Plaintiff v Defendants [2024] VSC 438 | Case summary

TORTS - Inducing breach of contract - General principles - Elements of the tort - Whether contract breached - Intention to induce breach of contract - Relevant knowledge - Whether parent company can induce breach of contract of subsidiary - Whether a director can be liable for inducing a breach of contract of the company of which they are a director - The principle in Said v Butt [1920] 3 KB 497 - Whether defendants had requisite knowledge of contract or intent to induce the alleged breach of contract - Whether nominal damages for breach of contract is loss or damage for the tort of inducing breach of contract.

Plaintiff v Defendants [2024] VSC 438 | Case summary | Zoe

[98]

The Cooperation Terms were implied terms of the Option Agreement.[8]

Upon the proper construction of the Option Agreement:

(a) Clause 2.2.1(k) did not operate to prevent National Tiles including relevant terms and conditions via the Shareholders' Agreement that were not otherwise disclosed in the Offer Letter.[9]

(b) The term 'Shareholders' Agreement' in the definition section of the Option Agreement means a Shareholders' Agreement, in terms not inconsistent with the Plan or Offer Letter, approved by the Majority Shareholder at the time that it is entered into, which will include the provisions referred to in the said definition section, and any other not inconsistent terms approved by the Majority Shareholder at that time.[10]

(c) The term 'value', where it appears for the second time in sub-paragraph (b) of the Buyback Provision of the Option Agreement, means 'fair value'.[11]

(d) Fair value in the Buyback Provision:[12]

i. means what is just and equitable in the circumstances; and

ii. does not necessarily exclude minority or marketability discounts.

The term 'Valuer' in the PSA does not mean 'independent valuer' and the criterion of valuer independence is not otherwise imported into the PSA.[13]

The factual findings referred to in Part D below, including findings that:

(a) The Walker Shareholders' Agreement Resolution was not passed at the April 2020 Board Meeting.[14]

(b) The Morphet Shareholders' Agreement Resolution was not passed at the April 2020 Board Meeting.[15]

(c) The Approved April Minutes are false and misleading insofar as they record that the Walker Shareholders' Agreement Resolution was passed at the April 2020 Board Meeting.[16]

(d) The Approved May Minutes are false and misleading insofar as they confirm that the Approved April Minutes are a true and correct record of the April 2020 Board Meeting.[17]

(e) The Approved August Minutes are false and misleading insofar as they confirm or ratify that the Approved April Minutes are a true and correct record of the April 2020 Board Meeting.[18]

(f) The Approved April Minutes are not false and misleading by reason of their failure to record that the Morphet Shareholders' Agreement Resolution was passed at the April 2020 Board Meeting.[19]

(g) The Approved May and August Minutes are not false and misleading insofar as they failed to record, confirm or ratify that the Morphet Shareholders' Resolution was passed at the April 2020 Board Meeting.[20]

(h) The PSA Discussion Offer in the 19 June HSF Letter was an offer to engage in discussions with the plaintiff and Ms Morphet to explore whether any changes to the terms of the PSA could be agreed, which was not taken up by the plaintiff or Ms Morphet.[21]

Having regard to the proper construction of Clause 2.2.1(k), National Tiles did not breach Clause 2.2.1(k) of the Option Agreement by including clause 13.7 in the PSA.[22]

If National Tiles had breached Clause 2.2.1(k) by including clause 13.7 in the PSA, the plaintiff would have been entitled to an award of nominal damages only, which I would have fixed in the sum of $100.[23]

It was not established that Mr Selak was required to execute and commit to the PSA in the PSA Form only, as a condition of exercising his vested options.[24]

If it had been established that Mr Selak was required to execute and commit to the PSA in the PSA Form only, as condition of exercising his vested options, I would have concluded that this amounted to a breach of the Cooperation Terms for the reasons discussed in Part F.3.[25]

If I had concluded that the Cooperation Terms were breached in the manner referred to in Part F.3, for the reasons referred to in Part F.4.4, I would have concluded that the plaintiff had not established that the said breach of the Cooperation Terms caused the plaintiff the claimed loss of opportunity. Consequently, the plaintiff would have been entitled to an award of nominal damages only, which I would have fixed in the sum of $100.[26]

If I had concluded that the plaintiff had suffered the claimed loss of opportunity by reason of the Cooperation Terms breach referred to, for the reasons referred to in Part F.4.4.2, I would have assessed that loss at $333,282.[27] This amount is based upon:

(a) a loss of an opportunity of the plaintiff to have shares compulsorily acquired by National Tiles at fair value pursuant to the Buyback Provision, where fair value does not in the circumstances have minority or marketability discounts applied;

(b) an undiscounted Sellars value of $1,453,764;

(c) applying a Sellars discount of 50% ($726,882); and

(d) a further deduction of $393,600 to reflect the Exercise Price that would have been paid by Mr Selak to exercise his options but was not paid.

If I had concluded that the plaintiff's alleged loss for the alleged breach of the Cooperation Terms should have been calculated by reference to the market value of the shares alone (without any Sellars discount), I would have assessed the loss at $187,906.[28] This amount is based on a base value of $1,453,764, less (a) a 20% minority discount ($290,752.80); less (b) a 50% marketability discount ($581,505.60); and less (c) the Exercise Price ($393,600).

If I had concluded that the plaintiff had established that National Tiles had breached Clause 2.2.1(k) and the Cooperation Terms, for the reasons referred to in Part G I would have concluded that the plaintiff had not established that Frank Walker or FWG committed the tort of inducing breach of contract in respect of either of those breaches of the Option Agreement by National Tiles. It was not established that Frank Walker or FWG had the requisite knowledge or intent, or that they induced the breaches. It was also not established that the plaintiff had suffered loss and damage by reason of such alleged conduct in any event.[29]

Upon the proper construction of the Option Agreement, the limitation clause comprising clause 10.1.3 of the ESOP Terms would not have engaged if the plaintiff's claims had been made out. The clause does not operate in respect of loss caused by a breach of the Option Agreement, or loss caused by third parties to the Option Agreement wrongly inducing the parties to the Option Agreement to breach it.[30]

It is not necessary to address the issues of directors' liability for the tort of inducing breach of contract, aggravated damages, or exemplary damages.[31]

[174]

ESOP Close Out - Business Valuation Update

As discussed at the previous Board meeting, it had been requested that the Major Shareholder (Frank Walker) nominate a third-party independent valuer to conduct a valuation of the business to use as the base valuation of the ESOP vesting conditions. The Major Shareholder had now nominated PwC who had provided a proposal which had been circulated to the Board for consideration.

It was noted that before PwC would provide their valuation report, the following issues would need to be resolved:

• The current ESOP terms did not specify the action to be taken should a range be provided by the independent valuer rather than a specific point.

• All Non-Executive Directors were ESOP participants and therefore had disclosed their relevant interests in the decision.

• PwC would need to interview members of the Board and Management Team in order to ascertain a fair valuation however the Non-Executive Directors were conflicted.

PwC Business Valuation Engagement

NS and HE (PwC) joined the meeting at 11.15 am.

The Chair welcomed PwC to the meeting and invited them to provide an overview of the valuation process.

The Board queried whether usual practice for the valuation was to provide a range or a specific point and PwC confirmed that a specific point was only provided in certain circumstances i.e. the ESOP rules call for a specific point. It was noted that the Board would make a decision regarding this point and advise PwC of their decision in due course.

The Chair thanked PwC for their time, and they left the meeting at 12.10pm. The meeting was adjourned from 12.10 pm to 12.15pm.

After consideration, the Board RESOLVED that legal advice should be taken regarding the following points:

• Whether the valuation should be requested as a range or specific point and if a range is recommended, how that should be handled in terms of vesting;

• Whether the Non-Executive Directors should be allowed to liaise with PwC during the interview period given the relevant conflicts of interest;

• How the relevant conflicts of interests be handled if a decision is required in relation to the ESOP vesting; and

• The Dispute Resolution process should the first valuation be disputed by a majority of Option Holders.

It was agreed that MGMT/NEDs would provide a recommendation regarding the engagement of a legal firm to provide the above advice which would be circulated for a decision by the Board via Circular Resolution.

[207]

To my fellow board members,

By way of justifying only one example of the concerns that I have with the PWC report please consider the following;

1.For the last seven years since the current board and management structure has been in place the average EBITDA performance for National Tiles has been;

57.47% earnt in H1

42.53% earnt in H2

2.The FY 2020 budget signed off by the board in June 19 showed budgeted EBITDA of

$7.29 million to be earned in H1 2020, equals 57.25% and

$5.444 million to be earned in H2 equals 42.75%

This is very consistent with the prior seven years as per above and as such very credible.

3. H1 actual result was

$5.713 million i.e. 21.63% under budget

If H2 follows H1 at 21.63% under budget that will equal

$4.266 million

Total $9.979 million for the full FY 2020 year

PwC are saying the figure will be $7.809m for H2 being 44.33% over budget resulting in;

Total $13.512m being 35.4% over the above expected result

(Whilst not needing it, however with the benefit of hindsight, now being half way through H2,to make $13.512m for the year, we will need to make circa $2m a month in April, May and June, assuming Covid 19 never existed. This is a ludicrous assumption albeit not much more so than 3 months ago)

A)With the dollar at a ten year low ( refer CEO December 2019 report )

B) With the second-half forecast to face "a very challenging macro environment" ( refer CEO December board report )

C. with Simmonds new standard range tiles dropping from $18.95 to $9.80 , a 48% reduction, ready to start impacting margins in H2

D) with the order bank flat at $20 million i.e. the same as July 19

E)with overall margins trending downwards;

38.9% as at 30th of June 2019

38.6% as at 31st of December 2019

F) With bushfires raging out of control across the country expected to burn for months

G) with Sydney engulfed in smoke for weeks on end and Melbourne now experiencing the same;

It lacks all credibility to assume a forecast as at December 31st last year that EBITDA will grow to $7.809m,in H2 (refer PWC report)

being 43.44% over budget, when H1 was 21.63% below budget.

This is a 65.07% gap on H1!

I trust with this one of many examples in the PwC report you will now have some appreciation of my absolute lack of trust in their ability to provide a credible valuation figure.

Kind Regards Frank

[234]

Hello Sue,

Please forgive me. I have got my L plates on with this whole process.

I'm feeling very weighed down dealing with this matter whilst at the same time, at being ultimately responsible for the business and the impact it is having and will have on the welfare of all our staff and their families in the short, medium and long term. Not to mention the personal anxieties I'm having about my own family.

Naturally I also feel deeply concerned for the similar stresses all our board members are obviously faced with in these unprecedented worrying times.

Clearly this valuation process couldn't be happening at a worse time. However as a company we are so fortunate to have such a highly competent and committed CEO and executive team doing a magnificent job of running the business where every day of Covid 19 brings with it new challenges.

I have received board emails in recent days that have saddened me greatly. However I assure you I am doing my best, taking my comments above into consideration, when responding to them making allowances for the obvious pressures we,as individuals,are all experiencing.

I take your concerns on board about transparency. It is absolutely critical. However by way of explanation, in my last email I was trying to avoid more of the conflict which is now unfortunately dominating what is now proving to be a highly stressfull [sic] process.

I want to avoid at all costs any individual "blowing a fuse"over whether a particular question is appropriate or not where that is, I trust you agree, clearly a matter for the independent valuers to determine. They will, I have no doubt, disregard any inappropriate or irrelevant questions.

May I suggest that a good solution is that if everyone sends their questions unfettered to PwC directly and cc's Chris for him to then collate them before sending the complete list onto us all for viewing prior to PwC reporting back to us with their answers.

And yes, this may be another departure from what we agreed back in February, however the facts are while still new to this whole valuation process, I am far more informed on this subject than what I was back then. I therefore make no apologies for making and continuing to make changes that to my mind significantly improve the integrity of the process.

Kind Regards

Frank

[262]

When asked whether the agreement was by way of resolution or some other way, Ms Morphet said it was by way of discussion and, in turn, she felt resolution, but that they did not take a vote. When asked if there was any dissent in relation to the resolution or outcome of the discussion, Ms Morphet said it was only from Frank Walker, but said she had no view that there was any dissent to what was agreed.

Rebecca Weir was present. It was her role to take accurate minutes and share the minutes, first with the CEO and the CFO, then work through any adjustments with them, and then share them with the rest of the NT Board. She said there was no dispute in the minutes prepared by Ms Weir in the past, or in respect of any other minutes prepared by others.

The meeting was at the beginning of the Pandemic so it was held online. When it finished, it was agreed that Frank Walker would go away and get HSF to start drafting the Shareholders' Agreement. Ms Morphet said that, subsequent to the meeting that day, she received a telephone call from Frank Walker informing her that he had asked Mr Selak to resign as a director; and that he had offered Mr Larsen the role as chair, and tasked him with building a new board. Ms Morphet said she was also asked to resign.

Ms Morphet did not accept that, by reason of her status as a participant in the ESOP, there was a conflict in the meeting between her personal interest and her duties as chair of National Tiles, but ultimately conceded that the decisions made in the meeting could, to a greater or lesser extent, benefit her personally. She accepted that she did not take any steps to ensure that the chair of the meeting had no personal interest in the matters discussed, and acknowledged that it was only in relation to the ESOP program that she held a personal interest in previous meetings.

Ms Morphet was aware that a shareholders' agreement had to be drafted, and that it was to be a shareholders' agreement approved by the Majority Shareholder, FWG. She said that she assumed, if National Tiles resolved that it should have minority protections, then Frank Walker would agree with what was resolved. When pressed in cross-examination as to whether she was suggesting to the court that, at the meeting, Frank Walker had resolved for there to be minority shareholder protections, Ms Morphet responded: 'No. In that meeting Frank Walker did not resolve. He said, I will agree to disagree with you.'

That as a matter of process or practice, there was no vote at NT Board meetings until Frank Walker was comfortable. As to why Ms Morphet did not call for a vote, she said: 'Because everybody else in the room agreed that we should have minority protection and Frank was obviously the only one who didn't.'

As to Ms Morphet's evidence that she felt there had been a resolution, she explained that:[45]

[264]

Ms Morphet confirmed that her recollection was that Frank Walker said, 'he would agree to disagree'. When it was put to Ms Morphet that there was no resolution, she stated that 'we agreed'. She then said that, she did not agree with cross-examining counsel that there was no resolution. When asked whether she had said there was a resolution, Ms Morphet responded: 'It was agreed that we would have these and then Frank agreed to disagree.'

With respect to revisions suggested to the resolutions, when the draft minutes were circulated, Ms Morphet said she considered these matters just to be fine-tuning the words.

Ms Morphet was aware that, even if National Tiles resolved for there to be minority protections, Frank Walker might not have approved that for the purposes of the Shareholders' Agreement. She also acknowledged that, from her personal perspective, the resolution proposed was in her personal interest, adding that she was concerned that all ESOP holders not in the room needed to be represented in a fair and equitable manner, and that was why she was pushing for the resolution. As chair of the company, she considered it her job to ensure that all ESOP members not in the boardroom would be well represented in that agreement, and at the boardroom table.

Ms Morphet accepted 'of course' that it would be open to the board to reverse a resolution made in an earlier meeting.

In the context of Rhonda Walker's role at board meetings, Ms Morphet said that Rhonda Walker did not vote, and 'we always reached agreement and Frank Walker was always placated. Rhonda played a role in placating Frank Walker or telling him to be calm and we'd discuss it another day'.[46]

Rhonda Walker and Georgie Bell were present, but were not voting on the topics. The decision makers were said to be Frank Walker, Nick Walker, Mr Selak, Mr Larsen and Ms Morphet; and she said that Nick Walker, Mr Larsen, Mr Selak and herself agreed to the resolution.

When pressed as to what resolution Mr Selak had agreed to at the meeting, and whether it included the subsequent revisions that had been made, Ms Morphet said it was 'an extremely heated meeting and I don't know that it was exactly those words'. In re-examination, she agreed to the leading proposition that the substance of the two resolutions was agreed at the meeting by her, Nick Walker, Mr Selak and Mr Larsen.

[276]

When asked to accept that no vote was taken at the meeting, Mr Selak said that there was no formal vote but that the resolution was put, and because there was no objection therefore the resolution was passed. He said no one called for a vote and, as was customary, the resolution was passed without dissent. When pressed as to whether Mr Selak was suggesting that there was a vote that was not a formal vote, Mr Selak stated that he was suggesting that 'the process was consistent with all our previous practice'. Mr Selak then accepted that no vote was taken at the meeting, and added that 'consistent with previous practice, the meeting resolved to - um, the meeting passed those two resolutions'.

When asked whether he was suggesting that Frank Walker agreed to the minority shareholder protection resolutions, he said that Frank Walker stopped speaking out against it, once Mr Brown said that it was open to the board to pass the resolutions, and that the resolutions were consistent with the advice given to the board. When asked the question again, Mr Selak said that he was suggesting to the court that Frank Walker did not disagree with the resolutions. Mr Selak did not agree with cross-examining counsel that there was no resolution passed in respect of the minority shareholder protections.

During re-examination, Mr Selak addressed previous board practice and how a resolution would be put to the board in a meeting, pursuant to that practice. He said it happened in one of two ways. First, there would be discussion, and at the end of the discussion, the resolution would be put and Ms Morphet would say: 'Are we happy with the following?' Some would nod, some would say yes, some would not respond. Then she would say thank you, and then move on to the next agenda item. Second, the other way was that Ms Morphet would put the resolution first, then there would be a discussion, and then she would reconfirm the resolution after the discussion. There might be some changes to it or there might not be. Again she would say, 'Are we agreed about XYZ?' and some would say yes, and some would nod; and then she would say thank you, and then move on to the next item. Mr Selak said it was the second form that happened during the April 2020 Board Meeting. That is, at the end of the discussion, Ms Morphet put the formal resolutions and asked the question as to whether they were agreed, and no one disagreed.

That Mr Selak received and read the draft minutes, which he considered consistent with his understanding of the resolutions that had passed, and said that he approved the draft minutes. Mr Selak said he first became aware there was an issue with the minutes, when Frank Walker responded by email saying that they did not reflect his recollection.

[292]

Dear Directors,

John and I are writing to you in the hope that we can come to a fair agreement to close out the ESOP. We are the only ESOP participants with vested options, who have been asked to depart. Greg isn't part of this submission as he now has an ongoing role.

We joined the other ESOP participants at Frank's invitation as part of a massive collective effort to take National Tiles from good to great. (My words.) We have worked tirelessly to that end (as have all of the other participants) and National Tiles is a stunning success today. We believe that the Company and the Walker family have benefitted greatly from these endeavours and that we have earned our entitlements under the ESOP. What should now have been a time of great celebration, regrettably doesn't feel that way to John and me.

In the event that we got to April 2020 and Frank and Nick "were enjoying themselves and loving the Company such that they didn't want to sell it" the ESOP documents provided for the share value hurdle to be tested with an independent valuation and, to the extent that were the options in the money, the spirit of the ESOP agreement was that they would be paid out.

In all discussions up until the last ten days this was believed to be the case by Frank, the company and all ESOP holders. That was the deal we all signed up to and worked assiduously towards.

We believe that the spirit and the intent of the deal should now be honoured, especially in our case, as we don't have the option of continuing with the company. The ESOP documents provide the Board with great flexibility so that it can do the right thing by those who have done the right thing by the company.

Both John and I have 3.2m vested options with an intrinsic value of 35.3 cents each. That equates to $1,129,600 each or some $2.26m in total. Upon cancellation of our options and payment of that sum, the company will receive a tax deduction of some $678,000 resulting in a net cash outlay to the Company of some $1.58m.

To assist the company with its cash flow we propose that the $2.26m be paid to us in 12 equal monthly instalments of $188,267 ($93,133 per month to each of John and I) commencing July 2020 (or some other mutually agreed arrangement over FY2021). For National Tiles that equates to a net cash outlay after tax of $132,000 per month for 12 months. Further, this way, there is no need for a shareholder's agreement as there will not be any minority shareholders.

We hope that the above receives fair and favourable consideration by you as the new Board now given the responsibility to take National Tiles to the next level. We sincerely wish you every success.

Yours faithfully

Sue Morphet John Selak

[316]

The following documents were tabled:

a valuation report of the ordinary shares of the Company prepared by PricewaterhouseCoopers Securities Ltd (PwC Securities) dated 22 April 2020;

a list of options the Company has issued to certain non-executive directors and members of senior management of the Company under the Company Share Option Plan (Options);

a draft interim vesting determination letter for participants in the ESOP (Interim Vesting Determination Letter); and

a notice of determination relating to unvested options for certain non-executive directors.

It was noted that PwC Securities has completed its valuation of the Company's ordinary shares and has determined that each ordinary share has a value as at 31 December 2019 of $0.476 (PwCS Valuation).

It was further noted that final and binding vesting outcomes for the Options cannot be determined until it is known if a second valuation is required by the Optionholders and, in that circumstance, until that second valuation has been received. As such, for the purposes of the ESOP plan rules and the associated offer letters, it was proposed that the "Vesting Date" formally be deferred from 20 April 2020 until the Board satisfies itself (acting reasonably) that it is in a position to determine the final and binding vesting outcomes for the Options having regard to the PwCS Valuation or, where required, to the PwCS Valuation and the second valuation.

The Board considered the vesting conditions attaching to the Options. It was noted that all holders of Options had met their service vesting condition, their non-competition vesting condition and their dividend and rental payment vesting condition. Having regard to the PwCS Valuation, it was noted that for option holders with a $0.50 share hurdle value that 40% of their options had vested.

Frank Walker as representative of Frank Walker Group Pty Ltd formally requested that the Board adjust the share value hurdles for each participant and then retest the PwCS Valuation against the revised share value hurdle vesting conditions. The purpose of this adjustment is to take account of the ~$4.2 million of dividends paid in excess of the dividend targets set out in the dividend payment vesting conditions in the offer letters relating to the options. Following the retesting, it was noted that the following participants had met 80% of their Share Value Hurdles and the remainder had not:

[403]

The terms of the PSA were such that if he had entered it, it would be throwing good money after bad and resulted in the loss of some or all of the value of the money he had to pay, in order to exercise the options. This was said to be because of the valuation regime and an entitlement for Frank Walker to compulsorily acquire the shares at any time he liked, based on a valuation process where the valuer did not have to be independent and Frank Walker alone was to instruct the valuer, and the Valuer was also to have regard to the restrictions and provisions referred to in the PSA.

The reason he did not sign the agreement was that provisions of the agreement did not include minority protection provisions and were draconian. The terms were said to have given Frank Walker total control, and could have potentially resulted in an event of default allowing shares to be purchased back at the lower of the market value or the Exercise Price, which clearly contemplated that market value could be lower than the 12.3 cents to be paid to exercise the options.

Mr Selak was open to entering into a shareholders' agreement in late May 2020 and before 23 June 2020, but was not prepared to enter into the PSA because he felt it would have been throwing good money after bad.

Evidence given regarding various terms of the PSA that Mr Selak regarded as unacceptable. When giving this evidence, some emphasis was placed by Mr Selak upon the compulsory transfer regime, and reference was made to various other provisions.

There were a number of reasons why the terms of the PSA were draconian, and it was not just because it did not contain minority protections. It was said that, on balance, the whole document was draconian and, whilst the absence of minority protection provisions was an input, it was the total document taken as a whole. Mr Selak said he probably would not have executed a different shareholders' agreement, if it allowed for or included within it marketability discounts and/or minority discounts.

If the Shareholders' Agreement provided had been in a form substantially similar to the 2013 shareholders' agreement between Frank Walker and Nick Walker, Mr Selak would have executed an agreement substantially in that form and exercised his options. He said that he was open to entering into a shareholders' agreement before 23 June 2020, but was not prepared to enter into the PSA because it was throwing good money after bad.

Although Frank Walker had informed Mr Selak and Ms Morphet on 5 May 2020 that the company did not accept the Selak Cash Out Proposal, at that time, Mr Selak still 'perhaps' lived in hope that Frank Walker would change his mind, having seen him reverse his position from time to time. Mr Selak considered that he had an entitlement to be cashed out in an amount equal to the intrinsic value of the options at all relevant times up to and including 23 June 2020 and thereafter.

Mr Selak did not accept the proposition that he would not have exercised the options, even if there had been a shareholders' agreement acceptable to him. He disagreed with a proposition that he did not really want to be a shareholder in Frank Walker's business at the time; and stated that if it was the only way that he could preserve his entitlements under the ESOP, then he was open to doing that, provided appropriate guard rails were in place - although he acknowledged that being cashed out was his preference.

As to what the guard rails would be, Mr Selak said that essentially the 2013 shareholders' agreement would have been a good start, and he accepted in cross-examination that the 'guard rails' in the Shareholders' Agreement would have to include no minority discount and no marketability discount.

Because of the terms of the PSA, which Mr Selak considered could result in his shares being acquired in circumstances where some or all of the $400,000 Exercise Price would be lost, he decided that he would limit his loss to the value of his options, and not execute the PSA and exercise his options. Among other things, he said that the acquisition on default provisions allowed for his shares to be acquired at the lower of market value or the Exercise Price, which suggested that market value could be lower than the Exercise Price.

When asked in re-examination to explain the circumstances in which he would have exercised his options, Mr Selak said:[55]

[412]

Dear Frank,

I thought I would note my understanding of the conversations we have had since the 15 April concerning my ongoing arrangements with the Walker family and National Tiles. I am very appreciative of your continued confidence in me and your offer, in perpetuity, to Colleen and myself. Given my ongoing role, to be discussed below, I would like to have a common understanding as to what it means so that I have a basis for decisions I should make in relation to the ESOP and in relation to my other business activities.

The story started with our conversation that the easiest way to resolve the ESOP and valuation questions might be to just acknowledge the work of the 3 NEDS by some sort of ex gratia payment and forget the ESOP and valuation outcomes.

You advised that you had put this idea to Nick(Wormald) and he did not like it.

You then made to me a unexpected offer which I recall as being along the following lines;

"Rhonda and I have discussed this and we will always believe that Greg Larsen has been the major reason, in any number of ways, why we have had such business success over the last 10 years. Yes, it would have been successful, but the way that you have worked me and developed Nick to successfully succeed me, means much of the success is due to you. This has resulted in the outcomes that we now have.

Therefore irrespective, of the valuation and ESOP outcomes, we want to give you an annual retainer at the level of your current directors fees for the rest of your life, and, if you predecease Colleen, for the rest of her life. The only condition is that you will keep your current options (presumed at that point to be 4 million) and if/when we sell the company you will receive your share and, as there will no longer be a Company to pay the amount, the retainer will cease"[.]

I can assure you Frank that I was very appreciative, and even a little overwhelmed. I think I said "Are you sure you want to do this, and, is it something I can share with Colleen?"

My recollection is that you confirmed you and Rhonda have decided you want to do this and that I should tell Colleen - which I did.

My quandary at the time was whether I had a conflict with my fellow directors in relation to the valuation and the ESOP. Obviously if the valuation was out of the money there was no issue.

My decision to myself, was that my first responsibility (ethically and legally) was as a director of National Tiles and that I must act to get those matters resolved in the Company's best interests. I needed to proceed to arrive at a fair and equitable and legally indisputable outcome for my fellow directors and the other ESOP beneficiaries. This was especially so as they had no knowledge at that time of your separate undertaking to me. This is the approach that I took and would continue to do so until 30 April, when I assumed this "chapter" to be closed.

The valuation from PWC resulted in an outcome where the ESOP options vested at 80% which for me and the other 2 NEDS equalled 3.2 million options. The Exercise Period, as per the agreement, is a period commencing on the day following the Vesting Date and ending on 30 September 2030 or such other shorter period notified to you by the Board. Given that the NEDS were all leaving in April 2020, the date for the exercise of options was extended to 23 June 2020 - which is the timescale both John Selak and Sue Morphett are working to. Your conversation with me led me to believe that the 23/6/2020 time limitation does not apply to me as I would have a continuing role as with the company as an Advisory Director which I have relied upon and I do not intend to exercise any options at this time[.]

As of 1 May, I have deemed for myself to have commenced a new chapter on my journey with the Walker family.

We had a conversation last week and agreed that it would be sensible and practical for the Company for me to withdraw my resignation as director of National Tiles and to continue in that role for the foreseeable future and carry out the duties as Chairman of Directors. I agreed to do that.

Frank, I would appreciate your confirmation that the above record is in accordance with your understanding and therefore something that I can rely upon. If so, I will not be exercising my options in the immediate future and certainly not by 23 June 2020[.]

You also suggested that we do need to formalise a simple document to incorporate the ongoing retainer arrangement. I envisage an MOU type document that we both date and sign, for our own records. I will, as you suggest, take some legal advice as it will affect my family's future interests. I must add that I cannot foresee any circumstance that I or my family would ever legally debate this arrangement. However, I will rely upon it in managing our finances going forward -and it will be very well used and much appreciated.

Kind Regards

Greg Larsen

[417]

TERMS OF AGREEMENT

STATUTORY BOARD

NT continues to engage GL as a member of its Statutory Board. GL is currently chairman of the Board with a remuneration of $100,000 p.a.. This position may be terminated by either party at any time.

If GL ceases to hold a position on the Board, NT will be prepared to loan funds to GL, with interest to be charged at an agreed commercial rate. The funds provided will cover the following:

Sufficient funds ($393,600) to be used to exercise his share options.

Interest to be accrued annually and repaid at the time the loan is extinguished.

$100,000 p.a. - being GLs former remuneration package.

Any dividends payable by NT to GL on the shares will be first used to offset against any outstanding loan amounts at items i. to iii. above.

The loan from NT to GL is to be repaid from the proceeds of any subsequent sale of shares or pay-out of share options, with no further loans to be offered post sale. If the amounts to be repaid exceeds the value of the shares or share options, any balance owing by GL or his estate will be forgiven.

SHARE OPTION TERMS

Under the rules of the ESOP, certain restrictions exist around the participant's ability to retain and exercise options, which may be altered for individuals by the NT Board (The Board). These restrictions are to be altered by The Board for GL with the following changes:

Removal of the condition that the participant must be engaged by NT.

Removing the expiry date of the options. It is intended that the Options will be available for life for GL. Upon GL's death, no further loans will be provided however NT will buy back any unexercised share options, and if required any shares. Both shares and share options are to be valued on a minority holding basis, with the exercise price of any share options to be deducted where applicable. If the value cannot be agreed between the parties, an independent valuation will be conducted.

For clarity, NT will continue to retain the right to buy back the Share Options at any time.

In signing the below, all parties agree to the terms within this memorandum being the intention of the parties.

...

[423]

Dear Mr Walker

Restitution

We act for Ms Sue Morphet and Mr John Selak, former directors of National Tiles Co Pty Ltd (National Tiles).

You personally have derived substantial benefits from the efforts of our clients over a number of years.

We understand that you are now seeking to resile from the representations you have made to our clients over the course of those years, and on which our clients relied. This will result in significant loss to our clients. That loss has been valued by the recently completed valuation process at $1,129,600 each.

If these amounts, that you represented and promised through your course of action over a number of years would be paid to them in cash, are not paid, our clients intend to commence legal action to recover damages in this amount.

1. Background

1.1 As you know, Mr Selak and Ms Morphet became involved with the affairs of National Tiles at your request and urging in 2012 and 2013 respectively. They have, until recently, each acted as a director of National Tiles since 2015 (prior to that each participating on your advisory board).

1.2 Your stated intent has always been to draw on their experience and expertise to achieve your ambitions for your business and personal success. By way of illustration, this was articulated in the "National Tiles Vision" that was set out in your "One Bus - One Journey" document. Your promise was, until very recently and expressed many times and in many forms, for our clients to "get on the bus" and help you achieve your vision, and that if successful, they would share in those benefits.

1.3 And our clients did over many years contribute to the success of National Tiles, and consequently, you personally. As stated in your email of 22 July 2019. "the company and family have been more successful, in financial terms, than we could have ever previously envisaged". In particular, you noted (in that email) that:

(a) your "business value has grown from circa $10m to circa $100m"; and

(b) your "family's wealth, excluding the business, has grown from circa $5m to $100m including commercial and residential property investments with negative gearing shortfalls partly funded by company dividends and commercial leases".

1.4 Measures instituted with the assistance of our clients that contributed to this enormous success included:

(a) the elimination of Div7A loans along with the associated "bad interest";

(b) converting $10m of your personal debt to debt of National Tiles which converted it from "bad interest" to "good interest" ("Gen 2"); and

(c) the preservation of the pre-September 1985 CGT status of the shares held by your family trust in National Tiles despite a previous restructuring by trading off a capital loss that had arisen through Gen 2 and having the ATO confirm the pre CGT status of your National Tiles shareholding. This alone is worth to you 25% of whatever proceeds you may ultimately receive upon a sale of National Tiles.

1.5 In addition to all of this, the efforts and input required by you of our clients during this whole period went over and above what would normally be expected of a non-executive director in that position. In addition, the directors' fees that were agreed between you and our clients were well below market throughout the period of engagement. This was acceptable to our clients given the representations and promises you had made to them of a "pay day" at the end of their terms. You positively encouraged their continued reliance on these representations and promises to maintain their dedication and efforts (including in late 2015 when Ms Morphet indicated her desire to resign).

1.6 As you well know, they were heavily involved in the day to day operations of your business. They rolled their sleeves up and focussed on overhauling your stores, warehouses, staff engagement, occupational health and safety management, internal reporting systems, supply chain and logistics systems, strategic planning, budgeting process and IT systems. Our clients organised workshop-based projects developing strategy and cost reduction programs and, in your words "orchestrated our 5 year strategy plan". Our clients embarked on nationwide store visits and drove the strategic development of the incredibly successful Project Chemist. Without a doubt, they went "over and above".

1.7 Indeed, you even stepped back to allow them to do this work, and commented. ".. nothing will give me greater joy than to look back in years to come and discover that whilst I was in charge we "never got out of first gear" and only since I stepped aside has the business become the great success that I have always dreamed it would one day become".

1.8 Acknowledging the significant contribution of our clients, you also stated in your proposed email to Oppeus on or around 13 November 2019 that "The NEDs collective contribution has been invaluable ..." (emphasis added)

1.9 You have consistently represented to our clients over the course of their involvement in National Tiles (including when inducing them to become involved in National Tiles) that they would share in the benefits accruing to you from their efforts, and this was reflected in the terms of the National Tiles' Share Option Plan (the "Plan"), which was extended not only to our clients, but other directors and executives of National Tiles. That Plan provided for a valuation process as at 31 December 2019 if no Liquidity Event (as defined in the Plan) had occurred by that date to assess the value our clients would be entitled to for their contribution to your success, if that success met certain benchmarks (which it was assessed it had).

1.10 That valuation has occurred and determined a valuation of $0.476 per share, and which in accordance to the terms of the Plan resulted in 3,200,000 options vesting for each of our clients. With an exercise price of $0.123 per option, that resulted in a valuation of our clients' efforts in assisting with the substantial benefits accrued to you and your family of $1,129,600 each (or $2,259,200 in total). This is the consideration due to our clients for their sustained contributions over many years to you and your family. This valuation process quantifies the damages that will be claimed by our clients now that you have denied them the value you represented they would receive.

1.11 At all times, including in the lead up to the establishment of the Plan, and throughout the period since (up to, coincidentally, mid-April 2020) you represented that this value would be paid in cash. Discussions were framed on this basis, and various email exchanges record "cash equivalent" in discussions about the operation of the Plan. When summaries of equity plan participations were discussed and circulated, they were always expressed in terms of the monetary amount the participant would receive - for example, refer to your email of 2 May 2019 to our clients and others, or the minutes of the "Family Board Meeting" on 4 April 2016. We understand our clients even had discussions with you in respect of potential sources of funding for payment of these cash amounts (such as sale of the Mitcham property).

1.12 Further, specific terms were included in the Plan to facilitate the payment of such cash amounts.

1.13 It is now apparent, with your recent correspondence, that you do not intend to honour your commitments, and that this will result in you being unjustly enriched to the significant detriment of our clients.

1.14 This enrichment to our clients' detriment is further compounded by your delivery of a Shareholders Agreement containing terms so unreasonable and such a marked departure from what may be typically expected in a shareholders agreement that, even in the absence of your misrepresentations that you would provide the agreed value of our clients' contributions by way of cash payment, you would not be providing to our clients what you said you would. In particular, the Shareholders Agreement:

(a) provides no anti-dilution protection from the issuance of shares to a third party;

(b) does not allow our clients to create security interest over its shares without your consent, thereby limiting their ability to finance their acquisition;

(c) provides a process for disposal by our clients of their shares:

(i) which extends for an such an unreasonably long period of time to render it completely impractical for our clients to effect any disposal of its shares; and

(ii) provides an effective veto to you over any third party they wish to sell to;

(d) allows you to funnel personal expenses into the company of which our clients would then be shareholders;

(e) does not address the current related party benefits that are provided to you (via your superannuation fund) other than on arms' length terms;

(f) provides our clients with no rights to information on National Tiles;

(g) allows you to remove our clients at any time chosen by you (even when you are not exiting) and for a valuation determined by a valuer (which does not need to be independent) where you would have total control over the instructions to (and hence the methodology of) and the information used by the valuer to conduct that valuation (and which must take into account the minority shareholder status of our clients and the very limited rights and punitive obligations our clients would have under the Shareholders Agreement);

(h) seeks to restrain not only our clients, but also their family and others;

(i) allows amendment of the Shareholders Agreement in a way that would diminish the rights of one of our clients without their consent; and

(j) does not comply with the requirements under the Plan. Namely:

(i) it imposes restrictions on transfer of the shares beyond the scope of those prescribed by the Terms ; and

(ii) the provisions of the Shareholders Agreement do not conform to the Permitted Transfer Regime set out in the offer of options to our clients, including by prescribing certain aspects of the valuation process, allowing withdrawal of a notice of exercise of a Call Option (thereby allowing you a last right of withdrawal if you do not like the resultant valuation) and by prescribing oppressive time periods rendering any process to dispose of shares to a third party practically ineffective.

1.15 It is clear that the terms of the Shareholders Agreement are manifestly oppressive by excessively and unreasonably limiting our clients' rights as shareholders. For example, the terms would operate to allow you to compulsorily remove them as shareholders at any time at your complete discretion and at a value which has to take into account their punitive obligations and paltry rights under the Shareholders Agreement - thereby denying them the value you had represented they would receive. There is little doubt that if you were to call to remove our clients as shareholders immediately after they exercised their options and became shareholders, they would not only not receive the benefits you had promised them, they would likely actually have sustained a loss for contributing to your success. They would be swindled.

1.16 On the basis of your failure to honour the representations you have continually made to them over many years that they would receive the agreed value for their contribution to your success by way of cash payment, and the unjust enrichment that flows to you as a result, our clients are left with no choice but to seek restitution by recovering damages from you.

Demand for payment

2.1 You have been significantly enriched through the contributions of our clients over many years, and stand to be further enriched by not honouring your representations to them that they would receive value for that contribution, independently assessed in the amount of $2,259,200.

2.2 This enrichment is clearly unjust. Your failure to pay our clients the assessed value of their contribution as represented by you (reinforced by the objectionable and oppressive Shareholders Agreement provided to them) represents a total failure of the consideration that you agreed they would receive for the contribution they made to what you have acknowledged as a level of success of your company and you and your family beyond what you, "could have ever previously envisaged".

2.3 Your enrichment has also resulted from your own wrongdoings. You have recently embarked on a dedicated and deliberate course of actions designed to enrich yourself to the detriment of our clients. To this end we note:

(a) your continual interference in the valuation process, including threatening legal action to prevent it from proceeding;

(b) your appointment to the board of National Tiles several family members;

(c) your removal of our clients from the Board;

(d) your delivery of a Shareholders Agreement clearly contrary to the resolution of the Board passed at its meeting on 23 April 2020 that the Shareholders Agreement be prepared on terms that contain market standard minority protections; and

(e) your amendment of draft minutes of that meeting, which had been previously approved by all persons in attendance (other than you) to delete the reference to market standard minority protections referenced above (and which subsequently approved by the Board would not reflect an accurate record of that Board meeting).

2.4 Your unjust enrichment has clearly been at the direct expense of our clients.

Accordingly, we demand that you confirm within 7 days that you will honour the representations and promises made to our clients, and pay to them $1,129,600 each.

If this matter is not resolved within 7 days, our clients intend to initiate proceedings for recovery of these damages for your misrepresentations and unjust enrichment, at which time this dispute will become public.

Yours sincerely

Gilbert + Tobin

[425]

Dear Craig and Janet

Your 9 June letter to Frank Walker

We have been instructed in relation to your 9 June 2020 letter to Frank Walker and asked to respond.

As an initial comment there are many aspects of your letter that are vague and imprecise, and not supported by anything other than assertions and propositions. Whilst we could embark upon a process of asking you to justify many of these vague allegations, we have been asked to respond as best we can, notwithstanding these difficulties.

The first point is that as directors of National Tiles Co Pty Ltd Sue Morphet and John Selak were obligated to apply their expertise to the best of their ability and for the benefit of National Tiles and its shareholder. Mr Walker accepts that they made significant contributions to the success of the business of National Tiles in their service as directors. They were of course remunerated for their service. Mr Walker does not accept that the fees paid to them were well below market, or that their efforts went "over and above" what could be expected from them as non-executive directors.

Second, the board of National Tiles, including your clients, decided to implement a share option plan. The Plan gave your clients, together with other senior executives, the opportunity to share in any increase in the value of National Tiles. Aside from being paid directors fees, the Plan was the mechanism by which your clients might be rewarded for their efforts. Your clients agreed to this, including the terms of the Plan.

Third, your clients were each closely involved in devising the terms of the Plan. They were members of the Board which unanimously adopted the terms of the Plan and accepted without question or reservation the option offers made to them under the Plan.

Fourth, your letter provides no detail of the representations said to have been made. The reference to a course of conduct over a number of years is a good example of the vagueness of the assertion.

Fifth, as to the so called entitlement to be cashed out, your clients will be well aware (they having been principal architects of the terms of the Plan) that the terms of the Plan provide that cash cancellation of vested options is a Board discretion. Tellingly, and again as your clients know, in the development of the terms of the Plan it was contemplated at one point that option holders have a right to put their securities to the company. Ultimately, terms to this effect were not included in the final version of the Plan. We note again that these final terms were unanimously approved by the board, including your clients.

As you will appreciate, these circumstances make very difficult to comprehend that if the representations alleged were made (which is not accepted), that your clients would have relied upon them. They will have to explain why they say that they relied upon something that they knew not to be the way in which the Plan operates.

Next, it is telling that Mr Selak did not make any reference to the alleged representations in his 23 April 2020 'ESOP Close Out' proposal. By this proposal Mr Selak invited National Tiles to assist the option holders by cancelling 25% of their options for cash, which cash the option holders could then apply to fund the exercise price for the remainder of their options. (This of course also reveals that Mr Selak was aware of the way in which the Plan operated, as his proposal reflects its terms. The request that the company assist is consistent with the discretionary nature of this aspect).

As to this discretionary element, Mr Walker described in his 8 May 2020 email to your clients the severe impacts of the Covid-19 pandemic on National Tiles, and how given that situation it was inappropriate for the company to fund the cancellation of some options to enable the exercise of other options. Mr Walker accepts that he said that the exercise of options by your clients would be a welcome injection of funds for the company. This remains Mr Walker's attitude. What he had in mind of course was that the exercise of options would not be funded by the company.

As to the issue of the Shareholders Agreement, Mr Walker disagrees with the complaints you make about the terms of it. The Shareholders Agreement reflects the terms of the Plan and the option offers made pursuant to the Plan. Some of the provisions to which your clients now seem to take particular exception (eg the ability to call for shares at agreed value or, failing agreement, a value determined by a valuer; the approval right (acting reasonably) over disposals of shares by your clients to outsiders and the noncompete) are specifically called for in the Plan rules and offer terms, which your clients were instrumental in designing, approved and signed up to. For them to now complain about them seems difficult to reconcile.

As you would know, the way in which these issues and other matters are treated in the Shareholders Agreement is consistent with the way in which these issues are commonly dealt with in shareholders' agreements in similar circumstances.

Your comments about the Shareholders Agreement could be read to imply that certain terms of the Shareholders Agreement might be a barrier to your clients deciding to exercise their options, though you have not identified the changes that your clients might seek. This makes it difficult for us to understand how your clients' concerns might be addressed. If it were to assist your clients to decide to exercise their options (and therefore for the company to receive the funds that would flow to it from this - as indicated above, a welcome event in the current circumstances), without in any way conceding that the current terms of the Shareholders Agreement are unfair or require amendment, Mr Walker would support a scenario whereby your clients exercise their options before they lapse on 23 June 2020, and then there is a discussion about the terms of the Shareholders Agreement for up to 14 days after that to explore whether any changes can be agreed. If at the end of that 14 day period your clients are not prepared to accept the terms on offer, the shares issued to your clients upon them exercising their options would be cancelled and the full amount of the option exercise price refunded. In the 14 day period the monies paid by them in exercising their options could be held in the account of suitable third party to be agreed.

As to what you say is the value of the shares to which they would become entitled if they exercise their options, the rights available to your clients in respect of any vested options are in accordance with the terms of the Plan. They are to pay the agreed exercise price for vested options and to become shareholders in National Tiles on the terms of the Shareholders Agreement. As you and your clients would be very well aware, options under the Plan vest based on the valuation of National Tiles as at 31 December 2019, but this vesting valuation has nothing to do with the value of those options (or shares issued on exercise of the options) after that date, or upon the price at which they might be cancelled or sold.

Obviously, and again as pointed out in Mr Walker's 8 May 2020 response to your clients, the value of National Tiles had been impacted severely by the Covid-19 pandemic. This unfortunate severe reduction in value had nothing to do with any action by Mr Walker or by the company. However, the impact of the pandemic does mean that if your clients' request to have their options cancelled for cash was to be acceded to by the Board, the value which they would receive for those options in accordance with the terms of the Plan would be very significantly less than the amount of loss you assert in your letter. Paragraph 1.15 of your letter acknowledges this. For your clients to each claim $1,129,000 in these circumstances is a calculated overreach that seems to deliberately ignore the terms of the Plan and also the reality of the current financial circumstances of the company.

What your letter also exposes is that your clients have on a number of occasions put their own interests as holders of options ahead of their duties as directors of National Tiles.

A recent example is the debate about the Shareholders Agreement containing "market standard minority shareholder protections", which your clients claim to have been resolved by the board of National Tiles at its 23 April 2020 meeting. Your clients attended this meeting with pre-prepared resolutions to this effect, and argued for them vociferously, apparently having no regard to the fact that such a resolution would have the effect of changing the terms of the Plan and no thought as to whether such a change to the Plan was in the best interests of National Tiles. It now seems clear that your clients were intent on pressing for these amendments only because of their conflicted positions as both directors and option holders. This breach of duty was compounded and confirmed by your clients after the Board meeting by pressing to include the supposed resolution in the minutes of meeting, despite it being contrary to an extended and vigorous debate at the board meeting.

Mr Walker is extremely disappointed that your clients are making baseless claims, which are inconsistent with the terms of the option plan that they designed and signed up to. In the event that your clients press the claims as set out in your letter, it will unfortunately compel Mr Walker to raise all of these matters in detail.

Finally, if your clients commence litigation as you threaten at the end of your letter, this will inevitably result in very expensive and protracted litigation for all parties. In the event that the claim fails (as we say that it would), Mr Walker will seek orders that your clients pay his assessed or taxed legal costs, which will be very significant. In that eventuality, we reserve the right to produce and rely upon this letter in support of an application for a special costs order, on the basis that the claims and assertions are and have always been lacking in merit, and that any legal proceedings commenced ought never to have been filed.

Yours sincerely

Andrew Clyne Peter Holloway

[427]

That he did not believe the offer was made in good faith. His view was that once Frank Walker had decided you were of no further use to him, he did not compromise or negotiate but doubled down. He said engaging with Frank Walker would have been a waste of time, money and energy.

Mr Selak did not believe the offer to negotiate had been made in good faith.

The 9 June GT Letter identified a number of the issues with the PSA that he and Ms Morphet were concerned about, although Mr Selak accepted that the 9 June GT Letter did not seek to set out any changes. In this context, Mr Selak said that he did not believe the offer to negotiate was made in good faith; and that his view, after discussing it with Ms Morphet and the lawyers, was that it would have been a waste of time, money and energy to engage with Frank Walker on the matter. He added that highlighting areas of concern in the letter 'obviously implies that they were the areas we would like to have had changed'.

Mr Selak did not consider the negotiation proposal to be a fair proposal. He did not see why, if there were to be negotiations in good faith, it was necessary for options to be exercised in advance and money refunded, as opposed to simply negotiating in good faith by extending the time for exercise of the options. Mr Selak saw that as an indication to him that Frank Walker was putting every barrier in the way to make sure that he (Mr Selak) and Ms Morphet did not negotiate. Mr Selak considered that to have sought to negotiate would have been an exercise in futility, because Frank Walker would not compromise, and a waste of time, money and emotional energy. In so doing, Mr Selak also acknowledged in cross-examination that he agreed there were no constraints placed on the negotiation, and that it was an open invitation to negotiate. The fact that the offer was made through HSF did not provide Mr Selak with any comfort because, although he regarded HSF as good lawyers, he saw HSF as the 'wrong lawyers' for Frank Walker because, in his view, they simply executed what Frank Walker said and were not a voice of reason for him.

[440]

Greg,

When I spoke with you a couple of weeks ago I told you in confidence, that a couple of people that are very close to Sue had unexpectedly experienced severe health issues and, as a consequence, Sue would much rather spend her time and emotional energy on them than on Frank. I told you that as a consequence, Charles and myself were taking carriage of this matter and, in light of that, your email to Sue on 10 August is disappointing to say the least. You should have sent your self serving, bully boy email to me.

Further, we strongly disagree with your below comments; in particular:

"It is perhaps unsurprising that there are differing recollections about that part of the meeting given how spirited the discussion became at times and the personal interests of some participants in the subject matter of the debate"

We beg to differ. Consistent with all of the meetings that Sue chairs, this meeting was conducted in a calm and professional manner, including "that part of the meeting." Clear records of what occurred exist so you and Frank won't be able to use that as an excuse to seek to justify your subsequent conduct.

To be clear, the wishes of the majority shareholder (Frank) should not be confused with what's in the best interests of the Company. As Directors, our duty is to act in the best interests of the Company.

The ESOP rules provide the Board with significant discretion throughout the close-out process. Why would it not be in the Company's best interests for the Shareholders' Agreement to contain standard market minority shareholder protection provisions for the Company's ESOP participants? This is especially so for the three executives with vested options, particularly in light of what we had seen from Frank over the previous 3 months. I refer you to Sue's email to Frank on 4 April 2020, wherein she said;

"The whole Board (not just the 3 independent NEDs), has a higher duty of care to the executive ESOP participants because they aren't sitting around the boardroom table when these critical decisions are being made. They trust that the whole Board will do the right thing by them and by the company. Allowing anyone to change the rules now would be a breach of that trust."

In respect of the minutes:

* On 1 May 2020, you replied to Rebecca's email approving the minutes which rightly contained the minority shareholder protection provisions

* You then cut a deal with Frank

* At the Board meeting held in May 2020, as Chairman, you signed a subsequent version of the minutes of the 23 April 2020 meeting as being "true and correct" even though they fundamentally varied from the draft minutes you had approved on 1 May 2020.

You would have to admit that the aesthetics of this aren't good.

Further, which of the directors at the 23 April 2020 meeting, said the following?

"It was further noted that the shareholders' agreement entered into in 2013 in relation to the Company had terminated in accordance with its terms given Frank Walker Group Pty Ltd had since that time become the sole shareholder of the Company. Accordingly, it was proposed that the Company have another shareholders' agreement prepared that is appropriate in the circumstances of the Company."

That's the problem when you lose your objectivity and allow Frank's lawyers to rewrite history.

Greg, once you and Frank have been served and the Statement of Claim is lodged with the Court, this matter will effectively be in the public domain. Naturally, both you and Frank will have the opportunity to defend your conduct both before the Court and in the court of public opinion. I hope for your sake, that the deal you cut with Frank, was worth it.

Regards,

John.

[457]

Wednesday 20th April 2016

Dear John,

NATIONAL TILES CO PTY LTD

INVITATION TO PARTICIPATE IN THE NATIONAL TILES SHARE OPTION PLAN - FY16 OFFER

On behalf of the Board of National Tiles Co Pty Ltd (National Tiles or Company), I am pleased to invite you to participate in the National Tiles Co Pty Ltd Share Option Plan (Plan) on the terms of the offer in this letter (FY16 Offer).

The FY16 Offer is made to selected employees who the Board considers critical to the ongoing success of National Tiles. The grant of Options is offered to you as a performance incentive and provides you with an opportunity to share in the long-term growth of National Tiles and further aligns your interests with the interests of the Company.

The FY16 Offer is made to you on the basis of your acknowledgement and agreement to certain conditions which apply to your participation, as set out in this F16 Offer letter, the Application Form and Plan.

Grant of Options

You are invited to purchase 4,000,000 Options with a price hurdle of 50 cents per Option under the FY16 Offer, on a voluntary basis. Options will be subject to Vesting Conditions, as set out in the attached Section A below.

The purchase price payable upon Grant of Options will be set at 0.3444 cents per Option, equal to the market value (for tax purposes) of an Option at the date of this letter.

The Exercise Price payable will be set at 12.3 cents per Option, which is approximately a 12% premium to the Company Share price at the date of this letter being 11.0 cents.

Terms of Options

Options granted under the FY16 Offer will only Vest upon satisfaction of the Conditions over the Vesting Period (see Section A, "How do my Options Vest?" below for further details). Upon the valid exercise of an Option and payment of the Exercise Price, you will be allocated one ordinary share in the Company (Share) for each Option that is exercised (unless the Board determines another treatment in relation to the exercise of your Options). Shares acquired upon exercise of Options will be subject to Trading Restrictions, as set out below.

Your participation in the FY16 Offer is governed by the terms and conditions set out in this Offer Letter and the rules of the Plan (Plan Rules), a copy of which is sent to you with this letter. Capitalised terms used, but not defined in this Offer Letter have the meaning set out in the Plan Rules. In the event of conflict between the terms and conditions in this Offer Letter and the Plan Rules, the terms and conditions in this Offer Letter prevail.

It is important that you read this Offer Letter carefully, including:

Section A- The key terms and conditions of the FY16 Offer

Section B- A tax summary of the implications of participating in the FY16 Offer

Section C -Application Form

Section D - Notice of Exercise

Key dates and terms

The key dates and terms in relation to the FY16 Offer are:

[471]

IMPORTANT NOTE

You should read this Offer Letter and enclosed documentation carefully and retain them in a safe place for future reference.

Please note any advice given by the Company in relation to the Options or Shares you may be eligible to receive under the Plan, including this Offer Letter, the Plan Rules, and other relevant documentation contains general advice only and does not take into account your objectives, financial situation and needs. This Offer Letter does not constitute investment advice, and the Company makes no recommendation about whether you should participate in the FY16 Offer.

It is also strongly recommended that you obtain independent advice from a suitably qualified and licensed financial, taxation or other professional adviser regarding your participation in the Plan based on your own personal circumstances.

As with any investment, there may be risks involved in receiving a grant of Options and acquiring Shares upon the Vesting and exercise of Options. To the extent you are eligible to receive Options or Shares, factors such as performance of the Company, the performance of the economy and general financial market conditions may impact:

the market value of the Shares (which may fluctuate and fall depending on those factors)-this will impact the value of the Shares you receive upon Vesting and exercise of your Options, the value of the Shares that you continue to hold following Vesting and exercise, and the value you ultimately receive when you sell or transfer your Shares; and

if the Vesting Condition is met and your Options Vest, you will have to pay the Exercise Price within the exercise period to exercise the Options and be allocated Shares. Ordinarily, payment of the Exercise Price will be a personal liability you owe to the Company, immediately due at the time you decide to exercise your Vested Options; and

if you do not exercise your Options within the exercise period, any Vested Options will lapse and you will no longer have the right to exercise your Options and be allocated Shares.

In addition. if the earnings of the Company fall or the Company makes a loss, dividends payable in respect of your Shares (allocated upon Vesting and exercise) may not occur as expected.

[522]

Call Option Notice a notice given under clause 13.6(a)

Confidential Information any information regarding:

1. the Business;

2. the assets, affairs or business of the Company Group;

3. this deed or the transactions contemplated by it; or

4. the Shareholders

Event of Default an Event of Default occurs in relation to a party (defaulting party), whether or not it is within the control of that party, if:

1 (breach):

• the defaulting party breaches clause 7.1, 12, 16, 17 or 18 of this deed;

• the Company or the Majority Shareholder gives written notice of the breach to the Shareholder in default and to the Company; and

• the defaulting party does not remedy the breach within 5 Business Days after the date of the notice;

2 (Insolvency Event): an Insolvency Event occurs in relation to the defaulting party;

3 (receiver): a receiver, receiver and manager, official manager, trustee, administrator, other controller (as defined in the Corporations Act) or similar officer is appointed to or over the assets or undertaking of the defaulting party;

4 (arrangements): the defaulting party enters into or resolves to enter into any arrangement, composition or compromise with, or assignment for the benefit of, its creditors or any class of them;

5 (creation of Security Interest): in breach of the obligations under clause 7.2(a) the defaulting party is a Shareholder who creates a Security Interest over a Share, unless with the prior written consent of the Majority Shareholder;

6 (assignment): the defaulting party makes or purports to make an assignment in breach of clause 19.9(a); or

7 (change in control): the defaulting party is a Shareholder (other than the Majority Shareholder) which is a body corporate and

• a person and any related party or associate of that person who did not control or beneficially own the majority of the ordinary shares or other voting, income or capital participation rights in that Shareholder gains such control or beneficial ownership or gains the power to direct or exert practical influence over the management or policies of the Shareholder or control the membership of the board of the Shareholder; or

• a person and any related party or associate of that person who between them control or beneficially own the majority of the ordinary shares or other voting, income or capital participation rights in that Shareholder ceases to have majority economic ownership of the Shareholder or ceases to either directly or indirectly:

have the power to direct or exert practical influence over the management or policies of the Shareholder; or

control the membership of the board of the Shareholder.

Majority Shareholder 1. FWFT while it holds more than 50% of the ordinary Shares (including its successor and any replacement trustee of the Frank Walker Family Trust); and

2. while FWFT holds 50% or less of the ordinary Shares, FWFT and any other Shareholder or Shareholders nominated by FWFT from time to time by written notice to the Company (and for the avoidance of doubt FWFT may rescind any such nomination of a Shareholder by written notice to the Company);

3. if FWFT does not hold ordinary Shares, a Shareholder or group of Shareholders that holds more than 50% of the ordinary Shares.

Market Value in relation to a Transfer Share, Buyback Share or Sale Share, means the value of that Share agreed or determined in accordance with clause 13.6.

Matrimonial Proceedings any proceedings instituted as a matrimonial cause (as defined in the Family Law Act 1975 (Cth)) in a court of law, including any incidental proceedings, and includes any substantially similar type of proceedings instituted in any other jurisdiction.

Potential Event of Default any thing which would become an Event of Default on the giving of notice (whether or not notice is actually given), the expiry of time, the satisfaction or non-satisfaction of any condition or combination of the above.

Share an issued share of any class in the capital of the Company.

Share Option Plan the Company's share option plan adopted by the Board on 7 April 2016 and in force from time to time.

Shareholder a shareholder of the Company from time to time.

Share Price has the meaning given in clause 13.5(a) or 13.6(c) (as the case requires).

Transferring Shareholder has the meaning given in clause 13.4(a), 13.4(b) or 13.6(b) (as the case requires).

Trigger Event in relation to a Shareholder (other than the Majority Shareholder):

1 an Event of Default has occurred in relation to the Shareholder;

2 the Shareholder is prohibited from being a shareholder in the Company by a change in any law; or

3 Matrimonial Proceedings are instituted in relation to the Shareholder or any of its officers, members or, in the case of a Shareholders that has a Relevant Trust, any of its beneficiaries which in the reasonable opinion of the Majority Shareholder may result in an order that the Shareholder transfer or otherwise Dispose of its Shares.

Valuer a suitably qualified valuer nominated by the Majority Shareholder including Deloitte, Ernst & Young, KPMG, PwC and Pitcher Partners but excluding the Auditor.

[538]

(a) If the Majority Shareholder and the Board each determine that some or all of the Securities held by a Shareholder (other than the Majority Shareholder) are to be bought back by the Company, the Company must notify the relevant Shareholder in writing of the proposed buy back (Call Option Notice) and the Company must proceed with the buy back of those Securities (the Sale Shares) subject to and in accordance with the provisions of the Corporations Act and the terms of sale set out in this clause 13.6. For the avoidance of doubt (and without limitation) the service of a Call Option Notice is entirely at the discretion of the Majority Shareholder and the Board and a Call Option Notice may be served on any Shareholder (other than the Majority Shareholder) at any time and in respect of any number of Shares.

(b) If a Call Option Notice is given, then without limiting clause 14, each Shareholder must do all things required to give effect to the buy-back, including all things required under the Corporations Act to approve or otherwise give effect to the buy-back (and for the purpose of clauses 13.7, 13.8 and 13.9, that Shareholder is the Transferring Shareholder and the Company is the Transferee) and if the recipient of the Call Option Notice serves or has served a Liquidity Notice, Offer Notice or Notice of Sale then notwithstanding any other provision of this agreement such Liquidity Notice, Offer Notice or Notice of Sale lapses.

(c) The price for each Sale Share (the Share Price) shall be Market Value.

(d) The Sale Shares must be sold together with all rights attaching to them and free from all Security Interests.

(e) Subject to clause 13.6(f), completion of the buyback of the Sale Shares must occur on such date as the Board may determine.

(f) The Majority Shareholder may at any time within 15 Business Days of the determination of Market Value in accordance with clause 13.7, require that the Board withdraw the relevant Call Option Notice and if such notice is withdrawn the buy back of the Sale Shares will not go ahead unless a new Call Option Notice is issued in relation to those Securities and the process set out in this clause 13 is followed.

[563]

[108] In this context, the express reference by Dixon J, and by Gleeson CJ, Gummow, Kirby and Hayne JJ, to hindering or preventing fulfilment of the 'purpose' of the express promises is important.

[109] It has not always been clear whether these principles apply as a matter of construction or as implied terms. The current most authoritative exposition of the principles appears to us to be found in the plurality judgment of the High Court in Commonwealth Bank of Australia v Barker.[69]

[110] Commonwealth Bank v Barker concerned a dispute between an employer (the bank) and an employee (Barker) over the circumstances of his redundancy. He contended that his employment contract contained an implied term requiring mutual trust and confidence, and he also contended for a breach of the Mackay v Dick duty to cooperate. The postulated obligation of mutual trust and confidence was a new implied term which the High Court was urged to adopt relying upon authorities in the United Kingdom.

[111] In that context French CJ, Bell and Keane JJ addressed the issue of implied terms generally.[70] They referred to terms implied under the principles in BP Refinery v Hastings as terms implied 'in fact or ad hoc'. A separate category of implied terms was terms implied 'in law in all classes of contract'.

[112] The plurality observed that it has been argued that some terms said to be implied by law are in fact rules of construction and that all such terms of universal application fall into that category.[71] They observed that the principle enunciated by Lord Blackburn in Mackay v Dick had been characterised in that way by Mason J in Secured Income, although he had also referred to the rule as an implied 'duty to cooperate'.[72]

[113] The plurality endorsed an academic observation that in practice the two kinds of implied terms, in fact and by law, tend to 'merge imperceptibly' into each other.[73]

[114] In the specific context of the term implied by law they emphasised the criterion of 'necessity', and, in that context, they quoted and adopted the analysis of McHugh and Gummow JJ in Byrne v Australian Airlines,[74] an earlier High Court appeal concerning an employment contract. The plurality said:

[565]

[115] As to the other judges, Kiefel J also quoted and adopted what McHugh and Gummow JJ had said in Byrne v Australian Airlines about 'necessity' in this context.[77] Gageler J, in referring to the 'requisite inquiry' before a new term implied by law might be found, said that it had been described as the application of a 'test' of 'necessity' and cited the relevant passage from Byrne v Australian Airlines which the other judges had quoted and adopted.[78]

[116] Thus, it seems that the relevant principles are best analysed as terms implied by law. 'Necessity' is the rationale for their existence and the circumstance which must be 'demonstrated' for them to be operative. The requisite necessity is so demonstrated where, absent the implication, the enjoyment of the rights conferred by the contract would or could be rendered nugatory, worthless, or, perhaps, seriously undermined; or the contract would be deprived of its substance, seriously undermined or drastically devalued.

[117] On this basis, the law will imply, in appropriate circumstances, a positive obligation to take action (to co-operate and to do all such things as are necessary to enable the other party to have the benefit of the contract), and a negative covenant not to hinder or prevent the fulfilment of the purpose of the express promises made in the contract.

[118] The relevant duty 'is a duty to afford the other party the benefit of what he has contracted for; not a duty to act generally in the other party's best interests'.[79] A term implied by law cannot be used as a basis for imposing on a party something commercially advantageous to the other party but for which the contract does not provide.[80] The implied term is necessarily informed by the express terms of the contract.[81] Thus, this Court has not accepted contentions that a term implied by law can, in effect, turn a contractual non-exclusive licence into an exclusive one;[82] or require a party to act as if an express contractual right did not exist.[83] As the Court of Appeal of the Supreme Court of Western Australia recently observed, the term implied by law, whether expressed positively or as a negative covenant, is not only limited by the criterion of necessity but must relate to bringing about something which the contract requires to happen.[84] Even more recently, the Court of Appeal of the Supreme Court of Queensland has held that the implied duty to co-operate is 'conditioned' by the concept of reasonableness.[85]

[587]

The rights and liabilities of parties under a provision of a contract are determined objectively, by reference to its text, context (the entire text of the contract as well as any contract, document or statutory provision referred to in the text of the contract) and purpose.

In determining the meaning of the terms of a commercial contract, it is necessary to ask what a reasonable businessperson would have understood those terms to mean. That inquiry will require consideration of the language used by the parties in the contract, the circumstances addressed by the contract and the commercial purpose or objects to be secured by the contract.

Ordinarily, this process of construction is possible by reference to the contract alone. Indeed, if an expression in a contract is unambiguous or susceptible of only one meaning, evidence of surrounding circumstances (events, circumstances and things external to the contract) cannot be adduced to contradict its plain meaning.

However, sometimes, recourse to events, circumstances and things external to the contract is necessary. It may be necessary in identifying the commercial purpose or objects of the contract where that task is facilitated by an understanding 'of the genesis of the transaction, the background, the context [and] the market in which the parties are operating'. It may be necessary in determining the proper construction where there is a constructional choice.

...

Each of the events, circumstances and things external to the contract to which recourse may be had is objective. What may be referred to are events, circumstances and things external to the contract which are known to the parties or which assist in identifying the purpose or object of the transaction, which may include its history, background and context and the market in which the parties were operating. What is inadmissible is evidence of the parties' statements and actions reflecting their actual intentions and expectations.

Other principles are relevant in the construction of commercial contracts. Unless a contrary intention is indicated in the contract, a court is entitled to approach the task of giving a commercial contract an interpretation on the assumption 'that the parties ... intended to produce a commercial result'. Put another way, a commercial contract should be construed so as to avoid it 'making commercial nonsense or working commercial inconvenience'.[108]

[595]

[98] Poor drafting may justify a court in being more ready to depart from the natural and ordinary meaning of the terms of a contract,[117] and no doubt, the poorer the drafting, the less willing a court should be to be "driven by semantic niceties to attribute to the parties an improbable and unbusinesslike intention".[118] But poor drafting provides "no reason to depart from the fundamental rule of construction of contractual documents that the intention of the parties must be ascertained from the language they have used interpreted in the light of the relevant factual situation in which the contract was made".[119] Where there is ambiguity which permits of two alternative and semantically not improbable interpretations, construction in accordance with what it may be supposed would be the approach of honest and reasonable businesspersons may assist in choosing one such alternative over the other. But where, as here, the language and surrounding circumstances of a commercial contract present a choice between, on the one hand, a plain, ordinary and commercially not irrational meaning of a clause and, on the other, a meaning which is significantly removed from the natural and ordinary meaning of the terms of the clause, which ill-accords with other provisions of the agreement, and which in the end produces an outcome that is more commercially acceptable from one of the parties' point of view only, the precept runs out of application. Unless the Anglo-Australian objective theory of contract is now to be cast aside, the commercial approach to construction[120] is not a licence to alter the meaning of a term that is "clear and fairly susceptible of one meaning only" to achieve a result that the court may think to be reasonable.[121] The court is not authorised under the guise of construction to make a new contract for the parties at odds with the contract to which they have agreed.[122] Where, as here, all things considered, the words of a clause are fairly susceptible of only one meaning, they must be given that effect.

[716]

[52] There are a number of contractual, statutory and accounting standards contexts in which the administration of justice must determine the "fair value" of property. The meaning of that formulation will vary with the context. In some contexts the formulation refers to what is just or equitable in all the circumstances. In such a case the scope of the relevant considerations which may be taken into account by the requisite decision-maker, whether an arbitrator or a judge, is wide. (See, for example, with respect to oppression suits in corporations law: Scottish Co-operative Wholesale Society Ltd v Meyer [1959] AC 324 at 369; Re Bird Precision Bellows Ltd [1986] 1 Ch 658 at 669; Coombs v Dynasty Pty Ltd [1994] FCA 1193; (1994) 14 ACSR 60 at 102; [1994] FCA 1193; 12 ACLC 915 at 917; United Rural Enterprises Pty Ltd v Lopmand Pty Ltd [2003] NSWSC 910; (2003) 47 ACSR 514 at 521 [36]; 21 ACLC 1965 at 1971 [36]; Re an arbitration Fletcher, Humphreys & Co Ltd v Middleton [1944] NZGazLawRp 56; [1944] NZLR 502 especially at 507-508. In another statutory context see, for example, Holt v Cox (1994) 15 ACSR 313 especially at 334 and 336-337; E S Gordon Pty Ltd v Idameneo (No 123) Pty Ltd (1994) 15 ACSR 536 especially at 539-541; cf Capricorn Diamonds Investments Pty Ltd v Catto [2002] VSC 105; (2002) 5 VR 61 at 71-77.) Where the relevant test is "fair value", a market value is often not decisive. (See, for example, Gambotto v WCP Ltd [1995] HCA 12; (1995) 182 CLR 432 at 457-458.)

[53] A number of authorities suggest a distinction between a "market value" test and a "fair value" or "fair market value" test. (See, for example, Re an arbitration Fletcher, Humphries & Co Ltd v Middleton (at 507); Holt v Cox (at 334); cf Cattanach v Water Conservation & Irrigation Commission [1963] NSWR 304 at 308-309.) The overall context will be determinative.

[54] In my opinion, the respondent's contention that the wide ranging approach applicable to the determination of a "fair value" can be applied to the contractual test of "fair market value", should be rejected.

[55] A test of a "market value", whether in a statutory or contractual context, usually invokes the test long established and frequently applied in Spencer v Commonwealth (1907) 5 CLR 418 especially at 432 and 440-441, of a willing but not anxious purchaser and vendor, bargaining with each other. This approach was most recently expressed in a joint judgment of three judges of the High Court in Marks v GIO Australia Holdings Ltd [1998] HCA 69; (1998) 196 CLR 494 at 514 [49]: "... the value ... is to be identified according to what price freely contracting, fully informed parties would have offered and accepted for it".

[56] It is convenient to refer to the Spencer case formulation as the exchange value test (Spencer (at 431) per Griffith CJ), as did Gleeson CJ in Boland v Yates Property Corporation Pty Ltd [1999] HCA 64; (1999) 74 ALJR 209 at 225 [79]; [1999] HCA 64; 167 ALR 575 at 595 [79].

...

[61] It is not possible to set out in abstract terms how a fair market value should be computed. It is necessary to focus on the particular issues which arise in order to determine what the formulation requires in a particular case.

[719]

The present case is analogous to a compensation case of compulsory acquisition, particularly the compulsory acquisition of a minority interest.

In the present circumstances, there is a compulsory purchase and fairness of price is the explicit contractual criterion. It is thus appropriate to look at matters first from the vendor's point of view, in considering the rights of the shares and what, to the vendor, they may be expected to yield him in the future by way of benefits, for loss of which a fair sale price is compensation. This is particularly when, as here, the vendor has no choice but to sell. It is necessary to ask what a willing, but not anxious vendor would consider "a fair price" for being deprived of the shares "with all [their] existing advantages and with all [their] possibilities",[172] not what the purchasers with their greater bargaining power might in reality be able to exact on a compulsory sale. In giving content to fairness, the shared expectations of Mr Cox and the controllers of F P Leonard, the Holt interests, are certainly not irrelevant. This is as they relate to future sale of the business and the intention that the benefit of that sale was to have been shared 80/20, whether through winding up or by equivalent means ... A liberal estimate of the shares is the approach to be taken.

Furthermore their value to the purchaser, ignoring the purchaser's expropriatory power (except as justifying a liberal estimate) must reciprocally be taken into account in determining a fair price. This is precisely as Mr Cox's continued shareholding rights do detract from the value of the remaining shares, giving him a directorship when no longer employed and the continued capacity to frustrate a sale or bargain with some leverage for a share in it.

...

... It is legitimate in that context to give content to the term "fair" by taking into account the clear purpose of the share issue, here as an incentive scheme, and then determining a fair price for the shares by reference to the matters noted ... above, going to their value to the purchaser. [Emphases in original]

[722]

[46] There are a number of cases where the courts have considered the proper approach to the determination of the "fair value" of shares in a company which conducts a business. The relevant principle arising from the cases is that the valuer must give separate consideration to the word "fair". This involves the valuer considering the circumstances of the particular case and, where those circumstances reveal one or more factors which may affect the fairness of a valuation arising from a particular valuation method, determining whether that method should be modified or abandoned in favour of another method (or combination of methods) which is more likely to result in a fair valuation. There are a broad range of factors which have been identified in the cases as informing the criterion of fairness in the circumstances of those cases. Of course, each case must depend on its own facts. However, the cases do provide guidance as to the kinds of factors which may inform fairness in any case. The fact that a particular factor is of relevance to the criterion of fairness in one case does not mean that it will be relevant in all cases. This is especially so where the terms of the applicable legislation or contract require certain matters to be disregarded in the valuation process.

[47] The issue of fairness in valuing shares in a company has arisen in a variety of contexts. In some cases, the criterion of fairness is not expressed in the governing legislation, company constitution or contract but is implied in the circumstances of the case. The cases which have considered the role of fairness as a separate criterion include cases involving compulsory expropriation of shares, selective reductions of capital, pre‑emptive rights arising in a number of different circumstances, compulsory sale or purchase arising from orders made in oppression cases and the power to compulsorily acquire units in a unit trust.

...

[51] In the course of his judgment, Santow J set out a number of relevant principles concerning the meaning which should be given to the word "fair" when it is an express contractual criterion, as it is here.

[52] First, Santow J drew a distinction between market value and fair market value, thus emphasising the significance of the word "fair" when used in conjunction with words such as price, value or market value.[174] Santow J explained why this was so in the following passage from his judgment:

[837]

Mr Selak and Ms Morphet's oral evidence regarding the meeting in late October 2019 (which I accept), including Mr Selak's evidence about Frank Walker considering the valuation being a waste of time and money.

That Frank Walker, the NEDs and others were proceeding on the erroneous basis or assumption until just before the April 2020 Board Meeting that it would be necessary for National Tiles to cash out any vested options, including at a time when each of Frank Walker, Ms Morphet and Mr Selak considered there to be uncertainty and risk for National Tiles as a result of the Pandemic.

Frank Walker's heavy engagement with the valuation process and his communications with PwCS, the NEDs and others regarding the same, as referred to in Part A above.

Frank Walker's recognition that both he and the NEDs had a conflict of interest in relation to the valuation process given their respective interests in its outcome, which was referred to in parts of Frank Walker's file note of 5 February 2020.

The statements of Frank Walker in his 5 February 2020 file note referred to in Part A above.

The statements in Frank Walker's file note dated 12 February 2020, regarding control of the NT Board and the steps that he later took regarding the appointment of his wife and daughter to the NT Board.

The statements in Frank Walker's file note made on or about 13 February 2020, including the statement that: 'J.S. is my opponent in what I trust will be a fair contest. I want the lowest. He wants the highest.'

Frank Walker's attempts to influence the valuation methodology to be used, including his opposition to the adoption of a DCF methodology.

Frank Walker's extreme reaction about PwCS and the valuation process following receipt and consideration of their redacted valuation on 26 March 2020. As mentioned, he threatened to take action against PwCS for providing him with false and misleading information; and sought to have the valuation deemed null and void, stating further that he was suspending the valuation process immediately, and that if the NT Board voted to challenge his decision, he would immediately seek directions from the Federal Court.

Communications regarding the valuation between Frank Walker and Ms Morphet, and Frank Walker and Mr Selak, during the period following receipt of the redacted valuation report, until receipt of the final PWC Valuation Report.

The statement in Frank Walker's file note of the meeting with Mr Smythe (PwCS) on 2 April 2020, that Mr Smythe had previously convinced him there was nothing to worry about; and Frank Walker's file note about 'what I need to prove', and the items there recorded on matters relevant to reducing the valuation of National Tiles.

National Tiles being a wholly owned subsidiary of FWG; Frank Walker being the sole director of FWG; and Frank Walker's position of practical control over the conduct of National Tiles' and FWG's affairs, including how the NT Board had to operate in connection with Frank Walker, as described by Ms Morphet in her evidence on the topic, which I accept.

There having been no Liquidity Event prior to the vesting date and the fact that if options vested and were exercised and not cashed out it would necessarily introduce new minority shareholders to National Tiles, meaning that National Tiles would no longer remain wholly owned by FWG.

Frank Walker having effective control of FWG and National Tiles and aspects of National Tiles' past corporate practice including its approach to dividend declaration, charitable donations, and related party property transactions; including, for example, the dividend and property related matters referred to in Section A of the Offer Letter, in sub-paragraphs (3)(a) and (b) of the vesting condition terms.

[855]

Ms Morphet chaired the April 2020 Board Meeting. The other directors present were Frank Walker, Mr Larsen, Nick Walker, Georgie Bell and Rhonda Walker. Ms Weir was present in her minute-taking capacity, and others present at the meeting included Mr Herrick.

The draft minutes provided by Ms Weir and, as settled by Ms Morphet, Nick Walker and Mr Herrick, included the Morphet Shareholders' Agreement Resolution. These minutes were circulated to the other directors by Ms Weir at 12:19pm on 1 May 2020, and Mr Selak and Mr Larsen responded the same day indicating that the minutes looked fine to them.[242]

About an hour after receiving Ms Weir's email, Frank Walker forwarded the draft minutes to Mr Wormald of HSF. About two and a half hours later, Frank Walker responded to Ms Weir's email stating that the minutes did not reflect his understanding of the Shareholders' Agreement resolution as recorded, and requested that Ms Weir await his 'written account of what was resolved which [he would] provide prior to their adoption'. Further correspondence then ensued between Mr Selak, Ms Morphet and Frank Walker, and there were further communications between Frank Walker and HSF. On Frank Walker's instructions, HSF also requested that Ms Morphet and Mr Selak resign as directors.

Several days later, on 7 May 2020, Frank Walker sent an email to the other directors, but not to Mr Selak or Ms Morphet, setting out his proposed wording for the resolution 'which I will be putting to the May board meeting'. Frank Walker stated that, on Mr Wormald's and Mr Clyne's advice, he had discussed it with Nick Walker, Georgie Bell and Rhonda Walker, and all had confirmed that his recollection reflected what was resolved.

The Walker Shareholders' Agreement Resolution was ultimately included in the minutes for the April 2020 Board Meeting. At the May board meeting, the directors confirmed that the minutes of the board meeting held on 23 April 2020 were a true and correct record of that meeting, and authorised Mr Larsen to sign the minutes as Chair of the meeting, which he did.

At the National Tiles August 2020 board meeting the dispute with Ms Morphet and Mr Selak was discussed and correspondence was tabled. It was noted that the accuracy of the Approved April Minutes had been disputed, and it was resolved that the 'Approved April Minutes are ratified'. Events thereafter unfolded as referred to in Part A of the reasons above.

[911]

[89] Relevantly to the present application, the critical issue on which the appeal turns is whether the judge was correct to find that the respondent did not knowingly receive the trust monies. In our view, that was a serious matter, albeit that it did not require proof of fraud or deceit and it did not involve an allegation of criminal wrongdoing. Of course, the judge had to be satisfied, in the sense of an 'actual persuasion of the occurrence or existence' of the thing in issue,[258] and the gravity of the allegation was a relevant factor. It may be accepted that people do not lightly obtain and retain money that they know has been paid to them in breach of trust. However, care must be taken that the use of epithets such as clear, cogent, or compelling[259] do not distract from the correct standard, being the balance of probabilities.

[90] In our opinion, the judge erred in treating the allegations as akin to fraud and in applying the Briginshaw test in the way that he did. Most tellingly, the presumption of innocence had no role to play. Further, the conception that people do not ordinarily engage in criminal or fraudulent conduct was not relevant to the assessment of the respondent's knowledge. As noted above, in Farah, the High Court observed that a finding of knowing assistance was a serious matter that required a court to have Briginshaw 'in mind'.[260] However, the elements that must be pleaded and proved are different between the two limbs. Both are fault based, but the need to allege dishonesty in the requisite sense differentiates the second limb from the first.

[91] It may be accepted that, along the way to that ultimate finding on knowledge, the judge was invited by the applicants to find that the respondent had participated in the fraudulent scheme to defraud creditors or was aware of her husband's involvement. In making findings on these matters, the judge was required to have the principles explained in Briginshaw 'in mind'. However, the judge's invocation of Briginshaw and the presumption of innocence on the ultimate question of knowledge was in error. In our view, the judge imposed too strict a burden and was too reticent in his approach as to what fairly could be drawn from the evidence, having regard to the nature of the allegations. We would uphold ground 9.

[961]

As to the issue of the Shareholders Agreement, Mr Walker disagrees with the complaints you make about the terms of it. The Shareholders Agreement reflects the terms of the Plan and the option offers made pursuant to the Plan. Some of the provisions to which your clients now seem to take particular exception (eg the ability to call for shares at agreed value or, failing agreement, a value determined by a valuer; the approval right (acting reasonably) over disposals of shares by your clients to outsiders and the noncompete) are specifically called for in the Plan rules and offer terms, which your clients were instrumental in designing, approved and signed up to. For them to now complain about them seems difficult to reconcile.

As you would know, the way in which these issues and other matters are treated in the Shareholders Agreement is consistent with the way in which these issues are commonly dealt with in shareholders' agreements in similar circumstances.

Your comments about the Shareholders Agreement could be read to imply that certain terms of the Shareholders Agreement might be a barrier to your clients deciding to exercise their options, though you have not identified the changes that your clients might seek. This makes it difficult for us to understand how your clients' concerns might be addressed. If it were to assist your clients to decide to exercise their options (and therefore for the company to receive the funds that would flow to it from this - as indicated above, a welcome event in the current circumstances), without in any way conceding that the current terms of the Shareholders Agreement are unfair or require amendment, Mr Walker would support a scenario whereby your clients exercise their options before they lapse on 23 June 2020, and then there is a discussion about the terms of the Shareholders Agreement for up to 14 days after that to explore whether any changes can be agreed. If at the end of that 14 day period your clients are not prepared to accept the terms on offer, the shares issued to your clients upon them exercising their options would be cancelled and the full amount of the option exercise price refunded. In the 14 day period the monies paid by them in exercising their options could be held in the account of suitable third party to be agreed.

[1024]

the ESOP expressly provided that the Shareholders' Agreement must include terms imposing trading restrictions on shares allocated under the ESOP;

the Offer Letter expressly provided that shares may only be disposed of in accordance with the Shareholders' Agreement or pursuant to the specified Permitted Transfer Regime;

neither the ESOP nor the Offer Letter referred to, nor required, the inclusion of so-called 'minority protections' in the Shareholders' Agreement;

National Tiles was a privately owned family company in which the majority of shares were held, and would continue to be held, by the private owner and controller of the company even if all vested options were exercised;

the shares were to be issued as part of an employee option plan where the option acquisition cost was funded by National Tiles;

the Option Agreement expressly addressed the conditions upon which the plaintiff could become a shareholder, and there was an express 'key term' that the plaintiff agreed to become a member of National Tiles 'and will be required to agree to the terms of the Shareholders' Agreement';

the Shareholders' Agreement being expressly defined to be a Shareholders' Agreement in terms approved by the Majority Shareholder, which also revealed that the parties had turned their minds to the content of the Shareholders' Agreement, and who had responsibility for approving, and the entitlement to approve it;

the Option Agreement providing National Tiles with very broad, and in some cases, unfettered discretions with very few, if any, rights being afforded to Mr Selak under the Option Agreement; and

only a very small percentage of shares being able to be held by directors or executives who exercised their options, leaving FWG as the Majority Shareholder with at least 93% of the shares. It was said that, as of June 2020, FWG held 215 million shares, and there was a total of 14 million vested options. If all options were exercised that would have resulted in FWG owning 93.886% of National Tiles, with the balance owned by the ESOP participants. In that scenario, Mr Selak would have owned 1.397% of the shares in National Tiles.

[1053]

1) First, clause 7.1 of the PSA prohibits a shareholder disposing of shares except as permitted by clauses 8-13 of the PSA, and subject in each case, to compliance with clause 14 of the PSA.[285] This is inconsistent with the Option Agreement because the Option Agreement provides that Mr Selak may dispose of shares pursuant to the Permitted Transfer Regime or the Shareholders' Agreement.

2) Second, clause 13.6 and clause 13.7 of the PSA operate to permit compulsory acquisition by National Tiles of Mr Selak's shares at a 'Market Value' to be agreed, or failing agreement, 'Market Value' to be determined by a 'Valuer'; and the terms specifically require the Valuer to take into account the matters referred to in clause 13.7(b)(i) and (ii), including 'having regard to any minority position and to [the shareholder's] rights and obligations including under [the PSA]'. This is inconsistent with the Permitted Transfer Regime referred to in the Option Agreement which, in the context of compulsory acquisition and upon its proper construction, provides that, failing agreement, the price for the shares is to be the 'fair value' determined by a Valuer as at the date on which the Call Option is exercised. Further, the Valuer is not required or directed to take into account any particular matters, including the matters referred to in clause 13.7(b) of the PSA. I addressed the fair value/market value construction issue in Part B.3.2.4 above, to which I refer.

3) Third, the Valuer that is to carry out the determination under clause 13.7 of the PSA is not required to be independent and, pursuant to clause 13.7(c), is to be appointed and instructed solely by the Majority Shareholder. This is inconsistent with the meaning of 'Valuer' in the Buyback Provision of the Permitted Transfer Regime, which is defined as a tier 1 independent valuer nominated by the Majority Shareholder - and further, the Option Agreement does not give the Majority Shareholder the sole right to instruct the Valuer. I addressed the meaning of the proper construction of the term 'Valuer' in the PSA in Part B.4 above, to which I refer.

[1139]

The plaintiff's long-held expectation that his options would be cashed out, and his evidence that up to and after the lapse of his options on 23 June 2020, he believed he had an entitlement to be paid out for his options by National Tiles - which Mr Selak said he still believed at the time of trial.

Mr Selak not seeking to address with Mr Herrick any of the terms of the PSA following its receipt, or engage about possible alternative provisions.

Given the Pandemic, there was uncertainty about its impact on the performance of National Tiles, and the evidence revealed understandable concern on the part of National Tiles, Mr Selak and Ms Morphet at the time. As mentioned earlier, Mr Selak stated in his evidence that National Tiles was in a difficult position potentially as a result of the Pandemic, and that nobody knew what that meant. Ms Morphet referred to the world being upside down as a result of COVID-19 and potentially allowing for her shares to be bought back at 'half the price'. Pandemic-related matters and concerns were also referred to in various other documents, and by Frank Walker in his email of 8 May 2020.

Mr Selak is and was a sophisticated, independent-minded, and considered businessperson, also with valuation expertise, which he appropriately acknowledged. There was no impediment to Mr Selak engaging with National Tiles to explore whether or not changes to the PSA could be agreed - whether directly or through legal representatives. He did not do so at any time before or after receipt of the 19 June HSF Letter. I refer in this regard to the findings and analysis in Part D.17 above.

The exercise of his options would not have got Mr Selak what he expected, and believed he was entitled to, in terms of a cash payment - and would also have required him to pay the Exercise Price.

If Mr Selak exercised his options, he would have obtained only a very small minority shareholding of 1.397% in a company in which he had no ongoing role or influence, and over which Frank Walker, through FWG, would retain at least 93.886% of the shares, and continue to have effective control of the company.[314]

In order to exercise the options, whatever be the terms of the Shareholders' Agreement, it was going to be necessary for Mr Selak to pay $393,600 as the Exercise Price, which was not an insubstantial sum of money - and all the more so, in the context of uncertainty associated with the impact of the Pandemic. Payment of the Exercise Price to exercise his options also carried with it at least some risk of loss which it may be inferred Mr Selak was aware of.[315]

Although the plaintiff positively alleged that Mr Selak had the financial capacity to exercise the options,[316] there was no evidence regarding Mr Selak's financial position or capacity to pay the Exercise Price at the time, or his capacity to raise funds to do so if that was needed.[317] It may also be noted in this context that he had ceased as a partner with Ernst & Young some time before when he turned 60 as a result of the firm's compulsory retirement policy. These matters are not to be treated as adverse to Mr Selak's position, noting also that it was not put to him that funding was or might have been a problem for him. However, given the absence of evidence on the point from the plaintiff, it cannot positively assist Mr Selak. It is a neutral matter that also would not change any conclusions or outcomes if it was put to one side.

The 9 June GT Letter of demand was not directed at being able to enter into a Shareholders' Agreement and exercise options, but was a demand for payment of what Mr Selak considered was the Intrinsic Value of the Selak Vested Options. As is apparent from its terms, it was seeking a cash payment, and contained heavy emphasis upon alleged misrepresentations and alleged unjust enrichment that were not the subject of the plaintiff's claim. As I have said, at this time and thereafter Mr Selak held the view that he was entitled to receive a cash payout.

If Mr Selak had acquired National Tiles shares he would have held his very small minority shareholding in a company controlled by somebody that he no longer liked or trusted; and where Mr Selak had previously expressed his belief that company funds were being used for dividends and other associated interests of Frank Walker and FWG in a manner that was not in the interests of National Tiles.

The correspondence from Frank Walker on 8 May 2020, and the 19 June HSF Letter, made reference to what were said to be serious risks going forward for National Tiles, and the prospect of ongoing uncertainty and longer term revenue issues and other challenges, given the matters raised in the email and, as Frank Walker put it, the world being rocked by the global Pandemic.

The proposals previously put to Frank Walker had involved either being cashed out or, in the case of the proposal put shortly after the board meeting in April 2020, a National Tiles funding mechanism for the exercise of a portion of the Selak Vested Options. That is, all of the proposals, including that put in late 2019, did not have as a component, Mr Selak funding the Exercise Price.[318]

A decision not to exercise options and pay the Exercise Price in the circumstances cannot be seen to be absurd or irrational. Indeed, such a decision appears on its face to be objectively logical and commercially sound.

[1155]

In the circumstances under consideration a compulsory acquisition under the Buyback Provision would not be in substance or reality a market-based transaction or anything akin to it.

The compulsory acquisition of Mr Selak's shares would directly or indirectly increase FWG's controlling interest in National Tiles.[324]

On the evidence before the Court, at the time that the Selak Vested Options had to be exercised, FWG was the only shareholder of National Tiles. If a compulsory acquisition took place whilst that remained the position it would have the practical effect of returning 100% control to FWG.

It can be inferred from the company structure and shareholding, and the conduct, communications and notes of Frank Walker, that Frank Walker and FWG's preference was to have 100% control of National Tiles; noting also the evidence regarding payment of substantial dividends for the benefit of Frank Walker, the funds used for charity, and the related party property transactions.

By reason of the compulsory nature of the acquisition, Mr Selak as seller would have no say regarding whether to sell, the timing of the sale, or the market conditions in which the sale was to occur - and no opportunity to participate in any future potential company upside.

The acquirer would be National Tiles, being the company itself, and not a third party non-shareholder or an existing minority shareholder.

Although the defendants are correct to observe that the Option Agreement did not guarantee a reward, fair value realisation, a profit, or underwrite the risk of loss associated with the acquisition of options or shares in National Tiles, the purpose of the Option Agreement relevantly included providing the opportunity to acquire shares to assist with the delivery of rewards for individual and company performance. The evidence revealed that Mr Selak had contributed to the success of National Tiles over the years since entering into the Option Agreement in 2016 and leading up to the Pandemic, until he was removed in the context of the dispute over the ESOP. Frank Walker acknowledged in some of his communications the significant contribution of the NEDs to National Tiles' success; and it may be noted that Frank Walker had planned to have Mr Selak take over as Chair of National Tiles from Ms Morphet prior to escalation of the dispute the subject of this proceeding.

In compulsorily acquiring the shares National Tiles would not need to give consideration to minority and marketability issues in the context of future re‑sale in the way that an acquirer who was a third party non-shareholder or an existing minority shareholder would need to.

When considered overall the result would not deliver an unreasonable benefit to Mr Selak or impose an unreasonable burden upon National Tiles, noting that the acquisition would be a compulsory acquisition undertaken at a time of National Tiles' choosing and control.

In the circumstances the approach that I would have taken by excluding minority and marketability discounts in the assessment of fair value[325] better serves the purpose of the Option Agreement earlier referred to, and would be an appropriate just and equitable result when compared with the alternative of including minority and/or marketability discounts.

[1183]

[412] There are various dimensions to the economic tort of interference with contractual relations. So, it is appropriate to be clear on the categories.

[413] The relevant interference must be deliberate. But it can be direct or indirect. Where the interference is direct, the relevant act of persuasion, inducement or procurement is treated as being unlawful in and of itself. But here the interference is indirect, an independent unlawful act is required.

[414] The paradigm case of interference concerns direct interference which amounts to procuring or inducing a breach of contract (Lumley v Gye [1853] EngR 15; (1853) 1 WR 432; 2 El & Bl 216; 118 ER 749 (Lumley v Gye)).

[415] The various elements of the classic Lumley v Gye tort are not in doubt. First, there must be a contract. Second, the respondent must know that such a contract exists. Third, the respondent must know that if one of the contracting parties does or fails to do a particular act, that conduct would be a breach of the contract. Fourth, the respondent must intend to and in fact induce or procure that contracting party to breach the contract by doing or failing to do that particular act. Fifth, the breach must cause loss or damage to the applicant. Sixth, no defence of honest and reasonable belief should be applicable.

[416] Now it is not in doubt that the gravamen of the tort is intention to induce or procure breach, with knowledge that such a breach will interfere with contractual rights (Allstate Life Insurance Co v Australia & New Zealand Banking Group Ltd [1995] FCA 1368; (1995) 58 FCR 26 at 43; [1995] FCA 1368; 130 ALR 469 at 484-5 (Allstate Life Insurance) per Lindgren J). And wilful blindness or reckless indifference can constitute knowledge for this purpose. Further, knowledge of the contract may provide a sufficient basis for inferring the necessary intent. In other words, a person's knowledge that he is by his conduct inducing a breach of contract may be sufficient to establish the required intention (see Allstate Life Insurance at FCR 37; ALR 479). Questions of knowledge and intention are interrelated. However, a bona fide belief reasonably entertained that so to act would not result in a breach of contract might negate the requisite intent (see Short v City Bank of Sydney [1912] HCA 54; (1912) 15 CLR 148 at 160; [1912] ArgusLawRp 102; 18 ALR 408 (Short v City Bank of Sydney) (per Isaacs J).

[417] Now as I have said, from knowledge one may be able to infer intention. But it is intention that must be shown. So, for example, merely to show that the tortfeasor could or did foresee the consequence of tortious conduct is not sufficient.

[418] Further, let me say something more on the question of knowledge of the contract, if it be said that that is the foundation from which intention can be established by inference. In some cases, where the contract is of a standard type or a standard class of contract, it may not be necessary for the tortfeasor to have precise knowledge of its terms for intention to be inferred. But where one is not dealing with such standard scenarios, in order for the claimant to establish intention by inference from knowledge, it may be necessary to establish knowledge of more precise aspects or terms of the contract. This will all depend on the nature of the case being advanced and the type of breach being asserted. So, in the present case, being a case dealing with a non-standard or bespoke contract scenario, for State Street (US) to establish the tort, it needed to show more knowledge on the part of MBL than just the fact of the existence of the master agreement; it needed to show that MBL had knowledge of the relevant terms of that agreement.

[419] Further, for the tort of inducing breach of contract, a distinction should be made between "procuring" or "inducing" on the one hand, and "advising" on the other hand. The former may be actionable. The latter is not. To induce a breach is to create a reason for breaking it. To advise a breach is to point out that a reason already exists.

[1210]

Frank Walker's liability was not based solely on his conduct in the capacity of a director.

The principle in Said v Butt[342] does not engage where a director or servant is not acting bona fide within the scope of their authority, and therefore the protective principle in Said v Butt does not apply to the conduct of Frank Walker.

Frank Walker's conduct involved a breach of his duties to National Tiles, meaning that it was not bona fide conduct attracting the protection of the rule in Said v Butt. His conduct was said to breach the duty in s 181(1)(b) of the Act, because he had failed to exercise his powers and discharge his duties for a proper purpose; and s 181(1)(a) of the Act, because he had failed to exercise his powers and discharge his duties in good faith, and in the bests interests of National Tiles.

The plaintiff's position was supported by the cases of PT Sandipala Arthaputra v ST Microelectronics Asia Pacific Pte Ltd[343] and Antuzis v DJ Houghton Catching Services Ltd.[344]

The principle in Said v Butt does not apply by analogous reasoning to a parent company, and the decision in LMI Australasia Pty Ltd v Baulderstone Hornibrook Pty Ltd[345] does not assist the defendants.

The rule underpinning Said v Butt is based on agency and a director being an agent of the company. Shareholders are not agents of the company, thus the reasoning in Said v Butt cannot be applied to parent companies, as was said to have been found in Bumi Armada Offshore Holdings Ltd v Tozzi SRL.[346]

FWG did not merely induce National Tiles' breach of contract; there was an absence of good faith when FWG so acted. This is because FWG procured National Tiles to make the exercise of the options conditional on the execution of the PSA, and FWG knew that it was procuring National Tiles to act in a way that was not in the interests of National Tiles, but nevertheless did so for FWG's own commercial benefit.

The conduct referred to in the preceding sub-paragraph is conduct which goes beyond a shareholder's legitimate pursuit of its own interests through the company.

[1222]

On or about 20 April 2020, Frank Walker realised or became aware that National Tiles did not have an obligation under the Option Agreement to pay out or cash out the ESOP participants.

From at least 5 February 2020, Frank Walker's and FWG's preference was that the valuation to be undertaken by PwCS did not result in a value that was high enough to satisfy the value vesting hurdles in the ESOP Terms.

Frank Walker's conduct and communications in connection with the valuation and valuation process were at least, in part, directed at achieving Frank Walker's and FWG's preferred position that the valuation was not high enough to satisfy the ESOP value vesting hurdles, so that no options vested.

The Walker Shareholders' Agreement Resolution was not passed at the April 2020 Board Meeting or the May 2020 board meeting.

The Morphet Shareholders' Agreement Resolution was not passed at the April 2020 Board Meeting.

Frank Walker and Mr Larsen supported and approved the form of the Approved April Minutes at the May 2020 board meeting.

Frank Walker and Mr Larsen each approved of the form of the Approved April Minutes, the Approved May Minutes and the Approved August Minutes.

If Frank Walker had not been in favour of approving the form of the Approved April, May or August Minutes, then the board of National Tiles would not have approved them or authorised Mr Larsen to sign them.

Frank Walker and Mr Larsen each approved, and Mr Larsen signed, the Approved April Minutes, the Approved May Minutes and the Approved August Minutes at a time when they each knew that the Walker Shareholders' Agreement Resolution was not, in fact, passed or agreed at the April 2020 Board Meeting.

The Approved April Minutes are false and misleading insofar as they record that the Walker Shareholders' Agreement Resolution was passed at the April 2020 Board Meeting. The Approved May Minutes are false and misleading insofar as they confirm that the Approved April Minutes are a true and correct record of the April 2020 Board Meeting. The Approved August Minutes are false and misleading insofar as they confirm or ratify that the Approved April Minutes are a true and correct record of the April 2020 Board Meeting.

The Approved April, May and August Minutes are not false or misleading by reason of their failure to record, confirm, or ratify that the Morphet Shareholders' Agreement Resolution was passed at the April 2020 Board Meeting.

It was Frank Walker's preference not to have to pay out or cash out any of the vested options.

It was Frank Walker's preference that none of the vested options were exercised.

It was not established, and cannot be inferred, that Mr Larsen obtained advice from HSF regarding potential inequity arising from the ESOP and/or the PSA.

Frank Walker supported and approved the May 2020 PSA Resolution at the May 2020 NT Board meeting.

If Frank Walker had not supported the position that the PSA should be approved in the way that it was, the other directors of National Tiles would not have been in favour of approving the PSA.

No other vested options were exercised by any of the option holders, so as to become a shareholder of National Tiles.

The PSA Discussion Offer in the 19 June HSF Letter was genuine, and it cannot be inferred that Frank Walker would not have negotiated or compromised at all, had the PSA Discussion Offer been taken up and discussions ensued. Frank Walker may have compromised on one or more of the issues raised or to be raised by the plaintiff, but it is not possible to specify which one or more of the issues he may have compromised on, as this involves speculation and guesswork.

Plaintiff v Defendants

At a glance

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Judgment (1780 paragraphs)

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Legislation Cited (3)

Cases Cited (102)