for Sleeping Duck ;

2. Identify and lead capital raising pursuits and activities, including the sell down, or part sell down, of the shareholdings of the Founders and/or Dr Shiffman;

v. Provide general financial oversight;

vi. Recruitment [sic] a management team;

vii. Lead public relations, as required;

viii. Provide recommendations on marketing; and

1. Facilitate introductions for commercial and corporate opportunities.

2. Sleeping Duck would pay Dr Shiffman a monthly amount of $10,000, with effect from 1 July 2019;

3. The Founders would each provide Dr Shiffman with options [additional] to purchase 5% of the total issued capital of Sleeping Duck from them (totalling 10%), exercisable as follows:

i. 1.25% on the basis that Sleeping Duck be valued at $15m;

ii. 1.25% on the basis that Sleeping Duck be valued at $50m;

iii. 1.25% on the basis that Sleeping Duck be valued at $75m; and

iv. 1.25% on the basis that Sleeping Duck be valued at $100m.

1. The Companies deny the Second Understanding on Participation. They allege as a result of emails exchanged on 28 May 2019 and between 28 May 2019 and 29 June 2019 and discussions at a meeting on 1 July 2019 between Dr Shiffman and the Founders regarding the services Dr Shiffman would offer, in the course of which Dr Shiffman said he would be able to secure a sell-down of some or all of the Founders' equity in Sleeping Duck a common understanding was reached (Second Services Understanding) that Dr Shiffman would:

(i) act as an ad-hoc advisor to the Founders and Sleeping Duck;

(ii) provide introductions to third parties such as financial services providers, logistics companies and other comparable start-ups;

(iii) make suggestions to the Founders concerning the growth of the Sleeping Duck;

(iv) make suggestions to the Founders regarding potential hires for the management team;

(v) identify capital raising and sell-down opportunities, advise the Founders regarding the same and, upon direction of the Founders, progress capital raising and sell-down opportunities.

1. The Companies allege that in exchange for his work pursuant to the Second Services Understanding Dr Shiffman was to receive:

(vii) a monthly consultancy fee of $10,000; and

(viii) options to purchase an additional 10,000 shares (5,000 from each of the Founders) upon Dr Shiffman successfully organising a sell-down of the Founders' equity in Sleeping Duck. Those options would be exercisable as follows:

(A) one-quarter on the basis that Sleeping Duck be valued at $15m;

(B) one-quarter on the basis that Sleeping Duck be valued at $50m;

(C) one-quarter on the basis that Sleeping Duck be valued at $75m; and

(D) one-quarter on the basis that Sleeping Duck be valued at $100m.

1. A comparison between the pleadings shows there is much in common between the competing understandings alleged. There is an important distinction concerning Dr Shiffman's role in management. BBHF alleges it was agreed he would participate in management, the Companies deny he was to have any management functions or responsibilities. There is also an important distinction between 5% of the total issued capital from each Founder as alleged by BBHF, implicitly a percentage to be kept whole in the event of any new share issues, and 5,000 shares from each Founder as alleged by the Companies in their defence, leaving the prospect of dilution open.
2. BBHF alleges the Second Understanding on Participation, together with the matters pleaded concerning the period October 2017 to January 2018 gave rise to a legitimate expectation that Dr Shiffman would participate in the management and strategic direction of Sleeping Duck. The Companies deny those allegations.
3. For the reasons discussed in section E1.2, the events of October 2017 - January 2018 do not support the legitimate expectation to participate in management and strategic direction alleged. The emails between 28 May 2019 and 29 June 2019 upon which the Companies rely in their defence referred to in sections E3.6 and E3.8 are inconsistent with BBHF's alleged Second Understanding on Participation. In none of them was a 'new' role for Dr Shiffman, including such activities as mentoring and advising the management team mentioned.
4. For the reasons discussed in section E3.7, what occurred at a meeting on 19 June 2019 does not support the existence of the alleged Second Understanding on Participation or of the existence of the legitimate expectation that Dr Shiffman would participate in the management and strategic direction of the Sleeping Duck. It follows the existence or otherwise of the Second Understanding on Participation and the legitimate expectation Dr Shiffman would participate in the management and strategic direction of Sleeping Duck alleged by BBHF depends on the events of July 2019.

1. Before turning to discussion of the evidence relevant to the competing June/July common understandings, it should be noted that 1 July 2019 is the grant date for the options recorded in Schedule 1 of Mr Bandopadhayay's ESOP. The ESOP was entered into 12 months later, on 29 June 2020, with a strike price of $450 per Option.
2. 1 July 2019 is also the date from which Sleeping Duck was invoiced and commenced to pay Dr Shiffman a monthly fee of $10,000 via his company, Alia Group Pty Ltd.
3. Both Founders gave evidence in their witness statements of a meeting with Dr Shiffman on 1 July 2019. Dr Shiffman gave no evidence in his witness statement about such a meeting but I find that a meeting took place on that day.
4. Dr Shiffman and Mr Sinnappan met at a café in South Yarra on 1 July 2019 as previously arranged. The meeting followed the 29 June 2019 withdrawal of the offer of a $10,000 per month consultancy in favour of Dr Shiffman and Dr Shiffman's response referring to that email as the worst he had ever received from a business partner. The meeting closely followed Dr Shiffman's 29 June 2019 text message asking to exercise his existing options but it occurred at a time when there was no agreement between the parties about any additional options in Dr Shiffman's favour.
5. Mr Sinnappan gave evidence, which I accept, that until the 1 July 2019 meeting, the Founders had not agreed to give Dr Shiffman any options (beyond the initial arrangement by which they gave him an option to acquire 5% of the equity in Sleeping Duck for $100,000. Nor had they required him to focus on a potential sell-down. At the meeting Mr Sinnappan asked how additional options or equity would work as the Founders had already given Dr Shiffman a lot of options. Dr Shiffman said the options could be linked to a transaction 'Transactions are my speciality and I've done them many times before. If I achieve a sale of your shares, then I'll get the options'.
6. In his witness statement, Mr Sinnappan said he recalled thinking Dr Shiffman's proposal made sense because:

a sell-down would be valuable to both the business and me and Winston personally, and it was an area in which I recognised that Dr Shiffman had some experience.

1. In cross-examination, Mr Sinnappan said at the 1 July 2019 meeting he and Mr Wijeyeratne agreed to pay Dr Shiffman the $10,000 per month consulting fee. It was at this point that an agreement to grant further options was also struck. I accept the accuracy of that evidence.
2. Mr Wijeyeratne gave evidence in his witness statement that on 1 July 2019, the Founders met with Dr Shiffman where a conversation to the following effect took place:

Dr Shiffman: I never want to have a weekend like that again. I felt so upset after receiving your email. I thought you guys were trying to screw me. It's not good for my mental health, for my life, to feel like that.

We're at a cross-roads here. We have two options. We can finish our thing there, I've got my 10%. Alternatively, I'll explain this to you. I think what you've been saying is you want me to buy the equity from you. If I'm to do that, I need to sell some of my assets. I'm not in a liquid position.

Winston: We don't want to give away a further 10% of the business that we have worked so hard to create, without receiving something we think is appropriate in return.

Dr Shiffman: I'm not sure if you guys understand what I'm proposing. I'm not getting shares today. I'm only getting shares when you guys get money off the table. The way this works is I'll set it up in four tranches of options that are increasing in value - valuations for the Company at $25m, $50m, $75m and $100m. Only when you guys get the equivalent of $5m cash, that's when the shares become available to me. Then I still need to buy them off you.

If you guys think you can get the Company to a $100m valuation without me, that's crazy.

My main ability is to facilitate sell-downs. I did it with Catapult, I did it with other businesses, I can do it for you and can guarantee a sale of most of your shares. You should also think about making the first tranche at a $15m valuation not $25m. Catapult took care of me and you should too. We can all work well together.

1. Mr Wijeyeratne also gave evidence that agreement with Dr Shiffman regarding the terms of his ongoing involvement was reached at the 1 July 2019 meeting. He said that upon Dr Shiffman explaining how the proposed options tranches were to be linked to the sale of the shares he was willing to give Dr Shiffman options over the additional 10% he had requested, on the condition that he obtained a sell-down of all or part of the Founders' shares. He said that at the meeting, one or other of the Founders told Dr Shiffman they would pay him the $10,000 consultancy fee.
2. Mr Wijeyeratne said that after meeting, his understanding was that Dr Shiffman would continue with the previous consulting work that he was doing for the Founders, with the added focus on helping achieve a potential sell-down of some or all of their shares. He said:

I never agreed with Dr Shiffman that he would be involved in the management or strategic direction of Sleeping Duck, except to the extent that Selvam or I involved him in that process.

1. I accept the accuracy of Mr Wijeyeratne's evidence concerning this meeting.
2. Mr Sinnappan gave evidence that following the 1 July 2019 meeting, Dr Shiffman performed more work for Sleeping Duck than before, particularly as the potential sell-down process developed. This work involved Dr Shiffman providing his advice, mentorship and recommendations on a range of areas to the Founders. However, it did not involve Dr Shiffman making decisions on behalf of Sleeping Duck. I accept the accuracy of that description of Dr Shiffman's role after 1 July 2019.
3. In his witness statement, Mr Sinnappan gave examples of major projects undertaken without Dr Shiffman's involvement. These included major marketing projects created by Mr Bandopadhayay and Mr Wijeyeratne; the custom back end system for the business which Mr Sinnappan was involved in developing; creating and developing a new warehousing and delivery model; the Mach II mattress project; the Indestruct Bed project; and the late 2020 Sleeping Duck rebrand. I accept Mr Sinnappan's evidence that these were activities about which the Founders did not consult Dr Shiffman before being decided upon - that is because that was not Dr Shiffman's role.
4. I reject BBHF's allegation that there was a Second Understanding on Participation. There was a common understanding arrived at on 1 July 2019. That understanding involved Dr Shiffman being paid $10,000 per month and being provided with options to purchase a further 10% of the shares in Sleeping Duck 'linked to a transaction, a sell down of equity'. The options were to be exercisable at the strike prices identified in the pleadings.
5. What was discussed and agreed was 10% of Sleeping Duck at the time of an equity sell down as described in Mr Sinnappan and Mr Wijeyeratne's evidence.
6. Contrary to BBHF's pleaded case, no agreement or understanding was reached on 19 June or 1 July 2019 or at some other proximate date that Dr Shiffman was to participate in management. The allegation by BBHF that, by reason of the Second Understanding on Participation and the basis on which it was reached, Dr Shiffman had a legitimate expectation he would participate in the management and strategic direction of Sleeping Duck is not substantiated by the evidence. It is not proved.
7. The focus for Dr Shiffman into the future was to be on equity sell down and capital raising. There was no basis for Dr Shiffman to 'expect [he] would have an even deeper level of involvement in the management of the Sleeping Duck business than before' as stated in his witness statement.

E5 Issues 6 and 7: the early 2020 common understanding

302 The Agreed Chronology records that in early 2020 a common understanding (the precise terms of which are in issue) was reached between Dr Shiffman and the Founders about the potential sale of shares in the company.

303 BBHF alleges there was an understanding to sell down existing issued capital of Sleeping Duck to third parties ('Understanding on Sell Down') including by an initial public offering (IPO), a partial or complete sell down of shareholdings, debt funding and asset sales ('Sell Down Opportunities'):

(a) Dr Shiffman would identify Sell Down Opportunities for the Founders and Dr Shiffman to consider; and

(b) when a commercially reasonable Sell Down Opportunity was identified, they would each take steps to give effect to it.

304 BBHF alleges that based on the Understanding on Sell Down, from around February 2020 to October 2021 Dr Shiffman identified Sell Down Opportunities for he and the Founders to consider and made recommendations to the Founders as to whether the Sell Down Opportunities were commercially reasonable.

305 It alleges by reason of the Understanding on Sell Down Dr Shiffman held a legitimate expectation that he would be involved in the management of Sleeping Duck in respect to the identification and assessment of Sell Down Opportunities and Sleeping Duck would take all commercially reasonable steps to pursue and advance Sell Down Opportunities.

306 The Companies deny those allegations. They allege that in early 2020 Dr Shiffman and the Founders had discussions regarding the potential sale of some of the issued capital of Sleeping Duck to third parties. During those meetings, Dr Shiffman said he had considerable experience in this process and would be able to advise the Founders and facilitate a sell-down of the Founders' equity if desired. The Companies plead that during those meetings, a common understanding was reached (**'**Potential Sale Understanding') that:

(a) Dr Shiffman would advise the Founders as to the different options for a sell-down, including by way of an IPO, a partial or complete sell-down of shareholdings, debt funding, and asset sales;

(b) Dr Shiffman would identify Sell Down Opportunities for the Founders to consider; and

(c) the Founders would decide, in their absolute and unfettered discretion, whether to proceed with a sell down of some or all of their equity.

307 It is the existence of the second element of BBHF's alleged Understanding on Sell Down and the third element of the Potential Sale Understanding alleged by the Founders that separates the parties on the pleadings concerning the early 2020 common understanding. The parties disagreed as to whether, after Sell Down Opportunities were identified, the Founders would have an unfettered discretion to decide whether to proceed with a sell down.

308 The Companies admit that from February 2020 to 4 October 2021, Dr Shiffman identified Sell Down Opportunities. They otherwise deny the allegations made by BBHF.

309 The evidence given by Dr Shiffman in his witness statement about the early 2020 understanding was conclusionary. He said in early 2020 he and the Founders reached an understanding that his role would be to identify and introduce opportunities for consideration by shareholders and once a commercially reasonable opportunity was identified, the Founders and he would each take steps to give effect to it.

310 It was Dr Shiffman's evidence that once the decision to pursue Sell Down Opportunities had been taken, his work increasingly focused on that work stream. I agree that was the case.

311 In his witness statement Mr Sinnappan agreed Dr Shiffman's role was to identify and introduce opportunities for consideration by shareholders. He said there was no understanding reached that Sleeping Duck would accept any reasonable offer from any potential investor. He never told Dr Shiffman that once a commercially reasonable opportunity was identified, the Founders would take steps to give effect to it. It was Mr Sinnappan's evidence that Dr Shiffman never said he understood the Founders would take such steps.

312 Mr Sinnappan's evidence was that he was interested in exploring a sale but not able to commit to any 'commercially reasonable opportunity' until he had fully considered it. That included having regard to who was making the offer, the terms, how acceptance of the offer would affect Sleeping Duck and its employees and what his personal position was at the time.

313 When Dr Shiffman was cross-examined, the differences between the witnesses about what was to happen if there was a Sell Down Opportunity largely evaporated.

314 Dr Shiffman said there was no moment where it was discussed or agreed that if any one of the deals becomes commercially viable, 'we will sell down to it - into it'.[60] Pressed in relation to a deal being commercially viable, Dr Shiffman said it was his understanding 'reasonableness was a requirement of the deal'. The cross-examination continued:[61]

Reasonable from whose point of view? - From all of our points of view, me and the two founders.

From each of you. You each had to find it reasonable? - That's right.

For their own personal reasons? --- Well, I can't talk as to the reasons that people might find something reasonable, but each of us had to find it reasonable for whatever reasons we held to find something reasonable, yes.

I just want to suggest to you that it's not commercially logical for someone to just bind themselves unilaterally to something that you regard as commercially reasonable? - Yes, I would agree with that. That was not what I said to you.

315 When he was cross-examined about the topic of a sell down of shares, Mr Sinnappan said if an opportunity to sell down his shares had been presented and if he and Mr Wijeyeratne were happy with the proposal 'and then all the strings attached, that... comes with the transaction, then yes. If... The terms are acceptable us, then we would have proceeded'.[62] I accept that evidence.

1. Mr Wijeyeratne gave evidence that in early calendar year 2020, it was Dr Shiffman's job to look for and present the Founders with offers. If the Founders wanted to go ahead, they would. He said Dr Shiffman told him, 'if you don't want to agree to a sell down that's "fine"'.[63]

317 Although some months later, an email sent on 20 November 2020 by Mr Sinnappan to Dr Shiffman, copied to Mr Wijeyeratne, in the context of the Adairs proposal to acquire 45% of the shares in Sleeping Duck, is consistent with Dr Shiffman's evidence in cross-examination. In his 20 November 2020 email Mr Sinnappan raised a number of questions that highlight the sorts of matters upon which agreement from the Founders would be required to be agreed upon in terms acceptable to the Founders before there would be a sell down:

(a) 'With Adairs' terms would we have lost control of the company between Winston and myself?

(b) 'Does this proposal give us a clear pathway to exit which we're in control of?

(c) 'Given that Winston and I run the day to day we really need to know how a deal like this is going to change the way we operate and do things. I don't have a good sense for this at the moment, neither does Winston, so we'd both like to be much more involved from here, and even take the lead if it makes sense. Also, given the way Winston and I work together and run the company, we'd also like to revisit the Co - CEO option'.

318 The evidence including Dr Shiffman's own evidence in cross-examination clearly establishes that it was a matter for the individual Founders to determine whether they regarded an offer as reasonable and wished to accept or to reject it. Reasonable not purely based on the monetary elements of the offer, or by reference to objective criteria, but reasonable by reference to the subjective preferences of the Founders, and their related companies and their personal circumstances at the time of any such offer.

319 Dr Shiffman's evidence that each of the Founders and he needed to find a proposal reasonable before it would proceed is critical when it comes to later allegations by BBHF that in 2021, the Founders acted contrary to the Understanding on Sell Down and in breach of the terms of the May 2021 Exit Agreement, and that more recently the Founders and the Companies have prevented BBHF from realising the value of its investment.

320 Dr Shiffman's evidence accords with the third element of the 'Potential Sale Understanding' pleaded in the defence. His evidence does not support the allegation by BBHF that 'when a commercially reasonable Sell Down Opportunity was identified they would each take steps to give effect to it' or that Sleeping Duck would take all commercially reasonable steps to pursue and advance Sell Down Opportunities. There was no Understanding on Sell Down as alleged by BBHF.

321 It is necessary to deal briefly with BBHF's allegation that 'by reason of the Understanding on Sell Down', Dr Shiffman held a legitimate expectation that he 'would be involved in the management of the Company in respect to the identification and assessment of Sell Down Opportunities'. That allegation is denied by the Companies and is alleged by them to be inconsistent with the terms of the Call Option Deed.

322 Dr Shiffman's witness statement details his involvement with third parties concerning Sell Down Opportunities. After early 2020 Dr Shiffman brought offers to the Founders for their consideration. His own evidence does not establish an agreement or understanding that he would be involved in the management of Sleeping Duck concerning the Sell Down Opportunities he worked on. Nor does it establish that in fact he was involved in management concerning those activities. The work described by Dr Shiffman in his witness statement is work to facilitate a sell-down, arranging meetings and liaising with Goldman Sachs and others. The focus of his work was external to the management of Sleeping Duck and did not involve him in management.

323 BBHF's allegation of a legitimate expectation of involvement in management concerning Sell Down Opportunities is not made out.

E6 Issues 8-13: The issuing of share options to Mr Bandopadhayay

1. On 29 June 2020, Sleeping Duck and Mr Bandopadhayay entered into the ESOP pursuant to which Mr Bandopadhayay was issued 10,000 options at an exercise price of $450 per share vesting:

1. BBHF alleges prior to entering into the ESOP (on 29 June 2020) neither the Founders nor Sleeping Duck told Dr Shiffman of the intention to do so and nor did they seek to obtain Dr Shiffman's consent or approval for the ESOP.
2. BBHF alleges the terms of the ESOP were commercially unreasonable to Sleeping Duck and to its shareholders, including that the retrospective vesting of shareholdings was contrary to the terms of other employee share plans.
3. The Companies deny those allegations. They allege the Founders and Dr Shiffman had several meetings regarding the ESOP between February 2020 and June 2020 as a result of which Dr Shiffman knew:

(ii) Mr Bandopadhayay was to be included in that plan; and

(iii) Mr Bandopadhayay was to be granted options covering newly issued shares in Sleeping Duck.

328 The Companies and Mr Bandopadhayay further contend that between 12 and 16 November 2020 and by entry into the Call Option Deed Dr Shiffman consented to or acquiesced in the grant of the options to Mr Bandopadhayay pursuant to the ESOP.

1. When opening its case, BBHF shifted from its pleaded case. It said Dr Shiffman knew of the proposal to give Mr Bandopadhayay shares under an ESOP from approximately May 2020. It was said that Dr Shiffman had an expectation as to the strike price; that Dr Shiffman would 'give evidence as to his understanding of the financial resources of Mr Bandopadhayay at that time, an understanding which gave him a degree of comfort that he wouldn't as a matter of fact, be diluted any time soon' and that 'Mr Bandopadhayay required financial assistance in order to exercise' the options.[64]
2. In opening BBHF submitted it was one thing for the Founders to grant options over 10% of their shares but a different thing to grant Mr Bandopadhayay new shares which would have the effect of diluting Dr Shiffman's interest in Sleeping Duck.

E6.2 The evidence: 29 January 2020-31 December 2020

1. At trial it was common ground an ESOP was Dr Shiffman's idea. The difference between the parties was that while Dr Shiffman agreed in cross-examination an ESOP for Sleeping Duck was his idea, he did not agree it was his idea there be an ESOP for Mr Bandopadhayay.
2. Mr Curry gave evidence-in-chief of a 'strategy' meeting on 29 January 2020 attended by the Founders and Dr Shiffman at which Mr Wijeyeratne mentioned Mr Bandopadhayay was going to have a 10% shareholding.
3. Mr Curry said this was the first time he knew about the 10% shareholding. He gave evidence Dr Shiffman said: '10 per cent seems like a lot...to give away to someone' and 'ultimately...if you want to give away 10 per cent of your shares that's kind of up to you, they're your shares'. He questioned whether Mr Bandopadhayay's value to the business warranted 10%. 'Part of the discussion was around...what a shareholder value event might be'.[65]

334 In cross-examination it was put to Mr Curry that his memory about Dr Shiffman complaining about a dilution at the 29 January 2020 meeting was an invention, an allegation Mr Curry denied. Mr Curry said he was able to recall the meeting because it was one of the last meetings held in person before the office was shut down due to COVID-19 restrictions.

335 The day after the meeting, 30 January 2020, Mr Curry sent an email to Dr Shiffman and the Founders:

Hi all,

Quick round up of decisions/actions from yesterday...

e. Employee Share Scheme - not discussed but relating to discussion about how to fairly remunerate individuals key to the biz success (and this can apply to external consultants we well [sic]) - we could put an ESS in place which provides tax benefits to the recipient - Sel/Winston, I can talk you through how that could work at a high level and then can ask RSM for quote to set up as necessary...

1. Dr Shiffman did not give evidence about a January 2020 meeting in which he expressed concerns relating to shares to be allocated to Mr Bandopadhayay and about dilution. He gave evidence that in early 2020 Mr Curry was involved with RSM in a restructure of Sleeping Duck's corporate structure to deal with shares held by a United Kingdom based company.
2. Neither of the Founders gave evidence about a January 2020 meeting in their witness statements. The evidence given by Mr Curry about a January 2020 meeting was not put to the Founders in cross‑examination. No witness corroborates Mr Curry's account of the meeting.

338 I do not accept Mr Curry's account of the meeting on 29 January 2020 or his account of the statements he attributed to Dr Shiffman. Dr Shiffman knew about the proposal to give shares to Mr Bandopadhayay from March 2019. I do not accept Mr Curry's evidence that Dr Shiffman expressed concerns about his shareholding being diluted at the 29 January 2020 meeting. If he had done so, it would be a strange thing for Mr Curry to propose a method of dilution the very next day.

339 Directed to point (e) in the 30 January 2020 email, Mr Curry said given the email said employee share schemes were not discussed at the meeting he assumed there was no such discussion.

1. Mr Sinnappan said the idea of giving Mr Bandopadhayay shares through an ESOP originated from Dr Shiffman in a meeting in early February 2020. He said Dr Shiffman told the Founders an ESOP was a 'tax effective way to give Mr Bandopadhayay equity'. I accept the truth of that evidence. Mr Wijeyeratne gave evidence to the same effect.
2. On 24 February 2020, a WhatsApp exchange took place between Mr Wijeyeratne, Mr Sinnappan and Dr Shiffman concerning an ESOP. In cross-examination Dr Shiffman said the ESOP to which the exchange related was one created for an incoming Chief Technology Officer. I do not accept that evidence. As part of the same WhatsApp exchange Mr Wijeyeratne said he did not want to leave Mr Bandopadhayay 'hanging for too long'.
3. On 26 March 2020, Mr Curry emailed a draft SHA to Dr Shiffman which had been prepared 'a few years back'. He told Dr Shiffman the Founders were happy for he (Mr Curry) and Dr Shiffman to 'iron out the details and he would then present it back to them'.
4. The draft SHA contained two clauses dealing with options, each different in its potential impact on existing shareholders. Clause 6 is titled 'Pre-emptive rights on issue of Securities'. Clause 6.1 provides 'This clause does not apply to any Excluded Issue'. Clause 6.2 provides:

Subject to clause 6.1, prior to offering or issuing any new Securities to a third party, the Company must first offer each Shareholder the opportunity to purchase their Respective Proportion of the total number of Securities...

(a) at any time, the Board may establish a formal written share plan to issue Securities to eligible service providers (whether Directors, employees or contractors) that result in the issue of that number of Securities (referred to as ESOP) of an amount up to 10% of the Total Issued Shares of the Company as at the Effective Date (Share Plan);

(b) the Share Plan will authorise the Director to issue ESOP under the Share Plan to eligible service providers in their discretion; and

(c) any issue of the ESOP under the Share Plan will be an Excluded Issue.

in respect of each Shareholder, the proportion that the aggregate number of Shares held by that Shareholder bears to the Total Issued Shares, except that for the purposes of clause 9.3, the Seller's Shares are excluded from the number of issued Shares.

1. The provision of the draft SHA referring to an ESOP as an 'Excluded Issue' put Dr Shiffman on notice that should Sleeping Duck establish and grant options pursuant to an ESOP, as was his suggestion one month earlier, the effect of the ESOP would be to dilute the interests in Sleeping Duck held by others, including him or BBHF. In cross-examination, Mr Curry accepted, contrary to Dr Shiffman's evidence that he did not find out about the ESOP until May 2020, that the existence of clause 7 referring to an ESOP as an 'Excluded Issue' was mentioned to Dr Shiffman in March 2020.
2. On 30 March 2020, the first COVID-19 lockdown began in Victoria.
3. Between May and June 2020, further drafts of a proposed SHA were circulated between Dr Shiffman, Mr Sinnappan and Mr Wijeyeratne.
4. On 3 May 2020, Mr Sinnappan sent a WhatsApp message to Dr Shiffman to arrange a meeting to discuss BBHF's shares and options, arrangements for Mr Bandopadhayay, a SHA, and an ESOP. Cross-examined about this message, Dr Shiffman said while he could not remember the precise time the Founders told him about their intention to 'swap' Mr Bandopadhayay from options over their own shares to the ESOP, it would have been around May 2020.[66]
5. On 4 May 2020, Mr Curry emailed the Founders concerning the draft SHA. He asked the Founders to remind Dr Shiffman to review the draft, noting that one of the advantages of a SHA is that 'it lays the groundwork for an ESOP by providing the Board with permission to issue one, currently noted as up to 10% of issued share capital'.
6. Mr Bandopadhayay gave evidence that in approximately May 2020, Mr Wijeyeratne told him the 10% share in the business the Founders had discussed giving him would be most tax effectively provided through an ESOP.
7. On 4 May 2020, Mr Bandopadhayay sent a text message to the Founders asking for a 20% interest in Sleeping Duck. He said he was very happy with 10% but asked the parties to consider a clause 'something like this':

Up to the value of $250 mil prateek gets 10% as you're planning.

Beyond $300 mil, and only to be determined at final sale, at the sole and indisputable discretion of Winston, between 250 and the final value, depending on what Winston feels prateeks contribution has been for the added value, prateek could be awarded up to 20 percent share of only that extra added value portion.

In other words, if I didn't do much to achieve that extra value. 10 percent it is.

Just a thought. I definitely don't want to pressure you because I appreciate your current offer.

1. In cross-examination it was put to Mr Bandopadhayay the references to 'current offer' were inconsistent with the existence of an earlier agreement that he be awarded a 10% interest in Sleeping Duck, and that he was attempting to improve his position. I agree he was attempting to improve his position. However I accept his evidence that the reference to the 'current offer of 10%' was a reference to the early 2019 agreement. As he explained, he had never been in a negotiation like this. He had sought advice about what he should do. This text message represented his attempt to negotiate a better outcome than what had previously been agreed.
2. On 5 May 2020 a video conference took place between Dr Shiffman and the Founders. Dr Shiffman gave evidence in his witness statement:

In or around early May 2020, on a date I do not now recall, I had a video conference with the Founders.

At that meeting ..., one of the Founders informed me in general terms that they intended to grant options to Prateek to obtain up to 10% of the shares in Sleeping Duck under a proposed employee share plan.

I was outraged by the Founders' plan to grant Prateek options under a proposed employee share plan. Although I did not know the precise terms of any proposed plan, I was aware that if the options were granted and exercised, my equity position would be diluted. Given what had happened on 29 June 2019 ... I was shocked that the Founders would again attempt to go back on what had been agreed concerning my equity in Sleeping Duck.

However, I expected that the strike price for any options granted to Prateek would be based on a valuation of Sleeping Duck of at least $100m based on what the Founders had said to me in early March 2019 ... and because I understood that the business was worth at least that much at that time. I understood that Prateek did not have the financial resources to fund the exercise of any options at that price. For those reasons, and given the status of the exit opportunities being explored, I did not expect that Prateek would wish to exercise any options granted to him until an exit opportunity had been secured.*

1. The Founders agree that at the 5 May 2020 video conference, the grant of options to Mr Bandopadhayay was discussed.
2. While a feature of Dr Shiffman's evidence-in-chief concerning the 5 May 2020 video conference is his outrage and shock at Mr Bandopadhayay's ESOP, there is no early May 2020 document in which Dr Shiffman, who was not generally shy at communicating his opinions and also his feelings, expressed shock or outrage. If a matter was of concern to him, he would not wait until later to express his concerns.
3. Mr Sinnappan said the first complaint by Dr Shiffman about the options was in a text message one month later, on 3 June 2020. Mr Sinnappan could not recall any complaint by Dr Shiffman at the 5 May 2020 video conference that the grant of options to Mr Bandopadhayay was inconsistent with an earlier agreement or arrangement between Dr Shiffman and the Founders. I find that no complaint was made by Dr Shiffman at that time.
4. Mr Wijeyeratne's evidence concerning the 5 May 2020 meeting is to the same effect. He said Dr Shiffman did not express any 'outrage' about the plan to give Mr Bandopadhayay options. Mr Wijeyeratne recalled that either at the 5 May 2020 meeting or shortly thereafter, Dr Shiffman said words to the effect of 'man, I can't believe that I've got Prateek a better tax deal than I got'.[67]
5. On 7 May 2020, Mr Curry emailed RSM seeking advice about how an ESOP would work.
6. On 12 May 2020, Mr Curry sent a copy of the draft SHA to the Founders. The draft provided that each shareholder holding at least 10% of the shares would be entitled to appoint a director. In his covering email, Mr Curry referred to the provisions of the SHA concerning an ESOP, saying: 'I've increased allocation for an ESOP to 20% in this ... to allow a potential 10% for Prateek and then a further 10% ...'.
7. In an email exchange with RSM on 19 May 2020 Mr Curry referred to an ESOP for Mr Bandopadhayay and a verbal agreement for him to have 10% of the company 'going back years'. On 26 May 2020 Mr Curry sent a further email to RSM in relation to the ESOP. He referred to a verbal agreement with the Founders in early 2019 to grant a 10% stake to Mr Bandopadhayay so that the valuation would be based on June 2019 figures.
8. On 3 June 2020, Dr Shiffman sent a WhatsApp message to Mr Sinnappan:

2. Given I gave up 1% for Prateek which we agreed would come from you but now needs to come from me too so it's a good structure for him, I'd like you to please take 1% from $100m and put it to $15m

1. Cross-examined about the 3 June 2020 message Mr Sinnappan agreed Dr Shiffman was expressing concern about dilution. He denied he had ever told Dr Shiffman that Mr Bandopadhayay's 10% shares would only come from the Founders' shares such that Dr Shiffman would not be diluted.
2. While expressing concern about dilution, in his 3 June 2020 message Dr Shiffman was seeking to use the ESOP and its potential to dilute BBHF's interest in Sleeping Duck as leverage to improve the terms of his own options, 'I'd like you to please take 1% from $100m and put it to 15m'; a change in the exercise price.[68] The reference to the 'good structure' referred to the ESOP being a beneficial structure for tax purposes.
3. I accept Mr Sinnappan's evidence that he had never told Dr Shiffman he would not be diluted or that Mr Bandopadhayay's shares would come from the Founders. The whole concept of the ESOP as documented in the 26 March 2020 draft SHA involved Sleeping Duck issuing shares. While the 1% dilution of the shareholding to which Dr Shiffman referred was at his and BBHF's expense, it was an impact of which Dr Shiffman was fully aware. It was a consequence of Dr Shiffman's suggestion of an ESOP as the means to deliver a 10% interest in Sleeping Duck to Mr Bandopadhayay.
4. On 10 June 2020, a meeting was held via video-link at which Mr Bandopadhayay updated the Founders and Dr Shiffman in relation to branding work, including for the Mach II mattress. Mr Bandopadhayay recalled Dr Shiffman saying he thought working on branding 'right now' was a terrible idea. Dr Shiffman said if he had any power in Sleeping Duck he would say no and if he had a veto power he would use it, but he did not. Mr Bandopadhayay recalled Dr Shiffman saying words to the effect that, 'all we need to do is not fuck up. We need to build the company up enough and then exit'. The Mach II branding went ahead.
5. On 16 June 2020, RSM valued the company (as at 1 July 2019) at $51.6m on a 100% equity interest on a controlling basis and at $34.6m on a minority interest basis, the latter being treated by the Founders as a minimum value upon which to base the exercise price of Mr Bandopadhayay's options.
6. On 16 June 2020 Mr Curry summarised the advice from RSM regarding the ESOP for the Founders:

Proposal is to issue options under an ESOP for 10% of the business (which would be for approx. 12k shares) at an exercise price based upon valuation prepared by RSM as at June 2019 - which works timing wise in for when Prateek had a more active role

1. On the same day, Mr Curry gave advice to the Founders about funding Mr Bandopadhayay to enable him to exercise the options:

At exercise, assume IPO or similar event, company could provide bridge loan as necessary to enable exercise.

1. From that point on, both the adoption of a 2019 valuation date for the exercise price and the potential to provide financial assistance to enable Mr Bandopadhayay to exercise the options as suggested by Mr Curry were in active contemplation.
2. On 22 June 2020 Mr Curry told RSM the Founders were comfortable with the 2019 based valuation (his and RSM's advice) as the basis for the ESOP. He emailed RSM and Holding Redlich, at the time acting for Sleeping Duck, enclosing the first draft ESOP offer letter to Mr Bandopadhayay with a request to review, including the rules on expiry dates. He advised the directors were inclined to have no expiry on the options:

given these are based on the July 2019 valuation, should the offer be dated now, or can it be dated say July 1st 2019 (which is when discussions first occurred)?

1. On 24 June 2020, Dr Shiffman emailed a proposed agenda for a meeting of the 'core management team' (the Founders, Mr Curry and Dr Shiffman). Mr Wijeyeratne forwarded the email to Mr Bandopadhayay copying in Dr Shiffman. This email was followed by an exchange of messages and arrangements for a call between Dr Shiffman and Mr Bandopadhayay in advance of the meeting.
2. Cross-examined on this email chain Mr Curry accepted that steps were being taken at that time to integrate Mr Bandopadhayay into the business, including with the involvement of Dr Shiffman. Dr Shiffman's actions in that regard and in his communications with the Founders around this time were not the actions and communications of a person 'shocked and outraged' at Mr Bandopadhayay's ESOP.
3. On 26 June 2020, Mr Curry provided Dr Shiffman with a draft SHA that increased the threshold for the right to appoint a director to 15% and included a reference to an ESOP.
4. Also on 26 June 2020, Mr Bandopadhayay sent an email to Mr Curry, copied to Mr Wijeyeratne in which he proposed the vesting of options pursuant to the ESOP being 'conditional on making [himself] available for continuing engagement with Sleeping Duck'. The requirement to 'remain available' was to continue until 30 June 2022, the vesting date of the third tranche of the options. In cross-examination, Mr Bandopadhayay explained his request for the availability condition was due to his concern a new shareholder might 'sack' him just to cut off his options. He said the wording came about because of the potential transaction 'coming up' and if there was a change in shareholders, he did not want to see his entitlement to exercise the options circumvented by a new shareholder. Mr Bandopadhayay said he discussed and liaised with Mr Curry about appropriate drafting to address that issue. I accept that was the case.

374 Cross-examined about whether the term that Mr Bandopadhayay was required to 'remain available for continual engagement' was an 'unusual' term, Mr Wijeyeratne said the 'remain available for continual engagement' condition was what Mr Bandopadhayay wanted and negotiated. Mr Wijeyeratne's evidence aligned with that of Mr Bandopadhayay. Namely that Mr Bandopadhayay wanted such a term because of his concern that if there was a change in the shareholders in Sleeping Duck and he lost his position that without such a clause, he would lose his rights under the ESOP.

1. The Founders had a number of discussions and communications with Mr Curry in June 2020 concerning the ESOP. Those communications included Mr Curry messaging Mr Sinnappan on 28 June 2020 that the strike price for the options needed to be a figure 'north' of the RSM valuation of $34.6m on a minority interest basis. Based on that advice, Mr Sinnappan set the strike price at $45m or $450 per share.
2. On 29 June 2020, Mr Bandopadhayay and Sleeping Duck signed the ESOP. It is dated 30 June 2020.
3. In its opening, BBHF complained that not only were new shares to be issued to Mr Bandopadhayay under the ESOP, but the ESOP was uncommercial because the strike price was to be based on a valuation that was 'backdated'.
4. BBHF's complaint that the ESOP share price and 'backdating' were uncommercial, does not derive support from the communications in 2020 in which Mr Curry and RSM were involved. The level at which the strike price was set and the date of valuation were matters upon which the Founders acted based on advice from Mr Curry and RSM. The date of valuation reflected the fact of the early 2019 agreement with Mr Bandopadhayay that he was to have a 10% interest in Sleeping Duck.

379 On 29 June 2020, BBHF and the Founders entered a share sale agreement dated 1 May 2020 for the purchase by BBHF of 10,000 shares in Sleeping Duck for $100,000 (i.e. $10 per share) from the Founders. Mr Curry forwarded the signed agreement and the share transfer forms to Dr Shiffman. Later that day Dr Shiffman transferred $100,000 and signed and returned the agreement. That resulted in BBHF becoming a 10% shareholder in Sleeping Duck with effect from 1 May 2020.

380 On 30 June 2020 Dr Shiffman received advice from Tisher Liner FC Law ('TLFC') concerning the draft SHA ('TLFC advice'). Dr Shiffman forwarded a copy of the advice to the Founders. He did not complain about the reference in the draft to the 20% share plan or about dilution via an ESOP to which the advice referred.

1. For Sleeping Duck for the year ending 30 June 2020:

(a) Trading income was $45.9m.

(b) Gross profit was $27.3m.

(c) Total operating expenses were $14.7m.

(d) Monthly spend was $10.5m.

(e) Net profit was $12.6m.

(f) the EBIT margin was 27.3%.

1. By resolution dated 30 June 2020, the Founders resolved to issue a fully-franked dividend of $3.4444 per share. As confirmed in the Agreed Chronology, by resolution dated 7 July 2020, the Founders resolved to issue a further fully-franked dividend of $5.2556 per share.
2. On 5 July 2020, Mr Wijeyeratne emailed Dr Shiffman and Mr Sinnappan. He referred to discussions between the Founders about selling down shares and what the Founders wanted to achieve given their personal circumstances. He sought Dr Shiffman's advice:

1. Current level --> I could be wrong, but feels like Sel and I could walk away now with $50m each.. Is this right? Could we make this happen now?

2. Medium level --> Take 5-10m off the table each today, what would the steps be to then end up with 100m each.

2. Stretch level --> Lets [sic] say we personally want to walk away with $300-$500m each in an exit. Aside from making the business worth this much, could you lay out a plan (including types of paths we could take) that would give this outcome which accounts for dilution at the different points of investment. ...

1. On 9 July 2020 Dr Shiffman responded. He said to walk away with $50m each today was a 'tough ask' that could be done in FY21. A valuation of $100m would be about 12x FY20 NPAT, which was a 'decent multiple for a private growth business' but 'doable'. Recognising expressly the dilution of BBHF's options as a result of Mr Bandopadhayay's ESOP, and accepting those options would be exercised in the event of a buyout he wrote:

1. You each started with around 35.5% fully diluted, assuming no ESOP beyond Prateek (which there is but put that aside as its tiny). The fully diluted cap table today is: Each of you: 35.5%, Adir: 19%, Prateek: 10%.

1. Cross‑examined about his 9 July 2020 email, Dr Shiffman responded: 'Yes, by June 2020, I knew that Prateek had an ESOP and had the right, would likely have the right to exercise his ESOP shares, that is, for them to vest and then for them to be subsequently exercised at a point that I assumed was going to be as part of a transaction'.[69]
2. A sell down transaction was in active contemplation at about this time. On 31 August 2020, VCF Capital Partners, advisers to Sleeping Duck, provided a draft presentation for potential investors to the Founders, Dr Shiffman and Mr Curry. The draft presentation identified the 'Management: Core Team' as Mr Sinnappan, Mr Wijeyeratne, Mr Curry and Dr Shiffman. It referred to Dr Shiffman as 'non-executive chairman', who '[j]oined the Board of Sleeping Duck in 2017', and 'provides operational and strategic guidance to the company'. The presentation was later sent to potential investors.
3. Cross-examined about the presentation, Mr Sinnappan accepted he did not comment on or correct any of the representations made when he reviewed the document. As mentioned earlier, a basic company search would have told any potential investor Dr Shiffman was not a director of Sleeping Duck.
4. On 8 September 2020, VCF Capital Partners provided a summary of broker feedback. One broker (Canaccord Genuity) expressed support for a December 2020 IPO at an enterprise valuation of $335m-$394m (assuming $20m net cash raised in an IPO), another valued the business at an estimated value of $306m-$367m.
5. On 21 September 2020 Goldman Sachs provided a fee proposal for a capital raising. Soon after, discussions commenced with Adairs concerning a potential sell-down of shares in Sleeping Duck.
6. On 6 October 2020, RSM valued Sleeping Duck using a discounted cash flow methodology as at 31 August 2020 at a market value of $462m on a controlling basis or $310m on a minority basis. The RSM valuation took into account Sleeping Duck's forecast financial performance including forecast sales of $114m in 2021, $186m in 2022 and $294m in 2023 with an EBIT margin of 27.5% in FY20, a forecast EBIT margin of 43% in FY21 and forecast EBITDA margins of 37.1% in FY21, 39.5% in FY22 and 42.5% in FY23.
7. The broker estimates and the valuation of Sleeping Duck by RSM support a finding that as at September/October 2020, the business had a value of around $460m, and on a minority interest basis, a value of around $310m. As Mr Curry accepted was the case these levels of value were based on an aggressive growth trajectory for the business.

1. Dr Shiffman gave evidence that 20 October 2020 was the first occasion on which he became aware of the price and terms on which options had been granted to Mr Bandopadhayay under the ESOP. I accept that evidence.
2. At 12:33 pm on 20 October 2020, Dr Shiffman received an email from Mr Lanzer, a solicitor at ABL, setting out the details of the ESOP, including that Mr Bandopadhayay had been granted '$10,000 options @ $450', with one third vested, two thirds unvested and none exercised. The email from Mr Lanzer of ABL attached the signed ESOP documents.
3. The email noted that Mr Millingen's rights under an ESOP had lapsed on his exit from business. Mr Curry's ESOP, with a grant date of March 2020 and 500 options at $1,000 was also referred to. The vesting conditions relating to Mr Curry were listed as 'TBC' and his ESOP's status was recorded as 'all unvested'.
4. A short time after the email, Dr Shiffman initiated an exchange by text message with Mr Curry:

Dr Shiffman (at 1:10pm): What valuation were Prateek's options pitched at? At $450 each?

Mr Curry (at 3:03pm): Yes that's right, $45M overall valn as at July 2019.

1. There is no evidence that having learned of the exercise price under the ESOP on 12 October 2020, including that the price was by reference to a July 2019 valuation date that Dr Shiffman complained to the Founders or to Mr Curry. He did not raise any issues with Mr Bandopadhayay.
2. On 9 November 2020, Dr Shiffman emailed the Founders, Mr Curry and Mr Bandopadhayay, in an exchange relevant to his alleged exclusion from management. The email concerned the new Mach II mattress. Dr Shiffman provided his views concerning 'strategic and financial considerations'. Mr Wijeyeratne had spent approximately a year on product design for the new mattress. He did not agree with Dr Shiffman's views. Later that day he provided a detailed response. He noted the launch of Mach II was imminent, it was scheduled for 17 November 2020.
3. On 9 November 2020, Dr Shiffman responded. The exchange with Mr Wijeyeratne and the tone of his response is not consistent with the proposition he either was being or felt he was being excluded from the business:

Thanks for the long reply, I understand your point of view and you've expressed it eloquently. You and I disagree on the core points here so I think we should have a longer discussion. After your email I'll add another concern, in that the whole rebrand effort might be seen by customers (and staff) as misleading - just a cosmetic and marketing exercise portrayed as something new and special.

I clearly haven't persuaded you on your concerns, and you haven't reduced mine.

I think we should talk for a long time and see where it takes us, and also include Sean, Parteek [sic] and Sel. I assume you agree :)

1. Later that day, Mr Wijeyeratne again responded to Dr Shiffman.

400 Mr Curry was cross-examined about the proposed modification to the launch of Mach II suggested by Dr Shiffman in his 9 November 2020 email. Mr Curry agreed that there was a difference in approach between Dr Shiffman and Mr Wijeyeratne about the price point but ultimately 'it would have been a joint decision to come to a final pricing'.[70] Nothing about the manner in which the issue raised by Dr Shiffman concerning Mach II was dealt with or the resolution of it supports a finding of exclusion of Dr Shiffman.

1. On 9 November 2020, ABL forwarded a draft Call Option Deed to Dr Shiffman. Dr Shiffman exchanged messages with Mr Lanzer concerning the draft, 'I think they should talk me up with options over the company. Diluting me 2% just to deliver a tax benefit to another guy is terrible: maybe you wanna suggest this and that you think it's unfair'. Mr Lanzer replied: 'it's not a tax issue from Sel's perspective. It's that he considers that's what the commercial deal was with you. 10% over his and Winston's then shares' (emphasis added).
2. On 12 November 2020, a few days after his exchange of messages with Mr Lanzer, Dr Shiffman sent a lengthy email to Mr Curry and Mr Wijeyeratne asking for his options to be topped up. The 12 November 2020 email is relied on by the Companies and Mr Bandopadhayay as evidence of Dr Shiffman's acquiescence in relation to the ESOP and its impact on BBHF's interests.
3. While asserting that different terms had earlier been discussed in relation to Mr Bandopadhayay's equity, in a bolded section of the email Dr Shiffman said he did not seek to change the ESOP. Dr Shiffman did not assert, as is BBHF's pleaded case, that contrary to what Mr Lanzer had messaged him was Mr Sinnappan's recollection the original 'commercial deal' was that he would not be diluted.
4. In his 12 November 2020 email Dr Shiffman sought to leverage his and BBHF's position by reference to Mr Bandopadhayay's remuneration and his entitlements under the ESOP:

Thanks for sending through the ESOP and other material today. The good news is that I believe it is manageable with a PE transaction but we will need to address it openly and honestly as in my opinion it will catch their attention for its size and terms. It will also impact valuation as they will factor in these potential shares but we expected that.

As a recap, when we discussed Prateek receiving equity we agreed the following terms:

* Options for up to 10% of the company in the same way I received it (which I said was too much but deferred to you)

* It was in part because he had been working for free (at which point I suggested we also pay him a fair amount for the consulting he provides, similar to what I receive)...

To be clear, I didn't even know the ESOP has been created and signed, let alone the change in terms, and I would have objected to some terms as inconsistent or inappropriate (full automatic accelerated vesting, for example). I also became aware that for the past year, as a part-time contractor he has been the highest paid person in the company receiving $20k/mo + GST.

However, I am not suggesting we now go and change the ESOP. We all agree Prateek is very good, what's done is done, and if this is what you think is fair then I want to fully support that.

In fact, for simplicity I believe it's easiest to consider that Prateek and I add exactly the same value to the company and have the same commitment.

Thus, I believe the fairest outcome is simply to bring my terms into line with his. Specifically this would entail:

1. Topping up my options so on a fully diluted basis my overall equity rises back to 20% once these options are exercised, as was originally envisaged (but not adjusted for any other ESOP).

2. Reducing my blended strike price of $58.75m to $45m in line with his (by reducing one or more of the brackets)

3. Lifting my monthly payment to $20k a month + GST in line with his

4. For as long as he has been earning this amount, backpaying me the difference between that and what I have received, to bring it in to line with him (you should also adjust it down where he was being paid less than I was - I was paid from July 2019).

If he was in fact working full time for the past year and not working elsewhere then naturally points 3 and 4 aren't relevant, but my understanding is that this wasn't the case. I also appreciate that he has put in many, many hours for the period of the rebrand. On the flipside, as have I with the transaction process.

Prateek also has far better tax treatment than I do, which I actively pursued despite it being of zero benefit for me. This is how you ended up choosing an ESOP model, and therefore this is the only reason he is getting shares issued by the company versus from you - a very important point.

Note that he also has no hurdle to clear in order to access the options other than tenure, whereas I have the $50m valuation and selldown hurdles. So I can hardly be accused of acting only in self-interest here.

I don't want to say any more about this as I believe my suggestion is the fair and equitable response. We are a team, and to be clear I am very supportive of everyone's work - hence I am not proposing any reduction in his ESOP or salary benefits.

I wouldn't have even raised these requests spontaneously but given these circumstances I just do not think this is fair. And I also don't propose to apply any pressure regardless of your decision; it seems obvious to me so I leave it in your hands.

We are all very busy, this is a big distraction, and I just want to focus on building the business and getting this transaction done so we can step it up another level. As Sel will tell you: my overall view, attitude and involvement is unchanged regardless of the above.

Lastly, to state the obvious, my current equity was acquired at a time when the business was effectively worthless and so is irrelevant for this discussion.

If we can rule this off by the end of the weekend that would be fantastic.

405 Mr Wijeyeratne was cross-examined about Dr Shiffman's email. He denied the references to the original agreement concerning Mr Bandopadhayay receiving equity set out in the email, were correct. He said Dr Shiffman was to get 10% of the Founders' shares and Mr Bandopadhayay was to get 10% of all shares in Sleeping Duck. He said the distinction was based on the timing of things. I accept the accuracy of that evidence.

1. On 12 November 2020, Mr Curry sent an email to Dr Shiffman enclosing a copy of the ESOP and a copy of Mr Bandopadhayay's engagement terms which Dr Shiffman had requested be sent to him. Mr Curry was cross-examined about this email. He said he assumed everyone was fully across all the details of the ESOP, including investors.
2. Mr Curry's evidence and the provision of the documents to Dr Shiffman is not consistent with the Founders attempting to conceal the ESOP and its terms from Dr Shiffman.
3. On 12 November 2020, Adairs made an indicative non-binding offer for a 40% interest in Sleeping Duck. The offer was for $128m, a combination of cash and scrip, implying an enterprise value of $320m on a minority basis with a call option to acquire a further 20%. The offer contained a statement of expectation that Dr Shiffman would continue as 'non-executive chairman' for no less than 18 months.
4. On 14 November 2020, Mr Sinnappan replied to Dr Shiffman's 12 November 2020 email, rejecting Dr Shiffman's bid for an increase in his remuneration from $10,000 to $20,000 per month and rejecting his attempt to renegotiate the blended strike price for his options to match Mr Bandopadhayay's $450 share price:

Thanks for your email and for outlining your thoughts.

From our perspective, we made a deal with you which we all felt looked after you very well. It created you as a partner alongside us, meaning we lose together and we win together.

In our dealings with Prateek (beginning in Nov 2018) we felt we had come across a person of serious caliber that could take Sleeping Duck to another level-this has turned out to be true. We made a deal with him that we felt looked after him and us. Our intention with Prateek is for him to have 10% of the business from the point he began with us, similar in way [sic] to you - the ESOP is just the mechanism to facilitate this. Requesting that you don't get diluted and that only Winston and I do, very much undervalues our efforts.

Contrasting and comparing effectiveness and pay is not something we want to engage with, nor do we want to rehash any agreements. Everyone has done their best and we are happy with the deals we have made. And looking at the outcome today, we are all winning.

410 In cross-examination Mr Sinnappan rejected the proposition that, contrary to his email, Dr Shiffman was not winning, he was 'losing from the decision [the Founders] had made to give Prateek equity through an ESOP on these unusual commercial terms'.[71] Mr Sinnappan said all three existing shareholders had to 'give up and get diluted as part of the ESOP'.[72] He accepted the Founders were 'winning because [they] were giving up less than 5 per cent each, Dr Shiffman was losing because he was funding some of that by reason of' the decision made by the Founders.[73] Mr Sinnappan rejected the proposition he was treating Dr Shiffman unfairly as a minority shareholder.

411 Mr Wijeyeratne was cross-examined on Mr Sinnappan's 14 November 2020 email. He disagreed it was the Founders' decision to give Mr Bandopadhayay an ESOP. He said it was 'all of our decision', 'everyone was winning because, you know, Prateek is doing good work and he's being compensated for it and everyone's value is growing'.[74] Mr Wijeyeratne disagreed the structure exposed Dr Shiffman to the risk of dilution.

1. In a communication relied on by the Companies and Mr Bandopadhayay as evidence of acquiescence, on 16 November 2020, Dr Shiffman emailed the Founders concerning Mr Bandopadhayay's options under the ESOP:

Let's just keep building the business and having fun, hopefully take some money off the table soon.

413 BBHF contended in its opening that while Dr Shiffman felt as though he was being excluded at that point, he was not concerned, he did not consider Mr Bandopadhayay had the resources to fund the exercise of the options so the issue was not an urgent one. I do not accept that explanation. As was Dr Shiffman's evidence, after the email Dr Shiffman continued to work with the Founders to get a deal together. He did so in the expectation upon which his 9 July 2020 email was premised, that in the event of a buyout Mr Bandopadhayay's options of 10% would be exercised. In the event of a buyout, as stated in his 12 November 2020 email, the 'selldown hurdle' that Dr Shiffman needed to jump in order to secure BBHF's entitlement to a further 10% options in Sleeping Duck would also have been cleared.

1. Responding to an email from Dr Shiffman concerning the Call Option Deed on 16 November 2020, ABL wrote:

... We've added a restriction on the Company issuing or entering into an agreement to issue an options or shares in relation to any incentive arrangements. The restriction does not, however, apply to options already granted by the Company or any other issuance or equity, e.g. as part of a capital raise.

1. Dr Shiffman responded with one word, 'Perfect'. Later that day ABL sent a further email to Dr Shiffman:

(Anti-dilution) Clause 2.9 includes a restriction on the Company issuing new options or shares to employees + contractors without Adir's consent, but, for the avoidance of doubt, this clause doesn't cover Prateek or Sean's current incentives.

1. On 24 November 2020 Adairs revised its earlier proposal.

417 On 26 November 2020, Sleeping Duck entered into terms of engagement with Goldman Sachs. CPE Capital expressed interest in Sleeping Duck through Goldman Sachs. It proposed a structured loan investment. As that was less attractive than an equity deal such as that proposed by Adairs the Founders decided to keep CPE's expression of interest 'in the back pocket'.

1. On 27 November 2020 Dr Shiffman messaged the Founders asking whether the Call Option Deed had been signed. Dr Shiffman explained it was important to him to have the Call Option Deed signed as soon as possible because the '10% options were of significant value to [him] and, at the time, it appeared very likely to [him] that an exit event would take place. He said he was also conscious of the previous issues [he] had experienced with the Founders...and wanted to have [his] interest in the options formally recorded'.
2. On 14 December 2020 ABL advised that Mr Bandopadhayay's ESOP needed to be standardised to refer to ongoing employment. Cross‑examined about that advice, given in the context of the proposed share sale to Adairs, Mr Wijeyeratne said it was his intention to maintain the agreement he and Mr Sinnappan had with Mr Bandopadhayay.
3. As at 14 December 2020 when an investor presentation was signed off as part of due diligence by the Founders and Mr Curry, growth in turnover and profitability was anticipated to continue. The presentation referred to an EBIT percentage for FY2020 of 27.3%, FY2021 (predicted) of 36.7% and FY2022 (predicted) of 35.4%.
4. In contrast to those optimistic future EBIT percentages, Mr Sinnappan gave evidence at trial of his view that sustainable profit margins are in the order of 10%. Cross-examined about the October 2020 forecasts and margins, Mr Sinnappan said, and I accept, that at the time he believed the forecasts in the presentation were achievable. In the 2019 calendar year before the impact of COVID-19 Sleeping Duck had a very steep acceleration in its performance. That was followed by a significant COVID-19 driven boost in sales during lockdowns which strongly favoured online retailers. As Mr Sinnappan said, as at December 2020 he did not know what was going to happen, he did not know how long COVID-19 would stay around. He, and it appears others who signed off on the December 2020 investor presentation, assumed the acceleration in e-commerce that was favouring Sleeping Duck would continue.

422 It appears the optimism conveyed in the investor presentation was shared by others external to Sleeping Duck. On 15 December 2020, Goldman Sachs advised that Temple & Webster were '[v]ery comfortable taking a minority stake' and were 'comfortable continuing discussions assuming the deal is "high 300s" EV, a 30-35% stake ...'.

423 Dr Shiffman said the Founders did not want to pursue a deal with Temple & Webster because the proposal involved them receiving shares as part-payment. Mr Sinnappan said that was not his recollection. He said the Founders simply did not receive anything further about that potential deal. The reasons the proposal did not progress are not material to the disputed issues.

1. On 23 December 2020, a revised version of the Call Option Deed was forwarded by ABL to Dr Shiffman incorporating comments from Clayton Utz, the Founders' personal legal advisers.

425 On 23 December 2020, a revised indicative offer was received from Adairs for the purchase of a 40% interest based on a valuation of $325m. The Adairs board had approved the bid and had reduced the scrip component. Due diligence was to occur in January 2021 targeting a February 2021 announcement. On 9 February 2021 Adairs made its final bid reflecting an enterprise value of $325m. Adairs ultimately withdrew its bid in May 2021.

426 BBHF's submissions were primarily directed to three issues relating to the ESOP. First, to issue 10, whether the terms of the ESOP were commercially unreasonable to Sleeping Duck and its existing shareholders; second to issue 11, when Dr Shiffman found out about the existence of the ESOP and its terms and third to issue 13, whether Dr Shiffman consented to or acquiesced in the grant of the options to Mr Bandopadhayay and/or the ESOP.

1. Concerning commercial unreasonableness, BBHF pointed to the 1 July 2019 'grant date' of the options and that unlike Dr Shiffman's and Mr Curry's options the vesting conditions are not conditional on any sell down transaction and are not tied to Mr Bandopadhayay continuing to be employed by Sleeping Duck. It submitted those features were uncommercial, unreasonable and highly unfavourable to Sleeping Duck. Upon the options being exercised, Sleeping Duck would receive substantially less for the issue of new shares than the shares' value. At the same time Mr Bandopadhayay could receive 10% of the share capital notwithstanding he might not be working at Sleeping Duck and/or his services may no longer be required.
2. BBHF submitted Mr Sinnappan's explanation the $45m valuation was fair because it was supported by the RSM valuation range overlooks the fact the valuation range was low only because the grant date had been backdated to 1 July 2019, a date before the Founders and Mr Bandopadhayay contemplated that options might be granted. It submitted that no-one raised with Dr Shiffman the prospect in 2019 that Mr Bandopadhayay would receive his interest in Sleeping Duck via an ESOP.
3. It submitted the grant of the ESOP options was prejudicial to Dr Shiffman's interests because it exposed him to a 'substantial' risk of dilution. It was inconsistent with the Founders' decision to 'treat Mr Bandopadhayay in the same way that [they] had treated Dr Shiffman'. The Founders did not seek Dr Shiffman's approval before deciding to use the ESOP.
4. BBHF submitted Mr Sinnappan's refusal to compensate Dr Shiffman for the dilutive effect of the ESOP and instead responding as he had on 14 November 2020 overlooks that:

(a) it was the Founders who had made the decision to grant Mr Bandopadhayay a 10% interest; and

(b) the decision to do so in a manner that diluted Dr Shiffman did not 'look after' Dr Shiffman 'very well' or at all.

1. BBHF submitted Mr Sinnappan's comments in the 14 November 2020 email revealed the Founders to be treating the business as their own and disregarding Dr Shiffman's interests as a minority shareholder. The use of an ESOP to give Mr Bandopadhayay 10% of Sleeping Duck's share capital was inconsistent with the agreement made in early 2019 between Mr Bandopadhayay and Mr Wijeyeratne. That agreement as explained to Dr Shiffman, involved the Founders transferring some of their own shares to Mr Bandopadhayay, as they had with Dr Shiffman. It submitted the grant of Mr Bandopadhayay's ESOP is:

one of several instances (together with the funding of his exercise of options, and his recent extraordinary pay rise) in which the Founders have not treated Mr Bandopadhayay "in the same way that [they] had treated Dr Shiffman" but in fact have gone out of their way to favour Mr Bandopadhayay's interests over Dr Shiffman's.

1. The Companies disputed the proposition the ESOP Options were not commercially reasonable:

(a) The arrangement in respect of Mr Bandopadhayay's equity was made in March 2019. The strike price was supported by a valuation by RSM. It is not reasonable to expect the strike price would be set by reference to a 2020 valuation, notwithstanding the delay in documenting the existing agreement.

(b) The issue of a 10% interest to Mr Bandopadhayay was a commercial business judgment by the Founders.

1. Mr Bandopadhayay submitted the appropriate grant date, for the purposes of the ESOP, is the date on which the grant of right and interest occurred in early 2019. A strike price based on a March 2019 date could not be offered because it would not be consistent with Sleeping Duck's reporting obligations to the ATO. The $45m valuation had to be taken from 1 July 2019 as that was the earliest eligible date. Reliance on the RSM advice was commercially prudent and reasonable. Mr Bandopadhayay submitted the reasonableness of the strike price is supported by Dr Shiffman's 18 June 2019 request that he be granted shares based on a $25m valuation.
2. Mr Bandopadhayay submitted commercial fairness is to be assessed in the context of the interactions between the parties. The Court must consider how Dr Shiffman was treated and relevant impacts on him. The grant of BBHF's shares formalised on 29 June 2020 was by reference to a valuation of $2m, being the 'estimated value of Sleeping Duck at that [sic] time of the agreement', a reference to a date in 2018. It is fair to adopt the same rationale in relation to the grant date of Mr Bandopadhayay's options pursuant to the ESOP.
3. Concerning issue 11, BBHF submitted the ESOP was concealed from Dr Shiffman and it was not until November 2020 that he learned of its terms.
4. The Companies took issue with the concealment submission. They referred to the history of Dr Shiffman's knowledge and involvement, including that the concept of the ESOP originated from Dr Shiffman in February 2020. They submitted Dr Shiffman's response on 16 November 2020 amounts to acquiescence concerning the ESOP.

1. Concerning issue 8, there is no doubt an agreement was made in February/March 2019 between Mr Bandopadhayay and the Founders that Mr Bandopadhayay would receive 10% of the shares in Sleeping Duck. Dr Shiffman's evidence is that he was told of the agreement in March 2019.
2. Concerning issues 11 and 12, at a meeting attended by the Founders and Mr Curry in March 2019 Dr Shiffman became aware Mr Bandopadhayay had an agreed entitlement to a 10% interest in Sleeping Duck. At that time the mechanism by which Mr Bandopadhayay was to be provided with that interest was not discussed.
3. In his 30 January 2020 email, Mr Curry raised the idea of an ESOP. It is not the case as alleged by BBHF in its reply that in around February 2020 Dr Shiffman 'became aware' Sleeping Duck was considering an ESOP. It was Dr Shiffman who proposed an ESOP, specifically an ESOP for Mr Bandopadhayay. He did so in early February 2020.
4. As was Mr Sinnappan's evidence, Dr Shiffman said an ESOP was a tax effective way to grant Mr Bandopadhayay equity. From that point on, the mechanism for the delivery of a 10% interest in favour of Mr Bandopadhayay, was known. On 26 March 2020 the draft SHA put Dr Shiffman on express notice of dilution of BBHF via the ESOP. These matters were confirmed at the meeting on 5 May 2020 and underpinned Dr Shiffman's 3 June 2020 WhatsApp message. The only detail not known by Dr Shiffman at that time was the exercise price for the options or the date by reference to which that price was to be determined. The Founders had not received advice about either of those matters prior to 3 June 2020 and had made no decision about them.
5. On 16 June 2020 Mr Curry received advice from RSM that the first available date to reflect the agreement made with Mr Bandopadhayay was June 2019. The exercise price, based on the value of Sleeping Duck at $45m was determined on or shortly after 28 June 2020 following advice by Mr Curry to Mr Sinnappan that the value for the purposes of the ESOP should be north of $34.6m, advice Mr Sinnappan acted on.
6. As to issue 9 the ESOP was entered into on 29 June 2020.
7. As to issue 12, Dr Shiffman was aware of the anticipated existence of an ESOP, its terms and its dilutive effect prior to Mr Bandopadhayay entering into it. What he did not know at that time was the exercise price of the options or the valuation date by reference to which that price was set. Dr Shiffman became aware of the remaining details, the exercise price and the July 2019 valuation date on 20 October 2020 when he received that information via an email from Mr Lanzer of ABL and a text message from Mr Curry. A copy of the ESOP documentation was attached to the email from Mr Lanzer.
8. Concerning issue 13, on 9 November 2020, being fully aware of the ESOP and its terms Dr Shiffman told Mr Lanzer he thought diluting him 2% to deliver a tax benefit to Mr Bandopadhayay was 'terrible'. He sought advice about whether Mr Lanzer thought it was unfair. In communications with the Founders between 12 November 2020 and 16 November 2020 Dr Shiffman sought to improve his own position and that of BBHF by reference to the ESOP. As he expressly stated on 12 November 2020 he 'fully support[ed]' Mr Bandopadhayay's ESOP. On 16 November 2020, having failed in his attempts to secure a more favourable outcome for himself Dr Shiffman again communicated his agreement to and acceptance of the course the Founders and Sleeping Duck had taken concerning the ESOP and Mr Bandopadhayay's options under it.
9. It is clear from the communications between 12 and 16 November 2020, that fully cognisant of the ESOP and its terms, and the effect of those terms on his and BBHF's interests, Dr Shiffman conveyed his agreement to the ESOP. He did not consent to the ESOP before it was entered into on 29 June 2020, he could not have given effective consent at that time because he was not fully informed of all of the critical elements of the ESOP. He did not know the exercise price, or the valuation date by reference to which the exercise price had been determined. However, once he knew those details as was the case from 20 October 2020, Dr Shiffman unequivocally communicated his agreement to the ESOP, and to the earlier actions of the Founders.
10. As stated by Young JA, with whom Allsop P and Macfarlan JA relevantly agreed in Crawley v Short,[75] if there is acquiescence in a course of conduct, it is difficult to maintain that conduct was oppressive.[76] That is because the thrust of the oppression remedy is to remedy oppression that exists at the date of the hearing.[77] In this case the conduct complained of, the ESOP and its terms were known to Dr Shiffman from 20 October 2020. The issues and conduct relating to the ESOP of which BBHF complains were acquiesced in Dr Shiffman on 12 November 2020, confirmed on 16 November 2020. In those circumstances, assuming the conduct in question was oppressive, by reason of Dr Shiffman's acquiescence it is not open to BBHF to complain of oppression relying on that conduct.

447 Concerning issue 10, the commercial unreasonableness alleged by BBHF focusses on the following features of the ESOP:

(a) The backdating of the valuation date by reference to which the exercise price was determined to July 2019.

(b) The fact the exercise price was based on a value of Sleeping Duck of $45m.

(c) The fact the options are not tied to Mr Bandopadhayay's ongoing provision of services to Sleeping Duck, the options remain in his favour even if he ceases to be involved.

1. In response to the first matter, I consider it was reasonable and not uncommercial to set the strike price by reference to the valuation of Sleeping Duck as at July 2019. That is so in circumstances where the Founders had agreed with Mr Bandopadhayay in early 2019 that he would be provided with a 10% interest. The valuation date adopted was 5-6 months after the date of that agreement. It was a date adopted based on advice from RSM that July 2019 was the earliest eligible date.

449 There is a further separate reason why adopting the 1 July 2019 date is reasonable. The approach adopted to the valuation date for Mr Bandopadhayay's options and the approach adopted to the valuation date for Dr Shiffman's options is similar. In both cases the date by reference to which value was set is the date of or proximate to the date of the agreement to provide the interest. Dr Shiffman's options were documented on 29 June 2020 at a price agreed in 2018.

450 Concerning the second feature of the ESOP, I accept that at the time the ESOP was entered into, 29 June 2020, the value of one ordinary share in Sleeping Duck was substantially more than $450. Only a few days later, on 5 July 2020, the Founders referred to a value of the business of approximately $100m. However, to focus on value as at 29 June 2020 fails to have regard to the agreement arrived at in 2019 for which the ESOP was the method of implementation. When assessing whether the terms of the ESOP were commercially unreasonable, regard must be had to context, namely the fact of the early 2019 agreement, the fact of the suggestion by Dr Shiffman in February 2020 to confer the interest via an ESOP and the fact of independent advice from RSM and then from Mr Curry concerning the strike price. Mr Curry advised Mr Sinnappan the strike price needed to be north of the RSM $34.6m minority interest valuation and it was. I accept the submission by the Companies that the Founders' reliance on that advice and on the advice of RSM to set the exercise price was commercially prudent and reasonable.

451 The reasonableness of the exercise price is reinforced by the evidence of the value of Sleeping Duck at the time of the early 2019 agreement with Mr Bandopadhayay. The March 2019 discussion at which Dr Shiffman was told of the decision to grant a 10% interest to Mr Bandopadhayay took place about a month after Dr Shiffman requested options to acquire 10% based on a value of $10m with expiry date of 1 February 2023.

452 Concerning the third feature of the ESOP, viewed in the context in which the condition that Mr Bandopadhayay was required to 'remain available for continual engagement' came into existence and noting the negotiation of the term was between Mr Bandopadhayay and Mr Curry, I do not consider the fact the options were not tied to Mr Bandopadhayay's ongoing employment to be commercially unreasonable. While not conditional on the occurrence of a transaction the clause was in the context of an expected transaction. Mr Bandopadhayay's commitment in early 2019 was for three years. The ESOP required him to remain available for continued engagement until 30 June 2022 as the 'price' for his entitlement to exercise the third tranche of the options.

1. The position of Mr Bandopadhayay is not comparable to the position of Mr Curry, the CFO or of Mr Millingen. The options in favour of Mr Bandopadhayay gave effect to part of what he was offered to provide a commitment to provide his services for three years. The witnesses, including Dr Shiffman, in his 12 November 2020 email acknowledged Mr Bandopadhayay performed his role as creative director with considerable skill.
2. It cannot be said there is anything unfair in the grant of the options in favour of Mr Bandopadhayay on the terms on which they were granted pursuant to the ESOP assessed at that time and in relation to what was known at that time.[78]
3. Taking the view of a commercial bystander, I do not consider there is any commercial unfairness in the 'retrospective vesting of shareholdings' in favour of Mr Bandopadhayay as referred to by BBHF in its particulars. The Founders were not required to seek or obtain Dr Shiffman or BBHF's consent or approval for the entry into the ESOP. They informed Dr Shiffman of their intention to grant Mr Bandopadhayay 10% of the shares. It was Dr Shiffman's idea to use an ESOP as the mechanism by which the right to acquire those shares was to be effected. Dr Shiffman was not a director of Sleeping Duck and it is not part of BBHF's case to say that he was, whether a de facto director or otherwise. Decisions taken by the Founders in relation to the ESOP were management decisions, taken, in the case of the exercise price, based on external advice and in accordance with the recommendations of the CFO.
4. For those reasons, leaving Dr Shiffman's acquiescence to one side, the complaints by BBHF concerning the grant of options to Mr Bandopadhayay via the ESOP do not support BBHF's claim of oppressive conduct.

E7 Issues 14-16: the alleged 2 July 2020 common understanding, the SHA and the Call Option Deed

457 BBHF alleges, and the Companies deny, that on around 2 July 2020, the parties reached a common understanding as to the essential terms of the SHA ('Understanding on shareholders agreement'), which included:

(a) A right for each of the Founders to appoint a director to the board;

(b) A right of a shareholder holding 10% (or more) of the issued capital to appoint a director to the board;

(c) The board could not pass any resolution concerning the business or governance of Sleeping Duck without a special resolution of at least 75% of board members voting in favour of it;

(d) Obligations of Sleeping Duck to report and provide access to information to all shareholders.

458 BBHF further alleges, and the Companies deny that by reason of the Understanding on shareholders' agreement, Dr Shiffman held a legitimate expectation that any SHA would provide him with a right to appoint a director and that director would have an effective veto of any resolution concerning the business of Sleeping Duck.

459 Before turning to the events of July 2020, it is helpful to briefly recap earlier history concerning the SHA.

460 On 26 March 2020 Mr Curry provided a draft SHA to Dr Shiffman.

461 On 12 May 2020, Mr Curry emailed the same document with some amendments he had made to the Founders. Both the March 2020 version and the 12 May 2020 amended version provided that each shareholder holding at least 10% of the shares would be entitled to appoint one director.

462 Mr Sinnappan gave evidence which I accept that at the time of receiving the 12 May 2020 draft, based on their early 2018 agreement concerning Dr Shiffman's role, which included that Dr Shiffman would have 'no board seat' as per his 15 January 2018 email, he thought Dr Shiffman should not have the right to appoint a director or have board representation.

463 On 26 June 2020 Mr Curry provided a revised draft SHA to Dr Shiffman. This version of a draft SHA provided a 15% shareholder threshold for an entitlement to appoint a director.

464 Dr Shiffman engaged TLFC to provide him with advice concerning the draft SHA. The TLFC advice contained the following observations relevant to the Understanding on shareholders agreement and the legitimate expectation alleged by BBHF:

1. Decision making - The management of the Company is essentially with the Board. There are very limited decisions retained to the Shareholders (refer Part B of Schedule 1). Accordingly, you should presume that even if your percentage of ownership increases, without a Board seat, you will have no ability to influence the decisions of the Company.

...

1. Directors:

2. Any shareholder with not less than 15% has the right to appoint one Director;

3. We would recommend that a collective of minority shareholders with say 5 or 10% should be allowed to appoint a Director to the Board to represent their interests;

4. We would also recommend that it is made clear that a shareholder cannot then exercise their vote as a shareholder to appoint further directors. For example, without clarity on this, whilst the Founders control the Shareholder vote, they could fill the Board with other director elected under the Constitution (this does not appear to be excluded).

5. Founder Shareholders

6. At least one Founder is required for a Quorum;

7. On our reading, the Bad Leaver provisions are unlikely to apply to them;

8. They will control all decisions until at least another shareholder exceeds the 15% threshold to appoint a Director and combined there are shareholders (not Founders) with 25.1% of Shares.

9. Dilution and Excluded Issues:

10. The Board has the power to issue further Shares and/or classes of shares. The standard pre-emptive rights offer to all shareholders exists. To avoid dilution you would need to subscribe for your proportion of Shares at the price determined by the Board.

11. However, there are also Excluded Issues (refer definition) which are exempt from the requirements of pre-emptive rights to all other Shareholders. These are areas where you do not even have the ability to avoid dilution by subscribing for shares.

12. Share Plan (clause 7) - this can be for upto [sic] 20% and covers all 'eligible service providers' (not defined). It is not limited to employees. The establishment and administration of the Share Plan at the Board's discretion.

13. The Board can issue, as an Excluded Issue, shares for inter alia, a 'bona-fide acquisition of assets or shares by the Group which is approved by Special Resolution of the Board".

14. The concept of Excluded Issues is not of itself unusual, but is something you need to be aware of and appreciate the potential for dilution. We have only provide [sic] examples of the most obvious Excluded Issues - you should review the definition.

15. Information:

16. There are no information rights granted to Shareholders.

...

1. IPO or Exit Event:

2. Not guaranteed - no commitment to pursue an exit after X years;

3. determined by the Board;

...

As a minority shareholder, you essentially have no say in anything and can be diluted. The level of concern that this creates for you, should also be considered in the context where it appears that the only Directors, are the two Founding Shareholders. Further, based upon the documentation it appears likely to stay this way for some time (ie. until someone has greater than 15%). Whilst the Directors can appoint an independent third Director, that also must be considered in the context that it is the Founding Directors making the appointment.

465 At 11:32am on 30 June 2020, Dr Shiffman forwarded the TLFC advice to the Founders and Mr Curry:

I'm very unusually going to share this with you as I think it's a good learning experience for shareholders agreements as you have no experience with them.

The only changes I'd suggest are: dropping the rights to a director to 10%, and adding information rights like annual statements.

Also Sean on the shareholder subscription agreement can we just add that my subscription entitles me pro rata to all dividends until this period.

No rush on the SHA we can make those changes during the week. Let's just get the subscription agreement signed today.

466 As Dr Shiffman said, he was in no rush to finalise the SHA. He had received the first draft on 26 March, he had delayed responding until 30 June. His covering email recognised the Founders had no experience with such agreements. His request to drop the right to appoint a director to 10%, if accepted, would put him in a very different position to his 15 January 2018 email.

467 Mr Curry replied at 12:00pm on 30 June 2020, within 30 minutes, saying he would 'get this organised now'. There is no evidence Mr Curry discussed the changes requested by Dr Shiffman in his email with either of the Founders before he sent his reply. There is no evidence Mr Curry had authority from the Founders to agree to Dr Shiffman's proposed amendments.

1. While the Founders were copied into the email from Mr Curry to Dr Shiffman, Mr Sinnappan said Mr Curry did not speak to him before it was sent. Mr Sinnappan said Mr Curry was not authorised to make amendments without approval from the Founders. I accept that is the case.
2. At 11:56am on 30 June 2020, Mr Curry emailed Holding Redlich seeking an amended SHA. In his email, Mr Curry noted he had 'some minor changes requested by an investor land [sic] a few secs ago'. The Founders were not copied to the email to Holding Redlich. There is no evidence they instructed or authorised Mr Curry to ask Holding Redlich to make Dr Shiffman's changes. Cross-examined about the email to Holding Redlich, Mr Sinnappan denied Mr Curry discussed the changes to the SHA with him before it was sent. I accept Mr Sinnappan's evidence.

470 As particularised by BBHF in support of the alleged Understanding on shareholders agreement, on 2 July 2020 Mr Curry emailed the draft SHA as amended by Holding Redlich to Dr Shiffman and to the Founders. In his covering email, Mr Curry said:

No immediate rush to finalise Shareholder Agreement so can park if required. Attached SHA has been amended to include director appointment rights for a 10% shareholder (was 15%) in Clause 3.2 and new Clause 15 including shareholder and director rights to financial information.

471 Mr Curry went on to say that if Dr Shiffman wanted to revisit other comments from the TLFC advice, 'then we can park this and pick it up later'.

472 In his witness statement, Dr Shiffman treated the 2 July 2020 draft SHA as the 'final version' which he said was exchanged. He referred to the terms of the SHA alleged by BBHF in its pleading as elements of the Understanding on shareholders agreement. His evidence continued:

1. I was happy with those terms as it meant that, as required, I could appoint a board member and would have the ability to veto any business or governance related resolution. This was because at that time I believed that I would hold 10% of the shares in Sleeping Duck (plus options for a further 10%) and there would otherwise only be two other directors (being 66.7% of a board of three).

...

1. Shortly after receiving that email, I spoke with Mr Curry. I said to him words to the effect that I was happy to sign the Shareholders Agreement. He said to me words to the effect that the Founders would sign it first.
2. I understood that the Founders would sign the Shareholders Agreement in the form that Mr Curry had sent it to me and, based on what Mr Curry had said, did not sign the Shareholders Agreement.

1. Mr Sinnappan gave evidence in his witness statement that he did not respond to Dr Shiffman's 30 June 2020 email and nor did he or Mr Wijeyeratne accept Dr Shiffman's suggested amendments. Put to Mr Sinnappan that he thought the condition that the SHA should drop the director appointment rights to a 10% threshold was 'quite reasonable', Mr Sinnappan disagreed. It was put to Mr Sinnappan that just as it was the Founders' intention to appoint Dr Shiffman as a director in December 2020 in the context of the Adairs transaction (which Mr Sinnappan accepted was the case), it was the Founders' intention to appoint Dr Shiffman a director in June 2020. Mr Sinnappan disagreed that was the case. I accept his evidence on these matters. To give Dr Shiffman the right to appoint a director would represent a substantive change in Dr Shiffman's rights and his role in Sleeping Duck. There was no evidence such a change had previously been discussed by the Founders and Dr Shiffman.

474 Mr Sinnappan gave evidence concerning the 2 July 2020 draft SHA, that he:

did not approve or comment on Dr Shiffman's request to lower the director appointment rights. I did not ever tell Mr Curry that I agreed to lower the director appointment rights to 10%. I did not sign that document. Dr Shiffman did not ask me to sign that document.

475 Mr Wijeyeratne gave evidence he never told Mr Curry he was happy to sign the draft sent to the Founders on 2 July 2020. He said he did not consider the draft SHA to be in effect. He said Dr Shiffman did not tell him that he wanted him to sign the agreement, or that Dr Shiffman considered the draft agreement was effective.

476 Contrary to BBHF's pleaded case, I do not accept the Founders agreed to the 2 July 2020 draft or to the amendments reflected in it either before or after it was sent. I also do not accept that Dr Shiffman had any basis for the assertion in his witness statement that he 'understood' the Founders would sign the SHA in the form of the 2 July 2020 draft. On Dr Shiffman's own evidence, Mr Curry told him the Founders were to sign first, and they never did.

477 After the flurry of activity surrounding the draft SHA between 30 June and 2 July 2020, the topic of the SHA went cold. On 22 July 2020, Mr Curry sent a copy of the then current draft to Dr Shiffman, copied to the Founders. His email referred to directors appointment rights set to 10% and enquired whether he should arrange an execution copy or whether Dr Shiffman wanted to revisit any other TLFC review points. None of the recipients appear to have responded to Mr Curry's email.

478 It was Mr Curry's evidence that as at 22 July 2020, 'we're bouncing drafts between each other, trying to get a final one'.[79] No execution copy was created at that time.

479 In cross-examination Mr Sinnappan rejected the proposition the 22 July 2020 email from Mr Curry reflected the fact there was already an understanding that Dr Shiffman would have the right to appoint a director and that the threshold would be set at 10%.

480 Mr Sinnappan did not tell Mr Curry or Dr Shiffman at the time that he disagreed with Dr Shiffman's proposal. He conceded he would have read the email from Mr Curry to Dr Shiffman. He would have known that Mr Curry would have been responding to Dr Shiffman's proposal but he did not protest or stop Mr Curry from making those changes.

481 While Mr Sinnappan did not communicate his views concerning the 22 July 2020 draft at the time, I do not consider his failure to do so could objectively be regarded by those involved as signifying his agreement to the changes and Dr Shiffman did not give evidence he subjectively believed that to be the case. The reality is that finalising the SHA was not treated as a matter requiring attention at that time by the Founders or by Dr Shiffman.

482 It was not until around 23 December 2020 when the draft Call Option Deed was provided by ABL to Dr Shiffman, which referred to the intention of the parties to enter into a SHA, that there was any further mention of or reference to a SHA.

483 Contrary to BBHF's pleaded case, I do not accept that in circumstances where, as at 22 July 2020, draft SHAs were still 'bouncing' around and Dr Shiffman's input to the draft SHA was being sought by Mr Curry, that 20 days earlier a common understanding was reached concerning the essential terms of a SHA as BBHF alleges to be the case. There are a number of reasons why that is so.

484 First, I do not accept that the Founders, who, as Dr Shiffman noted, were not familiar with shareholders' agreements, ever actively engaged with the 2 July 2020 draft or the drafting process. The drafting process was in Mr Curry's hands, working off an old draft first provided to Dr Shiffman on 26 March 2020, seeking input from Dr Shiffman first, before going to the Founders. Second, Mr Curry had no authority to bind the Founders. Third, objectively, no agreement was reached on 2 July 2020. Dr Shiffman's evidence was that Mr Curry told him the Founders would sign it first, but they did not. As at 22 July 2020, drafts were still 'bouncing around'. Dr Shiffman's active input and any changes he wanted was still being sought. Fourth, there was no urgency about the finalisation of the agreement or its terms. The communications on 30 June 2020 noted that finalisation could be 'parked'. After 22 July 2022 it was, without any agreement or understanding having been reached.

485 I reject the propositions pleaded by BBHF that by reason of the Understanding on shareholders agreement, Dr Shiffman held a legitimate expectation any shareholder agreement entered into by the Company:

(a) would provide Dr Shiffman with a right to appoint a director to the board; and

(b) that director would have an effective veto of any resolution concerning the business of the Company.

486 First, there was no Understanding on shareholders agreement as alleged; the allegation that founds the legitimate expectation plea. Second, all drafts conditioned the appointment of a director upon a minimum shareholding: 15% or 10%. No draft said a shareholder had the right to appoint, unconditional as to any minimum shareholding as is the basis of the legitimate expectation alleged. Third, the 10% director appointment right was in the 2 July 2020 draft as a result of Dr Shiffman's request to amend. The amendment to reduce the 15% threshold included in the 26 June 2020 draft was not accepted by the Founders. Fourth, whatever the drafts or any of them might have said about a director's right of veto, there is no evidence this critical feature alleged by Dr Shiffman was ever discussed with the Founders, let alone agreed to by them.

487 To be clear, there was also no agreement or understanding on the 75% board member business governance requirement or the obligation to report or upon an obligation to provide access to information alleged by BBHF.

488 For the reasons discussed, there was no Understanding on shareholders agreement as alleged by BBHF and there was no legitimate expectation as alleged.

E8 Issue 17: the first exercise of Mr Bandopadhayay's options in April 2021

1. With the exception of the dates, a number of facts relied on by BBHF relating to the exercise of Mr Bandopadhayay's options in April 2021 are admitted by the Companies in their defence. The facts alleged by BBHF are as follows:

(a) On or around 14 April 2021, Sleeping Duck determined to pay a dividend of $15,000,000 to all ordinary shareholders.

(b) On around 14 April 2021:

(i) Mr Bandopadhayay exercised 3,000 of the options (being those that were deemed to have vested on 30 June 2020) at a price of $450 per share;

(ii) Mr Bandopadhayay paid Sleeping Duck $1,350,000 for the exercise of those options;

(iii) Sleeping Duck accepted the exercise of those options;

(iv) Sleeping Duck issued Mr Bandopadhayay 3,000 ordinary fully paid shares in Sleeping Duck; and

(v) Sleeping Duck then paid a dividend of $15m to all ordinary shareholders, including Mr Bandopadhayay in respect of his 3,000 shares, in the amount of $145.63 for each ordinary share.

(c) On 14 April 2021, Sleeping Duck lodged a form with ASIC recording the issue of 3,000 shares to Mr Bandopadhayay for the sum of $1,350,000_._

490 In their defences, the Companies and Mr Bandopadhayay admit the facts alleged but say the events occurred on 12 April 2021. That is in fact the case.

1. The issue between the parties concerns whether, in taking the steps which are agreed to have occurred, Sleeping Duck, the Founders and Mr Bandopadhayay acted 'in concert' concerning the exercise of Mr Bandopadhayay's options and whether the steps taken were taken for an improper purpose.
2. BBHF alleges that prior to it entering into the Call Option Deed on 14 April 2021, neither the Founders nor Sleeping Duck informed Dr Shiffman of:

(a) The exercise by Mr Bandopadhayay of the options;

(b) The advancement of $1,350,000 by the Founders to Mr Bandopadhayay for the purpose of him exercising those options; or

(c) The fact that dividends were to be paid following the exercise of the options.

1. BBHF alleges Sleeping Duck, the Founders and Mr Bandopadhayay took steps concerning the exercise of the options in concert and for the purpose of prejudicing BBHF's rights and entitlements under the Call Option Deed. In support of those allegations the following particulars are relied on:
   1. It is to be inferred that Sleeping Duck, the Founders and Mr Bandopadhayay did so by reason of:
      1. The personal association between the Founders and Mr Bandopadhayay...
      2. Dr Shiffman's exclusion from the management of Sleeping Duck [from around November 2020]...;
      3. The provision of a loan from the [Founders] to Mr Bandopadhayay...;
      4. Sleeping Duck paying a dividend to shareholders at the same time that the options were exercised;
      5. The Call Option Deed being entered into on or around the same date.
   2. The exercise of the options resulted in BBHF agreeing to pay a price under the Call Option Deed based calculated on the basis of 100,000 ordinary shares being issued by Sleeping Duck, whereas the true number was 103,000.
   3. The exercise of the options resulted in BBHF having agreed to options totalling less than 10% of the total issued capital.

1. The Companies and Mr Bandopadhayay deny they acted in concert or for an improper purpose.
2. Mr Bandopadhayay also pleads:
   1. he was not a personal associate of the Founders and did not know them prior to commencing work for Sleeping Duck;
   2. as at around 12 April 2021 and 14 April 2021 he was not aware of the Call Option Deed...the terms of the Call Option Deed, or any rights or entitlements purported to be held by Dr Shiffman pursuant to the Call Option Deed.

1. The 14 April 2021 Call Option Deed, the parties to which are BBHF, the Companies and Sleeping Duck, includes conditions concerning the exercise of options granted by the Companies ('the Grantors') in favour of BBHF ('the Optionholders'):

The Optionholder only becomes entitled to exercise all or any of the Options, conditional upon and subject to:

(a) all of the shareholders of the Company agreeing to, and entering into, a Shareholders' Agreement; and

(b) either of the following occurring, whichever occurs first:

(i) the delivery of a First Partial Sell-down Completion Notice by each of the Grantors to the Optionholder in accordance with clause 2.2, and deemed receipt of such notice by the Optionholder in accordance with clause 7; and

(ii) the delivery of a Proposed Qualifying Exit Event Notice by each of the Grantors to the Optionholder in accordance with clause 2.3, and deemed receipt of such notice by the Optionholder in accordance with clause 7,

in which case, the Optionholder may then exercise all or any of its Options in accordance with clause 2.5.

(a) The parties acknowledge that they are currently negotiating a Partial Sell-down and it is anticipated that as part of that Partial Sell-down, the parties will enter into a Shareholders' Agreement which addresses, among other things, customary transfer restrictions, pre-emptive rights provisions, drag provisions and tag provisions.

(b) If a Partial Sell-down or a Qualifying Exit Event has not occurred by 31 July 2021, the parties agree to negotiate in good faith a Shareholders' Agreement which addresses, among other things, customary transfer restrictions, pre-emptive rights provisions, drag provisions and tag provisions.

(c) The parties agree and acknowledge that, prior to the date of this document, the parties had entered into preliminary discussions to agree a shareholders' agreement (Draft Shareholders' Agreement), but, as at the date of this document, that Draft Shareholders' Agreement has not been signed and the parties do not consider that the Draft Shareholders' Agreement is in effect.

1. What constitutes a 'Qualifying Exit Event' is defined in clause 1.1:

(a) a Full Sell-down;

(b) a Final Sell-down;

(c) an Asset Sale; or

(d) an IPO,

(e) results in the total issued capital of the Company (on a fully diluted basis) having an implied value of AUD$50 million or more; and

(f) results in the cash consideration, dividend or distribution (as applicable) received by the Grantors, in aggregate, in respect of that Full Sell-down, Final Sell-down, Asset Sale or IPO (as applicable), being AUD$5 million or more.

1. There are additional provisions of the Call Option Deed concerning mediation and dispute resolution which are relevant to the issues discussed in section E12 below:

(a) Subject to clause 5.1(b), if a dispute arises out of or in connection with this document ("Dispute"), a party must comply with this clause 5 before it may commence court or arbitration proceedings.

(b) A party may bring a proceeding seeking urgent interlocutory relief at any time, without having to first comply with this clause 5.

A party claiming that a Dispute has arisen must give written notice to each other Disputant giving details of the Dispute and its proposal for a resolution ("Dispute Notice").

Within seven days after the Dispute Notice is received:

(a) each Disputant must refer the Dispute to its Nominated Representative; and

(b) the Nominated Representatives must meet at the Office (or such other place as agreed to by the Nominated Representatives) and negotiate in good faith with a view to resolving the Dispute.

If the Dispute remains unresolved 14 days after the Dispute Notice is received or such other period as the Disputants agree in writing, the Dispute must be referred, by written notice from a Disputant to each other Disputant ("Referral Notice"), to mediation.

500 Mr Sinnappan gave evidence that late in 2020, Mr Wijeyeratne learned that, if the proposed Adairs transaction went ahead, Mr Bandopadhayay would not be able to participate in it in a tax-effective manner. ABL were engaged to provide advice.

501 On 4 December 2020, ABL advised accelerated vesting would result in Mr Bandopadhayay's options falling outside the start-up concession for employee share options and would result in any gain being taxed at an effective rate of 47%. On 12 December 2020 in an email to ABL, to which the Founders were copied, Mr Curry said this advice differed from expectations held at the time options were created under the ESOP.

1. On 11 January 2021 Mr Bandopadhayay retained PwC to advise him. PwC prepared a detailed proposal to address the issues, elements of which included that Sleeping Duck and Mr Bandopadhayay would agree to vest all current options immediately, Sleeping Duck would lend $4.5m to Mr Bandopadhayay to fund the exercise of the options, the Founders would loan funds to Mr Bandopadhayay until his shares were ultimately sold at which time the loan was to be repaid or if the value of the shares was less than the loan value, 30% of Mr Bandopadhayay's shares could be provided as consideration in satisfaction of the loan.

503 The PwC proposal contemplated Mr Bandopadhayay having attained a 10% shareholding in Sleeping Duck before external money was injected resulting in BBHF's shareholding being diluted before external money was injected.

504 On 20 January 2021, Dr Shiffman emailed Mr Curry:

I told the guys we need to pay out the balance sheet to make the transaction much simpler at the equity vs EV stage.

I want to pay out all dividends as at 31 Dec, and potentially loan back the working capital required (unless there is an excess of cash over dividends).

505 Mr Curry responded that Sleeping Duck had $30m in the bank, of which $20m might be capable of distribution as dividends.

506 In early February 2021, Mr Bandopadhayay decided he wanted to exercise 3,000 options that had vested on 29 June 2020 under the ESOP.

507 On 8 February 2021 the Founders exchanged messages concerning the exercise of the options by Mr Bandopadhayay:

Run it past Adir aswell [sic] if you can.

...

Have you run it past Prateek yet?

Then Adir is final step.

...

I think check with Prateek first.

Then I can just go to Adir one time.

508 On the same day emails were exchanged between Dr Shiffman and Mr Curry in which Dr Shiffman proposed funds be distributed 'as we are getting closer to doing something with Adairs'.

509 On 10 February 2021, Mr Sinnappan and Dr Shiffman exchanged WhatsApp messages in relation to the Adairs transaction and Mr Bandopadhayay's options. Mr Sinnappan gave evidence of a discussion around this time about the dividend to be declared and that Dr Shiffman said Mr Bandopadhayay would be able to participate in any dividend that was declared. Cross-examined, Dr Shiffman said he had no recollection of such a conversation, and had there been one, he would have remembered it. Later in his evidence, Dr Shiffman said they discussed that 10% in an ESOP was large and unusual, and was an ongoing issue of concern to potential investors.

510 On 12 February 2021, Mr Bandopadhayay engaged PwC to draw up loan agreements.

511 On 14 February 2021, Mr Lanzer of ABL messaged Dr Shiffman:

You may want to call Trent and close this out yourself tomorrow. Key issue is valuation (headline EV, inclusion of ESOP, wanting to agree with you level of pre-completion diffident [sic])

512 In cross-examination, Dr Shiffman said that the word 'diffident' in the message should have read 'diligence' and not, as was put to him, a pre-completion 'dividend'. In light of the earlier emails proposing the payment of a dividend and Dr Shiffman's response to Mr Lanzer's email sent on 15 February 2021, I do not accept Dr Shiffman's evidence. The word 'diffident' was intended to read 'dividend', a pre-completion dividend as earlier proposed by Dr Shiffman.

513 On 15 February 2021, Mr Lanzer sent an email to Dr Shiffman setting out his 12 point plan for the acceleration of Mr Bandopadhayay's options under the ESOP in advance of a sell down to Adairs:

1. Of Prateek's existing 10% ESOP options on issue, 3% would have vesting accelerated.

2. Remaining 7% to be cancelled. For the avoidance of doubt, no change to any of Sean's ESOP options which remain on foot in accordance with their terms.

4. Sel and Winston to lend Prateek the money to fund the exercise. I understand that the loan would need to attract interest and potentially also be broader than simply limited recourse.

5. Prateek then participates in the pre-completion dividend for his 3%.

6. Sel and Winston enter into a new agreement with Prateek whereby they each grant Prateek an option of 3.5% of their shares (akin to what is already in place with Adir).

7. Those options vest immediately / as a result of the Adairs transaction.

8. Sel and Winston to lend Prateek the money to fund the exercise of these new options. I understand that the loan would need to attract interest and potentially also be broader than simply limited recourse.

9. Prateek now holds all of his interest in Sleeping Duck as shares.

10. After 12 months, Prateek would be free to sell his shares.

11. At that time, either Sel and Winston could buy back the shares, or alternatively Prateek could participate in any future Tranche 1 or Tranche 2 transactions with Adairs (noting that 3% are still under the original start-up plain so need to be held for 3 years).

12. Upon receipt of proceeds by Prateek, he would repay the loans to Sel and Winston.

1. Dr Shiffman gave a simple response, 'Exactly'. Clearly, Dr Shiffman approved of Mr Lanzer's plan.
2. Cross-examined about this exchange, Dr Shiffman said he understood that funding by the Founders of the exercise of Mr Bandopadhayay's options was a possibility as part of an Adairs transaction. He asserted the points in Mr Lanzer's email could 'only be read in the entirety of the whole proposal put to him in the context of an Adairs transaction'.[80]
3. Mr Lanzer's advice that the Founders fund the exercise of the ESOP options by Mr Bandopadhayay via a loan is consistent with what later occurred. The difference is that, unlike items 4 and 8 in Mr Lanzer's email, the loans later provided did not attract interest.
4. Although Dr Shiffman said nobody told him the Founders were planning to provide Mr Bandopadhayay with money to fund the options, and I accept that he was not told by the Founders that was the case, he knew from what Mr Lanzer told him in the 15 February 2021 email that a loan to assist Mr Bandopadhayay was in contemplation, as was participation by Mr Bandopadhayay in a pre-completion dividend (see item 5).
5. In evidence in chief Mr Sinnappan, who did not see Mr Lanzer's email at the time, said that in November or December 2020, he spoke to Mr Lanzer, or others who worked with him at ABL about potentially lending money to Mr Bandopadhayay in the context of the proposed Adairs transaction. He also spoke to Dr Shiffman about item 5 in the 12 point plan, Sleeping Duck issuing a pre-completion dividend to Mr Bandopadhayay. I accept the truth of that evidence.
6. On 16 February 2021 the Founders exchanged messages:

Prateeks [sic] loan thing - id [sic] suggest getting [Clayton Utz} to check it rather than ABL.

Keep it away from Adir etc - given I personal loan between aprties [sic]

1. In cross-examination, Mr Wijeyeratne disagreed he wanted to keep the funding of the ESOP a secret from Dr Shiffman. When asked whether there was any reason he did not take steps to inform Dr Shiffman, he was unable to identify any. I accept that the Founders did not want Dr Shiffman to find out the details of the proposed loan to Mr Bandopadhayay, in particular that the loan was to be interest free, even though Dr Shiffman knew a loan was proposed.
2. In mid-February 2021, Dr Shiffman and Mr Lanzer exchange a series of WhatsApp messages concerning the proposed Adairs transaction:

Mr Lanzer: I think it's getting close

Dr Shiffman: Agree

Mr Lanzer: Do Sel and Winston understand?

Dr Shiffman:

They understand as much as they need to.

1. Cross-examined about the smiley emojis, Dr Shiffman accepted that these messages were disparaging of the Founders. Dr Shiffman said he saw this as a very complex transaction. He said it was likely in his opinion that some of the detail of the transaction required more financial sophistication than the Founders had at that point. Cross-examined about whether he wrote the message 'they understand as much as they need to', Dr Shiffman said he did not know who wrote which message. I found his evidence concerning this topic to be unsatisfactory and evasive. Dr Shiffman was responsible both for the emojis and for the text below them.
2. On 18 February 2021, Mr Bandopadhayay sent a note to Mr Curry and the Founders asking to exercise 3,000 options in accordance with the ESOP.

524 Mr Sinnappan instructed Mr Curry to liaise with RSM to facilitate the exercise of the options before the dividend was declared. Mr Wijeyeratne told Mr Bandopadhayay the Founders would each loan him $675,000, making up the $1,350,000 he needed to exercise the first tranche of his options.

525 On 22 February 2021, Mr Lanzer and Dr Shiffman exchanged WhatsApp messages in relation to Mr Bandopadhayay's options and the Call Option Deed:

Mr Lanzer: Any update on SD?

Dr Shiffman: Not yet sorry have been a bit nuts

Mr Lanzer: No worries

Let me know when you want to chat re your options and the updated Clutz doc

Also, Clint [at ABL] has done some work on the Prateek options. But Sel and Winston haven't actually contacted me so reluctant to get Clint to do more yet.

526 On 10 March 2021 Mr Sinnappan obtained advice from RSM in relation to interest free loans to be made from the Founders personally or through associated trusts to enable Mr Bandopadhayay to fund the exercise of the options.

1. On 22 March 2021 a draft Call Option Deed with minor amendments was provided to ABL by Clayton Utz, legal advisors to the Founders. An email from ABL confirmed the changes proposed by the Founders were acceptable to Dr Shiffman, who it appears was providing them with direct instructions concerning the Call Option Deed.
2. As at 22 March 2021, the Call Option Deed was ready to be signed - but signing did not take place at that time.
3. On 5 April 2021 Dr Shiffman sent a message asking the Founders to sign the Call Option Deed. He noted he had already signed. The following day the Founders responded, 'Yep will get this sorted out later today', but the Call Option Deed was not signed that day.
4. On 9 April 2021 Mr Curry contacted RSM concerning the ESOP:

Can we move ahead with issuing of shares to Prateek please in line with his exercise notice - so 3000 options exercised 1-1 for ords. Can you please draft up necessary papers, certs, ASIC docs etc.

As these will be settled by the loan from S&W should we mark these as unpaid for now for ASIC filing then update once that's in place?

Can you also draw up the papers for declaring the $20m dividend - given the merry go round with funding for Prateeks shares - it would prob make sense to include that dividends will accrue to all issued share capital (paid and unpaid) but that amounts accruing to unpaid SC will be paid once it's fully paid up.

1. Much reference was made at the trial by BBHF to the reference by Mr Curry in his email to the 'merry go round'.
2. On 9 April 2021, Dr Shiffman sent a further message to Mr Sinnappan saying he had signed the Call Option Deed and that 'Clayton Utz is telling ABL you haven't signed it'. Mr Sinnappan responded:

We signed the current version but the deed and signing pages need to be updated with the new trustee details. The signing pages also have the old trustee details. I told CU this morning to talk to ABL and get the deed fixed.

1. The Agreed Chronology records that on 12 April 2021 Sleeping Duck issued 3,000 fully paid shares to Mr Bandopadhayay at a price of $450 per share.
2. The resolution of the Founders, dated 12 April 2021 refers to the directors having received a notice from Mr Bandopadhayay to exercise his options pursuant to the ESOP and to the directors having resolved to complete a new share certificate pursuant to the rules that govern the execution of documents by Sleeping Duck. The share certificate dated 12 April 2021 certifies that Mr Bandopadhayay is the holder of 3,000 ordinary shares, paid as to $1,350,000 ($450 per share) with no amount remaining unpaid. That is not an accurate statement. The money was yet to be paid. Mr Curry had sought advice from RSM on 9 April 2021 about whether the shares should be shown as unpaid. It is unclear whether advice was provided. What is clear is that the documents dated 12 April 2021 and also ASIC documents were prepared either by Mr Curry or by RSM or a combination of the two. The signature of the directors was affixed electronically.
3. A Form 484 lodged with ASIC on 14 April 2021 records the issue of shares in favour of Mr Bandopadhayay. The form states that any questions should be directed to RSM. The form records Mr Wijeyeratne's electronic signature as having been affixed on 14 April 2021, corresponding to the date of electronic lodgement with ASIC.
4. On 12 April 2021, ABL sent an updated execution copy of the Call Option Deed to Clayton Utz. The email said that ABL would 'arrange for Adir to re-execute'. It asked Clayton Utz to arrange for the Founders to execute that version. The re-execution was required due to changes in trustee details on the execution page as referred to by Mr Sinnappan on 9 April 2021.
5. On 14 April 2021, the Founders resolved to issue a fully franked dividend of $145.63 per ordinary class share. On the same day Dr Shiffman, through BBHF, received a dividend payment of $1,456,310.68. The amount of the dividend is less than BBHF would have been entitled to as a 10% shareholder and is consistent with dilution having occurred before the dividend was paid.
6. In cross-examination, Dr Shiffman said he did not recall that he was 'cognisant of the precise number' paid as a dividend at the time.[81] Put to Dr Shiffman that once he saw that the dividend declared was in the amount of $15m, he would have immediately realised the amount he received was not 10%, Dr Shiffman denied that was the case. The Companies submitted the fact BBHF received less than $1.5m meant that Dr Shiffman knew his and BBHF's interests in Sleeping Duck had been diluted. In cross-examination, Dr Shiffman said he knew no such thing.
7. Also on 14 April 2021, BBHF, Sleeping Duck and the Companies entered into the Call Option Deed. An executed copy was provided to Dr Shiffman. It is his evidence that he did not know at that time that Mr Bandopadhayay had exercised his options and was already a shareholder.
8. On 16 and 19 April 2021 payment of the dividend of $145.63 per share took place. The Founders were paid just over $6.5m each.
9. On 20 April 2021 companies controlled by or associated with the Founders, Racoon HQ Pty Ltd (Mr Wijeyeratne's entity) and S2 Enterprises Pty Ltd (Mr Sinnappan's entity) and Mr Bandopadhayay entered into separate loan agreements to lend $675,000 each to Mr Bandopadhayay. The loan agreements were prepared by PwC. The schedules to the agreements record the purpose of the loans:

to fund the Borrower's payment of the Option exercise price to acquire Option Shares as the result of the exercise of 3,000 Options which vested on 29 June 2020, in accordance with the terms of the ESOP and the Award Invitation.

1. Clause 2.2 of the loan agreements provides that the loan amount must be used for the 'purpose' of acquiring the shares. The term of each of the loans is nine years and six months. No interest is payable.
2. The loan agreements record the advance date as 12 April 2021. That is not correct. $1.35m was advanced to Mr Bandopadhayay on 23 April 2021.
3. The Agreed Chronology records that on 23 April 2021 Mr Bandopadhayay received payment of a dividend of $436,893.20.
4. On 23 April 2021, Mr Bandopadhayay paid the company $1.35m for the issue of 3,000 shares.
5. In his witness statement Dr Shiffman said he had no knowledge that Mr Bandopadhayay had exercised any of his options at that time, nor of any arrangements between Mr Bandopadhayay and the Founders concerning the funding of those options. Given the contemporaneous discussions about a dividend, discussions initiated by Dr Shiffman on 20 January 2021, and Mr Lanzer's 15 February 2021 email to Dr Shiffman which included express reference to Mr Bandopadhayay participating in a pre-completion dividend and the amount of the dividend received by BBHF being less than $1.5m, I prefer Mr Sinnappan's evidence about the conversations between them at this time. I accept the discussions of which Mr Sinnappan gave evidence and which were put to Dr Shiffman took place.
6. When Mr Curry was asked if he told Dr Shiffman about the loan arrangements concerning Mr Bandopadhayay, he said he could not recall. However, he was clear there was no secrecy about the issue when it was discussed with him.
7. Mr Sinnappan gave evidence in his witness statement about the loans to enable Mr Bandopadhayay to exercise the options:
   1. Given that I believed Mr Bandopadhayay was a very important factor in the growth of Sleeping Duck, I wanted him to be able to exercise his options so that he could participate in dividends...
   2. Accordingly, Winston and I discussed that we would provide Mr Bandopadhayay with a loan to assist him in exercising his options. The context for that agreement is that, on 16 June 2020, Mr Curry had previously said to Winston and me that, in respect of Mr Bandopadhayay, the "company could provide bridge loan as necessary to enable exercise"...
   3. In early February 2021, I had discussions with Mr Curry regarding declaring a dividend and loaning some of the money received to Mr Bandopadhayay to allow him to exercise his options. Those discussions concerned sequencing, and whether it would be possible to pay the dividend to me and Winston and then use that amount to finance the loan to Mr Bandopadhayay. I remember Mr Curry confirming to me that that approach would work. On 8 February 2021, I sent Winston an SMS message which said "I spoke to Sean. He thinks the plan for the loan and dividends will work".
8. In his oral evidence in chief Mr Sinnappan denied having the improper purpose alleged when acting to assist Mr Bandopadhayay, namely, the purpose of prejudicing BBHF's rights and entitlements under the Call Option Deed. Mr Sinnappan agreed that by April 2021 the plan was to lend Mr Bandopadhayay money to fund the exercise of his options out of the money to be received from dividend payments from Sleeping Duck. Mr Sinnappan said he checked the plan with Mr Curry and RSM. He accepted that he understood at the time that the plan, when implemented, would dilute Dr Shiffman's shareholding. He said he spoke to Dr Shiffman and they had 'conversations about the upcoming dividend, and he [Dr Shiffman] agreed that Prateek could participate in the dividend for his three per cent'.[82] As earlier mentioned, I accept the truth of that evidence.
9. Mr Sinnappan was taken to Dr Shiffman's witness statement. He agreed he did not tell Dr Shiffman before 14 April 2021 that Mr Bandopadhayay had exercised his options and had been entered onto the register of shareholders. Mr Sinnappan could not recall whether he told Dr Shiffman that he and Mr Wijeyeratne had been in discussions since January 2021 about the Founders or Sleeping Duck lending Mr Bandopadhayay the money to enable him to exercise his options. He could not recall if he told Dr Shiffman before 14 April 2021 that the Founders had agreed to advance funds to Mr Bandopadhayay to exercise his options. He also could not recall whether he told Dr Shiffman that the funds to be advanced to Mr Bandopadhayay would come from the dividend payments that the Founders were planning to receive from Sleeping Duck. Mr Sinnappan conceded that as a matter of good faith, he or Mr Wijeyeratne should have told Dr Shiffman about their plan to lend Mr Bandopadhayay money to fund the exercise of his options out of the money the Founders would receive by way of dividends.
10. In cross-examination Mr Sinnappan rejected the proposition this was a secret plan that he and Mr Wijeyeratne approved with and for Mr Bandopadhayay. He said he kept the terms of the loan and the loan documents away from Dr Shiffman but denied the concept of the loan itself was kept from Dr Shiffman. Mr Sinnappan conceded that he did not want ABL or Dr Shiffman to see the loan document and engaged Clayton Utz because he was 'uncomfortable with the relationship that they [ABL and Dr Shiffman] had with each other' and that because it was a personal loan, he did not think that Dr Shiffman had to see it.[83]
11. Mr Sinnappan was cross-examined about the impact of the plan to fund and issue the shares to Mr Bandopadhayay on Dr Shiffman's rights under the Call Option Deed. He said that in April 2021 he did not appreciate that if Mr Bandopadhayay's options were exercised then Dr Shiffman would no longer be able to exercise any of his options at all, without Mr Bandopadhayay's agreement, a fact which Mr Sinnappan conceded he now appreciated.
12. In cross-examination Mr Wijeyeratne accepted when the Call Option Deed was signed on 14 April 2021, he knew the agreement of all shareholders pursuant to clause 2.4(a) required the agreement of the Founders, Dr Shiffman and also, from 12 April 2021, Mr Bandopadhayay. He said he could not recall telling Dr Shiffman that Mr Bandopadhayay had become a shareholder. He accepted that the relationship between Dr Shiffman and Mr Bandopadhayay in 2021 was one which involved differences of opinion and which currently could be described as 'strained'.[84]
13. Mr Wijeyeratne said he wanted Mr Bandopadhayay to participate in the dividends in April 2021 and that they had discussed the loan at an earlier date. In cross-examination he said that by January 2021 the Founders were contemplating providing interest free loans to assist Mr Bandopadhayay to exercise the options and such that interest free loans might be the subject of debt forgiveness 'down the track'.[85]
14. Mr Wijeyeratne gave some conflicting responses when cross-examined about these events. Initially he accepted that the ESOP diluted Dr Shiffman. Later, he gave evidence he did not know that assisting Mr Bandopadhayay would have the effect of diluting Dr Shiffman's interest. He then said he knew the funding of the exercise of the options would dilute Dr Shiffman, but he did not think that was 'bad'.[86]
15. Mr Wijeyeratne was cross-examined about the 'merry-go-round' to which Mr Curry referred in his 9 April 2021 email, used to fund Mr Bandopadhayay's exercise of 3,000 of his options under the ESOP. Mr Wijeyeratne denied the use of company funds to assist the funding of the exercise of the options by Mr Bandopadhayay. He denied that what occurred was 'in secret', and said that while he was generally aware of provisions in the Act concerning financial assistance, he was not sure he had been told anything specific about this.
16. In cross-examination, Mr Wijeyeratne denied that he and Mr Sinnappan acted in concert and for the purposes of prejudicing Dr Shiffman under the Call Option Deed in April 2021 and also in September 2021 when, once again, dividends were declared, money was lent to Mr Bandopadhayay and Mr Bandopadhayay exercised options under the ESOP.
17. It is common ground that at the date of trial neither of the conditions for the exercise of options in the Call Option Deed has been satisfied. When put to Mr Wijeyeratne that Dr Shiffman was unable to realise any of the value of his investment in Sleeping Duck, Mr Wijeyeratne initially disagreed. It was pointed out that through BBHF, Dr Shiffman's investment comprised a shareholding, diluted to be less than 10% because of Mr Bandopadhayay's ESOP and options, with the risk of further dilution if Mr Bandopadhayay exercised his remaining options. After those facts were drawn to Mr Wijeyeratne's attention and the terms of the Call Option Deed were pointed out, he accepted that Dr Shiffman was unable to realise any of the value of his investment, but added that there was 'more context to that'.[87]
18. Mr Bandopadhayay was cross-examined about his knowledge of the prohibition on a company funding the purchase or providing financial assistance in relation to the purchase of its shares.[88] He said he definitely assumed that money would come to enable him to exercise the options via the dividend but said he had no idea about the mechanics of the plan. He said he was given very clear instructions by Mr Curry. He said there was a discussion that he might not be able to repay the loans, but that he would have to repay the loans if there was a transaction. I accept the truth of his evidence about these matters.
19. It emerged during the cross-examination of Mr Bandopadhayay that when he was seeking finance from Westpac in April 2021, he did not tell Westpac he was going to get a loan from the Founders for $1.35m. I place no weight on that non‑disclosure given the circumstances of his seeking external finance.
20. As recorded in the Agreed Chronology, in April 2021 discussions with Adairs concluded unsuccessfully.

562 On the pleadings issue 17 involves BBHF proving, first, that the Founders and Mr Bandopadhayay took the steps complained of in April 2021 in concert and, second, that they did so for the purpose of prejudicing BBHF's rights and entitlements under the Call Option Deed.

563 BBHF did not advance closing submissions directed to the allegation that the Founders and Mr Bandopadhayay acted in concert.

564 In Perpetual Custodians Ltd (as custodian for Tamoran Pty Ltd as trustee for Crivelli) v IOOF Investment Management Ltd,[89] Stevenson J set out what is needed in order for two or more parties to act 'in concert':[90]

(a) there must at least be an understanding between them as to their common purpose of object; a mere coincidence of separate acts is insufficient;

(b) there must be some knowing conduct the result of communications between parties and not merely simultaneous actions occurring contemporaneously;

(c) there must be an understanding between the parties as to a common purpose of object;

(d) there must be contemporaneity and community of purpose;

(e) a concurrence of views about the merits of a particular resolution proposed by another person is not sufficient; and

(f) the understanding between the parties as to the common purpose or object must be consensual and there must be some adoption of it.

565 To the extent it might be relevant to the allegation of acting in concert, the evidence does not make out BBHF's allegation that Mr Bandopadhayay 'is and was at all material times' a 'personal associate' of the Founders.

566 The evidence establishes that Mr Bandopadhayay first came in contact with Mr Wijeyeratne in 2017 through Mr Wijeyeratne's brother. There was little contact between the two men until early 2019 when Mr Wijeyeratne began to provide services to Sleeping Duck. Mr Bandopadhayay did not meet Mr Sinnappan until after he began work. There was no evidence and no submissions directed to attempting to show that after Mr Bandopadhayay began working at Sleeping Duck, the three men developed a 'personal association' in any way going beyond their interactions relating to the work of Sleeping Duck. The allegation in BBHF's particulars that the three men were 'personal associates' at all material times is not established.

567 The allegation the Founders and Mr Bandopadhayay acted 'in concert' requires BBHF to prove an understanding between the three men as to their common purpose or object. In addition, there must be contemporaneity and community of purpose. A concurrence of views or the fact of simultaneous actions occurring contemporaneously is insufficient.

568 There was no acting in concert in this case. The understanding alleged is an understanding between the three men to act together to assist Mr Bandopadhayay to fund the exercise of the options held by him under the ESOP in April 2021 'for the purpose of prejudicing BBHF's rights and entitlements under the Call Option Deed'. The evidence simply does not support the existence of the common purpose or object alleged.

569 It is not in dispute that the Founders took steps in April 2021 to lend $1.35m to Mr Bandopadhayay to assist him in relation to the exercise of his options. It is not in dispute that they resolved for Sleeping Duck to issue a dividend and for Mr Bandopadhayay to receive that dividend. The fact there was in loose terms a 'merry-go-round' of money as the practical means of assisting Mr Bandopadhayay to fund the exercise of options does not support the proposition that the funding of Mr Bandopadhayay into the options was for the purpose of prejudicing BBHF's rights and entitlements as pleaded by BBHF.

570 There are at least three reasons why that is the case. First, in order to act in concert, it is necessary to show that the parties involved in the impugned conduct had knowledge about the elements of the joint endeavour necessary to make out the common purpose alleged. There is no evidence to suggest that at any relevant time Mr Bandopadhayay was aware of the Call Option Deed, the communications and negotiations concerning its terms or of any rights or entitlements held by Dr Shiffman pursuant to it. The lack of knowledge on Mr Bandopadhayay's part puts paid to the allegation that he and the Founders acted 'in concert' and for the purpose alleged.

571 Second, as a separate matter, it was very much in Mr Bandopadhayay's interests from early 2021, up to and including April 2021, that he exercise the options. At this time Adairs were thought likely to put a proposal which, if accepted, according to the advice from ABL would likely see a significant tax issue for Mr Bandopadhayay if his options were not exercised in advance.

572 Third, the idea first raised in January 2021 of declaring a significant dividend at a time when Sleeping Duck had approximately $30m in the bank was Dr Shiffman's idea. His proposal to declare such a dividend was driven by the prospect that Adairs would likely make a proposal. In those circumstances, it was in the interests of the existing shareholders that a significant dividend be declared. It was the implementation of this proposal from Dr Shiffman with which the Founders and Mr Curry agreed that provided the cash that led to the Founders' companies making loans to Mr Bandopadhayay to enable the exercise of the options.

573 Fourth, the actions that were taken by Sleeping Duck and by the Founders to fund Mr Bandopadhayay were actions taken in accordance with advice received from RSM. The documents lodged with ASIC were prepared and drafted either by Mr Curry or by RSM.

574 The steps taken by the Founders in April 2021 to which this issue relates were nothing to do with an agreement or understanding to work together, in concert or otherwise with Mr Bandopadhayay to prejudice BBHF's rights and entitlements under the Call Option Deed.

575 The fact there was a broad coincidence of timing between early 2021 and the end of April 2021 of events involving the declaration of the dividend and the loans to Mr Bandopadhayay and the finalisation of the Call Option Deed does not mean that the Founders and Mr Bandopadhayay were acting in concert and taking the steps relied on in the pleading for the purpose of prejudicing BBHF's rights and entitlements. What occurred was 'a coincidence of separate acts'.

576 BBHF submitted there are several ways in which Dr Shiffman and BBHF were prejudiced by the circular arrangement concerning the ESOP. First, noting clause 2.4 of the Call Option Deed, Dr Shiffman now needs agreement not only of the Founders to the exercise of his options but also of Mr Bandopadhayay, who also has a right of veto over the exercise of his options. Second, while the Call Option Deed includes a duty of good faith (cl. 2.12), Mr Bandopadhayay is not a party to the Call Option Deed. As a result, he is not bound by that obligation, yet his agreement is required to the terms of a SHA. Third, Dr Shiffman's interest was diluted from 10% down to about 9.7%. BBHF submitted that while Dr Shiffman knew about the proposal to issue the ESOP, and he knew dilution was a risk, the actual dilution was significant because below 10% meant he had no right to appoint a director.

1. While I accept the first two matters referred to have the potential to cause prejudice to Dr Shiffman, I do not accept that is the case concerning the third matter. As at April 2021, there was no agreement that Dr Shiffman would have the right to appoint a director upon holding 10% of the shares.
2. Separately, BBHF submitted that when Dr Shiffman signed the Call Option Deed he did not know Mr Bandopadhayay had exercised 3,000 options pursuant to the ESOP. He did not know about the funding of the exercise of those options. Details of the arrangements for funding Mr Bandopadhayay 's exercise of the options were not disclosed to Dr Shiffman and were withheld from him. In opening its case, BBHF submitted that had Dr Shiffman known of those matters he would never have executed the Call Option Deed.
3. In his witness statement, Dr Shiffman said if he had known of these matters, including that the Founders had agreed to lend funds to Mr Bandopadhayay to exercise his options, he would never have executed the Call Option Deed. He said he first learned of these things in late 2021 during the course of the proceedings and was 'shocked'.
4. As submitted by the Founders in closing, Dr Shiffman and BBHF made no application to rescind or have the Call Option Deed annulled. It is not clear where the non-disclosure complaint leads.
5. To the extent relevant to the pleaded case, I do not accept that Dr Shiffman was kept 'in the dark' concerning the idea that loans might be made by the Founders to enable the exercise by Mr Bandopadhayay of the options. The 12 point plan prepared by Mr Lanzer communicated to Dr Shiffman on 15 February 2021 expressly contemplated the payment of a pre-completion dividend to Mr Bandopadhayay sooner, rather than later, given the interest shown by Adairs. It also expressly contemplated loans to Mr Bandopadhayay. Dr Shiffman knew about these things. From his discussion with Mr Sinnappan in February 2021, he knew it was intended Mr Bandopadhayay would participate in a pre-completion dividend.
6. In view of Dr Shiffman's knowledge of these matters, I am not persuaded that Dr Shiffman would not have signed the Call Option Deed if he had known all of the details he says he did not know.
7. The reluctance of the Founders to consult with ABL in relation to the loans involving Mr Bandopadhayay to which BBHF drew attention in submissions and the obtaining by the Founders of independent advice concerning the Call Option Deed from Clayton Utz is understandable. ABL were Sleeping Duck's solicitors. The Founders had a perception, for which based on the communications between them there appears to have been a reasonable basis that there was a close relationship between Mr Lanzer and Dr Shiffman.

584 For the reasons discussed, the allegation of Mr Bandopadhayay and the Founders acting in concert and doing so for the purpose of prejudicing BBHF's rights and entitlements under the Call Option Deed is not established. To the extent it is material, and it is not pleaded by BBHF, I am not persuaded Dr Shiffman would not have signed the 14 April 2021 Call Option Deed if he had known all of the details concerning the funding of Mr Bandopadhayay's options.

E9 Issues 18-19: the alleged exclusion of Dr Shiffman from November 2020

1. BBHF alleges that from around November 2020, contrary to the Second Understanding on Participation reached with the Founders on 19 June 2019 and contrary to the Understanding on Sell Down reached with the Founders in early 2020, Dr Shiffman was excluded from his role in the management of Sleeping Duck. The Companies deny those allegations.
2. I have earlier found the understandings relied on by BBHF as the basis for the allegation of exclusion, the right to participate in management based on the Second Understanding on Participation and the Understanding on Sell Down, not made out.

587 As a separate matter BBHF alleges in around May 2021, 'by reason of his exclusion from his role in management of the Company', Dr Shiffman entered into negotiations with the Founders concerning his role, participation and investment in Sleeping Duck.

1. Except to admit discussions took place in May 2021, the Companies deny those allegations. In closing they submitted Dr Shiffman continued his work as mentor and adviser and made suggestions and proposals which were discussed with the Founders throughout 2021.
2. The dispute concerning Dr Shiffman's 'reason' for entering into negotiations with the Founders in May 2021 independently requires a consideration of the allegation concerning Dr Shiffman's exclusion from management in the lead-up to the 5 May 2021 meeting.

590 The particulars in support of the exclusion plea rely on four matters:

(a) in November 2020 the Founders ignored Dr Shiffman's objection to the pricing proposed for the 'Mach II' product;

(b) rebranding and redesign of the website implemented without Dr Shiffman's involvement;

(c) the undertaking of extensive marketing campaigns without the involvement of Dr Shiffman; and

(d) the Founders ignoring and failing to facilitate the implementation of Dr Shiffman's March 2021 '47 Day Step-Up Sprint' strategic plan ('47 day sprint').

1. Before turning to the four categories of exclusionary conduct relied on, it is important to record, as found in section E5.2, that once the decision to pursue Sell Down Opportunities was taken in early 2020, Dr Shiffman increasingly focused on that workstream.

592 In his evidence, Mr Sinnappan listed a range of major projects that were undertaken in 2020 without Dr Shiffman's involvement. Those projects included the development of the Mach II mattress, the Indestruct Bed and the Sleeping Duck rebrand in late 2020. Mr Sinnappan said he and Mr Wijeyeratne did not consult with Dr Shiffman about these matters before making their decisions because they did not consider that to be his role. Dr Shiffman did not complain to Mr Sinnappan about not being involved in those projects.

1. In the months leading up to November 2020, the beginning of the period during which Dr Shiffman said he was excluded, Dr Shiffman was heavily engaged in attempts to secure a sell-down of shares.
2. In August 2020 Sleeping Duck retained VCF Capital Partners to assist with an IPO. On 8 September 2020 VCF Capital provided a summary of feedback from the broker engagement process, including the identification of three options. On 10 September 2020 VCF Capital provided the Founders with their observations about the advantages and disadvantages of each option. By mid-September 2020 the Founders decided to hold off the IPO process and to continue to take steps towards a private trade sale.
3. Dr Shiffman was involved in the private trade sale process. In his witness statement Dr Shiffman provided a summary of the way in which Sell Down Opportunities in which he was involved progressed, beginning in September 2020 when Adairs expressed interest.
4. Over the second half of 2020 Adairs made three offers. CPE Capital expressed interest in November 2020. Temple & Webster expressed interest in December 2020. TA Associates, a private equity business, expressed interest in January 2021.
5. In cross-examination Dr Shiffman accepted that from October 2020, he did a lot of work on bids for a purchaser to come in and purchase shares in Sleeping Duck.
6. While Dr Shiffman's evidence is that from late 2020 there was a 'gradual process' of him being shut out of key decision making in Sleeping Duck, he made no complaint about being shut out from his work in pursuing Sell Down Opportunities.
7. The first particularised exclusion category alleged concerns the Mach II mattress and its launch in November 2020.
8. The 9 November 2020 email about the Mach II mattress, discussed in section E6.2, was sent less than 10 days before the date the new mattress was due to be launched. The mattress had been in design and development for approximately a year and had been manufactured and was ready for sale by early November 2020. Mr Bandopadhayay had spent many months on the marketing and branding effort. Mr Wijeyeratne had been responsible for design and development, assisted by a team of several employees. As cross-examination revealed, Mr Curry had been involved from at least as early as August 2020 in financial documents that adopted cost and selling price inputs regarding the Mach II mattress that, with only days to go before the scheduled launch, Dr Shiffman questioned.
9. The main differences between Dr Shiffman and the Founders were first, that Mr Wijeyeratne believed Sleeping Duck transitioning solely to the Mach II mattress would be the cleanest approach whereas Dr Shiffman proposed selling both mattresses via the website at the same time. Second, there were differing views about pricing.
10. Mr Sinnappan gave evidence that following Dr Shiffman raising issues concerning the Mach II mattress, there was a process of engagement with Dr Shiffman. Part of that engagement is detailed in section E6.2. Following discussions and a series of emails, some aspects of Dr Shiffman's recommendations were accepted and implemented. As I have earlier found, nothing about the manner in which the issues raised by Dr Shiffman concerning Mach II were dealt with or the resolution of the issues supports a finding of exclusion of Dr Shiffman.
11. I do not accept there was any exclusion of Dr Shiffman in relation to this issue, or at all around November 2020.
12. The second particularised exclusion concerns rebranding and website redesign.
13. There was significant focus during the trial on why there was a reduction in the conversion rate of website traffic into sales following the adoption of a new website for Sleeping Duck. Critically, what steps should be taken to deal with the issue. Reference was made to a number of communications in March 2021 between the Founders and Dr Shiffman concerning this issue.
14. BBHF submitted the Founders ignored Dr Shiffman's concerns that the rebranding and redesign of Sleeping Duck's website was causing conversion rate issues and adversely impacting sales. BBHF submitted Dr Shiffman continued to express his concerns about the website and the declining conversion rate throughout 2021, but to no avail.
15. On 16 February 2021, in an email exchange between Dr Shiffman and the Founders, Dr Shiffman said 'the numbers' show the new website 'throttled' conversion.
16. On 8 March 2021 there were further communications between the Founders and Dr Shiffman in which Dr Shiffman referred to conversion being 'sharply down in perfect timing with new site but note mobile is a total disaster on conversion'.
17. On 13 April 2021, Dr Shiffman communicated with the Founders via WhatsApp expressing his opinion the new website was a mistake and coincided with a drop in sales: 'I don't see I'm going to win this argument but it's the view I've come to after a lot of analysis and thought'.
18. Dr Shiffman's preference and his recommendation was to engage external conversion rate experts to address the website conversion issue. That recommendation was not taken up by the Founders. Instead, as at 13 April 2021 the business had prioritised hiring someone who would attend to that issue internally.
19. By April 2021, Dr Shiffman expressed extreme frustration about the way the business was being operated. In his witness statement, he referred to the website conversion issue as an example of how he was shut out of decision-making processes in Sleeping Duck. I do not agree. This was, as Mr Curry agreed, a business issue on which reasonable minds could differ.
20. Looking at the communications concerning the website conversion issue and considering the evidence about the problem that arose and the attempts to provide solutions, what occurred in relation to this issue reflected nothing more than a disagreement between persons about how a problem that had arisen in the business and was impacting upon its performance should most appropriately be addressed. In particular, by what means, external consultants or internal resourcing. I do not consider the events relating to the website and problems with the conversion rate and Dr Shiffman's complaint that his method of dealing with the problem was not taken up provide evidence of exclusion of Dr Shiffman or of oppressive conduct.
21. The third particularised exclusion concerns marketing campaigns without the involvement of Dr Shiffman.
22. In cross-examination, Dr Shiffman agreed that from approximately the second half of 2018 he was 'adamant' that Mr Wijeyeratne take over the marketing efforts. He said he was not involved in the production of the video advertisements that Mr Wijeyeratne produced in early 2019.
23. When cross-examined about Dr Shiffman's involvement in marketing, Mr Sinnappan said 'in the early days, so sort of 2018 when we first, ah, got involved with Dr Shiffman, um, he was more, more involved in the marketing area. And then as we, as we grew, grew out our marketing area and expertise, then that was an area that he was less involved with'.[91]
24. Mr Wijeyeratne gave evidence that once he took over the marketing role, and especially after Mr Bandopadhayay became involved, Dr Shiffman had 'no real involvement with marketing at all'. I accept the accuracy of that evidence.

617 There is no substance to the third particularised complaint. Marketing was never a focus of Dr Shiffman's involvement in Sleeping Duck. I find that Dr Shiffman had no substantive involvement in marketing campaigns prior to November 2020. I do not accept that he was 'excluded' from marketing campaigns thereafter. Marketing was simply not an area of the Sleeping Duck business in which Dr Shiffman had material involvement. To the extent he was involved in marketing, there is no substance to the complaint he was excluded.

1. The fourth particularised exclusion concerns the 47 day sprint.
2. On 8 March 2021, Dr Shiffman sent an email to the Founders and Mr Curry titled the '47 Day Step-Up Sprint', the purpose of which was to:

rapidly accelerate the business towards the next stage of growth and professionalism. The objective is to achieve a material improvement in business performance by 30 April 2021, and even more importantly to have commenced the implementation of a more robust framework that will provide for future growth.

1. The '47 Day Step-Up Sprint' email began with a reference to a 'great session' following which Dr Shiffman spoke to the Founders. The session had involved discussing the 'strategy of the business, where it was going' and the key drivers for growth.[92] The attachment to the email expanded on these topics, beginning with 'formalising our online sales platform', which at that time accounted for 100% of sales. The first recommendation involved the website conversions issue, engaging external consultants. The second recommendation, employing a person with 'deep experience running e-commerce'; the third item, SEO - search engine optimisation. The next topic concerned 'enhancing our marketing at the top and bottom end' with recommendations. The fourth topic, 'expanding beyond a single halo product' including transitioning Mr Wijeyeratne to 'head of product' and launching a new 'halo product' urgently. The next topic, 'broadening sales beyond line' followed by 'de-risking' and 'improving capacity'.
2. The tone of the '47 Day Step-Up Sprint' email and its attachment is not consistent with a person who felt excluded or not listened to, 5 - 6 months after Dr Shiffman alleges the exclusion began. The tone is energetic, enthusiastic and motivational. The text of the enclosure included:

We are extremely lucky to have Winston in the business, who is a great product innovator. Together with Sel they have produced some real magic with the mattress ...'.

1. Mr Curry agreed that aspects of the 47 day sprint were taken up.
2. Existing staff comprised around 35 people. As was put to Mr Curry and accepted by him, part of Dr Shiffman's 47 day sprint involved hiring between 15 - 24 experienced specialised staff.
3. Not long after the '47 Day Step-Up Sprint' document, an email exchange took place between Dr Shiffman, a Sleeping Duck employee Paul Coia and Mr Wijeyeratne in relation to an e-commerce manager and the conversion rate. On 1 April 2021, Dr Shiffman asked Mr Wijeyeratne and Mr Coia whether it would:

[b]e ok to request some comprehensive feedback on the e-commerce manager meeting today, how you're thinking about why you need, and specifically what you thought was good and weak about her.

625 Mr Coia provided a comprehensive response on the same day. Dr Shiffman responded, also on the same day, 'Oh this is fucking good thinking Paul. Thanks'. This is not the response of a person who is or considers themselves to be excluded.

1. Dr Shiffman's reference to a new second 'halo' product was a reference to the 'Indestruct Bed'. Work on the bed had begun by Mr Wijeyeratne in February 2020. It included the design and development of a prototype in Melbourne in February 2020 with manufacturing beginning in Asia after August 2020. The '47 Day Step-Up Sprint' urged making that product available for pre-purchase by 1 May 2021. It also urged a dedicated physical store to sell the beds.
2. Prior to the launch of the Indestruct Bed, mattresses were the focus of Sleeping Duck's business. A soft launch of the Indestruct Bed with limited styles was held in June 2021, the purpose being to gauge interest in the product. Between September and October 2021, work was done on the marketing piece for the Indestruct Bed and in February 2022 it was launched. By the time of trial Sleeping Duck's physical showroom had been in operation for about 18 months. Both of these developments are consistent with steps Dr Shiffman considered the business should take in his 47 day sprint document.
3. The '47 Day Step-Up Sprint' document included a 'Q & A' section. Item 6 of the Q&A section read as follows:

What's your (Adir's) role in all of this?

You're currently experiencing my role. I will provide some strategic leadership and I've been here before so I believe I know the way through. We now have the right executives with the capability to deliver this success'.

1. In cross-examination, Mr Curry gave evidence as follows:[93]

Q: Now in executives, you'd be including co-CEOs would you not?

A: Oh absolutely.

1. Mr Curry was questioned about an email dated 17 May 2021 which referred to the proposal to open a new showroom and various aspects of the business including a reduction in growth and EBIT. He said the 17 May 2021 email, sent to the Founders and to Dr Shiffman, reflected 'our view' of the state of the business, being his view and that of Dr Shiffman and the Founders.
2. When I asked Mr Curry directly in the context of these emails and the '47 Day Step-Up Sprint' document, he agreed that Dr Shiffman was not shut out as at mid‑May 2021.
3. I do not accept the response of the Founders to the 47 day sprint was one of exclusion of Dr Shiffman, whether from 'management' as alleged, or, more accurately, from his role as a strategic adviser. Dr Shiffman's advice, opinions and input in the form of the 47 day sprint were valued, evaluated and acted upon by the Founders.
4. It was put to Mr Sinnappan that from early 2021, Dr Shiffman's views were given less weight. He agreed that Dr Shiffman began to have less influence in the business after the first few months of that calendar year. However, he rejected the proposition that he and Mr Wijeyeratne actively set out to reduce Dr Shiffman's influence. I accept the truth of his evidence in that regard.
5. More generally, I do not accept that Dr Shiffman was excluded from involvement in the business from November 2020. It was Mr Curry's evidence-in-chief that the level of Dr Shiffman's engagement 'started to dry up' around mid to late 2021, not because he was excluded but for a different reason:[94]

around about the time the kind of third in depth discussion we had with potential investors had fallen away or was looking like it was falling away and that's when his engagement started to dry up.

And how do you know that his engagement started to dry up?---He'd expressed his disappointment that the - that the ah - the deals, external deals hadn't happened given the amount of work that had been - gone into them and yeah, potential for quite life changing sums of money to change hands. Um he'd mentioned to me privately that he was probably going to look to move away from the business if - if an exit wasn't on the future in some respects and that he'd made an offer to Sel and Winston to come to a conclusion around his - around his shareholding.

When was that - when did that conversation take place?---I'm - I'd have - I'm guessing, maybe August/September 2021. I'd say it was fairly late in 2021.

1. If there was otherwise any doubt, and there is not, I consider the evidence of Mr Curry decisive in establishing that Dr Shiffman was not excluded from the management of the Sleeping Duck business from around November 2020, or for that matter, in the period to May 2021.
2. The pleaded allegation is that 'by reason of his exclusion from his role in the management of' Sleeping Duck, 'Dr Shiffman entered into negotiations with the Founders' in or around May 2021. I do not accept that 'exclusion from his role in the management' occurred. I do not accept 'exclusion from the management' was the cause of Dr Shiffman initiating his meeting with the Founders on 5 May 2021.
3. To the extent it is relevant to identify the driver behind the 5 May 2021 meeting from Dr Shiffman's perspective, the driver was what was occurring at that time concerning sell down proposals. Contrary to Dr Shiffman's witness statement where he said at the time of the 5 May 2021 meeting 'the Adairs bid was still alive', the Agreed Chronology records that in April 2021, discussions with Adairs concluded unsuccessfully. The driver behind the 5 May 2021 meeting was nothing to do with Dr Shiffman's involvement in or exclusion from management. The reason the meeting was initiated was because the proposed Adairs transaction had fallen over.

638 In April 2021, TA Associates expressed interest in Sleeping Duck. A non-disclosure agreement was negotiated. On 7 May 2021, TA Associates made a formal proposal to buy 30% of Sleeping Duck for $120m (at an implied valuation of $400m). A term sheet was executed on 11 June 2021. But TA Associates had concerns about the business, and after they could not be talked out of those concerns TA Associates withdrew their bid.

E10 Issues 20-21: the 5 May 2021 meeting, the alleged Exit Agreement and its alleged breach

1. At a meeting on 5 May 2021, a common understanding (the terms of which are in issue) was reached between Dr Shiffman and the Founders about Dr Shiffman's involvement in Sleeping Duck.
2. BBHF pleads an 'Exit Agreement' was arrived at between Dr Shiffman and the Founders. The Companies plead what was agreed was a 'Transition Passivity Agreement'.
3. BBHF alleges the Exit Agreement was later breached by the Founders. The Companies deny the existence of the Exit Agreement and deny breach.

1. The May 2021 Exit Agreement and its terms are pleaded by BBHF as follows:
   1. In or around late May 2021, Dr Shiffman, Sleeping Duck and the Founders entered into an oral agreement concerning the means by which Dr Shiffman and the Founders would bring their relationship and understandings with respect to Sleeping Duck to an end (the Exit Agreement).

57 The express terms of the Exit Agreement were that:

1. The Founders and Sleeping Duck would provide all reasonable assistance to enable BBHF to sell down its shareholdings and options;
2. Dr Shiffman's role and participation in Sleeping Duck in accordance with the Second Understanding on Participation and the Understanding on Sell Down would continue until September 2021; and
3. Dr Shiffman would cease to have any active role or participation in the management of Sleeping Duck from September 2021 and would, at that point, become a "passive" investor.

1. The Exit Agreement included implied terms that each of BBHF, the Founders and Sleeping Duck would:
   1. Do all things necessary to enable each other to secure the benefit of the Exit Agreement; and
   2. Not hinder or prevent the fulfilment of the purpose of the express promises made in the Exit Agreement.

643 The Companies deny the Exit Agreement allegations. They allege:

(a) on 5 May 2021, a meeting took place between Dr Shiffman and the Founders;

(b) following that meeting, an oral agreement was reached between Dr Shiffman and the Founders in late May 2021 (Transaction Passivity Agreement) that:

(i) Dr Shiffman would continue to progress the existing potential sale transactions that were then on foot until they ended (whether successfully or unsuccessfully);

(ii) Dr Shiffman would continue to receive a $10,000/month consultancy payment over this period; and

(iii) after the conclusion of the existing transaction process, Dr Shiffman would:

(C) only have such rights and entitlements of a minority shareholder.

1. BBHF alleges that from September 2021 onwards in breach of the Exit Agreement:
   1. Neither [the] Founders nor Sleeping Duck have provided any assistance to BBHF to allow it to sell down its shareholdings or options; and
   2. Sleeping Duck has taken steps to interfere with or frustrate any sell down of BBHF's shareholdings or options.

645 BBHF provided particulars of breach as part of its initial pleading. First, the termination of Mr Curry's employment and the failure to engage an appropriately qualified or experienced replacement. Second, the failure to finalise the 2021 financial statements and reports. Third, a proper and regulated account of the formal affairs of Sleeping Duck is material to any potential investor or purchaser of BBHF's shares and options.

646 The additional particulars of breach provided on 18 February 2022 allege:

1. The Revised CPE Capital Loan Bid was commercially reasonable and should have been accepted by the Founders and Sleeping Duck.
2. On or around 11 October 2021, and without discussion with or explanation to Dr Shiffman, the Founders informed Goldman Sachs that they were not willing to accepted the Revised CPE Loan Bid.

1. On 26 April 2021, Dr Shiffman contacted Mr Sinnappan proposing a meeting with the Founders to 'speak about my broader candid feedback and my ongoing involvement.'
2. The next day, 27 April 2021, Dr Shiffman sent a WhatsApp message to the Founders:

But it would be good to catch up in person next week for an hour so I can share with you my thinking and the personal plans I've decided on regarding business involvement next financial year.

1. While BBHF alleged a meeting in late May 2021, when cross-examined Dr Shiffman accepted it was on 5 May 2021 that he met with the Founders to discuss his future involvement.
2. The 5 May 2021 meeting took place at the Sleeping Duck offices. Both Founders took contemporaneous notes. Dr Shiffman did not. There is disagreement about what was discussed. There are also some inconsistencies between BBHF's pleaded case and Dr Shiffman's evidence-in-chief.

651 The best evidence of what was discussed on 5 May 2021 is found in the contemporaneous notes made by the Founders. There is a strong correlation between not only the sequence of what is recorded in the two sets of notes but also in the language used to record what was discussed. That correlation provides persuasive evidence of the course of the discussion and of what was said by Dr Shiffman.

652 The meeting began with a discussion of Dr Shiffman's 'thoughts' and concerns. First, his view that the business was in 'terminal decline' with the brand not working as it had done before. He said 'one halo brand' in the last six months, is 'not enough' even though it is a great halo product. The 'halo' brand reference was a reference to one of the issues referred to in Dr Shiffman's '47 Day Step-Up Sprint' document.

653 Dr Shiffman expressed his concerns about staff members including Mr Curry. Mr Sinnappan's notes record Dr Shiffman saying he felt 'uncomfortable' and 'devalued' by Mr Curry. Dr Shiffman said his voice was 'not very strong'.

654 The context of these remarks is notable. Dr Shiffman was not saying the Founders had devalued him. The concerns he expressed about feeling devalued, recorded in the contemporaneous notes, were not to do with the Founders.

1. In his witness statement, Dr Shiffman said he told the Founders they had shut him out of Sleeping Duck's decision-making process. Mr Sinnappan and Mr Wijeyeratne both denied Dr Shiffman said he had been shut out of the business. There is no note of Dr Shiffman saying he had been shut out. I do not accept that Dr Shiffman used that language in the meeting.

656 Dr Shiffman referred next to falling revenue and the need for a new narrative on social media. He referred to silk pillowcases, new sheets and to sales of 65% in the US and 35% in Australia.

1. Mr Sinnappan accepted that he did not have a word-for-word recollection of the meeting. Consistent with his handwritten notes, he recalled Dr Shiffman saying he had become less influential in the business, that he had concerns about the last six months, that the dynamic of the business had changed, and that his (Dr Shiffman's) voice in the business was no longer as strong as it had been. In cross-examination Mr Sinnappan accepted that Dr Shiffman said the business was in a 'state of decline'.

658 This was the point in the meeting at which Dr Shiffman identified three alternatives, described by Dr Shiffman in cross-examination as him providing three options for the Founders to choose between. In his witness statement Dr Shiffman referred to the three options in the following terms:

(a) the current sell-down process would continue, with a sell-down of all or a majority of my equity taking place by September 2021 and, from that point onwards, I would become a passive investor;

(b) the current sell-down process would transition to a buy-out of the Founders; and

(c) the present sell-down process would continue, but that I be appointed formally as Chairman and have final decision making power.

1. He said the Founders told him they would proceed with the first of these options and he understood it was agreed that:

(a) the Founders and Sleeping Duck would provide all reasonable assistance to enable BBHF to sell down all or the majority of its shareholdings and options by September 2021;

(b) [he] would continue to participate in the management of Sleeping Duck, particularly in relation to work to be done to achieve a sell-down until September 2021; and

(c) [he] would otherwise become a 'passive investor' in respect of any remaining equity [he] may have in Sleeping Duck from September 2021.

660 Dr Shiffman's evidence does not align with the Founders' contemporaneous notes of what Dr Shiffman said regarding the three options.

661 Concerning option 1, Mr Wijeyeratne's notes read 'mental health not sustainable - dynamic shift (PB) - transaction - passive shareholder...'. Mr Sinnappan's notes read 'transaction June/July - go passive can't stay involved if we stay this course'. Above option 1 in Mr Sinnappan's notes is the word 'fallback'.

662 Concerning option 2 Mr Wijeyeratne's notes read 'external CEO - buy us out 50% equity'. Mr Sinnappan's notes read '30-60 days, $100 M - SS/WW. Adir doesn't sell down. Transition to new CEO in 12 months, material liquidity event in 13 months. Buy control for cash'.

663 Concerning option 3, Mr Wijeyeratne's notes read 'more formal direction...'. Mr Sinnappan's notes read, 'formally do more of Adirs "direction" issue - speed, rollback site, great product, product diversification, third-party product through our distribution channel - Adairs - earn out matrix'.

664 Mr Sinnappan's last entry concerning the meeting reads 'tell me what you think about this...'

1. Mr Sinnappan said although Dr Shiffman presented the Founders with three options, the terms of those options were not as described in Dr Shiffman's statement. In his witness statement Mr Sinnappan said Dr Shiffman said words to the following effect:

I think there are three options available and you can pick one.

The first option is that I will continue to work on the transactions until around June or July and then become entirely passive whatever happens after then.

The second option is that within 30 to 60 days, I will get you $100m and will not sell down my shares. This will involve buying control for cash. The company will then transition to a new CEO in twelve months.

The third option is that we formally run the company the way I want to run it. The biggest issue is speed and how fast the company is doing things. We should roll the website back to the old brand. There is a great product but the company needs to be more diversified. This will not involve changing everything, but just changing about 15%.

Number two is a way to achieve number three. Think about it and let me know what you want to do.

1. Mr Sinnappan gave evidence, which I accept, that at the meeting he did not know whether Dr Shiffman preferred to cease having an active involvement, or whether he preferred one of the other alternatives. Mr Sinnappan agreed in cross-examination that Dr Shiffman did not express a preference for any one of the three options presented. Mr Wijeyeratne's evidence was to similar effect. He said he supposed that Dr Shiffman put options and he could not say as to Dr Shiffman's preference. All agree that following this meeting, option 1 was accepted by the Founders.
2. In cross-examination, Dr Shiffman said that in May 2021 he understood the Founders wanted him to be exited entirely from the business. Mr Sinnappan did not agree that was the case. In cross-examination he disagreed that as at May 2021 the Founders were no longer interested in having Dr Shiffman involved and influential in the business.
3. There was a divergence between Mr Sinnappan's evidence about his attitude to Dr Shiffman's future involvement and Mr Wijeyeratne's evidence. Mr Wijeyeratne was clear that as at 5 May 2021, he and Mr Sinnappan did not think they needed Dr Shiffman's skills, so they did not want him involved in the business. In cross-examination Mr Wijeyeratne agreed he wanted Dr Shiffman out, one of the options proposed by Dr Shiffman. Mr Wijeyeratne said it was a 'mutual decision' that Dr Shiffman, who he accepted had made a very valuable contribution to the success of the business and had previously had a very active involvement, agreed to cease that active involvement.
4. In his witness statement Dr Shiffman said it was not contemplated by him at the time of the meeting that Sleeping Duck would fail to achieve 'any sell-down or exit opportunity by September 2021'. I accept that Dr Shiffman was confident of a sale; not a sale by September, but a sale by June/July.
5. It was put to Dr Shiffman that it was agreed at the meeting he would continue trying to sell equity through to June/July but that it was only later that the Founders said they would go through until September - Dr Shiffman disagreed. The June/July 'transaction' timing is consistent with Mr Sinnappan's contemporaneous notes. I prefer Mr Sinnappan's notes and the evidence in his witness statement to Dr Shiffman's evidence. The September cut-off date for a transaction was not discussed until 5 August 2021.
6. In contrast to Dr Shiffman's evidence, in cross-examination Mr Sinnappan said that at the time of the May meeting, although he was hopeful a sell-down could be achieved, he was not certain that would happen. He referred to an earlier text message from Dr Shiffman on 24 March 2021 where Dr Shiffman had said he did not 'believe we are going to be able to get any transaction away with the current trajectory'. On 1 March 2021, Dr Shiffman had expressed concern to the Founders and Mr Curry that 'unless March is really strong, its 50/50 this Adair deal will end up cooked'.
7. In cross-examination Dr Shiffman said his understanding was that Sleeping Duck and the Founders were to provide all reasonable assistance to enable BBHF to sell down its shareholding. That is, evidence consistent with BBHF's pleaded case. That evidence is in contrast to his evidence on witness statement that the current sell down process involving all shareholders would continue, with the sell-down of the majority or all of BBHF's equity by September 2021.
8. I do not accept there was an agreement or an understanding reached at the meeting regarding option 1 as described by Dr Shiffman, one where he was able to sell down his shares. What was being discussed as option 1 was an agreement about what would occur if there was a sell-down of all shares. Both sets of notes refer to 'transaction', a transaction like the Adairs transaction and those on which Dr Shiffman had been working. There was no agreement to or understanding arrived at on 5 May 2021 concerning a unilateral sale or buy out of Dr Shiffman and BBHF's shares.
9. It was put to Mr Sinnappan in cross-examination, that it was 'completely implausible and irrational that [Dr Shiffman] would have agreed in the context of the meeting and all the concerns he expressed about [the Founders' management of the business] to leave his single biggest asset entirely in [the Founders'] hands and propose that whatever happens after June or July, he just go passive'.[95] In response, Mr Sinnappan said he was not sure whether that was plausible but those were the options that Dr Shiffman put to the Founders. Mr Sinnappan accepted that if Dr Shiffman wanted to simply go passive 'all by himself' he would not need the Founders' agreement.[96]
10. BBHF's pleaded case is that Dr Shiffman was to become a 'passive' investor under option 1 after September 2021. The evidence is consistent with the pleaded case, Dr Shiffman 'going passive' under option 1 after June/July 2021, 'whatever happens'.
11. Mr Wijeyeratne was firm that during the meeting Dr Shiffman said he would finish the transaction, if he was able to sell-down, that would be good, but if not, he was going to go passive 'whatever happens'.[97] Against options 1 Mr Sinnappan's notes record 'can't stay involved if we stay this course'.
12. As submitted by BBHF, the reference in the notes to 'go passive' is consistent with Dr Shiffman having an active role in relation to Sleeping Duck before the meeting. However, as is the Founders' case, it was not a role in management, it was an advisory role with Dr Shiffman focussed on securing a transaction.
13. The Agreed Chronology records that on 7 May 2021, discussions commenced between the company and TA Associates about a potential sell-down of shares.

679 On 24 May 2021, Mr Sinnappan sent a text to Dr Shiffman: 'Can we catch up this week to talk about the options you laid out to us last time?'. Mr Sinnappan said he called Dr Shiffman and said 'Winston and I had chosen the 'go passive' option'. He told Dr Shiffman 'we both value and respect your input'. Mr Sinnappan said that Dr Shiffman said: 'that's really nice of you to say'. Mr Sinnappan then said 'I acknowledge that this process is not good for your mental health. We will keep paying you $10,000 a month for your work over this period and then you can resign from your work after that point and have no more involvement'. That evidence was not challenged or contradicted by Dr Shiffman.

1. In WhatsApp messages exchanged on 21 June 2021, Dr Shiffman asked Mr Sinnappan to provide a reference to Ms Ray, the founder of Daily Blooms, an online business Dr Shiffman was interested in becoming involved in.

Shiffman: Will you speak to the woman who runs Daily Blooms as a reference check for me? I told her the best way to figure out what I'm like is just to speak to the guys I've been involved with. I think it will be great for her to speak to you as we have been through a lot.

Sinnappan: Yes happy to

Shiffman: Thanks. I am honest with her[.]I said we are very close but also we've haven't always agreed on direction and sometimes its been harder but mostly it's just been fun. So I didn't try to sugar coat it for her.

681 On 8 July 2021, Dr Shiffman wrote to Mr Sinnappan:

You made a very very positive impression on Courtney [Ms Ray]. Thank you also for the nice words but she literally Called you "delightful" ��

FYI I was open with her about potentially selling out and when she said why I said you guys don't need me in there anymore, so that's the narrative. I also said it was your choice, I didn't walk away, and everyone still feels very positively about everyone else

1. Asked about these messages Dr Shiffman agreed his interactions with the Founders had 'mostly been fun'.[98] The messages were submitted by the Founders to be inconsistent with Dr Shiffman having been shut out or marginalised by the Founders. I agree.
2. The Agreed Chronology records that on 27 July 2021, discussions between the company and TA Associates concluded unsuccessfully. On the same day, 27 July 2021, a WhatsApp exchange took place between Dr Shiffman and Mr Lanzer:

Shiffman: Spoke to GS [Goldman Sachs]. Went well. We push for pre ipo. If we can't get there or the guys refuse I might need to sue them.

If you're conflicted I'll use [Simon] Abraham [of Tisher Liner]

Lanzer: OK

Let's push for a deal

Not sure what you'd be suing them for...

Shiffman: You'll figure it out

684 The 27 July 2021 WhatsApp message exchange does not support the existence of the May 2021 Exit Agreement pleaded by BBHF. Nor does it support Dr Shiffman's evidence that he would continue to pursue Sell Down Opportunities until September 2021. The exchange begins with Dr Shiffman saying if a pre-IPO could not be achieved or if 'the guys' refused 'I might need to sue them'. When Mr Lanzer said he was not sure what Dr Shiffman would be suing the Founders for, Dr Shiffman did not refer to an agreement with the Founders that BBHF would be bought out. Instead he said 'you'll figure it out'.[99]

685 When I questioned Dr Shiffman about this exchange, he said he could not recall the message. He said he had no recollection of the interaction. He said he could not recall who the reference to 'the guys' referred to. 'The guys' was clearly a reference to the Founders. I do not accept that Dr Shiffman had no recollection of this interaction. Dr Shiffman's evidence about this exchange was not credible.

1. Three days later, on 30 July 2021, Dr Shiffman wrote to the Founders and Mr Curry. He did not refer to, and nor did he complain of breach of the Exit Agreement. He did not refer to suing the Founders. On the contrary, he praised the Founders and was optimistic about the outlook for the business:

With the decision by TA to decline an investment in SD, we need to move on to the next plan. We should also learn from their feedback, some of which was pathetic but a significant amount of which was fair.

To me, the logical place to go is a revisiting of our original plan B, which was the pre-IPO + IPO.

Sel and Sean are match fit, we have a refined story, you are delivering it well, and GS are ultra-motivated to get it done!

BUT TIME IS OF THE ESSENCE.

... If we can drive 20-30% revenue growth and keep strong profits, we will get the $1 billion valuation very quickly. (Emphasis in the original.)

1. Concerning the potential buyout of his interest in Sleeping Duck, Dr Shiffman wrote: 'I discussed this with all three of you already. I'm prepared to retain most of my shares after selling some in pre - IPO and then just being passive post-IPO'.
2. Mr Sinnappan gave evidence in his witness statement that on 5 August 2021 he had a conversation with Dr Shiffman to the following effect:

Mr Sinnappan: I know we discussed what to do until June or July but it's now August. We need to work out the next steps.

Dr Shiffman: if you're suggesting that you're going to stop paying me that will be disappointing. I'll keep working on the existing deals until the end of September and then my fee will stop.

1. There was no challenge to this evidence. This was the occasion on which agreement was reached on option 1 extending beyond June/July, through to the end of September 2021.
2. In August or September 2021, Mr Sinnappan and Dr Shiffman had a further conversation of which Mr Sinnappan gave evidence in his witness statement to the following effect:

Mr Sinnappan: what will happen if the sell-down process is unsuccessful?

Dr Shiffman: I'll have to find an option on my own and work out a solution.

1. This evidence was not challenged or contradicted by Dr Shiffman.
2. Dr Shiffman's company was paid $10,000 per month exclusive of GST through to the end of September 2021.

E10.3 Evidence concerning the breach allegations

1. On 30 September 2021, CPE Capital proposed a $60m loan note transaction ('CPE Capital Offer'). The term sheet provided the option of a further $20m when $45m EBIT is 'hit' for the last 12 months. It included the following 'Exit Waterfall':

The Exit Waterfall will be determined by reference to the total cash proceeds received from an exit event, after repayment of any external debt and deal costs and including cash ("Exit Value").

• If Exit Value is greater than or equal to $1,125m, Investor proceeds to be equal to 3.0x Multiple of Money ("MoM") on their original investment;

• If Exit Value is less than A$1,125m and greater than or equal to $500m, Investor proceeds to be determined by straight line interpolation of 2.0x - 3.0x on their original investment between $500m and $1,125m in Exit Value;

• If Exit Value is less than $500m, Investor proceeds to be equal to the greater of 2.0x MoM or 15% IRR based on its investment.

For the avoidance of doubt, the existing shareholders agree to guarantee a minimum return on the investment to CPEC of the greater of 15% IRR or 2.0x MoM regardless of exit timing, and the Investors agree to cap their total MoM return at 3.0x.

1. On 2 October 2021, Dr Shiffman circulated a matrix setting out his assessment of the implications of the CPE Capital Offer. He identified that the returns for CPE Capital and a second payment to the Founders and to BBHF depended on the value attributed to Sleeping Duck.
2. Dr Shiffman endorsed the CPE Capital Offer. He gave evidence he considered the CPE Capital Offer to be highly commercially favourable. He sought to have it executed and implemented but on 4 October 2021 the Founders rejected it.
3. Mr Sinnappan gave evidence in his witness statement:
   1. ... The Revised CPE Bid was, in effect, a loan under which CPE Capital would provide funding of $60 million and would be guaranteed a return of at least twice its investment. It was my view at the time that the Revised CPE Bid was a very bad deal for the Company, Winston, and me, because:

(a) CPE Capital required extensive downside protections. In particular, if the Company was worth less than $120m in five years' time, CPE Capital would have the power to force an exit event and keep all monies; and

(b) CPE Capital would have preferential access to dividends.

1. At this time, Dr Shiffman proposed that the proceeds of the deal be split evenly between himself, Winston and me. This meant that, notwithstanding that his shareholding was much smaller than Winston's shareholding and my shareholding, he would receive $20 million cash from CPE, which is the same that Winston and I would have received. Dr Shiffman says, [in] his witness statement, that this was agreed. I never agreed to this.
2. In substance, I viewed the Revised CPE Bid as an expensive loan, under which the Company would receive $60 million and would have to pay back at least $120 million regardless of the timing of any trade sale, IPO or refinancing. At the time, the business did not have a pressing need for money, and I did not want to place unnecessary debt strain on the business. I was particularly concerned because by October 2021, trading figures had begun to decrease. I disagree with Dr Shiffman's opinion... that the bid was "highly commercially favourable".
3. I also recall thinking that the Revised CPE Bid was a bad deal because it would have disproportionately affected Winston and me. This was because we were receiving the majority of the dividends from the Company, and thus CPE Capital's preferential access to dividends would impact us more.

697 In cross-examination Mr Sinnappan agreed the CPE Capital Offer was a great 'de-risking' transaction, which would have seen the Founders make a large amount of money if the business performed well and still retain tens of millions of dollars and a portion of the company's dividends, if it did not.

698 Mr Wijeyeratne said that in deciding to reject the CPE Capital Offer, he was not confident how sales would be going. If the business performance ended up in the 'lower case', there was a good chance the Founders would lose the business.[100] Questioned about what he understood by the reference to the 'shareholders agree to guarantee a minimum return', Mr Wijeyeratne said he 'understood our entities would need to pay for that'.[101]

699 When evaluating the CPE Capital Offer and advocating for its acceptance Dr Shiffman did not refer to the offer as either actually or potentially requiring the shareholders to guarantee the proposed return to CPE. However, the indicative term sheet for the CPE Capital Offer made express reference to shareholder guarantees. Dr Shiffman gave evidence the requirement for guarantees was not discussed, a proposition with which Mr Sinnappan and Mr Wijeyeratne agreed.

1. On 4 October 2021, Dr Shiffman became aware the Founders had decided to reject the CPE Capital Offer. He said that upon doing so:

I was extremely frustrated and angered by this as I considered the Revised CPE Capital Bid to be highly commercially favourable.

1. On 5 October 2021, Mr Sinnappan called Dr Shiffman to inform him about the Founders' decision. A conversation took place to the following effect:

Mr Sinnappan: This deal just seems like a really expensive loan, and Winston and I lose out on dividends. It is not as clean as an equity deal from the other parties. I don't like the deal.

Dr Shiffman: You know that we don't have a shareholders' agreement in place. I'm only a minority shareholder and you know there's something in the Corps Act about that. I know you guys have treated me really well but can we discuss a buy-back of my shares.

Mr Sinnappan: Can you put something in an email for me and then I'll talk to Winston.

702 On 5 October 2021, Dr Shiffman sent an email, requesting a buy-back of 50% of BBHF's shares by the Founders for $20m and the ability for BBHF to exercise 50% of its options:

As just discussed, I understand your desire not to proceed with a CPE deal and given that this is your and Winston's business, I've always ultimately supported your choices.

In return, I would very [sic] still like the opportunity to sell down a part of my equity at a fair valuation as per our previous handshake agreement to move to a passive role and step back.

The last, logical option that remains is a share buyback.

Therefore could I please request that you agree to the following:

2. You allow me to exercise the first half of my options with you (the second half can remain dormant until the agreed trigger)

3. Concurrent with point 2 above, I'd be comfortable agreeing to sign a formal SHA

FYI, I'm happy to sell more than 5% of my holding but I don't want to put the business in the position of having to take debt. Similarly, I'm obviously happy if you and/or Winston want to buy some or all of it rather than the company.

At that point, as a minority shareholder my sole request would be some periodic financial reporting, with dividends when you elect to pay them.

On the assumption that the above is acceptable, my overarching request is that we please agree before this working week is out. This has been a very taxing process for me.

I love the business and want to remain financially and emotionally connected, and I am a total believer that we will be worth much more in a few year's [sic] time. But I'm increasingly anxious about liberating some cash given my entirely passive role.

Thanks again, and feel free to arrange a time to discuss whenever.

1. Contrary to BBHF's closing submissions, the 5 October 2021 email does not request the Founders to 'honour the agreement reached in May 2021'. It does not contain an assertion that by reason of the May 2021 Exit Agreement, or for any other reason, BBHF had a right to be bought out. The 5 October 2021 email is a request to be bought out. Dr Shiffman would 'still like the opportunity to sell down a part of my equity', that is, notwithstanding the CPE Capital Offer is not proceeding. Although no 'transaction' has been achieved, the email confirms Dr Shiffman's agreement to move to a 'passive' role and step back. It reflects Dr Shiffman's anxiety about 'liberating some cash'.
2. On 6 October 2021, the Founders sought advice from Mr Sims at PEP about how they might best respond to the 5 October 2021 email. BBHF placed considerable reliance at trial on terms of the email in which references to 'MS' are to BBHF:

Thanks again for taking the time to meet with us - we've put together a little bit of background information to help make the discussion as pointed as possible.

For the past 12 months, Sleeping Duck have been looking to complete a transaction. One of the motivations for the transaction was to allow shareholders to sell down a part of their stake. The shareholders were looking for a minority deal so that they could maintain control.

MS has a call option over 5,000 of Winston's shares and 5,000 of Selvam's shares. These options are split into 4 tranches with escalating strike prices:

All these options are currently unvested. These will only vest if a transaction occurs and Winston and Selvam are able to sell down some of their shares and pocket at least $5m of proceeds each.

The average strike price for the 10,000 options is $60m. Given the size of the business today the options are all in the money, but they remain unvested.

The business is currently generating approx $25m of EBIT per annum and the DPR is close to 100%. The fully franked dividends generated annually look like this:

We have been in "deal mode" for 12 months now but haven't been able to get something off the ground. These are some of the options and indicative valuations which have been discussed:

Jan 2021 - Strategic investor at $320m valuation (based on 8x forecast FY21 earnings)

Jun 2021 - Minority investment from a global P/E firm at $330m valuation

We walked away from the IPO option and other parties walked away from the other two deals.

Winston and Selvam have been looking for an investor who will write a $100m cheque at a valuation of between $300-400m. The $100m would be all secondary. We've pitched a lot of parties but this deal hasn't materialised. Some of the reasons investors have walked include:

• Uncertainty as to what will happen once lockdowns are over (i.e. how sustainable is our current level of trading)
• We are very dependent on our mattress product for most of our revenue

Winston and Selvam are happy to press pause and take a break now from the transaction activity. The advisors seem to have run an exhaustive process which has taken 12 months. Given the level of the dividends the business is generating, we're not in a hurry to do a transaction. We want to focus on growing the business so that we'll have a stronger narrative and investment case when we decide to go out to the market again.

MS previously had a more active role in the business. Earlier in the year Winston, Selvam and MS agreed that MS would move to a passive role in FY22.

MS is still extremely keen to sell down some of his equity. He has proposed a share buyback:

1. The company buys back 5% of MS' equity for $20m

2. Winston and Selvam allow MS to exercise the first half of his options (the second half can remain dormant until the agreed trigger)

3. Concurrent with point 2 above, MS would be comfortable agreeing to sign a formal SHA

MS' proposal implies a valuation of $400m, yet Sleeping Duck has not been able to achieve the $300-400m valuation which it has been seeking for the last 12 months. The valuation is too high.

Not only are all of MS' options in the money, but the level of dividends the business currently generates gives the options even more value. If we simply exercised half of the options now then we would effectively be handing over significant value for free.

There doesn't seem to be a good reason to do a partial sell down for the MS investor (in fact its [sic] a terrible deal!), as he would still have a partial holding and still be involved in some shape or form. Also we would have to take a loan to make the deal, in our opinion a deal would only be worth it if we can 100% divest him (or a mechanism that achieves something similar). We feel that anything more than $20m would bring on a risk that we don't want to take.

Keen to discuss your experience in similar situations and perhaps what a good approach could be.

Again apologies that this is a lot of information and perhaps quite a big ask, but thought it best to give you the full picture. Please always feel free to tell me if we are asking too much' you've already been far too generous with your guidance!

1. Mr Sinnappan was cross-examined about the email. He agreed the Founders prepared the email together. They did not want to allow Dr Shiffman to exercise any options - because the conditions agreed to in the Call Option Deed had not been satisfied.
2. Mr Wijeyeratne was cross-examined about the statements in the email that there was no 'good reason' to do a partial sell-down at that time, and that the Founders did not wish to spend more than $20m to buy out Dr Shiffman. He agreed the email reflected his state of mind as at October 2021. Mr Wijeyeratne denied he did not want a partial sell down to take place for the minority investor, Dr Shiffman. He disagreed he wanted to do everything he could to prevent Dr Shiffman being able to realise the value of his options. Put to Mr Wijeyeratne that the Founders deliberately decided to prevent Dr Shiffman exercising his options and that was the reason they sought advice from Mr Sims, Mr Wijeyeratne said such an allegation was 'incorrect'. I accept the truth of Mr Wijeyeratne's evidence concerning these matters.
3. I proceed on the basis that what Mr Sims was told in the 6 October 2021 email was a true representation of the views of the Founders at that time. I do not accept the Founders were seeking to do all they could to prevent Dr Shiffman exercising his options at that time or that they deliberately decided to prevent him doing so.

708 BBHF was critical in its closing submissions of the reference to 'handing over significant value for free' to Dr Shiffman if his proposal were to be accepted, notwithstanding the recent rejection of the CPE Capital Offer. However, the last section of the email to Mr Sims set out why the proposal from Dr Shiffman represented a 'terrible deal'. It was based on a value of $400m in circumstances where, despite his best endeavours, Dr Shiffman had been unable to secure a sell down of shares in Sleeping Duck at anything approaching that level of value. As the 6 October 2021 email accurately stated, the parties 'walked away' from deals based on $320m and $330m valuations.

709 On 8 October 2021 the Founders responded to Dr Shiffman's 5 October 2021 email saying they were still looking at what he had sent through and would revert. On the same day, Dr Shiffman sent a WhatsApp message in response:

Unfortunately this is not acceptable for me and not consistent with my expectations. I am beyond open ended commitments and this treatment of me is appalling. There was no confusion on the terms of my involvement.

I very much suggest you take up my offer to meet ASAP - ideally over the weekend - so I can give you a heads up on the nextsteps I've lined up to formally protect and enforce my rights.

I know there seems to be this perception that I'm irrelevant and have no power, but that has been a very unfortunate miscalculation and nothing is further from the truth.

1. Dr Shiffman's 8 October 2021 response reflected a marked change in approach, from a request the Founders buy him out to a threat of 'next steps ... enforce my rights'.
2. 8 October 2021 is the date BBHF contends for as the date to fix the share price for a buyout order.
3. On 9 October 2021, unbeknownst to the Founders, Dr Shiffman sought advice from Mr Lanzer at ABL about the steps he might be able to take.

Dr Shiffman (at 6:29pm): Am I legally permitted to put together my own information pack to sell my shares to whoever? I assume so as no SHA.

Starting position is you can do what you like. You're a shareholder only so under no obligation.

But some information you have is implicitly confidential and/or was provided to you for a specific purpose only. Ie info produced with GS or as part of process.

Also your option deed may have confidentiality obligations.

But I think if you are sensible with what is disclosed, it's clear that this is not a company document, etc, and the recipient is bound by confidentiality too, then it's likely to be ok on balance.

Dr Shiffman (at 9:46pm): Ok gotta figure out strategy. Could also roll it into a new asx fund raise another $60m and it's $100m to invest in DTC and suddenly all their numbers will be released as part of my half and full yearly

1. At 6:43 pm on 9 October 2021, in between his exchange of messages with Mr Lanzer, Dr Shiffman sent a message to Mr Wijeyeratne:

In 2019 you told everyone at the Christmas party how much I believed in you and Sel when the business was basically dead...

In the intervening period I've been the same guy, but now it seems I'm basically irrelevant and inconsequential for you. When you chose to boot me out in preference for Prateek some months ago, and we all agreed I'd become passive as part of a sell down.

Now you seemingly have vetoed the deal, I look like a moron to Goldman Sachs, and Sel won't even reply to emails or text.

So where am I meant to go from here? I've been backed into a corner and am very much panicking. And very hurt and shocked.

1. On 10 October 2021, Dr Shiffman and Mr Lanzer continued to exchange text messages in which Dr Shiffman sought to identify what he could and could not do legally as a minority shareholder, including:

Dr Shiffman (at 1:26pm): Can you suggest someone else who can advise me through this process? Aggressive and commercially smart.

Mr Lanzer (at 2:19pm): You don't want to just talk to borsky or Kozminsky?

It sounds like more of a litigation path you want to head down?

Dr Shiffman (at 2:31pm): Nah it's more understanding what I can and can't do legally while holding SD shares snd [sic] options

Mr Lanzer (at 2:40pm): I can advise you on that stuff behind the scenes

Using their IP / confidential info is more tricky. But investing is not restricted at all

Dr Shiffman (at 2:51pm): The construction of the mattress and foam supplier is all easily identifiable by buying one. Question is what does it mean that I have to enter into an acceptable SHA for options. Eg: I want it to say no shareholder can lend to another shareholder to exercise options that dilute other shareholders. But they'll say non compete and I'll say i [sic] can compete if > Simon [Abrahams] says he runs oppression claims endlessly and this is perfect for one. Says they will settle in Supreme Court mediation within a few weeks if not before. So can you tell me a name? ...

1. On 14 October 2021, Dr Shiffman messaged Mr Lanzer, 'every day I'm not suing someone I'm agitated! Where's my litigator'.
2. On 14 October 2021, Dr Shiffman responded to Mr Sinnappan:

I read your email, which felt very much like it was drafted by your lawyer.

I'm aware of my legal obligations and intend to continue complying with them.

As your note correctly implied, I am a minority shareholder without access to information, and without influence over the company.

I'm not interested in putting my emotions down in writing; you can't unburn toast so it feels like a pointless exercise and I need to focus on the future.

While it is not a legal requirement, I am prepared to discuss (in person) the process I have commenced to liquidate my existing shareholding.

I am very focused on selling to any willing buyer, and would strongly suggest we speak for 15-30 minutes to avoid any surprises.

Let me know. I'm proceeding regardless so will leave it in your court.

1. On 15 October 2021, Dr Shiffman sent a WhatsApp message to Mr Wijeyeratne:

It's your right to eject me, and we had a lot of fun building this, but you knew from the very start that I'm not someone who stays passive. It's only fair that you facilitate me exiting my equity urgently as discussed and letting me move on, which I can't to peacefully without you. Before this turns into lawyers from 10 paces, we should pause at least meet up and speak. As far as I'm concerned we haven't passed the point of no return yet.

1. On 21 October 2021, Melbourne's sixth lockdown ended.
2. On 19 November 2021, BBHF commenced this proceeding. 19 November 2021 is the second alternative valuation date for which BBHF contends as the date for a buyout.

E10.4 Findings concerning the Exit Agreement and the Transition Passivity Agreement

724 It is the case as alleged by BBHF that in late May 2021 Dr Shiffman, Sleeping Duck and the Founders agreed they would bring their relationships and understandings with respect to Sleeping Duck to an end. The agreement was one made on 24 May 2021 when Mr Sinnappan called Dr Shiffman and told him the Founders had chosen the 'go passive option', option 1 of the three options Dr Shiffman presented to the Founders at the 5 May 2021 meeting.

725 It was not an express term of that agreement as alleged by BBHF that the Founders and Sleeping Duck would provide all reasonable assistance to enable BBHF to sell down its shareholdings and options.

726 What was discussed on 5 May 2021 appears in section E10.2. As part of Option 1 it was agreed Dr Shiffman would continue to progress the existing potential sale transactions then on foot. There was no agreement that independent of those potential transactions the Founders and Sleeping Duck would provide all reasonable assistance to enable BBHF to sell down its shares and options. If there was to be a sell down of BBHF's shares and options, that would be as part of a transaction, a sell down of all shareholders shares and options.

727 Contrary to BBHF's pleaded case, it was not part of an agreement reached in May 2021 that Dr Shiffman's role and participation in Sleeping Duck 'in accordance with the Second Understanding on Participation and the Understanding on Sell Down' would continue until September 2021. That is so first, because neither of those understandings was arrived at prior to May 2021 or was in place at that date, second, because the end point under discussion on 5 and 24 May 2021 was not September 2021, it was June/July 2021.

728 Contrary to BBHF's pleaded case, it was not agreed in May 2021 that Dr Shiffman would cease to have any active role in the management of Sleeping Duck from September 2021 and 'at that point' would become a 'passive investor'. Option 1 presented by Dr Shiffman on 5 May 2021, accepted on 24 May 2021, provided he was to 'go passive' after June/July. At that point, he was to become a passive investor. On 5 August 2021, Mr Sinnappan and Dr Shiffman discussed and agreed he would keep working on existing deals until the end of September 'and then my fee will stop'. That conversation extended Dr Shiffman's 'active' role until the end of September, at which point, coinciding with the cessation of monthly payments, he was to 'go passive'.

729 Because there was no Exit Agreement as alleged, no occasion arises to imply terms as alleged in paragraph 58 of the statement of claim.

730 What was agreed on 24 May 2021 with the acceptance by the Founders of option 1 as discussed at the 5 May 2021 meeting in the terms found in section E10.2 was in accordance with the 'Transaction Passivity Agreement' pleaded by the Companies in their defence.

731 Because there was no Exit Agreement there was no breach. In any case, the original particulars relied on in the Statement of Claim in support of breach do not support the substantive breach allegation.

732 The initial particulars of breach made complaints about the termination of Mr Curry's employment and the failure of Sleeping Duck to finalise its financial statements and reports for the 2021 financial year, asserting that a proper and regularised account of the financial affairs of Sleeping Duck is material to any potential investor or purchaser of BBHF's shares or options.

733 Mr Sinnappan was cross-examined about these issues. As discussed in section E13.2, the termination of Mr Curry in February 2022 and the decisions taken concerning how his role was to be performed thereafter and by whom were management decisions.

734 It is clear that as relations between Dr Shiffman deteriorated, from around September or October 2021 Mr Sinnappan asked Mr Curry to stop providing financial and other information to Dr Shiffman without asking Mr Sinnappan. It is also the case that when, on 5 November 2021, the solicitors for BBHF requested copies of management accounts from 1 August 2021, there was resistance by the Founders' solicitors. However, these events and complaints about delay in the finalization of the 2021 accounts, even if there was the Exit Agreement as alleged do not support the substantive breach allegations.

735 Neither of the matters particularised go to an alleged failure by the Founders or Sleeping Duck to provide assistance to BBHF to allow it to sell down its shares or options. Neither amounts to the taking of steps to interfere with or frustrate the sell down of BBHF's shares or options. The resistance to the provision of financial information to Dr Shiffman on 5 November 2021 occurred in the context of Dr Shiffman's 8 October 2021 threat to 'enforce my rights'. It was not expressed as a request for financial information to enable a transaction, or a sell down of BBHF's shares and options. There was no evidence led by BBHF that the refusal to provide financial information or the alleged failure to finalise 2021 financial accounts in any way prevented or hindered attempts by BBHF to sell down its shares and options.

736 Turning to the 18 February 2022 particular of breach, even if there was the Exit Agreement as pleaded, the refusal by the Founders to accept the CPE Capital Offer did not constitute a breach of that agreement.

737 The rejection of the CPE Capital Offer by the Founders on 4 October 2021 was not unreasonable. The transaction was a $60m loan to a company that had no shortage of cash or capital and no need for capital as such. Contrary to BBHF's closing submissions, the CPE Capital Offer was not 'a great de-risking transaction'. The term sheet required the shareholders, including the Founders and BBHF, to guarantee CPE's return.

738 The CPE Capital Offer was not an offer to buy shares in Sleeping Duck similar in character to the earlier proposal negotiated over an extended period with Adairs. The matters identified by Mr Sinnappan in his witness statement reproduced in section E10.3 above provide sound reasons for the Founders to reject the CPE Capital Offer. It was objectively reasonable for them to do so. In any event, if any one of the Founders wished to reject the proposal for their own subjective reasons, as was Dr Shiffman's evidence discussed in section E5.2, it was open to them to do so.

739 In its written closing, BBHF sought to rely on the Founders' failure to 'do a deal' with Adairs in late 2020 as evidence of oppressive conduct. BBHF asserted the Founders had 'dragged their feet' thereby failing to give effect to reasonable Sell Down Opportunities. It asserted the Founders 'could' have taken up the opportunity presented by Canaccord in September 2020 to undergo an IPO at a valuation of between $335m and $394m.

740 The proposed transactions to which BBHF referred in its submissions were in 2020, well before the events relied on to constitute the May 2021 Exit Agreement took place. They are irrelevant to breach of any such agreement and to the pleaded case. There is also no basis in the evidence to find that in late 2020 the failure of either proposal to convert to a transaction was due to failure by the Founders to act reasonably.

741 Mr Sinnappan's evidence relating to the Canaccord Genuity proposal was that, at the time he, and others, thought the valuation was too low. That evidence is consistent with advice received from RSM on 6 October 2020 which valued Sleeping Duck as at 31 August 2020 at between $432m and $492m with a 'preferred' value of $460m.

742 The dealings with Adairs concerning a potential transaction did not end in the 2020 calendar year. They extended through to April 2021 as recorded in the Agreed Chronology. On 23 December 2020, Adairs made a revised indicative offer to purchase 40% of Sleeping Duck, based on a valuation of $325m, reducing the scrip component of its previous offer from $60m to $40m. The email from Adairs advised Board approval had been obtained to execute a non-binding Heads of Agreement. The 9 February 2021 updated Adairs bid was based on an enterprise value of $340m on a debt-free basis. Mr Sinnappan gave evidence that the Founders and Dr Shiffman considered the offer to be too low and he was unhappy with the offer structure. Asked if the Founders could have secured a transaction with Adairs if they had moved more quickly or accepted the bids, Mr Sinnappan said 'It's hard to say, I'm not sure if that would've got the deal over the line or not because I know Adairs were negotiating on quite a few terms ... on their part as well'.[103] I accept that evidence.

743 With hindsight, the Founders would have been better off if they had crystalised a transaction with Adairs in late 2020 - early 2021, but that does not mean that the view taken by the Founders in late 2020/early 2021 concerning proposals from Adairs and their responses were unreasonable. There are no contemporaneous communications from Dr Shiffman making any such allegations. On 24 March 2021, shortly before the proposed Adairs transaction fell over, Dr Shiffman said he did not 'believe we are going to be able to get any transaction away with the current trajectory'.

744 In any case, when considering these submissions, it is critical to appreciate, as was Dr Shiffman's evidence, that where a Sell Down Opportunity was presented, it was up to the Founders to decide whether or not to proceed with that transaction. Any proposal had to be considered reasonable by both of the Founders. If one or both of them did not consider the proposed transaction reasonable and did not want to proceed, that failure would and could not constitute oppressive conduct. It reflected the common understanding of the Founders and Dr Shiffman.

E11 Issue 22: the September 2021 exercise of Mr Bandopadhayay's options

1. The facts relied on by BBHF concerning the exercise of Mr Bandopadhayay's options in September 2021 are alleged to be as follows:

(a) In early September 2021 Sleeping Duck determined to pay a further dividend of $6,360,000 to all ordinary shareholders.

(b) On or around 9 September 2021:

1. Bandopadhayay exercised 3,000 of the Bandopadhayay Options (being those that were deemed to have vested on 30 June 2021);
2. Bandopadhayay paid Sleeping Duck $1,350,000 for the exercise of those Bandopadhayay Options;
3. Sleeping Duck accepted the exercise of those Bandopadhayay Options;
4. Sleeping Duck issued Bandopadhayay 3,000 ordinary fully paid shares; and
5. Sleeping Duck then paid the dividend referred to above to all ordinary shareholders, including Bandopadhayay in respect to his 6,000 shares, in the amount of $60 for each ordinary share.

(c) On 7 September 2021, the Founders' companies lent $1,350,000 to Mr Bandopadhayay.

746 The facts relied on by BBHF are not relevantly in issue.

747 BBHF alleges Sleeping Duck, the Founders and Mr Bandopadhayay took the steps set out above 'in concert' and for the purpose of prejudicing BBHF's rights and entitlements under the Call Option Deed.

748 The Companies and Mr Bandopadhayay deny the allegations of acting in concert and improper purpose.

1. Mr Bandopadhayay also pleads that as at 3 and 9 September 2021 he was not aware of the Call Option Deed, its terms, or any rights or entitlements purported to be held by Dr Shiffman pursuant to it.

1. In August 2021, the Founders and Mr Curry began discussions in relation to declaring a further dividend.
2. On 13 August 2021, Mr Curry told RSM that Sleeping Duck would like to 'declare a dividend to utilise the remaining franking credits...approx. $5m'. Mr Curry asked RSM to 'draft up necessary board papers to approve and dividend certs'.
3. On 1 September 2021, Mr Curry sent an email to Mr Sinnappan setting out the process required for Mr Bandopadhayay to participate in the further dividend:
   1. Prateek signs dates and returns attached to formally exercise the next tranche
   2. (assuming loan needed) Loan docs drawn up for $1.35M and funding provided to Prateek

3. Prateek pays $1.35M into SD

1. RSM prep docs for signing (board minute, ASIC update, share cert) for signing

We can then get RSM to draw up board papers and dividend certs for the $5M dividend (TBC) - and pay that out accordingly.

RSM can prep all the paperwork concurrently so that all of above happens in short space of time. Shares need to be fully paid up to attract the dividend so Steps 2&3 prob the most crucial in terms of overall timing

1. On 3 September 2021, Mr Curry sent an email to Mr Bandopadhayay regarding the process.
2. On 3 September 2021, Mr Bandopadhayay notified the CFO he wished to exercise the second tranche of options for a further 3,000 shares under the ESOP. He signed loan agreements with companies associated with each of the Founders, each of whom agreed to lend $675,000 to enable him to fund the exercise of the options.
3. On 3 September 2021, Sleeping Duck issued a further 3,000 fully paid ordinary shares to Mr Bandopadhayay, at $450 per share.
4. On 7 September 2021, S2 Enterprises Pty Ltd and Racoon HQ Pty Ltd advanced $1,350,000 to Mr Bandopadhayay. Those funds were withdrawn by Mr Bandopadhayay to pay Sleeping Duck on 8 September 2021.
5. On 14 September 2021, the Founders resolved to issue a fully-franked dividend of $60 per share. That dividend was paid to all shareholders, including Mr Bandopadhayay.
6. On 16 September 2021, BBHF received a dividend statement from Sleeping Duck of 600,000 or $60 per share.

759 The dispute concerning Mr Bandopadhayay's exercise of further options in September 2021 and the involvement of Sleeping Duck and the Founders in relation to those matters may be disposed of shortly. For the same reasons discussed concerning issue 17 I reject the proposition Mr Bandopadhayay and the Founders acted 'in concert'. There is no evidence that as at 3 to 16 September 2021 Mr Bandopadhayay knew about the Call Option Deed and its terms or any rights or entitlements held by Dr Shiffman pursuant to it.

760 For the same reasons discussed concerning issue 17 I reject the proposition that the steps taken to declare a dividend, for the Founders' companies to make loans to Mr Bandopadhayay, to issue further shares in his favour pursuant to the ESOP and associated actions were taken for the purpose of prejudicing BBHF's rights and entitlements under the Call Option Deed.

761 BBHF's allegations of acting in concert and for an improper purpose are not made out.

E12 Issues 23-26: the Call Option Deed and the draft SHA

1. The focus of issues 23 - 26 is upon events that occurred after BBHF issued the proceeding on 19 November 2021. The matters of which BBHF complains were included in its 18 February 2022 statement of claim. Before turning to the pleadings it is important to briefly set out the timeline of events.
2. On 2 December 2021, the Founders' solicitors provided a draft SHA to the solicitors acting on behalf of BBFH and Dr Shiffman. The draft SHA specified a director appointment threshold of 20%. That is, in contrast to the 10% and 15% director thresholds in previous drafts. BBHF and Dr Shiffman did not respond at that time to the provision of the draft.
3. The first directions hearing in the proceeding took place on 10 December 2021. The Court made an order for mediation, such mediation to take place by 29 April 2022.
4. On 16 December 2021, BBHF issued a Dispute Notice under the Call Option Deed. The relevant terms of the Call Option Deed including clause 5.2 pursuant to which the notice was given are reproduced in section E8.3 above.

1. BBHF alleges there were express terms of the Call Option Deed that Sleeping Duck and the Companies were each required to negotiate a SHA in good faith. It alleges implied terms that each party to the Deed was required:

(a) to do all things necessary to enable each other party to secure the benefit of the Call Option Deed; and

(b) not to hinder or prevent the fulfilment of the purpose of express promises made in that Deed when negotiating a SHA.

767 BHF alleges the 2 December 2021 draft SHA proposed terms that:

1. The following shareholders would be entitled to appoint one director to the board of the Company:
   1. Energon Shield;
   2. S2 Ulysses; and
   3. Dr Shiffman (or any other shareholder determined by the board), subject to him (or his nominee) holding at least 20% of the total issued shares of Sleeping Duck (clause 4.2);
2. The Board would decide all matters concerning the overall direction and management of Sleeping Duck and the formulation of the policies to be applied in the conduct of its business (clause 5);
3. At any time, the Board could establish a formal written share plan to issue securities to eligible service providers (whether directors, employees or contractors) that result in the issue of that number of securities of an amount up to 20% of the total issued shares of Sleeping Duck (clause 8);
4. If Energon Shield or S2 Ulysses wished to dispose of their shareholdings in Sleeping Duck, they could issue a drag along notice to BBHF requiring that it sell his ordinary fully paid shares ..., or assign its options ... under the Call Option Deed, to the party and the price specified in the drag along notice (clause 13).

1. It alleges the terms of the draft SHA would mean:

(a) Dr Shiffman would be excluded from playing any role in the management or strategic direction of the company;

(b) The formal written share plan proposed would extinguish BBHF's existing rights and entitlements under the Call Option Deed to ensure Sleeping Duck would not enter an agreement to issue securities relating to any director, officer, employee or contractor of Sleeping Duck except as previously agreed, with the prior approval of BBHF or accordance with the SHA (if any); and

(c) The drag along clause proposed would compromise BBHF's existing rights and entitlements under the Call Option Deed.

769 In the alternative BBHF alleges each of Sleeping Duck and the Companies failed to act in good faith when negotiating the terms of the SHA and thereby breached clause 2.12(b) of the Call Option Deed.

770 BBHF further alleges that on 23 December 2021, Sleeping Duck and the Companies informed BBHF that they refused to participate in a meeting of nominees, or any mediation in accordance with the Call Option Deed.

771 The Companies admit the express terms but deny the implied terms of the Call Option Deed alleged. They admit the 2 December 2021 draft SHA contained the terms alleged. They deny the terms of the draft SHA would have the effect alleged by BBHF. They plead that on 2 December 2021 Sleeping Duck provided BBHF with a draft SHA in accordance with the Call Option Deed. They plead the dispute resolution process in the Call Option Deed was superseded by BBHF's commencement of the proceeding.

1. Before turning to the 2 December 2021 draft SHA and the events that occurred after it was provided, it is helpful to recap earlier exchanges concerning a proposed SHA, exchanges that took place as far back as 26 March 2020, fizzled out in late July 2020, and were not revived by either party until October 2021.
2. 26 March 2020 saw the provision of the first draft SHA to Dr Shiffman by Mr Curry. Each shareholder holding at least 10% of the issued shares was to be entitled to appoint a director. The draft conferred power on the board to establish an ESOP for up to 10% of the shares. The board was to make all decisions by a majority with the exception of certain matters listed in the schedule.
3. On 26 June 2020, an amended draft SHA was provided to Dr Shiffman. Amendments increased the threshold for the right to appoint a director to 15% of the shares and increased the ESOP percentage to a maximum of 20% of the shares.
4. On 30 June 2020 Tisher Liner the TLFC advice concerning the draft SHA. Dr Shiffman forwarded that advice to the Founders. He requested they reduce the threshold for the right to appoint a director to 10% and add information rights like annual statements.
5. On 2 July 2020 Mr Curry circulated a revised version of the SHA incorporating the changes requested by Dr Shiffman. As I have earlier found, those changes were not changes about which the Founders had been consulted or to which they had agreed. On 22 July 2020, Mr Curry sent a copy of the then current draft to Dr Shiffman, inviting further comment from Dr Shiffman, and to the Founders, asking if he should arrange an execution copy. No-one asked him to arrange an execution copy.
6. After a gap during which there was no apparent reference to the need to finalise the SHA, on 14 April 2021, clause 2.12 of the Call Option Deed recorded that the parties are 'currently negotiating a partial sell down and it is anticipated that as part of a partial sell down, the parties will enter into a shareholders agreement...'.
7. In May 2021 an agreement was reached that Dr Shiffman would 'go passive' at the end of September 2021 as discussed in sections E10.2 and E10.4 above.
8. It is an express term of the 14 April 2021 Call Option Deed that if a partial sell down of shares in Sleeping Duck or a similar event did not take place by 31 July 2021, and none did, that the parties agreed to negotiate a SHA in good faith.
9. Neither party sought to invoke the obligation to negotiate in good faith between 31 July 2021 and 10 October 2021.
10. On 10 October 2021 Mr Sinnappan asked Dr Shiffman to move to agree a SHA 'as soon as possible'.
11. On 5 November 2021 Dr Shiffman's solicitors requested the Founders provide a draft SHA. It was this request that resulted in the provision of the 2 December 2021 draft.
12. Dr Shiffman's solicitors did not respond to the draft. Instead, on 16 December 2021, BBHF issued a Notice of Dispute to Sleeping Duck and the Companies under the Call Option Deed.
13. The Notice of Dispute notified the respondents that each of them was in breach of their obligations under the Call Option Deed. First, by reason of the issue of shares in favour of Mr Bandopadhayay without the prior written approval of BBHF in breach of clause 2.10. Second, by reason of the failure of the Companies to negotiate a SHA with BBHF in good faith.
14. The Notice of Dispute 'required' that the parties immediately arrange a meeting of nominated representatives as contemplated by clause 5.3 of the Call Option Deed. Without prejudice, it proposed the dispute be resolved by cancelling Mr Bandopadhayay's shares, rectifying the share register and recovering dividends paid to Mr Bandopadhayay. Further, that Sleeping Duck engage independent solicitors, ABL, to negotiate the SHA in good faith.
15. The solicitors for the Founders and the Companies responded to the 16 December 2021 letter and Notice of Dispute on 23 December 2023. Their response, in which the allegations of breach in the Notice were denied, included the following:
    1. Your client claims that our clients have breached the Call Option Deed by issuing shares to Mr Bandopadhayay and by not negotiating the shareholders agreement in good faith. Those claims are rejected. In respect of the former, those shares were issued pursuant to an employee share option plan (cl. 2.10(a)) and with the knowledge and acquiescence of your client. In repect of the latter, it is your client who has not provided any response to the draft of the shareholders agreement sent to you on 2 December 2021.
    2. We also make the following points concerning the Dispute Notice:

(a) the clear and evident purpose of the cl. 5 regime is to allow the parties to negotiate before any court proceedings are commenced;

(b) the issues raised in your Dispute Notice comprise a central pillar of the current proceedings that your client has commenced in the Victorian Supreme Court; and

(c) your client sought orders to have its originating process immediately referred to mediation, which his Honour Justice Connock refused and instead ordered your client to file and serve pleadings.

1. In those circumstances, it appears that your client has served its Dispute Notice in order to achieve, through a back door, an outcome (i.e. immediate mediation) which his Honour Justice Connock considered and rejected.
2. We are instructed to decline your invitation for a meeting. As previously indicated, our clients will meet with your client once he properly pleads his case, as required by the Court's orders and attend a mediation also in conformity with the Court's order.
3. Finally, as to your suggestion that an independent solicitor (e.g. ABL) be appointed to negotiate the shareholders agreement, we point out that Mr Shiffman has a longstanding relationship with ABL and ABL was engaged by Sleeping Duck in connection with the Call Option Deed. ABL is, therefore, not independent. Moreover, we sent a draft of the shareholders agreement and invited your client's comments 3 weeks ago. We are yet to receive your client's reply. In short, there is no proper basis to suggest that negotiation or finalisation of the shareholders agreement should be undertaken by another law firm.

787 Consistent with the position stated in the 23 December solicitors' letter, in cross‑examination Mr Sinnappan agreed that he declined to meet in response to the Notice of Dispute because proceedings had been instituted and he believed he was not obliged to do so. It was put to Mr Sinnappan, and he denied, that the Founders' intention in defending the proceeding was to bring about a situation where Dr Shiffman's shares and options were purchased by the Founders at a 'low ball' value.[104]

788 Mr Sinnappan accepted the 20% threshold for the appointment of a director in the 2 December 2021 draft SHA was a threshold he knew Dr Shiffman could never reach. However he disagreed that the director threshold at 20% was not a good faith proposal or negotiation. He denied he and Mr Wijeyeratne were not negotiating in good faith. It was his evidence that 'I would've thought good faith negotiation would've required a response and a dialogue' to the 2 December 2021 draft SHA.[105]

1. Cross-examined about the 2 December 2021 draft SHA and taken to the conditions in clause 2.4 of the Call Option Deed, Mr Wijeyeratne said the Founders sent the draft SHA for negotiation and 'once we're ready to do a sell-down or if that time comes again', (we) would do so.[106] Questioned about the 20% minimum shareholding in order for an entitlement to appoint a director, Mr Wijeyeratne said, 'It's a negotiation...he could have come back'.[107]

1. BBHF submitted provision of the 2 December 2021 draft was contrary to the requirement to negotiate in good faith under clause 2.12(b) of the Call Option Deed. It submitted the increase in the director appointment threshold to 20% was proposed knowing Dr Shiffman could never reach that threshold. In doing so, the Founders were knowingly seeking to formalise Dr Shiffman's exclusion from the management of Sleeping Duck.
2. BBHF submitted the reliance by it on the Call Option Deed dispute resolution mechanism by issuing the Notice of Dispute means it could not fairly be put against BBHF that it failed to engage in good faith.[108]
3. In response to the allegation of refusal to negotiate in good faith, the Companies submitted they proffered a draft SHA and received no reply from Dr Shiffman. Negotiation in good faith does not require that one sacrifices one's own interests.[109] In reliance on the decision of Robson J in Slea Pty Ltd v Connective Services Pty Ltd (No 9)[110] they submitted it is not oppressive for shareholders not to reach agreement as to the terms of a shareholders' agreement.
4. Concerning the claim the draft SHA meant that Dr Shiffman would be excluded from playing any role in the management of Sleeping Duck the Companies noted that concurrent with the Transaction Passivity Agreement it might be thought appropriate for the SHA to provide for a shareholder to be 'purely passive'. In any case, the Founders and Dr Shiffman had never reached an understanding as to the terms of a SHA and it was always known from at least February 2021 that BBHF might be diluted.
5. The Companies disputed the allegation by BBHF that the formal written share plan in the draft SHA would extinguish BBHF's existing right and entitlements under the Call Option Deed. They submitted the Call Option Deed already provided that a SHA might provide for the issue of shares to directors, employees etc. Further, while Dr Shiffman complained about this feature of the 2 December 2021 draft, Dr Shiffman had consented to an identical share plan proposal in clause 7 of the 2 July 2020 draft.
6. In response to the allegation the drag along clause would compromise BBHF's existing rights and entitlements under the Call Option Deed the Companies submitted the Call Option Deed provided that the SHA would contain drag along provisions. Further, that Dr Shiffman had consented to a substantially similar drag along provision in the 2 July 2020 draft.
7. Responding to the allegation the Founders refused to participate in a mediation, the Companies submitted that BBHF issued proceedings before seeking a mediation pursuant to the Call Option Deed. As a result, the dispute is being managed via the litigation, which has included three mediations.

1. I accept there was an implied term of the Call Option Deed as alleged by BBHF that the parties to the Deed were required to do all things necessary to enable each other to secure the benefit of the Deed. To imply such a term is consistent with authority including Secured Income Real Estate (Aust) Ltd v St Martin's Investments Pty Ltd,[111] MacKay v Dick,[112] and Butt v McDonald.[113]
2. While no submissions were directed to the second implied term alleged by BBHF, an implied term that the parties will not hinder or prevent the fulfilment of the purpose of express promises made in the Deed when negotiating a SHA, I proceed on the basis that such a term is also to be implied.
3. While I accept as held by Robson J in Slea that a dispute about entry into a shareholders' agreement, in that case, failure to agree upon the terms of such an agreement, does not constitute conduct falling within the 'affairs of the company' as, required by s 232 of the Act, BBHF's allegation here is not about that. It is about a failure to negotiate a SHA in good faith when the Call Option Deed to which Sleeping Duck, BBHF and the Companies are parties imposes an obligation to do so. I proceed on the basis that such conduct, if established, might constitute oppressive conduct. While that is the case as submitted on behalf of the Companies, it must be borne in mind the express obligation to negotiate in good faith does not require that a party subordinate its legitimate interests to those of the other party.[114]
4. I do not consider the actions of the Founders in proffering the 2 December 2021 draft SHA containing the proposed terms of which BBHF complains amounts to a breach of the good faith obligation. The draft was provided in response to a request made two weeks before BBHF issued the proceeding. On 8 and 15 October 2021 the prospect of legal proceedings had been flagged by Dr Shiffman. His message on 15 October 2021 asserted it was 'only fair' the Founders facilitate him exiting his equity urgently. Dr Shiffman had not engaged with the 10 October 2021 request by Mr Sinnappan that he move to agree a SHA until 5 November 2021. On that date, after an interval of about 15 months since the last draft SHA was exchanged in July 2020 via solicitors Dr Shiffman requested the Founders provide a draft SHA. I accept the Founders' evidence that they provided a document for negotiation. Dr Shiffman did not directly respond to the 2 December 2021 draft. That is, other than to cause a Dispute Notice to be served seeking a mediation.
5. Concerning the contents of the draft, there was no pre-existing agreement that entitled Dr Shiffman to appoint a director, irrespective of the percentage of his shareholding or at all. Earlier draft SHAs exchanged provided for thresholds of 10% and 15%. The Founders had never agreed to change the fundamental basis of Dr Shiffman's involvement, 'No board seat'. Dr Shiffman did not have a right to participate in the management or strategic direction of Sleeping Duck. The agreements and understandings alleged by BBHF to give rise to such a right have been found not to be made out. Importantly, option 1 of the three options presented by Dr Shiffman at the 5 May 2021 meeting, the option later agreed upon, provided for Dr Shiffman to 'go passive'. He had no existing right agreement or understanding entitling him or BBHF to appoint a director or to participate in management or strategic direction.
6. In his 5 October 2021 email, Dr Shiffman referred to his 'entirely passive role'. That description is consistent with him not having any role in the management or strategic direction of Sleeping Duck, including to appoint a director. Contrary to BBHF's pleaded case, no issue of 'exclusion' relevantly arises.
7. Concerning the second issue of which BBHF complains concerning the draft, the extinguishment of BBHF's existing rights via share issues to directors and employees and the drag along provisions in the 2 December 2021 draft SHA, those provisions are either identical to or not substantially different from the equivalent provisions in the 2 July 2020 draft. The December 2021 agreement picks up the options held by Dr Shiffman, as well as shares, but the intent of the tag along provision is the same.
8. Looking at the 2 December 2021 draft SHA more broadly, I do not consider the provision of the draft incorporating the clauses of which complaint is made constitutes action taken by the Companies or the Founders that was not in good faith as provided for in the Call Option Deed. There has been no breach of the terms of the Call Option Deed, express or implied.
9. There is no substance to BBHF's complaint about the failure of the Companies and the Founders to mediate pursuant to the Call Option Deed whether based on the contents of the 23 December 2021 letter in response or otherwise. By the time BBHF issued its Dispute Notice the Court had already made orders for mediation of the dispute. The points made in the 23 December 2021 letter are valid points.

1. Separately BBHF complained about the Founders' failure to proceed with a sell down in 2022 to Forty Winks. It asserted the failure to proceed with a sell down was deliberate, representing a continuation of the Founders' failure to proceed with a sell down, thereby rendering Dr Shiffman powerless to realise the value of his options.
2. BBHF submitted at the same time as the Founders failed to proceed with a sell down the exclusion of Dr Shiffman, his position of 'forced passivity' has rendered him powerless to prevent the substantial diminution in the value of his investment. It submitted the true explanation for the decline in Sleeping Duck's performance is at least in part attributable to the Founders' inexperience and poor judgment over Sleeping Duck's affairs, including:

(a) the termination of Mr Curry;

(b) the increase in Mr Bandopadhayay's remuneration;

(c) an 'unplanned and unbudgeted US expansion; and

(d) the deliberate failure to cut costs in response to declining revenues.

1. On 2 February 2022, Mr Curry's employment was terminated. Mr Curry attended a meeting with Mr Sinnappan and the head of People and Culture. He was told Sleeping Duck was not going to continue with a transaction and that his employment was going to end immediately. Mr Curry initiated a case in the Fair Work Commission but did not pursue the claim.

809 Cross-examined about the termination of Mr Curry's employment and what arrangements had been made to replace him, Mr Sinnappan said the responsibilities of a CFO have been jointly assumed by himself and Sam Kirkpatrick, a former finance analyst in Mr Curry's team who was promoted to 'finance lead' in the business.

1. Mr Sinnappan gave evidence that after Mr Paluch was also 'moved on for performance related' reasons, a person within his team was promoted to fill Mr Paluch's role. Mr Sinnappan said he had no misgivings about the manner in which the replacements for Mr Curry and Mr Paluch were fulfilling their roles.

811 The Founders were entitled to terminate the services of Mr Curry, and also those of Mr Paluch. Those decisions and decisions about who should replace them or carry out their roles into the future are instances of business judgments, decisions made by directors who were entitled to make them. Those decisions do not provide evidence of oppressive conduct.

812 Mr Sinnappan rejected the proposition that since Dr Shiffman and Mr Curry left the business the financial reporting systems have reverted to the unreliable state they were in prior to Dr Shiffman's involvement. He rejected the assertion that the financial reporting and financial management systems are such that Sleeping Duck's reports do not provide a reliable and fair view of its financial performance. Mr Sinnappan said Sleeping Duck continues to use RSM to provide oversight and assistance with the preparation of financial accounts.

813 While in submissions BBHF alleged the financial reports of Sleeping Duck no longer provide a true and fair view, there is no pleaded allegation to that effect. Three expert accountants have reviewed the financial reports and relied on them to value Sleeping Duck. The expert accountants who gave evidence concurrently had the management accounts available to them. None of the accountants questioned the integrity of the financial records or the adequacy of them. There is no basis to do so. The allegation the accounts do not provide a true and fair view is without any proper foundation.

1. Since late 2022 Mr Bandopadhayay has been paid a retainer fee of $100,000 per month via his company back-paid to 30 June 2022.
2. The increase in remuneration occurred following emails from Mr Bandopadhayay in late November/early December 2022. As part of his case for a fee increase to $100,000 per month, Mr Bandopadhayay undertook an analysis of the costs of similar services offered by an external advertising agency. He estimated those costs at $15m per year. The Founders relied on this analysis to show the services Mr Bandopadhayay delivers at a cost of $100,000 per month is costing Sleeping Duck 'a fraction of their advertising spend if these services were to be obtained externally'.
3. In cross-examination Mr Wijeyeratne agreed he deferred to Mr Bandopadhayay concerning his $100,000 per month retainer (more than three times the Founders' own salaries), so as to keep Mr Bandopadhayay with the company: 'I mean yeah, he negotiated it. It seems like fair value. I believe he's worth it and, um, yeah, that's why we continued'.[115] Mr Wijeyeratne agreed the fee to Mr Bandopadhayay was a cost that could be cut almost immediately, but that he would not do that.
4. Responding to this issue the Founders submitted the evidence that it would cost more if the work Mr Bandopadhayay performed was outsourced was not challenged in cross-examination.
5. As was Mr Bandopadhayay's evidence, after 30 June 2022 there was no requirement for him to either work or be available to work at Sleeping Duck. The options to which Mr Bandopadhayay was entitled pursuant to the ESOP, the last of which vested on 30 June 2022, reflected Mr Bandopadhayay's three year commitment to Sleeping Duck. July 2022 represented the beginning of the next period of Mr Bandopadhayay's involvement with Sleeping Duck. The remuneration negotiated in November/December 2022 reflects that reality, combined with his analysis of the much higher cost to Sleeping Duck if similar services were to be obtained from external sources.
6. The terms of Mr Bandopadhayay's engagement and his remuneration are, like decisions relating to Mr Curry and Mr Paluch, and how their services were to be replaced, management decisions. They are decisions taken by the Founders, decisions they were entitled to take in their capacity as directors.

E13.4 The US expansion and Financial Performance

1. BBHF criticised the proposed expansion of the business to the United States and the expenditure of at least $500,000 with an intention to spend $5m more over the next 18 months on that expansion. It submitted the US expansion plans consist only of a letter sent by the Founders' solicitor to the joint experts. That submission is not supported by the evidence.
2. Mr Sinnappan gave evidence about actions that had been taken in preparation for a US launch that was imminent. He referred to the steps taken to set up the business and get it ready for expansion into the US market, including arranging for the manufacture in China of product for that market and arrangements for the transport of product to a warehouse in the US. I accept Mr Sinnappan's evidence. The criticism by BBHF of the US expansion plans and expenditure associated with the costs of implementation of those expansion plans are criticisms of management decisions the directors were entitled to make.
3. The objective evidence shows that Sleeping Duck's performance and value has declined since 2021. As submitted by BBHF, net profit dropped from FY21 to FY22 by 53.4% and again from FY22 to FY23 by 61.58%. BBHF submitted the financial records demonstrate that over FY22 and FY23, revenue dropped substantially, while costs have remained high and, in many instances, increased. It was submitted this has resulted in profit margins plummeting from 27% in FY20 and 32% in FY21 to 18% in FY22 and just 9% in FY23.
4. BBHF submitted the decline in the performance of the business and value cannot be solely attributed to factors outside the Founders' control, such as COVID-19 and recent trends in monetary policy. It submitted other comparable businesses, such as Adairs Limited, Joyce Corporation Ltd, Nick Scali Limited, and Temple and Webster have not suffered a similar drop in performance and value. BBHF submitted the recent poor performance of the business has had a devastating impact on its value, which has declined more than 90% from the implied value underpinning the first Adairs offer of 12 November 2020 of $320m to $24.2m as at 30 June 2023.
5. BBHF submitted the fact comparable businesses, subject to the same similar risks and market forces as Sleeping Duck have not suffered the same declines in financial performance demonstrates that the decline of Sleeping Duck cannot be fully explained by the end of the pandemic and recent interest rate rises. It submitted the true explanation for the deterioration in Sleeping Duck's performance and value lies 'at least in part in the inexperience and poor judgment of its current management - the Founders'.[116] It submitted that when Dr Shiffman was actively involved in the business his skill set filled the gaps but with him gone, the Founders inexperience and shortcomings 'have not only failed to arrest but have contributed to the decline of the business with Dr Shiffman forced to watch from the sidelines'.
6. In cross-examination about Sleeping Duck's financial performance, Mr Sinnappan gave evidence that the targets in the projections for 2021, 2022 and 2023 set by he and by Mr Curry were met. He did not accept that he and Sleeping Duck's current management team were not up to job of running the business without Dr Shiffman or that they lacked the competence to do so. He gave evidence that he sits across finance and operations and Mr Wijeyeratne sits across the product and marketing side of the business. He said he did not see 'any issues' with the way the business was operating and delivering at the time of trial.
7. Mr Sinnappan was cross‑examined about profit margins and the part played by the COVID-19 pandemic and lockdowns on the turnover and profitability of the business. Mr Sinnappan accepted that the business' costs have not been cut in response to falling revenues, and at least in respect of FY22, that this was the result of a deliberate decision. He said that in FY23 some steps had been taken to cut costs but those steps had not been successful (operating expenses increased in FY23). As at the time of trial, Mr Sinnappan did not think that cost cutting more aggressively was 'the right decision'. He accepted that key management positions in the business were vacant, that there were lots of areas where the business was stretched and under-resourced, and that it had been in 'catch-up' mode for a couple of years. Cross-examined about the decline in value from late 2020/early 2021, it was Mr Sinnappan's evidence the reason the business had gone down in value so markedly was due to the COVID tailwind and its cessation.
8. Mr Wijeyeratne gave evidence he considered the business to be 'in a particularly precarious position' due to general sales and the general economic conditions.[117]
9. In response to criticisms that compared with similar companies Sleeping Duck had suffered a far greater decline in performance and value, the Founders drew attention to the IBIS report into mattress manufacturing in Australia of October 2021. The IBIS report referred to highly volatile trading conditions over the previous 5 years with a profit margin in FY 21 of only 4.9%.
10. The decline in performance of the Sleeping Duck business is no doubt the result of many factors. I accept the submission by the Companies that the end of the pandemic and rises in interest rates have had a material impact on the Sleeping Duck business. There has been expenditure in advance of the proposed expansion in the US. There has been an increase in costs relating to Mr Bandopadhayay's services. There have been business decisions made by Mr Sinnappan about costs and cost cutting. Those decisions may have contributed to the financial position of Sleeping Duck as at 30 June 2023. However other factors external to Sleeping Duck are also likely to have contributed to its financial position at that time compared to earlier points in time, in particular at the height of lockdowns and the COVID‑19 pandemic.
11. When considering comparative downturns in value and performance as BBHF submitted should be undertaken, comparability is critical, but so too are the relative starting points for valuation comparison. The value of Sleeping Duck in late 2020 assumed its extraordinary rates of growth fuelled by the circumstances of the pandemic would continue. It is not clear whether the value of other businesses at the time such as those to which BBHF referred, including Adairs, had significant online presences and similar bullish outlooks built into their 'starting values'.
12. I am not able to determine the cause of the downturn in Sleeping Duck's business since late 2020/early 2021. I am unable to conclude the 'true explanation for the decline...is in part attributable to the Founders' inexperience and poor judgment' as BBHF alleges to be the case. I am also unable to conclude as BBHF submitted, that the financial performance and outcomes would have been materially different if Dr Shiffman had not been in a position of 'forced passivity'.

1. In 2022, Sleeping Duck was approached by Forty Winks.
2. On 8 June 2022, Edison Partners arranged a meeting between the Founders and representatives of Forty Winks to discuss a potential retail collaboration partnership and strategic investment. Mr Wijeyeratne did not attend that meeting.
3. On 14 June 2022 Edison Partners prepared a summary as they prepared to 'facilitate preliminary due diligence to support discussions' between Sleeping Duck and Forty Winks.
4. The proposal prepared by Edison Partners recorded the parties were interested in exploring the potential to combine and leverage each other's respective category, network and channel expertise to create multi-channel sleeping and bedding specialists in the Australian and New Zealand marketplace with the opportunity to expand globally.
5. The Edison Partners presentation recorded 'transaction options explored':
   1. The concept of a non-control, less than 50% investment into sleeping duck to fuel its expansion into the retail sector whilst in turn arming 40 winks with the opportunity to benefit from sleeping duck's digital capabilities;
   2. Establishment of a multi - brand group in which each brand his position as a stand-alone entity that collaborates information, and the prospective creation of a shared services operation...
   3. Over the longer term, Forty Winks expressed interest in the idea of majority control, however this is not necessarily an immediate priority. Any consideration towards eventual transfer of ownership would be structured in a manner that ultimately aligns to sleeping duck's preferences.
6. The Forty Winks proposal never advanced beyond this level of information exchange. It did not reach the 'preliminary due diligence phase' to which Edison Partners referred in its 14 June 2022 email.
7. Mr Sinnappan said he had two meetings with Forty Winks, facilitated by Edison. He said shortly after these discussions took place, the Founders decided 'not to proceed with exploring any form of transaction with any party for the time being'. That decision was communicated by Edison Partners to Forty Winks on 27 June 2022, referring to the Founders 'change of heart' and their joint preference 'not to proceed with exploring any form of transaction with any party for the time being'.
8. On 26 August 2022, the CEO of Forty Winks sent an email to Edison partners, thanking them for bringing them to the table with Sleeping Duck:

I managed to get a good look at their business through another source and believe their expectations of the business value of poles apart from our "street" valuation of the business... So probably better that we shut down further discussion early in the piece.

1. Mr Sinnappan had no recollection of discussing value either with Forty Winks or with Edison Partners. As he correctly observed, the 26 August 2022 email referred to information from another source about Sleeping Duck's value expectations.
2. Mr Sinnappan said the reason for the Founders' change of heart concerning Forty Winks was that he thought the 'trajectory and performance' of the business would not reflect well in further conversations.[118] BBHF submitted that evidence cannot be accepted in light of Mr Sinnappan saying (in another context) that he saw no issues with the way the business was operating and delivering at the time of trial.
3. BBHF submitted a transaction of the kind involving Forty Winks, if it met the conditions under the Call Option Deed, would have triggered Dr Shiffman's ability to exercise his options (assuming a SHA was also agreed). It submitted the effect of the decision of the Founders not to pursue such a transaction was to prevent the possible satisfaction of the conditions in the Call Option Deed rendering Dr Shiffman powerless to realise the value of his options. BBHF submitted the Founders must have known that was the case when they made their decision not to further engage with Forty Winks.
4. Mr Wijeyeratne was cross-examined about the proposal from Forty Winks in the 8 June 2022 email. He said he was not aware of the strategic investment proposal. He said he received the email, but said he did not believe he read the agenda. It was put to him that evidence was false.
5. I do not accept that Mr Wijeyeratne did not know at the time that Forty Winks were looking at making a strategic investment in Sleeping Duck. Whether he read the agenda enclosed in the 8 June 2022 email or whether he knew because Mr Sinnappan was negotiating on behalf of both of them with Edison Partners, his evidence in relation to his lack of knowledge of the Forty Winks proposal was both hesitant and unconvincing.
6. Put to Mr Wijeyeratne that the Founders decided not to further explore the Forty Winks transaction or any other transaction because he did not want Dr Shiffman's conditions of his options to be satisfied, Mr Wijeyeratne denied that to be the case.
7. As the 26 August 2022 email records, Forty Winks believed the expectations of the potential transaction parties were case well apart. Mr Sinnappan was clearly concerned about the impact Sleeping Duck's more recent financial performance would likely have on its value in the case of a transaction.
8. I do not accept that the reason the Forty Winks proposal was not pursued in mid‑2022 was, as BBHF alleged 'deliberate' so as to ensure there was no sell down from which Dr Shiffman and BBHF could benefit.
9. To round out the events of 2022 canvassed at trial, on 5 August 2022, the solicitors for BBHF sent a letter to the Companies' solicitors making the following open proposal:

In a good faith attempt to protect and preserve the value of the Company, and without prejudice to any arguments that may be run at the trial of this proceeding generally, our client proposes that Dr Shiffman, without charge, resume his previous role in the Company for an initial period of three months on the basis that the founders are open to receiving his good faith advice.

Our client considers this to be a sensible and prudent proposal for your clients to accept in circumstances where the current management of the Company is very obviously failing, Dr Shiffman's entire involvement with the company is mathematically correlated to strong company performance (and the reverse), and there is no downside at all for the Company in Dr Shiffman's role resuming. Dr Shiffman and the Founders may have a degree of animosity towards one another in the context of an ongoing oppression proceeding, but Dr Shiffman is willing to set that aside in the interests of the Company. One would expect that the Founders would do the same.

1. Dr Shiffman's proposal was rejected by the Founders.
2. On 16 August 2022, Mr Meredith valued all the shares in Sleeping Duck at 16 August 2022, at $45,318,290.

851 BBHF submitted that in 2023 the Founders refused to participate in or even to consider a proposal by Dr Shiffman for discussions by which he would purchase the Founders interests in Sleeping Duck based on an enterprise value of at least $100m. BBHF submitted this represented a continuation of the Founders deliberately preventing BBHF from realising the value of its investment. It submitted BBHF's equity remains locked in while Dr Shiffman is shut out of management with no opportunity to be separated from the Founders or for his capital to be liberated, other than via the proceeding.

852 These submissions were made at trial in the context of open exchanges relating to a potential buyout between 10 October 2023, shortly before the trial commenced and continuing through to 14 November 2023 as the trial progressed.

853 In addition to those exchanges, on 15 March 2023, at around the time the case was fixed for trial, BBHF made a without prejudice offer. The Companies sought to adduce the without prejudice offer into evidence. BBHF submitted it was inadmissible under s 131(1) of the Evidence Act. The Companies submitted the offer should be admitted because the exclusion of it was likely to mislead the Court. The dispute as to admissibility was heard by Gobbo AsJ. On 21 November 2023, her Honour ruled the offer was admissible except as to certain parts. BBHF appealed.

1. The appeal was heard on 27 November 2023 by Garde J. On 27 December 2023, his Honour held that although the 15 March 2023 letter contained 'flawed and unmeritorious' allegations, the offer was made in good faith and was genuine,[119] and met the requirements of s 131(1).[120] His Honour concluded the evidence adduced in the proceeding and the inferences from evidence that has been adduced were likely to mislead the Court unless evidence of the without prejudice offer and an email dated 24 March 2023 was adduced to qualify that evidence or the inferences from that evidence. Garde J determined the whole of the 15 March 2023 offer letter and the 24 March 2023 email to be admissible.[121] His Honour's reasons for this conclusion were as follows:[122]
   1. Dr Shiffman has given evidence that he was excluded from any active role in the business and would not be able to realise the value of his shares;
   2. he also said in evidence that he sent multiple messages to the founders subsequent to the email of 10 October 2021 and could not recall having received another response subsequently; and
   3. submissions have been made on behalf of the plaintiff that may be summarised as follows:

(1) the Court should conclude the founders were not allowing Dr Shiffman to realise his investment;

(2) there was a link between the exclusion and the ability or inability of Dr Shiffman to realise his investment;

(3) Dr Shiffman had no alternative but to institute proceedings for oppression if he was to realise his investment at all;

(4) the founders had a scheme afoot whereby substantial value and wealth would be realised for them with Dr Shiffman out; and

(5) since late 2021 the founders had been preventing Dr Shiffman from realising any of his investment.

1. Following the completion of the trial, the parties provided supplementary written submissions concerning the 15 March 2023 offer.

E14.1 March 2023 Settlement Offer and submissions

1. In the course of his Honour's ruling, Garde J made a number of observations about the 15 March 2023 offer. I agree with his Honour's observations, it is appropriate to reproduce some of them:[123]
   1. The offer was for the buyout of the plaintiff's shares and options by the founders for $56 million payable over a two-year period. If the settlement offer was not accepted within fourteen days, there was a ratcheting provision that took the offer up to $74 million over a further five-day period. The letter contained a second option as to how things might proceed if the offer in option one was not accepted.
   2. The offer made by the plaintiff was pitched at a very high level by comparison with the expert evidence listed in the ruling and recited before me. It was made about six months before the trial.
   3. In the light of the expert evidence, the offer made in the letter might fairly be described as excessive, unrealistic and uncommercial.
   4. The offer was put by the plaintiff's solicitors acting on instructions from Dr Shiffman. While it was unlikely to have been accepted, it was more than an opening shot. It may have triggered a negotiation process or attracted a counteroffer. At the very least it would have informed the founders and their legal advisors as to the plaintiff's position at that time.

...

1. Despite the matters that I have mentioned, I do not consider that the offer made in the letter was a sham or made in bad faith or was not genuine. The offer was made in good faith and was genuine, even if unorthodox in content, unrealistic because the buyout price was well above that suggested by the expert evidence, and unusual having regard to the five-day ratchet clause.
2. In making an offer of settlement, it is ordinarily beneficial if reasons are given as to why the maker considers that the recipient should accept the offer. This is particularly so if the maker of the offer considers that the recipient's case is flawed or weak or doomed to failure.
3. In the present case, the reasons were peremptory, threatening and foreshadowed draconian consequences if the litigation were pursued. They predicted a high level of interest in the proceeding by regulatory authorities, followed by likely prosecution for contravention of the Corporations Act and other enforcement action against the founders.
4. The reasons given by the plaintiff why the offer should be accepted may have been excessive, outlandish and inappropriate. The allegations that were made fell well outside the scope of the proceeding in most instances. They were flawed and unmeritorious. Receipt of the letter provoked a strong reaction from the founders' solicitors. However, despite these criticisms, in my view the letter did meet the statutory requirements of s 131(1) of the Act. It was a communication between persons in dispute in connection with an attempt to negotiate the settlement of a dispute within the meaning of that provision.

1. The Companies submitted the Court can and should take the offer into account in assessing Dr Shiffman's credibility. It submitted the terms of the offer and the manner in which it is expressed contradicts Dr Shiffman's case that he is a 'rational commercial actor' and does not sit comfortably with his evidence of being 'completely unable to access any of the value in [his] shares'. The offer was an 'absurdly high price' and was made a time where the expert evidence indicated a lower valuation.

Dr Shiffman's real grievance is that he was unable to achieve a sell-down at his high price, and the fact that he put forward offers for selldowns at such high prices supports the drawing of an inference that he was not prepared to exit at a reasonable price. That is, Dr Shiffman was himself the author of the misfortune about which he now complains. He was not oppressed.

1. The Companies submitted the offer provides further support for selecting 30 June 2023 as the appropriate buyout date if oppression is found.
2. In response BBHF submitted that the offer does not assist the Court to determine the issues in dispute. The offer was a genuine bona fide attempt to resolve the dispute. It was a starting position. Dr Shiffman hoped to receive a counter-offer in response. The offer reflected Dr Shiffman's honestly held view that with proper management, the performance and valuation of the business could return to something far greater than under the Founders' control.
3. BBHF submitted it does not follow that because at one stage Dr Shiffman offered to be bought out at what the Founders contend is an unreasonable price, that he was not prepared at a different stage to be bought out at a reasonable price. While the implied valuation of Sleeping Duck is higher than the expert evidence the offer is lower than the amount BBHF sought in October 2021 and even lower than the value of the various offers that the Company was entertaining in 2020 and 2021.
4. BBHF submitted it is a key part of its case that Dr Shiffman was excluded from his role at Sleeping Duck in late 2021 with no offer having been made to him. The 15 March 2023 offer does not go to Dr Shiffman's credibility. It is consistent with Dr Shiffman's evidence that he has been unable to access any of the value in his shares.
5. BBHF submitted there is no logical link between the sending of the 15 March 2023 offer and the Court's discretion to choose an appropriate valuation date. It submitted the Founders seek to penalise Dr Shiffman for attempting to resolve the proceeding.
6. In response, the Founders submitted the sending of the 15 March 2023 offer is part of BBHF's conduct in the proceeding. They referred to authorities for the proposition that conduct in oppression litigation can be weighed by the Court in determining the valuation date. Further, that the conduct of a plaintiff 'may well be relevant - and in some cases [the] most relevant factor in determining the nature and extent of any relief'.[124]

E14.2 Settlement Offers: October 2023-November 2023

1. On 10 October 2023, the solicitors for BBHF wrote on an open basis, proposing discussions take place on a buyout by Dr Shiffman:

Our client would be willing to engage in discussions with your clients before 4pm on Friday, 13 October 2023 in an attempt to reach an agreed outcome whereby our client purchases your respective clients' shareholdings in the company, the proceedings are in turn dismissed and the parties provide appropriate mutual releases. Although our client is not immediately in a position to identify a precise valuation for those shareholdings, our client expects that it (and other third party investors supporting it) would be willing to purchase those shareholdings based on an enterprise value of at least $100m.

Please advise us a [sic] matter of urgency whether your clients are willing to participate in such discussions and, if so, appropriate arrangements can be made.

1. The following day, 11 October 2023, the solicitors for the Companies responded:

We have serious concerns about your client's "proposal". That concern arises because it contains:

1. no details as to the identity of the "other third party investors" who will support the purchase;
2. no evidence that the consortium (made up of your client and those investors) have sufficient committed and unconditional funding to complete a purchase based on an enterprise value of at least $100,000,000; and
3. no actual offer beyond the vague request to "engage in discussions".

For those reasons, the proposal in your letter is not one that our clients are able to consider on any reasonable basis.

1. The trial commenced on 16 October 2023.
2. Cross-examined about the 10 October 2023 open offer, Mr Sinnappan accepted that he was not interested in discussing a potential sale to Dr Shiffman on the basis of the details in the letter. Mr Sinnappan said his response to a buyout offer based on an enterprise value of $100m would depend on the identity of the buyer and on the information attached to that headline number. In re-examination, he said the offer was missing key details and information for the Founders to seriously consider and engage with the proposal; there was no information as to the identity of the third party investors and it was not clear whether the funding would be committed or unconditional.
3. It was put to Mr Sinnappan that the Founders' plan was to have Dr Shiffman bought out on a low ball valuation, then recommence the payment of dividends and manage the Company in a 'proper' way so that the Founders can unlock substantial value and wealth with Dr Shiffman excluded. Mr Sinnappan denied this was the case.
4. Mr Wijeyeratne was also cross-examined about the 10 October 2023 open offer. He agreed that he and Mr Sinnappan were not prepared to sell. He said there was 'more context',[125] a reference to the context referred to in the 11 October 2023 letter in response.
5. On 31 October 2023, BBHF made a further open proposal, the terms of which include:

As submitted to the Court, our client believes that the enterprise value of the first defendant is significantly more than that contended for by the founders. ... With that in mind, and in light of the reasons given as to why our client's open proposal was not acceptable, our client makes the following revised offer on the basis of a total valuation for the first defendant of $80m:

1. Our client purchases your respective clients' shares in the first defendant for the total sum of $69.645m on conditions that:
   1. the parties enter into a share sale agreement (in standard form and on standard commercial terms) within 14 days, which agreement will provide for a completion date of 60 days from its execution;
   2. our client exercises the first two tranches of options (totalling 5,000 shares) at settlement, with the sums of $812,500 included in the total consideration amount;
   3. the cash held by the first defendant will not be disbursed other than in the ordinary course of business; and
   4. the founders represent and warrant to our client that the financial information concerning the first defendant for the period from 30 June 2022 onwards provided to the Court in the course of this proceeding is true and correct.

2. Subject to completion taking place under the share sale agreement:

a. the founders will each resign as directors of the first defendant;

1. the proceeding will be dismissed on the basis that there be no orders as to costs (and no existing costs orders will be enforced);
2. our client, Dr Shiffman and the company release each of your clients and the founders from all claims that they have against them; and
3. your clients and the founders release our client, Dr Shiffman and the first defendant from all claims that they may have them [sic] against them.

So that your clients may properly assess the reasonableness and fairness of this offer, our client notes that the offer has been formulated:

• On the basis of a total value for the first defendant of $80m, comprising an enterprise value of $60m - being more than 2.5 times that contended for by the founders - and current cash reserves of around $20m.
• In the absence of proper engagement with the proposal in our 10 October 2023 letter, standard due diligence and proper financial information for the first defendant, the absence of which explains the discounted enterprise value compared to that indicated in our 10 October 2023 letter.

This offer is open for acceptance until 9am on Monday, 6 November 2023.

1. BBHF submitted the 31 October 2023 proposal provides evidence that Dr Shiffman has offered to buy out the Founders' interests based on a valuation of Sleeping Duck well in excess of the value which the Founders submit is a fair value for a buyout order.
2. On 6 November 2023, the solicitors for the Companies responded:

1. is currently undergoing divorce proceedings; and

2. has given evidence in these proceedings that a "significant part" of whether he regards himself as a successful businessman depends on the outcome of this litigation (T308:7-9),

we assume that Dr Shiffman does not have the financial capacity to complete the share purchase contemplated in your letter by himself or through his own corporate entities.

In order for our clients to be able to consider the offer, and for us to be able to provide them with advice on it, please:

1. confirm the identity of any other co-investors of Dr Shiffman who will support the purchase; and

2. provide sufficient evidence that the consortium (including Dr Shiffman):

1. have sufficient committed and unconditional funding to complete a purchase on the terms proposed; and

b. are willing to proceed with a purchase on the terms proposed.

We note that these are the same issues that we raised in our 11 October 2023 response to your client's previous open offer.

1. On 8 November 2023, the solicitors for BBHF replied. The response noted the 6 November 2023 email was sent after the time for acceptance of the proposal that the proposal was not conditional on finance and stated that Dr Shiffman did not consider the response to be commercially fair or reasonable.
2. In the final exchange on these matters prior to the end of trial, on 14 November 2023, the solicitors for the Companies responded:

Our clients remain willing to consider serious and sensible offers (capable of being performed) to purchase their interests in Sleeping Duck. That cannot be done unless your client provides the information sought ... as to the details of your client's offer, in particular as to the financial capacity of your client and any co-investors.

Your letter dated 8 November 2023 describes our clients as making 'misplaced assumptions and speculation' as to your client's ability to fund the proposed purchase price. We respectfully disagree. It is not unreasonable for our clients to seek to understand your client's ability to consummate a transaction in the amount of $69.625 million. We note the observation by Mr Stone that "an offer is only valid ... if the people making that offer are capable of actually executing the offer": Ts 1502:11-13.

E14.3 Findings concerning 2023 settlement offers

875 I agree with Garde J that BBHF's 15 March 2023 offer was excessive, unrealistic and uncommercial. References in the letter to the Founders having engaged in 'wrongful, calculated and intentional' conduct involving contraventions of the Act, including penalty provisions were without proper foundation and were allegations of conduct not found in BBHF's pleaded case. The threats, and that is how they were to be read, to involve ASIC and the ATO on the basis of unpleaded allegations should not have been made. The letter does not reflect well on BBHF or on Dr Shiffman.

876 The sending of a letter in these terms informs how the Companies reacted to the open offers later made by BBHF in the lead-up to and in the course of the trial. Given the tone and content of the 15 March 2023 offer, the Companies were entitled to view later offers and proposals from Dr Shiffman with more than considerable scepticism.

877 While the 15 March 2023 letter should never have been sent, and the sending of such a letter is both inappropriate and not in accordance with the obligations imposed upon parties and practitioners under the CPA, I do not regard the 15 March 2023 letter and its contents to have any real bearing on the issues in dispute.

878 The letter does not go to whether or not there was oppression. While the letter reflects poorly on Dr Shiffman, I do not take the letter into account in assessing his credibility. The offer is not of particular relevance to the determination of the date for valuation or the level of value at which a buyout order might be made, assuming oppression is established.

879 Although of a different character, the open offer letters of 10 and 31 October 2023 and the responses of 11 October 2023 and 6 November 2023, together with the communications that followed, are also of no real assistance in resolving the critical issues in the proceeding. These communications occurred at about the time of and in the context of the heavily contested trial. They were clearly strategically motivated. The 10 October 2023 offer was an offer to 'engage in discussions'. It was not capable of acceptance. The 31 October 2023 offer to pay $69.645m was fairly the subject of a request for information on behalf of the Companies and the Founders about where the money was to come from, whether unconditional funding is in place, who are the co‑investors. None of this information was provided.

880 The communications in October and November 2023 were part of commercial and strategic manoeuvring between Dr Shiffman and the Founders. They did not lead to a resolution of the dispute and they do not provide assistance in the determination of it. For the avoidance of doubt I reject the proposition put by BBHF to Mr Sinnappan that the Founders' plan was to have Dr Shiffman brought out at a low ball valuation and then recommence paying dividends. I reject the proposition the rejection of the October 2023 offer was part of a strategy to bring about such an outcome.

E15.1 Section 260A Corporations Act

1. BBHF's written closing submissions refer to the merry-go-round of funds to which Mr Curry referred in his 9 April 2021 email to support an allegation the Founders breached the prohibition against financial assistance in s 260A of the Act.
2. The Founders submit:

Nowhere is s 260A pleaded, as was noted at the outset of the trial. Contraventions of s 260A by whom? The submissions must be saying, in substance, that the Founders were involved in any such breach through providing Mr Bandopadhayay with financial assistance to acquire shares. This is a serious allegation, given that involvement in a non-dishonest breach is a civil penalty provision and a dishonest breach is a criminal offence. It is not open to Dr Shiffman to pursue these allegations; they should be abandoned. ...

1. I agree with that submission. Senior counsel for BBHF said at the trial:[126]

...we don't plead a 260A claim. I'm not here appearing for ASIC today, your Honour. I don't need to make a 260A claim against anyone. But it does tell Your Honour something about the standards of commercial dealings which are expected in this country when matters that may give rise to a s 260A claim, conduct of that kind is engaged in, it cannot fairly be said in defence that that's not commercial unfairness in the sense relevant to an oppression claim under 232.

That's how we put it. That's why we've not pleaded a 260A claim. But we intend to cross examine and rely upon these matters in support of the oppression claim.

1. As reiterated throughout the course of the trial, claims the Founders or companies associated with them, who are not parties to the proceeding, made loans to Mr Bandopadhayay to assist him to fund the exercise of his ESOP options in contravention of s 260A of the Act did not form part of the pleaded case. The pleading does not refer to the prohibition against s 260A financial assistance as a standard of commercial dealing that is relevant in determining whether the conduct of the Company's affairs is oppressive within the meaning of s 232.
2. So far as BBHF's closing submissions refer to s 260A of the Act they relate to serious allegations that were never pleaded and the pleading of which was expressly eschewed by BBHF. The reliance on s 260A is not relevant in determining whether the conduct of Sleeping Duck's affairs is oppressive to, unfairly prejudicial to and/or unfairly discriminatory to BBHF.

E15.2 Preventing BBHF from realising the value of its investment (from 2020 to date)

1. In written closing BBHF submitted that contrary to the understanding the parties had adopted about the sell-down the Founders failed to give effect to reasonable, 'acceptable' or 'good' Sell Down Opportunities. The submissions referred to Canaccord and to Adairs.
2. The attempt in closing submissions by BBHF to rely on events in September 2020 concerning Canaccord and the proposed acquisition of 40% of the shares in Sleeping Duck by Adairs discussed in section E10.5 involves seeking to advance a case that was never pleaded and was never put to Mr Sinnappan and Mr Wijeyeratne. It was never alleged that failure in 2020 to progress or to proceed with a transaction with Canaccord or Adairs constituted oppressive conduct.
3. The conduct referred to in BBHF's submissions is not relevant to the determination of whether the conduct of Sleeping Duck's affairs is oppressive to, unfairly prejudicial to and/or unfairly discriminatory to BBHF.

1. BBHF submitted the Founders refused to participate in, or consider, a proposal by Dr Shiffman for discussion by which Dr Shiffman would purchase the Founders' interests on the basis of an enterprise value of at least $100m. This submission relied on BBHF's October 2023 open offers. BBHF submitted that the Founders' failure to 'jump at' Dr Shiffman's offer is:

...consistent only with a view on their part that the business is worth more than the $23.6 million valuation the subject of the Joint Expert Report (or that they are intent on preventing Dr Shiffman from being involved in Sleeping Duck).

1. The conduct relied on is conduct that took place during the trial itself. As earlier discussed, I regard this and other open offers and the responses to them as part of strategic commercial manoeuvrings by the parties in the lead-up to and in the course of the trial. I do not consider them to be of assistance in determining whether or not BBHF has made out its claim of oppressive conduct. In any case, in light of the tone and content of the 15 March 2023 offer, I consider the Founders justified in determining not to participate in or consider proposals 'for discussion' advanced by Dr Shiffman and BBHF on the eve of and during the trial.

891 When making findings about conduct alleged to be oppressive, particularly in the context of a business relationships and allegations that span many years, early 2018 until late 2023, it is critical to do so in the contemporaneous context in which each of the events and actions of which complaint is made took place. As Robson J observed in Re SRW Nominees[127] fairness 'is not assessed in a vacuum: the context is relevant to assess the fairness of the conduct'.[128]

892 That is the approach I have sought to adopt in relation to each of the alleged acts of oppression relied on by BBHF. Whether BBHF's case alleging oppression in the conduct of Sleeping Duck's affairs is made out is dependent upon it proving one or more of the allegations in paragraph 75 of the statement of claim on the balance of probabilities, and, in respect of any proven allegations, establishing the conduct complained of is oppressive. Having carefully reviewed the evidence relating to each allegation in context, including in their chronological context, for the reasons discussed in section E, I am not persuaded that BBHF has proved any of the allegations relied on in paragraph 75.

893 Concerning the allegation in paragraph 75(a), for the reasons referred to and discussed in section E6 concerning issues 8-13, including my findings in section E6.5 the allegation in paragraph 75(A) is not made out.

894 Concerning the allegations in paragraph 75(b) for the reasons discussed concerning issue 17 in section E7 including my findings in section E7.2 the allegation in paragraph 75(b) is not made out. Concerning the allegations in paragraph 75(b) for the reasons discussed concerning issue 17 in section E8 including my findings in section E8.5 the allegation in paragraph 75(b) is not made out. It is to be noted the allegation the Founders and Mr Bandopadhayay acted in concert was not the subject of closing submissions by BBHF.

895 A critical plank in BBHF's oppression case is the allegation in paragraph 75(c) that Dr Shiffman was excluded from his role in management of the Company contrary to the terms of the Second Understanding on Participation, alternatively, the Understanding on Sell Down. The problem for BBHF is that for the reasons discussed in sections E4 and E5 including sections E4.2 and E5.2 I have found neither of those alleged understandings existed. It is also the case that while not relied on in paragraph 75 of the statement of claim, the allegation that is earlier in time that at a meeting on 1 February 2018 a common understanding was reached concerning Dr Shiffman's investment, role and participation in Sleeping Duck (the First Understanding on Participation) was also not made out. That is also the case concerning the associated allegation that Dr Shiffman had a legitimate expectation to participate in management. That is so for the reasons discussed in section E2 concerning issues 2 and 3(a) and (b) including my findings in section E2.2. Dr Shiffman's own description of his anticipated role in his 15 January 2018 email does not support BBHF's participation in management case. The 15 January 2018 email and my findings in relation to it are found in section E1.2.

896 The Second Understanding on Participation is alleged to have been reached at a meeting on 19 June 2019. The allegation of a Second Understanding on Participation is accompanied by an allegation that the matters pleaded by BBHF concerning the period October 2017 to January 2018 gave rise to a legitimate expectation that Dr Shiffman would participate in the management and strategic direction of the Company. For the reasons discussed concerning the first issue in section E1.2, the events and communications that took place in the period October 2017-January 2018 did not give rise to the legitimate expectation alleged. For the reasons discussed in section E3.6 and E3.7 I do not accept Dr Shiffman's account of what he says was agreed at the meeting 'on or around 19 June 2019'.

897 For the reasons discussed in section E5 including the findings in section E5.2 the early 2020 Understanding on Sell Down alleged by BBHF was also not proved. Dr Shiffman's own evidence does not support BBHF's allegation that 'when a commercially reasonable Sell Down Opportunity was identified they would each take steps to give effect to it' or that Sleeping Duck would take all commercially reasonable steps to pursue and advance Sell Down Opportunities. Dr Shiffman's evidence was that if an opportunity to sell down shares was presented it was a matter for the individual Founders to determine whether to accept or to reject the proposal. Each of the Founders had to find the proposal reasonable assessed by reference to their own subjective circumstances and preferences at the time.

898 The breach of the Exit Agreement alleged in paragraph 75(d) presupposes that BBHF has proved the terms of the Exit Agreement alleged to have been made in May 2021. The existence or otherwise of the Exit Agreement turns on what Dr Shiffman said at the 5 May 2021 meeting. Dr Shiffman presented three options for the Founders to choose between. There is no dispute that option 1 was later accepted by the Founders.

899 For the reasons discussed in section E10 concerning issues 20 and 21 including my findings in section E10.4 concerning the alleged Exit Agreement and the alleged Transition Passivity Agreement, there was no Exit Agreement containing the terms alleged in the statement of claim. Because there was no Exit Agreement there was no breach. In any case, for the reasons discussed in section E10.5, even if there was the Exit Agreement as alleged, the breach allegations are not made out.

900 The allegation in paragraph 75(e) that the Founders and Mr Bandopadhayay acted in concert to the detriment of BBHF in respect of the exercise of the Bandopadhayay Options is not made out. The first exercise of the options, in April 2021, and the reasons BBHF's allegations concerning it are not made out are discussed in section E8 including the findings in section E8.5. The Second Exercise of the Options in September 2021 is discussed in section E11. Having regard to that discussion including my findings in section E11.4, the allegations in relating to the Second Exercise of the Options are not made out.

901 Paragraph 75(f) alleges a refusal on the part of the Founders and their Companies to participate in a mediation and to negotiate the dispute concerning the 2 December 2021 draft SHA. For the reasons discussed in section E12 including the findings in section E12.4 there is no substance to the allegation in paragraph 75(f).

902 The final pleaded allegation of oppressive conduct relied on paragraph 75(g), related to the allegation in paragraph 75(f), is the alleged breach of the terms of the Call Option Deed in respect of the 2 December 2021 SHA. For the reasons discussed in section E12 including the findings in section 12.4 I do not accept there was a breach of the good faith obligation in the Call Option Deed as alleged.

903 For the reasons discussed in section E13 and E14, it is also the case concerning the events of 2022 and 2023 of which BBHF made complaint, that Sleeping Duck and the Companies did not engage in oppressive conduct in 2022 or 2023 after the proceeding was issued.

904 As noted in the overview, in closing submissions BBHF relied on six categories of conduct as oppressive. Concerning each of those matters:

(a) For the reasons discussed in section E6 the grant of options to Mr Bandopadhayay under the ESOP was not oppressive.

(b) For the reasons discussed in section E8 the provision of financial assistance to Mr Bandopadhayay to enable him to exercise the first tranche of his options in April 2021 was not oppressive.

(c) Dr Shiffman agreed to 'go passive' in September 2021. Until September 2021 his role as adviser and mentor to the Founders and in relation to a potential sell down of shares in Sleeping Duck was respected and availed of by the Founders. He was not excluded.

(d) Dr Shiffman has not been 'prevented' from realising the value of his investment from 2020 to date. From 2020 until the proposed Adairs transaction failed to proceed in April 2021 he sought to pursue a transaction in which he and the Founders would participate which would have realised part of his and their investments, but no transaction was able to be achieved. In October 2021 the Founders rejected the CPE Capital Offer. They were entitled to do so in accordance with the third element of the Potential Sale Understanding arrived at in early 2020 discussed in section E5.2. Objectively the rejection of the CPE Capital Offer, a proposed loan transaction was reasonable for the reasons discussed in section E10.3.

(e) BBHF's closing submissions relied on two matters in support of an allegation the Companies and the Founders prevented BBHF's ability to exercise its options in Sleeping Duck. First, the failure to finalise (or even negotiate) the December 2021 SHA. Second, the failure to proceed with a sell down transaction in 2022. Concerning the first matter, for the reasons discussed in section E12 including the findings in section E12.4 there was no failure to negotiate by the Founders and the Companies. They put forward a draft SHA, BBHF responded with a Dispute Notice. The Dispute Notice proposed a mediation. The court had already made a mediation order. A court appointed mediation took place, it appears on three occasions. Second, the only potential transaction in 2022 involved Forty Winks. In accordance with the third element of the Potential Sale Understanding the Founders were not obliged to enter into a transaction, whether with Forty Winks or with anyone else. As discussed in section E13, the Forty Winks proposal never progressed beyond the initial stages. That the Founders did not pursue the proposal was not oppressive to BBHF.

(f) The asserted failure by the Founders 'to discuss Dr Shiffman's buy-out proposal as recently as late 2023 involves conduct that took place in the lead up to and during the course of the trial. For the reasons discussed in section E14 including my findings in section E14.3 I do not regard the Founder's responses to Dr Shiffman's proposals as evidence of or constituting oppressive conduct.

905 The allegations relied on by BBHF in its pleaded case and advanced in its closing submissions not being made out, the proceeding is dismissed.

906 That being the case, no issue concerning relief arises for determination. However, in case the matter should go on appeal and in deference to the parties and to the experts, I have included a short section dealing with the expert evidence. I have not made a finding as to the date to be adopted for any buy out order as I have found no basis exists to make such an order.

1. The experts gave evidence concurrently. Each of them adopted their reports and the opinions expressed in those reports, except to the extent their opinions were revised in the later Joint Report or Supplementary Joint Report.
2. The experts agree the value of Sleeping Duck as at 30 June 2023 was $43.6m for 100% equity value. The value was calculated by both experts using the same methodology, the capitalisation of future maintainable earnings ('FME'). FME of $4.8m was agreed. The adopted EBITDA multiple of five times EBITDA was agreed.
3. As at the first valuation date, Mr Stone adopted a figure of $25.8m for FME. Mr Potter adopted a figure of $16.4m for FME. The EBITDA multiple to be applied, 6.65x was agreed. As at the second valuation date, Mr Stone adopted a figure of $23.8m for FME, Mr Potter adopted a figure of $12.7m. Both agreed on 6.65x as the multiple to be applied to EBITDA.
4. Cross-examination of the experts was economical and targeted. It was limited to matters upon which the experts had not previously agreed. There was one exception. It concerned whether a normalisation adjustment should be made on account of remuneration paid and payable to Mr Bandopadhayay of $1.2m per year. If so, whether those remuneration arrangements caused the experts to change their agreed view about the value of the business as at 30 June 2023. The experts agreed there was insufficient information upon which they could express an opinion about this issue.
5. It is important to record the experts were never asked to value BBHF's options, whether at the first or second valuation date, as at 30 June 2023 or otherwise. An application was belatedly made by BBHF, just as the experts were to begin giving evidence to the effect that they should be either asked questions at trial or instructed to prepare a further joint report addressing the value of the options. The application was refused. The reasons for refusal included that to do so would be inconsistent with orders previously made for the conduct of the proceeding and with the obligations of parties and practitioners including the overarching obligation and the obligations concerning expert evidence in part 4.6 of the CPA.
6. In its closing submissions BBHF submitted the wide power to grant relief in s 233(1) is sufficient to extend to relief concerning options over shares. As part of its submissions, it put forward three methods of valuing the options. I agree with the Companies that reliance on the valuation methodologies put forward by BBHF in submissions is of no assistance without expert evidence. It was for BBHF to prove all relevant aspects of its case at trial. Had it been necessary to deal with the issue of the value of the options I would have declined to embark on an attempt to value the options in the absence of expert evidence.
7. Cross-examination of the experts concerned the following topics:

(a) the standard of value, 'fair value' versus 'true value';

(b) maintainable EBITDA at the first and second valuation dates: use of the FY 22 budget;

(c) maintainable EBITDA at the first and second valuation dates: methodology;

(d) the 10 October 2023 BBHF offer concerning the business.

1. At the first and second valuation dates, Mr Stone assessed the fair market value of the share capital of Sleeping Duck adopting the following methodology:

(a) assessing the indicative fair market value of the business (enterprise value) at the valuation date; and

(b) adjusting the enterprise value for the fair market value of Sleeping Duck's interest bearing debt and net surplus assets at the valuation date.

1. In contrast, Mr Potter was instructed to use the 'true value' basis at valuation.
2. 'Fair market value' was described by Mr Stone as equivalent to 'market value' as defined in the international valuation standards:

"... the estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm's length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion."

1. This definition is also consistent (in substance) with guidance in the ATO Market Valuation Guidelines, which states:

"The term 'market value' has not been defined for the purposes of consolidation. The definition in current tax law does not specifically define market value. As a result, for the purposes of consolidation, the term takes on the meaning ordinarily applied to it when used on its own without any qualifications. Business valuers in Australia typically define market value as: The price that would be negotiated in an open and unrestricted market between a knowledgeable, willing but not anxious buyer and a knowledgeable, willing but not anxious seller acting at arm's length."

1. Mr Potter was instructed to assume 'true value' means:

... that which lies between the most the buyer is willing to pay and the least the seller is willing to accept - the price which a hypothetical willing but not anxious vendor could reasonably expect to obtain and a hypothetical willing but not anxious purchaser could reasonably expect to pay after proper negotiations between them have been concluded.

918 Mr Potter continued regarding his instructions:

In assessing value as at a certain date, I have been instructed to note the following observations of Elliott J in Cargill Australia Ltd v Viterra Malt Pty Ltd [2022] VSC 13:

"[3919] ... true or real value can be determined with reference to subsequent events insofar as they shed light on the true value of the asset at the relevant date. In Kizbeau Pty Ltd v W G & B Pty Ltd, the High Court stated that "although the value is assessed as at the date of the acquisition, subsequent events may be looked at insofar as they illuminate the value of the thing as at that date".

[3920] Importantly, a distinction is drawn between subsequent events where the cause of loss is intrinsic and those where the cause of loss is extrinsic. The court must distinguish between causes of decline in value that are "intrinsic", or "inherent", in the thing itself, which should be taken into account, and causes that are "independent" or "extrinsic", which should not be taken into account to determine the true value.

[3921] In Kizbeau Pty Ltd v W G & B Pty Ltd, the nature of this distinction was traversed. The High Court stated that subsequent events arising from the nature or use of the thing itself should be taken into account. For example, the takings of a business subsequent to purchase were generally relevant not only to prove a representation made before the acquisition, but also to prove the true value of the business as at the date of purchase. This is true even when some difference exists between the conditions under which the business was conducted before and after purchase, subject to allowance being made for differences in conditions. However, supervening events, such as a decline in takings caused by ineptitude or unexpected competition post-acquisition, should not be taken into account."

1. Mr Potter described the impact the difference between his instructed approach based on 'true value' and the approach adopted by Mr Stone to 'fair market value' may have on value:

The extent to which hindsight is applied can, in some cases, cause a divergence between the fair market value and true value bases of valuation. This can occur where the information available at the valuation date does not include factors affecting or inherent in the assets that become known after the valuation date (e.g., a product warranty claim that became known after the valuation date but relates to products sold prior to the valuation date).

1. In cross-examination Mr Stone accepted that 'true value' which he described as a creature of law rather than of the market goes beyond what a willing buyer and a willing seller knew at the valuation date. He identified the issue as the extent to which a valuer is allowed to take into account factors that may not have been known at the date of valuation.
2. In cross-examination Mr Potter accepted there was no relevant value distinction between the approaches that he and Mr Stone had taken when it came to the valuation methodology in this case. As a result of that evidence, the difference in approaches may be put to one side.
3. There were, however, two differences between the experts concerning the information taken into account when forming their opinions which bear on whose opinions should be preferred. Mr Stone looked at the management accounts but did not refer to them for management commentary. Mr Potter referred both to the accounts and to the commentary. Mr Stone did not rely on budgets and did not turn his mind to whether or not Sleeping Duck had a good or bad track record of setting budgets that turned out to be accurate prior to November 2021.

1. Mr Stone chose a four month period, 1 July 2021 to 31 October 2021 upon which to base his estimate of EBITDA. He described the company's financial performance during this period as 'remaining strong'. In cross-examination he said he did not have information concerning the forward looking period that was reliable. The reason he did not take into account the period prior to 1 July 2021 was that it was impacted by the COVID-19 pandemic.[129]
2. The $26m figure adopted by Mr Stone for EBITDA for October 2021 is a higher figure than Sleeping Duck's budgeted figures of $24.083m as at 30 September 2021 and $23.627m as at 31 October 2021.
3. In contrast to Mr Stone's approach, Mr Potter sought to take into account trends based on what was happening in the business at each valuation date. It was his evidence that from a peak in the middle of 2020 the EBITDA margin was gradually reducing as a general trend over time. Although Mr Potter did not use a mathematical approach to develop what the trend would be he had regard to the commentary in the management reports that suggested that operating costs were going up and sales were decreasing, both factors which he considered would affect EBITDA margin.
4. In cross-examination, Mr Potter gave the following explanation of his approach which resulted in his maintainable earnings at $20m for the first valuation date and $16m at the second valuation date:[130]

... the business is just emerging out of the COVID period and, um, we only have a few months of results, um, three months of results, if you like. I think the lockdowns were starting to end around the middle of 2021 from memory, so it's difficult - in that environment, it's difficult to arrive at a precise number. When I looked at October, the results in October and the results in November, the EBITDA margins which were, I think, 20.4 per cent it went back to and point something, were - were something which I saw as being relatively consistent with the trend that was occurring, and when I looked at the margin report commentary about what was happening with underlying costs in the business, um, I took a view that that is really about where a purchaser would likely land in terms of what could be forecast going forward. As it turned out, the position worsened ...

1. In the Supplementary Joint Report the experts agreed that:

in circumstances where the company was emerging from a period affected by the COVID-19 pandemic, a purchaser of the shares in the company would not, all else being equal, pay a price on a forecast based solely upon the prior twelve months EBITDA, knowing that exchange rates affect profit margins and were "continuing to go against us". The last twelve months earnings would not be considered as future maintainable earnings.

1. Consistent with that statement, in cross-examination Mr Stone agreed that future maintainable earnings would probably be less than the previous six months and that a knowledgeable, willing but not anxious purchaser would go into a bargain to purchase the business with that in mind. Further, that a hypothetical purchaser would be in a position to make enquiries as part of due diligence as to what the forecast was for the business and as to the basis of that forecast.
2. Notwithstanding that Mr Stone was provided with a budget, current at around the two valuation dates, including a budget that showed a reduced EBITDA both in monetary terms and in terms of margin when the 30 September 2021 and 31 October 2021 budgets were compared Mr Stone did not 'directly use' those budgets in his selection of future maintainable earnings. He said he did not take any forecasting into account because no forecasts were available. He said he did not take into account whether previous budgets prepared by Sleeping Duck were too optimistic because he was not able to investigate and enquire as to the basis on which such forecasts had been prepared.
3. In his report Mr Stone said he had not been provided with sufficient information supporting the budget and had not had access to Sleeping Duck's management team to discuss the basis of preparation and underlying assumptions relating to budgets. For that reason, he did not consider it reasonable 'to solely' consider the FY22 budget in his selection of future maintainable EBITDA. In cross-examination, Mr Stone said he thought it was fair to say he did not take into account the FY22 budget at all.
4. I prefer Mr Potter's approach to future maintainable EBITDA. It is an approach that draws on all of the available information that would be available to a well informed hypothetical purchaser. As put in the cross-examination of Mr Stone, he did not take into account the budget, nor did he take into account management commentary. His opinion was based on four month results notwithstanding the statement in his report that in selecting future maintainable EBITDA 'the valuer should place greatest weight on near-term forecast financial results provided the valuer has confidence in the reasonableness of those forecasts'.[131]
5. A hypothetical purchaser who had made enquiries of management would know, as reflected in an email from Mr Curry's email on 20 August 2021, that management considered it necessary to be 'more circumspect' in how projections are talked about for the year ahead. There was reported to be a need to take into account 'the extraordinary impact' that COVID-19 had on the first half of FY21 and that growth 'is unlikely to be a straight line trajectory giving the ongoing pandemic'.[132] The peak in sales occurred around July 2020 and deteriorated from that point. In cross-examination Mr Stone accepted that a hypothetical purchaser would take note of the downward trend in EBITDA due in part to increased costs.
6. While Mr Stone agreed that the online retailers COVID-19 boom had reached its peak and was receding when proceeding by reference to the four month trading window from July 2021, I am not persuaded Mr Stone took that factor into account in his expectation of future maintainable earnings. I am also not persuaded that his calculation appropriately took into account what he agreed was a 'head wind' for the business as a result of the falling exchange rate against the US dollar.
7. Given the downward trend following easing of COVID-19 restrictions, I consider the adoption by Mr Stone of $26m for FME, a figure which exceeded Sleeping Duck's own budgeted expectations, budgeted expectations which in the past had been overly optimistic not to be realistic.
8. I accept that when seeking to value Sleeping Duck it was difficult to obtain information about companies that were truly competitors. While that is the case, I think it is not unfair to describe the information concerning industry more broadly in Appendix J to Mr Stone's report and relied on at least in part by him as not sufficiently comparable to provide a reliable basis upon which to form opinions concerning Sleeping Duck.
9. While Mr Potter proceeded on the basis of a trend line over time, and did not use a mathematical approach when determining the figure to adopt for FME, I prefer his approach. That is the case at both the first and second valuation dates for which BBHF contends. Mr Potter's approach is an approach which both takes into account and is consistent with the downward trend for the business evident in its own management reports and commentaries.

1. The experts were asked whether awareness of the 10 October 2023 offer would cause them to change views they had previous expressed concerning the value of the business as at 30 June 2023. Given the terms of the letter, its timing in the context of an impending trial of the proceeding, neither expert considered the letter appropriate to take into consideration.

1. I will order the proceeding be dismissed.
2. I intend to order BBHF to pay the Companies and Mr Bandopadhayay's costs of and incidental to the proceeding on a standard basis. If any party contends for a different costs order, that party should, in the first instance, provide a draft form of order for which that party contends to my chambers by 4:00 pm on 28 June 2024, together with an outline of no more than four pages. If a draft order is provided by any party, unless by consent, I will determine at that time how best to deal with outstanding costs issues.

I certify that this and the 224 preceding pages are a true copy of the reasons for judgment of the Honourable Justice Delany of the Supreme Court of Victoria delivered on 14 June 2024.

S2 ULYSSES PTY LTD

[1] Transcript of hearing on 16-19 October 2023, 23-27 October 2023, 30 October-1 November 2023 and 30 November 2023 in BBHF Pty Ltd v Sleeping Duck Pty Ltd & Ors ('Transcript'), 1324.

[3] [2009] HCA 25; 238 CLR 304.

[5] [2022] VSC 416 [29] (Button J).

[6] Re SRW Nominees Pty Ltd [2019] VSC 547 [34]-[40] (Robson J).

[7] Knights Quest Pty Ltd v Daiwa Can Company (2018) 366 ALR 557, 588 [130] (Beach, Kyrou and Hargrave JJA), cited in Parker v Auswild [2022] VSCA 8; (2022) 403 ALR 111, [128] (Ferguson CJ , Kennedy JA and Garde AJA).

[8] John J Starr (Real Estate) Pty Ltd v Robert R Andrew (A'asia) Pty Ltd (1991) 6 ACSR 63; (1991) 9 ACLC 1372, 67 (Young J); Youlden Enterprises Pty Ltd v Health Solutions (WA)) Pty Ltd [2006] WASC 161; (2006) WAR 1, [29] (Martin CJ).

[9] _Parker v Auswild and Other_s (2022) 403 ALR 111; [2022] VSCA 8, 112 (Ferguson CJ , Kennedy JA and Garde AJA).

[10] Knights Quest Pty Ltd v Daiwa Can Company [2018] VSCA 349; (2018) 366 ALR 557 [130] (Beach, Kyrou and Hargrave JJA).

[11] Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; (2009) 238 CLR 304, 360 [176] (Gummow, Hayne, Heydon and Kiefel JJ).

[12] Catalano v Managing Australia Destinations Pty Ltd [2014] FCAFC 55; (2014) 314 ALR 62 , [9] (Siopis, Rares and Davies JJ).

[13] Re Spargos Mining NL [1990] WASC 32; (1990) 3 ACSR 1, 44 (Murray J).

[14] Chase Corp (Aust) Ltd v North Sydney Brick and Tile Co Ltd (1994) 35 NSWLR 1; (1994) 12 ACLC 997, 26 (Cohen J).