Anshun estoppel and abuse of process
188 Although Anshun estoppel involves a merits-based judgment and a broader enquiry than either cause of action estoppel or issue estoppel, it remains as for those other forms of estoppel, an objective enquiry: Champerslife at [106]-[107], [112] (Handley JA). The question is ultimately whether the implications of the Share Split on Mr Sheehy's entitlements under the 2008 Option Agreement were so relevant that it was objectively unreasonable for Mr Sheehy not to raise it in the 2018 Proceedings.
189 I am satisfied for the following reasons that Nuix has discharged its onus and established that the 2018 Proceedings and Mr Sheehy's claims in these proceedings are so closely connected that it was unreasonable for Mr Sheehy not to have raised the present claims as a relevant issue in the 2018 Proceedings.
190 First, given it is a broad merits-based enquiry and value judgment, the absence of any evidence of any dispute that might have arisen between Mr Sheehy and Nuix prior to the commencement of the 2018 Proceedings and the Consent Judgment as to the impact of the Share Split on the conversion ratio for the Remaining 2008 Options is a relevant, but not a determinative consideration. Nor, while it is relevant, is it determinative that the Summons and the CLS in the 2018 Proceedings were directed at the question of whether the Remaining 2008 Options were still capable of being exercised not at post Share Split conversion ratios. Nor does it follow that there is no close connection because the question of whether or not the conversion ratio for the exercise of the Remaining 2008 Options was to be multiplied by the divisor for the Share Split was not specifically addressed in the Consent Judgment.
191 Second, the explanations provided by Mr Castagna in late 2016 in the Webinar and in the slides presented at the Town Hall Meetings made it clear that the effect of the Share Split was that options in Nuix were to be multiplied by 50 and their exercise price was to be divided by 50. The submission made by Mr Sheehy that there was nothing to suggest to him at the time that he commenced the 2018 Proceedings that there could be any issue between him and the application of the Share Split to the Remaining 2008 Options if he were to assert that each of the Remaining 2008 Options was, on exercise, to be converted to 50 shares, cannot be accepted.
192 Third, the information recorded in the Options Register after the Share Split is not consistent with the case that Mr Sheehy now seeks to advance. Most significantly, the spreadsheet behind the OPTIONS tab in the Options Register as it stood at 8 August 2017, that was provided to Mr Sheehy in the course of the 2018 Proceedings in the form of a PDF file, recorded in Column AS that 46,727 of the 2008 Options had been exercised on 9 December 2016 and in Column AT that the Remaining 2008 Options (in aggregate 453,273) had been forfeited.
193 Each of the Option Registers in evidence, including the Options Register as it stood at 8 August 2017, included a table behind the "CAP TABLE" tab headed "Summary Capitalisation Table (as of [a particular post Share Split date])" and a table headed "Summary Capitalisation Table Above PRESPLIT". Those tabs demonstrated that the number of options held by each option-holder was 50 times greater after the Share Split.
194 I am satisfied that when the information in the spreadsheets in each CAP TABLE tab and in each OPTIONS tab are read together, that Column N in the spreadsheets in the "OPTIONS" tab in each of the Nuix Option Registers is to be construed as a reference to the number of options after the Share Split not the number of shares to which those options could be exercised. Of course, given the 1:1 conversion ratio these numbers would be the same. Any ambiguity, however, is cured in the summary information in the spreadsheets behind the CAP TABLE tab that refers expressly to the number of options held by all option-holders both prior to the Share Split and at specific post Share Split dates.
195 I also accept the evidence of Ms Roche that the number of shares over which options could be exercised prior to the Share Split is identified in Column AU of the spreadsheet behind the OPTIONS tab in each Options Register and the number of shares after the Share Split is identified in Column AY. Hence, contrary to the submissions of Nuix, it does not follow that if the entries in Column N of the OPTIONS tab are to be construed as references to the numbers of options after the Share Split, not the number of shares over which those options could be exercised, that Nuix would have contravened s 170 of the Corporations Act by not recording in the Options Registers the shares to be issued if options are exercised by option holders.
196 Mr Sheehy gave evidence in cross-examination that he did not recall ever seeing the information in the tab behind the CAP TABLE tab. Given my general concerns about the evidence given by Mr Sheehy, I place little weight on that evidence. In any event, given the significance of the Remaining 2008 Options to Mr Sheehy and the potential impact of the Share Split on them, I am satisfied that it would have been unreasonable of Mr Sheehy not to have sought express confirmation of the impact of the Share Split on the Remaining 2008 Options or if such confirmation was not forthcoming asked to inspect the Options Register as a whole. It was not objectively reasonable in the circumstances to rely on entries in a column in a spreadsheet in the Options Register headed "Share Split". In context, the heading was inherently ambiguous given it referenced an event not a description of the type of security and the number would be the same whether it was a reference to either the number of options originally issued and adjusted for the Share Split or the number of shares over which options were held after the Share Split.
197 Fourth, there is a fundamental tension between the limited relief sought in the 2018 Proceedings as reflected in the Summons and the declaration and the practical consequences of the Rectification Order the subject of the Consent Judgment. That tension was highlighted by the following entries made by Nuix in the Options Register to give effect to the Rectification Order:
Option Holder: Eddie Sheehy
ESOP: As per Consent Court Order dated 26 Nov 2019
Grant Date: l7-Sep-08
Last Exercise Date: As per Consent Court Order dated 26 Nov 2019
Option Price: As per Consent Court Order dated 26 Nov 2019
Number of Options: 453,273
Share split: 453,273
Lapse or Exercise Date: As per Consent Court Order dated 26 Nov 2019
Vesting Start Date: As per Consent Court Order dated 26 Nov 2019
Vesting End Date: As per Consent Court Order dated 26 Nov 2019
Total Cost: $906,546
198 As submitted by Mr Sheehy, the Consent Judgment did not in fact address any of the EOP, Last Exercise Price, Option Price, Lapse or Exercise Date, Vesting Start Date and Vesting End Date. The contemporaneous email correspondence of Ms Roche demonstrates that she did not know how to record the effect of the Consent Judgment. These omissions, combined with the absence of any reference in the declaration to the conversion ratio might assist Mr Sheehy in resisting the cause of action estoppel and issue estoppel claims advanced by Nuix. They do not assist him, however, in responding to the Anshun estoppel claim. The objectively foreseeable and inevitable consequence of the Rectification Order was that each of the matters referred to above would have to be entered in the Options Register. By reason of s 170(1)(d) of the Corporations Act these matters included the number of shares over which the options were issued. The figure inserted for "Share split" of 453,273 reflected the existing, at least implicit, conversion ratio of 1:1 in the 2008 Option Agreement.
199 Mr Sheehy knew or ought reasonably to have known at the time he commenced the 2018 Proceedings, by reason of his position as the CEO of Nuix until January 2017, the Webinar and the presentations at the Town Hall Meetings, that Nuix was taking the position that the practical effect of the Share Split was that Nuix share options were to be multiplied by 50 and the exercise price for each share option was to be divided by 50. Further, Mr Sheehy knew or ought reasonably to have appreciated that the Rectification Order would require Nuix to record in the Options Register the number of shares over which the Remaining 2008 Options had been granted.
200 Fifth, contrary to the submissions of Mr Sheehy, I am not prepared to draw any Jones v Dunkel inference by reason of the absence of any evidence from any decision maker of Nuix as to whether they believed Mr Sheehy had abandoned any claims arising out of the Share Split. There was nothing that was required to be explained or contradicted: Jones v Dunkel (1959) 101 CLR 298; [1959] HCA 8 at 321 (Windeyer J). Any subjective state of mind of any decision maker of Nuix cannot be relevant to the objective question of whether it was reasonable for Mr Sheehy not to have raised his present claims in the 2018 Proceedings.
201 For the foregoing reasons, I am satisfied that it was unreasonable for Mr Sheehy not to have raised in the 2018 Proceedings his contentions that he now seeks to raise as to the impact of the Share Split on the Remaining 2008 Options.
202 Further, and in any event, if contrary to my conclusion above it is necessary to establish detrimental reliance to give rise to an Anshun estoppel, I am satisfied that Nuix agreed to a settlement of the 2018 Proceedings on the basis that Mr Sheehy was not seeking to contend that the effect of the Share Split was that his entitlement to shares on the exercise of the 2008 Options would be multiplied by 50. In agreeing to the settlement of the proceedings on that basis, Nuix acted to its detriment in that it was precluded from subsequently contending that the Remaining 2008 Options had expired and further, or alternatively, it would be unconscionable for Mr Sheehy to resile from the expectation that he had created that he would not subsequently seek to raise any claim about the impact of the Share Split on the Remaining 2008 Options given the terms of the Rectification Order.
203 Mr Standen, a director of Nuix at the time of the Consent Judgment, gave the following evidence in his affidavit at [29]:
In November 2019, Mr Sheehy offered to settle the proceedings on the basis that the parties agree to a declaration that Mr Sheehy was entitled to a specific number of options, namely 453,273 options. Nuix agreed to settle the dispute by consent judgment. I was involved in the decision making for Nuix in relation to that offer. I considered Nuix accepting that offer to be a significant compromise because I thought that the agreement was clear that the ability to exercise the options by Mr Sheehy ended in 2010. Nevertheless, I agreed to accepting the resolution proposed by Mr Sheehy because I thought the litigation was an unnecessary distraction and because Mr Sheehy was not seeking to maintain that the options he was claiming had been subject to the Share Split I referred to above. I would not have agreed to resolve the dispute on the basis of the declaration proffered by Mr Sheehy if it had referred to 22,663,650 options or that the options could be converted for 22,663,650 shares. I also would not have agreed to Nuix accepting the offer if Mr Sheehy had contended that the options were exercisable on the basis that a 'sale of the business' had occurred for the purposes of Mr Sheehy's 2008 Options Agreement.
204 Mr Phillips gave evidence to similar effect in his affidavit at [32]:
In November 2019, Nuix agreed to resolve those proceedings after receiving an offer from Mr Sheehy that the proceedings be resolved on the basis of a court declaration that Mr Sheehy was entitled to 453,273 options in accordance with the terms of the 2008 agreement. I was initially reluctant to accept the proposed declaration because I was strongly of the view that the options were no longer capable of being exercised and that it would be best for the Court to rule on that issue. However, I ultimately agreed to accept the proposed settlement on the basis that I thought the proceedings were a distraction and that Mr Sheehy was not contending that the options should be multiplied by 50 following the Share Split. I would not have agreed to the proposed declaration if Mr Sheehy had contended that the register should record that he holds 22,663,650 options or would in any way have been entitled to that many shares in the event of a sale of the business. I am also very strongly of the view that I would not have agreed to that settlement if Mr Sheehy had sought an order or contended that a sale of business had occurred which permitted the exercise of those options if they continued to be valid.
205 I accept this evidence of Mr Standen and Mr Phillips. Both were challenged in cross-examination about whether and on what basis each believed the Remaining 2008 Options had expired but neither was challenged on their evidence that they would not have agreed to Nuix resolving the 2008 Proceedings pursuant to the Consent Judgment if Mr Sheehy had contended that he held 22,663,650 options or he would in any way have been entitled to that many shares in the event of a sale of the business of Nuix.
206 Moreover, the evidence of Mr Phillips is consistent with contemporaneous documents and the apparent logic of events.
207 The Castagna November 2019 Email relevantly states:
Please know that we have settled the above case.
Judgement by the Court was recorded by mutual consent yesterday.
The basis of settlement was indeed most surprising and presented to us by Eddie's legal team for agreement.
In essence, Eddie asked, and we agreed to have his request for 543,273 options at $2.00/share exercise price to be recorded in our options register and that each party meets its own legal costs.
What is Notable:
The option number is post-split. This was contrary to his original claim for $41 million based on the value of those options pre-split. The settlement is therefore, one-fiftieth of his original claim.
There were extensive 'what ifs' presented to our barrister regarding [redaction for legal professional privilege]
Extraordinary!
I have no doubt that we will hear the screams of angst from Eddie in the fullness of time.
208 The above extract from the Castagna November 2019 Email makes clear that Nuix had agreed to the settlement on the understanding that on a post Share Split basis, Nuix would recognise in the Options Register that Mr Sheehy had 543,273 options that were exercisable on payment of an exercise price of $2.00. That understanding necessarily meant that Nuix was proceeding on the basis that Mr Sheehy was not pressing for the Remaining 2008 Options to be multiplied by 50 or that there be any adjustment to the original exercise price of $2.00 per share.
209 The effect of the Consent Judgment was to extinguish the Nuix defence that the Remaining 2008 Options had expired. It was therefore not open for Nuix to raise that defence in these proceedings. Nor did Mr Sheehy plead in these proceedings that the expiration defence was unmeritorious and the issue has not been tried. In the circumstances it is not open to this Court to make any determination of the merits of that defence except to perhaps observe that (a) it was relied upon by Nuix in the 2018 Proceedings prior to the Consent Judgment; (b) the Options Register as and from at least 8 August 2017 had recorded the Remaining 2008 Options as "Forfeited"; (c) given Mr Sheehy is no longer the CEO of Nuix the commercial rationale for the operative provisions of the 2008 Option Agreement has fallen away; and (d) given that Nuix is defending these proceedings it is indeed, as submitted by Nuix, that it "simply defies credulity" to suggest that, had the same claims been made in the 2018 Proceedings that Nuix would have still settled the claims on the same basis as it did in the Consent Judgment.
210 To the extent that it is relevant, the speculation by Mr Castagna as to any "screams of anguish" from Mr Sheehy or any comment by Mr Krupczak that the terms of the Consent Judgment were "truly unbelievable" cannot alter the objective basis on which Mr Sheehy agreed to settle the 2018 Proceedings, including most relevantly the terms of the Rectification Order, or affect their entitlement to settle the proceedings on that specific basis and subsequently rely on its terms if Mr Sheehy subsequently sought to bring subsequent proceedings directed at the terms of the Remaining 2008 Options or his ability to exercise them.
211 Given my conclusion in relation to the Anshun estoppel defence it is not necessary for me to determine whether the claims sought to be advanced by Mr Sheehy in these proceedings give rise to an abuse of process. In any event, the submissions of Nuix directed at the abuse of process contention were in effect, confined to the proposition that a failure to raise an issue in an earlier proceeding may constitute an abuse of process, even if the failure might not otherwise have given rise to an estoppel, citing Tomlinson at [26].