Zomojo Pty Ltd v Hurd - [2012] FCA 1458 - FCA 2012 case summary — Zoe

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Zomojo Pty Ltd v Hurd

[2012] FCA 1458

Federal Court of Australia|2012-12-19|Before: Gordon J

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Court

Federal Court of Australia

Decision date

2012-12-19

Before

Gordon J

Source

Original judgment source is linked above.

Judgment (74 paragraphs)

[1]

INTRODUCTION 1 The Applicant, Zomojo Pty Ltd (Zomojo), was and remains involved in high frequency trading (HFT) primarily on the Korean Stock Exchange (KRX) using proprietary technology it developed in house. HFT is a broad term encompassing various quantitatively derived, computer driven and high volume trading strategies where equities and derivatives are traded based on small perceived mis-pricings over short, intra-day periods of time. 2 Zomojo's involvement in HFT was, and remains, multifaceted. It was and remains engaged in: 1. developing, marketing and supplying low latency market gateway products and services for use by professional traders in equity and like markets (Zomojo's Gateways), principally for use on the KRX; 2. trading in equity and like markets by using and exploiting the low latency of Zomojo's Gateways and proprietary trading engine (Zomojo's Trading) again, principally on the KRX; 3. developing proprietary low latency hardware and software products, including its own firmware for third party network interface cards (NICs), and later its own NICs, called the Z1 and Z10 (Zomojo's NICs), and a communication and scheduling framework called the Ion framework (Ion); and 4. developing, marketing and supplying an alternative trading system (ATS) for equity and like markets that utilises software and hardware so as to achieve minimum latency (Zomojo's ATS). 3 Matthew John Hurd (Hurd) (the First Respondent) was a director, an officer, an employee, the company secretary and a shareholder of Zomojo from its incorporation on 3 June 2005 until early 2011. Under a Service Agreement Hurd signed with Zomojo on 2 December 2005 (the Service Agreement), Hurd was appointed as a co-managing director of Zomojo and was required, inter alia, to diligently perform specified duties, devote the whole of his time and attention during normal business hours to the performance of those duties, at all times use his best endeavours to promote Zomojo's interests and not be (directly or indirectly) involved or interested in any other business or occupation which materially interfered with the performance of those duties or competed in any respect with the business of Zomojo. Hurd was also Zomojo's key decision maker with respect to the technological direction of Zomojo and, under the Service Agreement, was required to make prompt and full disclosure to Zomojo of the evolution, discovery or invention of any invention. 4 From no later than September 2010, Hurd set out on a covert course of conduct that was nothing more than a flagrant and deplorable attempt to appropriate benefits for himself which were properly those of his employer. In Hurd's own words, his conduct from late 2010 onwards was not "flattering" and was disreputable. 5 Hurd's conduct was blatant, deliberate and done by him knowing that what he was doing was wrong. Hurd was a most unsatisfactory witness. Except for admissions against his interests, I cannot and do not accept his evidence unless, and only to the extent that, his evidence was corroborated by independent contemporaneous evidence. During the course of his evidence, he admitted on no less than 26 occasions that what he wrote or said was false, a lie or both. But that evidence itself had problems. Hurd's admission that something was false or a lie was itself, often, false. Hurd gave evidence he thought would advance his case as he saw it. Why? Because Hurd was, and remained, focussed on securing for himself an advantage over Zomojo whilst consciously disregarding his legal and ethical obligations. He "adapted" his evidence accordingly. Hurd said in evidence that he thought a description of his conduct during this period as "reprehensible" was "harsh". It was not harsh. Hurd's conduct was dishonest. He showed no remorse, just bitterness. 6 Hurd's conduct needs to be addressed by reference to two time periods: 1. up to and including 11 February 2011, when his resignation as an employee of Zomojo took effect; and 2. the period after his resignation took effect on 11 February 2011. 7 Did Hurd breach the Service Agreement, one or more of ss 181(1) and 183(1) of the Corporations Act 2001 (Cth) (the Corporations Act) and his duties of fidelity and good faith to Zomojo? The answer is yes. It will be necessary to deal with each period separately. The facts relevant to each period are, of course, to some extent interconnected but the applicable legal framework is different.

[2]

2.1 2005 - The establishment of Zomojo 8 Zomojo was the brainchild of three individuals: Dr Greg Robinson (Robinson), Mr Ian Heddle (Heddle) and Hurd. Robinson, Heddle and their associates provided the start-up capital. Hurd did not provide any start-up capital. 9 Zomojo was established in order to undertake HFT on the KRX. In a Zomojo "trading proposal" document produced by Hurd on 31 May 2005, Hurd described Zomojo's business as an "index option arbitrageur". The proposal acknowledged that every other trader was a competitor - "[i]f you aren't fast enough, you don't win the race to trades and you can't participate. Too slow, no trades, the door is firmly shut". As Hurd went on to say "[t]o enable participation you have to be able to win on the technology front to capture trades". In that document, Hurd also noted that "[s]ecrecy and staff retention is very important to maintaining proprietary advantage" and that "knowledge of the IP [intellectual property] should be carefully managed within Zomojo so the techniques used are not widely known". Hurd said that it was important not to disclose "all implementation details" to shareholders or directors with conflicts of interest. Hurd identified as Zomojo's principal business risk "important staff leaving with enough IP [intellectual property] in their heads to competitively hurt the venture". 10 Zomojo was incorporated on 3 June 2005. As at that date, Hurd and Heddle were the directors of Zomojo, Hurd was the company secretary and Hurd and Heddle each owned one share. 11 Hurd commenced writing code for the KRX trading engine in June 2005. By the end of July 2005, three further programming staff had been hired. It took Hurd approximately nine months to develop the software for Zomojo's trading engine. The first version of the trading engine was slow and the hedging algorithm was inadequate. Hurd rewrote the program and, by May or June 2006, the system was fast enough to undertake basic trading activity and profitable enough to cover Zomojo's costs. 12 During the second half of 2005, Robinson supervised the drafting of documentation including Zomojo's Constitution, a Shareholder Agreement, an employee share ownership plan (ESOP), an Zomojo Employee Option Plan (ZEOP) and employee service agreements. Robinson utilised the services of Dr Nick Brash (Brash), a lawyer of Brash Solutions, to draft those documents. Robinson provided those documents in draft form to Heddle and Hurd, where relevant, for their comment. One such communication was an email from Brash to Robinson on 14 October 2005, attaching a draft of the Plan Deed and Offer Booklet (in relation to the ESOP), which Robinson forwarded to Heddle and Hurd (on the same day). That email noted that there was a further document, a "Plan Information Booklet", which was still to come. Hurd gave evidence that he did not specifically recall receiving Robinson's 14 October 2005 email but that he recalled receiving documentation at around that time. 13 On 21 November 2005, the Board of Zomojo (consisting of Heddle and Hurd) passed resolutions which had the following effect: 1. Hurd and Heddle each transferred their one share in Zomojo to entities nominated by a Zomojo investor, Mr Bill Burdett, and Robinson; 2. 2,998 shares were issued in Zomojo to entities nominated by Mr Burdett, another investor, Mr Tim Batho and Robinson, as follows: 2.1 Mr Batho - 1,000; 2.2 Mr Burdett - 999; and 2.3 Robinson - 999; and 3. Zomojo entered into the Shareholder Agreement with the three shareholders. 14 Under the Shareholder Agreement, Robinson was appointed Chairman of the Board. On 2 December 2005, the Board of Zomojo (consisting of Robinson, Heddle and Hurd) approved: 1. the establishment of the ZEOP in accordance with the Plan Rules and the issuing of options pursuant to the ZEOP; 2. the establishment of the ESOP in accordance with the Plan Deed and, upon approval by the shareholders, the signing of the Plan Deed and the transfer or issuing of shares and the making of loans pursuant to the ESOP; 3. the entry by Zomojo into the Service Agreement with Hurd and a service agreement with Heddle; and 4. the offer by Zomojo and, upon acceptance, the issuing of, options pursuant to the ZEOP as follows: 4.1 Hurd - 400,000; and 4.2 Heddle - 100,000. 15 On 2 December 2005, the shareholders of Zomojo passed resolutions approving: 1. an amendment to Zomojo's Constitution; 2. the establishment of the ZEOP in accordance with the Plan Rules and the issuing of options pursuant to the ZEOP; and 3. the establishment of the ESOP in accordance with the Plan Deed, Zomojo entering into the Plan Deed, and the transfer or issuing of shares and the making of loans pursuant to the ESOP. 16 On the same day, Hurd was offered, and accepted, 400,000 options in Zomojo. By accepting the options, Hurd agreed "to be bound by the terms and conditions of the offer, the Plan Rules, the Constitution of Zomojo and Zomojo's Shareholder Agreement in force from time to time". Hurd's nominee also signed an accession to the Shareholder Agreement on that day. 17 It is necessary to examine the terms of several of the documents executed on 2 December 2005 in some detail. 18 First, the Service Agreement. It was between Hurd and Zomojo. Its terms governed his role as one of two co-managing directors of Zomojo. From the outset, his role "involved managing all aspects of the business including technology and developments at Zomojo". 19 Under cl 3.1(a), Hurd was required to "diligently perform the Services". "Services" was defined in cl 1 to mean the duties specified in Item 2 of Sch A to the Service Agreement and such other duties as were consistent with the position to which Hurd was appointed, subject to any modifications or additions agreed by the parties from time to time. Item 2 of Sch A defined the duties as follows: Co-Managing Director, each having concurrent powers as Managing Director, but in practice the co-Managing Directors will each focus on complementary aspects of the business, with Matt Hurd managing technology and developments and Ian Heddle managing trading and operations. The Shareholder Agreement defined the role of Managing Director in the same terms: see cl 15(a). 20 Consistent with cl 3.1 of the Service Agreement, other obligations were imposed on Hurd. Clause 3.3 provided: Unless absent on leave or through illness or injury, the Managing Director shall devote the whole of his time and attention to the performance of the Services during normal business hours and at such other times as may reasonably be necessary to the business of [Zomojo], … 21 In addition, at all times Hurd was to "use his best endeavours to promote the interests of [Zomojo]": cl 3.4. Finally, cl 3.5 provided that: The Managing Director shall not while employed by [Zomojo] (without the written consent of the Board) be directly or indirectly involved or interested in any other business or occupation which: (a) materially interferes with the performance of the Services; or (b) competes in any respect with the business for the time being of [Zomojo] …, however this provision shall not prohibit the Managing Director from holding: (i) less than 10% of the issued capital in a publicly listed company; or (ii) any interest in a business unassociated with the core businesses of [Zomojo]. 22 Hurd's obligations did not end there. Zomojo was a start up company. The stakes were big. Hurd was the technological driver of Zomojo. Hurd had not contributed capital to the start up - his contribution was his computer programming expertise. Unsurprisingly, other clauses specified what Hurd had to do and what he could not do with technology whilst he was at Zomojo and if he left Zomojo. 23 Clause 10, headed "Inventions and Assignment", was in the following terms: 10.1 The Managing Director … assigns to [Zomojo]: a. all inventions, discoveries and novel designs whether or not registrable as designs or patents throughout the world; b. the entire copyright throughout the world in all writing (including but not limited to product designs, product sketches, computer software, source code, object code, flow charts, programmer's notes and other documentation and all adaptions, alterations or modifications of any computer software, source code or object code), created previously while in [Zomojo's] employ, created now or created in the future as a result of or pursuant to his performance of the Services. 10.2 In addition to disclosing any inventions, discoveries, designs or copyright works referred to in the preceding clause, the Managing Director shall disclose and, if required by [Zomojo], assign to [Zomojo] any other inventions, discoveries, designs or copyright works devised or created by the Managing Director at the request of [Zomojo] during a period for which the Managing Director has been paid by [Zomojo]. 10.3 The Managing Director shall both during this agreement and after the expiry or termination of this agreement do all such acts and things, and sign all such documents, as [Zomojo] may reasonably request to secure [Zomojo's] ownership or rights to inventions, discoveries, designs or copyright works referred to in clauses 10.1 and 10.2. 10.4 The Managing Director shall make prompt and full disclosure to [Zomojo] of the evolution, discovery or invention of any invention. 10.5 The Managing Director irrevocably appoints [Zomojo] as his attorney to execute all such documents and do all such things as are required to be executed or done to give effect to the provisions of this clause. That clause survived termination of the Service Agreement: cl 17. 24 The Service Agreement also addressed what was to occur if the agreement was terminated. Clause 12.1, under the heading "Future Employment", provided: After termination of this agreement for any reason the Managing Director shall not, except with the written consent of [Zomojo], at any time until the expiration of the Restraint Period and within the Restraint Areas specified in item 9 of Schedule A, directly or indirectly, either on his own account or jointly with or on behalf of any other person, organisation or company, whether as a director, employee, member or otherwise: a. endeavour to entice away from [Zomojo], offer to perform services for or otherwise solicit the custom of any client or customer of [Zomojo] which was a client or customer of [Zomojo] within the last 12 months of the Managing Director's employment with [Zomojo]; b. offer employment or business opportunities to any employees of [Zomojo] or counsel, or procure or otherwise assist any person to do so; or c. be employed by, provide services or advice, or otherwise assist any company or entity that is involved with the trading of securities on any of the exchanges listed in item 10 of Schedule A. (Emphasis added.) 25 The "Restraint Period" was 12 months: Item 9 of Sch A. The "Restraint Areas" were: Sydney, Seoul, Tokyo, Osaka, Singapore, Hong Kong, New York, London, Frankfurt, Boston, Chicago, Honolulu, Los Angeles, Philadelphia, San Francisco. The "exchanges listed in item 10 of Schedule A" were extensive. Again, cl 12.1 survived termination of the Service Agreement: cl 17. 26 Two other subject matters were relevantly covered by the Service Agreement both during and after termination of the Service Agreement. They were described as "Confidential Information" and "Remuneration". Clause 9, entitled "Confidentiality", provided: 9.1 The Managing Director shall not during or after his employment by [Zomojo]: a. use any Confidential Information for any purpose not related to the business of [Zomojo]; or b. disclose any Confidential Information to any third party except pursuant to a confidentiality agreement approved by [Zomojo] and for the purposes of [Zomojo's] business. 9.2 The Managing Director shall use all reasonable endeavours to prevent disclosure of any Confidential Information by any third party to whom he discloses it. (Emphasis added.) 27 "Confidential Information" was defined in cl 1 of the Service Agreement to mean: … matters not generally known outside [Zomojo], information relating to the business of [Zomojo], including existing and future products and services, information relating to the technology, infrastructure, strategic plans, business plans, research, development, financial affairs, sales, costs, profits, organisation, customers, pricing methods, business partners …, the work (including computer programs) performed by the Managing Director pursuant to this agreement, and any other information which the Managing Director ought reasonably to be aware is confidential. Again, cl 9.1 survived termination of the Service Agreement: cl 17. A careful reader of cl 9.1 will notice that unlike cl 12, cl 9 applied to Hurd without limitation as to period or area. 28 Finally, in the area of remuneration, cll 4 and 8 of the Service Agreement were relevant. Hurd's remuneration had four components - salary (cl 4.1), issue of options in Zomojo (cll 4.2(a) and 4.5), entitlement to a profit-share bonus and shares (cll 4.2(a) and 4.6) and, of course, Superannuation Contribution (cl 4.2(b)). Clause 4 does not refer to any of the Plan Deed, Plan Rules, Offer Booklet or Plan Information Booklet. 29 Clause 8 was entitled "Termination". It relevantly provided that: 8.1 [Zomojo] may terminate this agreement immediately by notice in writing if the Managing Director: (a) commits any breach of the Managing Director's obligations and duties under this agreement or any agreement or arrangement with [Zomojo] which is, in the reasonable opinion of the Board, material; (b) in the reasonable opinion of a Managing Director is guilty of conduct tending to bring the Managing Director or [Zomojo] … into disrepute; … 8.2 Upon termination of this agreement pursuant to clause 8.1, the Managing Director shall not be entitled to any further compensation or damages other than pro rata salary and accrued annual leave to the date of termination. … 8.9. The Managing Director may terminate this agreement by giving one month's notice and upon such termination shall be entitled to all compensation due to the Managing Director under this agreement. … 30 The Plan Rules governed the ZEOP, while the Plan Deed (and its Schedules, the Offer Booklet and Plan Information Booklet) governed the ESOP. No provision of the Plan Rules (or cl 4.5 of the Service Agreement) specifically dealt with what was to occur if a participant in the ZEOP ceased employment with Zomojo. That is not surprising. Options could only be granted to an employee: Rule 6.2. Options could only be redeemed by an employee: Rule 7.2(a)(i). Options which had not vested lapsed upon cessation of employment: Rule 11.1(g)(i). Even if vesting had occurred, options would lapse upon cessation of employment if the employee was terminated for breach of the Service Agreement: Rule 11.1(g)(ii). Otherwise, vested options would lapse 60 days after cessation of employment: Rule 11.1(i). 31 If the options had been converted to shares, however, the position was different. Upon the exercise of options, in respect of the resulting shares, the participant agreed to be bound by the Plan Rules, Zomojo's Constitution and the Shareholder Agreement: Rule 9.6 of the Plan Rules. The participant also undertook not to take any action which would infringe the restrictions on sale of shares imposed by Rule 13: cl 9.7 of the Plan Rules. Rule 13.2 of the Plan Rules relevantly provided that: The Participant shall be permitted or obliged to deal with Shares if the participant would be permitted or obliged to do so had the Shares been acquired pursuant to the [ESOP]. 32 Finally, Rule 30.8 of the Plan Rules provided that Zomojo could buy back shares resulting from the exercise of options at a mutually agreed price. 33 Next, the Plan Deed for the ESOP. Recital 4 of the Plan Deed noted that the "terms of issue upon which employees will acquire shares are to be set out in the offer booklet containing the invitation to participate in the Plan and the information booklet, which are set out as Schedules to this Plan Deed ... and which are to be sent to eligible employees selected by the Board." Clause 1.2 of the Plan Deed stated that the "Plan Deed sets out general provisions governing how the Plan generally is to be operated, and the offer booklet and information booklet in the Schedule to this Plan Deed ... sets out the provisions to be incorporated into contracts between Zomojo and employee participants." There were, however, no Schedules to the Plan Deed as at 2 December 2005. 34 On 5 December 2005, Brash emailed the Plan Information Booklet for the ESOP to Robinson. Robinson forwarded Brash's email on the same day to Heddle and Hurd. Although Hurd, in his witness statement in reply, professed to have never received the 5 December 2005 email from Robinson (and its attachment), in his oral evidence he said he believed he would have received it and had no reason to think otherwise. Brash's email included the following explanation of how the ESOP documents fitted together: Fitting the documents together: To remind you how these documents fit together: the ESOP is constituted by the entering into of the Plan Deed pursuant to the 'stage 2' Board minutes previously provided, and the Offer Booklet and the Plan Information Booklet constitute schedules to the Plan Deed. I have ensured the attached Plan Information Booklet is in line with the ESOP Offer Booklet, clause 4.6 of the Employment Agreements, and with section 4 of the Employee Ownership Strategy paper last sent on 8 November 2005. To open the Word version of the Offer Booklet, you will be prompted to select the attached Excel spreadsheet (it might be easier if you first save the Excel document to a location so you know where to find it when prompted to select it). 35 The Plan Information Booklet contained the following relevant terms: 4.7 Selling Your Shares on Cessation of Employment (a) General Principles Following cessation of employment, you are not prevented by the Plan from selling your shares, however again you would need to comply with the relevant provisions and procedures set out in Zomojo's shareholder agreement. Zomojo has an option to procure a purchase of your shares within 30 days after your cessation of employment either for an amount equal to your loan outstanding if you are a bad leaver (see paragraph (b) below) or otherwise on the basis of a Plan valuation formula being 5 x the previous year's pre-tax profit (see paragraph (c) below). If the company does not exercise either option to procure a purchase of your shares, then if you so request, Zomojo must use its best endeavours to assist you in finding a buyer subject to the terms of Zomojo's shareholder agreement. Where a transfer of shares is to take place, you need to execute a transfer (or if you fail to, the Plan administrator may do so on your behalf) and Zomojo will record the change in ownership of the shares in its share register. Unless otherwise previously determined by the Board, if your employer ceases to be a member of the Zomojo group, your employment will be deemed to have ceased at that time, unless you re-commence employment with a member of the Zomojo group within 30 days after such cessation. (b) Special Rule 1: Bad Leavers The only exception is if you are a bad leaver, that is if you cease employment in circumstances that entitle Zomojo to dismiss you without notice. In this case, the Board has discretion to determine within 30 days after your cessation of employment by notice in writing to you that you must transfer your shares to Zomojo or its nominee for an amount equal to your loan outstanding. In this case, the share sale proceeds will be applied to discharge your Plan loan, and you would be entitled to a refund of any voluntary loan repayments and your deferred bonus would include the full amount of any salary and bonuses sacrificed without any offset for notional interest. If the Board does not exercise its discretion to require you to transfer your shares as set out above, then you may keep your shares and sell them when you please subject to complying with the provisions of Zomojo's shareholder agreement. In this case, your deferred bonus would be calculated in the usual way (ie accumulated salary/bonus reduction less notional interest) and the after-tax amount of the deferred bonus will be applied to discharge your Plan loan, and if there is still an amount that remains outstanding on your loan, you are required to pay this amount to Zomojo within 30 days after you are notified of the shortfall figure. (c) Special Rule 2: Zomojo Option The other exception is that within 30 days after your cessation of employment, Zomojo may elect by notice in writing to you to procure a subsidiary to purchase your shares on trust for the purposes of the ESOP on the basis of a Plan valuation formula, being 5 x the previous financial year's pre-tax profit divided by the total number of shares on issue, and then multiplied by the number of shares being sold. In that case, Zomojo may elect to pay you either: → in one lump sum instalment, or → in 3 instalments over a 2-to-3 year period from and including the year of cessation of employment, each instalment being pegged to the Plan value measured at that time. 'One Lump Sum Instalment' Scenario In this case, the sale price would be paid to you within 3 months of cessation of your employment, or within 1 month of the relevant accounts becoming available if this turns out to be a later date. Your shares will be transferred to the purchaser only once you have received payment of the applicable sale price. … (Emphasis in original.) 36 The Offer Booklet contained the following relevant terms: 2.4 Zomojo ESOP The Zomojo ESOP is a set of rules governing the provision of shares in Zomojo Pty Ltd ('Zomojo') to employees of Zomojo. The rules may be amended at any time pursuant to a Board resolution approved by a Special Majority, or by approval of a Special Majority of Zomojo shareholders, as defined in the Zomojo Shareholder Agreement. Any such amendment will bind any employees already participating in the Plan, as well as applying to any offers made after the date of the amendment. … ● When you cease employment: → you will be entitled to the deferred bonus nominated in your offer or accrued under a salary sacrifice facility if applicable; → Zomojo will deduct PAYG tax from the deferred bonus in accordance with its statutory obligations, and on your behalf apply the after-tax amount of the deferred bonus towards repayment of any outstanding balance of your Plan loan; and → your loan must be repaid in full - if you are able to negotiate a sale of your shares at the time of cessation of employment (see below), Zomojo will offset the share sale proceeds against any outstanding loan amount (if this has not already been discharged fully by the above repayments), and any surplus proceeds will be paid to you, and any shortfall will be payable by you. ● Your ability to sell the shares will be governed during employment with Zomojo, and once you cease employment, by Zomojo's shareholder agreement. However: → [if you are a bad leaver (ie if you cease employment in circumstances that entitle Zomojo to dismiss you without notice), then at Zomojo's option you must transfer your shares to Zomojo or its nominee for an amount equal to the lower of net tangible asset backing as at the most recent 30 June or the most recent arm's length transaction price; or] → Zomojo may elect to procure a subsidiary to purchase your shares on the basis of a Plan valuation formula, being 5 x the previous [average three] years pre-tax profit. In that case, Zomojo may elect to pay you in one lump sum instalment, or to pay in 3 instalments over a 3-year period from and including the year of cessation of employment, each instalment being pegged to the Plan value measured at that time. If the company does not exercise its option to procure a purchase of your shares, then at your request, Zomojo must use its best endeavours to assist you in finding a buyer subject to the terms of Zomojo's shareholder agreement. (Emphasis in original.) 37 Hurd converted his options into shares (pursuant to the Plan Rules) and his nominee acquired shares in Zomojo (pursuant to the Plan Deed) on the following dates: Date Entity Price Shares 30 June 2007 Jolene (Tas) Pty Ltd $1.43 32,000 30 June 2007 Jolene (Tas) Pty Ltd - (from options) 133,333 30 June 2008 Jolene (Tas) Pty Ltd $7.40 32,000 30 June 2008 Jolene (Tas) Pty Ltd - (from options) 133,333 30 June 2009 Jolene (Tas) Pty Ltd $14.65 32,000 30 June 2009 Jolene (Tas) Pty Ltd - (from options) 133,334

[4]

2.2.1 Zomojo's Trading and Zomojo's Gateways 38 In the beginning, Heddle and Hurd were co-managing directors of Zomojo while Robinson remained employed by his previous employer (until 2007). Hurd was primarily focused on technology and trading strategy development, including supervising the construction of Zomojo's Gateways and, later, its ATS, as well as conducting research into its continuing development and improvement. Heddle's role was complementary to Hurd's; he focused on Zomojo's trading activities and operations. 39 Hurd was initially paid a salary of $150,000 per annum. In approximately May 2009, Hurd's salary was increased to $400,000 per annum. Hurd also received bonus payments and dividends. From 2005 until February 2011, Hurd received total remuneration in excess of $3 million. 40 As mentioned at [11] above, Hurd spent half of 2005 and part of 2006 developing the software for Zomojo's trading engine. Zomojo's trading engine analyses market information and performs calculations to determine when to buy securities, how many to buy and when to sell them. A necessary corollary of the trading engine is a gateway - a connection to the particular securities exchange which receives market data and transmits orders. Both the trading engine and the gateway must be capable of extremely low latencies in order to enable the trader to realise a profit. 41 In March 2006, Zomojo commenced trading on the KRX. 42 Initially, Zomojo utilised a single broker which gave it a direct connection to the KRX. In October 2006, the KRX introduced new regulations which meant that Zomojo's broker was not permitted to offer Zomojo a faster connection to the KRX than any of its other clients. All connections to the KRX were required to be processed through a broker's front end processor (FEP), which checks orders and monitors risk. Zomojo no longer had a speed advantage and its profitability fell. The solution which Zomojo devised was to integrate its own low latency FEP into its Gateway technology and to convince its broker to use that technology. The solution worked and Zomojo returned to profitability. 43 Over time, Zomojo expanded its broker base to include five or six brokerage firms, all of whom used Zomojo's Gateways. 44 In 2007, Robinson retired from his previous employment. He came out of retirement in July 2007 to work for Zomojo on a part-time basis, focusing on business development. 45 From 2008 to the present, Zomojo has marketed Zomojo's Gateways to a variety of exchanges, brokers and vendors. Robinson gave evidence that Zomojo did not attempt to sell its Gateways outright. Rather, Zomojo attempted to enter into "technology for access" arrangements whereby Zomojo would provide its technology to brokers in exchange for no commissions or low commissions on trading conducted through those brokers. Robinson's evidence was that Zomojo has entered into a number of such arrangements with brokers in the Asian region.

[5]

2.2.2 Zomojo's ATS 46 In early 2007, Hurd conceived of the beginnings of Zomojo's ATS. Hurd gave evidence that an ATS is a term which describes an entity that conducts the same sort of function and service as a stock exchange but without being an officially sanctioned stock or futures exchange. Other countries have a similar concept but with different names. ATSs, like stock exchanges and futures exchanges, need a computing solution to operate their trade matching service (sometimes referred to as a matching engine). 47 Zomojo had already designed and exploited Zomojo's Gateways to great effect on the KRX. The brokerages which Zomojo used were inadvertently benefitting from the speed of Zomojo's Gateways. Hurd believed that the challenges that were faced by stock exchanges, whether sanctioned or otherwise, were similar to the challenges being faced by Zomojo, to which the Zomojo computer system provided an effective solution. 48 Hurd wrote a paper which proposed two models for growing Zomojo's business: One scenario, a good one, has us remaining just an arb and stat arb player and role out around the world making hay whilst our latency and processing benefits are exploitable. Eventually, various parts of the world will catch up and we will be left with little latency advantage within the context of the jitter of an exchange and our trading will be driven more by smarter analytics rather than speed. Another scenario has us rolling out aspects of our technological advantage as product for the benefit of others. We have already been forced into this in Korea where our tech has become an EMS for a bank and a broker for all clients so we can cut through the compliance issues that prevented us from hooking directly to the exchange. The second paragraph recorded Zomojo's impetus for creating an ATS. 49 The idea of an ATS was essentially a reapplication of the proprietary technology which Zomojo already possessed and utilised. In Hurd's view, there was no further research or investigation to be done, merely the creation of the device which primarily involved combining hardware parts that had been identified and writing the software. 50 In July 2007, Dr Matthew Chapman (Chapman) commenced his employment at Zomojo as a research engineer. 51 During 2008, Hurd and Chapman developed a prototype of Zomojo's ATS. On 10 November 2008, Zomojo lodged a patent co-operation treaty application in respect of its ATS. Thereafter, Hurd and others at Zomojo attempted to market Zomojo's ATS to various exchanges. Robinson gave evidence regarding a number of business trips that he, Hurd and Chapman undertook during 2007 while attempting to market and sell its ATS. Those trips frequently combined marketing of both Zomojo's ATS and Zomojo's Gateways to potential customers. 52 The first business trip relevant to the ATS was to Brazil in May 2008. Robinson and Hurd met with a former colleague of Robinson's, Mr Josh Rose, who was at that time a consultant to Morgan Stanley in New York. Mr Rose told Robinson and Hurd that Morgan Stanley was investigating the possibility of launching an ATS in Brazil but that it did not yet have a technology platform on which to host the ATS. Robinson and Hurd also explored the possibility of establishing an ATS with Bovespa Exchange, a regulatory lawyer and a number of brokers. Robinson's evidence was that at the conclusion of the trip he and Hurd formed the view that it was unlikely that a new ATS could be set up in Brazil in the short term because of regulatory issues. However, they formulated the idea that Zomojo could start an ATS in North America by finding a partner to invest capital and local knowledge with Zomojo to contribute the technology. 53 In November 2008, Robinson, Chapman and Hurd travelled to Chicago and New York. At the conclusion of their time in North America, Hurd and Chapman travelled to Brazil. During the trip, Robinson, Chapman and Hurd performed technical demonstrations of the prototype ATS. Importantly, Robinson's evidence described how they used optical splitters to enable speed measurements without affecting the latency of the prototype. Robinson, Chapman and Hurd also described Zomojo's Gateways and explored technology for access agreements with the brokers that they met. 54 During July and August 2009, Robinson and Hurd travelled to New York, Toronto, Seoul and Hong Kong to market Zomojo's technology and to further explore Zomojo's trading opportunities and capabilities in the US, Canadian and Korean markets. On those roadshows, Hurd used presentation slides that said that Zomojo had "developed technology which will enable the production of the world's fastest Exchange Matching Engines". He said that low latency was achieved from an "innovative use of commercially available hardware, FPGAs [Field Programmable Gate Arrays] and comm[unication]s". He demonstrated the capabilities of Zomojo's ATS (known as Rapide), including its latency of less than 10 microseconds, its ability to handle more than 1 million orders per second, and its use of deterministic, parallel matching engines for the purposes of redundancy/fault tolerance. 55 During their time in Toronto, the pair met with the Toronto Stock Exchange (TSX) and performed a demonstration of Zomojo's ATS. The TSX was interested in the prototype ATS. After the meeting with the TSX, Zomojo signed a mutual non-disclosure agreement (NDA) with the TSX and also agreed to a period of exclusivity, the effect of which was that Zomojo agreed it would not market or sell Zomojo's ATS to any other party for use in the United States or Canada while the TSX conducted its due diligence between August and October 2009. 56 The TSX subsequently sent representatives to Australia to complete technical due diligence on Zomojo and the ATS. Robinson and Hurd then went to Toronto in mid-September 2009 to negotiate the financial agreement with the TSX. However, before the agreement could be finalised, in late January 2010, the TSX withdrew from the deal with Zomojo. 57 While in Hong Kong, Hurd and Robinson met with representatives of Goldman Sachs. They gave a presentation which outlined Zomojo's technology. Included in that presentation were several claims about Zomojo and its ATS technology, including: 1. "[p]rincipals have backgrounds in equities, derivatives, broking, funds management, technology, alternative trading systems, algos etc" and "[s]taff are exclusively developers and/or scientists/engineers - R&D culture"; 2. "[s]ub 10 microsecond accept/execute"; 3. "[u]tilizes a combination of hardware & software"; 4. "[s]ub 10µs timing budget", showing a traversal time of less than 10 microseconds for a round trip, with wire time over 400 metres of 1.5 microseconds each way, or 3 microseconds for a round trip (Chapman gave evidence that the reference to 400 metres should be 300 metres); 5. "[e]ngine latencies" of between 3.40 and 4.11 microseconds; 6. "[d]emo layout" showing a client, monitor with Endace card, exchange and two optical taps; 7. latency distribution graphs and summaries; 8. "[q]uorum - closer view" showing the splitting of inputs using high speed links and deterministic processes; 9. "[s]cales to tens or hundreds thousands of instruments per quorum … Suitable for option exchanges"; and 10. "Final protocol - Closer to Nasdaq? Nasdaq closer to us?" and "[c]urrently supports outer session with PKI & embedded firewall". 58 During 2009 and 2010, Robinson and Hurd conducted a number of other business trips. In July and August 2010, they went to Toronto, New York, London, Mumbai, Hong Kong and Singapore. While in Toronto, Robinson and Hurd met with representatives of TD Securities. Those negotiations continued after the pair returned to Australia. In November 2009, Zomojo commenced trading on the TSX and the NASDAQ with a view to leveraging short-term gains in price differentials between the two exchanges. While that venture had not produced a profitable outcome, Robinson decided to keep the project going on the basis that Zomojo might enter into a joint venture with TD Securities. The joint venture proposal involved Zomojo contributing ATS technology and TD Securities contributing capital and trading strategy (with their staff to run the trades). It was intended that in the first stage, the joint venture would trade inter-listed arbitrage between the TSX and NASDAQ. Further stages involving US trading and client facing technology were contemplated in the draft agreement. Profits would be shared 50/50. In December 2010, Zomojo was advised that TD Securities was not prepared to proceed with the deal. 59 Throughout 2011 and 2012, including after Hurd's departure from Zomojo, Zomojo continued to market its ATS and Gateways.

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69 Hurd took "sabbatical" leave from Zomojo in September 2010. Although Hurd was on "sabbatical" leave, he had access to his Zomojo email address. From 14 to 21 September 2010, he communicated by email with Ms Joanne Chardaloupas (Chardaloupas) of Newedge Canada Inc (Newedge) using his Zomojo email address. On 14 September 2010, Chardaloupas told Hurd that Newedge was seeking a "partner to build [Newedge] a FIX adaptor". Hurd replied saying that "[w]e have gateways that support Nasdaq UFO-like protocol for HFT orientated trading called SPUD/Poke and a FIX 4.2 to Poke converter". The "we" was a reference to Zomojo. The next day, 15 September 2010, Chardaloupas sent a reply to Hurd at his Zomojo email address stating, "I very much appreciate the response. Yes, this does sound along the right path". Hurd did not respond. On 21 September 2010, Chardaloupas sent a further email to Hurd at his Zomojo address "just following up to see if you have any available [sic] this week to discuss / re-visit this opportunity". Hurd did not reply immediately. 70 By this time, Hurd had conceived of "Opticast". Hurd's evidence was that in September 2010 he came up with the idea of splitting an optical fibre signal into multiple paths in order to replicate network traffic. Hurd explained the idea as follows: The basic premise … was that it is faster to split an optical fibre signal than a conventional computer signal. The process of converting the optical fibre signal back into a conventional computer signal is a very past process. Thus, so the idea went, by splitting the optical fibre signal and then converting it back to a conventional computer signal, [he] could speed up a process for distributing the same signal to a large number of destinations. This became the Opticast idea. Zomojo had already implemented the use of optical splitters in its prototype ATS to permit the measuring of speeds with no discernable effect upon latency: see [53] above. Hurd's Opticast idea and Zomojo's prior use of optical splitters were not unconnected. 71 In addition to developing Opticast, in September Hurd created, and registered in his name, the domain name "www.zeptonics.com". Hurd admitted that his reason for registering the domain name was to "see if anyone was interested" in Opticast. Hurd also started writing to people in the industry about Opticast. For example, on 23 September 2010, Hurd emailed AusOptic International Pty Ltd (AusOptic) to enquire about acquiring components for Opticast: I'm the MD for Zomojo whom you helped out with some splitting and all earlier this year. Thanks to your advice, everything has worked swimmingly in Seoul. Your help was much appreciated. (Emphasis added.) So far so good. Hurd knew (as was the fact) that he was one of the managing directors at Zomojo and Hurd knew that splitting had been and remained a core part, or essential element, of Zomojo's business of HFT especially on the KRX. 72 But the email continued: I have another little enterprise, Zeptonics, that I'm looking to launch a new product for. Basically a 24 port and / or 48 port 850nm, 1310nm or 1550nm 19̎" rackmount splitter box. Was thinking of just splitting lots with an EDFA or Raman amp but their 10-20m cable loops etal don't help when I'm trying to keep the propagation delay to a bit under 10ns in the box. It seems simply doing OEO [optical electrical optical] to clean the signals and n way optical splits internally and perhaps just using SFP+s might be best. Would like to come by and talk to you about components etal if you have a few minutes so I can pull a design brief together to get a prototype built. … This email is important. Hurd admitted the product referred to in the email was Opticast. Further, it was a public statement of Hurd having already established "another little enterprise, Zeptonics" and that he was looking to launch a product through Zeptonics. 73 The next day, 24 September 2010, Hurd emailed Mr Larry Tabb of Tabb Group. Tabb Group is a publicity / media company and Hurd contacted them to seek marketing and publicity advice for Opticast and, in particular, information about the potential avenues for, and costs of, marketing Opticast. The email was sent by Hurd from his "zeptonics.com" email address. The email stated: … I've been using optical techniques for a while to replicate data streams for prop trading. Have done more than a million index options some days in Asia with such tricks. Have a little start-up just about ready to release a product to do this publicly. Thought you'd be interested in the head line latency of 16 port $US 14,995 OCAST-A-48 Opticast 1G/10G 1->48 port $US 29,995 Note these do not include SFP+s or network cabling and are quoted FOB. … Hurd's stated position at that time was that he had "two available products" and "a few more interesting products in the lab". 89 In response to a direct question from Chopper Trading about the number of units that Zeptonics had in the field and the effect of failures, Hurd said: It is a new product. We have no v1.0 units in the field. A handful of v0.X units have been used since 2008 in a few countries in the Asian region. Critical MTBF items are the redundant PSUs. The PSUs comply with various IT, industrial and medical standards and each has an individual MTBF of 600kHrs. 2 PSUs in 16 port and 3 PSUs in 48 port to ensure 1 failure doesn't affect the load. … Availability schedule is currently 6 weeks for 16 port units and 7 weeks for 48 port units. … Would be interested to learn how you heard about us as we're only just getting ready for launch but have been a bit surprised that a few people are knocking on our email. 90 After the marketing spiel, there was a "PS" which read: We have a bunch of products and some designs not quite ready for prime time which may be of interest to you at a later date … Particularly focused on low latency network and time tracking issues. We're using a new type of PHY approach to get very low latency 10G connectivity on PCle NICs, only saves about 100ns over state of the art though. 48 port 1 Billion packet a second 10G Ethernet switch with 1,000,000 orders per second throughput robust and secure design … latency and other service monitoring provided to members … Crosswise will deploy robust Australian developed technology with a single digit microsecond median latency from the customers' point of view. This will be the world's fastest exchange platform. Further progress to a sub-microsecond platform has been designed and will be developed in the fullness of time. The protocol will be a familiar protocol with a choice of an efficient and simple Nasdaq-UFO-like protocol and/or an even more familiar BATS/Chi-X like FIX implementation. Market data will be a simple fixed structure UDP broadcast. (Emphasis added.) Hurd admitted that some of the claims made in the Crosswise Conceptual Brief regarding the Crosswise ATS were the same as, or similar to, Zomojo's presentations regarding its ATS: see [54] and [57] above. Hurd accepted that he knew that a sub 10 microsecond medium latency ATS was possible, that it could achieve throughput of more than a million orders per second, and that it could have a robust and secure design because that is what Zomojo had achieved with its ATS prototype. Hurd did not tell anyone at Zomojo that he had worked out how to design a sub microsecond platform. 114 Hurd's oral evidence was that Pregastis' response to Hurd was not positive. That evidence was, at least, a misstatement. Pregastis' said: It's got to be a far easier task to create a trading platform in order to achieve some semblance of price transparency whilst not having to bother with listing rules etc.??? You got me wondering?? In other words, Pregastis was interested and, in particular, interested in a trading platform not caught by the ASX. Hurd replied by setting out how he envisaged that trading on the Crosswise ATS would work. 115 On 9 December 2010, Hurd also emailed the Crosswise Conceptual Brief to a number of potential investors - to Samsung, to ABN Amro, to CredX, to Optiver and to Susquehanna International Group (SIG). Hurd's contact at CredX requested, and was provided, with a word copy of the Crosswise Conceptual Brief so that he could mark it up with comments. Hurd told him "[j]ust to confirm the target audience for this - sophisticated, knowledgeable and experienced in the equity space". By this time, Hurd had conceived of the idea, had prepared a conceptual brief and was approaching investors. What he was seeking to get them excited about was a project which had a name, purpose and substance. 116 Advantage PCB finished its work on OptiCast. On Monday, 13 December 2010, it invoiced Hurd at Zeptonics. The contents of the invoice are revealing. The invoice recorded the following work: Item Details Qty Unit GST Amount OptiCast Project, Design and Layout work 1 Initial Stage 10.25hr $75.00 $76.88 $845.63 - per 18-Oct-10, Project Meeting, as required (1.00hrs) - per 29-Oct-10, Evaluation, as required (3.00hrs) - per 01-Nov-10, Preparation, as required (6.25hrs)

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Hurd paid the invoice. 117 Hurd continued to seek to locate suppliers for his new products. On 14 December 2010, he engaged in email communications with Metromatics Pty Ltd (Metromatics) about the availability of silicon NICs for use in OptiCast. Metromatics requested that Hurd sign a NDA and provide it to them. 118 Hurd's attempts to attract investors for the Crosswise ATS continued unabated. On 16 December 2010, Hurd emailed the Crosswise Conceptual Brief to two potential investors - Newedge and his old employer, Mr Ted Bryce at SIG. Hurd conceded during cross-examination that when he said to Mr Bryce that he had been "involved with developing tech for a matching engine, risk gateways and the like", he meant that he had been involved, through his position at Zomojo, in doing those things. Hurd accepted that he knew that a sub-10 microsecond medium latency ATS was possible, that it could achieve throughput of more than a million orders per second, and that it could have a robust and secure design, because that is what Zomojo had achieved with its ATS prototype. Hurd denied, however, that when he said to Mr Bryce that "[t]ime may be right for an ASX competitor", he meant that the time might be right to utilise the technology that he had developed while at Zomojo in order to create an ASX competitor. Hurd concluded his email to Mr Bryce by saying that: Barry Parker at ABN AMRO is prepared to take on the settlement and clearing, so I think the ducks are lined up to make it a nice earner with the right participants on board. 119 In his email to Newedge, Hurd told Gilbert: Not sure if an Alternate platform for Oz equities is of interest to you, but it may be. Attached something I've been cooking up for you to have a look at. Have been watching this for a quite some time. Got some indications of support and it seems the environment and timing is just about ideal. Gilbert responded the same day. Gilbert asked Hurd whether he would accept "a private investment for a 5% stake". Hurd responded "[p]erhaps as one out of two of the foundation investors to get the thing going if it was a trusted party". Later in the day, Gilbert emailed Hurd again and said he had "some pretty high powered guys in Soc Gen (all Ausies (sic) in HK) as well as myself who could possibly put up the $500K". Hurd responded saying "[l]et's have a chat tomorrow on [the] private front. I'd be favourably disposed to an investment if you were the interface for it and it makes things happen quicker". And that is what transpired. 120 The next day, 17 December 2010, Hurd emailed Nunan again. He attached an edited copy of the Crosswise Conceptual Brief and stated: Got a couple of immediate bites on the Crosswise front. … One of the guys I approached wants to do it personally which perhaps is OK for one foundation investor to fund the flesh out, not sure if it doesn't send the wrong message though, but funds to enable seems like a good idea. (Emphasis added.) Hurd's evidence was that a "couple of … bites" was a reference to Gilbert and some of his associates/friends. At about this time, Hurd commenced drafting what was to become the Crosswise Heads of Agreement - an agreement between Hurd, Zeptonics and the investors. 121 Things had moved, and were moving, quickly. Hurd's father, John Hurd (Hurd Senior), was Zomojo's accountant. At the same time, he assisted his son to draft a version of the Crosswise Heads of Agreement. On 19 December 2010, Hurd Senior sent his son a new draft of the Crosswise Heads of Agreement. Hurd needed the draft because Gilbert was lining up the foundation investors in the Crosswise ATS (Crosswise Foundation Investors). 122 At 9:32am on 20 December 2010, Hurd emailed Gilbert a document he described as "Crosswise - heads of agreement v0.2-21.12.2010". Hurd's email to Gilbert stated "[a]ccountant advised I had the wrong authorities as it was really an agreement between three parties myself, Zeptonics and the investor to enter into an deal [sic] reconstituting Ramazza where the three parties agree to act …". Version 1 was not in evidence. Version 2 of the Crosswise Heads of Agreement was stated to be between Hurd (as project manager), Zeptonics (as the developer) and the investor. The investor was described as a "Foundation Investor" with an investment of $500,000. 123 Three days later, on 23 December 2010, SIG rejected Hurd's offer of the previous day to be a Crosswise Foundation Investor. Hurd had sent the offer to SIG and to other potential investors (including ABN Amro) by email during business hours, from Zomojo's offices, using his Zeptonics email address through a web browser. Hurd's offer to ABN Amro included a statement that he had commitment on the initial foundation funding for the Crosswise ATS and expected "to be working through the preliminary work starting in January". Hurd's intentions were clear - to continue to seek to obtain investors in the Crosswise ATS with a view to establishing the Crosswise ATS while still employed at Zomojo. As Hurd admitted, his intention was that he would hit the ground running upon the termination of his notice period from Zomojo. Hurd "was eager to get a start". Hurd did not contemplate any break between completing his duties at Zomojo and continuing his activities with Zeptonics and the Crosswise ATS. 124 On 28 December 2010, Hurd's efforts were rewarded. He received an email from Gilbert committing $800,000 to the Crosswise ATS. Gilbert had questions. Hurd responded. Gilbert's email and Hurd's response is instructive. Relevant parts are extracted below. The passages sent by Gilbert are in italics. Hurd's answers were inserted by him and are not italicised: I have a firm 800k but cannot contact the last person who is out of reach at present but I should be able to talk with them by the end of the week. I guess as we need a version 3 of the "heads of agreement" this should be okay? Sounds reasonable. I have one further question which is in regards to the issue of the ownership of the technology or exclusivity to equity holders in crosswise of the technology. I was after your thoughts on this as you have pointed out previously that the value of this business is in the technology so this is quite a key point. Perpetual source code license exclusive to Australia for equity, equity derivative products and other products reasonably similar to those traded on the ASX. Main value in the business will be the equity flow and customer base which is what a buyer of the platform would be looking for, especially if it is a Nasdaq or NYSE. Good chance they would look to migrate to their own platform, or as per Millenium [sic] and NYFIX, offload the platform and keep the customers & connectivity. Most of the platform investors will have another reason for wanting the platform as it will make them money but you and I will be focused on how to exit at some stage in the next few years gracefully at good value. Dressing up for BATS, NYSE, Nasdaq OMX, SGX is the main thing with some other exchange guys potentially knocking on the door as well. I have a mate in the M&A part of NYSE and they are on the prowl in the region and Nasdaq's purchase of the Smart group in Sydney puts Sydney firmly in their focus. Most would look to migrate onto their own platform you'd think and they'd move away from the tech though the value in making the thing work will be the tech in the first place. Part of the reason for doing this now is that I think the tech will converge a lot over the next few years and in three years time I expect the difference in latency will be getting somewhat moot, but I thought that ten years ago and was wrong then, and now that we are counting picoseconds (28ps laser rise times in Opticast) I wonder … Getting stock options going and making moves to work on listings if the right platform investors are on board will make it an especially attractive target. Another cute thing for stock options may be to make them either 100 shares, as per US, or like Brazil at 1 share but trading in 100 lots, to be more retail friendly and for the bigger volume number effect. Will copyright issues on the s&p200 index but have been thinking about maybe we could license the MSCI Aust 200 for derivative trading. It was licensed to ADX back in 2000 for all of ten weeks of operation so perhaps it is not such a lucky charm. Been busy trading. Just myself in the office yesterday and today doing Korea. Will merge the other potential shareholder comments with yours and feed back v0.3 in a few hours. Regarding office placement: most initial contact, platform investment round, will be in the CBD I guess so probably a serviced office, perhaps Servcorp at Chifley Sq where Zomojo started, for a month or three but perhaps only a virtual presence is required in the city. Main DC will be at Bondi Junction near the current ASX co-lo. New ASX DC is in a secret location which just happens to be in North Sydney and is expected to be the live one early 2012. Main office should be on the Pipe networks data map to make connectivity relatively painless as we'll be using pipe from existing ASX co-lo to nearby DC to start and then pipe to new ASX later as pipe have the necessary connectivity due to winning the ASX connectivity contract as well as being reasonable vendors despite being bought be [sic] TPG. That means the eventual office should be in one of the Pipe zones on the northern side of the harbour eventually to be frugal, North Sydney, St Leonards or Chatswood. An office north side with virtual office in CBD for meetings could be the most frugal option for a month or two especially if the north side office was the flat attached to my house I guess … Interested in hearing your thoughts. (Emphasis added.) As that email exchange records, by this time when Hurd was still an employee and officer of Zomojo, he had developed the Crosswise ATS to the point where he had secured investors, he had resolved ownership of the technology, he was finalising the terms of the Crosswise Heads of Agreement and he had given serious consideration to the location of, and the manner in which, his new and current business would operate in the near future. 125 The next day, 29 December 2010, Hurd was again busy. At about 6:00am, he received a response from Gilbert. Again, Gilbert had gone through the previous day's email and responded to each aspect. By 1:00pm, Hurd had prepared version "3" of the Crosswise Heads of Agreement and emailed it to Gilbert. The amendments were drafted by Hurd and were of substance. Hurd described them to Gilbert as follows: Extended the hook for Zepto to Crosswise to ten years, 5+5, so Crosswise can keep Zepto on the hook for inexpensive development as long as it likes over the next decade. Clarified explicity [sic] that no license fees or royalties within ten years for Zepto to ensure certainty. Added words to clarify the license is perpetual and exclusive for an ASX-product oriented exchange within Australia. Words allow for use of the tech as a broker's internaliser which is path I wish to allow for Zepto. Added funds tfr within 15 HK days of signing to suit. Added a first right of refusal for other shareholders within a two year term. Confidential information added as per other foundation candidate. … Please mark up any changes, fix typos, etc in the current draft heads and feed back as you see fit. Hopefully we're close. The Crosswise Heads of Agreement included a confidentiality clause. Hurd admitted that the clause was included because the information that was to be exploited by the Crosswise ATS in connection with the proposed business activities was commercially sensitive and confidential - it had value if it were known to persons outside the Crosswise ATS venture. Interestingly, at least at that time, "all information provided by Crosswise" was considered by Hurd to be "confidential": see definition of "confidential information" in the Crosswise Heads of Agreement.

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2.9 January 2011 126 Things progressed unabated in January. On 4 January 2011, Metromatics sent a further email to Hurd seeking to follow up the NDA which Hurd had not returned: see [117] above. Hurd replied on the same day and supplied a signed NDA. 127 Crosswise Heads of Agreement were executed on 7 January 2011 by Hurd (as project manager), Zeptonics (as developer) and investors. Gilbert and Mrs Trine Gilbert invested $200,000 in exchange for 40,000 shares in Zeptonics. The Agreement recorded that: An Australian corporate shell with no history of activity, Ramazza Pty Ltd, with Matt Hurd originally as the sole shareholder and director will be the starting entity for reconstitution and renaming. Currently it has 100 shares owned by Matt Hurd, these will be split 1,000 to 1 to make a total of 100,000 shares. 200,000 new shares to be issued to the Foundation Investors at $5.00 per share. Each of Mr Clint Maddock (Maddock) and Mr David Hoddle (Hoddle) also entered into a Crosswise Heads of Agreement. Maddock invested $200,000 in exchange for 40,000 shares in Zeptonics. Hoddle invested $100,000 in exchange for 20,000 shares in Zeptonics. Neither Hurd nor Zeptonics signed the agreements. 128 The following day, Saturday, 8 January 2011, Hurd emailed Gilbert, Maddock and Hoddle. Relevant parts are extracted below. The passages drafted by Gilbert are in italics. Hurd's responses are in Roman: Thank you for your trust and support. Much appreciated. David, just as it was good to meet Clint this week, I look forward to catching up with you at some stage. Please find attached three signed heads of agreement for Clint, David and myself representing 500K Aud or 5% shareholding of Crosswise as foundation investors. I expect Wes and Adrian to provide theirs next week and the others shortly after. Sounds good. I will look to resign next week so that I may return signed agreements the next day. We are all very looking forward to this new chapter in our lives and making a difference in the Australian financial community. Indeed. Will be a very busy and interesting year as we shake things up. Clint, David and myself may change the legal entities holding the shares prior to the shareholders agreement being drawn up as we are all governed by different tax structures. Sure. Best to pin it down early to avoid any potentially taxable events on transfer. I had the sign off today from compliance for the shareholding and am able to act as a non-executive director and offer advice as long as I am not paid for these roles whilst in Newedge employment. That's good news. I'll prepare the paperwork for your directorship. Please counter sign the agreements and return to the respective mail addresses above for our records. Will return next week along with some banking details. Mike, we'll chat about the level of detail you wish to be involved in. I'm very much looking forward to this chapter and am looking forward to making it a success for us all. … (Emphasis in bold added.) Hurd believed, incorrectly, that by signing the Crosswise Heads of Agreements after he resigned from Zomojo, he might not be in trouble for breaching his obligations as the co-managing director of Zomojo. Hurd conceded that he did not offer Zomojo an opportunity to invest in the Crosswise ATS and that the Crosswise ATS was in direct competition with Zomojo's ATS. 129 On 10 January 2011, another Crosswise Foundation Investor - Mr Wessel Brent van der Scheer - entered into a Crosswise Heads of Agreement with Hurd and Zeptonics. Van der Scheer invested $100,000. Hurd had been introduced to van der Scheer two or three years earlier while he was on Zomojo business in Hong Kong. Hurd now had secured the majority of his "foundation investors" for the Crosswise ATS. 130 The next morning, Monday, 11 January 2011, Hurd telephoned Robinson and told him he was resigning from Zomojo. Robinson asked him what he was going to do. Hurd said he was planning to do something in the "ATS space" and might also do some higher risk trading. Again, that statement was false. As the detailed factual analysis reveals, Hurd was already in the "ATS space" and, on his own admission, in direct competition with Zomojo's ATS. Robinson told Hurd he was concerned that what he proposed was too close to Zomojo's business. Robinson asked Hurd to rethink his decision. A few minutes later, Hurd sent the following email to Robinson and Heddle: Please accept this is a resignation from my various roles connected with Zomojo P/L, Zomojo Trading P/L, Zomojo Services P/L and any other associated entities including directorships, company secretariats and public officership where applicable. Thank you for making the journey interesting and worthwhile. I'll wait for your input on to how best to manage the exit. Hurd's evidence was that following his resignation on 11 January 2011 he intended to immediately devote himself to the setup of the Crosswise ATS, prior to serving out any notice period. And that is what Hurd did. Hurd told Newham, by instant messaging, that he "mentioned it to the [sic] G and I". 'G' was a reference to Robinson. 'I' was a reference to Heddle. 131 Later that day, Hurd emailed Mr Tim Berry at Tibra Capital (Tibra), a trader on stock exchanges all over the world. Previously, Hurd had tried (without success) to secure Tibra as one of the Crosswise Foundation Investors. Hurd's email on 11 January 2011 relevantly stated: … Things have moved on a little. Have had a pleasing degree of interest and have completed the Foundation round, resigned just today from Zomojo and will be getting on with the set up. Will be interested in talking to you about the Platform Investor round which would seem to suit your timing. May be of particular interest to you as I may be able to work the tech such that Crosswise may be able to give you a faster reaction time to the ASX from ASX market data than you may get natively even with the matching process in the middle, at least whilst in the Bondi Junction locale before the move to the newer data centre. 132 Tibra was interested. Tibra responded the next day by email in the following terms: … We're a trading on stock exchanges all over the world and are interested in your product. We are interested in your 10G Fibre and 1G copper solutions as well as a mix of 10G/1G interfaces. We are also interested in the latency for those different flavours of your device. We're interested if you are able to tell us what the lead time usually is for one of these devices, as well your support options, and pricing models. 133 Hurd did not inform Zomojo that he had received this email. And Hurd had a difficulty. His response to Mr Paul James (James), also of Tibra, dated 12 January 2011 is self explanatory: We will arrange for a NDA. Only semi-public product is the Opticast unit you see on the web. Will pass on a spec sheet once the NDA is in place and organise a meet. Planning a bunch of other quite low latency products but release dateline is yet to be properly planned. 1-3µs 1G/10G/40G ethernet cards with integrated timing. World's fastest 10G 24 port switch (double digit ns port to port) though it has limited L2 functionality. 48/64 port L3 data centre switch at 300ns. Some sub-micro exchange protected DMA stuff. Integrated timing throughout the range is the planned theme so you can track to a level of several nanos where packets have been in a rack/data centre environment. (Emphasis added.) The products referred to in this email are identified at [282]-[285] below. 134 On 16 January 2011, Robinson sent a long email to Hurd. The email proposed solutions to the problem posed by Hurd's desire to leave Zomojo. The email was in the following terms: From the Zomojo point of view, we would like to maintain a relationship with you, ideally as close as possible to the current arrangements (employee and director). Failing that, our strong desire would be to maintain a formal consulting relationship. Also, my initial understanding of the ongoing responsibilities of company directors is such that much of what you have proposed doing outside of Zomojo would create a problematic situation which I would very much like to avoid. … … The simplest approach which ticks all the boxes from my point of view would be to have you nominate a list of projects that you are keen on and, subject to the development of a sensible business plan, to empower you with a budget and office and other agreed resources to enable you to work on bringing them to fruition. 135 Of course, Robinson's offer was made ignorant of critical facts - Hurd's plans were already well advanced. Hurd took no steps to rectify Zomojo's ignorance. The next day, 17 January 2011, Hurd rejected Robinson's offer made and then made the following statement: I fully understand my ongoing legal obligations including those with respect to confidential information including patents and trade secrets. Zomojo is in a good place with its trading and I believe with the new technology being rolled out over the next few months it will continue to improve its performance. The business is not at risk and continues to grow stronger. Again, that statement was false. Zomojo's business was at risk and the risk was Hurd and his activities. 136 Robinson tried again, later in the day. He sent a further email to Hurd: I was very sorry to receive your mail. From the contents I assume that any idea of looking any further for an intermediate solution is not acceptable to you. I guess we now get to the point of managing the situation as cleanly as possible. You mention that you fully understand your legal obligations regarding confidential information and trade secrets. In my view there are other issues that we need to resolve/understand, including the non-compete obligations in your employment contract, but perhaps more far-reaching, your obligations to Zomojo as a former director. I think it would be helpful for all of us if the firm got some legal advice which we would happily share with you. Once in possession of a better view of the legal boundaries of the problem I would suggest a process where we aim to document and agree on acceptable areas of activity so as to avoid the prospect of any grief down the track. 137 Zomojo's staff were informed of Hurd's resignation on 18 January 2011. The next day, Robinson provided Hurd with a copy of legal advice Zomojo had obtained concerning his resignation. 138 On 20 and 21 January 2011, Hurd and Zeptonics entered into Crosswise Heads of Agreements with three additional Crosswise Foundation Investors. Each investor contributed $100,000 in exchange for 20,000 shares in Zeptonics. Hurd did not tell Zomojo about the investments made by these Crosswise Foundation Investors. 139 On Sunday, 23 January 2011, Hurd emailed the Crosswise Foundation Investors stating: The first funds transfer has arrived, so activity beyond the planning is starting. Time spent this weekend on setting up the temp office to support a month or two's activity. Part time office assist and first tech (beyond myself) should start this week. I will be full time officially from Feb 11th but am currently at more than full time equivalent in time allocation. Logos, stationery, web, virtual CBD office, accounting, etc, kicking off. … Will register the change of entity name to Crosswise … 140 Hurd should not have been engaging in this Crosswise ATS related activity. He knew that the obligations he owed to Zomojo prevented him from doing so. His evidence about this issue was inconsistent and contradictory as the following passage of transcript reveals: The evidence you give before her Honour, you change it every time I put to you a document which contradicts what you've said? - Yes. I'm sorry. I was trying to give the right impression. I feel like I spent very little time on - on the project. I did spend a couple of days, two or three days working hard on it. Then I realised I shouldn't be doing it, and I stopped. HER HONOUR: When you say you realised you shouldn't be doing it, what was the thing that had changed for that period, as distinct from the period before you had resigned? There were two things. I think I had received notice from Zomojo about my obligations, and also my wife told me, you know, that I - I shouldn't be doing this, and I agreed. So I stopped. DR COLLINS: But you sought to convey to her Honour, didn't you, Mr Hurd, that in the 30 day notice period you gave from Zomojo you spent very little or no time on Crosswise activities? - Yes, that's right. I said I did some paperwork and things like these letterheads and things. But you were seeking to convey to her Honour that you were acting faithfully to your duties as a continuing employee of Zomojo during your 30 day notice period. That's what you wanted her Honour to believe, isn't it? - Yes. Yes? - Yes. And that wasn't true, was it? - I feel it was true because I wasn't in the office. I had been sent home. I started to do some things, and then I realised I shouldn't do anything. Yes, because during the period when you were working at more than full-time equivalent in time allocation on Crosswise business, you were not acting faithfully to your obligations to Zomojo, were you? - That would be correct. What a careful reader will notice is that Hurd failed to explain what had changed between the period before his resignation and the commencement of his notice period. The answer, of course, was nothing. If Hurd's conduct was wrong in the notice period (and it was), his conduct was wrong prior to the notice period. Moreover, the evidence he gave was not the truth - it was the evidence he thought he should give to create "the right impression". 141 Hurd did not stop. On 24 January 2011, Hurd sent a copy of Zeptonics' NDA to Tibra. On 25 January, Robinson met Hurd in Sydney. Hurd would not disclose what he was working on and said he wanted to seek legal advice. Some might say it was too late. 142 Also on 25 January 2011, Newham told Robinson that he was resigning from Zomojo and that he "might be" going to work with Hurd. Three days later, on 28 January 2011, after receiving an email from Robinson, Newham resigned and offered a 28-day notice period. On about 31 January 2011, Hurd sought legal advice from DibbsBarker about employing Zomojo staff. Hurd's evidence on this topic was unrepentant. He stated that he sought the advice of DibbsBarker: "[b]ecause the staff had expressed interest and … obviously it would be nice to have my mates there, I got some legal advice." At around that time, either in late January or early February 2011, Hurd had discussions with both Snowdon and Mr Matthew Fitzpatrick (another Zomojo employee) (Fitzpatrick) about his plans after Zomojo. In relation to the former, Snowdon's evidence was that Hurd told him about his plans after leaving Zomojo, which included an ATS, and that he (Hurd) was working with his lawyers on a way to bring Zomojo staff over to Zeptonics. In relation to the latter, both men (Hurd and Fitzpatrick) expressed a mutual desire to work together in the future. The possibility of Hurd developing an ATS in competition with Zomojo's ATS was, in Fitzpatrick's words, something which was "floating around". Fitzpatrick gave evidence that he sought Newham's advice at this time as to whether he might be able to obtain future employment from Hurd.

[17]

2.10 February 2011 onwards - staff recruitment 143 On 2 February 2011, a Zomojo shareholders' meeting was held where the shareholders unanimously passed resolutions to remove Hurd as a director and company secretary and to appoint a Mr Dean Boyle (Boyle) as director and company secretary. After the shareholders' meeting, Hurd met with Robinson and Heddle. Robinson took a note of the meeting. At the conclusion of the meeting with Hurd, Robinson suggested that it would be easier to deal with staff and customers if Hurd based himself at home for the remainder of his notice period. He spent most of the remainder of his notice period based at his home. 144 Whilst at home supposedly serving out his notice period, Hurd continued to work on Zeptonics. On 3 February 2011, Hurd emailed Kowalewski at Advantage PCB seeking to ensure that Hurd had been provided with the "latest and correct PCB designs for OptiCast and mechanicals". His message to Kowalewski was that he hoped that there would be some more work for him after the notice period ended on 11 February. 145 On 8 February 2011, Hurd and Robinson held a without prejudice meeting. The events of that meeting were not in evidence. However, an email exchange between Hurd and DibbsBarker was tendered and put to Hurd during cross-examination. That email exchange recorded that, at 10:12am on 9 February 2011, Hurd sent his lawyers a list of "areas of keen interest". Legal professional privilege was asserted over the attached list. At 5:10pm, Mr Scott Sloan (Sloan), a partner of DibbsBarker, responded to Hurd. Sloan indicated that he had had a discussion with "Richard", presumably Robinson's advisor, and that "[h]e also indicated that Zomojo strongly believed that [Hurd] had induced an employee to leave and join you." Hurd replied to Sloan at 8:19pm. Hurd said: Priorities for myself are to work out a strategy where they cannot gain injunctive relief against Crosswise or Zeptonics and be prepared to fight a compensation battle in the future if we can't reach a compromise. Perhaps company memberships in the wife's name, etc. Interested in ways to minimise the target, especially if there is a suitable structure so it remains my problem and not a problem with the Crosswise entity as the investors wouldn't be enamored [sic] with such [a] mess. Perhaps we will need a court to settle the employment agreement, thinking out loud … Would like to know which employee they believe I have solicited as many have requested I take them but my standard line has been that I may not be able to. The three names I've mentioned I have said I would like to find a way if I legally can but that may not be possible. Scott Newham resigned as he was sick of the crappy work he was doing at the time and he expected to be picked up by me, I asked him not to as it may make it complicated for me and there was no certainty I could employ him, but, alas he did anyway. I do feel a [sic] obligation to him and, as discussed, need to find a reasonable strategy to bringing him and other staff across. (Emphasis added.) Hurd's email was put to him during cross-examination. His evidence was that the reference to "three names I've mentioned" was to Newham, Snowdon and Fitzpatrick. As that email revealed, Hurd had decided on a path - a failure and refusal to face up to and resolve the legal issues he alone had created and, to the extent possible, to avoid them by obstruction and deception. 146 On 21 February 2011, Hurd sent a further email to the Crosswise Foundation Investors. The email included a portion headed "staff". Hurd told the investors that he "[e]xpect[ed] one new starter next week and two more in 4-6 weeks. More on the phone." As events turned out, Newham commenced at Zeptonics the next week (28 February 2011), Fitzpatrick after four weeks (28 March 2011) and Snowdon after six weeks (8 April 2011). Hurd's evidence was that those timings were purely coincidence. 147 On 22 February 2011, Hurd sent emails to Fitzpatrick and Snowdon in identical terms: I know that you have expressed interest in working with me again in the future but I've been told quite clearly that whilst employees are employed by Zomojo, including their notice period, I cannot suggest or entice them to work with me. Hurd accepted that the emails were sent on the advice of his lawyers. Hurd rejected any suggestion that the intended effect of the emails was to entice Fitzpatrick and Snowdon to resign from Zomojo, serve their notice periods and then apply to Hurd for employment. Irrespective of Hurd's intention, however, it is clear that the emails had precisely that effect. Snowdon gave evidence that, upon receipt of Hurd's email, he understood that he should resign, serve out his notice period and then apply for a job with Hurd. Fitzpatrick rejected the suggestion that the email prompted him to adopt that course, but the evidence was that, no more than three days later, he resigned and commenced serving out his notice period. 148 Hurd's desire to hire his "mates" from Zomojo required some lateral thinking. Hurd accepted that the use of a recruitment firm was a step advised by his lawyers, DibbsBarker. So, on 25 February 2011, Hurd met with Mr Richard Center (Center), a representative from a recruitment agency, known alternatively as Mantech and Global Powertex. Hurd knew Center from his time at Zomojo because Zomojo had used Mantech for its own recruitment purposes. The meeting was preceded by an email on 24 February 2011 in which Hurd had said: Richard, Time for a chat tomorrow sometime? Got something a bit different to discuss with you. 149 At the meeting, Hurd told Center he would engage him to recruit staff for Zeptonics but that, if any of the staff which were hired were Zomojo staff, Hurd would seek a reduced fee. Hurd accepted that at the meeting he specifically mentioned Newham, Fitzpatrick and Snowdon to Center. The agreement they struck, which was recorded in Hurd's email sent at 1:19pm on that day, was that Hurd would pay Center $10,000 to recruit three "known names". I accept that Newham, Fitzpatrick and Snowdon were the three "known names" and that, in essence, the agreement between Hurd and Center was one where Center would attempt to act as an intermediary to enable Hurd to recruit Newham, Fitzpatrick and Snowdon in exchange for a payment of $10,000. 150 Later on the same day, 25 February 2011, Center placed an advertisement on the website "seek.com.au". Newham's last day at Zomojo was 25 February 2011. Newham gave evidence that after he left the office he went home, found the advertisement on "seek.com.au" and sent a job application to Center. Newham knew to do so because Hurd had told him. 151 On 28 February 2011, Center sent Hurd an email attaching Newham's resume. Hurd's evidence was that Center used his Global Powertex email address because Center was concerned about using the same brand under which he did business with Zomojo. Center asked Hurd to let him know if he wanted Center to organise an interview. Hurd described Center as "being cute" when he asked if an interview would be necessary because Hurd had already indicated to Center that "if Zomojo employees applied, such as Mr Newham, I would - I would, no doubt, hire them". Newham was offered a job by Zeptonics on the same day, 28 February 2011, and commenced work on 6 March 2011. 152 On 10 March 2011, Snowdon tendered his resignation. Hurd found out about Snowdon's resignation at or around the time he resigned. On 18 March 2011, Center sent Hurd an invoice for $10,000. Hurd paid the invoice on 23 March 2011 despite only one "known name" having been hired. 153 On 25 March 2011, a Friday, Fitzpatrick finished at Zomojo. Over the weekend, Fitzpatrick spoke to Newham. Newham told him to look for a job on "seek.com.au". Fitzpatrick later spoke to Hurd. Fitzpatrick asked Hurd if he could apply for the job to which Hurd responded "ok". At 9:50am on Monday, 28 March 2011, Hurd sent an email to Center: "I hear Matthew Fitzpatrick has left Zomojo and is looking for work. Anything up for him to respond to?" Evidently there was because at 9:56am Fitzpatrick sent an email to Center responding to an advertisement seeking a "C++ zealot". Center sent Fitzpatrick's email to Hurd at 10:07am. At some point during the day, Hurd contacted Fitzpatrick by instant message and asked if he had time for a quick telephone discussion. Hurd and Fitzpatrick spoke by telephone that day. Fitzpatrick was evasive in his answer to the question of when, precisely, he was hired by Hurd. Fitzpatrick commenced work on 31 March 2011. 154 On 6 April 2011, Snowdon finished at Zomojo. Hurd learnt "shortly after" of that fact. On 7 April 2011, Hurd drafted a job advertisement which was specifically directed at a "hardware guy". Hurd rejected the contention that it was specifically directed at Snowdon. The job advertisement which Hurd drafted and sent to Newham at 11:53am that morning bore Zomojo's name, not Zeptonics. Hurd's evidence was that he obtained a copy of an old Zomojo advertisement from the internet and simply reproduced it, with the name changed, for Zeptonics' purposes. On either 7 or 8 April 2011, Snowdon found the advertisement on "seek.com.au" and, at 1:40pm on 8 April 2011, sent his application to Center. Center forwarded Snowdon's application to Hurd at 3:28pm. Center took the opportunity to make another "cute" comment to Hurd, saying in his email that: "Dave approached me, and I would have to say, he is definitely going to interest you. He seems to have had significant impact on system performance on a trading system at a small company called Zomojo." Snowdon was hired on the same day. In fact, Hurd sent an email to another Zeptonics employee attaching Snowdon's application and saying "[n]ewbie for us". Hurd's evidence was that the decision to hire Snowdon was made with little deliberation: "There would have been no doubt. All he had to say was 'Hello'." On 13 April 2011, Snowdon commenced at Zeptonics.

[18]

2.11 March 2011 onwards - Zeptonics' activities after Hurd left Zomojo 155 On 9 March 2011, Hurd emailed SunGard Global Trading (Singapore) Pte Ltd (SunGard) attaching a sheet entitled "Zeptonics" which stated: Our core strength is low latency technology. Please note that this document's content is covered by the NDA between Zeptonics and Sunguard [sic]. Please keep confidential, on a need to know basis, as many aspects of this document are sensitive. Core product groups planned Matching engine platform • Single digit microsecond latency from clients' perspective • >1,000,000 orders per second • Familiar protocol - similar to Nasdaq UFO - HFT oriented • FIX to HFT translation Protected DMA gateways • Protected customised risk, API, protocol checking • Single digit microsecond overhead using HFT protocol • FIX to HFT translation • Can do sub-microsecond with custom hardware Network equipment • ZeptoNIC - 1G, 10G, 40G network interface card family o 1 to 3 microsecond overhead IP/UDP • ZeptoSwitch - 1G / 10G / 40G Ethernet switch family o world's fastest 10G Ethernet switch, first under 100ns o full function data centre Ethernet fabric switch at 300ns • ZeptoWatch - integrated timing for nanosecond oriented packet tracing o integrated timing in most ZeptoNIC and ZeptoSwitch o in-band nanosecond oriented time traces throughout a datacenter • OptiCast - single digit nanosecond packet replication device o suits market data replication for an exchange or broker … Investors have invested in Crosswise which has a service agreement with Zeptonics to provide the matching platform and other technology for the Crosswise business. As part of the Crosswise venture, Zeptonics is actively developing: • OptiCast, • ZeptoNIC, • two ZeptoSwitches, • matching engine platform, and • some protected DMA elements for matching engine integration. … It is understood Sunguard [sic] has some mutual interest in most areas Zeptonics is developing. Primary interest is in developing low latency market access gateways. .... Zeptonics is willing to consider a variety of ways to get a relationship moving forward. (Emphasis in original.) The email is important. Zeptonics sought to keep the information confidential. The core product groups planned by Zeptonics and the products that Zeptonics was actively developing were listed. They included OptiCast and products entitled "ZeptoNIC" and "ZeptoSwitch" and what became ZeptoAccess KRX. 156 On the same day, 9 March 2011, Hurd, Zeptonics and Takaho Daley entered into a Crosswise Heads of Agreement whereby Mr Daley, another Crosswise Foundation Investor, invested $100,000 for 20,000 shares in Zeptonics. 157 Just over a month later, on 15 April 2011, Hurd emailed SunGard, stating: Please find attached a draft services contract for the OSE gateway. Let me know if this suits. The HKEx AMS project the lads have estimated 16 weeks and priced at $120k. We have created a new legal vehicle Zepto DMA Pty Ltd [Zepto Markets] which we should attached [sic] future work to and perhaps change this contract to. Also, FYI we have kicked off our project to deliver a low latency 100Mb / 1Gb card to eliminate the requirement of a switch acting as a fast interface for 10Gb delivery but that is likely to take four or five months to complete given the current state of the world's semiconductor pipeline. In fact, Zepto Markets DMA Pty Ltd (Zepto DMA) was incorporated on 20 April 2011. Hurd was the sole director and shareholder until 22 February 2012. It later became known as Zepto Markets Pty Ltd (Zepto Markets). The "gateway" was a reference to what became ZeptoAccess KRX. The last reference in the paragraph to "a low latency 100Mb/1Gb card" was a reference to ZeptoNIC. 158 Advantage PCB continued to work for Zeptonics on OptiCast. On 25 May 2011, Snowdon (as a principal of Zeptonics) emailed Advantage PCB. Snowdon provided the first draft of the ZeptoNIC schematics. Snowdon described the ZeptoNIC under the headings "Description of the board", "Placement", "Pin swapping", "Manufacturing" and "Layout". Snowdon described the board in the following terms: This is a board which is designed to prototype our ideas with respect to several products. Three products in particular: a network card, a switch and a second-generation opticast device. The primary components are four SFP+ ports, a Virtex-6 FPGA which has 10G transceivers built in (the GTHs) and … (Emphasis added.) Snowdon's evidence was that the "network card" was a reference to "ZeptoNIC"; the "switch" was a reference to the product entitled "ZeptoMUX" and the "second-generation Opticast device" was a reference to the product entitled "ZeptoLink". Snowdon accepted that ZeptoLink was a packet replication device. 159 On 8 June 2011, a Services Agreement between SunGard and Zepto DMA (as it was then known) was executed (the SunGard Agreement) in relation to what became ZeptoAccess KRX. By cl 3, Zeptonics was to provide "Services" to SunGard. The "Services" were defined to mean: • Develop a "Protected Direct Market Access Service" gateway to the Stock Exchange Hong Kong (SEHK) for the purposes of trading stock. • Upon delivery of the Deliverables to [SunGard] (the Start Date), Zeptonics will grant to [SunGard] … an exclusive, royalty-free licence (including the right to sublicense to a third party approved in writing by Zeptonics) to use the Deliverables in an unlimited number of instances, on an unlimited number of servers, for a period of 16 weeks from the start date, for the sole purpose of determining whether the Deliverables meet the Technical Specifications and can be used in a production environment. "Deliverables" was defined as "[t]he binary code for a 'Protected Direct Market Access Service' gateway to the Stock Exchange Hong Kong for the purposes of trading stock". The base fee was US$100,000. SunGard paid the base fee. 160 In June 2011, Chardaloupas of Newedge contacted Hurd again. Hurd's evidence was unclear on what precipitated their email communications. Nevertheless, on 16 June 2011, Hurd sent Chardaloupas a long email setting out Zeptonics' capabilities, including: … We should put a mutual NDA in place before I mention the stuff below, so please treat as confidential. May I send our standard NDA to you or do you have one that is easier for your legal dept to execute? Project work would look something like this if we were to proceed: We have four options for a TMX gateway: 1. Gateway server, software only, specific LAN cards, HFT protocol or Fix to Stamp or FIX, latency sub ten microseconds, (4-8 micros likely) 2. Gateway server, FPGA-Lite, HFT to Stamp or FIX, sub five microseconds (2-4 micros likely) 3. Gateway server, FPGA-Full, HFT to Stamp or FIX, sub microsecond (sub 0.2 microseconds likely at 10G, capable of perhaps sub -0.1 microsecond (yes negative) using a little HFT magic with a 1G TMX interface) 4. Client risk (direct to exchange/no gateway), an FPGA solution in a client's machine with an embedded Newedge risk gateway in the card with remote connectivity back to a Newedge risk system we would build for you. No gateway latency and the latency through the card from their software would be competitive with any other solution. The card would present as a regular LAN card to the client. … Our FPGA cards will be available in July and represent a new type of FPGA approach as they are capable of 10Mb/100Mb/1G/10G across all four ports and support novel single digit nanosecond (typically 1,000,000 orders per second throughput", "robust and secure design", "latency and other service monitoring provided to members", "Crosswise will deploy robust Australian developed technology with a single digit microsecond median latency from the customers' point of view. This will be the world's fastest exchange platform. Further progress to a sub-microsecond platform has been designed and will be developed in the fullness of time" and "[t]he protocol will be a familiar protocol with a choice of an efficient and simple Nasdaq-UFO-like protocol and/or an even more familiar BATS/Chi-X like FIX implementation. Market data will be a simple fixed structure UDP broadcast": see [112]-[115] above; and 6. on 23 January 2011, Hurd sent an email to the Crosswise Foundation Investors stating that he was "currently at more than full time equivalent in time allocation": see [139] above. 269 During cross-examination, Hurd attempted to suggest that he had not, in fact, invented or designed the Crosswise ATS in October to December 2010 or January 2011 and that he was undertaking only marketing and fundraising activities at that time. I reject that evidence. The Crosswise Conceptual Brief was a detailed document which set out how the proposed ATS would function. The document was designed to solicit investments, potentially raising over a million dollars. The document referred to further progress toward a sub microsecond platform as having already been designed. Hurd's evidence was that he wanted to "hit the ground running" once he had served out his notice period with Zomojo. As at 23 January 2011, he was "at more than full time equivalent in time allocation". By February 2011, Hurd had raised at least $800,000 from Crosswise Foundation Investors and entered into Crosswise Heads of Agreements with them. It is simply inconsistent with that evidence, and implausible, that Hurd would have prepared a detailed document, such as the Crosswise Conceptual Brief, and intended to "hit the ground running" with nothing more than a bare conception of what it might be possible to do with off-the-shelf hardware. 270 Steps taken by Hurd prior to 12 February 2011 in developing the Crosswise ATS were also in breach of cll 3.1 and 3.3 of the Service Agreement. In addition to breaches of his contractual obligations to use his best endeavours to promote the interests of Zomojo (cl 3.4) and not to be directly or indirectly involved or interested in any other business or occupation which materially interfered with the performance of the Services or competed in any respect with Zomojo's business (cl 3.5), the steps set out at [267] above, which were taken by Hurd in developing the Crosswise ATS, also breached his contractual obligation to "diligently perform the Services" (cl 3.1) and his contractual obligation (unless absent) to devote the whole of his time and attention to the performance of Services during normal business hours and at such other times as may reasonably be necessary to Zomojo's business (cl 3.3).

[19]

Clause 9 of the Service Agreement 271 Zomojo alleged that Hurd used his knowledge of the latency, throughput and fault tolerance / redundancy features of Zomojo's ATS in designing, developing, raising funds for and marketing the Crosswise ATS: see [189(1)] above. The evidence established that Hurd's knowledge of what could be achieved by an ATS, whether using off-the-shelf hardware or otherwise, was wholly informed by his experience with Zomojo's attempts to develop and market an ATS over the preceding three years. Hurd accepted that his claim of having "figured out how to build a sub micro exchange platform" was something he had "worked out while [he was] still at Zomojo" Further, he had worked out how to build that platform using standard equipment, again, while at Zomojo and as a function of his duties at Zomojo. In Hurd's words: "we discussed at Zomojo several times that standard networking gear was now fast enough that it made much of the Zomojo FPGA network card irrelevant for that space." Finally, during cross-examination, it was put directly to Hurd that the claims regarding the Crosswise ATS which he made in the Crosswise Conceptual Brief were based squarely upon knowledge he had acquired at Zomojo: … And in the attached Crosswise conceptual brief where you describe a platform with the highlights identified in the bullet points, you were drawing upon the knowledge you had derived by reason of your role as the co-managing director of Zomojo over the period from July 2005 onwards? - I was drawing upon my knowledge as a technical person knowing that that kind of tech was now available off the shelf. Yes. You knew that a sub-10 microsecond medium latency alternative trading system was possible, because that is what Zomojo had achieved with its prototype Rapide? - I knew it was possible to achieve with commodity hardware at that stage in time. Mr Hurd, did you understand my question? - I'm not sure I understood the inference. HER HONOUR: Don't worry about the inference. … HER HONOUR: You have just got to answer the question? - I knew it was possible because of Zomojo's tech, that's correct. DR COLLINS: Thank you. And you knew it was possible for an alternative trading system to achieve throughput of more than a million orders per second, because that's what Zomojo had achieved with its ATS prototype? - That and other things. Yes. And you knew, didn't you, that an alternative trading system could have a robust and secure design, because that is what Zomojo had achieved with its ATS prototype Rapide? - Yes, and because of other platforms too. (Emphasis added.) Hurd's Crosswise ATS was based upon his knowledge of what Zomojo's ATS was designed to achieve. There were striking similarities between the Crosswise Conceptual Brief and the presentation slides which Zomojo used during its roadshows in respect of its ATS: see [54], [57] and [113] above. 272 At several points during his examination in chief and his cross-examination, Hurd attempted to posit alternative sources from which he obtained knowledge of what could be achieved using off-the-shelf hardware. I reject that evidence. It was self-serving and generalised. Further, given the specialised nature of the information, it was inherently unlikely that Hurd would have obtained that information from a source other than his then employer who possessed that very information and had recently developed its own ATS (with Hurd's intimate involvement) possessing largely the same qualities. 273 Zomojo also relied upon the evidence of Associate Professor Leong to demonstrate the similarities between Zomojo's ATS and the Crosswise ATS. Associate Professor Leong's comparison revealed the following similarities: 1. "Zomojo's Rapide accelerated trading solutions (ATS) technology … is similar to Crosswise … Both have less than 10 microsecond order response time targets …"; 2. "[f]or ATS fault tolerance, the following technologies are employed: parallel matching engines; optical splitters so as not to introduce added latency; and deterministic matching engines …"; and 3. "[b]oth companies focus on Korean exchange options and futures contracts". 274 Hurd's expert, Dr Diessel, did not undertake any comparison of Zomojo's ATS and the Crosswise ATS. He accepted that he could find no example in computer science literature of an ATS with the combination of features possessed by Zomojo's ATS: see [188] above. 275 Given the substantial steps taken by Hurd prior to 12 February 2011, the detailed documentation concerning the Crosswise ATS he prepared and the similarities between the claims made by Hurd about the Crosswise ATS and the features of Zomojo's ATS, I find that Hurd used Zomojo's confidential information consisting of the latency throughput and fault tolerance redundancy features of its ATS (see [189(1) above) in breach of cl 9 of the Service Agreement.

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4.2.4.1 Introduction 277 The factual findings about Hurd's development and marketing of ZeptoMUX, ZeptoNIC, ZeptoSwitch and ZeptoAccess KRX prior to 12 February 2011 are set out at [110] and [133] above. Zomojo alleged that Hurd conceived of the ZeptoMUX, ZeptoNIC, ZeptoSwitch and ZeptoAccess KRX and then proceeded to market those products to Nunan of CredX in December 2010 (see [110] above) and James of Tibra in January 2011 (see [133] above), while he was still a director and employee of Zomojo. 278 Zomojo submitted that Hurd's conduct in relation to those products amounted to a breach of cll 3.4, 3.5, 9 and 10 of the Service Agreement, a breach of ss 181(1) and 183(1) of the Corporations Act and a breach of Hurd's fiduciary duties of fidelity and good faith. Hurd denied that he conceived of the relevant products prior to 12 February 2011. 279 When Hurd invented or conceived of the ZeptoMUX, ZeptoNIC, ZeptoSwitch and ZeptoAccess KRX was far from clear. As noted, Zomojo placed considerable reliance on Hurd's email to Nunan of CredX in December 2010 (see [110] above) and his email to James of Tibra in January 2011 (see [133] above). Those emails are important. It will be recalled that those emails, among other things, referred to "a sub micro exchange platform for a couple of thousand racks", the Crosswise ATS. 280 Hurd was cross-examined about his claim to Nunan in the December 2010 email (see [110] above) that "I've got a design I've worked through for the world's fastest 10G switch", during which the following exchange occurred: … And when you said: I've got a design I've worked through for the world's fastest 10G switch. Was that a reference to the Z10 card?--No. Was it a reference to a design that you had in fact done?--No, it was just my view that an FGPA (sic) may be able to do those speeds. So when you said "I've got a design", that was another lie, was it?--It was a - it was a conception in my head that because of the 30 to 50 nanoseconds time in an off FGPA (sic) chip, you may be able to get to a switch design that could be at that speed. I see. So you had a design in your head for the world's fastest 10G switch?--I had a thought it may be possible. You had a design in your head?--No, because it's not possible, so obviously I didn't. 281 By 12 January 2011 Hurd was, naturally, further advanced. Hurd required an NDA from Tibra to be in place before providing a specifications sheet for OptiCast because he was not prepared to share information about Zeptonics' products or plans without having a confidentiality agreement in place with potential customers. 282 But it is the balance of the email and the products listed in the final paragraph of the email that are important: see [133] above. There were four products listed, namely: 1. "1-3µs 1G/10G/40G ethernet cards with integrated timing"; 2. "World's fastest 10G 24 port switch (double digit ns port to port) though it has limited L2 functionality"; 3. "48/64 port L3 data centre switch at 300ns"; 4. "Some sub-micro exchange protected DMA stuff". Hurd did not tell Zomojo about any of these products or the ideas for them. 283 Hurd was cross-examined about these products. He was asked to identify the name given to the product by Zeptonics and asked whether, as at January 2011, there was in existence a Zomojo product or products that were similar. The second and third products may be put to one side - they were never built. 284 In relation to the "1-3µs 1G/10G/40G ethernet cards with integrated timing" (which was a reference to the product that became ZeptoNIC), Hurd admitted in cross-examination that: 1. it was a reference to a network interface card; 2. "integrated timing" was a reference to a timestamping functionality integrated into the firmware of the network interface card; 3. at that time (January 2011), Zomojo had integrated timing on its Z1 and Z10 network interface cards; and 4. the product described in the email is the product that became ZeptoNIC, which is now marketed by the Zeptonics companies as an Ethernet card with integrated timing. 285 In relation to the "some sub-micro exchange protected DMA stuff", Hurd stated that this was a reference to the product that became Zeptonics' gateway although Zeptonics built a software, not a hardware, gateway and the current gateway is not sub-micro. 286 Against that background it is necessary to address Zomojo's claims in relation to the development and marketing of the other products ZeptoMUX, ZeptoNIC, ZeptoSwitch and ZeptoAccess KRX prior to 12 February 2011.

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ZeptoMUX 288 The specifications sheet for ZeptoMUX was in evidence. It was undated save that "© 2012" appears in the footer. The specifications sheet described ZeptoMUX as: A 23-to-1 multiplexing switch that's purpose-built for latency-sensitive trading. Broadly speaking, the ZeptoMux is a 10GbE layer 2 switch that's been stripped of non-essential functionality and re-imagined as a multiplexer/de-multiplexer, or mux. (Emphasis in original.) 289 ZeptoMUX was described as a device enabling 23 "downstream client ports" to communicate with a single "upstream host port". In that sense, it is the opposite of ZeptoLink. Rather than quickly replicating a single data stream to multiple clients, the stated functionality of ZeptoMUX is to enable those multiple clients to communicate quickly with a single host. The specifications sheet listed what are described as "use cases". One example given involved the use of ZeptoMUX in an exchange to "create a faster, fairer link between multiple gateways and the matching engine". The benefits of using ZeptoMUX in that situation include reduced latency and "[i]n addition, the exchange would be fair - the first message to hit the ZeptoMux would be the first message to hit the exchange. … The market would be made fair by ZeptoMux's determinism." 290 When did it exist? Hurd said there was a prototype of ZeptoMUX in existence in 2011 and that in October 2011 he "got a fully fledged version into the lab". However, in his affidavit evidence, Hurd said the ZeptoMUX was Snowdon's idea, not his, and that Snowdon conceived of ZeptoMUX in April or May 2011. Hurd did not suggest that "world's fastest 10G 24 port switch" (see [110], [133] and [280] above) became the ZeptoMUX. And at no point during Hurd's cross-examination was it put to him that what he was referring to in his emails was ZeptoMUX or what became ZeptoMUX. As is readily apparent, it cannot be concluded that Hurd's "10G 24 port switch" was the ZeptoMUX or that it was created by Hurd prior to 12 February 2011.

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Cl 9 of the Service Agreement 299 Turning to the alleged breaches of cl 9 of the Service Agreement. It is necessary to again deal with each device in turn. 300 First, ZeptoMUX. Zomojo alleged that Hurd used his knowledge of Zomojo's implementation of fast ordering, speculative transmission and transmit fragmentation techniques in designing, developing and marketing the ZeptoMUX. In support of that contention, Zomojo referred to Hurd's emails to Nunan of CredX on 3 December 2010 (see [110] above) and to James of Tibra on 12 January 2011 (see [133] above). Those emails did not refer to and did not extend to ZeptoMUX. Those emails referred to what Hurd described as the "world's fastest 10G switch", not the ZeptoMUX. Zomojo submitted that ZeptoMUX was a product which evolved from the switch which Hurd conceived of and referred to as the "world's fastest 10G switch". That proposition was not put to Hurd. It is not open to conclude that Hurd used Zomojo's confidential information in the development of the "world's fastest 10G switch" or the ZeptoMUX. Although Hurd admitted that Zeptonics used "partial packet processing" and speculative transmission techniques in ZeptoMUX, the use of "partial packet processing" and speculative transmission techniques was not in breach of cl 9 of the Service Agreement because those elements, on their own or in combination, were not "confidential information" for the purposes of that clause: see [189] above. 301 Second, ZeptoNIC. Zomojo alleged that Hurd used his knowledge of Zomojo's implementation of fast ordering, speculative transmission and transmit fragmentation techniques and the integration of timestamping, logging and passthrough functionality into the firmware of Zomojo's NICs in designing, developing and marketing the ZeptoNIC. Hurd's email to Nunan described the invention of "1-3µs 1G/10G/40G ethernet cards with integrated timing", which Hurd accepted was a reference to the ZeptoNIC: see [284] and [291] above. Hurd accepted that Zomojo's NICs and the ZeptoNIC were physically similar: both possessed 4 SFP ports on the left hand edge (although the ZeptoNIC used the updated SFP+ design), both utilised an FPGA as the central component, both featured an 8 lane PCI express connection on the lower edge and both allowed time synchronisation via a firewire connector. Further, Hurd accepted that he integrated timestamping functionality into the ZeptoNIC and that the ZeptoNIC had logging and passthrough functionality. For those reasons, Hurd used Zomojo's confidential information, including the integration of timestamping, logging and passthrough functionality, in the design and development of the ZeptoNIC in breach of cl 9 of the Service Agreement: see [189(3)] above. 302 Third, ZeptoSwitch. Zomojo did not identify which aspects of its confidential information Hurd was alleged to have used in designing, developing and marketing the ZeptoSwitch. I reject the contention that Hurd used Zomojo's confidential information, either prior to his departure from Zomojo, or otherwise, in relation to ZeptoSwitch. 303 Fourth, ZeptoAccess KRX. Zomojo alleged that Hurd used his knowledge of Zomojo's implementation of fast ordering, speculative transmission and transmit fragmentation techniques in designing, developing and marketing the ZeptoAccess KRX. The reference to "[s]ome sub-micro exchange protected DMA stuff" was a reference to what became ZeptoAccess KRX: see [294] above. Hurd gave evidence that during 2009, when he was a co-managing director of Zomojo, "fast ordering" was first implemented in Zomojo's systems. Hurd's further evidence was that "fast ordering" entailed "the notion of sending part of the packet early". Put another way, fast ordering is a particular implementation of transmit fragmentation. Hurd admitted that he used partial packet processing techniques and speculative transmission techniques in ZeptoAccess KRX. Hurd's admission that the ZeptoAccess KRX used speculative transmission, the process of "starting to transmit an outgoing packet before it's known whether or not it will be required", involved an admission that Hurd used "fast ordering" and transmit fragmentation. That was a breach of cl 9 of the Service Agreement because Hurd used "confidential information" being Zomojo's confidential information in relation to Zomojo's Gateway: see [189(4)] above.

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4.3.2.4 ZeptoAccess KRX 321 As a result of Hurd's conduct prior to 12 February 2011, the ZeptoAccess KRX gateway was designed and developed in breach of cl 9: see [303] above. Of course, that position did not alter after 11 February 2011. Moreover, after 11 February 2011 Hurd continued to design and develop a direct market access gateway, both in relation to the KRX and otherwise: see [155], [157], [159], [160], [162], [163]-[168] and [293]-[294] above. In summary, those steps were as follows: 1. on 9 March 2011, Hurd sent a specifications sheet to SunGard which described the features of "Protected DMA gateways": see [155] above; 2. on 16 June 2011, Hurd sent an email to Chardaloupas describing the features of Zeptonics' "risk gateways": see [160] above; 3. on 30 July 2011, Hurd declined to bid for Newedge's business but mentioned that Zeptonics was "targeting a release of a UDP based sub 200ns risk protected gateway appliance late 2011 with a sub 300ns TCP based release in 2012": see [162] above; 4. on 26 and 27 August 2011, Hurd and Zeptonics' staff gave a presentation regarding the Crosswise ATS which included details and specifications for ZeptoRisk: see [163]-[164] above; 5. on 28 September 2011, Hurd sent an email to Chardaloupas discussing the design and implementation of eight gateways for Newedge: see [165] above; and 6. on 21 November 2011, Karonis, on behalf of Zeptonics, sent an email to Shin which described the features of Zeptonics' gateways and stated that "[r]ight now we are in the final stages of development of a KRX order gateway and KRX market data gateway": see [168] above. 322 In October 2011, Zeptonics entered into the Leading Agreement: see [166]-[167] above. Zeptonics agreed to provide a direct market access gateway to the KRX. Hurd accepted that negative latency was the main selling point. The Leading Agreement included a "description of negative latency" which stated that "[t]hese savings can be measured quite accurately by comparing latencies with the magic tricks turned on and turned off and comparing median KRX response times". Hurd accepted that the reference to "magic tricks" was deliberately designed to obscure the precise techniques used by Zeptonics to achieve negative latency. 323 In early 2012, Zeptonics prepared a negative latency specifications sheet which was used to explain the concept to potential clients. The specifications sheet described the features of a product known as "ZeptoDMA Korea". Hurd gave evidence that was one of the names by which ZeptoAccess KRX was formerly known. Hurd accepted that speculative transmission was one of the methods Zeptonics used to achieve negative latency, which was used in ZeptoAccess KRX. 324 Further, a specifications sheet, undated save for "© 2012" in the footer, detailing the features of ZeptoAccess KRX was in evidence. Hurd was cross-examined regarding another document entitled "Zeptonics: Product Overview": see [257] above. That document also included claims about Zeptonics' "fabric technology", including ZeptoRisk. 325 Hurd's conduct was, and remained, in breach of the fiduciary duties Hurd continued to owe to Zomojo, of s 183(1) of the Corporations Act and of cl 9 of the Service Agreement: see [303]-[304] and [305(5)] above.

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4.3.4 Dealings with Newham, Snowdon and Fitzpatrick 326 The factual matters relevant to Hurd's dealings with Newham, Snowdon and Fitzpatrick are set out at [92], [99], [101], [108], [142], [145]-[154] above. In Hurd's own words, he "had a hope that some Zomojo employees would come across and that's why [he] sought some legal advice to make sure that [he] didn't do anything that would breach [his] employment contract". 327 Zomojo submitted that Hurd's conduct amounted to a breach of cl 12.1(b) of the Service Agreement. Hurd submitted that cl 12.1(b) was a restraint of trade which was prima facie void. Even if cl 12.1(b) was valid, Hurd submitted that he had not breached cl 12.1(b) on its terms because the clause prohibited the making of an offer of employment and neither he nor Center actually approached Newham, Fitzpatrick or Snowdon. Rather, each approached him. In the alternative, if the restraint was effective even where the staff sought out and requested that employment, Hurd submitted that none of Newham, Fitzpatrick or Snowdon were actually employees of Zomojo at the time when the relevant offers of employment were made. As a result, and because cl 12.1(b) did not prohibit counselling or procuring a person to resign, Hurd submitted that he had not breached cl 12.1(b). 328 There are two issues: (1) what is the proper construction of cl 12.1(b) of the Service Agreement and (2) in light of that construction, was Hurd's conduct a breach? 329 Turning to the first issue, Hurd's submissions raise two matters concerning the construction of cl 12.1(b). First, does it apply where it is the relevant employees who seek out the employment? Second, does it extend only to the enticement of current employees of Zomojo? It is unnecessary to resolve either question because: 1. Hurd in fact approached each of Newham, Snowdon and Fitzpatrick: see [142] and [147]-[154]; and 2. the relevant conduct occurred prior to the end of the notice periods of each employee: see [142] and [145]-[154] above. 330 Turning to the second issue, Hurd's conduct began in late 2010. Hurd and Newham discussed OptiCast using instant messages in October 2010: see [92] above. In late 2010, Hurd took Newham into his confidence about his frustrations with Zomojo and his future plans. Hurd had been in similar discussions with Snowdon in late 2010: see [99] above. Fitzpatrick was the last to be informed of Hurd's plans. Nevertheless, Hurd's discussions with him occurred prior to the end of Hurd's notice period and before Fitzpatrick had even indicated his desire to resign from Zomojo: see [142] above. 331 None of those steps, taken alone, constituted a breach of cl 12.1(b). Hurd had not offered employment to any of Newham, Snowdon or Fitzpatrick or counselled or procured anyone else to do so. Further, cl 12.1(b), in its terms, applies only after termination of the Service Agreement between Hurd and Zomojo. 332 However, by the end of January 2011, or early February 2011, each had not only discussed with Hurd the fact that Hurd intended to leave Zomojo and start a new business, but each had expressed a desire to work with Hurd again in the future. Hurd reciprocated that desire in each case. 333 On 28 January 2011, Newham resigned: see [142] above. On about 31 January 2011, Hurd sought advice from DibbsBarker about employing former Zomojo employees: see [142] above. His motivation for seeking that advice was telling. He gave evidence that "the staff had expressed interest". Hurd's evidence was calculated to suggest that he took no positive step to enliven that interest and that, as he submitted, the staff would have followed him anywhere. 334 The advice Hurd eventually received from DibbsBarker was not in evidence. An email exchange between Hurd and DibbsBarker on 9 February 2011, however, was in evidence. As mentioned at [145] above, in response to the suggestion that Hurd had enticed a Zomojo staff member to resign, Hurd said to Sloan that: Would like to know which employee they believe I have solicited as many have requested I take them but my standard line has been that I may not be able to. The three names I've mentioned I have said I would like to find a way if I legally can but that may not be possible. Scott Newham resigned as he was sick of the crappy work he was doing at the time and he expected to be picked up by me, I asked him not to as it may make it complicated for me and there was no certainty I could employ him, but, alas he did anyway. I do feel a [sic] obligation to him and, as discussed, need to find a reasonable strategy to bringing him and other staff across. (Emphasis added.) 335 The matters emphasised in the quote from Hurd's email above suggests several things: (1) he had discussions with "many" employees but delivered a standard response which was that he "may not be able to", (2) he had already mentioned Newham, Snowdon and Fitzpatrick to DibbsBarker as potential targets for recruitment, (3) Newham "expected" to be hired by Hurd and, although Hurd had discouraged him and there was "no certainty" Hurd could employ him, Hurd felt an obligation to him and (4) Hurd needed to find a "reasonable strategy" for bringing Newham and other staff across. At that time, Newham was still employed by Zomojo and was serving his notice period. In the circumstances, it is open to infer that Hurd had earlier indicated to Newham that he might be able to employ him, although there was no certainty, and that Newham subsequently resigned from Zomojo. 336 On 22 February 2011 Hurd sent an email to each of Fitzpatrick and Snowdon in the terms considered at [147] above. That email was sent on DibbsBarker's advice. Further, as mentioned at [147] above, it had the effect of causing Fitzpatrick and Snowdon to resign, serve out their notice period and approach Hurd (via Center) for employment. Snowdon gave evidence that he interpreted the email as suggesting that he do so. 337 By 25 February 2011, Hurd had made an arrangement with Center which Hurd accepted was focused on recruiting three "known names", who were Newham, Snowdon and Fitzpatrick: see [148]-[149] above. Hurd would not have taken that step, and offered to pay Center $10,000, if his intentions with respect to Newham, Snowdon and Fitzpatrick had not become more certain. It is open to infer that Hurd then intended to make offers of employment to each of Newham, Snowdon and Fitzpatrick. That arrangement coincided with Newham's last day at Zomojo. Center placed an advertisement on "seek.com.au" and Newham subsequently found and responded to that advertisement all on the same day: see [150] above. I reject the suggestion that the timing was purely coincidence. Hurd was acting on the advice of DibbsBarker as to the "reasonable strategy" that he should adopt. Hurd accepted that the strategy which was proposed included the use of a recruitment firm. I do not accept that it was purely coincidence that the giving of that advice, Hurd's decision to act on the advice, Hurd's meeting with Center, Center's placing of a job advertisement and Newham's responding to that advertisement all occurred on the same day. 338 Zomojo submitted that the process of using a recruitment agency to engage Newham, Fitzpatrick and Snowdon was a sham. I accept that submission. Hurd sought DibbsBarker's advice, and acted upon it, because he had a desire to employ Newham, Fitzpatrick and Snowdon. While he couched the promises he had made to Newham in terms of there being "no certainty" as to whether he could employ him, I accept that the reason he felt "a [sic] obligation" was because he had agreed to offer Newham employment. I also accept that he "need[ed] to find a reasonable strategy to bringing [Newham] and other staff across" for the same reason. Hurd's email to the Crosswise Foundation Investors confirms Hurd's state of mind on 21 February 2011 (that is, prior to Newham's last day at Zomojo) (see [146] above). Hurd gave the investors a timeline for the recruitment of further employees which was nearly identical with what eventually occurred. Hurd stated that he was "awaiting legal clearance on process to hire". I accept that, by then, Hurd's plans were essentially fully formed, subject only to "legal clearance". His emails to Fitzpatrick and Snowdon the next day were sent in furtherance of those plans and pursuant to that "legal clearance". 339 In those circumstances, Hurd breached cl 12.1(b). While it was Newham, Snowdon and Fitzpatrick who ultimately applied for the jobs which they were given, and it was Center who facilitated that process, Hurd's conduct in breach of cl 12.1(b) occurred well before that date. He had indicated to each of Newham, Snowdon and Fitzpatrick that he would employ them, subject to "legal clearance". On about 22 February 2011, he obtained "legal clearance". I do not accept that Hurd sent the email to the Crosswise Foundation Investors and engaged Center all on the mere hope that Newham, Snowdon and Fitzpatrick would each apply for jobs. The course which Hurd adopted was deliberate and calculated. He would not have adopted it without some assurance that each of Newham, Fitzpatrick and Snowdon were willing and able to engage in it. By canvassing their interest, indicating that he would hire them and adopting the course above, Hurd breached cl 12.1(b). 340 That leaves a legal issue - was cl 12.1(b) invalid as a restraint of trade? The principles concerning the validity of a restraint have been addressed earlier in relation to cl 9: see [179] above. Two principles are of particular significance in the context of cl 12: (1) whether a restraint is reasonable is a question of law and not of fact (see [179(5)] above) and in determining whether a restraint is reasonable the Court should consider what was necessary to protect the legitimate interests of the person asserting the restraint in the circumstances of the case, assessed from the date of making the contract and making the best possible estimate of probabilities and contingencies then foreseeable (see [179(6)] above). 341 The terms of cl 12 are set out above: see [24]-[25] above. 342 The Service Agreement was entered into on 2 December 2005. As noted at [9] above, as early as May 2005, Hurd identified that "[s]ecrecy and staff retention is very important to maintaining proprietary advantage". One of the principal risks that Zomojo faced was "important staff leaving which enough IP [intellectual property] in their heads to competitively hurt the venture" see [9] above. Hurd's own contemporaneous analysis was a reasonable estimate of the probabilities and contingencies then foreseeable. It was foreseeable that Zomojo's market advantage would be its proprietary methods and techniques and, consistent with view, it was Zomojo's staff that had Zomojo's proprietary methods and techniques "in their heads". It would be an odd result if Hurd was entitled to thwart the limitation on using Zomojo's proprietary methods and techniques simply by hiring Zomojo's employees. It was therefore necessary, in order to protect Zomojo's legitimate business interests, that its employment agreements contain some form of restraint upon offering employment or business opportunities to Zomojo's employees (cl 12.1(b)). The clause was not invalid.

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4.3.5 Zepto Markets and SunGard and Zeptonics and Leading 343 The facts relevant to Hurd's dealings with SunGard and Leading are set out at [155], [157], [159], [166], [167] and [170] above. 344 Zomojo submitted that Hurd breached cl 12.1(c) of the Service Agreement by causing Zepto Markets to enter into the SunGard Agreement and by causing Zeptonics to enter into the Leading Agreement. Hurd submitted that cl 12.1(c) was a restraint of trade which was prima facie void. Hurd further submitted that, even if cl 12.1(c) was valid, a breach of cl 12.1(c) will only be established where the company the subject of the breach is "involved with the trading of securities on any of the exchanges listed in item 10 of Schedule A". 345 In the Amended Statement of Claim dated 9 September 2012, Zomojo alleged that Zeptonics and Zepto Markets were both entities that fell within cl 12.1(c). Hurd gave evidence that neither Zeptonics nor Zepto Markets conducted any trading of securities on any of the exchanges listed in Item 10 of Sch A. In his written submissions, Hurd admitted that he had offered advice and assistance in the restraint period to a company that was involved in trading on a named exchange, but contended that such a breach did not make good the pleaded allegation. Presumably, the companies which Hurd's admission related to were SunGard and Leading, not Zeptonics and Zepto Markets. Zomojo did not challenge Hurd's claim that Zeptonics and Zepto Markets were not involved in any trading of securities. Rather, at the conclusion of the trial, Zomojo sought leave to file a Further Amended Statement of Claim which addressed the evidence led at trial and, most, importantly, Hurd's admission. Zomojo sought leave to amend the allegation to plead that SunGard and Leading, instead of Zeptonics and Zepto Markets, were the subject of the alleged breaches of cl 12.1(c). Hurd objected to Zomojo being granted leave. He did not specify any ground of objection. I would permit the amendment. 346 Hurd breached cl 12.1(c) by causing Zepto Markets to enter into the SunGard Agreement and by causing Zeptonics to enter into the Leading Agreement. Hurd offered advice and assistance to SunGard and Leading. SunGard and Leading were both "involved with the trading of securities on any of the exchanges listed in item 10 of Schedule A": see [24] and [344] above. 347 That leaves the remaining legal issue - was cl 12.1(c) invalid as a restraint of trade? The principles have been addressed earlier: see [179] above. 348 Again, the starting point in determining the reasonableness (and therefore the validity) of cl 12.1(c) is a consideration of what was necessary to protect Zomojo's legitimate interests in the circumstances of the case, assessed from the date of making the Service Agreement and making the best possible estimate of probabilities and contingencies then foreseeable: see [179(6)] above. The circumstances surrounding the entry into the Service Agreement are summarised at [8]-[37] above. 349 Was it necessary to protect Zomojo's legitimate business interests that the Service Agreement contain some form of restraint upon Hurd being employed by, providing services or advice or otherwise assisting any company or entity involved with the trading of securities on any of the exchanges listed in Item 10 of Sch A? The answer is yes. The terms of cl 12.1(c) were limited in time: see cl 12. 350 As to its subject matter, it is also limited to entities and activities "involved with the trading of securities". As Hurd's initial proposal for Zomojo recorded (see [9] above), one of Zomojo's advantages was its speed. That speed came from its technology. It was foreseeable that Zomojo's market advantage would be its proprietary methods and techniques and, consistent with view, it was Zomojo's staff that had Zomojo's proprietary methods and techniques "in their heads". Consistent with that analysis, it was reasonable to restrain Hurd from assisting Zomojo's competitors for a period of 12 months. Hurd's own contemporaneous analysis was a reasonable estimate of the probabilities and contingencies then foreseeable. It was therefore necessary, in order to protect Zomojo's legitimate business interests, that its employment agreements contain some form of restraint upon the activities identified in cl 12.1(c) for a period of 12 months.

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4.4.1 Knowing assistance 353 Zomojo submitted that Zeptonics, Crosswise Pty Ltd (Crosswise), Zepto Markets, Zepto Fabrics Pty Ltd (Zepto Fabrics), Zeptoip and Trademach Pty Ltd (Trademach) each knowingly assisted in Hurd's breaches of fiduciary duties and therefore were liable to account for any resulting gains. Zomojo abandoned its claim that MD Hammer knowingly assisted Hurd's breaches of fiduciary duty. 354 There are two limbs of accessorial liability: knowing receipt and knowing assistance. To succeed against a person under the first limb it must be established that property acquired through a breach of a fiduciary duty has been received by the person in the knowledge that such property was received in breach of a fiduciary duty: Belmont Finance Corporation v Williams Furniture Ltd (No 2) [1980] 1 All ER 393; Linter Group Ltd (in liq) v Goldberg (1992) 7 ACSR 580 at 623-6; Farrow Finance Company Ltd (in liq) v Farrow Properties Pty Ltd (in liq) [1999] 1 VR 584 at [152]; Robins v Incentive Dynamics Pty Ltd (in liq) (2003) 175 FLR 286 at 299-30. To succeed under the second limb it must be shown that the person gave assistance to a fiduciary with knowledge of a "dishonest and fraudulent design on the part of the trustee or fiduciary": Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89 at [160]. Zomojo relied upon the second limb. 355 Zomojo relied on the following matters as establishing the elements of knowing assistance in respect of each Corporate Respondent: 1. in respect of Zeptonics: 1.1 Hurd was at all times a director and secretary and the controlling mind of Zeptonics; 1.2 Hurd was, until 22 February 2012, the holder of all the issued shares in Zeptonics; 1.3 Hurd caused Zeptonics to enter into the Leading Agreement; and 1.4 Zeptonics developed, marketed and markets the products OptiCast, ZeptoCast, ZeptoLink, ZeptoMUX, ZeptoNIC and ZeptoAccess KRX; 2. in respect of Crosswise: 2.1 Hurd was at all times a director of Crosswise; 2.2 Hurd was, until 22 February 2012, the holder of 100,000 of the 300,000 ordinary shares in Crosswise; 2.3 Hurd raised significant funds for Crosswise; and 2.4 Crosswise developed and marketed the Crosswise ATS, including by presentations at which Hurd made representations as to the latency, throughput and redundancy capabilities of the Crosswise ATS; 3. In respect of Zepto Markets: 3.1 Hurd was at all times a director of Zepto Markets; 3.2 Hurd was, until 22 February 2012, the holder of all the issued shares in Zepto Markets; 3.3 Hurd caused Zepto Markets to enter into the SunGard Agreement; and 3.4 Zepto Markets is engaged in the business of marketing and selling Zeptonics' gateway products, such as ZeptoAccess KRX, to professional traders and institutions; 4. in respect of Zepto Fabrics: 4.1 Hurd was at all times a director of Zepto Fabrics; and 4.2 Zepto Fabrics was incorporated for the purpose of exploiting ZeptoMUX, ZeptoLink and any future products related to networks or fabrics; 5. in respect of Zeptoip: 5.1 Hurd was at all times a director of Zeptoip; 5.2 Hurd caused Zeptoip to file a patent application relating to what he calls "negative latency", but which is in fact an implementation of Zomojo's fast ordering, speculative transmission and transmit fragmentation techniques; and 5.3 Zeptoip is engaged in the lodgement of all patents and trademarks concerning Zeptonics' business; 6. in respect of Trademach: Trademach is a party to a licensed trading agreement with a Japanese asset management company involving the use of Zeptonics' products, and has tested trades on the KRX futures and options exchange. 356 Hurd submitted that Zomojo failed to particularise what assistance was actually given. It was not put to Hurd that any assistance was given with knowledge of a fraudulent or dishonest design. In fact, in Hurd's submission, there was no evidence that there was such a fraudulent or dishonest design in the first place. Hurd submitted that Zomojo had to meet a high standard of proof to establish a dishonest and fraudulent design, and it had failed to do so. 357 Zomojo has to meet a high standard of proof: Briginshaw v Briginshaw (1938) 60 CLR 336; see also Bell Group Ltd (in liq) v Westpac Banking Corp (No 9) (2008) 39 WAR 1 at [4726]. It has met that standard. Hurd engaged in a prolonged course of conduct designed to benefit his own interests, rather than Zomojo's interests, which involved numerous breaches of his contractual, statutory and fiduciary duties. That course of conduct began long before Hurd's employment with Zomojo ceased and included a deliberate attempt to conceal his conduct from his employer and not to attract their suspicions. Hurd's conduct was a most fundamental breach of the obligations owed by employee to employer and by director to company. Hurd attempted to take for himself inventions which were conceived as a result of the use of Zomojo's confidential information and opportunities which presented themselves to him as a result of his position as managing director of Zomojo. Hurd's conduct evinces the requisite "dishonest and fraudulent design". 358 As to the assistance that was given, Zeptonics and Crosswise were corporate vehicles which Hurd established to take the benefit of his breaches of duty: see [355(1) and (2)] above. Zeptonics was the entity through which Hurd developed and marketed ZeptoLink (including OptiCast and ZeptoCast before it), ZeptoMUX, ZeptoNIC and ZeptoAccess KRX. Zeptonics was the contracting party through which Hurd entered into the Leading Agreement. 359 Crosswise was the entity through which Hurd solicited and obtained investors and marketed and developed the Crosswise ATS. Zepto Markets, formerly Zepto DMA, was a company Hurd established to "attached [sic] future work to and perhaps change this contract to" (referring to the SunGard Agreement). Zepto Markets was engaged in the business of marketing and selling Zeptonics' gateway products, such as ZeptoAccess KRX, to professional traders and institutions. Hurd established Zepto Fabrics on 7 March 2012 to exploit the ZeptoMux and ZeptoLink and any future products related to networks or fabrics. Also on 7 March 2012, Hurd incorporated Zeptoip, to hold Zeptonics' intellectual property including patents and trade marks. Hurd caused Zeptoip to file a patent application relating to what he called "negative latency", but which was in fact an implementation of Zomojo's fast ordering, speculative transmission and transmit fragmentation techniques. 360 On 14 February 2012, Hurd established Trademach. In March 2012, Trademach started conducting test trades on the KRX futures and options exchange. On 15March 2012, Trademach entered into a licence agreement with Leading, which relates to, among other things, the use of Zeptonics' products. 361 Each of Zeptonics, Crosswise, Zepto Markets, Zepto Fabrics, Zeptoip and Trademach provided assistance to Hurd. Hurd's knowledge of his own dishonest and fraudulent design is to be imputed to Zeptonics, Crosswise, Zepto Markets, Zepto Fabrics, Zeptoip and Trademach: Endresz v Whitehouse [1998] 3 VR 461; Morlea Professional Services Pty Ltd v Richard Walter Pty Ltd (in liq) (1999) 96 FCR 217; Yore Contractors Pty Ltd v Holcon Pty Ltd (1990) 2 ACSR 663 and Ford H, Austin R and Ramsay I, Principles of Corporations Law (Butterworths, subscription service) at [16.220] (Service 77).

[46]

4.4.2 Inducing breach of contract 362 Zomojo's written submission focused on cl 12.1(c) and the SunGard and Leading Agreements. Zomojo contended that: 1. Zeptonics induced Hurd to breach cl 12.1(c) of the Service Agreement by entering into the Leading Agreement; and 2. Zepto Markets induced Hurd to breach cl 12.1(c) of the Service Agreement by entering into the SunGard Agreement. The Further Amended Statement of Claim, however, also pleaded that Crosswise and MD Hammer induced Hurd to breach cl 12.1(c) of the Service Agreement in various ways. 363 The elements of the tort of inducing breach of contract are well established. The tort is committed where a party intentionally induces a third party to breach a contract between the third party and another: Williams v Hursey (1959) 103 CLR 30. An essential element of the tort is the party's intention to bring about a breach of the contract: Short v The City Bank of Sydney (1912) 15 CLR 148 at 160; Independent Oil Industries Ltd v Shell Co of Australia Ltd (1937) 37 SR (NSW) 394 at 414-15. The party must be shown to have had some knowledge of the contract, or at least its existence: J T Stratford & Son Ltd v Lindley [1965] AC 307; Greig v Insole [1978] 3 All ER 449; Boral Bricks NSW Pty Ltd v Frost (1987) Aust Torts Reports 80-097 at 68,608. Where the party is a corporation, knowledge and intention on the part of an officer will suffice: Fightvision Pty Ltd v Onisforou (1999) 47 NSWLR 473. It must also be shown that the breach of the contract has caused some damage or at least that damage can be inferred from the circumstances: Exchange Telegraph Company Limited v Gregory & Co [1896] 1 QB 147; Goldsoll v Goldman [1914] 2 Ch 603; Bents Brewery & Co Ltd v Hogan [1945] 2 All ER 570; Greig v Insole [1978] 3 All ER 449 at 490. 364 Zomojo submitted that in the present case the elements of the tort were established from the fact that: 1. Hurd was at all times a director and secretary and the controlling mind of Zeptonics; 2. Hurd was at all times a director of Zepto Markets; 3. Hurd caused Zeptonics to enter into the Leading Agreement, by signing the agreement on its behalf; 4. Hurd caused Zepto Markets to enter into the SunGard Agreement, by signing the agreement on its behalf; and 5. it could be inferred that Zomojo had suffered damage. Again, Zomojo's written submissions did not address the pleaded allegations against Crosswise and MD Hammer. They may be put to one side. 365 Hurd's primary position was that Zomojo was unable to establish any relevant breach of cl 12(c) (a view rejected at [346] above). Hurd's secondary submission was that there was no evidence that Zeptonics and/or Zepto Markets or Mr Hurd knowingly breached the Service Agreement. In other words, Hurd submitted that neither he nor the relevant companies engaged in the conduct which constituted a breach of cl 12(c) with the requisite subjective intention. To the extent that submission is still relevant, it is rejected. 366 Hurd accepted during cross-examination, with a qualification, that the SunGard Agreement was entered into for the purpose of trading stock on the Hong Kong Stock Exchange. Hurd qualified his answer by saying "[t]he purpose was to build a prototype to demonstrate that we could do it and then perhaps to extend the relationship". Hurd also accepted that the Leading Agreement was entered into by Zeptonics to provide advice and assistance in respect of trading on the KRX, within a 12 month period after Hurd finished at Zomojo. At that time, Hurd knew of the terms of the Service Agreement. He was not indifferent or ignorant of them. He had recently sought advice in respect of cl 12.1(b) from DibbsBarker: see [142] above. It is beyond doubt that Hurd was aware of the obligation imposed upon him by cl 12.1(c). 367 As was said in Independent Oil Industries at 414-415, "[i]t is necessary to establish that the third party knew of the contract, knew that the doing of a particular act by one of the parties to it would be a breach of it, and with that knowledge procured the party to do the act": see Allstate Life Insurance Co v Australia & New Zealand Banking Group Ltd (1995) 58 FCR 26 at 38-39. Put another way, "the alleged tortfeasor must intend that what he is inducing will be a breach of contract": Allstate at 42. That is precisely the situation here. Hurd's stated intention was, among other things, to provide advice and assistance in respect of trading on the KRX and to do so within the restraint period. Hurd knew of the Service Agreement and knew that the doing of a particular act by him would be a breach of it. And, of course, the common link was Hurd. Hurd's knowledge can be and should be attributed to each of Zeptonics and Zepto Markets: Endresz v Whitehouse [1998] 3 VR 461; Morlea Professional Services Pty Ltd v Richard Walter Pty Ltd (in liq) (1999) 96 FCR 217; Yore Contractors Pty Ltd v Holcon Pty Ltd (1990) 2 ACSR 663 and Ford H, Austin R and Ramsay I, Principles of Corporations Law (Butterworths, subscription service) at [16.220] (Service 77). Zeptonics and Zepto Markets, fixed with that knowledge, procured Hurd to do the acts. 368 Accordingly, on its face, Zeptonics and Zepto Markets induced Hurd to breach cl 12.1(c) of the Service Agreement.

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5.1 Breaches of cll 3.1, 3.3, 3.4 and 3.5 of the Service Agreement, s 181(1) of the Corporations Act and Hurd's fiduciary duties 370 Zomojo referred to this category as Hurd's "misconduct while Zomojo's Co-Managing Director and Employee". "Misconduct" is an apt title for capturing the broad variety of activities in which Hurd engaged. The relevant breaches are referred to at [225]-[240], [262]-[270], [277]-[296] and [305] above. 371 As against Hurd, Zomojo sought damages and: Injunctions restraining Hurd, and his officers, employees or agents howsoever, for 12 months from the date of judgment, from engaging directly or indirectly in any conduct that profits from or takes advantage of Hurd's breaches of the Service Agreement, the Corporations Act and his fiduciary obligations. 372 Zomojo also submitted that it was entitled to the following injunctions: (a) an injunction restraining Hurd for 12 months from the date of judgment from being directly or indirectly involved or interested in any business or occupation that competes in any respect with the business of Zomojo, including (without limitation) each of the corporate Respondents, and from providing advice, assistance or services to any company or entity engaged in any such business or occupation; (b) a mandatory injunction requiring Hurd to assign, or procure the assignment of, each of Opticast, Zeptocast, ZeptoLink, ZeptoMUX, ZeptoNIC, ZeptoAccess KRX and the Crosswise ATS to Zomojo; (c) a mandatory injunction requiring Hurd to deliver up to Zomojo, or to procure the delivery up to Zomojo of, all prototypes and parts of prototypes, and products or parts of products, in his possession, power or control or in the possession, power or control of any of the corporate Respondents, relating to or based on Opticast, Zeptocast, ZeptoLink, ZeptoMUX, ZeptoNIC, ZeptoAccess KRX and the Crosswise ATS; and (d) a mandatory injunction requiring Hurd to deliver up to Zomojo, or to procure the delivery up to Zomojo of, all documents (including electronic documents and files) in his possession, power or control or in the possession, power or control of any of the corporate Respondents, that record or refer to any of the prototypes or products known as or based on Opticast, Zeptocast, ZeptoLink, ZeptoMUX, ZeptoNIC, ZeptoAccess KRX and the Crosswise ATS. 373 Hurd made no submission as to the appropriate relief arising from his admitted breaches of fiduciary duty, save that there should be no assignment of any of his inventions. 374 Each of the duties which Hurd owed and breached - contractual, statutory and fiduciary - entitle Zomojo to a different form of relief. For breach of contract, the remedy is damages or, in some cases, specific performance. For breach of s 181(1) of the Corporations Act, the remedy is a compensation order (ss 1317H and 1317J(2)) and/or an injunction (s 1324). For breach of fiduciary duty the remedies are more flexible, and may include damages, account of profits, the creation of a constructive trust and/or an injunction. 375 Here, Zomojo only seeks damages and injunctions. Hurd's breaches entitle Zomojo to damages. By way of summary, Hurd has been found to have breached: 1. cl 3.1, by failing to diligently perform the Services whilst he was engaged in marketing and sales activities in respect of OptiCast and the Crosswise ATS; 2. cl 3.3, by failing to devote the whole of his time and attention to the performance of the Services during normal business hours and at such other times as were reasonably necessary in respect of Newedge; 3. cl 3.4, by failing to use his best endeavours to promote the interests of Zomojo and, in fact, promoting the interests of Zeptonics and/or Crosswise in preference to the interests of Zomojo; and 4. cl 3.5, by being directly involved in another business (Zeptonics and Crosswise) which interfered with Hurd's performance of the Services and competed with the business of Zomojo. 376 Further, Hurd admitted a breach of fiduciary duty (see [226], [237] and [264] above) in relation to: 1. the failure to refer the Newedge opportunity on or about 14 September 2010 to Zomojo, and the indication that he would take up that opportunity; 2. developing the device that became OptiCast (and ultimately ZeptoLink); and 3. the preparatory activity that led to fundraising of the Crosswise ATS up to 11 January 2011. 377 The quantification of damages flowing from those various breaches is to be determined at a later hearing. Is Zomojo entitled to the injunctions that it seeks? Appropriate injunctions must be tailored to the findings of breach. In the present case, Zomojo is entitled to the following injunctions: (a) that Hurd assign, or procure the assignment of, each of OptiCast, ZeptoLink, ZeptoNIC, ZeptoAccess KRX and the Crosswise ATS to Zomojo; (b) that Hurd deliver up to Zomojo, or to procure the delivery up to Zomojo of, all prototypes and parts of prototypes, and products or parts of products, in his possession, power or control or in the possession, power or control of any of the corporate Respondents, relating to or based on Opticast, ZeptoLink, ZeptoNIC, ZeptoAccess KRX and the Crosswise ATS; and (d) that Hurd deliver up to Zomojo, or to procure the delivery up to Zomojo of, all documents (including electronic documents and files) in his possession, power or control or in the possession, power or control of any of the corporate Respondents, that record or refer to any of the prototypes or products known as or based on Opticast, ZeptoLink, ZeptoNIC, ZeptoAccess KRX and the Crosswise ATS. Those injunctions are necessary and appropriate. If made, they render the first injunction sought by Zomojo unnecessary and inappropriate.

[49]

5.2.1 Hurd 378 As against Hurd, Zomojo sought damages, declarations and injunctions. The declarations and injunctions sought were in the following terms: 13A Declarations that: (a) Hurd breached his obligations under clause 10.4 of the Service Agreement by failing to make prompt and full disclosure to Zomojo of the evolution, discovery and invention of each of ZeptoLink (formerly known as OptiCast and ZeptoCast), ZeptoMux and the Zeptonics' ATS; and b) Hurd is required to assign to Zomojo, or procure the assignment to Zomojo of, each of ZeptoLink (formerly known as OptiCast and ZeptoCast), ZeptoMux and the Zeptonics' ATS, and Zomojo is entitled by clause 10.5 of the Service Agreement to execute all documents and do all such things as are necessary to effect each such assignment as Hurd's attorney. 13B Mandatory injunctions requiring Hurd: (a) to assign, or procure the assignment of, each of the Zeptonics' Products to Zomojo; (b) to deliver up to Zomojo, or to procure the delivery up to Zomojo of, all prototypes and parts of prototypes, and products or parts of products, in his possession, power or control or in the possession, power or control of any of the Second to Eighth Respondents, relating to or based on the Zeptonics' Products; and (c) to deliver up to Zomojo, or to procure the delivery up to Zomojo of, all documents (including electronic documents and files) in his possession, power or control or in the possession, power or control of any of the Second to Eighth Respondents, that record or refer to or are based on any of the Zeptonics' Products or any prototypes of the Zeptonics' Products. Zomojo sought injunctions against each of the Corporate Respondents to require them to take all steps necessary to give effect to the injunction sought against Hurd. 379 Hurd denied that Zomojo was entitled to any of the relief it claimed. 380 Hurd's breaches of cl 10 of the Service Agreement entitle Zomojo to damages. The quantification of those damages is to be determined at a further hearing. Is Zomojo entitled to the injunctions that it seeks? Having regard to the form of the injunctions granted in relation to the breaches of cll 3.1, 3.3, 3.4 and 3.5 of the Service Agreement, s 181(1) of the Corporations Act and Hurd's fiduciary duties, further injunctions are unnecessary and inappropriate. That leaves Zomojo's application for declarations. Again, having regard to the form of the injunctions granted above, the declarations sought are unnecessary and inappropriate.

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5.3.1 Hurd 382 As against Hurd, Zomojo sought damages and injunctions and, in relation to the breach of fiduciary duties, damages or an account of profits. Zomojo submitted that the appropriate injunctions were: (a) an injunction restraining Hurd for 12 months from the date of judgment from being involved directly or indirectly in any business or occupation that is engaged in the development, marketing or supply of any ATS, and from supplying any advice or services to any business or entity that is engaged in the development, marketing or supply of any ATS; (b) an injunction restraining Hurd, directly or indirectly, for 12 months from the date of judgment, from using or disclosing all or any part of the techniques of fast ordering, speculative transmission and transmit fragmentation as described in paragraphs 32-38 and 52 of Dr Chapman's confidential annexure MC-1, and of negative latency as described in exhibit 67, in connection with any prototypes or products for use in trading on equities or derivatives markets, including (without limitation) ZeptoNIC, ZeptoMUX and the ZeptoAccess KRX gateway; (c) an injunction restraining Hurd, directly or indirectly, for 12 months from the date of judgment, from developing, marketing or supplying any NICs for use in trading on equities or derivative markets, including (without limitation) ZeptoNIC, that have integrated into their firmware timestamping, logging or passthrough functionality as described in paragraphs 5-8 of Dr Chapman's confidential annexures MC-1, or timing and packet replication support as described on page 526 of exhibit 66, and from supplying advice or services to any business or entity that is engaged in the development, marketing or supply of any such NICs; (d) an injunction restraining Hurd, directly or indirectly, for 12 months from the date of judgment, from developing, marketing or supplying any communication or scheduling frameworks, for use in trading on equities or derivative markets, that abstract different types of data (including, without limitation, UDP, TCP, ASCII files, binary files, compressed binary files and shared memory ring buffers) so that no code changes are required to interact with different types of inputs and outputs, and/or which manage the progression of time and the order in which events are returned from multiple input streams so that simulation results are reproducible deterministically, including (without limitation) the Nexus framework referred to in paragraph 18(d) of the report of Professor Leong dated 5 October 2012; and (e) a mandatory injunction requiring Hurd to deliver up to Zomojo, or to procure the delivery up to Zomojo of: (i) all documents (including electronic documents and files) in his possession, power or control or in the possession, power or control of the corporate Respondents, that record or refer to; and (ii) all prototypes and parts of prototypes, and products or parts of products, in his possession, power or control or in the possession, power or control of the corporate Respondents, that incorporate in whole or in part: any or all of the following: (A) fast ordering, speculative transmission and/or transmit fragmentation; (B) negative latency; (C) integrated timestamping, logging and/or passthrough on NICs; (D) timing and/or packet replication support on NICs; (E) communication and scheduling frameworks for different types of data; and (F) the Nexus framework referred to in paragraph 18(d) of Professor Leong's report dated 5 October 2012. 383 Hurd denied that Zomojo was entitled to any of the relief it claimed. 384 Hurd's various breaches entitle Zomojo to damages and, in relation to the breach of fiduciary duties, damages or an account of profits. Zomojo will need to make the necessary elections and any subsequent assessment will be determined at a later hearing. Of course, Zomojo cannot recover twice. 385 Appropriate injunctions must be tailored to the findings of breach. Having regard to the form of the injunctions granted in relation to the breaches of cll 3.1, 3.3, 3.4 and 3.5 of the Service Agreement, s 181(1) of the Corporations Act and Hurd's fiduciary duties, further injunctions are unnecessary and inappropriate. In particular, there is no foundation (legal or factual) for an injunction restraining Hurd for a period of 12 months from the date of judgment. In light of the injunctions granted and the entitlement to damages or an account of profits, the additional relief is unnecessary and inappropriate. 386 Zomojo submitted that the Court should grant an injunction restraining Hurd for a period of 12 months from the date of judgment having regard to the so-called "springboard cases". In Zomojo's submission, those cases demonstrate that the Court will restrain an ex-employee from taking advantage of the head start gained from a misuse of confidential information for a period following the cessation of employment, which is often referred to as "gardening leave". Zomojo referred the Court to RLA Polymers in support of that proposition. That case concerned three ex-employees of RLA Polymers who were alleged to have misused confidential information, in breach of their duties of confidence, to develop and bring to market, more quickly than they otherwise would have, their own competing products. Ryan J provided a useful summary of the springboard cases at [70]-[73]. 387 The first case referred to by Ryan J was Saltman Engineering Co Ltd v Campbell Engineering Co [1963] 3 All ER 413. In that case, Lord Greene observed at 415 that confidentiality may subsist in: … a formula, a plan, a sketch, or something of that kind, which is the result of work done by the maker upon materials which may be available for the use of anybody; but what makes it confidential is the fact that the maker of the document has used his brain and thus produced a result which can only be produced by somebody who goes through the same process. 388 A breach of confidence therefore occurs where an employee entrusted with that information misuses it, in the sense that they save themselves the trouble of going through an inventive process and instead obtain the necessary information either from the original drawings or from the tools made in accordance with them. 389 The next case considered by Ryan J was Terrapin. In that case Lord Roxburgh coined the phrase "springboard", describing the doctrine at 391 as: … a person who has obtained information in confidence is not allowed to use it as a spring-board for activities detrimental to the person who made the confidential communication, and spring-board it remains even when all the features have been published or can be ascertained by actual inspection by any member of the public. 390 Lord Roxburgh considered that the aim of the law in this area was to place the party in breach of the obligation of confidence "under a special disability in the field of competition in order to ensure that he does not get an unfair start". The parallels with this case are obvious - Zomojo alleges that Hurd has misused confidential information in order to bring products to market far sooner than he would have otherwise been able to, thereby gaining an advantage by reason of his breach. 391 Ryan J noted that, as stated by Prichard J in Aquaculture Corporation at 383, no breach of confidence will occur: … so long as he takes no advantage, derived solely from having had information in advance of the general public, the confidant is free to use the information in the same way as any other member of the public - even to the detriment of the person who confided in him. 392 Ryan J concluded with Goldberg J's statement in Dart Industries at 408-409, upon which Zomojo placed particular emphasis, that: In short, if a person wishes to design a product without it being alleged the person has used confidential information he must proceed through an independent design sequence and not use confidential information as a springboard to jump through that sequence. 393 Of course, Zomojo does not allege that Hurd breached his equitable duty of confidence. Zomojo seeks to rely upon these authorities, by way of analogy, in support of its claim for an injunction restraining Hurd from using any confidential information for a further period of 12 months. 394 I do not accept that the authorities support Zomojo's claim. If this were a springboard case, as Prichard J stated in Aquaculture Corporation, provided he took no advantage, Hurd would be free to use to use the information in the same way as any other member of the public - even to the detriment of the person who confided in him - without breaching his obligation of confidence. Zomojo's claimed injunction would restrain him, for a further period of 12 months, from doing that he would otherwise be permitted to do. Zomojo submitted that the appropriate relief ought to prevent Hurd from further developing, marketing, or supplying the Zeptonics suite of products that incorporated the head start which Hurd obtained from his breach of confidence. However, Zomojo's injunction would also restrain Hurd from using the techniques identified in Confidential Annexure A even if he undertook an independent design sequence to properly conceive of those techniques. In that sense, Zomojo's proposed injunction went further than the springboard cases would permit. As Zomojo's Counsel submitted during closing submissions, Zomojo sought to impose the opposite of a head start on Hurd; a "late start" or a "handicap". The springboard cases do not support the grant of such relief. 395 There are other reasons not to grant the relief sought. First, the Court is unable to fashion an injunction that would prevent Hurd from misusing the confidential information, to obtain a head start, while still enabling Hurd to undertake an independent design sequence. Second, the relief already granted has the effect of depriving Hurd of the fruits of his misuse of the confidential information. Hurd will now need to start afresh nearly two years down the track. The effect of cl 9 of the Service Agreement would have ceased in February 2012. Accepting that it may have taken Hurd up to 12 months to engage in an independent design sequence, no further relief is necessary. To impose a further "late start" would be to impose an additional penalty upon Hurd which is neither necessary nor justified.

[53]

5.3.2 Corporate Respondents 396 Zomojo sought declarations that each of Zeptonics, Crosswise, MD Hammer, Zepto Markets, Zepto Fabrics, Zeptoip and Trademach hold the profits they have derived by reason of their assistance and participation in Hurd's misuse of Zomojo's confidential information as constructive trustees for the benefit of Zomojo, and are liable to account to Zomojo for those profits. Zomojo abandoned the claim in respect of MD Hammer. 397 Hurd opposed the declarations on the ground that the knowing assistance of each Corporate Respondent was not established. Hurd made no submission on the appropriate relief if knowing assistance was established. 398 Each of Zeptonics, Crosswise, Zepto Markets, Zepto Fabrics, Zeptoip and Trademach knowingly assisted and participated in Hurd's breach of his fiduciary obligations. A person who knowingly assists and participates in a fiduciary's breach of duty holds any property thereby acquired as constructive trustee for the person to whom the fiduciary duty was owed: Barnes v Addy (1874) LR 9 Ch App 244, 251-2; Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373 at 378, 397 and 408 (Stephen J, with whom Barwick CJ agreed). 399 Appropriate declarations must be framed with reference to the findings of assistance or participation in respect of each Corporate Respondent. The relevant findings are set out in [358]-[360] above. Accordingly, declarations should be made in the following terms: 1. Zeptonics holds the profits it has derived by reason of its development and marketing of ZeptoLink (including OptiCast and ZeptoCast), ZeptoNIC and ZeptoAccess KRX and entry into the Leading Agreement as constructive trustee for the benefit of Zomojo, and is liable to account to Zomojo for those profits. 2. Crosswise holds the profits it has derived by reason of its fundraising, marketing and development of the Crosswise ATS as constructive trustee for the benefit of Zomojo, and is liable to account to Zomojo for those profits. 3. Zepto Markets holds the profits it has derived by reason of its marketing and sale of ZeptoAccess KRX as constructive trustee for the benefit of Zomojo, and is liable to account to Zomojo for those profits. 4. Zepto Fabrics holds the profits it has derived by reason of its exploitation of ZeptoLink as constructive trustee for the benefit of Zomojo, and is liable to account to Zomojo for those profits. 5. Zeptoip holds the profits it has derived by reason of its assistance of, its lodgement of or holding of any patents concerning Zomojo's confidential information as constructive trustee for the benefit of Zomojo, and is liable to account to Zomojo for those profits. 6. Trademach holds the profits it has derived by reason of its entry into a licensed trading agreement involving the use of ZeptoLink (including OptiCast and ZeptoCast), ZeptoNIC and ZeptoAccess KRX as constructive trustee for the benefit of Zomojo, and is liable to account to Zomojo for those profits.

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6.2 Facts 407 The ZEOP and the ESOP were established in December 2005: see [12]-[15] above. The need for the ZEOP and the ESOP was readily apparent to Hurd as early as May 2005. In the original Zomojo Trading Proposal dated 31 May 2005, drafted by Hurd, Hurd recognised that staff retention was critical to Zomojo's success. His view at that time was that the principal risk to Zomojo - "important staff leaving with enough IP [intellectual property] in their heads to competitively hurt the venture" (see [9] above) - could "only truly be managed by having sufficient staff incentive schemes or by limiting information flow concerning the whole of the business": see [9] above. The ZEOP and ESOP were intended to provide the necessary incentives. 408 On 14 October 2005, Brash emailed the draft Plan Deed and Offer Booklet for the ESOP to Robinson: see [12] above. Robinson forwarded Brash's email, and the attached documents, on the same day to Heddle and Hurd. Robinson used Hurd's email address "matthurd@acm.org". In the covering email, Brash said that "the main document still to come is the Plan Information Booklet". The draft Offer Booklet contained a provision dealing with the sale of shares by employees after ceasing their employment with Zomojo. The provision differentiated between "bad leavers", being persons who ceased employment in circumstances that entitled Zomojo to dismiss them without notice, and other departees: see [35] above. 409 On 2 December 2005, Robinson, Heddle and Hurd each signed resolutions establishing the ZEOP and the ESOP and approving the issue of 400,000 options pursuant to the ZEOP to Hurd: see [14] above. Rule 9.3 of the Plan Rules for the ZEOP contemplated that shares could be issued to any person or entity nominated by the holder of the options. Hurd intended to have his shareholding in Zomojo held by Jolene, a company in which his father and mother were the directors and shareholders. Jolene entered into a Shareholder Agreement Accession Deed with Zomojo on 2 December 2005. 410 Recital 4 of the Plan Deed for the ESOP noted that the "terms of issue upon which employees will acquire shares are to be set out in the offer booklet containing the invitation to participate in the Plan and the information booklet, which are set out as Schedules to this Plan Deed … and which are to be sent to eligible employees selected by the Board". Clause 1.2 of the Plan Deed stated that the "Plan Deed sets out general provisions governing how the Plan generally is to be operated, and the offer booklet and information booklet in the Schedule to this Plan Deed … sets out the provisions to be incorporated into contracts between Zomojo and employee participants". The Offer Booklet and the Plan Information Booklet were not attached as Schedules. 411 On 2 December 2005, Hurd was issued with 400,000 options in Zomojo. Hurd's entitlement to the options derived from cll 4.2(a) and 4.5 of the Service Agreement. Hurd accepted the options on 2 December 2005. In accepting the options, Hurd signed a ZEOP acceptance document which stated: l, the undersigned, accept the offer to take up the number of options set out below, being options to acquire ordinary shares in Zomojo Pty Ltd (Zomojo) to be issued in accordance with the Zomojo Employee Option Plan. I authorise you to place my name on the register of option holders in respect of the options taken up by me, and I agree to be bound by the terms and conditions of the offer, the Plan Rules, the Constitution of Zomojo and Zomojo's Shareholder Agreement in force from time to time, in respect of any options granted and any shares issued as a result of the exercise of the options. 412 On 5 December 2005, Brash emailed the Plan Information Booklet to Robinson. Robinson forwarded Brash's email on the same day to Heddle and Hurd. Robinson again used Hurd's email address "matthurd@acm.org". In his witness statement in reply, Hurd stated that he never received the 5 December 2005 email from Robinson. In his oral evidence, Hurd said he believed that he would have received it, and had no reason to think otherwise. Hurd did receive the 5 December email from Robinson. That finding is important in light of the matters raised by Hurd in support of his contention that the Plan Information Booklet did not bind him: see [439]-[461] below. 413 The email of 5 December 2005 also contained a covering explanation about what was attached to that email and about "fitting the documents together". The email explained that the Plan Information Booklet operated as a Schedule to the Plan Deed of the ESOP. In particular, the covering email included statements that: Please find attached the ESOP's Plan Information Booklet, which as far as I am aware is the last document to be provided for this project. So that you have the ESOP documents all in one place, also attached for convenience are the following documents which were originally sent to you on 4 October: • Plan Deed, and • ESOP Offer Booklet - clean & marked up slightly revised versions, including an Application Form, a Tax Election Form and a Share Transfer Form - and the associated Excel mail merge document. Please note the following comments. 1. Fitting the documents together: To remind you how these documents fit together: the ESOP is constituted by the entering into of the Plan Deed pursuant to the 'stage 2' Board minutes previously provided, and the Offer Booklet and the Plan Information Booklet constitute schedules to the Plan Deed. I have ensured the attached Plan Information Booklet is in line with the ESOP Offer Booklet, clause 4.6 of the Employment Agreements, and with section 4 of the Employee Ownership Strategy paper last sent on 8 November 2005. To open the Word version of the Offer Booklet, you will be prompted to select the attached Excel spreadsheet (it might be easier if you first save the Excel document to a location so you know where to find it when prompted to select it). … 414 Clause 4.7 of the Plan Information Booklet for the ESOP entitled "Selling Your Shares on Cessation of Employment" was set out at [35] above. 415 The clause differentiated between "bad leavers" and other employees ceasing employment. In the case of the former, the Board had a discretion to determine within 30 days after the cessation of employment by notice in writing that the shareholder must transfer any shares in Zomojo to Zomojo or its nominee for an amount equal to any loan then outstanding to Zomojo: cll 4.7(a) and (b). In other cases, Zomojo could elect by notice in writing to procure a subsidiary to purchase the shares on trust for the purposes of the ESOP on the basis of a "Plan valuation formula", being five times the previous financial year's pre-tax profit divided by the total number of shares on issue, and then multiplied by the number of shares being sold: cl 4.7(c). 416 Hurd progressively exercised the 400,000 options issued to him on 2 December 2005, with the result that by 30 June 2009, all the options had been converted to ordinary shares in Zomojo, held by Hurd's nominee, Jolene. By Rule 13.2 of the Plan Rules for the ZEOP, Jolene (as Participant) was "permitted or obliged to deal with Shares if the Participant would be permitted or obliged to do so had the Shares been acquired pursuant to the [ESOP]": see [31] above. 417 Hurd caused Jolene to acquire 96,000 further ordinary shares in Zomojo in three tranches of 32,000 shares on 30 June 2007, 30 June 2008 and 30 June 2009. Hurd's entitlement to those additional shares arose under cll 4.2(a) and 4.6 of the Service Agreement. In May 2010, with the consent of the Board, Hurd caused Jolene to sell 7,810 of its shares in Zomojo to the HFSF and a further 3,500 shares to Louise Heddle as trustee for the Louise Heddle Family Trust. Therefore, when Hurd left Zomojo's employ, Jolene held 484,690 shares, and the HFSF held 7,810 shares, in Zomojo (the Hurd Shares). 418 On 4 March 2011, the Board of Zomojo passed a resolution by which Zomojo elected to purchase the Hurd Shares and to make a without prejudice offer to Hurd for the Hurd Shares applying the formula in special rule 2 of the Plan Information Booklet set out in cl 4.7(c): see [35] above. Robinson's uncontroverted evidence was that the resolution was passed after some discussion at the Board meeting as to whether the bad leaver provision contained in the Plan Information Booklet ought to be exercised. The bad leaver provision was not invoked at that time. Robinson's evidence was that: We were aware of the bad leaver provisions at that point and I think even in the minutes it said that we contemplated that, but on the balance we only had a bad feeling at that point. 419 The same day, Zomojo wrote to Hurd giving him notice that Zomojo elected to procure its subsidiary, Zomojo Staff Holdings Pty Ltd (Zomojo Staff Holdings), to purchase the Hurd Shares on the basis of the formula in cl 4.7 of the Plan Information Booklet. The purchase price was based upon an application of the formula to a pre-tax profit figure for the 2009/10 financial year of $1,157,255. The application of the formula led to Zomojo offering to procure the purchase of the Hurd Shares for $1,424,802.50 (the 4 March offer). 420 On 15 March 2011, Hurd rejected the 4 March offer. Hurd disputed the pre-tax profit figure upon which the 4 March offer was based. Hurd asserted that Zomojo's pre-tax profit for the financial year to 30 June 2010 was $4,998,329 and that, when the relevant formula was applied to that figure, the amount payable for the Hurd shares was $6,154,280. 421 It was common ground that the pre-tax profit figure referred to in Hurd's 15 March 2011 letter was derived from Zomojo's MYOB records. That figure was similar to the figure stated in a profit and loss statement prepared by Hurd Senior, for the year to 30 June 2010, which showed Zomojo's pre-tax profit to be $4,995,035.55. 422 After receiving Hurd's 15 March 2011 letter, Zomojo caused its then solicitors to engage Geoffrey Sincock (Sincock) of Deloitte Private Pty Ltd (Deloitte) to provide an expert opinion as to Zomojo's pre-tax profit for the year ended 30 June 2010. In cross-examination, it was put to Robinson that he had engaged Deloitte in order to "get a lower number" in respect of the pre-tax profit. Robinson rejected that proposition, stating: No. I retained Deloitte for the purposes of getting the correct number given that there was a dispute between the number I had used and the number that Mr Hurd had responded with. I accept that evidence. 423 Hurd placed considerable reliance upon an email exchange between Robinson and Boyle to support the contention that Zomojo was acting other than in good faith. Boyle replaced Hurd as a director of Zomojo: see [143] above. On 21 April 2011, Robinson told Boyle that Deloitte had enough information from Hurd Senior to produce accounts in accordance with the Australian Accounting Standards (AAS) for use in the valuation of the Hurd Shares. Boyle responded the same day saying: I'm looking forward to seeing the suggested numbers from Deloittes now … I hope there's a big fat minus sign in there. 424 Sincock provided a report to Zomojo's then solicitor on 13 May 2011. Sincock concluded that the pre-tax profit of Zomojo for the year to 30 June 2010 was $371,706. In the report, Sincock explained that in forming his opinion of the pre-tax profit of Zomojo for the year to 30 June 2010 he had referred to Zomojo's MYOB books of account, undertaken discussions with management and applied the relevant AAS. Hurd Senior conceded in his evidence that he had not applied relevant AAS in the preparation of the profit and loss statement and that he had made erroneous assumptions in respect of the proper characterisation of at least two items of research and development that had the effect of inflating the profit figure. 425 Sincock's report explained that the difference between his calculation, and the calculations made by Hurd Senior, turned on the proper characterisation of certain research and development expenses. Hurd Senior had capitalised those expenses in the balance sheet, which in Sincock's opinion was inconsistent with AAS 138, which deals with the proper treatment of intangible assets. Sincock expressed the view that none of the research and development costs that had been capitalised by Hurd Senior met the criteria for capitalisation in AAS 138, and that they accordingly had to be expensed through the profit and loss statement in the financial year during which they were incurred. Zomojo provided a copy of Sincock's report to Hurd. 426 On 26 May 2011, Hurd's then solicitors wrote to Zomojo's then solicitors, disputing the conclusions reached in Sincock's report. Hurd's solicitors stated that Hurd intended to obtain his own expert report and, in order to enable him to do so, sought access to specified information. 427 On 15 June 2011, Zomojo's solicitors responded. The letter addressed two issues: the provision of information to enable Hurd's expert to determine the pre-tax profit for the financial year ended 30 June 2010 and Hurd's obligations to Zomojo. In respect to the second issue, the letter stated that: As you would be aware, your client has obligations to our client arising out of his employment contract, his previous position as a director of the company and at common law. As you are no doubt aware, your client and the directors of our client have had numerous discussions since 11 January 201l. During those discussions we are instructed that your client has repeatedly provided assurances that he was aware of and would honour his obligations to our client. Despite these assurances, it is now understood that your client is in breach of such duties and has been in breach for months prior to him resigning from our client. We draw your attention to the following: • on 21 September 2010 your client registered the domain name "www.zeptonics.com"; • shortly thereafter, your client used that website to describe an 'Opticast' fast switch product (http://www.zeptonics.com/Home/opticast-faq); • that same month, your client posted on an internet forum information that he was involved in a "somewhat stealthy start-up". Some details regarding this "stealthy start-up" were provided including a reference to the domain name "www.zeptonics.com" and information that the product being developed by your client was originally designed for low-latency trading; • the work undertaken by your client last year regarding the design of an 'Opticast' prototype circuit board; • your client has a company incorporated in New South Wales. In early 2011 the name of the company was changed to Zeptonics Pty Ltd. Your client and a Mr Matthew Rochford are the directors. Your client is the only shareholder; and • your client is presently pitching a product to the market that is equivalent to our client's product. In addition to the above matters, we are also concerned that your client has solicited employees away from our client and has employed them in his Zeptonics business. … Your client not only engaged in the unlawful activities set out above but also concealed such conduct from our client. Had our client been aware of this material as at the date of the exercise of the option to acquire [the Hurd Shares], our client would have had the ability to elect to recover [the Hurd Shares] pursuant to the 'Bad Leaver' provisions in the Employee Share Ownership Plan. The letter gave notice of Zomojo's intention to transfer the Hurd Shares on 29 June 2011. 428 On 28 June 2011, Hurd adopted a different approach. He offered to accept the sum proposed in the 4 March offer, namely $1,424,802.50, without waiving his rights in respect of Zomojo's dealing with the shares or their value. Zomojo's solicitors rejected that proposal by a letter dated 30 June 2011. 429 On 30 June 2011, the Board of Zomojo passed the following resolutions: Resolution: Separation of funds to purchase the shares It is recognised that Mr Matt Hurd disputes the value at which the shares should be transferred. Zomojo hold $1,424,802.50 in an interest bearing account for the sole and exclusive purpose of purchasing shares from Jolene (TAS) Pty Ltd and Hurd Family Superannuation Fund, pending resolution of the dispute with Mr Hurd concerning the value of shares held by Jolene (TAS) Pty Ltd and Hurd Family Superannuation Fund. Resolution: Valuation of shares held by Jolene (TAS) Pty Ltd and Hurd Family Superannuation Fund Pursuant to the terms of the Zomojo Employee Share Ownership Plan (and as stated in clause 4.7 of the Plan Information Booklet) the consideration in respect of the Jolene (TAS) Pty Ltd and Hurd Family Superannuation Fund is to be calculated as follows: 5 x pre-tax profit for FY 2010 divided by 2,000,000 shares on issue and multiplied by the number of shares being sold. The only independent assessment of pre-tax profit available to Zomojo is that given by Deloitte. This valuation, applied to special rule 2 of clause 4.7(c) of the Plan lnformation Booklet, gives rise to the following consideration: • 484,690 shares of Jolene (TAS) Pty Ltd, valued at $450,761.70; • 7,810 shares of Hurd Family Superannuation Fund, valued at $7,263.30. Should it transpire that the proper consideration of the shares held by the Jolene (TAS) Pty Ltd and the Hurd Family Superannuation Fund exceeds the amount set out in this resolution, then the increased amount will be the consideration and the documents amended accordingly. Resolution: Plan Administrator to effect transfer of shares held by Mr Matt Hurd in Jolene (TAS) Pty Ltd and Hurd Family Superannuation Fund Pursuant to the terms of the Zomojo Employee Share Ownership Plan (and as stated in clause 4.7 of the Plan lnformation Booklet) Jolene (TAS) Pty Ltd and Hurd Family Superannuation Fund should be asked to sign transfers of their shares to Zomojo Staff Holdings Pty Ltd as follows: • 484,690 shares from Jolene (TAS) Pty Ltd, valued at $450,761.70; • 7,810 from Hurd Family Superannuation Fund, valued at $7,263.30. If the transfers are not signed within 14 days, the board, acting as Plan Administrator, will sign the transfer on behalf of Jolene (TAS) Pty Ltd and Hurd Family Superannuation Fund. The transfer will be deemed to take effect on 29 June 2011. Zomojo advised Hurd of those resolutions by a letter dated 4 July 2011. 430 On 15 July 2011, Hurd's then solicitors wrote to Zomojo's solicitors, asserting that the resolutions passed by Zomojo on 30 June 2011 were invalid because a special majority was not achieved. That allegation was not pursued in these proceedings. However, Hurd did contend that the 30 June 2011 resolutions were invalid on other grounds. Those contentions will be addressed in Section 6.4 below. 431 On 19 July 2011, Zomojo caused the Hurd shares to be transferred to Zomojo Staff Holdings and caused payments totalling $458,025 to be made to Jolene and the HFSF's bank accounts. Hurd was told that had occurred on 19 July 2011.

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6.3 Issues 432 Zomojo sought to recover, as damages, the payments totalling $458,025 it made to Jolene and the HFSF for the Hurd Shares. Zomojo submitted that if it had known of Hurd's activities before he "tendered" his resignation, it would have been entitled to dismiss Hurd immediately and would not have been obliged to pay, and would not have paid, Jolene and HFSF for the Hurd Shares. That is, Zomojo submitted that Hurd was a "bad leaver" within the meaning of cl 4.7(b) of the Plan Information Booklet. 433 Under the Service Agreement, Zomojo was entitled to dismiss Hurd immediately if he committed "any material breach of the Managing Director's obligations and duties under this agreement or any agreement or arrangement with the Company which is, in the reasonable opinion of the Board, material …": cl 8.1. Where Hurd was dismissed pursuant to cl 8.1 of the Service Agreement, he was not "entitled to any further compensation or damages other than pro rata salary and accrued annual leave to the date of the termination": cl 8.2. 434 Zomojo submitted that if it had known of the nature and extent of Hurd's wrongdoing, Zomojo would have dismissed him immediately under cl 8.1 of the Service Agreement. Zomojo submitted that while Hurd still owed contractual, statutory and equitable obligations to Zomojo, he was engaged in clandestine conduct against the interests of Zomojo of the most reprehensible kind, including designing, developing, raising funds for and marketing products that used Zomojo's confidential information, with the intention of then marketing and supplying those products in direct competition with Zomojo. As Zomojo submitted, no responsible board, had it known of Hurd's misconduct, would have done anything other than to dismiss him summarily. 435 However, because Hurd concealed his misconduct, Zomojo submitted that it was deprived of the opportunity to dismiss Hurd immediately under cl 8.1 of the Service Agreement and therefore deprived of the entitlement to invoke the bad leaver provision in cl 4.7(b) of the Plan Information Booklet. 436 The contention that Zomojo would not have been required to make any payment in respect of the transfer was predicated on the basis that cl 4.7(b) stated that the only sum payable to a bad leaver in respect of the transfer of shares was an amount equal to the bad leaver's voluntary loan repayments. Hurd did not have any loan amount outstanding when he ceased his employment at Zomojo. 437 Hurd submitted that there were a number of reasons why Zomojo was not entitled to damages equal to the amount of the payments it made for the Hurd Shares. First, the Plan Information Booklet (including cl 4.7(b)) did not form part of the ESOP and, secondly, even if it did, Hurd was not a "bad leaver". Thirdly, even if Hurd was a bad leaver, cl 4.7(b) was a penalty and invalid. Fourthly, if cl 4.7(b) was not a penalty, cl 4.7(b) did not extend to all of the Hurd Shares. Fifthly, the resolutions passed by the Board of Zomojo on 30 June 2011 were invalid and Zomojo breached implied obligations of good faith and fair dealing in connection with the acquisition of the Hurd Shares. Sixthly, assuming Hurd was not a bad leaver, it is necessary to consider what price should be paid for the Hurd Shares and, in particular, the inconsistency between cl 4.6(e)(ii) of the Service Agreement and cl 4.7 of the Plan Information Booklet. Finally, it is necessary to consider Hurd's submission that Zomojo's acquisition of some or all of Hurd's Shares was oppressive and therefore contrary to s 232 of the Corporations Act. 438 I will deal with each issue in turn.

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6.3.1 Did cl 4.7(b) form part of the ESOP and bind Hurd? 439 Hurd's stated position was that the Plan Information Booklet (which included cl 4.7(b)) did not form part of the Services Agreement or the ESOP. Put simply, Hurd submitted that he "did not sign up" to the Plan Information Booklet and no clause of any of the signed contracts expressly included it or incorporated it. Zomojo's position was to the contrary. 440 It is necessary to start with Brash's email of 5 December 2005 which attached the Plan Information Booklet for the ESOP: see [34] and [412] above. I have already concluded that on or about 5 December 2005, Hurd received the email and the Plan Information Booklet: see [34] and [412] above. 441 Next, Hurd submitted that, even if he had notice of the Plan Information Booklet forwarded by the email of 5 December, he was not bound by it. The first matter upon which Hurd relied in support of this conclusion was that the Plan Information Booklet was only a draft and had not been finalised. I reject that submission. A marked up and a clean copy of the Plan Information Booklet was provided. I reject the contention that the covering email sought instructions about aspects of the Plan Information Booklet. On its face, it did not. The covering email explained what was being sent by Brash in relation to the ESOP and how the documents fitted together. 442 The next basis for Hurd contending that he was not bound by cl 4.7(b) was the contention that because the clause may have had an adverse effect on Hurd's rights, it was necessary for reasonably sufficient notice of the existence of cl 4.7(b) to have been given to Hurd and it was not: cf L'Estrange v F Graucob Limited [1934] 2 KB 394 at 402-403; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at [54]; Parker v South Eastern Railway (1877) 2 CPD 416; The Balmain New Ferry Company Ltd v Robertson (1906) 4 CLR 379 at 386; Council of the City of Sydney v West (1965) 114 CLR 481 at 485-6 and 491-2; J Spurling Ltd v Bradshaw [1956] 2 All ER 121 and Thornton v Shoe Lane Parking Ltd [1971] 2 QB 163. 443 Taken at its highest, Hurd submitted that the Court must take into account the proportionality of the notice required to bring terms and conditions to the notice of another party. So, the more onerous the term, the greater the effort that must be taken to bring the clause to the other party's attention. Whether that is an accurate statement of the relevant legal principle is open to doubt. It is unnecessary to resolve that issue. Even if it is assumed that cl 4.7(b) was and remained onerous, Hurd had notice of it (see [34] and [412] above) and that notice was sufficient. It must be recalled that Hurd was aware from as early as May 2005 of the need to provide incentives to staff to stay with Zomojo in order to protect Zomojo: see [9] above. 444 The next basis for Hurd contending that he was not bound by cl 4.7(b) was the contention that Hurd did not "sign up to" cl 4.7(b) and no clause of any of the signed agreements expressly included or incorporated it. That contention is also rejected. 445 By cl 4.5 of, and Item 7b of Sch A to, the Service Agreement, Zomojo agreed, as soon as practicable after 2 December 2005, to issue to Hurd options to acquire 400,000 shares with a zero exercise price, subject to the vesting restriction in cl 4.5(c) of the Service Agreement. On 2 December 2005, in compliance with its obligations under cl 4.5 of, and Item 7b of Sch A to, the Service Agreement, Zomojo issued to Hurd a letter of offer to participate in the ZEOP. On 2 December 2005, Hurd accepted the letter of offer and agreed to be bound by the terms and conditions of the letter of offer and, among other matters, the Plan Rules for the ZEOP in respect of the options and any shares issued as a result of the exercise of the options: see [411] above. 446 As noted at [31] above, Rule 13.2 of the Plan Rules for the ZEOP stated that: The Participant shall be permitted or obliged to deal with Shares if the Participant would be permitted or obliged to do so had the Shares been acquired pursuant to the [ESOP]. 447 Hurd exercised each of the options. When his employment with Zomojo ceased, the 400,000 shares had been issued to his nominees. By operation of Rule 13.2 of the Plan Rules, the nominees were permitted or obliged to deal with the 400,000 shares in accordance with the terms of the ESOP. 448 Hurd's specific complaint was that the Plan Information Booklet was not incorporated because it was not communicated. That contention had been addressed: see [443] above. The Plan Information Booklet (which included cl 4.7(b)) did form part of the ESOP and Hurd was bound by it. 449 The next limb of Hurd's argument is that the board of Zomojo did not avail itself of the right (if it had one) to enforce cl 4.7(b) and is therefore precluded from seeking to rely upon it. To understand that contention, it is necessary to revisit the minute of the meeting on 4 March 2011: see [418] above. The evidence reveals that there was discussion at that meeting of cl 4.7(b) and that the bad leaver provision was not invoked. That is true. But it is necessary to understand why it was not invoked. Zomojo "only had a bad feeling at that point": see [418] above. That is the only conclusion to be drawn as at 4 March 2011. There was no evidence to suggest that by that date Zomojo had notice of any of the myriad of Hurd's contraventions prior to that date: see Section 4.2 above. 450 As a result, contrary to Hurd's submissions, it cannot be said that Zomojo was confronted with a choice between two inconsistent rights: cf United Australia Ltd v Barclays Bank Ltd [1941] AC 1 at 30 adopted in Sargent v ASL Developments Ltd (1974) 131 CLR 634. The factual foundation for the choice did not exist. Or, as the High Court stated in ASL Developments Ltd, for the doctrine of election to operate, there must be an element of knowledge on the part of the elector: at 642. Stephen J in ASL Developments Ltd described the knowledge an elector must possess in the following terms at 642-624: The extent of knowledge of relevant facts necessary for the doctrine of election to apply has been described as "full knowledge of the material facts" (Bennett v L & W Whitehead Ltd (1926) 2 KB 380, at p 410). In Elder's Trustee & Executor Co Ltd v Commonwealth Homes & Investment Co Ltd (1941) 65 CLR 603 a knowledge of circumstances such as will provide information from which the decisive fact giving rise to the legal right is "a clear if not a necessary inference" was held to be sufficient: at 617. The extent of knowledge will no doubt usually give rise to little difficulty; it is when the nature of the requisite knowledge is in issue, whether knowledge of the facts giving rise to the legal rights suffices or whether, on the contrary, there must also be knowledge of the right of election as between two available, inconsistent legal rights, that contrariety exists. … In the present appeals I conclude that … all that need be established in order for the doctrine of election to apply is knowledge by the vendors of the facts giving rise to inconsistent legal rights; the appellants are to be taken to know of their rights of rescission conferred by cl. 16 and, of course, of their right to enforce the contracts according to their terms. If they then knew of the relevant facts giving rise to the rights of rescission, that is, the existence of a planning scheme affecting the lands sold, that is enough to invoke the doctrine. … (Emphasis added.) 451 As at 4 March 2011, Zomojo did not know the relevant or material facts giving rise to the inconsistent legal rights.

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6.3.3 Was cl 4.7(b) a penalty? 456 Hurd's next submission was that, even if the Plan Information Booklet was applicable, cl 4.7(b) of the Plan Information Booklet is void as a penalty. For the reasons stated below, I accept that cl 4.7(b) is void as a penalty. 457 Clause 4.7(b) provided Zomojo with a discretion as to the price for which it may cause its nominee to acquire the shares of an employee or an employee's nominee, where the employee was a bad leaver: see [35] above. By clause 4.7(b), the Board had the discretion to require the shares to be transferred for an amount equal to the employee's loan outstanding, or to permit the shares to be retained and sold in accordance with the provisions of the Shareholder Agreement. Zomojo submitted that a discretionary clause of this kind is not a penalty: Rouen v Ryan [2001] NSWCA 230 at [27] and [29]. 458 Whether a clause is a penalty is a question of construction that must be determined as a matter of substance, viewing the agreement as a whole: O'Dea v Allstates Leasing System (WA) Pty Ltd (1983) l52 CLR 359 at 399, 368 and 375. The clause is judged at the time that the contract was made: Dunlop Pneumatic Tyre Company Limited v New Garage and Motor Company Limited [1915] AC 79 at 86-7, Allstates Leasing System at 368; Lordsvale Finance Plc v Bank of Zambia [1996] QB 752 at 762; Ringrow Pty Ltd v BP Australia Pty Ltd (2005) 224 CLR 656 at [12]; Spiers Earthworks Pty Ltd v Landtec Projects Corporation Pty Ltd (No 2) (2012) 287 ALR 360 at [22]. 459 Recently, the High Court summarised the principles in relation to the penalty doctrine in Andrews v Australia and New Zealand Banking Group Ltd (2012) 86 ALJR 1002. The principles relevant to the present case were: 1. in general terms, a stipulation prima facie imposes a penalty on a party (the first party) if, as a matter of substance, it is collateral (or accessory) to a primary stipulation in favour of a second party and this collateral stipulation, upon the failure of the primary stipulation, imposes upon the first party an additional detriment, the penalty, to the benefit of the second party. The collateral or accessory stipulation is described as being in the nature of a security for and in terrorem of the satisfaction of the primary stipulation: at [10]; 2. the penalty doctrine is not engaged if the prejudice or damage to the interests of the second party by the failure of the primary stipulation is insusceptible of evaluation and assessment in money terms. It is the availability of compensation which generates the "equity" upon which the court intervenes; without it, the parties are left to their legal rights and obligations: at [11]; 3. the clause will be a penalty if the forfeiture goes beyond a genuine pre-estimate of damages: at [14] and [15]; and 4. an act of forfeiture in a contract able to be read down as a penalty is not restricted to breaches of a contract: at [46] to [50] and [78]. 460 What then is the position here? As at December 2005, it was understood by Zomojo (and Hurd) that Zomojo's principal business risk was "important staff leaving with enough IP [intellectual property] in their heads to competitively hurt the venture": see [9] above. Zomojo and Hurd knew that if Hurd left Zomojo, with knowledge of its technology, techniques and ideas, and deployed that technology, techniques and ideas to the detriment of Zomojo and for his own personal advantage or the advantage of a third party, Hurd could destroy or substantially affect the value of the company. It was for that reason that the clause was included. 461 That last proposition is significant - that the clause was inserted because Zomojo and Hurd knew that if Hurd left Zomojo, with knowledge of its technology, techniques and ideas, and deployed that technology and those techniques and ideas to the detriment of Zomojo and for his own personal advantage or the advantage of a third party, Hurd could destroy or substantially affect the value of Zomojo. The fact that the extent of the damage was not known and could not be known demonstrates that the clause goes beyond a genuine pre-estimate of damages. The clause is a penalty.

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6.3.4 Did cl 4.7(b) apply to all of the Hurd Shares? 462 It is strictly unnecessary to consider the extent of the application of cl 4.7(b). However, it is appropriate to address the issue. Zomojo submitted that all of the Hurd Shares were subject to the operation of cl 4.7(b) of the Plan Information Booklet. It is important to outline how this issue arises. 463 There were two categories of shares. Hurd caused Jolene to acquire 96,000 ordinary shares in Zomojo in three tranches of 32,000 shares on 30 June 2007, 30 June 2008 and 30 June 2009. Hurd's entitlement to those shares arose under cll 4.2(a) and 4.6 of the Service Agreement. Those shares were acquired pursuant to the terms of the ESOP (which included cl 4.7(b) of the Plan Information Booklet). 464 What then is the position of the 400,000 shares issued to Jolene as a result of Hurd exercising the options issued to him on 2 December 2005? Zomojo submitted that they were equally subject to the operation of the bad leaver provision in cl 4.7(b) of the Plan Information Booklet. Hurd submitted that they were not. 465 The starting point is the Shareholder Agreement. A holder of ordinary shares in Zomojo was entitled to dispose of shares in Zomojo only in prescribed ways: cl 45. One of those ways was pursuant to an employee benefit scheme: cl 45(a). An "employee benefit scheme" was defined in cl 26(e) as "the adoption of a profit sharing, bonus, share option, share incentive … for the benefit of the officers or other employees" of Zomojo. That included both the ESOP and the ZEOP: see also cl 36 of the Shareholder Agreement. No party suggested that any of the other prescribed methods were relevant to the present circumstances. 466 The next issue is whether cl 4.7(b) applied to the 400,000 shares issued to Jolene as a result of Hurd exercising the options issued to him on 2 December 2005? The answer lies in the provisions of the Plan Rules. 467 As described at [31] above, upon the exercise of options, the "Participant" agreed to be bound by the Plan Rules, Zomojo's Constitution and the Shareholder Agreement (Rule 9.6): see also definition of "Participant" in Rule 39. The "Participant" undertook not to take any action which would infringe the restrictions on sale of shares imposed by Rule 13 (cl 9.7): see also Rule 13.2 at [31] and [446] above. 468 The Plan Rules did not otherwise address disposal of shares. Why? Because the Plan Rules were subject to and to be "administered in a manner consistent with Zomojo's philosophy underpinning share ownership by Employees in the Group": see cll 2.2 and 9.6 of the Plan Rules. For those reasons, the 400,000 shares issued to Jolene as a result of Hurd exercising the options issued to him on 2 December 2005 were also subject to the ESOP and, in particular, cl 4.7(b) of the Plan Information Booklet. 469 In May 2010, with the consent of the Board, Hurd caused Jolene to sell 7,810 of its shares in Zomojo to the HFSF. Whether those shares were issued under the ESOP or were originally shares issued to Jolene as a result of Hurd exercising the options issued to him on 2 December 2005 is irrelevant. Those 7,810 shares were also subject to the operation of cl 4.7(b) of the Plan Information Booklet.

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6.4 Validity of the Resolutions made by the Zomojo Board on 30 June 2011 471 On 30 June 2011, a meeting of the Board of directors of Zomojo was held by conference call. The minutes of the meeting record the following discussion. The Chairman verbally advised of the following: • The meeting was called to deal with the transfer of Matt Hurd's shares, noting that Matt Hurd left Zomojo in February 2011 and Zomojo agreed in early March 2011 to purchase his shares; • There has been some 'to and fro' about the price Matt Hurd should receive for his shares; • The employee share plan provides a formula for the price: 5 x pre-tax profit for FY 2010 divided by 2,000,000 shares on issue and multiplied by the number of shares being sold. The formula is not in dispute, but the value of pre-tax profit is; • When Zomojo first exercised the option to purchase Matt Hurd's shares, Zomojo calculated the price on the basis of a pre-tax profit figure of $1,157,255 as prepared by John Hurd. Applying the formula, this gave a purchase price of $1,402,208.17 for Jolene (Tas) Pty Ltd and $22,594.33 for the Hurd Family Super Fund; • Matt Hurd objected to this valuation, stating that the appropriate pre-tax profit figure was $4,998,329. Matt Hurd made a counter offer of $6,056,686.24 for Jolene's shares and $97,593.76 for Hurd Family Super Fund's shares; • Zomojo then sought independent expert advice from Deloitte, which calculated pre-tax profit (in accordance with the Australian Accounting Standards) at $371,706. This put the consideration for Jolene's shares at $450,761.70 and the consideration for Hurd Family Super Fund's shares at $7,263.30. Zomojo has given Matt Hurd's lawyers the documents that Deloitte relied upon and Matt Hurd is getting his own independent valuation. We have not heard when we can expect to receive this valuation; • Matt Hurd has now offered to execute the transfer for the sum of $1,424,802.50 but it is not clear whether this is in full payment or part payment of the shares; • In the circumstances, Zomojo must ensure that the consideration paid for the shares is the proper consideration. Zomojo cannot wait in limbo for this process to unfold; • It was proposed then that the following occur: o Matt Hurd's shares (held by Jolene (TAS) Pty Ltd and Hurd Family Superannuation Fund) be transferred to Zomojo Staff Holdings Pty Ltd, effective as at 29 June 2011; o the transfer forms be sent to Jolene (TAS) Pty Ltd and Hurd Family Superannuation Fund for signing within 14 days; o if the forms are not signed within the stipulated period, that the Plan administrator sign the share transfer forms on behalf of Jolene and Hurd Family Super Fund and Zomojo Staff Holdings Pty Ltd sign as purchaser; and o Zomojo issue new share certificates to Zomojo Staff Holdings, updating its register and informing ASIC. • Given Matt Hurd's latest offer of $1,424,802.50, it is proposed that this sum be placed in an interest bearing account of Zomojo not for use as operating capital pending resolution of the price to be paid in respect of the shares the subject of the transfers. The resolutions passed at that meeting are set out at [429] above. 472 Hurd submitted that the resolutions were not valid because they were not made in accordance with the procedure for meetings of the Board provided for in the Shareholder Agreement. 473 Clause 22(e) of the Shareholder Agreement required each director to be given "at least 7 days written notice of a Board meeting and [to] be provided with the agenda and any relevant papers at that time". However, cl 22(e) also provided that the notice requirement "may be waived for a particular meeting by all Directors in office at that time". 474 Hurd submitted that short notice was given of the 30 June 2011 Board meeting and that one of the directors, Ms Wilson, was present at the meeting but did not agree to waive the notice requirement. Ms Wilson is Hurd's sister. Hurd's submission that the meeting of 30 June 2011 was irregular and that irregularity has the effect of invalidating the resolutions passed on 30 June 2011 is without foundation both factually and legally. 475 First, the facts. Hurd did not dispute that the minute of the Board meeting held on 30 June 2011 accurately reflected the business transacted at that meeting: see also s 251A(6) of the Corporations Act. The resolutions were not circulated in any detail before the meeting. However, Robinson's uncontroverted evidence was that: 1. he had emailed Ms Wilson about teeing up a time for the 30 June 2011 meeting and in that email he had mentioned that the meeting was to deal with the transfer of the Hurd Shares; 2. the directors agreed on the time and were all on the call together; 3. Ms Wilson did not at any time object that there had been short notice given for the meeting; and 4. Ms Wilson voted against the resolutions that were passed at the meeting. Ms Wilson did not give evidence at the trial. 476 Next, ss 1322(2) and (3) of the Corporations Act provide that: (2) A proceeding under this Act is not invalidated because of any procedural irregularity unless the Court is of the opinion that the irregularity has caused or may cause substantial injustice that cannot be remedied by any other order of the Court and by order declares the proceeding to be invalid. (3) A meeting held for the purposes of this Act, or a meeting notice of which is required to be given in accordance with the provisions of this Act, or any proceeding at such a meeting, is not invalidated only because of the … non-receipt by any person of notice of the meeting, unless the Court, on the application of the person concerned, a person entitled to attend the meeting or ASIC, declares proceedings at the meeting to be void. (Emphasis added.) 477 Sections 1322(4) and (6) were recently considered in Oil Basins Limited v Bass Strait Oil Company [2012] FCA 1122: 67 It is well established that s 1322(4) is a remedial provision to be interpreted liberally: Elderslie Finance Corp Ltd v Australian Securities Commission (1993) 11 ACLC 787; Winpar Holdings Ltd v Goldfields Kalgoorlie Ltd (2001) 166 FLR 144; Re Golden Gate Petroleum (2010) 77 ACSR 17 at [38] and the authorities listed therein. Indeed, the Court's discretion is unfettered except for the requirements in s 1322(6): Re NRMA Ltd [2003] FCAFC 206 at [21] and Re Wood Parsons Pty Ltd (in liq) (2002) 21 ACLC 111 at [52]. The orders can be retrospective: Wood Parsons at [52]. And the relief can be conditional: s 1322(4). 68 "Proceeding" is interpreted broadly. It includes any procedure required to be taken if a company wished to achieve particular legal consequences (Re Broadway Motors Holdings Pty Ltd (in liq) (1986) 6 NSWLR 45 at 56 and Winpar Holdings at [65]) and applies whether the proceeding is a legal proceeding or not: s 1322(1)(a). … 71 The reference to "no substantial injustice" in s 1322(6)(c) (emphasis added) has been held to refer to a real and not insubstantial or theoretical prejudice. Whether there is real injustice requires a weighing of any prejudice if the order is made against the prejudice which would be suffered by other members and creditors of the company if an order was not made: Gangemi v Osborne [2009] VSCA 297 at [62] citing Re Compaction Systems Pty Ltd & the Companies Act [1976] 2 NSWLR 477 at 493. … Those principles apply equally to s 1322(2). 478 In the present case, the question of short notice of the 30 June 2011 Board meeting is of a procedural nature (Nenna v Australian Securities and Investments Commission (2011) 198 FCR 32 at [50]-[81]), it was not put to Robinson that the directors were not acting honestly on 30 June 2011 and, finally, there was no evidence that the alleged short notice caused or may have caused any substantial injustice. For those reasons, if it were necessary to do so, the business transacted at the 30 June 2011 Board meeting would be validated under s 1322(2) of the Corporations Act.

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6.5 Alleged Failures to Act Fairly and Breach of Implied Terms to Act in Good Faith 479 The Respondents alleged that there were implied terms of the Service Agreement, the Shareholder Agreement and the ESOP that Zomojo would act in good faith and deal fairly with Hurd and Hurd's nominees in the exercise of Hurd's contractual rights. The principal contention was that by passing the resolutions of 30 June 2011 that had the effect of causing the Hurd shares to be transferred to Zomojo Staff Holdings for $458,025, Zomojo breached those implied terms, and failed to deal fairly with Hurd. These contentions should also be rejected. 480 First, the relevant legal principles. Implied terms to act in good faith and to deal fairly are not implied into all commercial contracts: Service Station Association Ltd v Berg Bennett & Associates Pty Ltd (1993) 45 FCR 84 at 96-7; Vodafone Pacific Ltd v Mobile Innovations Ltd [2004] NSWCA 15 at [191]; Australian Hotels Association (NSW) v TAB Ltd [2006] NSWSC 293 at [78]; Maitland Main Collieries Pty Ltd v Xstrata Mt Owen Pty Ltd [2006] NSWSC 1235 at [56]; Driveforce Pty Ltd v Gunns Ltd (No 3) [2010] TASSC 38 at [12]. As was recently stated by the Victorian Court of Appeal in Specialist Diagnostic Services Pty Ltd (formerly Symbion Pathology Pty Ltd) v Healthscope Pty Ltd [2012] VSCA 175 at [86], it cannot be accepted that an obligation of good faith should be implied indiscriminately into all commercial contracts: see also Burger King Corporation v Hungry Jack's Pty Ltd (2001) 69 NSWLR 558 at [163]-[167]. 481 Next, where (as here), there is a detailed written contract entered into between commercial parties of equivalent bargaining power, a term will ordinarily be implied only if it meets the tests laid down in BP Refinery (Westernport) Pty Ltd v President, Councillors and Ratepayers of the Shire of Hastings (1977) 180 CLR 266 at 283 and Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337: see also Specialist Diagnostic at [87]; Burger King at [163]-[167]. 482 What then is sought to be implied? Hurd submitted that what should be implied was an obligation for Zomojo to act in good faith and to deal fairly with Hurd and Hurd's nominees in the exercise of Hurd's contractual rights. 483 At the time that the Service Agreement, the Shareholder Agreement and the ESOP were entered into, it is reasonable to conclude that the parties did not intend Zomojo to be deprived of its contractual right under cl 4.7(b) when an employee was a bad leaver. Indeed, in Hurd's own words, it was integral to the establishment of Zomojo that there be an employee share ownership scheme that provided incentives to employees to stay with, and loyal to, the company. It was recognised that if employees left Zomojo with knowledge of its technology, techniques and ideas, they could destroy the whole of the value of the company. Clause 4.7(b) was one of the contractual provisions designed to address that concern. 484 It is then necessary to look again at the relevant provisions. Clause 4.7(b) of the Plan Information Booklet gave the Board a discretion, where an employee was a bad leaver, to acquire the shares held by the employee or the employee's nominee for the amount of any loan outstanding by the employee to Zomojo. Clause 8.2 of the Service Agreement provided that if Hurd's employment was terminated by reason of him committing a breach of his obligations and duties, he would not be entitled to any further compensation or damages other than pro rata salary and accrued annual leave. There was nothing unfair about those provisions. Parties are free to retain their economic autonomy and liberty: Russell v Trustees of the Roman Catholic Church for the Archdiocese of Sydney (2007) 69 NSWLR 198 at [112]. Put another way, it was neither reasonable nor necessary for the terms identified by Hurd to be implied: Burger King at [167]. 485 Moreover, even if contrary to the view formed, implied duties of good faith are to be implied into the Service Agreement, Shareholder Agreement and ESOP, they were not breached. There are two aspects to be kept in mind. First, the implied terms are to be understood in the context of the express rights afforded to Zomojo by cl 8.2 of the Service Agreement and cl 4.7 of the Plan Information Booklet. Such implied duties of good faith do not require a party to subordinate that party's own interests, so long as the pursuit of those interests does not entail an unreasonable interference with the enjoyment of a benefit conferred by the express terms of the contract: Overlook Management BV v Foxtel Management Pty Ltd [2002] NSWSC 17 at [65]. 486 Next, the facts relied upon by Hurd to constitute a breach of any implied term. They are not capable of constituting a breach. In particular, none of the facts support a finding that Zomojo "took steps to minimise its balance sheet". 487 Hurd submitted that striking a price of $458,000 was a breach. In particular, he submitted: At the heart of the bargain for the purchase of shares between Mr Hurd and Zomojo was that Zomojo would pay a price in buying back the shares that reflected their value. The very existence of a formula to ascertain that price indicates that this was contemplated by both parties. This is not a matter where the Court needs to decide whether one party's obligation to act honestly and with fidelity to the bargain might conflict with its own interests: a healthy share price would indicate a healthy company. The mischief that the law seeks to remedy in reading into contracts an implied term of good faith and fair dealing is a cynical exercise of a power by one party in order to deprive the other of a true reflection of the bargain made. If Zomojo took steps to minimise the true position the 2010-2011 accounts in order to short change an employee-director, this is just such a cynical exercise deserving of the Court's intervention. (Emphasis added.) 488 The relevant facts are set out at [407]-[431] above. The bargain made included cll 4.7(b) and 8.2 of the Service Agreement. It is true that a significantly lower number was expected as a result of Deloitte "recasting the accounts" and that Robinson and Boyle were hopeful of Deloitte arriving at a fairly low number. But none of that evidence is consistent with Zomojo seeking to deprive Hurd of the bargain he made with Zomojo or with Zomojo taking steps to minimise the true position of the 2010-2011 accounts in order to short change Hurd. 489 Hurd then contended that Sincock was given assumptions that "were just wrong". In support of that contention, Hurd produced a table which sought to analyse the five research and development projects and, in particular, the state of those projects for the purposes of determining whether or not it was appropriate to capitalise the costs of those projects. There was insufficient factual material before the Court for it to consider the state of those projects and, in particular, whether one or more of the projects satisfied AAS 138. In fact, subsequently, Hurd submitted that an issue for determination at the quantum hearing was whether the research and development costs should have been capitalised. 490 Next, Hurd submitted that the Court should find that Robinson and Boyle were actively working to keep the figures arrived at by Deloitte low. That contention is rejected. Zomojo retained Deloitte, Deloitte asked for information, information was provided (including from Hurd Senior) and Deloitte prepared the report. Sincock gave evidence. He was a witness of truth. There was no, and could be no, suggestion, that Deloitte acted improperly. 491 Finally, Hurd referred to the fact that Robinson knew that the last sale of shares in Zomojo was at $14.25 per share and that the sale to Hurd was $0.93 per share. That is true. But it is necessary to understand that the sale price of $14.25 per share was calculated by reference to the same contractual provisions but in relation to a different financial year. Further, that sale price was calculated based on accounts prepared by Hurd Senior which did not comply with AAS 138. 492 After receiving advice from Deloitte, Zomojo changed its mind about the price to be paid for Hurd's shares. Zomojo benefitted from that change in position. Zomojo intended to satisfy its contractual obligation and, while doing so, wanted to pay as low a price as possible. Its remaining directors knew that the last sale was at $14.65 per share. None of that conduct, taken on its own, or collectively, is improper. 493 The contention that the act of retaining Deloitte when Zomojo was unhappy with the number in the accounts was in bad faith is absurd. As Robinson said, there was a dispute. Hurd Senior was the accountant. Any company would have sought independent advice on the issue. The further contention that the instructions to Deloitte produced a very low number and that the instructions were given in bad faith is not proved: see [422] and [488]-[490] above. 494 In electing to acquire the Hurd Shares for $458,025, Zomojo did no more than exercise the discretion available to it under cl 4.7 of the Plan Information Booklet, by applying the formula set out therein based upon a pre-tax profit figure that had been supplied by Deloitte. In so acting, Zomojo did not act in bad faith or unfairly to Hurd or his nominees.

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6.6 Amount to be paid for the Hurd Shares 495 The next two issues concern the amount payable for the Hurd Shares and Zomojo's application for rectification of the Service Agreement. In short, Hurd submitted that the price Zomojo was required to pay for the Hurd Shares was higher than the $458,025 that was paid by Zomojo and that there was no basis for rectification. Zomojo contended to the contrary. Given the conclusion reached above, it is strictly unnecessary to consider these issues. However, given the level of distrust and animosity between the parties, it is necessary to say something about each of these issues. 496 First, the principles of construction. Hurd submitted that there were three relevant principles. The principles were not in dispute. First, the construction of commercial contracts is to be determined by reference to what would be understood by a reasonable person having background knowledge of the circumstances which were common to both parties in the situation they were in at the time of contract: Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181 at [11]. Next, that construction requires consideration not only of the text of the contract, but also the surrounding circumstances known to the parties, and the purpose and object of the transaction: Pacific Carriers Limited v BNP Paribas (2004) 218 CLR 451 at [22]; Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 at [40] and Lion Nathan Australia Pty Ltd v Coopers Brewery Ltd (2006) 156 FCR 1 at [46]. Third, the contract will be interpreted in a way which will result in a sensible and businesslike meaning: Australian Broadcasting Commission v Australian Performing Rights Association Limited (1973) 129 CLR 99 at 109. Fourth, where two constructions are open, the Court will avoid consequences that are unreasonable, unjust or inconvenient: TCN Channel Nine Pty Limited v Hayden Enterprises Pty Limited (1989) 16 NSWLR 130 at 146. Fifth, where there is doubt about the meaning of a clause in a contract, it will be construed against the person for whose benefit it was inserted: Johnson v The Edgware & Co, Railway Co (1866) 35 Veav 480. However, that presumption only applies if the Court cannot reach a conclusion as to the construction of the provision in question: St Edmundsbury & Ipswich Diocesan Board of Finance v Clark (No 2) [1975] 1 WLR 468. Generally, any ambiguity will be construed against the person who drafted the agreement. The last principle is wider than the contra proferentem rule, and is applied generally to circumstances where a party tenders a printed form: State Lotteries Office v Burgin [1993] NSWCA 254 and North v Marina [2003] NSWSC 64. 497 The relevant contractual provision is cl 4.6(e)(ii) of the of the Service Agreement It states that, on cessation of employment: the Company is able to arrange for the purchase of the shares [acquired under clause 4.6] from the Managing Director for an amount equal to 5 x the Company's previous financial year's pre-tax profit, and if the Company does not choose to do so the Managing Director will be able to sell the shares then or at a later time in accordance with the Company's shareholder agreement. It is inconsistent with cl 4.7(c) of the Plan Information Booklet which provided that Zomojo had an option to purchase shares on the basis of a "Plan valuation formula" being "5 x the previous financial year's pre-tax profit divided by the total number of shares on issue, and then multiplied by the number of shares being sold": see [35] above. 498 Hurd contended that the formula for compulsory acquisition of the Hurd Shares was misapplied in two ways. First, Hurd submitted that cl 4.6(e)(ii) of the Service Agreement was misapplied on its terms because Zomojo applied the formula provided for in cl 4.6(e)(ii) but then divided the figure by the number of shares held. Second, Hurd submitted that the pre-tax profit that was used was not the true pre-tax profit, but a number inappropriately adjusted downwards. The second issue has been addressed and dismissed in Section 6.5 above. 499 In relation to the first issue, Zomojo's answer was that cl 4.6 was irrelevant for two reasons. First, cl 4.6(e)(ii) is not expressed in mandatory terms; it contemplates that Zomojo might choose not to acquire shares held by Hurd and, secondly, that the Hurd Shares were subject to the terms of the ESOP. For the reasons set out above, I accept that the Hurd Shares were subject to the ESOP: see [466]-[469] above. 500 Given the views formed, it is strictly unnecessary to consider the inconsistency between cl 4.6(e)(ii) of the Service Agreement and cl 4.7(c) of the Plan Information Booklet. However, the following matters should be noted. First, a literal construction of the first part of cl 4.6(e)(ii) would lead to the absurd result that, if Zomojo chose to do so, it could acquire any shares purchased by Hurd under cl 4.6 of the Service Agreement for a price equivalent to five times the whole of Zomojo's pre-tax profit for the previous year, irrespective of the number of shares held by him. In other words, a shareholder with a single share would receive the same price as a shareholder holding 1 million shares. Such a result would be commercially irrational and cannot have been intended by the parties. But that is not the only problem with a literal construction of the first part of cl 4.6(e)(ii). Such a construction would also be inconsistent with cl 4.7(c) of the Plan Information Booklet: see [35] above. 501 For those reasons, I would accept Zomojo's submission that it is both appropriate and reasonable to construe the first part of cl 4.6(e)(ii) so that it was consistent with the "Plan valuation formula" in cl 4.7(c) of the Plan Information Booklet. As the Court said in Westpac Banking Corporation v Tanzone Pty Ltd [2000] NSWCA 25 at [19]-[23], the words "should be construed so as to avoid the absurdity by supplying omitting or correcting words": citing Fitzgerald v Masters (1956) 95 CLR 420 and Watson v Phipps (1985) 63 ALR 321; Cooper Brookes (Wollongong) Pty Ltd v Commissioner of Taxation (Cth) (1991) 147 CLR 297. This is not a case of mere unreasonableness. The present case fell into the absurdity category. Therefore, as a matter of construction, the reference to "5 x the Company's previous financial year's pre-tax profit" in the first part of cl 4.6(e)(ii) should be taken to be a shorthand reference to the "Plan valuation formula" in clause 4.7(c) of the Plan Information Booklet. 502 Although it is unnecessary to resolve this inconsistency, it is appropriate to address the alternative mechanism proposed by Zomojo - rectification. Zomojo submitted that there was an obvious, common mistake in cl 4.6(e)(ii) of the Service Agreement that ought to be rectified by equity to reflect the true agreement between the parties. Zomojo submitted that the objective intention of the parties in relation to the formula in cl 4.6(e)(ii) of the Service Agreement was to be found in the formula in cl 4.7(c) of the Plan Information Booklet and, therefore, the omission in cl 4.6(e)(ii) was clearly and precisely identified. 503 Hurd contended that there was no basis for rectification. It is unnecessary to rehearse the relevant legal principles. Hurd's objections to rectification were described as "procedural hurdles". I will deal with each "hurdle" in turn. 504 First, Hurd contended that there was no formal claim for rectification or any articulation of the remedy and that the rectification claim by way of defence to cross claim was procedurally improper. That contention is rejected. There was a claim for rectification and the remedy was articulated: para 3(b)(iv) of the Amended Defence to Cross-Claim. The fact that a separate claim was not commenced seeking rectification of cl 4.6(e)(ii) is not a bar. Moreover, as is readily apparent, such relief was unnecessary. 505 Next, Hurd points to the prejudice allegedly caused by Zomojo's delay in seeking rectification. Hurd's evidence was that he would have taken a different course prior to the resolution approving the transfer of his shares to Zomojo Staff Holdings. I reject that evidence. It must be recalled that at that time, the formula was not in dispute. What was in dispute was one of the integers in the formula - the calculation of the pre-tax profit. For the same reasons, Hurd's contention that Zomojo waived any right to seek rectification of the clause is rejected. Moreover, as noted earlier (see [494] above), Zomojo did not act in bad faith or unfairly to Hurd or his nominees in acquiring the Hurd Shares.

[69]

6.7 Hurd's Oppression Claim 506 Hurd, Jolene and the HFSF submitted that Zomojo acted oppressively by passing the resolutions of 30 June 2011 that had the effect of causing the Hurd Shares to be transferred to Zomojo Staff Holdings for $458,025. They further contended that cl 4.7(b) of the Plan Information Booklet was itself oppressive. 507 Section 232 of the Corporations Act provides that the Court may make an order under s 233 if the conduct of a company's affairs is oppressive to, unfairly prejudicial to, or unfairly discriminatory against a member or members whether in that capacity or in any other capacity. Section 53 of the Corporations Act defines the "affairs" of a company. 508 Whether conduct is unfair or oppressive is assessed objectively through the eyes of a commercial bystander: Aqua-Max Pty Ltd v MT Associates Pty Ltd (2001) 3 VR 473 at [54]; Wayde v NSW Rugby League Ltd (1985) 180 CLR 459; Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692 and Endoline Pty Ltd v Drapac [2012] VSC 156 at [272]. The Court will look at the issue of oppression by considering the impact on the oppressed, not the intention of the alleged oppressor: M Dalley & C Pty Ltd; Re (1968) 1 ACLR 489. 509 If the conduct is so unfair that reasonable directors would not have thought it fair, then relief will be granted. The conduct is considered in its context and separate instances of conduct may, cumulatively, constitute oppression: Aqua-Max at [61] and Endoline at [272]. Although relief for oppression is based in the Corporations Act, equitable considerations have a role to play in determining whether relief should be granted. 510 Hurd submitted that the "starting point for the oppression claim is the overwhelming evidence that the sale of Mr Hurd's shares was substantially below value". In support of that contention, Hurd further submitted that: There is no evidence that Mr Hurd agreed to the oppression. He never signed the Information Booklet. The draft by Dr Brash had a discussion of a fairer formula. The formula in the Service Agreement is in different terms. It cannot be said that Mr Hurd knowingly sacrificed his rights (as was the case in Re Terri Co Pty Ltd (1987) 12 ACLR 457; 6 ACLC 402). If the Deloitte figures were right, 2009/2010 was an unusually low profit year. Alternatively, the cross claimants assert that the ESOP itself was an act of oppression. If the ESOP was allowed to operate in the way that the Zomojo [sic] alleges, it is an instrument of oppression. There is an obvious cross-over with the rectification suit because equity should not facilitate the oppression by further reducing the amount payable to Mr Hurd. 511 That submission is rejected. There was no oppression. Zomojo applied cl 4.7 of the Plan Information Booklet according to its terms. Hurd had notice of it: see [443] above. It caused Zomojo Staff Holdings to acquire the Hurd Shares for fair value, being the value arrived at by applying the "Plan valuation formula", based upon a pre-tax profit figure determined by an independent and reputable firm, Deloitte. It gave Hurd 14 days' advance notice of its intentions. It applied cl 4.7 despite the fact that, as the facts have emerged, Hurd was a bad leaver within the meaning of cl 4.7(b) of the Plan Information Booklet. 512 Hurd's contentions are rejected.

Parties

Applicant/Plaintiff:

Zomojo Pty Ltd

Respondent/Defendant:

Hurd

Legislation Cited (5)

Corporations Act 2001(Cth)ss 181, 183

Restraints of Trade Act 1976(NSW)

Acts Interpretation Act 1901(Cth)

Electronic Transactions Act 1999(Cth)

Federal Court Rules 2011(Cth)

Cases Cited (70)

tralia and New Zealand Banking Group Ltd (2012) 86 ALJR 1002 Aquaculture Corporation v New Zealand Green Mussel Co Ltd (1985) 5 IPR 353 Aqua-Max Pty Ltd v MT Associates Pty Ltd (2001) 3 VR 473 Australian Broadcasting Commission v Australian Performing Right Association Limited (1973) 129 CLR 99 Australian Hotels Association (NSW) v TAB Ltd [2006] NSWSC 293 Barnes v Addy (1874) LR 9 Ch App 244 Bell Group Ltd (in liq) v Westpac Banking Corp (No 9) (2008) 39 WAR 1 Belmont Finance Corporation v Williams Furniture Ltd (No 2) [1980] 1 All ER 393 Bents Brewery Co Ltd v Hogan [1945] 2 All ER 570 Boral Bricks NSW Pty Ltd v Frost (1987) Aust Torts Reports 80-097 BP Refinery (Westernport) Pty Limited v President, Councillors and Ratepayers of the Shire of Hastings (1977) 180 CLR 266 Brightman v Lamson Paragon Ltd (1914) 18 CLR 331 Briginshaw v Briginshaw (1938) 60 CLR 336 British Celanese Ltd v Courtaulds Ltd (1935) 52 RPC 171 Buckley v Tutty (1971) 125 CLR 353 Burger King Corporation v Hungry Jack's Pty Ltd (2001) 69 NSWLR 558 Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 Commercial Plastics Ltd v Vincent [1965] 1 QB 623 Consul Development Pty Ltd v DPC Estates Pty Ltd (1975) 132 CLR 373 Cook v Deeks [1916] 1 AC 554 Cooper Brookes (Wollongong) Pty Ltd v Commissioner of Taxation (Cth) (1981) 147 CLR 297 Council of the City of Sydney v West (1965) 114 CLR 481 Cream v Bushcolt Pty Ltd (2004) ATPR 42-004 Dart Industries Inc v David Bryar & Associates Pty Ltd (1997) 38 IPR 389 Del Casale v Artedomus (Aust) Pty Ltd (2007) 73 IPR 326 Deta Nominees Pty Ltd v Viscount Plastic Products Pty Ltd [1979] VR 167 Drake Personnel Ltd v Beddison [1979] VR 13 Driveforce Pty Ltd v Gunns Ltd (No 3) [2010] TASSC 38 Dunlop Pneumatic Tyre Company Limited v New Garage and Motor Company Limited [1915] AC 79 Endoline Pty Ltd v Drapac [2012] VSC 156 Endresz v Whitehouse [1998] 3 VR 461 Exchange Telegraph Company Limited v Gregory & Co [1896] 1 QB 147 Exchange Telegraph Company Limited v Central News Limited [1897] 2 Ch 48 Farah Constructions Pty Ltd v Say-Dee Pty Limited (2007) 230 CLR 89 Farrow Finance Company Ltd (in liq) v Farrow Properties Pty Ltd (in liq) [1999] 1 VR 584 Fightvision Pty Ltd v Onisforou (1999) 47 NSWLR 473 Fitzgerald v Masters (1956) 95 CLR 420 Futuretronics.com.au Pty Ltd v Graphix Labels Pty Ltd (2009) 81 IPR 1 Goldsoll v Goldman [1914] 2 Ch 603 Greig v Insole [1978] 3 All ER 449 Harrison v Project & Design Co (Redcar) Ltd [1978] FSR 81 Hodgson v Amcor Ltd [2012] VSC 94 Independent Oil Industries Ltd v Shell Co of Australia Ltd (1937) 37 SR (NSW) 394 Industrial Furnaces Ltd v Reaves [1970] RPC 605 Interfirm Comparison (Australia) Pty Ltd v Law Society of New South Wales [1975] 2 NSWLR 104 International Scientific Communications Inc v Pattison [1979] FSR 429 Johnson v The Edgware & Co, Railway Co (1866) 35 Beav 480 J Spurling Ltd v Bradshaw [1956] 2 All ER 121 JT Stratford & Son Ltd v Lindley [1965] AC 269 L'Estrange v F Graucob Limited [1934] 2 KB 394 Links Golf Tasmania Pty Ltd v Sattler (2012) 292 ALR 382 Linter Group Ltd (in liq) v Goldberg (1992) 7 ACSR 580 Lion Nathan Australia Pty Ltd v Coopers Brewery Ltd (2006) 156 FCR 1 Lordsvale Finance Plc v Bank of Zambia [1996] QB 752 Maggbury Pty Ltd v Hafele Australia Pty Ltd (2001) 210 CLR 181 Maitland Main Collieries Pty Ltd v Xstrata Mt Owen Pty Ltd [2006] NSWSC 1235 M Dalley & Co Pty Ltd; Re (1968) 1 ACLR 489 Mense & Ampere Electrical Manufacturing Co Pty Ltd v Milenkovic [1973] VR 784 Milwell Holdings Ltd v Johnson (1988) 12 IPR 378 Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692 Morlea Professional Services Pty Ltd v Richard Walter Pty Ltd (in liq) (1999) 96 FCR 217 Nenna v Australia Securities and Investments Commission (2011) 198 FCR 32 North v Marina [2003] NSWSC 64 O'Dea v Allstates Leasing System (WA) Pty Ltd (1983) 152 CLR 359 Oil Basins Limited v Bass Strait Oil Company [2012] FCA 1122 Overlook Management BV v Foxtel Management Pty Ltd [2002] NSWSC 17 Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451 Parker v South Eastern Railway Company (1877) 2 CPD 416 Pilmer v Duke Group Ltd (in liq) (2001) 207 CLR 165 Printers & Finishers Ltd v Holloway (No 2) [1964] 3 All ER 731 Reed Business Information Pty Ltd v Seymour [2010] NSWSC 790 Ringrow Pty Ltd v BP Australia Pty Ltd (2005) 224 CLR 656 RLA Polymers Pty Ltd v Nexus Adhesives Pty Ltd (2011) 280 ALR 125 Robins v Incentive Dynamics Pty Ltd (in liq) (2003) 175 FLR 286 Rouen v Ryan [2001] NSWCA 230 Russell v Trustees of the Roman Catholic Church for the Archdiocese of Sydney (2007) 69 NSWLR 198 Saltman Engineering Co Ltd v Campbell Engineering Co Ltd [1963] 3 All ER 413 Sargent v ASL Developments Ltd (1974) 131 CLR 634 Seager v Copydex Ltd [1967] 1 WLR 923 Service Station Association Ltd v Berg Bennett & Associates Pty Ltd (1993) 45 FCR 84 Short v The City Bank of Sydney (1912) 15 CLR 148 Specialist Diagnostic Services Pty Ltd (formerly Symbion Pathology Pty Ltd) v Healthscope Pty Ltd [2012] VSCA 175 Spiers Earthworks Pty Ltd v Landtec Projects Corporation Pty Ltd (No 2) (2012) 287 ALR 360 Spotless Group Ltd v Blanco Catering Pty Ltd (2011) 93 IPR 235 State Lotteries Office v Burgin [1993] NSWCA 254 St Edmundsbury & Ipswich Diocesan Board of Finance v Clark (No 2) [1975] 1 WLR 468 TCN Channel 9 Pty Ltd v Hayden Enterprises Pty Ltd (1989) 16 NSWLR 130 Terrapin Ltd v Builders Supply Co (Hayes) Ltd [1967] RPC 375 The Balmain New Ferry Company Ltd v Robertson (1906) 4 CLR 379 Thornton v Shoe Lane Parking Ltd [1971] 2 QB 163 Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 Tropeano v Riboni [2005] VSC 229 United Australia Ltd v Barclays Bank Ltd [1941] AC 1 Vodafone Pacific Ltd v Mobile Innovations Ltd [2004] NSWCA 15 Watson v Phipps (1985) 63 ALR 321 Wayde v New South Wales Rugby League Ltd (1985) 180 CLR 459 Westpac Banking Corporation v Tanzone Pty Ltd [2000] NSWCA 25 Williams v Hursey (1959) 103 CLR 30 Wood and Amcolite Ld v Gowshall Ld (1937) 54 RPC 37 Woolworths Ltd v Olson [2004] NSWCA 372 Wright v Gasweld Pty Ltd (1991) 22 NSWLR 317 Yore Contractors Pty Ltd v Holcon Pty Ltd (1990) 2 ACSR 663 Ford H, Austin R and Ramsay I, Principles of Corporations Law (Butterworths, subscription service) at [16.220] (Service 77)

[2010] TASSC 38

[2012] VSC 156

[2012] VSC 94

[2012] VSCA 175

[2005] VSC 229

[2009] VSCA 297

(1913) 18 CLR 30

(1995) 58 FCR 26

(1973) 133 CLR 288

(2012) 86 ALJR 1002

(1985) 5 IPR 353

(2001) 3 VR 473