Wormald v Maradaca Pty Ltd

Background

1. As with many companies heavily dependent on a particular customer, BRS was vulnerable to its relationship with Optus being terminated. It was also vulnerable in terms of its cashflow, as delays in the payment of invoices by its major customer would necessarily have an impact on its own cashflow for obvious reasons. As the primary judge put it at [29], "[t]he ongoing viability of BRS was dependent upon maintenance of competent, skilled staff and its commercial relationship with Optus. Without the continued support of Optus BRS was, at all material times, at risk of insolvency."
2. In 2014, both Optus and companies associated with Ms Kaliviotis manifested an interest in acquiring BRS.
3. On 30 May 2014, ELB executed a "Memorandum of Understanding (MOU) and Option", expressed to be made between it and BRS, which in effect contained an offer to purchase all the issued share capital of BRS for $1.25 million subject to due diligence inquiries. This option was not exercised. The MOU was expressed to be legally binding, contained a confidentiality clause and a clause to the effect that for a period of 30 days from its execution, neither BRS nor its shareholders would engage any other party in discussion or negotiation of terms of acquisition, share transfer or ownership of BRS.
4. On 18 September 2014, ELB and BRS signed another legally binding "Memorandum of Understanding (MOU) and Option" which in effect increased the offer to $1.5 million, subject to "satisfactory legal and taxation due diligence" inquiries. This MOU also contained a confidentiality clause.
5. Due diligence was undertaken and access was given to the "Due Diligence Materials" listed in Sch 6 of the SSA from 1 October 2014.
6. In mid-October 2014, Ms Kaliviotis advised BRS that she was no longer prepared to offer $1.5 million because, as she said in her affidavit dated 30 January 2017, she was concerned about the accuracy of cashflow projections, the extent of the employer liabilities and the overdraft. It was shortly after this, on or around 21 October 2014, that Mr Brownlow, who worked in the financial section of Ms Kaliviotis' companies and had prepared his own cashflow on the basis of information supplied by BRS, informed Ms Kaliviotis that "come November the company would exceed its overdraft of one million dollars" and "that the company was going to continue to exceed its overdraft until at least March 2015": trial tp. at 106.

The Discussion Points

1. On 17 October 2014, Mr Wormald provided Ms Kaliviotis a document headed "Marie and Shaun Discussion Points" (the Discussion Points) which was essentially a marketing document which contained a financial overview of the company including information in relation to current sales revenue, EBITDA profit and loss information for the financial years 2012-Points contained the following discussion in relation to Optus and cashflow: "As can be seen from the Cash flow statement also attached to the email the company is cash positive and actually very nicely positive if one removes one off payments not part of business as usual. The cash position does fluctuate quite a bit as can be seen over the last two years and is very cyclical which does reflect the current position. The limited overdraft facility (3 months of working capital currently) has limited Broadreach's ability to grow aggressively and with your additional facilities would allow a much more aggressive growth strategy to be implemented. The Optus channel is very challenging due to Optus size and inability to deliver PO (Optus Singtel internal process) in a timely manner and long payment terms which does add pressure to working capital requirements (and hence the overdraft). It is expected that the facility will not be required at all within a 6-12 month period at most based on new contracts coming on line in the next 4-5 months that we have worked with Optus in scoping, pricing that will also nearly double the on-going annuity managed services revenue from the Optus channel plus all the synergy benefits from the tie up with Electroboard. Post the first 6 months of integration and the migration of finance function to Electroboard a further+/- 500,000 pa saving can be realized (CEO and Finance function integration) if required again adding even more value to your investment. Another synergy area that could be considered is the internal IT function which Broadreach outsources at a cost of $180,000 pa."
2. The Cashflow statement for the company showed a negative cashflow of $855,537 for the financial year ending 2013 and negative $537,465 for the financial year ending 2014. It was and is to be inferred that this negative cashflow was funded or to be funded by the company's overdraft facility to which reference had been made in the Discussion Points. Employee entitlements of some $264,392 as at September 2014 were also disclosed.

The 25 November 2014 email

1. In an email dated 25 November 2014, the solicitors acting for the Majority Shareholders, Marque Lawyers, wrote to Ms Kaliviotis' solicitor, Mr Diacopoulos, the following email: "As discussed this morning, I [a solicitor acting on behalf of BRS and, implicitly, its shareholders] have chased for instructions from Broadreach Services (BRS) regarding the status of approval by the shareholders of the proposed sale and purchase agreement. Information has come to light on which my clients have sought our advice today regarding the impact of that information under the proposed agreement. We have advised our clients that the new information has raised significant issues under the seller warranties contemplated by the proposed agreement, such that proceeding with the proposed transaction on the basis of the current warranties would create significant material liability for the shareholders. I am instructed to disclose the matters that have come to light as follows: 1. Optus has indicated that it would not provide its consent to any change of control of BRS and therefore would terminate its Master Services Agreement with BRS upon any such change of control transaction occurring. 2. There is a risk that a number of current BRS employees would not continue their employment if the proposed transaction proceeds and, in light of the likely termination of the Optus agreement, it is consequently very likely that a significant number of employees would be lost upon the proposed transaction proceeding. 3. BRS has entered into a tax payment plan with the ATO. 4. Although perhaps not a material issue, for total transparency our clients would also like to disclose an incomplete schedule in the data room for contractual commitments. The error identified has the impact of adding $75k to the total contractual amounts outstanding (contracts generally greater than 12 months). I am instructed that this update will be added to the data room and schedule sent direct from BRS under separate cover. In light of the above, I understand from my clients that it is not possible to achieve confirmation from the shareholders that they will approve and execute the proposed sale agreement in its current form. I am therefore instructed to request that your client [the defendant/first cross claimant] consider whether it will accept these disclosures against the warranties (such that the sellers will not have any liability for any loss to BRS resulting from the matters described in the disclosures), so that this revised proposal can be submitted to the BRS shareholders. I am further instructed to request whether we can have your client's response as quickly as possible, as BRS is now in a position of needing to urgently consider its options."

Ms Kaliviotis

1. At this point, it is convenient to record a number of unchallenged findings made by the primary judge about Ms Kaliviotis. Reference has already been made at [8] above to the primary judge's finding as to Ms Kaliviotis' motivation in contemplating the share acquisition and the reasons for her appetite for risk.
2. At [150] of his judgment, the primary judge observed that: "Ms Kaliviotis was forthright in her acknowledgement that, in causing the first cross claimant to make an offer to buy BRS' shareholding for $1.35 million in November - December 2014, she (based upon what she then knew) was prepared to take risks (formally disclosed to her in the email dated 25 November 2014) that, if the cross claimants acquired BRS, Optus would terminate its MSA with BRS and a number of BRS employees would discontinue their employment..."
3. At [167]-[169] of his judgment, the primary judge observed that ELB and Maradaca: "167. … must be taken, at all material times, to have been a sophisticated commercial operation, headed by Ms Kaliviotis as an astute business woman; experienced in the type of business operated by themselves, BRS and Optus; and possessed of knowledge about the commercial environment in which such business was conducted. 168. That Ms Kaliviotis was a person who was willing, and able, to take calculated risks in the conduct of business cuts both ways. On the one hand, she was prepared to take a risk on the purchase of BRS as a marginal commercial operation in order to secure a platform for dealings with Optus, notwithstanding a warning that Optus might undermine BRS' commercial operations should the company be acquired by the cross claimants. On the other hand, her preparedness to take such a risk was calculated by reference to due diligence inquiries conducted under her supervision; assurances given to her by or on behalf of the cross defendants (particularly the first and second cross defendants as members of her staff and the fourth cross defendant in connection with his 'Discussion Points'); and her perception that she had a good commercial relationship with Optus which would survive commercial rivalry with Optus intrinsic to the competing offers made by the cross claimants and Optus in 2014 for acquisition of BRS. 169. She was a business woman prepared to take a calculated risk, but she was not foolhardy or irresponsible. …."
4. One observation that may be made at this point is that the primary judge's statement at [168] that Ms Kaliviotis was prepared to proceed "notwithstanding a warning that Optus might undermine BRS' commercial operations should the company be acquired by the cross claimants" appears to underplay or underemphasise what Marque Lawyers had disclosed to Ms Kaliviotis by way of email on 25 November 2014. The warning was not that Optus "might undermine" BRS's commercial operations, but that Optus "would terminate its Master Services Agreement with BRS upon any such change of control transaction occurring" (emphasis added).

Optus negotiations

1. During this period, BRS was also negotiating with Optus as a potential buyer. The threats made by Mr Paitaridis of Optus on 25 November 2014 have already been referred to at [34] above. They evidently did not deter Ms Kaliviotis.
2. On 28 November 2014, the BRS board of directors gave notice of an extraordinary general meeting of the company to permit the company's shareholders to reconsider their approval of the first cross-claimant's offer to acquire the company, in light of a fresh offer from Optus. The meeting was called for 5 December 2014.
3. In an email sent on 4 December 2014 to Mr Wormald, Mr Paitaridis wrote as follows: "As discussed, keen to get on and close this transaction. SingTel, Optus has submitted a compelling offer to acquire Broadreach, we are committed to concluding the acquisition as soon as possible. In our recent experience with similar acquisitions, FIRB approval has been quick - no reason to expect delays on this one. I do however need to remind you, Broadreach and the other shareholders that if another party acquires Broadreach we will be in a position to exercise our right to terminate the MSA due to there being a material change in control of the supplier, as it is our clear right. I reiterate my commitment to getting this deal done, as I believe it is in the best interests of Broadreach employees, shareholders and customers. I need your support to get this done please. We will await advice from you following the shareholders meeting."
4. By a Term Sheet dated 4 December 2014 (the Optus Term Sheet), Optus Networks Pty Ltd made an offer, subject to due diligence, to acquire 100% of the shareholding in BRS for $1.6 million. Some but not all of the clauses of this Term Sheet were intended to be legally binding. Included in the legally binding clauses was cl 15, headed "Confidentiality", which provided that: "The Parties will not at any time disclose the contents of this Term Sheet and the fact that negotiations are taking place between the Parties in relation to the Proposed Transaction without the consent of the other Party, unless such disclosure is required by law or any regulatory body or the rules of a recognised stock exchange. The terms of this provision shall survive the completion or termination of the Proposed Transaction for a period of 12 months from completion or termination, whichever is the later".

The 19 January 2015 telephone conversation

1. On 19 January 2015, Mr Barrett telephoned Ms Kaliviotis who was holidaying overseas at the time, to inquire if she was still interested in acquiring BRS. Ms Kaliviotis' version of that conversation, which the primary judge accepted at [129] to be correct, was as follows: "Barrett: The sale to Optus is falling through. They were meant to pay us money but are mucking us around and haven't done so. Are you still interested? Ms Kaliviotis: Yes, I am. Barrett: We need to finalise it quickly. Ms Kaliviotis: We will need to do more due diligence. Barrett: We don't really have the time. I don't want Optus to know that the sale is going through. Ms Kaliviotis: I don't know what the current financial position is and I don't know what the current debts are. Barrett: You have done due diligence up to November. [The third cross defendant, the second plaintiff] and I will set aside $200,000 from the sale price to deal with any problems. Ms Kaliviotis: That sounds all right. I will tell Roger [Tiller] and John [Diacopoulos, her solicitor]."

Events between 19 January 2015 and the Share Sale Agreement

1. The primary judge accepted as substantially correct the following telephone conversation said to have occurred between Mr Barrett and Ms Kaliviotis on 20 January 2015: "Ms Kaliviotis: ELB (the second cross claimant] is going to be the purchaser, not Maradaca [the first cross claimant]. Barrett: The shareholders have already executed the Share Sale Agreement, which was with Maradaca. If we change purchasers at this stage, this would delay the purchase and might prevent the transaction from occurring. Ms Kaliviotis: I will need to transfer the shares to ELB after the sale then. If you are happy to cover any stamp duty on the transfer, I am happy to go ahead with Maradaca making the initial purchase. Barrett: That's fine."
2. On or about 20 January 2015, Mr Tiller had a telephone conversation with Ms Kaliviotis about whether further due diligence should be conducted, in terms to the following effect: "Tiller: Should we be doing further due diligence? Kaliviotis: [The first plaintiff/cross defendant] said there was no time and we have to move quickly. [He, the second plaintiff/cross defendant and the fourth cross defendant] have agreed to put $200,000 in escrow to cover us in the event that we find anything untoward after the purchase goes through. I want [the second cross claimant] to purchase the BRS shares, but [the first plaintiff/cross defendant] tells me that because of the short timeframe, the shareholders want to use the previous version of the Share Sale Agreement which has [the first cross claimant's] name on it. I said that was fine given the urgency, but that [the first cross claimant] would assign the shares in BRS to [the second cross claimant] after the sale went through, that the vendors needed to pay any stamp duty associated with that transfer. [The first plaintiff/cross defendant] agreed with that. This all needs to be documented."

The Share Sale Agreement

1. On 23 January 2015, the shareholders of BRS and Maradaca proceeded to formalise the SSA with Ms Kaliviotis for a total price of $1.35 million, subject to adjustments.
2. The expression "Due Diligence Materials" was defined by cl 1.1 of the SSA to mean: "(a) all documents and information made available to the Buyer, its representatives or advisers from 1 October 2014, an index of which is attached as Schedule 6; (b) all written answers given to written questions submitted by the Buyer, its representatives or advisers in connection with the Buyer's due diligence investigations prior to the date of this agreement in respect of the sale and purchase of the Sale Shares; and (c) the information set out in the dropbox data room established by the Sellers in relation to the sale and purchase of the Sale Shares and referred to as '15.0 Transaction Documentation-Electroboard'."
3. Clause 5.2 of the SSA provided for the proceeds of sale to be allocated to the sellers in proportion to the number of shares held in BRS by them. Its terms also included, inter alia, warranties given by the sellers to the buyer (cl 8); limitations on the liability of the seller arising from disclosures made by the sellers (cl 9); a "no reliance" clause (cl 9.3); an "entire agreement" clause (cl 16.8); and a qualified covenant against assignments of rights and interests under the agreement (cl 16.3).
4. Clause 8 of the SSA contained the following "Warranties and Indemnities": "8.1 Warranties The Sellers give the Warranties in favour of the Buyer, and represent and warrant that each of the Warranties given is accurate, complete and not misleading: (a) in respect of each Warranty that is expressed to be given on a particular date, on that date; and (b) in respect of each other Warranty, on the date of this agreement and on each day between the date of this agreement and the Completion Date (including at Completion). 8.2 Reliance The Sellers acknowledge that the Buyer enters into this agreement and completes this agreement in reliance on the accuracy and completeness of the Warranties. 8.3 Application of Warranties Each Warranty remains in full force after Completion and is separate and independent and not limited or restricted by any other Warranty or provision of this agreement."
5. Clause 9.1 of the SSA contained the following on "Limitations of liability": "(a) The Buyer acknowledges and agrees that the Sellers have disclosed or are deemed to have disclosed against the Warranties, and the Buyer is aware of and will be treated as having actual knowledge of, all facts, matters and circumstances that: (i) are provided for or described in this agreement or a Transaction Document; (ii) are disclosed in the Due Diligence Materials; (iii) are disclosed on any public record (including any records maintained by ASIC, IP Australia or any other Government Agency, or any domain name registrars or any equivalent bodies in other jurisdictions in which the Business is conducted); or (iv) are within the actual knowledge of a Buyer Group Member. (b) The Warranties are given subject to the disclosures or deemed disclosures described in clause 9.1(a). The Sellers will have no liability under the Warranties to the extent that disclosure is made or is deemed to have been made against the Warranties under this clause 9.1. (c) The Buyer may not bring a Warranty Claim if the facts, matters and circumstances giving rise to that Warranty Claim are disclosed (or are deemed to have been disclosed) under clause 9.1(a)."

The aftermath of the acquisition of BRS

1. On completion of the SSA on 28 January 2015, Maradaca funded BRS to pay out its overdraft, by a loan of $886,067.45 made to BRS by ELB. Two days later, Mr Tiller had a telephone conversation with Mr Reddie (in the latter's capacity as a representative of Optus), in which Mr Tiller endeavoured to assure Optus that, under ELB's management, BRS's capabilities would be maintained, with Mr Reddie expressing concerning that BRS would not be able to maintain its skilled staff.
2. In that telephone conversation and in subsequent correspondence on 1 February 2015, Mr Tiller endeavoured to assure Optus that ELB would use its best endeavours to ensure that BRS would maintain the continuity of services previously provided by the company, and that BRS would endeavour to retain its skilled employees.
3. By two separate letters dated 4 March 2015 signed by Mr Paitaridis addressed to BRS, which were in substantially similar terms, Optus terminated the Term Sheet and the MOU dated 4-5 December 2014 and, upon termination of the MOU, demanded that BRS repay the prepaid $236,000.
4. On or about 17 March 2015, three BRS employees simultaneously resigned from BRS and commenced employment with Optus.
5. On 19 April 2015, Optus issued to BRS an invoice for repayment of the sum of $236,000 plus GST.
6. On 20 April 2015, the solicitors for ELB/Maradaca delivered to the solicitors for the cross-defendant a letter, which relevantly included the following: "It has come to the notice of the purchaser that Broadreach Services Pty Ltd (the 'Company') had entered into a term sheet and MoU with Optus on or about 4th December 2014, setting out arrangements that if breached by the Company could result in the Company being liable to Optus for $236,000 plus GST. I am instructed that the 'Optus arrangements' of the 4th December 2014 were not disclosed to my client and accordingly my client is of the view that there is breach of warranty on the part of the vendors of the shares in that there is at least a breach of warranty given under paragraph 7.2 of Schedule 2 of the share sale agreement dated the 23rd January 2015. Optus terminated the Term Sheet and indicated that it intended to make a claim. Optus has now made a claim for the return of all funds paid namely the sum of $259,600.00. I am also advised to put the vendors on notice that there may be other warranty breaches. Accordingly the relevant vendors of the shares in Broadreach Services Pty Ltd are hereby put on notice that the escrow amount will be held in trust by [the cross claimants' solicitors] on behalf of Maradaca Pty Ltd and Us assignee Electroboard Solutions Pty Ltd for the purpose of it being applied to meet the liability of the Company in favour of Optus…" The cross-defendants objected to BRS repaying the $236,000 plus GST as demanded by Optus.

The case as pleaded

1. The case as pleaded was based upon representations sought to be spelled out from the "Discussion Points" document of 17 October 2014, non-disclosure of a series of matters which occurred between March 2012 and 31 October 2014, non-disclosure of the terms of the Optus Term Sheet and Optus MOU, and various matters which had been said by BRS's CEO, Mr Griffiths, in two emails to Mr Wormald of 16 January 2015. In para 32 of the Further Amended Statement of Cross-Claim (FASCC), particular focus was placed upon the following matters which were alleged not to have been disclosed to the cross-claimants: (a) "switching back to the EB deal could have catastrophic consequences for the business on an on-going business"; (b) Optus had in fact been negotiating with Key Employees as to the terms of their employment; and (c) Optus had threatened to "poach" the Key Employees or some of them.
2. The FASCC made no reference at all to the telephone call of 19 January 2015 between Mr Barrett and Ms Kaliviotis. No representations were pleaded as arising from it, nor was anything said in the telephone conversation alleged to have been misleading or deceptive. The significance of this observation lies in the fact that what was said in this conversation assumed critical importance in the reasoning of the primary judge, as shall be seen below.
3. The proceedings at first instance seem, in this regard, to have departed significantly from the pleaded case. This is not an unknown phenomenon in litigation and where both sides have acquiesced in this, neither party can be heard to complain on an appeal that the case departed from the pleadings: see Banque Commerciale SA en Liquidation v Akhil Holdings Limited (1990) 169 CLR 279 at 288; [1990] HCA 11; Dare v Pulham (1982) 148 CLR 658 at 664; [1982] HCA 70.
4. Thus, under the subheading "Competing Narratives", the primary judge described Maradaca/ELB's case as that the cross-defendants "engaged in misleading and deceptive conduct by silence": at [160]. His Honour noted that Maradaca/ELB placed heavy reliance on Gummow J's decision, when a member of the Federal Court, in Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31 at 32 and 41; [1992] FCA 557 (Demagogue) and on this Court's decision in Fabcot Pty Ltd v Port Macquarie-Hastings Council [2011] NSWCA 167 at 209.
5. The primary judge noted at [161] that "[t]he cross defendants accepted this statement of the law, but emphasised authoritative statements about the need to take into account the commercial sophistication of Ms Kaliviotis … her preparedness to take a risk in acquisition of BRS in light of the disclosures made in the centrally important email of 25 November 2014". His Honour also noted the cross-claimants' particular reliance upon Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Limited (2010) 241 CLR 357; [2010] HCA 31 at [20], [22], [91] and [96] (Miller) and the important observation of Gleeson CJ in Lam v Ausintel Investments Australia Pty Ltd (1989) 97 FLR 458 at 475 (Lam): "Where parties are dealing at arm's length in a commercial situation in which they have conflicting interests it will often be the case that one party will be aware of information which, if known to the other, would or might cause that other party to take a different negotiating stance. This does not of itself impose any obligation on the first party to bring the information to the attention of the other party, and failure to do so would not, without more, ordinarily be regarded as dishonesty or even sharp practice. It would normally only be if there were an obligation of full disclosure that a different result would follow. That would occur, for example, by reason of some feature of the relationship between the parties, or because previous communications between them gave rise to a duty to add to or correct earlier information."

The primary judgment

1. At [173]-[176] of his judgment, the primary judge said: "[173] The cross defendants contend that the cross claimants' commercial sophistication, knowledge and preparedness to take a risk operate decisively against their claim for relief as (the cross defendants contend) those factors continued to operate after 5 December 2014, up to and including 28 January 2015. [174] The terms of the conversation between the first plaintiff/cross defendant and Ms Kaliviotis on 19 January 2020 cut both ways. [175] On the one hand, Ms Kaliviotis was told that 'the sale to Optus is falling through' and the first plaintiff/first cross defendant did not 'want Optus to know' that a sale with the cross claimants 'is going through', signalling perhaps that Optus may have remained a competitive rival of the cross claimants. Ms Kaliviotis' willingness to proceed with an acquisition of BRS, without more due diligence, on the basis of a $200,000 security fund might also demonstrate a voluntary assumption of an element of risk on the part of the cross claimants. [176] Against that, Ms Kaliviotis did not have disclosed to her the terms, or currency, of the arrangements between 'BRS' and Optus, and she was implicitly assured that a security fund of $200,000 was sufficient to address any want of updated due diligence. She was, implicitly, given comfort that not much had changed since her (the first cross claimant's) offer was rejected by 'BRS' on 5 December 2014." (emphasis in original).
2. The last paragraph of this extract characterised the statement made by Mr Barrett to Ms Kaliviotis in the 19 January 2015 conversation as involving an "implicit assurance" to Ms Kaliviotis. His Honour in this and later paragraphs of his reasons expressed the assurance in a number of different ways:

• an "implicit assurance that (with the benefit of a $200,000 security fund) there was no need to do 'due diligence' beyond that done in November 201[4]": at [169];
• "she was implicitly assured that a security fund of $200,000 was sufficient to address any want of updated due diligence. She was, implicitly, given comfort that not much had changed since her (the first cross claimant's) offer was rejected by "BRS" on 5 December 2014": at [176];
• "assuring her that not much had changed, without disclosure of things that had changed in the interim and without disclosure, more particularly, of their ongoing contractual commitments to Optus (BRS' largest customer), inconsistent though such commitments were with the sale of BRS to the cross claimants": at [177];

Grounds of appeal

1. Wirra Wirra and Mr Wormald challenged the primary judge's conclusions on misleading or deceptive conduct, causation, contribution, loss and damage and apportionment between the cross-defendants, and the conclusions on the breach of warranty claim. The core attack on the central finding of misleading or deceptive conduct was contained in appeal grounds 2-5 as follows: "2. The trial judge erred in finding that the cross-claimants had a reasonable expectation in all the circumstances that the cross defendants collectively, or alternatively the third and fourth cross defendants specifically, would inform the cross-claimants of the contractual arrangements between BRS and Optus (in the form of the Term Sheet and MOU) and of any development since 5 December 2014 which would materially change the nature or magnitude of the risks associated with termination of the Master Services Agreement with Optus or the loss of current BRS employees. 3. The trial judge erred in finding that in the period between 5 December 2014 and the sale of the shares to the first cross-claimant on 23 January 2015 there was a change in the nature or magnitude of the risks associated with termination of the Master Services Agreement with Optus or the loss of current BRS employees that was material, having regard to the circumstances of the sale to the cross-claimants. 4. The trial judge erred in finding that the cross-defendants collectively, or alternatively the third and fourth cross-defendants specifically, had given the cross-claimants an 'assurance' in January 2015 that nothing material had changed since 5 December 2014, there was no need to do due diligence beyond that which had been done up to 5 December 2014 and/or that a security fund of $200,000 was sufficient to address any want of further due diligence and any change of circumstances. 5. The trial judge erred in finding that upon their acquisition of shares in BRS, the cross-claimants were confronted with a legal dispute with Optus."
2. The "cross-appeal" of Messrs Barrett and Moran (see [18] above) materially replicated the grounds in Wirra Wirra and Mr Wormald's appeal other than those concerned with apportionment as between the cross-defendants.
3. Maradaca/ELB also filed a Notice of Contention, with ground 1 relevantly as follows: "In addition to the conduct found by the trial judge to be misleading and deceptive the cross-defendants also engaged in further conduct which was misleading, deceptive or likely to mislead or deceive by failing to inform the cross-claimants of the following matters: (a) that between mid-October 2014 and 23 January 2015 the overdraft of BRS increased by nearly $200,000 from $690,000 to $886,000 or thereabouts; (b) that without external financial assistance prior to 28 January 2015, there were reasonable grounds for an expectation that BRS would on that date be insolvent; (c) that BRS was $50,000 short of making payroll in January 2015; (d) that BRS had requested that invoices be paid outside the billing cycle; (e) that the Chief Executive Officer of BRS held the view that a sale of BRS to the cross-claimants could have 'catastrophic consequences' for the business of BRS vis a vis Optus; and (f) that in late 2014 a representative of Optus had specifically threatened to poach employees away from BRS regardless of the terms of the Master Services Agreement between Optus and BRS." Paragraphs 1(a) and (f) of the Notice of Contention were not pressed.

The authorities

1. In Fraser v NRMA Holdings Limited (1995) 55 FCR 452 at 467 (Fraser v NRMA), the Full Court of the Federal Court said in the context of s 52 of the Trade Practices Act 1974 (Cth), that: "Where the contravention of s 52 alleged involves failure to make full and fair disclosure of information, the applicant carries the onus of establishing how or in what manner that which was said involved error or how that which was left unsaid had the potential to mislead or deceive."
2. Whilst this proposition is elementary, in a case such as the present where the way it was ultimately put changed quite significantly from the way it was originally pleaded, the evidence led may be deficient or inadequate to demonstrate a case that has developed or been refined as a trial progresses. In this context, the well-known dictum of Handley JA in Commercial Union Assurance Company of Australia Ltd v Ferrcom Pty Ltd (1991) 22 NSWLR 389 at 418 (Ferrcom) may come into play, acknowledging always that hypothetical, counterfactual evidence given after the event must be closely scrutinised: see, for example, Permanent Trustee Australia Ltd v FAI General Insurance Company Ltd (in liq) (2003) 214 CLR 514; [2003] HCA 25 at [29]; Rosenberg v Percival (2001) 205 CLR 434; [2001] HCA 18 at [155] and [214]; and Ellis v Wallsend District Hospital (1989) 17 NSWLR 553 at 560, 581.
3. In Ferrcom, Handley JA expressed the view that the Court should not draw inferences favourable to a party when no attempt was made to prove them by direct evidence and, in particular, when no relevant questions were asked of the witness. His Honour continued (at 418) by saying that he could see no reason why the principles in Jones v Dunkel (1959) 101 CLR 298; [1959] HCA 8: "…should not apply when a party by failing to examine a witness in chief on some topic, indicates 'as the most natural inference that the party fears to do so'. This fear is then 'some evidence' that such examination in chief 'would have exposed facts unfavourable to the party': see Jones v Dunkel (at 320-321) per Windeyer J."
4. The failure to lead evidence as to why non-disclosed evidence was material (and the failure to ask questions in relation to the subject matter of the non-disclosed matters at the time) was treated as significant in DCT Projects Pty Limited v Champion Homes Sales Pty Limited [2016] NSWCA 117 at [136].

Was there relevantly misleading or deceptive conduct causative of loss or damage?

1. I take as a starting point the question of the proper characterisation of the 19 January 2015 telephone conversation between Mr Barrett and Ms Kaliviotis and, in particular, whether it involved any of the varying assurances which the primary judge said it gave rise to, whether expressly or implicitly: see [93] above. I do not consider that it did and that the primary judge, with the greatest of respect, erred in his conclusion to the contrary. This conclusion coloured the balance of his analysis, and warrants appellate intervention. My reasons for this are as follows.
2. First, no express assurances were given. Rather, there was an air of desperation to Mr Barrett's overture - "The sale to Optus is falling through. They were meant to pay us money but are mucking us around and haven't done so … We need to finalise it quickly … We don't really have the time. I don't want Optus to know that the sale is going through." The statement that $200,000 would be set aside from the sale price "to deal with any problems" was neither a statement that there were no problems nor that there were problems having a value of $200,000 but, rather, was an acknowledgment that there could be problems, and $200,000 was what the Majority Shareholders would be prepared to set aside to deal with any such problems. As submitted in reply on Mr Wormald's behalf, the conversation proceeded on the assumption that things may well have changed, but the circumstances did not permit inquiry into the materiality of any such changes.
3. Secondly, contrary to the primary judge's observations at [176] and [177] that Ms Kaliviotis was given "comfort" and an "assurance" that "not much had changed" since her first offer was rejected, she had been told that Optus had not paid the company money that it was meant to pay BRS and was "mucking" it around. This statement must be understood in the context of Ms Kaliviotis' earlier knowledge as to BRS's heavy reliance on Optus and very poor cashflow/overdraft position, which would and could only have been exacerbated by the company being "mucked around" by Optus: see, for example, [26], [31] and [32] above. Moreover, the urgency to the request and the need for speed, only reinforced by the follow up telephone conversation the following day (see [63] above), suggested a rapidly deteriorating and vulnerable and/or volatile position.

The warranty claim

1. Ground 17 of the notice of appeal complained that the finding of the primary judge that the failure of the appellants to disclose the existence, terms, implementation and currency of the Optus Term Sheet and MOU rendered the Due Diligence Material inaccurate in material respects, and misleading, such as to constitute a breach of warranty pursuant to cl. 15.2 of Sch. 2 and cl. 8.1 of the SSA. At the trial, Maradaca/ELB accepted that if they did not succeed on the misleading and deceptive conduct claim they were likely to fail on the warranty claim.
2. Ground 18 of the notice of appeal, which dealt with the timing of the making of the warranty claim, was not pressed.
3. In this Court, virtually no attention was paid to the breach of warranty claim. In the respondent's written submissions, no doubt reflecting the approach taken at trial, ground 17 of the notice of appeal and the warranty claim was not specifically mentioned. Whilst a proposed cross-appeal addressing a new breach of warranty claim was circulated on 30 October 2020 (together with written submissions in support of filing that proposed cross-appeal out of time), the application was abandoned on 2 November 2020, the morning of the hearing of the appeal.
4. On the hearing of the appeal, Mr Free SC for the first and second appellants submitted that: "The focus of the reasoning was on misleading and deceptive conduct and his Honour effectively reasoned on the breach of warranty claim that, having found misleading and deceptive conduct, in effect, breach of warranty was established… …our friends at trial, and we understand they don't resile from this position on appeal, accept that if they don't win on misleading and deceptive conduct they can't win on the breach of warranty case…"
5. Other than to indicate that the breach of warranty case which succeeded below was not abandoned, Mr Pike SC, for Maradaca/ELB did not address the separate warranty claim at all in his oral address on the appeal.
6. In these circumstances and given the way the matter was run at first instance and on appeal where the success of the claim depended on establishing non-disclosure, it is not necessary to deal any further with the breach of warranty claim.

Remaining claims

1. These reasons are sufficient to dispose of the appeals and the notice of contention. Given the conclusions reached I have considered whether in accordance with Kuru v State of New South Wales (2008) 236 CLR 1; [2008] HCA 26 at [12] I should deal on a contingent basis with the issues of contributory negligence, damages and apportionment of damages. I have concluded that I should not. It is neither necessary nor efficient to do so: see Boensch v Pascoe (2019) 94 ALJR 112; [2019] HCA 49 at [7]-[8]
2. The detailed attack made upon the primary judge's assessment that the company had a nil value at the time of the acquisition, a conclusion that was driven by incorrect assumptions that the forensic accountant, Mr Samuel, called on behalf of Maradaca/ELB, was asked to make (see [98] above), raises issues about which detailed findings would need to be made, contrary to my principal conclusion that causation was not established. There are also issues about the value of BRS in the years after its acquisition by Maradaca/ELB where a substantial profit was achieved and the extent to which that evidence should be taken into account: Kizbeau Pty Ltd v W.G. and B. Pty Ltd (1995) 184 CLR 28; [1995] HCA 4. Findings about apportionment of damages are even more problematic as they depend upon both findings about causation and damages, contrary to my principal conclusions.

Orders

1. I propose the following orders: 1. Appeal and cross-appeal allowed. 2. Judgments of 24 April 2020 and 8 May 2020 and the orders made on 8 May 2020 of the Court below be set aside. 3. An order that the first respondent pay the second appellant $114,639.00 and interest pursuant to s 100 of the Civil Procedure Act 2005 (NSW). 4. An order that the first respondent pay the first cross-appellant $30,289.00 and interest pursuant to s 100 of the Civil Procedure Act 2005 (NSW). 5. An order that the first respondent pay the second cross-appellant $55,072.00 and interest pursuant to s 100 of the Civil Procedure Act 2005 (NSW). 6. An order that the Further Amended Statement of Cross-Claim be dismissed with costs. 7. The first and second respondents pay the appellants' and cross-appellants' costs.
2. PAYNE JA: I agree with Bell P.

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